Q1 2025 Primerica Inc Earnings Call
Greetings and welcome to Prime Erika as first quarter 2025 earnings conference 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. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your House, Nicole Russell SVP Investor Relations.
Speaker Change: You may begin.
Nicole Russell: Thank you operator, and good morning, everyone. Welcome to Primerica's first quarter earnings call a copy of our earnings 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 are our Chief Executive Officer, Glenn Williams, and our Chief Financial Officer Tracy Yeah.
Speaker Change: Our comments. This morning may contain forward looking statements in accordance with the Safe Harbor provisions of the Securities Litigation Reform Act, we assume no obligation to update these statements to reflect new information and refer you to our most recent Form 10-K filing and may be modified by subsequent Form 10-Q.
Speaker Change: For a list of risks and uncertainties that could cause actual results to materially differ from those expressed or implied.
Speaker Change: We will also reference certain non-GAAP measures, which we believe provide additional insight into the company's financial results.
Speaker Change: Reconciliations of non-GAAP measures to their respective GAAP numbers are included in our earnings press release, I would now like to turn the call over to Glenn.
Glenn Williams: Thank you Nicole and good morning, everyone. Thanks for joining us.
Glenn Williams: First quarter of 2025 primary care delivered strong financial results, despite headwinds from external factors, including sustaining cost of living pressures and heightened economic uncertainty during the quarter.
Glenn Williams: Starting with a snapshot of our financial results adjusted net operating income for the quarter was $168 million up 14% year over year, while diluted adjusted operating EPS increased 20% to $5. Two says these results reflect the continued strength within our investment and savings product business and the steady com.
Glenn Williams: <unk> from our term life business during the first quarter of 2025.
Glenn Williams: The predictability of our business allowed us to return a total of $153 million to stockholders during the quarter through a combination of $118 million in share repurchases and $35 million in regular dividends.
Glenn Williams: The strength of our business model, our commitment to the sales force and the growing need for the financial education provided by our independent sales Representatives resulted in record success during 2024.
Glenn Williams: Following an outstanding year, we entered 2025 and the solid business fundamentals and a clear understanding of the financial pressures affecting middle income families. The.
Glenn Williams: The recent increase in economic uncertainty has impacted our marketplace pressuring recruiting and term life insurance sales during the first quarter.
Glenn Williams: And since April we're starting to see some resistance to investment sales momentum.
Glenn Williams: Looking at distribution, we recruited a total of 100867 individuals during the first quarter, representing a 9% decline year over year. Similarly life, New life licenses declined 5% versus the prior year period.
Glenn Williams: Recruiting and licensing activity was softer than expected as uncertainty appears to be contributing greater caution in decision making.
Glenn Williams: That said, it's important to note that both recruiting and licensing numbers are historically strong and continue to fuel growth in our sales force. The total number of life license Representatives grew slightly since year end and is up 7% compared to March 2024.
Glenn Williams: We remain committed to growing our sales force and continue to expect around 3% growth during 2025.
Glenn Williams: Looking at term life results, we issued 86415, new term life policies during the first quarter, representing $28 billion of new term life protection for our clients, which was in line with prior year levels.
Glenn Williams: Productivity at one nine policies per Rep was just below our historical range.
Glenn Williams: We believe that today's challenging environment is particularly difficult representatives to navigate especially those with lift sales experience.
Glenn Williams: Considering these dynamics, we expect 2025 full year policies issued to be broadly in line with 2024 levels.
Glenn Williams: At quarter end, we had a total of $957 billion of protection in place for Middle income families and we're pleased to see that persistency has remained stable again this quarter.
Glenn Williams: Turning next to the ISP segments total sales during the quarter were $3 6 billion up 28% year over year, driven by strong demand across the board, including the U S and Canadian mutual funds variable annuities and managed accounts.
Glenn Williams: Net inflows for the quarter were very strong at $839 million.
Glenn Williams: Versus $274 million in the prior year period.
Glenn Williams: Asset values ended the quarter with $110 billion up 6% year over year and down 2%. During the first three months of 2025 due to negative market performance.
Glenn Williams: Our securities license Salesforce has done a good job keeping clients focused on their long term goals and the importance of staying invested despite heightened market volatility.
