Primerica 2010 Annual Report - Direct Selling News

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Primerica 2010 Annual Report - Direct Selling News

Freedom Lives Here 2010 Annual Report


Our Company2010 was an historic year forPrimerica. On April 1, 2010, webecame an independent company,publicly traded on the New YorkStock Exchange. We view theevent as our “re-founding.” Wetrace our roots to A. L. Williams,Inc., an insurance agency foundedin 1977 to distribute term lifeinsurance as an alternative to cashvalue life insurance. A. L. Williamspopularized the concept of “BuyTerm and Invest the Difference,”reflecting a view that we continueto share today as Primerica, a MainStreet company delivering financialproducts to Main Street familiesacross North America.


A Main Street Company for Main Street Families1


Message to StockholdersDear Stockholders:Since 1977, Primerica has helped millions of middle-income families with their financial needs by providingthem with a strategy and means to gain financial independence. In 2010, we took an important step in ourcompany’s independence and financial future. Our historic initial public offering (IPO) on April 1, 2010 reinforcedPrimerica’s entrepreneurial spirit and instilled a great deal of pride among our sales force and employees.For these reasons, the IPO represented a new beginning—the re-founding of our company. We believe theconcept of a re-founding is appropriate because it not only signals a fresh start, but pays homage to our proud34-year history and track record. Our IPO gave us the opportunity to fold our years of experience, expertiseand innovation into an organization with a more streamlined balance sheet. More importantly, the IPO hasallowed us to focus on building Primerica for the long term.Today, having successfully completed our re-founding, we are an independent company with a capitalstructure that positions us to pursue opportunities to grow our existing businesses, while also seeking additionalopportunities that we believe will build shareholder value over time. We are especially proud of what wehave been able to accomplish in an environment where millions of underserved middle-income families arefacing unprecedented financial challenges. We have made great strides in our first year as a public company,and we continue to be optimistic and excited about the future of our business.WHO WE AREBeginning in 1977, Primerica transformed the life insurance industry with a philosophy that has encouragedfamilies to purchase affordable term life insurance and have more money to invest in their family’sfuture. “Buy Term and Invest the Difference” is the cornerstone of the financial game plan of millions ofNorth American families that we have served over the years. Even as we expand our products and services, thisconcept remains a foundation of our philosophy, enabling us to deliver over $939 million of death claims tofamilies in 2010.Primerica representativesassist clients in meeting theirneeds for term life insurance,mutual funds, variable annuities,loans and other financialproducts. We insure morethan 4.3 million lives andmore than 2 million clientsmaintain their investmentaccounts with us, making us aleading distributor of financialproducts to middle-incomehouseholds in North America.


North America’s vastmiddle-income market haslong been underserved bytraditional financial servicesfirms. Our unique educationalapproach and face-to-facedistribution model allow usto meet the needs of middleincomefamilies in a costeffectivemanner. Our uniqueapproach has proven itself inboth favorable and challengingeconomic environments,as evidenced by our resultsthis past year.In addition, Primericaprovides an entrepreneurialbusiness opportunity for individuals seeking to distribute our financial products. Low entry costs and theability to begin on a part-time basis allow our recruits to supplement their existing income by starting anindependent business without leaving their current jobs.OUR SALES FORCE IS VITAL TO OUR SUCCESSOur ability to successfully navigate a challenging economic environment is a testament to the skill,professionalism and longevity of our sales force. More than 20,000 of our field leaders have been withPrimerica for at least 10 years and 7,000 have been with the Company for at least 20 years.Becoming a public company provided us with an opportunity to align the interests of our sales force,stockholders and the Company. Our key field leaders—our Regional Vice Presidents—were so enthusiasticabout owning Primerica stock that our IPO-directed share program was more than two times oversubscribed.Providing a significant equity stake for our sales force has created a unique ownership structurein the financial services industry. We are proud of our equity incentive programs, which help build bothshort- and long-term alignment for all of our stakeholders.Most importantly for our business, the sales force’s reaction to becoming a public company exceededour expectations. The IPO removed uncertainty about our future and helped reinforce our position as astable, trusted advisor to middle-income families.Ultimately, our capacity to grow Primerica rests on our ability to constantly improve the opportunity forour independent sales representatives. Whether it is through new innovative incentives or improved productofferings, we recognize the need to continually improve our opportunity. We believe that being re-foundedas the largest independent financial services distribution company in North America opens new vistas for us.We are committed to using this freedom to continually improve our business opportunity.


2010 PERFORMANCEWe are extremely proud of what we have been able to accomplish during a challenging economic environmentfor our target market. Our Term Life business outperformed the industry. Our policies issued were downonly 4% in 2010 compared to 2009, while the term life policies issued in the industry declined 12%, accordingto LIMRA. Our recruiting growth also outpaced the direct selling industry in 2010. Primerica’s recruitingincreased 4% while the direct selling industry experienced an 8% decline in recruiting compared to 2009. Thesize of our life-licensed insurance sales force declined 5% at year-end 2010 compared to year-end 2009 as licensingand non-renewals experienced downward pressure in the difficult economic environment. Investmentand savings products sales grew 21% in 2010 compared to 2009 while annuity sales significantly outpaced theindustry increasing 27% in 2010 compared to 2009.The difficult market conditions affected our investment portfolio. However, with prudent expensemanagement and growth in our investment and savings products sales and asset values, we were able to$25$20$15April 1(IPO)June 30 Sept 30 Dec 31deliver strong financial results for the year.Net income was $257.8 million for 2010compared to $494.6 million for 2009. Netincome for 2009 as well as the first quarter of2010 was higher because it did not reflect theimpact of the Citi reinsurance and reorganizationtransactions executed in March and Aprilof 2010. As adjusted to reflect these transactionsas well as other operating adjustments, netoperating income was $161.5 million for 2010compared to $158.4 million for 2009.Our performance this year was well receivedby investors. Common stock ended theyear at $24.25, up 62% from the IPO offering price of $15.00 and up 27% from the opening price of $19.15on April 1, 2010. That compares with an increase of 8% by the S&P 500 Index over the same time period.Throughout 2010, we maintained a conservative balance sheet and strong capital position. As of December31, 2010, our investments and cash totaled $2.28 billion and our debt-to-capital ratio remained low at17.3%. Our statutory risk-based capital ratio (RBC) was estimated to be in excess of 570% as of December31, 2010, positioning us well for future growth while remaining significantly above our long-term RBC target.OUR VALUE PROPOSITIONTraditional financial services companies have long focused on a different segment of the market—specificallyhigher net-worth clients—for their investment and wealth management service offerings. Further, recentstatistics show that these companies are moving an increasing portion of their life insurance businesses towealthier North Americans. At Primerica, we take a much different approach. We are a Main Street companythat caters to the needs of Main Street consumers. More importantly, we recognize that the middle market isvast and largely underserved.


More than 50 percent of U.S. households fall in the middle-income market, and we believe our educationalapproach and unparalleled distribution model allow us to meet the financial needs of these consumersmore profitably than any other company. A recent study indicated that 35 million American householdshave no life insurance and, of those who are covered, most have far less coverage than experts recommend. Inaddition, most consumers prefer to work with an agent, rather than over the Internet or via toll-free numbers,when purchasing something as important and personal as life insurance. We believe Primerica’s licensedlife insurance sales force, approximately 95,000 strong, is uniquely equipped to serve the middle market.The size and local presence of our sales force allow them to sit across the kitchen table from their clients andprovide the education they need face-to-face. In short, we have a vast market to grow our business in and thebusiness model to do it effectively.We are focused on building Primerica for the future and are working diligently to improve all areas ofour business. From product improvements and technology innovations to creating a better business opportunity,we are totally focused on building Primerica for the long term.We strongly believe in the long-term growth prospects of Primerica and are encouraged by the attitude,perseverance and commitment of our sales force. Our long-standing management team—a 14-member executiveteam averaging 26 years with Primerica—remains committed to improving offerings for our clients,enhancing the business opportunity for our sales representatives, and delivering on the promises we made atour re-founding.Our solid track record, attractive products, capital strength and strong distribution capabilities willenable us to capture the substantial growth opportunity before us. We had an extraordinary first year as apublic company and are excited to have taken important steps in the future of Primerica.Sincerely,D. Richard WilliamsChairman of the Board andCo-Chief Executive OfficerJohn A. Addison, Jr.Chairman of Primerica Distribution,Co-Chief Executive Officer and Director


Just like most peoplewho just turned 21, DanielAlonzo had big dreams.He wanted to be acartoonist, but everybodykept telling him “no.” It wasabout that time that onecompany actually openedthe door for him, and hestepped right in.“Primerica taught mehow to dream again, taughtme how to be courageous,they taught me how to persistuntil I succeed,” Danielremembers.He was making $7 anhour at the time, and hisfuture wife, Karma, wasstill in college, but everythingchanged when theirPrimerica career got off toa fast start.The couple didn’t justmake money, however,they followed the financialprinciples the companyhad taught them—savingmoney, investing wisely,living below their means.“We made good decisions,”Daniel says, “and becauseof that we became financiallyindependent withinseven years of joining thecompany. We had savedone million dollars.”


We are PrimericaPrimerica is a Main Street company for Main Street North America. Our clientsare generally middle-market families, a market that traditionally has been neglectedby the financial services industry. This market needs what Primerica offers more thanever before. Our distribution model, which borrows aspects from franchising, directsales and traditional insurance agencies, is designed to reach and serve middle incomeconsumers efficiently.Our mission is to help families become properly protected, debt free and financiallyindependent. Using an educational approach and our unique distribution model,Primerica is positioned to address the middle market’s needs, which we know well:• They have inadequate or no life insurance coverage• They need help saving for retirement or other goals• They need to reduce their debt• They prefer to meet face-to-face when considering financial products• They need a vehicle to help themselves generate additional income


In June of 2010Guiseppe Vaiasuso diedat the age of 35 frombrain cancer, leaving32-year-old wife, Karolienand two children, nineand six years old. It wasa tragic death at a youngage—and yet Guiseppewas able to provide forhis family’s needs.Only a couple of yearsbefore, the couple hadno life insurance at all—until they met PrimericaRegional Vice President,Desi Torrez. Desi metwith Guiseppe and Karolienin their home and,with their input, analyzedtheir financial needs. Desiput together a financialgame plan for the familythat included a PrimericaCustom Advantage termlife insurance policy.Before Guiseppedied, he knew that hisfamily had the financialwherewithal to move onwith life.“Had it not been forPrimerica, I don’t knowwhat I would have done.We never went shoppingfor life insurance. If Desihadn’t taken the timeto talk to us, who knowswhat would be happeningto our family. Because ofPrimerica, we are financiallysecure.”


Primerica helps familiescreate a financial game plan.Primerica is poised to solve the financial problems of the middle market. Our representativesmeet with families in their own homes, across the kitchen table, and teach them“how money works”. These fundamental financial concepts are not taught in school. Primericabelieves everyone has a right to know these simple principles—not just the wealthy.Our representatives use our proprietary financial needs analysis tool and an educationalapproach to demonstrate how our products can assist clients to provide financial protectionfor their families, save for their retirement and reduce their debt. Typically, our clients arethe friends, family members and personal acquaintances of our representatives.Primerica representativesLuz Sanchez andDesi Torrez with theVaiasuso family.


Primerica provides abusiness opportunity.Primerica offers average and ordinary individuals a chance to build their own businessand change their lives. We provide an entrepreneurial business opportunity for individualsto distribute our financial products and help people get on a path to financial independence.While the lack of start-up capital is a barrier for most would-be entrepreneurs, Primericarepresentatives can begin with low entry costs and the ability to begin part-time which allowsthem to start an independent business without leaving their current jobs.Our unique compensation structure, cutting-edge technology, extensive training and efficientback-office processing are designed to enable our representatives to successfully growtheir independent businesses.While other companies target the affluent, Primerica helps hardworking middle-marketfamilies all across North America. Our market is large and growing every day. Througheducation, a customized financial strategy, and a source for additional income, our clientsare able to take advantage of our common sense solutions and get on the path to financialindependence … and freedom.Events and incentivetrips give Primericareps something extra tocompete for and offer achance for on-site recognitionof their achievements.The biggest of these bigevents is the conventionthat is held on a biennialbasis. In June of 2011,approximately 50,000Primerica representativesare expected to gatherat the Georgia Dome inAtlanta for the three-dayevent. Leading up to theconvention are competitionsfor on-stage recognitionin front of a packedGeorgia Dome. Requirementsfor recognition aretied to production andthey help to drive recruiting,licensing and sales.


René Turner wasalways told growing upto study hard and getgood grades. The planappeared to be right ontrack when René graduatedfrom Georgia Techwith a degree in industrialengineering. Just twoyears later, however, Renérealized she was far fromwhere she really wantedto be.“I didn’t like my situation,”René says. “I didn’tlike my schedule, didn’tlike my income, I didn’tfeel like I was getting paidwhat I deserved. I reallywas looking for options.”Along the way, Renéand her husband Melhad been introduced toPrimerica, and he startedin the business first. Afterthe birth of their firstchild, Mel was called tothe ministry, and Renédecided it was time forher own career change.“This company providesthe environment and thesupport that allows youto achieve success,” saidRené, who has since builta big business and is oneof the most respectedwomen in all of Primerica.“I wouldn’t be anywhereelse.”


When he was in theNFL, Abram Booty ofShreveport, LA, wastime poor. There were noThanksgivings or Christmases.That’s when gamesare played. Days off werefew and far between.Breaks were short. Therewere practices to hold. Fora couple that had just hada child, it was an emotionaldrain.Now, Abram makesmore money each yearwith Primerica than hedid in the NFL or when hestarted coaching—and hegets to see his wife, Amy,and their kids wheneverhe’d like. With Primerica,he said, he can make themoney of a professionalathlete and still have afamily life.Abram started inPrimerica to supplementhis coaching income. Itbecame a way throughwhich he lives his dreamlife. “I look back at peopleI was coaching with, and Isee that there have beenno pay raises in the yearssince I left,” he said. Hisbusiness is still booming,though, he says.Today, Abram and Amyare both grateful for thedifference Primerica hasmade in their lives, allowingthem to spend moretime with their familyand “live a lifestyle mostpeople only dream about.”


We teach people how money works.We help people build a business of their own.We believe in freedom.We are Primerica.Freedom Lives Here.


Board of DirectorsTop row: M. Martin, R. McCullough, E. McColgan, D. Zilberman,P.G. Benson, M. MasonBottom row: R. Williams, J. AddisonNot pictured: B. YastineJohn A. Addison, Jr.Chairman ofPrimerica DistributionCo-CEO, Primerica, Inc.P. George BensonPresidentThe College of CharlestonMichael E. MartinPartner, Warburg Pincus & Co.Managing Director,Warburg Pincus LLCMark MasonChief Operating Officer,Citi HoldingsCitigroup, Inc.Ellyn A. McColganRetired President andChief Operating OfficerGlobal Wealth ManagementGroup, Morgan StanleyRobert F. McCulloughRetired Senior PartnerInvesco Ltd.D. Richard WilliamsChairman of the Boardand Co-CEOPrimerica, Inc.Barbara A. YastineChief Administrative OfficerAlly Financial, Inc.Daniel ZilbermanPartner, Warburg Pincus & Co.Managing Director,Warburg Pincus LLCTop row: A. Rand, G. Pitts, P. Schneider, G. WilliamsBottom row: R. Williams, J. AddisonNot pictured: J. Fendler, W. KellyExecutive OfficersJohn A. Addison, Jr.Chairman ofPrimerica DistributionCo-CEO, Primerica, Inc.Jeffrey S. FendlerPresident,Primerica Life InsuranceCompanyWilliam A. KellyPresident,PFS Investments Inc.Gregory C. PittsExecutive Vice President andChief Operating Officer,Primerica, Inc.Alison S. RandExecutive Vice President andChief Financial Officer,Primerica, Inc.Peter W. SchneiderExecutive Vice President,General Counsel,Corporate Secretary andChief Administrative Officer,Primerica, Inc.Glenn J. WilliamsPresident,Primerica, Inc.D. Richard WilliamsChairman of the Boardand Co-CEO,Primerica, Inc.


UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K(Mark One)È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934For the fiscal year ended December 31, 2010or‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934For the transition period from toCommission File Number: 001-34680Primerica, Inc.(Exact name of registrant as specified in its charter)Delaware 27-1204330(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)3120 Breckinridge BoulevardDuluth, Georgia 30099(Address of principal executive offices)(ZIP Code)Registrant’s telephone number, including area code: 770.381.1000Securities registered pursuant to Section 12(b) of the Act:Title of each className of each exchange on which registeredCommon Stock, $.01 Par ValueNew York Stock ExchangeSecurities registered pursuant to section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the SecuritiesAct. ‘ Yes È NoIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of theAct. ‘ Yes È NoIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to such filing requirements for the past90 days. È Yes ‘ NoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, ifany, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). ‘ Yes ‘ NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of thischapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxyor information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. ‘Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-acceleratedfiler, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and“smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer ‘ Accelerated filer ‘Non-accelerated filer È (Do not check if a smaller reporting company) Smaller reporting company ‘Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct). ‘ Yes È NoThe aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2010, was$547,542,546.The number of shares of the registrant’s Common Stock outstanding at February 28, 2011, with $.01 par value, was73,188,018.Documents Incorporated By ReferenceCertain information contained in the Proxy Statement for the Company’s Annual Meeting of Stockholders to beheld on May 18, 2011 is incorporated by reference into Part III hereof.


TABLE OF CONTENTSPagePART I ................................................................................ 3Item 1. Business. .................................................................... 3Item 1A. Risk Factors. ................................................................. 36Item 2. Properties. ................................................................... 61Item 3. Legal Proceedings. ........................................................... 61Item X. Executive Officers of the Registrant. ............................................ 62PART II ................................................................................ 64Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities. ................................................ 64Item 6. Selected Financial Data. ....................................................... 67Item 7. Management’s Discussion and Analysis of Financial Condition and Results ofOperations. .................................................................. 68Item 7A. Quantitative and Qualitative Disclosures About Market Risk. ...................... 105Item 8. Financial Statements and Supplementary Data. .................................. 106Item 9. Changes in and Disagreements With Accountants on Accounting and FinancialDisclosure. ................................................................... 155Item 9A. Controls and Procedures. ...................................................... 155PART III ............................................................................... 156Item 10. Directors, Executive Officers and Corporate Governance. ......................... 156Item 11. Executive Compensation. ...................................................... 160Item 12. Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters. .......................................................... 160Item 13. Certain Relationships and Related Transactions, and Director Independence. ....... 160Item 14. Principal Accounting Fees and Services. ........................................ 160PART IV ............................................................................... 161Item 15. Exhibits and Financial Statement Schedules. .................................... 161Signatures ............................................................................. 176


CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTSCertain statements contained in this report aswell as some statements in periodic pressreleases and some oral statements made bymanagement during presentations are“forward-looking” statements. Forward-lookingstatements include, without limitation, anystatement that may project, indicate or implyfuture results, events, performance orachievements, and may contain the words“expect,” “intend,” “plan,” “anticipate,”“estimate,” “believe,” “will be,” “will continue,”“will likely result,” and similar expressions, orfuture conditional verbs such as “may,” “will,”“should,” “would,” and “could.” In addition, anystatement concerning future financialperformance (including future revenues,earnings or growth rates), ongoing businessstrategies or prospects, and possible actionstaken by us or our subsidiaries, which may beprovided by our management teams, are alsoforward-looking statements. These forwardlookingstatements involve external risks anduncertainties, including, but not limited to,those described under the section entitled “RiskFactors” included herein.Forward-looking statements are based oncurrent expectations and projections aboutfuture events and are inherently subject to avariety of risks and uncertainties, many ofwhich are beyond the control of ourmanagement team. These risks anduncertainties include, among others:• our failure to continue to attract newrecruits, retain sales representatives, ormaintain the licensing of our salesrepresentatives;• changes to the independent contractorstatus of our sales representatives;• our or our sales representatives’ violation ofor non-compliance with laws and regulations;• our failure to protect the confidentiality ofclient information;• differences between our actual experienceand our expectations regarding mortality,persistency, expenses and investmentyields as reflected in the pricing for ourinsurance policies;• the occurrence of a catastrophic event thatcauses a large number of prematuredeaths of our insureds;• changes in, or non-compliance with, federaland state legislation and regulation,including the Dodd-Frank Wall StreetReform and Consumer Protection Act of2010 and other legislation or regulationthat affects our insurance, investmentproduct and loan businesses;• our failure to meet risk-based capitalstandards or other minimum capital andsurplus requirements;• a downgrade or potential downgrade in ourinsurance subsidiaries’ financial strengthratings;• the effects of credit deterioration andinterest rate fluctuations on our investedasset portfolio;• incorrectly valuing our investments;• inadequate or unaffordable reinsurance orthe failure of our reinsurers to performtheir obligations;• recent changes in accounting for deferredpolicy acquisition costs of insuranceentities and other changes in accountingstandards;• the failure of our investment products toremain competitive with other investmentoptions;• heightened standards of conduct or morestringent licensing requirements for oursales representatives;• inadequate policies and proceduresregarding suitability review of clienttransactions;• the failure of, or legal challenges to, thesupport tools we provide to our sales force;• the inability of our subsidiaries to paydividends or make distributions;• the effects of a delay in the recovery of theU.S. and Canadian economies;Primerica 2010 Annual Report 1


• our ability to generate and maintain asufficient amount of capital;• our non-compliance with the covenants ofour note payable;• legal and regulatory investigations andactions concerning us or our salesrepresentatives;• the competitive environment;• the loss of key personnel;• the failure of our information technologysystems, breach of our informationsecurity or failure of our businesscontinuity plan;• fluctuations in Canadian currencyexchange rates;• conflicts of interests due to Citigroup Inc.’s(“Citi”) significant interest in us, WarburgPincus’ significant interest in us and thelimited liability of Citi’s directors andofficers for breach of fiduciary duty; and• engagement by Citi in the same type ofbusinesses that we conduct.Developments in any of these areas couldcause actual results to differ materially fromthose anticipated or projected or cause asignificant reduction in the market price of ourcommon stock.2 Freedom Lives Here


PART IITEM 1.BUSINESSOverviewPrimerica, Inc. (“Primerica” or “we”) is aleading distributor of financial products tomiddle income households in the United Statesand Canada with approximately 95,000licensed sales representatives at December 31,2010. We assist our clients in meeting theirneeds for term life insurance, which weunderwrite, and mutual funds, annuities andother financial products, which we distributeprimarily on behalf of third parties. We insuredmore than 4.3 million lives and more than twomillion clients maintained investment accountswith us at December 31, 2010. Our distributionmodel uniquely positions us to reachunderserved middle income consumers in acost effective manner and has proven itself inboth favorable and challenging economicenvironments.Our mission is to serve middle income familiesby helping them make informed financialdecisions and providing them with a strategyand means to gain financial independence. Ourdistribution model is designed to:• Address our clients’ financial needs: Oursales representatives use our proprietaryfinancial needs analysis (“FNA”) tool andan educational approach to demonstratehow our products can assist clients toprovide financial protection for theirfamilies, save for their retirement andmanage their debt. Typically, our clientsare the friends, family members andpersonal acquaintances of our salesrepresentatives. Meetings are generallyheld in informal, face-to-face settings,usually in the clients’ own homes.• Provide a business opportunity: Weprovide an entrepreneurial businessopportunity for individuals to distribute ourfinancial products. Low entry costs and theability to begin part-time allow our recruitsto supplement their income by startingtheir own independent businesses withoutincurring significant start-up costs orleaving their current jobs. Our uniquecompensation structure, technology,training and back-office processing aredesigned to enable our salesrepresentatives to successfully grow theirindependent businesses.Corporate Structure and HistoryWe conduct our principal business activities inthe United States through four principalentities, all of which are wholly ownedsubsidiaries: Primerica Financial Services, Inc.(“PFS”), our general agency and marketingcompany; Primerica Life Insurance Company(“Primerica Life”), our principal life insurancecompany; PFS Investments Inc. (“PFSInvestments”), our securities products companyand broker-dealer; and Primerica FinancialServices Home Mortgages, Inc. (“PrimericaMortgages”), our loan broker company. OurCanadian operations are primarily conductedby Primerica Life Insurance Company ofCanada (“Primerica Life Canada”), ourCanadian life insurance company, and PFSLInvestments Canada Ltd., our Canadian licensedmutual fund dealer. Primerica Life, domiciled inMassachusetts, owns one principal subsidiary,National Benefit Life Insurance Company(“NBLIC”), a New York life insurance company.As of December 31, 2010, Citi ownedapproximately 40% and Warburg Pincus ownedapproximately 23% of our outstanding commonstock.Primerica was incorporated in Delaware inOctober 2009 to serve as a holding companyfor the Primerica businesses. However, wetrace our core business of offering term lifeinsurance policies through a sales organizationof independent sales representatives to 1977. In1977, Arthur L. Williams, Jr. formed A.L.Williams & Associates, Inc. (“A.L. Williams”), anindependent general agency that was dedicatedto selling term life insurance through a salesforce of seven Regional Vice Presidents(“RVPs”) and 85 sales representatives. A.L.Williams grew rapidly from its inception andbecame one of the top sellers of individual lifeinsurance in the United States. The operationsof A.L. Williams formed the foundation of ourgeneral agency subsidiary, PFS, and of oursales force. Our insurance and securitiesoperations are also well-seasoned.Primerica 2010 Annual Report 3


Primerica Life was formed in 1927 under thename of Fraternal Protective InsuranceCompany, and PFS Investments was formed in1981 under the name of First American NationalSecurities, Inc. Primerica Life, PFS Investmentsand the assets and operations of PFS wereacquired by predecessors of Citi through aseries of transactions in the late 1980s.Our businesses, which prior to April 1, 2010were wholly owned indirect subsidiaries of Citi,were transferred to us by Citi in areorganization pursuant to which we issued to awholly owned subsidiary of Citi (i) 74,990,900shares of our common stock, (ii) warrants topurchase from us an aggregate of 4,103,110shares of our common stock and (iii) a $300.0million note payable due on Mach 31, 2015,bearing interest at an annual rate of 5.5% (the“Citi note”). Citi then:• sold 24,564,000 shares of our commonstock in our initial public offeringcompleted in April 2010 (the “Offering”);• sold 16,412,440 shares of our commonstock and the warrants to private equityfunds managed by Warburg Pincus LLC(“Warburg Pincus”) in mid-April 2010 (the“private sale”); and• contributed back to us 5,021,412 shares ofour common stock for equity awardsgranted to employees and sales forceleaders in connection with the Offering.In March 2010, we entered into coinsuranceagreements (the “Citi reinsuranceagreements”) with two affiliates of Citi and withPrime Reinsurance Company, Inc. (“Prime Re”),then a wholly owned subsidiary of PrimericaLife (collectively, the “Citi reinsurers”). For adescription of the Citi reinsurance transactions,see “Management Discussion and Analysis ofFinancial Condition and Results of Operations –The Transactions – The reinsurancetransactions”. We completed additionaltransactions concurrently with the Offering andthe Citi reinsurance transactions, which aredescribed under “Management Discussion andAnalysis of Financial Condition and Results ofOperations – The Transactions – The concurrenttransactions”.Our ClientsOur clients are generally middle incomeconsumers. We define middle incomeconsumers as households with $30,000 to$100,000 of annual income. According to the2009 U.S. Census Bureau Current PopulationSurvey, approximately 50% of U.S. householdsfall in this range. We believe that weunderstand the financial needs of the middleincome segment well:• They have inadequate or no life insurancecoverage. Individual life insurance salesin the United States declined from12.5 million policy sales in 1975 to6.7 million policy sales in 2009, the latestperiod for which data is available,according to LIMRA. We believe that termlife insurance, which we have provided tomiddle income clients for many years, isgenerally the best option for them to meettheir life insurance needs due to its lowerinitial cost versus cash value life insuranceand for the protection that it provides atcritical points in our clients’ lives.• They need help saving for retirement andother personal goals. The decrease in thevalue of households’ retirement accountassets has intensified the challenges ofmiddle income families to save forretirement and the education of theirchildren. By developing personalizedsavings programs for our clients using ourproprietary FNA tool and offering a widerange of mutual fund, annuity andsegregated fund products sponsored andmanaged by reputable firms, our salesrepresentatives are well equipped to helpclients develop long-term savings andretirement plans to address their financialneeds.• They need to reduce their consumerdebt. Many middle income families havenumerous debt obligations for credit card,auto loan, home-equity and mortgage debt.We help our clients address these financialburdens, including through debtconsolidation loans that allow them toconsolidate their debt and accelerate itsrepayment and personalized client-drivendebt management techniques that help4 Freedom Lives Here


them reduce and ultimately pay off theirdebts.• They prefer to meet face-to-face whenconsidering financial products. In a 2008survey conducted by LIMRA, 72% of U.S.middle income consumers indicated theirdesire to speak with a professional aboutat least one financial product or service,with the majority expressing a preferenceto meet face-to-face. Our business model isdesigned to directly address theface-to-face preference expressed by themajority of middle market consumers in acost-effective manner.We believe that our educational approach anddistribution model best position us to addressthe unique needs of the middle incomeconsumer profitably, which traditional financialservices firms have found difficult toaccomplish.Our Distribution ModelThe high fixed costs associated with in-housesales personnel and salaried career agents andthe smaller-sized sales transactions typical ofmiddle income consumers have forced manyother financial services companies to focus onmore affluent consumers. Product sales toaffluent consumers tend to be larger,generating more sizable commissions for theselling agent, who usually works on a full-timebasis. As a result, this segment has becomeincreasingly competitive. Our distributionmodel — borrowing aspects from franchising,direct sales and traditional insurance agencies— is designed to reach and serve middle incomeconsumers efficiently.Key characteristics of our unique distributionmodel include:• Independent entrepreneurs: Our salesrepresentatives are independentcontractors building and operating theirown businesses. This business-within-abusinessapproach means that our salesrepresentatives are entrepreneurs whotake responsibility for selling products,recruiting sales representatives, settingtheir own schedules and managing andpaying the expenses associated with theirsales activities, including office rent andadministrative overhead.• Part-time opportunity: By offering aflexible part-time opportunity, we are ableto attract a significant number of recruitswho desire to earn supplemental incomeand generally concentrate on smaller-sizedtransactions typical of middle incomeconsumers. Virtually all of our salesrepresentatives begin selling our productson a part-time basis, which enables them tohold jobs while exploring an opportunitywith us.• Incentive to build distribution: When asale is made, the selling representativereceives a commission, as does therepresentative who recruited him or her,which we refer to as overridecompensation. Override compensation ispaid through several levels of the sellingrepresentative’s recruitment andsupervisory organization. This structuremotivates existing sales representatives togrow our sales force by providing themwith commission income from the salescompleted by their recruits.• Innovative compensation system: We havedeveloped an innovative system forcompensating our independent sales forcethat is primarily tied to and contingent uponproduct sales. We advance to ourrepresentatives a significant portion of theirinsurance commissions upon theirsubmission of an insurance application andthe first month’s premium payment. Inaddition to being a source of motivation forour sales force, this upfront paymentprovides our sales force with immediatecash flow to offset costs associated withoriginating the business. In addition,monthly production bonuses on term lifeinsurance sales are paid to salesrepresentatives whose downline salesorganizations meet certain sales levels. Withcompensation primarily tied to salesactivity, our compensation approachaccommodates varying degrees ofindividual sales representative productivity,which allows us to use a large group of parttimerepresentatives cost effectively andPrimerica 2010 Annual Report 5


gives us a variable cost structure. Inaddition, we incentivize our RVPs withequity compensation, which aligns theirinterests with those of our stockholders.• Large dynamic sales force: The membersof our sales force primarily target andserve their friends, family members andpersonal acquaintances throughindividually driven networking activities.We believe that this warm marketsapproach is an effective way to distributeour products because it facilitatesface-to-face interaction initiated by atrusted acquaintance of the prospectivecustomer, which is difficult to replicateusing other distribution approaches. Due tothe large size of our sales force, attritionand our active recruiting of new salesrepresentatives, our sales force isconstantly renewing itself by adding newmembers, which allows us to continue toaccess an expanding base of our salesrepresentatives’ contacts. By relying on avery large and ever-renewing sales forcethat has access to and a desire to helpfriends, family members and personalacquaintances, we are able to reach a widemarket without engaging costly mediachannels.• Sales force leadership: A salesrepresentative who has built a successfulorganization can achieve the salesdesignation of RVP and can earn highercommissions and bonuses. RVPs areindependent contractors who open andoperate offices for their salesorganizations and devote their fullattention to their Primerica businesses.RVPs also support and monitor the parttimesales representatives on whose salesthey earn override commissions incompliance with applicable regulatoryrequirements. RVPs’ efforts to expandtheir businesses are a primary driver of oursuccess.• Motivational culture: Through sales forcerecognition events and contests, we seekto create a culture that inspires andrewards our sales representatives for theirpersonal successes. We believe thismotivational environment is a majorreason that many sales representativesjoin and achieve success in our business.Structure and Scalability of OurSales ForceOur sales force consists of independent salesrepresentatives. When new salesrepresentatives are recruited by existing salesrepresentatives, they join our sales force withan upline relationship with the salesrepresentative who recruited them and with therecruiting sales representative’s respectiveupline RVP organization. As new salesrepresentatives are successful in recruitingother sales representatives, they begin to buildtheir own organization of sales representativeswho become their downline salesrepresentatives. Sales representatives areencouraged to recruit other salesrepresentatives and build their own downlineorganizations to earn override commissions onsales made by members of their downlineorganization. Our sales representatives viewbuilding their own downline organizations asbuilding their own business within a business.While the substantial majority of our salesrepresentatives are part-time, at December 31,2010 approximately 4,000 served as RVPs whodevote their full attention to our organization.RVPs establish and maintain their own offices,which we refer to as field offices, and fund thecost of administrative staff, marketingmaterials, travel and training and recognitionevents for the sales representatives in theirrespective downline organizations. Field officesmaintained by RVPs provide a location forconducting recruiting meetings, training eventsand sales-related meetings, disseminating ourInternet-streamed TV programming, conductingcompliance functions, and housing field officebusiness records.Our sales-related expenses are primarily variablecosts that fluctuate with product sales volumeand consist primarily of sales commissions paidto our sales representatives and, to a lesserextent, both fixed and variable costs associatedwith our incentive programs, sales management,training, information technology, complianceand administrative activities.6 Freedom Lives Here


With the support of our home office staff, RVPsplay a major role in training, motivating andmonitoring our sales representatives. Becausethe primary determinant of a salesrepresentative’s compensation is the size andproductivity of his or her downlineorganization, our distribution model providesfinancial rewards to our sales representativeswho successfully recruit, support and monitorproductive sales representatives for ourcompany. We believe that new tools andtechnology, coupled with our equity incentiveaward program, further incentivize our salesrepresentatives to become RVPs. The new toolsand technology that we have made available toour RVPs enable them to reduce the time spenton administrative responsibilities associatedwith their sales organization so they can devotemore time to the sales and recruiting activitiesthat drive our growth. See “— Sales ForceSupport and Tools” below.Both the structure of our sales force and thecapacity of our support capabilities provide uswith a high degree of scalability as we grow ourbusiness. Our support systems and technologyare capable of supporting a large sales forceand a high volume of transactions. In addition,the sharing of training and oversight activitiesbetween us and RVPs allows us to grow withoutincurring proportionate overhead expenses toaccommodate an increase in salesrepresentatives, clients, product sales andtransactions.Recruitment of SalesRepresentativesOur ongoing recruitment, training and licensingof new sales representatives are critical for oursuccess. Our sales force is our sole distributionchannel. Our recruiting process is designed torecruit new sales representatives and to reachnew prospective clients. Recruits often becomeour clients or provide us with access to theirfriends, family members and personalacquaintances, which expand our market reach.As a result, we have developed, and continue toseek to improve, a systematic approach torecruiting new sales representatives andtraining them so they can obtain the requisitelicensing to succeed.Similar to other distribution systems that relyupon part-time sales representatives andtypical of the life insurance industry generally,we experience wide disparities in theproductivity of individual sales representatives.Many new recruits elect not to obtain therequisite licenses, and many of our licensedsales representatives are only marginally activeor are inactive in our business each year. Weplan for this disparate level of salesrepresentative productivity and view acontinuous recruiting cycle as a key componentof our distribution model. Our distributionmodel is designed to address the varyingproductivity associated with using part-timesales representatives by paying salescompensation based on sales activity,emphasizing the recruiting of new salesrepresentatives and continuing ongoinginitiatives to address barriers to licensing newrecruits. Our sales force compensationstructure, by providing override commissions tosales representatives on the sales generated bytheir downline sales organization, aligns ourinterest in recruiting new representatives withthe interests of our sales representatives.We recruit and offer training to new salesrepresentatives in very large numbers. Manynew recruits do not complete the requirementsto obtain their individual life insurance licensesmainly due to the time commitment required toobtain licenses and various regulatory hurdles.Primerica 2010 Annual Report 7


The table below highlights the number of newrecruits, newly insurance-licensed salesrepresentatives, and average number of newlyinsurance-licensed sales representatives:Year ended December 31,2010 2009 2008Number of new recruits 231,390 221,920 235,125Number of newly insurance-licensed sales representatives 34,488 37,629 39,383Number of insurance-licensed sales representatives, at period end 94,850 99,785 100,651Average number of insurance-licensed sales representatives duringperiod 96,840 100,569 99,361We define new recruits as individuals who havesubmitted an application to join our sales force,together with payment of a fee to commencetheir pre-licensing training. We may not approvecertain new recruits to join our sales force, andothers elect to withdraw from our sales forceprior to becoming active in our business.On average, it requires approximately threemonths for our sales representatives tocomplete the necessary applications andpre-licensing coursework and to pass theapplicable state or provincial examinations toobtain a license to sell our term life insuranceproducts. As a result, individuals recruited tojoin our sales force within a given fiscal periodmay not become licensed sales representativesuntil a subsequent fiscal period.We have launched several recruiting andlicensing initiatives that are designed to help usmaintain and increase our recruiting andlicensing activity and ultimately grow theaggregate size of our licensed sales force,including:• introducing a Fast Start Bonus programthat provides new representatives anopportunity to earn compensation quickly;• providing our sales force with the ability toregister new recruits almostinstantaneously using their mobile devices,which allows our new recruits to getstarted in building their businessesimmediately;• developing a wide array of courses,training tools and incentives that assist andencourage new recruits to obtain therequisite licenses; and• working with industry and tradeassociations to address unnecessaryregulatory barriers to licensing qualifiedcandidates.Recruiting sales representatives is undertakenby our existing sales representatives, whoidentify prospects and share with them thebenefits of associating with our organization.Our sales representatives showcase ourorganization as dynamic and capable ofchanging lives for the better by demonstratingthe success achieved by members of our salesforce.After the initial contact, prospective recruitstypically are invited to an “opportunitymeeting,” which is conducted by an RVP at afield office. The objective of such meetings is toinform recruits about our mission and theiropportunity to join our sales force. At theconclusion of each opportunity meeting,prospective recruits are asked to complete anapplication and pay a $99 fee to commencetheir pre-licensing training and licensingexamination preparation programs. Manyrecruits also elect to pay $25 per month for asubscription to Primerica Online, our extensivewebsite for our sales force. Recruits are notobligated to purchase any of our products tobecome a sales representative, although theyoften elect to do so.Recognizing that our successful salesrepresentatives generally are active in ourbusiness in the evenings and on the weekends,we have created a Partnership Program for thespouses and significant others of our salesrepresentatives to provide them withmeaningful roles in our business. For example,a sales representative’s partner is typically8 Freedom Lives Here


ecognized with the sales representative forawards and honors. Moreover, it is common fora partner to serve as an office manager oradministrator in a field office, which reducesoverhead for that RVP and creates a sense ofshared enterprise for the partner.The requirement that our sales representativesobtain licenses to sell many of our products is ahurdle for our recruits. To minimize thisimpediment, we provide our new recruits withtraining opportunities such as test preparationtools and classes to help them become licensed,generally at no additional cost to them, andoffer financial incentives and recognitionprograms to encourage recruits to becomelicensed and to drive growth of our sales forcegenerally. We also have joined others in the lifeinsurance industry in seeking to addressunnecessary regulatory barriers to licensing,including efforts to modify individual statelicensing laws and regulations.Sales Force Motivation, Training andCommunicationMotivating and training our sales force arecritical activities for our success and that of oursales representatives. We use multiple channelsto reach our approximately 95,000 licensedsales representatives to deliver motivationaland substantive messages.Motivation. Through our proven systemof sales force recognition events and contests,we provide our sales representatives withincentives to engage in activities that drive ourresults. Motivation is driven in part by our salesrepresentatives’ belief that they can achievehigher levels of financial success by buildingtheir own businesses as Primerica salesrepresentatives. The opportunity to help othersaddress financial challenges is also a significantsource of motivation for many of our salesrepresentatives, as well as for our managementand employees. Our mission-driven andmotivational culture is, we believe, a majorreason that many sales representatives join andsucceed in our business.We motivate our sales representatives tosucceed in our business by:• compensating our sales representatives toreward product sales by them and theirdownline organizations;• helping our sales representatives learnfinancial fundamentals so they canconfidently and effectively assist ourclients;• reducing the administrative burden on oursales force, which allows them to devotemore of their time to building a downlineorganization and selling products; and• creating a culture in which salesrepresentatives are encouraged to achievegoals through the recognition of their salesand recruiting achievements.We seek to motivate our sales representativesnot only through compensation, but also byproviding recognition for individual efforts andachievements. We do this through incentivetrips, monthly promotion incentives and othertypes of performance recognition. Successfulsales representatives, as well as relatively newsales representatives who are beginning toachieve success in our sales organization, arerecognized on Primerica Online and in printmaterials that are distributed to our entiresales force. Additionally, many RVPs host theirown recognition events and create incentiveprograms that they sponsor for the salesrepresentatives in their downline organizations.To give our sales representatives a sense thatthey are part of a larger enterprise than theirfield office, we conduct numerous local,regional and national meetings. These meetingsare a vehicle to inform and motivate our salesforce. For example, in January 2011 weconducted 12 regional meetings withapproximately 3,700 RVPs. We haveperiodically held a convention for all of oursales representatives, the most recent of whichwas held in 2007 at the Georgia Dome,attracting approximately 50,000 individuals.Our next convention is scheduled to take placein June 2011, also at the Georgia Dome inAtlanta, Georgia. We believe the fact that somany of our sales representatives elect toattend our meetings at their own expensedemonstrates their commitment to ourorganization.Primerica 2010 Annual Report 9


Training. Our sales representatives musthold licenses to sell most of our products. Ourin-house insurance licensing center makesavailable classroom, online and correspondenceinsurance pre-licensing classes to meetapplicable state and provincial licensingrequirements and prepare recruits to passapplicable life insurance licensing exams. In2010, more than 62,600 students in 42 states,Puerto Rico and nine Canadian provincesattended approximately 5,400 classesconducted by over 500 instructors, many ofwhom are also sales representatives.Approximately 30,400 students in 43 statesand the District of Columbia attended onlinepre-licensing classes in 2010. We also offercorrespondence courses in 22 states and theDistrict of Columbia. For those representativeswho wish to sell our investment and savingsproducts, we contract with third-party trainingfirms to conduct exam preparation.Because we believe that helping our newrecruits secure requisite licensing is a way forus to grow our business, we continue todevelop courses, tools and incentives to helpnew recruits become licensed salesrepresentatives. Among other tools, we provideto our sales force (generally at no cost to them)an online exam simulator, exam preparationreview classes in addition to state or provincemandated life insurance pre-licensing classes,and life insurance exam review videos. If newrecruits use our online exam simulator and passour practice exams, we agree to pay for themto take the state exam again if they do not passthe first time. We also developed the Fast StartScoreboard, an interactive tool on ourPrimerica Online website that provides newrecruits a step-by-step guide to getting startedin building their Primerica businesses, includingencouragement to use our licensing exampreparation courses and tools.Other internal training program opportunitiesinclude sales, management skills, businessownership, product and compliance trainingmodules and videos designed to equip our salesrepresentatives to succeed in their businesses.Many RVPs conduct sales training in fieldoffices either on nights or weekends to allowsales representatives with weekday jobs orfamily commitments to attend.Communication. We communicate with oursales force through multiple communicationchannels, including those described below:• Primerica Online, our Internet site for salesrepresentatives, is designed to be a supportsystem for our sales representatives. Itprovides sales representatives with accessto their Primerica e-mail, bulletins andalerts, business tracking tools and real-timeupdates on their pending life applicationsand new recruits. It contains an extensivelibrary of Primerica-approved presentations,logos, graphics and audio and visual salestools, all of which can be easily downloadedby our sales representatives. ThroughPrimerica Online, we provide real-timerecognition of sales representatives’successes, and scoreboards for sales forceproduction, contests and trips. PrimericaOnline also is a gateway to our productproviders and product support, a vehicle tomonitor production and track sales activityand a comprehensive training tool thathelps new recruits become licensed andstart building their businesses.Approximately 142,400 of our salesrepresentatives, both licensed and not yetlicensed, subscribed to Primerica Online atDecember 31, 2010. Sales representativesgenerally pay a $25 monthly fee tosubscribe to full-service Primerica Online,which helps cover the cost of maintainingthis support system.• Our in-house TV network is broadcast toour sales force by Internet-streamingvideo. Our full-service television studioallows us to create original broadcasts andvideos professionally and quickly. Thisvideo programming offers seniormanagement opportunities for weeklyupdates to our sales force, as well as avehicle for training and motivationalmaterials. We broadcast a live weeklyprogram each Monday hosted by our homeoffice management or RVPs that focuseson new developments and providesmotivational messages to our sales force,and each Wednesday we broadcast atraining oriented program to our sales10 Freedom Lives Here


force. We also profile successful salesrepresentatives in our programming,allowing these individuals to share theirsecrets for succeeding in our business. In2010, we produced 140 different shows orbroadcasts and produced 159 training andmotivational videos and audios.• Our publications department and printfacility produce many brochures tomotivate and inform our sales force. Wemake available for sale to our sales forcesales pieces, recruiting materials, businesscards and stationery. We have a full-servicepublications department and a printing anddistribution facility that provides totalcommunications services from web designand print presentations to graphic designand script writing. RVPs receive a weeklymailing from us that includes materialspromoting our current incentives, as wellas the latest news about our productofferings.• Our GoSolo ® voice messaging tool andmass texting allow us to widely distributemotivational and informational voicemessage, broadcasts and text messages toour sales force. GoSolo ® is a subscriptionservice provided by a third party to oursales representatives.Sales Force Support and ToolsOur information systems and technology aredesigned to support a sales and distributionmodel that relies on a large and ever-changinggroup of predominantly part-timerepresentatives to assist them in building theirown businesses. We provide our salesrepresentatives with sales tools that allow bothnew and experienced sales representatives tooffer financial information and products to theirclients. Among the most significant of thesetools are:• Our Financial Needs Analysis. Our FNA isa proprietary, needs-based analysis toolthat is made available to our sales force.The FNA gives our sales representativesthe ability to collect and synthesize clientfinancial data and develop a personalizedfinancial needs analysis for the client thatis both understandable to the client andintegrated with product recommendationsthat meet the client’s financial needs. TheFNA, while not a financial plan, providesour clients with a personalized explanationof how our products and prudent financialpractices, such as regular saving andaccelerating the repayment of high costcredit card debt, can help them reach theirfinancial goals. When preparing a FNA, oursales representatives collect key financialand personal data from their clients andinput it into our FNA software. Theresulting financial needs analysis providesclients with a snapshot of their currentfinancial position and identifies their needsin terms of financial protection (ourinsurance products), savings (our mutualfund, variable and fixed annuity andsegregated funds products) and debtmanagement (our loan products). The FNAenables the sales representative to presentfinancial alternatives to the client and is amulti-product sales tool.• Our Point-of-Sale Application Tool. Ourpoint-of-sale software, TurboApps, is aninternally developed system thatstreamlines the application process for ourinsurance products. This applicationpopulates client information from FNA filesto eliminate redundant data collection andprovides real-time corrections ofincomplete or illegible applications. Inaddition, the TurboApps application isreceived by both the home office and thesupervising RVP from the sales forceelectronically, which results in expeditedprocessing of our life insurance productsales. Integrated with our paperless fieldoffice management system describedbelow and with our home office systems,our TurboApps tool allows us to realize theefficiencies of straight-through-processingof application data and other informationcollected on our sales representatives’mobile devices. In 2010, we addedTurboApps functionality that supports ourrecruiting activity and our U.S. mutual fundproduct sales. We are currently developingweb-based versions of TurboApps to takeadvantage of the proliferation of portablePrimerica 2010 Annual Report 11


devices and wireless Internet connections,including smartphones, laptop computersand tablets.• Virtual Base Shop. In an effort to ease theadministrative burden on RVPs andsimplify sales force operations, we makeavailable to RVPs a secure Intranet-basedpaperless field office management systemas part of the Primerica Onlinesubscription. This virtual office is designedto automate the RVP’s administrativeresponsibilities and can be accessed by allsales representatives in an RVP’simmediate downline sales organization,which we refer to as his or her base shop.As of December 31, 2010, over 3,600 RVPshad activated a virtual office site.• Our Morningstar Investment PresentationTools. We have licensed from Morningstartwo web-based sales presentation tools,Portfolio Solutions and Morningstar ®Hypothetical Illustrator SM . In addition, wehave contracted with Ibbotson AssociatesAdvisors, LLC, a leading asset allocationadvisory firm and a subsidiary ofMorningstar, to build detailed assetallocation portfolios for eight leadingmutual fund firms. These tools allow oursales representatives to illustrate forclients and prospective clients the longtermbenefits of proper asset allocationand the resulting wealth creation overspecific time horizons. We believe thesetools offer our clients and prospectiveclients the benefit of objective third-partyadvice from an industry leader and helpestablish the credibility of our salesrepresentatives and our products.• Client Account Manager. Together withMorningstar, in October 2010 we deployedClient Account Manager, a client portfoliomanagement tool that assists our salesrepresentatives with monitoring individualclient investment accounts. The ClientAccount Manager provides our salesrepresentatives with additional product salesopportunities for our investment and savingsproducts by providing better access todetailed account information for both activeclients’ and legacy accounts (i.e., accountsthat our representatives have inherited upondeparture of the representative whoestablished the accounts) to better servicethese customers, which allows our salesrepresentatives to have more client contact,to present additional investmentrecommendations to clients and to cross-selladditional products.In addition to these sales-related tools, wealso make available other technology tosupport our sales force in managing theirbusinesses and in serving our clients,including:– a toll-free sales support call center toaddress each sales representative’squestions and to assist withpaperwork, underwriting and licensingrelated to our insurance products;– a tele-underwriting process that allowsclients to provide us needed medicalinformation without disclosing it to oursales representatives, who are oftenfriends, family members and personalacquaintances;– our Primerica Online Internet site thatoffers our sales force the ability totrack the status of pending lifeinsurance applications using the LifeManager feature and track theprogress of their new recruits (interms of training and licensing) usingthe Recruit Manager feature; and– 16 other websites to communicatewith, inform and assist prospectiveclients, clients, recruits, salesrepresentatives and employees.Performance-Based CompensationStructureOur sales representatives can earncompensation in multiple ways, including:• sales commissions payable based on theirpersonal sales;• override commissions payable based onthe sales by sales representatives in theirdownline organizations;12 Freedom Lives Here


• bonuses and other compensation, includingshare-based compensation, payable tothem based on their own salesperformance, the aggregate salesperformance of their downlineorganizations and other criteria; and• participation in our contests and otherincentive programs.Our compensation system is rooted in ourorigin as an insurance agency. Commissions tosales representatives with overrides to salesmanagers and general agents are common inthe insurance industry. Over time,modifications have been made to leverage theentrepreneurial spirit of our sales force.Our compensation system pays a commissionto the selling representative who actually sellsthe product and override commissions toseveral levels of the selling representative’supline organization. Commissions arecalculated and paid based on the commissionrates in effect at the time of the related sale.With respect to term life insurance sales,commissions payable are calculated based onthe total first-year premium (excluding policyfee) for all policies and riders. To motivate oursales force and help them offset the costs oftheir businesses, we compensate them for thesale of our term life insurance products asquickly as possible after the sale. We advance amajority of the insurance commission upon thesubmission of a completed application and thefirst month’s premium payment. The advance, ifany, may be an amount up to 75% of the firstyearannual commission, or generally on ninemonths of premium. As the client makes his orher premium payments, the commission isearned by the sales representative and thecommission advance is recovered. If premiumpayments are not made by the client and thepolicy terminates, any outstanding advancecommission is charged back to the salesrepresentative. The chargeback would equalthat portion of the advance that was made butnot earned by the representative because theclient did not pay the full premium for theperiod of time for which the advance was madeto the representative (i.e., nine months).Chargebacks, which occur in the normal courseof business, may be recovered by reducing anyamounts otherwise payable to therepresentative (such as advances on new salesor earned commissions on other sales).The remainder of life insurance salescommissions is earned when the first 12 monthsof premium is received from the client. Salesrepresentatives and their upline organizationsare contractually obligated to repay us anycommission advances that are ultimately notearned due to the underlying policy lapsingprior to the full commission being earned.Additionally, we hold back a portion of thecommissions earned by our salesrepresentatives as a reserve out of which wemay cover these chargebacks. The amountsheld back are referred to as deferredcompensation account commissions (“DCAcommissions”). DCA commissions are availableto reduce debts owed by sales representatives.DCA commissions also provide an upline salesrepresentative with a cushion against thechargeback obligations of their downline salesrepresentatives. DCA commissions, unlessapplied to agent debt, are ultimately releasedto the sales representatives. Generally,commissions are not paid after the first yearwith respect to a policy. One of our ridersprovides for coverage increases each year. Forsuch riders, commissions in the second yearand thereafter are only paid with respect to thepremium increase related to the increasedcoverage. Additionally, renewal commissionsare paid on some older in-force policies. At theend of the policy duration compensation is paidon conversions.We also pay compensation to our sales force forthe sale of mutual funds, annuities, loans, longtermcare insurance, prepaid legal protectionand our Primerica DebtWatchers products, andfor the referral of customers seeking auto andhome insurance. For mutual funds and mostannuity products, commissions are paid both onthe sale and on the total of the assets undermanagement and are calculated based on thedealer re-allowance and trail compensationactually paid to us. Loan commissions arepayable for the sourcing of closed loans and arecalculated based on a fixed percentage of theloan amount. Long-term care insurancecommissions are calculated based on theamount of premium received. Prepaid legalPrimerica 2010 Annual Report 13


protection program commissions and PrimericaDebtWatchers commissions are payable infixed amounts on the sale of the respectiveproduct. For auto and homeowner’s insuranceproducts, referral fees are paid for referrals thatresult in completed applications.In addition to commissions paid on personalsales, we pay override commissions to severallevels of the selling representative’s sales andsupervisory organization. This structuremotivates our sales representatives to growtheir downline sales organization and as aresult, drive product sales. To encourage ourmost successful RVPs to build large downlinesales organizations that generate strong salesvolumes, we have established the PrimericaOwnership Program to provide certainqualifying RVPs a contractual right to sell theirbusiness to another RVP or transfer it to aqualifying family member.Bonuses and, from time to time, other incentivecompensation are payable for sales of certainproducts. As of December 31, 2010, bonuseswere payable to the selling representative or toselected override levels, or both, for achievingspecified production levels for the sale of termlife insurance, investment and savings products,and prepaid legal protection and for auto andhome insurance referrals. In August 2010, weannounced a bonus program that provides newrepresentatives an opportunity to quicklyreceive rewards for successful performance. TheFast Start Bonus was designed to incentivize ournewest representatives to observe sales of lifeinsurance products by licensed salesrepresentatives, sell our other distributedproducts that do not require the salesrepresentative to hold a license, obtain their lifeinsurance licenses and recruit new salesrepresentatives. Upon achieving certain goalsand building their team, new representatives canqualify for a Fast Start Bonus by completingsuccessful field training observations andproduct sales milestones, while the upline RVPcan earn a bonus for each representative in hisor her downline organization that earns the FastStart Bonus. The Fast Start Bonus programreplaces a previous program under which newrepresentatives could not earn incentive bonuscompensation in their early months with thecompany.In addition to these methods of compensation,we use quarterly equity award compensationprograms under which RVPs can earn shares ofcommon stock. Effective deployment of theseprograms allows us to align the interests of oursales force with those of our stockholders.Sales Force LicensingThe states, provinces and territories in whichour sales representatives operate generallyrequire our sales representatives to obtain andmaintain licenses to sell our insurance,securities and mortgage loan products. Oursales representatives may also be required tomaintain licenses to sell certain of our otherfinancial products.To sell insurance products, our salesrepresentatives must be licensed by theirresident state, province or territory and by anyother state, province or territory in which theydo business and in most states our salesrepresentatives must be designated by ourapplicable insurance subsidiary.To sell securities products, our U.S. salesrepresentatives must be registered with theFinancial Industry Regulatory Authority(“FINRA”) and licensed as both Series 6 andSeries 63 registered sales representatives ofour broker-dealer subsidiary and by each statein which they sell securities products. To sellvariable annuity products, our salesrepresentatives must have these licenses andFINRA registrations and be appointed by theannuity underwriter in the states in which theymarket annuity products.Our Canadian sales representatives sellingmutual fund products are required to be licensedby the securities commissions in the provincesand territories in which they sell mutual fundproducts. Our Canadian sales representativeswho are licensed to sell our insurance productsdo not need any further licensing to sell oursegregated funds products in Canada.Due to the enactment and implementation by thestates of the Federal Secure and FairEnforcement for Mortgage Licensing Act of2008 (the “SAFE Act”), to offer mortgage loanproducts, our sales representatives must beindividually licensed as mortgage loan14 Freedom Lives Here


originators (and in some states as both mortgagebrokers and mortgage loan originators) by thestates in which they do business.In Canada, our sales representatives do not sellloan products due to licensing restrictions, butthey are compensated for referring clients tothe lender without having to be licensed as amortgage broker.Our sales representatives must pass applicableexaminations to be licensed to sell ourinsurance, securities and loan products. Weprovide our sales representatives access toin-person and online life insurance licensingexam preparation classes and other support toassist them in obtaining necessary lifeinsurance licensing. See “— Sales ForceMotivation, Training and Communication”above. To encourage new recruits to obtaintheir life insurance licenses, we either paydirectly or reimburse the respective salesrepresentative for certain licensing-related feesand expenses, if the sales representativepasses the applicable exam and obtains theapplicable life insurance license.Supervision and ComplianceTo ensure compliance with various federal,state, provincial and territorial legalrequirements, we and our RVPs shareresponsibility for maintaining an overallcompliance program that involves compliancetraining, and supporting and monitoring theactivities of our sales representatives. OurOffice of the General Counsel and our FieldSupervision Department work with RVPs todevelop appropriate compliance proceduresand systems.RVPs generally must obtain a principal license(FINRA Series 26 in the United States andBranch Manager license in Canada), as a resultof which they have supervisory responsibilityover the activities of their downline salesorganizations. Additional supervision isprovided by approximately 490 Offices ofSupervisory Jurisdiction (“OSJs”), which arerun by select RVPs who receive additionalcompensation for assuming additionalresponsibility for supervision and compliancemonitoring across all product lines. OSJs arerequired to periodically inspect our field officesand report any compliance issues they observeto us.All of our sales representatives are required toparticipate in our annual compliance meeting, aprogram administered by our seniormanagement and our legal and compliancestaff at which we provide a compliance trainingoverview across all product lines and requirethe completion of compliance checklists byeach of our licensed sales representatives foreach product he or she offers. Additionally, oursales representatives receive periodiccompliance newsletters regarding newcompliance developments and issues of specialsignificance. Furthermore, the OSJs arerequired to complete an annual trainingseminar that focuses on securities complianceand field supervision.Our Compliance Department regularly runssurveillance reports designed to monitor theactivity of our sales force. These surveillancereports are reviewed by our surveillanceadministrators. If we detect any unusual orsuspicious activity, our Compliance Departmentcommences an appropriate investigation and,when appropriate, refers such activity to ourlegal department for disciplinary action. OurField Supervision Department has a team ofPrimerica employees who regularly assist theOSJs and communicate compliancerequirements to them to ensure that theyproperly discharge their supervisoryresponsibilities. These Primerica employeesalso periodically inspect the OSJ offices.Our Field Audit Department regularly conductsaudits of all sales representative offices,including scheduled and no-notice audits. In2010, we performed approximately 4,800audits in the United States and Canada. Ourpolicy is to conduct approximately 50% of thefield office audits on a no-notice basis. Theauditors review all regulatory-required recordsthat are not maintained at our home office. Allcompliance deficiencies noted by the auditormust be corrected, and we carefully monitor allcorrective action. Field offices that fail theaudit are subject to a follow-up audit in 150days. Continued audit deficiencies areaddressed through a progressive disciplinaryPrimerica 2010 Annual Report 15


structure that includes fines, reprimands,probations and terminations.The Office of the General Counsel hasresponsibility for the legal affairs of thecompany, along with compliance, governmentrelations and corporate governance. This officeis also responsible for investigating and makingrecommendations about disciplinary actionsagainst sales representatives, if appropriate.Our ProductsOur products are tailored to appeal to middleincome consumers. We believe our face-to-facehome delivery of products and financial needsanalysis add sufficient value to the client toallow us to compete on the basis of productvalue and service in addition to price. Reflectingour philosophy of helping middle income clientswith their financial product needs and to ensurecompatibility with our distribution model, ourproducts generally incorporate the followingcriteria:• Consistent with Good Individual FinancePrinciples: Products must be consistentwith good personal finance principles formiddle income consumers, such asreducing debt, minimizing expenses andencouraging long-term savings.• Complementary: Products are designedto complement, not to compete with orcannibalize, each other. For example, termlife insurance does not compete withmutual funds because term life has no cashvalue or investment element.• Ongoing Needs Based: Products mustmeet the ongoing financial needs of manymiddle income consumers so that thelikelihood of a potential sale is high in mosthomes.• Distributable: Products must beappropriate for distribution by our salesforce, which requires that the applicationand approval process must be simple toexplain and understand, and the likelihoodof approval must be sufficiently high tojustify the investment of time by our salesrepresentatives.16 Freedom Lives Here


