Newswires
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 September 30, 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. EffectiveJuly 1, 2022 , we acquired the remaining 20% ofPrimerica Health , which owns e-TeleQuote, as described in Note 14 (Acquisition) in the condensed consolidated financial statements included elsewhere in this report. 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 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. 29 -------------------------------------------------------------------------------- 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 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 theTerm Life Insurance segment's future policy benefit reserve liability less deferred 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, can impact the disposable income of middle-income consumers, who are generally our primary clients, which can influence their investment and spending decisions. 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 much 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. SinceMarch 2022 , we have experienced fewer COVID-19 related claims than in prior periods. Going forward, we do not expect significant COVID-19 related death claims.
•
The COVID-19 pandemic initially led to high levels of persistency and increased policy sales as a result of strong client sentiment toward owning life insurance products. However, throughout the second half of 2021 and the first nine months of 2022, policy sales and persistency trended toward pre-COVID-19 levels. Refer to the Factors Affecting Our Results section for more information about how persistency impacts our financial results. Significant volatility in capital markets during the first nine months of 2022 has also impacted our business. The sharp rise in market interest rates has resulted in unrealized losses in our investment portfolio. We have not recognized losses caused by interest rate volatility in the income statement as we have the ability to hold these investments until maturity or a market price recovery, and we have no present intention to dispose of them. Significant declines in capital markets also adversely impacted revenue generated by our Investment and Savings Products segment.
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 September 30 ,
Nine months ended
2022 2021 2022 2021
New recruits 127,788 91,884 282,710 275,802
New life-licensed independent sales
representatives 12,518 9,381 34,030 30,326
30
--------------------------------------------------------------------------------
The size of the life-licensed independent sales force was as follows:
September 30, 2022 September 30, 2021
Life-licensed independent sales representatives 134,313 130,023
The number of new recruits increased during the three months ended September 30,
2022 compared to the same period in 2021. The year-over-year increase was
primarily driven by a combination of excitement generated by our biennial
convention and the offering of special recruiting incentives during July 2022 .
Approximately 83,000 individuals were recruited while the special incentives
were in place. The number of new recruits increased during the nine months ended
September 30, 2022 compared to the same period in 2021 due to the same reasons
as described in the three-month comparison but at a lower rate due to COVID-19
related recruiting incentives that were offered during the first half of 2021.
New life-licensed sales representatives increased during the three months ended
September 30, 2022 compared to the same period in 2021 primarily due to elevated
recruiting volume as discussed above. New life-licensed sales representatives
increased during the nine months ended September 30, 2022 compared to the same
period in 2021 as the Company continued to see the benefits of improvements to
the licensing process. These improvements included new licensing
progress-tracking tools and additional in-person licensing classes.
The number of life-licensed independent sales representatives grew to 134,313 as
of September 30, 2022 and reflects recent improvements to the licensing process
and the elevated recruiting volume as discussed above.
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 September 30 ,
Nine months ended
2022 2021 2022 2021
Average number of life-licensed
independent sales representatives 132,823 130,753 131,187 131,834
Number of new policies issued 71,104 75,914 219,374 248,652
Average monthly rate of new policies
issued per life-licensed
independent sales representative 0.18 0.19 0.19 0.21
New policies issued during the three months ended September 30, 2022 decreased
compared to the same period in 2021 primarily due to softer economic conditions
and a higher cost of living, which impacts middle-income families. New policies
issued during the nine months ended September 30, 2022 normalized compared to
the elevated levels experienced during the comparable period in 2021. New
policies issued during the nine months ended September 30, 2021 reflected
elevated demand for protection products as the COVID-19 pandemic highlighted the
need for protection products.
Productivity during the three and nine months ended September 30, 2022 , measured
by the average monthly rate of new policies issued per life-licensed independent
sales representative, was in line with our historical range, although lower than
prior year periods primarily due to the elevated demand for protection products
in 2021 as described above.
The changes in the face amount of our in-force book of term life insurance
policies were as follows:
Three months ended September 30, Nine months ended September 30,
% of beginning % of beginning % of beginning % of beginning
2022 balance 2021 balance 2022 balance 2021 balance
(Dollars in millions)
Face amount in force,
beginning of period $ 914,438 $ 886,519 $ 903,404 $ 858,818
Net change in face amount:
Issued face amount 26,049 3 % 26,219 3 % 78,472 9 % 82,843 10 %
Terminations (21,033 ) (2 )% (16,241 ) (2 )% (60,117 ) (7 )% (48,187 ) (6 )%
Foreign currency (6,669 ) (1 )% (2,479 ) * (8,974 ) (1 )% 544 *
Net change in face amount (1,653 ) * 7,499 1 % 9,381 1 % 35,200 4 %
Face amount in force, end
of period $ 912,785 $ 894,018 $ 912,785 $ 894,018
* Less than 1%.
The face amount of term life policies in-force decreased for the three months
ended September 30, 2022 primarily driven by movements in the foreign exchange
rate. The U.S. dollar strengthened in relation to the Canadian dollar, which
negatively impacted the translated face amount in force as of September 30,
2022 . As a percentage of the beginning face amount in-force, issued face amount,
as well as terminated face amount, during the three months ended September 30,
2022 remained consistent with the comparable 2021 period. In dollar terms,
issued face amount during the three months ended September 30, 2022 was in line
with the
31
--------------------------------------------------------------------------------
comparable 2021 period despite a decrease in the number of policies issued due
to higher average issued face amounts. Terminations were higher during the three
months ended September 30, 2022 compared to the comparable 2021 period as
persistency normalized to pre-pandemic levels.
The face amount of term life policies in-force increased 1% for the nine months
ended September 30, 2022 as the level of face amount issued continued to exceed
the face amount terminated. The increase was partially offset by movement in the
foreign exchange rate as discussed in the three-month comparison above. As a
percentage of the beginning face amount in-force, issued face amount, as well as
terminated face amount, during the nine months ended September 30, 2022 remained
consistent with the three-month comparison as discussed above. In dollar terms,
issued face amount during the nine months ended September 30, 2022 decreased
versus the comparable 2021 period albeit at a lower rate than the decrease in
the number of policies issued due to higher average issued face amounts.
