UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-34680
Primerica, Inc.
(Exact name of registrant as specified in its charter)
Delaware
27-1204330
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1 Primerica Parkway
Duluth, Georgia
30099
(Address of principal executive offices)
(ZIP Code)
(770) 381-1000
(Registrant’s telephone number, including area code)
Not applicable.
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
PRI
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
Non-accelerated filer
☐
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of July 31, 2024, the registrant had 33,827,541 shares of common stock, $0.01 par value per share, outstanding.
TABLE OF CONTENTS
Page
PART I – FINANCIAL INFORMATION
2
Item 1. Financial Statements (unaudited).
Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023
Condensed Consolidated Statements of Income for the three and six months ended June 30, 2024 and 2023
3
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2024 and 2023
4
Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2024 and 2023
5
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023
6
Notes to Condensed Consolidated Financial Statements
7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
27
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
48
Item 4. Controls and Procedures.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
49
Item 5. Other Information
50
Item 6. Exhibits.
Signatures
51
i
ITEM 1. FINANCIAL STATEMENTS.
PRIMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, 2024
December 31, 2023
(In thousands, except per-share amounts)
Assets:
Investments:
Fixed-maturity securities available-for-sale, at fair value (amortized cost: $3,033,914 in 2024 and $2,935,212 in 2023)
$
2,796,030
2,719,467
Fixed-maturity security held-to-maturity, at amortized cost (fair value: $1,268,174 in 2024 and $1,334,892 in 2023)
1,353,370
1,386,980
Short-term investments available-for-sale, at fair value (amortized cost: $276 in 2023)
-
276
Equity securities, at fair value (historical cost: $22,828 in 2024 and $27,106 in 2023)
26,026
29,680
Trading securities, at fair value (cost: $3,719 in 2024 and $18,761 in 2023)
3,158
18,383
Policy loans and other invested assets
49,791
51,175
Total investments
4,228,375
4,205,961
Cash and cash equivalents
627,292
613,148
Accrued investment income
25,687
23,958
Reinsurance recoverables
2,833,055
3,015,777
Deferred policy acquisition costs, net
3,566,126
3,447,234
Renewal commissions receivable
171,022
190,258
Agent balances, due premiums and other receivables
288,766
273,066
Goodwill
127,707
Intangible assets, net (accumulated amortization: $0 in 2024 and $26,250 in 2023)
45,275
175,025
Income taxes
118,379
123,514
Operating lease right-of-use assets
50,646
53,693
Other assets
357,115
382,549
Separate account assets
2,253,966
2,395,842
Total assets
14,565,704
15,027,732
Liabilities and stockholders’ equity:
Liabilities:
Future policy benefits
6,436,332
6,742,025
Unearned and advance premiums
17,076
14,876
Policy claims and other benefits payable
478,773
513,803
Other policyholders’ funds
412,570
435,094
Note payable
594,110
593,709
Surplus note
1,353,014
1,386,592
135,049
135,247
Operating lease liabilities
58,756
61,358
Other liabilities
613,303
583,434
Payable under securities lending
90,995
99,785
Separate account liabilities
Commitments and contingent liabilities (see Commitments and Contingent Liabilities note)
Total liabilities
12,443,944
12,961,765
Stockholders’ equity:
Common stock ($0.01 par value; authorized 500,000 shares in 2024 and 2023; issued and outstanding 33,994 shares in 2024 and 34,996 shares in 2023)
340
350
Paid-in capital
Retained earnings
2,122,832
2,276,946
Accumulated other comprehensive income (loss), net of income tax:
Effect of change in discount rate assumptions on the liability for future policy benefits
201,441
(39,086
)
Unrealized foreign currency translation gains (losses)
(15,507
(2,235
Net unrealized investment gains (losses) on available-for-sale securities
(187,346
(170,008
Total stockholders’ equity
2,121,760
2,065,967
Total liabilities and stockholders’ equity
See accompanying notes to condensed consolidated financial statements.
Condensed Consolidated Statements of Income – Unaudited
Three months ended June 30,
Six months ended June 30,
2024
2023
Revenues:
Direct premiums
845,358
828,296
1,686,404
1,646,169
Ceded premiums
(427,561
(425,266
(837,325
(830,613
Net premiums
417,797
403,030
849,079
815,556
Commissions and fees
279,769
233,130
534,790
464,677
Investment income net of investment expenses
54,111
49,006
107,702
96,504
Interest expense on surplus note
(15,659
(16,608
(31,444
(33,042
Net investment income
38,452
32,398
76,258
63,462
Realized investment gains (losses)
565
337
572
(648
Other investment gains (losses)
(664
(665
634
(4,288
Investment gains (losses)
(99
(328
1,206
(4,936
Other, net
67,456
20,155
84,871
39,663
Total revenues
803,375
688,385
1,546,204
1,378,422
Benefits and expenses:
Benefits and claims
150,030
148,911
316,351
312,179
Future policy benefits remeasurement (gain) loss
(4,329
(1,867
(4,275
(1,308
Amortization of deferred policy acquisition costs
73,643
68,110
145,692
136,033
Sales commissions
142,154
113,623
273,292
224,497
Insurance expenses
62,685
59,093
125,834
120,219
Insurance commissions
7,399
9,142
17,033
17,281
Contract acquisition costs
15,724
12,602
29,257
27,586
Interest expense
6,099
6,686
12,870
13,376
Impairment of goodwill and other long-lived assets
253,607
Other operating expenses
88,566
83,189
189,511
172,721
Total benefits and expenses
795,578
499,489
1,359,172
1,022,584
Income before income taxes
7,797
188,896
187,032
355,838
6,626
44,392
47,958
83,235
Net income
1,171
144,504
139,074
272,603
Earnings per share:
Basic earnings per share
0.03
3.97
4.00
7.44
Diluted earnings per share
3.99
7.43
Weighted-average shares used in computing earnings per share:
Basic
34,383
36,215
34,633
36,461
Diluted
36,290
34,688
36,545
Condensed Consolidated Statements of Comprehensive Income (Loss) – Unaudited
(In thousands)
Other comprehensive income (loss) before income taxes:
Unrealized investment gains (losses) on available-for-sale securities:
Change in unrealized holding gains (losses) on available-for-sale securities
(6,756
(23,068
(21,602
15,364
Reclassification adjustment for investment (gains) losses included in net income
(565
(331
(572
2,815
137,798
85,310
305,884
(95,971
Foreign currency translation adjustments:
Change in unrealized foreign currency translation gains (losses)
(3,817
7,005
(13,272
8,026
Total other comprehensive income (loss) before income taxes
126,660
68,916
270,438
(69,766
Income tax expense (benefit) related to items of other comprehensive income (loss)
27,697
12,651
60,521
(17,380
Other comprehensive income (loss), net of income taxes
98,963
56,265
209,917
(52,386
Total comprehensive income (loss)
100,134
200,769
348,991
220,217
Condensed Consolidated Statements of Stockholders’ Equity – Unaudited
Equity
Common stock:
Balance, beginning of period
346
364
368
Repurchases of common stock
(6
(7
(11
(12
Net issuance of common stock
1
Balance, end of period
358
Paid-in capital:
Share-based compensation
5,690
5,503
20,502
22,124
(1
(2
(5,690
(5,502
(20,501
(22,122
Retained earnings:
2,285,937
2,177,428
2,153,617
Dividends
(25,836
(23,598
(52,091
(47,509
(138,440
(108,111
(241,097
(188,488
2,190,223
(100,375
(231,382
(211,329
(122,731
108,587
67,352
240,527
(75,030
Change in foreign currency translation adjustment
Change in net unrealized investment gains (losses) during the period
(5,807
(18,092
(17,338
14,618
(1,412
(175,117
2,015,464
Dividends declared per share
0.75
0.65
1.50
1.30
Condensed Consolidated Statements of Cash Flows – Unaudited
Cash flows from operating activities:
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Change in future policy benefits and other policy liabilities
27,932
18,433
Deferral of policy acquisition costs
(271,170
(254,668
Change in income taxes
(59,157
(33,790
Investment (gains) losses
(1,206
4,936
Accretion and amortization of investments
(1,863
(638
Depreciation and amortization
14,483
17,441
Change in reinsurance recoverables
110,508
130,233
Change in agent balances, due premiums and other receivables
(14,793
(15,140
Change in renewal commissions receivable
19,237
8,819
Trading securities sold, matured, or called (acquired), net
15,160
(14,722
15,668
14,585
Gain on insurance proceeds received from acquisition representation and warranty policy
(50,000
Change in other operating assets and liabilities, net
41,010
27,567
Net cash provided by (used in) operating activities
384,182
311,692
Cash flows from investing activities:
Available-for-sale investments sold, matured or called:
Fixed-maturity securities — sold
1,382
15,734
Fixed-maturity securities — matured or called
215,444
152,859
Short-term investments — sold
28,799
Short-term investments — matured or called
268
40,000
Equity securities — sold
15
Equity securities — matured or called
4,272
Available-for-sale investments acquired:
Fixed-maturity securities
(315,271
(193,283
Short-term investments
(19,767
Equity securities — acquired
(330
Purchases of property and equipment and other investing activities, net
(12,604
(10,234
Cash collateral received (returned) on loaned securities, net
(8,789
(23,295
Sales (purchases) of short-term investments using securities lending collateral, net
8,789
23,295
Insurance proceeds received from acquisition representation and warranty policy
50,000
Net cash provided by (used in) investing activities
(56,509
13,793
Cash flows from financing activities:
Dividends paid
Common stock repurchased
(251,821
(196,037
Tax withholdings on share-based compensation
(7,491
(10,239
Finance leases
(130
(133
Net cash provided by (used in) financing activities
(311,533
(253,918
Effect of foreign exchange rate changes on cash
(1,996
778
Change in cash and cash equivalents
14,144
72,345
Cash and cash equivalents, beginning of period
489,240
Cash and cash equivalents, end of period
561,585
Notes to Condensed Consolidated Financial Statements — Unaudited
(1) Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies
Description of Business. Primerica, Inc. (the “Parent Company”), together with its subsidiaries (collectively, “we”, “us” or the “Company”), is a leading provider of financial products and services to middle-income households in the United States and Canada 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. Our primary subsidiaries include the following entities: Primerica Financial Services, LLC, a general agency and marketing company; Primerica Life Insurance Company (“Primerica Life”), our principal life insurance company; Primerica Financial Services (Canada) Ltd., a holding company for our Canadian operations, which includes Primerica Life Insurance Company of Canada (“Primerica Life Canada”) and PFSL Investments Canada Ltd.; PFS Investments Inc., an investment products company and broker-dealer; and Primerica Health, Inc, a holding company for our senior health operations, which includes e-TeleQuote Insurance, Inc. and subsidiaries (collectively, “e-TeleQuote”), which markets Medicare-related insurance products underwritten by third-party health insurance carriers to eligible Medicare beneficiaries through its licensed health insurance agents. Primerica Life, domiciled in Tennessee, owns National Benefit Life Insurance Company, a New York insurance company. Vidalia Re, Inc. (“Vidalia Re”) is a special purpose financial captive insurance company and wholly owned subsidiary of Primerica Life. Vidalia Re has entered into a separate coinsurance agreement with Primerica Life whereby Primerica Life has ceded certain level-premium term life insurance policies to Vidalia Re (the “Vidalia Re Coinsurance Agreement”).
In July 2024, the Board of Directors (“Board”) of the Company determined that its senior health business does not have a clear path toward anticipated profitability within an acceptable timeframe in the increasingly challenging senior health distribution market. In connection with such decision, the Board authorized management of the Company to abandon the Company’s ownership in e-TeleQuote with a target date of September 30, 2024. If for any reason the abandonment is unable to be effectuated as expected, then the Company intends to exit the senior health business through another method.
Basis of Presentation. We prepare our financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). These principles are established primarily by the Financial Accounting Standards Board (“FASB”).
The accompanying unaudited condensed consolidated financial statements contain all adjustments, generally consisting of normal recurring accruals, which are necessary to fairly present the balance sheets as of June 30, 2024 and December 31, 2023, the statements of income, comprehensive income (loss), and stockholders’ equity for the three and six months ended June 30, 2024 and 2023, and cash flows for the six months ended June 30, 2024 and 2023. Results of operations for interim periods are not necessarily indicative of results for the entire year or of the results to be expected in future periods.
These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are sufficient to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Annual Report”).
Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect financial statement balances, revenues and expenses and cash flows, as well as the disclosure of contingent assets and liabilities. Management considers available facts and knowledge of existing circumstances when establishing the estimates included in our financial statements. The most significant items that involve a greater degree of accounting estimates and actuarial determinations subject to change in the future are the valuation of investments, deferred policy acquisition costs (“DAC”), liability for future policy benefits (“LFPB”) and corresponding amounts recoverable from reinsurers, renewal commissions receivable, income taxes, and valuation of intangible assets and goodwill. Estimates for these and other items are subject to change and are reassessed by management in accordance with U.S. GAAP. Actual results could differ from those estimates.
Consolidation. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and those entities required to be consolidated under U.S. GAAP. All material intercompany profits, transactions, and balances among the consolidated entities have been eliminated. The results of the senior health business are included in the Company's continuing operations in the condensed consolidated statements of income because they do not meet the requirements to be reported as discontinued operations as of June 30, 2024. Specifically, the Company intends to exit the senior health business via a disposal other than by sale.
