pri-10q_20170630.htm

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

	(Unaudited)
	June 30, 2017			December 31, 2016
	(In thousands)
Assets:
Investments:
Fixed-maturity securities available-for-sale, at fair value (amortized cost: $1,822,890 in 2017 and $1,734,683 in 2016)	$	1,888,983		$	1,792,438
Fixed-maturity securities held-to-maturity, at amortized cost (fair value: $665,801 in 2017 and $513,015 in 2016)		635,690			503,230
Equity securities available-for-sale, at fair value (cost: $35,369 in 2017 and $36,818 in 2016)		45,936			44,894
Trading securities, at fair value (cost: $15,538 in 2017 and $7,382 in 2016)		15,541			7,383
Policy loans		34,316			30,916
Total investments		2,620,466			2,378,861
Cash and cash equivalents		154,499			211,976
Accrued investment income		16,585			16,520
Due from reinsurers		4,191,754			4,193,562
Deferred policy acquisition costs, net		1,833,877			1,713,065
Agent balances, due premiums and other receivables		223,923			210,448
Intangible assets, net (accumulated amortization: $76,933 in 2017 and $75,231 in 2016)		53,214			54,915
Income taxes		39,764			37,369
Other assets		386,279			334,274
Separate account assets		2,424,937			2,287,953
Total assets	$	11,945,298		$	11,438,943

Liabilities and Stockholders’ Equity:
Liabilities:
Future policy benefits	$	5,812,217		$	5,673,890
Unearned premiums		500			527
Policy claims and other benefits payable		267,630			268,136
Other policyholders’ funds		377,313			363,038
Notes payable		373,103			372,919
Surplus note		634,980			502,491
Income taxes		241,314			225,006
Other liabilities		428,176			449,963
Payable under securities lending		115,875			73,646
Separate account liabilities		2,424,937			2,287,953
Commitments and contingent liabilities (see Commitments and Contingent Liabilities note)
Total liabilities		10,676,045			10,217,569

Stockholders’ equity:
Common stock ($0.01 par value; authorized 500,000 in 2017 and 2016; issued and outstanding 45,035 shares in 2017 and 45,721 shares in 2016)		450			457
Paid-in capital		-			52,468
Retained earnings		1,224,375			1,138,851
Accumulated other comprehensive income (loss), net of income tax:
Unrealized foreign currency translation gains (losses)		(5,401	)		(13,193	)
Net unrealized investment gains (losses):
Net unrealized investment gains not other-than-temporarily impaired		49,883			42,852
Net unrealized investment losses other-than-temporarily impaired		(54	)		(61	)
Total stockholders’ equity		1,269,253			1,221,374
Total liabilities and stockholders’ equity	$	11,945,298		$	11,438,943

	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
	(In thousands, except per-share amounts)
Revenues:
Direct premiums	$	637,426		$	612,189		$	1,265,124		$	1,209,319
Ceded premiums		(406,043	)		(406,683	)		(805,811	)		(802,017	)
Net premiums		231,383			205,506			459,313			407,302
Commissions and fees		148,317			136,902			292,584			265,723
Investment income net of investment expenses		25,829			24,994			51,442			50,387
Interest expense on surplus note		(6,087	)		(4,605	)		(11,806	)		(8,760	)
Net investment income		19,742			20,389			39,636			41,627
Realized investment gains (losses), including other-than- temporary impairment losses		104			3,440			238			2,657
Other, net		14,150			12,757			27,089			24,284
Total revenues		413,696			378,994			818,860			741,593

Benefits and expenses:
Benefits and claims		99,512			88,984			201,897			179,961
Amortization of deferred policy acquisition costs		47,861			38,720			99,710			81,849
Sales commissions		75,440			70,146			149,144			136,789
Insurance expenses		36,920			32,906			74,541			66,035
Insurance commissions		5,157			4,472			10,057			8,619
Interest expense		7,143			7,178			14,270			14,350
Other operating expenses		45,274			44,708			98,011			91,898
Total benefits and expenses		317,307			287,114			647,630			579,501
Income before income taxes		96,389			91,880			171,230			162,092
Income taxes		33,282			32,554			56,054			57,590
Net income	$	63,107		$	59,326		$	115,176		$	104,502

Earnings per share:
Basic earnings per share	$	1.36		$	1.23		$	2.48		$	2.15
Diluted earnings per share	$	1.36		$	1.23		$	2.47		$	2.15

