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PRIMERICA, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Edgar Online, Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is intended to inform the reader about matters affecting the
financial condition and results of operations of Primerica, Inc. (the "Parent
Company") and its subsidiaries (collectively, "we" or the "Company") for the
period from December 31, 2011 to June 30, 2012. As a result, the following
discussion should be read in conjunction with MD&A and the consolidated and
combined financial statements and notes thereto that are included in our Annual
Report on Form 10-K for the year ended December 31, 2011, as modified and
updated by our Current Report on Form 8-K filed with the SEC on May 8, 2012
(together, the "2011 Annual Report"). This discussion contains forward-looking
statements that constitute our plans, estimates and beliefs. These
forward-looking statements involve numerous risks and uncertainties, including,
but not limited to those discussed under the heading "Risk Factors" in the 2011
Annual Report. Actual results may differ materially from those contained in any
forward-looking statements.
This MD&A is divided into the following sections:
• Business Overview


• Critical Accounting Estimates

• Factors Affecting Our Results


• Results of Operations


• Financial Condition

• Liquidity and Capital Resources

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Business Overview
We are a leading distributor of financial products to middle income households
in the United States and Canada. We assist our clients in meeting their needs
for term life insurance, which we underwrite, and mutual funds, annuities and
other financial products, which we distribute primarily on behalf of third
parties. We have two primary operating segments, Term Life Insurance and
Investment and Savings Products, and a third segment, Corporate and Other
Distributed Products.
Term Life Insurance. We distribute the term life insurance products that we
originate through our three issuing life insurance company subsidiaries:
Primerica Life Insurance Company ("Primerica Life"); National Benefit Life
Insurance Company ("NBLIC"); and Primerica Life Insurance Company of Canada
("Primerica Life Canada"). Our in-force term insurance policies have level
premiums for the stated term period. As such, the policyholder pays the same
amount each year. Initial policy term periods are between 10 and 35 years. While
premiums are guaranteed to remain level during the initial term period (up to a
maximum of 20 years in the United States), our claim obligations generally
increase as our policyholders age. In addition, we incur significant upfront
costs in acquiring new insurance business. Our deferral and amortization of
policy acquisition costs and reserving methodology are designed to match the
recognition of premium revenues with the timing of policy lapses and the payment
of expected claims obligations.
Our Term Life Insurance segment results are primarily driven by sales and
policies in force, accuracy of our pricing assumptions, terms and use of
reinsurance, investment income, and expenses. In connection with our corporate
reorganization in 2010, we entered into certain reinsurance transactions with
affiliates of Citigroup Inc. (the "Citi reinsurers") and ceded between 80% and
90% of the risks and rewards of our term life insurance policies that were in
force at year-end 2009 (the "Citi reinsurance transactions"). We continue to
administer all policies subject to these coinsurance agreements. Subsequent to
the Citi reinsurance transactions, the revenues and earnings of our Term Life
Insurance segment initially declined in proportion to the amount of revenues and
earnings historically associated with the book of term life insurance policies
that we ceded to the Citi reinsurers. As we have added new in-force business,
our revenues and earnings have grown from these initial levels. With each
successive period, we expect revenue and earnings growth to decelerate as the
size of our in-force book grows and incremental sales have a reduced marginal
effect on the size of the then-existing in-force book.
Investment and Savings Products. We distribute mutual funds, managed accounts,
annuities and segregated funds. In the United States, we distribute mutual fund
and managed accounts products and variable and fixed annuity products of several
third-party companies. In Canada, we offer our own Primerica-branded mutual
funds, as well as mutual funds of other companies, and segregated funds, which
are underwritten by Primerica Life Canada.
Results in our Investment and Savings Products segment are driven by sales of
mutual funds and annuities, the value of assets in client accounts for which we
earn ongoing service, distribution and advisory fees and the number of fee
generating accounts for which we provide administration functions or retirement
plan custodial services. While our investment and savings products all have
similar long-term earnings characteristics, our results in a given fiscal period
are affected by changes in the overall mix of products within these broad
categories.
Corporate and Other Distributed Products. Our Corporate and Other Distributed
Products segment consists primarily of revenues and expenses related to other
distributed products, including various insurance products, prepaid legal
services and a credit information product. These products are distributed
pursuant to distribution arrangements with third parties, except for certain
life and disability insurance products underwritten by NBLIC, our New York life
insurance subsidiary, that are not distributed through our independent agent
sales force. In addition, our Corporate and Other Distributed Products segment
includes corporate income (including net investment income) and expenses not
allocated to other segments, interest expense on our note payable and realized
gains and losses on our invested asset portfolio.
Accounting Policy Change. Effective January 1, 2012, we adopted ASU 2010-26,
Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts
("ASU 2010-26"), and no longer defer certain indirect acquisition costs or costs
attributable to unsuccessful efforts of acquiring life insurance policies. We
adopted this accounting policy change retrospectively and, accordingly, our
historical results have been adjusted to reflect the adoption on a consistent
basis across all periods presented. As a result of this accounting change, we
reduced stockholders' equity as of December 31, 2011 by $96.0 million to $1.33
billion. This accounting change also reduced net income by $6.4 million to $37.6
million for the three months ended June 30, 2011 and by $11.6 million to $84.9
million for the six months ended June 30, 2011. As a result of this accounting
change, basic earnings per


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share decreased by $0.08 to $0.50 for the three months ended June 30, 2011 and
by $0.16 to $1.12 for the six months ended June 30, 2011 while diluted earnings
per share decreased by $0.09 to $0.49 for the three months ended June 30, 2011
and by $0.15 to $1.11 for the six months ended June 30, 2011. For additional
information regarding this accounting policy change, see Note 1 to our condensed
consolidated financial statements and the Critical Accounting Estimates section
below.
Critical Accounting Estimates
We prepare our financial statements in accordance with U.S. generally accepted
accounting principles ("GAAP"). These principles are established primarily by
the Financial Accounting Standards Board ("FASB"). The preparation of financial
statements in conformity with GAAP requires us to make estimates and assumptions
based on currently available information when recording transactions resulting
from business operations. Our significant accounting policies are described in
Note 1 to our consolidated and combined financial statements included in our
2011 Annual Report. The most significant items on the balance sheet are based on
fair value determinations, accounting estimates and actuarial determinations
which are susceptible to changes in future periods and which affect our results
of operations and financial position.
The estimates that we deem to be most critical to an understanding of our
results of operations and financial position are those related to the valuation
of investments, reinsurance, deferred policy acquisition costs, future policy
benefit reserves, and income taxes. The preparation and evaluation of these
critical accounting estimates involve the use of various assumptions developed
from management's analyses and judgments. Subsequent experience or use of other
assumptions could produce significantly different results.
On January 1, 2012, we retrospectively adopted the guidance in ASU 2010-26.
During the six months ended June 30, 2012, there have been no changes in the
items that we have identified as critical accounting estimates. For additional
information regarding critical accounting estimates, see the Critical Accounting
Estimates section of MD&A included in our 2011 Annual Report.
Factors Affecting Our Results
Economic Environment. The relative strength and stability of financial markets
and economies in the United States and Canada affect our growth and
profitability. Our business is, and we expect will continue to be, influenced by
a number of industry-wide and product-specific trends and conditions.
Economic conditions, including unemployment levels and consumer confidence,
influence investment and spending decisions by middle income consumers, who are
generally our primary clients. These conditions and factors also impact
prospective recruits' perceptions of the business opportunity that becoming a
Primerica sales representative offers, which can drive or dampen recruiting.
Consumer spending and borrowing levels remain under pressure, as consumers take
a more conservative financial posture including reevaluating their savings and
debt management plans. The effects of these trends and conditions are discussed
in the Results of Operations section below.
Independent Sales Force. Our ability to increase the size of our sales force is
largely based on the success of our recruiting efforts and our ability to train
and motivate recruits to obtain licenses to sell life insurance. We believe that
recruitment levels are an important advance indicator of sales force trends, and
growth in recruiting is usually indicative of future growth in the overall size
of the sales force. However, because new recruits may obtain the requisite
licenses at rates above or below historical levels, recruiting results do not
always result in commensurate changes in the size of our licensed sales force.
Details on new recruits and life-licensed sales representative activity were as
follows:
                               Three months ended June 30,       Six months ended June 30,
                                  2012             2011             2012            2011
New recruits                        48,976          65,138          107,527         117,951
New life-licensed sales
representatives                      9,786           8,061           17,436          15,206


