Primerica Inc (PRI) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2011 Primerica Earnings Conference Call. My name is Derek and I'll be your operator for today. At this time all participants are on a listen-only mode. We will facilitate a question and answer session at the end of the conference.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Ms. Kathryn Kieser, Senior Vice President of Investor Relations. Please proceed.

Thanks, Derek. Good morning, everyone. Thank you for joining us today as we discuss Primerica's results for the first quarter 2011. Yesterday afternoon we issued our press release reporting financial results for the quarter ended March 31, 2011. A copy of the press release is available on the Investor Relations section of our Web site at investors.primerica.com. With us on the call this morning are Rick Williams, our Chairman and Co-CEO; John Addison, Chairman of Primerica Distribution and Co-CEO; and Alison Rand, our CFO.

We reference certain non-GAAP financial measures on our press release and on this call. These non-GAAP measures are provided [so that] management uses them to make financial operating and planning decisions 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 provisions of the Securities Litigation Reform Act of 1995. Forward-looking statements include any statement that may project, indicate or imply future results, events, performance or achievements and may contain words such as expect, 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 materially from these statements. Please see the Risk Factors contained in our Form 10-K for the year ended December 31, 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 Web site for at least 30 days after the presentation. After the prepared remarks, we will open the call for questions from our dial-in participants. Now I'll turn the call over to Rick.

Thank you, Kathryn. Good morning, everyone. Welcome to Primerica's first quarter of 2011 earnings call. Beginning on Slide four, you can see our net operating income for the first quarter grew to $48.6 million or $0.63 per diluted share reflecting growth in New Term premium as well as strong Investment and Savings product sales and higher client asset values. Also contributing to EPS were a few non-recurring items including $0.02 related to a one-time DAC adjustment largely in Legacy Term, $0.01 related to income received from certain called fixed income securities and $0.02 related to the release of management incentive compensation accruals to reflect amounts paid in 2011 for the 2010 fiscal year.

Net operating income return on adjusted stockholders equity was 14.2% in the first quarter of 2011. Adjusting for the non-recurring items I just discussed, our ROE would have been more in the low 13% range. We continue to expect near-term downward pressure on our ROE as equity grows and our expenses reach scale. Longer-term, we believe ROEs in the 14% range are achievable.

Our continued net operating income growth demonstrates the flexibility and resilience of our unique business model. In the quarter as in the past year, our Investment and Savings products growth has helped offset some of the downward pressure on recruiting and life insurance policies issued.

This dynamic continued into the first quarter as our Investment and Savings product sales increased 14%, primarily driven by a 29% increase in variable annuity sales. Sequentially, Investment and Savings product sales increased 23% in the first quarter reflecting improved market conditions and strong retirement savings sales typical of the first quarter trends during the IRA and RRSP seasons.

Improved market conditions drove our client assets up 11% to $36.19 billion at March 31, 2011 and our average client assets increased by 13% in the first quarter compared to the year-ago quarter. Sequentially, asset values at March 31st 2011 were up 4% compared to December 31, 2010.

In our Term Life business, life insurance policies issued decreased by 2% in the first quarter of 2011 from a year ago, less than the sales force decline of 5% during the same period. John will spend time discussing the sales force highlights in a minute.

Sequentially, life insurance policies issued decreased 9% in the first quarter of 2011 largely reflecting fewer policy applications submitted during the typically slower holiday season. Our average policy issued premium was $801, down 3% from first quarter of 2010 although it was up 1% from fourth quarter of 2010.

A couple of weeks ago, Citigroup successfully completed a secondary offering of 12 million shares of our common stock. We were pleased with the offering as it allowed us to not only attract new investors and provide additional float to our stock, but also to more fully consider capital strategy options. Now that more stock is available, we believe stock buybacks make sense as part of our long-term capital strategy.

A capital generating option that has recently become more attractive is financing our redundant Triple X reserves than unfunded better credit solution. We believe a Triple X solution could be structured to produce significant capital while leaving sufficient capital in the life insurance company to fund future growth with a more than adequate long-term RBC ratio. These transactions are quite complex and require regulatory approval.

