Primerica Inc (PRI) 2010 Q3 法說會逐字稿

Great day, ladies and gentlemen, and welcome to the Primerica third quarter 2010 earnings call. My name is Thelma, and I'll be your coordinator for today. At this time, all participants are in a listen only mode. We will facilitate a question and answer session towards the end of this presentation.

(Operator Instructions)

I would now like to turn the presentation over to your host for today, Ms. Kathryn Kieser, Senior Vice President of Investor Relations. Please, proceed.

Good morning, everyone. Thank you for joining us today as we discuss Primerica's results for the third quarter 2010. Yesterday afternoon we issued our press release reporting financial results for the quarter ended September 30, 2010. A copy of the press release is available in investor relations section of our website at investors.primerica.com. With us on the call this morning are Rick Williams, our Chairman and Co-CEO, John Addison, Chairman of Distribution and Co-CEO, and Alison Rand, our CFO.

We reference certain non-GAAP financial measures in our press release and on this call. These non-GAAP measures are provided, because management uses them to make financial, operating, and planning decisions and in evaluating the Company's performance. We believe these measures will assist you in assessing the Company's underlying performance for the period being reported. These non-GAAP measures have limitations, and reconciliations between non-GAAP and GAAP financial measures are attached to our press release. You can see our GAAP results on page three of the presentation.

On today's call, we will make forward-looking statements in accordance with the Safe Harbor provision of the Securities Litigation Reform Act of 1995. Forward-looking statements include any statements that may project, indicate, or imply future results, events, performances, or achievements and may contain words such as except (sic), intend, plan, anticipate, estimate, and believe or similar words derived from those words. They are not guarantees, and such statements involve risks and uncertainties that could cause actual results to differ material from these statements. Please see the risk factors contained in our registration statement on Form S-1, originally filed on November 5, 2009, and amended through March 31, 2010, and our Form 10-Q for the quarter ended June 30, 2010, for discussion of these risks.

This morning's call is being recorded and webcast live on the internet. The webcast and corresponding slides will be available in the investor relations section of our website for at least 30 days after the presentation. After the prepared remarks, we will open the call to questions from our dial-in participants. Now I'll turn the call over to Rick.

Thank you, Kathryn, and good morning, everyone. Welcome to Primerica's third quarter 2010 earnings call. I'll start by giving you some highlights for the quarter, and then, John will talk about our sales force. Alison will follow with a detailed discussion of our financials.

Beginning on slide four of the presentation, we have provided operating results for the third quarter 2010 and the same period last year for comparison. We believe this is the most appropriate measure for you to use to gauge our performance, so we will focus most of our comments on the quarter's results using that measure.

Our net operating income for the third quarter was $40.9 million, or $0.54 per diluted share, reflecting stable term life performance and improved investment and savings product activity, partially offset by lower yield on invested assets, as well as a higher effective tax rate. Alison will get into the details later.

Stockholders' equity was $1.4 billion at September 30, 2010. Adjusted stockholders' equity was $1.28 billion, and net operating income return on adjusted stockholders' equity was 13.1% for the same period. Net income on stockholders' equity was 11.7%. Adjusted book value per share was $17.58 at September 30, 2010.

A highlight for the quarter was the 14% increase in investment and savings product sales, primarily driven by a 32% increase in variable annuity sales. Growth in variable annuity sales significantly out passed -- outpaced the industry in third quarter 2010, reflecting our clients' desire to mitigate financial risk with guaranteed lifetime income.

Sequentially, investment and savings product sales reflect a historical seasonal trend. While the seasonal trend was not apparent in the prior year, due to recovery market conditions, we expect this trend to continue going forward. Improved market conditions drove our client assets up 8% to $32.6 billion at the end of the third quarter, and our average client assets increased by 9% in the third quarter, compared to a year ago. Sequentially, asset values at the end of the period were up 10%, compared to the second quarter 2010.

In our term life business, net premium revenues grew by 10% in third quarter 2010, compared to second quarter, as we continued to layer on another quarter of new term life business, following the Citi reinsurance transactions. Life insurance issued policies decreased by 6% in third quarter 2010 from a year ago, in line with the industry term life trends and a year over year decline in the size of the life licensed sales force. John will spend time discussing the sales force highlights in a minute.

Sequentially, life insurance issued policies declined 10% in third quarter 2010, largely reflecting the typical seasonality of the business. Our average policy issued premium was $811, down 2% from the third quarter 2009 and flat with second quarter 2010. We believe the slowing of our term results is partially attributable to the economic headwinds facing middle income families. Persistency in the third quarter improved slightly over prior year.

We are pleased with our strong net operating income and earnings per share for the third quarter. We are successfully rebuilding our base of long-term recurring life insurance revenues and experiencing solid momentum in investment and savings product sales. We expect our capital strength and operational focus to position us to drive higher growth and improved performance going forward. With that, let me introduce John Addison, who will talk about our sales force and distribution.

