Primerica, Inc. announced financial results for the quarter ended March 31, 2020. Total revenues of $524.9 million increased 6% compared to the first quarter of 2019. Net income of $72.5 million decreased 8%, while earnings per diluted share (EPS) of $1.75 decreased 5% compared to the same quarter last year. The decline in both net income and EPS were driven by pre-tax realized losses on the invested asset portfolio of $10.0 million and mark-to-market adjustments on the reinsurance deposit asset of $6.4 million in the current quarter.
Adjusted operating revenues, adjusted net operating income and diluted adjusted operating earnings per share, which are non-GAAP financial measures, continue to exclude the impact of realized gains/losses and the mark-to-market adjustment on the reinsurance deposit asset. A reconciliation of non-GAAP to GAAP financial measures is included at the end of this release.
Adjusted operating revenues were $541.3 million, increasing 10% compared to the first quarter of 2019. Adjusted net operating income of $85.0 million increased 13%, while diluted adjusted operating earnings per share of $2.05 increased 18% compared to the same quarter last year.
First quarter results reflect strong sales and financial performance in both the Term Life and Investment and Savings Products (ISP) segments. Term Life operating revenues increased 10% year-over-year due principally to an 11% increase in adjusted direct premiums, while pre-tax income increased 18%, reflecting favorable year-over-year trends in persistency. ISP revenues increased 14% and pre-tax income grew 12% year-over-year, led by robust sales and growth in average client asset values. The significant market downturn at the end of the quarter led to an increase in Canadian Segregated Fund DAC amortization in the period. During the quarter, the Company repurchased $90 million of common stock toward its $250 million goal for the year.
“Our quarterly results reflect the strength of our financial position and the sales momentum that has been building for some time,” said Glenn Williams, Chief Executive Officer. “While the COVID-19 pandemic may adversely impact our financial results in the near-term, our strong momentum at its onset and the flexibility of our sales force and distribution model give us confidence that we will be able to navigate through this major health crisis and any economic downturn.”
First Quarter Distribution & Segment Results
|
Distribution Results |
|||||||||||||
|
|
|
1Q 2020 |
|
|
1Q 2019 |
|
|
% Change |
|
|
|||
|
Life-Licensed Sales Force (1) |
|
|
130,095 |
|
|
|
129,821 |
|
|
* |
|
|
|
|
Recruits |
|
|
84,762 |
|
|
|
63,223 |
|
|
|
34 |
% |
|
|
New Life-Licensed Representatives |
|
|
10,599 |
|
|
|
10,065 |
|
|
|
5 |
% |
|
|
Life Insurance Policies Issued |
|
|
71,318 |
|
|
|
64,242 |
|
|
|
11 |
% |
|
|
Life Productivity (2) |
|
|
0.18 |
|
|
|
0.16 |
|
|
* |
|
|
|
|
ISP Product Sales ($ billions) |
|
$ |
2.25 |
|
|
$ |
1.76 |
|
|
|
28 |
% |
|
|
Average Client Asset Values ($ billions) |
|
$ |
66.59 |
|
|
$ |
61.45 |
|
|
|
8 |
% |
|
_____________
(1) End of period
(2) Life productivity equals policies issued divided by the average number of life insurance licensed representatives per month
* Not calculated or less than 1%
|
Segment Results |
|||||||||||||
|
|
|
Q1 2020 |
|
|
Q1 2019 |
|
|
% Change |
|
|
|||
|
|
|
($ in thousands) |
|||||||||||
|
Adjusted Operating Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Life Insurance |
|
$ |
327,746 |
|
|
$ |
296,843 |
|
|
|
10 |
% |
|
|
Investment and Savings Products |
|
|
185,032 |
|
|
|
162,672 |
|
|
|
14 |
% |
|
|
Corporate and Other Distributed Products (1) |
|
|
28,567 |
|
|
|
30,478 |
|
|
|
(6 |
)% |
|
|
Total adjusted operating revenues (1) |
|
$ |
541,345 |
|
|
$ |
489,993 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Income (Loss) before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Life Insurance |
|
$ |
82,892 |
|
|
$ |
70,339 |
|
|
|
18 |
% |
|
|
Investment and Savings Products |
|
|
47,700 |
|
|
|
42,684 |
|
|
|
12 |
% |
|
|
Corporate and Other Distributed Products (1) |
|
|
(19,637 |
) |
|
|
(15,649 |
) |
|
|
25 |
% |
|
|
Total adjusted operating income before income taxes (1) |
|
$ |
110,955 |
|
|
$ |
97,374 |
|
|
|
14 |
% |
|
_____________
(1) See the Non-GAAP Financial Measures section and the Adjusted Operating Results reconciliation tables at the end of this release for additional information.
