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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 September 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


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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



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.
We were wholly owned by Citigroup Inc. (together with its non-Primerica
affiliates, "Citi") through March 31, 2010. In April 2010, Citi transferred the
legal entities that comprise our business to us, and we completed an initial
public offering of our common stock by Citi pursuant to the Securities Act of
1933, as amended and also issued to Citi a $300.0 million note payable
(the "corporate reorganization").
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 Citi (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.


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There are No Baby Steps in Sales.

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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 as well as credit information and debt referral services. 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
notes payable and realized gains and losses on our invested asset portfolio.
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.
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.
The impact of adoption was as follows:
                                                       Prior to
                                                   adoption of ASU    

Impact of adoption After adoption

                                                       2010-26          of 

ASU 2010-26 of ASU 2010-26

                                                          (In thousands, except per-share amounts)
As of December 31, 2011:
Stockholders' equity                               $    1,422,641     $     (95,991 )      $   1,326,650

For the three months ended September 30, 2011:
Net income                                         $       40,601     $      (5,503 )      $      35,098
Basic earnings per share                                     0.54             (0.08 )               0.46
Diluted earnings per share                                   0.53             (0.07 )               0.46

For the nine months ended September 30, 2011:
Net income                                         $      137,091     $     (17,102 )      $     119,989
Basic earnings per share                                     1.81             (0.23 )               1.58
Diluted earnings per share                                   1.79             (0.22 )               1.57

For additional information regarding this accounting policy change, see Note 1 to our condensed consolidated financial statements. During the nine months ended September 30, 2012, there have been no further changes in the accounting methodology for items that we have identified as critical accounting estimates. For additional information regarding

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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 and licensing levels are important advance indicators of sales force
trends, and growth in recruiting and licensing is usually indicative of future
growth in the overall size of the sales force. Recruiting results do not always
result in commensurate changes in the size of our licensed sales force because
new recruits may obtain the requisite licenses at rates above or below
historical levels.
Details on new recruits and life-licensed sales representative activity were as
follows:
                             Three months ended September 30,     Nine months ended September 30,
                                   2012              2011              2012              2011
New recruits                          47,639          83,074             155,166         201,025
New life-licensed sales
representatives                        8,613          10,334              26,049          25,540


Recruiting of new representatives decreased for the three and nine months ended
September 30, 2012 compared with the same periods a year ago. The decrease is
directly attributable to the strong prior year recruiting surge that followed
the announcement of short-term recruiting incentives at our June 2011 biennial
sales force convention. However, new life licenses declined to a lesser extent
than recruiting during the three months ended September 30, 2012 and increased
during the nine months ended September 30, 2012 versus the comparable periods in
2011. The trend in new life license activity was driven by our efforts to
balance the emphasis on recruiting and licensing in both our messaging and
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:
                                   September 30,     June 30,      March 

31, December 31,

                                       2012            2012          2012   

2011

There are No Baby Steps in Sales.

Life-licensed insurance sales
representatives                          91,506        90,868        89,651 

91,176



The size of our life-licensed insurance sales force at September 30, 2012
increased since June 30, 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


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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 September 30,     Nine months ended September 30,
                                   2012              2011              2012              2011
Average number of
life-licensed sales
representatives                       91,229          91,302              90,635          92,031
Number of new policies
issued                                53,506          65,067             170,234         176,174
Average monthly rate of new
policies issued per
life-licensed sales
representative                          .20x            .24x                .21x            .21x


The average monthly rate of new policies issued per life-licensed sales
representative declined during the three months ended September 30, 2012 in
comparison to the prior year period primarily due to the post-convention
recruiting surge that generated significant sales referrals and opportunities in
the third quarter of 2011.
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

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

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.

• Investment Yields. We use investment yield rates based on yields available

at the time a policy is issued. 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


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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% 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.


