PRIMERICA, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is intended to inform the reader about matters affecting the
financial condition and results of operations of Primerica, Inc. (the "Parent
Company") and its subsidiaries (collectively, "we", "us" or the "Company") for
the period from December 31, 2020 to June 30, 2021 . As a result, the following
discussion should be read in conjunction with MD&A and the consolidated
financial statements and notes thereto that are included in our Annual Report on
Form 10-K for the year ended December 31, 2020 ("2020 Annual Report"). This
discussion contains forward-looking statements that constitute our plans,
estimates and beliefs. These forward-looking statements involve numerous risks
and uncertainties, including, but not limited to, those discussed under the
heading "Risk Factors" in the 2020 Annual Report and in Item 1A of this Report.
Actual results may differ materially from those contained in any forward-looking
statements.
This MD&A is divided into the following sections:
• Business Overview • Business Trends and Conditions • Factors Affecting Our Results • Critical Accounting Estimates • Results of Operations • Financial Condition • Liquidity and Capital Resources
Business Overview
We are a leading provider of financial products to middle-income households inthe United States and Canada through a network of independent contractor sales representatives ("sales representatives" or "sales force"). We assist our clients in meeting their needs for term life insurance, which we underwrite, and mutual funds, annuities, managed investments and other financial products, which we distribute primarily on behalf of third parties. We have two primary operating segments,Term Life Insurance and Investment and Savings Products; and a third segment, Corporate and Other Distributed Products.Term Life Insurance . We distribute the term life insurance products that we underwrite through our three issuing life insurance company subsidiaries:Primerica Life Insurance Company ("Primerica Life"),National Benefit Life Insurance Company ("NBLIC"), andPrimerica Life Insurance Company of Canada ("Primerica Life Canada"). Policies remain in-force until the expiration of the coverage period or until the policyholder ceases to make premium payments. Our in-force term life insurance policies have level premiums for the stated term period. As such, the policyholder pays the same amount each year. Initial policy term periods are between 10 and 35 years. While premiums typically remain level during the initial term period, our claim obligations generally increase as our policyholders age. In addition, we incur significant upfront costs in acquiring new insurance business. Our deferral and amortization of policy acquisition costs and reserving methodology are designed to match the recognition of premium revenues with the timing of policy lapses and the payment of expected claims obligations. Investment and Savings Products. Inthe United States , we distribute mutual funds, managed investments, variable annuity, and fixed annuity products of several third-party companies. We provide investment advisory and administrative services for client assets invested in our managed investments program. We also perform distinct transfer agent recordkeeping services and non-bank custodial services for investors purchasing certain mutual funds we distribute. In Canada, we offer our own Primerica-branded mutual funds, as well as mutual funds of other companies, and segregated funds, which are underwritten byPrimerica Life Canada . Corporate and Other Distributed Products. Our Corporate and Other Distributed Products segment consists primarily of revenues and expenses related to other distributed products, including closed blocks of various insurance products underwritten by NBLIC, prepaid legal services, mortgage originations, and other financial products. These products, except for closed blocks of various insurance products underwritten by NBLIC, are distributed pursuant to distribution arrangements with third-party companies through the independent sales force. Net investment income earned on our invested asset portfolio is recorded in our Corporate and Other Distributed Products segment, with the exception of the assumed net interest accreted to ourTerm Life Insurance segment's future policy benefit reserve liability less deferred acquisition costs. Interest expense incurred by the Company is attributed solely to the Corporate and Other Distributed Products segment. Acquisition. OnJuly 1, 2021 , the Company acquired an 80% interest, as described in the next paragraph, in the operating subsidiaries ofEtelequote Limited ("Etelequote Bermuda"), including e-TeleQuote Insurance, Inc. ("e-TeleQuote"), aFlorida corporation that is a senior health insurance distributor of Medicare-related insurance policies in all 50 states andPuerto Rico (the "Acquisition"). The Company's recently formed subsidiary,Primerica Health, Inc. ("Primerica Health "), purchased from the shareholders of Etelequote Bermuda (the "selling shareholders") 100% of the issued and outstanding capital stock of e-TeleQuote and its subsidiaries for consideration of (i) approximately$350 million in cash, (ii) replacement of e-TeleQuote's debt as of the closing date of$146 million with intercompany funding provided by the Parent Company, (iii)$15 million in an unsecured, subordinated note, guaranteed by the Parent Company and issued byPrimerica Health to Etelequote Bermuda's majority shareholder (the "Majority Shareholder 24
-------------------------------------------------------------------------------- Note") and (iv) common shares ofPrimerica Health constituting 20% of the total issued and outstanding shares of capital stock ofPrimerica Health that were issued to Etelequote Bermuda's minority shareholders, most of which include or are beneficially owned by e-TeleQuote's management. Under the terms of the purchase agreement, the Parent Company will purchase the remaining 20% stake over a period of up to four years. The purchase agreement also contemplates the potential for contingent consideration of up to$50 million to be paid by the Parent Company to the selling shareholders in the form of earnout payments of up to$25 million in each of 2022 and 2023.The Parent Company funded the Acquisition using cash on hand, a draw on its Revolving Credit Facility, and the Majority Shareholder Note. Beginning in the third quarter of 2021, the Company will report the operating results of e-TeleQuote and its subsidiaries in its own operating segment calledSenior Health .
Business Trends and Conditions
The relative strength and stability of financial markets and economies inthe United States and Canada affect our growth and profitability. Our business is, and we expect will continue to be, influenced by a number of industry-wide and product-specific trends and conditions. Economic conditions, including unemployment levels and consumer confidence, influence investment and spending decisions by middle-income consumers, who are generally our primary clients. These conditions and factors also impact prospective recruits' perceptions of the business opportunity that becoming a sales representative offers, which can drive or dampen recruiting. Consumer spending and borrowing levels affect how consumers evaluate their savings and debt management plans. In addition, interest rates and equity market returns impact consumer demand for the savings and investment products we distribute. Our customers' perception of the strength of the capital markets may influence their decisions to invest in the investment and savings products we distribute. The financial and distribution results of our operations inCanada , as reported inU.S. dollars, are affected by changes in the currency exchange rate. As a result, changes in the Canadian dollar exchange rate may significantly affect the result of our business for all amounts translated and reported inU.S. dollars. The ongoing coronavirus COVID-19 ("COVID-19") pandemic has continued to impact our business in 2021, as discussed in more detail later in this section, the Results of Operations section, and the Financial Condition section. We expect COVID-19 will continue to create uncertainty in the following business trends and conditions:
• After nearly 18 months into the COVID-19 pandemic, businesses are
repopulating their facilities and people are resuming their pre-pandemic
activities. The focus on licensing by new recruits has been challenged
as the reopening expands and people are resuming their social and travel
activities. Meanwhile, most states are getting back to normal testingcapacity and candidates have more flexibility to access pre-licensing
classes with both in-person and remote options becoming available.
However, the threat of mutations of COVID-19, including the Delta
variant, continue to create uncertainty. As a result, repopulation and
other activities are likely to experience additional periods of
slowdown. The timing and extent of the impact these dynamics will have
on licensing activity in future periods remains uncertain.
• We have experienced an increase in mortality expense due to premature
deaths of our insureds caused by COVID-19 infections. We expect that
vaccinations will eventually cause our elevated mortality experience to
normalize. However, with the emergence of variants and the reluctance of
a portion of the population to be vaccinated, it remains difficult to
predict the ultimate impact the COVID-19 pandemic will have on our
business in future periods. Any increase in mortality expense will be
mitigated by reinsurance as we have ceded a significant majority of our
mortality risk to reinsurers we believe to be creditworthy.
• To date, the impact of COVID-19 has led to historically high levels of
persistency throughout all policy durations and increased policy sales
as a result of strong public sentiment towards owning life insurance
products. It is unknown how long these trends will continue and to what
level persistency and policy sales will normalize as the current fear
associated with the COVID-19 pandemic subsides. Refer to the FactorsAffecting Our Results section for more information about how persistency
impacts our financial results.
The effects of business trends and conditions on our quarterly results are discussed below, in the Results of Operations section, and in the Financial Condition section.
Size of the Independent Sales Force.
Our ability to increase the size of the independent sales force is largely based
on the success of the sales force's recruiting efforts as well as training and
motivating recruits to get licensed to sell life insurance. We believe that
recruitment and licensing levels are important to sales force trends, and growth
in recruiting and licensing is usually indicative of future growth in the
overall size of the sales force. Changes in the number of new recruits do not
always result in commensurate changes in the size of the licensed sales force
because new recruits may obtain the requisite licenses at rates above or below
historical levels.
25
--------------------------------------------------------------------------------
Details on new recruits and life-licensed sales representative activity were as follows:
Three months ended June 30 ,
Six months ended
2021 2020 2021 2020
New recruits 89,285 133,123 183,918 217,885
New life-licensed sales representatives 10,112 12,250 20,945 22,849
The size of the life-licensed independent sales force was as follows:
June 30, 2021 June 30, 2020
Life-licensed sales representatives 132,041 134,157
The number of new recruits decreased during the three and six months ended June
30, 2021 compared to the same periods in 2020. The year-over-year comparisons
were impacted by different recruiting incentives put in place during the periods
to drive results. We also noted that the impact of the lockdown in 2020 at the
onset of the COVID-19 pandemic benefited recruiting results in the 2020 periods
as the sales force had a more captive focus on recruiting activities.
New life-licensed sales representatives decreased during the three and six
months ended
The Company had 132,041 independent life-licensed representatives as ofJune 30, 2021 compared to 134,157 as ofJune 30, 2020 . The number of independent life-licensed representatives as ofJune 30, 2021 included approximately 2,400 individuals with COVID-19 temporary licenses or extended renewal dates, the majority of which are not expected to remain as part of our sales force. AtJune 30, 2020 , approximately 7,800 individuals with COVID-19 temporary licenses or extended renewal dates were included in the life-licensed sales representatives total of 134,157, some of which ultimately did not take the steps necessary to obtain a permanent license or did not renew their license.
