Edgar Filing: Primerica, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2015

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

For the transition period from to

Commission File Number: 001-34680

Primerica, Inc.

(Exact name of registrant as specified in its charter)

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

(770) 381-1000

(Registrant’s telephone number, including area code)

Not applicable.

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

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

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

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

Large accelerated filer	x	Accelerated filer	o

Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		As of April 30, 2015
Common Stock, $0.01 Par Value		51,352,164 shares

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION		1
Item 1. Financial Statements (unaudited).		1
Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014		1
Condensed Consolidated Statements of Income for the three months ended March 31, 2015 and 2014		2
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2015 and 2014		3
Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2015 and 2014		4
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		18
Item 3. Quantitative and Qualitative Disclosures About Market Risk.		31
Item 4. Controls and Procedures.		31
PART II – OTHER INFORMATION		32
Item 1. Legal Proceedings.		32
Item 1A. Risk Factors.		32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		33
Item 6. Exhibits.		33
Signatures		35

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

	(Unaudited)
	March 31, 2015			December 31, 2014
	(In thousands)
Assets
Investments:
Fixed-maturity securities available-for-sale, at fair value (amortized cost: $1,696,412 in 2015 and $1,667,500 in 2014)	$	1,789,937		$	1,759,120
Fixed-maturity securities held-to-maturity, at amortized cost (fair value: $259,761 in 2015 and $228,809 in 2014)		238,000			220,000
Equity securities available-for-sale, at fair value (cost: $42,347 in 2015 and $43,738 in 2014)		51,807			53,390
Trading securities, at fair value (cost: $7,344 in 2015 and $7,710 in 2014)		7,345			7,711
Policy loans		27,679			28,095
Total investments		2,114,768			2,068,316
Cash and cash equivalents		180,207			192,516
Accrued investment income		18,442			17,401
Due from reinsurers		4,094,456			4,115,533
Deferred policy acquisition costs, net		1,377,022			1,351,180
Premiums and other receivables		180,642			181,660
Intangible assets, net (accumulated amortization: $69,277 in 2015 and $68,426 in 2014)		60,870			61,720
Deferred income taxes		32,335			36,082
Other assets		279,207			273,403
Separate account assets		2,386,265			2,440,303
Total assets	$	10,724,214		$	10,738,114

Liabilities and Stockholders’ Equity
Liabilities:
Future policy benefits	$	5,289,016		$	5,264,608
Unearned premiums		821			912
Policy claims and other benefits payable		259,148			264,832
Other policyholders’ funds		342,322			344,313
Notes payable		374,545			374,532
Surplus note		238,000			220,000
Income taxes		157,685			140,467
Other liabilities		381,369			392,810
Payable under securities lending		55,622			50,211
Separate account liabilities		2,386,265			2,440,303
Commitments and contingent liabilities (see Commitments and Contingent Liabilities note)
Total liabilities		9,484,793			9,492,988

Stockholders’ equity:
Common stock ($0.01 par value; authorized 500,000 in 2015 and 2014; issued and outstanding 51,555 shares in 2015 and 52,169 shares in 2014)		516			522
Paid-in capital		323,996			353,337
Retained earnings		830,624			795,740
Accumulated other comprehensive income (loss), net of income tax:
Unrealized foreign currency translation gains (losses)		1,345			21,681
Net unrealized investment gains (losses):
Net unrealized investment gains not other-than-temporarily impaired		83,402			74,308
Net unrealized investment losses other-than-temporarily impaired		(462	)		(462	)
Total stockholders’ equity		1,239,421			1,245,126
Total liabilities and stockholders’ equity	$	10,724,214		$	10,738,114

See accompanying notes to condensed consolidated financial statements.

