Q2 2023 Primerica Inc Earnings Call
Participants
Alison Sue Rand; Executive VP & CFO; Primerica, Inc.
Glenn Jackson Williams; CEO & Director; Primerica, Inc.
Nicole Russell; SVP of IR; Primerica, Inc.
Jeffrey Paul Schmitt; Research Analyst; William Blair & Company L.L.C., Research Division
Mark Douglas Hughes; MD; Truist Securities, Inc., Research Division
Ryan Joel Krueger; MD of Equity Research; Keefe, Bruyette, & Woods, Inc., Research Division
Suneet Laxman L. Kamath; Equity Analyst; Jefferies LLC, Research Division
Wilma Carter Jackson Burdis; Research Analyst; Raymond James & Associates, Inc., Research Division
Presentation
Operator
Greetings. Welcome to Primerica's Second Quarter 2023 Earnings Webcast.
(Operator Instructions)
Please note that this conference is being recorded. At this time, I'll turn the conference over to Nicole Russell, Senior Vice President of Investor Relations.
Ms. Russell, you may now begin.
Nicole Russell
Thanks, Rob, and good morning, everyone. Welcome to Primerica's Second Quarter Earnings Call.
A copy of our earnings press release, along with materials that are relevant to today's call, are posted on the Investor Relations section of our website. Joining our call today are our Chief Executive Officer, Mr. Glenn Williams, our Chief Financial Officer, Ms. Alison Rand. Glenn and Alison will prepare -- will deliver prepared remarks, and then we will open the call up 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 assumes no obligation to update these statements to reflect new information. We refer you to our most recent Form 10-K filing as may be modified by subsequent Forms 10-Q for a list of risks and uncertainties that could cause actual results to materially differ from those expressed or implied.
We will also reference certain non-GAAP measures which we believe provide additional insight into the company's operations. Reconciliations of these non-GAAP measures to their respective GAAP numbers are included at the end of their earnings press release and available on our Investor Relations website.
I would now like to turn the call over to Glenn.
Glenn Jackson Williams
Thanks, Nicole, and thanks, everyone, for joining us today. Our strong second quarter results highlight the value of Primerica's complementary lines of business, and the continued efforts of our team to grow our distribution capabilities. Growth in our sales force and the appeal of our life insurance products are creating sales momentum despite the continuing financial pressure on middle income households.
Adjusted operating revenues of $690 million rose 3% year-over-year, while adjusted net operating income of $145 million increased 11% and diluted adjusted operating earnings per share of $3.99 increased 18% compared to the prior year period. These results reflect the predictable growth in our Term Life business and the benefit of higher interest rates on our investment portfolio, both of which more than offset the continued pressure of lower sales commissions in our Investment and Savings Products business.
In addition, the absence of a negative tail revenue adjustment in the Senior Health segment this quarter was an improvement versus the $5.4 million negative tail adjustment recorded in last year's second quarter. Our life licensed sales force growth continues to be driven by 2 key dynamics: the attractiveness of additional income from our entrepreneurial business opportunity during uncertain economic times; and our focus on an improvement in our life licensing process.
During the quarter, we recruited over 86,000 individuals, a 23% increase compared to the second quarter of 2022. We also continue to see our hard work over the last few years in creating a clear path through the entire licensing process payoff with over 12,600 new reps license during the quarter, a 10% improvement over the prior year period. We ended the quarter with nearly 138,000 life licensed reps and remain confident that our momentum will lead to a 3% or 4% increase in the size of our sales force for the full year 2023.
Turning next to our sales results, starting with the Term Life business. The appeal of our new insurance products continues to drive solid year-over-year growth. During the quarter, we issued nearly 97,000 new Term Life policies, up 9% compared to the prior year period on a comparable 1 life per policy basis. Productivity was at the upper end of the adjusted historical range at 0.24 policies per-life license rep per month.