Recruiting of new representatives decreased for the three and six months ended
June 30, 2012 compared with the same periods a year ago. The decrease is largely
attributable to strong prior year recruiting as a result of short-term
incentives announced at our June 2011 biennial sales force convention. However,
new life licenses grew in both the three and six months ended June 30, 2012
versus the comparable periods in 2011. The increase in new life licenses was
driven by our efforts to balance the emphasis on recruiting and licensing in
both our messaging and


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incentive programs. Results were also driven by the introduction of streamlined
life-licensing processes for new recruits.
The size of our life-licensed insurance sales force was as follows:
                                              June 30,    March 31,    

December 31,

                                                2012         2012          

2011

Life-licensed insurance sales representatives 90,868 89,651

91,176



The size of our life-licensed insurance sales force at June 30, 2012 was down
slightly from December 31, 2011, but increased from March 31, 2012 as a result
of new representative life-licensing discussed above.
Term Life Insurance Segment. Our Term Life Insurance segment results are
primarily driven by sales volumes, the accuracy of our pricing assumptions,
terms and use of reinsurance, investment income and expenses.
Sales and policies in force. Sales of new term policies and the size and
characteristics of our in-force book of policies are vital to our results over
the long term. Premium revenue is recognized as it is earned over the term of
the policy and eligible acquisition expenses are deferred and amortized ratably
with the level premiums of the underlying policies. However, because we incur
significant cash outflows at or about the time policies are issued, including
the payment of sales commissions and underwriting costs, changes in life
insurance sales volume will have a more immediate effect on our cash flows.
Historically, we have found that while sales volume of term life insurance
products between fiscal periods may vary based on a variety of factors, the
productivity of our individual sales representatives remains within a relatively
narrow range and, consequently, our sales volume over the longer term generally
correlates to the size of our sales force.
The average number of life-licensed sales representatives and the number of term
life insurance policies issued, as well as the average monthly rate of new
policies issued per life-licensed sales representative, were as follows:
                               Three months ended June 30,       Six months ended June 30,
                                  2012             2011             2012            2011
Average number of
life-licensed sales
representatives                     90,461          91,457           90,329          92,231
Number of new policies
issued                              60,583          59,826          116,728         111,107
Average monthly rate of new
policies issued per
life-licensed sales
representative                        .22x            .22x             .22x            .20x


Pricing assumptions. Our pricing methodology is intended to provide us with
appropriate profit margins for the risks we assume. We determine pricing
classifications based on the coverage sought, such as the size and term of the
policy, and certain policyholder attributes, such as age and health. In
addition, we utilize unisex rates for our term life insurance policies. The
pricing assumptions that underlie our rates are based upon our best estimates of
mortality, persistency and investment yields at the time of issuance, sales
force commission rates, issue and underwriting expenses, operating expenses and
the characteristics of the insureds, including sex, age, underwriting class,
product and amount of coverage. Our results will be affected to the extent there
is a variance between our pricing assumptions and actual experience.
•      Persistency. Persistency is a measure of how long our insurance policies

stay in force. As a general matter, persistency that is lower than our

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pricing assumptions adversely affects our results over the long term

because we lose the recurring revenue stream associated with the policies

that lapse. Determining the near-term effects of changes in persistency is

more complicated. When persistency is lower than our pricing assumptions,

we must accelerate the amortization of DAC. The resultant increase in

amortization expense is offset by a corresponding release of reserves

associated with lapsed policies, which causes a reduction in benefits and

claims expense. The reserves associated with any given policy will change

over the term of such policy. As a general matter, reserves are lowest at

the inception of a policy term and rise steadily to a peak before

declining to zero at the expiration of the policy term. Accordingly,

depending on when the lapse occurs in relation to the overall policy term,

the reduction in benefits and claims expense may be greater or less than

       the increase in amortization expense and, consequently, the effects on




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earnings for a given period could be positive or negative. Persistency levels will impact results to the extent actual experience deviates from the persistency assumptions used to price our products. • Mortality. Our profitability is affected to the extent actual mortality

       rates differ from those used in our pricing assumptions. We mitigate a
       significant portion of our mortality exposure through reinsurance.
       Variances between actual mortality experience and the assumptions and
       estimates used by our reinsurers affect the cost and potentially the
       availability of reinsurance.


•      Investment Yields. For policies issued prior to 2010, we used a level
       investment yield rate which reflects yields available at that time. For
       policies issued in 2010 and after, we have been using an increasing
       interest rate assumption to reflect the historically low interest rate

environment. Both DAC and the reserve liability increase with the assumed

investment yield rate. Since DAC is higher than the reserve liability in

the early years of a policy, a lower assumed investment yield generally

will result in lower profits. In the later years, when the reserve

liability is higher than DAC, a lower assumed investment yield generally

will result in higher profits. These assumed investment yields, which like

other pricing assumptions are locked in at issue, impact the timing but

not the aggregate amount of DAC and reserve changes. Actual investment

yields will impact net investment income allocated to the Term Life

Insurance segment, but will not impact DAC or the reserve liability.



Reinsurance. We use reinsurance extensively, which has a significant effect on
our results of operations. Since the mid-1990s, we have reinsured between 60%
and 90% of the mortality risk on our U.S. term life insurance policies on a
quota share yearly renewable term ("YRT") basis. In Canada, we previously
utilized reinsurance arrangements similar to the U.S. in certain years and
reinsured only face amounts above $500,000 in other years. However, in the first
quarter of 2012, we entered into a YRT reinsurance arrangement in Canada similar
to our U.S. program that reinsures 80% of the face amount for every policy sold.
YRT reinsurance permits us to set future mortality at contractual rates by
policy class. To the extent actual mortality experience is more or less
favorable than the contractual rate, the reinsurer will earn incremental profits
or bear the incremental cost, as applicable. In contrast to coinsurance, which
is intended to eliminate all risks (other than counterparty risk of the
reinsurer) and rewards associated with a specified percentage of the block of
policies subject to the reinsurance arrangement, the YRT reinsurance
arrangements we enter into are intended only to reduce volatility associated
with variances between estimated and actual mortality rates.
The effect of our reinsurance arrangements on ceded premiums and benefits and
expenses on our statement of income follows:
•      Ceded premiums. Ceded premiums are the premiums we pay to reinsurers.

