# Primerica, Inc. (PRI) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from Primerica, Inc.'s 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/1475922/000156459022007995/pri-10k_20211231.htm Accession: 0001564590-22-007995 Filing date: 2022-03-01 Report date: 2021-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/PRI/ All MD&A years: /company/PRI/mda/ Next year: /company/PRI/mda/fy2022/ (FY 2022) ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to inform the reader about matters affecting the financial condition and results of operations of Primerica, Inc. (the “Parent Company”) and its subsidiaries (collectively, “we”, “us” or the “Company”) for the three-year period ended December 31, 2021. As a result, the following discussion should be read in conjunction with the consolidated financial statements and accompanying notes that are included herein. This discussion contains forward-looking statements that constitute our plans, estimates and beliefs. These forward-looking statements involve numerous risks and uncertainties, including, but not limited to, those discussed in “Item 1A. Risk Factors”. Actual results may differ materially from those contained in any forward-looking statements. This section generally discusses 2021 and 2020 items and comparisons between 2021 and 2020 financial results.  Discussions of 2019 items and comparisons between 2020 and 2019 financial results can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “2020 MD&A”). This MD&A is divided into the following sections: [[GREPCENT_TABLE]] [["","\u2022","Business Trends and Conditions"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Factors Affecting Our Results"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Critical Accounting Estimates"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Results of Operations"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Financial Condition"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Liquidity and Capital Resources"]] [[/GREPCENT_TABLE]] Business Trends and Conditions The relative strength and stability of financial markets and economies in the United States and Canada affect our growth and profitability. Our business is, and we expect will continue to be, influenced by a number of industry-wide and product-specific trends and conditions. Economic conditions, including unemployment levels and consumer confidence, influence investment and spending decisions by middle-income consumers, who are generally our primary clients. These conditions and factors also impact prospective recruits’ perceptions of the business opportunity that becoming a sales representative offers, which can drive or dampen recruiting. Consumer spending and borrowing levels affect how consumers evaluate their savings and debt management plans. In addition, interest rates and equity market returns impact consumer demand for the savings and investment products we distribute. Our customers’ perception of the strength of the capital markets may influence their decisions to invest in the investment and savings products we distribute. The financial and distribution results of our operations in Canada, as reported in U.S. dollars, are affected by changes in the currency exchange rate. As a result, changes in the Canadian dollar exchange rate may significantly affect the result of our business for all amounts translated and reported in U.S. dollars. The coronavirus COVID-19 pandemic (“COVID-19”) continued to impact our business in 2021, as discussed in more detail later in this section, the Results of Operations section, and the Financial Condition section. We expect COVID-19 will continue to create uncertainty in the following business trends and conditions: [[GREPCENT_TABLE]] [["","\u2022","We have faced significant pressure on licensing as a result of the pandemic. The licensing process has been constrained by social distancing limitations as well as individual personal comfort level with gathering in groups. While the Company offers virtual classes to prepare for the licensing exam, the success rate of candidates using remote learning is often lower than for those attending in-person classes. New mutations of COVID-19 continue to create uncertainty and put further pressure on the licensing process. The timing and extent of the impact these dynamics will have on licensing activity in future periods remains uncertain."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","We have experienced an increase in mortality expense due to premature deaths of our insureds caused by COVID-19 infections. We expect that vaccinations, anti-viral treatments and higher levels of immunity will eventually cause our elevated mortality experience to normalize. However, it remains difficult to predict the ultimate impact the COVID-19 pandemic will have on our business in future periods. Any increase in mortality expense will be mitigated by reinsurance as we have ceded a significant majority of our mortality risk to reinsurers we believe to be creditworthy."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","To date, the impact of COVID-19 has led to high levels of persistency throughout all policy durations and increased policy sales as a result of strong public sentiment toward owning life insurance products. In the second half of 2021, we started to see policy sales trend back to normal levels. Persistency levels remain elevated from pre-COVID-19 levels but lower than what we experienced at the peak of the pandemic. Refer to the Factors Affecting Our Results section for more information about how persistency impacts our financial results."]] [[/GREPCENT_TABLE]] The effects of these trends and conditions are discussed below, in the Results of Operations section and in the Financial Condition section. 45 Size of the Independent Sales Force. Our ability to increase the size of the independent sales force (“independent sales representatives” or “independent sales force”) is largely based on the success of the sales force’s recruiting efforts as well as training and motivating recruits to get licensed to sell life insurance. We believe that recruitment and licensing levels are important to independent sales force trends, and growth in recruiting and licensing is usually indicative of future growth in the overall size of the independent sales force. Recruiting changes do not always result in commensurate changes in the size of the licensed independent sales force because new recruits may obtain the requisite licenses at rates above or below historical levels. Details on new recruits activity and life-licensed independent sales representative activity were as follows: [[GREPCENT_TABLE]] [["","","Year ended December 31,"],["","","2021","","","2020","","","2019"],["New recruits","","","349,374","","","","400,345","","","","282,207"],["New life-licensed independent sales representatives","","","39,622","","","","48,106","","","","44,739"],["Life-licensed independent sales representatives, at period end","","","129,515","","","","134,907","","","","130,522"]] [[/GREPCENT_TABLE]] The number of new recruits decreased in 2021 compared to 2020 primarily due to a higher level of recruiting incentives introduced in the prior year to help overcome the challenges posed by the COVID-19 pandemic. During both years, we offered periodic recruiting incentives to drive engagement with new recruits. New life-licensed independent sales representatives decreased in 2021 compared to 2020 primarily due to pressure on the licensing process as a result of the COVID-19 pandemic. While the use of virtual licensing classes increased, remote learning options often have been less effective than in-person learning in achieving licensing results. Also contributing to the decrease were fewer COVID-19 related temporary licenses issued in 2021 than in 2020.   At December 31, 2021, the Company had 129,515 life-licensed independent sales representatives compared to 134,907 at December 31, 2020. The life-licensed independent sales representatives at December 31, 2020 included approximately 4,200 individuals with temporary licenses or renewal extensions by states as a result of the COVID-19 pandemic and who the Company estimated would not pursue the necessary steps to either become or remain licensed. Adjusting for these COVID-related temporary licenses and extensions, the number of life-licensed independent sales representatives remained largely unchanged from 2020 to 2021. Term Life Insurance Product Sales and Face Amount In Force. The average number of life-licensed independent sales representatives and the number of term life insurance policies issued, as well as the average monthly rate of new policies issued per life-licensed independent sales representative (historically between 0.18 and 0.22), were as follows: [[GREPCENT_TABLE]] [["","","Year ended December 31,"],["","","2021","","","2020","","","2019"],["Average number of life-licensed independent sales representatives","","","131,315","","","","133,302","","","","130,370"],["Number of new policies issued","","","323,855","","","","352,868","","","","287,809"],["Average monthly rate of new policies issued per life-licensed independent sales representative","","","0.21","","","","0.22","","","","0.18"]] [[/GREPCENT_TABLE]] New policies issued during the second half of 2021 normalized toward pre-pandemic levels compared to elevated levels experienced during the last three quarters of 2020 and the first half of 2021. Productivity in 2021, measured by the average monthly rate of new policies issued per life-licensed independent sales representative, remained at the high end of our historical range. The changes in the face amount of our in-force book of term life insurance policies were as follows: [[GREPCENT_TABLE]] [["","","Year ended December 31,"],["","","2021","","","% of beginning balance","","","2020","","","% of beginning balance","","","2019","","","% of beginning balance"],["Face amount in-force, beginning of period","","$","858,818","","","","","","","$","808,262","","","","","","","$","781,041"],["Net change in face amount:"],["Issued face amount","","","108,521","","","","13","%","","","109,436","","","","14","%","","","93,994","","","","12","%"],["Terminations","","","(64,798",")","","","(8",")%","","","(60,848",")","","","(8",")%","","","(71,519",")","","","(9",")%"],["Foreign currency","","","862","","","*","","","","1,968","","","*","","","","4,746","","","","1","%"],["Net change in face amount","","","44,585","","","","5","%","","","50,556","","","","6","%","","","27,221","","","","3","%"],["Face amount in-force, end of period","","$","903,403","","","","","","","$","858,818","","","","","","","$","808,262"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["*","Less than 1%."]] [[/GREPCENT_TABLE]] The face amount of term life policies in-force increased from 2020 to 2021 as the level of face amount issued continued to exceed the face amount terminated.  As a percentage of the beginning face amount in-force, issued face amount as well as terminated face amount during 2021 remained consistent with 2020 and illustrate the strong demand for both buying and maintaining protection products since the onset of the COVID-19 pandemic. Our average issued face amount per policy increased to approximately $251,500 in 2021 compared to $240,600 in 2020. Average issued face amount per policy in 2019 was $248,500. The average issued face amount in 2021 returned to higher pre-pandemic levels 46 compared with 2020, which experienced a product mix that favored TermNow, our rapidly issued term life product that provides for lower maximum face amounts. In 2020, a lower percentage of applicants purchased our traditionally-underwritten product in response to challenges in satisfying paramedical underwriting requirements at the onset of the COVID-19 pandemic.   