PRIMERICA, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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", "us" or the "Company") for
the period from December 31, 2021 to March 31, 2022 . As a result, the following
discussion should be read in conjunction with MD&A and the consolidated
financial statements and notes thereto that are included in our Annual Report on
Form 10-K for the year ended December 31, 2021 ("2021 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 2021 Annual Report and in Item 1A of this 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 • Business Trends and Conditions • Factors Affecting Our Results • Critical Accounting Estimates • Results of Operations • Financial Condition • Liquidity and Capital Resources
Business Overview
We are a leading provider of financial products to middle-income households inthe United States and Canada primarily through a network of independent contractor sales representatives ("independent sales representatives" or "independent sales force"). We assist our clients in meeting their needs for term life insurance, which we underwrite, and mutual funds, annuities, managed investments and other financial products, which we distribute primarily on behalf of third parties. We historically have had two primary operating segments,Term Life Insurance and Investment and Savings Products, and a third segment, Corporate and Other Distributed Products. OnJuly 1, 2021 , we acquired 80% of e-TeleQuote Insurance, Inc. and subsidiaries (collectively, "e-TeleQuote") through our subsidiary,Primerica Health, Inc. ("Primerica Health "). e-TeleQuote markets Medicare-related insurance products underwritten by third-party health insurance carriers to eligible Medicare participants through its licensed health insurance agents. BeginningJuly 1, 2021 , the Company has reported the operations of e-TeleQuote as its own operating segment calledSenior Health . e-TeleQuote licensed health insurance agents are employees of e-TeleQuote.Term Life Insurance . We distribute the term life insurance products that we underwrite through our three issuing life insurance company subsidiaries:Primerica Life Insurance Company ("Primerica Life"),National Benefit Life Insurance Company ("NBLIC"), andPrimerica Life Insurance Company of Canada ("Primerica Life Canada"). Policies remain in-force until the expiration of the coverage period or until the policyholder ceases to make premium payments. Our in-force term life 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 typically remain level during the initial term period, 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. Investment and Savings Products. Inthe United States , we distribute mutual funds, managed investments, variable annuity, and fixed annuity products of several third-party companies. We provide investment advisory and administrative services for client assets invested in our managed investments program. We also perform distinct transfer agent recordkeeping services and non-bank custodial services for investors purchasing certain mutual funds we distribute. In Canada, we offer our own Primerica-branded mutual funds, as well as mutual funds of other companies, and segregated funds, which are underwritten byPrimerica Life Canada .Senior Health . Inthe United States , we distribute Medicare-related insurance products nationwide to eligible Medicare participants and enroll them in coverage utilizing e-TeleQuote's team of licensed health insurance agents. The health insurance products we distribute are underwritten and administered by third-party health insurance carriers and primarily consist of Medicare Advantage enrollments. Contract acquisition costs are incurred upfront when policy applications are approved and include costs associated with generating or acquiring leads as well as fees paid toPrimerica Senior Health certified independent sales representatives and compensation, licensing, and training costs incurred for e-TeleQuote's workforce of licensed health insurance agents. We receive compensation from the health insurance carriers in the form of initial commissions when eligible Medicare participants are enrolled and renewal commissions, upon the anniversary of the effective date, for as long as policies remain in-force. Corporate and Other Distributed Products. The Corporate and Other Distributed Products segment consists primarily of revenues and expenses related to other distributed products, including closed blocks of various insurance products underwritten by NBLIC, prepaid legal services, mortgage originations, and other financial products. These products, except for closed blocks of various insurance products underwritten by NBLIC, are distributed pursuant to distribution arrangements with third-party companies through the 26 --------------------------------------------------------------------------------
independent sales force. Net investment income earned on our invested asset
portfolio is recorded in the Corporate and Other Distributed Products segment,
with the exception of the assumed net interest accreted to the
Insurance
acquisition costs. Interest expense incurred by the Company is attributed
solely to the Corporate and Other Distributed Products segment.
Business Trends and Conditions
The relative strength and stability of financial markets and economies inthe 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, consumer confidence and inflation, 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 an independent sales representative offers, which can drive or dampen recruiting. Similarly, these conditions also affect e-TeleQuote's ability to recruit and retain licensed health insurance agents. Consumer spending and borrowing levels affect how consumers evaluate their savings and debt management plans. In addition, interest rates and equity market returns impact consumer demand for the savings and investment products we distribute. Our customers' perception of the strength of the capital markets may influence their decisions to invest in the investment and savings products we distribute. The financial and distribution results of our operations inCanada , as reported inU.S. dollars, are affected by changes in the currency exchange rate. As a result, changes in the Canadian dollar exchange rate may significantly affect the result of our business for all amounts translated and reported inU.S. dollars. The COVID-19 ("COVID-19") pandemic has continued to impact our business in 2022, but to a lesser extent than in 2021, as discussed in more detail later in this section, the Results of Operations section, and the Financial Condition section. We are unsure as to the extent COVID-19 will continue to impact our business as described below:
• We have experienced an increase in mortality expense due to premature
deaths of our insureds caused by COVID-19 infections. We expect that
vaccinations, anti-viral treatments, and higher levels of immunity will
eventually cause our elevated mortality experience to normalize to
historical levels. During
related claims. However, it remains difficult to predict the ultimate
impact the COVID-19 pandemic will have on our mortality expense in future
periods.
• The COVID-19 pandemic initially led to high levels of persistency and
increased policy sales as a result of strong client sentiment towards
owning life insurance products. However, throughout the second half of 2021
and the first quarter of 2022, policy sales began to trend back to
pre-COVID-19 levels. Overall persistency levels remain elevated from
pre-COVID-19 levels but are lower than we experienced at the peak of the
pandemic. Refer to the Factors Affecting Our Results section for more
information about how persistency impacts our financial results.
The effects of business trends and conditions on our quarterly results are
discussed below, in the Results of Operations section, and in the Financial
Condition section.
Size of the Independent Sales Force.
Our ability to increase the size of the independent sales force is largely based
on the success of the independent sales force's recruiting efforts as well as
training and motivating recruits to get licensed to sell life insurance. We
believe that recruitment and licensing levels are important to independent sales
force trends, and growth in recruiting and licensing is usually indicative of
future growth in the overall size of the independent sales force. Changes in the
number of new recruits do not always result in commensurate changes in the size
of the licensed independent sales force because new recruits may obtain the
requisite licenses at rates above or below historical levels.
Details on new recruits and life-licensed independent sales representative
activity were as follows:
Three months ended March 31,
2022 2021
New recruits 84,707 94,633
New life-licensed independent sales
representatives 9,983
10,833
Life-licensed independent sales representatives, at period end 130,206 132,030 The number of new recruits decreased during the three months endedMarch 31, 2022 primarily due to COVID-19 related recruiting incentives offered during the three months endedMarch 31, 2021 , which led to elevated recruiting results. During the three months endedMarch 31, 2022 , the Company recruited approximately 85,000 individuals, which is strong and demonstrates the attractiveness of the Primerica business opportunity. New life-licensed sales representatives decreased during the three months endedMarch 31, 2022 compared to the same period in 2021 primarily due to the availability of COVID-19 related temporary licenses offered by certain states in the prior year period. During the 27 -------------------------------------------------------------------------------- three months endedMarch 31, 2022 , the Company began to see improved attendance at in-person licensing classes, which led to the number of new life licenses increasing each month during the period. The Company had 130,206 independent life-licensed representatives as ofMarch 31, 2022 compared to 132,030 as ofMarch 31, 2021 . The number of life-licensed independent representatives as ofMarch 31, 2021 included approximately 2,400 individuals with temporary licenses or renewal extensions offered by states as a result of the COVID-19 pandemic. Adjusting for these COVID-related temporary licenses and extensions, the number of life-licensed independent sales representatives remained largely unchanged fromMarch 31, 2021 compared toMarch 31, 2022 . In addition, the Company saw the effect of recent licensing efforts as the number of life-licensed representatives increased on a sequential quarter basis.
Term Life Insurance Product Sales and Face Amount In-Force.
The average number of life-licensed independent 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 independent sales representative
(historically between 0.18 and 0.22), were as follows:
Three months ended
2022
2021
Average number of life-licensed independent sales representatives 129,494
132,875
Number of new policies issued 71,324
82,667
Average monthly rate of new policies issued per life-licensed independent sales representative 0.18
0.21
New policies issued during the three months endedMarch 31, 2022 normalized toward pre-pandemic levels compared to more elevated levels experienced during the comparable period in 2021. New policies issued during the three months endedMarch 31, 2021 reflected elevated demand for protection products as the COVID-19 pandemic highlighted the need for protection products. Productivity during the three months endingMarch 31, 2022 , measured by the average monthly rate of new policies issued per life-licensed independent sales representative, was in line with our historical range. The changes in the face amount of our in-force book of term life insurance policies were as follows: Three months ended March 31, % of beginning % of beginning 2022 balance 2021 balance (Dollars in millions) Face amount in force, beginning of period$ 903,404 $
858,818
Net change in face amount: Issued face amount 24,773 3 % 26,643 3 % Terminations (19,787 ) (2 )% (17,240 ) (2 )% Foreign currency 1,242 * 1,422 * Net change in face amount 6,228 1 % 10,825 1 % Face amount in force, end of period$ 909,632 $ 869,643 * Less than 1%. The face amount of term life policies in-force increased 1% for the three months endedMarch 31, 2022 as the level of face amount issued continued to exceed the face amount terminated. As a percentage of the beginning face amount in-force, issued face amount as well as terminated face amount during the three months endedMarch 31, 2022 remained consistent with the comparable 2021 period. In dollar terms, issued face amount during the three months endedMarch 31, 2022 was lower than the comparable 2021 period while terminations were higher during the three months endedMarch 31, 2022 than the comparable 2021 period. The trend illustrates that the demand for both buying and maintaining protection products are returning to pre-pandemic levels.
