Primerica(PRI) - 2020 Q4 - Annual Report

PART I Item 1. Business Primerica provides financial products to middle-income households in the U.S. and Canada via a large independent sales force - Primerica serves middle-income households in the U.S. and Canada with 134,907 licensed sales representatives as of December 31, 2020, providing term life insurance (underwritten) and distributing mutual funds, annuities, and other financial products (primarily third-party)[18] - The company's mission is to help middle-income families make informed financial decisions and achieve financial independence through its distribution model[19] New Recruits and Life Insurance-Licensed Sales Representatives (2018-2020) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Number of new recruits | 400,345 | 282,207 | 290,886 | | Number of newly life insurance-licensed sales representatives | 48,106 | 44,739 | 48,041 | | Number of life insurance-licensed sales representatives, at period end | 134,907 | 130,522 | 130,736 | | Average number of life insurance-licensed sales representatives during period | 133,302 | 130,370 | 128,977 | - The company's sales force compensation structure is performance-based, including sales commissions, fees on client assets under management, and quarterly agent equity awards, with advances on insurance commissions subject to chargebacks[41][43][44] Life Insurance Product Portfolio (2018-2020) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Life insurance issued: | | | | | Number of policies issued | 352,868 | 287,809 | 301,589 | | Face amount issued (in millions) | $109,436 | $93,994 | $95,209 | | Life insurance in force (Dec 31): | | | | | Number of policies in force | 2,787,992 | 2,641,483 | 2,606,825 | | Face amount in force (in millions) | $858,818 | $808,262 | $781,041 | Benefits Paid by Claim Category (2018-2020, in thousands) | Claim Category | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Death | $1,676,017 | $1,447,375 | $1,391,755 | | Waiver of premium | $51,823 | $49,712 | $46,690 | | Terminal illness | $11,501 | $14,584 | $16,474 | - The company extensively uses reinsurance, typically ceding 80% to 90% of mortality risk for term life insurance policies to reduce volatility, with agreements allowing for discontinuation on future policies with notice and rate increases with recapture rights[74][75][76] - As of December 31, 2020, Primerica had 1,966 full-time U.S. employees and 264 full-time Canadian employees, with a U.S. employee retention rate of 92% in 2020[162][165][169] Item 1A. Risk Factors The company faces significant risks related to its distribution model, regulatory changes, insurance underwriting, and cybersecurity - Failure to attract new recruits, retain sales representatives, or maintain licensing would materially adversely affect business, as new representatives are crucial for client access and sales growth[174][175] - Adverse tax, legal, or financial consequences could arise if the independent contractor status of sales representatives is overturned, leading to significant compliance costs or liabilities[182][184] - Significant losses may occur if actual mortality or persistency rates differ from pricing expectations, potentially requiring accelerated DAC amortization or increased future policy benefit reserves[188][189][190] - The Investment and Savings Products segment is heavily dependent on a small number of mutual fund and annuity companies; changes in product competitiveness or loss of relationships could materially affect results[210] - Major public health crises, such as the COVID-19 pandemic, could lead to elevated mortality claims, negatively impact recruiting and sales force productivity, and cause significant market volatility affecting investment portfolios[229][230][231][233] - Information technology system failures, security compromises, or internet unavailability could cause significant operational interruptions, reputational harm, and material adverse effects on the business[236][238][240] - Changes in accounting standards, particularly ASU 2018-12 for long-duration contracts, are difficult to predict and could materially impact reported financial condition and results of operations[248][249] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC Item 2. Properties The company's primary operations are located in a leased 345,000 square foot facility in Duluth, Georgia, expiring in June 2028 - The company's main executive offices and business operations are in a leased 345,000 sq ft facility in Duluth, Georgia, with the lease expiring in June 2028[269] - Regional head offices are maintained in Mississauga, Ontario (Canadian operations) and Long Island City, New York (NBLIC subsidiary), both under long-term leases[270] - Existing facilities in the U.S. and Canada are considered adequate for current and foreseeable operational requirements[271] Item 3. Legal Proceedings No pending legal proceedings require disclosure as of the report date - The company is involved in legal disputes, regulatory inquiries, and arbitration proceedings in the normal course of business[272] - As of the report date, no pending legal proceeding is deemed to require disclosure under this item[272] Item 4. Mine Safety Disclosures This item is not applicable to Primerica, Inc Item X. Information About Our Executive Officers and Certain Significant Employees This section provides biographical information for Primerica's executive officers