Thanks, Rick, and good morning, everybody. First, let me say that I'm proud of what we've been able to accomplish in an environment where middle income families are watching every dollar in this period of economic uncertainty. Consumers in our market are extremely cautious with their finances right now and slow to make discretionary purchasing decisions.

As you can see from slide five, recruiting was flat in the third quarter overall, with July and September both up and August down compared to a year ago. We believe the year over year decline in August was partially due to a difficult comparison, as we launched a new Hawaii contest in August, 2009, which resulted in an increase in recruiting. As you'll remember, this Hawaii trip was the first contest trip we launched after having to cancel our Atlantis contest in February of 2009.

The economy is also having an impact on recruiting momentum. To help prospective recruits make the decision to join Primerica, as well as to motivate our independent representatives to focus on recruiting and licensing, we developed the Fast Start Bonus system. I'll tell you more about that in a minute.

Our life insurance licensed sales force grew slightly over the second quarter 2010. The growth came primarily from a decline in nonrenewables, due to timing of state renewals and fewer temporary licenses being issued in the first quarter of 2010. Just so you understand, there were fewer temp licenses issued in the first quarter than in the quarters -- the third quarter six months -- than in the third quarter six months later. So, when representatives must get a temp -- a permanent license to continue the business, there were fewer nonrenewals resulting from that.

On an ongoing basis, we expect nonrenewals to normalize to historical seasonal levels, although there may continue to be some increased pressure on nonrenewals until the economy turns. Partially offsetting the positive impact of lower nonrenewals was a 5% decline in reps getting new licenses, compared to the second quarter of 2010. This decline was attributable to a modest decline in the percentage of new recruits obtaining a life license in the third quarter.

It's been almost a year exactly since filing our S-1. As a management team, we continue to be optimistic and excited about the future of our business, and we are focused on building Primerica for the long-term. First and foremost, this involves constantly improving the opportunity for our independent representatives.

One way we incentivize our regional vice presidents is by having them compete for equity awards on a quarterly basis. The competition each quarter is based on Primerica's key long-term growth drivers -- life insurance premium growth combined with factors that lead to growth in the size of the sales force. In the third quarter, regional vice presidents competed for an aggregate of 187,500 shares, and we are running a similar competition in the fourth quarter. We continue to tweak the qualification criteria each quarter to drive desired results. We believe the quarterly equity incentive program is important to build long-term alignment for all of our stakeholders.

We also launched an incentive contest in June to go to the El Conquistador in Puerto Rico in February, 2011, where the weather will be perfect. Representatives at all levels are competing to be one of the 1,500 couples that will qualify, based on life insurance premium, combined with activities related to growing the size of their team. This competition will conclude at the end of November.

At the end of August, we launched a new Fast Start Bonus system during our San Diego incentive trip. This was step one in enhancing the front end of our business opportunity. We reallocated compensation in a way that would more closely align frontend activity with the long range growth of the Company. This new system incents recruiting, training, and ultimately, the licensing of new representatives. It also rewards regional vice presidents, our key field leaders, to drive this behavior.

The cornerstone of this frontend bonus program, in the most simplistic terms, is it creates immediate compensation for a new recruit in their first 30 days in the business. If a recruit goes through the qualifying steps within a four month period, including getting licensed, they can earn even more. New recruits generating activity quickly is a very -- is very important to our business. While they are training, recruits accompany their field trainers to meet the recruit's friends and family to help them begin to take control of their financial situation.

Once new recruits are licensed and field trained, they schedule appointments with referrals from the field training appointments, as well as start field training their own new recruits. This warm market referral process is a fundamental cycle of our business. The Fast Start Bonus helps incent early engagement in the business, which really excites and incents the sales force.

This new bonus program has been an exciting new development for the front end of our business. The field's reaction has been enthusiastic, but the proof will be in the pudding. Right now, it's too early to tell, especially as we head into the holiday season of the fourth quarter, which historically has lower volumes than the third quarter.

As we head toward 2011 and our June convention in Atlanta, we are working on significant initiatives to improve our business. One example is automation. Today, over 50% of our life applications and 70% of our independent business applications for new recruits come in electronically from a Smartphone. We are working on significant improvements that will allow our sales force to use multiple devices, including iPads, to do these transactions. The new technology will simplify the sales process for the field and enhance the attractiveness of this business opportunity to the younger market.

We are also working hard on significant improvements to our investment and savings product offerings, among other initiatives. As always, we are committed to improving offerings for our clients, enhancing our business opportunity for our reps, and delivering on the promises we made at our refounding on April 1. We strongly believe in the long-term growth prospects of Primerica and are encouraged by the attitude, strength, perseverance, commitment, and leadership of our sales force. We believe the challenges felt by the middle market are temporary and present a long-term opportunity for Primerica. With that, I'll turn it over to Alison to go through the third quarter financial details.

