Primerica - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered double‑digit top-line and adjusted EPS growth year over year, driven by strong ISP sales and steady term life premium growth; total revenue was $788.1M (+12% YoY) and diluted adjusted operating EPS was $5.03 (+17% YoY).
• Term Life operating margin compressed to 21.3% (vs. 22.6% a year ago) as insurance expenses rose and a $4.2M actuarial model refinement added to reserves; excluding the refinement, benefits & claims ratio was 57.9% (vs. 58.2% LY).
• ISP sales rose 41% to $3.3B with net inflows of $731M and client assets ending at ~$112.1B (+16% YoY), aided by demand for variable annuities and managed accounts; ISP pretax income climbed 31% to $82.0M.
• Capital return stepped up: the Board authorized a new $450M buyback through 12/31/2025 and increased the quarterly dividend 16% to $1.04; RBC remained robust at ~430%.
• Management guided 2025 ADP growth of ~5%, Term Life benefits & claims ratio ~58%, DAC+commissions ~12%, and operating margin ~22%; consolidated insurance/other opex expected to rise ~$40M (6–8%), with elevated tech spend to improve productivity.

What Went Well and What Went Wrong

What Went Well

• Life‑licensed sales force reached a record 151,611 (+7% YoY), supported by sustained recruiting/licensing momentum; CEO highlighted another year of double‑digit adjusted operating earnings growth.
• ISP momentum: sales +41% to $3.3B; client assets +16% to $112.1B with $731M net inflows, driven by variable annuities (higher up‑front fees) and mix shift toward managed accounts and Canadian proprietary mutual funds.
• Capital discipline: completed $44.4M buyback in Q4, launched new $450M authorization, and raised dividend to $1.04; CFO reiterated sustainable ~80% capital return of earnings longer‑term and strong RBC ~430%.

What Went Wrong

• Term Life operating margin declined to 21.3% on higher variable expenses (premium growth, recruiting/licensing), incentive comp, and technology costs; benefits & claims ratio reported at 58.6% due to an actuarial model refinement (+$4.2M reserves).
• Persistency/lapses remain elevated across durations (particularly years 2–5), tied to middle‑income cost‑of‑living pressures, constraining future ADP growth despite stabilization in Q4; management expects normalization over time.
• Corporate & Other recorded a small adjusted pretax loss ($1.0M), and unrealized losses in the investment portfolio increased QoQ due to rates—not credit concerns—raising mark‑to‑market pressure.

Transcript

Operator (participant)

Greetings and welcome to the Primerica Fourth Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Nicole Russell, SVP, Investor Relations. Thank you. You may begin.

Nicole Russell (SVP of Investor Relations)

Thank you, Operator, and good morning, everyone. Welcome to Primerica's Fourth Quarter Earnings Call. A copy of our press release issued last night, along with other materials relevant to today's call, are posted on the Investor Relations section of our website. Joining our call today are Chief Executive Officer Glenn Williams and our Chief Financial Officer, Tracy Tan.

Our comments this morning may contain forward-looking statements in accordance with the safe harbor provisions of the Securities Litigation Reform Act. We assume no obligations to update these statements to reflect new information and 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 also reference certain non-GAAP measures, which we believe provide additional insight into the company's financial results. Reconciliation of non-GAAP measures to their respective GAAP numbers are included at the end of our earnings release and are available on our Investor Relations website. I would now like to turn the call over to Glenn.

Glenn Williams (CEO)

Thank you, Nicole, and thanks, everyone, for joining us this morning. Our Fourth-Quarter and Full-Year Results highlight an outstanding year for Primerica with record-breaking results across the board. These range from the expansion of our distribution network to achieving unprecedented investment sales and delivering solid financial performance.

These milestones highlight the strength of our business and our ability to create value for all stakeholders. Starting with a quick recap of our financial results, fourth-quarter Adjusted Net Operating Income increased 11% compared to the prior-year period, while Diluted Adjusted Operating Income per Share increased 17%. On a full-year basis, Adjusted Net Operating Income increased 14%, and Adjusted Operating Income per Share increased 20%.

These results reflect a very strong sales volume and higher client asset values in our Investment and Savings Products segment, and the steady contribution from our large in-force block of Term Life Insurance premiums.

