Primerica 2010 Annual Report - Direct Selling News

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