These amounts are deducted from the direct premiums we earn to calculate

our net premium revenues. Similar to direct premium revenues, ceded

coinsurance premiums remain level over the initial term of the insurance

       policy. Ceded YRT premiums increase over the period that the policy has
       been in force. Accordingly, ceded YRT premiums generally constitute an
       increasing percentage of direct premiums over the policy term.

• Benefits and claims. Benefits and claims include incurred claim amounts

and changes in future policy benefit reserves. Reinsurance reduces

incurred claims in direct proportion to the percentage ceded. Coinsurance

       also reduces the change in future policy benefit reserves in direct
       proportion to the percentage ceded while YRT reinsurance does not
       significantly impact benefit reserves.


•      Amortization of DAC. Amortization of DAC is reduced on a pro-rata basis
       for the coinsured business, including the business reinsured with Citi.
       There is no impact on amortization of DAC associated with our YRT
       contracts.

• Insurance expenses. Insurance expenses are reduced by the allowances

received from coinsurance, including the business reinsured with Citi.

There is no impact on insurance expenses associated with our YRT

contracts.



We may alter our reinsurance practices at any time due to the unavailability of
YRT reinsurance at attractive rates or the availability of alternatives to
reduce our risk exposure. We presently intend to continue ceding approximately
90% of our U.S. mortality risk on new business and approximately 80% of our
Canadian mortality risk on new business.
Net investment income. Term Life Insurance segment net investment income is
composed of two elements: allocated net investment income and the market return
associated with the deposit asset underlying the 10%


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reinsurance agreement we executed in connection with our corporate
reorganization. Invested assets are allocated to the Term Life segment based on
the book value of the invested assets necessary to meet statutory reserve
requirements and our targeted capital objectives. Net investment income is also
impacted by the performance of our invested asset portfolio and the market
return on the deposit asset which can be affected by interest rates, credit
spreads and the mix of invested assets.
Expenses. Results are also affected by variances in client acquisition,
maintenance and administration expense levels.
Investment and Savings Products Segment. Our Investment and Savings Products
segment results are primarily driven by sales, the value of assets in client
accounts for which we earn ongoing management, service and distribution fees and
the number of fee generating accounts we administer.
Sales. We earn commissions and fees, such as dealer re-allowances, and marketing
and support fees, based on sales of mutual fund and managed account products and
annuities. Sales of investment and savings products are influenced by the
overall demand for investment products in the United States and Canada, as well
as by the size and productivity of our sales force. We generally experience
seasonality in our Investment and Savings Products segment results due to our
high concentration of sales of retirement account products. These accounts are
typically funded in February through April, coincident with our clients' tax
return preparation season. While we believe the size of our sales force is a
factor in driving sales volume in this segment, there are a number of other
variables, such as economic and market conditions, that may have a significantly
greater effect on sales volume in any given fiscal period.
Asset values in client accounts. We earn marketing and distribution fees (trail
commissions or, with respect to U.S. mutual funds, 12b-1 fees) on mutual fund
and annuity assets in the United States and Canada. In the United States, we
also earn investment advisory fees on assets in the managed accounts program. In
Canada, we earn management fees on certain mutual fund assets and on the
segregated funds for which we serve as investment manager. Asset values are
influenced by new product sales, ongoing contributions to existing accounts,
redemptions and the change in market values in existing accounts. While we offer
a wide variety of asset classes and investment styles, our clients' accounts are
primarily invested in equity funds.
Accounts. We earn recordkeeping fees for administrative functions we perform on
behalf of several of our retail and managed mutual fund providers and custodial
fees for services as a non-bank custodian for certain of our clients' retirement
plan accounts.
Sales mix. While our investment and savings products all have similar long-term
earnings characteristics, our results in a given fiscal period will be affected
by changes in the overall mix of products within these broad categories.
Examples of changes in the sales mix that influence our results include the
following:
•      sales of a higher proportion of mutual fund products of the several mutual

fund families for which we act as recordkeeper will generally increase our

earnings because we are entitled to recordkeeping fees on these accounts;

• sales of annuity products in the United States will generate higher

revenues in the period such sales occur than sales of other investment

       products that either generate lower upfront revenues or, in the case of
       managed accounts and segregated funds, no upfront revenues;


•      sales and administration of a higher proportion of mutual funds that

enable us to earn marketing and support fees will increase our revenues

and profitability;

• sales of a higher proportion of retirement products of several mutual fund

       families will tend to result in higher revenue generation due to our
       ability to earn custodial fees on these accounts; and

• sales of a higher proportion of managed accounts and segregated funds

products will generally extend the time over which revenues can be earned

because we are entitled to higher revenues based on assets under

management for these accounts in lieu of upfront revenues.



Corporate and Other Distributed Products Segment. We earn revenues and pay
commissions and referral fees for various other insurance products, prepaid
legal services and other financial products, all of which are originated by
third parties. NBLIC also underwrites a mail-order student life policy and a
short-term disability benefit policy, neither of which is distributed by our
sales force, and has in-force policies from several discontinued lines of
insurance.


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The Corporate and Other Distributed Products segment is affected by corporate
income and expenses not allocated to our other segments, net investment income
(other than net investment income allocated to our Term Life Insurance segment),
general and administrative expenses (other than expenses that are allocated to
our Term Life Insurance or Investment and Savings Products segments), equity
awards granted to management and our sales force leaders at the time of our
initial public offering, interest expense on notes payable and realized gains
and losses on our invested asset portfolio.
Capital Structure. Our financial results have also been affected by changes in
our capital structure that have occurred since our corporate reorganization in
2010.
Share repurchases and related financing arrangements. Effective March 31, 2012,
Peach Re, Inc. ("Peach Re"), a special purpose financial captive insurance
company and wholly owned subsidiary of Primerica Life, entered into a Credit
Facility Agreement with Deutsche Bank (the "Credit Facility Agreement") to
support certain obligations for a portion of the reserves (commonly referred to
as Regulation XXX reserves) related to level premium term life insurance
policies ceded to Peach Re from Primerica Life under the Peach Re Coinsurance
Agreement. In connection with this transaction, Primerica Life obtained
regulatory approval for the payment of an extraordinary dividend of $150.0
million to the Parent Company, which was paid in April 2012. The dividend was
primarily funded by the sale of invested assets, and the proceeds were used to
repurchase approximately 5.7 million shares of our common stock from private
equity funds managed by Warburg Pincus LLC ("Warburg Pincus") for approximately
$150.0 million in April 2012. In addition, we repurchased approximately 8.9
million shares of our common stock from Citi for approximately $200.0 million in
November 2011 primarily using the proceeds from invested asset sales. We retired
the common stock repurchased in each transaction, providing an accretive impact
on earnings per share. The sales of invested assets used to fund the repurchases
results in lower net investment income in periods following the sales.
Notes payable. In April 2010, we issued a $300.0 million note to Citi as part of
our corporate reorganization (the "Citi note"). We paid interest on the Citi
note at an annual rate of 5.5%. On July 16, 2012, we repaid the Citi note with a
portion of the proceeds received from the issuance of senior notes with an
aggregate principal amount of $375.0 million (the "Senior Notes"). We issued the
Senior Notes at a price of 99.843% of the principal amount. The Senior Notes
bear interest at an annual rate of 4.750%. We anticipate using the remaining
proceeds for general corporate purposes, including share repurchases.
Future interest expense will be higher as the increase in the outstanding
principal balance more than offsets the decrease in the stated interest rate.


