pri-10q_20220630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-34680

Primerica, Inc.

(Exact name of registrant as specified in its charter)

Delaware		27-1204330
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1 Primerica Parkway Duluth, Georgia		30099
(Address of principal executive offices)		(ZIP Code)

(770) 381-1000

(Registrant’s telephone number, including area code)

Not applicable.

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock		PRI		New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of July 31, 2022, the registrant had 37,453,088 shares of common stock, $0.01 par value per share, outstanding.

TABLE OF CONTENTS


		Page
PART I – FINANCIAL INFORMATION		2
Item 1. Financial Statements (unaudited).		2
Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021		2
Condensed Consolidated Statements of Income for the three and six months ended June 30, 2022 and 2021		3
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2022 and 2021		4
Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021		5
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		28
Item 3. Quantitative and Qualitative Disclosures About Market Risk.		51
Item 4. Controls and Procedures.		51
PART II – OTHER INFORMATION		51
Item 1. Legal Proceedings.		51
Item 1A. Risk Factors.		52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		53
Item 6. Exhibits.		54
Signatures		55

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

	(Unaudited)
	June 30, 2022			December 31, 2021
	(In thousands)
Assets:
Investments:
Fixed-maturity securities available-for-sale, at fair value (amortized cost: $2,777,820 in 2022 and $2,621,388 in 2021)	$	2,554,465		$	2,702,567
Fixed-maturity security held-to-maturity, at amortized cost (fair value: $1,378,744 in 2022 and $1,551,113 in 2021)		1,415,940			1,379,100
Short-term investments available-for-sale, at fair value (amortized cost: $3,311 in 2022 and $85,246 in 2021)		3,311			85,243
Equity securities, at fair value (historical cost: $29,365 in 2022 and $34,255 in 2021)		35,877			42,551
Trading securities, at fair value (cost: $9,470 in 2022 and $24,769 in 2021)		8,976			24,355
Policy loans and other invested assets		46,226			30,612
Total investments		4,064,795			4,264,428
Cash and cash equivalents		400,119			392,501
Accrued investment income		19,326			18,702
Reinsurance recoverables		4,069,039			4,268,419
Deferred policy acquisition costs, net		3,028,511			2,943,782
Renewal commissions receivable		193,661			231,751
Agent balances, due premiums and other receivables		250,940			257,675
Goodwill		187,707			179,154
Intangible assets		190,775			195,825
Income taxes		92,352			81,799
Operating lease right-of-use assets		44,438			47,942
Other assets		428,355			441,253
Separate account assets		2,358,987			2,799,992
Total assets	$	15,329,005		$	16,123,223

Liabilities and Stockholders’ Equity:
Liabilities:
Future policy benefits	$	7,276,278		$	7,138,649
Unearned and advance premiums		16,932			16,437
Policy claims and other benefits payable		481,229			585,382
Other policyholders’ funds		501,628			501,823
Note payable - Short term		-			15,000
Note payable - Long term		592,504			592,102
Surplus note		1,415,457			1,378,585
Income taxes		164,972			241,311
Operating lease liabilities		50,249			53,920
Other liabilities		596,409			615,710
Payable under securities lending		96,603			94,529
Separate account liabilities		2,358,987			2,799,992
Commitments and contingent liabilities (see Commitments and Contingent Liabilities note)
Total liabilities		13,551,248			14,033,440

Temporary Stockholders’ Equity
Redeemable noncontrolling interests in consolidated entities		2,233			7,271
Permanent Stockholders’ Equity
Equity attributable to Primerica, Inc.:
Common stock ($0.01 par value; authorized 500,000 shares in 2022 and 2021; issued and outstanding 37,768 shares in 2022 and 39,368 shares in 2021)		378			394
Paid-in capital		-			5,224
Retained earnings		1,948,244			2,004,506
Accumulated other comprehensive income (loss), net of income tax:
Unrealized foreign currency translation gains (losses)		2,648			8,611
Net unrealized investment gains (losses) on available-for-sale securities		(175,746	)		63,777
Total permanent stockholders’ equity		1,775,524			2,082,512
Total liabilities and temporary and permanent stockholders’ equity	$	15,329,005		$	16,123,223

See accompanying notes to condensed consolidated financial statements.

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income – Unaudited

	Three months ended June 30,						Six months ended June 30,
	2022			2021			2022			2021
	(In thousands, except per-share amounts)
Revenues:
Direct premiums	$	808,894		$	780,299		$	1,607,560		$	1,542,526
Ceded premiums		(419,048	)		(413,850	)		(818,933	)		(809,822	)
Net premiums		389,846			366,449			788,627			732,704
Commissions and fees		240,688			250,688			492,489			484,733
Investment income net of investment expenses		37,099			36,030			71,519			71,230
Interest expense on surplus note		(15,815	)		(15,495	)		(31,330	)		(30,642	)
Net investment income		21,284			20,535			40,189			40,588
Realized investment gains (losses)		56			1,409			632			2,031
Other investment gains (losses)		(1,948	)		(708	)		(1,773	)		436
Investment gains (losses)		(1,892	)		701			(1,141	)		2,467
Other, net		18,756			16,313			39,745			31,907
Total revenues		668,682			654,686			1,359,909			1,292,399

Benefits and expenses:
Benefits and claims		153,257			168,347			340,326			352,136
Amortization of deferred policy acquisition costs		85,379			54,286			171,442			120,390
Sales commissions		119,763			131,303			253,687			253,197
Insurance expenses		59,461			48,579			118,969			97,346
Insurance commissions		7,594			8,838			15,315			17,578
Contract acquisition costs		19,384			-			40,034			-
Interest expense		6,814			7,141			13,667			14,285
Other operating expenses		79,730			66,726			166,165			139,694
Total benefits and expenses		531,382			485,220			1,119,605			994,626
Income before income taxes		137,300			169,466			240,304			297,773
Income taxes		31,737			41,304			55,977			71,740
Net income (loss)		105,563			128,162			184,327			226,033
Net income (loss) attributable to noncontrolling interests		(2,384	)		-			(5,038	)		-
Net income (loss) attributable to Primerica, Inc.	$	107,947		$	128,162		$	189,365		$	226,033

Earnings per share attributable to common stockholders:
Basic earnings per share	$	2.80		$	3.23		$	4.86		$	5.70
Diluted earnings per share	$	2.79		$	3.22		$	4.85		$	5.68

Weighted-average shares used in computing earnings per share:
Basic		38,386			39,531			38,801			39,493
Diluted		38,501			39,653			38,914			39,616

See accompanying notes to condensed consolidated financial statements.

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss) – Unaudited

	Three months ended June 30,						Six months ended June 30,
	2022			2021			2022			2021
	(In thousands)
Net income (loss)	$	105,563		$	128,162		$	184,327		$	226,033
Other comprehensive income (loss) before income taxes:
Unrealized investment gains (losses) on available-for-sale securities:
Change in unrealized holding gains (losses) on available-for-sale securities		(138,879	)		26,018			(303,818	)		(38,874	)
Reclassification adjustment for investment (gains) losses included in net income		(56	)		(705	)		(713	)		(1,173	)
Foreign currency translation adjustments:
Change in unrealized foreign currency translation gains (losses)		(9,121	)		7,390			(5,963	)		12,382
Total other comprehensive income (loss) before income taxes		(148,056	)		32,703			(310,494	)		(27,665	)
Income tax expense (benefit) related to items of other comprehensive income (loss)		(29,628	)		5,376			(65,008	)		(8,909	)
Other comprehensive income (loss), net of income taxes		(118,428	)		27,327			(245,486	)		(18,756	)
Total comprehensive income (loss)		(12,865	)		155,489			(61,159	)		207,277
Net income (loss) attributable to noncontrolling interests		(2,384	)		-			(5,038	)		-
Comprehensive income (loss) attributable to Primerica, Inc.	$	(10,481	)	$	155,489		$	(56,121	)	$	207,277

See accompanying notes to condensed consolidated financial statements.

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity– Unaudited

	Three months ended June 30,						Six months ended June 30,
	2022			2021			2022			2021
	(In thousands)
Equity attributable to Primerica, Inc./Permanent stockholders’ equity
Common stock:
Balance, beginning of period	$	388		$	394		$	394		$	393
Repurchases of common stock		(10	)		-			(18	)		-
Net issuance of common stock		-			-			2			1
Balance, end of period		378			394			378			394

Paid-in capital:
Balance, beginning of period		-			8,138			5,224			-
Share-based compensation		8,961			5,683			23,781			19,788
Net issuance of common stock		(1	)		-			(2	)		(1	)
Repurchases of common stock		(8,960	)		(941	)		(29,003	)		(6,907	)
Balance, end of period		-			12,880			-			12,880

Retained earnings:
Balance, beginning of period		1,980,467			1,785,038			2,004,506			1,705,786
Cumulative effect from the adoption of new accounting standards, net		-			-			-			-
Net income attributable to Primerica, Inc.		107,947			128,162			189,365			226,033
Dividends		(21,178	)		(18,661	)		(42,823	)		(37,280	)
Repurchases of common stock		(118,992	)		-			(202,804	)		-
Balance, end of period		1,948,244			1,894,539			1,948,244			1,894,539

Accumulated other comprehensive income:
Balance, beginning of period		(54,670	)		83,623			72,388			129,706
Change in foreign currency translation adjustment, net of income taxes		(9,121	)		7,390			(5,963	)		12,382
Change in net unrealized investment gains (losses) during the period, net of income taxes		(109,307	)		19,937			(239,523	)		(31,138	)
Balance, end of period		(173,098	)		110,950			(173,098	)		110,950

Total permanent stockholders’ equity	$	1,775,524		$	2,018,763		$	1,775,524		$	2,018,763

Redeemable noncontrolling interests in consolidated entities/Temporary stockholders’ equity
Balance, beginning of period	$	4,617		$	-		$	7,271		$	-
Net income (loss) attributable to noncontrolling interests		(2,384	)		-			(5,038	)		-
Balance, end of period	$	2,233		$	-		$	2,233		$	-

Dividends declared per share	$	0.55		$	0.47		$	1.10		$	0.94

See accompanying notes to condensed consolidated financial statements.

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows – Unaudited

	Six months ended June 30,
	2022			2021
	(In thousands)
Cash flows from operating activities:
Net income	$	184,327		$	226,033
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Change in future policy benefits and other policy liabilities		45,890			170,843
Deferral of policy acquisition costs		(257,187	)		(285,707	)
Amortization of deferred policy acquisition costs		171,442			120,390
Change in income taxes		(20,353	)		(3,366	)
Investment (gains) losses		1,141			(2,467	)
Accretion and amortization of investments		2,310			2,523
Depreciation and amortization		17,353			10,766
Change in reinsurance recoverables		193,086			43,474
Change in agent balances, due premiums and other receivables		2,771			(13,530	)
Change in renewal commissions receivable		26,227			(1,838	)
Trading securities sold, matured, or called (acquired), net		14,860			(17,615	)
Share-based compensation		18,591			14,192
Change in other operating assets and liabilities, net		(15,976	)		11,095
Net cash provided by (used in) operating activities		384,482			274,793

Cash flows from investing activities:
Available-for-sale investments sold, matured or called:
Fixed-maturity securities — sold		5,598			95,812
Fixed-maturity securities — matured or called		211,176			208,270
Short-term investments — sold		-			10,089
Short-term investments — matured or called		85,302			-
Equity securities — sold		-			690
Equity securities — matured or called		3,000			-
Available-for-sale investments acquired:
Fixed-maturity securities		(380,001	)		(384,161	)
Short-term investments		(3,311	)		(50,902	)
Equity securities — acquired		(89	)		(764	)
Purchases of property and equipment and other investing activities, net		(14,360	)		(12,102	)
Cash collateral received (returned) on loaned securities, net		2,074			8,459
Sales (purchases) of short-term investments using securities lending collateral, net		(2,074	)		(8,459	)
Purchase of business, net of cash acquired		3,867			-
Net cash provided by (used in) investing activities		(88,818	)		(133,068	)

Cash flows from financing activities:
Dividends paid		(42,823	)		(37,280	)
Common stock repurchased		(226,962	)		-
Proceeds from revolving credit facility		-			125,000
Payment on note issued to seller of business		(12,364	)		-
Tax withholdings on share-based compensation		(4,863	)		(6,485	)
Finance leases		(129	)		(133	)
Net cash provided by (used in) financing activities		(287,141	)		81,102
Effect of foreign exchange rate changes on cash		(905	)		4,195
Change in cash and cash equivalents		7,618			227,022
Cash and cash equivalents, beginning of period		392,501			547,569
Cash and cash equivalents, end of period	$	400,119		$	774,591

See accompanying notes to condensed consolidated financial statements.

PRIMERICA, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — Unaudited

(1) Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies

Description of Business. Primerica, Inc. (the “Parent Company”), together with its subsidiaries (collectively, “we”, “us” or the “Company”), is a leading provider of financial products to middle-income households in the United States and Canada through a network of independent contractor sales representatives (“independent sales representatives” or “independent sales force”). We assist our clients in meeting their needs for term life insurance, which we underwrite, and mutual funds, annuities, managed investments and other financial products, which we distribute primarily on behalf of third parties. On July 1, 2021, we acquired 80% of e-TeleQuote Insurance, Inc. and subsidiaries (collectively, “e-TeleQuote”) through our subsidiary, Primerica Health, Inc. (“Primerica Health”). e-TeleQuote markets Medicare-related insurance products underwritten by third-party health insurance carriers to eligible Medicare participants through its licensed health insurance agents. Refer to Note 14 (Acquisition) for more information regarding the acquisition of 80% of e-TeleQuote and Note 15 (Subsequent Events) for information regarding the acquisition of the remaining 20% of e-TeleQuote effective July 1, 2022. Our other primary subsidiaries include the following entities: Primerica Financial Services, LLC (“PFS”), a general agency and marketing company; Primerica Life Insurance Company (“Primerica Life”), our principal life insurance company; Primerica Financial Services (Canada) Ltd., a holding company for our Canadian operations, which includes Primerica Life Insurance Company of Canada (“Primerica Life Canada”) and PFSL Investments Canada Ltd. (“PFSL Investments Canada”); and PFS Investments Inc. (“PFS Investments”), an investment products company and broker-dealer. Primerica Life, domiciled in Tennessee, owns National Benefit Life Insurance Company (“NBLIC”), a New York insurance company. Peach Re, Inc. (“Peach Re”) and Vidalia Re, Inc. (“Vidalia Re”) are special purpose financial captive insurance companies and wholly owned subsidiaries of Primerica Life. Peach Re and Vidalia Re have each entered into separate coinsurance agreements with Primerica Life whereby Primerica Life has ceded certain level-premium term life insurance policies to Peach Re and Vidalia Re (respectively, the “Peach Re Coinsurance Agreement” and the “Vidalia Re Coinsurance Agreement”).

Basis of Presentation. We prepare our financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). These principles are established primarily by the Financial Accounting Standards Board (“FASB”).

The accompanying unaudited condensed consolidated financial statements contain all adjustments, generally consisting of normal recurring accruals, which are necessary to fairly present the balance sheets as of June 30, 2022 and December 31, 2021, the statements of income, comprehensive income, and stockholders’ equity for the three and six months ended June 30, 2022 and 2021, and cash flows for the six months ended June 30, 2022 and 2021. Results of operations for interim periods are not necessarily indicative of results for the entire year or of the results to be expected in future periods.

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are sufficient to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Annual Report”).

Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect financial statement balances, revenues and expenses and cash flows, as well as the disclosure of contingent assets and liabilities. Management considers available facts and knowledge of existing circumstances when establishing the estimates included in our financial statements. The most significant items that involve a greater degree of accounting estimates and actuarial determinations subject to change in the future are the valuation of investments, deferred policy acquisition costs (“DAC”), future policy benefit reserves and corresponding amounts recoverable from reinsurers, renewal commissions receivable, income taxes, and valuation of intangible assets and goodwill. Estimates for these and other items are subject to change and are reassessed by management in accordance with U.S. GAAP. Actual results could differ from those estimates.

