Primerica Inc

NYSE:PRI

Earnings Call Transcript 2019-Q3

[Operator]

At this time, I would like to welcome everyone to Primerica's Inc. Q3 Earnings Results Conference Call and Webcast. [Operator Instructions] Thank you.

I'd now like to turn the call over to Nicole Russell, Head of Investor Relations. You may begin your conference.

[Nicole Russell, Head, IR]

Thank you April and good morning everyone. Welcome to Primerica's Third Quarter Earnings Conference Call. A copy of our earnings press release along with materials that are relevant to today's call are posted on our 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'll 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 reference you to our most recent Form 10-K filing as modified by subsequent Form 10-Q filing for a list of risks and uncertainties that could cause actual results to differ -- 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 also available on our Investor Relations website.

I would now like to turn the call over to Glenn.

[Glenn Williams, CEO]

Thank you Nicole. And thanks everyone for joining us today. I'll focus my prepared remarks on the highlights from our most recent quarter and share our game plan as we close 2019 and prepare to enter the next decade then Alison will review our financial results. Starting with Slide 3 in our presentation deck you can see adjusted operating revenues increased 7% and adjusted net operating income increased 13%. Adjusted operating earnings per diluted share was up 17% and operating ROAE was 24.9% increasing 120 basis points compared to last year's third quarter. These results attest to the strength of our business model and reflect another quarter of solid financial performance. We continue to execute steadily against our capital deployment plan. During the quarter we repurchased $70 million of Primerica common stock for a year-to-date total of $181 million.

We are on pace to repurchase $225 million by year-end and believe we will have the ability to deploy capital at or above this level in 2020. Turning now to Slide 4 for a review of distribution results. We ended the quarter with a total of 130871 life licensing representatives which is up slightly since the beginning of the quarter reflecting the growth in newly licensed reps. Compared to last year's third quarter recruiting declined 5% while the number of new life licensed reps increased 8% reflecting successful recruiting efforts in June and July and the solid pull-through of those recruits to new life licensed reps in August and September. Our licensing rates remain strong including the pull-through rate for individuals who were recruited as part of our discounted IBA promotion announced at our convention. I believe this was due to changes in the licensing preparation program we introduced earlier this year and our continued communication with the field force leadership about licensing. Since I mentioned our convention let me take a moment and give final assessment of the event now that we're almost 6 months behind it. I believe it was a success on many fronts.

First we had record attendance which created energy and excitement sales force and we're starting to see the benefits of these efforts emerge. Second it provided a platform to focus the sales force on key priorities such as sales growth productivity and licensing pull-through. Finally it gave us the opportunity to cast a bolder vision for the future. We recognize that our distribution results so far in 2019 were softer than expected. We have recovered some momentum and there's more work to do. We're making progress and I still expect the size of our sales force will end the year roughly flat compared to the prior year.

In Term Life on Slide 5 we issued over 73000 new life insurance policies during the quarter or 2% fewer policies than in the third quarter of 2018. We're diligently working to grow sales and we're gaining traction. The pace of progress is slower than we expect. While I'm encouraged by our progress I also recognize that we will not be able to overcome the slow start to this year. We expect full year issued policy results to be down approximately 4.5% year-over-year. Productivity during the third quarter was within our historical range at 0.19 policies per life licensed representative per month.

As we continue to work on improving new sales and agent productivity it's also important to recognize the financial impact of existing clients increasing their coverage. Annualized issued premiums increased 3% which included 9% growth in premiums associated with additions to existing policies. These increases in coverage can happen either automatically with our increasing benefit rider or by representatives working with clients to increase existing policies. On Slide 6 we show a steady march forward in our investment and savings products results.

We're pleased with our performance and the important contributions this segment continues to bring to the bottom line. Client asset values were $66 billion at the end of the quarter an increase of 3% compared to September 2018. The growth in assets continues to we supported by solid sales which rose 5% year-over-year. Sales strength during the quarter was led by client demand for retail mutual funds and variable annuities.

