Primerica Reports Second-Quarter 2010 Results
Primerica Inc. (PRI—NYSE) announced net income was $22.0 million for the second quarter of 2010, or 29 cents per diluted share. Total revenues were $234.3 million for the second quarter of 2010. Net operating income was $37.2 million, or 49 cents per diluted share, for the second quarter of 2010, compared with $45.4 million for the second quarter of 2009. Recruits increased by 13.6 percent in second quarter 2010 compared to the same period a year ago, and sequentially increased by 12.3 percent compared to first quarter 2010 due to positive momentum generated from the company’s IPO and the new equity-based salesforce incentive programs.
“I am very proud of our salesforce and the recruiting momentum generated out of our successful IPO,” said John Addison, Chairman of Primerica Distribution and Co-Chief Executive Officer of Primerica. “Second quarter 2010 was the highest recruiting quarter in the history of the company, and we are working hard to support and motivate our leaders and get these new recruits licensed as they establish the foundation of the new Primerica.”
Primerica, headquartered in Duluth, Ga., is a leading distributor of financial products to middle-income households in North America with approximately 100,000 licensed representatives. The company and its representatives offer clients term life insurance, mutual funds, variable annuities and other financial products.
If the history of financial services direct seller Primerica were captured in a book, its latest chapter would have opened on April 1. For Primerica, that wasn’t April Fools’ Day. It was Independence Day—the day of its initial public offering (IPO), one of the most successful Wall Street has ever seen.
It also gave Primerica an opportunity to create a case study in how a top-tier direct seller creates a once-in-a-lifetime special event that celebrates both the company and its salesforce.
The largest financial services marketing organization in North America, Primerica had been a subsidiary of banking behemoth Citigroup and its predecessor companies since the late 1980s. But as banks came under scrutiny during the economic crunch of the last few years and the regulatory climate changed, Citigroup’s organizational structure changed in response. Primerica wasn’t a bank, and its fit within the company became, in the words of Primerica co-CEO John Addison, “a little more challenging.” Primerica’s executives and Citi’s managers began discussing the company’s long-term strategy, seeking the right result for both entities. The process spanned about three years.
“It was obvious to everyone that our business could flourish better as an independent company in the financial services industry, but trying to get that accomplished during the credit meltdown and everything that was going on in the industry and with Wall Street, well, we couldn’t have been trying to do it at a more difficult time if we had chosen it,” Addison says.
For example, at one point a positive transaction was imminent. The next week Lehman Brothers fell and the financing and economic structure fell apart.
In early 2009, Primerica was scheduled to take 1,500 couples on an incentive trip to the Atlantis resort in the Bahamas. The timing corresponded to when Wall Street firms were under great scrutiny for meetings and conventions. Citi made the decision to cancel all incentive trips, including Primerica’s.
“This was a point where it became clear to all parties that a transaction was necessary now. Citi saw this as well as Rick (co-CEO Rick Williams) and I, and we all agreed to push the transaction forward,” says Addison.
Co-CEOs John Addison and Rick Williams on the floor of the New York Stock Exchange, April 1, 2010.
Within a few weeks, discussions about making Primerica a separate entity were under way. Premier private equity firm Warburg Pincus agreed to invest $230 million in Primerica stock. The Primerica IPO train was gaining speed. Addison, Williams and other Primerica executives started their “road show,” making presentations to the world’s top money managers in 14 cities over 11 days. More than 200 institutional investors in five countries participated in more than 65 presentations of the Primerica business model, and 96 percent of them chose to invest, including eight of the 10 largest mutual funds in North America. By the time everything came together and the stock price was being set on March 31, investment bankers were calling it one of the most oversubscribed deals they had ever worked on. On March 31, the night before the bell that opens trading, the IPO price was set at $15.
“We were standing in the pit on April 1, and the price kept going up. It took them 30-plus minutes to open the stock. When it opened, it was at $19.15,” Addison says. “24.6 million shares were sold in the IPO. It was incredibly emotional.”
