Primerica Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

There are 9 speakers on the call.

Operator

Greetings, and welcome to Primerica's First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nicole Russell, Head of Investor Relations.

Operator

Thank you. You may begin.

Speaker 1

Thank you, Maria, and good morning, everyone. Welcome to Primerica's Q1 earnings call. A copy of our earnings press release, Along with materials relevant to today's call are posted on the Investor Relations section of our website. Joining our call today are Our Chief Executive Officer, Glenn Williams and our Chief Financial Officer, Alison Rand. Glenn and Alison will During our call, some of our Comments may contain forward looking statements in accordance with the Safe Harbor provisions of the Securities Litigation Reform Act.

Speaker 1

The company assumes no obligations to update these statements to reflect new information. We refer you to our most recent Form 10 ks filing as may be modified by subsequent Forms 10 Q for a list of risks and uncertainties that could cause actual results to materially differ from those expressed or imply. We will also reference certain non GAAP measures, which we believe provide additional insight into the company's operations. Reconciliations of non GAAP measures to the respective GAAP numbers are included at the end of our earnings press release and available on our Investor Relations website. I would now like to turn the call over to Glen.

Speaker 2

Thank Thank you, Nicole, and thanks, everyone, for joining us today. We're encouraged by our Q1 performance, reflecting positive results from our focus on growing distribution capabilities In improving the attractiveness of our products, our unique ability to meet the financial needs of middle income families is attracting more people to our entrepreneurial opportunity. These dynamics have created momentum in recruiting and licensing, resulting in sales force growth. In addition, both our clients and our sales force Have reacted positively to our new series of Term Life products leading to growth in sales. Although securities market conditions continue to create resistance to growth in our ISP sales.

Speaker 2

Clients' desire for financial guidance remains strong. Starting with a quick recap of our financial results, Adjusted operating revenues of $695,000,000 remain largely unchanged year over year, while adjusted net operating of $129,000,000 grew 10%. These results reflect the continued growth in term life premiums, The benefit of higher interest rates on net investment income and our progress in improving the results of our Senior Health business. The quarter was also negatively impacted by persistent inflation and continued equity market volatility that pressured ISP and Term Life sales It led to a modest increase in policy lapses. On the capital deployment front, we repurchased $85,000,000 of our common stock And pay $24,000,000 in regular dividends during the Q1.

Speaker 2

Given the strength of our capital and liquidity positions, we believe we will meet our Targeted repurchases for the year of $375,000,000 Recognizing the importance of growing the sales force, both Home office and field leadership teams are focused on its key components recruiting and licensing. Starting with recruiting, Momentum remains solid with approximately 93,500 individuals joining Primerica during the Q1. This represents 10% increase over the prior year period. Licensing results were similarly strong with more than 11,000 new life license reps added during the quarter, We ended the quarter with 136,430 life license reps, Which was slightly elevated due to delays in processing about 800 terminations by the State of Florida. These terminations should all be processed during the Q2, And we continue to believe that we can grow the sales force around 3% in 2023.

Speaker 2

Turning next to our production results. The new term life insurance products introduced last fall have given the sales force an increased degree of enthusiasm. By introducing more rate classes, we're able to better match risk and price, which allows our clients to potentially purchase more insurance coverage. During the quarter, we issued 84,500 new life insurance policies, which represents an increase of nearly 2% year over year after adjusting the prior year figure to reflect a 1 life per policy issued equivalent. Productivity at 0.21 policies per life license rep per month remained in our historical range 0.20 to 0.24.

Speaker 2

In addition to issued policies, we believe estimated annualized issued term life premiums And issued term life face amounts provide useful information about our term life business. These figures capture the amount of protection of newly issued as well as additions to coverage on in force policies. During the quarter, estimated annualized issued term life Premiums were $89,000,000 up 6%, while newly issued face amount of $28,100,000,000 Grew 14% year over year. Looking ahead, we believe the high cost of living will moderate sales growth in the near term, We believe full year growth in issued policies will be in the mid single digit range. Turning to the Investment and Saving Products segment.

