Primerica, Inc. (NYSE: PRI) announced today financial results for the
third quarter ended September 30, 2012. Total revenues were $299.1
million in the third quarter of 2012 and net income was $45.6 million,
or $0.72 per diluted share. Operating revenues increased by 7% to $295.2
million in the third quarter of 2012, compared with $276.0 million in
the third quarter of 2011. Net operating income grew by 21% to $45.1
million, or $0.72 per diluted share, in the third quarter of 2012,
compared with $37.3 million, or $0.49 per diluted share, in the third
quarter of 2011. The year-over-year results reflect the continued growth
in Term Life income as well as the impact of favorable market
performance on Investment and Savings Products sales, client asset-based
earnings and Canadian segregated fund DAC amortization. Net investment
income was enhanced by certain unusual items during the quarter but
otherwise reflects the expected pressure of lower invested assets from
stock repurchases over the past 12 months and lower market yields. Net
income return on stockholders' equity (ROE) was 14.0% (15.1% on a net
operating income and adjusted stockholders' equity basis) for the
quarter ended September 30, 2012.
Rick Williams, Chairman of the Board and Co-Chief Executive Officer
said, "Our strong third quarter results were marked by solid core
performance across business segments. Our long-term recurring life
insurance revenues coupled with positive Investment and Savings Product
performance and share repurchases drove net operating income return on
adjusted stockholders' equity to 15.1%, underscoring the strength of our
John Addison, Chairman of Primerica Distribution and Co-Chief Executive
Officer said, "The size of our life licensed sales force remained
consistent with the prior quarter and prior year period despite the
challenging year-over-year comparisons. Recruiting and licensing of new
representatives were significantly higher in the prior year period
following the short-term recruiting initiative launched at our
convention. Our continued focus is on growing the size of our sales
force to generate long-term organic growth."
The size of our life-licensed insurance sales force was 91,506 at
September 30, 2012, up modestly from 90,868 at June 30, 2012.
There was downward pressure on recruiting in the second and third
quarters as we placed more focus on licensing initiatives, which
improved the percentage of new recruits obtaining a license in
those quarters. Lower sequential recruiting levels in the second
quarter and a 3% decline in recruiting in the third quarter from
the second quarter translated into 12% fewer new life licenses in
the third quarter than in the second quarter of 2012. On a
year-over-year basis, the life-licensed sales force was down
slightly from 91,970 at September 30, 2011. Coming off the
unusually high post-convention recruiting surge in 2011,
recruiting declined 43% to 47,639, and new life licenses declined
17% to 8,613 compared with the third quarter of 2011.
Investment and Savings Products sales grew 3% to $1.09 billion in
the third quarter of 2012 from the year ago quarter primarily as a
result of sales growth in our recently launched fixed indexed
annuity and managed account products. Variable annuity sales
resulting from clients transferring their older variable annuity
contracts to the current Prime Elite IV variable annuity have
normalized from the high levels in the prior year period. Without
these prior year elevated transactions, total Investment and
Savings Products sales would have increased 10% year-over-year.
Sales declined 9% from the seasonally strong second quarter.
Client asset values at September 30, 2012 increased 17% to $36.90
billion relative to a year ago and grew 5% compared with June 30,
2012, primarily reflecting market conditions in the U.S. and
Primerica operates in two primary business segments: Term Life Insurance
and Investment and Savings Products, and has a third segment, Corporate
and Other Distributed Products. Results for the segments are shown below.
(1) See the Non-GAAP Financial Measures section and the segment
Operating Results Reconciliations at the end of this release for
Term Life Insurance. Operating revenues grew by 16% to
$164.0 million in the third quarter of 2012 compared with the same
period a year ago. Net premiums were up 17% from the prior year period
reflecting the continued layering of New Term policies onto our
recurring in force premium base. Allocated net investment income
increased year-over-year consistent with the growth in Term Life assets.
Net investment income also benefitted from the allocated portion of $1.8
million from securities called from our bond portfolio and a $1.0
million recovery of interest from a previously defaulted fixed income
Operating income before income taxes increased by 22% over the prior
year period to $48.6 million reflecting revenue growth and higher
commission deferrals partially offset by growth in premium-related
expenses and higher interest expense related to the redundant reserve
financing executed earlier this year. Incurred claims were consistent
with the third quarter of 2011 while persistency experience was
moderately lower for New Term and moderately higher for Legacy compared
with the prior year period.
Sequentially, operating income before income taxes declined by 6%
reflecting the second quarter strong seasonal persistency and lower
incurred claims, partially offset by continued New Term premium growth
and higher allocated investment income.
Investment and Savings Products. Operating revenues
increased 4% to $101.2 million and operating income before income taxes
grew 18% to $31.6 million in the third quarter of 2012 compared with the
third quarter of 2011, reflecting a 5% increase in our average client
asset values consistent with market performance. We also continue to
experience a modest shift in sales mix towards managed accounts, which
provide ongoing asset-based revenues rather than sales-based revenues.
Canadian segregated fund DAC amortization was favorably impacted in the
third quarter of 2012 by positive equity returns resulting in a $2.6
million year-over-year reduction in DAC amortization.
Sequentially, operating income before income taxes increased 7% compared
with the second quarter of 2012 primarily reflecting the continued
growth in the managed account product client asset values and lower
Canadian segregated fund DAC amortization, partially offset by
seasonally higher sales in the second quarter.