Term Life Insurance Product Sales and Face Amount In-Force.
The average number of life-licensed sales representatives and the number of term
life insurance policies issued, as well as the average monthly rate of new
policies issued per life-licensed sales representative (historically between
0.18 and 0.22), were as follows:
Three months ended June 30 ,
Six months ended
2021 2020 2021 2020
Average number of life-licensed
sales representatives 131,975 131,562 132,481 130,939
Number of new policies issued 90,071 94,044 172,738 165,362
Average monthly rate of new
policies issued per life-licensed
sales representative 0.23 0.24 0.22 0.21
New policies issued during the three months ended June 30, 2021 decreased
compared to the same period in 2020, but remain elevated compared to historical
volumes. New policies issued in 2020 were elevated as a result of a surge of new
policies issued as the onset of the COVID-19 pandemic highlighted the need for
protection products. New policies issued during the six months ended June 30,
2021 increased compared to the same period in 2020 due to continued favorable
public sentiment for protection products in response to the COVID-19 pandemic.
The ability of life-licensed sales representatives to adapt to the use of
virtual communication tools, combined with extensive point-of-sales technologies
and existing products, allow them to readily meet our clients' needs. These
factors drove productivity higher than the historical range for the three months
ended June 30, 2021 and to the high end of our historical range for the six
months ended June 30, 2021 . While current period sales of new policies remain
relatively strong, a change in public sentiment that is less favorable to
protection products following the pandemic could adversely impact sales in
future periods.
The changes in the face amount of our in-force book of term life insurance
policies were as follows:
Three months ended June 30, Six months ended June 30,
% of beginning % of beginning % of beginning % of beginning
2021 balance 2020 balance 2021 balance 2020 balance
(Dollars in millions)
Face amount in force,
beginning of period $ 869,643 $ 804,512 $ 858,818 $ 808,262
Net change in face amount:
Issued face amount 29,981 3 % 27,754 3 % 56,624 7 % 50,975 6 %
Terminations (14,706 ) (2 )% (14,315 ) (2 )% (31,946 ) (4 )% (32,609 ) (4 )%
Foreign currency 1,601 * 4,047 1 % 3,023 * (4,630 ) (1 )%
Net change in face amount 16,876 2 % 17,486 2 % 27,701 3 % 13,736 2 %
Face amount in force, end of
period $ 886,519 $ 821,998 $ 886,519 $ 821,998
* Less than 1%.
The face amount of term life policies in-force increased 2% and 3%,
respectively, for the three and six months ended June 30, 2021 as the level of
face amount issued continued to exceed the face amount terminated. As a
percentage of the beginning face amount in-force, issued face amount as well as
terminated face amount during the three and six months ended June 30, 2021 ,
respectively,
26
-------------------------------------------------------------------------------- remained consistent with the comparable 2020 periods and illustrate the strong demand for both buying and maintaining protection products. During the three and six months endedJune 30, 2021 and the three months endedJune 30, 2020 , the effect of a stronger Canadian dollar in relation to theU.S. dollar increased the translated face amount of existing policies in-force and increased the overall issued face amount. Conversely, during the six months endedJune 30, 2020 , the strengthening of theU.S. dollar in relation to the Canadian dollar reduced the translated face amount in-force.
Investment and Savings Products Sales, Asset Values and Accounts/Positions.
Investment and savings products sales and average client asset values were as
follows:
Three months ended June 30, Change Six months ended June 30, Change
2021 2020 $ % 2021 2020 $ %
(Dollars in millions)
Product sales:
Retail mutual funds $ 1,693 $ 924 $ 769 83 % $ 3,379 $ 2,126 $ 1,253 59 %
Annuities and other 830 489 341 70 % 1,513 1,162 351 30 %
Total sales-based
revenue generating
product sales 2,523 1,413 1,110 79 % 4,892 3,288 1,604 49 %
Managed investments 382 200 182 91 % 712 446 266 59 %
Segregated funds and
other 135 74 61 83 % 290 199 91 46 %
Total product sales $ 3,040 $ 1,687 $ 1,353 80 % $ 5,894 $ 3,933 $ 1,961 50 %
Average client asset
values:
Retail mutual funds $ 55,654 $ 39,159 $ 16,495 42 % $ 53,541 $ 39,901 $ 13,640 34 %
Annuities and other 25,095 19,317 5,778 30 % 24,440 19,499 4,941 25 %
Managed investments 5,915 3,871 2,044 53 % 5,605 3,888 1,717 44 %
Segregated funds 2,713 2,291 422 18 % 2,666 2,328 338 15 %
Total average client
asset values $ 89,377 $ 64,638 $ 24,739 38 % $ 86,252 $ 65,616 $ 20,636 31 %
The rollforward of asset values in client accounts was as follows:
Three months ended June 30 , Six
months ended
2021 % of beginning balance 2020 % of beginning balance 2021 % of beginning balance 2020 % of beginning balance
(Dollars in millions)
Asset values, beginning
of period $ 85,888 $ 59,036 $ 81,533 $ 70,537
Net change in asset
values:
Inflows 3,041 4 % 1,687 3 % 5,894 7 % 3,933 6 %
Redemptions (1,827 ) (2 )% (1,074 ) (2 )% (3,585 ) (4 )% (2,777 ) (4 )%
Net flows 1,214 1 % 613 1 % 2,309 3 % 1,156 2 %
Change in fair value, net 4,433 5 % 8,171 14 % 7,521 9 % (2,894 ) (4 )%
Foreign currency, net 200 * 404 1 % 372 * (575 ) (1 )%
Net change in asset
values 5,847 7 % 9,188 16 % 10,202 13 % (2,313 ) (3 )%
Asset values, end of
period $ 91,735 $ 68,224 $ 91,735 $ 68,224
* Less than 1%.
Average number of fee-generating positions was as follows:
Three months ended June 30, Change Six months ended June 30, Change
2021 2020 Positions % 2021 2020 Positions %
(Positions in thousands)
Average number of
fee-generating
positions (1):
Recordkeeping and
custodial 2,159 2,048 111 5 % 2,137 2,039 98 5 %
Recordkeeping only 741 671 70 10 % 727 665 62 9 %
Total average number
of fee-
generating positions 2,900 2,719 181 7 % 2,864 2,704 160 6 %
(1) We receive recordkeeping fees by mutual fund positions. An individual client
account may include multiple mutual fund positions. We may also receive
fees, which are earned on a per account basis, for custodial services that
we provide to clients with retirement plan accounts that hold positions in
these mutual funds.
Changes in Investment and Savings Products Sales, Asset Values and
Accounts/Positions During the Three Months Ended
Product sales. Investment and savings products sales increased during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 led by higher sales of retail mutual funds, variable annuities, and managed investments. This increase is mainly due to the continued strength in equity market conditions that have fueled investor confidence and emphasis on the importance of saving for the future. 27 -------------------------------------------------------------------------------- Average client asset values. Average client asset values increased for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 primarily due to continued market appreciation between the periods and continued positive net flows. In addition, average client asset values in 2020 were negatively impacted by the initial market reaction to economic uncertainty associated with the onset of the COVID-19 pandemic. Rollforward of client asset values. Ending client asset values increased for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , due to market appreciation and continued inflows from product sales, which outpaced redemptions. Strong market performance lifted client asset values during the 2021 periods but not to the extent it did in 2020 due to the significant recovery from the initial lows experienced at the onset of the COVID-19 pandemic. Average number of fee-generating positions. The average number of fee-generating positions increased during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 primarily due to the cumulative effect of retail mutual fund sales in recent periods that led to an increase in the number of retail mutual fund positions serviced on our transfer agent recordkeeping platform.
Changes in Investment and Savings Products Sales, Asset Values and
Accounts/Positions During the Six Months Ended
Product sales. Investment and savings products sales increased during the six
months ended
Average client asset values. Average client asset values increased for the six
months ended
Rollforward of client asset values. Ending client asset values increased for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 primarily due to overall market appreciation experienced throughout the first half of 2021. Comparatively, the impact of market performance caused a decrease in client asset values during the six months endedJune 30, 2020 as the market did not fully recover from the initial reaction to the COVID-19 pandemic by the end of the prior year period. Elevated net flows also contributed to the increase in client asset values during the six months endedJune 30, 2021 versus the prior year period. Average number of fee-generating positions. The average number of fee-generating positions increased during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 primarily due to the same factors discussed above in the three-month comparison.
Other business trends and conditions.
