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Edited Transcript of PRI earnings conference call or presentation 12-Feb-20 3:00pm GMT

Q4 2019 Primerica Inc Earnings Call

DULUTH Feb 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Primerica Inc earnings conference call or presentation Wednesday, February 12, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alison Sue Rand

Primerica, Inc. - Executive VP & CFO

* Glenn Jackson Williams

Primerica, Inc. - CEO & Director

* Nicole Russell

Primerica, Inc. - SVP of IR

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Conference Call Participants

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* Andrew Scott Kligerman

Crédit Suisse AG, Research Division - MD & Senior Life Insurance Analyst

* Daniel Basch Bergman

Citigroup Inc, Research Division - VP

* Jeffrey Paul Schmitt

William Blair & Company L.L.C., Research Division - Associate

* Mark Douglas Hughes

SunTrust Robinson Humphrey, Inc., Research Division - MD

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Presentation

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Operator [1]

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Good day. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Primerica Inc. Q4 2019 Earnings Results Conference Call and Webcast. (Operator Instructions) I will now turn the conference call over to Ms. Nicole Russell, Head of Investor Relations. You may begin the conference, ma'am.

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Nicole Russell, Primerica, Inc. - SVP of IR [2]

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Thank you, operator, and good morning, everyone. Welcome to Primerica's Fourth Quarter 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 at investors.primerica.com.

Joining our call today are our Chief Executive Officer, Glenn Williams; and our Chief Financial Officer; Alison Rand. Glenn and Alison will deliver prepared remarks, and then we will open the call for questions. 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. The company does not assume any duty to update or revise these statements to reflect new information. We refer you to our most recent Form 10-K filing as modified by subsequent Form 10-Q filings for a list of risks and uncertainties that could cause actual results to materially differ from those expressed or implied.

We also reference certain non-GAAP measures, which we believe provide additional insight into the company's operations. Reconciliations of non-GAAP measures to their respective GAAP numbers are included at the end of our earnings release and are also available on our Investor Relations website.

I would like now to turn -- I would now like to turn the call over to Glenn.

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Glenn Jackson Williams, Primerica, Inc. - CEO & Director [3]

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Thank you, Nicole, and thanks, everyone, for joining us. Today, I'd like to provide a quick recap of our fourth quarter results and offer my views on 2019 as a whole, then end with a perspective on 2020. After my remarks, Alison will review our financial results.

Starting on Slide 3 of our presentation deck, you'll see we reported another solid quarter compared to the fourth quarter of 2018, with adjusted operating revenues up 9% and adjusted pretax income up 11%. Diluted adjusted operating earnings per share were $2.22, which represents a 10% increase year-over-year, and ROAE was 23.7% during the fourth quarter of 2019. Full year results for 2019 were similarly strong with a record-setting $2 billion in adjusted operating revenues, which represents an annual increase of 7%. Adjusted pretax income of $467 million increased 11%, while diluted adjusted earnings per share increased 15%. ROAE was 23.5% compared to 22.8% in 2018. In 2019, we met our goal of repurchasing $225 million of common stock and paid a total of $58 million in dividends, returning 79% of operating earnings to stockholders and reducing our share count by approximately 4% year-over-year.

The continued financial strength and stability of our business model gives us confidence to increase capital deployment to $250 million in 2020 and raise our first quarter dividend by 18% to $0.40 per share.

Turning now to Slide 4 to review the fourth quarter's distribution results. We recruited 60,000 new representatives during the fourth quarter or 2% fewer than the prior year's fourth quarter and added 11,000 new life insurance licenses, which is comparable to the number added during the fourth quarter of 2018. We ended the year with 130,522 life insurance license representatives, which is in line with the end of 2018.

For our Term life business on Slide 5, we continue to see the positive impact of our efforts. During the fourth quarter, we issued 71,000 new life insurance policies, which is in line with the prior year's fourth quarter.

Productivity, at 0.18 policies per life insurance licensed representative per month, remains within our historical range of 0.18 to 0.22 and in line with last year's fourth quarter. Looking forward, we continue to believe that our long-term growth rate in new issued policies will average mid-single digits. As we mentioned last quarter, premium growth is also enhanced by increasing benefit riders and other coverage additions.