Investment and Savings Products Sales, Asset Values and Accounts/Positions.
Investment and savings products sales and average client asset values were as
follows:
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Three months ended March 31, Change
2022 2021 $ %
(Dollars in millions)
Product sales:
Retail mutual funds $ 1,736 $ 1,686 $ 50 3 %
Annuities and other 726 683 43 6 %
Total sales-based revenue
generating product sales 2,462 2,369 93 4 %
Managed investments 454 330 124 37 %
Segregated funds and other 150 155 (5 ) (4 )%
Total product sales $ 3,066 $ 2,854 $ 212 7 %
Average client asset values:
Retail mutual funds $ 58,548 $ 51,429 $ 7,119 14 %
Annuities and other 25,868 23,785 2,083 9 %
Managed investments 7,077 5,295 1,782 34 %
Segregated funds 2,710 2,622 88 3 %
Total average client asset values $ 94,203 $ 83,131
The rollforward of asset values in client accounts was as follows:
Three months ended March 31,
2022 % of beginning balance 2021 % of beginning balance
(Dollars in millions)
Asset values, beginning of period $ 97,312 $ 81,533
Net change in asset values:
Inflows 3,066 3 % 2,854 4 %
Redemptions (1,900 ) (2 )% (1,759 ) (2 )%
Net flows 1,166 1 % 1,095 1 %
Change in fair value, net (4,941 ) (5 )% 3,088 4 %
Foreign currency, net 171 * 172 *
Net change in asset values (3,604 ) (4 )% 4,355 5 %
Asset values, end of period $ 93,708 $ 85,888
* Less than 1%.
Average number of fee-generating positions was as follows:
Three months ended March 31, Change
2022 2021 Positions %
(Positions in thousands)
Average number of fee-generating
positions (1): Recordkeeping and custodial 2,243 2,115 128 6 % Recordkeeping only 797 714 83 12 % Total average number of fee- generating positions 3,040 2,829
211 7 %
(1) We receive recordkeeping fees by mutual fund positions. An individual client
account may include multiple mutual fund positions. We may also receive
fees, which are earned on a per account basis, for custodial services that
we provide to clients with retirement plan accounts that hold positions in
these mutual funds.
Changes in Investment and Savings Products Sales, Asset Values and
Accounts/Positions During the Three Months Ended
Product sales. Investment and savings products sales increased during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 led by higher sales of variable annuities, retail mutual funds and managed accounts. This increase is mainly due to investor demand created by the prolonged strength in equity market conditions leading into the quarter. However, as the quarter progressed, market volatility caused investor demand to moderate. Average client asset values. Average client asset values increased for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 primarily due to continued market appreciation between the periods and continued positive net flows. Rollforward of client asset values. Ending client asset values decreased during the three months endedMarch 31, 2022 compared to an increase in the three months endedMarch 31, 2021 . Negative performance driven by market volatility led to the decrease during the 2022 period compared to strong market performance leading to an increase during the comparable 2021 period. Continued inflows from product sales, which outpaced redemptions, reflected strong sales demand in both the 2022 and 2021 periods. Net flows as a percentage of beginning assets remained consistent between the periods. Market performance was down during the three months endedMarch 31, 2022 compared to strong market performance in the comparable 2021 period. 29
-------------------------------------------------------------------------------- Average number of fee-generating positions. The average number of fee-generating positions increased during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 primarily due to the cumulative effect of retail mutual fund sales in recent periods that led to an increase in the number of retail mutual fund positions serviced on our transfer agent recordkeeping platform.
Senior Health Key Performance Indicators.
Submitted Policies and Approved Policies
Submitted policies. Submitted policies represents the number of completed applications that, with respect to each such application, the applicant has authorized e-TeleQuote to submit to the health insurance carrier. The applicant may need to take additional actions, including providing subsequent information, before the application is reviewed by the health insurance carrier. Approved policies. Approved policies represent an estimate of submitted policies approved by the health insurance carriers for the identified product during the indicated period. Not all approved policies will go in force. In general, the relationship between submitted policies and approved policies has been seasonally consistent over time. Therefore, factors impacting the number of submitted policies generally impact the number of approved policies. The number ofSenior Health submitted policies and approved policies were as follows: Three months endedMarch 31, 2022 2021 (1) Number ofSenior Health submitted policies 26,231
N/A
Number ofSenior Health approved policies 23,594
N/A
(1) No comparable period metrics are available due to our acquisition of
e-TeleQuote on
The Senior Health segment experiences notable seasonality with the strongest demand occurring in the fourth quarter due to the Medicare Annual Election Period ("AEP") fromOctober 15th to December 7th . The business typically experiences strong demand in the first quarter due to the Medicare Open Enrollment Period ("OEP") fromJanuary 1st to March 31st , which allows individuals to switch Medicare Advantage plans. Meanwhile, the second and third quarters experience seasonally lower demand as the focus for submitted policies is limited to participants that are dual eligible (Medicare and Medicaid), qualify for a special enrollment period, recently aged into Medicare or are transitioning to Medicare from an employer-sponsored plan, and other less common situations. During the three months endedMarch 31, 2022 , the volume of submitted and approved policies reflects the Company's efforts to scale back growth in favor of developing more efficient lead procurement and conversion. Approved policies as a percentage of submitted policies remained relatively consistent with e-TeleQuote's prior year OEP experience.
Primerica independent sales representatives refer eligible Medicare participants to e-TeleQuote licensed agents for potential enrollment in policies distributed by e-TeleQuote. The number ofPrimerica Senior Health certified independent sales representatives represents the number of Primerica independent sales representatives who have completed the required certification and are eligible to refer participants to e-TeleQuote's licensed agents for enrollment in policies distributed by e-TeleQuote. The number of submitted policies to e-TeleQuote sourced by Primerica independent sales representatives measures the number ofSenior Health policies submitted by e-TeleQuote to its third-party health insurance carriers that originated through the Primerica independent sales force. March 31, 2022 March 31, 2021 (1)Primerica Senior Health certified independent sales representatives 42,147 N/A Submitted policies to e-TeleQuote sourced by Primerica independent sales representatives 988 N/A
(1) No comparable period metrics are available due to our acquisition of
e-TeleQuote on
The number ofPrimerica Senior Health certified independent sales representatives reflects the continued rollout of the certification program. The number of submitted policies sourced by Primerica independent sales representatives illustrates slowed momentum for referrals subsequent to the AEP as the Company looks to build awareness of the referral program during non-AEP periods.
Lifetime value of commissions and Contract acquisition costs
Lifetime value of commissions ("LTV"). LTV represents the cumulative total of
commissions and administrative fees estimated to be collected over the expected
life of a policy for policies approved during the period. For more information
on LTV, refer to Note 13 (Revenue from Contracts with Customers) of our
consolidated financial statements within our 2021 Annual Report and the Factors
Affecting our Results - Senior Health Segment section of MD&A included elsewhere
in this report.
Contract acquisition costs ("CAC"). CAC represents the total direct costs
incurred to acquire approved policies. CAC are primarily comprised of the costs
associated with acquiring leads from third parties and internally generated
leads including fees paid to Primerica Senior Health certified independent sales
representatives as well as compensation, licensing, and training costs
associated with our team of e-TeleQuote licensed health insurance agents. The
number of e-TeleQuote licensed health insurance agents, agent
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tenure, attrition rate and productivity all impact CAC. We incur the entire cost
of approved policies prior to enrollment and prior to receiving our first
commission-related payment.
Per policy metrics for the LTV and CAC measure our ability to profitably
distribute
The LTV per approved policy, CAC per approved policy, and ratio of LTV to CAC
per approved policy were as follows:
Three months ended March 31,
2022 2021 (1)
LTV per policy approved during the period $ 862
N/A
CAC per policy approved during the period$ 875 N/A LTV/CAC per approved policy 0.98 N/A
(1) No comparable period metrics are available due to our acquisition of
e-TeleQuote on
LTV per approved policy reflects current estimates for renewal rates, policy retention and chargeback activity taking into consideration the most recent experience throughMarch 31, 2022 . The Company saw lower renewal retention rates during the first quarter of 2022 compared to historical experience due to an increased propensity of consumers to compare plans across carriers and increased plan offerings by carriers. This experience led to lower LTV per approved policy during the three months endedMarch 31, 2022 .
