Primerica, Inc. : Primerica Reports Fourth Quarter 2012 Results
02/07/2013| 04:10pm US/Eastern
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Diluted EPS of $0.67 up 29% in the fourth quarter of 2012; Diluted
operating EPS of $0.69 up 36%
8% increase in net income in the fourth quarter of 2012; 14%
increase in net operating income
30% growth in Investment and Savings Products sales in the fourth
quarter
Life insurance licensed sales force increased to 92,373
Primerica, Inc. (NYSE: PRI) announced today financial results for the
fourth quarter and full year ended December 31, 2012. Total revenues
were $304.5 million in the fourth quarter of 2012 and net income was
$40.3 million, or $0.67 per diluted share. For the full year 2012, total
revenues were $1.19 billion and net income was $173.8 million or $2.71
net income per diluted share.
Operating revenues increased by 12% to $303.4 million in the fourth
quarter of 2012 compared with $271.6 million in the fourth quarter of
2011. Net operating income per diluted share grew 36% to $0.69 from
$0.51 in the prior year period with net operating income growing 14% to
$41.6 million in the fourth quarter of 2012 from $36.7 million in the
fourth quarter of 2011. Net income return on stockholders' equity (ROE)
was 12.3% (14.0% on a net operating income and adjusted stockholders'
equity basis) for the quarter ended December 31, 2012. Results for the
fourth quarter of 2012 reflect continued growth in the Term Life
business as well as strong Investment and Savings Products (ISP) sales
and the favorable impact of market performance on client assets values.
Net investment income declined compared with the fourth quarter of 2011
largely due to our lower invested asset base following our stock
repurchases. Year-over-year net operating income was impacted by an
increase in premium-related and employee-related expenses as well as
higher legal fees and expenses, partially offset by specific charges in
the fourth quarter of 2011.
For the full year 2012, net operating income increased 12% to $174.5
million compared with $156.0 million for 2011, which when combined with
active capital management, resulted in a 32% year-over-year increase in
diluted operating EPS to $2.72. Our 2012 results were driven by growth
in the Term Life business coupled with lower non-deferred commissions as
well as increased Investment and Savings Products sales and client asset
values. Results also reflect lower invested assets due to our $257.3
million of share repurchases during the year and increased interest
expense largely related to the redundant reserve financing executed in
2012.
Rick Williams, Chairman of the Board and Co-Chief Executive Officer
said, "Our results were marked by solid performance across segments
including 20% growth in Term Life net premiums for the full year 2012.
During the year we retired 15% of our common stock outstanding as of
December 31, 2011 through repurchases. Our strong balance sheet and
solid business fundamentals will enable us to continue delivering
shareholder value long-term."
John Addison, Chairman of Primerica Distribution and Co-Chief Executive
Officer said, "2012 was a pivotal year, demonstrating our ability to
maintain financial momentum while reigniting growth in the size of the
sales force. We made enhancements to the life insurance licensing
process that drove a 30% increase in the ratio of recruits obtaining a
license and contributed to growth in the size of the sales force in
2012. Our Investment and Saving Products platform was expanded with the
addition of third party fixed indexed annuities and managed accounts.
ISP sales grew 30% in the fourth quarter and increased 10% in 2012. We
are proud of our sales force leaders' accomplishments and their
unwavering commitment to serving the financial needs of Main Street
families. We continue to be confident in the strength of our business
and our ability to execute a strategy that positions Primerica for
future success."
Distribution Results
The size of our life-licensed insurance sales force increased to
92,373 at December 31, 2012 from 91,506 at September 30, 2012 and
91,176 at December 31, 2011. While recruiting of new representatives
declined 16% to 36,586 from the fourth quarter of 2011 due to the
increased emphasis on the licensing of new recruits, our new life
licenses increased by 3%, to 8,376, largely reflecting a 22% increase
in the fourth quarter in the rate of new recruits obtaining a license
compared to the year ago period. Non-renewals were lower than the
fourth quarter a year ago, primarily due to Hurricane Sandy related
mandated license renewal extensions in 2012 in New York and New Jersey
and a high level of terminations last year following the convention
recruiting surge. Sequentially, recruiting declined by 23% and new
life licenses declined by 3% from the third quarter of 2012 reflecting
seasonally-higher third quarter experience.