During the year, we repurchased $425 million of our common stock and paid a total of $113 million in regular dividends. In total, we returned 79% of Adjusted Net Operating Income to our stockholders in 2024. Taking into consideration the predictable nature of our cash flows in November 2024, our Board of Directors approved a new $450 million share repurchase program for 2025.

Our distribution performance during the fourth quarter capped off a remarkable year of growth at Primerica. During the quarter, we recruited more than 95,000 individuals, a 6% increase compared to the same period last year. We also saw a 12% increase in the number of individuals obtaining a new life license.

This double-digit growth in new life licenses during 2024 reflects the growing demand for additional income and alternative career choices, as well as improvements we've made to our licensing process in recent years.

We ended the year with a record high of 151,611 life-license representatives, up 7% compared to year-end 2023. 25,493 of these life-license representatives also held a securities license at year-end. Looking ahead, we expect to continue growing the Life Sales Force, albeit at a more normalized pace of around 3% in 2025. Now let's turn to our sales results, starting with Term Life.

We issued nearly 89,700 policies during the fourth quarter and $30 billion in new term life protection for middle-income families. Productivity remained within our normal historical range at an average monthly rate of 0.20 new policies issued per life-license representatives. While we're encouraged by our momentum in expanding our distribution reach, we also recognize the continued high cost of living on the families we serve.

Balancing the benefit of a larger sales force with the challenges posed by these cost-of-living headwinds, we're taking a conservative outlook for 2025 and anticipate full-year issued life policies to grow around 2%. Our Investment and Savings Product business had another strong quarter with sales of $3.3 billion at 41% year-over-year. This growth was driven by solid demand for Investment Products across all major product lines.

Client Asset Values ended the year at $112 billion, up 16% compared to 2023, while Net Client Inflows for the quarter totaled $731 million, significantly higher than inflows of $172 million in the fourth quarter of 2023. For the full year, robust client demand across all investment products fueled growth in new sales.

Enhanced benefits on Variable Annuity Products continue to fuel demand for clients seeking Income Protection and Retirement, contributing to a 44% increase in VA sales in 2024. Additionally, Managed Account Sales grew by 47%, driven in part by our new managed account platform, which offers clients a broader range of product choices and provides representatives with enhanced planning tools to better serve client needs.

Finally, strong equity markets continue to support demand for mutual funds in both the U.S. and Canada. Preliminary results in January show strong momentum, but we remain mindful of economic and market uncertainties. These factors, combined with more challenging year-over-year comparisons as the year progresses, lead us to expect full-year sales growth in the mid to high single-digit range during 2025.

We remain well-positioned to take advantage of the improving mortgage lending market and the role we can play in helping middle-income families obtain a new mortgage or consolidate consumer debt. In 2024, we closed nearly $400 million in U.S. mortgage volume, a 35% increase compared to the prior year.

At year-end 2024, we were licensed to do business in 33 states through nearly 3,200 licensed representatives. We also have a referral program in Canada, which allows us to offer similar benefits to our Canadian clients. As we look ahead to 2025, our plan is to continue expanding our distribution capabilities across all product lines while identifying opportunities to improve productivity and maintain the financial discipline needed to maximize profitability.

We appreciate your continued support and look forward to sharing more updates as we progress through the year. With that, I'll hand it over to Tracy.

Tracy Tan (CFO)

Thank you, Glenn. Good morning, everyone. In my prepared remarks today, I will review our Fourth Quarter Financial Results and then provide an outlook for key financial measures for 2025. We ended the year with great momentum, reaching the $3 billion revenue mark for the first time and delivering strong performance for our stockholders.

Starting with Term Life segment, Fourth Quarter Revenues of $451 million increased 4% compared to the prior-year period, driven by 6% higher adjusted direct premium. Looking more closely at our financial ratios, the Benefits and Claims ratio during the fourth quarter of 2024 was 58.6% compared to 58.2% in the prior year.

Benefits and Claims were adversely affected by a $4.2 million remeasurement loss recognized during the period that resulted from a refinement to our actuarial model for estimating reserves, which was not related to any assumption changes.

