Primerica, Inc. (PRI)

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Primerica, Inc. (PRI)
D. RICHARD WILLIAMS, Chairman of the board of directors, has served as Primerica, Inc.’s
Co-Chief Executive Officer since 1999 and has served the company since 1989 in various
capacities, including as the Chief Financial Officer and Chief Operating Officer of Primerica
Financial. Mr. Williams joined the American Can Company, a predecessor to Citi, in 1979, and
eventually headed the company’s acquisition and development area for financial services, and
was part of the team responsible for the acquisition of Primerica. Mr. Williams earned both
his B.S. degree in 1978 and his MBA in 1979 from the Wharton School of the University of
Pennsylvania. He serves on the boards of trustees for the Woodruff Arts Center and the AntiDefamation League Southeast Region.
SECTOR — INSURANCE
TWST: As you’ve told us in the past, Primerica primarily
serves the middle-income market. Which of your product lines are
most in demand by that market right now? How are you positioning
the company to take advantage of those opportunities?
Mr. Williams: Actually, we’re doing well with both our termlife insurance products and our investment products, but given the robust
market, investments are outperforming the life side. They’re doing very
well. If you look at the first quarter of 2014, we had a 13% increase in
operating revenues in the investment business, 29% growth in operating
income before income taxes there.
We’ve introduced several new investment products over the
last couple of years. We’ve added one additional variable annuity product
from Lincoln, and in May, another product from AXA. We’ve also added
a fixed index annuity product and managed account products. Looking at
the needs of the marketplace and trying to meet them by adding the sort of
products that serve various categories has very much helped our business.
Last year, 20% of our sales came from new investment products that were
introduced in the last two years.
TWST: In the first quarter, you sold your short-term
disability insurance business. Tell us about the factors that contributed
to that decision.
Mr. Williams: Sure. It was a product that was actually an
artifact from a company that we purchased in order to enter New York
for our core term-life insurance business. So the short-term disability
business was nonstrategic. It was small, and as a result, it made sense to
get rid of it and not have to devote any time or attention to it.
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TWST: Are there any other specific products or product
categories that are seeing weaker demand, and how are you adjusting
your strategy accordingly with those?
Mr. Williams: No. I wouldn’t say weaker demand. Again, we
are focused on term-life insurance and investment products. We do sell
auto and home insurance, and a prepaid legal product. All of those sales
are doing well, so there’s nothing that’s weak. During the financial crisis,
in our term-life insurance business, we did see a decline in the averagesize face amount of our life policies, but that increased in 2013. Again, we
feel pretty good about where we are.
TWST: You began a stock repurchase plan in the first
quarter. Can you tell us a little bit about that?
Mr. Williams: Our business generates substantial capital,
and since we’ve been public over the last three years, we’ve been
able to return to the shareholders more than 100% of operating
earnings each year, including stockholder dividends and stock
repurchases. What we’ve announced this year just continues that
trend through $150 million of stock repurchases that is funded by
$40 million from our nonlife insurance company business. And
$110 million will come from our U.S. life insurance company as
soon as we complete a redundant reserve financing that requires
regulatory approval. In addition, we’ll pay out over $25 million in
dividends in our regular stockholder dividend program.
TWST: Can you comment overall on the strength of
your balance sheet, and are there any areas that you’re working
to improve?
Mr. Williams: We actually have a very strong balance sheet
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C O M PA N Y I N T E R V I E W —— P R I M E R I C A , I N C . ( P R I )
because of the nature of our product itself: We offer term-life insurance,
which does not have an investment component. Our investment business
is done through the sale of mutual funds and variable annuities, where we
earn a commission or fees from it. This results in a relatively low capitalintensive, smaller-balance-sheet business.
Just to give you a feel for it, if you look at our investment
leverage — that’s our ratio of total investments on the balance sheet
compared to shareholder equity — our ratio was 1.7 times versus traditional
life insurance companies’ average of 9.5 times. When you look at the risk
associated with a large investment portfolio depending on what you’ve
invested in, interest rate risk, equity risk, real estate risk, etc., our business
has relatively little of that risk compared to the rest of the industry.
TWST: What trends are you observing on the cost side of
your business, and what’s your strategy to control costs?
