Greetings and welcome to Primerica's Third Quarter 2023 Earnings Webcast. It is now my pleasure to introduce Nicole Russell, Head of Investor Relations. Thank you, Nicole. You may begin.

Thank you, John. Good morning, everyone. Welcome to Primerica's Third Quarter Earnings Call. A copy of our earnings press release, along with other materials relevant to today's call are posted on the Investor Relations section of our website. Joining our call today are Chief Executive Officer, Glenn Williams; our Chief Financial Officer, Alison Rand; and our EVP of Finance and Future CFO, Tracy Tan. Our comments this morning may contain forward-looking statements in accordance with the safe harbor provisions of the Securities Litigation Reform Act. We assume no obligation to update these statements to reflect new information and refer you to our most recent Form 10-K filing, as may be modified by subsequent Form 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, 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.

Thank you, Nicole, and thanks, everyone, for joining us today. Our third quarter results underscore the fundamental strength of our distribution capabilities and the value of our complementary insurance and investment businesses. Term Life pretax income is up 7% year-over-year, while ISP pretax income grew 9%, representing the segment's first year-over-year increase since the first quarter of 2022. We also continue to drive growth in the size of the sales force with a 4% increase since September 30, 2022. Starting with a quick recap of our financial results. Adjusted operating revenues of $713 million during the quarter rose 5% year-over-year while adjusted net operating income of $154 million increased 9% and diluted adjusted operating earnings per share of $4.28 increased 14%. These results reflect the steady contribution from our large in-force book of term life insurance, strong term life sales, growth in client asset values and the benefit of higher interest rates on our investment portfolio. The Senior Health segment recorded a modest loss as we position the business for the start of the annual enrollment period. On the capital deployment front, we repurchased $106 million of our common stock during the quarter for a total of $302 million in the first 9 months of 2023. We also paid $23 million in stockholder dividends during the third quarter. Given the strength of our capital and liquidity positions, we believe we will meet our targeted repurchases of $375 million for the year. Turning now to distribution. Both home office and field leadership remain focused on our common goal of growing the sales force. The attractiveness of our entrepreneurial business opportunity continues to fuel recruiting. During the quarter, we welcomed more than 92,000 individuals as new recruits to Primerica. We are also seeing solid progress in licensing with a total of 12,311 individuals obtaining a new life license during the quarter, pushing the size of the life licensed sales force to over 139,000. We remain confident in our ability to expand the size of our sales force and project around 3% year-over-year growth in the fourth quarter. Turning next to the Term Life business. We issued approximately 88,500 new term life policies during the quarter, up 9% compared to the adjusted policy count in the prior year. We issued $29.5 billion in new term life protection for our clients, a 13% increase compared to the face amount issued in the prior year period. The productivity of our sales force remains solid at 0.21 policies per life license rep per month compared to 0.20 in the prior year period. Looking ahead, we expect fourth quarter policies issued to grow approximately 6% to 7% year-over-year or around 6% on a full year basis. Let's look now at our Investment and Savings Products business. Total sales of $2.2 billion during the quarter remained largely unchanged compared to the third quarter of 2022. Sales of annuity products rose 17% compared to the prior year period as annuity providers continue to enhance products, leading to higher investor demand for variable annuities and the guarantee features they offer. During the quarter, we also transitioned our managed accounts business from TD to Pershing as our custodian. This conversion caused a temporary disruption in sales, which is now behind us. Changes of this magnitude generally require a period of adjustment as advisers familiarize themselves with new technology and help their clients log in and navigate the new platform. With the conversion complete, we were able to retain 98% of client assets. Advisers are adjusting and sales levels normalized in October. Finally, sales of Canadian segregated funds are down substantially after Canadian insurance regulators followed the lead of securities regulators and banned deferred sales charges on new product sales. We are actively looking at alternate segregated fund solutions for our clients in Canada. Ending client asset values were $88.4 billion on September 30 or 12% above the prior year period and down approximately 3.5% versus June 30, 2023, as market volatility during the quarter pressured equity values. Net client inflows of $192 million during the quarter reflected approximately $150 million in redemptions from the 2% applied assets that did not convert to the new managed account custodial platform. Based on October trends, we expect fourth quarter ISP sales to grow around 5% year-over-year. We've received questions about the DOL's recent fiduciary proposal that came out on October 31. That proposed rule is subject to a comment period and potential challenges that make it hard to draw any firm conclusions at this time. However, due to the nature of our ISP business and process changes we previously adopted, we believe we will be well positioned to deal with any final DOL rule. Turning next to senior health. During the third quarter, which is seasonally the most challenging period of the year, we saw stable LTVs for the fourth consecutive quarter. However, contract acquisition costs per approved policy of $1,263 as well as sales volumes were pressured by a higher mix of newer, less productive agents. While our agent count has grown, we've had higher-than-expected attrition of experienced agents, and new hires were onboarded and trained later in the year than we planned. We also identified an inefficiency in our use of leads, which has now been corrected. As we make course corrections to further improve our agent recruiting and onboarding, we are moderating our expectations for fourth quarter and AEP and expect approved applications to be down over 10% from last year. We believe that Primerica representatives will continue to be a valuable source of quality leads for e-TeleQuote and estimate their referral activity will contribute more than 20% of submitted applications during this year's AEP. We remain committed to our senior health business and believe there is room for more improvement. Our new leadership team established since our acquisition is fully in place, creating a strong foundation for the future. We will not need to provide capital to the subsidiary in 2023 and we do not anticipate the need to provide capital in 2024. Before turning to Alison to review our financial results, I'd like to comment on our CFO succession process. As you know, Alison has announced her retirement effective April 1, 2024, after nearly 23 years as CFO. Her leadership has provided tremendous financial discipline and performance, which we'll continue to build upon. Alison's successor, Tracy Tan, has recently joined Primerica. Tracy is an accomplished business leader with 20 years of experience as CFO across multiple industries, including financial services. The depth and breadth of her experience and business acumen will enable her to guide Primerica to continued growth. Tracy is working closely with Alison on the transition. Tracy, welcome to the Primerica team.

