Good morning, welcome to Primerica Q3 2021 Earnings Results Conference Call and Webcast. My name is Daisy and I'll be coordinating today's call. [Operator Instructions] I’ll now hand over to your host Nicole Russell, Head of Investor Relations at Primerica to begin. You may please go ahead.

Thank you, Daisy, and good morning, everyone. Welcome to Primerica's third quarter earnings call. A copy of the 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, Glenn Williams; and our Chief Financial Officer, Alison Rand. Glenn and Alison 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 provisions 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 as modified by subsequent Forms 10-Q and the press release filed with our Form 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 will also reference certain non-GAAP measures, which we believe will provide additional insight in the company's operations. Reconciliations of non-GAAP measures to their respective GAAP numbers are included at the end of our press release and are 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. Our strong results continue to reflect our ability to adapt to the changing business environment. Since the emergence of COVID-19, Primerica has been educating and assisting clients in choosing the right protection products to meet their family's insurance needs. As a reaction to the pandemic phase, we are helping guide clients' investment decisions and assisting families as they prepare for a more financially secure future. These last 18 months are a perfect example of the balance and resilience of our business model. I'm proud how quickly our sales force is adapted to a combination of virtual and in-person client interactions to continue serving middle-income families when they need us most. Over the same 18 months, we've delivered on our strategic goal of expanding our product offerings. We moved from pilot to full rollout of the new mortgage business, which continues to grow as we gain experience. We also launched our senior health referral program during the third quarter, further rounding out a balanced product platform to help clients through every financial step of their life journey. Looking at the third quarter, we continue to set new records with Investment and Savings sales, up more than 50% year-over-year. At $8.7 billion, total sales during the first nine months of 2021 have already eclipsed full year 2020 levels and we're on pace to break $10 billion in annual sales for the first time in our history. As anticipated, sales in our Term Life segment have started to normalize versus their COVID peak. And while sales are down versus the record levels we forecast full year sales to be about 10% above pre-pandemic levels. We also expect to surpass $900 billion of face amount in force by the end of the year, another…

Thank you, Glenn and good morning, everyone. Today, I will take you through third quarter results including those for our new Senior Health segment and highlight key additions to our financial metrics and disclosures introduced as part of the acquisition of 80% of e-TeleQuote on July 1. Starting on Slide 7 with our Term Life segment, top line’s growth remained strong with operating revenues up 12% to $401 million, driven by 13% growth in adjusted direct premiums. The compounding impact of 18 months strong sales and policy persistency continues to drive adjusted direct premium growth and added $12 million pre-tax income during the quarter. This compares to $5 million added in the prior year period. Third quarter net COVID-related death claims were $14 million, up from $8 million in the prior year period. This was above our prior estimate as the Delta variant led to higher COVID-related population deaths in the US and Canada. The rate of COVID mortality in our insured population also increased from around 11 million to 14 million per 100,000 deaths. The increased rate was largely driven by deaths impacting younger individuals, who are more heavily represented in our insured population and higher volume of claims in states, where vaccination rates have been low. COVID claims continue to be linked to older policies with less than 1% of claims coming from policies issued since the onset of the pandemic. We incurred about $2 million of excess death claims in the quarter, not specifically identified as COVID but that we believe are indirectly tied to the pandemic either through delayed medical care, societal issues such as crime or the behavioral health crisis. We continue to monitor our experience for any emerging long-term trends. From a P&L perspective, this excess mortality was fully offset by a reduction in…

Thank you, very much. [Operator Instructions] Our first question comes from Ryan Krueger from KBW. Ryan, your line is open. Please go ahead.

Good morning, Ryan.

Hi, thanks, good morning. First question was just -- at this point, would you still anticipate resuming share repurchase at the start of 2022? And can you give us any sense of potential magnitude?

So at this point, actually the timing is almost perfect. We're getting ready to meet with our Board to review our annual budgets and part of that is reviewing what our plans for capital deployment will be. So at this point, I can't provide any further guidance. I will just reiterate what I closed out with, is that, we do continue to look at our books of business and the capital generated by them, even with the capital needs of the Senior Health segment and believe that they are more than sufficiently adequate to be able to maintain all of our operating needs, as well as maintain capital deployment plans.

Thanks. And I guess another question that, I'm not sure, if you've talked about yet is any preliminary thoughts on LDTI and how it would potentially impact your Term Life business?

