Good day. My name is Allison and I will be your conference operator today. At this time, I would like to welcome everyone to the Primerica Q1 2020 Earnings Results Conference Call. [Operator Instructions] Thank you. At this time, I would like to turn the conference over to Nicole Russell, Senior Vice President of Investor Relations. You may begin your conference.

Thank you, Allison and good morning everyone. Welcome to Primerica’s first quarter earnings call. A copy of the press release, along with materials that are relevant to today’s call, are posted on the Investor Relations section of our website at investors.primerica.com. Joining our call today are our Chief Executive Officer, Glenn Williams; and our Chief Financial Officer, Alison Rand. Glenn and Alison will deliver prepared remarks and then we will open the call up for questions. During our call, some of our comments may contain forward-looking statements in accordance with the Safe Harbor provisions of the Securities Litigation Reform Act. The company does not assume any duty to update or revise these statements to reflect new information. We refer you to our most recent Form 10-K filing, as modified by subsequent 10-Q filings, for a list of risks and uncertainties that could cause actual results to materially differ from those expressed or implied. We will also reference certain non-GAAP measures, which we believe provide additional insight into the company’s operations. Reconciliations of non-GAAP measures to their respective GAAP numbers are included at the end of the earnings press release and available on our Investor Relations website. I would now like to turn the call over to Glenn.

Thank you, Nicole, and thanks, everyone, for joining us today. I trust that all of you, your families and your co-workers are safe and healthy as we all continue to navigate through the COVID-19 disruption. Today, Alison and I will provide a recap of our first quarter with comments on how the COVID-19 pandemic impacted these results. After this update, we will focus in more detail on how we are positioning our business to succeed during the stay-at-home orders and beyond by capitalizing on our unique strengths in adapting quickly to overcome obstacles. First quarter results were strong, driven by growing momentum during January, February and the first half of March. While the emergence of the COVID-19 crisis in mid-March has brought about some significant changes to our business processes, the disruption occurred late in the quarter resulting in minimal impact to many of our metrics. On Slide number 3 of the presentation, adjusted operating revenues were $541 million, up 10% compared to the first quarter of 2019, while adjusted net operating income was up 13%. Diluted adjusted operating income per share was $2.05, which represents an 18% increase year-over-year and ROAE was 21.8% compared to 20.3% in last year’s first quarter. On the capital deployment front, we repurchased $90 million of our common stock during the first quarter. Given the strength of our capital and liquidity position, which Alison will discuss later in the call, we believe we will meet our targeted repurchases for the year of $250 million. Turning to Slide 4, we ended the quarter with a total of 130,095 life -- life-licensed representatives. Recruiting trends remain positive in the first quarter, boosted by independent business application fees discounted to $49 for the first 20 days of January and the last 11 days of March, which drove…

Thank you, Glenn, and good morning, everyone. Let me start by walking you through the quarter’s key earnings drivers by segment. As I do so, I will highlight where we have seen or expect to see an impact from COVID-19. I’ll follow this with a review of companywide operating expenses, and will close with a discussion on our invested asset portfolio and our strong capital and liquidity position. Starting with Term Life on Slide 8, first quarter operating income before income taxes grew 18% year-over-year to $83 million, while operating revenues increased 10% to $328 million. Adjusted direct premiums grew 11%, driven by outperformance in issued life policies and strong policy persistency over the last several quarters. Benefits and claims were generally in line with the prior year and historical trends as with the benefit and claims ratio at 58.1%. The DAC amortization ratio at 15.8% was considerably lower than the prior year’s ratio with the main driver being persistency. As I discussed last quarter, during 2019, we saw persistency return to historical levels after a period of weakness in 2016 and ‘17. This trend continues in the first quarter of 2020 and was the largest contributor to Term Life margins increasing by 220 basis points over the prior year period. Turning to Slide 9, COVID-19 and its impact on mortality rates in the economy will likely affect the Term Life segment’s results as 2020 progresses. While we cannot predict precisely what will happen, the insights that follow should prove useful in formulating a range of outcomes. Glenn has already talked about the sales-related dynamics, so I will focus on lapses and mortality. The recent spike in unemployment could pressure disposable income for the middle-income market, potentially increasing lapses and leading to write-offs of both DAC and benefit reserves. Looking…

Thank you. [Operator Instructions] Our first question today will come from Andrew Kligerman of Credit Suisse. Please go ahead.