and key employees as of March 1, 2021 Executive Officers and Significant Employees (as of March 1, 2021) | Name | Age | Position | | :--- | :-- | :--- | | Glenn J. Williams | 61 | Chief Executive Officer | | Peter W. Schneider | 64 | President | | Alison S. Rand | 53 | Executive Vice President and Chief Financial Officer | | Gregory C. Pitts | 58 | Executive Vice President and Chief Operating Officer | | John A. Adams | 62 | Chief Executive Officer, Primerica Life Insurance Company of Canada | | Michael C. Adams | 64 | Executive Vice President and Chief Business Technology Officer | | Lisa A. Brown | 51 | Executive Vice President and Chief Administrative Officer | | Estee Faranda | 46 | Chief Executive Officer, PFS Investments | | Jeffrey S. Fendler | 64 | Executive Vice President and Chief Compliance and Risk Officer | | William A. Kelly | 65 | Executive Vice President and Co-Head of Business Technology | | Kathryn E. Kieser | 51 | Executive Vice President and Chief Reputation Officer | | Michael W. Miller | 43 | Executive Vice President, Head of Corporate Development and Strategic Planning and President of Primerica Mortgage, LLC | | Robert H. Peterman, Jr. | 55 | Executive Vice President and Chief Marketing Officer | | Brett A. Rogers | 55 | Executive Vice President and General Counsel | | Julie A. Seman | 51 | Executive Vice President, Field Distribution, Primerica Life, Client Solutions and Strategic Markets | - Glenn J. Williams has served as CEO since April 2015, having been with Primerica since 1981[276] - Lisa A. Brown, Executive Vice President and Chief Administrative Officer since October 2020, leads Human Resources, Talent Management, Facilities, Physical Securities, and diversity, equality, and inclusion efforts[284] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE, with details on dividends, share repurchases, and stock performance provided - Primerica's common stock is listed on the New York Stock Exchange (NYSE) under the symbol 'PRI'[296] - As of February 28, 2021, there were 140 holders of record of the company's common stock[296] - In the first quarter of 2021, a quarterly dividend of $0.47 per share was declared, with expectations to continue comparable payments, subject to Board discretion and Delaware law[297] Issuer Purchases of Equity Securities (Q4 2020) | Period | Total shares purchased | Average price paid per share | Total shares purchased under announced plans | Approximate dollar value remaining under plans | | :--- | :--- | :--- | :--- | :--- | | October 1 - 31, 2020 | 115,433 | $115.68 | 115,433 | $68,605,883 | | November 1 - 30, 2020 | 44 | $111.65 | - | $68,605,883 | | December 1 - 31, 2020 | 419 | $134.06 | - | $68,605,883 | | Total | 115,896 | $115.74 | 115,433 | $68,605,883 | - On February 9, 2021, the Board authorized a new share repurchase program for up to $300.0 million of outstanding common stock, including $68.6 million remaining from the prior program, through June 30, 2022[301] Stock Performance Comparison (2015-2020, $100 invested) | Index | 12/31/2015 | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Primerica, Inc. | $100.00 | $148.33 | $219.88 | $213.54 | $288.50 | $299.77 | | S&P 500 Insurance | $100.00 | $117.58 | $136.62 | $121.30 | $156.94 | $156.25 | | S&P MidCap 400 | $100.00 | $120.74 | $140.35 | $124.80 | $157.49 | $179.01 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes financial results for the three years ended December 31, 2020, including business trends and segment performance - The COVID-19 pandemic significantly impacted 2020, causing economic uncertainty, market volatility, elevated unemployment, and fluctuations in consumer spending, which will continue to affect the business[309][310] - New recruits increased in 2020 due to positive momentum and discounted application fees, while new life-licensed sales representatives faced challenges from pandemic-related closures of licensing centers[314] Primerica, Inc. and Subsidiaries Results of Operations (2018-2020, in thousands) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenues: | | | | | Direct premiums | $2,907,149 | $2,753,866 | $2,667,104 | | Ceded premiums | $(1,580,766) | $(1,569,729) | $(1,581,164) | | Net premiums | $1,326,383 | $1,184,137 | $1,085,940 | | Commissions and fees | $751,271 | $713,804 | $677,607 | | Net investment income | $83,814 | $94,073 | $81,430 | | Realized investment gains (losses) | $(4,996) | $4,965 | $(2,121) | | Other, net | $61,069 | $55,525 | $56,987 | | Total revenues | $2,217,541 | $2,052,504 | $1,899,843 | | Benefits and expenses: | | | | | Benefits and claims | $615,569 | $493,820 | $457,583 | | Amortization of DAC | $224,321 | $254,552 | $239,730 | | Sales commissions | $376,636 | $357,198 | $335,384 | | Insurance expenses | $188,117 | $178,817 | $168,156 | | Insurance commissions | $32,134 | $25,051 | $24,490 | | Interest expense | $28,839 | $28,811 | $28,809 | | Other operating expenses | $245,195 | $237,144 | $229,607 | | Total benefits and expenses | $1,710,811 | $1,575,393 | $1,483,759 | | Income before income taxes | $506,730 | $477,111 | $416,084 | | Income taxes | $120,566 | $110,720 | $91,990 | | Net income | $386,164 | $366,391 | $324,094 | - Total revenues increased 8% in 2020 from 2019, driven by strong sales and persistency in term life insurance and growth in Investment and Savings Products' client asset values[375] - Net income increased 5% in 2020, reaching $386.2 million, primarily