We issued more than $32 billion of new Term Life face amount in the quarter, a 16% increase over the prior year period. As a reminder, new face amount issued captures both the face amount of newly issued policies and any additions to in-force policies. This provides a more complete picture of the total protection we provide for our clients. Higher cost of living, of course, remains a real headwind for middle-income families. We believe this is a key driver of second quarter lapse experience, which in the aggregate is 5% to 10% higher across all durations versus pre-pandemic levels.
To provide some context, at the height of the financial crisis in 2009, lapses were 15% higher than precrisis levels. Given the magnitude of that crisis, it took about 2 years for lapse rates to normalize. It's impossible to know whether we've reached the height of this cycle or how long it will take for lapses to normalize However, we believe the appeal of our new life insurance products and the continued growth in the size of our sales force can partly overcome current inflationary pressures which in turn give us confidence that we can go full year policies issued by 4% to 6% in 2023.
Turning to the ISP segment. Total sales of $2.4 billion during the quarter declined 11% compared to the prior year quarter still elevated activity, although current sales levels remain higher than pre-pandemic levels. Our clients remain focused on their long-term goals despite the economic uncertainty dominating headlines and they continue to invest systematically each month. However, new sales are still under pressure. We believe the compounding impact of high inflation over the last few years has slow middle-income families ability to invest for the future. It is also possible that clients find the current high rates in money market or other high-yield savings options to be an attractive alternative to equity markets.
Even though headwinds persisted, we recorded $542 million of net new client inflows during the quarter. Ending client asset values have largely recovered and reached $91.6 billion at the end of the quarter. This represents a 6% difference compared to their all-time quarterly high of $97.3 billion set on December 31, 2021. Given the continued uncertainty, it's difficult to predict sales levels beyond the next few months. Based on July trends, we believe year-over-year sales will be down around 5% in the third quarter.
Looking next at Senior Health. Churn rates have stabilized in the Senior Health distribution industry, which allows us to estimate lifetime values more accurately. We've also made good progress in reducing the cost of acquisition by focusing on agent productivity and careful lead utilization. We believe these steps have positioned us well for the October opening of the annual enrollment period. We've adjusted our agent compensation model to incentivize and drive desired behavior, and we've made meaningful improvements to technology that allow for a more efficient and improved enrollment process. We believe this business is generally headed in the right direction and continue to evaluate opportunities in the context of an evolving industry.
We do not anticipate the need to provide capital to this subsidiary in 2023 and we continue to evaluate future growth opportunities. Primerica's balance sheet remains very strong with cash at the holding company of approximately $340 million at quarter end. We remain committed to returning capital to stockholders as evidenced by our repurchasing of an additional $111 million of our common stock and paying $24 million in regular dividends during the second quarter.
In summary, I'm pleased with our progress and the momentum building across our businesses. I'm proud that we can continue to serve our clients by providing them with the education and the motivation necessary to put their financial plans into action.
Now I'll turn it over to Alison.
Alison Sue Rand
Thank you, and good morning, everyone. Now that you've heard from Glenn on distribution trends, let me expand on our second quarter financial results.
Before doing so, I'd like to briefly discuss the immaterial errors in prior period results associated with the adoption of LDTI that we identified this quarter. The errors were related to double counting certain reinsurance premiums and excluding a small portion of capitalized costs from the historical cash flows used in our valuation model. In aggregate, these adjustments were due to the full year 2022 benefit and claims ratio by approximately 70 basis points to 57.9% and increased the 2022 DAC amortization ratio by 10 basis points to 11.8%. The adjustment added approximately $3.5 million to pretax income each quarter or roughly $0.07 to diluted adjusted operating earnings per share.
While these changes were immaterial to the quarter's results, it was necessary to revise results back to the January 1, 2021 LDTI adoption date to properly reflect the cumulative effect on the balance sheet. Financial inflammation prior to the second quarter of 2023 has been revised as reflected in the fourth quarter of 2022 revised restated financial supplement and the second quarter 2023 financial supplement, both of which are available on our Investor Relations website.
All year-over-year comparisons that follow are in relation to 2022 revised results.
