Q1 2020 Earnings Call
Seeing increased demand for this product with close to 75% of US volume now being directed toward term now.
We're also assisting our existing policy holders, who are experiencing financial hardship due to cope with 19.
We've worked with these clients on the timing and frequency of premium payments to provide as much flexibility as possible.
While many are able to find a premium payment plan that is convenient during the crisis. It is too early to know how persistency will be impacted we are monitoring this situation closely.
Now, let's take a moment to talk about the future.
Our ability to quickly respond to the crisis has played an important role.
As both second quarter periods benefited from the $49 discounted obviate fees and a 5% increase in policies issued year over year due to a strong start in April.
Hi levels of field leadership engagement strong field training activity of new recruits and our ability to issue term now.
Policies in spite of underwriting disruption.
Tens are contributing to sales.
10% lower than second quarter 2019 as market disruptions continue.
Two calls a headwind.
Our reps has successfully transition to digital transactions combined with remote client interaction technology to serve their clients in our IP business as well.
As we look beyond the month of April we believe we're well positioned to withstand the temporary impact of the current disruption, although it's still too early to protect the full impact of a potential long term economic downturn.
We expect to refine our projections for recruiting in the size of our Salesforce as well as term life and investment sales once the economy reopens.
While these are.
The question really difficult times for our clients.
Our salesforce and our home office employment.
We remain steadfast in our mission to help middle income families and company.
And we're making full use of our communication tools to keep the field informed and motivated.
In these confusing times clients' needs for our products.
Products and services have never been greater.
With that I'll now turn it over to Allison.
Thank you Glen and good morning, everyone. Let me start by walking you through the quarter key earnings drivers by segment as I'd. So I will highlight where we have seen or expect to see an impact from covidien team.
I'll follow this way of our view at companywide operating expenses and will close with a discussion on our invested asset portfolio and our strong capital and liquidity position.
Starting with term life on slide eight first quarter.
For operating income before income taxes grew 18% year over year.
Thanks.
Benefits and claims were generally in line with the prior year and historical trend as with the benefit and claims ratio at 58.1%.
The DAC amortization ratio at 15.8% with considerably lower than the prior years ratio with the main driver being persistency.
And I discussed last quarter. During 2019, we saw persistency return to historical level. After a period of weakness in 2016 and 17.
This trend continues in the first quarter of 2020 and with the largest contributor could term life margins, increasing by 220 basis point over the prior year period.
Turning to slide Marine carbon 19, and its impact on mortality mortality rate any economy will likely affect the term life segment results as 2020 progressive.
While we cannot predict precisely what will happen the insights that follow should prove useful in formulating a range of outcome.
Then has already talked about the sales related dynamic so I will focus on lapses and mortality.
The recent spike in unemployment could pressure disposable income for the middle income market potentially increasing listed and leading to write offs of both GAAP and benefit reserves.
Looking back at the Great recession from 2007 to 2009, our lapses in the first two policy duration. We're DAC is the largest inc.
Based by about 10% input.
Priests in lapses will likely be lower than what was experienced in 2009.
As disclosed in our 10-K, if last increased by 10% across all policy duration, we estimate that DAC amortization will increase.
Mortality exposure in 2019, our total claims paid were 1.4 billion.
Given our extensive use of reinsurance our net claims paid.
For about 180 million.
With an average net claim of $11000.
As a percent of basemat import and attain aid 70, or higher and 12% 60 or higher.
Hoping 19 death rate predictions are evolving and the estimates are varied.
For demonstration purposes, let's say there are 100000 Kobe related deaths in the USA and Canada.
Total population of 367 million this equates to an additional 275.
Hi, Def per 1 million people.
Hi Americans sure there.
Equate to about 15 million dollar increase and term life net claim came.
Through April we've incurred an estimated 5 million of coded related claims they disproportionate share coming from work.
As we've shown in the past our adjusted direct premium growth in highly predictable and we do not believe a change in sales trajectory or lapses for the rest of 22 money, especially given the strong results in the third quarter will significantly reduce the ATP growth projection provided last quarter.
However, given the 11 a level of uncertain.
T around lapses in mortality level, we cannot predict what our term life margins will be for 2020 at this time.
