Primerica, Inc. (NYSE:PRI) Q4 2022 Earnings Call Transcript

Primerica, Inc. (NYSE:PRI) Q4 2022 Earnings Call Transcript February 24, 2023

Operator: Greetings. Welcome to Primerica’s Fourth Quarter 2020 Earnings Conference Call. . I want to hand the conference over to Nicole Russell, Senior Vice President of Investor Relations. Nicole, you may now begin.

Nicole Russell: Thank you, Rob, and good morning, everyone. Welcome to Primerica’s Fourth Quarter Earnings Call. A copy of our earnings press release along with materials relevant to today’s call are posted on the Investor Relations section of our website. Joining our call today are our Chief Executive Officer, Glenn Williams; and our Chief Financial Officer, Alison Rand. Glenn and Alison will deliver prepared remarks, and then we will open the call up for questions. During our call, some of our comments may contain forward-looking statements in accordance with the safe harbor provisions of the Securities Litigation Reform Act. The company assumes no obligation to update these statements to reflect new information. We refer you to our most recent Form 10-K filing as may be modified by subsequent Forms 10-Q for a list of risks and uncertainties that could cause actual results to materially differ from those expressed or implied.

We will also reference certain non-GAAP measures during this call, which we believe provide additional insight into the company’s operations. Reconciliations of non-GAAP measures to their respective GAAP numbers are included at the end of our earnings press release and are available on our Investor Relations website. I would now like to turn the call over to Glenn.

Glenn Williams: Thank you, Nicole, and thanks, everyone, for joining us today. At Primerica, 2022 was a year of progress as we adjusted to a post-COVID environment and advanced our position as one of the largest providers of financial education and guidance to middle-income families in the U.S. and Canada. Among our proudest achievements in 2022 was issuing over $100 billion of term life insurance protection for the third consecutive year, bringing our total face amount in force to $917 billion at year-end. In our ISP business, our investment licensed reps play an important role in helping their clients stay focused on long-term goals. Despite significant market volatility and economic uncertainty, our clients continue to invest, contributing $10 billion in new sales during 2022, and making this our second largest sales year, exceeding prepandemic levels by more than 30%.

At year-end, our life license sales force exceeded 135,000 representatives, providing a solid foundation, from which we can continue to meet the needs of our clients. Our success reflects the value that middle-income families place on protecting their income, saving for the future and the benefit of doing so in a face-to-face setting with a Primerica representative. Turning our focus to fourth quarter results. Adjusted operating revenues of $685 million declined 5% year-over-year due to the negative impact of market volatility on client asset values and lower revenue-generating investment product sales. Pressure from our ISP segment was offset by strong Term Life segment results, driven by low benefits and claims ratio, while the Senior Health business contributed $4 million to pretax income.

Diluted adjusted operating income per share grew 19% year-over-year to $3.49, and ROAE was very strong at 27.1%. Alison will provide more details on fourth quarter financial results later in the call. Our distribution building capabilities remain strong. More than 77,000 individuals joined Primerica during the fourth quarter, representing a 5% increase year-over-year as we continue to capitalize on the attractiveness and flexibility of our entrepreneurial opportunity. Our success through various disruptions in recent years, and our efforts to improve field support and technology, have further strengthened Primerica’s appeal with new recruits. We are gaining traction in licensing and have made good progress throughout the year. During the fourth quarter of 2022, more than 11,000 individuals obtained a new life insurance license, which represents a 20% increase compared to the same period in the prior year.

Licensing is always the most difficult part of building distribution. It takes constant focus to manage the process, which varies by state and province. We have made the improvements to the licensing process over the last few years to remove as many pain points as possible, and we continue to communicate the importance of licensing new recruits to our field leaders. As always, we remain committed to growing the size of our sales force, and we ended the year with 135,208 life licensed sales reps, which represents a 4.4% increase year-over-year. Looking ahead, we expect the sales force to grow at around 3% in 2023. Turning next to the fourth quarter Term Life segment results. Issued policies were down 4% year-over-year due to a slow start in October as reps anticipated and prepared for the launch of our new generation of insurance products.