As we close 2019 and prepare for the New Year we will continue to emphasize recruiting and licensing that lead to growth in the size of our sales force. We also remain focused on improving the productivity of our representatives toward the upper end of our historical range to drive life sales while continuing to build on the success of our ISP business. As we approach 2020 the new year provides us with the opportunity to generate excitement and activity while sharpening our focus on areas that need improvement.

Next year is an important milestone because it offers us the opportunity to launch both a year and a new decade as well as marking our tenth anniversary as a publicly traded company. We will use this unique timing to take a bolder position in our marketplace and cast a bigger vision for our sales force. We've already begun to raise our profile in both traditional and social media as a thought leader bringing experience and expertise to meet the financial challenges of the middle market. We're also capitalizing on our strength as a prominent member of our community. These efforts add credibility to our message that Primerica offers an excellent business opportunity for individuals who are willing to get licensed and help our clients meet their financial needs. We would generate further excitement in the sales force with a series of events across North America throughout January and February. Combined with continued improvements to our products technology training and incentives we believe we have the right formula to meet the clients' needs and deliver value for stockholders in 2020 and beyond.

With that I'll now turn it over to Alison.

[Alison Rand, CFO]

Thank you Glenn and good morning everyone. Let's start with that Term Life segment on Slide 7. Income before income taxes grew 13% to $83.8 million for the quarter with margins expanding to 20.1% from 19.6% in the prior year period. Top line results were strong with adjusted direct premiums increasing 10% percent year-over-year while operating ratios for the quarter were all at or better than those in the same period in 2018. The benefits and claims ratio for the quarter was modestly favorable to historical levels but was slightly higher than the prior year period due to favorable incurred claims experience in 2018. Benefits and claims ratio was 57.9% for the quarter and 58.2% on a year-to-date basis. We expect the ratio to remain near the 58.2% level for the full year 2019. The DAC amortization ratio for the quarter improved to 15.5% from 15.8% in the prior year period.

As Glenn mentioned earlier we continue to see growth in policy additions such as our increasing benefit rider which have lower acquisition costs. In addition persistency trended favorably during the quarter. We typically see a ratio of around 17% in the fourth quarter due to weaker seasonal persistency but we continue to expect the full year ratio to come in around 16%. Insurance expense ratio for the quarter was 7.7% in line with the prior year's third quarter. Year-to-date ratio was 8% and we expect the full year ratio to increase by 10 to 20 basis points as we continue to ramp up planned technology spend. I will discuss companywide operating expense trends and expectations later in the call. As 2019 comes to a close we expect adjusted direct premiums to grow by about 10.5% on a full year basis and margins to come in at or above 19% up slightly from previous guidance.

As we look toward 2020 the growth in adjusted direct premiums is projected to remain strong at 9% and we do not foresee any significant change in Term Life margins. Turning now to our Investment and Savings Product segment on Slide 8. Revenues increased 5% year-over-year to $173 million while income before income taxes increased 8% to $48.8 million. Sales-based revenues grew nearly 8% benefiting both from the growth in revenue-generating product sales and the mix of business sold. Asset-based revenue grew 3% in line with the growth in average client asset value. Sales and asset-based commission expenses generally increased with the respective revenues.

Other operating expenses were generally flat as we continue to benefit from fee reductions with third-party service providers in our ongoing efforts to create operational efficiencies internally. Let's continue the operating expense discussion by taking a look at companywide insurance and other operating expenses on Slide 9. In the third quarter insurance and other operating expenses increased a modest 3% to $99.7 million.

We saw our typical year-over-year increases in categories such as salaries and other expenses that support the growth in our Term Life business while expense reductions achieved in the ISP segment provided a partial offset. We continue to make progress with our technology initiatives increasing our spend by $2.4 million year-over-year in the third quarter. Expenses for the quarter were about $2 million lower than the guidance provided in last quarter's earnings call but we largely believe this is the function of timing. We expect insurance and other operating expenses to come in around $107 million in the fourth quarter and $416 million for the full year.