Life Insurance Licensed Sales Force
During the first quarter, we ran two incentives that offered discounted independent business application fees to new recruits. The first was held in early January to generate excitement at the start of the new year and the second in late March as COVID-19 concerns began to emerge. These incentives, combined with strong recruiting momentum during the non-promotion period, led to a 34% increase in the number of new recruits year-over-year. New life licensed representatives increased 5% year-over-year, facing some headwinds in March as testing sites began to close due to the pandemic. As of March 31, 2020, the Company had 130,095 independent life-licensed representatives, largely unchanged year-over-year.
Term Life Insurance
Life insurance policies issued during the first quarter increased 11% to 71,318, reflecting the momentum that began late last year and reversing a quarterly deceleration of productivity experienced over the last few years. Productivity for the quarter was 0.18 policies per life insurance licensed representative, up from 0.16 policies per life insurance licensed representative in the prior year.
Revenues of $327.7 million increased 10% compared to the first quarter of 2019 and pre-tax income of $82.9 million increased 18% year-over-year. Performance was driven by 11% growth in adjusted direct premiums and strong, favorable trends in persistency. Benefits and claims were in line with historical experience. Insurance expenses increased 13% from growth in the business and enhanced technology-related capabilities.
Given the timing of the onset of the COVID-19 pandemic in the U.S. and Canada, the Term Life Insurance segment’s production and financial results were not notably impacted by the pandemic in the first quarter.
Investment and Savings Products
Total product sales during the current quarter were a record $2.2 billion, a 28% increase compared to the same quarter last year. The increase in sales was due to a combination of strong demand for mutual funds and variable annuity products and, to a lesser degree, higher sales of managed accounts. Average client asset values were $66.6 billion, increasing 8% year-over-year. The impact of market disruption during the quarter reduced quarter-end client asset values to $59.0 billion. Net client inflows were $543 million, compared to $227 million in the first quarter of 2019, reflecting strong year-over-year sales growth and redemptions that were in line with the growth in client asset values.
Revenues of $185.0 million during the quarter increased 14% compared to the same quarter in 2019 and pre-tax income of $47.7 million increased 12% year-over-year. Sales-based revenues grew 21% in-line with growth in revenue-generating product sales, while asset-based revenues grew 11% due to growth in average client asset values. Sales and asset-based commission expenses generally grew in-line with the associated revenues. The market disruption at the end of March adversely impacted Canadian segregated fund DAC amortization by $1.8 million in contrast to favorable market conditions in the first quarter of 2019 that lowered amortization by $1.9 million in the prior year period.
Corporate and Other Distributed Products
During the quarter, the Company recorded an adjusted operating loss before taxes of $19.6 million compared to an adjusted operating loss before taxes of $15.6 million during the first quarter of 2019. The year-over-year increase in pre-tax loss includes a $1.6 million charge to recognize an allowance for reinsured benefits and claims on a discontinued line of business ceded in 1995 to a reinsurance counterparty that was ordered into receivership this year. Additionally, allocated net investment income was $2.0 million lower as a higher proportion of investment income was allocated to the Term Life Insurance segment to support growth in the business.
Taxes
The first quarter effective income tax rate was 23.4% which is higher than last year’s first quarter rate of 22.7%. The difference is largely driven by a lower tax benefit being recognized on vested equity awards as the difference between the grant and vest prices was smaller on awards vesting this year than on those vesting in the prior year period.
Capital
During the first quarter, the Company repurchased 880,222 shares of common stock for $90 million. The Company expects to repurchase $250 million of its common stock during 2020. The Board of Directors has approved a dividend of $0.40 per share, payable on June 15, 2020, to stockholders of record on May 22, 2020.
Primerica has a strong balance sheet and continues to be well-capitalized to meet future needs. Primerica Life Insurance Company’s statutory risk-based capital (RBC) ratio was estimated to be about 430% and holding company liquidity of $272 million as of March 31, 2020.