Primerica, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; filed August 8, 2023. Primerica provides term life insurance and distributes investment, savings, Medicare-related and other financial products, primarily through independent sales representatives in the U.S. and Canada. Financial amounts below are in U.S. dollars; millions unless stated otherwise.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $688.4 | $668.7 | $1,378.4 | $1,359.9 |
| Income before taxes | $188.9 | $162.8 | $355.8 | $312.3 |
| Net income attributable to Primerica | $144.5 | $128.0 | $272.6 | $245.8 |
| Diluted EPS | $3.97 | $3.31 | $7.43 | $6.29 |
| Net margin, approximate | 21.0% | 19.1% | 19.8% | 18.1% |
Revenue increased 3% in Q2 and 1% for the first half; attributable net income increased 13% and 11%, respectively. Higher term-life net premiums and investment income supported growth, while lower investment-product commissions partly offset it. Higher yields and cash balances lifted net investment income 52% in Q2 and 58% year to date. Q2 income-tax rates were 23.5%, versus 22.9% a year earlier.
- Term Life: Pretax income rose 9% to $140.1 million in Q2 and 8% to $270.7 million year to date. New policies issued increased; the in-force face amount reached $934.9 billion at quarter-end.
- Investment and Savings Products: Pretax income fell 5% to $59.6 million in Q2 and 11% to $115.7 million for six months. Sales-based revenue was pressured by lower product sales and the shift in Canada toward asset-based compensation.
- Senior Health: Pretax losses narrowed to $6.0 million in Q2 and $9.8 million for six months, versus losses of $16.2 million and $39.2 million. Lower acquisition costs and the absence of prior-year negative tail-revenue adjustments helped; policy volume was lower as the company prioritized more efficient lead procurement and conversion.
Cash flow, balance sheet and capital
- Six-month operating cash flow was $311.7 million, down from $384.5 million; investing activities provided $13.8 million versus using $88.8 million. Financing used $253.9 million, including $196.0 million of common-stock repurchases and $47.5 million of dividends.
- Cash and cash equivalents were $561.6 million at June 30, 2023, up from $489.2 million at year-end. Parent-company cash and invested assets were $342.0 million.
- Total assets were $14.75 billion and total liabilities $12.74 billion. Available-for-sale fixed-maturity securities had $2.54 billion fair value; their gross unrealized losses were $293.2 million. Management attributed most unrealized losses to higher interest rates and credit spreads and reported no intent to sell securities it can hold.
- Debt included $593.3 million carrying value of senior notes ( $600 million principal, 2.80%, due 2031) and a $1.433 billion surplus note bearing 4.50% and due 2030. The surplus note is non-recourse to the parent and Primerica Life; it is associated with an equal-principal held-to-maturity LLC note. The $200 million revolver was undrawn, and the company reported covenant compliance.
- For the 2023 repurchase authorization of up to $375 million, $196.0 million had been repurchased through June 30; approximately $179.0 million remained available. The Q2 dividend declared was $0.65 per share.
Changes, outlook and risks
- Primerica adopted the insurance accounting standard LDTI on January 1, 2023, changing measurement and presentation of policy-benefit liabilities, acquisition costs and related reinsurance balances. Comparative periods were adjusted. The filing also corrected immaterial errors in previously issued Q1 2023 financial information related to LDTI measurement; the correction increased December 2022 assets by $23.3 million and equity by $21.7 million.
- Management expects business cash flows and potential funding sources to provide sufficient operating liquidity for the next 12 months and long-term needs. No specific earnings or revenue guidance is provided. Management reported recruiting momentum, a larger licensed sales force, and term-life productivity at the high end of its historical range.
- Risks include persistency and mortality differing from actuarial assumptions; reinsurer or reserve-financing counterparty failure; market, interest-rate, credit and foreign-exchange volatility; regulatory changes affecting independent-contractor classification and Canadian compensation models; Medicare-related compliance and lead-conversion risks; and technology, cybersecurity, litigation and economic conditions.
- Canadian regulators may require changes to the mutual-fund principal-distributor model. Deferred sales charges on new Canadian segregated-fund contracts ceased after May 31, 2023; the company reported declining product sales from June and uncertainty over permitted future compensation practices.
- AFS credit losses recognized were $2.2 million for the first half, including securities the company intended to sell. A separate credit loss was recorded on ceded reserves from an insolvent reinsurer. Legal disputes and regulatory inquiries arise in the ordinary course; the company said it could not estimate potential losses generally and reported no pending proceeding requiring disclosure.
Important facts for investors to verify
- How term-life persistency, mortality, reinsurance recoverables and LDTI assumptions evolve, including the consequences of the disclosed immaterial correction.
- Whether investment-product sales and commissions recover, particularly in Canada, and whether regulatory changes alter distribution economics.
- Whether Senior Health improves profitability while managing policy volumes, lead costs, retention and carrier relationships.
- The duration and credit quality of the investment portfolio, unrealized losses, and the company’s liquidity and capital position under adverse market conditions.
- Progress on share repurchases and dividends, and any changes in subsidiary distributions, regulatory capital or debt and surplus-note obligations.