Primerica, Inc. (PRI) Q2 2017 Earnings Report, Transcript and Summary

Good morning and welcome to the Primerica's Second Quarter 2017 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. Please note, today's event is being recorded. I would now like to turn the conference over to Kathryn Kieser, Executive Vice President of Investor Relations. Please go ahead.

Thank you, Roco. Good morning, everyone. Welcome to Primerica's Second Quarter Earnings Call. A copy of our earnings release, financial supplement, presentation and a webcast of today's call are available at our website investors.primerica.com. Glenn Williams, our Chief Executive Officer; and Alison Rand, our Chief Financial Officer will deliver prepared remarks, then we'll open it up for questions. We reference certain non-GAAP financial measures in our press release and on this call. These non-GAAP measures have limitations, and reconciliations between GAAP and non-GAAP financial measures are attached to our press release. We will also make forward-looking statements in accordance with the Safe Harbor provisions of the Securities Litigation Reform Act. The Company will not revise or update these statements to reflect new information, subsequent events or changes in strategy. Risks and uncertainties that could cause actual results to differ materially from those expressed or implied are discussed in the Company's 2016 Annual Report on Form 10-K, as updated by our Quarterly Reports on Form 10-Q. Now I'll open the call and turn it over to Glenn.

Thanks, Kathryn. Good morning, everyone. We're pleased to report continued distribution growth and strong results in the second quarter. As we prepared for our bi-annual convention in June, positive momentum continued to build in the business. At the convention, we focused on future growth of the size of our sales force and its leadership supported by technology initiatives, business enhancements and demographic trends. The enthusiasm generated by this event led to 20% growth in recruiting of new representatives and 6% growth in new representatives obtaining life insurance licenses in the quarter versus the prior-year period. Our sales force leadership also surpassed the challenge we set at the beginning of the year to reach 120,000 life insurance licensed representatives by the convention. At the end of the second quarter, the size of our life insurance licensed sales force increased 8% to 121,471, which drove growth in Term Life issued policy year-over-year. Strong net flows and positive market performance led to growth in investments and Savings Products sales and client asset values versus the prior-year period. Beginning on Page 3, you can see in the second quarter of 2017 that adjusted operating revenues increased 10% to $413.6 million and adjusted net operating income increased 10% to $63.0 million versus the prior-year period. These results were driven by increases in Term Life and Investment and Savings Products pretax income of 7% and 10%, respectively, year-over-year. We delivered strong year-over-year growth in adjusted operating EPS of 14% through solid earnings and capital deployment. In addition to our strategic initiatives to drive organic growth, we remain committed to increasing stockholder value by actively deploying capital. Our strong and diverse cash flows have allowed us to return a significant amount of operating earnings to our stockholders. In the second quarter, we continued to optimize capital by repurchasing approximately $45 million or 585,000 shares of Primerica's common stock for a total of $75 million or about 967,000 shares during the first six months of 2017. We plan to repurchase a total of $150 million of stock in addition to paying stockholder dividends during 2017. At this time, we expect to deploy capital at or above this level during 2018. Our unique business enables us to generate strong returns that are among the best in the industry. In the second quarter, our adjusted operating ROAE expanded to 20.9%, and we expect it to be around 20% for the full-year of 2017. In addition to solid financial performance, we surpassed the very strong distribution results achieved in the second quarter last year. On Page 4, you can see our life licensed sales force grew 8% from the prior-year