Highlights from our Investment and Savings Products business are presented on Slide 6. Sales during the quarter were $2 billion, increasing 14% compared to the fourth quarter of 2018 and setting a new quarterly record. Ending client asset values surpassed the $70 billion mark for the first time due to a combination of strong equity markets in 2019, annual net new client inflows of $1.1 billion and the recovery from the 2018 year-end market pullback. This represents a 22% year-over-year increase in total assets under management. Middle-income families continue to look for investment solutions that offer guaranteed income streams or downside protection.

Our annuity partners offer products with those attractive features that are in high demand. Variable annuities remain a major driver of sales growth. Sales of variable annuities increased 22% compared to last year's fourth quarter and 20% in the full year-over-year comparison.

Now that 2019 is behind us, I want to take a moment to reflect on the full year. Following several consecutive years of strong growth in recruiting, licensing, issued life apps and rep productivity, 2019 had a weak start against difficult year-over-year comparisons. However, as the year progressed, we saw signs of improvement. By the fourth quarter of 2019, most of these numbers were either back in line or very close to the levels of the prior year. Our progress is a result of our efforts to create a growth focus for all of our efforts, including our process improvements, our messaging and our incentives.

During 2019, we achieved several milestones. We issued $94 billion in term life insurance face amount, which we believe will rank us as the second-largest term life insurance provider in North America during 2019. We now have a record level of $808 billion of term life insurance face amount in-force. We also sold a record $7.5 billion in investment products. And as I noted earlier, reached an all-time high of over $70 billion in client asset values.

These production levels and our disciplined business approach led to the strong financial performance discussed earlier. More than ever, our sales force remains committed to helping middle-income families protect against the financial burden associated with the loss of a loved one, while simultaneously helping them invest for the future.

2020 is off to a strong start, building on the momentum from the end of 2019, we started the new year by holding our largest ever senior field leadership meeting in Dallas to engage with our most influential members of our sales force and communicate our priorities for the future. To strengthen our message, we added 9 new meetings during January with Regional Vice Presidents from across the U.S. and Canada, to cast the vision for the decade and reinforce our message from the senior leadership meeting.

At these events, we introduced a number of initiatives designed to drive growth in 2020 and beyond. These included higher intensity in our messaging, new technology and very practical support, such as the implementation of a life insurance wholesaling team to assist in product and sales training. We're laser-focused on strengthening our business, including recruiting, licensing and growing the size of our sales force.

We also continue to invest intelligently in our business where we see opportunity to fulfill the need in our market, improve the client experience, all while making it easier for our representatives to conduct business. We look forward to 2020 with increasing excitement. It marks not only the beginning of a new year, but also a new decade filled with opportunities to continue serving our clients. It also marks our tenth anniversary as a publicly traded company, which we view as an important milestone to celebrate.

With that, I'll now turn it over to Alison.

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Alison Sue Rand, Primerica, Inc. - Executive VP & CFO [4]

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Thank you, Glenn, and good morning, everyone. As we turn to the Term Life segment on Slide 7, let me briefly review fourth quarter results and then provide insights into our 2020 expectations for the segment. In the fourth quarter, Term Life revenues were $319 million, an increase of 9% year-over-year, driven by a 10% increase in adjusted direct premiums. Operating income before income taxes grew 14% to $82 million. .

Looking at the individual elements of our Term Life segment, incurred claims were generally in line with the prior year as was the benefits and claims ratio at 57.7%. The DAC amortization ratio, which is typically high in the fourth quarter due to seasonally weaker persistency, was 16.4% for the quarter, well below the prior year ratio of 17.1%.

While there are several drivers of the DAC ratio, persistency is a noteworthy factor. After a period of weaker persistency in late 2016 and 2017, persistency stabilized in 2018, and throughout 2019, has improved to back to historical levels.

The fourth quarter showed the largest improvement to date versus the prior year. The insurance expense ratio for the quarter was 8%, higher than the 7.8% in the prior year period, but slightly lower than we had indicated last quarter. During the quarter, we trued up our segment allocation of information and cybersecurity expenses, which shifted some expenses on a full year basis out of Term Life. Company-wide insurance and other operating expenses were in line with our expectations for the quarter.

