Q2 2022 Primerica Inc Earnings Call
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quarter 2022 earnings webinar.
My name is Charlie and I'll be coordinating the call today. You'll have the opportunity to ask a question at the end of the presentation.
To register your question, please press star followed by one on your telephone keypad. I'm going to hand it over to your host, Nicole Russell.
Welcome to Primerica's second quarter earnings call. A copy of our earnings press release.
The questions that come to today's call are posted on the investor relations section of our website. Joining our call today are Chief Executive Officer, Glynne Williams, and our Chief Financial Officer, Allison Ram. We'll prepare the remarks and then we'll open it up to questions.
I'm going to call up for questions.
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 filings as well as modified by subsequent Form 10-Q s for a list of risks and uncertainties that could result in actual results to materially differ.
from those expressed or implied. We have a number of recommendations which we believe provide additional insight into the company's operations. Reconciliations of non-GAAP measures to the respective GAAP numbers are included at the end of our press release and 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.
The second quarter reinforced that we're moving beyond the influence of the pandemic, and we see the fundamental strength of our business in action.
The complementary nature of our term life and ISP businesses continues to deliver important financial solutions to middle income families.
Starting on slide three, adjusted operating revenues of $672 million increased 30% year over year while diluted adjusted operating income per share.
12%. RLAE was 22.5% to assess the underlying strength and second
quarter results, we have to look through a number of distortions that make year over year comparisons difficult. First, last year's term life results were heavily impacted by COVID with sales and persistency benefits exceeding the higher debt claims incurred. Second, the equity market has completely reversed its momentum. The S&P 500 index was up 8% in the second quarter of 2021 versus down 16% in the current period.
Finally, the e-teleportation acquisition wasn't completed until July 1 of last year, which means financial results in the current period have no comparable offset in the prior year period.
It's important to look beyond these factors to understand and assess the health of our
I will focus my prepared remarks today on the clear growth path we see taking shape in the second half of this year.
Term life, our largest segment, continues to provide a reliable and effective way to
start of the pandemic are in force book of our in force book has increased to 5% versus our
historical 3.5% growth rate and we reached a total of 914 billion dollars of face amount in force by the end of June .
The accelerated growth was fueled by a combination of higher sales and higher face amount for policy issues, a trend that continues today.
We believe the enforced block will continue to grow as we steadily layer on new insurance policies every year, creating a predictable source of recurring premiums.
Our practice of re-insuring approximately 90% of our mortality risk further insulates our business from volatility and allows us to largely lock in profitability.
Focusing on the term life segment on slide four, we issued approximately 77,000 new term life policies during the quarter. We believe third and fourth quarter sales will outpace our pre-pandemic results while also exceeding their prior period comparisons.
We project second half sales will increase around 4% to 5% year over year.
We expect our term-like business to remain the primary source of deployable capital, which we plan to use to fund our growth, while also providing an attractive return to investors through quarterly dividends and share buybacks.
While earnings in the term life segment are steady and predictable, our investment in savings business is highly correlated to the equity markets.
In the second quarter, certainly demonstrated how quickly momentum can shift.
Looking past the market noise to focus on the core of this business, you'll find a model built on strong fundamentals and rooted in our long-term systematic approach to investing.
Every day our licensed reps interact with clients to help them meet their financial goals, which most often include planning for retirement. Approximately 70% of our total client asset values are invested in retirement accounts, and almost 20% of all mutual fund sales are funded through automatic monthly investments.
This focus on the future also results in lower redemption rates as clients stay invested despite market volatility, leading to a stickier asset base for Primerica.
Looking at our second quarter ISP results on slide 5, high inflation, low consumer confidence, and fears of a recession dominated the headlines during the quarter, creating significant headwinds for our ISP business.
While sales had remained fairly strong earlier this year, the continued volatility and sharp decline in equity markets has impacted second quarter sales.
Today, second quarter sales were lower than expected, sorry, total second quarter sales were lower than expected at $2.7 billion, although net flows of nearly $900 million continue to reflect our clients' buy and hold long-term approach to investing.
Assuming this uncertainty and volatility continues, our best estimate for third quarter ISP sales is a decline in the mid 20% range with some upside if markets improve.