CAC per approved policy reflects selective procurement of high quality leads and
a deliberate approach in limiting agent recruitment during the three months
ended
Other business trends and conditions.
Standards of care.The Securities and Exchange Commission's ("SEC") regulation Best Interest ("Reg BI"), which establishes a "best interest" standard of conduct and imposes certain disclosure requirements, went into effect onJune 30, 2020 . Its higher standards of care and enhanced obligations increase regulatory and litigation risk. OnDecember 15, 2020 , theDepartment of Labor ("DOL") published an interpretation of, and class exemption regarding, the rules governing fiduciary investment advice with respect to Individual Retirement Accounts ("IRAs") and other retirement accounts (the "DOL Rule"). The effective date of the DOL Rule wasFebruary 16, 2021 and the DOL extended its non-enforcement policy throughJanuary 31, 2022 with the enforcement of specific requirements extended throughJune 30, 2022 . The DOL Rule imposes a higher standard of care and enhanced obligations that require sales process changes and increase regulatory and litigation risk to our business. The interpretation and enforcement of Reg BI and the DOL Rule by theSEC and the DOL, respectively, remain uncertain and could have the potential to disrupt the investment and savings products business inthe United States . In addition to federal regulators, certain states have proposed or passed laws or proposed or issued regulations requiring investment advisers, broker-dealers, and/or insurance agents to meet fiduciary standards or standards of care that their advice be in the customer's best interest, and to mitigate and disclose conflicts of interest to consumers of investment and insurance products. The severity of the impact that such state laws or regulations could have on our business varies from state to state depending on the content of the legislation or regulation and how it would be applied by state regulators and interpreted by the courts, but such laws or regulations could disrupt our brokerage or advisory businesses in the relevant state. We cannot quantify the financial impact, if any, of any changes to our business that may be necessary in order to comply with such laws or regulations at this time. Worker classification standards. There has been a trend toward administrative and legislative activity around worker classification. In 2019, for example,California enacted Assembly Bill 5 ("AB 5"), which imposes a stricter test for the classification of workers as independent contractors. Our business lines are exempted from AB 5. In 2020, the DOL commenced a rulemaking to clarify the classification standard under the Fair Labor Standards Act. That process resulted in a final rule under the prior administration which subsequently was withdrawn by the current administration. The prior administration's final rule now has been reinstated by a federal court. Other federal and state legislative and regulatory proposals regarding worker classification also are under consideration. While none of these proposals have advanced into law, they demonstrate increased legislative and administrative activity around worker classification. It is difficult to predict what the ultimate outcome of this activity may be. Changes to worker classification laws could impact our business as sales representatives (other than those hired by e-TeleQuote) are independent contractors. Restrictions on compensation models inCanada . The organization of provincial and territorial securities regulators (collectively referred to as the "Canadian Securities Administrators" or "CSA") has published final rule amendments to prohibit upfront sales commissions by fund companies for the sale of mutual funds offered under a prospectus inCanada ("DSC Ban"). The final amendments have an effective date ofJune 1, 2022 and the deferred sales charge compensation model is permitted to be used until then. The CSA indicated that the prohibition of upfront sales commissions by fund companies will require firms to discontinue the use of the mutual fund deferred sales charge compensation model, which is the primary model for the mutual funds we distribute inCanada . These rules will result in changes in compensation arrangements with both the fund companies that offer the mutual fund products we distribute and sales representatives. We are finalizing the changes we intend to make in response to the DSC Ban. These changes, which are under review by theOntario Securities Commission and the CSA, include entering into agreements with a small number of third-party mutual fund companies to develop a broad range of funds to be sold exclusively by our independent sales representatives. These agreements provide for the payment to us of asset-based revenue by the mutual fund companies. We would also earn revenue through an asset-based fee charged to clients. Our new model, if approved, would enable us to fund an advance of 31 -------------------------------------------------------------------------------- compensation at the time of sale to our independent sales representatives, taken at their option, which would partially replace upfront sales commission cash flow from fund companies paid under the deferred sales charge compensation model. If approved as described, we expect these changes to our mutual fund model would have the impact of initially decreasing our pre-tax operating income in the short term due to the elimination of upfront commissions. Over the long term, we would expect pre-tax operating income to recover through the collection of asset-based commissions over time. At this time we cannot quantify the financial impact, if any, of any changes to our business that may be necessary in order to comply if our proposal is required to be modified or is not approved. During the three months endedMarch 31, 2022 , Canadian mutual funds represented approximately 14% of our total investment and savings product sales. In an announcementFebruary 10, 2022 , and in line with the DSC Ban for the sale of mutual funds, the organization of provincial and territorial insurance regulators (collectively referred to as the "Canadian Council of Insurance Regulators ") urged insurers to refrain from new deferred sale charge sales in segregated fund contracts beginningJune 1, 2022 , and expect a transition to a cessation of such sales byJune 1, 2023 . In addition, the insurance regulators announced their intention to issue a joint consultation later this year to consider other changes to upfront compensation. Currently, our Canadian segregated fund products are primarily sold on a deferred sales charge basis and we pay upfront commissions to the independent agents for the sale of these products. At this time, we are unable to assess the impact of any such reforms to our operations and income. During the three months endedMarch 31, 2022 , Canadian segregated funds represented approximately 5% of our total investment and savings product sales. Factors Affecting Our Results
Refer to the Business Trends and Conditions section for discussion of the
potential impact on our business from the COVID-19 pandemic.
Term Life Insurance Segment.
primarily driven by sales volumes, how closely actual experience matches our
pricing assumptions, terms and use of reinsurance, and expenses.
Sales and policies in-force. Sales of 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 in a period will have a more immediate impact on our cash flows than on revenue and expense recognition in that period. 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 sales representatives generally remains within a range (i.e., an average monthly rate of new policies issued per life-licensed independent sales representative between 0.18 and 0.22). The volume of term life insurance products sales will fluctuate in the short term, but over the longer term, our sales volume generally correlates to the size of the independent sales force. 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 generally utilize unisex rates for term life insurance policies. The pricing assumptions that underlie our rates are based upon our best estimates of mortality, persistency, disability, and interest rates at the time of issuance, sales force commission rates, issue and underwriting expenses, operating expenses and the characteristics of the insureds, including the distribution of 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 actual persistency is lower than our pricing
assumptions, we must accelerate the amortization of deferred policy
acquisition costs ("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
future policy benefit reserves associated with any given policy will
change over the term of such policy. As a general matter, future policy
benefit 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 that are locked-in at
time of issue.
• Mortality. Our profitability will fluctuate to the extent actual mortality
rates differ from the assumptions that are locked-in at time of issue. We
mitigate a significant portion of our mortality exposure through
reinsurance.
• Disability. Our profitability will fluctuate to the extent actual
disability rates, including recovery rates for individuals currently
disabled, differ from the assumptions that are locked-in at the time of
issue or time of disability.
• Interest Rates. We use an assumption for future interest rates that
initially reflects the portfolio's current reinvestment rate gradually
increasing over seven years to a level consistent with our expectation of
future yield growth. Both DAC and the
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future policy benefit reserve liability increase with the assumed interest
rate. Since DAC is higher than the future policy benefit reserve liability
in the early years of a policy, a lower assumed interest rate generally
will result in lower profits. In the later years, when the future policy
benefit reserve liability is higher than DAC, a lower assumed interest
rate generally will result in higher profits. These assumed interest
rates, which like other pricing assumptions are locked-in at issue, impact
the timing but not the aggregate amount of DAC and future policy benefit
reserve changes. We allocate net investment income generated by the
investment portfolio to the
to the assumed net interest accreted to the segment's
accepted accounting principles ("
benefit reserve liability less DAC. All remaining net investment income,
and therefore the impact of actual interest rates, is attributed to the
Corporate and Other Distributed Products segment.
Reinsurance. We use reinsurance extensively, which has a significant effect on
our results of operations. We have generally reinsured between 80% and 90% of
the mortality risk on term life insurance (excluding coverage under certain
riders) on a quota share yearly renewable term ("YRT") basis. 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.
In 2010, as part of our corporate reorganization and the initial public offering
of our common stock, we entered into significant coinsurance transactions (the
"IPO coinsurance transactions") with entities then affiliated with Citigroup,
Inc. (collectively, the "IPO coinsurers") and ceded between 80% and 90% of the
risks and rewards of term life insurance policies that were in-force at year-end
2009. We administer all such policies subject to these coinsurance
agreements. Policies reaching the end of their initial level term period are no
longer ceded under the IPO coinsurance transactions.
The effect of our reinsurance arrangements on ceded premiums and benefits and
expenses on our statements 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 the change in these reserves.
• Amortization of DAC. DAC, and therefore amortization of DAC, is reduced on
a pro-rata basis for the coinsured business, including the business
reinsured with the IPO coinsurers. 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. 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 ourU.S. and Canadian mortality risk on new business.
Expenses. Results are also affected by variances in client acquisition,
maintenance and administration expense levels.