Hey. Good morning. Good morning and thanks to very comprehensive presentation. I guess, the first question is that you say you remain committed to share repurchases. You’ve got a full year target of $250 million, so it would kind of be the normal course of business. Even though it’s not normal, you’re going to act as you would in any year with regard to your share repurchase authorization. Is that the right way to think about it?

Yes. And we obviously gave that quite a bit of consideration as we look at our capital position and our ability to continue to generate capital out of Primerica Life. One of the benefits we’ve always talked about with our life insurance business has -- it has stable and predictable it is and how strong the cash flows coming out of that business are. We do feel that given that ability, we have more than sufficient capital and liquidity to continue with our plan. I will tell you that, as of now, we have already completed half of that plan. And so, we’ve got about $125 million left to go for the remainder of the year.

Excellent. Very, very helpful. Now, it’s interesting to see that your recruits were up a robust 34% year-over-year. And as part of that, the incentive was, I think, to cut the fees to join in half. And I recall you did that about a [year-and-a-half ago], and some of those recruits [indiscernible] the caliber that you were looking for, they weren’t productive and they didn’t stay on. So what gives you the confidence that this new crop might be different than what we saw some time back?

Yes. And again, that’s something that we study each time we do an incentive. And actually, Andrew -- I think it was all the way back in 2011 when we had a significant spike in recruiting after a convention with the $49 IBA fee and we were very disappointed in the lack of pull-through. And after that, we worked significantly on our licensing process. And when we’ve done this -- when we did this at the last convention for a brief period of time at the end of June and the beginning of July 2019, we felt like we got a much better pull-through. I wouldn’t characterize it as a lower quality of recruit, I would characterize it as a lower level of commitment. When you pay less, you can become -- you can come in and be less committed to following through. But in any case, that follow through is absolutely critical to our business. And so, we did that last convention, we had good results in the second half of the year. As a matter of fact, I was very pleased with the way our year started in 2020. Actually we saw a significant shift in momentum at the very end of 2019, but it was really apparent in January, February and the first half of March, as I said in my prepared comments. We decided -- before we knew anything about the chaos we’re dealing with today, we decided to kick off the year and the new decade with a special promotion in the first 20 days of January, first 20 days of 2020, we did a $49 reduction. And it’s amazing, $99 to $49, it’s not a significant amount of money for most people, but it does create an amazing amount of excitement when we combine…

I see. That’s very helpful. And then also, just -- it seems like your reps are quite adapted to technology and the like. And that’s reflected in your guiding to ISP sales being down only 15%. And I know that -- well, I guess, they have a licensing issue also. So, is it possible that -- and I think 15% is a pretty good outcome. Is it possible that we could see Term Life sale in that type of a range?

Well, I think that what is driving the ISP change is the market disruption. And so, you’ve got ISP sales that are down because of the uncertainty in the market first. And then also of course, as disposable income is pressured, that impact sales to a certain extent too, but people are generally more apt to take a wait-and-see approach while the market is up and down so radically. So I think the dynamic for what’s driving our ISP business is a little different than what’s driving our Term Life Insurance business. On the Term Life side, as Alison commented on, we’re actually seeing more receptive clients. I think we’ve all stared at our mortality just a little bit during this time. And so, people appear to be clearly more interested in having a conversation about protecting your family. But to go back to your comment on technology, I do think this is one of the things that people often miss from the outside looking in at Primerica is that we have had a strong technology direction for many, many years. As I’ve said in my prepared comments, for many years, we’ve been doing transactions, as we like to say, from the clients’ kitchen table directly to the home office digitally in all areas of our business, 95%. And don’t forget that’s done on the device that a person has in their pocket when they become part of Primerica. So we don’t have to provide hardware, we don’t have to provide training, it’s device agnostic. So if you’ve got a smartphone in your pocket, when you become part of Primerica, you can download our app and you’re ready to do transactions. The difference and the amazing thing about our adaptability was adding, what I call, client interactions -- remote digital client interactions through web conferencing technology like Zoom. We had a foundation of that going on in our business, and it was used occasionally. But the swiftness with which our sales force adapted to use that in place of face-to-face interaction and combines it with that transaction technology was pretty amazing. And so that’s helping our business, helps our recruiting because it’s done that way. It helps our life sales with that natural momentum that’s been created by the health crisis. And it also helps our ISP sales even though we’re experiencing those headwinds due to market disruption.