While we expect full year sales to decline compared to last year's record results, it's worth noting that 2022 results are still expected to exceed pre-pandemic levels.
Turning next to more recent business ventures, our U.S. mortgage business is experiencing growth challenges along with the broader industry due to the rapid rise in interest rates and slowing the economy. In the second quarter, sales volumes were down nearly 50% compared to the second quarter of 2021, resulting in a cumulative year-to-date decline of about 30%.
This has not altered our views on the long term prospect of this business or deterred us from actively working to expand the number of states and universities.
for mortgages as well as the number of mortgage license reps at Primerica.
We're also working to educate mortgage license reps on how to identify opportunities to consolidate variable interest rate consumer debt, fill households with cash flow, and capitalize on purchase money mortgage opportunities.
On slide six, we recognize that our newly acquired senior health business has not performed as we originally expected. We remain committed to driving a turnaround by carefully managing sales volume as we work toward a sustainable ratio of revenue to acquisition costs.
We have deliberately limited licensed health agent growth and made tough decisions with respect to certain of these agents who are not profitable based on reduced levels of LTV. We are focused on ensuring unit economics are headed in the right direction before we grow our licensed health agent sales force at eTeleport.
Acquisition costs, while seasonably high relative to LTV in the second and third quarters of every year, continue to trend down on a net basis as we make progress on increasing our sales conversion and as a result reducing both lead and labor costs per sale.
We anticipate instituting a new health agent compensation model in the third quarter that is intended to drive agent productivity and profitable unit economics.
Using Primerica's strength and distribution provides a real advantage that our senior health competitors cannot duplicate.
While it's still early, referrals from Primerica reps are outperforming leads from traditional sources, and we've already seen higher conversion rates from these leads.
We believe the warm relationship with our reps will also lead to longer retention and higher LTBs based on early indications of the quality of business referred from Primerica to Etelocord.
The number of senior health certified reps entering AEP this fall will be significantly higher than last year, and we are optimistic about the volume and quality of leads Primerica's CEO can generate during the upcoming Medicare Annual Enrollment period.
We made the decision to exercise our call option in early July to acquire the remaining 20% of e-teleportal. Given the results of the trailing 12 month period, the contractual formulate price, defined in the shareholders agreement for the exercise of the call option, was $0 and the remaining stake in the shares were acquired at no cost.
Turning to slide 7, recruiting remains strong compared to historical averages. Recall that we made liberal use of recruiting incentives through most of last year, which increased recruiting.
In the first half of 2022, we return to a more fundamental approach with fewer incentives and it seems sustained strength in recruiting with levels comparable to pre-pandemic results.
This steady improvement in recruiting over multiple recent quarters confirms the overall strength of our message and affirms that potential new recruits are attracted to our business model.
The recent changes in labor markets and the desire for more independence and flexibility further reinforces the attractiveness
Building a primary business.
We believe we have the infrastructure and processes in place to pull new recruits through the licensing and we leverage the power of our convention in July to launch new incentives to drive recruiting to new heights.
We're already experiencing a strong response to these incentives and believe third quarter recruiting will be extraordinary.
Primarily strong.
Turning next to licensing, a total of 11,529 new life licenses were issued during the current quarter as momentum expired to the second quarter of 2021, 10,000 COVID temporary licenses.
to a permanent license.
Compared to the pre-pandemic second quarter of 2019, licensing grew by nearly 6%.
As I mentioned earlier, we're seeing a clear benefit from our collective efforts over the last few years to improve our licensing process in the introduction of new progress tracking tools that allow our field to keep new recruiters accountable in real time from the COVID-related shutdowns and restrictions.
To maintain our momentum, we're actively adding pre-licensing coaches and classroom sites to accommodate this increase in attendance.
Our message to the field
over the last 12 months has emphasized the power and the combination of recruiting and licensing. And our most recent quarter clearly demonstrated their buying the ongoing strength and recruiting, along with the more robust licensing process has led to a 2% increase in
and the size of our sales force year today and helped propel the primary sales force to over 132 life license reps at the end of June .
Based on current trends, we expect the size of the sales force to approach 134,000 by year-end.
Now in June 29 and July 2.