Terminations were higher during the nine months ended September 30, 2022
compared to the same 2021 period as persistency normalized 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:
Three months ended Nine months ended
September 30, Change September 30, Change
2022 2021 $ % 2022 2021 $ %
(Dollars in millions)
Product sales:
U.S. Retail mutual
funds $ 932 $ 1,248 $ (316 ) (25 )% $ 3,382 $ 3,846 $ (464 ) (12 )%
Canada retail mutual
funds - with upfront
sales commissions 112 315 (203 ) (64 )% 801 1,096 (295 ) (27 )%
Annuities and other 598 721 (123 ) (17 )% 2,012 2,233 (221 ) (10 )%
Total sales-based
revenue generating
product sales 1,642 2,284 (642 ) (28 )% 6,195 7,175 (980 ) (14 )%
Managed investments 320 387 (67 ) (17 )% 1,225 1,099 126 11 %
Canada retail mutual
funds - no upfront
sales commissions 158 76 82 108 % 160 239 (79 ) (33 )%
Segregated funds 42 44 (2 ) (5 )% 338 171 167 98 %
Total product sales $ 2,162 $ 2,791 $ (629 ) (23 )% $ 7,918 $ 8,684 $ (766 ) (9 )%
Average client asset
values:
Retail mutual funds $ 51,171 $ 57,780 $ (6,609 ) (11 )% $ 54,709 $ 54,954 $ (245 ) *
Annuities and other 22,965 25,778 (2,813 ) (11 )% 24,314 24,886 (572 ) (2 )%
Managed investments 6,817 6,362 455 7 % 6,951 5,857 1,094 19 %
Segregated funds 2,368 2,732 (364 ) (13 )% 2,532 2,688 (156 ) (6 )%
Total average client
asset values $ 83,321 $ 92,652 $ (9,331 ) (10 )% $ 88,506 $ 88,385 $ 121 *
* Less than 1%.
The rollforward of asset values in client accounts was as follows:
Three months ended September 30, Nine months ended September 30,
% of beginning
2022 % of beginning balance 2021 % of beginning balance 2022 balance 2021 % of beginning balance
(Dollars in millions)
Asset values, beginning
of period $ 82,291 $ 91,735 $ 97,312 $ 81,533
Net change in asset
values:
Inflows 2,161 3 % 2,791 3 % 7,916 8 % 8,684 11 %
Redemptions (1,447 ) (2 )% (1,756 ) (2 )% (5,144 ) (5 )% (5,341 ) (7 )%
Net flows 714 1 % 1,035 1 % 2,772 3 % 3,343 4 %
Change in fair value, net (3,466 ) (4 )% (681 ) (1 )% (20,243 ) (21 )% 6,840 8 %
Foreign currency, net (802 ) (1 )% (323 ) * (1,104 ) (1 )% 50 *
Net change in asset
values (3,554 ) (4 )% 31 * (18,575 ) (19 )% 10,233 13 %
Asset values, end of
period $ 78,737 $ 91,766 $ 78,737 $ 91,766
* Less than 1%.
Average number of fee-generating positions was as follows:
32
--------------------------------------------------------------------------------
Three months ended September Nine months ended September
30, Change 30, Change
2022 2021 Positions % 2022 2021 Positions %
(Positions in thousands)
Average number of
fee-generating
positions (1):
Recordkeeping and
custodial 2,295 2,192 103 5 % 2,272 2,155 117 5 %
Recordkeeping only 820 762 58 8 % 810 739 71 10 %
Total average number of
fee-
generating positions 3,115 2,954 161 5 % 3,082 2,894 188 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 decreased during the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 led by lower sales of retail mutual funds and variable annuities as investor demand deteriorated in response to negative equity market conditions during 2022. Average client asset values. Average client asset values decreased for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 primarily due to negative equity market conditions during 2022. Rollforward of client asset values. Ending client asset values decreased during the three months endedSeptember 30, 2022 compared to an increase in the three months endedSeptember 30, 2021 primarily due to negative market performance during the 2022 period. Net flows remained positive in the three months endedSeptember 30, 2022 , albeit to a lesser extent than in the comparable 2021 period. Average number of fee-generating positions. The average number of fee-generating positions increased during the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 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.
Changes in Investment and Savings Products Sales, Asset Values and
Accounts/Positions During the Nine Months Ended
Product sales. Investment and savings products sales decreased during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 led by lower sales of retail mutual funds and variable annuities as investor demand during the second and third quarters of 2022 deteriorated in response to negative market conditions. Average client asset values. Average client asset values increased slightly for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 primarily due to the impact of elevated market values of client assets at the beginning of 2022. Continued positive net flows during 2022 also contributed to the increase in average client asset values, which was partially offset by negative market performance. Rollforward of client asset values. Ending client asset values decreased during the nine months endedSeptember 30, 2022 compared to an increase in the nine months endedSeptember 30, 2021 primarily due to negative market performance during the 2022 period compared to strong market performance in the comparable 2021 period. Net flows remained positive in the nine months endedSeptember 30, 2022 , albeit to a lesser extent than in the comparable 2021 period. Average number of fee-generating positions. The average number of fee-generating positions increased during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 primarily due to the same factors described in the three-month comparison.
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.
33
--------------------------------------------------------------------------------
The number of
follows:
Three months ended September 30 ,
Nine months ended
2022 2021 2022 2021 (1)
Number of Senior Health submitted
policies 16,095 20,867 61,978 20,867
Number of Senior Health approved
policies 14,862 18,276 56,381 18,276
(1)
Only reflects three months of activity as the e-TeleQuote acquisition occurred
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 and nine months endedSeptember 30, 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 limiting the number of agents. The nine month comparison is also impacted by the timing of the acquisition of e-TeleQuote onJuly 1, 2021 . The 2022 period includes nine months of submitted and approved policies compared to only three months for the 2021 period. Approved policies as a percentage of submitted policies increased during the 2022 periods as a result of the lead procurement efforts mentioned above.
Senior Health Policies Sourced by Primerica Independent Sales Representatives
Primerica independent sales representatives are eligible to refer Medicare participants to e-TeleQuote licensed agents for potential enrollment in policies distributed by e-TeleQuote after completion of a brief certification course offered by Primerica. AtSeptember 30, 2022 , there were 83,280 Primerica independent sales representatives certified to refer participants for enrollment inSenior Health policies.
The number of submitted policies by e-TeleQuote sourced from Primerica
independent sales representatives measures the number of
submitted by e-TeleQuote to its third-party health insurance carriers that
originated through the Primerica independent sales force.
Three months ended September 30 ,
Nine months ended
2022 2021 2022 2021 (1)
Submitted policies sourced by
Primerica independent sales
representatives 1,016 319 2,835 319
(1)
Only reflects three months of activity as the e-TeleQuote acquisition occurred
on
For the three and nine months endedSeptember 30, 2022 , the number of submitted policies sourced byPrimerica Senior Health certified independent sales representatives increased compared to the same periods in 2021 primarily due to the timing of the acquisition of e-TeleQuote onJuly 1, 2021 . The 2022 period includes nine months of submitted policies sourced by Primerica independent sales representatives compared to only three months for the 2021 period. In addition, the three months endedSeptember 30, 2021 represents the initial launch of the Primerica referral program, which occurred toward the end of the quarter.