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income – Unaudited

	Three months ended March 31,
	2015			2014
	(In thousands, except per-share amounts)
Revenues:
Direct premiums	$	577,458		$	568,205
Ceded premiums		(397,540	)		(402,715	)
Net premiums		179,918			165,490
Commissions and fees		132,835			126,933
Net investment income		21,173			21,599
Realized investment gains (losses), including other-than-temporary impairment losses		1,284			263
Other, net		9,929			10,043
Total revenues		345,139			324,328

Benefits and expenses:
Benefits and claims		82,500			75,191
Amortization of deferred policy acquisition costs		36,213			35,193
Sales commissions		68,457			65,121
Insurance expenses		34,641			28,502
Insurance commissions		3,190			4,083
Interest expense		8,676			8,606
Other operating expenses		44,653			40,800
Total benefits and expenses		278,330			257,496
Income from continuing operations before income taxes		66,809			66,832
Income taxes		23,408			23,347
Income from continuing operations		43,401			43,485
Income from discontinued operations, net of income taxes		-			1,595
Net income	$	43,401		$	45,080

Basic earnings per share:
Continuing operations	$	0.82		$	0.78
Discontinued operations		-			0.03
Basic earnings per share	$	0.82		$	0.81

Diluted earnings per share:
Continuing operations	$	0.82		$	0.78
Discontinued operations		-			0.03
Diluted earnings per share	$	0.82		$	0.81

Weighted-average shares used in computing earnings per share:
Basic		52,643			55,211
Diluted		52,691			55,233

Supplemental disclosures:
Total impairment losses	$	(237	)	$	(149	)
Impairment losses recognized in other comprehensive income before income taxes		-			-
Net impairment losses recognized in earnings		(237	)		(149	)
Other net realized investment gains (losses)		1,521			412
Realized investment gains (losses), including other-than- temporary impairment losses	$	1,284		$	263

Dividends declared per share	$	0.16		$	0.12

See accompanying notes to condensed consolidated financial statements.

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss) – Unaudited

	Three months ended March 31,
	2015			2014
	(In thousands)
Net income	$	43,401		$	45,080
Other comprehensive income (loss) before income taxes:
Unrealized investment gains (losses):
Change in unrealized holding gains/(losses) on investment securities		15,661			17,930
Reclassification adjustment for realized investment (gains) losses included in net income		(1,670	)		(188	)
Foreign currency translation adjustments:
Change in unrealized foreign currency translation gains (losses)		(20,566	)		(8,677	)
Total other comprehensive income (loss) before income taxes		(6,575	)		9,065
Income tax expense (benefit) related to items of other comprehensive income (loss)		4,667			6,104
Other comprehensive income (loss), net of income taxes		(11,242	)		2,961
Total comprehensive income (loss)	$	32,159		$	48,041

See accompanying notes to condensed consolidated financial statements.

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity – Unaudited

	Three months ended March 31,
	2015			2014
	(In thousands)
Common stock:
Balance, beginning of period	$	522		$	548
Repurchases of common stock		(9	)		(4	)
Net issuance of common stock		3			2
Balance, end of period		516			546

Paid-in capital:
Balance, beginning of period		353,337			472,633
Share-based compensation		15,307			9,699
Net issuance of common stock		(3	)		(2	)
Repurchases of common stock		(44,781	)		(19,183	)
Adjustments to paid-in capital, other		136			(309	)
Balance, end of period		323,996			462,838

Retained earnings:
Balance, beginning of period		795,740			640,840
Net income		43,401			45,080
Dividends		(8,517	)		(6,738	)
Balance, end of period		830,624			679,182

Accumulated other comprehensive income (loss):
Balance, beginning of period		95,527			108,006
Change in foreign currency translation adjustment, net of income tax expense (benefit) of $(230) in 2015 and $(106) in 2014		(20,336	)		(8,571	)
Change in net unrealized investment gains (losses) during the period, net of income taxes:
Change in net unrealized investment gains (losses) not-other-than temporarily impaired, net of income tax expense (benefit) of $4,897 in 2015 and $6,210 in 2014		9,094			11,532
Change in net unrealized investment losses other-than-temporarily impaired, net of income tax expense (benefit) of $0 in 2015 and 2014		-			-
Balance, end of period		84,285			110,967
Total stockholders’ equity	$	1,239,421		$	1,253,533

See accompanying notes to condensed consolidated financial statements.

