Primerica Investor Presentation

Primerica Investor Presentation
Full Year 2014
Forward‐Looking Statements, Non‐GAAP Financial Measures and Confidentiality
This presentation may contain forward‐looking statements and information. Additional information and factors that could cause results to differ materially from those in this presentation are available in our Form 10‐K for the year ended December 31, 2014, available in the “Investor Relations” section of our website, http://investors.primerica.com. This presentation also contains non‐GAAP financial measures. A reconciliation of those measures to GAAP financial measures is included in our Financial Supplement, which is posted in the financial information page of the Investor Relations section of our website, http://investors.primerica.com. Except for the GAAP reconciliations referred to in the preceding sentence, none of the information on our website shall be deemed to be a part of this presentation.
Reported amounts may not agree due to rounding.
2
Major Distributor of Financial Services to
Middle Income Families
Large sales force allows effective penetration of the vast and frequently ignored middle income market in North America
98,360 life insurance licensed representatives 1
22,600 mutual fund licensed representatives 1
$682 billion of Term Life face amount in force 1
$49 billion in client asset values 1
1 As of December 31, 2014
3
Approximately 4,500 Primerica Regional Vice President businesses in the U.S., Canada and Puerto Rico
Primerica’s Middle Income Clients
Average household income 1
$65,000
Average face amount of issued term life
policy 2
$245,000
Average initial mutual fund investment
Assets in qualified retirement plans
1. Primerica Financial Need Analysis Clients
2. Full‐year 2014
3. As of December 31, 2014
4
3
2
$5,000
74%
Offer Broad Selection of Financial Products
Core Products
Term Life Insurance Products
underwritten by Primerica, Inc. companies
TermNow
(10, 15, 20, 30, 35 years)
CustomAdvantage
(10, 15, 20, 30, 35 years)
Investment & Savings Products
through third‐party providers
Mutual Funds
Managed Accounts
Annuities
401(k)s
5
1 Not all products/services available in all states or provinces. A representative’s ability to market products from the
companies listed is subject to state and federal licensing and/or certification requirements. 2 Not available to
residents of Washington, D.C. 3 In the United States, securities are offered by PFS Investments Inc. (PFSI), 1 Primerica
Parkway., Duluth, Georgia 30099‐0001. 4 PFS Investments Inc. (PFSI) is an SEC Registered Investment Adviser doing
business as Primerica Advisors. PFSI is a member of FINRA and SIPC. Lockwood Advisors, Inc. (Lockwood) is an SEC
Registered Investment Adviser and an affiliate of Pershing LLC, each subsidiaries of The Bank of New York Mellon
Corporation (BNY Mellon). Pershing LLC, member FINRA, NYSE, SIPC. SEC registration neither implies nor asserts the
SEC or any state securities authority has approved or endorsed PFSI or Lockwood or the contents of this disclosure. In
addition, SEC registration does not carry any official imprimatur or indication PFSI or Lockwood have attained a
particular level of skill or ability. Neither Lockwood nor BNY Mellon is affiliated with Primerica. 5 In Canada, mutual
funds are offered by PFSL Investments Canada Ltd., mutual fund dealer, Segregated funds are offered by Primerica
Life Insurance Company of Canada. 6 Neither PCS nor its representatives offer or provide services such as credit
repair or improvement, debt or credit counseling, debt settlement or other similar services.
Competitive Advantage: Distribution Capability
Primerica
Sales Force (in 000s)
Life Licensed Reps
~98
Primerica Mutual Fund
Licensed Reps
Insurance
Agents
71
Brokers
Financial
Advisors
18
~23
Aflac2
State 3 Farm
17
12
9
Allstate 4
TMK 5
BAML7
16
MSSB 6
12
10
Edward 8
Jones
AMP 9
Source: company filings, annual reports and websites.
1. Size of life sales force as of December 31, 2014. Approximately 22,600 sales representatives are also licensed to sell mutual funds in North America as of December 31, 2014.
2. Aflac U.S. licensed sales associates from website dated 2/23/15
3. Number of licensed sales professionals from website dated 2/11/15
4. Number of licensed agents from website dated 2/23/15
6
5.
6.
7.
8.
9.
10.