Thank you, John, and good morning. Let me start today by reviewing our definition of operating results. Beginning in the second quarter, our GAAP financial results reflect the impact of the reinsurance and reorganization transactions, consummated in connection with our IPO. Our operating results, including net operating income and operating revenue, exclude realized investment gains and losses and the ongoing impact of the IPO equity awards.

Past periods presented for comparative purposes reflect operating results, excluding the same items, plus the impact of the reinsurance and reorganization transactions. Management believes these operating results, which are non-GAAP financial measures, are a better reflection of our ongoing business and underlying profitability drivers. The remainder of my discussion will be largely focused on operating measures.

Page six provides a reconciliation of net operating income to net income, as well as our EPS calculation. We continue to use the two-class EPS method, reflecting the participating nature of our unvested equity awards and the treasury stock method to determine the warrant dilution. To the extent that our stock price exceeds $18 per share, the warrants held by Warburg Pincus will be in the money, and our diluted EPS will be lower than our basic EPS.

Net operating income grew 10%, sequentially, from the second quarter, reflecting growth in new terms, non-recurrence of IPO launch expenses from the second quarter, and a more normalized effective tax rate. Operating revenues were up 3% for the same comparative period.

Turning to page seven, in our term life insurance segment, operating income, before income taxes, for the third quarter 2010 was $42.6 million, down 2% from the same period last year. Direct premium increased by $14.9 million, or 3%, slightly faster than the increase in face amount in-force, due mainly to premium increases on policies reaching the end of their initial level premium period. The $15 million, or 4%, increase in ceded premiums, which is highly influenced by the Citi reinsurance, followed the same pattern as direct premiums.

Net premium was up 10%, sequentially, from the second quarter, reflecting growth in our new term business, which we define as business placed in-force following the Citi reinsurance arrangements. It's important to point out that 29%, or $26.8 million, of our total net premium revenue during the quarter was attributable to new term policies, reflecting our efforts to rebuild our base of long-term recurring revenue.

While we will discuss overall invested asset performance later in the call, net investment income allocated to the term life segment was down $1.1 million, or 7%, versus the prior year, largely due to lower yields on invested assets. Approximately 55% of our invested assets are allocated to this segment.

Benefits and expenses were $73.4 million, virtually unchanged from the same period a year ago. Persistency improved modestly over the prior year, resulting in higher reserve increases, offset by lower DAC amortization, with little net effect on earnings. DAC amortization also increased by approximately $1 million, due to a lower interest rate being assumed for the early durations of 2010 issues, reflecting the current interest rate environment.

The rate used for 2010 issues is assumed to return to historical levels by the third duration. The lower interest rate will continue to increase DAC amortization versus prior periods until the interest rate assumption returns to the historical levels. Reserves for new business are small, and the lower interest rate does not materially impact reserve increases. The interest rate used for in-force business are locked in at issue, and the lower interest rate environment does not impact DAC amortization or reserve increases on in-force.

The movement of annual IT contract payments from third quarter last year to the fourth quarter this year caused lower operating expenses of approximately $1 million in the third quarter of 2010 versus the prior year. Turning to page eight, you'll see the results for our investment and savings products segment. Operating income before income taxes increased 9% to $26.6 million, compared with $24.4 million in the third quarter 2009. The trend in year over year sales and asset growth that Rick discussed earlier directly drive the segment's results, with sales based revenue up $4.3 million, or 15%, and asset based revenue up $4.3 million, or 13%.

This quarter 2010 sales force commissions -- commission expense increased consistent with revenue, with total segment expenses up $6.3 million, or 12%, year over year. Growth in operating income before income taxes lagged operating revenue growth, as the percentage of account based revenues to total revenues was down year over year. In recent years, our mix of new sales has shifted between our accounts generating account based revenue and those that do not. Our large number of accounts generating account based revenues have a natural attrition rate that is not currently being offset by new accounts generating account based revenue. This trend could improve with a shift in sales mix or continued growth in sales volumes.

Although ending asset values were up 10% sequentially, average asset values were down 2% sequentially, and asset based revenue declined accordingly. 12b-1 service fees accounted for 31% of asset based revenues in the third quarter.

Our third segment, corporate and other distributed products, is highlighted on page nine. On an operating basis, this segment includes revenue and expense associated with our other distributed third party products, life and disability products underwritten by our New York subsidiary but not distributed through our sales force, and net income and operating expenses not allocated to our two primary segments.

Commission and fees on other distributed products continue to see downward pressure from the reduction in our lending business, while the other product lines remain stable. The trend in net premium and benefits and claims largely reflects the runoff of discontinued insurance products at our New York subsidiary, offset this quarter by higher premiums on the disability products which are currently offered.

The operating loss before income taxes improved by 2%, to $5.2 million, in the third quarter over the prior year, reflecting lower expenses, partially offset by lower allocated net investment income. Net investment income of $12.3 million was down 7% from the year ago period, primarily due to lower portfolio yield.

