Primerica 2010 Annual Report - Direct Selling News

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• Acquisition and operating expenses.Acquisition and operating expenses arereduced by the allowances received fromcoinsurance, including the businessreinsured with Citi.We presently intend to continue cedingapproximately 90% of our U.S. mortality riskother than the Citi reinsurance transactions.Allocated net investment income. Term LifeInsurance segment net investment income iscomposed of two elements: allocated netinvestment income and the market returnassociated with the deposit asset underlyingthe 10% reinsurance agreement we executed inconnection with the Transactions. We allocatenet investment income based on the book valueof the invested assets allocated to the TermLife Insurance segment compared to the bookvalue of the Company’s total invested assets.Net investment income is also impacted by theperformance of our invested asset portfolio andthe market return on the deposit asset whichcan be affected by interest rates, credit spreadsand the mix of invested assets.Expenses. Results are also affected byvariances in client acquisition, maintenance andadministration expense levels.Investment and Savings ProductsSegmentOur Investment and Savings Products segmentresults are primarily driven by sales, the valueof assets in client accounts for which we earnongoing service and distribution fees and thenumber of fee generating accounts weadminister.Sales. We earn commissions and fees, such asdealer re-allowances, and marketing andsupport fees, based on sales of mutual fundproducts and annuities. Sales of investment andsavings products are influenced by the overalldemand for investment products in the UnitedStates and Canada, as well as by the size andproductivity of our sales force. We generallyexperience seasonality in our Investment andSavings Products segment results due to ourhigh concentration of sales of retirementaccount products. These accounts are typicallyfunded in February through April, coincidentwith the tax return preparation season. Whilewe believe the size of our sales force is a factorin driving sales volume in this segment, thereare a number of other variables, such aseconomic and market conditions that may havea significantly greater effect on sales volume inany given fiscal period.Asset values in client accounts. We earnmarketing and distribution fees (trailcommissions or, with respect to U.S. mutualfunds, 12b-1 fees) on mutual fund, annuity andsegregated funds products based on assetvalues in client accounts. Our investment andsavings products primarily consist of fundscomposed of equity securities. Asset values areinfluenced by new product sales, ongoingcontributions to existing accounts, redemptionsand changes in equity markets, net of expenses.Accounts. We earn recordkeeping fees foradministrative functions we perform on behalfof several of our mutual fund providers andcustodial fees for services as a non-bankcustodian for certain of our mutual fund clients’retirement plan accounts.Sales mix. While our investment and savingsproducts all have similar long-term earningscharacteristics, our results in a given fiscalperiod will be affected by changes in the overallmix of products within these broad categories.Examples of changes in the sales mix thatinfluence our results include the following:• sales of a higher proportion of mutual fundproducts of the several mutual fundfamilies for which we act as recordkeeperwill generally increase our earningsbecause we are entitled to recordkeepingfees on these accounts;• sales of variable annuity products in theUnited States will generate higherrevenues in the period such sales occurthan sales of other investment productsthat either generate lower upfrontrevenues or, in the case of segregatedfunds, no upfront revenues;• sales and administration of a higherproportion of mutual funds that enable usto earn marketing and support fees willincrease our revenues and profitability; and74 Freedom Lives Here
• sales of a higher proportion of retirementproducts of several mutual fund familieswill tend to result inhigher revenuegeneration due to ourability to earncustodial fees onthese accounts.The product sales thatgenerate sales-basedrevenues, average account values of accountsthat generate account-based revenue and theaverage number of fee-generating accountsthat generate account-based revenues were asfollows:Year ended December 31,2010 2009 2008(Dollars in millions and accounts inthousands)Product sales:Mutual funds $ 2,140.9 $ 1,821.0 $2,809.0Annuities and other 1,169.2 922.6 1,157.4Total sales-based revenuegenerating product sales 3,310.1 2,743.6 3,966.4Segregated funds 313.5 263.1 492.0Total product sales (1) $3,623.6 $3,006.6 $4,458.4Average asset values in client accounts:Mutual funds $ 22,614 $ 19,329 $ 24,301Annuities and other 7,095 5,727 6,492Segregated funds 2,199 1,790 1,970Total average asset values in clientaccounts (1) $ 31,908 $ 26,845 $ 32,763Average number of fee-generatingaccounts:Recordkeeping accounts 2,728 2,838 3,083Custodial accounts 1,990 2,057 2,224(1) Totals may not add due to rounding.Sales commissions. Results are also affectedby the compensation our sales representativesreceive for the sale of sales-based products andfor asset values in their clients’ accounts.The production noted above translated intocommissions and fees revenue as follows:Year ended December 31,2010 2009 2008(In thousands)Commissions and fees revenue:Sales-based $142,605 $ 118,798 $ 168,614Asset-based 167,473 127,581 158,934Account-based 41,690 43,247 47,243Total commissions and fees $351,768 $289,626 $ 374,791Corporate and Other DistributedProducts SegmentWe earn revenues and pay commissions andreferral fees from thedistribution of loanproducts, various otherinsurance products,prepaid legal servicesand other products, allof which are originatedby third parties. OurNew York life insurancesubsidiary, NBLIC, alsounderwrites a mailorderstudent life policyand a short-termdisability benefit policy,neither of which isdistributed by our salesforce, and alsohas in-force policiesfrom severaldiscontinued lines ofinsurance.The Corporate andOther DistributedProducts segment is affected by corporateincome and expenses not allocated to our othersegments, net investment income (other thannet investment income allocated to our TermLife Insurance segment), general andadministrative expenses (other than expensesthat are allocated to our Term Life Insurance orInvestment and Savings Products segments),management equity awards, equity awardsgranted to our sales force leaders at the time ofthe Offering, interest expense on the Citi noteand realized gains and losses on our investedasset portfolio.Primerica 2010 Annual Report 75