Speaker 2

Sales of $2,300,000,000 declined 25% compared to the Q1 of 2022, which was our largest sales quarter ever. Client asset values ended the quarter at $87,600,000,000 up around 4% since the beginning of the year, but down 6% versus March 31, 2022. Volatility in the equity market continues to negatively large transactions such as rollovers. However, we see very little change in the number of automatic monthly investment transactions or redemption activity. Net inflows during the quarter were $642,000,000 We believe that our clients' continued focus on long term goals Along with systematic monthly investing sets Primerica apart from many other distributors.

Speaker 2

Considering the market environment, we expect 2nd quarter ISP sales could decline as much as 7% to 10% year over year, But ongoing uncertainty makes it difficult to project too much further ahead. We turn now to our Senior Health business. Results for the quarter were in line with our expectations and our efforts to maintain controlled growth during the 4th quarter's AEP And this quarter's OEP. Progress has been made on our goal of improving unit economics. 1st quarter LTV to CAC ratio was 1.1.

Speaker 2

As we discussed last quarter, we deliberately entered the 2022 enrollment and the 2023 renewal periods with Half the number of agents compared to the previous year and a focus on agent productivity. The early results of these efforts are encouraging. We are also pleased that leads sourced by Senior Health Certified Primerica representatives represented 10% of 1st quarter sales volume, up from 4% last year. These leads remain attractive in terms of conversion rates and early indications of more favorable persistency. We're encouraged by the progress of the Eteleco team over the last three quarters.

Speaker 2

It is clear that we need to keep working towards scaling the business and we will continue to evaluate how While it's still early, our efforts to grow judiciously are consistent with our plan to achieve adequate volume supported by reasonable and growing margins while Finally, I'm proud of the Primerica team and the steady progress we're making executing against our The current economic conditions underscore the important role that Primerica representatives play in providing education and guidance to their clients, keeping them focused on the future and working toward financial independence. Now I'll ask Allison to add her comments.

Speaker 3

Thank you, Glenn, and good morning, everyone. A quick housekeeping item to mention before I review our Q1 financial results. Last Tuesday, we filed a Form 8 ks, which provided financial results for the year ended December 2021 and for each quarter of 2022 under the new accounting standard for long duration targeted improvement or LDTI. The revised results also recognize all net investment income in the Corporate An adjusted version of our Q4 2022 financial supplement can be found on the Financial Info tab of our Investor Relations website. Starting with the Term Life segment, operating revenues of $421,000,000 during the quarter increased 3% year over year and pretax operating income of $127,000,000 increased 7% compared to the Q1 of 2022.

Speaker 3

The pretax operating margin during the quarter was 21.4% versus 21.2% in the prior year period. Adjusted direct premiums grew 6% year over year in the first Combined with the size and stability of our in force premium base, we expect ADP growth of around 6% to continue for the remainder of 2023. The GAAP amortization ratio for the quarter was 11.8% versus 11.7% in the prior year period. As discussed in the last earnings call, we expect the GAAP ratio under LVTI to be very stable from period to period at around 12% in each quarter. Moving to the benefits and claims ratio, the 1st quarter ratio was 58.7% compared to 58.9% in the prior year period, reflecting the stability we expected from LDTI.

Speaker 3

The benefit and claims ratio came in slightly higher than the preliminary estimate of around 58% we provided during our Q4 earnings As we finalized all of our processes related to the adoption of LDTI, we found a modification that was needed to It is not subject to YRT Reinsurance and therefore led to a disproportionate increase in the benefits and claims ratio. We expect the full year 2023 benefits and claims ratio to generally be in line with Q1 results. With the adoption of LGTI, the benefits and claims ratio now includes the future policy benefit remeasurement gain loss. This line item reflects the cumulative effect of assumption changes and experience variances back to the latter of the Oneonetwenty one transition date Given our proximity to the transition date, in the near term, assumption changes and experience variances will largely be recognized in future By unlocking the rate at which benefit reserves are accrued. Given the weighted average duration of our future policy benefit liability, We should reach a steady state of about 50% of assumption changes and experience variances being reflected in the period of occurrence in The re measurement gain loss was de minimis in the Q1 as claims experienced for the period was largely in line with While persistency deteriorated slightly versus pre pandemic levels, it does not have a significant impact on the net liability for future Policy benefits nor as we discussed last quarter does it have a significant impact on DAC under LDTI.

