Q3 2025 Primerica Inc Earnings Call
Speaker #1: Greetings and welcome to the Primerica third Quarter 2020 Earnings Call . At this time , all participants are in a listen only mode .
Speaker #1: 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 .
Speaker #1: As a reminder , this conference is being recorded . I would now like to turn the conference over to your host Nicole Russell Senior Vice President , Investor Relations .
Speaker #1: Please go ahead .
Speaker #2: Thank you . Melissa , and good morning , everyone . Welcome to Primerica third quarter earnings call . 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 #2: Joining our call today are our Chief Executive Officer , Glenn Williams and our Chief Financial Officer , Tracy Tan . Our comments this morning may contain forward looking statements in accordance with the safe harbor provisions of the Securities Litigation Reform Act .
Speaker #2: We assume no obligation to update these statements to reflect new information and 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 #2: We will also reference certain non-GAAP measures which we believe provide additional insight into the company's financial results . Reconciliations of non-GAAP measures to their respective GAAP numbers are included in our earnings press release .
Speaker #2: I would now like to turn the call over to Glenn .
Speaker #3: Thank you , Nicole , and good morning , everyone . Primerica delivered solid earnings growth and generated strong cash flows during the third quarter of 2025 , underscoring the resilience of our business model and consistent execution as our clients gradually adapt to economic headwinds .
Speaker #3: Our complementary product lines have proven to be a key advantage and powerful differentiator . While our sales force is commitment to serving middle income families , continues to set us apart .
Speaker #3: Starting with a snapshot of third quarter financial results . Adjusted net operating income was $206 million , up 7% year over year , while diluted adjusted operating EPs increased 11% to $6.33 .
Speaker #3: We remain disciplined in our capital deployment strategy and return to total of $163 million to stockholders through a combination of $129 million in share repurchases and $34 million in regular dividends during the quarter .
Speaker #3: For a total of $479 million returned year to date . Looking more closely at our distribution results , both recruiting and licensing were down compared to the prior year period , which benefited from elevated post convention activity .
Speaker #3: However , current levels remain healthy relative to historical trends in Non-convention years . During the quarter , more than 101,000 recruits became part of Primerica .
Speaker #3: Nearly 12,500 people obtained a new life license , positioning us to end the year at around 153,000 . Life license representatives . This projection is slightly above last year's record level .
Speaker #3: Looking at our life sales results during the quarter , we issued 79,379 new term life policies , down 15% year over year compared to record performance in the prior year period .
Speaker #3: Those policies contributed $27 billion in new protection for our clients , for a total of $967 billion of In-force coverage . Productivity at 0.17 policies per rep per month was below our historical range , driven by a combination of lower life sales and continued growth of our life sales force over the last 12 months .
Speaker #3: As we close out the year , we project the total number of policies issued in 2025 to decline around 10% compared to 2020 .
Speaker #3: For record setting pace , lower life sales are largely driven by cost of living pressures in the middle market . However , our conviction in the future potential for our life business remains unchanged .
Speaker #3: Primerica is well positioned to reach and serve middle income families . One of the largest and most underserved market segments . We're working toward improving productivity on several fronts .
Speaker #3: First , we continue to improve the accessibility and appeal of our term life products . Our next generation of products recently received approval for sale in the state of New York .
Speaker #3: For all U.S. states and Canada . We continue to work toward more convenient and faster underwriting and issue processes to make sales simpler for our reps and clients .
Speaker #3: In addition, we've introduced improved life product training for newer representatives with the goal of positively impacting their productivity. In the coming months, we will evaluate the effectiveness of this training on productivity alongside increased focus by field leadership, with expectations of a positive impact.
Speaker #3: Moving to our ISP segment where results continued to outpace our guidance , sales grew 28% year over year to a record $3.7 billion during the third quarter of 2025 .
Speaker #3: We continue to see strong demand for all product categories , including managed accounts , variable annuities and US and Canadian mutual funds . Net inflows for the quarter were $363 million .
Speaker #3: Comparing favorably to $255 million in the prior year period . While client asset values ended the quarter at $127 billion , up 14% year over year .
Speaker #3: Over the last few years , we've made meaningful improvements to our platform and fund offering , including the addition of over 50 new investment portfolios in Canada .
Speaker #3: The principal distributor model continues to be well received and is driving strong sales . We believe demand for investment solutions will continue to benefit from inflows .
Speaker #3: As the baby Boomer and Gen X populations prepare for retirement , given the strength in the equity markets and continued momentum , we expect full year sales to grow around 20% in 2025 through our mortgage business , supported by more than 3450 license representatives .
Speaker #3: We remain well positioned to help middle income families obtain a new mortgage or refinance to consolidate consumer debt . We're now licensed to do business in 37 states , with the recent addition of South Carolina .
Speaker #3: Year to date , we've closed nearly $370 million in US mortgage volume , up 34% compared to the first nine months of 2024 .
Speaker #3: We also have a mortgage referral program in Canada , bringing refinancing and new mortgages to our clients . There . As 2026 approaches , we're laying the foundation for strong momentum by launching a series of major regional field events in the spring .
Speaker #3: Our goal is to build excitement and field engagement as we move toward our 50th anniversary convention in 2027 , a milestone we're proud to share with our sales force .
Speaker #3: We remain focused as we close 2025 and look forward to the exciting opportunities ahead . With that , I'll hand it over to Tracy for the financial results .
Speaker #2: Thank you . Glenn , and good morning , everyone . Our third quarter financial results were strong across all segments . Given us confidence that we're well positioned to end 2025 with solid year over year growth in both revenues and earnings .