Now let's turn to our second quarter results, starting with the Term Life segment where pretax operating income grew 9% year-over-year. Adjusted direct premiums grew 6% year-over-year, in line with our prior guidance. While lapse rates remain elevated across many durations, the heightened demand for our new Term Life insurance products has helped mitigate the associated loss of premium revenues. With solid projected sales growth during the second half of 2023, we remain confident that ADP growth will stay around 6% for the remainder of the year. Total operating revenue growth of 3% was lower than ADP growth, reflecting the continued rise in other ceded premiums. As a reminder, these are YRT based ceded premiums that have a growth pattern that match expected claims rather than being level like direct premiums are. While GAAP requires us to treat other ceded premiums as a contra revenue. For performance analysis, we include the line item as a component of our benefits and claims ratio.
The second quarter benefits and claims ratio was 57.6% versus 57.7% in the prior year period. Both periods have lower-than-expected incurred claims, but at this point, we view this as normal volatility rather than an ongoing shift in claims experience. Given our close proximity to the LDTI adoption date, experienced (inaudible) are largely spread to future periods. We expect the full year 2023 benefits and claims ratio to be approximately 58%. The DAC ratio was 11.8% versus 11.7% in the prior year period, demonstrating the expected consistency in this ratio under LDTI.
We expect the DAC ratio to stay around this level for the remainder of the year. LDTI requires us to review our assumptions at least annually, and we plan to do so during the third quarter. While experience for our business has historically been very steady, the pandemic and current economic environment have created some volatility. In our view, this volatility is largely short term and not indicative of permanent shifts in our business that would require changes to our long-term assumptions. One small assumption change we do expect to make is for general mortality improvement.
As is typical in the industry, our assumptions provide for a modest level of future mortality improvement based on population trends. The assumption is fine for a set number of years regardless of policy issue date. We expect a favorable impact in the third quarter of $1 million to $3 million from moving our mortality assumptions forward by a calendar year.
To wrap up Term Life, the second quarter insurance expense ratio of 7.5% compared to 8% in the prior year period. The first half of 2022 included a temporary step-up in expenses due to the timing of the 2022 Biennial Convention convention and costs for a total of 3 senior leadership events in 2022 as opposed to our usual pattern of 2 events per year.
Consolidated operating expenses will be addressed later in my remarks. Turning to the Investment and Savings Products segment. Second quarter operating revenues of $215 million to pretax operating income of $60 million declined by 4% and 5%, respectively, as the recovery of client asset values helped offset earnings pressure from lower investment sales. Sales-based revenues decreased 15%, while revenue-generating sales fell 12%. Revenues declined at a higher rate than sales due to the discontinuation of front load products in Canada in June of last year. Sales-based commission expenses declined in correlation with related revenue. Asset-based revenues increased 5%, while average client asset values rose 1%, reflecting the favorable revenue dynamics of a higher mix of assets in managed accounts, and mutual funds sold under the principal distributor model in Canada.
Asset-based commission expenses increased in line with the related revenues as excluding revenues on Canadian segregated funds since the related expenses are reflected in insurance commissions and amortization of DAC.
Looking next at the results in our Senior Health segment. LTV per approved policy at $880 during the quarter improved on a year-over-year basis largely due to annual carrier commission rate increases. Churn level has stabilized in recent quarters, and we did not need to record a tail revenue adjustment this period. In contrast, a $5.4 million negative tail revenue adjustment was recognized in the prior year period. As per approved policy declined 10% year-over-year as we continue to become more proficient in managing lead utilization. Keep in mind that second quarter activity is lower than the fourth and first quarter as fewer seniors are eligible to enroll in Medicare.
Lead conversion rates typically decline during the second quarter, which in turn increases labor and lead cost per sale. As a result, the LTV-to-CAC ratio was 0.9x for the quarter. As Glenn noted earlier, we continue to operate prudently to ensure we are managing growth responsibly. We've recognized a pretax operating loss of around $10 million through June 30. We expect the full year loss to be at or slightly below this level with a loss in 3Q consistent with that recognized in 2Q and a modest profit in the fourth quarter during AEP. We do not expect that the senior health business will require additional capital to fund operations in 2023.
