Good morning, everyone, and welcome to the Primerica Incorporated first quarter 2013 financial results webcast conference call and webcast. (Operator Instructions) At this time, I'd like to turn the conference call over to Ms. Kathryn Kieser, Senior Vice President of Investor Relations. Ma'am, you may begin.

Good morning, everyone. Thank you for joining us today, as we discuss Primerica's results for the first quarter of 2013. Yesterday afternoon, we issued our press release reporting financial results for the quarter ended March 31, 2013. A copy of the press release is available on the Investor Relation section of our website at investors.primerica.com. With us on the call this morning are Rick Williams, our Chairman and Co-CEO; John Addison, Chairman of Primerica Distribution and Co-CEO; and Alison Rand, our CFO. We reference certain non-GAAP financial measures in our press release and on this call. These non-GAAP measures are provided because management uses them in making financial, operating and planning decisions and in evaluating the company's performance. We believe these measures will assist you in assessing the company's underlying performance for the periods being reported. These non-GAAP measures have limitations and reconciliations between non-GAAP and GAAP financial measures are attached to our press release. You can see our GAAP results on page three of the presentation. On today's call, we will make forward-looking statements in accordance with the Safe Harbor provision of the Securities Litigation Reform Act of 1995. Forward-looking statements include any statements that may project, indicate or imply future results, events, performance or achievements and may contain words such as expect, intend, plan, anticipate, estimate and believe or similar words derived from those words. They are not guarantees and such statements involve risk and uncertainties that could cause actual results to differ materially from these statements. For a discussion of these risks please see the risk factors contained in our Form 10-K for the year ended December 31, 2012. This morning's call is being recorded and webcast live on the internet. The webcast and corresponding slides will be available on the Investor Relation section of our website for at least 30 days after the presentation. After the prepared remarks, we will open the call to questions from our dial-in participants. Now, I'll turn the call over to Rick.

Thank you, Kathryn, and good morning, everyone. As you can see on Page 4, during the first quarter of 2013, our operating revenues grew 8% to $306.2 million, driven by the continued growth in Term Life premium and strong investment savings product sales in client asset values. Operating income before taxes declined $3.4 million year-over-year, while active capital management drove a 6% increase in net operating income per diluted share to $0.66 in the first quarter compared with $0.62 in the prior year. As we look at other drivers of this quarter's results, we see a $2.9 million decline in net investment income year-over-year, which is highly correlated to our successful repurchase of 9.5 million shares throughout 2012 and a lower current portfolio yield as we buildup cash to fund our $150 million dividend from Primerica Life to PRI. We also continue to recognize legal fees and expenses associated with the Florida Retirement System arbitrations, which impacted net operating earnings by $3.9 million or $0.04 per diluted share. Net operating income return on adjusted stockholders equity was 13.3% as of March 31, 2013. ROE should expand as we deploy excess capital in 2013. In May, we paid a $150 million ordinary dividend from Primerica Life Insurance Company to Primerica Inc. and expect to use the proceeds to repurchase Primerica's common stock. Following the $150 million ordinary dividend payment, Primerica Life Insurance Company remains well-positioned to support existing operations and fund new business growth with a pro forma RBC ratio estimated to be in excess of 480%. Now, turning to segment results. Term Life net premium revenue increased 13% in the first quarter of 2013, although term life insurance policies issued were down 10% from the year-ago period. Productivity in the first quarter of 0.18 policies issued per Life-licensed representative per…

Thanks, Rick, and good morning to everybody. Welcome to the first earnings call from our new headquarters. The move went well and we are looking forward to the official ribbon cutting ceremony next week, where we'll be joined by approximately 400 of our senior sales force leaders. Our organization is very excited to see the building that was designed to showcase Primerica's business, including a new interactive tour, state of the art TV studio and theater, and our TV broadcast that we'll host on opening day. We will set the stage for a biennial convention at the Georgia Dome in June. One of the beauties of the Primerica business model is that we can monitor the business and effectively implement significant change. As I've said before, Primerica requires leadership, the leadership for the company to aim and adjust the business. Economics of our distribution model enable us to make these adjustments like the recent compensation change, and manage through periods of sluggish recruiting and life insurance sales without having a significant impact on short-term earnings. Our large block of enforced policies generates recurring income regardless of whether life insurance sales were up or down within a given quarter. Recent changes we made in incentives and compensation has focused our sales force on growing their insurance license representatives as well as building their Investment and Savings Products business. These enhancements have manifested themselves in improving life license ratios and higher ISP sales. This year, we enhanced our ISP business by launching a streamline securities licensing system and an incentive for representatives to obtain securities license. The improved securities licensing system, includes free online exam preparation materials, personalized study plan development, and we are in the initial stages of using classroom education to increase unit success. In addition, we are conducting weekly…