Additionally, our debt-to-capital ratio of 16.8% is low compared to our peer group. We have said previously that we will present our long-term capital strategy within two years of the IPO and we are on track to do so. We'll be giving you more information as plans become definitive. Now I'll turn it over to John Addison to talk through our sales force and distribution.

Thanks, Rick. Good morning, everybody. What I want to do is spend a few minutes talking to you about the first quarter numbers and then spend a little more time on the things we've been working on to drive momentum in the business as we head to Georgia Dome for our big convention next month.

In life and business I've always believed there are two things -- there are excuses or results. The world has proved to be more challenging than we expected so we're pushing the accelerator to drive momentum into the Dome where we'll deliver exciting new products and incentives that will serve as a catalyst for the future of our company.

As you can see on slide five, recruiting was down 9% in the first quarter compared to a year ago. We believe this decline was primarily due to the challenging economic environment still facing middle income families and the lack of an incentive trip contest in the first quarter of 2011 compared to the first quarter of 2010 when we had our San Diego contest running.

We typically hold conventions every two years and in those years we do not run an incentive trip in the first half of the year leading to the convention. Instead, we focus our attention on developing incentives and product enhancements that will create energy and enthusiasm in our representatives in order to drive the momentum and growth into the future.

Historically, the recruiting trend in a convention year is for recruiting to be down approximately 5% during the first half of the year leading up to the convention, and then post-convention recruiting gets a lift. We anticipate a similar trend this year. We'll launch an new incentive trip contest at the convention that will have a significant focus on recruiting and licensing and should help drive growth in the second half of the year.

The size of our sales force declined 3% from December 31st 2010 and 5% from March 31, 2010. New life licenses were down sequentially due to the fourth quarter seasonal decline in recruits as well as the 9% decline in first quarter recruiting. In the first quarter we continued to analyze and adjust qualifications for the equity awards and Fast Start vendor's incentive competition to give more weight to recruiting and building the life licensed sales force. We believe we are starting to get some traction with the Fast Start bonus, but it takes time, and as I said, this is an aim-and-adjust business.

We spent most of our time recently developing new products, tools and incentives to launch at the convention that will enhance our product offerings and the sales process for our clients while at the same time expanding the business opportunity for our independent representatives. You've heard about some of the tools and incentives we plan to launch, so now I'd like to spend a few minutes telling you about enhancements we're making to our Investments and Savings and Term Life product offerings.

As Rick said, we're very proud of the performance of our Investment and Savings products, and we are looking forward -- we are looking to expand our product offerings. We plan to begin testing managed accounts later this month with a full launch anticipated about mid-June. We are also looking at adding an index annuity that is underwritten by another insurance company later this year. We believe an index annuity would be a good fit for our business because it will expand our offerings for conservative minded investors and work well with our sales force structure.

In our Term Life business, we are launching several enhancements to our product offering at the convention. In conjunction with the Web-based sales tools I told you about, we'll be rolling out TermNow, a rapid issue term life product for face amounts of $250,000 and below. Basically, what will happen is the rep will be able to take an application on a Smartphone or iPad, and with the client's permission, prescription drug, MIB and motor vehicle database searches will happen as part of the underwriting process, which is different from the current process of taking the saliva or what we call a "spit kit" at the kitchen table, sending it to the lab and waiting for results.

The database searches return results to our underwriting system in real-time in order for the underwriting system to make a decision on whether or not to rapidly issue the policy. Based on testing we've run on our existing business, we believe approximately 80% of clients that apply for TermNow average will be eligible for a rapid issue policy within minutes of applying for coverage. Being able to instantly issue these policies not only cuts down on the administration associated with processing the "spit kit," it also cuts down the amount of time a client has to reconsider whether they want to purchase the policy.