Turning next to the IP segment on Slide 10, operating revenues increased 14% to 185 million Inc.
And before taxes of 48 million grew 12% year over year.
Just in line with the 8% growth in average client asset values.
Given the timing of the market downturn in the quarter newly notable impact on segments financial results with an acceleration of Canadian segregated fund DAC amortization.
<unk> of about $2 million.
Well the first quarter to average client asset values were 66.6 billion client asset values at the ended the quarter were 59 billion approximately 11% below the average.
Well asset values rebounded in April to an estimated 53 billion the downturn will create headwinds asset base net revenue in the second quarter.
Our financial supplement shows that asset base net revenues defined as asset base coming.
Shifting fees.
These today, let's salesforce.
Commissioned third party administrative and advisory fees and segregated fund DAC amortization.
For for every 1 billion dollar change in average client asset values and today's product mix, we'd expect to see a 500000 quarterly or 2 million annual change in asset base net revenues.
If client asset values stay at the current April levels for the remainder of the cool.
Where we expect second quarter.
At that today.
We expect about a $1.3 million decline in net sales based revenues during the period.
Based on the 15% estimated year over year decline in second quarter sales that Glenn mentioned, we expect sales base net revenues to be $2 million to $3 million lower than the prior year second quarter.
Moving to our corporate and other distributed products segment.
Adjusted operating revenues declined 2 million or 6% and adjusted operating losses before taxes increased by 4 million to 20 million for the quarter.
The lower revenues were almost entirely due to lower allocated net investment income at more Eni was allocated to the term life segment to support growth in the block of business.
The loss for the segment also in increase due to a 1.5 million dollar allowance for reinsurance benefits and claims on a discontinued line of business ceded in 1995 to a counterparty that was ordered into receivership this year.
On slide 11, consolidated insurance and other operating expenses were 115 million during the first quarter of 2020, representing a 5.5 million or 5% increase year over year.
Approximately half of the increase was due to ongoing enhancements to technology related capabilities.
Remainder was due to growth in the business, including employee related costs.
At this point, we are moving forward with the business investments. We described last quarter and are not revising our full year 2020 expense forecast.
To date unforeseen operating expenses related to cover 19, such as facilitating remote work plans have been largely offset by reduced travel and other general operating expenses.
We may incur lower third party administrative in advisory fees as factored into our net revenue ratio dinner I SP segment.
If economic conditions worsen, we will reevaluate our planned expenditures for the year and we'll providing further update as necessary next quarter.
Let's move now to a review of our invested asset portfolio on slide 12.
Our focus on term insurance allows us to be less asset intensive and our ratio of invested assets in cash to adjusted equity at March 30, Berg with 2.5 time much lower than others.
Then the insurance industry.
Cash flow testing did not generate any concerns under a wide range of stress test due to our stable positive cash flows from the in Fourq Lifelock are low claims volatility from the extensive use of reinsurance and the lack of cash values in our policies.
Our invested asset portfolio remains diversified across industries and issuers with an average credit rating of AA. The duration of approximately 3.6 years and only 3% exposure to below investment grade securities.
Let me highlight a few industry sectors that have been under pressure in the current environment.
We hold about 130 million or less than 6% of our portfolio in energy related public corporate in private placement investments with an average rating of triple B and an average duration of about 4.8 years.
Hold about 54 million or just over 2% of our portfolio and air Transport Air transportation related exposure of wedge only about 4 million isn't direct airline debt.
These air transportation related exposures have an average rating of AA minus and an average duration of 4.6 year.
The frame the sensitivity of primary her life risk based capital to ratings downgrades, we performed a hypothetical severe stress analysis, assuming 15% of our E rated bonds and 25% of our Triple B rated bond our downgraded.
The result was a decline of 15 basis point in our estimated RBC ratio from 430% to 415%, which is still well within our targeted range of low to mid to 400.
As conditions evolve, we will continue to evaluate our portfolio for credit issues and review our exposure.
We remain committed to maintaining a strong capital and liquidity position.
Turning to slide 13 liquidity at the holding company remains robust with invested assets and cash at about $270 million at March 31st.
Additionally, we have full access to our 200 million dollar revolving credit facility. Although at this time, we do not foresee any to draw on it.
