Primerica 2010 Annual Report - Direct Selling News

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