Changes to Accounting Policies. All significant accounting policies remain unchanged from the 2023 Annual Report unless otherwise described.
Reclassifications. Certain reclassifications have been made to prior period amounts to conform to current period reporting classifications. These reclassifications had no impact on net income or total stockholders’ equity.
New Accounting Standards Not Yet Adopted.
Accounting standard
Adoption date
Description
Effects on the financial statements
Segment Reporting (Topic 280)— Improvements to Reportable Segment Disclosures
ASU 2023-07
Annual periods beginning after December 15, 2023 and interim periods thereafter. Early adoption is permitted. Retrospective transition for all periods presented.
In November 2023, the FASB issued the ASU to enhance segment disclosures. The amendments (1) require disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss; (2) require disclosure of “other segment items” by reportable segment, which is the difference between segment revenue and significant segment expenses; (3) require annual segment disclosures to be included in interim financial statements; (4) clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, an entity may report one or more of those additional measures; and (5) require disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.
We do not believe the adoption of the standard will have a material impact on our consolidated financial statements. We will revise disclosures in accordance with the new standard in our annual 2024 financial statements and for interim periods thereafter.
Income Taxes (Topic 740)—Improvements to Income Tax Disclosures
ASU 2023-09
Annual periods beginning after December 15, 2024. Early adoption is permitted. Prospective transition, although retrospective transition is permitted.
In December 2023, the FASB issued the ASU to increase income tax transparency through improvements primarily related to the existing rate reconciliation and income taxes paid disclosures. The amendments require (1) consistent categories and greater disaggregation of information in the rate reconciliation; and (2) income taxes paid disaggregated by jurisdiction.
The ASU also removes certain disclosure requirements, such as reasonably possible significant changes in the total amount of unrecognized tax benefits within 12 months of the reporting date.
We do not believe the adoption of the standard will have a material impact on our consolidated financial statements. We will revise disclosures in accordance with the new standard in our annual 2025 financial statements.
In addition, in March 2024, the SEC issued final rules that include updates to Regulation S-X for climate-related disclosures (the “Climate-Related Disclosures rule”). The Climate-Related Disclosures rule is currently stayed pending the completion of judicial review. The Climate-Related Disclosures rule requires a registrant to disclose in the notes to the financial statements (1) expenditures and losses, and capitalized costs and charges in each case excluding recoveries, incurred or recognized during a fiscal year as a result of severe weather events and other natural conditions; and (2) where material to a company's plan to achieve disclosed climate-related targets or goals, information regarding carbon offsets and renewable energy credits. The adoption of the Climate-Related Disclosures rule will impact our disclosures and may require changes to certain of our processes, systems, and controls. We are currently evaluating existing processes and data to determine what changes may be necessary. If the stay is lifted, the updates to Regulation S-X included in the Climate-Related Disclosures rule would be effective for the Company’s Form 10-K for the fiscal year ending December 31, 2025.
Recently issued accounting guidance not discussed above is not applicable, is immaterial to our consolidated financial statements, or did not or is not expected to have a material impact on our business.
8
(2) Segment and Geographical Information
Segments. We have three primary operating segments – Term Life Insurance, Investment and Savings Products, and Senior Health. We also have a Corporate and Other Distributed Products segment.
Notable information included in profit or loss by segment was as follows:
Term life insurance segment
426,944
411,873
867,357
832,943
Investment and savings products segment
260,906
214,509
504,622
424,711
Senior health segment
12,420
14,890
19,300
33,599
Corporate and other distributed products segment
103,105
47,113
154,925
87,169
Net investment income:
Total net investment income
Amortization of DAC:
71,916
66,004
142,407
132,072
1,478
1,409
2,679
2,901
249
697
606
1,060
Total amortization of DAC
Non-cash share-based compensation expense:
954
726
3,096
2,576
715
666
1,754
1,658
195
171
295
330
1,189
895
10,523
9,967
Total non-cash share-based compensation expense
3,053
2,458
14,531
Income (loss) before income taxes:
147,779
140,113
286,148
270,654
74,782
59,583
140,345
115,691
(264,972
(6,032
(279,125
(9,795
50,208
(4,768
39,664
(20,712
Total income before income taxes
In April 2024, the Company executed agreements providing for the receipt of proceeds for certain claims filed by the Company under a Representation and Warranty insurance policy negotiated and purchased in connection with the acquisition of e-TeleQuote on July 1, 2021. The claims made by the Company involved breaches of certain representations and warranties relating to the pre-acquisition financial statements made by the sellers of e-TeleQuote in connection with the acquisition. The Company recognized a gain during the second quarter of 2024 of $50.0 million, which is equal to the aggregate proceeds received from the third-party insurers under the policy in May 2024, reflecting the full coverage under the policy. The Company recognized this gain in Corporate and Other Distributed Products segment revenues as it resulted from a corporate investment decision to purchase the insurance policy. On a consolidated basis, this gain is included in Other, net revenue in the accompanying unaudited condensed consolidated statements of income.
As discussed in Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies), in July 2024, subsequent to the end of the reporting period, the Company committed to exit the senior health business, which is comprised of the Senior Health segment. In the second quarter of 2024, the Company recorded impairment charges in its Senior Health segment to write off the remaining goodwill and acquired intangible assets from the e-TeleQuote acquisition. Additionally, the Company recorded $0.8 million of restructuring charges for professional services incurred in the second quarter of 2024, which are included in the Corporate and Other Distributed Products segment. Refer to Note 17 (Impairment of Goodwill and Other Long-lived Assets) and Note 18 (Income Taxes) for further discussion of these impairment charges and tax impacts, respectively. The carrying value of the net assets in the Senior Health segment after these impairment charges was $103.1 million as of June 30, 2024. We expect to incur additional restructuring costs, the extent of which are yet to be determined, in the third quarter of 2024 associated with the exit of the senior health business.
9
Total assets by segment were as follows:
6,486,934
6,543,923
Investment and savings products segment (1)
2,410,463
2,537,079
144,227
419,110
5,524,080
5,527,620
Geographical Information. Results of operations by country and long-lived assets – primarily tangible assets reported in other assets in our unaudited condensed consolidated balance sheets – were as follows:
Revenues by country:
United States
707,697
602,132
1,355,039
1,205,982
Canada
95,678
86,253
191,165
172,440
Long-lived assets by country:
37,724
35,434
2,409
2,636
Other
185
197
Total long-lived assets
40,318
38,267
(3) Investments
Available-for-sale Securities. The amortized cost, gross unrealized gains and losses, and fair value of available-for-sale (“AFS”) securities were as follows:
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
Securities available-for-sale, carried at fair value:
Fixed-maturity securities:
U.S. government and agencies
10,368
(480
9,897
Foreign government
168,743
638
(10,050
159,331
States and political subdivisions
136,350
101
(14,983
121,468
Corporates
1,845,728
8,267
(130,992
1,723,003
Residential mortgage-backed securities
504,580
546
(69,523
435,603
Commercial mortgage-backed securities
118,240
93
(12,637
105,696
Other asset-backed securities
249,905
1,111
(9,984
241,032
Total fixed-maturity securities
3,033,914
10,765
(248,649
10
9,974
18
(476
9,516
170,354
1,616
(8,588
163,382
145,779
891
(14,681
131,989
1,723,023
14,787
(120,286
1,617,524
499,771
1,688
(63,928
437,531
127,454
156
(15,443
112,167
258,857
763
(12,262
247,358
2,935,212
19,919
(235,664
Total fixed-maturity and short-term investments
2,935,488
2,719,743
All of our AFS mortgage- and asset-backed securities represent beneficial interests in variable interest entities (“VIEs”). We are not the primary beneficiary of these VIEs because we do not have the power to direct the activities that most significantly impact the entities’ economic performance. The maximum exposure to loss as a result of our involvement in these VIEs equals the carrying value of the securities.
The scheduled maturity distribution of the AFS fixed-maturity securities portfolio as of June 30, 2024 was as follows:
Due in one year or less
183,824
182,161
Due after one year through five years
745,364
716,707
Due after five years through 10 years
819,934
741,336
Due after 10 years
412,067
373,495
2,161,189
2,013,699
Mortgage- and asset-backed securities
872,725
782,331
Total AFS fixed-maturity securities
Expected maturities may differ from scheduled contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.
Trading Securities. The costs and fair values of the fixed-maturity securities classified as trading securities were as follows:
Cost
3,719
18,761
Held-to-maturity Security. Concurrent with the execution of the Vidalia Re Coinsurance Agreement, Vidalia Re entered into a Surplus Note Purchase Agreement (the “Surplus Note Purchase Agreement”) with Hannover Life Reassurance Company of America and certain of its affiliates (collectively, “Hannover Re”) and a newly formed limited liability company (the “LLC”) owned by a third- party service provider. Under the Surplus Note Purchase Agreement, Vidalia Re issued a surplus note (the “Surplus Note”) to the LLC in exchange for a credit enhanced note from the LLC with an equal principal amount (the “LLC Note”). The principal amount of both the LLC Note and the Surplus Note will fluctuate over time to coincide with the amount of reserves contractually supported under the Vidalia Re Coinsurance Agreement. Both the LLC Note and the Surplus Note mature on December 31, 2030 and bear interest at an annual interest rate of 4.50%. The LLC Note is guaranteed by Hannover Re through a credit enhancement feature in exchange for a fee, which is reflected in interest expense in our unaudited condensed consolidated statements of income.
The LLC is a VIE as its owner does not have an equity investment at risk that is sufficient to permit the LLC to finance its activities without Vidalia Re or Hannover Re. The Parent Company, Primerica Life, and Vidalia Re share the power to direct the activities of the LLC with Hannover Re, but they do not have the obligation to absorb losses or the right to receive any residual returns related to the LLC’s primary risks or sources of variability. Through the credit enhancement feature, Hannover Re is the ultimate risk taker in this transaction and bears the obligation to absorb the LLC’s losses in the event of a Surplus Note default in exchange for the fee. Accordingly, the Company is not the primary beneficiary of the LLC and does not consolidate the LLC within its unaudited condensed consolidated financial statements. Hannover Re's financial strength rating by A.M. Best was A+ as of June 30, 2024.
The LLC Note is classified as a held-to-maturity debt security in the Company’s invested asset portfolio as we have the positive intent and ability to hold the security until maturity. As of June 30, 2024, the LLC Note had an estimated unrealized holding loss of $85.2
11
million based on its amortized cost and estimated fair value. The estimated fair value of the LLC Note is expected to be at least equal to the estimated fair value of the offsetting Surplus Note. See Note 15 (Debt) for more information on the Surplus Note.
As of June 30, 2024 and December 31, 2023, no credit losses have been recognized on the LLC Note.
Investments on Deposit with Governmental Authorities. As required by law, we have investments on deposit with governmental authorities and banks for the protection of policyholders. The fair value of investments on deposit was $7.7 million and $7.3 million as of June 30, 2024 and December 31, 2023, respectively.
Securities Lending Transactions. We participate in securities lending transactions with broker-dealers and other financial institutions to increase investment income with minimal risk. We require minimum collateral on securities loaned equal to 102% of the fair value of the loaned securities. We accept collateral in the form of securities, which we are not able to sell or encumber, and to the extent the collateral declines in value below 100%, we require additional collateral from the borrower. Any securities collateral received is not reflected in our unaudited condensed consolidated balance sheets. We also accept collateral in the form of cash, all of which we reinvest. For loans involving unrestricted cash collateral, the collateral is reported as an asset with a corresponding liability representing our obligation to return the collateral. We continue to carry the loaned securities as invested assets in our unaudited condensed consolidated balance sheets during the terms of the loans, and we do not report them as sales. Cash collateral received and reinvested was $91.0 million and $99.8 million as of June 30, 2024 and December 31, 2023, respectively.
Net Investment Income. The components of net investment income were as follows:
Fixed-maturity securities (available-for-sale)
30,618
26,357
60,554
52,163
Fixed-maturity security (held-to-maturity)
15,659
16,608
31,444
33,042
Equity securities
323
380
712
760
543
352
1,005
281
Cash, cash equivalents and short-term investments
6,640
5,840
13,621
10,968
Total return on deposit asset underlying 10% coinsurance agreement(1)
2,400
1,636
4,574
3,685
Gross investment income
56,183
51,173
111,910
100,899
Investment expenses
(2,072
(2,167
(4,208
(4,395
The components of investment gains (losses), as well as details on gross realized investment gains (losses) and other investment gains (losses) were as follows:
Realized investment gains (losses):
Gross gains from sales of available-for-sale fixed-maturity securities
673
442
680
492
Gross losses from sales of available-for-sale fixed-maturity securities
(108
(105
(1,140
Net realized investment gains (losses):
Other investment gains (losses):
Credit losses impairment of available-for-sale securities
Market gains (losses) recognized in net income during the period on equity securities
(675
(656
620
(2,130
Gains (losses) from bifurcated options
(8
Gains (losses) on trading securities
12
The proceeds from sales or other redemptions of AFS securities were as follows:
Proceeds from sales or other redemptions
130,676
151,962
217,094
237,392
Accrued Interest. Accrued interest is recorded in accordance with the contractual interest schedule of the underlying security. In the event of default, the Company’s policy is to no longer accrue interest on these securities and to write off any remaining accrued interest. As a result, the Company has made the policy election to not record an allowance for credit losses on accrued interest.
