Primerica Inc (PRI) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Primerica Conference Call. My name is Jennifer and I will be your operator for today. At this time all participants are in listen-only mode and later we will conduct the question and answer session.

(Operator Instructions)

I would now like to turn the conference 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 fourth quarter 2011.

Yesterday afternoon we issued our press release reporting financial results for the quarter ended December 31, 2011. A copy of the press release is available in the 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 Primerica 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 then 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 periods 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 statements that may project, indicate or imply future results, events, performance or achievements and make 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. For a discussion of these risks please see risk factors contained in our Form 10K for the year ended December 31, 2010 as modified by the Exhibitor Form AK dated April 12, 2011, and further modified by our Form 10Q for the quarter ended September 30, 2011.

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 will turn the call over to Rick.

Thank you, Kathryn, and good morning, everyone. Welcome to Primerica's fourth quarter 2011 earnings call.

Let me start by saying we are proud of what we were able to accomplish in 2011. During the year we focused on building Primerica for the future by pursuing opportunities to grow our existing businesses while seeking to build shareholder value over time. This focus led to innovative incentives in technology and improved product offerings such as our new term now rapid issued life product and the addition of managed accounts and index annuities to our investment in savings product offerings.

Another significant achievement in 2011 was a $200 million share repurchase from Citi, which allowed us to begin putting capital to work in ways that are accretive to earnings per share while also enabling Citi to complete its divestiture of Primerica in a secondary offering at the end of 2011.

During the year S&P affirmed Primerica Life Insurance Company's stable AA minus financial strength rating and assigned an A minus counterparty credit rating to our shelf registration statement. Moody's assigned an A2 insurance financial strength rating to Primerica Life Insurance Company and a Baa to senior unsecured debt rating to our shelf registrations statement. A.M. Best affirmed our A+ financial strength rating, improved our outlook as stable and assigned a senior unsecured debt rating of A minus. With our load debt-to-capital ratio of 17.4% these ratings position us to approach debt market at an opportune time.

In 2011 we also completed most of the administrative work needed for a triple-X financing solution. We continue to work with Massachusetts's Division of Insurance to obtain approval to execute our proposed transaction. When we complete the triple-X we expect to deploy approximately $150 million of capital from the transaction to buy back shares, most likely in the open market.

In 2011 our term life business outperformed the industry. Our life insurance policies issued were up 6% from 2010, while the MIB life index reported the industry's life application activity was flat in 2011 over the prior year.

And according to the most recent [Limor] data, term policies issued declined 7% through the third quarter of 2011 for the industry while Primerica's policies issued were up 5% through the third quarter of 2011 compared to the same period a year ago. Our investment in savings product sales were also very strong in 2011, up 18% to $4.27 billion driven by a 43% year-over-year increase in variable annuity sales. In 2011 our net operating income was up 10% to $177.1 million compared with $161.5 million for 2010, reflecting growth in the term life business and strong investment savings products, results partially offset by higher expense paid.

Now turning to the fourth quarter operating results on slide five, our operating revenues increased by 3% for the fourth quarter to $271.6 million compared to the year-ago quarter. Net operating income for the fourth quarter declined 10%, $40.6 million or $0.56 per diluted share. Results reflect continued growth in our term life business partially offset by modestly higher expenses.

During the quarter we incurred two unique charges that reduced operating income per diluted share by $0.06. Excluding these charges net operating income per diluted share would have been $0.62. Alison will go through the unique charges in the quarter in a minute. Also note the fourth quarter year-over-year comparisons were impacted by certain previously reported period-specific items that contributed $0.04 to net operating income per diluted share in the fourth quarter of 2010.

I want to take a minute to talk about the discontinuation of our US lending business. Over the past few years home equity has evaporated in America, causing a significant decline in the number of new home equity loans sold in the US. Since a near-term recovery in the US housing market seems unlikely we thought it prudent to discontinue our no longer profitable US lending business, which resulted in a $1 million charge in the fourth quarter. We continue to conduct our lending business in Canada.

At December 31, 2011 stockholders' equity was $1.42 billion and adjusted stockholders' equity was $1.33 billion compared with $1.43 billion and $1.34 billion respectively at December 31, 2010. During 2011 adjusted book value per share grew to 12% to $0.246 per share from $0.1833.