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 tenure, attrition
rate and productivity all impact CAC. Other than costs incurred to assist
beneficiaries with switching plans within the same carrier, 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:
34
--------------------------------------------------------------------------------
Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021 (1)
LTV per approved policy during the period $ 868 1,180 $ 850 1,180
CAC per approved policy during the period $ 905 1,287 $ 949 1,287
LTV/CAC per approved policy 0.96 0.91 0.90 0.91
(1)
Only reflects three months of activity as the e-TeleQuote acquisition occurred
on
LTV per approved policy reflects current estimates for renewal rates, policy retention and chargeback activity taking into consideration the most recent experience throughSeptember 30, 2022 . The Company saw lower renewal retention rates during 2022 compared to historical experience due to an increased propensity of consumers to consider changing plans and increased plan offerings by carriers. This experience led to lower LTV per approved policy during the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . CAC per approved policy for the three months endedSeptember 30, 2022 reflects selective procurement of leads and a deliberate approach in limiting agent count. This led to a decrease in CAC per approved policy for the three months endedSeptember 30, 2022 as compared with the three months endedSeptember 30, 2021 . LTV and CAC per approved policy for the nine months endedSeptember 30, 2022 compared to the same period in 2021 exhibited the same trends as the three-month comparison even though the nine-month period endedSeptember 30, 2021 only reflects activity since theJuly 1, 2021 acquisition date.
Other business trends and conditions.
Worker classification standards. There has been a trend toward administrative and legislative activity around worker classification. For example, inJanuary 2021 , theDepartment of Labor ("DOL") under the prior presidential administration issued a rulemaking interpreting the "economic realities" worker classification standard applicable to the Fair Labor Standards Act ("FSLA"). InOctober 2022 , the DOL under the current presidential administration proposed a new rule that would rescind the 2021 rule and replace it with its own interpretation of the "economic realities" standard under the FSLA. Other federal and state legislative and regulatory proposals regarding worker classification have also come under consideration. It is difficult to predict what the outcome of worker classification 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") 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 became effective onJune 1, 2022 . These rules have resulted in changes in compensation arrangements with both the fund companies that offer the mutual fund products we distribute and sales representatives. In particular, we have entered into agreements with two third-party mutual fund companies to develop and offer a broad range of funds being 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 also earn revenue through an asset-based fee charged to clients. As part of our new model (the "Principal Distributor model") we are funding an advance of compensation at the time of sale to our independent sales representatives, taken at their option, to partially replace upfront sales commission cash flow from fund companies paid under the deferred sales charge compensation model. We expect that these changes to our mutual fund model will 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 expect pre-tax operating income to recover through the collection of asset-based commissions over time. We began offering our new Principal Distributor model onJuly 6, 2022 . Although we received the requisite approval to do so, the CSA has indicated that it intends to closely examine the model, including potentially through a public consultation on sales practices, and may require undertakings or consider future amendments that would require modifications to the model, including with respect to its advance and chargeback features. 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 Principal Distributor model is required to be modified or discontinued. During the nine months endedSeptember 30, 2022 , Canadian mutual funds represented approximately 14% of our total investment and savings product sales and approximately 13% of our average client asset values. 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, onSeptember 8, 2022 , theCanadian Council of Insurance Regulators issued a discussion paper for consultation to consider other changes to upfront compensation, including advance compensation and chargeback features such as those used in our Principal Distributor model. We expect that changes, if any, to segregated funds compensation practice, will also be adopted by securities regulators which may impact our Principal Distributor model. 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 nine months 35 -------------------------------------------------------------------------------- endedSeptember 30, 2022 , Canadian segregated funds represented approximately 2% of our total investment and savings product sales and approximately 3% of our average client asset values. 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 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
Term Life Insurance segment in an amount equal to the assumed net interest
accreted to the segment's U.S. generally accepted accounting principles ("U.S.
GAAP")-measured future policy 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
36
--------------------------------------------------------------------------------
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 inthe United States and sales of certain mutual fund products inCanada . 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 marketing, distribution, and shareholder services fees on mutual fund assets for which we serve as the principal distributor and on the segregated funds for which we serve as investment manager. Asset values are influenced by new product sales, ongoing contributions to existing accounts, redemptions and the change in market values in existing accounts. While we offer a wide variety of asset classes and investment styles, our clients' accounts are primarily invested in equity funds. 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. 37 -------------------------------------------------------------------------------- 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 inthe United States will generate higher revenues in the period such sales occur than sales of other investment products that either generate lower upfront revenues or, in the case of managed investments and segregated funds, no upfront revenues; • sales of a higher proportion of managed investments, Canadian mutual funds, 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 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, or are expected to be, different from the estimated constrained LTVs, 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 or communicated rate increases 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. Other than costs incurred to assist beneficiaries with switching plans within the same carrier, 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;
•
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.
38
--------------------------------------------------------------------------------
Other revenue. Other revenue recognized in the Senior 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 by National 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 the Term Life Insurance segment based on the assumed net interest accreted to
the segment's U.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 the Term 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 in U.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 the U.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 and nine months ended
updates for items that we have identified as critical accounting estimates.
Goodwill represents the excess of the purchase price over the estimated acquired values of identifiable assets and liabilities acquired in a business combination at the acquisition date. In accordance withU.S. GAAP, goodwill is not amortized. The Company tests goodwill for impairment annually onJuly 1 and whenever events occur or circumstances change that would indicate the carrying value of goodwill may be impaired. All of the Company's goodwill was obtained from the e-TeleQuote acquisition and the e-TeleQuote business has been designated as a separate operating segment calledSenior Health . Therefore, goodwill has been allocated 39 --------------------------------------------------------------------------------
solely to the
During the annual impairment test as ofJuly 1, 2022 , the Company performed a quantitative impairment analysis using the income approach. We utilized an income approach by preparing a discounted cash flow analysis to determine the reporting unit's fair value. The discounted cash flow analysis included key assumptions such as the weighted average cost of capital ("WACC"), long-term growth rate and projected operating results such as approved policies, LTVs, contract acquisition costs, operating expenses, collections of renewal commissions receivable, and utilization of net operating losses for income tax purposes. We did not utilize a market approach as part of the quantitative impairment analysis as we believe management's expectations of the cash flow generated by the reporting unit were more relevant in determining fair value given inherent limitations in the credibility of available peer company data. The measurement of the reporting unit's fair value is classified as a Level 3 fair value measurement given the significance of the unobservable inputs such as forecasted operating results and discount rates. After the fair value of the reporting unit was determined, the Company calculated its carrying value by taking the reporting unit's assets minus its liabilities. The carrying value of the reporting unit was then compared to its fair value to determine the extent of any goodwill impairment. Based on this analysis, we recognized a non-cash goodwill impairment charge of$60.0 million during the three months endedSeptember 30, 2022 , which represents the excess of theSenior Health reporting unit's carrying value over its estimated fair value atJuly 1, 2022 . The goodwill impairment charge recognized did not impact the Company's income tax expense as the goodwill acquired from the e-TeleQuote acquisition does not have any tax basis. The decline in the reporting unit's fair value below its carrying value was primarily attributable to an increase in the market-based WACC used to discount the forecasted cash flows. The increase in the WACC was driven by recent increases in the equity market risk premium and higher interest rates. The determination of whether the carrying value of the reporting unit exceeds its fair value involves a high degree of estimation and can be affected by a number of industry and company-specific risk factors that are subject to change over time.