Investment and Savings Product Sales, Asset Values and Accounts/Positions. Investment and savings products sales and average client asset values were as follows: [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","2021 vs. 2020 change","","","2020 vs. 2019 change"],["","","2021","","","2020","","","2019","","","$","","","%","","","$","","","%"],["Product sales:"],["Retail mutual funds","","$","6,585","","","$","4,391","","","$","4,056","","","$","2,194","","","","50","%","","$","335","","","","8","%"],["Annuities and other","","","3,076","","","","2,210","","","","2,397","","","","866","","","","39","%","","","(187",")","","","(8",")%"],["Total sales-based revenue generating product sales","","","9,661","","","","6,601","","","","6,453","","","","3,060","","","","46","%","","","148","","","","2","%"],["Managed investments","","","1,506","","","","900","","","","739","","","","606","","","","67","%","","","161","","","","22","%"],["Segregated funds and other","","","537","","","","342","","","","341","","","","195","","","","57","%","","","1","","","*"],["Total product sales","","$","11,704","","","$","7,843","","","$","7,533","","","$","3,861","","","","49","%","","$","310","","","","4","%"],["Average client asset values:"],["Retail mutual funds","","$","55,997","","","$","42,570","","","$","39,896","","","$","13,427","","","","32","%","","$","2,674","","","","7","%"],["Annuities and other","","","25,211","","","","20,524","","","","19,176","","","","4,687","","","","23","%","","","1,348","","","","7","%"],["Managed investments","","","6,086","","","","4,201","","","","3,563","","","","1,885","","","","45","%","","","638","","","","18","%"],["Segregated funds","","","2,698","","","","2,413","","","","2,394","","","","285","","","","12","%","","","19","","","","1","%"],["Total average client asset values","","$","89,992","","","$","69,708","","","$","65,029","","","$","20,284","","","","29","%","","$","4,679","","","","7","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["*","Less than 1%."]] [[/GREPCENT_TABLE]] The rollforward of asset values in client accounts was as follows: [[GREPCENT_TABLE]] [["","","Year ended December 31,"],["","","2021","","","% of beginning balance","","2020","","","% of beginning balance","","2019","","","% of beginning balance"],["Asset values, beginning of period","","$","81,533","","","","","","","","$","70,537","","","","","","","","$","57,704"],["Net change in asset values:"],["Inflows","","","11,703","","","","14","%","","","","7,843","","","","11","%","","","","7,533","","","","13","%"],["Redemptions","","","(7,161",")","","","(9",")%","","","","(5,538",")","","","(8",")%","","","","(6,428",")","","","(11",")%"],["Net flows","","","4,542","","","","6","%","","","","2,305","","","","3","%","","","","1,105","","","","2","%"],["Change in fair value, net","","","11,146","","","","14","%","","","","8,521","","","","12","%","","","","11,221","","","","19","%"],["Foreign currency, net","","","91","","","","*","","","","","170","","","*","","","","","507","","","","1","%"],["Net change in asset values","","","15,779","","","","19","%","","","","10,996","","","","16","%","","","","12,833","","","","22","%"],["Asset values, end of period","","$","97,312","","","","","","","","$","81,533","","","","","","","","$","70,537"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["*","Less than 1%."]] [[/GREPCENT_TABLE]] Average number of fee-generating positions was as follows: [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","2021 vs. 2020 change","","","2020 vs. 2019 change"],["","","2021","","","2020","","","2019","","","Positions","","","%","","","Positions","","","%"],["Average number of fee-generating positions (1):"],["Recordkeeping and custodial","","","2,171","","","","2,060","","","","2,005","","","","111","","","","5","%","","","55","","","","3","%"],["Recordkeeping only","","","749","","","","678","","","","644","","","","71","","","","10","%","","","34","","","","5","%"],["Total average number of fee- generating positions","","","2,920","","","","2,738","","","","2,649","","","","182","","","","7","%","","","89","","","","3","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","We receive transfer agent recordkeeping fees by mutual fund positions. An individual client account may include multiple mutual fund positions. We may also receive fees, which are earned on a per account basis, for custodial services that we provide to clients with retirement plan accounts that hold positions in these mutual funds."]] [[/GREPCENT_TABLE]] Product sales. The increase in investment and savings product sales in 2021 from 2020 was led by higher sales of retail mutual funds, variable annuities and managed investments. This increase is mainly due to the prolonged strength in equity market conditions that fueled investor confidence and continued emphasis on the importance of saving for the future. Average client asset values. Average client asset values increased in 2021 compared to 2020 primarily due to continued market appreciation and continued positive net flows. In addition, average client asset values in 2020 were negatively impacted by the initial market reaction to economic uncertainty associated with the onset of the COVID-19 pandemic. 47 Rollforward of client asset values.  Ending client asset values increased in 2021 from 2020 primarily due to overall market appreciation experienced throughout 2021. Elevated net flows also contributed to the increase in client asset values during 2021 versus the prior year. Average number of fee-generating positions. The average number of fee-generating positions increased in 2021 from 2020 primarily due to the cumulative effect of retail mutual fund sales in recent periods that led to an increase in the number of retail mutual fund positions serviced on our transfer agent recordkeeping platform. Senior Health Key Performance Indicators. Submitted Policies and Approved Policies Submitted policies. Submitted policies represents the number of completed applications that, with respect to each application, the applicant has authorized us to submit to the health insurance carrier. The applicant may need to take additional action, including providing subsequent information, before the application is reviewed by the health insurance carrier. Approved policies. Approved policies represent an estimate of submitted policies approved by the health insurance carriers for the identified product during the indicated period. Not all approved policies will go in force. In general, the relationship between submitted policies and approved policies has been seasonally consistent over time.  Therefore, factors impacting the number of submitted policies generally impact the number of approved policies. The number of Senior Health submitted policies and approved policies were as follows: [[GREPCENT_TABLE]] [["","","Year ended December 31, 2021"],["Number of Senior Health submitted policies","","","60,009"],["Number of Senior Health approved policies","","","50,323"]] [[/GREPCENT_TABLE]] The number of Senior Health submitted policies and approved policies for the year ended December 31, 2021 have no comparable period metrics due to our acquisition of e-TeleQuote Insurance, Inc. (“e-TeleQuote”) on July 1, 2021. Our Senior Health segment experiences notable seasonality with the strongest demand occurring in the fourth quarter due to the Medicare Annual Election Period (“AEP”) from October 15th to December 7th. We also experience seasonally higher demand in the first quarter due to the Medicare Open Enrollment Period from January 1st to March 31st, which allows individuals to switch Medicare Advantage plans.  Meanwhile, the second and third quarters experience seasonally lower demand as the focus for submitted policies is limited to participants that are dual eligible (Medicare and Medicaid), qualify for a special enrollment period, recently aged into Medicare or are enrolling off of an employer-sponsored plan. During the 2021 AEP, the volume of policies submitted was negatively impacted by a lower agent count with heightened agent attrition and supply dynamics in the marketplace as the timing of new regulatory requirements impacted the availability of leads early in AEP. Approved policies as a percentage of submitted policies remained relatively consistent with e-TeleQuote’s prior year AEP experience. Primerica Senior Health certified independent sales representatives Primerica independent sales representatives refer eligible Medicare participants for enrollment in policies distributed by e-TeleQuote. The number of Primerica Senior Health certified independent sales representatives represents the number of Primerica independent sales representatives who have completed the required certification and are eligible to refer participants for enrollment in policies distributed by e-TeleQuote. The number of submitted policies sourced by Primerica independent sales representatives measures the number of Senior Health submitted policies originated through the Primerica independent sales force. [[GREPCENT_TABLE]] [["","","Year ended December 31, 2021"],["Primerica Senior Health certified independent sales representatives","","","26,441"],["Submitted policies sourced by Primerica independent sales representatives","","","4,494"]] [[/GREPCENT_TABLE]] The number of Primerica Senior Health certified independent sales representatives and submitted policies sourced by Primerica independent sales representatives during 2021 have no comparable period metrics due to our acquisition of e-TeleQuote on July 1, 2021. Lifetime Value of Commissions and Contract Acquisition Costs Lifetime value of commissions (“LTV”). LTV represents the cumulative total of commissions estimated to be collected over the expected life of an approved policy. For more information on LTV, refer to Note 18 (Revenue from Contracts with Customers) of our consolidated financial statements and the Factors Affecting our Results – Senior Health Segment section included elsewhere in this report. Contract acquisition costs (“CAC”). CAC represents the total direct costs incurred to acquire approved policies. CAC are primarily comprised of the costs associated with acquiring leads from third parties and internally generated leads including fees paid to 48 Primerica Senior Health certified independent sales representatives as well as compensation, licensing, and training costs associated with our team of e-TeleQuote licensed health insurance agents. The number of e-TeleQuote licensed health insurance agents, agent tenure and attrition rate all impact CAC. We incur the entire cost of approved policies prior to enrollment and prior to receiving our first commission-related payment.   