Edgar Filing: Primerica, Inc.

pri-10q_20180930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2018

☐	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. ☒ Yes ☐ No

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

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

Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

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 October 31, 2018
Common Stock, $0.01 Par Value		42,938,145 shares

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION		1
Item 1. Financial Statements (unaudited).		1
Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017		1
Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2018 and 2017		2
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2018 and 2017		3
Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2018 and 2017		4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		26
Item 3. Quantitative and Qualitative Disclosures About Market Risk.		43
Item 4. Controls and Procedures.		43
PART II – OTHER INFORMATION		43
Item 1. Legal Proceedings.		43
Item 1A. Risk Factors.		43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		44
Item 6. Exhibits.		45
Signatures		46

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

	(Unaudited)
	September 30, 2018			December 31, 2017
	(In thousands)
Assets:
Investments:
Fixed-maturity securities available-for-sale, at fair value (amortized cost: $2,016,559 in 2018 and $1,877,326 in 2017)	$	2,010,900		$	1,927,842
Fixed-maturity security held-to-maturity, at amortized cost (fair value: $874,328 in 2018 and $779,472 in 2017)		891,860			737,150
Equity securities available-for-sale, at fair value (amortized cost: $0 in 2018 and $31,331 in 2017)		-			41,107
Equity securities, at fair value (historical cost: $34,842 in 2018 and $0 in 2017)		39,317			-
Trading securities, at fair value (amortized cost: $15,944 in 2018 and $6,172 in 2017)		15,955			6,228
Policy loans		30,902			32,816
Total investments		2,988,934			2,745,143
Cash and cash equivalents		225,378			279,962
Accrued investment income		18,202			16,665
Reinsurance recoverables		4,196,021			4,205,173
Deferred policy acquisition costs, net		2,107,814			1,951,892
Agent balances, due premiums and other receivables		295,885			229,522
Intangible assets, net (accumulated amortization: $81,186 in 2018 and $78,633 in 2017)		48,961			51,513
Income taxes		53,440			48,614
Other assets		352,897			359,347
Separate account assets		2,419,997			2,572,872
Total assets	$	12,707,529		$	12,460,703

Liabilities and Stockholders’ Equity:
Liabilities:
Future policy benefits	$	6,132,750		$	5,954,524
Unearned premiums		439			486
Policy claims and other benefits payable		287,640			307,401
Other policyholders’ funds		394,046			377,998
Notes payable		373,567			373,288
Surplus note		891,139			736,381
Income taxes		182,240			177,468
Other liabilities		511,623			451,398
Payable under securities lending		70,632			89,786
Separate account liabilities		2,419,997			2,572,872
Commitments and contingent liabilities (see Commitments and Contingent Liabilities note)
Total liabilities		11,264,073			11,041,602

Stockholders’ equity:
Common stock ($0.01 par value; authorized 500,000 in 2018 and 2017; issued and outstanding 42,977 shares in 2018 and 44,251 shares in 2017)		430			443
Paid-in capital		-			-
Retained earnings		1,452,841			1,375,090
Accumulated other comprehensive income (loss), net of income tax:
Unrealized foreign currency translation gains (losses)		(5,300	)		3,995
Net unrealized investment gains (losses) on available-for-sale securities:
Net unrealized investment gains (losses) not other-than-temporarily impaired		(4,381	)		39,686
Net unrealized investment losses other-than-temporarily impaired		(134	)		(113	)
Total stockholders’ equity		1,443,456			1,419,101
Total liabilities and stockholders’ equity	$	12,707,529		$	12,460,703

See accompanying notes to condensed consolidated financial statements.