Term Life net premium revenue increased 16% to $139.9 million in the
fourth quarter of 2012 compared with the fourth quarter a year ago as
we continue to build the Term Life book of business. In the fourth
quarter of 2012, term life insurance policies issued were 52,324, a
15% decline from the fourth quarter of 2011 largely due to
productivity returning to a normalized level compared with the
elevated productivity levels related to the post-convention recruiting
surge in the prior year period. Sequentially, term life insurance
policies issued were flat with the third quarter.
The 30% year-over-year growth in Investment and Savings Products sales
to $1.24 billion in the fourth quarter of 2012 resulted from a 24%, or
$116.0 million, increase in retail mutual funds sales as well as
$154.9 million of fixed indexed annuity sales. Sales were driven by
the successful implementation of new products in 2012 and growing
investor confidence in the market in the fourth quarter. ISP sales
increased 13% compared with the third quarter of 2012. Client asset
values increased by 11% to $37.39 billion at December 31, 2012
relative to a year ago and were consistent with the end of the third
quarter, primarily reflecting market performance in the U.S. and
Canada.
Segment Results
Primerica operates in two primary business segments: Term Life Insurance
and Investment and Savings Products, and has a third segment, Corporate
and Other Distributed Products. Results for the segments are shown below.
Actual
Operating (1)
Q4 2012
Q4 2011 (2)
% Change
Q4 2012
Q4 2011 (2)
% Change
Revenues:
($ in thousands)
($ in thousands)
Term Life Insurance
$
164,490
$
144,678
14
%
$
164,490
$
144,678
14
%
Investment and Savings Products
109,700
93,785
17
%
109,700
93,785
17
%
Corporate and Other Distributed Products
30,311
37,392
-19
%
29,253
33,136
-12
%
Total revenues
$
304,501
$
275,855
10
%
$
303,443
$
271,599
12
%
Income (loss) before income taxes:
Term Life Insurance
$
44,246
$
37,045
19
%
$
44,246
$
37,045
19
%
Investment and Savings Products
31,194
28,821
8
%
31,194
28,821
8
%
Corporate and Other Distributed Products
(14,494
)
(9,185
)
-58
%
(12,478
)
(10,026
)
-24
%
Total income before income taxes
$
60,946
$
56,681
8
%
$
62,962
$
55,840
13
%
(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 14% to
$164.5 million in the fourth quarter of 2012 compared with the same
period a year ago. Net premiums were up 16% from the prior year period
reflecting the continued layering of New Term policies onto our
recurring in force premium base. Allocated net investment income
increased year-over-year consistent with the growth in Term Life
allocated assets.
Operating income before income taxes increased by 19% over the prior
year period to $44.2 million reflecting revenue growth and lower
non-deferred commissions, partially offset by growth in premium-related
and employee-related expenses as well as higher interest expense
associated with our redundant reserve financing. While total incurred
claims were slightly lower versus the prior year period, the trend was
largely driven by the fourth quarter 2011 charge related to our search
of public death records. Excluding this charge in 2011, incurred claims
increased reflecting higher experience and growth in the business.
Persistency experience in the fourth quarter improved modestly over the
prior year period.
Sequentially, operating income before income taxes declined by 9%. The
continued growth in net premium was more than offset by increased DAC
amortization due to seasonally worse persistency in the fourth quarter
and higher insurance expenses due to a favorable annual true-up of
employee benefit accruals and other items in the previous quarter.
Investment and Savings Products. Operating revenues
increased 17% to $109.7 million and operating income before income taxes
grew 8% to $31.2 million in the fourth quarter of 2012 compared with the
fourth quarter of 2011. Results reflect strong sales and an 11% increase
in our average client asset values, partially offset by a lower
volume-related incentive payment earned for 2012 variable annuity sales.
We also incurred $2.9 million of legal fees and expenses, which impacted
net operating earnings per diluted share by $.03, associated with
preparation for hearings that have been scheduled in 2013 in connection
with arbitrations that have been described in our SEC filings. Canadian
segregated fund DAC amortization was unfavorably impacted in the fourth
quarter of 2012 by lower equity returns compared with a favorable impact
in the prior year period, resulting in a $1.5 million year-over-year
increase in DAC amortization.