Weighted-average shares used in computing earnings per share:
Basic		45,984			47,658			46,142			48,104
Diluted		46,071			47,708			46,222			48,141

Supplemental disclosures:
Total impairment losses	$	(484	)	$	(803	)	$	(695	)	$	(2,830	)
Impairment losses recognized in other comprehensive income before income taxes		-			-			-			-
Net impairment losses recognized in earnings		(484	)		(803	)		(695	)		(2,830	)
Other net realized investment gains		588			4,243			933			5,487
Realized investment gains (losses), including other-than- temporary impairment losses	$	104		$	3,440		$	238		$	2,657

Dividends declared per share	$	0.19		$	0.17		$	0.38		$	0.34

	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
	(In thousands)
Net income	$	63,107		$	59,326		$	115,176		$	104,502
Other comprehensive income (loss) before income taxes:
Unrealized investment gains (losses):
Change in unrealized holding gains (losses) on investment securities		3,889			33,568			11,170			58,284
Reclassification adjustment for realized investment (gains) losses included in net income		(273	)		(3,219	)		(341	)		(2,332	)
Foreign currency translation adjustments:
Change in unrealized foreign currency translation gains (losses) before income tax expense (benefit)		6,753			(1,167	)		7,880			14,869
Total other comprehensive income (loss) before income taxes		10,369			29,182			18,709			70,821
Income tax expense (benefit) related to items of other comprehensive income (loss)		1,339			10,612			3,879			19,741
Other comprehensive income (loss), net of income taxes		9,030			18,570			14,830			51,080
Total comprehensive income	$	72,137		$	77,896		$	130,006		$	155,582

	Six months ended June 30,
	2017			2016
	(In thousands)
Common stock:
Balance, beginning of period	$	457		$	483
Repurchases of common stock		(11	)		(21	)
Net issuance of common stock		4			4
Balance, end of period		450			466

Paid-in capital:
Balance, beginning of period		52,468			180,250
Share-based compensation		17,092			16,873
Net issuance of common stock		(4	)		(4	)
Repurchases of common stock		(69,556	)		(94,294	)
Balance, end of period		-			102,825

Retained earnings:
Balance, beginning of period		1,138,851			952,804
Net income		115,176			104,502
Dividends		(17,680	)		(16,446	)
Repurchases of common stock		(11,972	)		-
Balance, end of period		1,224,375			1,040,860

Accumulated other comprehensive income (loss):
Balance, beginning of period		29,598			12,235
Change in foreign currency translation adjustment, net of income tax expense (benefit)		7,792			14,710
Change in net unrealized investment gains (losses) during the period, net of income taxes:
Change in net unrealized investment gains (losses) not-other- than temporarily impaired, net of income tax expense (benefit)		7,031			36,365
Change in net unrealized investment losses other-than-temporarily impaired, net of income tax expense (benefit)		7			5
Balance, end of period		44,428			63,315
Total stockholders’ equity	$	1,269,253		$	1,207,466

	Six months ended June 30,
	2017			2016
	(In thousands)
Cash flows from operating activities:
Net income	$	115,176		$	104,502
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Change in future policy benefits and other policy liabilities		139,105			116,415
Deferral of policy acquisition costs		(208,391	)		(183,145	)
Amortization of deferred policy acquisition costs		99,710			81,849
Change in income taxes		5,782			36,306
Excess tax benefits on share-based compensation		4,238			1,448
Realized investment (gains) losses, including other-than-temporary impairments		(238	)		(2,657	)
Accretion and amortization of investments		(684	)		(723	)
Depreciation and amortization		6,994			7,108
Change in due from reinsurers		11,394			(17,062	)
Change in agent balances, due premiums and other receivables		(13,475	)		(24,445	)
Trading securities sold, matured, or called (acquired), net		(8,173	)		(2,658	)
Share-based compensation		11,667			10,031
Change in other operating assets and liabilities, net		(43,235	)		(21,620	)
Net cash provided by (used in) operating activities		119,870			105,349

Cash flows from investing activities:
Available-for-sale investments sold, matured or called:
Fixed-maturity securities — sold		43,232			69,925
Fixed-maturity securities — matured or called		98,904			137,044
Equity securities		562			3,297
Available-for-sale investments acquired:
Fixed-maturity securities		(214,974	)		(133,604	)
Equity securities		(212	)		(986	)
Purchases of property and equipment and other investing activities, net		(6,194	)		(10,679	)
Cash collateral received (returned) on loaned securities, net		42,229			20,419
Sales (purchases) of short-term investments using securities lending collateral, net		(42,229	)		(20,419	)
Net cash provided by (used in) investing activities		(78,682	)		64,997