We are pleased that while growing the business and increasing our technology spend by $10 million we've been able to limit the growth in insurance and other operating expenses to around 4.5% year-over-year. Let's move now to a review of adjusted net investment income in our invested asset portfolio on Slide 10. Net investment income for the quarter was $22.1 million up about $1 million or 6% from the prior year period. The increase was predominantly due to 13% growth in our invested asset portfolio to $2.6 billion and higher book earnings versus the prior year on asset backing to reinsurance deposit assets. These positive factors were partially offset by the impact of lower reinvestment rate in the current low rate flat yield curve environment.

While the current environment has continued to pressure investment income we believe our exposure is relatively small and year-to-date the growth in our portfolio size has entirely offset the lower average yield. Over the next 12 months only 13% of our portfolio will mature with an average book yield of about 3.4%. To illustrate the impact of lower rates assuming a reinvestment rate consistent with the third quarter of 2.73% net investment income would be approximately $1 million lower over the next 12 months on those assets. We will continue to look for opportunities to replace this yield while maintaining our discipline regarding credit quality and liquidity.

Finally on Slide 11 our tax rate during the quarter was 23.1% which is consistent with our full year estimate of 23%. As of September Primerica life insurance company's statutory risk-based capital ratio is estimated to be around 440% and holding company liquidity is approximately $235 million. We plan to continue to take ordinary dividends from Primerica Life to the extent available with the goal of maintaining our near-term RBC ratio in the low- to mid-400% range. Our corporate balance sheet remains solid with ample liquidity.

Now let's open the line up for questions.

[Operator]

[Operator Instructions] And your first question comes from the line of Andrew Kligerman from Credit Suisse.

[Andrew Kligerman, Credit Suisse]

Good Morning. So licensed sales force is now 31000 roughly flat year-over-year. You had the conference in June. And I'm, it seems like that's the number that's going to move the dial going forward. So what are you thinking out to 2020 in terms of the size of that sales force? And with that, so I definitely would like an answer on where you think the size can grow. And then with that I kind of get the newly licensed reps were up 8% so that was like a very good qualitative number. So maybe a little backdrop color on that why we should, I don't know either we should feel good even it doesn't grow.

[Glenn Williams, CEO]

Yes. Happy to address those issues Andrew. The, you're right the size of the sales force is fundamental to the overall growth of our sales activity. It's pretty simple it's not easy but it's simple. You've got the size of the sales force and our productivity rate and we're always working to improve both. After a number of years of significant growth we did -- we have seen slow down. We have seen quarter-to-quarter improvement. And a piece of that of course there was the positives of our convention in June. But as we talked about before we try not to make the convention the cure all or a spike in activity that even creates unhealthy activity or that we come to rely on just for a life saver.

So it's a normal part of our process is the way I look at it. But we do recognize and coming out of that you are going to see increase in activity particularly in recruiting. And as we focus this year because we had done incentives in the past where recruiting increased but at the same time we didn't get the licensing pull-through we didn't feel like we had the committed recruits and/or the process was in place to turn recruits into licenses. So we over steered deliberately in that direction after this convention to make sure that the recruits that were result of the excitement from the event we had a good pull-through rate. And of course we did have more recruits as a result of the incentives but we have very strong pull-through.

We didn't expect it to be exactly normal. Anytime you have a sudden increase in recruiting you're going to expect a little bit deterioration in your pull-through but it was very near our averages and so we're extremely pleased with that. And that swing of focus is what has driven some of the choppiness in the recruits being up one quarter and licenses being down and then recruits being down and licenses being up. Overall we continue to be committed to growing the size of your sales force. There is -- I don't see any natural barrier at 130000 or 131000 that says you can't go beyond that. It continues to be one of our most important priorities when it comes to distribution. And so we continue to put programs in place to increase top line recruiting to continue to maintain and improve our pull-through rate and that's what we do every day. We do that. We talked about the levers we use

Our messaging and our recognition and incentives are always in play for month-to-month. We have those improvements that are incremental. We're always working on small things that make things better. For example we worked hard on our onboarding process cutting through the confusion of the various ways to get licensed there are all kinds of systems and courses out there to get licensed and we focused on one straight path from recruit to licensed which I think has helped us. We continue to deploy technology to reduce some of the friction in that process. The faster you can engage people and get them focused on getting licensed and getting productive the more likely they are stay any downtime works against you.