Consolidation. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and those entities required to be consolidated under U.S. GAAP. All material intercompany profits, transactions, and balances among the consolidated entities have been eliminated.

Reclassifications. Certain reclassifications have been made to prior-period amounts to conform to current-period reporting classifications. These reclassifications had no impact on net income or total stockholders’ equity.

Changes to Accounting Policies. All significant accounting policies remain unchanged from the 2021 Annual Report unless otherwise described.

Future Application of Accounting Standards. In August 2018, the FASB issued Accounting Standards Update No. 2018-12, Financial Services—Insurance (Topic 944) — Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12” or “LDTI”). The amendments in this update change accounting guidance for insurance companies that issue long-duration contracts, including term life insurance. ASU 2018-12 requires companies that issue long-duration insurance contracts to update

assumptions used in measuring future policy benefits and DAC, including mortality, disability, and persistency, at least annually instead of locking those assumptions at contract inception and reflecting differences in assumptions and actual performance as the experience occurs. ASU 2018-12 also changes how insurance companies that issue long-duration contracts amortize DAC and determine and update the discount rate assumptions used in measuring future policy benefits reserves while increasing the level of financial statement disclosures required. The guidance in ASU 2018-12 will be applied to the earliest period presented in the consolidated financial statements beginning on the effective date of January 1, 2023. The adoption of ASU 2018-12 will have an impact on our consolidated financial statements and related disclosures and will require changes to certain of our processes, systems, and controls. We are continuing to evaluate the impact the adoption will have on our consolidated financial statements. We are working on model refinement and model governance, finalizing actuarial assumptions and documenting our control process.

Below is a list of topics relevant to the adoption of ASU 2018-12 and the expected impact on the Company.

Topic

Description

Planned Approach

Transition Approach

LDTI guidance can be applied using either:

•the retrospective method, which applies the provisions of the standard from the original policy inception; or

•the modified retrospective method, which applies the provisions of the standard by pivoting off the historical December 31, 2020 future policy benefits reserve (“Pre-transition Reserve”) and deferred acquisition costs (“DAC”) balances just prior to January 1, 2021 (the “Transition Date”).

The Company will elect to adopt the standard using the modified retrospective method for both future policy benefits reserves and amortization of DAC. The Company will adopt the standard effective January 1, 2023.

Cohort Definition

Cohorts refer to the level of policy grouping used in the calculation of the future policy benefits reserve (“FPBR”) and amortization of DAC.

Under LDTI, cohorts must vary by policy issue year and may be set more granularly to reflect additional policy characteristics.

The net premium ratio for each policy cohort is used to calculate FPBR. At the Transition Date, the Net Premium Ratio is defined as the present value of future benefits and claim settlement expenses less the Pre-transition Reserve divided by the present value of the gross premiums. The present value of both the future benefits and gross premiums use best estimate cash flow assumptions at the locked-in discount rate (discount rate at the Transition Date). Under LDTI, a cohort’s Net Premium Ratio is capped at 100%. This concept replaces the need for loss recognition analysis under current GAAP. Any adjustments necessary at the Transition Date to cap the Net Premium Ratio for a cohort at 100% are recognized in retained earnings. After the Transition Date, the Net Premium Ratio will be updated each quarter as projected benefits and premiums are replaced with actual amounts.

The Company will define its Term Life Insurance segment cohorts based on the legal entity that issued the policy and the year the policy was issued.

The Company is still in the process of determining the impact as of the Transition Date for capping the Net Premium Ratio at 100% and expects any necessary adjustments to be isolated.

Discount Rates

LDTI requires entities to use market observable rates, based on an upper-medium grade fixed income instrument yield, to measure future policy benefits reserves each period.

The difference between the FPBR calculated using market observable rates and the Pre-transition Reserve is recognized as part of accumulated other comprehensive income (“AOCI”) at the Transition Date. After the Transition Date, the impact of changes in market observable rates each quarter will be recorded to AOCI and may add volatility to our reported equity.

The Company will use discount rates applied by geography to align with local currency cash flows. Discount rates will consist of yield curves that will be developed using Bloomberg’s Evaluated Pricing Product (BVAL) based on senior unsecured fixed rate bonds ratings of A+, A or A-.

Given how low market observable rates were at the Transition Date, we expect that the amount recorded in AOCI as of the Transition Date will significantly reduce our AOCI and equity balances. The Company is still in the process of quantifying the impact to AOCI as of the Transition Date for calculating the FPBR at market observable discount rates.

Cash Flow Assumptions

LDTI requires entities to use their best estimates for cash flow assumptions with no provision for adverse deviation. Cash flow assumptions are to be reviewed at least annually at the same time each year, or more frequently if experience suggests.

Forecasted cash flow assumptions must be replaced with actual cash flows in FPBR at least annually.

The Company expects to formally review cash flow assumptions during the third quarter each year and update these assumptions as necessary.

The Company will replace forecasted cash flow assumptions with actual cash flows in FPBR each quarter.

The impact of assumption changes and experience variances will be partly reflected in the current period and partly spread to future periods, based on the remaining duration of the impacted cohort(s), by unlocking the Net Premium Ratio in FPBR.

DAC Amortization

LDTI requires DAC to be amortized on a constant-level basis over the expected term of the contracts using an appropriate unit of measure. Companies can amortize DAC either at an individual contract level on a straight-line basis or at a cohort level that approximates a straight-line basis.

Under current GAAP, DAC is amortized using amortization models linked to revenue or profit. Also, interest is accrued on unamortized DAC under current GAAP while LDTI disallows the accrual of interest.

The Company anticipates it will use current face amount as a unit of measure to amortize DAC for its term life insurance products and policy count as a unit of measure to amortize DAC for its Canadian segregated funds products. In addition, the Company expects to group contracts by cohort to amortize DAC.

For term life insurance products, we expect DAC to be amortized more slowly under LDTI as compared with current GAAP.

For Canadian segregated funds, we expect DAC amortization to be less volatile than under current GAAP as it will no longer be based on the present value of gross profits, which are subject to changes in the market value of assets under management.

Market Risk Benefits (“MRBs”)

MRBs are benefits that protect policyholders from capital market risk. Under LDTI, MRBs are measured at fair value.

The Company has MRBs from limited guaranteed benefits provided as part of our Canadian segregated funds products.

We are still undergoing the process of evaluating MRBs associated with our Canadian segregated funds products but we currently anticipate that the fair value of MRBs associated with this product will be immaterial when LDTI is adopted.

Recently-issued accounting guidance not discussed above is not applicable, is not material to our unaudited condensed consolidated financial statements, or did not or is not expected to have a material impact on our business.

(2) Segment and Geographical Information

Segments. We have three primary operating segments — Term Life Insurance, Investment and Savings Products, and (as of July 1, 2021) Senior Health. We also have a Corporate and Other Distributed Products segment.

Notable information included in profit or loss by segment was as follows:

	Three months ended June 30,						Six months ended June 30,
	2022			2021			2022			2021
	(In thousands)
Revenues:
Term life insurance segment	$	410,707		$	383,536		$	829,136		$	765,565
Investment and savings products segment		222,416			238,012			463,455			461,434
Senior health segment		11,814		N/A				17,645		N/A
Corporate and other distributed products segment		23,745			33,138			49,673			65,400
Total revenues	$	668,682		$	654,686		$	1,359,909		$	1,292,399

Net investment income:
Term life insurance segment	$	12,286		$	8,751		$	23,731		$	17,004
Investment and savings products segment		-			-			-			-
Senior health segment		-		N/A				-		N/A
Corporate and other distributed products segment		8,998			11,784			16,458			23,584
Total net investment income	$	21,284		$	20,535		$	40,189		$	40,588

Amortization of DAC:
Term life insurance segment	$	79,668		$	52,235		$	161,551		$	114,820
Investment and savings products segment		5,463			1,786			9,388			5,061
Senior health segment		-		N/A				-		N/A
Corporate and other distributed products segment		248			265			503			509
Total amortization of DAC	$	85,379		$	54,286		$	171,442		$	120,390

Non-cash share-based compensation expense:
Term life insurance segment	$	618		$	744		$	2,743		$	2,733
Investment and savings products segment		683			658			1,887			1,866
Senior health segment		-		N/A				-		N/A
Corporate and other distributed products segment		4,853			1,137			13,961			9,593
Total non-cash share-based compensation expense	$	6,154		$	2,539		$	18,591		$	14,192

Income (loss) before income taxes:
Term life insurance segment	$	119,879		$	116,776		$	211,455		$	205,012
Investment and savings products segment		58,975			71,154			123,535			134,515
Senior health segment		(16,150	)	N/A				(39,235	)	N/A
Corporate and other distributed products segment		(25,404	)		(18,464	)		(55,451	)		(41,754	)
Total income before income taxes	$	137,300		$	169,466		$	240,304		$	297,773

Total assets by segment were as follows:

	June 30, 2022		December 31, 2021
	(In thousands)
Assets:
Term life insurance segment	$	7,170,540	$	7,274,820
Investment and savings products segment ⁽¹⁾		2,471,475		2,920,271
Senior health segment		483,123		528,974
Corporate and other distributed products segment		5,203,867		5,399,158
Total assets	$	15,329,005	$	16,123,223

⁽¹⁾ The Investment and Savings Products segment includes assets held in separate accounts. Excluding separate accounts, the Investment and Savings Products segment assets were $112.5 million and $120.3 million as of June 30, 2022 and December 31, 2021, respectively.

Geographical Information. Results of operations by country and long-lived assets, primarily tangible assets reported in other assets in our unaudited condensed consolidated balance sheets and condensed consolidated statements of income, were as follows:

	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
	(In thousands)
Revenues by country:
United States	$	575,517	$	554,516	$	1,161,671	$	1,093,462
Canada		93,165		100,170		198,238		198,937
Total revenues	$	668,682	$	654,686	$	1,359,909	$	1,292,399

	June 30, 2022		December 31, 2021
	(In thousands)
Long-lived assets by country:
United States	$	53,735	$	62,921
Canada		3,451		3,871
Other		232		230
Total long-lived assets	$	57,418	$	67,022

(3) Investments

Available-for-sale Securities. The period-end amortized cost, gross unrealized gains and losses, and fair value of available-for-sale securities were as follows:

	June 30, 2022
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
	(In thousands)
Securities available-for-sale, carried at fair value:
Fixed-maturity securities:
U.S. government and agencies	$	32,924	$	46	$	(718	)	$	32,252
Foreign government		159,464		623		(10,255	)		149,832
States and political subdivisions		143,750		247		(14,457	)		129,540
Corporates		1,650,504		3,338		(136,869	)		1,516,973
Residential mortgage-backed securities		484,034		701		(45,673	)		439,062
Commercial mortgage-backed securities		145,360		6		(9,861	)		135,505
Other asset-backed securities		161,784		182		(10,665	)		151,301
Total fixed-maturity securities		2,777,820		5,143		(228,498	)		2,554,465
Short-term investments		3,311		-		-			3,311
Total fixed-maturity securities and short-term investments	$	2,781,131	$	5,143	$	(228,498	)	$	2,557,776

	December 31, 2021
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
	(In thousands)
Securities available-for-sale, carried at fair value:
Fixed-maturity securities:
U.S. government and agencies	$	32,292	$	187	$	(79	)	$	32,400
Foreign government		147,288		6,283		(595	)		152,976
States and political subdivisions		147,455		6,326		(254	)		153,527
Corporates		1,649,334		72,418		(8,068	)		1,713,684
Residential mortgage-backed securities		373,753		5,108		(3,230	)		375,631
Commercial mortgage-backed securities		142,631		3,314		(420	)		145,525
Other asset-backed securities		128,635		1,409		(1,220	)		128,824
Total fixed-maturity securities		2,621,388		95,045		(13,866	)		2,702,567
Short-term investments		85,246		1		(4	)		85,243
Total fixed-maturity and short-term investments	$	2,706,634	$	95,046	$	(13,870	)	$	2,787,810

All of our available-for-sale mortgage- and asset-backed securities represent variable interests in variable interest entities (“VIEs”). We are not the primary beneficiary of these VIEs because we do not have the power to direct the activities that most significantly impact the entities’ economic performance. The maximum exposure to loss as a result of our involvement in these VIEs equals the carrying value of the securities.

The scheduled maturity distribution of the available-for-sale fixed-maturity portfolio as of June 30, 2022 was as follows:

	Amortized cost		Fair value
	(In thousands)
Due in one year or less	$	210,474	$	210,206
Due after one year through five years		762,311		737,052
Due after five years through 10 years		737,704		649,755
Due after 10 years		276,153		231,584
		1,986,642		1,828,597
Mortgage- and asset-backed securities		791,178		725,868
Total AFS fixed-maturity securities	$	2,777,820	$	2,554,465

Expected maturities may differ from scheduled contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.

Trading Securities. The cost and fair value of the securities classified as trading securities were as follows:

	June 30, 2022				December 31, 2021
	Cost		Fair value		Cost		Fair value
	(In thousands)
Fixed-maturity securities	$	9,470	$	8,976	$	24,769	$	24,355

Held-to-maturity Security. Concurrent with the execution of the Vidalia Re Coinsurance Agreement, Vidalia Re entered into a Surplus Note Purchase Agreement (the “Surplus Note Purchase Agreement”) with Hannover Life Reassurance Company of America and certain of its affiliates (collectively, “Hannover Re”) and a newly formed limited liability company (the “LLC”) owned by a third- party service provider. Under the Surplus Note Purchase Agreement, Vidalia Re issued a surplus note (the “Surplus Note”) to the LLC in exchange for a credit enhanced note from the LLC with an equal principal amount (the “LLC Note”). The principal amount of both the LLC Note and the Surplus Note will fluctuate over time to coincide with the amount of reserves contractually supported under the Vidalia Re Coinsurance Agreement. Both the LLC Note and the Surplus Note mature on December 31, 2030 and bear interest at an annual interest rate of 4.50%. The LLC Note is guaranteed by Hannover Re through a credit enhancement feature in exchange for a fee, which is reflected in interest expense on our unaudited condensed consolidated statements of income.

The LLC is a VIE as its owner does not have an equity investment at risk that is sufficient to permit the LLC to finance its activities without Vidalia Re or Hannover Re. The Parent Company, Primerica Life, and Vidalia Re share the power to direct the activities of the LLC with Hannover Re, but do not have the obligation to absorb losses or the right to receive any residual returns related to the LLC’s primary risks or sources of variability. Through the credit enhancement feature, Hannover Re is the ultimate risk taker in this transaction and bears the obligation to absorb the LLC’s losses in the event of a Surplus Note default in exchange for the fee. Accordingly, the Company is not the primary beneficiary of the LLC and does not consolidate the LLC within its unaudited condensed consolidated financial statements. See Note 5 (Reinsurance) for Hannover Re’s financial strength rating.

The LLC Note is classified as a fixed-maturity held-to-maturity security in the Company’s invested asset portfolio as we have the positive intent and ability to hold the security until maturity. As of June 30, 2022, the LLC Note had an estimated unrealized holding loss of $37.2 million based on its amortized cost and estimated fair value. The estimated fair value of the LLC Note is expected to be at least equal to the estimated fair value of the offsetting Surplus Note. See Note 12 (Debt) for more information on the Surplus Note.

As of June 30, 2022, no credit losses have been recognized on the LLC Note.

Investments on Deposit with Governmental Authorities. As required by law, we have investments on deposit with governmental authorities and banks for the protection of policyholders. The fair values of investments on deposit were $7.3 million and $7.6 million as of June 30, 2022 and December 31, 2021, respectively.

Securities Lending Transactions. We participate in securities lending transactions with broker-dealers and other financial institutions to increase investment income with minimal risk. We require minimum collateral on securities loaned equal to 102% of the fair value of the loaned securities. We accept collateral in the form of securities, which we are not able to sell or encumber, and to the extent the collateral declines in value below 100%, we require additional collateral from the borrower. Any securities collateral received is not reflected on our unaudited condensed consolidated balance sheets. We also accept collateral in the form of cash, all of which we reinvest. For loans involving unrestricted cash collateral, the collateral is reported as an asset with a corresponding liability representing our obligation to return the collateral. We continue to carry the loaned securities as invested assets on our unaudited condensed consolidated balance sheets during the terms of the loans, and we do not report them as sales. Cash collateral received and reinvested was $96.6 million and $94.5 million as of June 30, 2022 and December 31, 2021, respectively.

