Primerica, Inc.

Greetings and welcome to the Primerica third quarter 2025 earnings call. At this time, all participants are in a 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 on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Nicole Russell, Senior Vice President, Investor Relations. Please go ahead.

Thank you, Melissa, and good morning, everyone. Welcome to Primerica's third quarter earnings call. A copy of our press release issued last night, along with other materials relevant to today's call, are posted on the investor relations section of our website. Joining our call today are our Chief Executive Officer, Glenn Williams, and our Chief Financial Officer, Tracy Tam. 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 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 financial results. Reconciliations of non-GAAP measures to their respective GAAP numbers are included in our earnings press release. I would now like to turn the call over to Glenn.

Thank you, Nicole, and good morning, everyone. Primerica delivered solid earnings growth and generated strong cash flows during the third quarter of 2025, underscoring the resilience of our business model and consistent execution as our clients gradually adapt to economic headwinds. Our complementary product lines have proven to be a key advantage and powerful differentiator, while our sales force's commitment to serving middle-income families continues to set us apart. Starting with a snapshot of third-quarter financial results, adjusted net operating income was $206 million, up 7% year over year, while diluted adjusted operating EPS increased 11%, to $6.33. We remained disciplined in our capital deployment strategy and returned a total of $163 million to stockholders through a combination of $129 million in share repurchases and $34 million in regular dividends during the quarter, for a total of $479 million returned year to date. Looking more closely at our distribution results, both recruiting and licensing were down compared to the prior year period. which benefited from elevated post-convention activity. However, current levels remain healthy relative to historical trends in non-convention years. During the quarter, more than 101,000 recruits became part of Primerica. Nearly 12,500 people obtained a new life license, positioning us to end the year at around 153,000 life license representatives. This projection is slightly above last year's record levels. Looking at our life sales results during the quarter, we issued 79,379 new term life policies down 15% year over year compared to record performance in the prior year period. Those policies contributed $27 billion in new protection for our clients for a total of $967 billion of in-force coverage. Productivity at 0.17 policies per rep per month was below our historical range driven by a combination of lower life sales and continued growth of our life sales force over the last 12 months. As we close out the year, we project the total number of policies issued in 2025 to decline around 10% compared to 2024's record-setting pace. Lower life sales are largely driven by cost of living pressures in the middle market. However, our conviction in the future potential for our life business remains unchanged. Primerica is well-positioned to reach and serve middle-income families one of the largest and most underserved market segments. We're working toward improving productivity on several fronts. First, we continue to improve the accessibility and appeal of our term life products. Our next generation of products recently received approval for sale in the state of New York. For all US states and Canada, we continue to work toward more convenient and faster underwriting and issue processes to make sales simpler for our reps and clients. In addition, we've introduced improved life product training for newer representatives with the goal of positively impacting their productivity. In the coming months, we will evaluate the effectiveness on productivity of this training alongside increased focus by field leadership with expectations of a positive impact. Looking to our ISP segment, where results continue to outpace our guidance. Sales grew 28% year over year to a record $3.7 billion during the third quarter of 2025. We continue to see strong demand for all product categories, including managed accounts, variable annuities, and U.S. and Canadian mutual funds. Net inflows for the quarter were $363 million, comparing favorably to $255 million in the prior year period, while client asset values ended the quarter at $127 billion of 14% year over year. Over the last few years, we've made meaningful improvements to our platform and fund offering, including the addition of over 50 new investment portfolios. In Canada, the principal distributor model continues to be well received and is driving strong sales. We believe demand for investment solutions will continue to benefit from inflows as the baby boomer and Gen X populations prepare for retirement. Given strength in the equity markets and continued momentum, we expect full-year ISP sales to grow around 20% in 2025. For our mortgage business, supported by more than 3,450 licensed representatives, we remain well-positioned to help middle-income families obtain a new mortgage or refinance to consolidate consumer debt. We're now licensed to do business in 37 states with the recent addition of South Carolina. Year to date, we've closed nearly $370 million in U.S. mortgage volume of 34% compared to the first nine months of 2024. We also have a mortgage referral program in Canada bringing refinancing and new mortgages to our clients there. As 2026 approaches, we're laying the foundation for strong momentum by launching a series of major regional field events in the spring. Our goal is to build excitement and field engagement as we move toward our 50th anniversary convention in 2027, a milestone we're proud to share with our sales force. We remain focused as we close 2025 and look forward to the exciting opportunities ahead. With that, I'll hand it over to Tracy for the financial results.

