Primerica Reports First Quarter 2013 Results

Primerica Reports First Quarter 2013 Results

6% increase in diluted EPS to $0.65 and in diluted operating EPS to $0.66

13% growth in Term Life net premiums


15% higher Investment and Savings Products (ISP) sales

Client asset values reached all-time high of $39.85 billion as of March 31, 2013

Primerica Life Insurance Company (PLIC) paid a $150 million dividend to Primerica, Inc. on May 7

DULUTH, Ga.--(BUSINESS WIRE)-- Primerica, Inc. (NYS: PRI) announced today financial results for the first quarter ended March 31, 2013. Total revenues were $308.4 million in the first quarter of 2013 and net income was $38.8 million, or $0.65 per diluted share.

Rick Williams, Chairman of the Board and Co-Chief Executive Officer said, "Our strong distribution in core businesses drove the quarter's results. We continue to see steady growth in our Term Life business which provides a stable, recurring future earnings stream, coupled with strong performance in our high return ISP business. We remain focused on driving organic earnings growth and providing meaningful, long-term shareholder value."

John Addison, Chairman of Primerica Distribution and Co-Chief Executive Officer said, "First quarter sales force results were in line with our expectations as we worked to balance emphasis on recruiting and licensing new representatives to drive sales force growth longer-term. Investment and Savings Products sales increased 15% year-over-year as we continue to focus on meeting the needs of our middle-income clients in order to generate sales growth."

In the first quarter of 2013 operating revenues increased by 8% to $306.2 million compared with $284.5 million in the first quarter of 2012 driven by continued growth in the Term Life business as well as strong Investment and Savings Products sales and the favorable impact of market performance on client asset values. Net operating income was $39.3 million, or $0.66 per diluted share in the first quarter of 2013 compared with $42.4 million, or $0.62 per diluted share, in the prior year period. Results reflect a year-over-year decline in net investment income, which was impacted by our repurchase of 9.5 million shares throughout 2012 and a lower current yield on invested assets related to the accumulation of cash for the excess capital distribution from PLIC to Primerica, Inc. Net operating income was also impacted by an increase in legal fees and expenses, higher interest expense due to the execution of the redundant reserve financing in March 2012 and increases in premium-related and employee-related expenses compared with the first quarter of 2012.

Distribution Results

  • Sales force results in the first quarter of 2013 reflect seasonally lower recruiting in the fourth quarter and the absence of an incentive trip competition in the first half of 2013, which is typical of a convention year. In 2012 we introduced initiatives, including a life insurance compensation change, to focus our sales force on licensing more representatives. Adapting to these changes impacted recruiting. First quarter results were in line with our expectations as we recruited 46,348 new representatives and life insurance licensed 7,165 representatives in the first quarter of 2013. The size of the sales force was 90,917 as of March 31, 2013.

  • Term Life net premium revenue increased 13% to $144.2 million in the first quarter of 2013 compared with the first quarter a year ago as we continue to build the Term Life book of business. In the first quarter of 2013, term life insurance policies issued were 50,356, a 10% decline from the first quarter of 2012 primarily related to strong recruiting in the prior year period. Sequentially, term life insurance policies issued were 4% lower than the fourth quarter largely reflecting fewer applications submitted during the typically slower holiday season.

  • The 15% year-over-year growth in Investment and Savings Products sales to $1.37 billion in the first quarter of 2013 resulted from a 16%, or $100.0 million, increase in retail mutual funds sales as well as $92.9 million of fixed indexed annuity sales. Sales were driven by recent ISP initiatives and market performance in the first quarter. ISP sales increased 10% compared with the fourth quarter of 2012 primarily reflecting strong retirement and savings sales typical of the first quarter. Client asset values increased 10% to $39.85 billion at March 31, 2013 relative to a year ago and were up 7% from the end of the fourth quarter, primarily reflecting market performance in the U.S. and Canada.

Segment Results

Primerica operates in two primary business segments: Term Life Insurance and Investment and Savings Products, and has a third segment, Corporate and Other Distributed Products. Results for the segments are shown below.

Actual

Operating (1)

Q1 2013

Q1 2012

% Change

Q1 2013

Q1 2012

% Change

Revenues:

($ in thousands)

($ in thousands)

Term Life Insurance

$

168,397

$

151,804

11

%

$

168,397

$

151,804

11

%

Investment and Savings Products

108,722

100,134

9

%

108,722

100,134

9

%

Corporate and Other Distributed Products

31,326

34,663

-10

%

29,040

32,532

-11

%

Total revenues

$

308,445

$

286,601

8

%

$

306,159

$

284,470

8

%

Income (loss) before income taxes:

Term Life Insurance

$

45,779

$

44,283

3

%

$

45,779

$

44,283

3

%

Investment and Savings Products

26,371

28,870

-9

%

26,371

28,870

-9

%

Corporate and Other Distributed Products

(11,918

)

(9,688

)

-23

%

(11,186

)

(8,744

)

-28

%

Total income before income taxes

$

60,232

$

63,465

-5

%

$

60,964

$

64,409

-5

%

(1) See the Non-GAAP Financial Measures section and the segment Operating Results Reconciliations at the end of this release for additional information.