Investment Income. The components of net investment income were as follows:

	Three months ended June 30,						Six months ended June 30,
	2022			2021			2022			2021
	(In thousands)
Fixed-maturity securities (available-for-sale)	$	22,414		$	20,155		$	43,303		$	40,175
Fixed-maturity security (held-to-maturity)		15,815			15,495			31,330			30,642
Equity securities		371			411			758			803
Policy loans and other invested assets		58			98			160			329
Cash and cash equivalents		498			156			623			275
Total return on deposit asset underlying 10% coinsurance agreement⁽¹⁾		(769	)		1,068			(2,279	)		1,643
Gross investment income		38,387			37,383			73,895			73,867
Investment expenses		(1,288	)		(1,353	)		(2,376	)		(2,637	)
Investment income net of investment expenses		37,099			36,030			71,519			71,230
Interest expense on surplus note		(15,815	)		(15,495	)		(31,330	)		(30,642	)
Net investment income	$	21,284		$	20,535		$	40,189		$	40,588

⁽¹⁾

For the three and six months ended June 30, 2022, includes $(1.3) million and $(3.4) million, respectively, of net losses recognized for the change in fair value of the deposit asset underlying the 10% coinsurance agreement. For the three and six months ended June 30, 2021, includes $(0.2) million and $(1.0) million, respectively, of net losses recognized for the change in fair value of the deposit asset underlying the 10% coinsurance agreement.

The components of investment gains (losses), as well as details on gross realized investment gains (losses) and other investment gains (losses) were as follows:

	Three months ended June 30,						Six months ended June 30,
	2022			2021			2022			2021
	(In thousands)
Realized investment gains (losses):
Gross gains from sales of available-for-sale securities fixed maturity securities	$	420		$	3,213		$	1,022		$	3,978
Gross losses from sales of available-for-sale fixed maturity securities		(364	)		(1,804	)		(390	)		(1,947	)
Net realized investment gains (losses):		56			1,409			632			2,031
Other investment gains (losses):
Credit losses impairment of available-for-sale securities		-			(704	)		81			(858	)
Market gains (losses) recognized in net income during the period on equity securities		(1,949	)		112			(1,833	)		1,536
Gains (losses) from bifurcated options		-			(33	)		-			(50	)
Gains (losses) on trading securities		1			(83	)		(21	)		(192	)
Other investment gains (losses):		(1,948	)		(708	)		(1,773	)		436
Investment gains (losses)	$	(1,892	)	$	701		$	(1,141	)	$	2,467

The proceeds from sales or other redemptions of available-for-sale securities were as follows:

	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
	(In thousands)
Proceeds from sales or other redemptions	$	162,963	$	208,785	$	302,076	$	314,171

Accrued Interest. Accrued interest is recorded in accordance with the original interest schedule of the underlying security. In the event of default, the Company’s policy is to no longer accrue interest on these securities and any remaining accrued interest will be written off. As a result, the Company has made the policy election to not record an allowance for credit losses on accrued interest.

Credit Losses for Available-for-sale Securities. The following table summarizes all available-for-sale securities in an unrealized loss position for which an allowance for credit losses has not been recorded as of June 30, 2022, aggregated by major security type and length of time such securities have continuously been in an unrealized loss position:

	June 30, 2022
	Less than 12 months					12 months or longer
	Fair value		Unrealized losses			Fair value		Unrealized losses
	(Dollars in thousands)
Fixed-maturity securities:
U.S. government and agencies	$	28,438	$	(614	)	$	1,472	$	(104	)
Foreign government		122,160		(7,938	)		6,517		(2,317	)
States and political subdivisions		113,680		(14,386	)		969		(71	)
Corporates		1,192,279		(117,546	)		81,221		(19,323	)
Residential mortgage-backed securities		393,787		(42,970	)		22,195		(2,703	)
Commercial mortgage-backed securities		126,131		(9,235	)		8,004		(626	)
Other asset-backed securities		137,920		(10,154	)		4,317		(511	)
Total fixed-maturity securities		2,114,395		(202,843	)		124,695		(25,655	)
Short-term investments:
U.S. government and agencies		837		-			-		-
Total short-term investments		837		-			-		-
Total fixed-maturity securities and short-term investments	$	2,115,232	$	(202,843	)	$	124,695	$	(25,655	)

	December 31, 2021
	Less than 12 months					12 months or longer
	Fair value		Unrealized losses			Fair value		Unrealized losses
	(Dollars in thousands)
Fixed-maturity securities:
U.S. government and agencies	$	24,928	$	(45	)	$	1,557	$	(34	)
Foreign government		18,894		(384	)		3,335		(211	)
States and political subdivisions		15,909		(254	)		-		-
Corporates		341,963		(5,035	)		59,414		(3,033	)
Residential mortgage-backed securities		234,911		(3,131	)		2,707		(99	)
Commercial mortgage-backed securities		47,220		(419	)		117		(1	)
Other asset-backed securities		80,509		(1,037	)		3,779		(183	)
Total fixed-maturity securities		764,334		(10,305	)		70,909		(3,561	)
Short-term investments:
U.S. government and agencies		34,967	*				-		-
Foreign government		4,995	*				-		-
States and political subdivisions		11,394		(1	)		-		-
Corporates		23,891		(3	)		-		-
Total short-term investments		75,247		(4	)		-		-
Total fixed-maturity securities and short-term investments	$	839,581	$	(10,309	)	$	70,909	$	(3,561	)

* Less than $1 thousand.

The amortized cost of available-for-sale fixed-maturity securities with a cost basis in excess of their fair values were $2.5 billion and $924.4 million as of June 30, 2022 and December 31, 2021, respectively.

As of June 30, 2022, we did not recognize credit losses in the unaudited condensed consolidated statements of income on available-for-sale securities with unrealized losses that were due to interest rate sensitivity and changes in credit spreads. We believe that fluctuations caused by movement in interest rates and credit spreads generally have little bearing on the recoverability of our investments. For those that remain in an unrealized loss position we have the ability to hold these investments until maturity or a market price recovery, and we have no present intention to dispose them. The sharp increase in interest rates during the six months ended June 30, 2022 was the primary driver of the increase in unrealized losses on available-for-sale securities.

For the three months ended June 30, 2022, we did not recognize any credit (gains) losses in the unaudited condensed consolidated statements of income on available-for-sale securities. For the six months ended June 30, 2022, we recorded a total of $(0.1) million for credit (gains) losses in the unaudited condensed consolidated statements of income on available-for-sale securities. For the three and six months ended June 30, 2021, we recorded a total of $0.7 million and $0.9 million, respectively, for credit (gains) losses in the unaudited condensed consolidated statements of income on available-for-sale securities. We recognized credit losses on securities due to: (i) our intent to sell them; (ii) adverse credit events indicating that we will not receive the security’s contractual cash flows when contractually due, such as news of an impending filing for bankruptcy; (iii) analyses of the issuer’s most recent financial statements or other information indicating that significant liquidity deficiencies, significant losses and large declines in capitalization exist; and (iv)

analyses of rating agency information for issuances with severe ratings downgrades indicating a significant increase in the possibility of default.

The rollforward of the allowance for credit losses on available-for-sale securities were as follows:

	Three months ended June 30,					Six months ended June 30,
	2022			2021		2022			2021
	(In thousands)
Allowance for credit losses, beginning of period	$	735		$	154	$	816		$	-
Additions to the allowance for credit losses on securities for which credit losses were not previously recorded		-			-		-			154
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period		-			704		(81	)		704
Write-offs charged against the allowance, if any		(735	)		-		(735	)		-
Allowance for credit losses, end of period	$	-		$	858	$	-		$	858

Derivatives. We carry a deferred loss related to closed forward contracts, which were settled several years ago, that were used to mitigate our exposure to foreign currency exchange rates that resulted from the net investment in our Canadian operations. The amount of deferred loss included in accumulated other comprehensive income was $26.4 million as of June 30, 2022 and December 31, 2021. These deferred losses will not be recognized until such time as we sell or substantially liquidate our Canadian operations. We have no such intention.

(4) Fair Value of Financial Instruments

Fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Invested assets recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information. We classify and disclose all invested assets carried at fair value in one of the following three levels:

•

Level 1. Quoted prices for identical instruments in active markets. Level 1 consists of financial instruments whose value is based on quoted market prices in active markets, such as cash, cash equivalents in money market funds, exchange-traded common stocks and actively traded mutual fund investments;

•

Level 2. Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets. Level 2 includes those financial instruments that are valued using industry-standard pricing methodologies, models or other valuation methodologies. Various inputs are considered in deriving the fair value of the underlying financial instrument, including interest rate and yield curves, credit spread, and foreign exchange rates. All significant inputs are observable, or derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace. Financial instruments in this category primarily include: cash equivalents and short-term investments in U.S. treasury securities, certain public and private corporate fixed-maturity and equity securities; government or agency securities; and certain mortgage- and asset-backed securities; and

•

Level 3. Valuations derived from valuation techniques in which one or more significant inputs are unobservable. Level 3 consists of financial instruments whose fair value is estimated based on industry-standard pricing methodologies and models using significant inputs not based on, nor corroborated by, readily available market information. Valuations for this category primarily consist of non-binding broker quotes. Financial instruments in this category primarily include less liquid mortgage- and asset-backed securities and equity securities.

As of each reporting period, all assets and liabilities recorded at fair value are classified in their entirety based on the lowest level of input (Level 3 being the lowest in the hierarchy) that is significant to the fair value measurement. Significant levels of estimation and judgment are required to determine the fair value of certain of our investments. The factors influencing these estimations and judgments are subject to change in subsequent reporting periods.

The estimated fair value and hierarchy classifications for assets and liabilities that are measured at fair value on a recurring basis were as follows:

	June 30, 2022
	Level 1		Level 2		Level 3		Total
	(In thousands)
Fair value assets:
Available-for-sale fixed-maturity securities:
U.S. government and agencies	$	-	$	32,252	$	-	$	32,252
Foreign government		-		149,832		-		149,832
States and political subdivisions		-		129,540		-		129,540
Corporates		5,049		1,511,924		-		1,516,973
Mortgage- and asset-backed securities:
Residential mortgage-backed securities		-		439,062		-		439,062
Commercial mortgage-backed securities		-		135,505		-		135,505
Other asset-backed securities		-		151,301		-		151,301
Total available-for-sale fixed-maturity securities		5,049		2,549,416		-		2,554,465
Short-term investments		-		3,311		-		3,311
Total available-for-sale securities		5,049		2,552,727		-		2,557,776
Equity securities		33,228		1,015		1,634		35,877
Trading securities		-		8,976		-		8,976
Cash and cash equivalents		398,823		1,296		-		400,119
Separate accounts		-		2,358,987		-		2,358,987
Total fair value assets	$	437,100	$	4,923,001	$	1,634	$	5,361,735
Fair value liabilities:
Separate accounts	$	-	$	2,358,987	$	-	$	2,358,987
Total fair value liabilities	$	-	$	2,358,987	$	-	$	2,358,987

	December 31, 2021
	Level 1		Level 2		Level 3		Total
	(In thousands)
Fair value assets:
Available-for-sale fixed-maturity securities:
U.S. government and agencies	$	-	$	32,400	$	-	$	32,400
Foreign government		-		152,976		-		152,976
States and political subdivisions		-		153,527		-		153,527
Corporates		5,898		1,707,786		-		1,713,684
Mortgage-and asset-backed securities:
Residential mortgage-backed securities		-		375,604		27		375,631
Commercial mortgage-backed securities		-		145,525		-		145,525
Other asset-backed securities		-		128,824		-		128,824
Total available-for-sale fixed-maturity securities		5,898		2,696,642		27		2,702,567
Short-term investments		-		85,243		-		85,243
Total available-for-sale securities		5,898		2,781,885		27		2,787,810
Equity securities		37,912		1,070		3,569		42,551
Trading securities		-		24,355		-		24,355
Cash and cash equivalents		351,508		40,993		-		392,501
Separate accounts		-		2,799,992		-		2,799,992
Total fair value assets	$	395,318	$	5,648,295	$	3,596	$	6,047,209
Fair value liabilities:
Separate accounts	$	-	$	2,799,992	$	-	$	2,799,992
Total fair value liabilities	$	-	$	2,799,992	$	-	$	2,799,992

In estimating fair value of our investments, we use a third-party pricing service for approximately 99% of our securities that are measured at fair value on a recurring basis. The remaining securities are primarily thinly-traded securities, such as private placements, and are valued using models based on observable inputs on public corporate spreads having similar characteristics (e.g., sector, average life and quality rating), liquidity and yield based on quality rating, average life and U.S. Treasury yields. All observable data inputs are corroborated by independent third-party data. We also corroborate pricing information provided by our third-party pricing service by performing a review of selected securities. Our review activities include: obtaining detailed information about the assumptions, inputs and methodologies used in pricing the security; documenting this information; and corroborating it by comparison to independently obtained prices and/or independently developed pricing methodologies.

Furthermore, we perform internal reasonableness assessments on fair value determinations within our portfolio throughout the year and as of year-end, including pricing variance analyses and comparisons to alternative pricing sources and benchmark returns. If a fair value appears unusual relative to these assessments, we will re-examine the inputs and may challenge a fair value assessment made by the pricing service. If there is a known pricing error, we will request a reassessment by the pricing service. If the pricing service is unable to perform the reassessment on a timely basis, we will determine the appropriate price by requesting a reassessment from an alternative pricing service or other qualified source as necessary. We do not adjust quotes or prices except in a rare circumstance to resolve a known error.

Because many fixed-maturity securities do not trade on a daily basis, third-party pricing services generally determine fair value using industry-standard methodologies, which vary by asset class. For corporates, governments, and agency securities, these methodologies include developing prices by incorporating available market information such as U.S. Treasury curves, benchmarking of similar securities including new issues, sector groupings, quotes from market participants and matrix pricing. Observable information is compiled and integrates relevant credit information, perceived market movements and sector news. Additionally, security prices are periodically back-tested to validate and/or refine models as conditions warrant. Market indicators and industry and economic events are also monitored as triggers to obtain additional data. For certain structured securities (such as mortgage- and asset-backed securities) with limited trading activity, third-party pricing services generally use industry-standard pricing methodologies that incorporate market information, such as index prices or discounting expected future cash flows based on underlying collateral, and quotes from market participants, to estimate fair value. If one or more of these input measures are not deemed observable for a particular security, the security will be classified as Level 3 in the fair value hierarchy.

Where specific market information is unavailable for certain securities, pricing models produce estimates of fair value primarily using Level 2 inputs along with certain Level 3 inputs. These models include matrix pricing. The pricing matrix uses current U.S. Treasury rates and credit spreads received from third-party sources to estimate fair value. The credit spreads incorporate the issuer’s industry- or issuer-specific credit characteristics and the security’s time to maturity, if warranted. Remaining unpriced securities are valued using an estimate of fair value based on indicative market prices that include significant unobservable inputs not based on, nor corroborated by, market information, including the utilization of non-binding broker quotes.

The roll-forward of the Level 3 assets measured at fair value on a recurring basis was as follows:

	Three months ended June 30,						Six months ended June 30, ⁽¹⁾
	2022			2021			2022			2021
	(In thousands)
Level 3 assets, beginning of period	$	10,689		$	4,177		$	3,596		$	2,047
Net unrealized gains (losses) included in other comprehensive income		108			-			106			-
Realized gains (losses) and accretion (amortization) recognized in earnings		7			(150	)		(200	)		(234	)
Purchases		1,588			999			7,491			999
Sales		-			-			-			-
Settlements		(1,400	)		(2,190	)		(1,400	)		(2,190	)
Transfers into Level 3		-			500			1,399			2,714
Transfers out of Level 3		(9,358	)		-			(9,358	)		-
Level 3 assets, end of period	$	1,634		$	3,336		$	1,634		$	3,336

⁽¹⁾	Activities for investments that enter and exit Level 3 in different quarters within the same fiscal year are not eliminated until the full year amounts are presented.