As you know, we leverage the power of this event to deliver a focused, consistent message. The event is a very important event to deliver a focused, consistent message.
With the attendance of nearly 35,000
attendance was down from 2019
The lingering COVID concerns travel.
and flight chaos that's currently overwhelming the airlines.
What is most important is that we delivered on our goals.
This event begins by identifying the desired...
outcomes and defining appropriate message.
focused on our unique ability to serve
the attractiveness of our business model and the importance of growing our licensed sales force through both recruiting and recruiting.
and licensing.
The convention also featured an exhibit hall where participants were able to engage with our business partners and home office staff to hear about the most recent initiatives, obtain new product information and training, and participate in demonstrations of our latest technology and tools.
Convention attendees could also register for upcoming training and sign up for various portals like Senior Health Certification.
at the Senior Health booth.
As we look to the future, we do so with more confidence than ever knowing that we have the right systems in place and support needed for our reps to succeed.
The recruiting incentives that were announced July 2nd have filled the licensing pipeline, and these new recruits will continue to fuel growth and sales momentum. We're excited to see results emerge over the next few quarters and into 2023.
With that, I'll now turn it over to Allison.
Thank you, Glennon. Good morning, everyone. Let me start by walking you through the key earnings drivers by segment highlighting how these businesses responded to the changing dynamics around COVID market conditions, the economy.
Starting with term life on slide 8, operating revenues of $411 million increase 7% year-over-year to invite an 8% increase in adjusted direct premiums.
Pre-tax income growth was compressed to 3% largely to insurance expenses that have been temporary elevated in the first half of the year.
While the changing dynamics around COVID have shifted
the DAS and benefits and claims ratios considerably year over year, the resulting term-life operating margin was strong at 21% for the quarter.
Looking a little more closely at persistency, we continue to see
policy retention normalized as COVID fears subside.
The last rates for policies issued during 2020 and 2021 are about 15% and 5% higher respectively than our pre-pandemic experience by duration.
This is not surprising as these policies were issued during the height of the pandemic fears.
By contrast, we continue to see strong persistency on policies issued prior to the pandemic, and it's lasted around 10% lower than pre-pandemic levels.
Laxes across all durations have picked up modestly from the prior quarter, which may indicate that inflation is emerging as a headwind, average policy size, or average premiums, which support the notion that our market continues to prioritize financial...
We will monitor these trends as time progresses, but as of now, our current lapses remain modically favorable to pre-pandemic levels.
The DAG for the second quarter is 14 points at the state pandemic's second quarter level.
Sifting to mortality, COVID claims continue to...
and were $2 million net of reinsurance for the quarter.
Barring any unusual changes in COVID status, we expect this level of COVID claims to continue in the third quarter.
We also got not
...to see if a...
log on to K.........
during the quarter.
Insurance expenses were higher than normal in the second quarter as we added the biannual
a Salesforce leadership event.
Even so, the insurance expense ratio of 8% was in line with pre-COVID down in the second half of the year.
As we look to the third quarter, we expect persistency trends to put some pressure on adjusted direct premiums with growth of approximately 7% year over year.
Any favorable impact on adjusted direct payments from rise in sales levels as Glenn discussed will take some time to build.
claims ratio is expected to be in the low 59% range and the DAP ratio should continue to trend.
level.
All in, we expect the term like margin to be around 20% for the third quarter.
Turning next to our investment savings product segment on slide 9, our investment business is highly correlated to the equity market.
rapid pace of market depreciation
Operating revenues of 222 million decreased 7% year over year.
Canadian segregated fine-back amortization, elevated operating...
expenses due to self-worth leadership events and a normalization of operating leverage from the very strong level.
17% decline in pre-tax income to 59%. $59 million for the quarter.
Now space commissions defined 15
and 14% respectively, in line with the change in revenue generating sales.
Asset-based revenues remain largely unchanged compared to the prior year period as average client asset values declined 2% to 88 million.
billion.
A drop in asset values supporting our Canadian segregated funds accelerated back amortization during the period, creating roughly a $4 million disparity in the year-over-year results.
Market volatility may continue to create noise in year-over-year comparisons on DAC amortization.