Following a successful product launch, we started to see improved sales volumes in November and December. We also believe the increased cost of living negatively impacted sales to some degree during the period. Productivity at 0.18 policies per life license rep per month remained within our historical range. One of the changes we made to our new product series involve how policies are structured in relation to individual lives. Historically, 2 adult lives could be covered under a single policy by adding a spouse rider. The usage of this rider has dramatically decreased over time. Just prior to the launch of the new products in October, only 15% of issued policies included a spouse rider. To better match risk and pricing in our new product series, we eliminated this rider so that going forward, each policy will cover only a single life.

Given the timing of the new product launch and the time required to complete the underwriting process, approximately 2/3 of policies issued in the fourth quarter were from the old product series. Results for the quarter reflected additional policies issued due to replacing the spouse rider with a separate policy in the new product series. Adjusting to a consistent basis of lives per policy, issued policies would be down around 7% for the quarter. Beginning with 2023, virtually all policies issued will be from the new product series with a single life per policy. To make 2023 year-over-year comparisons easier and more consistent, we will provide an estimate of 2022 issued lives by quarter in our first quarter 2023 financial supplement along with the historically reported issued policies.

The change in relationship between lines and policies will also modestly change our productivity range to 0.20 to 0.24 policies per life licensed representatives per month going forward versus our historical range of 0.18 to 0.22. As we look ahead, we believe the new product series will provide momentum for growth while inflationary pressures will likely remain a headwind in the near term, leading to a slow start to 2023. We believe momentum build as the year progresses. We expect first quarter sales to grow around 1% versus an adjusted policy count of approximately $83,000 in the prior year period. Our current expectation is that full year 2023 Term Life issued policies will increase by mid-single digits compared to the 2022 adjusted policy count of approximately 33,000.

Turning to the Investment and Savings Products segment. Prolonged equity market volatility continue to pressure ISP results. Sales were $2.1 billion during the fourth quarter, declining 31% from a very strong fourth quarter in the prior year and ending client asset values declined 14% year-over-year to about $84 billion. However, net flows remained positive at $649 million for the quarter, which we believe compares very favorably to industry trends. Clients remain committed to their long-term investment goals, and we continue to see strong transaction volumes and little change in automatic monthly investments, which comprise about 1/4 of mutual fund sales. Likewise, we have not seen a notable rise in the quarterly redemption rate during 2022.

Ongoing market volatility and uncertain economic conditions do put pressure on our larger trade activity. We’ve historically seen these clients wanting to see a period of market recovery before reengaging in the market, making it difficult to project sales for 2023. Taking into consideration the current market conditions and the very strong first quarter sales last year, we believe year-over-year ISP sales to be down as much as 25% in the first quarter of 2023. We expect that our license representatives will continue to play an important role in education and keeping clients focused on the goal of a more financially secure future, while improvements in CRM technology and apps such as MyPrimerica allow clients and reps to get information and stay connected in real time.

In our Senior Health segment, approved policies were down 35% compared to the 2021 AEP as a result of deliberately slowing senior health sales, while we underwent efforts to improve tax and stabilize LTVs. Our focus has been on producing increased agent efficiency, driving a revised lead buying strategy and revising agent incentive compensation. These efforts, combined with reducing our employee Senior Health agent count by approximately 50%, resulted in a meaningful improvement in agent productivity compared to 2021 AEP. Productivity increased on average 25% across all Asia tenure bands. The ratio of approved to submitted policies was 90%, which is an improvement over the fourth quarter of 2021. Contract acquisition cost per approved policy also declined 21% year-over-year to $722.

As it relates to LTVs per approved policy, the $888 recognized in the fourth quarter reflects our current best estimate of future commission collections on a constrained basis. We’ll have a better understanding of how 2022 AEP business performed as well as 2023 renewal levels by the end of the first quarter and will adjust future LTVs as necessary. We’re encouraged by the emerging results the Senior Health business is producing, and we recognize there’s much work still to do. Our collective efforts are working toward achieving a sustainable and healthy business that will produce acceptable returns. We are also committed to the long-term opportunity in the mortgage business and continue to execute against our plan to expand our reach by gradually adding more states and increasing the number of mortgage license representatives.