Net operating income returned on adjusted stockholders' equity was 11.6% for the quarter that ended December 31, 2011, down slightly from 11.7% at the end of the third quarter, driven by two unique charges in the fourth quarter partially offset by accretion from our 200 million repurchase in the quarter. Excluding the charges ROE would have been 12.7% in the fourth quarter. Also note the 200 million share repurchase was executed mid-fourth quarter, providing a benefit for only part of the quarter.

Our investment in savings product sales increased 6% in the fourth quarter compared with the prior year period, primarily attributable to internal conversion sales of variable annuity products. Sequentially investment in savings product sales declined 10%, reflecting the choppy market environment.

Year-over-year client asset values declined 3% to $33.66 billion at December 31, 2011 from $34.87 billion at December 31, 2010. Sequentially they increased 6% from $31.62 billion at September 31, 2011 while average client assets declined 3% from the third quarter due to strong market values at the beginning of the third quarter.

In the fourth quarter life insurance policies issued increased 9% compared with the fourth quarter a year ago, and were down sequentially 6% from the strong third quarter of 2011. In the fourth quarter our processing cycle provided five more business days than the fourth quarter of 2010. Excluding the extra business days in 2011 life insurance policies issued increased 2% year-over-year. Our average policy issued premium was $796, flat with the fourth quarter 2010 and up 3% from the third quarter of 2011.

With that I'll turn it over to John.

Thanks, Rick. Good morning, everybody. As we begin 2012 our continued focus is on enhancing our business opportunity with incentives and innovations designed to build product distribution and drive long-term sales force and revenue growth.

I just flew in last night from Orlando where I spent the last week with many of our top producers. Between the Orlando incentive trip and my ten-city tour in January where I spoke to around 4,000 of our top leaders, our regional vice presidents. I can honestly say I haven't seen this level of focus, intensity and positive spirit in our leaders in many years.

At these meetings I talked a lot about how we were improving the business opportunity for our sales force and how Primerica is proactively working on incentive programs and technology to build long-term distribution growth.

A couple of ways we are doing this is by first by reemphasizing the critical importance of our regional vice president position. RVPs are one of the catalysts and one of the key catalysts of our distribution system. They are not only key centers of influence that drive the business. They also provide offices across the US and Canada to conduct training and hold business overview meetings.

We're raising the value of the RVP position by refined messaging, additional recognition and broadened opportunities for business ownership. We are also currently evaluating all of our incentive programs to ensure they effectively reward our leaders for building and growing future distribution for the sales force.

Our intent is to have more representatives striving for the next promotion and ultimately for their RVP promotion. This should lead to more activity, promotions, excitement and production.

We're balancing this renewed emphasis on the RVP position with our frontend recruiting and licensing initiatives. As I told you on the call last quarter we made a significant adjustment to our frontend incentives with the rollout of the Distribution Builder's bonus. This bonus is simple qualifications provide more incentive to train, license and help new representatives become productive.

It seems to be working because we saw a 5% increase in the number of new recruits obtained in life license in the fourth quarter of 2011 compared with the prior year. This increase was partially attributable to carryover licensing from the third quarter recruiting surge and the improved recruit to license pull through rate driven by the Distribution Builder's bonus.

We also recently refined the field equity incentive program qualifications to focus more on developing new productive licensed representatives. The size of our sales force remained relatively flat at 91,176 at the end of 2011, compared with the end of September, even as recruiting declined 12% in the fourth quarter compared with the fourth quarter a year ago.

So far this year our kickoff addition is combined with the field's enthusiasm has resulted in robust recruiting in January. One thing we've done to balance the licensing focus is to simplify qualification for the new Rush to the Rockies incentive trip contest we launched in December to take 1,500 qualifiers to the Broadmoor Resort in Colorado Springs in August 2012.

The qualification criteria for this incentive trip were adjusted to balance the weight given for recruiting, new life licenses and sales. We also added an investment and savings product sales component to the contest qualification putting more emphasis on growing our cash generative investment and savings product business.