Mr. Williams: Like virtually everyone else, technology is
making a significant difference in our business. Just a couple of examples,
today, over 90% of our life policies are submitted on a mobile phone,
whereas five, six years ago, that was all paper being submitted, where
it had to be scanned, cataloged, reviewed, etc. Today, it comes in over a
smartphone. One of the benefits in doing an electronic data entry is that
you can screen to make sure that everything is entered appropriately;
therefore, policies are not kicked back, and they are issued directly.
Another example on the life insurance side, approximately half
of our business is done utilizing prescription drug underwriting, where
— with the client’s permission — we compare their data against the
prescription database to see what medications they are on, and as a result
of that, for approximately 80% of that, we can issue immediately.
Even though not all of the decision process is automatic, most
of it is not being done by an underwriter, taking substantial cost out of the
business. On our investment savings products processing, we have also
implemented mobile technology, which now accounts for close to half of
our business submitted today. So that’s also being automated.
TWST: When you look at the regulatory environment,
what obstacles or possible opportunities are on the horizon for the
company at this point?
Mr. Williams: The regulatory environment is always
changing, and ever since the financial crisis, there has been a great deal
of attention paid to the regulations that are out there. I won’t say there
are any opportunities associated with it. We monitor what’s going on in
Washington very closely, and to the extent that we think there is potential
impact, we try to enter into the dialogue and make sure people understand
the ramifications of changes.
TWST: Aside from any regulatory risks, what other
business risks or challenges are you facing at this point?
Mr. Williams: Obviously, the economy overall is very much
in the forefront of our minds as we develop our business plans. At this
point, our main focus is on growing the size of our sales force. Again, our
clientele are middle-income Americans and Canadians, and therefore,
how they are doing overall impacts how well we do, so we monitor the
economy closely.
TWST: You mentioned growing your sales force. How
would you characterize your growth strategy, and what are the
specific steps that will be key in executing on that strategy?
Mr. Williams: We’ve been having some good success in growing
the size of the sales force. If you look at our first-quarter results, which we
announced just a week or two ago, our sales force had grown 5% year over
year in the first quarter to about 95,400 representatives. We’ve been growing.
Recruiting was up 4%. The number of new representatives that we licensed
was also up 4%. So we are having success in doing so.
A lot of that relates to several underlying initiatives. In 2012,
we introduced a new compensation system for our sales force that was
oriented to helping representatives to get licensed and become more
productive earlier in their career. We also are focused on sales force
incentive programs. Our business is very much incentive-driven, where
in order to qualify for trips and other incentives, getting people licensed
and productive is a core component.
TWST: What is the management decision that you and
your team have made over the last year that you believe has put the
company in a better position than it otherwise would have been?
Mr. Williams: Actually, I’ll fall back on my answer to the
prior question. Our focus over the last two to three years on providing
the right incentives for our sales force to grow their teams and grow the
size of their business is having results that we are very pleased with.
Another component is the new products that we’ve introduced on our
investment savings business, which also is having a positive impact on
the business. Our focus on those two central initiatives, both the growth
in the size of our sales force and growth from expanding our product set
in our investment business, have been quite successful.
TWST: Based on how the company has been performing
and the guidance that you’ve provided, what kinds of investors do
you think would be most interested in Primerica at this point? And
why is the second half of this year a good time for those people to
consider taking a closer look at the company?
Mr. Williams: The investors that have been very successful with
us over the last couple of years, and I think will continue to be, are ones
looking for a company with strong competitive advantages. Our business
is a distribution business, and we have a very large marketplace in the
middle-income market, which has traditionally been underserved. Most of
our competitors cannot economically sell the smaller-size life policies and
invest smaller amounts of money that middle-income America can afford.
The leverage in our distribution system utilizing part-time representatives
managed by full-time representatives allows us to economically service
and help those middle-income families that other companies cannot.
From an investor perspective, understanding that we have
a captive marketplace that we can serve, and while other businesses
cannot, and we have the business mix of our term-life insurance and feebased investment products, we can really deliver superior returns. If you
look at our return on equity versus other financial service companies, it is
quite strong, and the marketplace recognizes that, giving us a two times
book value valuation.
TWST: Thank you. (MES)
D. RICHARD WILLIAMS
Chairman & Co-CEO
Primerica, Inc.
1 Primerica Pkwy.
Duluth, GA 30099
(866) 694-0420 — TOLL FREE
www.primerica.com
e-mail: [email protected]
© 2014
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