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows – Unaudited

	Three months ended March 31,
	2015			2014
	(In thousands)
Cash flows from operating activities:
Net income	$	43,401		$	45,080
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Change in future policy benefits and other policy liabilities		53,674			54,542
Deferral of policy acquisition costs		(75,434	)		(73,045	)
Amortization of deferred policy acquisition costs		36,213			35,193
Change in income taxes		18,576			14,905
Realized investment (gains) losses, including other-than-temporary impairments		(1,284	)		(263	)
Gain from sale of business, net		-			(1,595	)
Accretion and amortization of investments		(438	)		(597	)
Depreciation and amortization		2,633			2,884
Change in due from reinsurers		(6,956	)		(32,759	)
Change in premiums and other receivables		456			(4,173	)
Trading securities sold, matured, or called (acquired), net		365			2,036
Share-based compensation		8,943			2,848
Change in other operating assets and liabilities, net		(13,747	)		(7,316	)
Net cash provided by (used in) operating activities		66,402			37,740

Cash flows from investing activities:
Available-for-sale investments sold, matured or called:
Fixed-maturity securities — sold		23,278			21,094
Fixed-maturity securities — matured or called		72,979			91,596
Equity securities		1,659			188
Available-for-sale investments acquired:
Fixed-maturity securities		(122,264	)		(113,508	)
Equity securities		(625	)		(5,106	)
Purchases of property and equipment and other investing activities, net		(1,635	)		(1,491	)
Proceeds from sale of business		-			3,000
Cash collateral received (returned) on loaned securities, net		5,411			19,242
Sales (purchases) of short-term investments using securities lending collateral, net		(5,411	)		(19,242	)
Net cash provided by (used in) investing activities		(26,608	)		(4,227	)

Cash flows from financing activities:
Dividends paid		(8,517	)		(6,738	)
Common stock repurchased		(38,749	)		(13,065	)
Excess tax benefits on share-based compensation		3,456			2,954
Tax withholdings on share-based compensation		(6,041	)		(6,122	)
Cash proceeds from stock options exercised		136			-
Net cash provided by (used in) financing activities		(49,715	)		(22,971	)

Effect of foreign exchange rate changes on cash		(2,388	)		(1,293	)
Change in cash and cash equivalents		(12,309	)		9,249

Cash and cash equivalents, beginning of period		192,516			149,189
Cash and cash equivalents, end of period	$	180,207		$	158,438

See accompanying notes to condensed consolidated financial statements.

PRIMERICA, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — Unaudited

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

Description of Business. Primerica, Inc. (the "Parent Company"), together with its subsidiaries (collectively, "we", "us" or the "Company"), is a leading distributor of financial products to middle income households in the United States and Canada. We assist our clients in meeting their needs for term life insurance, which we underwrite, and mutual funds, annuities and other financial products, which we distribute primarily on behalf of third parties. Our primary subsidiaries include the following entities: Primerica Financial Services, Inc. ("PFS"), a general agency and marketing company; Primerica Life Insurance Company ("Primerica Life"), our principal life insurance company; Primerica Financial Services (Canada) Ltd., a holding company for our Canadian operations, which includes Primerica Life Insurance Company of Canada ("Primerica Life Canada") and PFSL Investments Canada Ltd. ("PFSL Investments Canada"); and PFS Investments, Inc. ("PFS Investments"), an investment products company and broker-dealer. Primerica Life, domiciled in Massachusetts, owns National Benefit Life Insurance Company ("NBLIC"), a New York insurance company.

We have established Peach Re, Inc. ("Peach Re") and Vidalia Re, Inc. (“Vidalia Re”) as special purpose financial captive insurance companies and wholly owned subsidiaries of Primerica Life. Peach Re and Vidalia Re have each entered into separate coinsurance agreements with Primerica Life whereby Primerica Life has ceded certain level premium term life insurance policies to Peach Re and Vidalia Re (respectively, the “Peach Re Coinsurance Agreement” and the “Vidalia Re Coinsurance Agreement”).

Basis of Presentation. We prepare our financial statements in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). These principles are established primarily by the Financial Accounting Standards Board ("FASB"). The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect financial statement balances, revenues and expenses and cash flows, as well as the disclosure of contingent assets and liabilities. Management considers available facts and knowledge of existing circumstances when establishing the estimates included in our financial statements.

The accompanying unaudited condensed consolidated financial statements contain all adjustments, generally consisting of normal recurring accruals, which are necessary to fairly present the balance sheets as of March 31, 2015 and December 31, 2014 and the statements of income, comprehensive income (loss), stockholders' equity and cash flows for the three months ended March 31, 2015 and 2014. Results of operations for interim periods are not necessarily indicative of results for the entire year or of the results to be expected in future periods.

