daretodream
12 years ago
Primerica Reports Second Quarter 2012 Results
Primerica, Inc. (NYSE:PRI)
Intraday Stock Chart
Today : Tuesday 7 August 2012
Primerica, Inc. (NYSE: PRI) announced today financial results for the second quarter ended June 30, 2012. Total revenues were $300.5 million in the second quarter of 2012 and net income was $46.2 million, or $0.72 per diluted share. Operating revenues increased by 8% to $296.2 million in the second quarter of 2012, compared with $273.1 million in the second quarter of 2011. Net operating income grew by 18% to $45.5 million, or $0.71 per diluted share, in the second quarter of 2012, compared with $38.6 million, or $0.51 per diluted share, in the second quarter of 2011. The year-over-year trends reflect strong performance in the Term Life segment and the impact of our share repurchases as well as higher prior year insurance and operating expenses. Net operating income return on adjusted stockholders’ equity (ROAE) was 14.8% (13.9% on a net income and stockholders’ equity basis) for the quarter ended June 30, 2012, the highest since becoming a public company in 2010.
Rick Williams, Chairman of the Board and Co-Chief Executive Officer said, “Our 18% increase in net operating income in the second quarter and share repurchases drove a 40% increase in net operating earnings per diluted share and increased net operating return on adjusted stockholders equity to 14.8% from 11.6% in the year ago period. Our simple products and disciplined approach to business enhancements and capital management will continue to provide opportunities for strong long-term results.”
John Addison, Chairman of Primerica Distribution and Co-Chief Executive Officer said, “Sales force distribution development showed strength this quarter with the size of our life licensed sales force growing and our focus on licensing resulting in a 21% increase in new life insurance licenses. Our Investment and Savings Products sales also grew 5% in the second quarter as we continued to demonstrate the power of our large scale distribution model by producing over $100 million of fixed indexed annuity sales in the first full quarter the product was offered.”
Distribution Results
The size of our life-licensed insurance sales force grew to 90,868 at June 30, 2012 from 90,519 at June 30, 2011 and 89,651 at March 31, 2012. Sales force growth was driven by 9,786 new life licenses in the second quarter of 2012, a 21% increase from the second quarter of 2011 and a 28% increase from the first quarter of 2012. Recruiting of new representatives in the second quarter of 2012 declined 25% to 48,976 compared with the second quarter of 2011 and was down 16% from the first quarter of 2012 largely reflecting the strong focus on getting new representatives through the licensing process. Recruiting in the second quarter of 2011 also benefited from the post-convention recruiting surge in June and July of 2011.
Term life insurance policies issued increased slightly to 60,583 in the second quarter of 2012, compared with the year ago period. Sequentially, term life insurance policies issued increased 8% compared with the first quarter of 2012, largely reflecting typical seasonality. Term Life net premium revenue increased 28% to $138.3 million in the second quarter of 2012, compared with the second quarter a year ago and increased by 8% from the first quarter as we continue to build the Term Life book of business.
Investment and Savings Products sales grew 5% to $1.19 billion in the second quarter of 2012 from the year ago quarter primarily as a result of sales growth in our recently launched fixed indexed annuity and managed account products. Total sales levels were consistent with the first quarter of 2012. Client asset values at June 30, 2012 declined 2% to $35.29 billion relative to a year ago and declined 3% compared with March 31, 2012, primarily reflecting market conditions in the U.S. and Canada.
Segment Results
Primerica operates in two primary business segments: Term Life Insurance and Investment and Savings Products, and has a third segment, Corporate and Other Distributed Products. Results for the segments are shown below.
Actual Operating (1)
Q2 2012 Q2 2011 (2) % Change Q2 2012 Q2 2011 (2) % Change
Revenues: ($ in thousands) ($ in thousands)
Term Life Insurance $ 162,732 $ 131,641 24 % $ 162,732 $ 131,641 24 %
Investment and Savings Products 102,967 104,586 -2 % 102,967 104,586 -2 %
Corporate and Other Distributed Products 34,826 38,868 -10 % 30,505 36,833 -17 %
Total revenues $ 300,525 $ 275,095 9 % $ 296,204 $ 273,060 8 %
Income (loss) before income taxes:
Term Life Insurance $ 51,724 $ 36,026 44 % $ 51,724 $ 36,026 44 %
Investment and Savings Products 29,444 30,470 -3 % 29,444 30,470 -3 %
Corporate and Other Distributed Products (9,247 ) (8,031 ) -15 % (10,376 ) (6,520 ) -59 %
Total income before income taxes $ 71,921 $ 58,465 23 % $ 70,792 $ 59,976 18 %
(1) See the Non-GAAP Financial Measures section and the segment Operating Results Reconcilations at the end of this release for additional information.
(2) Reflects revised accounting standards related to costs associated with acquiring or renewing insurance contracts.
Term Life Insurance. Operating revenues grew by 24% to $162.7 million in the second quarter of 2012, compared with the same period a year ago. Net premiums continue to build with the in force block, up 28% from the prior year period. Net investment income increased year-over-year consistent with the growth in assets allocated to support the Term Life business. Net investment income was not notably impacted by low prevailing market interest rates.
Operating income before income taxes increased by 44% over the prior year period to $51.7 million additionally reflecting higher deferrals of commissions consistent with incentive program changes as well as prior year new product launch and convention-related expenses, partially offset by growth in premium-related expenses. Interest expense increased in the quarter due to the redundant reserve financing executed in March 2012. Persistency and mortality experience were both consistent with the prior year period.
