Primerica, Divested by Citigroup, Plans to Invest in CMBS, Corporate Debt

Primerica Inc., the life insurer divested by Citigroup Inc., added to cash holdings to prepare for opportunities in corporate bonds and commercial mortgage- backed securities, Chief Financial Officer Alison Rand said.

The insurer, which has 50 percent of its fixed-income portfolio in company debt, plans to “put money to work in the corporate arena, as well as CMBS,” Rand said in a telephone interview today.

Primerica had about $929 million in cash, or 31 percent of invested assets, as of March 31, the Duluth, Georgia-based company said in a financial supplement on its Web site. Primerica, which yesterday reported earnings for the first time since its $320 million IPO in March, was previously part of Citi Holdings, the portfolio of businesses Citigroup Chief Executive Officer Vikram Pandit said he would sell, wind down or restructure.

“One of the reasons we do have a very big cash build, besides the fact that we had a lot of things to pay as part of the IPO transaction, is we are trying very selectively to place our money,” Rand said. “There aren’t all that many great opportunities.”

Corporate bonds returned 3.2 percent in the first quarter, after rallying 26 percent in 2009, according to Bank of America Merrill Lynch’s U.S. Corporate & High Yield Master index. At the same time, the extra yield investors demand to own the debt over Treasuries narrowed 32 basis points in the quarter to 252 basis points on March 31, compared with 777 basis points a year earlier.

Unrealized Gains

Primerica’s net unrealized gain on investments was $134.7 million as of March 31. That measures market fluctuations that aren’t counted toward earnings.

With mortgage-backed securities, “the question there becomes what does the government do?” Rand said. “They’ve pulled back a little bit on their involvement in that sector, so we have really been watching a bit to see what happens. I would expect over time that to be a place for us to put more money.”

As of March 31, the insurer had $10.5 million of exposure to Spain, $12 million to Italy, according to a financial supplement on its Web site. Rand said Primerica had no direct exposure to Greece or Portugal. The countries are facing budget deficit problems.

Primerica rose 38 cents to $24.26 at 4:17 p.m. in New York Stock Exchange composite trading. The shares have advanced 62 percent since the insurer’s March IPO.

IPO

Primerica sold 21.36 million shares at $15 each as part of its IPO. Citigroup is the largest shareholder, with a 39 percent stake in the company, according to data compiled by Bloomberg. Warburg Pincus LLC, the New York-based private equity fund, is the second-largest shareholder, with a 22 percent stake.

“It really was a change in strategy at the Citigroup level to focus more on their core competencies in banking and building their global franchise and the fact that our business wasn’t fundamentally a bank,” Co-Chief Executive Officer John Addison said in a telephone interview of Primerica’s divestment. “It really wasn’t an issue of the level of difficulty, of how bad it was to be there.”

To contact the reporter on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net.

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