period and was up 3% from the first quarter. Recruiting of new representatives and new life insurance licenses also increased over the same periods, reflecting continued high recruiting levels and our focus on licensing. We continue to fine-tune the life insurance licensing process, including representative education and test preparation. Through these efforts, we expect the ratio of new life insurance licenses to recruits to continue to be in the 17% range in 2017. Our focused messaging and incentives programs have been very effective year-to-date, and we'll look to leveraging this success to generate continued distribution growth as we head into 2018. The energetic environment at our convention, paired with our initiatives, created an excitement level that has continued our sales and distribution growth post*-convention. We expect the overall size of our licensed sales force to continue to grow in the third quarter. On Page 5, you can see Term Life issued policies grew 9% in the second quarter and continued to significantly outperform the industry, which reported a 2% decline in life insurance applications year-over-year. Growth in our life insurance licensed sales force as well as productivity of 0.23 policies issued per life licensed representative per month drove the solid growth in issued policies in the second quarter. On a sequential quarter basis, Term Life insurance policies issued were 19% higher than the first quarter, largely reflecting higher productivity typical of the second quarter. We achieved solid Investment and Savings Products performance in the second quarter with positive net flows of $255 million and client asset values increasing to a record $56.6 billion at the end of the period. ISP sales increased 7% year-over-year due to 16% growth in retail mutual fund sales. Both fixed index and variable annuity sales lagged the second quarter of 2016, consistent with recent industry trends. We've seen a shift in larger sized trades from variable annuities to mutual funds. Given this dynamic, our average U.S. mutual fund dealer reallowance has been about 3.3% in the first half of 2017. Our representatives embraced the new Primerica Lifetime Investment Platform, which drove managed account sales of 31% versus the prior-year period. While ISP sales are generally market-driven, the size of both our mutual fund licensed sales force and our registered investment advisers increased 3% and 9%, respectively, from the end of the second quarter a year ago. Although growth in ISP sales force has been slower than the life insurance sales force, the retention of our mutual fund licensed representatives has been very strong with 94% renewing their licenses in 2017. Our priority continues to be acting in the interest of our clients. We were well prepared for the partial implementation of the DOL rule on June 9. We trained our representatives on their responsibilities as well as implemented a new representative certification process, enhanced disclosures, increased documentation and expanded our internal oversight and review. We also raised the minimum account size for various products as part of our response to the rule. During the quarter, we launched the new advisory platform with levelized compensation and have now closed our previous managed account program to new accounts. We're encouraged by the DOL's request for comments and the consideration they are giving to our further delay. We're working with industry stakeholders and our product providers to determine what, if any, changes will need to be made to our products once we receive more clarity from the DOL. And we remain committed to helping hard-working, middle-income families continue to receive the assistance they need to plan for their retirement. As we head into the second half of the year, we continue to build on our solid foundation and overall business momentum by executing initiatives to drive organic growth. We're pleased with our accomplishments over the past several years and there's still a lot of work to do. Every day we strive to enhance the business for our clients, our representatives and our stockholders. And we continue to be well-positioned to deliver meaningful, long-term value to all of our stakeholders. Now I'll turn it over to Alison.

