Primerica Inc
NYSE:PRI
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
201.5
304.93
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Primerica Inc
You don't have any saved screeners yet
Good day. My name is Allison and I will be your conference operator today. At this time, I would like to welcome everyone to the Primerica Q1 2020 Earnings Results Conference Call. [Operator Instructions] Thank you.
At this time, I would like to turn the conference over to Nicole Russell, Senior Vice President of Investor Relations. You may begin your conference.
Thank you, Allison and good morning everyone. Welcome to Primerica’s first quarter earnings call. A copy of the press release, along with materials that are relevant to today’s call, are posted on the Investor Relations section of our website at investors.primerica.com. 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 does not assume any duty to update or revise these statements to reflect new information. We refer you to our most recent Form 10-K filing, as modified by subsequent 10-Q filings, 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 the earnings press release and 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. I trust that all of you, your families and your co-workers are safe and healthy as we all continue to navigate through the COVID-19 disruption. Today, Alison and I will provide a recap of our first quarter with comments on how the COVID-19 pandemic impacted these results. After this update, we will focus in more detail on how we are positioning our business to succeed during the stay-at-home orders and beyond by capitalizing on our unique strengths in adapting quickly to overcome obstacles.
First quarter results were strong, driven by growing momentum during January, February and the first half of March. While the emergence of the COVID-19 crisis in mid-March has brought about some significant changes to our business processes, the disruption occurred late in the quarter resulting in minimal impact to many of our metrics.
On Slide number 3 of the presentation, adjusted operating revenues were $541 million, up 10% compared to the first quarter of 2019, while adjusted net operating income was up 13%. Diluted adjusted operating income per share was $2.05, which represents an 18% increase year-over-year and ROAE was 21.8% compared to 20.3% in last year’s first quarter. On the capital deployment front, we repurchased $90 million of our common stock during the first quarter. Given the strength of our capital and liquidity position, which Alison will discuss later in the call, we believe we will meet our targeted repurchases for the year of $250 million.
Turning to Slide 4, we ended the quarter with a total of 130,095 life -- life-licensed representatives. Recruiting trends remain positive in the first quarter, boosted by independent business application fees discounted to $49 for the first 20 days of January and the last 11 days of March, which drove recruiting activity. We recruited a total of 84,762 new reps during the quarter, which represents a 34% increase compared to the first quarter of 2019. Licensing trends were also robust with an additional 10,599 new life licenses, a 5% increase compared to the same period last year. However, the stay-at-home orders did have a negative impact on the first quarter licensing totals due to the need to postpone live licensing preparation classes and testing providers closing their testing centers. During my comments on the longer-term COVID-19 impact, I will expand on this issue.
On Slide 5, we see the result of our extraordinarily strong start to the year reflected in the numbers of policies issued. During the first quarter, we issued 71,318 new life insurance policies, an 11% improvement compared to the first quarter of 2019. Productivity at 0.18 policies per life insurance licensed representative per month improved noticeably compared to the 0.16 productivity rate in the first quarter of 2019. More importantly, the quarter also marks the reversal of the deceleration trend in productivity experienced over the last few years.
Our Investments and Savings Product segment had another solid quarter. Results for this segment are highlighted on Slide 6. Record sales of $2.2 billion during the quarter increased 28% compared to the first quarter of 2019. Variable annuities remained the largest contributor to the year-over-year growth due to the attractive nature of living benefits and income guarantee features.
Mutual funds and managed accounts also saw strong continued demand. Client asset values, which include approximately 75% equities and 25% fixed income ended the current quarter at $59 billion, down 7% year-over-year and down 16% compared to our all-time high of $70.5 billion set on December 31, 2019.
The sharp decline in assets is due to the severe market correction that began in mid-February. Average client asset values, which more closely correlate to revenues, increased 8% to $66.6 billion year-over-year. During the quarter, net inflows were $543 million, which reflects strong year-over-year sales growth and redemptions that were in line with the growth in client asset values. We believe our redemption rate remains among the lowest in the industry. Now with the quarter behind us, let me share with you our plans to preserve our momentum during this health and economic disruption.
Turning to Slide 7, our business is prepared for a range of crisis situations with robust business continuity plans that allow us to respond quickly and pivot to a remote work setting. Within a short period, we were able to successfully transition over 90% of our employees out of our home office buildings, while implementing a significant health and safety protocol to protect those still working in our offices.
In addition, we’ve continuously advised our sales force on appropriate safety precautions. As we built our business over the past 43 years, we’ve deliberately added capabilities, which both improved productivity and also offer optionality in the event of major marketplace changes. For example, prior to the emergence of COVID-19, 95% of business transactions were submitted and processed electronically from the point-of-sale, including applications for new recruits, life insurance and investments.