Thank you, Glenn. I appreciate the vote of confidence, and I'm excited to join Primerica. The company's mission to help middle-income families is well aligned with my own personal values. It is an honor to succeed Alison, who leaves behind a great legacy. I'm committed to leveraging my experiences to drive Primerica's continued growth and value to our stockholders.

Thank you, Tracy. It's great to have you on board. Alison, I also want to thank you for your extraordinary leadership, tireless dedication, and wise counsel throughout the years. You've been an integral part of Primerica's success, and you'll be missed after your retirement next April.

Thank you, Glenn. Thank you, Tracy. Those really kind words, I do appreciate it. And good morning, everyone. Let me expand on our third quarter financial results by taking a closer look at the financial contribution of each segment. Starting with Term Life, we continue to benefit from the strong profits generated by this segment. Pretax operating income of $141 million increased 7% year-over-year, driven by 6% growth in adjusted direct premiums. Based on current sales and persistency expectations, we expect ADP to continue to grow by approximately 6% year-over-year in the fourth quarter. We also expect the Term Life segment to continue to be a strong source of free cash flow for the company. The Term Life pretax operating margin was 23% in the third quarter versus 22.8% in the prior year period. We express our Term Life margin and financial ratios as a percentage of adjusted direct premiums as we believe this is the best revenue basis to evaluate performance. In doing so, we view other ceded premiums, which are the amounts paid to our YRT reinsured through lock-in mortality costs as a component of our benefit cost rather than a contra revenue as presented on a GAAP basis. Under LDTI, Term Life margins are expected to be stable and predictable. They are not highly sensitive to changes in persistency, and mortality experience variances are highly mitigated by reinsurance and partially spread to future periods. Benefits and claims, DAC amortization, and insurance expense ratios in the third quarter were all consistent with the prior year period at 57.9%, 11.7% and 7.3%, respectively. We expect margins and financial ratios to remain stable in the fourth quarter. Turning to persistency. We continue to see elevated lapses most notably on policies sold near the onset of or during the pandemic when various financial aid programs were widely available to the middle-income marketplace. The combination of our ongoing cost of living pressures and the elimination of financial aid programs are likely contributors to the timing of these lapses. Persistency for both policies issued over the last year as well as older policies are generally in line with historical trends underlying our LDTI assumptions. While economic headwinds are likely to continue in the near term, we believe that persistency experience across all durations will revert to historical levels over time. During the third quarter, we performed our annual assumption review. We did not identify any trends or experience that we believe require us to change our long-term assumptions for lapses or aggregate benefits including both mortality and disability rates for our waiver of premium rider. As noted, we believe the elevated lapses seen in some policy durations will revert to historical levels over time. In regard to mortality, variances are inherently limited by our extensive YRT reinsurance program. Claims have been modestly favorable to assumptions in 2023 what we believe this is near-term experience volatility in their existing LDTI mortality assumptions continue to reflect the long-term best estimate for benefit reserve. We've also seen some variability in disability rates underlying our waiver premium benefit, which we will continue to monitor.