Thank you, Glenn, and good morning, everyone. My comments today will cover the earnings results for each of our business segments and then conclude with a company-wide review of insurance and other operating expenses and taxes. Starting on Slide 6. In the second quarter, Term Life income before income taxes grew 7% year-over-year and revenue growth remains strong. Adjusted direct premiums increased 15%, reflecting continued strength in Term Life production as well as growth in the in force business not subject to IPO-related coinsurance agreements. During the quarter, persistency experienced increased DAC amortization by about $2 million and the DAC amortization ratio rose to 14.5% from 13.4% in the prior-year period. In comparison to the first quarter, we saw improvements in underlying lapse experience as well as the seasonal improvements we typically see from first to second quarter. While lapses have increased in the first half of 2017 over the levels seen in the last few years, our overall persistency experience is consistent with levels seen throughout our history. If persistency remains at the level experienced in the first half of 2017, we'd expect DAC amortization to run about $2 million per quarter, above recent years' trends. In terms of the DAC amortization ratio, we'd expect the ratio to be around 16% in the third quarter and 17% in the fourth quarter due to typical seasonality. This would put the DAC amortization ratio slightly above 16% on a 2017 full-year basis in comparison to 15.6% for the full-year 2016. Moving to benefits and claims. Second quarter claims were unfavorable by approximately $2 million. The elevated experience in the second quarter was largely in U.S. blood tested business from post 2010 issued year. This is in contrast to the elevated experience in the first quarter, which was in much older U.S. blocks and in Canada. In recent years, we've made our underwriting on blood tested business even more comprehensive by strengthening our diabetes-related testing and adding prescription drug database check to our process. All of this suggest that the second quarter result reflects normal quarterly volatility as opposed to a higher mortality trend We expect mortality to revert to normal experience in the second half of the year with the benefits and claims ratio returning to around 58% in the third and fourth quarters and to be at the high end of our 58% to 59% range for the full-year. We'd also note that our YRT program continues to effectively safeguard against any significant claims-related volatility. While we've seen some recent fluctuations in persistency and mortality, the Term Life business continues to produce steady and predictable long-term earnings. Our annual Term Life margin has been consistently strong, averaging around 18% since 2013, with a high of 18.8% and a low of 16.9%. During the same period, our pretax life earnings have grown a compounded 13% annually. Assuming mortality experience reverts to normal and persistency experience continues at the current level, we would expect the Term Life margin to be just about 18% for 2017. Excluding the $5 million of unfavorable mortality experience in the first half of the year, margin would be around 18.5% for the year. Looking ahead to 2018, we continue to expect attractive adjusted direct premium growth in the mid-teens as a result of recent and continuing strength in policy issuance combined with the coinsurance transactions we entered into at the time of the IPO. We expect margins to be stable at levels consistent with 2017 results, excluding the $5 million of additional claims. We believe any remaining persistency headwinds will be offset by the favorable term life trends we've been experiencing, including YRT reinsurance rate reduction in recent years and the spread of fixed expenses over a larger in force premium base. Let's move now to our Investment and Savings Products segment, where we saw some really solid growth. On Slide 7, you'll see both ISP revenues and income before income taxes grew 8% and 10%, respectively over the prior-year period. Sales-based revenues increased 3% year-over-year, which was lower than the 6% increase in revenue-generating sales as mix continues to shift from variable annuities to U.S. mutual funds, which have lower sales-based earnings. Variable annuities represented 22% of our revenue-generating sales in the first half of 2017, down from 29% a few years ago in 2015. Given the uncertainty around the DOL rule, we do not expect this trend to reverse in the foreseeable future. Asset-based revenues increased 13%, driven by strong net inflows and market performance. Account-based revenues grew year-over-year, largely due to a change made in our account-based fee structure in 2016 as well as a higher number of accounts than in the prior-year period. On Slide 8, you can see the Corporate and Other Distributive Products segment. Adjusted operating revenues were $30.9 million and adjusted operating losses before income taxes were $5.3 million in the second quarter of 2017. Net investment income was positively impacted by a larger invested asset portfolio, partially offset by a lower portfolio yield than in the second quarter a year-ago. Year-over-year decline in net investment income largely reflects a mark-to-market on the deposit asset backing and IPO-related reinsurance agreement of about $1 million in the prior-year period. We continue to maintain relatively short portfolio duration at less than four years, as we have not seen significant incentive or opportunity to add yield by extending the duration of our portfolio. Primerica has a strong balance sheet and conservative portfolio comprised of high-quality invested assets. Our reliance on investment return is low, with a ratio of invested assets and cash to stockholders equity of 2.2 times and net investment income representing less than 5% of our adjusted operating revenues in the second quarter. Now I'll move to a discussion of the Company's insurance and other operating expenses. On Slide 9, you can see our second quarter expenses of $82.2 million or $4.6 million higher than the second quarter of last year. The year-over-year change primarily reflects $1.6 million of additional growth-related expenses as well as $3.5 million of additional costs related to the continued development of technology platforms and mobile initiatives. The latter was partially offset by year-over-year increase in other net revenue. On a sequential quarter basis, expenses declined about $8 million from the seasonally higher first quarter, which included annual employee equity award grants. Looking ahead to the third quarter of 2017, we expect expenses to be about $1 million higher than the second quarter. The sequential increase could be larger if the Canadian exchange rate continues to rise. Our effective income tax rate for the second quarter of 2017 declined from the prior-year period, primarily reflecting excess tax benefits of approximately $900,000 for the difference between stock price of sales force equity awards at the time of grant and when the sales restrictions last. These excess tax benefits were recorded in additional paid-in capital prior to 2017. Our income tax expense will continue to be affected by the future market prices of our common stock as sales restrictions lapse on equity awards granted to our independent sales force. At our current stock price, we expect a tax benefit of approximately $1 million each quarter for the remainder of 2017. As I wrap up, let me say that we remain committed to maintaining a strong balance sheet and continue to demonstrate a strong capital position with Primerica Life Insurance Company's statutory risk-based capital ratio estimated to be around 440% with holding company liquidity of $67 million at the end of the second quarter of 2017. Now let me open the call up to questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Ryan Krueger of KBW. Please go ahead.