due to higher revenues, partially offset by increased benefits and claims (due to COVID-19 mortality) and operating expenses[374][380] - Cash provided by operating activities increased in 2020 due to direct premium growth and positive persistency trends, despite higher cash outlays for policy acquisition costs[413] - The company maintains strong liquidity, with cash flows from operations expected to be sufficient for operating needs, and insurance subsidiaries' capital and surplus exceeding regulatory requirements (RBC in U.S., LICAT in Canada)[410][417][419] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate risk, Canadian currency risk, and credit risk - Market risk is the potential loss of fair value from adverse changes in market rates and prices, such as interest rates and foreign currency exchange rates[438] - Shock-tests are used to model the effects of hypothetical changes in interest rates and Canadian exchange rates on financial condition and results of operations[439] Item 8. Financial Statements and Supplementary Data This section presents Primerica's audited consolidated financial statements and the independent auditor's report for the period - KPMG LLP issued an unqualified opinion on Primerica's consolidated financial statements for the three-year period ended December 31, 2020, and on the effectiveness of internal control over financial reporting as of December 31, 2020[451][452] - A critical audit matter was the evaluation of mortality, persistency, and disability rate assumptions used to estimate future policy benefits for term life insurance contracts, due to high measurement uncertainty and complex auditor judgment[455][457] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosure matters - No changes in, or disagreements with, accountants on accounting and financial disclosure matters occurred during the years ended December 31, 2020 and 2019[651] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective - The company's disclosure controls and procedures were evaluated and deemed effective as of December 31, 2020, with no material changes in internal control over financial reporting during Q4 2020[652][653] - Management concluded that internal control over financial reporting was effective as of December 31, 2020, based on the COSO framework[654] - KPMG LLP issued an unqualified attestation report on the effectiveness of Primerica's internal control over financial reporting as of December 31, 2020[655][658] Item 9B. Other Information This item is not applicable to Primerica, Inc PART III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement[666][671] - A list of executive officers is also provided in Part I, Item X of this report[669] - Primerica has a written Code of Conduct for all directors, officers, and employees, with a separate code for principal executive and senior financial officers, available on its website[670] Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the 2021 Proxy Statement - Information on executive compensation is incorporated by reference from the 2021 Proxy Statement, covering the Compensation Committee, director compensation, and executive compensation[671][672] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details securities authorized for issuance under equity compensation plans Securities Authorized for Issuance Under Equity Compensation Plans (as of December 31, 2020) | Plan | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Primerica, Inc. Second Amended and Restated 2020 Omnibus Incentive Plan | 344,089 | $44.23 | 1,870,633 | | Primerica, Inc. Stock Purchase Plan for Agents and Employees | - | - | 1,847,874 | | Total | 344,089 | $44.23 | 3,718,507 | - The 344,089 securities to be issued include 192,371 unvested restricted stock units, 69,922 outstanding stock options, and 81,796 performance stock units (at target performance)[674] - Further information on security ownership is incorporated by reference from the Proxy Statement[675] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the 2021 Proxy Statement - Information on certain relationships and related transactions, and director independence is incorporated by reference from the 2021 Proxy Statement[676][677] Item 14. Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2021 Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the 2021 Proxy Statement, including the ratification of KPMG LLP and details on the Audit Committee[677] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements, supplementary schedules, and exhibits filed with the report - The report includes consolidated financial statements (Balance Sheets, Statements of Income, Comprehensive Income, Stockholders' Equity, Cash Flows) and notes[678] - Financial statement schedules include Consolidated Summary of Investments, Condensed Financial Information of Registrant, Supplementary Insurance Information, and Reinsurance[679] - An Exhibit Index details various agreements and documents, including corporate governance documents, credit agreements, coinsurance agreements, and share-based compensation plans, incorporated by reference or filed[680][684][685][686] SIGNATURES The report is certified by the company's principal executive and financial officers and directors as of March 1, 2021 - The report is signed by Alison S. Rand, Executive Vice President and Chief Financial Officer, and Glenn J. Williams, Chief Executive Officer, along with other directors, on March 1, 2021[729]