However, the current interest rate environment continues to put pressure on loan volumes. As we look to 2023, we do so with confidence in our ability to grow the sales force and bring value to underserved middle-income families. We’re encouraged by the response to our new Term Life products as well as the emerging trends in the Senior Health business. Market volatility and economic uncertainty may continue to cause headwinds, especially in our ISP business. We know the fundamental strength in our ISP business, which is focused on long-term retirement savings, will continue. We have a high degree of confidence in our ability to create long-term stockholder value. Now I’ll turn it over to Alison.

Alison Rand: Thank you, Glenn, and good morning, everyone. My prepared remarks today will cover fourth quarter segment operating results, the implications of the adoption of long-duration targeted improvement or LDTI, and our 2023 outlook for key financial measures. Starting with the Term Life segment. Operating revenues of $430 million during the quarter grew 5% year-over-year, primarily driven by 6% growth in adjusted direct premiums, while pretax income grew 23%. Benefits and claims were a significant driver of Term Life pretax income growth, outpacing revenue fourth quarter due to weaker seasonal persistency was 56.6% versus 63% in the prior year period. A few discrete items impacted each period. The most significant was $3 million of favorable claims experienced this quarter compared to $19 million of excess claims in the prior year period, largely related to COVID.

We attribute lower claims activity this quarter to normal volatility. And while it’s possible that we are seeing some benefit of COVID mortality pull forward, there was nothing conclusive and we cannot say whether this will continue in 2023. The quarter also included a $4 million reduction to reserves, reflecting the positive impact of rising interest rates when we locked in new business assumptions during the current quarter for policies issued in 2022. Finally, we recognized a $2 million favorable impact from the administrative reprocessing of certain reinsurance transactions. Turning next to GAAP. The fourth quarter 2022 DAC amortization ratio of 1.6% reflected weaker seasonal persistency, while the prior year period ratio of 13.1% benefited from the tailwind of lower lapse rates during the pandemic.

By the end of 2022, persistency had largely normalized in the aggregate, although we were still seeing higher lapses on policies issued at the hit of the pandemic, offset by favorable persistency on policies issued prior to 2020. Overall, on a full year basis, the Term Life operating margin remained largely unchanged at 19.6% versus 19.5% in 2021. As we move to 2023, historical results for 2021 and 2022 will be restated to reflect LDTI, which became effective on January 1, 2023, with a transition date of January 1, 2021. While LDTI has no impact on the underlying economics of our business, cash flows, statutory capital requirements or our ability to return capital to stockholders, it does change how GAAP profits emerge. As I provide a 2023 outlook for key financial performance metrics on an LDTI basis, I will do so in the context of what we expect those same metrics to look like for 2022 under LDTI.

All future year-over-year comparisons will be provided on an LDTI basis only. We plan to publish an updated fourth quarter financial supplement with restated unaudited 2022 results prior to releasing quarter results. The new accounting literature does not impact the recognition of net premiums or adjusted direct premiums. Assuming the mid-single-digit sales growth Glenn discussed earlier, we expect ADP to grow by around 6% in 2023. ADP growth is predictable given the size and stability of our imports premium base. Additionally, our very popular increasing benefit rider, which allows policyholders to increase face amount coverage by 10% each year for a period of 10 years, acts as a buffer against any short-term negative deviations in sales.

Both DAC amortization and the benefit in claims as a percentage of ADP will be lower under the new accounting literature. Starting with DAC, deferrable expenses do not change under LDTI, but we expect DAC to amortize slower than it did under the previous accounting literature. Under LDTI, amortization will be recognized straight line based on a cohort current face amount. A cohort includes all policies issued in the year as well as policies that enter end of term after their initial level term period. Historically, DAC was amortized over the level premium paying period only, but LDTI’s use of cohorts in current face amount essentially decreases the pace of amortization. The treatment of commissions on the increasing benefit rider I just discussed also slows DAC amortization.