I will discuss company-wide insurance and other operating expenses for the quarter as well as expectations for 2020, including our high-level view of segment allocation later in the call.

Let's shift our discussion to Term Life projections for 2020, starting with a deeper dive into adjusted direct premiums. As shown on Slide 8, adjusted direct premiums include direct first year and direct renewal premiums on policies issued post-IPO, direct premiums on policies issued pre-IPO and premium ceded to the IPO coinsurance. Each of these components have different growth drivers. Direct first year premiums are mainly driven by the number of policies issued each year, coupled with the size of those policies, as well as additions and increases in premiums, primarily from our increasing benefit rider.

Post-IPO direct renewal premiums grow each year from layering another year of sales on to the in-force premium base. We've often referred to this as the building back of our in-force block post-IPO. Total post-IPO direct premiums grew 12% in the aggregate in 2019. Pre-IPO direct renewal premiums have been declining about 3% per year as the closed block runs off.

Historically, premium ceded to the IPO coinsurance ran off at a similar rate. However, beginning in 2017, we stopped feeding premiums that reached the end of their initial level premium period, which accelerated the rate of decline to around 6%.

The chart on the right side of the slide shows our growth expectations for adjusted direct premiums by components. First year premiums assume a hypothetical growth in issued policies per year of 3% combined with growth in premium additions from increasing benefit riders. Post-IPO renewal premiums continue to grow, but at a diminishing rate as each block of new business added is smaller in comparison to the growing in-force.

We expect pre-IPO direct premiums to continue to run off at a rate of 3% annually and premium ceded to the IPO coinsurance to decrease at a rate trending towards 5% annually. Net-net, for 2020, we expect adjusted direct premiums to grow by 9% and at a 3% annual growth in sales, with the growth rate to decline by approximately 1% in both 2021 and 2022.

Continuing with other aspects of Term Life performance, we do not foresee any significant changes in either the benefits and claims ratio or the DAC amortization ratio in 2020. But recall that the growing block of increasing benefit riders generally have a lower DAC ratio and higher benefits ratio than newly-issued business. Margin should remain in the mid-19% range while still allowing for investment in new technologies to support the Term Life business.

Turning now to our Investment and Savings Products segment on Slide 9. Revenues of $182.7 million increased 11% year-over-year, while income before income taxes increased 16% to $53 million. Sales-based revenues grew around 12%, in line with growth in revenue-generating product sales. Sales-based net revenues as a percentage of revenue-generating product sales increased during the quarter, reflecting a higher mix of annuity sales during the period.

Asset-based revenues grew 12%, in line with growth in average client asset values, which benefited from strong sales and market conditions throughout 2019 as well as the recovery from the market pullback in the fourth quarter of 2018. Asset-based net revenues as a percentage of average asset values were also higher in the quarter, benefiting from segregated fund DAC amortization that was about $2 million lower than historical levels due to favorable market performance as well as annual assumption setting for redemptions. The rise in operating expenses in the segment was largely due to segment allocation revisions I discussed earlier.

Moving to our Corporate and Other Distributed Products segment. Adjusted operating revenues of $29.3 million declined 8%, while benefits and expenses of $43.1 million rose 7%. The decrease in segment revenues reflects lower ancillary product income as well as lower net investment income as more NII is allocated to the Term Life segment to support growth in the block of business. On a company-wide basis, net-net investment income grew 3%, driven by growth in the invested asset portfolio, partially offset by lower overall yields. The increase in C&O, benefits and expenses was driven by $2 million higher insurance and other operating expenses, and a $1.7 million charge to write-off amounts ceded on a closed block of business to a reinsurer counterparty ordered into receivership. We have not ceded new business to this particular reinsurer in over 20 years.

Let's turn now to Slide 11 for a discussion of consolidated insurance and other operating expenses. During the fourth quarter, expenses increased 9% year-over-year to a total of $106.7 million, which was in line with our expectations. The growth was driven by year-over-year increases in employee salaries and expenses that support the growth of our Term Life business. It also included around $3 million in higher costs related to various technology initiatives we have discussed throughout the year for a total incremental technology spend of $10 million in 2019.