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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.
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.
On August 6, 2012, our Board of Directors authorized a share repurchase program
of up to $75.0 million of the Company's common stock (the "$75.0 million share
repurchase program") using proceeds obtained from the


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issuance of senior notes. During the three months ended September 30, 2012, we
repurchased approximately 0.3 million shares of our common stock on the open
market for an aggregate purchase price of approximately $9.1 million. In October
2012, we completed the repurchase of approximately 2.1 million shares of our
common stock owned by Warburg Pincus for a purchase price of approximately $60.0
million. The $75.0 million share repurchase program was discontinued upon the
completion of the share repurchase from Warburg Pincus. In total, we repurchased
approximately 2.6 million shares of our common stock for an aggregate purchase
price of approximately $74.3 million under the $75 million share repurchase
program.
In addition, in November 2011 we repurchased approximately 8.9 million shares of
our common stock from Citi for approximately $200.0 million 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 4.75%. We used the remaining proceeds
primarily to fund the $75.0 million share repurchase program.


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

                      Three months ended September 30,              Change              Nine months ended September 30,             Change
                          2012                 2011              $           %              2012                 2011            $           %
                                                                       (Dollars in thousands)
Revenues:
Direct premiums    $       567,273       $       560,739     $  6,534       

1 % $ 1,698,383 $ 1,673,689$ 24,694 1 % Ceded premiums

            (414,991 )            (425,643 )    (10,652 )     

(3 )% (1,248,969 ) (1,283,445 ) (34,476 ) (3 )% Net premiums

               152,282               135,096       17,186        13  %            449,414            390,244       59,170       15  %
Commissions and
fees                       104,337               100,883        3,454         3  %            315,003            315,697         (694 )      *
Net investment
income                      26,881                27,103         (222 )      (1 )%             76,583             82,958       (6,375 )     (8 )%
Realized
investment gains
(losses),
including OTTI
losses                       3,872                  (178 )      4,050         *                10,324              2,184        8,140        *
Other, net                  11,716                12,887       (1,171 )      (9 )%             34,890             36,155       (1,265 )     (3 )%
Total revenues             299,088               275,791       23,297         8  %            886,214            827,238       58,976        7  %
Benefits and
expenses:
Benefits and
claims                      70,738                64,101        6,637        10  %            207,596            179,008       28,588       16  %
Amortization of
DAC                         29,234                26,645        2,589        10  %             83,970             73,849       10,121       14  %
Sales commissions           49,370                47,135        2,235         5  %            150,562            147,846        2,716        2  %
Insurance expenses          23,744                22,133        1,611         7  %             70,777             64,919        5,858        9  %
Insurance
commissions                  6,684                10,538       (3,854 )     (37 )%             21,638             29,070       (7,432 )    (26 )%
Interest expense             8,828                 7,000        1,828        26  %             24,244             20,995        3,249       15  %
Other operating
expenses                    39,934                42,732       (2,798 )      (7 )%            121,485            124,323       (2,838 )     (2 )%
Total benefits and
expenses                   228,532               220,284        8,248         4  %            680,272            640,010       40,262        6  %
Income before
income taxes                70,556                55,507       15,049        27  %            205,942            187,228       18,714       10  %
Income taxes                24,957                20,409        4,548        22  %             72,407             67,239        5,168        8  %
Net income         $        45,599       $        35,098     $ 10,501        30  %   $        133,535       $    119,989     $ 13,546       11  %

____________________

* Less than 1% or not meaningful
Results for the Three and Nine Months Ended September 30, 2012 and 2011
Total revenues. The increase in revenues was primarily 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
share repurchase transactions in November 2011 and April 2012. The reduction in
the average book yield of our fixed-maturity portfolio, which reflects the
current interest rate environment, also contributed a moderate decrease in net
investment income. The decline in net investment income during the three months
ended September 30, 2012 was tempered by income from certain called securities
of approximately $1.8 million and recovery of interest of approximately $1.0
million on a previously defaulted security. Realized investment gains were
higher during 2012 due to income received from certain fixed income securities
that were tendered during the third quarter and gains from sales of invested
assets to fund share repurchases.
Total benefits and expenses. Total benefits and expenses increased in 2012
primarily as a result of the growth in premium-related costs, which include
benefits and claims, amortization of DAC and insurance expenses. This increase
was partially offset by declines in insurance commissions reflecting higher
deferrals of commissions consistent with incentive program changes.
Income taxes. Our effective income tax rate of 35.4% during the three months
ended September 30, 2012 was lower than our effective income tax rate of 36.8%
during the three months ended September 30, 2011. For the nine


