Primerica - Q2 2023
August 8, 2023
Transcript
Operator (participant)
Greetings. Welcome to Primerica's second quarter 2023 earnings webcast. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note that this conference is being recorded. At this time, I'll turn the conference over to Nicole Russell, Senior Vice President of Investor Relations. Ms. Russell, you may now begin.
Nicole Russell (SVP of Investor Relations)
Thank you, Rob. Good morning, everyone. Welcome to Primerica's second quarter earnings call. A copy of our earnings press release, along with materials that are relevant to today's call, are posted on the investor relations section of our website. Joining our call today are our Chief Executive Officer, Mr. Glenn Williams, our Chief Financial Officer, Ms. Allison Ram. Glenn and Allison will prepare, will deliver prepared remarks, then we will open the call up for questions. During our call, some of our comments may contain forward-looking statements in accordance with the safe harbor provision of the Securities Litigation Reform Act. The company assumes no obligation to update these statements to reflect new information.
We refer you to our most recent Form 10-K filing, as may be modified by subsequent Forms 10-Q, for a list of risks and uncertainties that could cause actual results to materially differ from those expressed or implied. We will also reference certain non-GAAP measures, which we believe provide additional insight into the company's operations. Reconciliations of these non-GAAP measures to their respective GAAP numbers are included at the end of their earnings press release and available on our investor relations website. I would now like to turn the call over to Glenn.
Glenn Williams (CEO)
Thanks, Nicole, and thanks everyone for joining us today. Our strong second quarter results highlight the value of Primerica's complementary lines of business and the continued efforts of our team to grow our distribution capabilities. Growth in our sales force and the appeal of our life insurance products are creating sales momentum, despite the continuing financial pressure on middle-income households. Adjusted operating revenues of $690 million rose 3% year-over-year, while adjusted net operating income of $145 million increased 11%, and diluted adjusted operating earnings per share of $3.99 increased 18% compared to the prior year period.
These results reflect the predictable growth in our Term Life business and the benefit of higher interest rates on our investment portfolio, both of which more than offset the continued pressure of lower sales commissions in our investment and savings products business. The absence of a negative tail revenue adjustment in the Senior Health segment this quarter was an improvement versus the $5.4 million negative tail adjustment recorded in last year's second quarter. Our life license sales force growth continues to be driven by two key dynamics, the attractiveness of additional income from our entrepreneurial business opportunity during uncertain economic times, and our focus on and improvement in our life licensing process. During the quarter, we recruited over 86,000 individuals, a 23% increase compared to the second quarter of 2022.
We also continue to see our hard work over the last few years in creating a clear path through the entire licensing process pay off, with over 12,600 new reps licensed during the quarter, a 10% improvement over the prior year period. We ended the quarter with nearly 138,000 life licensed reps, and remain confident that our momentum will lead to a 3% or 4% increase in the size of our sales force for the full year of 2023. Turning next to our sales results, starting with the Term Life business. The appeal of our new insurance products continues to drive solid year-over-year growth. During the quarter, we issued nearly 97,000 new Term Life policies, up 9% compared to the prior year period on a comparable one life per policy basis.
Productivity was at the upper end of the adjusted historical range at 0.24 policies per life license rep per month. We issued more than $32 billion of new Term Life face amount in the quarter, a 16% increase over the prior year period. As a reminder, new face amount issued captures both the face amount of newly issued policies and any additions to in-force policies. This provides a more complete picture of the total protection we provide for our clients. Higher cost of living, of course, remains a real headwind for middle-income families. We believe this is a key driver of second quarter lapse experience, which, in the aggregate, is 5%-10% higher across all durations versus pre-pandemic levels. To provide some context, at the height of the financial crisis in 2009, lapses were 15% higher than pre-crisis levels.
Given the magnitude of that crisis, it took about two years for lapse rates to normalize. It's impossible to know whether we've reached the height of this cycle or how long it will take for lapses to normalize. However, we believe the appeal of our new life insurance products and the continued growth in the size of our sales force can partly overcome current inflationary pressures, which in turn give us confidence that we can grow full year policies issued by 4%-6% in 2023. Turning to the ISP segment. Total sales of $2.4 billion during the quarter declined 11% compared to the prior year quarter's still elevated activity, although current sales levels remain higher than pre-pandemic levels. Our clients remain focused on their long-term goals despite the economic uncertainty dominating headlines, and they continue to invest systematically each month.