The Corporate and Other Distributed Products segment recorded an adjusted loss of $3.6 million during the quarter compared to a loss of $9.1 million during the prior year period. The improvement was driven by an $11 million increase in net investment income, partially offset by higher operating expenses. We also recognized a $2 million reinsurance recoverable write-off on a block of discontinued products in our New York subsidiary from the expected liquidation of a reinsurer. Our average rate on new investment purchases was 5.46% for the quarter with an average rating of AA-. Their portfolio's duration remained relatively short at 4.7 years.
While the recent rate environment has provided for higher earnings on cash and short-term investments, we continue to look opportunistically for high-quality, longer-term investments where we feel we are being paid for the risk. If the rate environment stays consistent, we expect NII to be around $34 million per quarter for the remainder of 2023. As we noted last quarter, we have limited exposure to commercial real estate, especially office exposure, and the exposure we do have is an investment grade on average. Our invested asset portfolio and ended the period at an unrealized loss of $288 million, which is largely due to the steep rise in interest rates since the beginning of last year.
We regularly evaluate the portfolio for possible credit impairments and do not believe the large unrealized loss is due to significant credit concerns with our holdings. We continue to have the intent and ability to hold these investments until maturity.
Finally, consolidated insurance and other operating expenses of $142 million during the quarter increased around 3% year-over-year. The primary drivers were higher technology spend, including rising software costs and continued investments in technology, higher employee-related costs, driven by market wage adjustments and fewer open positions, higher legal costs and as well as normal growth in our business. The year-over-year comparison benefited from $5 million higher cost in the prior year period associated with the additional field leadership events held in 2022.
The second quarter is the last quarter we will see the year-over-year benefit from the timing of the leadership event. Looking ahead, we expect third quarter insurance and other operating expenses to increase around $12 million or 9% year-over-year. The drivers of the increase are generally consistent with those seen in the second quarter, but about half of the increase coming from higher compensation costs, another $4 million from technology and $2 million from normal growth in the business. On a full year basis, we expect insurance and other operating expense growth of around 5%.
With that, I will turn the call over to the operator for questions.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from the line of Wilma Burdis with Raymond James.
Wilma Carter Jackson Burdis
I guess first question just on Senior Health. Should we expect the 3Q results to be similar to 2Q given some feasible unfavorable -- unfavorability for the business?
Glenn Jackson Williams
Yes. Well, generally, the second and third quarters are very similar in their reaction. As you know, the fourth quarter is the largest production quarter with AEP and then the following first quarter with OEP is where the second level of business is done. But second and third quarters generally look very similar. Third quarter could be even a little less activity than the second quarter, but generally, they're pretty close.
Wilma Carter Jackson Burdis
Okay. And then a quick follow-up on that one. It sounds like you're committed to no capital contributions for 2023, but should we think of -- how should we think for 2024.
Alison Sue Rand
Wilma, I would say at this point, we do not expect to have any significant capital contributions in 2024. As we've done throughout this year, and we'll continue to do next year, we're going to build this business very prudently. The only way we would ever really need some capital to be infused is if we try to have very dramatic growth and that would then be a short-term infusion of capital. But our plans right now are to continue with a relatively controlled growth based on what we are finding throughout this AEP and next OEP and to see where 2024 should grow from there. So again, there may be some, but if anything, it would be very small.
Wilma Carter Jackson Burdis
And then one more. Could you just talk about the Term Life sales appear to be better than expected while the ISP sales were a bit worse than expected, but it seems like there's a lot of cost of living pressures as you discussed. So maybe just talk about why it's impacting the segment a little bit differently.
Glenn Jackson Williams
Yes. Wilma, that's not that unusual to have the 2 businesses go in different directions temporarily. That's the reason we enjoy the complementary nature of the 2 is often one is strong when the other is a little weak. And that's what we're seeing right now. The strength in the life business is driven by our growing sales force. We have stronger distribution. And also, I believe there's a continued positive impact of the improvements we made to our product set almost a year ago now. And so that is really overcoming the headwinds we believe, of the higher cost of living and middle-income households, which we definitely feel that's a headwind. It's just that we've got a stronger tailwind from those 2 positives on the life side.
