Primerica, Inc.

Greetings. Welcome to Primerica's second quarter 2023 earnings webcast. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note that this conference is being recorded. At this time, I'll turn the conference over to Nicole Russell, Senior Vice President of Investor Relations. Ms. Russell, you may now begin.

Thank you, Rob, and good morning, everyone. Welcome to Primerica's second 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 our Chief Executive Officer, Mr. Glenn Williams, our Chief Financial Officer, Ms. Allison Rand. Glenn and Allison will prepare We'll 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 filing, as may be modified by subsequent Forms 10-Q 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. Reconciliations of these non-GAAP measures to their respective GAAP numbers are included at the end of their earnings press release and available on our investor relations website. I would now like to turn the call over to Glenn.

Thanks, Nicole, and thanks everyone for joining us today. Our strong second quarter results highlight the value of Primerica's complementary lines of business and the continued efforts of our team to grow our distribution capabilities. Growth in our sales force and the appeal of our life insurance products are creating sales momentum despite the continuing financial pressure on middle-income households. Adjusted operating revenues of $690 million rose 3% year-over-year, while adjusted net operating income of $145 million increased 11%, and diluted adjusted operating earnings per share of $3.99 increased 18% compared to the prior year period. These results reflect the predictable growth in our term life business and the benefit of higher interest rates on our investment portfolio, both of which more than offset the continued pressure of lower sales commissions in our investment and savings products business. In addition, the absence of a negative tail revenue adjustment in the senior health segment this quarter was an improvement versus the $5.4 million negative tail adjustment recorded in last year's second quarter. Our life license sales force growth continues to be driven by two key dynamics. The attractiveness of additional income from our entrepreneurial business opportunity during uncertain economic times and our focus on and improvement in our life licensing process. During the quarter, we recruited over 86,000 individuals, a 23% increase compared to the second quarter of 2022. We also continue to see our hard work over the last few years in creating a clear path through the entire licensing process payoff, with over 12,600 new reps licensed during the quarter, a 10% improvement over the prior year period. We ended the quarter with nearly 138,000 life license reps and remain confident that our momentum will lead to a 3% or 4% increase in the size of our sales force for the full year of 2023. Turning next to our sales results, starting with the term life business. The appeal of our new insurance products continues to drive solid year-over-year growth. During the quarter, we issued nearly 97,000 new term life policies of 9% compared to the prior year period. on a comparable one life per policy basis. Productivity was at the upper end of the adjusted historical range at .24 policies per life license rep per month. We issued more than $32 billion of new term life face amount in the quarter, 16% increase over the prior year period. As a reminder, new face amount issued captures both the face amount of newly issued policies and any additions to enforce policies. This provides a more complete picture of the total protection we provide for our clients. Higher cost of living, of course, remains a real headwind for middle income families. We believe this is a key driver of second quarter lapse experience, which in the aggregate is 5% to 10% higher across all durations versus pre-pandemic levels. To provide some context, At the height of the financial crisis in 2009, lapses were 15% higher than pre-crisis levels. Given the magnitude of that crisis, it took about two years for lapse rates to normalize. It's impossible to know whether we've reached the height of this cycle or how long it will take for lapses to normalize. However, we believe the appeal of our new life insurance products and the continued growth in the size of our sales force can partly overcome current inflationary pressures which in turn give us confidence that we can go full year policies issued by 4% to 6% in 2023. Turning to the ISP segment, total sales of $2.4 billion during the quarter declined 11% compared to the prior year quarters still elevated activity, although current sales levels remain higher than pre-pandemic levels. Our clients remain focused on their long-term goals despite the economic uncertainty dominating headlines and they continue to invest systematically each month. However, new sales are still under pressure. We believe the compounding impact of high inflation over the last few years has slowed middle-income families' ability to invest for the future. It is also possible that clients find the current high rates in money market or other high-yield savings options to be an attractive alternative to equity markets. Even though headwinds persisted, we recorded $542 million of net new client inflows during the quarter. Ending client asset values have largely recovered and reached $91.6 billion at the end of the quarter. This represents a 6% difference compared to their all-time quarterly high of $97.3 billion set on December 31, 2021. Given the continued uncertainty, it's difficult to predict sales levels beyond the next few months. Based on July trends, we believe year-over-year sales will be down around 5% in the third quarter. Looking next at senior health, churn rates have stabilized in the senior health distribution industry, which allows us to estimate lifetime values more accurately. We've also made good progress in reducing the cost of acquisition by focusing on agent productivity and careful lead utilization. We believe these steps have positioned us well for the October opening of the annual enrollment period. We've adjusted our agent compensation model to incentivize and drive desired behavior and we've made meaningful improvements to technology that allow for a more efficient and improved enrollment process. We believe this business is generally headed in the right direction and continue to evaluate opportunities in the context of an evolving industry. We do not anticipate the need to provide capital to this subsidiary in 2023, and we continue to evaluate future growth opportunities. Primerica's balance sheet remains very strong, with cash at the holding company of approximately $340 million a quarter in. We remain committed to returning capital to stockholders as evidenced by our repurchasing of an additional $111 million of our common stock and paying $24 million in regular dividends during the second quarter. In summary, I'm pleased with our progress and the momentum building across our businesses. I'm proud that we can continue to serve our clients by providing them with the education and the motivation necessary to put their financial plans into action. Now, I'll turn it over to Allison.