We obtain independent pricing quotes based on observable inputs as of the end of the reporting period for all securities in Level 2. Those inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, market bids/offers, quoted prices for similar instruments in markets that are not active, and other relevant data. We monitor these inputs for market indicators, industry and economic events. There were no material transfers between Level 1 and Level 3 during the three and six months ended June 30, 2022 and 2021.

The carrying values and estimated fair values of our financial instruments were as follows:

	June 30, 2022				December 31, 2021
	Carrying value		Estimated fair value		Carrying value		Estimated fair value
	(In thousands)
Assets:
Fixed-maturity securities (available-for-sale)	$	2,554,465	$	2,554,465	$	2,702,567	$	2,702,567
Fixed-maturity security (held-to-maturity) ⁽³⁾		1,415,940		1,378,744		1,379,100		1,551,113
Short-term investments (available-for-sale)		3,311		3,311		85,243		85,243
Equity securities		35,877		35,877		42,551		42,551
Trading securities		8,976		8,976		24,355		24,355
Policy loans ⁽³⁾		33,069		33,069		30,612		30,612
Deposit asset underlying 10% coinsurance agreement ⁽³⁾		227,958		227,958		231,368		231,368
Separate accounts		2,358,987		2,358,987		2,799,992		2,799,992
Liabilities:
Notes payable - Long term ^(1) (2)	$	592,504	$	505,791	$	592,102	$	605,667
Surplus note ^(1) (3)		1,415,457		1,372,732		1,378,585		1,545,854
Separate accounts		2,358,987		2,358,987		2,799,992		2,799,992

(1)	Carrying value amounts shown are net of issuance costs.

(2)	Classified as a Level 2 fair value measurement.

(3)	Classified as a Level 3 fair value measurement.

The fair values of financial instruments presented above are estimates of the fair values at a specific point in time using various sources and methods, including market quotations and a complex matrix system that takes into account issuer sector, quality, and spreads in the current marketplace.

Financial Instruments Recognized at Fair Value in the Balance Sheet. Estimated fair values of investments in AFS securities are principally a function of current spreads and interest rates that are corroborated by independent third-party data. Therefore, the fair values presented are indicative of amounts we could realize or settle at the respective balance sheet date. We do not necessarily intend to dispose of or liquidate such instruments prior to maturity. Trading securities and equity securities, including common and nonredeemable preferred stocks, are carried at fair value. Segregated funds in separate accounts are carried at the underlying value of the variable insurance contracts, which is fair value.

The carrying amounts for cash and cash equivalents, trade receivables, accrued investment income, accounts payable, notes payable – short term, cash collateral and payables for security transactions approximate their fair values due to the short-term nature of these instruments. Consequently, such financial instruments are not included in the above table.

(5) Reinsurance

We use reinsurance extensively, which has a significant effect on our results of operations. Reinsurance arrangements do not relieve us of our primary obligation to the policyholder.

Details on in-force life insurance were as follows:

	June 30, 2022			December 31, 2021
	(Dollars in thousands)
Direct life insurance in-force	$	916,778,660		$	905,819,671
Amounts ceded to other companies		(785,290,868	)		(777,826,233	)
Net life insurance in-force	$	131,487,792		$	127,993,438
Percentage of reinsured life insurance in-force		86	%		86	%

Benefits and claims ceded to reinsurers during the three and six months ended June 30, 2022 were $339.1 million and $842.9 million, respectively, compared to $435.3 million and $987.9 million, respectively, for the three and six months ended June 30, 2021.

Reinsurance recoverables as of June 30, 2022 and December 31, 2021 include ceded reserve balances, ceded claim liabilities, and ceded claims paid. Reinsurance recoverables and financial strength ratings by reinsurer were as follows:

	June 30, 2022				December 31, 2021
	Reinsurance recoverables			A.M. Best rating	Reinsurance recoverables			A.M. Best rating
	(In thousands)
Swiss Re Life & Health America Inc. (Novated from Pecan Re Inc.) ^{(1) (2)}	$	2,490,426		A+	$	-		-
Pecan Re Inc. ⁽¹⁾⁽²⁾	-			-		2,567,602		NR
SCOR Global Life Reinsurance Companies ⁽³⁾		397,858		A+		426,634		A+
Munich Re of Malta ^{(2) (5)}		268,535		NR		278,591		NR
Swiss Re Life & Health America Inc. ⁽⁴⁾		236,628		A+		259,239		A+
American Health and Life Insurance Company ⁽²⁾		153,552		B++		157,837		B++
Munich American Reassurance Company		132,432		A+		142,705		A+
RGA Reinsurance		124,265		A+		140,953		A+
Korean Reinsurance Company		117,967		A		134,048		A
Hannover Life Reassurance Company		44,657		A+		49,749		A+
TOA Reinsurance Company		34,487		A		38,909		A
All other reinsurers		71,196		-		75,094		-
Allowance for credit losses		(2,964	)			(2,942	)
Reinsurance recoverables	$	4,069,039			$	4,268,419

NR – not rated

⁽¹⁾	Effective April 1, 2022, the coinsurance agreement with Pecan Re Inc. was novated and replaced by an agreement with Swiss Re Life and Health America, Inc.

⁽²⁾

Reinsurance recoverables includes balances ceded under coinsurance transactions of term life insurance policies that were in-force as of December 31, 2009. Amounts shown are net of their share of the reinsurance recoverables from other reinsurers. Arrangements with these reinsurers include collateral trust agreements held in support of reinsurance recoverables.

⁽³⁾	Includes amounts ceded to Transamerica Reinsurance Companies and fully retroceded to SCOR Global Life Reinsurance Companies.

⁽⁴⁾	Includes amounts ceded to Lincoln National Life Insurance and fully retroceded to Swiss Re Life & Health America Inc.

⁽⁵⁾	Entity is rated AA- by S&P.

We estimate and recognize lifetime expected credit losses for reinsurance recoverables. In estimating the allowance for expected credit losses for reinsurance recoverables, we factor in the underlying collateral for reinsurance agreements where available. Specifically, for reinsurers with underlying trust assets, we compare the reinsurance recoverables balance to the underlying trust assets that mitigate the potential exposure to credit losses. We also analyze the financial condition of the reinsurers, as determined by third-party rating agencies, to determine the probability of default for the reinsurers. We then utilize a third-party credit default study to calculate an expected credit loss given default rate or recovery rate. The probability of default and loss given default rates are then applied to the reinsurers’ recoverable balance, while also factoring in any third-party letters of credit that support the reinsurance agreement, in order to calculate our current expected credit loss allowance.

The rollforward of the allowance for credit losses on reinsurance recoverables were as follows:

	Three months ended June 30,					Six months ended June 30,
	2022			2021		2022			2021
	(In thousands)
Balance, beginning of period	$	3,083		$	7,363	$	2,942		$	7,144
Current period provision for expected credit losses		51			291		192			510
Less: Recoveries from expected credit losses previously recorded		(170	)		-		(170	)		-
Balance, at the end of period	$	2,964		$	7,654	$	2,964		$	7,654

(6) Policy Claims and Other Benefits Payable

Changes in policy claims incurred and other benefits payable were as follows:

	Six months ended June 30,
	2022			2021
	(In thousands)
Policy claims and other benefits payable, beginning of period	$	585,382		$	519,711
Less reinsured policy claims and other benefits payable		638,007			545,857
Net balance, beginning of period		(52,625	)		(26,146	)
Incurred related to current year		127,911			137,285
Incurred related to prior years ⁽¹⁾		(2,522	)		(813	)
Total incurred		125,389			136,472
Claims paid related to current year, net of reinsured policy claims received		(170,149	)		(213,880	)
Reinsured policy claims received related to prior years, net of claims paid		65,135			32,882
Total paid		(105,014	)		(180,998	)
Foreign currency translation		(150	)		210
Net balance, end of period		(32,400	)		(70,462	)
Add reinsured policy claims and other benefits payable		513,629			541,752
Balance, end of period	$	481,229		$	471,290

⁽¹⁾	Includes the difference between our estimate of claims incurred but not yet reported as of period-end and the actual incurred claims reported after period-end.

The liability for policy claims and other benefits payable on traditional life insurance products includes estimated unpaid claims that have been reported to us and claims incurred but not yet reported. We estimate claims incurred but not yet reported based on our historical claims activity, adjusted for any current new trends and conditions, and reported lag time experience.

(7) Stockholders’ Equity

A reconciliation of the number of shares of our outstanding common stock follows:

	Six months ended June 30,
	2022			2021
	(In thousands)
Common stock, beginning of period	$	39,368		$	39,306
Shares issued for stock options exercised		-			10
Shares of common stock issued upon lapse of sales restrictions on restricted stock units (“RSUs”)		166			176
Common stock retired		(1,766	)		(48	)
Common stock, end of period	$	37,768		$	39,444

The above reconciliation excludes RSUs and performance-based stock units (“PSUs”), which do not have voting rights. As sales restrictions on RSUs lapse and PSUs are earned, we issue common shares with voting rights. As of June 30, 2022, we had a total of 291,399 RSUs and 74,054 PSUs outstanding. The PSU outstanding balance is based on the number of PSUs granted pursuant to the award agreements; however, the actual number of common shares issued could be higher or lower based on actual versus targeted performance. See Note 9 (Share-Based Transactions) for discussion of the PSU award structure.

On November 17, 2021 our Board of Directors authorized a share repurchase program for up to $275.0 million of our outstanding common stock for purchases through December 31, 2022 (the “Share Repurchase Program”). On February 14, 2022, our Board of Directors authorized an increase of $50.0 million to the Share Repurchase Program authorized on November 17, 2021. As revised, the program authorizes share repurchases for up to $325.0 million of our outstanding common stock through December 31, 2022. Under the Share Repurchase Program, we repurchased 1,852,614 shares of our common stock in the open market for an aggregate purchase price of $245.7 million through June 30, 2022. Approximately $79.3 million remains available for repurchases of our outstanding common stock under the Share Repurchase Program as of June 30, 2022.

(8) Earnings Per Share

The Company has outstanding common stock and equity awards that consist of RSUs, PSUs and stock options. The RSUs maintain non-forfeitable dividend rights that result in dividend payment obligations on a one-to-one ratio with common shares for any future dividend declarations.

Unvested RSUs are deemed participating securities for purposes of calculating earnings per share (“EPS”) as they maintain dividend rights. We calculate EPS using the two-class method. Under the two-class method, we allocate earnings to common shares and vested RSUs outstanding for the period. Earnings attributable to unvested participating securities, along with the corresponding share counts, are excluded from EPS as reflected in our unaudited condensed consolidated statements of income.

In calculating basic EPS, we deduct from net income any dividends and undistributed earnings allocated to unvested RSUs and then divide the result by the weighted-average number of common shares and vested RSUs outstanding for the period. We also deduct from the numerator any periodic adjustments recognized when the redemption value of Redeemable NCI exceeds its carrying value as discussed in Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies) of our consolidated financial statements within our 2021 Annual Report.

We determine the potential dilutive effect of PSUs and stock options outstanding (“contingently-issuable shares”) on EPS using the treasury-stock method. Under this method, we determine the proceeds that would be received from the issuance of the contingently-issuable shares if the end of the reporting period were the end of the contingency period. The proceeds from the contingently-issuable shares include the remaining unrecognized compensation expense of the awards and the cash received for the exercise price on stock options. We then use the average market price of our common shares during the period the contingently-issuable shares were outstanding to determine how many shares we could repurchase with the proceeds raised from the issuance of the contingently-issuable shares. The net incremental share count issued represents the potential dilutive securities. We then reallocate earnings to common shares and vested RSUs by incorporating the increased fully-diluted share count to determine diluted EPS.

The calculation of basic and diluted EPS was as follows:

	Three months ended June 30,						Six months ended June 30,
	2022			2021			2022			2021
	(In thousands, except per-share amounts)
Basic EPS:
Numerator:
Net income attributable to Primerica, Inc.	$	107,947		$	128,162		$	189,365		$	226,033
Income attributable to unvested participating securities		(477	)		(525	)		(811	)		(945	)
Net income used in calculating basic EPS	$	107,470		$	127,637		$	188,554		$	225,088
Denominator:
Weighted-average vested shares		38,386			39,531			38,801			39,493
Basic EPS	$	2.80		$	3.23		$	4.86		$	5.70

Diluted EPS:
Numerator:
Net income attributable to Primerica, Inc.	$	107,947		$	128,162		$	189,365		$	226,033
Income attributable to unvested participating securities		(476	)		(524	)		(809	)		(942	)
Net income used in calculating diluted EPS	$	107,471		$	127,638		$	188,556		$	225,091
Denominator:
Weighted-average vested shares		38,386			39,531			38,801			39,493
Dilutive effect of incremental shares to be issued for contingently-issuable shares		115			122			113			123
Weighted-average shares used in calculating diluted EPS		38,501			39,653			38,914			39,616
Diluted EPS	$	2.79		$	3.22		$	4.85		$	5.68

(9) Share-Based Transactions

The Company has outstanding equity awards under the Primerica, Inc. Second Amended and Restated 2010 Omnibus Incentive Plan (“2010 OIP”), which expired in 2020 in accordance with its terms and under which no future awards will be made, and the Primerica, Inc. 2020 Omnibus Incentive Plan (the “2020 OIP”, and together with the 2010 OIP, the “OIP”), which was approved by the Company’s stockholders on May 13, 2020. The OIP provides for the issuance of equity awards, including stock options, stock appreciation rights, restricted stock, deferred stock, RSUs, PSUs, and stock payment awards, as well as cash-based awards. In addition to time-based vesting requirements, awards granted under the OIP may also be subject to specified performance criteria. Under the OIP, the Company issues equity awards to our management (officers and other key employees), non-employees who serve on our Board of Directors, and sales force leaders. For more information on equity awards granted under the OIP, see Note 14 (Share-Based Transactions) to our consolidated financial statements within our 2021 Annual Report.

In connection with our granting of equity awards to management and members of the Board of Directors, we recognize expense over the requisite service period of the equity award. We defer and amortize the fair value of equity awards granted to the sales force in the same manner as other deferred policy acquisition costs for those awards that are an incremental direct cost of successful acquisitions of life insurance policies that result directly from and are essential to the policy acquisition(s) and would not have been incurred had the policy acquisition(s) not occurred. All equity awards granted to the sales force that are not directly related to the successful acquisition of life insurance policies are recognized as expense as incurred, which is in the quarter granted and earned.

The impact of equity awards granted under the OIP are as follows:

	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
	(In thousands)
Equity awards expense recognized	$	2,826	$	2,539	$	15,007	$	14,192
Equity awards expense deferred		2,810		2,730		5,187		5,179

On February 24, 2022, the Compensation Committee of our Board of Directors granted the following equity awards to employees as part of the annual approval of management incentive compensation:

•

85,844 RSUs awarded to management with a measurement-date fair value of $130.30 per unit that have time-based vesting requirements with equal and annual graded vesting over approximately three years subsequent to the grant date.

•

26,475 PSUs awarded to our four top executives with a measurement-date fair value of $130.30 per unit. The PSUs will be earned on March 1, 2025 contingent upon the Company achieving a targeted annual average three-year return on adjusted equity (“ROAE”) and average EPS growth for the period from January 1, 2022 through December 31, 2024. The actual number of common shares that will be issued will vary based on the actual ROAE and average EPS growth relative to the targeted ROAE and average EPS growth and can range from zero to 39,713 shares.

All awards granted to employees on February 24, 2022 vest upon voluntary termination of employment by any employee who is “retirement eligible” as of his or her termination date. In order to be retirement eligible, an employee must be at least 55 years old and his or her age plus years of service with the Company must equal at least 75. The number of PSUs that will ultimately be issued for a retirement eligible employee is equal to the amount calculated using the Company’s actual cumulative three-year ROAE and average EPS growth for the performance period ending on December 31, 2024, even if that employee retires prior to the completion of the three-year performance period.