While our representatives traditionally completed the sales process in person, the turbo app technology we use allows for remote electronic signatures and remote delivery of all required disclosure documents. The digital transaction capability has been quickly combined with digital client interaction capability using web conference tools widely available to our sales force and the clients.
By using our digital transaction technology and interacting with clients digitally rather than in person, we’ve increased our remote recruiting and sales from about 5% of total prior to the stay-at-home orders to a point where the clear majority of trends of interactions is being done remotely today.
One to Primerica’s key advantages in leading our sales force is our communication system. During this crisis, we’ve expanded our technology to add significant web conferencing options to our broadcast TV, online, social media and print communications. This combination has allowed us to provide direction and confidence to our sales force to keep them focused and active during this chaotic period. Our greatest strength, especially in times of disruption, is our sales force.
As entrepreneurs, they are uniquely flexible, adaptable and innovative. In addition, our leadership culture creates a natural reaction to crisis that include strong communication and clear direction. We’ve seen our sales force place top priority on the safety and health of their teams and their clients. They have also adapted to remote interaction capabilities for recruiting and training their teams, while continuing to serve clients.
Our business has historically been considered a face-to-face model. Today we see that because of our field force we can succeed as a remote model as well. While Primerica continues to succeed, we’ve adapted certain of our business processes to the current disruption. Let me provide a few examples.
Unlike recruiting, where we have a significant degree of control, the licensing process relies heavily on third parties for testing and state or provincial agencies for licensing. Since most test centers are closed due to the pandemic, today -- delays in the licensing timeline could result in recruits losing interest prior to completing the licensing process. We’ve taken a multi-faceted approach to dealing with this challenge.
First, we extended and enhanced our field training bonus program, which encourages new recruits to begin the business building process. Second, we’ve raised the profile of our non-licensed products so that recruits are more aware of options to earn income during the extended life licensing process. Third, because live licensing classes are now limited, we’ve expanded the reach of online offerings for licensing exam preparation. Finally, we’ve taken a leading role within the industry to request that states offer alternatives to the traditional licensing process such as temporary licenses and remote testing options.
We’re not yet in a position to predict the full impact of this crisis on the growth of our sales force. Recruiting is exceptionally strong aided by special incentives, new licenses are being negatively impacted currently and the long-term impact of new licensing alternatives is not yet known. For now, we are focused on keeping energy levels high and recruits engaged while keeping them focused on ultimately becoming permanently life-licensed. We are already developing our plan for dealing with the backlog of state and provincial exams that is building during the delay.
COVID-19 is also impacting our issued life policy process. The traditional underwriting methods, which rely heavily on third parties for paramedical exams, have been scaled back. We are working on alternative solutions to help clients navigate through the process such as having them complete paramedical exams at clinics rather than in home. In addition, our rapidly underwritten life product TermNow can provide an appropriate solution for many clients.
This product, which has been available since 2011, is a fully underwritten product that relies on database underwriting with the face amount limited to $300,000 or less. Historically, TermNow represented approximately 65% of U.S. policy sales volume. We’re seeing increased demand for this product with close to 75% of U.S. volume now being directed toward TermNow.
We’re also assisting our existing policy holders who are experiencing financial hardship due to COVID-19. We work with these clients on the timing and frequency of premium payments to provide as much flexibility as possible. While many are able to find a premium payment plan that is convenient during the crisis, it is too early to know how persistency will be impacted. We are monitoring this situation closely.
Now let’s take a moment to talk about the future. Our ability to quickly respond to the crisis has played an important role in sustaining momentum. Results so far in the second quarter suggest around a 8% quarterly increase in recruiting as both second quarter periods benefited from the $49 discounted IBA fees and a 5% increase in policies issued year-over-year due to a strong start in April. High levels of field leadership engagement, strong field training activity of new recruits and our ability to issue TermNow policies in spite of underwriting disruptions are contributing to sales strength.
Our ISP business had a record first quarter, but we’ve begun to experience headwinds in April. We expect second quarter sales to be approximately 15% lower than second quarter 2019 as market disruptions continue to cause a headwind. Our reps have successfully transitioned to digital transactions combined with remote client interaction technology to serve their clients in our ISP business as well. As we look beyond the month of April, we believe we’re well positioned to withstand the temporary impact of the current disruption, although it is still too early to predict the full impact of a potential long-term economic downturn.
We expect to refine our projections for recruiting in the size of our sales force as well as Term Life and investment sales once the economy reopens. While these are unquestionably difficult times for our clients, our sales force and our home office employees, we remain steadfast in our mission to help middle-income families become properly protected and financially secure. The health and well-being of our people as our top priority. We are leveraging technology in new and innovative ways to reach clients and new recruits and we’re making full use of our communication tools to keep the field informed and motivated. In these confusing times, clients’ needs for our products and services have never been greater.
With that, I’ll now turn it over to Alison.
