Primerica, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone Q4 filing. Primerica serves middle-income households in the U.S. and Canada through term life insurance underwriting and distribution of investment, savings, Medicare-related and other financial products. At year-end, it had 135,208 life-licensed representatives, insured more than 5.7 million lives, and supported approximately 2.8 million client investment accounts.
Financial performance and key metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Total revenue | $2.720 billion | $2.710 billion |
| Income before taxes | $493.7 million | $511.2 million |
| Net income attributable to Primerica, Inc. | $373.0 million | $373.4 million |
| Diluted EPS | $9.74 | $9.38 |
| Operating cash flow | $757.7 million | $657.0 million |
| Cash and cash equivalents, year-end | $489.2 million | $392.5 million |
| Total assets, year-end | $15.35 billion | $16.12 billion |
| Senior unsecured notes, principal | $600 million | $600 million |
Net premiums rose 6% to $1.600 billion, while commissions and fees fell 9% to $944.7 million. Net investment income increased 15% to $93.1 million. Total benefits and expenses rose 1% to $2.226 billion; benefits and claims declined 8% to $665.7 million, while deferred policy acquisition cost amortization increased 42% to $356.1 million. The effective tax rate fell to 25.5% from 27.2%.
Cash flow from operations increased year over year. Investing activities used $200.0 million, compared with $923.4 million in 2021, when the e-TeleQuote acquisition was funded. Financing activities used $457.9 million, primarily reflecting share repurchases and dividends. Parent-company cash and invested assets were $306.9 million at year-end; consolidated cash was $489.2 million.
At December 31, 2022, the $200 million revolving credit facility was undrawn and matures in 2026. The company reported compliance with debt covenants and insurance capital requirements. The $600 million senior notes bear 2.80% interest and mature in 2031. A separate $1.4 billion surplus note supports a reserve-financing arrangement and is contractually matched by a held-to-maturity note; the filing says the associated principal and interest cash flows are expected to offset while Primerica holds that asset.
Material changes versus the prior period
- Revenue was nearly flat, but pretax income declined 3%; attributable net income was essentially unchanged. Diluted EPS rose 4%, supported in part by fewer weighted-average shares.
- Term Life pretax income increased 8% to $448.5 million. Lower COVID-19-related claims helped: excess claims, net of reinsurance, were approximately $11 million versus $63 million in 2021. Higher policy lapses drove greater DAC amortization.
- Term life policy sales softened: 291,918 policies were issued, down from 323,855, and face amount issued declined to $103.8 billion from $108.5 billion. In-force face amount nevertheless increased 1% to $916.8 billion.
- Investment and Savings Products pretax income fell 13% to $239.3 million. Product sales declined 14% to $10.0 billion, average client assets fell 3% to $87.2 billion, and year-end client assets declined to $83.9 billion from $97.3 billion, primarily reflecting falling markets. Net client flows remained positive at $3.4 billion.
- Senior Health reported a pretax loss of $98.7 million, compared with a loss of $85.1 million in the six months included for 2021. The company acquired the remaining 20% of e-TeleQuote on July 1, 2022 for no additional consideration.
- Corporate and Other Distributed Products pretax loss was $95.4 million, versus $93.0 million. Mortgage distribution revenue weakened amid rising interest rates.
- The company repurchased $375 million of shares under its 2022 program and authorized a new $375 million program for 2023. It declared $2.20 per share in dividends for 2022; a $0.65 quarterly dividend was declared in Q1 2023.
Outlook, risks and unusual items
- Outlook: The filing gives no specific earnings or revenue guidance. Management expects business cash flows to provide sufficient operating liquidity over the next 12 months and believes cash flows and potential funding sources can support longer-term needs.
- Investment markets and interest rates: Market declines reduced investment product sales and client asset values. Rising rates caused a $305.9 million unrealized loss in the invested asset portfolio at year-end, compared with an $81.2 million unrealized gain in 2021. Management said it can hold the affected investments and had no present intention to sell them.
- e-TeleQuote: Policy churn reduced estimated renewals and commissions. FY2022 LTV per approved policy was $860 versus acquisition costs of $888, a 0.97 LTV/CAC ratio, down from 1.10. The company scaled back growth to reduce acquisition costs and improve lead procurement. A $60 million noncash goodwill impairment was recorded in 2022, following $76 million in 2021; further impairments remain possible.
- Regulatory and compensation changes: Canadian mutual-fund deferred sales charges were prohibited effective June 2022, and the new principal-distributor model may initially reduce pretax income before asset-based revenue accumulates. Canadian regulators may modify or restrict that model. Primerica also expected Canadian segregated-fund sales to decline beginning June 2023 as deferred sales charges are phased out.
- Accounting transition: Long-duration insurance accounting (LDTI) became effective for Primerica in 2023. The filing estimated a $1.2–$1.5 billion after-tax reduction to equity/AOCI at the January 1, 2021 transition date using then-current rates; it stated that applying December 2022 rates to that transition-date calculation would produce an after-tax AOCI impact between a $150 million increase and a $150 million decrease. Results and equity may be more sensitive to changing assumptions and market rates under the new standard.
- Other principal risks: Independent-contractor classification and recruiting/licensing; mortality, persistency and reinsurance counterparty performance; regulatory capital and insurer ratings; concentration in third-party investment and Medicare carrier relationships; cybersecurity and privacy; litigation and compliance; inflation, equity-market and currency movements; and the ability of regulated subsidiaries to upstream dividends.
- Unusual items and assurance: The $60 million goodwill impairment and $18.9 million net negative Senior Health tail revenue adjustment affected 2022 results. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Investor verification priorities
- Track e-TeleQuote retention, commission estimates, LTV/CAC, lead costs, profitability and any additional impairment charges.
- Verify the effects of Canadian mutual-fund and segregated-fund compensation rules on sales, revenue timing and representative incentives.
- Assess the impact of LDTI adoption on reported reserves, earnings, AOCI, equity and comparability with prior periods.
- Monitor life-policy lapse and mortality experience, DAC amortization, reinsurance recoverables and counterparty credit quality.
- Reconcile the investment portfolio’s unrealized losses with liquidity needs, realized credit losses and any future asset sales.
- Confirm subsidiary dividend capacity, statutory capital ratios, share repurchases and the parent company’s ability to meet debt and shareholder-return obligations.