Q4 2024 Primerica Inc Earnings Call
Okay.
Speaker Change: Greetings and welcome to the primary care fourth quarter 2024 earnings call.
Speaker Change: At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
Speaker Change: It's now my pleasure to introduce Nicole Russell SVP Investor Relations. Thank you you may begin.
Speaker Change: Thank you operator, and good morning, everyone welcome to primary <unk> fourth quarter earnings call.
Speaker Change: A copy of our press release issued last night, along with other materials relevant to today's call are posted on the Investor Relations section of our website.
Speaker Change: Joining our call today, our Chief Executive Officer, Glenn Williams and.
Speaker Change: Our Chief Financial Officer Tracy can.
Speaker Change: Our comments. This morning may contain forward looking statements in accordance with the Safe Harbor provisions of the Securities Litigation Reform Act.
Speaker Change: We assume no obligations to update these statements to reflect new information and we refer you to our most recent Form 10-K filing as may be modified by subsequent forms 10-Q for a list of risks and uncertainties that could cause actual results to materially differ from those expressed or implied.
Speaker Change: We also reference certain non-GAAP measures, which we believe provide additional insight into the company's financial results.
Speaker Change: Reconciliation of non-GAAP measures to their respective GAAP numbers are included at the end of our earnings release and are available on our Investor Relations website.
Glenn Williams: I would now like to turn the call over to Glenn.
Thank you Nicole and thanks, everyone for joining us this morning.
Glenn Williams: Our fourth quarter and full year results highlight an outstanding year for primary ago with record breaking results across the board. These.
Glenn Williams: These range from the expansion of our distribution network to achieving unprecedented in investment sales and delivering solid financial performance. These milestones highlight the strength of our business and our ability to create value for all stakeholders.
Glenn Williams: Starting with a quick recap of our financial results fourth quarter adjusted net operating income increased 11% compared to the prior year period, while diluted adjusted operating income per share increased 17%.
Glenn Williams: On a full year basis, adjusted adjusted net operating income increased 14% and adjusted operating income per share increased 20%.
Glenn Williams: These results reflect the very strong sales volume and higher client asset values, and our investment and savings product segment and the steady contribution from our large in force block of term life insurance premiums.
Glenn Williams: During the year, we repurchased $425 million of our common stock and paid a total of $113 million in regular dividends.
Glenn Williams: In total we returned 79% of adjusted net operating income to our stockholders in 2024.
Glenn Williams: Taking into consideration the predictable nature of our cash flows in November 2024, our board of directors approved a new $450 million share repurchase program for 2025.
Glenn Williams: Our distribution performance during the fourth quarter capped off a remarkable year of growth at primerica during the quarter, we recruited more than 95000 individuals 6% increase compared to the same period last year. We also saw a 12% increase in the number of individuals obtaining a new life license.
Glenn Williams: This double digit growth in new life licenses. During 2024 reflects the growing demand for additional income and alternative career choices as well as improvements we've made to our licensing process. In recent years. We ended the year with a record high of 151611 life license representatives up 7% compared.
Glenn Williams: The year end 2023.
Glenn Williams: 25493 of these life license Representatives also held a securities license at year end.
Glenn Williams: Looking ahead, we expect to continue to growing the life sales force, albeit at a more normalized pace of around 3% in 2025.
Glenn Williams: Now, let's turn to our sales results starting with term life.
Glenn Williams: We issued nearly 889700 policies during the fourth quarter and $30 billion in new term life protection for Middle income families.
Glenn Williams: Activity remained within our normal historical range at an average monthly rate of $1 two zero new policies issued per life licensed representatives.
Glenn Williams: While we are encouraged by our momentum in expanding our distribution reach we also recognize the continued high cost of living on the families. We serve balancing the benefit of larger sales force with the challenges posed by these cost of living headwinds, we're taking a conservative outlook for 2025 and anticipate full year issued lifestyle.
Glenn Williams: We will seize to grow around 2%.
Our investment and savings products business had another strong quarter with sales of $3 $3 billion up 41% year over year.
Glenn Williams: This growth was driven by solid demand for investment products across all major product lines.
Glenn Williams: Client asset values ended the year at $112 billion up 16% compared to 2023, while net client inflows for the quarter totaled $731 million.