Thank you, Glenn, and good morning, everyone. Let me start by walking you through the quarter’s key earnings drivers by segment. As I do so, I will highlight where we have seen or expect to see an impact from COVID-19. I’ll follow this with a review of companywide operating expenses, and will close with a discussion on our invested asset portfolio and our strong capital and liquidity position.
Starting with Term Life on Slide 8, first quarter operating income before income taxes grew 18% year-over-year to $83 million, while operating revenues increased 10% to $328 million. Adjusted direct premiums grew 11%, driven by outperformance in issued life policies and strong policy persistency over the last several quarters. Benefits and claims were generally in line with the prior year and historical trends as with the benefit and claims ratio at 58.1%.
The DAC amortization ratio at 15.8% was considerably lower than the prior year’s ratio with the main driver being persistency. As I discussed last quarter, during 2019, we saw persistency return to historical levels after a period of weakness in 2016 and ‘17. This trend continues in the first quarter of 2020 and was the largest contributor to Term Life margins increasing by 220 basis points over the prior year period.
Turning to Slide 9, COVID-19 and its impact on mortality rates in the economy will likely affect the Term Life segment’s results as 2020 progresses. While we cannot predict precisely what will happen, the insights that follow should prove useful in formulating a range of outcomes. Glenn has already talked about the sales-related dynamics, so I will focus on lapses and mortality. The recent spike in unemployment could pressure disposable income for the middle-income market, potentially increasing lapses and leading to write-offs of both DAC and benefit reserves. Looking back at the Great Recession from 2007 to 2009, our lapses in the first two policy duration, where DAC is the largest, increased by about 10% and for the next several durations by about 15%.
With the favorable sentiment around owning life insurance given today’s circumstances, we believe an increase in lapses will likely be lower than what was experienced in 2009. As disclosed in our 10-K, if lapses increased by 10% across all policy duration, we estimate that DAC amortization will increase by $23 million and benefit reserve increases will be lower by $14 million for a net impact of $9 million on a full year basis.
As background for framing our COVID-19 mortality exposure, in 2019, our total claims paid were $1.4 billion. Given our extensive use of reinsurance, our net claims paid were about $180 million with an average net claim of $11,000. Our historical average issue age is 38. Therefore, our policyholders tend to be relatively young. At year-end 2019, only 1% of face amount in force and an attain age of 70 or higher and 12% at 60 or higher.
COVID-19 death rate predictions are evolving and the estimates are varied. For demonstration purposes, let’s say there are 100,000 COVID-related deaths in the U.S. and Canada. For the total population of 357 million, this equates to an additional 275 deaths for 1 million people. Primerica insures approximately 5 million lives and our claims increased commensurately without any regard to age distribution. We would expect about 1,375 additional COVID-related claims. Of our average net claim of $11,000, this would equate to about $15 million increase in Term Life net claims. Through April, we’ve incurred an estimated $5 million of COVID-related claims with a disproportionate share coming from New York.
As we’ve shown in the past, our adjusted direct premium growth is highly predictable, and we do not believe a change in sales trajectory or lapses for the rest of 2020, especially given the strong results in the first quarter, will significantly reduce the ADP growth projection provided last quarter. However, given the level of uncertainty around lapses and mortality levels, we cannot predict what our Term Life margins will be for 2020 tt this time.
Turning next to the ISP segment on Slide 10, operating revenues increased 14% to $185 million, while income before taxes of $48 million grew 12% year-over-year. Sales-based revenue and commission expenses grew in line with the 20% increase in revenue generating product sales, while asset-based revenues and expenses increased in line with the 8% growth in average client asset values. Given the timing of the market downturn in the quarter, the only notable impact on the segment’s financial results was an acceleration of Canadian segregated fund DAC amortization of about $2 million.
While the first quarter’s average client asset values were $66.6 billion, client asset values at the end of the quarter were $59 billion, approximately 11% below the average. While asset values rebounded in April to an estimated $63 billion, the downturn will create headwinds in asset based net revenues in the second quarter.
Our financial supplement shows that asset-based net revenues defined as asset-based commissions and fees, less sales force commissions, third party administrative and advisory fees and segregated fund DAC amortization, is about 5 basis points per quarter as a percentage of average client asset values. In other words, for every $1 billion change in average client asset values at today’s product mix, we we’d expect to see $500,000 quarterly or $2 million annual change in asset based net revenues. If client asset value stay at the current April levels for the remainder of the quarter, we’d expect second quarter asset-based net revenues to be about $1 million lower than the prior year second quarter.
Similarly, our sales-based net revenue as a percentage of revenue generating sales is about 1.3% at today’s sales mix. For every $100 million reduction in revenue generating sales, we’d expect about a $1.3 million decline in net sales-based revenues during the period. Based on the 15% estimated year-over-year decline in second quarter sales that Glenn mentioned, we expect sales based net revenues to be $2 million to $3 million lower than the prior year’s second quarter.