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Results of Operations Primerica, Inc. and Subsidiaries Results. Our results of operations were as follows:

                       Three months ended June 30,              Change              Six months ended June 30,             Change
                         2012               2011             $           %            2012             2011            $           %
                                                                  (Dollars in thousands)
Revenues:
Direct premiums    $     570,073       $     560,881     $  9,192         2 

% $ 1,131,110$ 1,112,950$ 18,160 2 % Ceded premiums (415,815 ) (435,564 ) (19,749 ) (5 )% (833,978 ) (857,802 ) (23,824 ) (3 )% Net premiums

             154,258             125,317       28,941        23 

% 297,132 255,148 41,984 16 % Commissions and fees

                     106,761             108,698       (1,937 )      (2 

)% 210,666 214,814 (4,148 ) (2 )% Net investment income

                    23,605              27,229       (3,624 )     (13 )%          49,702          55,855       (6,153 )    (11 )%
Realized
investment gains,
including OTTI
losses                     4,321               2,035        2,286         *              6,452           2,362        4,090        *
Other, net                11,580              11,816         (236 )      (2 

)% 23,174 23,268 (94 ) * Total revenues

           300,525             275,095       25,430         9  %         587,126         551,447       35,679        6  %
Benefits and
expenses:
Benefits and
claims                    68,925              57,272       11,653        20 

% 136,858 114,907 21,951 19 % Amortization of DAC

                       28,205              23,975        4,230        18 

% 54,736 47,204 7,532 16 % Sales commissions 51,475

              50,273        1,202         2 

% 101,192 100,711 481 * Insurance expenses 24,589

              26,988       (2,399 )      (9 

)% 47,033 42,786 4,247 10 % Insurance commissions

                6,458               9,534       (3,076 )     (32 

)% 14,954 18,532 (3,578 ) (19 )% Interest expense

           8,506               6,998        1,508        22 

% 15,416 13,995 1,421 10 % Other operating expenses

                  40,446              41,590       (1,144 )      (3 

)% 81,551 81,591 (40 ) * Total benefits and expenses

                 228,604             216,630       11,974         6 

% 451,740 419,726 32,014 8 % Income before income taxes

              71,921              58,465       13,456        23 

% 135,386 131,721 3,665 3 % Income taxes

              25,741              20,845        4,896        23  %          47,450          46,830          620        1  %
Net income         $      46,180       $      37,620     $  8,560        23  %   $      87,936     $    84,891     $  3,045        4  %

____________________

* Less than 1% or not meaningful
Results for the Three and Six Months Ended June 30, 2012 and 2011
Total revenues. Growth in revenues primarily was attributable to incremental
premiums on term life insurance policies issued subsequent to the Citi
reinsurance transactions ("New Term"), which was partially offset by lower net
investment income resulting from sales of invested assets to facilitate our
$200.0 million and $150.0 million share repurchase transactions in November 2011
and April 2012, respectively. Realized investment gains were higher during 2012
as we sold invested assets to provide a portion of the funds used for the April
2012 share repurchase.
Total benefits and expenses. Total benefits and expenses increased in 2012
primarily as a result of the growth in premium-related expenses. This increase
was partially offset by declines in insurance commissions and expenses
reflecting higher deferrals of commissions consistent with incentive program
changes as well as prior-year new product launch and convention-related
expenses.
Income taxes. Our effective income tax rate of 35.8% during the three months
ended June 30, 2012 was consistent with our effective income tax rate of 35.7%
during the three months ended June 30, 2011. For the six months ended June 30,
2012, our effective income tax rate was 35.1%, compared with 35.6% for the six
months ended June 30, 2011. The decrease in our effective income tax rate during
the six months ended June 30, 2012 versus the comparable period in 2011 is
primarily due to a lower effective Canadian tax rate in the first quarter of
2012.
For additional information, see the Segment Results discussions below.


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Segment Results
Term Life Insurance Segment Results. Our results for the Term Life Insurance
segment were as follows:
                      Three months ended June 30,              Change              Six months ended June 30,             Change
                        2012               2011             $           %            2012             2011            $           %
                                                                 (Dollars in thousands)
Revenues:
Direct premiums   $     550,330       $     540,283     $ 10,047         2  %   $   1,092,487     $ 1,072,450     $ 20,037        2  %
Ceded premiums         (412,038 )          (431,891 )    (19,853 )      (5 )%        (826,597 )      (850,544 )    (23,947 )     (3 )%
Net premiums            138,292             108,392       29,900        28  

% 265,890 221,906 43,984 20 % Allocated net investment income 16,685

              15,669        1,016         6  

% 33,345 31,463 1,882 6 % Other, net

                7,755               7,580          175         2  %          15,301          15,234           67        *
Total revenues          162,732             131,641       31,091        24  %         314,536         268,603       45,933       17  %
Benefits and
expenses:
Benefits and
claims                   59,984              43,921       16,063        37  

% 117,493 91,272 26,221 29 % Amortization of DAC

                      22,547              19,894        2,653        13  

% 46,480 40,021 6,459 16 % Insurance commissions

               2,314               5,320       (3,006 )     (57 )%           5,891           9,383       (3,492 )    (37 )%

Insurance

expenses                 21,782              23,607       (1,825 )      (8 

)% 41,499 36,440 5,059 14 % Interest expense 4,381

               2,873        1,508        52  %           7,166           5,745        1,421       25  %
Total benefits
and expenses            111,008              95,615       15,393        16  

% 218,529 182,861 35,668 20 % Income before income taxes $ 51,724 $ 36,026 $ 15,698 44 % $ 96,007 $ 85,742$ 10,265 12 %



____________________
* Less than 1%
Results for the Three Months Ended June 30, 2012 and 2011
Net premiums. The increase in net premiums is primarily the result of growth in
New Term and the corresponding impact of ceded premiums.  While ceded premiums
supporting YRT reinsurance programs for New Term are less than 20% of direct
premiums, ceded premiums for the block of business coinsured by Citi are more
than 80% of direct premiums.  As a result, as we continue to build New Term and
the block coinsured by Citi continues to run-off, net premiums will grow much
faster than direct premiums. The remaining increase in net premiums was largely
attributable to reprocessed reinsurance transactions. Over the normal course of
business, we reprocess a small portion of our reinsurance transactions that are
either misprocessed or intentionally not processed on an automated basis due to
system constraints. During the three months ended June 30, 2012, the
reprocessing of certain transactions resulted in an increase in net premiums
that was substantially offset by a corresponding increase in benefits and
claims. Persistency was consistent with the prior-year period.
Benefits and claims. Benefits and claims increased primarily due to the growth
in net premiums and the reprocessing of certain transactions noted above.
Incurred claims experience was consistent with the prior-year period.
Amortization of DAC. The continued growth in New Term combined with the impact
of seasonally strong persistency resulted in DAC amortization increasing at a
lower rate than net premiums.
Insurance commissions. The decrease in insurance commissions was largely driven
by changes to our agent incentive programs that resulted in a higher portion of
commissions being deferred in 2012.
Insurance expenses. Insurance expenses were lower primarily as a result of
initiatives associated with the biennial sales force convention that occurred in
June 2011. Results during the three months ended June 30, 2011 included expenses
from new product launches and recruiting-related initiatives.
Interest expense. Interest expense increased primarily due to the redundant
reserve financing executed in March 2012.