Glenn Williams: Significantly higher than inflows of $172 million in the fourth quarter of 2023.
Glenn Williams: For the full year robust client demand across all products all investment products fueled growth in new sales enhanced benefits from variable annuity products continue to fuel demand for clients seeking income protection and retirement contributing to a 44% increase in VA sales in 2024.
Glenn Williams: Additionally, managed account sales grew by 47% driven in part by our new managed account platform, which offers clients a broader range of product choices and provides representatives with enhanced planning tools to better serve client needs.
Glenn Williams: Finally strong equity markets continue to support demand for mutual funds in both the U S and Canada.
Glenn Williams: Preliminary results in January showed strong momentum, but we remain mindful of economic and market uncertainties. These factors combined with more challenging year over year comparisons as the year progresses lead us to expect full year sales growth in the mid to high single digit range during 2025.
Glenn Williams: We remain well positioned to take advantage of the improving mortgage lending market and the role we can play in helping middle income families obtain a new mortgage or consolidate consumer debt.
In 2024, we closed nearly $400 million in U S mortgage volume, the 35% increase compared to the prior year.
Glenn Williams: At year end 2024, we have a license to do business in 33 states for nearly 3200 license Representatives. We also have a referral program in Canada, which allows us to offer similar benefits to our Canadian clients.
Glenn Williams: As we look ahead to 2025, our plan is to continue expanding our distribution capabilities across all product lines, while identifying opportunities to improve productivity and maintain the financial discipline needed to maximize profitability.
Glenn Williams: We appreciate your continued support and look forward to sharing more updates as we progress through the year with that I'll hand, it over to Tracy.
Thank you Glenn good morning, everyone. In my prepared remarks today I will review, our fourth quarter financial results and then provide an outlook for our key financial measures for 2025.
Glenn Williams: We ended the year with great momentum, reaching the $3 billion revenue Mark for the first time and delivering strong performance for us.
Glenn Williams: Stockholders.
Glenn Williams: Starting with term life segment.
Glenn Williams: Fourth quarter revenue.
Glenn Williams: $451 million increased 4% compared to the prior year period, driven by 6% higher adjusted direct premium.
Glenn Williams: Looking more closely at our financial ratios.
Glenn Williams: The benefits and claims ratio during the fourth quarter of 2024 was 58, 6% compared to 58, 2% in the prior year.
Glenn Williams: Benefits and claims were adversely affected by a $4 $2 million remeasurement loss recognized during the period.
Glenn Williams: Okay. Some refinement.
Glenn Williams: Our actuarial model for estimating reserves.
Glenn Williams: Were not related to any assumption changes.
Glenn Williams: Excluding the model refining the benefits and claims ratio was 57, 9%.
Glenn Williams: Favorable to the prior year period.
Glenn Williams: Primarily due to better mortality experience and in line with our full year guidance of around 58%.
Glenn Williams: The DAC amortization and insurance commissions ratio at 12, 2% was largely consistent with the pioneer period.
Glenn Williams: Overall loss rates remained elevated at year over year trends appear to be stabilizing.
Glenn Williams: We believe persistency will normalize over time.
Glenn Williams: While we recognize that higher lapses can constrained future ADP, whereas they have not meaningfully affected our key financial ratios.
Glenn Williams: Yes.
Glenn Williams: The fourth quarter insurance expense ratio increased seven 1% in the prior year period to 8% in 2024.
Glenn Williams: This year over year change was driven primarily by increased variable expenses associated with growth in direct premiums recruiting and licensing higher performance based employee incentive compensation as well as higher ongoing technology investments in digital tool.
Glenn Williams: Finally, the term life operating margin was 21, 3% compared to 22, 6% in the prior year period, while pre tax income remained unchanged year over year.
Glenn Williams: As we look ahead.
Glenn Williams: We expect <unk> growth of around 5% in 2025.
Glenn Williams: We believe the benefits and claims ratio and the DAC amortization and insurance commissions ratio will remain stable at around 58% and 12% respectively.
Glenn Williams: For the full year, we expect the operating margin to be around 22%.
Glenn Williams: Although we foresee some level of variability due to the normal seasonality inherent insurance expenses.
Glenn Williams: As a reminder, our first quarter expenses are usually higher due to the Ian will grant of management equity awards to retirement eligible employees that are fully expensed when granted as well as other annual employee related and operational expenses unique to.