Speaker 3

If current trends continue, we do not anticipate any meaningful revisions when we perform our annual unlocking of reserve assumptions in the Q3. Insurance expense ratio was slightly higher in Q1 than we expected to be for the remainder of the year. Given this and the Consistency in the DAC and benefits and claims ratios from period to period, we expect the full year life margin to be near 22%. Turning next to the Investment and Savings Products segment. 1st quarter operating revenues of $210,000,000 declined 13% compared to the same period last year, While pre tax operating income of $56,000,000 declined 16%.

Speaker 3

Market volatility It continues to put downward pressure on both sales and client asset value. Year over year, revenue generating sales declined 29%, which led to a 30% decline in sales based revenues and commission expenses. Asset based revenues, which benefited from a mix shift towards products On which we earn higher asset based fees such as managed accounts and mutual fund sales under the PD model in Canada declined 1% year over While average client asset values declined 8. Asset based commission expenses were generally aligned with asset based revenues after including revenues from segregated funds for which asset based expenses are recognized as insurance commissions and DAC amortization. Continuing with results in our Senior Health segment, as Glenn mentioned earlier, we continue to make progress building a sound Senior Health business and our profit LTVs per approved policy for the quarter were $8.56 generally in line with expectations.

Speaker 3

Both the chargeback rate on business sold during the Q4 AEP and the renewal rate for the January 1 annual renewal cycle We're in line with our revenue assumptions, and therefore, we did not need to recognize a negative revenue tail adjustment this quarter. We believe this is indicative of both our significant progress in refining our revenue recognition model as well as a stabilization of churn trends in the marketplace. Cap per approved policy improved to $8.14 during the quarter, reflecting our progress in managing leads selectively and Looking ahead, we expect normal seasonality to pressure CAC as there is a limited number of seniors who can enroll in Medicare and a profit in Q4 during IEP. On a full year basis, we expect segment losses to be around in the $5,000,000 range. Currently, we do not expect that the Senior Health business will require capital from the holding company to fund operations in 2023.

Speaker 3

The Corporate and Other Distributed Products segment adjusted loss of $11,000,000 decreased $3,500,000 year over year. The improvement was driven by significantly higher net investment income, partly offset by lower mortgage loan sales and volatility in a small block Discontinued business in our New York subsidiary. Adjusted net investment income increased $10,000,000 compared to the prior year period. Growth in the portfolio contributed to the increase in NII, but the rise in interest rates over the last year have been the primary driver. We've seen both steadily rising average book yields in our fixed maturity portfolio as well as rising yields Our cash and money market balances, which alone added $5,000,000 NII in the quarter year over year.

Speaker 3

If the rate environment stays consistent, we expect NII to be around $32,000,000 per quarter for the remainder of 2023. To a lesser extent given the rise in rates began last year. As we've noted in the past, given the nature of our business, We are not constrained by our liability duration in choosing how best to invest our portfolio. We are focused on Optimizing our income while also maintaining a conservative portfolio that does not subject us to undue risk. On a Regular basis, we will review the relative value of purchase opportunities in various asset classes and durations, looking for those that we feel pay us for the rest.

Speaker 3

Inversion of the yield curve has allowed us to invest at attractive levels without extending duration. Our new money rate of almost 5.6 percent is more is up more than 200 basis points compared to the Q1 of 2022. While the average duration of purchases remains relatively short at 4.3 years. Commercial real estate has received a lot of attention recently, particularly office space. We do not write any direct mortgages and most of our exposure is in syndicated CMBS and publicly traded which combined account for about 8% of our portfolio.

Speaker 3

Office space exposure is estimated to be less than 3% of the portfolio. With respect to our CMBS holdings, our average rating is AA- with a weighted average loan to value of about 60% and weighted average debt service coverage of 2.4 times. Our public bond issued REITs have an average rating of BBB plus There's also been a lot of attention paid to stress in the regional banking sector. With respect to regional banks, We have limited exposure at around $25,000,000 or less than 1% of the portfolio with an average rating of BBB plus We hold a small position, less than $3,000,000 in Silicon Valley Bank Bonds, on which we took a $2,000,000 credit impairment during the quarter. We continually review our holdings and have not identified any other issues that would prompt us to report any impairment.