We organize and manage our business throughthree operating segments: Term Life Insurance,Investment and Savings Products andCorporate and Other Distributed Products. See“Management’s Discussion and Analysis ofFinancial Condition and Results ofOperations — Results of Operations” and Note 3to our consolidated and combined financialstatements included elsewhere in this report forcertain financial information regarding ouroperating segments and the geographic areasin which we operate.Operating Business SegmentPrincipal ProductsPrincipal Sources of Products(Applicable Geographic Territory)Term Life Insurance Term Life Insurance Primerica Life (U.S. (except New York), theDistrict of Columbia and territories) (1)NBLIC (New York) (1)Primerica Life Canada (Canada) (1)Investment and SavingsProductsCorporate and OtherDistributed ProductsMutual FundsVariable AnnuitiesAmerican Funds (U.S.)Franklin Templeton (U.S.)Invesco (U.S.)Legg Mason Global Asset Management (U.S.)Pioneer Investments (U.S.)AGF Funds (Canada)Concert Funds (a family of Primerica-branded“funds of funds” composed of AGF Funds)(Canada)First MetLife Investors Insurance Company (U.S.)MetLife Investors USA Insurance Company (U.S.)Fixed AnnuitiesFirst MetLife Investors Insurance Company (U.S.)MetLife Investors USA Insurance Company (U.S.)Segregated Funds Primerica Life Canada (Canada) (1)Mortgage Loans — DebtConsolidation or Refinance,Purchase Money (U.S. only)Citicorp Trust Bank, fsb (U.S.) (2)AGF Trust Company (Canada)Unsecured Loans (3) Citibank, N.A. (U.S., except California) (2)Citicorp Trust Bank, fsb (California) (2)Primerica DebtWatchersLong-Term Care InsurancePrepaid Legal ServicesMail-Order Student LifeShort-Term Disability BenefitInsuranceAuto and Homeowners’Insurance(1) Indicates subsidiaries of Primerica.(2) Indicates affiliate of Citi (excluding Primerica and its subsidiaries).(3) The unsecured loan program in the United States terminated on December 31, 2010.Equifax Consumer Services LLC, a wholly ownedsubsidiary of Equifax Inc. (U.S. and Canada)Genworth Life Insurance Company and itsaffiliates (U.S.)Prepaid Legal Services, Inc. (U.S. and Canada)NBLIC (U.S., except Alaska, Hawaii, Montana,Washington and the District of Columbia) (1)NBLIC (New York and New Jersey) (1)Various insurance companies, as offered throughAnswer Financial, Inc. (an independent agentfor various third-party property and casualtyinsurance companies) (U.S.)Primerica 2010 Annual Report 17


Term Life Insurance ProductsThrough our three life insurance companysubsidiaries — Primerica Life, NBLIC andPrimerica Life Canada — we offer term lifeinsurance to clients in the United States, PuertoRico, Guam and Canada. In 2009, the latestperiod for which data is available, we were thelargest provider of individual term lifeinsurance in the United States based on theamount of in-force premiums collected,according to LIMRA.We believe that term life insurance is a betteralternative for middle income clients than cashvalue life insurance. Term life insuranceprovides a guaranteed death benefit if theinsured dies during the fixed coverage period ofthe policy in return for the periodic payment ofpremiums. Term insurance products, which aresometimes referred to as pure protectionproducts, have no savings or investmentfeatures, but provide payment of a specifiedamount upon the death of the insuredindividual, thereby providing financialprotection for his or her named beneficiaries.By buying term life insurance rather than cashvalue life insurance, a policyholder initially paysa lower premium and, as a result, may havefunds available to invest for retirement andother needs. We also believe that a person’sneed for life insurance is inversely proportionalto that person’s need for retirement savings, aconcept we refer to as the theory of decreasingresponsibility. Young adults with children, newmortgages and other obligations need to buyhigher amounts of insurance to protect theirfamily from the loss of future income resultingfrom the death of a primary bread winner. Withits lower initial premium, term life insurancelets young families buy more coverage for theirpremium dollar when their needs are greatestand still have the ability to have funds for theirretirement and educational savings needs.Our term life insurance products are designedto be easily understood by, and meet the needsof, our middle income clients. Clientspurchasing our term life insurance products,whose average age was 38 in 2010, generallyseek stable, longer-term income protectionproducts for themselves and their families. Inresponse to this demand, we offer term lifeinsurance products, with level premiumcoverage periods that range from ten to 35year policies. Policies with 20-year terms ormore accounted for approximately 83% of theface amount of policies we issued in 2010.Death benefits are payable upon the death ofthe insured while the policy is in force. Policiesremain in force until the expiration of thecoverage period or until the policyholderceases to make premium payments andterminates the policy. Our currently issuedpolicies expire when the primary insuredreaches age 95 (80 for NBLIC clients in NewYork). Premiums are guaranteed not to riseabove a certain amount each year during thelife of the policy. The initial guarantee periodfor policies issued in the United States equalsthe initial term period, up to a maximum of 20years. After 20 years, we have the right to raisethe premium, subject to limits provided for inthe applicable policy. In Canada, the amount ofthe premium is guaranteed for the entire termof the policy.Our term life insurance policies may becustomized through the addition of riders toprovide coverage for specific protection needs,such as mortgage and college expenseprotection. These additional riders are availableindividually for both the primary insured and aspouse. We offer an increasing benefit riderthat allows for a 5% or 10% annual increase incoverage (subject to a maximum lifetimeincrease of $500,000) without newunderwriting. All children under the age of 25 ina family may be insured under one rider for onepremium. Providing insurance for an entirefamily under one policy results in only onepolicy fee, premium banding for the totalcoverage on the primary insured and spouse,and reduced administrative expenses. The termpremium banding refers to levels of deathbenefits payable on a term life insurance policyat which the cost to the insured of each $1,000of death benefits payable decreases. Ourpremium bands are currently $150,000,$250,000 and $500,000. The death benefitsattributable to an insured individual and his orher insured spouse are combined for purposesof determining which premium band will beused to calculate individual premiums.Therefore, the couple together may be charged18 Freedom Lives Here


premiums that are less per person per $1,000of death benefits payable than they wouldotherwise be charged as individuals. Theaverage face amount of our in-force policiesissued in 2010 was approximately $267,000.The following table sets forth selected financialinformation regarding our term life insuranceproducts:Year ended December 31,2010 2009 2008Life insurance issued:Number of policies issued 223,514 233,837 241,173Face amount issued (In millions) $ 74,401 $ 80,497 $ 87,279December 31,2010 2009 2008Life insurance in force:Number of policies in force 2,311,030 2,332,273 2,363,792Face amount in force (In millions) $ 656,791 $ 650,195 $ 633,467Pricing and Underwriting. We believe thateffective pricing and underwriting aresignificant drivers of the profitability of our lifeinsurance business, and we have establishedour pricing assumptions to be consistent withour underwriting practices. We set pricingassumptions for expected claims, lapses,investment returns and expenses based on ourown relevant experience and other factors.These other factors include:• expected changes from relevantexperience due to changes incircumstances, such as (i) revisedunderwriting procedures affecting futuremortality and reinsurance rates, (ii) newproduct features, and (iii) revisedadministrative programs affecting saleslevels, expenses, and client continuation ortermination of policies; and• observed trends in experience that weexpect to continue, such as generalmortality improvement in the generalpopulation and better or worse policypersistency (the period over which a policyremains in force) due to changingeconomic conditions.Our strategy is to price our insurance productscompetitively for our target risk categories. Ourinsurance products are based on unisex rates,which we believe complements our one policyper family philosophy.Under our current underwriting guidelines, weindividually assess each insurable adultapplicant and place such applicant into one offour risk classifications, based on currenthealth, medical history and other factors. Eachof these four classifications (preferred plus,preferred, non-tobacco and tobacco) hasspecific health criteria. We may decline anapplicant’s request forcoverage if his or her healthor activities createunacceptable risks for us. Allunderwriting decisions aremade by our underwritingprofessionals.Because many policies aresold to friends, familymembers and personalacquaintances of our salesrepresentatives, we do not have our salesrepresentatives collect sensitive and personalmedical information from an applicant. Oursales representatives ask applicants a series ofyes or no questions regarding the applicant’smedical history. If we believe that follow upregarding an applicant’s medical history iswarranted, then a third-party provider using itstrained personnel contacts the applicant bytelephone to obtain a detailed medical history.The report resulting from the tele-underwritingprocess is electronically transmitted to us andis evaluated in our underwriting process. Duringthe underwriting process, we may considerinformation about the applicant from thirdpartysources such as the Medical InformationBureau, motor vehicle bureaus and physicianstatements as well as from personal financialdocuments, such as tax returns and personalfinancial statements.To accommodate the significant volume ofinsurance applications that we process, we andour sales force use technology to make ouroperations more efficient. In 2010, our salesrepresentatives submitted approximately 56%of their life insurance applications to us inelectronic form using TurboApps. TheTurboApps system ensures that the applicationis submitted error-free, collects the applicant’selectronic signatures and populates the RVP’ssales log. Paper applications we receive arescanned and transmitted to a third-party dataPrimerica 2010 Annual Report 19


entry company. Our proprietary review andscreening system automatically either confirmsthat an application meets regulatory and otherrequirements, or alerts our applicationprocessing staff to any deficiencies with theapplication. If any deficiencies are noted, thenour application processing staff telephones thesales representative to obtain the necessaryinformation. Once an application is complete,the pertinent application data is uploaded toour life insurance administrative systems,which manage the underwriting process byelectronically analyzing data andrecommending underwriting decisions andcommunicating with the sales representativeand third-party providers.Claims Management. Our insurancesubsidiaries processed an average of more than$2.6 million in life benefit claims each day in2010 on policies underwritten by us and sold byour sales representatives. These claims fall intothree categories: death; waiver of premium(applicable to disabled policyholders whopurchased a rider pursuant to which Primericaagrees to waive remaining life insurancepremiums during a qualifying disability); orterminal illness. The claim may be reported byour sales representative, a beneficiary or, in thecase of terminal illness, the policyholder.Following are the benefits paid by us for eachcategory of claim:Year ended December 31,2010 2009 2008(In thousands)Death $939,107 $942,622 $913,651Waiver of premium 24,136 21,395 18,547Terminal illness (1) 9,354 9,295 7,326(1) We consider claims paid for terminal illness to be loans made to the beneficiarythat are repaid to us upon death of the beneficiary from the death benefit.In the United States, after coverage has been inforce for two years, we may not contest thepolicy for misrepresentations in the applicationor the suicide of the insured. In Canada, wehave a similar two-year contestability period,but we are permitted to contest insurancefraud at any time. As a matter of policy, we donot contest any coverage issued by us toreplace the face amount of another insurancecompany’s individual coverage to the extent20 Freedom Lives Here the replaced coverage would not becontestable by the replaced company. Webelieve this approach helps our salesrepresentatives sell replacement policies, as itreassures clients that claims made under theirreplacement policies are not more likely to becontested as to the face amount replaced.Through our claims administration system, werecord, process and pay the appropriate benefitwith respect to any reported claim. Our claimssystem is used by our home office investigatorsto order medical and investigative reports fromthird-party providers, calculate amounts due tothe beneficiary (including interest) and reportpayments to the appropriate reinsurancecompanies.Financial Strength Ratings. Ratings withrespect to financial strength are an importantfactor in establishing our competitive positionand maintaining public confidence in us and ourability to market our products. Ratingsorganizations review the financial performanceand condition of most insurers and provideopinions regarding financial strength, operatingperformance and ability to meet obligations topolicyholders. Primerica Life, NBLIC andPrimerica Life Canada, have been assigned afinancial strength rating of A+ (superior;second highest of 16 ratings) by A.M. Best Co.(“A.M. Best”) with a negative outlook. PrimericaLife currently has an insurer financial strengthrating of AA- (very strong;fourth highest of 22 ratings)from Standard & Poor’s with astable outlook. Primerica LifeCanada and NBLIC are notrated by Standard & Poor’s. Noassurance is given that we willmaintain our current ratings.Ratings for insurancecompanies are not designed forinvestors and do not constitute recommendationsto buy, sell or hold any security.Reinsurance. We use reinsurance primarily toreduce the volatility risk with respect tomortality. For business written prior to 1991, wehave various coinsurance agreements in place.Since 1994, we have reinsured death benefits inthe United States on a yearly renewable term(“YRT”) basis. As of December 31, 2010, weautomatically reinsure 90% of all U.S.


insurance policies that we underwrite withrespect to the first $4 million per life ofcoverage, excluding coverage under certainriders. For all risks in excess of $4 million perlife of coverage, we reinsure on a case-by-case,or facultative, basis. With respect to ourCanadian insurance policies, we reinsure faceamounts above $500,000 per life on an excessyearly renewable term basis and for all risk inexcess of $2 million per life, we reinsure on acase-by-case, or facultative, basis. We alsoreinsure substandard cases on a facultativebasis to capitalize on the extensive experiencesome of our reinsurers have with substandardcases. A substandard case has a level of riskthat is acceptable to us but at higher premiumrates than a standard case because of thehealth, habits or occupation of the applicant.Both we and the reinsurer are entitled todiscontinue the reinsurance agreement as tofuture policies by giving 90 days’ advancenotice to the other. However, each reinsurer’sability to terminate coverage for existingpolicies is limited to circumstances such as amaterial breach of contract or nonpayment ofpremiums by us. Generally, we have the optionof recapturing some or all of the YRTreinsurance in the event that we increase ourretention limits or the percentage of risk thatwe retain. The premiums payable to eachreinsurer are based on rates shown in theagreements that are expected to continueindefinitely. Each reinsurer has the right toincrease rates with certain restrictions. If areinsurer increases rates, we have the right toimmediately recapture the business. Eitherparty may offset any balance due from theother party. For additional information, seeNotes 1, 2 and 6 to our consolidated andcombined financial statements.Investment and Savings ProductsWe believe that middle income families havesignificant unmet retirement and educationrelatedsavings needs. Using our FNA tool, wehelp our clients understand their currentfinancial situation and how they can use timetestedfinancial principles, such as prioritizingpersonal savings, compounding, thinking longtermand diversification, to reach theirretirement and other savings goals. While weseek to meet individual needs, most of ourclients fall into one of several distinct segmentsof the savings and retirement spectrum that weserve: clients who are actively saving, clientswho are nearing retirement and clients who areretired. Our investment and savings productscomprise basic saving and investment vehiclesthat seek to meet the needs of clients in eachof these three segments.Through PFS; PFS Investments, our U.S.licensed broker-dealer subsidiary; PrimericaLife Canada; PFSL Investments Canada Ltd.,our Canadian licensed dealer; and our licensedsales representatives, we distribute and sell toour clients mutual funds, variable and fixedannuities and segregated funds. As ofDecember 31, 2010, approximately 22,500 ofour sales representatives were licensed todistribute mutual funds in the United States andCanada. As of December 31, 2010,approximately 12,900 of our salesrepresentatives were licensed and appointed todistribute variable and fixed annuities in theUnited States and approximately 8,800 of oursales representatives were licensed to sellsegregated funds in Canada. In the UnitedStates, we distribute mutual fund products ofseveral third-party mutual fund companies andvariable and fixed annuity products of MetLifeand its affiliates. In July 2010, we began sellingfixed annuity products offered by MetLifethrough PFS, our licensed insurance agency. InCanada, we offer our own Primerica-brandedmutual funds, as well as mutual funds of othercompanies, and offer our Primerica-brandedsegregated fund products, which areunderwritten by Primerica Life Canada.Mutual Funds. In the United States, ourlicensed sales representatives primarilydistribute mutual funds from five select assetmanagement firms: American Funds, FranklinTempleton, Invesco, Legg Mason and Pioneer.All of these firms have diversified productofferings, including domestic and internationalstock, bond and money market funds. Each firmhas individual funds with long track records,some more than 30 years with good relativeperformance, and each firm continuallyevaluates its fund offerings and adds new fundsPrimerica 2010 Annual Report 21


on a regular basis. Additionally, this group offunds has products in diversified asset classesand varied investment styles, and many of themanagers of these funds have tradingoperations on multiple continents. We believethis group of select asset management firmsprovides funds that generally meet theinvestment needs of our clients. During 2010,three of these fund families (Legg Mason,Invesco and American Funds) accounted for inthe aggregate approximately 84% of ourmutual fund sales in the United States. LeggMason and Invesco each have large wholesalingteams that support our sales force indistributing their mutual fund products. Wehave selling agreements with each of thesefund companies, as well as with approximately40 other companies. Our selling agreementswith Legg Mason, Invesco and American Fundsall have indefinite terms and provide fortermination at will. Each of these agreementsauthorizes us to receive purchase orders forshares of mutual funds or similar investmentsunderwritten by the fund company and to selland distribute the shares on behalf of the fundcompany. All purchase orders are subject toacceptance or rejection by the relevant fundcompany in its sole discretion. Purchase ordersreceived by the fund company from us areaccepted only at the then-applicable publicoffering price for the shares ordered (the netasset value of the shares plus an applicablesales charge). For sales of shares that weinitiate, we are paid commissions based uponthe dollar amount of the sales and earnmarketing and distribution fees, or 12b-1 fees,on mutual fund products sold based on assetvalues in our client accounts. Pursuantto agreements with Legg Mason, Invesco, andother fund companies, we also receive, asconsideration for our retail distribution channeland mutual fund sales infrastructure, a mutualfund support fee based on one or more of thefollowing: a percentage of fund sales, apercentage of the value of our clients’ assets inthe funds, or an agreed upon fixed amount.In Canada, our sales representatives offerPrimerica-branded Concert Series funds,which accounted for 55% of our Canadianmutual fund product sales in 2010. OurConcert Series of funds are six different assetallocation funds with varying investmentobjectives ranging from fixed income toaggressive growth. Each Concert Series fundis a fund of funds that allocates fund assetsamong equity and income mutual funds of AGFFunds, a major asset management firm inCanada. The asset allocation within eachConcert Series fund is determined on acontract basis by Legg Mason. The principalnon-proprietary funds that we offer our clientsin Canada are funds of AGF Funds, Mackenzieand Invesco Trimark. Sales of thesenon-proprietary funds accounted for 36% ofmutual fund product sales in Canada in 2010.Like our U.S. fund family select list, the assetmanagement partners we have selected inCanada have a diversified offering of stock,bond and money market funds, includingdomestic and international funds with a varietyof investment styles.A key part of our investment philosophy for ourclients is the long-term benefits of dollar costaveraging through systematic investing. Toaccomplish this, we assist our clients byfacilitating monthly investment into theirinvestment account by bank draft against theirchecking accounts. Qualified retirement plansaccounted for 57% and 71% of the clientaccount assets for which we served as nomineein the United States and Canada, respectively,as of December 31, 2010. Our highconcentration of retirement plan accounts andour systematic savings philosophy arebeneficial to us as these accounts tend to havelower redemption rates than the industry and,therefore, generate more recurring asset-basedrevenues.Variable Annuities. Our licensed salesrepresentatives in the United States alsodistribute variable annuities underwritten andprovided by two MetLife insurance companies.Variable annuities are insurance products thatenable our clients to invest in accounts withattributes similar to mutual funds, but also havebenefits not found in mutual funds, includingdeath benefits that protect beneficiaries frommarket losses due to a market downturn andincome benefits that guarantee future incomepayments for the life of the policyholder(s).MetLife bears the insurance risk on the variableannuities that we distribute. MetLife, with our22 Freedom Lives Here


assistance, has developed a series of privatelabel annuity products specifically designed tomeet the needs of our clients.In connection with MetLife’s acquisition of TheTravelers Life and Annuity Company, weentered into a selling agreement pursuant towhich MetLife, as the successor to TheTravelers Life and Annuity Company, has theright to supply us certain annuity and otherinsurance products during a ten-year termending June 30, 2015. Based on a letter ofintent dated October 29, 2010, whichcontemplates an amendment to the sellingagreement, MetLife has the right to be theexclusive provider of the variable annuityproducts that we distribute in the United Statesand Puerto Rico until June 30, 2013. FromJuly 1, 2013 through June 30, 2015, theagreement provides MetLife with thenon-exclusive right to supply us certain variableannuity products that we offer in the UnitedStates and Puerto Rico. As a non-exclusiveprovider of our variable annuity productsduring the last two years of this agreement,MetLife is entitled to have the same access toour sales force as we provide any other supplierof a comparable annuity product. If, prior toJuly 1, 2012, we expand our product offerings toinclude new (i) private label variable lifeinsurance or variable annuity products or(ii) life insurance or annuity products to be soldon an exclusive basis (other than the types oflife insurance and annuity products that wedistributed on July 1, 2005), MetLife has theright to make a proposal to supply us with thesenew products. While we have discretion todetermine the criteria for selecting theprovider(s) of these new products, if MetLifeproposes to provide us with these newproducts, we have agreed to select MetLife asour provider of these products if MetLife’sproposal, taken as a whole, compares as well asthe most favorable proposal we receive fromother potential providers of these products.Segregated Funds. In Canada, we offersegregated fund products, which are brandedas our Common Sense Funds TM , that have someof the characteristics of our variable annuityproducts distributed in the United States. OurCommon Sense Funds TM are underwritten byPrimerica Life Canada and offer our clients theability to participate in a diversified managedinvestment program that can be opened for aslittle as C$25. The investment objective ofsegregated funds is long-term capitalappreciation combined with some guarantee ofprincipal. Unlike mutual funds, our segregatedfund product guarantees clients at least 75% oftheir net contributions (net of withdrawals) atthe earlier of the date of their death or at thesegregated fund’s maturity date, which isselected by the client. The portfolio consists ofboth equities and bonds with the equitycomponent consisting of a pool of large capCanadian equities and the bond componentconsisting of Canadian federal governmentzero coupon treasuries. The portion of thesegregated fund portfolio allocated to zerocoupon treasuries are held in sufficient quantityto satisfy the guaranties payable at thematurity date of the segregated fund. As aresult, our potential exposure to market risk isvery low as it comes from the guaranteespayable upon the death of the client prior tothe maturity date. With the guarantee level at75% and in light of the time until the scheduledmaturity of our segregated funds contracts, wecurrently do not need to allocate any corporatecapital as reserves for segregated fundcontract benefits.Many of our Canadian clients invest insegregated funds through a registeredretirement savings plan (“RRSP”), which issimilar to an IRA in the United States in thatcontributions are made to the RRSP on apre-tax basis and income is earned on atax-deferred basis. Our Common Sense Fundsare managed by AGF Funds, one of Canada’sleading investment management firms, and aleading provider of our mutual fund products.Fixed Annuities. In an effort to expand theproduct offerings for our Investment andSavings Products segment, in July 2010 webegan offering four fixed annuitiesunderwritten by MetLife. Two of the products, aflexible premium deferred annuity and a fixedpremium deferred annuity, are designed forlong-term retirement savings and pay aguaranteed fixed interest rate for a specifiedperiod of time. We also began offering a singlepremium immediate annuity that, in return for asingle premium payment, offers the owner aPrimerica 2010 Annual Report 23


variety of income payment options over aguaranteed period of time and may include theowner(s) lifetime. Finally, we are offering alongevity income guarantee annuity thatguarantees a fixed amount of monthly incomethat starts in the future and lasts as long as theowner(s) live(s). We believe these fixed annuityproducts give our representatives more waysto assist our clients with their retirementplanning needs.Managed Accounts. In 2011, PFS Investmentsintends to become a registered investmentadvisor in the United States and introduce amanaged account program. Initially the offeringis expected to consist of a mutual fund advisoryprogram with a $25,000 minimum initialinvestment. Subsequent managed accountofferings are also being contemplated. Weanticipate contracting with an independentinvestment advisor that will assist in the designand administration of the program including theinvestment of client assets on a discretionarybasis into one or more asset allocationportfolios. In contrast to our existing mutualfund and annuity business, in an advisory feeprogram, clients do not pay an upfrontcommission. Rather, they pay an annual feebased on the value of the assets in theiraccount. Sales representatives that qualify tooffer this program will receive a portion of theannual fee as compensation for as long as weretain the account.Revenue and Sales Force Compensation.In the United States, we earn revenue from ourinvestment and savings products business inthree ways: commissions earned on the sale ofsuch products; fees earned based upon clientasset values; and account-based revenue. Onthe sale of mutual funds and annuities, we earna dealer reallowance or commission on thedollar amount of new purchases as well as trailcommissions on the assets held in our clients’accounts. On mutual fund and annuity sales, wepay our sales representatives a percentage ofthe dealer reallowance and trail commissionswe receive. We also receive marketing andsupport fees from most of our fund providers.These payments are typically a percentage ofsales or a percentage of the total clients’ assetvalues, or a combination of both.With respect to several of the fund companiesoffered in the United States, we receivecustodial fees for services performed as anon-bank custodian for certain of our clients’retirement plan accounts, and earn revenue forperforming account-based recordkeepingservices. We also receive fees for the financingof advance commissions paid to our salesrepresentatives for the sale of certain LeggMason funds. The total amount of theseaccount-based fees fluctuates with the numberof such accounts. Consequently, the closing ofaccounts can adversely impact our revenues.From time to time, the fund companies withwhom we deal request that accounts with smallbalances be closed.We perform recordkeeping services on behalfof several of our select U.S. fund companies.We receive compensation on a per accountbasis for these services. To assist us inperforming these recordkeeping services, wehave engaged third parties, including a Citiaffiliate, to perform certain back-office transferagent functions and a portion of the client andagent telephone servicing. We also maintain anoperations and phone service center at ourDuluth, Georgia offices to support ourrecordkeeping platform.In Canada, we earn revenue from the sales ofour investment and savings products in twoways: commissions on mutual fund sales andfees paid based upon clients’ asset values(mutual fund trail commissions, and assetmanagement fees from segregated funds andConcert Series funds). On the sale of mutualfunds, we earn a dealer reallowance orcommission as well as trail commissions on theassets held in our clients’ accounts. We pay apercentage of the dealer reallowance and trailcommissions we receive with respect to mutualfund sales as compensation to our Canadiansales representatives. On the sale ofsegregated funds, we earn a fee based on thetotal asset value of these assets. Forsegregated funds, we pay as compensation toour sales representatives a sales commissionon segregated fund sales and a fee paidquarterly based on clients’ asset values.PFS Investments is a broker-dealer registeredwith FINRA and is subject to regulation by the24 Freedom Lives Here


SEC, FINRA and with respect to 529 plans only,the Municipal Securities Rulemaking Board (the“MSRB”), as well as by state securitiesagencies. PFS Investments operates as anintroducing broker-dealer. As such, it performsthe suitability review of investmentrecommendations in accordance with FINRArequirements, but it does not hold clientaccounts. PFSL Investments Canada is a mutualfund dealer registered with the Mutual FundDealers Association of Canada (the “MFDA”),the national self-regulatory organization for thedistribution side for the Canadian mutual fundindustry, and is also registered with provincialsecurities commissions throughout Canada. Asa registered mutual fund dealer, it performs thesuitability review of mutual fund investmentrecommendations, but like our U.S. brokerdealer,it does not hold client accounts. Our U.S.and Canadian broker-dealers do not hold anyclient funds; rather, client funds are held by themutual fund in which such client funds areinvested or by MetLife in the case of variableannuities sold in the United States. As notedabove, our Canadian segregated fund productis an insurance contract underwritten byPrimerica Life Canada. While the assets andcorresponding liability (reserves) arerecognized on our balance sheet, the assets areheld in trust for the benefit of the segregatedfund contract owners.Other Distributed ProductsWe also offer debt consolidation/refinance andpurchase money mortgage loans, a PrimericaDebtWatchers product that allows clients tocreate a plan for paying off debt, long-termcare insurance, prepaid legal services and auto/home insurance. While many of these productsare Primerica-branded, all of them areunderwritten or otherwise provided by a thirdparty. We also offer mail-order student life andshort-term disability benefit insurance, whichwe underwrite through our New York insurancesubsidiary, NBLIC.Loan Products. Managing debt continues tobe a major challenge for our middle incomeclients and prospects. The decline in homevalues and the tightening of the credit marketsgenerally have exacerbated the problem. Wehelp our clients manage their debt through theuse of a debt consolidation loan, which providesthem with the means to consolidate andaccelerate the repayment of existing debt. Wealso offer a purchase money product throughCiticorp Trust Bank, fsb (“CTB”), a subsidiary ofCiti. Our loan product sales process is designedto be straightforward, low pressure andeducational.Primerica Mortgages is a loan broker, not alender, and our loan products are currentlyprovided in the United States by CTB. Allunderwriting, processing of loan applicationsand credit decisions are made by CTB. As a loanbroker in the United States, we receive abrokerage commission based on a fixedpercentage of the closed loan amount.Historically, we have offered fixed rate, fixedterm and fully amortizing loans appropriate fora middle income client and have sold loanproducts exclusively for lenders that areaffiliates of Citi, except in Puerto Rico where wepreviously sold loan products of a third-partylender, and in Canada, where we now referloans through a third party lender, AGF TrustCompany. In March 2010, Primerica Mortgagesentered into a loan brokerage agreement withCTB and CitiMortgage, Inc. (“CMI”) thatprovided for Primerica Mortgages to offerconforming fixed rate, fixed term, fullyamortizing refinancing loans of CTB. As aconforming loan product saleable togovernment sponsored entities such as FannieMae and Freddie Mac, the loan product hasstricter underwriting criteria than the mortgageproducts we had sold previously and providesPrimerica Mortgages and our sales force withreduced compensation for the origination ofmortgage loan products in the United States. InNovember 2010, the March 2010 agreementwas amended to add Citibank, N.A. as a partyand to provide CTB or CMI with theright to transition all of the processing,underwriting and funding of loans to itsaffiliate, Citibank, N.A. The Agreement providesthat CTB, CMI and Citibank, N.A. will be theexclusive providers of our mortgage loanproducts in the United States throughMarch 2012, at which time either we or thelenders may terminate the Agreement.Primerica 2010 Annual Report 25


In Canada, we offer a debt consolidation loanproduct through a third party lender, AGF TrustCompany, and assist clients with developingdebt reduction/elimination strategies. Due toregulatory requirements, our salesrepresentatives in Canada only refer clients tothe lender and are not involved in the loanapplication and closing process.Primerica DebtWatchers. In 2009, webegan offering our Primerica DebtWatchersproduct in the United States and a very similarproduct in three provinces in Canada. PrimericaDebtWatchers allows clients to create asimple-to-understand plan forpaying off their debt andprovides clients with periodicupdates of their credit scoreand other personal creditinformation. Currently, oursales representatives do notneed an individual license to sellthis product. Primerica DebtWatchers isco-branded with and supported by EquifaxConsumer Services LLC, a subsidiary of EquifaxInc., one of the three major credit reportingservices in the United States.Other Products. We also offer our U.S. clientsPrimerica-branded long-termcare insurance,underwritten and provided byGenworth Life InsuranceCompany and its affiliates, andwe offer our U.S. and Canadianclients a Primerica-brandedprepaid legal services programon a subscription basis that isunderwritten and provided by Prepaid LegalServices, Inc. and its affiliate. The prepaid legalservices program offers a network of attorneysin each state or province to assist subscriberswith legal matters such as drafting wills, livingwills and powers of attorney, trial defense andmotor vehicle-related matters. We receive acommission based on our sales of thesepolicies and contracts.Through an arrangement with AnswerFinancial, Inc. (“Answer Financial”), anindependent insurance agency, our salesrepresentatives in the United States may referclients to Answer Financial to receive multiple,competitive, auto and homeowners’ insurancequotes. Answer Financial’s comparative quoteprocess allows clients to easily identify theunderwriter (e.g., Chubb, Hartford, Progressive,SAFECO and Travelers) that is most competitivelypriced for their type of risk. Commissions that wereceive under this program, which is calledPrimerica Secure, are based on policy salesand premiums. Sales representatives receive a flatreferral fee payment for each completed auto andhomeowners’ insurance application.Details on our sales or referrals of long-term careinsurance, pre-paid legal services and auto andhome insurance products follow:Year ended December 31,2010 2009 2008(In thousands)Long-term care insurance revenues $2,966 $2,847 $3,694Pre-paid legal services revenues 9,622 9,414 9,662Auto and homeowners’ insurancerevenues 4,979 3,936 3,030NBLIC sells mail-order student life insuranceand short-term disability benefit insurance,which is a state-mandated policy for certainemployees in the states of New York and NewJersey. These products, which are notdistributed by our sales force, generated thefollowing revenues:Year ended December 31,2010 2009 2008(In thousands)Student life insurance revenues $ 23,771 $24,226 $24,608Short-term disability benefitinsurance revenues 38,997 39,093 38,772Regulation26 Freedom Lives Here Our operations are subject to extensive lawsand governmental regulations, includingadministrative determinations, court decisionsand similar constraints. The purpose of the lawsand regulations affecting our operations isprimarily to protect our clients and not ourstockholders. Many of the laws and regulationsto which we are subject are regularlyre-examined, and existing or future laws andregulations may become more restrictive orotherwise adversely affect our operations.Our U.S. insurance businesses are principallyregulated by the insurance departments of thestates in which they are domiciled and in which


they sell insurance policies. Our Canadianinsurance business is principally regulated byboth provincial and federal insuranceregulatory authorities. Our insurance productsand our businesses also are affected byU.S. federal, state and local tax laws andCanadian federal and provincial tax laws.Insurance products that constitute securities,such as variable annuities, also are subject toU.S. federal and state securities laws andregulations. The SEC, FINRA and statesecurities authorities are the principalsecurities regulators for these products.Our securities operations are subject toU.S. federal and state and Canadian federal andprovincial securities and related laws. The SEC,state securities authorities, FINRA and similarCanadian federal and provincial authorities arethe principal regulators of these operations.Insurance and securities regulatory authorities(including state law enforcement agencies andattorneys general or their non-U.S. equivalents)from time to time make inquiries regardingcompliance by us and our subsidiaries withinsurance, securities and other laws andregulations regarding the conduct of ourinsurance and securities businesses. Wecooperate with such inquiries and takecorrective action when warranted.Our loan business is subject to U.S. federal andstate laws and regulations, including federaland state mortgage banking and brokering lawsand regulations in many jurisdictions.Regulation of Insurance ProductsOur U.S. insurance subsidiaries are licensed totransact business in all states and jurisdictionsin which they conduct insurance business.Specifically, Primerica Life, a Massachusettsinsurance company, is licensed to transactbusiness in the United States (except NewYork), the District of Columbia, Puerto Rico,Guam, the U.S. Virgin Islands and theCommonwealth of the Northern MarianaIslands, and NBLIC, a New York insurancecompany, is licensed to transact business in all50 states, the District of Columbia and the U.S.Virgin Islands. Primerica Life is not licensed totransact business in New York, where wetransact business through NBLIC. U.S. stateinsurance laws regulate all aspects of our U.S.insurance business. Such regulation is vested instate agencies having broad administrative andin some instances discretionary power dealingwith many aspects of our business, which mayinclude, among other things, premium rates andincreases thereto, reserve requirements,marketing practices, advertising, privacy, policyforms, reinsurance reserve requirements,acquisitions, mergers, and capital adequacy,and is concerned primarily with the protectionof policyholders and other consumers ratherthan stockholders. At any given time, a numberof financial or market conduct examinations ofour subsidiaries may be ongoing. From time totime, regulators raise issues duringexaminations or audits of our subsidiaries thatcould, if determined adversely, have a materialimpact on us.Our Canadian insurance subsidiary, PrimericaLife Canada, is federally incorporated andprovincially licensed and transacts business inall Canadian provinces and territories.Provincial and federal insurance laws regulateall aspects of our Canadian insurance business.Our Canadian insurance subsidiary is regulatedfederally by the Office of the Superintendent ofFinancial Institutions Canada (“OSFI”), andprovincially by the Superintendents ofInsurance for each province and territory. OSFIregulates insurers’ corporate governance,financial and prudential oversight, andregulatory compliance, while provincial andterritorial regulators oversee insurers’ marketconduct practices and related compliance.Most U.S. states and Canadian provinces andterritories, as well as the Canadian federalgovernment, have laws and regulationsgoverning the financial condition of insurers,including standards of solvency, types andconcentration of investments, establishmentand maintenance of reserves, reinsurance andrequirements of capital adequacy, and thebusiness conduct of insurers, including salesand marketing practices, claim procedures andpractices, and policy form content. In addition,U.S. state insurance law and Canadianprovincial insurance law usually requirelicensing of insurers and their agents.Primerica 2010 Annual Report 27


In Canada, OSFI conducts periodic detailedexaminations of insurers’ business and financialpractices, including the control environment,internal and external auditing and minimumcapital adequacy, surpluses and related testing,legislative compliance and appointed actuaryrequirements, and insurers’ regulatorycompliance, including anti-money launderingpractices, outsourcing, related-partytransactions, privacy and corporategovernance. Provincial regulators also conductperiodic market conduct examinations ofinsurers doing business in their jurisdiction.Our U.S. insurance subsidiaries are required tofile detailed annual reports with the UnitedStates supervisory agencies in each of thejurisdictions in which they do business, andtheir business and accounts are subject toexamination by such agencies at any time.These examinations generally are conductedunder National Association of InsuranceCommissioners (“NAIC”) guidelines. Under therules of these jurisdictions,insurance companies areexamined periodically(generally every three to fiveyears) by one or more of thesupervisory agencies on behalfof the states in which they dobusiness. Over the past decade,no such insurance departmentexaminations have producedany significant adverse findingsregarding any of our insurancesubsidiaries.Specific examples of the types of insurancelaws and regulations applicable to us or our U.S.or Canadian insurance subsidiaries aredescribed below.Insurance Holding Company Regulation;Limitations on Dividends. Many states,including the states in which our insurancesubsidiaries are domiciled, have enactedlegislation or adopted regulations regardinginsurance holding company systems. Theselaws require registration of and periodicreporting by insurance companies domiciledwithin the jurisdiction which control or arecontrolled by other corporations or persons soas to constitute an insurance holding companysystem. These laws also affect the acquisitionof control of insurance companies as well astransactions between insurance companies andcompanies controlling them.We are a holding company, and we have nosignificant operations. Our primary asset is thecapital stock of our subsidiaries and ourprimary liability is the Citi note. The states inwhich our U.S. insurance subsidiaries aredomiciled impose certain restrictions on ourinsurance subsidiaries’ ability to pay dividendsto us. In Canada, dividends can be paid subjectto the paying insurance company’s continuingcompliance with regulatory requirements andupon notice to OSFI.The three insurance subsidiaries that areentitled to pay dividends to us are PrimericaLife, NBLIC and Primerica Life Canada. Thefollowing table sets forth the statutory value ofcash and securities dividends paid or payableby our insurance subsidiaries for Primerica Life,NBLIC and Primerica Life Canada:Cash and Securities Dividends Paidor Payable by Our Insurance SubsidiariesYear Ended December 31,2010 2009 2008(In thousands)Primerica Life $1,447,759 $149,000(1) $353,000NBLIC 296,839 — 8,000Primerica Life Canada 566,754 — —(1) Dividend declared by Primerica Life in 2009 and paid in 2010.28 Freedom Lives Here All dividends paid were deemed ordinary unlessotherwise noted. During the year endedDecember 31, 2010, Primerica Life paiddividends of $1.45 billion to Citi, all of whichwere deemed extraordinary. During the yearended December 31, 2010, NBLIC paid dividendsof $296.8 million to Primerica Life, all of whichwere deemed extraordinary.For Primerica Life, the statutory dividendcapacity is based on the greater of (1) 10% ofthe previous year-end statutory surplus or(2) the previous year’s statutory net gain fromoperations (not including pro rata distributionsof any class of the insurer’s own securities).Dividends that, together with the amount ofother distributions or dividends made within the


preceding 12 months, exceed this statutorylimitation are referred to as extraordinarydividends. Extraordinary dividends requireadvance notice to the Massachusetts Division ofInsurance (“MDOI”), Primerica Life’s primarystate insurance regulator, and are subject topotential disapproval. For dividends exceedingthese thresholds, Primerica Life must providenotice to the MDOI and receive responsesindicating that the MDOI did not object to thepayment of those dividends.For NBLIC, the statutory dividend capacity isbased on the lesser of (1) 10% of the previousyear-end statutory earned surplus or (2) theprevious year’s statutory net gain fromoperations, not including realized capital gains.Dividends that, together with the amount ofother distributions or dividends in any calendaryear, exceed this statutory limitation areconsidered to be extraordinary dividends.Extraordinary dividends require advance noticeto the New York State Insurance Department(“NYSID”), NBLIC’s primary state insuranceregulator, and are subject to potentialdisapproval. For dividends exceeding thesethresholds, NBLIC must provide notice to theNYSID and receive responses indicating thatthe NYSID did not object to the payment ofthose dividends.In Canada, dividends can be paid subject to thepaying insurance company continuing to meetthe regulatory requirements for capitaladequacy and liquidity and upon 15 days’minimum notice to OSFI.As a holding company with no significantbusiness operations of our own, we depend ondividends or other distributions from ourinsurance and other subsidiaries as theprincipal source of cash to meet ourobligations, including the payment of intereston, and repayment of, principal of any debtobligations.Market Conduct Regulation. The laws andregulations governing our U.S. and Canadianinsurance businesses include numerousprovisions governing the marketplace activitiesof insurers, including policy filings, payment ofinsurance commissions, disclosures,advertising, product replacement, sales andunderwriting practices and complaints andclaims handling. The state insurance regulatoryauthorities in the United States and the federaland provincial regulators in Canada generallyenforce these provisions through periodicmarket conduct examinations.Filing of Financial Statements. Stateinsurance laws and regulations require our U.S.insurance subsidiaries to file with stateinsurance departments publicly-availablequarterly and annual financial statements,prepared in accordance with statutoryguidelines that generally follow NAIC uniformstandards. Canadian insurance laws andregulations require our Canadian insurancesubsidiary to prepare financial statements inaccordance with Canadian GAAP. Our Canadianinsurance subsidiary files quarterly and annualfinancial statements with OSFI in compliancewith legal and regulatory requirements.Change of Control. The laws and regulationsof the jurisdictions in which our U.S. insurancesubsidiaries are domiciled require approval ofthe insurance commissioner prior to acquiringcontrol of the insurer. In considering anapplication to acquire control of an insurer, theinsurance commissioner generally will considersuch factors as experience, competence, thefinancial strength of the applicant, the integrityof the applicant’s board of directors andexecutive officers, the acquirer’s plans for themanagement and operation of the insurer, andany anti-competitive results that may arisefrom the acquisition. The states in which ourinsurance subsidiaries are domiciled haveenacted laws which require regulatory approvalfor the acquisition of control of insurancecompanies. Under these laws, there exists apresumption of control when an acquiring partyacquires 10% or more of the voting securitiesof an insurance company or of a companywhich itself controls an insurance company.Therefore, any person acquiring 10% or moreof our common stock would need the priorapproval of the state insurance regulators ofthese states, or a determination from suchregulators that control has not been acquired.In addition, Canadian federal insurance lawrequires approval of the Minister of Financeprior to any change of control of an insurer,whether direct or indirect, or to acquire,Primerica 2010 Annual Report 29


directly or through any controlled entity orentities, a significant interest (i.e., more than10%) of any class of its shares. In consideringan application for a change of control of aninsurer, OSFI will consider the financialresources of the applicant, the soundness ofthe business plan presented by the applicant,and the business record, experience, characterand integrity of the applicant, as well aswhether the persons who will operate theinsurer after the change of control are suitablycompetent and experienced in the operation ofa financial institution and whether the changeof control is in the best interests of thepolicyholders and the Canadian financialsystem.These U.S. and Canadian laws regarding changeof control may discourage potential acquisitionproposals and may delay, deter or prevent achange of control involving us, includingthrough transactions, and in particularunsolicited transactions, that some or all of ourstockholders might consider to be desirable.Policy and Contract Reserve SufficiencyAnalysis. Under the laws and regulations oftheir jurisdictions of domicile, our U.S.insurance subsidiaries are required to conductannual analyses of the sufficiency of their lifeinsurance statutory reserves. In addition, otherU.S. jurisdictions in which these subsidiariesare licensed may have certain reserverequirements that differ from those of theirdomiciliary jurisdictions. In each case, aqualified actuary must submit an opinion thatstates that the aggregate statutory reserves,when considered in light of the assets held withrespect to such reserves, make good andsufficient provision for the associatedcontractual obligations and related expenses ofthe insurer. If such an opinion cannot beprovided, the affected insurer must set upadditional reserves by moving funds fromsurplus. Our U.S. insurance subsidiaries mostrecently submitted these opinions withoutqualification as of December 31, 2010 toapplicable insurance regulatory authorities.Our Canadian insurance subsidiary also isrequired to conduct regular analyses of thesufficiency of its life insurance statutoryreserves. Life insurance reserving andreporting requirements are completed by ourCanadian insurance subsidiary’s appointedactuary. Materials provided by the appointedactuary are filed with OSFI as part of ourannual filing and are subject to OSFI’s review.Based upon this review, OSFI may instituteremedial action against our Canadian insurancesubsidiary as OSFI deems necessary. OurCanadian insurance subsidiary has not beensubject to any such remediation orenforcement by OSFI.Surplus and Capital Requirements. U.S.insurance regulators have the discretionaryauthority, in connection with the ongoinglicensing of our U.S. insurance subsidiaries, tolimit or prohibit the ability of an insurer to issuenew policies if, in the regulators’ judgment, theinsurer is not maintaining a minimum amountof surplus or is in hazardous financial condition.Insurance regulators may also limit the abilityof an insurer to issue new life insurance policiesand annuity contracts above an amount basedupon the face amount and premiums of policiesof a similar type issued in the prior year. We donot believe that the current or anticipatedlevels of statutory surplus of our U.S. insurancesubsidiaries present a material risk that anysuch regulator would limit the amount of newpolicies that our U.S. insurance subsidiariesmay issue.In Canada, OSFI has authority to request aninsurer to enter into a prudential agreementimplementing measures to maintain or improvethe insurer’s safety and soundness. OSFI alsomay issue orders to an insurer directing it torefrain from unsafe or unsound practices or totake action to remedy financial concerns. OSFIhas neither requested that our Canadianinsurance subsidiary enter into any prudentialagreement nor has OSFI issued any orderagainst our Canadian insurance subsidiary.Risk-Based Capital and Minimum CapitalRequirements. The NAIC has establishedRisk-Based Capital (“RBC”) standards for U.S.life insurance companies, as well as a model actto be applied at the state level. The model actprovides that life insurance companies mustsubmit an annual RBC report to stateregulators reporting their RBC based upon fourcategories of risk: asset risk, insurance risk,30 Freedom Lives Here


interest rate risk and business risk. For eachcategory, the capital requirement is determinedby applying factors to various asset, premiumand reserve items, with the factor being higherfor those items with greater underlying risk andlower for less risky items. The formula isintended to be used by insurance regulators asan early warning tool to identify possibleweakly capitalized companies for purposes ofinitiating further regulatory action. If aninsurer’s RBC falls below specified levels, theinsurer would be subject to different degrees ofregulatory action depending upon the level.These actions range from requiring the insurerto propose actions to correct the capitaldeficiency to placing the insurer underregulatory control.In Canada, an insurer’s minimum capitalrequirement is overseen by OSFI anddetermined as the sum of the capitalrequirements for five categories of risk: assetdefault risk, mortality/morbidity/lapse risks,changes in interest rate environment risk,segregated funds risk and foreign exchangerisk.As of December 31, 2010, Primerica Life andNBLIC had combined statutory capital, andPrimerica Life Canada had statutory capital, inexcess of the applicable thresholds.NAIC Pronouncements and Reviews.Although we and our insurance subsidiaries aresubject to state insurance regulation, in manyinstances the state regulations emanate fromNAIC model statutes and pronouncements.Certain changes to NAIC model statutes andpronouncements, particularly as they affectaccounting issues, may take effectautomatically in the various states withoutaffirmative action by the states. Although withrespect to some financial regulations andguidelines, states sometimes defer to theinterpretation of the insurance department ofthe state of domicile, neither the action of thedomiciliary state nor the action of the NAIC isbinding on a non-domiciliary state. Accordingly,a state could choose to follow a differentinterpretation. Also, regulatory actions withprospective impact can potentially have asignificant impact on currently sold products. Inaddition, accounting and actuarial groupswithin the NAIC have studied whether tochange the accounting standards that relate tocertain reinsurance credits, and if changes weremade, whether they should be appliedretrospectively, prospectively only, or in aphased-in manner. A requirement to reduce thereserve credits on ceded business, if appliedretroactively, would have a negative impact onour statutory capital. The NAIC is also currentlyworking on reforming state regulation invarious areas, including comprehensive reformsrelating to insurance reserves.The NAIC also has established guidelines toassess the financial strength of insurancecompanies for U.S. state regulatory purposes.The NAIC conducts annual reviews of thefinancial data of insurance companies primarilythrough the application of 12 financial ratiosprepared on a statutory basis. The annualstatements are submitted to state insurancedepartments to assist them in monitoringinsurance companies in their state.Statutory Accounting Principles. Statutoryaccounting principles (“SAP”) is a basis ofaccounting developed by U.S. insuranceregulators to monitor and regulate the solvencyof insurance companies. In developing SAP,insurance regulators were primarily concernedwith evaluating an insurer’s ability to pay all itscurrent and future obligations to policyholders.As a result, statutory accounting focuses onconservatively valuing the assets and liabilitiesof insurers, generally in accordance withstandards specified by the insurer’s domiciliaryjurisdiction. Uniform statutory accountingpractices are established by the NAIC andgenerally adopted by regulators in the variousU.S. jurisdictions. These accounting principlesand related regulations determine, amongother things, the amounts our insurancesubsidiaries may pay to us as dividends anddiffer somewhat from GAAP, which aredesigned to measure a business on a goingconcernbasis. GAAP gives consideration tomatching of revenue and expenses and, as aresult, certain expenses are capitalized whenincurred and then amortized over the life of theassociated policies. The valuation of assets andliabilities under GAAP is based in part upon bestestimate assumptions made by the insurer.Stockholders’ equity represents both amountsPrimerica 2010 Annual Report 31


currently available and amounts expected toemerge over the life of the business. As aresult, the values for assets, liabilities andequity reflected in financial statementsprepared in accordance with GAAP may bedifferent from those reflected in financialstatements prepared under SAP. We cannotpredict whether or when regulatory actionsmay be taken that could adversely affect ourcompany or the operations of our insurancesubsidiaries. Interpretations of regulations byregulators may change and statutes,regulations and interpretations may be appliedwith retroactive effect, particularly in areassuch as accounting or reserve requirements.Canadian law requires the use of CanadianGAAP in the preparation of the financialstatements of our Canadian insurancesubsidiary.State Insurance Guaranty Funds Laws. Undermost state insurance guaranty fund laws,insurance companies doing business thereincan be assessed up to prescribed limits forpolicyholder losses incurred by insolventcompanies. Although we cannot predict withcertainty the amount of any futureassessments, most insurance guaranty fundlaws currently provide that an assessment maybe excused or deferred if it would threaten aninsurer’s own financial strength. In addition,assessments may be partially offset by creditsagainst future state premium taxes. Ourinsurance subsidiaries were assessedimmaterial amounts in each of 2010, 2009 and2008.Additional Oversight in Canada. TheFinancial Consumer Agency of Canada(“FCAC”) is a Canadian federal regulatory body.It is responsible for ensuring that federallyregulated financial institutions, which includePrimerica Life Canada, comply with federalconsumer protection laws and regulations,voluntary codes of conduct and their ownpublic commitments. The FinancialTransactions and Reports Analysis Centre ofCanada (“FINTRAC”) is Canada’s financialintelligence unit. Its mandate includes ensuringthat entities subject to the Proceeds of Crime(Money Laundering) and Terrorist FinancingAct, which includes Primerica Life Canada,comply with reporting, recordkeeping and otherobligations under that act. Our Canadianinsurance subsidiary is also subject to privacylaws under the jurisdiction of federal andprovincial privacy commissioners, anti-moneylaundering laws enforced by the FINTRAC andOSFI, and the consumer complaints provisionsof federal insurance laws under the mandate ofthe FCAC, which requires insurers to belong toa complaints ombud-service and file a copy oftheir complaints handling policy with the FCAC.In connection with the Offering and theTransactions, we entered into an undertakingagreement with OSFI pursuant to which we aresubject to ongoing obligations to provide OSFIwith certain information. In particular, weagreed to provide OSFI with advance notice, ifpracticable, of (i) future debt issuances by usthat are in an amount greater than 20% of ourmarket capitalization (other than refinancingthe $300.0 million Citi note), (ii) any finaldecision by our board of directors that couldresult in a material shift of our primary focuson regulated financial services and (iii) anychange in ownership made by a beneficialowner of more than 5% of our common stock inthe event that our senior managementbecomes aware of that fact. We are alsorequired to provide OSFI with copies of ourSecurities and Exchange Commission (“SEC”)filings, material press releases and access toour senior officers and auditors to discuss anyprudential concerns OSFI may have concerningPrimerica Life Canada. The following items areexempt from the advance notice commitment:(a) matters subject to confidentiality anddisclosure restrictions imposed bygovernmental authorities and (b) matters thatmanagement, acting in good faith, deems wouldhave an adverse effect on us. The term of theundertaking agreement is two years, subject toan obligation of OSFI and us to negotiate ingood faith sixty days prior to expiration either arenewal or a decision not to renew based on thefinancial condition of Primerica Life Canada atthe time of such negotiation.The Minister of Finance (Canada) under theInsurance Companies Act (Canada) approvedour indirect acquisition of Primerica LifeCanada. The Minister expects that a personcontrolling a federal insurance company willprovide ongoing financial, managerial or32 Freedom Lives Here


operational support to its subsidiary shouldsuch support prove necessary. The Minister hasrequired us to sign a support principle letterwhich provides, without limiting the scope ofthe support principle letter, that this ongoingsupport may take the form of additional capital,the provision of managerial expertise or theprovision of support in such areas as riskmanagement, internal control systems andtraining. The provision of the support principleletter is intended to ensure that the personcontrolling the federal insurance company isaware of the importance and relevance of thesupport principle in the consideration of theapplication. However, the letter does not createa legal obligation on our part to provide thesupport.In addition to federal and provincial oversight,our Canadian insurance subsidiary is alsosubject to the guidelines set out by theCanadian Life and Health Insurance Association(“CLHIA”). CLHIA is an industry association thatworks closely with federal and provincialregulators to establish market conductguidelines and sound business and financialpractices addressing matters such as salesrepresentative suitability and screening,insurance illustrations and partially guaranteedsavings products.Our Canadian insurance subsidiaries arecurrently in compliance with these laws,regulations and guidelines.Regulation of Investment andSavings ProductsCertain of our U.S. subsidiaries, including PFSInvestments and Primerica ShareholderServices, Inc. (“PSS”), are subject to extensivesecurities regulation in the United States. As amatter of public policy, regulatory bodies in theUnited States are charged with safeguardingthe securities and other financial markets andwith protecting investors participating in thosemarkets.PFS Investments is registered as a brokerdealerin all 50 states and with the SEC, and is amember of FINRA. PFS Investments is alsoapproved as a non-bank custodian underInternal Revenue Service (“IRS”) regulationsand, in that capacity, may act as a custodianand/or trustee for certain retirement accounts.Our sales representatives who sell securitiesproducts through PFS Investments (including,in certain jurisdictions, variable annuities) arerequired to be registered representatives ofPFS Investments. All aspects of PFSInvestments’ business are regulated, includingsales methods and charges, trade practices, theuse and safeguarding of customer securities,capital structure, recordkeeping, conduct andsupervision of its employees.The SEC rules and regulations that currentlyapply to PFS Investments and our registeredrepresentatives generally require that we makesuitable investment recommendations to ourcustomers and disclose conflicts of interestthat might affect the recommendations oradvice we provide. The Dodd-Frank Wall StreetReform and Consumer Protection Act of 2010(the “Dodd-Frank Act”) gave the SEC the powerto impose on broker-dealers a heightenedstandard of conduct (fiduciary duty) that iscurrently applicable only to investmentadvisers. As required by the Dodd-Frank Act,the SEC staff recently submitted a report toCongress in which it recommended that theSEC adopt a uniform fiduciary standard ofconduct. The timing of any future rulemaking isunclear. Additionally, the DOL has proposed arule more broadly defining “fiduciary” underInternal Revenue Code Section 4975. See “RiskFactors — Risks Related to Our Investments andSavings Products Business — If heightenedstandards of conduct or more stringentlicensing requirements, such as those recentlyproposed by the SEC and the DOL, are imposedon us or our sales representatives or sellingcompensation is reduced as a result of newlegislation or regulations, it could have amaterial adverse effect on our business,financial condition and results of operations.”PSS is registered with the SEC as a transferagent and, accordingly, is subject to SEC rulesand examinations.PFSL Investments Canada, our Canadian dealersubsidiary, is registered as a mutual fund dealerin all Canadian provinces and territories and isregulated by the MFDA, as well as all provincialand territorial securities commissions. PFSLPrimerica 2010 Annual Report 33


Investments Canada sales representatives arerequired to be registered in the provinces orterritories in which they do business and arealso subject to regulation by the MFDA. Theseregulators have broad administrative powers,including the power to limit or restrict theconduct of our business and impose censuresor fines for failure to comply with the law orregulations.Under a new securities rule, PFSL InvestmentsCanada is required to register as an InvestmentFund Manager. The registration documentshave been filed with the provincial securitiescommissions, and we expect those filings to bereviewed by them in due course.Regulation of Loan ProductsIn the United States, state mortgage bankingand brokering laws and unsecured lending lawsregulate many aspects of our loan productdistribution business. In the United States andPuerto Rico, Primerica Mortgages is regulatedby state banking commissioners and otherequivalent regulators. Our loan productdistribution business must comply with thelaws, rules and regulations, as well as judicialand administrative decisions, in all of thejurisdictions in which we are licensed to offermortgage and unsecured loans, as well as anextensive body of federal laws and regulations.These state and federal laws and regulationsaddress the type of loan products that can beoffered to consumers through predatorylending and high cost loan laws and the type oflicenses that must be obtained by individualsand entities seeking to solicit loan applicationsfrom consumers. As a mortgage brokerlicensee, Primerica Mortgages is subject toperiodic examinations by regulators.Due to the enactment and implementation bythe states of the SAFE Act, to offer mortgageloan products, our sales representatives mustbe individually licensed as mortgage loanoriginators (and in some states as bothmortgage brokers and mortgage loanoriginators) by the states in which they dobusiness. Prior to enactment of the SAFE Act,our sales representatives were not required tobe individually licensed or registered to sellmortgage loan products in a majority of states.The SAFE Act requirements have materiallyreduced the size of our loan sales force. Thisreduction has resulted in a significant decline inthe scale of our loan product distributionbusiness. See “Risk Factors — Risks Related toOur Loan Business — New licensingrequirements will continue to significantlyreduce the size of our loan sales force.”In addition, our loan product distributionbusiness is subject to various other federallaws, including the Truth In Lending Act and itsimplementing regulation, Regulation Z, theEqual Credit Opportunity Act and itsimplementing regulation, Regulation B, the FairHousing Act and the Home Ownership EquityProtection Act. We are also subject to the RealEstate Settlement Procedures Act (“RESPA”)and its implementing regulation, Regulation X,which requires timely disclosures related to thenature and costs of real estate settlementamounts and limits those costs andcompensation to amounts reasonably related tothe services performed. We are also subject tothe Dodd-Frank Act and any regulations thatwill be issued to implement such Act.In Canada, our loan activities are more limitedand our sales representatives only providemortgage loan referrals to AGF Trust Company.Our sales representatives are not required toobtain mortgage loan licensure from anyregulatory entity to make these referrals.Other Laws and RegulationsUSA Patriot Act and Similar Regulations.The USA Patriot Act of 2001 contains antimoneylaundering and financial transparencylaws and mandates the implementation ofvarious regulations applicable to broker-dealersand other financial services companies,including insurance companies. The Patriot Actseeks to promote cooperation among financialinstitutions, regulators and law enforcemententities in identifying parties that may beinvolved in terrorism or money laundering. TheCanadian federal laws include anti-moneylaundering provisions similar to the Patriot Act,including provisions regarding suspicioustransaction reporting, identification of clientsand anti-money laundering procedures andcontrols.34 Freedom Lives Here