Glenn Williams: The first quarter.
Glenn Williams: Turning next to investment and savings products segment.
Glenn Williams: Fourth quarter revenues of $286 million increased 29% due to a combination of favorable equity market conditions driving client asset values higher.
Glenn Williams: Demand for our investment solutions.
Glenn Williams: Pre tax income of $82 million increased 31%.
Glenn Williams: Sales based revenues increased 42%, while revenue generating sales rose 39%.
Glenn Williams: Revenues grew at a higher rate than sales.
Glenn Williams: Due to continued strong demand for variable annuity sales.
Glenn Williams: Sales based commission expenses generally in line with correlated sale.
Glenn Williams: Asset based revenue increased 27% slot.
Glenn Williams: Slightly outpacing the growth in average client asset values.
Glenn Williams: Due to continued growth in the U S managed accounts in Canadian mutual funds, so under the proprietary distributor model for which we earn higher asset based fee.
Glenn Williams: Asset based commission expenses grew at similar pace two correlated revenue when including commission on Canadian segregated funds, which are recognized as insurance commission and debt amortization.
Glenn Williams: Our corporate and other distributed product segment incurred a pre tax adjusted operating loss of $1 million during the fourth quarter of 2024 compared to a pretax adjusted operating loss of $5 4 million in the prior year period.
Glenn Williams: The improvement was doing.
In part two of $3 $3 million adjustment to the reserve for a closed block of long term life insurance business in the prior year period, and $2 $6 million of higher net investment income as the segment continues to benefit from higher yielding investments and the <unk>.
Glenn Williams: Growth in the size of the portfolio.
Glenn Williams: The second we also incurred higher operating expenses, which I will address shortly when I review and total consolidated operating expenses.
Glenn Williams: Our invested asset portfolio ended the year with a net unrealized loss of $206 million versus a net unrealized loss of $131 million at the end of September.
We believe the change in unrealized losses during the quarter was a function of interest rate movement and not underlying credit concerns and we have no present intention to dispose of that.
Our portfolio is well diversified and of high quality with an average rating of eight.
Glenn Williams: Finally fourth quarter consolidated insurance and other operating expenses were $152 million up 13% year over year.
Glenn Williams: The primary drivers of expense growth were higher variable costs associated with growth of our ISP in terms of like Beckman.
Glenn Williams: Higher employee related incentive compensation due to the company overall strong performance in 2024 as well as increased investments in technology.
Glenn Williams: Looking ahead to 2025, we expect full year consolidated insurance and other operating expenses to increase by around $40 million or 6% to 8%.
Glenn Williams: This includes $12 million to support the growth in the business.
Glenn Williams: <unk> million dollars.
Glenn Williams: In higher employee staffing costs and $16 million higher technology costs.
Glenn Williams: As I mentioned earlier, we expect operating expenses on a dollar basis to be elevated in the first quarter with year over year growth rate in line with our full year guidance.
Glenn Williams: We also expect fourth quarter 2025 expenses to normalize.
Glenn Williams: <unk> to prior year.
Glenn Williams: Due to strong performance drill.
Glenn Williams: Driven in 2024 of higher expenses.
Glenn Williams: Moving to our capital position.
Glenn Williams: The holding company had cash and invested assets of $497 million at the end of December 2024.
Glenn Williams: As of December 31, 2024.
Glenn Williams: Primary <unk> estimated RBC ratio was 430%.
Glenn Williams: With that operator, I'll open the line for questions.
Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Glenn Williams: Confirmation tone will indicate your line is in the question queue you.
Glenn Williams: You May press star two to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.
Glenn Williams: One moment, please while we poll for your questions.
Speaker Change: Our first questions come from the line of well my bonus with Raymond James. Please proceed with your questions.
Speaker Change: Good morning, gentlemen.
Speaker Change: Hey, good morning.
Speaker Change: Could you talk about 5% ADP growth a good run rate or is there still a boost in that figure from the IPO reinsurance transaction. Thanks.
Speaker Change: Good morning Wilma.
Speaker Change: ADP growth guidance of 5%.
Speaker Change: Growth.
Speaker Change: Has considered the run off of.