Standards of care. TheSEC's regulation Best Interest ("Reg BI"), which establishes a "best interest" standard of conduct and imposes certain disclosure requirements, went into effect onJune 30, 2020 . Its higher standards of care and enhanced obligations increase regulatory and litigation risk. In addition, onDecember 15, 2020 , theDepartment of Labor ("DOL") published an interpretation of, and class exemption regarding, the rules governing fiduciary investment advice with respect to Individual Retirement Accounts ("IRAs") and other retirement accounts (the "DOL Rule"). The effective date of the DOL Rule wasFebruary 16, 2021 and the DOL extended its non-enforcement policy throughDecember 20, 2021 . The DOL Rule imposes a higher standard of care and enhanced obligations that require sales process changes and increase regulatory and litigation risk to our business. The interpretation and enforcement of Reg BI and the DOL Rule by theSEC and the DOL, respectively, remain uncertain and could have the potential to disrupt our investment and savings products business in theU.S. In addition to federal regulators, certain states have proposed or passed laws or proposed or issued regulations requiring investment advisers, broker-dealers, and/or insurance agents to meet fiduciary standards or standards of care that their advice be in the customer's best interest, and to mitigate and disclose conflicts of interest to consumers of investment and insurance products. The severity of the impact that such state laws or regulations could have on our business varies from state to state depending on the content of the legislation or regulation and how it would be applied by state regulators and interpreted by the courts, but such laws or regulations could disrupt our brokerage or advisory businesses in the relevant state. We cannot quantify the financial impact, if any, of any changes to our business that may be necessary in order to comply with such laws or regulations at this time. Worker classification standards. There has been a trend toward administrative and legislative activity around worker classification. In 2019, for example,California enacted Assembly Bill 5 ("AB 5"), which imposes a stricter test for the classification of workers as independent contractors. Our business lines are exempted from AB 5. In 2020, theDepartment of Labor commenced a rulemaking to clarify the classification standard under the Fair Labor Standards Act. That process resulted in a final rule which since has been withdrawn by the new administration. TheHouse of Representatives has passed the Protecting the Right to Organize Act ("PRO Act"), which includes a new worker classification test under the National Labor Relations Act. Other federal and state legislative and regulatory proposals regarding worker classification also are under consideration. While none of these proposals have advanced into law, they demonstrate increased legislative and administrative activity around worker classification. It is difficult to predict what the ultimate outcome of this activity may be. Changes to worker classification laws could impact our business as our sales representatives are independent contractors. 28 -------------------------------------------------------------------------------- Restrictions on compensation models inCanada . The organization of provincial and territorial securities regulators (collectively referred to as the "Canadian Securities Administrators" or "CSA") have published final rule amendments to prohibit upfront sales commissions by fund companies for the sale of mutual funds offered under a prospectus inCanada ("DSC Ban"). The final amendments have an effective date ofJune 1, 2022 . The CSA indicated that the prohibition of upfront sales commissions by fund companies will require firms to discontinue the use of the mutual fund deferred sales charge compensation model, which is the primary model for the mutual funds we distribute inCanada . These rules will result in changes in compensation arrangements with both the fund companies that offer the mutual fund products we distribute and sales representatives. The deferred sales charge compensation model is permitted to be used until the effective date. We have not finalized the changes we will make in response to the DSC Ban. Therefore, we are unable to quantify the potential impact on our financial condition or results of operations.
Factors Affecting Our Results
Refer to the Business Trends and Conditions section for discussion of the potential impact on our business from the COVID-19 pandemic.
Term Life Insurance Segment. Our
Sales and policies in-force. Sales of term policies and the size and characteristics of our in-force book of policies are vital to our results over the long term. Premium revenue is recognized as it is earned over the term of the policy, and eligible acquisition expenses are deferred and amortized ratably with the level premiums of the underlying policies. However, because we incur significant cash outflows at or about the time policies are issued, including the payment of sales commissions and underwriting costs, changes in life insurance sales volume in a period will have a more immediate impact on our cash flows than on revenue and expense recognition in that period. Historically, we have found that while sales volume of term life insurance products between fiscal periods may vary based on a variety of factors, the productivity of sales representatives generally remains within a range (i.e., an average monthly rate of new policies issued per life-licensed sales representative between 0.18 and 0.22). The volume of our term life insurance products sales will fluctuate in the short term, but over the longer term, our sales volume generally correlates to the size of the independent sales force. Pricing assumptions. Our pricing methodology is intended to provide us with appropriate profit margins for the risks we assume. We determine pricing classifications based on the coverage sought, such as the size and term of the policy, and certain policyholder attributes, such as age and health. In addition, we generally utilize unisex rates for our term life insurance policies. The pricing assumptions that underlie our rates are based upon our best estimates of mortality, persistency, disability, and interest rates at the time of issuance, sales force commission rates, issue and underwriting expenses, operating expenses and the characteristics of the insureds, including the distribution of sex, age, underwriting class, product and amount of coverage. Our results will be affected to the extent there is a variance between our pricing assumptions and actual experience.
• Persistency. Persistency is a measure of how long our insurance policies
stay in-force. As a general matter, persistency that is lower than our
pricing assumptions adversely affects our results over the long termbecause we lose the recurring revenue stream associated with the policies
that lapse. Determining the near-term effects of changes in persistency is
more complicated. When actual persistency is lower than our pricing
assumptions, we must accelerate the amortization of deferred policy
acquisition costs ("DAC"). The resultant increase in amortization expense
is offset by a corresponding release of reserves associated with lapsed
policies, which causes a reduction in benefits and claims expense. The
future policy benefit reserves associated with any given policy willchange over the term of such policy. As a general matter, future policy
benefit reserves are lowest at the inception of a policy term and rise
steadily to a peak before declining to zero at the expiration of thepolicy term. Accordingly, depending on when the lapse occurs in relation
to the overall policy term, the reduction in benefits and claims expense
may be greater or less than the increase in amortization expense, and,
consequently, the effects on earnings for a given period could be positive
or negative. Persistency levels will impact results to the extent actual
experience deviates from the persistency assumptions that are locked-in at
time of issue.
• Mortality. Our profitability will fluctuate to the extent actual mortality
rates differ from the assumptions that are locked-in at time of issue. We
mitigate a significant portion of our mortality exposure through
reinsurance.
• Disability. Our profitability will fluctuate to the extent actualdisability rates, including recovery rates for individuals currently
disabled, differ from the assumptions that are locked-in at the time of
issue or time of disability.
• Interest Rates. We use an assumption for future interest rates that
initially reflects the portfolio's current reinvestment rate gradually
increasing over seven years to a level consistent with our expectation of
future yield growth. Both DAC and the future policy benefit reserve
liability increase with the assumed interest rate. Since DAC is higher
than the future policy benefit reserve liability in the early years of a
policy, a lower assumed interest rate generally will result in lower
profits. In the later years, when the future policy benefit reserveliability is higher than DAC, a lower assumed interest rate generally will
result in higher profits. These assumed interest rates, which like other
pricing assumptions are locked-in at issue, impact the timing but not the
aggregate amount of DAC and future policy benefit reserve changes. We
allocate net investment income generated by the investment portfolio to
the
interest accreted to the segment's
principles ("U.S. GAAP")-measured
29
--------------------------------------------------------------------------------
future policy benefit reserve liability less DAC. All remaining net
investment income, and therefore the impact of actual interest rates, is
attributed to the Corporate and Other Distributed Products segment.
Reinsurance. We use reinsurance extensively, which has a significant effect on
our results of operations. We have generally reinsured between 80% and 90% of
the mortality risk on our term life insurance (excluding coverage under certain
riders) on a quota share yearly renewable term ("YRT") basis. To the extent
actual mortality experience is more or less favorable than the contractual rate,
the reinsurer will earn incremental profits or bear the incremental cost, as
applicable. In contrast to coinsurance, which is intended to eliminate all risks
(other than counterparty risk of the reinsurer) and rewards associated with a
specified percentage of the block of policies subject to the reinsurance
arrangement, the YRT reinsurance arrangements we enter into are intended only to
reduce volatility associated with variances between estimated and actual
mortality rates.
In 2010, as part of our corporate reorganization and the initial public offering
of our common stock, we entered into significant coinsurance transactions (the
"IPO coinsurance transactions") with entities then affiliated with Citigroup,
Inc. (collectively, the "IPO coinsurers") and ceded between 80% and 90% of the
risks and rewards of our term life insurance policies that were in-force at
year-end 2009. We administer all such policies subject to these coinsurance
agreements. Policies reaching the end of their initial level term period are no
longer ceded under the IPO coinsurance transactions.
The effect of our reinsurance arrangements on ceded premiums and benefits and expenses on our statements of income follows:
• Ceded premiums. Ceded premiums are the premiums we pay to reinsurers.
These amounts are deducted from the direct premiums we earn to calculate
our net premium revenues. Similar to direct premium revenues, ceded
coinsurance premiums remain level over the initial term of the insurance
policy. Ceded YRT premiums increase over the period that the policy has
been in-force. Accordingly, ceded YRT premiums generally constitute an
increasing percentage of direct premiums over the policy term.
• Benefits and claims. Benefits and claims include incurred claim amounts
and changes in future policy benefit reserves. Reinsurance reduces
incurred claims in direct proportion to the percentage ceded. Coinsurance
also reduces the change in future policy benefit reserves in direct
proportion to the percentage ceded, while YRT reinsurance does not
significantly impact the change in these reserves.
• Amortization of DAC. DAC, and therefore amortization of DAC, is reduced on
a pro-rata basis for the coinsured business, including the business
reinsured with the IPO coinsurers. There is no impact on amortization of
DAC associated with our YRT contracts.
• Insurance expenses. Insurance expenses are reduced by the allowances
received from coinsurance. There is no impact on insurance expenses
associated with our YRT contracts.
We may alter our reinsurance practices at any time due to the unavailability of YRT reinsurance at attractive rates or the availability of alternatives to reduce our risk exposure. We presently intend to continue ceding approximately 90% of ourU.S. and Canadian mortality risk on new business.
Expenses. Results are also affected by variances in client acquisition, maintenance and administration expense levels.
Investment and Savings Products Segment. Our Investment and Savings Products segment results are primarily driven by sales, the value of assets in client accounts for which we earn ongoing management, marketing and support, and distribution fees, and the number of transfer agent recordkeeping positions and non-bank custodial fee-generating accounts we administer. Sales. We earn commissions and fees, such as dealer re-allowances and marketing and distribution fees, based on sales of mutual fund products and annuities. Sales of investment and savings products are influenced by the overall demand for investment products inthe United States and Canada, as well as by the size and productivity of the independent sales force. We generally experience seasonality in our Investment and Savings Products segment results due to our high concentration of sales of retirement account products. These accounts are typically funded in February through April, coincident with our clients' tax return preparation season. While we believe the size of the independent sales force is a factor in driving sales volume in this segment, there are a number of other variables, such as economic and market conditions, which may have a significantly greater effect on sales volume in any given fiscal period. Asset values in client accounts. We earn marketing and distribution fees (trail commissions or, with respect toU.S. mutual funds, 12b-1 fees) on mutual fund and annuity assets inthe United States and Canada. Inthe United States , we also earn investment advisory and administrative fees on assets in managed investments. In Canada, we earn management fees on certain mutual fund assets and on the segregated funds for which we serve as investment manager. Asset values are influenced by new product sales, ongoing contributions to existing accounts, redemptions and the change in market values in existing accounts. While we offer a wide variety of asset classes and investment styles, our clients' accounts are primarily invested in equity funds. Positions. We earn transfer agent recordkeeping fees for administrative functions we perform on behalf of several of our mutual fund providers. An individual client account may include multiple fund positions for which we earn transfer agent recordkeeping fees. We may also receive fees earned for non-bank custodial services that we provide to clients with retirement plan accounts. 30
--------------------------------------------------------------------------------
Sales mix. While our investment and savings products all provide similar long-term economic returns to the Company, our results in a given fiscal period will be affected by changes in the overall mix of products within these categories. Examples of changes in the sales mix that influence our results include the following:
• sales of annuity products in
revenues in the period such sales occur than sales of other investment
products that either generate lower upfront revenues or, in the case of
managed investments and segregated funds, no upfront revenues;
• sales of a higher proportion of managed investments and segregated funds
products will spread the revenues generated over time because we earn
higher revenues based on assets under management for these accounts eachperiod as opposed to earning upfront revenues based on product sales; and
• sales of a higher proportion of mutual fund products sold will impact the
timing and amount of revenue we earn given the distinct transfer agent
recordkeeping and non-bank custodial services we provide for certain
mutual fund products we distribute.