Investment and Savings Products Segment. The Investment and Savings Products segment results are primarily driven by sales, the value of assets in client accounts for which we earn ongoing management, marketing and support, and distribution fees, and the number of transfer agent recordkeeping positions and non-bank custodial fee-generating accounts we administer. Sales. We earn commissions and fees, such as dealer re-allowances and marketing and distribution fees, based on sales of mutual fund products and annuities. Sales of investment and savings products are influenced by the overall demand for investment products inthe United States and Canada, as well as by the size and productivity of the independent sales force. We generally experience seasonality in the 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 the independent 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, which 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 toU.S. mutual funds, 12b-1 fees) on mutual fund and annuity assets inthe United States and Canada. Inthe United States , we also earn investment advisory and administrative fees on assets in managed investments. 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 33 -------------------------------------------------------------------------------- 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. Positions. We earn transfer agent recordkeeping fees for administrative functions we perform on behalf of several of our mutual fund providers. An individual client account may include multiple fund positions for which we earn transfer agent recordkeeping fees. We may also receive fees earned for non-bank custodial services that we provide to clients with retirement plan accounts. Sales mix. While investment and savings products all provide similar long-term economic returns to the Company, our results in a given fiscal period will be affected by changes in the overall mix of products within these categories. Examples of changes in the sales mix that influence our results include the following:
• sales of annuity products in
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 investments and segregated funds, no upfront revenues;
• sales of a higher proportion of managed investments and segregated funds
products will spread the revenues generated over time because we earn
higher revenues based on assets under management for these accounts each
period as opposed to earning upfront revenues based on product sales; and
• sales of a higher proportion of mutual fund products sold will impact the
timing and amount of revenue we earn given the distinct transfer agent
recordkeeping and non-bank custodial services we provide for certain
mutual fund products we distribute.
Senior Health Segment.The Senior Health segment results are primarily driven by approved policies, LTV per approved policy and tail revenue adjustments, CAC per approved policy, and other revenue. Approved policies. Approved policies represent submitted policies approved by health insurance carriers for the identified product during the indicated period. Not all approved policies will go in force. In general, the relationship between submitted policies and approved policies has been consistent over time. Therefore, factors impacting the number of submitted policies generally impact the number of approved policies. Revenue is primarily generated from approved policies and LTVs are recorded when the enrollment is approved by the applicable health insurance carrier. Medicare Advantage plans make up the substantial portion of the approved policies we distribute. The number of approved policies are influenced by the following:
• the size and growth of the population of senior citizens in the United
States;
• the appeal of government-funded Medicare Advantage plans that provide
privately administered healthcare coverage with enhanced benefits
relative to original Medicare;
• our ability to generate and obtain leads for our team of e-TeleQuote
licensed health insurance agents;
• our ability to staff and train our team of e-TeleQuote licensed health
insurance agents to manage leads and help eligible Medicare participants
through the enrollment process;
• our ability to retain Medicare participants in a competitive environment
in which participants are actively comparing plans and carriers; and
• our health insurance carrier relationships that allow us to offer plans
that most appropriately meet eligible Medicare participants' needs.
LTV per approved policy and tail revenue adjustments. When a policy is approved
by the health insurance carrier, commission revenue is recognized based on an
estimated LTV per approved policy. LTV per approved policy is the cumulative
total of commissions estimated to be collected over the expected life of a
policy, subject to constraints applied in accordance with our revenue
recognition policy. Specifically, LTV per approved policy is equal to the sum of
the initial commissions, less an estimate of chargebacks for paid policies that
are disenrolled in the first policy year, plus forecasted renewal commissions.
This estimate is driven by a number of factors including, but not limited to,
contracted commission rates from carriers, expected policy turnover, emerging
chargeback activity and applied constraints. These factors may result in varying
values from period to period.
We recognize adjustments to revenue outside of LTV for approved policies from
prior periods when our cash collections are different from the estimated
constrained LTV's, which we refer to as tail revenue adjustments. The
recognition of tail revenue adjustments results from a change in the estimate of
expected cash collections when actual cash collections have indicated a trend
that is different from the estimated constrained LTV. Tail revenue adjustments
can be positive or negative and we recognize positive adjustments to revenue
when we do not believe it is probable that a significant reversal of cumulative
revenue will occur.
CAC per approved policy. Results are also driven by the costs of acquisition,
which is defined as the total direct costs incurred per approved policy. Our
costs of acquisition are primarily comprised of the cost to generate and acquire
leads and the labor, benefits, bonus compensation and training costs associated
with our team of e-TeleQuote licensed health insurance agents. We incur our
entire cost of approved policies prior to enrollment and prior to receiving our
first commission related payment. Factors that impact our costs of acquisition
per approved policy include:
• the market price of externally-generated leads;
34
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• our ability to efficiently procure internally-generated leads; and
• the productivity of our e-TeleQuote licensed health insurance agents in
converting procured leads into approved policies.
Other revenue. Other revenue recognized in theSenior Health segment includes marketing development revenues received for providing marketing services to certain health insurance carriers. Marketing development revenue provides additional revenue to deliver approved policies and are based on meeting agreed-upon objectives with certain health insurance carriers. Marketing development revenue serves to offset contract acquisition costs associated with distribution of approved policies. Agreements for marketing development revenue are generally short-term in nature and can vary from period to period. Corporate and Other Distributed Products Segment. We earn revenues and pay commissions and referral fees within the Corporate and Other Distributed Products segment for mortgage loan originations, prepaid legal services, auto and homeowners' insurance referrals, and other financial products, all of which are originated by third parties. The Corporate and Other Distributed Products segment also includes in-force policies from several discontinued lines of insurance underwritten byNational Benefit Life Insurance Company ("NBLIC"). Corporate and Other Distributed Products segment net investment income reflects actual net investment income recognized by the Company less the amount allocated to theTerm Life Insurance segment based on the assumed net interest accreted to the segment'sU.S. GAAP-measured future policy benefit reserve liability less DAC. Actual net investment income reflected in the Corporate and Other Distributed Products segment is impacted by the size and performance of our invested asset portfolio, which can be influenced by interest rates, credit spreads, and the mix of invested assets. The Corporate and Other Distributed Products segment also includes corporate income and expenses not allocated to our other segments, general and administrative expenses (other than expenses that are allocated to theTerm Life Insurance or Investment and Savings Products segments), interest expense on notes payable, redundant reserve financing transactions and our Revolving Credit Facility, as well as realized gains and losses on our invested asset portfolio. Capital Structure. Our financial results are affected by our capital structure, which includes our senior unsecured notes (the "Senior Notes"), redundant reserve financing transactions, our Revolving Credit Facility, and our common stock. See Note 7 (Stockholders' Equity), Note 10 (Commitments and Contingent Liabilities), and Note 12 (Debt) to our unaudited condensed consolidated financial statements included elsewhere in this report for more information on changes in our capital structure. Foreign Currency. The Canadian dollar is the functional currency for our Canadian subsidiaries and our consolidated financial results, reported inU.S. dollars, are affected by changes in the currency exchange rate. As such, the translated amount of revenues, expenses, assets and liabilities attributable to our Canadian subsidiaries will be higher or lower in periods where the Canadian dollar appreciates or weakens relative to theU.S. dollar, respectively. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk - Canadian Currency Risk included in our 2021 Annual Report and Note 2 (Segment and Geographical Information) to our unaudited condensed consolidated financial statements included elsewhere in this report for more information on our Canadian subsidiaries and the impact of foreign currency on our financial results.
Critical Accounting Estimates
We prepare our financial statements in accordance withU.S. GAAP. These principles are established primarily by theFinancial Accounting Standards Board . The preparation of financial statements in conformity withU.S. 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 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies) to our consolidated financial statements included in our 2021 Annual Report. The most significant items on our unaudited condensed consolidated balance sheets are based on fair value determinations, accounting estimates and actuarial determinations, which are susceptible to changes in future periods and could 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 DAC, future policy benefit reserves and corresponding amounts recoverable from reinsurers, income taxes, renewal commissions receivable, goodwill and the valuation of investments. 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 Changes.