Credit Losses for AFS Fixed-maturity Securities. The following tables summarize all AFS securities in an unrealized loss position for which an allowance for credit losses has not been recorded as of June 30, 2024 and December 31, 2023, aggregated by major security type and by length of time such securities have continuously been in an unrealized loss position:
Less than 12 months
12 months or longer
Unrealized losses
1,870
(25
7,710
(455
25,329
(394
111,584
(9,656
(220
107,243
(14,763
307,078
(4,606
1,149,479
(126,386
35,393
(388
352,139
(69,135
7,997
(64
92,915
(12,573
25,046
(55
132,387
(9,929
411,855
(5,752
1,953,457
(242,897
9,188
17,209
(62
104,827
(8,526
4,883
(46
107,021
(14,635
39,783
(907
1,231,694
(119,379
14,872
(142
360,987
(63,786
4,721
(107
97,417
(15,336
41,417
(159
136,841
(12,103
122,885
(1,423
2,047,975
(234,241
The amortized cost of AFS securities with a cost basis in excess of their fair values were $2,614.0 million and $2,406.5 million as of June 30, 2024 and December 31, 2023, respectively.
As of June 30, 2024, no allowance for credit losses was recorded for AFS securities. Substantially all of the unrealized losses were the result of change in market interest rates compared to the date the securities were acquired rather than the credit quality of the securities, and we have no present intention to dispose of them.
We did not recognize any credit losses on AFS securities for the three and six months ended June 30, 2024. We recognized less than $0.1 million and $2.2 million for credit losses on AFS securities for the three and six months ended June 30, 2023, respectively, in the unaudited condensed consolidated statements of income. We recognize credit losses on securities due to: (i) our intent to sell them; (ii) adverse credit events indicating that we will not receive the security’s contractual cash flows when contractually due, such as news of an impending filing for bankruptcy; (iii) analyses of the issuer’s most recent financial statements or other information indicating that significant liquidity deficiencies, significant losses and large declines in capitalization exist; and (iv) analyses of rating agency information for issuances with severe ratings downgrades indicating a significant increase in the possibility of default.
Derivatives. We have a deferred loss related to closed forward contracts, which were settled several years ago, that were used to mitigate our exposure to foreign currency exchange rates that resulted from the net investment in our Canadian operations. The
13
amount of deferred loss included in accumulated other comprehensive income (loss) was $26.4 million as of each of June 30, 2024 and December 31, 2023. These deferred losses will not be recognized until such time as we sell or substantially liquidate our Canadian operations, although we have no such intention.
(4) Fair Value of Financial Instruments
Fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Invested assets recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information. We classify and disclose all invested assets carried at fair value in one of the following three levels:
As of each reporting period, all assets and liabilities recorded at fair value are classified in their entirety based on the lowest level of input (Level 3 being the lowest in the hierarchy) that is significant to the fair value measurement. Significant levels of estimation and judgment are required to determine the fair value of certain of our investments. The factors influencing these estimations and judgments are subject to change in subsequent reporting periods.
The estimated fair value and hierarchy classifications for assets and liabilities that are measured at fair value on a recurring basis were as follows:
Level 1
Level 2
Level 3
Total
Fair value assets:
Available-for-sale fixed-maturity securities:
3,870
1,719,133
Mortgage- and asset-backed securities:
232,182
8,850
Total available-for-sale fixed-maturity securities
2,783,310
23,441
982
1,603
Trading securities
441,563
185,729
Separate accounts
Total fair value assets
468,874
5,227,145
10,453
5,706,472
Fair value liabilities:
Total fair value liabilities
14
3,951
1,613,573
Mortgage-and asset-backed securities:
246,858
500
2,715,016
Total available-for-sale securities
2,715,292
27,062
974
1,644
644,161
5,130,491
2,144
5,776,796
In estimating fair value of our investments, we use a third-party pricing service for approximately all of our securities that are measured at fair value on a recurring basis. The remaining securities are primarily thinly-traded securities, such as private placements, and are valued using models based on observable inputs on public corporate spreads having similar characteristics (e.g., sector, average life and quality rating), liquidity and yield based on quality rating, average life and U.S. Treasury yields. All observable data inputs are corroborated by independent third-party data. We also corroborate pricing information provided by our third-party pricing service by performing a review of selected securities. Our review activities include: obtaining detailed information about the assumptions, inputs and methodologies used in pricing the security; documenting this information; and corroborating it by comparison to independently obtained prices and/or independently developed pricing methodologies.
Furthermore, we perform internal reasonableness assessments on fair value determinations within our portfolio throughout the year and as of year-end, including pricing variance analyses and comparisons to alternative pricing sources and benchmark returns. If a fair value appears unusual relative to these assessments, we will re-examine the inputs and may challenge a fair value assessment made by the pricing service. If there is a known pricing error, we will request a reassessment by the pricing service. If the pricing service is unable to perform the reassessment on a timely basis, we will determine the appropriate price by requesting a reassessment from an alternative pricing service or other qualified source as necessary. We do not adjust quotes or prices except in a rare circumstance to resolve a known error.
Because many fixed-maturity securities do not trade on a daily basis, third-party pricing services generally determine fair value using industry-standard methodologies, which vary by asset class. For corporates, governments, and agency securities, these methodologies include developing prices by incorporating available market information such as U.S. Treasury curves, benchmarking of similar securities including new issues, sector groupings, quotes from market participants and matrix pricing. Observable information is compiled and integrates relevant credit information, perceived market movements and sector news. Additionally, security prices are periodically back-tested to validate and/or refine models as conditions warrant. Market indicators and industry and economic events are also monitored as triggers to obtain additional data. For certain structured securities (such as mortgage- and asset-backed securities) with limited trading activity, third-party pricing services generally use industry-standard pricing methodologies that incorporate market information, such as index prices or discounting expected future cash flows based on underlying collateral, and quotes from market participants, to estimate fair value. If one or more of these input measures are not deemed observable for a particular security, the security will be classified as Level 3 in the fair value hierarchy.
Where specific market information is unavailable for certain securities, pricing models produce estimates of fair value primarily using Level 2 inputs along with certain Level 3 inputs. These models include matrix pricing. The pricing matrix uses current U.S. Treasury rates and credit spreads received from third-party sources to estimate fair value. The credit spreads incorporate the issuer’s industry- or issuer-specific credit characteristics and the security’s time to maturity, if warranted. Remaining unpriced securities are valued using an estimate of fair value based on indicative market prices that include significant unobservable inputs not based on, nor corroborated by, market information, including the utilization of non-binding broker quotes.
The roll-forward of the Level 3 assets measured at fair value on a recurring basis was as follows:
Six months ended June 30,(1)
Level 3 assets, beginning of period
1,631
4,008
1,710
Net unrealized gains (losses) included in other comprehensive income (loss)
35
(60
39
(61
Realized gains (losses) and accretion (amortization) recognized in earnings
(28
(41
(81
Purchases
8,815
2,316
Settlements
Transfers into Level 3
Transfers out of Level 3
(2,248
(504
Level 3 assets, end of period
1,628
We obtain independent pricing quotes based on observable inputs as of the end of the reporting period for all securities in Level 2. Those inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, market bids/offers, quoted prices for similar instruments in markets that are not active, and other relevant data. We monitor these inputs for market indicators, industry and economic events. There were no material transfers between Level 1 and Level 3 during the three and six months ended June 30, 2024 and 2023.
The carrying values and estimated fair values of our financial instruments were as follows:
Carrying value
Estimated fair value
Fixed-maturity security (held-to-maturity) (1)
1,268,174
1,334,892
Short-term investments (available-for-sale)
Policy loans (1)
38,426
38,975
Deposit asset underlying 10% coinsurance agreement (1)
171,848
187,377
Note payable (2) (3)
499,658
508,832
Surplus note (1) (2)
1,265,532
1,329,159
The fair values of financial instruments presented above are estimates of the fair values at a specific point in time using various sources and methods, including market quotations and a complex matrix system that takes into account issuer sector, quality, and spreads in the current marketplace.
Financial Instruments Recognized at Fair Value in the Balance Sheets. Estimated fair values of investments in AFS securities are principally a function of current spreads and interest rates that are corroborated by independent third-party data. Therefore, the fair values presented are indicative of amounts we could realize or settle at the respective balance sheet date. We do not necessarily intend to dispose of or liquidate such instruments prior to maturity. Trading securities and equity securities, including common and nonredeemable preferred stocks, are carried at fair value. Segregated funds in separate accounts are carried at the underlying value of the variable insurance contracts, which is fair value.
The carrying amounts for cash and cash equivalents, trade receivables, accrued investment income, accounts payable, cash collateral and payables for security transactions approximate their fair values due to the short-term nature of these instruments. Consequently, such financial instruments are not included in the above table.
(5) Reinsurance
We use reinsurance extensively, which has a significant effect on our results of operations. Reinsurance arrangements do not relieve us of our primary obligation to the policyholder.
16
Details on in-force life insurance were as follows:
(Dollars in thousands)
Direct life insurance in-force
952,962,977
946,756,416
Amounts ceded to other companies
(814,622,587
(810,145,801
Net life insurance in-force
138,340,390
136,610,615
Percentage of reinsured life insurance in-force
85
%
86
Benefits and claims ceded to reinsurers during the three and six months ended June 30, 2024 were $357.8 million and $714.8 million, respectively, compared to $349.7 million and $693.0 million, respectively, for the three and six months ended June 30, 2023.
Reinsurance recoverables include ceded policy benefit reserve balances, ceded claim liabilities, and ceded claims paid that have not been reimbursed. The Company allocated reinsurance recoverables estimated at the cohort level to individual reinsurers for disclosure purposes. Reinsurance recoverables estimated by reinsurer and the financial strength ratings of those reinsurers were as follows:
A.M. Best rating
Swiss Re Life & Health America Inc. (Novated from Pecan Re Inc.) (1)
2,131,772
A+
2,271,223
Munich Re of Malta (1) (2)
222,398
NR
243,890
SCOR Global Life Reinsurance Companies (3)
157,512
A
160,381
American Health and Life Insurance Company (1)
131,775
B++
141,771
Swiss Re Life & Health America Inc. (4)
45,609
43,873
RGA Reinsurance Company
42,332
43,188
Korean Reinsurance Company
42,152
41,373
Munich American Reassurance Company
40,819
50,273
All other reinsurers
19,808
20,925
Allowance for credit losses
(1,122
(1,120
NR – not rated by A.M. Best
We estimate and recognize lifetime expected credit losses for reinsurance recoverables. In estimating the allowance for credit losses for reinsurance recoverables, we factor in the underlying collateral for reinsurance agreements where available. Specifically, for reinsurers with underlying trust assets, we compare the reinsurance recoverables balance to the underlying trust assets that mitigate the potential exposure to credit losses. We also analyze the financial condition of the reinsurers, as determined by third-party rating agencies, to determine the probability of default for the reinsurers. We then utilize a third-party credit default study to calculate an expected credit loss given default rate or recovery rate. The probability of default and loss given default rates are then applied to the reinsurers’ recoverable balance, while also factoring in any third-party letters of credit that support the reinsurance agreement, in order to calculate our allowance for credit losses.
The rollforward of the allowance for credit losses on reinsurance recoverables were as follows:
1,048
3,563
1,120
2,936
Current period provision for expected credit losses
74
2,036
2,663
Balance, at the end of period
1,122
5,599
(6) Deferred Policy Acquisition Costs
The balances and activity in DAC were as follows:
17
Six months ended
Year ended
Term Life
Segregated Funds (Canada)
DAC balance, beginning of period
3,366,281
63,029
3,106,148
62,341
Capitalization
274,632
1,562
521,718
4,353
Amortization
(142,407
(2,679
(268,803
(5,479
Foreign exchange translation and other
(9,130
(2,288
7,218
1,814
DAC balance, at the end of period
3,489,376
59,624
Reconciliation of DAC by product was as follows:
Term Life Insurance
17,126
17,924
Total DAC, net
There were no changes to the judgments, assumptions and methods used to amortize DAC during the six months ended June 30, 2024 and 2023.
(7) Separate Accounts
The following table represents the fair value of assets supporting separate accounts by major investment category:
Fixed-income securities
765,636
876,524
1,430,461
1,436,122
67,359
87,530
Due to/from funds
(9,510
(4,357
20
23
Total separate account assets
The following table represents the balances of and changes in separate account liabilities:
Separate account liabilities balance, beginning of period
2,305,717
Premiums and deposits
88,494
186,631
Surrenders and withdrawals
(223,559
(343,473
Investment performance
105,546
245,565
Management fees and other charges
(25,251
(62,159
Foreign exchange translation
(87,106
63,561
Separate account liabilities balance, end of period
Cash surrender value
2,221,443
2,354,813
The cash surrender value represents the amount of the contract holders’ account balance distributable at the balance sheet date less the Company’s estimate of the deferred sales charges that would be assessed if the policyholders redeemed their contracts at the balance sheet date. This estimate requires the Company to make certain assumptions regarding the underlying account balances by contribution year and application of the contractually defined deferred sales charges that would be applicable to each contribution year.