Corporate and Other Distributed Products Segment. We earn revenues and pay commissions and referral fees within our Corporate and Other Distributed Products segment for mortgage loan originations, prepaid legal services, auto and homeowners' insurance referrals, and other financial products, all of which are originated by third parties. Our Corporate and Other Distributed Products segment also includes in-force policies from several discontinued lines of insurance underwritten byNational Benefit Life Insurance Company ("NBLIC"). Corporate and Other Distributed Products segment net investment income reflects actual net investment income recognized by the Company less the amount allocated to ourTerm Life Insurance segment based on the assumed net interest accreted to the segment'sU.S. GAAP-measured future policy benefit reserve liability less DAC. Actual net investment income reflected in the Corporate and Other Distributed Products segment is impacted by the size and performance of our invested asset portfolio, which can be influenced by interest rates, credit spreads, and the mix of invested assets. The Corporate and Other Distributed Products segment also includes corporate income and expenses not allocated to our other segments, general and administrative expenses (other than expenses that are allocated to ourTerm Life Insurance or Investment and Savings Products segments), interest expense on notes payable, redundant reserve financing transactions and our Revolving Credit Facility, as well as realized gains and losses on our invested asset portfolio. Capital Structure. Our financial results are affected by our capital structure, which includes our senior unsecured notes (the "Senior Notes"), redundant reserve financing transactions, our Revolving Credit Facility, and our common stock. See Note 7 (Stockholders' Equity), Note 10 (Commitments and Contingent Liabilities), and Note 12 (Debt) to our unaudited condensed consolidated financial statements included elsewhere in this report for more information on changes in our capital structure. Foreign Currency. The Canadian dollar is the functional currency for our Canadian subsidiaries and our consolidated financial results, reported inU.S. dollars, are affected by changes in the currency exchange rate. As such, the translated amount of revenues, expenses, assets and liabilities attributable to our Canadian subsidiaries will be higher or lower in periods where the Canadian dollar appreciates or weakens relative to theU.S. dollar, respectively. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk - Canadian Currency Risk included in our 2020 Annual Report and Note 2 (Segment and Geographical Information) to our unaudited condensed consolidated financial statements included elsewhere in this report for more information on our Canadian subsidiaries and the impact of foreign currency on our financial results.
Critical Accounting Estimates
We prepare our financial statements in accordance withU.S. GAAP. These principles are established primarily by theFinancial Accounting Standards Board . The preparation of financial statements in conformity withU.S. GAAP requires us to make estimates and assumptions based on currently available information when recording transactions resulting from business operations. Our significant accounting policies are described in Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies) to our consolidated financial statements included in our 2020 Annual Report. The most significant items on our unaudited condensed consolidated balance sheets are based on fair value determinations, accounting estimates and actuarial determinations, which are susceptible to changes in future periods and could affect our results of operations and financial position. The estimates that we deem to be most critical to an understanding of our results of operations and financial position are those related to DAC, future policy benefit reserves and corresponding amounts recoverable from reinsurers, income taxes, and the valuation of investments. The preparation and evaluation of these critical accounting estimates involve the use of various assumptions developed from management's analyses and judgments. Subsequent experience or use of other assumptions could produce significantly different results.
Accounting Policy Changes.
During the three and six months ended
31
--------------------------------------------------------------------------------Results of OperationsPrimerica, Inc. and Subsidiaries Results. Our results of operations were as follows: Three months ended Six months ended June 30, Change June 30, Change 2021 2020 $ % 2021 2020 $ % (Dollars in thousands) Revenues: Direct premiums$ 780,299 $ 717,088 $ 63,211 9 %$ 1,542,526 $ 1,419,725 $ 122,801 9 % Ceded premiums (413,850 ) (402,549 ) 11,301 3 % (809,822 ) (789,374 ) 20,448 3 % Net premiums 366,449 314,539 51,910 17 % 732,704 630,351 102,353 16 % Commissions and fees 250,688 171,788 78,900 46 % 484,733 361,857 122,876 34 % Investment income net of investment expenses 36,030 36,784 (754 ) (2 )% 71,230 65,676 5,554 8 % Interest expense on surplus note (15,495 ) (14,074 ) 1,421 10 % (30,642 ) (27,546 ) 3,096 11 % Net investment income 20,535 22,710 (2,175 ) (10 )% 40,588 38,130 2,458 6 % Realized investment gains (losses) 701 1,742 (1,041 ) * 2,467 (8,288 ) 10,755 * Other, net 16,313 15,036 1,277 8 % 31,907 28,701 3,206 11 % Total revenues 654,686 525,815 128,871 25 % 1,292,399 1,050,751 241,648 23 % Benefits and expenses: Benefits and claims 168,347 139,646 28,701 21 % 352,136 274,459 77,677 28 % Amortization of DAC 54,286 53,177 1,109 2 % 120,390 123,488 (3,098 ) (3 )% Sales commissions 131,303 85,492 45,811 54 % 253,197 182,099 71,098 39 % Insurance expenses 48,579 43,753 4,826 11 % 97,346 92,463 4,883 5 % Insurance commissions 8,838 6,333 2,505 40 % 17,578 13,177 4,401 33 % Interest expense 7,141 7,200 (59 ) (1 )% 14,285 14,392 (107 ) (1 )% Other operating expenses 66,726 56,152 10,574 19 % 139,694 122,066 17,628 14 % Total benefits and expenses 485,220 391,753 93,467 24 % 994,626 822,144 172,482 21 % Income before income taxes 169,466 134,062 35,404 26 % 297,773 228,607 69,166 30 % Income taxes 41,304 32,552 8,752 27 % 71,740 54,628 17,112 31 % Net income$ 128,162 $ 101,510 $ 26,652 26 %$ 226,033 $ 173,979 $ 52,054 30 %
* Less than 1% or not meaningful.
Results for the Three Months Ended
Total revenues. Total revenues increased during the three months endedJune 30, 2021 compared to the same period in 2020 driven by higher commissions and fees earned in the Investment and Savings Products segment and growth in net premiums in the Term Life segment. Commissions and fees earned during the three months endedJune 30, 2021 compared to the same period in 2020 increased in part due to higher sales-based revenues driven by strong demand for mutual fund and variable annuity products. Also contributing to the increase in commissions and fees was growth in asset-based revenues, reflecting higher average client asset values driven by market appreciation and continued positive net flows since the prior year period. The increase in Term Life net premiums were also impacted by incremental premiums on term life insurance policies that are not subject to the IPO coinsurance transactions as well as the layering effect of strong sales of life insurance and significant positive persistency trends experienced across all policy durations as a result of favorable public sentiment for protection products since the onset of the COVID-19 pandemic. Net investment income decreased during the three months endedJune 30, 2021 compared to the same period in 2020 due to a$1.9 million negative impact from lower yields on the invested asset portfolio and a lower total return on the deposit asset backing the 10% coinsurance agreement that is subject to deposit method accounting. The lower year-over-year total return of$2.6 million on this deposit asset was due to a positive mark-to-market return in the prior year period as fixed income prices recovered from the low levels seen at the end of the first quarter of 2020. These decreases were partially offset by a$3.5 million positive impact from growth in the invested asset portfolio. Investment income net of investment expenses includes interest earned on our held-to-maturity asset, which is completely offset by interest expense on surplus note, thereby eliminating any impact on net investment income. Amounts recognized for each line item will remain offsetting and will fluctuate from period to period along with the principal amounts of the held-to-maturity asset and the surplus note based on the balance of reserves being contractually supported under a redundant reserve financing transaction used byVidalia Re, Inc. ("Vidalia Re Financing Transaction"). For more information on the Vidalia Re Financing Transaction, see Note 3 (Investments) and Note 12 (Debt) to our unaudited condensed consolidated financial statements included elsewhere in this report. Other, net revenues increased during the three months endedJune 30, 2021 compared to the same period in 2020 largely due to the increase in fees received for access to Primerica Online ("POL"), our primary sales force support tool. The increase in these fees is consistent with subscriber growth. Fees collected for POL subscriptions are allocated between ourTerm Life Insurance segment and our Investment and Savings Products segment based on the estimated number of sales representatives that are licensed to sell products 32 --------------------------------------------------------------------------------
in each segment. The increase in these fees was accompanied by higher spending reflected in insurance and other operating expenses to support and enhance POL.
Total benefits and expenses. Total benefits and expenses increased during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 largely due to higher sales commissions as a result of the increases in sales-based and asset-based revenues discussed above. Also contributing to the increase were the growth in benefits and claims due to growth in our in-force book of business, including the impact of positive persistency trends experienced sinceMarch 2020 . COVID-19 related claims in excess of historical trends declined during the three months endedJune 30, 2021 versus the same period in 2020 while non-COVID-19 related claims in excess of historical trends increased year-over-year. Other operating expenses were also higher in the three months endedJune 30, 2021 due to growth in the business and various initiatives to support business development.