Thank you, Glenn, and good morning, everyone. Our third quarter financial results were strong across all segments, giving us confidence that we're well-positioned to end 2025 with solid year-over-year growth in both revenues and earnings. Starting with term-wide segments, Third quarter revenues of $463 million rose 3% year over year, driven by a 5% increase in adjusted direct premiums. Pre-tax income was $173 million, compared to $178 million in the prior year period, down 3% year over year. Results during the quarter included a $23 million remeasurement gain, compared to a $28 million gain in the prior year period. Excluding the impact of these remeasurement gains, pre-tax income remains largely unchanged. As required under LDTI accounting, we completed our annual review of actuarial assumptions and made certain changes to our long-term assumptions, which resulted in a $23 million remeasurement gain in the current period. In the largest portion of the gain was from mortality assumption change, reflecting favorable trends observed since the pandemic, in addition to a positive experience variance from the quarter. As a reminder, the prior year period included a remeasurement gain of $28 million, primarily driven by an adjustment to our best estimate assumptions for the disability incident rate under our waiver of premium rider. Persistency remains stable on a year-over-year basis in aggregate, although losses remain above our long-term LDTI assumptions. We believe that our clients are resilient over the long term and value our services and products. Based on historical trends, we expect persistency to normalize as clients adapt to the evolving economic environment. As a result, we did not make a change to our long-term lapse assumptions during the recent review cycle. Turning next to our key financial ratios, excluding the impact of the remeasurement gain, the term life margin at 22% and the benefit and claims ratio at 58.3% remains consistent with our guidance. Our other key financial ratios also remain stable with a DAC amortization, and insurance commissions ratio at 12.2% and the insurance expense ratio at 7.5%. Given the size of our enforced block and the stable nature of our term life business, we maintain our full year guidance to the ADP growth at around 5%. After revising our updated mortality assumptions, we expect the benefits and claims ratio to remain stable at around 58% in the fourth quarter. Guidance for the DAC amortization and insurance commissions ratio remains unchanged at around 12%, and the operating margin at around 21% for the quarter, with expectation for some accelerated technology investments to support growth. This will result in full-year operating margins above 22%. I will provide full year guidance for 2026 in February. Turning next to the results of our investment and savings product segment, which continued to perform well on the strength of robust sales momentum and increasing client asset values. Third quarter operating revenues of $319 million increased 20% from prior year period while pre-tax income rose 18% to $94 million. Sales-based revenues increased 23%, slightly outpacing the 20% increase in commissionable sales, primarily driven by strong demand for variable annuities. Asset-based revenues increased 21% year-over-year compared to a 14% increase in average client asset values as we continue to benefit from a mixed shift due to customer demand for products on which we earn higher asset-based commissions, namely U.S.-managed accounts and Canadian mutual funds sold under the principal distributor model. Sales commissions for both sales and asset-based products increase relatively in line with revenues. In the corporate and other distributed product segments, we recorded pre-tax adjusted operating income of $3.8 million during the quarter compared to a pre-tax loss of $5.7 million in the prior year period. The year-over-year change is due to a higher net investment income, primarily from growth in the size of the portfolio and a $5.2 million remeasurement loss on the closed block of business in the prior year period. Finally, consolidated insurance and other operating expenses were $151 million during the quarter, up 4% year-over-year. The growth in expenses was driven by a combination of higher variable growth-related costs in the ISP segment and to a lesser degree in the term life segment, as well as higher employee-related costs. We continue to see year-over-year growth in technology investment and anticipate some accelerations as we move towards the fourth quarter. We expect fourth quarter expenses to grow around 6% to 8%, resulting in four-year growth towards the lower end of our original guidance of 6% to 8% as we have realized expense savings that offset some of the investments we made this year. Our invested asset portfolio remained well diversified with a duration of 5.4 years and an average quality of A. The average rate on new investment purchases in our life companies was 5.25% for the quarter with an average rating of A+. The net unrealized loss in our portfolio continued to improve. ending the September quarter with a net unrealized loss of $116 million. We believe that the remaining unrealized loss is a function of interest rates and not due to underlying credit concerns, and we have the intent and ability to hold these investments until maturity. We continue to generate strong cash driven by the superior growth of our fee-based ISP business, and the steady premium contribution from our large in-force block of insurance policies. Our holding company ended the quarter with $370 million in cash and invested assets. Primerica Life's estimated RBC ratio was 515%. We have plans to increase capital release from our insurance companies in the fourth quarter and to continue our effective capital conversion for the long run. We are confident in our strong capital position to fund growth initiatives, absorb economic volatility, and to provide superior return on equity to our stockholders. With that, operator, please open the line for questions.

Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Joel Hurwitz with Dowling and Partners. Please proceed with your question.

