Primerica, Inc.

Welcome to today's Primerica Q4 earnings results conference call and webcast. My name is Nate, and I will be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would like to now pass the conference over to Nicole Russell with Primerica. Nicole, your line is open. You can go ahead.

Thank you, Nate, and good morning, everyone. Welcome to Primerica's fourth quarter earnings call. A copy of our earnings press release, along with materials that are relevant to today's call, are posted on the investor relations section of our website. Joining our call today are 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 provisions of the Securities Litigation Reform Act. The company assumes no obligation to update these statements to reflect new information. We refer you to our most recent Form 10-K, as modified by subsequent Forms 10-Q, and the press release filed with our Form 8-K, dated July 1, 2021, for a list of risks and uncertainties that could and uncertainty that could impact actual results. We will also reference certain non-GAAP measures, which we believe will provide additional insight into the company's operations. Reconciliations of non-GAAP measures to their respective GAAP numbers are included at the end of our 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 everyone for joining us today. Fourth quarter and full year results continue to reflect the strong demand for our financial solutions and the resilience of our business model despite the uncertainties caused by the pandemic. Adjusted operating revenues increased 22% compared to both the last year's fourth quarter and full year 2020 results. Diluted adjusted operating income per share increased 20% quarter over quarter and on a full year over year basis. Fourth quarter investment product sales remained well above our prior year period levels, while sales in the term life business continued to normalize as expected. In our senior health business, results from our first annual election period were weaker than expected due to a combination of lower sales volume and higher contract acquisition cost. We incurred a preliminary non-cash impairment charge of $76 million during the fourth quarter. Continued elevated policy churn in the senior health market was a significant driver, along with other factors such as eTelequote's recent financial performance and the decline in market values of publicly traded peers. Allison will address this impairment in our financial outlook for senior health in her prepared remarks, and I will expand on our plans to address eTelequote's operational challenges in a moment. Taking a closer look at how the pandemic has impacted our distribution results on slide four, After nearly two years of COVID disruptions, our sales force has adapted extremely well to new ways of conducting business. Recruiting remains strong, built by greater utilization of web conferencing technology, and more recently, the great resignation that has created a record number of individuals looking for alternative career paths. The licensing process remained constrained by many of the challenges we've discussed in the past, including various limitations from state and provincial social distancing measures, and individual comfort level when it comes to congregating in larger groups. Initially, we were encouraged when restrictions began to ease. However, our progress was again delayed with the reemergence of a new COVID variant. We believe it could take several more quarters before the licensing process returns to its pre-pandemic levels and suspect that our licensing results will remain under pressure through the first half of 2022 before gradually improving later in the year. Despite licensing headwinds, we ended the year with around 129,500 life license representatives versus 130,500 at the start of the pandemic. This is particularly noteworthy considering the numerous challenges we had to navigate during the pandemic. We continue to see significant opportunities to increase the size of our sales force as demand for our products and services continues to outpace our reach, and competition for middle-income consumers remains relatively low. In addition, our entrepreneurial opportunity is very attractive in the current environment as demonstrated by strong recruiting numbers. Our success in growing the sales force from here will depend on continued strong recruiting and adjusted licensing efforts through increased focused leadership, more effective communication, and licensing incentives. Beyond the licensing process challenges posed by the pandemic, some improvements are needed to make test preparation more convenient and effective. While the process requires constant adjustment to remain effective, these changes are within our control and remain the building blocks of success. We expect long-term growth in the size of our sales force to be in the low to mid-single-digit range, although it will not be linear from year to year. In the near term, we anticipate growing the sales force around 2% in 2022. Turning next to slide 5, As anticipated, term life insurance sales volume continued to normalize following a period of heightened fear and urgency that was created by the pandemic. We continue to see strong, sustained demand for protection products with sales volumes in each quarter of 2021 above the pre-pandemic baseline level for their respective periods. We ended the year with over $900 billion of face amounting force, which represents a year-over-year increase of 5% and positions Primerica as one of the top issuers of individual term life insurance in North America. Looking forward to the future, we believe we can continue