Excluding the model refinement, the Benefits and Claims ratio was 57.9%, favorable to the prior-year period, primarily due to better mortality experience and in line with our full-year guidance of around 58%. The DAC Amortization and Insurance Commissions ratio at 12.2% was largely consistent with the prior year period. Overall, lapse rates remain elevated, but year-over-year trends appear to be stabilizing.

We believe persistency will normalize over time. While we recognize that higher lapses can constrain future ADP growth, they have not meaningfully affected our key financial ratios. The Fourth Quarter Insurance Expense ratio increased from 7.1% in the prior year period to 8% in 2024.

This year-over-year change was driven primarily by increased variable expenses associated with growth in direct premiums, recruiting and licensing, higher performance-based employee incentive compensation, as well as higher ongoing technology investments in digital tools.

Finally, the Term Life operating margin was 21.3% compared to 22.6% in the prior-year period, while pre-tax income remains unchanged year-over-year. As we look ahead, we expect ADP growth of around 5% in 2025. We believe the Benefits and Claims ratio and the DAC Amortization and Insurance Commissions ratio will remain stable at around 58% and 12%, respectively.

For the full year, we expect the operating margin to be around 22%, although we foresee some level of variability due to the normal seasonality inherent in insurance expenses. As a reminder, our first quarter expenses are usually higher due to the annual grant of management equity awards to the retirement-eligible employees that are fully expensed when granted, as well as other annual employee-related and operational expenses unique to the first quarter.

Turning next to the Investment and Savings Product segment, Fourth Quarter Revenues of $286 million increased 29% due to a combination of favorable equity market conditions driving client asset values higher and strong demand for our investment solutions. Pre-tax income of $82 million increased 31%. Sales-based revenues increased 42%, while revenue-generating sales rose 39%.

Revenues grew at a higher rate than sales due to continued strong demand for variable annuities, while sales-based commission expenses generally rose in line with correlated sales.

Asset-based revenues increased 27%, slightly outpacing the growth in average client asset values due to continued growth in the U.S. managed accounts and Canadian mutual funds sold under the proprietary distributor model, for which we earn higher asset-based fees.

Asset-based commission expenses grew at similar pace to correlated revenues when including commissions on Canadian segregated funds, which are recognized as insurance commissions and DAC amortization.

The Corporate and Other Distributed Products segment incurred a Pre-Tax Adjusted Operating Loss of $1 million during the fourth quarter of 2024 compared to a Pre-tax Adjusted Operating Loss of $5.4 million in the prior-year period.

The improvement was due in part to a $3.3 million adjustment to the ceded reserve for a closed block of non-term life insurance business in the prior-year period and the $2.6 million of higher net investment income as the segment continues to benefit from higher-yielding investments and the growth in the size of the portfolio.

The segment also incurred higher operating expenses, which I will address shortly when I review total consolidated operating expenses. Our invested asset portfolio ended the year with a net unrealized loss of $206 million versus a net unrealized loss of $131 million at the end of September.

We believe the change in unrealized losses during the quarter was a function of interest rate movement and not underlying credit concerns, and we have no present intention to dispose of them. The portfolio is well-diversified and of high quality, with an average rating of A. Finally, fourth quarter consolidated insurance and other operating expenses were $152 million, up 13% year-over-year.

The primary drivers of expense growth were higher variable costs associated with growth of our IFP and Term Life segments, higher employee-related incentive compensation due to the company's overall strong performance in 2024, as well as increased investments on technology. Looking ahead to 2025, we expect full-year consolidated insurance and other operating expenses to increase by around $40 million, or 6%-8%.

This includes $12 million to support the growth in the business, $12 million in higher employee staffing costs, and $16 million higher technology costs.

As I mentioned earlier, we expect operating expenses on a dollar basis to be elevated in the first quarter, with year-over-year growth rate in line with our full-year guidance. We also expect fourth quarter 2025 expenses to normalize compared to prior year due to strong performance driven in 2024 higher expenses.

Moving to our capital position, the holding company had cash and invested assets of $497 million at the end of December 2024. As of December 31, 2024, Primerica Life's estimated RBC ratio was 430%. With that, Operator, I open the line for questions.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

One moment, please, while we pull for your question. Our first questions come from the line of Wilma Burdis with Raymond James. Please proceed with your questions.

Glenn Williams (CEO)

Good morning, Wilma.

