Primerica, Inc. (NYSE: PRI) announced today financial results for the quarter ended September 30, 2015. Total revenues were $355.8 million in the third quarter of 2015 and net income was $49.4 million, or $0.98 per diluted share.
In the third quarter operating revenues increased by 5% to $356.1 million and net operating income increased 18% to $49.5 million compared with $339.1 million and $41.8 million, respectively, in the third quarter of 2014. Operating results were driven by growth in the Term Life segment including 21% growth in life insurance policies issued and an 11% increase in net premiums.
Investment and Savings Products segment revenues remained consistent with the strong performance in the third quarter of 2014. Year-over-year net operating income was impacted by an unusually high level of incurred claims in the prior year period as well as $5.1 million of employee equity award expense related to the addition of retirement provisions to the 2014 awards in the third quarter of last year.
The declining Canadian dollar value reduced operating revenues by approximately $11.5 million and net operating income by approximately $2 million versus the prior year period.
Glenn Williams, Chief Executive Officer said, “We achieved record performance in the third quarter of 2015 with net operating income per diluted share of $0.98 and operating ROAE of 17.7%. Our ongoing efforts to expand distribution resulted in a 7% increase in the size of our life insurance licensed salesforce which contributed to the 21% growth in life insurance policies issued compared with third quarter a year ago. Our strong across-the-board performance is evidence of our organizational momentum and outstanding sales force leadership. As we move toward 2016, we expect continued solid performance as we follow-through with business enhancements and capital deployment to deliver strong results.”
- The size of our life-licensed sales force increased 7% to 104,702 at September 30, 2015 compared with 97,966 at September 30, 2014, and increased 4% from 101,008 at June 30, 2015. In the third quarter, recruiting of new representatives increased 34% versus the year ago quarter, reflecting continued positive momentum in the business as well as the impact of convention announcements. Recruiting growth in recent periods coupled with strong focus on licensing led to 27% growth in new life licensed representatives compared with the prior year period. On a sequential quarter basis, new life insurance licenses increased 7% and recruiting of new representatives increased 9%.
- In the third quarter, term life insurance policies issued grew 21% to 66,658 compared with the third quarter of 2014 due to a larger life licensed sales force and productivity that was at the high-end of the historical range. Productivity in the quarter increased to 0.22 policies per life licensed representative per month from 0.19 in the prior year quarter reflecting the continued success in meeting the growing needs of the middle market. On a sequential quarter basis, term life insurance policies issued decreased 2% compared with the seasonally higher second quarter of 2015.
- For the quarter, Investment and Savings Products net inflows were about $200 million while ending client asset values declined 3% year-over-year to $45.85 billion primarily reflecting market performance and the declining Canadian dollar value in the third quarter. ISP sales of $1.37 billion remained consistent with the strong sales in the prior year period. On a sequential quarter basis, total ISP sales decreased 13% versus the seasonally strong sales in the second quarter and average client asset values declined 3% compared with the second quarter.
Term Life Insurance. In the third quarter of 2015, Term Life operating revenues increased 11% to $197.2 million, driven by an 11% growth in net premiums. Operating income before income taxes of $46.5 million reflects the growth in net premiums as well as incurred claims and persistency that were in line with historical levels. Current period results were also modestly impacted by the reprocessing of certain reinsurance transactions which increased operating income before income taxes by approximately $1.4 million. Operating income before income taxes were 37% higher than the same quarter last year as the prior period results reflect the implementation of the accelerated vesting of equity awards ($2.5 million in the segment) and incurred claims that were approximately $3 million above the historical levels.
On a sequential quarter basis, operating income before income taxes increased 4% compared to the second quarter of 2015, reflecting solid premium growth and the impact of the reprocessed reinsurance transactions. Persistency, while in line with historical levels, was lower compared to strong seasonal persistency in the second quarter.
Investment and Savings Products. In the third quarter, ISP operating revenues of $128.7 million were flat year-over-year reflecting a 2% decline in revenue generating product sales and average client asset values that were consistent with the prior year period. Account-based revenue increased 12% year-over-year due to the addition of a mutual fund provider on the record keeping platform earlier this year. Operating income before income taxes declined 6% to $34.8 million compared with the year ago period, partially related to the decline in the Canadian dollar value which impacted operating income before income taxes by approximately $1.7 million in the third quarter of 2015. DAC amortization was accelerated in the third quarter by approximately $0.8 million due to weaker Canadian segregated fund market performance in the third quarter of 2015. The accelerated vesting of equity awards ($0.8 million in the segment) in the prior year period also contributed to the year-over-year comparisons.
Sequentially, operating income before income taxes decreased 8% due to lower revenue generating product sales than the seasonally strong second quarter as well as a 3% decline in average client asset values related to market performance in the third quarter.
Corporate and Other Distributed Products. Operating revenues were $30.2 million, and operating losses before income taxes declined to $6.1 million in the third quarter of 2015. Net investment income declined due to lower income from called fixed income securities and lower yield on invested assets as well as continued deployment of excess capital. Benefits and claims for our New York subsidiary’s non-term life insurance products were somewhat higher than the prior year. Insurance and other operating expenses were lower than the prior year period largely due to the accelerated vesting of equity awards ($1.8 million in the segment) in the prior year period.
The effective income tax rate for the third quarter of 2015 was 34.2%, a decrease from 35.0% and 36.0% in Q3 2014 and Q2 2015, respectively. This period’s rate was impacted by the recognition of certain tax benefits due to statute of limitations that expired during the third quarter, which lowered the effective income tax rate by 1.3%.
Capital and Liquidity
In the third quarter of 2015, Primerica repurchased $71.4 million, or 1.6 million shares, of its common stock for a total of $181.0 million, or 3.9 million shares repurchased through September 30, 2015.
Primerica Life Insurance Company’s statutory risk-based capital (RBC) ratio was estimated to be in excess of 400% as of September 30, 2015, well positioned to support existing operations and fund future growth. The debt-to-capital ratio was 24.6% as of September 30, 2015.
As of September 30, 2015, investments and cash totaled $1.92 billion, excluding the held-to-maturity asset held as part of a redundant reserve financing transaction. The invested asset portfolio had a net unrealized gain of $46.8 million (net of unrealized losses of $40.9 million) at September 30, 2015, down from $73.0 million at June 30, 2015 as increased credit spreads and the currency translation impact of the lower Canadian dollar on our Canadian invested assets impacted the value of the fixed income portfolio during the quarter.
About Primerica, Inc.
Primerica, Inc., headquartered in Duluth, GA, is a leading distributor of financial products to middle income households in North America. Primerica representatives educate their Main Street clients about how to better prepare for a more secure financial future by assessing their needs and providing appropriate solutions through term life insurance, which we underwrite, and mutual funds, annuities and other financial products, which we distribute primarily on behalf of third parties. In addition, Primerica provides an entrepreneurial full or part-time business opportunity for individuals seeking to earn income by distributing the company’s financial products. We insured more than 4 million lives and have over 2 million client investment accounts at December 31, 2014. Primerica stock is included in the S&P MidCap 400 and the Russell 2000 stock indices and is traded on The New York Stock Exchange under the symbol “PRI”.