Speaker Change: Coinsurance and clearly the ADB growth is directly impacted by the large in force block that we have and the premiums that it continues to generate as well as the new sales that get layered on and we also have considered the higher lapses in this guidance as well so so the five.
Speaker Change: <unk> does consider the co insurance runoff.
Speaker Change: You know that is running off at a faster pace.
Speaker Change: It's been considered at all thank you Omar.
Speaker Change: Okay.
Speaker Change: Okay, Great and then could you talk about what's driving the strong ISP sales, despite a little bit of pressure on the life side due to cost of living.
Speaker Change: Crushers and then along those same lines, how do you see lapses trending into 2025 is there some evidence that we've hit a peak thanks.
Speaker Change: Sure Let me take the first part of that and then I will turn to Tracy for the lapses wilmar.
Speaker Change: Fortunately, our two businesses are complementary, but they also have different dynamics that drive them in different directions at different times and Thats I think thats part of the uniqueness of our model. So while we are seeing cost of living pressures that are a headwind for our life business and even for the small transaction business on the ISP side.
Speaker Change: The systematic savers, often they're saving 25 $5100 a month they are under the same kind of budgeting pressures at home that are the same people as our life clients when they're experiencing the same pressures.
Speaker Change: What we see it's a little bit of reward exempt from that are those that are rolling over our retirement plans, particularly are moving retirement plans either out of the 401K from a former employer or above our previous plan sponsor over to prime Erica.
Speaker Change: Those are generally impacted by cost of living they are retirement plan. So people are not prone to withdraw from them as often either so that one's a little stickier. So the bigger tickets arent impacted by cost of living pressure and Thats really what drives the volume in a significant way are the large sales that it takes a lot of small sales to add up to one.
Speaker Change: Large sale as you know and so those large sales that money is still in motion I think we're experiencing that and I think most of our peers are experiencing a lot of movement between big accounts and so we're benefiting from that and not experiencing the headwind from cost of living on that front.
Speaker Change: Tracey do you want to talk a little bit about how we see persistency that's right I will on the persistency and the lapse experience for 2024 overall, we continue to see elevated lapses, but we have seen the trends stabilizing fourth quarter.
Speaker Change: Clearly there was a.
Speaker Change: Leveling of elapsed and so we're not seeing that increasing on a year over year basis.
Speaker Change: One thing I definitely want to point out is 2024, we had adverse impact from the prior year last week restriction. So so overall 24, if you remove that lapsed restriction in the 2024 trending is coming down in terms of the labs elevation levels.
Speaker Change: And also higher lapses are across multiple durations, but mostly pronounced in earlier duration two to five for example, and the persistency for those.
Speaker Change: When we look at on accumulative basis is actually really improving and a slightly better on accumulated basis and pre pandemic period. So during the pandemic period, we had extraordinarily low lapses built that would have laughed.
Speaker Change: Stayed on where those policies and after the pandemic and we see elevated lapses because of the catch up but overall the cumulative impact.
Speaker Change: We look at from the 2020 forward, it's actually better than pandemic period now and.
Speaker Change: And we also believe that the higher lapses is mostly driven by the cost of living and pressure on the middle income family, which it takes a few years for them to get back and it depends on the speed and the degree with which theyre purchasing power and the ability to afford it.
Speaker Change: Bruce but over time, we do believe that we will be returning to our normal levels and our ADP guidance also already considered those elevated lapses as well so I hope that helps a wilmar wilmar does that get you what you needed or is there more we can share.
Wilmar: No I think I think that covered it. Thank you guys.
Speaker Change: Q.
Speaker Change: Thank you our next questions come from the line of John Barnidge with Piper Sandler. Please proceed with your questions.
Speaker Change: Morning, John.
John Barnidge: Good morning, Thank you for the opportunity.
John Barnidge: And then just kind of building on that comment about cost of living pressures and to take a couple of years to correct.
Speaker Change: What's the expected duration of the catch up and can that really be corrected with improvement in the cost of living.
Speaker Change: Alright, I think we are going to need to see more improvement in the cost of living so I think there's a there's a buildup of high expenses of people bridging their budget with withdrawn savings in credit card usage, while it's going on and so that would indicate that we need improvement for a sustained period of time before we.
Speaker Change: We start to see it flow through and see some easing of people's buying habits. When it comes to buying life insurance or a small investments.