(8) Policy Claims and Other Benefits Payable
Changes in policy claims and other benefits payable were as follows:
Policy claims and other benefits payable, beginning of period
538,250
Less reinsured policy claims and other benefits payable
534,674
542,606
Net balance, beginning of period
(20,871
(4,356
Incurred related to current year
129,041
121,251
Incurred related to prior years (1)
(3,565
(1,723
Total incurred
125,476
119,528
Claims paid related to current year, net of reinsured policy claims received
(194,113
(162,580
Reinsured policy claims received related to prior years, net of claims paid
40,413
17,519
Total paid
(153,700
(145,061
Foreign currency translation
(334
182
Net balance, end of period
(49,429
(29,707
Add reinsured policy claims and other benefits payable
528,202
524,848
495,141
The liability for policy claims and other benefits payable on traditional life insurance products includes estimated unpaid claims that have been reported to us and claims incurred but not yet reported. We estimate claims incurred but not yet reported based on our historical claims activity, adjusted for any current trends and conditions, and reported lag time experience.
(9) Future Policy Benefits
The following tables summarize balances and changes in the present value of expected net premiums and the present value of expected future policy benefits underlying the LFPB:
Present Value of Expected Net Premiums
Balance at then current discount rate, beginning of period
13,977,353
13,053,386
Balance at original discount rate, beginning of period
14,012,553
13,521,221
Effect of changes in cash flow assumptions
(5,364
Effect of actual variances from expected experience
(234,156
(229,884
Adjusted balance, beginning of period
13,778,397
13,285,973
Issuances
1,003,321
1,836,290
Interest accrual at original discount rate
299,575
544,806
Net premiums collected
(858,255
(1,682,924
(38,685
28,408
Expected net premiums at original discount rate, end of period
14,184,353
Effect of changes in discount rate assumptions
(444,845
(35,200
Expected net premiums at then current discount rate, end of period
13,739,508
Present Value of Expected Future Policy Benefits
20,508,435
19,143,253
20,391,694
19,706,818
(7,254
(238,305
(225,539
20,153,389
19,474,025
1,008,739
1,840,996
458,419
856,727
Benefit payments
(932,348
(1,823,542
(59,142
43,488
Expected future policy benefits at original discount rate, end of period
20,629,057
(651,747
116,741
Expected future policy benefits at then current discount rate, end of period
19,977,310
LFPB
6,237,802
6,531,082
Less: reinsurance recoverables
2,819,445
3,001,074
Net LFPB, after reinsurance recoverables
3,418,357
3,530,008
Weighted-average duration of net LFPB (in years)
7.9
19
During the three and six months ended June 30, 2024, experience variances in persistency and mortality resulted in remeasurement gains of $4.3 million and $4.6 million, respectively, in our Term Life Insurance segment, compared to $1.3 million and $0.3 million, respectively, during the three and six months ended June 30, 2023. The impact of experience variances in persistency and mortality during each period was largely offset by reinsurance. There were no changes to the inputs, judgments, assumptions, and methods used in measuring the LFPB during the three and six months ended June 30, 2024 and June 30, 2023.
Losses recognized as a result of capping the net premium ratio at 100% were immaterial during the three and six months ended June 30, 2024 and 2023.
The following table reconciles the LFPB to the unaudited condensed consolidated balance sheets:
198,530
210,943
The following table reconciles the reinsurance recoverables to the unaudited condensed consolidated balance sheets:
13,610
14,703
The amount of discounted (using the then current discount rate) and undiscounted expected gross premiums and expected future benefit payments were as follows:
Undiscounted
Discounted
Expected future benefit payments
33,839,938
19,977,311
33,342,272
Expected future gross premiums
39,155,381
26,164,310
38,701,869
26,687,880
The amount of revenue and interest recognized in our unaudited condensed consolidated statements of income were as follows:
Gross premiums
840,668
823,297
1,676,989
1,636,177
Interest accretion (expense)
(81,252
(77,101
(158,845
(153,785
The weighted-average discount rates were as follows:
Original discount rate
4.99
4.93
Current discount rate
5.47
4.91
There were no changes to the methods used to determine the discount rates during the six months ended June 30, 2024 and the twelve months ended December 31, 2023.
(10) Stockholders’ Equity
The following table shows changes in our outstanding common stock:
Common stock, beginning of period
34,996
36,824
Shares of common stock issued upon exercise of stock options
60
Shares of common stock issued when sales restrictions on restricted stock units (“RSUs”) lapsed and performance-based stock units (“PSUs”) were earned
124
168
Common stock retired
(1,126
Common stock, end of period
33,994
35,846
The above table excludes RSUs and PSUs, which do not have voting rights. As sales restrictions on RSUs lapse and PSUs are earned, we issue common shares with voting rights. As of June 30, 2024, we had a total of 232,003 RSUs and 58,619 PSUs outstanding. The PSU outstanding balance is based on the number of PSUs granted pursuant to the award agreements; however, the actual number of common shares earned could be higher or lower based on actual versus targeted performance. See Note 12 (Share-Based Transactions) for discussion of the PSU award structure.
On November 16, 2023, our Board of Directors authorized a share repurchase program for up to $425.0 million of our outstanding common stock for purchases from November 16, 2023 through December 31, 2024 (the “Share Repurchase Program”). Under the Share Repurchase Program, we repurchased 1,095,316 shares of our common stock in the open market for an aggregate purchase price of $251.8 million through June 30, 2024. Approximately $173.2 million remains available for repurchases of our outstanding common stock under the Share Repurchase Program as of June 30, 2024.
(11) Earnings Per Share
The Company has outstanding common stock and equity awards that consist of RSUs and PSUs. All previously remaining outstanding stock options were exercised during the year ended December 31, 2023. The RSUs maintain non-forfeitable dividend rights that result in dividend payment obligations on a one-to-one ratio with common shares for any future dividend declarations.
Unvested RSUs are deemed participating securities for purposes of calculating earnings per share (“EPS”) as they maintain dividend rights. We calculate EPS using the two-class method. Under the two-class method, we allocate earnings to common shares and vested RSUs outstanding for the period. Earnings attributable to unvested participating securities, along with the corresponding share counts, are excluded from EPS as reflected in our unaudited condensed consolidated statements of income.
In calculating basic EPS, we deduct from net income any dividends and undistributed earnings allocated to unvested RSUs and then divide the result by the weighted-average number of common shares and vested RSUs outstanding for the period.
We determine the potential dilutive effect of PSUs and stock options outstanding (“contingently-issuable shares”) on EPS using the treasury-stock method. Under this method, we determine the proceeds that would be received from the issuance of the contingently-issuable shares if the end of the reporting period were the end of the contingency period. The proceeds from the contingently-issuable shares include the remaining unrecognized compensation expense of the awards and the cash received for the exercise price on stock options. We then use the average market price of our common shares during the period the contingently-issuable shares were outstanding to determine how many shares we could repurchase with the proceeds raised from the issuance of the contingently-issuable shares. The net incremental share count issued represents the potential dilutive securities. We then reallocate earnings to common shares and vested RSUs by incorporating the increased fully-diluted share count to determine diluted EPS.
21
The calculation of basic and diluted EPS was as follows:
Basic EPS:
Numerator:
Income attributable to unvested participating securities
(96
(609
(546
(1,190
Net income used in calculating basic EPS
1,075
143,895
138,528
271,413
Denominator:
Weighted-average vested shares
Basic EPS
Diluted EPS:
(608
(1,187
Net income used in calculating diluted EPS
143,896
271,416
Dilutive effect of incremental shares to be issued for contingently-issuable shares
75
55
84
Weighted-average shares used in calculating diluted EPS
Diluted EPS
(12) Share-Based Transactions
The Company has outstanding equity awards under the Primerica, Inc. 2020 Omnibus Incentive Plan (the “OIP”), which was approved by the Company’s stockholders on May 13, 2020. The OIP provides for the issuance of equity awards, including stock options, stock appreciation rights, restricted stock, deferred stock, RSUs, PSUs, and stock payment awards, as well as cash-based awards. In addition to time-based vesting requirements, awards granted under the OIP may also be subject to specified performance criteria. Under the OIP, the Company issues equity awards to our management (officers and other key employees), non-employees who serve on our Board of Directors, and sales force leaders. For more information on equity awards granted under the OIP, see Note 15 (Share-Based Transactions) to our consolidated financial statements within our 2023 Annual Report.
In connection with our granting of equity awards to management and members of the Board of Directors, we recognize expense over the requisite service period of the equity award. We defer and amortize the fair value of equity awards granted to the sales force in the same manner as other deferred policy acquisition costs for those awards that are an incremental direct cost of successful acquisitions of life insurance policies that result directly from and are essential to the policy acquisition(s) and would not have been incurred had the policy acquisition(s) not occurred. All equity awards granted to the sales force that are not directly related to the successful acquisition of life insurance policies are recognized as expense as incurred, which is in the quarter granted and earned.
The impact of equity awards granted under the OIP are as follows:
Equity awards expense recognized
2,463
14,588
Equity awards expense deferred
2,633
2,340
4,832
4,863
On February 16, 2024, the Compensation Committee of our Board of Directors granted the following equity awards to employees as part of the annual approval of management incentive compensation:
22
All awards granted to employees on February 16, 2024 vest upon voluntary termination of employment by any employee who is “retirement eligible” as of his or her termination date. In order to be retirement eligible, an employee must be at least 55 years old and his or her age plus years of service with the Company must equal at least 75. The number of PSUs that will ultimately be earned for a retirement eligible employee is equal to the amount calculated using the Company’s actual cumulative three-year ROAE and average EPS growth for the performance period even if that employee retires prior to the completion of such relevant three-year performance period.
(13) Commitments and Contingent Liabilities
The Company is involved from time-to-time in legal disputes, regulatory inquiries and arbitration proceedings in the normal course of business. These disputes are subject to uncertainties, including the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation. As such, the Company is unable to estimate the possible loss or range of loss that may result from these matters.
(14) Other Comprehensive Income (Loss)
The components of other comprehensive income (loss) (“OCI”), including the income tax expense or benefit allocated to each component, were as follows:
Change in unrealized foreign currency translation gains (losses) before income taxes
Income tax expense (benefit) on unrealized foreign currency translation gains (losses)
Change in unrealized foreign currency translation gains (losses), net of income taxes
Unrealized gain (losses) on available-for-sale securities:
Change in unrealized holding gains (losses) arising during period before income taxes
Income tax expense (benefit) on unrealized holding gains (losses) arising during period
(1,395
(5,237
(4,716
2,970
Change in unrealized holding gains (losses) on available-for-sale securities arising during period, net of income taxes
(5,361
(17,831
(16,886
12,394
Reclassification from accumulated OCI to net income for (gains) losses realized on available-for-sale securities
Income tax (expense) benefit on (gains) losses reclassified from accumulated OCI to net income
(119
(70
(120
591
Reclassification from accumulated OCI to net income for (gains) losses realized on available-for-sale securities, net of income taxes
(446
(261
(452
2,224
Change in unrealized gains (losses) on available-for-sale securities, net of income taxes and reclassification adjustment
Effect of change in discount rate assumptions on the LFPB:
Change in effect in discount rate assumptions on the LFPB before income taxes
Income tax (expense) benefit on the effect of change in discount rate
assumptions on the LFPB from accumulated OCI to net income
29,211
17,958
65,357
(20,941
Change in effect in discount rate assumptions on the LFPB, net of income taxes
(15) Debt
Notes Payable. As of June 30, 2024, the Company had outstanding $600.0 million of publicly-traded, senior unsecured notes (the “Senior Notes”), with an annual interest rate of 2.80% that are scheduled to mature on November 19, 2031. As of June 30, 2024, we were in compliance with the covenants of the Senior Notes. No events of default occurred on the Senior Notes during the three and six months ended June 30, 2024.
Further discussion on the Company’s Senior Notes is included in Note 11 (Debt) to our consolidated financial statements within our 2023 Annual Report.
Surplus Note. As of June 30, 2024, the principal amount outstanding on the Surplus Note issued by Vidalia Re was $1.4 billion, which is equal to the principal amount of the LLC Note. The principal amounts of the Surplus Note and the LLC Note have reached their peaks and are expected to decrease over time to coincide with the amount of policy reserves being contractually supported under
the Vidalia Re Coinsurance Agreement. Both the LLC Note and the Surplus Note mature on December 31, 2030 and bear interest at an annual interest rate of 4.50%. This financing arrangement is non-recourse to the Parent Company and Primerica Life, meaning that neither of these companies has guaranteed the Surplus Note or is otherwise liable for reimbursement for any payments triggered by the LLC Note’s credit enhancement feature. The Parent Company has agreed to support Vidalia Re’s obligation to pay the credit enhancement fee incurred on the LLC Note.
Further discussion on the Company’s LLC Note is included in Note 3 (Investments).
