Primerica 2010 Annual Report - Direct Selling News

any failure to implement newly requiredadditional controls, or if our salesrepresentatives or employees fail to complywith our policies and procedures,misappropriation or intentional or unintentionalinappropriate disclosure or misuse of clientinformation could occur. Such internal controlinadequacies or non-compliance couldmaterially damage our reputation or lead tocivil or criminal penalties, which, in turn, couldhave a material adverse effect on our business,financial condition and results of operations.Risks Related to Our InsuranceBusiness and ReinsuranceWe may face significant losses if ouractual experience differs from ourexpectations regarding mortality orpersistency.We set prices for life insurance policies basedupon expected claim payment patterns derivedfrom assumptions we make about the mortalityrates, or likelihood of death, of ourpolicyholders in any given year. The long-termprofitability of these products depends uponhow our actual mortality rates compare to ourpricing assumptions. For example, if mortalityrates are higher than those assumed in ourpricing assumptions, we could be required tomake more death benefit payments under ourlife insurance policies or to make suchpayments sooner than we had projected, whichmay decrease the profitability of our term lifeinsurance products and result in an increase inthe cost of our subsequent reinsurancetransactions.The prices and expected future profitability ofour life insurance products are also based, inpart, upon assumptions related to persistency,which is the probability that a policy will remainin force from one period to the next. Actualpersistency that is lower than our persistencyassumptions could have an adverse effect onprofitability, especially in the early years of apolicy, primarily because we would be requiredto accelerate the amortization of expenses wedeferred in connection with the acquisition ofthe policy. Actual persistency that is higherthan our persistency assumptions could havean adverse effect on profitability in the lateryears of a block of policies because theanticipated claims experience is higher in theselater years. If actual persistency is significantlydifferent from that assumed in our pricingassumptions, our reserves for future policybenefits may prove to be inadequate. We areprecluded from adjusting premiums on ourin-force business during the initial term of thepolicies, and our ability to adjust premiums onin-force business after the initial policy term islimited by our insurance policy forms to themaximum premium rates in the policy.Our assumptions and estimates regardingpersistency and mortality require us to makenumerous judgments and, therefore, areinherently uncertain. We cannot determine withprecision the actual persistency or ultimateamounts that we will pay for actual claimpayments on a block of policies, the timing ofthose payments, or whether the assetssupporting these contingent future paymentobligations will increase to the levels weestimate before payment of claims. If weconclude that our reserves, together withfuture premiums, are insufficient to coveractual or expected claims payments and thescheduled amortization of our DAC assets, wewould be required to first accelerate ouramortization of the DAC assets and thenincrease our reserves and incur incomestatement charges for the period in which wemake the determination, which could materiallyadversely affect our business, financialcondition and results of operations.The occurrence of a catastrophic eventcould materially adversely affect ourbusiness, financial condition and resultsof operations.Our insurance operations are exposed to therisk of catastrophic events, which could cause alarge number of premature deaths of ourinsureds. Catastrophic events include wars andother military actions, terrorist attacks, naturalor man-made disasters and pandemics or otherwidespread health crises. Catastrophic eventsare not contemplated in our actuarial mortalitymodels. A catastrophic event could also causesignificant volatility in global financial markets40 Freedom Lives Here