Income taxes. Our effective income tax rate for the three months ended
Results for the Six Months Ended
Total revenues. Net premiums and Commissions and fees increased during the six months endedJune 30, 2021 compared to the same period in 2020 primarily due to the same factors discussed above in the three-month comparison. Net investment income increased during the six months endedJune 30, 2021 compared to the same period in 2020 largely due to the positive impact from a higher total return on the deposit asset backing the 10% coinsurance agreement that is subject to deposit method accounting. The$2.5 million higher total return on this deposit asset was due to a negative mark-to-market adjustment during the prior year period as fixed-maturity income security prices fell as a result of the market's reaction to economic uncertainty at the onset of the COVID-19 pandemic. Also contributing to an increase in net investment income was growth in the invested asset portfolio, which resulted in an increase in net investment income of$6.1 million , partially offset by lower yields on our invested asset portfolio of$4.1 million compared to the comparable 2020 period. Investment income net of investment expenses includes interest earned on our held-to-maturity invested asset, which is completely offset by interest expense on surplus note, thereby eliminating any impact on net investment income. Amounts recognized for each line item will remain offsetting and will fluctuate from period to period along with the principal amounts of the held-to-maturity asset and the surplus note based on the balance of reserves being contractually supported under a redundant reserve financing transaction used byVidalia Re, Inc. ("Vidalia Re Financing Transaction"). For more information on the Vidalia Re Financing Transaction, see Note 3 (Investments) and Note 12 (Debt) to our unaudited condensed consolidated financial statements and included elsewhere in this report. Realized investment gains (losses) increased to a gain during the six months endedJune 30, 2021 compared to a loss in the same period in 2020 primarily due to a$1.5 million positive mark-to-market adjustment on equity securities held within our investment portfolio during the six months endedJune 30, 2021 compared to$5.2 million negative mark-to-market adjustment on equity securities held within our investment portfolio in the comparable 2020 period as a result of market reaction to the economic disruption caused by the onset of the COVID-19 pandemic. Also contributing to the realized investment loss during the six months endedJune 30, 2020 was the recognition of$3.8 million of credit losses for specific issuers that operated in distressed industry sectors that were particularly affected by the economic disruption caused by the onset of the COVID-19 pandemic. By comparison, during the six months endedJune 30, 2021 , only$0.9 million of credit losses were recognized.
Other, net revenues increased during the six months ended
Total benefits and expenses. Total benefits and expenses increased during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 primarily due to the factors discussed above in the three-months comparison. Also contributing to the increase were growth in benefits and claims as a result of higher mortality experience caused by the COVID-19 pandemic during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . Income taxes. Our effective income tax rate for the six months endedJune 30, 2021 was 24.1%, relatively consistent with 23.9% for the six months endedJune 30, 2020 .
For additional information, see the Segment Results discussions below.
33
--------------------------------------------------------------------------------Segment Results
Term Life Insurance Segment Results. Our results for theTerm Life Insurance segment were as follows: Three months ended Six months ended June 30, Change June 30, Change 2021 2020 $ % 2021 2020 $ % (Dollars in thousands) Revenues: Direct premiums$ 774,500 $ 711,188 $ 63,312 9 %$ 1,531,014 $ 1,407,751 $ 123,263 9 % Ceded premiums (412,028 ) (400,919 ) 11,109 3 % (806,578 ) (786,151 ) 20,427 3 % Net premiums 362,472 310,269 52,203 17 % 724,436 621,600 102,836 17 % Allocated investment income 8,751 6,538 2,213 34 % 17,004 12,785 4,219 33 % Other, net 12,313 11,426 887 8 % 24,125 21,594 2,531 12 % Total revenues 383,536 328,233 55,303 17 % 765,565 655,979 109,586 17 % Benefits and expenses: Benefits and claims 162,488 135,409 27,079 20 % 341,452 263,973 77,479 29 % Amortization of DAC 52,235 52,730 (495 ) (1 )% 114,820 118,571 (3,751 ) (3 )% Insurance expenses 47,252 42,306 4,946 12 % 94,627 89,472 5,155 6 % Insurance commissions 4,785 2,884 1,901 66 % 9,654 6,169 3,485 56 %
Total benefits and expenses 266,760 233,329 33,431 14 % 560,553 478,185 82,368 17 %
Income before income taxes
Results for the Three Months Ended
Net premiums. Direct premiums increased during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 largely due to continued strong sales of new policies in recent periods that contributed to growth in the in-force book of business. Also contributing to the increase in direct premiums are high levels of persistency experienced during recent periods as a result of favorable public sentiment for protection products since the onset of the COVID-19 pandemic. This is partially offset by an increase in ceded premiums, which includes$20.1 million in higher non-level YRT reinsurance ceded premiums as business not subject to the IPO coinsurance transactions ages, reduced by$9.0 million in lower coinsurance ceded premiums due to the run-off of business subject to the IPO coinsurance transactions. Allocated investment income. Allocated investment income increased during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 due to an increase in the assumed net interest accreted to ourTerm Life Insurance segment's future policy benefit reserve liability less deferred acquisition costs as ourTerm Life Insurance segment's in-force business continues to grow. Benefits and claims. Benefits and claims increased during the three months endedJune 30, 2021 compared to the same period in 2020 primarily due to growth in net premiums and increases to reserves due to favorable persistency trends. Total benefits and claims during the three months endedJune 30, 2021 also includes approximately$9 million in claims in excess of historical trends, driven by$6 million of COVID-19 related claims and$3 million of other claims not identified as COVID-19. This compares with COVID-19 related claims of approximately$10 million in the second quarter 2020. Benefit reserve increases due to higher persistency were approximately$6 million for the three months endedJune 30, 2021 compared to approximately$4 million for the same period in 2020. Amortization of DAC. The amortization of DAC decreased slightly during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 due to high levels of persistency experienced for all policy durations as a result of favorable public sentiment for protection products since the onset of the COVID-19 pandemic. While we normally expect the amortization of DAC to increase as the business grows, this significant shift in persistency has slowed down the amortization on our existing book of business. This reduced the amortization of DAC from pre-COVID-19 historical levels by approximately$14 million for the three months endedJune 30, 2021 compared to approximately$8 million for the same period in 2020. Insurance expenses. Insurance expenses increased during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 primarily due to an increase in expenses to support growth in the business and employee-related expenses. Insurance commissions. Insurance commissions increased during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 as a result of higher non-deferrable sales force incentives.
Results for the Six Months Ended
Net premiums. Direct premiums increased during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 due to the same factors discussed in the three-month comparison. This is partially offset by an increase in ceded premiums, which includes$39.7 million in higher non-level YRT reinsurance ceded premiums as business not subject to the IPO coinsurance transactions ages, reduced by$19.2 million in lower coinsurance ceded premiums due to the run-off of business subject to the IPO coinsurance transactions. 34 -------------------------------------------------------------------------------- Allocated investment income. Allocated investment income increased during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 due to the same factors discussed in the three-month comparison. Benefits and claims. Benefits and claims increased during the six months endedJune 30, 2021 compared to the same period in 2020 primarily due to higher mortality experience as a result of the COVID-19 pandemic as well as larger reserve increases due to favorable persistency trends and growth in net premiums. Total benefits and claims experience increased during the six months endedJune 30, 2021 by approximately$30 million of claims in excess of historical trends, driven by$27 million of COVID-19 related claims and$3 million of other claims not identified as COVID-19, compared to approximately$10 million of excess claims due to COVID-19 in the same period in 2020. Benefit reserve increases due to higher persistency were approximately$13 million for the six months endedJune 30, 2021 compared to approximately$4 million for the same period in 2020. Amortization of DAC. The amortization of DAC decreased during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 as a result of the higher levels of persistency discussed in the three-month comparison. This reduced the amortization of DAC from pre-COVID-19 historical levels by approximately$26 million for the six months endedJune 30, 2021 compared to approximately$11 million for the same period in 2020. Insurance expenses. Insurance expenses increased during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 primarily due to an increase in expenses of$8.5 million as a result of growth in the business and employee-related expenses. This increase was partially offset by a decrease in expenses of$5.0 million as a result of event cancellations and a reduction in sales force-related expenses in 2021 caused by the COVID-19 pandemic. Insurance commissions. Insurance commissions increased during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 primarily due to the same factors discussed in the three-month comparison above.
Investment and Savings Products Segment Results. Investment and Savings Products segment results were as follows:
Three months ended June 30, Change Six months ended June 30, Change
2021 2020 $ % 2021 2020 $ %
(Dollars in thousands)
Revenues:
Commissions and fees:
Sales-based revenues $ 104,716 $ 62,812 $ 41,904 67 % $ 202,828 $ 143,704 $ 59,124 41 %
Asset-based revenues 108,490 78,146 30,344 39 % 209,731 159,540 50,191 31 % Account-based revenues
21,848 20,478 1,370 7 % 42,968 40,682 2,286 6 %
Other, net 2,958 2,745 213 8 % 5,907 5,287 620 12 %
Total revenues 238,012 164,181 73,831 45 % 461,434 349,213 112,221 32 %
Expenses:
Amortization of DAC 1,786 100 1,686 1686 % 5,061 4,405 656 15 %
Insurance commissions 3,747 3,106 641 21 % 7,319 6,307 1,012 16 %
Sales commissions:
Sales-based 73,629 44,834 28,795 64 % 142,224 101,395 40,829 40 %
Asset-based 50,488 35,673 14,815 42 % 97,355 71,996 25,359 35 %
Other operating expenses 37,208 33,608 3,600 11 % 74,960 70,551 4,409 6 %
Total expenses 166,858 117,321
49,537 42 % 326,919 254,654 72,265 28 %
Income before income taxes
Results for the Three Months Ended
Commissions and fees. Commissions and fees increased during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 in part due to higher sales-based revenues driven by robust demand for mutual fund and variable annuity investment products. Comparatively, the 2020 period experienced lower sales-based revenues due to weakened demand for investment products caused by market volatility at the onset of the COVID-19 pandemic. Also contributing to the increase were growth in asset-based revenues reflecting higher average client asset values driven by market appreciation and continued higher net flows. The growth in account-based revenues is consistent with growth in the number of retail mutual fund positions serviced on our transfer agent recordkeeping platform. Amortization of DAC. Amortization of DAC increased during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 due to the difference in the market performance of the funds underlying our Canadian segregated funds product in the second quarter of 2021 compared to the second quarter of 2020. The performance of these funds was stronger in 2020 as markets partially recovered from lows associated with the onset of the COVID-19 pandemic. Sales commissions. The increase in sales-based and asset-based commissions for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 were generally consistent with the increase in sales-based and asset-based revenue. 35
--------------------------------------------------------------------------------
Other operating expenses. Other operating expenses increased during the three
months ended
Results for the Six Months Ended
Commissions and fees. Commissions and fees increased during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 due to the same factors as described in the three-month comparison above. Amortization of DAC. Amortization of DAC remained relatively consistent during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 as the market performance of the funds underlying the Canadian segregated funds product were comparable between the two periods. Sales commissions. The increase in sales-based and asset-based commissions for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 were in line with the increase in sales-based and asset-based commissions revenues.