Glenn Williams: Preliminary sales results in April while positive are beginning to reflect the effects of continued market volatility and broader economic uncertainty.
Glenn Williams: Considering our strong outperformance during the first quarter, we continue to expect full year sales growth in the mid to high single digit range during 2025.
Glenn Williams: Our mortgage business showed strong sales growth in both the U S and Canada during the first quarter of 2025 in the U S. We have $93 $5 million of closed loans of 31%.
Glenn Williams: We now have 3200 69 license mortgage loan originators in 33 States our referral program in Canada at $43 $3 million of closed loans up 78%. While both programs are still relatively small we believe theyre importance will continue to grow over time.
Glenn Williams: The resilience of our business model demonstrated over nearly 50 years combined with our unwavering commitment to help middle income families achieve financial independence are the key drivers of our success there will always be a need for financial education. Among underserved families. A group that is often overlooked by the broader financial services industry.
Glenn Williams: This reality underscores the importance of our mission and the opportunity that lies ahead, we have confidence in our model and in our sales force's ability to continue meeting the needs of the communities we serve.
Glenn Williams: With that I'll hand, it over to Tracy for the financial details.
Tracy Yeah: Thank you Glenn and good morning, everyone.
Tracy Yeah: With term life segment operating revenues rose, 4% year over year to $458 million driven by 5% growth in adjusted direct premiums.
Speaker Change: <unk> operating income was $147 million up 6% compared to the first quarter of 2024.
Speaker Change: Oh key financial ratios were in line with our expectations and consistent with the prior year period.
Speaker Change: These included the benefits and claims ratio at 58, 2% of DAC amortization and insurance commissions ratio at 12%.
Speaker Change: <unk> expense ratio at seven 7% and the operating margin at 22, 1%.
Speaker Change: Overall that remains above our long term expectations, which we believe reflect the ongoing financial impact from higher cost of living pressure middle income family over the last two quarters loss trends stabilize with persistency on policies issued here in the last year largely in.
Speaker Change: In line with our long term assumption, we expect that overall persistency will continue to normalize over time.
Speaker Change: Turning to mortality as noted on a number of occasions last year claims experience continue to trend favorably relative to expectations.
Speaker Change: And then a relatively predictable nature of our term life business.
Speaker Change: We reiterate our full year 2025 outlook should be consistent for ADP growth and key key financial ratios.
Speaker Change: We expect ADP to grow around 5% the benefits and claims ratio at around 58% of DAC amortization and insurance commissions ratio at around 12% and operating margin around 22%.
Speaker Change: I want to remind investors that insurance expenses are subject to some season ovarian variances I will provide additional guidance on our expectations for the second quarter.
Speaker Change: Validated basis in a moment.
Speaker Change: Turning next to our investment and savings product segment operating revenues of $291 million increased 19% from the prior year period, driven by both higher sales and growth in client asset values.
Speaker Change: Pre tax income rose 22, 24% to $81 million.
Speaker Change: Sales based revenues increased 25%.
Speaker Change: Slightly outpacing the 22% increase in revenue generating sales, primarily driven by strong demand for variable annuity.
Speaker Change: Asset based revenues increased 18% year over year compared to 14% increase in average client asset values as we continued to benefit from the mix shift towards product on which we earn higher asset based commission, including U S managed account and Canadian.
Speaker Change: Mutual funds sold under the principal distributor model sales commissions for both sales and asset based products increased in close correlation with revenues.
Speaker Change: The corporate and other segment incurred a pretax adjusted operating loss of $8 million compared to a loss of $12 million in the prior year period.
Speaker Change: The year over year change was driven by an increase in net investment income primarily due to growth in the size of the portfolio.
Speaker Change: Finally, consolidated insurance and other operating expenses were $163 million up 4% year over year.
Speaker Change: The growth in expenses was primarily driven by higher variable costs associated with growth in our term life and ISP segment and increased employee compensation cost from annual Merit increases.
Speaker Change: First quarter expense levels or a couple of million dollars lower than planned due to timing of technology investments and other expenses.
Speaker Change: We expect these projects to ramp up in the coming months.
Speaker Change: Such we're maintaining our full year outlook for expenses to increase by around $40 million or six 8% in 2025 with second quarter growth consistent with our full year guidance.
