Primerica, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; unaudited. Primerica distributes term life insurance and third-party investment products primarily through independent representatives, and Medicare-related products through its Senior Health business. Unless noted, dollar amounts below are in millions.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $673.3 | $693.2 | $2,033.2 | $1,985.6 |
| Income before tax | $85.9 | $147.1 | $326.2 | $444.9 |
| Net income | $51.8 | $111.4 | $236.1 | $337.5 |
| Net income attributable to Primerica | $51.8 | $112.5 | $241.2 | $338.5 |
| Diluted EPS | $1.37 | $2.82 | $6.24 | $8.50 |
- Revenue drivers: Q3 net premiums rose 6% to $405.2 million, but commissions and fees fell 16% to $225.5 million. For nine months, net premiums rose 7% to $1,193.8 million while commissions and fees declined 5% to $718.0 million. Net investment income was $24.3 million in Q3 and $64.5 million year to date.
- Profit and expenses: Q3 pretax income fell 42% and attributable net income fell 54%; nine-month pretax income fell 27% and attributable net income fell 29%. Results included a $60 million non-cash goodwill impairment in Senior Health. DAC amortization increased 46% in Q3 and 44% year to date, mainly reflecting lower term-life persistency.
- Margins: The filing does not present margin measures. Based on reported figures, Q3 pretax margin was approximately 12.8% versus 21.2% a year earlier; nine-month pretax margin was approximately 16.0% versus 22.4%. These are simple calculations of pretax income divided by revenue.
- Cash flow: Nine-month operating cash flow was $551.3 million, versus $435.1 million; investing cash flow was a $96.8 million use, versus a $722.6 million use; financing cash flow was a $405.3 million use, versus a $62.3 million source. Cash and cash equivalents ended at $438.0 million, up from $392.5 million at year-end 2021.
- Liquidity and debt: Parent Company cash and invested assets were $239.7 million. Long-term notes payable were $592.7 million carrying value, including $600 million principal of senior notes at 2.80%, due 2031. A $1.433 billion surplus note at 4.50%, due 2030, supports redundant reserve financing and is non-recourse to the Parent Company and Primerica Life. The $200 million revolver was undrawn; the company reported covenant compliance. Total liabilities were $13.422 billion and permanent equity was $1.620 billion.
- Investment and equity effects: Available-for-sale fixed-maturity securities had $323.8 million of gross unrealized losses at September 30, 2022, primarily attributed to higher interest rates and wider credit spreads; the company reported no intent to sell and ability to hold. Nine-month other comprehensive loss was $340.7 million after tax, and total comprehensive loss was $104.6 million. Stockholders’ equity declined from $2.083 billion at year-end 2021 to $1.620 billion.
Material changes and segment results
- Term Life Insurance: Revenue increased 7% in Q3 and 8% year to date; pretax income increased 4% in Q3 and 3% year to date. Lower COVID-19-related excess claims helped results, while higher DAC amortization and expenses partly offset premium growth. Term-life policies issued declined 6% in Q3 and 12% year to date.
- Investment and Savings Products: Revenue declined 14% in Q3 and 4% year to date; pretax income declined 16% and 11%, respectively. Total product sales were down 23% in Q3 and 9% year to date. Client account values ended at $78.7 billion, down from $97.3 billion at the start of 2022, largely due to negative market performance; net flows remained positive.
- Senior Health: The segment recorded a pretax loss of $63.7 million in Q3 and $103.0 million for nine months, including the $60 million impairment. Lower retention and revised renewal estimates reduced lifetime commission value; nine-month tail revenue adjustments were negative $22.7 million. Management reported a deliberate effort to scale back growth, improve lead procurement efficiency, and limit agent counts. Q3 tail adjustment was positive $1.7 million.
- Shareholder returns: The company repurchased $324.4 million of stock and paid $63.4 million of dividends in the first nine months. It had repurchased 2.63 million shares for $343.1 million through September 30; $31.9 million remained under its $375 million program authorization through December 31, 2022.
- Acquisition: On July 1, 2022, Primerica acquired the remaining 20% of Primerica Health/e-TeleQuote for no additional consideration under the contractual formula; the noncontrolling interest was redeemed.
Outlook, risks, and unusual items
- No specific earnings or revenue guidance is provided. Management said business cash flows are expected to provide sufficient operating liquidity over the next 12 months and believes cash flows and potential funding sources support longer-term liquidity needs.
- Management cited softer economic conditions and higher living costs as factors affecting term-life sales; market declines and volatility weakened investment-product demand and asset values. COVID-19 mortality claims had eased, with fewer related claims since March 2022.
- Canadian regulation is changing sales compensation. The mutual-fund deferred-sales-charge ban took effect June 1, 2022; Primerica launched its Principal Distributor model in July. Regulators may scrutinize or require changes to its advance and chargeback features. Potential changes to segregated-fund compensation also remain under consideration; financial impact is not quantified.
- Long-duration insurance accounting standard LDTI is scheduled for adoption January 1, 2023. Primerica expects the transition-date retained-earnings impact from the cohort net-premium-ratio cap to be less than 3%. It previously estimated a $1.2–$1.5 billion after-tax reduction to AOCI/equity from transition-date discount rates, but said higher market rates by September 2022 would significantly reduce that impact; applying September rates to the transition reserve would imply an after-tax AOCI impact between a $150 million increase and a $150 million decrease. Estimates remain under evaluation.
- Other principal risks include interest-rate and credit-market exposure, reinsurer and reserve-financing counterparty performance, mortality and persistency deviations, independent-contractor classification, regulatory changes, Medicare lead costs and retention, carrier relationships, cybersecurity, and currency movements. The filing reports ordinary-course legal matters but says it cannot estimate possible losses or ranges unless otherwise indicated; no proceeding was identified as requiring disclosure.
Investor verification priorities
- Assess the Senior Health business’s retention, renewal-commission assumptions, tail adjustments, unit economics (Q3 LTV/CAC per approved policy: 0.96), and the impairment valuation assumptions.
- Track term-life persistency and DAC amortization, including whether elevated lapse experience in policies issued during the first pandemic year continues.
- Evaluate sensitivity of investment portfolio values and reported equity to interest rates, spreads, and LDTI transition assumptions; distinguish unrealized market losses from credit impairment.
- Monitor Canadian regulatory decisions affecting the Principal Distributor and segregated-fund compensation models.
- Verify subsidiary dividend capacity, statutory capital levels, reinsurance recoverables and counterparty concentration, and use of the remaining share-repurchase authorization.