Hi, thanks. Good morning.

Good morning.

I was hoping you could help us understand the sensitivity to differences in persistency rates. I don't know if you have a metric something, for example, like the 100 basis points or 50 basis point difference in persistency? How much that would impact earnings or if you have any way we could think about that?

It's an excellent question and a really tricky one. We obviously do not give out what our persistency is by duration. I did notice, actually in your report, you highlighted some interesting pieces of information we do put out, which include some stuff that's in our statutory filings as well as items in our [fin-stat]. When you're looking at data like that, the important thing to recognize is you're looking at the entire book of business. And that would include things happening along the lines of at the end of the policy's life or an end of term. So for example, some of what you're seeing in those different years really has nothing to do with our financials, because by that time a policy reaches end of its term, the DAC is fully amortized and there's no remaining reserve. And we do see under our theory of decreasing responsibility, quite a few of the policies that reached the end of term will in fact lapse. So to give you a metric of overall isn't necessarily all that useful. What we've been focusing in on and what we have seen the increase in is in the earlier durations. And that's where you'll have the greatest financial impact because there's very little reserve to write off, but the DAC hasn't really amortized very much in the early duration. So the best I can do is give you point back to the metrics that I actually gave you all, which is what our expectations would be for the remainder of the year.

Understood, and then maybe just another way of asking or just in general, I guess how has persistency been relative to your pricing expectations, either this year or in recent years?

Yes, that's a great question. And again a complicated question because pricing obviously, in GAAP don't necessarily coincide. But with regard to our pricing expectations, we are very comfortable with where our persistency is. It is well within historical ranges that we'd seen when you look at our entire book of business. And even on the early durations, it again is not inconsistent with what we'd seen throughout our history.

Okay, great. Thanks a lot.

And our next question today comes from Dan Bergman of Citi. Please go ahead.

Good morning, Dan.

Hi, good morning guys. How are you doing?

Very good.

I guess to start off, I was hoping to talk a little more about kind of what the goals or key messages were from this year's convention? And I guess, just given the really strong recruiting you put up this quarter, any comments around what the incentives or promotions were and how should - we should think about what impact we might see kind of ongoing into the third quarter related to the convention and any of those incentives?

Sure. I'd love to do that. We felt the convention was a totally successful event. Our attendance was extremely strong, our largest event ever. And I believe the way the convention works into our overall growth plan was also very well done. As we stated before, our effort with the last convention in 2015 and again in 2017 was not to just create a huge spike in numbers as a result of the convention, but to have momentum going into the event and increase that momentum coming out of the event. So while we did expect the convention to possibly impact us, it was part of a little bit more reasonable plan than maybe the way we had run play in years way in the past. And that's exactly what happened. We entered into the first quarter and now the second quarter, as we're reporting. We're extremely strong before the event. We had great excitement at the event. We made announcements on improving every facet of our business down to the mundane things of the technology we use to take applications, and we improved some of our product processing to make it easier for our sales force and our clients, more attractive to our clients and so forth. So they were the nuts and bolts kinds of announcements, but there was a continued focus on the need in the middle market and the impact we can have just because there are so few companies that are actually doing business in the middle market and the growth opportunities. We did do some incentives at the convention for the last half of the month of June and the month of July that were focused on both recruiting, licensing and production, and we got great results from that. We had very strong recruiting as we reported for the quarter. And a lot of that happened in the month of June. And so there is a little bit of a spike, if you will, that comes out of any event of that size, but it's not as disproportionate perhaps as it may look historically before 2015. But we're continuing to see great momentum from those announcements. The plan is not just to have something that's temporary that fades quickly, but to make improvements in our business and refocus our own growth and set our goals at the next level. As I said, our goal was to enter the convention at 120,000 licenses. We accomplished that, and we ended the quarter higher than that. And we believe that the next quarter will continue to be higher than that. So I feel like we executed on that play very well and will continue to see results for it - from it for the rest of the year.