Privacy of Consumer Information. U.S.federal and state laws and regulations requirefinancial institutions, including insurancecompanies, to protect the security andconfidentiality of consumer financialinformation and to notify consumers abouttheir policies and practices relating to theircollection and disclosure of consumerinformation and their policies relating toprotecting the security and confidentiality ofthat information. Similarly, federal and statelaws and regulations also govern the disclosureand security of consumer health information. Inparticular, regulations promulgated by theU.S. Department of Health and Human Servicesregulate the disclosure and use of protectedhealth information by health insurers andothers (including life insurers), the physical andprocedural safeguards employed to protect thesecurity of that information and the electronictransmission of such information. Congress andstate legislatures are expected to consideradditional legislation relating to privacy andother aspects of consumer information.Canadian federal and provincial privacy lawsrequire that Canadian financial institutions,including insurance companies and brokerdealers,take necessary measures to protectconsumer information and maintain adequatecontrols for the collection, use, disclosure anddestruction of personal information.Certain Regulation Related to Our Affiliationwith Citi. We are regulated by the Board ofGovernors of the Federal Reserve System (the“FRB”) under the Bank Holding Company Act of1956 (the “BHC Act”). We will remain subject tothis regulatory regime until Citi is no longerdeemed to control us for bank regulatorypurposes, which may not occur until Citi hassignificantly reduced its ownership interest inus. The ownership level at which the FRB wouldconsider us no longer controlled by Citi willdepend on the circumstances at the time, suchas the extent of our relationship with Citi andcould be less than 5%. For so long as we aresubject to the BHC Act, we are subject toexamination by various banking regulators. Asa result, the FRB has broad enforcementauthority over us, including the power toprohibit us from conducting any activity that, inthe FRB’s opinion, is unauthorized orconstitutes an unsafe or unsound practice inconducting our business. The FRB may alsoimpose substantial fines and other penalties forviolations of applicable banking laws,regulations and orders.CompetitionWe operate in a highly competitive environmentwith respect to the sale of financial products.Because our product offerings include severaldifferent financial products, we competedirectly with a variety of financial institutions,such as insurance companies, insurancebrokers, banks, finance companies, creditunions, loan brokers, broker-dealers, mutualfund companies and other national andinternational financial products and servicescompanies, depending on the type of productwe are offering. We compete directly with theseentities for the sale of products to clients and,to a lesser extent, for retaining our moreproductive sales representatives.Competitors with respect to our term lifeinsurance products consist both of stock andmutual insurance companies, as well as otherfinancial intermediaries, such as AIG, Allstate,Ameriprise, Genworth Financial, MetLife,Protective, Prudential, State Farm and USAA.Competitive factors affecting the sale of lifeinsurance products include the level ofpremium rates, benefit features, risk selectionpractices, compensation of salesrepresentatives and financial strength ratingsfrom ratings agencies such as A.M. Best.In offering our securities products, our salesrepresentatives compete for clients with arange of other advisors, broker-dealers anddirect channels, including wirehouses, regionalbroker-dealers, independent broker-dealers,insurers, banks, asset managers, registeredinvestment advisors, mutual fund companiesand other direct distributors, such as EdwardJones, Raymond James and Waddell & Reed.The mutual funds that we offer facecompetition from other mutual fund familiesand alternative investment products, such asexchange traded funds. Our annuity productscompete with products from numerous othercompanies, such as Hartford, Lincoln NationalPrimerica 2010 Annual Report 35


and Nationwide. Competitive factors affectingthe sale of annuity products include price,product features, investment performance,commission structure, perceived financialstrength, claims-paying ratings, service anddistribution capabilities.Competitors with respect to our loan productsconsist of a variety of financial institutions suchas banks, savings and loan associations, creditunions and other lenders, including certainInternet-based lenders.Information TechnologyWe have built a sophisticated informationtechnology platform that is designed to supportour clients, operations and sales force. Locatedat our main campus in Duluth, Georgia, our datacenter houses an enterprise-class IBMmainframe that serves as the repository for allclient and sales force data and as a databaseserver for our distributed environment. Our ITinfrastructure supports 43 core businessapplications. Our business applications, many ofwhich are proprietary, are supported byapplication developers and data center staff atour main campus. Our information securityteam provides services that include projectconsulting, threat management, application andinfrastructure assessments, secureconfiguration management and informationsecurity administration. This infrastructure alsosupports a combination of local and remoterecovery solutions for business resumption inthe event of a disaster.EmployeesAs of December 31, 2010, we had 1,794 regularemployees in the United States and 207 regularemployees in Canada. In addition, as ofDecember 31, 2010, we had 437 on-callemployees in the United States and 72 on-callemployees in Canada who provide certaintraining services on an as-needed hourly basis.None of our employees is a member of anylabor union and we have never experienced anybusiness interruption as a result of any labordisputes.ITEM 1A. RISK FACTORS.Risks Related to Our DistributionStructureOur failure to continue to attract newrecruits, retain sales representatives ormaintain the licensing of our salesrepresentatives would materiallyadversely affect our business.New sales representatives provide us withaccess to new referrals, enable us to increasesales, expand our client base and provide thenext generation of successful salesrepresentatives. As is typical with insuranceand distribution businesses, we experience ahigh rate of turnover among our part-time salesrepresentatives, which requires us to attract,retain and motivate a large number of salesrepresentatives. Recruiting is performed by ourcurrent sales representatives, and theeffectiveness of our recruiting is generallydependent upon our reputation as a provider ofa rewarding and potentially lucrative incomeopportunity, as well as the general competitiveand economic environment. The motivation ofrecruits to complete their training and licensingrequirements and to commit to selling ourproducts is largely dependent upon theeffectiveness of our compensation andpromotional programs and the competitivenessof such programs compared with othercompanies, including other part-time businessopportunities.If our new business opportunities and productsdo not generate sufficient interest to attractnew recruits, motivate them to becomelicensed sales representatives and incentivizethem to sell our products and recruit other newsales representatives, our business would bematerially adversely affected.Furthermore, if we or any other direct salesbusinesses with a similar distribution structureengage in practices resulting in increasednegative public attention for our business, theresulting reputational challenges couldadversely affect our ability to attract newrecruits. Direct sales companies such as ourscan be the subject of negative commentary onwebsite postings and other non-traditional36 Freedom Lives Here


media. This negative commentary can spreadinaccurate or incomplete information about thedirect sales industry in general or our companyin particular, which can make our recruitingmore difficult.Certain of our key RVPs have large salesorganizations that include thousands ofdownline sales representatives. These key RVPsare responsible for attracting, motivating,supporting and assisting the salesrepresentatives in their sales organizations.The loss of one or more key RVPs, togetherwith a substantial number of their salesrepresentatives, for any reason, includingmovement to a competitor, or any other eventthat causes the departure of a large number ofsales representatives, could materiallyadversely affect our financial results and couldimpair our ability to attract new salesrepresentatives.There are a number of laws andregulations that could apply to ourdistribution model, which subject us tothe risk that we may have to modify ourdistribution structure.In the past, certain direct sales distributionmodels have been subject to challenge undervarious laws, including laws relating to businessopportunities, franchising, pyramid schemesand unfair or deceptive trade practices.In general, state business opportunity andfranchise laws in the United States prohibitsales of business opportunities or franchisesunless the seller provides potential purchaserswith a pre-sale disclosure document that hasfirst been filed with a designated state agencyand grants purchasers certain legal recourseagainst sellers of business opportunities andfranchises. In Canada, the provinces of Alberta,Ontario, New Brunswick and Prince EdwardIsland have enacted legislation dealing withfranchising, which typically requires mandatorydisclosure to prospective franchisees.We have not been, and are not currently,subject to business opportunity laws becausethe amounts paid by our new representatives tous (i) are less than the minimum thresholds setby many state statutes and (ii) are not fees paidfor the right to participate in a business, butrather are for bona fide expenses such as staterequiredinsurance examinations andpre-licensing training. We have not been, andare not currently, subject to franchise laws forsimilar reasons. However, there is a risk that agovernmental agency or court could disagreewith our assessment or that these laws andregulations could change. In addition, the FTC isin the process of promulgating a revisedBusiness Opportunity Rule. If enacted in theform of the current proposal as recommendedby the FTC staff, we do not believe the revisedrule would apply to our company. However, itcould be broadened prior to enactment orinterpreted after enactment in a mannerinconsistent with our interpretation. Becomingsubject to business opportunity or franchiselaws or regulations could require us to providecertain disclosures and regulate the manner inwhich we recruit our sales representatives thatmay increase the expense of, or adverselyimpact our success in, recruiting new salesrepresentatives and make it more difficult forus to successfully attract and recruit new salesrepresentatives.There are various laws and regulations thatprohibit fraudulent or deceptive schemesknown as pyramid schemes. In general, apyramid scheme is defined as an arrangementin which new participants are required to pay afee to participate in the organization and thenreceive compensation primarily for recruitingother persons to participate, either directly orthrough sales of goods or services that aremerely disguised payments for recruitingothers. The application of these laws andregulations to a given set of business practicesis inherently fact-based and, therefore, issubject to interpretation by applicableenforcement authorities. Our representativesare paid by commissions based on sales of ourproducts and services to bona fide purchasers,and for this and other reasons we do notbelieve that we are subject to laws regulatingpyramid schemes. Moreover, ourrepresentatives are not required to purchaseany of the products marketed by us. However,even though we believe that our distributionpractices are currently in compliance with, orPrimerica 2010 Annual Report 37


exempt from, these laws and regulations, thereis a risk that a governmental agency or courtcould disagree with our assessment or thatthese laws and regulations could change, whichmay require us to cease our operations incertain jurisdictions or result in other costs orfines.There are also federal, state and provincial lawsof general application, such as the FTC Act, andstate or provincial unfair and deceptive tradepractices laws that could potentially be invokedto challenge aspects of our recruiting of salesrepresentatives and compensation practices. Inparticular, our recruiting efforts includepromotional materials for recruits that describethe potential opportunity available to them ifthey join our sales force. These materials, aswell as our other recruiting efforts and those ofour sales representatives, are subject toscrutiny by the FTC and state and provincialenforcement authorities with respect tomisleading statements, including misleadingearnings claims made to convince potential newrecruits to join our sales force. If claims madeby us or by our sales representatives aredeemed to be misleading, it could result inviolations of the FTC Act or comparable stateand provincial statutes prohibiting unfair ordeceptive trade practices or result inreputational harm.Being subject to, or out of compliance with, theaforementioned laws and regulations couldrequire us to change our distribution structure,which could materially adversely affect ourbusiness, financial condition and results ofoperations.There may be adverse tax andemployment law consequences if theindependent contractor status of oursales representatives is successfullychallenged.Our sales representatives are independentcontractors who operate their own businesses.In the past, we have been successful indefending our company in various contextsbefore courts and administrative agenciesagainst claims that our sales representativesshould be treated like employees. Although webelieve that we have properly classified ourrepresentatives as independent contractors,there is nevertheless a risk that the IRS oranother authority will take a different view.Furthermore, the tests governing thedetermination of whether an individual isconsidered to be an independent contractor oran employee are typically fact sensitive andvary from jurisdiction to jurisdiction. Laws andregulations that govern the status andmisclassification of independent salesrepresentatives are subject to change orinterpretation by various authorities.In September 2010, legislation was introducedin Congress known as the Fair Playing Field Actof 2010, which, if enacted, would require theDepartment of the Treasury to prospectivelyeliminate Section 530 of the Revenue Act of1978 (“Section 530”). Section 530 currentlyprevents the IRS from reclassifyingindependent contractors as employees if thecompany has consistently treated the workersas independent contractors and has areasonable basis (such as an IRS ruling orjudicial precedent) for its independentcontractor classification. The proposedlegislation would also require businesses thatuse independent contractors on a regular andongoing basis to provide workers with a writtennotice informing them of their federal taxobligations, of the employment laws that do notapply to them, and of their right to seek adetermination of their employment status fromthe IRS. The White House budget proposalincludes provisions similar to those in the FairPlaying Field Act and allocates $25 million tothe Department of Labor (“DOL”) for additionalenforcement relating to the misclassification ofworkers as independent contractors. Neitherthe White House Budget proposal nor theproposed Fair Playing Field Act expresslychanges the standard for distinguishingbetween employees and independentcontractors.If a federal, state or provincial authority orcourt enacts legislation or adopts regulationsthat change the manner in which employeesand independent contractors are classified ormakes any adverse determination with respectto some or all of our independent contractors,we could incur significant costs in complying38 Freedom Lives Here


with such laws and regulations, including, inrespect of tax withholding, social securitypayments and recordkeeping, or we may berequired to modify our business model, any ofwhich could have a material adverse effect onour business, financial condition and results ofoperations. In addition, there is the risk that wemay be subject to significant monetaryliabilities arising from fines or judgments as aresult of any such actual or allegednon-compliance with federal, state, orprovincial tax or employment laws or withrespect to any applicable employee benefitplan.Our or our sales representatives’violation of or non-compliance withlaws and regulations and the relatedclaims and proceedings could expose usto material liabilities.Extensive federal, state, provincial and locallaws regulate our products and ourrelationships with our clients, imposing certainrequirements that our sales representativesmust follow. The laws and regulationsapplicable to our business include thosepromulgated by FINRA, the SEC, the MSRB, theFTC and state insurance, lending and securitiesregulatory agencies in the United States. InCanada, the following Canadian regulatoryauthorities have responsibility for us: OSFI,FINTRAC, FCAC, MFDA, and provincial andterritorial insurance regulators and provincialand territorial securities regulators. At anygiven time, we may have pending state, federalor provincial examinations or inquiries of ourinvestment and savings products, insurance orloan businesses. In addition to imposingrequirements that representatives must followin their dealings with clients, these laws andrules generally require us to maintain a systemof supervision to attempt to ensure that oursales representatives comply with theserequirements. We have developed policies andprocedures to comply with these laws.However, despite these compliance andsupervisory efforts, the breadth of ouroperations and the broad regulatoryrequirements could result in oversight failuresand instances of non-compliance or misconducton the part of our sales representatives.From time to time, we are subject to privatelitigation as a result of alleged misconduct by oursales representatives. Examples include claimsthat a sales representative’s failure to discloseunderwriting-related information regarding theinsured on an insurance application resulted inthe denial of a life insurance policy claim, andwith respect to investment and savings productssales, errors or omissions that a representativemade in connection with an account.Non-compliance or misconduct by our salesrepresentatives could result in adverse findingsin either examinations or litigation and couldsubject us to sanctions, significant monetaryliabilities, restrictions on or the loss of theoperation of our business, claims against us orreputational harm, any of which could have amaterial adverse effect on our business, financialcondition and results of operations.Any failure to protect theconfidentiality of client informationcould adversely affect our reputationand have a material adverse effect onour business, financial condition andresults of operations.Pursuant to federal laws, various federalregulatory and law enforcement agencies haveestablished rules protecting the privacy andsecurity of personal information. In addition,most states and some provinces have enactedlaws, which vary significantly from jurisdictionto jurisdiction, to safeguard the privacy andsecurity of personal information. Many of oursales representatives and employees haveaccess to and routinely process personalinformation of clients through a variety ofmedia, including the Internet and softwareapplications. We rely on various internalprocesses and controls to protect theconfidentiality of client information that isaccessible to, or in the possession of, ourcompany, our employees and our salesrepresentatives. We have a significant numberof sales representatives and employees, and itis possible that a sales representative oremployee could, intentionally orunintentionally, disclose or misappropriateconfidential client information. If we fail tomaintain adequate internal controls, includingPrimerica 2010 Annual Report 39


any failure to implement newly requiredadditional controls, or if our salesrepresentatives or employees fail to complywith our policies and procedures,misappropriation or intentional or unintentionalinappropriate disclosure or misuse of clientinformation could occur. Such internal controlinadequacies or non-compliance couldmaterially damage our reputation or lead tocivil or criminal penalties, which, in turn, couldhave a material adverse effect on our business,financial condition and results of operations.Risks Related to Our InsuranceBusiness and ReinsuranceWe may face significant losses if ouractual experience differs from ourexpectations regarding mortality orpersistency.We set prices for life insurance policies basedupon expected claim payment patterns derivedfrom assumptions we make about the mortalityrates, or likelihood of death, of ourpolicyholders in any given year. The long-termprofitability of these products depends uponhow our actual mortality rates compare to ourpricing assumptions. For example, if mortalityrates are higher than those assumed in ourpricing assumptions, we could be required tomake more death benefit payments under ourlife insurance policies or to make suchpayments sooner than we had projected, whichmay decrease the profitability of our term lifeinsurance products and result in an increase inthe cost of our subsequent reinsurancetransactions.The prices and expected future profitability ofour life insurance products are also based, inpart, upon assumptions related to persistency,which is the probability that a policy will remainin force from one period to the next. Actualpersistency that is lower than our persistencyassumptions could have an adverse effect onprofitability, especially in the early years of apolicy, primarily because we would be requiredto accelerate the amortization of expenses wedeferred in connection with the acquisition ofthe policy. Actual persistency that is higherthan our persistency assumptions could havean adverse effect on profitability in the lateryears of a block of policies because theanticipated claims experience is higher in theselater years. If actual persistency is significantlydifferent from that assumed in our pricingassumptions, our reserves for future policybenefits may prove to be inadequate. We areprecluded from adjusting premiums on ourin-force business during the initial term of thepolicies, and our ability to adjust premiums onin-force business after the initial policy term islimited by our insurance policy forms to themaximum premium rates in the policy.Our assumptions and estimates regardingpersistency and mortality require us to makenumerous judgments and, therefore, areinherently uncertain. We cannot determine withprecision the actual persistency or ultimateamounts that we will pay for actual claimpayments on a block of policies, the timing ofthose payments, or whether the assetssupporting these contingent future paymentobligations will increase to the levels weestimate before payment of claims. If weconclude that our reserves, together withfuture premiums, are insufficient to coveractual or expected claims payments and thescheduled amortization of our DAC assets, wewould be required to first accelerate ouramortization of the DAC assets and thenincrease our reserves and incur incomestatement charges for the period in which wemake the determination, which could materiallyadversely affect our business, financialcondition and results of operations.The occurrence of a catastrophic eventcould materially adversely affect ourbusiness, financial condition and resultsof operations.Our insurance operations are exposed to therisk of catastrophic events, which could cause alarge number of premature deaths of ourinsureds. Catastrophic events include wars andother military actions, terrorist attacks, naturalor man-made disasters and pandemics or otherwidespread health crises. Catastrophic eventsare not contemplated in our actuarial mortalitymodels. A catastrophic event could also causesignificant volatility in global financial markets40 Freedom Lives Here


and disrupt the economy. Although we haveceded a significant majority of our mortalityrisk to reinsurers since the mid-1990s, acatastrophic event could cause a materialadverse effect on our business, financialcondition and results of operations. Claimsresulting from a catastrophic event could causesubstantial volatility in our financial results forany quarter or year and could also materiallyharm the financial condition of our reinsurers,which would increase the probability of defaulton reinsurance recoveries. Our ability to writenew business could also be adversely affected.In addition, most of the jurisdictions in whichour insurance subsidiaries are admitted totransact business require life insurers doingbusiness within the jurisdiction to participate inguaranty associations, which raise funds to paycontractual benefits owed pursuant toinsurance policies issued by impaired, insolventor failed issuers. It is possible that acatastrophic event could require extraordinaryassessments on our insurance companies,which may have a material adverse effect onour business, financial condition and results ofoperations.Our insurance business is highlyregulated, and statutory and regulatorychanges may materially adverselyaffect our business, financial conditionand results of operations.Life insurance statutes and regulations aregenerally designed to protect the interests ofthe public and policyholders. Those interestsmay conflict with your interests as astockholder. Currently, in the United States, thepower to regulate insurance resides almostexclusively with the states. Much of this stateregulation follows model statutes or regulationsdeveloped or amended by the NAIC, which iscomposed of the insurance commissioners ofeach U.S. jurisdiction. The NAIC re-examinesand amends existing model laws andregulations (including holding companyregulations) in addition to determining whethernew ones are needed.The laws of the various U.S. jurisdictions grantinsurance departments broad powers toregulate almost all aspects of our insurancebusiness. The U.S. Congress continues toexamine the current condition of U.S. statebasedinsurance regulation to determinewhether to impose federal regulation and toallow optional federal insurance companyincorporation. The Dodd-Frank Act created anOffice of Federal Insurance Reform that will,among other things, study methods tomodernize and improve insurance regulation,including uniformity and the feasibility of federalregulation. We cannot predict with certaintywhether, or in what form, reforms will beenacted and, if so, whether the enacted reformswill materially affect our business. Changes infederal statutes, including the Gramm-Leach-Bliley Act and the McCarran-Ferguson Act,financial services regulation and federaltaxation, in addition to changes to state statutesand regulations, may be more restrictive thancurrent requirements or may result in highercosts, and could materially adversely affect theinsurance industry and our business, financialcondition and results of operations.Provincial and federal insurance laws regulatemany aspects of our Canadian insurancebusiness. Changes to provincial or federalstatutes and regulations may be more restrictivethan current requirements or may result inhigher costs, which could materially adverselyaffect the insurance industry and our business,financial condition and results of operations. Wehave also entered into an undertakingagreement with OSFI in connection with ourinitial public offering and the Transactionspursuant to which we have agreed to provideOSFI certain information, including advancenotice, where practicable, of certain corporateactions. If we fail to comply with our undertakingto OSFI or if OSFI determines that our corporateactions do not comply with applicable Canadianlaw, Primerica Life Canada could face sanctionsor fines, and Primerica Life Canada could besubject to increased capital requirements orother requirements deemed appropriate byOSFI.We received approval from the Minister ofFinance (Canada) under the InsuranceCompanies Act (Canada) in connection with ourindirect acquisition of Primerica Life Canada.The Minister expects that a person controlling aPrimerica 2010 Annual Report 41


federal insurance company will provide ongoingfinancial, managerial or operational support toits subsidiary should such support provenecessary, and has required us to sign asupport principle letter to that effect. Thisongoing support may take the form ofadditional capital, the provision of managerialexpertise or the provision of support in suchareas as risk management, internal controlsystems and training. However, the letter doesnot create a legal obligation on the part of theperson to provide the support. In the event thatOSFI determines Primerica Life Canada is notreceiving adequate support from us underapplicable Canadian law, Primerica Life Canadamay be subject to increased capitalrequirements or other requirements deemedappropriate by OSFI.If there were to be extraordinary changes tostatutory or regulatory requirements, we maybe unable to fully comply with or maintain allrequired insurance licenses and approvals.Regulatory authorities have relatively broaddiscretion to grant, renew and revoke licensesand approvals. If we do not have all requisitelicenses and approvals, or do not comply withapplicable statutory and regulatoryrequirements, the regulatory authorities couldpreclude or temporarily suspend us fromcarrying on some or all of our insuranceactivities or monetarily penalize us, which couldmaterially adversely affect our business,financial condition and results of operations.We cannot predict with certainty the effect anyproposed or future legislation or regulatoryinitiatives may have on the conduct of ourbusiness. See “Business — Regulation —Regulation of Insurance Products.”A decline in RBC of our insurancesubsidiaries could result in increasedscrutiny by insurance regulators andratings agencies and have a materialadverse effect on our business,financial condition and results ofoperations.Each of our insurance subsidiaries is subject toRBC standards and other minimum statutorycapital and surplus requirements (in Canada,minimum continuing capital and surplusrequirements (“MCCSR”), and Tier 1 capitalratio requirements) imposed under the laws ofits respective jurisdiction of domicile. The RBCformula for U.S. life insurance companiesgenerally establishes capital requirementsrelating to insurance, business, asset andinterest rate risks. Our U.S. insurancesubsidiaries are required to report their resultsof RBC calculations annually to the applicablestate department of insurance and the NAIC.Our Canadian insurance subsidiary is requiredto provide its MCCSR and Tier 1 capital ratiocalculations to the Canadian regulators. Thecapitalization of our life insurance subsidiariesis maintained at levels in excess of the effectiveminimum requirements of the NAIC in theUnited States and OSFI in Canada. Theseminimum standards are 100% of the CompanyAction Level of RBC for our U.S. insurancesubsidiaries and, for our Canadian insurancesubsidiary, MCCSR of 150% and a Tier 1 capitalratio of 105%. The capital required is the samefor both the MCCSR and Tier 1 ratios, howeverthe capital available for the Tier 1 ratio excludescertain assets as prescribed by OSFI. To complywith RBC levels prescribed by the regulators ofour insurance subsidiaries, our initialcapitalization levels were based on ourestimates and assumptions regarding ourbusiness. In any particular year, statutorycapital and surplus amounts and RBC andMCCSR ratios may increase or decreasedepending on a variety of factors, including theamount of statutory income or lossesgenerated by our insurance subsidiaries (whichis sensitive to equity and credit marketconditions), the amount of additional capitalour insurance subsidiaries must hold to supportbusiness growth, changes in their reserverequirements, the value of certain fixed-incomeand equity securities in their investmentportfolios, the credit ratings of investmentsheld in their portfolios, the value of certainderivative instruments, changes in interestrates, credit market volatility, changes inconsumer behavior, as well as changes to theNAIC’s RBC formula or the MCCSR calculationof OSFI. Many of these factors are outside ofour control.42 Freedom Lives Here


Our financial strength and credit ratings aresignificantly influenced by the statutory surplusamounts and RBC and MCCSR ratios of ourinsurance company subsidiaries. Ratingsagencies may change their internal models,effectively increasing or decreasing the amountof statutory capital we must hold to maintainour current ratings. In addition, ratingsagencies may downgrade the invested assetsheld in our portfolio, which could result in areduction of our capital and surplus by meansof other-than-temporary impairments. Changesin statutory accounting principles could alsoadversely impact our ability to meet minimumRBC, MCCSR and statutory capital and surplusrequirements. Furthermore, during the initialyears of operation after the Citi reinsurancetransactions, our statutory capital and surplusmay prove to be insufficient and we may incurongoing statutory losses as a result of the highamounts of upfront commissions that are paidto our sales force in connection with theissuance of term life insurance policies. Thestatutory capital and surplus strain associatedwith payment of these commissions will be ofgreater impact during the initial years of ouroperations as a public company, as the in-forcebook of business, net of the Citi reinsurancetransactions, grows. There is no assurance thatour insurance subsidiaries will not needadditional capital or that we will be able toprovide it to maintain the targeted RBC andMCCSR levels to support their businessoperations.The failure of any of our insurance subsidiariesto meet its applicable RBC and MCCSRrequirements or minimum capital and surplusrequirements could subject it to furtherexamination or corrective action imposed byinsurance regulators, including limitations on itsability to write additional business, supervisionby regulators or seizure or liquidation. Anycorrective action imposed could have amaterial adverse effect on our business,financial condition and results of operations. Adecline in RBC or MCCSR also limits our abilityto take dividends or distributions out of theinsurance subsidiary and could be a factor incausing ratings agencies to downgrade thefinancial strength ratings of all our insurancesubsidiaries. Such downgrades would have anadverse effect on our ability to write newinsurance business and, therefore, could have amaterial adverse effect on our business,financial condition and results of operations.A ratings downgrade by a ratingsorganization could materially adverselyaffect our business, financial conditionand results of operations.We have three insurance subsidiaries. PrimericaLife, our Massachusetts domiciled life insurancecompany, NBLIC, our New York life insurancecompany, and Primerica Life Canada, ourCanadian life insurance company, have eachbeen assigned a financial strength rating of A+(superior; second highest of 16 ratings) byA.M. Best with a negative outlook. PrimericaLife currently also has an insurer financialstrength rating of AA- (very strong; fourthhighest of 22 ratings) from Standard & Poor’swith a stable outlook. NBLIC and Primerica LifeCanada are not rated by Standard & Poor’s.Financial strength ratings are an importantfactor in establishing the competitive positionof insurance companies. Such ratings areimportant to maintaining public confidence inus and our ability to market our insuranceproducts. Ratings organizations review thefinancial performance and financial conditionsof insurance companies, including our threeinsurance subsidiaries, and provide opinionsregarding financial strength, operatingperformance and ability to meet obligations topolicyholders. A downgrade in the financialstrength ratings of our insurance subsidiaries,or the announced potential for a downgrade,could have a material adverse effect on ourbusiness, financial condition and results ofoperations, including by:• reducing sales of insurance products;• adversely affecting our relationships withour sales representatives;• materially increasing the amount of policycancellations by our policyholders;• requiring us to reduce prices to remaincompetitive; and• adversely affecting our ability to obtainreinsurance at reasonable prices or at all.Primerica 2010 Annual Report 43


The financial strength ratings of our insurancesubsidiaries are subject to periodic reviewusing, among other things, the ratings agencies’proprietary capital adequacy models, and aresubject to revision or withdrawal at any time.Insurance financial strength ratings aredirected toward the concerns of policyholdersand are not intended for the protection ofinvestors or as a recommendation to buy, holdor sell securities. Our financial strength ratingswill affect our competitive position relative toother insurance companies. If the financialstrength ratings of our insurance subsidiariesfall below certain levels, some of ourpolicyholders may move their business to ourcompetitors.In addition, the standards used by ratingsagencies in determining financial strength aredifferent from capital requirements set byinsurance regulators. We may need to takeactions in response to changing standards setby any of the ratings agencies, as well asstatutory capital requirements, which couldhave a material adverse effect on our business,financial condition and results of operations.Credit deterioration in, and the effectsof interest rate fluctuations on, ourinvested asset portfolio couldmaterially adversely affect ourbusiness, financial condition and resultsof operations.A large percentage of our invested assetportfolio is invested in fixed-income securities;as a result, credit deterioration and interestrate fluctuations could materially affect thevalue and earnings of our invested assetportfolio. Fixed-income securities decline invalue if there is no active trading market for thesecurities or the market’s impression of, or theratings agencies’ views on, the credit quality ofan issuer worsens. During periods of decliningmarket interest rates, any interest income wereceive on variable interest rate investmentswould decrease. In addition, during suchperiods, we would be forced to reinvest thecash we receive as interest or return ofprincipal on our investments in lower-yieldinghigh-grade instruments or in lower-creditinstruments to maintain comparable returns.Issuers of fixed-income securities could alsodecide to prepay their obligations to borrow atlower market rates, which would increase thepercentage of our portfolio that we would haveto reinvest in lower-yielding investments ofcomparable credit quality or in lower qualityinvestments offering similar yields. If interestrates generally increase, the market value ofour fixed rate income portfolio decreases.Additionally, if the market value of any securityin our invested asset portfolio decreases, wemay realize losses if we deem the value of thesecurity to be other-than-temporarily-impaired.To the extent that any fluctuations in fair valueare significant or we recognize impairmentsthat are material, it could have a materialadverse effect on our business, financialcondition and results of operations.Valuation of our investments and thedetermination of whether a decline inthe fair value of our invested assets isother-than-temporary are based onmethodologies and estimates that mayprove to be incorrect.GAAP requires that when the fair value of anyof our invested assets declines and such declineis deemed to be other-than-temporary, werecognize a loss in either accumulated othercomprehensive income or on our statement ofincome based on certain criteria in the periodthat such determination is made. Determiningthe fair value of certain invested assets,particularly those that do not trade on a regularbasis, requires an assessment of available dataand the use of assumptions and estimates.Once it is determined that the fair value of anasset is below its carrying value, we mustdetermine whether the decline in fair value isother-than-temporary, which is based onsubjective factors and involves a variety ofassumptions and estimates. For information onour valuation methodology, see Notes 1 and 4to our consolidated and combined financialstatements included elsewhere in this reportand “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations —Critical Accounting Policies — Investments.”44 Freedom Lives Here


There are certain risks and uncertaintiesassociated with determining whether declinesin market value are other-than-temporary.These include significant changes in generaleconomic conditions and business markets,trends in certain industry segments, interestrate fluctuations, rating agency actions,changes in significant accounting estimates andassumptions and legislative actions. In the caseof mortgage- and asset-backed securities, thereis added uncertainty as to the performance ofthe underlying collateral assets. To the extentthat we are incorrect in our determination ofthe fair value of our investment securities orour determination that a decline in their valueis other-than-temporary, we may realize lossesthat never actually materialize or may fail torecognize losses within the appropriatereporting period.The failure by any of our reinsurers toperform its obligations to us could havea material adverse effect on ourbusiness, financial condition and resultsof operations.We extensively use reinsurance in the UnitedStates to diversify our risk and to manage ourloss exposure to mortality risk. Reinsurancedoes not relieve us of our direct liability to ourpolicyholders, even when the reinsurer is liableto us. We, as the insurer, are required to paythe full amount of death benefits even incircumstances where we are entitled to receivepayments from the reinsurer. Due to factorssuch as insolvency, adverse underwritingresults or inadequate investment returns, ourreinsurers may not be able to pay thereinsurance recoverables they owe to us on atimely basis or at all. Reinsurers might refuse orfail to pay losses that we cede to them or mightdelay payment. Since death benefit claims maybe paid long after a policy is issued, we bearcredit risk with respect to our reinsurers. Thecreditworthiness of our reinsurers may changebefore we can recover amounts to which we areentitled.No assurance is given that our reinsurers willpay the reinsurance recoverables owed to usnow or in the future or that they will pay theserecoverables on a timely basis. Any such failureto pay by our reinsurers could have a materialadverse effect on our business, financialcondition and results of operations.The failure by Citi to perform itsobligations to us under our coinsuranceagreements could have a materialadverse effect on our business,financial condition and results ofoperations.Immediately prior to the Offering, we enteredinto four coinsurance agreements with threereinsurer affiliates of Citi pursuant to which weceded between 80% and 90% of the risks andrewards of our term life insurance policies thatwere in force at year-end 2009. Under thisarrangement, our current third-partyreinsurance agreements remain in place. Thelargest of these transactions involved twocoinsurance agreements between PrimericaLife and Prime Re. Prime Re was formed solelyfor the purpose of entering into thesereinsurance transactions, has no operatinghistory and does not possess a financialstrength rating from any rating agency. Theother transactions were between (1) PrimericaLife Canada and Financial ReassuranceCompany 2010 Ltd., a Bermuda reinsurerformed to operate solely for the purpose ofreinsuring Citi-related risks and is a whollyowned subsidiary of Citi, and (2) NBLIC andAmerican Health and Life Insurance Company(“AHL”), a wholly owned insurance subsidiaryof Citi that has a financial strength rating of “A”by A.M. Best. Each of the three reinsurersentered into trust agreements with ourrespective insurance subsidiaries and a trusteepursuant to which the reinsurer placed assets(primarily treasury and fixed-income securities)in trust for such subsidiary’s benefit to securethe reinsurer’s obligations to such subsidiary.Each such coinsurance agreement requireseach reinsurer to maintain assets in trustsufficient to give the subsidiary full credit forregulatory purposes for the insurance, whichamount will not be less than the amount of thereserves for the reinsured liabilities. In addition,in the case of the reinsurance transactionsbetween Prime Re and Primerica Life, Citi hasPrimerica 2010 Annual Report 45


agreed in a capital maintenance agreement tomaintain Prime Re’s RBC above a specifiedminimum level, subject to a maximum amountof $512 million being contributed by Citi. Afterthe first five years of the capital maintenanceagreement, the maximum amount payable willbe an aggregate amount equal to the lesser of$512 million or 15% of statutory reserves. In thecase of the reinsurance transaction betweenNBLIC and AHL, Citi has agreed to overcollateralizethe assets in the trust for NBLIC by15% for the life of the coinsurance agreementbetween NBLIC and AHL. Furthermore, ourinsurance subsidiaries have the right torecapture the business upon the occurrence ofan event of default under their respectivecoinsurance agreement with the Citi affiliatessubject to any applicable cure periods. An eventof default includes (1) a reinsurer insolvency,(2) failure through the fault of the reinsurer toprovide full statutory financial statement creditfor the reinsurance ceded, (3) a material breachof any covenant, representation or warranty bythe reinsurer, (4) failure by the reinsurer tofund the trust account required to beestablished under the coinsurance agreementsin any material respects, or (5) in connectionwith the coinsurance agreements with PrimeRe, failure by Citi to maintain sufficient capitalin the reinsurer, pursuant to the capitalmaintenance agreement between Citi and thereinsurer within 45 calendar days of anydemand for payment by or on behalf ofPrimerica Life, and any 45-day extensionthereof as consented to by Primerica Life,which consent may not be unreasonablyconditioned, delayed or withheld, for a total ofnot more than 90 days to obtain such consent;provided that Primerica Life is not required toconsent to extend such period beyond anadditional 45 days. While any such recapturewould be at no cost to us, such recapture wouldresult in a substantial increase in our insuranceexposure and require us to be fully responsiblefor the management of the assets set aside tosupport statutory reserves. The type of assetswe might obtain as a result of a recapture maynot be as highly liquid as our current investedasset portfolio and could result in anunfavorable impact on our risk profile.We cannot provide assurance that the relevantCiti reinsurer will pay the reinsuranceobligations owed to us now or in the future orthat it will pay these obligations on a timelybasis. Notwithstanding the capital maintenanceagreement between Prime Re and Citi and theinitial over-collateralization of assets in trustfor the benefit of our insurance companies, ifany of our reinsurers affiliated with Citibecomes insolvent, the amount in the trustaccount to support the obligations of suchreinsurer is insufficient to pay such reinsurer’sobligations to us and we fail to enforce ourright to recapture the business, it could have amaterial adverse effect on our business,financial condition and results of operations.Yearly renewable term reinsurancemay not be available or affordable inthe future to limit our mortality riskexposure.As described above, we have historically usedYRT reinsurance to manage our loss exposureto mortality risks. It is our current intention tocontinue our practice of purchasing mortalityreinsurance in the future consistent with ourpast practice. While YRT reinsuranceagreements generally bind the reinsurers forthe life of the business reinsured at generallyfixed pricing, market conditions beyond ourcontrol determine the availability and cost ofthe reinsurance protection for new business.We may not be able to maintain our currentYRT reinsurance agreements in adequateamounts and at favorable rates. Any decreasein the amount of YRT reinsurance will increaseour exposure to mortality risks.Changes in accounting for DAC ofinsurance entities will accelerate therecognition for certain acquisition costsnot deemed to be directly related to thesuccessful acquisition of new insurancecontracts.In October 2010, the Financial AccountingStandards Board, or FASB, issued ASU 2010-26,Accounting for Costs Associated with Acquiringor Renewing Insurance Contracts (ASU 2010-46 Freedom Lives Here


26). The update revises the definition ofdeferred policy acquisition costs to reflectincremental costs directly related to thesuccessful acquisition of new and renewedinsurance contracts. The update creates a morelimited definition than the current guidance,which defines deferred policy acquisition costsas those that vary with, and primarily relate to,the acquisition of insurance contracts. Therevised definition materially increases theportion of acquisition costs being expensed asincurred rather than deferred and amortizedover the lives of the underlying policies. Theupdate allows either prospective orretrospective adoption and is required to beadopted for our fiscal year beginning January 1,2012. While we are currently unable to quantifythe impact of implementation, we expect thisupdate to have a material adverse effect on ourresults of operations, as we will be required toaccelerate the recognition of certain expensesassociated with acquiring life insurancebusiness.Changes in accounting standards canbe difficult to predict and couldadversely impact how we record andreport our financial condition andresults of operations.Our accounting policies and methods arefundamental to how we record and report ourfinancial condition and results of operations.U.S. GAAP continues to evolve and as a result,may change the financial accounting andreporting standards that govern thepreparation of our financial statements. Thesechanges can be hard to anticipate andimplement and can materially impact how werecord and report our financial condition andresults of operations. For example, the FASB’scurrent insurance contracts project could,among other things, significantly change theway we measure insurance liabilities on ourbalance sheet and the way we present earningson our statement of income. This project, inaddition to a related proposal to modifyInternational Financial Reporting Standards onaccounting for insurance contracts, couldadversely impact both our financial conditionand results of operations as reported on a U.S.GAAP basis as well as our statutory capitalcalculations.Risks Related to Our Investmentsand Savings Products BusinessOur investment and savings productssegment is heavily dependent onmutual fund and annuity productsoffered by a relatively small number ofcompanies and if these products fail toremain competitive with otherinvestment options or we lose ourrelationship with one or more of thesefund companies or with the source ofour annuity products, our business,financial condition and results ofoperations may be materially adverselyaffected.We earn a significant portion of our earningsthrough our relationships with a small group ofmutual fund companies, including Legg Mason,Invesco and American Funds, and with MetLife,which provides our annuity products. A decisionby one or more of these companies to alter ordiscontinue their current arrangements with uscould materially adversely affect our business,financial condition and results of operations. Inaddition, if any of our investment and savingsproducts fail to achieve satisfactory investmentperformance, our clients may seek higheryielding alternative investment products. If anyof our investment and savings products fail toachieve satisfactory investment performancefor an extended period of time, we mayexperience higher redemption rates. In suchcircumstances, we may also experiencere-allocations of existing client assets andincreased allocations of new assets toinvestment and savings products with higherinvestment returns, which ultimately results inchanges in our mix of business. Since differentinvestment and savings products have differentrevenue and expense characteristics, suchchanges may have significant negativeconsequences for us.In recent years there has been an increase inthe popularity of alternative investments, whichPrimerica 2010 Annual Report 47


we do not currently offer, principally indexfunds and exchange traded funds. Theseinvestment options typically have low feestructures and provide some of the attributesof mutual funds, such as risk diversification. Ifthese products continue to gain traction amongour client base as viable alternatives to mutualfund investments, our investment and savingsproducts revenues may decline.In addition to sales commissions and assetbasedcompensation, a significant portion ofour earnings from investment and savingsproducts comes from recordkeeping servicesthat we provide to Invesco, Legg Mason andPioneer Investments and from fees earned forcustodial services we provide to clients withretirement plan accounts in the funds of thesemutual fund companies. We also receiverevenue sharing payments from each of thesemutual fund companies. A decision by one ormore of these fund companies to alter ordiscontinue their current arrangements with uswould materially adversely affect our business,financial condition and results of operations.Our or our securities-licensed salesrepresentatives violations of, ornon-compliance with, laws andregulations could expose us to materialliabilities.Our subsidiary broker-dealer, PFS Investments,is subject to federal and state regulation of itssecurities business, including sales practices,trade suitability, supervision of registeredrepresentatives, recordkeeping, the conductand qualification of officers and employees, therules and regulations of the MSRB and stateblue sky regulation. Our subsidiary, PSS, is aregistered transfer agent engaged in therecordkeeping business and is subject to SECregulation. Violations of laws or regulationsapplicable to the activities of PFS Investmentsor PSS or violations by a third party with whichPFS Investments or PSS contracts whichimproperly performs its task could subject us todisciplinary actions and could result in theimposition of cease and desist orders, fines orcensures, restitution to clients, disciplinaryactions, including the potential suspension orrevocation of its license by the SEC, or thesuspension or expulsion from FINRA andreputational damage, which could materiallyadversely affect our business, financialcondition and results of operations.Our Canadian dealer subsidiary, PFSLInvestments Canada Ltd. (“PFSL InvestmentsCanada”) and its sales representatives aresubject to the securities laws of the provincesand territories of Canada in which we sell ourmutual fund products and those of third partiesand to the rules of the MFDA, the selfregulatoryorganization governing mutual funddealers. PFSL Investments Canada is subject toperiodic review by both the MFDA and theprovincial and territorial securities commissionsto assess its compliance with, among otherthings, applicable capital requirements andsales practices and procedures. Theseregulators have broad administrative powers,including the power to limit or restrict theconduct of our business for failure to complywith applicable laws or regulations. Possiblesanctions that may be imposed include thesuspension of individual sales representatives,limitations on the activities in which the dealermay engage, suspension or revocation of thedealer registration, censure or fines, any ofwhich could materially adversely affect ourbusiness, financial condition and results ofoperations.If heightened standards of conduct ormore stringent licensing requirements,such as those recently proposed by theSEC and the DOL, are imposed on us orour sales representatives or sellingcompensation is reduced as a result ofnew legislation or regulations, it couldhave a material adverse effect on ourbusiness, financial condition and resultsof operations.Our sales representatives are subject to federaland state regulation as well as state licensingrequirements. PFS Investments, which isregulated as a broker-dealer, and our U.S. salesrepresentatives are currently subject to generalanti-fraud limitations under the Exchange Actand SEC rules and regulations, as well as other48 Freedom Lives Here


conduct standards prescribed by FINRA. Thesestandards generally require that broker-dealersand their sales representatives discloseconflicts of interest that might affect the adviceor recommendations they provide and requirethem to make suitable investmentrecommendations to their customers. TheDodd-Frank Act, which gave the SEC the powerto impose on broker-dealers a heightenedstandard of conduct that is currently applicableonly to investment advisers, required the SECto conduct a study to evaluate theeffectiveness of the current legal standards ofconduct for those that provide personalizedinvestment advice regarding securities to retailcustomers. The SEC staff recently submitted areport to Congress in which it recommends thatthe SEC adopt a uniform fiduciary standard ofconduct.Additionally, the DOL has published a proposedrule that would more broadly define thecircumstances under which a person or entitymay be considered a fiduciary for purposes ofthe prohibited transaction rules of InternalRevenue Code Section 4975 (“Section 4975”).The proposal amends a long-standing positionthat the DOL believes may inappropriately limitthe types of investment advice relationshipsthat give rise to the application of suchprohibited transaction rules. The DOL held apublic hearing on the proposal in early March2011. If PFS Investments and its securitieslicensedrepresentatives are deemed to befiduciaries for purposes of Section 4975, wecould be limited in our ability to receive andretain certain types of compensation paid bythird parties with respect to both newinvestments into and existing assets in qualifiedaccounts. This could make it more difficult forus and our representatives to profitably servethe middle-income market. Moreover, if ourrepresentatives must be advisors with Series65 licenses, this could force us to change ourbusiness model and could become a significantobstacle to serving our existing IRA accountsand receiving a sufficient revenue stream toremain in this line of business.Heightened standards of conduct as a result ofeither of the above proposals or another similarproposed rule or regulation could also increasethe compliance and regulatory burdens on ourrepresentatives, lead to increased litigation andregulatory risks, changes to our businessmodel, a decrease in the number of oursecurities-licensed representatives or areduction in the products we offer to our clientswhich could have a material adverse effect onour business, financial condition and results ofoperations.Our suitability policies and procedurescould be deemed inadequate.We review account applications for ourinvestment or savings product received by usfor suitability. While we believe that our policiesand procedures implemented to help our salesrepresentatives assist clients in makingappropriate and suitable investment choicesare reasonably designed to achieve compliancewith applicable securities laws and regulations,it is possible that FINRA and MFDA may notagree. In that event, we could be subject toregulatory actions or civil litigation, which couldmaterially adversely affect our business,financial condition and results of operations.Our sales force support tools may failto appropriately identify suitableinvestment products.Our support tools are designed to educateclients, help identify their financial needs,illustrate the potential benefits of our productsand allow a sales representative to show themhow the sales representative’srecommendations may help them. There is arisk that the assumptions and methods ofanalyses embedded in our support tools couldbe successfully challenged and subject us toregulatory actions or civil litigation, which couldmaterially adversely affect our business,financial condition and results of operations.Non-compliance with applicableregulations could lead to revocation ofour subsidiary’s status as a non-bankcustodian.PFS Investments is a non-bank custodian ofretirement accounts, as permitted underPrimerica 2010 Annual Report 49


Treasury Regulation 1.408-2. A non-bankcustodian is an entity that is not a bank andthat is permitted by the IRS to act as acustodian for retirement plan account assets ofour clients. The IRS retains authority to revokeor suspend that status if it finds that PFSInvestments is unwilling or unable to administerretirement accounts in a manner consistentwith the requirements of the regulations.Revocation of PFS Investments’ non-bankcustodian status would affect its ability to earnrevenue for providing such services and,consequently, could materially adversely affectour business, financial condition and results ofoperations.Risks Related to Our Loan BusinessThe current economic environment andstringent credit policies may continueto negatively affect our loanproduction.Beginning in 2008, in response to economicconditions and consistent with steps taken byother mortgage lenders generally, ourmortgage lenders implemented more rigorouscredit standards, including more restrictiveloan-to-value limitations and more restrictiveunderwriting criteria, which adversely affectedour loan business. We anticipate that thesecredit restrictions will be ongoing, and it ispossible that further restrictive underwritingcriteria may be imposed by our mortgagelenders in reaction to changes in the economicenvironment or by new legislative or regulatoryrequirements, including the Dodd-Frank Act,affecting mortgage lending generally.Heightened credit standards have materiallyreduced the volume of our loan sales.Beginning in March 2010, we modified themortgage product to make it a conforming loanproduct that is saleable by CTB, the lender, togovernment-sponsored enterprises, Fannie Maeand Freddie Mac. This modification reduced thecompensation that we and our sales force earnupon the origination of a mortgage loan in theUnited States.While mortgage origination historically has notaccounted for a significant portion of ourearnings, sourcing of mortgage loanshistorically has provided an opportunity for newsales representatives to receive commissionsbefore they have completed the licensingprocess that is required to sell life insuranceand certain other products. Additionally, someof our sales representatives use loan productsales efforts as a gateway to establish anongoing relationship with clients. Consequently,the reduction in the scale of our loan productdistribution business and the relatedcommission compensation to our sales forcemay cause us to have fewer salesrepresentatives and impede our overall growth.New licensing requirements willcontinue to significantly reduce the sizeof our loan sales force.The number of our sales representatives whoare authorized to sell loan products in the UnitedStates has significantly decreased due to theimplementation of individual licensingrequirements mandated by the SAFE Act. TheSAFE Act required all states to enact andimplement laws that require our U.S. salesrepresentatives to be individually licensed if theyengage in offering mortgage loan products. Priorto the enactment of the SAFE Act, our salesrepresentatives were not required to beindividually licensed or registered to sellmortgage loan products in the majority of states.Due to the enactment and implementation bythe states of the SAFE Act, to offer mortgageloan products, our sales representatives must beindividually licensed as mortgage loanoriginators (and in some states as bothmortgage brokers and mortgage loanoriginators) by the states in which they dobusiness. These licensing requirements includeenrollment in the Nationwide MortgageLicensing System, application to state regulatorsfor individual licenses, a minimum of 20 hours ofpre-licensing education, an annual minimum ofeight hours of continuing education and thesuccessful completion of both national and stateexams. Compliance with these licensing regimes(including background checks) have proven to bea barrier in terms of cost or time for a largenumber of our sales representatives. In addition,the exams have proven to be challenging for oursales representatives to pass. The SAFE Act50 Freedom Lives Here


licensing requirements have caused, and areexpected to continue to cause, a significantreduction in the scale of our loan productdistribution business, which could materiallyadversely affect our loan product sales.The reduction of the number of salesrepresentatives participating in the loanbusiness has adversely impacted, and isexpected to continue to adversely impact,Primerica Mortgages’ ability to maintain andobtain corporate Mortgage Broker (orequivalent) licenses in certain states where nosales representatives are individuallylicensed. If Primerica Mortgages does notobtain or maintain corporate Mortgage Brokerlicenses in the various states, thenrepresentatives who want to becomeindividually licensed will be unable to do so dueto the lack of a sponsoring licensed MortgageBroker or may seek another sponsoringlicensed Mortgage Broker. Unless bothindividual representatives and PrimericaMortgages are licensed, neither can offermortgage loans in a state. In addition, ourinability to source mortgage loans impacts thecompensation paid to our sales representativesand our ability to assist our clients with theirneeds.Our loan business is subject to variousfederal laws, changes in which couldaffect the cost or our ability todistribute our products and couldmaterially adversely affect ourbusiness, financial condition and resultsof operations.Our U.S. loan business is subject to variousfederal laws, including the Truth In Lending Actand its implementing regulation, Regulation Z,the Equal Credit Opportunity Act and itsimplementing regulation, Regulation B, the FairHousing Act and the Home Ownership EquityProtection Act. We are also subject to RESPAand its implementing regulation, Regulation X,which requires timely disclosures related to thenature and costs of real estate settlementamounts and limits those costs andcompensation to amounts reasonably related tothe services performed.We are also subject to the Dodd-Frank Act andany regulations that will be issued under thatAct. The Dodd-Frank Act created a newconsumer protection agency, the Bureau ofConsumer Financial Protection, which will havethe authority to examine, supervise and enforcefederal consumer financial laws, including thoseimpacting Primerica Mortgages’ business.Additionally, the Dodd-Frank Act imposedrestrictions on the manner and amount ofmortgage originator compensation andestablishes a federal ability to repay standardfor all mortgage loans. Other restrictionscontained in the Dodd-Frank Act could have theeffect of limiting the availability of certain loanproducts in the market and adversely impactthe range of products offered and the volumeof loan business.Additionally, we must comply with various stateand local laws and policies concerning ourlenders, the provision of consumer disclosures,net branching, predatory lending and high costloans and recordkeeping. In the state ofCalifornia, the law provides that since PrimericaMortgages is a licensed as California FinanceLender authorized to act as a mortgage broker,Primerica Mortgages is restricted to brokeringloans only to another lender who is licensed asa California Finance Lender. Currently, ourlender, Citicorp Trust Bank, fsb, is licensed as aCalifornia Finance Lender, but should CTB electto transfer the lending business to eitherCitiMortgage, Inc. or Citibank N.A., neither ofwhich are currently licensed as CaliforniaFinance Lenders, Primerica Mortgages ability tosource loans in California could be adverselyimpacted. Differing interpretations of, changesin, or violations of, any of these laws orregulations could subject us to damages, finesor sanctions and could affect the cost or ourability to distribute our products, which couldmaterially adversely affect our business,financial condition and results of operations.Primerica 2010 Annual Report 51


Other Risks Related to Our BusinessA further delay in the recovery of theUnited States’ and Canadian economiescould materially adversely affect ourbusiness, financial condition and resultsof operations.Our business, financial condition and results ofoperations have been materially adverselyaffected by the economic downturn in theUnited States and Canada and the slowrecovery that has occurred since the last half of2009. During this period, we have observedincreased volatility in the availability and costof credit, shrinking mortgage markets,fluctuating equity values and falling consumerconfidence and general instability of financialand other institutions. This economic downturn,which has been characterized by higherunemployment, lower family income, lowervaluation of retirement savings accounts, lowercorporate earnings, lower business investmentand lower consumer spending, has adverselyaffected the demand for the term lifeinsurance, investment and other financialproducts that we sell. A continuation of theseeffects could severely affect new sales andcause clients to liquidate mutual funds andother investments sold by our salesrepresentatives. This could cause a decrease inthe asset value of client accounts, reduce ourtrailing commission revenues and result inother-than-temporary-impairments in ourinvested asset portfolio. In addition, we mayexperience an elevated incidence of lapses orsurrenders of insurance policies, and some ofour policyholders may choose to defer payinginsurance premiums or stop paying insurancepremiums altogether. Continuing volatility inequity markets or downturns could discouragepurchases of the investment products that wesell for third parties. Moreover, if the economicrecovery in the United States and Canada isdelayed further, it will likely have an adverseeffect on our business, including our ability torecruit and retain sales representatives. Ifcredit markets remain tight for a prolongedperiod, our liquidity will be more limited than itotherwise would have been, and our business,financial condition and results of operationsmay be materially adversely affected.We are subject to various federal lawsand regulations in the United Statesand Canada, changes in which orviolations of which may require us toalter our business practices and couldmaterially adversely affect ourbusiness, financial condition and resultsof operations.In the United States, we are subject to the Rightto Financial Privacy Act and its implementingregulation, Regulation S-P, the Fair CreditReporting Act, the Gramm-Leach-Bliley Act, theMcCarran-Ferguson Act, the Foreign CorruptPractices Act, the Sarbanes-Oxley Act, theTelemarketing and Consumer Fraud and AbusePrevention Act, the Telephone ConsumerProtection Act, the FTC Act, the Unfair TradePractices Act, the Electronic Funds TransferAct, the Bank Holding Company ActAmendments of 1970 and anti-tyingrestrictions. We are also subject to anti-moneylaundering laws and regulations, including theBank Secrecy Act, as amended by the PatriotAct, which requires us to develop andimplement customer identification and riskbasedanti-money laundering programs, reportsuspicious activity and maintain certainrecords. We are also required to follow certaineconomic and trade sanctions programs thatare administered by the Office of Foreign AssetControl that prohibit or restrict transactionswith suspected countries, their governments,and in certain circumstances, their nationals.In Canada, we are subject to provincial andterritorial consumer protection legislation thatpertains to unfair and misleading businesspractices, provincial and territorial creditreporting legislation that providesrequirements in respect of obtaining creditbureau reports and providing notices of decline,the Personal Information Protection andElectronic Documents Act, the Competition Act,the Corruption of Foreign Public Officials Act,the Telecommunications Act and certainCanadian Radio-television andTelecommunications Commission TelecomDecisions in respect of unsolicitedtelecommunications. We are also subject to theProceeds of Crime (Money Laundering) and52 Freedom Lives Here


Terrorist Financing Act and its accompanyingregulations, which require us to develop andimplement money laundering policies andprocedures relating to customerindemnification, reporting and recordkeeping,develop and maintain ongoing trainingprograms for employees, perform a riskassessment on our business and clients andinstitute and document a review of our antimoneylaundering program at least once everytwo years. We are also required to followcertain economic and trade sanctions andlegislation that prohibit us from, among otherthings, engaging in transactions with, andproviding services to, persons on lists createdunder various federal statutes and regulationsand blocked persons and foreign countries andterritories subject to Canadian sanctionsadministered by Foreign Affairs andInternational Trade Canada and theDepartment of Public Safety Canada.Changes in, or violations of, any of these lawsor regulations may require additionalcompliance procedures, or result inenforcement proceedings, sanctions orpenalties, which could have a material adverseeffect on our business, financial condition andresults of operations.Litigation and regulatory investigationsand actions may result in financiallosses and harm our reputation.We face a risk of litigation and regulatoryinvestigations and actions in the ordinarycourse of operating our businesses. From timeto time, we are subject to private litigation andregulatory investigations as a result of salesrepresentative misconduct. See “— RisksRelated to Our Distribution Structure — Our orour sales representatives’ violation of ornon-compliance with laws and regulations andthe related claims and proceedings couldexpose us to material liabilities.” In addition, wemay become subject to lawsuits alleging,among other things, issues relating to sales orunderwriting practices, payment of impropersales commissions, claims payments andpayment procedures, product design, productdisclosure, administration, additional premiumcharges for premiums paid on a periodic basis,denial or delay of benefits, recommendingunsuitable sales of products to clients and ourpricing structures. Life insurance companieshave historically been subject to substantiallitigation resulting from policy disputes andother matters. For example, they have facedextensive claims alleging improper lifeinsurance sales practices. If we become subjectto similar litigation, any judgment or settlementof such claims could have a material adverseeffect on our business, financial condition andresults of operations.In addition, we are subject to litigation arisingout of our general business activities. Forexample, we have a large sales force, and wecould face claims by some of our salesrepresentatives arising out of their relationshipwith us, including claims involving contractterminations, commission disputes, transfers ofsales representatives from one salesorganization to another, agreements amongsales representatives or between us and a salesrepresentative or any of our other dealingswith, or policies regarding, salesrepresentatives. We are also subject to variousregulatory inquiries, such as informationrequests, subpoenas and books and recordexaminations, from state, provincial and federalregulators and other authorities. A substantiallegal liability or a significant regulatory actionagainst us could have a material adverse effecton our business, financial condition and resultsof operations.Moreover, even if we ultimately prevail in anysuch litigation, regulatory action orinvestigation, we could suffer significantreputational harm, which could have a materialadverse effect on our business, financialcondition and results of operations. In addition,increased regulatory scrutiny and any resultinginvestigations or proceedings could result innew legal precedents and industry-wideregulations or practices that could materiallyadversely affect our business, financialcondition and results of operations.Primerica 2010 Annual Report 53


The current legislative and regulatoryclimate with regard to financial servicesmay adversely affect our operations.The volume of legislative and regulatoryactivity relating to financial services hasincreased substantially in recent years. TheDodd-Frank Act could cause sweeping changesin the consumer financial services industry, andimpact us. As a result, these changes mayinclude holding our sales representatives to aheightened fiduciary standard previouslyinapplicable to them and limiting or eliminatingthe use of mandatory pre-dispute arbitration.The SEC also introduced a proposal in July2010 to restructure and limit the payment of12b-1 (distribution) fees by mutual fund andvariable annuity issuers to selling brokerdealers.The FTC and the federal bankingregulatory agencies also have promulgated orproposed new regulations relating to financialservices, and we expect more regulations to beproposed. We also anticipate that the level ofenforcement actions and investigations byfederal regulators will increase in theforeseeable future. The same factors that havecontributed to legislative, regulatory andenforcement activity at the federal level arelikely to contribute to heightened legislative,regulatory and enforcement activity relating tofinancial services at the state and provinciallevel as well. If we or our sales representativesbecome subject to new requirements orregulations, it could result in increasedlitigation, regulatory risks, changes to ourbusiness model, a decrease in the number ofour securities licensed representatives or areduction in the products we offer to our clientsor the profits we earn, which could have amaterial adverse effect on our business,financial condition and results of operations.The inability of our subsidiaries to paydividends or make distributions orother payments to us in sufficientamounts, including due to bankruptcyor insolvency, would impede our abilityto meet our obligations.We are a holding company, and we have nosignificant operations. Our primary asset is thecapital stock of our subsidiaries and ourprimary liability is the Citi note. We relyprimarily on dividends and other paymentsfrom our subsidiaries to meet our operatingcosts and other corporate expenses, as well asto pay dividends to our stockholders. The abilityof our subsidiaries to pay dividends to usdepends on their earnings, covenants containedin future financing or other agreements and onregulatory restrictions. The ability of ourinsurance subsidiaries to pay dividends willfurther depend on their statutory surplus. If thecash we receive from our subsidiaries pursuantto dividend payments and tax sharingarrangements is insufficient for us to fund ourobligations, including the Citi note, or if asubsidiary is unable to pay dividends to us, wemay be required to raise cash through theincurrence of debt, the issuance of equity orthe sale of assets. However, given the recentvolatility in the capital markets, there is noassurance that we would be able to raise cashby these means.The payment of dividends and otherdistributions to us by our insurance subsidiariesis regulated by insurance laws and regulations.The jurisdictions in which our insurancesubsidiaries are domiciled impose certainrestrictions on their ability to pay dividends tous. In the United States, these restrictions arebased, in part, on the prior year’s statutoryincome and surplus. In general, dividends up tospecified levels are considered ordinary andmay be paid without prior approval. Forexample, in Massachusetts the ordinarydividend capacity for Primerica Life is based onthe greater of (1) 10% of the previous year-endstatutory capital and surplus or (2) the previousyear’s statutory net gain from operations.Dividends in larger amounts are subject toapproval by the insurance commissioner of thestate of domicile. In Canada, dividends can bepaid, subject to the paying insurance companycontinuing to meet the regulatory requirementsfor capital adequacy and liquidity and upon15 days’ minimum notice to OSFI. No assuranceis given that more stringent restrictions will notbe adopted from time to time by jurisdictions inwhich our insurance subsidiaries are domiciled,and such restrictions could have the effect,under certain circumstances, of significantly54 Freedom Lives Here


educing dividends or other amounts payable tous by our subsidiaries without prior approval byregulatory authorities. In addition, in the future,we may become subject to debt instruments orother agreements that limit our ability to paydividends. The ability of our insurancesubsidiaries to pay dividends to us is alsolimited by our need to maintain the financialstrength ratings assigned to us by the ratingsagencies.If any of our subsidiaries were to becomeinsolvent, liquidate or otherwise reorganize, we,as sole stockholder, will have no right toproceed against the assets of that subsidiary.Furthermore, with respect to our insurancesubsidiaries, we, as sole stockholder, will haveno right to cause the liquidation, bankruptcy orwinding-up of the subsidiary under theapplicable liquidation, bankruptcy or winding-uplaws, although, in Canada, we could apply forpermission to cause liquidation. The applicableinsurance laws of the jurisdictions in whicheach of our insurance subsidiaries is domiciledwould govern any proceedings relating to thatsubsidiary. The insurance authority of thatjurisdiction would act as a liquidator orrehabilitator for the subsidiary. Both creditorsof the subsidiary and policyholders (if aninsurance subsidiary) would be entitled topayment in full from the subsidiary’s assetsbefore we, as the sole stockholder, would beentitled to receive any distribution from thesubsidiary, which could adversely affect ourability to pay our operating costs and othercorporate expenses.If the ability of our insurance or non-insurancesubsidiaries to pay dividends or make otherdistributions or payments to us is materiallyrestricted by regulatory requirements,bankruptcy or insolvency, or our need tomaintain our financial strength ratings, or islimited due to operating results or otherfactors, it could materially adversely affect ourability to pay our operating costs and othercorporate expenses.We may incur debt or issue equity tomeet our operating and regulatorycapital requirements or for otherpurposes.Historically, we have funded our new businesscapital needs from cash flows provided bypremiums paid on our in-force book of term lifeinsurance policies. As a result of the Citireinsurance transactions, the net cash flow weretain from our existing block of term lifeinsurance policies was reduced proportionatelyto the size of our retained interest. As we growour term life insurance business by issuing newpolicies, we will need to fund all of the upfrontcash requirements of issuing new term lifepolicies (such as commissions payable to thesales force and underwriting expenses), whichcosts generally exceed premiums collected inthe first year after a policy is sold. In light ofthese anticipated net cash outflows, there willbe significant demands on our liquidity in thenear- to intermediate-term as we grow the sizeof our retained block of term life insurancepolicies. Therefore, to meet our operating andregulatory requirements, we may incur debt orissue equity to fund working capital and capitalexpenditures or to make acquisitions and otherinvestments. If we raise funds through theissuance of debt securities or preferred equitysecurities, any such debt securities or preferredequity securities issued will have liquidationrights, preferences and privileges senior tothose of the holders of our common stock. If weraise funds through the issuance of equitysecurities, the issuance will dilute yourownership interest in us. There is no assurancethat debt or equity financing will be available tous on acceptable terms, if at all. If we are notable to obtain sufficient financing, we may beunable to maintain or grow our business.Primerica 2010 Annual Report 55