We launched other investment and savings product initiatives to encourage more reps to participate in the business. One big announcement we made in January was to expand our securities licensing benefit to now include all life insurance licensed representatives. With this benefit Primerica pays virtually all the securities licensing costs, including pre-licensing education. Prior to this change the benefit was only available to a limited number of representatives.

Another thing we're doing to expand the investment and savings product sales opportunity it to roll out equity indexed annuities in the first quarter. This will allow our entire life license sales force to offer a savings product to their clients.

As Rick mentioned, we discontinued the US lending business in December. In reality the US lending business significantly deteriorated with the downturn in the housing market so we've had a couple of years to adjust and digest this change.

What we see as a real opportunity is that middle income families still desperately need understanding and navigating through their debt situation so we're looking at ways to better serve this need like enhancing the way we talk to clients about debt stacking and what they really need to do to get out of debt.

We haven't cracked the nut yet, but we're definitely thinking creatively about how we can have a more robust debt discussion in providing valuable service for our sales force and our clients. This approach to helping families with their debt situation may not materially affect the bottom line as much as it will grow distribution by opening doors and providing the sales force with tools to help families with the most pressing financial issue they have, debt.

These are just some of the things we're working on right now to drive long-term growth in the size of our sales and increase product distribution, which ultimately leads to earnings growth. Now with that I'll turn it over to Alison.

Thank you, John, and good morning, everyone. My remarks today will focus on unique charges in the quarter, expense trends and operating results, followed by a discussion of the impact of the DAC changes required by ASU 2010-26 beginning in 2012.

As Rick mentioned, during the quarter we recognized two unique charges. First, to comply with regulatory best practices we conducted a search of our US life insurance policyholders against public death records to identify deceased policyholders for whom claims had not been filed and of which we previously we unaware.

This search identified and we ultimately recorded aggregate potential claims of $5 million net of applicable reinsurance. We will continue to conduct this search against public death records on an ongoing basis. Given the nature of our business and our extensive use of reinsurance we do not expect this process to significantly impact operating earnings going forward.

The second charge relates to the liquidation plan followed by the New York State Department of Financial Services for Executive Life Insurance Company of New York which has been in rehabilitation since 1991. We recorded a $1.3 million charge in our corporate and other segment to reflect our net financial obligations under various insurance guarantee associations.

On slide seven you'll see insurance and operating expenses on a consolidated basis increased $1.5 million or 3% year-over-year to $54.2 million. Absent about $3.6 million of expenses in the fourth quarter of 2010, primarily for a non-recurring adjustment to premium taxes, insurance and operating expenses increased $5.1 million or 10%.

Roughly $2 million of this increase comes from premium tax growth emerging with the growth in our new term business, combined with a runoff of expenses allowances in our legacy term business. As you will recall, economically we replaced these expense allowances with increasing premiums in our new term business, which provides for policy maintenance expenses.

We also had the charge that I just discussed relating to the liquidation of Executive Life and about a $1 million charge relating to the discontinuation of our lending business. Another [layup] stock compensation and other miscellaneous items round out the year-over-year increase.

Turning now to page eight, our term life operating revenues were up by 17% and operating income before income taxes increased by 11% in the fourth quarter compared with the prior year period. These results reflect a 19% growth in new term premiums, slightly unfavorable persistency and modestly favorable ongoing mortality experience during the fourth quarter versus the prior year period. The term life segment recorded $3.9 million of this total $5 million charge related to our search of public death records with the remainder recognized in corporate and other.

Net investment income grew due to an increase in required assets associated with term life growth, partially offset by lower asset returns. Sequentially term life operating income before income taxes decreased by 10% compared with the third quarter, largely due to the death record search and unfavorable fourth quarter seasonal persistency, partially offset by continued business growth. Insurance expenses remained flat with the third quarter.

On page nine you can see the results for our investment and savings product segment. Largely driven by a one-time adjustment in the prior year period which added $11.6 million to asset-based revenues and $4.8 million to operating income before taxes in 2010, both operating revenues and operating income before income taxes were down year-over-year.

Excluding the prior year adjustments, asset-based revenue and income before income taxes were flat year-over-year in line with the flat trend in average client asset values. Sales-based revenue increased 8% year-over-year to $40.1 million, consistent with sales growth and a large volume-related incentive payment or in for strong variable annuity sales in 2011.