At most companies in any industry, the rocketing stock price would have meant significant profit for the few company executives who were given the right to purchase shares at the initial price or who received grants of company stock. But Primerica didn’t forget the people that made the company great—its representatives that sell the company’s term life insurance policies and mutual funds, as well as its employees. In connection with the IPO, the company put 5 million shares into the hands of key members of its salesforce.
“One of the things we fought so hard for in the process was having a significant allocation of equity in the transaction for our salesforce,” Addison says. “We were able to deliver significant amounts of shares that they now own in their company—not a division of another company, but our own company.”
Throughout the process Addison and Williams had kept Primerica’s field salesforce and employees as informed as they legally could. And on Day One of its independence, it invited top earners to New York to be part of the celebration. Even that wasn’t as easy as it sounds.
“You don’t know when an IPO is going to happen until it happens,” Addison says. “You don’t know six months out that this is the date. A lot is driven by market conditions and regulatory approvals. There are many moving parts.”
A Celebration for All
But knowing that the event would happen and feeling strongly that representatives had to be part of it, Primerica had a contest that let them earn their way to New York for a day of celebration. Winners got to see the 30-foot high, 80-foot long Primerica sign on the front of the New York Stock Exchange. About 60 couples and individual representatives—the company’s Million-Dollar Earners—were at the Exchange for presentations and to share the excitement as Addison and Williams hit the gavel for the closing bell. Then 1,000 representatives and their partners attended the evening’s dinner and subsequent IPO celebration in the Waldorf Astoria’s Grand Ballroom. Primerica held a simulcast of the event to agents’ offices across the country so they could join the celebration and participate in the emotional high of the whole day and all it meant for the company’s future. Stock exchange officials said no other company had ever done an event of that magnitude.
“We wanted to make sure that this was an inclusive, not an exclusive opportunity,” Addison says. “For most companies, ringing the bell is an interesting experience to do for a handful of executives. We wanted to make sure that we transferred that to all stakeholders in our business. Our key leaders were part of that experience. The reality of the future of our business is that we must build and grow our distribution. The people who put themselves on the line every day and live on commissions—we wanted them to be a part of that magical moment.”
That partnership between the company and its representatives is symbolized in Primerica’s new logo. The three rings—one red, one white and one blue—stand for the representative, the client and the company. And the company’s new slogan, Freedom Lives Here, reflects its continuing commitment to creating financial freedom for its 100,000 licensed sales representatives who assist their clients in meeting their needs for term life insurance, mutual funds and other financial products. It also reflects its mission to create financial freedom for its clients. As it has from the beginning, Primerica focuses on households with $30,000 to $100,000 of annual income, representing approximately 50 percent of households. That target audience underscores Addison’s favorite phrase: “We’re not a Wall Street company; we’re a Main Street company.” Through its subsidiaries, Primerica currently insures more than 4.3 million lives, and more than 2 million clients maintain investment accounts through the company. In 2009 alone, the company paid $933 million in death claims to its clients, averaging payments of $2.5 million daily.
Headquartered in Duluth, Ga., an Atlanta suburb, the company has 1,700 employees at its home office and 300 more in other locations. It’s a place where people stick around. The tenure of the company’s top 300 officers and directors averages 18 years. Some 10,000 sales representatives have stayed with Primerica for more than 20 years. Both Addison and his co-CEO Rick Williams have spent most of their careers with Primerica and its predecessor companies, and they were named co-CEOs in 1999.
“We’ve developed a very experienced, knowledgeable, talented team,” Addison says. “That can’t be replicated. That’s one of the reasons the market was so receptive. This is all I’ve ever done, and what a great experience it has been. I learned so much from Art Williams.”
Williams—no relation to Rick—was the founder of A.L. Williams & Associates, from which Primerica grew. He forged the concept that fueled the company: Buy term and invest the difference. That idea was the antithesis of what the life insurance industry sold in the 1960s and 70s, but Williams thought it was right for middle-income Americans. So he and 85 other people started the company in 1977. They took the concept of providing financial services to middle-income families and married it with the direct sales business model. A.L. Williams became the largest writer of individual life insurance policies in the United States in 1984, when Williams sold the company to Primerica, which eventually became Citigroup. Williams stayed with the company until 1990.