Sequentially, operating income before income taxes increased by 17% reflecting continued premium growth, seasonally stronger persistency and lower incurred claims in the second quarter of 2012, compared with the first quarter of 2012. The stronger seasonal second quarter persistency resulted in lower DAC amortization partially offset by higher reserve increases in the second quarter of 2012, compared with the prior quarter. Results were also impacted by higher interest expense associated with the new redundant reserve financing and higher life insurance licensing-related expenses.
Investment and Savings Products. Operating revenues declined 2% to $103.0 million and operating income before income taxes declined 3% to $29.4 million in the second quarter of 2012, compared with the second quarter of 2011, reflecting a slight decline in average client asset values consistent with market performance. We also experienced a modest shift in sales mix towards managed accounts, which provide ongoing asset-based revenues rather than sales-based revenues.
Sequentially, operating income before income taxes increased 2% from the first quarter of 2012 reflecting higher sales of sales-based revenue generating products and slightly higher average client asset values.
Corporate and Other Distributed Products. Operating revenues decreased by 17%, or $6.3 million, to $30.5 million in the second quarter of 2012 from the second quarter of 2011 largely reflecting a lower invested asset base following our stock repurchases. As is the case with the Term Life segment, the low interest rate environment did not meaningfully impact Corporate and Other Distributed Products segment results. Year-over-year operating losses before income taxes for this segment increased by $3.9 million to $10.4 million as lower investment income was partially offset by lower claims on the short-term disability products underwritten by our New York insurance subsidiary.
Taxes
Our effective income tax rate for the second quarter of 2012 was 35.8%, compared with 35.7% for the same quarter a year ago. Our effective income tax rate increased from 34.2% in the first quarter of 2012 due to a lower effective Canadian tax rate in the first quarter of 2012.
Capital and Liquidity
In April 2012, we repurchased 5.7 million shares of common stock from equity funds managed by Warburg Pincus for a purchase price of $150 million. As of June 30, 2012, our investments and cash totaled $2.02 billion, compared with $2.17 billion as of March 31, 2012. Our invested asset portfolio had a net unrealized gain of $166.7 million (net of unrealized losses of $6.2 million) at June 30, 2012, down from a net unrealized gain of $170.6 million (net of unrealized losses of $5.9 million) at March 31, 2012. Net realized gains for the quarter were $4.3 million, which included $0.1 million of other-than-temporary impairments.
Primerica Life Insurance Company’s statutory risk-based capital (RBC) ratio is estimated to be in excess of 570% as of June 30, 2012, and well positioned to support existing operations and fund future growth.
Our debt-to-capital ratio remained low at 19.0% as of June 30, 2012. In July 2012, we completed our first public debt offering of $375 million in aggregate principal amount of Senior Notes due 2022. The notes bear an annual interest rate of 4.750%. The majority of the offering proceeds were used to repay Primerica’s $300 million note payable to a subsidiary of Citigroup Inc. and the remaining proceeds will be used for general corporate purposes including share repurchases. If this offering had been completed as of June 30, 2012 our debt-to capital ratio would have been 22.7%.
Non-GAAP Financial Measures
We report financial results in accordance with U.S. generally accepted accounting principles (GAAP). We also present operating revenues, operating income before income taxes, net operating income and adjusted stockholders’ equity. Operating revenues, operating income before income taxes and net operating income exclude the impact of realized investment gains and losses for all periods presented. Operating income before income taxes and net operating income exclude the expense associated with our IPO-related equity awards for all periods presented. Adjusted stockholders' equity excludes the impact of net unrealized gains and losses on invested assets for all periods presented. Our definitions of these non-GAAP financial measures may differ from the definitions of similar measures used by other companies. Management uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating our financial performance. Furthermore, management believes that these non-GAAP financial measures may provide users with additional meaningful comparisons between current results and results of prior periods as they are expected to be reflective of our core ongoing business. These measures have limitations, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Reconciliations of non-GAAP to GAAP financial measures are attached to this release.
Earnings Webcast Information
Primerica will hold a webcast Wednesday, August 8, 2012 at 9:00 am EDT, to discuss second quarter results. This release and a detailed financial supplement will be posted on Primerica’s website. Investors are encouraged to review these materials. To access the webcast go to http://investors.primerica.com at least 15 minutes prior to the event to register, download and install any necessary software.
A replay of the call will be available for approximately 30 days on Primerica’s website, http://investors.primerica.com.
Forward-Looking Statements
Except for historical information contained in this press release, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements contain known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from anticipated or projected results. Those risks and uncertainties include, among others, our failure to continue to attract and license new recruits, retain sales representatives or license or maintain the licensing of our sales representatives; our or our sales representatives’ violation of or non-compliance with laws and regulations; incorrect assumptions used to price our insurance policies; the failure of our investment products to remain competitive with other investment options; our failure to meet RBC standards or other minimum capital and surplus requirements; a downgrade or potential downgrade in our insurance subsidiaries’ financial strength ratings or our senior debt ratings; inadequate or unaffordable reinsurance or the failure of our reinsurers to perform their obligations; heightened standards of conduct or more stringent licensing requirements for our sales representatives; the inability of our subsidiaries to pay dividends or make distributions; the loss of key personnel; and general changes in economic and financial conditions, including the effects of credit deterioration and interest rate fluctuations on our invested asset portfolio. These and other risks and uncertainties affecting us are more fully described in our filings with the Securities and Exchange Commission, which are available in the "Investor Relations" section of our website at http://investors.primerica.com. Primerica assumes no duty to update its forward-looking statements as of any future date.
