Q1 2023 Primerica Inc Earnings Call
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Greetings and welcome to Pry America's first quarter 2023 earnings conference call. At this time, all participants are in a listen.
A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Nicole Russell head of Investor Relations. Thank you you may begin.
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Thank you Maria and good morning, everyone. Welcome to Primerica's first quarter earnings call a copy of our earnings press release, along with materials relevant to today's call are posted on the Investor Relations section of our website Joy.
Joining our call today are our Chief Executive Officer, Glenn Williams, and our Chief Financial Officer Alison Rand.
Glenn and Alison will deliver prepared remarks, and then we'll open the call up for your questions.
During our call some of 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 filing as modified by subsequent Form 10-Q for a list of risks and uncertainties that could cause actual results to materially differ from those expressed or implied.
We will also reference certain non-GAAP measures, which we believe provide additional insight into the company's operations.
Conciliations of non-GAAP measures to their respective GAAP numbers are included at the end of our earnings 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, we are encouraged by our first quarter performance, reflecting positive results from our focus on growing distribution capabilities and improving the attractiveness of our products our unique ability to meet the financial needs of middle income families is attracting more people to our entrepreneurial opportunity.
Dynamics have created momentum in recruiting and licensing resulting in sales force growth.
In addition, both our clients and our sales force have reacted positively to our new series of term life products leading to growth in sales.
Those securities market conditions continued to create resistance to growth in our ISP sales clients desire for financial guidance remains strong.
Starting with a quick recap of our financial results adjusted operating revenues of $695 million remained largely unchanged year over year, while adjusted net operating income of $129 million grew 10%.
These results reflect the continued growth in term life premiums the benefit of higher interest rates on net investment income and our progress in improving the results of our senior health business. The quarter was also negatively impacted by persistent inflation and continued equity market volatility that pressured ISP and term life sales.
Two a modest increase in policy lapses.
On the capital deployment front, we repurchased $85 million of our common stock and paid $24 million in regular dividends during the first quarter.
Given the strength of our capital and liquidity positions. We believe we will meet our targeted repurchases for the year of $375 million.
Recognizing the importance of growing the sales force both the home office and field leadership teams are focused on its key components recruiting and licensing starting with recruiting momentum remains solid with approximately 93500 individuals joining primarily during the first quarter. This represents a 10% increase over.
The prior year period.
Licensing results were similarly strong with more than 11000, new life license reps added during the quarter, which represents an 11% increase year over year.
We ended the quarter with 136430 life licensed reps, which was slightly elevated due to delays in processing about 800 terminations by the state of Florida.
These terminations should all be processed during the second quarter and we continue to believe that we can grow the sales force around 3% in 2023.
Turning next to our production results the new term life insurance products introduced last fall, but given the sales force an increased degree of enthusiasm.
By introducing more rate classes, we're able to better match risk and price, which allows our clients to potentially purchase more insurance coverage.
During the quarter, we issued 84500, new life insurance policies, which represents an increase of nearly 2% year over year. After adjusting the prior year figure to reflect a one life per policy issued equivalent.
Productivity at two one policies per life license Rep per month remained in our historical range of $1 two zero to two four.
In addition to issued policies. We believe estimated annualized issued term life premiums and issued term life face amount to provide useful information about our term life business.
These figures capture the amount of protection of newly issued policies as well as additions to coverage on an in force policies.
During the quarter estimated annualized issued term life premiums were $89 million up 6%, while newly issued face amount of $28 1 billion.
<unk> grew 14% year over year.
Looking ahead, we believe the high cost of living will moderate sales growth in the near term, but we believe full year growth in issued policies will be in the mid single digit range.
Turning to the investment and savings product segment sales of $2 3 billion declined 25% compared to the first quarter of 2022, which was our largest sales quarter ever.
Client asset values ended the quarter at $87 6 billion up around 4% since the beginning of the year, but down 6% versus March 31 2022.
Volatility in the equity market continues to negatively impact large transactions such as rollovers. However, we see very little change in the number of automatic monthly investment transactions or redemption activity.
Net inflows during the quarter were $642 million, we believe that our clients continued focus on long term goals along with systematic monthly investing sits primarily apart from many other distributors.
Considering the current market environment, we expect second quarter ISP sales could decline as much as 7% to 10% year over year, but ongoing uncertainty makes it difficult to project too much further ahead.
