Good morning and welcome to the Primerica's Second Quarter 2018 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. At this time, I would like to welcome everyone to the Primerica Incorporated Q2 2018 Earnings Results Conference Call. [Operator Instructions] Thank you. I would now turn the call over to Kathryn Kieser, Executive Vice President of Investor Relations. You may begin your conference.

Thank you, Dan. 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 on our website at investors.primerica.com. Glenn Williams, our Chief Executive Officer; and Alison Rand, our Chief Financial Officer, will deliver prepared remarks then we will 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 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 events to differ materially from those expressed or implied are discussed in the Company's 2017 annual report on Form 10-K as updated by our quarterly reports on Form 10-Q. Now, I will turn the call over to Glenn.

Thanks, Kathryn. Good morning, everyone. Today, I will share performance highlights and accomplishments that position us for continued growth, and Alison will cover our financial results. We are constantly striving to drive long-term value for all of our stakeholders by executing our strategy and valuating used of free cash flow. We have had great success driving organic growth over the past few years, and we continue to assess opportunities to provide more solutions for our clients and support for our sales force. Our strategy continues to be maximizing sales force growth and productivity, broadening protection product offerings, expanding client investment options and developing digital capabilities to deepen client relationships. We are pleased to report strong returns and continue distribution growth in the second quarter. We achieved 42% growth in adjusted operating earnings per diluted share year-over-year and 24.5% ROAE in the second quarter, reflecting solid performance, ongoing share repurchases and the benefits of Tax Reform. Our sales force leadership continue to perform well with the size of our life insurance life of sales force, exceeding 130,000 representatives at the end of the second quarter. As you will note on Slide three, we continued delivering solid earnings growth across the business and returning significant capital to stockholders. Our adjusted operating revenues increased 13% to $466.9 million and adjusted operating income before income taxes increased 17% to $112.8 million year-over-year driven by increases of 23% for term - and 9% for the investment in savings product segments. Net adjusted operating income increased 36% to $86 million from the period year period reflecting the benefit of Tax Reform. We had experienced strong operating EPs and ROAE expansion year-to-date and expect annualize ROAE to increase to approximately 22% for the full-year of 2018. Our strong and diverse cash flows have allowed us to return…

Thank you, Glenn, and good morning, everyone. My comments today will cover the earnings results for our core business segments and then we will conclude with a Company-wide review of insurance and other operating expenses and income taxes. Starting on Slide 6, with Term Life. In the second quarter revenues increased 14% with 15% growth in adjusted direct premiums. Revenue growth outpaced the growth in benefits and expenses yielding a 23% year-over-year increase in pretax income and a 20.5% pretax margin for the quarter. Growth adjusted direct premiums was driven by strong sales levels in the past few years and the runoff of business subject to the IPO coinsurance. We are seeing about a 6% annual decline in premiums ceded to IPO reinsurers now that policies that continue beyond the end of the initial level premium period, are no longer ceded to them. When combining these factors with our sales projections for the remainder of 2018 and the weakening of the Canadian dollar since the beginning of the year, we expect adjusted direct premiums to grow around 13.5% in the second half of the year and between 14% and 14.5% on a full-year basis. In the second quarter, the DAC amortization ratio was 14.6% consistent with the prior year period. With this in seismic quarter was generally in line for 2017 levels and we expect persistency to remain at this levels adjusted for typical seasonality for the remainder of 2018. The DAC amortization ration also reflects a small increase related to insurance commissions from a change made to our 2018 sales force equity programs that modestly shifted expense from the differ to non-differed expenses. While this shift changes the timing of expense recognition, it does not impact the overall economics of the program. We expect the DAC amortization to be…

[Operator Instructions] Your first question comes from the line of Ryan Kruger [KBW]. Please go ahead.

Hi thanks. Good morning. Glenn, I was hoping you could talk a little bit more about the productivity trends in term life, certainly you are still at the higher end of your historical range, but as you mentioned has come down some from last year. Could you just provide a little bit more color on what you are seeing there?