Turning next to the Investment and Savings Products segment. In the third quarter, operating revenues reached $219 million, with pretax operating income at $64 million, both reflecting a 9% increase compared to the previous year. Sales-based revenues and commission expenses rose by 7%, aligning with revenue-generating sales. Asset-based revenues increased by 11%, which corresponds with a 10% rise in average client asset value. Total expenses related to asset-based products, including commission expenses and for segregated funds, as well as both DAC amortization and insurance commissions, increased in accordance with the revenue growth. Regarding segregated funds, we've observed a sales decline due to new regulations. However, since our commissions are based on client assets, which only decreased by 3% year-over-year, the effect on earnings will materialize gradually. In our Senior Health segment, we recognized a loss of $7.6 million for the quarter. The lifetime value per approved policy was $911, reflecting a 5% increase from the same period last year. We recorded a $2.3 million positive tail adjustment in the quarter to account for the stabilizing effect of persistency on import policies and annual rate increases. Marketing development revenues totaled $2 million, showing a slight decline year-over-year. Starting in the fourth quarter, the majority of marketing development revenues will transition from other net revenues to the commissions and fees revenue line due to changes in our agreements with certain health insurance carriers. While this change will be generally neutral to total revenues, it will lead to higher lifetime values and connect most marketing development revenue opportunities directly to approved policies.

CAC per approved policy of $1,263 was up significantly year-over-year based on factors Glenn described earlier. We expect to recognize a small loss in the fourth quarter, but will not need to provide capital to the segment in 2023 nor do we anticipate a need to do so in 2024. The Corporate and Other Distributed Products segment recorded a pretax operating income of $3 million during the quarter. A key driver of segment results was adjusted net investment income, which at $35 million for the quarter, up $11 million year-over-year. Our average yield on new investment purchases for the quarter was about 6% with an average rating of AA- and an average duration of about 5 years. In comparison, the average book yield on maturities for the period was under 4%. We expect to continue benefiting from higher yields and growth in their portfolio in the fourth quarter. Our invested asset portfolio ended the period at an unrealized loss of $343 million, which continues to reflect a steep rise in interest rates since the beginning of last year. We regularly evaluate the portfolio for possible credit impairment and do not believe the large unrealized loss is due to significant credit concerns with our holdings. We continue to have the intent and ability to hold these investments until maturity. Third quarter consolidated insurance and other operating expenses were $137 million, up $6 million or 4% compared to the third quarter of 2022. The increase is mainly attributable to higher employee-related costs and normal growth in our business. Costs increased less than anticipated in August due to the timing of certain technology projects and pullback in equity markets that led to lower ISP asset-based operating expenses than expected. Looking ahead, we expect fourth quarter insurance and other operating expenses to increase around $4 million or 3% year-over-year with increases coming mainly from higher employee-related costs and continued growth in the business. This would result in full year expense growth of about 3% year-over-year which is lower than typical due to heightened expense levels in 2022 from holding an additional sales force leadership event post COVID. With that, operator, let's open the line up for questions.

And the first question comes from Ryan Krueger with KBW.

My first question is about expenses. Alison, you mentioned a 3% growth for the year, while the guidance last quarter indicated a 5% growth. What caused the lower expenses than previously expected? Additionally, what do you consider to be a more typical growth rate in expenses for the company over time?

Yes. Great question, Ryan. We did anticipate a couple of things in the third quarter, as I mentioned in my prepared comments. One was that certain technology projects we expected to start would likely be postponed until the beginning of next year. Additionally, we observed a pullback in equity markets during the third quarter, which, as Glenn explained, correlates with lower operating expenses in that segment since many of our expenses stem from fees we pay to service providers for record-keeping and similar tasks. A significant portion of those fees are asset-based. These two factors contributed to our lower expenses this quarter, and we don't expect much turnaround in the fourth quarter. Regarding your point about next year, I want to emphasize that the 3% growth we experienced this year is unusual. It was influenced by events that occurred outside our regular operations in 2022, particularly the holding of two leadership events and a convention in the same year, which is not typical for us due to COVID-related delays. Looking ahead, I believe you should consider our business to grow at around a 5% to 7% rate for expenses unless we make a significant commitment to a particular initiative. However, it's important to note that many of our expenses are closely linked to our revenue sources. Thus, any significant fluctuations in revenue, possibly due to stock market changes, could impact this outlook. But under normal circumstances, I anticipate a general growth range of 5% to 7%.