Other operating expenses. Other operating expenses increased during the six
months ended
Corporate and Other Distributed Products Segment Results. Corporate and Other Distributed Products segment results were as follows:
Three months ended June 30, Change Six months ended June 30, Change
2021 2020 $ % 2021 2020 $ %
(Dollars in thousands)
Revenues:
Direct premiums $ 5,799 $ 5,900 $ (101 ) (2 )% $ 11,512 $ 11,974 $ (462 ) (4 )%
Ceded premiums (1,822 ) (1,630 ) 192 12 % (3,244 ) (3,223 ) 21 1 %
Net premiums 3,977 4,270 (293 ) (7 )% 8,268 8,751 (483 ) (6 )%
Commissions and fees 15,634 10,352 5,282 51 % 29,206 17,931 11,275 63 %
Investment income net of
investment expenses 27,279 30,246 (2,967 ) (10 )% 54,226 52,891 1,335 3 %
Interest expense on
surplus note (15,495 ) (14,074 ) 1,421 10 % (30,642 ) (27,546 ) 3,096 11 %
Net investment income 11,784 16,172 (4,388 ) (27 )% 23,584 25,345 (1,761 ) (7 )%
Realized investment gains
(losses) 701 1,742 (1,041 ) * 2,467 (8,288 ) 10,755 *
Other, net 1,042 865 177 20 % 1,875 1,820 55 3 %
Total revenues 33,138 33,401 (263 ) (1 )% 65,400 45,559 19,841 44 %
Benefits and expenses:
Benefits and claims 5,859 4,237 1,622 38 % 10,684 10,486 198 2 %
Amortization of DAC 265 347 (82 ) (24 )% 509 512 (3 ) *
Insurance expenses 1,327 1,447 (120 ) (8 )% 2,719 2,991 (272 ) (9 )%
Insurance commissions 306 343 (37 ) (11 )% 605 701 (96 ) (14 )%
Sales commissions 7,186 4,985 2,201 44 % 13,618 8,708 4,910 56 %
Interest expense 7,141 7,200 (59 ) (1 )% 14,285 14,392 (107 ) (1 )%
Other operating expenses 29,518 22,544 6,974 31 % 64,734 51,515 13,219 26 %
Total benefits and
expenses 51,602 41,103 10,499 26 % 107,154 89,305 17,849 20 %
Loss before income taxes $ (18,464 ) $ (7,702 ) $ 10,762 140 % $ (41,754 ) $ (43,746 ) $ (1,992 ) (5 )%
* Less than 1% or not meaningful.
Results for the Three Months Ended
Total revenues. Total revenues decreased slightly during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 led by lower net investment income and realized investment gains. The decrease in net investment income was attributed to the items discussed in thePrimerica, Inc. and Subsidiaries Results of Operations section above as well as the impact of more net investment income being allocated to theTerm Life Insurance segment. These decreases were partially offset by an increase in commissions and fees, which was primarily the result of the continued expansion of ourU.S. mortgage distribution business. Closed mortgage loan volume of$298.6 million generated mortgage commission revenues of$6.1 million during the three months endedJune 30, 2021 compared to closed mortgage loan volume of$65.8 million and mortgage commission revenues of$1.3 million during the three months endedJune 30, 2020 . Total benefits and expenses. Total benefits and expenses increased during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 as a result of higher other operating expenses primarily due to technology and employee-related expenses. Also contributing to the increase in other operating expenses were approximately$2.1 million in transaction-related expenses incurred in connection with the acquisition of e-TeleQuote. Sales commissions and other operating expenses were$3.1 million higher driven by increased sales in ourU.S. mortgage distribution business. Benefits and claims increased$1.6 million during the three months endedJune 30, 2021 as a result of the lower interest rate environment and increased persistency on a closed block of non-term life insurance business written by NBLIC. 36 --------------------------------------------------------------------------------
Results for the Six Months Ended
Total revenues. Total revenues increased during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 in large part due to growth in commissions and fees, which was primarily the result of the continued expansion of ourU.S. mortgage distribution business. Closed mortgage loan volume of$560.9 million generated mortgage commission revenues of$11.0 million during the six months endedJune 30, 2021 compared to closed mortgage loan volume of$78.7 million and mortgage commission revenues of$1.5 million during the six months endedJune 30, 2020 . Also contributing to the increase in total revenues were realized investment gains recognized in the 2021 period versus realized investment losses recognized in the 2020 period as discussed in thePrimerica, Inc. and Subsidiaries Results of Operations section above. These increases were partially offset by a decrease in net investment income during the six months endedJune 30, 2021 versus the six months endedJune 30, 2020 , which is primarily attributable to the impact of more net investment income being allocated to theTerm Life Insurance segment. Total benefits and expenses. Total benefits and expenses increased during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 as a result of higher other operating expenses based on the factors discussed in the three-month comparison. Sales commissions and other operating expenses were$6.6 million higher driven by increased sales in ourU.S. mortgage distribution business. Benefits and claims remained consistent as increased benefits and claims in 2021 on non-term life business written by NBLIC, as described in the three-month comparison, was offset by the year-over-year impact of recognition of a$1.6 million allowance in the 2020 period for ceded claims on a closed block of business that may not be collected from a reinsurer that was ordered into receivership. Financial Condition Investments. Our insurance business is primarily focused on selling term life insurance, which does not include an investment component for the policyholder. The invested asset portfolio funded by premiums from our term life insurance business does not involve the substantial asset accumulations and spread requirements that exist with other non-term life insurance products. As a result, the profitability of our term life insurance business is not as sensitive to the impact that interest rates have on our invested asset portfolio and investment income as the profitability of other companies that distribute non-term life insurance products. We follow a conservative investment strategy designed to emphasize the preservation of our invested assets and provide adequate liquidity for the prompt payment of claims. To meet business needs and mitigate risks, our investment guidelines provide restrictions on our portfolio's composition, including limits on asset type, per issuer limits, credit quality limits, portfolio duration, limits on the amount of investments in approved countries and permissible security types. We also manage and monitor our allocation of investments to limit the accumulation of any disproportionate concentrations of risk among industry sectors or issuer countries outside of theU.S. and Canada. In addition, as ofJune 30, 2021 , we did not hold any country of issuer concentrations outside of theU.S. or Canada that represented more than 5% of the fair value of our available-for-sale invested asset portfolio or any industry concentrations of corporate bonds that represented more than 10% of the fair value of our available-for-sale invested asset portfolio. We invest a portion of our portfolio in assets denominated in Canadian dollars to support our Canadian operations. Additionally, to ensure adequate liquidity for payment of claims, we take into account the maturity and duration of our invested asset portfolio and our general liability profile. We also hold within our invested asset portfolio a credit enhanced note ("LLC Note") issued by a limited liability company owned by a third-party service provider which is classified as a held-to-maturity security. The LLC Note, which is scheduled to mature onDecember 31, 2030 , was obtained in exchange for the Surplus Note of equal principal amount issued by Vidalia Re. For more information on the LLC Note, see Note 3 (Investments) to our unaudited condensed consolidated financial statements included elsewhere in this report. We have an investment committee composed of members of our senior management team that is responsible for establishing and maintaining our investment guidelines and supervising our investment activity. Our investment committee regularly monitors our overall investment results and our compliance with our investment objectives and guidelines. We use a third-party investment advisor to assist us in the management of our investing activities. Our investment advisor reports to our investment committee. Our invested asset portfolio is subject to a variety of risks, including risks related to general economic conditions, market volatility, interest rate fluctuations, liquidity risk and credit and default risk. Investment guideline restrictions have been established to minimize the effect of these risks but may not always be effective due to factors beyond our control. Interest rates and credit spreads are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. A significant increase in interest rates or credit spreads could result in significant losses, realized or unrealized, in the value of our invested asset portfolio.
Details on asset mix (excluding our held-to-maturity security) were as follows:
June 30, 2021 December 31, 2020
Average rating of our fixed-maturity
portfolio A- A
Average duration of our fixed-maturity
portfolio 4.8 years 4.7 years
Average book yield of our fixed-maturity
portfolio 3.31% 3.44%
37
--------------------------------------------------------------------------------
The distribution of fixed-maturity securities in our investment portfolio (excluding our held-to-maturity security) by rating, including those classified as trading securities, were as follows:
June 30, 2021 December 31, 2020
Amortized cost (1) % Amortized cost (1) %
(Dollars in thousands)
AAA $ 399,729 16 % $ 433,763 19 %
AA 281,776 12 % 294,429 13 %
A 536,265 22 % 515,752 22 %
BBB 1,103,390 46 % 979,867 42 %
Below investment grade 100,104 4 % 90,947 4 %
Not rated 3,491 * 2,780 *
Total $ 2,424,755 100 % $ 2,317,538 100 %
(1) Includes trading securities at fair value and available-for-sale securities
at amortized cost.