About Primerica, Inc.
Primerica, Inc., headquartered in Duluth, GA, is a leading distributor of financial products to middle-income families in North America. Primerica representatives educate their Main Street clients about how to better prepare for a more secure financial future by assessing their needs and providing appropriate solutions through term life insurance which we underwrite, and mutual funds, annuities and other financial products, which we distribute primarily on behalf of third parties. In addition, Primerica provides an entrepreneurial full or part-time business opportunity for individuals seeking to earn income by distributing the company’s financial products. We insure more than 4.3 million lives and approximately 2 million clients maintain investment accounts with us. Primerica is a member of the Russell 2000 stock index and is traded on The New York Stock Exchange under the symbol “PRI”.
PRIMERICA, INC. AND SUBSIDIARIES
Condensed Balance Sheets
June 30, December 31,
2012 (1) 2011 (2)
(In thousands)
Assets
Investments:
Fixed maturity securities available for sale, at fair value $ 1,823,729 $ 1,959,156
Equity securities available for sale, at fair value 31,811 26,712
Trading securities, at fair value 29,038 9,640
Policy loans and other invested assets 24,201 25,996
Total investments 1,908,779 2,021,504
Cash and cash equivalents 108,062 136,078
Accrued investment income 20,220 21,579
Due from reinsurers 3,903,028 3,855,318
Deferred policy acquisition costs 990,558 904,485
Premiums and other receivables 167,746 163,845
Intangible assets 70,226 71,928
Other assets 281,818 268,485
Separate account assets 2,500,640 2,408,598
Total assets $ 9,951,077 $ 9,851,820
Liabilities and Stockholders' Equity
Liabilities:
Future policy benefits $ 4,723,359 $ 4,614,860
Unearned premiums 9,476 7,022
Policy claims and other benefits payable 236,717 241,754
Other policyholders' funds 347,763 340,766
Note payable 300,000 300,000
Income taxes 82,755 81,316
Other liabilities 329,538 381,496
Payable under securities lending 143,963 149,358
Separate account liabilities 2,500,640 2,408,598
Total liabilities 8,674,211 8,525,170
Stockholders' equity:
Common stock 599 649
Paid-in capital 693,717 835,232
Retained earnings 426,936 344,104
Accumulated other comprehensive income, net of income tax 155,614 146,665
Total stockholders' equity 1,276,866 1,326,650
Total liabilities and stockholders' equity $ 9,951,077 $ 9,851,820
(1) Unaudited
(2) Reflects revised accounting standards related to costs associated with acquiring or renewing insurance contracts.
PRIMERICA, INC. AND SUBSIDIARIES
Condensed Statements of Income
Three months ended June 30,
2012 (1) 2011 (1) (2)
(In thousands, except per-share amounts)
Revenues:
Direct premiums $ 570,073 $ 560,881
Ceded premiums (415,815 ) (435,564 )
Net premiums 154,258 125,317
Commissions and fees 106,761 108,698
Net investment income 23,605 27,229
Realized investment gains, including OTTI 4,321 2,035
Other, net 11,580 11,816
Total revenues 300,525 275,095
Benefits and expenses:
Benefits and claims 68,925 57,272
Amortization of deferred policy acquisition costs 28,205 23,975
Sales commissions 51,475 50,273
Insurance expenses 24,589 26,988
Insurance commissions 6,458 9,534
Interest expense 8,506 6,998
Other operating expenses 40,446 41,590
Total benefits and expenses 228,604 216,630
Income before income taxes 71,921 58,465
Income taxes 25,741 20,845
Net income $ 46,180 $ 37,620
Earnings per share:
Basic $ 0.73 $ 0.50
Diluted $ 0.72 $ 0.49
Shares used in computing earnings per share:
Basic 61,531 73,457
Diluted 62,687 74,201
(1) Unaudited
(2) Reflects revised accounting standards related to costs associated with acquiring or renewing insurance contracts.
PRIMERICA, INC. AND SUBSIDIARIES
Consolidated Operating Results Reconciliation
(Unaudited – in thousands)
Three months ended June 30,
2012
2011 (1)
% Change
Operating revenues $ 296,204 $ 273,060 8 %
Realized investment gains, including OTTI 4,321 2,035
Total revenues $ 300,525 $ 275,095 9 %
Operating income before income taxes $ 70,792 $ 59,976 18 %
Realized investment gains, including OTTI 4,321 2,035
Other operating expense - equity awards (3,192 ) (3,546 )
Income before income taxes $ 71,921 $ 58,465 23 %
Net operating income $ 45,455 $ 38,592 18 %
Realized investment gains, including OTTI 4,321 2,035
Other operating expense - equity awards (3,192 ) (3,546 )
Tax impact of reconciling items (404 ) 539
Net income $ 46,180 $ 37,620 23 %
Diluted operating earnings per share $ 0.71 $ 0.51 40 %
Net after-tax impact of operating adjustments 0.01 (0.02 )
Diluted earnings per share $ 0.72 $ 0.49 46 %
(1) Reflects revised accounting standards related to costs associated with acquiring or renewing insurance contracts.