Expenses were lower, primarily due to an adjustment made by Citi to corporate charges in 2009 of $2.7 million. Additionally, we had lower incentive compensation expense in third quarter 2010, as a result of fully amortizing previous Citi equity awards in conjunction with our IPO. During the quarter, we continue to transition from Citi provided services, reducing payments to Citi by $1.3 million since second quarter. Our standalone public Company expenses only increased marginally, as we were able to turn off several Citi charges this quarter that were not immediately replaced with internal costs. We expect these costs to emerge over the next several quarters, as we continue to build out functions to support of new public Company.

Turning now to page ten, we'll look at our balance sheet and cash flow. We continue to maintain a conservative balance sheet with a strong capital position. As of September 30, 2010, our risk based capital ratio is estimated to be approximately 550%, well in excess of our long-term RBC target. We maintain this excess capital to fund future growth anticipated in the business and expect the RBC ratio to decline over time. Our debt to capital ratio remains low, at less than 18%, as does our invested asset to equity ratio of 1.8 times.

Cash decreased by $135.7 million in the quarter, primarily due to $112.4 million of net purchases of investments, that's net of sales and maturities, as we continue our strategy of investing excess cash to enhance yield. Turning to page 11, as of November -- September 30, we had investments and cash totaling $2.28 billion. We continue to hold a high quality invested asset portfolio, with an average credit rating of A on our fixed income portfolio, and a diverse mix among asset classes and sectors. Excluding cash, all but 1% of our invested assets were in fixed income investments, of which 93% were rated investment grade. Net unrealized investment gains grew to $118.1 million at September 30, 2010, as our portfolio continued to experience strong market gains as interest rates and spreads continued to be near record lows.

The average duration of our fixed income portfolio is currently 3.4 years, which is shorter than our general target of five to seven years. We do not believe this creates concerns with matching the duration of assets to our policy liabilities, as expected future premiums exceed expected future claims and expenses on such policies. Cash flow from invested assets are not required to support our policy liabilities since, on an economic basis, the product cash flows create an asset, not a liability.

Our increased net purchase activity has reduced our cash from 10% of our portfolio at June 30 to 3% at the end of the third quarter and increased the average book yield on the total portfolio from 5.15% to 5.28%, almost 400 basis points above five year treasuries. Our new purchases were primarily focused on the short end of the curve, with approximately 75% of our purchases maturing within five years. The average credit quality of our purchases was A. Our new money rate for the quarter was 2.5%, up slightly from the second quarter and consistent with this distribution of purchases.

In the current rate environment, we feel it is prudent to not overreach for yield, either through duration or reduced credit quality. However, we are cognizant of the need to use our portfolio assets effectively. With our laddered maturities over the next several quarters, we intend to begin reinvesting farther out the curve, but likely not exceeding ten years. This will modestly increase our overall duration to more historical levels. If rates rise from current levels, we will be able to average into these higher yields throughout the year as we reinvest maturities.

To sum up, we have a strong balance sheet, with a conservative profile and a stable financial performance. We believe we are well positioned for future growth. With that, I will turn the call back over to Rick.

Thanks, Alison. Before we begin our question and answer session, let me recap some of our third quarter highlights. Net operating earnings per diluted share were $0.54. Annualized net operating income return on average adjusted equity was 13.1%. Net term premium increased by 10% over second quarter. Investment and savings product sales were up 14% over a year ago. We are all extremely proud of our Company and the steps we've taken in the third quarter to initiate growth. With that, I'd like to open up the call for Q&A.

(Operator Instructions)

Your first question comes from the line of Andrew Kligerman with UBS. Please, proceed.

Great. Good morning. A couple quick questions. First, with regard to expenses. I think last quarter you had anticipated that both insurance and other operating expenses would move from what was roughly $50 million to, maybe, something $4 million higher, and when I combine the insurance and the other operating expenses, I come out to about $48 million. So, in essence, it looked like expenses were materially lower than what we would have anticipated. Could you give us a little color on that? Why you might have thought it was going to go up last quarter and why it actually sequentially went down about $2 million?

Sure, Andrew. This is Alison. I will answer that question. The one thing to remember is that in the second quarter, we did have about $5 million in one-time costs associated with the IPO launch. So, I think my comments last quarter were really looking at more of that steady state run rate.

I see.

So, if you take out the $5 million, we're actually up about $3 million, $3.6 million, quarter to quarter. A couple of things that we expected to happen did happen. Things like -- I think I mentioned last quarter, for example, we didn't have a 401(k) payment in the second quarter, because we had suspended the program, and that obviously resumed in the third quarter. So, that trend was very much in line with what we had expected.

