Primerica, Inc. (PRI) Earnings

Management highlights

- Overall Financial Performance * Year-over-year adjusted operating revenues grew 8%, adjusted net operating income grew 11%, and adjusted operating EPS increased 17% to $6.41. EPS included a 15 cent per diluted share benefit from a tax equity investment. * Return on adjusted equity increased 90 basis points year-over-year to 33.1%. * The company returned $173 million to stockholders in the quarter ($135 million in share repurchases, $37 million in dividends), bringing year-to-date total return to $352 million. - Distribution & Sales Force Updates * Q2 2026 recruiting increased 2% year-over-year, supported by a reduced licensing fee promotion in April. However, new life license volumes and total representative counts remain below prior year levels due to a natural lag between recruiting and licensing, and cumulative low recruiting from prior quarters. * The 365-day countdown to the 2027 50th anniversary convention launched July 6, with discounted licensing fees and targeted incentives to boost sales force size and productivity. Full-year 2026 sales force size is projected to be flat to down 2% compared to 2025. - Product Segment Operations * Insurance: Estimated annualized issued premiums fell 9% and issued policies fell 12% year-over-year, pressured by ongoing economic stress on middle-income families. Q2 productivity improved to 0.18 policies per licensed representative, up from Q1 2026 but still below historical levels. * Investments: Total security sales grew 23% year-over-year, with managed account sales up 43%, mutual fund sales up 20%, and variable annuity sales up 17%. Assets under management reached a record $140 billion (16% year-over-year growth), with $397 million in net client inflows during the quarter. * Mortgage: U.S. mortgage loan volume grew 13% year-over-year, supported by over 3,600 licensed representatives; Canada referral activity grew 11% in favorable market conditions. - Balance Sheet & Investment Portfolio * The investment portfolio remains well diversified with an average credit rating of A. Net unrealized losses fell to $140 million at quarter end from $154 million at the end of Q1, with losses attributed to interest rate movements rather than credit quality concerns, and the company intends to hold assets to maturity.

Guidance

- Full-year 2026 issued term life policies are expected to decline by mid-single digits, with improving year-over-year comparisons in the second half of the year. - Full-year 2026 adjusted direct premiums for the term life segment are expected to grow approximately 3.5%, with a benefits and claims ratio around 58%, DAC amortization and commissions ratio of 12-13%, and operating margin of approximately 21% (excluding annual assumption review changes). - Full-year 2026 ISP sales are projected to increase 10-15% year-over-year. - 2026 full-year consolidated expense growth is expected to remain 7-8%, with 10-12% expense growth in Q3 2026 and 6-7% growth in Q4 2026 due to the timing of technology project execution. - Q3 2026 effective tax rate is expected to be ~23%, Q4 2026 effective tax rate ~22, with additional tax benefits from prior tax equity investments recognized across both quarters.

Segment performance

1. Term Life Insurance Segment: Operating revenues were flat year-over-year at $444 million, with adjusted direct premiums up 3.4%. The segment had an operating margin of 21.3% in line with prior guidance. It contributed approximately 58% of consolidated revenues (down from 63% year-over-year), and maintains a fee-like financial profile after mortality risk reinsurance that reduces earnings volatility. 2. ISP (Investment Solutions) Segment: Segment revenues grew 21% year-over-year, pre-tax operating income grew 31% year-over-year. It now accounts for approximately 42% of consolidated revenues, up from 37% in the prior year. Sale-based revenues grew 17% in line with commissionable sales growth, while asset-based revenues grew 28% outpacing 19% growth in average client asset values, driven by growth in higher-margin recurring fee advisory products. 3. Corporate and Other Segment: Recorded pre-tax adjusted operating income of $3.8 million, up from $2.7 million in the prior year quarter. The improvement was driven by higher net investment income from a growing invested asset portfolio.

Risks & headwinds

- Economic uncertainty and persistent cost of living pressure on middle-income households continues to suppress term life insurance demand and consumer ability to purchase new coverage. - Lower recruiting levels from prior quarters have created a lag that suppresses current licensing and total representative counts. - Equity market fluctuations can impact assets under management and investment segment revenue growth. - Multi-jurisdictional regulatory variation in licensing requirements creates ongoing operational complexity for improving new recruit licensing pull-through rates. - Macroeconomic downturn risk creates a need for maintaining elevated holding company cash reserves to absorb unexpected shocks.

Analyst Q&A

• Q: Full-year 2026 term life issued policy guidance calls for a mid-single digits decline, implying improvement in H2 2026 after weak H1 results. What drives this expected inflection, and what would drive a sustained long-term uptick in term sales? /

  A: Management expects improvement from both easier year-over-year comparisons and early signs of firming in sales force growth and term sales. Economic pressures on middle-income family budgets have started to ease outside of gasoline price volatility, and the company has adapted its operations to the current environment. The combination of these factors supports expectations of improving performance in the second half. (211 characters)

• Q: Holdco cash has built well above operating needs; what is the target cash level, and how do you plan to deploy excess capital? /

  A: Management maintains a strong Holdco cash position first to build resilience against potential macroeconomic downturns, with capital return plans set based on multi-year stress testing. Excess capital is also used to fund ongoing investments in the company's fee-based distribution growth model. The board regularly evaluates additional opportunities to generate returns for shareholders with excess capital. (197 characters)

• Q: Does the three-year gap between conventions, compared to the typical two-year gap, contribute to current softness in life sales and sales force growth? What impact should we expect from the upcoming 2027 convention? /

  A: Management states the primary driver of softness is fundamental: persistent pressure on middle-income family budgets after years of high inflation. The convention delay is a secondary factor that has delayed the typical catalyst of the event, rather than a core cause. Convention excitement is already driving urgency and incentives for sales growth, with strong pre-convention activity expected to drive momentum, followed by additional product and technology launches at the event. (262 characters)

• Q: With slower term life growth, will the company adjust expense spending to match top line trends until growth rebounds? /

  A: Core premium from the existing in-force block remains stable, offsetting slower new policy issuance growth. The company is prioritizing long-term investments in technology, product improvements, underwriting capabilities, and sales force support to capture future growth, rather than cutting expenses. Management notes it remains sensitive to costs, but will not cut investments that could positively impact long-term momentum as conditions improve. (210 characters)

• Q: What are the second half 2026 priorities for sales manager incentives? Is the focus on recruiting, productivity, or sales? /

  A: The company is using the 2027 convention countdown to add significant growth-focused recognition and incentives across multiple areas, tailored to the different focus areas of its diverse sales force. The primary focus is growing the insurance business (approaching a milestone of $1 trillion in force face amount), while also recognizing strong investment segment results and emphasizing overall distribution growth, which is the company's core competitive advantage. (219 characters)