Cash flows from financing activities:
Dividends paid		(17,680	)		(16,446	)
Common stock repurchased		(75,042	)		(90,558	)
Tax withholdings on share-based compensation		(6,497	)		(3,757	)
Net cash provided by (used in) financing activities		(99,219	)		(110,761	)
Effect of foreign exchange rate changes on cash		554			1,212
Change in cash and cash equivalents		(57,477	)		60,797
Cash and cash equivalents, beginning of period		211,976			152,294
Cash and cash equivalents, end of period	$	154,499		$	213,091

(1) Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies

Description of Business. Primerica, Inc. (the "Parent Company"), together with its subsidiaries (collectively, "we", "us" or the "Company"), is a leading distributor of financial products to middle-income households in the United States and Canada. We assist our clients in meeting their needs for term life insurance, which we underwrite, and mutual funds, annuities, managed investments and other financial products, which we distribute primarily on behalf of third parties. Our primary subsidiaries include the following entities: Primerica Financial Services, Inc. ("PFS"), a general agency and marketing company; Primerica Life Insurance Company ("Primerica Life"), our principal life insurance company; Primerica Financial Services (Canada) Ltd., a holding company for our Canadian operations, which includes Primerica Life Insurance Company of Canada ("Primerica Life Canada") and PFSL Investments Canada Ltd. ("PFSL Investments Canada"); and PFS Investments Inc. ("PFS Investments"), an investment products company and broker-dealer. Primerica Life, domiciled in Massachusetts, owns National Benefit Life Insurance Company ("NBLIC"), a New York insurance company. We established Peach Re, Inc. ("Peach Re") and Vidalia Re, Inc. (“Vidalia Re”) as special purpose financial captive insurance companies and wholly owned subsidiaries of Primerica Life. Peach Re and Vidalia Re have each entered into separate coinsurance agreements with Primerica Life whereby Primerica Life has ceded certain level-premium term life insurance policies to Peach Re and Vidalia Re (respectively, the “Peach Re Coinsurance Agreement” and the “Vidalia Re Coinsurance Agreement”).

Basis of Presentation. We prepare our financial statements in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). These principles are established primarily by the Financial Accounting Standards Board ("FASB"). The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect financial statement balances, revenues and expenses and cash flows, as well as the disclosure of contingent assets and liabilities. Management considers available facts and knowledge of existing circumstances when establishing the estimates included in our financial statements.

The accompanying unaudited condensed consolidated financial statements contain all adjustments, generally consisting of normal recurring accruals, which are necessary to fairly present the balance sheets as of June 30, 2017 and December 31, 2016, the statements of income and comprehensive income (loss) for the three and six months ended June 30, 2017 and 2016, and the statements of stockholders' equity and cash flows for the six months ended June 30, 2017 and 2016. Results of operations for interim periods are not necessarily indicative of results for the entire year or of the results to be expected in future periods.

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are sufficient to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, 2016 ("2016 Annual Report").

Use of Estimates. The most significant items that involve a greater degree of accounting estimates and actuarial determinations subject to change in the future are the valuation of investments, deferred policy acquisition costs ("DAC"), liabilities for future policy benefits and unpaid policy claims, and income taxes. Estimates for these and other items are subject to change and are reassessed by management in accordance with U.S. GAAP. Actual results could differ from those estimates.

Consolidation. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and those entities required to be consolidated under applicable accounting standards. All material intercompany profits, transactions, and balances among the consolidated entities have been eliminated.

Reclassifications. Certain reclassifications have been made to prior-period amounts to conform to current-period reporting classifications. These reclassifications had no impact on net income or total stockholders' equity.

Significant Accounting Policies. All significant accounting policies remain unchanged from the 2016 Annual Report.