As we look to third quarter, if markets remain where they are now, we expect asset-based net revenue to decline about $3 million and sales-based net revenue to decline about $10 million year over year.
Turning to the senior health segment on slide 10, we continue to refine our approach for estimating lifetime revenues and believe the LPDs determined by our algorithms this quarter reasonably reflect current persistency.
The refinement to apply to projections for policy spells during the most recent AEP and OEP, which accounts for much of the $5.4 million negative tail revenue adjustment this quarter. We do not expect significant negative tail deference in the third quarter.
As Glenn noted, we are taking steps to improve LTVs and reduce contract acquisition costs. And we believe that business sourced through Primerica agents can be a key differentiator for our business.
Our pre-tax loss estimate for the full year remains unchanged at around $35 million and $10 million for the year, including the tax benefits recognized at the PRI level.
In our corporate and other distributed product segment, the $5 million euro per year increase in pre-tax operating losses was driven by higher insurance and other operating expenses, as well as lower segment net investment income as the allocation to the term life increased to support growth in that business.
Lower sales commissions from third party providers, the most notable of which is the
This is on slide 11, increase 25.
5.6 million for 23% year over year.
8.5 million of the increase.
It comes from the senior health segment, a segment which did not exist in the prior year period.
Another 7% or 8 million is due to higher costs associated with in-person Salesforce leadership events that we scheduled by annual convention, which added an event.
to our regular calendar and higher travel in general. The remainder of the increase is generally driven by growth in the business, employee compensation and technology.
Looking ahead, we expect insurance and other operating expenses to grow at more normal life levels as the temporary increase in expenses associated with field leadership events is behind us, and senior health expenses will be reflected in the comparable period.
On a year-over-year basis, third and fourth quarter insurance and other operating expenses are expected to increase 5.8% and 6% respectively.
Turning next to slide 12, our invested asset portfolio remains well diversified with an acceleration of 4.8 years.
A significant increase in interest rates over the past few months had pressured fixed income prices.
Our portfolio ended the period with an unrealized loss of 223 million compared to an average of
at the end of March.
We believe these valuations are significantly tied to interest rates and not credit concerns.
We continue to have the ability
On the plus side, rising interest rates have provided the opportunity for higher reinvestment than we have seen in several years, which will benefit net invest minimum income over time.
liquidity at the holding company remains strong with invested assets and cash of $232 million.
The Primerica Life Statutory Risk-Based Capital Ratio is estimated to be about 460% at June 30, 2022.
We will practice $128 million.
which when combined with our purchases in prior periods, leaves around $80 million remaining of our $325 million program.
Let me wrap up with an update on LDPI. As a reminder, we are electing...
a modified retrospective transition approach and apply the standards prospectively as of January 1st 2021.
starting with the year end 2020 balances for benefit one minor exception is that if lbti
May feel above 100 percent or theyoop.
specific policy cohort.
This may impact an isolated group of cohorts but will not significantly impact opening reserve balances.
We expect term life earnings to emerge more quickly under LBTI due to slower DAG amortization.
While deferrable expenses do not change under the standard, capitalized costs will be amortized straight line based on current case amounts.
You have a popular rider that allows space amounts increase annually by 10% for a period of 10 years.
under
riders are capitalized and amortized in the same period, whereas under LDPI they will be amortized straight lines like other acquisition costs.
We expect our GAAC amortization ratio to be reduced by 250 to 350 basis points going forward compared to historically normal ranges that exclude recent pandemic-related volatility.
We also expect earnings to emerge faster from benefit reserves, as historically locked assumptions
radiation are replaced with current depth estimates.
COVID claims variances that occurred since 2020 will be somewhat of an offset since under LDTI the impact of experienced variances is partially spread over...
The impact of any assumption changes will also be partially spread to future periods under the modified retrospective adoption method.
The portion spread to future periods is highest at the transition date and reduces over time as cohort duration progresses.
Given the homogenous and predictable nature of our business and our significant use of reinsurance, we do not expect large or frequent assumption changes to occur.
Turning to the impact on equity, the standard requires the benefit reserves be re-measured each reporting period under market observable rates based on an A rating, with a difference between reserves using these rates and locked in rates reflected in AOCI.