However, new sales are still under pressure. We believe the compounding impact of high inflation over the last few years has slowed middle-income families' ability to invest for the future. It is also possible that clients find the current high rates in money market or other high-yield savings options to be an attractive alternative to equity markets. Even though headwinds persisted, we recorded $542 million of net new client inflows during the quarter. Ending client asset values have largely recovered and reached $91.6 billion at the end of the quarter. This represents a 6% difference compared to their all-time quarterly high of $97.3 billion, set on December 31, 2021. Given the continued uncertainty, it's difficult to predict sales levels beyond the next few months.
Based on July trends, we believe year-over-year sales will be down around 5% in the third quarter. Looking next at Senior Health. Churn rates have stabilized in the Senior Health distribution industry, which allows us to estimate lifetime values more accurately. We've also made good progress in reducing the cost of acquisition by focusing on agent productivity and careful lead utilization. We believe these steps have positioned us well for the October opening of the annual enrollment period. We've adjusted our agent compensation model to incentivize and drive desired behavior, and we've made meaningful improvements to technology that allow for a more efficient and improved enrollment process. We believe this business is generally headed in the right direction and continue to evaluate opportunities in the context of an evolving industry.
We do not anticipate the need to provide capital to this subsidiary in 2023, and we continue to evaluate future growth opportunities. Primerica's balance sheet remains very strong, with cash at the holding company of approximately $340 million at quarter end. We remain committed to returning capital to stockholders, as evidenced by our repurchasing of an additional $111 million of our common stock and paying $24 million in regular dividends during the second quarter. In summary, I'm pleased with our progress and the momentum building across our businesses. I'm proud that we can continue to serve our clients by providing them with the education and the motivation necessary to put their financial plans into action. Now, I'll turn it over to Alison.
Alison Rand (EVP and CFO)
Thank you. Good morning, everyone. Now that you've heard from Glenn on distribution trends, let me expand on our second quarter's financial results. Before doing so, I'd like to briefly discuss the immaterial errors in prior period results associated with the adoption of LDTI that we identified this quarter. The errors were related to double-counting certain reinsurance premiums and excluding a small portion of capitalized costs from the historical cash flows used in our valuation model. In aggregate, these adjustments reduced the full year 2022 benefits and claims ratio by approximately 70 basis points to 57.9% and increased the 2022 DAC amortization ratio by 10 basis points to 11.8%. The adjustments added approximately $3.5 million to pre-tax income each quarter, or roughly $0.07 to diluted adjusted operating earnings per share.
While these changes were immaterial to the quarter's results, it was necessary to revise results back to the January 1, 2021, LDTI adoption date to properly reflect the cumulative effect on the balance sheet. Financial information prior to the second quarter of 2023 has been revised, as reflected in the fourth quarter 2022 revised restated financial supplement and the second quarter 2023 financial supplement, both of which are available on our investor relations website. All year-over-year comparisons that follow are in relation to 2022 revised results. Now, let's turn to our second quarter results, starting with the Term Life segment, where pre-tax operating income grew 9% year-over-year. Adjusted direct premiums grew 6% year-over-year, in line with our prior guidance.
While lapse rates remain elevated across many durations, the heightened demand for our new term life insurance product has helped mitigate the associated loss of premium revenues. With solid projected sales growth during the second half of 2023, we remain confident that ADP growth will stay around 6% for the remainder of the year. Total operating revenue growth of 3% was lower than ADP growth, reflecting the continued rise in other ceded premiums. As a reminder, these are YRT-based ceded premiums that have a growth pattern that match expected claims rather than being level like direct premiums are. While GAAP requires us to treat other ceded premiums as a contra revenue, for performance analysis, we include the line item as a component of our benefits and claims ratio.
The second quarter benefits and claims ratio was 57.6% versus 57.7% in the prior year period. Both periods had lower than expected incurred claims, At this point, we view this as normal volatility rather than an ongoing shift in claims experience. Given our close proximity to the LDTI adoption date, experience variances are largely spread to future periods. We expect the full year 2023 benefits and claims ratio to be approximately 58%. The DAC ratio was 11.8% versus 11.7% in the prior year period, demonstrating the expected consistency in this ratio under LDTI. We expect the DAC ratio to stay around this level for the remainder of the year. LDTI requires us to review our assumptions at least annually, and we plan to do so during the third quarter.