And then of course as I mentioned a clear vision of the value of our opportunity attracts more people and retains more people. So we've got all of those in play we continue to use those and expect to grow the size of our sales force. As we look forward into 2020 and beyond we continue to think in terms of the natural long-term growth rate for recruiting licensing and so forth as mid-single digits. We're working to get back to that level. And then when we get to that level we'll work to get beyond that level. But hopefully that gives you a little bit of framework of what we see in the last couple of quarters in that dynamic but I'm happy to clarify if there's other things.

[Andrew Kligerman, Credit Suisse]

No. Definitely very helpful. And then on the expense side and I guess insurance and operating expenses were up 3% year-to-date. Alison you called out kind of guidance of 4.5%. And that it seemed like you would move more in the direction. Again maybe looking out to next year is 4.5% the right number or some of these initiatives like renegotiated ISP managed account contracts will they come into play and maybe you could do 3% next year?

[Alison Rand, CFO]

Yes. It's a really good question. We're in process obviously of finalizing our budget for 2020 as we speak. And if I had to look at it one of the things you have to remember is a lot of our expense base will actually just grow with the book of business. So as our premiums increase obviously premium taxes go up I'm just going to point out a few. As our assets under management increase the cost that we pay to third-parties all go up. So I expect we have that natural growth rate in our expenses.

And theoretically if you look at how our revenues grow and you look at maintaining neutral leverage you would've expected our expenses to grow considerably higher than where we're coming in at. When I look to next year I actually think we're going to continue to have the benefit from the things that we've negotiated on the ISP site and that's probably another $4.5 million of save just year-over-year as based on these contracts and how they've worked. But we do have the natural growth of the business.

And we do have our continued views toward our technology platform. So I certainly wouldn't expect it to be 3%. I do expect it to be higher than it was this year but largely because you have the natural trajectory of the growth in the book of business. Expense management expense control maintain, continues to be top of mind for everybody here. And so I'm real pleased with how we've been able to negotiate certain reductions and things among those lines operational efficiencies internally to go ahead and fund if you will expenditures in things like technology to continue to enhance and build the business.

[Andrew Kligerman, Credit Suisse]

Okay. So I mean it sounds like you could keep it below the 4.5% but it remains to be seen as you kind of work through your budget?

[Alison Rand, CFO]

Yes. I would actually, and again we haven't finalized we haven't presented to the Board so I certainly am not quite ready to go through all of our plans for 2020. I would expect more color next quarter. I would actually not expect it to be below 4.5%. I would expect to creep modestly higher. But again looking at what we would expect our growth in our revenues to be I would think that we'll still maintain a positive margin positive leverage.

[Andrew Kligerman, Credit Suisse]

Thank you, Allison.

[Operator]

Your next question comes from the line of Peter Xuan from KBW.

[Peter Xuan, KBW]

So in the prepared remarks I think you mentioned that there were plans to increase Asian productivity toward the higher end of the historical range. So do you mind providing some additional color on the steps to achieve this in any sense of the timing of the development if you have that?

[Glenn Williams, CEO]

Sure. And it's a very similar answer to the recruiting and licensing answer I gave earlier is that we have 3 levers that are always in play our incentives recognition communication plan which varies month-to-month and we customize it by month as we believe we can get more impact from those things. And many times our recognition and incentive program is simply a framework that allows us to communicate. It gives us a reason to communicate and we can weave other messages in.