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Freedom Lives Here 2010 Annual Repo
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A Main Street Company for Main Stre
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North America’s vastmiddle-income
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More than 50 percent of U.S. househ
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We are PrimericaPrimerica is a Main
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Primerica helps familiescreate a fi
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René Turner wasalways told growing
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We teach people how money works.We
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UNITED STATESSECURITIES AND EXCHANG
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CAUTIONARY STATEMENT CONCERNING FOR
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PART IITEM 1.BUSINESSOverviewPrimer
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them reduce and ultimately pay off
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With the support of our home office
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ecognized with the sales representa
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force. We also profile successful s
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• bonuses and other compensation,
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originators (and in some states as
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We organize and manage our business
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premiums that are less per person p
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insurance policies that we underwri
Page 43 and 44: assistance, has developed a series
Page 45 and 46: SEC, FINRA and with respect to 529
Page 47 and 48: they sell insurance policies. Our C
Page 49 and 50: preceding 12 months, exceed this st
Page 51 and 52: interest rate risk and business ris
Page 53 and 54: operational support to its subsidia
Page 55 and 56: Privacy of Consumer Information. U.
Page 57 and 58: media. This negative commentary can
Page 59 and 60: with such laws and regulations, inc
Page 61 and 62: and disrupt the economy. Although w
Page 63 and 64: Our financial strength and credit r
Page 65 and 66: There are certain risks and uncerta
Page 67 and 68: 26). The update revises the definit
Page 69 and 70: conduct standards prescribed by FIN
Page 71 and 72: licensing requirements have caused,
Page 73 and 74: Terrorist Financing Act and its acc
Page 75 and 76: educing dividends or other amounts
Page 77 and 78: housed at our Duluth and Roswell, G
Page 79 and 80: • for dates as of or periods endi
Page 81 and 82: to and subject to the limitations o
Page 83 and 84: Field Audit Department from 1993 to
Page 85 and 86: Securities Authorized for Issuanceu
Page 87 and 88: ITEM 6.SELECTED FINANCIAL DATA.The
Page 89 and 90: pursuant to which we issued to a wh
Page 91 and 92: ecruiting boost we experienced in t
Page 93: • Mortality. We use historical ex
Page 97 and 98: on quality rating, average life and
Page 99 and 100: Deferred Policy Acquisition Costs(D
Page 101 and 102: life insurance processing responsib
Page 103 and 104: einsurance agreements impacted the
Page 105 and 106: Notes to the Pro Forma Statement of
Page 107 and 108: Term Life Insurance Segment ProForm
Page 109 and 110: Investments and Savings ProductsSeg
Page 111 and 112: We believe that the pro forma resul
Page 113 and 114: ecognized in 2008. Excluding the ef
Page 115 and 116: amortize the higher DAC balance res
Page 117 and 118: Corporate and Other DistributedProd
Page 119 and 120: The composition of our invested ass
Page 121 and 122: LIQUIDITY AND CAPITALRESOURCESDivid
Page 123 and 124: surplus notes, hybrid securities or
Page 125 and 126: ITEM 7A. QUANTITATIVE ANDQUALITATIV
Page 127 and 128: AssetsPRIMERICA, INC. AND SUBSIDIAR
Page 129 and 130: PRIMERICA, INC. AND SUBSIDIARIESCon
Page 131 and 132: PRIMERICA, INC. AND SUBSIDIARIESCon
Page 133 and 134: which we are able to reinvest at ou
Page 135 and 136: with reinsured policies. Ceded poli
Page 137 and 138: indemnify and hold the Company harm
Page 139 and 140: New Accounting PrinciplesScope Exce
Page 141 and 142: immediately contributed back to us
Page 143 and 144: The Investment and Savings Products
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(4) InvestmentsOn March 31, 2010, w
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The following tables summarize, for
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The net effect on stockholders’ e
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The amortized cost and fair value o
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The roll-forward of credit-related
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having similar tenors (e.g., sector
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(5) Financial InstrumentsThe carryi
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Due from reinsurers includes ceded
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(8) Intangible Assets and GoodwillT
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(11) Note PayableIn April 2010, we
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Income tax expense (benefit) attrib
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above, plus an additional 7,098 com
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Non-Employee Share-BasedTransaction
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We had arrangements with Citi in re
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Contingent LiabilitiesThe Company i
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ITEM 9. CHANGES IN ANDDISAGREEMENTS
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Members of Our Board of DirectorsTh
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finance, and risk and asset managem
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PART IVITEM 15. EXHIBITS AND FINANC
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10.4 Long-Term Services Agreement d
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10.29 Employment Agreement, dated a
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Schedule ISummary of Investments
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Schedule IICondensed Financial Info
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Schedule IICondensed Financial Info
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101% of the outstanding principal a
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GrossamountSchedule IVReinsurancePR
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Annual MeetingThe annual meeting of
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