During the three months endedMarch 31, 2022 , there were no changes in the accounting methodology for items that we have identified as critical accounting estimates. For additional information regarding our critical accounting estimates, see the Critical Accounting Estimates section of MD&A included in our 2021 Annual Report. 35
--------------------------------------------------------------------------------
Results of Operations
Primerica, Inc. and Subsidiaries Results. Our results of operations were as follows: Three months ended March 31, Change 2022(1) 2021 $ % (Dollars in thousands) Revenues: Direct premiums$ 798,666 $ 762,227 $ 36,439 5 % Ceded premiums (399,885 ) (395,973 ) 3,912 1 % Net premiums 398,781 366,254 32,527 9 % Commissions and fees 251,800 234,044 17,756 8 % Investment income net of investment expenses 34,420 35,198 (778 ) (2 )% Interest expense on surplus note (15,515 ) (15,146 ) 369 2 % Net investment income 18,905 20,052 (1,147 ) (6 )% Realized investment gains (losses) 577 622 (45 ) * Other investment gains (losses) 174 1,144 (970 ) * Investment gains (loses) 751 1,766 (1,015 ) * Other, net 20,989 15,595 5,394 35 % Total revenues 691,226 637,711 53,515 8 % Benefits and expenses: Benefits and claims 187,069 183,789 3,280 2 % Amortization of DAC 86,063 66,105 19,958 30 % Sales commissions 133,924 121,894 12,030 10 % Insurance expenses 59,509 48,766 10,743 22 % Insurance commissions 7,721 8,740 (1,019 ) (12 )% Contract acquisition costs 20,649 - 20,649 * Interest expense 6,853 7,145 (292 ) (4 )% Other operating expenses 86,435 72,963 13,472 18 % Total benefits and expenses 588,223 509,402 78,821 15 % Income before income taxes 103,003 128,309 (25,306 ) (20 )% Income taxes 24,239 30,437 (6,198 ) (20 )% Net income 78,764 97,872 (19,108 ) (20 )% Net income attributable to noncontrolling interests (2,655 ) - (2,655 ) * Net income attributable to Primerica, Inc.$ 81,419 $ 97,872 $ (16,453 ) (17 )% (1) Three months endedMarch 31, 2022 includesSenior Health segment results of operations. * Less than 1% or not meaningful.
Results for the Three Months Ended
Total revenues. Total revenues increased during the three months endedMarch 31, 2022 compared to the same period in 2021 driven by growth in net premiums in the Term Life segment and higher commissions and fees earned in the Investment and Savings Products segment. The increase in Term Life net premiums was driven by incremental premiums on term life insurance policies that are not subject to the IPO coinsurance transactions as well as the layering effect of sales of life insurance and continued elevated persistency trends as a result of favorable client sentiment for protection products. Commissions and fees earned during the three months endedMarch 31, 2022 compared to the same period in 2021 increased in part due to higher asset-based revenues driven by higher average client asset values on mutual funds, annuities and managed accounts. Also contributing to the increase were higher sales-based revenues driven by demand for variable annuity and mutual funds investment products. The increase in commissions and fees was also impacted by the acquisition of e-TeleQuote onJuly 1, 2021 . Net investment income decreased during the three months endedMarch 31, 2022 compared to the same period in 2021 due to a negative impact from a lower total return on the deposit asset backing 10% coinsurance agreement that is subject to deposit method accounting. The$2.1 million year-over-year lower total return on this deposit asset was due to a negative mark-to-market adjustment and lower book earnings on the deposit asset during the current year period compared to the prior year period. Also contributing to the decrease was$0.5 million from lower yields in the invested asset portfolio. These decreases were partially offset by a$1.7 million positive impact from a larger invested asset portfolio compared to the prior year period. Investment income net of investment expenses includes interest earned on our held-to-maturity asset, which is completely offset by interest expense on surplus note, thereby eliminating any impact on net investment income. Amounts recognized for each line item will remain offsetting and will fluctuate from period to period along with the principal amounts of the held-to-maturity asset and the surplus note based on the balance of reserves being contractually supported under a redundant reserve financing transaction used byVidalia Re, Inc. ("Vidalia Re Financing Transaction"). For more information on the Vidalia Re Financing Transaction, see Note 3 (Investments) and Note 12 (Debt) to our unaudited condensed consolidated financial statements included elsewhere in this report. 36 --------------------------------------------------------------------------------
Other, net revenues increased during the three months ended
compared to the same period in 2021 primarily due to marketing development
revenue recognized in the
of e-TeleQuote on
Total benefits and expenses. Total benefits and expenses increased during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 largely due to higher sales commissions in the Investment and Savings Products segment as a result of the increases in asset-based and sales-based revenues discussed above. Also contributing to the increase were the growth in benefits and claims and amortization of DAC due to growth in theTerm Life Insurance segment's in-force book of business. Contract acquisition costs also increased total benefits and expenses as a result of the acquisition of e-TeleQuote onJuly 1, 2021 . Insurance and other operating expenses were higher in the three months endedMarch 31, 2022 due to growth in the business and sales force meeting-related expenses and the upcoming biennial convention, which had been postponed due to the COVID-19 pandemic and rescheduled toJune 2022 .
Income taxes. Our effective income tax rate for the three months ended
2022
For additional information, see the Segment Results discussions below.
Segment Results
Term Life Insurance Segment Results. Our results for theTerm Life Insurance segment were as follows: Three months ended March 31, Change 2022 2021 $ % (Dollars in thousands) Revenues: Direct premiums$ 793,254 $ 756,514 $ 36,740 5 % Ceded premiums (398,446 ) (394,550 ) 3,896 1 % Net premiums 394,808 361,964 32,844 9 % Allocated investment income 11,445 8,253 3,192 39 % Other, net 12,175 11,810 365 3 % Total revenues 418,428 382,027 36,401 10 % Benefits and expenses: Benefits and claims 182,903 178,963 3,940 2 % Amortization of DAC 81,883 62,584 19,299 31 % Insurance expenses 58,272 47,375 10,897 23 % Insurance commissions 3,793 4,869 (1,076 ) (22 )% Total benefits and expenses 326,851 293,791
33,060 11 %
Income before income taxes
Results for the Three Months Ended
Net premiums. Direct premiums increased during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 largely due to sales of new policies that contributed to growth in the in-force book of business. Also contributing to the increase in direct premiums are continued elevated levels of persistency experienced as a result of favorable client sentiment for protection products since the onset of the COVID-19 pandemic. This is partially offset by an increase in ceded premiums, which includes$14.2 million in higher non-level YRT reinsurance ceded premiums as business not subject to the IPO coinsurance transactions ages, reduced by$10.3 million in lower coinsurance ceded premiums due to the run-off of business subject to the IPO coinsurance transactions. Allocated investment income. Allocated investment income increased during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 due to an increase in the assumed net interest accreted to theTerm Life Insurance segment's future policy benefit reserve liability less deferred acquisition costs as theTerm Life Insurance segment's in-force business continues to grow. Benefits and claims. Benefits and claims increased during the three months endedMarch 31, 2022 compared to the same period in 2021 primarily due to growth in net premiums, partially offset by lower claims and the impact of lower persistency. Total benefits and claims during the three months endedMarch 31, 2022 includes approximately$16 million in excess death claims driven by COVID-19, net of reinsurance. This compares with approximately$21 million of COVID-19 related claims in the first quarter of 2021, net of reinsurance. The Company also experienced reductions in monthly COVID-19 related claims throughout the three months endedMarch 31, 2022 . Lower year-over-year persistency resulted in benefit reserves increasing at a slower rate in 2022 as compared to 2021. Amortization of DAC. The amortization of DAC increased during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 due to lower year-over-year persistency, though both periods experienced higher persistency than prior to the pandemic. Additionally, policy persistency has started to deteriorate on policies that were issued at the onset of the COVID-19 37 --------------------------------------------------------------------------------
pandemic. Higher persistency in relation to pre-pandemic trends reduced DAC
amortization by approximately
the three months ended
Insurance expenses. Insurance expenses increased during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 in part due to meeting-related expenses associated with sales force leadership trips and the upcoming biennial convention, which had been postponed due to the COVID-19 pandemic and rescheduled toJune 2022 . Also contributing to the increase was an increase in expenses to support growth in the business and higher employee compensation costs from annual merit increases. Insurance commissions. Insurance commissions decreased during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 as a result of higher non-deferrable sales force promotional activities offered in the 2021 period to incentivize the sales force during the COVID-19 pandemic.
Investment and Savings Products Segment Results. Investment and Savings Products
segment results were as follows:
Three months ended March 31, Change
2022 2021 $ %
(Dollars in thousands)
Revenues:
Commissions and fees:
Sales-based revenues $ 103,242 $ 98,112 $ 5,130 5 %
Asset-based revenues 113,112 101,241 11,871 12 %
Account-based revenues 21,541 21,120 421 2 %
Other, net 3,144 2,949 195 7 %
Total revenues 241,039 223,422 17,617 8 %
Expenses:
Amortization of DAC 3,925 3,275 650 20 %
Insurance commissions 3,646 3,572 74 2 %
Sales commissions:
Sales-based 74,606 68,594 6,012 9 %
Asset-based 53,366 46,866 6,500 14 %
Other operating expenses 40,936 37,752 3,184 8 %
Total expenses 176,479 160,059 16,420 10 %
Income before income taxes $ 64,560 $ 63,363 $ 1,197 2 %
Results for the Three Months Ended
Commissions and fees. Commissions and fees increased during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 in part due to higher asset-based revenues reflecting higher average client asset values on mutual funds, annuities and managed accounts. Also contributing to the increase were higher sales-based revenues driven by demand for variable annuity and mutual funds investment products.
Amortization of DAC. Amortization of DAC increased during the three months ended
difference in the market performance of the funds underlying our Canadian
segregated funds product in the first quarter of 2022 compared to the first
quarter of 2021.