We turn now to our senior health business results for the quarter were in line with our expectations and our efforts to maintain control growth during the fourth quarter as AEP and this quarter's ODP <unk>.
Progress has been made on our goal of improving unit economics first quarter LTV to CAC ratio was one one.
As we discussed last quarter, we deliberately entered the 2022 enrollment in the 2023 renewal periods with about half the number of agents compared to the previous year and a focus on agent productivity. The early results of these efforts are encouraging.
We are also pleased that lead source by senior health certified <unk> Representatives represented 10% of first quarter sales volume up from 4% last year.
Seasonally to remain attractive in terms of conversion rates and early indications of more favorable persistency.
We're encouraged by the progress of the <unk> team over the last three quarters. It is clear that we need to keep working towards scaling the business and we will continue to evaluate how best to do so while it's still early our efforts to grow judiciously are consistent with our plan to achieve adequate volume supported by reasonable and growing margins, while controlling the capital with.
Acquired by the business.
Finally, I am proud of the primary care team and the steady progress, we're making executing against our plan to grow the size of the sales force. It's clear that middle income families need help navigating these uncertain times the current economic conditions underscore the important role the primary representatives play in providing education and guidance to their clients.
Keeping them focused on the future and working toward financial independence.
Now I'll ask Alison to add her comments thank.
Thank you Glenn and good morning, everyone. A quick housekeeping item to mention before I review, our first quarter financial results.
Last Tuesday, we filed a form 8-K, which provided financial results for the year ended December 2021, and for each quarter of 2022 under the new accounting standard for long duration targeting.
<unk>.
Because our life results also recognize our net investment income in the corporate and other segment.
And adjusted version of our fourth quarter 2020 financial supplement can be found on the financial info tab of our Investor Relations website.
Starting with the term life segment.
Operating revenues.
$21 million during the quarter increased 3% year over year and pretax operating income of $127 million increased seven 1% compared to the first quarter of 2022.
Pre tax operating margin during the quarter with 21, 4% versus 21, 2% in the prior year period.
Adjusted direct premiums grew 6% year over year in the first quarter inline with expectations.
You mean, the mid single digit sales growth Glenn.
Glen discussed earlier combined with the size and stability of our in force premium base.
We expect ADP growth around 6% to continue for the remainder of 2023.
The DAC amortization ratio for the quarter was 11, 8% versus 11, 7% in the prior year period.
As discussed in our last earnings call, we expect the GAAP ratio under <unk> very stable from period to period at around 12% each quarter.
Moving to the benefits and claims ratio at first quarter ratio was 58, 7% compared to 58, 9% in the prior year period.
Wrapping the stability, we expected fatality G I.
The benefit in claims ratio came in slightly higher than the preliminary estimate of around 58%. We provided during our fourth quarter earnings call as.
As we finalize all of our processes related to the adoption of LTE Ti. We found a modification that was needed to properly reflect the disability incident rate under our waiver of premium rider.
Since the liability for future waves policy premium Barclays a death benefit it is not subject to wire T reinsurance and therefore lead to a disproportionate increase in the benefit and claims ratio.
We expect the full year 2023 benefits and claims ratio to generally be in line with first quarter results.
With the adoption of LTE Ti the benefits and claims ratio now includes the future policy benefit.
We measure maintain law.
This line item reflects the cumulative effect of assumption changes and experience variances back to the ladder of 121 transition date or the policy issue date.
On the current periods beginning with the ballot.
Given our proximity to the transition date in the near term assumption changes and experience variances will largely be recognized in future periods by unlocking the rate at which benefit with their entire careers.
Given the weighted average duration of our future policy benefit liability, we should reach a steady state about 50% of the assumption changes and experience variances being reflected in the period up occurring in 2028 or 2029.
The Remeasurement gain rock was de Minimis in the FERC quarter at claims experience for the periods was largely in line with LD Ti assumption.
While persistency deteriorated slightly versus pre pandemic levels. It does not have a significant impact on the net liability for future policy framework.
Policy benefits.
As we discussed last quarter. It doesn't have a significant impact on DAC under L. D T I.
If current trends continue we do not anticipate any meaningful revision, earning perform our annual unlocking or reserve assumptions in the third quarter.