Speaker #2: Starting with term life segment , third quarter revenues of $463 million , rose 3% year over year , driven by a 5% increase in adjusted direct premiums .
Speaker #2: Pre-tax income was $173 million , compared to $178 million in the prior year period , down 3% year over year . Results during the quarter included a $23 million remeasurement gain , compared to a $28 million gain in the prior year period .
Speaker #2: Excluding the impact of these remeasurement gains , pre-tax income remained largely unchanged as required under LTI accounting . We completed our annual review of actuarial assumptions and made certain changes to our long term assumptions , which resulted in a $23 million remeasurement gain in the current period .
Speaker #2: In the largest portion of the gain was from mortality assumption change , reflecting favorable trends observed since the pandemic . In addition to a positive positive experience variance from the quarter .
Speaker #2: As a reminder , the prior year period included a remeasurement gain of $28 million , primarily driven by an adjustment to our best estimate assumptions for the disability incident rate .
Speaker #2: Under our waiver of premium rider persistency remains stable on a year over year basis . In aggregate , although lapses remained above our long term LTI assumptions , we believe that our clients are resilient over the long term and value our services and products based on historical trends .
Speaker #2: We expect persistency to normalize as clients adapt to the evolving economic environment . As a result , we did not make a change to our long term labs assumptions .
Speaker #2: During the recent review cycle . Turning next to our key financial ratios , excluding the impact of remeasurement gain , the term life margin at 22% and the benefit and claims ratio at 58.3% remains consistent with our guidance .
Speaker #2: Our other key financial ratios also remained stable , with a DAC , amortization and insurance commissions ratio at 12.2% and insurance expense ratio at 7.5% .
Speaker #2: Given the size of our In-force block and the stable nature of our term life , business , we maintain our full year guidance to the ADP growth at around 5% .
Speaker #2: After revising our updated mortality assumptions , we expect the benefits and claims ratio to remain stable at around 58% in the fourth quarter .
Speaker #2: Guidance for the DAC , amortization and insurance commissions ratio remains unchanged at around 12% , and the operating margin at around 21% for the quarter , with expectation for some accelerated technology investments to support growth .
Speaker #2: This will result in full year operating margin above 22% . I will provide full year guidance for 2026 . In February . Turning next to the results of our investment and savings product segment , which continued to perform well on the strength of robust sales momentum and increasing client asset values .
Speaker #2: Third quarter operating revenues of $319 million increased 20% from prior year period , while pre-tax income rose 18% to $94 million . Sales based revenues increased 23% , slightly outpacing the 20% increase in Commissionable sales , primarily driven by strong demand for variable annuities .
Speaker #2: Asset based revenues increased 21% year over year compared to a 14% increase in average client asset values . As we continued to benefit from a mixed due to customer demand for products on which we earn higher asset based commissions , namely US managed accounts and Kent Canadian mutual funds sold under the principle distributor model sales commissions for both sales and asset based products increased relatively in line with revenues in the corporate and other distributed product segments .
Speaker #2: We recorded pre-tax adjusted operating income of $3.8 million during the quarter , compared to a pre-tax loss of $5.7 million in the prior year period .
Speaker #2: The year over year change is due to a higher net investment income , primarily from growth in the size of the portfolio and a $5.2 million remeasurement loss on a closed block of business in the prior year period .
Speaker #2: Finally , Consolidated Insurance and other operating expenses were $151 million during the quarter , up 4% year over year . The growth in expenses was driven by a combination of higher variable growth related costs in the ISP segment and the tour lesser degree in the term life segment , as well as higher employee related costs .
Speaker #2: We continued to see year over year growth in technology investments and anticipate some accelerations as we move towards the fourth quarter , we expect fourth quarter expenses to grow around 6 to 8% , resulting in full year growth towards the lower end of our original guidance of 6 to 8% .
Speaker #2: As we have realized expense savings that offset some of the investments we made , this year , our invested asset portfolio remained well diversified with a duration of 5.4% , up 5.4 years and an average quality of a .
Speaker #2: The average rate on new investment purchases in our life companies was 5.25% for the quarter , with an average rating of eight plus the net unrealized loss in our portfolio continued to improve , ending the September quarter with a net unrealized loss of $116 million .
Speaker #2: We believe that the remaining unrealized loss is a function of interest rates and not due to underlying credit concerns , and we have the intent and ability to hold these investments until maturity .
Speaker #2: We continued to generate strong cash driven by the superior growth of our fee based ISP business and the steady premium contribution from our large in-force block of insurance policies .
Speaker #2: Our holding company ended the quarter with $370 million in cash and invested assets . Primerica life's estimated RBC ratio was 515% . We have plans to increase capital release from our insurance companies in the fourth quarter and to continue our effective capital conversion for the long run .
Speaker #2: We are confident in our strong capital position to fund growth initiatives, absorb economic volatility, and provide superior return on equity to our stockholders.
Speaker #2: With that , operator , please open the line for questions .
Speaker #1: Thank you . If you'd like to ask a question , please press star One on your telephone keypad . A confirmation tone will indicate your line is in the question queue .
Speaker #1: You may press star two if you'd like to remove your question from the queue for participants using speaker equipment , it may be necessary to pick up your handset before pressing the star key's to allow for as many questions as possible .
Speaker #1: We ask that you each keep to one question and one follow up . Thank you . Our first question comes from the line of Joel Hurwitz with Dowling and Partners .