Speaker Change: Our invested asset portfolio remains well diversified with a duration of five one years and an average quality of eight.
Speaker Change: The portfolio had a net unrealized loss of $169 million at the end of March modestly better than prior year and as rates generally decreased during the quarter.
Speaker Change: We continue to believe that the remaining unrealized loss is a function of interest rates and not due to underlying credit concerns.
Speaker Change: And we have the intent and ability to hold these investments until maturity.
Speaker Change: We continue to generate significant deployable capital, reflecting the strength and consistency of our capital light distribution model.
Speaker Change: The predictability of our cash flow is driven by our large in force block of term life insurance policies, our use of reinsurance, which substantially reduces the mortality risk exposure and our fee base ISP business, which requires very little capital.
Speaker Change: This model supports our ongoing commitment to returning value to stockholders, while also enabling us to invest in long term growth.
Speaker Change: Our holding company ended the quarter with $407 million in cash and invested assets.
Speaker Change: Primary care life estimated RBC ratio was $470 million.
470%.
Speaker Change: We remain confident in our ability to sustain capital strength, while supporting ongoing growth initiatives and continuing to return capital to stockholders.
Speaker Change: With that operator, please open the line for questions.
Speaker Change: Thank you we will now be conducting a question and answer session.
Speaker Change: I would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the question queue.
Speaker Change: Press Star two if he would like to remove your question from Mikael.
Speaker Change: We ask that you please limit yourself to one question and one follow up question. One moment. Please for your first question.
Speaker Change: Our first question is coming from the line of Ryan Krueger with <unk>. Please proceed with your questions.
Ryan Krueger: Hey, Ryan.
Ryan Krueger: Hey, Thanks. Good morning. My first question was on the dynamic Youre seeing between term life sales in ISP sales.
Ryan Krueger: Just seems striking that you're seeing some pressures on term life given.
Ryan Krueger: Economic uncertainty and cost of living pressures, but then.
Speaker Change: Barrett extremely high production in ISP, what do you attribute this to.
Speaker Change: Yeah, Brian the one of the beauties of our complementary business model is that our two main lines of business often react differently under the same circumstances and that gives us a unique balance but you are right. They are pretty much at an extreme right. Now is we have our life insurance momentum decelerating, a very strong quarter in <unk>.
Speaker Change: Although we're seeing some deceleration due to the uncertainty cost of living as we've talked about before impacts our life insurance business fairly quickly.
Speaker Change: Families often middle income families are making priority decisions on whether to buy and keep a term policy. If they have some additional disposable income they might start a systematic investment plan generally fairly small and when money gets tight those two things come into question.
Speaker Change: The larger sale business, particularly rollover business had movement of larger blocks of money.
Speaker Change: Is not impacted nearly as much about cost of living people aren't making a rollover infusion based on the cost of gas go up this month or not they're looking for a better investment or a different features of the investment in one of the things. We've mentioned before is our variable annuity business is particularly strong and that's because of the guarantees often there's a fly.
Speaker Change: The guarantees in times of uncertainty we are seeing some of that so the businesses do react differently, specifically to cost of living the uncertainty tends to be a headwind for both because when people are not sure whats about happen they tend to wait and see and that can impact.
Speaker Change: Term life sales can impact even recruiting as we've seen and it's beginning to slow down.
Speaker Change: Some of the movement of money, even with the rollover some transfer in the ISP business.
That said I hope that uncertainty is can be a relatively short phenomenon. If we can get some clarity and direction.
Speaker Change: Decisions.
Speaker Change: Our tariffs under tariffs out what are their impact and so forth, but hopefully this is a fairly short term dilemma that can be resolved.
Speaker Change: During this year and then we can get some more certainty and clarity going forward.
Speaker Change: Okay.
Speaker Change: Thanks and related follow up.
Speaker Change: The 5% to 10% ISP sales outlook for the year.
Speaker Change: Certainly.
Speaker Change: Much lower than you had for the for the first quarter our U R.
Speaker Change: You kind of assuming that there is some ongoing headwind the rest of the year because of the volatility that we're seeing and that's embedded in your outlook.
