Primerica, Inc. (NYSE: PRI) recently announced financial results for the quarter ended June 30, 2018. In the second quarter, total revenues and adjusted operating revenues each increased 13% to $467.8 million and $466.9 million, respectively.
Income before income taxes increased 18% and adjusted operating income before income taxes increased 17% over the prior year period. Net income grew 37% to $86.7 million and adjusted net operating income grew 36% to $86.0 million compared with the second quarter of 2017, both of which reflect benefits from the Tax Cuts and Jobs Act of 2017 (Tax Reform).
Glenn Williams, Chief Executive Officer, said, We achieved 43% growth in EPS year-over-year and 24.5% ROE in the second quarter, reflecting solid performance, ongoing share repurchases and the benefits of Tax Reform. Income before income taxes grew 18% over the prior year period driven by increases of 23% and 9% for the Term Life and the ISP segments, respectively.”
“Our sales force leadership continued to perform well, with the size of our life insurance licensed sales force exceeding 130,000, Term Life productivity remaining at the top of historical levels and Investment and Savings Products (ISP) sales near record highs. We delivered for our stakeholders in the second quarter and continue to be well positioned to provide meaningful value creation on a long-term basis.’
During the second quarter, Term Life continued to show solid growth with net premiums increasing 14% year-over-year, favorable claims in comparison to both historical experience and the prior year period, and stable persistency.
Strong ISP performance was driven by 12% growth in total product sales and a 10% increase in average client asset values year-over-year. Insurance and other operating expenses increased approximately $16 million from the prior year period, including about $6 million of higher account-based expenses from revisions to ISP record-keeping contracts. These higher account-based expenses were more than offset by an associated increase in account-based revenues.
Insurance and other operating expenses also reflect increases to support the growth in the business as well as approximately $6 million of incremental spending on key constituent initiatives using savings from Tax Reform as well as digital development initiatives.
Earnings growth, which benefited from Tax Reform, combined with ongoing share repurchases drove EPS and adjusted operating EPS to $1.95, up 43%, and $1.93, up 42%, respectively, compared to the second quarter a year ago. Both ROE and ROAE expanded to 24.5% in the second quarter versus 20.1% and 20.9%, respectively, in the prior year period.
Life Insurance Licensed Sales Force. The life insurance licensed sales force grew 7% to 130,156 representatives at the end of the second quarter, primarily driven by a 5% increase in new life insurance licenses compared with the prior year period. Recruitment of new representatives declined slightly from the second quarter a year ago, which benefitted from strong growth in connection with our 2017 biennial convention. On a sequential quarter basis, recruiting was consistent and new life insurance licenses increased 15% versus the first quarter of 2018.
Term Life Insurance. In the second quarter of 2018, nearly 84,000 Term Life insurance policies were issued reflecting productivity of 0.22 policies per life insurance licensed representative per month. Productivity continues to be at the high end of our historical range and the number of policies issued this quarter was consistent with the prior year period, which benefitted from our biennial convention. Term Life revenues increased 14% to $273.0 million compared with the year ago period, driven by a 14% increase in net premiums. Income before income taxes increased 23% to $75.8 million year-over-year. Normal claims volatility in the second quarter positively impacted benefits and claims by approximately $4 million and claims were $6 million favorable year-over-year as the prior year period had $2 million of negative experience. Persistency was generally consistent with the prior year period while non-deferred insurance commissions increased, largely due to revisions in the sales force equity program that changed the timing of expense recognition but not the economics of the program. Insurance expenses for the period reflect incremental spending of $3.6 million for key constituent initiatives using savings from Tax Reform as well as digital development initiatives.
Investment and Savings Products. In the second quarter, ISP income before income taxes grew to $43.2 million, up 9% from the prior year period. Sales-based revenues grew 6% generally in line with revenue-generating product sales growth, while total product sales grew 12% year-over-year reflecting strong growth in managed account sales, which do not generate sales-based revenue. Variable annuity sales increased 22%, reflecting a favorable market environment and enhanced product offerings. Retail mutual fund sales were consistent with the second quarter a year ago. Asset-based revenues grew 12% year-over-year driven by a 10% increase in average client asset values to $61.3 billion and positive net flows of $261 million for the period. Account-based revenues increased $7.2 million and account-based operating expenses increased $6.3 million year-over-year as a result of the revised ISP record-keeping platform contracts. Operating expenses for the quarter also reflect incremental spending of $1 million for key constituent initiatives using savings from Tax Reform as well as digital development initiatives.
Corporate and Other Distributed Products (C&O) . C&O adjusted operating revenues were $31.1 million and adjusted operating losses before income taxes were $6.2 million in the second quarter of 2018. Other operating expenses reflect incremental spending of $1.5 million for key constituent initiatives using savings from Tax Reform as well as digital development initiatives. Net unrealized gains decreased to $1.9 million at quarter-end from $17.9 million at March 31, 2018 reflecting the impact of higher interest rates on prices of fixed income securities in our invested asset portfolio.
In the second quarter of 2018, the effective income tax rate was 23.8% in line with the expected 2018 full year operating effective income tax rate of 23.5%.
Primerica repurchased $87.4 million or 890,866 shares of its common stock in the second quarter of 2018 for a total of $133.7 million or 1,358,480 shares through June 30, 2018. Also, Primericas Board of Directors has approved payment of a quarterly dividend of $0.25 per share that will be payable on September 14, 2018 to stockholders of record as of August 21, 2018.
The National Association of Insurance Commissioners (NAIC) has proposed changes to the statutory risk-based capital (RBC) ratio reflecting Tax Reform and other refinements. The expected cumulative effect of these proposals would have lowered Primerica Life Insurance Companys RBC ratio by an estimated 45 percentage points to approximately 430% as of June 30, 2018.
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 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. We insured approximately 5 million lives and have over 2 million client investment accounts at December 31, 2017. 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.’
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