With the rollout of TermNow, we will also be launching life insurance compensation advanced commission payments on a daily cycle compared to twice a week payment cycles we have historically done. This will add an instant gratification component to TermNow sales and make every day a payday at Primerica.

In addition to launching TermNow, we will be enhancing our entire portfolio of term products by increasing the maximum issue ages on our 30 and 35-year products. We will also be introducing new riders including a new spouse waiver premium rider as well as an automatic 10% increasing benefit rider.

After this call, I'm headed downtown to the Marriott to speak to our top 500 US and Canadian leaders. They're in town to learn about the convention announcements so that they can begin to generate excitement for their teams as we head to the Georgia Dome.

We are confident about our exciting new product enhancements and other new incentive announcements will help boost recruiting and product sales following the convention. We are optimistic about our business and believe these initiatives will position us for future growth. With that I will turn it over to Alison to go through the first quarter details.

Thank you, John, and good morning, everyone. As in past calls, my discussion will focus on operating results as we believe they are the best measures for gauging our performance. Let me start on Page six with the reconciliation of net operating income to net income. Operating results exclude realized investment gains and losses and the expenses associated with IPO-related equity awards.

For the first quarter of 2011, operating results also excluded $8.7 million of pre-tax income related to the remaining ceded premium recovery for underwriting class upgrades discussed in the fourth quarter. We excluded this recovery from operating results because we believe they are not indicative of our ongoing operations.

Net operating income was 27% over the five-year period reflecting the buildup of our New Term business, strong Investment and Savings product performance, and disciplined expense management as we continue to adapt to a public company operating environment. As Rick mentioned earlier, there were three non-recurring items that collectively improved net operating income by about $4 million this quarter. Taking these into consideration, as well as certain one-time items discussed in last quarter's earnings call, net operating income grew by about 17% over the prior year period and by about 8% over the fourth quarter of 2010.

Turning to Page seven, in our Term Life Insurance segment, operating revenues grew 25% in the first quarter of 2011 compared with the same period a year ago, reflecting incremental new term premium following the Citi reinsurance transaction. Net premiums also benefited from improving persistency and strong Canadian dollar.

The growth in benefits and claims reflects slightly adverse mortality and improving persistency. Conversely, persistency had a favorable impact on DAC amortization for the quarter. Also favorably impacting DAC amortization was a $2.2 million adjustment largely relating to how commissions on a small block of business were handled in connection with a change in DAC and reserve methodology implemented in 2008.

Insurance expenses decreased versus prior year primarily due to the release of management incentive compensation accruals that Rick discussed earlier in the call. While the growth in operating income before income taxes of 22% is in line with year-over-year operating revenue growth, we do not expect these metrics to be as closely correlated in upcoming periods.

Term Life operating income is expected to lag the growth in operating revenue as expense allowances from Citi and mortality gains on older issues in the in-force Legacy block run off. The flat to declining trend on allocated investment income will also cause a negative spread between the top and bottom-line growth. In the first quarter of 2011, this spread was favorably impacted by the non-recurring DAC adjustment and the release of management incentive compensation accruals.

Sequentially, operating income before income taxes increased 26% reflecting the growth in the new term business. The growth was enhanced by the accounting correction that we recorded in the fourth quarter of 2010, without which the growth rate would have been 14%. As anticipated, new term operating income before income taxes turned positive in the quarter and were enhanced by improved persistency and the release of management incentive compensation accruals.

Turning to page eight, you'll see the results for our Investment and Savings Products segment. Operating revenues increased 16% to $100.8 million compared to the year-ago period driven by strong product sales, market appreciation, and net client asset inflows.

Sales-based revenue was up $6.8 million or 19% and asset-based revenue was up $6.8 million or 18%. A higher contribution from our variable annuity business helped boost the year-over-year growth rate. First quarter 2011 sales and asset-based commission expenses increased consistently with the corresponding revenue sources. Other operating expenses increased declining asset values but were favorably impacted by the release of management incentive compensation accruals previously discussed.