Speaker Change: Yes, we make the outlook based primarily on today's conditions, because we're not sure what might happen next I mean, uncertainties. We're just going to be used at a record pace I think this quarter by companies and others. So we tend to look at but we also had extremely strong the last few quarters last year. So the comparisons.
Speaker Change: Just trying to get the same percentage growth that we saw in the first quarter result in much bigger numbers. So it's the combination of the very strong finish last year in the comparison in the kind of decelerating percentages as well as assuming that the disruption and uncertainty. We are experiencing today is probably going to continue for a while I hope it doesn't but we make our plans assume.
Speaker Change: It will.
Speaker Change: Makes sense. Thank you.
Speaker Change: Certainly.
Speaker Change: Thank you our next questions come from the line of Robert US with Credit Suisse. Please proceed with your questions.
Robert: Good morning, Thank you.
Robert: Good morning.
Robert: A little bit of a follow up on Brian's question, but you've talked before about how your clients tend to be a.
Speaker Change: A little bit, Florida reactor market news I'm just can you just talk about how people have been thinking about things and how you're seeing that now, especially in Asia.
Robert: In April.
Speaker Change: Yes, we do believe as you point out that in general most of our clients react a little more slowly.
Speaker Change: Particularly the middle income clients, but even those that have a fairly large assets.
Speaker Change: We are always teach long term investing.
Speaker Change: Buy and hold most of our accounts for a retirement accounts. So they are long term time horizon. So we're not in an environment, where people are moving in and out like a day traders or other more frequent traders might be so I would expect our people to buy and hold and react more slowly we do see that but after the noise gets so loud or last year.
Speaker Change: Lull, we do people start to see things starting to take a wait and see attitude and that does start to slow down some of the momentum. So I think it's catching up with us now.
Speaker Change: I do think that again it could be short lived if we get some clarity quickly, but we're assuming that we're going to need under the current conditions for most of this year as we make our plans going forward.
Speaker Change: Okay. Thank you and then can you talk a little bit about the recruiting environment or a little bit more about the recruiting environment, especially going forward is there you know maybe a situation where.
Speaker Change: The primary opportunity becomes more attractive as people, maybe look for a little bit more income or.
Speaker Change: That kind of thing thanks.
Speaker Change: Sure as we've talked about many times before some disruption and dissatisfaction actually helped our recruiting.
Speaker Change: So when people are frustrated or they fear for job loss about job loss and that kind of they look for alternatives and I think we benefited from that over the last few years, we do need to remember that the uncertainty is new with the cost of living pressures are not new it's something.
Speaker Change: That is people in the family has been dealing with for a number of years and so but there is a point I believe where when the when you just don't know what's going to happen next.
Speaker Change: You just stop and think a little lower and that's what we believe we're seeing both on the recruiting side compared to last year is people are just being or giving you a little more consideration little more thoughts, whether they're buying if money's tight whether they're buying a term insurance policy or if theyre about to invest the effort there was very little money, but there's tremendous.
Speaker Change: In building the business and kind of exercising that entrepreneurial spirit.
Speaker Change: They are in a wait and see mode.
Speaker Change: And again, it's possible that this could be short lived that clarity could come quickly but.
Speaker Change: We're assuming that last for some time and so that's why we've taken the edge off of some of our expectations for the year, but on the other side of that is what's clearly does come back people remember the disruption and that becomes a recruiting tailwind. So we do get some clarity if people start feeling better money is not quite so tight.
Speaker Change: <unk> direction is not quite so quality, we will remind people what they just went through you don't really experienced that with no control you want to take control of your future and it becomes a recruiting message. So we will turn positive into a negative whenever we can when it comes to delivering our message of our entrepreneurial opportunities.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you our next questions come from the line of Jack <unk> with BMO capital markets. Please proceed with your questions.
Speaker Change: Welcome Jack.
Speaker Change: Hey, Thank you.
Speaker Change: Good morning, just one more follow up on the ISP.
Speaker Change: Growth outlook I'm, just curious are you seeing any particular products more impacted than others.
Speaker Change: In recent quarters, you've been seeing a mix shift towards more higher margin products. Just wondering how we should think about that dynamic moving forward.