Excellent, thanks very much.

Glad to help. Thank you, Andrew.

Our next question today will come from Dan Bergman of Citi. Please go ahead.

Good morning. Maybe first high-level question. If we do enter a period -- prolonged period of higher unemployment and slowing GDP growth, what type of -- even directional impact or do you expect that to have on your sales force growth over time. Now just given that most of your sales reps are part-time and commission-based, any thoughts on if you’d expect that type of environment to be a net positive or negative would be much appreciated.

Yes. Traditionally, we view that, Dan, especially a long-term downturn as a net negative. There are positives and negatives to both types of environment. I believe it was on the last quarterly call, we actually had a conversation, was the unemployment rate so low and employment so high, it was beginning to impede our recruiting. We’ve always felt like a strong economy was better for recruiting and for all of our business than a weak economy. But even in times of weakness, there are people who still have the flexibility to start a part-time business and do that because they’re unhappy with their employment situation. But overall, taking all into consideration, we would say that a downturn for a long-term particularly generally creates a drag on recruiting and licensing in the size of the sales force. So, as we look forward without any ability to predict how quickly, is it a V-shaped recovery, an L-shaped recovery, who knows at this point, that’s something that we’ll be monitoring and trying to revise our thoughts on that as we see both the kind of depth and breadth of the economic downturn.

Got it. That’s very helpful. And then, maybe moving over to the lifestyles, I just wanted to see if you can provide some color on the drivers of the bounce back and kind of average agent productivity in the quarter. I’m just curious if we should be thinking about that as more of a natural aversion toward the mean following a period of a little bit weaker results. Was it -- how much of a benefit did you get from the stronger recruiting result in the quarter or kind of other factors that impacted that? Any thoughts there would be very helpful.

Okay. Well, as we said, we had a very strong quarter and very little of that was impacted by the disruption at the very end of March. We’ve been working very hard for the last couple of years on regaining the kind of momentum that we had years prior to that, and it’s more of a natural cycle of our business. We go through periods of extremely strong momentum and then we go through frustrating periods of plateau. And we really felt like we had some true strength in our business that was reflected in December, January and February and the first half of March, which by the way, I think, was a significant help in getting us into this period of disruption on a positive footing. And so, I think, we had a lot of the right ingredients to better momentum overall. It’s not just the normal return to the median but some real growth trajectory in our business that I was very excited about. Of course, all of that is brought in the question because we don’t know exactly how we come out the other end of this, but clearly that was helpful getting us a good start into what we saw in the last couple of weeks of March and the results that we’ve experienced in April. So, I think it was more than just return to the mean or to the media. I think we did have significant recruiting growth. It was coming through in strong licensing, which kind of got nipped a little bit at the very end because of the closing test centers and so forth, but it was strong. Life productivity overall was strong and investments productivity was strong. So I believe we’re actually seeing the results of our hard work in the first quarter. Certainly rather start the disruptive period from there then -- rather being flat or down, but just exactly how long all of this chaos goes on will determine how much momentum we’re able to sustain and for how long.

Got it. Very, very helpful. Appreciate your taking the question.

Absolutely.

Our next question will come from Ryan Krueger with KBW. Please go ahead.

Hey, good morning. Just hoping you could provide some additional color on the licensing process at this point. I guess, is it possible for new agents to get license at all at this point or is it completely dependent on things reopening?