The investment side, we believe, is being hampered by the continued uncertainty and negativity that people are hearing about the marketplace, even though returns are certainly improving in the market, there's still so many questions about what does the future hold, which are interest rates, have they gotten as high as they're going to get, has inflation slowed down. It certainly hasn't turned the opposite direction. And so prices are still increasing just at the slower rate and there are alternatives because of the higher interest rates. So all that's working together, I think, to impede the growth in our ISP business more so than you see in the life business. But as we stated, we were coming off of record levels in 2022, particularly the first quarter of last year and during 2021. And where we've landed right now is we're getting pretty close to the same quarterly numbers for sales as last year within a few percentage points is still significantly higher than where we were there pre-pandemic. So we had that spike during 2021, the first part of 2022 and things have come back down due to all those headwinds we described, but we're at a pretty strong position where we've landed, and we do see that the comparisons are growing more favorable.
As we noted in the prepared comments, down just probably a few percentage points in the next quarter. And so things are starting to stabilize. And if we can get some confidence in some of the conversations around the future, we believe we're in a good position for the future of our ISP business.
Operator
Our next question is from the line of Ryan Krueger with KBW.
Ryan Joel Krueger
I had, I guess, a somewhat similar but slightly different question. Why do you think the in Term Life specifically that year that the inflationary pressures are impacting lapses, but not sales? Is it just more of a function of the new product and the excitement around that?
Glenn Jackson Williams
Yes. Again, I think it's the same thing. I mean sales generally follows sales force growth fundamentally. And then the new product and the excitement around it, our ability to meet the needs of families more easily, more quickly and with more clarity, I think, has got our sales force energized and excited about talking to more new clients. But we do see every month as clients struggle with the higher cost of living, they're making those priority decisions about what bills get paid and what bills maybe are delayed to a later time.
And that does tend to impact persistency of sales that were made previously, whether it was earlier this year or in past years. And so it is normal for those 2 dynamics to travel more together, but we just got positives on the front end of the business that I think are a little stronger and are pushing sales. While the families are struggling with all of their payments for all of their bills in a lot of situations, and that's having the negative impact on persistency.
Ryan Joel Krueger
Okay. And then on the assumption review. Is -- Alison, as you -- just from your earlier comments, is your view that the higher lapses because they are likely a short-term phenomenon? Would it need to be factored into the longer-term assumptions?
Alison Sue Rand
Yes, that is correct. We are -- Our plan at this point is to treat any fluctuations that we're seeing in lapses as experience variances, not assumption changes.
Operator
Our next questions come from the line of Jeff Schmitt with William Blair.
Jeffrey Paul Schmitt
Question on the lap rates. I think that you had mentioned this in your prepared remarks, but have they fully normalized from the pandemic and now they're sort of weaker than historical levels? Or are they still moving back to historical levels?
Alison Sue Rand
Yes. So they have definitely normalized from what we saw through COVID and that actually happened last year. So that wasn't a 2023 event. Again, this is a little bit of an art here. We're going back and trying to determine what pre-pandemic was. So historical norms pre-pandemic, the pandemic was a significant event. It did create new patterns. And we don't know how much if any of that will continue on a long-term basis. So just so you know the way we come up with our version of what we're on pre-pandemic because we're looking at 2019 activity. So when all is said and done, we are looking at things in relation to where we were just prior to the pandemic. And from that perspective, in aggregate, we're looking at about 5% to 7% higher.
Is that perfect? Is 2019 an exact picture of historical trends? No, but we think it's a good proxy for where we were heading into the pandemic. So again, 5% to 7% above right before the pandemic, I do believe it's mostly driven by economic, the economic environment. simply because we're seeing it not just in sort of early duration persistency where maybe you would say somebody wasn't committed to the product. We're seeing it across many durations. And when you start to see people giving up a policy after several years of paying premiums on the term policy, you suspect it's largely because of economic factors.