Speaker 3

Moving to consolidated insurance and other operating expenses. The total incurred for the quarter of $151,000,000 increased And are also seeing higher employee and growth related costs that are in line with the overall growth in the business. The year over year comparison benefited from lower sales force leadership event costs in the current period as we resumed our typical 2 per year event cadence after holding an additional event in 2022. Looking ahead, we expect 2nd quarter insurance and other operating expenses Increased 2% to 3% year over year, driven by continued growth in the business, technology spend and employee related costs. We will also benefit from $5,000,000 lower costs associated with sales force leadership events due to The convention in the prior year.

Speaker 3

We remain on pace for a full year insurance and other operating expense growth rate of 4% to 5%. Liquidity, the holding company remains strong with invested assets and cash of 330,000,000 Primerica Life's statutory risk based capital ratio is estimated to be 4 55% as of March 31, 2023. We continue to take ordinary dividends from Primerica Life as available and plan to modestly reduce our RBC over With that operator, I'll open the line up for calls for questions.

Operator

Thank you. We will now be conducting a question and answer A confirmation tone will indicate that your line is in the question Our first question comes from Dan Bergman with Jefferies. Please proceed with your question.

Speaker 2

Good morning, Dan.

Speaker 4

Hi. Thanks. Good morning. I guess to start just with recruiting continuing to be strong this quarter, I just want to see if you could give any more color on the key drivers of the strength. Were there any incentives or discounted fee offers in place during the quarter?

Speaker 4

And just any thoughts given the macroeconomic backdrop on the outlook for recruiting over

Speaker 2

Yes, Dan. It was a good recruiting quarter. There were no incentives used during the quarter. So it was Good fundamentally sound growth in the quarter that we're very pleased with. And what we're seeing is that we're getting better at telling our story.

Speaker 2

There's a better story with our success as we go forward and we just see the desire in a disrupted Kind of employment dynamic around us of people looking for alternatives, looking for additional part time income to offset the higher Cost of living are looking for alternative career paths. And so I we just believe that right now we've got a very appealing story, which is being well received, But there was no artificial stimulus used in the Q1. Got it. Other than we generally I will modify that. We generally kick off A year in January with and we've done that every year, so the comparisons are equal.

Speaker 2

So we do have a discount in January to start the year, but it was identical to what was used in the same month last year.

Speaker 4

Got it. Got it. Makes sense. Thanks. And then maybe just one on the Term Life business.

Speaker 4

It sounded like persistency was modestly unfavorable pre pandemic levels this quarter. So I just wanted to see if there's any more color you could give on the drivers and how different cohorts of policies are behaving. And anything you can quantify in terms of the magnitude of Change in the lapse rate versus either pre pandemic levels or where it had been in recent quarters? Thanks.

Speaker 3

Yes. I'll take that one. Really, it's Best to look at it in line with pre pandemic because obviously during COVID, we were dealing with some very unusual Results that we did not anticipate would stay in place forever. But looking at it Versus pre pandemic, I'd say there's been a slight deterioration. I'd say especially in most years, it's less than 5%, so you're not Talking about anything significant, the interesting thing is we are seeing it across all durations and that to me indicates that it's more economy driven than anything else.

Speaker 3

The last time we really saw across all durations, putting aside COVID, It was back in when 2,008 during the financial crisis, during that period. So again, nothing to that level of extreme, Just a little bit of a downtick and something we're keeping our eyes on. And really, that's probably the best I can provide right now.

Operator

Our next question comes from Wilma Virtis with Raymond James. Please proceed with your question.

Speaker 2

Good morning, Wilma.

Speaker 5

Hey, good morning. The termite policy count grew So much more quickly and give us some insight into which metric is better gives us better insight into the adjusted direct premium growth?

Speaker 2

Yes, Wilma, I'd be happy to do that. What we attempted to do because we've changed the basis, normally we've tracked the number of issued policies, But by changing the way we issue those policies to one life per policy rather than on occasion multiple lives for policy in the past, even though we changed the historical numbers to We realized that we were getting a little noise in that comparison and so we wanted to get more color. So traditionally, you have a policy count in our industry is one way of tracking, premium is another way of tracking and face amount is another way of tracking. They relate to each other. But as we made the change to our products, as we anticipated, more accurately pricing the product and the risk gives our Clients an opportunity to be able to increase their purchase, their dollar goes further when we have more correctly priced Good risk.