Given the rated average age of our reserve liabilities, the average locked-in valuation rate is approximately 5.25%.
This is significantly higher than the year-end 2020 market observable rates, but much closer to current rates given the dramatic rise seen in 2022.
If we applied the market observable rate in effect at June 30, 2022, the opening reserve balance at the date of transition, we estimate the after tax reduction to AOCI would be less than $100 million.
As a reminder, LDPI changes the timing of learning, but it does not impact the learning
Underline cash flows for statutory capital requirements.
We will continue to provide updates on an LDTI as assumptions, processes, and controls are finalized.
We'll go to the operator for questions.
Thank you. If you'd like to ask a question, please press star followed by one on the telephone keypad. If you'd like to withdraw your question, please press star followed by one. Please ensure you're unmuted locally.
As a reminder that's star followed by one on your telephone keypad now.
Our first question comes from Mark Hughes of Truist Securities.
Good morning, Mark.
Thank you. Good morning.
Hello Glenn, it's Glenn Alston and Nicole here again.
We're all here. You give us some good specific numbers on the DAC impacted 250 to 350 bits.
A number of other impacts, when you think about the P&L effect.
or are there other
items and ranges you'd care to share.
And then, you know.
All taken immediately, you get the full benefit at implement.
Okay, there were a few
The back immediate realliw
Obviously, it will be prospective.
data transition forward, we will see the pattern in 250 to 350.
point lower than and
As to be clear, we've obviously seen a lot of volatility in our DAT ratio because of the impact of COVID. So what my comparisons are are two.
That's a very straightforward, I say it, very straightforward. In comparison to some of the other things with LBTI, the DAT calculation is a little more straightforward because it's very thorny and quiet.
straightforward. I see it very straightforward. In comparison to some of the other things with LBTI, the DAT calculation is a little more straightforward because it's very formulaic. On with the...
there are more anomalies because you hinge your results as you know based on day one. What we do believe is that one as I said in my comments we won't have a lot of larger function changes just given the nature of our business and our extensive use of reinsurance. So that's one thing that should stay.
also believe in general.
and will be lower under
that you get to sort of open up or
all these historical assumptions in mortality improvement since these were set.
And initially they were also set with pads, you know, provision for adverse deviation. So both of those...
will also mean that vertebrate ratios should be lower than we've seen typically under current gap.
is just to see how COVID, which again, because of the way LBTI treats these experiences, is not breathing, we are experiencing
Some of what we've already recognized in our gap P&L for COVID will actually be spread into future periods.
periods under LDPI. So that will be somewhat of an offset, but all in, we do expect benefit reserves to also emerge much lower.
than it currently does. I just at this point can't quantify that.
you know one other just a couple other nuances. Just one more thing on back and I say one other thing.
One other thing, and this is actually not in term life, this is in our ISP segment, the DAAC amortization on the seg funds, the year, it's very sensitive to markets, it's not a fad 60 thing about this is that DAAC amortization.
will also go to a straight line type of method. So a lot of the volatility or the unexpected variances associated with that DAG emberation will dissipate.
Can we say benefit ratio lower material? I mean, is that......
hundreds of basis points potentially? Is that the magnitude?
that. Yes, so.
So again, at this point, and we're being very aware of where we are with regard to our controls, our SOCS documentation and the like, to make sure that we don't give out numbers ahead of where we've been.
We've gotten everything nailed down. So I can't quantify it at this point. Although I think if you just want to think about things along the lines of all the mortality improvements that are in our book of business, those should really start to flush back out through earnings much quicker than they would have under the current gap. The other thing to remember though, is we do see 90% of our mortality risk. So this is only the volatility on the exposure that we've attained.
I don't want to say nothing changes because of the pieces that are re-insured, but those
And then, Glenn, did you give an outlook for the sales headcount? What do you expect, either Q3 or the balance of the year? You clearly think, you say that the recruiting is extraordinarily strong, which sounds pretty good. But how does that flow through to the overall Salesforce headcount?
Salesforce headcount, I'm sorry, Mark, just to clarify, is that the question?
the same time. Yes, exactly. Salesforce Yeah, we are seeing you know, as you know, from previous quarters, we've been a little more optimistic each quarter in the size of the sales force as we've seen the positive results of our efforts to drive both recruiting and the licensing pull through. So we're continuing to see some
So that's a little more optimistic than we...