Well, actually, Ryan, it’s dependent on which state or province they’re located in and what options have been created. So we -- at this point, the kind of mainstay of our licensing process has been to get our recruits into live licensing classes. Clearly there are no live licensing classes happening at this moment anywhere. Those have all been moved online. And by the way, we’re getting very good uptake on participation on the online classes. It remains to be seen the comparable effectiveness of online versus live classes. We’ve done live classes because our history has been that those are more effective than online, although we offer both options, and both options are used. So, we still have the capability to prepare those recruits for the exam. The challenges at this point, very few states and provinces are offering exams. Usually exams are offered by a third-party, an intermediary that the jurisdiction bids out the process and so forth. And so there are several of those vendors, and none of them are giving exams at this moment. Some have talked about reopening in May. Some have talked about reopening at the end of May. And then -- and so, we are preparing the maximum number of people to be ready. We do have people going ahead and making exam, reserving exam dates in anticipation of reopening so that we don’t get kind of locked out with the rush that will be critical. These providers provide exams for all types of professions, not just for insurance, and they’re all going to be backlog when things reopen. So, we are working on making sure that we get it close to the front of the line as it’s appropriate for us to be when they reopen. And then, we’re also pursuing the…

Thanks. And then, on persistency, have you seen any impact so far in April or is it just too early to tell at this point?

We obviously took a hard look at April. I do believe it will be too early to tell. That being said, what we have seen is the continuing favorable trends we were seeing in the first quarter and the fourth quarter of last year. So, at least through April, we have not seen any deterioration, and in fact we’re moving in a very positive direction, I do expect, as the quarter continues, to start seeing more lapsation just purely because of the economy.

Our next question will come from Mark Hughes of SunTrust. Please go ahead.

Good morning. The YRT premium, how does that impact your COVID claims? And then, the $5 million that you cite from New York, is that incremental, would you say, to what would normally be the underlying ratio or is that already factored in?

Okay. So two things. The -- whenever I talk about a net claim, that is factoring in the reinsurance recovery. So, in the case of the YRT, then 90% recovery, to the extent that policy was subject to YRT, which virtually all of them are. In addition, it would also cover any coinsurance coverage on the IPO-related coinsurance to the extent the policy was written prior to 2010. So, I hope that answers the first question. On the second one, just to clarify one thing, I’d say there is a disproportionate amount of the $5 million is coming from New York, but certainly not all of that is coming from New York. The $5 million is the net estimated incurred exposure related to COVID-19. So, it includes things that are in the door that have been reported that we haven’t obviously received full death certificates for it. So we’re still vetting to making sure they weren’t in fact COVID-related, and then also things that we would get into the technical terms incurred, but not reported IBNR, our estimate of IBNR through the end of April. So that is also a net number. That is not the gross amount we’d be paying the policyholders or the beneficiaries of the policies. It’s in fact the net amount we’d expose -- we expose to after reinsurance.

Can you say -- overall, have you seen a bump in mortality because of the extra COVID claims? Are you just highlighting these are the ones that are tied to COVID. And so, I think you said, yes, you’ve seen a bump in overall mortality?

Yes. And actually, just to clarify, the $5 million on discussing is what we would consider a bump from normal mortality levels. And we believe it’s related to COVID-19.

Okay. And then, on the recruits, how much has the lockdown been a motivation. if people have some time on their hands, this could be a good productive thing to do in addition to the incentives you’ve offered.

Yes. Like most things at Primerica, Mark, the cause and effect is always an interesting thing to try to determine. And there are always positives and negatives to every condition. And so, I would say that the lockdown has its positive dynamic that is being reported by our sales force in that people are more available, and therefore more likely to stop for a conversation. In many cases, they’re actually missing conversations, and so the acceptance of a Zoom invitation to have a discussion via web conference is probably being accepted at a higher rate than our normal recruiting interactions might have been before this. So there’s clearly a positive side to that. I think we have to be careful because who knows how long that change in human behavior will continue after the lockdowns are over. But clearly we’re seeing that now. We’re also seeing more interest in discussions of life insurance itself, so both our opportunity and life Insurance discussions, I believe, have actually been helped by people bidding on having hit the pause button and having some free time and not a lot of other alternatives. So, we are enjoying that right now. We know -- without knowing how that might turn out, we felt like the incentives were a good thing to do. The combination of the two has been very powerful to overcome some of the other difficulties of the time it takes to transition to understanding new technology and so forth that normally would interrupt momentum. It’s actually been kind of overwhelmed by those positives so far. And of course, we’ll look after things start to normalize. We’ll start to look at what we’ve learned as far as new techniques. Can we take our traditionally face-to-face business that we believe has been around 90% face-to-face and have it be both face-to-face and remote after this is over. It’s been an incredible learning experience so far, and we’ve got a lot of things to experiment with in the future.