Thank you, John. Good morning, everyone. My comments today will cover the earnings results for each of our segments, followed by a company-wide review of insurance and operating expenses and invested assets. Staring with Term Life on Slides 6, year-over-year operating revenues grew 11%, driven by a 13% increase in net premiums. The rate of net premium growth continues to normalize as new term matures and becomes an ever increasing component of the total in force block. Term Life operating income before income before income taxes increased $1.5 million or 3% over the prior-year period. There are a couple of dynamics that complicate this quarter's year-over-year trends that will not continue into future quarter comparisons. As an example, interest expense increased $1.5 million, largely related to the redundant reserve financing executed on March 31, 2012. This is the last quarter that we booked a higher year-over-year interest expense related to this transaction. Also, had we not been building our cash to fund the $150 million dividend from Primerica Life, but overall net investment income and the correlated allocation to Term Life would have been higher. As a reminder, we allocate net investment income to Term Life based on the proportion of required statutory assets to total assets in cash, with the remainder reported in the corporate and other segment. While the percentage our invested asset allocated to Term Life continues to grow, the associated increase in allocated net investment income was largely offset by the lower effective portfolio yield during the quarter from our substantial cash accumulation. As we deploy the cash we built up, the effective rate earned on the asset allocated to Term Life will normalize. Now, let's move on to Term Life core performance dynamics. As discussed in previous quarters, the profit margin for legacy and new…

Thanks, Alison. Primerica is a unique distribution company with a conservative balance sheet. The Term Life business provides a stable recurring future earning stream, while our high return ISP business generates free cash flow. As we look to the future, our focus is on driving organic earnings growth and providing meaningful long-term shareholder value. With that, I'll open it up for questions.

(Operator Instructions) And our first question comes from Jeff Schuman from KBW.

I was wondering if you could first talk a little bit about the registered reps, John. I think you said that the number of new securities licenses was up 13% year-over-year?

Correct.

But unless I've mistaken, I don't think I have much context for that. Do I know what the total number of reps is or can you give us sense of what the total number of reps is? And how the total rep count is evolving?

Rick is staring at a sheet of paper, which has every fact on demand. So I'll let him give the exact number.

As of year-end, we had active mutual fund reps of 21,863. That includes both U.S. and Canada. And to John's point, we have licensed about 1,700 new reps year-to-date, but we have also terminated on an annual basis about 1,500 at year-end. So the account is up slightly, but what's encouraging to us is the new licensing activity.

And so I don't think we've had those numbers historically, so the general trend over the last couple of years has been for that rep count to be what sort of flattish in general?

Yes, it has been.

So you've continued to grow that business, I guess through better productivity primarily?

Jeff, as we've done investment conferences and stuff, one of the things that we showed in those was the size of our sales force, registered reps compared to the other broker-dealers and stuff. And yes, I mean one of the things we have done strategically is we've added products. We've improved the business opportunity for those leaders that are big securities producers. And that was a strategic objective as we became an independent company and became our business, and you combine that with unlike the markets done real bad either. Those two things, the productivity has been better. But our goal now is to grow the size of our license sales force in addition to have in that. But that business does have much more of a productivity swing in it, specifically driven by the market conditions. And as we add new products, that as you follow through what we've done since we became independent, we added managed accounts, we added new annuities, and we added improved incentives and compensation for our registered reps and we wanted to grow that business. And (knock on wood so far, that's gone well for us.

Then I'll ask about one other area, and then I'll get out the way. I'm just wondering if you can give us an update on the number of tending pending FRS arbitrations in suits and whether you can confirm our impression that you want a dismissal of the first arbitration that was decided.

We have 22 pending arbitrations, seven state court cases and one federal court case outstanding. You are correct. We did have one arbitration and the arbitration panel did not award the claimant any damages in that case. We have completed the second arbitration, but no decision has been reached in that one at this point.

And what was the date of the second arbitration hearing?

It just finished last Friday.

Our next question comes from Steven Schwartz from Raymond James.