Corporate and Other Distributed Products. Operating
revenues decreased by 18% to $30.0 million in the third quarter of 2012
from the third quarter of 2011 largely reflecting lower net investment
income due to our lower invested asset base following our stock
repurchases over the past year. In the third quarter of 2012, employee
merit increases and another layer of stock compensation increased
ongoing expenses by $1.3 million, but were more than offset by the prior
year's $2.7 million discontinuation of carrying inventory in our print
operations. Year-over-year, operating losses before income taxes for
this segment increased by $3.0 million to $10.4 million primarily due to
lower investment income.
Our effective income tax rate for the third quarter of 2012 was 35.4%,
compared with 36.8% for the same quarter a year ago primarily due to a
lower effective Canadian tax rate in 2012. The lower rate in 2012 was
caused by decreasing Canadian statutory income tax rates combined with
capital planning decisions for Canadian unremitted earnings.
Capital and Liquidity
The $75 million share repurchase program that commenced in the third
quarter of 2012 was completed in October, when the Company repurchased
$60 million of Primerica common stock beneficially owned by funds
affiliated with Warburg Pincus, LLC at a purchase price of $28.74 per
share. Prior to this transaction, we repurchased 488,214 shares of
common stock for $14.3 million through open market repurchases.
As of September 30, 2012, our investments and cash totaled $2.18 billion
compared with $2.02 billion as of June 30, 2012. Our invested asset
portfolio had a net unrealized gain of $191.6 million (net of unrealized
losses of $4.2 million) at September 30, 2012, up from a net unrealized
gain of $166.7 million (net of unrealized losses of $6.2 million) at
June 30, 2012. Net realized gains for the quarter were $3.9 million,
which included $0.2 million of other-than-temporary impairments.
Our debt-to-capital ratio was 21.9% as of September 30, 2012 following
our July public debt offering of $375 million in aggregate principal
amount of Senior Notes due in 2022. Primerica Life Insurance Company's
statutory risk-based capital (RBC) ratio is estimated to be in excess of
570% as of September 30, 2012, and the Company remains well-positioned
to support existing operations and fund future growth.
Non-GAAP Financial Measures
We report financial results in accordance with U.S. generally accepted
accounting principles (GAAP). We also present operating revenues,
operating income before income taxes, net operating income and adjusted
stockholders' equity. Operating revenues, operating income before income
taxes and net operating income exclude the impact of realized investment
gains and losses for all periods presented. Operating income before
income taxes and net operating income exclude the expense associated
with our IPO-related equity awards for all periods presented. Adjusted
stockholders' equity excludes the impact of net unrealized gains and
losses on invested assets for all periods presented. Our definitions of
these non-GAAP financial measures may differ from the definitions of
similar measures used by other companies. Management uses these non-GAAP
financial measures in making financial, operating and planning decisions
and in evaluating our financial performance. Furthermore, management
believes that these non-GAAP financial measures may provide users with
additional meaningful comparisons between current results and results of
prior periods as they are expected to be reflective of our core ongoing
business. These measures have limitations, and investors should not
consider them in isolation or as a substitute for analysis of our
results as reported under GAAP. Reconciliations of non-GAAP to GAAP
financial measures are attached to this release.
Earnings Webcast Information
Primerica will hold a webcast Thursday, November 8, 2012 at 10:00 am
EDT, to discuss third quarter results. This release and a detailed
financial supplement will be posted on Primerica's website. Investors
are encouraged to review these materials. To access the webcast go to http://investors.primerica.com
at least 15 minutes prior to the event to register, download and install
any necessary software.
A replay of the call will be available for approximately 30 days on
Primerica's website, http://investors.primerica.com.
Except for historical information contained in this press release, the
statements in this release are forward-looking and made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements contain known and unknown risks and
uncertainties that may cause our actual results in future periods to
differ materially from anticipated or projected results. Those risks and
uncertainties include, among others, our failure to continue to attract
and license new recruits, retain sales representatives or license or
maintain the licensing of our sales representatives; our or our sales
representatives' violation of or non-compliance with laws and
regulations; incorrect assumptions used to price our insurance policies;
the failure of our investment products to remain competitive with other
investment options; our failure to meet RBC standards or other minimum
capital and surplus requirements; a downgrade or potential downgrade in
our insurance subsidiaries' financial strength ratings or our senior
debt ratings; inadequate or unaffordable reinsurance or the failure of
our reinsurers to perform their obligations; heightened standards of
conduct or more stringent licensing requirements for our sales
representatives; the inability of our subsidiaries to pay dividends or
make distributions; the loss of key personnel; and general changes in
economic and financial conditions, including the effects of credit
deterioration and interest rate fluctuations on our invested asset
portfolio. These and other risks and uncertainties affecting us are more
fully described in our filings with the Securities and Exchange
Commission, which are available in the "Investor Relations" section of
our website at http://investors.primerica.com.
Primerica assumes no duty to update its forward-looking statements as of
any future date.
About Primerica, Inc.
Primerica, Inc., headquartered in Duluth, GA, is a leading distributor
of financial products to middle-income families in North America.
Primerica representatives educate their Main Street clients about how to
better prepare for a more secure financial future by assessing their
needs and providing appropriate solutions through term life insurance
which we underwrite, and mutual funds, annuities and other financial
products, which we distribute primarily on behalf of third parties. In
addition, Primerica provides an entrepreneurial full or part-time
business opportunity for individuals seeking to earn income by
distributing the company's financial products. We insure more than 4.3
million lives and approximately 2 million clients maintain investment
accounts with us. Primerica is a member of the Russell 2000 stock index
and is traded on The New York Stock Exchange under the symbol "PRI".
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