CORPORATE AND OTHER DISTRIBUTED PRODUCTS SEGMENT
Operating Results Reconciliation
(Unaudited – in thousands)
Three months ended June 30,
2012 2011 (1)
Operating revenues $ 30,505 $ 36,833
Realized investment gains, including OTTI 4,321 2,035
Total revenues $ 34,826 $ 38,868
Operating loss before income taxes $ (10,376 ) $ (6,520 )
Realized investment gains, including OTTI 4,321 2,035
Other operating expense - equity awards (3,192 ) (3,546 )
Loss before income taxes $ (9,247 ) $ (8,031 )
(1) Reflects revised accounting standards related to costs associated with acquiring or renewing insurance contracts.
PRIMERICA, INC. AND SUBSIDIARIES
Adjusted Stockholders' Equity Reconciliation
(Unaudited – in thousands)
June 30, 2012
Adjusted stockholders' equity $ 1,171,710
Unrealized net investment gains recorded in stockholders' equity 105,156
Stockholders' equity $ 1,276,866
daretodream
14 years ago
Primerica Reports Fourth Quarter 2010 Results
Primerica Common Stock (NYSE:PRI)
Intraday Stock Chart
Today : Tuesday 8 February 2011
Primerica, Inc. (NYSE: PRI) announced today financial results for the fourth quarter ended December 31, 2010. Total revenues were $279.4 million for the fourth quarter of 2010. Net income was $52.9 million for the fourth quarter of 2010, or $0.69 per diluted share.
Operating revenues were $264.5 million, compared to $250.1 million in the fourth quarter of 2009. Net operating income was $45.2 million, or $0.59 per diluted share, for the fourth quarter of 2010, compared with $42.6 million in the fourth quarter of 2009. Results reflect stable core performance in Term Life as well as Investment and Savings Products growth partially offset by lower investment income. Operating results during the quarter excluded $0.10 per diluted share largely related to certain reinsurance recoveries discussed in detail below.
Net income was $257.8 million for 2010, compared to $494.6 million for 2009. Net income for all of 2009 as well as the first quarter of 2010 did not reflect the impact of the Citi reinsurance and reorganization transactions. Adjusted to reflect these transactions as well as other operating adjustments described below, net operating income was $161.5 million for 2010, compared with $158.4 million for 2009.
D. Richard Williams, Chairman of the Board and Co-Chief Executive Officer said, “Our fourth quarter was marked by solid net operating income and earnings per share, reflecting continued growth in both term life net premium and investment and savings products sales. Our strong capitalization, focus on growth strategies and unique sales distribution position us well to enhance shareholder value.”
John Addison, Chairman of Primerica Distribution and Co-Chief Executive Officer said, “We are proud of what we have been able to accomplish since becoming a public company and we are working on new products and initiatives that we believe will drive long-term growth for Primerica.”
Distribution Results
Recruiting increased by 4% in fourth quarter 2010 compared to the same period a year ago. Relative to the third quarter, the fourth quarter of 2010 experienced a lower percentage of new recruits obtaining a life license and higher non-renewals largely reflecting a higher number of states with renewal cycles in the fourth quarter. As a result, the size of our life-licensed insurance sales force decreased on both a sequential quarter and year-over-year basis to 94,850 at December 31, 2010. During the quarter we enhanced our new “Fast Start Bonus” to provide additional incentives for our newest recruits to engage in licensing activities as well as recruiting and field training observations.
Term life net premium grew by 10% in the fourth quarter of 2010 compared to the third quarter of 2010 as we added another quarter of new term life business following the Citi reinsurance transactions. Life insurance policies issued decreased by 7% in fourth quarter 2010 from a year ago in line with industry term life trends. Sequentially, life insurance policies issued increased 4% in fourth quarter 2010 largely reflecting typical lower sales in the summer months. Total face amount in force increased by $6.60 billion to $656.79 billion at December 31, 2010 over December 31, 2009 primarily due to the effect of the stronger Canadian dollar and improved persistency.
Investment and savings products sales continued to grow, up 9% in fourth quarter 2010 from a year ago primarily driven by a 23% increase in annuity sales. Growth in annuity sales continued to outpace the industry in fourth quarter 2010, reflecting our clients’ desire to mitigate financial risk with guaranteed lifetime income. Sequentially, investment and savings products sales increased 10% in the fourth quarter of 2010. Client asset values were driven higher by improved market conditions, up 11% to $34.87 billion at December 31, 2010 from a year ago.
Operating Adjustments
Our operating results exclude realized investment gains and losses and the expense associated with our IPO-related equity awards. For the fourth quarter of 2010, our Term Life segment operating results also excluded $13.1 million of pre-tax income related to ceded premium recoveries which previously had not been recognized due to the uncertain nature of their recovery. Given the magnitude, we excluded these recoveries from our operating results because we believe they are not indicative of our ongoing operations.
Unusual Accounting Items
During the quarter ended December 31, 2010, we accrued certain items that previously had been accounted for on a cash basis. These items contributed net income of approximately $0.01 per diluted share and were insignificant to prior periods. The corrections reflect one-time adjustments that impact various line items and segments as follows:
Term Life Insurance: increase in other insurance expenses of $4.0 million primarily related to premium taxes;
Investment and Savings Products: increase in commissions and fees revenues of $11.6 million with a corresponding increase in sales commission expense of $6.8 million both primarily related to 12b-1 commissions; and
Corporate and Other Distributed Products: increase in commissions and fees revenues of $0.4 million.
The impact of these corrections is reflected in both our actual and operating segment results below. These corrections will not have an ongoing impact on earnings.