Term Life Insurance. Term Life results in the first quarter reflect a 13% increase in net premiums versus the prior year period from the continued layering of New Term policies onto our maturing in force premium base. Premium-related and employee-related expenses increased as did the interest expense associated with our redundant reserve financing compared with the first quarter of 2012. Non-deferred commissions were lower than in the prior year period due to the changing nature of our incentive programs. Total incurred claims grew at a rate consistent with our historical experience and policy persistency improved modestly over the prior year period. In the first quarter of 2013, operating revenues increased 11% to $168.4 million and operating income before income taxes grew to $45.8 million compared with the same period a year ago.

Sequentially, operating income before income taxes increased 3% reflecting continued growth in net premiums as well as improved persistency relative to seasonally lower persistency in the fourth quarter. Incurred claims were slightly higher than in the fourth quarter of 2012 while insurance expenses were in line with the prior period.

Investment and Savings Products. First quarter results reflect strong sales and average client asset values, partially offset by growth-related expenses. In addition, legal fees and expenses of $3.9 million were incurred in the first quarter associated with a series of arbitration hearings in 2013, impacting net operating earnings per diluted share by $0.04. During the period operating revenues increased 9% to $108.7 million and operating income before income taxes declined by $2.5 million to $26.4 million compared with the first quarter of 2012.

Sequentially, operating income before income taxes declined 15% compared with the fourth quarter of 2012 primarily reflecting higher first quarter legal fees and expenses and favorable prior period items including the volume-related variable annuity incentive payment. The mix of products sold in the first quarter resulted in modestly lower sales-based income compared with the fourth quarter of 2012 but should provide higher relative ongoing earnings.

Corporate and Other Distributed Products. Results reflect a decline in net investment income due to a lower invested asset base following our stock repurchases as well as a lower yield on our invested assets. Results for the segment were positively impacted by favorable claims experience in the non-term insurance products underwritten by our New York subsidiary. Operating revenues of $29.0 million were 11% lower and operating losses before income taxes grew by $2.4 million compared with the first quarter of 2012.

Taxes

Our effective income tax rate for the first quarter of 2013 was 35.5% compared with 34.2% in the prior year period primarily driven by tax benefits recorded in the first quarter of 2012 related to Canadian tax reserves. Sequentially, the effective income tax rate increased from the fourth quarter of 2012 due to the recognition of certain tax benefits due to statute of limitations expirations that occur annually at the end of the calendar year.

Capital and Liquidity

As of March 31, 2013, our investments and cash totaled $2.12 billion compared with $2.07 billion as of December 31, 2012. Our invested asset portfolio had a net unrealized gain of $175.4 million (net of unrealized losses of $4.2 million) at March 31, 2013, down from a net unrealized gain of $182.6 million (net of unrealized losses of $4.3 million) at December 31, 2012. Net realized gains for the quarter were $2.3 million, which included $0.1 million of other-than-temporary impairments.

Our debt-to-capital ratio decreased slightly from the end of the fourth quarter to 22.3% as of March 31, 2013. Primerica Life Insurance Company's statutory risk-based capital (RBC) ratio is estimated to be in excess of 610% as of March 31, 2013. Following the $150 million ordinary dividend, PLIC's RBC ratio is estimated to be in excess of 480%, leaving the company well-positioned to support existing operations and fund future growth.

Net income return on stockholders' equity (ROE) was 12.0% (13.3% on a net operating income and adjusted stockholders' equity (ROAE) basis) for the quarter ended March 31, 2013. The $150 million ordinary dividend from Primerica Life Insurance Company to Primerica, Inc. provides opportunities for ROAE expansion in 2013.

Non-GAAP Financial Measures

We report financial results in accordance with U.S. generally accepted accounting principles (GAAP). We also present operating revenues, operating income before income taxes, net operating income and adjusted stockholders' equity. Operating revenues, operating income before income taxes and net operating income exclude the impact of realized investment gains and losses for all periods presented. Operating income before income taxes and net operating income exclude the expense associated with our IPO-related equity awards for all periods presented. Adjusted stockholders' equity excludes the impact of net unrealized gains and losses on invested assets for all periods presented. Our definitions of these non-GAAP financial measures may differ from the definitions of similar measures used by other companies. Management uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating our financial performance. Furthermore, management believes that these non-GAAP financial measures may provide users with additional meaningful comparisons between current results and results of prior periods as they are expected to be reflective of our core ongoing business. These measures have limitations, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Reconciliations of non-GAAP to GAAP financial measures are attached to this release.