Sequentially, operating income before income taxes was consistent with
the third quarter of 2012 primarily reflecting the fourth quarter sales
growth, the higher client asset values and the variable annuity
incentive payment, offset by legal fees and expenses as well as higher
Canadian segregated fund DAC amortization.
Corporate and Other Distributed Products. Operating
revenues decreased by 12% to $29.3 million and operating losses before
income taxes increased by $2.5 million compared with the fourth quarter
of 2011. Results largely reflect lower net investment income due to a
lower invested asset base following our stock repurchases and lower
expenses due to non-recurring charges from the fourth quarter of 2011,
partially offset by higher employee-related expenses in 2012.
Taxes
Our effective income tax rate for the fourth quarter of 2012 was 33.9%,
consistent with the prior year period and lower than the 35.4% in the
third quarter. Sequentially, the lower tax rate in the fourth quarter
reflects the recognition of certain tax benefits due to statute of
limitations expirations that occur annually at the end of the calendar
year.
Capital and Liquidity
We repurchased $98.2 million of common stock in the fourth quarter of
2012. For the full year, 9.5 million shares of common stock were
repurchased for $257.3 million, enabling us to retire 15% of the common
stock outstanding as of December 31, 2011.
As of December 31, 2012, our investments and cash totaled $2.07 billion
compared with $2.18 billion as of September 30, 2012. Our invested asset
portfolio had a net unrealized gain of $182.6 million (net of unrealized
losses of $4.3 million) at December 31, 2012, down from a net unrealized
gain of $191.6 million (net of unrealized losses of $4.2 million) at
September 30, 2012. Net realized gains for the quarter were $1.1
million, which included $0.1 million of other-than-temporary impairments.
Our debt-to-capital ratio increased slightly from the end of the third
quarter to 22.7% as of December 31, 2012 following capital redeployment
in the quarter. Primerica Life Insurance Company's statutory risk-based
capital (RBC) ratio is estimated to be approximately 600% as of December
31, 2012 remaining well-positioned to support existing operations and
fund future growth.
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 Friday, February 8, 2013 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 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
December 31,
December 31,
2012 (1)
2011 (2)
(In thousands)
Assets
Investments:
Fixed maturity securities available for sale, at fair value
$
1,887,014
$
1,959,156
Equity securities available for sale, at fair value
37,147
26,712
Trading securities, at fair value
7,762
9,640
Policy loans and other invested assets
24,613
25,996
Total investments
1,956,536
2,021,504
Cash and cash equivalents
112,216
136,078
Accrued investment income
19,540
21,579
Due from reinsurers
4,005,194
3,855,318
Deferred policy acquisition costs
1,066,422
904,485
Premiums and other receivables
165,188
163,845
Intangible assets
69,816
71,928
Other assets
302,126
268,485
Separate account assets
2,618,115
2,408,598
Total assets
$
10,315,153
$
9,851,820
Liabilities and Stockholders' Equity
Liabilities:
Future policy benefits
$
4,850,488
$
4,614,860
Unearned premiums
6,056
7,022
Policy claims and other benefits payable
254,533
241,754
Other policyholders' funds
345,721
340,766
Notes payable
374,433
300,000
Income taxes
91,887
81,316
Other liabilities
358,577
381,496
Payable under securities lending
139,927
149,358
Separate account liabilities
2,618,115
2,408,598
Total liabilities
9,039,737
8,525,170
Stockholders' equity:
Common stock
564
649
Paid-in capital
602,269
835,232
Retained earnings
503,173
344,104
Accumulated other comprehensive income, net of income tax
169,410
146,665
Total stockholders' equity
1,275,416
1,326,650
Total liabilities and stockholders' equity
$
10,315,153