(10) Commitments and Contingent Liabilities

Letter of Credit (“LOC”). Peach Re maintains a credit facility agreement with Deutsche Bank (the “Credit Facility Agreement”) to support certain obligations for a portion of the Regulation XXX reserves related to the Peach Re Coinsurance Agreement. Under the Credit Facility Agreement, Deutsche Bank issued a letter of credit for the benefit of Primerica Life with a term expiring on December 31, 2025. As of June 30, 2022, the amount of the LOC outstanding was $115.0 million. This amount will decline over the remaining term of the LOC to correspond with declines in the Regulation XXX reserves. As of June 30, 2022, the Company was in compliance with all financial covenants under the Credit Facility Agreement.

Further discussion on the Company’s letter of credit is included in Note 16 (Commitments and Contingent Liabilities) to our consolidated financial statements within our 2021 Annual Report.

Contingent Liabilities. The Company is involved from time to time in legal disputes, regulatory inquiries and arbitration proceedings in the normal course of business. These disputes are subject to uncertainties, including the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation. As such, the Company is unable to estimate the possible loss or range of loss that may result from these matters unless otherwise indicated.

(11) Other Comprehensive Income

The components of other comprehensive income (“OCI”), including the income tax expense or benefit allocated to each component, were as follows:

	Three months ended June 30,						Six months ended June 30,
	2022			2021			2022			2021
	(In thousands)
Foreign currency translation adjustments:
Change in unrealized foreign currency translation gains (losses) before income taxes	$	(9,121	)	$	7,390		$	(5,963	)	$	12,382
Income tax expense (benefit) on unrealized foreign currency translation gains (losses)		-			-			-			-
Change in unrealized foreign currency translation gains (losses), net of income taxes	$	(9,121	)	$	7,390		$	(5,963	)	$	12,382
Unrealized gain (losses) on available-for-sale securities:
Change in unrealized holding gains (losses) arising during period before income taxes	$	(138,879	)	$	26,018		$	(303,818	)	$	(38,874	)
Income tax expense (benefit) on unrealized holding gains (losses) arising during period		(29,616	)		5,524			(64,858	)		(8,663	)
Change in unrealized holding gains (losses) on available-for-sale securities arising during period, net of income taxes		(109,263	)		20,494			(238,960	)		(30,211	)
							…
Reclassification from accumulated OCI to net income for (gains) losses realized on available-for-sale securities		(56	)		(705	)		(713	)		(1,173	)
Income tax (expense) benefit on (gains) losses reclassified from accumulated OCI to net income		(12	)		(148	)		(150	)		(246	)
Reclassification from accumulated OCI to net income for (gains) losses realized on available-for-sale securities, net of income taxes		(44	)		(557	)		(563	)		(927	)
Change in unrealized gains (losses) on available-for-sale securities, net of income taxes and reclassification adjustment	$	(109,307	)	$	19,937		$	(239,523	)	$	(31,138	)

(12) Debt

Notes Payable – Long Term. As of June 30, 2022, the Company had $600.0 million of publicly-traded, senior unsecured notes (the “Senior Notes”), with an annual interest rate of 2.80% that are scheduled to mature on November 19, 2031. As of June 30, 2022, we were in compliance with the covenants of the Senior Notes. No events of default occurred on the Senior Notes during the three and six months ended June 30, 2022.

Further discussion on the Company’s Senior Notes is included in Note 10 (Debt) to our consolidated financial statements within our 2021 Annual Report.

Notes Payable – Short Term. On July 1, 2021, as part of the acquisition of e-TeleQuote, Primerica Health issued a $15.0 million unsecured, subordinated note, guaranteed by the Parent Company, to Etelequote Limited’s (“Etelequote Bermuda”) majority shareholder (the “Majority Shareholder Note”). There was no outstanding balance due on this note as of June 30, 2022.

Surplus Note. As of June 30, 2022, the principal amount outstanding on the Surplus Note issued by Vidalia Re was $1.4 billion, which is equal to the principal amount of the LLC Note. The principal amount of both the Surplus Note and the LLC Note will fluctuate over time to coincide with the amount of policy reserves being contractually supported under the Vidalia Re Coinsurance Agreement. Both the LLC Note and the Surplus Note mature on December 31, 2030 and bear interest at an annual interest rate of 4.50%. Based on the estimated reserves for policies issued in 2011 through 2017 that have been ceded under the Vidalia Re Coinsurance Agreement, the principal amounts of the Surplus Note and the LLC Note are expected to reach $1.5 billion each. This financing arrangement is non-recourse to the Parent Company and Primerica Life, meaning that neither of these companies has guaranteed the Surplus Note or is otherwise liable for reimbursement for any payments triggered by the LLC Note’s credit enhancement feature. The Parent Company has agreed to support Vidalia Re’s obligation to pay the credit enhancement fee incurred on the LLC Note.

Further discussion on the Company’s LLC Note is included in Note 3 (Investments).

Revolving Credit Facility. We maintain an unsecured $200.0 million revolving credit facility (“Revolving Credit Facility”) with a syndicate of commercial banks. The Revolving Credit Facility has a scheduled termination date of June 22, 2026. Amounts outstanding under the Revolving Credit Facility are borrowed, at our discretion, on the basis of either a LIBOR rate loan, or a base rate loan. LIBOR rate loans bear interest at a periodic rate equal to one-, three-, six-, or 12-month LIBOR, plus an applicable margin. Base rate loans bear interest at the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50% and (c) one-month LIBOR plus 1.00%, plus an applicable margin. The Revolving Credit Facility contains language providing for a benchmark replacement in the event that LIBOR is no longer available. The Revolving Credit Facility also permits the issuance of letters of credit. The applicable

margins are based on our debt rating with such margins for LIBOR rate loans and letters of credit ranging from 1.00% to 1.625% per annum and for base rate loans ranging from 0.00% to 0.625% per annum. Under the Revolving Credit Facility, we incur a commitment fee that is payable quarterly in arrears and is determined by our debt rating. This commitment fee ranges from 0.10% to 0.225% per annum of the aggregate amount of the $200.0 million commitment of the lenders under the Revolving Credit Facility that remains undrawn. During the three and six months ended June 30, 2022, no amounts have been drawn under the Revolving Credit Facility and we were in compliance with the covenants. Furthermore, no events of default occurred under the Revolving Credit Facility during the three and six months ended June 30, 2022.

(13) Revenue from Contracts with Customers

Our revenues from contracts with customers primarily include:

•

Commissions and fees earned for the marketing and distribution of investment and savings products underwritten by mutual fund companies and annuity providers. For purposes of revenue recognition, mutual fund companies and annuity providers are considered the customers in marketing and distribution arrangements;

•

Fees earned for investment advisory and administrative services within our managed investments program;

•

Account-based fees for transfer agent recordkeeping functions and non-bank custodial services;

•

Commissions and fees earned from the distribution of Medicare-related insurance products on behalf of health insurance carriers, including tail revenue adjustments;

•

Marketing development revenues earned for selling Medicare-related insurance products on behalf of health insurance carriers, which is recorded in Other, net revenue;

•

Fees associated with mortgage distribution and the distribution of other third-party financial products; and

•

Other revenue from the sale of miscellaneous products and services including monthly subscription fees from the sales representatives for access to Primerica Online (“POL”), our primary sales force support tool.

Premiums from insurance contracts we underwrite, fees received from segregated funds insurance contracts, and income earned on our invested assets are excluded from the definition of revenues from contracts with customers in accordance with U.S. GAAP.

Further discussion on the Company’s revenues from contracts with customers and revenue recognition policies are included in Note 18 (Revenue from Contracts with Customers) to our consolidated financial statements within our 2021 Annual Report.

The disaggregation of our revenues from contracts with customers were as follows:

	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
	(In thousands)
Term Life Insurance segment revenues:
Other, net	$	12,374	$	12,313	$	24,550	$	24,125
Total segment revenues from contracts with customers		12,374		12,313		24,550		24,125
Revenues from sources other than contracts with customers		398,333		371,223		804,586		741,440
Total Term Life Insurance segment revenues	$	410,707	$	383,536	$	829,136	$	765,565

Investment and Savings Products segment revenues:
Commissions and fees
Sales-based revenues	$	88,701	$	104,716	$	191,942	$	202,828
Asset-based revenues		93,419		92,288		190,773		177,901
Account-based revenues		22,592		21,848		44,134		42,968
Other, net		3,022		2,958		6,166		5,907
Total segment revenues from contracts with customers		207,734		221,810		433,015		429,604
Revenues from sources other than contracts with customers (segregated funds)		14,682		16,202		30,440		31,830
Total Investment and Savings Products segment revenues	$	222,416	$	238,012	$	463,455	$	461,434

Senior Health segment revenues:
Commissions and fees	$	9,343	N/A		$	10,621	N/A
Other, net		2,471	N/A			7,024	N/A
Total Senior Health segment revenues	$	11,814	N/A		$	17,645	N/A

Corporate and Other Distributed Products segment revenues:
Commissions and fees	$	11,951	$	15,634	$	24,579	$	29,206
Other, net		889		1,042		2,005		1,875
Total segment revenues from contracts with customers		12,840		16,676		26,584		31,081
Revenues from sources other than contracts with customers		10,905		16,462		23,089		34,319
Total Corporate and Other Distributed Products segment revenues	$	23,745	$	33,138	$	49,673	$	65,400

Renewal Commissions Receivable. For revenue associated with ongoing renewal commissions in the Senior Health and Corporate and Other Distributed Products segments, we record a renewal commission receivable asset for the amount of ongoing renewal commissions we anticipate collecting in reporting periods subsequent to the satisfaction of the performance obligation, less amounts that are constrained in the accompanying unaudited condensed consolidated balance sheets. From time to time, new facts or circumstances that were not available at the time of the initial estimate may indicate that the expected renewal commissions are higher or lower than our renewal commissions receivable. In those situations, the expected renewal commissions receivable will be written down or up to its revised expected value by adjustments to revenue, which we refer to as tail revenue adjustments. During the three and six months ended June 30, 2022, we recognized a tail revenue adjustment to reduce the balance of the renewal commissions receivable in the Senior Health business as retention for policies scheduled to renew during the period was lower than expectations.

Activity in the Renewal commissions receivable account was as follows:

	Three months ended June 30,						Six months ended June 30,
	2022			2021			2022			2021
	(In thousands)
Senior Health segment:
Balance, beginning of period	$	153,783		N/A			$	172,308		N/A
Measurement period adjustment ⁽¹⁾		(11,863	)	N/A				(11,863	)	N/A
Commissions revenue		9,563		N/A				22,412		N/A
Less: collections		(11,910	)	N/A				(24,224	)	N/A
Tail revenue adjustments from change in estimate		(5,361	)	N/A				(24,421	)	N/A
Balance, at the end of period	$	134,212		N/A			$	134,212		N/A

Corporate and Other Distributed Products segments:
Balance, beginning of period	$	59,392		$	55,704		$	59,443		$	54,845
Commissions revenue		6,283			6,898			11,926			13,159
Less: collections		(6,226	)		(5,919	)		(11,920	)		(11,321	)
Balance, at the end of period	$	59,449		$	56,683		$	59,449		$	56,683

⁽¹⁾ The measurement period adjustment was recorded during the three and six months ended June 30, 2022 in order to finalize the purchase price allocation for the acquisition of e-TeleQuote. Refer to Note 14 (Acquisition) for further details.

Incremental costs to obtain or fulfill contracts, most notably sales commissions to the sales representatives, are not incurred prior to the recognition of the related revenue. Therefore, we have no assets recognized for incremental costs to obtain or fulfill contracts.

(14) Acquisition

On July 1, 2021, the Company acquired an 80% interest, as described in the next paragraph, in the operating subsidiaries of Etelequote Bermuda, including e-TeleQuote, a Florida corporation that is a senior health insurance distributor of Medicare-related insurance policies in all 50 states and Puerto Rico (the “Acquisition”).

The Company’s subsidiary, Primerica Health, purchased from the shareholders of Etelequote Bermuda (the “selling shareholders”) 100% of the issued and outstanding capital stock of e-TeleQuote and its subsidiaries for consideration of (i) approximately $350 million in cash, (ii) replacement of e-TeleQuote’s debt as of the closing date of $146 million with intercompany funding provided by the Parent Company, (iii) a $15 million Majority Shareholder Note and (iv) common shares of Primerica Health constituting 20% of the total issued and outstanding shares of capital stock of Primerica Health that were issued to Etelequote Bermuda’s minority shareholders, most of which include or are beneficially owned by e-TeleQuote’s management (“Noncontrolling Equity Holders”). The cash consideration provided was subsequently reduced by $3.9 million as a result of the final purchase price agreed upon with the sellers following finalization of the closing statement. Effective July 1, 2022, the Parent Company acquired the remaining 20% interest held by the Noncontrolling Equity Holders. Refer to Note 15 (Subsequent Events) for further details.

The following table presents the preliminary purchase price allocation recorded in the Company’s consolidated balance sheet as of the acquisition date, adjustments made during the measurement period ended June 30, 2022, and the final purchase price allocation:

	Preliminary Purchase Price Adjustment		2021 Measurement Period Adjustments				2022 Measurement Period Adjustments			Final Acquisition Date Purchase Price Allocation
	(In thousands)
Assets:
Cash and cash equivalent		1,080		-				-			1,080
Accounts receivables		692		(389	)			-			303
Renewal commissions receivable		199,575		(46,128	)			(11,863	)		141,584
Other assets		15,705		-				-			15,705
Intangible assets		162,000		(6,000	)			-			156,000
Goodwill		224,180		30,973				8,553			263,706
Total assets		603,232		(21,544	)			(3,310	)		578,378

Liabilities:
Accounts payable and accrued expenses		8,785		(4,195	)	⁽¹⁾		-			4,590
Deferred tax liability		65,425		(13,482	)			(3,310	)		48,633
Other liabilities		10,046		-				-			10,046
Total liabilities		84,256		(17,677	)			(3,310	)		63,269
Net assets acquired		518,976		(3,867	)			-			515,109

Temporary Stockholders' Equity:
Redeemable noncontrolling interests		8,437		-				-			8,437
Total temporary stockholders' equity		8,437									8,437

⁽¹⁾	The Company also recognized an adjustment during the measurement period to reclassify certain amounts from a payable to a reduction in the renewal commissions receivable.

The Company’s estimate of the purchase consideration was adjusted during the measurement period to reflect the final purchase price agreed upon with the sellers. The final purchase price reduced the purchase consideration as the Company received a cash reimbursement of $3.9 million, which resulted in a corresponding reduction to goodwill.

Renewal commissions receivable from the acquired business was recognized in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”) as the Company adopted Accounting Standards Update No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). ASU 2021-08 requires contract assets arising from revenue contracts with customers to be accounted for in

accordance with ASC 606 instead of at fair value.

During the measurement period, the Company made two adjustments to renewal commissions receivable as of the acquisition date. The adjustments, which were booked in 2021 and 2022 resulted from the Company’s reassessment of the estimates made by e-TeleQuote for the variable consideration expected for approved policies as of the acquisition date. The reassessment of estimates involved the implementation of an enhanced algorithmic model for processing historical lapse data and forecasting future policy duration curves. In addition, the Company revised the estimate for renewal commission rate escalation assumptions in accordance with its accounting policy for determining constraints of variable consideration. As a result, the Company recognized a purchase price allocation adjustment to decrease renewal commissions receivable and deferred tax liability with a corresponding increase to goodwill.

Intangible assets identified in the acquisition of the business are capitalized separately from goodwill if the fair value can be measured reliably on initial recognition (transaction date). The primary intangible assets identified were customer relationships with health insurance carriers of $153.0 million with an estimated useful life of 15 years. The Company will amortize the intangible assets acquired on a straight-line basis over their estimated useful lives. During the measurement period, the Company revised long-term growth rates used in the cash flow projections that support the intangibles valuation. As a result, the Company recognized a purchase price allocation adjustment to decrease intangible assets and deferred tax liability with a corresponding increase to goodwill.