Speaker #1: Please proceed with your question .
Speaker #3: Good morning , Joel .
Speaker #4: Good morning . How are you guys ?
Speaker #3: Great . Thanks .
Speaker #4: Great . Tracy , I just wanted to start with your your last comments there on on the planned capital drawdown from the insurance entity .
Speaker #4: Just can you elaborate on on what you're expecting in the fourth quarter and maybe going forward ?
Speaker #2: Yeah . Good morning Joel . Our capital position remains a very strong , particularly because of the excellent cash generation from our In-force block .
Speaker #2: And in the third quarter , we also had a really nice improvement on profitability from our statutory entities . And that's part of the reason why the RBC got higher .
Speaker #2: And from a cash generation standpoint , the continued strength of our profitability on the term life being consistent and being resilient is a big part of why the RBC ratio continue to be very strong .
Speaker #2: And as you know , that our ability to take the , you know , cash out of the life business is really based on the regulatory , you know , conditions as a limitation of how much you can take out as a percent of or a limited by the prior fiscal year income .
Speaker #2: So we are taking maximum amount out as we speak . However , in the fourth quarter , we do have , you know , plans to increase that conversion .
Speaker #2: You know , from our insurance entities , the specific plan clearly will help us . Reduce that RBC ratio . And while keeping a strong enough ratio above 400% to help support the growth , and as we you know , continue to anticipate a , you know , growth for the long run for life insurance business , we know when the growth pace start to pick up , it's going to consume more cash because of how the cash flow is more front loaded for a policy issuance .
Speaker #2: So that that is part of our long term plan . But for the fourth quarter , we have , you know , actions in place that could possibly include , you know , in the long run , looking at how dividend can be converted out and not excluding special dividend , but also including some other actions that that , you know , we're putting in place to certainly increase that conversion rate .
Speaker #2: Hope that helps . Answer your question .
Speaker #4: Yeah . No , that's helpful . I look forward to seeing what you do in Q4 , maybe shifting for my second one , shifting to to the term sales , can you just help unpack ?
Speaker #4: I guess sort of what you're seeing and what you think the drivers of the the weaker sales relative to to your , you know , prior expectations ?
Speaker #4: Is this all cost of living or are you starting to see other headwinds emerge that are impacting sales ?
Speaker #3: We think it's primarily cost of living and other general uncertainties . It seems like every day there's something new about the future that's unknown , that you thought you knew the day before .
Speaker #3: And so it's as far as we can tell , it's all external . As I said in my prepared remarks , obviously we don't want to just be victims of the environment .
Speaker #3: We want to push back as hard as we can . So as we look at making our processes easier and faster , I had some conversations with some of our reps yesterday about the difficulties in the marketplace , and they're saying the conversations are taking longer .
Speaker #3: Clients are having to dig deeper into their budgets to reprioritize because their budgets are tighter . And so the discussions take longer . The decisions are harder for clients , and we want to be able to work through that with them .
Speaker #3: We're not going to just say , okay , thanks . We'll check with you when things get better . And so that's part of the training process .
Speaker #3: We were talking about earlier is to help our reps have those conversations with clients that can get them deeper into their budgets for prioritization , understanding the importance of protection in their family , of putting in force and keeping it in force .
Speaker #3: But there's still that uncertainty out there that has people in a wait and see mode in general . And I our kind of an informal poll of a number of our reps that were in yesterday for a training session and said how many feel like it's harder to make a life insurance sale this year than last year because of the economic and social circumstances around .
Speaker #3: They all raised their hand and said , you know , life has gotten harder investments for those clients that have money has gotten easier .
Speaker #3: And so I think what we're seeing is , is the result of the path of least resistance . And we've seen that before in our business , when one line of business goes up and another one struggles a little bit , and then it turns around in future years .
Speaker #4: Got it . That makes sense . Thank you .
Speaker #3: You're welcome .
Speaker #1: Thank you . Our next question comes from the line of Jack Madden with BMO Capital Markets . Please proceed with your question .
Speaker #3: Good morning Jack .
Speaker #5: Hey good morning . First one on the the ISP business . Just wondering if you could talk about the sustainability of these strong sales growth levels .
Speaker #5: And certainly the VA or market has been a tailwind . But I also think of you all as having some structural advantages given your kind of built in customer base .
Speaker #5: I know you've been adding new products and funds , so just curious , putting it all together , whether there's kind of an underlying kind of growth rate , we should think about over time .
Speaker #3: As we look forward . Jack , we we do . We are pleased that we see the growth across the product line . So we've seen , you know , strong growth , of mutual funds , variable annuities , managed accounts , Canadian business .
Speaker #3: And that breadth gives us adds to our confidence that this is a trend that probably has some legs . That said , a sudden turn in the market .
Speaker #3: You know , a lot of discussion out there about is the market higher than it should be ? Is the correction out on the horizon ?
Speaker #3: Those are the types of things that can really turn this momentum around again , far beyond our ability to control them . But the fundamentals of the breadth , the fundamentals that I mentioned in my prepared remarks , remarks of the demographics , you know , long term , we think there's true growth opportunities here .
Speaker #3: It might be a little choppier than it's been in 2025 . If the market starts to reverse direction on us in a significant way or for an extended period of time .
Speaker #3: So I think we just have to keep that in mind . But the fundamentals are sound in that business .
Speaker #5: That makes sense . Thank you . And just to follow up on the the cash flow outlook , I guess , are you suggesting that there's the potential to have maybe a structural improvement in your cash flow conversion ratio over time or , or were your comments more relating just to this year where you've had better experience ?