Sales commissions. The increase in asset-based commissions for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was consistent with the increase in asset-based revenues excluding the Canadian segregated funds. Asset-based expenses for our Canadian segregated funds were reflected within insurance commissions and amortization of DAC. The increase in sales-based commissions for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was in part due to the increase in sales-based revenue and in part due to increased sales force bonuses implemented in the second half of 2021. Other operating expenses. Other operating expenses increased during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 due to a combination of growth in the business and meeting-related expenses associated with field leadership trips and the upcoming biennial convention, which had been postponed due to the COVID-19 pandemic and rescheduled toJune 2022 .
Senior Health Segment Results.
38
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Three months ended March 31,
2022 2021 (1)
(Dollars in thousands)
Revenues:
Commissions and fees (2) $ 1,278 N/A
Other, net 4,553 N/A
Total revenues 5,831 N/A
Benefits and expenses:
Contract acquisition costs 20,649 N/A
Other operating expenses 8,267 N/A
Total benefits and expenses 28,916 N/A
Loss before income taxes $ (23,085 ) N/A
(1) No comparable period results of operations are available due to our
acquisition of e-TeleQuote on
(2) Net of tail revenue adjustments of
Results for the Three Months Ended
Commissions and fees. Commissions and fees reflect the lifetime value of commissions expected to be received for approved Medicare insurance policies distributed on behalf of health insurance carriers as well as tail revenue adjustments recognized to the expected value of commissions for policies distributed in previous periods. During the three months endedMarch 31, 2022 , we recognized a$19.1 million negative tail revenue adjustment as a result of lower than expected renewals for policies approved in prior periods. The negative tail adjustment offset commissions and fees revenue of$20.3 million recognized for the lifetime value of commissions for policies approved during the three months endedMarch 31, 2022 . The lifetime value of commissions for policies approved during the period reflect reduced LTV's recognizing recent renewal experience. Other, net. Marketing development revenue was received for providing marketing services on behalf of certain health insurance carriers for the three months endedMarch 31, 2022 . Agreements for marketing development revenue are generally short-term in nature and can vary from period to period Contract acquisition costs. Contract acquisition costs are primarily comprised of costs associated with acquiring leads from third parties and internally generated leads including fees paid toPrimerica Senior Health certified independent sales representatives as well as compensation, training and licensing costs associated with e-TeleQuote's licensed health insurance agents. Contract acquisition cost during the three months endedMarch 31, 2022 reflect selective procurement of high quality leads and a deliberate approach in limiting agent recruiting. Other operating expenses. Represents other operating expenses incurred during the period. These expenses are not directly tied to the distribution of Medicare insurance products and consist of intangible amortization, depreciation, technology and communications, and other administrative fees. Other operating expenses includes$2.6 million of amortization expense for intangible assets and internally developed software identified as part of the e-TeleQuote acquisition.
Corporate and Other Distributed Products Segment Results. Corporate and Other
Distributed Products segment results were as follows:
39 --------------------------------------------------------------------------------
Three months ended March 31, Change
2022 2021 $ %
(Dollars in thousands)
Revenues:
Direct premiums $ 5,412 $ 5,713 $ (301 ) (5 )%
Ceded premiums (1,439 ) (1,423 ) 16 1 %
Net premiums 3,973 4,290 (317 ) (7 )%
Commissions and fees 12,627 13,571 (944 ) (7 )%
Investment income net of investment
expenses 22,975 26,945 (3,970 ) (15 )%
Interest expense on surplus note (15,515 ) (15,146 ) 369 2 %
Net investment income 7,460 11,799 (4,339 ) (37 )%
Realized investment gains (losses) 577 622 (45 ) *
Other investment gains (losses) 174 1,144 (970 ) *
Investment gains (losses) 751 1,766 (1,015 ) *
Other, net 1,117 836 281 34 %
Total revenues 25,928 32,262 (6,334 ) (20 )%
Benefits and expenses:
Benefits and claims 4,166 4,826 (660 ) (14 )%
Amortization of DAC 255 246 9 4 %
Insurance expenses 1,237 1,391 (154 ) (11 )%
Insurance commissions 282 299 (17 ) (6 )%
Sales commissions 5,952 6,434 (482 ) (7 )%
Interest expense 6,853 7,145 (292 ) (4 )%
Other operating expenses 37,232 35,211 2,021 6 %
Total benefits and expenses 55,977 55,552 425 1 %
Loss before income taxes $ (30,049 ) $ (23,290 ) $ 6,759 29 %
* Less than 1% or not meaningful.
Results for the Three Months Ended
Total revenues. Total revenues decreased during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 primarily due to lower net investment income, which was attributed to the items discussed in thePrimerica, Inc. and Subsidiaries Results of Operations section above as well as the impact of more net investment income being allocated to theTerm Life Insurance segment. Total benefits and expenses. Total benefits and expenses increased slightly during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 as a result of higher other operating expenses primarily due to growth and employee related expenses.
Financial Condition
Investments. Our insurance business is primarily focused on selling term life insurance, which does not include an investment component for the policyholder. The invested asset portfolio funded by premiums from the term life insurance business does not involve the substantial asset accumulations and spread requirements that exist with other non-term life insurance products. As a result, the profitability of the term life insurance business is not as sensitive to the impact that interest rates have on our invested asset portfolio and investment income as the profitability of other companies that distribute non-term life insurance products. 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, per issuer limits, credit quality limits, portfolio duration, limits on the amount of investments in approved countries and permissible security types. We also manage and monitor our allocation of investments to limit the accumulation of any disproportionate concentrations of risk among industry sectors or issuer countries outside of theU.S. and Canada. In addition, as ofMarch 31, 2022 , we did not hold any country of issuer concentrations outside of theU.S. or Canada that represented more than 5% of the fair value of our available-for-sale invested asset portfolio or any industry concentrations of corporate bonds that represented more than 10% of the fair value of our available-for-sale invested asset portfolio. We invest a portion of our portfolio in assets denominated in Canadian dollars to support our Canadian operations. 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. We also hold within our invested asset portfolio a credit enhanced note ("LLC Note") issued by a limited liability company owned by a third-party service provider which is classified as a held-to-maturity security. The LLC Note, which is scheduled to mature onDecember 31, 2030 , was obtained in exchange for the Surplus Note of equal principal amount issued by Vidalia Re. For more 40 --------------------------------------------------------------------------------
information on the LLC Note, see Note 3 (Investments) to our unaudited condensed
consolidated financial statements included elsewhere in this report.
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. Our investment committee regularly monitors our overall investment results and our compliance with our investment objectives and guidelines. We use a third-party investment advisor to assist us in the management of our investing activities. Our investment advisor reports to our investment committee. 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 and credit spreads 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 or credit spreads could result in significant losses in the value of our invested asset portfolio. For example, the significant increase in interest rates during the three months endedMarch 31, 2022 resulted in the invested asset portfolio having an unrealized loss of$84.4 million as ofMarch 31, 2022 compared to an unrealized gain of$81.2 million as ofDecember 31, 2021 . We believe that fluctuations caused by movement in interest rates and credit spreads generally have little bearing on the recoverability of our investments as we have the ability to hold these investments until maturity or a market price recovery, and we have no present intention to dispose them.
Details on asset mix (excluding our held-to-maturity security) were as follows:
March 31, 2022 December 31, 2021
Average rating of our fixed-maturity
portfolio A A
Average duration of our fixed-maturity
portfolio 4.9 years 4.8
years
Average book yield of our fixed-maturity portfolio 3.18%
3.12%
The distribution of fixed-maturity securities in our investment portfolio
(excluding our held-to-maturity security) by rating, including those classified
as trading securities, were as follows:
March 31, 2022 December 31, 2021
Amortized cost (1) % Amortized cost (1) %
(Dollars in thousands)
AAA $ 590,961 21 % $ 495,055 19 %
AA 313,238 11 % 312,418 12 %
A 663,470 24 % 644,775 24 %
BBB 1,114,465 40 % 1,079,123 41 %
Below investment grade 85,535 3 % 93,294 4 %
Not rated 34,565 1 % 21,078 *
Total $ 2,802,234 100 % $ 2,645,743 100 %
(1) Includes trading securities at fair value and available-for-sale securities
at amortized cost.
* Less than 1%.
The ten largest holdings within our fixed-maturity invested asset portfolio
(excluding our held-to-maturity security) were as follows:
March 31, 2022
Amortized Unrealized Credit
Issuer Fair value cost (1) gain (loss) rating
(Dollars in thousands)
Government of Canada $ 17,054 $ 17,505 $ (451 ) AAA
Province of Ontario Canada 13,940 14,140 (200 ) A+
Province of Quebec Canada 13,283 13,234 49 AA-
Morgan Stanley 13,072 13,079 (7 ) BBB+
TC Energy Corp 11,993 12,583 (590 ) BBB+
Province of Alberta Canada 11,919 12,319 (400 ) A
ConocoPhillips 11,507 11,060 447 A-
Enbridge Inc 11,340 11,708 (368 ) BBB+
Manulife Financial Corp 10,418 10,434 (16 ) A
Oracle Corp 10,285 10,274 11 BBB+
Total - ten largest holdings $ 124,811 $ 126,336 $ (1,525 )
Total - fixed-maturity securities $ 2,717,848 $ 2,802,234
Percent of total fixed-maturity securities 5 % 5 %
(1) Includes trading securities at fair value and available-for-sale securities
at amortized cost.