Wilma Burdis (Director)

Hey, good morning. Could you talk about, is 5% ADP growth a good run rate, or is there still a boost in that figure from the IPO reinsurance transaction? Thanks.

Tracy Tan (CFO)

Good morning, Wilma. ADP growth guidance of 5% growth has considered the runoff of co-insurance, and clearly, the ADP growth is directly impacted by the large inforce block that we have and the premiums that it continues to generate, as well as the new sales that get layered on.

And we also have considered the higher lapses in this guidance as well. So the 5% does consider the co-insurance runoff, as you know, that is running off at a faster pace. That's being considered as well. Thank you, Wilma.

Wilma Burdis (Director)

Okay, great. And then could you talk about what's driving the strong ISP sales despite a little bit of pressure on the life side due to cost of living pressures? And then along those same lines, how do you see lapses trending into 2025? Is there some evidence that we've hit a peak? Thanks.

Glenn Williams (CEO)

Sure. Let me take the first part of that, and then we'll turn to Tracy for the lapses, Wilma. Yeah, fortunately, our two businesses are complementary, but they also have different dynamics that drive them in different directions at different times, and I think that's part of the uniqueness of our model.

So while we are seeing cost of living pressures that are a headwind for our life business and even for the small transaction business on the ISP side, the systematic savers, often they're saving $25, $50, $100 a month. They're under the same kind of budgeting pressures at home that are a life - they're the same people as our life clients, so they're experiencing the same pressures.

What we see that's a little bit or a lot exempt from that are those that are rolling over retirement plans, particularly are moving retirement plans, either out of a 401(k) from a former employer or out of a previous plan sponsor over to Primerica. Those aren't generally impacted by cost of living. They are retirement plans, so people are not prone to withdraw from them as often either, so that money's a little stickier.

So the bigger tickets aren't impacted by cost of living pressure, and that's really what drives the volume in a significant way, or the large sales. It takes a lot of small sales to add up to one large sale, as you know. And so those large sales, that money is still in motion. I think we're experiencing that, and I think most of our peers are experiencing a lot of movement between big accounts.

So we're benefiting from that and not experiencing the headwind from cost of living on that front. Tracy, do you want to talk a little bit about, obviously, persistency?

Tracy Tan (CFO)

That's right. I will. On the persistency and the lapse experience for 2024, overall, we continue to see elevated lapses, but we have seen the trend stabilizing. Fourth quarter, clearly, there was a leveling of the lapses, so we're not seeing that increasing on a year-over-year basis. One thing I definitely want to point out is 2024, we had an adverse impact from the prior year lapse restriction.

So overall, 2024, if you remove that lapse restriction, the 2024 trending is coming down in terms of the lapse elevation levels. And also, higher lapses are across multiple durations, but mostly pronounced in earlier durations, two to five, for example.

And the persistency for those, when we look at a cumulative basis, is actually really improving and slightly better on the cumulative basis than pre-pandemic period. So during the pandemic period, we had extraordinarily low lapses. Those that would have lapsed stayed on with those policies after the pandemic, and we see elevated lapses because of the catch-up.

But overall, the cumulative impact, when we look at from the 2020 forward, is actually better than pandemic period now, and we also believe that the higher lapses is mostly driven by the cost of living pressure on the middle-income families, which it takes a few years for them to get back, and it depends on the speed and the degree with which their purchasing power and the ability to afford improves.

But over time, we do believe that we will be returning to our normal levels, and our ADP guidance also already considered those elevated lapses as well, so I hope that helps, Wilma.

Glenn Williams (CEO)

Wilma, did that get you what you needed, or is there more we can share?

Wilma Burdis (Director)

No, I think that covered it. Thank you, guys.

Glenn Williams (CEO)

Thank you.

Operator (participant)

Thank you. Our next questions come from the line of John Barnidge with Piper Sandler. Please proceed with your questions.

Glenn Williams (CEO)

Good morning, John.

John Barnidge (Managing Director)

Good morning. Thank you for the opportunity.

Glenn Williams (CEO)

Certainly.

John Barnidge (Managing Director)

Just kind of building on that comment about cost of living pressures and it taking a couple of years to correct, what's the expected duration of that catch-up, and can that really be corrected without improvement in the cost of living?