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Results for the Six Months Ended June 30, 2012 and 2011
Net premiums. Net premium growth was primarily driven by the factors impacting
net premiums as discussed above in the three-month comparison. The increase was
partially offset by the impact of approximately $8.7 million of ceded premium
recoveries for post-issue underwriting class upgrades recognized in the first
quarter of 2011.
Benefits and claims. The increase in benefits and claims was mainly attributable
to the factors discussed above in the three-month comparison.
Amortization of DAC. The increase in amortization of DAC was consistent with the
increase discussed above in the three-month comparison.
Insurance expenses.  Insurance expenses increased in 2012 as higher
premium-related taxes, licenses and fees and the run-off of expense allowances
received under the Citi reinsurance agreements combined with prior-year
favorable expense items including the release of management incentive
compensation accruals. The impact of these factors were partially offset by the
2011 convention-related expenses discussed above.
Insurance commissions. The decrease in insurance commissions was primarily
driven by changes to our agent incentive program discussed above in the
three-month comparison.
Interest expense. The increase in interest expense was largely attributable to
the redundant reserve financing as noted in the three-month comparison above.
Product Sales and Face Amount In Force
New policy sales activity was as follows:
                               Three months ended June 30,       Six months ended June 30,
                                  2012             2011             2012            2011
New policies issued                 60,583          59,826          116,728         111,107


Higher sales of our term life insurance products primarily reflect an increase
in the percentage of applications successfully issued. This increase is largely
attributable to TermNow, our new rapid-issue term life insurance product, which
was introduced in the third quarter of 2011. The average face amount of policies
issued during the second quarter of 2012 was approximately $244,200, compared
with approximately $257,800 in the second quarter of 2011. The decrease in
average face amount was largely driven by higher sales of TermNow policies,
which are issued at face amounts of $250,000 and below.


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The changes in the face amount of our in-force book of term life insurance policies were as follows:

                     Three months ended June 30,              Change             Six months ended June 30,             Change
                       2012               2011             $           %            2012             2011           $           %
                                                                (Dollars in millions)
Face amount in
force, beginning
of period        $     664,423       $     658,523     $  5,900        *      $     664,955       $ 656,791     $  8,164        1  %
Issued face
amount                  18,307              18,974         (667 )     (4 )%          35,290          35,709         (419 )     (1 )%
Terminations           (14,322 )           (14,724 )       (402 )     (3 )%         (30,629 )       (31,971 )     (1,342 )     (4 )%
Foreign currency          (384 )               843       (1,227 )      *             (1,592 )         3,087       (4,679 )      *
Face amount in
force, end of
period           $     668,024       $     663,616     $  4,408        *      $     668,024       $ 663,616     $  4,408        *

____________________

* Less than 1% or not meaningful
Issued face amount decreased during 2012 as the lower average size of policies
issued was partially offset by higher policy sales of TermNow. Terminations
decreased in 2012 as a result of higher persistency.
Investment and Savings Product Segment Results. Investment and Savings Products
segment results were as follows:
                  Three months ended June 30,           Change           Six months ended June 30,            Change
                       2012            2011          $           %           2012            2011          $           %
                                                           (Dollars in thousands)
Revenues:
Commissions and
fees:
Sales-based
revenues         $       47,269     $ 44,904     $  2,365        5  %   $      91,736     $ 88,032     $  3,704        4  %
Asset-based
revenues                 43,750       45,348       (1,598 )     (4 )%          87,472       90,173       (2,701 )     (3 )%
Account-based
revenues                  9,494       11,811       (2,317 )    (20 )%          18,867       22,243       (3,376 )    (15 )%
Other, net                2,454        2,523          (69 )     (3 )%           5,026        4,984           42        1  %

Total revenues 102,967 104,586 (1,619 ) (2 )%

   203,101      205,432       (2,331 )     (1 )%
Expenses:
Amortization of
DAC                       2,880        3,751         (871 )    (23 )%           6,103        6,536         (433 )     (7 )%
Insurance
commissions               2,252        2,344          (92 )     (4 )%           4,401        4,484          (83 )     (2 )%
Sales
commissions:
Sales-based              33,285       31,390        1,895        6  %          64,885       61,943        2,942        5  %
Asset-based              15,032       15,111          (79 )     (1 )%          29,777       30,562         (785 )     (3 )%
Other operating
expenses                 20,074       21,520       (1,446 )     (7 )%          39,621       40,398         (777 )     (2 )%
Total expenses           73,523       74,116         (593 )     (1 )%         144,787      143,923          864        1  %
Income before
income taxes     $       29,444     $ 30,470     $ (1,026 )     (3 )%   $      58,314     $ 61,509     $ (3,195 )     (5 )%





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Supplemental information on the underlying metrics that drove results follows.

                  Three months ended June 30,           Change           Six months ended June 30,            Change
                       2012            2011          $           %           2012            2011          $           %
                                              (Dollars in millions and accounts in thousands)
Product sales:
Retail mutual
funds            $          590     $    604     $    (14 )     (2 )%   $       1,202     $  1,249     $    (47 )     (4 )%
Annuities and                                          42
other                       500          458                     9  %             929          803          126       16  %
Total
sales-based
revenue
generating
product sales             1,090        1,062           28        3  %      
    2,131        2,052           79        4  %
Managed accounts             40            -           40        *                 63            -           63        *
Segregated funds
and other                    64           74          (10 )    (14 )%             188          197           (9 )     (5 )%
Total product
sales            $        1,194     $  1,136     $     58        5  %   $       2,382     $  2,249     $    133        6  %
Average client
asset values:
Retail mutual
funds            $       23,724     $ 25,330     $ (1,606 )     (6 )%   $      23,709     $ 25,106     $ (1,397 )     (6 )%
Annuities and                                         384
other                     8,972        8,588                     4  %           8,845        8,415          430        5  %
Managed accounts            326            -          326        *                269            -          269        *

Segregated funds 2,527 2,545 (18 ) (1 )%

     2,513        2,511            2        *
Total average
client asset
values           $       35,549     $ 36,463     $   (914 )     (3 )%   $      35,336     $ 36,032     $   (696 )     (2 )%
Average number
of
fee-generating
accounts:
Recordkeeping
accounts                  2,583        2,611          (28 )     (1 )%           2,585        2,638          (53 )     (2 )%
Custodial
accounts                  1,948        1,940            8        *              1,947        1,953           (6 )      *

_____________________

* Not meaningful or less than 1%
Results for the Three Months Ended June 30, 2012 and 2011
Total revenues. The decrease in commissions and fees in 2012 was largely driven
by lower average client asset values as well as a recordkeeping fee structure
change that had a corresponding decrease to other operating expenses. These
factors were partially offset by higher sales of annuity products. Lower
asset-based revenues from the decline in average client asset values primarily
reflected market conditions while the higher product sales were driven by new
offerings of fixed-indexed annuities. While the distribution of managed accounts
does not generate upfront sales-based revenues, it will contribute ongoing
asset-based revenues in future periods.
Amortization of DAC. The decrease in DAC amortization on our Canadian Segregated
Funds products in 2012 resulted from market returns in the invested assets
underlying Canadian Segregated Funds that showed some improvement from the
market losses experienced in the prior-year period.
Sales commissions. The increase in sales-based commissions in 2012 was
consistent with the increase in sales-based revenue and primarily resulted from
the increase in annuity sales.
Other operating expenses. Other operating expenses decreased primarily due to
the impact of the recordkeeping fee structure change, which was offset by a
corresponding revenue decrease with no net impact on income before income taxes.
Results for the Six Months Ended June 30, 2012 and 2011
Total revenues. The decline in commissions and fees was primarily driven by the
factors discussed in the three-month comparison above. Partially offsetting the
decline for the six-month period was an increase in sales from internal
exchanges of variable annuities in the first quarter of 2012 versus the same
period in 2011.
Amortization of DAC. The decrease in DAC amortization was primarily due to the
impact from market returns in the invested assets underlying Canadian Segregated
Funds in the second quarter of 2012 as noted above in the three-