Sequentially operating revenues were down 4% from the third quarter, reflecting lower product sales and average client asset values, partially offset by the volume-weighted variable annuity incentive payment earned in the fourth quarter of 2011. These same factors combined with lower Canadian segregated fund DAC amortization and flat operating expenses resulted in a sequential quarter increase in operating income before income taxes of 8%.

Turning to page ten, corporate and other distributed products, operating revenues were down 12% in the fourth quarter compared with the fourth quarter of their prior year. Operating losses before income taxes were $10.1 million in the fourth quarter compared with $4.8 million loss in the same period a year ago.

Operating revenues for the fourth quarter reflect a decline in (inaudible) investment income of $2.4 million due to the combined effect of an increased allocation to term life and lower aggregate invested assets and returns. Fourth quarter benefits and claims include the $1.1 million public death record search charge for our New York subsidiary's non-term life businesses.

The winding down of the US lending business and higher claims on short-term disability products underwritten by our New York subsidiary also impacted operating income before income taxes in the fourth quarter. The Executive Life liquidation plan and lending program discontinuation charges previously discussed were recorded in corporate and other.

Turning to page 11, investments and cash totaled $2.16 billion as of December 31, 2011, down from $2.32 billion at September 30th as we closed the $200 million stock repurchase during the quarter. We were able to fund the repurchase from a combination of available cash and sales of primarily shorter term, lower yielding assets. The net effect was very little change to the composition of the portfolio.

The average credit rating of our fixed income portfolio continues to be single A and 93% in the portfolio was rated investment grade, all unchanged from September 30th. The average book yield of investments excluding cash at quarter end was 5.52%, up from 5.3% at September 30th as we removed lower yielding investments.

We continue to have minimal direct exposure to European sovereigns with less than 10% of our portfolio invested in European issuers and over 98 of those being other than government investments, 98% of those being other than government investments.

The new money rate on our purchases for the quarter was 3.69%, up from 2.42% in the third quarter. Our purchases, which were fairly light for the quarter as we were a net seller to fund the share repurchase, were primarily investment grade corporate and government securities with an average duration of 5.6 years and a single A credit quality.

Slide 12 demonstrates that we continue to maintain a strong capital position and conservative balance sheet. Primerica Life Insurance Company's statutory risk-based capital ratio is estimated to be in excess of 420% as of December 31, 2011. The $200 million capital deployment brought us closer to our longer term objective of 300% to 350% RBC, while leaving us well positioned to support existing operations and fund future growth. Our debt-to-capital ratio also remains low at 17.4%, as does our invested asset adjusted equity ratio of 1.6 times.

Let me wrap up today on slide 13 with a discussion of the upcoming DAC accounting change. Effective January 1, 2012, we are adopting ASU 2010-26 and will no longer defer certain indirect costs of acquiring life policies or costs attributable to unsuccessful efforts to acquire life policies.

We intend to adopt this change retrospectively. While we are still finalizing our impact analysis, we anticipate reducing our December 2011 DAC balance by approximately 13% to 15%, or roughly $140 million to $160 million. This reduction also will reduce adjusted stockholders' equity by approximately $90 million to $105 million, representing a decrease of approximately 7% to 8%.

In understanding the impact on our financial statements keep in mind that in our April 2010 co-insurance transactions we ceded roughly 80% or $2.1 billion of DAC balances to Citi, which impacts the cumulative DAC write off as well as the ongoing benefit of lower future amortization. For years prior to the Citi reinsurance transactions the net effect of lower DAC amortization and lower expense deferrals has only a nominal impact on net income.

For 2010 and later we expect a more pronounced impact on our P&L due to the startup financial characteristics of the business post Citi reinsurance. As we rebuild our base of life policies not subject to the 2010 coinsurance transactions the increase in non-deferred acquisition costs, expenses will exceed the reduction in DAC amortization, resulting in a $15 million to $19 million net increase in expense.

Net operating income for 2012 will be lower by $10 million to $12 million or $0.15 to $0.18 per diluted share based on our current share balance. Expense deferrals for 2012 and prior years will decrease approximately $13 million per year for incentive trips and conventions that will no longer be deferred.