Under historical GAAP, the level commissions on these riders were capitalized and amortized in the same period, whereas under LDTI, they are amortized straight line like other acquisition costs. We expect the full year ’23 DAC amortization ratio to be around 12% of adjusted direct premiums, and therefore, the ratio in 2022 under LDTI to be very similar. Additionally, the use of cohorts and current face amount will largely eliminate the persistency-related quarterly variability experienced under historical GAAP. Separately, LDTI will also eliminate volatility in the Canadian segregated fund DAC amortization that is recorded in the ISP segment. Segregated fund DAC amortization will now be based on policy count as opposed to estimated gross profit, which were subject to market-driven changes on client asset values.

Moving to benefits and claims. We expect the ratio to be modestly lower under LDTI. Historically, benefit reserve assumptions were lost in that issue were not updated for future assumption changes such as mortality improvements, and included provisions for adverse deviation. Under LDTI, current DAC estimates are used each period, which are generally lower than what was used under historical GAAP. We expect the benefits and claims ratio to be in the 58% range of ADP in 2023, and for the 2022 restated range under LDTI to be similar. The benefits and claims ratio should be fairly stable from quarter-to-quarter. Experience variances, which occur when actual cash flows for a cohort from expected cash flows underlying reserves, will be partially recognized in the current period and partially spread to future periods, whereas under historical GAAP, experience variances were generally fully recognized in the period incurred.

The closer we are to the transition date, the more the experience variance will be spread to future years since all adjustments are applied prospectively from the date of transition under the modified retrospective adoption approach we are using. LDTI requires assumptions underlying reserves to be updated as necessary to current best estimate at least annually. Any assumption change would also be applied prospectively from the transition date, but would likely apply to more cohorts than a specific experience range, and could create more earnings volatility. Given the homogenous and predictable nature of our business, and our significant use of reinsurance, we do not expect large or frequent assumption changes to occur. Upon adoption of the new standard, we will be required to remeasure the benefit reserves each quarter using current observable market rates based on an A rating.

The difference between reserves under these rates and the rates that were locked in at the time of issue will be reflected in AOCI. As of the January 1, 2021 transition date, we estimate that AOCI will be reduced by $1.2 billion to $1.5 billion net of income taxes. However, given the drastic increase in market rates since then, we estimate the impact to AOCI at the transition date would have been between negative $150 million and positive $150 million, current observable market rate. Given that we are using the modified retrospective adoption approach, the opening DAC and reserve balances on January 1, 2021, will be the same as historically reported. There is one exception that impacts an isolated group of older cohorts, and is expected to reduce opening retained earnings by less than $50 million.

While there will be no impact to net investment income on a consolidated basis, we plan to change how it is allocated across segments. We currently allocate net investment income to the Term Life segment such that it offsets the net interest accreted to future policy benefit reserves less DAC. The remainder is reflected in corporate and other. Since interest is no longer accretive to DAC under LDTI, and since we do not consider investment income to be a key driver of Term Life earnings, we plan to record 100% of net investment income in the Corporate and Other segment going forward. Restated historical results will be presented on this basis accordingly. Overall, we expect the 2022 Term Life operating margin, excluding allocated net investment income, to be about 23%, and the expected margin for 2023 will also be around — I am sorry, 2022 and 2023 will both be around 23%.

We believe the tenants of LDTI reinforce the predictable nature of our Term Life earnings. Turning to the Investment Savings Products segment. Market volatility and economic uncertainty continue to create headwinds in the segment’s results. Operating revenues of $198 million and pretax income of $57 million declined 20% and 19%, respectively, driven by 35% lower sales-based revenue generating sales and 12% lower average client asset value. Sales base and asset based commission revenue and expenses generally declined in line with their respective drivers. Note that the sales-based net revenue ratio was lower in the prior year period as we recorded a $4 million sales force bonuses. On a full year basis, the sales-based net revenue ratio is consistent year-over-year.