And then -- sorry, if I’m being dense on this. The $5 million, is that -- was any of that accrued in the expense in the first quarter or is that all 2Q?

That’s all 2Q.

And then, one final question. The additional sales to existing customers, I think you kind of restated your -- some of those numbers is a small amount. But what was the, what was the change there?

So we did -- it was always an estimate, it’s not actually a P&L number. We’ve always indicated that it was an estimated number. We obviously are drawing some more attention to it. So we went back and described some things, and just found a few inconsistencies with how we were doing some business in Canada versus the U.S. So we opted to go and restate all of those numbers. You can see the historical restate on Page 3 in the financial supplement. It doesn’t change any of the trajectory of the trends we discussed. It just changed the overall magnitude of the amount a little bit.

And our next question will come from Jeff Schmitt of William Blair. Please go ahead.

Hi. Hi, good morning. Question on ISP sales I guess -- is the right way to think about that. They obviously were very high. It was a tough Q1 of last year, but they were still really high. The market drops, inflows increased, product sales jump, because there wasn’t really any employment issues out of the gate. And then, now you’re expecting a big drop as unemployment increases, and I’m just trying to think is that as a driver. I mean, if unemployment is high, could we expect product sales to be weak through or in the next year even?

Yes, Jeff, I think that you’re on to a couple of the dynamics that drive our sales, but I think that they may be in reverse order. I clearly -- sustained unemployment is not good for sales. There’s no question about that. But I think what we’ve seen in our business and historically what we’ve experienced is that short-term disruptions for some reason are not as noticeable in our numbers in Primerica. Many times, we’ll have a week or two, or maybe even three of market disruption is barely noticeable in our sales numbers. But as market uncertainty continues and as particularly a market stays down for a period of time, investors at Primerica like other places move to the sidelines. And so, it’s not that a market drop is just a buying opportunity and therefore sales will spike, it’s actually probably ignored early. But the longer it stays out there, the more likely it is for our clients, and I believe everyone else is by the way, are going to stand on the sidelines and wait to see if there is some direction in the market before they invest. I believe that would be compounded by unemployment that last an extended period of time. And so, the -- how quickly the economy bounces back is clearly important. But I think what you’re seeing right now is more market driven than unemployment and disposable income driven, but they both would be a drag over time. And as we said earlier, as we start to see how long it takes for things to start to bounce back, we’ll be able to draw a finer bead on what we think the future holds beyond the second quarter.

Okay. That makes sense. And then, you may have touched on this, but just thinking about the productivity and the number of policies issued, are there any headwinds there for, I mean, people needing a physical and they just can’t go in to a doctor to get one?

Yes. We saw that early. In fact that was one of the things that both licensing and the dilemma that you just described were the first two kind of things that emerge as challenges to our ability to do business. We talked about licensing already. But fortunately, we found a couple of work around that has reserved a lot of the momentum on the life side. The first thing is that while the paramed companies, many of them stopped doing in-home parameds. Some of the networks actually have clinics across the U.S. And so, for whatever reason clients were more comfortable going to a clinic and having their paramed done, we even heard a paramed that will come outside the clinic and actually do it at your car. And so, they of course are working on their optionality as well. But we -- and we do still have some paramed exams being done in homes, which at the beginning we thought that might be zero, but there are some of those being done. So, today, we’re doing, we’re getting completed about 70% of the parameds, that is our normal run rate, which is much higher than I would have anticipated when this first began. And so, we are still getting those products that need to be traditionally underwritten with the paramed exam and fluids and all that kind of stuff. It is still happening at a higher rate than I would have earlier anticipated, but it’s still not where it normally is. And the good news, as I mentioned in my comments is that we have our TermNow rapidly underwritten product that’s fully underwritten, but it’s done rapidly through database underwriting, which oftentimes does not require, in fact usually does not require a paramed. And of course it is limited…

Got it, okay that’s helpful. Thank you.

Ladies and gentlemen, this will conclude the question and answer session. And also concludes Primerica’s first quarter, 2020 results conference call. We thank you for attending today’s presentation. And you may now disconnect your lines.