Segment Results
Primerica operates in two primary business segments: Term Life Insurance and Investment and Savings Products, and has a third segment, Corporate and Other Distributed Products. Results for the segments were as follows:
Actual Operating (1)
Q4 2010 Q4 2009 % Change
Q4 2010 Q4 2009 % Change
Revenues: ($ in thousands) ($ in thousands)
Term Life Insurance $ 137,068 $ 437,176 -69 % $ 123,927 $ 125,130 -1 %
Investment and Savings Products 103,021 82,954 24 % 103,021 82,954 24 %
Corporate and Other Distributed Products 39,298 58,472 -33 % 37,598 42,020 -11 %
Total revenues $ 279,387 $ 578,602 -52 % $ 264,546 $ 250,104 6 %
Income (loss) before income taxes:
Term Life Insurance $ 52,000 $ 156,392 -67 % $ 38,859 $ 43,937 -12 %
Investment and Savings Products 34,769 26,095 33 % 34,769 26,095 33 %
Corporate and Other Distributed Products (6,247 ) 16,484 -138 % (4,786 ) (2,739 ) -75 %
Total income before income taxes $ 80,522 $ 198,971 -60 % $ 68,842 $ 67,293 2 %
(1) See the Non-GAAP Financial Measures section and the Operating Results Reconcilations at the end of this release for additional information.
Term Life Insurance. Operating revenues were down slightly versus the prior year period reflecting lower sales partially offset by improved persistency. Investment income was lower largely related to the performance of the Citi reinsurance trust assets. Additionally, during the fourth quarter of 2010 we recognized a $3.0 million ceded premium recovery from a reinsurer that was previously deemed uncollectible. Operating income before income taxes decreased by 12%, or $5.1 million, versus the prior year period reflecting the $4.0 million one-time accounting correction to insurance expenses noted above. Excluding the impact of this item, insurance expenses were flat year-over-year as the expected run-off in reinsurance expense allowances from Citi was offset by non-recurring expenses in fourth quarter of 2009. Year-over-year trends in DAC amortization and benefits and claims reflected improved persistency, the lower interest rate assumption on new business issued in 2010 and level claims experience.
On a sequential quarter basis, fourth quarter 2010 operating revenues increased by 7%, or $8.0 million, largely as a result of growth in New Term premiums, the $3.0 million ceded premium recovery noted above and the performance of the reinsurance trust assets. Excluding the one-time accounting adjustment, operating benefits and expenses increased by 11%, or $7.7 million driven by the growth in New Term premiums and higher DAC amortization from seasonally lower fourth quarter persistency.
Investment and Savings Products. Operating revenues and income before income taxes in the fourth quarter of 2010 were both driven by higher sales and increased client asset values. Excluding the $11.6 million accounting correction noted previously, operating revenues increased to $91.4 million, or 10% over the prior year period. Excluding the $4.8 million net accounting correction, operating income before income taxes increased to $29.9 million, or 15% compared to fourth quarter a year ago. Growth in operating income before income taxes outpaced the growth in operating revenues primarily due to a volume-related incentive payment we earned for strong 2010 variable annuity sales.
Corporate and Other Distributed Products. Operating revenues decreased by 11%, or $4.4 million, in the fourth quarter of 2010 from a year ago, largely due to lower investment income primarily attributable to lower yield on invested assets and continued diminishing loan sales that had little impact on operating income before income taxes. Segment operating loss before income taxes was $4.8 million in the fourth quarter of 2010 and $2.7 million in the same period of 2009. This change primarily reflected lower investment income.
Corporate expense payments to Citi were lower by $2.2 million in the fourth quarter of 2010 compared to the prior year period, offset by $3.1 million in stand-alone public company expenses which continue to emerge as we transition from Citi-provided services. In addition, expenses in fourth quarter 2009 included non-recurring IPO-related expenses. Overall, expenses were flat compared to the prior year period.
Income Taxes
Our effective income tax rate for fourth quarter 2010 was 34.3%, compared to 36.6% for the same quarter a year ago reflecting the retroactive extension of certain expiring provisions in the United States tax law that previously required us to accelerate the recognition of tax on foreign investment income. We also benefited from a lower tax rate in Canada.
Capital and Liquidity
Primerica continues to be well capitalized, with a high-quality invested asset portfolio and positive cash flow for the quarter. Investments and cash totaled $2.28 billion as of December 31, 2010. Our invested asset portfolio had a net unrealized gain of $157.4 million (net of unrealized losses of $7.4 million) at December 31, 2010, down from a net unrealized gain of $188.9 million at September 30, 2010 as interest rates increased during the fourth quarter. Net realized gains for the quarter were $1.7 million, with minimal other-than-temporary impairments. As of December 31, 2010, the book yield on our fixed-income portfolio was 5.48%; including cash it was 5.15%.
As of December 31, 2010, our debt-to-capital ratio remained low at 17.3%. Net operating income return on adjusted stockholders’ equity was 13.8% for the quarter ended December 31, 2010. Net income return on stockholders’ equity was 14.9% for the same period.
Primerica Life Insurance Company, our primary underwriter, had statutory capital in excess of the applicable statutory requirements to support existing operations and to fund future growth. With a statutory risk-based capital (RBC) ratio estimated to be in excess of 570% as of December 31, 2010, we continue to be well positioned to support anticipated future growth.
Citi Reinsurance and Reorganization Transactions
In connection with Primerica’s April 1, 2010 initial public offering, the Company executed a series of reinsurance and reorganization transactions. These transactions had a significant impact on our financial position and will cause our financial results in the current and future periods to be materially different from those reflected in our historical financial statements. Accordingly, management believes that our operating results, which reflect the effect of these transactions, represent meaningful comparisons between 2010 and 2009.