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month comparison.
Sales commissions. Sales-based commissions increased mainly due to the increases
in annuity sales noted above.
Other operating expenses. The decline in operating expenses during the six
months ended June 30, 2012 was largely attributable to the impact of the
recordkeeping fee structure change noted above. This impact was partially offset
by higher new product offering expenses in 2012 combined with the impact of the
prior-year release of management incentive compensation accruals.
Asset Values in Client Accounts
Changes in asset values in client accounts were as follows:
                    Three months ended June 30,              Change              Six months ended June 30,              Change
                      2012               2011             $           %           2012               2011            $           %
                                                                (Dollars in millions)
Asset values,
beginning of
period          $      36,279       $      36,187     $     92        *      $     33,664       $     34,869     $ (1,205 )     (3 )%
Inflows                 1,194               1,136           58        5  %          2,382              2,249          133        6  %
Redemptions            (1,144 )            (1,118 )         26        2  %         (2,377 )           (2,201 )        176        8  %
Change in
market value,
net and other          (1,043 )              (185 )        858        *             1,617              1,102          515       47  %
Asset values,
end of period   $      35,286       $      36,020     $   (734 )     (2 )%   $     35,286       $     36,019     $   (733 )     (2 )%

____________________

* Less than 1% or not meaningful
The growth in inflows was consistent with the increase in sales volume for both
the quarter-to-date and year-to-date periods. However, internal exchanges for
variable annuities are also included in redemptions. As a result, redemptions
were also higher during the six months ended June 30, 2012. For the three months
ended June 30, 2012, redemptions did not increase at the same rate as the
six-month period as internal exchanges were consistent in the second quarters of
2012 and 2011.


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Corporate and Other Distributed Products Segment Results. Corporate and Other Distributed Products segment results were as follows:

                    Three months ended June 30,              Change             Six months ended June 30,             Change
                      2012               2011             $           %            2012             2011           $           %
                                                              (Dollars in thousands)
Revenues:
Direct premiums $      19,743       $      20,597     $   (854 )     (4 )%   $      38,623       $  40,499     $ (1,876 )     (5 )%
Ceded premiums         (3,777 )            (3,674 )        103        3  %          (7,381 )        (7,259 )        122        2  %
Net premiums           15,966              16,923         (957 )     (6 )%          31,242          33,240       (1,998 )     (6 )%
Commissions and
fees                    6,248               6,635         (387 )     (6 )%          12,591          14,366       (1,775 )    (12 )%
Allocated net
investment
income                  6,920              11,560       (4,640 )    (40 )%          16,357          24,392       (8,035 )    (33 )%
Realized
investment
gains,
including OTTI
losses                  4,321               2,035        2,286        *              6,452           2,362        4,090        *
Other, net              1,371               1,715         (344 )    (20 )%           2,847           3,052         (205 )     (7 )%
Total revenues         34,826              38,868       (4,042 )    (10 )%          69,489          77,412       (7,923 )    (10 )%
Benefits and
expenses:
Benefits and
claims                  8,941              13,352       (4,411 )    (33 )%          19,365          23,636       (4,271 )    (18 )%
Amortization of
DAC                     2,778                 330        2,448        *              2,153             647        1,506        *
Insurance
commissions             1,892               1,870           22        1  %           4,662           4,664           (2 )      *
Insurance
expenses                2,807               3,381         (574 )    (17 )%           5,534           6,346         (812 )    (13 )%
Sales
commissions             3,158               3,772         (614 )    (16 )%           6,530           8,206       (1,676 )    (20 )%
Interest
expense                 4,125               4,125            -        *              8,250           8,250            -        *
Other operating
expenses               20,372              20,069          303        2  %          41,930          41,193          737        2  %
Total benefits
and expenses           44,073              46,899       (2,826 )     (6 )%          88,424          92,942       (4,518 )     (5 )%
Loss before
income taxes    $      (9,247 )     $      (8,031 )   $  1,216       15  %   $     (18,935 )     $ (15,530 )   $  3,405       22  %

____________________

* Less than 1% or not meaningful
Results for the Three Months Ended June 30, 2012 and 2011
Total revenues. Total revenues decreased in 2012 primarily due to lower net
investment income from a lower base of invested assets subsequent to share
repurchases in November 2011 and April 2012. The decline also resulted from the
termination of our loan business and a decline in our short-term disability
product line primarily due to an increase in terminations concurrent with a
premium rate increase in the beginning of 2012. These decreases were partially
offset by realized investment gains from the invested assets sold in conjunction
with the April 2012 share repurchase.
Total benefits and expenses. The decline in benefits and claims was largely
attributable to lower claims on short-term disability products and refinements
in our policy estimates for student life insurance products underwritten by
NBLIC. Partially offsetting this decrease was higher DAC amortization associated
with the refinements in policy estimates for the student life products.
Results for the Six Months Ended June 30, 2012 and 2011
Total revenues. The decrease in total revenues was largely attributable to the
factors discussed in the three-month comparison above.
Total benefits and expenses. The decline in total benefits and expenses was
primarily driven by the items noted in the three-month comparison above.


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Financial Condition
Investments. We have an investment committee composed of members of our senior
management team that is responsible for establishing and maintaining our
investment guidelines and supervising our investment activity. We follow a
conservative investment strategy designed to emphasize the preservation of our
invested assets and provide adequate liquidity for the prompt payment of claims.
To meet business needs and mitigate risks, our investment guidelines provide
restrictions on our portfolio's composition, including limits on asset type,
sector limits, credit quality limits, portfolio duration, limits on the amount
of investments in approved countries and permissible security types.
Additionally, to ensure adequate liquidity for payment of claims, we take into
account the maturity and duration of our invested asset portfolio and our
general liability profile.
Our invested asset portfolio is subject to a variety of risks, including risks
related to general economic conditions, market volatility, interest rate
fluctuations, liquidity risk and credit and default risk. Investment guideline
restrictions have been established to minimize the effect of these risks but may
not always be effective due to factors beyond our control. Interest rates are
highly sensitive to many factors, including governmental monetary policies,
domestic and international economic and political conditions and other factors
beyond our control. A significant increase in interest rates could result in
significant losses, realized or unrealized, in the value of our invested asset
portfolio.
The composition and duration of our portfolio will vary depending on several
factors, including the yield curve and our opinion of the relative value among
various asset classes. The average rating and average approximate duration of
our fixed-maturity portfolio were as follows:
                                                     June 30, 2012

December 31, 2011


Average rating of our fixed-maturity portfolio             A                

A

Average duration of our fixed-maturity portfolio 3.6 years 3.5 years Average book yield of our fixed-maturity portfolio 5.48%