Got it, it's helpful. Thanks. And maybe if I could, just a quick one on DOL, I guess post June 9 implementation, I wanted to see if there are any changes you guys have made either in terms of agent compensation or incentive trip? And just maybe any thoughts around the changes you've made or how you are thinking about that going forward would be really helpful?

Okay. As I said in the script, we made a number - again, nuts and bolts changes in preparation for the June 9 temporary rule. And we've adapted those very well as you can see in our momentum. So I was very pleased both that we have the right changes to be within the requirements of the rule, but we implemented a way that was not disruptive. Those changes did not include any compensation change as that was not necessarily a compensation has always been product agnostic and - as well as our other incentives. And so we did not make any changes there for the June 9 rules. And so the other changes that I described on the way we process business a couple of product adjustments on minimum transaction size and so forth. We're all more focused on making sure that we don't have any biases that are inherently worked into our processes and those were pretty quickly changed and adapted to.

Got it. Thank you.

And our next question comes from Mark Hughes of SunTrust. Please go ahead.

Good morning, Mark.

Hi, good morning. This is actually Jack on the call on behalf of Mark. Just have a quick question. We noticed that some advisers are abandoning relatively smaller accounts ahead of the full implementation of the fiduciary rule. So we were wondering if there were any benefits you're seeing from this in the ISP segment?

We're seeing the same thing you're seeing, Jack, is that a lot of competitors are moving further away from Main Street and of course, we are completely committed to that. We have not been able to identify that as competition moves out of the marketplace. Here is a measurable tangible increase we can directly attribute to that. However, we do believe over time that's a positive kind of tailwind for our way of doing business and our ability to continue to meet the needs of the main street and keep that commitment to them. So I wouldn't say there is anything measurable now, but clearly that less competition in a market could lead to opportunities and so we're trying to identify those and capitalize on.

Thank you. That's all I had.

And our next question today comes from Sean Dargan of Wells Fargo. Please go ahead.

Good morning, Sean.

Good morning. If I could follow up with Alison on the line of questioning that Ryan had around persistency and lapsation. I guess, relatively adverse persistency has been in blocks of businesses that have been sold in recent years. Is that correct Alison?

We have seen that, yes, in the earlier - because they are in earlier durations of the policy.

Got it. And that kind of coincides with the recent era of very high productivity and sales growth. Have you looked into what's driving that lapsation? Is it the type of policyholder that you're selling to? Or have you been able to determine what's driving the unfavorable persistency?

Sure. Let me kind of take a stab at this and then, of course, I'll hand it over to Glenn as well for some more information of different perspective. We have seen just obviously a very unprecedented amount of growth over the last couple of years, and we're proud of that. It's really a function of a lot of the initiatives we've taken and enhancements we've made to our business. And I think it's really important to know that throughout all that, our target market has never changed. We market to middle-income Americans. We don't see that, that has changed and nor do we expect that to change over time. And so there's been no shift, if you will, in what we're trying to target. The persistency experience that we're seeing is really consistent with what we've seen in other parts of our history. We certainly look to see if there's anything that is notable, but there isn't. And again, I'll let Glenn talk a little bit about how we deal with our policyholders. But we're just not seeing anything that says something has dramatically shifted. And so - is part of this coming from just the fact that we've had tremendous growth? It could be. But I would remind everybody that during this period of dramatic growth, we've seen very sizable, I think, I said 13% compounded growth in our bottom line and our margins are still expected to be in the 18-ish range, put aside the mortality, 18.5%, they were 18.8% last year. So our margins have remained very strong. They've in fact grown since 2013, and we've been able to build on the bottom line. So all in all, we're very pleased with what the performance has been. And with that, I'll let Glenn talk about the things that we do with our sales force to try to maintain happy policyholders.