Non-GAAP Financial Measures
We report financial results in accordance with U.S. generally accepted accounting principles (GAAP). We also present operating revenues, operating income before income taxes, net operating income and adjusted stockholders’ equity. Operating revenues, operating income before income taxes and net operating income exclude the impact of realized investment gains and losses for all periods presented and in fourth quarter 2010, income related to ceded premium recoveries which previously had not been recognized due to the uncertain nature of their recovery. Operating income before income taxes and net operating income exclude the expense associated with our IPO-related equity awards for all periods presented. Operating income (loss) before income taxes for all periods in 2009 reflects segment expense allocation reclassifications. Adjusted stockholders' equity excludes the impact of net unrealized gains and losses on invested assets for all periods presented. Periods ending prior to April 1, 2010 also give effect to the reinsurance and reorganization transactions as if they had occurred at the beginning of the period presented for the statement of income. Our definitions of these non-GAAP financial measures may differ from the definitions of similar measures used by other companies. Management uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating our financial performance. Furthermore, management believes that these non-GAAP financial measures may provide users with additional meaningful comparisons between current results and results of prior periods as they are expected to be reflective of our core ongoing business. These measures have limitations, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Reconciliations of non-GAAP to GAAP financial measures are attached to this release.
Earnings Webcast Information
Primerica will hold a webcast Wednesday, February 9, 2011 at 9:00 am EST, to discuss fourth quarter results. This release and a detailed financial supplement will be posted on Primerica’s website. Investors are encouraged to review these materials. To access the webcast go to http://investors.primerica.com at least 15 minutes prior to the event to register, download and install any necessary software.
A replay of the call will be available for approximately 30 days on Primerica’s website, http://investors.primerica.com.
Forward-Looking Statements
Except for historical information contained in this press release, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements contain known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from anticipated or projected results. Those risks and uncertainties include, among others, our failure to attract new recruits, retain sales representatives and maintain the licensing of our sales representatives; our or our sales representatives’ violation of, non-compliance with or subjection to specific laws and regulations; incorrect assumptions used to price our insurance policies; the failure of our investment and savings products to remain competitive with other investment or savings options or the loss of our relationship with companies that offer our mutual fund or variable annuity products; our failure to meet RBC standards or other minimum capital and surplus requirements; a downgrade or potential downgrade in our insurance subsidiaries’ financial strength ratings; inadequate or unaffordable reinsurance or the failure of our reinsurers, including Citi, to perform their obligations; a discontinuation of custodial or recordkeeping services; the inability of our subsidiaries to pay dividends or make distributions; the loss of key personnel; conflicts of interests due to Citi's and Warburg Pincus' significant interests in us; arrangements with Citi that may not be sustained at the same levels as when we were controlled by Citi and incremental costs that we incur as a stand-alone public company; historical and pro forma financial data may not be a reliable indicator of future results; and general changes in economic and financial conditions, including the effects of credit deterioration and interest rate fluctuations on our portfolio. These and other risks and uncertainties affecting us are more fully described in our filings with the Securities and Exchange Commission, which are available in the "Investor Relations" section of our website at http://investors.primerica.com. Primerica assumes no duty to update its forward-looking statements as of any future date.
About Primerica, Inc.
Primerica, headquartered in Duluth, Georgia, is a leading distributor of financial products to middle income households in North America with approximately 95,000 licensed representatives. We offer our clients term life insurance, mutual funds, variable annuities and other financial products. Primerica insures 4.3 million lives and more than 2 million clients maintain investment accounts with the Company. Primerica’s mission is to serve middle income families by helping them make informed financial decisions and providing them with the strategies and means to gain financial independence.
PRIMERICA, INC.
Balance Sheets
(In thousands)
December 31, 2010 December 31,
(Unaudited) 2009 (1)
Assets
Investments:
Fixed maturity securities available for sale, at fair value $
2,081,361
$ 6,378,179
Equity securities available for sale, at fair value 23,213 49,326
Trading securities, at fair value 22,767 16,996
Policy loans and other invested assets 26,243 26,947
Total investments
2,153,584 6,471,448
Cash and cash equivalents 126,038 602,522
Accrued investment income 22,328 71,382
Premiums and other receivables 168,026 169,225
Due from reinsurers 3,731,634 867,242
Due from affiliates - 1,915
Deferred policy acquisition costs 853,211 2,789,905
Intangible assets 75,357 78,895
Other assets 303,602 569,268
Separate account assets 2,446,786 2,093,342
Total assets
$
9,880,566
$ 13,715,144
Liabilities and Stockholders' Equity
Liabilities:
Future policy benefits $
4,409,183
$ 4,197,454
Unearned premiums 5,563 3,185
Policy claims and other benefits payable 229,895 218,390
Other policyholders' funds 357,253 382,768
Note payable 300,000 -
Income taxes 126,260 890,617
Due to affiliates - 202,507
Other liabilities 386,182 273,007
Payable under securities lending 181,726 510,101
Separate account liabilities 2,446,786 2,093,342
Total liabilities
8,442,848 8,771,371
Stockholders' equity:
Common stock 728 -
Paid-in capital 889,394 1,124,096
Retained earnings 395,057 3,648,801
Accumulated other comprehensive income, net of income tax 152,539 170,876
Total stockholders' equity
1,437,718 4,943,773
Total liabilities and stockholders' equity
$
9,880,566
$ 13,715,144
(1) Does not give effect to the Citi reinsurance and reorganization transactions.