Speaker 2

And your dollar doesn't go quite as far when we more correctly price bad risk. So it's some rates went up and some went down. But ultimately, people are getting more for their money in a lot of cases and are often buying a little more. So, we felt like tracking all three of those numbers Gave the outside world a better opportunity to kind of triangulate how our Life business was moving. The other Our estimate, the new premium use and face amount use, we have to make some estimates in that, but it gives you a little more color around that.

Speaker 2

And I think it gives you a better flavor of our business. We did anticipate that when we changed the product, we would have this kind of movement. So it's clearly what we expected. And as I said, we're pleased with the excitement Around the new product line in our sales force, I think that's part of what's giving us some sales momentum in this High cost economy, inflationary economy, high cost of living that Allison was just describing, we're overcoming that resistance on sales and continuing to grow sales, Which I think a lot of that goes to the excitement around new product set.

Speaker 3

Yes. One thing I would add is the 2% is our best I mean, we used to sell multiple lives per policy, now it's a single adult life per policy. That's happening day to day in our sales force right now. So when you look at the other two metrics with it, we thought you get a fuller picture. The other important thing is that the other two metrics, both annualized issued premium and base amount include things like Add on riders or IVR riders.

Speaker 3

So it's not just the new business, it's what we're increasing the book of business for. So just a

Speaker 5

Thank you. And then just on Senior Health, should we expect Primerica to put any capital into that in 2024? And also if you could just talk a little bit about sorry?

Speaker 3

I'm sorry. Keep going. I never get

Speaker 5

Oh, yes. And then if you could just talk a little bit about the how many leads are coming from the life license reps to the senior health license reps?

Speaker 3

Yes. So 2024, I don't think I think what we said thus far is we won't need to put any Capital in for 2023. In 2024, we'll use up the remainder of the net operating Lots of carry forward that we have. So once that's done, there will probably be some need for capital. That being said, We will position ourselves to be putting anything significant into the business until we're comfortable with the profitability metrics of the business and are comfortable with our game plan going forward.

Speaker 3

So I think at this point with regard to 2024, we should I'll put that on hold until we continue to work through our operating plans. But the one thing I can say is we will definitely Limit whatever capital we have, we will continue to grow the business judiciously, and we will only put capital in to the extent that we feel like we can create book of business that will ultimately become cash generating. Obviously, just like life insurance, if we do try to grow the business, There's a lot more that goes out upfront than you get in the 1st year. So there would be some strain. But again, we will maintain good control of whatever those levels will be.

Speaker 3

So I think that's why we should wait until later in the year to discuss further. I'll just quickly talk about the it's just I think an important thing to note is it doesn't have to be a life license representative on our side to be able to participate in this program, and that's one of the attractive things, is that people who are Going through the process of getting a life license can actually get involved with it, can get certified to sell senior health, or to Refer to Senior Health, excuse me. And then specifically, I think what Glenn said was we're about 10% this We were 10% during AEP.

Speaker 2

Of sales, yes. Our leads accounted for about 10% of the sales. And again, we are seeing those leads Our higher quality than what can be generated just out from the public lead sources. So we're encouraged by that growth, but we recognize that's a business

Operator

Our next question comes from Ryan

Speaker 6

I had a couple of related follow ups. First is on lapses. When lapses deviate from your expectations under LDTI, Is the primary way that will come through results in will that come through re measurement gains and losses or Annual assumption updates, because I know it doesn't come through DAC anymore.

Speaker 3

Yes, it's interesting. It's pretty unlikely it's going to come through anywhere that you'll notice it. You're right. Where we used to see it extensively with DAC and as I explained last quarter, we're not going to see that anymore. Even if you remember when we were During COVID, we used to have a very large impact from DAF with a much smaller offset in reserves.

Speaker 3

So the reason you don't see a whole lot of impact in reserves is because a lapse decrease is both the The future premiums you're going to get and the expected future benefits. So both components go down, So net net, the liability doesn't change all that much. It would be a pretty has to be a very dramatic change for us to see something come through. Really what you're seeing in the measurement gain loss is going to largely be claims activity.

Speaker 6

Okay. Got it. And then can you comment on your subsidiary dividend expectation From the life subs, I guess, either this year, but also just what you think a reasonable annual amount would be?