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months ended September 30, 2012, our effective income tax rate was 35.2%,
compared with 35.9% for the nine months ended September 30, 2011. The lower
effective income tax rate during the three and nine months ended September 30,
2012 versus the comparable period in 2011 was primarily driven by decreasing
Canadian statutory income tax rates combined with capital planning decisions for
Canadian unremitted earnings.
For additional information, see the Segment Results discussions below.
Segment Results
Term Life Insurance Segment Results. Our results for the Term Life Insurance
segment were as follows:
                     Three months ended September 30,              Change              Nine months ended September 30,             Change
                         2012                 2011              $           %              2012                 2011            $           %
                                                                      (Dollars in thousands)
Revenues:
Direct premiums   $       549,068       $       539,693     $  9,375        

2 % $ 1,641,555 $ 1,612,143$ 29,412 2 % Ceded premiums

           (411,240 )            (421,933 )    (10,693 )      

(3 )% (1,237,837 ) (1,272,477 ) (34,640 ) (3 )% Net premiums

              137,828               117,760       20,068        17  %            403,718            339,666       64,052       19  %
Allocated net
investment income          18,395                15,664        2,731        17  %             51,740             47,127        4,613       10  %
Other, net                  7,788                 8,289         (501 )      (6 )%             23,089             23,523         (434 )     (2 )%
Total revenues            164,011               141,713       22,298        16  %            478,547            410,316       68,231       17  %
Benefits and
expenses:
Benefits and
claims                     60,733                52,067        8,666        17  %            178,226            143,339       34,887       24  %
Amortization of
DAC                        27,645                22,289        5,356        24  %             74,125             62,310       11,815       19  %
Insurance
commissions                 2,169                 5,632       (3,463 )     (61 )%              8,060             15,015       (6,955 )    (46 )%
Insurance
expenses                   20,531                19,186        1,345         7  %             62,030             55,626        6,404       12  %
Interest expense            4,357                 2,875        1,482        52  %             11,523              8,620        2,903       34  %
Total benefits
and expenses              115,435               102,049       13,386        13  %            333,964            284,910       49,054       17  %

Income before income taxes $ 48,576 $ 39,664 $ 8,912 22 % $ 144,583 $ 125,406$ 19,177 15 %



Results for the Three Months Ended September 30, 2012 and 2011
Net premiums. The increase in net premiums is primarily due to the continued
addition of New Term in-force business combined with the run off of business
subject to the Citi reinsurance transactions.  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 continue to grow
faster than direct premiums, albeit at a declining rate of growth.
Allocated net investment income. The increase in allocated net investment income
was attributable to the increase in Term Life assets underlying the growth in
the in-force business and income from certain called securities.
Benefits and claims. Benefits and claims increased primarily due to the growth
in net premiums. Incurred claims were consistent with the prior-year period.
Amortization of DAC. The impact of moderately lower persistency during the
quarter for recent policy issue years resulted in DAC amortization increasing at
a higher 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 the 2012 period.
Insurance expenses. The increase in insurance expenses is mainly due to higher
premium-related taxes, licenses and fees as well as the run-off of expense
allowances received under the Citi reinsurance agreements. Also contributing to
the increase was the emergence of higher spending for information technology
contracts.
Interest expense. Interest expense increased primarily due to the redundant
reserve financing executed in March


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2012.

Results for the Nine Months Ended September 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 remaining
increase in net premiums was largely attributable to reprocessed reinsurance
transactions in the second quarter of 2012 that were substantially offset by a
corresponding increase in benefits and claims.
Allocated net investment income. The increase in allocated net investment income
was a result of the growth in Term Life assets.
Benefits and claims. The increase in benefits and claims was mainly attributable
to the factors discussed above in the three-month comparison and the
reprocessing of certain transactions noted above.
Amortization of DAC. The increase in amortization of DAC was consistent with the
increase in net premiums.
Insurance commissions. The decrease in insurance commissions was primarily
driven by changes to our agent incentive program discussed above in the
three-month comparison.
Insurance expenses. Insurance expenses increased in 2012 mainly due to the
factors discussed above in the three-month comparison as well as prior-year
favorable expense items including the release of management incentive
compensation accruals. The impact of these factors were partially offset by
expenses in the prior year for new product launches and recruiting initiatives
associated with the biennial sales force convention in June 2011.
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 September 30,     Nine months ended September 30,
                                   2012              2011              2012              2011
New policies issued                   53,506          65,067             170,234         176,174


