Hello. I would like to welcome everyone to the Primerica Second Quarter Earnings Results Conference Call and Webcast. [Operator Instructions] As a reminder today's event is being recorded. I would now like to turn the conference over to Nicole Russell, Head of Investor Relations. Ms. Russell, you may begin your conference.

Thank you, operator, and good morning, everyone. Welcome to Primerica's second quarter earnings call. A copy of our earnings press release, along with materials relevant to today's call, are posted on the Investor Relations section of our website, 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 duties 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 Form 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 be referencing certain non-GAAP measures, which we believe provide additional insight into the company's operations. Reconciliations of these non-GAAP measures to their respective GAAP numbers are included at the end of the earnings release and are also available on our Investor Relations Web site. I would now like to turn the call over to Glenn.

Thank you, Nicole, and thanks, everyone, for joining us today. Alison and I will provide a recap of our quarterly results and share with you how the COVID-19 pandemic is impacting our business. Second quarter results continue to reflect the strength and resilience of our business model, including the following financial highlights shown on slide three. Adjusted operating revenues during the quarter were $522 million, up 4% year-over-year, while adjusted net operating income was also up 4%. Diluted adjusted operating income per share was $2.44, which represents a 10% increase year-over-year and ROAE was 25.6% compared to 25.1% in last year's second quarter. Before going into the details of the quarter, I'd like to provide an update on the market dynamics impacting our business, which you can see on slide four. First, the positives. We believe that our unique business model is demonstrating its strength during the COVID-19 disruption. The flexibility of our entrepreneurial business opportunity, combined with complementary business lines of life insurance, investments in our emerging mortgage distribution business have positioned us to meet the needs of the middle market. Our efforts to make fundamental improvements and build momentum early in 2020 are also paying off in this unique environment. We have seen extraordinarily high interest in our financial solutions among Main Street consumers. During this period of limited mobility, many families are taking action to improve their financial game plans which was reflected in the strong life insurance sales results we saw in the quarter. Our field and corporate leadership have responded to the environment with a high level of focus and specific action plans to drive business. For example, adding the efficiency and reach of web conferencing to our traditional face-to-face model has not only allowed us to continue to meet clients' needs, it has also…

Thank you, Glenn, and good morning, everyone. I will begin today by walking you through the quarter's key earnings drivers by segment, followed by a review of companywide insurance and other operating expenses. As I go through each area, I will highlight where COVID-19 has impacted and likely will continue to impact our financial results. I will end my prepared remarks with a discussion of our invested asset portfolio and our capital and liquidity position. Starting with the Term Life segment on slide eight. And operating revenues grew 11% year-over-year to $328 million, while operating income before income taxes increased 13% to $95 million. The Term Life margin increased to 20.9% for the quarter as higher claims were more than offset by strong persistency and lower insurance expenses. COVID-19 was the real story behind the second quarter Term Life results with four main themes emerging. The first was the expected increase in debt claims. During the quarter, we recognized $10 million in COVID-related net claims on an estimated 935 cases. Given our insured population of approximately five million lives, this equates to about 190 extra deaths per million lives. In contrast, the U.S. and Canada reported 135,000 COVID-19 deaths, which, based on the population size of 367 million, equates to a death rate of 368 per million or nearly twice Primerica's experience. Our experience reflects the younger age and lower frequency of comorbidities in our insured population relative to the general population. Our COVID-19 claims came from policies that had been enforced an average of 20 years with an average attained age of 63. As we stated last quarter, at year-end 2019, only 1% of face amount in force had an attained age of 70 or higher and 12% of 60 or higher. The second COVID-19 theme relates to persistency,…

[Operator Instructions] And the first question comes from Andrew Kligerman with Credit Suisse.

Good morning, Glenn. It's pretty impressive sales that you saw in the quarter, now you're anticipating newly issued term policies in the 12% to 18% range. And you gave some really good comprehensive outlook information. So I want to take it out to next year. You cited this incredible productivity of 0.237 policies issued per month, and that's above the high end of your range at 0.22. So what I'm wondering is, as we get to next year, and hopefully, the COVID issues kind of dissipates, will the producers still have that growth going? Or is this some kind of an environment where maybe people aren't generating enough income and they're more inclined to sell more Primerica policies. How do you think about next year? I mean maybe there's a real positive here from a sales standpoint, given COVID-19 this year.