Insurance expense ratio was slightly higher in Q1, and then we expect it to be for the remainder of the year given this and the consistency in the Yadkin benefits and claims ratio from period to period, we expect the full year life margin to be near 22%.
Turning next to the investment and savings product segment first quarter operating revenues of $210 million declined 13% compared to the same period last year, while pretax operating income of $56 million declined 16%.
Market volatility continues to put downward pressure on both sales and client asset values.
You ever year revenue generating sales declined 29%, which led to a 30% decline in sales based revenues and commission expenses.
Asset based revenues, which benefited from a mix shift towards products on which we earn higher asset based fees second managed accounts and mutual fund sales under the PD modeling, Canada declined 1% year over year, while average client asset values declined to eight.
Asset based commission expenses were generally in line with asset based revenues after excluding revenues from segregated fund four with asset based expenses are recognized as insurance commissions and DAC amortization.
Continuing with results in our senior Health segment as Glen mentioned earlier, we continue to make progress building a sound senior health fitness and our profitability metrics are improving.
Ltvs for prudent policy for the quarter were $856 generally in line with expectations.
What was the charge back right on business sold during the fourth quarter AEP and the renewal rate for the January 1st annual renewal cycle were in line with our revenue assumptions and therefore, we did not need to recognize a negative revenue telerik estimate next quarter.
We believe this is indicative of both our significant progress in refining our revenue recognition model as well as a stabilization of churn trends in the marketplace.
CAC for our food policy improved to $814 during the quarter, reflecting our progress in managing lead lead selectively and efficiently.
Looking ahead, we expect normal seasonality to pressure CAC is there is a limited number of seniors who can enroll in Medicare during the second and third quarters.
We expect to incur a moderate modest losses in the second and third quarter and a profit in fourth quarter during AEP.
A full year basis, we expect segment losses to be around in the $5 million range.
We do not expect that the senior health business will require capital from the holding company to fund operations in 2023.
The corporate and other distributed product segment adjusted loss of $11 million decreased $3 $5 million year over year the.
The improvement was driven by significantly higher net investment income, partly offset by lower mortgage loan sales and volatility in a small block of discontinued business and our New York subsidiary.
Adjusted net investment income increased $10 million compared to the prior year period.
Growth in the portfolio contributed to the increase in NII with the rise in interest rates over the last year had been the primary driver.
We've seen both steadily rising average book yields in our fixed maturity portfolio as far as why who meals for our cash and money market balances, which alone added $5 million NII in the quarter year over year.
If the rate environment stays consistent we expect NII to be around $32 million per quarter for the remainder of 2023.
On a year over year basis, we expect NII to be favorable by about $9 million in <unk> and continued to be favorable for the remainder of the year, but to a lesser makes sense given the rise in rates began last year.
As we've noted in the past given the nature of our business, we are not constrained by our liability duration in choosing how best to invest our portfolio.
We are focused on optimizing our income while also maintaining a conservative portfolio that does not subject to undue risk.
On a regular basis with you the relative value of purchase opportunities in various asset classes and duration looking for those that we feel pay us for the rest.
The inversion of the yield curve has allowed us to invest at attractive levels without extending duration.
Our new money rate of almost five 6%.
At more than 200 basis points compared to the first quarter of 2022, while the average duration of purchases remained relatively short at four three years.
Commercial real estate has received a lot of attention recently, particularly office space.
We do not write any direct mortgages and most of our exposure is in syndicated C. Ibs and publicly traded REIT, which combined account for about 8% of our portfolio.
Office based exposure is estimated to be less than 3% of the portfolio.
With respect to our C. MBS holdings, our average rating is double a minus with a weighted average loan to value of about 60% and weighted average debt service coverage up to four times.
Our public bond issued we have an average rating of triple B plus.
He has also been a lot of attention paid to stress in the regional banking sector.
Respect to regional banks, we have limited exposure at around $25 million for less than 1% of the portfolio with an average rating of Triple B class.
We called the small position less than $3 million and Silicon Valley Bank bonds on which we took a $2 million credit impairment during the quarter.
We continually review our holdings and have not identified any other issues that would prompt us to record any impairments.
Moving to consolidated insurance and other operating expenses, the total incurred for the quarter of $151 million increased $6 million or 4% versus the prior year period.
We experienced higher technology spend during the quarter. After a slower start last year and are also seeing higher employee and close related costs that are in line with the overall growth in the business.