Speaker #5: And so maybe a more cash flow coming out of that normalizes heading into next year ?
Speaker #2: Good morning Jack . So on cash performance , what I would comment about is the question in terms of cash conversion was more specific about cash conversion out of life insurance business to the Holdco .
Speaker #2: You know where the RBC ratio is ? I think we have plans in the fourth quarter to improve that conversion . You know , even though that conversion is largely limited by the statutory requirement , we do have plans that could help improve the , you know , that conversion .
Speaker #2: Now , in terms of a long term cash flow generation , I think we're very confident of the ability to generate very positive cash flow .
Speaker #2: First and foremost is that our fee business has been really outperforming in terms of the ability to , generate cash , and that conversion continues to be very strong .
Speaker #2: And we have very good momentum on those fee business growth . You know , beyond just , you know , what the market normal growth rate is .
Speaker #2: And as we look at our growth rate on these businesses , we've been outperforming the market in the comparatives . So that generation's been very strong .
Speaker #2: And that gives us a very good long term potential from the fee business cash generation . When I look at in the longer term , when I when I'm looking at more 4 or 5 year out at the same time , our term life is an extraordinarily important business that produces very consistent , strong cash flow because of how big the In-force block is and how consistent that business performs .
Speaker #2: If you look at the the margins , you know , it doesn't really vary all that much . More than 200 basis points .
Speaker #2: So combined , our total business profitability is very , very sound at over 20% . If you look at the overall profitability . So the consistency , the resilience and our ability to just , you know , convert the cash from subs into and our ability to return from hold , to the stockholders .
Speaker #2: I mean , we've been performing at , you know , around 79 , 80% on capital return to stockholders , which really is superior to the health and life performance .
Speaker #2: And you look at our conversion from ourselves of insurance to our hotel . Is around 80% . And , you know , some years higher , possibly .
Speaker #2: And that's also superior to our peers . So overall cash performance been been fantastic . And that's why that's also part of , you know , in the long run .
Speaker #2: Look at our ROE performance . As you know $0.30 return on a dollar of investment . That's also superior to many peers as well .
Speaker #2: So overall we're confident of our our ability to generate cash and our ability to , you know , return good amount of cash back to the stockholders in various ways .
Speaker #5: Thank you .
Speaker #1: Thank you . Our next question comes from the line of Ryan Kruger with KBW . Please proceed with your question .
Speaker #3: Welcome , Ryan .
Speaker #6: Hey , good morning , Glenn . I had a question on the 21% margin in the fourth quarter in term life . You had mentioned some some higher investments .
Speaker #6: Can you elaborate on what you're doing there to start ?
Speaker #2: Yes . Good morning Ryan . So our term life yeah , our term life performance has been relatively consistent . You know really when we look at the ratios they don't really vary more than 50 basis points much at all .
Speaker #2: You know some quarters there is a little bit of a pattern , maybe a higher than the other quarters , you know , due to just the spending patterns .
Speaker #2: So, in terms of looking at the fourth quarter, we do have some activities of accelerated technology investments that will be continuously supporting our growth potential from the front end.
Speaker #2: And if you look at the , you know , overall ratio on the term life business , it's pretty steady . If I look at the benefit , I look at the DAC ratio and look at the expense ratio .
Speaker #2: They're very consistent overall . On the total year basis to our guidance and the margin for the year is going to be well over 22% as well .
Speaker #2: For the total year, we do believe that some of this acceleration is specifically targeted in terms of the fourth quarter.
Speaker #2: Addressing our front end productivity side of the improvement purposes , that makes the reps journey easier , and that will , you know , continue to be a focus of ours to support the technology side of the improvement and the digital marketing .
Speaker #2: And then the , you know , the reps and the clients experience . I hope that answers your question . Ryan .
Speaker #6: Yes it does . Thank you . And then a follow up was in in the ISP business . You know , your your net your net fee rate has been kind of gradually trending up for the last several quarters .
Speaker #6: Is there any specific thing that's driving that ? I know you are . You are growing the managed account platform more , which I wonder if maybe that has slightly higher , higher revenue rates .
Speaker #6: But is that can you do you have any color on what's driving that ? And if this trend may continue going forward ?
Speaker #2: Yeah, Ryan, this is a great observation. I think certainly on the ISP side, we do have a mix shift because of the clients' demand.
Speaker #2: And this is particularly driven by where the highest growth rates are . If you look at our , you know , the growth rate on managed account , it's significantly outpaces most of the other categories .
Speaker #2: And then variable annuity as an example . Also outpaces the other categories . All of those are relatively basis , you know , compared to mutual funds .
Speaker #2: They have higher higher , you know the from a margin . And you know the variable side of the story . It's a little bit of a higher ending trend that pushes some of the improvement .
Speaker #2: You see on the , you know , on the ISP business . Now again , you know , as we talked about from previously , when Jack even talked about the variable annuity there on the tail end , I will say that some of this certainly has the impact of , you know , where the interest rate is that pushes people to try to capitalize on the opportunity to lock in the higher rates .
Speaker #2: But secondarily , more importantly , is the demographic shift of people to Glenn's point , preparing for retirement as well as certain need to avoid volatility , possibly from equity market standpoint .
Speaker #2: All of those help push our good performance on the on the ISP rates and margins .
Speaker #6: Thanks , Tracy .
Speaker #1: Thank you . Our next question comes from the line of Wilma Burgess with Raymond James . Please proceed with your question .
