Primerica 2010 Annual Report - Direct Selling News

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