Speaker Change: Yes, as we're accustomed to seeing Jack when when things get bumpy the guarantees of variable annuities and indexed with variable annuities become very attractive and we are seeing that is sort of our lead product that we sold for a long time mix shift in that direction. Our managed account business is a newer business and it's a.
Speaker Change: Fast growing product line not just the primary <unk>, but in the industry and so we're seeing good percentage growth in that simply because it's new and it's in.
Speaker Change: It's a great addition to our product line, if we call it new but a decade, but it's newer than the other product lines. So that's what we're seeing is we're seeing the faster growth in VA the cost of the guarantees and then we're seeing some fast percentage growth in our managed account because it's a newer smaller business discuss some really great momentum.
Speaker Change: Got it thank you.
Speaker Change: Just one on capital can you just talk about what drove the nice uptick in the RBC ratios at $4 70. This quarter up from 430, I think last quarter was there anything notable going on that drove that result.
Jack: Good morning, Jack.
Jack: On the RBC ratio and our capital position overall, our RBC ratio is.
Jack: Function.
Some of that also state a regulatory requirement for where we don't wall tile and sometimes we have some variation on that but overall.
Jack: We believe in having a strong capital position.
Both for our insurance businesses as well as for our overall company. So when you look at the RBC ratio, obviously there Sam.
Jack: Waterlase ups and downs variation overall, our line of thinking is that we need a strong on capital and what are those important outgrowth, but more importantly, also have a strong rating and in the time of.
Jack: Any sort of potential uncertainty our capital position is very important.
Jack: They'll look at that.
Jack: Holdco capital that we have by and large we do believe that given any sort of.
Jack: Growth for the long term as well as for our facing any sort of potential downturn.
Jack: We have the resiliency and our strong capital position towards sort of any sort of uncertainties and bounced back right.
Jack: Thank you very much.
Speaker Change: Thank you. Our next question is coming from the line of John Barnidge with Piper Sandler. Please proceed with your questions.
Speaker Change: Morning, John.
John Barnidge: Good morning, I appreciate the opportunity.
John Barnidge: My question here is how do you view the health of the economy in Canada, you talked about moderation in sales in April I believe.
Speaker Change: Is that experience any different between your U S business and your Canada business.
John Barnidge: I think John.
John Barnidge: Speaking as an expert who lived in Kansas for 15 years, but I'm not really an expert I think there are more similarities than there are differences in the countries and most questions and I think this is one of them I think the two economies are very similar.
Speaker Change: There is uncertainty in both although one one segment of uncertainty has been removed with the election Thats done in Canada. So now there's clarity and who the leadership is.
John Barnidge: But we have a great business in Canada, we are doing business. There are 39 years.
Speaker Change: Have a very strong and experienced leadership team both in our sales force and in our corporate office.
John Barnidge: <unk>.
John Barnidge: Unfortunately, we reviewed by by Canadians as a Canadian company since we do have the strong outflows. There. So I would we're anticipating that the timing might be a little different and the impact of some things, but its going to be a very similar set of dynamics our business in Canada generally reacts very much like our business in the U S.
John Barnidge: The two investment businesses for example are tracking very close to each other in growth.
John Barnidge: I would say that our.
John Barnidge: Distribution building in term business has been exceptionally strong this year in Canada. Following a period coming out of the pandemic, where Canada reactive more slowly so theyre catching up so again there are handful of differences.
John Barnidge: At the same time, we would expect the results to be similar in direction.
John Barnidge: And in quantity. So we're just as optimistic about the future in Canada as we are here.
John Barnidge: Yeah.
Speaker Change: I appreciate that answer my follow up question in light of a dynamic macro environment. How do you think about your presence in the market repurchasing stock versus maybe your expectations coming into the year. Thank you.
John Barnidge: Good morning, John.
Speaker Change: Terms Alpha stock purchase program, we have.
John Barnidge: Now.
John Barnidge: Our program for 2025 $450 million and that's a nice healthy growth from the prior year. The way we look at the repurchase program is to provide consistent resilient and predictable type of return on capital for our stockholders. So we typically try not to play.
John Barnidge: And time to market and we also like to be able to provide the type of strength and the ability to return based on multi year stress test.
John Barnidge: A premise so we don't at point, we believe there is any risk to our program Thats announced by 2025 and our <unk>.