Overall, operating income before income taxes increased 22% to $31 million compared to $25.4 million in the first quarter of 2010. Sequential quarter growth in sales and average asset values was also strong. Excluding the effect of the variable sales incentive earned in the fourth quarter of 2010, growth in sales-based commission revenue and expense are in line with production trends.

The decline experienced in asset-based commission revenue and expense are a result of the accounting correction discussed in the fourth quarter of 2010 earnings call and would have otherwise been in line with the growth in average assets. Excluding the variable annuity sales incentive and the accounting correction recognized in the fourth quarter, operating income increased by 8% sequentially.

On Page nine you can see that Corporate and Other Distributed Products operating revenues increased by $2.6 million or 7% in the first quarter of 2011 from the first quarter of 2010. And operating losses before income taxes were $4.8 million in the first quarter of 2011 and $7 million in the same period of 2010. The most notable driver of these improvements was a 13% or $1.5 million higher allocation of net investment income. The Corporate and Other segment was allocated 46% on invested assets in the first quarter of 2011 versus 42% in the prior year period with the remainder allocated to Term Life.

On an operating basis, consolidated net income increased by about $0.8 million year-over-year as the negative impact of declining yields was more than offset by $1.6 million received from certain called fixed income securities. While (inaudible) payments on call bonds had a positive current impact on earnings, the lower reinvestment rates of the securities that are placed to call bonds both pushed the fund yields modestly lower.

Expenses were flat year-over-year as prior year IPO-related costs were largely replaced by ongoing operating expenses. As we move into the second quarter of 2011, we expect specific expense increases of about $5 million over the first quarter of 2011 as management incentive compensation expense normalizes and we recognize costs associated with the secondary offering and lobbying event efforts. We continue to maintain strong discipline over IT and other infrastructure buildout spending.

Turning 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 March 31, 2011, our risk-based capital ratio is estimated to be in excess of 600%. It was down slightly from yearend as surplus strains from new business growth were partially offset by favorable expenses at the Life company operating level and the remaining ceded premium recovery from underwriting class upgrades in the quarter. We maintain excess capital to fund the 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 17% as is our invested assets to equity ratio of 1.6 times.

Turning to Page 11, as of March 31st, we had investments and cash totaling $2.33 billion. Cash decreased by $10.8 million in the quarter to $115.3 million as purchases of fixed income investments exceeded our positive operating cash flow and sales of maturities and investments.

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, about 1% of our invested assets were in fixed income investments, of which 94% were rated investment grade. Average book yield on investment excluding cash at quarter-end was 5.3%, down from 5.48% at December 31st primarily due to shorter duration purchases in our non-life company portfolio and calls of a few higher yielding investments mentioned earlier. These were partially offset by sales and maturities of some lower yielding investments.

The new money rate on our purchases for the quarter was 2.72%. This was lower than last quarter's new money rate of 3.58% as well as our expectations for future 2011 purchases as we focused on reducing the cash buildup in our non-life subsidiary by investing in shorter duration, high quality cash substitutes for this company. While this drove the book yield on the fixed income portfolio down, it will be modestly accretive to the bottom-line and allow us to maintain a high level of liquidity.

As we've noted in the past, in the current rate environment, we feel that it's prudent to not over-reach for yield, either duration or reduced credit quality. However, we are cognizant of the need to use our portfolio assets effectively. During the first quarter of 2011, we placed most of our life insurance company available funds in investment grade corporate issues further out the curve with [purchases] having an average duration of 5.4 years and an average yield of 3.93%.

With our ladder of maturities over the next several quarters, we intend to continue reinvesting farther out the curve but likely not exceeding ten years. We'll modestly increase our overall duration to more historical levels. If rates rise from current levels, we will be able to average in these higher yields throughout the year as we reinvest maturities in available operating cash flows. With that, I will turn the call back over to Rick.