Deferrals will decrease by $10 million to $11 million to reflect unsuccessful efforts to convert life applications into issued policies, which is the case for about 27% of our applications. Expense deferrals will also decrease by $7 million to $8 million for certain direct, certain indirect policy processing and issuing costs, including costs associated with our IT infrastructure.

The reduction to deferrals for these items will be relatively consistent across all years and will not meaningful impact comparability across periods. We will see variability between historical periods in 2012 related to certain agent compensation programs that have evolved with our business needs.

As an example throughout 2010 and the first three quarters of 2011 we ran the Fast Star bonus program as well as other special bonus programs which we have deemed primarily to be indirectly related to life policy acquisitions. Following the recruiting surge coming from our June 2011 convention we phased out the Fast Star bonus and shifted focus towards efforts more directly attributable to getting new agents productive in writing life policies.

These programs have a much greater percentage of their costs deferred and what had been deferred under the Fast Star bonus and certain other special bonus programs. Our core compensation programs revolve around commissions and bonus structures that only pay for direct successful efforts to acquire life policies and therefore will not be impacted by this accounting change.

With the reductions to both earnings and stockholders' equity we anticipate this accounting change will have a de minimis impact on our return on adjusted equity for 2012. Let me reiterate that this accounting change is purely impacting the timing of expense recognition and has absolutely no impact on cash flow, on the fundamental economics of the business or for that matter statutory earnings.

With that I will turn the call back over to Rick.

Thanks, Alison. We are proud of the enhancements made to our business opportunity in 2011 as well as the substantial strides we achieved as we work towards the long-term capital strategy. In 2012 our goal was to continue to follow through on the business enhancements we delivered in 2011. We also plan to grow distribution by refining sales force incentives as well as providing additional tools to help families navigate their debt situation.

And we will continue to execute the capital strategy we began in 2011 to enhance shareholder value. Our strong capitalization and clear focus on growth strategies paired with our unique distribution model position us to drive higher growth and improve performance going forward. Now we will open it up for questions.

(Operator Instructions). Your first question comes from the line of Steven Schwartz from Raymond James. Please proceed.

Hey, good morning, everybody. Excuse me, Rick, maybe you could talk about the share repurchase and if you have any sense whatsoever of the timing of what's going on with Massachusetts better for us to model by? That would be my first question.

Yes surely. As I've said, most of the administrative work has been done. We've been in contact with Massachusetts several times over the quarter over since the New Year and hope to have sometime in the near term a decision from them, but at this point we still don't know whether they'll approve it or not.

Okay, and then I guess a couple for Alison if I may. Alison, I think you mentioned a couple of things with regards to VA sales. I think you mentioned that there was a very, very high level of conversions. Or maybe John wants to talk about what's going on in there, and then if there was any -- I think you said there was some sales incentive or bonus accruals for those sales.

Sure. Well I will -- I'll start with the second part of your question and then maybe pass the first part back over to Rick. On the second part we have a program with MetLife where based on achieving certain growth dynamics and levels of production we get a gross incentive bonus. And that usually will kick in in the fourth quarter.

Last year it was about $1 million. This year it was well over $2 million and that's what we were referring to. That in and of itself had nothing to do with just the conversions. It was just our level of sales in and of itself.

The conversions don't count for this?

They do, but it's just a piece of it.

Okay.

As far as sort of the overall level of conversions so to redo the bidding back in June of this year we rolled -- we have something called asset manager for our sales force where they can go in and look at their clients' assets under management by their investment. We added our variable annuity product to that, a client management system giving our sales force sort of access to the portfolio that where they have their variable annuities invested in.

At the same time we have the MetLife variable annuity product that has a lifetime withdrawal guarantee that is very beneficial that was not previously on the other, the prior generation of MetLife variable annuity products. So by giving the sales force access to, better access to looking at their clients' assets on the variable annuity side and having a variable annuity that has a product feature that is exciting for the client, what we've seen is conversions from the old variable annuity product to the new one.

We do think that that level after the sales force has had a chance to talk to their clients will diminish back to sort of more normalized levels. So in the third quarter I talked about it and again in the fourth quarter just talking about some of those variable annuity sales are conversions.