Great, that's very helpful. Glenn, I wanted to follow up on the DOL proposal. Could you share some insights on the changes made in preparation for the 2016 rule as we evaluate the current proposal? I would also appreciate your general thoughts on how this proposal compares to the previous one.

Right. Well, it is very early, Ryan, as I stated in my prepared comments and lots of time for commentary from the industry and even push back after the fact. So it's a little hard to draw an exact beat on. But I do think 2 things going in our favor is that our business is fairly simple compared to other models as far as our product set goes; it's a little narrower product set, a little simpler product set than some that are more sophisticated. And as we went through this process and the last go-round, we recognized and are building our business around the fact that we are acting as fiduciaries and a number of the recommendations we're making, particularly around retirement accounts. And so we took action at that point that we believe, based on what we know today that could change will help us be already in line with some of the proposed changes for the future. So our business model works in our favor to a certain extent in some areas, our product set at least. And then also, we did make changes last time around our advice around retirement accounts and rollovers in anticipation of these types of ongoing changes in the future. And we think that positions us for less disruption based on the way that this version of the rule might come out.

And the next question comes from the line of Jeff Schmitt with William Blair.

The pretax margin term life was fairly high at 23% again, and it seems to be driven by, I guess, insurance expenses are kind of below historical levels, but is there anything else in that? And how sustainable, I guess, would you think that is?

Yes, regarding expenses, they are generally in line with historical levels, although they can vary each quarter. This quarter was slightly lower, but it's not unusual compared to what you might expect in future quarters when looking at them as a percentage of adjusted direct premiums. Many expenses closely correlate with premium growth. We anticipate that margins, particularly with the new LDTI standards, will remain very stable. The only significant factor that could disrupt this is a major change in assumptions. Fortunately, our business structure, heavily reliant on reinsurance to limit mortality exposure, selling only term life, and having a large, homogenous book of business that we can accurately project, supports this stability. Additionally, the way DAC operates now, with a straight-line basis, leads to less volatility from persistency. While there might be slight increases in margins over time, they will be minimal, highlighting the predictability of our business, which, coupled with strong cash flows, is a cornerstone of our financial model.

Okay. And then on the proposed DOL rule, I mean, do you see your main exposure being on fixed index annuities or will variable annuities be affected too? I mean, obviously, you probably may change that in the past with the regulation with the Reg BI. But I'm just curious, is that exposure really on the fixed index annuities at this stage? And how much of flows today are really from 401(k) rollovers? I mean, I know you do a fair amount.

Yes, Jeff, this is a good follow-up to Ryan's earlier question because our fixed index and fixed annuity business is quite small, comprising about 5% of total sales this quarter, which is near the higher end of our range. This percentage usually varies between 2% and 5% of total sales and includes both fixed annuities and fixed index annuities. The fixed indexed annuities were mentioned during discussions regarding the rule, suggesting they might be a focal point in this version of the regulation. Our variable annuity business typically accounts for about 22% to 26% of sales, with shifts in mix occurring over time. In times of market volatility, sales tend to lean towards variable annuities and their guarantees, while in more stable periods, there is a shift back to non-guaranteed products like mutual funds. This pattern is consistent and tends to remain within a narrow range. I believe that our focus should be on variable annuities, which was a major topic in our previous discussion. We've prepared for the product mix issues in advance. We handle a considerable volume of rollover business, and we can provide specific numbers after this call. We recognize the importance of advising on 401(k) and other retirement plan rollovers, which is central to the fiduciary question. In the last update to the rule, we made amendments to ensure we align with fiduciary advice regarding these rollovers. Currently, it seems we are in a strong position concerning rollovers, although this could change.

And the next question comes from the line of Suneet Kamath with Jefferies.

Just wanted to start with the term lapse rate. Alison, I think on the second quarter call, you gave us some good data in terms of what you saw in the first quarter, I think, 3% to 5%. And what you saw in the second quarter, I think you said 5% to 7%, if those numbers are right, do you have a comparable number for the third quarter? And maybe some color around how lapses trended through the quarter?

