Primerica 2010 Annual Report - Direct Selling News

educing dividends or other amounts payable tous by our subsidiaries without prior approval byregulatory authorities. In addition, in the future,we may become subject to debt instruments orother agreements that limit our ability to paydividends. The ability of our insurancesubsidiaries to pay dividends to us is alsolimited by our need to maintain the financialstrength ratings assigned to us by the ratingsagencies.If any of our subsidiaries were to becomeinsolvent, liquidate or otherwise reorganize, we,as sole stockholder, will have no right toproceed against the assets of that subsidiary.Furthermore, with respect to our insurancesubsidiaries, we, as sole stockholder, will haveno right to cause the liquidation, bankruptcy orwinding-up of the subsidiary under theapplicable liquidation, bankruptcy or winding-uplaws, although, in Canada, we could apply forpermission to cause liquidation. The applicableinsurance laws of the jurisdictions in whicheach of our insurance subsidiaries is domiciledwould govern any proceedings relating to thatsubsidiary. The insurance authority of thatjurisdiction would act as a liquidator orrehabilitator for the subsidiary. Both creditorsof the subsidiary and policyholders (if aninsurance subsidiary) would be entitled topayment in full from the subsidiary’s assetsbefore we, as the sole stockholder, would beentitled to receive any distribution from thesubsidiary, which could adversely affect ourability to pay our operating costs and othercorporate expenses.If the ability of our insurance or non-insurancesubsidiaries to pay dividends or make otherdistributions or payments to us is materiallyrestricted by regulatory requirements,bankruptcy or insolvency, or our need tomaintain our financial strength ratings, or islimited due to operating results or otherfactors, it could materially adversely affect ourability to pay our operating costs and othercorporate expenses.We may incur debt or issue equity tomeet our operating and regulatorycapital requirements or for otherpurposes.Historically, we have funded our new businesscapital needs from cash flows provided bypremiums paid on our in-force book of term lifeinsurance policies. As a result of the Citireinsurance transactions, the net cash flow weretain from our existing block of term lifeinsurance policies was reduced proportionatelyto the size of our retained interest. As we growour term life insurance business by issuing newpolicies, we will need to fund all of the upfrontcash requirements of issuing new term lifepolicies (such as commissions payable to thesales force and underwriting expenses), whichcosts generally exceed premiums collected inthe first year after a policy is sold. In light ofthese anticipated net cash outflows, there willbe significant demands on our liquidity in thenear- to intermediate-term as we grow the sizeof our retained block of term life insurancepolicies. Therefore, to meet our operating andregulatory requirements, we may incur debt orissue equity to fund working capital and capitalexpenditures or to make acquisitions and otherinvestments. If we raise funds through theissuance of debt securities or preferred equitysecurities, any such debt securities or preferredequity securities issued will have liquidationrights, preferences and privileges senior tothose of the holders of our common stock. If weraise funds through the issuance of equitysecurities, the issuance will dilute yourownership interest in us. There is no assurancethat debt or equity financing will be available tous on acceptable terms, if at all. If we are notable to obtain sufficient financing, we may beunable to maintain or grow our business.Primerica 2010 Annual Report 55