Goodwill is calculated as the difference between the acquisition date fair value of the total consideration transferred and the aggregate values assigned to the assets acquired and liabilities assumed. The amount of goodwill calculated as of the acquisition date determined by the final purchase price allocation was $263.7 million. As discussed in Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies) of our consolidated financial statements within our 2021 Annual Report, the Company recognized a non-cash goodwill impairment charge of $76.0 million at December 31, 2021. The goodwill created in the acquisition is not deductible for tax purposes and there was no impact to income taxes from the goodwill impairment charge recorded. As of June 30, 2022, goodwill recognized by the Company from the acquisition was $187.7 million. Goodwill will be tested for impairment in conjunction with the Company’s annual impairment assessment on July 1, 2022 during our fiscal third quarter.

For the three and six months ended June 30, 2022, transaction costs related to the e-TeleQuote acquisition included within Other operating expenses in the unaudited condensed consolidated statements of income were $0.1 million and $1.0 million, respectively.

The following unaudited pro forma consolidated financial information combines the unaudited results of the Company for the three and six months ended June 30, 2021 and the unaudited results of e-TeleQuote for the three and six months ended June 30, 2021, and assumes that the e-TeleQuote acquisition, which closed on July 1, 2021, was completed on January 1, 2021 (the first day of fiscal 2021). The pro forma consolidated financial information has been calculated after applying adjustments for amortization expense of acquired intangible assets and the consequential tax effect. These pro forma results have been prepared for comparative purpose only and do not purport to be indicative of the operating results of the Company that would have been achieved had the e-TeleQuote acquisition actually taken place on January 1, 2021. In addition, these results are not intended to project future results and do not reflect events that may occur including, but not limited to, revenue enhancements, cost savings or operating synergies that the Company may achieve as a result of the Acquisition.

	Three months ended June 30, 2021		Six months ended June 30, 2021
	(in thousands)
Revenue	$	682,190	$	1,357,658
Net income (loss)		121,680		218,041

(15) Subsequent Events

In connection with the Company’s acquisition of e-TeleQuote, the Company entered into a shareholders’ agreement with the Noncontrolling Equity Holders of Primerica Health (the “Shareholders’ Agreement”) which, among other matters, sets forth certain call and put rights starting in 2022. Under the terms of the Shareholders’ Agreement, the Company agreed to purchase, and the noncontrolling equity holders agreed to sell, the remaining 20% stake over a period of up to four years through a series of call and put rights. The Shareholders’ Agreement provides for the purchase of the noncontrolling equity holders’ equity interests in Primerica Health at a contractually defined formulaic purchase price (the “Formulaic Price”), which is based on a discounted calculation of selected peer company equity value multiples times the trailing twelve months of adjusted earnings before interest, taxes, depreciation, and amortization (“Adjusted EBITDA”) reduced by the balance of intercompany debt owed by e-TeleQuote to the Parent Company.

Effective July 1, 2022, the Company executed its call option to acquire the remaining 20% of Primerica Health, which owns e-TeleQuote. The contractually defined Formulaic Price calculation resulted in a purchase price of zero. As such, no further consideration was required to obtain the outstanding 20% stake in Primerica Health.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to inform the reader about matters affecting the financial condition and results of operations of Primerica, Inc. (the “Parent Company”) and its subsidiaries (collectively, “we”, “us” or the “Company”) for the period from December 31, 2021 to June 30, 2022. As a result, the following discussion should be read in conjunction with MD&A and the consolidated financial statements and notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Annual Report”). This discussion contains forward-looking statements that constitute our plans, estimates and beliefs. These forward-looking statements involve numerous risks and uncertainties, including, but not limited to, those discussed under the heading “Risk Factors” in the 2021 Annual Report and in Item 1A of this Report. Actual results may differ materially from those contained in any forward-looking statements.

This MD&A is divided into the following sections:

•

Business Overview

•

Business Trends and Conditions

•

Factors Affecting Our Results

•

Critical Accounting Estimates

•

Results of Operations

•

Financial Condition

•

Liquidity and Capital Resources

Business Overview

We are a leading provider of financial products to middle-income households in the United States and Canada primarily through a network of independent contractor sales representatives (“independent sales representatives” or “independent sales force”). We assist our clients in meeting their needs for term life insurance, which we underwrite, and mutual funds, annuities, managed investments and other financial products, which we distribute primarily on behalf of third parties. We historically have had two primary operating segments, Term Life Insurance and Investment and Savings Products, and a third segment, Corporate and Other Distributed Products. On July 1, 2021, we acquired 80% of e-TeleQuote Insurance, Inc. and subsidiaries (collectively, “e-TeleQuote”) through our subsidiary, Primerica Health, Inc. (“Primerica Health”). e-TeleQuote markets Medicare-related insurance products underwritten by third-party health insurance carriers to eligible Medicare participants through its licensed health insurance agents. Effective July 1, 2022, we acquired the remaining 20% of Primerica Health, which owns e-TeleQuote, as described in Note 15 (Subsequent Events) in the condensed consolidated financial statements included elsewhere in this report. Beginning July 1, 2021, the Company has reported the operations of e-TeleQuote as its own operating segment called Senior Health. e-TeleQuote licensed health insurance agents are employees of e-TeleQuote.

Term Life Insurance. We distribute the term life insurance products that we underwrite through our three issuing life insurance company subsidiaries: Primerica Life Insurance Company (“Primerica Life”), National Benefit Life Insurance Company (“NBLIC”), and Primerica Life Insurance Company of Canada (“Primerica Life Canada”). Policies remain in-force until the expiration of the coverage period or until the policyholder ceases to make premium payments. Our in-force term life insurance policies have level premiums for the stated term period. As such, the policyholder pays the same amount each year. Initial policy term periods are between 10 and 35 years. While premiums typically remain level during the initial term period, our claim obligations generally increase as our policyholders age. In addition, we incur significant upfront costs in acquiring new insurance business. Our deferral and amortization of policy acquisition costs and reserving methodology are designed to match the recognition of premium revenues with the timing of policy lapses and the payment of expected claims obligations.

Investment and Savings Products. In the United States, we distribute mutual funds, managed investments, variable annuity, and fixed annuity products of several third-party companies. We provide investment advisory and administrative services for client assets invested in our managed investments program. We also perform distinct transfer agent recordkeeping services and non-bank custodial services for investors purchasing certain mutual funds we distribute. In Canada, we offer mutual funds of other companies and segregated funds, which are underwritten by Primerica Life Canada.

Senior Health. In the United States, we distribute Medicare-related insurance products nationwide to eligible Medicare participants and enroll them in coverage utilizing e-TeleQuote’s team of licensed health insurance agents. The health insurance products we distribute are underwritten and administered by third-party health insurance carriers and primarily consist of Medicare Advantage enrollments. Contract acquisition costs are incurred upfront when policy applications are approved and include costs associated with generating or acquiring leads as well as fees paid to Primerica Senior Health certified independent sales representatives and compensation, licensing, and training costs incurred for e-TeleQuote’s workforce of licensed health insurance agents. We receive compensation from the health insurance carriers in the form of initial commissions when eligible Medicare participants are enrolled and renewal commissions, upon the anniversary of the effective date, for as long as policies remain in-force.

Corporate and Other Distributed Products. The Corporate and Other Distributed Products segment consists primarily of revenues and expenses related to other distributed products, including closed blocks of various insurance products underwritten by NBLIC, prepaid legal services, mortgage originations, and other financial products. These products, except for closed blocks of various insurance products underwritten by NBLIC, are distributed pursuant to distribution arrangements with third-party companies through the independent sales force. Net investment income earned on our invested asset portfolio is recorded in the Corporate and Other Distributed Products segment, with the exception of the assumed net interest accreted to the Term Life Insurance segment’s future policy benefit reserve liability less deferred acquisition costs. Interest expense incurred by the Company is attributed solely to the Corporate and Other Distributed Products segment.

Business Trends and Conditions

The relative strength and stability of financial markets and economies in the United States and Canada affect our growth and profitability. Our business is, and we expect will continue to be, influenced by a number of industry-wide and product-specific trends and conditions. Economic conditions, including unemployment levels, consumer confidence and inflation, can impact the disposable income of middle-income consumers, who are generally our primary clients, which can influence their investment and spending decisions. These conditions and factors also impact prospective recruits’ perceptions of the business opportunity that becoming an independent sales representative offers, which can drive or dampen recruiting. Similarly, these conditions also affect e-TeleQuote’s ability to recruit and retain licensed health insurance agents. Consumer spending and borrowing levels affect how consumers evaluate their savings and debt management plans. In addition, interest rates and equity market returns impact consumer demand for the savings and investment products we distribute. Our customers’ perception of the strength of the capital markets may influence their decisions to invest in the investment and savings products we distribute.

The financial and distribution results of our operations in Canada, as reported in U.S. dollars, are affected by changes in the currency exchange rate. As a result, changes in the Canadian dollar exchange rate may significantly affect the result of our business for all amounts translated and reported in U.S. dollars.

The COVID-19 (“COVID-19”) pandemic has continued to impact our business in 2022, but to a much lesser extent than in 2021, as discussed in more detail later in this section, the Results of Operations section, and the Financial Condition section. We are unsure as to the extent COVID-19 will continue to impact our business as described below:

•

We have experienced an increase in mortality expense due to premature deaths of our insureds caused by COVID-19 infections. Beginning in March 2022 and continuing through June 30, 2022, we experienced fewer COVID-19 related claims than prior periods. However, it remains difficult to predict the ultimate impact the COVID-19 pandemic will have on our mortality expense in future periods.

•

The COVID-19 pandemic initially led to high levels of persistency and increased policy sales as a result of strong client sentiment toward owning life insurance products. However, throughout the second half of 2021 and the first half of 2022, policy sales and persistency trended back to pre-COVID-19 levels. Refer to the Factors Affecting Our Results section for more information about how persistency impacts our financial results.

Significant volatility in capital markets during the first half of 2022 has also impacted our business. The sharp rise in market interest rates has resulted in unrealized losses in our investment portfolio. We have not recognized losses caused by interest rate volatility as we have the ability to hold these investments until maturity or a market price recovery, and we have no present intention to dispose of them. Significant declines in capital markets also adversely impacted revenue generated by our Investment and Savings Products segment.

The effects of business trends and conditions on our quarterly results are discussed below, in the Results of Operations section, and in the Financial Condition section.

Size of the Independent Sales Force.

Our ability to increase the size of the independent sales force is largely based on the success of the independent sales force’s recruiting efforts as well as training and motivating recruits to get licensed to sell life insurance. We believe that recruitment and licensing levels are important to independent sales force trends, and growth in recruiting and licensing is usually indicative of future growth in the overall size of the independent sales force. Changes in the number of new recruits do not always result in commensurate changes in the size of the licensed independent sales force because new recruits may obtain the requisite licenses at rates above or below historical levels.

Details on new recruits and life-licensed independent sales representative activity were as follows:

	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
New recruits		70,215		89,285		154,922		183,918
New life-licensed independent sales representatives		11,529		10,112		21,512		20,945

The size of the life-licensed independent sales force was as follows:

		June 30, 2022				June 30, 2021
Life-licensed independent sales representatives			132,149				132,041

The number of new recruits decreased during the three and six months ended June 30, 2022 compared to the same periods in 2021. The year-over-year comparisons were distorted by temporary recruiting incentive measures put in place during 2021 in response to the COVID-19 pandemic, which make year-over-year comparisons inconsistent. The number of new recruits in the 2022 periods is consistent with pre-pandemic recruiting levels.

New life-licensed sales representatives increased during the three and six months ended June 30, 2022 compared to the same periods in 2021 as the Company began to see the benefits of recent improvements to the licensing process. These improvements included new licensing progress-tracking tools and additional in-person licensing classes.

The number of life-licensed independent sales representatives grew to 132,149 as of June 30, 2022 and reflects recent improvements to the licensing process as discussed above.

Term Life Insurance Product Sales and Face Amount In-Force.

The average number of life-licensed independent sales representatives and the number of term life insurance policies issued, as well as the average monthly rate of new policies issued per life-licensed independent sales representative (historically between 0.18 and 0.22), were as follows:

	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Average number of life-licensed independent sales representatives		131,240		131,975		130,390		132,481
Number of new policies issued		76,946		90,071		148,270		172,738
Average monthly rate of new policies issued per life-licensed independent sales representative		0.20		0.23		0.19		0.22

New policies issued during the three and six months ended June 30, 2022 continued to normalize compared to the elevated levels experienced during the comparable periods in 2021. New policies issued during the three and six months ended June 30, 2021 reflected elevated demand for protection products as the COVID-19 pandemic highlighted the need for protection products. Productivity during the three and six months ended June 30, 2022, measured by the average monthly rate of new policies issued per life-licensed independent sales representative, was in line with our historical range, although lower than prior year periods due to the elevated demand for protection products described above.

The changes in the face amount of our in-force book of term life insurance policies were as follows:

	Three months ended June 30,												Six months ended June 30,
	2022			% of beginning balance			2021			% of beginning balance			2022			% of beginning balance			2021			% of beginning balance
	(Dollars in millions)
Face amount in force, beginning of period	$	909,632					$	869,643					$	903,404					$	858,818
Net change in face amount:
Issued face amount		27,651			3	%		29,981			3	%		52,423			6	%		56,624			7	%
Terminations		(19,298	)		(2	)%		(14,706	)		(2	)%		(39,085	)		(4	)%		(31,946	)		(4	)%
Foreign currency		(3,547	)	*				1,601		*				(2,304	)	*				3,023		*
Net change in face amount		4,806			1	%		16,876			2	%		11,034			1	%		27,701			3	%
Face amount in force, end of period	$	914,438					$	886,519					$	914,438					$	886,519

*	Less than 1%.

The face amount of term life policies in-force increased 1% for the three and six months ended June 30, 2022 as the level of face amount issued continued to exceed the face amount terminated. As a percentage of the beginning face amount in-force, issued face amount, as well as terminated face amount during the three and six months ended June 30, 2022 remained consistent with the comparable 2021 period. In dollar terms, issued face amount during the three and six months ended June 30, 2022 was lower than the comparable 2021 period, while terminations were higher during the three and six months ended June 30, 2022 than the comparable 2021 period. This trend illustrates that the demand for both buying and maintaining protection products are returning to pre-pandemic levels.

Investment and Savings Products Sales, Asset Values and Accounts/Positions.

Investment and savings products sales and average client asset values were as follows:

	Three months ended June 30,				Change						Six months ended June 30,				Change
	2022		2021		$			%			2022		2021		$			%
	(Dollars in millions)
Product sales:
Retail mutual funds	$	1,402	$	1,693	$	(291	)		(17	)%	$	3,138	$	3,379	$	(241	)		(7	)%
Annuities and other		687		830		(143	)		(17	)%		1,413		1,513		(100	)		(7	)%
Total sales-based revenue generating product sales		2,089		2,523		(434	)		(17	)%		4,551		4,892		(341	)		(7	)%
Managed investments		451		382		69			18	%		905		712		193			27	%
Segregated funds and other		149		135		14			10	%		298		290		8			3	%
Total product sales	$	2,689	$	3,040	$	(351	)		(12	)%	$	5,754	$	5,894	$	(140	)		(2	)%
Average client asset values:
Retail mutual funds	$	54,409	$	55,654	$	(1,245	)		(2	)%	$	56,478	$	53,541	$	2,937			5	%
Annuities and other		24,108		25,095		(987	)		(4	)%		24,988		24,440		548			2	%
Managed investments		6,960		5,915		1,045			18	%		7,018		5,605		1,413			25	%
Segregated funds		2,517		2,713		(196	)		(7	)%		2,614		2,666		(52	)		(2	)%
Total average client asset values	$	87,994	$	89,377	$	(1,383	)		(2	)%	$	91,098	$	86,252	$	4,846			6	%

The rollforward of asset values in client accounts was as follows:

	Three months ended June 30,												Six months ended June 30,
	2022			% of beginning balance			2021			% of beginning balance			2022			% of beginning balance			2021			% of beginning balance
	(Dollars in millions)
Asset values, beginning of period	$	93,708					$	85,888					$	97,312					$	81,533
Net change in asset values:
Inflows		2,690			3	%		3,041			4	%		5,755			6	%		5,894			7	%
Redemptions		(1,797	)		(2	)%		(1,827	)		(2	)%		(3,697	)		(4	)%		(3,585	)		(4	)%
Net flows		893			1	%		1,214			1	%		2,058			2	%		2,309			3	%
Change in fair value, net		(11,836	)		(13	)%		4,433			5	%		(16,776	)		(17	)%		7,521			9	%
Foreign currency, net		(474	)	*				200		*				(303	)	*				372		*
Net change in asset values		(11,417	)		(13	)%		5,847			7	%		(15,021	)		(15	)%		10,202			13	%
Asset values, end of period	$	82,291					$	91,735					$	82,291					$	91,735

*	Less than 1%.