Per policy metrics for the LTV and CAC measure our ability to profitably distribute Senior Health insurance products. The LTV per approved policy, CAC per approved policy, and ratio of LTV to CAC per approved policy were as follows: [[GREPCENT_TABLE]] [["","","Year ended December 31, 2021"],["LTV per policy approved during the period","","$","1,109"],["CAC per policy approved during the period","","$","1,049"],["LTV/CAC per approved policy","","","1.10"]] [[/GREPCENT_TABLE]] The LTV per approved policy, CAC per approved policy, and ratio of LTV to CAC per approved policy for 2021 have no comparable period metrics due to our acquisition of e-TeleQuote on July 1, 2021. LTV per approved policy reflects current estimates for renewal rates and chargeback activity considering recent trends of elevated policy churn experienced through the end of the year. Elevated policy churn was driven by increased consumer awareness of plans with dynamic features offered by carriers. CAC per approved policy reflect high lead costs as a result of lower productivity because of heightened agent attrition in a tight labor market. Regulatory Changes. Standards of care. The Securities and Exchange Commission’s (“SEC”) regulation Best Interest (“Reg BI”), which establishes a “best interest” standard of conduct and imposes certain disclosure requirements, went into effect on June 30, 2020.  Its higher standards of care and enhanced obligations increase regulatory and litigation risk. On December 15, 2020, the Department of Labor (“DOL”) published an interpretation of, and class exemption regarding, the rules governing fiduciary investment advice with respect to Individual Retirement Accounts (“IRAs”) and other retirement accounts (the “DOL Rule”). The effective date of the DOL Rule was February 16, 2021 and the DOL extended its non-enforcement policy through January 31, 2022 with the enforcement of specific requirements extended through June 30, 2022. The DOL Rule imposes a higher standard of care and enhanced obligations that require sales process changes and increase regulatory and litigation risk to our business. The interpretation and enforcement of Reg BI and the DOL Rule by the SEC and the DOL, respectively, remain uncertain and could have the potential to disrupt our investment and savings products business in the United States. In addition to federal regulators, certain states have proposed or passed laws or proposed or issued regulations requiring investment advisers, broker-dealers, and/or insurance agents to meet fiduciary standards or standards of care that their advice be in the customer’s best interest, and to mitigate and disclose conflicts of interest to consumers of investment and insurance products. The severity of the impact that such state laws or regulations could have on our business varies from state to state depending on the content of the legislation or regulation and how it would be applied by state regulators and interpreted by the courts, but such laws or regulations could disrupt our brokerage or advisory businesses in the relevant state. We cannot quantify the financial impact, if any, of any changes to our business that may be necessary in order to comply with such laws or regulations at this time. Worker classification standards. There has been a trend toward administrative and legislative activity around worker classification. In 2019, for example, California enacted Assembly Bill 5 (“AB 5”), which imposes a stricter test for the classification of workers as  independent contractors. Our business lines are exempted from AB 5. In 2020, the DOL commenced a rulemaking to clarify the classification standard under the Fair Labor Standards Act. That process resulted in a final rule which since has been withdrawn by the current administration. Other federal and state legislative and regulatory proposals regarding worker classification also are under consideration. While none of these proposals have advanced into law, they demonstrate increased legislative and administrative activity around worker classification. It is difficult to predict what the ultimate outcome of this activity may be. Changes to worker classification laws could impact our business as sales representatives (other than those hired by e-TeleQuote) are independent contractors. Restrictions on compensation models in Canada. The organization of provincial and territorial securities regulators (collectively referred to as the “Canadian Securities Administrators” or “CSA”) has published final rule amendments to prohibit upfront sales commissions by fund companies for the sale of mutual funds offered under a prospectus in Canada (“DSC Ban”). The final amendments have an effective date of June 1, 2022 and the deferred sales charge compensation model is permitted to be used until then. The CSA indicated that the prohibition of upfront sales commissions by fund companies will require firms to discontinue the use of the mutual fund deferred sales charge compensation model, which is the primary model for the mutual funds we distribute in Canada. These rules will result in changes in compensation arrangements with both the fund companies that offer the mutual fund products we distribute and sales representatives. We are finalizing the changes we will make in response to the DSC Ban. These changes include entering into agreements with a small number of third-party mutual fund companies to develop a broad range of funds to be sold exclusively by our independent sales representatives. These agreements provide for the payment to us of asset-based revenue by the mutual fund companies. We will also earn revenue through an asset-based fee charged to clients. Our new model will enable us to fund an advance at the time of sale to our independent sales representatives, taken at their option, which will replace 49 upfront sales commission cash flow from fund companies paid under the deferred sales charge compensation model. We expect these changes to our mutual fund model will have the impact of initially decreasing our pre-tax operating income in the short term due to the elimination of upfront commissions. Over the long term, we would expect pre-tax operating income to recover through the collection of asset-based commissions over time. For the year ended December 31, 2021, Canadian mutual funds represented approximately 12% of our total investment and savings product sales. In an announcement February 10, 2022, and in line with the DSC Ban for the sale of mutual funds, the organization of provincial and territorial insurance regulators (collectively referred to as the “Canadian Insurance Regulators”) urged insurers to refrain from new deferred sale charge sales in segregated fund contracts beginning June 1, 2022, and expect a transition to a cessation of such sales by June 1, 2023. In addition, the insurance regulators announced their intention to issue a joint consultation later this year to consider other changes to upfront compensation. Currently, our Canadian segregated fund products are primarily sold on a deferred sales charge basis and we pay upfront commissions to the independent agents for the sale of these products. At this time, we are unable to assess the impact of any such reforms to our operations and income. For the year ended December 31, 2021, Canadian segregated funds represented approximately 5% of our total investment and savings product sales. Factors Affecting Our Results Refer to the Business Trends and Conditions section above for discussion of the potential impact on our business from the COVID-19 pandemic. Term Life Insurance Segment. Our Term Life Insurance segment results are primarily driven by sales volumes, how closely actual experience matches our pricing assumptions, terms and use of reinsurance, and expenses. Sales and policies in force. Sales of term policies and the size and characteristics of our in-force book of policies are vital to our results over the long term. Premium revenue is recognized as it is earned over the term of the policy, and eligible acquisition expenses are deferred and amortized ratably with the level premiums of the underlying policies. However, because we incur significant cash outflows at or about the time policies are issued, including the payment of sales commissions and underwriting costs, changes in life insurance sales volume in a period will have a more immediate impact on our cash flows than on revenue and expense recognition in that period. Historically, we have found that while sales volume of term life insurance products between fiscal periods may vary based on a variety of factors, the productivity of sales representatives generally remains within a range (i.e., an average monthly rate of new policies issued per life-licensed independent sales representative between 0.18 and 0.22). The volume of our term life insurance products sales will fluctuate in the short term, but over the longer term, our sales volume generally correlates to the size of the independent sales force. Pricing assumptions. Our pricing methodology is intended to provide us with appropriate profit margins for the risks we assume. We determine pricing classifications based on the coverage sought, such as the size and term of the policy, and certain policyholder attributes, such as age and health. In addition, we generally utilize unisex rates for our term life insurance policies. The pricing assumptions that underlie our rates are based upon our best estimates of mortality, persistency, disability, and interest rates at the time of issuance, sales force commission rates, issue and underwriting expenses, operating expenses and the characteristics of the insureds, including the distribution of sex, age, underwriting class, product and amount of coverage. Our results will be affected to the extent there is a variance between our pricing assumptions and actual experience. [[GREPCENT_TABLE]] [["","\u2022","Persistency. Persistency is a measure of how long our insurance policies stay in force. As a general matter, persistency that is lower than our pricing assumptions adversely affects our results over the long term because we lose the recurring revenue stream associated with the policies that lapse. Determining the near-term effects of changes in persistency is more complicated. When actual persistency is lower than our pricing assumptions, we must accelerate the amortization of deferred policy acquisition costs (\u201cDAC\u201d). The resultant increase in amortization expense is offset by a corresponding release of reserves associated with lapsed policies, which causes a reduction in benefits and claims expense. The future policy benefit reserves associated with any given policy will change over the term of such policy. As a general matter, future policy benefit reserves are lowest at the inception of a policy term and rise steadily to a peak before declining to zero at the expiration of the policy term. Accordingly, depending on when the lapse occurs in relation to the overall policy term, the reduction in benefits and claims expense may be greater or less than the increase in amortization expense, and, consequently, the effects on earnings for a given period could be positive or negative. Persistency levels will impact results to the extent actual experience deviates from the persistency assumptions that are locked-in at time of issue."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Mortality. Our profitability will fluctuate to the extent actual mortality rates differ from the assumptions that are locked-in at time of issue. We mitigate a significant portion of our mortality exposure through reinsurance."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Disability. Our profitability will fluctuate to the extent actual disability rates, including recovery rates for individuals currently disabled, differ from the assumptions that are locked-in at the time of issue or time of disability."