While experience for our business has historically been very steady, the pandemic and current economic environment have created some volatility. In our view, this volatility is largely short term and not indicative of permanent shifts in our business that would require changes to our long-term assumptions. One small assumption change we do expect to make is for general mortality improvement. As is typical in the industry, our assumptions provide for a modest level of future mortality improvements based on population trends. The assumption applies for a set number of years, regardless of policy issue date. We expect a favorable impact, impact in the third quarter of $1 million-$3 million from moving our mortality assumptions forward by a calendar year. To wrap up Term Life, the second quarter insurance expense ratio was 7.5%, compared to 8% in the prior year period.
The first half of 2022 included a temporary step up in expenses due to the timing of the 2022 biennial convention and costs for a total of three field leadership events in 2022, as opposed to our usual pattern of two events per year. Consolidated operating expenses will be addressed later in my remarks. Turning to the investment and savings product segment, second quarter operating revenues of $250 million to pre-tax, pre-tax operating income of $60 million declined by 4% and 5%, respectively, as the recovery of client asset values helped offset earnings pressure from lower investment sales. Sales-based revenues decreased 15%, while revenue-generating sales fell 12%. Revenues declined at a higher rate than sales due to the discontinuation of front-load products in Canada in June of last year. Sales-based commission expenses declined in correlation with related revenues.
Asset-based revenues increased 5%, while average client asset values rose 1%, reflecting the favorable revenue dynamics of a higher mix of assets in managed accounts and mutual funds sold under the principal distributor model in Canada. Asset-based commission expenses increased in line with the related revenues after excluding revenues on Canadian segregated funds, since the related expenses are reflected in insurance commissions and amortization of DAC. Looking next at the results in our Senior Health segment, LTV per approved policy of $880 during the quarter improved on a year-over-year basis, largely due to annual carrier commission rate increases. Churn levels have stabilized in recent quarters, and we did not need to record a tail revenue adjustment this period. In contrast, a $5.4 million negative tail revenue adjustment was recognized in the prior year period.
CAC per approved policy declined 10% year-over-year as we continue to become more proficient in managing lead utilization. Keep in mind that 2Q activity is lower than the 4Q and 1Q, as fewer seniors are eligible to enroll in Medicare. Lead conversion rates typically decline during the 2Q, which in turn increases labor and lead costs per sale. As a result, the LTV to CAC ratio was 0.9 times for the quarter. As Glenn noted earlier, we continue to operate prudently to ensure we are managing growth responsibly. We've recognized a pre-tax operating loss of around $10 million through June thirtieth. We expect the full year loss to be at or slightly below this level, with a loss in 3Q consistent with that recognized in 2Q and a modest profit in the 4Q during AEP.
We do not expect that the Senior Health business will require additional capital to fund operations in 2023. The corporate and other distributed products segment recorded an adjusted loss of $3.6 million during the quarter, compared to a loss of $9.1 million during the prior year period. The improvement was driven by an $11 million increase in net investment income, partially offset by higher operating expenses. We also recognized a $2 million reinsurance recoverable write-off on a block of discontinued products in our New York subsidiary from the expected liquidation of a reinsurer. Our average rate on new investment purchases was 5.46% for the quarter, with an average rating of double A minus. Our portfolio's duration remains relatively short at 4.7 years.
While the recent rate environment has provided for higher earnings on cash and short-term investments, we continue to look opportunistically for high quality, longer-term investments where we feel we are being paid for the risk. If the rate environment stays consistent, we expect NII to be around $34 million per quarter for the remainder of 2023. As we noted last quarter, we have limited exposure to commercial real estate, especially office exposure, and the exposure we do have is an investment grade on average. Our invested asset portfolio ended the period at an unrealized loss of $288 million, which is largely due to the steep rise in interest rates since the beginning of last year. We regularly evaluate the portfolio for possible credit impairments and do not believe the large unrealized loss is due to significant credit concerns with our holdings.