Our inability to achieve an investmentgraderating from rating agencies couldrestrict our ability to refinance the Citinote with terms that are acceptable.Prior to the completion of our initial publicoffering, we issued to Citi the $300.0 millionCiti note. This note matures on March 31, 2015,and we are obligated under the terms of thenote to use commercially reasonable efforts torefinance the note at certain mutuallyagreeable dates, based on certain conditions. Ifwe are unable to achieve an investment-graderating, or are otherwise unable to refinance thenote on reasonable economic terms, we mayincur significantly higher interest expense or beunable to repay the Citi note in full uponmaturity. See “Management’s Discussion andAnalysis of Financial Condition and Results ofOperations — Liquidity and Capital Resources —Citi Note” for a description of the terms of theCiti note.A significant change in the competitiveenvironment in which we operate couldnegatively affect our ability to maintainor increase our market share andprofitability.We face competition in all of our business lines.Our competitors include financial servicescompanies, mutual fund companies, banks,investment management firms, broker-dealers,insurance companies and direct salescompanies. In many of our product lines, weface competition from competitors that havegreater market share or breadth of distribution,offer a broader range of products, services orfeatures, assume a greater level of risk, havelower profitability expectations or have higherfinancial strength ratings than we do. Asignificant change in this competitiveenvironment could materially adversely affectour ability to maintain or increase our marketshare and profitability.The loss of key personnel couldnegatively affect our financial resultsand impair our ability to implement ourbusiness strategy.Our success substantially depends on ourability to attract and retain key members of oursenior management team. The efforts,personality and leadership of our seniormanagement team have been, and will continueto be, critical to our success. The loss of serviceof our senior management team due todisability, death, retirement or some othercause could reduce our ability to successfullymotivate our sales representatives andimplement our business plan and have amaterial adverse effect on our business,financial condition and results of operations.Messrs. John Addison and Rick Williams, ourCo-Chief Executive Officers, are well regardedby our sales representatives and havesubstantial experience in our business and,therefore, are particularly important to ourcompany. Although both Messrs. Addison andWilliams, as well as our other senior executives,have entered into employment agreementswith us, there is no assurance that they willcomplete the term of their employmentagreements or renew them upon expiration.In addition, the loss of key RVPs for any reasoncould negatively affect our financial results andcould impair our ability to attract new salesrepresentatives. See “— Risks Related to OurDistribution Structure — Our failure to continueto attract new recruits, retain salesrepresentatives or maintain the licensing of oursales representatives would materiallyadversely affect our business.”If one of our significant informationtechnology systems fails or if itssecurity is compromised, our business,financial condition and results ofoperations may be materially adverselyaffected.Our business is highly dependent upon theeffective operation of our informationtechnology systems, which are centered on amainframe platform supported by servers56 Freedom Lives Here


housed at our Duluth and Roswell, Georgiasites. We rely on these systems throughout ourbusiness for a variety of functions. Ourinformation technology systems run a varietyof third-party and proprietary software,including Primerica Online (our website portalto our sales force), our insuranceadministration system, Virtual Base Shop (ourpaperless office for RVPs), TurboApps (ourpoint-of-sale data collection tool for product/recruiting applications), our licensing decisionand support system and our compensationsystem.Despite the implementation of security andback-up measures, our information technologysystems may be vulnerable to physical orelectronic intrusions, viruses or other attacks,programming errors and similar disruptions.The failure of any one of these systems for anyreason could cause significant interruptions toour operations, which could have a materialadverse effect on our business, financialcondition and results of operations. We retainconfidential information in our informationtechnology systems, and we rely on industrystandard commercial technologies to maintainthe security of those systems. Anyone who isable to circumvent our security measures andpenetrate our information technology systemscould access, view, misappropriate, alter, ordelete information in the systems, includingpersonally identifiable client information andproprietary business information. In addition,an increasing number of jurisdictions requirethat clients be notified if a security breachresults in the disclosure of personallyidentifiable client information. Any compromiseof the security of our information technologysystems that results in inappropriate disclosureor use of personally identifiable clientinformation could damage our reputation in themarketplace, deter people from purchasing ourproducts, subject us to significant civil andcriminal liability and require us to incursignificant technical, legal and other expenses.In the event of a disaster, our businesscontinuity plan may not be sufficient,which could have a material adverseeffect on our business, financialcondition and results of operations.Our infrastructure supports a combination oflocal and remote recovery solutions forbusiness resumption in the event of a disaster.In the event of either a campus-widedestruction of all buildings or the inability toaccess our main campus in Duluth, Georgia, ourbusiness recovery plan provides for ouremployees to perform their work functions viaa dedicated business recovery site located 25miles from our main campus, by remote accessfrom an employee’s home or by relocation ofemployees to our New York or Ontario offices.However, in the event of a full scale local orregional disaster, our business recovery planmay be inadequate, and our employees andsales representatives may be unable to carryout their work, which could have a materialadverse effect on our business, financialcondition and results of operations.We may be materially adverselyaffected by currency fluctuations in theUnited States dollar versus theCanadian dollar.In recent periods, exchange rate fluctuationshave been significant. A weaker Canadian dollarrelative to the U.S. dollar would result in lowerlevels of reported revenues, net income, assets,liabilities and accumulated othercomprehensive income in our U.S. dollarfinancial statements. We have not historicallyhedged against this exposure. Significantexchange rate fluctuations between the U.S.dollar and Canadian dollar could have amaterial adverse effect on our financialcondition and results of operations.Primerica 2010 Annual Report 57


Risks Related to Our Relationshipswith Citi and Warburg PincusCiti’s continuing significant interestmay result in conflicts of interest.As of December 31, 2010, Citi ownedapproximately 40% of our outstandingcommon stock. Citi has agreed to limit itsrepresentation on our board of directors to onemember. For so long as Citi owns a significantportion of our common stock, Citi may be ableto influence the outcome of all corporateactions requiring stockholder approval,including the election of directors. Citi hasagreed to vote its shares of our common stockin favor of directors nominated by WarburgPincus for so long as Warburg Pincus has rightsto nominate one or two directors pursuant tothe terms of the securities purchaseagreement.Under the provisions of our certificate ofincorporation and the intercompany agreementwith Citi, the prior consent of Citi will berequired in connection with specified corporateactions until Citi ceases to beneficially ownshares of our common stock representing 20%or more of the votes entitled to be cast by theholders of our then outstanding common stock.Because Citi’s interests may differ from thoseof other stockholders, actions that Citi maytake with respect to us may not be as favorableto other stockholders as they are to Citi.Conflicts of interest may arise between us andCiti in a number of areas relating to our pastand ongoing relationships.Citi and its directors and officers willhave limited liability for breach offiduciary duty.Our certificate of incorporation provides that,subject to any contractual provision to thecontrary (including the intercompanyagreement), Citi has no obligation to refrainfrom:• engaging in the same or similar businessactivities or lines of business as we do;• doing business with any of our clients orconsumers; or• employing or otherwise engaging any ofour officers or employees.Under our certificate of incorporation, neitherCiti nor any officer or director of Citi, except asprovided in our certificate of incorporation, willbe liable to us or to our stockholders for breachof any fiduciary duty by reason of any of theseactivities.If Citi engages in the same type ofbusiness we conduct, our ability tosuccessfully operate and expand ourbusiness may be hampered.Because Citi may engage in the same activitiesin which we engage (subject to the terms of theintercompany agreement), there is a risk thatwe may be in direct competition with respect toinsurance underwriting or distributionactivities. To address these potential conflicts,we have adopted a corporate opportunitypolicy which is incorporated into our certificateof incorporation.Due to Citi’s significant resources, includingfinancial resources and name recognition, Citicould have a significant competitive advantageover us should it decide to engage in the typeof business we conduct, which may cause ourbusiness to be materially adversely affected.Our historical and pro forma financialdata are not necessarily representativeof the results we would have achievedas a stand-alone company and may notbe a reliable indicator of our futureresults.Our historical financial data do not reflect thefinancial condition, results of operations orcash flows we would have achieved as a standalonecompany during the periods presented orthose we will achieve in the future. This isprimarily the result of the following factors:• our historical financial data for dates as ofor for periods ending on or beforeMarch 31, 2010 do not reflect theTransactions;58 Freedom Lives Here


• for dates as of or periods ending on orbefore March 31, 2010, our historicalfinancial data reflect allocations ofcorporate expenses from Citi associatedwith information technology support,treasury, financial reporting, taxadministration, human resourcesadministration, legal, procurement andother services that may be lower than thecomparable expenses we would haveactually incurred as a stand-alonecompany;• our cost of debt and our capitalization maybe different from that reflected in ourhistorical financial statements for dates asof or for periods ending on or beforeMarch 31, 2010;• we are incurring significant costs as aresult of becoming a public company,including costs related to public companyreporting, investor relations andcompliance with the Sarbanes-Oxley Act of2002; and• the initial public offering may materiallyaffect our client and other businessrelationships, including supplierrelationships, and may result in the loss ofpreferred pricing available by virtue of ourrelationship with Citi.Our financial condition and future results ofoperations will be materially different fromamounts reflected in certain of our financialstatements that appear elsewhere in thisreport. As a result of the Transactions, it maybe difficult for investors to compare our futureresults to historical results or to evaluate ourrelative performance or trends in our business.For an understanding of pro forma financialstatements that give effect to, among otherthings, the Transactions, see “Pro FormaFinancial Statements” in Management’sDiscussion and Analysis of Financial Conditionand Results of Operations.If Citi or Warburg Pincus sellssignificant equity interests in ourcompany to a third party in a privatetransaction, our stockholders may notrealize any change-of-control premiumon shares of our common stock thatsuch party may receive and we maybecome subject to the control of apresently unknown third party.Each of Citi and Warburg Pincus own asignificant equity interest in our company. Eachof Citi and Warburg Pincus have the ability,should it choose to do so, to sell some or all ofits shares of our common stock in a privatelynegotiated transaction, which, if sufficient insize, could result in a change of control of ourcompany. The ability of each of Citi andWarburg Pincus to privately sell its shares ofour common stock, with no requirement for aconcurrent offer to be made to acquire all ofthe shares of our common stock, could preventour other stockholders from realizing anychange-of-control premium on their shares ofour common stock that may otherwise accrueto Citi or Warburg Pincus, as the case may be,upon its private sale of our common stock.Additionally, if Citi or Warburg Pincus privatelysells its significant equity interest in ourcompany, we may become subject to thecontrol of a presently unknown third party.Such third party may have conflicts of interestwith those of other stockholders. Citi hasindicated that it intends to divest its remaininginterest in us as soon as is practicable, subjectto market and other conditions. Subject toexceptions set forth in the securities purchaseagreement, Warburg Pincus has agreed not totransfer pursuant to a public sale the commonstock or warrants that it acquires in the privatesale or shares of our common stock issuedupon exercise of such warrants until the earlierof 18 months after completion of our initialpublic offering or the reduction of Citi’sbeneficial ownership in our outstandingcommon stock to less than 10%.Primerica 2010 Annual Report 59


We are subject to banking regulationsthat may limit our business activities.Citi’s relationship and good standing with itsregulators are important to the conduct of ourbusiness. Citi is a bank holding company and afinancial holding company regulated by the FRBunder the BHC Act. The BHC Act imposesregulations and requirements on Citi and onany company that the FRB deems to becontrolled by Citi. The regulation of Citi and itscontrolled companies under applicable bankinglaws is intended primarily for the protection ofCiti’s banking subsidiaries, their depositors, theDeposit Insurance Fund of the Federal DepositInsurance Corporation, and the banking systemas a whole, rather than for the protection ofstockholders or creditors of Citi or us. BecauseCiti owns a significant amount of ouroutstanding common stock, we are currentlysubject to regulation, supervision, examinationand potential enforcement action by the FRB.So long as we are deemed to be controlled byCiti for bank regulatory purposes, we will besubject to regulation by the FRB and to mostbanking laws, regulations and orders that applyto Citi.The ownership level at which the FRB wouldconsider us no longer controlled by Citi willdepend on the circumstances at that time (suchas the extent of our relationships with Citi) andcould be less than 5%. For so long as we aresubject to the BHC Act, we generally mayconduct only activities that are authorized for afinancial holding company under the BHC Act,which in some cases are more restrictive thanthose available to us under applicable insuranceregulatory requirements. There are limits onthe ability of bank subsidiaries of Citi to extendcredit to, or conduct other transactions with,us.Citi and its subsidiaries are also subject toexamination by various banking regulators,which results in examination reports andratings that may adversely impact the conductand growth of our businesses. In the UnitedStates, Citi is regulated by the Federal Reserve,Office of the Comptroller of the Currency,Office of Thrift Supervision and Federal DepositInsurance Corporation, and we are regulated bythe Federal Reserve. In Canada, we areregulated by OSFI, FINTRAC and FCAC. The FRBhas broad enforcement authority over us,including the power to prohibit us fromconducting any activity that, in the FRB’sopinion, is unauthorized or constitutes anunsafe or unsound practice in conducting ourbusiness. The FRB may also impose substantialfines and other penalties for violations ofapplicable banking laws, regulations and orders.Pursuant to the intercompany agreement weentered into with Citi, we agreed not to takeany action or fail to take any action that wouldresult in Citi being in non-compliance with theBHC Act or any other applicable bankregulatory law, rule, regulation, guidance, orderor directive.In addition, our business in Canada is subject toBank Act restrictions for so long as Citi hascontrol of us (in fact or in law). In general, theserestrictions permit Citi to carry on in Canadathose businesses that Canadian banks arepermitted to conduct, and permit Citi to control(including by way of control in fact), or to hold a“substantial investment” in (i.e., more than25% of the equity or, for a corporation, morethan 10% of the voting power), those types ofCanadian entities that Canadian banks arepermitted to control or in which they arepermitted to make substantial investments.Such permitted businesses and investmentsinclude most, but not all, financial servicebusinesses, certain related businesses and,subject to limits as to size, scope and length oftime held, other businesses. Implementing suchbusiness ventures may be subject to arequirement to obtain prior regulatoryapproval, and are subject to regulatoryoversight. We may also be subject to otherforeign banking laws and supervision that couldaffect our business, financial condition andresults of operations.Warburg Pincus may be able to exertsignificant influence over us, which mayresult in conflicts of interest with us.As of December 31, 2010, Warburg Pincusowned approximately 23% of our outstandingcommon stock and has rights to acquireadditional shares of our common stockpursuant to its exercise of warrants. Pursuant60 Freedom Lives Here


to and subject to the limitations of thesecurities purchase agreement, including theownership limitations, Warburg Pincus has alimited right of first offer to purchase shares ofour common stock sold by Citi in the future.Warburg Pincus is entitled to nominate twodirectors to serve on our board, which could bereduced or lost if Warburg Pincus’ ownershipinterest in us declines. Citi has agreed to voteits shares of our common stock in favor of theelection of Warburg Pincus’ nominees to ourboard of directors. Furthermore, for as long asWarburg Pincus owns a significant amount ofour common stock, Warburg Pincus may beable to influence the outcome of all corporateactions requiring stockholder approval,including the election of directors.Under the provisions of the securities purchaseagreement, the prior consent of WarburgPincus will be required in connection withspecified corporate actions by us. In addition,for so long as it owns a significant amount ofour common stock Warburg Pincus will beentitled to preemptive type rights to purchaseequity securities issued or proposed to beissued by us, which may limit our ability toaccess capital from other sources in a timelymanner.Because Warburg Pincus’ interests may differfrom yours, actions that Warburg Pincus maytake with respect to us may not be as favorableto other stockholders as they are to WarburgPincus.ITEM 2.PROPERTIES.We lease all of our office, warehouse, printing,and distribution properties. Our executiveoffices and home office for all of our domesticU.S. operations, are located in Duluth, Georgia.The leases for these spaces expire in May 2013and June 2013. We also lease warehouse,continuation of business and print/distributionspace in or around Duluth, Georgia under leasesexpiring in June 2013, January 2018 andJune 2018, respectively.NBLIC subleases general office space from asubsidiary of Citi under a sublease expiring inAugust 2014.In Canada, we lease general office space inMississauga, Ontario, under a lease expiring inApril 2018 and warehouse and printingoperation space in Mississauga, Ontario, undera lease expiring in April 2018.Each of these leased properties is used by eachof our operating segments, with the exceptionof our NBLIC office space and our warehouse,which are not used by our investment andsavings products segment.We also lease additional administrative andprocessing space in the United States. Webelieve that our existing facilities are adequatefor our current requirements and for ouroperations in the foreseeable future.ITEM 3.LEGAL PROCEEDINGS.The Company is involved from time to time inlegal disputes, regulatory inquiries andarbitration proceedings in the normal course ofbusiness. These disputes are subject touncertainties, including the large and/orindeterminate amounts sought in certain ofthese matters and the inherent unpredictabilityof litigation. As such, the Company is unable toestimate the possible loss or range of loss thatmay result from these matters. While it ispossible that an adverse outcome in certaincases could have a material adverse effectupon the Company’s financial position, basedon information currently known by theCompany’s management, in its opinion, theoutcomes of such pending investigations andlegal proceedings are not likely to have such aneffect.Primerica 2010 Annual Report 61


ITEM X.EXECUTIVE OFFICERS OF THE REGISTRANT.The name, age at February 28, 2011 andposition of each of our executive officers arepresented below.Name Age PositionD. Richard Williams 54 Chairman of the Board and Co-Chief Executive OfficerJohn A. Addison, Jr. 53 Chairman of Primerica Distribution, Co-Chief Executive Officer andDirectorJeffrey S. Fendler 54 President of Primerica LifeWilliam A. Kelly 55 President of PFS InvestmentsGregory C. Pitts 48 Executive Vice President and Chief Operating OfficerAlison S. Rand 43 Executive Vice President and Chief Financial OfficerPeter W. Schneider 54 Executive Vice President, General Counsel, Corporate Secretary andChief Administrative OfficerGlenn J. Williams 51 PresidentSet forth below is biographical informationconcerning our executive officers.D. Richard Williams was elected to our boardin October 2009. He is Chairman of the Boardof Directors, has served as our Co-ChiefExecutive Officer since 1999 and has served ourCompany since 1989 in various capacities,including as the Chief Financial Officer andChief Operating Officer of PFS, a general agentand a subsidiary of Primerica. Mr. Williamsjoined the American Can Company, amanufacturing company and predecessor toCiti, in 1979 and eventually headed thecompany’s Acquisition and Development areafor financial services and was part of the teamresponsible for the acquisition of Primerica.Mr. Williams earned both his B.S. degree in 1978and his M.B.A. in 1979 from the Wharton Schoolof the University of Pennsylvania. He serves onthe boards of trustees for the FernbankMuseum of Natural History, the Woodruff ArtsCenter and the Anti-Defamation LeagueSoutheast Region.John A. Addison, Jr. was elected to our boardin October 2009. He is the Chairman ofPrimerica Distribution, has served as ourCo-Chief Executive Officer since 1999 and hasserved our Company in various capacities since1982 when he joined us as a business systemsanalyst. Mr. Addison has served in numerousofficer roles with Primerica Life, a life insuranceunderwriter, and PFS, a general agent, both ofwhich are subsidiaries of Primerica. He servedas Vice President and Senior Vice President ofPrimerica Life. He also served as Executive VicePresident and Group Executive Vice Presidentof Marketing. In 1995, he became President ofPFS and he was promoted to Co-ChiefExecutive Officer in 1999. Mr. Addison earnedhis B.A. in economics from the University ofGeorgia in 1979 and M.B.A. from Georgia StateUniversity in 1988.Jeffrey S. Fendler has served our Company invarious capacities since 1980, and has servedas President of Primerica Life since 2005. Heserved in various management roles atPrimerica Life from 1989 to 1995 and asPresident of PFS Investments from 1987 to1989. Mr. Fendler received a B.A. in economicsfrom Tulane University. Mr. Fendler is amember of Operation Hope’s National Boardand is the Chair of Operation Hope’sSoutheastern Region Board.William A. Kelly has served our Company invarious capacities since 1985. He has served asPresident of PFS Investments since 2005 andhas overseen Primerica Life InsuranceCompany of Canada, a subsidiary of Primerica,since 2009. Since 1999, Mr. Kelly has served asan Executive Vice President of Primerica withresponsibilities within the Investment andSavings Products segment and compliance andinformation technology business divisions. Hehas served as a Senior Vice President of our62 Freedom Lives Here


Field Audit Department from 1993 to 1998 anda Vice President in corporate accounting from1988 to 1993. Prior to joining our Company,Mr. Kelly was a certified public accountant.Mr. Kelly graduated from the University ofGeorgia in 1979 with a B.B.A. in accounting.Gregory C. Pitts has served our Company invarious capacities since 1985. He was namedour Chief Operating Officer in December 2009and has served as Chief Executive Officer ofPrimerica Mortgages, a mortgage loan brokerand a subsidiary of Primerica, since 2005.Mr. Pitts served as Executive Vice President ofPrimerica from 1995 to 2009, withresponsibilities within the Term Life Insurance,Investment and Savings Products segments andinformation technology division. Mr. Pittsearned his B.A. in general business from theUniversity of Arkansas in 1985.Alison S. Rand has served our Company invarious capacities since 1995. She has servedas our Executive Vice President and ChiefFinancial Officer since 2000, as Senior VicePresident from 1999 to 2000, Vice Presidentfrom 1997 to 1999 and the Director of FinancialReporting from 1995 to 1997. Prior to 1995,Ms. Rand worked in the audit department ofKPMG LLP. Ms. Rand earned her B.S. inaccounting from the University of Florida in1990 and is a certified public accountant. She isan advisory board member of Imagine it!, theChildren’s Museum of Atlanta and Emerge andis a Board member of the Georgia Council ofEconomic Education. She is also a Vice Chair ofthe Talent Development Program TrusteeCouncil of the Atlanta Symphony Orchestra andserves on the Terry College of BusinessExecutive Education CFO Roundtable.Peter W. Schneider has served as ourExecutive Vice President and General Counselsince 2000. He also serves as our CorporateSecretary and Chief Administrative Officer. Heworked at the law firm of Rogers & Hardin as apartner from 1988 to 2000 and as an associatefrom 1984 to 1988, and at the law firm of Paul,Rifkind, Wharton & Garrison from 1981 to 1984.Mr. Schneider earned both his B.S. in politicalscience and industrial relations in 1978 and J.D.in 1981 from the University of North Carolina atChapel Hill. Mr. Schneider serves on the boardsof directors of the Georgia Chamber ofCommerce, the Northwest YMCA and theCarolina Center for Jewish Studies.Glenn J. Williams has served our Company invarious capacities since 1983. He has served asour Executive Vice President since 2000 andPresident since 2005. Mr. Williams served asthe President and Chief Executive Officer ofPrimerica Financial Services (Canada), Ltd., afinancial services company and a subsidiary ofPrimerica, from 1996 to 2000, Executive VicePresident from 1995 to 1996, Senior VicePresident from 1994 to 1995 and Vice Presidentfrom 1985 to 1994. He worked with us as a salesrepresentative in 1981 to 1983. Mr. Williamsearned his B.S. in education from BaptistUniversity of America in 1981. Mr. Williamsserves in leadership roles at Hebron BaptistChurch and Hebron Christian Academy.Primerica 2010 Annual Report 63


PART IIITEM 5. MARKET FORREGISTRANT’S COMMON EQUITY,RELATED STOCKHOLDER MATTERSAND ISSUER PURCHASES OFEQUITY SECURITIESQuarterly Common Stock Prices andDividendsOur common stock is principally traded on theNew York Stock Exchange under the symbolPRI. The quarterly high and low sales prices forour common stock, as reported on the NYSE forthe periods since the Offering on April 1, 2010,as well as dividends paid per quarter were asfollows:High Low Dividends20104th quarter $25.48 $20.30 $0.013rd quarter 23.78 19.74 0.012nd quarter 25.89 18.61 n/aDividendsWe paid dividends to Citi of $3.49 billion in2010, all in connection with the Transactions.Prior to completion of the Offering, wedistributed all of the issued and outstandingcapital stock of Prime Re to Citi. Following theOffering, we also paid quarterly dividends tostockholders totaling approximately $1.5 millionin 2010. During 2009, we declared dividends toCiti of $205.4 million.We currently expect to continue to payquarterly cash dividends to holders of ourcommon stock, subject to the discretion of ourboard of directors and dependent on a varietyof factors, including our financial condition,earnings, legal requirements and other factorsthat the board of directors deems relevant. Ourpayment of cash dividends is at the discretionof our board of directors in accordance withapplicable law after taking into account variousfactors, including our financial condition,operating results, current and anticipated cashneeds and plans for growth. Under Delawarelaw, we can only pay dividends either out ofsurplus, which is defined as total assets at fairmarket value minus total liabilities, minus theaggregate par value of our outstanding stock,or out of the current or the immediatelypreceding year’s earnings. Therefore, noassurance is given that we will continue to payany dividends to our common stockholders, oras to the amount of any such dividends.We are a holding company, and we have nooperations. Our primary asset is the capital stockof our operating subsidiaries and our primaryliability is the $300.0 million promissory noteheld by Citi. The states in which our U.S.insurance subsidiaries are domiciled imposecertain restrictions on our insurancesubsidiaries’ ability to pay dividends to us. Theserestrictions are based in part on the prior year’sstatutory income and surplus. In general,dividends up to specified levels are consideredordinary and may be paid without prior approval.Dividends in larger amounts are consideredextraordinary and are subject to approval by theinsurance commissioner of the state of domicile.Our Canadian subsidiary can pay dividendssubject to meeting regulatory requirements forcapital adequacy and liquidity with appropriateminimum notice to OSFI. In addition, in thefuture, we may become subject to debtinstruments or other agreements that limit ourability to pay dividends. See “Business —Regulation of Insurance Products — InsuranceHolding Company Regulation; Limitations onDividends.”HoldersAs of February 28, 2011, we had 34 holders ofrecord of our common stock.Issuer Purchases of Equity SecuritiesDuring the three months ended December 31,2010, we did not repurchase any shares of ourcommon stock.64 Freedom Lives Here


Securities Authorized for Issuanceunder Equity Compensation PlansWe have two compensation plans under whichour equity securities are authorized forissuance. The Primerica, Inc. 2010 OmnibusIncentive Plan and the Primerica, Inc. StockPurchase Plan for Agents and Employees wereapproved by our sole stockholder in March2010. The following table sets forth certaininformation relating to these equitycompensation plans at December 31, 2010.Number of securitiesto be issued uponexercise ofoutstanding options,warrants and rightsWeighted averageexercise price ofoutstanding options,warrants and rightsNumber of securitiesremaining availablefor future issuanceEquity compensation plans approved bystockholders:Primerica, Inc. 2010 Omnibus IncentivePlan 2,656,577(1) — (2) 3,401,141(3)Primerica, Inc. Stock Purchase Plan forAgents and Employees — — 2,419,633(4)Total 2,656,577 — 5,820,774Equity compensation plans notapproved by stockholders n/a n/a n/a(1) Consists of shares to be issued in connection with outstanding restricted stock units (“RSUs”).(2) The only securities outstanding under the plan are RSUs.(3) The number of shares available for future issuance is 8,800,000 less the cumulative number of awards granted under theplan plus the cumulative number of awards cancelled under the plan.(4) The number of shares available for future issuance is 2,500,000 less the cumulative number of shares issued under theplan.Primerica 2010 Annual Report 65


Stock Performance TableThe following graph compares the performanceof Primerica, Inc.’s common stock since theOffering to the Russell 2000 Index and theStandard & Poor’s Insurance Index (S&PInsurance Index) by assuming $100 wasinvested in each investment option as of April 1,2010, the date of the Offering. The Russell2000 Index measures the performance of thesmall-cap segment in the United States. TheS&P Insurance Index is a capitalizationweightedindex of domestic equities traded onthe New York Stock Exchange and NASDAQ.$160$150$140$130$120$110$100$90$804/1/104/30/105/31/106/30/107/30/108/31/109/30/1010/29/1011/30/1012/31/10Primerica, Inc. Russell 2000 Index S&P Insurance Index66 Freedom Lives Here


ITEM 6.SELECTED FINANCIAL DATA.The selected financial data should be read inconjunction with the section entitled“Management’s Discussion and Analysis ofFinancial Condition and Results of Operations”and the consolidated and combined financialstatements and accompanying notes includedelsewhere in this report.The selected historical income statement datamay not be indicative of the revenues andexpenses that would have existed or resulted ifwe had operated independently of Citi.Similarly, the selected historical balance sheetdata as of and prior to December 31, 2009 maynot be indicative of the assets and liabilitiesthat would have existed or resulted if we hadoperated independently of Citi. The selectedhistorical financial data are not necessarilyindicative of the financial position or results ofoperations as of any future date or for anyfuture period.The Transactions have and will continue toresult in financial performance that ismaterially different from that reflected in thehistorical financial data that appear elsewherein this report. Due to the timing of theTransactions and their impact on our financialposition and results of operations, year-overyearcomparisons of our financial position andresults of operations will reflect significantnon-comparable accounting transactions andaccount balances. For a description of theTransactions and the timing of theirimplementation, see “Management’s Discussionand Analysis of Financial Condition and Resultsof Operations — The Transactions.”Year ended December 31,2010 2009 2008 (1) 2007 2006(In thousands, except per-share amounts)Statements of income dataRevenues:Direct premiums $ 2,181,074 $ 2,112,781 $2,092,792 $2,003,595 $ 1,898,419Ceded premiums (1,450,367) (610,754) (629,074) (535,833) (496,061)Net premiums 730,707 1,502,027 1,463,718 1,467,762 1,402,358Net investment income 165,111 351,326 314,035 328,609 318,853Commissions and fees 382,940 335,986 466,484 545,584 486,145Realized investment gains (losses) 34,145 (21,970) (103,480) 6,527 8,746Other, net 48,960 53,032 56,187 41,856 37,962Total revenues 1,361,863 2,220,401 2,196,944 2,390,338 2,254,064Benefits and expenses:Benefits and claims 317,703 600,273 938,370 557,422 544,556Amortization of deferred policyacquisition costs 168,035 381,291 144,490 321,060 284,787Insurance commissions 19,904 34,388 23,932 28,003 26,171Insurance expenses 75,503 148,760 141,331 137,526 126,843Sales commissions 179,924 162,756 248,020 296,521 265,662Interest expense 20,872 — — — —Goodwill impairment — — 194,992 — —Other operating expenses 180,779 132,978 152,773 136,634 127,849Total benefits and expenses 962,720 1,460,446 1,843,908 1,477,166 1,375,868Income before income taxes 399,143 759,955 353,036 913,172 878,196Income taxes 141,365 265,366 185,354 319,538 276,244Net income $ 257,778 $ 494,589 $ 167,682 $ 593,634 $ 601,952Earnings per share — basic (2) $ 3.43 n/a n/a n/a n/aEarnings per share — diluted (2) $ 3.40 n/a n/a n/a n/aDividends per common share $ .02 n/a n/a n/a n/aPrimerica 2010 Annual Report 67


December 31,2010 2009(3) 2008(1)(3) 2007(3) 2006(3)(In thousands)Balance sheet dataInvestments $ 2,153,584 $ 6,471,448 $5,355,458 $5,494,495 $ 5,583,813Cash and cash equivalents 126,038 602,522 302,354 625,350 239,103Due from reinsurers 3,731,634 867,242 838,906 831,942 825,031Deferred policy acquisitioncosts, net 853,211 2,789,905 2,727,422 2,510,045 2,408,444Total assets 9,884,306 13,715,144 11,515,027 13,015,411 11,604,421Future policy benefits 4,409,183 4,197,454 4,023,009 3,650,192 3,616,930Note payable 300,000 — — — —Total liabilities 8,452,814 8,771,371 7,403,041 8,235,446 7,120,956Stockholders’ equity 1,431,492 4,943,773 4,111,986 4,779,965 4,483,465(1) Includes a $191.7 million pre-tax charge due to a change in our deferred policy acquisition costs and reserve estimationapproach implemented as of December 31, 2008.(2) Calculated on a pro forma basis using weighted-average shares, including the shares following our April 1, 2010 corporatereorganization as though they had been issued and outstanding on January 1, 2010.(3) Total assets and total liabilities have been adjusted to reflect the immaterial error correction relating to our securitieslending program.ITEM 7. MANAGEMENT’SDISCUSSION AND ANALYSIS OFFINANCIAL CONDITION ANDRESULTS OF OPERATIONS.Management’s Discussion and Analysis ofFinancial Condition and Results of Operations(“MD&A”) is intended to inform the readerabout matters affecting the financial conditionand results of operations of Primerica, Inc. (the“Parent Company”) and its subsidiaries(collectively, the “Company”) for the three-yearperiod ended December 31, 2010. As a result,the following discussion should be read inconjunction with the audited consolidated andcombined financial statements and notes thatare included herein. This discussion containsforward-looking statements that constitute ourplans, estimates and beliefs. These forwardlookingstatements involve numerous risks anduncertainties, including those discussed in “RiskFactors.” Actual results may differ materiallyfrom those contained in any forward-lookingstatements.This MD&A is divided into the followingsections:• The Transactions• Business Trends and Conditions• Factors Affecting Our Results• Critical Accounting Estimates• Results of Operations• Financial Condition• Liquidity and Capital Resources• Quantitative and Qualitative Disclosuresabout Market RiskTHE TRANSACTIONSWe refer to the corporate reorganization, thereinsurance transactions, the concurrenttransactions and the private sale describedbelow collectively as the “Transactions.” Webelieve the Transactions gave us theopportunity to fold our years of experience,expertise and innovation into an organizationwith a more streamlined balance sheet.The corporate reorganization. We wereincorporated in Delaware in October 2009 byCitigroup Inc. (“Citi”) to serve as a holdingcompany for the life insurance and financialproduct distribution businesses that we haveoperated for more than 30 years. At such time,we issued 100 shares of common stock to Citi.These businesses, which prior to April 1, 2010,were wholly owned indirect subsidiaries of Citi,were transferred to us in a reorganization68 Freedom Lives Here


pursuant to which we issued to a wholly ownedsubsidiary of Citi (i) 74,999,900 shares of ourcommon stock (of which 24,564,000 shares ofcommon stock were subsequently sold by Citi inour initial public offering completed in April2010; 16,412,440 shares of common stock weresubsequently sold by Citi in mid-April 2010 toprivate equity funds managed by WarburgPincus LLC (“Warburg Pincus”) for a purchaseprice of $230.0 million (the “private sale”); and5,021,412 shares of common stock wereimmediately contributed back to us for equityawards granted to our employees and salesforce leaders in connection with our initialpublic offering), (ii) warrants to purchase fromus an aggregate of 4,103,110 shares of ourcommon stock (which were transferred by Citito Warburg Pincus pursuant to the privatesale), and (iii) a $300.0 million note payabledue on March 31, 2015 bearing interest at anannual rate of 5.5% (the “Citi note”). Prior toApril 1, 2010, we had no material assets orliabilities. Upon completion of the Transactions,our primary asset is the capital stock of ouroperating subsidiaries and our primary liabilityis the Citi note.The reinsurance transactions. In March2010, we entered into coinsurance agreements(the “Citi reinsurance agreements”) with twoaffiliates of Citi and Prime Re, then a whollyowned subsidiary of Primerica Life, (collectivelythe “Citi reinsurers”). We refer to the executionof these agreements as the “Citi reinsurancetransactions.” Under these agreements, weceded between 80% and 90% of the risks andrewards of our term life insurance policies thatwere in force at year-end 2009. We alsotransferred to the Citi reinsurers the accountbalances in respect of the coinsured policiesand approximately $4.0 billion of assets tosupport the statutory liabilities assumed by theCiti reinsurers, and we distributed to Citi all ofthe issued and outstanding common stock ofPrime Re. As a result, the Citi reinsurancetransactions reduced the amount of our capitaland substantially reduced our insuranceexposure. We retained our operating platformand infrastructure and continue to administerall policies subject to these coinsuranceagreements.The concurrent transactions. During thefirst quarter of 2010, we declared distributionsto Citi of approximately $703 million. We alsorecognized the income attributable to thepolicies underlying the Citi reinsurancetransactions as well as the income earned onthe invested assets backing the reinsurancebalances and the extraordinary dividendsdeclared in the first quarter. These items werereflected in the statement of income for thethree months ended March 31, 2010.Furthermore, because the Citi reinsurancetransactions were given retroactive effect backto January 1, 2010, we recognized a return ofcapital on our balance sheet for the incomeearned on the reinsured policies during thethree months ended March 31, 2010.In April 2010, we completed the followingadditional concurrent transactions:• we completed an initial public offering ofour common stock by Citi (the “Offering”)pursuant to the Securities Act of 1933 andour stock began trading under the tickersymbol “PRI” on the New York StockExchange;• we issued equity awards for 5,021,412shares of our common stock to certain ofour employees, including our officers, andcertain of our sales force leaders, including221,412 shares which were issued uponconversion of existing equity awards in Citishares that had not yet fully vested; and• Citi accelerated vesting of certain existingCiti equity awards triggered by theOffering and the private sale.Additionally, we made elections with aneffective date of April 1, 2010 underSection 338(h)(10) of the Internal RevenueCode (the “Section 338(h)(10) elections”),which resulted in reductions to stockholders’equity of $172.5 million and correspondingadjustments to deferred tax balances.During the first quarter of 2010, our federalincome tax return was included as part of Citi’sconsolidated federal income tax return. OnMarch 30, 2010, in anticipation of our corporatereorganization, we entered into a taxseparation agreement with Citi. In accordancewith the tax separation agreement, Citi will bePrimerica 2010 Annual Report 69


esponsible for and shall indemnify and hold theCompany harmless from and against anyconsolidated, combined, affiliated, unitary orsimilar federal, state or local income tax liabilitywith respect to the Company for any taxableperiod ending on or before April 7, 2010, theclosing date of the Offering.The private sale. In February 2010, Citientered into a securities purchase agreementwith Warburg Pincus and us pursuant to which,in mid-April 2010, Citi sold to Warburg Pincus16,412,440 shares of our common stock andwarrants to purchase from us 4,103,110additional shares of our common stock. Thewarrants have a seven-year term and anexercise price of $18.00 per share.Period-over-period comparability. Due to thetiming of these transactions and their impact onour financial position and results of operations,period-over-period comparisons of our financialposition and results of operations will reflectsignificant non-comparable accountingtransactions and account balances. The mostsignificant accounting transaction was thereinsurance transactions described above, whichaffected both the size and composition of ourbalance sheet and statement of income.Additionally, the corporate reorganization andthe concurrent transactions had a significantimpact on the composition of our balance sheet.As a result, our December 31, 2010 balance sheetwas significantly smaller than our December 31,2009 balance sheet and our statement ofincome for the year ended December 31, 2010presents income that is significantly lower thanin 2009 and 2008.From a balance sheet perspective, theTransactions impacted investments, cash andcash equivalents, accrued investment income,premiums and other receivables, due fromreinsurers, due from affiliates, deferred policyacquisition costs (DAC), deferred tax assets,note payable, deferred tax liabilities, otherliabilities, common stock, paid-in capital,retained earnings and accumulated othercomprehensive income.From a statement of income perspective, theTransactions impacted ceded premiums, netpremiums, net investment income, benefits andclaims, amortization of DAC, insurancecommissions, insurance expenses, interestexpense and income taxes. Actual results forperiods ended prior to April 1, 2010 will not beindicative of or comparable to future actualresults. Furthermore, actual results for the yearended December 31, 2010 will not becomparable to results in future years as theyare affected by the inclusion of three months ofoperations prior to the Transactions. Actualresults for the years ended December 31, 2009and 2008, will not be comparable to results infuture years as they reflect operations prior tothe Transactions.BUSINESS TRENDS ANDCONDITIONSThe relative strength and stability of financialmarkets and economies in the United Statesand Canada affect our growth and profitability.Our business is, and we expect will continue tobe, influenced by a number of industry-wideand product-specific trends and conditions.Economic conditions, including highunemployment levels and low levels ofconsumer confidence, influence investment andspending decisions by middle incomeconsumers, who are generally our primaryclients. These conditions and factors alsoimpact prospective recruits’ perceptions of thebusiness opportunity that becoming aPrimerica sales representative offers, whichcan drive or dampen recruiting. Consumerspending and borrowing levels remain underpressure, as consumers take a moreconservative financial posture includingreevaluating their savings and debtmanagement plans. As overall market andeconomic conditions have improved from thelows experienced during the recent economicdownturn, sales and the value of consumerinvestment products across a wide spectrum ofasset classes have improved. The effects ofthese trends and conditions on our 2010operations are summarized below.Recruiting and Sales RepresentativesFor the year ended December 31, 2010,recruiting increased to 231,390 new recruitsfrom 221,920 in 2009, largely due to the70 Freedom Lives Here


ecruiting boost we experienced in the secondquarter of 2010 as a result of enthusiasmgenerated by our initial public offering. The sizeof our life-licensed sales force declined to94,850 sales representatives as ofDecember 31, 2010 from 99,785 salesrepresentatives at December 31, 2009 aslicensing and non-renewals experienceddownward pressure in the difficult economicenvironment.Term Life Insurance Product SalesSales of our term life insurance products havedeclined in line with term life insurance industrytrends and with the year-over-year decline inthe size of our sales force noted above. Weissued 223,514 new policies in 2010, comparedwith 233,837 new policies in 2009.Term Life Insurance Face Amount InForceTotal face amount in force increased to $656.79billion as of December 31, 2010, compared with$650.20 billion a year ago. Persistency hasimproved versus prior years, but is still belowhistorical norms. The average face amount fornewly issued policies was $267,000 in 2010,compared with $282,100 in 2009. The increasein total face in force was largely due to thestronger Canadian dollar and improvedpersistency. These drivers were partially offsetby a decline in the average face amount of ournewly issued policies.Investment and Savings ProductSalesInvestment and savings products sales werehigher in 2010, totaling $3.62 billion, comparedwith $3.01 billion in 2009. We believe theincrease in sales reflects the demand for ourproducts as a result of improving financialmarket conditions.Asset Values in Client AccountsThe assets in our clients’ accounts are investedin diversified funds comprised mainly of U.S.and Canadian equity and fixed-incomesecurities. The average value of assets in clientaccounts in 2010 increased to $31.91 billion,from $26.85 billion in 2009 primarily as aresult of general market conditions, which havecontinued to improve since the second half of2009, and client demand for our productsduring 2010.Invested Asset Portfolio Size andYieldsOur portfolio continues to reflect strong marketvalue gains as interest rates and spreadscontinue to remain below recent historicallevels. As of December 31, 2010, our investedassets, excluding policy loans and cash, had acost or amortized cost basis of $1.95 billion anda net unrealized gain of $157.4 million,compared with $6.20 billion at cost oramortized cost and net unrealized gain of$243.5 million at December 31, 2009. Ourportfolio during the last nine months of 2010was substantially smaller than our December 31,2009 portfolio and was composed of a differentmix of invested assets primarily due to ourcorporate reorganization (see The Transactionssection above, the Investments section includedin the Financial Condition discussion below andNote 4 to our consolidated and combinedfinancial statements). Net investment incomewas $165.1 million in 2010, compared with$351.3 million in 2009. On a pro forma basis,after giving effect to the Transactions, netinvestment income declined to $110.4 million in2010, from $118.3 in 2009 largely due to a lowerinterest rate environment in 2010 (see the ProForma Results section in the Results ofOperations discussion below).FACTORS AFFECTING OURRESULTSTerm Life Insurance SegmentOur Term Life Insurance segment results areprimarily driven by sales, accuracy of ourpricing assumptions, reinsurance, investmentincome and expenses.Sales and policies in force. Sales of newterm policies and the size and characteristics ofour in-force book of policies are vital to ourresults over the long term. Premium revenue isrecognized as it is earned over the term of thePrimerica 2010 Annual Report 71


policy and acquisition expenses are generallydeferred and amortized ratably with the levelpremiums of the underlying policies. However,because we incur significant cash outflows at orabout the time policies are issued, including thepayment of sales commissions andunderwriting costs, changes in life insurancesales volume will have a more immediate effecton our cash flows.Historically, we have found that while salesvolume of term life insurance products betweenany given fiscal periods may vary based on avariety of factors, the productivity of ourindividual sales representatives remains withina relatively narrow range and, consequently,our sales volume over the longer termgenerally correlates to the size of our salesforce.The average number of licensed term lifeinsurance sales representatives and thenumber of term life insurance policies issued,as well as the average monthly rate of newpolicies issued per licensed sales representativewere as follows:Year ended December 31,2010 2009 2008Average number of life-licensed insurancesales representatives 96,840 100,569 99,361Number of new policies issued 223,514 233,837 241,173Average monthly rate of new policies issuedper licensed sales representative 0.19x 0.19x 0.20xOur ability to increase the size of our salesforce is largely based on the success of ourrecruiting efforts and our ability to train andmotivate recruits to obtain licenses to sell lifeinsurance. We believe that recruitment levelsare an important advance indicator of salesforce trends, and growth in recruiting is usuallyindicative of future growth in the overall size ofthe sales force. However, because new recruitsmay not obtain the requisite licenses, recruitingresults do not always result in proportionateincreases in the size of our licensed sales force.Pricing assumptions. Our pricingmethodology is intended to provide us withappropriate profit margins for the risks weassume. We determine pricing classificationsbased on the coverage sought, such as the sizeand term of the policy, and certain policyholderattributes, such as age and health. In addition,we utilize unisex rates for our term life72 Freedom Lives Here insurance policies. The pricing assumptions thatunderlie our rates are based upon our bestestimates of mortality, persistency andinvestment yield rates at the time of issuance,sales force commission rates, issue andunderwriting expenses, operating expenses andthe characteristics of the insureds, includingsex, age, underwriting class, product andamount of coverage. Our results will beaffected to the extent there is a variancebetween our pricing assumptions and actualexperience.• Persistency. We use historical experienceto estimate pricing assumptions forpersistency rates. Persistency is a measureof how long our insurance policies stay inforce. As a general matter, persistency thatis lower than our pricing assumptionsadversely affects our results over the longterm because we lose the recurringrevenue stream associated with thepolicies that lapse. Determining the neartermeffects of changes in persistency ismore complicated. Whenpersistency is lower than ourpricing assumptions, we mustaccelerate the amortization ofDAC. The resultant increase inamortization expense is offsetby a corresponding release ofreserves associated with lapsedpolicies, which causes a reduction inbenefits and claims expense. The reservesassociated with any given policy willchange over the term of such policy. As ageneral matter, reserves are lowest at theinception of a policy term and rise steadilyto a peak before declining to zero at theexpiration of the policy term. Accordingly,depending on when the lapse occurs inrelation to the overall policy term, thereduction in benefits and claims expensemay be greater or less than the increase inamortization expense and, consequently,the effects on earnings for a given periodcould be positive or negative. Persistencylevels are meaningful to our results to theextent actual experience deviates from thepersistency assumptions used to price ourproducts.


• Mortality. We use historical experience toestimate pricing assumptions for mortality.Our profitability is affected to the extentactual mortality rates differ from thoseused in our pricing assumptions. Wemitigate a significant portion of ourmortality exposure through reinsurance.Variances between actual mortalityexperience and the assumptions andestimates used by our reinsurers affect thecost and potentially the availability ofreinsurance.• Investment Yields. We generally use alevel investment yield rate which reflectsyields currently available. Both the DACasset and the reserve liability increase withthe assumed investment yield rate. Sincethe DAC asset is higher than the reserveliability in the early years of a policy, alower assumed investment yield will resultin lower profits. In the later years, whenthe reserve liability is higher than the DACasset, a lower assumed investment yieldwill result in higher profits. Actualinvestment yields will impact the netinvestment income allocated to the TermLife Insurance segment, but will not impactthe DAC asset or reserve liability.Reinsurance. We use reinsurance extensively,which has a significant effect on our results ofoperations. In evaluating our comparativeresults, it is important to understand andconsider the relative levels and mix ofreinsurance treaties in effect during each of thecomparative periods. As of December 31, 2010,the percentage of reinsured life insurance inforce was 90.7%, compared with 64.5% a yearago. The significant increase in reinsured lifeinsurance was primarily a result of the Citireinsurance transactions.Since the mid-1990s, we have reinsuredbetween 60% and 90% of the mortality risk onour U.S. term life insurance policies on a YRTbasis. We have not generally reinsured themortality risk on Canadian term life insurancepolices. YRT reinsurance permits us to fixfuture mortality exposure at contractual ratesby policy class. To the extent actual mortalityexperience is more or less favorable than thecontractual rate, the reinsurer will earnincremental profits or bear the incrementalcost, as applicable. In contrast to coinsurance,which is intended to eliminate all risks (otherthan counterparty risk of the reinsurer) andrewards associated with a specified percentageof the block of policies subject to thereinsurance arrangement, the YRT reinsurancearrangements we enter into are intended onlyto reduce volatility associated with variancesbetween estimated and actual mortality rates.On March 31, 2010, we entered into variousreinsurance agreements with the Citi reinsurersto reinsure our term life insurance policies thatwere in force at year-end 2009 as part of ourcorporate reorganization.We may alter our reinsurance practices at anytime due to the unavailability of YRTreinsurance at attractive rates or theavailability of alternatives to reduce our riskexposure. We expect to continue to use YRTreinsurance at or near historical levels.The effect of our reinsurance arrangements onceded premiums and benefits and claims on ourstatement of income follows:• Ceded premiums. Ceded premiums arethe premiums we pay to reinsurers. Theseamounts are deducted from the directpremiums we earn to calculate our netpremium revenues. Similar to directpremium revenues, ceded coinsurancepremiums remain level over the initial termof the insurance policy. Ceded YRTpremiums increase over the period that thepolicy has been in force. Accordingly,ceded YRT premiums generally constitutean increasing percentage of directpremiums over the policy term.• Benefits and claims. Benefits and claimsinclude incurred claim amounts andchanges in future policy benefit reserves.Reinsurance reduces incurred claims indirect proportion to the percentage ceded.• Amortization of DAC. Amortization ofDAC is reduced on a pro-rata basis for thebusiness coinsured with Citi. There is noimpact on amortization of DAC associatedwith our YRT contracts.Primerica 2010 Annual Report 73


• Acquisition and operating expenses.Acquisition and operating expenses arereduced by the allowances received fromcoinsurance, including the businessreinsured with Citi.We presently intend to continue cedingapproximately 90% of our U.S. mortality riskother than the Citi reinsurance transactions.Allocated net investment income. Term LifeInsurance segment net investment income iscomposed of two elements: allocated netinvestment income and the market returnassociated with the deposit asset underlyingthe 10% reinsurance agreement we executed inconnection with the Transactions. We allocatenet investment income based on the book valueof the invested assets allocated to the TermLife Insurance segment compared to the bookvalue of the Company’s total invested assets.Net investment income is also impacted by theperformance of our invested asset portfolio andthe market return on the deposit asset whichcan be affected by interest rates, credit spreadsand the mix of invested assets.Expenses. Results are also affected byvariances in client acquisition, maintenance andadministration expense levels.Investment and Savings ProductsSegmentOur Investment and Savings Products segmentresults are primarily driven by sales, the valueof assets in client accounts for which we earnongoing service and distribution fees and thenumber of fee generating accounts weadminister.Sales. We earn commissions and fees, such asdealer re-allowances, and marketing andsupport fees, based on sales of mutual fundproducts and annuities. Sales of investment andsavings products are influenced by the overalldemand for investment products in the UnitedStates and Canada, as well as by the size andproductivity of our sales force. We generallyexperience seasonality in our Investment andSavings Products segment results due to ourhigh concentration of sales of retirementaccount products. These accounts are typicallyfunded in February through April, coincidentwith the tax return preparation season. Whilewe believe the size of our sales force is a factorin driving sales volume in this segment, thereare a number of other variables, such aseconomic and market conditions that may havea significantly greater effect on sales volume inany given fiscal period.Asset values in client accounts. We earnmarketing and distribution fees (trailcommissions or, with respect to U.S. mutualfunds, 12b-1 fees) on mutual fund, annuity andsegregated funds products based on assetvalues in client accounts. Our investment andsavings products primarily consist of fundscomposed of equity securities. Asset values areinfluenced by new product sales, ongoingcontributions to existing accounts, redemptionsand changes in equity markets, net of expenses.Accounts. We earn recordkeeping fees foradministrative functions we perform on behalfof several of our mutual fund providers andcustodial fees for services as a non-bankcustodian for certain of our mutual fund clients’retirement plan accounts.Sales mix. While our investment and savingsproducts all have similar long-term earningscharacteristics, our results in a given fiscalperiod will be affected by changes in the overallmix of products within these broad categories.Examples of changes in the sales mix thatinfluence our results include the following:• sales of a higher proportion of mutual fundproducts of the several mutual fundfamilies for which we act as recordkeeperwill generally increase our earningsbecause we are entitled to recordkeepingfees on these accounts;• sales of variable annuity products in theUnited States will generate higherrevenues in the period such sales occurthan sales of other investment productsthat either generate lower upfrontrevenues or, in the case of segregatedfunds, no upfront revenues;• sales and administration of a higherproportion of mutual funds that enable usto earn marketing and support fees willincrease our revenues and profitability; and74 Freedom Lives Here


• sales of a higher proportion of retirementproducts of several mutual fund familieswill tend to result inhigher revenuegeneration due to ourability to earncustodial fees onthese accounts.The product sales thatgenerate sales-basedrevenues, average account values of accountsthat generate account-based revenue and theaverage number of fee-generating accountsthat generate account-based revenues were asfollows:Year ended December 31,2010 2009 2008(Dollars in millions and accounts inthousands)Product sales:Mutual funds $ 2,140.9 $ 1,821.0 $2,809.0Annuities and other 1,169.2 922.6 1,157.4Total sales-based revenuegenerating product sales 3,310.1 2,743.6 3,966.4Segregated funds 313.5 263.1 492.0Total product sales (1) $3,623.6 $3,006.6 $4,458.4Average asset values in client accounts:Mutual funds $ 22,614 $ 19,329 $ 24,301Annuities and other 7,095 5,727 6,492Segregated funds 2,199 1,790 1,970Total average asset values in clientaccounts (1) $ 31,908 $ 26,845 $ 32,763Average number of fee-generatingaccounts:Recordkeeping accounts 2,728 2,838 3,083Custodial accounts 1,990 2,057 2,224(1) Totals may not add due to rounding.Sales commissions. Results are also affectedby the compensation our sales representativesreceive for the sale of sales-based products andfor asset values in their clients’ accounts.The production noted above translated intocommissions and fees revenue as follows:Year ended December 31,2010 2009 2008(In thousands)Commissions and fees revenue:Sales-based $142,605 $ 118,798 $ 168,614Asset-based 167,473 127,581 158,934Account-based 41,690 43,247 47,243Total commissions and fees $351,768 $289,626 $ 374,791Corporate and Other DistributedProducts SegmentWe earn revenues and pay commissions andreferral fees from thedistribution of loanproducts, various otherinsurance products,prepaid legal servicesand other products, allof which are originatedby third parties. OurNew York life insurancesubsidiary, NBLIC, alsounderwrites a mailorderstudent life policyand a short-termdisability benefit policy,neither of which isdistributed by our salesforce, and alsohas in-force policiesfrom severaldiscontinued lines ofinsurance.The Corporate andOther DistributedProducts segment is affected by corporateincome and expenses not allocated to our othersegments, net investment income (other thannet investment income allocated to our TermLife Insurance segment), general andadministrative expenses (other than expensesthat are allocated to our Term Life Insurance orInvestment and Savings Products segments),management equity awards, equity awardsgranted to our sales force leaders at the time ofthe Offering, interest expense on the Citi noteand realized gains and losses on our investedasset portfolio.Primerica 2010 Annual Report 75


CRITICAL ACCOUNTING ESTIMATESWe prepare our financial statements inaccordance with GAAP. These principles areestablished primarily by the FinancialAccounting Standards Board. The preparationof financial statements in conformity withGAAP requires us to make estimates andassumptions based on currently availableinformation when recording transactionsresulting from business operations. Oursignificant accounting policies are described inNote 1 to our financial statements. The mostsignificant items on the balance sheet arebased on fair value determinations, accountingestimates and actuarial determinations whichare susceptible to changes in future periodsand which affect our results of operations andfinancial position.The estimates that we deem to be most criticalto an understanding of our results ofoperations and financial position are thoserelated to the valuation of investments,reinsurance, deferred policy acquisition costs,future policy benefit reserves, and incometaxes. The preparation and evaluation of thesecritical accounting estimates involve the use ofvarious assumptions developed frommanagement’s analyses and judgments.Subsequent experience or use of otherassumptions could produce significantlydifferent results.Invested AssetsWe hold fixed-maturity securities, includingbonds and redeemable preferred stocks, andequity securities, including common andnon-redeemable preferred stock and certainother financial instruments. These investedassets are classified as available-for-sale,except for the securities of our U.S. brokerdealersubsidiary, which are classified astrading securities. All of these securities arecarried at fair value.Fair value. Fair value is the price that wouldbe received to sell an asset in an orderlytransaction between market participants at themeasurement date. Fair value measurementsare based upon observable and unobservableinputs. Observable inputs reflect market dataobtained from independent sources, whileunobservable inputs reflect our view of marketassumptions in the absence of observablemarket information. All invested assets areclassified and disclosed in one of the followingthree categories:• Level 1. Quoted prices for identicalinstruments in active markets.• Level 2. Quoted prices for similarinstruments in active markets; quotedprices for identical or similar instrumentsin markets that are not active; and modelderivedvaluations in which all significantinputs and significant value drivers areobservable in active markets.• Level 3. Valuations derived from valuationtechniques in which one or more significantinputs or significant value drivers areunobservable.As of each reporting period, all invested assetsare classified in their entirety based on thelowest level of input that is significant to thefair value measurement. Significant levels ofestimation and judgment are required todetermine the fair value of certain of ourinvestments. The factors influencing theseestimations and judgments are subject tochange in subsequent reporting periods. Thefair value and hierarchy classifications of ourinvested asset portfolio were as follows:December 31, 2010$ %(Dollars in thousands)Level 1 $ 15,110 *Level 2 2,087,233 98%Level 3 24,998 1%Total $ 2,127,341 100%* Less than 1%In assessing fair value of our investments, weuse a third-party pricing service forapproximately 95% of our securities. Theremaining securities are primarily privatesecurities valued using models based onobservable inputs on public corporate spreadshaving similar tenors (e.g., sector, average lifeand quality rating) and liquidity and yield based76 Freedom Lives Here


on quality rating, average life and treasuryyields. All data inputs come from observabledata corroborated by independent third-partydata. In the absence of sufficient observableinputs, we utilize non-binding broker quotes,which are reflected in our Level 3 classification.We perform internal reasonablenessassessments on fair value determinationswithin our portfolio. If a fair value appearsunusual, we will re-examine the inputs and maychallenge a fair value assessment made by thepricing service. If there is a known pricing error,we will request a reassessment by the pricingservice. If the pricing service is unable toperform the reassessment on a timely basis, wewill determine the appropriate price bycorroborating with an alternative pricingservice or other qualified source as necessary.We do not adjust quotes or prices except in arare circumstance to resolve a known error.For additional information, see Notes 1 and 4 toour consolidated and combined financialstatements.Other-than-temporary impairments. Werecognize unrealized gains and losses on ouravailable-for-sale portfolio as a separatecomponent of accumulated othercomprehensive income. The determination ofwhether a decline in fair value below amortizedcost is other-than-temporary is both objectiveand subjective. Furthermore, this determinationcan involve a variety of assumptions andestimates, particularly for invested assets thatare not actively traded in established markets.We evaluate a number of factors whendetermining the impairment status of individualsecurities. These factors include the economiccondition of various industry segments andgeographic locations and other areas ofidentified risk.For available-for-sale securities in an unrealizedloss position that we intend to sell or wouldmore-likely-than-not be required to sell beforethe expected recovery of the amortized costbasis, we recognize an impairment charge forthe difference between amortized cost and fairvalue as a realized investment loss in ourstatements of income. For available-for-salesecurities in an unrealized loss position forwhich we have no intent to sell and believe thatit is more-likely-than-not that we will not berequired to sell before the expected recovery ofthe amortized cost basis, only the credit losscomponent of the difference between cost andfair value is recognized in earnings, while theremainder is recognized in accumulated othercomprehensive income. The credit losscomponent recognized in earnings is identifiedas the amount of principal cash flows notexpected to be received over the remainingterm of the security.For certain securitized financial assets withcontractual cash flows, including asset-backedsecurities, we periodically update our bestestimate of cash flows over the life of thesecurity. Securities that are in an unrealizedloss position are reviewed at least quarterly forother-than-temporary impairment. If the fairvalue of a securitized financial asset is less thanits cost or amortized cost and there has been adecrease in the present value of the estimatedcash flows since the last revised estimate,considering both timing and amount, an otherthan-temporaryimpairment charge isrecognized. Estimating future cash flows is aquantitative and qualitative process thatincorporates information received from thirdpartysources along with certain assumptionsand judgments regarding the futureperformance of the underlying collateral.Projections of expected future cash flows maychange based upon new information regardingthe performance of the underlying collateral.Other categories of fixed-income securities thatare in an unrealized loss position are alsoreviewed at least quarterly to determine if another-than-temporary impairment is presentbased on certain quantitative and qualitativefactors. We consider a number of factors indetermining whether the impairment is otherthan-temporary.These include: (1) actionstaken by rating agencies, (2) default by theissuer, (3) the significance of the decline,(4) the intent to sell and the ability to hold theinvestment until recovery of the amortized costbasis, as noted above, (5) the time periodduring which the decline has occurred, (6) aneconomic analysis of the issuer, (7) thefinancial strength, liquidity, and recoverabilityof the issuer, and (8) an analysis of theunderlying collateral. Although no set formulaPrimerica 2010 Annual Report 77


is used in this process, the investmentperformance, collateral position, and continuedviability of the issuer are significant measuresthat are considered.The other-than-temporary impairment analysisthat we perform on our equity securitiesprimarily focuses on the severity of theunrealized loss as well as the length of time thesecurity’s fair value has been below amortizedcost.The other-than-temporary impairments that werecognized as a charge to earnings were asfollows:Year ended December 31,2010 2009 2008(In thousands)Other-than-temporary impairments $12,158 $61,394 $114,022For additional information, see Notes 1 and 4 toour consolidated and combined financialstatements.ReinsuranceWe use reinsurance extensively. We determineif a contract provides indemnification againstloss or liability in relation to the amount ofinsurance risk to which the reinsurer is subject.We review all contractual terms, particularlythose that may limit the amount of insurancerisk to which the reinsurer is subject that maydelay the timely reimbursement of claims. If wedetermine that the possibility of a significantloss from insurance risk will occur only underremote circumstances, we record the contractunder the deposit method of accounting withthe net amount receivable reflected in otherassets on our consolidated and combinedbalance sheets. The reinsurance contracts ineffect at December 31, 2010, including the Citireinsurance agreements, meet GAAP risktransfer provisions, except as noted below.Ceded policy reserves and claims liabilitiesrelating to insurance ceded under thesecontracts are shown as due from reinsurers inour consolidated and combined balance sheets.78 Freedom Lives Here We believe that one of the Citi reinsurancetransactions (a 10% YRT transaction with anexperience refund provision) will have limitedtransfer of insurance risk and that there will beonly a remote chance of loss under thecontract. As such, we have accounted for thisagreement under the deposit method ofaccounting.Ceded premiums are treated as a reduction ofdirect premiums and are recognized when dueto the assuming company. Ceded claims aretreated as a reduction of direct benefits and arerecognized when the claim is incurred on adirect basis. Ceded policy reserve changes arealso treated as a reduction of benefits and arerecognized during theapplicable financial reportingperiod. Under YRTarrangements, theceded reserve is determined byrecognizing thecost of reinsurance as a levelpercentage of the direct premium collected.The expected reinsurance cost is the expectedreinsurance premium collected less expectedreinsurance claims. Ceded future policy benefitreserves for coinsurance are determined in thesame manner as direct policy reserves.Claim liabilities and policy benefits arecalculated consistently for all policies,regardless of whether or not the policy isreinsured. Once the direct claim liabilities areestimated, the amounts attributable to thereinsurers are estimated. Liabilities for unpaidreinsurance claims are produced from claimsand reinsurance system records, which containthe relevant terms of the individual reinsurancecontracts. We monitor claims due fromreinsurers to ensure that balances are settledon a timely basis. Incurred but not reportedclaims are reviewed to ensure that appropriateamounts are ceded. We analyze and monitorthe creditworthiness of each of our reinsurersto minimize collection issues. For reinsurancecontracts with unauthorized reinsurers, werequire collateral such as letters of credit.For additional information on reinsurance, seeNotes 1 and 6 to our consolidated and combinedfinancial statements.