Throughout the company’s various chapters, that original philosophy has remained. Addison says that the company’s No. 1 goal now is growth in the size of its distribution system—licensed life insurance and securities sales force. Equally important is growth in the cash flow to its salesforce.
“Our goal is to build the number of financially free families in North America,” he says. “By building that, you ensure the future of the company. The success of our stock is inextricably linked to growth in the size of the salesforce and the growth of their incomes.”
As noted by many industry publications, Primerica is the one company that has figured out how to effectively distribute financial products to Main Street families. Primerica’s salesforce is made up of teachers, firefighters, police officers and others who are cornerstones in their community, but whose paychecks don’t reflect it, he says. To become a Primerica representative, new recruits take a different route than they do at most direct selling companies. The first step is to begin the licensing process to sell life insurance. The process varies by state, but once it’s complete, sales representatives earn significant income from each term life insurance sale. On average, that requires 20 to 40 hours of pre-licensing education. Then they must pass the state licensing test.
If the representative also wants to sell mutual funds to help their clients “invest the difference,” additional education and licensing are required. Primerica supports the agent’s efforts through its powerful Primerica Online web system, an intranet that delivers not just company information, but an international field-production leader board that is updated daily. It is also rich in the subjects that help Primerica representatives serve their clients.
At the same time new representatives are pursuing their licenses, they begin field training with someone who shows them how to sell, how the process works and how to build a team.
Sales representatives use the company’s proprietary Financial Needs Analysis (FNA) tool and an educational approach to demonstrate how Primerica products can assist clients in providing financial protection for their families, saving for retirement and managing debt. Primerica’s investment accounts can be established with as little as a $250 lump sum contribution, or a monthly bank draft of $25, both among the lowest thresholds in the industry.
“You don’t make money from Day One, but there’s more compensation in life insurance than in a consumable,” Addison says. And representatives who complete the process reap the rewards. “If you could blink your eyes and have a license, we’d love that. But the reality is that people are paying some price, and being able to accomplish something makes you tougher. It makes you perform better.”
That combination of personal investment and financial payback results in a high number of sales representatives staying with Primerica year after year, working either part time or full time. Virtually all start part time. They run their businesses while continuing other full-time jobs, earning supplemental income from commissions on the sale of term insurance policies that provide more coverage but have lower monthly premiums than whole life policies. And Primerica sells more term policies than any other company in the industry.
“Our flagship product and the cornerstone of our business is and always will be ‘buy term and invest the difference’ term life insurance and investments,” he continues. “Fewer Americans today have life insurance than in 1975. Most sales are to people who have no life insurance, making sure you’re properly protected in case something happens to the family’s primary breadwinner. We’re also looking at additional things to add to our business that add to our role of providing common-sense solutions to Main Street North America.”
Addison adds that the company’s business opportunity is just as important as its products. He says that recruiting has remained strong, and the company looks forward to drawing huge crowds to its next convention, the first since 2007. It will take place at the Georgia World Congress Center in Atlanta on June 15-18, 2011. Show organizers expect more than 50,000 attendees, generating an economic impact of more than $57.8 million. Primerica’s representatives from all 50 states, Canada and Puerto Rico attend the convention for professional development and they value it as an investment in their businesses. The return of the convention illustrates the advantages of Primerica’s independence and its confidence in the future.
“One of the things that’s great for us is we are a financial powerhouse with incredibly strong capital ratios,” Addison says. “The fact that we’re now not part of anything, we’re our own company, we can step back and chart our own course, destiny and future—that is a fundamental change for our company. Our mission really hasn’t changed, but our horizon has changed. Our 100 percent focus is on the future of this business. We’re working with our salesforce, our leaders and our home office leaders to chart that course, which we believe is incredibly exciting.”