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Interest Rates. We use an assumption for future interest rates that initially reflects the portfolio\u2019s current reinvestment rate gradually increasing over seven years to a level consistent with our expectation of future yield growth. Both DAC and the future policy benefit reserve liability increase with the assumed interest rate. Since DAC is higher than the future policy benefit reserve liability in the early years of a policy, a lower assumed interest rate generally will result in lower profits. In the later years, when the future policy benefit reserve liability is higher than DAC, a lower assumed interest rate generally will result in higher profits. These assumed interest rates, which like other pricing assumptions are locked-in at issue, impact the timing but not the aggregate amount of DAC and future policy benefit reserve changes. We allocate net investment income generated by the investment portfolio to the Term Life Insurance segment in an amount equal to the assumed net interest accreted to the segment\u2019s U.S. generally accepted accounting principles (\u201cU.S. GAAP\u201d)-measured future policy benefit reserve liability less"]] [[/GREPCENT_TABLE]] 50 [[GREPCENT_TABLE]] [["","","DAC. All remaining net investment income, and therefore the impact of actual interest rates, is attributed to the Corporate and Other Distributed Products segment."]] [[/GREPCENT_TABLE]] Reinsurance. We use reinsurance extensively, which has a significant effect on our results of operations. We have generally reinsured between 80% and 90% of the mortality risk on our term life insurance (excluding coverage under certain riders) on a quota share yearly renewable term (“YRT”) basis. To the extent actual mortality experience is more or less favorable than the contractual rate, the reinsurer will earn incremental profits or bear the incremental cost, as applicable. In contrast to coinsurance, which is intended to eliminate all risks (other than counterparty risk of the reinsurer) and rewards associated with a specified percentage of the block of policies subject to the reinsurance arrangement, the YRT reinsurance arrangements we enter into are intended only to reduce volatility associated with variances between estimated and actual mortality rates. In 2010, as part of our corporate reorganization and the initial public offering of our common stock, we entered into significant coinsurance transactions (the “IPO coinsurance transactions”) with entities then affiliated with Citigroup, Inc. (collectively, the “IPO coinsurers”) and ceded between 80% and 90% of the risks and rewards of our term life insurance policies that were in force at year-end 2009. We administer all such policies subject to these coinsurance agreements. Policies reaching the end of their initial level term period are no longer ceded under the IPO coinsurance transactions. The effect of our reinsurance arrangements on ceded premiums and benefits and expenses on our statement of income follows: [[GREPCENT_TABLE]] [["","\u2022","Ceded premiums. Ceded premiums are the premiums we pay to reinsurers. These amounts are deducted from the direct premiums we earn to calculate our net premium revenues. Similar to direct premium revenues, ceded coinsurance premiums remain level over the initial term of the insurance policy. Ceded YRT premiums increase over the period that the policy has been in force. Accordingly, ceded YRT premiums generally constitute an increasing percentage of direct premiums over the policy term."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Benefits and claims. Benefits and claims include incurred claim amounts and changes in future policy benefit reserves. Reinsurance reduces incurred claims in direct proportion to the percentage ceded. Coinsurance also reduces the change in future policy benefit reserves in direct proportion to the percentage ceded, while YRT reinsurance does not significantly impact the change in these reserves."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Amortization of DAC. DAC, and therefore amortization of DAC, is reduced on a pro-rata basis for the coinsured business, including the business reinsured with the IPO coinsurers. There is no impact on amortization of DAC associated with our YRT contracts."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Insurance expenses. Insurance expenses are reduced by the allowances received from coinsurance. There is no impact on insurance expenses associated with our YRT contracts."]] [[/GREPCENT_TABLE]] We may alter our reinsurance practices at any time due to the unavailability of YRT reinsurance at attractive rates or the availability of alternatives to reduce our risk exposure. We presently intend to continue ceding approximately 90% of our U.S. and Canadian mortality risk on new business. Expenses. Results are also affected by variances in client acquisition, maintenance and administration expense levels. Investment and Savings Products Segment. Our Investment and Savings Products segment results are primarily driven by sales, the value of assets in client accounts for which we earn ongoing management, marketing and support, and distribution fees, and the number of transfer agent recordkeeping positions and non-bank custodial fee-generating accounts we administer. Sales. We earn commissions and fees, such as dealer re-allowances and marketing and distribution fees, based on sales of mutual fund products and annuities. Sales of investment and savings products are influenced by the overall demand for investment products in the United States and Canada, as well as by the size and productivity of the independent sales force. We generally experience seasonality in our Investment and Savings Products segment results due to our high concentration of sales of retirement account products. These accounts are typically funded in February through April, coincident with our clients’ tax return preparation season. While we believe the size of the independent sales force is a factor in driving sales volume in this segment, there are a number of other variables, such as economic and market conditions, which may have a significantly greater effect on sales volume in any given fiscal period. Asset values in client accounts. We earn marketing and distribution fees (trail commissions or, with respect to U.S. mutual funds, 12b-1 fees) on mutual fund and annuity assets in the United States and Canada. In the United States, we also earn investment advisory and administrative fees on assets in managed investments. In Canada, we earn management fees on certain mutual fund assets and on the segregated funds for which we serve as investment manager. Asset values are influenced by new product sales, ongoing contributions to existing accounts, redemptions and the change in market values in existing accounts. While we offer a wide variety of asset classes and investment styles, our clients’ accounts are primarily invested in equity funds. Volatility in equity markets will impact the value of assets in client accounts and in turn impact the revenue we earn on those assets. Positions. We earn transfer agent recordkeeping fees for administrative functions we perform on behalf of several of our mutual fund providers. An individual client account may include multiple fund positions for which we earn transfer agent recordkeeping fees. We may also receive fees earned for non-bank custodial services that we provide to clients with retirement plan accounts. Sales mix. While our investment and savings products all provide similar long-term economic returns to the Company, our results in a given fiscal period will be affected by changes in the overall mix of products within these categories. Examples of changes in the sales mix that influence our results include the following: [[GREPCENT_TABLE]] [["","\u2022","sales of annuity products in the United States will generate higher revenues in the period such sales occur than sales of other investment products that either generate lower upfront revenues or, in the case of managed investments and segregated funds, no upfront revenues;"]] [[/GREPCENT_TABLE]] 51 [[GREPCENT_TABLE]] [["","\u2022","sales of a higher proportion of managed investments and segregated funds products will spread the revenues generated over time because we earn higher revenues based on assets under management for these accounts each period as opposed to earning upfront revenues based on product sales; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","sales of a higher proportion of mutual fund products sold will impact the timing and amount of revenue we earn given the distinct transfer agent recordkeeping and non-bank custodial services we provide for certain mutual fund products we distribute."]] [[/GREPCENT_TABLE]] Senior Health Segment. Our Senior Health segment results are primarily driven by approved policies, LTV per approved policy and tail revenue adjustments, CAC per approved policy, and other revenue. Approved policies. Approved policies represent submitted policies approved by health insurance carriers for the identified product during the indicated period. Not all approved policies will go in force.  In general, the relationship between submitted policies and approved policies has been consistent over time.  Therefore, factors impacting the number of submitted policies generally impact the number of approved policies. Revenue is primarily generated from approved policies and LTVs are recorded when the enrollment is approved by the applicable health insurance carrier. Medicare Advantage plans make up the substantial portion of the approved policies we distribute. The number of approved policies are influenced by the following: [[GREPCENT_TABLE]] [["","\u2022","the size and growth of the population of senior citizens in the United States;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","the appeal of government-funded Medicare Advantage plans that provide privately administered healthcare coverage with enhanced benefits relative to original Medicare;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","our ability to generate and obtain leads for our team of e-TeleQuote licensed health insurance agents;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","our ability to staff and train our team of e-TeleQuote licensed health insurance agents to manage leads and help eligible Medicare participants through the enrollment process; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","our health insurance carrier relationships that allow us to offer plans that most appropriately meet eligible Medicare participants\u2019 needs."]] [[/GREPCENT_TABLE]] LTV per approved policy and tail revenue adjustments. When a policy is approved by the health insurance carrier, commission revenue is recognized based on an estimated LTV per approved policy. LTV per approved policy is the cumulative total of commissions estimated to be collected over the expected life of a policy, subject to constraints applied in accordance with our revenue recognition policy. Specifically, LTV per approved policy is equal to the sum of the initial commissions, less an estimate of chargebacks for paid policies that are disenrolled in the first policy year, plus forecasted renewal commissions. This estimate is driven by a number of factors including, but not limited