The year over year comparison benefited from lower sales force leadership event costs in the current period as we resumed our typical two per year event cadence after holding an additional event in 2022.
Looking ahead, we expect second quarter insurance and other operating expenses increased 2% to 3% year over year, driven by continued growth in the business technology spend and employee related costs.
Also benefit from $5 million lower costs associated with sales force leadership event due to the convention in the prior year.
We remain on pace for our full year insurance and other operating expense growth rate of sort of 5%.
Liquidity at the holding company remained strong with invested assets and cash of $330 million in Primerica life statutory risk based capital ratio estimated to be 455% as of March 31 2023.
We continue to take ordinary dividends from Primerica life as available and plan to modestly reduce our RBC overtime with that operator I'll open the line up for calls for.
Questions.
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One moment, please pull for questions.
Our first question comes from Dan Bergman with Jefferies. Please proceed with your question.
Good morning, guys.
Hi, Thanks, Good morning, I guess to start just with recruiting continuing to be strong this quarter I just wanted to see if you could give any more color on the key drivers of the strength where there any.
Just kind of fee offers in place during the quarter and just any thoughts.
Given the Mac.
The macroeconomic backdrop on the outlook for recruiting over the remainder of the year.
Yes, Dan It was a good recruiting quarter there were no incentives used during the quarter. So it was a good fundamentally sound growth in the quarter that we're very pleased with and what we're seeing is that we're getting better at telling our story there is a better story to tell.
Our success as we go forward and we just see the desire in a disrupted.
Kind of employment dynamic around us are people looking for alternatives looking for additional part time income to offset the higher cost of living or looking for alternative career paths and so we just believe that right now we've got a very appealing story, which is being well received but there was no artificial stimulus you used in the first quarter.
Yes.
Well we.
We generally I will modify that we generally kick off the year in January with and we've done that every year. So the comparisons are equal. So we do have a discount in January to start the year, but it was identical to what was used in the same month last year.
Got it got it makes sense. Thanks, and then maybe just.
One on the term life business it sounded like persistency was modestly unfavorable versus pre pandemic levels. This quarter. So I just wanted to see if there's any more color you can give on the drivers and how different cohorts of policies are behaving and anything you can quantify in terms of the magnitude of change in lapse rate versus either pre pandemic levels or where it had been in recent quarters.
Yeah, I'll take that one.
Really it's best to look at it in line with pre pandemic because obviously during COVID-19, we were dealing with some very unusual in that.
Our results that we did not anticipate would would stay in place forever.
But looking at it versus pre pandemic I'd say, there's been a slight deterioration and I'd say, especially in most years, it's less than 5%, so youre not talking about anything significant.
The interesting thing is we are seeing it across all durations and that to me indicates that it's more economy driven than anything else.
The last time, we really thought across all durations, putting aside COVID-19 was back in 2008 during the financial crisis during that period. So again nothing to that level of extreme just a little bit of a downtick in comfortable we're keeping our eyes on them.
And really that's probably the best I can provide right now.
Got it certainly helpful. Thank you.
Our next question comes from Walmart furnace with Raymond James. Please proceed with your question.
Good morning Romo.
Hey, good morning.
What's wrong with policy count grew 2% with a face amount of new business grew 14% could you just give a little bit about <unk>.
The face amount grew.
So much more quickly and give us some insight into which metric is better gives us better insight into the adjusted direct premium growth.
Yes would be happy to do that what we attempted to do because we've changed the basis normally we track the number of issued policies, but by changing the way we use those policies to one life per policy rather than on occasion multiple lives for policy in the past, even though we changed the historical numbers to try to adjust for that.
We realized that we were getting a little.
Noise in that comparison, and so we wanted to give more color. So traditionally you have a policy count in our industry is one way of tracking premium is another way of tracking and face amount is another way of tracking they obviously relate to each other but as we've made the change to our products as we anticipated more accurately pricing the product and the risk gives our.
Our clients an opportunity to be able to incur.
Increase their purchase their dollar goes further when we have more correctly.
Price good risk and your dollar doesn't go quite as far more correctly priced bad risk, so which did some some rates went up and somewhat down with ultimately people are getting more for their money.