Glenn Williams (CEO)

I think we are going to need to see more improvement in the cost of living, so I think there's a buildup of high expenses of people bridging their budget with withdrawn savings and credit card usage while it's going on, and so that would indicate that we need improvement for a sustained period of time before we start to see it flow through and see some easing of people's buying habits when it comes to buying life insurance or small investments.

So I think that's a complete guess, John, to know exactly how long it takes because we're not sure how much longer the cost of living pressures might be here. We saw a little bit of a surprise this morning. I think the market reacted to that they're still here. They haven't gone away.

But I would say once we get on the other side and things get normalized, you measure that in a year or more, that you'll still see some of that impact. It'll improve over time, and we're watching for it in the numbers Tracy just described. We see it as well in persistency, obviously, as well as sales. But that's entirely just a guess. We don't have any empirical evidence or a formula for that. It's just consumer behavior.

John Barnidge (Managing Director)

Thank you for that. My follow-up question with that. What's the opportunity in that backdrop to increase operational leverage through improved application speed, automation? So maybe what took 10 minutes can take three, and then it allows the application volume to increase and the average agency more productive. Thank you.

Glenn Williams (CEO)

Sure. That's a great question and one that is on the top of our minds all the time. Tracy mentioned some of the expense numbers, and the largest numbers she mentioned was for technology, higher technology costs. And those are some of the types of things in addition to reacting to regulatory demands and requirements and other costs of doing business.

But we're always looking for a way to make our process easier for both clients and representatives under the assumption that you get two benefits. Number one is they're more likely to complete the process themselves. Someone who's already motivated and in the purchasing process is more likely to follow through if it's easy, if it's short, if it's quick, convenient, and all of that.

And obviously, that's more efficient as well. And then that frees up more time for our representatives to see more clients. Should the limit on their productivity be, "I got more people to see than I can get to," often it's not having enough people to see, so it doesn't solve that problem. But absolutely, that's a big part.

And as we introduced our new product and process a couple of years ago for NextGen, we had significant improvements in all of that. And now, of course, we're going back through to see what technology that has emerged in the last couple of years can help us in that area, both in the field as well as processing and issuing policies and doing that faster and more efficiently here in the home office.

So all of that is on our technology menu to see what we can accomplish as we move through 2025.

John Barnidge (Managing Director)

Thank you.

Glenn Williams (CEO)

Thank you.

Operator (participant)

Thank you. Our next questions come from the line of Mark Hughes with Truist Securities. Please proceed with your questions.

Glenn Williams (CEO)

Good morning, Mark.

Mark Hughes (Analyst)

Good morning, Glenn. Morning, Tracy.

Tracy Tan (CFO)

Good morning.

Mark Hughes (Analyst)

The good VA activity you're talking about, how the large transactions drive volumes, there's a lot of money in motion. Is this a demographic tailwind that should persist?

Glenn Williams (CEO)

It is driven by demographics as we see the older generations that have accumulated something moving that money to get in the best place for their next phase of life as they move from accumulation to distribution. So there's definitely a piece of that. It's also the not quite ready for retirement or not preparing for retirement yet that are changing jobs and just changing careers.

As more job changes happen, more people move their 401(k)s out of the previous employer. So it's something that we're benefiting from at Primerica. We have long relationships with our clients, and generally, as you know, we're a middle-market-focused company. So we may be a higher level of hands-on service to middle-market clients than maybe some of our peers have.

So as the demographics move in our favor in that range, we are there to kind of service those clients in a way that maybe some of our peers are not. So it is driven demographically. It's driven by more options, as we stated, VAs particularly, with the income guarantees that are in there as people move into income mode. They want to make sure they don't outlive their income.

So it's a combination of a lot of hard work on behalf of our team, both in the home office and the field over the years to be ready, product improvements, and the demographic changes. And then the consistency of we've had a couple of years of good market performance in a row. That builds confidence where people are willing to look for alternatives and maybe improve the returns on their retirement accounts.

So I think we have all four of those things working in our favor right now. And some of the conservatism that you heard is because of the uncertainty. It's not pessimism. It's just uncertainty as we move into a new administration with new policies and new methods. We're not sure how that's going to turn out, so we've kind of approached 2025 with a little bit of an air of conservatism based on those unknowns.