Well, there's a lot of conjecture in trying to respond to that, Andrew, but it is something we're talking about constantly trying to evaluate and anticipate how permanent the changes in human behavior might be, both of our clients and of our sales force. I think that certainly, from a client perspective, this has been a wake-up call for middle-income families to realize they need to protect their families. They need to invest for the future. They need to get out of debt. They need to be thinking about an alternative to their careers, which may have been shaken or put in jeopardy as a result of the economic disruption. So all of that plays into actions that coming from human behaviors that help our business. The question is, how permanent will that be after life goes back to normal. But it's a great question to be asked. I don't think it's going to be any worse than it was. I think it can only be better. The question is, how much better. Is it significant? Is it something we can carry forward? The same set of dynamics we ask about the activity of our sales force. Our opportunity is more attractive than it's ever been as a result of the dynamics we just described. Our sales force is achieving more success and human behavior being what it is, success breeds success. So the more successful you are, the more excited people get and the more successful they become, in general, until there's another disruption that changes that. So the first comment I would say is coming out of this and we can't lose side of the fact that this is a terrible pandemic that is costing people lives and jobs. And so I certainly don't want our success to make anyone think that we're not conscious of that because we are. At the same time, we're trying to appropriately change our business so that we can serve these clients, serve these recruits in a way that's appropriate and help them succeed in the future and avoid this kind of disaster, at least the financial part of that. So we do believe that there are many, many positives long term, that will come out of this. We mentioned some in our prepared remarks as far as the way we do our business. The web conferencing dynamic, the use of nonresident licenses in conjunction with that to expand our reach geographically within the U.S. and Canada. And those won't go away. There are new ways of doing business that we've learned. But the motivation of humans is the part that I think is really at the heart of your question, it's very, very difficult to predict. But we do think it's a lot of upside. And so we are analyzing right now how we might capitalize on that appropriately.

And as you look at this massive increase in recruits at $133,000 in the quarter, up more than 50%, what can you say about the quality of the people that you've brought on board? Is there an issue with having brought them in at $49 as opposed to $99? How are you feeling about these folks that are coming in now in the second quarter?

Well, we feel great about them, Andrew. I don't believe that a $50 discount impacts quality. There are thousands and thousands of quality people out there looking for an opportunity, and a temporary discount of $50 is a motivating factor to a certain extent, but I don't believe it changes the net quality of the results. Now what it may change is the commitment level of the results. There may be someone that makes a decision that says, hey, I risked $49 that might not have risked $99. And so the question is how committed again, when life comes back to normal or these delays in the licensing process to extend the pathway to success that we're always working on the compressed time frame. So that's a negative of the current dynamics is the extension of time frames all that impacts, which makes it impossible other than just a guess for us to try to calculate a pull-through rate. We've got many, many models on it right now and what it could be, but there's not one that starts to stand out as one that we could rely on at this point. But I think we've got excellent quality recruits. The question is, what is their commitment level. And of course, the more success we can show as an organization and the more success they have in their experience, I think, the longer they stay and the more committed they become. So that's a positive working in that dynamic. But just there's just a lot of unanswered questions because we're in uncharted waters, we've never seen anything quite like this.

And maybe if I could just get one last question in. With regard to the investment and savings product sales, guided at down 5% to 15%. Is it just in life demand has just gotten so much stronger in the COVID-19 environment? And is there any chance that maybe you might even see an uptick in ISP sales?

Yes, there's always a chance. Of course, we're always working to improve and grow no matter what the conditions around us. But as we just look realistically around us, there's so much uncertainty and our experience has been that when there's uncertainty, the larger investors tend to step to the sidelines for a while waiting on some clarity. And so what we described, both Alison and I described in our prepared remarks, is that we see great activity levels. But generally, it's with smaller investors and moving into the products that don't have uncertainty around their futures. And so we're still seeing movements toward our mutual fund line of business and away from our variable annuity line to a certain extent, as I think, by the way, the entire industry is. It's not unique to us. But I do think that we've got some people waiting on all the uncertainties of the future to kind of get some clarity and so that's why we're anticipating the headwinds. If we can figure out a way to slide through that, that's appropriate and our advice for clients and their unique needs, then certainly, we would work for upside, but that's just how we see things right now.