I think the place where we are still doing an excellent job of pushing off or retaining expenses is really, as we build out our infrastructure of our public Company being. More specifically, one of the things that we really had anticipated, starting heavily in 2010 and heavily in 2011, was increased vendor software pricing, associated with our separation from Citi. We have done, I will say, an excellent job of pushing off those cost increases. We're going to see some in 2011, but most of it has actually been pushed out until 2012, through steady negotiation by the part of our team here.

Some other things that have happened is we were able to turn off several Citi services a little earlier than we had anticipated. So, we haven't necessarily built up the replacement costs and won't do so until 2011. A good example of that is internal audit. Citi was able to complete their audit cycle earlier than expected. They finished it in the third quarter, and so, we were able to basically discontinue those charges. And while we've started to build out our own internal audit department, clearly, we won't have that fully up and running until sometime next year, so those replacement costs will be a little bit delayed from the cutoff of the cost to Citi.

Another good example of that is government relations. Government relations is actually one place where we relied pretty heavily on Citi to help us in that arena. We have actually developed a game plan, working with some outside advisors as to how we should best proceed on our own, but we have not yet executed that plan. So, as we've rolled off considerably from Citi services, we really haven't ramped up our own services and expect to do so early on in 2011. And a final example is the SOx attestation and audit. We had anticipated that we would go through that process for 2010. We actually are not required to do so until 2011, so those costs have been pushed off accordingly.

One other minor thing to consider, in just -- in thinking about year over year and what might emerge next year, is that, as I mentioned in my previous comments, we are really not experiencing any amortization of equity award expense this year, and that largely has to do with the way it was all handled as part of the IPO. And that will reemerge next year as we employ those programs.

So, net-net, we've been able to push things off. I do expect to see a couple million dollars', at a minimum, increase in this fourth quarter. One, because of what I actually mentioned in my comments, which was where we were able to actually push off some normal expenses that we had anticipated in the third quarter to the fourth quarter. And then, again, as we build up some of these things that we are working to replace from Citi. So hope that answers your question.

Yes, that's very helpful, and I'll call back for even further granularity, but that was quite helpful.

Great. Great.

So, now the second question is with regard to the recruiting. I think you were mentioning on the call that we've got a tough economy, and it's kind of tricky. I would think people with jobs or people nervous about their jobs would be jumping at the opportunity to distribute on behalf of Primerica, just to kind of mitigate any potential risk of losing their job. So, I guess part one is, maybe a little color on that, and then, secondly, maybe a little outlook on where you see recruiting going for next quarter and maybe into next year.

Yes. Hey, thanks, Andrew, and the southern accented John here. By the way, it's great to be in this room today, where no one is coughing and wheezing at me like they were the last quarter. I will report to all of you that the management team at Primerica is (technical difficulty) healthy this quarter.

But that's a very good question, and I -- one of the reports -- early reports I read early this morning, somebody actually noted the fact that the Primerica recruits -- and I know sometimes this is a little counterintuitive for people who are looking at the numbers and stuff. The best Primerica recruit is an employed person -- like I've said many times, somebody that's a school teacher, a coach, whatever, who is wanting to earn extra income. Remember, somebody pays $99 to join Primerica, so they actually have to either use a credit card or write a check. And when people -- and I know so much of Primerica is a science. Alison went through the science of the numbers.

Equally, on the other side, there's kind of a yin and yang to Primerica -- a big piece of it. It's an art form. And when you look at the business, it is a giant psychology lab. And when people -- when middle income people are scared of their jobs, afraid of the future, unconfident, which, anyone -- you read anything, that's like one of the great things going on -- they're not opportunity focused. They're fear focused. And so, people won't make the decision to start a new business, because they're worried about where they are right now. Primerica focuses on getting people to dream and move forward and build something of their own. So, one of the things we always have to remember is we're not recruiting to a job. We're recruiting to an opportunity, and people have to -- my analogy is that middle income people, when they're under stress, are like a turtle, they go in their shell.

And so, that is the challenge. I mean, when you look at the business, and you look out there, one thing I would just say, the -- we have some statistics from the direct sales industry, which we have similarities to, but we really don't think we're that much like. But that's the companies like the Avons and people like that recruit people. If you look at their statistics, and we only have through the second quarter, domestically, their recruiting for that industry was down 6% in the first quarter, down 10% in the second quarter. Now, with the post IPO, we were up 14% in the second quarter and then, virtually flat in the third quarter. So -- but those businesses do recruit to an opportunity driven thing, and people have to be open and accepting of an opportunity.

So, the economy -- we -- unfortunately, we wish we were countercyclical. One of my speeches that I do very hard -- it's, there may be a recession in America, but there's no recession in Primerica and stuff. But the reality is the economic climate does have an effect. As we go forward, what we're doing is that when we see the water is choppy and the world out there being kind of scared and afraid, our view is that is the time to build. That is the time to improve your business opportunity. One example we gave was the Fast Start Bonus and then all the initiatives we're doing in areas, as we build toward our giant celebration in June of next year at the Georgia Dome.