Jeffrey Paul Schmitt
Got it. And then how many agents are licensed to sell investment products now? I think historically, it was around 24,000, but just given how strong sales have been and sort of continue to be interested in getting those licenses increase? Or how is that -- how is the number trending?
Glenn Jackson Williams
Yes. We're a total U.S. and Canada, just a little over 25,000 at this point. And that's been fairly stagnant. It doesn't move quickly. It has a different set of dynamics that drive is much like the difference in our 2 business lines, 2 major business lines that we discussed earlier. And you're right, when sales are strong and growing, there's more interest in getting license when people see success in a business line they're not in, they tend to get interested in getting in that line of business. So we have seen some slowing of that licensing momentum as sales have come down off the record peaks. And we anticipate as we level out and start the next phase of growth we'll see increased interest. And we always recognize that by growing the size of our life sales force we're increasing the number of those that are eligible and likely to get licensed. So that's a good indicator of what could happen in the future. So the growing life sales force is a positive for our investment business in the years to follow. We think when the attitudes turn around, we'll see some energy in that line of business, we'll see licensing increase at that point.
Operator
Our next question comes from the line of Suneet Kamath with Jefferies.
Suneet Laxman L. Kamath
Just to go back to the lapse rate, one more time in term. Can you give us any color in terms of how the lapse is sort of developed as we moved through the second quarter? I guess what I'm trying to figure out is, is the trend sort of that the lapses remain high? Or are they getting higher or lower? Just some directional help would be helpful.
Alison Sue Rand
Yes. And again, all of this put the caveat on what I said earlier that it's all done in relation to what we were seeing in 2019 and there is seasonality in our lapse rates. We've always seen it. The second quarter is historically a very strong quarter for persistency. But with all that said, it looked like it was about in the 3% to 5% range in the first quarter, and it's in the 5% to 7% range in the second quarter. What I don't know is that actually a progression that something deteriorating or if some of that is simply because of the seasonality in the business. But I'd say, again, given the fact that this is sort of a rough comparison just to 2019 and nothing exact, if you will. I think going from maybe the 3% to 5% to 5% to 7% is saying it's largely in the same zone, maybe a slight bit of deterioration.
Suneet Laxman L. Kamath
Got it. Okay. That's helpful. And then I guess pivoting to senior health. You've talked a lot about wanting to get comfortable with the profitability of the business before you sort of accelerate growth just from a timing perspective, I guess, how long do you think it will take for you guys to get your arms around this business? Is it a couple of quarters? Or are we going to need to see results sort of through 2024 before you have a real good handle on kind of what's going on under the hood.
Glenn Jackson Williams
Yes. That's a great question, Suneet. As we look at it, we obviously are impatient to be able to make conclusions and decisions, but we've balanced that with some patience as well because we recognize in this business, the real quarters that we -- as we talked about earlier, that you can evaluate your success and your progress on or primarily the fourth quarter and the first quarter. So while we are working hard during quarters 2 and 3 to improve the business, you often don't see the results of your improvement and then can assess it until after you experience the fourth quarter and the following first quarter and then you have time to assess that business.
Obviously, sales are real time, but the quality of that business and the persistency of it takes some time. So we're definitely going to be beyond this next AEP and OEP for us to be able to evaluate where we are and whether we think it's time to accelerate. So we think by the time we get beyond the next 2 periods, Q4 of this year and Q1 of next year, we'll have much more information about the results of the efforts we've made and we'll be able to make some more decisions at that point.
We're taking it a step at a time. We're moving very deliberately. We don't want to get too far out over our skis until we really think we've got our arms wrapped around the business. So it's better to be a little too conservative than it is too aggressive in our opinion.
Operator
Our next question is from the line of Mark Hughes with Truist Securities.
Mark Douglas Hughes
Alison, in the Term Life business, the ceded premium ratio, I think you touched on this earlier, and you probably explained this in the past, but I'll ask again. The ratio has been moving up 100, 150 bps year-over-year for the last several quarters. Does that continue? Is that a function of the interaction between the benefit ratio and the adjusted direct premiums. Should that stabilize? I'm just sort of thinking how to model that on a go-forward basis. Should it continue to inch up? Or does it stabilize at some point here?