Lower sales of our term life insurance products was primarily due to the impact
that the recruiting surge from the June 2011 biennial convention had on third
quarter 2011 policy sales. The surge in new recruits translated to increased
sales opportunities and significantly impacted the number of new policies issued
in the third quarter of 2011. The decline during the nine months ended September
30, 2012 was not as significant because increased productivity during the first
half of 2012 resulted in a higher volume of policies issued compared with the
first half of 2011.


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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 September 30,              Change              Nine months ended September 30,              Change
                        2012                 2011              $           %             2012                 2011              $           %
                                                                      (Dollars in millions)
Face amount in
force, beginning
of period        $       668,024       $       663,617     $  4,407        1  %   $       664,955       $       656,791     $  8,164        1  %
Issued face
amount                    16,345                18,885       (2,540 )    (13 )%            51,635                54,594       (2,959 )     (5 )%
Terminations             (15,566 )             (16,221 )       (655 )     (4 )%           (46,196 )             (48,192 )     (1,996 )     (4 )%
Foreign currency             328                   (99 )        427        *               (1,263 )               2,989       (4,252 )      *
Face amount in
force, end of
period           $       669,131       $       666,182     $  2,949        

* $ 669,131 $ 666,182 $ 2,949 *

____________________

* Less than 1% or not meaningful
Issued face amount decreased during 2012 due to the impact that the recruiting
surge in 2011 had on new policies issued in the prior year combined with the
lower average size of policies issued for TermNow. Terminations decreased in
2012 as a result of higher persistency mainly on older policy issue years.
Investment and Savings Product Segment Results. Investment and Savings Products
segment results were as follows:
                    Three months ended                                 Nine months ended
                       September 30,               Change                September 30,                 Change
                     2012          2011          $          %          2012          2011           $           %
                                                       (Dollars in thousands)
Revenues:
Commissions and
fees:
Sales-based
revenues         $   43,120     $ 42,244     $   876        2  %   $  134,856     $ 130,276     $  4,580        4  %
Asset-based
revenues             45,627       41,996       3,631        9  %      133,099       132,169          930        1  %
Account-based
revenues              9,826       10,140        (314 )     (3 )%       28,693        32,383       (3,690 )    (11 )%
Other, net            2,590        3,106        (516 )    (17 )%        7,616         8,090         (474 )     (6 )%
Total revenues      101,163       97,486       3,677        4  %      304,264       302,918        1,346        *
Expenses:
Amortization of
DAC                   1,411        4,034      (2,623 )    (65 )%        7,514        10,570       (3,056 )    (29 )%
Insurance
commissions           2,322        2,277          45        2  %        6,723         6,761          (38 )     (1 )%
Sales
commissions:
Sales-based          30,521       29,640         881        3  %       95,406        91,583        3,823        4  %
Asset-based          15,557       13,805       1,752       13  %       45,334        44,367          967        2  %
Other operating
expenses             19,744       20,982      (1,238 )     (6 )%       59,365        61,380       (2,015 )     (3 )%
Total expenses       69,555       70,738      (1,183 )     (2 )%      214,342       214,661         (319 )      *
Income before
income taxes     $   31,608     $ 26,748     $ 4,860       18  %   $   89,922     $  88,257     $  1,665        2  %





