Primerica Reports Second Quarter 2011 Results

First convention in four years generates momentum with new product launches and sales force initiatives

Net income of $44.0 million; Diluted EPS of $0.58

21% net operating income growth; Diluted operating EPS of $0.59

DULUTH, Ga.--(BUSINESS WIRE)-- Primerica, Inc. (NYSE: PRI) announced today financial results for the second quarter ended June 30, 2011. Total revenues increased by 17% to $275.1 million in the second quarter of 2011, compared with $234.3 million in the second quarter of 2010. Net income was $44.0 million for the second quarter of 2011, or $0.58 per diluted share.

Operating revenues increased by 17% to $273.1 million in the second quarter of 2011, compared with $233.9 million in the second quarter of 2010. Net operating income was up 21% to $45.0 million, or $0.59 per diluted share, in the second quarter of 2011, compared with $37.2 million, or $.49 per diluted share, in the second quarter of 2010. Results were driven by continued growth in New Term premium and strong Investment and Savings Products performance as well as a lower income tax rate partially offset by higher expenses.

Rick Williams, Chairman of the Board and Co-Chief Executive Officer said, “We are pleased to report solid net operating income growth reflecting our strong market position in core businesses. We continue to focus on developing meaningful shareholder value by growing earnings and building the business to enhance long-term growth.”

John Addison, Chairman of Primerica Distribution and Co-Chief Executive Officer said, “The excitement generated by our convention announcements created a recruiting surge in the last two weeks of June, making June the best recruiting month in the history of the company. Recruiting momentum carried into July, where we went on to surpass the June recruiting record.”

Distribution Results

• Primerica’s first convention in four years was held in June and attended by approximately 40,000 people from the United States, Canada and Puerto Rico. The sales representatives were excited by the launch of our TermNow insurance product and managed accounts investment product as well as by several new field technology initiatives. These announcements, combined with a promotion through July lowering the Independent Business Application licensing fee to $50 from $99, have continued to generate a significant surge in recruiting activity post-convention.
• As anticipated, recruiting of new representatives experienced some downward pressure pre-convention during the quarter reflecting the absence of an incentive trip contest in the first half of 2011. However, recruiting increased significantly in the last two weeks of June following the convention to end the second quarter of 2011 flat, compared with recruiting in the same period a year ago. The size of our life-licensed insurance sales force was 90,519 at June 30, 2011, a decrease from 96,066 at June 30, 2010 and 92,212 at March 31, 2011. New life licenses were up 13% to 8,061 from the first quarter of 2011 and declined 18% from 9,887 in the quarter a year ago. The year-over-year decrease in new life licenses was primarily due to the year-to-date decline in recruiting.
• Term Life net premium grew by 29% to $108.4 million in the second quarter of 2011, compared with $83.8 million in the second quarter of 2010 as we added another quarter of issued life business following the Citi reinsurance transactions. Life insurance policies issued were flat at 59,826 in the second quarter of 2011, compared with a year ago. Life insurance policies issued increased by 17% to 59,826 in the second quarter 2011, compared with 51,281 in the first quarter of 2011, reflecting typical seasonality.
• Investment and Savings Products sales continued to grow, up 23% to $1.14 billion in the second quarter of 2011 from $923.3 million in the year ago quarter primarily driven by a 49% increase in variable annuity sales. Variable annuity sales were positively impacted by clients redeeming older contracts (not incurring surrender charges) to purchase our current Prime Elite IV product that has an attractive guaranteed income living benefit. The recent addition of annuity clients to our Client Account Manager system has enabled our representatives to revisit existing variable annuity clients who have products that do not have a living benefit. Improved market conditions drove an increase in client asset values, which grew 21% to $36.02 billion at June 30, 2011 from $29.72 billion at June 30, 2010.

Segment Results

Primerica operates in two primary business segments: Term Life Insurance and Investment and Savings Products, and has a third segment, Corporate and Other Distributed Products. Results for the segments are shown below.

Term Life Insurance. Operating revenues grew by 21%, or $23.3 million, in the second quarter of 2011, compared with the same period a year ago, primarily reflecting incremental New Term premiums following the Citi reinsurance transactions. Operating income before income taxes increased by 4%, or $1.7 million, over the prior year period primarily driven by growth in New Term premium and favorable seasonal persistency partially offset by higher expenses and continued run-off of the Legacy Term block. The $9.0 million increase in insurance expenses in the second quarter of 2011 includes $3.2 million of expenses associated with convention initiatives, the largest component of which was the write-off of medical testing materials that are now obsolete due to the new TermNow underwriting process. Premium taxes were $2.1 million higher due to the continued growth in New Term and the impact of a premium tax recovery in 2010. Legacy Term policies continued to run-off resulting in lower expense allowances of $1.3 million, compared with a year ago. Mortality experience was slightly favorable during the second quarter of 2011.

Operating income before income taxes decreased by 6%, or $3.1 million, compared with the first quarter of 2011 reflecting higher expenses in the second quarter and a favorable DAC adjustment in the first quarter of 2011, partially offset by the New Term premium growth, seasonally favorable persistency and improved mortality.

Investment and Savings Products. Operating revenues and operating income before income taxes in the second quarter of 2011 were driven by higher sales and increased client asset values as well as a shift in product sales mix to higher margin U.S. variable annuity products. DAC amortization on our Canadian segregated funds was also higher due to lower investment returns during the second quarter of 2011. Operating income before income taxes increased by 14%, or $3.7 million, compared with the second quarter of 2010.