Looking forward to 2020, we anticipate insurance and other operating expenses will increase between $25 million and $30 million or 6% to 7% year-over-year. We expect total insurance and other operating expenses to be split about 45% to Term Life, 30% to ISG (sic) [ISP] and 25% to Corporate and Other. As a reminder, first quarter expenses are generally about $10 million higher than other quarters due to the annual grant of management equity awards in February.

Slide 12 shows the main components of expense growth. The first category includes expenses that are tied directly to a revenue source such as premium taxes, asset-based fees and record-keeping fees. The $4 million increase shown reflects year-over-year savings of approximately $5 million in ISP from service provider contract changes and operational efficiencies we've discussed in the past.

Salaries and other employee-related costs, excluding those related to technology, which I'll discuss in a moment, are expected to grow by approximately $6 million. The increase is due to a combination of annual merit increases, staffing increases and higher employee benefit costs.

Technology costs are expected to increase by $8 million. Our priorities for the year include client and new rep engagement, Term Life sales process improvements, business intelligence and continued infrastructure modernization. Salaries and benefits for employees and contractors that are assigned to technology initiatives are included in this category.

To enhance our revenue growth opportunity, we are investing in both new and existing product distribution. We are embarking on a multiyear expansion of our mortgage program, which is expected to add $3 million to 2020 costs. As Glenn mentioned earlier, we are adding a team of wholesalers to support our Term Life business, and then have included $2 million in this year's budget to support their efforts. Finally, we've added $2 million to cover required mailings and other implementation costs associated with the SEC's REG BI and other potential regulatory changes.

Let me wrap up with some holding company statistics on Slide 13. Our tax rate during the quarter was 23.4% and 23.2% for the full year, which is consistent with our annual rate estimates. We expect the 2020 full year rate to be about 23.5%. Our corporate balance sheet remains strong with ample liquidity. As of December 31, holding company liquidity is approximately $270 million, and Primerica Life statutory risk-based capital ratio is estimated to be around 440%.

We plan to continue to take ordinary dividends from Primerica Life to the extent available with the goal of maintaining our near-term RBC ratio in the low to mid-400% range.

Operator, let's open the line up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question we have will come from Mark Hughes of SunTrust.

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Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [2]

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Glenn, did you give an outlook for the sales force, the headcount and recruiting? I think you've done that in the past. And I'm sorry if you did and I missed it.

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Glenn Jackson Williams, Primerica, Inc. - CEO & Director [3]

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No. I didn't. In my prepared remarks, I mentioned kind of a mid-single-digit range for term new policy issues. And Mark, as we look out over the extremely long term, that's generally the same range. As you know, the sales force and new Life business tend to have a pretty direct relationship. So as we look over the very long term, we see that. I described the dynamics from 2019 with a weak start in the first half and then some recovery in the second half. And so as we see that over multiple years, that's kind of what we anticipate with extremes on either side of that as we go.

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Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [4]

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The mid-single digit, the new policies issued would be a little bit of improvement from the recent trend. Is that right? What gives you confidence in that?

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Glenn Jackson Williams, Primerica, Inc. - CEO & Director [5]

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Yes. That's getting back to the long-term average, and the confidence I take from that is what we've seen during the 4 quarters of 2019, as we have seen some recovery. Early in our discussion several quarters ago, I talked that I'd hope to be back kind of the even keel by midyear, and we were a couple of quarters late on that. But we did get there or close to it in the fourth quarter. And even during the quarter, we saw strength as the quarter progressed. So I don't think that's an unreasonable view to have at all based on what we're seeing.

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Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [6]

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Yes. And I'm sorry, did you say where you would anticipate the sales force in total to be, say, 12 months from now?

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Glenn Jackson Williams, Primerica, Inc. - CEO & Director [7]

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No. We haven't given that specific. You got a lot of moving parts under that. So we haven't been that specific in that number.

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Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [8]

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Any general sense of that?

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Glenn Jackson Williams, Primerica, Inc. - CEO & Director [9]

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Well, again, I mean, we hope to grow it. I mean, that's the whole purpose. But no, I don't -- again, long term, I think you're going to see it in mid-single digits. Whether you see that a little better or a little worse in 2020, it's a little early to tell. But I can tell you, we did feel good about the close, the very close to 2019, and we feel good about the start of 2020.

