Good morning. My name is Chad, and I will be your conference operator today. At this time, I would like to welcome everyone to the Primerica, Inc. Q2 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Nicole Russell, Head of Investor Relations. You may begin your conference.

Thank you, Chad, and 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 Chief Executive Officer, Glenn Williams; and our Chief Financial Officer, Alice Rand. Glenn and Alice will deliver prepared remarks, and 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 assures - assumes no obligation to update these statements to reflect new information. We refer you to our most recent Form 10-K as modified by subsequent Form 10-Q and the press release filed with our 8-K dated July 1, 2021, 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 will provide insight into the company's operations. Reconciliations of non-GAAP measures to their respective GAAP numbers are included at the end of our earnings press release and are also available on our Investor Relations website. I would now like to turn the call over to Glenn.

Thank you, Nicole, and thanks, everyone, for joining us today. Second quarter results were very strong, reflecting continued progress in both our term life and our Investment and Savings segments. Leveraging the fundamental strengths of our business model, we are positioned to meet the middle market's increased demand for financial security, which has been revealed by the COVID pandemic. Starting on Slide 3. Adjusted operating revenues of $654 million increased 25% compared to the second quarter of 2020, while diluted adjusted operating income per share of $3.25 rose 33%. ROAE also increased to 27.8% compared to 25.6% during the same quarter last year. Turning to Slide 4. We attracted nearly 90,000 new recruits during the quarter. Year-over-year comparisons are difficult to evaluate because of the varying impact of the pandemic in each period and the tailored recruiting incentives we deployed each quarter. Looking beyond this noise, we believe that we are using the right mix of messaging and incentives to continue to drive recruiting and to increase the appeal of our business proposition. More than 10,000 individuals obtained a new life insurance license during the quarter, and we are encouraged by those results. We have seen some improvement in the licensing process over the last few months. Testing windows are now generally available and many states have called up on processing backlogs, although there remain some pockets where processing is still taking longer than usual. Licensing candidates today also have more flexibility to access pre-licensing classes in both in-person and remote options widely available. We continue to see a higher success rate for candidates choosing to attend in-person classes, but there is some hesitancy about assembling in classrooms. As COVID Social distancing measures eased, we noted a greater degree of distraction among our licensing candidates. After a prolonged period of…

Thank you, Glenn, and good morning, everyone. Starting with our Term Life segment on Slide 7. This quarter marks the first period where COVID impacted both the current and prior year periods. Segment results were very strong and operating revenues of $384 million increased 17% and pretax operating income of $117 million rose 23% year-over-year. As Glenn discussed, term life sales were down slightly from last year's highly elevated levels. Consumer sentiment for protection products continues to be favorable as reflected in record levels of policy retention. Persistency improved across all durations over the prior year period, which was already at historically elevated levels. Given more context, lapse rate in last year's second quarter was 15% lower than 2019 levels, while the current quarter lapses were an estimated 25% lower than 2019. The compounding impact of sustained higher sales and policy retention over the last five quarters drove 16% growth in adjusted direct premiums year-over-year, adding $11 million to pretax income over baseline 2019 levels. The similar contribution in 2020 was $3 million. The higher persistency lowered DAC amortization by $14 million, which was partly offset by $6 million in higher benefit reserves for a net contribution of $8 million to pretax income for the quarter. The net contribution in the prior year period was $4 million. Current period claims remained elevated in comparison to our historical experience. We incurred about $6 million in COVID claims and an additional $3 million of claims that were not identified as COVID for a total of 9 million excess claims for the quarter. This compares to $10 million of excess claims in the prior year quarter, which were fully attributable to COVID debt. The $6 million of COVID claims was in line with our expectations but increased our experience from $10 million per…

[Operator Instructions] And the first question will be from Ryan Krueger with KBW.

I'll start with e-TeleQuote. Can you provide any guidance, I guess, around how to think about the initial earnings impact? And I know there's also quite a bit of seasonality in the business. So any help there would also be great.

Yes. We, at this point, aren't providing that information. You're exactly correct. The third quarter is not a season lease strong quarter per se. Their strongest quarter will most likely be the fourth quarter while annual - while the annual enrollment period is open. We do plan to provide that information as we move into next quarter's earnings results.

Got it. Okay. And then on persistency, I'm sure it's tough to evaluate, but do you have any thoughts on kind of why we saw persistency get even better again? And were there any trends that happened throughout the quarter, month by month and post quarter? Or was it consistently that favorable throughout?

Yes, a great question. It was consistently favorable throughout the quarter. And to put it in context of last quarter, and again, we have a lot of seasonality in our business recently in the second quarter is usually elevated anyway. But when you look at it on a year-over-year basis, both the first and second quarter in comparison to - we're using 2019 at the baseline in your pre COVID, both periods were both the same strength and about the 25% range improvement. So it's not that we've seen a further uptick versus what we saw say, last quarter, we just aren't seeing any deterioration in the rate. And I think it correlates very highly quite frankly, with what we're seeing in sales and while the sales were down a bit from last quarter last year, they're still exceptionally strong in comparison to where we were pre COVID. Obviously, at the very end of the quarter and into the third quarter, you had the rise of the Delta variance. So, that in and of itself probably makes me feel like the normalization of persistency may be pushed off further than I had even anticipated a month ago. Right now, again, we're not seeing any kind of normalization. To me, it's very unlikely that it will get back to pre-COVID levels or even where it's going to land post COVID by the end of the year, and I think it will continue to be elevated for the remainder of the year, perhaps not quite as highly as it is right now, but still to a point that would be very favorable to our earnings and most likely to sales as well.