Speaker 3

Yes. And one of the reasons the RBC has crept up a little bit over time is because the way the rules work It's the greater of 10% of surplus for the gain from operations before realized gains and losses from the prior year. And our 2021 statutory gain from operations, which is the higher of the 2 metrics, With $257,000,000 because in 2021, we were still having significant claim payments And from COVID, so our statutory earnings were a little bit lower, which constrained what we took out in 2022. In 2023 looking at 2023, the equivalent number for 20 22 of gain from operations is 446 million. So without asking for an extraordinary dividend, we have the ability to take $446,000,000 out of Primerica Life In addition to what we would take from the Canadian operation and our non life operations.

Speaker 3

So in and of itself, that number has gone up significantly. We can always ask for an extraordinary dividend, but we really see no need to do so at the current time. But Anyway, I think looking at the $257,000,000 versus the $446,000,000 gives you some feeling of how much more we're going to be able to take out From subsidiaries year over year, the one thing to keep in mind is on the non life side, depending how the markets go, we could continue to see some strain on what we can take out from our ISP business.

Speaker 6

Understood. Thanks a lot.

Operator

Our next question comes from Andrew Kligerman with Credit Suisse. Please proceed with your question.

Speaker 7

Good morning, Andrew. Hey, good Good morning. Nice to talk to you. Shifting over to Senior Health again. So I think Allison talked about a 5% full year net loss.

Speaker 7

Given your efforts and the terrific progress that you've made over the prior year. Do you think a line of profitability is in sight for 2020 And another thought on that topic is, have you considered layering in other products, maybe turn life onto the Form 2 to help scale it.

Speaker 3

I'll start and then Glenn can fill in with some of the product discussions. Just to be Clear, it wasn't 5%, it was a $5,000,000

Speaker 7

I thought I said 5.

Speaker 3

Yes. And just so you know, obviously, it's early in the We'll continue to update that figure as the year goes by. My rationale in giving you that number is just to frame up that we're not expecting Much of an ultimate financial impact out of this segment, good or bad, if you will, on a full year basis. I do think we're doing the things necessary to put the business into a profitability mode. The real thing as we go through this year will be as we continue to build out the agent force, making sure that we can as we scale the business, we can maintain a level of profitability we are comfortable with.

Speaker 3

The team there is very actively working on all sorts of things, both on the lead acquisition side, the lead identification as well as the cost side and making sure we have the best agents available, paying them the best way possible and But it is not an immediate do this, then that happens. There's a lot of fine tuning. We've been doing and we'll And we'll continue to do throughout this year. Glen, I don't know if you have anything you would like to add on that.

Speaker 2

Yes. Just on the question about the other products, First priority is to make our current profit set profitable. And so that's where the focus has been. But the Eteleco team is doing job of looking for adjacent products and adjacent markets, lead generation from adjacent markets that might be possible. And also are there other products to round out the product set that are still relatively close to the Senior Health business?

Speaker 2

There are no plans right now to load Primerica products into that sales center that would create a tremendous amount of channel conflict potentially. But also it's a very different client base. Those our team down there are experts at dealing with seniors and their needs. And we feel like right now branching out into other markets that aren't adjacent would work against us rather than for us. So there's no plans for that on the horizon.

Speaker 7

Got it, Glenn. That's very helpful. And then just sort of thinking about Term Life sales, You came in with policies of 2% growth. And then, per Wilma's question, you were talking about face amount up 14%. It feels like the face amount is The better in metrics, so maybe a little more color on that.

Speaker 7

And then more importantly, with the license sales force up about 5%, And again, you had is that kind of a good indicator of where we could start to see sales coming in maybe next year? Is that kind of Give it a year and we'll start to see that mid single digit kicking in on a steady basis, maybe even better if productivity picks up. Yes.

Speaker 2

There's a lot in that question. We do think that that's all right. We do think that, As Allison said, using the additional premium and face amount metrics in addition to policy count gives you a little better feeling for how the business And I will say that I do believe we are overcoming the headwinds of the higher cost of living with our sales numbers right now. So, to your Second part of your question, it's going to be tricky to project how this looks throughout the year or beyond the year without getting some clarity on how we feel like the cost Living in the budget pressure on middle income families, which is extreme right now, how that might change? If it gets worse, it won't be good for sure.