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Supplemental information on the underlying metrics that drove results follows.
                    Three months ended                                  Nine months ended
                       September 30,                Change                September 30,                Change
                     2012          2011          $           %          2012          2011          $           %
                                           (Dollars in millions and accounts in thousands)
Product sales:
Retail mutual
funds            $      546     $    498     $     48       10  %   $    1,747     $  1,747     $      -        *
Annuities and                                     (38 )
other                   445          483                    (8 )%        1,374        1,286           88        7  %
Total
sales-based
revenue
generating
product sales           991          981           10        1  %        3,121        3,033           88        3  %
Managed accounts         37           12           25        *             100           12           88        *
Segregated funds
and other                64           67           (3 )     (4 )%          252          264          (12 )     (5 )%
Total product
sales            $    1,092     $  1,060     $     32        3  %   $    3,473     $  3,309     $    164        5  %
Average client
asset values:
Retail mutual
funds            $   23,750     $ 23,500     $    250        1  %   $   23,723     $ 24,571     $   (848 )     (3 )%
Annuities and                                   1,053
other                 9,245        8,192                    13  %        8,978        8,341          637        8  %
Managed accounts        425           21          404        *             321            7          314        *
Segregated funds      2,542        2,479           63        3  %        2,523        2,501           22        1  %
Total average
client asset
values           $   35,962     $ 34,192     $  1,770        5  %   $   35,545     $ 35,420     $    125        *
Average number
of
fee-generating
accounts:
Recordkeeping
accounts              2,552        2,626          (74 )     (3 )%        2,573        2,633          (60 )     (2 )%
Custodial
accounts              1,945        1,959          (14 )     (1 )%        1,946        1,955           (9 )      *

_____________________

* Less than 1% or not meaningful
Results for the Three Months Ended September 30, 2012 and 2011
Total revenues. The increase in commissions and fees in 2012 was largely driven
by higher average client asset values as well as a moderate increase in product
sales. Higher asset-based revenues were primarily the result of the increase in
average client asset values, which reflect market conditions combined with an
increase in sales mix towards managed accounts products launched in 2011. The
distribution of managed accounts results in higher ongoing asset-based revenues
in lieu of upfront sales-based revenues. The increase in product sales was
driven by higher mutual fund sales and new offerings of fixed-indexed annuities,
which was partially offset by a decline in variable annuity sales largely
related to lower internal exchanges. The increases in total revenues were
slightly offset by a recordkeeping fee structure change that resulted in a
decrease in account-based revenues and other operating expenses.
Amortization of DAC. The decrease in DAC amortization on our Canadian Segregated
Funds products in 2012 resulted primarily from market returns in the invested
assets underlying Canadian Segregated Funds that showed strong improvement from
the market losses experienced in the prior-year period.
Sales commissions. The increase in commissions in 2012 was primarily the result
of the increase in sales and asset-based revenues discussed above.
Other operating expenses. Other operating expenses decreased primarily due to
the impact of the recordkeeping fee structure change, which was offset by
decreased account-based revenue.
Results for the Nine Months Ended September 30, 2012 and 2011
Total revenues. Commissions and fees increased slightly as higher sales from
annuity products were largely offset by the decline in account-based revenue
from the recordkeeping fee structure change. Asset-based revenues increased
modestly as higher revenue from managed accounts was offset by lower average
client asset values during the first six months of 2012 due to market
conditions.


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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 third and second quarter of 2012.
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 nine
months ended September 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
                       September 30,                 Change             Nine months ended September 30,             Change
                    2012           2011           $           %            2012                 2011             $           %
                                                              (Dollars in millions)
Asset values,
beginning of
period          $  35,286       $  36,020     $   (734 )     (2 )%   $     

33,664 $ 34,869 $ (1,205 ) (3 )% Inflows

             1,092           1,060           32        3  %            3,473                3,310          163        5  %

Redemptions (1,014 ) (1,091 ) (77 ) (7 )%

  (3,391 )             (3,292 )         99        3  %
Change in
market value,
net and other       1,540          (4,365 )      5,905        *               3,158               (3,263 )      6,421        *
Asset values,
end of period   $  36,904       $  31,624     $  5,280       17  %   $      