Yes, it's interesting. I didn't share specific figures earlier because while there have been some improvements, the variations we've seen in durations have decreased. Earlier this year, we observed significant variations due to the economic impact on the marketplace. Upon further analysis, we now see this variability concentrated in a small number of durations. As I mentioned before, the new business aligns well with our LDTI assumptions. Looking at durations five and beyond, they are also consistent with our projections. The main concern is in years two to four. What stands out is that these policies were purchased just before or during the pandemic. After the pandemic, as we anticipated, many policies were quickly canceled. People made hasty decisions during the pandemic and chose not to maintain them once the immediate fears subsided. I believe many of these individuals genuinely wanted to keep their policies and have held on to them for as long as possible. However, with the end of various stimulus packages and aid programs, many in our market are facing economic challenges, and the rising cost of living is significant. Therefore, I attribute the unusual impact on these particular durations and policyholder groups to these factors. That's why I refrained from providing an overall assessment because, unlike earlier in the year when issues were widespread across durations, this situation seems more targeted. We expect this trend to stabilize, which is why we did not alter any long-term assumptions under LDTI.

Okay. That makes sense. And then I guess maybe on senior health, it sounds like there's some incremental challenges, I think, based on reading the press release, some hiring delays. And then I think, Glenn, you had mentioned some higher attrition. And then lastly, I normally think about this business as being sort of profitable in the fourth quarter, but I think you're guiding to a loss. So maybe just some color around what you're seeing there. It just feels like maybe it's not getting kind of back on track like we had kind of hoped it would.

You're correct about the typical business rhythm. The fourth quarter is usually the most significant period during AEP. Looking back, it's clear that we aimed to expand our sales force by both hiring new talent and retaining experienced representatives. While we have a solid talent pool for new hires, we didn't retain as many of our seasoned salespeople as we had hoped. This resulted in a larger sales team, but one that includes more inexperienced reps. Unfortunately, this newer group hasn't been as effective in converting leads into sales, which contributed to the increase in customer acquisition cost we experienced in the third quarter. We expect to see a similar trend in the fourth quarter, leading to a small loss rather than a gain. It's a focused issue, and we are taking steps to address it. As I noted earlier, we are confident in our leadership team, which we have established since the acquisition. There are many positive developments, including stability in lifetime value, which we consider an advantage. The shopping and churn difficulties the industry faced a couple of years ago seem to be normalizing, providing a more favorable environment for business growth. However, it will require additional effort and may take longer than we initially expected.

Got it. Maybe just one quick follow-up. What do you think is driving the attrition of the experienced senior health folks?

I believe several factors are at play. There's a general disruption in the marketplace and the economy, which Alison mentioned. Many people are facing financial difficulties, making them more inclined to seek alternative jobs that offer greater potential and opportunities. We haven’t pinpointed a single specific issue. Of course, we are examining our retention strategies, compensation, and other benefits to ensure we remain competitive. There hasn’t been one particular element that we can quickly address; it’s simply a challenging environment in which we are operating.

And the next question comes from the line of Maxwell Fritscher with Truist Securities.

I'm calling in for Mark Hughes. As kind of a broad question about the recruiting environment. It seems as though there is some opportunity for growth considering the payroll numbers from the labor department came in a little cooler than expected, seems like it should be maybe a catalyst, any thoughts there?

Yes, Maxwell, it's interesting. The response I was giving to Suneet about senior health relates to our employed sales force at e-TeleQuote, where there is significant competition for employees. Interestingly, economic disruption leads to more individuals seeking alternatives. Those looking for an alternative to their senior health sales position reflect a broader trend, which actually aids Primerica's overall independent salesperson recruiting. Thus, the dissatisfaction affecting our ETQ business serves as a boost for our overall sales force recruitment, which presents an interesting contradiction. Our recruiting is not directly reliant on current employment conditions. People do not come to Primerica seeking a paycheck for the next Friday; they are looking for an opportunity to develop over several years. Therefore, we don't generally face direct competition tied to labor market conditions, especially when that tightness stems from lower-paying jobs where employees are underemployed. This environment is ideal for Primerica to expand our sales force, as many individuals are frustrated and seeking alternatives that give them control. This is the appeal of our entrepreneurial opportunity. We're observing strong interest in this environment, even as the employment market fluctuates between tight and loose. As long as there are many discontented employees, we can recruit large numbers at Primerica, and there are indeed many available. Our recruitment of the Primerica sales force is not as directly affected by labor market changes as it may seem. Good. And if I could circle back around to the questions about rollovers, about 1/3 of our U.S. mutual fund sales volume comes from 401(k) rollovers. And I believe Ryan had asked that question. So Ryan, if that's helpful, I thought I'd give you that stat about 1/3 of mutual fund volume is 401(k) rollovers.

And ladies and gentlemen, at this time, there are no further questions. And that concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.