So first we've got to communicate clearly what the priorities and areas of focus are. Then we continue to work on incremental improvement in our product and processes everything from making it easier to talk about our products to explain products plainer language similar products better use of technology to create a frictionless process between agents and clients and all those are going coming in. And then we have more fundamental changes when we make real breakthroughs they're usually in some of those same areas. So that's our process. It's interesting as we come into the end of the year and the beginning of the year there are natural opportunities for messaging. We've already started talking about what the next year the next decade will look like. I talked a little bit about that in my prepared comments. And so what that means is we've got people listening and that's a natural advantage of this time of year. We do have ongoing improvements in our technologies that we roll out.

And those are things that just simply make life easier for the sales people which therefore makes it more enjoyable to sales and makes them more efficient so they can make more sales. So all of those are in play. And then we've got plans as we head into 2020 more specifically to increase field support I mean we do a -- I think we're -- probably one of our strongest skill sets here is communications from here in our communication network that we've created but still there's a need to get out in the highways and byways. We have people out territorial people that help but we're actually increasing our resources that are out in the field to be able to provide better training better familiarity better communication and all those other things I talked about what those resources and how to use them.

So those are some of the things that are unique as we head into 2020 is not only we'll be communicating more loudly and more frequently from here in a more focused way we're actually going to have a brand-new team of people out in the field that we'll develop next year to bring that home and make it more local. And so when does that impact start to see itself start to see results? We've seen a good progression during this year as things have strengthened they haven't strengthened quite as fast as we had hoped and originally discussed but we are moving in the right direction. And so we hope that during 2020 we're able to get back into that kind of fundamental natural long-term growth rate for the year in mid-single digits. And as I said earlier we'll build from there. We're not satisfied with that but we believe that's the natural kind of long-term rate. And so as we get to that point we'll start talking about other ways that we can push productivity even higher into -- and as we've seen a few times in the past we've even broken out the top of the quarter. So we know that's possible and we continue to hold that out as an objective.

[Peter Xuan, KBW]

Great Thanks for the color. And my next question is on ISP. So sales have been trending pretty positively. And so I wanted to ask if you had any growth outlook going into 2020 in what areas or products do you see really being the main drivers of growth?

[Glenn Williams, CEO]

Yes. That -- it's interesting to study the product mix and the product mix shifts back and forth between our products much of that driven by market conditions and client sentiment and their view of what might happen. I believe some of the things that's getting a tailwind. Our variable annuity business is the uncertainty the talk of how long can a bull market go on? Is there a recession on the horizon? There is an election on the horizon what does that mean? And so I think that has given us a little bit of swing toward the products that have more guarantees than others. And so that's -- this is just my opinion it's probably going to continue to be one of the tailwinds as long as market performance continues to be good. I think obviously that's a tailwind. Significant disruption would slowdowns our growth and probably exacerbate the trends that I just talked about of people kind of moving to guarantees and so forth. So we're expecting for the next year. We've got contingency plans what if any or all of that happens how do you shift and flex around it. But right now as we look forward we see similar kind of growth rates and conditions as what we've seen in the past. And we'll probably have a little bit of that fluctuation in product mix between products but not anything that's much different from what we've seen over the past years as that occurs. So I'd say the short answer to that question is more of the same.

[Peter Xuan, KBW]

Awesome, thanks for the color.

[Operator]

And your next question comes from the line of Mark Hughes from SunTrust.

[Mark Hughes, SunTrust]

How much benefit did you get from the riders? It sounds like that is automatic. You been getting more help on the, if you look at the face amount issued from the additions I mean what kind of just underling tailwind is there from the riders?

[Glenn Williams, CEO]

Yes. Well first of all I'll go first and I'll talk to Alison for some of the numeric impact but it's an important part of our business and a huge value to our clients. We talked mostly about new business at Primerica but we've got a significant client base and those clients many times don't buy as much coverage as they need at the point of initial sale either due budget constraints or other reasons and they want to be able to add coverage in the future. Now of course there's the risk of becoming uninsurable. And this rider kind of answers all those questions. It's an automatic 10% increase in face amount for the first 10 policy anniversaries as long if you continue to use them. If you ever opt out then you, it freezes in place and you can't accept future increases.