To give you a perspective on it our ISP sales were up 6% in the quarter year-over-year. The variable annuity conversions accounted for most of that growth. Ex those variable annuity conversion sales quarter-to-quarter would have been about flat to put it in perspective.

Okay great. I'll re-queue. Thank you.

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

Thank you. Good morning. First of all to Alison, you gave us so much good information on the DAC accounting changes that I may have gotten lost and want to make sure I got to the right bottom line. Did you say $0.15 to $0.18 of EPS impact?

Based on our current diluted shares, yes.

Based on the current.

And I say that because you can do that calculation -- generally you do an EPS calculation using average shares, but since we did the $200 million share buyback we wanted to use it doing based on our current share balance.

So the ending balance was an aggregate balance.

Right, correct.

Okay. Okay, that is helpful. And then I wanted to go to John for a little bit of reeducation.

That's a scary concept.

I think you described the kind of licensing pull through as being good this quarter. And I think what we talked about is a few quarters where I think initially some of us looked at licensing relative to current quarter recruits. And then I've started looked at more on prior quarter recruits and I think there was a lag.

And the difference makes a big difference in terms of how one would interpret the result this quarter because although the license looks good relative to fourth quarter because doesn't look so good relative to third quarter. So can you kind of reeducate me on how to think about that?

Well kind of let me just kind of just, yes there is. Clearly there is a lag effect, okay? And we did have the gigantic recruiting coming out of the convention. And when you look at the numbers that, one clearly that was a contributor to our licenses being up, but another thing that was very fundamental to that was our change from the Fast Start bonus to the Distribution Builder's bonus, and therefore putting much more incentive for people to get into pre-licensing class and to go take the test.

And to just give you the kind of color commentary on that, one of the things that we saw -- we introduced the Distribution Builder's bonus in September of 2010, in the fall of 2010. And it had a very strong focus on getting someone into the field very quickly to earn a bonus, but the bonus for the person that brought that in and for the person that was coming in was very focused on getting in the field activity, very little on licensing activity.

And one of the things that we saw as a management team out of the tremendous surge was that there was not enough focus in the system on licensing. We had a very high level. And any time you truly put something -- we had a historic level of recruiting in that quarter. Any time you have that big a jump ratios deteriorate, but one of the things we saw was there was not enough focus in the system on licensing.

So we made a very fundamental change from the Fast Start bonus to the Distribution Builder's bonus. The net-net without getting into a whole bunch of stuff on it is that the reality is now 90% of the compensation in the bonus is for someone to actually get licensed and produce a sale versus just get in the field fast and I can get a bonus upfront.

And so anyway that is I look at recruiting for the fourth quarter two things, one, we had a massive recruiting in the third quarter out of the convention and there's a little bit of anytime you can have kind of hangover effect of something, but I think the bigger thing was we made a change that instead of was just said recruit, recruit, recruit, get in the field very fast, to get somebody to pass the test and get licensed.

And then my final comment will be, and then I'll throw it over to Rick and because and let him kind of throw in his two cents on this, on the other side of it, as I said, January the good news here, the big thing we like to be able to do is walk and chew gum at the same time. And the good news was in January recruiting also looked well, as I said robust. So, Rick?

Yes. John, before you throw it over can I just sort of throw out what I think is sort of the ultimate sort of million dollar question here, --

Sure.

-- which is if we look at 2011 which was a convention year, and not only that but the first convention year in a long time, --

Right.

-- and you generated a lot of recruits out of that.

Right.

And yet the sales force shrunk over the course of the year. So now we head into a non-convention year. Is it realistic to think that you can generate enough momentum to actually grow the sales force in a non-convention year if you struggled a bit in a convention year?

I think it is absolutely reasonable to assume that. I don't think convention or non-convention -- conventions usually create in the first part of the year slow, a slowing because of the fact that you don't have a contest happening for the sales force. And then they can create -- this year was completely with the $50 and all that we, and the fact there was it was the first thing we created, this gigantic recruiting out of it which was not normal compared to a convention year, but this year as we head into it I am much, A, I am much more optimistic about personally where the sales force is, A.

B, the things that we've done that are very long-term focused on health and building the size of the sales force, we have our contest to the Broadmoor going where early last year there was no contest. You were telling people get to Atlanta on your own dime. Now you have a contest running.

