(1) See the Non-GAAP Financial Measures section and the segment Operating Results Reconcilations at the end of this release for additional information.
Term Life Insurance. Term Life results in the first quarter reflect a 13% increase in net premiums versus the prior year period from the continued layering of New Term policies onto our maturing in force premium base. Premium-related and employee-related expenses increased as did the interest expense associated with our redundant reserve financing compared with the first quarter of 2012. Non-deferred commissions were lower than in the prior year period due to the changing nature of our incentive programs. Total incurred claims grew at a rate consistent with our historical experience and policy persistency improved modestly over the prior year period. In the first quarter of 2013, operating revenues increased 11% to $168.4 million and operating income before income taxes grew to $45.8 million compared with the same period a year ago.
Sequentially, operating income before income taxes increased 3% reflecting continued growth in net premiums as well as improved persistency relative to seasonally lower persistency in the fourth quarter. Incurred claims were slightly higher than in the fourth quarter of 2012 while insurance expenses were in line with the prior period.
Investment and Savings Products. First quarter results reflect strong sales and average client asset values, partially offset by growth-related expenses. In addition, legal fees and expenses of $3.9 million were incurred in the first quarter associated with a series of arbitration hearings in 2013, impacting net operating earnings per diluted share by $0.04. During the period operating revenues increased 9% to $108.7 million and operating income before income taxes declined by $2.5 million to $26.4 million compared with the first quarter of 2012.
Sequentially, operating income before income taxes declined 15% compared with the fourth quarter of 2012 primarily reflecting higher first quarter legal fees and expenses and favorable prior period items including the volume-related variable annuity incentive payment. The mix of products sold in the first quarter resulted in modestly lower sales-based income compared with the fourth quarter of 2012 but should provide higher relative ongoing earnings.
Corporate and Other Distributed Products. Results reflect a decline in net investment income due to a lower invested asset base following our stock repurchases as well as a lower yield on our invested assets. Results for the segment were positively impacted by favorable claims experience in the non-term insurance products underwritten by our New York subsidiary. Operating revenues of $29.0 million were 11% lower and operating losses before income taxes grew by $2.4 million compared with the first quarter of 2012.
Taxes
Our effective income tax rate for the first quarter of 2013 was 35.5% compared with 34.2% in the prior year period primarily driven by tax benefits recorded in the first quarter of 2012 related to Canadian tax reserves. Sequentially, the effective income tax rate increased from the fourth quarter of 2012 due to the recognition of certain tax benefits due to statute of limitations expirations that occur annually at the end of the calendar year.
Capital and Liquidity
As of March 31, 2013, our investments and cash totaled $2.12 billion compared with $2.07 billion as of December 31, 2012. Our invested asset portfolio had a net unrealized gain of $175.4 million (net of unrealized losses of $4.2 million) at March 31, 2013, down from a net unrealized gain of $182.6 million (net of unrealized losses of $4.3 million) at December 31, 2012. Net realized gains for the quarter were $2.3 million, which included $0.1 million of other-than-temporary impairments.
Our debt-to-capital ratio decreased slightly from the end of the fourth quarter to 22.3% as of March 31, 2013. Primerica Life Insurance Company’s statutory risk-based capital (RBC) ratio is estimated to be in excess of 610% as of March 31, 2013. Following the $150 million ordinary dividend, PLIC’s RBC ratio is estimated to be in excess of 480%, leaving the company well-positioned to support existing operations and fund future growth.
Net income return on stockholders’ equity (ROE) was 12.0% (13.3% on a net operating income and adjusted stockholders’ equity (ROAE) basis) for the quarter ended March 31, 2013. The $150 million ordinary dividend from Primerica Life Insurance Company to Primerica, Inc. provides opportunities for ROAE expansion in 2013.
Non-GAAP Financial Measures
We report financial results in accordance with U.S. generally accepted accounting principles (GAAP). We also present operating revenues, operating income before income taxes, net operating income and adjusted stockholders’ equity. Operating revenues, operating income before income taxes and net operating income exclude the impact of realized investment gains and losses for all periods presented. Operating income before income taxes and net operating income exclude the expense associated with our IPO-related equity awards for all periods presented. Adjusted stockholders' equity excludes the impact of net unrealized gains and losses on invested assets for all periods presented. Our definitions of these non-GAAP financial measures may differ from the definitions of similar measures used by other companies. Management uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating our financial performance. Furthermore, management believes that these non-GAAP financial measures may provide users with additional meaningful comparisons between current results and results of prior periods as they are expected to be reflective of our core ongoing business. These measures have limitations, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Reconciliations of non-GAAP to GAAP financial measures are attached to this release.
Earnings Webcast Information
Primerica will hold a webcast Wednesday, May 8, 2013 at 10:00 am EDT, to discuss first quarter results. This release and a detailed financial supplement will be posted on Primerica’s website. Investors are encouraged to review these materials. To access the webcast go to http://investors.primerica.com at least 15 minutes prior to the event to register, download and install any necessary software.
A replay of the call will be available for approximately 30 days on Primerica’s website, http://investors.primerica.com.
Forward-Looking Statements
Except for historical information contained in this press release, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements contain known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from anticipated or projected results. Those risks and uncertainties include, among others, our failure to continue to attract and license new recruits, retain sales representatives or license or maintain the licensing of our sales representatives; our or our sales representatives’ violation of or non-compliance with laws and regulations; incorrect assumptions used to price our insurance policies; the failure of our investment products to remain competitive with other investment options; our failure to meet RBC standards or other minimum capital and surplus requirements; a downgrade or potential downgrade in our insurance subsidiaries’ financial strength ratings or our senior debt ratings; inadequate or unaffordable reinsurance or the failure of our reinsurers to perform their obligations; heightened standards of conduct or more stringent licensing requirements for our sales representatives; the inability of our subsidiaries to pay dividends or make distributions; the loss of key personnel; and general changes in economic and financial conditions, including the effects of credit deterioration and interest rate fluctuations on our invested asset portfolio. These and other risks and uncertainties affecting us are more fully described in our filings with the Securities and Exchange Commission, which are available in the "Investor Relations" section of our website at http://investors.primerica.com. Primerica assumes no duty to update its forward-looking statements as of any future date.
About Primerica, Inc.
Primerica, Inc., headquartered in Duluth, GA, is a leading distributor of financial products to middle income households in North America. Primerica representatives educate their Main Street clients about how to better prepare for a more secure financial future by assessing their needs and providing appropriate solutions through term life insurance, which we underwrite, and mutual funds, annuities and other financial products, which we distribute primarily on behalf of third parties. In addition, Primerica provides an entrepreneurial full or part-time business opportunity for individuals seeking to earn income by distributing the company’s financial products. We insured more than 4.3 million lives and approximately 1.9 million clients maintained investment accounts with us at December 31, 2012. Primerica stock is included in the S&P MidCap 400 and the Russell 2000 stock indices and is traded on The New York Stock Exchange under the symbol “PRI”.
Investor Contact:
Kathryn Kieser
470-564-7757
Email: investorrelations@primerica.com
Media Contact:
Mark L. Supic
470-564-6329
Email: mark.supic@primerica.com