to, contracted commission rates from carriers, expected policy turnover, emerging chargeback activity and applied constraints. These factors may result in varying values from period to period. We recognize adjustments to revenue outside of LTV for approved policies from prior periods when our cash collections are different from the estimated constrained LTV’s, which we refer to as tail revenue adjustments. The recognition of tail revenue adjustments results from a change in the estimate of expected cash collections when actual cash collections have indicated a trend that is different from the estimated constrained LTV. Tail revenue adjustments can be positive or negative and we recognize positive adjustments to revenue when we do not believe it is probable that a significant reversal of cumulative revenue will occur. CAC per approved policy. Results are also driven by the costs of acquisition, which is defined as the total direct costs incurred per approved policy. Our costs of acquisition are primarily comprised of the cost to generate and acquire leads and the labor, benefits, bonus compensation and training costs associated with our team of e-TeleQuote licensed health insurance agents. We incur our entire cost of approved policies prior to enrollment and prior to receiving our first commission-related payment. Factors that impact our costs of acquisition per approved policy include: [[GREPCENT_TABLE]] [["","\u2022","the market price of externally-generated leads;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","our ability to efficiently procure internally-generated leads; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","the number of e-TeleQuote licensed health insurance agents in converting procured leads into approved policies."]] [[/GREPCENT_TABLE]] Other revenues. Other revenues recognized in our Senior Health segment largely consist of marketing development revenues received for providing marketing services to certain health insurance carriers. Marketing development revenue provides additional revenue to deliver approved policies and are based on meeting agreed-upon objectives with certain health insurance carriers. Marketing development revenue serves to offset contract acquisition costs associated with distribution of approved policies. Agreements for marketing development revenue are generally short-term in nature and can vary from period to period. Corporate and Other Distributed Products Segment. We earn revenues and pay commissions and referral fees within our Corporate and Other Distributed Products segment for mortgage loan originations, prepaid legal services, auto and homeowners’ insurance referrals, and other financial products, all of which are originated by third parties. Our Corporate and Other Distributed Products segment also includes in-force policies from several discontinued lines of insurance primarily underwritten by National Benefit Life Insurance Company (“NBLIC”).   Corporate and Other Distributed Products segment net investment income reflects actual net investment income recognized by the Company less the amount allocated to our Term Life Insurance segment based on the assumed net interest accreted to the segment’s U.S. GAAP-measured future policy benefit reserve liability less DAC. Actual net investment income reflected in the Corporate and 52 Other Distributed Products segment is impacted by the size and performance of our invested asset portfolio, which can be influenced by interest rates, credit spreads, and the mix of invested assets. The Corporate and Other Distributed Products segment also includes corporate income and expenses not allocated to our other segments, general and administrative expenses (other than expenses that are allocated to our Term Life Insurance or Investment and Savings Products segments), interest expense on notes payable, redundant reserve financing transactions and our revolving credit facility (the “Revolving Credit Facility”), as well as realized gains and losses on our invested asset portfolio. Capital Structure. Our financial results are affected by our capital structure, which includes our senior unsecured notes (the “Senior Notes”), redundant reserve financing transactions, our Revolving Credit Facility, and our common stock. See Note 10 (Debt), Note 12 (Stockholders’ Equity) and Note 16 (Commitments and Contingent Liabilities) to our consolidated financial statements included elsewhere in this report for more information on changes in our capital structure. Foreign Currency. The Canadian dollar is the functional currency for our Canadian subsidiaries and our consolidated financial results, reported in U.S. dollars, are affected by changes in the currency exchange rate. As such, the translated amount of revenues, expenses, assets and liabilities attributable to our Canadian subsidiaries will be higher or lower in periods where the Canadian dollar appreciates or weakens relative to the U.S. dollar, respectively. The year-end exchange rates (USD per CAD) used by the Company to translate our Canadian dollar functional currency assets and liabilities into U.S. dollars increased by 1% in 2021 from 2020. Also, the average exchange rates used by the Company in 2021 to translate our Canadian dollar functional currency revenues and expenses into U.S. dollars increased 7% compared to 2020. See the Results of Operations section, the Financial Condition section and “Quantitative and Qualitative Disclosures About Market Risk – Canadian Currency Risk” and Note 3 (Segment and Geographical Information) to our consolidated financial statements included elsewhere in this report for more information on our Canadian subsidiaries and the impact of foreign currency on our financial results. Income Taxes. The profitability of the Company and its subsidiaries is affected by income taxes assessed by federal, state, and U.S. territorial jurisdictions in the U.S. and federal and provincial jurisdictions in Canada.  Changes in tax legislation may impact the measurement of our deferred tax assets and liabilities and the amount of income tax expense we incur. Critical Accounting Estimates We prepare our financial statements in accordance with U.S. GAAP. These principles are established primarily by the Financial Accounting Standards Board. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions based on currently available information when recording transactions resulting from business operations. Our significant accounting policies are described in Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies) to our consolidated financial statements included elsewhere in this report. The most significant items on our consolidated balance sheets are based on fair value determinations, accounting estimates and actuarial determinations, which are susceptible to changes in future periods and could affect our results of operations and financial position. The estimates that we deem to be most critical to an understanding of our results of operations and financial position are those related to DAC, future policy benefit reserves and corresponding amounts recoverable from reinsurers, income taxes, renewal commissions, goodwill and the valuation of investments. The preparation and evaluation of these critical accounting estimates involve the use of various assumptions developed from management’s analyses and judgments. Subsequent experience or use of other assumptions could produce significantly different results. Deferred Policy Acquisition Costs. We defer incremental direct costs of successful contract acquisitions that result directly from and are essential to the contract transaction(s) and that would not have been incurred had the contract transaction(s) not occurred. These costs include commissions and policy issue expenses. Deferrable term life insurance policy acquisition costs are amortized over the initial level premium-paying period of the related policies in proportion to premium income and include assumptions made by us regarding persistency, expenses, interest rates and claims, which are updated on new business to reflect recent experience. These assumptions may not be modified, or unlocked on in-force term life insurance business, unless recoverability testing deems estimated future cash flows to be inadequate. DAC is subject to recoverability testing annually and when circumstances indicate that recoverability is uncertain. The DAC balance in our Term Life Insurance segment is susceptible to differences between estimated and actual persistency experience. As an example, a 10% higher lapse rate across all durations would result in approximately $26 million of additional amortization of DAC expense as of December 31, 2021. Conversely, a 10% lower lapse rate would result in approximately $26 million of lower amortization of DAC expense as of December 31, 2021. The impact is more pronounced for early duration lapse variances than later durations. Since the onset of the COVID-19 pandemic in 2020, we have experienced extraordinarily low lapse rates as a result of increased policyholder sentiment toward life insurance. In 2021, lapse rates were approximately 25% lower than locked-in assumptions (varying by duration), that resulted in an estimated $48 million of lower DAC amortization expense. This impact was less than the sensitivity estimate due to different levels of lapse reductions across durations. In August 2018, the FASB issued Accounting Standards Update No. 2018-12, Financial Services—Insurance (Topic 944) — Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”). The amendments in this update change accounting guidance for insurance companies that issue long-duration contracts, including term life insurance. We will adopt ASU 2018-12 effective January 1, 2023 via the modified retrospective method, which will allow us to carryover our historical DAC balance as of the 53 January 1, 2021 adoption date. ASU 2018-12 includes changes to how insurance companies that issue long-duration contracts amortize DAC by eliminating the accretion of interest and providing for amortization on a straight-line basis over the coverage period. We are currently finalizing the key assumptions and accounting policies that will be necessary to determine the impact that ASU 2028-12 will have on the DAC amortization recognized in our consolidated income statements after adoption. For additional information on DAC, see Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies) and Note 7 (Deferred Policy Acquisition Costs) to our consolidated financial statements included elsewhere in this report. Future Policy Benefit Reserves and Reinsurance. Liabilities for future policy benefits on our term life insurance products are reserves established for death claims and waiver of premium benefits and have been computed using a net level method and include assumptions as to mortality, persistency, interest rates, disability rates, and other assumptions based on our historical experience, modified as necessary for new business to reflect anticipated trends and to include provisions for possible adverse deviation. Reserves related to reinsured policies are accounted for using assumptions consistent with those used to determine the future policy benefit reserves and are included in reinsurance recoverables in our consolidated balance sheets. Similar to the term life insurance DAC discussion above, we do not modify the assumptions used to establish future policy benefit reserves during the policy