Holding companies General operating expenses are modest at 7 million per quarter, including interest charges of approximately four and a half a million.
All the headwinds facing our IC segment will likely reduce the level of distributions to the holding company moving forward strong dividend generation at primary for light gives us confidence that our capital and liquidity romaine more than adequate to meet our operating and capital deployment plan.
We remain committed to our dividend, which at the current rate required approximately $16 million per quarter as was completing our plan share repurchases of 250 million 90 million of which was completed at March 30, Onest with that I will turn a line over to questions.
Thank you.
We will now begin the question and answer session.
Ask a question in a press Star then one on your touched on some.
If you're using a speakerphone please pick up your handset before passing the keys.
And with for all your question.
Please press Star and then to our first question today I will come from Andrew comments of Credit Suisse. Please go ahead.
Good morning, Andrew Good morning, good morning.
Thank you very comprehensive presentation.
First question is is that you say, you're you acute you remain committed to share repurchases.
You've got a full year target of 250 million so it would counties.
[music].
Be the normal course of business in fact, even though it's not normal you're going to act as you Wouldnt any year with regard to your share repurchase authorizations at the right way to think about it.
Yes, and and you know, we obviously gave that quite a bit of consideration as we look at our capital position and our ability to continue to Dan for generate.
Capital out of Primerica life as one of the benefits, we've always talked about with our life insurance business House is how stable and predictable it is and how strong the cash flows.
Coming out of that business, our we do feel that given that that ability we have more than sufficient capital liquidity to continue with our plan I will tell you that you know as of now we have already completed half of that plan on so we've got about 125 million left left to go for the remainder.
The here so.
Excellent very very helpful. No you know what's interesting to see that you include tour up.
Well, plus 34% year over year and as part of that you'd be incentive was I speak to cut the fees to two joint.
Hey.
And I I recall, you did that about a year and a house it should go.
And some of those crudes, one recalibrate that youre looking for they weren't.
Productive and they didn't stay on so.
What gives you the confidence that this new crop.
Might be different than what we saw sometime back.
Yeah, and again, that's a oh something that we stood each time, we do an incentive and actually Andrew the I think it was all the way back in 2011, we had a significant spike in recruiting after a convention with a $49 obviate the and we were disappointed in the lack of came through.
And after that we work significantly on our licensing process and when we've done. This when we did this at the last convention for a brief period of time at the end of June in the beginning of July 2019, we felt like we got a much better pull through I wouldn't characterize it as a lower our quality of recruit I would characterize it as a lower level of coming.
When you pay less you can become you can come in to be lift committed to following through.
But in any case that follow through is absolutely critical to our business and so we did that last convention. We got good results in the second half of the year as a matter of fact I was very pleased with the way. Our your started in 2020 actually we saw a significant shift and momentum is a very is 29 team, but it was really appear.
In January February the first half of March as I said in my prepared comments, we decided to 40, we knew anything about the chaos, we're dealing with today, we decided to kick off the year in the new decade with a special promotion in the first 20 days of January 1st one days in 2020, we DSD $49 reduction and it is.
They are using a you know for 99 to 49, it's not a significant amount of money for most people.
But it does create an amazing amount of excitement and we come when we combine that with some.
Some improvements are enhancements I guess to our field training bonus. The two we have always created a lot of activity when we've done. It. So we started the year with some of that activity and felt like that was probably the only time, we would do that in 2020 onto we got into March and the let's say at home orders started the compound and we felt like we knew it was.
Probably our most reliable arguably the excitement generator is that we rented again for the last 11 days remark.
And it continues.
And so clearly that brings a lot of excitement a lot of activity. Fortunately, we had to counterbalance that this time with being able to do business remotely rather than in person. So that was an interest this but we were successful in that.
And is clearly added to the excitement and momentum to generate momentum throughout our business and activity throughout our business you're exactly right. We monitor carefully the pull through rates. The added complexity now is the extended licensing times it will be created by testing centers being closed.
Particularly and that's not being able to do lot licensing classes. So we've got some real work to do and it's very difficult to predict roll. This is going come out, but theres no question that our mind that clearly it's better to have this activity and these are groups to work with them to allow momentum to subside and our momentum with strong even without the incentives in the in the month the fed.