New Accounting Principles. In March 2016, the FASB issued Accounting Standards Update No 2016-09 (“ASU 2016-09”) Compensation—Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 intends to simplify several aspects of the accounting for share-based payment transactions, including the recognition of income tax consequences of awards, the classification of awards as either equity or liabilities, the method of recognizing award forfeitures, and the presentation of items within the statement of cash flows. The most notable impact on the Company’s financial statements involved the change in accounting for the income tax consequences associated with share-based payment transactions in the income statement. Prior to the adoption of ASU 2016-09, the tax effect of the difference between the cumulative compensation cost of a share-based award recognized for financial reporting purposes and the deduction of the award for tax purposes (“excess tax benefits or deficiencies”) was recognized as an adjustment to additional paid-in capital in the statement of stockholders’ equity. The amendments in ASU 2016-09 require that the excess tax benefits or deficiencies be recognized as a reduction to or an increase of income tax expense in the income statement. We adopted the amendments in ASU 2016-09 pertaining to excess tax benefits or deficiencies during

the first quarter of 2017 on a prospective basis, which resulted in a reduction of income tax expense of approximately $0.9 million and $4.2 million for the excess tax benefit of share-based transactions for the three and six months ended June 30, 2017, respectively. ASU 2016-09 also changes the presentation of excess tax benefits or deficiencies in the cash flow statement from a financing activity to an operating activity. Therefore, we have presented the excess tax benefits or deficiencies as cash flows from operating activities within the accompanying consolidated statements of cash flows for all periods presented. The adoption of all other amendments outlined in ASU 2016-09 had either no impact to our financial statements or an immaterial impact to our financial statements.

Future Application of Accounting Standards. Recent accounting guidance not discussed above is not applicable, is immaterial to our financial statements, or did not or is not expected to have a material impact on our business. For additional information on new accounting pronouncements and recent accounting principles and their impact, if any, on our financial position or results of operations, see Note 1 (Description of Business, Basis of Presentation, and Summary of Accounting Policies) to our consolidated financial statements within our 2016 Annual Report and in the unaudited condensed consolidated financial statements included in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017.

Subsequent Events. The Company has evaluated subsequent events for recognition and disclosure for occurrences and transactions after the date of the unaudited condensed consolidated financial statements dated as of June 30, 2017.

Segments. We have two primary operating segments — Term Life Insurance and Investment and Savings Products. We also have a Corporate and Other Distributed Products segment.

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
	(In thousands)
Revenues:
Term life insurance segment	$	238,901	$	210,559	$	472,953	$	416,655
Investment and savings products segment		143,774		132,608		284,180		257,525
Corporate and other distributed products segment		31,021		35,827		61,727		67,413
Total revenues	$	413,696	$	378,994	$	818,860	$	741,593

Net investment income:
Term life insurance segment	$	2,347	$	1,871	$	4,650	$	3,721
Investment and savings products segment		-		-		-		-
Corporate and other distributed products segment		17,395		18,518		34,986		37,906
Total net investment income	$	19,742	$	20,389	$	39,636	$	41,627

Amortization of DAC:
Term life insurance segment	$	44,937	$	36,477	$	95,070	$	77,702
Investment and savings products segment		2,310		1,704		4,044		3,623
Corporate and other distributed products segment		614		539		596		524
Total amortization of DAC	$	47,861	$	38,720	$	99,710	$	81,849

Non-cash share-based compensation expense:
Term life insurance segment	$	301	$	349	$	2,077	$	1,982
Investment and savings products segment		361		347		1,541		1,503
Corporate and other distributed products segment		1,261		1,853		8,049		6,546
Total non-cash share-based compensation expense	$	1,923	$	2,549	$	11,667	$	10,031

Income (loss) before income taxes:
Term life insurance segment	$	61,854	$	58,018	$	110,877	$	104,098
Investment and savings products segment		39,684

Delaware		27-1204330
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1 Primerica Parkway Duluth, Georgia		30099
(Address of principal executive offices)		(ZIP Code)

Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐
Emerging growth company ☐

Class		As of July 31, 2017
Common Stock, $0.01 Par Value		44,885,550 shares

		Page
PART I – FINANCIAL INFORMATION		1
Item 1. Financial Statements (unaudited).		1
Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016		1
Condensed Consolidated Statements of Income for the three and six months ended June 30, 2017 and 2016		2
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2017 and 2016		3
Condensed Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2017 and 2016		4
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		21
Item 3. Quantitative and Qualitative Disclosures About Market Risk.		37
Item 4. Controls and Procedures.		37
PART II – OTHER INFORMATION		37
Item 1. Legal Proceedings.		37
Item 1A. Risk Factors.		37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		38
Item 6. Exhibits.		39
Signatures		40