Average number of fee-generating positions was as follows:

	Three months ended June 30,				Change					Six months ended June 30,				Change
	2022		2021		Positions		%			2022		2021		Positions		%
	(Positions in thousands)
Average number of fee-generating positions ⁽¹⁾:
Recordkeeping and custodial		2,277		2,159		118		5	%		2,260		2,137		123		6	%
Recordkeeping only		812		741		71		10	%		805		727		78		11	%
Total average number of fee- generating positions		3,089		2,900		189		7	%		3,065		2,864		201		7	%

⁽¹⁾

We receive recordkeeping fees by mutual fund positions. An individual client account may include multiple mutual fund positions. We may also receive fees, which are earned on a per account basis, for custodial services that we provide to clients with retirement plan accounts that hold positions in these mutual funds.

Changes in Investment and Savings Products Sales, Asset Values and Accounts/Positions During the Three Months Ended June 30, 2022

Product sales. Investment and savings products sales decreased during the three months ended June 30, 2022 compared to the three months ended June 30, 2021 led by lower sales of retail mutual funds and variable annuities as investor demand deteriorated in response to negative equity market conditions.

Average client asset values. Average client asset values decreased for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 primarily due to negative equity market conditions.

Rollforward of client asset values. Ending client asset values decreased during the three months ended June 30, 2022 compared to an increase in the three months ended June 30, 2021 primarily due to negative market performance during the 2022 period compared to strong market performance in the comparable 2021 period. Net flows remained positive in the three months ended June 30, 2022, albeit to a lesser extent than in the comparable 2021 period.

Average number of fee-generating positions. The average number of fee-generating positions increased during the three months ended June 30, 2022 compared to the three months ended June 30, 2021 primarily due to the cumulative effect of retail mutual fund sales in

recent periods that led to an increase in the number of retail mutual fund positions serviced on our transfer agent recordkeeping platform.

Changes in Investment and Savings Products Sales, Asset Values and Accounts/Positions During the Six Months Ended June 30, 2022

Product sales. Investment and savings products sales decreased during the six months ended June 30, 2022 compared to the six months ended June 30, 2021 led by lower sales of retail mutual funds and variable annuities as investor demand deteriorated in response to negative market conditions during the second quarter of 2022.

Average client asset values. Average client asset values increased for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to the impact of elevated market values of client assets at the beginning of 2022. Continued positive net flows during the first half of 2022 also contributed to the increase in average client asset values, which was partially offset by negative market performance.

Rollforward of client asset values. Ending client asset values decreased during the six months ended June 30, 2022 compared to an increase in the six months ended June 30, 2021 due to the same factors described in the three-month comparison.

Average number of fee-generating positions. The average number of fee-generating positions increased during the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to the same factors described in the three-month comparison.

Senior Health Key Performance Indicators.

Submitted Policies and Approved Policies

Submitted policies. Submitted policies represents the number of completed applications that, with respect to each such application, the applicant has authorized e-TeleQuote to submit to the health insurance carrier. The applicant may need to take additional actions, including providing subsequent information, before the application is reviewed by the health insurance carrier.

Approved policies. Approved policies represent an estimate of submitted policies approved by the health insurance carriers for the identified product during the indicated period. Not all approved policies will go in force. In general, the relationship between submitted policies and approved policies has been seasonally consistent over time. Therefore, factors impacting the number of submitted policies generally impact the number of approved policies.

The number of Senior Health submitted policies and approved policies were as follows:

Three months ended June 30,

Six months ended June 30,

2022

2021⁽¹⁾

2022

2021⁽¹⁾

Number of Senior Health submitted policies

19,652

N/A

45,883

N/A

Number of Senior Health approved policies

17,925

N/A

41,519

N/A

⁽¹⁾	No comparable period metrics are available due to our acquisition of e-TeleQuote on July 1, 2021.

The Senior Health segment experiences notable seasonality with the strongest demand occurring in the fourth quarter due to the Medicare Annual Election Period (“AEP”) from October 15^th to December 7^th. The business typically experiences strong demand in the first quarter due to the Medicare Open Enrollment Period (“OEP”) from January 1^st to March 31^st, which allows individuals to switch Medicare Advantage plans. Meanwhile, the second and third quarters experience seasonally lower demand as the focus for submitted policies is limited to participants that are dual eligible (Medicare and Medicaid), qualify for a special enrollment period, recently aged into Medicare or are transitioning to Medicare from an employer-sponsored plan, and other less common situations.

During the three and six months ended June 30, 2022, the volume of submitted and approved policies reflects the Company’s efforts to scale back growth in favor of developing more efficient lead procurement and conversion. Approved policies as a percentage of submitted policies remained relatively consistent with e-TeleQuote’s historical experience.

Primerica Senior Health certified independent sales representatives

Primerica independent sales representatives refer eligible Medicare participants to e-TeleQuote licensed agents for potential enrollment in policies distributed by e-TeleQuote. The number of Primerica Senior Health certified independent sales representatives represents the number of Primerica independent sales representatives who have completed the required certification and are eligible to refer participants to e-TeleQuote’s licensed agents for enrollment in policies distributed by e-TeleQuote. The number of submitted policies to e-TeleQuote sourced by Primerica independent sales representatives measures the number of Senior Health policies submitted by e-TeleQuote to its third-party health insurance carriers that originated through the Primerica independent sales force.

		June 30, 2022				June 30, 2021 ⁽¹⁾
Primerica Senior Health certified independent sales representatives			60,412			N/A

⁽¹⁾	No comparable period metrics are available due to our acquisition of e-TeleQuote on July 1, 2021.

Three months ended June 30,

Six months ended June 30,

2022

2021⁽¹⁾

2022

2021⁽¹⁾

Submitted policies sourced by Primerica independent sales representatives

831

N/A

1,819

N/A

⁽¹⁾ No comparable period metrics are available due to our acquisition of e-TeleQuote on July 1, 2021.

The number of Primerica Senior Health certified independent sales representatives reflects the continued rollout of the certification program.

For the three months ended June 30, 2022, the number of submitted policies sourced by Primerica independent sales representatives illustrates seasonally lower demand for Medicare Advantage plans. For the six months ended June 30, 2022, the number of submitted policies sourced by Primerica independent sales representatives is impacted by the busy OEP sales period, partially offset by seasonally slower second quarter.

Lifetime value of commissions and Contract acquisition costs

Lifetime value of commissions (“LTV”). LTV represents the cumulative total of commissions and administrative fees estimated to be collected over the expected life of a policy for policies approved during the period. For more information on LTV, refer to Note 13 (Revenue from Contracts with Customers) of our consolidated financial statements within our 2021 Annual Report and the Factors Affecting our Results – Senior Health Segment section of MD&A included elsewhere in this report.

Contract acquisition costs (“CAC”). CAC represents the total direct costs incurred to acquire approved policies. CAC are primarily comprised of the costs associated with acquiring leads from third parties and internally generated leads including fees paid to Primerica Senior Health certified independent sales representatives as well as compensation, licensing, and training costs associated with our team of e-TeleQuote licensed health insurance agents. The number of e-TeleQuote licensed health insurance agents, agent tenure, attrition rate and productivity all impact CAC. Other than costs incurred to assist beneficiaries with switching plans within the same carrier, we incur the entire cost of approved policies prior to enrollment and prior to receiving our first commission-related payment.

Per policy metrics for the LTV and CAC measure our ability to profitably distribute Senior Health insurance products.

The LTV per approved policy, CAC per approved policy, and ratio of LTV to CAC per approved policy were as follows:

	Three months ended June 30,			Six months ended June 30,
	2022		2021⁽¹⁾	2022		2021⁽¹⁾
LTV per approved policy during the period	$	820	N/A	$	844	N/A
CAC per approved policy during the period	$	1,081	N/A	$	964	N/A
LTV/CAC per approved policy		0.76	N/A		0.88	N/A

⁽¹⁾	No comparable period metrics are available due to our acquisition of e-TeleQuote on July 1, 2021.

LTV per approved policy reflects current estimates for renewal rates, policy retention and chargeback activity taking into consideration the most recent experience through June 30, 2022. The Company saw lower renewal retention rates during the first half of 2022 compared to historical experience due to an increased propensity of consumers to compare plans across carriers and increased plan offerings by carriers. This experience led to lower LTV per approved policy during the three and six months ended June 30, 2022.

CAC per approved policy is generally elevated during the three months ended June 30, 2022 due to the seasonal nature of e-TeleQuote’s business. The impact of lower sales volume during the second quarter drives reduced lead conversion efficiency and higher CAC on a per policy basis. CAC per approved policy also reflects selective procurement of leads and a deliberate approach in limiting agent recruitment during the three and six months ended June 30, 2022.

Other business trends and conditions.

Standards of care. The Securities and Exchange Commission’s (“SEC”) regulation Best Interest (“Reg BI”), which establishes a “best interest” standard of conduct and imposes certain disclosure requirements, went into effect on June 30, 2020. Its higher standards of care and enhanced obligations increase regulatory and litigation risk. On December 15, 2020, the Department of Labor (“DOL”) published an interpretation of, and class exemption regarding, the rules governing fiduciary investment advice with respect to Individual Retirement Accounts (“IRAs”) and other retirement accounts (the “DOL Rule”). The effective date of the DOL Rule was February 16, 2021 and the DOL extended its non-enforcement policy through January 31, 2022 with the enforcement of specific requirements extended through June 30, 2022. The DOL Rule imposes a higher standard of care and enhanced obligations that require sales process changes and increase regulatory and litigation risk to our business. The interpretation and enforcement of Reg BI and the DOL Rule by the SEC and the DOL, respectively, remain uncertain and could have the potential to disrupt the investment and savings products business in the United States.

In addition to federal regulators, certain states have proposed or passed laws or proposed or issued regulations requiring investment advisers, broker-dealers, and/or insurance agents to meet fiduciary standards or standards of care that their advice be in the customer’s best interest, and to mitigate and disclose conflicts of interest to consumers of investment and insurance products. The severity of the impact that such state laws or regulations could have on our business varies from state to state depending on the content of the legislation or regulation and how it would be applied by state regulators and interpreted by the courts, but such laws or regulations could disrupt our brokerage or advisory businesses in the relevant state. We cannot quantify the financial impact, if any, of any changes to our business that may be necessary in order to comply with such laws or regulations at this time.

Worker classification standards. There has been a trend toward administrative and legislative activity around worker classification. In 2019, for example, California enacted Assembly Bill 5 (“AB 5”), which imposes a stricter test for the classification of workers as independent contractors. Our business lines are exempted from AB 5. In 2020, the DOL commenced a rulemaking to clarify the classification standard under the Fair Labor Standards Act. That process resulted in a final rule under the prior administration which subsequently was withdrawn by the current administration. The prior administration’s final rule now has been reinstated by a federal court. Other federal and state legislative and regulatory proposals regarding worker classification also are under consideration. While none of these proposals have advanced into law, they demonstrate increased legislative and administrative activity around worker classification. It is difficult to predict what the ultimate outcome of this activity may be. Changes to worker classification laws could impact our business as sales representatives (other than those hired by e-TeleQuote) are independent contractors.

Restrictions on compensation models in Canada. The organization of provincial and territorial securities regulators (collectively referred to as the “Canadian Securities Administrators” or “CSA”) published final rule amendments to prohibit upfront sales commissions by fund companies for the sale of mutual funds offered under a prospectus in Canada (“DSC Ban”). The final amendments became effective on June 1, 2022. These rules have resulted in changes in compensation arrangements with both the fund companies that offer the mutual fund products we distribute and sales representatives. In particular, we have entered into agreements with two third-party mutual fund companies to develop and offer a broad range of funds being sold exclusively by our independent sales representatives. These agreements provide for the payment to us of asset-based revenue by the mutual fund companies. We also earn revenue through an asset-based fee charged to clients. As part of our new model (the “Principal Distributor model”) we are funding an advance of compensation at the time of sale to our independent sales representatives, taken at their option, to partially replace upfront sales commission cash flow from fund companies paid under the deferred sales charge compensation model. We expect that these changes to our mutual fund model will have the impact of initially decreasing our pre-tax operating income in the short term due to the elimination of upfront commissions. Over the long term, we expect pre-tax operating income to recover through the collection of asset-based commissions over time. We began offering our new Principal Distributor model on July 6, 2022. Although we received the requisite approval to do so, the CSA has indicated that it intends to closely examine the model, including potentially through a public consultation on sales practices, and may require undertakings or consider future amendments that would require modifications to the model, including with respect to its advance and chargeback features. At this time we cannot quantify the financial impact, if any, of any changes to our business that may be necessary in order to comply if our Principal Distributor model is required to be modified or discontinued. During the three and six months ended June 30, 2022, Canadian mutual funds represented approximately 12% of our total investment and savings product sales.

In an announcement February 10, 2022, and in line with the DSC Ban for the sale of mutual funds, the organization of provincial and territorial insurance regulators (collectively referred to as the “Canadian Council of Insurance Regulators”) urged insurers to refrain from new deferred sale charge sales in segregated fund contracts beginning June 1, 2022, and expect a transition to a cessation of such sales by June 1, 2023. In addition, the Canadian Council of Insurance Regulators announced its intention to issue a joint consultation later this year to consider other changes to upfront compensation, including advance compensation and chargeback features such as those used in our Principal Distributor model. We expect that changes, if any, to segregated funds compensation practice, will also be adopted by securities regulators which may impact our Principal Distributor model. Currently, our Canadian segregated fund products are primarily sold on a deferred sales charge basis and we pay upfront commissions to the independent agents for the sale of these products. At this time, we are unable to assess the impact of any such reforms to our operations and income. During the three and six months ended June 30, 2022, Canadian segregated funds represented approximately 5% of our total investment and savings product sales.

Factors Affecting Our Results

Refer to the Business Trends and Conditions section for discussion of the potential impact on our business from the COVID-19 pandemic.

Term Life Insurance Segment. The Term Life Insurance segment results are primarily driven by sales volumes, how closely actual experience matches our pricing assumptions, terms and use of reinsurance, and expenses.

Sales and policies in-force. Sales of term policies and the size and characteristics of our in-force book of policies are vital to our results over the long term. Premium revenue is recognized as it is earned over the term of the policy, and eligible acquisition expenses are deferred and amortized ratably with the level premiums of the underlying policies. However, because we incur significant cash outflows at or about the time policies are issued, including the payment of sales commissions and underwriting costs, changes in life insurance sales volume in a period will have a more immediate impact on our cash flows than on revenue and expense recognition in that period.

Historically, we have found that while sales volume of term life insurance products between fiscal periods may vary based on a variety of factors, the productivity of sales representatives generally remains within a range (i.e., an average monthly rate of new policies issued per life-licensed independent sales representative between 0.18 and 0.22). The volume of term life insurance products sales will fluctuate in the short term, but over the longer term, our sales volume generally correlates to the size of the independent sales force.

Pricing assumptions. Our pricing methodology is intended to provide us with appropriate profit margins for the risks we assume. We determine pricing classifications based on the coverage sought, such as the size and term of the policy, and certain policyholder attributes, such as age and health. In addition, we generally utilize unisex rates for term life insurance policies. The pricing assumptions that underlie our rates are based upon our best estimates of mortality, persistency, disability, and interest rates at the time of issuance, sales force commission rates, issue and underwriting expenses, operating expenses and the characteristics of the insureds, including the distribution of sex, age, underwriting class, product and amount of coverage. Our results will be affected to the extent there is a variance between our pricing assumptions and actual experience.

