Primerica, Inc.

Good morning. My name is Keith, and I will be your conference operator today. At this time, I would like to welcome everyone to the by America, Inc., Q3 earnings results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star key followed by the number two. Thank you. This call is being recorded, and I would now like to turn the conference over to Nicole Russell, head of investor relations. Ma'am, you may begin your conference.

Thank you, Keith, and good morning, everyone. Welcome to Primerica's third quarter earnings call. A copy of our earnings release, along with materials relevant to today's call, are posted on our investor relations section of our website at investors.primerica.com. Joining our call today are our Chief Executive Officer, Glenn Williams, and our Chief Financial Officer, Allison Rand. Glenn and Allison will deliver prepared remarks, and then we will open the call up for questions. During our call, some of our comments may contain forward-looking statements in accordance with the safe harbor provision of the Securities Litigation Reform Act. The company does not assume any duty to update or revise these statements to reflect new information. We refer you to our most recent Form 10-K filing as modified by subsequent 10-Q filings for a list of risks and uncertainties that could cause actual results to materially differ from those expressed or implied. We will also reference certain non-GAAP measures which we believe provide additional insight into the company's operations. Reconciliation of non-GAAP measures to their respective GAAP numbers, are included at the end of the earnings press release and are available on our investor relations website. I would now like to turn the call over to Glenn.

Thank you, Nicole, and thanks to everyone for joining us. Today, Allison and I will share the highlights from our most recent quarter, including financial results and how the pandemic continues to impact our business. Our third quarter was exceptionally strong with solid financial growth and sustained production momentum. Our ability to adapt and gain experience in this environment is continuing to contribute to our success. However, COVID-19 disruptions are influencing us both positively and negatively. Some of the positive impacts of the pandemic include consumer sentiment that results in stronger demand for both insurance protection and for our business opportunity. This led to a significant increase in new life sales, continued strong persistency, and growth in recruiting. The pandemic is also creating headwinds, including market uncertainty, which has a negative impact on ISP sales, although third quarter results were stronger than originally projected. Life insurance licensing and renewals continue to be the most disrupted by the pandemic, as states and provinces work through testing and processing backlogs and other temporary measures that were put in place because of COVID-19. Starting on slide three, Our financial results show year-over-year growth across the board. Adjusted operating revenues of $567 million increased 9%, adjusted net operating income of $111 million increased 16%, and diluted adjusted operating income per share of $2.78 increased 23%. Operating ROAE was 28% compared to 24.9% in last year's third quarter. As I noted earlier, demand for protection products and interest in our business opportunity are at an all-time high. However, COVID disruptions require us to navigate some unique operational challenges. Let me expand on these starting with our distribution results on slide four. During the third quarter, we recruited a total of 101,861 individuals, which represents a 41% increase compared to the same period last year. As we discussed last quarter, we aggressively discounted our licensing fee at the onset of the COVID pandemic to preserve our momentum. While the discount ended and our licensing fee returned to $99 on August 1st, we continue to see year-over-year increases in the number of new recruits during the months of August and September. It is difficult to determine how much of the recent growth in recruiting is attributable to the fundamental strength in our business and how much may be aided by temporarily increased interest in our business opportunity. Some clarity on this matter should emerge over the next few quarters. The testing and processing of permanent life insurance licenses remains challenged. State and provincial measures such as temporary licenses have provided an alternative licensing path and kept top-line licensing numbers strong. However, the extended period of time it now takes a recruit to complete the permanent licensing process puts pressure on our licensing pull-through rate. We are working to keep recruits engaged during this delay with our field training programs and the opportunity to refer products that do not require a license. The number of temporary and permanent licenses issued during the quarter was 13,138, up 4% year-over-year. Our sales force ended the quarter at 136,306, also up 4% year over year. Two-state licensing measures impacted the size of the sales force. Our quarter-end life license count of 136,306 includes about 5,200 COVID temporary licenses and around 4,800 licenses with extended renewal dates. Early indications are that approximately 40% of the individuals with COVID temporary licenses will eventually obtain a permanent license. Each state has its own process for extending renewals, which makes an overall renewal rate difficult to project. While we believe the current blended rate of extended renewals that will ultimately renew is also about 40%, this rate reflects a unique situation in Illinois. Illinois has extended its renewal of expired licenses Every month since April, and we now have over 2,000 Illinois licenses with extensions which could expire with less than one month's notice. We assume that 90% of this block will not renew, which at some point in the future will reduce our Salesforce size by roughly 2,000. While we're planning for this event as we run our business, it will eventually create noise in our Salesforce accounts. Our term life results on slide five reflect the field's quick response to navigating the challenge brought on by COVID-19 and our clients' desire to protect their families. During the third quarter, we issued 100,199 new life insurance policies, an increase of 36% year over year. Our productivity rate at 0.25 policies per life insurance license representative per month remains well above our historical range of 0.18 to 0.22. High productivity when combined with a larger sales force helped drive record-life sales results. Turning to slide six, similar to the term segment, results in the investment and savings product segment were stronger than expected. Sales of $1.8 billion were down 1% year-over-year as investors previously sidelined by market volatility earlier in the year returned to active investments. This led to a 26% increase in sales of managed accounts and a 5% increase in mutual fund sales. However, annuity providers have been reducing living benefits, making them less attractive in the current low-rate environment, thus creating a headwind for annuity sales. Overall, net client inflows during the third quarter were $508 million, significantly higher than last year's comparable quarter as clients continued to stay invested in the markets. Our clients' commitment to their long-term goals is reflected in an historically low level of redemptions. Client asset values ended the quarter at $73 billion, up 10% year-over-year, while average client asset values, which more closely correlate to revenues, were up 8% to $71.5 billion. Production in the fourth quarter is off to a solid start. Recruiting remains strong, even without the discounted licensing fee, and the momentum we saw in August and September continued into October. Likewise, licensing is improving and the proportion of permanent to total licenses is growing. As previously discussed, the size of our life sales force will be impacted by states eliminating their temporary licensing options and determining how to handle extended renewals. The recent strong trends in life sales have also continued into October. We expect fourth quarter issued policies to increase between 15% and 20%, resulting in full year-over-year growth of 20%. Our ability to meet the increased demand for life insurance protection has placed us on track to issue over $100 billion of new face amount during 2020. This is a new record for us. While third quarter ISP sales were stronger than previously projected, increasing uncertainty is now pushing some investors to pause. With so much uncertainty in the markets, we think investors may stay on the sidelines for much of the fourth quarter. We expect fourth quarter ISP sales to be down approximately 5% compared to the fourth quarter in 2019. A full year 2020 ISP sales to be relatively flat compared to 2019 results. Our mortgage distribution business continues to progress. We have corporate licenses in seven states and our corporate license is pending in additional states. We continue to see strong demand from clients to refinance mortgage and consumer debt and we're receiving excellent support from our partner, Quicken Loans. In addition, we're seeing good traction in both representative licensing and sales. With that, I'll turn it over to Allison.