Good where for example, where we ran none of those incentives for recruiting we still had 23% recruit growth in the month of February during the first quarter. So this was kind of foreign gas on far if you will we had strong momentum we added to it at the beginning in the end of the core.
I see that's very helpful and and then also just.
It seems like your reps are quite adapted to technology and the like and and that's reflected in your guiding to I.S.P. sales being down only 15% and I know that.
Well I guess they have a licensing issue also so is it possible that I think 15% is a pretty good outcome.
Is it possible that we could see term watch sales in that type of of a range well I think that's what is driving the eyes P. change is the market disruption and so you got IC sales that are down because of the uncertainty in the market.
First and then also of course, you know as disposable income is pressured that impact sales to a certain extent too but people are generally more more apt to take wait and see approach while in the markets on down so radically so I think the dynamic for what's driving RSP business is a little different than what's driving your Tom life insurance business.
On the term life side is Allison commented on we're actually seeing more receptive clients I think we've all stared at our mortality just a little bit during this time and so people appear to be clearly more interested in having a conversation about protecting your family. Let's go out to your comment on technology.
We think this is one of the things that people often miss from the outside looking unit Prime Erica.
Is that we have had a strong technology direction for many many years.
As I said in my prepared comments for many years, we've been doing transactions as we'd like to say from the clients kitchen table directly to the home office digitally and in all areas of our business, 95% and don't forget Thats done on the device to the person has in their pocket when they become part of primarily so we don't have to provide hardware we don't provide training.
It's it's a device agnostic. So if you got a smartphone in your pocket. When you become part of America, you can download our out on your ready to do transactions the difference in the amazing thing.
How about our adaptability was adding what I call client interactions remote digital client interactions through web conferencing technology like you assume we had a foundation of that going on in our business and it was used occasionally but the swiftness with which our salesforce adapted to use that in place of face to face interaction and combine.
And it would that transaction technology was was it was pretty amazing.
And so that's helping our bid has helped our recruiting because it's done that way. It helps our lifestyles would have natural momentum this being granted by the health crisis and it also helps our eyes p. sales, even though we're experiencing those headwinds due to market disruption.
Excellent thanks very much.
Hello, Thank you Andrew.
Our next question today will come from Dan Bergman upsetting. Please go ahead one of them.
Morning, maybe first just a high level question, if we do on our period, a prolonged period of higher unemployment and slowing GDP growth or what type of even directionally impact would you expect that to have on your sales force growth overtime. There just given that most of your sales reps are part time and commission based.
Any thoughts on if you'd expect that type of environment for you in that positive or negative but would be much appreciated.
Traditionally, we view that Dan, especially a long term downturn as a net negative.
There are positives and negatives to both types of environment I believe it was on the last quarterly call. We actually had a conversation was the unemployment rate solo and implement so I was beginning to impede our recruiting we've always felt like our strong economy was better for recruiting and for all of our business in a weak economy, but even in times of weakness there were people.
All who still have the flexibility to start working on business and do they have the calls there unhappy with their employment situation, but overall taken all into consideration, we would say that a downturn for a long term, particularly generally creates a drag on recruiting in licensing in the size of the salesforce. So as we look forward.
Third without any ability to predict how quickly you know is it a V shaped recovery in l. shaped recovery, who knows at this 0.0, that's something that will be monitoring and trying to revise our thoughts on that as we see both the kind of depth and breadth of the economic downturn.
Got it that's very helpful. And then maybe moving over to to life sales I just wanted to see if you could provide some color on the drivers of the bounce back in the kind of average agent productivity in the quarter I'm. Just curious if maybe we should be thinking about that as more of a natural or version towards the mean following you know period, a little bit weak results was it about how much of a benefit to do you.
From the strong recruiters on a quarter or kind of other factors that impacted on that stands out there would be very helpful.
Okay, well, but as we said we had a very strong quarter and very little of that was impacted by the disruption at the very end of March.
We've been working.
Very hard for the last couple of years own regaining the kind of momentum that we had the years prior to that and it is one of a natural cycle in our business. We go through periods of extremely strong momentum and then we go through frustrating periods.
A plateau and we really felt like we had some some true strengthen our business that was reflected a in December January February in the first half of March which by the way I think was a significant hill in getting us into this period of disruption on a positive footing and so I think we had a.