The insurability is guaranteed during that time so it's a huge benefit to the consumer to know their insurability is locked in. And since it's automatic as Alison mentioned in her remarks the acquisition cost are lower the compensation to the field is lower and so forth. So it is good all the way around and we're continuing to see the value of that drive those sales. So it's a process we've had in place long-term we've been doing this since the '90s. We made some adjustments to the program earlier in this decade which really, we made it an automatic unless the client chooses not to do so we gave every client the opportunity to participate and so forth and it's really starting to compound and make a significant impact on our business which is one of the reasons we want to talk about it all day. With that I'll talk to Alison for a little framework and mathematical.

[Alison Rand, CFO]

Okay. Thanks Glenn. And really you covered most of what I would say. I think you have to keep it in perspective. It is, we highlighted because as we do look to try to refresh our sales trajectory it is one of those things that is naturally compounding and naturally adding to our financial position. In and of itself if you put it comparison to total premiums that we have on the books it's a relatively small component but it's becoming an increasing piece of what we are issuing every year. It's, if you look at it in the fence up on different annualized issue basis which obviously isn't P&L basis but just a good proxy for looking at the values of it is about 20% to 25% of what we're issuing this year. So it is definitely compounding.

As I mentioned in my remarks and Glenn just alluded to it does, it's profitability is, it's a good profitable product for very consistent with our new business. Geography-wise it's a little bit different. You tend to have lower DAC amortization because as Glenn just said you have really lower acquisition cost you're not underwriting again. But as you would expect as this business get further and further away from underwriting you have slightly higher mortality expectation. So they're a little different in geography but profitability-wise still very consistent with our overall goals for new business. So I guess that's really what I would say about it. We do really like the business.

As Glenn said it enhances the relationship with the client and the stickiness of the client above anything else that I've already mentioned.

[Mark Hughes, SunTrust]

That's helpful. The productivity on sales force Glenn would you say any -- I think within the historical range still down a little bit year-over-year. Would you say the productivity is more influenced by the lack of new recruits or the -- just kind of deceleration of new recruits. As I understand they're productive early on. Is that -- that's just more of a kind of a knock-on effect of the recruiting dynamic?

[Glenn Williams, CEO]

I think Mark there is certainly some connection there but I don't believe it's a direct connection. You just have times that you go through and it comes down to focus of the sales force -- of our massive sales force how many can we have focused at the same time. And I think you probably got a common cause of recruiting being a little weak. After we've gone through an extended period of significant growth well above and beyond kind of that natural growth rate I mentioned then you have a period of where people relax recover refresh and then hopefully get started again which is where I believe we are right now as we're starting to see things move a little bit in the positive direction.

And so obviously higher recruiting is better but I don't gauge productivity as being directly connected to recruiting. They tend to move in tandem and have a relationship but it's not quite that direct. I believe they're both influenced by the level of focus that we can get in our sales force protect people from distractions give them a chance to recover from a long period of hard work and then get back in the game is more of those types of things in that direct connection.

[Mark Hughes, SunTrust]

Okay. And then I think you've touched on this but the sales mix within ISP annuities have been a big contributor they're still up but not up as much. Is that a reflection of the broader market or is that an internal dynamic?

[Glenn Williams, CEO]

Yes. Well specifically for our variable annuity business we have a bit of an unusual comparison this quarter because in the third quarter of last year that group is called annuities and others or VA and others something to that effect. I probably didn't get the title exactly right. But the other is normally a very small piece. It just so happens at last quarter we had a significant 401(k) plan that moved in to Primerica in the third quarter last year.