•

Persistency. Persistency is a measure of how long our insurance policies stay in-force. As a general matter, persistency that is lower than our pricing assumptions adversely affects our results over the long term because we lose the recurring revenue stream associated with the policies that lapse. Determining the near-term effects of changes in persistency is more complicated. When actual persistency is lower than our pricing assumptions, we must accelerate the amortization of deferred policy acquisition costs (“DAC”). The resultant increase in amortization expense is offset by a corresponding release of reserves associated with lapsed policies, which causes a reduction in benefits and claims expense. The future policy benefit reserves associated with any given policy will change over the term of such policy. As a general matter, future policy benefit reserves are lowest at the inception of a policy term and rise steadily to a peak before declining to zero at the expiration of the policy term. Accordingly, depending on when the lapse occurs in relation to the overall policy term, the reduction in benefits and claims expense may be greater or less than the increase in amortization expense, and, consequently, the effects on earnings for a given period could be positive or negative. Persistency levels will impact results to the extent actual experience deviates from the persistency assumptions that are locked-in at time of issue.

•

Mortality. Our profitability will fluctuate to the extent actual mortality rates differ from the assumptions that are locked-in at time of issue. We mitigate a significant portion of our mortality exposure through reinsurance.

•

Disability. Our profitability will fluctuate to the extent actual disability rates, including recovery rates for individuals currently disabled, differ from the assumptions that are locked-in at the time of issue or time of disability.

•

Interest Rates. We use an assumption for future interest rates that initially reflects the portfolio’s current reinvestment rate gradually increasing over seven years to a level consistent with our expectation of future yield growth. Both DAC and the future policy benefit reserve liability increase with the assumed interest rate. Since DAC is higher than the future policy benefit reserve liability in the early years of a policy, a lower assumed interest rate generally will result in lower profits. In the later years, when the future policy benefit reserve liability is higher than DAC, a lower assumed interest rate generally will result in higher profits. These assumed interest rates, which like other pricing assumptions are locked-in at issue, impact the timing but not the aggregate amount of DAC and future policy benefit reserve changes. We allocate net investment income generated by the investment portfolio to the Term Life Insurance segment in an amount equal to the assumed net interest accreted to the segment’s U.S. generally accepted accounting principles (“U.S. GAAP”)-measured future policy benefit reserve liability less DAC. All remaining net investment income, and therefore the impact of actual interest rates, is attributed to the Corporate and Other Distributed Products segment.

Reinsurance. We use reinsurance extensively, which has a significant effect on our results of operations. We have generally reinsured between 80% and 90% of the mortality risk on term life insurance (excluding coverage under certain riders) on a quota share yearly renewable term (“YRT”) basis. To the extent actual mortality experience is more or less favorable than the contractual rate, the reinsurer will earn incremental profits or bear the incremental cost, as applicable. In contrast to coinsurance, which is intended to eliminate all risks (other than counterparty risk of the reinsurer) and rewards associated with a specified percentage of the block of policies subject to the reinsurance arrangement, the YRT reinsurance arrangements we enter into are intended only to reduce volatility associated with variances between estimated and actual mortality rates.

In 2010, as part of our corporate reorganization and the initial public offering of our common stock, we entered into significant coinsurance transactions (the “IPO coinsurance transactions”) with entities then affiliated with Citigroup, Inc. (collectively, the “IPO coinsurers”) and ceded between 80% and 90% of the risks and rewards of term life insurance policies that were in-force at year-end 2009. We administer all such policies subject to these coinsurance agreements. Policies reaching the end of their initial level term period are no longer ceded under the IPO coinsurance transactions.

The effect of our reinsurance arrangements on ceded premiums and benefits and expenses on our statements of income follows:

•

Ceded premiums. Ceded premiums are the premiums we pay to reinsurers. These amounts are deducted from the direct premiums we earn to calculate our net premium revenues. Similar to direct premium revenues, ceded coinsurance premiums remain level over the initial term of the insurance policy. Ceded YRT premiums increase over the period that the policy has been in-force. Accordingly, ceded YRT premiums generally constitute an increasing percentage of direct premiums over the policy term.

•

Benefits and claims. Benefits and claims include incurred claim amounts and changes in future policy benefit reserves. Reinsurance reduces incurred claims in direct proportion to the percentage ceded. Coinsurance also reduces the change in future policy benefit reserves in direct proportion to the percentage ceded, while YRT reinsurance does not significantly impact the change in these reserves.

•

Amortization of DAC. DAC, and therefore amortization of DAC, is reduced on a pro-rata basis for the coinsured business, including the business reinsured with the IPO coinsurers. There is no impact on amortization of DAC associated with our YRT contracts.

•

Insurance expenses. Insurance expenses are reduced by the allowances received from coinsurance. There is no impact on insurance expenses associated with our YRT contracts.

We may alter our reinsurance practices at any time due to the unavailability of YRT reinsurance at attractive rates or the availability of alternatives to reduce our risk exposure. We presently intend to continue ceding approximately 90% of our U.S. and Canadian mortality risk on new business.

Expenses. Results are also affected by variances in client acquisition, maintenance and administration expense levels.

Investment and Savings Products Segment. The Investment and Savings Products segment results are primarily driven by sales, the value of assets in client accounts for which we earn ongoing management, marketing and support, and distribution fees, and the number of transfer agent recordkeeping positions and non-bank custodial fee-generating accounts we administer.

Sales. We earn commissions and fees, such as dealer re-allowances and marketing and distribution fees, based on sales of mutual fund products and annuities in the United States. Sales of investment and savings products are influenced by the overall demand for investment products in the United States and Canada, as well as by the size and productivity of the independent sales force. We generally experience seasonality in the Investment and Savings Products segment results due to our high concentration of sales of retirement account products. These accounts are typically funded in February through April, coincident with our clients’ tax return preparation season. While we believe the size of the independent sales force is a factor in driving sales volume in this segment, there are a number of other variables, such as economic and market conditions, which may have a significantly greater effect on sales volume in any given fiscal period.

Asset values in client accounts. We earn marketing and distribution fees (trail commissions or, with respect to U.S. mutual funds, 12b-1 fees) on mutual fund and annuity assets in the United States and Canada. In the United States, we also earn investment advisory and administrative fees on assets in managed investments. In Canada, we earn management fees on mutual fund assets and on the segregated funds for which we serve as investment manager. Asset values are influenced by new product sales, ongoing contributions to existing accounts, redemptions and the change in market values in existing accounts. While we offer a wide variety of asset classes and investment styles, our clients’ accounts are primarily invested in equity funds.

Positions. We earn transfer agent recordkeeping fees for administrative functions we perform on behalf of several of our mutual fund providers. An individual client account may include multiple fund positions for which we earn transfer agent recordkeeping fees. We may also receive fees earned for non-bank custodial services that we provide to clients with retirement plan accounts.

Sales mix. While investment and savings products all provide similar long-term economic returns to the Company, our results in a given fiscal period will be affected by changes in the overall mix of products within these categories. Examples of changes in the sales mix that influence our results include the following:

•

sales of annuity products in the United States will generate higher revenues in the period such sales occur than sales of other investment products that either generate lower upfront revenues or, in the case of managed investments and segregated funds, no upfront revenues;

•

sales of a higher proportion of managed investments, Canadian mutual funds, and segregated funds products will spread the revenues generated over time because we earn higher revenues based on assets under management for these accounts each period as opposed to earning upfront revenues based on product sales; and

•

sales of a higher proportion of mutual fund products sold will impact the timing and amount of revenue we earn given the distinct transfer agent recordkeeping and non-bank custodial services we provide for certain mutual fund products we distribute.

Senior Health Segment. The Senior Health segment results are primarily driven by approved policies, LTV per approved policy and tail revenue adjustments, CAC per approved policy, and other revenue.

Approved policies. Approved policies represent submitted policies approved by health insurance carriers for the identified product during the indicated period. Not all approved policies will go in force. In general, the relationship between submitted policies and approved policies has been consistent over time. Therefore, factors impacting the number of submitted policies generally impact the number of approved policies. Revenue is primarily generated from approved policies and LTVs are recorded when the enrollment is approved by the applicable health insurance carrier. Medicare Advantage plans make up the substantial portion of the approved policies we distribute. The number of approved policies are influenced by the following:

•

the size and growth of the population of senior citizens in the United States;

•

the appeal of government-funded Medicare Advantage plans that provide privately administered healthcare coverage with enhanced benefits relative to original Medicare;

•

our ability to generate and obtain leads for our team of e-TeleQuote licensed health insurance agents;

•

our ability to staff and train our team of e-TeleQuote licensed health insurance agents to manage leads and help eligible Medicare participants through the enrollment process;

•

our ability to retain Medicare participants in a competitive environment in which participants are actively comparing plans and carriers; and

•

our health insurance carrier relationships that allow us to offer plans that most appropriately meet eligible Medicare participants’ needs.

LTV per approved policy and tail revenue adjustments. When a policy is approved by the health insurance carrier, commission revenue is recognized based on an estimated LTV per approved policy. LTV per approved policy is the cumulative total of commissions estimated to be collected over the expected life of a policy, subject to constraints applied in accordance with our revenue recognition policy. Specifically, LTV per approved policy is equal to the sum of the initial commissions, less an estimate of chargebacks for paid policies that are disenrolled in the first policy year, plus forecasted renewal commissions. This estimate is driven by a number of factors including, but not limited to, contracted commission rates from carriers, expected policy turnover, emerging chargeback activity and applied constraints. These factors may result in varying values from period to period.

We recognize adjustments to revenue outside of LTV for approved policies from prior periods when our cash collections are different from the estimated constrained LTV’s, which we refer to as tail revenue adjustments. The recognition of tail revenue adjustments results from a change in the estimate of expected cash collections when actual cash collections have indicated a trend that is different from the estimated constrained LTV. Tail revenue adjustments can be positive or negative and we recognize positive adjustments to revenue when we do not believe it is probable that a significant reversal of cumulative revenue will occur.

CAC per approved policy. Results are also driven by the costs of acquisition, which is defined as the total direct costs incurred per approved policy. Our costs of acquisition are primarily comprised of the cost to generate and acquire leads and the labor, benefits, bonus compensation and training costs associated with our team of e-TeleQuote licensed health insurance agents. Other than costs incurred to assist beneficiaries with switching plans within the same carrier, we incur our entire cost of approved policies prior to enrollment and prior to receiving our first commission related payment. Factors that impact our costs of acquisition per approved policy include:

•

the market price of externally-generated leads;

•

our ability to efficiently procure internally-generated leads; and

•

the productivity of our e-TeleQuote licensed health insurance agents in converting procured leads into approved policies.

Other revenue. Other revenue recognized in the Senior Health segment includes marketing development revenues received for providing marketing services to certain health insurance carriers. Marketing development revenue provides additional revenue to deliver approved policies and are based on meeting agreed-upon objectives with certain health insurance carriers. Marketing development revenue serves to offset contract acquisition costs associated with distribution of approved policies. Agreements for marketing development revenue are generally short-term in nature and can vary from period to period.

Corporate and Other Distributed Products Segment. We earn revenues and pay commissions and referral fees within the Corporate and Other Distributed Products segment for mortgage loan originations, prepaid legal services, auto and homeowners’ insurance referrals, and other financial products, all of which are originated by third parties. The Corporate and Other Distributed Products segment also includes in-force policies from several discontinued lines of insurance underwritten by National Benefit Life Insurance Company (“NBLIC”).

Corporate and Other Distributed Products segment net investment income reflects actual net investment income recognized by the Company less the amount allocated to the Term Life Insurance segment based on the assumed net interest accreted to the segment’s U.S. GAAP-measured future policy benefit reserve liability less DAC. Actual net investment income reflected in the Corporate and Other Distributed Products segment is impacted by the size and performance of our invested asset portfolio, which can be influenced by interest rates, credit spreads, and the mix of invested assets.

The Corporate and Other Distributed Products segment also includes corporate income and expenses not allocated to our other segments, general and administrative expenses (other than expenses that are allocated to the Term Life Insurance or Investment and Savings Products segments), interest expense on notes payable, redundant reserve financing transactions and our Revolving Credit Facility, as well as realized gains and losses on our invested asset portfolio.

Capital Structure. Our financial results are affected by our capital structure, which includes our senior unsecured notes (the “Senior Notes”), redundant reserve financing transactions, our Revolving Credit Facility, and our common stock. See Note 7 (Stockholders’ Equity), Note 10 (Commitments and Contingent Liabilities), and Note 12 (Debt) to our unaudited condensed consolidated financial statements included elsewhere in this report for more information on changes in our capital structure.

Foreign Currency. The Canadian dollar is the functional currency for our Canadian subsidiaries and our consolidated financial results, reported in U.S. dollars, are affected by changes in the currency exchange rate. As such, the translated amount of revenues, expenses, assets and liabilities attributable to our Canadian subsidiaries will be higher or lower in periods where the Canadian dollar appreciates or weakens relative to the U.S. dollar, respectively. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Canadian Currency Risk included in our 2021 Annual Report and Note 2 (Segment and Geographical Information) to our unaudited condensed consolidated financial statements included elsewhere in this report for more information on our Canadian subsidiaries and the impact of foreign currency on our financial results.

Critical Accounting Estimates

We prepare our financial statements in accordance with U.S. GAAP. These principles are established primarily by the Financial Accounting Standards Board. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions based on currently available information when recording transactions resulting from business operations. Our significant accounting policies are described in Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies) to our consolidated financial statements included in our 2021 Annual Report. The most significant items on our unaudited condensed consolidated balance sheets are based on fair value determinations, accounting estimates and actuarial determinations, which are susceptible to changes in future periods and could affect our results of operations and financial position.

The estimates that we deem to be most critical to an understanding of our results of operations and financial position are those related to DAC, future policy benefit reserves and corresponding amounts recoverable from reinsurers, income taxes, renewal commissions receivable, goodwill and the valuation of investments. The preparation and evaluation of these critical accounting estimates involve the use of various assumptions developed from management’s analyses and judgments. Subsequent experience or use of other assumptions could produce significantly different results.

Accounting Policy Changes.

During the three and six months ended June 30, 2022, there were no changes in the accounting methodology for items that we have identified as critical accounting estimates. For additional information regarding our critical accounting estimates, see the Critical Accounting Estimates section of MD&A included in our 2021 Annual Report.

Results of Operations

Primerica, Inc. and Subsidiaries Results. Our results of operations were as follows:

	Three months ended June 30,						Change						Six months ended June 30,						Change
	2022⁽¹⁾			2021			$			%			2022⁽¹⁾			2021			$			%
	(Dollars in thousands)
Revenues:
Direct premiums	$	808,894		$	780,299		$	28,595			4	%	$	1,607,560		$	1,542,526		$	65,034			4	%
Ceded premiums		(419,048	)		(413,850	)		5,198			1	%		(818,933	)		(809,822	)		9,111			1	%
Net premiums		389,846			366,449			23,397			6	%		788,627			732,704			55,923			8	%
Commissions and fees		240,688			250,688			(10,000	)		(4	)%		492,489			484,733			7,756			2	%
Investment income net of investment expenses		37,099			36,030			1,069			3	%		71,519			71,230			289		*
Interest expense on surplus note		(15,815	)		(15,495	)		320			2	%		(31,330	)		(30,642	)		688			2	%
Net investment income		21,284			20,535			749			4	%		40,189			40,588			(399	)		(1	)%
Realized investment gains (losses)		56			1,409			(1,353	)	*				632			2,031			(1,399	)	*
Other investment gains (losses)		(1,948	)		(708	)		(1,240	)	*				(1,773	)		436			(2,209	)	*
Investment gains (loses)		(1,892	)		701			(2,593	)	*				(1,141	)		2,467			(3,608	)	*
Other, net		18,756			16,313			2,443			15	%		39,745			31,907			7,838			25	%
Total revenues		668,682			654,686			13,996			2	%		1,359,909			1,292,399			67,510			5	%

Benefits and expenses:
Benefits and claims		153,257			168,347			(15,090	)		(9	)%		340,326			352,136