Sure Ryan. You are exactly right, we continue to be at the upper end of what we have seen historically, but slightly down from the kind of breakout levels we were at a year and maybe two years ago. And for us that is just part of the cyclical nature of the business, we are always striving to improve productivity over whatever it was previously. We have people working on that 24\7, but we recognize there is a little bit of a cyclical nature, there is a lot of cyclical nature to all areas of our business, but even in within the Term Life you see a periods of strength, periods where a breadth is taken and then you run at it again. And we just feel like that is what we are seeing right now, we are very pleased that we are still at the upper end, but we are working hard to focus our incentives, refresh them and make sure that our leadership is focused on continuing to grow and push that up as high as we can get it. So our commitment has not lessened.

Thanks. On expenses, so it sounds like the constituent initiatives will kind of continue going forward beyond this year, on that digital side I know you are going to give more color as we get towards the end of the year, but is there probably some aspect of accelerated expense there that could decline going forward?

There is definitely, I think just to reiterate what you said, we do feel like the expenses that we was added associated with the benefits of Tax Reform will be part of our ongoing expense base. With regard to the digital initiatives, as we have described in the past. A lot of what we are doing this year is really focused on - we keep our franchise, repaving the road if you will, but really moving our system, there our big capabilities into a more of a modern technology age. And so there is a lot of work to be done there and we are progressing pretty well along those lines. And as we move into the future, I mean look at what we want to spend, it will be a more correlated towards what we think the financial or the business type benefits are associated with those expenditures. And so at this point, I can't say exactly what we think the expenses will be, but I can say that as we move through 2019 and beyond, we do expect there to be obviously real economic benefit to the business for the things that we planned to do. So we will continue to update you on how we move forward with that, as well as the thing that we are focusing on to drive the business results.

Thanks and then just last question from. Thanks for the illustration on the managed account platform. One follow-up would be, how should we think about corporate overhead in expenses that - like in the example that you gave, would there I guess be positive operating leverage when we think about expenses that will be allocated there?

So the short answer is yes, I mean you have to just look at overhead and like general operating expenses and recognize that a lot of that is in fact fixed in nature. We do expect as the volumes continue to grow, obviously our staffing needs will go up just in order to make sure the business process profitably that we are keeping compliant and the like. But with that being said, certainly it’s not one-for-one, there is sort of set variable nature to that. So we do expect the operating expenses associated with this business to grow, but we would agree with what your original point was, is that the leverage associated with those expenses should improve.

Okay, great. Thanks a lot.

You are welcome.

Your next question comes from the line of Jeff Smith [Cowen Inc.]. Please go ahead.

Good morning Jeff.

[Technical Difficulty] sales which have been good in the double-digit. Are you seeing growth in the number of agents that are licensed to sale securities? Or how does that pipeline look?

Jeff you broke up on the very first part of that question. Do you mind asking that again just to make sure we have it right.

Yes, sure. I was just wondering about the growth of agents that can sell securities. How is that number looking? And what is the pipeline looking like?

Yes, as we have discussed in the past, the new licenses and the total size of that sales force is continuing to grow, generally its lagged the growth rate of the life insurance sales force by a few percentage points. But at the same time over the longer period those two growth closer together. We generally try to focus on one thing at a time is our primary focus and then have a secondary focus. So yes, we have seen, we are continuing to grow in new licenses and in the total size of the sales force, the rate of growth that we normally talk about at year-end is slightly less than the life sales force.

Okay, thank you. And then on new recruits I mean it sounds like you think that number is going to be pretty flat or even down this year. Do you view this sort of 300,000 levels kind of the high watermark or a total saturation level or are there thing that you can do next year to taken above that?

Well, I definitely wouldn’t use the word saturation, the need for what we are doing in the middle market is growing much faster than we are. It's more function of our growth rates sustainable as they compound the difficulty level gets harder as the numbers get higher. But the dynamic that we talked about in the prepared remarks was simply a function of what we did last year. We had the series of Hurricanes it impacted Puerto Rico, Texas and Florida and as we often do in the counties, it's a county-by-county focus generally that have declared disaster areas by [FIMA] (Ph) then often what we do to encourage people in that area and keep them focused as we wave the IBA fee, Infinite Business Application fee for joining the company and that is what we did last year. Well Texas and Florida are two of our biggest states and it covered a much a larger in both of states and so we had a significant number of those coming without IBA fee 17,000. We are not expecting to do that again this year. And so you have got a different dynamic in the comparison. So the comparison of the numbers from 2017 or 2018 is driven around that dynamic. As we look forward, we believe there is room to continue to grow our business, continue to grow recruiting, the response to our message as a business opportunity is very strong and so we believe there is upside there and that we can continue to go to sales force as well. So, we believe there is more upside out there.