Earnings Webcast Information

Primerica will hold a webcast Wednesday, May 8, 2013 at 10:00 am EDT, to discuss first quarter results. This release and a detailed financial supplement will be posted on Primerica's website. Investors are encouraged to review these materials. To access the webcast go to http://investors.primerica.com at least 15 minutes prior to the event to register, download and install any necessary software.

A replay of the call will be available for approximately 30 days on Primerica's website, http://investors.primerica.com.

Forward-Looking Statements

Except for historical information contained in this press release, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements contain known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from anticipated or projected results. Those risks and uncertainties include, among others, our failure to continue to attract and license new recruits, retain sales representatives or license or maintain the licensing of our sales representatives; our or our sales representatives' violation of or non-compliance with laws and regulations; incorrect assumptions used to price our insurance policies; the failure of our investment products to remain competitive with other investment options; our failure to meet RBC standards or other minimum capital and surplus requirements; a downgrade or potential downgrade in our insurance subsidiaries' financial strength ratings or our senior debt ratings; inadequate or unaffordable reinsurance or the failure of our reinsurers to perform their obligations; heightened standards of conduct or more stringent licensing requirements for our sales representatives; the inability of our subsidiaries to pay dividends or make distributions; the loss of key personnel; and general changes in economic and financial conditions, including the effects of credit deterioration and interest rate fluctuations on our invested asset portfolio. These and other risks and uncertainties affecting us are more fully described in our filings with the Securities and Exchange Commission, which are available in the "Investor Relations" section of our website at http://investors.primerica.com. Primerica assumes no duty to update its forward-looking statements as of any future date.

About Primerica, Inc.

Primerica, Inc., headquartered in Duluth, GA, is a leading distributor of financial products to middle income households in North America. Primerica representatives educate their Main Street clients about how to better prepare for a more secure financial future by assessing their needs and providing appropriate solutions through term life insurance, which we underwrite, and mutual funds, annuities and other financial products, which we distribute primarily on behalf of third parties. In addition, Primerica provides an entrepreneurial full or part-time business opportunity for individuals seeking to earn income by distributing the company's financial products. We insured more than 4.3 million lives and approximately 1.9 million clients maintained investment accounts with us at December 31, 2012. Primerica stock is included in the S&P MidCap 400 and the Russell 2000 stock indices and is traded on The New York Stock Exchange under the symbol "PRI".

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Balance Sheets

March 31,

December 31,

2013 (1)

2012

(In thousands)

Assets

Investments:

Fixed maturity securities available for sale, at fair value

$

1,837,929

$

1,887,014

Equity securities available for sale, at fair value

40,277

37,147

Trading securities, at fair value

9,417

7,762

Policy loans and other invested assets

25,009

24,613

Total investments

1,912,632

1,956,536

Cash and cash equivalents

202,512

112,216

Accrued investment income

21,391

19,540

Due from reinsurers

4,005,539

4,005,194

Deferred policy acquisition costs

1,098,124

1,066,422

Premiums and other receivables

180,347

170,656

Intangible assets

69,502

69,816

Income taxes

21,359

17,256

Other assets

307,241

302,126

Separate account assets

2,614,669

2,618,115

Total assets

$

10,433,316

$

10,337,877

Liabilities and Stockholders' Equity

Liabilities:

Future policy benefits

$

4,898,538

$

4,850,488

Unearned premiums

10,214

6,056

Policy claims and other benefits payable

254,333

254,533

Other policyholders' funds

350,345

345,721

Notes payable

374,445

374,433

Income taxes

122,925

114,611

Other liabilities

366,669

358,577

Payable under securities lending

133,325

139,927

Separate account liabilities

2,614,669

2,618,115

Total liabilities

9,125,463

9,062,461

Stockholders' equity:

Common stock

567

564

Paid-in capital

609,100

602,269

Retained earnings

535,609

503,173

Accumulated other comprehensive income, net of income tax

162,577

169,410

Total stockholders' equity

1,307,853

1,275,416

Total liabilities and stockholders' equity

$

10,433,316

$

10,337,877

(1) Unaudited

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Statements of Income

(Unaudited)

Three months ended March 31,

2013

2012

(In thousands, except per-share amounts)

Revenues:

Direct premiums

$

570,899

$

561,037

Ceded premiums

(410,604

)

(418,163

)

Net premiums

160,295

142,874

Commissions and fees

111,988

103,905

Net investment income

23,216

26,097

Realized investment gains (losses), including OTTI

2,286

2,131

Other, net

10,660

11,594

Total revenues

308,445

286,601

Benefits and expenses:

Benefits and claims

74,246

67,933

Amortization of deferred policy acquisition costs

31,252

26,531

Sales commissions

55,048

49,717

Insurance expenses

27,052

22,444

Insurance commissions

6,066

8,496

Interest expense

8,795

6,910

Other operating expenses

45,754

41,105

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