For additional information regarding our critical accounting estimates, see the
Critical Accounting Estimates section of MD&A included in our 2021 Annual
Report.
40 --------------------------------------------------------------------------------
Results of Operations
Primerica, Inc. and Subsidiaries Results. Our results of operations were as follows: Three months ended September 30, Change Nine months ended September 30, Change 2022 2021 $ % 2022 2021 $ % (Dollars in thousands) Revenues: Direct premiums$ 810,079 $ 785,277 $ 24,802 3 %$ 2,417,639 $ 2,327,804 $ 89,835 4 % Ceded premiums (404,870 ) (401,295 ) 3,575 1 % (1,223,804 ) (1,211,117 ) 12,687 1 % Net premiums 405,209 383,982 21,227 6 % 1,193,835 1,116,687 77,148 7 % Commissions and fees 225,468 269,796 (44,328 ) (16 )% 717,956 754,529 (36,573 ) (5 )% Investment income net of investment expenses 40,629 35,741 4,888 14 % 112,148 106,970 5,178 5 % Interest expense on surplus note (16,283 ) (15,741 ) 542 3 % (47,613 ) (46,382 ) 1,231 3 % Net investment income 24,346 20,000 4,346 22 % 64,535 60,588 3,947 7 % Realized investment gains (losses) 292 1,730 (1,438 ) * 924 3,762 (2,838 ) * Other investment gains (losses) (2,991 ) (320 ) (2,671 ) * (4,765 ) 114 (4,879 ) * Investment gains (loses) (2,699 ) 1,410 (4,109 ) * (3,841 ) 3,876 (7,717 ) * Other, net 20,965 18,051 2,914 16 % 60,709 49,958 10,751 22 % Total revenues 673,289 693,239 (19,950 ) (3 )% 2,033,194 1,985,638 47,556 2 % Benefits and expenses: Benefits and claims 171,293 183,425 (12,132 ) (7 )% 511,619 535,561 (23,942 ) (4 )% Amortization of DAC 90,925 62,214 28,711 46 % 262,367 182,604 79,763 44 % Sales commissions 105,915 129,268 (23,353 ) (18 )% 359,602 382,465 (22,863 ) (6 )% Insurance expenses 57,552 51,901 5,651 11 % 176,521 149,246 27,275 18 % Insurance commissions 7,666 8,412 (746 ) (9 )% 22,982 25,990 (3,008 ) (12 )% Contract acquisition costs 13,446 23,524 (10,078 ) (43 )% 53,479 23,524 29,955 127 % Interest expense 6,802 7,529 (727 ) (10 )% 20,469 21,814 (1,345 ) (6 )% Goodwill impairment loss 60,000 - 60,000 * 60,000 - 60,000 * Other operating expenses 73,791 79,864 (6,073 ) (8 )% 239,952 219,559 20,393 9 % Total benefits and expenses 587,390 546,137 41,253 8 % 1,706,991 1,540,763 166,228 11 % Income before income taxes 85,899 147,102 (61,203 ) (42 )% 326,203 444,875 (118,672 ) (27 )% Income taxes 34,092 35,663 (1,571 ) (4 )% 90,069 107,403 (17,334 ) (16 )% Net income 51,807 111,439 (59,632 ) (54 )% 236,134 337,472 (101,338 ) (30 )% Net income attributable to noncontrolling interests - (1,017 ) 1,017 * (5,038 ) (1,017 ) (4,021 ) * Net income attributable to Primerica, Inc. $ 51,807$ 112,456 $ (60,649 ) (54 )%$ 241,172 $ 338,489 $ (97,317 ) (29 )%
* Less than 1% or not meaningful.
Results for the Three Months Ended
Total revenues. Total revenues decreased during the three months endedSeptember 30, 2022 compared to the same period in 2021 primarily due to lower commissions and fees earned during the three months endedSeptember 30, 2022 . The decrease in commissions and fees was primarily due to lower sales-based revenues driven by lower demand for variable annuity and mutual funds investment products. Also contributing to the decrease in commissions and fees were lower asset-based revenues driven by unfavorable market performance during 2022. This was partially offset by an increase in Term Life net premiums earned during the three months endedSeptember 30, 2022 compared to the same period in 2021. The increase in 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 life insurance sales. Net investment income increased during the three months endedSeptember 30, 2022 compared to the same period in 2021 due to$2.4 million from higher yields in the invested asset portfolio and$1.8 million 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 offset by interest expense on the 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. For more information on the Surplus Note, see Note 3 (Investments) and Note 12 (Debt) to our unaudited condensed consolidated financial statements included elsewhere in this report. Investment gains (losses) decreased to a loss during the three months endedSeptember 30, 2022 compared to a gain in the same period in 2021 primarily due to a$2.9 million negative mark-to-market adjustment on equity securities held within our investment 41 -------------------------------------------------------------------------------- portfolio during the three months endedSeptember 30, 2022 as a result of market volatility compared to a$0.4 million negative mark-to-market adjustment on equity securities held within our investment portfolio in the comparable 2021 period. Other, net revenues increased during the three months endedSeptember 30, 2022 compared to the same period in 2021 primarily due to differences in the timing of negotiated marketing development revenue in ourSenior Health segment. Also contributing to the increase in Other, net revenues was an increase in fees received for access to Primerica Online ("POL"), our primary sales force support tool, consistent with subscriber growth. Total benefits and expenses. Total benefits and expenses increased during the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 largely due to a non-cash goodwill impairment charge of$60.0 million , which represents the excess of theSenior Health reporting unit's carrying value over its estimated fair value atJuly 1, 2022 . Also contributing to the increase in benefits and expenses was growth in amortization of DAC as a result of lower year-over-year persistency in theTerm Life Insurance segment's in-force book of business. These increases were partially offset by lower sales commissions in line with commissions and fees revenue decreases in our Investment and Savings Products segment as discussed above, lower COVID-19 claims experience in theTerm Life Insurance segment and lower contract acquisition costs in ourSenior Health segment. Other operating expenses were also lower due to non-recurring transaction-related expenses incurred in connection with the acquisition of e-TeleQuote in the 2021 period. Income taxes. Our effective income tax rate for the three months endedSeptember 30, 2022 was 39.7%, compared with 24.2% for the three months endedSeptember 30, 2021 . The increase in the effective tax rate in the 2022 period is driven by the non-cash goodwill impairment charge that is not deductible for income tax purposes. Excluding the non-cash goodwill impairment charge, the effective income tax rate for the three months endedSeptember 30, 2022 was 23.4%, which was lower than the 2021 effective rate due to state income tax benefits generated by e-TeleQuote in the current year.