A lot of the the right ingredients to love.
Better momentum overall it not just the normal return to the median but a you know some real growth trajectory in our business. It was very excited about of course, all that's brought into question because we don't know exactly how we come out the other into this but clearly that was helpful. Getting us a good start into what we saw in the last.
A couple of weeks in March and the results that we've experienced in April. So I think it was more than just a return to the to the main or to the median I think we do we did have a significant recruiting growth. It was coming through in stone licensing, which kind of got NIPT, a little bit at the very in a because of the closing test centers and so forth.
Fourth but it was strong like lot productivity overall was strong.
And in investments productivity was strong so I believe we what we have we're actually seeing the results of our hard work in the first quarter.
Certainly rather store the disruptive period from there than rather being flat or down.
But just exactly how long the all of this chaos.
Goes on.
We'll determine how much momentum, we're able to subside sustain for how long.
Got it very very helpful. Appreciate you taking the questions.
Absolutely.
Our next our next question will come from Ryan Krueger with KBW. Please go ahead boring Ron.
Hey, good morning.
Just hoping you could provide some additional color on the licensing process at this point I.
I guess.
Is it possible pardon for new agent that get license that at all at this point or is it completely dependent on things reopening.
Well actually run, it's dependent on which state or province, they're located in and what options have been created so we at this point a you know the kind of mainstay of our licensing process has been to get our recruits into lot licensing classes clearly there no wide licensing glasses happening at this moment.
Anywhere those have all been moved on line and by the way, we're getting very good uptake of participation on the online classes. It remains to be seen the comparable effectiveness online versus log prices. We've done like classes because our history has been that those are more effective than online all that we offer both options in both options are huge so.
We still have the capability to prepare those recruits for the exam the challenges at this point.
Very few states and provinces are offering exams, usually exams are offered by third parties on intermediary that the jurisdiction.
Bids out the process and so forth and so there are several of those vendors and then none of them or giving exams. At this moment some have talked about reopening in may.
Some have talked about reopening at the end of May and then in so we are preparing the maximum number of people to be ready. We do have people going ahead, and making a exam reserving exam dates in anticipation of re opening so that we don't get kind of locked out with the rush that will be great. Because these providers for about exams for all types of for patients not just for insurance and.
They're all going to be backlog when things. We open. So we are working on making sure that we get us close to the front over the line is it's appropriate for us to be when they reopen and there were also pursuing the alternatives as I mentioned in my remarks.
We have been amazingly successful along with other members of the industry, but in many cases, we've been the tip of the sphere in approaching states and provinces to offer alternatives that don't require going through this traditional I have an exam at the beginning and so a number of states I think the number does over half of the U.S. States now or.
Offering a temporary license solution temporarily which means if you meet all the other requirements, but you've not yet tested.
Then you can have a temporary license and we'll do the testing later, so that is clearly better than nothing or how the factors that is long term is not yet known and there's probably just something this temporary than in most states will go away after the cold the crisis is over.
So we're pursuing it but we don't believe it's a permanent adjustment to the licensing process. All the other hand remote testing is a very very interesting concepts that a number of station even FINRA has begun to adopt on the security side, which allows.
Applicant to test in their home through a procter exam process and there's an amazing security process that you go through with your Proctor, if you're testing remotely but that is much more convenient it's much easier to schedule.
And it's something that is just the gun and so we don't know the outcome of it yet, but it's clearly a positive direction that we believe will be beneficial to our business model sale beyond that go with 19 crisis. So remote testing is happening in some U.S. states are already on life insurance side FINRA has begun testing it and we've actually had some of our peak.
Well involved in the test in the Canadian provinces are discussing it and a few states have begun testing live again, there's a four or five states have actually begun their testing process again, we're pursuing all those avenues, because we recognize that not just recruiting a lot of people Oh. There's good is that is for activity, we've got to pull them through the licensing process.
Our sales force and so we have pulled out all the stops to pursue every single one of those avenues and get the most of the largest number these groups license as were capable to do so.
Thanks, and then on persistency.
Have you seen any impact so far.
April or are you just too early to tell at this point.