Deferred Policy Acquisition Costs(DAC)The costs of acquiring new business aredeferred to the extent that they vary with, andare primarily related to, the acquisition of suchnew business. These costs mainly includecommissions and policy issue expenses. Therecovery of such costs is dependent on thefuture profitability of the related policies,which, in turn, is dependent principally uponinvestment returns, mortality, persistency andthe expense of administering the business, aswell as upon certain economic variables, suchas inflation. Deferred policy acquisition costsare subject to recoverability testing on anannual basis or when circumstances indicatethat recoverability is uncertain. We makecertain assumptions regarding persistency,expenses, interest rates and claims. Theassumptions for these types of products maynot be modified, or unlocked, unlessrecoverability testing deems them to beinadequate. Assumptions are updated for newbusiness to reflect the most recent experience.Deferrable term life insurance policy acquisitioncosts are amortized over the premium-payingperiod of the related policies in proportion topremium income. If actual lapses orwithdrawals are different from pricingassumptions for a particular period, thedeferred policy acquisition cost amortizationwill be affected. If the number of policies thatlapse are 1% higher than the number of policiesthat we expected to lapse in our pricingassumptions, approximately 1% more of theexisting deferred policy acquisition costbalance will be amortized, which would havebeen equal to approximately $8.0 million as ofDecember 31, 2010 (assuming such lapses weredistributed proportionately among policies ofall durations). We believe that a lapse rate inthe number of policies that is 1% higher thanthe rate assumed in our pricing assumptions isa reasonably possible variation. Higher lapsesin the early durations would have a greatereffect on deferred policy acquisition costamortization since the deferred policyacquisition cost balances are higher at theearlier durations. Differences in actualmortality rates compared to our pricingassumptions will not have a material effect ondeferred policy acquisition cost amortization.Due to the inherent uncertainties in makingassumptions about future events, materiallydifferent experience from expected results inpersistency or mortality could result in amaterial increase or decrease of deferredacquisition cost amortization in a particularperiod.Deferrable acquisition costs for Canadiansegregated funds are amortized over the life ofthe policies in relation to estimated grossprofits before amortization.For additional information on DAC, see Notes 1and 7 to our consolidated and combinedfinancial statements.Future Policy Benefit ReservesWe calculate and maintain reserves for theestimated future payment of claims to ourpolicyholders based on actuarial assumptionsand in accordance with industry practice andGAAP. Liabilities for future policy benefits onour term life insurance products have beencomputed using a net level method, includingassumptions as to investment yields, mortality,persistency, and other assumptions based onour experience. Many factors can affect thesereserves, including mortality trends, investmentyields and persistency. Similar to the DACdiscussion above, the assumptions used toestablish reserves cannot be modified over thepolicy term unless recoverability testing deemsthem to be inadequate. Therefore, the reserveswe establish are based on estimates,assumptions and our analysis of historicalexperience. Our results depend significantlyupon the extent to which our actual claimsexperience is consistent with the assumptionswe used in determining our reserves andpricing our products. Our reserve assumptionsand estimates require significant judgment and,therefore, are inherently uncertain. If actuallapses are different from pricing assumptionsfor a particular period, the change in the futurepolicy benefit reserves, which is reflected inbenefits and claims in our statements ofincome, will be affected.If the number of policies that lapse are 1%higher than the number of policies that wePrimerica 2010 Annual Report 79


expected to lapse in our pricing assumptions,approximately 1% more of the future policybenefit reserves will be released, which wouldhave been equal to approximately $43.5 millionas of December 31, 2010 (assuming such lapseswere distributed proportionately amongpolicies of all durations). The future policybenefit reserves released from the additionallapses would have been offset by the release ofthe corresponding reinsurance reserves ofapproximately $34.6 million as of December 31,2010. Higher lapses in later durations wouldhave a greater effect on the release of futurepolicy benefit reserves since the future policybenefit reserves are higher at the laterdurations. Differences in actual mortality ratescompared to our pricing assumptions will nothave a material effect on future policy benefitreserves. We cannot determine with precisionthe ultimate amounts that we will pay for actualclaims or the timing of those payments.For additional information on future policybenefit reserves, see Notes 1 and 10 to ourconsolidated and combined financialstatements.Income TaxesIncome taxes are accounted for under the assetand liability method. Deferred tax assets andliabilities are recognized for the future taxconsequences attributable to (i) differencesbetween the financial statement carryingamounts of existing assets and liabilities andtheir respective tax bases and (ii) operating lossand tax credit carryforwards. Deferred taxassets and liabilities are measured usingenacted tax rates expected to apply to taxableincome in the years in which those temporarydifferences are expected to be recovered orsettled. The effect on deferred tax assets andliabilities of a change in tax rates is recognizedin income in the period that includes theenactment date. Deferred tax assets arerecognized subject to management’s judgmentthat realization is more likely than notapplicable to the periods in which we expect thetemporary difference will reverse.For additional information on income taxes, seeNotes 1 and 12 to our consolidated andcombined financial statements.RESULTS OF OPERATIONSRevenuesOur revenues consist of the following:• Net premiums. Reflects direct premiumspayable by our policyholders on ourin-force insurance policies, primarily termlife insurance, net of reinsurance premiumsthat we pay to third-party reinsurers.• Net investment income. Representsincome, net of investment relatedexpenses, generated by our invested assetportfolio, which consists primarily ofinterest income earned on fixed-maturityinvestments. Investment income earned onassets supporting our statutory reservesand targeted capital is allocated to ourTerm Life Insurance segment, with thebalance included in our Corporate andOther Distributed Products segment.• Commissions and fees. Consists primarilyof dealer re-allowances earned on the salesof investment and savings products, trailcommissions based on the asset values ofclient accounts, marketing and supportfees from product originators, custodialfees for services rendered in our capacityas nominee on client retirement accountsfunded by mutual funds on our servicingplatform, recordkeeping fees for mutualfunds on our servicing platform and feesassociated with the sale of otherdistributed products.• Realized investment gains (losses),including other-than-temporaryimpairments (“OTTI”). Reflects thedifference between amortized cost andamounts realized on the sale of investmentsecurities, as well as OTTI charges.• Other, net. Reflects revenues generatedfrom the fees charged for access to oursales force website, printing revenues fromthe sale of printed materials to salesrepresentatives, incentive fees andreimbursements from product originators,Canadian licensing fees, sales ofmerchandise to sales representatives,mutual fund customer service fees, feescharged to sales representatives related to80 Freedom Lives Here


life insurance processing responsibilities,and interest charges received from or paidto reinsurers on late payments.Benefits and ExpensesOur operating expenses consist of thefollowing:• Benefits and claims. Reflects the benefitsand claims payable on insurance policies,as well as changes in our reserves forfuture policy claims and reserves for otherbenefits payable, net of reinsurance.• Amortization of DAC. Represents theamortization of capitalized costsassociated with the sale of an insurancepolicy or segregated fund, including salescommissions, medical examination andother underwriting costs, and otheracquisition-related costs.• Insurance commissions. Reflects salescommissions in respect of insuranceproducts that are not eligible for deferral.• Insurance expenses. Reflectsnon-capitalized insurance expenses,including staff compensation, technologyand communications, insurance salesforce-related costs, printing, postage anddistribution of insurance sales materials,outsourcing and professional fees,premium taxes, amortization of certainintangibles and other corporate andadministrative fees and expenses relatedto our insurance operations.• Sales commissions. Representscommissions to our sales representativesin connection with the sale of investmentand savings products and products otherthan insurance products.• Interest expense. Reflects interest on theCiti note as well as interest incurred inconnection with the Citi reinsurancetransactions.• Other operating expenses. Consistsprimarily of expenses that are unrelated tothe distribution of insurance products,including staff compensation, technologyand communications, various sales forcerelatedcosts, printing, postage anddistribution of sales materials, outsourcingand professional fees, amortization ofcertain intangibles and other corporate andadministrative fees and expenses.We allocate certain operating expensesassociated with our sales representatives,including supervision, training and legal, to ourtwo primary operating segments generallybased on the average number of licensedrepresentatives in each segment for a givenperiod. We also allocate technology andoccupancy costs based on usage. Costs that arenot allocated to our two primary segments areincluded in our Corporate and Other DistributedProducts segment.Primerica 2010 Annual Report 81


2010 Compared to 2009Primerica, Inc. Actual ResultsWe executed the Transactions in March andApril of 2010. As such, actual results will not becomparable due to the initial and ongoingeffects and recognition of the Citi reinsuranceand reorganization transactions. We believe thepro forma results presented in the next sectionprovide meaningful additional information forthe evaluation of our financial results. Ourstatements of income were as follows:Year ended December 31,Change2010 2009 $ %(Dollars in thousands)Revenues:Direct premiums $ 2,181,074 $ 2,112,781 $ 68,293 3%Ceded premiums (1,450,367) (610,754) (839,613) 137%Net premiums 730,707 1,502,027 (771,320) -51%Net investment income 165,111 351,326 (186,215) -53%Commissions and fees 382,940 335,986 46,954 14%Realized investment(losses) gains , includingOTTI 34,145 (21,970) 56,115 *Other, net 48,960 53,032 (4,072) -8%Total revenues 1,361,863 2,220,401 (858,538) -39%Benefits and expenses:Benefits and claims 317,703 600,273 (282,570) -47%Amortization of DAC 168,035 381,291 (213,256) -56%Insurance commissions 19,904 34,388 (14,484) -42%Insurance expenses 75,503 148,760 (73,257) -49%Sales commissions 179,924 162,756 17,168 11%Interest expenses 20,872 — 20,872 *Other operating expenses 180,779 132,978 47,801 36%Total benefits andexpenses 962,720 1,460,446 (497,726) -34%Income beforeincome taxes 399,143 759,955 (360,812) -47%Income taxes 141,365 265,366 (124,001) -47%Net income $ 257,778 $ 494,589 $ (236,811) -48%* Less than 1%, or not meaningfulNet premiums. Net premiums were lower in2010 primarily as a result of the significantincrease in ceded premiums associated with theCiti reinsurance agreements executed onMarch 31, 2010. The effect of these agreementson net premiums is reflected in the Term LifeInsurance segment.82 Freedom Lives Here Net investment income. Net investmentincome declined during 2010 primarily as aresult of the impact on our invested asset baseof the asset transfers that we executed inconnection with our corporate reorganization in2010. On March 31, 2010, we transferredapproximately $4.0 billion of assets to supportthe statutory liabilities assumed by the Citireinsurers and in April 2010, we paid dividendsto Citi of approximately $675.7 million. Loweryields on invested assets also negativelyimpacted net investment income during 2010.Commissions andfees. The increasein commissions andfees in 2010 wasprimarily driven byactivity in ourInvestment andSavings Productsegment as a resultof improved marketconditions andincreased demandfor our products,partially offset bydeclines in ourlending business asreflected in ourCorporate and OtherDistributed Productssegment results.Total benefits andexpenses. Thedecrease in totalbenefits andexpenses in 2010primarily reflectslower benefits andclaims, loweramortization of DACand lower insuranceexpenses largely as aresult of the Citireinsurance agreements. These declines werepartially offset by an increase in interestexpense as a result of the Citi note and otheroperating expenses as a result of initial andone-time expenses incurred in connection withthe Offering, including equity award expenses.The changes associated with the Citi


einsurance agreements impacted the TermLife Insurance segment, while the changes ininterest and other operating expenses primarilyimpacted the Corporate and Other DistributedProducts segment.Income taxes. Our effective income tax ratewas 35.4% in 2010 and 34.9% in 2009.Primerica, Inc. Pro Forma ResultsThe following pro forma statement of income isintended to provide information about how theTransactions would have affected our financialstatements if they had been consummated asof January 1, 2010. Because the Transactionswere concluded during 2010, pro formaadjustment to our balance sheet was notnecessary as of December 31, 2010. Based onthe timing of the Transactions, pro formaadjustments to our statement of income werenecessary for the first three months of 2010.The pro forma statement of income does notnecessarily reflect the results of operationsthat would have resulted had the Transactionsoccurred as of January 1, 2010, nor should it betaken as indicative of our future results ofoperations. Our pro forma statement of incomeis set forth below.Primerica 2010 Annual Report 83


Pro Forma Statement of IncomeYear ended December 31, 2010(Unaudited)Adjustmentsfor theCiti reinsurancetransactions (2)Adjustmentfor thereorganizationand otherconcurrenttransactions (3)Actual (1)Pro forma(In thousands, except per-share amounts)Revenues:Direct premiums $ 2,181,074 $ — $ — $ 2,181,074Ceded premiums (1,450,367) (296,328)(A) — (1,746,695)Net premiums 730,707 (296,328) — 434,379Net investment income 165,111 (47,566)(B) (7,169)(H) 110,376Commissions and fees 382,940 — — 382,940Realized investment gains, includingOTTI 34,145 — — 34,145Other, net 48,960 — — 48,960Total revenues 1,361,863 (343,894) (7,169) 1,010,800Benefits and Expenses:Benefits and claims 317,703 (128,204)(C) — 189,499Amortization of DAC 168,035 (71,389)(D) — 96,646Insurance commissions 19,904 (1,669)(E) — 18,235Insurance expenses 75,503 (26,083)(E) — 49,420Sales commissions 179,924 — — 179,924Interest expense 20,872 2,812(F) 4,125(I) 27,809Other operating expenses 180,779 — 3,076(J) 183,855Total benefits and expenses 962,720 (224,533) 7,201 745,388Income before income taxes 399,143 (119,361) (14,370) 265,412Income taxes 141,365 (42,274)(G) (5,089)(G) 94,002Net income $ 257,778 $ (77,087) $ (9,281) $ 171,410Earnings per share:Basic $ 3.43 $ 2.28Diluted $ 3.40 $ 2.26Weighted-average shares:Basic 72,099 72,099Diluted 72,882 72,882See accompanying notes to the pro forma statement of income.84 Freedom Lives Here TM


Notes to the Pro Forma Statement ofIncome — Unaudited(1) The actual statement of income includedincome attributable to the underlying policiesthat were reinsured to Citi on March 31, 2010 aswell as net investment income earned on theinvested assets backing the reinsurancebalances and the distributions to Citi made aspart of our corporate reorganization.(2) Adjustments for the Citi reinsurancetransactions.Concurrent with the reorganization of ourbusiness and prior to completion of theOffering, we formed a new subsidiary, PrimeRe, and we made an initial capital contributionto it. We also entered into a series ofcoinsurance agreements with Prime Re andwith other Citi subsidiaries. Under theseagreements, we ceded between 80% and 90%of the risks and rewards of our term lifeinsurance policies that were in force atDecember 31, 2009. Concurrent with signingthese agreements, we transferred thecorresponding account balances in respect ofthe coinsured policies along with the assets tosupport the statutory liabilities assumed byPrime Re and the other Citi subsidiaries.We believe that three of the Citi coinsuranceagreements, which we refer to as the risktransfer agreements, satisfy GAAP risk transferrules. Under the risk transfer agreements, weceded between 80% and 90% of our term lifefuture policy benefit reserves, and wetransferred a corresponding amount ofinvested assets to the Citi reinsurers. Thesetransactions did not and will not impact ourfuture policy benefit reserves, and we recordedan asset for the same amount of risktransferred in due from reinsurers. We alsoreduced deferred acquisition costs by between80% and 90%, which will reduce futureamortization expenses. In addition, we willtransfer between 80% and 90% of all futurepremiums and benefits and claims associatedwith these policies to the correspondingreinsurance entities. We will receive ongoingceding allowances as a reduction to insuranceexpenses to cover policy and claimsadministration expenses under each of thesereinsurance contracts. One coinsuranceagreement, which we refer to as the depositagreement, relates to a 10% reinsurancetransaction that includes an experience refundprovision and does not satisfy GAAP risktransfer rules. We account for this contractunder the deposit method. Under depositmethod accounting, the amount we pay to thereinsurer will be treated as a deposit and isreported on the balance sheet as an asset inother assets. The Citi coinsurance agreementsdid not generate any deferred gain or loss upontheir execution because these transactionswere part of a business reorganization amongentities under common control. The net impactof these transactions was reflected as anincrease in paid-in capital. Prior to thecompletion of the Offering, we effected areorganization in which we transferred all ofthe issued and outstanding capital stock ofPrime Re to Citi. Each of the assets andliabilities, including the invested assets and thedistribution of Prime Re, was transferred atbook value with no gain or loss recorded on ourincome statement.For the year ended December 31, 2010, the proforma statement of income assumes thereinsurance transactions were effected as ofJanuary 1, 2010 for policies in force as ofyear-end 2009.(A) Reflects premiums ceded to the Citireinsurers for the specific policies coveredunder the risk transfer agreements.(B) Reflects net investment income on apro-rata share of invested assets transferred tothe Citi reinsurers. The net investment incomewas estimated by multiplying the actualinvestment income by the ratio of the amountof assets transferred to our total portfolio ofinvested assets. The amount also includes thechange in fair value of the deposit asset relatedto the 10% reinsurance agreement beingaccounted for under the deposit method.(C) Reflects benefits and claims ceded to theCiti reinsurers for the specific policies coveredunder the risk transfer agreements.(D) Reflects the DAC amortization ceded to theCiti reinsurers for the specific policies coveredunder the risk transfer agreements.Primerica 2010 Annual Report 85


(E) Reflects the non-deferred expenseallowance received from the Citi reinsurersunder the risk transfer agreements.(F) Reflects a finance charge payable to the Citireinsurer in respect of the deposit agreement.The annual finance charge is 3% of our excessreserves. Excess reserves are equal to thedifference between our required statutoryreserves and our economic reserves, which isthe amount we determine is necessary tosatisfy obligations under our in-force policies.(G) Reflects income tax at the respectiveperiod’s effective tax rate.(3) Adjustments for the reorganization andother concurrent transactions. The pro formastatement of income for the year endedDecember 31, 2010 assumesthe reorganization transactionswere executed as of January 1,2010.(H) Reflects a pro-ratareduction of net investmentincome on assets distributedto Citi as an extraordinarydistribution.(I) Reflects interest expenseon a $300.0 million, 5.5%interest note payable issuedto Citi.(J) Reflects expenseassociated with equityawards granted on April 1,2010 in connection with theOffering. The $3.1 millionexpense reflects one quarterof vesting related tomanagement awards thatcontinue to vest over threeyears. These expenses arereflected in actual results forperiods following the Offering.For more detailed commentaryon the drivers of our revenues and expenses,see the discussion of results of operations bysegment below.SEGMENT RESULTSTerm Life Insurance Segment ActualResultsWe entered into the Citi reinsurance andreorganization transactions, which are describedmore fully in Notes 2 and 3 to our pro formastatement of income, during March and April of2010. As such, actual results for the year endedDecember 31, 2010 include approximately threemonths of operations that do not reflect the Citireinsurance and reorganization transactions,and actual results for the year endedDecember 31, 2009 do not reflect the effects ofthe Citi reinsurance and reorganizationtransactions. Term Life Insurance segmentactual results were as follows:Year endedDecember 31,Change2010 2009 $ %(Dollars in thousands)Revenues:Direct premiums $2,100,709 $2,030,988 $ 69,721 3%Ceded premiums (1,436,041) (596,791) (839,250) 141%Net premiums 664,668 1,434,197 (769,529) -54%Allocated netinvestment income 110,633 274,212 (163,579) -60%Other, net 33,267 33,656 (389) -1%Total revenues 808,568 1,742,065 (933,497) -54%Benefits and expenses:Benefits and claims 277,653 559,038 (281,385) -50%Amortization of DAC 156,312 371,663 (215,351) -58%Insurance commissions 3,177 17,614 (14,437) -82%Insurance expenses 63,885 134,738 (70,853) -53%Interest expense 8,497 — 8,497 *Total benefits andexpenses 509,524 1,083,053 (573,529) -53%Income beforeincome taxes $ 299,044 $ 659,012 $(359,968) -55%* Not meaningfulWe believe that the pro forma results presentedbelow provide meaningful additionalinformation necessary to evaluate our segmentfinancial results.86 Freedom Lives Here TM


Term Life Insurance Segment ProForma ResultsTerm Life Insurance segment pro forma resultsgive effect to the Citi reinsurance andreorganization transactions, which aredescribed more fully in Notes 2 and 3 to our proforma statement of income. On a pro formabasis, Term Life Insurance segment resultswere as follows:Year endedDecember 31,Change2010 2009 $ %(Dollars in thousands)Revenues:Direct premiums $ 2,100,709 $2,030,988 $ 69,721 3%Ceded premiums (1,732,369) (1,680,827) (51,542) 3%Net premiums 368,340 350,161 18,179 5%Allocated net investmentincome 62,294 68,303 (6,009) -9%Other, net 33,267 33,656 (389) -1%Total revenues 463,901 452,120 11,781 3%Benefits and expenses:Benefits and claims 149,449 135,052 14,397 11%Amortization of DAC 84,923 91,932 (7,009) -8%Insurance commissions 1,508 12,091 (10,583) -88%Insurance expenses 37,802 38,123 (321) *Interest expense 11,309 10,993 316 3%Total benefits andexpenses 284,991 288,191 (3,200) -1%Income before incometaxes $ 178,910 $ 163,929 $ 14,981 9%* Less than 1%Direct premiums for 2010 increased mainly dueto improved persistency, a stronger Canadiandollar and premium increases for policiesreaching the end of their initial level premiumperiod, partially offset by the decline in salesvolume noted previously. Ceded premiums,which are highly influenced by the businessreinsured with Citi, grew consistent with directpremiums.Additionally, in 2010, we reduced cededpremiums by approximately $13.1 million relatedto agreements obtained with certain reinsurersto recover ceded premiums for post-issueunderwriting class upgrades. The most commonreason for such an upgrade occurs whensomeone who was originally issued a termlife policy as a tobacco user subsequently quitsusing tobacco. Historically, we have reducedpolicyholder premiums for such upgrades, buthave not reduced ceded premiums to reflectthe new underwriting class. We were uncertainof our ability to recover past ceded premiums,but in the fourth quarter of 2010, weapproached our reinsurers and reachedagreements to recover certain of these pastceded premiums. The $13.1 million of recoveriesrecognized in 2010reflects theagreements signed inthe fourth quarter of2010. We recovered$18.8 million of pastceded premiums, whichincluded $5.7 million ofrecoveries passed onto the Citi reinsurers inaccordance with theterms of the associatedreinsuranceagreements. We expectapproximately $8.7million of additionalrecoveries in the firstquarter of 2011 for theremaining agreementswhich were signed inJanuary 2011.Allocated netinvestment incomedecreased during 2010,primarily due to loweryield on invested assets and slightly loweraverage allocated invested assets, partiallyoffset by lower investment-related expenses.The increase in benefits and claims in 2010 wasprimarily due to higher reserve increases as aresult of improvements in policy persistencyand premium growth. Claims were slightlyhigher during 2010 due to favorable claimsexperience in the first quarter of 2009.In 2010, amortization of DAC decreased largelydue to improved policy persistency, partiallyoffset by higher amortization from a lower DACinterest rate assumed for new business. Welowered the interest rate assumption during thethird quarter of 2010 to reflect rates availablePrimerica 2010 Annual Report 87


in the current interest rate environment. Thenew lower DAC interest rate assumption willincrease DAC amortization in the near term.The decline in insurance commissions expensein 2010 was largely due to the $8.2 millionspecial sales force payment made in 2009.Insurance expenses were relatively flatprimarily reflecting the offsetting effects of adecline in compensation-related items in 2010;payments made in 2009 for contract buyoutsassociated with our cancelled convention; andan increase in taxes, licenses and fees expensein 2010. The increase in taxes, licenses and feesin 2010 was primarily driven by accrualsrecognized in the fourth quarter as a result ofrecognizing these items on the accrual basis ofaccounting.The changes in the face amount of our in-forcebook of term life insurance policies were asfollows:The in-force book increased $6.60 billion, or1%, during 2010. Issued face amount decreased$6.10 billion, or approximately 8%, due to alower average issued policy size and the effecton production of a slightly smaller base of salesrepresentatives. Terminations decreased by$3.68 billion in 2010, primarily as a result ofimproved persistency relative to 2009. Thedecrease in the effect of foreign currency onthe end-of-period face amount in force waslargely due to the significant strengthening inthe Canadian dollar experienced during 2009.The increase in face in force in 2010 did notkeep pace with the increase in premiumsprimarily due to the effect of increasedpremiums with no corresponding change in faceamount and unchanged face amounts onpolicies reaching the end of their initial levelpremium period.Year endedDecember 31, Change2010 2009 $ %(Dollars in millions)Face amount in force, beginningof period $650,195 $633,467 $ 16,728 3%Issued face amount 74,401 80,497 (6,096) -8%Terminations (70,964) (74,642) 3,678 -5%Foreign currency 3,158 10,873 (7,715) -71%Face amount in force, end ofperiod (1) $656,791 $ 650,195 $ 6,596 1%(1) Totals may not add due to rounding.88 Freedom Lives Here TM


Investments and Savings ProductsSegment Actual ResultsThe Transactions had no impact on theInvestments and Savings Products segment. Onan actual basis, Investments and SavingsProducts segment results were as follows:Year endedDecember 31,Change2010 2009 $ %(Dollars in thousands)Revenues:Commissions and fees:Sales-based revenues $ 142,606 $ 118,798 $23,808 20%Asset-based revenues 167,473 127,581 39,892 31%Account-based revenues 41,690 43,247 (1,557) -4%Total commissions and fees 351,769 289,626 62,143 21%Other, net 10,038 10,514 (476) -5%Total revenues 361,807 300,140 61,667 21%Expenses:Amortization of DAC 9,330 7,254 2,076 29%Insurance commissions 7,854 6,831 1,023 15%Sales commissions:Sales-based 100,993 86,912 14,081 16%Asset-based 58,129 42,003 16,126 38%Other operating expenses 71,971 63,736 8,235 13%Total expenses 248,277 206,736 41,541 20%Income before income taxes $ 113,530 $ 93,404 $ 20,126 22%Supplemental information on the underlyingmetrics that drove results was as follows:Year endedDecember 31, Change2010 2009 $ %(Dollars in millions and accounts inthousands)Revenue metric:Product sales $3,623.6 $3,006.6 $ 617.0 21%Average of aggregate clientaccount values $ 31,908 $ 26,845 $5,063 19%Average number of feegeneratingaccounts 2,728 2,838 (110) -4%Commissions and fees revenue increased in2010 primarily as a result of improvingeconomic and market trends and clientdemand. Sales-based commission revenuesprimarily grew as a result of demand, whileasset-based commission revenues were drivenby demand and improved equity valuations. Asa result, sales-based andasset-based commissionexpense grew as well. Assetbasedrevenues andcommission expense in 2010also reflect the impact ofaccruing certain items thathad previously beenaccounted for on a cashbasis. Excluding the impactof these cash-to-accrualadjustments, asset-basedrevenues and commissionswould have increased 22%,consistent with the 19%growth in aggregate clientaccount values.Amortization of DAC andinsurance commissionsincreased in 2010 consistentwith the growth in oursegregated funds business.Additionally, increases inclient account values drivenby improving marketconditions acceleratedamortization of DAC in 2010.Other operating expensesincreased in 2010, largelydue to higher administrativecosts as a result of growth inthe business.Primerica 2010 Annual Report 89


Changes in asset values in client accounts wereas follows:Year endedDecember 31,Change2010 2009 $ %(Dollars in millions)Asset values, beginning of period $ 31,303 $24,677 $ 6,626 27%Inflows 3,624 3,007 617 21%Redemptions (3,691) (2,997) (694) 23%Change in market value, net andother 3,633 6,617 (2,984) -45%Asset values, end of period (1) $34,869 $ 31,303 $ 3,565 11%(1) Totals may not add due to rounding.Inflows increased consistent with the increasein sales volume. The amount of redemptionsalso increased reflecting the year-over-yearincrease in assets under management. Actualredemption rates were level as a percent ofaverage assets under management for both2010 and 2009. The market return on assetsunder management in 2010 and 2009 reflectedgeneral market value trends.Corporate and Other DistributedProducts Segment Actual ResultsWe entered into thereorganizationtransactions, whichare described morefully in Note 3 to ourpro forma statementof income, duringMarch and April of2010. As such, actualresults for the yearended December 31,2010 include approximately three months ofoperations that do not reflect thereorganization transactions, while actualresults for the year ended December 31, 2009do not reflect the effects of the reorganizationtransactions. Corporate and Other DistributedProducts segment actual results were asfollows:Year endedDecember 31,Change2010 2009 $ %(Dollars in thousands)Revenues:Direct premiums $ 80,365 $ 81,793 $ (1,428) -2%Ceded premiums (14,325) (13,963) (362) 3%Net premiums 66,040 67,830 (1,790) -3%Allocated net investment income 54,477 77,114 (22,637) -29%Commissions and fees 31,172 46,360 (15,188) -33%Realized investment gains (losses),including OTTI 34,146 (21,970) 56,116 *Other, net 5,653 8,862 (3,209) -36%Total revenues 191,488 178,196 13,292 7%Benefits and expenses:Benefits and claims 40,052 41,235 (1,183) -3%Amortization of DAC 2,392 2,374 18 *Insurance commissions 8,875 9,943 (1,068) -11%Insurance expenses 11,615 14,022 (2,407) -17%Sales commissions 20,800 33,841 (13,041) -39%Interest expense 12,375 — 12,375 *Other operating expenses 108,810 69,242 39,568 57%Total benefits and expenses 204,919 170,657 34,262 20%(Loss) income before incometaxes $ (13,431) $ 7,539 $(20,970) ** Less than 1%, or not meaningful90 Freedom Lives Here TM


We believe that the pro forma results presentedbelow provide meaningful additionalinformation necessary to evaluate our segmentfinancial results.Corporate and Other DistributedProducts Segment Pro Forma ResultsCorporate and Other Distributed Productssegment pro forma results give effect to thereorganization transactions, which aredescribed more fully in Note 3 to our pro formastatement of income. On a pro forma basis,Corporate and Other Distributed Productssegment results were as follows:Total revenues increased in 2010 primarily as aresult of recognizing realized investment gainsin 2010 versus impairment losses in 2009. Thisgrowth was partially offset by lowercommissions and fees as a result of thecontinuing decline in our lending business. Theincrease in total revenues was also partiallyoffset by lower net investment income and adecline in our print business as reflected inother, net. Realized investment gains (losses)included $12.2 million of OTTI in 2010,compared with $61.4 million of OTTI in 2009.Total benefits and expenses were lower in 2010primarily as a result of lower sales commissionsYear endedDecember 31, Change2010 2009 $ %(Dollars in thousands)Revenues:Direct premiums $ 80,365 $ 81,793 $ (1,428) -2%Ceded premiums (14,325) (13,963) (362) 3%Total premiums 66,040 67,830 (1,790) -3%Allocated net investment income 48,081 50,043 (1,962) -4%Commissions and fees 31,172 46,360 (15,188) -33%Realized investment gains (losses),including OTTI 34,146 (21,970) 56,116 *Other, net 5,653 8,862 (3,209) -36%Total revenues 185,092 151,125 33,967 22%Benefits and expenses:Benefits and claims 40,052 41,235 (1,183) -3%Amortization of DAC 2,392 2,374 18 1%Insurance commissions 8,875 9,943 (1,068) -11%Insurance expenses 11,615 14,022 (2,407) -17%Sales commissions 20,800 33,841 (13,041) -39%Interest expense 16,500 16,500 — *Other operating expenses 111,886 104,012 7,874 8%Total benefits and expenses 212,120 221,927 (9,807) -4%Loss before income taxes $(27,028)$(70,802)$43,774 -62%partially offset by anincrease in otheroperating expenses.Sales commissionsexpense was lower in2010 consistent withthe decline incommissions andfees revenue notedabove. Otheroperating expensesincreased primarilyas a result of publiccompany andIPO-related expensesincurred in 2010.For additionalsegmentinformation, seeNote 3 to ourconsolidated andcombined financialstatements.* Less than 1%, or not meaningfulPrimerica 2010 Annual Report 91


2009 Compared to 2008Consolidated OverviewYear endedDecember 31,Change2009 2008 $ %(Dollars in thousands)RevenuesDirect premiums $ 2,112,781 $2,092,792 $ 19,989 *Ceded premiums (610,754) (629,074) 18,320 -3%Net premiums 1,502,027 1,463,718 38,309 3%Net investment income 351,326 314,035 37,291 12%Commissions and fees 335,986 466,484 (130,498) -28%Other, net 53,032 56,187 (3,155) -6%Realized investment (losses) gains ,including OTTI (21,970) (103,480) 81,510 -79%Total revenues 2,220,401 2,196,944 23,457 1%Benefits and expensesBenefits and claims 600,273 938,370 (338,097) -36%Amortization of DAC 381,291 144,490 236,801 164%Insurance commissions 34,388 23,932 10,456 44%Insurance expenses 148,760 141,331 7,429 5%Sales commissions 162,756 248,020 (85,264) -34%Goodwill impairment — 194,992 (194,992) *Other operating expenses 132,978 152,773 (19,795) -13%Total benefits and expenses 1,460,446 1,843,908 (383,462) -21%Income before income taxes 759,955 353,036 406,919 115%Income taxes 265,366 185,354 80,012 43%Net income $ 494,589 $ 167,682 $ 326,907 195%* Less than 1%, or not meaningfulIncome before income taxes. Income beforeincome taxes increased $406.9 million, or 115%,to $760.0 million for the year endedDecember 31, 2009 from $353.0 million for theyear ended December 31, 2008. The increasereflected the impact of a $291.4 million increasein Corporate and Other Distributed Products, a$147.3 million increase in Term Life Insuranceand a $31.8 million decrease in Investments andSavings Products.Total revenues. Total revenues increased$23.5 million, or 1%, to $2.2 billion for the yearended December 31, 2009 from $2.2 billion forthe year ended December 31, 2008. Theincrease reflected the impact of a $69.1 millionincrease in Term Life Insurance due to thechange in our DAC and reserve estimation92 Freedom Lives Here TMapproach in 2008 and an increased allocationof net investment income; a $40.7 millionincrease in Corporate and Other DistributedProducts, due primarily to a lower level ofother-thantemporaryimpairments taken in2009, partially offsetby a decline in salescommissions fromthe sale of our loanproducts; and an$86.4 milliondecrease inInvestment andSavings Productsdue to adversemarket andeconomic conditions.Total benefits andexpenses. Totalbenefits andexpenses decreased$383.5 million, or21%, to $1.5 billionfor the year endedDecember 31, 2009from $1.8 billion forthe year endedDecember 31, 2008.The decreasereflected the impactof a $250.7 milliondecline in Corporate and Other DistributedProducts, which resulted from a $195.0 milliongoodwill impairment charge in 2008 and from adecline in commissions due to lower sales ofloan products; a $78.2 million decrease in TermLife Insurance, primarily due to the impact ofthe change in our DAC and reserve estimationapproach in 2008; and a $54.6 million declinedue to lower sales commissions.Income taxes. Income taxes increased $80.0million, or 43%, to $265.4 million for the yearended December 31, 2009 from $185.4 millionfor the year ended December 31, 2008. Theeffective tax rate was 34.9% and 52.5% for theyears ended December 31, 2009 and 2008,respectively. The decrease in the effective taxrate was primarily a result of the $195.0 millionnon-tax deductible goodwill impairment charge


ecognized in 2008. Excluding the effect of thegoodwill impairment charge, the effective taxrate would have been 33.2% for the year endedDecember 31, 2008.Term Life Insurance SegmentYear endedDecember 31,Change2009 2008 $ %(Dollars in thousands)RevenuesDirect premiums $2,030,988 $2,007,339 $ 23,649 1%Ceded premiums (596,791) (613,386) 16,595 -3%Net premiums 1,434,197 1,393,953 40,244 3%Allocated net investmentincome 274,212 244,736 29,476 12%Other, net 33,656 34,333 (677) -2%Total revenues 1,742,065 1,673,022 69,043 4%Benefits and expensesBenefits and claims 559,038 894,910 (335,872) -38%Amortization of DAC 371,663 131,286 240,377 183%Acquisition and operatingexpenses, net of deferrals 152,352 135,007 17,345 13%Total benefits andexpenses 1,083,053 1,161,203 (78,150) -7%Segment income beforeincome taxes $ 659,012 $ 511,819 $ 147,193 29%Our Term Life Insurance results set forth abovefor the year ended December 31, 2009 are notdirectly comparable to results for the yearended December 31, 2008 due to a change inour DAC and reserve estimation approachimplemented in the fourth quarter of 2008. Theimpact of this change on our Term LifeInsurance results for the year endedDecember 31, 2009 is illustrated in the tablebelow:Actualyear-to-year changeAdjustment forchange in DACand reserveestimationapproachYear-to-year change(Before change in DACand reserve estimationapproach)$ % $ $ %(Dollars in thousands)Direct premiums $ 23,649 1% $ (6,870) $ 30,519 2%Ceded premiums $ 16,595 -3% $ 57,810 $ (41,215) -7%Benefits and claims $(335,872) -38% $(328,258) $ (7,614) *Amortization of DAC $ 240,377 183% $ 179,391 $ 60,986 46%Acquisition and operating expenses, net ofdeferrals $ 17,345 13% $ 8,088 $ 9,257 7%Segment income before income taxes $ 147,193 29% $ 191,718 $(44,525) -9%* Less than 1%Primerica 2010 Annual Report 93


In-force book. The following table reflectschanges in our in-force book of term lifeinsurance policies for the periods presented:Year endedDecember 31,Change2009 2008 $ %(Dollars in millions)Face amount in-force, beginningof period $633,467 $632,086 $ 1,381 *Issued face amount 80,497 87,279 (6,782) -8%Terminations and otherchanges (63,769) (85,898) 22,129 -26%Face amount in-force, end ofperiod $ 650,195 $633,467 $16,728 3%* Less than 1%The in-force book increased $16.7 billion, or 3%,to $650.2 billion as of December 31, 2009 from$633.5 billion as of December 31, 2008. Issuedface amount decreased $6.7 billion, orapproximately 8%, due to slightly lower salesforce productivity and lower average size ofpolicies issued. Terminations and other changesdecreased by $22.1 billion. The decrease in thevalue of the Canadian dollar, as measuredagainst the U.S. dollar and as applied to ourtotal book of in-force policies, resulted in a$25.1 billion decrease in terminations and otherchanges, which was partially offset by anincrease in lapses.Net premiums. Net premiums increased$40.2 million, or 3%, to $1.43 billion for theyear ended December 31, 2009 from $1.39billion for the year ended December 31, 2008.Direct premiums increased $23.6 million, or 1%,to $2.03 billion for 2009 from $2.01 billion for2008. Of this increase, $30.5 million wasattributable to an increase in the size of thein-force book, partially offset by $6.9 millionattributable to the change in our DAC andreserve estimation approach in 2008. Cededpremiums decreased by $16.6 million, or 3%, to$596.8 million for the year ended December 31,2009 from $613.4 million for the year endedDecember 31, 2008. Ceded YRT premiums,which increase over time with increases in theaging of policies as well as an overall increasein the percentage of the in-force block subjectto YRT reinsurance, were higher by $41.2million. This increase was more than offset bythe ceded premium impact of the DAC and94 Freedom Lives Here TMreserve estimation approach implemented in2008 of $57.8 million.Allocated net investmentincome. Allocated netinvestment incomeincreased $29.5 million, or12%, to $274.2 million forthe year ended December 31,2009 from $244.7 millionfor the year endedDecember 31, 2008. Thisincrease primarily resultedfrom growth in the bookvalue of invested assets andhigher book yield.Other, net. Other, netdecreased $0.7 million, or 2%, to $33.7 millionfor the year ended December 31, 2009 from$34.3 million for the year ended December 31,2008. This decrease was primarily due to lowerreceipts from sales force recruits for licensingrelated fees.Benefits and claims. Benefits and claimsdecreased $335.9 million, or 38%, to $559.0million for the year ended December 31, 2009from $894.9 million for the year endedDecember 31, 2008. Of this decrease,$328.3 million was attributable to the change inour DAC and reserve estimation approachimplemented in 2008. The remaining decreaseof $7.6 million was attributable to lowerreserve increases. The lower reserve increasesresulted from a lower percentage of expectedfuture net premiums needed to fund futureclaims due to our change in DAC and reserveestimation approach in 2008, offset by actualpersistency that was higher than our pricingassumption on older blocks of insurance, whichcaused a greater increase in the reservebalance in 2009.Amortization of DAC. Amortization of DACincreased $240.4 million, or 183%, to $371.7million for the year ended December 31, 2009from $131.3 million for the year endedDecember 31, 2008. This increase was primarilyattributable to the $179.4 million impact of thechange in our DAC and reserve estimationapproach implemented in 2008. The remaining$60.9 million increase resulted from a higherpercentage of net premiums needed to


amortize the higher DAC balance resulting fromthe change in our DAC and reserve estimationapproach in 2008. We also adjusted ourestimation for waiver of premium coverages toreflect additional lapses that occur at the endof the initial level premium period, resulting inan approximately $14 million increase in DACamortization.Acquisition and operating expenses, net ofdeferrals. Acquisition and operatingexpenses, net of deferrals, increased $17.3million, or 13%, to $152.4 million for the yearended December 31, 2009 from $135.0 millionfor the year ended December 31, 2008. Thisincrease was primarily attributable to a $9.0million increase in nondeferrable commissionsrelated to a special incentive compensationpayment to the sales force and an $8.1 millionadjustment in expense allowance accrualsmade in conjunction with the change in DACand reserve estimation approach.Investments and Savings ProductsSegmentYear endedDecember 31,Change2009 2008 $ %(Dollars in thousands)RevenuesCommissions and fees $289,626 $ 374,791 $ (85,165) -23%Other, net 10,514 11,717 (1,203) -10%Total revenues 300,140 386,508 (86,368) -22%ExpensesCommission expenses,including amortization ofDAC 143,000 193,148 (50,148) -26%Other operating expenses 63,736 68,197 (4,461) -7%Total expenses 206,736 261,345 (54,609) -21%Segment income beforeincome taxes $ 93,404 $ 125,163 $ (31,759) -25%Primerica 2010 Annual Report 95


Commissions and fees. The following tablesets forth a breakdown of our commissions andfees and the aggregate investment value ofsales of investment and savings products thatgenerate sales-based revenue, asset values foraccounts that generate asset-based revenuesand the number of fee-generating accounts:Year endedDecember 31,Change2009 2008 $ %(Dollars and accounts in thousands)Revenue sourceSales-basedrevenues $ 118,798 $ 168,614 $ (49,816) -30%Asset-basedrevenues $ 127,581 $ 158,934 $ (31,353) -20%Account-basedrevenues $ 43,247 $ 47,243 $ (3,996) -8%Revenue metricProduct sales $2,743,568 $ 3,966,436 $ (1,222,868) -31%Average accountvalues $26,611,607 $32,163,880 $(5,552,273) -17%Average number offee-generatingaccounts 2,839 3,082 (243) -8%Commissions and fees decreased $85.2 million,or 23%, to $289.6 million for the year endedDecember 31, 2009 from $374.8 million for theyear ended December 31, 2008. This decreaseresulted primarily from declines in sales-basedrevenues and asset-based revenues of $49.8million and $31.4 million, respectively. Thedecline in sales-based revenue resulted fromadverse economic and market conditions. Thedecline in asset-based revenue resulted fromlower account values during the period due tolower equity valuations in the United States andCanada beginning in the second half of 2008and continuing through the fourth quarter of2009. Account-based revenues declined $4.0million as a result of lower sales of funds forwhich we act as recordkeeper. Differences inthe percentage change between commissionand fee revenues and underlying revenuemetrics were primarily attributable to changesin the product mix, none of which was deemedmaterial on an individual basis in thecomparative periods, as well as small variancesattributable to averaging.Other, net. Other, net decreased $1.2 million,or 10%, to $10.5 million for the year endedDecember 31, 2009 from $11.7 million for theyear ended December 31, 2008. The decrease96 Freedom Lives Here TMresulted from lower incentive paymentsreceived from product originators in 2009.Commission expenses, includingamortization of DAC. Commission expenses,including amortization of DAC, decreased $50.1million, or 26%, to $143.0 million for the yearended December 31,2009 from$193.1 million for theyear endedDecember 31, 2008.This decrease resultedfrom declines in salesactivity and assetvalues as a result ofadverse economic andmarket conditions.Other operatingexpenses. Otheroperating expensesdecreased $4.5million, or 7%, to$63.7 million for the year ended December 31,2009 from $68.2 million for the year endedDecember 31, 2008. This decrease wasprimarily the result of a $0.7 million decline inadministrative fees paid on Canadiansegregated fund products due primarily to adecline in underlying asset values, $1.4 millionlower incentive compensation accruals for2009, and $0.8 million lower call center andother outsourcing expenses.


Corporate and Other DistributedProducts SegmentYear endedDecember 31,Change2009 2008 $ %(dollars in thousands)RevenuesNet premiums $ 67,830 $ 69,765 $ (1,935) -3%Allocated net investmentincome 77,114 69,299 7,815 11%Commissions and fees 46,360 91,693 (45,333) -49%Other, net 8,862 10,137 (1,275) -13%Realized investment gains(losses), including OTTI (21,970) (103,480) 81,510 -79%Total revenues 178,196 137,414 40,782 30%Benefits and expensesBenefits and claims 41,235 43,461 (2,226) -5%Insurance acquisition andoperating expense, net ofdeferrals 26,339 25,976 363 1%Other distributed productexpenses and commissions 46,159 82,641 (36,482) -44%Goodwill impairment — 194,992 (194,992) *Other unallocated corporateexpenses 56,924 74,290 (17,366) -23%Total benefits andexpenses 170,657 421,360 (250,703) -59%Segment income (loss)before income taxes $ 7,539 $(283,947) $ 291,486 ** Less than 1%, or not meaningfulNet premiums. Net premiums decreased $1.9million, or 3%, to $67.8 million for the yearended December 31, 2009 from $69.8 millionfor the year ended December 31, 2008. Thisdecrease primarily resulted from a decline inpremiums from our other insurance products.Allocated net investment income. Allocatednet investment income increased $7.8 million,or 11%, to $77.1 million for the year endedDecember 31, 2009 from $69.3 million for theyear ended December 31, 2008. This increaseprimarily relates to an increase in investedassets and higher book yield, offset by a slightdecline in the percentage of invested assetsallocated to Corporate and Other DistributedProducts. The decrease in the percentage ofinvested assets allocated to Corporate andOther Distributed Products resulted from aslight increase in the allocation to Term LifeInsurance due to higher statutory reserve andcapital requirements.Commissions and fees. Commissions andfees decreased $45.3 million, or 49%, to $46.4million for the yearended December 31,2009 from $91.7million for the yearended December 31,2008. This decreasein commissions andfees was attributableto a decline in sales ofloan products. Loansales were depresseddue to adverseeconomic conditionsand tightening creditstandards. Sales ofloan products declined56% to $1.9 billion ofloans for 2009 from$4.4 billion of loansfor 2008.Other, net. Other,net decreased $1.3million, or 13%, to$8.9 million for theyear endedDecember 31, 2009from $10.1 million forthe year endedDecember 31, 2008. This decrease wasprimarily due to lower income from our printoperations due to decreased sales to Citiaffiliates.Realized investment gains (losses), includingOTTI. Realized investment losses, includingOTTI, decreased $81.5 million, or 79%, to a$22.0 million loss for the year endedDecember 31, 2009 from a $103.5 million lossfor the year ended December 31, 2008. Thisdecrease in losses resulted from higher gainsfrom sale and lower other than-temporaryimpairments of invested assets for the yearended December 31, 2009.Benefits and claims. Benefits and claimsdecreased $2.2 million, or 5%, to $41.2 millionfor the year ended December 31, 2009 from$43.5 million for the year ended December 31,2008, consistent with premium volumes.Primerica 2010 Annual Report 97


Other distributed product expenses andcommissions. Other distributed productexpenses and commissions decreased $36.5million, or 44%, to $46.2 million for the yearended December 31, 2009 from $82.6 millionfor the year ended December 31, 2008. Thisdecrease resulted primarily from a decline incommissions expense associated with decliningsales of loan products.Goodwill impairment. We recognized a $195million goodwill impairment charge resultingfrom a determination, based on impairmenttesting as of December 31, 2008, thatmaintaining the goodwill balance wasunsupportable in light of the deterioration infinancial markets and weak economic outlookat that time, among other factors.Other unallocated corporate expenses.Other unallocated corporate expensesdecreased $17.4 million, or 23%, to $56.9million for the year ended December 31, 2009from $74.3 million for the year endedDecember 31, 2008. This decrease primarilyreflected the impact of $9.5 million in retentionbonuses paid in 2008, a $2.1 million reductionin incentive compensation and staffing relatedexpenses (including salaries and benefits) in2009, and a $2.0 million reduction in printingcosts due to decreased sales of printing toother Citi affiliates.For additional segment information, see Note 3to our consolidated and combined financialstatements.FINANCIAL CONDITIONInvestmentsWe have an investment committee composedof members of our senior management teamthat is responsible for establishing andmaintaining our investment guidelines andsupervising our investment activity. Ourinvestment committee regularly monitors ouroverall investment results and our compliancewith our investment objectives and guidelines.We use a third-party investment advisor tomanage our investing activities. Our investmentadvisor reports to and is supervised by ourinvestment committee.We follow a conservative investment strategydesigned to emphasize the preservation of ourinvested assets and provide adequate liquidityfor the prompt payment of claims. In an effortto meet business needs and mitigate risks, ourinvestment guidelines provide restrictions onour portfolio’s composition, including limits onasset type, sector limits, credit quality limits,portfolio duration, limits on the amount ofinvestments in approved countries andpermissible security types. We may also directour investment managers to invest some of ourinvested asset portfolio in currencies otherthan the U.S. dollar. For example, a portion ofour portfolio is invested in assets denominatedin Canadian dollars which, at minimum, wouldequal our reserves for policies denominated inCanadian dollars. Additionally, to help ensureadequate liquidity for payment of claims, wetake into account the maturity and duration ofour invested asset portfolio and our generalliability profile.Our invested asset portfolio is subject to avariety of risks, including risks related togeneral economic conditions, market volatility,interest rate fluctuations, liquidity risk andcredit and default risk. Investment guidelinerestrictions have been established in an effortto minimize the effect of these risks but maynot always be effective due to factors beyondour control. Interest rates are highly sensitiveto many factors, including governmentalmonetary policies, domestic and internationaleconomic and political conditions and otherfactors beyond our control. A significantincrease in interest rates could result insignificant losses, realized or unrealized, in thevalue of our invested asset portfolio.Additionally, with respect to some of ourinvestments, we are subject to prepayment and,therefore, reinvestment risk.98 Freedom Lives Here TM


The composition of our invested asset portfoliowas as follows:December 31,2010 2009$ % $ %(Dollars in thousands)Fixed-maturity securities, at fair value $ 2,081,361 97% $ 6,378,179 99%Equity securities, at fair value 23,213 1 49,326 *Trading securities, at fair value 22,767 1 16,996 *Policy loans and other invested assets 26,243 1 26,947 *Total investments (1) $2,153,584 100% $6,471,448 100%* Less than 1%(1) Totals may not add due to rounding.The average rating of our fixed-maturityportfolio is single A, with an average durationof approximately 3.6 years. The compositionand duration of our portfolio will varydepending on several factors, including theyield curve and our opinion of the relative valueamong various asset classes. The distribution ofour investments in fixed-maturity securities byrating follows:December 31,2010 2009AAA 27% 28%AA 9 10A 22 23BBB 36 32Below investment grade 7 7Not rated * *Total fixed-maturitysecurities (1) 100% 100%Fixed-Maturity Securities and Equity SecuritiesAvailable for Sale. The types of assets in ourportfolio are influenced byvarious state and Canadianlaws that prescribe qualifiedinvested assets. We invest inassets giving consideration tosuch factors as liquidity andcapital needs, investmentquality, investment return,matching of assets andliabilities, and the overallcomposition of the investedasset portfolio by asset typeand creditexposure.The fair value of invested assets, and thereforethe unrealized gains and losses of the assets,are subject to rapidly changing conditions,including volatility of financial markets andchanges in interest rates. Managementconsiders a number of factors in determining ifan unrealized loss is other-than-temporary,including our intent to sell or whether it ismore-likely-than-not we would be required tosell the investment before the expectedrecovery of the cost or amortized cost basis.Net unrealized gains were $157.4 million as ofDecember 31, 2010, compared with $243.5million as of December 31, 2009. The decline innet unrealized gains was primarily due to thesmaller invested asset portfolio resulting fromthe Citi reinsurance transactions and ourcorporate reorganization.* Less than 1%(1) Totals may not add due to rounding.Primerica 2010 Annual Report 99


As of December 31, 2010, the ten largestholdings within our invested asset portfoliowere as follows:IssuerAmortizedcostFairvalueUnrealizedgain(Dollars in thousands)Government of Canada $ 33,091 $ 37,177 $ 4,086General Electric Co. 14,309 16,193 1,884National Rural Utilities Cooperative 12,851 15,906 3,055Verizon Communications Inc 13,503 15,439 1,936Bank of America Corporation 12,706 13,708 1,002Edison International 11,052 11,173 121ConocoPhillips 9,279 10,796 1,517Medtronic Inc. 10,484 10,743 259Enel SpA 10,540 10,573 33Toyota Motor Corporation 10,021 10,094 73Total $137,836 $151,802 $13,966Percent of total fixed-maturity and equitysecurities 7% 7%For additional information, see Note 4 to ourconsolidated and combined financialstatements.Other Significant Assets andLiabilitiesThe balances of and changes in othersignificant assets and liabilities were as follows:December 31,2010 2009 Change(In thousands)Due from reinsurers $ 3,731,634 $ 867,242 $ 2,864,392Deferred policy acquisition costs 853,211 2,789,905 (1,936,694)Future policy benefits (4,409,183) (4,197,454) 211,729Current income tax payable (43,224) (90,890) (47,666)Deferred income taxes (93,002) (799,727) (706,725)Due from reinsurers reflects future policybenefit reserves due from third-party reinsurers,including the Citi reinsurers. Such amounts arereported as due from reinsurers rather thanoffsetting future policy benefits. As a result, theeffect of coinsuring 80% or 90% of our 2009year-end in-force book significantly increasedour due from reinsurers balance at December 31,2010.The significant reduction in deferred policyacquisition costs was primarily a result of theterm life DAC balances transferred to the Citireinsurers based on their percentage of DAC onthe specific policies covered under theapplicable coinsurance agreements.100 Freedom Lives Here TMConsistent with other reinsurance transactions,the Citi reinsurance transactions did not relieveus of our direct liability to our policyholderseven when the reinsurer is liableto us. As a result, thesetransactions had no impact onthe balance of future policybenefits at December 31, 2010.The slight increase in futurepolicy benefits relative toyear-end 2009 was primarily aresult of the aging of and growthin our in-force book of business.The decrease in income taxesfrom December 31, 2009, waslargely due to recognizing thetax effects of the transactionswe executed in connection withour corporate reorganization.Income taxes were also impacted by electionswe made under Section 338(h)(10) of theInternal Revenue Code which reduced ourdeferred tax balances. Additionally, as a resultof previously being consolidated in Citi’s federalincome tax return, prior to the closing of and inaccordance with our tax separation agreement,we prepaid our estimated tax liability to Citi.The advance tax payments we made to Citiexceeded our actual taxliabilities. As a result, wereduced tax assets andrecorded the excess payment asa return of capital.For additional information, seethe notes to our consolidatedand combined financial statements.Off-Balance Sheet ArrangementsWe have no off-balance sheet arrangements, asdefined in the rules and regulations of the SEC,that have or are reasonably likely to have amaterial current or future effect on ourfinancial condition, changes in financialcondition, revenues or expenses, results ofoperations, liquidity, capital expenditures orcapital resources that would be material toinvestors.