We continue to have the intent and ability to hold these investments until maturity. Finally, consolidated insurance and other operating expenses of $142 million during the quarter increased around 3% year-over-year. The primary drivers were higher technology spend, including rising software costs and continued investments in technology, higher employee-related costs driven by market wage adjustments and fewer open positions, higher legal costs, and as well as normal growth in our business. The year-over-year comparison benefited from $5 million higher costs in the prior year period, associated with the additional field leadership events held in 2022. The second quarter is the last quarter we will see the year-over-year benefit from the timing of field leadership events. Looking ahead, we expect third quarter insurance and other operating expenses to increase around $12 million or 9% year-over-year.
The drivers of the increase are generally consistent with those seen in the second quarter, with about half of the increase coming from higher compensation costs, another $4 million from technology, and $2 million from normal growth in the business. On a full year basis, we expect insurance and other operating expense growth of around 5%. With that, I will turn the call over to the operator for questions.
Operator (participant)
Thank you. We'll now be conducting a question-and-answer session. If you'd like to ask a question today, please press star one from your telephone, telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Thank you. Our first question comes from the line of Wilma Burdis with Raymond James. Please proceed with your questions.
Glenn Williams (CEO)
Good morning, Wilma.
Wilma Burdis (Senior Equity Analyst)
Hey. Hey, good morning, everybody. I guess, first question, just on Senior Health. Should we expect the 3Q results to be similar to 2Q, given, you know, some feasible, unfavorability for the business?
Glenn Williams (CEO)
Yes, Wilma, generally, second and third quarters are very similar in their reaction. As you know, the fourth quarter is the, the largest production quarter with AEP, and then the following first quarter with OEP is where, the, the second level of business is done. Second and third quarters generally look very similar. Third quarter could be even a little less activity than the second quarter, but generally, they're pretty close.
Wilma Burdis (Senior Equity Analyst)
Okay, thank you. Then a quick follow-up on that one. It sounds like you're committed to no capital contributions for 2023, how should we think of 2024?
Alison Rand (EVP and CFO)
Hi, Wilma. I would say at this point, we do not expect to have any significant capital contributions in 2024. As we've done throughout this year and will continue to do next year, we're going to build this business very prudently. The only way we would ever really need some capital to be infused is if we try to have very dramatic growth, and that would then be a short-term infusion of capital. Our plans right now are to continue with a, you know, a relatively controlled growth based on what we are finding throughout this AEP and next OEP, and to see where 2024 should grow from there. Again, there may be some, but if anything, it would be very small.
Wilma Burdis (Senior Equity Analyst)
Thank you. Then one more. Could you just talk about... The Term Life sales appear to be better than expected, while the ISP sales were a bit worse than expected, but seems like there's a lot of cost of living pressures, as you discussed. Maybe just talk about why it's impacting the segments a little bit differently.
Glenn Williams (CEO)
Yeah, Wilma, that's not that unusual to have the two businesses go in different directions temporarily. That's the reason we enjoy the complementary nature of the two, is often one is strong when the other is a little weak, and that's what we're seeing right now. The strength in the life business is driven by our growing sales force. We have stronger distribution, and also, I believe there's a continued positive impact of the improvements we made to our product set almost a year ago now. So that is really overcoming the headwinds, we believe, of the higher cost of living in middle-income households, which we definitely feel that's a headwind. It's just that we've got a stronger tailwind from those two positives on the life side.
The investment side, we believe, is being hampered by the continued uncertainty and negativity that people are hearing about the marketplace, even though, you know, returns are certainly improving in the market. There's still so many questions about, you know, what does the future hold? Which are interest rates, have they gotten as high as they're going to get? Has inflation slowed down? It certainly hadn't turned the opposite direction, so prices are still increasing, just at a slower rate. There are alternatives because of the higher interest rates. All that's working together, I think, to impede the growth in our ISP business, more so than you see in the life business.
As we stated, we were coming off of record levels in 2022, particularly, first quarter of last year and during 2021. Where we've landed right now is we're getting pretty close to the same quarterly numbers for sales as last year, within a few percentage points. It's still significantly higher than where we were during pre-pandemic. So we had that spike during 2021, the first part of 2022, and things have come back down due to all those headwinds we described. We're in a pretty strong position where we've landed, and we do see that the comparisons are growing more favorable, as we noted in the prepared comments, down just probably a few percentage points in the next quarter.
Things are starting to stabilize, and if we can get some confidence in, in some of the conversations around the future, we believe we're in a good position for the future in our ISP business.
Wilma Burdis (Senior Equity Analyst)
... Okay, thank you very much.