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are sufficient to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, 2014 ("2014 Annual Report").

Use of Estimates. The most significant items that involve a greater degree of accounting estimates and actuarial determinations subject to change in the future are the valuation of investments, deferred policy acquisition costs ("DAC"), liabilities for future policy benefits and unpaid policy claims, and income taxes. Estimates for these and other items are subject to change and are reassessed by management in accordance with U.S. GAAP. Actual results could differ from those estimates.

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

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

Subsequent Events. The Company has evaluated subsequent events for recognition and disclosure for occurrences and transactions after the date of the unaudited condensed consolidated financial statements dated as of March 31, 2015.

Significant Accounting Policies. All significant accounting policies remain unchanged from the 2014 Annual Report.

New Accounting Principles. In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest — Imputation of Interest (Subtopic 835-30) – Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). Debt issuance costs related to a recognized debt liability are currently presented as a deferred charge, or asset, within the balance sheet. ASU 2015-03 requires the presentation of debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments in ASU 2015-03 are effective retrospectively for the Company beginning in fiscal year 2016, with early adoption permitted. The Company intends to adopt the amendments in ASU 2015-03 beginning in the first quarter of 2016. At March 31, 2015, the Company had debt issuance costs related to recognized liabilities of approximately $3.1 million within Other assets on our unaudited condensed consolidated balance sheets that would be reclassified and presented as a direct deduction from the carrying amount of debt liabilities under ASU 2015-03.

Future Application of Accounting Standards. Recent accounting guidance not discussed is not applicable, is immaterial to our financial statements, or did not or will not have an impact on our business.

(2) Segment and Geographical Information

Segments. We have two primary operating segments — Term Life Insurance and Investment and Savings Products. We also have a Corporate and Other Distributed Products segment.

Results of continuing operations by segment were as follows:

	Three months ended March 31,
	2015			2014
	(In thousands)
Revenues:
Term life insurance segment	$	198,365		$	182,980
Investment and savings products segment		129,074			123,270
Corporate and other distributed products segment		17,700			18,078
Total revenues	$	345,139		$	324,328
Income (loss) from continuing operations before income taxes:
Term life insurance segment	$	47,820		$	47,204
Investment and savings products segment		35,044			34,028
Corporate and other distributed products segment		(16,055	)		(14,400	)
Total income from continuing operations before income taxes	$	66,809		$	66,832

Total assets by segment were as follows:

	March 31, 2015		December 31, 2014
	(In thousands)
Assets:
Term life insurance segment	$	7,255,680	$	7,165,373
Investment and savings products segment		2,586,578		2,642,753
Corporate and other distributed products segment		881,956		929,988
Total assets	$	10,724,214	$	10,738,114

The Investment and Savings Products segment includes assets held in separate accounts. Excluding separate accounts, the Investment and Savings Products segment assets were approximately $200.7 million and $202.9 million as of March 31, 2015 and December 31, 2014, respectively.

See “Management's Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this report for more information regarding our operating segments.

Geographical Information. Results of continuing operations by country and long-lived assets — primarily tangible assets reported in Other assets in our unaudited condensed consolidated balance sheets —were as follows:

	Three months ended March 31,
	2015		2014
	(In thousands)
Revenues by country:
United States	$	286,141	$	262,204
Canada		58,998		62,124
Total revenues	$	345,139	$	324,328
Income from continuing operations before income taxes by country:
United States	$	48,856	$	48,912
Canada		17,953		17,920
Total income from continuing operations before income taxes	$	66,809	$	66,832

	March 31, 2015		December 31, 2014
	(In thousands)
Long-lived assets by country:
United States	$	28,223	$	25,897
Canada		592		566
Total long-lived assets	$	28,815	$	26,463

(3) Investments

Available-for-sale Securities. The period-end cost or amortized cost, gross unrealized gains and losses, and fair value of available-for-sale fixed-maturity and equity securities follow:

	March 31, 2015
	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
	(In thousands)
Securities available-for-sale, carried at fair value:
Fixed-maturity securities:
U.S. government and agencies	$	13,925	$	629	$	(69	)	$	14,485
Foreign government		122,919		4,142		(7,856	)		119,205
States and political subdivisions		37,892		3,089		(292	)		40,689
Corporates		1,265,977		90,503		(10,044	)		1,346,436
Mortgage- and asset-backed securities		255,699		13,633		(210	)		269,122
Total fixed-maturity securities⁽¹⁾		1,696,412		111,996		(18,471	)		1,789,937
Equity securities		42,347		10,473		(1,013	)		51,807
Total fixed-maturity and equity securities	$	1,738,759	$	122,469	$	(19,484	)	$	1,841,744

⁽¹⁾	Includes approximately $0.7 million of other-than-temporary impairment losses related to corporates and mortgage- and asset-backed securities recognized in accumulated other comprehensive income.