* Less than 1%.
The ten largest holdings within our fixed-maturity invested asset portfolio (excluding our held-to-maturity security) were as follows:
June 30, 2021
Amortized Unrealized Credit
Issuer Fair value cost (1) gain (loss) rating
(Dollars in thousands)
Government of Canada $ 16,105 $ 15,604 $ 501 AAA
ConocoPhillips 12,524 11,056 1,468 A-
Enbridge Inc 12,196 11,747 449 BBB+
Province of Quebec Canada 11,588 10,530 1,058 AA-
Morgan Stanley 11,582 11,071 511 A+
Province of British Columbia Canada 10,475 10,181 294 AAA
Capital One Financial Corp 10,337 9,886 451 BBB
Province of Alberta Canada 10,178 9,654 524 A
Wells Fargo & Co 9,466 9,172 294 A-
Province of Ontario Canada 9,158 8,714 444 A+
Total - ten largest holdings $ 113,609 $ 107,615 $ 5,994
Total - fixed-maturity securities $ 2,548,083 $ 2,424,755
Percent of total fixed-maturity securities 4 % 4 %
(1) Includes trading securities at fair value and available-for-sale securities
at amortized cost.
For additional information on our invested asset portfolio, see Note 3 (Investments) to our unaudited condensed consolidated financial statements included elsewhere in this report.
Liquidity and Capital Resources
Dividends and other payments to the Parent Company from its subsidiaries are our principal sources of cash. The amount of dividends paid by the subsidiaries is dependent on their capital needs to fund future growth and applicable regulatory restrictions. The primary uses of funds by the Parent Company include the payments of stockholder dividends, repurchases of common shares outstanding, interest on notes payable and our Revolving Credit Facility, general operating expenses, and income taxes. Additionally, over the next four years, use of funds at the Parent Company will include the purchase of the remaining 20% minority interest of e-TeleQuote. As ofJune 30, 2021 , the Parent Company had cash and invested assets of$666.0 million , of which$496.3 million was utilized in the purchase of e-TeleQuote onJuly 1, 2021 .The Parent Company's subsidiaries generate operating cash flows primarily from term life insurance premiums (net of premiums ceded to reinsurers), income from invested assets, commissions and fees collected from the distribution of investment and savings products as well as other financial products. The subsidiaries' principal operating cash outflows include the payment of insurance claims and benefits (net of ceded claims recovered from reinsurers), commissions to the sales force, insurance and other operating expenses, interest expense for future policy benefit reserves financing transactions, and income taxes. The distribution and underwriting of term life insurance requires upfront cash outlays at the time the policy is issued as we pay a substantial majority of the sales commission during the first year following the sale of a policy and incur costs for underwriting activities at the inception of a policy's term. During the early years of a policy's term, we generally receive level term premiums in excess of claims paid. We invest the excess cash generated during earlier policy years in fixed-maturity and equity securities held in support of future policy benefit reserves. In later policy years, cash received from the maturity or sale of invested assets is used to pay claims in excess of level term premiums received.
e-TeleQuote is a senior health insurance distributor of Medicare-related insurance plans. e-Tele-Quote collects cash receipts over a number of years after selling a plan, while the cash outflow for commission expense and other acquisition costs to sell the plans are
38
--------------------------------------------------------------------------------
generally recognized at the time of enrollment. Therefore, as a growing
business, net cash flows at e-TeleQuote are expected to be negative for several
years, with the Parent Company providing working capital to e-TeleQuote via an
intercompany loan agreement.
Historically, cash flows generated by our businesses, primarily from our
existing block of term life policies and our investment and savings products,
have provided us with sufficient liquidity to meet our operating requirements.
We have maintained strong cash flows despite the COVID-19 pandemic due to strong
persistency and reinsurance on ceded mortality claims. We anticipate that cash
flows from our businesses will continue to provide sufficient operating
liquidity over the next 12 months.
If necessary, we could seek to enhance our liquidity position or capital
structure through sales of our available-for-sale investment portfolio, changes
in the timing or amount of share repurchases, additional borrowings against our
revolving credit facility, sales of common stock or debt instruments in the
capital markets, or some combination of these sources. Additionally, we believe
that cash flows from our businesses and potential sources of funding will
sufficiently support our long-term liquidity needs.
Cash Flows. The components of the changes in cash and cash equivalents were as
follows:
Six months ended June 30, Change
2021 2020 $
(In thousands)
Net cash provided by (used in) operating
activities $ 274,793 $ 316,425 $ (41,632 )
Net cash provided by (used in) investing
activities (133,068 ) 2,734 (135,802 )
Net cash provided by (used in) financing
activities 81,102 (214,943 ) 296,045
Effect of foreign exchange rate changes on
cash 4,195 (741 ) 4,936
Change in cash and cash equivalents $ 227,022 $ 103,475 Operating Activities. The largest factor contributing to the decrease in cash provided by operating activities during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2021 was higher cash paid for income taxes. In 2020,U.S. and Canadian tax authorities allowed for the postponement of estimated interim income tax payments until after the second quarter to provide relief to companies at the onset of the COVID-19 pandemic. The impact of elevated claims payments made during the six months endedJune 30, 2021 was largely offset by the collection of ceded claims from reinsurers. Investing Activities. Cash used in investing activities increased during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 as a result of higher purchases of investment securities. During the 2020 period, we temporarily paused purchases of investment securities in order to preserve liquidity at the onset of the COVID-19 pandemic. In addition, during the six months endedJune 30, 2021 , purchases of securities within our investment portfolio increased due to higher interest rates which provided more attractive investment opportunities for the Company. The increase in purchases in 2021 was partially offset by higher sales of investment securities as the Company accumulated cash in anticipation of the e-TeleQuote acquisition. Financing Activities. Cash used in financing activities decreased during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 as we did not execute share repurchases in 2021 in order to accumulate cash used to fund the acquisition of e-TeleQuote onJuly 1, 2021 . In addition, during the six months endedJune 30, 2021 , cash provided by financing activities included$125 million borrowed from our Revolving Credit Facility to purchase e-TeleQuote.Risk-Based Capital ("RBC"). TheNational Association of Insurance Commissioners ("NAIC") has established RBC standards forU.S. life insurers, as well as a risk-based capital model act (the "RBC Model Act") that has been adopted by the insurance regulatory authorities. The RBC Model Act requires that life insurers annually submit a report to state regulators regarding their RBC based upon four categories of risk: asset risk; insurance risk; interest rate risk and business risk. The capital requirement for each is determined by applying factors that vary based upon the degree of risk to various asset, premiums and policy benefit reserve items. The formula is an early warning tool to identify possible weakly capitalized companies for purposes of initiating further regulatory action. As ofJune 30, 2021 , ourU.S. life insurance subsidiaries maintained statutory capital and surplus substantially in excess of the applicable regulatory requirements and remain well positioned to support existing operations and fund future growth. In Canada, an insurer's minimum capital requirement is overseen by the Office of the Superintendentof Financial Institutions ("OSFI") and determined as the sum of the capital requirements for five categories of risk: asset default risk; mortality/morbidity/lapse risks; changes in interest rate environment risk; segregated funds risk; and foreign exchange risk. As ofJune 30, 2021 ,Primerica Life Insurance Company of Canada was in compliance with Canada's minimum capital requirements as determined by OSFI. Redundant Reserve Financings. The Model Regulation entitled Valuation of Life Insurance Policies, commonly known as Regulation XXX, requires insurers to carry statutory policy benefit reserves for term life insurance policies with long-term premium guarantees which are often significantly in excess of the future policy benefit reserves that insurers deem necessary to satisfy claim obligations ("redundant policy benefit reserves"). Accordingly, many insurance companies have sought ways to reduce their capital needs by financing redundant policy benefit reserves through bank financing, reinsurance arrangements and other financing transactions. We have establishedPeach Re, Inc. ("Peach Re") and Vidalia Re as special purpose financial captive insurance companies and wholly owned subsidiaries of Primerica Life. Primerica Life has ceded certain term life policies issued prior to 2011 to Peach Re as part of a 39 -------------------------------------------------------------------------------- Regulation XXX redundant reserve financing transaction (the "Peach Re Redundant Reserve Financing Transaction") and has ceded certain term life policies issued in 2011 through 2017 to Vidalia Re as part of a Regulation XXX redundant reserve financing transaction (the "Vidalia Re Redundant Reserve Financing Transaction"). These redundant reserve financing transactions allow us to more efficiently manage and deploy our capital. The NAIC has adopted a model regulation for determining reserves using a principle-based approach ("principle-based reserves" or "PBR"), which is designed to reflect each insurer's own experience in calculating reserves and move away from a standardized reserving formula. Primerica Life adopted PBR as ofJanuary 1, 2018 . The adoption of PBR facilitated extending the premium guarantees for Primerica Life for the entire initial term period for new sales. The PBR regulation will significantly reduce the statutory policy benefit reserve requirements, but will apply only for business issued after the effective date. As a result, we expect that the adoption of PBR will significantly reduce the need to engage in future redundant reserve financing transactions for business issued after the effective date. See Note 4 (Investments), Note 10 (Debt) and Note 16 (Commitments and Contingent Liabilities) to our consolidated financial statements within our 2020 Annual Report for more information on these redundant reserve financing transactions. Notes Payable. The Company has$375.0 million of publicly-traded, Senior Notes outstanding issued at a price of 99.843% with an annual interest rate of 4.75%, payable semi-annually in arrears onJanuary 15 andJuly 15 . The Senior Notes matureJuly 15, 2022 . We were in compliance with the covenants of the Senior Notes as ofJune 30, 2021 . No events of default occurred during the three and six months endedJune 30, 2021 .