Speaker #3: Good morning Wilma .
Speaker #7: Hey , good morning . Do you guys expect any forward impact from the assumption review and maybe you can just walk me through this a little bit , but how does the assumption review so outsized given the 90% mortality reinsurance .
Speaker #7: Thanks .
Speaker #2: Good morning Wilma . Our assumption review in the third quarter generated 23 million of remeasurement gains in relative terms . It is a still small percent .
Speaker #2: When we consider reinsurance . And that's actually , you know , on the comparative speaking terms of size . If we didn't have reinsurance , this would have been several times bigger of a adjustment number .
Speaker #2: So looking at our overall mortality performance , we've been experiencing very good mortality for several years since middle of 2022 . So we took a portion of that profit off that improvement .
Speaker #2: And adjusted our long term best assumptions . Now to your point . What the size would have been ? Well , without the reinsurance treaties and the size that that 90% variety that we reinsure this would have been , you know , several times larger of numbers .
Speaker #2: So this 23 million total , you know , remeasurement gain in the third quarter is is a very , very small percent , you know , in terms of , you know , what what the size could have been , hopefully that helps answer the question .
Speaker #7: Yes . Thank you . And I realize you guys have given quite a bit of color on the term life sales . But I guess I'm just wondering what might change the trajectory of those sales .
Speaker #7: I've been looking at your recent surveys on on households , and I'm not saying that the trends appear sharply worse than they have in some of the recent results , so I'm just wondering if there's anything else that might contribute to the pressure that could potentially run off near term .
Speaker #7: Thanks .
Speaker #3: Will . You're right . Fortunately , we have seen kind of some flattening of the increases in cost of living as we talked to our reps and our clients and surveyed them , we find that the cumulative effect is still causing some struggle .
Speaker #3: So while it's not getting worse , as fast , it's not getting better very fast either . But we do believe that clients are adapting over time .
Speaker #3: People become accustomed to where they are . I'm not going to say they like it , but they become accustomed to it and learn to deal with it .
Speaker #3: And that's where we've often seen these types of pressures start to ebb . Some is after a period of time , clearly it's better if we can have household incomes really start to gain some ground .
Speaker #3: Prices aren't going to come down significantly , I don't think , but it's household income catching up that will help us get out of this .
Speaker #3: We are seeing some of that begin to happen . I think it just takes time to get some traction and fortunately , we've seen this kind of dynamic in the past , so we we believe , number one , it is a temporary situation and that we can take some actions to help clients work their way through it .
Speaker #3: Because we've seen it before . If you look at our history as a almost 16 year old public company , we've had a number of years where we see the exact dynamic that recruiting and life insurance is down and investments is up .
Speaker #3: We've seen other years where recruiting and life insurance is up and investments is down , and we've seen a lot of years , which is what we strive for , whether where everything's up at the same time .
Speaker #3: So it's not unprecedented by any means . It's probably a little more severe than we've seen in probably a 15 years or so .
Speaker #3: And taking a little longer to get out of it . And then I would say there are also what we've termed government policy uncertainties that other things in life that aren't directly financial , you know , there's everything from the government shutdown .
Speaker #3: We've got federal employees on furlough right now that are saying , well , let's wait till this is over before we make a buying decision .
Speaker #3: So there's just an unusual amount of uncertainty to add to the financial pressure . But again , we think it's temporary and we eventually will get out of it .
Speaker #3: And we think we can take some actions to work through it and sort of turn the tide along the way .
Speaker #7: Thank you. Can I squeeze one more in?
Speaker #3: Go ahead .
Speaker #7: Oh , okay . Is there anything that you think is going to change near-term for your customer base ? So I know that there's some different tax impacts that are coming in next year .
Speaker #7: Is there anything like that that you see on the horizon that could provide some relief ? Thanks .
Speaker #3: Wilma , not anything that we have enough confidence in to count on . I mean , we always keep our ear to the ground on the types of decisions that might be made at government policy level or taxation level .
Speaker #3: That will be helpful for the middle market . And you're right , there are some discussions out there that might provide some relief and that kind of thing .
Speaker #3: We want to build a plan about what we can control . And then if we get some breaks that are beyond our control , it will just be icing on the cake .
Speaker #3: So we're not counting on those to turn the direction . But we do know there are all types of discussions going on because I think everyone recognizes the pressure that middle income families are under .
Speaker #3: If there's a universal agreement , I think among all the divisions in our two countries where we do business right now , it's that middle income families are under a significant amount of pressure .
Speaker #3: So hopefully there would be some relief that would give us a tailwind .
Speaker #7: Okay . Thank you .
Speaker #1: Thank you . Our next question comes from the line of John Barnidge with Piper Sandler . Please proceed with your question .
Speaker #3: Good morning , John .
Speaker #8: Good morning. Thank you for the opportunity.
Speaker #3: Certainly .
Speaker #8: You know , cost of living headwinds . I think the competition is clearly with space in your core customers wallet . It's been talked about that rates are going lower .
Speaker #8: It's also been talked about rates are going lower for seemingly longer time as well . But with the refinancing of a mortgage , when that does occur , how much on average do you save a consumer versus the average life policy premium ?
Speaker #8: Thank you .
Speaker #3: I can give you some directional answers , John . I don't have the averages at my fingertips . We could maybe follow up with you on that , but you're exactly right .
Speaker #3: Another area of uncertainty is the direction of interest rates . I think the entire mortgage industry has been struggling with that for a while .