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Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [10]

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And then on persistency, you talked about a nice improvement in the fourth quarter. Does that portend improved persistency in 2019? I'm not sure whether you measure that on some sort of rolling basis. And also any explanation you've got? I know it was more of a return to normalcy, but are you seeing anything in the underlying data that gives you some detail about why that is improving?

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Alison Sue Rand, Primerica, Inc. - Executive VP & CFO [11]

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Sure. So we do actually -- if you go back and look -- if we go back and look historically, we actually see that our persistency is very much now in line with historical trends. Similar to how we talk about things like productivity. I mean, this business is very predictable in a range. We're in that range. So I don't really see a reason why I should expect there to be a dramatic increase from where we are today. There'll obviously be volatility, specifically by duration. But we are very now comfortably in our historical range. And in fact, even at -- when you look at very early duration persistency, very strongly in that range. So meaning on the low end of the range.

So I don't necessarily think there will be any further dramatic shift. Really, our goal had always been to get ourselves back to this particular level. Obviously, we always do things in our business to try to continue to improve. We have the law of large numbers, which kind of says we always get back to a range. But let me highlight a couple of things we have been doing over the last few years, really specifically taking advantage of tools that are available in the marketplace. And I know it sounds a little silly, but it sometimes has to just do with simply making it very convenient for someone to be able to, say, link a bank account or make sure we didn't get any kind of error in banking information as we are filling out the application.

Anything we can do to help ensure that we have great information upfront and on an ongoing basis, will really help our persistency. And we have put in place several tools over the last, I'd say, a year or 2 that have really helped ease this administration and improve the accuracy of our billing and collecting process. And I do think that accelerated some of the progress with persistency. But again, ultimately, we have just gotten back to what we would call our historical norms.

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Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [12]

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And then a final question. Any update, there was some discussion of Medicare Advantage as a potential initiative last quarter. Any updated thoughts there?

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Glenn Jackson Williams, Primerica, Inc. - CEO & Director [13]

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We continue to monitor that space just to try to size up the opportunity. It's on our radar. We don't have any immediate plans to launch anything. We're still looking at the various models of that business that could complement what we do rather than compete with what we do. We're very careful. We're looking for additional growth, additional profitability, additional compensation for our sales force, not to simply cannibalize what we do today. And so we're studying that very carefully as we look into the future, but we're still optimistic that out there somewhere, there's an opportunity.

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Operator [14]

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And next, we have Dan Bergman of Citi.

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Daniel Basch Bergman, Citigroup Inc, Research Division - VP [15]

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I guess to start, if I have it down right, it sounded like Term Life margin guidance in the mid-19% range. It was a little better than your prior guidance for just above 19% that you talked about last quarter. I just wanted to see if there's any more color on what drove the improvement? And whether any change is more reflective of reallocation of expenses across segments that I believe you mentioned in the prepared remarks? Or more different view of core profitability?

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Alison Sue Rand, Primerica, Inc. - Executive VP & CFO [16]

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It doesn't sound like Dan. So I don't know if it is -- is this Dan? .

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Daniel Basch Bergman, Citigroup Inc, Research Division - VP [17]

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Yes.

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Alison Sue Rand, Primerica, Inc. - Executive VP & CFO [18]

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Okay. I'm sorry, you sounded different. Sorry, Dan. Maybe it's my hearing. I didn't know if somebody else was using your line. Anyway, I wouldn't really say when -- that there's been any change. Truth be told, we have now actually finalized our budget for 2020. So I would say I have a little bit more clarity than I would have had back in November on our call.

But what I said back then and what I said now really is very consistent. Some of it did have to do with where expenses were going to fall out from an allocation perspective, which I did share with you in my prepared remarks. So overall -- and quite frankly, we did see, in the fourth quarter, that persistency pickup, which just gave us sort of a little bit more comfort in feeling like 2020 was going to be where we had hoped it would be, which is, quite frankly, in the historical range. So I don't think there's been any change in sentiment, just slightly more precision because I now have a budget to look at.

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Daniel Basch Bergman, Citigroup Inc, Research Division - VP [19]

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Got it. That's great. And then maybe just in Investment and Savings Products, the variable annuities have continued to be a source of sales strength. And given we've seen a number of annuity writers report somewhat lower sales recently after some changes to product pricing and features, given the low rate environment, I just wanted to see if there been -- there have been or are there any plans for pricing changes by your VA or index annuity providers? Or just any general thoughts on how you'd expect sales of those products to trend going forward?