Number of producing exclusive and independent agents as of 2/23/2015
Wealth management representatives as of 2/23/2015
Number of financial advisors from website dated 2/23/15
Number of financial advisors from website dated 2/23/15
Number of financial advisors from website dated 2/23/15
Number of financial advisors from website dated 2/23/15
6
Raymond 10
James
Competitive Advantage: Large Target Market
With substantial needs…
Household Income
• Inadequate life insurance
20%
• Need help saving
• Too much consumer debt
• Lack of trusted advice
• Need for supplementary income
Primerica’s Target Market
Source: U.S. Census Bureau, Income and Poverty in the United States: 2013, issued September 2014. Based upon 122mm households
7
49%
31%
Strategy to Drive Stockholder Value
Organic Sales Growth
Active Capital Deployment
TEXT
8
TEXT
Long‐Term Organic Growth Strategy
Build Distribution
Build
Distribution
• Distribution growth is beneficial
to all product line results
• Middle income market
demographic trends provide
opportunities
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Enhance
Product
Offerings
• Add products to fill gaps in
middle-income market
financial needs
• Products must complement,
not compete for
discretionary income
LongTerm
Sales
Growth
Long‐Term Organic Growth Strategy
Consistent Focus Leads to Growth
• Enhanced incentive programs and representative training
–
3% growth in the life insurance licensed sales force at year end 2014 versus 2013
–
98,358 life insurance licensed representative as of December 31, 2014
• Expanded product offerings with the addition of variable and fixed indexed annuities as well as managed account portfolios
–
All‐time high Investment & Savings Products sales of $5.68 billion in 2014
–
9% growth in Investment and Savings Product sales in 2014 –
8% growth ending client asset‐values as of December 31, 2014
Future Initiatives
• Balance short‐term incentive programs to increase recruiting levels while maintaining life insurance licensing ratio in the 18‐20% range
• Continue to expand Investment & Savings Products product offerings
• Consider additional product opportunities including debt‐related and supplemental health products
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Capital Deployment Strategy
Anticipated Annual
Capital Deployment 1
Businesses
U.S. Term Life Insurance –
Capital intensive and strictly regulated capital distribution
~$110 million
 Redundant reserve financing transaction completed in 2014 will fund capital redeployment
in 2015 and 2016
 Financing transactions free up assets backing redundant reserves and allow future
statutory distribution to be accelerated
Other Business –
Generally low capital requirements with unrestricted cash flow
~$40 million
 Investment & Savings Products
‒ Free cash flow covers holding company expenses including stockholder dividends and
interest expense
 Canadian Term Life Insurance
‒ Generates distributable capital annually
Total
~$150 million
~$150 million is in addition to current stockholder dividend level
1 In 2015 and 2016
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$760 Million of Capital used to Retire 32% of Primerica Shares since the IPO through 2014
Driver of Growth in Operating Earnings per Diluted Share:1, 2
$3.31
$2.90
$2.72
$0.34
$0.69
$0.57
Diluted Operating EPS impact of share retirement
$2.08
Diluted Operating EPS without share retirement1
$1.72
2010
$2.05
2011
$2.38
$2.33
2012
2013
$2.62
2014
1 The impact of capital deployment to diluted operating EPS is measured assuming all capital deployment transactions had not occurred, no shares or warrants are retired, the capital deployed remains in the investment portfolio earning a 3.5% yield, and all transactional costs and interest incurred related to the transactions removed.
2 Earnings per Diluted Share for the comparable periods was $3.06 (2010 Pro Forma), $2.08 (2011), $2.71 (2012), $2.83 (2013) and $3.29 (2014)
Driver of Growth in ROAE:
Net Operating Return on Adjusted Stockholders’ Equity (ROAE)
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2010
2011
2012
2013
2014
10.9%
11.8%
14.3%
14.7%
15.3%
Net Return on Stockholders’ Equity for the comparable periods was 12.6% (2010 Pro Forma), 11.0% (2011), 13.1% (2012), 13.3% (2013) and 14.3% (2014)
Not a Traditional Life Insurance Company
Primerica
Traditional
Life Company
Operating Revenue1
Fee-Based & Other Revenue
42.4%
Significant Investment & Savings Products
business with substantial recurring revenue
20.3%
Insurance Premiums
51.1%
Stable margin through extensive reinsurance
52.7%
Investment Income
6.5%
Minimal earnings dependency
26.9%
Investment Leverage2
1.9x
Less susceptible to market volatility
Net Annualized
Operating Return on
Average Adjusted Equity3
15.3%
ROAE above average
8.6x
13.7%
Variable cost structure of distribution model provides scalable infrastructure
Note: Traditional Life Company references the mean financial metrics of Torchmark, Lincoln Financial, MetLife and Prudential. Prudential’s metrics are for Financial Services segment only. Peer Adjusted Equity defined as Common Equity less unrealized gains/(losses). 1 For full year 2014