Speaker Change: I think that's a complete guess John to know exactly how long. It takes for goes we're not sure how much longer the cost of living pressures.
Speaker Change: Mike B here, we saw a bit of a surprise. This morning, I think the market react to that there is still here they haven't gone away.
But I would say once we get on the other side and things get normalized you measure that in a year or more digital.
Speaker Change: But youll still see some of that impact it will improve over time and we're watching for it in the numbers Tracy just described we see it as well and persistency, obviously as well as sales, but thats entirely just I guess, we don't we don't have any empirical evidence to our formula for that is just consumer behavior.
Speaker Change: Thank you for that and my follow up question with that.
Speaker Change: What's the opportunity in that backdrop to increase operational leverage through improved application speed automation.
Speaker Change: So maybe what took 10 minutes can take three and then it allows.
Speaker Change: Application volume to increase in average agency more productive. Thank you.
Speaker Change: Sure.
Speaker Change: Great question and one that is on the top of our minds all the time.
Speaker Change: Tracy mentioned that some of the expense numbers.
Speaker Change: Largest number she mentioned was for technology, our technology costs and those are some of the types of things in addition to react into regulatory demands and requirements.
Speaker Change: And other cost of doing business, but we're always looking for a way to make our process easier for both clients and representatives under the assumption that you get two benefits number one is they are more likely to complete the process themselves someone who is already motivated and in the purchasing process is more likely to follow through with its easy.
Speaker Change: If it's short of its quick convenient and all of that.
Speaker Change: Obviously, that's more efficient as well and then that frees up more time for our representatives to see more clients should should there should the limit on their productivity B I got more people to see that I can get too often it's not having enough people see within solve that problem, but absolutely that's a big part and as we introduced our new product and process.
Just a couple of years ago for Nexgen, we have significant improvements in all of that and now of course, we're going back through to see what technology that has emerged in the last couple of years can help us in that area. Both in the field as well as processing and issuing policies and doing it faster and more efficiently here in the home office. So all.
Speaker Change: All of that is on our technology menu to see what we can accomplish as we move through 2025.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you our next questions come from the line of Mark Hughes with <unk> Securities. Please proceed with your questions.
Speaker Change: Good morning, Mark.
Mark Hughes: Good morning, Glenn Good morning Tracy.
Speaker Change: Good morning.
Speaker Change: The good VA activity you were talking about how the large transactions drive volume, there's a lot of money in motion.
Speaker Change: Demographic tailwind that should persist.
Speaker Change: It is driven by demographics as we see the.
Speaker Change: Older generations that have accumulated something.
Speaker Change: Moving that lending to get into the best place for their next phase of life as they move from accumulation to distribution.
Speaker Change: So there is definitely a piece of that it's also the not quite ready for retirement are not preparing for retirement, yet that are changing jobs and just changing careers as more job changes happen.
Speaker Change: More people move their 401K is out of the previous employer. So it's something that we're benefiting from it primarily.
Speaker Change: We have long relationships with our clients and generally as you know we're a middle market focused company. So we may be a higher level of hands on service to middle market clients than maybe some of our peers have so as the demographics move in our favor.
Speaker Change: That range, we are there to kind of service those clients in a way that maybe some of our peers are not so it is driven demographically, it's driven by even more options as we stated va's, particularly with the income guarantees that are in there as people move into income mode. They want to make sure. They don't have outlived their income so it's a combination.
Speaker Change: <unk>.
Speaker Change: A lot of hard work on behalf of our team both in the home office and the field over the years to be ready product improvements and the demographic changes and then the consistency of we've had a couple of years of good market performance in the road that builds confidence where people are willing to look for alternatives and maybe improve the returns on their retirement accounts. So I think we have all.
Speaker Change: Four of those things are working in our favor right now and some of the conservatism that you heard is because of the uncertainty it's not pessimism. It's just uncertainty as we move into a new administration with new policies and new message, we're not sure how well that's going to turn out. So we've kind of approach 2020 filed with a little bit of an air of conservatism.
Speaker Change: Based on those unknowns.
Speaker Change: Thank you for that and then Tracy anything on the mortality front any changes you might have observed either in the U S or Canada.
Speaker Change: Yeah.
Speaker Change: Right.