Moving to our Corporate and Other Distributed Products segment, adjusted operating revenues declined $2 million or 6% and adjusted operating losses before taxes increased by $4 million to $20 million for the quarter. The lower revenues were almost entirely due to lower allocated net investment income as more NII was allocated to the Term Life segment to support growth in the block of business. The loss for the segment also increased due to a $1.5 million allowance for reinsurance benefits and claims on a discontinued line of business ceded in 1995 to a counterparty that was ordered into receivership this year.
On Slide 11, consolidated insurance and other operating expenses were $115 million during the first quarter of 2020, representing a $5.5 million or 5% increase year-over-year. Approximately half of the increase was due to ongoing enhancements to technology-related capabilities. The remainder was due to growth in the business, including employee-related costs. At this point, we are moving forward with the business investments we described last quarter and are not revising our full-year 2020 expense forecast.
Today, unforeseen operating expenses related to COVID-19 such as facilitating remote work plans have been largely offset by reduced travel and other general operating expenses. We may incur lower third-party administrative and advisory fees as factored into our net revenue ratios in our ISP segment. If economic conditions worsen, we will reevaluate our planned expenditures for the year and will provide a further update as necessary next quarter.
Let’s move now to a review of our invested asset portfolio on Slide 12. Our focus on term insurance allows us to be less asset intensive and our ratio of invested assets in cash to adjusted equity as of March 31st was 2.5 times, much lower than others in the insurance industry. Cash flow testing does not generate any concerns under a wide range of stress tests due to our stable positive cash flows from the in-force life block, our low claims volatility from the extensive use of reinsurance and the lack of cash values in our policies. Our invested asset portfolio remains diversified across industries and issuers with an average credit rating of A, duration of approximately 3.6 years and only 3% exposure to below investment grade securities.
Let me highlight a few industry sectors that have been under pressure in the current environment. We hold about $130 million or less than 6% of our portfolio in energy-related public corporate and private placement investments with an average rating of BBB and an average duration of about 4.8 years. We hold about $54 million or just over 2% of our portfolio in air transportation-related exposure, of which only about $4 million is in direct airline debt. These air transportation-related exposures have an average rating of A-minus and an average duration of 4.6 year.
To frame the sensitivity of Primerica Life risk-based capital to ratings downgrade, we performed a hypothetical severe stress analysis assuming 15% of our A-rated bond and 25% of our BBB-rated bonds are downgraded. The result was a decline of 15 basis points in our estimated RBC ratio from 430% to 415%, which is still well within our target range of low to mid-400%. As conditions evolve, we will continue to evaluate our portfolio for credit issues and review our exposure. We remain committed to maintaining a strong capital and liquidity position.
Turning to Slide 13, liquidity at the holding company remains robust with invested assets and cash of about $270 million at March 31st. Additionally, we have full access to our $200 million revolving credit facility. Although at this time, we do not foresee any need to draw on it. Holding company’s general operating expenses are modest at $7 million per quarter, including interest charges of approximately $4.5 million.
While the headwinds facing our ISP segment will likely reduce the level of distributions to the holding company moving forward, strong dividend generation at Primerica Life gives us confidence that our capital and liquidity will remain more than adequate to meet our operating needs and capital deployment plans. We remain committed to our dividend, which at the current rate requires approximately $60 million per quarter, as well as completing our planned share repurchases of $250 million, $90 million of which was completed at March 31st.
With that, I will turn the line over to questions.
Thank you. [Operator Instructions] Our first question today will come from Andrew Kligerman of Credit Suisse. Please go ahead.
Hey. Good morning. Good morning and thanks to very comprehensive presentation. I guess, the first question is that you say you remain committed to share repurchases. You’ve got a full year target of $250 million, so it would kind of be the normal course of business. Even though it’s not normal, you’re going to act as you would in any year with regard to your share repurchase authorization. Is that the right way to think about it?
Yes. And we obviously gave that quite a bit of consideration as we look at our capital position and our ability to continue to generate capital out of Primerica Life. One of the benefits we’ve always talked about with our life insurance business has -- it has stable and predictable it is and how strong the cash flows coming out of that business are. We do feel that given that ability, we have more than sufficient capital and liquidity to continue with our plan. I will tell you that, as of now, we have already completed half of that plan. And so, we’ve got about $125 million left to go for the remainder of the year.
Excellent. Very, very helpful. Now, it’s interesting to see that your recruits were up a robust 34% year-over-year. And as part of that, the incentive was, I think, to cut the fees to join in half. And I recall you did that about a [year-and-a-half ago], and some of those recruits [indiscernible] the caliber that you were looking for, they weren’t productive and they didn’t stay on. So what gives you the confidence that this new crop might be different than what we saw some time back?