Great, thanks a lot.

The next question comes from Mark Hughes from Truist.

Good morning, Mark.

Hello Glenn, you talked about how the recruits have not been quite as diligent in getting licensed. Could you talk about - do you think that effect is extending into the second half? And do you think those kind of pull-through rates are going to be below historic levels?

Yes, Mark, we're seeing kind of the distraction effect that I referenced in my prepared remarks that people have been limited in their activities for so long. And then when finally, they're able - and of course, a lot of this is being impacted as Alison just mentioned about the Delta variant. But as the lockdowns ended and people felt more comfortable about moving about, we could see a distraction factor, and I believe that is attributable to the some of what you're describing in our pull-through rate on licensing, it's probably also created a little bit of disconnect from the strength of life sales and the strength of persistency. They were traveling very close together through most of the pandemic. And as Alison just referenced, persistency has remained very strong. Sales have eased some. And I think the difference between that is the fact that we've just got a lot of people out doing things that they haven't been able to do in a long time. And so that creates a distraction effect on our recruit pull-through rate through licensing. It still continues to be hampered some by some backlogs in states and not only the distraction factor. But as I stated, the most effective way to get someone through an exam is through a live licensing course. They just appear to be more effective in our analysis than online preparation. And people aren't real comfortable yet getting in classrooms with a lot of other people. And so, all of that added together is kind of created a drag on our pull-through. We estimate that's probably going to continue certainly in the third quarter, although we've got every resource available deck against trying to overcome that and create offsetting positives. It's probably going to continue through the third quarter, maybe even into the fourth quarter.

Understood. How about, how is recruiting look early in the third quarter?

We're very pleased, as we said with the second quarter recruiting. And again, things are normalizing. You'll recall as all of this really began in the second quarter of last year. We were very concerned about how a remote environment might impact our business, having never existed in an environment like that before. And so we kind of threw the kitchen sink at it from an incentive perspective. And then we found out that we actually thrived in the remote environment, and it had its own set of positives. And so, we had some double positives there last year. We started pulling back on the incentives at the end of last year, we implemented some because of the tough comparisons early this year, and now we're beginning to pull back on some of them now. So, I think you're going to see recruiting continue to normalize. If you do look back at the pre-COVID period, we were recruiting about 24,000 people a month during 2018 and '19. And that zoomed all the way to 33,000 a month last year and last quarter, it backed up to about 30,000. So, it is normalizing, but it's still at very high levels historically, and we expect that normalization to continue slowly throughout the year.

Understood. On the e-TeleQuote, how much of a push are you making internally for the existing sales reps to participate, either refer or I'm not sure how you're going to describe it, but to this upcoming Medicare advantaged season? Are they going to be fully engaged? Are you laying the groundwork for that?

Yes. We are starting as - is our practice at Primerica, we're very deliberate. We've got to learn - we've got to teach a group of people how to do this business. It's a referral system, so it's simple, it should be easy to each. But it's hard to anticipate how quickly they'll get around the learning curve and what kind of unintended consequences and other distractions that might create to our primary businesses and historical business. So, we're moving pretty slowly. We do have a group engaged already and have had some referrals passed from our sales force to e-TeleQuote. We're kind of examining each one as it goes through the system to determine how we feel about the process we've created. So, we will have some activity by this upcoming enrollment season, but we will be at full force by the fourth quarter. We just have probably both feet in the water at that time. We got a toe in right now. And so we are moving at a reasonable pace, but we're not going to sacrifice the momentum in our current businesses, nor create a process that we don't feel great about has long-term positive impact to rush and make it in time for this upcoming season. There'll be other seasons in future years that will be more important. But we should be able to report our progress by the end of next quarter and by the end of the year on how we've come along because we are engaged in it. We're just going to move deliberately rather than recklessly.

Okay. And then, the - you talked about 30% to 40% increase in ISP sales, similar mix to what you've got this quarter seemed a pretty a pretty good balance of annuities and mutual funds likewise in Q3?

Yes. We aren't seeing a big shift in product during this explosive growth that we experienced. It is across the board in both countries and across all product lines. So, we're not anticipating any real difference. It should stay pretty close to the same normal fluctuation maybe between products, but no real shift from one product to another, it's growing across the board.

Thank you very much.

Thank you, Mark.

Ladies and gentlemen, this concludes our question-and-answer session, and that concludes today's call. Thank you for joining Pramerica Inc.'s Q2 Earnings Results Conference Call. You may now disconnect your lines. Take care.