Speaker #3: We assumed for a long time they were going to come down, and then they didn't. They actually went in the other direction. I think that's common among all in that business.
Speaker #3: When we help a family refinance in addition to their mortgage , we're also looking at their consumer debt , which is generally at a much higher rate interest rate than their mortgage .
Speaker #3: And trying to bring all that in together to maximize their savings . When we're able to do that , you know , we also can adjust the term as needed to make things affordable or to accelerate , which is what we'd rather do accelerate their payment .
Speaker #3: But generally when we when we help a family on the mortgage side , it frees up more than the cost of a life insurance policy and actually can , where appropriate , not only provide them the funding for that , but also to get a systematic investment plan started .
Speaker #3: And that's the reason that we like that business . I've said many times , you know , we get approached all the time by people , providers wanting us to load additional products into our distribution system and more products tend to cannibalize existing products .
Speaker #3: And so we're very resistant to that . I think the product that doesn't do that is a refinance of a mortgage where we can lower the average interest rate and pull in those consumer debts that are at high interest rates and high payments .
Speaker #3: And then we can get the clients on better , better financial ground . So that's one of the reasons that we think that business is important .
Speaker #3: As you know , it's a highly regulated business . So we've got a significant licensing process to take people through to enter the business .
Speaker #3: And then it's also highly regulated as you transact the business . So it's a more complicated and sophisticated business . And so it will move at a slower pace in our growth than than us being able to add on term life insurance representatives .
Speaker #3: But you've hit directly on why we love that business is because it does free up money for clients to get on a better financial footing .
Speaker #8: Thanks for the answer . My follow up question do you track the amount of sales ? Maybe on term life in any given year to government employees ?
Speaker #8: I'm just trying to get a sense of how much your total addressable market is directly impacted by the shutdown in Q4, as the revised term life guidance for the year suggests an acceleration in the decline of term life policies issued.
Speaker #8: Thank you .
Speaker #3: Yeah . John , I wouldn't I wouldn't attribute the government shutdown specifically to a change or magnifying a change in the fourth quarter .
Speaker #3: I just use it as another level of uncertainty that we hear that we're dealing with . I mean , we we don't target government employees , but we cover , you a slice of the middle market that includes everything that's out there .
Speaker #3: And so the government employees included in that , and it's just one more level of uncertainty that that our reps have to deal with to get around .
Speaker #3: So I don't think it's the difference maker . It's just one more issue that I would add to the list . Again , I don't have the percentage of our clients that are government employees at my fingertips either , but I wouldn't attribute everything that happened in the fourth quarter to that .
Speaker #3: I would just say the uncertainty continues to be a headwind for us .
Speaker #8: Appreciate the answers and best of luck in the quarter ahead .
Speaker #3: I'm sorry . Say that again . I didn't hear you .
Speaker #8: If the answer is best of luck in the quarter ahead .
Speaker #3: All right . Thank you .
Speaker #1: Thank you . Our next question comes in line of Dan Bergman with TD Callan . Please proceed with your question .
Speaker #3: Hello , Dan .
Speaker #9: Hey good morning . To start . I guess it sounds like with the the 50 year anniversary coming up the next convention was pushed out to 2027 instead of the typical biennial pattern .
Speaker #9: And the prepared remarks , I believe you mentioned a number of field events next year instead . So just given that the convention typically drives outside sales force and new business momentum , was just hoping you could provide more color on your plans for next year .
Speaker #9: And whether the events are expected to offset the lack of a convention. And I guess just with the timing of these events, does it drive any change in your typical seasonal pattern of sales or recruiting?
Speaker #9: As we look into next year .
Speaker #3: Sure , you've read that exactly right . And we moved the convention out for two reasons . One , was it does coincide with our 50th anniversary being in 27 .
Speaker #3: The other reason was because of the World Cup in 2026. You can't rent a stadium in the US or Canada. And so it was.
Speaker #3: It was convenient that it gave us a reason to push it out and have a payoff there , that it does sync up with our 50th anniversary , but we do recognize the importance of those events in generating momentum and excitement and casting a vision for our business .
Speaker #3: So we certainly didn't want to go for another year in 26 without big events . But we also didn't want to compete with the 27 convention .
Speaker #3: It had to be big enough . A plan to make a difference . Small enough not to take anything away from the drive we have going already to the 27 convention .
Speaker #3: So working with our field leaders , we ran it . We've run in the past . It's probably been more than a decade , but it's regional events .
Speaker #3: Five locations , three in the US , two in Canada that will run in the spring starting at the end of April . For the first one .
Speaker #3: And we have one every week or every other week through the first week in June . So it's during the second quarter . It's a little earlier than our convention .
Speaker #3: That was intentional to give us more benefit during the year by getting them out there a little earlier . We wanted to avoid the kick off of the year because we still do encourage all of our teams to have a big kickoff and engage quickly at the beginning of the year , we didn't want to step on that .
Speaker #3: We wanted to get beyond bad weather for travel , and so that's the reason we chose the spring . It was really early in the year as possible .
Speaker #3: So, these will not be the size of our convention, but if you add them all together, they should be as big as our convention in terms of attendance.
Speaker #3: And so we'll treat them differently . It will not be , you know , as long an event . It's a Friday . Friday afternoon , evening , Saturday event as opposed to a four day event .
Speaker #3: So people can get in and out more easily geographically . Being closer , we think it makes it more convenient and less expensive for people to attend , and we've you know , we have other events that we've consolidated to offset the expense of doing these .