PRIMERICA, INC.
Statements of Income
(Unaudited – in thousands, except per-share amounts)
Three Months Ended Dec. 31,
2010 2009 (1)
Revenues:
Direct premiums $ 548,330 $ 535,417
Ceded premiums (417,981 ) (160,018 )
Net premiums
130,349 375,399
Net investment income 26,688 90,450
Commissions and fees 108,288 89,301
Realized investment gains, including OTTI 1,700 9,503
Other 12,362 13,949
Total revenues
279,387 578,602
Benefits and expenses:
Benefits and claims 52,033 148,448
Amortization of deferred policy acquisition costs 29,536 111,506
Insurance commissions 4,204 6,989
Insurance expenses 15,887 32,989
Sales commissions 50,266 42,001
Interest expense 6,976 -
Other operating expenses 39,963 37,698
Total benefits and expenses
198,865 379,631
Income before income taxes
80,522 198,971
Income taxes 27,633 72,890
Net income
$ 52,889 $ 126,081
Earnings per share:
Basic
$ 0.70
Diluted
$ 0.69
Shares used in computing earnings per share:
Basic
72,453
Diluted
73,240
(1) Does not give effect to the Citi reinsurance and reorganization transactions.
PRIMERICA, INC.
Statements of Income
(Unaudited – in thousands, except per-share amounts)
Twelve Months Ended Dec. 31,
2010 2009 (1)
Revenues:
Direct premiums $
2,181,074
$
2,112,781
Ceded premiums (1,450,367 ) (610,754 )
Net premiums
730,707 1,502,027
Net investment income 165,111 351,326
Commissions and fees 382,940 335,986
Realized investment gains, including OTTI 34,145 (21,970 )
Other 48,960 53,032
Total revenues
1,361,863 2,220,401
Benefits and expenses:
Benefits and claims 317,703 600,273
Amortization of deferred policy acquisition costs 168,035 381,291
Insurance commissions 19,904 34,388
Insurance expenses 75,503 148,760
Sales commissions 179,924 162,756
Interest expense 20,872 -
Other operating expenses 180,779 132,978
Total benefits and expenses
962,720 1,460,446
Income before income taxes
399,143 759,955
Income taxes 141,365 265,366
Net income
$
257,778
$
494,589
Earnings per share:
Basic
$
3.43
(2)
Diluted
$
3.40
(2)
Shares used in computing earnings per share:
Basic
72,099
(2)
Diluted
72,882
(2)
(1) Does not give effect to the Citi reinsurance and reorganization transactions.
(2) Pro forma basis using weighted-average shares, including the shares following our April 1, 2010 corporate reorganization as though they have been issued and outstanding on January 1, 2010.
PRIMERICA, INC.
Operating Results Reconciliation
(Unaudited – in thousands, except per-share amounts)
Three Months Ended December 31, 2010
Operating
(Non-GAAP)
Operating
adjustments
Reported
(GAAP)
Revenues:
Direct premiums $ 548,330 $ - $ 548,330
Ceded premiums (431,122 ) 13,141 (417,981 )
Net premiums 117,208 13,141 130,349
Net investment income 26,688 - 26,688
Commissions and fees 108,288 - 108,288
Realized investment gains, including OTTI
- 1,700 1,700
Other, net 12,362 - 12,362
Total revenues 264,546 14,841 279,387
Benefits and expenses:
Benefits and claims 52,033 - 52,033
Amortization of DAC 29,536 - 29,536
Insurance commissions 4,204 - 4,204
Insurance expenses 15,887 - 15,887
Sales commissions 50,266 - 50,266
Interest expense 6,976 - 6,976
Other operating expenses 36,802 3,161 39,963
Total benefits and expenses
195,704 3,161 198,865
Income before income taxes 68,842 11,680 80,522
Income taxes 23,625 27,633
Net income $ 45,217 $ 52,889
Earnings per share - diluted $ 0.59 $ 0.69
Diluted shares 73,240 73,240
See the Non-GAAP Financial Measures section and the segment Operating Results Reconciliations for additional information.
PRIMERICA, INC.
Operating Results Reconciliation
(Unaudited – in thousands)
Three Months Ended December 31, 2009
Operating
(Non-GAAP)
Adjustments for
the Citi
Reinsurance
Transactions
Adjustments for
the
Reorganization
Operating
adjustments
Reported
(GAAP)
Revenues:
Direct premiums $ 535,417 $ - $ - $ - $ 535,417
Ceded premiums (419,050 ) 259,032 - - (160,018 )
Net premiums 116,367 259,032 - - 375,399
Net investment income 30,487 52,111 7,852 - 90,450
Commissions and fees 89,301 - - - 89,301
Realized investment gains, including OTTI
- - - 9,503 9,503
Other, net 13,949 - - - 13,949
Total revenues 250,104 311,143 7,852 9,503 578,602
Benefits and expenses:
Benefits and claims 49,123 99,325 - - 148,448
Amortization of DAC 32,339 79,167 - - 111,506
Insurance commissions 4,936 1,484 - 569 6,989
Insurance expenses 12,060 24,133 - (3,204 ) 32,989
Sales commissions 42,001 - - - 42,001
Interest expense 7,289 (3,164 ) (4,125 ) - -
Other operating expenses 35,063 - (3,161 ) 5,796 37,698
Total benefits and expenses
182,811 200,945 (7,286 ) 3,161 379,631
Income before income taxes 67,293 110,198 15,138 6,342 198,971
Income taxes 24,652 72,890
Net income $ 42,641 $ 126,081
See the Citi Reinsurance and Reorganization Transactions section, the Non-GAAP Financial Measures section and the segment Operating Results Reconciliations for additional information.