term unless recoverability testing deems them to be inadequate and there is no remaining DAC associated with the underlying policies. Our results depend significantly upon the extent to which our actual experience is consistent with the assumptions we used in determining our future policy benefit reserves. Our future policy benefit reserve assumptions and estimates require significant judgment and, therefore, are inherently uncertain. We cannot determine with precision the ultimate amounts that we will pay for actual claims or the timing of those payments. Similar to DAC, the balances of future policy benefit reserves and reinsurance recoverables are susceptible to differences between estimated and actual persistency experience. As of December 31, 2031, a 10% lapse reduction across all durations would increase future policy benefit reserves by $26 million, partially offset by the corresponding reinsurance recoverable impact of approximately $10 million. Conversely, the impact of a 10% increase in lapse rates would decrease future policy reserves by approximately $26 million, partially offset by $10 million of reinsurance recoverables. In 2021, we experienced approximately 25% lower lapses in aggregate than estimated, which increased future policy benefit reserves net of reinsurance recoverables by $26 million. This impact was less than the sensitivity estimate because improvements in lapse rates were not uniform by duration, risk class, age, or product. As noted above, the Company will adopt ASU 2018-12 effective January 1, 2023 via the modified retrospective method. The amendments in this update change accounting guidance for insurance companies that issue long-duration contracts, including term life insurance. ASU 2018-12 requires companies that issue long-duration insurance contracts to update assumptions used in measuring future policy benefits, including mortality, disability, and persistency, at least annually instead of locking those assumptions at contract inception and reflecting differences in assumptions and actual performance as the experience occurs. From an income statement perspective, we anticipate that changes in assumptions on an annual basis will impact the timing of benefits and claims recognized during the life of our long-duration contracts. We are still working to quantify the impact ASU 2018-12 will have on our consolidated income statements. ASU 2018-12 also includes changes to how insurance companies that issue long-duration contracts update the discount rate assumptions used in measuring future policy benefits reserves while increasing the level of financial statement disclosures required. The adoption of ASU 2018-12 will have an impact on our consolidated financial statements and related disclosures and will require changes to our processes, systems, and controls. We are currently finalizing the key assumptions and accounting policies that will be necessary to evaluate and implement this standard. Based on the preliminary results of our analysis, we anticipate that we will recognize a significant reduction in accumulated other comprehensive income in the equity section of our consolidated balance sheet on the adoption date, January 1, 2021. The expected impact on our consolidated balance sheet is the net effect of revaluing future policy benefits liabilities and reinsurance recoverables using current interest rates prescribed by the standard as of the adoption date versus interest rate assumptions locked in when the policies were issued. We maintain a large volume of policies in our term life business written over several decades and policies written several years ago include interest rate assumptions that were made when rates were much higher than they have been in recent years. Therefore, changes in current interest rates from period to period will create volatility in the amount of accumulated other comprehensive income recognized. We are still calculating the precise magnitude of this reduction to the accumulated other comprehensive income portion of equity but anticipate that it will be significant. For additional information on future policy benefits and reinsurance, see Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies) and Note 6 (Reinsurance) to our consolidated financial statements included elsewhere in this report. Income Taxes. We account for income taxes using the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequences attributable to (i) temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and (ii) operating loss and tax credit carryforwards. Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not applicable to the periods in which we expect the temporary difference will reverse. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In light of the multiple tax jurisdictions in which we operate, our tax returns are subject to routine audit by the Internal Revenue Service and other taxation authorities. These audits at times may produce alternative views regarding particular tax positions taken in the year(s) of review. As a result, the Company records uncertain tax positions, which require recognition at the time when it is deemed more likely than not that the position in question will be upheld. Although management believes that the judgment and 54 estimates involved are reasonable and that the necessary provisions have been recorded, changes in circumstances or unexpected events could adversely affect our financial position, results of operations, and cash flows. For additional information on income taxes, see Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies) and Note 11 (Income Taxes) to our consolidated financial statements included elsewhere in this report. Renewal commissions receivable. We earn commissions when e-TeleQuote enrolls individual insurance policies on behalf of its customers, third party health insurance carriers. We have no further obligations to our customers once an eligible Medicare participant is enrolled. We are entitled to commissions at the time the initial policy is approved by the health insurance carrier and are entitled to renewal commissions for as long as the policy renews. The estimate of renewal commissions is part of the variable consideration recognized and requires significant judgment including determining the number of periods in which a renewal will occur and the value of those renewal commissions to be received if renewed. We utilize the expected value approach to do this, incorporating a combination of historical lapse data and effective commission rates to estimate forecasted renewal consideration. We apply a constraint on our estimate of renewal commissions so that it is probable that a significant reversal in the amount of cumulative revenue will not occur. Variable consideration in excess of the amount constrained is recognized in subsequent reporting periods when the uncertainty is resolved. We utilize a practical expedient to estimate renewal commissions revenue by applying the use of a portfolio approach to policies grouped together by health insurance carrier, Medicare product type, and policy effective date (referred to as a “cohort”). This provides a practical approach to estimating the renewal commissions expected to be collected by evaluating various factors, including but not limited to, contracted commission rates, disenrollment experience and renewal persistency rates. We continuously evaluate the assumptions and inputs into our calculation of renewal commissions revenue and refine our estimates based on current information. There could be situations where new facts or circumstances, that were not available at the time of the initial estimate, may indicate that the renewal commissions receivable recognized is higher or lower than our revised expectation of renewal commissions that will be collected. In those situations, the renewal commissions receivable will be written down or up to its revised expected value by recording tail revenue adjustments. During the fourth quarter of 2021, the Company made an adjustment to the renewal commissions receivable as of the acquisition date to conform e-TeleQuote’s accounting under ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) with the Company’s accounting policies under ASC 606.  The adjustment recognized resulted from the Company’s reassessment of the estimates made by e-TeleQuote for the variable consideration estimated for approved policies under the expected value approach as of the acquisition date.  The reassessment of estimates involved the implementation of an enhanced algorithmic model for processing historical policy lapse data and forecasting future policy duration curves. As a result, the Company recognized an adjustment to decrease the renewal commissions receivable by $46 million as a measurement period adjustment to the preliminary purchase price allocation recognized as of the acquisition date. For additional information on renewal commissions receivable, see Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies) and Note 18 (Revenue from Contracts with Customers) to our consolidated financial statements included elsewhere in this report. Goodwill. In applying the acquisition method of accounting for the e-TeleQuote business combination, amounts assigned to identifiable assets and liabilities acquired are based on estimated fair values as of the date of acquisition, subject to certain exceptions, with the remainder recorded as goodwill. Significant judgment is used to determine the value of the acquired assets and liabilities as well as the purchase consideration for non-controlling interests. Key assumptions used to develop these estimates include projected revenue, expenses, and cash flows, weighted average cost of capital, estimates of customer turnover rates, estimates of terminal values, forward-looking estimates of peer company values, and assessment of the probabilities of the earnout metrics. Goodwill is tested at the reporting unit level, all of which is attributable to the Senior Health segment, which is defined as the reporting unit. As of December 31, 2021, we identified events and circumstances that suggested it was more likely than not that the fair value of the Senior Health reporting unit was lower than its carrying value. These events and circumstances consist of various factors, including recent financial performance, elevated industry-wide policy churn, and declines in the market value of publicly traded peers. As a result, the Company performed a quantitative impairment analysis using a combination of the income and market approaches. We utilized an income approach by preparing a discounted cash flow analysis to determine the reporting unit’s fair value. The discounted cash flow analysis included key assumptions such as the weighted average cost of capital, long-term growth rate and projected operating results such as approved policies, Lifetime Value of Commissions, contract acquisition costs, operating expenses, collections of renewal commissions receivable, and utilization of net operating losses for income tax purposes. We utilized a market approach by deriving the reporting unit’s fair value applying publicly-traded peer company trading multiples to forward looking operating results. We then weighted each approach to determine the reporting unit’s fair value placing greater emphasis on the income approach as we believe management’s expectations of the cash flows generated by the reporting unit were more