to build on the momentum that started mid-year 2019. Based on our current outlook, we expect full-year 2022 term life sales to increase slightly over 2021's near record levels. with first-half results trailing the 2021 period and the second half of the year increasing versus the prior year period. Slide 6 summarizes results from our investment and savings product segment. We ended the year on strong footing with quarterly sales once again exceeding $3 billion and full-year sales at nearly 50% versus last year's record-setting pace. Net flows remained at record levels throughout the year and when combined with favorable equity market appreciation, led ending client asset values to a nearly 20% increase and a record-setting $97 billion at year-end. Our opportunity in the ISP business remains very attractive with more than 26,000 reps currently licensed to sell mutual funds. Given current levels of market volatility and uncertain economic conditions, we are projecting a more modest single-digit growth rate for investment product sales in 2022 versus 2021's record-breaking year. Included in this assumption are changes to the commission model in Canada that go into effect on June 1st, which will require us to discontinue the use of mutual funds with a diverged sales charge compensation model, which is the primary model we currently use in Canada. We have plans to address this change, but it could create short-term disruptions in Canada as the field familiarizes itself with a new series of funds that will be sold exclusively by Primerica Mutual Fund licensed agents and with the new compensation model. Canadian mutual funds currently represent approximately 13% of total investment in saving product sales. While there are many unknown factors that could derail investor confidence, our education-based approach helps focus investors on their long-term goals. Our licensed representatives continue to play an important role in keeping clients invested for the future. Turning next to the senior health market and our recent acquisition of eTelequote on slide seven. So far, senior health has underperformed expectations. This has been driven by a number of factors impacting the sector generally, and eTelequote specifically, including increased policy churn, which has reduced expected lifetime revenues, lower overall sales volume, and contract acquisition costs above anticipated levels. Starting with churn, while the reasons for churn are challenging to pinpoint, we believe this trend is driven in part by increased consumer awareness of the advantages of shopping for plans regularly and broader competition within the space. We monitor turn by carrier and have stopped selling carrier plans in certain geographies or altogether if their levels of turn remain outliers to other carriers. We are also evaluating other approaches to improve policy retention, such as client affinity campaigns and predictive laxation algorithms. Next, addressing sales volume. Just prior to the annual election period, or AEP, CMS imposed a regulatory change in its marketing material review process, which led to a slower start to AEP. Additionally, as I mentioned last quarter, we entered AEP below desired staffing levels. Historically, the starting agent count remains largely intact through AEP, as agents typically do not try voluntarily getting the selling opportunity. However, agent attrition in the fourth quarter was substantially higher than in past years. We believe this is a result of tight labor markets and employees from many sectors stepping away from traditional work. On a related labor and agent point, we have continued to see a fall-off in productivity with our agents operating in a work-from-home environment. We continue to work to address ways to improve productivity, including a revised recruiting approach, formalized long-term hybrid work arrangements, compensation adjustments, and other strategies. Finally, with respect to contract acquisition costs, the labor issues I just described contributed to contract acquisition costs being higher than expected. Additionally, while we actively managed lead sources and mixed, some sources proved less attractive than anticipated. We are adjusting our senior health business going forward to address the challenges that we and the industry as a whole are facing. Areas of investment include the continued build-out of the management team and growing a robust data science practice to better identify the best leads and route them to agents with the highest probability of closing. In 2022, our focus will be on addressing the fundamental issues I've just outlined and growing the business responsibly. As we tackle necessary changes, we will build our agent count and sales volume more slowly than originally planned. While the challenges are bigger than anticipated, the strategic rationale for acquiring a telequote remains unchanged, and the growth characteristics in the senior health market continue to exist. Offering senior health products allows us to provide an important service to the growing middle market senior population that can further strengthen their relationship with Primerica. The additional product line expands the income opportunity for our sales force and can facilitate sales of our core products. Over the long term, we expect the company and our stockholders to benefit from this acquisition. Early indications are that leads sourced by Primerica reps have an advantage due to the existing relationship between the rep and the client. We believe this is a competitive advantage within the space. We remain committed to eTelequote and the senior health market. Now I'll turn it over to Allison.