Revolving Credit Facility. We maintain an unsecured $200.0 million revolving credit facility (“Revolving Credit Facility”) with a syndicate of commercial banks. The Revolving Credit Facility has a scheduled termination date of June 22, 2026. Amounts outstanding under the Revolving Credit Facility are borrowed, at our discretion, on the basis of either a Secured Overnight Financing Rate (“SOFR”) rate loan, or a base rate loan. SOFR rate loans bear interest at a periodic rate equal to one-, three-, or six-month Adjusted Term SOFR, plus an applicable margin. Base rate loans bear interest at the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50% and (c) one-month Adjusted Term SOFR plus 1.00%, plus an applicable margin. 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 SOFR 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 amount of the $200.0 million commitment of the lenders under the Revolving Credit Facility that remains undrawn. During the three and six months ended June 30, 2024, no amounts were outstanding under the Revolving Credit Facility and we were in compliance with its covenants. Furthermore, no events of default occurred under the Revolving Credit Facility during the three and six months ended June 30, 2024.
(16) Revenue from Contracts with Customers
Our revenues from contracts with customers primarily include:
Premiums from insurance contracts we underwrite, fees received from segregated funds insurance contracts, and income earned on our invested assets are excluded from the definition of revenues from contracts with customers in accordance with U.S. GAAP.
Further discussion on the Company’s revenues from contracts with customers and revenue recognition policies are included in Note 19 (Revenue from Contracts with Customers) to our consolidated financial statements within our 2023 Annual Report.
The disaggregation of our revenues from contracts with customers were as follows:
24
Term Life Insurance segment revenues:
12,624
12,280
25,274
24,513
Total segment revenues from contracts with customers
Revenues from sources other than contracts with customers
414,320
399,593
842,083
808,430
Total Term Life Insurance segment revenues
Investment and Savings Products segment revenues:
Sales-based revenues
101,177
74,958
189,924
147,346
Asset-based revenues
119,411
99,521
234,110
197,625
Account-based revenues
23,740
23,095
46,919
45,886
3,224
3,121
6,482
6,240
247,552
200,695
477,435
397,097
Revenues from sources other than contracts with customers (segregated funds)
13,354
13,814
27,187
27,614
Total Investment and Savings Products segment revenues
Senior Health segment revenues:
11,576
11,371
17,652
27,125
844
3,519
1,648
6,474
Total Senior Health segment revenues
Corporate and Other Distributed Products segment revenues:
10,511
10,371
18,998
19,081
764
1,235
1,467
2,436
11,275
11,606
20,465
21,517
91,830
35,507
134,460
65,652
Total Corporate and Other Distributed Products segment revenues
Renewal Commissions Receivable. For revenue associated with ongoing renewal commissions in the Senior Health and Corporate and Other Distributed Products segments, we record a renewal commission receivable asset for the amount of ongoing renewal commissions we anticipate collecting in reporting periods subsequent to the satisfaction of the performance obligation, less amounts that are constrained in the accompanying unaudited condensed consolidated balance sheets. We update our estimate of variable consideration each period as new facts or circumstances that were not available at the time of the initial estimate will indicate that the expected renewal commissions are higher or lower than our renewal commissions receivable. As such, the expected renewal commissions receivable will be written down or up to its revised expected value by adjustments to revenue, which we refer to as tail revenue adjustments. The estimate of the renewal commissions receivable recognized in our Senior Health segment is likely to change in a subsequent period when the ultimate disposition of the assets of the senior health business becomes known or is finalized.
Activity in the renewal commissions receivable account was as follows:
Senior Health segment:
115,933
134,199
128,886
139,399
Commissions revenue
6,989
6,923
13,313
15,985
Less: collections
(9,970
(10,304
(21,406
(24,566
Tail revenue adjustment from change in estimate
(1,810
(9,651
111,142
130,818
Corporate and Other Distributed Products segment:
60,365
60,210
61,372
60,644
5,864
6,405
10,903
11,775
(6,349
(6,209
(12,395
(12,013
59,880
60,406
Incremental costs to obtain or fulfill contracts, most notably sales commissions to the sales representatives, are not incurred prior to the recognition of the related revenue. Therefore, we have no assets recognized for incremental costs to obtain or fulfill contracts.
25
(17) Impairment of Goodwill and Other Long-lived Assets
Goodwill represents the excess of the purchase price over the estimated acquired values of identifiable assets and liabilities acquired in a business combination. In accordance with U.S. GAAP, goodwill is not amortized. The Company tests goodwill for impairment annually on July 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 acquisition of e-TeleQuote, which has been designated as a separate operating segment called Senior Health. Therefore, goodwill has been allocated solely to the Senior Health segment and is evaluated for impairment at the Senior Health segment level, which is also defined as the reporting unit.
During the three months ended June 30, 2024, the Company began a process to evaluate potential exit options for its senior health business. The culmination of the analysis performed to evaluate exit options, identify disposal values and prepare a recommendation to the Board constituted triggering events that existed as of June 30, 2024 that indicated the goodwill and long-lived assets held in the Senior Health segment were more-likely-than-not impaired. Refer also to Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies) for additional information related to the Board’s decision in July 2024 to exit the senior health business. As part of the Company’s due diligence to evaluate exit plans, the Company obtained market participant views of the fair value of the business. The Company performed a quantitative impairment analysis using the market approach to determine the recoverability of the long-lived assets (primarily intangible assets) and goodwill of the Senior Health reporting unit. Under the market approach to determine fair value, the Company used a range of values, including bids obtained during the Company’s analysis of exit options, which are classified as Level 2 in the fair value hierarchy. We relied solely on a market approach to develop the fair value estimates in our quantitative impairment analysis given the availability and relevance of the information received from interested parties and our advisors during the process to evaluate exit options. The Company compared the range of fair values to the carrying value of the reporting unit, including the long-lived assets. Based on this analysis, we determined that there is no fair value to be ascribed to substantially all of the segment's long-lived assets and its goodwill as of June 30, 2024. As a result, we recognized impairments of goodwill, intangible assets, and other assets of $127.7 million, $124.5 million, and $1.4 million, respectively, during the second quarter of 2024. These impairments are included in impairment of goodwill and other long-lived assets in the accompanying unaudited condensed consolidated statements of income. Prior to impairment, the Company recognized amortization expense related to these intangible assets and other assets for the three and six months ended June 30, 2024 of $2.8 million and $5.6 million, respectively.
The impairment charge recognized related to goodwill did not impact the Company’s taxable income as the goodwill acquired from the e-TeleQuote acquisition does not have any tax basis. Refer to Note 18 (Income Taxes) for a discussion of the impact that the impairment charges had on our effective tax rate.
(18) Income Taxes
Effective tax rate reconciliation. Total income tax expense is different from the amount determined by multiplying income before income taxes by the U.S. statutory federal tax rate of 21% for the three and six months ended June 30, 2024 and 2023. The reconciliation for such difference follows:
U.S. Federal statutory rate
21.0
Goodwill impairment
105.8
—
4.4
Valuation allowance against state net operating losses
142.1
5.9
Gain on insurance proceeds
(134.7
)%
(5.6
State income taxes
(101.2
0.4
(3.9
0.5
Difference in statutory rate
22.1
0.8
1.8
0.9
Withholding taxes on foreign earnings
11.2
Unrecognized tax benefits
9.5
0.2
Nondeductible executive compensation
5.6
0.3
Other permanent items
3.6
(0.3
Effective tax rate
85.0
23.5
25.6
23.4
Deferred tax assets and liabilities. During the second quarter of 2024, the deferred tax liability related to intangible assets was reduced by $35.1 million due to the impairment of the related intangible assets. Refer to Note 17 (Impairment of Goodwill and Other Long-lived Assets) for additional information related to the impairment charges. The Company also recorded a valuation allowance of $11.1 million related to the e-TeleQuote state net operating losses because management determined as of June 30, 2024 that it was more-likely-than-not that the deferred tax assets will not be realized.
26
ITEM 2. 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, 2023 to June 30, 2024. 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, 2023 (“2023 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 2023 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
We are a leading provider of financial products and services to middle-income households in the 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, Medicare-related insurance products and other financial products, which we distribute primarily on behalf of third parties. We have three primary operating segments, Term Life Insurance, Investment and Savings Products, and Senior Health, and a fourth segment, Corporate and Other Distributed Products.
In July 2024, the Board of Directors of the Company committed to an exit of the senior health business. Refer to Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies) to our unaudited condensed consolidated financial statements included elsewhere in this report for further details.
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”), and Primerica 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 up-front costs in acquiring new insurance business.
Investment and Savings Products. In the 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 by Primerica Life Canada.
Senior Health. In the United States, we distribute Medicare-related insurance products to eligible Medicare beneficiaries and enroll eligible Medicare beneficiaries in insurance coverage utilizing licensed health insurance agents through our subsidiary, e-TeleQuote Insurance, Inc. (“e-TeleQuote”) (dba easyMed Insurance Services). 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 up front when policy applications are approved and include costs associated with generating or acquiring leads, as well as fees paid to Primerica Senior Health certified independent sales representatives, and compensation, licensing, and training costs incurred for e-TeleQuote’s workforce of licensed health insurance agents. e-TeleQuote’s licensed health insurance agents are employees of the Company. We receive compensation from the third-party health insurance carriers in the form of initial commissions when eligible Medicare beneficiaries are enrolled and renewal commissions upon the anniversary of the effective date of the policy, for as long as policies remain in-force. We expect to incur restructuring costs, the extent of which are yet to be determined, in the third quarter of 2024 associated with our exit of the senior health business.
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 cash, cash equivalents, and our invested asset portfolio is recorded in the Corporate and Other Distributed Products segment. Interest expense incurred by the Company is attributed to the Corporate and Other Distributed Products segment.
Business Trends and Conditions
The relative strength and stability of the financial markets and economies in the United States and Canada affect our growth and profitability. Our business is, and we expect will continue to be, influenced by a number of industry-wide and product-specific trends and conditions. Economic conditions, including unemployment levels and consumer confidence, influence investment and spending decisions by middle-income consumers, who are generally our primary clients. These conditions and factors also impact prospective recruits’ perceptions of the business opportunity that becoming an independent sales representative offers, which can drive or dampen recruiting. 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 also influence their decisions to invest in the investment and savings products we distribute.
The financial and distribution results of our operations in Canada, as reported in U.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 results of our business for all amounts translated and reported in U.S. dollars.
Significant volatility in capital markets in recent periods has continued to impact our business. Volatility in capital markets has influenced product sales and client asset values that drive revenue in the Investment and Savings Products segment. In addition, the sharp rise in market interest rates during 2022 has largely driven the unrealized losses that have accumulated 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. Increased interest rates have also led to increases in net investment income as we are able to earn higher returns on our new debt securities purchases and cash balances.
Significant inflation that followed the peak of the COVID-19 pandemic has led to an elevated cost of living for middle-income families. We believe that the elevated cost of living has adversely impacted persistency for term life insurance policies. While the rate of inflation has been normalizing from its peak in 2022, lapses of term life insurance policies have remained above long-term historical levels. The continuation of the elevated cost of living could adversely impact demand for our products.
The effects of these trends and conditions on our quarterly results are discussed below in the Results of Operations and Financial Condition sections.
Size of the Independent Sales Force.
Our ability to increase the size of the independent sales force (“independent sales representatives” or “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. Recruiting changes 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 recruiting and life-licensed independent sales representative activity were as follows:
New recruits
96,563
86,124
207,273
179,664
New life-licensed independent sales representatives
14,402
12,638
27,351
23,756
The number of new recruits increased during the three and six months ended June 30, 2024 compared to the same periods in 2023. The Company has experienced increased recruiting as the size of the sales force has grown with the excitement leading up to our biennial convention in July 2024. In addition, positive sentiment regarding interest in our business opportunity along with the demand for supplemental income likely contributed to the increase in recruiting.
New life-licensed independent sales representatives increased during the three and six months ended June 30, 2024 compared to the same periods in 2023 as the pipeline of recruits has increased year-over-year.
28
The size of the life-licensed independent sales force was as follows:
June 30, 2023
Life-licensed independent sales representatives, at period end
145,789
137,806
The number of life-licensed independent sales representatives increased as of June 30, 2024, reflecting the strong recruiting and licensing activity 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 0.20 and 0.24), were as follows:
Average number of life-licensed independent sales representatives
144,315
137,084
143,117
136,196
Number of new policies issued
100,768
96,953
187,355
181,514
Average monthly rate of new policies issued per life-licensed independent sales representative
0.23
0.24
0.22
The average number of life-licensed independent sales representatives increased for the three and six months ended June 30, 2024 from the same periods in 2023 as a result of strong recruiting and licensing activity that drove growth in the size of the sales force as discussed above.
New policies issued during the three and six months ended June 30, 2024 increased compared to the same periods in 2023 primarily due to year-over-year growth in the number of life-licensed independent sales representatives.
Productivity in the three and six months ended June 30, 2024 and 2023, measured by the average monthly rate of new policies issued per life-licensed independent sales representative, was in line with our historical range.
The changes in the face amount of our in-force book of term life insurance policies were as follows:
% of beginning balance
(Dollars in millions)
Face amount in force, beginning of period
947,100
922,845
944,609
916,808
Net change in face amount:
Issued face amount
33,155
32,203
61,880
60,327
Terminations
(28,241
(3
(22,582
(51,564
(5
(44,793
Foreign currency
(1,134
*
2,401
(4,045
2,525
Net change in face amount
3,780
12,022
6,271
18,059
Face amount in force, end of period
950,880
934,867
* Less than 1%.