For additional information on our invested asset portfolio, see Note 3
(Investments) to our unaudited condensed consolidated financial statements
included elsewhere in this report.
41 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Dividends and other payments to the Parent Company from its subsidiaries are our principal sources of cash. The amount of dividends paid by the subsidiaries is dependent on their capital needs to fund future growth and applicable regulatory restrictions. The primary uses of funds by the Parent Company include the payments of stockholder dividends, interest on notes payable, general operating expenses, and income taxes, as well as repurchases of shares of our common stock outstanding. As ofMarch 31, 2022 , the Parent Company had cash and invested assets of$260.3 million .The Parent Company's subsidiaries generate operating cash flows primarily from term life insurance premiums (net of premiums ceded to reinsurers), income from invested assets, commissions and fees collected from the distribution of investment and savings products, Medicare-related insurance plans as well as other financial products. The subsidiaries' principal operating cash outflows include the payment of insurance claims and benefits (net of ceded claims recovered from reinsurers), commissions to the sales force, contract acquisition costs, insurance and other operating expenses, interest expense for future policy benefit reserves financing transactions, and income taxes. The distribution and underwriting of term life insurance requires upfront cash outlays at the time the policy is issued as we pay a substantial majority of the sales commission during the first year following the sale of a policy and incur costs for underwriting activities at the inception of a policy's term. During the early years of a policy's term, we generally receive level term premiums in excess of claims paid. We invest the excess cash generated during earlier policy years in fixed-maturity and equity securities held in support of future policy benefit reserves. In later policy years, cash received from the maturity or sale of invested assets is used to pay claims in excess of level term premiums received. e-TeleQuote is a senior health insurance distributor of Medicare-related insurance plans. e-Tele-Quote collects cash receipts over a number of years after selling a plan, while the cash outflow for commission expense and other acquisition costs to sell the plans are generally recognized at the time of enrollment. Therefore, as a growing business, net cash flows at e-TeleQuote are expected to be negative for several years, with the Parent Company providing working capital to e-TeleQuote. During the three months endedMarch 31, 2022 , the Parent Company provided no funding to e-TeleQuote. During the first quarter, e-TeleQuote typically generates sufficient cash to fund its operations as it receives commission payments for policies approved during the busy AEP sales period. Historically, cash flows generated by our businesses, primarily from the existing block of term life policies and investment and savings products, have provided us with sufficient liquidity to meet our operating requirements. We have maintained strong cash flows despite the COVID-19 pandemic due to strong persistency and reinsurance on ceded mortality claims. We anticipate that cash flows from our businesses will continue to provide sufficient operating liquidity over the next 12 months. If necessary, we could seek to enhance our liquidity position or capital structure through sales of our available-for-sale investment portfolio, changes in the timing or amount of share repurchases, borrowings against our revolving credit facility, sales of common stock or debt instruments in the capital markets or some combination of these sources. Additionally, we believe that cash flows from our businesses and potential sources of funding will sufficiently support our long-term liquidity needs. Cash Flows. The components of the changes in cash and cash equivalents were as follows: Three months ended March 31, Change 2022 2021 $ (In thousands) Net cash provided by (used in) operating activities$ 214,299 $ 119,458 $ 94,841 Net cash provided by (used in) investing activities (112,672 ) (203,242 ) 90,570 Net cash provided by (used in) financing activities (134,571 ) (24,652 ) (109,919 ) Effect of foreign exchange rate changes on cash 222 811 (589 ) Change in cash and cash equivalents$ (32,722 ) $
(107,625 )
Operating Activities. Cash provided by operating activities during the three months endedMarch 31, 2022 increased compared to the three months endedMarch 31, 2021 primarily due to the timing of cash payments received from reinsurers for ceded claims. During 2021, the Company paid elevated claims due to the pandemic throughout the quarter and a large portion of reimbursements for claims ceded to reinsurers were outstanding at period end. During 2022, the Company paid lower claims and did not have as large of an increase of ceded claims outstanding from reinsurers at period end. Also contributing to the year-over-year increase in cash provided by operating activities was the timing of purchases and maturities of trading securities. Investing Activities. Cash used in investing activities during the three months endedMarch 31, 2022 decreased compared to the three months endedMarch 31, 2021 primarily due to short-term fixed maturity securities investing activities. During the three months endedMarch 31, 2022 , short-term investments acquired in 2021 matured, which allowed these funds to be deployed for share repurchases. During the three months endedMarch 31, 2021 , the Company paused share repurchases in order to accumulate cash to fund the acquisition of e-TeleQuote. This accumulated cash was used to purchase short-term investments with maturity dates aligned with the timing of the acquisition onJuly 1, 2021 . 42 -------------------------------------------------------------------------------- Financing Activities. Cash used in financing activities increased during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 primarily due to repurchases of shares during the 2022 period. The Company paused share repurchases during the three months endedMarch 31, 2021 in order to accumulate cash to fund the acquisition of e-TeleQuote onJuly 1, 2021 .Risk-Based Capital ("RBC"). TheNational Association of Insurance Commissioners ("NAIC") has established RBC standards forU.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 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 policy benefit reserve items. The formula is an early warning tool to identify possible weakly capitalized companies for purposes of initiating further regulatory action. As ofMarch 31, 2022 , ourU.S. life insurance subsidiaries maintained statutory capital and surplus substantially in excess of the applicable regulatory requirements and remain well positioned to support existing operations and fund future growth. In Canada, an insurer's minimum capital requirement is overseen by the Office of the Superintendentof Financial Institutions ("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. As ofMarch 31, 2022 ,Primerica Life Insurance Company of Canada was in compliance with Canada's minimum capital requirements as determined by OSFI. Redundant Reserve Financings. The Model Regulation entitled Valuation of Life Insurance Policies, commonly known as Regulation XXX, requires insurers to carry statutory policy benefit reserves for term life insurance policies with long-term premium guarantees which are often significantly in excess of the future policy benefit reserves that insurers deem necessary to satisfy claim obligations ("redundant policy benefit reserves"). Accordingly, many insurance companies have sought ways to reduce their capital needs by financing redundant policy benefit reserves through bank financing, reinsurance arrangements and other financing transactions. We have establishedPeach Re, Inc. ("Peach Re") and Vidalia Re as special purpose financial captive insurance companies and wholly owned subsidiaries of Primerica Life. Primerica Life has ceded certain term life policies issued prior to 2011 to Peach Re as part of a Regulation XXX redundant reserve financing transaction (the "Peach Re Redundant Reserve Financing Transaction") and has ceded certain term life policies issued in 2011 through 2017 to Vidalia Re as part of a Regulation XXX redundant reserve financing transaction (the "Vidalia Re Redundant Reserve Financing Transaction"). These redundant reserve financing transactions allow us to more efficiently manage and deploy our capital. The NAIC has adopted a model regulation for determining reserves using a principle-based approach ("principle-based reserves" or "PBR"), which is designed to reflect each insurer's own experience in calculating reserves and move away from a single prescriptive reserving formula. Primerica Life adopted PBR as ofJanuary 1, 2018 andNational Benefit Life Insurance Company adopted theNew York amended version of PBR effectiveJanuary 1, 2021 . PBR significantly reduced the redundant statutory policy benefit reserve requirements while still ensuring adequate liabilities are held. The regulation only applies for business issued after the effective date. See Note 4 (Investments), Note 10 (Debt) and Note 16 (Commitments and Contingent Liabilities) to our consolidated financial statements within our 2021 Annual Report for more information on these redundant reserve financing transactions. Notes Payable - Long term. The Company has$600.0 million of publicly-traded, Senior Notes outstanding issued at a price of 99.550% with an annual interest rate of 2.80%, payable semi-annually in arrears onMay 19 andNovember 19 . The Senior Notes matureNovember 19, 2031 . We were in compliance with the covenants of the Senior Notes as ofMarch 31, 2022 . No events of default occurred during the three months endedMarch 31, 2022 . Notes Payable - Short term. OnJuly 1, 2021 , as part of the acquisition of e-TeleQuote,Primerica Health issued the$15.0 million Majority Shareholder Note. The rate of interest payable is 1.5% per annum. The Company repaid$9.0 million and$3.4 million on the Majority Shareholder Note onJanuary 27, 2022 andApril 1, 2022 , respectively. The remaining principal of this note is$2.6 million , which matures onJuly 1, 2022 .
Rating Agencies. There have been no changes to
ratings or Primerica Life's financial strength ratings since
Surplus Note. Vidalia Re issued the Surplus Note in exchange for the LLC Note as a part of the Vidalia Re Redundant Reserve Financing Transaction. The Surplus Note has a principal amount equal to the LLC Note and is scheduled to mature onDecember 31, 2030 . For more information on the Surplus Note, see Note 12 (Debt) to our unaudited condensed consolidated financial statements included elsewhere in this report. Off-Balance Sheet Arrangements. We have no transactions, agreements or other contractual arrangements to which an entity unconsolidated with the Company is a party, under which the Company maintains any off-balance sheet obligations or guarantees as ofMarch 31, 2022 .
