Primerica, Inc.

Greetings and welcome to the Primerica's third quarter 2023 earnings webcast. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And as a reminder, this conference is being recorded. It is now my pleasure to introduce to you Nicole Russell, head of investor relations. Thank you, Nicole. You may begin.

And thank you, John. Good morning, everyone. Welcome to Primerica's third quarter earnings call. A copy of our earnings press release, along with other materials relevant to today's call, are posted on the investor relations section of our website. Joining our call today, our Chief Executive Officer, Glenn Williams, our Chief Financial Officer, Allison Rand, and our EVP of Finance and future CFO, Tracy Tran. Our comments this morning may contain forward-looking statements in accordance with the Safe Harbor provisions of the Securities Litigation Reform Act. We assume no obligation to update these statements to reflect new information and refer you to our most recent Form 10-K filings, 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 non-GAAP measure to their respective GAAP numbers are included at the end of our 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 everyone for joining us today. Our third quarter results underscore the fundamental strength of our distribution capabilities and the value of our complimentary insurance and investment businesses. Term life pre-tax income is up 7% year-over-year, while ISP pre-tax income grew 9%, representing the segment's first year-over-year increase since the first quarter of 2022. We also continue to drive growth in the size of the sales force with a 4% increase since September 30, 2022. Starting with a quick recap of our financial results, adjusted operating revenues of $713 million during the quarter rose 5% year over year, while adjusted net operating income of $154 million increased 9%, and diluted adjusted operating earnings per share of $4.28 increased 14%. These results reflect the steady contribution from our large in-force book of term life insurance, strong term life sales, growth in client asset values, and the benefit of higher interest rates on our investment portfolio. The senior health segment recorded a modest loss as we positioned the business for the start of the annual enrollment period. On the capital deployment front, we repurchased $106 million of our common stock during the for a total of $302 million in the first nine months of 2023. We also paid $23 million in stockholder dividends during the third quarter. Given the strength of our capital and liquidity positions, we believe we will meet our targeted repurchases of $375 million for the year. Turning now to distribution. Both home office and field leadership remain focused on our common goal of growing the sales force. The attractiveness of our entrepreneurial business opportunity continues to fuel recruiting. During the quarter, we welcome more than 92,000 individuals as new recruits to Primerica. We are also seeing solid progress in licensing, with a total of 12,311 individuals obtaining a new life license during the quarter, pushing the size of the life license sales force to over 139,000. We remain confident in our ability to expand the size of our sales force and project around 3% year-over-year growth in the fourth quarter. Turning next to the term life business, we issued approximately 88,500 new term life policies during the quarter of 9% compared to the adjusted policy count in the prior year. We issued $29.5 billion in new term life protection for our clients, a 13% increase compared to the face amount issued in the prior year period. The productivity of our sales force remains solid at .21 policies per life license rep per month compared to .20 in the prior year period. Looking ahead, we expect fourth quarter policies issued to grow approximately 6% to 7% year over year or around 6% on a full year basis. Let's look now at our investment and savings product business. Total sales of $2.2 billion during the quarter remain largely unchanged compared to the third quarter of 2022. Sales of annuity products rose 17% compared to the prior year period as annuity providers continue to enhance products, leading to higher investor demand for variable annuities and the guarantee features they offer. During the quarter, we also transitioned our managed accounts business from TD to Pershing as our custodian. This conversion caused a temporary disruption in sales, which is now behind us. Changes of this magnitude generally require a period of adjustment as advisors familiarize themselves with new technology and help their clients log in and navigate the new platform. With the conversion complete, we were able to retain 98% of client assets. Advisors are adjusting and sales levels normalized in October. Finally, sales of Canadian segregated funds are down substantially after Canadian insurance regulators followed the lead of securities regulators and banned deferred sales charges on new product sales. We are actively looking at alternate segregated fund solutions for our clients in Canada. Ending client asset values were $88.4 billion on September 30, or 12% above the prior year period, and down approximately 3.5% versus June 30, 2023, as market volatility during the quarter pressured equity values. Net client inflows of $192 million during the quarter reflected approximately $150 million in redemptions from the 2% of client assets that did not convert to the new managed account custodial platform. Based on October trends, we expect fourth quarter ISP sales to grow around 5% year over year. We've received questions about the DOL's recent fiduciary proposal that came out on October 31. That proposed rule is subject to a comment period and potential challenges that make it hard to draw any firm conclusions at this time. However, due to the nature of our ISP business and process changes we've previously adopted, we believe we will be well positioned to deal with any final DOL rule. Turning next to Senior Health. During the third quarter, which is seasonally the most challenging period of the year, we saw stable LTVs for the fourth consecutive quarter. However, contract acquisition costs per approved policy of $1,263, as well as sales volumes, were pressured by a higher mix of newer, less productive agents. While our agent count has grown, we've had higher than expected attrition of experienced agents, and new hires were onboarded and trained later in the year than we planned. We also identified an inefficiency in our use of leads, which has now been corrected. As we make course corrections to further improve our agent recruiting and onboarding, we are moderating our expectations for fourth quarter and AEP and expect approved applications to be down over 10% from last year. We believe that Primerica representatives will continue to be a valuable source of quality leads for eTeleQuote. and estimate their referral activity will contribute more than 20% of submitted applications during this year's AEP. We remain committed to our senior health business and believe there is room for more improvement. Our new leadership team established since our acquisition is fully in place, creating a strong foundation for the future. We will not need to provide capital to the subsidiary in 2023, and we do not anticipate the need to provide capital in 2024. Before turning to Allison's review of our financial results, I'd like to comment on our CFO succession process. As you know, Allison has announced her retirement effective April 1, 2024, after nearly 23 years as CFO. Her leadership has provided tremendous financial discipline and performance, which we'll continue to build upon. Allison's successor, Tracy Tan, has recently joined Primerica. Tracy is an accomplished business leader with 20 years of experience as CFO, across multiple industries, including financial services. The depth and breadth of her experience in business acumen will enable her to guide Primerica to continued growth. Tracy is working closely with Allison on the transition. Tracy, welcome to the Primerica team.