John Barnidge: Keith is really is to have a predictable type of pattern, which is very helpful for investors.
Speaker Change: Thank you for the answers.
John Barnidge: Alright, thank you.
Speaker Change: Thank you. Our next question is come from the line of Mark Hughes with <unk> Securities. Please proceed with your question.
Speaker Change: Morning, Mark.
Glenn Williams: Good morning, Glenn Good morning Tracy.
Speaker Change: Good morning.
Speaker Change: The corporate segment.
Speaker Change: Doing better it looks like just higher net investment income was there anything unusual in this quarter or.
Speaker Change: Should that.
Speaker Change: Higher allocated net investment income carry through the balance of the year and helped.
Speaker Change: Help support better corporate expense corporate <unk>.
Speaker Change: <unk>.
Speaker Change: Yes, Mark our corporate.
Speaker Change: CNS segment really benefited from the investment portfolio. This is really a combination result for several things one is the growth of the portfolio itself and that has been on a pretty healthy trajectory.
Speaker Change: In the past on the second part is we have moved Oh.
Speaker Change: Some of our investment.
Speaker Change: The securities mature into a slightly higher yielding type of investments without given up on being conservative risk profile. We have majority of it is really fixed income portfolio that well matches, our life side of the business in terms of duration.
Speaker Change: Our risk profile and we are relatively conservative however that being said we are pursuing some higher yield without giving up the risk and having that good balance and I see this as a pretty good predictable around $40 million a quarter type of.
Speaker Change: Up or down in that range support far P&L segment and I also do believe that our investment portfolio in general is a good way of achieving our capital very strong continuously while having a very balanced and lower risk.
Speaker Change: Profile that supports our distribution business model and not having that being the main relying focus online revenues.
Speaker Change: And then when you.
Speaker Change: Thinking about the term business due to provide guidance I think in the past you've talked about.
Speaker Change: Our growth in adjusted direct premium for instance.
Speaker Change: Any reason to think that.
Speaker Change: The outlook is.
Speaker Change: Changed I think the new sales perhaps stabilizing.
Speaker Change: Stabilizing a little bit different but.
Speaker Change: Any updates on that.
Speaker Change: The performance measures within term life.
Tracy Yeah: Yeah on the.
Speaker Change: Term life.
Speaker Change: Guidance.
Speaker Change: Even though we have seen some uncertainty and there are some headwinds on the recruiting licensing side given the large size of our in force block any given year.
Speaker Change: <unk> new policies and premium is a very small slice of the overall income on the revenue that we bring in from term life. So considering the very stable nature of that business and there's really no impact materially.
Speaker Change: This year and I think our ADP guidance is going to be very consistent around 5% of our growth and also keep in mind that when we give out our guidance for ADP, we have already considered the lapsed situations. So that's already been <unk>.
Speaker Change: Factoring in all of that.
Speaker Change: Situation is volatile.
Speaker Change: Pretty consistent or very.
Speaker Change: Good defense business.
Speaker Change: Good to see that given the also the capital light.
Speaker Change: Like nature.
Speaker Change: Good defensive business in the long term.
Glenn Williams: Thank you for that and then maybe one more quick one Glenn I think you've touched on it but.
Speaker Change: Annuity sales versus the.
Speaker Change: Mutual funds it seems like you know more broadly there is.
Speaker Change: It's been growing demand for annuities and protection products.
Speaker Change: Volatile markets make those more attractive.
Do you think maybe that outperform in this go around.
Speaker Change: To your earlier experience.
Speaker Change: I'm just thinking in comparison to early experience. So this is a fairly common phenomenon when things get a little bumpy and uncertain.
We see it in the mix shift towards <unk>.
Speaker Change: I'm not sure whether there'll be more extreme this time I think it depends on how long this goes on.
Speaker Change: The longer uncertainty continues kind of the more impact it has to a certain extent I think on the investment side at least.
Speaker Change: So I'm not sure it's much more extreme than it has in the past, it's a pretty natural phenomenon, we expected we see it.
Speaker Change: And but I don't think its too much different from the past.
Speaker Change: Thank you.
Speaker Change: Certainly.
Speaker Change: Thank you our next questions come from the line of Dan Bergman with TD Cowen. Please proceed with your questions.
Speaker Change: Dan.
