Primerica, Inc. — Q2 2021 Form 10-Q
Business context and reporting period. Primerica distributes term life insurance and third-party investment and savings products to middle-income households in the U.S. and Canada through independent representatives. This unaudited filing covers the quarter and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods unless noted.
Financial results and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $654.7 million | $525.8 million | $1,292.4 million | $1,050.8 million |
| Income before tax | $169.5 million | $134.1 million | $297.8 million | $228.6 million |
| Net income | $128.2 million | $101.5 million | $226.0 million | $174.0 million |
| Diluted EPS | $3.22 | $2.51 | $5.68 | $4.25 |
| Operating cash flow | Not separately reported by quarter | $274.8 million | $316.4 million |
- Q2 revenue rose 25% and net income 26%; six-month revenue rose 23% and net income 30%. Approximate net margin was 19.6% in Q2 2021 versus 19.3% in Q2 2020, and 17.5% for the first half versus 16.6%.
- Q2 segment pretax income: Term Life $116.8 million (up 23%); Investment and Savings Products $71.2 million (up 52%); Corporate and Other Distributed Products recorded a loss of $18.5 million, versus a $7.7 million loss.
- Growth reflected stronger investment-product commissions and fees and higher net life premiums. Q2 benefits and claims rose 21%, sales commissions rose 54%, and total benefits and expenses rose 24%.
- Cash and cash equivalents were $774.6 million at June 30, up from $547.6 million at December 31, 2020. First-half cash flow from operations was $274.8 million; investing activities used $133.1 million and financing activities provided $81.1 million. Operating cash flow was lower year over year, in part because 2020 tax payments had been deferred.
- Total assets were $15.52 billion and stockholders’ equity $2.02 billion at June 30. Long-term notes payable were $374.6 million; the company had drawn $125 million on its $200 million revolving facility. The $1.37 billion surplus note supports a matching held-to-maturity note and is part of a reserve-financing arrangement; the filing describes the financing as non-recourse to the Parent Company and Primerica Life.
- Net life insurance in force was $124.5 billion, with 86% of direct in-force business reinsured. The fixed-maturity portfolio’s average rating was A- and average duration 4.8 years; 4% of portfolio amortized cost was below investment grade.
Material changes and business developments
- Investment and savings product sales increased 80% in Q2 and 50% in the first half. Total product sales were $3.04 billion and $5.89 billion, respectively. Client asset values at period end reached $91.7 billion, up from $68.2 billion a year earlier; first-half net flows were $2.31 billion.
- Term-life face amount in force increased 2% in Q2 and 3% in the first half. New policy issuance remained strong, although Q2 issuance was below the unusually high prior-year level.
- Life-licensed representatives numbered 132,041 at June 30, down from 134,157 a year earlier. Recruiting and new licensing declined year over year; management cited prior-year pandemic lockdown conditions, changed recruiting incentives, and renewed social and travel activity.
- On July 1, 2021, Primerica acquired an 80% interest in e-TeleQuote, a Medicare-related insurance distributor. Consideration included approximately $350 million cash, refinancing $146 million of debt with intercompany funding, a $15 million subordinated note, and 20% equity in Primerica Health issued to minority holders. Up to $50 million in earnouts may be payable; the company expects to purchase the remaining 20% over up to four years. The acquisition was funded with cash, a revolver draw, and the note. Results will be reported in a new Senior Health segment beginning in Q3; acquisition accounting was incomplete at filing.
Outlook, commentary, risks and unusual items
- No specific quantitative earnings or revenue guidance is provided. Management said operating cash flows and available funding sources should be sufficient for operating needs over the next 12 months and for long-term liquidity requirements.
- Management expects COVID-19-related uncertainty to continue. Elevated persistency and demand for life protection supported premiums and sales, but the duration of these trends is uncertain. First-half excess claims were approximately $30 million, including $27 million attributed to COVID-19; significant mortality risk is ceded to reinsurers.
- Key exposures include mortality and persistency deviations, reinsurer or reserve-financing counterparty performance, interest rates, credit spreads, investment values, Canadian currency movements, representative recruitment and licensing, and regulatory changes. The filing also identifies uncertainty related to standards of care, independent-contractor classification, and Canada’s deferred-sales-charge ban effective June 1, 2022.
- The e-TeleQuote acquisition adds execution, integration, lead-sourcing, carrier-concentration, Medicare/CMS compliance, policy-retention, and cybersecurity risks. Its business is expected to have negative net cash flows for several years as acquisition costs precede commission collections.
- Primerica’s $375 million senior notes mature July 15, 2022. The revolving facility was extended to June 22, 2026; the company reported compliance with its debt covenants and no defaults. It also had a $178 million letter of credit supporting reserve financing.
- Other notable items: no share repurchases were made under the new $300 million authorization during the quarter, though 5,970 shares were withheld for share-based compensation and option costs. Management reported disclosure controls as effective and no material change in internal control over financial reporting. The company reported no pending legal proceeding requiring disclosure; it said possible losses from ordinary-course disputes generally could not be estimated.
- ASU 2018-12 for long-duration insurance contracts is scheduled for adoption January 1, 2023. Primerica expects an impact but said it could not yet determine its magnitude.
Important facts for investors to verify
- Whether investment-product sales, client asset growth, and positive net flows persist if financial markets weaken.
- How mortality claims, persistency, and lower DAC amortization affect future Term Life earnings and reserves as pandemic conditions change.
- e-TeleQuote’s purchase accounting, performance, funding needs, integration progress, earnout exposure, and path to positive cash generation.
- The size and quality of reinsurance and reserve-financing exposures, including counterparty credit support and the 2022 senior-note refinancing or repayment plan.
- Potential effects of new U.S. and Canadian conduct rules, worker-classification changes, and the Canadian deferred-sales-charge ban on distribution and compensation.