Yes. I mean, that's a very relevant question. We have not at this point started to quantify any of those results. We have seen that a few folks in the space have given some very high-level notes, all of which is really the basis of what the LDTI is. We definitely expect there to be some changes in how earnings merge on a GAAP basis. And what I will remind you and I think you've heard from others is that, there is no impact from LDTI on either the true economics of the business or the statutory cash flows. And obviously, the statutory cash flows are what we'll derive, what we can deploy out of the Life Company. But the important thing to note with LDTI is, it does change from a lock-in assumption to an annual reset of mortality and persistency. We, of course, while we will be exposed to that annual reset on mortality we do lock in 90% of our mortality via YRT reinsurance. So the volatility will continue to be diminished because of that YRT program. But clearly, it will create some nuances and based on how axles emerge. You might see the timing of that impact change from what you would have had under that 60. Also, there are no provisions for adverse deviation. So that does also change the timing of earnings, in fact recognizing earnings is slightly earlier pattern than you would have otherwise. The DAC methodology is different. It is a straight line mechanism. So that will change the timing of earnings. And -- but for us really the biggest thing and it's consistent that -- again, I think you've heard from others is going to be the assumption you use for your discount rate. The LDTI is essentially removing any correlation…

Okay, great. That’s very helpful. Thank you.

Thank you very much Ryan. Our next question comes from Andrew Kligerman from Credit Suisse. Andrew, your line is open, please go ahead.

Hey Andrew.

Hey thanks and good morning. I'm looking at this rep count it's around 130,000. It's been there for a few years after some big ramp-ups in growth prior to 2020. You mentioned an event coming up in January, then there's the big meeting in June at the Mercedes Center. Maybe talk to us a little bit about what upcoming initiatives might be in place to move that rep count up significantly? And when do you think that might happen?

Okay. Well, certainly, it starts with our recruiting numbers which we feel good about as I reported in my prepared remarks. We've got to look through the COVID unusual peak of the numbers and you see that our recruit numbers continue to be strong historically. And we believe we -- our business opportunity appeals because of our track record of success because of our success in dealing with the disruption of the pandemic in our business, I think that aspiring entrepreneurs still look at us and say this is a great place to build a business. And I do think our recruiting gets a tailwind from the disruption in the labor market. We've talked about it in relationship to our business and it's actually impacting different parts of our business in different ways. But as people become frustrated with their current opportunity or lack of opportunity and talking about moving and think about moving to a different career, that actually opens minds to considering being in a business like Primerica. And with our success and track record we believe that that provides a tailwind for us on the recruiting front. So, I believe that recruiting is strong and healthy. And Andrew, as we've talked about for a number of quarters throughout COVID, the challenge is what is the disruption that's created in the pull-through rate. And so we continue to work on our licensing process to adapt it to the expectations of kind of the post-COVID world. We've always as I said in my remarks felt like online processes don't have the discipline and accountability and therefore completion rates suffer. People start online and never finish where people come to class, they tend to be more diligent in completing the class and therefore, being prepared to attempt and pass the…

That was very helpful Glenn. And then maybe just shifting over to e-TeleQuote view. You've indicated, I think $20 million of earnings in the fourth quarter, of course, coupled with the challenges that you've recently had in staffing up and training et cetera. So I'm curious as to what may be the risk of falling short of that $20 million in the fourth quarter. Do you have the -- is that a number that you anticipated, when you acquired e-TeleQuote and I'll leave at that.

Okay. There's a few different questions in there. I'll go ahead and address...

Yes.

Sort of the risk associated with it. And I will tell you, if I had the crystal ball for any of our businesses, I'm not sure beyond this call right now but that would be okay. Anyway, there's a lot that goes into that. We have definitely seeing the pressures of bringing folks on. We are about I say almost halfway through AEP, and so we're monitoring performance closely. We're seeing the pressures from bringing people on has been a negative there's been positives associated with the productivity levels of the folks the people that we have generally been people who are more tenured even though there aren't as many of them, which is always a good thing. And the excitement that's been generated within Primerica, this is new for us. And so I'd say, the biggest new is the Primerica aspect of it. Thus far, there's been a lot of engagement, which has been wonderful to see. We need to keep working through AEP to see how that develops. But I think otherwise they're monitoring the business daily to monitor both lead cost and productivity and the likes. So I think the number is pretty good. I can't guarantee you it's perfect, but I don't think it's going to be off by all that large of a magnitude, one way or the other. So I'll go with that.