Yes. And again, that’s something that we study each time we do an incentive. And actually, Andrew -- I think it was all the way back in 2011 when we had a significant spike in recruiting after a convention with the $49 IBA fee and we were very disappointed in the lack of pull-through. And after that, we worked significantly on our licensing process. And when we’ve done this -- when we did this at the last convention for a brief period of time at the end of June and the beginning of July 2019, we felt like we got a much better pull-through. I wouldn’t characterize it as a lower quality of recruit, I would characterize it as a lower level of commitment. When you pay less, you can become -- you can come in and be less committed to following through.
But in any case, that follow through is absolutely critical to our business. And so, we did that last convention, we had good results in the second half of the year. As a matter of fact, I was very pleased with the way our year started in 2020. Actually we saw a significant shift in momentum at the very end of 2019, but it was really apparent in January, February and the first half of March, as I said in my prepared comments. We decided -- before we knew anything about the chaos we’re dealing with today, we decided to kick off the year and the new decade with a special promotion in the first 20 days of January, first 20 days of 2020, we did a $49 reduction.
And it’s amazing, $99 to $49, it’s not a significant amount of money for most people, but it does create an amazing amount of excitement when we combine that with some improvements or enhancements, I guess, to our field training bonus, [the two have] always created a lot of activity when we’ve done it. So we started the year with some of that activity and felt like that was probably the only time we would do that in 2020 until we got into March and the stay-at-home orders started to compound, and we felt like we knew it was probably our most reliable activity and excitement generator. And so we ran again for the last 11 days of March, and it continued.
And so, clearly that brings a lot of excitement, a lot of activity. Fortunately, we had to counterbalance that this time with being able to do business remotely rather than in person, so that was an interesting twist, but we were successful in that. And it’s clearly added to the excitement and momentum to generate momentum throughout our business, and activity throughout our business. You’re exactly right. We monitor carefully the pull-through rate, the added complexity now is the extended licensing time that will be created by testing centers being closed particularly and us not being able to do live licensing classes. So, we’ve got some real work to do and it’s very difficult to project [this is going] to come out. But there is no question in our mind that clearly it’s better to have this activity and these recruits to work with them to allow momentum to subside. And our momentum was strong even without the incentives.
In the month of February, for example, where we ran none of those incentives for recruiting, we still had 23% recruit growth in the month of February during the first quarter. So, this was kind of pouring gas on the fire, if you will. We have strong momentum and we added to it at the beginning and the end of the quarter.
I see. That’s very helpful. And then also, just -- it seems like your reps are quite adapted to technology and the like. And that’s reflected in your guiding to ISP sales being down only 15%. And I know that -- well, I guess, they have a licensing issue also. So, is it possible that -- and I think 15% is a pretty good outcome. Is it possible that we could see Term Life sale in that type of a range?
Well, I think that what is driving the ISP change is the market disruption. And so, you’ve got ISP sales that are down because of the uncertainty in the market first. And then also of course, as disposable income is pressured, that impact sales to a certain extent too, but people are generally more apt to take a wait-and-see approach while the market is up and down so radically.
So I think the dynamic for what’s driving our ISP business is a little different than what’s driving our Term Life Insurance business. On the Term Life side, as Alison commented on, we’re actually seeing more receptive clients. I think we’ve all stared at our mortality just a little bit during this time.
And so, people appear to be clearly more interested in having a conversation about protecting your family. But to go back to your comment on technology, I do think this is one of the things that people often miss from the outside looking in at Primerica is that we have had a strong technology direction for many, many years.
As I’ve said in my prepared comments, for many years, we’ve been doing transactions, as we like to say, from the clients’ kitchen table directly to the home office digitally in all areas of our business, 95%. And don’t forget that’s done on the device that a person has in their pocket when they become part of Primerica.
So we don’t have to provide hardware, we don’t have to provide training, it’s device agnostic. So if you’ve got a smartphone in your pocket, when you become part of Primerica, you can download our app and you’re ready to do transactions. The difference and the amazing thing about our adaptability was adding, what I call, client interactions -- remote digital client interactions through web conferencing technology like Zoom.
We had a foundation of that going on in our business, and it was used occasionally. But the swiftness with which our sales force adapted to use that in place of face-to-face interaction and combines it with that transaction technology was pretty amazing. And so that’s helping our business, helps our recruiting because it’s done that way. It helps our life sales with that natural momentum that’s been created by the health crisis. And it also helps our ISP sales even though we’re experiencing those headwinds due to market disruption.
Excellent, thanks very much.
Glad to help. Thank you, Andrew.
Our next question today will come from Dan Bergman of Citi. Please go ahead.
Good morning. Maybe first high-level question. If we do enter a period -- prolonged period of higher unemployment and slowing GDP growth, what type of -- even directional impact or do you expect that to have on your sales force growth over time. Now just given that most of your sales reps are part-time and commission-based, any thoughts on if you’d expect that type of environment to be a net positive or negative would be much appreciated.
