Primerica 2010 Annual Report - Direct Selling News

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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
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Freedom Lives Here 2010 Annual Repo
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A Main Street Company for Main Stre
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North America’s vastmiddle-income
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More than 50 percent of U.S. househ
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We are PrimericaPrimerica is a Main
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Primerica helps familiescreate a fi
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René Turner wasalways told growing
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We teach people how money works.We
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UNITED STATESSECURITIES AND EXCHANG
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CAUTIONARY STATEMENT CONCERNING FOR
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PART IITEM 1.BUSINESSOverviewPrimer
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them reduce and ultimately pay off
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With the support of our home office
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ecognized with the sales representa
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force. We also profile successful s
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• bonuses and other compensation,
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originators (and in some states as
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We organize and manage our business
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premiums that are less per person p
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insurance policies that we underwri
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assistance, has developed a series
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SEC, FINRA and with respect to 529
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they sell insurance policies. Our C
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preceding 12 months, exceed this st
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interest rate risk and business ris
Page 53 and 54: operational support to its subsidia
Page 55 and 56: Privacy of Consumer Information. U.
Page 57 and 58: media. This negative commentary can
Page 59 and 60: with such laws and regulations, inc
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Page 63 and 64: Our financial strength and credit r
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Page 69 and 70: conduct standards prescribed by FIN
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Page 73 and 74: Terrorist Financing Act and its acc
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Page 77 and 78: housed at our Duluth and Roswell, G
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Page 81 and 82: to and subject to the limitations o
Page 83 and 84: Field Audit Department from 1993 to
Page 85 and 86: Securities Authorized for Issuanceu
Page 87 and 88: ITEM 6.SELECTED FINANCIAL DATA.The
Page 89 and 90: pursuant to which we issued to a wh
Page 91 and 92: ecruiting boost we experienced in t
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Page 101 and 102: life insurance processing responsib
Page 103: einsurance agreements impacted the
Page 107 and 108: Term Life Insurance Segment ProForm
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Page 111 and 112: We believe that the pro forma resul
Page 113 and 114: ecognized in 2008. Excluding the ef
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Page 119 and 120: The composition of our invested ass
Page 121 and 122: LIQUIDITY AND CAPITALRESOURCESDivid
Page 123 and 124: surplus notes, hybrid securities or
Page 125 and 126: ITEM 7A. QUANTITATIVE ANDQUALITATIV
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Page 131 and 132: PRIMERICA, INC. AND SUBSIDIARIESCon
Page 133 and 134: which we are able to reinvest at ou
Page 135 and 136: with reinsured policies. Ceded poli
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Page 139 and 140: New Accounting PrinciplesScope Exce
Page 141 and 142: immediately contributed back to us
Page 143 and 144: The Investment and Savings Products
Page 145 and 146: (4) InvestmentsOn March 31, 2010, w
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having similar tenors (e.g., sector
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(5) Financial InstrumentsThe carryi
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Due from reinsurers includes ceded
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(8) Intangible Assets and GoodwillT
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(11) Note PayableIn April 2010, we
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Income tax expense (benefit) attrib
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above, plus an additional 7,098 com
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Non-Employee Share-BasedTransaction
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We had arrangements with Citi in re
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Contingent LiabilitiesThe Company i
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ITEM 9. CHANGES IN ANDDISAGREEMENTS
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Members of Our Board of DirectorsTh
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finance, and risk and asset managem
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PART IVITEM 15. EXHIBITS AND FINANC
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10.4 Long-Term Services Agreement d
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10.29 Employment Agreement, dated a
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Schedule ISummary of Investments
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Schedule IICondensed Financial Info
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Schedule IICondensed Financial Info
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101% of the outstanding principal a
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GrossamountSchedule IVReinsurancePR
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Annual MeetingThe annual meeting of
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