Alison Sue Rand
Yes. And again, like I said in my comments, according to GAAP, I have to call that a contra revenue. But realistically, the way we look at other ceded premiums analytically, it's a component of our benefits and claims ratio. That number is going to continue to grow. We see 90% of our mortality risk under YRT reinsurance. Our direct premiums are level. So what our insured pays is the same for the entire level term period of their policy. But when you go -- the difference of the mortality cost in year 1 versus year 5 is significant. So the other ceded premium line has always and will continue to grow much faster than the direct premium line. So there is nothing unusual about this. This trend will not stop.
I think what's really important to understand from a P&L perspective, if you don't see any of that volatility hitting the bottom line because the ceded reserve take all that into consideration and see that or levelize out the cost of the reinsurance. So it is a function of the fact that GAAP requires the presentation a specific way, but economically, you have to look at what we're paying in line with the benefit cost we're getting through a reduction in our reserves. So you have to think about those 2 holistically again, which is why we included as a component of the benefits and claims ratio. It does create a really strange anomaly when we look at our revenue growth because it artificially suppresses it when realistically, again, that is just balancing out the growing cost of benefits as our block of business [ages].
Mark Douglas Hughes
And then did you give guidance for Term Life operating profit relative to just the direct premium?
Alison Sue Rand
We didn't -- there's a little bit of lumpiness this quarter. Again, two things. One is persistent seasonally strong in the second quarter. And also, this is the last quarter we have, where we have this benefit, if you will, of the fact that we had elevated operating expenses last year because of the timing of our field leadership events. So I think it will come down a little bit from where it was in the second quarter, but it should stay about this range. If you remember all the things I've been saying about LDTI and what you've seen thus far, is from period-to-period, especially because we're not expecting any large assumption changes. The benefit ratio and the DAC ratio are going to remain pretty consistent the real anomaly or driver could be if there's any quarterly fluctuation in expenses, although at this point, like I said in my comments, we're not assuming anything outside of what we've been saying for the third and fourth quarter on operating expenses. So (inaudible).
Mark Douglas Hughes
Does that say sort of -- so maybe high 20s if that was 23% this quarter. High 22s?
Alison Sue Rand
No, it will be lower than that. It will be lower than that.
Mark Douglas Hughes
High 22s.
Alison Sue Rand
High 20s, I see what you're saying. It will be somewhere lower than the 23%. Again, it's really going to be a function of how operating expenses come in. And if we have -- the one thing that could be a volatility, and we see a little bit of it in the last 2 quarters is if we have to do any remeasurements based on mortality actual experience. But again, that's been in the $1 million to $2 million range, so nothing too significant.
Mark Douglas Hughes
Yes. Okay. And then Glenn, on the recruiting front, could you -- I think you gave guidance for the sales force growth for the full year. Did you make any comments about what you expect in terms of recruiting growth next quarter balance of the year?
Glenn Jackson Williams
Yes, Mark. We -- because we provide incentives and recruiting numbers tend to move pretty significantly quarter-to-quarter. For example, and our comparisons for the third quarter be comparing to the convention incentives that we ran a year ago coming out of the convention and we really spiked recruiting in the third quarter. So we won't recruit at those levels in the third quarter because we're not running any incentives at this point. It's all kind of fundamental organic growth that we're seeing right now. So we expect recruiting continue to be strong, but we started trying to provide the net -- the sales force growth so that you really understand when recruiting spikes and sometimes we don't get to pull through from licensing, rather than go through all that noise, we just kind of cut to the bottom line, which is the sales force growth. So for the third quarter specifically, we're expecting a strong recruiting quarter. It won't compare in top line numbers to all of the special incentives we had a year ago, but we're expecting it to be a good quarter for us.
Operator
This will conclude today's question-and-answer session. And this also concludes today's conference. Thank you for your participation. You may now disconnect your lines at this time and log off your computers. Thank you for your participation.