Sean, the short answer to your question is, yes. I mean, we have a tremendous amount of discipline around our processes of trend monitoring and trend tracking and also evaluation of whether we see a trend moving in a positive direction so that we can validate that it's good and repeat the success or if we see a trend moving in a negative direction so that we can correct course. So this is something that we monitor and deal with real-time. And we have the ability to see those trends not only obviously on a company-wide basis, but we drill down to sales organization level, local office level and even individual producer level. And so as we see a trend moving in the negative direction, for example, persistency that we're discussing today, the first thing that we'll do is I'll change our company messaging to increase focus and awareness on something that I want to make sure is a top priority for our sales force. And I think our discussion today is a good example of that. In addition to that, we implement programs to assist the sales organizations or offices or individuals that might be the ones that the trend is most pronounced. And we see first and get in touch with them, send people to work with them to help them with the things that you can do to or make sure that you're in the right market, that your sales process is identifying the level of commitment of the client and that you have the right customer service follow up and so forth to reverse a trend, if someone has a negative persistency trend at that level. And then finally, we do have a compensation penalty system should poor business practices continue. So yes, I mean, we not only monitor them at real-time, but we have processes in place that can handle that. But as Alison said, I think the most important thing to recognize is as we look at the middle market, there is huge opportunity not just for growth, but for quality growth. I mean, our average client continues to be very similar to what it's been in the past, mid-30s, average household income of $60,000 a year with a range that extends roughly from $30,000 to $100,000. So it's in the dead center of the middle market, where there is a huge protection gap. And so we believe there's an opportunity there for positive growth that far outweighs any potential side effects or unintended consequences.

And I'll just add that what Glenn described to you is our very hands-on, bottoms-up way of working with our sales force on if we ever see persistency issues. What I'd highlight is sort of top-down company-wide perspective, while there might be an individual is having a persistency issue in his book of business, we haven't seen where the entire sales force and its book of business in totality has really seen any major shift. So again there is always individuals and the good thing about it and since we have hands-on with our sales force, we can go in and tackle the problem if it's in a specific hierarchy. When all is said and done though, we're seeing real positive results in other hierarchy. So from a company-wide perspective, it's not that we've seen something that gives us an indication that there is a real change in trend or change in the quality of our business.

Thank you. Very helpful. If I could have one brief follow-up. Just how should we think about persistency in terms of the economics? Now I get your stock trades off of GAAP earnings and DAC is a - if there's a DAC charge, it's noncash. But can you just help us think about how the reserve build-up in these relatively younger policies has? And so is this impacting the expected returns of certain year of life sales?

So we had a pricing question earlier. This is now a GAAP question. So I wouldn't say it's an economic question, you're asking really more of a GAAP-ing question.

Well, again, I get what the GAAP impact is. I'm asking is there any economic impact?

Certainly, if we keep business on the books for a less time than we would have otherwise expected, early on, that's a negative, specifically because we obviously have large upfront costs to underwrite and issue the business. So the cash flow is very front-end loaded. On a negative, the outgoing and then obviously we have the premiums coming in thereafter. We price for a level of persistency and if you look at where we are in relation to how we price for that persistency or the inverse prolapsation over our history, we are well within those ranges. So from a GAAP-ing perspective, you sometimes will see actually a bigger impact than per se the economic impact because think about a policy that in its first year. We put up the entire DAC - all of our acquisition costs have already been spent. The likelihood of somebody dying and granted, it's not done on individual basis, but the book of business is relatively low. So your reserves clearly haven't built up very much yet. So if we lose that policy, we have to write off the entire DAC upfront, but we don't have to write off - there's no reserve to write off. The interesting thing, and this is just a function of how GAAP works, is if a policy actually lapses and then a month later reinstates, because, say, our agents gone out and reach out to them or we've done a conservation effort, we can't put the DAC back up. So from a GAAP perspective, we've taken a 100% of that hit. Economically, we're back to where we were. So there's just some nuances between sort of the economic and how you have to account for it under GAAP. Does that help?

