Primerica, Inc. announced financial results for the quarter ended March 31, 2018. In the first quarter, total revenues and adjusted operating revenues each increased 14% to $459.9 million and $462.9 million, respectively. Income before income taxes increased 11% and adjusted operating income before income taxes increased 15% over the prior year period. Net income grew 26% to $65.7 million and adjusted net operating income grew 27% to $66.2 million compared with the first quarter of 2017, both of which reflect the benefit of the Tax Cuts and Jobs Act of 2017 (Tax Reform).

Glenn Williams, Chief Executive Officer, said, “In the first quarter we continued to build on our strong foundation, generating 8% growth in the size of our life insurance licensed sales force to over 127,000 representatives and 12% growth in Investment and Savings Products (ISP) sales year-over-year. Income before income taxes grew 11% over the prior year period driven by increases of 22% and 8% for the Term Life and the ISP segments, respectively. Solid earnings, ongoing share repurchases and the benefit of Tax Reform contributed to the 31% growth in EPS year-over-year and 18.5% ROE in the first quarter. We are well positioned to continue delivering meaningful value to our stakeholders.”

During the first quarter, Term Life continued to show strong growth with net premiums increasing 15.5% year-over-year and insurance expenses benefitting from the change in Primerica Life Insurance Company’s state of domicile. Claims during the period were elevated as is often seen in the first quarter and persistency was generally in line with the prior period. Strong ISP performance was driven by 12% growth in total product sales and a 15% increase in average client asset values year-over-year. Insurance and other operating expenses increased $14 million from the prior year period, about half of which was due to higher account-based expenses from revisions to ISP record-keeping contracts. These higher account-based expenses were offset by an associated increase in account-based revenues. Insurance and other operating expenses also increased by approximately $1.5 million for growth-related expenses and about $5 million for annual employee merit increases, equity award grants, ongoing technology spending and other expenses to support the business. Incremental spending announced in February for digital development and key constituent initiatives driven by Tax Reform was nominal in the first quarter, but is still expected to be incurred during 2018.

Earnings growth, which benefited from Tax Reform as well as ongoing share repurchases, drove EPS and adjusted operating EPS to $1.46, up 31%, and $1.47, up 32%, respectively, compared to the first quarter a year ago. ROE expanded to 18.5% and ROAE expanded to 19.0% in the first quarter versus 16.9% and 17.5%, respectively, in the prior year period.

First Quarter Distribution & Segment Results

Life Insurance Licensed Sales Force. Strong recruiting and licensing trends in recent quarters drove an 8% increase in the life insurance licensed sales force year-over-year to 127,182 representatives at the end of the first quarter. Recruiting of new representatives increased 7% and new life insurance licenses were 8% higher than the prior year period. On a sequential quarter basis, recruiting increased 18% from the typically slower holiday season. The slower holiday season also led to a 1% decline in new life insurance licenses in the first quarter versus the fourth quarter of 2017.

Term Life Insurance. In the first quarter of 2018, nearly 71,000 Term Life insurance policies were issued with productivity at 0.19 policies per life insurance licensed representative per month, slightly below the prior year period rate of 0.20. Term Life revenues increased 15.5% to $270.3 million compared with the year ago period, driven by a 15.5% increase in net premiums. Income before income taxes increased 22% to $59.6 million year-over-year. Non-deferred insurance commissions increased year-over-year, as expected, largely due to revisions in the sales force equity program, which changed the timing of expense recognition, but not the economics of the program. Persistency was generally consistent with the prior year period and claims were elevated reflecting seasonality often seen in the first quarter and were in line with the prior year experience. Insurance expenses, which increased $3.2 million year-over-year primarily due to growth-related and employee-related spending, reflect approximately $1 million lower retaliatory premium taxes and representative licensing fees largely driven by the change in Primerica Life Insurance Company’s state of domicile in December 2017.

Investment and Savings Products. In the first quarter, ISP income before income taxes grew to $40 million, up 8% from the prior year period. While the revisions to the ISP record-keeping platform contracts are expected to benefit pre-tax account-based income by about $3 million on a full year basis, additional account-based expenses fully offset the $7.4 million additional account-based revenues in the first quarter. Sales-based revenues grew 7% in line with revenue generating product sales growth, while total product sales grew 12% year-over-year reflecting strong growth in managed account sales, which do not generate sales-based revenue. Retail mutual fund sales increased 8%, influenced by strong Canadian sales, and variable annuity sales improved, increasing 10% compared with the first quarter a year ago. Asset-based revenues grew 16% year-over-year driven by a 15% increase in average client asset values to $61.7 billion and positive net flows of $212 million for the period. Higher ISP expenses in the quarter primarily reflect the increase in account-based expenses noted above as well as higher growth-related and employee-related expenses versus the prior year period. Canadian segregated fund DAC amortization was $1.7 million higher versus first quarter last year, primarily reflecting negative market performance in the current year period.

Corporate and Other Distributed Products (C&O). C&O adjusted operating revenues were $30.5 million and adjusted operating losses before income taxes were $13.7 million in the first quarter of 2018. Other operating expenses increased versus the year ago quarter primarily due to annual employee equity grants and merit increases in the first quarter. Net unrealized gains decreased to $17.9 million at quarter-end from $60.3 million at December 31, 2017 reflecting the impact of higher interest rates on prices of fixed income securities in our invested asset portfolio, as well as the adoption of Accounting Standards Update No. 2016-01 (ASU 2016-01), which reclassified unrealized gains on investments held in equity securities to retained earnings as of the beginning of 2018. The impact of this standard, as well as other accounting standards adoption adjustments during the quarter, are shown on the last page of this release.

Taxes
In the first quarter of 2018, the effective income tax rate was 20.8% and the operating effective income tax rate was 22.9%, both of which reflect Tax Reform. The rates differ due to a $1.8 million adjustment to the transition impact of Tax Reform that was provisionally recorded at year-end 2017. The transitional impact of Tax Reform has been excluded from the operating effective income tax rate.

The 2018 full year operating effective income tax rate is expected to be around 23.5%, with the second quarter tax rate about 100bps higher as historically seen. The annual rate is higher than previously estimated due to the global intangible low-taxed income (GILTI) component of Tax Reform. Barring any changes, this provision is expected to add approximately $1 million of tax expense per quarter.

Capital
Primerica repurchased $46.3 million or 467,614 shares of its common stock in the first quarter of 2018 and plans to repurchase a total of about $200 million in shares of common stock during 2018. Also, Primerica’s Board of Directors has approved payment of a quarterly dividend of $0.25 per share for the first quarter of 2018. The dividend will be payable on June 15, 2018 to stockholders of record as of May 22, 2018.

Primerica Life Insurance Company’s statutory risk-based capital (RBC) ratio was estimated to be approximately 480% as of March 31, 2018.