Sequentially, operating revenues increased by 4%, or $3.7 million. Operating income before income taxes decreased by 2%, or $0.6 million, in the second quarter of 2011, compared with the prior quarter primarily due to higher DAC amortization related to Canadian segregated funds and the first quarter 2011 management compensation accrual release partially offset by the effects of higher sales and slightly higher average client assets.

Corporate and Other Distributed Products. Operating revenues decreased by 1%, or $0.5 million, in the second quarter of 2011 from the second quarter of 2010. Operating losses before income taxes were $6.6 million in the second quarter of 2011, compared with $9.4 million in the same period of 2010. The improvement largely reflects lower expenses due to the one-time IPO-related expenses in the prior year and discontinued Citi expense allocations. Results for second quarter 2011 also reflect higher claims primarily on short-term disability insurance products underwritten by our New York insurance subsidiary.

Taxes

Our effective income tax rate for the second quarter of 2011 was 35.4%, compared with 39.4% for the same quarter a year ago. The higher tax rate in the second quarter of 2010 resulted from permanent differences caused by our IPO-related equity awards granted to Canadian sales force leaders and from other items relating to Canadian earnings that were reversed in the fourth quarter of 2010 when a specific expired provision in the tax law was retroactively extended.

Capital and Liquidity

Primerica continues to be well capitalized, with a high-quality invested asset portfolio. Investments and cash totaled $2.30 billion as of June 30, 2011. Our invested asset portfolio had a net unrealized gain of $171.1 million (net of unrealized losses of $5.0 million) at June 30, 2011, an increase from a net unrealized gain of $156.1 million at March 31, 2011. Net realized gains for the quarter were $2.0 million, which included $0.1 million of other-than-temporary impairments.

As of June 30, 2011, our debt-to-capital ratio remained low at 16.2%, as did our ratio of cash and invested assets to stockholders equity at 1.5x. Net operating income return on adjusted stockholders’ equity (ROAE) was 12.7% for the quarter ended June 30, 2011, down from 14.2% in the first quarter of 2011 reflecting non-recurring items that enhanced first quarter 2011 ROAE and higher expenses in second quarter of 2011. Net income return on stockholders’ equity was 11.6% for the second quarter of 2011.

Primerica Life Insurance Company, our primary underwriter, had statutory capital in excess of the applicable statutory requirements to support existing operations and to fund future growth. With a statutory risk-based capital (RBC) ratio estimated to be in excess of 600% as of June 30, 2011, we continue to be well positioned to support anticipated future growth.

Non-GAAP Financial Measures

We report financial results in accordance with U.S. generally accepted accounting principles (GAAP). We also present operating revenues, operating income before income taxes, net operating income and adjusted stockholders’ equity. Operating revenues, operating income before income taxes and net operating income exclude the impact of realized investment gains and losses for all periods presented. Operating income before income taxes and net operating income exclude the expense associated with our IPO-related equity awards for all periods presented. Adjusted stockholders' equity excludes the impact of net unrealized gains and losses on invested assets for all periods presented. Our definitions of these non-GAAP financial measures may differ from the definitions of similar measures used by other companies. Management uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating our financial performance. Furthermore, management believes that these non-GAAP financial measures may provide users with additional meaningful comparisons between current results and results of prior periods as they are expected to be reflective of our core ongoing business. These measures have limitations, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Reconciliations of non-GAAP to GAAP financial measures are attached to this release.

Earnings Webcast Information

Primerica will hold a webcast Wednesday, August 3, 2011 at 10:00 am EDT, to discuss second quarter results. This release and a detailed financial supplement will be posted on Primerica’s website. Investors are encouraged to review these materials. To access the webcast go to http://investors.primerica.com at least 15 minutes prior to the event to register, download and install any necessary software.

A replay of the call will be available for approximately 30 days on Primerica’s website, http://investors.primerica.com.

Forward-Looking Statements

Except for historical information contained in this press release, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements contain known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from anticipated or projected results. Those risks and uncertainties include, among others, our failure to continue to attract and license new recruits, retain sales representatives or maintain the licensing of our sales representatives; our or our sales representatives’ violation of or non-compliance with laws and regulations; incorrect assumptions used to price our insurance policies; the failure of our investment products to remain competitive with other investment options; our failure to meet RBC standards or other minimum capital and surplus requirements; a downgrade or potential downgrade in our insurance subsidiaries’ financial strength ratings; inadequate or unaffordable reinsurance or the failure of our reinsurers to perform their obligations; heightened standards of conduct or more stringent licensing requirements for our sales representatives; the inability of our subsidiaries to pay dividends or make distributions; the loss of key personnel; conflicts of interests due to Citi's and Warburg Pincus' significant interests in us; and general changes in economic and financial conditions, including the effects of credit deterioration and interest rate fluctuations on our invested asset portfolio. These and other risks and uncertainties affecting us are more fully described in our filings with the Securities and Exchange Commission, which are available in the "Investor Relations" section of our website at http://investors.primerica.com. Primerica assumes no duty to update its forward-looking statements as of any future date.

About Primerica, Inc.

Primerica, Inc., headquartered in Duluth, GA, is a leading distributor of financial products to middle-income families in North America. Primerica representatives assist clients in meeting their needs for term life insurance, mutual funds, loans and other financial products. In addition, Primerica provides an entrepreneurial full or part-time business opportunity for individuals seeking to earn income by distributing its financial products. Primerica insures approximately 4.3 million lives and more than 2 million clients maintain investment accounts with the company.

Primerica, Inc.
Investor Contact:
Kathryn Kieser, 770-564-7757
investorrelations@primerica.com
Media Contact:
Mark L. Supic, 770-564-6329
mark.supic@primerica.com

Source: Primerica, Inc.

Released August 2, 2011