And the next question comes from Dan Bergman with Citi.

Thank you. For the temporary license that were issued and the licenses that were extended due to COVID, can you provide any more color on how long those temporary licenses and the extensions last? And any additional color on how much those two items might have influenced the sales force growth in the quarter? Can we just apply kind of an overall normalized licensing rate to the temporary licenses and maybe a normalized withdrawal rate to the extensions to get a sense of what might have happened to those two things not occurred? Or are there other things we should be thinking about there?

No, there's a lot that goes into that, Dan. First of all, I'd just share with you that there's not a lot of uniformity in that whole process. I mean we had 23 -- a number of states. I think it was 26 states issued COVID-temporary licenses. And so they all have a different set of rules and time frames, and they extend as they go as emergency orders or extended both the temporary licenses and the extensions of licenses, the length of time, they're going to be in place changes. And so first of all, is we're not sure when it stops. And when we go back to our -- what we have history on and can project more accurately. But then the question becomes, as you look at each one of those groups of the extended renewals, how many would have renewed and how many would not have renewed? But does the extension of time make some renew that wouldn't and some not renew that would. And so you just got a variety of dynamics that we're trying to get our arms wrapped around. And as I said, we're running models with lots of possibilities, but there's no clarity on that between just the differences in the number of states and how each state does it. And how much longer, they'll continue to do temps. And then does the extension of getting back to the more traditional process, which normally takes a few months to get someone licensed. After having been around a few months with a temp license, you're more likely or less likely to then go through the permanent process. All that's what we're studying right now, and that's why I said in my remarks, we're anticipating noise in the comparison through the end of the year likely. But on the positive side of the coin, we are seeing productivity up. We're not bloating the size of our sales force, which would drive the productivity calculation down normally. Productivity is up. So we do believe we're getting productivity from these extra licenses and renewals. So that's good. And I think the productivity being up also helps us retain them because they're involved in some success -- at least if nothing else in the field training part, of the success of the sales. So there are a lot of positives and negatives in that recipe, and there's just no clarity on exactly where that's going come out yet.

And maybe if I can just one more, a little bit more of a high-level question. Is there a material difference? And as you look at your business and your market share and penetration in the South and West, regions compared to the Mid-Atlantic and Northeast, just given how the different geographic areas are being hit hardest by the pandemic at different time. Should we expect different impacts in terms of your mortality or maybe persistency and just overall level of business activity in the third quarter relative to what we saw in the second quarter? Just any kind of overall thoughts on that would be helpful.

Yes. I would say, Dan, that early in the pandemic, especially when the Northeast lockdown tied first, we clearly saw that impact on sales. And I think you'd also see, as you would expect, the claims trends in that direction. Canada has had very tight restrictions. And so we've seen a different impact on our business in Canada than we've seen in the U.S. as a whole. So there is some regional variety in the -- in what we're seeing. But I think that's lessening now. I think things are starting to blend. The Northeast is starting to normalize to a certain extent. Canada is working on its reopening plan and may be in a better position after having stayed longer than anywhere else. So it might turn out to be a positive. But yes, we did see that early, but now we're seeing less of that, and it looks like, to me, it's normalizing kind of North America wide. And hopefully, if not in the third quarter, we're hoping by the end of the fourth quarter, then it gets to where we can project our business and anticipate things a little better as we head into 2021.

Yes. And as you would expect, our business sort of matches up to the population. So California is, obviously, a very big state for us as is Florida and Texas as are Florida and Texas. So I don't think there's any anomalies about how we're geographically based. So if you look at the U.S. population, you could look to see where we're largely also concentrated.

And the next question comes from Mark Hughes with Truist Securities.

Glenn, did you give any specific guidance on the recruiting outlook? I know you talked about a number of parameters. But I think in times past, you've talked specifically about the ranges. Did you do that on this call?