	December 31, 2014
	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
	(In thousands)
Securities available-for-sale, carried at fair value:
Fixed-maturity securities:
U.S. government and agencies	$	15,145	$	557	$	(55	)	$	15,647
Foreign government		120,910		5,388		(3,801	)		122,497
States and political subdivisions		38,163		2,719		(188	)		40,694
Corporates		1,241,526		82,167		(7,825	)		1,315,868
Mortgage- and asset-backed securities		251,756		13,050		(392	)		264,414
Total fixed-maturity securities⁽¹⁾		1,667,500		103,881		(12,261	)		1,759,120
Equity securities		43,738		10,711		(1,059	)		53,390
Total fixed-maturity and equity securities	$	1,711,238	$	114,592	$	(13,320	)	$	1,812,510

⁽¹⁾	Includes approximately $0.7 million of other-than-temporary impairment losses related to corporates and mortgage- and asset-backed securities recognized in accumulated other comprehensive income.

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

The scheduled contractual maturity distribution of the available-for-sale fixed-maturity portfolio at March 31, 2015 follows:

	Amortized cost		Fair value
	(In thousands)
Due in one year or less	$	115,705	$	117,276
Due after one year through five years		580,952		624,827
Due after five years through 10 years		695,841		727,136
Due after 10 years		48,215		51,576
		1,440,713		1,520,815
Mortgage- and asset-backed securities		255,699		269,122
Total fixed-maturity securities	$	1,696,412	$	1,789,937

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

Unrealized Gains and Losses on Investments. The net effect on stockholders’ equity of unrealized gains and losses on investments was as follows:

	March 31, 2015			December 31, 2014
	(In thousands)
Net unrealized investment gains including foreign currency translation adjustment and other-than-temporary impairments:
Fixed-maturity and equity securities	$	102,985		$	101,272
Currency swaps		10			23
Foreign currency translation adjustment		24,605			12,314
Other-than-temporary impairments		710			710
Net unrealized investment gains excluding foreign currency translation adjustment and other-than-temporary impairments		128,310			114,319
Deferred income taxes		(44,908	)		(40,011	)
Net unrealized investment gains excluding foreign currency translation adjustment and other-than-temporary impairments, net of tax	$	83,402		$	74,308

Trading Securities. We maintain a portfolio of fixed-maturity securities that are classified as trading securities. The carrying values of the fixed-maturity securities classified as trading securities were approximately $7.3 million and $7.7 million as of March 31, 2015 and December 31, 2014, respectively.

Held-to-maturity Security. Concurrent with the execution of the Vidalia Re Coinsurance Agreement, Vidalia Re entered into a Surplus Note Purchase Agreement (the "Surplus Note Purchase Agreement") with Hannover Life Reassurance Company of America and certain of its affiliates (collectively, “Hannover Re”) and a newly formed limited liability company (the "LLC") owned by a third party service provider. Under the Surplus Note Purchase Agreement, Vidalia Re issued a surplus note (the “Surplus Note”) to the LLC in exchange for a credit enhanced note from the LLC with an equal principal amount (the “LLC Note”). The principal amount of both the LLC Note and the Surplus Note will fluctuate over time to coincide with the amount of reserves contractually supported under the Vidalia Re Coinsurance Agreement. Both the LLC Note and the Surplus Note mature on December 31, 2029 and bear interest at an annual interest rate of 4.50%. The LLC Note is guaranteed by Hannover Re through a credit enhancement feature in exchange for a fee.

The LLC is a variable interest entity as its owner does not have an equity investment at risk that is sufficient to permit the LLC to finance its activities without Vidalia Re or Hannover Re. The Parent Company, Primerica Life, and Vidalia Re share