The face amount of term life insurance policies in-force increased for the three and six months ended June 30, 2024 as the face amount issued continued to exceed the face amount terminated. Issued face amount during the three and six months ended June 30, 2024 increased due to the increase in the number of new policies issued as discussed above. Policy terminations increased year-over-year but were consistent when measured as a percentage of beginning face amount in force. Policy terminations were elevated in all periods with the high cost of living a likely key contributing factor.
Investment and Savings Product Sales, Asset Values and Accounts/Positions.
Investment and savings product sales were as follows:
29
Change
Product sales:
U.S. retail mutual funds
1,229
998
231
2,391
1,970
421
Canada retail mutual funds - with up-front sales commissions
148
106
42
327
256
71
Annuities and other
1,039
738
301
41
1,876
1,376
36
Total sales-based revenue generating product sales
2,416
1,842
574
31
4,594
3,602
992
Managed investments
456
317
139
44
827
623
204
33
Canada retail mutual funds - no up-front sales commissions
196
194
394
377
Segregated funds
(13
38
80
(42
(53
Total product sales
3,083
2,381
702
5,853
4,682
The rollforward of asset values in client accounts were as follows:
Asset values, beginning of period
103,340
87,621
96,735
83,949
Net change in asset values:
Inflows
Redemptions
(2,660
(1,839
(5,157
(3,497
(4
Net flows
423
542
696
1,185
Change in fair value, net
1,512
3,168
8,236
6,182
Foreign currency, net
(163
315
(555
Net change in asset values
1,772
4,025
8,377
7,697
Asset values, end of period
105,112
91,646
Average client asset values were as follows:
Average client asset values:
50,560
43,225
7,335
49,787
42,661
7,126
Canada retail mutual funds
13,259
11,568
1,691
13,055
11,456
1,599
27,532
24,084
3,448
27,010
23,778
3,232
9,376
7,613
1,763
9,091
7,475
2,266
2,324
(58
2,305
2,326
(21
Total average client asset values
102,993
88,814
14,179
101,248
87,696
13,552
Average number of fee-generating positions were as follows:
Positions
(Positions in thousands)
Average number of fee-generating positions (1):
Recordkeeping and custodial
2,378
2,331
47
2,369
45
Recordkeeping only
857
834
852
832
Total average number of fee-generating positions
3,235
3,165
70
3,221
3,156
65
Changes in Investment and Savings Product Sales, Asset Values and Accounts/Positions During the Three Months Ended June 30, 2024
30
Product sales. Investment and savings product sales increased during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to increased demand across all product lines except for Canadian segregated funds. The increase in demand by investors is likely driven by strong equity market performance in the period leading up to and including the first half of 2024. In particular, variable annuity product sales led the growth in sales as the guarantees offered by these products have become more appealing to investors given strong equity market performance and higher interest rates. Marginally offsetting the increase in product sales were lower year-over-year sales of Canadian segregated funds, as the Company discontinued sales of investments in new Canadian segregated funds accounts in 2023 due to new regulations in Canada. Refer to the MD&A section of the 2023 Annual Report for more information on regulations impacting Canadian segregated funds.
Rollforward of client asset values. Ending client asset values increased during the three months ended June 30, 2024 and the three months ended June 30, 2023 primarily due to the difference in market performance during each respective period.
Average client asset values. Average client asset values increased for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 driven by the timing and changes in market conditions that affected the balance of client assets during each period.
Average number of fee-generating positions. The average number of fee-generating positions increased during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 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 Product Sales, Asset Values and Accounts/Positions During the Six Months Ended June 30, 2024
Product sales. Investment and savings product sales increased during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to the same factors as described in the three month comparison.
Rollforward of client asset values. Ending client asset values increased during the six months ended June 30, 2024 and the six months ended June 30, 2023 due to the same factors as described in the three month comparison.
Average client asset values. Average client asset values increased for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase was due to the same factors as described in the three month comparison.
Average number of fee-generating positions. The average number of fee-generating positions increased during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to the same factors as described in the three month comparison.
Senior Health Key Performance Indicators.
Submitted Policies, Approved Policies and Policies Sourced by Primerica Independent Sales Representatives
Submitted policies. Submitted policies represent the number of completed applications that the applicants have authorized e-TeleQuote to submit to the health insurance carriers. The applicant may need to take additional action, 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. Therefore, factors impacting the number of submitted policies generally impact the number of approved policies.
Policies sourced by Primerica independent sales representatives. Primerica independent sales representatives become certified to refer eligible Medicare participants to e-TeleQuote licensed health insurance agents for potential enrollment in policies distributed by e-TeleQuote after completion of a brief certification course offered by Primerica. The number of submitted policies sourced by Primerica independent sales representatives measures the number of Senior Health policies submitted by e-TeleQuote to its third-party health insurance carriers that originated through the Primerica independent sales force.
The number of Senior Health submitted policies, approved policies, and submitted policies sourced by Primerica independent sales representatives were as follows:
Number of Senior Health submitted policies
15,767
13,885
31,835
33,711
Number of Senior Health approved policies
14,646
12,915
29,669
31,328
Submitted policies sourced by Primerica independent sales representatives
1,425
1,707
3,476
The Senior Health segment experiences notable seasonality with the strongest demand occurring in the fourth quarter due to the Medicare Annual Election Period (“AEP”) from October 15th to December 7th. It also experiences seasonally higher demand in the first quarter due to the Medicare Open Enrollment Period (“OEP”) from January 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 beneficiaries that are dual eligible (Medicare and Medicaid), qualify for a special enrollment period, recently aged into Medicare or are enrolling off of an employer-sponsored plan, and other less common situations.
During the three months ended June 30, 2024, the number of submitted and approved policies increased compared with the three months ended June 30, 2023 primarily due to an increase in the average number of licensed health insurance agents. During the six months ended June 30, 2024, the number of submitted and approved policies decreased compared with the six months ended June 30, 2023 primarily due to the headwinds encountered in the first quarter of 2024 that included a year-over-year decline in the number of licensed health insurance agents and the effect of an industry-wide service disruption at a thirty-party service provider that impacted the ability of our licensed health insurance agents to verify certain plan eligibility and levels, which negatively impacted productivity. The number of submitted policies sourced by Primerica independent sales representatives did not change meaningfully during the three and six months ended June 30, 2024 compared to the same periods in 2023.
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 19 (Revenue from Contracts with Customers) of our consolidated financial statements within our 2023 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 generating or acquiring 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 in addition to per policy technology costs. 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 who are switching plans with the same health insurance 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 LTV and CAC measure our ability to profitably distribute Senior Health insurance products.
The LTV per approved policy, CAC per approved policy, and ratio of LTV to CAC per approved policy were as follows:
LTV per approved policy during the period
914
880
920
866
CAC per approved policy during the period
1,074
976
986
881
LTV/CAC per approved policy
0.85
0.90
0.93
0.98
LTV per approved policy reflects current estimates for renewal rates, policy retention and chargeback activity taking into consideration the most recent experience through June 30, 2024. LTV per approved policy increased during the three and six months ended June 30, 2024 compared to the same periods in 2023 primarily due to the inclusion of the majority of marketing development revenue in LTV due to changes in carrier contracts, as well as higher commission rates from annual rate increases. Prior to the fourth quarter of 2023, all marketing development revenue received from carriers was recognized in Other, net revenue. The increases in LTV were partially offset by lower renewal retention rates experienced during the three and six months ended June 30, 2024 due to an increased number of beneficiaries who changed plans, likely driven by improved plan offerings by certain carriers.
CAC per approved policy increased during the three and six months ended June 30, 2024 compared to the same periods in 2023 primarily due to additional investments in onboarding and training new agents in preparation for the upcoming enrollment periods.
Regulatory Changes.
Fiduciary standards for investment recommendations. In April 2024, the DOL issued a fiduciary rule package (“DOL Fiduciary Package”) that revises the fiduciary definition and amends certain prohibited transaction exemptions relied on by fiduciaries subject to the Employee Retirement Income Security Act of 1974 for the receipt of compensation. Since its release, multiple litigants have challenged the DOL Fiduciary Package and its effective date has been stayed by the courts pending final resolution of the litigation. We will not make substantial adjustments to our Investment and Savings Products business operations in response to this rule.
32
Restrictions on compensation models in Canada. In response to regulatory changes in Canada by the Canadian Securities Administrators (“CSA,” the provincial and territorial securities commissions), we developed a set of mutual fund products with two third-party mutual fund companies that are sold exclusively by our independent sales representatives (the “Principal Distributor funds”). The revenue we receive is primarily in the form of asset-based distribution fees from the mutual fund companies and asset-based service fees that are charged to investors. In turn, the primary compensation we offer independent sales representatives is the option of an up-front sales commission or higher asset-based commissions over time. Although we received the requisite approval, the CSA, as they indicated to us at the outset, is closely examining the model, and we expect there will be a public consultation on related sales practices, and may require undertakings or consider future amendments that would require modifications to the model, including with respect to its up-front commission features. At this time, we cannot quantify the financial impact, if any, of future changes to our business that may be necessary if our Principal Distributor funds model is required to be modified or discontinued.
Factors Affecting Our Results
Term Life Insurance Segment. The Term Life Insurance segment results are 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. 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.
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 0.20 and 0.24). 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.
Actuarial assumptions. The actuarial assumptions that underlie our reserves are based upon our best estimates of mortality, persistency, disability, and interest rates. Our results will be affected to the extent there is a variance between our actuarial assumptions and actual experience. These variances will be reflected in our financial results by unlocking assumptions and cash flows underlying the liability for future policy benefits (“LFPB”) and ceded reserves that are part of the reinsurance recoverables. See Note 9 (Future Policy Benefits) for more information on LFPB. The variances are also reflected in the projection of future face amount that is the basis for amortizing deferred policy acquisition costs (“DAC”).
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 YRT basis. To the extent actual mortality experience is more or less favorable than the contractual rate, the reinsurer will earn incremental profits or bear the incremental cost, as applicable. In contrast to coinsurance, which is intended to eliminate all risks (other than counterparty risk of the reinsurer) and rewards associated with a specified percentage of the block of policies subject to the reinsurance arrangement, the YRT reinsurance arrangements we enter into are intended only to reduce volatility associated with variances between estimated and actual mortality rates.
In 2010, as part of our corporate reorganization and the initial public offering of our common stock, we entered into significant coinsurance transactions (the “IPO coinsurance transactions”) with entities then affiliated with Citigroup, Inc. (collectively, the “IPO coinsurers”) and ceded between 80% and 90% of the risks and rewards of term life insurance policies that were in-force at year-end 2009. We administer all such policies subject to these coinsurance agreements. Policies reaching the end of their initial level term period are no longer ceded under the IPO coinsurance transactions.
The effect of our reinsurance arrangements on ceded premiums and benefits and expenses on our statements of income follows:
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 intend to continue ceding approximately 90% of our U.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 in the United States and sales of certain mutual fund products in Canada. Sales of investment and savings products are influenced by the overall demand for investment products in the United States and Canada, as well as by the size and productivity of 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 to U.S. mutual funds, 12b-1 fees) on mutual fund and annuity assets in the United States and Canada. In the United States, we also earn investment advisory 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 management fees 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. Volatility in equity markets will impact the value of assets in client accounts and, as a result, the revenue we earn on those assets.
Positions. We earn transfer agent recordkeeping fees for administrative functions we perform on behalf of several of our mutual fund providers. An individual client account may include multiple fund positions for which we earn transfer agent recordkeeping fees. We may also receive fees earned for non-bank custodial services that we provide to clients with retirement plan accounts.
Sales mix. While our 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:
34
Senior Health Segment. The Senior Health segment results are primarily driven by the number of approved policies, LTV per approved policy and tail revenue adjustments, CAC per approved policy, and other revenue. In addition, our results for the three and six months ended June 30, 2024 include the impairment of goodwill and long-lived assets. Refer to Note 17 (Impairment of Goodwill and Other Long-lived Assets) to our unaudited condensed consolidated financial statements included elsewhere in this report for more information on the impairment charges.
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 the number of submitted policies and approved policies has been seasonally consistent. 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 nearly all of the approved policies we distribute. The number of approved policies is influenced by the following:
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 (including administrative and marketing development payments received on a per approved policy basis) 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 and payments, less an estimate of chargebacks for paid policies that are disenrolled during the first policy year, plus forecasted renewal commissions. This estimate is driven by several factors including, but not limited to, commission rates from health insurance 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, including fees paid to Primerica Senior Health certified independent sales representatives, and the labor, benefits, bonus compensation, licensing 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:
Other revenue. Other revenue recognized in the Senior Health segment includes other revenue received for providing marketing services and health risk assessment services on behalf of certain health insurance carriers. Marketing development revenue is based on agreed-upon objectives with certain health insurance carriers. Marketing development revenue serves to offset contract acquisition costs associated with the distribution of approved policies. Agreements for marketing development revenue are generally short-term in
nature and can vary from period to period. Marketing development payments received on a per approved policy basis are recognized in commissions and fees revenue. Health risk assessment services generate revenue from health insurance carriers by collecting information from beneficiaries during the enrollment process.