And so, our game plan is to incentivize, be even louder. We have a giant Friday night, this week, broadcast. For the first time ever, Freedom Friday at Primerica broadcast for the sales force and all new recruits. And our view is we certainly would love to see the economy turn and begin to improve and have middle income consumers begin to have more confidence in the future, because confidence breeds hope and opportunity and moving to things. But our plan is to do the hard work, the heavy lifting and constantly improve this opportunity for our regional vice presidents and our sales force. And we continue to be optimistic about the future for both Primerica and building the Company. So, hopefully, that was a --.

That was definitely helpful, John, but looking to next year then, as you kind of fight the headwinds of the tough economy, do you think you can grow the recruiting number? Can you get it higher?

Yes. Yes, we do. I mean, our plan is to grow in 2011. Certainly, as we -- this year has been an interesting year, starting, like I said earlier, almost a year ago, with the filing of the S-1. It was almost a year ago to the day that we arrived back at the headquarters with the red carpet out front from all of our employees that began this journey. Certainly, the economy this year was not something we had hoped for or planned for or put into our game plan, but our plan is to grow next year.

So, we believe the Fast Start Bonus, while too early -- in Primerica -- I think I've said to you guys before -- I know I have, when we were meeting at different times that at Primerica you have to aim and adjust. It's not like turning a speedboat. It's more like driving a ship. And as we do things, we have to observe and make sure, because anything you do, where you're trying to incentivize 100,000 people to incentivize another 100,000 and build, you have to adjust and look at what you're doing. But, long story short, our plan is to grow and to build in 2011.

Are you aiming for double digit growth, or is that maybe too tall of an order?

Rick?

Double digit growth would be nice, but in the current economy, that's -- that would be a difficult thing to do. If the economy improves, I think that's possible, but right now, that would be high.

Thanks a lot. Let me let the next question.

Nice talking to you, Andrew.

Pleasure. Thank you.

Your next question comes from the line of Paul Sarran with Macquarie. Please, proceed.

Hi. Good morning.

Hi, Paul.

So, just to go on recruiting a little bit more. I was wondering, as recruiting comes down -- I guess, if the recruits you do get are more willing to pay that $99, are more focused, do you expect to see a higher rate at which recruits transition to new licensed reps? Or would you expect that rate to remain steady, so that lower recruits translates pretty evenly to lower new reps over time? That's question one. And then, the second one is -- you mentioned some new product innovations and expanded investment savings offerings. I think this probably refers to fixed annuities, but I was wondering if you could elaborate on what you're offering and if there's anything else kind of behind those statements.

Okay. Thanks, Paul. That's two very good questions. The economy right now -- I mean, in all -- we've all been doing this for a very long time. This is a very experienced management team that's been around this business, basically, since we all -- at least, speaking for myself, weighed a lot less and had a lot more hair. This is a particularly challenging economy that we're in right now.

And typically, when recruiting in the past significantly dropped, yield rates increased, because it was more committed or whatever. Our recruiting rates have not dropped significantly. That's -- to get a yield change, you have to have a significant drop in recruiting, and I can assure you no one in this room has any intention of having that happen. So, therefore, when you look at recruiting, the reality of Primerica is, as we've said many times, our productivity, our -- everything moves in a fairly narrow range, but as the economy is bad, rates -- the range tends to go to the lower end of the range.

So, if the economy is bad, people join the business. They -- it's harder to sell. My cousin didn't really want to buy that. They wanted to just use their $30 they had to pay off their credit card, and therefore, things tend to have a little bit of a slippage all the way through the process on the pull through.

That said, one of the things that we wanted to do with the Fast Start Bonus is that it incents engagement in the process early. Remember, we attract volunteers to find leaders, and volunteers quit easy, because they're volunteers. People will tell you they're going to show up this weekend, when you're going to clean up the riverbank with the Cub Scouts, and then, about half of them don't show up. They're volunteers. So, with the Fast Start Bonus, that incents people to engage, plug in, and take the activities to grow. We're very hopeful about it, but in all honesty, we have -- we don't have empirical data yet that shows what it's going to do. But we believe that program very much incents behavior that leads toward licensing.

Talking about the investment business, one of the things we were talking about was fixed annuities, but the other thing we're working on right now is a series of managed accounts, product offerings and negotiating with a number of firms about participating in this program. This managed account program utilizes the mutual funds of many of our existing fund partners, as well as some new fund partners, but to have a managed program. Down the road, we envision other managed account programs that could include ETFs and alternative investments.

So, we are working very hard right now, that when we became our own independent business on April 1 -- when we rang the Liberty Bell, we became the largest independent financial services marketing force in North America. And our goal is to improve our offerings and improve our platform for our sales force in all areas of that. So, it goes beyond fixed annuities.

Okay. That's a very helpful answer.