And then another thing that we kind of mentioned in the conversation was I really do believe the equity program we have for this quarter is very focused on producing licensed productive activity. So in all honesty I feel better about the focus of the things we have right now than the focus of the things that we had last year.

So I don't think -- the question is execution, okay, not whether you've got a convention or non-convention sitting in the middle of the year. So with that, Rick's dying to give you his commentary on this. So I'll let Rick kind of --

Just from an analytical perspective just provide a little bit of assistance there, there is a lag. A quarter's lag is probably more than what you need, but a lag in that neighborhood is appropriate.

If you look at the recruits that we got out of the convention with the $50 IBA fee there is approximately about 25,000 to 30,000 incremental recruits that came out year-over-year better as a result of convention incentive. The licensing rates on those incremental recruits was about a third of our normal licensing rate and so that's why when you compare it to prior quarter's recruits you get a number that you wouldn't expect. And just the reality was the yield on those incremental recruits was less than what we normally achieve. I think if you go back and look at it with that perspective that will out your ratios.

Okay. That's all very helpful. Thanks a lot, guys.

Yes.

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

Hey, Mark.

Hey, John. How are you?

I'm doing great, man, doing great. Then if it's today I think I'm in Atlanta for the first time in a very long time, so nice to be in my own home.

Exactly. John, did you say the January recruiting was robust?

Robust is the word that they wrote down for me so, yes, it was robust.

Okay, very good. The unfavorable persistency I think in the new term life business did you identify any specific cause for that? Did that variation there is it unusual?

No. Actually some of it is quite frankly seasonal. The fourth quarter -- generally our persistency trends are the first and third quarter are somewhat average. The second quarter tends to be very favorable and the fourth quarter tends to be unfavorable. So sequentially what you're seeing is a little bit of just seasonality. Year-over-year we've seen ups and downs from economic factors, but nothing that has caused us any cause for alarm.

Okay. And then the benefits expense in the legacy block I think 52% this quarter, had been lower in prior periods.

Right.

How should we think about that going forward?

Well the big piece to remember there is about four of the $5 million charge for our search of the public death records was recorded to legacy benefits.

Okay, got you.

If you pull that out, and that was obviously accumulative catch up. So I think if you pull that out it's pretty normal. We saw pretty -- actually we had slightly favorable trends in our core business.

Yes. Super, thank you.

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

Hi. Good morning.

Good morning.

Hey, Paul.

Hey, so a couple questions. First, what do you think is the likelihood or possible timing on share repurchases outside of a triple-X funding transaction, and that's whether it's funded through earnings out of investment and savings products or kind of more normal course dividends out of the term business?

And then the second question is aside from the benefit to new licensed agents I think you got a benefit to sales from a big recruiting quarter just though new lead generation. So how long does that kind of last or play out? Is that essentially just a one or two quarter item or is there a longer tail to it?

You go first, Rick.

Yes. As it relates to share repurchases, as I mentioned earlier we are in the relatively near term hoping to reach an agreement with Massachusetts one way or the other. And at this point I don't know the answer, but I would be more optimistic than less. So I think relative to the share repurchases we will if we don't get that approval we'll go back and sort of reassess.

As we've talked about there is a low debt-to-capital ratio and there is excess still capitalization in our life company, but that would require Massachusetts to approve that as well. We will see, but I think we'll be getting an answer in the not too distant future that will provide more clarity on share repurchases overall.

As it relates to the question on productivity of the sales force itself we have if you look at the fourth quarter the way that we calculate productivity on a monthly basis it was at the high end. We've talked about it would range between 0.18 to 0.22 policies issued per month per sales force member. And for the quarter it was at 0.224.

We did have an extra week of processing the fourth quarter. If you remove -- about 4,000 policies were processed in the quarter as a result of that extra week. If you remove it productivity falls to the 0.209 for the fourth quarter, which is still towards the higher end of our range we had in prior years. We've been in the last two years we've been in about 19%, so you see about or 0.19. You see a 0.21, so we have moved to sort of the higher end of that range and hopefully with the new term now product, et cetera we will over the course of the year be at that, remain at that level.

If you are looking at productivity I will remind you quarterly productivity does change. First quarter is typically lower than the overall year average, so just look at that when you're doing your analysis.

