Primerica Reports Second Quarter 2014 Results

  Primerica Reports Second Quarter 2014 Results  Life insurance licensed representatives increased 5% to 96,596 year-over-year     9% growth in Investment and Savings Products (ISP) sales year-over-year             Diluted EPS of $0.89 and diluted operating EPS of $0.88  15.4% net income return on stockholders’ equity and 16.3% net operating income                 return on adjusted stockholders’ equity (ROAE)          Completed redundant reserve financing transaction in July 2014  Business Wire  DULUTH, Ga. -- August 6, 2014  Primerica, Inc. (NYSE: PRI) announced today financial results for the quarter ended June 30, 2014. Total revenues were $331.1 million in the second quarter of 2014 and net income was $49.3 million, or $0.89 per diluted share.  In the second quarter operating revenues increased by 10% to $330.3 million and net operating income increased by 18% to $48.7 million compared with $300.0 million and $41.2 million, respectively, in the year ago quarter. Net operating income per diluted share increased 25% to $0.88 and ROAE was 16.3% on an operating basis in the second quarter of 2014. Solid operating results in the second quarter were driven by growth in Term Life premiums and strong Investment and Savings Products performance including a 9% increase in total product sales and 20% growth in ending client asset values year-over-year. Second quarter expenses decreased versus prior year period largely reflecting our settlement of the Florida Retirement System (FRS) matter in the first quarter of 2014. Net investment income continued to be impacted by lower yields on invested assets, but was enhanced in the second quarter by favorable market value changes on our deposit asset in Corporate and Other Distributed Products.  Rick Williams, Chairman of the Board and Co-Chief Executive Officer said, “Strong core performance across business segments in the second quarter drove 18% growth in net operating income and a 25% increase in operating EPS versus the prior year period, and operating ROAE expanded to 16.3% in the second quarter. To further enhance stockholder value we completed a redundant reserve financing transaction in July that should enable the execution of our strategy to deploy approximately $150 million of capital annually through 2016.”  John Addison, Chairman of Primerica Distribution and Co-Chief Executive Officer said, “Our ongoing efforts to expand distribution resulted in a 5% increase in the size of our life insurance licensed sales force and a 3% increase in term life insurance policies issued year-over-year. Recent additions to our investment and savings product offerings as well as other initiatives drove a 9% increase in total ISP sales compared with the second quarter a year ago.”  Distribution Results    *The size of our life-licensed sales force increased 5% to 96,596 at June     30, 2014 compared with 92,227 at June 30, 2013 and increased 1% from     95,382 at March 31, 2014. In the second quarter, new life insurance     licenses increased 2% to 9,082 and recruiting of new representatives     remained consistent with the year ago quarter. On a sequential quarter     basis, new life insurance licenses increased 22% compared with the     seasonally lower first quarter while recruiting of new representatives     increased 4%.   *In the second quarter, term life insurance policies issued grew 3% to     59,569 and the average annualized premium per issued policy increased 1%     compared with the second quarter of 2013. Productivity in the quarter of     .21X policies per life licensed representative per month returned to the     range of historical productivity and was consistent with .21X in the prior     year period. On a sequential quarter basis, term life insurance policies     issued increased 21% compared with the first quarter of 2014, largely     reflecting typical seasonality.   *Year-over-year total Investment and Savings Products sales grew 9% to     $1.44 billion compared with the second quarter a year ago, primarily     reflecting strong retail mutual funds and variable annuity sales aided by     strong market conditions and recent product introductions. Sequentially,     total ISP sales continued to increase with results that were 2% higher     than the strong first quarter of 2014. Ending client asset values     increased 20% to $48.01 billion at June 30, 2014 relative to a year ago     and grew 5% from $45.84 billion the end of the first quarter.  Segment Results  Primerica operates in two primary business segments: Term Life Insurance and Investment and Savings Products, and has a third segment, Corporate and Other Distributed Products. Results for the segments are shown below.               Actual                                  Operating (1)               Q2 2014      Q2 2013     %             Q2 2014      Q2 2013     %                                   (2)           Change                       (2)           Change Revenues:     ($ in thousands)                           ($ in thousands) Term Life     $ 184,366    $ 169,182    9      %       $ 184,366    $ 169,182    9      % Insurance Investment and Savings     128,148       113,361     13     %         128,148       113,361     13     % Products Corporate and Other      18,616     20,947    -11    %        17,785     17,479    2      % Distributed Products Total         $ 331,130   $ 303,490   9      %       $ 330,299   $ 300,022   10     % revenues                                                                                                Income (loss) from continuing operations before income taxes: Term Life     $ 55,070      $ 51,897      6      %       $ 55,070      $ 51,897      6      % Insurance Investment and Savings     36,048        27,488      31     %         36,048        27,675      30     % Products Corporate and Other      (15,378 )   (12,435 )  24     %        (16,209 )   (15,728 )  3      % Distributed Products Total income from continuing operations    $ 75,740    $ 66,950    13     %       $ 74,909    $ 63,844    17     % before income taxes                                                                                                (1) See the Non-GAAP Financial Measures section and the segment Operating Results Reconciliations at the end of this release for additional information.                                                                                                (2) The results of operations from our short-term statutory disability insurance business (DBL) prior to its disposal in Q1 2014 were reported in our Corporate and Other Distributed Products segment. As such, we have reclassified revenues, insurance expenses, and income from before income taxes of $8,817, $1,581, and $496, respectively, in Q2 2013 from our Corporate and Other Distributed Products segment into discontinued operations.                                                                                                 Term Life Insurance. In the second quarter of 2014, Term Life operating revenues increased 9% to $184.4 million primarily reflecting 11% growth in net premiums compared with the second quarter of 2013. On a year-over-year basis benefits and claims grew in line with net premiums while DAC amortization grew at a faster rate due to more commission deferrals in recent years. Year-over-year insurance expenses increased with growth in the business and the run-off of Citi expense allowances. Allocated net investment income was flat year-over-year as net investment income growth from the level of assets required by the segment was offset by lower yield on invested assets. Collectively, operating income before income taxes increased 6% to $55.1 million year-over-year.  Sequentially, operating income before income taxes increased 17% reflecting seasonally higher persistency compared with the first quarter of 2014.  Investment and Savings Products. In the second quarter, operating revenues increased 13% to $128.1 million and operating income before income taxes increased 30% to $36.0 million compared with the year ago period. Results reflect a 9% increase in total product sales and 16% growth in average client asset values. Legal fees and expenses associated with FRS were $0.3 million, significantly less than the prior year level of $3.1 million. Strong Canadian segregated fund market performance led to a deceleration of DAC amortization in the second quarter, whereas the prior year period incurred higher amortization expense due to weaker market conditions at that time.  Sequentially, operating income before income taxes increased 6% compared with the first quarter due to growth in product sales and client asset values.  Corporate and Other Distributed Products. Operating revenues increased 2% to $17.8 million and operating losses before income taxes grew by $0.5 million compared with the second quarter of 2013, partially reflecting higher claims experience in the non-term life insurance products underwritten by our New York subsidiary. Allocated net investment income was higher than a year ago primarily due to market value changes on the deposit asset backing a reinsurance agreement which were positive this year and negative in the prior year. Otherwise allocated net investment income continues to decline as Term Life required assets grow, excess capital is deployed and the yield on invested assets remains depressed.  Taxes  Our effective income tax rate for the second quarter of 2014 was 34.9%, which is lower than the prior year period rate of 35.5% primarily due to the limited deductibility of IPO stock awards that fully vested in April 2013. Sequentially, our effective income tax rate was consistent with 34.9% in the first quarter.  Capital and Liquidity  In conjunction with our plan to repurchase $150 million in shares of Primerica common stock in 2014, we completed a redundant reserve financing transaction on July 31, 2014. Details of this transaction are described in our Form 8-K dated July 31, 2014 and filed August 6, 2014. During the second quarter we repurchased $21.9 million, or 480,902, shares of Primerica common stock for a total of $35.0 million, or 763,902, shares repurchased year-to-date.  Primerica Life Insurance Company’s statutory risk-based capital (RBC) ratio was estimated to be in excess of 480% as of June 30, 2014, well positioned to support existing operations and fund future growth. Our debt-to-capital ratio was 22.3% June 30, 2014.  As of June 30, 2014, our investments and cash totaled $2.04 billion compared with $2.01 billion as of March 31, 2014. Our invested asset portfolio had a net unrealized gain of $138.5 million (net of unrealized losses of $5.6 million) at June 30, 2014, up from $113.2 million at March 31, 2014 due to a decline in interest rates and credit spread tightening.  Non-GAAP Financial Measures  We report financial results in accordance with U.S. generally accepted accounting principles (GAAP). We also present adjusted direct premiums, other ceded premiums, operating revenues, operating income before income taxes, net operating income and adjusted stockholders’ equity. Adjusted direct premiums and other ceded premiums are net of amounts ceded to affiliates of Citigroup, Inc. (“Citigroup”) under coinsurance transactions that were executed concurrent with our IPO. Operating revenues, operating income before income taxes and net operating income exclude the impact of realized investment gains and losses, including other than temporary impairments (OTTI), for all periods presented. Operating income before income taxes and net operating income exclude the expense associated with our IPO-related equity awards and the impact of charges recorded for the potential settlement of claims made by certain Florida Retirement System plan participants 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 Thursday, August 7, 2014 at 10:00 am ET, 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 households 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 first 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 insured more than 4 million lives and have over 2 million client investment accounts at December 31, 2013. Primerica stock is included in the S&P MidCap 400 and the Russell 2000 stock indices and is traded on The New York Stock Exchange under the symbol “PRI”.  