Results for the Nine Months Ended
Total revenues. Total revenues increased during the nine months endedSeptember 30, 2022 compared to the same period in 2021 primarily driven by growth in net premiums in the Term Life 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. Commissions and fees earned during the nine months endedSeptember 30, 2022 compared to the same period in 2021 decreased due to lower sales-based revenues driven by lower demand for variable annuity and mutual funds investment products. Net investment income increased during the nine months endedSeptember 30, 2022 compared to the same period in 2021 due to$3.5 million from higher yields in the invested asset portfolio and$4.2 million from a larger invested asset portfolio compared to the prior year period. These increases were partially offset by a lower total return on the deposit asset backing the 10% coinsurance agreement that is subject to deposit method accounting. The$3.8 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. Investment gains (losses) decreased to a loss during the nine months endedSeptember 30, 2022 compared to a gain in the same period in 2021 primarily due to a$4.7 million negative mark-to-market adjustment on equity securities held within our investment portfolio during the nine months endedSeptember 30, 2022 as a result of market volatility compared to a$1.1 million positive mark-to-market adjustment on equity securities held within our investment portfolio in the comparable 2021 period.
Other, net revenues increased during the nine months ended
compared to the same period in 2021 primarily due to the same factors as
discussed in the three month comparison above.
Total benefits and expenses. Total benefits and expenses increased during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 largely due to growth in amortization of DAC as a result of lower year-over-year persistency in theTerm Life Insurance segment's in-force book of business, as well as negative market performance of the funds underlying our Canadian segregated funds product in the Investment and Savings Products segment. Also contributing to the increase was a non-cash goodwill impairment charge of$60.0 million , which represents the excess of theSenior Health reporting unit's carrying value over its estimated fair value atJuly 1, 2022 and higher contract acquisition costs as a result of the acquisition of e-TeleQuote onJuly 1, 2021 . Insurance and other operating expenses were higher in the nine months endedSeptember 30, 2022 due to growth in the business and higher costs associated with sales force leadership events, which included the biennial convention held in 2022. These increases were partially offset by lower COVID-19 related claims experience in theTerm Life Insurance segment and lower sales commissions in line with commissions and fees revenue decreases in our Investment and Savings Products segment as discussed above. Income taxes. Our effective income tax rate for the nine months endedSeptember 30, 2022 was 27.6% compared with 24.1% for the nine months endedSeptember 30, 2021 . The higher rate was primarily driven by the same factor discussed above in the three-month comparison. Excluding the non-cash goodwill impairment charge the effective income tax rate for the nine months ended September 42 --------------------------------------------------------------------------------
30, 2022 was 23.3%, which was lower than the 2021 effective rate due to state
income tax benefits generated by e-TeleQuote in the current year.
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 September 30, Change Nine months ended September 30, Change 2022 2021 $ % 2022 2021 $ % (Dollars in thousands) Revenues: Direct premiums$ 804,586 $ 779,490 $ 25,096 3 %$ 2,401,293 $ 2,310,504 $ 90,789 4 % Ceded premiums (403,416 ) (399,835 ) 3,581 1 % (1,219,268 ) (1,206,413 ) 12,855 1 % Net premiums 401,170 379,655 21,515 6 % 1,182,025 1,104,091 77,934 7 % Allocated investment income 13,241 9,320 3,921 42 % 36,973 26,324 10,649 40 % Other, net 13,419 12,476 943 8 % 37,969 36,601 1,368 4 % Total revenues 427,830 401,451 26,379 7 % 1,256,967 1,167,016 89,951 8 % Benefits and expenses: Benefits and claims 167,356 179,696 (12,340 ) (7 )% 499,237 521,148 (21,911 ) (4 )% Amortization of DAC 88,275 59,287 28,988 49 % 249,826 174,106 75,720 43 % Insurance expenses 56,471 50,534 5,937 12 % 173,072 145,160 27,912 19 % Insurance commissions 3,964 4,345 (381 ) (9 )% 11,612 13,999 (2,387 ) (17 )% Total benefits and expenses 316,066 293,862 22,204 8 % 933,747 854,413 79,334 9 % Income before income taxes$ 111,764 $ 107,589 $ 4,175 4 %$ 323,220 $ 312,603 $ 10,617 3 %
Results for the Three Months Ended
Net premiums. Direct premiums increased during the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 largely due to sales of new policies that contributed to growth in the in-force book of business. This was partially offset by an increase in ceded premiums, which includes$14.7 million in higher non-level YRT reinsurance ceded premiums as business not subject to the IPO coinsurance transactions ages, reduced by$11.1 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 endedSeptember 30, 2022 compared to the three months endedSeptember 30, 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 decreased during the three months ended
primarily due to lower excess claims experience. Total benefits and claims
during the three months ended
million
million
Amortization of DAC. The amortization of DAC increased during the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 primarily due to changes in policy lapse rates. During the three months endedSeptember 30, 2022 , lapses on policies and the resulting amortization of DAC have largely normalized to pre-pandemic levels, other than policies that were issued in the first year of the COVID-19 pandemic, which continue to experience lapse rates that are higher than historical trends. Insurance expenses. Insurance expenses increased during the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 due to higher costs associated with supporting growth in the sales force, growth in the business and higher employee compensation costs from annual merit increases.
Results for the Nine Months Ended
Net premiums. Direct premiums increased during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 largely due to sales of new policies that contributed to growth in the in-force book of business. This is partially offset by an increase in ceded premiums, which includes$44.4 million in higher non-level YRT reinsurance ceded premiums as business not subject to the IPO coinsurance transactions ages, reduced by$31.6 million in lower coinsurance ceded premiums due to the run-off of business subject to the IPO coinsurance transactions. 43 -------------------------------------------------------------------------------- Allocated investment income. Allocated investment income increased during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 due to the same factors as described in the three-month comparison. Benefits and claims. Benefits and claims decreased during the nine months endedSeptember 30, 2022 compared to the same period in 2021 primarily due to lower claims experience. Total benefits and claims during the nine months endedSeptember 30, 2022 includes approximately$14 million of excess claims, net of reinsurance compared to approximately$43 million of excess claims, net of reinsurance, during the nine months endedSeptember 30, 2021 primarily due to fewer COVID-19 related claims. Amortization of DAC. The amortization of DAC increased during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 due to the same factors as described in the three-month comparison. Insurance expenses. Insurance expenses increased during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 due to the same factors as discussed in the three month comparison above. Also contributing to the increase were higher costs associated with adding the previously postponed biennial convention to our normal cycle of sales force leadership events. Insurance commissions. Insurance commissions decreased during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 as a result of higher non-deferrable sales force promotional activities offered in the 2021 period to incentivize the sales force during the 2020 COVID-19 pandemic.