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Glenn Jackson Williams, Primerica, Inc. - CEO & Director [20]

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Yes. They've continued to be strong for a significant period of time, which is a little unusual with any product sales to be that strong for that long. But it appears to be driven, as I said in my remarks, as we stay close to our clients, by the concern with the length of the bull market, are there disruptions out there, either in the market itself or in the political environment? And so it has people placing a pretty high value on the benefits and the stability that come with VA.

I'm not aware of any discussion with our product providers on pricing changes at this point. So I think the answer to that is, I have not heard of any of that coming from our providers. So we are anticipating continued strength in that business. The numbers -- the percentages get harder and harder as the business gets bigger and bigger, obviously.

So there should be some normalization, you would think, just in the math of that. But we do expect demand to continue, barring some unusual disruption in the marketplace. And some of that disruption actually could have been in favor -- could be in favor of VAs if it gets disruptive.

But our mix shifts with the sentiment of clients and the performance of the market, and this has been an extended period of strength for VAs. Looks like it's got some momentum left, but it's a little hard to read what might happen out there. But we're not aware of any fundamental changes in that dynamic.

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Operator [21]

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And next, we have Andrew Kligerman of Crédit Suisse.

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Andrew Scott Kligerman, Crédit Suisse AG, Research Division - MD & Senior Life Insurance Analyst [22]

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And I'm definitely Andrew Kligerman. So -- just if you were checking, Alison.

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Alison Sue Rand, Primerica, Inc. - Executive VP & CFO [23]

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I recognize that voice.

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Andrew Scott Kligerman, Crédit Suisse AG, Research Division - MD & Senior Life Insurance Analyst [24]

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Anyway, I look at your sales force, and I appreciate the point, Glenn, that historic levels were mid-single digit. In fact, 10 years ago, nobody thought you were going to -- or a lot of people didn't think you were going to increase from 100,000 reps. And yet, I look as recently as '18, you grew 3% to -- 2017, 8%. And then this year, you're flat. And I look at your commentary adding Term Life wholesalers, higher intensity, new technology for the sales force. I just -- it's a big number, 130,000 sales reps. What -- can you put your finger on something that gives you that confidence that's going to get that mid-single-digit growth that you're highlighting? Have we stalled now finally? Or do you -- what gives you that confidence?

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Glenn Jackson Williams, Primerica, Inc. - CEO & Director [25]

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So let me share with you exactly what I shared with our sales force at those meetings. I mentioned, in January, we put on a lot of frequent fire miles in January, addressing the same issue because that's a very common question. As you said, we've had it before. And I want to make sure that everyone understands, while we recognize that things tend to move back to the long-term trends, as Alison was describing with persistency. We don't just sit and wait for the trend to normalize, whether it's that persistency discussion Alison was having, the growth of our sales force, our productivity. We are looking for ways to move back into trend. And as we've done a few times and some of those numbers bumped off the top of the corridor.

And so I think that leads directly to your question, Andrew, is how do you affect that? How do you impact that? So during those field meetings, we talked about not just the vision for 2020, but how we see the next decade. And we really got great response from that because there's something -- there's only so much you can accomplish in a year. But when you start thinking in a 10-year block, people can start to visualize what can be accomplished over a long period of time. And so the logic trail I took them down first is just when you -- first of all, you start with a huge need that exists in the marketplace today.

I mean, can we grow beyond where we are just looking at what's out there right now at this moment? And as I've said many times before, there's a $25 trillion protection gap, about half of that is -- we believe is in the middle market of $12 trillion-plus. We turned 43 years old day before yesterday as a company. We don't even have a $1 trillion in-force yet. There is a ton of need out there that's unmet. So it's not like there's a market saturation dynamic. Then when you start to look beyond where we are at that starting point to the next decade, I mean, it's easy to see population estimates is 25 million increase in population in the U.S. and Canada over the next decade is the best number I found. But when you look underneath that and recognize that the fastest growth within that population growth is going to be in diverse markets and in younger markets. The tail end of the millennials and Gen Z, the tidal wave that's coming. Those happen to be particular areas of strength for Primerica.