A lot of cases and are often buying a little more so we felt like tracking all three of those numbers gave the outside world a better opportunity to kind of triangulate, how our life business was moving.
The other the others or estimate the new premium use and face amount use we have to make some estimates in there, but it gives you a little more color around that and I think it gives you a better flavor of our business.
We did anticipate that when we changed the product we would have this kind of movement. So it's clearly what we expected.
And as I said, we're pleased with the excitement around new product line and our sales force.
That's part of what's giving us some sales momentum in this.
High cost economy inflationary economy high cost of living that Alison was just describing we're overcoming that resistance on sales and continuing to grow sales.
I think a lot of that goes to the excitement around new products. It yeah. One thing I would add is the 2% is our best estimate I mean, we.
We used to sell multiple lives per policy analysis single adult life per policy. So we did a calculation to estimate what we thought that we then it looked like last year, but really the 2% is not necessarily indicative of the activity that's happening day to day in our sales force right now so when you look at the other.
Key metrics with it we thought you'd get a fuller picture. The other important thing is that the other key metric both annualized issued premium and base amount include things like add on riders are IV. Our riders. So it's not just the new business is what we're increasing the book of vehicles for so just a couple of them.
One of the things, we just felt like given the new within the definition year over year on issued policies to more color with necessary.
Thank you.
And then just on senior health should we expect primerica to put any capital into that in 2024.
And also if you could just talk a little bit about.
Right.
With the cycle.
[laughter] Oh.
Oh, Yes, and then if you could just talk a little bit about the how many leads are coming from the life license.
Reps to the senior health license reps.
Yeah.
So 'twenty 'twenty four.
I think what we said thus far is it won't mean to.
Put any capital in for 2023 in 2024, we'll use up the remainder of the net operating.
Loss carryforwards that we had so once that's done there will probably be some need for capital that being said, we will position ourselves to be putting anything significant into the business until we're comfortable with the profitability metrics of the business and are comfortable with our game plan going forward.
I think at this point with regard to 2024, we should put that on hold until we continue to work through our operating plan.
The one thing I can say is we will definitely limit whatever capital is needed and we will continue to grow their business judiciously and.
We will only put capital and to the extent that we feel like we can create a profitable book of business that will ultimately become cash generating obviously it gets like life insurance. If we do try to grow the business. There is a lot more that goes out upfront and you get in you know in.
In the first year, so there would be some strain.
But again, we will maintain a good control of or whatever those levels will be so I think that's what we should wait until later in the year to discuss further I'll just quickly talk about the details of it just I think an important thing to note is it doesn't have to be a life license representative on our side to be able to participate in this program.
One of the attractive things is that people who are going through the process of getting life license can actually get involved with it can get certified to sell senior health.
To the first senior health excuse me.
And then specifically I think what Glenn said was we're about 10%. This quarter, we were 10% during AEP of soils are leads leads accounted for about 10% of sales and again, we are seeing those leads are higher quality than what can be generated just out from the from.
The public lead sources. So we're encouraged by that growth, but we recognize that's a business that needs to have multiple sources of leads and so we're continuing to grow on all fronts.
Thank you.
Certainly.
Our next question comes from Ryan Krueger with <unk>. Please proceed with your question.
Hey, Ryan.
Hey, good morning.
A related follow ups versus on lapses.
When lapses deviated from your expectations under <unk>.
Is the primary way that will come through results in well that come to re measurement gains and losses or annual assumption updates because I know I know it doesn't come through tax anymore.
Yeah, it's interesting.
Pretty unlikely, it's going to come through anywhere that youll notice it.
Where we used to see it extensively with DAC and as I explained last quarter, we're not going to see that anymore. Even if you remember when we were talking during COVID-19, we used to have a very large impact from that with a much smaller offset in reserves. So the reason you don't see a whole lot of impact in reserves is because our laps.
Decrease is both the expected future premiums youre going to get and the expected future benefit.
So both components go down so net net the liability hasn't changed all that much it would be a pretty tough to be a very dramatic change for us to see something come through really what youre seeing in remeasurement gain or loss is going to largely be claims activity.
Okay got it and then can you comment on your subsidiary dividend expectation from.
From the life subs.
You did this year, but also just what you think a reasonable annual amount would be.
Yeah, and one of the reasons the RBC has crept up a little bit over time is because you know.