Thank you very much. It's great talking to you again.

Your next question comes from the line of Steven Schwartz with Raymond James & Associates. Please, proceed.

Good morning, everybody.

What's up, Steven?

It's good that you're all healthy. I'd forgotten about that.

Yes, that's -- I mean, this is an improvement, man.

I got a -- I got one follow-up for you, John, and then, I've got a question. The -- I wasn't quite sure. Were you suggesting that nonrenewals were lower than normal in the quarter or were higher than normal in the quarter?

Nonrenewals -- and Rick is staring at me, so we're trying very hard this time not to walk all over each other's answers or whatever. So, Rick may jump in at the end of this.

But they were lower, because, if you remember, in the last time we were talking, one of the things we said on recruiting was the -- on licensing was the state of Georgia. Back in -- early this year, the state of Georgia, which is a significant state for us, has temporary licenses, which means, you can get a license for a six month period of time without having to take an exam, which we like, because we sell term insurance -- simple term. You pay. You die. We pay. And we believe that the licensing process should be a lot simpler everywhere else, so that we could actually pay a lot more death claims than we pay to the families of North America.

It -- but in the state of Georgia, they put in a fingerprinting requirement, back in the early part of the year. Again -- and I know a lot of this, it's -- that you guys, as you live the next ten years with us and do this, you'll learn more and more about it. But when you're attracting volunteers -- a volunteer looks for a reason to quit. I mean, I -- you hate to -- but, I mean, okay, the health club was closed this morning. I won't go back anymore. When anything you do to put an obstacle in their path causes attrition. So you -- and they made it difficult. You had to go to a handful of locations to go get your fingerprint. It was during the day. So, you're working your job. You can't go get the fingerprint, so therefore, licensing -- temp licenses in Georgia dropped significantly. Well, that was a negative then, but then, when you look at the agent account six months later, there are lists to nonrenew. So, most of that was a result of the state of Georgia. Does that answer your question?

Yes. Yes.

And -- okay. So, now you had a question, so --.

Okay, yes. I do have a question. I'm not sure who this is for here, and I hadn't really considered it, with regards to Primerica. But you mentioned 12b-1 fees, and I thought maybe you could talk to the SEC, the SEC proposal, and what that might mean for your business.

Sure. This is Rick. I'll handle that one. The -- as we've had a chance to sort of study the proposal -- last time I think I was asked this question, or maybe it was the time before, and I said our preliminary view was that we did not believe it would have a material impact on the business. As we've looked at it in detail, I confirm that we don't believe it will have a material impact. We are a distributor, not a manufacturer, and we do not sell C shares, which have the higher 12b-1 fees, so we think any impact would be manageable.

Okay. All right. Very good. That's what I had. Thank you, guys.

Nice talking to you.

Good talking to you.

Your next question comes from the line of Jack Sherck with SunTrust. Please, proceed.

Thank you very much. Good morning.

Jack.

Morning. Question for you on the Fast Start program. I take it -- or maybe you have not -- have you done a program like this before, and normally, how long does it take before you get some traction in that or to see some results? And then, also, are there any expenses or -- associated with that, or is it just the shifting it -- shifting of expense?

This is John again. I'll answer your questions. We -- no, we have not done a program like this before. We have had, in the past, paid by the regional vice president, a licensing, training, and expense reimbursement program, but that was actually compensation. That was actually paid out of the commissions from the field. This is the first Company program that is similar to that. And the expenses to it -- there's no additional expenses. It is -- we had a different bonus program for people who joined the Company and got licensed, which had some good things about it, but was a little hard to explain and way too complicated. We took that funding and shifted it to this program.

Okay. And then, on the nonrenewals of the -- or -- well, the nonconversions of the temporary licenses (multiple speakers).

Right.

Just a question there on -- you said it normally moves between a range, and now you're probably at the lower end of that range. I think if we're going to probably see some bounce back in that number last year, just as we comp up against this Georgia number?

Well, I'm very hopeful that in Georgia, our nonrenewals go up significantly, because we're wanting to -- we have a very strong program right now to get fingerprints and licenses moving in a very significant way in Georgia. So, the nonrenewals in Georgia, being down, really probably isn't a good -- it isn't a good thing, long-term. We want that to be up, because the reality of a lot of people is, you know very well -- I mean, in Georgia, somebody could join. They do a fingerprint. They get a license, and then, they stay home and watch Dancing with the Stars to see if Bristol Palin gets voted off next time. I mean, it's -- so, our goal there is to significantly increase our licensing in Georgia, which will drive that.

As it relates more generally to nonrenewals -- understand, at the time of a renewal, you have to write a check. It's not send a form to us or the state. You've got to pay to renew a license. In touch economic times, people are a little more hesitant to write a check and to renew, and so, that's the reason you go to the lower end. But as I said in what I said, we believe our renewal patterns, and it -- when you look at all the things we've given you in the past, I believe -- we believe everything is going to return more to the seasonal norms of the business.