Thanks, Alison. We are pleased to report solid net operating income and earnings per share in the first quarter. We continue to be served well by our diverse business model which has consistently produced double-digit growth in our Investment and Savings Products over the past years despite the choppy economic recovery. Our focus continues to be creating shareholder value by growing earnings while concurrently executing a business plan for longer-term growth. With that I'd like to open up the call for questions and answers

(Operator Instructions)

And our first question is coming from the line of Jeffrey Schuman from KBW. Please proceed.

Good morning.

Hey, Jeffrey.

Rick, you teased us pretty good on the capital management.

Yes?

It sounds like we're not going to get a specific capital strategy today, but it also sounds like things are sort of in play here. You talked about the Citi offering, making buyback more practical. So I'm wondering if can give us a sense of are there any sort of remaining hurdles or impediments to cross before you might commence that?

And then, on the Triple X redundant reserve, I was wondering if you could give us maybe an update on potentially the amount of redundant reserves that could be refinanced and what sort of net cost we're talking about there?

Sure. On the Triple X, I mean we are looking at potential solutions to that at the current time. And when we have something more definitive, we will give you -- I will say that we believe that the amount of capital that can be freed up is in the range of $300 million plus or minus in that category. But, you know, there'll be more to come later on.

As it relates to sort of Citi, I really don't know Citi's intentions at this point in time and really can't comment about that.

No, I'm sorry. I may have misunderstood you. I thought I understood you to say that because there was more float as a result of the recent offering that it would be more practical for you to consider buying back shares in the market. Maybe I misunderstood that.

No. I mean that provides sort of the option to make it more practical. I mean in the first place, the first aspect is we need to raise capital in order to buy shares back, and we're looking at various options to that today. And once we've raised that capital, we'll look at whether it makes sense to do [what] the market purchases or speak to Citi.

Okay. Thank you very much.

Your next question comes from the line of Mark Hughes from Suntrust. Please proceed.

Yes. Thank you. The new initiative, the TermNow, it sounds like you think you'll be able to get more of those policies landed more quickly. What do you think that'll mean in terms of a yield? How many potential policy holders will drop out between the time they're at the kitchen table and when the policy might in fact be issued under the old system? How much could that improve under the new system?

Under the old system, in the neighborhood of about 25% of policies are submitted but not actually issued. We do believe there is potential improvement with the TermNow product, but we'll wait and see what the results are before giving a range on that.

Right. Presumably, without contesting and gotten better results in that 25%?

Yes. We are just beginning to do the testing of the product right now.

Right.

So we don't have any firm results at this point.

We don't have firm results, but intuitively, anything that makes something quicker and immediate is better than waiting. I mean, you know, as in selling anything, you know, people buy and then think about it and say I don't want it. So our view is that it's got to be a plus.

Yes. And then the premium per policy up 1% sequentially, is there some stabilization there? Do you think perhaps that's just a little random variation? Is that a good sign?

Yes. I mean if you go back and look at sort of the last four quarters, and it's sort of gone from [810] to 811] to [791 to 801], so it's been relatively flat for the last four quarters at this point in time. And so, we are hopeful that there's some stabilization there.

And then, finally, can you refresh me on the effect on the variable annuity sales? Obviously, very strong when you look at your asset fees down the road. Do they have a similar profile as your historical mutual fund?

Actually, the variable annuities have a slightly higher long-term on an asset-based return than mutual funds. The difference is a lot of our mutual funds we do have the ability to earn administration type fees which we do not earn from variable annuities. But we do expect return on sales to help maintain strong asset-based volumes on variable annuities.

Thank you.

(Operator Instructions)

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

Hey, good morning, everybody.

What's up, Steven?

Hey, how are you doing? I'll will apologize in advance. I've got a few here. If I may, just to follow up on the TermNow before going into my own questions, do you use a [super subscription] database? Torchmark talked about that last week. They thought it would improve their placement rates, if you will. They also thought it might improve their underwriting results. Any thoughts on that or is it maybe too early to tell?