The way the rules work is it's the greater 10% of surplus or the gain from operations before realized gains and losses from the prior year.
And our 2021.
<unk> gained from operation, which is which is the high around the two metrics with 257 million because in 2021, and we're still having significant claim payments.
Yeah.
Coded so our statutory earnings were a little bit lower which constrained to what we took out in 2022 in 2022 weeks looking at 2023, the equivalent number or for 2022, a gain from our operations is 446 million so without asking for it.
The extraordinary dividend, we have the ability to take $446 million of Primerica life. In addition to what we would take from the Canadian operation in our non life operation. So in another itself that number has gone up significantly we.
We can always asks for a.
Extraordinary dividend that we really see no need to do so at the current time, but anyway I think looking at the $2, 57% to $4 46 gives you some feeling of how much more we're going to be able to take out.
ADR was year over year.
One thing to keep in mind is on the non life side, depending how the markets go we could continue to see some strain on what we can take out from our ISP business.
Understood. Thanks, a lot.
Our next question comes from Andrew <unk> with Credit Suisse. Please proceed with your question.
Hey, good morning.
Nice to talk to you.
Shifting over to senior health again.
So I think Allison talked about a 5% full year.
Net loss given given.
Sure absolutely.
The terrific progress that you've made over the prior year.
Do you think a line of profitability is in sight for 2024 and another slot on that topic have.
Have you considered layering in other products, maybe maybe term life onto the platform to two.
To help scale it.
I'll start I'll start and then Glenn can fill in with some of the product discussion just to be clear it wasn't 5% it was a $5 million.
Currently.
Yes.
Just that you know obviously, it's early in the year, we'll continue to update that figure as the year goes by my my.
My rationale and giving you that number is just to frame up that we're not expecting much of an ultimate financial impact out of the segment good or bad if you will.
On a full year basis.
I do think we're doing the things necessary to put the business into our profitability.
Our profitability mode.
Real thing as we go through this year will be as we continue to build out the agent force, making sure that we can hasnt scaled the business. We can maintain the level the level of profitability we are comfortable with.
The team there is very actively working on all sorts of things both on the lead acquisition side, the lead identification side as well as the cost side and making sure. We have the best agents available paying them, the best way possible and so forth, but it is not an immediate do that.
When that happens there's a lot of fine tuning we've been doing and will continue to do throughout this year, but are looking to add on that just on the question about the other products first priority is to make our current profits have proud of profitable and so that's where the focus has been but the telecom team is doing a fantastic job.
Looking for adjacent products and adjacent markets.
Lead generation from adjacent markets that might be possible and also are there other products to round out the product set that are still relatively close to the senior health business. There are no plans right now to load the primary care products into the sales center that would create a tremendous amount of channel conflict potentially but also it's a.
Very different client base those our team down there are experts at dealing with seniors as their needs and we feel like right now breaking them out into other markets that arent adjacent would work against us rather than four so there is no plans for that on the horizon.
Got it that's very helpful. And then just sort of thinking about.
Term life sales.
You came in with.
With.
Policies of 2% growth and then per wellness question, you were talking about face amount up 14% it feels like the face amount is.
The better metrics, maybe maybe a little more color on that and then more importantly.
The licensed sales force up about 5%.
And again you had.
Is that kind of a good indicator of where we could start to see sales coming in maybe next year is that kind of give.
Give it a year and we'll start to see that mid single digit.
Kicking in on a steady basis, maybe even better productivity picks up.
Yes, there's a lot in that question.
That's right, yes, we do think that as Alison said using the additional premium in face amount metrics. In addition to policy count gives you a little better feeling for how the business is evolving and I will say that I do believe we are overcoming the headwinds of the higher cost of living with our sales numbers right.
Now to the second part of your question, it's going to be tricky to project. How this looks throughout the year or beyond the year without getting some clarity on how we feel like cost of living in the budget pressure on middle income families, which is extreme right now how that might change if it gets worse it will be good for sure if it gets better.
Then we could see some easing of that pressure and families might have a little more leeway to make some different financial decision. So looking into next year, it's very cloudy right now, but we do believe and as Alan pointed out the face amount in premium numbers include additions that don't come in through a brand new app.
Increasing benefit rider, which is automatic or manual policy additions declined just asked for so it gives them a more holistic view of our entire life insurance business than just the new issued policy count. So that's why we believe that adding those not moving completely away from policy count, but adding those give you a full picture.