Investment and Savings Products Segment Results. Investment and Savings Products
segment results were as follows:
Three months ended Nine months ended September
September 30, Change 30, Change
2022 2021 $ % 2022 2021 $ %
(Dollars in thousands)
Revenues:
Commissions and fees:
Sales-based revenues $ 67,962 $ 95,229 $ (27,267 ) (29 )% $ 259,905 $ 298,057 $ (38,152 ) (13 )%
Asset-based revenues 107,483 113,558 (6,075 ) (5 )% 328,696 323,288 5,408 2 %
Account-based revenues 22,910 21,456 1,454 7 % 67,043 64,424 2,619 4 %
Other, net 3,342 3,094 248 8 % 9,508 9,001 507 6 %
Total revenues 201,697 233,337 (31,640 ) (14 )% 665,152 694,770 (29,618 ) (4 )%
Expenses:
Amortization of DAC 2,222 2,580 (358 ) (14 )% 11,610 7,641 3,969 52 %
Insurance commissions 3,419 3,747 (328 ) (9 )% 10,514 11,065 (551 ) (5 )%
Sales commissions:
Sales-based 48,775 67,745 (18,970 ) (28 )% 186,784 209,969 (23,185 ) (11 )%
Asset-based 51,549 53,233 (1,684 ) (3 )% 155,791 150,587 5,204 3 %
Other operating expenses 37,355 36,664 691 2 % 118,540 111,623 6,917 6 %
Total expenses 143,320 163,969 (20,649 ) (13 )% 483,239 490,885 (7,646 ) (2 )%
Income before income taxes $ 58,377 $ 69,368 $ (10,991 ) (16 )% $ 181,913 $ 203,885 $ (21,972 ) (11 )%
Results for the Three Months Ended
Commissions and fees. Commissions and fees decreased during the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 driven by lower sales-based revenues as investor demand for mutual fund products and variable annuity products weakened due to continued volatility in capital markets. Also contributing to the decrease were lower asset-based revenues, driven by negative equity market performance, partially offset by positive net flows. Amortization of DAC. Amortization of DAC was relatively consistent during the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 due to similar market performance of the funds underlying our Canadian segregated funds product during both periods. Sales commissions. The decrease in sales-based commissions for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 was generally in-line with the decrease in sales-based revenue. The decrease in asset-based commissions for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 was consistent with movement in asset-based revenue, excluding Canadian segregated funds revenue. Asset-based expenses for our Canadian segregated funds are reflected within insurance commissions and amortization of DAC.
Other operating expenses. Other operating expenses remained relatively
consistent during the three months ended
three months ended
44 --------------------------------------------------------------------------------
Results for the Nine Months Ended
Commissions and fees. Commissions and fees decreased during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 driven by lower sales-based revenues in the 2022 period as investor demand for mutual fund products and variable annuity products weakened due to volatility in capital markets. This decrease was partially offset by higher asset-based revenues largely driven by higher average client asset values on managed accounts. Amortization of DAC. Amortization of DAC increased during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 due to unfavorable market performance of the funds underlying our Canadian segregated funds product in the first half of 2022 compared to favorable market performance of such funds in the first half of 2021. Sales commissions. The decrease in sales-based commissions for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 was generally in-line with the decrease in sales-based revenue. The increase in asset-based commissions for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 was consistent with the increase in asset-based revenues, excluding Canadian segregated funds revenue. Asset-based expenses for our Canadian segregated funds are reflected within insurance commissions and amortization of DAC. Other operating expenses. Other operating expenses increased during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 due to higher costs associated with adding the previously postponed biennial convention to our normal cycle of sales force leadership events.
Senior Health Segment Results.
Three months ended
September 30, Change Nine months ended September 30, Change
2022 2021 $ % 2022 2021 $ %
(Dollars in thousands)
Revenues:
Commissions and fees (1) $ 14,601 $ 21,558 $ (6,957 ) (32 )% $ 25,222 $ 21,558 * *
Other, net 2,583 1,378 1,205 87 % 9,606 1,378 * *
Total revenues 17,184 22,936 (5,752 ) (25 )% 34,828 22,936 * *
Benefits and expenses:
Contract acquisition costs 13,446 $ 23,524 $ (10,078 ) (43 )% 53,479 $ 23,524 * *
Goodwill impairment loss 60,000 - 60,000 * 60,000 - * *
Other operating expenses 7,461 7,902 (441 ) (6 )% 24,308 7,902 * *
Total benefits and expenses 80,907 31,426 49,481
157 % 137,787 31,426 * * Loss before income taxes$ (63,723 ) $ (8,490 ) $ 55,233 651 %$ (102,959 ) $ (8,490 ) * * (1) Includes a positive tail revenue adjustment of$1.7 million for the three months endedSeptember 30, 2022 and a net negative tail adjustment of($22.7) million for the nine months endedSeptember 30, 2022 . * Not meaningful.
Results for the Three Months Ended
Commissions and fees. Commissions and fees decreased during the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . Contributing to the decrease were lower LTVs in 2022 as a result of lower-than-expected persistency and refined renewal estimates. In addition, lower LTVs led us to deliberately limit agent counts at e-TeleQuote in 2022, which resulted in lower sales volumes. Partially offsetting the decrease was the recognition of a$1.7 million positive tail revenue adjustment in 2022 due to renewal rate escalations communicated by health insurance carriers during the quarter. Conversely, no tail adjustment was recognized in 2021. Other, net. Other, net increased during the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 primarily due to the timing of negotiated marketing development revenue with certain health insurance carriers. The agreements for marketing development revenue are generally short-term in nature and can vary from period to period. Contract acquisition costs. Contract acquisition costs, as well as per policy contract acquisition costs, decreased during the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 as a result of revised lead sourcing strategies, lessened competition for leads, and lower overall sales volume in the 2022 period.Goodwill impairment loss. Reflects the non-cash goodwill impairment charge recognized during the three months endedSeptember 30, 2022 , which represents the excess of theSenior Health reporting unit's carrying value over its estimated fair value as ofJuly 1, 2022 . Refer to Note 15 (Goodwill ) to our condensed consolidated financial statements included elsewhere in this report for more information. 45 --------------------------------------------------------------------------------
Results for the Nine Months Ended
Commissions and fees. Commissions and fees increased during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 primarily due to the timing of the acquisition of e-TeleQuote onJuly 1, 2021 . The 2022 period includes nine months of operations compared to only three months for the 2021 period. This was largely offset by the recognition of a net$22.7 million of negative tail revenue adjustments during the nine months endedSeptember 30, 2022 as a result of lower-than-expected renewals and refined renewal estimates on policies approved during prior periods. The negative tail adjustment offset commissions and fees revenue of$47.9 million recognized for the lifetime value of commissions for policies approved during the nine months endedSeptember 30, 2022 . No tail adjustment was recognized in 2021. The increase in commissions and fees during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 was partially offset by the volume and LTV factors described in the three-month comparison above. Other, net. Other, net increased during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 primarily due to the timing of the acquisition of e-TeleQuote onJuly 1, 2021 . The 2022 period includes nine months of operations compared to only three months for the 2021 period. Contract acquisition costs. Contract acquisition costs increased during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 primarily due to the timing of the acquisition of e-TeleQuote onJuly 1, 2021 . The 2022 period includes nine months of operations compared to only three months for the 2021 period. This increase was partially offset by the same factors as described in the three-month comparison above.
recognized during the nine months ended
Other operating expenses. Other operating expenses increased during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 primarily due to the timing of the acquisition of e-TeleQuote onJuly 1, 2021 . The 2022 period includes nine months of operations compared to only three months for the 2021 period. Other operating expenses includes$8.2 million and$2.9 million of amortization expense for intangible assets and internally developed software for the nine months endedSeptember 30, 2022 and 2021, respectively.