Mark Hughes (Analyst)

Thank you for that, and then Tracy, anything on the mortality front? Any changes you might have observed either in the U.S. or Canada?

Tracy Tan (CFO)

Yeah. Mark, the mortality front, our experiences have been very stable and favorable, so for the entire 2024, we've been observing pretty positive trends on mortality, both in the U.S. and Canada mortality is very, very low and really not much unfavorable experience to talk about, but the U.S. has seen real improvement, particularly in the fourth quarter. So we are hoping to see that continual trend.

That would be beneficial, and in terms of long-term, obviously, mortality is difficult to predict, but we do think that the pandemic probably had taken off some of the population that now there are some benefits on the mortality improvement that we've seen across the industry, and we in particular, with our demographics and the experience during the pandemic, certainly has a positive trend currently going on. Hope that helps, Mark.

Mark Hughes (Analyst)

It does, and then the final question, just for my edification, you said the remeasurement loss is not related to assumption changes, but a refinement of the model. Can you say what the refinement was, or is it just more technical?

Tracy Tan (CFO)

Yeah. The refinement is really more a tactical software improvement that we've made on the actuarial side of calculation. And since we've moved on to LDTI, we continuously look for ways to make our calculation more accurate and looking at ways to improve how we produce our results on the method side.

So this really has nothing to do with either experience or long-term trend assumption changes. So this is a really technical side item, and it is small, immaterial in the magnitude of $7 billion of reserves that we have.

Mark Hughes (Analyst)

Thank you.

Tracy Tan (CFO)

Hope that helps.

Mark Hughes (Analyst)

It does.

Operator (participant)

Thank you. Our next questions come from the line of Suneet Kamath with Jefferies. Please proceed with your questions.

Glenn Williams (CEO)

Hello, Suneet.

Suneet Kamath (Senior Research Analyst)

Hey, Glenn. Hey, Tracy. Good morning. So wanted to focus on the life segment just for a minute. It looked like the rep count was up, I guess, 7% year-over-year, but policy issued was up maybe 1%. And I guess, shouldn't we see a tighter sort of correlation between those two growth rates?

Glenn Williams (CEO)

Yeah. Generally, Suneet, there's been a very close relationship between the size of the sales force and our policy growth. Often, there is a difference in timing on that. We did have a significant amount of growth in a relatively compressed period of time. And so one of our productivity dynamics that we're working on in 2025 is to bring that new class of licensees up to productivity level.

And that's an opportunity on the upside for us in 2025. The math of productivity works against you as you grow the sales force, and the denominator gets larger, particularly with brand new reps. But we do think there's a lag there, as always, in getting them up to the average productivity level.

But we believe there's some upside as we put it all together with the headwinds of the cost of living we talked about earlier and maybe some of the other uncertainty headwinds in middle-income families. On the positive side, potential tailwinds are that productivity catch-up, and we would expect to see some of that in 2025.

Suneet Kamath (Senior Research Analyst)

Got it. That makes sense. And then I guess, if I heard correctly, it sounds like your guidance for life agent growth for 2025 is around 3%, which is lower than I think it's been historically. Is there something unusual about 2025, or are you sort of getting to the point where the sales force is kind of so big it just becomes harder to grow on top of these big numbers?

Glenn Williams (CEO)

Yeah. I think it's a bit of us reverting to the mean, Suneet. If you look back in the years prior to that, our sales force growth has been around 4-ish%, I think, prior to last year over multiple years. And so we just see after a year where we had so many things go in our favor, just a dose of conservatism and things reverting to average in the next year and kind of getting back to that range.

And again, the uncertainty of just not knowing what's in front of us this early in the year. As the year progresses, we'll refine that projection some, but it's starting out pretty close to what a normal year at Primerica is, maybe just a little less, but that's the uncertainty factor in it.

Suneet Kamath (Senior Research Analyst)

Got it. If I could just sneak one more in just on the VA, do you currently sell the RILA product? Is that a big part of what you're selling these days?

Glenn Williams (CEO)

Yeah. The Index-Linked Variable Annuity?

Suneet Kamath (Senior Research Analyst)

Correct.