Credit Facility Agreement. We maintain an unsecured
Credit Facility with a syndicate of commercial banks that has a scheduled
termination date of
Credit Facility bear interest at a
43
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periodic rate equal to the London Interbank Offered Rate ("LIBOR") or the base
rate, plus in either case an applicable margin. The Revolving Credit Facility
contains language that allows for the Company and the lenders to agree on a
comparable or successor reference rate in the event LIBOR is no longer
available. The Revolving Credit Facility also permits the issuance of letters of
credit. The applicable margins are based on our debt rating with such margins
for LIBOR rate loans and letters of credit ranging from 1.000% to 1.625% per
annum and for base rate loans ranging from 0.000% to 0.625% per annum. Under the
Revolving Credit Facility, we incur a commitment fee that is payable quarterly
in arrears and is determined by our debt rating. This commitment fee ranges from
0.100% to 0.225% per annum of the aggregate $200.0 million commitment of the
lenders under the Revolving Credit Facility. During the three months ended March
31, 2022 , no amounts were drawn under the Revolving Credit Facility and we were
in compliance with the covenants. Furthermore, no events of default occurred
under the Revolving Credit Facility during the three months ended March 31,
2022 .
Contractual Obligations Update. There have been no material changes in
contractual obligations from those disclosed in the 2021 Annual Report.
44
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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 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:
Risks Related to Our Distribution Structure
• Our failure to continue to attract new recruits, retain independent sales
representatives or license or maintain the licensing of independent sales
representatives would materially adversely affect our business, financial
condition and results of operations.
• There are a number of laws and regulations that could apply to our independent
contractor distribution model, which could require us to modify our
distribution structure.
• There may be adverse tax, legal or financial consequences if the independent
contractor status of independent sales representatives is overturned.
• The Company's, the independent sales representatives', or the licensed health
insurance agents' violation of, or non-compliance with, laws and regulations
and related claims and proceedings could expose us to material liabilities.
• Any failure to protect the confidentiality of client information could
adversely affect our reputation and have a material adverse effect on our
business, financial condition and results of operations.
Risks Related to Our Insurance Business and Reinsurance
• Our life insurance business may face significant losses if our actual
experience differs from our expectations regarding mortality or persistency.
• Our life insurance business is highly regulated, and statutory and regulatory
changes may materially adversely affect our business, financial condition and
results of operations.
• A decline in the regulatory capital ratios of our insurance subsidiaries could
result in increased scrutiny by insurance regulators and ratings agencies and
have a material adverse effect on our business, financial condition and
results of operations.
• A significant ratings downgrade by a ratings organization could materially
adversely affect our business, financial condition and results of operations.
• The failure by any of our reinsurers or reserve financing counterparties to
perform its obligations to us could have a material adverse effect on our
business, financial condition and results of operations.
Risks Related to Our Investments and Savings Products Business
• Our Investment and Savings Products segment is heavily dependent on mutual
fund and annuity products offered by a relatively small number of companies,
and, if these products fail to remain competitive with other investment
options or we lose our relationship with one or more of these companies, our
business, financial condition and results of operations may be materially
adversely affected.
• The Company's or the securities-licensed independent sales representatives'
violations of, or non-compliance with, laws and regulations could expose us to
material liabilities.
• If heightened standards of conduct or more stringent licensing requirements,
such as those adopted by the
those proposed or adopted by the
legislatures or regulators or Canadian securities regulators, are imposed on
us or the independent sales representatives, or selling compensation is
reduced as a result of new legislation or regulations, it could have a
material adverse effect on our business, financial condition and results of
operations.
• If our suitability policies and procedures, or our policies and procedures for
compliance with federal, state or provincial regulations governing standards
of care, were deemed inadequate, it could have a material adverse effect on
our business, financial condition and results of operations.
• Non-compliance with applicable regulations could lead to revocation of our
subsidiary's status as a non-bank custodian.
Risks Related to Our Mortgage Distribution Business
• Licensing requirements will impact the size of the mortgage loan sales force.
45
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• Our mortgage distribution business is highly regulated and subject to various
federal, state and provincial laws and regulations in the
Changes in, non-compliance with, or violations of, such laws and regulations
could affect the cost or our ability to distribute our products and could
materially adversely affect our business, financial condition and results of
operations.
Risks Related to e-TeleQuote's Senior Health Insurance Distribution Business
• Due to our very limited history with e-
("e-TeleQuote"), we cannot be certain that its business strategy will be
successful or that we will successfully address the risks below or any other
risks not now known to us that may become material.
• e-TeleQuote is highly regulated and subject to compliance requirements of the
and those of its carrier partners. Non-compliance with, or violations of, such
requirements may harm its business, which could have a material adverse effect
on our business, financial condition and results of operations.
• e-TeleQuote receives leads that are externally acquired from third-party
vendors and internally generated from marketing initiatives and receives
referrals from Primerica independent sales representatives. e-TeleQuote's
business may be harmed if it cannot continue to acquire or generate leads on
commercially viable terms, if it is unable to convert leads to sales at
acceptable rates, if Primerica independent sales representatives do not
introduce consumers to e-TeleQuote, or if policyholder retention is lower than
assumed, any of which could adversely impact our business.
• If e-TeleQuote's ability to enroll individuals during the Medicare annual
election period is impeded, its business may be harmed which could adversely
impact our business, financial condition and results of operations.
• e-TeleQuote's business is dependent on key carrier partners. The loss of a key
carrier partner, or the modification of commission rates or underwriting
practices with a key carrier partner, could harm its business which could
adversely impact our business, financial condition and results of operations.
Risks Related to Economic Downcycles, Public Health Crises or Catastrophes, and Disaster • The effects of economic down cycles, issues affecting the national and/or
global economy or global geopolitical event(s) could materially adversely
affect our business, financial condition and results of operations.
• Major public health pandemics, epidemics or outbreaks, such as, the COVID-19
pandemic, or other catastrophic events, could materially adversely impact our
business, financial condition and results of operations.
• In the event of a disaster, our business continuity plan may not be
sufficient, which could have a material adverse effect on our business,
financial condition and results of operations.
Risks Related to Information Technology and Cybersecurity
• If one of our, or a third-party partner's, significant information technology
systems fails, if its security is compromised, or if the Internet becomes
disabled or unavailable, our business, financial condition and results of
operations may be materially adversely affected.
• The current legislative and regulatory climate with regard to privacy and
cybersecurity may adversely affect our business, financial condition, and
results of operations.
• e-TeleQuote's security measures designed to protect against breaches of
security and other interference with its systems and networks are not fully
mature. If e-TeleQuote is subject to cyber-attacks or security breaches or is
otherwise unable to safeguard the security and privacy of confidential data,
including personal health information, e-TeleQuote's business may be harmed,
which could have a material adverse effect on our business, financial
condition and results of operations.
Financial Risks Affecting Our Business
• Credit deterioration in, and the effects of interest rate fluctuations on our
invested asset portfolio and other assets that are subject to changes in credit quality and interest rates could materially adversely affect our business, financial condition and results of operations.
• Valuation of our investments and the determination of expected credit losses
when the fair value of our available-for-sale invested assets is below
amortized cost are both based on estimates that may prove to be incorrect.
• Changes in accounting standards can be difficult to predict and could
adversely impact how we record and report our financial condition and results
of operations.
• The inability of our subsidiaries to pay dividends or make distributions or
other payments to us in sufficient amounts would impede our ability to meet
our obligations and return capital to our stockholders.
Risks Related to Legislative and Regulatory Changes
• We are subject to various federal, state and provincial laws and regulations
in
business practices and could materially adversely affect our business,
financial condition and results of operations.
• The current legislative and regulatory climate with regard to financial
services may adversely affect our business, financial condition, and results
of operations.
• Medicare Advantage is a product legislated and regulated by
government. If the enabling legislation and regulation or implementing
guidance issued by CMS change, e-TeleQuote's business may be harmed, which
could have a material adverse effect on our business, financial condition and
results of operations.
46
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General Risk Factors
• Litigation and regulatory investigations and actions may result in financial
losses and harm our reputation.
• A significant change in the competitive environment in which we operate could
negatively affect our ability to maintain or increase our market share and
profitability.
• The loss of key employees could negatively affect our financial results and
impair our ability to implement our business strategy.
• Prohibitions on our ability to establish our own COVID-19 protocols or
government imposed COVID-19 vaccine mandates could have a material adverse
impact on our business and results of operations.
• We may be materially adversely affected by currency fluctuations in the United
States dollar versus the Canadian dollar.
• Any acquisition of or investment in businesses that we may undertake that does
not perform as we expect or that is difficult for us to integrate could
materially adversely impact our business, financial condition and results of
operations.
• The market price of our common stock may fluctuate.
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.
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 report 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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