Speaker Change: Mortality fund our experiences have been very stable and favorable so far our entire 2024, we've been observing a pretty positive trends on mortality.
Speaker Change: Both in the U S and Canada mortality, very very low and really not much.
Speaker Change: Unfavorable experience to talk about but U S has seen real improvement and.
Speaker Change: Particularly in the fourth quarter. So we are hoping to see that continuing a trend that would be beneficial in terms of long term, obviously with having these difficult thing to predict but we do think that pandemic probably has taken off some of the population that now there are some benefits on the <unk>.
Speaker Change: Calendar improvement that we're seeing across the industry and we in particular with our demographics and the experienced during pandemic.
Speaker Change: Certainly has a positive trend currently going on.
Mark Hughes: Hope that helps mark.
Speaker Change: It does and then the final question just for my Edification you said.
Speaker Change: We have measurement loss is not related to assumption changes, but a refinement of the model can you say what the refinement was or is that.
Speaker Change: It's more technical.
Speaker Change: Yes.
Speaker Change: Simon is.
Speaker Change: Really more a tactical.
Speaker Change: Software improvement that we've made on the actuarial side of calculation and you know since at least I move down to <unk>, we continuously to look for ways to make our.
Speaker Change: Calculation more accurate and looking at ways to improve how we produce our results on the method side. So this really has nothing to do with either an experience or a long term trend assumption changes. So this is really technical cider.
Speaker Change: Item and it's a small immaterial in the magnitude of $7 billion.
Speaker Change: <unk> that we have.
Speaker Change: Thank you how does that help.
Speaker Change: Yes, it does.
Speaker Change: Thank you our next questions come from the line of <unk> with Jefferies. Please proceed with your questions.
Tracey: I'll also need plenty Tracey and good morning.
Tracey: So wanted to focus on the life segment, just for a minute. It looked like the rep count was up 7% year over year, but policies issued was up maybe 1% in I guess shouldn't we see a tighter correlation between those two growth rates.
Speaker Change: Yes General recently Theres been a very close relationship between the size of the sales force and our policy growth.
Speaker Change: Often there is a difference in timing on that we did have a significant amount of growth in a relatively compressed period of time and so one of our productivity dynamics that we're working on in 2025 is to bring that new class of licenses up to productivity level and thats an opportunity on the upside for us in 2025.
Speaker Change: Sure.
Speaker Change: The math of productivity works against you as you grow the sales force and the denominator gets larger, particularly with brand new reps, but we do think there is a lag there as always and getting them up to the average productivity level that we believe there is some upside as we put it all together with the headwinds of the cost of living we talked about earlier in may.
Speaker Change: Some of the other uncertainty headwinds middle income families on the positive side potential tailwind or that productivity catch up and we would expect to see some of that in 2025.
Speaker Change: Got it that makes sense and then I guess, if I heard correctly. It sounds like your guidance for life agent growth for 2025 is around 3% which is.
Speaker Change: Lower than I think it has been historically is there something unusual about 2025 or are you sort of getting to the point, where the salesforce is kind of so big it just becomes harder to grow on top of these big numbers.
Speaker Change: I think it's a bit of us reverting to the mean, so if you look back in <unk>.
Speaker Change: Prior to that our sales force growth has been around four ish percent.
Speaker Change: I think prior to last year over multiple years and so we just see after a year, where we had so many things go in our favor just a dose of conservatism.
Speaker Change: Things reverting to average in the next year and kind of getting back to that range.
Speaker Change: And so and again the uncertainty of just not knowing what's in front of US. This early in the year as the year progresses, we'll refine that projections.
Speaker Change: But it is starting out pretty close to what a normal year, primarily is maybe just a little less but thats the uncertainty factor in it.
Speaker Change: Got it if I could just sneak one more in just on the VA do you currently sell the <unk> product is that a big part of what you're you're selling these days.
Speaker Change: The index linked to variable annuity.
Speaker Change: Correct.
Speaker Change: Yes, we do and we are seeing our product mix shift more and more towards that just like the industry has a very similar kind of a mix shift dynamic to the rest of the industry with a significant proportion of the VA sales move into the index linked VA product.
Speaker Change: Got it thanks Glenn.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question is coming from the line of Dan Bergman with TD Cowen. Please proceed with your questions.
Speaker Change: Dan.
Dan Bergman: Hey, good morning.