Good morning, Joel. Good morning. How are you guys? Great, thanks. Great. Tracy, I just wanted to start with your last comments there on the planned capital drawdown from the insurance entity. Just can you elaborate on what you're expecting in the fourth quarter and maybe going forward?

Yeah. Good morning, Joel. Our capital position remains very strong, particularly because of the excellent cash generation from our enforced block. And in the third quarter, we also had really nice improvement on profitability from our statutory entities, and that's part of the reason why the RBC got higher. And from a cash generation standpoint, the continued strength of our profitability on the term life being consistent and being resilient is a big part of why the RBC ratio continues to be very strong. And as you know, that our ability to take the, you know, cash out of the life business is really based on the regulatory, you know, conditions as a limitation of how much you can take out as a percent of or limited by the prior you know, fiscal year income. So we are taking maximum amount out as we speak. However, in the fourth quarter, we do have, you know, plans to increase that conversion, you know, from our insurance entities. The specific plan clearly will help us, you know, reduce that RBC ratio and while keeping a strong enough ratio above 400%, to help support the growth. And as we continue to anticipate a growth for the long run for life insurance business, we know when the growth pace start to pick up, it's going to consume more cash because of how the cash flow is more front-loaded for a policy issuance. So that is part of our long-term plan. But for the fourth quarter, we have actions in place that could possibly include, in the long run, looking at how dividend can be converted out, not excluding special dividend, but also including some other actions that we're putting in place to certainly increase that conversion rate. Hope that helps answer your question.

Yeah, no, that's helpful. I look forward to seeing what you do in Q4. Maybe shifting from my second one, shifting to to the term sales. Can you just help unpack, I guess, sort of what you're seeing and what you think the drivers of the weaker sales relative to your prior expectations? Is this all cost of living or are you starting to see other headwinds emerge that are impacting sales?

Yeah, Joel. We think it's primarily cost of living and other general uncertainties. It seems like every day there's something new about the future that's unknown that you thought you knew the day before. As far as we can tell, it's all external, as I said in my prepared remarks. Obviously, we don't want to just be victims of the environment. We want to push back as hard as we can. As we look at making our processes easier and faster, I had some conversations with some of our reps yesterday about the difficulties in the marketplace, and they're saying the conversations are taking longer, clients are having to dig deeper into their budgets to reprioritize because their budgets are tighter, and so the discussions take longer. The decisions are harder for clients, and we want to be able to work through that with them. We're not going to just say, okay, thanks, we'll check with you when things get better. And so that's part of the training process we were talking about earlier, is to help our reps have those conversations with clients that can get them deeper into their budgets for prioritization, understanding the importance of protection in their family, of putting in force and keeping it in force. But there's still that uncertainty out there that has people in a wait and see mode in general. And I polled kind of an informal poll of a number of our reps that were in yesterday for a training session and said, how many feel like it's harder to make a life insurance sale this year than last year because of the economic and social circumstances around? They all raised their hand. They said, life has gotten harder. Investments for those clients that have money has gotten easier. And so I think what we're seeing is the result of the path of least resistance. And we've seen that before in our business. When one line of business goes up and another one struggles a little bit, and then it turns around in future years.

Got it. That makes sense. Thank you. You're welcome.

Thank you. Our next question comes from the line of Jack Madden with BMO Capital Markets. Please proceed with your question.

Good morning, Jack.

Hey, good morning. First one on the ISP business. Just wondering if you could talk about the sustainability of these kind of strong sales growth levels. And certainly the VA or RILA market's been a tailwind. But I also do think of you all as having some structural advantages given your kind of built-in customer base. I know you've been adding new products and funds. So just curious, putting it all together, whether there's kind of an underlying kind of growth rate we should think about over time.

As we look forward, Jack, we are pleased that we see the growth across the product line. We've seen strong growth of mutual funds, variable annuities, managed accounts, Canadian business, and that breadth adds to our confidence that this is a trend that probably has some legs. That said, a sudden turn in the market, a lot of discussion out there about is the market higher than it should be? Is the correction out on the horizon? Those are the types of things that can really turn this momentum around, again, far beyond our ability to control them. But the fundamentals of the breadth, the fundamentals that I mentioned in my prepared remarks of the demographics, long term, we think there's true growth opportunities here. It might be a little choppier than it's been in 2025 if the market starts to reverse direction on us in a significant way or for an extended period of time. So I think we just have to keep that in mind. But the fundamentals are sound in that business.