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income – Unaudited

	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
	(In thousands, except per-share amounts)
Revenues:
Direct premiums	$	670,222		$	646,079		$	1,993,499		$	1,911,203
Ceded premiums		(391,175	)		(397,641	)		(1,188,873	)		(1,203,452	)
Net premiums		279,047			248,438			804,626			707,751
Commissions and fees		170,879			144,627			505,646			437,211
Investment income net of investment expenses		30,214			27,153			86,687			78,595
Interest expense on surplus note		(9,592	)		(7,231	)		(27,018	)		(19,037	)
Net investment income		20,622			19,922			59,669			59,558
Realized investment gains (losses), including other-than- temporary impairment losses		(126	)		22			(470	)		260
Other, net		14,359			14,291			43,047			41,381
Total revenues		484,781			427,300			1,412,518			1,246,161

Benefits and expenses:
Benefits and claims		118,787			105,864			340,747			307,761
Amortization of deferred policy acquisition costs		59,534			53,384			173,546			153,094
Sales commissions		84,588			72,022			250,062			221,165
Insurance expenses		41,925			37,637			126,485			112,177
Insurance commissions		6,584			5,593			18,878			15,649
Interest expense		7,216			7,073			21,617			21,344
Other operating expenses		54,712			45,527			173,023			143,539
Total benefits and expenses		373,346			327,100			1,104,358			974,729
Income before income taxes		111,435			100,200			308,160			271,432
Income taxes		26,296			33,565			70,610			89,619
Net income	$	85,139		$	66,635		$	237,550		$	181,813

Earnings per share:
Basic earnings per share	$	1.95		$	1.46		$	5.36		$	3.94
Diluted earnings per share	$	1.94		$	1.46		$	5.34		$	3.93

Weighted-average shares used in computing earnings per share:
Basic		43,452			45,318			44,081			45,864
Diluted		43,589			45,408			44,212			45,947

Supplemental disclosures:
Total impairment losses recognized on invested assets	$	(49	)	$	(668	)	$	(152	)	$	(1,363	)
Impairment losses recognized in other comprehensive income before income taxes		-			142			-			142
Net impairment losses recognized in earnings		(49	)		(526	)		(152	)		(1,221	)
Other net realized investment gains (losses)		(816	)		548			350			1,481
Net gains (losses) recognized on equity securities		739			-			(668	)		-
Net realized investment gains (losses), including other-than- temporary impairment losses	$	(126	)	$	22		$	(470	)	$	260

See accompanying notes to condensed consolidated financial statements.

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss) – Unaudited

	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
	(In thousands)
Net income	$	85,139		$	66,635		$	237,550		$	181,813
Other comprehensive income (loss) before income taxes:
Unrealized investment gains (losses) on available-for-sale securities:
Change in unrealized holding gains (losses) on investment securities		(8,347	)		(3,725	)		(56,267	)		7,447
Reclassification adjustment for realized investment (gains) losses included in net income		755			(554	)		92			(896	)
Foreign currency translation adjustments:
Change in unrealized foreign currency translation gains (losses)		5,009			10,000			(9,295	)		17,878
Total other comprehensive income (loss) before income taxes		(2,583	)		5,721			(65,470	)		24,429
Income tax expense (benefit) related to items of other comprehensive income (loss)		(1,720	)		(1,391	)		(12,014	)		2,487
Other comprehensive income (loss), net of income taxes		(863	)		7,112			(53,456	)		21,942
Total comprehensive income	$	84,276		$	73,747		$	184,094		$	203,755

See accompanying notes to condensed consolidated financial statements.

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity – Unaudited

	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
	(In thousands)
Common stock:
Balance, beginning of period	$	432		$	450		$	443		$	457
Repurchases of common stock		(3	)		(7	)		(17	)		(18	)
Net issuance of common stock		1			1			4			5
Balance, end of period		430			444			430			444

Paid-in capital:
Balance, beginning of period		-			-			-			52,468
Share-based compensation		4,020			4,566			22,384			21,658
Net issuance of common stock		(1	)		(1	)		(4	)		(5	)
Repurchases of common stock		(4,019	)		(4,565	)		(22,380	)		(74,121	)
Balance, end of period		-			-			-			-

Retained earnings:
Balance, beginning of period		1,409,104			1,224,375			1,375,090			1,138,851
Cumulative effect from the adoption of new accounting standards, net		-			-			24,610			-
Net income		85,139			66,635			237,550			181,813
Dividends		(10,920	)		(9,120	)		(33,281	)		(26,802	)
Repurchases of common stock		(30,482	)		(53,344	)		(151,128	)		(65,316	)
Balance, end of period		1,452,841			1,228,546			1,452,841			1,228,546