Primerica, Inc. (NYSE: PRI) announced today financial results for the quarter ended June 30, 2014. Total revenues were $331.1 million in the second quarter of 2014 and net income was $49.3 million, or $0.89 per diluted share.
In the second quarter operating revenues increased by 10% to $330.3 million and net operating income increased by 18% to $48.7 million compared with $300.0 million and $41.2 million, respectively, in the year ago quarter. Net operating income per diluted share increased 25% to $0.88 and ROAE was 16.3% on an operating basis in the second quarter of 2014. Solid operating results in the second quarter were driven by growth in Term Life premiums and strong Investment and Savings Products performance including a 9% increase in total product sales and 20% growth in ending client asset values year-over-year.
Second quarter expenses decreased versus prior year period largely reflecting our settlement of the Florida Retirement System (FRS) matter in the first quarter of 2014. Net investment income continued to be impacted by lower yields on invested assets, but was enhanced in the second quarter by favorable market value changes on our deposit asset in Corporate and Other Distributed Products.
Rick Williams, Chairman of the Board and Co-Chief Executive Officer said, “Strong core performance across business segments in the second quarter drove 18% growth in net operating income and a 25% increase in operating EPS versus the prior year period, and operating ROAE expanded to 16.3% in the second quarter. To further enhance stockholder value we completed a redundant reserve financing transaction in July that should enable the execution of our strategy to deploy approximately $150 million of capital annually through 2016.”
John Addison, Chairman of Primerica Distribution and Co-Chief Executive Officer said, “Our ongoing efforts to expand distribution resulted in a 5% increase in the size of our life insurance licensed sales force and a 3% increase in term life insurance policies issued year-over-year. Recent additions to our investment and savings product offerings as well as other initiatives drove a 9% increase in total ISP sales compared with the second quarter a year ago.”
- The size of our life-licensed sales force increased 5% to 96,596 at June 30, 2014 compared with 92,227 at June 30, 2013 and increased 1% from 95,382 at March 31, 2014. In the second quarter, new life insurance licenses increased 2% to 9,082 and recruiting of new representatives remained consistent with the year ago quarter. On a sequential quarter basis, new life insurance licenses increased 22% compared with the seasonally lower first quarter while recruiting of new representatives increased 4%.
- In the second quarter, term life insurance policies issued grew 3% to 59,569 and the average annualized premium per issued policy increased 1% compared with the second quarter of 2013. Productivity in the quarter of .21X policies per life licensed representative per month returned to the range of historical productivity and was consistent with .21X in the prior year period. On a sequential quarter basis, term life insurance policies issued increased 21% compared with the first quarter of 2014, largely reflecting typical seasonality.
- Year-over-year total Investment and Savings Products sales grew 9% to $1.44 billion compared with the second quarter a year ago, primarily reflecting strong retail mutual funds and variable annuity sales aided by strong market conditions and recent product introductions. Sequentially, total ISP sales continued to increase with results that were 2% higher than the strong first quarter of 2014. Ending client asset values increased 20% to $48.01 billion at June 30, 2014 relative to a year ago and grew 5% from $45.84 billion the end of the first quarter.
Term Life Insurance. In the second quarter of 2014, Term Life operating revenues increased 9% to $184.4 million primarily reflecting 11% growth in net premiums compared with the second quarter of 2013. On a year-over-year basis benefits and claims grew in line with net premiums while DAC amortization grew at a faster rate due to more commission deferrals in recent years. Year-over-year insurance expenses increased with growth in the business and the run-off of Citi expense allowances. Allocated net investment income was flat year-over-year as net investment income growth from the level of assets required by the segment was offset by lower yield on invested assets. Collectively, operating income before income taxes increased 6% to $55.1 million year-over-year.
Sequentially, operating income before income taxes increased 17% reflecting seasonally higher persistency compared with the first quarter of 2014.
Investment and Savings Products. In the second quarter, operating revenues increased 13% to $128.1 million and operating income before income taxes increased 30% to $36.0 million compared with the year ago period. Results reflect a 9% increase in total product sales and 16% growth in average client asset values. Legal fees and expenses associated with FRS were $0.3 million, significantly less than the prior year level of $3.1 million. Strong Canadian segregated fund market performance led to a deceleration of DAC amortization in the second quarter, whereas the prior year period incurred higher amortization expense due to weaker market conditions at that time.
Sequentially, operating income before income taxes increased 6% compared with the first quarter due to growth in product sales and client asset values.
Corporate and Other Distributed Products. Operating revenues increased 2% to $17.8 million and operating losses before income taxes grew by $0.5 million compared with the second quarter of 2013, partially reflecting higher claims experience in the non-term life insurance products underwritten by our New York subsidiary. Allocated net investment income was higher than a year ago primarily due to market value changes on the deposit asset backing a reinsurance agreement which were positive this year and negative in the prior year. Otherwise allocated net investment income continues to decline as Term Life required assets grow, excess capital is deployed and the yield on invested assets remains depressed.
Our effective income tax rate for the second quarter of 2014 was 34.9%, which is lower than the prior year period rate of 35.5% primarily due to the limited deductibility of IPO stock awards that fully vested in April 2013. Sequentially, our effective income tax rate was consistent with 34.9% in the first quarter.
Capital and Liquidity
In conjunction with our plan to repurchase $150 million in shares of Primerica common stock in 2014, we completed a redundant reserve financing transaction on July 31, 2014. Details of this transaction are described in our Form 8-K dated July 31, 2014 and filed August 6, 2014. During the second quarter we repurchased $21.9 million, or 480,902, shares of Primerica common stock for a total of $35.0 million, or 763,902, shares repurchased year-to-date.
Primerica Life Insurance Company’s statutory risk-based capital (RBC) ratio was estimated to be in excess of 480% as of June 30, 2014, well positioned to support existing operations and fund future growth. Our debt-to-capital ratio was 22.3% June 30, 2014.
As of June 30, 2014, our investments and cash totaled $2.04 billion compared with $2.01 billion as of March 31, 2014. Our invested asset portfolio had a net unrealized gain of $138.5 million (net of unrealized losses of $5.6 million) at June 30, 2014, up from $113.2 million at March 31, 2014 due to a decline in interest rates and credit spread tightening.
Source: Wall Street Journal