That makes sense. Thank you. Just to follow up on the cash flow outlook, I guess, are you suggesting that there is, like, the potential to have maybe, like, a structural improvement in your cash flow conversion ratio over time? Or were your comments more, like, just to this year where you've had better experience and so maybe more cash flow coming out and then it normalizes heading into next year?

Good morning, Jack. So on cash performance, what I would comment about is the question in terms of cash conversion was more specific about cash conversion out of life insurance business to the HOSCO, you know, where the RBC ratio is. I think we have plans in the fourth quarter to improve that conversion, you know, even though that conversion is largely limited by the statutory requirement. We do have plans that could help improve that conversion. Now, in terms of a long-term cash flow generation, I think we're very confident of the ability to generate very positive cash flow. First and foremost, is that our fee business has been really outperforming in terms of the ability to generate cash. And that conversion continues to be very strong. And we have very good momentum on those fee business growths beyond just what the market normal growth rate is. And as we look at our growth rate on these businesses, we've been outperforming the market in the comparative. So that generation has been very strong, and that gives us a very good long-term potential from the fee business cash generation. When I look at in the longer term, when I'm looking at more four or five year out, at the same time, our term life is an extraordinarily important business that produces very consistent, strong cash flow because of how big the in-force block is and how consistent that business performs. If you look at the The margins, you know, it doesn't really vary all that much, more than 200 basis points. So combined, our total business profitability is very, very sound at, you know, over 20% if you look at the overall profitability. So the consistency, the resilience, and our ability to just, you know, convert the cash from subs into a hold call and our ability to return from hold call to the stockholders. I mean, we've been performing at, you know, around 79, 80% capital return to stockholders, which really is superior to the health and life performance. And you look at our conversion from our subs of insurance to our hostco is around 80% and, you know, some years higher possibly, and that's also superior to our peers. So overall, our cash performance has been fantastic, and that's why that's also part of, You know, in the long run, look at our ROE performance as, you know, 30 cents return a dollar of investment. That's also superior to many peers as well. So overall, we're confident of our ability to generate cash and our ability to, you know, return good amount of cash back to the stockholders in various ways.

Cool. Thank you.

Thank you. Our next question comes from the line of Ryan Krueger with KBW. Please proceed with your question.

Welcome, Ryan. Hey, good morning, Glenn. I had a question on the 21% margin in the fourth quarter in term life. You had mentioned some higher investments. Can you elaborate on what you're doing there to start?

Yes. Good morning, Ryan. So our term life of... Our term life performance has been relatively consistent. Really, when we look at the ratios, they don't really vary more than 50 basis points much at all. Some quarters, there is a little bit of a pattern, maybe higher than the other quarters due to just the spending patterns. In terms of looking at the fourth quarter, we do have some activities of accelerated technology investments that will be continuously supporting our growth potential from the front end. And if you look at the overall ratio on the term life business, it's pretty steady. If I look at the benefit, I look at the DAC ratio and look at the expense ratio, they're very consistent overall on the total year basis to our guidance. And the margin for the year is going to be well over 22% as well for the total year. Now, in terms of fourth quarter, we do believe that some of these acceleration is specifically targeted addressing our front end productivity side of the improvement purposes that makes the REPS journey easier and that will continue to be a focus of ours to support the technology side of the improvement and the digital marketing and then the reps and the client's experience. Hope that answers your question, Ryan.

Yes, it does. Thank you. And then the follow-up was in the ISP business, your net fee rate has been kind of gradually trending up for the last several quarters. Is there any specific thing that's driving that? I know you are growing the managed account platform more, which I wonder if maybe that has slightly higher revenue rates, but do you have any color on what's driving that and if this trend may continue going forward?

Yeah, Ryan, this is a great observation. I think certainly On the ISP side, we do have a mixed shift because of the client's demand. And this is particularly driven by where the highest growth rates are. If you look at the growth rate managed account, it significantly outpaces most of the other categories. And then variable annuity, as an example, also outpaces the other categories. All of those, on a relatively basis, you know, compared to mutual fund, they have higher, you know, from a margin, you know, the variable side of the story, it's a little bit of a higher ending trend that pushes some of the improvement you see on the, you know, on the ISP business. Now, again, you know, as we talked about, you know, from previously when Jack even talked about the variable annuity is there on the tail end, I will say that some of this certainly has an impact of where the interest rate is that pushes people to try to capitalize on the opportunity to lock in the higher rates. But secondarily, more importantly, is the demographic shift of people, to Glenn's point, preparing for retirement as well as certain need to avoid the volatility, possibly from equity market standpoint. All of those help push are good performance on the ISP rates and margins.

Thanks, Tracy.

Thank you. Our next question comes from the line of Wilma Burtis with Raymond James. Please proceed with your question.