We are a very diverse organization. Our customer base is extraordinarily diverse. Our sales force is extraordinarily diverse and extraordinarily young compared to our competitors. So as the market grows, we believe that we happen to be positioned in sweet spots in the market. And so those are external dynamics that we believe are in our favor. And so what are we going to do with that? And so what -- the first thing we're going to do is we're going to make building a Primerica business more attractive. We're going to improve our support for entrepreneurs. We're going to expand our product set. We just mentioned, we're looking at the senior health business. We've kind of moved our mortgage thinking. We learned a lot about the mortgage business last year in our pilot phase. Now we're categorizing our mortgage business as moving into the start-up phase.

So we've got better support, better product set, increasing financial opportunity that makes us more attractive to recruit more people. And then when those people say, I want to build a Primerica business, we're working very hard on improving the licensing pull-through, and that all of the things that we can do with the sales process to increase productivity. So I think there's the theoretical there's the external and then there's the practical side of that. And Andrew, I think we're working in significant ways on all of that. And I don't see any limitation other than the fact that nobody has ever done it before. I think it's simply just a mental block that we all have that my gosh, nobody is that big now. How big can it get? And we believe we'll break the 4-minute mile. I mean, we'll just do it, and then that will expand the vision, and there's room for us to continue to grow.

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Andrew Scott Kligerman, Crédit Suisse AG, Research Division - MD & Senior Life Insurance Analyst [26]

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That's very, very helpful. And then kind of on that topic, I'm curious as to how many sales reps were licensed to sell mutual funds at year-end 2019? And has Primerica seen an uptick in the number of Term Life reps willing to sell ISP products following the launch of the EZ-KEY sales tool?

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Glenn Jackson Williams, Primerica, Inc. - CEO & Director [27]

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The answer there is, yes. We'll get you an exact number because we usually do give a full year number on that front. And that is -- that sales force is growing and did grow in 2019. And we are seeing continued interest. I mean, we expressed on this call, the success of that side of our business. That's the #1 attraction to somebody wanting to get another license is that they see other succeeding in that business. And of course, we're having record-setting success in that area. And so EZ-KEY has been an important part of that story because -- so our year-end number was about 25,700 and change. So...

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Andrew Scott Kligerman, Crédit Suisse AG, Research Division - MD & Senior Life Insurance Analyst [28]

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And that was up how much?

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Glenn Jackson Williams, Primerica, Inc. - CEO & Director [29]

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That was up about 2%, I believe.

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Alison Sue Rand, Primerica, Inc. - Executive VP & CFO [30]

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Yes.

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Glenn Jackson Williams, Primerica, Inc. - CEO & Director [31]

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Yes, 2% for the year. And we are seeing -- we have a continuous pipeline. Now we've said before on this call, the recent licensing changes for the mutual fund license, mutual fund registration, those were a little intimidating. And it did cause a bit of a pause as people said, what is this new process where the exam has been broken into 2 pieces? How is that going to impact us? And so we had a little bit of a slowdown as people adapted to that number. And by the way, that's a North America wide number I gave you, which includes Canada. And so -- but as we have experienced that, we've actually found out our past ratios are actually higher than they were under the old process. So it's interesting, human nature being what it is, the unknown cause people to slow down and wait and let's check this out. But then we -- once we got people to start trying it, they actually perform better. So that encourages us that as we go forward, we can build momentum in that licensing, we continue to have success in that area. That's a huge attraction and then the technology like EZ-KEY that makes getting into that business less intimidating and simpler is a huge advantage.

So once again, working on a number of fronts to continue to grow that. And it's primarily been growth in productivity that has driven the numbers. But underlying that, for the long term, we recognize we need a larger sales force there as well, and we're working towards that.

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Operator [32]

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And next, we have Jeff Schmitt of William Blair.

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Jeffrey Paul Schmitt, William Blair & Company L.L.C., Research Division - Associate [33]

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Looking at the net product commissions on product sales, 1.35%, higher than it's been in, it looks like, 5 years or more. What's driving that? I mean, is that just a shift to -- you're selling more annuities? Or is there something else going on there?