Equity market volatility makes it very difficult to forecast 2023 ISP sales and client asset value. As a good rule of thumb, you can estimate that a $100 million change in sales-based revenue generating sales translates to approximately a $1 million change in sales-based net revenue annually, while — excuse me, not without sales lease net revenue. While the $1 billion change in average client asset values translates to approximately a $2 million change in asset-based net revenues annually. Senior Health’s fourth quarter operating revenues were $28 million versus $38 million in the prior year period, while adjusted pretax income was over $4 million, versus adjusted pretax income attributable to Primerica of $0.4 million last year. Glenn covered most of the key aspects of our Senior Health results in his remarks, but let me quickly touch on 2 topics.

The fourth quarter included a $3.8 million revenue adjustment, largely to reflect the final first year commission collections on policies that became effective in 2022 that were higher than assumed throughout the year. The adjustment increased first year commission revenues to match the actual cash received during the year since these policies are no longer subject to charge back. As anticipated, the Senior Health business required no net capital contributions from Primerica to fund operations during 2022 after considering the tax benefit from net operating tax losses utilized by the consolidated group. We do not expect the Senior Health business to acquire any significant capital from the parent in 2023 either. We plan to provide a more detailed financial outlook for the Senior Health segment when we report first quarter results in May.

Consolidated insurance and other operating expenses increased around 7% year-over-year, in line with expectations. Looking ahead to 2023, we expect insurance and other operating expenses to increase by about $22 million to $28 million, or 4% to 5%. Around $14 million of the increase comes from staffing-related costs, driven by higher salaries and employee benefits, and efforts to reduce open positions. Supporting growth in our business will add around another $12 million, while ongoing technology initiatives, including infrastructure, modernization, CRM and cybersecurity, will add about $9 million to year-over-year costs. In comparison to 2022, 2023’s expenses will benefit from returning to our typical cadence of field leadership events and a lower Canadian exchange rate.

By segment, about 35% of the year-over-year increase is expected in ISP and about 45% in Corporate and Other, with expense increases in Term Life and Senior Health being relatively minor. Finally, our invested asset portfolio remains well diversified with an average rating of A and a duration of 4.7 years. Rising interest rates and growth in the portfolio continue to provide tailwinds for the net investment income, and we continue to look at opportunities to take advantage of higher rates. During the quarter, we reinvested new money in our longer-term insurance portfolio at a rate of 5.95%. Assuming a stable rate environment in 2023, you would expect net investment income to be approximately 25% higher than in 2022. Liquidity at the holding company remains strong, with invested assets and cash of $309 million and Primerica Life statutory risk-based capital ratio is estimated to be 475% as of year-end.

We repurchased $32 million of our common stock during the quarter, completing our prior authorization. As announced in November, we have received a new authorization for a $375 million share repurchase program that runs through the end of this year. With that, operator, I will open the line up for questions.

Q&A Session

Operator: . And our first question comes from the line of Andrew Kligerman with Credit Suisse.

Andrew Kligerman: On the Term Life segment, I’m trying to get a little better understanding of what this new product constitutes as it sounds like the previous product at a rider and then only 15% of the people used it and now you don’t have the rider. Just want to make sure I understand the difference. Is the new product cheaper, and why or why not do you think it will boost sales going forward?

Glenn Williams: Yes. If I can take that in 2 parts, Andrew. The change of the rider is a relatively minor issue. As I explained, historically, we had put 2 adults on a policy using a spouse rider or where appropriate. And over time, due to clients’ desire to control their policies as individual lives and other reasons, marriages that don’t make it over time, those kinds of things, people are using that less and less, and just I think some of the change in the way households are created today versus decades ago. And so we felt like the flexibility of going to separate policies for separate lives gave maximum flexibility to the client. It also enabled us, as we were adding underwriting classes to be more specific and targeted in our pricing.

So it had benefits for the client, it benefits for the sales force and benefits for the company. But none of those were revolutionary and would create a real change in product sales other than the way we count the policies is more favorable by doing it as individual life. So that’s what I was trying to describe. Overall, as we’ve normally done historically, we identify as we go things about our product set, we’d like to change at the next opportunity improvements we’d like to make. And we had a whole series of those that have built up over several years that we decided to all attack at one time. One was an effort to simplify everything about the life insurance process and product, both the process for the client and agent in the field to use advancing technology and capabilities to make the application and issue process simpler and faster, more technologically advanced.