Gave last quarter.
Yeah, very good. And then one of the questions, the senior health.
policy in the quarter.
What proportion of those were from primary threats?
Yeah, if you if you look at that all the way down to approved policies and you're looking right now we're running in about the 4% range of total.
Okay, so it's not very small.
Okay, thank you very much.
You're good.
Thank you, Mark.
Our next question comes from Andrew Kligeman of Credit Suisse. Andrew, your line is now open, please go ahead.
Good morning. Good morning, Glenn. I was wondering on senior health...
How many
dedicated senior health agents are there right now. You talked about a new model, a new comp model to improve productivity, maybe a little color on that. And then lastly, with regard to that segment, when do you think you can kind of get to profitability? I know you're predicting 35 million lost this year. Where might you see some light?
at the end of the time off for this.
Lot of questions. Thanks. Thank you.
I'll take sort of the latter part of this. The, you know, it's interesting. Right now in the second and third quarters, we knew just from the seasonal standpoint, we're tending to be negative quarters from an earnings perspective, just because there's not a whole lot of volume. In the third quarter, there's also the ramping up to make sure your agents are in their seats for AEP. We do, as I said during my prepared remarks, expect there to be a loss this year.
capital we put in and it's one of the reasons why we're actually keeping the number of agents very low.
which Glenn will get to in a moment. But with that said, we do expect our key periods of profit to be AEP and OEP. Our goal is to get to a point where we can make a profit this year during AEP and then look to next year for OEP in the first quarter to really be a continued driver of that profit. We're not again because we're being very cautious about this and very focused on how much we want to put into this business. We are not going to take our foot completely off the brake.
And so we really know that we're comfortable with the operating model. So I do think it will still take us several quarters to assess how we're doing. The main thing will be, and you're seeing various dynamics in the industry. If you were a little bit less burned and prove out according to what we think will happen, then we can really take the foot off the brake in 2023 to continue to ramp up the business as the year goes by.
And Andrew, if I could pick up on your question.
We're at about 325 employed sales center agents at this point.
And the productivity model change and anything you would call out on that?
Well, we're working through all the levers of trying to make sure, you know, that's down from about 400 at the beginning of the year. So we are working toward our most productive agents, reducing force of those that are not productive and not profitable. And so that's part of our process right now is refining our productivity dynamics and focusing on the most productive, most profitable reps, as well as working with carriers. If we see carriers who have trends.
and low persistency, it could be a product flaw. So we work with characters on changing or improving the products. So we're pulling all of those levers and watching the productivity dynamics change. And things are moving in a positive direction, but we've got significantly more work to do.
I see and if I could just make one quick one on an investment in savings product sales. You're guiding to about a 20% decrease in sales in the third quarter. The market seems to have improved a little bit in the third quarter. Any sense of why you're projecting such a kind of a...
significant drop-off in the third quarter.
Yeah, Andrew, as we've talked about in many of our discussions over the years, our client base tends to react a little more slowly to market events than maybe a higher income client base would. And so generally when things start turning down, we have some resistance to that for a period of time. And then when things start normalizing, it takes us a little longer to recover. So we're trying to take a conservative approach based on what we're seeing early in this quarter. And we do hope, and that's why I mentioned there was the potential for some upside.
Ryan your line is now open.
Good morning, Ryan.
Hey, good morning. Um, I have a different question. Um, maybe for Allison. Could you talk a little bit about how much...
the rough amount of annual dividends you'd expect to normally take out of your U.S. life subs. I know it bounced around a fair amount over the last few years, but is there any color you could give on a more normalized expectation at this point?
I'm giving that a little bit of thought. That's not necessarily something we've shared in the past. You can actually see it if you look at the blue book. That number is rising. We had a little bit, I'll give you color on the dynamics rather than actually pinpoint a number. We did have some anomalies going on a few years ago with regard to how the triple X transaction.
how the economic reserves were playing out. Just it was a normal expected process where we've been in the past from COVID that's.