I want to talk a little bit about one thing I noticed ISP expense, I know you've got more from FRS there, but even without that it looked like it jumped certainly from the fourth quarter. And I was just wondering the streamline processing that you have, did that add to expenses or anything else, in particular going on there?

The answer to your first part of question is really no. The costs associated with a lot of the initiatives that John described are relatively de minimis. We've actually hired a handful of people that are really working as coaches and handholding folks. So the incremental cost to us was relatively small. I think what you're seeing on a quarter-to-quarter basis has very specifically to do with something that actually happened in the fourth quarter. When I talked about expenses, especially in my prepared comments, I usually focus on company-wide. Specifically within the segment in the fourth quarter of last year, we did do a true up of an accrual we were carrying for out of packet expenses. The mutual fund accounts that we administer. We had been over accruing when we finally got some deals and we realized that our accrual was too high. We took that accrual down by over $1 million in the fourth quarter. And so sequentially you see that $1 million or so are attributable to that one change that we did last year. The level of expenses we're incurring for out-of-pocket in the first quarter is very consistent with what we believe our ongoing expense levels will be. So that quarter or sequential quarter, change you shouldn't see anything further into the second quarter. The other increases specifically in ISP had to do with some of things I already mentioned in my company-wide discussions, but for largely employee-related costs.

And then, Alison, the $150 million of cash that was build up, did that affect interest income in legacy or did that affect interest income in corporate?

Basically, it moved with the assets required to support the business. So if you look at our total asset base, 60% somewhat of the asset supports the legacy business. And I am rounding here another 14% or so support the new Term business, but the rest is considered excess, if you will and we keep that incorporated in other. So we did impact those Term Life and legacy and most specifically it had a more substantial impact on legacy within Term Life.

And then, to think about, you got obviously hurt, but you did get some income on that $150 million, presumably it will be gone shortly as share repurchase. Do you know, Alison, what the income on that $150 million was or how are you holding it or whatever.

It was held very short-term. I mean it was cash and cash equivalent. And so in today's marketplace, I mean zero is about as close, if estimated something else, so it was a very small earnings rate. And if you look at what we earned on purchases we made in Primerica Life, where we actually placed money on a long-term basis, it was in the fourth quarter range. So doing simple math, you could say we lost somewhere around 4% on the assets we were building up. And that we chose not to investment long terms. We look forward to single quarter, but we made that decision because we obviously didn't want to place money long-term with an incredibly low interest rate have rates begin to rise on us and be force to either liquidate higher yielding asset or generate losses in the portfolio.

Our next question comes from Mark Hughes from SunTrust.

John, when you look at the convention for this year, you obviously got that tremendous momentum a couple of years ago, both in terms of recruiting and sales growth. Was there anything unusual about that convention that won't be repeated this time? Should we assume, or think notionally about that similar types of results this year?

If you recall at last convention, one of things we did was on the, last night crazy John went insane and we did $50 versus $99 IBA and we had a massive chunk in liquidity, which was abnormal of what we get out of a convention. Let me just give you kind of the context, that what we want to accomplish at this event in the Georgia Dome. As I said to all of you many times, many of you kind of personally as we've talked and done investment conferences is one of the things that we saw when we did that and I think it was with Jeff Schuman had a follow-up conference after that when recruiting was going through the roof. His question to me was, was it sustainable? And I said, I don't know if its five hour energy drink or whether it is a sustainable trend. Well, it turned out to be five hour energy drink. Now, it did drive significant production. It's not like it was all negative, so having a junk is not a negative thing, it led to sales. It led to a lot of the things that drove us over in the first quarter of 2012. And we as management team couldn't look and said, let's just keep on this track. But what we saw is that we were not driving enough distribution building behavior. We were recruits, we're becoming more a way to make a sale than a person to get license promoted and building. And that led to our compensation change. In all honesty to you guys, as a management team, it might have been easier to say, we're not going to do that. But because of our, what I said in my prepared statement, the strength of our model…

Mutual fund sales, any strength you saw early later in the quarter with the market doing well, I think you've made your point.

As you saw, we had strong, and as Alison talked about very well in her prepared comments, we had a move from the annuity business towards mutual funds. Our goal is to sell the right product for our clients. And our sales forces goal is to sell the right product for their clients. And as people became a little less fearful of the world, some of the guarantees in the annuity products became less of important to them and moving more toward just mutual funds sales in the market. So I believe the thing that drove it is, a big piece of it, the things we're doing to just drive the overall ISP business, but I think the biggest thing is among people there is more confidence in the market now than there was before.