Good morning, Wilma.

Hey, good morning. Do you guys expect any forward impact from the Assumption Review? And maybe you can just walk me through this a little bit, How is the assumption review so outsized given the 90 percent mortality reinsurance? Thanks.

Good morning, Wilma. Our assumption review in the third quarter generated 23 million alpha remeasurement gains. In relative terms, it is a still small percent when we consider reinsurance. And that's actually, you know, on the comparative speaking terms of size, if we didn't have free insurance, this would have been several times bigger of an adjustment number. So looking at our overall mortality performance, we've been experiencing very good mortality for several years since middle of 2022. So we took a portion of that improvement and adjusted our long-term best assumptions Now, to your point, what the size would have been, well, without the reinsurance treaties and the size of that 90% YRT that we reinsure, this would have been, you know, several times larger of a number. So this $23 million total, you know, remeasurement gain in the third quarter is a very, very small percent, you know, in terms of, you know, what the size could have been. Hopefully that helps answer the question.

Yes, thank you. And I realize you guys have given quite a bit of color on the term life sales, but I guess I'm just wondering what might change the trajectory of those sales. I've been looking at your recent surveys on households, and I'm not seeing that the trends appear sharply worse than they have. and some of the recent results. So I'm just wondering if there's anything else that might contribute to the pressure that could potentially run off nearer term. Thanks.

Wilma, you're right. Fortunately, we have seen kind of some flattening of the increases in cost of living. As we talk to our reps and our clients and survey them, we find that the cumulative effect is still causing some struggles. So while it's not getting worse as fast. It's not getting better very fast either, but we do believe that clients are adapting. Over time, people become accustomed to where they are. I'm not going to say they like it, but they become accustomed to it and learn to deal with it. That's where we've often seen these types of pressures start to ebb some is after a period of time. Clearly, it's better if we can have household incomes really start to gain some ground. Prices aren't going to come down significantly, I don't think, but it's household income catching up that will help us get out of this. We are seeing some of that begin to happen. I think it just takes time to get some traction. And fortunately, we've seen this kind of dynamic in the past, so we believe, number one, it is a temporary situation and that we can take some actions to help clients work their way through it because we've seen it before. If you look at our history as an almost 16-year-old public company, we've had a number of years where we see this exact dynamic that recruiting and life insurance is down and investments is up. We've seen other years where recruiting and life insurance is up and investments is down, and we've seen a lot of years, which is what we strive for, where everything's up at the same time. So it's not unprecedented by any means. It's probably a little more severe than we've seen in probably 15 years or so and taking a little longer to get out of it. And then I would say there are also what we've termed government policy uncertainties, that other things in life that aren't directly financial. There's everything from the government shutdown, and we've got federal employees on furlough right now. They're saying, well, let's wait until this is over before we make a buying decision. So there's just an unusual amount of uncertainty to add to the financial pressure. But again, we think it's temporary, and we eventually will get out of it, and we think we can take some actions to work through it and sort of turn the tide along the way.

Thank you. Can I squeeze one more? Go ahead. Oh, okay. Is there anything that you think is going to change near term for your customer base? So I know that there's some different tax impacts that are coming in next year. Is there anything like that that you see on the horizon that could provide some relief? Thanks.

Wilma, not anything that we have enough confidence in to count on. I mean, we always keep our ear to the ground on the types of decisions that might be made at government policy level or taxation level that will be helpful for the middle market. And you're right, there are some discussions out there that might provide some relief and that kind of thing. We want to build a plan about what we can control, and then if we get some breaks that are beyond our control, it will just be icing on the cake. So we're not counting on those to turn the direction, but we do know there are all types of discussions going on. Because I think everyone recognizes the pressure that middle-income families are under. There's a universal agreement, I think, among all the divisions in our two countries where we do business right now, is that middle-income families are under a significant amount of pressure. So hopefully there would be some relief that would give us a tail end.

Thank you. Thank you. Our next question comes from the line of John Barnage with Piper Sandler. Please proceed with your question.

Good morning, John. Good morning. Thank you for the opportunity. Certainly. You know, cost of living headwinds, I think the competition is clearly with space in your court customer's wallet. It's been talked about that rates are going lower. It's also been talked about rates are going lower for seemingly longer time as well. But with the refinancing of a mortgage, when that does occur, how much on average do you save a consumer versus the average life policy premium? Thank you.