Glenn Williams (CEO)

Yeah. Yes, we do. And we are seeing our product mix shift more and more toward that, just like the industry is, of a very similar kind of mixed-shift dynamic to the rest of the industry, with a significant proportion of the VA sales moving to the index-linked VA product.

Suneet Kamath (Senior Research Analyst)

Got it. Thanks, Glenn.

Glenn Williams (CEO)

Thank you.

Operator (participant)

Thank you. Our next questions come from the line of Dan Bergman with TD Cowen. Please proceed with your questions.

Glenn Williams (CEO)

Morning, Dan.

Dan Bergman (Director)

Hey, good morning. I guess to start with, the higher share repurchase authorization for 2025 and the pretty big increase in the dividend, capital return looks like it'll take another sizable step up this year. Was there anything unusual in the 2024 statutory earnings or any other one-time items that are boosting that, or should we think of this as a pretty sustainable level going forward?

And I guess relatedly, with capital return, I think it was 79% of earnings in 2024. Is that around where we should expect that ratio to remain longer term?

Tracy Tan (CFO)

Good morning, Dan. This is a great question. One of the features of our Primerica business that we are very much focused on and continue to support is our ability to generate consistent, sustainable cash and capital return as a percent of earnings.

And as you know, historically, we've been very strong on our business being able to generate free cash on a consistent basis, very resilient regardless of the economics and environments that's going on, and that's what we continue to see, so in 2024, we were able to return 79%, which is right around 80%. This also highlights our distribution model, which is that we're able to grow on a sustainable level and not tying up our capital as we scale up.

As you see, the step up on the share buyback and the dividend is another evidence of that continued trend of we're able to deliver around 80% in 2025. So from a business model standpoint, the characteristics of our business model really helps provide that consistency.

We have the confidence in terms of our features of our distribution model and the reinsurance of mortality that we have, along with our independent sales force that also helps with the upfront acquisition costs and the growth on operating expenses.

All of those features help us provide this level of capital return as a % of earnings, which is very much in line with a typical distribution model company. This is what we are pretty much focused on. Hope that helps, Dan.

Dan Bergman (Director)

Yeah. Very helpful. Thanks. And then maybe.

Tracy Tan (CFO)

Hold on. Dan.

Dan Bergman (Director)

Okay go ahead.

Tracy Tan (CFO)

Let me answer the question about statutory. Yeah. There's nothing unusual around that line, and we really are pretty much focused on having a very healthy capital at our insurance side of the business, and the RBC ratio, we typically strive to be around 400% and as much as possible.

It's very conservative. That gives us plenty of leg room. As Glenn put out the vision to continue to drive the top-line growth, we're very well-positioned to provide that capital to drive our top-line growth.

Dan Bergman (Director)

Got it. Perfect.

Tracy Tan (CFO)

Hope that helps Dan.

Dan Bergman (Director)

Yeah. Very, very, very helpful. And then maybe just switching gears a little bit, following up on the earlier comments around technology, it sounds like higher tech spend is a big driver of the growth in the insurance and operating expenses you're guiding to in 2025.

So should we think of this higher technology spend as a new run rate going forward, or are there any lumpy expenses in there that should subside going forward? I guess maybe said differently, what inning are you in regarding upgrading your technology capabilities? So any color just around that would be great.

Tracy Tan (CFO)

Yeah. This is very much in line with looking at our capital return and how we use our cash. Part of other priority, in addition to generating very strong capital return as a percent of earnings to shareholders, the remaining cash is very much focused on supporting our growth in terms of having enough capital to support our insurance and non-insurance business, as well as investing in organic growth.

And we are very confident in our ability to drive our sales force to serve our clients, reach more demographics that we intend to help that's underserved. So that part of the organic investment into technology is very much in line with our strategic vision and long-term to help improve productivity, both on the processing of transactions as well as our ability to provide unified communications with our sales team, sales force, improving client experiences.

All of those are part of the technology improvement so that the client can have an easier, better way to look at their investments, look at and handle the life insurance transactions, and also giving our sales force continued improvement on the tools to improve their productivity, as well as our cost center, making our cost center more scalable to go along with a larger growth sales force as well as number of transactions.

So in terms of trend, we're going to continue to focusing on strong returns for our stockholders, using the remaining capital effectively to help support our organic growth.