We did all of that. Then on the product construct itself — well, before I leave that simplification, we even simplified the policy that’s issued itself. We’ve gone to much more electronic issue where we still have a lot of clients that are requesting a hard copy of a policy. That’s done in a simplified language format. It’s much easier for middle income families to understand what they bought. So it was kind of a departure from the technical view of insurance and the very legalistic way policies were written to a way that was much more consumer-friendly in our opinion. And then in addition to that, we felt like we needed to target our pricing differently, and that was the discussion we’ve had in the past when we moved from 3 or 4 underwriting categories to 10, where we simply have more opportunities to match a client’s risk with our pricing more accurately.

And that does result in some price decreases in some areas. In other areas, there are some price increases. For example, on smoker rates, we felt like we were probably a little too low on our smoker rate so we increase them. So it was an adjustment of all of that, a very broad set of changes that administered to the needs of all of our constituencies, and overall, it’s created a lot of excitement in our sales force, and they believe that we’re much more competitive in the marketplace, not just in our pricing accuracy, but also in our process and just the customer experience than we’ve been in the past. So we’re getting very positive reaction to the changes.

Andrew Kligerman: That’s very helpful, Glenn. And then if I can think about a little bit, the the sales growth outlook. And I think what I heard in the prepared remarks was that you’re likely to see about a 1% increase in term sales in the first quarter. And then there would be a pickup in the second half. I want to make sure that — because you were talking about using a different metric, so I want to make sure that I understood that right. And then also in the commentary, you talked about cost of living pressures on sales. So the first part of it is, do I understand that right, 1% in the first quarter and then in the back half, you might see a pickup? And would that be despite cost of living pressures?

Glenn Williams: Yes. That’s exactly right. That takes into account both the adjusted relationship of the way policies were accounted in the past versus today. That gives us a tailwind. The new accounting method gives us a tailwind and policy count, and we wanted to be very clear that we’re not including that in our optimism of growth for the future. So the 1% first quarter, mid-single digits for the year includes both readjusting historically for the policy count change and also taking into account the headwinds from inflation, all that and included in those 2 numbers of 1% in the first quarter and mid-single digits for the full year.

Andrew Kligerman: Got it. Very helpful. And then if I could just quickly sneak in 1 on your Senior Health business. So you cut the sales force in half. Could you give us a sense of how big the sales force is? And do you feel like all of the adjusting that was needed is done, and that you can — and it sounds like you’re moving forward very positively and your competitors have seen a lot of improvement, too. So do you feel like you’re in a stable place, and how big is the sales force?

Glenn Williams: Yes, Andrew. As we described, it was a very deliberate action that we took — took place in reducing our sales force by not hiring up, letting attrition take care of some of that and also eliminating some positions for some of our less effective, effective defined as productive but also profitable representatives. So it was exactly the type of pruning mechanism that you might describe. I believe our sales force count right now is in the mid-300 range, about 300 after those changes. And of course, that’s our employed sales force, e-TeleQuote not to be confused with our primary independent contractor representatives. But it’s about 300 right now after that activity is taking place.

Operator: The next question is from the line of Dan Bergman with Jefferies.

Daniel Bergman: My first question was just on capital return and free cash flow generation. I think combined with the recent dividend increase, the $375 million buyback authorization applies nearly $475 million or so of capital return in 2023. So I wanted to get a sense, is that level sustainable post this year? Or is a portion of it funded by drawdown of the RBC and holdco cash from the current elevated level? Just any thoughts on that and/or the expected level of run rate capital generation, particularly if or when Term Life sales and Senior Health sales revert back to growth would be helpful?