Got it. And just is it trending where you thought when you bought it, or is it a little more challenging?

Well as you know Andrew, we spent a number of years after our strategic process identified the Senior Health market is something that we were interested in studying the market. And we recognize, that there are a number of variables in that business that drive it. And that of course, was prior to COVID, the greatest variable of all. So we tried to have a broad understanding of the positives and negatives of the momentum of that business. And then of course, we have identified e-TeleQuote is the best fit for Primerica after taking quite a long look at them and studying them carefully doing diligence and so forth. And so we have seen things that we didn't expect. Many of those have been COVID driven things that I don't think we could have anticipated. I'd like to say that the cleanliness of theory is no match for the mass of reality. And so now we're learning real time as a result of leading that business in partnership with the very strong management team that e-TeleQuote had and has since we acquired them. So there have been parts of it that have turned out much like we anticipated. There have been some things that were a little different than we anticipated. I would say the majority of those have been COVID impacted in some way. But overall, we're very pleased with the way things are turning out. We're still excited about this industry segment. I believe there's huge opportunity in Senior Health. And we also believe that e-TeleQuote is a strong player today will be an even stronger player tomorrow particularly with the added advantage that the Primerica relationship brings a new source of leads and referrals from a different dynamic within the industry that we believe is unique. And we don't believe anyone else has access to what we have. So yes, there are a few things to our learning as we expected. But overall, we feel good about where we are and we're excited about the future.

That explains everything.

[Operator Instructions] Our next question comes from Mark Hughes from Truist. Mark, your line is open. Please go ahead.

Hello Mark.

Thank you. Good morning, Glenn. Good morning, Alison, good morning, Nicole. Alison, if the Q3 quarter is 18 in terms of approved policy 18000 the fourth quarter is 36000 to 40000, would we roughly speaking just from a seasonal perspective think about Q1 or Q2? Just trying to get the magnitude?

Yes. In our normal pattern as we've always done on the next earnings call the fourth quarter earnings call, I will give some further insight for all of our businesses as to what we're expecting for the upcoming year. Typically like I described in my prepared comments, you would expect the first quarter to not have as much volume as the fourth quarter but could still be a pretty sizable quarter. The biggest thing here is, it's definitely there is supply. The question becomes how much of that supply do you attempt to ingest and how fast do you ingest it. And that is going to be based on a combination of the number of agents -- trained agents that we have in seats, as well as the productivity of those agents. So, the good thing about both the fourth quarter and the first quarter is there's ample supply. The bigger constraint I would say we have -- as we head into first quarter is, in fact can keep putting active people in seats that are productive not lose them keep hiring along to meet that supply. So as Glenn was describing the labor market is really the biggest challenge. And quite frankly, we do believe that has very much to do with COVID. I think everybody is seeing it pretty much everywhere in life. And so, until that's aside it's a little bit difficult for us to say there's going to be a normal seasonality. But to your exact question I can't give you an exact number, but I will say the supply is there to be had and ingested in the first quarter and it's really a function of how many people who can actively get working those leads.

And by supply you're talking about leads?

Leads. Yes, there's a lot of people actively looking in the first quarter because of the open enrollment period.

Yes. Give an estimate for how many of the 36 to 40 in the fourth quarter will be leads from Primerica?

Yes. We've stated before we think we can get -- it's just a target that we've said is to get up to providing 10% of the leads and applications that e-TeleQuote is doing. It's interesting the faster the e-TeleQuote grows the harder, it is for the Primerica segment to get to 10%. The faster the Primerica segment grows the easier it is for us to get 10%. Right now, we're running in the kind of 4%, 5% range of what's happening there. And so we've got a way to go. But we do believe we're getting good positive reaction in our sales force. We've had about a little over 20,000 reps have certified. There is a training and certification process to go through. Most of those are life license, some of those that have been certified are not yet life license, which was one of the visions we had for this business is it's a business that new reps can get in too quickly as they build the Primerica business and that's an advantage of being there. So we've had -- we've been very pleased with the acceptance and excitement level within Primerica. We've been pleased that we're off to a reasonable start, but we believe we can grow -- we got this up and running just before AEP started in a perfect world been great to add some experience, but we didn't want to miss the learning curve of AEP. So we wanted to have our referral process in place, but there's a lot of upside that we're very excited about.