Yes. Thank you.

And our next question today comes from Jeff Schmitt of William Blair. Please go ahead.

Good morning, Jeff.

Good morning. A couple of questions. One, obviously growth in the total number of agents has been really strong. What about the registered reps, specifically? And how's the DOL rule impacted that growth there?

As we said, we've seen growth but at a slower rate in our registered reps and that's to be expected. Number one is that trails growth in our life insurance sales force. Remember, our model is normally people enter through the life insurance door, if you will, and then on average, a couple of years later, add the securities license, a subset of those do, not everyone does obviously. And so you are always going to see that trailing. As growth begins, you're going to see the security sales force trail. But I do believe it has been negatively impacted by some of the uncertainty around the DOL rule, which unfortunately, to a certain extent, continues. And so we're pleased that we're getting growth as we said in the prepared comments. Even with slower growth, we have such tremendous retention in that group of people that get that second license at 94% in 2017. That helps us continue to grow even when we're - when the topline is a little smaller, we continue to get growth because of the high retention rates. So we are seeing growth there at a slower rate. It has been impacted, to a certain extent, by uncertainty such as the DOL. We continue to work on that to make sure it continues to grow. And when the clouds part and the timing is right, we'll look at the opportunity to try to accelerate that growth rate.

Okay. And then the total number of recruits, that growth has been pretty huge with 20% this quarter. It looks likes it could approach - probably get close to 300,000 this year. At what point is that number too big, where you really don't even have a reasonable expectation of growing that even if economic conditions are great? Are we approaching that?

I don't believe that we are. The first thing, I think, you should do is you should look at the comparisons. If you just look at the seasonality of our business, we're a little out of sync this year because of what we did this year in June versus last year in July. So we had the convention in June this year comparing to a year last year without a huge incentive in the second quarter. So the comparison was unusually strong that we had in 2017. So I'll be careful about straightlining that out for the rest of the year. Last year, we had an extremely strong July, for example, because the incentives we're running a year ago out of sync with this July. So you'll see some normalization of the rate is the first thing that I would say. But we do not believe we're at a point where there is a limit or a point of saturation. I mean, we look at all types of indicators to determine how many people are entering the marketplace in the middle market. I mean, just a rough rule of thumb is that every year in North America about 4 million people move from one-year to the next. So you have 4 million people turning 18, 4 million people turning 30, 4 million people turning 35, which is about the average age of our client, 4 million people turning 65 and retiring. And so there is a huge volume of movement throughout the U.S. and Canada in population, and we are still touching a very small percentage of that in the middle market. And remember that we do have people that join our company. The timing is not right for them at that time. They decide Primerica is not for them today, but they come back a year or two or three later and say I'm going to give Primerica a shot. Now the timing is better for me and my personal circumstances. So you got a lot of those nuances you have to weigh in, but the short answer is no. We don't believe that there is any structural limitation that we're about to approach at this point.

Okay. And then looking at the, I guess, what I'd call the net product commission in the ISP segment, which was 1.21% during the quarter. And that had historically run in a pretty tight range of that 1.33%. Can you maybe discuss what's driving that lower, I mean, I presumed the DOL rule, but maybe provide more detail there and where - how low do you think that can go?

It was stated in an answer to the earlier question. We've not made a compensation or a product change. What you're seeing there primarily is a mix shift that we made reference to. The uncertainty around DOL rule has impacted industry-wide annuity sales, variable annuities and fixed index annuities, which traditionally have higher compensation at the point-of-sale the mutual funds do. And so we are seeing our mix shift away from annuities or mutual funds, which have a slightly lower compensation at point-of-sale, but often higher asset-based compensation. And so you're seeing a mix shift to a product that has a slightly different commission structure and that's why we made that point about that mix shift in the prepared comments.

Okay. Thank you.

And ladies and gentlemen, this concludes today's question-and-answer session and today's conference. I'd like to thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.