$
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 December 31,
2012 (1)
2011 (1) (2)
(In thousands, except per-share amounts)
Revenues:
Direct premiums
$
569,591
$
555,778
Ceded premiums
(414,783
)
(419,630
)
Net premiums
154,808
136,148
Commissions and fees
112,772
97,282
Net investment income
24,221
25,643
Realized investment gains (losses), including OTTI
1,058
4,256
Other, net
11,642
12,526
Total revenues
304,501
275,855
Benefits and expenses:
Benefits and claims
71,151
63,688
Amortization of deferred policy acquisition costs
34,628
30,185
Sales commissions
54,007
43,876
Insurance expenses
25,764
24,273
Insurance commissions
5,916
9,548
Interest expense
8,857
6,973
Other operating expenses
43,232
40,631
Total benefits and expenses
243,555
219,174
Income before income taxes
60,946
56,681
Income taxes
20,675
19,479
Net income
$
40,271
$
37,202
Earnings per share:
Basic
$
0.68
$
0.52
Diluted
$
0.67
$
0.51
Shares used in computing earnings per share:
Basic
57,416
69,366
Diluted
58,935
70,169
(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
Year ended December 31,
2012 (1)
2011 (2)
(In thousands, except per-share amounts)
Revenues:
Direct premiums
$
2,267,975
$
2,229,467
Ceded premiums
(1,663,753
)
(1,703,075
)
Net premiums
604,222
526,392
Commissions and fees
427,775
412,979
Net investment income
100,804
108,601
Realized investment gains (losses), including OTTI
11,382
6,440
Other, net
46,532
48,681
Total revenues
1,190,715
1,103,093
Benefits and expenses:
Benefits and claims
278,747
242,696
Amortization of deferred policy acquisition costs
118,598
104,034
Sales commissions
204,569
191,722
Insurance expenses
96,541
89,192
Insurance commissions
27,555
38,618
Interest expense
33,101
27,968
Other operating expenses
164,716
164,954
Total benefits and expenses
923,827
859,184
Income before income taxes
266,888
243,909
Income taxes
93,082
86,718
Net income
$
173,806
$
157,191
Earnings per share:
Basic
$
2.77
$
2.11
Diluted
$
2.71
$
2.08
Shares used in computing earnings per share:
Basic
61,059
72,283
Diluted
62,401
73,107
(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 December 31,
2012
2011 (1)
% Change
Operating revenues
$
303,443
$
271,599
12
%
Realized investment gains (losses), including OTTI
1,058
4,256
Total revenues
$
304,501
$
275,855
10
%
Operating income before income taxes
$
62,962
$
55,840
13
%
Realized investment gains (losses), including
OTTI
1,058
4,256
Other operating expense - equity awards
(3,074
)
(3,415
)
Income before income taxes
$
60,946
$
56,681
8
%
Net operating income
$
41,603
$
36,652
14
%
Realized investment gains (losses), including
OTTI
1,058
4,256
Other operating expense - equity awards
(3,074
)
(3,415
)
Tax impact of reconciling items
684
(291
)
Net income
$
40,271
$
37,202
8
%
Diluted operating earnings per share (2)
$
0.69
$
0.51
36
%
Net after-tax impact of operating adjustments
(0.02
)
-
Diluted earnings per share (2)
$
0.67
$
0.51
29
%
(1) Reflects revised accounting standards related to costs
associated with acquiring or renewing insurance contracts.
(2) Percentage change in earnings per share is calculated prior to
rounding per share amounts.
CORPORATE AND OTHER DISTRIBUTED PRODUCTS SEGMENT
Operating Results Reconciliation
(Unaudited - in thousands)
Three months ended December 31,
2012
2011 (1)
Operating revenues
$
29,253
$
33,136
Realized investment gains (losses), including OTTI
1,058
4,256
Total revenues
$
30,311
$
37,392
Operating loss before income taxes
$
(12,478
)
$
(10,026
)
Realized investment gains (losses), including OTTI
1,058
4,256
Other operating expense - equity awards
(3,074
)
(3,415
)
Loss before income taxes
$
(14,494
)
$
(9,185
)
PRIMERICA, INC. AND SUBSIDIARIES
Adjusted Stockholders' Equity Reconciliation
(Unaudited - in thousands)
December 31, 2012
Adjusted stockholders' equity
$
1,161,493
Unrealized net investment gains recorded in stockholders' equity,
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