Primerica, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2023; comparative figures are for the three and nine months ended September 30, 2022 unless noted. Financial statements are unaudited. Prior-period long-duration insurance amounts were restated for the January 1, 2023 adoption of LDTI.
Business context
Primerica provides term life insurance and distributes investment, savings, Medicare-related and other financial products to middle-income households in the U.S. and Canada, primarily through independent sales representatives. Its segments are Term Life Insurance, Investment and Savings Products, Senior Health, and Corporate and Other Distributed Products.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $710.9 million | $673.3 million | $2,089.4 million | $2,033.2 million |
| Income before taxes | $198.8 million | $121.1 million | $554.6 million | $433.4 million |
| Net income attributable to Primerica | $152.1 million | $79.6 million | $424.7 million | $325.3 million |
| Diluted EPS | $4.23 | $2.11 | $11.65 | $8.42 |
| Operating cash flow | Not reported separately for the quarter | $451.5 million | $551.3 million |
Q3 pretax and net margins were approximately 28.0% and 21.4%, respectively, versus 18.0% and 11.8% a year earlier. Nine-month pretax and net margins were approximately 26.5% and 20.3%, versus 21.3% and 15.8%. Calculations use reported total revenue and net income.
- Revenue drivers: Q3 revenue rose 6%, led by higher net premiums, Investment and Savings Products commissions and fees, and net investment income. Nine-month revenue rose 3%; higher premiums, asset-based fees, and investment income were partly offset by lower sales-based commissions and fees.
- Profit drivers: Q3 expenses were down 7% and nine-month expenses down 4%, largely because 2022 included a $60 million non-cash Senior Health goodwill impairment. Higher employee, technology and growth-related costs partly offset the reductions. The effective tax rate was 23.5% for Q3 and 23.4% for nine months.
- Cash and investments: Cash and cash equivalents were $468.8 million at September 30, versus $489.2 million at year-end 2022. Total investments were $4.12 billion. Nine-month investing cash outflow was $87.8 million; financing cash outflow was $383.8 million. Cash declined $20.5 million over the nine months.
- Debt and liquidity: The company reported $593.5 million of notes payable (including $600 million principal of 2.80% senior notes due November 2031) and a $1.417 billion surplus note due December 2030 at 4.50%. The $200 million revolving credit facility was undrawn; the company reported covenant compliance. Parent-company cash and invested assets were $336.9 million. Management expects business cash flows to meet operating liquidity needs over the next 12 months.
- Insurance and capital: Direct life insurance in force was $940.0 billion, with 86% reinsured; net in-force was $135.2 billion. U.S. insurance subsidiaries exceeded applicable statutory capital requirements and Primerica Life Canada met its minimum capital requirements.
Material changes versus prior periods
- Term Life revenue increased 3% in both Q3 and the nine-month period, supported by growth in the in-force book. Q3 segment pretax income increased 7%; nine-month income increased 8%.
- Investment and Savings Products revenue rose 9% in Q3, but fell 3% year to date. Nine-month product sales decreased 13% to $6.86 billion. Asset-based revenue growth was offset by weaker sales-based revenue; management cited market volatility, cost-of-living pressures, attractive cash alternatives, and a shift in Canadian funds toward asset-based compensation.
- Client investment account values were $88.4 billion at quarter-end, up from $78.7 billion a year earlier but down from $91.6 billion at June 30, 2023. Q3 net flows were positive $192 million; the managed-account platform transition contributed an estimated $150 million in net redemptions, although 98% of client account balances were retained.
- Senior Health reported a Q3 pretax loss of $7.6 million, improved from a $63.7 million loss in Q3 2022, mainly because the prior-year quarter included the impairment charge. Nine-month loss narrowed to $17.4 million from $103.0 million. Submitted policies fell 33% in Q3 and 28% year to date. Q3 acquisition cost per approved policy rose to $1,263 from $905, and LTV/CAC was 0.72 versus 0.96.
- Operating cash flow declined about $99.8 million year over year, primarily because of the timing of reinsurer collections, trading-security activity and tax payments. The prior-year period included collections of pandemic-era ceded claims.
- Primerica repurchased $302.5 million of stock in the first nine months under its 2023 program and paid $70.8 million in dividends. Approximately $72.5 million remained authorized at September 30.
Outlook, management commentary and risks
- The filing provides no specific earnings or revenue guidance. Management says cash flows and potential funding sources are expected to support near- and long-term liquidity.
- Management cited elevated living costs as a potential drag on product demand and noted that higher rates have increased investment income while producing unrealized portfolio losses. It says it has no present intention to sell the affected securities and believes it can hold them to maturity or market recovery.
- Available-for-sale fixed maturities had $345.4 million of gross unrealized losses at September 30, primarily attributed to interest-rate changes; the company recorded no allowance for credit losses on these securities at quarter-end. The held-to-maturity LLC Note had an estimated fair value $132.1 million below amortized cost; no credit losses had been recognized on it.
- LDTI changes make future policy benefit and reinsurance estimates sensitive to assumptions and experience. The annual review cited variability in mortality, persistency and disability experience associated with COVID-19’s lingering effects and economic conditions. The only 2023 assumption change described was immaterial.
- Risks include independent-contractor classification rules, proposed fiduciary standards, possible Canadian restrictions on mutual-fund compensation, Medicare regulation and carrier dependence, reinsurer/counterparty credit, market and interest-rate movements, and legal or regulatory matters. The company says it cannot estimate possible losses from its ordinary-course disputes and proceedings.
- The Canadian securities regulators may require changes to the Principal Distributor funds model; the financial effect, if any, is not quantifiable. Changes to Canadian segregated-fund deferred sales charges took effect for new contracts after May 31, 2023, and sales declined thereafter.
- The company reported effective disclosure controls, no material change in internal control over financial reporting, and no material change in market-risk exposures since year-end 2022.
Important facts for investors to verify
- Whether term-life persistency, claims and policy growth remain consistent with the actuarial assumptions used for reserves and DAC.
- Whether Senior Health policy volumes, agent productivity and acquisition costs improve during the Medicare enrollment season, and whether LTV/CAC returns above 1.0.
- Whether investment-product sales and client net flows recover after the platform transition and amid market and cost-of-living pressures.
- How Canadian compensation rules and U.S. worker-classification or fiduciary proposals affect distribution practices and economics.
- Reinsurer and reserve-financing counterparty performance, especially given substantial reinsurance reliance and the surplus-note structure.
- Effects of interest rates, credit spreads and market values on unrealized investment losses, liquidity and capital, while distinguishing those marks from realized credit losses.
- Cash-flow conversion, capital available at the parent company, and the pace of buybacks and dividends relative to operating and regulatory needs.