And then a final question. The insurance commissions within the new Term Life segment were a little low this quarter against the prior trend. How should we think about those going forward?

Basically that number has continued to evolve as we've change our compensation programs, because we are marking it more specifically towards generating new premium. I think that you're on a level now that is relatively in the range of what we should see from quarter are now borrowing, any decisions we make to do something temporary that may not be deferrable. But all the core changes in the compensation program really have been flushed through. And so you're at more of a appropriate relative range from here now.

Our next question comes from Sean Dargan from Macquarie.

Just when we're thinking about the progression of the legacy Term Life book, know you said that the pre-tax margin should get back to the mid-seven range for the rest of the year. How should we think about that running off in 2014 and 2015? I mean, how much of a drop off from the mid-seven range should we be thinking about?

I am not sure how much of this will be given for that far out, but generally speaking we expect the client to be pretty gradual. They are seeing it in the mid-seven this year. I would expect it to continue to fall into the low-seven range. It will get into the six-range. I don't think its 2014, I think it's some time later than that. And I think that's a relatively normalized level for it. But quite honestly, given how much could possibly happen between now and the time I am thinking about, I can't say that's for certain, but I think you're talking about just a relatively low decline here on out. Again, I don't expect you to get much lower down 7% into next year.

And turning to investment and savings products. Given the growth in assets, I would have thought that the asset base, commissions and fees would have gone up more than they did. Is there any margin pressure or is there anything going on that we should think about in terms of that line?

I think the asset base, if I am correct. The asset base revenues grew less than the asset base expenses. So there was a little bit of margin compression that you saw. And the two things about that, one is some of the commentary that I had mentioned to you, which is that we had a shift in some of the business, and if you take cash fund out of both the revenue number the growth in the revenue was very consistent with the growth in the commission expense. And the reason we would do that is because there is no commission expense line, if you will, I mean cash funds it actually runs through insurance commission and then amortization of GAAP. So it's a little bit of just geography of where it hits. And the other thing, we didn't really talk about it too much this quarter, is that in the past we had a relatively high level of internal exchanges on our variable annuity product. Those internal exchange while they created sales volume, the aggregate dollar profits on those was lower, because the commission rate was lower but the amount retained on the margin was actually a little bit higher than on a new sale. So we've been shifting away from those and facing a little bit of an impact of that as well.

And our next question comes from Jeff Schuman from KBW.

I just want to follow-up with Alison on the Term question, because it seems that to the extent that maybe legacy margins compressed a bit. I assume that's attributable mostly just to negative operating leverage as that book can track, which is partly a function of just how expenses are allocated between even legacy. So I guess coming out at it bit differently, how should we think about operating leverage for Term Life in its totality?

On Term Life in it's totality it should be improving. You do get some real noise in these sub-segments, which is what I was focusing on. And typically it's a little bit less with expenses. The mortality itself on the legacy business is as expected is going to work and these policies are ageing. A lot of them are reaching the end of their initial policy term at which case the old mortality gains that we had over time, would no longer emerge. And on a more technical basis, this business is basically the DAC is running off in zero, but the reserves are continuing to grow. So the interest accruing to the growing liability is actually a negative on the profits in that segment. But other than that I think it's what we've been saying. Those are the items that will hit legacy on an ongoing basis, obviously, from period-to-period you will see things like mortality fluctuations or persistency in expense fluctuation. But on the longer term those are the things that I think will drive down that profit margin. And as we've said, on new term it's going to continue to improve, because we keep layering our business, but our fixed cost structure is relatively intact. So you've seen a pretty dramatic increase already in that and I think you will continue to see that. I think a way to look at it is to look at what you expect the near-term premiums to grow by and other than the growth related expenses for things like premium taxes and non-deferred underwriting costs you can put in a relatively cost of living adjustment if you will on other fixed items to get a growth rate on expenses.

So basically to the extend that legacy margins suffer a bit from the operating leverage issue that's offset in new term, which continues to grow.

Absolutely.

But there are couple of other wrinkles in terms of the mortality margin and what happened maybe with investment income that also is kind of.

That is correct.

And ladies and gentlemen, I'm showing no additional questions. I would like to turn the conference call back over to management for any closing remarks.

Thank you very much for your time. Have a good rest of the day. Good bye.

See you. Have a good one.

And ladies and gentlemen, at this time the conference has now concluded. We do thank you for attending. You may now disconnect your telephone lines.