Okay, just a follow-up on the repurchase question. If you look at the holding company sources and use it, so after factoring out interest costs, and the holding company expenses and that sort of thing, is there material earnings available to the holding company outside of the statutory regulated entity, so mainly from the investment and savings business? Or is that essentially all used up on an ongoing basis?

No. That is a key source of cash flow to the holding company. And we have actually changed our approach this year and we are starting to move any liquid funds out of the unregulated entities to the holding company as they become available. So at this point we've got somewhere north of probably $50 million sitting, $60 million sitting at the holding company level invested at that legal vehicle.

Generally speaking you can look at our non-life businesses as being highly liquid, highly cash basis, so very little requirement to keep capital in those businesses. And since it's largely just a distribution business it's largely cash basis. So while it's not an exact science you can look at those earnings considering some of the expenses in corporate and other which do actually hit that legal vehicle, the non-life legal vehicle and look at that as cash flow available to the holding company.

Okay. And then just to be totally clear those, that cash would be available for buybacks without any sort of regulatory approval.

That is correct.

Okay. Thanks.

Your next question is a follow-up question from Steven Schwartz. Please proceed.

Hey again. Excuse me, one follow-up and then something different. Rick, you mentioned that the pull through on the 30 or so thousand incremental agents from the that were taken in from the convention was about one third of what it normally was. I was wondering if there was a theoretical reason for that.

Yes. I'll let John comment, but I think there is you have the natural dynamic that a lower -- we cut the upfront cost by half and that makes it easier for tangentially interested people to sign up and then decide that they are not interested and so you get a lower pull through when you have a cheaper price.

I think, Rick, I think it's two components. Number one, everything you do in -- our business is a business of getting people to make incremental commitments, okay? When somebody is a new recruit that means they have shown interest and decided they would like to try to do Primerica, okay?

Getting them to the next meeting is getting another level of commitment and stuff. And when you change the pricing you change the level of the commitment of the person that is signing up on the front end because the reality in our business is not like you're buying a garage full of vitamins or whatever to sell. You've got to get a license, A, and so it's that.

And, B, we put a lot of recruits into our -- understand the guy's running an office and maybe last month he had seven recruits and this month he had 37 recruits, the ability to manage and deal with that. We pumped -- we put a pretty big watermelon into the python with that, so you've got the dynamic of capacity and their ability to do things along with incremental commitment. And it was actually very educational for us because we'd never had a jump quite that large, but it really is kind of those two dynamics that drove it.

Okay great, watermelon and python.

Yes.

See another because see you've got a good one there.

Nice one.

So you haven't asked me about us getting rid of the lending business. My reference on that is we finally had to shoot Old Yeller. So I was just out doing RVP meetings all over the Company or whatever. And everybody knew it was happening but one of my favorite movies when I was a kid was "Old Yeller." And at the end Old Yeller got rabies, so it was kind of like so it --

John, that's kind of disturbing that Old Yeller was one of your favorites.

Old Yeller was a good, but you got to remember at the end of Old Yeller young Yeller comes along. So that's what we're working on right now, so stay tuned.

Okay. Thank you. And, Alison?

I don't know how to follow anything up after that.

The investments that you made I think you mentioned there was a five-year duration. What would that about be roughly equivalent in terms of the maturity?

We're generally looking at the ten-year point of the curve. That's our sweet spot right now. There's not all that much available, but what is available that's our prime spot.

Does that match as well with your typical liability?

Well we had gone through this oddity if you will before, but generally speaking our business produces so much cash and inherent profit that in the life side that, and since it's term life and you don't have this run on the bank risk, essentially our premiums can support our business needs over time. So we really are not that constricted or restricted by the duration of the liabilities with regard to how we invest our asset portfolio, and in fact can invest what we believe on an opportunistic basis. So obviously we do all that in the confines and the construct of cash flow testing analysis and actual assumption analysis, but really the nature of our business does lend ourselves to more flexibility in our investing spectrum.

Okay. Thank you.

Okay. If --

And there are no further questions at this time and we'll turn the call back to Rick Williams for closing remarks.

Well the closing remarks are thank you for joining us today and we'll be talking to you in another quarter. Have a good day.

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