Speaker #3: So, we're doing it kind of in a virtual and expense-neutral plan for our events budget next year. By doing it this way, we're going virtual with some of our other events to make these live events possible.
Speaker #3: So we're excited about it . Something hadn't been done in a while . It should have the type of impact we would expect around the convention .
Speaker #3: Remember , the convention is not just the event itself that drives momentum , it's the incentives that we announce and use around the convention .
Speaker #3: We use the convention as a platform to announce those incentives, and it's the combination of those two. So we'll be doing a slightly smaller version of that.
Speaker #3: We'll have some incentives in play around these five events . We'll use this big stage as a recognition platform . We have people competing right now to be recognized on those stages .
Speaker #3: That's always an important driver of our business . And so we think in combination , this gives us an opportunity to really , you know , come off of what has been a slow year compared to the previous year .
Speaker #3: And our distribution and life business , add some momentum to those two businesses and continue to maximize the momentum in our business as we head into 26 .
Speaker #9: Got it . Very , very helpful . And then maybe just following up on the earlier questions around the rise in your RBC ratio so far this year , is there any way to break down the drivers further ?
Speaker #9: I guess specifically , how much of the improved capital generation has been due to strong In-force earnings versus less capital strain from the lower level of life sales ?
Speaker #9: I guess what I'm trying to understand is if life sales do remain somewhat subdued for a period of time , could this allow for an ongoing , outsized level of dividends to the holding company and ultimately share purchases to help offset the slower sales trends for a period of time ?
Speaker #9: Just any way to size that , or how you're thinking about that would be would be great .
Speaker #2: Yeah . Good morning Dan . In terms of the RBC ratio being higher , obviously , one of the reasons is the higher profitability and income generated from the statutory side .
Speaker #2: You know , clearly the statutory side of the cash impact is one of the reasons why RBC ratios are higher , but still primarily the reason is the overall ability to convert the cash out based on the regulatory , you know , restrictions of the 12 month rolling combined , you know , cash you can take out as an example , not exceeding prior statutory income .
Speaker #2: So as our as our , you know , income gets to be higher in the future period than the prior period combined . And you're limited to how much you can take out .
Speaker #2: So just just by continually improving profitability on the statutory basis as an example , you know , there is a possibility of cash generating more than what your prior profitability combined would allow you to take out .
Speaker #2: That being part of the reason we clearly are looking at plans that we're going to put in action . Fourth quarter to help us , you know , be able to convert more cash out and you will see when we get into the fourth quarter , how those actions take place .
Speaker #2: And to your point . The faster growth of the term life business will consume more cash than you know when it's at a slower pace .
Speaker #2: And that's part of the reason why you know , when we look at the future rates that we want to keep for RBC , we always want to have a little bit of a cushion should when we get towards the 50th anniversary , as the excitement starts to build and the momentum starts to get stronger , we wanted to make sure that there is sufficient cash in place to capture that growth potential .
Speaker #2: Currently , we're on relatively lower growth speed compared to prior year because it was at such a record pace . But if you look at it on the longer 20 year term , 30 year term , our growth is still at pretty consistently good levels , just just the fact that last year was higher doesn't necessarily say the current growth is , you know , somewhat really .
Speaker #2: You know , unseen in the past . So that being said , that that's part of what's driving our decisions on how much we keep in those entities and how much we take out .
Speaker #2: But in the long run , I think we have anticipation of keeping that relatively high historical level conversion . Some periods could even possibly exceed what you've seen .
Speaker #2: Historically ratios . But overall , I think we're confident . And to keep at that very high end performance in in the older period compared to all the peer sectors , being able to , you know , continue that relatively predictable trend in terms of the ratios that we , we , we predict and use .
Speaker #9: Got it . Thanks so much . Appreciate it .
Speaker #1: Thank you . Our next question comes from the line of Mark Hughes with Truist Securities . Please proceed with your question .
Speaker #3: Hello , Mark .
Speaker #10: Hey , Glenn . How are you doing ?
Speaker #3: Great . Thanks .
Speaker #10: Excellent . The asset based revenue , you point out that has been growing faster than the underlying .
Speaker #1: Mr. Hughes , it seems that .
Speaker #11: You're .
Speaker #10: Different categories , but is that should that sustain a positive trend ?
Speaker #3: Hey , Mark , we lost you for the entire middle part of your question , would you mind restating .
Speaker #10: Friend , continue .
Speaker #3: Yeah . Mark , we're only getting 2 or 3 words out of that . I apologize , I don't know if you've got a bad speaker or what , but we're only hearing every other word or so of your question , so it's not coming through .
Speaker #10: Yeah. Can you hear me now, Glenn? Is this...?
Speaker #3: Yeah , that's much better . Much better , much better .
Speaker #10: Okay . All right . Thank you . I appreciate that . The faster growth in asset based revenue relative to assets , is there any reason that should that trend should not continue ?
Speaker #3: I think as Tracy said , it's driven by a product mix . And our managed account business . And then also the principal distributor model in Canada , which has similar dynamics .
Speaker #3: Both are kind of our some of our fastest growing product lines . They're smaller and so on a percentage basis , they tend to grow faster , but they're also beginning to catch up in the overall mix .
Speaker #3: So we would expect , barring some unforeseen disturbance , that that should have some legs and should continue . You're right . That direction is not something we anticipate would change .
Speaker #10: Yeah . Thank you . And then Tracy , the white seated premiums , if you look at those relative to adjusted direct premiums , those have been moving up .