No. We obviously took a hard look at April I do believe it really too early to tell that being said what we have seen is the continuing favorable trends we were seeing in the first quarter in the fourth quarter last year. So at least through April we have not seen any deterioration and in fact, we're moving in a very positive direction.
I do expect as the quarter continues to start seeing more lapsation. Yeah, you know just purely because of the economy.
Got it thank you very much.
Do you.
Our next question will come from Mark Hughes of Suntrust. Please go ahead.
Anymore.
Good morning.
The where a t. premium how does that impact youre cobot claim.
And then the 5 million the to hide from New York is that incremental would you say to what would normally be the underlying loss ratio or is that.
Already factored in.
Okay. So two things the whenever I talk about a net claim that is factoring in the reinsurance recoveries. So in the case of the wire T. The 90% recovery to the extent that policy was subject to wire tea, which virtually all of them are on in addition, it would also cover a any any comments.
Parents coverage on the IPO related coinsurance to the extent of policy was written prior to 2010, So I hope that answers. The first question on the second one I'm just to clarify one thing I you know I'd say, there's a disproportionate amount of the $5 million coming from New York, but certainly not all of.
That is coming from New York, the 5 million is the net.
Estimated incurred exposure related to Covidien 19. So it includes things that are in the door that had been reported that we haven't obviously with useful data certificates for it. So we're still that aim to making sure. They weren't that kobin related and then also things that we would again the technical times incurred but not reported ideas.
Our our estimate of IDN our activity you know the end of April. So that is also in that number that is not the growth in that we'd be paying that they policyholders are that that beneficiaries of the policies. It's in fact, the net amount lead exposed to be exposed to after reinsurance.
Did you say, yeah overall or have you seen a bump in mortality because of the extra cobot claims are you just highlighting these are the ones that are tied to co bid or in so.
I think you said the yes, you've seen a bump in overall mortality, yes, and actually just to clarify the 5 million on discussing is what we would consider a bump from normal mortality levels and we believe it's related to cobot 19.
Okay.
And then on the recruits how much has the lockdown been a motivation.
And people at some time on their hands a this could be a a a good productive thing to do.
In addition to the a incentives you've offered.
Yes, like most things are primary mortgage is that could cause and effect is always an interesting thing to try to determine in there are always positives and negatives to every condition.
And so I would say that the lock down has its positive dynamic that is being reported by our sales force in that people are more available and therefore more likely to stop for a conversation in many cases, they're actually I'm missing conversations and so the acceptance of a zoom invitation to have a discussion.
Via Web conference is probably being accepted at a higher rate than a none are normal recruiting interactions might have been before this so there's clearly a positive signs of that I think we have to be careful because who knows how long that change in human behavior will continue after the lockdowns were over but clearly we're seeing that now we're also seeing more interest.
In discussions of life insurance itself, so those are opportunity and life insurance.
Discussions I believe I have actually been helped my people being able to having hit the pause button and having some free time and not a lot of other alternatives.
So we are enjoying that right now we don't without knowing how that might turn out we felt like the incentives were good things do the combination of the two has been very powerful.
To to overcome some of the other difficulties. So the kind of it takes to transition to understanding new technology and so forth. It normally wouldn't a rough momentum, it's actually been kind of overwhelmed by those positives. So far and of course will look after things start to normalize I will start to look at what we've learned as far as new techniques can we take our tradition.
Really face to face business that we believe has been around 95% face to face.
And how that we both face to face and remote after this is over its been an incredible learning experience. So far and we've got a lot of things to experiment with in the future.
And then the a and sorry, if I'm being Denton. That's the 5 million is that a was any of that crude in the are expensed in the first quarter or is that old twoq, that's all to Q.
And then one final question the.
Additional sales to existing customers I think you kind of restated youre those numbers, it's a small amount.
But what was the what was the change there.
We just.
It was always an estimate it's not actually a P.L. number we've always indicated that it was an estimated number we obviously are drawing some more attention to it said, we went back in scraps and things and just found a few inconsistency would how we were getting some business in Canada versus the U.S., though we opted to go in we state all of those numbers you can see the historical we state.
On page three in the financial supplement it doesn't change any of their trajectory or the trends we've discussed it discuss it just change the overall magnitude of the of the amount a little bit.
Thank you very much. Thank you. Thank you.