Glenn Williams (CEO)
Certainly.
Operator (participant)
Our next question is from the line of Ryan Krueger with KBW. Please proceed with your question.
Glenn Williams (CEO)
Good morning, Ryan.
Ryan Krueger (Managing Director, Equity Research)
Hi. Hey, good morning. I had a, I guess, a somewhat similar but slightly different question. Why do you think the, in Term Life, specifically, that year, that the inflationary pressures are impacting lapses but not sales? Is, is it just more of a function of, of the new product and the excitement around that?
Glenn Williams (CEO)
Yeah, again, I think it's, it's the same thing. I mean, sales generally follow sales force growth, fundamentally, the new, new product and the excitement around it, our ability to meet the needs of families, more easily, more quickly and, and with more clarity, I think, has got our sales force energized and excited about talking to more new clients. We do see every month, as clients struggle with the higher cost of living, they're making those, those priority decisions about what bills get paid and what bills, you know, maybe are delayed to a later time, and that does tend to impact persistency of sales that were made previously, whether it was earlier this year or in past years.
It is normal for those two dynamics to travel more together, but we just got positives on the front end of the business that I think are a little stronger and are pushing sales, while the families are struggling with, you know, all of their payments for all of their bills in a lot of situations, and that's having the negative impact on persistency.
Ryan Krueger (Managing Director, Equity Research)
Okay, thanks. On the assumption review, Alison, is your, just from your earlier comments, is your view that the higher lapses, because they are likely a short-term phenomenon, would it need to be factored into the longer term assumptions?
Alison Rand (EVP and CFO)
Yes, that is correct. Our plan at this point is to treat any fluctuations that we're seeing in lapses as experience variances, not assumption changes.
Ryan Krueger (Managing Director, Equity Research)
Okay, great. Thank you.
Operator (participant)
Our next question has come from the line of Jeff Schmitt with William Blair. Please proceed with your question.
Jeff Schmitt (Research Analyst)
Hi, good morning, everyone. Good morning, Glenn. Question on the lap rates, and I think that you had mentioned this in your prepared remarks, but have they fully normalized from the pandemic and now they're sort of weaker than historical levels? Or are they still moving back to historical levels?
Alison Rand (EVP and CFO)
Yes. They have definitely normalized from what we saw through COVID, and that actually happened last year, that wasn't a 2023 event. You know, again, this is, this is a little bit of an art here. We're going back and trying to determine what pre-pandemic was. Historical norms pre-pandemic, the pandemic was a significant event. It did create new patterns, and we don't know how much, if any of that, will continue on a long-term basis. Just so you know, the way we come up with our version of what we're calling pre-pandemic, is we're looking at 2019 activity. When all is said and done, we are looking at things in relation to where we were just prior to the pandemic, and from that perspective, you know, in aggregate, we're looking at about 5%-7% higher.
Is that perfect? Is 2019 an exact picture of historical trends? No, but we think it's a good proxy for, you know, where we were heading into the pandemic. So again, 5%-7% above right before the pandemic. Do believe it's largely driven by ec- the economic environment, simply because we're seeing it not just in sort of early duration persistency, where maybe you would say somebody wasn't committed to the product. We're seeing it across many durations. And, you know, when you start to see people giving up a policy after several years of paying premiums on a Term Life policy, you suspect it's largely because of ec- economic factors.
Jeff Schmitt (Research Analyst)
Got it. How many agents are licensed to sell investment products now? I, I think historically it was around 24,000, but just given how strong sales have been and sort of continue to be, did interest in getting those licenses increase, or how's the number trending?
Glenn Williams (CEO)
Yeah, we're at total U.S. and Canada, just a little over 25,000 at this point. That's been fairly stagnant. It, it, it doesn't move quickly. It, it, it has a different set of dynamics that drive it, much like the, the difference in our two business lines, two major business lines that we discussed earlier. You're right, when sales are strong and growing, there's more interest in getting licensed. When people see success in a business line they're not in, they tend to get interested in getting in that line of business. We have seen some slowing of that licensing momentum as sales have come down off the record peaks. We anticipate as we level out and start the next phase of growth, we'll see increased interest.
We always recognize that by growing the size of our life sales force, we're increasing the number of those that are eligible and likely to get licensed. That's a, that's a, that's a good indicator of what could happen in the future. The growing life sales force is a positive for our investment business in the years to follow. We think when the attitudes turn around, we'll, we'll see some energy in that line of business. We'll see licensing increase at that point.