No, we didn't this time, Mark, because we are changing from the extreme recruiting focus. And again, that was out of necessity because we have control over recruiting and to a great extent, field training, much less control over the licensing process. And so we said, "Okay, we're going to aim our incentives at the things we can control." And now we're starting to move to a more balanced approach of trying to incent both. We're going to continue to incent recruiting just in a different way than the $49. And we're also going to balance that up with a strong permanent licensing pull-through impact, all that discussion we've been having during the Q&A period. So we did not attempt to project recruiting we moved back just a few days ago to the $99. We don't anticipate that to be extremely disruptive, but if the $49 was positive; $99, you'd expect to be a little less positive. But so that's not really clear. So we've not provided a recruiting projection or any kind of guidance or direction on that through year-end at this point, Mark.

And similar, Alison, the Term Life segment margin. I think you've thought given thoughts about that in the past. Did you do that this time?

Nothing. Very good. No, we did not do that either. At this point, the truth is, we put out some numbers for mortality. It's hard to predict, quite frankly, where the deaths are going to go. I think if you had asked a few months ago, people would have thought we were on the downward trajectory, and we're not quite there at this point. So we have not gone ahead and done that. I would say, we did look back at what we had projected early on when we did our fourth quarter call. And as far as I can tell, if trends continue and even if persistency pulls back some and we hit these levels of claims, we should be relatively close to where we had originally thought. But I didn't really want to give an exact number just because it's just too hard to say specifically with mortality what is going to happen. So that's why we decided, we would just give you the facts as we knew them for the upcoming quarter and our best estimate of what the claims might be.

How about the mortgage product? You've mentioned that a couple of times. Can you talk about whatever rollout you're looking at and the extent to which or some timing where that might be material?

We are very excited about the program. As I mentioned, we've been doing business for a while now in four states: Florida, Colorado, Texas and California. We're just really starting to get Texas stood up. We picked four states for a variety of real estate markets, a variety of business styles of our own and leadership styles and a variety of regulatory regimes in place because really, we're trying to understand the dynamics of the mortgage business today versus when we were in it a decade ago or more. And so we're very pleased with what we're learning. Our partner, Quicken Loans is an excellent partner and is we're working together extremely well as a partnership. We do have a plan to add a fifth state in the next week or two. And so we that will give us yet another perspective on different strengths and weaknesses of our business in the marketplace and so forth. But we're seeing really good traction early, and we're learning the adjustments we need to make to really maximize it. And so we think in the next year or two, right now, I would say that this is a product line that should have a great impact on our business. And both financially, but also don't forget the complementary nature of this business. When we go into a home, as I said in my prepared remarks, we're focused on refinancing current debt at a lower-weighted average interest rate and then accelerating payments on debts. And so the middle-income consumers focused on their debt load has probably been replaced by the current crisis just a little bit. But historically, people lie awake at night worrying about being in debt, not being able to get it paid off in their lifetimes. So it's a very attractive discussion to have with clients. And when they do take action, it generally frees up money for them in their monthly budget, which then enables them to do other things they need to do, including protect their family and invest for the future. So it has a positive dynamic. And then clients are very happy after having done that. So they're great at referring us to other business. They love to say, I'd like to be in business with you and help my friends and family do what I've just done. So it has a tremendous halo effect on the rest of our business as well. So we're excited about the potential for it as a business in and of itself, but also the impact it can have on the rest of our company dynamics. And so we're going to continue to study it. As we see the opportunities, we're going to continue to accelerate. As Alison said, our investment in it, make it grow quickly as much as possible. And then we'll report back once it starts to have a real measurable impact on the business.

And then finally, still thinking about the Medicare Advantage, I think, was also a potential product.

Yes. We're still looking at that marketplace. Still a very interesting marketplace for us. Demand seems to continue to be growing, and there are certainly success stories in that space. And we just keep asking ourselves, how can our distribution strength be matched up with the successes that are occurring in that space to benefit clients and us and a potential partner if we could identify one. That would be interested in doing business with us as well. So we are continuing to actively study that. No action to report, but clearly, still of interest to us.

The conference has now concluded. Thank you for attending today's presentation. You now disconnect your lines.