Corporate and Other Distributed Products Segment Results. Corporate and Other
Distributed Products segment results were as follows:
Three months ended Nine months ended September
September 30, Change 30, Change
2022 2021 $ % 2022 2021 $ %
(Dollars in thousands)
Revenues:
Direct premiums $ 5,493 $ 5,787 $ (294 ) (5 )% $ 16,346 $ 17,300 $ (954 ) (6 )%
Ceded premiums (1,454 ) (1,460 ) (6 ) * (4,536 ) (4,704 ) (168 ) (4 )%
Net premiums 4,039 4,327 (288 ) (7 )% 11,810 12,596 (786 ) (6 )%
Commissions and fees 12,512 17,995 (5,483 ) (30 )% 37,090 47,202 (10,112 ) (21 )%
Investment income net of
investment expenses 27,388 26,421 967 4 % 75,175 80,646 (5,471 ) (7 )%
Interest expense on
surplus note (16,283 ) (15,741 ) 542 3 % (47,613 ) (46,382 ) 1,231 3 %
Net investment income 11,105 10,680 425 4 % 27,562 34,264 (6,702 ) (20 )%
Realized investment gains
(losses) 292 1,730 (1,438 ) * 924 3,762 (2,838 ) *
Other investment gains
(losses) (2,991 ) (320 ) (2,671 ) * (4,765 ) 114 (4,879 ) *
Investment gains (losses) (2,699 ) 1,410 (4,109 ) * (3,841 ) 3,876 (7,717 ) *
Other, net 1,621 1,103 518 47 % 3,626 2,978 648 22 %
Total revenues 26,578 35,515 (8,937 ) (25 )% 76,247 100,916 (24,669 ) (24 )%
Benefits and expenses:
Benefits and claims 3,937 3,729 208 6 % 12,382 14,413 (2,031 ) (14 )%
Amortization of DAC 428 347 81 23 % 931 857 74 9 %
Insurance expenses 1,081 1,367 (286 ) (21 )% 3,449 4,086 (637 ) (16 )%
Insurance commissions 283 320 (37 ) (12 )% 856 926 (70 ) (8 )%
Sales commissions 5,591 8,290 (2,699 ) (33 )% 17,027 21,909 (4,882 ) (22 )%
Interest expense 6,802 7,529 (727 ) (10 )% 20,469 21,814 (1,345 ) (6 )%
Other operating expenses 28,975 35,298 (6,323 ) (18 )% 97,104 100,034 (2,930 ) (3 )%
Total benefits and
expenses 47,097 56,880 (9,783 ) (17 )% 152,218 164,039 (11,821 ) (7 )%
Loss before income taxes $ (20,519 ) $ (21,365 ) $ (846 ) (4 )% $ (75,971 ) $ (63,123 ) $ 12,848 20 %
* Less than 1% or not meaningful.
46 --------------------------------------------------------------------------------
Results for the Three Months Ended
Total revenues. Total revenues decreased during the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 primarily due to lower commissions and fees from our mortgage distribution business as a result of rising interest rates. Also contributing to the decrease is investment losses, which are discussed in thePrimerica, Inc. and Subsidiaries Results of Operations section above. Total benefits and expenses. Total benefits and expenses decreased during the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 due to lower sales commissions from our mortgage distribution business during the three months endedSeptember 30, 2022 . Other operating expenses also decreased due to the 2021 period including approximately$10 million of non-recurring transaction-related expenses incurred in connection with the acquisition of e-TeleQuote, partially offset by higher other operating expenses due to the growth of employee-related expenses.
Results for the Nine Months Ended
Total revenues. Total revenues decreased during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 primarily due to the same factors discussed in the three-month comparison and a decrease in net investment income as more net investment income was allocated to theTerm Life Insurance segment. Total benefits and expenses. Total benefits and expenses decreased during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 primarily due to the same factors discussed in the three-month comparison and lower benefits and claims experienced on closed blocks of non-term life insurance business underwritten by NBLIC.
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 ofSeptember 30, 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 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 nine months endedSeptember 30, 2022 resulted in the invested asset portfolio having an unrealized loss of$321.0 million as ofSeptember 30, 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 47 --------------------------------------------------------------------------------
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 of them.
Details on asset mix (excluding our held-to-maturity security) were as follows:
September 30, 2022 December 31, 2021
Average rating of our fixed-maturity
portfolio A A
Average duration of our fixed-maturity
portfolio 4.8 years 4.8
years
Average book yield of our fixed-maturity portfolio 3.34%
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:
September 30, 2022 December 31, 2021
Amortized cost (1) % Amortized cost (1) %
(Dollars in thousands)
AAA $ 597,966 21 % $ 495,055 19 %
AA 308,333 11 % 312,418 12 %
A 640,533 23 % 644,775 24 %
BBB 1,116,851 40 % 1,079,123 41 %
Below investment grade 76,395 3 % 93,294 4 %
Not rated 42,655 2 % 21,078 *
Total $ 2,782,733 100 % $ 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:
September 30, 2022
Amortized Unrealized Credit
Issuer Fair value cost (1) gain (loss) rating
(Dollars in thousands)
Government of Canada $ 14,733 $ 15,991 $ (1,258 ) AAA
Province of Quebec Canada 14,271 14,935 (664 ) A+
Province of Ontario Canada 13,629 14,274 (645 ) AA
Province of Alberta Canada 10,684 11,729 (1,045 ) BBB+
Enbridge Inc 10,356 11,320 (964 ) BBB+
Manulife Financial Corp 10,274 11,538 (1,264 ) A
Province of British Columbia Canada 9,067 9,513 (446 ) AA+
ConocoPhillips 8,932 10,695 (1,763 ) A
TC Energy Corp 8,869 10,579 (1,710 ) BBB+
Ontario Teachers' Pension Plan 8,507 10,205 (1,698 ) AA+
Total - ten largest holdings $ 109,322 $ 120,779 $ (11,457 )
Total - fixed-maturity securities $ 2,461,707 $ 2,782,733
Percent of total fixed-maturity securities 4 % 4 %
(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.