Got it. Okay. Thank you.

Your next question comes from the line of Mark Huges [SunTrust Robinson Humphrey]. Please go ahead.

Good morning Mark.

Good morning. A question on the mutual fund sales and managed account sales. How should we think about that dynamic, you know your mutual fund sales were up 1% this quarter, managed account continues to be quite strong, presumably there is some mix shift that is going on, it's influencing your near-term and sales based revenue, but as you show in the example that will be replaced overtime with more asset base revenue. How much are we going to see that mutual funds sales declined in managed accounts that take or place, how should we think about the relative growth in those categories?

Right. I would probably described it more as focused shift than mixed shift. We have had a very successful launch of the managed accounts platform, and it's going well. I think the platform itself is something to be proud of and I think the way that our team has rolled it out in way that our sales force has respond to it. It's all been excellent, and so we are getting a lot of focused on that, and lot of upside. And I do think that overtime, that becomes a more normal part of our business and it's not the shiny - that attract so much attention and you will see a normalizing of our business shift. The other thing that we mentioned in the call is the rebound and variable annuity sales and I think our rebound is very much in-line with the industry as there is more certainty in the marketplace, and as a result of that product providers are taking advantage of that natural momentum to improve their products and attract even more attention to them. So you know all of that I think is something has attracted focus for mutual funds. I would expect overtime, you would see things rebalance. It’s all in the pendulum that swings one way and then the other and then really overtime normalizes. So I wouldn’t look at this as something that overtime you would see mutual fund sales suffer long-term as a result of what we are doing. It would just rebalance itself.

Understood. And then the expenses associated with the managed accounts. Are the commissions similar to the what you have had in the sales base category more like 70% 75%?

Yes, that is correct. I agree that everything we do is product agnostic to make sure that we are not creating a conflict where it's possible. So I agree to the same for all products. So we push the amount of compensation created by the product out through the same degree as there in that 80% top in range, 75% to 80% kind of average range.

And Alison on the decline in premium fee to the IPO coinsure, any thoughts about how that will progress overtime? I think there is maybe some discussion about the depending on how blocks were issued in the past that might influence the way that number progress. The ratio has been declining looks like a pretty steadily 60, 70 basis points per quarter for the last several quarters. Is there any reason why that wouldn't continue to be the case?

No, not in the near-term. We do expect it to run off by around 6% a year and I would say that will continue for exactly I mean, at least for the next several years. I think the pace will slow down a little bit, at that point, again we have a lot to do with the size of these blocks. And I know it’s just a nature of the book of business and what the duration is of the policies that are subject to that reinsurance trading. So that being said, I expect it to run off less than 6% sort of after a few years. I think the important thing to remember is that business is going to remain on the book for a long time. So I think it gets 6% in your head do math and say oh that is going to be gone after a few years. It’s going to be around for a very, very long time. So I just think that is what is really important to remember when you think about this, but for the next couple of years I think the 6% run rate is a good one.

Glenn you talked about the cyclical nature of the business that sometimes you stop to take a breath, your outlook here for I think policies issued to be relatively stable year-over-year. My simple question is, this time around as you look at the business what is the influence on that kind of newer outlook for stable rather than up?