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 NBLIC.
The Corporate and Other Distributed Products segment includes net investment income recognized by the Company. Net investment income 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. Net investment income also is influenced by short-term interest rates and the amount of cash and cash equivalents on hand.
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, Investment and Savings Products, or Senior Health segments), interest expense on notes payable, a redundant reserve financing transaction and our revolving credit facility (“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”), a redundant reserve financing transaction, our Revolving Credit Facility, and our common stock. See Note 10 (Stockholders’ Equity), Note 13 (Commitments and Contingent Liabilities), and Note 15 (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 2023 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 with U.S. generally accepted accounting principles (“U.S. GAAP”). These principles are established primarily by the Financial Accounting Standards Board. The preparation of financial statements in conformity with U.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 2023 Annual Report. The most significant items in 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.
During the three months ended June 30, 2024, there were no changes in the accounting methodology for our critical accounting estimates with the exception of goodwill. As of June 30, 2024, the Company determined that goodwill that had been allocated solely to the Senior Health segment was impaired and the goodwill balance was reduced to $0. Based on the triggering events identified during the second quarter ended June 30, 2024, we performed a quantitative goodwill impairment analysis that relied on a market approach using the due diligence performed to evaluate exit plans for the senior health business during the current period as described further in Note 17 (Impairment of Goodwill and Other Long-lived Assets) to our unaudited condensed consolidated financial statements included elsewhere in this report. We had previously utilized an income approach to perform the quantitative goodwill impairment analysis as of the latest annual testing date of July 1, 2023 as described in further detail in the Critical Accounting Estimates section of MD&A included in our 2023 Annual Report.
For additional information regarding our other critical accounting estimates, see the Critical Accounting Estimates section of MD&A included in our 2023 Annual Report.
Results of Operations
Primerica, Inc. and Subsidiaries Results. Our results of operations were as follows:
17,062
40,235
2,295
6,712
14,767
33,523
46,639
70,113
5,105
11,198
(949
(1,598
6,054
12,796
228
1,220
4,922
229
6,142
47,301
45,208
114,990
167,782
1,119
4,172
(2,462
(2,967
Amortization of DAC
5,533
9,659
28,531
48,795
3,592
5,615
(1,743
(19
(248
3,122
1,671
(587
(9
(506
5,377
16,790
296,089
59
336,588
(181,099
(168,806
(47
(37,766
(85
(35,277
(143,333
(133,529
(49
* Less than 1% or not meaningful.
Results for the Three Months Ended June 30, 2024
Total revenues. Total revenues increased during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 due to increases in net premiums earned in our Term Life Insurance segment, commissions and fees earned in our Investment and Savings Products segment, net investment income and investment gains earned in our Corporate and Other Distributed Products segment, and a $50.0 million gain recognized within other, net revenue in our Corporate and Other Distributed Products segment. These movements are further discussed in detail in the Segment Results sections below.
Total benefits and expenses. Total benefits and expenses increased during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 largely due to the impairment of goodwill and other long-lived assets, higher sales commissions in our Investment and Savings Products segment, and higher other operating expenses. Also contributing to the year-over-year increase are higher benefits and claims and DAC amortization in our Term Life Insurance segment. These movements are discussed in further detail in the Segment Results section below.
Income taxes. Our effective income tax rate for the three months ended June 30, 2024 was 85.0% compared to 23.5% for the three months ended June 30, 2023. The increase in the effective tax rate during the second quarter of 2024 was primarily driven by the non-cash goodwill impairment charge that is not deductible for income tax purposes and a valuation allowance established against e-TeleQuote state net operating losses. The impact of those two items was partially offset by the Representation and Warranty insurance proceeds, which will be excluded from taxable income, and the write-off of deferred tax liabilities on the intangible assets that were fully impaired in the quarter. Excluding the impact of the four aforementioned items, the effective tax rate for the three months ended June 30, 2024 would have been 23.3%.
For additional information, see the Segment Results discussions below.
37
Results for the Six Months Ended June 30, 2024
Total revenues. Total revenues increased during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to the same factors as described in the three month comparison.
Total benefits and expenses. Total benefits and expenses increased during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to the same factors as described in the three month comparison.
Income taxes. Our effective income tax rate for the six months ended June 30, 2024 was 25.6% compared to 23.4% for the six months ended June 30, 2023. The increase in the effective tax rate during the 2024 period was primarily driven by the same factors as described in the three month comparison. Excluding the impact of the four aforementioned items, the effective tax rate for the six months ended June 30, 2024 would have been 23.2%.
Segment Results
Term Life Insurance Segment. Our results for the Term Life Insurance segment were as follows:
17,371
40,812
(426,348
(423,704
2,644
(834,906
(827,747
7,159
14,727
33,653
344
761
15,071
34,414
146,268
143,855
2,413
310,115
302,795
7,320
(4,280
(1,312
(2,968
(4,600
(277
(4,323
5,912
10,335
61,476
57,717
3,759
123,454
117,613
5,841
3,785
5,496
(1,711
(31
9,833
10,086
(253
279,165
271,760
7,405
581,209
562,289
18,920
7,666
15,494
Net premiums. Direct premiums increased during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 largely due to the layering effect of new policy sales that contributed to growth in the in-force book of business. This increase was partially offset by an increase in ceded premiums, which includes $8.8 million in higher non-level YRT reinsurance ceded premiums as business not subject to the IPO coinsurance transactions ages, reduced by $6.1 million in lower coinsurance ceded premiums due to the run-off of business subject to the IPO coinsurance transactions.
Benefits and claims. Benefits and claims increased during the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Direct benefits and claims increased with the growth in the business. Year-over-year claims incurred during the three month period in 2024 were higher compared to the three month period in 2023 and in line with the growth in the in-force book of business.
Future policy benefits remeasurement (gain) loss. Future policy benefits remeasurement gain increased during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 and represents differences in experience variances that occurred in each period. The gain recognized in the 2024 period is primarily due to favorable mortality experience.
Amortization of DAC. The amortization of DAC increased during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to continued growth in the in-force book of business.
Insurance expenses. Insurance expenses increased during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 due to higher growth-related and employee-related costs. These increases were partially offset by lower technology costs for the segment as the 2023 period included technology spending associated with the launch of our new term life insurance products.
Net premiums. Direct premiums increased during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 largely due to the layering effect of new policy sales that contributed to growth in the in-force book of business. This increase
was partially offset by an increase in ceded premiums, which includes $20.7 million in higher non-level YRT reinsurance ceded premiums as business not subject to the IPO coinsurance transactions ages, reduced by $13.5 million in lower coinsurance ceded premiums due to the run-off of business subject to the IPO coinsurance transactions.
Benefits and claims. Benefits and claims increased during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 due to the same factors as described in the three month comparison.
Future policy benefits remeasurement (gain) loss. Future policy benefits remeasurement gain increased during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 due to the same factors as described in the three month comparison.
Amortization of DAC. The amortization of DAC increased during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 due to the same factors as described in the three month comparison.
Insurance expenses. Insurance expenses increased during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 due to the same factors as described in the three month comparison.
Investment and Savings Products Segment. Investment and Savings Products segment results were as follows:
Commissions and fees:
26,219
42,578
132,765
113,335
19,430
261,297
225,239
36,058
645
1,033
103
242
46,397
79,911
Expenses:
69
(222
3,343
3,273
6,743
6,581
162
Sales commissions:
Sales-based
70,509
53,630
16,879
133,322
106,082
27,240
Asset-based
66,525
55,085
11,440
130,733
109,361
21,372
44,269
41,529
2,740
90,800
84,095
6,705
Total expenses
186,124
154,926
31,198
364,277
309,020
55,257
15,199
24,654
Commissions and fees. Commissions and fees increased during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 driven by higher sales-based and asset-based revenues. The increase in sales-based revenue was largely the result of higher product sales for variable annuities and U.S. mutual fund product sales. Higher asset-based revenues were driven by an increase in average client assets in the 2024 period versus the prior year period.
Sales commissions. The increase in sales-based commissions for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was generally in line with the increases in sales-based revenues although modestly lower due to a mix shift towards higher margin variable annuity sales. Asset-based commissions were up for the three months ended June 30, 2024 and were consistent with the movement in asset-based revenues when 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 for the three months ended June 30, 2024 increased compared to the three months ended June 30, 2023 primarily due to higher growth-related and employee-related costs.
Commissions and fees. Commissions and fees increased during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 due to the same factors as described in the three month comparison.
Sales commissions. Sales commissions increased during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 due to the same factors as described in the three month comparison.
Other operating expenses. Other operating expenses for the six months ended June 30, 2024 increased compared to the six months ended June 30, 2023 due to the same factors as described in the three month comparison.
Senior Health Segment. Senior Health segment results were as follows:
Commissions and fees (1)
205
(9,473
(35
(2,675
(76
(4,826
(75
(2,470
(17
(14,299
(43
8,061
8,320
(259
15,561
15,808
(247
277,392
20,922
256,470
298,425
43,394
255,031
Loss before income taxes
258,940
269,330
Commissions and fees. Commissions and fees did not change significantly during the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Approved policy sales volumes were higher during the three months ended June 30, 2024 compared to the three months ended June 30, 2023. In addition, there were higher LTVs per approved policy compared to the prior year period. LTVs per approved policy included most marketing development revenue in the three months ended June 30, 2024 while LTVs in the three months ended June 30, 2023 did not include marketing development revenue based on changes made to contracts with carriers. Mostly offsetting these increases was a $1.8 million negative tail revenue adjustment recognized during the three months ended June 30, 2024 resulting from lower than expected renewals attributable to policy churn at certain health insurance carriers. There was no tail revenue adjustment during the three months ended June 30, 2023.
Other, net. Other, net decreased during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to the change in presentation of $2.5 million in marketing development revenues in the current period that are now earned on a per policy basis and presented in commissions and fees revenue as part of LTV instead of in Other, net revenue.
Contract acquisition costs. Total CAC increased during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to higher approved policy sales volumes and higher per unit CAC as described earlier in the Business Trends and Conditions section.
Impairment of goodwill and other long-lived assets. Impairment of goodwill and other long-lived assets was recorded in the second quarter of 2024 compared to no impairment in the same period in the prior year. Refer to Note 17 (Impairment of Goodwill and Other Long-lived Assets) to our unaudited condensed consolidated financial statements included elsewhere in this report for more information on the impairment charges.
Other operating expenses. Other operating expenses did not change significantly during the three months ended June 30, 2024 compared to the three months ended June 30, 2023.
Commissions and fees. Commissions and fees decreased during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to a $9.7 million negative tail revenue adjustment recognized during the six months ended June 30, 2024 resulting from lower than expected renewals attributable to policy churn at certain health insurance carriers. There was no tail revenue adjustment during the six months ended June 30, 2023. Additionally, approved policy sales volumes were lower during the six months ended June 30, 2024 compared to the six months ended June 30, 2023, which also contributed to the reduction in commissions and fees revenue. These decreases were partially offset by higher LTVs per approved policy compared to the prior year period. LTVs per approved policy included most marketing development revenue in the six months ended June 30, 2024 while LTVs in the six months ended June 30, 2023 did not include marketing development revenue based on changes made to contracts with carriers.
Other, net. Other, net decreased during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to the change in presentation of $5.4 million in marketing development revenues in the current period that are now earned on a per policy basis and presented in commissions and fees revenue as part of LTV instead of in Other, net revenue.
40
Contract acquisition costs. Total CAC increased during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to higher per unit CAC as described earlier in the Business Trends and Conditions section.
Impairment of goodwill and other long-lived assets. Impairment of goodwill and other long-lived assets was recorded in the six months ended June 30, 2024 compared to no impairment in the same period in the prior year. Refer to Note 17 (Impairment of Goodwill and Other Long-lived Assets) to our unaudited condensed consolidated financial statements included elsewhere in this report for more information on the impairment charges.
Other operating expenses. Other operating expenses did not change significantly during the six months ended June 30, 2024 compared to the six months ended June 30, 2023.
Corporate and Other Distributed Products Segment. Corporate and Other Distributed Products segment results were as follows:
4,690
4,999
(309
9,415
9,992
(577
(1,213
(1,562
(349
(22
(2,419
(2,866
(447
(16
3,477
3,437
6,996
140
(83
50,764
49,529
51,467
49,031
55,992
67,756
3,762
5,056
(1,294
(26
6,236
9,384
(3,148
(34
506
325
(1,031
1,356
(448
(454
1,209
(167
2,380
2,606
(226
271
373
(102
(27
457
614
(157
5,120
4,908
212
9,237
9,054
183
36,236
33,340
2,896
83,150
72,818
10,332
52,897
51,881
1,016
115,261
107,881
7,380
Income (loss) before income taxes
(54,976
(60,376
Total revenues. Total revenues increased during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to higher net investment income and investment gains, and a $50.0 million gain within other, net revenue related to payments received under a Representation and Warranty insurance policy. Net investment income increased $2.5 million from higher yields in the invested asset portfolio, $2.0 million from a larger invested asset portfolio, and a $0.8 million higher total return on the deposit asset backing our 10% coinsurance agreement compared to the same period in the prior year. 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 (“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 by Vidalia Re, Inc. (“Vidalia Re”). For more information on the Surplus Note, see Note 3 (Investments) and Note 15 (Debt) to our unaudited condensed consolidated financial statements included elsewhere in this report. For more information on the gain related to payments received under the Representation and Warranty insurance policy, refer to Note 2 (Segment and Geographical Information) to our unaudited condensed consolidated financial statements included elsewhere in this report.