Okay. And then, on the growth that you've seen in the variable annuities, what effect does that have on persistency and profitability, relative to your normal base of products?

I'm sorry. Could you say the question --?

Variable annuities -- what effect did the growth of that have on the persistency and profitability of our normal cadre of products?

Okay. I mean, we are like every other financial services company out there. The more touch points a client has with us, the better persistency that they have with us. So, as we grow the securities business, to the extent that they are existing or also have a life product with us, it helps improve the overall persistency. But a lot of our investment clients do not have a life product with us.

I think the growth in the variable annuity business is good. It's nothing but a good. I mean, there's -- it's not like it cannibalizes another product that we offer or anything else we do. So, seeing a growth in the variable annuity business, we believe reflects that right now, the consumer is very cautious and wants protections in what they put their money in. And, from our perspective, both to the compensation of the sales force and profitability of the Company, that's nothing but a winner.

Great. Thank you very much.

Yes.

Your next question comes from the line of Mr. Jeff Schuman. Please, proceed.

Thank you. Good morning.

Hey, Jeff.

Hey, I was hoping to come back a little more and get down in the weeds a little further, I guess, on the Fast Start Bonus. I think, a moment ago, I understood you to say, John, that this essentially is more of a reformulation of an existing program than a new program. Is that the right way to think about it?

In -- from an economic standpoint, yes, it is a reformulation of a builder's bonus -- of a bonus that we had for someone when they got into the business and get licensed. So, do not think in terms of, okay, how much extra money did they put on the table with this. But with the Fast Start Bonus, what it did is it -- in all honesty, it is much simpler, and it is much more focused. One of the things that I've said many times is you have to simplify to multiply.

I won't say what I say when you -- I say you complicate. And what this bonus does is it incents a new person. If I recruit you today, it incents me to get with you -- both me, working with you, and you, as the new person, to get you plugged into the system, start getting licensed, observe training presentations, so that you learn how to properly sell our products, and also, to begin building a team for you. So that it -- and it has an immediacy to it of let's get going now. Let's not go home and think about what the world is going to do tomorrow. Let's move now. So, it is a reformulation, a refocusing, a simplification and a creation of immediacy. So, it's a -- Rick is staring at me.

I do want to just highlight one thing. We had said that's it's reallocating existing dollars, which it very much is. You can think -- there's about $3 million on an annual basis that we were paying out and DACing it that we will not be DACing, and it will be coming through the interest -- insurance expense as a commission, going forward. So, it's the same dollars, although it will have, if we continue it under the same form, about a $3 million income impact next year, as you think through that.

And I -- just to add one other thing, one of the things that we did is we announced it through November. We're reviewing it right now for the ongoing construction of it, and we will review it again before the beginning of the first of the year, because another example I use is Primerica incenting people where you're incenting part-timers and spare timers in a business. My analogy is it's a little bit like Whack-a-Mole. You think you're going to do something -- if your kids ever -- if you've got kids, they ever play that? They pop down on something, and something else pops up in the process of it. You really do have to study these things and say, is the behavior we believe we've incented -- and we believe we've made this very simple and incented the right behaviors. Is the behavior we believe we've incented what we've incented?

And so, in candor, I think, over the next few months -- we do know that we did see a change in behavior and activity of our sales force, from a positive standpoint. The enthusiasm was very strong in San Diego on this, and we believe it also -- in all candor, you've got to make sure your short-term objectives are in congruence with your long-term goals. We believe this is completely congruent with the long-term growth of our distribution force. But there will be adjustments to it, as we observe the results.

So, is the idea that the new recruits still have to write a check for $99, but now, they have visibility into a fairly simple and tangible program to get 500 in short order? Is that the right way to think about it?

That is the way to think of it. That, in -- that I have a much more -- that I have a timeframe and a time window and a let's get started, because the number one thing most -- if you've ever been in sales or you've ever been in recruiting or you talk to people, the number one objection you get in everything is I want to think about it. And this is a let's go, not a let's sit back and think and ponder the future of Western civilization. So, this is very much of an incentive that says let's get going now. Your $99 -- one of the beauties of our business is your $99 does not go to buy kits, books, tapes, inventory, like a lot of these companies. It goes to get you licensed. This is a professional business opportunity, and this program incents you to get in the field, get trained, move forward, and get licensed.

All right. Just one last follow-up. About -- if one were to really sort of sign up and get after it, what kind of -- what's the timeframe to get paid?

30 days.

Okay. Great. Thank you.

There are no further questions at this time. I would now like to turn the call over to Rick Williams for closing remarks.

Thank you, everybody, for joining us this morning. We look forward to speaking to you in the future. Have a great day.

See you, guys.

Thank you for your participation in today's conference. This concludes today's presentation. You may now disconnect, and have a great day.