relevant in determining fair value given the limitations in the credibility of available peer company data. After the fair value of the reporting unit was determined, the Company calculated its carrying value by taking the reporting unit’s assets minus its liabilities. The carrying value of the reporting unit was than compared to its fair value to determine the extent of any goodwill impairment. Based on this analysis, we recognized a goodwill impairment charge of $76.0 million, which represents the excess of the Senior Health reporting unit’s carrying value over its estimated fair value at December 31, 2021. The goodwill impairment charge recognized did not impact the Company’s income tax expense as the goodwill acquired from the e-TeleQuote acquisition does not have any tax basis. The determination of whether the carrying value of the reporting unit exceeds its fair value involves a high degree of estimation and can be affected by a number of industry and company-specific risk factors that are subject to change over time. 55 For additional information on goodwill, see Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies) and Note 20 (Acquisition) to our consolidated financial statements included elsewhere in this report. Invested Assets. We hold primarily fixed-maturity securities, including bonds and redeemable preferred stocks. We have classified these invested assets as available-for-sale, except for the securities of our U.S. broker-dealer subsidiary, which we have classified as trading securities. We also hold a credit-enhanced note, which we classified as a held-to-maturity security that was issued in exchange for a surplus note (the “Surplus Note”) with an equal principal amount as part of a redundant reserve financing transaction. All of these securities are carried at fair value, except for the held-to-maturity security, which is carried at amortized cost. Unrealized gains and losses on available-for-sale securities are included as a separate component of other comprehensive income in our consolidated statements of comprehensive income. We also hold equity securities, including common and non-redeemable preferred stock. These equity securities are measured at fair value and changes in unrealized gains and losses are recognized in net income. Changes in fair value of trading securities are included in net income in the accompanying consolidated statements of income in the period in which the change occurred. Fair value. Fair value is the price that would be received upon the sale of an asset in an orderly transaction between market participants at the measurement date. Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information. We classify and disclose all invested assets carried at fair value in one of the three fair value measurement categories prescribed by U.S. GAAP. As of each reporting period, we classify all invested assets in their entirety based on the lowest level of input that is significant to the fair value measurement. Significant levels of estimation and judgment are required to determine the fair value of certain of our investments. The factors influencing these estimations and judgments are subject to change in subsequent reporting periods. Credit Losses for Available-for-sale Fixed-maturity Securities. For available-for-sale securities in an unrealized loss position that we intend to sell or would more-likely-than-not be required to sell before the expected recovery of the amortized cost basis, we recognize the impairment as a credit loss in our consolidated statements of income by writing down the amortized cost basis to the fair value. For available-for-sale securities in an unrealized loss position that we do not intend to sell or it is not more-likely-than-not that we will be required to sell before the expected recovery of the amortized cost basis, we recognize the portion of the impairment that is due to a credit loss in our consolidated statements of income through an allowance. We reverse credit losses previously recognized in the allowance in situations where the estimate of credit losses on those securities has declined. We do not consider the length of time an available-for-sale security has been in an unrealized loss position when estimating credit losses. Analyses that we perform to determine whether an impairment is due to a credit loss or other factors involve the use of estimates, assumptions, and subjectivity. We evaluate a number of quantitative and qualitative factors when determining the credit loss on individual securities, including issuer-specific risks as well as relevant macroeconomic risks. If these factors or future events change, we could experience material credit losses recognized in our consolidated statements of income for available-for-sale securities in future periods, which could adversely affect our financial condition, results of operations and the size and quality of our invested assets portfolio. For additional information on our invested assets, see Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies), Note 4 (Investments) and Note 5 (Fair Value of Financial Instruments) to our consolidated financial statements included elsewhere in this report. Results of Operations Revenues. Our revenues consist of the following: [[GREPCENT_TABLE]] [["","\u2022","Net premiums. Reflects direct premiums payable by our policyholders on our in-force insurance policies, primarily term life insurance, net of reinsurance premiums that we pay to reinsurers."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Commissions and fees. Consists primarily of dealer re-allowances earned on the sales of investment and savings products, trail commissions and management fees based on the asset values of client accounts, marketing and distribution fees from product originators, fees for non-bank custodial services rendered in our capacity as nominee on client retirement accounts funded by mutual funds on our servicing platform, transfer agent recordkeeping fees for mutual funds on our servicing platform, and fees associated with the sale of other distributed products. Also consists of Commissions and Fees earned from the distribution of Medicare-related insurance products on behalf of health insurance carriers."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Net investment income. Represents income, net of investment-related expenses, generated by our invested asset portfolio, which consists primarily of interest income earned on fixed-maturity investments. Investment income recorded on our held-to-maturity invested asset and the offsetting interest expense recorded for our Surplus Note are included in net investment income."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Investment gains (losses). Primarily reflects the difference between amortized cost and amounts realized on the sale of available-for-sale securities, credit losses recognized on available-for-sale securities and changes in the fair value of equity securities."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Other, net. Reflects revenues generated from the fees charged for access to Primerica Online (\u201cPOL\u201d), our primary sales force support tool, marketing development revenue received from health insurance carriers, as well as revenues from the sale of other miscellaneous items."]] [[/GREPCENT_TABLE]] 56 Benefits and Expenses. Our operating expenses consist of the following: [[GREPCENT_TABLE]] [["","\u2022","Benefits and claims. Reflects the benefits and claims payable on insurance policies, changes in our reserves for future policy claims and reserves for other benefits payable, net of reinsurance."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Amortization of DAC. Represents the amortization of capitalized costs directly associated with the sale of an insurance policy or segregated fund, including sales commissions, medical examination and other underwriting costs, and other eligible policy issuance costs."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Sales commissions. Represents commissions to the sales representatives in connection with the sale of investment and savings products, and products other than insurance products."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Insurance expenses. Reflects non-capitalized insurance expenses, including staff compensation, technology and communications, insurance independent sales force-related costs, printing, postage and distribution of insurance sales materials, outsourcing and professional fees, premium taxes, and other corporate and administrative fees and expenses related to our insurance operations. Insurance expenses also include both indirect policy issuance costs and costs associated with unsuccessful efforts to acquire new policies."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Insurance commissions. Reflects sales commissions with respect to insurance products that are not eligible for deferral."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Contract acquisition costs. Reflects the total direct costs incurred to acquire an approved policy during the period on Senior Health products. Contract acquisition costs are primarily comprised of the cost to generate and acquire compliant leads and the labor, benefits, incentive compensation and training costs associated with our team of e-TeleQuote licensed health insurance agents. The number of e-TeleQuote licensed health insurance agents, agent tenure and attrition rate all impact CAC."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Interest expense. Reflects interest on our notes payable, any interest and the commitment fee on our Revolving Credit Facility, the financing charges related to the letter of credit issued under the credit facility agreement with Deutsche Bank, fees paid for the credit enhancement feature on our held-to-maturity invested asset, and a finance charge incurred pursuant to one of our coinsurance agreements with an IPO coinsurer."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Goodwill impairment loss. Represents the excess of the Senior Health reporting unit\u2019s carrying value over its estimated fair value."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Loss on extinguishment of debt. Consists primarily of the make whole premium paid to extinguish senior notes scheduled to mature in 2022."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Other operating expenses. Consists primarily of expenses that are unrelated to the distribution of life insurance products, including staff compensation, technology and communications, various sales force-related costs, non-bank custodial and transfer agent recordkeeping administrative costs, outsourcing and professional fees, and other corporate and administrative fees and expenses."]] [[/GREPCENT_TABLE]] Insurance expenses and other operating expenses directly attributable to the Term Life Insurance, Investment and Savings Products and Senior Health segments are recorded directly to the applicable segment. We allocate certain other revenue and operating expenses that are not directly attributable to a specific operating segment using methods expected to reasonably measure the benefit received by each reporting segment. Such methods include time studies, recorded usage, revenue distribution, and sales force representative distribution. These allocated items include fees charged for access to POL and costs incurred for technology, sales force support, occupancy and other general and administrative costs. Costs that are not directly charged or allocated to our three primary operating segments are included in our Corporate and Other Distributed Products segment. 