We are increasing, I'll give some color, we are increasing our expectations by
about 50 million for next year from what we had been thinking may be. So all in the signs are pretty strong. We also, because we ended up with a 450% RBC.
You know that is you know in our opinion more than we need to have at the life of that 50 million is bringing that
back down closer to, you know, let's say the 420 level, with obviously our target being not going below 400. So, you know, we monitor that. We obviously want to make sure we keep enough capital in the company to, for two reasons, well, many reasons, but two that I'll throw out for you. One is to make sure we support any kind of growth initiatives we have at the life insurance company and two, to maintain our ratings.
the numbers are going up. And so I think that's a really important thing. I think that one of the key drivers of the strong range that we have is our robust capital position. Um so with all that said, I see
companies, the operating unit, as very stable. I think there'll be improvement annually and then we're looking towards maybe another 50 million next year from what we had originally anticipated.
Thanks. That's helpful. And then separately…
I mean, I think it's varied some in the past, but could you give a little more context on in when you've had, there's been past recessions, to what extent you have seen much of an impact within your term life?
in terms of changes in lapse rate?
Yeah, I'll start and you can talk about sales, Glenn. In the 2008 period, again, it's very similar to what Glenn was talking about with ISP. Our market doesn't necessarily react to anything immediately. It's a little insulated, but once it reacts, it reacts probably for a longer period of time than the rest of the market. We sort of had our worst impact on persistency. That in 2009 actually was more so 10 and 11 to 12.
you know, we had come back, but the economy stayed very stagnant, you know, for really middle income consumers.
So when we see it across the board, and back then we did.
We see it not just on any one duration, we saw it across the board. That's where we see the impact happening from sort of what's going on in the market. I will tell you, I haven't seen the up or down somewhat from the economy, but I think more so it was driven by use towards mortality. Again, we are seeing a lot of
I think the most positive thing that both Glenn and I pointed out was that our average face amounts aren't going down. On the IST side, we're not seeing higher redemption. So you might want to look at some of those calories to see what our risk levels are here.
All the drivers are staying very positive and intact with regards to what we would expect to see if the economy was really deteriorating our business.
Yeah, I would echo Allison's comments as we look at sales, we really fewer sales and smaller sales.
The sale size is staying very consistent, continuing to grow. And we don't identify...
anything specific in the number of sales and that could be a balance in the the positive tailwinds we continue to get from the COVID sentiment, the importance of the protecting families, and so forth. We expected a lot of tail, we've talked about that in previous quarters, that we'd expect you know to get some power.
to benefit from that for some period of time. And it could be that that is just kind of at a stalemate against the downward inflationary pressure on sales and it's kind of holding in place. So it's a lot of conjecture there, a lot of supposition, but at the same time the net results is we're pleased with where we are in this environment, kind of regardless of what's causing it exactly, we feel good about where we are.
around and sometimes we skate across without a lot of impact on our business.
So hopefully if things turn around and inflation gets under
Turn to a positive footing.
then we think we can accelerate our growth from here.
in prior recession in the early 2000s.
For example, I don't believe you saw much of an impact on persistencies in that period.
where we've seen a real impact.
on persistency. And it's both severe and extended.
and it's both severe and extended. Got it. Thanks. Thanks for having me.
Thank you, Brian . As a reminder, if you wish to submit one on your telephone keypad now.
Our next question comes from Jeff Schmidt of William.
Blair, Chef, your line is now open.
Hi, good morning.
On the non-COVID claim trends, I think Allison said there are about 5 million favorable versus historical levels. Is there potential for that trend to continue for separate years just from kind of a change in mix? I mean, do you think you could have pulled some mortality forward and maybe it will be the next few years?
I will tell you one quarter in I'm reluctant to say there's a trend or a change in the future. I will say I obviously have listened to what others in the state
We've said specifically some of the reinsurers like RGA, we've spoken to some of our other reinsurers, and there has definitely been an improvement that they've all seen, which gives me some feel that this could actually be something that's positive for us. Again, we're keeping an eye on it. We're not going to automatically...
People in the space have been saying public.