Alison Rand: Sure. I’ll take that one, Dan. And yes, we believe it is sustainable. The beauty of our Term Life business, I talked about the predictability. We now have even more predictability on a GAAP basis, but we’ve always had pretty strong predictability on a cash flow basis because the business is so mature, so homogenous, so well reinsured that it’s protected against a lot of anomalies. So we do believe that is very sustainable. The current RBC I mentioned, you specifically asked, but we actually are a little overstated on our RBC ratio versus what we would say our target is. But that has to do with the specific rules that are out there with regard to the maximum you can take out in any given year. We were capped out this year based on 2021 statutory earnings, which were actually a little bit lower than normal for 2 reasons.

One was because of COVID, the high claims, and quite frankly, the high sales, which cost us a lot of statutory earnings because you don’t get to deal with the deferrability of DAC. And then also, we had some nuances with some of our financing transactions, our reinsurance financing transactions where they were in their life cycle. But we do see that the cash flow generation out of Primerica Life was very robust in 2022, will continue to be very robust in 2023, and we do not foresee any major headwinds coming out of that operating cash flow.

Daniel Bergman: Got it. That’s really helpful. And then maybe just shifting gears. If I got the numbers right from the prepared remarks, it sounds like you’re guiding to about 3% growth in the life license sales force in 2023. So if that’s right, just any color you can give on kind of the main drivers or assumptions in the outlook? And it sounds like maybe it’s moderating a little bit year-over-year, but Also, just curious what — does that assume as far as the macroeconomic backdrop, and if there is a potential recession later this year or in 2024, would that have any impact one way or the other on your outlook for the sales force growth?

Glenn Williams: Sure, Dan. I do think we benefited in 2022 from a little catch-up from several years of being flat or flattish or at least distracted by all of the challenges at the state and provincial licensing levels of COVID. So that probably gave us a tailwind last year, and we’re projecting more of a normalized year for 2023, which gives us kind of that 3% number. And once again, that’s all in. We’ve had stronger momentum than that in 2022. And so that’s taking into consideration that may have been — we may have had that tailwind that may not exist, so a little conservatism from that point, taking into consideration the economic disruptions as we’ve talked about many times. People that are — have lost jobs are probably not the prime target for a Primerica opportunity because they need to be reemployed quickly and have an income for their families, but those that are concerned about losing their jobs are probably the perfect potential recruit for Primerica.

Unfortunately, I think there’s going to be a lot of both probably this year, but we do think that the recruiting top line numbers are going to remain strong during the year. And then it’s just going to be that day-to-day battle at every state and province level of pulling recruits through the licenses, which we’ve made progress on, but we’re very realistic that, that’s a — every day, you have to work with every state and every province on their process and our reps and recruits to pull people through. So we don’t want to be overly optimistic about that either. So it kind of takes all of that realism into account in coming up with that number. We are anticipating — we certainly don’t have a crystal ball, but we are anticipating continued cost of living pressures this year, continued disruption in the employment market, which, as I said, has both positives and negatives for our business.

But we’re trying to take — put all that in the recipe when we give those numbers, and that’s what’s behind our thinking.

Operator: Our next question is from the line of Ryan Krueger with KBW.

Ryan Krueger: Thanks for all the detail on LDTI. Maybe just to put it all together, I want to see if you agree with this. It seems like maybe LDTI is resulting in about an $80 million pretax earnings uplift. Is that in the right ballpark?

Alison Rand: So we haven’t reported 2022 yet. So I don’t want to say my controller and my auditors would be very reluctant for me to give a number. We will give that number, like I said, prior to fourth quarter — I mean, the first quarter coming out. Let me just — I mean, I know what you’re getting at. I do want to just caution. From here on forward, all of our comparisons will only be on an LDTI basis. So this $80 million you’re talking about, or whatever the number turns out to be, sort of miraculously comes from where we are today to where you’re going to — our new starting point will be. But I would just caution everybody. Well, I think it’s positive that LDTI isn’t going to hurt our financial results, I’d really focus on the fact that what it does for us moving forward is it makes our results even more predictable and stable than they’ve been in the past because the swings associated with persistency around DAC really get minimized.

And any kind of period-related variability in claims largely gets spread to multiple periods. So that would be my focus for you. Earnings will be higher under LDTI, but the restated ’22 earnings will also be higher under LDTI.