Investment losses decreased during the three months ended June 30, 2024 compared to investment losses during the three months ended June 30, 2023 primarily due to a higher gains from sales during the 2024 period.
Total benefits and expenses. Total benefits and expenses increased slightly during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 due to higher infrastructure technology costs and employee-related costs. These increases were
partially offset by a decrease in benefits and claims as a result of a credit loss recognized during the three months ended June 30, 2023 for the remaining ceded reserves on a closed block of non-term life insurance business from an insolvent reinsurer that was ordered into liquidation.
Total revenues. Total revenues increased during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 also due to higher net investment income and investment gains and the $50.0 million gain within other, net revenue related to payments received under a Representation and Warranty insurance policy. Net investment income increased $6.2 million from higher yields in the invested asset portfolio, $4.0 million from a larger invested asset portfolio, and a $0.9 million higher total return on the deposit asset backing our 10% coinsurance agreement compared to the same period in the prior year.
Investment gains increased during the six months ended June 30, 2024 compared to investment losses during the six months ended June 30, 2023 primarily due to a $0.6 million positive mark-to-market adjustment on equity securities held within our investment portfolio during the 2024 period compared to a $2.1 million negative mark-to-market adjustment during the 2023 period. In addition, there was a $2.2 million credit loss recognized for debt securities associated with a specific issuer that we had designated our intent to sell, partially offset by a $0.4 million gain from the subsequent sale of these securities during the 2023 period.
Total benefits and expenses. Total benefits and expenses increased during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 due to the same factors as described in the three month comparison in addition to a better year-over-year claims experience in our closed blocks of non-term life insurance.
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 our 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 our 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 the U.S. and Canada. In addition, as of June 30, 2024, we did not hold any country of issuer concentrations outside of the U.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 on December 31, 2030, was obtained in exchange for the Surplus Note of equal principal amount issued by Vidalia Re, a special purpose financial captive insurance company and wholly owned subsidiary of Primerica Life. 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. We believe that fluctuations caused by movement in interest rates and credit spreads generally have little bearing on the recoverability of our investments as we have the ability to hold these investments until maturity or a market price recovery and we have no present intention to dispose of them.
Details on asset mix (excluding our held-to-maturity security) were as follows:
Average rating of our fixed-maturity portfolio
Average duration of our fixed-maturity portfolio
4.9 years
4.7 years
Average book yield of our fixed-maturity portfolio
4.01%
3.83%
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:
Amortized cost (1)
AAA
556,083
556,936
AA
427,055
439,814
736,558
735,647
BBB
1,272,114
1,162,279
Below investment grade
45,065
58,221
Not rated
698
3,037,072
100
2,953,595
The ten largest holdings within our fixed-maturity securities invested asset portfolio (excluding our held-to-maturity security and short-term investments) were as follows:
Issuer
Unrealized gain (loss)
Credit rating
Province of Ontario Canada
15,425
15,928
(503
Government of Canada
15,001
15,872
(871
Province of Alberta Canada
14,572
15,636
(1,064
AA-
Province of Quebec Canada
14,524
15,092
(568
Realty Income Corp
14,016
15,037
(1,021
A-
ONEOK Inc.
13,881
14,385
Ontario Teachers' Pension Plan
12,957
14,299
(1,342
AA+
Boeing Co
11,569
11,838
(269
BBB-
Intact Financial Corp
11,454
11,415
Manulife Financial Corp
10,818
11,581
(763
Total – ten largest holdings
134,217
141,083
(6,866
Total – fixed-maturity securities
2,799,188
Percent of total fixed-maturity securities
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 of June 30, 2024, the Parent Company had net cash and invested assets of $367.6 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 up-front cash outlays at the time the policy is issued as we pay a substantial majority of the sales commission during the first year following the sale of a policy and incur costs for underwriting activities at the inception of a policy’s term. During the early years of a policy’s term, we generally receive level term premiums in excess of claims paid. We invest the excess cash generated during earlier policy years in fixed-maturity and equity securities held in
43
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-TeleQuote 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, which may require the Parent Company to provide working capital to e-TeleQuote. During the six months ended June 30, 2024, e-TeleQuote generated sufficient cash from operations to fund its operating needs. As discussed in the Business Overview section above, the Company anticipates exiting the senior health business in the third quarter of 2024, which we believe will not significantly adversely impact the Company's liquidity and capital resources.
Historically, cash flows generated by our businesses, primarily from our existing block of term life insurance policies and our investment and savings products, have provided us with sufficient liquidity to meet our operating requirements. 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, 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:
72,490
(70,302
(57,615
(2,774
(58,201
Operating Activities. The increase in cash provided by operating activities during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily driven by the increase in net income excluding non-cash impairments and the gain recognized from insurance proceeds received under a Representation and Warranty insurance policy in 2024. In addition, timing differences of purchases and maturities of trading securities contributed to the year-over-year increase in cash provided by operating activities.
Investing Activities. Cash associated with investing activities was a use of cash during the six months ended June 30, 2024 compared to a source of cash during the six months ended June 30, 2023 primarily due to fluctuations in the timing of maturities and reinvestments of debt securities held in our available-for-sale investment portfolio. The $50.0 million received under a Representation and Warranty insurance policy partially offset the increase in cash used in investing activities in the 2024 period.
Financing Activities. Cash flows used in financing activities increased during the six months ended June 30, 2024 compared to the six months ended June 30, 2023. Contributing to the increase in cash flows used in financing activities was the increase in the size of the share repurchase program in 2024 as well as differences in the timing of share repurchases during each period. In addition, the increase in the per share dividend paid by the Company in the first six months of 2024 contributed to the increase in cash used in financing activities.
Risk-Based Capital (“RBC”). The National Association of Insurance Commissioners (“NAIC”) has established RBC standards for U.S. life insurers, as well as a risk-based capital model act (the “RBC Model Act”) that has been adopted by the insurance regulatory authorities. The RBC Model Act requires that life insurers annually submit a report to state regulators regarding their 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 June 30, 2024, our U.S. life insurance subsidiaries maintained statutory capital and surplus substantially in excess of the applicable regulatory requirements and remain well positioned to support existing operations and fund future growth.
In Canada, an insurer’s minimum capital requirement is overseen by the Office of the Superintendent of Financial Institutions (“OSFI”) and determined as the sum of the capital requirements for six categories of risk: asset default risk; mortality/morbidity/lapse/expense risks; changes in interest rate environment risk; operational risk; segregated funds risk; and foreign exchange risk. As of June 30, 2024, Primerica Life Canada was in compliance with Canada's minimum capital requirements as defined by OSFI.
Redundant Reserve Financing. 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 established Vidalia Re as special purpose financial captive insurance company and wholly owned subsidiary of Primerica Life. Primerica Life has ceded certain term life insurance 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”). This redundant reserve financing transaction allows 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 of January 1, 2018 and NBLIC adopted the New York amended version of PBR effective January 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 dates. See Note 4 (Investments), Note 11 (Debt) and Note 17 (Commitments and Contingent Liabilities) to our consolidated financial statements within our 2023 Annual Report for more information on the Vidalia Re Redundant Reserve Financing Transaction.
Notes Payable. The Company has $600.0 million of publicly-traded Senior Notes outstanding issued at a price of 99.55% with an annual interest rate of 2.80%, payable semi-annually in arrears on May 19 and November 19. The Senior Notes are scheduled to mature on November 19, 2031. We were in compliance with the covenants of the Senior Notes as of June 30, 2024. No events of default occurred during the three and six months ended June 30, 2024.
Rating Agencies. There have been no changes to Primerica, Inc.’s Senior Notes ratings or Primerica Life’s financial strength ratings since December 31, 2023.
Surplus Note. Vidalia Re issued a 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 on December 31, 2030. For more information on the Surplus Note, see Note 15 (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 of June 30, 2024.
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 of June 22, 2026. Amounts outstanding under the Revolving Credit Facility bear interest at a periodic rate equal to the Secured Overnight Financing Rate (“SOFR”) rate loan 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 SOFR 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 SOFR 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. As of June 30, 2024, no amounts were outstanding under the Revolving Credit Facility and we were in compliance with its covenants. Furthermore, no events of default occurred under the Revolving Credit Facility during the three and six months ended June 30, 2024.
Contractual Obligations Update. There have been no material changes in contractual obligations from those disclosed in the 2023 Annual Report.
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
Risks Related to Our Insurance Business and Reinsurance
Risks Related to Our Investment and Savings Products Business
Risks Related to e-TeleQuote’s Senior Health Insurance Distribution Business
Risks Related to Our Mortgage Distribution Business
46
Risks Related to Economic Downcycles, Public Health Crises or Catastrophes, and Disasters
Risks Related to Information Technology and Cybersecurity
Financial Risks Affecting Our Business
Risks Related to Legislative and Regulatory Changes
General Risk Factors
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes in our exposures to market risk since December 31, 2023. For details on the Company’s interest rate, foreign currency exchange, and credit risks, see “Item 7A. Quantitative and Qualitative Information About Market Risks” in our 2023 Annual Report.
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report (the “Evaluation Date”). Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS.
We are involved from time to time in legal disputes, regulatory inquiries and arbitration proceedings in the normal course of business. Additional information regarding certain legal proceedings to which we are a party is described under “Contingent Liabilities” in Note 13 (Commitments and Contingent Liabilities) to our unaudited condensed consolidated financial statements included elsewhere in this report, and such information is incorporated herein by reference. As of the date of this report, we do not believe any pending legal proceeding to which Primerica, Inc. or any of its subsidiaries is a party is required to be disclosed pursuant to this item.
ITEM 1A. RISK FACTORS.
The following replaces the risk factors contained in our 2023 Annual Report under the heading “Risks Related to e-TeleQuote's Senior Health Insurance Distribution Business”. All other risk factors contained in our 2023 Annual Report are incorporated herein by reference.
We may not be able to abandon the Company’s ownership of e-TeleQuote Insurance, Inc. (“e-TeleQuote”) by the anticipated date, or at all, which would cause us to exit the senior health insurance distribution business by an alternative method that may not be as beneficial to stockholder value as the planned abandonment.
The Board of Directors (the “Board”) of the Company has determined that the Company’s senior health business, which is operated through its wholly owned subsidiary, e-TeleQuote, does not have a clear path toward anticipated profitability within an acceptable timeframe in the increasingly challenging senior health distribution market. In connection with such decision, the Board has authorized management of the Company to abandon the Company’s ownership of e-TeleQuote with a target date of September 30, 2024. The Board has determined that an abandonment of e-TeleQuote would have certain advantages, including a quicker time frame for ceasing to operate the senior health business as well as maximization of tax benefits. If for any reason the abandonment is unable to be effectuated as expected, then the Company intends to exit the senior health business through another method, which may not be as beneficial to stockholder value as the planned abandonment.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the quarter ended June 30, 2024, we repurchased shares of our common stock as follows:
Period
Total number of shares purchased (1)
Average price paid per share (1)
Total number of shares purchased as part of publicly announced plans or programs (2)
Approximate dollar value of shares that may yet be purchased under the plans or programs (2)
April 1 - 30, 2024
211,230
229.63
211,181
267,412,464
May 1- 31, 2024
234,449
222.87
234,432
215,165,694
June 1 - 30, 2024
183,840
228.32
183,765
173,207,776
629,519
226.73
629,378
For information regarding year-to-date share repurchases, refer to Note 10 (Stockholders’ Equity) to our unaudited condensed consolidated financial statements included elsewhere in this report.
ITEM 5. OTHER INFORMATION.
Trading Plans
During the quarter ended June 30, 2024, none of our directors or executive officers adopted or terminated any "Rule 10b5-1 trading arrangement" or any "non-Rule 10b5-1 trading arrangement," as those terms are defined in Item 408 of Regulation S-K.
ITEM 6. EXHIBITS.
The agreements included as exhibits to this report are included to provide you with information regarding the terms of these agreements and are not intended to provide any other factual or disclosure information about the Company or its subsidiaries, our business or the other parties to these agreements. These agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time, and should not be relied upon by investors.
Exhibit Number
Reference
31.1
Rule 13a-14(a)/15d-14(a) Certification, executed by Glenn J. Williams, Chief Executive Officer.
Filed with the Securities and Exchange Commission as part of this Quarterly Report.
31.2
Rule 13a-14(a)/15d-14(a) Certification, executed by Tracy X. Tan, Executive Vice President and Chief Financial Officer.
32.1
Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350), executed by Glenn J. Williams, Chief Executive Officer, and Tracy X. Tan, Executive Vice President and Chief Financial Officer.
101.INS
Inline XBRL Instance Document.
The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents.
104
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
August 8, 2024
/s/ Tracy X. Tan
Tracy X. Tan
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)