Dan Bergman: Thanks, Good morning, I guess, just a follow up on your prepared remarks I wanted to see if you could give a little more detail around what you're seeing regarding lapse rates across the term book it sounded like the stabilized overall, but any more detail around.
Dan Bergman: What you are seeing any differences across vintages would be very helpful and I know it sounds like you expect normalization over time, but just given the recent uncertainty is there a risk that this could take a step back before it gets better just any thoughts on the outlook given the uncertain environment would be much appreciated.
Speaker Change: Yes, good morning, Dan regarding lapse rates are the first thing I will say is that we continue to see higher lapses across multiple duration than our long term actuarial assumptions, which was really the pre pandemic level of lapse rates and also be reminded that during the pandemic period.
Speaker Change: Had extraordinarily low lapse rates so some of the elevation in the.
Speaker Change: Recent past since pandemic had been a run off of those relatively uncommitted population, but our recent within let's say the last year of new policies have consistent lapse rates as our expectations.
Speaker Change: <unk> cumulative Lake Persistency also in line with pre pandemic period. This is when you consider the very low lapse and the very high labs. So over the long haul when you look at it cumulatively, it's still very reasonable to our expectation now the last couple of quarters. We also have seen stabilizing.
Speaker Change: <unk> and <unk>.
Speaker Change: For example, last quarter has been a decrease from the recent past. So thats also a good trend that we are observing obviously, we're going to need to give it a little bit more time, even with the uncertainty that is.
Speaker Change: <unk> being faced by Middle income family.
Speaker Change: Still.
Speaker Change: Already considering some of those higher lapses in our ADP guidance. So none of that is going to be new we obviously over time, we expect the trend to return to normal that's really just relying on how quick the economic can return for it.
Speaker Change: Normalcy for the income family and we know that in past financial recession type of deterioration and May take a few years for the middle income families to get back on their feet, but by and large was considered a lot of those higher elevation in our guidance. So we see that for the year.
Speaker Change: AEP growth outlook remains the same and we also do believe that.
Speaker Change: Overall cumulative trend is within our expectation and hope that answers your question Dan.
Dan Bergman: Yes, very very helpful. Thank you.
Dan Bergman: And then maybe one more on the ISP business, if I could I guess, despite the market volatility. If my math is right I think your full year guidance still implies something like flattish sales growth for the rest of the year against a pretty tough comp given that you had a nice growth in 2024 is there any way to frame what would it take in the markets for there to be a more material decline in sales over the rest of the year.
Dan Bergman: The business has shown some sales volatility in the past I think in that for example in 2022, you had a drop in sales after a really strong year in 2021. So how confident are you that this 2024 sales level is relatively sustainable going forward a little bit of a broad question, but any thoughts there would be much appreciated.
Dan Bergman: Yes.
Dan Bergman: We kind of view, how our business has been reacting again some of these pressures that we're seeing this year or their last year of the uncertainty I think is new and so that's what we're trying to layer on and assess.
Dan Bergman: But.
Dan Bergman: We don't have an exact formula that says if the market drops 20%, here's what we'd expect.
Dan Bergman: That would definitely impact us but.
Dan Bergman: But we are assuming that we get sort of a flattish market net net it seems like it was way up and goes way down from day to day or week to week, but and then if it were down 5%, 10% you would see more slowing of our business, but to be able to gauge that and do the math you've done the math for the full year.
Speaker Change: You had very well I think.
Speaker Change: But to try to give sensitivities to that is a little trickier and so thats why we will update back order.
Speaker Change: The full year number and then you can you can see what that means we're thinking for the <unk>.
Speaker Change: Coming quarters, as you kind of back into them. So we don't try to purchase it would take something more severe than what we are seeing exactly how to quantify that it's pretty difficult.
Speaker Change: Got it very helpful. Thank you.
Speaker Change: Sure.
Speaker Change: Thank you. Our next question is coming from the line of <unk> Kamath with Jefferies. Please proceed with your questions.
Speaker Change: Turning to me.
Glenn Williams: Good morning, Glenn.
Speaker Change: So I wanted to go back to your prepared remarks, I think it was when you were talking about the term life business. I believe you used the word resistance that were seeing some resistance switch.