They don't happen that frequently but when they do they're big in that warped the comparison quarter-to-quarter just a little bit. So actually our VA business was a little stronger probably significantly stronger than it appears in the quarter-to-quarter comparison because of the last year's unusual nature of that 401[k] transfer in. So our VA business continues to be strong right up there with our mutual fund business in the quarter and it's growth rate -- they're kind neck-in-neck and both led all the other product line. So I would say that business continues to perform very well.

[Mark Hughes, SunTrust]

And then finally Alison just to confirm when we think about buybacks kind of 4 12 months your capital position now are we positioned to kind of do same pace maybe a little bit more. Any reason not to think that's the case?

[Alison Rand, CFO]

Yes. And I think Glenn actually had in his remarks that we expect to be able to and have the ability I should say to do at or above the level we've been at this year. Again we haven't concluded that with our Board yet so at this point can't say anything further. But our capital position does support our ability to deploy again at or above the level they did this year how we will deploy that still remains a question.

[Mark Hughes, SunTrust]

Great, thank you.

[Operator]

And your next question comes from the line of Dan Bergman from Citigroup.

[Dan Bergman, Citigroup]

So first I was little surprised that the number of recruits fell year-over-year given, I think you had a discounted licensing fee in place in early and mid-July post the convention. So I just wanted to see if you had any color on how recruiting compared to your expectations or maybe how it trended over the course of the quarter?

[Glenn Williams, CEO]

Yes. We did. We had the special incentives in place for the first 2 weeks of July since the convention was toward the end of June. So roughly the last 2 weeks of June and last quarter or second quarter and the first 2 weeks. So it did give us some help in the quarter but was not, didn't cover much of the entire quarter but we are still battling back to get to the recruiting level I like for us to be. So I'm not going to say I was happy with the third quarter. But at the same time I wasn't terribly surprised. I knew that once we got beyond the incentive usually right after an incentive there's a little lull as people kind of, they squeeze the sponge pretty hard when there's a discount and then you usually have a little lull right after and those two offset each other.

And so it was weaker than I would like as a quarter but not unusually surprising. And I think it continues to reflect in our overall business improvement in our total business kind of as we've marked from quarter-to-quarter this year. I do think another influence was as I mentioned earlier we did deliberately oversteer and make sure, we wanted to find out if we run an incentive like that can we pull the license through in a significant way and minimize any erosion in our pull-through percentage. And I think we did a very good job with that.

Now we probably steered so hard that the messaging on licensing might have drowned out the recruiting message just a little but it was worthwhile if that was the case. So again I wasn't terribly surprised by what happened during the quarter. I believe there'll be less noise in future quarters so we'll really be able to understand what is going on underneath without having these unusual dynamics that sometimes kind of cover up the, exactly what's happening both good and the bad. So I think there'll be better transparency as we go forward to really understand when we are in the business and we're going to continue to march forward as I mentioned earlier.

[Dan Bergman, Citigroup]

Got it. That makes sense. Thank you. And then maybe just shifting gears a little bit it looked like the sales force nonrenewal rate ticked up a little bit in third quarter I think relative to where it had been running. I think there's been a little bit of an upward trend in recent years. I just wanted to see if there's any color on what you saw in the quarter in terms of non-renewals and maybe how we should expect that pace of non-renewals to trend going forward and into 2020?

[Glenn Williams, CEO]

Yes. We said that we average about 8% terminations per quarter and have been pretty steady in that rate. Obviously as the sales force has grown the number has gone up. We actually had a little better retention in the quarter than our projections had shown which helped us keep the sales force flat. So I think we feel good about that staying in that 8% range just maybe 0.1% or so above that but we're not seeing any erosion there's nothing there that's alarming to me at this point. In fact it was a little better in the quarter than we anticipated.

[Dan Bergman, Citigroup]

Got it. Thanks so much for taking the question.

[Operator]

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

[Jeff Schmitt, William Blair]

Question on the cost efficiencies in the ISP segment. I know you've launched the EZ-KEY tool recently. Could you maybe give us an update on that and where else are you seeing efficiencies there.