Very helpful and it seems like you're doing the right stuff with the Salesforce. So thank you for that.
Certainly thank you.
Our next question comes from Mark Hughes Suntrust. Please proceed with your question.
Good morning, Mark good morning.
I missed some of the earlier calls so I apologize.
<unk> gone over but.
While our ceded premium ratio was.
A little bit higher in the first quarter compared to Q1 of last year I think.
Compared to last full year wasn't dramatically different is this kind of 31%.
Uh huh.
Is that what you should expect was there any increase in cost or anything like that yeah.
Yeah, actually I'm going to tell you might be when the price because that is a technicality of the business that I didn't know if anybody was going to pick up on but really what it is.
Yes.
We didn't put it in the script, because if youre getting back to here, it's pretty technical answer, but why are key.
Ceded premiums are paid annually on the policy anniversary.
Which is very different than how we collect our direct premiums obviously.
And also that if you look at last year.
If you look at how Covid happened and when our sales were growing tremendously that cycle sort of ended the first quarter of whatever year. It was I'm, sorry, I can't I'm locked down right now I have a head cold I apologize anyway. So this is the last year that you see sort of the step up in the first quarter and it's why the weight is.
A lot closer to what you saw sort of for the rest of last year, it's because they're all steps up annually.
Have you picked that up in the first quarter and it has nothing to do with the change in rates or anything like that and you'd never see a change in Y our T. J C that.
Impactful that quickly because one they are only for new business, which is a small part of our total business in two.
As we've mentioned in the past why our T way alright level. They match the mortality curve. So if you think about it the first year policies were in the white shirt T rates, probably almost zero and it grows very quickly after that that's why the rate of that other ceded premium line actually grows faster than any other line and that that revenue premium revenue section.
I will remind you also that if we had our druthers and we didn't have to follow GAAP, we would actually treat the other seeded premium in our case as a benefit line item, which is why when we see the benefits and claims ratio. We actually include that piece in the benefits cost and you'll see that on a year over.
Your basis, the benefits and claims ratio was very consistent.
Okay. So it sounds like for the full year pretty consistent with last year that we would think about it I have to actually look at the number but I think I think last year had a lower first quarter I think the rate you're seeing right now is more consistent with what youre going to see for the rest of the year. So.
I don't think youre not going to see a pick up like you saw in the first quarter in the next three quarters, but just to remind you and I think it's important because I want to make sure everybody's doing the calculation the way we do since we put all these rates that 58 pulling eight person.
I think with the number $58, 7% number we quoted included the other ceded premiums.
Right right.
Like last year the.
Why are you ceded premiums it went from 29 in the first quarter to $32 five in the second quarter is there some normal seasonal phenomenon or is it just another one of these.
Variability.
So if you and we've.
We've talked about in the past that the second quarter has historically been our strongest quarter.
Yeah, maybe end of curve.
And.
Instead is whatever the case is people are happy in this spring.
But the second quarter has historically been a very very strong quarter for us so things like I said, the waikiki premiums renewed annually.
That's when we have a large amount of policies coming up on their annual policy renewal date, that's when those <unk> rates are going to go up for all of those policies and again theyre going to grow.
At much faster rates, because they've maxed the mortality curve.
Well I will wait for my prize.
Thank you Mike.
Jimmy directly.
Maybe some primary.
Second question would be would be.
Investment in savings that asset based revenue was down.
Down, 1%, even though the asset.
Average assets.
One 9%.
Anything there.
That is noteworthy that seems like a good trend, but I don't know whether thats, just something else driving that yeah.
And that really has to do with mix shift we've seen so two things have happened one we've continued to see more and more of our sales going towards managed accounts.
And as that's happening, we're obviously not getting the sales based revenue, but our ability to generate asset based revenues are growing so you're seeing that compounding effect and the other is the PD model that we launch for mutual funds in Canada last year that is continuing to grow which again will put some pressure on what you you recall.
Revenue generating sales because they are a lot of those are no longer creating a front end sales load.
Yes.
Tribute to our ability to grow faster on an asset base.
Okay great.
Great I appreciate it thank you.
Thank you.
We have reached the end of our question and answer session. This concludes today's conference. Thank you for your participation you may disconnect your lines at this time.
Okay.
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