Jeff Schmitt (Research Analyst)
Okay, great. Thank you.
Glenn Williams (CEO)
Sure.
Operator (participant)
Our next question is coming from the line of Suneet Kamath with Jefferies. Please proceed with your question.
Glenn Williams (CEO)
Good morning, Suneet.
Suneet Kamath (Senior Research Analyst)
Hey, good morning, guys. Just to go back to the lapse rate, one, one more time in term, can you give us any color in terms of how the lapses sort of developed as we moved through the second quarter? I guess what I'm trying to figure out is, is the trend sort of that the lapses remain high, or are they getting higher or lower? Just some directional help would be helpful.
Alison Rand (EVP and CFO)
Yeah, again, all of this put the caveat on what I said earlier, that it's all done in relation to what we were seeing in 2019. There is seasonality in our lapse rates. We've always seen it. The second quarter is historically a very strong quarter for persistency. With all that said, it looked like it was about in the 3%-5% range in the first quarter, and it's in the 5%-7% range in the second quarter. What I don't know is that, is that actually a progression that something's deteriorating, or if some of that is simply because of the seasonality in the business.
I'd say, again, given the fact that this is sort of a rough comparison just to 2019 and nothing exact, if you will, I think going from maybe the three to five to five to seven is saying it's largely in the same zone, maybe a slight bit of deterioration.
Suneet Kamath (Senior Research Analyst)
Got it. Okay, that's helpful. Then, I guess, pivoting to, to Senior Health, you know, you've talked a lot about wanting to get comfortable with the profitability of the business before you sort of accelerate growth. Just from a, a timing perspective, I guess, how, how long do you think it'll take for you guys to get your arms around, you know, this business? Is it, you know, a couple of quarters, or are we going to need to see results sort of through 2024 before you have a real good handle on, you know, kind of what's going on under the hood? Thanks.
Glenn Williams (CEO)
Yeah, that's a great question, Suneet. As we, as we look at it, we obviously are impatient to be able to make conclusions and decisions, but we're balanced that with some patience as well, because we recognize in this business the real quarters that as we talked about earlier, that you can evaluate your success and your progress on, are primarily the fourth quarter and the first quarter. While we are working hard during quarters two and three to improve the business, you often don't see the results of your improvement, and then can assess it until after you experience the, the fourth quarter and the following first quarter, and then you have time to assess that business. Obviously, sales are, are real time, but the quality of that business and the persistency of it takes some time.
We're definitely going to be beyond this next AEP and OEP for us to be able to evaluate where we are and whether we think it's time to accelerate. We think by the time we get beyond the next two periods, Q4 of this year and Q1 of next year, we'll have much more information about the results of the efforts we've made, and we'll be able to make some more decisions at that point. We're, we're taking it a step at a time. We're moving very deliberately. We, we don't want to get too far out over our skis until we really think we've got our arms wrapped around the business. It's better to be a little too conservative than it is too aggressive, in our opinion.
Suneet Kamath (Senior Research Analyst)
Understood. Thank you.
Glenn Williams (CEO)
Sure.
Operator (participant)
Our next questions are from the line of Mark Hughes with Truist Securities. Please proceed with your questions.
Glenn Williams (CEO)
Good morning, Mark!
Operator (participant)
Mr. Hughes, your line is unmuted for questions.
Mark Hughes (Managing Director, Equity Research)
Oh, yeah, here I am. I'm sorry, I was on mute. Good morning. Morning, all.
Glenn Williams (CEO)
Morning.
Mark Hughes (Managing Director, Equity Research)
Allison, in the Term Life business, the ceded premium ratio, I, I think you touched on this earlier, and you probably explained this in the past, but I'll, I'll ask again. The ratio has been moving up, you know, 100, 150 bps, year-over-year for the last several quarters. Does that continue? Is that a function of the interaction between the benefit ratio and the adjusted direct premiums? Should that stabilize? I'm just sort of thinking how, how to model that on a go-forward basis. Should it continue to inch up, or does it stabilize at some point here?