Speaker Change: To me it sounds like a stronger word than sort of freezing we're seeing people take a pause. So I just want to make sure I'm not reading too much into that and if you could provide any color in terms of what what that means what that would be helpful. Thanks.
Speaker Change: Yes, and this is us trying to quantify human behavior, which is a little tricky at best but what we're seeing in addition to the cost of living pressures, which we have been facing for a number of years now and have successfully overcome I think our results would have been better than past years that had not been for the cost of living pressures, but we still were able to.
Speaker Change: Produce some growth now we have the uncertainty which creates the wait and see kind of behavior is what we believe were seeing.
Speaker Change: Youre right how to quantify the impact of the word resistance, but what we see is we've got a growing sales force, which means we've got new salespeople in the marketplace.
Speaker Change: Overcoming objections as part of what salespeople do but this is a particularly hard objection to overcome saying I'm not sure what.
Speaker Change: The economic situation means for my job or for my family and therefore check back with me next quarter check back with me in a few weeks, particularly hard to overcome particularly for a brand new sales person and so.
Speaker Change: Whether we characterized it perfectly using the word resistance. It's another objection that a salesperson has to be aware of sitting down with families and helping them through the very tough process of prioritizing.
Speaker Change: Tight budgets and so that's a little different that's new and that's what that's what we're seeing it's different this year again.
Speaker Change: Uncertainty can resolve itself with certainty or can resolve itself that people just get used to it and you start to ignore it after a period of time.
Speaker Change: And so we do have some optimism that this doesn't go on forever, but it is a phenomenon. We believe we're seeing in the numbers right now and that's why we've tried to express it.
Speaker Change: Hey, got it that makes sense so resistance in terms of customers that in terms of recruits.
Speaker Change: Exactly.
Speaker Change: Even get you do even get some recruits with wait and see.
Speaker Change: Youre thinking about starting a new business and the effort that it takes two to get a new primary business off the ground and you're not sure of what the economic environment is going to be that's hard at the best of times, but it looks like.
Speaker Change: I have an opinion that for the next three months that might be particularly hard I might say, let me start later when conditions are better so you get.
Speaker Change: Humans are looking for a reason to procrastinate and general and uncertainty provides a great one and so it's just that's just not the first time, we've seen this will be the last time.
Speaker Change: But it's just an extra dynamic to deal with in the marketplace. That's relatively new this year.
Speaker Change: That makes sense and then I guess in response to Ryan's question, you talked a little bit about the complementary nature of term versus ISP and these offsets that exists, but it feels like maybe as you move into <unk>.
Speaker Change: You may lose some of that just because markets were generally pretty positive in the first quarter. So I just want to make sure I have that right and then if thats. The case is it are.
Speaker Change: Are you guys thinking about anything that you might want to do on the cost side or anything like that or is it sort of too early to kind of take those steps.
Speaker Change: Sure well on the ISP side, we hit it we had a very strong April.
Speaker Change: Not at the percentage growth that we reported in the first quarter, but still significant growth.
Speaker Change: So we're assuming that that momentum continues for some period of time. It doesn't just turn on a dime and stop one day. So we got a pretty good read on how we think this quarter shapes up.
Speaker Change: So there are no cliffs in sight.
Speaker Change: I would say that and so we think we've got a little bit of a tail. Obviously, we're working to generate momentum in our life business and overcome those objections, we just discussed.
Speaker Change: We run a very disciplined and very lean organization expense wise.
And what that means is that we don't just have a lot of fat. We can go and let's just drop a few million dollars of expenses that we do have a game plan, where we can reduce expenses as necessary.
Speaker Change: If it became necessary, but it's not something like we just got.
Speaker Change: Unimportant expenses that we can just lift out of here, it's because we run a disciplined ship all the time it makes it a little harder to reduce your expenses when necessary. We can do it we have a plan to do that but we believe that.
Speaker Change: We'll be able to overcome the headwinds and thats not at the top of our list for our game plan for the rest of the year.
Speaker Change: Got it that makes sense thanks for the answers.
Speaker Change: Absolutely.
Speaker Change: Thank you we have reached the end of our question and answer session and with that I would like to bring the call to a close we appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.
Speaker Change: Okay.
Speaker Change: [music].