Dan Bergman: I guess I'll start with the higher share repurchase authorization for 2025 and in the pretty big increase in the dividend capital return looks like it will take another.
Speaker Change: Sizable step up this year was there anything unusual in the 2020 for statutory earnings or any other one time items that are boosting that or should we think of this as a pretty sustainable level going forward and I guess relatedly.
Speaker Change: With capital return I think was 79% of earnings in 2024 is that around where we should expect that ratio to remain longer term.
Speaker Change: Good morning, Dan.
Speaker Change: This is a great question one of the features of our primary business that we are very much focused on and continue to support its our ability to generate consistent sustainable.
Speaker Change: Cash and capital return as a percent of earnings and as you know historically we've.
Speaker Change: Being very strong on our business being able to generate free cash on a consistent basis very resilient, regardless of the economic environment, that's going on and Thats, where we continue to see so in 2024, we were able to you returned 79% which is right around 80%. This also highly.
Speaker Change: Our distribution model, which is that we're able to grow on a sustainable level and not tying up our capital as we scale up and as you see the step up on the share buyback and the dividend is another evidence of that continued trend.
Speaker Change: We're able to deliver that.
Speaker Change: Around 80% in 2025.
Speaker Change: From a business model standpoint, the characteristics of our business model really helps provide that consistency and we have the confidence in terms of.
Speaker Change: Our features of our distribution model and to the reinsurance of mortality that we have along with our independent sales force.
Speaker Change: That also helps with the upfront acquisition costs and to be growth on operating expenses. One of those features help us.
Speaker Change: This level of capital return as a percent of earnings which is very much in line with a typical distribution model company and.
Speaker Change: This is what we are pretty much focused on hope.
Dan Bergman: Hope that helps Dan.
Speaker Change: Yeah very helpful. Thanks.
Dan Bergman: And then maybe.
Dan Bergman: Dan Go ahead, let me let me answer the question about statutory yes, theres nothing unusual around that line and we really are.
Dan Bergman: Pretty much focused on having a very healthy capital at our insurance side of the business and the RBC ratio, we typically strive to.
Dan Bergman: Be around 400% and as much as possible. It is very conservative that gives us plenty of leg room as Glenn put out the.
Speaker Change: Vision to continue to drive the topline growth we are very.
Speaker Change: Well positioned to provide that capital to drive our topline growth.
Speaker Change: Got it perfect.
Speaker Change: Yes, very very helpful.
Speaker Change: And then maybe just switching gears a little bit following up on the earlier comments around technology. It sounds like higher Tech spend is a big driver of the growth in the.
Speaker Change: Insurance and operating expenses Youre guiding to in 2025. So should we think of this higher technology spend as a new run rate going forward or are there any lumpy expenses in there that should subside going forward.
Speaker Change: So maybe said differently what inning.
Speaker Change: Are you in regarding upgrading your technology capabilities. So any color just around that would be great.
Speaker Change: Yes. This is very much in line with looking at our capital return and how we used our cash.
Speaker Change: <unk>.
Speaker Change: Another priority in addition to generating very strong you know.
Speaker Change: Capital return as a percent of earnings to shareholders.
Speaker Change: The remaining cash is very much focused on supporting our growth in terms of having enough capital to support our in insurance and non insurance business as well as investing in organic growth and we are very confident in our ability to drive our sales force to serve our client.
Speaker Change: <unk> Leach more demographics that we intend to help that's underserved so that part of the organic investment into technology is very much in line with our strategic vision and long term to help improve productivity both on the processing.
Speaker Change: <unk> transactions as well as our ability to provide unified communications with our sales team our sales force.
Speaker Change: Improving client experiences all of those are part of the technology improvement. So that the client can have easier better way to look at your investment look at the handle the life insurance transactions and also giving our sales force continued improvement on the tools to improve there.
Speaker Change: Productivity as well as our cost center, making our call center more scalable to go along with our larger growth sales force as well as number of transactions.
Speaker Change: So in terms of trend, we're going to continue to you know well focusing on strong return for our stockholders using the remaining capital effectively to help support our organic growth.
Speaker Change: Perfect. Thanks, so much.
Speaker Change: Thank you our next questions come from the line of Jack <unk> with BMO capital markets. Please proceed with your question.