5.52%



The distribution of our investments in fixed-maturity securities by rating
follows.
                            June 30, 2012            December 31, 2011
                        Amortized cost      %      Amortized cost     %
                                     (Dollars in thousands)
AAA                    $        358,513    21%    $       428,748    24%
AA                              128,994     8%            150,894     8%
A                               396,068    23%            431,175    24%
BBB                             699,906    41%            683,818    38%
Below investment grade          108,448     6%            125,594     7%
Not rated                           885     *                 770     *
Total (1)              $      1,692,814    100%   $     1,820,999    100%


____________________
* Less than 1%
(1) Totals may not add due to rounding.




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The ten largest holdings within our invested asset portfolio were as follows:
                                                               June 30, 2012
                                      Cost or amortized        Fair          Unrealized       Credit
Issuer                                      cost               value            gain          rating
                                                          (Dollars in thousands)
Government of Canada                 $          29,976     $    32,700     $      2,724        AAA
General Electric Co                             12,762          14,295            1,533        AA+
Verizon Communications Inc                      11,498          13,003            1,505         A-
Bank of America Corp                            11,678          12,511              833         A-
Province of Ontario Canada                       9,177          11,246            2,069        AA-
Iberdrola SA                                     9,441          10,572            1,131        BBB+
National Rural Utilities Cooperative             7,185          10,369            3,184         A+
ProLogis Inc                                     9,413          10,309              896        BBB-
Time Warner Cable Inc                            9,120           9,417              297        BBB
Altria Group Inc                                 7,417           9,282            1,865        BBB
Total - ten largest holdings         $         117,667     $   133,704     $     16,037
Total - fixed-maturity and equity
securities                           $       1,717,847     $ 1,884,578
Percent of total fixed-maturity and
equity securities                                    7 %             7 %


Sales of invested assets to fund our April 2012 repurchase of $150.0 million of
our common stock did not result in meaningful changes to asset mix, duration or
overall credit quality of our invested asset portfolio. However, it did reduce
our consolidated cash and invested assets and, as a result, net investment
income. Our average book yield at June 30, 2012 decreased modestly from December
31, 2012, reflecting the replacement of higher-yield invested asset maturities
with lower-yield invested asset acquisitions available in the current interest
rate environment. The decrease in the average book yield was partially offset as
the investments sold to fund the repurchase generally had yields that were lower
than the average book yield on the invested assets portfolio before the
repurchase.
For additional information on our invested asset portfolio, see Note 3 to our
condensed consolidated financial statements.
Liquidity and Capital Resources
Dividends and other payments to us from our subsidiaries are our principal
sources of cash. Our primary uses of funds by the Parent Company include the
payment of general operating expenses, the payment of dividends and the payment
of interest to noteholders. At June 30, 2012, the Parent Company had cash and
invested assets of approximately $63.9 million.
The liquidity requirements of our subsidiaries principally relate to the
liabilities associated with their distribution and underwriting of insurance
products (including the payment of claims), distribution of investment and
savings products, operating expenses, income taxes and the payment of dividends.
Historically, our insurance subsidiaries have used cash flow from operations
associated with our in-force book of term life insurance to fund their liquidity
requirements. Our insurance subsidiaries' principal cash inflows from operating
activities are derived from policyholder premiums and investment income earned
on invested assets that support our statutory capital and reserves. We also
derive cash inflows from the distribution of investment and savings products and
other products. Our principal outflows relate to payments for ceded premiums and
benefits and claims. The principal cash inflows from investment activities
result from repayments of principal and investment income, while the principal
outflows relate to purchases of fixed-maturity securities. We typically hold
cash sufficient to fund operating flows, and invest any excess cash.
Our distribution and underwriting of term life insurance place significant
demands on our liquidity, particularly when we experience growth. We pay a
substantial majority of the sales commission during the first year following the
sale of a policy. Our underwriting activities also require significant cash
outflows at the inception of a policy's term. However, we anticipate that cash
flows from our businesses, including our existing block of term life policies
and our investment and savings products, will continue to provide us with
sufficient liquidity to meet our operating requirements.
In April 2012, we completed the repurchase of approximately 5.7 million shares
of our common stock beneficially


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owned by Warburg Pincus for a total purchase price of approximately $150.0
million. For additional information, see Note 7 to our condensed consolidated
financial statements.
We may seek to enhance our liquidity position or capital structure through
borrowings from third-party sources, sales of debt or equity securities, reserve
financings or some combination of these sources.
Cash Flows. Cash flows from operating activities are affected primarily by the
timing of premiums received, commissions and fees received, benefits paid,
commissions paid to sales representatives, administrative and selling expenses,
investment income, and cash taxes. Our principal source of cash historically has
been premiums received on term life insurance policies in force.
We typically generate positive cash flows from operating activities, as
premiums, net investment income, commissions and fees collected from our
insurance and investment and savings products exceed benefits, commissions and
operating expenses paid, and we invest the excess.
The components of the change in cash and cash equivalents were as follows:
                                                 Six months ended June 30,          Change
                                                   2012              2011              $
                                                              (In thousands)
Net cash provided by (used in) operating
activities                                   $      12,809       $    (6,200 )   $    19,009
Net cash provided by (used in) investing
activities                                         126,748             2,660         124,088
Net cash provided by (used in) financing
activities                                        (165,983 )          (7,137 )      (158,846 )
Effect of foreign exchange rate changes on
cash                                                (1,590 )          

(1,310 ) (280 ) Change in cash and cash equivalents $ (28,016 ) $ (11,987 ) $ (16,029 )



Operating Activities. The change in operating cash flows compared with the
prior-year period was primarily driven by the increase in reserves for future
policy benefits and other policy liabilities partially offset by the timing of
payments due to reinsurers in our Term Life business.
Investing Activities. The increase in investing cash flows as compared to the
same period a year ago was primarily driven by proceeds from the sale of
invested assets to fund the share repurchase from Warburg Pincus in April 2012.
Financing Activities. The increase in net cash used in financing activities was
due to the share repurchase from Warburg Pincus and higher quarterly cash
dividends in 2012.
Notes Payable. In April 2010, we issued a $300.0 million note to Citi as part of
our corporate reorganization. We were in compliance with the covenants of the
Citi note at June 30, 2012. No events of default or defaults occurred during the
six months ended June 30, 2012.
On July 16, 2012, we issued $375.0 million in principal amount of the Senior
Notes and used a portion of the net cash proceeds to repay the Citi note in
whole at a redemption price equal to 100% of the outstanding principal amount
plus accrued and unpaid interest as of that date. We intend to use the remainder
of the net cash proceeds for general corporate purposes, including share
repurchases.
We issued the Senior Notes at a price of 99.843% and an annual rate of 4.750%
and interest of approximately $8.9 million is paid semi-annually on January 15
and July 15, commencing on January 15, 2013. The term of the Senior Notes ends
on July 15, 2022 with a principal payment of $375.0 million due upon maturity.
For additional information, see Note 6 to our condensed consolidated financial
statements.
We calculate our debt-to-capital ratio by dividing total long-term debt by the
sum of stockholders' equity and total long-term debt. As of June 30, 2012, our
debt-to-capital ratio was 19.0%. If the issuance of the Senior Notes and the
repayment of the Citi note had both been completed as of June 30, 2012, our
debt-to-capital ratio would have been 22.7%.
Rating Agencies. There have been no changes to Primerica, Inc.'s senior debt
ratings or Primerica Life's financial strength ratings since December 31, 2011.
Risk-Based Capital. The NAIC has established risk-based capital ("RBC")
standards for U.S. life insurers, as well