We see the, from an underwriting standpoint the product to be neutral, no positives, no negatives associated with it. You pick up things on prescription database. You don't pick up on oral fluids, but the same vice versa. We're not looking for any improvement from [that respect].

Okay. Okay. Then if I may, Alison, a couple of the accrual or the reversal of the accrual, could you possibly parse that out between the segments?

Sure. And just something to keep in mind too. I'll talk to you about what the reversal of the accrual was, but then there's also the fact that we've done some year-over-year comparisons and there were some nuances between last year and this year.

But specifically, the accrual release itself was in Term, it was about $1.8 million and the ISP segment was about $800,000 and it was actually slightly negative $400,000 in Corporate and Other just based on how we had actually allocated the incentive compensation itself. The year-over-year is less obvious by segment and we have actually 2.9 -- I should say it's more obvious by segment.

We have about $2.9 million in Term year-over-year variance and that's because in the first quarter of 2010, we did have a full quarter of stock comp amortization under the Citi (inaudible) brands whereas we awarded the equity in March of this year. And so, about March of this year, so we had not a full quarter of amortization. So there was about a $1.8 million again on Term and another $1.5 million on ISP with Corporate and Other being consistent. That's how the breakup works.

Okay. Okay. These are --

We were looking at the year-over-year versus the quarter in an of itself.

Okay. Would you know breaking out in Term between Legacy and New Term?

No. We actually don't break that out between Legacy and New Term although I would argue -- I take that back. We allocated all of it to New Term.

New Term? Okay.

I should say we didn't allocate it, and therefore, we put it all to New Term.

Okay. Thank you. And then you're going a little fast. You mentioned $5 million of extra expenses for the quarter, for the second quarter over the first quarter. So obviously, you've got the -- you've got the accrual. And then you had some lobbying expenses, so basically, this would be a question of simply reversing out the accrual and then adding on lobbying expenses?

There are three things that I mentioned. One is definitely reversing out this accrual or the fact that the accrual reversed in the first quarter so you'll have normal expense in the second quarter.

Right.

A small piece of the increase on incentive compensation as a fact, what I just mentioned, is that we -- it granted the award during the quarter so we'll only have a partial quarter amortization revenue. Second quarter, we'll have a full quarter amortization.

And then the lobbying is correct. And the third item that you didn't mention that I had said in my comments was the cost associated with the second offering that we just undertook.

Right. Right. Okay. And then, could you remind us where do you think you are, you know, if we, I guess we add back the reversal accrual on the incentive comp? Where do you think you are now versus where you're going to be when you're fully expensed and fully, totally on your own?

I think if you look at where we're expecting to be for next quarter, and I highlighted a few of the differences between first and second quarter. Obviously, there are lots of moving parts, things that go up and down. But I think where we're expecting to be for next quarter is pretty much in line with where we were expecting to be for the rest of the year; again, not necessarily for the same specific reason, but in that general range.

Okay. All right. I'll go get back in the queue. Thanks, guys.

Thank you.

Thanks, Steve.

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

Hi. Good morning.

Hi, Paul.

Knowing that your RBC's over 600 right now, and at the current rate that you're selling term lifes and with the greater than expected earnings coming off the Investment and Savings Products, you're not really consuming that much capital on new business. Why do you feel that you need to raise capital before buying back stock?

Well, a couple of things there. And keep in mind that when you look at RBC, we're looking specifically at an operating company that is regulated by the Division of Insurance in the State of Massachusetts. So while they're happy to hear about the earnings that we have on other companies, we do have to make sure that within that operating company, it is self-sustaining.

And we do, based on our projections, foresee that that RBC ratio will come down quite considerably over the course of the next few years. And as I've mentioned in the past, part of our approach with Massachusetts was that we wanted to make sure that this company was fully funded for its own operating needs and was not going to be relying on any sister company for funding.

That said, we do agree that there's been, you know, some excess buildup in RBC and are considering that in any calculation we make on ultimately capital raise and what could be contributing to share buybacks. So we do think, as we make those adjustments, we will modify the RBC ratio down to where we think it needs to be. But again, we will leave the company overcapitalized to fund that future strain.