Alison, when I think about normalized DAC within the Term Life business, should I just kind of take this quarter and add back $11 million? Does that get you the run rate? I know you said fourth quarter is still going to have some of these same favorable impacts around DAC, but would that be one way to look at it?

Well, yeah, I would remind you and we've seen some just craziness overall over the last several quarters because of COVID-19, but there is some seasonality, if you recall on persistency. So some of the things to do on an annual basis is easy, how you calendarize it by quarter is going to get a little harder. Remember, things like the first quarter -- I mean the second quarter is usually a very strong, persistency quarter so the DAC ratio is typically low that quarter. But putting that aside, we do continue to expect further normalization of DAC. So if you're talking specifically about the fourth quarter, I think what I indicated was that overall net-net, I expect the persistency impact to be relatively consistent with the third quarter. But over time, we do expect lapses to rise closer to what they were pre-COVID. We are obviously hopeful and we do believe based on public sentiment that will land at a place where lapses are lower than they were prior to the pandemic, but how fast that happens still remains to be seen. We're seeing some of it in the newer policies, where people are less vested in their policy because they haven't been really paying the premiums that long. We're still seeing very strong persistency as you said once you get past the first or second duration will people sort of feel like they're committed to the policy.

Yeah. The LTV per policy, how does that stack up versus peers? I assume you are aware of what others have -- what decision they've made? And what are some of the underlying assumptions around longevity of the policyholders?

Yeah. And that's a couple of different questions there. Let me just start with one thing. As we've done our research to think about what would be appropriate to disclose for this segment and how best to define our metrics what we have found is, there's very little consistency in how the metrics are defined. There are some level. We attempted to find any places of consistency that we could. But that being said, I will caution you that the way we ultimately define something in a way one of the other peers ultimately define something could be different. So I don't necessarily want to look at things in relation to what other people are getting because I don't have full transparency into what they're booking. That being said, what everybody is -- should be doing consistently is looking at the -- there's two components to the LTV. There's the initial commission and the renewal commission. The initial commissions all paid upfront. You find out really within the first 90 days for the most part, whether you're going to keep that. So you have very good visibility pretty quickly on that. On the renewals, obviously that happens over time, you use historical persistency levels. And within the guidelines of the appropriate revenue recognition accounting, you do constrain those, so that you are most likely not going to end up in a situation where we have to reverse something out that you've already booked. I can't speak to the level of constraint other firms are using or what their persistency experience has been. We're using our historical experience, supplemented by information industry-wide where needed. I believe all the firms do have a similar analysis as we do perform externally to look at those persistency curves. So I would think the basis that we're all using is consistent, whether their performance is the same as ours, I cannot speak to. But the approach, the mechanics of it, I would say are fairly similar. Their people can make different…

And what is your…

Sorry.

I'm sorry, I was just going to ask, if you had any specific numbers around longevity or persistency that you were able to share.

Nothing I can share. It's actually done based on individual cohort, which is a function of both the periods that the policies became effective, as well as the carrier and it is different by carriers different, carriers seem to have different persistency levels. Also just as you have seen to the extent you've looked in the industry, this particular year the 2021 cohort of business have seen higher lapsations and chargebacks. Some of that is believed to be because of COVID, and the level of agents, or the training levels, and the quality of the agents that were available in last AEP. But then again, I don't want to say that is going to be typical for what will be in future periods nor is it necessarily reflective of prior periods. So you have to look at everything by an individual cohort.

Okay. Then one final question. Could you give a outlook for full-year expenses, I guess, the insurance and other operating expenses?

Yes. I gave of fourth quarter and I don't have the exact number, but if you go back to February, which is when I think I gave my annual, I think, we're coming in a few million dollars lower than what we said in February. But relatively speaking, it's in the same general ballpark.

Yes.

There's been some things that have been favorable obviously less travel than we anticipated. We thought we would add some travel licensing costs have been down because of some of the things Glenn's described. But otherwise, it's been pretty much in sync with our original expectation. Obviously, all of that is without e-TeleQuote.

And what was that fourth quarter guide?

One, how are we going to make -- I think it was $129 million, but let me -- yes, $129 million, which includes e-TeleQuote of $8 million.

Okay. Great. Thank you very much.

You’re welcome.

Thank you.

Thank you everyone for joining today's call. The call has now concluded. You may now disconnect your lines, and have a lovely day.