I can give you some directional answers, John. I don't have the averages at my fingertips. We can maybe follow up with you on that. But you're exactly right. Another area of uncertainty is the direction of interest rates. I think the entire mortgage industry has been struggling with that for a while. We assumed for a long time they were going to come down, and then they didn't. They actually went the other direction. And I think that's common among all in that business. When we help a family refinance, in addition to their mortgage, we're also looking at their consumer debt, which is generally at a much higher rate, interest rate than their mortgage. and trying to bring all that in together to maximize their savings. When we're able to do that, you also can adjust the term as needed to make things affordable or to accelerate, which is what we'd rather do, accelerate their payment. But generally, when we help a family on the mortgage side, it frees up more than the cost of a life insurance policy. And it actually can, where appropriate, not only provide them the funding for that, but also to get a systematic investment plan started. And that's the reason that we like that business. I've said many times, you know, we get approached all the time by people, product providers, wanting us to load additional products into our distribution system. And more products tend to cannibalize existing products. And so we're very resistant to that. I think the product that doesn't do that is a refinance of a mortgage that where we can lower the average interest rate and pull in those consumer debts that are at high interest rates and high payments, and then we can get the clients on better financial grammar. So that's one of the reasons that we think that business is important. As you know, it's a highly regulated business, so we've got a significant licensing process to take people through to enter the business, and then it's also highly regulated as you transact the business. So it's a more complicated and sophisticated business, And so it will move at a slower pace in our growth than us being able to add on term life insurance representatives. But you hit directly on why we love that business is because it does free up money for clients to get on a better financial footing.

Thanks for the answer. My follow-up question, do you track the amount of sales maybe on term life in any given year to government employees? I'm just trying to get a size of how much you're addressable market is directly impacted by the shutdown in 4Q as the revised or the term life guidance for the year suggests acceleration and the decline of term life policies issued. Thank you.

Yeah, John, I wouldn't attribute the government shutdown specifically to a change or magnifying a change in the fourth quarter. I just use it as another level of uncertainty that we're dealing with. We don't target government employees, but we cover a slice of the middle market that includes everything that's out there, and so there are government employees included in that. It's just one more level of uncertainty that our reps have to deal with to get around. I don't think it's the difference maker. It's just one more issue that I would add to the list. Again, I don't have the percentage of our clients that are government employees at my fingertips either. But I wouldn't attribute everything that happened in the fourth quarter to that. I would just say the uncertainty continues to be a headwind for us.

Appreciate the answers, and best of luck in the quarter ahead.

I'm sorry. Say that again. I didn't hear you.

Appreciate the answers. Best of luck in the quarter ahead. All right. Thank you.

Thank you. Our next question comes in line of Dan Bergman with TD Cowan. Please proceed with your question.

Hello, Dan. Hey, good morning. To start, I guess it sounds like with the 50-year anniversary coming up, the next convention was pushed out to 2027 instead of the typical biennial pattern. In the prepared remarks, I believe you mentioned a number of field events next year instead. So just given that the convention typically drives outside sales force, new business momentum. I was just hoping you could provide more color on your plans for next year and whether the events are expected to offset the lack of a convention. And I guess just with the, will the timing of these events drive any change in your typical seasonal pattern of sales and recruiting as we look into next year?

Sure. You bring that exactly right. We moved the convention out for two reasons. One was it does coincide with our 50th anniversary of being in 27. The other reason was because of the World Cup in 2026, you can't rent a stadium in the US or Canada. And so it was convenient that it gave us a reason to push it out and have a payoff there that it does sync up with our 50th anniversary. But we do recognize the importance of those events in generating momentum and excitement and casting a vision for our business So we certainly didn't want to go for another year in 26 without big events. But we also didn't want to compete with the 27 convention. It had to be big enough a plan to make a difference, small enough not to take anything away from the drive we have going already to the 27 convention. So working with our field leaders, we ran a play that we've run in the past. It's probably been more than a decade. But it's regional events, five locations, three in the US, two in Canada. that will run in the spring starting at the end of April for the first one. We have one every week or every other week through the first week in June. It's during the second quarter. It's a little earlier than our convention. That was intentional to give us more benefit during the year by getting them out there a little earlier. We wanted to avoid the kickoff of the year because we still do encourage all of our teams to have a big kickoff and engage quickly at the beginning of the year. We didn't want to step on that. We wanted to get beyond bad weather for travel, and so that's the reason we chose the spring. It was really early in the year as possible. So these will not be the size of our convention, but if you add them all together, they should be as big as our convention, is the thinking in attendance. And so we'll treat them differently. It will not be as long an event. It's a Friday afternoon, evening, Saturday event as opposed to a four-day event so people can get in and out more easily. Geographically, being closer, we think it makes it more convenient and less expensive for people to attend. And we have other events that we've consolidated to offset the expense of doing these. So we're doing kind of a virtual and expense-neutral plan for our events budget next year by doing it this way. We're going virtual with some of our other events to make these live events possible. So we're excited about it. It's something that hasn't been done in a while. It should have the type of impact we would expect around the convention. Remember, the convention is not just the event itself that drives momentum. It's the incentives that we announce and use around the convention. We use the convention as a platform to announce those incentives, and it's the combination of those two We'll be doing a slightly smaller version of that. We'll have some incentives in play around these five events. We'll use this big stage as a recognition platform. We have people competing right now to be recognized on those stages. That's always an important driver of our business. We think in combination, this gives us an opportunity to really come off of what has been a slow year compared to the previous year in our distribution and life business. add some momentum to those two businesses and continue to maximize the momentum in our ISP business as we hit into 26.