PRIMERICA, INC. AND SUBSIDIARIES Condensed Balance Sheets                                                                                                              June 30,           December 31,                                                2014 ^  (1)       2013                                                (In thousands) Assets Investments:      Fixed maturity securities available for   $ 1,804,163        $ 1,755,712      sale, at fair value      Equity securities available for sale,       50,436             39,894      at fair value      Trading securities, at fair value           9,236              12,991      Policy loans and other invested            28,378           26,806      assets             Total investments                    1,892,213          1,835,403 Cash and cash equivalents                        150,621            149,189 Accrued investment income                        17,874             18,127 Due from reinsurers                              4,077,734          4,055,054 Deferred policy acquisition costs                1,293,974          1,208,466 Premiums and other receivables                   175,680            175,789 Intangible assets                                66,521             68,863 Income taxes                                     38,676             32,450 Other assets                                     298,597            282,780 Separate account assets                         2,581,659        2,503,829             Total assets                       $ 10,593,549      $ 10,329,950                                                                    Liabilities and Stockholders' Equity Liabilities: Future policy benefits                         $ 5,180,013        $ 5,063,103 Unearned premiums                                1,236              1,802 Policy claims and other benefits                 238,598            253,304 payable Other policyholders' funds                       336,902            337,977 Notes payable                                    374,506            374,481 Income taxes                                     137,797            105,885 Other liabilities                                346,538            377,690 Payable under securities lending                 93,569             89,852 Separate account liabilities                    2,581,659        2,503,829             Total liabilities                    9,290,818          9,107,923                                                                    Stockholders' equity: Common stock                                     542                548 Paid-in capital                                  447,949            472,633 Retained earnings                                721,788            640,840 Accumulated other comprehensive income, net     132,452          108,006 of income tax             Total stockholders' equity          1,302,731        1,222,027             Total liabilities and              $ 10,593,549      $ 10,329,950             stockholders' equity                                                                    (1) Unaudited   PRIMERICA, INC. AND SUBSIDIARIES Condensed Statements of Income (Unaudited)                                                                            Three months ended June 30,                                          2014                2013                                              (In thousands, except per-share amounts) Revenues: Direct premiums                       $   576,740            $   568,391 Ceded premiums                           (410,546   )          (417,450   )                Net premiums               166,194                150,941 Commissions and fees                      132,039                117,182 Net investment income                     21,681                 21,027 Realized investment gains                 831                    3,468 (losses), including OTTI Other, net                               10,385               10,872      Total revenues                           331,130              303,490                                                                   Benefits and expenses: Benefits and claims                       72,412                 64,322 Amortization of deferred policy           32,696                 30,112 acquisition costs Sales commissions                         67,364                 57,638 Insurance expenses                        28,192                 26,513 Insurance commissions                     3,881                  4,132 Interest expense                          8,552                  8,793 Other operating expenses                 42,293               45,030      Total benefits and expenses              255,390              236,540     Income from continuing operations         75,740                 66,950 before income taxes Income taxes                             26,469               23,782      Income from continuing operations         49,271                 43,168 Income from discontinued                 -                    322         operations, net of income taxes                Net income             $   49,271            $   43,490                                                                    Basic earnings per share: Continuing operations                 $   0.89               $   0.75 Discontinued operations                  -                    0.01                       Basic earnings per     $   0.89              $   0.76                       share                                                               Diluted earnings per share: Continuing operations                 $   0.89               $   0.73 Discontinued operations                  -                    0.01                       Diluted earnings       $   0.89              $   0.74                       per share                                                               Shares used in computing earnings per share:                Basic                     54,927               56,511                     Diluted                   54,950               57,849                                                                                    PRIMERICA, INC. AND SUBSIDIARIES Consolidated Operating Results Reconciliation (Unaudited – in thousands, except per share amounts)                                                                                                      Three months ended June 30,                                      2014        2013         % Change  Operating revenues                  $ 330,299       $ 300,022       10       % Realized investment gains            831           3,468    (losses), including OTTI Total revenues                      $ 331,130      $ 303,490      9        %                                                                      Operating income before income      $ 74,909        $ 63,844        17       % taxes Realized investment gains             831             3,468 (losses), including OTTI Other operating expense - FRS         -               (187    ) legal settlement Other operating expense - IPO        -             (175    ) equity awards Income from continuing operations   $ 75,740       $ 66,950       13       % before income taxes                                                                      Net operating income                $ 48,731        $ 41,165        18       % Realized investment gains             831             3,468 (losses), including OTTI Other operating expense - FRS         -               (187    ) legal settlement Other operating expense - IPO         -               (175    ) equity awards Tax impact of reconciling            (291    )      (1,103  ) items Income from continuing                49,271          43,168        14       % operations Income from discontinued             -             322      operations, net of income taxes Net income                          $ 49,271       $ 43,490       13       %                                                                      Diluted operating earnings per      $ 0.88          $ 0.70          25       % share (1) Net after-tax impact of operating adjustments and discontinued         0.01          0.04     operations Diluted earnings per share (1)      $ 0.89         $ 0.74         19       %                                                                      (1) Percentage change in earnings per share is calculated prior to rounding per share amounts.   TERM LIFE INSURANCE SEGMENT Adjusted Premiums Reconciliation (Unaudited – in thousands)                                                                  Three months ended June 30,                                    2014         2013      Adjusted direct premiums          $ 223,705        $ 201,422 Premiums ceded to Citigroup        344,143        357,613   Direct premiums                   $ 567,848       $ 559,035                                                                    Other ceded premiums              $ (63,423  )     $ (56,609  ) Premiums ceded to Citigroup        (344,143 )      (357,613 ) Ceded premiums                    $ (407,566 )     $ (414,222 )                                                                  Net premiums                      $ 160,282       $ 144,813                                                                     INVESTMENT AND SAVINGS PRODUCTS SEGMENT Operating Results Reconciliation (Unaudited – in thousands)                                                                                                Three months ended June 30,                                                    2014         2013    Operating income before income taxes             $  36,048        $ 27,675 Other operating expense - FRS legal settlement     -              (187   ) Income from continuing operations before         $  36,048        $ 27,488  income taxes                                                                                CORPORATE AND OTHER DISTRIBUTED PRODUCTS SEGMENT Operating Results Reconciliation (Unaudited – in thousands)                                                                                                 Three months ended June 30,                                                   2014        2013     Operating revenues                               $ 17,785        $ 17,479 Realized investment gains (losses), including     831           3,468    OTTI Total revenues                                   $ 18,616       $ 20,947                                                                                 Operating loss before income taxes               $ (16,209 )     $ (15,728 ) Realized investment gains (losses), including      831             3,468 OTTI Other operating expense - IPO equity awards       -             (175    ) Loss from continuing operations before income    $ (15,378 )     $ (12,435 ) taxes                                                                                PRIMERICA, INC. AND SUBSIDIARIES Adjusted Stockholders' Equity Reconciliation (Unaudited – in thousands)                                                                 June 30, 2014 Adjusted stockholders' equity                                    $  1,212,028 Unrealized net investment gains recorded in stockholders'          90,703 equity, net of income tax Stockholders' equity                                             $  1,302,731  Contact:  Primerica, Inc. Investor Contact: Kathryn Kieser, 470-564-7757 investorrelations@primerica.com or Media Contact: Keith Hancock, 470-564-6328 Keith.Hancock@Primerica.com  
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