Speaker #10: That ratio has been moving up . What is the update on how that should trend over the next year or so ? Will it just continue that upward drift .
Speaker #10: And again this is Wyatt ceded premiums is a percentage of adjusted direct premiums in term life .
Speaker #2: Good morning Mark I think the Wyatt ceded premium as compared to the adjusted direct premium is because for those life policies as the insured age , the , you know , the the ceded premiums start to creep up to cover for the higher mortality risks .
Speaker #2: So when you look at it , you actually don't want to look at it in , in , in its silo . You want to add it to the actually the benefit cost .
Speaker #2: So when you combine those as a percent of ADP, it's relatively steady. That's how you want to look at it.
Speaker #10: Yeah . Okay . Appreciate that . Thank you .
Speaker #3: Thank you .
Speaker #1: Thank you . Our next question comes from the line of Suneet Kamath with Jefferies . Please proceed with your question .
Speaker #3: Good morning, Suneet.
Speaker #12: Good morning Glenn . Good morning Tracy . First question just on the assumption . Update . Tracy , you had mentioned that you took a portion of the mortality or favorable mortality that you're seeing and put it through your assumptions .
Speaker #12: I'm not expecting a specific answer, but can you give a rough sense of what proportion of the favorable mortality you put inside?
Speaker #12: Was it half ? Was it 20% ? Just a rough estimate would be helpful .
Speaker #2: Yeah . Good morning Nate . So our mortality performance since 2020 for middle of that year has been consistently favorable . We had thought that it was a possibly a post forward from the pandemic .
Speaker #2: You know , increased unfavorable mortality experience and that it would end at some point . But we continue to see that consistently . It's been reasonably , you know , good size of a favorability .
Speaker #2: So we took a portion of it in terms of what the proportion is . I think the the theory really is that we believe our best estimate assumption is that we've taken the portion that we think for the long run , it's the best estimate on what the mortality experience would be in the long term trend .
Speaker #2: So , you know , if we had thought that it needs to be higher , we would have taken it , you know , in our assumption review .
Speaker #2: So this is our truly our best estimate in terms of what we could expect for the future . I would say that because we have had favorable experience , possibly bigger than what we've taken .
Speaker #2: So it wouldn't be unlikely that we might have some favorable period claims . And mortality favorable experiences from , period to period . But , you know , long term trend , we have taken our best estimate on what that trend would be .
Speaker #12: Got it . And just again , I don't want to box you into a corner , but is it is it like 20% , 25% of what you'd expect ?
Speaker #12: You know what you what you think ? I mean , just more than half . Just trying to get a sense of size .
Speaker #2: Yeah . So that's a great question . The challenge really is , you know , there's a lot of complications of really deciphering the mortality performance on the cohorts and what that predictable trend , what cohort is a predictable trend for the long run .
Speaker #2: So I think the you know what what our combined study , you know , looking at our experience really tells us this truly is the best estimate .
Speaker #2: So the , the the future is uncertain . We we we believe that the portion we've taken truly represent what the long term trend would be , given our best estimate .
Speaker #2: So the period variance that we will experience will continue to monitor and size that if that continue to be a pattern that we think becomes a long term trend at that point , then we will recognize that if that were to come true .
Speaker #12: Okay , that's fair . And I guess my second question , just on the annuity sales . So we've seen sales volumes increase for both you and the industry .
Speaker #12: Now, some of that could be driven by just higher markets, as you know. Essentially, 401(k) rollover assets and 401(k) asset balances are higher.
Speaker #12: And so the rollovers are higher . So another way to think about growth would be growth in the number of contracts that you write .
Speaker #12: So, I'm just wondering if you have any data on that. And then, sort of relatedly, Glenn, do you think you're increasing the total addressable market for the annuity business, or are you effectively selling products to the existing customer base?
Speaker #12: So you're seeing a lot of exchange activity. Any color on that would be helpful. Thanks.
Speaker #3: Sure . I don't have a specific stats , but I can I can give you some directional answers on that . The annuity business is attractive .
Speaker #3: Again , some of it is the demographic change . I think Tracy mentioned it in an earlier answer . The demographic direction the the aging demographics , people have accumulated some amount of money and they are looking for ways to preserve that .
Speaker #3: In uncertain times or expecting volatile markets down the road . And so the guarantees within variable annuities , the floors that are created and the guaranteed income coming out of them are what makes them attractive .
Speaker #3: And as we've said before , our product providers have done a great job in making those products as attractive as possible so they've they've done well .
Speaker #3: There , you know , changes in interest rates and their ability to provide those guarantees may be adjusted . So it's nothing's forever .
Speaker #3: But I think the product providers have done a good job of making their products attractive. I think our salespeople have used that to both help existing clients as well as be referred out to other clients.
Speaker #3: So we are seeing not only larger transactions , but increasing transaction volume . And we believe that's coming not only from our existing clients , where we , you know , we would be able to see a move if it was out of one of our products into a variable annuity .
Speaker #3: But we have existing clients who have assets elsewhere, outside of Primerica, that bring them to Primerica to join the other assets that we already have with them.
Speaker #3: We see some of that and we see brand new clients as well as , you know , those satisfied clients has happened throughout the industry .
Speaker #3: Refer us to others . So we're getting some of all of what you described Senate that's driving that business .
Speaker #12: Okay . That's helpful . Thanks , Glenn .
Speaker #3: Glad help .
Speaker #1: Thank you . Ladies and gentlemen . This concludes our Q&A session . And we'll conclude our call today . We thank you for your interest in participation .