Okay. But your sense is that if you were to raise capital at the operating company through a Triple X solution that they'd let you -- the regulators would be friendly with you taking that capital out?

That is a very broad question there. The regulators, I never want to put words in the regulator's mouth. We have a good relationship with Massachusetts. We're very transparent with them about what our game plan would be and why we would think it's comfortable. But obviously, they ultimately get to make the decisions that they will make as our core regulator. But as we present or discuss these topics with Massachusetts, we will definitely put it in the context of what the operating needs are of the company on a long-term basis.

Okay. How much of your current sales fall within in the less than $250,000 face amount bucket would qualify for the new TermNow product? And just a corollary, are there any other restrictions on the TermNow like issue age that don't apply to your current Term product?

Approximately half our sales, Paul, will be eligible for the TermNow product, maybe just a hair more than half. And no, there are no additional restrictions. It's aligned very similarly to our existing products.

Okay. And the change to a daily pay cycle on the commissions, is there any change to the overall commission rate, or is it just timing of when you cut the checks?

It is timing. Our view there is just very much, you know, one of the things we've learned over time is that stimulus response make a sale get a check is a real positive to people see that. So it's purely a change in timing and making -- our goal with Term now is to make everything more rapid. But it's not a change in commission rate.

Okay. And then, can you comment on how the index annuity product that you're planning to launch compared to the fixed annuity? Obviously, the current rate's different but in commissions or surrender charges, those kinds of aspects?

Yes. Without getting too deep at this point in time because we're still in discussions with one of the major providers of the product, but it would have an equity tie to it as opposed to just a fixed credit rating.

Yes.

Because it would be an equity index annuity.

Right. But in terms of the commission of the index annuity versus fixed annuity.

The commission on the index would be higher.

Okay.

And then from the fixed.

Can you share who the underwriter is at this point?

Not at this point. We're still in discussions.

Okay. Thanks.

Your next question is a follow-up from the line of Jeffrey Schuman from KBW. Please proceed.

Thank you. Couple of related things. First of all, on licensing, I think you got some attention in media recently connected with your efforts to maybe seek different licensing approaches for some of the agent. I'm wondering if you can give any sense of kind of how that's progressing and your optimism there. And then, secondly, I was wondering if you could give us possibly a bit of a picture on what the holding company cash position is and a quick reminder of sources and uses there. Thanks.

You want to talk about two disconnected questions. But we're glad -- I'll take the one on the recent article and how we feel about licensing and what's happening there. Yes, you know, we believe the Wall Street Journal definitely focused on what we believe is a very real issue, and that is the lack of access for the middle market to sell them a life insurance policy.

And so, we were actually happy that they chose to, you know, focus and shine a light on that. You know, one thing just, you know, kind of editorially is that it was very focused on Primerica, but the reality is we have been working, as they mentioned in the article, very strongly with the American Council of Life Insurance and other industry organizations all on focusing on this issue.

And we do believe, as you saw in that article, that the regulators are understanding that this is an issue. I mean from our perspective, you know, our goal is to make sure we're able to build a sales force and able to service the middle income consumer who is more under-insured today in life insurance than they've been in over 30 years; and that we sell, you know, I say all the time we sell term life insurance. You pay, you die, we pay. Okay? You just don't commit suicide for a couple of years and tell the truth and you're pretty much good to go.

And we want to make sure that we are at the forefront of making sure that middle income consumers have adequate access to the proper amount of life insurance, and that we are actually very encouraged by the fact that there is focus on that issue that, as I've said, doing our road shows quite a few times, there's been a huge national debate on health insurance while the individual life insurance there hasn't been. And people have less individual life insurance than they've had in over 30 years and I think, you know, one thing about health insurance is you can actually go to the doctor and actually get better or whatever. On life insurance, you can't fix death.