Got it. Very, very helpful. And then maybe just following up on the earlier questions around the rise in your RBC ratio so far this year, is there any way to break down the drivers further? I guess specifically how much of the improved capital generation has been due to strong in-force earnings versus less capital strain from the lower level of life sales? I guess what I'm trying to understand is if Life sales do remain somewhat subdued for a period of time. Could this allow for an ongoing outsized level of dividends to the holding company and ultimately share purchases to help offset the slower sales trends for a period of time? Any way to size that or how you're thinking about that would be great.

Good morning, Dan. In terms of the RBC ratio being higher, obviously one of the reasons is the higher profitability and income generated from the statutory side. Clearly, the statutory side of the cash impact is one of the reasons why RBC ratios are higher, but still primarily the reason is the overall ability to convert the cash out based on the regulatory restrictions of the 12-month rolling combined cash you can take out, as an example, not exceeding prior statutory income. So as our income gets to be higher in the future period than the prior period combined, you're limited to how much you can take out. So just by continually improving profitability on the statutory basis, as an example, there is a possibility of cash generating more than what your prior profitability combined would allow you to take out. That being part of the reason, we clearly are looking at plans that we're going to put in action fourth quarter to help us be able to convert more cash out. And you will see when we get into the fourth quarter how those actions take place. And to your point, the faster growth of the term life business will consume more cash than when it's at a slower pace. And that's part of the reason why when we look at the future rates that we want to keep for RBC, we always want to have a little bit of a cushion. When we get towards the 50th anniversary, as the excitement starts to build and the momentum starts to get stronger, we wanted to make sure that there is sufficient cash in place to capture that growth potential. Currently, we're on relatively lower growth speed compared to prior year because it was at such a record pace. But if you look at it on the longer 20-year term, 30-year term, our growth is still at pretty consistently good levels. Just the fact that last year was higher doesn't necessarily say the current growth is somewhat really unseen in the past. So that being said, that's part of what's driving our decisions on how much we keep in those entities and how much we take out. But in the long run, I think we have anticipation of keeping a relatively high historical level of conversion. Some periods could even possibly exceed what you've seen historical ratios. But overall, I think we're confident, Dan, to keep at that very high-end performance compared to all the peer sectors, being able to continue that relatively predictable trend in terms of the ratios that we predict and use.

Got it. Thanks so much. Appreciate it.

Thank you. Our next question comes from the line of Mark Hughes with Truist Securities. Please receive your question.

Hello, Mark. Hey, Glenn. How are you? I'm great, thanks. Excellent. The asset-based revenue, you point out that has been growing faster than the underlying assets. Mr. Hughes, it seems that you're off to different categories, but should that sustain a positive trend?

Hey, Mark, we lost you for the entire middle part of your question. Would you mind restating?

Friend, continue.

Mark, we're only getting two or three words out of that. I apologize. I don't know if you've got a bad speaker. But we're only hearing every other word or so of your question, so it's not coming through.

Yeah. Can you hear me now, Glenn? Is this clear?

Yeah, that's much better. Much better.

Much better. Okay. All right. Thank you. Appreciate that. The faster growth in asset-based revenue relative to assets, is there any reason that trend should not continue?

I think, as Tracy said, it's driven by a product mix. and our managed account business, and then also the principal distributor model in Canada, which has similar dynamics. Both are kind of some of our fastest growing product lines. They're smaller, and so on a percentage basis, they tend to grow faster, but they're also beginning to catch up in the overall mix. So we would expect, barring some unforeseen disturbance, that that should have some legs and should continue. You're right. That direction is not something we anticipate would change.

Yeah, thank you. And then, Tracy, the YRT seeded premiums, if you look at those relative to adjusted direct premiums, those have been moving up. That ratio has been moving up. What is the update on how that should trend over the next year or so? Will it just continue that upward drift? And again, this is YRT seeded premiums as a percentage of adjusted direct premiums in term life.