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 ofSeptember 30, 2022 , the Parent Company had cash and invested assets of$239.7 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 48 --------------------------------------------------------------------------------
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, in periods of growth, net cash flows at e-TeleQuote are
expected to be negative, with the Parent Company providing working capital to
e-TeleQuote. During the first nine months of 2022, as a result of the Company's
efforts to scale back growth in favor of developing more efficient lead
procurement and limiting the agent count, the Parent Company did not provide
funding to e-TeleQuote as cash tax benefits from net operating losses were
sufficient to cover operating needs.
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:
Nine months ended September 30, Change
2022 2021 $
(In thousands)
Net cash provided by (used in) operating
activities $ 551,278 $ 435,121 $ 116,157
Net cash provided by (used in) investing
activities (96,791 ) (722,557 ) 625,766
Net cash provided by (used in) financing
activities (405,296 ) 62,275 (467,571 )
Effect of foreign exchange rate changes on
cash (3,667 ) 3,170 (6,837 )
Change in cash and cash equivalents $ 45,524 $
(221,991 )
Operating Activities. Cash provided by operating activities during the nine months endedSeptember 30, 2022 increased compared to the nine months endedSeptember 30, 2021 . Although net income decreased during the nine months endedSeptember 30, 2022 , cash generated from operating activities increased as it excludes non-cash charges such as goodwill impairments, amortization of deferred policy acquisition costs and renewal commission tail adjustments. Also contributing to the year-over-year increase in cash provided by operating activities were lower deferred acquisition costs due to lower term life insurance policy sales. In addition, cash provided by operating activities was higher in 2022 compared with 2021 due to the timing of purchases and maturities of trading securities. Investing Activities. Cash used in investing activities during the nine months endedSeptember 30, 2022 decreased compared to the nine months endedSeptember 30, 2021 primarily due to funding the e-TeleQuote acquisition onJuly 1, 2021 . Also contributing to the decrease was short-term investing activity. During the nine months endedSeptember 30, 2022 , short-term investments acquired in 2021 matured, which allowed these funds to be deployed for share repurchases. These movements were partially offset by lower sales of fixed-maturity securities during the nine months endedSeptember 30, 2022 as the sharp increase in interest rates provided less attractive selling opportunities. By comparison, during 2021 the Company had higher sales of fixed-maturity securities in anticipation of funding the e-TeleQuote acquisition onJuly 1, 2021 . Financing Activities. Cash flows from financing activities was a use of cash during the nine months endedSeptember 30, 2022 compared to a source of cash in the nine months endedSeptember 30, 2021 . This movement is primarily due to cash used to fund share repurchases during the 2022 period. By comparison, the Company paused share repurchases in 2021 to accumulate cash and borrowed$125 million under the Revolving Credit Facility in anticipation of funding the e-TeleQuote acquisition 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 of
statutory capital and surplus substantially in excess of the applicable
regulatory requirements and remain well positioned to support existing
operations and fund future growth.
49 -------------------------------------------------------------------------------- In Canada, the Office of the Superintendentof Financial Institutions ("OSFI") requires federally-regulated life insurance companies to maintain adequate capital in accordance with regulatory Capital Guidelines. The Capital Guidelines define and establish criteria and limits for determining an insurer's required capital to support defined risks and the amount of qualifying regulatory available capital. In addition, OSFI requires companies to set internal target levels of capital sufficient to provide for all risks of the insurer, including risks specified in OSFI's Capital Guidelines. As ofSeptember 30, 2022 ,Primerica Life Insurance Company of Canada has satisfied its regulatory capital requirements. 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 ofSeptember 30, 2022 . No events of default occurred during the three and nine months endedSeptember 30, 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 ofSeptember 30, 2022 . Credit Facility Agreement. We maintain an unsecured$200.0 million Revolving Credit Facility with a syndicate of commercial banks that has a scheduled termination date ofJune 22, 2026 . Amounts outstanding under the Revolving Credit Facility bear interest at a 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 and nine months endedSeptember 30, 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 and nine months endedSeptember 30, 2022 .
Contractual Obligations Update. There have been no material changes in
contractual obligations from those disclosed in the 2021 Annual Report.
50
--------------------------------------------------------------------------------
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 Securities and Exchange Commission ("SEC") and
those proposed or adopted by the Department of Labor ("DOL"), state legislatures
or regulators or Canadian securities and insurance 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.
51
--------------------------------------------------------------------------------
Risks Related to Our Mortgage Distribution Business
•
Licensing requirements will impact the size of the mortgage loan sales force.
•
Our mortgage distribution business is highly regulated and subject to various
federal, state and provincial laws and regulations in the U.S. and Canada.
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-TeleQuote Insurance, Inc.
("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
United States government's Centers for Medicare and Medicaid Services ("CMS")
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
52 --------------------------------------------------------------------------------
•
We are subject to various federal, state and provincial laws and regulations inthe United States and Canada, changes in which may require us to alter our 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 bythe United States 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. 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 inthe 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.
Aflac Incorporated to Webcast 2022 Financial Analysts Briefing
Two New Countries Top Berkshire Hathaway Travel Protection’s Safest Places to Travel in 2023 List
Advisor News
- Nationwide Financial Services President John Carter to retire at year end
- FINRA, FBI warn about generative AI and finances
- Prudential study: Babies born today will likely need nearly $2M to retire
- Economy performing better than expected, Morningstar says
- Advisors have more optimism post-election
More Advisor NewsAnnuity News
- Prudential Financial to Reinsure $7B Japanese Whole Life Block with Prismic Life
- Nationwide Financial Services President John Carter to retire at year end
- Pension Rights Center: PRT deals could lead to ‘nationwide catastrophe’ regulated
- Allianz Life Retirement Solutions Now Available Through Morgan Stanley
- Midland Advisory Focused on Growing Registered Investment Advisor Channel Presence
More Annuity NewsHealth/Employee Benefits News
- Founding Banner|Aetna CEO Tom Grote Retires, Victoria Coley Appointed as New CEO
- Panelists discuss emerging trends, future of local healthcare
- 'We Have No Intention to Increase Premiums'
- UnitedHealth gave hackers easy access to Change data, new lawsuit claims
- Demand for ACA health insurance plans soars to record high in WA
More Health/Employee Benefits NewsLife Insurance News
- AM Best Affirms Credit Ratings of Nippon Life Insurance Company and Its Subsidiary
- Prudential Financial and Dai-ichi Life to Pursue Strategic Partnership
- AM Best Removes From Under Review With Positive Implications and Upgrades Credit Ratings of ShelterPoint Insurance Company and ShelterPoint Life Insurance Company
- Prudential inks $7 billion reinsurance deal with Bermuda-based reinsurer
- Securian Financial Announces Chief Financial Officer Transition
More Life Insurance News