Yes, we are always monitoring the momentum that we have in each of our lines of business and I think of our business really in three big chunks a building and distribution and then obviously our life insurance business and our investment savings business. And at all times, we are looking for the natural momentum in those three areas that we can throw fuel on the fire on and then we are looking at the obstacles to those three. And in a certain sense, they are incredibly complementary, one of the things I’m proud is to have about our business model is that we can shift between those lines and manage the natural fluctuations in the business and still have strong results even as momentum and product mix shifts. But the three did compete with each other to a certain extent and so as we have seen a burst of momentum in our investment and savings business that attracts a little attention much in the same vein as I just describe about the managed account business within the ISP segment. And so the good news is we are seeing gaining momentum in that business as we are seeing momentum stabilize in the life business and overall both for our Company and for our sales force it continues to provide an opportunity that is moving forward. So a certain amount of it is just that we have been - we have had four incredible years of extraordinary growth on the life side of our business we are taking a little bit of a breadth and then and we are refocusing on that, but at the same time we are seeing a huge burst to momentum on that ISP business as we reported today. So I think it's just part of the national shift to the business and one of our jobs is to manage that so that we don't let to anything get too extreme, so were very focused on getting stronger momentum on the lifestyle, we wanted to share today, as we saw things as of today, but that doesn’t lessen our commitment to continue to work on it for the future.

And then just final point or question. Is it fair to say that in the back half you have had some tough comps in terms of the sales force and recruiting growth relative to last year. And so that will make it harder to make as much forward progress on the overall headcount and then productivity is relatively stable then policy issue there is also relatively stable is that a fair way to look at it?

As we said for the next quarter, in the current quarter and that is underway right now, we do expect to see continued growth in the size of the sales force. As you have noted, it slowed down slightly for the last couple of quarters and so it's still growing at a slightly less pace, a slower pace, but I think we expect not to be impacted as directly as the life momentum has been.

Thank you.

Certainly.

[Operator Instructions] Your next question comes from line of Dan Bergman [Citigroup]. Please go ahead.

Good morning Dan.

Good morning. To start up just within and investment in savings with another strong quarter of variable annuity sales. I was just hoping you could elaborate a little bit more on the year-to-date growth in the [VA] (Ph) sales and generally just what you are seeing there, the DLL rule and regulatory uncertainty receiving a big driver of that are more due to product changes that are making the guarantees more attractive. I guess any thoughts on that would be appreciated.

Sure Dan. We believe it’s a combination of the two. I mean our growth rate is similar to industry as a whole and I think that reflects both dynamics that you mentioned, a little more certainty in the future for the product has clearly made the entire industry feel like it's safe to go back in the water and so I think people are taking advantage of that. And then I would commend the annuity providers as they recognize that natural momentum that has created from that dynamic, at the same time they are introducing product improvements that makes the product more attractive to clients. As is all from the case, I believe in our industry and probably all others is when a product is threatened for any reason and then you realize that there is a future you use that opportunity to go back and improve the product at the client level make more attractive to the products to the client. And I think that is exactly what the industry is doing and so I think the large numbers of growth percentages that you are seeing both that Primerica and at other distributors is a result of both of those dynamics.

Got it. Thanks. And then I just wanted to see if there is any update or updated thoughts you could provide just on the regulatory front in general, in terms of where things stand with the SEC, best interest proposal or any potential new suitability or best interest rules coming out of the NAIC or New York State et cetera?

Sure both of those were very familiar with and very involved in that as we have stated before, we appreciate the fact that the SEC is acting under their authority and they are taking a very thoughtful approach and a thoughtful process. They have requested a lot of inputs from industry and of course, we continue to provide that as we have with previous processes. And we are not only that we participate actively, but we also are monitoring the entire rule making process. So, we believe that is on the track it should be on, where it comes out, too early to tell. We continue to be involved in that and give our view and provide our input as its asked for and so we will continue to be involved and keep you posted as more certainty arrives on that front. On New York, it’s a very similar process. They have finalized a regulation that applies the best interest standard to the sale of annuities and insurance products. The NAIC and even other states might do similar things in the future. And so once again we are at the table involved providing comment and starting to - trying to what type of adjustments might be needed in our business. On the New York front, we are particularly pleased that the New York DFS recognized the term insurance should be treated differently for more complicated products. And so it is to simple product and therefore figuring out what that the best interest is should be a little easier and less disruptive. And that appears to be the direction things are going right now. Again, we are continuing to work on to find details and plan our adjustments, but we are involved in it and feel like we have a handle on it and we can make the adjustments that would be required assuming things progress as they appear to be directed now.

Got it. That is a very helpful color. Thank you for taking the question.

Certainly.

And we have no further questions in the telephone queue at this time. I would like to thank everyone for attending today's conference call. This will conclude our call and you may now disconnect.