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Alison Sue Rand, Primerica, Inc. - Executive VP & CFO [34]

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Yes. There is actually -- it's definitely because of annuities. There's actually also within annuities, a little bit of product shift. We launched some products last year that have a slightly different profile on the net revenue ratio. So that was also a piece of it. So the short answer is, it was all a function of variable annuities. But it was a combination of overall mix shift towards variable annuities as well as some new products in variable annuities that give us slightly higher net revenue ratios.

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Jeffrey Paul Schmitt, William Blair & Company L.L.C., Research Division - Associate [35]

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Okay. Yes, I was going to say, because the net commission stayed flat last year, but growth was really good in annuity. So yet, within annuities, there's some changes there, I guess?

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Alison Sue Rand, Primerica, Inc. - Executive VP & CFO [36]

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Yes. We did launch a few new products that have slightly different earnings profiles for us, and that's what you're seeing. And they were launched at -- I think they -- I think it were late 2018. Could be wrong on that, but they were launched relatively recently.

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Jeffrey Paul Schmitt, William Blair & Company L.L.C., Research Division - Associate [37]

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Okay. And then in terms of agents that can sell those products, the annuities products, and specifically, not just the bigger mutual fund number. Growth was -- has been kind of a little bit lower there than for those that can sell mutual fund. Did you see that tick up? Or is this a productivity increase you're seeing from ones that are -- that can sell annuities?

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Glenn Jackson Williams, Primerica, Inc. - CEO & Director [38]

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Yes. The annuity business is a little different, even within our business. It's one of the more sophisticated parts of our business, kind of at the upper end, larger tickets, more -- looks probably more like traditional broker-dealers in a lot of ways than our overall kind of middle-market business. And so what you have is, you have people go and get the certification to sell annuities. It varies but some states have an additional connection, registration with the insurance companies. There's 2 or 3 different ways of adding that capability. But we see people do it that are in larger markets and more sophisticated markets with larger tickets. And then we also see people that do it just in case, just in case they run across. They're generally in the more smaller ticket market, but they like to have that. And so there's really 2 things that drive why people go in and get into that business. We've seen a pretty constant flow in that. We haven't seen anything unusual. So it does continue to increase at about the normal rate. So the majority of what you're seeing is a productivity gain. It's being driven more by increasing productivity because the rate of the sales force growth is similar to our mutual fund sales force, and the numbers are bigger than that. So obviously, that means it's productivity gain driving the most of that increase.

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Alison Sue Rand, Primerica, Inc. - Executive VP & CFO [39]

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Jeff, just to go back, I checked my notes. The product that I was referring to, we actually launched in the third quarter of 2019. So just to clarify that.

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Operator [40]

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And next, we have a follow-up from Mark Hughes of SunTrust.

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Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [41]

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Alison, in your kind of notional longer-term forecast, you had the 3% annual growth in premiums. But I think you also mentioned growth from riders would influence that. Was the 3% -- and then to the new policy count growth and then the riders would be on top of that?

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Alison Sue Rand, Primerica, Inc. - Executive VP & CFO [42]

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That is correct. So the way I described it was that we expected to have -- we used in the scenario, hypothetical 3%, obviously, in line with the comments Glenn had earlier on the call. And that was a driving component. And the other component would be the growing block of riders and the other additions. So 3% really had to do with new sales.

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Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [43]

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And you've had very good sustained growth in those riders. Is there any reason to think that should slow down relative to what's going on in terms of new business?

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Alison Sue Rand, Primerica, Inc. - Executive VP & CFO [44]

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No. We don't believe that to be the case as well. I -- just from a forecasting perspective, we did assume or we do assume that the growth will be consistent with what we've seen over the last several years. So if you look back in our financial supplement, it's ranged anywhere from 8% year-over-year to 11% year-over-year. And it's somewhere between 20% to 25% of estimated annualized issued premium. Now just to remind you, that is not actually a GAAP revenue number. It is an estimate of an annualized number. But I think it gives you a good reference point as to what our assumptions are for that block.

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Operator [45]

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As there are no further questions, we will conclude today's Q&A session and also today's conference call. We thank you all for attending today's presentation. At this time, you may disconnect. Thank you, again, everyone. Take care, and have a wonderful day.