[Alison Rand, CFO]

Yes. So I'll take part of it and then toss it back to Glenn. The expense efficiencies really aren't related to EZ-KEY. They are related to the fact that on several of our lines of business we've been able to negotiate far more favorable cost structures with third-party providers. So the people that do a lot of the work associated with our mutual fund transfer agent or account record-keeping business as well as the custody side on our managed account platform that has a lot to do with the fact that as we grow and hit obviously larger breakpoints we're getting significant benefit from that. We also have and I mentioned this in a little bit more detail last quarter done quite a bit internally on really trying to cut our costs associated with managing our clients' account. So that's really what we're seeing there and some of those continue to compound into 2020. I'll pass it over to Glenn now for EZ-KEY.

[Glenn Williams, CEO]

Thanks Alison. Yes. Jeff EZ-KEY is an important initiative for us however because -- and we've done this in several other areas but I think this is the most success we've had where we said we really want to try to leverage technology to the maximum point -- at the point in our sales process and in our organization where it can touch the most lives. And so generally that's in the newer people that are doing a lot of smaller transactions. And over time there will be efficiencies that are gained from this I just don't believe it's embedded broadly enough for that to start to show there's clearly inefficiency play here. But we are seeing significant uptake of the right population our people that are new to the ISP business or people that weren't in the ISP business and now they believe we made it easy enough that they should attempt it.

And so it's an entry point both for representatives but it's also an entry point for clients. Remember EZ-KEY is for that small transaction client that wants a fast easy convenient frictionless transaction that can be done in a very brief period of time. It's very convenient and is something they can understand. So it's also simple it's not just convenient it's simple. And we are seeing the uptake in clients is at the right place and reps is at the right place and now we're starting to figure out how we can leverage that success into the part of our business that impacts the rest of our business the larger number of transactions in the larger transactions. It's interesting that we learned a lot from this process that now we're looking at and saying how can we do the same thing to try to impact the entry points for both our recruiting and licensing work stream as well as our life insurance work stream. And so not only are we looking for the impact that it will have in that it's a great role model for us doing the same thing in other areas of our business. So still early but on a success track. We're pleased with the progress we've made got a lot of work to do ahead.

[Jeff Schmitt, William Blair]

Got it. Okay. And I may have missed it but did you provide an update or could you provide an update on your planning for the mortgage lending solution?

[Glenn Williams, CEO]

Yes, didn't talk about mortgage. I appreciate that question. We're at the point now where we've closed about 100 mortgages roughly. That's not a lot but it is enough for us to determine that this is a process that we want to pursue and expand. We are finding out that the clients we've done business with are extremely happy with how we've been able to help them we refocus on paying off their debts faster more efficiently at a lower interest rate. Quicken is a great partner. Our relationship both actual relationship and also the connection -- the technological connections between the 2 companies are good. So we've proven that it's a business that we want to be in. And right now we're working on the plan for 2020 to figure out how we can start to maximize the impact of that business. I'm very excited about it. But at the same time we know it's a state-by-state process with approval of our company and our people by state. And that's one of the things that brings into question how fast can we implement and how fast can we grow because it's not all up to us. It's how quickly can we get the company and our reps approved in every state and the rules differ by state and the time lines differ by state.

So early success very pleased, we are pleased with the relationship and the infrastructure that we built on a small scale now looking at 2020 plans to expand that. And I do believe one of the reasons I'm most excited about it because it's a business that I believe enhances our other existing businesses. It doesn't have the potential to cannibalize. Almost any product that we would bring into our ecosystem you've got to raise the question is it going to cannibalize recruiting licensing life sales and investment sales. And this is actually a business that we believe enhances those because it gets clients in a better position financially because they get their debt under control and it actually frees up their focus and ability to look at our other product offerings. It's very unique in that area and that's one of the reasons we're pursuing it so diligently.

[Operator]

And that was our last question. Thank you for your participation in today's conference call. You may now disconnect.