Dan Bergman (Director)

Perfect. Thanks so much.

Operator (participant)

Thank you. Our next questions come from the line of Jack Matten with BMO Capital Markets. Please proceed with your questions.

Glenn Williams (CEO)

Good morning, Jack.

Jack Matten (VP of Equity Research)

Hey. Good morning. I just had a follow-up question on the outlook for term life issued policies. You talked about cost of living headwinds that have put pressure on lapse rates. I'm wondering if you can unpack or quantify how much of a headwind it's been to sales levels over the past year and how much that's influencing the guidance for 2% growth in issued policies this year, which I think you mentioned may have been somewhat of a conservative estimate.

Glenn Williams (CEO)

Yeah. Jack, I don't think we've broken out exactly what we think our growth might have been if there wasn't headwinds. So there's multiple factors playing. The economic headwinds, which, as I mentioned, were created not only by prices, but it's also a function of wage growth or lack thereof for our clients.

It's really difficult to say if the cost of living had been neutral to middle-income families, we believe sales would have been what they were, plus another percentage point or two or three or however many, because there's so many other factors involved as well. We just know that the time we spend with clients helping them prioritize their budgets in order to make room because every dollar is in play when we sit down with a family.

It's not like they call us over and say, "Look, I've got this $80-$100 a month. I don't know what to do with. Can you come talk to me about life insurance?" We're having to sit down and help them reprioritize their budgets.

And that's where we identify the headwinds, because as we look at budgets, there's not a lot of waste in them, and so we really have a tough prioritization discussion with clients to free up what they need to begin to protect their incomes and hopefully begin some type of small investment program.

And so it's more of a qualitative reporting in some of our surveying that we do through our Financial Security Monitor you may be familiar with and the Household Budget Index. All of that is to try to figure out exactly how much resistance is out there.

But quantifying and saying it would have been 2% greater if we had had neutral cost of living dynamics is a little difficult to do. So we know the headwinds out there. We know we've been able to overcome it last year. We grew in spite of the headwinds, and we are projecting that we can continue to grow. But we do know there's some resistance to growth as a result of that. So sorry, I can't give you something more specific on how much that is.

Jack Matten (VP of Equity Research)

That's very helpful. Thank you. And just a question on the ISP redemption rates. I think outflow has a % of beginning assets that started to trend lower in recent quarters. I guess could you just talk about some of the drivers impacting that?

I mean, do you expect some upward pressure still from some of those cost of living challenges, or even just given that client asset values are at higher levels following kind of the strong market performance over the past couple of years?

Glenn Williams (CEO)

Generally, it's going to be more driven at Primerica. In the smaller accounts and homes that are closer to the financial edge, redemptions are going to go up when money gets tight, when cost of living pressures happen. We coach our clients not to do that unless you have to. You're working against yourself by redeeming, but one buffer against that is three-quarters of our accounts are retirement accounts.

They're for long-term, and often if they're IRAs or other types of qualified plans, registered plans in Canada, they're penalties for withdrawal. So that's another kind of fence around the accounts that prevent them from just putting and taking. We also recommend that people set up an emergency fund, and that's their put-and-take account.

So the result of all that is we do believe that we have significantly fewer redemptions percentage-wise than most of the companies in our space. It comes from the good coaching. It comes from primarily long-range retirement planning, and so we protect and build against that and teach continuing to systematically invest in good times and bad, but we do see that move a little bit with cost of living.

Fortunately, we haven't seen it move a lot, and again, like the discussion we had earlier about what drives volume, the big accounts many times that are moving, that are a significant part of our volume, the 401(k) and mature retirement accounts, those aren't people who are struggling quite as much month to month, and so they're not making large redemptions.

We see an increase in number of smaller redemptions in tough economic times, but it doesn't really impact the large accounts as much as often, unless people go into distribution mode after they retire and start a systematic withdrawal plan.

But our withdrawal rate is very healthy, lower than the industry average, we believe, and we expect that to continue even if some financial stress does continue on families through 2025.

Jack Matten (VP of Equity Research)

Thank you.

Glenn Williams (CEO)

Certainly.

Operator (participant)

Thank you. There are no further questions at this time. And with that, that does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Have a great day.