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as a risk-based capital model act (the "RBC Model Act") that has been adopted by
the insurance regulatory authorities. The RBC Model Act requires that life
insurers annually submit a report to state regulators regarding their RBC based
upon four categories of risk: asset risk; insurance risk; interest rate risk and
business risk. The capital requirement for each is determined by applying
factors that vary based upon the degree of risk to various asset, premiums and
reserve items. The formula is an early warning tool to identify possible weakly
capitalized companies for purposes of initiating further regulatory action.
As of June 30, 2012, our U.S. life insurance subsidiaries had statutory capital
substantially in excess of the applicable statutory requirements to support
existing operations and to fund future growth.
In Canada, an insurer's minimum capital requirement is overseen by the Office of
the Superintendent of Financial Institutions Canada ("OSFI") and determined as
the sum of the capital requirements for five categories of risk: asset default
risk; mortality/morbidity/lapse risks; changes in interest rate environment
risk; segregated funds risk and foreign exchange risk. Primerica Life Canada is
in compliance with Canada's minimum capital requirements as of June 30, 2012, as
determined by OSFI.
Short-term Borrowings. We had no short-term borrowings as of or during the six
months ended June 30, 2012.
Off-Balance Sheet Arrangements. Effective March 31, 2012, Peach Re entered into
the Credit Facility Agreement with Deutsche Bank. Under the Credit Facility
Agreement, a letter of credit ("LOC") was issued to support certain obligations
of Peach Re for a portion of reserves (commonly referred to as Regulation XXX
reserves) related to level premium term life insurance policies ceded to Peach
Re from Primerica Life under a coinsurance agreement, effective as of March 31,
2012. The LOC has a term of approximately 14 years and was issued in an initial
amount of $450.0 million. Subject to certain conditions, the amount of the LOC
will be periodically increased to a maximum amount of $510.0 million in 2014.
The annual pretax expense of the LOC is expected to range from approximately
$4.8 million to $6.9 million in 2012 through 2018, $1.5 million to $4.3 million
in 2019 through 2023, and to be less than $0.8 million in 2024 and 2025.
Pursuant to the terms of the Credit Facility Agreement, in the event amounts are
drawn under the LOC by Primerica Life, Peach Re will be obligated, subject to
certain limited conditions, to reimburse Deutsche Bank for the amount of any
draw and interest thereon. The Credit Facility Agreement is non-recourse to the
Parent Company and Primerica Life, meaning that neither is liable for repaying
Deutsche Bank for any draws or interest thereon. Pursuant to the terms of a
letter agreement with Deutsche Bank, the Parent Company has agreed to guarantee
the payment of fees to Deutsche Bank under the Credit Facility Agreement.
Pursuant to the Credit Facility Agreement, Peach Re has collateralized its
obligations to Deutsche Bank by granting it a security interest in all of its
assets with the exception of amounts held in a special account established to
meet minimum asset thresholds required by state regulatory authorities.
Contractual Obligations Update. The material changes in contractual obligations
from those disclosed in the 2011 Annual Report include the Credit Facility
Agreement discussed above in the Off-balance Sheet Arrangements section, the
issuance of the Senior Notes discussed above in the Notes Payable section, and a
long-term contract entered into by the Company in June 2012 for the acquisition,
licensing, and maintenance of enterprise software. The software contract, which
required us to make a payment of approximately $5.7 million in June 2012,
extends through December 31, 2015. The remaining payments stipulated over the
term of the contract are approximately $1.4 million in 2012, $5.2 million in
2013, $5.3 million in 2014, and $4.4 million in 2015.
In May 2011, we entered into an eight-year agreement with a third party to
receive advisory services for our managed accounts product platform. In
connection with this agreement, we are obligated to make asset-based fee
payments (including minimum monthly payments) based on assets under management
(AUM). We have made the minimum monthly payments and recognized expense
accordingly of approximately $624,000 during the six months ended June 30, 2012.
The minimum fee is approximately $2.5 million per year in 2013 through 2018 and
approximately $1.0 million in 2019. We will continue to recognize these fees as
the corresponding advisory services are received.
           CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Investors are cautioned that certain statements contained in this report as well
as some statements in periodic press releases and some oral statements made by
our officials during our presentations are "forward-looking" statements.
Forward-looking statements include, without limitation, any statement that may
project, indicate or imply future results, events, performance or achievements,
and may contain the words "expect," "intend," "plan," "anticipate," "estimate,"
"believe," "will be," "will continue," "will likely result," and similar
expressions, or future


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conditional verbs such as "may," "will," "should," "would," and "could." In
addition, any statement concerning future financial performance (including
future revenues, earnings or growth rates), ongoing business strategies or
prospects, and possible actions taken by us or our subsidiaries are also
forward-looking statements. These forward-looking statements involve external
risks and uncertainties, including, but not limited to, those described under
the section entitled "Risk Factors" included herein.
Forward-looking statements are based on current expectations and projections
about future events and are inherently subject to a variety of risks and
uncertainties, many of which are beyond the control of our management team. All
forward-looking statements in this report and subsequent written and oral
forward-looking statements attributable to us, or to persons acting on our
behalf, are expressly qualified in their entirety by these risks and
uncertainties. These risks and uncertainties include, among others:
•      our failure to continue to attract and license new recruits, retain sales

representatives, or license or maintain the licensing of our sales

representatives;

• changes to the independent contractor status of our sales representatives;


•      our or our sales representatives' violation of, or non-compliance with,
       laws and regulations;

• our or our sales representatives' failure to protect the confidentiality

of client information;

• differences between our actual experience and our expectations regarding

mortality, persistency, expenses and investment yields as reflected in the

       pricing for our insurance policies;


•      the occurrence of a catastrophic event that causes a large number of
       premature deaths of our insureds;

• changes in federal and state legislation and regulation, including other

legislation or regulation that affects our insurance, investment product

businesses;

• our failure to meet risk-based capital standards or other minimum capital

       or surplus requirements;


•      a downgrade or potential downgrade in our insurance subsidiaries'
       financial strength ratings or in the investment grade credit ratings for
       our senior unsecured debt;

• the effects of credit deterioration and interest rate fluctuations on our

invested asset portfolio;

• incorrectly valuing our investments;

• inadequate or unaffordable reinsurance or the failure of our reinsurers to

perform their obligations;

• the failure of, or legal challenges to, the support tools we provide to

our sales force;

• heightened standards of conduct or more stringent licensing requirements

for our sales representatives;

• inadequate policies and procedures regarding suitability review of client

transactions;

• the inability of our subsidiaries to pay dividends or make distributions;

• our ability to generate and maintain a sufficient amount of working capital;

• our non-compliance with the covenants of our senior unsecured debt;

• legal and regulatory investigations and actions concerning us or our sales

representatives;

• the loss of key personnel;


•      the failure of our information technology systems, breach of our
       information security or failure of our business continuity plan; and

• fluctuations in Canadian currency exchange rates.




Developments in any of these areas could cause actual results to differ
materially from those anticipated or projected or cause a significant reduction
in the market price of our common stock and debt securities.
The foregoing list of risks and uncertainties may not contain all of the risks
and uncertainties that could affect us. In addition, in light of these risks and
uncertainties, the matters referred to in the forward-looking statements
contained in this document may not in fact occur. Accordingly, undue reliance
should not be placed on these statements. We undertake no obligation to publicly
update or revise any forward-looking statements as a result of new information,
future events or otherwise, except as otherwise required by law.
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