Alison Rand (EVP and CFO)
Yeah. And again, like I said in my comments, according to GAAP, I have to call that a contra revenue. Realistically, the way we look at other ceded premiums, you know, analytically, it's a component of our benefits and claims ratio. That number is going to continue to grow. We cede 90% of our mortality risk under YRT Reinsurance. Our direct premiums are level. You know, what an insurer pays is the same for the entire level term period of their policy. When you go, the difference of the mortality cost in year one versus year five is significant. The other ceded premium line has always and will continue to grow much faster than the direct premium line. There is nothing unusual about this. This trend will not stop.
I think what's really important to understand from a P&L perspective is you don't see any of that volatility hitting the bottom line because the ceded reserves take all that into consideration and smooth out or levelize out the cost of the reinsurance. It is a function of the fact that GAAP requires the presentation a specific way, but economically, you have to look at what we're paying in line with the benefit cost we're getting through a reduction in our reserves. You have to think about those two holistically, again, which is why we include it as a component of the benefits and claims ratio.
It does create a really strange anomaly when you look at our revenue growth, because it artificially suppresses it, when realistically, again, that is just balancing out the growing cost of benefits as our block of business ages.
Mark Hughes (Managing Director, Equity Research)
Did you give guidance for the Term Life operating profit relative to just the direct premium?
Alison Rand (EVP and CFO)
We, we didn't. There was a little bit of lumpiness this quarter. Again, two things. One is persistency is always strong in the second quarter. Also, this is the last quarter we have, where we have this benefit, if you will, of the fact that we had elevated operating expenses last year because of the timing of our, our, our field leadership events. I think it will come down a little bit from where it was in the second quarter, but it should stay about this range. If you remember all the things I've been saying about LDTI and what you've seen thus far, is from period to period, especially because we're not expecting any large assumption changes, the benefit ratio and the DAC ratio are going to remain pretty consistent.
The real anomaly or driver could be if there is any quarterly fluctuation in expenses. Although at this point, like I said in my comments, we're not assuming anything outside of what we've been saying for the third and fourth quarter on operating expenses. I think it.
Mark Hughes (Managing Director, Equity Research)
Does that say sort of, high-
Alison Rand (EVP and CFO)
It's gonna come down a little bit.
Mark Hughes (Managing Director, Equity Research)
Yeah, maybe high 20s? If it was 23% this quarter.
Alison Rand (EVP and CFO)
yeah, no, it'll be lower than that.
Mark Hughes (Managing Director, Equity Research)
high 2022.
Alison Rand (EVP and CFO)
It'll be lower.
Mark Hughes (Managing Director, Equity Research)
Yeah, no, high, high 20, high 20s.
Alison Rand (EVP and CFO)
Oh, high 20s. I see what you're saying. It'll be somewhere lower than the 23. Again, it's really gonna be a function of how operating expenses come in, and if we have the one thing that could be a volatility, and we see a little bit of it, in the last two quarters, is if we have to do any remeasurements based on mortality, actual experience. Again, that's been in the $1 million-$2 million range, so nothing too significant.
Mark Hughes (Managing Director, Equity Research)
Yeah. Okay. Glenn, on the recruiting front, could you... I think you gave guidance for the sales force growth for the full year. Did you make any comments about what you expect in terms of recruiting growth next quarter, balance of the year?
Glenn Williams (CEO)
Yeah, Mark, we, we, because we, you know, provide incentives and recruiting, numbers tend to, to move pretty significantly quarter to quarter. For example, in our comparisons for the third quarter, you're gonna be comparing to the convention incentives that we ran, a year ago, coming out of the convention, and we really spiked recruiting in the third quarter. We won't recruit at those levels in the third quarter because we're, we're not running any incentives at this point. It's all kind of, fundamental, organic growth that we're seeing right now. We expect recruiting to continue to be strong, but we started trying to provide the, the net, the sales force growth, so that you really understand when recruiting spikes and sometimes we don't get the pull-through from licensing.
Rather than go through all that noise, we've just kind of cut to the bottom line, which is the sales force growth. For the third quarter, specifically, we're expecting a strong recruiting quarter. It won't compare in top-line numbers to all of the special incentives we had a year ago, but we're expecting it to be a good quarter for us.
Mark Hughes (Managing Director, Equity Research)
Thank you very much.
Glenn Williams (CEO)
All right.
Operator (participant)
Thank you. This will conclude today's question and answer session, and this also conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time and log off your computers. Thank you for your participation.