Speaker 2

If it gets better, Then we could see some easing of that pressure and families might have a little more leeway to make some different financial decisions. So Looking into next year, it's very cloudy right now. But we do believe and as Allison pointed out, the face amount and premium numbers Include additions that don't come in through a brand new app through our increasing benefit rider, which is automatic or manual policy additions the client just asked for. So it gives a more holistic view of our entire life insurance business than just the new issued policy count. So that's why we believe that adding those not moving completely away from policy count, but adding those give you a fuller picture.

Speaker 7

Very helpful. And it seems like you're doing the right stuff with the

Operator

Our next question comes from Mark Hughes with Truist. Please proceed with your question.

Speaker 8

Good morning, Mark. Yes. Thank you. Good morning. I missed some of the earlier calls, so I apologize This has been gone over, but the YRT's premium ratio was a little bit higher in the Q1 compared to Q1 of last I think compared to last full year, wasn't that dramatically different.

Speaker 8

Is this kind of 31%? Is that what we should expect? Was there any increase in cost, anything like that?

Speaker 3

No. Actually, I'm going to tell you, Mark, you win the prize because that is a technicality of the business that I didn't know if anybody was going to pick up on. But really what it is, we didn't put it in the script because if you're getting back here, it's a pretty technical answer. But YRT, CEDAR premiums are paid annually on the policy anniversary, which is very different than how we collect our direct If you look at how COVID happened and when our sales were growing tremendously, that cycle sort of ended the first Quarter of whatever year it was. I'm sorry, I can't I'm lost on years right now.

Speaker 3

I have a head cold. I apologize. Anyway, so this is the last year that you see sort of this Step up in the Q1 and it's why the rate is a lot closer to what you saw sort of for the rest of last year. It's because it all steps up annually. We kicked that up in the Q1, and it has nothing to do with a change in rates or anything like that.

Speaker 3

You'd never see a change in YRT rates be that impactful that quickly because, 1, they're only for new business, Which is a small part of our total business. And 2, as we've mentioned in the past, why our T rates aren't level, they match the mortality curve. So if you think about it, the Other feeder premium line actually grows faster than any other line in that revenue premium revenue section. I will remind you also that if we had our drugers and we didn't have to follow GAAP, we would actually treat the other ceded premium in our case As a benefit line item, which is why when we do the benefits and claims ratio, we actually include that piece in the benefits costs. And you'll see that on a year over year basis, the benefits and claims ratio was very consistent.

Speaker 8

Okay. So it sounds like for the full year, Pretty consistent with last year. Is that the way to think about it?

Speaker 3

I have to actually look at the number, but I think last year had a lower Q1. I think the Rate you're seeing right now is more consistent with what you're going to see for the rest of the year. So I don't think you're you're not going to see a pickup like you saw in the Q1 in the next three quarters. But just to remind you, and I think it's important because I want to make sure everybody is doing the calculations the way we do since We quote all these rates. That 58.8 percent, includes the number, 58.7% number we quoted included the other ceded premiums.

Speaker 8

Right, right. Just like last year, the YRT ceded premiums, it went from 29 in the Q1 to 32.5 in the Q2. Is there some normal Seasonal phenomenon or is that just another one of these variability?

Speaker 3

So if you we've talked about in the past that the second quarter has Historically been our strongest quarter.

Speaker 8

Yes.

Speaker 3

Maybe end of incentives, whatever the case is, People are happy in the spring, but the Q2 has historically been a very, very strong quarter for us. So since, like I said, the YRP premiums renew Annually, if that's when we have a large amount of policies coming up on their annual policy renewal date, That's when those YRT rates are going to go up for all of those policies. And again, they're going to grow at much faster rates because they max the mortality

Speaker 8

Well, I will wait for my prize. I'll send you my address so you can give it to me directly. Maybe some Primerica swag. Okay. The second question would be investment in savings.

Speaker 8

The asset base revenue was down 1%, even though the asset average assets We're down 9%. Anything there That is noteworthy. That seems like a good trend, but I don't know whether that's just something else driving that.

Speaker 3

Yes. And that really has to do with a mix shift we've seen. So 2 things have happened. 1, We've continued to see more and more of our sales going towards managed accounts. And as that's happening, we're obviously not getting the sales based revenue, but Our ability to generate asset based revenues are growing.

Speaker 3

So you're seeing that compounding effect. And the other is the PD model that we launched for mutual funds in Canada last year, that is continuing to grow, which again will put some pressure on what

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Earnings Conference Call
Primerica Q1 2023
00:00 / 00:00
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