Rating Agencies. There have been no changes to
Short-Term Borrowings. We had no short-term borrowings as of or during the three
and six months ended
Surplus Note. Vidalia Re issued the Surplus Note in exchange for the LLC Note as a part of the Vidalia Re Redundant Reserve Financing Transaction. The Surplus Note has a principal amount equal to the LLC Note and is scheduled to mature onDecember 31, 2030 . For more information on the Surplus Note, see Note 12 (Debt) to our unaudited condensed consolidated financial statements included elsewhere in this report. Off-Balance Sheet Arrangements. We have no transactions, agreements or other contractual arrangements to which an entity unconsolidated with the Company is a party, under which the Company maintains any off-balance sheet obligations or guarantees as ofJune 30, 2021 . Credit Facility Agreement. OnJune 22, 2021 , we amended and restated our unsecured$200.0 million revolving credit facility ("Revolving Credit Facility") with a syndicate of commercial banks. The Revolving Credit Facility has a scheduled termination date ofJune 22, 2026 . Amounts outstanding under the Revolving Credit Facility are borrowed, at our discretion, on the basis of either a LIBOR rate loan, or a base rate loan. LIBOR rate loans bear interest at a periodic rate equal to one-, three-, six-, or 12-month LIBOR, plus an applicable margin. Base rate loans bear interest at the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50% and (c) one-month LIBOR plus 1.00%, plus an applicable margin. The Revolving Credit Facility contains language providing for a benchmark replacement in the event that LIBOR is no longer available. The Revolving Credit Facility also permits the issuance of letters of credit. The applicable margins are based on our debt rating with such margins for LIBOR rate loans and letters of credit ranging from 1.00% to 1.625% per annum and for base rate loans ranging from 0.00% to 0.625% per annum. Under the Revolving Credit Facility, we incur a commitment fee that is payable quarterly in arrears and is determined by our debt rating. This commitment fee ranges from 0.10% to 0.225% per annum of the aggregate amount of the$200.0 million commitment of the lenders under the Revolving Credit Facility that remains undrawn. As ofJune 30, 2021 ,$125.0 million was drawn under the Revolving Credit Facility in anticipation of the acquisition of 80% of the operating subsidiaries ofEtelequote Limited (see Note 14 (Subsequent Events)). As ofJune 30, 2021 , we were in compliance with the covenants of the Revolving Credit Facility. Furthermore, no events of default have occurred under the Revolving Credit Facility in the three and six months endedJune 30, 2021 .
Contractual Obligations Update. There have been no material changes in contractual obligations from those disclosed in the 2020 Annual Report.
40
--------------------------------------------------------------------------------
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Investors are cautioned that certain statements contained in this report as well
as some statements in periodic press releases and some oral statements made by
our officials during our presentations are "forward-looking" statements.
Forward-looking statements include, without limitation, any statement that may
project, indicate or imply future results, events, performance or achievements,
and may contain the words "expect", "intend", "plan", "anticipate", "estimate",
"believe", "will be", "will continue", "will likely result", and similar
expressions, or future conditional verbs such as "may", "will", "should",
"would", and "could". In addition, any statement concerning future financial
performance (including future revenues, earnings or growth rates), ongoing
business strategies or prospects, and possible actions taken by us or our
subsidiaries are also forward-looking statements. These forward-looking
statements involve external risks and uncertainties, including, but not limited
to, those described under the section entitled "Risk Factors" included herein.
Forward-looking statements are based on current expectations and projections
about future events and are inherently subject to a variety of risks and
uncertainties, many of which are beyond the control of our management team. All
forward-looking statements in this report and subsequent written and oral
forward-looking statements attributable to us, or to persons acting on our
behalf, are expressly qualified in their entirety by these risks and
uncertainties. These risks and uncertainties include, among others:
• our failure to continue to attract new recruits, retain sales representatives
or license or maintain the licensing of sales representatives would materially
adversely affect our business, financial condition and results of operations;
• there are a number of laws and regulations that could apply to our
distribution model, which could require us to modify our distribution
structure;
• there may be adverse tax, legal or financial consequences if the independent
contractor status of sales representatives is overturned;
• the Company's or the independent sales representatives' violation of, or
non-compliance with, laws and regulations and related claims and proceedings
could expose us to material liabilities;
• any failure to protect the confidentiality of client information could
adversely affect our reputation and have a material adverse effect on our
business, financial condition and results of operations;
• we may face significant losses if our actual experience differs from our
expectations regarding mortality or persistency;
• our insurance business is highly regulated, and statutory and regulatory
changes may materially adversely affect our business, financial condition and
results of operations;
• a decline in the regulatory capital ratios of our insurance subsidiaries could
result in increased scrutiny by insurance regulators and ratings agencies and
have a material adverse effect on our business, financial condition and
results of operations;
• a significant ratings downgrade by a ratings organization could materially
adversely affect our business, financial condition and results of operations;
• the failure by any of our reinsurers or reserve financing counterparties to
perform its obligations to us could have a material adverse effect on our
business, financial condition and results of operations;
• our Investment and Savings Products segment is heavily dependent on mutual
fund and annuity products offered by a relatively small number of companies,
and, if these products fail to remain competitive with other investment
options or we lose our relationship with one or more of these companies, our
business, financial condition and results of operations may be materially
adversely affected;
• the Company's or the securities-licensed sales representatives' violations of,
or non-compliance with, laws and regulations could expose us to material
liabilities;
• if heightened standards of conduct or more stringent licensing requirements,
such as those adopted by the
proposed or adopted by the
regulators or Canadian securities regulators, are imposed on us or the sales
representatives, or selling compensation is reduced as a result of new
legislation or regulations, it could have a material adverse effect on our
business, financial condition and results of operations;
• if our suitability policies and procedures, or our policies and procedures for
compliance with federal or state regulations governing standards of care, were
deemed inadequate, it could have a material adverse effect on our business,
financial condition and results of operations;
• non-compliance with applicable regulations could lead to revocation of our
subsidiary's status as a non-bank custodian;
• licensing requirements will impact the size of the mortgage loan sales force;
• our
various federal and state laws, changes in which could affect the cost or our
ability to distribute our products and could materially adversely affect our
business, financial condition and results of operations;
• the effects of economic down cycles could materially adversely affect our
business, financial condition and results of operations;
• major public health pandemics, epidemics or outbreaks, specifically, the novel
coronavirus COVID-19 ("COVID-19") pandemic, or other catastrophic events,
could materially adversely impact our business, financial condition and
results of operations;
• in the event of a disaster, our business continuity plan may not be
sufficient, which could have a material adverse effect on our business,
financial condition and results of operations;
• if one of our, or a third-party partner's, significant information technology
systems fails, if its security is compromised, or if the Internet becomes
disabled or unavailable, our business, financial condition and results of
operations may be materially adversely affected;
• the current legislative and regulatory climate with regard to cybersecurity
may adversely affect our business, financial condition, and results of
operations;
41
--------------------------------------------------------------------------------
• credit deterioration in, and the effects of interest rate fluctuations and
changes to benchmark reference interest rates on, our invested asset portfolio
and other assets that are subject to changes in credit quality and interest
rates could materially adversely affect our business, financial condition and
results of operations;
• valuation of our investments and the determination of expected credit losses
when the fair value of our available-for-sale invested assets is below
amortized costs are both based on estimates that may prove to be incorrect;
• changes in accounting standards can be difficult to predict and could
adversely impact how we record and report our financial condition and results
of operations;
• the inability of our subsidiaries to pay dividends or make distributions or
other payments to us in sufficient amounts would impede our ability to meet
our obligations and return capital to our stockholders;
• we are subject to various federal, state and provincial laws and regulations
in
require us to alter our business practices and could materially adversely
affect our business, financial condition and results of operations;
• the current legislative and regulatory climate with regard to financial
services may adversely affect our business, financial condition, and results
of operations;
• litigation and regulatory investigations and actions may result in financial
losses and harm our reputation;
• a significant change in the competitive environment in which we operate could
negatively affect our ability to maintain or increase our market share and
profitability;
• the loss of key employees could negatively affect our financial results and
impair our ability to implement our business strategy;
• we may be materially adversely affected by currency fluctuations in the United
States dollar versus the Canadian dollar;
• any acquisition, of or investment in, businesses that we may undertake that
does not close as anticipated, perform as we expect, or that is difficult for
us to integrate could materially adversely impact our business, financial
condition and results of operations;
• the market price of our common stock may fluctuate;
• due to our very limited history with e-TeleQuote, we cannot be certain that
its business strategy will be successful or that we will successfully address
the risks below or any risks not known to us that may become material;
• a failure by e-TeleQuote to comply with the requirements of
government's
carrier partners may harm e-TeleQuote's business which could have a material
adverse effect on our business, financial condition and results of operations;
• Legislative or regulatory changes to Medicare Advantage or changes to the
implementing guidance by the
harm e-TeleQuote's business which could have a material adverse effect on our
business, financial condition and results of operations;
• e-TeleQuote's inability to acquire or generate leads on commercially viable
terms, convert leads to sales or if customer policyholder retention is lower
than assumed, any of which could adversely impact our business;
• e-TeleQuote's inability to enroll individuals during the Medicare annual
election period may harm its business which could adversely impact our
business, financial condition and results of operations;
• the loss of a key carrier, or the modification of commission rates orunderwriting practices with a key carrier partner could harm e-TeleQuote's
business which could adversely impact our business, financial condition and
results of operations; and
• if e-TeleQuote's business is subject to cyber-attacks, security breaches or
otherwise unable to safeguard the security and privacy of confidential data,
including personal health information, its business may be harmed which could
have a material adverse effect on our business, financial condition and
results of operations.
Developments in any of these areas could cause actual results to differ materially from those anticipated or projected or cause a significant reduction in the market price of our common stock.
The foregoing list of risks and uncertainties may not contain all of the risks and uncertainties that could affect us. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report may not in fact occur. Accordingly, undue reliance should not be placed on these statements. We undertake no obligation to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise, except as otherwise required by law.
© Edgar Online, source