And our next question will come from Jeff Schmidt of William Blair. Please go ahead.
Yeah, Hi, Hi, good morning.
A question on ice key sales I guess is the right way to think about that.
They obviously were very high was a tough Q1 of last year, but they were still really hot the market drops inflows increase product sales show because there wasn't really any.
Climbing issues on the game and the now you're expecting big drop [laughter] as unemployment increases and I'm just trying to think.
Is that as a driver I mean, if unemployment is high could we expect product sales to be week.
Through work into next year refund.
Yeah, Jeff I think that your own to a couple of the dynamics a driver sales, but I think that they may be in reverse order.
Clearly a sustained unemployment is not good for sales. There's no question about that but I think what we've seen in our business in historically, what we've experienced is that short term disruptions for some reason or not is noticeable in our numbers. It from American many times, we'll have a you know a week or two.
Or maybe even three a market disruption is barely noticeable in our sales numbers, but as market uncertainty continues and is particularly in market stays down for a period of time investors. It probably America like other places moved to the sidelines and so it's not that you know a market drop is just the buying opportunity.
And therefore sales will spike is actually probably ignored early but the longer it stays out there is more likely the is for our clients and I believe everyone else is by the way I go to stand on the sidelines and wait to see if there is some direction in the market before they invest I believe that would be compounded by unemployment that last an extended period of time.
And so the.
How quickly the economy bounces back is clearly important I think what you're seeing right now is more market driven than.
Unemployment in disposable income driven but they both would be a drag over time and as we said earlier as we start to see how long it takes for things to start to bounce back we'll be able to draw a finer bead on what we think the future holds beyond the second quarter.
Okay that makes sense and then you may have touched on this but just thinking about productivity and the number of policies issued are there any headwinds there for I mean, you know people needing a physical and they just can't go into a doctor to get one.
Yes, we saw that early insight that was one of the things about licensing in the dilemma that you just described with the first two I kind of things that emerge as challenges to our ability to do business, we talked about licensing already.
But fortunately we found a couple of workarounds that has preserved lot of the momentum on the lifestyle.
The first thing is that while the pyramid companies many of them stopped doing in home pyramids. Some of the networks actually have clinics across the U.S. and so but for whatever reason clients, we're more comfortable going to a clinic and having your pyramid couldn't even heard a pyramid that would come outside the clinic can actually do atrophy.
Our and so they of course are working on a their optionality as well, but we and we do still have some pyramid exams being done in homes, which at the beginning we felt that might be zero, but there are some of those being done. So today. We're doing we're getting completed about 70% of the pair meds that is our normal run rate, which is much higher.
Other than I would've anticipated when there's first began and so we are still getting those products that need to be traditionally underwritten with appear made exam and fluids and all that kind of stuff. It is still happening at higher rates than I would've earlier anticipated.
But it's still not where normally is and the good news as I mentioned in my comments is that we have our term now rapidly underwritten product is fully underwritten, but it's going to rapidly through database underwriting, which oftentimes does not require in fact, usually does not require pyramid enforce it is limited to 300000 maximum face amounts of.
There are some good sense limitations on it but it's a great way to get fully underwritten coverage in place on clients and then it may be necessary does not enough coverage should come back later and complete the underwriting process. Once the doors are open and add to the policy, but it means that sales are being made now that otherwise and I think it up some.
Other companies are not being made right now that's why I mentioned that traditionally in the U.S. about 65% of our apps have been term now the other 35% had been our custom advantage traditionally underwritten product that term now percentage in the U.S. is up to a right at 75% or maybe just a tick higher and so we are seeing some of that boy.
Being filled by the term now product and we're seeing a an amazing number pyramids getting done in spite of the disruption. So I don't think that is going to be a a major and will impact there hasn't been thus far it lets say that.
Two productivity. It's interesting is the way our productivity is calculated just simply dividing our salesforce sized into the number of apps as we have a slowdown in new licenses, that's likely to slow down the salesforce growth. So you're probably just because of the math on to see productivity pressure up because the.
Salesforce is kind of locked in place and we've got good momentum on site. So the reason I say that it's just look at how the math is done and understand both the numerator and the denominator as you think about the productivity dynamics.
Got it okay. That's helpful. Thank you.
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