LIQUIDITY AND CAPITALRESOURCESDividends and other payments to us from oursubsidiaries are our principal sources of cash.Our primary uses of funds by the ParentCompany level include the payment of generaloperating expenses, the payment of dividendsand the payment of principal and interest to Citiunder the Citi note. In the future, we may enterinto other debt financing arrangements that willrequire the payment of principal and interest,or, at the discretion of our Board of Directors,use excess capital to repurchase outstandingshares of our common stock in open marketpurchases or in privately negotiatedtransactions with one or more of our existingstockholders.The liquidity requirements of our subsidiariesprincipally relate to the liabilities associatedwith their distribution and underwriting ofinsurance products (including the payment ofclaims), distribution of investment and savingsproducts, operating expenses, income taxesand the payment of dividends. Historically, ourinsurance subsidiaries have used cash flowfrom operations associated with our in-forcebook of term life insurance to fund theirliquidity requirements. Our insurancesubsidiaries’ principal cash inflows fromoperating activities are derived frompolicyholder premiums and investment incomeearned on invested assets that support ourstatutory capital and reserves. We also derivecash inflows from the distribution of investmentand savings products and other products. Ourprincipal outflows relate to payments for cededpremiums and benefits and claims. Theprincipal cash inflows from investmentactivities result from repayments of principaland investment income, while the principaloutflows relate to purchases of fixed-maturitysecurities. We typically hold cash sufficient tofund operating flows, and invest any excesscash. At December 31, 2010, our cash balancewas $126.0 million and was significantly lowerthan at year-end 2009, primarily as a result ofthe cash distributions to Citi and other payablesthat were settled in April 2010.Our distribution and underwriting of term lifeinsurance places significant demands on ourliquidity, particularly when we experiencegrowth. We pay a substantial majority of thesales commission during the first year followingthe sale of a policy. Our underwriting activitiesalso require significant cash outflows at theinception of a policy’s term. Following and as aresult of the Citi reinsurance transactions(without giving effect to any other factors), thecash flows from our retained in-force book ofterm life insurance policies were significantlylower. This has reduced our operating cashflows for the near to intermediate term;however, we anticipate that cash flows fromour businesses, including our existing block ofpolicies and our investment and savingsproducts, will continue to provide us withsufficient liquidity to meet our operatingrequirements. Over the next few years, weexpect our growing premium revenue basefrom policies issued after the Citi reinsurancetransactions to increase operating cash flows.We may seek to enhance our liquidity positionor capital structure through borrowings fromthird-party sources, sales of debt or equitysecurities, reserve financing or somecombination of these sources. The ModelRegulation entitled Valuation of Life InsurancePolicies, commonly known as Regulation XXX,requires insurers to carry statutory reservesfor term life insurance policies with long-termpremium guarantees which are oftensignificantly in excess of the reserves thatinsurers deem necessary to satisfy claimobligations. Accordingly, many insurancecompanies have sought ways to reduce theircapital needs by financing these excessreserves through bank financing, reinsurancearrangements or other financing transactions.Although we have not used reserve financing inthe past, we may enter into these types ofarrangements in the future.Cash FlowsCash flows from operating activities are affectedprimarily by the timing of premiums received,commissions and fees received, benefits paid,commissions paid to sales representatives,administrative and selling expenses, investmentincome, and cash taxes. Our principal source ofcash historically has been premiums received onterm life insurance policies in force.Primerica 2010 Annual Report 101


We typically generate positive cash flows fromoperating activities, as premiums, commissionsand fees collected from our insurance andinvestment and savings products exceedbenefits, commissions and operating expensespaid, and we invest the excess. Net cash used infinancing activities primarily representsdividends paid to Citi. The components of thechange in cash and cash equivalents were asfollows:Year ended December 31,2010 2009 2008(In thousands)Net cash provided by operatingactivities $ 41,057 $ 716,344 $ 670,083Net cash provided by (used in)investing activities 739,574 (357,855) (562,300)Net cash used in financing activities (1,289,893) (56,427) (436,200)Effect of foreign exchange ratechanges on cash 32,778 (1,894) 5,421(Decrease) increase in cash andcash equivalents $ (476,484) $ 300,168 $(322,996)Operating Activities. The decrease in cashprovided by operating activities for 2010,compared with 2009 was primarily the result oflower net cash flows on our term life insurancebusiness and lower net investment income,both of which were substantially impacted bythe Citi reinsurance transactions and ourcorporate reorganization. Additionally, therewas an increase in income taxes paid inconnection with the Citi reinsurancetransactions. These cash outflows werepartially offset by an increase in cash providedby our investment and savings products due toimproved sales and higher values of clientaccounts on which we earn fees.The increase in cash provided by operatingactivities for 2009, compared with 2008 wasprimarily the result of increases of cash fromnet investment income, growth in our term lifeinsurance in force and a reduction in incometaxes paid, offset by a decrease of cashprovided by our investment and savingsproducts due to the decline in sales caused byadverse economic and market conditions.Investing Activities. The increase in cashprovided by investing activities for 2010,compared with 2009 was primarily the result ofsignificant securities sales activity and lowersecurities purchases as we increased our cashposition in anticipation of the Transactions.The decrease in cash used in investing activitiesfor 2009, compared with 2008 was primarily theresult of increasing cash and cash equivalentpositions in anticipation of the Transactions.Financing Activities. The increase in cashused in financing activities for 2010, comparedwith 2009 represents the cash payment ofdividends paid to Citi as part ofthe Transactions, the cashportion of the Citi dividenddeclared in December 2009and paid in January 2010, andthe dividends to stockholdersdeclared and paid in the thirdand fourth quarters of 2010.The decrease in cash used infinancing activities during2009, compared with 2008reflects a reduction individends paid to Citi and a dividend payable of$149.0 million at December 31, 2009.Citi Note102 Freedom Lives Here TMIn April 2010, we issued a $300.0 million noteto Citi as part of our corporate reorganizationin which Citi transferred to us the businessesthat comprise our operations. Prior to theissuance of the Citi note, we had no outstandingdebt. The Citi note bears interest at an annualrate of 5.5%, payable semi-annually in arrearson January 15 and July 15, and maturesMarch 31, 2015. Citi may participate out, assignor sell all or any portion of the note at any time.We have the option to redeem the Citi note inwhole or in part at a redemption price equal to100% of the principal amount to be redeemedplus accrued and unpaid interest to the date ofredemption. In the event of a change in control,the holder of the Citi note has the right torequire us to repurchase it at a price equal to101% of the outstanding principal amount plusaccrued and unpaid interest.The Citi note also requires us to use ourcommercially reasonable efforts to arrange andconsummate an offering of investment-gradedebt securities, trust preferred securities,


surplus notes, hybrid securities or convertibledebt that generates sufficient net cashproceeds (after deducting fees and expenses)to repay the note in full at certain mutuallyagreeable dates, based on certain conditions.We were in compliance with all of the covenantsof the Citi note at December 31, 2010. No eventsof default or defaults occurred during 2010.We calculate our debt-to-capital ratio bydividing total long-term debt by the sum ofstockholders’ equity and total long-term debt.As of December 31, 2010, our debt-to-capitalratio was 17.3%.Short-Term BorrowingsWe had no short-term borrowings as of orduring 2010.Rating AgenciesAs of December 31, 2010, Primerica Life’sfinancial strength rating was AA- by Standard &Poor’s; A+ (Superior) by A.M. Best and A+ byFitch.Risk-Based CapitalThe NAIC has established RBC standards forU.S. life insurers, as well as a risk-based capitalmodel act (the “RBC Model Act”) that has beenadopted by the insurance regulatoryauthorities. The RBC Model Act requires thatlife insurers annually submit a report to stateregulators regarding their RBC based upon fourcategories of risk: asset risk; insurance risk;interest rate risk and business risk. The capitalrequirement for each is determined by applyingfactors that vary based upon the degree of riskto various asset, premiums and reserve items.The formula is an early warning tool to identifypossible weakly capitalized companies forpurposes of initiating further regulatory action.Prior to and after the reinsurance andreorganization transactions, our U.S. lifeinsurance subsidiaries had statutory capitalsubstantially in excess of the applicablestatutory requirements to support existingoperations and to fund future growth. Weintend to take a conservative approach towardRBC levels, particularly in light of ouranticipated growth. Over time, ourmanagement may opt to change RBC levels tolevels that are more consistent with companieswhose business is similar to ours.In Canada, an insurer’s minimum capitalrequirement is overseen by OSFI anddetermined as the sum of the capitalrequirements for five categories of risk: assetdefault risk; mortality/morbidity/lapse risks;changes in interest rate environment risk;segregated funds risk and foreign exchangerisk. Primerica Life Canada is currently incompliance with Canada’s minimum capitalrequirements, as determined by OSFI.Primerica 2010 Annual Report 103


Contractual ObligationsOur contractual obligations, including paymentsdue by period, were as follows:TotalLiability*TotalPaymentsDecember 31, 2010Less than1 year1-3years3-5yearsMore than5 years(In millions)Future policy benefits $4,409 $17,726 $ 1,116 $2,229 $ 2,166 $12,215Policy claims and other benefits payable 230 230 230 — — —Other policyholders’ funds 357 357 357 — — —Citi note 300 372 17 34 321 —Commissions 18 495 161 77 65 192Purchase obligations 3 24 11 13 — —Operating lease obligations n/a 24 7 11 3 3Current income tax payable 43 43 43 — — —Total contractual obligations $5,360 $ 19,271 $1,942 $2,364 $2,555 $12,410* Liability amounts are those reported on the consolidated and combined balance sheet as of December 31, 2010.Our liability for future policy benefits representsthe present value of estimated future policybenefits to be paid, less the present value ofestimated future net premiums to be collected.Net premiums represent the portion of grosspremiums required to provide for all benefitsand associated expenses. These benefitpayments are contingent on policyholderscontinuing to renew their policies and make theirpremium payments. Our contractual obligationstable discloses the impact of benefit paymentsthat will be due assuming the underlying policyrenewals and premium payments continue asexpected in our actuarial models. The futurepolicy benefits represented in the table arepresented on an undiscounted basis, gross ofany amounts recoverable through reinsuranceagreements and gross of any premiums to becollected. We expect to fully fund the obligationsfor future policy benefits from cash flows fromgeneral account invested assets and from futurepremiums. These estimations are based onmortality and lapse assumptions comparablewith our historical experience. Due to thesignificance of the assumptions used, theamounts presented could materially differ fromactual results.Other policyholders’ funds primarily representclaim payments left on deposit with us.Commissions represent gross, undiscountedcommissions that we expect to incur,contingent on the policyholders continuing torenew their policies and make their premiumpayments as noted above.Purchase obligations include agreements topurchase goods or services that areenforceable and legally binding and that specifyall significant terms. These obligations consistprimarily of accounts payable and certainaccrued liabilities, including committed fundsrelated to meetings and conventions for ourindependent sales force, plus a variety ofvendor commitments funding our ongoingbusiness operations.Our operating lease obligations primarily relateto office and warehouse space and officeequipment.For additional information concerning ourcommitments and contingencies, see Note 17 toour consolidated and combined financialstatements.Policy claims and other benefits payablerepresents claims and benefits currently owedto policyholders.104 Freedom Lives Here TM


ITEM 7A. QUANTITATIVE ANDQUALITATIVE DISCLOSURESABOUT MARKET RISK.Market risk is the risk of the loss of fair valueresulting from adverse changes in market ratesand prices, such as interest rates and foreigncurrency exchange rates. Market risk is directlyinfluenced by the volatility and liquidity in themarkets in which the related underlying financialinstruments are traded. Sensitivity analysismeasures the impact of hypothetical changes ininterest rates, foreign exchange rates and othermarket rates or prices on the profitability ofmarket-sensitive financial instruments.The following discussion about the potentialeffects of changes in interest rates andCanadian currency exchange rates is based onshock-tests, which model the effects of interestrate and Canadian exchange rate shifts on ourfinancial condition and results of operations.Although we believe shock tests provide themost meaningful analysis permitted by therules and regulations of the SEC, they areconstrained by several factors, including thenecessity to conduct the analysis based on asingle point in time and by their inability toinclude the extraordinarily complex marketreactions that normally would arise from themarket shifts modeled. Although the followingresults of shock tests for changes in interestrates and Canadian currency exchange ratesmay have some limited use as benchmarks,they should not be viewed as forecasts. Thesedisclosures also are selective in nature andaddress, in the case of interest rates, only thepotential direct impact on our financialinstruments, and in the case of Canadiancurrency exchange rates, the potentialtranslation impact on net income from ourCanadian subsidiaries. They do not include avariety of other potential factors that couldaffect our business as a result of these changesin interest rates and Canadian currencyexchange rates.Interest Rate RiskThe carrying value of our invested assetportfolio, excluding policy loans and cash, as ofDecember 31, 2010 was $2.13 billion and 99% ofthese investments were fixed-maturitysecurities. The primary market risk to ourinvested asset portfolio is interest rate riskassociated with investments in fixed-maturitysecurities.One means of assessing exposure of our fixedmaturitysecurities portfolio to interest ratechanges is a duration-based analysis thatmeasures the potential changes in market valueresulting from a hypothetical change in interestrates of 100 basis points across all maturities.This is sometimes referred to as a parallel shiftin the yield curve. Under this model, with allother factors constant and assuming nooffsetting change in the value of our liabilities,we estimated that such an increase in interestrates would cause the market value of ourfixed-maturity securities portfolio to decline byapproximately $67.1 million, or 3.2%, based onour actual securities positions as ofDecember 31, 2010.Canadian Currency RiskWe also have exposure to foreign currencyexchange risk to the extent we conductbusiness in Canada. For the year endedDecember 31, 2010, 16% of our revenues fromoperations, excluding realized investmentgains, were generated by our Canadianoperations. A strong Canadian dollar relative tothe U.S. dollar results in higher levels ofreported revenues, expenses, net income,assets, liabilities and accumulated othercomprehensive income (loss) in our U.S. dollarfinancial statements and a weaker Canadiandollar has the opposite effect. Historically, wehave not hedged this exposure, although wemay elect to do so in future periods.One means of assessing exposure to changes inCanadian currency exchange rates is to modeleffects on reported income using a sensitivityanalysis. We analyzed our Canadian currencyexposure for the year ended December 31,2010. Net exposure was measured assuming a10% decrease in Canadian currency exchangerates compared to the U.S. dollar. We estimatedthat such a decrease would decrease our netincome before income taxes for the year endedDecember 31, 2010 by approximately $8.2million.Primerica 2010 Annual Report 105


ITEM 8. FINANCIAL STATEMENTSAND SUPPLEMENTARY DATA.REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe stockholders and board of directors of Primerica, Inc.:We have audited the accompanying consolidated and combined balance sheets of Primerica, Inc. andsubsidiaries (the Company) as of December 31, 2010 and 2009, and the related consolidated andcombined statements of income, stockholders’ equity, comprehensive income, and cash flows foreach of the years in the three-year period ended December 31, 2010. These consolidated andcombined financial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these consolidated and combined financial statementsbased on our audits.We conducted our audits in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated and combined financial statements referred to above present fairly,in all material respects, the financial position of Primerica, Inc. and subsidiaries as of December 31,2010 and 2009, and the results of their operations and their cash flows for each of the years in thethree-year period ended December 31, 2010, in conformity with U.S. generally accepted accountingprinciples.As discussed in notes 1 and 2 to the consolidated and combined financial statements, in April 2010the Company completed its initial public offering and a series of related transactions. Also asdiscussed in note 1 to the consolidated and combined financial statements, the Company adopted theprovisions of FASB Staff Position Financial Accounting Standard No. 115-2 and Financial AccountingStandard No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (included inFASB ASC Topic 320, Investments — Debt and Equity Securities) as of January 1, 2009./s/ KPMG LLPAtlanta, GeorgiaMarch 17, 2011106 Freedom Lives Here


AssetsPRIMERICA, INC. AND SUBSIDIARIESConsolidated and Combined Balance SheetsDecember 31,2010 2009(In thousands)Investments:Fixed-maturity securities available for sale, at fair value (amortizedcost: $1,929,757 in 2010 and $6,138,058 in 2009) $ 2,081,361 $ 6,378,179Equity securities available for sale, at fair value (cost: $17,394 in 2010and $45,937 in 2009) 23,213 49,326Trading securities, at fair value (cost: $22,619 in 2010 and $18,387 in2009) 22,767 16,996Policy loans 26,229 26,921Other invested assets 14 26Total investments 2,153,584 6,471,448Cash and cash equivalents 126,038 602,522Accrued investment income 22,328 71,382Due from reinsurers 3,731,634 867,242Deferred policy acquisition costs 853,211 2,789,905Premiums and other receivables 168,026 169,225Intangible assets 75,357 78,895Due from affiliates — 1,915Other assets 307,342 569,268Separate account assets 2,446,786 2,093,342Total assets $9,884,306 $ 13,715,144Liabilities and Stockholders’ EquityLiabilities:Future policy benefits $ 4,409,183 $ 4,197,454Unearned premiums 5,563 3,185Policy claims and other benefits payable 229,895 218,390Other policyholders’ funds 357,253 382,768Note payable 300,000 —Current income tax payable 43,224 90,890Deferred income taxes 93,002 799,727Due to affiliates — 202,507Other liabilities 386,182 273,007Payable under securities lending 181,726 510,101Separate account liabilities 2,446,786 2,093,342Commitments and contingent liabilities (see Note 17)Total liabilities 8,452,814 8,771,371Stockholders’ equity:Common stock ($0.01 par value, authorized 500,000 in 2010 andissued 72,843 in 2010) 728 —Paid-in capital 883,168 1,124,096Retained earnings 395,057 3,648,801Accumulated other comprehensive income, net of income tax:Unrealized foreign currency translation gains 56,492 40,891Net unrealized investment gains (losses):Net unrealized investment gains not other-than-temporarilyimpaired 98,322 146,105Net unrealized investment losses other-than-temporarily impaired (2,275) (16,120)Total stockholders’ equity 1,431,492 4,943,773Total liabilities and stockholders’ equity $9,884,306 $ 13,715,144See accompanying notes to consolidated and combined financial statements.Primerica 2010 Annual Report 107


Consolidated and Combined Statements of IncomeYear ended December 31,2010 2009 2008(In thousands, except per-share amounts)Revenues:Direct premiums $ 2,181,074 $ 2,112,781 $2,092,792Ceded premiums (1,450,367) (610,754) (629,074)Net premiums 730,707 1,502,027 1,463,718Net investment income 165,111 351,326 314,035Commissions and fees 382,940 335,986 466,484Realized investment gains (losses), including other-thantemporaryimpairment losses 34,145 (21,970) (103,480)Other, net 48,960 53,032 56,187Total revenues 1,361,863 2,220,401 2,196,944Benefits and expenses:Benefits and claims 317,703 600,273 938,370Amortization of deferred policy acquisition costs 168,035 381,291 144,490Insurance commissions 19,904 34,388 23,932Insurance expenses 75,503 148,760 141,331Sales commissions 179,924 162,756 248,020Interest expense 20,872 — —Goodwill impairment — — 194,992Other operating expenses 180,779 132,978 152,773Total benefits and expenses 962,720 1,460,446 1,843,908Income before income taxes 399,143 759,955 353,036Income taxes 141,365 265,366 185,354Net income $ 257,778 $ 494,589 $ 167,682Earnings per share:Basic $ 3.43(1)Diluted $ 3.40(1)Weighted-average shares used in computing earningsper share:Basic 72,099Diluted 72,882(1) Pro forma basis using weighted-average shares, including the shares following our April 1, 2010 corporate reorganizationas though they had been issued and outstanding on January 1, 2010.Supplemental disclosures:Total impairment losses $ (12,711) $ (74,967) $ (114,022)Impairment losses recognized in other comprehensiveincome before income taxes 553 13,573 —Net impairment losses recognized in earnings (12,158) (61,394) (114,022)Other net realized investment gains 46,303 39,424 10,542Realized investment gains (losses), including otherthan-temporaryimpairment losses $ 34,145 $ (21,970) $ (103,480)See accompanying notes to consolidated and combined financial statements.108 Freedom Lives Here


PRIMERICA, INC. AND SUBSIDIARIESConsolidated and Combined Statements of Stockholders’ EquityYear ended December 31,2010 2009 2008(In thousands)Common stock:Balance, beginning of period $ — $ — $ —Issuance of common stock to Citigroup Inc. 750 — —Net shares issued 1 — —Treasury stock retired (23) — —Balance, end of period 728 — —Paid-in capital:Balance, beginning of period 1,124,096 1,095,062 1,136,656Net capital contributed from (to) Citigroup Inc. 167,701 30,870 (38,166)Net issuance of common stock to Citigroup Inc. (727) — —Issuance of warrants to Citigroup Inc. 18,464 — —Issuance of note payable to Citigroup Inc. (300,000) — —Tax election under Section 338(h)(10) of the Internal Revenue Code (172,460) — —Share-based compensation 46,094 (1,836) (3,428)Balance, end of period 883,168 1,124,096 1,095,062Retained earnings:Balance, beginning of period 3,648,801 3,340,841 3,596,058Adoption of FSP SFAS No. 115-2 (included in ASC 320), net of incometax expense of $(3,929) — 7,298 —Net income 257,778 494,589 167,682Distribution of warrants to Citigroup Inc. (18,464) — —Distributions to Citigroup Inc. (3,491,556) (193,927) (422,900)Dividends ($0.02 per share in 2010) (1,502) — —Share-based compensation — — 1Balance, end of period 395,057 3,648,801 3,340,841Treasury stock:Balance, beginning of period — — —Treasury stock acquired (75,420) — —Treasury stock issued, at cost 41,056 — —Treasury stock retired 34,364 — —Balance, end of period — — —Accumulated other comprehensive income:Balance, beginning of period 170,876 (323,917) 47,251Adoption of FSP SFAS No. 115-2 (included in ASC 320), net of incometax benefit of $3,929 — (7,298) —Change in foreign currency translation adjustment, net of income tax(expense) benefit of $(4,630) in 2010, $(27,125) in 2009 and $32,438in 2008 15,601 49,715 (60,198)Change in net unrealized investment gains (losses) during the period,net of income taxes:Change in net unrealized investment gains (losses) not other-thantemporarilyimpaired, net of income tax benefit (expense) of$24,848 in 2010, $(245,060) in 2009, and $167,304 in 2008 (47,783) 461,198 (310,970)Change in net unrealized investment gains (losses) other-thantemporarilyimpaired, net of income tax (expense) benefit of$(7,455) in 2010 and $4,751 in 2009 13,845 (8,822) —Balance, end of period 152,539 170,876 (323,917)Total stockholders’ equity $ 1,431,492 $4,943,773 $ 4,111,986See accompanying notes to consolidated and combined financial statements.Primerica 2010 Annual Report 109


PRIMERICA, INC. AND SUBSIDIARIESConsolidated and Combined Statements of Comprehensive IncomeYear ended December 31,2010 2009 2008(In thousands)Net income $ 257,778 $ 494,589 $ 167,682Other comprehensive (loss) income before income taxes:Unrealized investment gains (losses):Change in unrealized holding gains (losses) on investmentsecurities 114,867 663,458 (581,909)Reclassification adjustment for unrealized holding (gains)on investment securities transferred (see Note 2) (132,688) — —Reclassification adjustment for realized investment (gains)losses included in net income (33,510) 21,929 103,635Foreign currency translation adjustments:Change in unrealized foreign currency translation gains 20,231 76,840 (92,636)Total other comprehensive (loss) income beforeincome taxes (31,100) 762,227 (570,910)Income tax benefit (expense) related to items of othercomprehensive (loss) income 12,763 (267,434) 199,742Other comprehensive (loss) income, net of incometaxes (18,337) 494,793 (371,168)Total comprehensive income (loss) $239,441 $ 989,382 $(203,486)See accompanying notes to consolidated and combined financial statements.110 Freedom Lives Here


PRIMERICA, INC. AND SUBSIDIARIESConsolidated and Combined Statements of Cash FlowsYear ended December 31,2010 2009 2008(In thousands)Cash flows from operating activities:Net income $ 257,778 $ 494,589 $ 167,682Adjustments to reconcile net income to net cash provided by operations:Increase in future policy benefits 82,669 97,273 436,430(Decrease) increase in other policy benefits (11,632) 51,502 24,569Deferral of policy acquisition costs (304,754) (391,079) (432,071)Amortization of deferred policy acquisition costs 168,035 381,291 144,490Deferred tax provision 32,030 (19,815) (61,752)Change in accrued and other income taxes (40,701) 75,738 40,793Realized investment (gains) losses, including other-thantemporaryimpairments (34,145) 21,970 103,480Accretion and amortization of investments (1,878) (8,226) (2,098)(Income) loss recognized on equity-method investments (346) (6,125) 8,005Depreciation and amortization 10,063 10,342 12,938Change in due from reinsurers (57,197) (3,403) (764)Change in due to/from affiliates (44,012) 55,460 (34,645)(Increase) decrease in premiums and other receivables (7,129) (2,975) 42,703Trading securities sold (acquired), net (5,994) (4,553) 12,507Share-based compensation 33,301 (1,794) (3,477)Goodwill impairment — — 194,992Other, net (35,031) (33,851) 16,301Net cash provided by operating activities 41,057 716,344 670,083Cash flows from investing activities:Available-for-sale investments sold, matured or called:Fixed-maturity securities – sold 993,278 713,805 523,982Fixed-maturity securities – matured or called 514,132 878,215 926,006Equity securities 36,566 667 3,968Available-for-sale investments acquired:Fixed-maturity securities (787,683) (1,945,887) (2,011,168)Equity securities (7,560) (1,115) (4,266)Change in policy loans and other invested assets 705 1,354 3,479Purchases of furniture and equipment, net (9,864) (4,894) (4,301)Cash received (returned) as collateral on loaned securities, net (328,375) 156,207 (485,468)(Purchases) sales of short-term investments using securities lending collateral 328,375 (156,207) 485,468Net cash provided by (used in) investment activities 739,574 (357,855) (562,300)Cash flows from financing activities:Net distributions to Citigroup Inc. (1,288,391) (56,427) (436,200)Dividends (1,502) — —Net cash used in financing activities (1,289,893) (56,427) (436,200)Effect of foreign exchange rate changes on cash 32,778 (1,894) 5,421(Decrease) increase in cash and cash equivalents (476,484) 300,168 (322,996)Cash and cash equivalents, beginning of year 602,522 302,354 625,350Cash and cash equivalents, end of year $ 126,038 $ 602,522 $ 302,354Supplemental disclosures of cash flow information:Income taxes paid $ 260,275 $ 220,988 $ 260,756Interest paid 13,695 639 385Impairment losses included in realized investment gains (losses),including other-than temporary impairments 12,158 61,394 114,022Non-cash activities:Share-based compensation $ 46,094 $ (1,836) $ (3,427)Net (distributions to) contributions from Citigroup Inc. (2,035,464) 42,370 (24,866)See accompanying notes to consolidated and combined financial statements.Primerica 2010 Annual Report 111


PRIMERICA, INC. ANDSUBSIDIARIESNotes to Consolidated and CombinedFinancial Statements(1) Summary of SignificantAccounting PoliciesDescription of Business. Primerica, Inc. (theParent Company) together with its subsidiaries(collectively, the Company) is a leadingdistributor of financial products to middleincome households in North America. TheCompany assists its clients in meeting theirneeds for term life insurance, which itunderwrites, and mutual funds, variableannuities and other financial products, which itdistributes primarily on behalf of third parties.Our primary subsidiaries include the followingentities: Primerica Financial Services, Inc., ageneral agency and marketing company;Primerica Life Insurance Company (PrimericaLife), our principal life insurance company;Primerica Financial Services (Canada) Ltd., aholding company for our Canadian operations,which includes Primerica Life InsuranceCompany of Canada (Primerica Life Canada);and PFS Investments, Inc., an investmentproducts company and broker-dealer. PrimericaLife, domiciled in Massachusetts, owns a NewYork life insurance company, National BenefitLife Insurance Company (NBLIC). Each of theseentities was indirectly wholly owned byCitigroup Inc. (together with its non-Primericaaffiliates, Citi) through March 31, 2010.On March 31, 2010, Primerica Life, PrimericaLife Canada and NBLIC entered into significantcoinsurance transactions with PrimeReinsurance Company, Inc. (Prime Re) and twoaffiliates of Citi (collectively, the Citireinsurers). In April 2010, Citi transferred thelegal entities that comprise our business to usand we completed a series of transactionsincluding the distribution of Prime Re to Citiand an initial public offering of our commonstock by Citi pursuant to the Securities Act of1933 (the Offering). See Note 2 for additionalinformation.Basis of Presentation. We prepare ourfinancial statements in accordance with U.S.generally accepted accounting principles(GAAP). These principles are establishedprimarily by the Financial AccountingStandards Board (FASB). The preparation offinancial statements in conformity with GAAPrequires us to make estimates and assumptionsthat affect financial statement balances,revenues and expenses and cash flows as wellas the disclosure of contingent assets andliabilities. Management considers availablefacts and knowledge of existing circumstanceswhen establishing the estimates included in ourfinancial statements.The most significant items that involve agreater degree of accounting estimates andactuarial determinations subject to change inthe future are the valuation of investments,deferred policy acquisition costs (DAC), andliabilities for future policy benefits and unpaidpolicy claims. Estimates for these and otheritems are subject to change and are reassessedby management in accordance with GAAP.Actual results could differ from thoseestimates.The accompanying consolidated and combinedfinancial statements include the accounts of theCompany and those entities required to beconsolidated or combined under applicableaccounting standards. All material intercompanyprofits, transactions, and balances among theconsolidated or combined entities have beeneliminated. Financial statements for 2010 havebeen consolidated and include those assets,liabilities, revenues, and expenses directlyattributable to the Company’s operations.Financial statements for 2009 and 2008 havebeen combined and include those assets,liabilities, revenues, and expenses directlyattributable to the Company’s operations.Reclassifications. Certain reclassificationshave been made to prior-period amounts toconform to current-period reportingclassifications. These reclassifications had noimpact on net income or total stockholders’equity.Immaterial Error Correction. During the yearended December 31, 2010, we corrected a priorperiod immaterial error relating to oursecurities lending program. The adjustmentreflects our obligation to return the cashportion of the securities lending collateral,112 Freedom Lives Here


which we are able to reinvest at our own risk. Tomitigate the related risk, we reinvest thiscollateral in short-term, highly rated securities.We have adjusted all periods presented to reflectthe cash collateral received as a payable undersecurities lending, with the related collateralassets reflected within other assets in theconsolidated and combined balance sheet. Wehave also adjusted the consolidated andcombined statements of cash flows to reflect theinvesting activities related to these transactions.The correction resulted in an increase to bothtotal assets and total liabilities of $510.1 millionas of December 31, 2009. This correction, whichis reflected in the Corporate and OtherDistributed Products Segment, had no impact onnet income or stockholders’ equity.Foreign Currency Translation. Assets andliabilities denominated in Canadian dollars aretranslated into U.S. dollars using year-endexchange rates. Revenues and expenses aretranslated monthly at amounts thatapproximate weighted-average exchange rates,with resulting gains and losses included instockholders’ equity. We may use currencyswap and forward contracts to mitigate foreigncurrency exposures.Investments. Investments are reported onthe following bases:• Available-for-sale fixed-maturity securities,including bonds and redeemable preferredstocks not classified as trading securities,are carried at fair value. When quotedmarket values are unavailable, we obtainestimates from independent pricingservices or estimate fair value based upona comparison to quoted issues of the sameissuer or of other issuers with similarcharacteristics.• Equity securities, including common andnonredeemable preferred stocks, areclassified as available for sale and arecarried at fair value. When quoted marketvalues are unavailable, we obtain estimatesfrom independent pricing services orestimate fair value based upon acomparison to quoted issues of the sameissuer or of other issuers with similarcharacteristics.• Trading securities, which primarily consistof bonds, are carried at fair value. Changesin fair value of trading securities areincluded in net investment income in theperiod in which the change occurred.• Policy loans are carried at unpaid principalbalances, which approximate fair value.We record investment transactions on a tradedatebasis. We use the specific-identificationmethod to determine the realized gains orlosses from securities transactions and reportthe realized gains or losses in theaccompanying consolidated and combinedstatements of income.We include unrealized gains and losses onavailable-for- sale securities as a separatecomponent of accumulated othercomprehensive income except for the creditloss component of other-than-temporarydeclines in fair value, which is recorded asrealized losses in the accompanyingconsolidated and combined statements ofincome.We review investments on a quarterly basis forother-than-temporary impairment (OTTI).Credit risk, interest rate risk, duration of theunrealized loss, actions taken by ratingsagencies, and other factors are considered indetermining whether an unrealized loss isother-than-temporary. Prior to January 1, 2009,if an unrealized loss was determined to beother-than-temporary, an impairment chargewas recorded as the difference betweenamortized cost and fair value. Our combinedstatement of income for the year endedDecember 31, 2008 reflects the full impairment(that is, the difference between amortized costbasis and fair value) on debt securities that wedid not have the ability and intent to hold until arecovery of the amortized cost basis, whichmay have been maturity. Subsequent toDecember 31, 2008, our consolidated andcombined statements of income for the yearsended December 31, 2010 and 2009 reflect thefull impairment on debt securities that weintend to sell or would more-likely than-not berequired to sell before the expected recovery ofthe amortized cost basis. For available-for-sale(AFS) debt securities that management has nointent to sell and believes that it more-likelythan-not will not be required to sell prior toPrimerica 2010 Annual Report 113


ecovery, only the credit loss component of theimpairment is recognized in earnings, while theremainder is recognized in accumulated othercomprehensive income (AOCI) in theaccompanying consolidated and combinedfinancial statements. The credit loss componentrecognized in earnings is identified as theamount of principal cash flows not expected tobe received over the remaining term of thesecurity. Any subsequent changes in fair valueof the security related to non-credit factorsrecognized in other comprehensive income arepresented as an adjustment to the amountpreviously presented in the net unrealizedinvestment gains (losses) other-thantemporarilyimpaired category of accumulatedother comprehensive income.We participate in securities lendingtransactions with broker-dealers and otherfinancial institutions to increase investmentincome with minimal risk. We require, at theinitiation of the agreement, minimum collateralon securities loaned equal to 102% of the fairvalue of the loaned securities. We continue tocarry the lent securities as investment assetson our balance sheet during the terms of theloans, and we do not report them as sales. Wereceive cash or other securities as collateralfor these loans. For loans involving unrestrictedcash collateral, the collateral is reported as anasset with a corresponding liabilityrepresenting our obligation to return thecollateral. For securities lending transactionsinvolving securities collateral, we do not havethe right to sell or encumber collateral; thiscollateral is not reported as an asset or aliability.Interest income on fixed-maturity securities isrecorded when earned using the effective-yieldmethod, which gives consideration toamortization of premiums and accretion ofdiscounts. Dividend income on equity securitiesis recorded when declared. These amounts areincluded in net investment income in theaccompanying consolidated and combinedstatements of income.Included within fixed-maturity securities areloan-backed and asset-backed securities.Amortization of the premium or accretion ofthe discount uses the retrospective method.The effective yield used to determineamortization/accretion is calculated based onactual and historical projected future cashflows, which are obtained from a widelyaccepted data provider and updated quarterly.Derivative instruments are stated at fair valuebased on market prices. Gains and lossesarising from forward contracts are acomponent of realized gains and losses in theaccompanying consolidated and combinedstatements of income.Cash and Cash Equivalents. Cash and cashequivalents include cash on hand, moneymarket instruments, and all other highly liquidinvestments purchased with an original orremaining maturity of three months or less atthe date of acquisition.Reinsurance. We use reinsurance extensively,utilizing yearly renewable term and coinsuranceagreements. Under yearly renewable termagreements, we reinsure only the mortality risk,while under coinsurance, we reinsure aproportionate part of all risks arising under thereinsured policy. Under coinsurance, thereinsurer receives a proportionate part of thepremiums, less commission allowances, and isliable for a corresponding part of all benefitpayments.All reinsurance contracts in effect for 2010 and2009 transfer a reasonable possibility ofsubstantial loss to the reinsurer or areaccounted for under the deposit method ofaccounting.Ceded premiums are treated as a reduction todirect premiums and are recognized when dueto the assuming company. Ceded claims aretreated as a reduction to direct benefits andare recognized when the claim is incurred on adirect basis. Ceded policy reserve changes arealso treated as a reduction to benefits expenseand are recognized during the applicablefinancial reporting period.Reinsurance premiums, commissions, expensereimbursements, benefits, and reserves relatedto reinsured long-duration contracts areaccounted for over the life of the underlyingcontracts using assumptions consistent withthose used to account for the underlyingpolicies. Amounts recoverable from reinsurersare estimated in a manner consistent with theclaim liabilities and policy benefits associated114 Freedom Lives Here


with reinsured policies. Ceded policy reservesand claims liabilities relating to insurance cededare shown as due from reinsurers on theaccompanying consolidated and combinedbalance sheets.We analyze and monitor the credit-worthinessof each of our reinsurance partners to minimizecollection issues. For reinsurance contractswith unauthorized reinsurers, we requirecollateral such as letters of credit.To the extent we receive ceding allowances tocover policy and claims administration underreinsurance contracts, these allowances aretreated as a reduction to insurancecommissions and expenses and are recognizedwhen due from the assuming company. To theextent we receive ceding allowancesreimbursing commissions that would otherwisebe deferred; the amount of commissionsdeferrable will be reduced. The correspondingdeferred policy acquisition costs (DAC)balances are reduced on a pro rata basis by theportion of the business reinsured withreinsurance agreements that meet risk transferprovisions. The reduced DAC will result in acorresponding reduction of amortizationexpense.Deferred Policy Acquisition Costs. The costsof acquiring new business are deferred to theextent that they vary with and are primarilyrelated to the acquisition of such new business.These costs mainly include commissions andpolicy issue expenses. The recovery of suchcosts is dependent on the future profitability ofthe related policies, which, in turn, is dependentprincipally upon investment returns, mortality,persistency and the expense of administeringthe business, as well as uponcertain economic variables.Deferred policy acquisition costsare subject to annualrecoverability testing and whenimpairment indicators exist. Wemake certain assumptionsregarding persistency, expenses,interest rates and claims. Theassumptions for these types ofproducts may not be modified,or unlocked, unless recoverabilitytesting deems them to be inadequate.Assumptions are updated for new business toreflect the most recent experience. Deferrablepolicy acquisition costs are amortized over thepremium-paying period of the related policies inproportion to annual premium income.Acquisition costs for Canadian segregatedfunds are amortized over the life of the policiesin relation to estimated gross profits beforeamortization. Due to the inherent uncertaintiesin making assumptions about future events,materially different experience from expectedresults in persistency or mortality could resultin a material increase or decrease of DACamortization in a particular period.Intangible Assets. Intangible assets areamortized over their estimated useful lives. Anyintangible asset that was deemed to have anindefinite useful life is not amortized but issubject to an annual impairment test. Animpairment exists if the carrying value of theindefinite-lived intangible asset exceeds its fairvalue. For the other intangible assets, which aresubject to amortization, an impairment isrecognized if the carrying amount is notrecoverable and exceeds the fair value of theintangible asset.Property, Plant, and Equipment. Equipmentand leasehold improvements, which areincluded in other assets, are stated at cost, lessaccumulated depreciation and amortization.Leasehold improvements are amortized overthe remaining life of the lease. Computerhardware, software, and other equipment aredepreciated over three to five years. Furnitureis depreciated over seven years.Property, plant and equipment were as follows:December 31,2010 2009(In thousands)Data processing equipment and software $ 55,793 $ 52,320Leasehold improvements 14,148 14,142Other, principally furniture and equipment 22,437 21,64992,378 88,111Accumulated depreciation (76,055) (74,836)Net property, plant, and equipment $ 16,323 $ 13,275Primerica 2010 Annual Report 115


Depreciation expense was as follows:Year ended December 31,2010 2009 2008(In thousands)Depreciation expense $6,895 $6,803 $8,339The decline in depreciation expense in 2009was primarily a result of several assets beingfully depreciated. Depreciation expense isincluded in other operating expenses in theaccompanying consolidated and combinedstatements of income.Separate Accounts. The separate accountsprimarily consist of contracts issued by theCompany through its subsidiary, Primerica LifeCanada, pursuant to the Insurance CompaniesAct (Canada). The Insurance Companies Actauthorizes Primerica Life Canada to establishthe separate accounts.The separate accounts are represented byindividual variable insurance contracts.Purchasers of variable insurance contractsissued by Primerica Life Canada have a directclaim to the benefits of the contract thatentitles the holder to units in one or moreinvestment funds (the Funds) maintained byPrimerica Life Canada. The Funds invest inassets that are held for the benefit of theowners of the contracts. The benefits providedvary in amount depending on the market valueof the Funds’ assets. The Funds’ assets areadministered by Primerica Life Canada and areheld separate and apart from the generalassets of the Company. The liabilities reflectthe variable insurance contract holders’interests in variable insurance assets basedupon actual investment performance of therespective Funds. Separate account operatingresults relating to contract holders’ interestsare excluded from our consolidated andcombined statements of income.Primerica Life Canada’s contract offeringsguarantee the maturity value at the date ofmaturity (or upon death of the annuitant,whichever occurs first), to be equal to 75% ofthe sum of all contributions made, net ofwithdrawals, on a “first-in first-out” basis.Otherwise, the maturity value or death benefitwill be the accumulated value of units allocatedto the contract at the specified valuation date.116 Freedom Lives Here The amount of this value is notguaranteed, but will fluctuatewith the fair value of the Funds.Policyholder Liabilities.Future policy benefits areaccrued over the current andexpected renewal periods of the contracts.Liabilities for future policy benefits ontraditional life insurance products have beencomputed using a net level method, includingassumptions as to investment yields, mortality,persistency, and other assumptions based onour experience, modified as necessary toreflect anticipated trends and to includeprovisions for possible adverse deviation. Theunderlying mortality tables are the Society ofActuaries (SOA) 65-70, SOA 75-80, SOA 85-90,and the 91 Bragg, modified to reflect variousunderwriting classifications and assumptions.Investment yield reserve assumptions atDecember 31, 2010 and 2009 range fromapproximately 4.0% to 7.0%. The liability forfuture policy benefits and claims on traditionallife, health, and credit insurance productsincludes estimated unpaid claims that havebeen reported to us and claims incurred but notyet reported.The reserves we establish are necessarilybased on estimates, assumptions and ouranalysis of historical experience. Our resultsdepend significantly upon the extent to whichour actual claims experience is consistent withthe assumptions we used in determining ourreserves and pricing our products. Our reserveassumptions and estimates require significantjudgment and, therefore, are inherentlyuncertain. We cannot determine with precisionthe ultimate amounts that we will pay for actualclaims or the timing of those payments.Other Policyholders’ Funds. Otherpolicyholders’ funds primarily represent claimpayments left on deposit with us.Federal Income Taxes. During the first quarterof 2010, our federal income tax return wasincluded as part of Citi’s consolidated federalincome tax return. On March 30, 2010, inanticipation of our corporate reorganization,we entered into a tax separation agreementwith Citi. In accordance with the tax separationagreement, Citi will be responsible for and shall


indemnify and hold the Company harmless fromand against any consolidated, combined,affiliated, unitary or similar federal, state orlocal income tax liability with respect to theCompany for any taxable period ending on orbefore April 7, 2010, the closing date of theOffering. After the closing date, the Companywas no longer part of Citi’s consolidated federalincome tax return. As a result of the separationfrom Citi, the Company will be required to filetwo consolidated income tax returns for fivetax years, which is expected to cover the taxyears ending December 31, 2010 throughDecember 31, 2014. Primerica Life and NBLICwill comprise one of the U.S. consolidated taxgroups while the Parent Company and theremaining U.S. subsidiaries will comprise thesecond U.S. consolidated tax group. Themethod of allocation between companies ispursuant to a written agreement. Allocation isbased upon separate return calculations withcredit for net losses as utilized. Allocations arecalculated and settled quarterly.We are subject to the income tax laws of theUnited States, its states, municipalities, andcertain unincorporated territories, and those ofCanada. These tax laws are complex andsubject to different interpretations by thetaxpayer and the relevant governmental taxingauthorities. In establishing a provision forincome tax expense, we must make judgmentsand interpretations about the applicability ofthese inherently complex tax laws. We alsomust make estimates about the future impactcertain items will have on taxable income in thevarious tax jurisdictions, both domestic andforeign.Income taxes are accounted for under the assetand liability method. Deferred tax assets andliabilities are recognized for the future taxconsequences attributable to (i) differencesbetween the financial statement carryingamounts of existing assets and liabilities andtheir respective tax bases and (ii) operating lossand tax credit carryforwards. Deferred taxassets and liabilities are measured usingenacted tax rates expected to apply to taxableincome in the years in which those temporarydifferences are expected to be recovered orsettled. The effect on deferred tax assets andliabilities of a change in tax rates is recognizedin income in the period that includes theenactment date. Deferred tax assets arerecognized subject to management’s judgmentthat realization is more likely than notapplicable to the periods in which we expect thetemporary difference will reverse.Premium Revenues. Traditional life insuranceproducts consist principally of those productswith fixed and guaranteed premiums andbenefits, and are primarily related to termproducts. Premiums are recognized asrevenues when due.Commissions and Fees. We receivecommission revenues from the sale of variousnon-life insurance products. Commissions arereceived primarily on sales of mutual funds,variable annuities, and loans. We primarilyreceive trail commission revenues from mutualfund and variable annuity products based onthe daily net asset value of shares sold by us.We, in turn, pay certain commissions to oursales force. We also receive marketing andsupport fees from product originators.Historically, we earned monthly concessionsfrom the sale of certain mutual fund shares.This agreement ended in 2008. We also receivemanagement fees based on the average dailynet asset value of contracts related to separateaccount assets issued by Primerica LifeCanada.We capitalize commissions paid to salesrepresentatives of Class B mutual fund sharesmanaged by Legg Mason Investor Services,LLC. This asset is amortized over the sameperiod as it is recovered. Recovery occurswithin up to ninety-six months through 12b-1distributor fees (based on daily average assetvalues) and contingent deferred sales chargefees, a back-end sales load charged on adeclining scale over five years. These fees arecharged to the mutual fund shareholders. As anamortizing asset, we periodically review thisasset for impairment based on anticipatedundiscounted cash flows.We earn recordkeeping fees for administrativefunctions that we perform on behalf of severalof our mutual fund providers and custodial feesfor services performed as a non-bank custodianof our clients’ retirement plan accounts. Thesefees are recognized as income during theperiod in which they are earned.Primerica 2010 Annual Report 117


We also receive record-keeping fees monthlyfrom mutual fund accounts on our servicingplatform and in turn pay a third-party providerfor its servicing of certain of these accounts.Benefits Expense. Policy claims are chargedto expense in the period in which the claims areincurred.Share-Based Transactions. For employeeshare-based compensation, we determine agrant date fair value and recognize the relatedcompensation expense, adjusted for expectedforfeitures, in the statement of income over thevesting period of the respective awards. Fornon-employee share-based compensation, werecognize the impact throughout the vestingperiod and the fair value of the award is basedon the vesting date. To the extent that a sharebasedaward contains sale restrictionsextending beyond the vesting date, we reducethe recognized fair value of the award to reflectthe corresponding liquidity discount. Certainnon-employee share-based compensationvaries with and primarily relates to theacquisition or renewal of life insurance policies.We defer these expenses and amortize theimpact over the life of the underlying lifeinsurance policies acquired.Earnings Per Share (EPS). Primerica hasoutstanding common stock, warrants, andequity awards. Both the vested and unvestedequity awards maintain non-forfeitable dividendrights that result in dividend paymentobligations on a one-to-one ratio with commonshares for any future dividend declarations.These equity awards are deemed participatingsecurities for purposes of calculating EPS.As a result of issuing equity awards that aredeemed participating securities, we calculateEPS using the two-class method. Under thetwo-class method, we allocate earnings tocommon shares and to fully vested equityawards. Earnings attributable to unvestedequity awards, along with the correspondingshare counts, are excluded from EPS asreflected in our consolidated statements ofincome.In calculating basic EPS, we deduct anydividends and undistributed earnings allocatedto unvested equity awards from net income andthen divide the result by the weighted-averagenumber of common shares and fully vestedequity awards outstanding for the period.We determine the potential dilutive effect ofwarrants on EPS using the treasury-stockmethod. Under this method, we utilize theexercise price to determine the amount of cashthat would be available to repurchase shares ifthe warrants were exercised. We then use theaverage market price of our common sharesduring the reporting period to determine howmany shares we could repurchase with the cashraised from the exercise. The net incrementalshare count issued represents the potentialdilutive securities. We then reallocate earningsto common shares and fully vested equityawards incorporating the increased, fullydiluted share count to determine diluted EPS.The calculation of basic and diluted EPS was asfollows:Year endedDecember 31, 2010(In thousands)Basic EPS:Numerator:Net income $257,778Income attributable to unvestedparticipating securities (10,433)Net income used incalculating basic EPS $247,345Denominator:Weighted-average shares 72,099Basic EPS $ 3.43Diluted EPS:Numerator:Net income $257,778Income attributable to unvestedparticipating securities (10,326)Net income used incalculating diluted EPS $247,452Denominator:Weighted-average shares 72,882Diluted EPS $ 3.40We calculated EPS on a pro forma basis usingweighted-average shares, including the sharesoutstanding following our April 1, 2010corporate reorganization as though they hadbeen issued and outstanding on January 1,2010.118 Freedom Lives Here


New Accounting PrinciplesScope Exception Related to Embedded CreditDerivatives. In March 2010, the FASB issuedASU 2010-11, Scope Exception Related toEmbedded Credit Derivatives. The updateclarifies guidance on accounting for embeddedderivatives to reduce the breadth of the scopeexception for bifurcating and separatelyaccounting for certain embedded creditderivative features related to the transfer ofcredit risk in the form of subordination of onefinancial instrument to another. We adoptedthe update as of July 2010. The update did notimpact our financial position or results ofoperations.Subsequent Event Disclosure. In February 2010,the FASB issued ASU 2010-9, Amendments toCertain Recognition and DisclosureRequirements. The update requires publiccompanies to assess subsequent eventsthrough the date of issuing its financialstatements but does not require disclosure ofthe date through which we have assessedsubsequent events. We adopted ASU 2010-9 asof January 2010. The update did not impact ourfinancial position or results of operations.Additional Fair Value Measurement Disclosure.In January 2010, the FASB issued ASU 2010-6,Improving Disclosures About Fair ValueMeasurements. The update requires additionaldisclosure for significant transfers into and outof level 1 and level 2 instruments for reportingperiods beginning after December 15, 2009.Additionally, separate presentation ofpurchases, sales, issuances, and settlementswill be required for activity in level 3instruments for reporting periods beginningafter December 15, 2010. This new guidance didnot impact our financial position or results ofoperations.Elimination of QSPEs and Changes in theConsolidation Model for Variable InterestEntities. In June 2009, the FASB issued SFASNo. 166, Accounting for Transfers of FinancialAssets, an amendment of FASB StatementNo. 140, now authoritative under ASC 860 (ASC860) and SFAS No. 167, Amendments to FASBInterpretation No. 46(R), now authoritativeunder ASC 810 (ASC 810). ASC 860 eliminatesthe concept of Qualifying Special PurposeEntities (QSPEs), changes the requirements forthe derecognition of financial assets, and callsupon sellers of the assets to make additionaldisclosures about them. ASC 810 details threekey changes to the consolidation model. First,former QSPEs are now included in the scope ofASC 810. In addition, the FASB has changed themethod of analyzing which party to a variableinterest entity (VIE) should consolidate the VIE(known as the primary beneficiary) to aqualitative determination of which party to theVIE has “power” combined with potentiallysignificant benefits or losses, instead of theprevious quantitative risks and rewards model.The entity that has power has the ability todirect the activities of the VIE that mostsignificantly impact the VIE’s economicperformance. Finally, the new standard requiresthat the primary beneficiary analysis bere-evaluated whenever circumstances change.The previous rules required reconsideration ofthe primary beneficiary only when specifiedreconsideration events occurred. We adoptedboth standards on January 1, 2010. Theadoption of this guidance has not requiredconsolidation of any variable interest entitiesand did not impact our financial position orresults of operations.Other-Than-Temporary Impairments onInvestment Securities. In April 2009, the FASBissued FSP SFAS No. 115-2 and SFAS No. 124-2,Recognition and Presentation of Other-Than-Temporary Impairments (ASC 320-10/FSPSFAS 115-2), which amends the recognitionguidance for OTTI of debt securities andexpands the financial statement disclosures forOTTI on debt and equity securities. TheCompany adopted the FSP in the first quarterof 2009.As a result of this FSP, the Company’sconsolidated and combined statements ofincome reflect the full impairment (that is, thedifference between the security’s amortizedcost basis and fair value) on debt securities thatthe Company intends to sell or would morelikelythan-not be required to sell before theexpected recovery of the amortized cost basis.Primerica 2010 Annual Report 119


For AFS debt securities that management hasno intent to sell and believes that it is morelikelythan-not will not be required to be soldprior to recovery, only the credit losscomponent of the impairment is recognized inearnings, while the remainder is recognized inAOCI in the accompanying consolidated andcombined balance sheets. The credit losscomponent recognized in earnings is identifiedas the amount of principal and interest cashflows not expected to be received over theremaining term of the security. The cumulativeeffect of the change included an increase in theopening balance of retained earnings atJanuary 1, 2009 of $11.2 million on a pretaxbasis ($7.3 million after-tax).Recent accounting guidance not discussedabove is not applicable, is immaterial to ourfinancial statements, or did not have an impacton our business.Future Application of AccountingStandardsAccounting for Deferred Policy AcquisitionCosts. In October 2010, the FASB issued ASU2010-26, Accounting for Costs Associated withAcquiring or Renewing Insurance Contracts(ASU 2010-26). The update revises thedefinition of deferred policy acquisition costs toreflect incremental costs directly related to thesuccessful acquisition of new and renewedinsurance contracts. The update creates a morelimited definition than the current guidance,which defines deferred policy acquisition costsas those that vary with, and primarily relate to,the acquisition of insurance contracts. Therevised definition increases the portion ofacquisition costs being expensed as incurredrather than deferred and amortized over thelives of the underlying policies. The updateallows either prospective or retrospectiveadoption and is required to be adopted for ourfiscal year beginning January 1, 2012. While weare currently unable to quantify the impact ofimplementation, we expect this update to havea material adverse effect on our results ofoperations, as we will be required to acceleratethe recognition of certain expenses associatedwith acquiring life insurance business.Consolidation Analysis of Investments Heldthrough Separate Accounts. In April 2010, theFASB issued ASU 2010-15, How InvestmentsHeld through Separate Accounts Affect anInsurer’s Consolidation Analysis of ThoseInvestments. The update requires that aninsurance entity not considerany separate account interests held for thebenefit of policy holders in an investment to bethe insurer’s interests and that an insuranceentity not combine those interests with itsgeneral account interest in the sameinvestment when assessing the investment forconsolidation, unless the separate accountinterests are held for the benefit of a relatedparty policyholder. Additionally, in evaluatingwhether the retention of specialized accountingfor investments in consolidation is appropriate,a separate account arrangement should beconsidered a subsidiary. The update requiresthat an insurer not consolidate an investment inwhich a separate account holds a controllingfinancial interest if the investment is not orwould not be consolidated in the standalonefinancial statements of the separate account.This update will be effective for periodsbeginning after December 15, 2010. We do notexpect the update to materially impact ourfinancial position or results of operations.(2) Corporate ReorganizationWe were incorporated in Delaware in October2009 by Citi to serve as a holding companyfor the life insurance and financial productdistribution businesses that we have operatedfor more than 30 years. At such time, weissued 100 shares of common stock to Citi.These businesses, which prior to April 1, 2010were wholly owned indirect subsidiaries ofCiti, were transferred to us on April 1, 2010. Inconjunction with our reorganization, we issuedto a wholly owned subsidiary of Citi(i) 74,999,900 shares of our common stock(of which 24,564,000 shares of commonstock were subsequently sold by Citi in theOffering completed in April 2010; 16,412,440shares of common stock were subsequentlysold by Citi in April 2010 to certain privateequity funds managed by Warburg Pincus LLC(Warburg Pincus) (the private sale); and5,021,412 shares of common stock were120 Freedom Lives Here


immediately contributed back to us for equityawards granted to our employees and salesforce leaders in connection with the Offering),(ii) warrants to purchase from us anaggregate of 4,103,110 shares of our commonstock (which were subsequently transferredby Citi to Warburg Pincus pursuant to theprivate sale), and (iii) a $300.0 million notepayable due on March 31, 2015 bearinginterest at an annual rate of 5.5% (the Citinote). Prior to our corporate reorganization,we had no material assets or liabilities. Uponcompletion of the corporate reorganization,we became a holding company with ourprimary asset being the capital stock of ouroperating subsidiaries and our primary liabilitybeing the Citi note.Reinsurance TransactionsAs part of the corporate reorganization andprior to completion of the Offering, we formeda new subsidiary, Prime Re, to which we madean initial capital contribution. On March 31,2010, we entered into a series of coinsuranceagreements with the Citi reinsurers. Underthese agreements, we ceded between 80% and90% of the risks and rewards of our term lifeinsurance policies in force at year-end 2009.Because these agreements were part of abusiness reorganization among entities undercommon control, they did not generate anydeferred gain or loss upon their execution.Concurrent with signing these agreements, wetransferred the corresponding accountbalances in respect of the coinsured policiesalong with the assets to support the statutoryliabilities assumed by the Citi reinsurers. OnApril 1, 2010, as part of our corporatereorganization, we transferred all of the issuedand outstanding capital stock of Prime Re toCiti. Each of the transferred account balances,including the invested assets and thedistribution of Prime Re, were transferred atbook value with no gain or loss recorded in netincome.Three of the Citi coinsurance agreementssatisfy GAAP risk transfer rules. Under theseagreements, we ceded between 80% and 90%of our term life future policy benefit reserves,and we transferred a corresponding amount ofassets to the Citi reinsurers. These transactionsdid not impact our future policy benefitreserves. As such, we have recorded an assetfor the same amount of risk transferred in duefrom reinsurers. We also reduced DAC by acorresponding amount, which will reduce futureamortization expenses. In addition, we willtransfer between 80% and 90% of all futurepremiums and benefits and claims associatedwith these policies to the correspondingreinsurance entities. We will receive ongoingceding allowances, which will be reflected as areduction to insurance expenses, to coverpolicy and claims administration expensesunder each of these reinsurance contracts.A fourth coinsurance agreement relates to a10% reinsurance transaction that includes anexperience refund provision. This agreementdoes not satisfy GAAP risk transfer rules. As aresult, we have accounted for this contractusing deposit method accounting and haverecognized a deposit asset in other assets onour balance sheet for assets backing theeconomic reserves. The deposit assets held insupport of this agreement were $50.1 million atDecember 31, 2010, with no associated liability.We will make contributions to the deposit assetduring the life of the agreement to fulfill ourresponsibility of funding the economic reserve.The market return on these deposit assets isreflected in net investment income in ourstatement of income during the life of theagreement. Prime Re is responsible forensuring that there are sufficient assets tomeet all statutory requirements. We will payPrime Re a 3% finance charge for any statutoryreserves required above the economicreserves. This finance charge is reflected ininterest expense in our statements of income.The net impact of these transactions wasreflected as an increase in paid-in capital.Because the agreements were executed onMarch 31, 2010, but transferred the economicimpact of the agreements retroactive toJanuary 1, 2010, we recognized the earningsattributable to the underlying policies throughMarch 31, 2010 in our statement of income.The corresponding impact on retainedearnings was equally offset by a return ofcapitaltoCiti.Primerica 2010 Annual Report 121


Tax Separation AgreementDuring the first quarter of 2010, our federalincome tax return was included as part of Citi’sconsolidated federal income tax return. OnMarch 30, 2010, in anticipation of our corporatereorganization, we entered into a taxseparation agreement with Citi. In accordancewith the tax separation agreement, Citi will beresponsible for and shall indemnify and hold theCompany harmless from and against anyconsolidated, combined, affiliated, unitary orsimilar federal, state or local income tax liabilitywith respect to the Company for any taxableperiod ending on or before April 7, 2010, theclosing date of the Offering.(3) Segment InformationWe have two primary operating segments —Term Life Insurance and Investment andSavings Products. The Term Life Insurancesegment includes underwriting profits on ourin-force book of term life insurance policies, netof reinsurance, which are underwritten by ourlife insurance company subsidiaries. TheInvestment and Savings Products segmentincludes mutual funds and variable annuitiesdistributed through licensed broker-dealersubsidiaries, and also includes segregatedfunds which is an insurance product in Canadamade available through individual variableinsurance contracts underwritten by PrimericaLife Canada. In the United States, we distributemutual fund products of several third-partycompanies and variable annuityproducts of MetLife, Inc., and itsaffiliates. We also earn fees foraccount servicing on a subset ofthe mutual funds we distribute.In Canada, we offer a Primericabrandedfund-of-funds mutualfund product, as well as mutualfunds of well known mutual fundcompanies. These two operatingsegments are managedseparately because theirproducts serve different needs – term lifeinsurance protection versus wealth-buildinginvestment and savings products.We also have a Corporate and Other DistributedProducts segment, which consists primarily ofrevenues and expenses related to thedistribution of non-core products, includingloans, various insurance products other thancore term life insurance products, and prepaidlegal services. With the exception of certain lifeand disability insurance products, which weunderwrite, these products are distributedpursuant to distribution arrangements withthird parties.Assets specifically related to a segment areheld in that segment. We allocate investedassets to the Term Life Insurance segmentbased on the book value of invested assetsnecessary to meet statutory reserverequirements and our targeted capitalobjectives. Remaining invested assets and allunrealized gains and losses are allocated to theCorporate and Other Distributed Productssegment. On March 31, 2010, we signed areinsurance agreement subject to depositaccounting (the 10% reinsurance agreement)and have recognized the deposit asset in theTerm Life Insurance segment. DAC isrecognized in each of the segments dependingon the product to which it relates. Separateaccount assets supporting the segregatedfunds product in Canada are held in theInvestment and Savings Products segment. Anyremaining unallocated assets are reported inthe Corporate and Other Distributed Productssegment. Information regarding assets bysegment follows:December 31,2010 2009(In thousands)Assets:Term life insurance segment $ 5,738,219 $ 9,016,674Investment and savings productssegment 2,615,916 2,192,583Corporate and other distributedproducts segment 1,530,171 2,505,887Total assets $9,884,306 $ 13,715,144The significant decline in assets held in theTerm Life Insurance and Corporate and OtherDistributed Products segments was primarilydriven by the reinsurance and reorganizationtransactions discussed in Note 2.122 Freedom Lives Here


The Investment and Savings Products segmentalso includes assets held in separate accounts.Excluding separate accounts, the Investmentand Savings Product segment assets were asfollows:December 31,2010 2009(In thousands)Investment and savings products segment,excluding separate accounts $170,326 $100,618Although we do not view our business in termsof geographic segmentation, details on ourCanadian businesses’ percentage of totalassets were as follows:December 31,2010 2009Canadian assets as a percent of total assets 31% 23%Canadian assets as a percent of total assets,excluding separate accounts 9% 9%Beginning with the three months endedJune 30, 2010, we revised our segmentallocation method for allocating net investmentincome. In connection with the 10% reinsuranceagreement, we recognize the market return onthe deposit asset as acomponent of net investmentincome for the Term LifeInsurance segment. We thenallocate the remaining netinvestment income based onthe book value of the invested assets allocatedto the Term Life Insurance segment comparedto the book value of total invested assets. Therevised Term Life Insurance segment netinvestment income allocation methodologyallows for analysis of the yieldsgenerated by the investedasset portfolio and change inthe size of the portfolio, alongwith the impact of thereinsurance deposit asset,without being impacted bychanges in market value. All prior periodspresented have been adjusted to consistentlyreflect this revised segment allocationmethodology.Primerica 2010 Annual Report 123


