Primerica, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Primerica provides term life insurance and distributes investment and savings products to middle-income households in the U.S. and Canada through independent sales representatives.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenue | $637.7 million | $524.9 million; up 21% |
| Income before taxes | $128.3 million | $94.5 million; up 36% |
| Net income | $97.9 million | $72.5 million; up 35% |
| Diluted EPS | $2.46 | $1.75 |
| Net income margin | 15.3% | 13.8% |
| Operating cash flow | $119.5 million | $131.5 million |
- Revenue growth reflected higher net life premiums, commissions and fees, and investment income, alongside a year-over-year shift from realized investment losses to gains.
- Term Life Insurance revenue rose 17% to $382.0 million; segment pretax income rose 6% to $88.2 million. Investment and Savings Products revenue rose 21% to $223.4 million; segment pretax income rose 33% to $63.4 million. Corporate and Other Distributed Products reported a $23.3 million pretax loss, improved from a $36.0 million loss.
- Benefits and claims increased 36% to $183.8 million, primarily from higher COVID-19-related mortality and growth in the in-force book. Management estimated claims experience was about $21 million above historical trends; higher persistency added about $7 million to benefit reserves. Persistency also reduced DAC amortization by about $12 million.
- Investing cash outflow was $203.2 million, mainly reflecting increased investment purchases; financing cash outflow was $24.7 million. Cash and cash equivalents declined $107.6 million to $439.9 million. Total assets were $15.1 billion and stockholders’ equity was $1.9 billion at quarter-end.
- Notes payable were $374.5 million, including $375 million principal of 4.75% senior notes due July 2022. The $1.4 billion surplus note is associated with an equal-principal held-to-maturity note and is non-recourse to the Parent Company and Primerica Life. No amounts were drawn on the $200 million revolving credit facility at March 31; the company reported covenant compliance.
- Available-for-sale securities’ net unrealized gain fell to $98.0 million from $163.3 million at year-end, which management attributed to rising market interest rates. Fixed-maturity portfolio average rating was A- and duration was 4.7 years.
Material changes and operating trends
- Term life policies issued increased to 82,667 from 71,318; face amount in-force rose to $869.6 billion from $804.5 billion year over year. The company had 132,030 life-licensed representatives, versus 130,095 a year earlier.
- Investment and savings product sales rose 27% to $2.85 billion. Ending client account asset values increased to $85.9 billion from $59.0 billion a year earlier, reflecting market appreciation and positive net flows.
- Reinsurance recoverables were $4.35 billion. Approximately 86% of direct life insurance in-force was ceded; reinsurance does not remove Primerica’s primary obligation to policyholders.
- Quarter-end consolidated cash was $439.9 million; the Parent Company separately reported cash and invested assets of $369.4 million.
Outlook, commentary and risks
- Management expected business cash flows to provide sufficient operating liquidity over the next 12 months and stated that long-term liquidity needs were supported by business cash flows and potential funding sources. The filing provides no quantified earnings or revenue guidance.
- COVID-19 continued to affect mortality, recruiting and licensing, policy sales and persistency. Management said the duration and severity of effects remained uncertain; elevated mortality may persist, while sales and persistency trends could normalize as pandemic-related sentiment changes. Reinsurance mitigates much, but not all, mortality exposure.
- On April 18, 2021, Primerica agreed to acquire 80% of e-TeleQuote, a Medicare health-plan marketing and insurance agency, in a transaction expected to close in July 2021. Disclosed terms included approximately $345 million cash consideration, a $15 million subordinated note, replacement of existing debt, and potential earnouts up to $50 million. The company expected to fund the acquisition with $370 million cash, a $125 million revolver draw and the note, and expected to suspend 2021 stock repurchases. The transaction is subsequent to quarter-end.
- Other cited risks include investment-market and interest-rate changes, reinsurer or financing-counterparty credit risk, regulatory standards for financial products, independent-contractor classification, Canadian compensation changes effective in 2022, currency movements, litigation and acquisition integration. Management could not estimate possible losses for certain legal matters; it said no pending proceeding required disclosure in this filing.
- The long-duration insurance accounting standard (ASU 2018-12) is scheduled for adoption in 2023; Primerica said the financial impact could not yet be determined. Disclosure controls were assessed as effective, with no material internal-control changes reported during the quarter.
Investor verification points
- Verify how COVID-related claims, reinsurance recoveries and persistency develop, and whether mortality and policy sales normalize.
- Track investment portfolio unrealized losses, credit quality, and sensitivity to further rate or spread changes.
- Confirm e-TeleQuote closing, final funding and debt terms, earnout exposure, and effects on liquidity and share repurchases.
- Review the July 2022 senior-note maturity and future borrowing needs, including any planned revolver draw.
- Assess the effects of Canadian deferred-sales-charge restrictions and evolving fiduciary, conduct and worker-classification rules.