Yes. Traditionally, we view that, Dan, especially a long-term downturn as a net negative. There are positives and negatives to both types of environment. I believe it was on the last quarterly call, we actually had a conversation, was the unemployment rate so low and employment so high, it was beginning to impede our recruiting. We’ve always felt like a strong economy was better for recruiting and for all of our business than a weak economy.
But even in times of weakness, there are people who still have the flexibility to start a part-time business and do that because they’re unhappy with their employment situation. But overall, taking all into consideration, we would say that a downturn for a long-term particularly generally creates a drag on recruiting and licensing in the size of the sales force.
So, as we look forward without any ability to predict how quickly, is it a V-shaped recovery, an L-shaped recovery, who knows at this point, that’s something that we’ll be monitoring and trying to revise our thoughts on that as we see both the kind of depth and breadth of the economic downturn.
Got it. That’s very helpful. And then, maybe moving over to the lifestyles, I just wanted to see if you can provide some color on the drivers of the bounce back and kind of average agent productivity in the quarter. I’m just curious if we should be thinking about that as more of a natural aversion toward the mean following a period of a little bit weaker results. Was it -- how much of a benefit did you get from the stronger recruiting result in the quarter or kind of other factors that impacted that? Any thoughts there would be very helpful.
Okay. Well, as we said, we had a very strong quarter and very little of that was impacted by the disruption at the very end of March. We’ve been working very hard for the last couple of years on regaining the kind of momentum that we had years prior to that, and it’s more of a natural cycle of our business.
We go through periods of extremely strong momentum and then we go through frustrating periods of plateau. And we really felt like we had some true strength in our business that was reflected in December, January and February and the first half of March, which by the way, I think, was a significant help in getting us into this period of disruption on a positive footing.
And so, I think, we had a lot of the right ingredients to better momentum overall. It’s not just the normal return to the median but some real growth trajectory in our business that I was very excited about. Of course, all of that is brought in the question because we don’t know exactly how we come out the other end of this, but clearly that was helpful getting us a good start into what we saw in the last couple of weeks of March and the results that we’ve experienced in April.
So, I think it was more than just return to the mean or to the media. I think we did have significant recruiting growth. It was coming through in strong licensing, which kind of got nipped a little bit at the very end because of the closing test centers and so forth, but it was strong. Life productivity overall was strong and investments productivity was strong. So I believe we’re actually seeing the results of our hard work in the first quarter. Certainly rather start the disruptive period from there then -- rather being flat or down, but just exactly how long all of this chaos goes on will determine how much momentum we’re able to sustain and for how long.
Got it. Very, very helpful. Appreciate your taking the question.
Absolutely.
Our next question will come from Ryan Krueger with KBW. Please go ahead.
Hey, good morning. Just hoping you could provide some additional color on the licensing process at this point. I guess, is it possible for new agents to get license at all at this point or is it completely dependent on things reopening?
Well, actually, Ryan, it’s dependent on which state or province they’re located in and what options have been created. So we -- at this point, the kind of mainstay of our licensing process has been to get our recruits into live licensing classes. Clearly there are no live licensing classes happening at this moment anywhere. Those have all been moved online.
And by the way, we’re getting very good uptake on participation on the online classes. It remains to be seen the comparable effectiveness of online versus live classes. We’ve done live classes because our history has been that those are more effective than online, although we offer both options, and both options are used.
So, we still have the capability to prepare those recruits for the exam. The challenges at this point, very few states and provinces are offering exams. Usually exams are offered by a third-party, an intermediary that the jurisdiction bids out the process and so forth. And so there are several of those vendors, and none of them are giving exams at this moment. Some have talked about reopening in May.
Some have talked about reopening at the end of May. And then -- and so, we are preparing the maximum number of people to be ready. We do have people going ahead and making exam, reserving exam dates in anticipation of reopening so that we don’t get kind of locked out with the rush that will be critical. These providers provide exams for all types of professions, not just for insurance, and they’re all going to be backlog when things reopen.
So, we are working on making sure that we get it close to the front of the line as it’s appropriate for us to be when they reopen. And then, we’re also pursuing the alternatives. As I mentioned in my remarks, we have been amazingly successful along with other members of the industry, but in many cases, we’ve been the tip of the spear in approaching states and provinces to offer alternatives that don’t require going through this traditional path of an exam at the beginning.
And so, a number of states -- I think, a number of -- just over half of the U.S. states now are offering a temporary licensed solution temporarily, which means if you meet all the other requirements but you’ve not yet tested, then you can have a temporary license and we’ll do the testing late. So that is clearly better than nothing. How effective that is long-term is not yet known, and that’s probably just something that’s temporary that in most states will go away after the COVID crisis is over. So we’re pursuing it, but we don’t believe it’s a permanent adjustment to the licensing process.
On the other hand, remote testing is a very, very interesting concept that a number of states and even FINRA has begun to adopt on the security side, which allows an applicant to test in their home through a proctored exam process. And there is an amazing security process that you go through with your proctor if you’re testing remotely.
