Primerica 2010 Annual Report - Direct Selling News

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beno less than 75% of thecontract owner’s contribution,reduced by any withdrawals.Account values are notguaranteed for withdrawn unitsif contract owners makewithdrawals prior to thematurity dates.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