Realized investment gains and losses arereported in the Corporate and OtherDistributed Products segment. We allocatecertain operating expensesassociated with our salesrepresentatives, includingsupervision, training and legalsupport, to our two primaryoperating segments based on theaverage number of licensedrepresentatives in each segmentfor a given period. We also allocate technologyand occupancy costs based on usage. Anyremaining unallocated revenue and expenseitems are reported in the Corporate and OtherDistributed Products segment. We measureincome and loss for the segments on an incomebefore income taxes basis. Informationregarding operations by segment follows:Year ended December 31,2010 2009 2008(In thousands)Revenues:Term life insurance $808,568 $1,742,065 $ 1,673,022Investment andsavings products 361,807 300,140 386,508Corporate and otherdistributed products 191,488 178,196 137,414Total revenues $1,361,863 $2,220,401 $2,196,944Income (loss) beforeincome taxes:Term life insurance $ 299,044 $ 659,012 $ 511,819Investment andsavings products 113,530 93,404 125,164Corporate and otherdistributed products (13,431) 7,539 (283,947)Total income(loss) beforeincome taxes $ 399,143 $ 759,955 $ 353,036Details on the contribution to results ofoperations by our Canadian businesses wereas follows:Year ended December 31,2010 2009 2008Canadian revenues as a percent of totalrevenues 17% 13% 15%Canadian income before income taxes as apercent of total income before income taxes 21% 16% 38%The increase in the percentages of Canadianincome before income taxes for 2010 wasprimarily a result of lower U.S. income beforeincome taxes due to the expense associatedwith the IPO-related equity awards, interestexpense on the Citi note and 401(k) expense.Canada’s 2008 income before income taxeswas a higher percentage of total income beforeincome taxes due to other-than-temporaryimpairments on investmentsecurities, goodwill impairmentand a change in the estimationmethod for DAC and FPB thataffected our U.S. operations toa greater degree than Canada.United States revenues totaled $1.14 billion in2010, $1.92 billion in 2009 and $1.87 billion in2008. Canadian revenues totaled $225.4million in 2010, $298.4 million in 2009 and$323.3 million in 2008.124 Freedom Lives Here


(4) InvestmentsOn March 31, 2010, we transferred a significantportion of our invested asset portfolio to theCiti reinsurers in connection with our corporatereorganization discussed in Note 2. As such,comparisons of cost, fair value, and unrealizedgains and losses, among other items, toDecember 31, 2009 as well as comparisons ofnet investment income to prior year will reflectthe effects of these transfers and result insignificant variances. The period-end cost oramortized cost, gross unrealized gains andlosses, and fair value of fixed-maturity andequity securities follow:Cost oramortizedcostDecember 31, 2010GrossunrealizedgainsGrossunrealizedlossesFair value(In thousands)Securities available for sale, carried at fairvalue:Fixed-maturity securities:U.S. government and agencies $ 21,596 $ 667 $ (61) $ 22,202Foreign government 81,367 13,182 (8) 94,541States and political subdivisions 26,758 754 (293) 27,219Corporates (1) 1,276,906 112,821 (3,806) 1,385,921Mortgage-and asset-backed securities (1) 523,130 31,366 (3,018) 551,478Total fixed-maturity securities 1,929,757 158,790 (7,186) 2,081,361Equity securities 17,394 5,826 (7) 23,213Total fixed-maturity and equity securities $ 1,947,151 $ 164,616 $ (7,193) $2,104,574(1) Includes $3.5 million of other-than-temporary non-credit-related losses recognized in AOCI.Cost oramortizedcostDecember 31, 2009GrossunrealizedgainsGrossunrealizedlossesFair value(In thousands)Securities available for sale, carried at fairvalue:Fixed-maturity securities:U.S. government and agencies $ 18,452 $ 397 $ (362) $ 18,487Foreign government 351,167 39,868 (604) 390,431States and political subdivisions 35,591 1,044 (597) 36,038Corporates (1) 3,913,566 247,933 (43,852) 4,117,647Mortgage- and asset-backed securities (1) 1,819,282 65,675 (69,381) 1,815,576Total fixed-maturity securities 6,138,058 354,917 (114,796) 6,378,179Equity securities 45,937 4,111 (722) 49,326Total fixed-maturity and equity securities $6,183,995 $359,028 $ (115,518) $6,427,505(1) Includes $24.8 million of other-than-temporary non-credit-related losses recognized in AOCI.Primerica 2010 Annual Report 125


All of our mortgage- and asset-backedsecurities represent variable interests invariable interest entities (VIEs). We are not theprimary beneficiary of these VIEs, because wedo not have the power to directthe activities that mostsignificantly impact the entities’economic performance. Themaximum exposure to loss as aresult of our involvement inthese VIEs equals the carrying value of thesecurities.As required by law, we haveinvestments on deposit withgovernmental authorities andbanks for the protection ofpolicyholders. The fair values ofinvestments on deposits wereas follows:December 31,2010 2009(In thousands)Fair value of investments on deposit withgovernmental authorities $18,984 $18,573We participate in securities lendingtransactions with broker-dealers and otherfinancial institutions to increase investmentincome with minimal risk. We require minimumcollateral on securities loaned equal to 102% ofthe fair value of the loaned securities. Weaccept collateral in the form of securities, whichwe are not able to sell or encumber, and to theextent it declines in value below 100%, werequire additional collateral from theborrower. Any securities collateral received isnot reflected on our Balance Sheet. We alsoaccept collateral in the form of cash, all ofwhich we reinvest. We primarily invest the cashcollateral in short-term, highly ratedsecurities. The cash collateral received isreflected as a payable under securities lendingon our consolidated and combined balancesheet with an offsetting other asset on ourconsolidated and combined balance sheet. Cashcollateral received and reinvested was asfollows:December 31,2010 2009(In thousands)Securities lending collateral $181,726 $510,101126 Freedom Lives Here We also maintain a portfolio of fixed-maturitysecurities that are classified as tradingsecurities. The carrying value of thesesecurities was as follows:December 31,2010 2009(In thousands)Fixed-maturity securities classified as trading,carried at fair value $22,767 $16,996Investments in fixed-maturity and equitysecurities with a cost basis in excess of theirfair values were as follows:December 31,2010 2009(In thousands)Fixed-maturity and equity security investmentswith cost basis in excess of fair value $258,947 $1,522,454


The following tables summarize, for allsecurities in an unrealized loss position, theaggregate fair value and the gross unrealizedloss by length of time such securities havecontinuously been in an unrealized lossposition:December 31, 2010Less than 12 months12 months or longerUnrealizedlossesNumberofsecuritiesUnrealizedlossesNumberofsecuritiesFair valueFair value(Dollars in thousands)Fixed-maturity securities:U.S. government and agencies $ 6,350 $ (61) 2 $ — $ — —Foreign government 2,478 (8) 1 — — —States and politicalsubdivisions 11,015 (293) 29 — — —Corporates 151,291 (2,961) 104 12,690 (845) 14Mortgage-and asset-backedsecurities 30,685 (365) 25 37,215 (2,653) 20Total fixed-maturitysecurities 201,819 (3,688) 49,905 (3,498)Equity securities — — — 30 (7) 2Total fixed-maturity andequity securities $ 201,819 $(3,688) $ 49,935 $ (3,505)December 31, 2009Less than 12 months12 months or longerUnrealizedlossesNumberofsecuritiesUnrealizedlossesNumberofsecuritiesFair valueFair value(Dollars in thousands)Fixed-maturity securities:U.S. government and agencies $ 7,612 $ (104) 3 $ 4,844 $ (258) 2Foreign government 30,441 (341) 30 7,156 (263) 4States and politicalsubdivisions 15,668 (579) 7 548 (18) 1Corporates 347,007 (6,340) 185 471,130 (37,512) 298Mortgage-and asset-backedsecurities 132,369 (1,735) 50 377,035 (67,646) 199Total fixed-maturitysecurities 533,097 (9,099) 860,713 (105,697)Equity securities 10,947 (492) 18 2,179 (230) 17Total fixed-maturity andequity securities $544,044 $ (9,591) $862,892 $(105,927)Primerica 2010 Annual Report 127


Gross unrealized losses as a percentage of the fairvalue of total available-for-sale fixed-maturity andequity securities were less than 1% at December 31,2010, compared with approximately 2% atDecember 31, 2009. The decline in the percentagefrom year-end 2009 was primarily a result of thestrong market value gains that our invested assetportfolio has experienced in 2010 as interest ratesand spreads continue to decline.The percentages of investment-grade fixed-maturitysecurities in a gross unrealized loss position, bylength of time, were as follows:December 31,2010 2009Fixed-maturity securities in a gross unrealized loss positionfor less than 12 months that are investment grade 92% 94%Fixed-maturity securities in a gross unrealized loss positionfor 12 months or longer that are investment grade 69% 83%The decline in the percentages of investmentgradefixed-maturity securities in an unrealizedloss position was primarily a result of thechange in the composition of our invested assetportfolio as a result of our corporatereorganization as well as increased marketvalues as interest rates and spreads declinedduring 2010.The scheduled maturity distribution of theavailable-for-sale fixed-maturity portfolio follows.December 31, 2010Cost oramortized cost Fair value(In thousands)Due in one year or less $ 177,927 $ 181,887Due after one year through five years 655,609 709,776Due after five years through 10 years 513,974 574,212Due after 10 years 59,117 64,0081,406,627 1,529,883Mortgage-and asset-backed securities 523,130 551,478Total fixed-maturity securities $1,929,757 $ 2,081,361Expected maturities may differ from scheduledcontractual maturities because issuers of securitiesmay have the right to call or prepay obligations with orwithout call or prepayment penalties.128 Freedom Lives Here


The net effect on stockholders’ equity ofunrealized gains and losses from investmentsecurities was as follows:December 31,2010 2009(In thousands)Net unrealized investment gains including foreign currency translation adjustment andother-than-temporary impairments $157,423 $243,510Less foreign currency translation adjustment (9,766) (43,533)Other-than-temporary impairments 3,500 24,800Net unrealized investment gains excluding foreign currency translationadjustment and other-than-temporary impairments 151,157 224,777Less deferred income taxes 52,835 78,672Net unrealized investment gains excluding foreign currency translationadjustment and other-than-temporary impairments, net of tax $ 98,322 $ 146,105Investment IncomeThe components of net investment incomewere as follows:Year ended December 31,2010 2009 2008(In thousands)Fixed-maturity securities $ 168,051 $352,753 $ 311,442Equity securities 1,822 6,923 (2,789)Policy loans and other invested assets 1,403 1,549 1,773Cash and cash equivalents 562 2,887 16,248Market return on deposit asset underlying 10% reinsurance agreement 1,471 299 1,468Gross investment income 173,309 364,411 328,142Less investment expenses 8,198 13,085 14,107Net investment income $ 165,111 $ 351,326 $314,035Trading portfolio gains (losses) included in netinvestment income were as follows:Year ended December 31,2010 2009 2008(In thousands)Trading portfolio gains (losses) includedin net investment income $533 $1,770 $(987)Trading portfolio (losses) gains included in netinvestment income from fixed-maturitysecurities still owned was as follows:Year ended December 31,2010 2009 2008(In thousands)Trading portfolio (losses) gains fromfixed-maturity securities still owned $(223) $1,216 $(2,665)Primerica 2010 Annual Report 129


We use the specific-identification method todetermine the realized gains or losses fromsecurities transactions. The components of netrealized investment gains (losses) as well asdetails on gross realized investment gains andlosses and proceeds from sales or otherredemptions were as follows:Year ended December 31,2010 2009 2008(In thousands)Gross realized investment gains (losses):Gains from sales $ 47,925 $ 42,983 $ 12,933Losses from sales (2,257) (3,518) (2,546)Other-than-temporary impairments (12,158) (61,394) (114,022)Gains (losses) from derivatives 635 (41) 155Net realized investment gains (losses) $ 34,145 $ (21,970) $ (103,480)Gross realized investment gains (losses) reclassified fromaccumulated other comprehensive income $ 33,510 $ (21,929) $ (103,635)Proceeds from sales or other redemptions $1,543,976 $1,592,687 $1,453,956Other-Than-Temporary ImpairmentWe conduct a review each quarter to identifyand evaluate impaired investments that haveindications of possible other-than-temporaryimpairment (OTTI). An investment in a debt orequity security is impaired if its fair value fallsbelow its cost. Factors considered indetermining whether an unrealized loss istemporary include the length of time andextent to which fair value has been below cost,the financial condition and near-term prospectsfor the issuer, and our evaluation of our intentto sell the security prior to recovery of itsamortized cost, which may be maturity.Our review for other-than-temporaryimpairment generally entails:• Analysis of individual investments thathave fair values less than a pre-definedpercentage of amortized cost, includingconsideration of the length of time theinvestment has been in an unrealized lossposition;• Analysis of corporate bonds by reviewingthe issuer’s most recent performance todate, including analyst reviews, analystoutlooks and rating agency information;• Analysis of commercial mortgage-backedbonds based on the risk assessment ofeach security including performance todate, credit enhancement, risk analyticsand outlook, underlying collateral, lossprojections, rating agency information andavailable third-party reviews and analytics;• Analysis of residential mortgage-backedbonds based on loss projections providedby models compared to current creditenhancement levels;• Analysis of our other investments, asrequired based on the type of investment;and• Analysis of downward credit migrationsthat occurred during the quarter.130 Freedom Lives Here


The amortized cost and fair value ofavailable-for-sale fixed-maturity securities indefault were as follows:December 31,2010AmortizedcostFairvalueDecember 31,2009AmortizedcostFairvalue(In thousands)Fixed-maturity securities in default $970 $1,558 $5,807 $9,807Impairment charges recognized in earnings onavailable-for-sale securities were as follows:Year ended December 31,2010 2009 2008(In thousands)Impairments on fixed-maturity securities indefault $ 39 $20,275 $ 37,837Impairments on fixed-maturity securities notin default 11,855 38,765 66,528Impairments on equity securities 264 2,354 9,657Net impairment losses recognized inearnings $12,158 $ 61,394 $114,022The bonds noted above were considered to beother-than-temporarily impaired due to adversecredit events, such as news of an impendingfiling for bankruptcy; analyses of the issuer’smost recent financial statements or otherinformation in which liquidity deficiencies,significant losses and large declines incapitalization were evident; and analyses ofrating agency information for issuances withsevere ratings downgrades that indicated asignificant increase in the possibility of default.Additionally, various mortgage- and assetbackedsecurities were impaired due tochanges in expected cash flows for theunderlying collateral loans. The changes weredriven primarily by revised forecasts usingupdated assumptions for delinquency rates,default rates, prepayment rates, loss severitiesand remaining credit subordination. Theserevisions were factored into updated cash flowprojections where applicable using eitherpublicly available or proprietary models.Regardless of their default status, individualsecurities were impaired if updated cash flowprojections indicated an adverse change.Due to deterioration across the forecastedassumptions for these securities, we recognizeda charge against net income for impairments onPrimerica 2010 Annual Report 131


mortgage- and asset-backed securities. Theseimpairment charges are included in the lossesdiscussed above and were as follows:Year ended December 31,2010 2009 2008(In thousands)Impairments on mortgage- and asset-backedsecurities $5,939 $6,339 $9,776As of December 31, 2010, the unrealized losseson our invested asset portfolio were largelycaused by interest rate sensitivity and changesin credit spreads. We believe that fluctuationscaused by interest rate movement have littlebearing on the recoverability of our investment.Because the decline in fair value is attributableto changes in interest rates and not creditquality, and because we have the ability to holdthese investments until a market price recoveryor maturity as well as no present intention todispose of them, we do not consider theseinvestments to be other-than-temporarilyimpaired.OTTI recognized during the year endedDecember 31, 2010 were as follows:Year endedDecember 31,2010 2009(In thousands)Impairment losses related to securities which the Company does not intend to sell or is more-likelythan-notthat it will be required to sell:Total OTTI losses recognized $ 1,402 $34,616Less portion of OTTI loss recognized in accumulated other comprehensive income (loss) (553) (13,573)Net impairment losses recognized in earnings for securities that the Company does not intend to sell or ismore-likely-than-not that it will not be required to sell before recovery 849 21,043OTTI losses recognized in earnings for securities that the Company intends to sell or more-likely-than-notwill be required to sell before recovery 11,309 40,351Net impairment losses recognized in earnings $12,158 $ 61,394132 Freedom Lives Here


The roll-forward of credit-related lossesrecognized in income for securities still heldfollows:January 1,2010cumulativeOTTIcredit lossesrecognized forsecuritiesstill heldCumulative OTTI credit-related losses recognized inincome for available-for-sale securitiesAdditionsfor OTTIsecuritieswhere no creditlosses wererecognizedprior toJanuary 1,2010Additionsfor OTTIsecuritieswhere creditlosses havebeen recognizedprior toJanuary 1,2010Reductionsdue to salesof creditimpairedsecurities (1)December 31,2010cumulativeOTTIcredit lossesrecognized forsecuritiesstill held(In thousands)Corporates $ 82,413 $5,297 $ 658 $(60,339) $28,029Mortgage- and assetbackedsecurities 16,115 4,545 1,394 (8,954) 13,100Total $98,528 $9,842 $2,052 $(69,293) $ 41,129(1) Included in these reductions are transfers of securities effected in conjunction with our corporate reorganization.Fair ValueFair value is the price that would be received tosell an asset in an orderly transaction betweenmarket participants at the measurement date.Fair value measurements are based uponobservable and unobservable inputs.Observable inputs reflect market data obtainedfrom independent sources, while unobservableinputs reflect our view of market assumptionsin the absence of observable marketinformation. All invested assets carried at fairvalue are classified and disclosed in one of thefollowing three categories:• Level 1. Quoted prices for identicalinstruments in active markets. Level 1primarily consists of financial instrumentswhose value is based on quoted marketprices in active markets, such as exchangetradedcommon stocks and actively tradedmutual fund investments.• Level 2. Quoted prices for similarinstruments in active markets; quotedprices for identical or similar instrumentsin markets that are not active; and modelderivedvaluations in which all significantinputs and significant value drivers areobservable in active markets. Level 2includes those financial instruments thatare valued using industry-standard pricingmethodologies, models or other valuationmethodologies. Various inputs areconsidered in deriving the fair value of theunderlying financial instrument, includinginterest rate, credit spread, and foreignexchange rates. All significant inputs areobservable, or derived from observableinformation in the marketplace or aresupported by observable levels at whichtransactions are executed in themarketplace. Financial instruments in thiscategory primarily include: certain publicand private corporate fixed-maturity andequity securities; government or agencysecurities; certain mortgage- and assetbackedsecurities and certainnon-exchange-traded derivatives, such ascurrency swaps and forwards.• Level 3. Valuations derived from valuationtechniques in which one or more significantinputs or significant value drivers areunobservable. Level 3 consists of financialinstruments whose fair value is estimatedbased on industry-standard pricingmethodologies and models usingsignificant inputs not based on, norcorroborated by, readily available marketinformation. Valuations for this categoryprimarily consist of non-binding brokerquotes. Financial instruments in thiscategory primarily include less liquid fixedmaturitycorporate securities.Primerica 2010 Annual Report 133


As of each reporting period, all assets andliabilities recorded at fair value are classified intheir entirety based on the lowest level of inputthat is significant to the fair valuemeasurement. Significant levels of estimationand judgment are required to determine thefair value of certain of our investments. Thefactors influencing these estimations andjudgments are subject to change in subsequentreporting periods.The estimated fair value and hierarchyclassifications were as follows:December 31, 2010Level 1 Level 2 Level 3 Fair value(In thousands)Fair value assets:Fixed-maturity securities:U.S. government and agencies $ — $ 22,202 $ — $ 22,202Foreign government — 94,541 — 94,541States and political subdivisions — 27,219 — 27,219Corporates — 1,366,774 19,147 1,385,921Mortgage- and asset-backed securities — 549,188 2,290 551,478Total fixed-maturity securities — 2,059,924 21,437 2,081,361Equity securities 15,110 4,542 3,561 23,213Trading securities — 22,767 — 22,767Separate accounts — 2,446,786 — 2,446,786Total fair value assets $ 15,110 $ 4,534,019 $ 24,998 $ 4,574,127Fair value liabilities:Currency swaps and forwards $ — $ 2,228 $ — $ 2,228Separate accounts — 2,446,786 — 2,446,786Total fair value liabilities $ — $ 2,449,014 $ — $ 2,449,014December 31, 2009Level 1 Level 2 Level 3 Fair value(In thousands)Fair value assets:Fixed-maturity securities:U.S. government and agencies $ — $ 18,487 $ — $ 18,487Foreign government — 390,431 — 390,431States and political subdivisions — 36,038 — 36,038Corporates — 4,097,202 20,445 4,117,647Mortgage-and asset-backed securities — 1,066,966 748,610 1,815,576Total fixed-maturity securities — 5,609,124 769,055 6,378,179Equity securities 15,575 31,535 2,216 49,326Trading securities — 16,996 — 16,996Separate accounts — 2,093,342 — 2,093,342Total fair value assets $15,575 $ 7,750,997 $ 771,271 $ 8,537,843Fair value liabilities:Currency swaps and forwards $ — $ 2,707 $ — $ 2,707Separate accounts — 2,093,342 — 2,093,342Total fair value liabilities $ — $2,096,049 $ — $2,096,049In assessing fair value of our investments, weuse a third-party pricing service forapproximately 95% of our securities. Theremaining securities are primarily privatesecurities valued using models based onobservable inputs on public corporate spreads134 Freedom Lives Here


having similar tenors (e.g., sector, average lifeand quality rating) and liquidity and yield basedon quality rating, average life and treasuryyields. All data inputs come from observabledata corroborated by independent third-partydata. In the absence of sufficient observableinputs, we utilize non-binding broker quotes,which are reflected in our Level 3 classification.We perform internal reasonablenessassessments on fair value determinationswithin our portfolio. If a fair value appearsunusual, we will re-examine the inputs and maychallenge a fair value assessment made by thepricing service. If there is a known pricing error,we will request a reassessment by the pricingservice. If the pricing service is unable toperform the reassessment on a timely basis, wewill determine the appropriate price bycorroborating with an alternative pricingservice or other qualified source as necessary.We do not adjust quotes orprices except in a rarecircumstance to resolve aknown error.Because many fixed-maturitysecurities do not trade on a dailybasis, fair value is determinedusing industry- standardmethodologies by applyingavailable market informationthrough processes such as U.S.Treasury curves, benchmarkingof similar securities, sectorgroupings, quotes from marketparticipants and matrix pricing. Observableinformation is compiled and integrates relevantcredit information, perceived marketmovements and sector news. Additionally,security prices are periodically back-tested tovalidate and/or refine models as conditionswarrant. Market indicators and industry andeconomic events are also monitored as triggersto obtain additional data. For certain structuredsecurities with limited trading activity, industrystandardpricing methodologies use adjustedmarket information, such as index prices ordiscounting expected future cash flows, toestimate fair value. If these measures are notdeemed observable for a particular security,the security will be classified as Level 3 in thefair value hierarchy.Where specific market information isunavailable for certain securities, pricingmodels produce estimates of fair valueprimarily using Level 2 inputs along with certainLevel 3 inputs. These models include matrixpricing. The pricing matrix uses currenttreasury rates and credit spreads received fromthird-party sources to estimate fair value. Thecredit spreads incorporate the issuer’sindustry- or issuer-specific creditcharacteristics and the security’s time tomaturity, if warranted. Remaining un-pricedsecurities are valued using an estimate of fairvalue based on indicative market prices thatinclude significant unobservable inputs notbased on, nor corroborated by, marketinformation, including the utilization ofnon-binding broker quotes.The year-to-date roll forward of the Level 3asset category was as follows:Year endedDecember 31,2010 2009(In thousands)Level 3 assets, beginning of period $ 771,271 $739,409Net unrealized (losses) gains through othercomprehensive income (2,904) 12,818Net realized losses through realized investment gains(losses), including OTTI (28) —Purchases 11,250 7,085Sales (40,154) —Transfers into level 3 44,522 11,959Transfers out of level 3 (236,587) —Transfers due to funding of reinsurance transactions (522,372) —Level 3 assets, end of period $ 24,998 $ 771,271We obtain independent pricing quotes based onobservable inputs as of the end of the reportingperiod for all securities in Level 2. Those inputsinclude benchmark yields, reported trades,broker/dealer quotes, issuer spreads, two-sidedmarkets, benchmark securities, market bids/offers, and other relevant data. We monitorthese inputs for market indicators, industry andeconomic events. We recognize transfers intonew levels and out of previous levels as of theend of the reporting period, including interimreporting periods, as applicable. Invested assetsincluded in the transfer from Level 3 to Level 2were primarily non-agency mortgage-backedsecurities. Invested assets included in thetransfer from Level 2 to Level 3 primarily werefixed-maturity investments for which we werePrimerica 2010 Annual Report 135


unable to corroborate independent brokerquotes with observable market data. Therewere no significant transfers between Level 1and Level 2 or between Level 1 and Level 3during 2010.Fair Value OptionWe elected the fair value option of accountingfor certain equity investments that were not inthe Russell 3000 Index. Changes in the fairvalue of such investments are recorded in netinvestment income. The fair value of equitysecurities selected for fair value accountingwas as follows:Year endedDecember 31,2010 2009(In thousands)Fair value, beginning ofperiod $7,693 $4,579Fair value, end of period — 7,693In connection with our corporatereorganization, in the first quarter of 2010, wetransferred to Citi or sold to third parties all ofthe securities that had previously beenaccounted for using the fair value option. Fairvalue gains included in net investment incomewere as follows:Year ended December 31,2010 2009 2008(In thousands)Fair value gains(losses) included innet investmentincome $667 $3,101 $(5,397)The aggregate notional balance and fair valueof our derivatives was as follows:December 31,2010 2009(In thousands)Aggregate notionalbalance of derivatives $ 5,878 $21,689Aggregate fair value ofderivatives (2,228) (2,707)The change in fair value of these derivatives, asincluded in realized investment gains (losses)was as follows:Year ended December 31,2010 2009 2008(In thousands)Change in fair value $635 $(41) $155We have a deferred loss related to closedforward contracts that were used to mitigateour exposure to foreign currency exchangerates that resulted from the net investment inour Canadian operations. The amount ofdeferred loss included in accumulated othercomprehensive income was as follows:December 31,2010 2009(In thousands)Deferred loss related toclosed forwardcontracts $26,385 $26,385While we have no current intention to do so,these deferred losses will not be recognizeduntil such time as we sell or substantiallyliquidate our Canadian operations.DerivativesWe use foreign currency swaps to reduce ourforeign exchange risk due to direct investmentin foreign currency-denominated debtsecurities. At December 31, 2009, we also hadforward foreign currency contracts to reduceour exposure to foreign currency exchangerates that resulted from direct investment inforeign currency denominated debt securities.We had no forward currency contracts atDecember 31, 2010.136 Freedom Lives Here


(5) Financial InstrumentsThe carrying values and estimated fair values of ourfinancial instruments were as follows:December 31, 2010 December 31, 2009CarryingvalueEstimatedfair valueCarryingvalueEstimatedfair value(In thousands)Assets:Fixed-maturity securities $ 2,081,361 $ 2,081,361 $ 6,378,179 $ 6,378,179Equity securities 23,213 23,213 49,326 49,326Trading securities 22,767 22,767 16,996 16,996Policy loans and other invested assets 26,229 26,229 26,921 26,921Other invested assets 14 14 26 26Deposit asset underlying 10% reinsuranceagreement 50,099 50,099 — —Separate accounts 2,446,786 2,446,786 2,093,342 2,093,342Liabilities:Note payable $ 300,000 $ 323,670 $ — $ —Currency swaps and forwards 2,228 2,228 2,707 2,707Separate accounts 2,446,786 2,446,786 2,093,342 2,093,342The fair values of financial instrumentspresented above are estimates of the fairvalues at a specific point in time using varioussources and methods, including marketquotations and a complex matrix system thattakes into account issuer sector, quality, andspreads in the current marketplace.Estimated fair values of investments in fixedmaturitysecurities are principally a function ofcurrent spreads and interest rates that areprimarily provided by a third-party vendor.Therefore, the fair values presented areindicative of amounts we could realize or settleat the respective balance sheet date. We do notnecessarily intend to dispose of or liquidatesuch instruments prior to maturity. Tradingsecurities, which primarily consist of fixedmaturitysecurities, are carried at fair value.Equity securities, including common andnon-redeemable preferred stocks, are carriedat fair value. The carrying value of policy loansand other invested assets approximates fairvalue. The fair value of our note payable isbased on prevailing interest rates and anestimated spread based on notes ofcomparable issuers and maturity. Derivativeinstruments are stated at fair value based onmarket prices. Segregated funds in separateaccounts are carried at the underlying value ofthe variable insurance contracts, which is fairvalue.The carrying amounts for cash and cashequivalents, receivables, accrued investmentincome, accounts payable, cash collateral andpayables for security transactionsapproximated their fair values due to the shorttermnature of these instruments.Consequently, such instruments are notincluded in the above table. The preceding tablealso excludes future policy benefits and unpaidpolicy claims as these items are not subject tofinancial instrument disclosures.Primerica 2010 Annual Report 137


(6) ReinsuranceCeded reinsurance arrangements do not relieveus of our primary obligation to the policyholder.Our reinsurance contracts typically do not havea fixed term. In general, the reinsurers’ abilityto terminate coverage for existing cessions islimited to such circumstancesas material breach of contractor nonpayment of premiums bythe ceding company. Ourreinsurance contracts generallycontain provisions intended toprovide the ceding companywith the ability to cede futurebusiness on a basis consistentwith historical terms. However,either party may terminate anyof the contracts with respect tothe future business uponappropriate notice to the otherparty. Generally, thereinsurance contracts do notlimit the overall amount of the loss that can beincurred by the reinsurer.Our policy is to limit the amount of lifeinsurance retained on the life of any one personto $1 million. To limit our exposure with any onereinsurer, we monitor the concentration ofcredit risk we have with our reinsurancecounterparties, as well as their financialcondition. We have not experienced any creditlosses related to our reinsurancecounterparties during the three-year periodended December 31, 2010.Due from reinsurers represents ceded policyreserve balances and ceded claim liabilities. Theamounts of ceded claim liabilities included indue from reinsurers that we paid and which arerecoverable from those reinsurers were asfollows:December 31,2010 2009(In thousands)Ceded claim liabilities recoverable from reinsurers $30,981 $57,001Details on in-force life insurance follow:December 31,2010 2009(Dollars in millions)Direct life insurance in force $ 662,135 $ 654,153Amounts ceded to other companies (600,807) (421,603)Net life insurance in force $ 61,328 $ 232,550Percentage of reinsured life insurance in force 90.7% 64.5%The significant increase in amounts ceded toother companies resulted from the Citireinsurance transactions we executed inconnection with our corporate reorganization(see Note 2). Three of the Citi coinsuranceagreements satisfy GAAP risk transfer rules.Under these agreements, we ceded between80% and 90% of our term life future policybenefit reserves, and we transferred acorresponding amount of assets to the Citireinsurers. These transactions did not impactour future policy benefit reserves. As such, werecorded an asset in due from reinsurers forthe same amount of risk transferred. Amountsceded to other companies do not reflect thosecontracts accounted for under the depositmethod of accounting.138 Freedom Lives Here


Due from reinsurers includes ceded reserve balancesand ceded claim liabilities. Reinsurance receivableand ratings by reinsurer were as follows:ReinsurancereceivableDecember 31,2010 2009A.M. BestratingReinsurancereceivableA.M. Bestrating(In millions)Prime Reinsurance Company, Inc. (1) $2,353 NR $ — —Financial Reassurance Company 2010, Ltd. (1) 333 NR — —American Health and Life Insurance Company (1) 156 A — —Due from related party reinsurers 2,842 —Swiss Re Life & Health America Inc. 242 A 183 ASCOR Global Life Reinsurance Companies 139 A 150 A-Generali USA Life Reassurance Company 112 A 117 ATransamerica Reinsurance Companies 103 A+ 101 AMunich American Reassurance Company 97 A+ 84 A+Korean Reinsurance Company 83 A- — —RGA Reinsurance Company 64 A+ 73 A+Scottish Re Companies 4 E 51 EAll other reinsurers 46 — 108 —Due from reinsurers $ 3,732 $867(1) Amounts shown are net of their share of the reinsurance recoverable from other reinsurers.NR – not ratedCertain reinsurers with which we do businessreceive group ratings. Individually, thosereinsurers are Scor Global Life Re InsuranceCompany of Texas, Scor Global Life U.S. ReInsurance Company, Transamerica FinancialLife Insurance Company, and Transamerica LifeInsurance Company.As Prime Re and Financial ReassuranceCompany 2010, Ltd. (FRAC) do not havefinancial strength ratings, we required varioussafeguards prior to executing the coinsuranceagreements. Both coinsurance agreementsinclude provisions to ensure that Primerica Lifeand Primerica Life Canada receive fullregulatory credit for the reinsurance treaties.Under these agreements, Primerica Life andPrimerica Life Canada will be able to recapturethe ceded business with no fee in the eventPrime Re or FRAC do not comply with thevarious safeguard provisions in their respectivecoinsurance agreements. Prime Re also hasentered into a capital maintenance agreementrequiring Citi to provide additional funding, ifneeded, at any point during the term of theagreement up to the maximum as described inthe capital maintenance agreement.A fourth coinsurance agreement relates to a10% reinsurance transaction that includes anexperience refund provision. This agreementdoes not satisfy GAAP risk transfer rules. As aresult, we have accounted for this contractusing deposit method accounting and haverecognized a deposit asset in other assets onour balance sheet for assets backing theeconomic reserves. The deposit assets held insupport of this agreement were $50.1 million atDecember 31, 2010, with no associated liability.We will make contributions to the deposit assetduring the life of the agreement to fulfill ourresponsibility of funding the economic reserve.The market return on these deposit assets isreflected in net investment income during thelife of the agreement. Prime Re is responsiblefor ensuring that there are sufficient assets tomeet all statutory requirements. We will payPrime Re a 3% finance charge for any statutoryreserves required above the economicreserves. This finance charge is reflected ininterest expense in our statements of income.As of December 31, 2010, we had access toletters of credit of approximately $105.8 millionspecifically maintained by certain of ourPrimerica 2010 Annual Report 139


einsurance partners to satisfy statutoryrequirements related to reinsurance claimsreceivable. As of December 31, 2010, theCompany had not drawn any amounts on theselines of credit.During the fourth quarter of 2010,we entered into an agreementwith Scottish Re Companies(Scottish Re) and KoreanReinsurance Company (KoreanRe) to novate to Korean Re theTerm Life reinsurance originallyceded to Scottish Re. During thesame period, we also entered into anagreement to novate to Korean Re the TermLife reinsuranceoriginally ceded to The Canada Life AssuranceCompany. As of December 31, 2010, Korean Rehad an A.M. Best rating of A-. The novations didnot impact our balance sheet or statement ofincome.In October 2010, a routine reinsurance auditidentified payments to reinsurers that mayhave exceeded our obligations under ourreinsurance agreements. We were uncertain ofour ability to recover past ceded premiums, butin the fourth quarter of 2010, we approachedour reinsurers and reached agreements torecover certain of these past ceded premiumsfor post-issue underwriting class upgrades. Themost common reason for such an upgradeoccurs when someone who was originallyissued a term life policy as a tobacco usersubsequently quits using tobacco. Historically,we have reduced policyholder premiums forsuch upgrades, but have not reduced cededpremiums to reflect the new underwriting class.As a result, we reduced ceded premiums for2010 by approximately $13.1 million related toagreements obtained with certain reinsurers torecover ceded premiums. The $13.1 million ofrecoveries recognized in 2010 reflects theagreements signed in the fourth quarter of 2010including $18.8 million of gross recoveries, net of$5.7 million passed on to the Citi reinsurers inaccordance with the terms of the associatedreinsurance agreements. We expectapproximately $8.7 million of additionalrecoveries in the first quarter of 2011 for the finalagreements which were signed in January 2011.(7) Deferred Policy Acquisition CostsThe balances of and changes in DAC were asfollows:Year ended December 31,2010 2009 2008(In thousands)DAC balance, beginning of period $2,789,905 $ 2,727,422 $2,510,045Capitalization 317,069 391,079 432,071Amortization (168,035) (381,291) (144,490)Transferred to Citi reinsurers (2,099,941) — —Foreign exchange and other 14,213 52,695 (70,204)DAC balance, end of period $ 853,211 $2,789,905 $2,727,422Investment yield reserve assumptions atDecember 31, 2010 ranged from approximately4.0% to 7.0%, compared with a range ofapproximately 5.0% to 7.0% as December 31,2009. During 2010, we lowered the interestrate assumption to reflect rates available in thecurrent interest rate environment.In 2008, we revised our estimates of DAC andfuture policy benefits. The revised estimatesare based on a policy-by-policy approach ratherthan on an aggregated basis. Furthermore,under the new estimation method, if policieslapse at a rate other than what was originallyassumed, the DAC and FPB are immediatelyrevised, whereas under the previous estimationmethod, the financial impact of such varianceswas recorded prospectively over the remaininglife of the aggregate block of policies. Weaccounted for this change in accountingestimate effected by a change in accountingprinciple prospectively, resulting in therecognition of a net pretax loss of $191.7 millionin the accompanying combined statement ofincome for the year ended December 31, 2008.140 Freedom Lives Here


(8) Intangible Assets and GoodwillThe components of intangible assets were asfollows:December 31, 2010GrosscarryingamountAccumulatedamortizationNetcarryingamount(In thousands)Amortizing intangible asset $ 84,871 $(54,789) $30,082Indefinite-lived intangible asset 45,275 — 45,275Total intangible assets $130,146 $(54,789) $75,357GrosscarryingamountDecember 31, 2009AccumulatedamortizationNetcarryingamount(In thousands)Amortizing intangible asset $ 84,871 $ (51,251) $33,620Indefinite-lived intangible asset 45,275 — 45,275Total intangible assets $130,146 $ (51,251) $78,895We have an amortizing intangible asset relatedto the July 1995 sales agreement terminationpayment to Management Financial Services,Inc. This asset is supported by a non-competeagreement with the founder of our businessmodel. We calculate the amortization of thiscontract buyout on a straight-line basis over24 years, which represents the life of thenon-compete agreement. Intangible assetamortization expense was $3.5 million in eachof 2010, 2009 and 2008. Amortization expenseis expected to be $3.5 million annuallythereafter. As of December 31, 2010, weassessed this asset for impairment. We basedour impairment review on an undiscountedcash flow analysis and determined that noimpairment had occurred as of December 31,2010.We also have an indefinite-lived intangible assetrelated to the 1988 purchase of the right tocontract with the sales representative force.This asset represents the core distributionmodel of our business, which is our primarycompetitive advantage to profitably distributeterm life insurance products on a significantscale, and as such, is considered to have anindefinite life. No amortization was recognizedon this asset during 2010, 2009 or 2008. Thisintangible asset is supported by a significantportion of the discounted cash flows of ourfuture business. As of December 31, 2010, weassessed this asset for impairment and wedetermined that the fair value of this assetexceeded its carrying value asof that date. As such, wedetermined that no impairmenthad occurred as ofDecember 31, 2010.In the fourth quarter of 2008,we noted that marketdeterioration, including aliquidity crisis, resulted in asignificant increase in thediscount rates being used tovalue businesses relative toprior periods. As such, inDecember 2008, we tested ourthen-existing $195.0 millionbalance of goodwill forimpairment. Under the two-stepimpairment test, we first tested and thendetermined that the fair value of the lifereporting unit did not exceed its carrying value.We then performed the second step usingdiscount rates and various other assumptionsrelevant as of December 31, 2008, anddetermined that there was no goodwillremaining in our life reporting unit. As a result,we recorded a pre-tax impairment charge of$195.0 million in the Corporate and OtherDistributed Products segment as ofDecember 31, 2008.(9) Separate AccountsThe Funds consist of a series of five bandedinvestment funds known as the Asset BuilderFunds and one money market fund known as theCash Management Fund. The principalinvestment objective of each of the AssetBuilder Funds is to achieve long-term growthwhile preserving capital through a diversifiedportfolio of publicly traded Canadian stocks,investment-grade corporate bonds, Governmentof Canada bonds, and foreign equityinvestments. The Cash Management Fundinvests in government guaranteed short-termbonds and short-term commercial and bankpapers, with the principal investment objectivebeing the provision of interest income whilemaintaining liquidity and preserving capital.Primerica 2010 Annual Report 141


Payments to contract owners under thesecontract offerings are only due upon death ofthe annuitant or upon reaching a specificmaturity date. Payments are based on the valueof the contract owner’s units inthe portfolio at the paymentdate, but are guaranteed to beno less than 75% of thecontract owner’s contribution,reduced by any withdrawals.Account values are notguaranteed for withdrawn unitsif contract owners makewithdrawals prior to thematurity dates. Maturity datesvary from contract to contractand range from 10 to 50 yearsfrom the contract start date.Both the asset and the liabilityfor the separate accountsreflect the value of theunderlying assets in theportfolio as of the reporting date. PrimericaLife Canada’s exposure to losses under theguarantee is limited to those accounts whosevalue has declined to less than 75% ofcontributions made, either at the time theyreach their maturity dates or at the time theannuitant dies. Any withdrawals made from theaccounts reduce this guarantee. Becausematurity dates range from 10 to 50 years, thelikelihood of accounts meeting both of thecriteria for the maturity value guarantee at anygiven point is very small. Additionally, theportfolio consists of a very large number ofindividual contracts, further spreading the riskrelated to the death benefit guarantee beingexercised upon death of the annuitant. Thelength of the contract terms providessignificant opportunity for the underlyingportfolios to recover any short-term lossesprior to maturities or deaths of thepolicyholders.We periodically assess the exposure related tothese contracts to determine whether anyadditional liability should be recorded. As ofDecember 31, 2010 and 2009, an additionalliability for these contracts was deemed to beunnecessary.(10) Insurance ReservesChanges in policy claims and other benefitspayable were as follows:Year ended December 31,2010 2009 2008(In thousands)Policy claims and other benefitspayable, beginning of period $ 218,390 $ 225,641 $ 229,263Less reinsurance 184,381 174,221 172,250Net balance, beginning of period 34,009 51,420 57,013Incurred related to current year 221,601 485,629 483,843Incurred related to prior year 177 (1,852) 1,888Total incurred 221,778 483,777 485,731Paid related to current year (193,320) (455,377) (440,646)Paid related to prior year (35,313) (47,741) (47,725)Total paid (228,633) (503,118) (488,371)Transferred to Citi reinsurers (31,125) — —Foreign currency 520 1,930 (2,953)Net balance, end of period (3,451) 34,009 51,420Add reinsurance 233,346 184,381 174,221Balance, end of period $ 229,895 $ 218,390 $ 225,641The significant decrease in current year incurredand paid balances reflects the effect of the Citireinsurance transactions executed in connectionwith our corporate reorganization. Because theCiti reinsurance transactions were executed onMarch 31, 2010 but transferred the economicimpact of the agreements retroactive toJanuary 1, 2010, we have reflected reinsuredclaims activity attributable to the underlyingpolicies as a reduction to policy claims and otherbenefits payable in the amount of $31.1 million.Investment yield reserve assumptions atDecember 31, 2010 ranged from approximately4.0% to 7.0%, compared with a range ofapproximately 5.0% to 7.0% as December 31,2009. During 2010, we lowered the interestrate assumption to reflect rates available in thecurrent interest rate environment.In 2008, we revised our estimates of DAC andfuture policy benefits. See Note 7 for additionalinformation.142 Freedom Lives Here


(11) Note PayableIn April 2010, we issued to Citi a $300.0 millionnote as part of our corporate reorganization inwhich Citi transferred to us the businesses thatcomprise our operations. Prior to the issuanceof the Citi note, we had no outstanding debt.The Citi note bears interest at an annual rate of5.5%, payable semi-annually in arrears onJanuary 15 and July 15, and matures March 31,2015. Citi may participate out, assign or sell allor any portion of the note at any time.We have the option to redeem the Citi note inwhole or in part at a redemption price equal to100% of the principal amount to be redeemedplus accrued and unpaid interest to the date ofredemption. In the event of a change in control,the holder of the Citi note has the right torequire us to repurchase it at a price equal to101% of the outstanding principal amount plusaccrued and unpaid interest.The Citi note also requires us to use ourcommercially reasonable efforts to arrange andconsummate an offering of investment-gradedebt securities, trust preferred securities,surplus notes, hybrid securities or convertibledebt that generates sufficient net cashproceeds (after deducting fees and expenses)to repay the note in full at certain mutuallyagreeable dates, based oncertain conditions.We were in compliance with allof the covenants of the Citinote at December 31, 2010. Noevents of default or defaultsoccurred during 2010.(12) Income TaxesIn conjunction with the Offering and the privatesale, we made elections under Section338(h)(10) of the Internal Revenue Code, whichresulted in changes to our deferred taxbalances and reduced stockholders’ equity by$172.5 million.During the first quarter of 2010, our federalincome tax return was included as part of Citi’sconsolidated federal income tax return. OnMarch 30, 2010, in anticipation of our corporatereorganization, we entered into a taxseparation agreement with Citi. In accordancewith the tax separation agreement, Citi will beresponsible for and shall indemnify and hold theCompany harmless from and against anyconsolidated, combined, affiliated, unitary orsimilar federal, state or local income tax liabilitywith respect to the Company for any taxableperiod ending on or before April 7, 2010, theclosing date of the Offering.Deferred income taxes are recognized for thefuture tax consequences of temporarydifferences between the financial statementcarrying amounts and the tax bases of assetsand liabilities. The main components ofdeferred income tax assets and liabilities wereas follows:December 31,2010 2009(In thousands)Deferred tax assets:Policy benefit reserves and unpaid policyclaims $ 132,006 $ 5,775Intangibles and tax goodwill 37,719 —Deferred compensation — employee benefits — 45,548Other 9,542 32,230Total deferred tax assets 179,267 83,553Deferred tax liabilities:Deferred policy acquisition costs (247,344) (727,373)Investments (17,469) (35,513)Unremitted earnings on foreign subsidiaries — (68,481)Other (7,456) (51,913)Total deferred tax liabilities (272,269) (883,280)Net deferred tax liabilities $ (93,002) $ (799,727)Primerica 2010 Annual Report 143


The majority of the deferred tax asset isattributable to policy benefit reserves andunpaid policy claims, which represents thedifference between the financial statementcarrying value and tax basis for liabilities forfuture policy benefits. The tax basis for policybenefit reserves and unpaid policy claims areactuarially determined in accordance withguidelines set forth in the Internal RevenueCode. The deferred tax liabilities for DACrepresent the difference between the policyacquisition costs capitalized for GAAP purposesand those capitalized for tax purposes, as wellas the difference in the resulting amortizationmethods.The Company has not recognized a deferredtax liability for the undistributed earnings of itsforeign operations that arose in 2010. As ofDecember 31, 2010, the determination ofundistributed earnings of our Canadiancompanies is not practicable.In assessing the realizability of deferred taxassets, management considers whether it ismore likely than not that some portion or all ofthe deferred tax assets will not be realized.Management considers the scheduled reversalof deferred tax liabilities and projected futuretaxable income in making this assessment.Management believes that it is more likely thannot that the results of future operations willgenerate sufficient taxable income to realizeour deferred tax assets. As a result, novaluation allowance has been recorded relatingto our deferred tax assets for the years endedDecember 31, 2010 or 2009.The total amount of unrecognized tax benefitsthat, if recognized, would affect our effectivetax rate was as follows:December 31,2010 2009(In thousands)Unrecognized tax benefitsyet to impact theeffective tax rate $4,859 $20,505We recognize interest expense related tounrecognized tax benefits in tax expense net offederal income tax. The total amount ofaccrued interest and penalties in theconsolidated and combined balance sheetfollow:December 31,2010 2009(In thousands)Total amount of accruedinterest and penalties $3,932 $3,471We recognized interest (benefit) expenserelated to unrecognized tax expense in theconsolidated and combined statements ofincome as follows:Year ended December 31,2010 2009 2008(In thousands)Interest (benefit)expense relatedto unrecognizedtax expense $(2,576) $(3,062) $1,117Year ended December 31,2010 2009(In thousands)Unrecognized tax benefit, beginning ofperiod $26,608 $ 41,812(Decrease) increase in unrecognized taxbenefits — prior period (300) 864Increase in unrecognized tax benefits —current period 2,112 2,286Reductions in unrecognized tax benefitsas a result of a lapse in statute oflimitations (3,229) (18,354)Unrecognized tax benefit, end of period $ 25,191 $26,608144 Freedom Lives Here


Income tax expense (benefit) attributable to incomefrom continuing operations consists of the following:Current Deferred Total(In thousands)Year ended December 31, 2010:Federal $ 71,533 $ 43,007 $ 114,540Foreign 37,795 (10,660) 27,135State and local 7 (317) (310)Total tax expense $109,335 $ 32,030 $ 141,365Year ended December 31, 2009:Federal $ 217,339 $ 6,623 $223,962Foreign 68,732 (25,949) 42,783State and local (890) (489) (1,379)Total tax expense $ 285,181 $ (19,815) $265,366Year ended December 31, 2008:Federal $216,250 $(70,432) $ 145,818Foreign 32,229 8,934 41,163State and local (1,373) (254) (1,627)Total tax expense $247,106 $ (61,752) $ 185,354Total income tax expense is different from theamount determined by multiplying earnings beforeincome taxes by the statutory federal tax rate of35%. The reason for such difference follows:2010 2009 2008Amount Percentage Amount Percentage Amount Percentage(Dollars in thousands)Computed “expected” tax expense $139,699 35.0% $265,984 35.0% $123,562 35.0%Goodwill impairment — — — — 68,248 19.3Other 1,666 0.4 (618) (0.1) (6,456) (1.8)Total tax expense/effective rate $ 141,365 35.4% $265,366 34.9% $185,354 52.5%We had no material operating losses or any taxcredit carryforwards available for tax purposesfor the years ended 2010, 2009, and 2008.We have no penalties included in calculatingour provision for income taxes. As previouslymentioned, the Company is a party to a taxseparation agreement that includes a taxindemnification agreement, which wasnegotiated and executed as part of theseparation from Citi. The indemnificationrequires Citi to cover income tax liabilitiesincurred by the Company for any consolidated,combined, or unitary returns that end on orprior to the separation. As of December 31,2010, the Company had a Citi taxindemnification asset of $21.5 million. Allconsolidated, combined or unitary tax liabilitiesare payable to either the Parent Company orPrimerica Life, while tax liabilities related toseparate return filings are payable to theappropriate taxing authority.There is no significant change that isreasonably possible to occur within twelvemonths of the reporting date.The major tax jurisdictions in which we operateare the United States and Canada. We arecurrently open to tax audit by the InternalRevenue Service for the years endedDecember 31, 2006 and thereafter for federaltax purposes. We are currently open to audit inCanada for tax years ended December 31, 2004and thereafter for federal and provincial taxpurposes.Primerica 2010 Annual Report 145


(13) Stockholders’ EquityPrior to April 1, 2010, we had 100 shares ofoutstanding common stock. During 2010, weissued common stock as part of our corporatereorganization (see Note 2). A reconciliation ofthe number of outstanding shares of ourcommon stock as of December 31, 2010 follows.Year endedDecember 31, 2010(Shares in thousands)Common stock — issued:Balance, beginning of period —Shares issued to Citi in connection with the Offering (1) 75,000Shares of restricted common stock issued post Offering 11Common shares issued upon lapse of restricted stock units (RSUs) 122Treasury stock retired (2) (2,290)Balance, end of period 72,843Treasury stock:Balance, beginning of period —Treasury stock contributed from Citi (5,021)Treasury stock acquired (6)Treasury stock reissued as restricted common stock 2,737Treasury stock retired (2) 2,290Balance, end of period —Common shares outstanding, end of period 72,843(1) Includes 5,021,412 shares that were contributed back to us and issued to employees and sales force leaders as restrictedcommon stock and RSUs.(2) Reflects RSUs that are excluded from common shares outstanding but will continue to be reissued as common shareswhen their restrictions expire.The following transactions took place on orafter April 1, 2010:• we issued 74,999,900 shares of commonstock to Citi;• we issued warrants to Citi, exercisable for4,103,110 additional shares of our commonstock;• our common stock began trading under theticker symbol PRI on the New York StockExchange;• Citi sold 24,564,000 shares of ourcommon stock to the public in the Offering;• Citi contributed 5,021,412 shares ofcommon stock back to us;• we granted equity awards, including1,865,000 RSUs to sales force leaders;• we granted additional equity awards in theform of 375,000 RSUs vesting July 1, 2010to certain sales force leaders;• we granted 2,560,000 equity award sharesto management in the form of restrictedcommon stock and RSUs;• we issued 210,166 shares of restrictedcommon stock upon the conversion of fullyvested restricted stock awards previouslygranted by Citi and held by certain of oursales force leaders;• we issued 11,246 shares of restrictedcommon stock upon the conversion ofrestricted stock awards previously grantedby Citi and held by management;• we retired 2,284,375 common sharesunderlying the RSU awards described146 Freedom Lives Here


above, plus an additional 7,098 commonshares to cover withholding taxes andemployee forfeitures;• we granted additional equity awards in theform of 187,500 RSUs vesting October 1,2010 to certain sales force leaders;• we granted additional equity awards in theform of 187,500 RSUs vesting January 1,2011 to certain sales force leaders; and• we granted an additional 11,858 shares ofrestricted common stock to ourindependent directors.As a result of the issuance of the new equityawards, we recorded non-cash compensationcharges based on the fair value of awardsvested during the reporting period. Employeeawards representing 2,571,246 shares weremeasured at their April 1, 2010 grant date fairvalues of $15.00 per share and vest over threeyears. We believe compensation expenserelated to these awards will be approximately$3.1 million per quarter, subject to changebased on deviations from our forecastedforfeiture rates.The 1,865,000 RSUs granted to sales forceleaders on April 1, 2010 were fully vested onApril 1, 2010 and will be delivered over threeyears. We recorded the related compensationexpense for the IPO grants, which excluded theconverted awards, upon vesting. Because theawards were subject to deferred delivery and/or sale restrictions following their vesting, theirfair value was discounted to reflect acorresponding illiquidity discount.In connection with the conversion of Citi stockawards to Primerica stock awards andconcurrent with the signing of the reinsuranceagreements on March 31, 2010, we recorded areclass of approximately $23.5 million from dueto affiliates and other liabilities to paid-incapital and Citi converted the underlyingpayable to a capital contribution.On April 15, 2010, Citi sold 16,412,440 shares ofour common stock to Warburg Pincus for anaggregate purchase price of $230.0 million.The sale also included warrants held by Citi thatwill allow the Warburg Pincus funds to acquirefrom us 4,103,110 additional shares of ourcommon stock, for up to seven years, at anexercise price of $18.00 per share. Thewarrants may be physically settled or net sharesettled at the option of the warrant holder. Thewarrant holder does not have the option tocash settle any portion of the warrants. Thewarrants are classified as permanent equitybased on the fair value at the original April 1,2010 issuance date. Subsequent changes in fairvalue will not be recognized as long as thewarrants continue to be classified as equity.Because the warrants were issued as a returnof capital to Citi, there was no net impact onstockholders’ equity related to the warrants.The warrant holder is not entitled to receipt ofdividends declared on the underlying commonstock or non-voting common stock (but will beentitled to adjustments for extraordinarydividends), or to any voting or other rights thatmight accrue to holders of common stock ornon-voting common stock.An additional 750,000 RSUs were granted tosales force leaders between April 1, 2010 andOctober 1, 2010 and vest between July 1, 2010and January 1, 2011, with deferred deliveryoccurring over three years. These additionalawards varied with and primarily related to lifeinsurance policy acquisitions. As such, wedeferred $12.3 million and recognized acorresponding increase in DAC which will beamortized over the life of the underlyingpolicies. The fair value of these awards also hasbeen discounted to properly reflect the liquiditydiscount due to sales restrictions existing afterthe awards have vested.As of December 31, 2010, Citi owned less than40% of our outstanding common stock andWarburg Pincus had an ownership stake ofapproximately 23%. Had the additional4,103,100 warrants been exercised by WarburgPincus, its ownership stake would haveincreased to approximately 27% on a fullydiluted basis.Dividends declared and paid to stockholdersduring 2010 amounted to $1.5 million. The totalamount of dividends declared to Citi was $3.49billion in 2010, compared with $193.9 million in2009 and $422.9 million in 2008. Thesignificant increase in dividends declared to CitiPrimerica 2010 Annual Report 147


during 2010 was primarily a result of ourcorporate reorganization.See Note 14 for additional information.(14) Share-Based TransactionsAs of December 31, 2010, the Company hadoutstanding equity awards under its OmnibusIncentive Plan (OIP). We adopted the OIP onMarch 31, 2010. Prior to April 1, 2010, we had nooutstanding share-based awards. The OIPprovides for the issuance of equity awards,including stock options, stock appreciationrights, restricted stock, deferred stock, RSUs,unrestricted stock as well as cash-basedawards. In addition to time-based vestingrequirements, awards granted under the OIPmay also be subject to specified performancecriteria. As of December 31, 2010, we had3.4 million shares available for future grantsunder this plan. All outstanding managementawards have time-based vesting requirements,vesting over three years. Certain quarterlyincentive contests among our sales forceleaders have performance-based vestingrequirements. As the restrictions onoutstanding RSUs expire, we will issue commonshares. Because the RSUs are eligible fordividend equivalents and are included in ourcalculation of EPS under the two-class method,the related issuance of common shares will notimpact basic or diluted EPS.In connection with the Offering and the privatesale, certain existing Citi equity awardsimmediately vested, resulting in approximately$2.2 million of compensation expense and areclassification of approximately $2.4 millionfrom due to affiliates to paid-in capital.For the year ended December 31, 2010, we alsorecognized approximately $9.7 million ofexpense in connection with new employee andnon-employee director equity award grants.These expenses were partially offset by a taxbenefit of approximately $3.2 million. The valueof restricted stock and RSUs granted toemployees was based on the fair market valueof our common stock at the date of grant. Wegranted shares of restricted stock to U.S.employees and non-employee directors andRSUs to Canadian employees. These awardsvest over three years and are not subject toany sales restrictions or deferred deliveryfollowing vesting.As of December 31, 2010, total compensationcost not yet recognized in our financialstatements related to employee equity awardswas $29.2 million, all of which was related toequity awards with time-based vestingconditions yet to be reached. We expect torecognize these amounts over a weightedaverageperiod of approximately 2.3 years.Employee Share-Based TransactionsThe following table summarizes employeerestricted stock activity during 2010.Weighted-averagemeasurement-date fairShares value per share(Shares in thousands)Unvested employee restricted stock andRSUs, December 31, 2009 — —Granted in 2010 2,569 $15.02Forfeited in 2010 (3) $15.00Conversions from awards in Citi shares 11 $15.00Vested in 2010 (11) $15.00Unvested employee restricted stock andRSUs, December 31, 2010 2,566 $15.02148 Freedom Lives Here


Non-Employee Share-BasedTransactionsThe following table summarizes non-employeerestricted stock activity during 2010.Weighted-averagemeasurement-date fairvalue per shareShares(Shares in thousands)Unvested non-employee restricted stockand RSUs, December 31, 2009 — —Granted in 2010 2,615 $ 13.27RSUs vested in 2010 (2,427) $12.80Unvested non-employee restricted stockand RSUs, December 31, 2010 188 $19.37All of our non-employee share-basedtransactions relate to the grant of RSUs tomembers of our sales force, which are subject toshort-term vesting provisions, all vesting withinapproximately three months of the initial grant.However, they are subject to long-term salesrestrictions lifting over three years. Because thesale restrictions extend up to three yearsbeyond the vesting period, the awards aresubject to a liquidity discount reflecting the riskassociated with the post-vesting restrictions. Toquantify this discount for each award, we useda series of Black-Scholes models with one-, twoandthree-year tenors to estimate put optioncosts less a nominal transaction cost as amethodology for quantifying the cost ofeliminating the downside risk associated withthe sale restrictions. The most significantassumptions in the Black-Scholes models werethe volatility assumptions. Because our stockand the options on our stock have had a verylimited active trading history, we derivedvolatility assumptions by analyzing other publicinsurance companies’ historical and impliedvolatilities over terms comparable to the salerestriction terms. Our volatility assumptionsranged from 36 to 52. We also utilized dividendassumptions ranging from zero dividends to$0.01 per quarter and risk-free rates less than2%.On April 1, 2010, we granted 1,865,000 RSUs tocertain of our sales force leaders. These RSUsvested immediately but were subject to salesrestrictions that expire annually over thesubsequent three years from the vesting date.The IPO price of our shares was $15.00. Werecognized a discounted fair value of theseawards of $12.00 per RSU, reflecting theliquidity discount described above. Werecognized total expense of approximately$22.4 million, partiallyoffset by a tax benefitof approximately $7.8million, for theseIPO-relatednon-employee awards.Between April 1, 2010and December 31, 2010we granted additionalequity awards in theform of 750,000 RSUsvesting between July 1, 2010 and January 1, 2011to certain sales force leaders. The awards weremeasured based on the market price of ourshares on the respective vesting dates, lessliquidity discounts ranging from 20% to 28%as described above. The measurement date fairvalues of these awards ranged from $15.44 to$19.37. These awards varied with and primarilyrelated to life insurance policy acquisitions. Assuch, we deferred the full $12.3 million cost andrecognized a corresponding increase in DACwhich will be amortized over the life of theunderlying policies. The resulting ongoing DACamortization expense will be partially offset bya concurrent tax benefit totaling approximately$4.0 million over the same periods.As of December 31, 2010, all non-employeeequity awards were fully vested with theexception of 187,500 shares that reached theirfinal vesting on January 1, 2011. As such, anyrelated compensation cost not recognized inour financial statements through December 31,2010 is immaterial. Shares awarded underperformance-based, non-employee grants wereearned by certain of our sales force leadersbased on performance criteria varying with andprimarily relating to acquiring life insurancepolicies, and therefore increasing our DAC.These amounts are then amortized over theterms of the underlying policies acquired.Citi Share-Based TransactionsWe participated in various share-basedcompensation benefit plans sponsored by CitiPrimerica 2010 Annual Report 149


during the period prior to our corporatereorganization in March and April of 2010.These plans are now either closed or no longereffective for our employees except for exerciseor delivery associated with awards grantedprior to our corporate reorganization. SeeNote 15 for additional information.(15) Related Party TransactionsThe net distributions we declared and paid toCiti, as a then-wholly owned subsidiary, were asfollows:benefits and various shared services on behalfof the Company. Amounts due to or fromaffiliates under these arrangements atDecember 31, 2010 and 2009 were immaterial.We have an arrangement with Citicorp DataSystems, Inc. (CDS), a wholly owned subsidiaryof Citi, whereby CDS provides customer servicetelephone support for the Company.Year ended December 31,2010 2009 2008(In thousands)Distributions declared $3,491,556 $ 193,927 $422,900Distributions paid 3,491,556 44,927 422,900Distributions payable — 149,000 —The increase in net distributions in 2010 was adirect result of the transactions executed inconnection with our corporate reorganization.See Note 2 for additional information.The revenues we earned or expenses weincurred in connection with other materialrelated party transactions were as follows:Year ended December 31,2010 2009 2008(In thousands)Loan originationservice revenuesfrom Citi affiliates $ 10,327 $ 29,519 $ 75,139Payroll, employeebenefits and sharedservices expense (13,463) (34,142) (34,200)Customer servicetelephone supportfee expense (5,921) (6,406) (6,758)Citi stock awardexpense (3,244) (5,660) (6,904)Under various agreements with various whollyowned subsidiaries of Citi, we provided theseaffiliates with certain services related to theirorigination of unsecured personal, consumerand student loans. The receivables related tothese loan origination services were immaterialas of December 31, 2010 and 2009.We had arrangements with various Citigroupaffiliates whereby they provided payrollprocessing services and pay for employee150 Freedom Lives Here