And somebody, you know, people need insurance. So we believe there is now finally a focus on that. And on the regulatory level, we're very encouraged by what we hear from the regulators on that front. So, now to cash position.

Well, also, I will take that one.

Well, I'll just throw something out there but --

I think (inaudible - multiple speakers).

I'll just throw it out.

I'll take over on that one. So I just administratively, realistically, we don't keep money at the holding company, but I think what you're really focused on is what's quickly available without regulatory intervention to the holding company.

And so, I'd focus your attention to this sort of non-life operating company within our organization. And we think if you look at especially the Investment and Savings Products segment, really virtually all those earnings are fully distributable. There's really no new capital requirements to fund any of those businesses or regulatory constraints that would really hold us back on distributing funds.

So we estimate that we're in the $60 million or so range that we could take out of those companies in the course of any year as well as the fact that we probably have about $50 million or so, and I'd say give or take an excess capacity at those companies just based on the performance that we've had over the course of the last six to eight months.

Just to be clear, so probably you don't have cash parked at the holding company. You have cash parked at the non-life operating companies.

Absolutely. And the operating companies, you know, rather than looking at just what asset cash, I think focusing more on the availability over time. And it's virtually all the earnings that we have at those companies are fully distributable.

Okay. So the $60 million is sort of your annual source thing. And then what's the annual usage?

At the corporate company, it would just be -- right now it's the dividend that we pay as well as the interest on the Citi note, very little of our operating expenses now at the corporate entity. Very little. Those (inaudible) is actually in the operating -- is in the operating segments.

Okay. And then, one last really minute follow-up, you talked a lot about saving core expenses, you didn't mention the convention. Is that not something we need to contemplate in terms of expenses for the quarter?

That's actually a great question. But the way we deal with the convention is, first of all, very specifically that the agents pay their own way to attend the convention, and I'd say didn't cost us money. That's built into our [reserve] for ongoing expense structure and we do accrue for those expenses throughout the year.

The way we look at it is that in a non-convention year, we generally do two incentive trips whereas in a convention year, we do one incentive trip at the convention. So the overall expenditure is relatively consistent and we do accrue for that throughout the year since, you know, it's really tied to ongoing premiums.

Okay. That's great. Thank you very much.

Your final question comes from the line of Steven Schwartz from Raymond James and Associates. Please proceed.

Hi. If I may, you know, I'm very, very thankful. I thought there wasn't going to be a John Addison [corp].

You can't fix that?

You can't fix that.

Yes.

So Steven, I see you got a lot of pressure on you, mate. You're the closer. You got to ask --

I will try to hold it all together here. Just on the licensing question that Jeff asked. I didn't want to revisit that. My presumption was -- I'll just ask now -- my presumption was that the lobbying you're talking about is referring to this issue?

No. The lobbying relates to sort of the full array of issues that are out there today that congress is considering rule making by the various administrative branches, et cetera. There is no single source on that.

Okay. And then, Alison, you referenced earlier adverse mortality. Could you put a number on that and then my presumption would be that that would have been in the Legacy business?

That is correct. It's certainly in the Legacy business, that whenever you're talking about adverse mortality, I mean in the near-term, you can expect that it's more Legacy. It would on a pre-tax basis I'd say $1.5 million to $2 million range. It wasn't astronomical, but we have actually seen more favorable trends over the last several quarters.

So it could be a little bit of I'll call cyclicality because oddly enough, the first quarter tends to be a bad mortality quarter. I won't get into the psychology of that, but it's something that we've seen in the past.

Okay. So this may just very well be the seasonality; you see it throughout the industry.

I don't really -- I don't call this a changing trend. One quarter certainly does not make a trend in mortality. But it was something that popped out this quarter as something notable so we did want to mention it.

Okay. Great. That's what I had. Thank you, guys.

Great.

Great.

Talk to you guys later.

Thank you very much. We very much appreciate it. Have a nice day.

Ladies and gentlemen, that concludes today's conference. We thank you for your participation. You may now disconnect. Have a great day.