But that is much more convenient, much easier to schedule, and it’s something that has just begun, and so we don’t know the outcome of it yet, but it’s clearly a positive direction that we believe will be beneficial to our business model far beyond the COVID-19 prices. So, remote testing is happening in some U.S. states already. On life insurance side, FINRA has begun testing it, and we’ve actually had some of our people involved in the test. And the Canadian provinces are discussing it.
And a few states have begun testing live. Again, there’s four or five states have actually begun their testing process again. We are pursuing all those avenues because we recognize that not just recruiting a lot of people as good as that is activity. We’ve got to pull them through the licensing process to grow our sales force. And so, we have pulled out all the stops to pursue every single one of those avenues and get the most -- the largest number of these recruits license as we’re capable to do so.
Thanks. And then, on persistency, have you seen any impact so far in April or is it just too early to tell at this point?
We obviously took a hard look at April. I do believe it will be too early to tell. That being said, what we have seen is the continuing favorable trends we were seeing in the first quarter and the fourth quarter of last year. So, at least through April, we have not seen any deterioration, and in fact we’re moving in a very positive direction, I do expect, as the quarter continues, to start seeing more lapsation just purely because of the economy.
Our next question will come from Mark Hughes of SunTrust. Please go ahead.
Good morning. The YRT premium, how does that impact your COVID claims? And then, the $5 million that you cite from New York, is that incremental, would you say, to what would normally be the underlying ratio or is that already factored in?
Okay. So two things. The -- whenever I talk about a net claim, that is factoring in the reinsurance recovery. So, in the case of the YRT, then 90% recovery, to the extent that policy was subject to YRT, which virtually all of them are. In addition, it would also cover any coinsurance coverage on the IPO-related coinsurance to the extent the policy was written prior to 2010. So, I hope that answers the first question.
On the second one, just to clarify one thing, I’d say there is a disproportionate amount of the $5 million is coming from New York, but certainly not all of that is coming from New York. The $5 million is the net estimated incurred exposure related to COVID-19. So, it includes things that are in the door that have been reported that we haven’t obviously received full death certificates for it.
So we’re still vetting to making sure they weren’t in fact COVID-related, and then also things that we would get into the technical terms incurred, but not reported IBNR, our estimate of IBNR through the end of April. So that is also a net number. That is not the gross amount we’d be paying the policyholders or the beneficiaries of the policies. It’s in fact the net amount we’d expose -- we expose to after reinsurance.
Can you say -- overall, have you seen a bump in mortality because of the extra COVID claims? Are you just highlighting these are the ones that are tied to COVID. And so, I think you said, yes, you’ve seen a bump in overall mortality?
Yes. And actually, just to clarify, the $5 million on discussing is what we would consider a bump from normal mortality levels. And we believe it’s related to COVID-19.
Okay. And then, on the recruits, how much has the lockdown been a motivation. if people have some time on their hands, this could be a good productive thing to do in addition to the incentives you’ve offered.
Yes. Like most things at Primerica, Mark, the cause and effect is always an interesting thing to try to determine. And there are always positives and negatives to every condition. And so, I would say that the lockdown has its positive dynamic that is being reported by our sales force in that people are more available, and therefore more likely to stop for a conversation. In many cases, they’re actually missing conversations, and so the acceptance of a Zoom invitation to have a discussion via web conference is probably being accepted at a higher rate than our normal recruiting interactions might have been before this. So there’s clearly a positive side to that. I think we have to be careful because who knows how long that change in human behavior will continue after the lockdowns are over. But clearly we’re seeing that now.
We’re also seeing more interest in discussions of life insurance itself, so both our opportunity and life Insurance discussions, I believe, have actually been helped by people bidding on having hit the pause button and having some free time and not a lot of other alternatives. So, we are enjoying that right now. We know -- without knowing how that might turn out, we felt like the incentives were a good thing to do.
The combination of the two has been very powerful to overcome some of the other difficulties of the time it takes to transition to understanding new technology and so forth that normally would interrupt momentum. It’s actually been kind of overwhelmed by those positives so far. And of course, we’ll look after things start to normalize. We’ll start to look at what we’ve learned as far as new techniques. Can we take our traditionally face-to-face business that we believe has been around 90% face-to-face and have it be both face-to-face and remote after this is over. It’s been an incredible learning experience so far, and we’ve got a lot of things to experiment with in the future.
And then -- sorry, if I’m being dense on this. The $5 million, is that -- was any of that accrued in the expense in the first quarter or is that all 2Q?
That’s all 2Q.
And then, one final question. The additional sales to existing customers, I think you kind of restated your -- some of those numbers is a small amount. But what was the, what was the change there?