The one thing I'll point out is it's sort of an unusual amount of it was in Canada. So that piece of it I do speculate it may be more utility, but that only makes up
so
are just waiting to see what the della you know before we say in fact yes we believe
In the ISP business, net flows were close to 4% in the quarter. I think the industry was.
more like minus three percent and NetFlow is trending really well in 20%
To to uh, you know, why is the
Those results hold up so well.
relative to the industry.
Yeah, I think as I mentioned in my prepared...
We believe in the industry.
The comparisons are imperfect. The reporting on the data is a little hard to get. But we do look at the digitally and open-ended Paralympics.
I do believe that our advice and our client's behavior around long-term success is to be
impacted by trying to time the bar.
market and so forth serves us well, serves our clients well. And so we believe that
All plays in our favor and
and reduces our redemption rates.
probably the major advantage that the
something that you can see coming through in the numbers as quarter on mortgage businesses.
Is there a cost structure there that's up the contract? Understood. 50% decline in mortgage.
Is that driving losses in that business now?
our mortgage business is not huge at this point. And we do believe that there's a better day out there ahead of us, which is why I made the comments we're continuing to pursue licenses in additional states and also regionally primarily sometimes this end is home as well as465 e Alien weigh Thom
We're in position for fast growth, but we don't have a tremendous amount of infrastructure built around that, so there's not a significant challenge there.
for fast growth, but we don't have a tremendous amount of infrastructure built around that, so there's not a significant challenge there, expense-wise.
Thank you.
Certainly.
Thank you Geoff and our final question of the day comes from Dan Bergman of Jeffries State University,
I wanted to see if there's any more color you could get compared to your prior expectations and kind of what you saw in the first quarter. I think the DAG amortization ratio came in a little bit above the guidance here that I previously given. And just given this trend, you know, coupled with...
How are you thinking about the risk that
Persistence persistency could continue to worsen the head instead of stabilizing their current levels. Any additional thoughts on that would be great.
Yeah, and again in my prepared remarks we did see a modest deterioration from first quarter expectations to second and obviously there's a lot of seasonality.
in the proficiency numbers. So putting that aside, and you know our question to ourselves is obviously is it the economy?
that it's hard to actually
isolate what's causing any trends or how quickly or
I think the first two durations, we never had any doubt that some of the business we were fear driven. I mean, that was just a given. We were not at all surprised.
that those particular blocks are not performing as well as perhaps pre-pandemic blocks. But I do think the fact that we're seeing everything else still come in favorable is a positive notion about where it will land and stabilize. Again, we're not necessarily saying we need to see any improvement from what it looked like pre-pandemic because we actually think where we were pre-pandemic was very strong.
So we're putting everything in the context of can we get back to that level of consistency, profitability, etc. And as of now we believe we still are on that path.
Got it. Thanks. That's very helpful.
And then maybe switching gears just to follow up on your prepared remarks about the convention and the message you delivered there. I just wanted to see if there's any additional color you could provide on the event and whether there are any specific incentives or initiatives you rolled out. I think you might have mentioned recruiting incentives. There's any way to help us think about how the conference could affect near-term trends or third quarter results in terms of recruiting or product sales would be great. We of course were in a bit of uncharted waters the first big event post-CODI. Also, we're very pleased with almost...
our sales force because that enables us to both impact more families positively and create more success for our sales leaders themselves. And so that was the focus of your market and to create more success for all constituencies of Prime America.
And that message was not only received well, it was jointly carried by the Salesforce speakers. The majority of speakers of that event are leaders of the Salesforce, in addition to Peter and me and Julie and other home office leaders. And we were all on the same page. So that was very positive that we do believe that the focus we believe is important is shared with sales.
including discounts for the cost of the IBC.
not get problems in the community.
We call our contest these days.
Additional credit and restarts of our contest, give people a fresh start. Those were very well received. And thus far, we're seeing a lot of positive activity since the convention. And so as I said, we're expecting an extraordinarily strong quarter in recruiting in the third quarter and beyond. And the most exciting part is that leads directly into filling the licensing pipeline and giving us even more momentum in addition to the increased optimism we have on going in the size of the sales force. So we counted as a very successful event.
Thanks so much.
Thanks so much. Very good.
Thank you, Dan. At this time, we currently have no further questions. Therefore, this concludes today's call. May now disconnect your lines and have a lovely rest of your day.
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