Primerica, Inc. — Q1 2022 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. Primerica distributes financial products to middle-income households in the U.S. and Canada through an independent sales force. Its businesses include term life insurance, investment and savings products, and Senior Health, which reflects the 2021 acquisition of an 80% interest in e-TeleQuote.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $691.2 million | $637.7 million | +8% |
| Income before taxes | $103.0 million | $128.3 million | -20% |
| Net income attributable to Primerica | $81.4 million | $97.9 million | -17% |
| Diluted EPS | $2.06 | $2.46 | -16% |
| Operating cash flow | $214.3 million | $119.5 million | +$94.8 million |
Consolidated net income was $78.8 million in Q1 2022; the amount attributable to Primerica was higher because of the reported noncontrolling-interest allocation. Revenue growth came primarily from higher term-life net premiums and investment-and-savings commissions and fees. Expenses rose 15% to $588.2 million, including higher DAC amortization, sales commissions, insurance and operating expenses, and $20.6 million of Senior Health contract acquisition costs. The filing does not present a headline operating-margin measure.
- Term Life: Revenue rose 10% to $418.4 million and pretax income increased 4% to $91.6 million. New policies issued fell to 71,324 from 82,667; the average monthly issue rate was 0.18 per licensed representative versus 0.21. In-force face amount increased 1% to $909.6 billion.
- Investment and Savings Products: Revenue increased 8% to $241.0 million and pretax income rose 2% to $64.6 million. Sales increased 7% to $3.1 billion, while ending client assets declined to $93.7 billion from $97.3 billion at year-end, mainly reflecting market losses.
- Senior Health: Revenue was $5.8 million and pretax loss was $23.1 million. A $19.1 million negative tail-revenue adjustment reflected weaker-than-expected policy renewals. LTV per approved policy was $862 versus CAC of $875 (0.98 LTV/CAC ratio).
- Corporate and Other Distributed Products: Revenue declined 20% to $25.9 million and pretax loss widened to $30.0 million from $23.3 million.
Cash, investments and capital. Cash and cash equivalents were $359.8 million at March 31, down from $392.5 million at year-end. Investing activities used $112.7 million and financing activities used $134.6 million, including $99.0 million of common-stock repurchases and $21.6 million of dividends. Parent Company cash and invested assets were $260.3 million. Total assets were $15.9 billion and total liabilities were $14.0 billion.
Long-term notes payable were $592.3 million carrying value, representing $600 million of 2.80% senior notes due in 2031. The $200 million revolving credit facility was undrawn; the company reported covenant compliance. A $1.4 billion Vidalia Re surplus note supports a matching held-to-maturity LLC note and is described as non-recourse to the Parent Company and Primerica Life. Available-for-sale investments had $84.4 million of net unrealized losses at quarter-end, versus $81.2 million of unrealized gains at December 31, 2021, primarily reflecting rising interest rates. Total comprehensive income attributable to Primerica was a loss of $45.6 million, versus income of $51.8 million in Q1 2021.
Material changes and management commentary
- Term-life premiums benefited from growth in policies not subject to legacy IPO coinsurance and continued elevated persistency. COVID-related excess death claims, net of reinsurance, were approximately $16 million versus $21 million in Q1 2021; management noted fewer COVID-related claims during March.
- Management said policy sales were trending toward pre-pandemic levels. New recruits decreased to 84,707 from 94,633, and licensed representatives were 130,206 versus 132,030 a year earlier; management attributed part of the prior-year comparison to temporary COVID-related licensing measures and incentives.
- Management expects operating cash flows to provide sufficient liquidity over the next 12 months and believes cash flows and potential funding sources support long-term needs. It also noted e-TeleQuote may require working capital as it grows, although no Parent Company funding was provided in Q1.
- No specific earnings or revenue guidance was provided. The filing says the 2023 long-duration insurance accounting standard is expected to cause a significant decrease in accumulated other comprehensive income at adoption; the amount cannot yet be determined.
Risks, contingencies and unusual items
- Market volatility and higher interest rates affected investment values and client assets; credit, liquidity, interest-rate and foreign-currency risks remain. Management stated it had no present intention to sell available-for-sale securities in unrealized-loss positions and believed it could hold them to maturity or recovery.
- COVID-19 continues to create uncertainty around mortality, persistency, sales and recruiting. Actual future mortality and policy retention may differ from assumptions.
- Canadian rules taking effect June 1, 2022 prohibit deferred sales charges on mutual funds. Primerica was developing alternative compensation arrangements subject to regulatory review and warned of possible near-term pretax income pressure. Canadian regulators also urged a transition away from deferred sales charges on segregated funds.
- Other stated exposures include regulatory standards of care, independent-contractor classification, Senior Health carrier relationships, lead costs and retention, reinsurance and counterparty performance, cybersecurity, and litigation. The company said it could not estimate possible losses for ordinary-course legal and regulatory matters unless otherwise indicated and did not identify a pending proceeding requiring disclosure.
- The company repurchased 835,058 shares for $117.8 million under its program through March 31; approximately $207.2 million remained authorized. The program limit was increased to $325 million through December 31, 2022.
Investor verification points
- Track term-life policy issuance, persistency, mortality claims and DAC amortization as pandemic-era experience normalizes.
- Assess Senior Health renewal retention, tail adjustments, LTV-to-CAC economics, and whether acquisition costs and losses improve.
- Monitor Canadian compensation-model approvals and resulting revenue, cash-flow and profitability effects.
- Review investment portfolio unrealized losses, credit quality, interest-rate sensitivity and statutory capital; distinguish market-value changes from realized credit losses.
- Verify liquidity, subsidiary dividend capacity, debt and surplus-note arrangements, and the pace of share repurchases and dividends.
- Follow implementation of the 2023 insurance accounting standard and its eventual impact on AOCI, equity and reported results.