So we did -- it was always an estimate, it’s not actually a P&L number. We’ve always indicated that it was an estimated number. We obviously are drawing some more attention to it. So we went back and described some things, and just found a few inconsistencies with how we were doing some business in Canada versus the U.S. So we opted to go and restate all of those numbers. You can see the historical restate on Page 3 in the financial supplement. It doesn’t change any of the trajectory of the trends we discussed. It just changed the overall magnitude of the amount a little bit.
And our next question will come from Jeff Schmitt of William Blair. Please go ahead.
Hi. Hi, good morning. Question on ISP sales I guess -- is the right way to think about that. They obviously were very high. It was a tough Q1 of last year, but they were still really high. The market drops, inflows increased, product sales jump, because there wasn’t really any employment issues out of the gate. And then, now you’re expecting a big drop as unemployment increases, and I’m just trying to think is that as a driver. I mean, if unemployment is high, could we expect product sales to be weak through or in the next year even?
Yes, Jeff, I think that you’re on to a couple of the dynamics that drive our sales, but I think that they may be in reverse order. I clearly -- sustained unemployment is not good for sales. There’s no question about that. But I think what we’ve seen in our business and historically what we’ve experienced is that short-term disruptions for some reason are not as noticeable in our numbers in Primerica.
Many times, we’ll have a week or two, or maybe even three of market disruption is barely noticeable in our sales numbers. But as market uncertainty continues and as particularly a market stays down for a period of time, investors at Primerica like other places move to the sidelines. And so, it’s not that a market drop is just a buying opportunity and therefore sales will spike, it’s actually probably ignored early. But the longer it stays out there, the more likely it is for our clients, and I believe everyone else is by the way, are going to stand on the sidelines and wait to see if there is some direction in the market before they invest.
I believe that would be compounded by unemployment that last an extended period of time. And so, the -- how quickly the economy bounces back is clearly important. But I think what you’re seeing right now is more market driven than unemployment and disposable income driven, but they both would be a drag over time. And as we said earlier, as we start to see how long it takes for things to start to bounce back, we’ll be able to draw a finer bead on what we think the future holds beyond the second quarter.
Okay. That makes sense. And then, you may have touched on this, but just thinking about the productivity and the number of policies issued, are there any headwinds there for, I mean, people needing a physical and they just can’t go in to a doctor to get one?
Yes. We saw that early. In fact that was one of the things that both licensing and the dilemma that you just described were the first two kind of things that emerge as challenges to our ability to do business. We talked about licensing already. But fortunately, we found a couple of work around that has reserved a lot of the momentum on the life side. The first thing is that while the paramed companies, many of them stopped doing in-home parameds. Some of the networks actually have clinics across the U.S.
And so, for whatever reason clients were more comfortable going to a clinic and having their paramed done, we even heard a paramed that will come outside the clinic and actually do it at your car.
And so, they of course are working on their optionality as well. But we -- and we do still have some paramed exams being done in homes, which at the beginning we thought that might be zero, but there are some of those being done. So, today, we’re doing, we’re getting completed about 70% of the parameds, that is our normal run rate, which is much higher than I would have anticipated when this first began. And so, we are still getting those products that need to be traditionally underwritten with the paramed exam and fluids and all that kind of stuff.
It is still happening at a higher rate than I would have earlier anticipated, but it’s still not where it normally is. And the good news, as I mentioned in my comments is that we have our TermNow rapidly underwritten product that’s fully underwritten, but it’s done rapidly through database underwriting, which oftentimes does not require, in fact usually does not require a paramed.
And of course it is limited to $300,000 maximum face amount. So there are some good sense limitations on it, but it’s a great way to get fully underwritten coverage in place on clients, and then it may be necessary, perhaps not enough coverage to come back later and complete the underwriting process once the doors are open and add to the policy. But it means that sales are being made now that otherwise, and I think some of the companies are not being made right now.
That’s why I mentioned that traditionally in the U.S, about 65% of our apps have been TermNow, the other 30% have been our custom advantage traditionally underwritten product. That TermNow percentage in the U.S. is up to -- right at 7% or maybe just a tick higher. And so, we are seeing some of that void being filled by the TermNow product, and we’re seeing an amazing number of parameds getting done in spite of the disruption.
So, I don’t think that is going to be a major impact or has it been thus far, let’s say that, to productivity.
It’s interesting, in the way our productivity is calculated, just simply dividing our sales force size into the number of apps. As we have a slowdown in new licenses, that’s likely to slow down the sales force growth, so you’re probably just because of the math going to see productivity pressure up because the sales force has kind of locked in place, and we’ve got good momentum and safe. So the reason I think that is just look at how the math is done and understand both the numerator and the denominator, as you think about the productivity dynamics.
Got it, okay that’s helpful. Thank you.
Ladies and gentlemen, this will conclude the question and answer session. And also concludes Primerica’s first quarter, 2020 results conference call. We thank you for attending today’s presentation. And you may now disconnect your lines.