Good morning, Mark. I think the YRT seeded premium as compared to the adjusted direct premium is because for those life policies, as the insured age, the seeded premium starts to creep up to cover for the higher mortality risks. So when you look at it, you actually don't want to look at it in its silo. You want to add it to the actually the benefit cost. So when you combine those as a percent of ADP, it's relatively steady. That's how you want to look at it.

Yeah. Okay. Appreciate that. Thank you.

Thank you.

Thank you. Our next question comes from the line of Sunit Kamath with Jefferies. Please proceed with your question. Good morning, Sunit.

Good morning, Glenn. Good morning, Tracy. First question just on the assumption update. Tracy, you had mentioned that you took a portion of the mortality or favorable mortality that you're seeing and put it through your assumptions. I'm not expecting a specific answer, but can you give a rough sense of like what proportion of the favorable mortality you put inside? Was it half? Was it 20%? Just a rough estimate would be helpful.

Yeah, good morning, Nate. Our mortality performance since 2024, middle of that year, has been consistently favorable. We had thought that it was possibly a pull forward from the pandemic increased unfavorable mortality experience and that it would end at some point, but we continue to see that consistently. It's been reasonably good size of favorability, so we took a portion of it. In terms of what the proportion is, I think the theory really is that we believe our best estimate assumption is that we've taken the portion that we think, for the long run, it's the best estimate on what the mortality experience would be in the long-term trend. If we had thought that it needs to be higher, we would have taken it in our assumption review. So this is truly our best estimate. In terms of what we could expect for the future, I would say that because we have had favorable experience, possibly bigger than what we've taken, so it wouldn't be unlikely that we might have some favorable period claims and mortality favorable experiences from, you know, period to period. But, you know, long-term trend, we have taken our best estimates on what that trend would be.

Got it. And just, again, I don't want to box you into a corner, but is it like 20%, 25% of what you'd expect, you know, what you think? I mean, just more than half, just trying to get a sense of size.

Yeah, so that's a great question. The challenge really is, you know, there's a lot of complications of really deciphering the mortality performance on the cohorts and what that predictable trend, what cohort is a predictable trend for the long run. So I think the, you know, what our combined study, you know, looking at our experience really tells us this truly is the best estimate. So the future is uncertain. We believe that the portion we've taken truly represent what the long-term trend would be, given our best estimate. So the period variance that we will experience, we'll continue to monitor and size that. If that continues to be a pattern that we think becomes a long-term trend at that point, then we will recognize that if that were to come true.

Okay, that's fair. And I guess my second question, just on the annuity sales. So we've seen sales volumes increase for both you and the industry. Now, some of that could be driven by just higher markets as essentially 401k asset balances are higher, and so the rollovers are higher. So another way to think about growth would be growth in the number of contracts that you write. So I'm just wondering if you have any data on that. And then sort of relatedly, Glenn, do you think you're increasing the total addressable market for the annuity business, or are you effectively selling products to the existing customer base so you're seeing a lot of exchange activity? Any color on that would be helpful. Thanks.

Sure. Don't have specific stats, but I can give you some directional answers on that, Soneet. The annuity business is attractive. Again, some of it is a demographic change. I think Tracy mentioned it in an earlier answer. The demographic direction, the aging demographics, people have accumulated some amount of money and they are looking for ways to preserve that in uncertain times or expecting volatile markets down the road. And so the guarantees within variable annuities, the floors that are created and the guaranteed income coming out of them are what makes them attractive. And as we've said before, our product providers have done a great job in making those products as attractive as actuarially possible. So they've They've done well there. You know, changes in interest rates and their ability to provide those guarantees may be adjusted, so nothing's forever. But I think the product providers have done a good job of making their products attractive. I think our salespeople have used that to both help existing clients as well as be referred out to other clients. So we are seeing not only larger transactions but increasing transaction volumes. And we believe that's coming not only from our existing clients where we would be able to see a move if it was out of one of our products into a variable annuity, but we have existing clients who have assets elsewhere outside of Primerica that bring them to Primerica to join the other assets that we already have with them. We see some of that. And we see brand new clients as well as those satisfied clients. This happens throughout the industry. Refer us to others. So we're getting some of all of what you described, Suneet. that's driving that business.

Okay, that's helpful. Thanks, Glenn.

Glad to help.

Thank you. Ladies and gentlemen, this concludes our Q&A session and we'll conclude our call today. We thank you for your interest and participation. You may now disconnect your lines.