Morning, Jack.
Speaker Change: Good morning.
Speaker Change: I had a follow up question on the outlook for our term life issued policies.
Speaker Change: Cost of living headwinds that have put pressure on lapse rates I'm wondering if you could unpack or quantify how much of a headwind it's been to sales levels over the past year.
Speaker Change: And how much is influencing the guidance for 2% growth emission policy. This year, because you mentioned that had been somewhat of a conservative estimate.
Speaker Change: Yes, Jack I don't think we broken out exactly what we think our growth might have been if there wouldn't have been so there's multiple factors playing the economic headwinds, which as I mentioned were upgraded not only about prices, but it's also a function of wage growth or lack thereof for our clients.
Speaker Change: It's really difficult to say if if the cost of living had been neutral to middle income families. We believe sales would have been what they were plus another percentage point or two or three or however, many because theres. So many other factors involved as well, we just know that the time, we spend with clients, helping them prioritize there Budd.
Speaker Change: <unk> in order to make room because every dollar is in play when we sit down with a family it's not like they call us over and say look I've got this $80 in Belgium with I don't know what to do with can you come talk to me about life insurance, we're having to sit down and helped them re prioritize their budgets and thats, where we identify the headwinds because we look at budgets theres not a lot of waste in them and so.
Speaker Change: We really have a tough prioritization discussion with clients to free up what they need to begin to protect their incomes and hopefully begin some type of small investment program and so it's more of a qualitative reporting and some of our survey that we do through our financial security monitoring you may be familiar with in the household budget index all of that has to.
Speaker Change: Try to figure out exactly how much resistance is out there, but quantifying in saying it was we would have been 2% greater if we'd had a neutral cost of living dynamics, a little difficult to do so we know the headwinds out there. We know we've been able to overcome it last year. We grew in spite of the headwinds.
Speaker Change: And we are projecting that we can continue to grow but we do know there was some resistance to growth as a result of that so sorry, I can't give you something more specific on how much studies.
Speaker Change: That's very helpful. Thank you.
Speaker Change: Just a question on the <unk>.
Speaker Change: Asps.
Speaker Change: Redemption rates outflows.
Speaker Change: Outflows as a percent of beginning assets have started to trend lower in recent quarters.
Speaker Change: Could you just talk about some of the drivers impacting that you're expecting some upward pressure still for me.
Speaker Change: Some of those cost of living challenges or even just given the client asset values are at higher levels. Following.
Speaker Change: Strong market performance over the past couple of years.
Speaker Change: Generally it's going to be more driven.
Speaker Change: At Prime Erica and the smaller accounts in homes that are closer to the financial age redemptions are going to go up when it gets tight when cost of living pressures happen. We coach our we coach our clients not to do that unless you have to you're working against yourself by redeeming, but one buffer against that is three quarters of.
Speaker Change: Our accounts or retirement accounts, there for long term and often if there are raised or other types of qualified plans registered planes in Canada. There are penalties for withdrawals. So that's another.
Speaker Change: It kind of fits around the accounts that prevent them from just putting in taking we also recommend that people set up an emergency fund that sort of puts and takes account. So the result of all that is we do believe that we have significantly fewer redemptions percentage wise than most of the companies in our space. It comes from the good coaching it comes from primarily long range for <unk>.
Speaker Change: <unk> planning.
Speaker Change: And so we protect and build against that and teach continuing to systematically invest in good times and bad, but we do see that move a little bit with cost of living Fortunately, we haven't seen it move a lot and again like the discussion we had earlier about what drives volume.
Speaker Change: The big accounts. Many times that are moving that are significant part of our volume to 401, K and mature retirement accounts. Those are people who are struggling quite as much month to month, and so theyre not making large redemptions, we see an increase in a number of smaller redemptions in tough economic times, but it doesn't really impact the large accounts as much as <unk>.
Speaker Change: Also unless people go into distribution mode. After they return startup a systematic withdrawal plan, but our withdrawal rate is very healthy lower than the industry average, we believe and we expect that to continue even if some financial stress does continue on families through 2025.
Thank you.
Speaker Change: Certainly.
Speaker Change: Thank you there are no further questions at this time and with that that does conclude today's teleconference. We appreciate your participation you may disconnect your lines at this time.
Speaker Change: Have a great day.
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