We had arrangements with Citi in relation tounvested stock awards and other payablesrelated to stock awards (see Note 14). Thepayables to Citi related to these agreementswere as follows:December 31,2010 2009(In thousands)Payables related to vestedCiti stock awards $7,501 $36,253In September 2010, the Company forgave andwrote off an expense reimbursement receivableof approximately $0.7 million due fromWarburg Pincus, a 23% stockholder with tworepresentatives on our Board of Directors atthe time of the forgiveness. The receivablearose out of an agreement between Citi andWarburg Pincus pursuant to which WarburgPincus agreed to reimburse the Company for aspecified portion of certain costs expected tobe incurred by the Company for a businessevent to be held in connection with the closingof the Offering. The agreement was signedprior to our corporate reorganization, when theCompany was wholly owned by Citi. WarburgPincus requested a waiver of the obligation inAugust 2010, and the Audit Committeeapproved the waiver in September 2010.Remaining arrangements to provide services toor receive services from Citi affiliates wereimmaterial during 2010, 2009, and 2008.(16) Statutory Accounting andDividend RestrictionsU.S. Insurance SubsidiariesOur U.S. insurance subsidiaries are required toreport their results of operations and financialposition to state authorities on the basis ofstatutory accounting practices prescribed orpermitted by such authorities and the NationalAssociation of Insurance Commissioners(NAIC), which is a comprehensive basis ofaccounting other than U.S. generally acceptedaccounting principles. Prescribed statutoryaccounting practices include a variety ofpublications of the NAIC, as well as state laws,regulations and general administrative rules.Permitted statutory accounting practicesencompass all accounting practices not soprescribed. Primerica Life’s statutory financialstatements are prepared on the basis ofaccounting practices prescribed or permittedby the NAIC and the Massachusetts Division ofInsurance (MDOI), while NBLIC’s statutoryfinancial statements are prepared on the basisof accounting practices prescribed or permittedby the NAIC and the New York State InsuranceDepartment (NYSID). Our U.S. insurancesubsidiaries’ ability to pay dividends is subjectto and limited by the various laws andregulations of their respective states.For Primerica Life, statutory dividend capacityis based on the greater of (1) 10% of theprevious year-end statutory surplus or (2) theprevious year’s statutory net gain fromoperations (not including pro rata distributionsof any class of the insurer’s own securities).Dividends that, together with the amount ofother distributions or dividends made within thepreceding 12 months, exceed this statutorylimitation are referred to as extraordinarydividends. Extraordinary dividends requireadvance notice to the MDOI, Primerica Life’sprimary state insurance regulator, and aresubject to potential disapproval. For dividendsexceeding these thresholds, Primerica Lifemust provide notice to the MDOI and receivenotice that the MDOI does not object to thepayment of such dividends. Primerica Life’sstatutory surplus was $627.3 million atDecember 31, 2010. Its statutory net gain fromoperations was $437.1 million for the 12-monthperiod ended December 31, 2010.For NBLIC, statutory dividend capacity is basedon the lesser of (1) 10% of the previousyear-end statutory earned surplus or (2) theprevious year’s statutory net gain fromoperations, not including realized capital gains.Dividends that, together with the amount ofother distributions or dividends in any calendaryear, exceed this statutory limitation areconsidered to be extraordinary dividends.Extraordinary dividends require advance noticeto the NYSID, NBLIC’s primary state insuranceregulator, and are subject to potentialdisapproval. For dividends exceeding thesethresholds, NBLIC must provide notice to theNYSID and receive notice that the NYSID doesnot object to the payment of such dividends.Primerica 2010 Annual Report 151


NBLIC’s earned surplus was $160.7 million as ofDecember 31, 2010. Its statutory net gain fromoperations, not including realized capital gainswas $17.8 million for the year endedDecember 31, 2010.The amount of dividends that may be paid in2011 without regulatory consent for each of ourU.S. insurance subsidiaries follows:2011 StatutoryDividendCapacity(In thousands)Primerica Life $437,116NBLIC 16,075Primerica Life’s statutory dividend capacity wasfavorably impacted by the NBLIC extraordinarydividend of $296.8 million received in 2010.The statutory capital and surplus of our U.Sinsurance subsidiaries was as follows:December 31,2010 2009(In thousands)Primerica Life capitaland surplus $629,842 $1,705,595NBLIC capital andsurplus 163,249 358,956Primerica Life and NBLIC both exceed theminimum risk-based capital requirements forinsurance companies operating in the UnitedStates.Canadian Insurance SubsidiaryPrimerica Life Canada is incorporated underthe provisions of the Canada BusinessCorporations Act and is a domiciled CanadianCompany subject to regulation under theInsurance Companies Act (Canada) by theOffice of the Superintendent of FinancialInstitutions Canada (OSFI) and by ProvincialSuperintendents of Financial Institutions/Insurance in those provinces in which PrimericaLife Canada is licensed. As such, the financialstatements of Primerica Life Canada areprepared in accordance with CanadianGenerally Accepted Accounting Principles(Canadian GAAP).In Canada, dividends can be paid subject to thepaying insurance company continuing to meetthe regulatory requirements for capitaladequacy and liquidity and upon 15 days’minimum notice to OSFI.The amount of dividends that may be paid in2011 without regulatory consent for PrimericaLife Canada is CAD40.9 million, or $41.2 millionusing the December 31, 2010 period-endexchange rate.Primerica Life Canada exceeds the minimumcapital requirements for insurance companiesregulated by the Office of Supervision ofFinancial Institutions in Canada.(17) Commitments and ContingentLiabilitiesCommitmentsWe lease office equipment and office andwarehouse space under various noncancelableoperating lease agreements that expirethrough December 2018. Rent expense was asfollows:Year ended December 31,2010 2009 2008(In thousands)Minimum rent $6,490 $6,483 $6,474Total rent expense $6,490 $6,483 $6,474We had no contingent rent expense during2010, 2009 and 2008. At January 1, 2011, theminimum aggregate rental commitments foroperating leases were as follows:Year endingDecember 31,(In thousands)2011 $ 6,6622012 6,7172013 4,2212014 1,7702015 1,248Thereafter 3,117Total minimum rentalcommitments foroperating leases $23,735152 Freedom Lives Here


Contingent LiabilitiesThe Company is involved from time to time inlegal disputes, regulatory inquiries andarbitration proceedings in the normal course ofbusiness. These disputes are subject touncertainties, including the large and/orindeterminate amounts sought in certain ofthese matters and the inherent unpredictabilityof litigation. As such, the Company is unable toestimate the possible loss or range of loss thatmay result from these matters. While it ispossible that an adverse outcome in certaincases could have a material adverse effectupon the Company’s financial position, basedon information currently known by theCompany’s management, in its opinion, theoutcomes of such pending investigations andlegal proceedings are not likely to have such aneffect.In February 2009, a claimant served theCompany with a Statement of Claim in FINRAarbitration alleging that a Company registeredrepresentative’s recommendation to claimant’sfather caused him to surrender a life insurancepolicy and transfer a variable annuity. Theclaimant’s father subsequently died, and theclaimant sought to recover the value of thesurrendered death benefits and other damagesunder various theories of liability, includingsuitability. After a final hearing, which began inSeptember 2010, the arbitration panel issuedan immaterial award to the claimant in January2011.(18) Benefit PlansWe participated in various benefit plans,including a pension plan and a 401(k) plan,sponsored by Citi during the period prior to ourcorporate reorganization in March and April of2010. These plans are now either closed or nolonger effective for our employees. Theexpense, if any, associated with the benefitsearned under such plans was immaterial during2010, 2009 and 2008.In 2010, in connection with our corporatereorganization, we established a 401(k) plan forthe benefit of our employees. The expenseassociated with the set-up and company matchwas approximately $3.1 million.Primerica 2010 Annual Report 153


Unaudited Quarterly Financial DataIn management’s opinion, the following quarterly consolidated and combined financial informationfairly presents the results of operations for such periods and is prepared on a basis consistent withour annual audited consolidated and combined financial statements. Financial information forperiods ending on or before March 31, 2010, was prepared on a combined basis, while financialinformation for periods ending after March 31, 2010 was prepared on a consolidated basis.We completed an initial public offering of our stock on April 1, 2010. Prior to April 1, 2010, outstandingstock consisted of 100 shares issued to Citi in October 2009. As such, pro forma per-share earningsfor periods ending on or before March 31, 2010 are not presented as they would not be comparable toper-share earnings in periods after the Transactions due to the substantial increase in shares used inthe computation of earnings per share.Quarter endedMarch 31, 2010Quarter endedJune 30, 2010Quarter endedSeptember 30, 2010Quarter endedDecember 31, 2010(In thousands, except per-share amounts)Direct premiums $537,845 $547,455 $ 547,444 $548,330Ceded premiums (148,119) (447,213) (437,054) (417,981)Net premiums 389,726 100,242 110,390 130,349Net investment income 82,576 27,991 27,855 26,688Commissions and fees 91,690 93,226 89,737 108,288Realized investment gains (losses),including OTTI 31,057 374 1,015 1,700Other, net 11,893 12,466 12,239 12,362Total revenues 606,942 234,299 241,236 279,387Total benefits and expenses 386,540 197,961 179,357 198,865Income before income taxes 220,402 36,338 61,879 80,522Income taxes 77,116 14,330 22,284 27,633Net income $ 143,286 $ 22,008 $ 39,595 $ 52,889Earnings per share – basic n/a $ .29 $ .53 $ .70Earnings per share – diluted n/a $ .29 $ .52 $ .69Quarter endedMarch 31, 2009Quarter endedJune 30, 2009Quarter endedSeptember 30, 2009Quarter endedDecember 31, 2009(In thousands)Direct premiums $ 516,647 $529,004 $ 531,713 $ 535,417Ceded premiums (137,609) (158,401) (154,725) (160,018)Net premiums 379,038 370,603 376,988 375,399Net investment income 82,385 89,755 88,736 90,450Commissions and fees 79,717 82,690 84,279 89,301Realized investment gains (losses),including OTTI (11,259) (9,003) (11,212) 9,503Other, net 12,955 13,542 12,585 13,949Total revenues 542,836 547,587 551,376 578,602Total benefits and expenses 368,061 349,253 363,501 379,631Income before income taxes 174,775 198,334 187,875 198,971Income taxes 62,218 66,214 64,044 72,890Net income $ 112,557 $ 132,120 $ 123,831 $ 126,081Quarterly amounts may not agree in total to the corresponding annual amounts due to rounding.154 Freedom Lives Here


ITEM 9. CHANGES IN ANDDISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTINGAND FINANCIAL DISCLOSUREThere have been no changes in, ordisagreements with, accountants on accountingand financial disclosure matters during theyears ended December 31, 2010 and 2009.ITEM 9A. CONTROLS ANDPROCEDURES.Disclosure Controls and ProceduresThe Company’s management, with theparticipation of the Company’s Co-ChiefExecutive Officers and Chief Financial Officer,has evaluated the effectiveness of theCompany’s disclosure controls and procedures(as such term is defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act) as of the endof the period covered by this report (the“Evaluation Date”). Based on such evaluation,the Company’s Co-Chief Executive Officers andChief Financial Officer have concluded that, asof the Evaluation Date, the Company’sdisclosure controls and procedures areeffective.Internal Control Over FinancialReportingThis report does not include a report ofmanagement’s assessment regarding internalcontrol over financial reporting or anattestation report of the Company’s registeredpublic accounting firm due to a transitionperiod established by rules of the Securitiesand Exchange Commission for newly publiccompanies.There have not been any changes in theCompany’s internal control over financialreporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)during the fourth quarter of 2010 that havematerially affected, or are reasonably likely tomaterially affect, the Company’s internalcontrol over financial reporting.Primerica 2010 Annual Report 155


PART IIIPursuant to General Instruction G to Form 10-K,and as described below portions of Items 10through 14 are incorporated by reference fromthe Company’s definitive Proxy Statementrelating to the Company’s 2011 Annual Meetingof Stockholders (the “Proxy Statement”), whichwill be filed with the Securities and ExchangeCommission within 120 days of December 31,2010, pursuant to Regulation 14A under theExchange Act. The Report of the AuditCommittee and the Report of theCompensation Committee to be included in theProxy Statement shall be deemed to befurnished in this report and shall not beincorporated by reference into any filing underthe Securities Act as a result of such furnishing.Our website address is www.primerica.com. Youmay obtain free electronic copies of our annualreports on Form 10-K, quarterly reports onForm 10-Q, current reports on Form 8-K, and allamendments to those reports from theinvestors section of our website. These reportsare available on our website as soon asreasonably practicable after we electronicallyfile them with the SEC. These reports shouldalso be available through the SEC’s website atwww.sec.gov.We have adopted corporate governanceguidelines. The guidelines and the charters ofour board committees are available in thecorporate governance subsection of theinvestor relations section of our website,www.primerica.com and are also available inprint upon written request to the CorporateSecretary, Primerica, Inc., 3120 BreckinridgeBoulevard, Duluth, GA 30099.ITEM 10. DIRECTORS, EXECUTIVEOFFICERS AND CORPORATEGOVERNANCE.For a list of executive officers, see Part I Item X.Executive Officers of the Registrant.We have adopted a written code of conductthat applies to all directors, officers andemployees, including a separate code thatapplies to only our principal executive officersand senior financial officers in accordance withSection 406 of the Sarbanes-Oxley Act of 2002and the rules of the SEC promulgatedthereunder. Our Code of Conduct is available inthe corporate governance subsection of theinvestor relations section of our website,www.primerica.com and is available in printupon written request to the CorporateSecretary, Primerica, Inc., 3120 BreckinridgeBlvd., Duluth, GA 30099. In the event that wemake changes in, or provide waivers from, theprovisions of the Code of Conduct that the SECrequires us to disclose, we will disclose theseevents in the corporate governance section ofour website.Except for the information above, the directorinformation provided below and theinformation set forth in Part I, Item X. ExecutiveOfficers of the Registrant, the informationrequired by this item will be contained underthe following headings in the Proxy Statementand is incorporated herein by reference:• Corporate Governance – Independence ofCommittee Members;• Corporate Governance – Committees of theBoard;• Corporate Goverance – Code of Conduct;• Report of the Audit Committee;• Executive Compensation – EmploymentAgreements;• General Information – Section 16(a)Beneficial Ownership ReportingCompliance;• Related Party Transactions – Transactionswith Citi in Connection with our InitialPublic Offering; and• Related Party Transactions – Transactionswith Warburg Pincus in Connection withthe Securities Purchase Agreement.156 Freedom Lives Here


Members of Our Board of DirectorsThe terms of our Class I directors expire at ourannual stockholders meeting to be held in 2011,the terms of our Class II directors expire at ourannual meeting to be held in 2012 and theterms of our Class III directors expire at ourannual meeting to be held in 2013.D. Richard Williams, age 54, was elected toour Board as a Class II director in October2009. He is Chairman of the Board of Directors,has served as our Co-Chief Executive Officersince 1999 and has served our Company since1989 in various capacities, including as theChief Financial Officer and Chief OperatingOfficer of Primerica Financial Services, Inc.(“PFS”), a general agent and a subsidiary ofPrimerica. Mr. Williams joined the American CanCompany, a manufacturing company andpredecessor to Citigroup Inc. (“Citi”), in 1979and eventually headed the company’sAcquisition andDevelopment area for financial services andwas part of the team responsible for theacquisition of Primerica. He serves on theboards of trustees for the Fernbank Museum ofNatural History, the Woodruff Arts Center andthe Anti-Defamation League Southeast Region.Mr. Williams earned both his B.S. degree and hisM.B.A. from the Wharton School of theUniversity of Pennsylvania.Mr. Williams has led our company as Co-ChiefExecutive Officer for 11 years and brings to ourBoard over 20 years of knowledge of theCompany’s business, finances and operationsalong with expertise in senior management,finance, mergers and acquisitions (“M&A”),strategic planning, and risk and assetmanagement.John A. Addison, Jr., age 53, was elected toour Board as a Class I director in October 2009.He is the Chairman of Primerica Distribution,has served as our Co-Chief Executive Officersince 1999 and has served our company invarious capacities since 1982 when he joined usas a business systems analyst. Mr. Addison hasserved in numerous officer roles with PrimericaLife Insurance Company (“Primerica Life”), alife insurance underwriter, and PFS, both ofwhich are subsidiaries of Primerica. He servedas Vice President and Senior Vice President ofPrimerica Life. He also served as Executive VicePresident and Group Executive Vice Presidentof Marketing. In 1995, he became President ofPFS and was promoted to Co-Chief ExecutiveOfficer in 1999. Mr. Addison earned his B.A. inEconomics from the University of Georgia andhis M.B.A. from Georgia State University.Mr. Addison brings to the Board his 11 years ofexperience as our Co-Chief Executive Officerand nearly 30 years of understanding ourCompany and our business, along with generalmanagement and marketing expertise.P. George Benson, age 64, was elected to ourBoard as a Class III director in April 2010. Hehas been the President of the College ofCharleston in Charleston, South Carolina sinceFebruary 2007. From June 1998 until January2007, he was Dean of the Terry College ofBusiness at the University of Georgia. FromJuly 1993 to June 1998, Mr. Benson served asDean of the Rutgers Business School at RutgersUniversity and, prior to that, Mr. Benson was onthe faculty of the Carlson School ofManagement at the University of Minnesotafrom 1977 to 1993, where he served as Directorof the Operations Management Center from1992 to 1993 and head of the Decision SciencesArea from 1983 to 1988. Mr. Benson currentlyserves as Chair-elect of the Board of Directorsfor the Foundation for the Malcolm BaldrigeNational Quality Award, was Chairman of theBoard of Overseers for the Baldrige AwardProgram from 2004 to 2007 and was a nationaljudge for the Baldrige Award from 1997 to2000. He also serves as a member of theboards of directors of AGCO Corporation andCrawford & Company, as well as the NationalBank of South Carolina. Mr. Benson was amember of the board of directors of Nutrition21, Inc. from 1998 to 2010. Mr. Benson receiveda B.S. degree in Mathematics from BucknellUniversity, completed graduate work inoperations research in the Engineering Schoolof New York University and earned a Ph.D. inbusiness from the University of Florida.Mr. Benson brings to our Board significantexpertise in academics, senior management,corporate governance, strategic planning, riskPrimerica 2010 Annual Report 157


and asset management, and finance. Inparticular, the Board considered his experiencemanaging the College of Charleston’sadministrative staff of over 800, budget of over$200 million and endowment of over $50million, as well as his service on the boards ofdirectors of other public companies and as amember of their audit committees.Michael E. Martin, age 55, was elected to ourBoard as a Class III director in April 2010. He isa Partner of Warburg Pincus & Co. and aManaging Director of private equity firmWarburg Pincus LLC, where he is co-head ofWarburg Pincus’ financial services group. Priorto joining Warburg Pincus in 2009, Mr. Martinwas President of Brooklyn NY Holdings, LLC, aprivate investment company, from 2006 to2008. Mr. Martin worked at UBS InvestmentBank from 2002 to 2006, where he served as avice chairman and managing director of UBSInvestment Bank and a member of its board ofdirectors and Global Executive Committee. Hehas held senior positions at investment bankCredit Suisse First Boston, serving there from1987 to 2002, and practiced corporate law atlaw firm Wachtell, Lipton, Rosen & Katz from1983 to 1987. Mr. Martin also serves on theboard of directors of SLM Corporation andNational Penn Bancshares, Inc. and he was amember of the board of directors of BPWAcquisition Corp. from 2008 to 2010. Mr. Martinreceived a B.S. in economics from ClaremontMen’s College and a J.D. from ColumbiaUniversity School of Law.Mr. Martin has been designated by WarburgPincus to be one of our directors pursuant to itsrights under the Securities PurchaseAgreement, by and among Citi, Primerica andWarburg Pincus dated as of February 8, 2010.Mr. Martin brings to our Board expertise ingeneral management, legal, corporategovernance, finance, executive compensation,strategic planning, risk and asset management,investment banking and capital markets, andM&A.Mark Mason, age 41, was elected to our Boardas a Class III director in March 2010. He is theChief Operating Officer for Citi Holdings, anoperating segment of Citi that comprisesfinancial services company Citi Brokerage andAsset Management, Global Consumer Financeand Special Assets Portfolios. Mr. Mason joinedCiti in 2001. He has also served as the ChiefFinancial Officer for Citi Holdings, ChiefFinancial Officer and Head of Strategy and M&Afor Citi’s Global Wealth Management Division,Chief of Staff to Citi’s Chairman and ChiefExecutive Officer, Chief Financial Officer andChief Operating Officer for Citigroup RealEstate Investments and Vice President ofCorporate Development at Citi. Prior to joiningCiti, Mr. Mason was Director of Strategy andBusiness Development at technologyequipment manufacturing company LucentTechnologies. He received a Bachelor ofBusiness and Administration in finance fromHoward University and an M.B.A. from HarvardBusiness School.Mr. Mason has been designated by Citi to beone of our directors. Mr. Mason brings to ourBoard expertise in general management,finance, strategic planning, M&A, andinvestment banking and capital markets.Ellyn A. McColgan, age 57, was elected to ourBoard as a Class I director in August 2010.Ms. McColgan has been a private investor andconsultant since January 2009. She was thePresident and Chief Operating Officer of theGlobal Wealth Management Group of MorganStanley from April 2008 through January2009. From April 1990 through August 2007,Ms. McColgan was a senior executive at mutualfund group Fidelity Investments, serving asPresident of Distribution and Operations fromApril 2007 through August 2007; as President,Fidelity Brokerage Company from October2002 to April 2007; as President, FidelityInstitutional Services from April 2001 throughOctober 2002; as President, FidelityInstitutional Retirement Group from April 2000through April 2001; and as President, FidelityTax-Exempt Services Company from November1996 through April 2000. Ms. McColgan hasSeries 6, 7, 24 and 63 licenses. She earned herB.A., summa cum laude, in Psychology andSocial Studies Education from Montclair StateUniversity in New Jersey and her M.B.A. fromHarvard Business School.Ms. McColgan brings to our Board expertise ingeneral management, strategic planning,158 Freedom Lives Here


finance, and risk and asset management. Inparticular, the Board considered her significantpast experience serving in senior managementpositions in the financial sector, includingexperience managing certain operations ofMorgan Stanley and Fidelity Investments.Robert F. McCullough, age 68, was elected toour Board as a Class I director in March 2010.He has been a private investor since January2007. He previously was Senior Partner ofinvestment fund manager Invesco Ltd.(formerly AMVESCAP PLC) from June 2004 toDecember 2006. Prior thereto, he was ChiefFinancial Officer of AMVESCAP PLC from April1996 to May 2004. Mr. McCullough joined theNew York audit staff of Arthur Andersen LLP in1964, served as Partner from 1972 until 1996,and served as Managing Partner in Atlantafrom 1987 until 1996. Mr. McCullough alsoserves on the boards of Acuity Brands, Inc. andSchweitzer-Mauduit International, Inc.Mr. McCullough was a member of the board ofdirectors of Converge, Inc. from 2006 to 2009and a director of Mirant Corporation from 2003to 2006. He received his B.B.A. in Accountingfrom the University of Texas at Austin.Mr. McCullough brings to our Board expertise insenior management, finance and accounting,corporate governance, and M&A. In particular,the Board considered his broad perspective inaccounting, financial controls and financialreporting matters and his extensive auditexperience based on his lengthy career inpublic accounting and his experience serving asthe chairman of the audit committees ofseveral public companies.Barbara A. Yastine, age 51, was elected to ourBoard as a Class II director in December 2010.She has been the Chief Administrative Officerof Ally Financial, Inc., a bank holding company,since May 2010. In this role, she has oversightresponsibility for the risk, compliance, legal andtechnology areas and serves as the Chair ofAlly Bank, a wholly owned subsidiary of AllyFinancial. Prior to joining Ally, she served as aPrincipal of Southgate Alternative Investments,a start-up diversified alternative assetmanager, beginning in June 2007. From August2004 through June 2007, Ms. Yastine was selfemployedas an independent consultant. Beforethat, she was Chief Financial Officer forinvestment bank Credit Suisse First Bostonfrom October 2002 to August 2004. From 1987through 2002, Ms. Yastine worked at Citi andits predecessor companies, where during her 15year tenure, she received numerouspromotions, culminating with serving as theChief Financial Officer of Citi’s Global Corporateand Investment Bank. During her tenure at Citi,she also served as Chief Auditor, ChiefAdministrative Officer of Citi’s Global ConsumerGroup and Executive Vice President and ChiefFinancial Officer of Citifinancial and itspredecessors. Ms. Yastine began her career at aCiti predecessor as Director of InvestorRelations. She graduated with a B.A. inJournalism from New York University, whereshe also earned her M.B.A.Ms. Yastine brings to our Board expertise ingeneral management, risk and assetmanagement, finance and strategic planning. Inparticular, the Board considered her significantcurrent and past experience serving in seniormanagement positions in the investmentbanking and capital markets industries.Daniel Zilberman, age 37, was elected to ourBoard as a Class II director in April 2010. He is aPartner of Warburg Pincus & Co. and aManaging Director of private equity firmWarburg Pincus LLC (collectively, “WarburgPincus”), where he focuses on investments ininsurance companies, banks, asset managersand service providers to the financial servicesindustry. Prior to joining Warburg Pincus in2005, Mr. Zilberman worked at private equityfirm Evercore Capital Partners from 2003 to2005 and investment bank Lehman Brothersfrom 1997 to 1999 and 2001 to 2002.Mr. Zilberman received a B.A. in InternationalRelations from Tufts University and an M.B.A. inFinance from the Wharton School of theUniversity of Pennsylvania.Mr. Zilberman has been designated by WarburgPincus to be one of our directors pursuant to itsrights under the Securities PurchaseAgreement, by and among Citi, Primerica andWarburg Pincus dated as of February 8, 2010.Primerica 2010 Annual Report 159


Mr. Zilberman brings to our Board experience ingeneral management, finance, M&A, strategicplanning, government and regulatory affairs,and investment banking and capital markets.ITEM 11. EXECUTIVECOMPENSATION.The information required by this item will becontained under the following headings in theProxy Statement and is incorporated herein byreference:• Corporate Governance – Committees of theBoard – Compensation Committee;• Executive Compensation; and• Director Compensation.ITEM 12. SECURITY OWNERSHIPOF CERTAIN BENEFICIAL OWNERSAND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS.Except for the information set forth in Part II,Item 5. Market for Registrant’s Common Equity,Related Stockholder Matters and IssuerPurchases of Equity Securities, the informationrequired by this item will be contained underthe following headings in the Proxy Statementand is incorporated herein by reference:• Beneficial Ownership of Common Stock.ITEM 13. CERTAINRELATIONSHIPS AND RELATEDTRANSACTIONS, AND DIRECTORINDEPENDENCE.The information required by this item will becontained under the following headings in theProxy Statement and is incorporated herein byreference:• Introductory paragraph to CorporateGovernance;• Corporate Governance – Independence ofDirectors;• Corporate Governance – CategoricalStandards of Independence;• Corporate Governance – Independence ofCommittee Members;• Corporate Governance – Committees of theBoard; and• Related Party Transactions.ITEM 14. PRINCIPAL ACCOUNTINGFEES AND SERVICES.The information required by this item will becontained under the following headings in theProxy Statement and is incorporated herein byreference:• Matters to be Voted on – Proposal 3:Ratification of the Appointment of theIndependent Registered Public AccountingFirm;• Corporate Governance – Committees of theBoard – Audit Committee;• Fees and Services of the IndependentRegistered Public Accounting Firm.160 Freedom Lives Here


PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.(a) 1. FINANCIAL STATEMENTSIncluded in Part II, Item 8, of this report:Primerica, Inc.:Report of Independent Registered Public Accounting Firm ............................ 106Consolidated and Combined Balance Sheets as of December 31, 2010 and 2009 ......... 107Consolidated and Combined Statements of Income for each of the years in the threeyearperiod ended December 31, 2010 ............................................. 108Consolidated and Combined Statements of Stockholders’ Equity for each of the years inthe three-year period ended December 31, 2010 .................................... 109Consolidated and Combined Statements of Comprehensive Income for each of the yearsin the three-year period ended December 31, 2010 ................................. 110Consolidated and Combined Statements of Cash Flows for each of the years in the threeyearperiod ended December 31, 2010 ............................................. 111Notes to Financial Statements ...................................................... 112Unaudited Quarterly Financial Data ................................................. 1542. FINANCIAL STATEMENT SCHEDULESIncluded in Part IV of this report:Report of Independent Registered Public Accounting Firm on Financial StatementSchedules ....................................................................... 166Schedule I – Summary of Investments — Other than Investments in Related Parties as ofDecember 31, 2010 ..................................................... 167Schedule II – Condensed Financial Information of Registrant as of December 31, 2010 and2009, and for the year ended December 31, 2010 and the period fromOctober 29, 2009 to December 31, 2009 ................................. 168Schedule III – Supplementary Insurance Information as of December 31, 2010 and 2009,and for each of the years in the three-year period ended December 31,2010 .................................................................. 174Schedule IV – Reinsurance for each of the years in the three-year period endedDecember 31, 2010 ..................................................... 1753. EXHIBIT INDEXAn “Exhibit Index” has been filed as part of this Report beginning on the following page and isincorporated herein by reference.Schedules other than those listed above are omitted because they are not required, are not material,are not applicable, or the required information is shown in the financial statements or notes thereto.(b) Exhibit Index.The agreements included as exhibits to this report are included to provide information regarding theterms of these agreements and are not intended to provide any other factual or disclosureinformation about the Company or its subsidiaries, our business or the other parties to theseagreements. These agreements may contain representations and warranties by each of the partiesto the applicable agreement. These representations and warranties have been made solely for thebenefit of the other parties to the applicable agreement and:• should not in all instances be treated as categorical statements of fact, but rather as a way ofallocating the risk to one of the parties if those statements prove to be inaccurate;Primerica 2010 Annual Report 161


• have been qualified by disclosures that were made to the other party in connection with thenegotiation of the application agreement, which disclosures are not necessarily reflected in theagreement;• may apply standards of materiality in a way that is different from what may be viewed asmaterial to you or other investors; and• were made only as of the date of the applicable agreement or such other date or dates as maybe specified in the agreement and are subject to more recent developments.Accordingly, these representations and warranties may not describe the actual state of affairs as ofthe date they were made or at any other time, and should not be relied upon by investors.ExhibitNumberDescription2.1 Securities Purchase Agreement dated February 8, 2010, by and among CitigroupInsurance Holding Corporation, Primerica, Inc., Warburg Pincus Private Equity X, L.P. andWarburg Pincus X Partners, L.P. (Incorporated by reference to Exhibit 2.1 to Primerica’sRegistration Statement on Form S-1 (File No. 333-162918))3.1 Restated Certificate of Incorporation of the Registrant (Incorporated by reference toExhibit 3.1 to Primerica’s Quarterly Report on Form 10-Q for the quarter ended March 31,2010 (Commission File No. 001-34680))3.2 Amended and Restated Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2to Primerica’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010(Commission File No. 001-34680))4.1 Warrant to purchase 3,975,914 shares of common stock dated as of April 15, 2010(Incorporated by reference to Exhibit 4.1 to Primerica’s Quarterly Report on Form 10-Q forthe quarter ended March 31, 2010 (Commission File No. 001-34680))4.2 Warrant to purchase 127,196 shares of common stock dated as of April 15, 2010(Incorporated by reference to Exhibit 4.2 to Primerica’s Quarterly Report on Form 10-Qfor the quarter ended March 31, 2010 (Commission File No. 001-34680))4.3 Note Agreement dated April 1, 2010 between the Registrant, the Guarantors namedtherein and Citigroup Insurance Holding Corporation (Incorporated by reference to Exhibit4.3 to Primerica’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010(Commission File No. 001-34680))4.4 Note of the Registrant in favor of Citigroup Insurance Holding Company dated as ofApril 1, 2010 (Incorporated by reference to Exhibit 4.4 to Primerica’s Quarterly Report onForm 10-Q for the quarter ended March 31, 2010 (Commission File No. 001-34680))10.1 Intercompany Agreement dated as of April 7, 2010 by and between the Registrant andCitigroup Inc. (Incorporated by reference to Exhibit 10.1 to Primerica’s Quarterly Report onForm 10-Q for the quarter ended March 31, 2010 (Commission File No. 001-34680))10.2 Transition Services Agreement dated as of April 7, 2010 by and between the Registrantand Citigroup Inc. (Incorporated by reference to Exhibit 10.2 to Primerica’s QuarterlyReport on Form 10-Q for the quarter ended March 31, 2010 (Commission File No.001-34680))10.3 Tax Separation Agreement dated as of March 30, 2010 by and between the Registrant andCitigroup Inc. (Incorporated by reference to Exhibit 10.3 to Primerica’s Quarterly Reporton Form 10-Q for the quarter ended March 31, 2010 (Commission File No. 001-34680))162 Freedom Lives Here


10.4 Long-Term Services Agreement dated as of April 7, 2010 by and between CitiLife FinancialLimited and Primerica Life Insurance Company (Incorporated by reference to Exhibit 10.4 toPrimerica’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010(Commission File No. 001-34680))10.5 80% Coinsurance Agreement dated March 31, 2010 by and between Primerica LifeInsurance Company and Prime Reinsurance Company, Inc. (Incorporated by reference toExhibit 10.5 to Primerica’s Quarterly Report on Form 10-Q for the quarter ended March 31,2010 (Commission File No. 001-34680))10.6 10% Coinsurance Agreement dated March 31, 2010 by and between Primerica Life InsuranceCompany and Prime Reinsurance Company, Inc. (Incorporated by reference to Exhibit 10.6to Primerica’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010(Commission File No. 001-34680))10.7 80% Coinsurance Trust Agreement dated March 29, 2010 among Primerica Life InsuranceCompany, Prime Reinsurance Company, Inc. and The Bank of New York Mellon(Incorporated by reference to Exhibit 10.7 to Primerica’s Quarterly Report on Form 10-Q forthe quarter ended March 31, 2010 (Commission File No. 001-34680))10.8 10% Coinsurance Economic Trust Agreement dated March 29, 2010 among Primerica LifeInsurance Company, Prime Reinsurance Company, Inc. and The Bank of New York Mellon(Incorporated by reference to Exhibit 10.8 to Primerica’s Quarterly Report on Form 10-Q forthe quarter ended March 31, 2010 (Commission File No. 001-34680))10.9 10% Coinsurance Excess Trust Agreement dated March 29, 2010 among Primerica LifeInsurance Company, Prime Reinsurance Company, Inc. and The Bank of New York Mellon(Incorporated by reference to Exhibit 10.9 to Primerica’s Quarterly Report on Form 10-Q forthe quarter ended March 31, 2010 (Commission File No. 001-34680))10.10 Capital Maintenance Agreement dated March 31, 2010 by and between Citigroup Inc. andPrime Reinsurance Company, Inc. (Incorporated by reference to Exhibit 10.10 to Primerica’sQuarterly Report on Form 10-Q for the quarter ended March 31, 2010 (Commission File No.001-34680))10.11 90% Coinsurance Agreement dated March 31, 2010 by and between National Benefit LifeInsurance Company and American Health and Life Insurance Company (Incorporated byreference to Exhibit 10.11 to Primerica’s Quarterly Report on Form 10-Q for the quarterended March 31, 2010 (Commission File No. 001-34680))10.12 Trust Agreement dated March 29, 2010 among National Benefit Life Insurance Company,American Health and Life Insurance Company and The Bank of New York Mellon(Incorporated by reference to Exhibit 10.12 to Primerica’s Quarterly Report on Form 10-Q forthe quarter ended March 31, 2010 (Commission File No. 001-34680))10.13 Coinsurance Agreement dated March 31, 2010 by and between Primerica Life InsuranceCompany of Canada and Financial Reassurance Company 2010, Ltd. (Incorporated byreference to Exhibit 10.13 to Primerica’s Quarterly Report on Form 10-Q for the quarterended March 31, 2010 (Commission File No. 001-34680))10.14 Common Stock Exchange Agreement dated as of April 15, 2010 among the Registrant,Warburg Pincus LLC and Warburg Pincus & Co. (Incorporated by reference to Exhibit 10.39to Primerica’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010(Commission File No. 001-34680))Primerica 2010 Annual Report 163


10.15 Registration Rights Agreement dated as of April 7, 2010 by and among Citigroup InsuranceHolding Corporation, Warburg Pincus Private Equity X, L.P., Warburg Pincus X Partners,L.P. and the Registrant (Incorporated by reference to Exhibit 10.40 to Primerica’s QuarterlyReport on Form 10-Q for the quarter ended March 31, 2010 (Commission File No.001-34680))10.16 Monitoring and Reporting Agreement dated as of March 31, 2010 by and among PrimericaLife Insurance Company and Prime Reinsurance Company, Inc. (Incorporated by referenceto Exhibit 10.41 to Primerica’s Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2010 (Commission File No. 001-34680))10.17 Monitoring and Reporting Agreement dated as of March 31, 2010 by and among NationalBenefit Life Insurance Company and American Health and Life Insurance Company(Incorporated by reference to Exhibit 10.42 to Primerica’s Quarterly Report on Form 10-Qfor the quarter ended March 31, 2010 (Commission File No. 001-34680))10.18 Monitoring and Reporting Agreement dated as of March 31, 2010 by and among PrimericaLife Insurance Company of Canada and Financial Reassurance Company 2010 Ltd.(Incorporated by reference to Exhibit 10.43 to Primerica’s Quarterly Report on Form 10-Qfor the quarter ended March 31, 2010 (Commission File No. 001-34680))10.19 Primerica, Inc. Stock Purchase Plan for Agents and Employees (Incorporated by referenceto Exhibit 10.45 to Primerica’s Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2010 (Commission File No. 001-34680))10.20 Primerica, Inc. 2010 Omnibus Incentive Plan (Incorporated by reference to Exhibit 10.14 toPrimerica’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010(Commission File No. 001-34680))*10.21 Form of Restricted Stock Award Agreement under the Primerica, Inc. 2010 OmnibusIncentive Plan (Incorporated by reference to Exhibit 10.15 to Primerica’s RegistrationStatement on Form S-1 (File No. 333-162918))*10.22 Form of Director Restricted Stock Award Agreement (Incorporated by reference to Exhibit10.46 to Primerica’s Registration Statement on Form S-1 (File No. 333-162918))10.23 Form of Restricted Stock Award Agreement for Messrs. Addison and R. Williams(Incorporated by reference to Exhibit 10.47 to Primerica’s Registration Statement on FormS-1 (File No. 333-162918))*10.24 Form of Indemnification Agreement for Directors and Officers. (Incorporated by referenceto Exhibit 10.48 to Primerica’s Registration Statement on Form S-1 (File No. 333-162918))*10.25 Employment Agreement, dated as of August 19, 2010, between the Registrant and Mr. D.Richard Williams. (Incorporated by reference to Exhibit 99.1 to Primerica’s Current Reporton Form 8-K dated August 19, 2010 (Commission File No. 001-34680)*10.26 Employment Agreement, dated as of August 19, 2010, between the Registrant and Mr. JohnA. Addison, Jr. (Incorporated by reference to Exhibit 99.2 to Primerica’s Current Report onForm 8-K dated August 19, 2010 (Commission File No. 001-34680)*10.27 Employment Agreement, dated as of August 19, 2010, between the Registrant and Mr.Peter W. Schneider (Incorporated by reference to Exhibit 99.3 to Primerica’s CurrentReport on Form 8-K dated August 19, 2010 (Commission File No. 001-34680)*10.28 Employment Agreement, dated as of August 19, 2010, between the Registrant and Mr.Glenn J. Williams (Incorporated by reference to Exhibit 99.4 to Primerica’s Current Reporton Form 8-K dated August 19, 2010 (Commission File No. 001-34680)*164 Freedom Lives Here


10.29 Employment Agreement, dated as of August 19, 2010, between the Registrant and Ms.Alison S. Rand (Incorporated by reference to Exhibit 99.5 to Primerica’s Current Report onForm 8-K dated August 19, 2010 (Commission File No. 001-34680)*10.30 Employment Agreement, dated as of August 19, 2010, between the Registrant and Mr.Gregory C. Pitts (Incorporated by reference to Exhibit 99.6 to Primerica’s Current Reporton Form 8-K dated August 19, 2010 (Commission File No. 001-34680)*10.31 Nonemployee Directors’ Deferred Compensation Plan, effective as of January 1, 2011,adopted on November 10, 201021.1 Subsidiaries of the Registrant23.1 Consent of KPMG LLP31.1 Rule 13a-14(a)/15d-14(a) Certification, executed by D. Richard Williams, Chairman of theBoard and Co-Chief Executive Officer31.2 Rule 13a-14(a)/15d-14(a) Certification, executed by John A. Addison, Jr., Chairman ofPrimerica Distribution and Co-Chief Executive Officer31.3 Rule 13a-14(a)/15d-14(a) Certification, executed by Alison S. Rand, Executive Vice Presidentand Chief Financial Officer32.1 Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63of Title 18 of the United States Code (18 U.S.C. 1350), executed by D. Richard Williams,Chairman of the Board and Co-Chief Executive Officer, John A. Addison, Jr., Chairman ofPrimerica Distribution and Co-Chief Executive Officer, and Alison S. Rand, Executive VicePresident and Chief Financial Officer* Identifies a management contract or compensatory plan or arrangement.Primerica 2010 Annual Report 165


(c) Financial Statement Schedules.REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ONFINANCIAL STATEMENT SCHEDULESThe stockholders and board of directors of Primerica, Inc.:Under date of March 17, 2011, we reported on the consolidated and combined balance sheets ofPrimerica, Inc. and subsidiaries (the Company) as of December 31, 2010 and 2009, and the relatedconsolidated and combined statements of income, stockholders’ equity, comprehensive income, andcash flows for each of the years in the three-year period ended December 31, 2010. In connectionwith our audits of the aforementioned consolidated and combined financial statements, we alsoaudited the related financial statement schedules. These financial statement schedules are theresponsibility of the Company’s management. Our responsibility is to express an opinion on thesefinancial statement schedules based on our audits.In our opinion, such financial statement schedules, when considered in relation to the basicconsolidated and combined financial statements taken as a whole, present fairly, in all materialrespects, the information set forth therein.As discussed in notes 1 and 2 to the consolidated and combined financial statements, in April 2010the Company completed its initial public offering and a series of related transactions. Also asdiscussed in note 1 to the consolidated and combined financial statements, the Company adopted theprovisions of FASB Staff Position Financial Accounting Standard No. 115-2 and Financial AccountingStandard No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (included inFASB ASC Topic 320, Investments — Debt and Equity Securities) as of January 1, 2009./s/ KPMG LLPAtlanta, GeorgiaMarch 17, 2011166 Freedom Lives Here


Schedule ISummary of Investments — Other than Investments in Related PartiesPRIMERICA, INC.As of December 31, 2010Amount atwhich shown inthe balanceType of investment Cost Valuesheet(In thousands)Fixed maturities:Bonds:United States Government and governmentagencies and authorities $ 21,596 $ 22,202 $ 22,202States, municipalities and political subdivisions 26,758 27,219 27,219Foreign governments 81,367 94,541 94,541Public utilities — — —Convertibles and bonds with warrants attached 27,633 28,558 28,558All other corporate bonds 1,794,370 1,931,074 1,931,074Certificates of deposit — — —Redeemable preferred stocks 652 534 534Total fixed maturities 1,952,376 2,104,128 2,104,128Equity securities:Common stocks:Public utilities 2,501 3,019 3,019Banks, trusts and insurance companies 5,526 8,781 8,781Industrial, miscellaneous and all other 7,282 9,184 9,184Nonredeemable preferred stocks 2,085 2,229 2,229Total equity securities 17,394 23,213 23,213Mortgage loans on real estate — — —Real estate — — —Policy loans 26,229 26,229 26,229Other long-term investments — — —Short-term investments 14 14 14Total investments $1,996,013 $ 2,153,584 $ 2,153,584See the accompanying report of independent registered public accounting firm.Primerica 2010 Annual Report 167


Schedule IICondensed Financial Information of RegistrantPRIMERICA, INC. (Parent Only)Condensed Balance SheetsDecember 31,2010 2009(In thousands)AssetsCash and cash equivalents $ 250 $ —Income taxes receivable from subsidiaries* 1,640 —Investment in subsidiaries* 1,738,699 —Total assets $1,740,589 —Liabilities and Stockholders’ EquityLiabilities:Note payable 300,000 —Due to affiliates* 897 —Interest payable 7,608 —Other liabilities 592 —Commitments and contingent liabilities (see Note F)Total liabilities 309,097 —Stockholders’ equity:Common stock ($0.01 par value, authorized 500,000 in 2010 andissued 72,843 in 2010) 728 —Paid-in capital 883,168 —Retained earnings 395,057 —Accumulated other comprehensive income 152,539 —Total stockholders’ equity 1,431,492 —Total liabilities and stockholders’ equity $1,740,589 $ —* Eliminated in consolidation.See the accompanying notes to condensed financial statements.See the accompanying report of independent registered public accounting firm.168 Freedom Lives Here


Schedule IICondensed Financial Information of RegistrantPRIMERICA, INC. (Parent Only)Condensed Statements of IncomeYear endedDecember 31,2010Period fromOctober 29,2009 toDecember 31,2009(In thousands)Revenues:Dividends from subsidiaries* $ 7,313 $ —Other, net 18 —Total revenues 7,331 —Benefits and expenses:Interest expense 12,375 —Other operating expenses 8,936 —Total benefits and expenses 21,311 —Loss before income tax benefit (13,980) —Income tax benefit (8,281) —Loss before equity in undistributed earnings of subsidiaries (5,699) —Equity in undistributed earnings of subsidiaries* 120,191 —Net income $114,492 $ —* Eliminated in consolidation.See the accompanying notes to condensed financial statements.See the accompanying report of independent registered public accounting firm.Primerica 2010 Annual Report 169


Schedule IICondensed Financial Information of RegistrantPRIMERICA, INC. (Parent Only)Condensed Statements of Comprehensive IncomeYear endedDecember 31,2010Period fromOctober 29,2009 toDecember 31,2009(In thousands)Net income $ 114,492 $ —Other comprehensive income (loss) before income taxes:Unrealized investment gains (losses):Equity in unrealized holding gains on investment securities held bysubsidiaries 15,027 —Foreign currency translation adjustments:Equity in unrealized foreign currency translation losses ofsubsidiaries 3,416 —Total other comprehensive income before income taxes 18,443 —Income tax related to items of other comprehensive income — —Other comprehensive income, net of income tax 18,443 —Total comprehensive income $132,935 $ —See the accompanying notes to condensed financial statements.See the accompanying report of independent registered public accounting firm.170 Freedom Lives Here


Schedule IICondensed Financial Information of RegistrantPRIMERICA, INC. (Parent Only)Condensed Statements of Cash FlowsYear endedDecember 31,2010Period fromOctober 29,2009 toDecember 31,2009(In thousands)Cash flows from operations:Net income $ 114,492 $ —Adjustments to reconcile net income to net cash (used in) provided byoperations:Equity in undistributed earnings of subsidiaries* (120,191) —Change in income taxes receivable* (1,640) —Change in due to affiliates* 897 —Change in interest payable 7,608 —Change in other liabilities 592 —Share-based compensation (6) —Net cash provided by operations 1,752 —Cash flows from financing activities:Dividends to stockholders (1,502) —Net cash used in financing activities (1,502) —Increase in cash 250 —Cash and cash equivalents, beginning of year — —Cash and cash equivalents, end of year $ 250 $ —Supplemental disclosures of cash flow information:Interest paid $ 4,767 $ —Non-cash activities:Share-based compensation $ 44,023 $ —Net contribution from Citigroup Inc. 1,728,574 —* Eliminated in consolidation.See the accompanying notes to condensed financial statements.See the accompanying report of independent registered public accounting firm.Primerica 2010 Annual Report 171


Schedule IICondensed Financial Information of RegistrantPRIMERICA, INC. (Parent Only)Notes to Condensed Financial Statements(A) Corporate OrganizationPrimerica, Inc. was incorporated in Delaware onOctober 29, 2009 by Citi to serve as a holdingcompany for the life insurance and financialproduct distribution businesses that we haveoperated for more than 30 years. At such time,we issued 100 shares of common stock to Citi.These businesses, which prior to April 1, 2010were wholly owned indirect subsidiaries of Citi,were transferred to us on April 1, 2010. Inconjunction with our reorganization, we issuedto a wholly owned subsidiary of Citi(i) 74,999,900 shares of our common stock (ofwhich 24,564,000 shares of common stockwere subsequently sold by Citi in the Offeringcompleted in April 2010; 16,412,440 shares ofcommon stock were subsequently sold by Citi inApril 2010 to certain private equity fundsmanaged by Warburg Pincus LLC (WarburgPincus) (the private sale); and 5,021,412 sharesof common stock were immediately contributedback to us for equity awards granted to ouremployees and sales force leaders inconnection with the Offering), (ii) warrants topurchase from us an aggregate of 4,103,110shares of our common stock (which weresubsequently transferred by Citi to WarburgPincus pursuant to the private sale), and (iii) a$300.0 million note payable due on March 31,2015 bearing interest at an annual rate of 5.5%(the Citi note). Prior to our corporatereorganization, we had no material assets orliabilities. Upon completion of the corporatereorganization, we became a holding companywith our primary asset being the capital stockof our operating subsidiaries and our primaryliability being the Citi note.(B) Basis of PresentationThese condensed financial statements reflectthe results of operations, financial position andcash flows for the parent company. We prepareour financial statements in accordance withGAAP. These principles are establishedprimarily by the FASB. The preparation offinancial statements in conformity with GAAPrequires us to make estimates and assumptionsthat affect financial statement balances,revenues and expenses and cash flows as wellas the disclosure of contingent assets andliabilities. Management considers availablefacts and knowledge of existing circumstanceswhen establishing the estimates included in ourfinancial statements.The most significant item that involves agreater degree of accounting estimates subjectto change in the future is determination of ourinvestments in subsidiaries. Estimates for thisand other items are subject to change and arereassessed by management in accordance withGAAP. Actual results could differ from thoseestimates.The accompanying condensed financialstatements should be read in conjunction withthe consolidated financial statements and notesthereto of Primerica, Inc. and Subsidiariesincluded in Part II, Item 8 of this report.(C) Note PayableIn April 2010, we issued to Citi a $300.0 millionnote as part of our corporate reorganization inwhich Citi transferred to us the businesses thatcomprise our operations. Prior to the issuanceof the Citi note, we had no outstanding debt.The Citi note bears interest at an annual rate of5.5%, payable semi-annually in arrears onJanuary 15 and July 15, and matures March 31,2015. Citi may participate out, assign or sell allor any portion of the note at any time.We have the option to redeem the Citi note inwhole or in part at a redemption price equal to100% of the principal amount to be redeemedplus accrued and unpaid interest to the date ofredemption. In the event of a change in control,the holder of the Citi note has the right torequire us to repurchase it at a price equal to172 Freedom Lives Here


101% of the outstanding principal amount plusaccrued and unpaid interest.The Citi note also requires us to use ourcommercially reasonable efforts to arrange andconsummate an offering of investment-gradedebt securities, trust preferred securities,surplus notes, hybrid securities or convertibledebt that generates sufficient net cashproceeds (after deducting fees and expenses)to repay the note in full at certain mutuallyagreeable dates, based on certain conditions.We were in compliance with all of the covenantsof the Citi note at December 31, 2010. No eventsof default or defaults occurred during 2010.(D) Income TaxesIn conjunction with the Offering and the privatesale, we made elections underSection 338(h)(10) of the Internal RevenueCode, which resulted in changes to our deferredtax balances and reduced stockholders’ equityby $172.5 million.Prior to April 8, 2010, our federal income taxreturn was included as part of Citi’sconsolidated federal income tax return. OnMarch 30, 2010, in anticipation of our corporatereorganization, we entered into a taxseparation agreement with Citi and prepaid ourestimated tax liability to Citi. In accordance withthe tax separation agreement, Citi willindemnify the Company and its subsidiariesagainst any consolidated, combined, affiliated,unitary or similar federal, state or local incometax liability for any taxable period ending on orbefore April 7, 2010, the closing date of theOffering. Our advance tax payments paid to Citiexceeded our actual tax liabilities. As a result,we reduced tax assets and recorded the excesspayment as a return of capital.(E) DividendsPrimerica, Inc. received dividends from its nonlifesubsidiaries of approximately $7.3 million in2010. No dividends were received in 2010 fromthe life insurance subsidiaries. Primerica, Inc.had no subsidiaries until the corporatereorganization in April 2010.(F) Commitments and ContingentLiabilitiesThe Company is involved from time to time inlegal disputes, regulatory inquiries andarbitration proceedings in the normal course ofbusiness. These disputes are subject touncertainties, including the large and/orindeterminate amounts sought in certain ofthese matters and the inherent unpredictabilityof litigation. As such, the Company is unable toestimate the possible loss or range of loss thatmay result from these matters. While it ispossible that an adverse outcome in certaincases could have a material adverse effectupon the Company’s financial position, basedon information currently known by theCompany’s management, in its opinion, theoutcomes of such pending investigations andlegal proceedings are not likely to have such aneffect.Primerica 2010 Annual Report 173


Schedule IIISupplementary Insurance InformationPRIMERICA, INC.Deferred policyacquisition costsFuturepolicybenefitsUnearnedpremiumsOther policybenefits andclaims payableSeparate accountliabilities(In thousands)As of December 31, 2010:Term Life Insurance $ 734,187 $4,237,487 $ — $ 210,595 $ —Investment and Savings Products 68,254 — — — 2,445,590Corporate and Other DistributedProducts 50,770 171,696 5,563 19,300 1,196Total $ 853,211 $ 4,409,183 $5,563 $229,895 $2,446,786As of December 31, 2009:Term Life Insurance $2,677,060 $4,023,244 $ — $ 198,193 $ —Investment and Savings Products 62,484 — — — 2,091,965Corporate and Other DistributedProducts 50,361 174,210 3,185 20,197 1,377Total $2,789,905 $ 4,197,454 $ 3,185 $ 218,390 $ 2,093,342PremiumrevenueNet investmentincomeBenefitsand claimsAmortization ofdeferred policyacquisitioncostsOther operatingexpensesPremiumswritten(In thousands)Year ended December 31,2010:Term Life Insurance $ 664,668 $ 110,633 $ 277,653 $ 156,312 $ 75,559 —Investment and SavingsProducts — — — 9,330 238,947 —Corporate and OtherDistributed Products 66,039 54,478 40,050 2,393 162,476 40,429Total $ 730,707 $ 165,111 $ 317,703 $168,035 $476,982 $40,429Year ended December 31,2009:Term Life Insurance $ 1,434,197 $ 274,212 $559,038 $ 371,663 $ 152,352 —Investment and SavingsProducts — — — 7,254 199,482 —Corporate and OtherDistributed Products 67,830 77,114 41,235 2,374 127,048 40,849Total $1,502,027 $ 351,326 $600,273 $ 381,291 $478,882 $40,849Year ended December 31,2008:Term Life Insurance $1,393,953 $244,736 $ 894,910 $ 131,286 $ 135,007 —Investment and SavingsProducts — — — 10,966 250,378 —Corporate and OtherDistributed Products 69,765 69,299 43,460 2,238 375,663 41,774Total $ 1,463,718 $ 314,035 $938,370 $144,490 $ 761,048 $ 41,774See accompanying report of independent registered public accounting firm.174 Freedom Lives Here


GrossamountSchedule IVReinsurancePRIMERICA, INC.Year ended December 31, 2010Ceded to othercompaniesAssumed fromothercompaniesNetamountPercentageof amountassumedto net(Dollars in thousands)Life insurance in force $ 662,135,294 $600,806,666 $— $ 61,328,628 — %Premiums:Life insurance $ 2,138,912 $ 1,448,694 $— $ 690,218 — %Accident and healthinsurance 42,162 1,673 — 40,489 — %Total premiums $ 2,181,074 $ 1,450,367 $— $ 730,707 — %Gross amountYear ended December 31, 2009Ceded to othercompaniesAssumedfromothercompaniesNet amountPercentageof amountassumedto net(Dollars in thousands)Life insurance in force $655,659,625 $ 421,621,165 $— $234,038,460 — %Premiums:Life insurance $ 2,069,009 $ 610,020 $— $ 1,458,989 — %Accident and healthinsurance 43,772 734 — 43,038 — %Total premiums $ 2,112,781 $ 610,754 $— $ 1,502,027 — %Gross amountYear ended December 31, 2008Ceded to othercompaniesAssumedfromothercompaniesNet amountPercentageof amountassumedto net(Dollars in thousands)Life insurance in force $ 639,157,278 $ 410,916,299 $— $228,240,979 — %Premiums:Life insurance $ 2,049,730 $ 628,055 $— $ 1,421,675 — %Accident and healthinsurance 43,062 1,019 — 42,043 — %Total premiums $ 2,092,792 $ 629,074 $— $ 1,463,718 — %See the accompanying report of independent registered public accounting firm.Primerica 2010 Annual Report 175


SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto dulyauthorized.Primerica, Inc.By: /s/ Alison S. Rand March 17, 2011Alison S. RandExecutive Vice President andChief Financial OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signedbelow by the following persons on behalf of the registrant and in the capacities and on the datesindicated./s/ D. Richard WilliamsD. Richard Williams/s/ John A. Addison, Jr.John A. Addison, Jr./s/ Alison S. RandAlison S. Rand/s/ P. George BensonP. George Benson/s/ Michael E. MartinMichael E. Martin/s/ Mark MasonMark Mason/s/ Ellyn A. McColganEllyn A. McColgan/s/ Robert F. McCulloughRobert F. McCullough/s/ Barbara A. YastineBarbara A. Yastine/s/ Daniel ZilbermanDaniel ZilbermanChairman of the Board andCo-Chief Executive Officer(Principal Executive Officer) March 17, 2011Chairman of PrimericaDistribution and Co-ChiefExecutive Officer(Principal Executive Officer) March 17, 2011Executive Vice President andChief Financial Officer(Principal Financial andAccounting Officer) March 17, 2011Director March 17, 2011Director March 17, 2011Director March 17, 2011Director March 15, 2011Director March 17, 2011Director March 17, 2011Director March 17, 2011176 Freedom Lives Here


Annual MeetingThe annual meeting of stockholders ofPrimerica, Inc. will be held May 18, 2011 at10:00 a.m.Primerica, Inc.Dream Theater3100 Breckinridge Blvd.Duluth, GA 30099Corporate OfficePrimerica, Inc.3120 Breckinridge Blvd.Duluth, GA 30099(770) 381-1000www.primerica.comInvestor ContactInvestor RelationsPrimerica, Inc.3120 Breckinridge Blvd.Duluth, GA 30099(866) 694-0420investorrelations@primerica.comMedia ContactCorporate CommunicationsPrimerica, Inc.3120 Breckinridge Blvd.Duluth, GA 30099(770) 564-6329Form 10-KCopies of the Company’s Annual Report onForm 10-K for the fiscal year ended December31, 2010, including financial statements, areavailable on the Company’s Investor Relationswebsite at www.investors.primerica.com or bywritten request to:Investor RelationsPrimerica, Inc.3120 Breckinridge Blvd.Duluth, GA 30099Common StockTrading Symbol: PRINew York Stock ExchangeTransfer Agent and RegistrarAmerican Stock TransferOperations Center6201 15th AvenueBrooklyn, NY 11219Toll Free Number: (800) 937-5449http://www.amstock.com/shareholder/shareholder_services.aspTTY for Hearing Impaired: (866) 703-9077Foreign Stockholders: (718) 921-8124TTY Foreign Stockholders: (718) 921-8386


© 2011 Primerica / 41880 / 11PFS74-2 / 3.11

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