2 Calculated as (Cash + Invested Assets) / Adjusted Equity without unrealized gains
3 Full year 2014 operating income divided by the average of Q1, Q2, Q3 and Q4 2014 average adjusted equity.
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Unique Investment Opportunity
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Sales force
Large North American sales force
Opportunity
Vast opportunity in the middle income market
Income
Diverse sources of recurring income lowers volatility
Equity
Strong return on equity
Earnings
Solid earnings and return of capital
Appendix
15
Investment and Savings Products – By Region and Plan
Average Client Asset Values in 2014 = $46.94 billion 2014 Net Revenue Percentage
Canada Qualified Retirement Plan 13%
Canada Non‐
Qualified Plan
5%
Sales (1)
U.S. Non‐
Qualified Plan
22%
U.S. Qualified Retirement Plan
60%
Existing client assets may be largely unaffected by the proposed DOL rule given transition provisions and other exceptions
Canada Non‐
Qualified Plan
7%
16
(Annualized)
US
1.41%
0.15%
CAN
Total
1.02%
0.50%
1.34%
0.21%
1) Net revenue is defined as commission and fee revenue less commissions paid to the sales force based on product sales activity 2) Net revenue is defined as commission and fee revenue less: (i) commissions paid to the sales force based on product account values including amortization of deferred acquisition costs for segregated funds and (ii) administrative and advisory fees based on client asset values.
Revenue Generating Product Sales in 2014 = $5.18 billion Canada Qualified Retirement Plan
8%
Average Assets (2)
Notes:
U.S. Non‐
Qualified Plan
25%
U.S. Qualified Retirement Plan
60%
*Excludes Managed Accts. (US) and Segregated Funds (CAN)
Exemptions cover the type of revenues we receive; however, subject to where the rule ultimately lands procedural modifications may be necessary to fit within exemptions
• Qualified Retirement Plans are defined as tax advantaged Investments including IRAs, 403b, SEP, and employer benefit plans.
• Percentages above are best estimates using available Information. Where data was not available, an approximation was made based on known percentages. • On a Total product sales basis the composition of sales is as follows: U.S. Qualified Retirement Plan 57%, U.S. Non‐
Qualified Plan 25%, Canada Qualified Retirement Plan 10%, Canada Non‐Qualified Retirement Plan 8%
Core Business Dynamics
Primerica’s Operating Income before Income Tax in 2014
($ in millions)
ISP Operating Income before Income taxes in 2014
DOL Proposed Rule Exposure
2014
14%
Term Life
$201.0
Investment & Savings Products
$146.0
Corporate & Other Distributed Products
($66.8)
Total
$280.2
Note:
$21 million 40%
$58 million $35 million
$32
million Term Life Growth Dynamics
 11% growth in adjusted direct premiums year-todate 2015
 Expect approximately 10% growth in adjusted
direct premiums annually for the next several
years
 Expect Term Life operating income before
income taxes to grow by at least 5% per year,
and more likely by as much as 8-10% per year for
several years, even if sales are flat
17
24%
These figures are
estimates and assign
other operating
expenses that are not
directly tied to a
revenue stream using
reasonable estimates
of what could be
exposed to varying
degrees of DOL impact
22%
Earnings from sales and client assets not impacted by DOL rule:
‒
‒
Canadian ISP
Managed Accounts
‒
Non-Qualified Accounts
Accounts-based earnings, most of which we believe can be preserved
through the transition provisions or adjustments to fee structure
Asset-based earnings from U.S. qualified retirement plans should
remain largely in tact near term but will be pressured over time
Sales-based earnings from U.S. qualified retirement plans that are at
risk dependent on the final rule and/or our ability to execute
investment alternatives