36,904 $ 31,624 $ 5,280 17 %

____________________

* Not meaningful
The increase in asset values in 2012 was primarily attributable to favorable
market conditions. The growth in inflows was consistent with the increase in
sales volume for both the quarter-to-date and year-to-date periods. Redemptions
declined during the three months ended September 30, 2012 largely due to a
decrease in the volume of internal exchanges for variable annuities. For the
nine months ended September 30, 2012, the rate of redemptions relative to
average client asset values remained consistent with the nine months ended
September 30, 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 September 30,           Change              Nine months ended September 30,              Change
                      2012               2011           $           %             2012                 2011              $           %
                                                                 (Dollars in thousands)
Revenues:
Direct premiums $       18,205       $   21,046     $ (2,841 )    (13 )%   $        56,828       $        61,545     $ (4,717 )     (8 )%
Ceded premiums          (3,751 )         (3,710 )         41        1  %           (11,132 )             (10,969 )        163        1  %
Net premiums            14,454           17,336       (2,882 )    (17 )%            45,696                50,576       (4,880 )    (10 )%
Commissions and
fees                     5,764            6,502         (738 )    (11 )%            18,355                20,868       (2,513 )    (12 )%
Allocated net
investment
income                   8,486           11,439       (2,953 )    (26 )%            24,843                35,831      (10,988 )    (31 )%
Realized
investment
gains (losses),
including OTTI
losses                   3,872             (178 )      4,050        *               10,324                 2,184        8,140        *
Other, net               1,338            1,493         (155 )    (10 )%             4,185                 4,545         (360 )     (8 )%
Total revenues          33,914           36,592       (2,678 )     (7 )%           103,403               114,004      (10,601 )     (9 )%
Benefits and
expenses:
Benefits and
claims                  10,005           12,034       (2,029 )    (17 )%            29,370                35,670       (6,300 )    (18 )%
Amortization of
DAC                        178              323         (145 )    (45 )%             2,331                   970        1,361      140  %
Insurance
commissions              2,193            2,627         (434 )    (17 )%             6,855                 7,291         (436 )     (6 )%
Insurance
expenses                 3,213            2,947          266        9  %             8,747                 9,293         (546 )     (6 )%
Sales
commissions              3,292            3,692         (400 )    (11 )%             9,822                11,898       (2,076 )    (17 )%
Interest
expense                  4,471            4,125          346        8  %            12,721                12,375          346        3  %
Other operating
expenses                20,190           21,749       (1,559 )     (7 )%            62,120                62,942         (822 )     (1 )%
Total benefits
and expenses            43,542           47,497       (3,955 )     (8 )%           131,966               140,439       (8,473 )     (6 )%
Loss before
income taxes    $       (9,628 )     $  (10,905 )   $ (1,277 )    (12 )%   $       (28,563 )     $       (26,435 )   $  2,128        8  %

____________________

* Less than 1% or not meaningful
Results for the Three Months Ended September 30, 2012 and 2011
Total revenues. Total revenues decreased in 2012 primarily due to lower net
investment income from a lower average base of invested assets subsequent to
share repurchases in November 2011 and April 2012 and a higher allocation to the
Term Life segment. The decline also resulted from the termination of our loan
business and a decrease in our short-term disability product line. These
decreases were partially offset by realized investment gains due to income
received from certain fixed income securities that were tendered during the
third quarter.
Total benefits and expenses. The decrease in benefits and claims is primarily
due to lower claims on short-term disability products. The decline in other
operating expenses is largely attributable to a $2.7 million print inventory
charge incurred in 2011 due to the discontinuation of carrying inventory in our
print operations. Partially offsetting the decrease in other operating expenses
are higher employee compensation costs from merit increases and an additional
year of stock compensation amortization following our corporate reorganization.
Results for the Nine Months Ended September 30, 2012 and 2011
Total revenues. The decrease in total revenues was largely attributable to the
factors discussed in the three-month comparison above. In addition, the
remaining increase in realized investment gains during the nine-month period is
primarily the result of gains realized from the sale of invested assets sold to
fund 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


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estimates for the student life products. The decrease in other operating
expenses is primarily driven by the items discussed above in the three-month
comparison.
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:
                                                     September 30, 2012