Ryan Krueger: Okay. Understood. Separately, on persistency. I guess using the Term Life base amount, roll forward, it looked like maybe persistency deteriorated some, but I know that’s not a perfect measure. So I was just hoping you could provide some additional detail on what you saw in persistency at this point?

Alison Rand: Sure. And I don’t know if you’re comparing to last year or the previous quarter. What I would say to — any previous quarter is the fourth quarter has typically been a week or a high last period or a week persistency season for us. So we have typically seen higher DAC ratios in the fourth quarter vis-a-vis other quarters. And then if you’re talking about specifically year-over-year, last year, as I described in my prepared remarks, we still were getting a fair amount of tailwind from the benefit from the pandemic, which are largely muted at this point.

Ryan Krueger: If I could sneak 1 last 1 in. Have you — now that, I guess, we’ve emerged from the pandemic and are in more of an endemic phase, have you seen any changes from reinsurers in terms of pricing or if things remain pretty stable?

Alison Rand: Yes. Things have actually remained stable. I know that’s been a big area of question. We — as Glenn described, we did — we launched a product. We launched it just this last October. As part of that, we had to go to all of our reinsurers and get updated pricing. They have — obviously, they needed to see what the product is and the underwriting design is going to be to give us pricing. And we landed, and I’d say, a very good state with all of our reinsurers. We were able to keep all of our key players in our pool. We did see — what we did see was it, put aside COVID, there had been some deterioration in mortality improvements just in the normal course over the last several years. So there was some of that. But in some places, we actually saw improvements in rates, like on our blood tested business where we’re getting more and more information through our testing process.

So net-net, we didn’t see COVID per se as having any impact on those rates. And we think that the rates we got appropriately reflect what we believe the underlying risk exposure is on our portfolio and on our new business.

Operator: . The next question is from the line of Max with Truth Securities.

Unidentified Analyst: I’m calling on behalf of Mark Hughes. I know you mentioned you don’t have a crystal ball, but when you’re looking at the interest rate for the rest of the year, are dollar assuming that the interest rate is going to stay elevated throughout the whole year? And if so, is that going to have another favorable impact when you look at the new year’s business that you’ve locked in?

Alison Rand: Okay. So I thought you were asking about net investment income. So just to be clear, that whole locking-in dynamic that I described under the benefit ratio for FAD60 pretty much goes away under LDTI because we’ll be using current rates. I guess, theoretically, we will lock them in, but all of our assumptions that we’ve made for our new business in 2023 assumes a rate environment that’s consistent with where it is now. So all of our forecast, all the information I provided, I would say, already has a stable rate environment embedded in it. What it doesn’t have is a massively changing, either up or down, rate environment. So I’d say when you talk about NII specifically, again, we are assuming a pretty stable rate environment.

Realistically, short-term rates have been extremely favorable. Don’t know if that’s going to last per se. But right now, we’ve been able to take advantage of attracting really nice yield without having to go up long on the curve. As those shifts — as the yield curve shift, we may have to go a little further out, but again, nothing beyond our normal range. So I think we — I think all the projections I’ve given you have taken into account our expectations, which is largely an overall stable yield environment.

Unidentified Analyst: Okay. That’s very helpful. And for the average premium per policy, we saw that was down a little bit in the fourth quarter. Is that due to the new product updates or customers buying less coverage maybe due to some financial pressures?

Alison Rand: I wouldn’t attribute it to much of anything. We’ve had — I mean, we had lower Canadian exchange rates that would — so would impact our Canadian business. There’s been a little bit of transitioning going on. We do — so when all is said and done, I wouldn’t read much into it specifically for the fourth quarter. That is a statistic, specifically the annualized issued premium rather than the premium per policy is going to be something that we’ll be focusing on next year, especially given the change we have in our — the way policies are getting counted. But there’s nothing specific about what happened in the fourth quarter that we would say is an emerging trend.

Operator: We’ve reached the end of our question-and-answer session. That will also conclude today’s conference. You may now disconnect your lines at this time, and we thank you for your participation, and have a wonderful day.