PRIMERICA, INC.
Operating Results Reconciliation
(Unaudited – in thousands)
Twelve Months Ended December 31, 2010
Operating
(Non-GAAP)
Adjustments for
the Citi
Reinsurance
Transactions
Adjustments for
the
Reorganization
Operating
adjustments
Reported
(GAAP)
Revenues:
Direct premiums $ 2,181,074 $ - $ - $ - $ 2,181,074
Ceded premiums (1,759,836 ) 296,328 - 13,141 (1,450,367 )
Net premiums 421,238 296,328 - 13,141 730,707
Net investment income 110,376 47,566
7,169
- 165,111
Commissions and fees 382,940 - - - 382,940
Realized investment gains, including OTTI
- - - 34,145 34,145
Other, net 48,960 - - - 48,960
Total revenues 963,514 343,894
7,169
47,286 1,361,863
Benefits and expenses:
Benefits and claims 189,499 128,204 - - 317,703
Amortization of DAC 96,646 71,389 - - 168,035
Insurance commissions 18,235 1,669 - - 19,904
Insurance expenses 49,420 26,083 - - 75,503
Sales commissions 179,924 - - - 179,924
Interest expense 27,809 (2,812 ) (4,125 ) - 20,872
Other operating expenses 149,085 - (3,076
) 34,770
180,779
Total benefits and expenses
710,618 224,533 (7,201
) 34,770
962,720
Income before income taxes 252,896 119,361
14,370
12,516
399,143
Income taxes 91,412 141,365
Net income $ 161,484 $ 257,778
See the Citi Reinsurance and Reorganization Transactions section, the Non-GAAP Financial Measures section and the segment Operating Results Reconciliations for additional information.
PRIMERICA, INC.
Operating Results Reconciliation
(Unaudited – in thousands)
Twelve Months Ended December 31, 2009
Operating
(Non-GAAP)
Adjustments for
the Citi
Reinsurance
Transactions
Adjustments for
the
Reorganization
Operating
adjustments
Reported
(GAAP)
Revenues:
Direct premiums $ 2,112,781 $ - $ - $ - $ 2,112,781
Ceded premiums (1,694,790 ) 1,084,036 - - (610,754 )
Net premiums 417,991 1,084,036 - - 1,502,027
Net investment income 118,345 202,482 30,499 - 351,326
Commissions and fees 335,986 - - - 335,986
Realized investment gains, including OTTI
- - - (21,970 ) (21,970 )
Other, net 53,032 - - - 53,032
Total revenues 925,354 1,286,518 30,499 (21,970 ) 2,220,401
Benefits and expenses:
Benefits and claims 176,287 423,986 - - 600,273
Amortization of DAC 101,560 279,731 - - 381,291
Insurance commissions 27,635 5,523 - 1,230 34,388
Insurance expenses 54,219 96,615 - (2,074 ) 148,760
Sales commissions 162,756 - - - 162,756
Interest expense 27,493 (10,993 ) (16,500 ) - -
Other operating expenses 132,134 - (34,770 ) 35,614 132,978
Total benefits and expenses
682,084 794,862 (51,270 ) 34,770 1,460,446
Income before income taxes 243,270 491,656 81,769 (56,740 ) 759,955
Income taxes 84,843 265,366
Net income $ 158,427 $ 494,589
See the Citi Reinsurance and Reorganization Transactions section, the Non-GAAP Financial Measures section and the segment Operating Results Reconciliations for additional information.
Term Life Insurance Operating Results Reconciliation
(Unaudited – in thousands)
Three months ended December 31,
2010 2009
Operating revenues $ 123,927 $ 125,130
Reinsurance recoveries adjustment 13,141 -
Citi reinsurance transaction adjustments - 311,143
Reorganization adjustments - 903
Total revenues $ 137,068 $ 437,176
Operating income before income taxes $ 38,859 $ 43,937
Reinsurance recoveries adjustment 13,141 -
Citi reinsurance transaction adjustments - 110,198
Reorganization adjustments - 903
Insurance commissions - segment allocation reclass - (1,850 )
Insurance expenses - segment allocation reclass - 3,204
Income before income taxes $ 52,000 $ 156,392
Corporate and Other Distributed Products Operating Results Reconciliation
(Unaudited – in thousands)
Three months ended December 31,
2010 2009
Operating revenues $ 37,598 $ 42,020
Realized investment gains, including OTTI 1,700 9,503
Reorganization adjustments - 6,949
Total revenues $ 39,298 $ 58,472
Operating loss before income taxes $ (4,786 ) $ (2,739 )
Realized investment gains, including OTTI 1,700 9,503
Other operating expense - equity awards (3,161 ) (3,161 )
Reorganization adjustments - 14,235
Insurance commissions - segment allocation reclass - 1,281
Other operating expense - segment allocation reclass - (2,635 )
(Loss) income before income taxes $ (6,247 ) $ 16,484
PRIMERICA, INC.
Adjusted Stockholders' Equity Reconciliation
(Unaudited – in thousands)
December 31,
2010
Adjusted stockholders' equity $ 1,341,672
Unrealized net investment gains recorded in stockholders' equity 96,047
Stockholders' equity $ 1,437,719
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