December 31, 2011


Average rating of our fixed-maturity portfolio               A              

A

Average duration of our fixed-maturity portfolio 3.8 years

   3.5 years
Average book yield of our fixed-maturity portfolio         5.30%            

5.52%



The distribution of our investments in fixed-maturity securities by rating
follows.
                         September 30, 2012         December 31, 2011
                        Amortized cost     %      Amortized cost     %
                                    (Dollars in thousands)
AAA                    $       345,163    20%    $       428,748    24%
AA                             144,648     8%            150,894     8%
A                              413,323    24%            431,175    24%
BBB                            747,369    43%            683,818    38%
Below investment grade          91,160     5%            125,594     7%
Not rated                        4,054     *                 770     *
Total (1)              $     1,745,717    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:
                                                            September 30, 2012
                                      Cost or amortized        Fair          Unrealized       Credit
Issuer                                      cost               value            gain          rating
                                                          (Dollars in thousands)
Government of Canada                 $          29,584     $    33,157     $      3,573        AAA
General Electric Co                             15,373          17,265            1,892         AA
International Business Machines Corp            12,316          13,640            1,324        AA-
Bank of America Corp                            11,122          12,252            1,130         A-
Verizon Communications Inc                       9,501          10,991            1,490         A-
Iberdrola SA                                     9,444          10,655            1,211        BBB+
ProLogis Inc                                     9,414          10,425            1,011        BBB-
Province of Ontario Canada                       9,168          11,725            2,557        AA-
National Rural Utilities Cooperative             7,186          10,585            3,399         A+
Province of Quebec Canada                        7,060           8,967            1,907         A+
Total - ten largest holdings         $         120,168     $   139,662     $     19,494
Total - fixed-maturity and equity
securities                           $       1,774,625     $ 1,966,230
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 September 30, 2012 decreased 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 dividends, the payment of interest to noteholders, and the payment of
general operating expenses. At September 30, 2012, the Parent Company had cash
and invested assets of approximately $134.9 million, of which approximately
$65.2 million was subsequently deployed for share repurchases in October 2012.
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.


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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:
                                                 Nine months ended September 30,           Change
                                                    2012                  2011               $
                                                                  (In thousands)
Net cash provided by (used in) operating
activities                                   $        107,393       $       13,330     $     94,063
Net cash provided by (used in) investing
activities                                             54,349               24,944           29,405
Net cash provided by (used in) financing
activities                                           (112,737 )             (9,411 )       (103,326 )
Effect of foreign exchange rate changes on
cash                                                      740               

(874 ) 1,614 Change in cash and cash equivalents $ 49,745 $ 27,989 $ 21,756



Operating Activities. Net cash provided by operating activities increased
primarily due to cash received from the collection of premium revenue in excess
of benefits and claims paid in our New Term business. The additional layering of
net premiums from our New Term business has generated positive incremental cash
flows after payments are made for policy acquisition costs during the first year
that policies are issued. Cash provided by operating activities also increased
due to a difference in the timing of when payments were due to Citi for
coinsurance activity. Proceeds from the sale of trading investments to fund the
share repurchases further contributed to the increase in cash provided by
operating activities. These items were partially offset by a decrease in cash
resulting from the timing of amounts due from reinsurers.
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
available-for-sale investments to fund share repurchases.
Financing Activities. The increase in net cash used in financing activities in
2012 was due to share repurchases and higher quarterly cash dividends, which was
partially offset by increased borrowings from the refinancing of our notes
payable.
Notes Payable. In April 2010, we issued a $300.0 million note to Citi as part of
our corporate reorganization. On July 16, 2012, we publicly 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 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.
We were in compliance with the covenants of the Senior Notes at September 30,
2012. No events of default or defaults occurred on the Senior Notes or the Citi
Note during the nine months ended September 30, 2012. 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 September 30, 2012,
our debt-to-capital ratio was 21.9%.
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 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


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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 September 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 September 30,
2012, as determined by OSFI.
Short-term Borrowings. We had no short-term borrowings as of or during the nine
months ended September 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.
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 as of September 30, 2012 were as
follows:
                                             Payments remaining       Payments in         Payments in       Payments in 2019
                          Total payments           in 2012             2013-2015           2016-2018           and after
                                                                    (in millions)
Interest on LOC         $           56.7     $             3.2     $          20.6     $          17.3     $           15.6
Principal and interest
on Senior Notes (1)                553.0                     -                53.4                53.4                446.2
Fees for enterprise
software licensing and
maintenance contractual
agreement                           16.3                   1.4                14.9                   -                    -
Purchase obligations
under managed accounts
advisory contractual
agreement                           16.3                   0.3                 7.5                 7.5                  1.0


____________________

(1) On July 16, 2012, the outstanding principal amount plus all accrued and

unpaid interest on the Citi Note was repaid with proceeds received from the

    issuance of the Senior Notes. No remaining payments or contractual
    obligations remain on the Citi Note as of September 30, 2012.


           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


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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
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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