57 Primerica, Inc. and Subsidiaries Results. Our results of operations for the years ended December 31, 2021, 2020, and 2019 were as follows: [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","2021 vs. 2020 change","","","2020 vs. 2019 change (1)"],["","","2021","","","2020","","","2019(1)","","","$","","","%","","","$","","","%"],["","","(Dollars in thousands)"],["Revenues:"],["Direct premiums","","$","3,122,148","","","$","2,907,149","","","$","2,753,866","","","$","214,999","","","","7","%","","$","153,283","","","","6","%"],["Ceded premiums","","","(1,616,264",")","","","(1,580,766",")","","","(1,569,729",")","","","35,498","","","","2","%","","","11,037","","","","1","%"],["Net premiums","","","1,505,884","","","","1,326,383","","","","1,184,137","","","","179,501","","","","14","%","","","142,246","","","","12","%"],["Commissions and fees","","","1,042,813","","","","751,271","","","","713,804","","","","291,542","","","","39","%","","","37,467","","","","5","%"],["Investment income net of investment expenses","","","142,795","","","","141,287","","","","142,398","","","","1,508","","","","1","%","","","(1,111",")","","","(1",")%"],["Interest expense on surplus note","","","(62,207",")","","","(57,473",")","","","(48,325",")","","","4,734","","","","8","%","","","9,148","","","","19","%"],["Net investment income","","","80,588","","","","83,814","","","","94,073","","","","(3,226",")","","","(4",")%","","","(10,259",")","","","(11",")%"],["Realized investment gains (losses)","","","4,665","","","","1,359","","","","826","","","","3,306","","","*","","","","533","","","*"],["Other investment gains (losses)","","","1,207","","","","(6,355",")","","","4,139","","","","7,562","","","*","","","","(10,494",")","","*"],["Investment gains (losses)","","","5,872","","","","(4,996",")","","","4,965","","","","10,868","","","*","","","","(9,961",")","","*"],["Other, net","","","74,575","","","","61,069","","","","55,525","","","","13,506","","","","22","%","","","5,544","","","","10","%"],["Total revenues","","","2,709,732","","","","2,217,541","","","","2,052,504","","","","492,191","","","","22","%","","","165,037","","","","8","%"],["Benefits and expenses:"],["Benefits and claims","","","722,753","","","","615,569","","","","493,820","","","","107,184","","","","17","%","","","121,749","","","","25","%"],["Amortization of DAC","","","251,179","","","","224,321","","","","254,552","","","","26,858","","","","12","%","","","(30,231",")","","","(12",")%"],["Sales commissions","","","522,308","","","","376,636","","","","357,198","","","","145,672","","","","39","%","","","19,438","","","","5","%"],["Insurance expenses","","","202,605","","","","188,117","","","","178,817","","","","14,488","","","","8","%","","","9,300","","","","5","%"],["Insurance commissions","","","34,532","","","","32,134","","","","25,051","","","","2,398","","","","7","%","","","7,083","","","","28","%"],["Contract acquisition costs","","","52,788","","","","-","","","","-","","","","52,788","","","*","","","","-","","","*"],["Interest expense","","","30,618","","","","28,839","","","","28,811","","","","1,779","","","","6","%","","","28","","","*"],["Goodwill impairment loss","","","76,000","","","","-","","","","-","","","","76,000","","","*","","","","-","","","*"],["Loss on extinguishment of debt","","","8,927","","","","-","","","","-","","","","8,927","","","*","","","","-","","","*"],["Other operating expenses","","","296,851","","","","245,195","","","","237,144","","","","51,656","","","","21","%","","","8,051","","","","3","%"],["Total benefits and expenses","","","2,198,561","","","","1,710,811","","","","1,575,393","","","","487,750","","","","29","%","","","135,418","","","","9","%"],["Income before income taxes","","","511,171","","","","506,730","","","","477,111","","","","4,441","","","","1","%","","","29,619","","","","6","%"],["Income taxes","","","139,191","","","","120,566","","","","110,720","","","","18,625","","","","15","%","","","9,846","","","","9","%"],["Net income","","","371,980","","","","386,164","","","","366,391","","","","(14,184",")","","","(4",")%","","","19,773","","","","5","%"],["Net income (loss) attributable to noncontrolling interests","","","(1,377",")","","","-","","","","-","","","","(1,377",")","","*","","","","-","","","*"],["Net income attributable to Primerica, Inc.","","$","373,357","","","$","386,164","","","$","366,391","","","$","(12,807",")","","","(3",")%","","$","19,773","","","","5","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Refer to the 2020 MD&A for discussions of 2019 items and comparisons between 2020 and 2019 financial results."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["*","Less than 1% or not meaningful"]] [[/GREPCENT_TABLE]] Total revenues. Total revenues increased in 2021 from 2020 driven by higher commissions and fees earned in the Investment and Savings Products segment and growth in net premiums in the Term Life Insurance segment. Commissions and fees from our Investment and Savings Products segment increased in part due to higher sales-based revenues driven by strong demand for variable annuity and mutual fund products.  Also contributing to the increase in commissions and fees was growth in asset-based revenues, reflecting higher average client asset values driven by market appreciation and continued positive net flows since 2020. The increase in commissions and fees was also impacted by the acquisition of e-TeleQuote on July 1, 2021. The increase in Term Life net premiums was driven by incremental premiums on term life insurance policies that are not subject to the IPO coinsurance transactions as well as the layering effect of strong sales of life insurance and significant positive persistency trends experienced across all policy durations as a result of favorable public sentiment for protection products since the onset of the COVID-19 pandemic. Net investment income decreased in 2021 from 2020 due to a $9.5 million negative impact from lower yields on the invested asset portfolio and a lower total return on the deposit asset backing the 10% coinsurance agreement that is subject to deposit method accounting. The lower year-over-year total return of $2.4 million on this deposit asset was primarily due to lower yielding securities underlying the deposit asset compared to 2020. These decreases were partially offset by a $10.6 million positive impact from growth in the invested asset portfolio. Investment income net of investment expenses includes interest earned on our held-to-maturity asset, which is completely offset by interest expense on Surplus Note, thereby eliminating any impact on net investment income. Amounts recognized for each line item will remain offsetting and will fluctuate from period to period along with the principal amounts of the held-to-maturity asset and the Surplus Note based on the balance of reserve being contractually supported under a redundant reserve financing transaction by Vidalia Re, Inc. (“Vidalia Re Financing Transaction”). For more information on the surplus note, see Note 10 (Debt) and for additional information on the Vidalia Re Financing Transaction, see Note 4 (Investments) to our consolidated financial statements included elsewhere in this report. 58 Investment gains (losses) increased to a gain during 2021 compared to a loss in 2020 in part due to a $2.4 million positive mark-to-market adjustment on equity securities held within our investment portfolio during 2021 compared to a $2.5 million negative mark-to-market adjustment on equity securities held within our investment portfolio in 2020 as a result of market reaction to the economic disruption caused by the onset of the COVID-19 pandemic and the subsequent recovery in the markets. Also contributing to the investment loss in 2020 was the recognition of $3.8 million of credit losses for specific issuers that operated in distressed industry sectors that were particularly affected by the economic disruption caused by the onset of the COVID-19 pandemic. By comparison, only $0.8 million of credit losses were recognized in 2021. Other net revenues increased in 2021 from 2020 largely due to the increase in fees received for access to POL, our primary sales force support tool. The increase in these fees is consistent with subscriber growth. Fees collected for POL subscriptions are allocated between our Term Life Insurance segment and our Investment and Savings Products segment based on the estimated number of sales representatives that are licensed to sell products in each segment. The increase in these fees was accompanied by higher spending reflected in insurance and other operating expenses to support and enhance POL. Also contributing to the increase were marketing development revenues recognized in the Senior Health segment as a result of the acquisition of e-TeleQuote on July 1, 2021. Total benefits and expenses. Total benefits and expenses increased significantly in 2021 from 2020 largely due to higher sales commissions in our Investment and Savings Products segment as a result of the increases in sales-based and asset-based revenues discussed above. Also contributing to the increase were the growth in benefits and claims and amortization of DAC due to growth in our in-force book of business. Benefits and claims also increased due to higher COVID-19 related claims in excess of historical trends in 2021 versus 2020. Furthermore, total benefits and expenses incurred in 2021 include a non-cash goodwill impairment charge of $76.0 million, which represents the excess of the Senior Health reporting unit’s carrying value over its estimated fair value at December 31, 2021, contract acquisition costs as a result of the acquisition of e-TeleQuote on July 1, 2021 and the loss on extinguishment of debt as a result of the accelerated repayment of senior notes scheduled to mature in 2022. Insurance expenses and other operating expenses were higher in 2021 due to growth in the business, various initiatives to support business development, and transaction-related expenses incurred in connection with the acquisition of e-TeleQuote. Income taxes. Our effective income tax rate for 2021 was 27.2% compared to 23.8% in 2020. The increase in the effective tax rate in 2021 is driven by a non-cash goodwill impairment charge that is not deductible for income tax purposes.   For additional information, see the discussions of results of operations by segment below. Term Life Insurance Segment. Our results for the Term Life Insurance segment for the years ended December 31, 2021, 2020, and 2019 were as follows: [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","2021 vs. 2020 change","","","2020 vs. 2019 change(1)"],["","","2021","","","2020","","","2019(1)","","","$","","","%","","","$","","","%"],["","","(Dollars in thousands)"],["Revenues:"],["Direct premiums","","$","3,099,828","","","$","2,883,583","","","$","2,728,844","","","$","216,245","","","","7","%","","$","154,739","","","","6","%"],["Ceded premiums","","","(1,609,598",")","","","(1,573,922",")","","","(1,562,383",")","","","35,676","","","","2","%","","","11,539","","","","1","%"],["Net Premiums","","","1,490,230","","","","1,309,661","","","","1,166,461","","","","180,569","","","","14","%","","","143,200","","","","12","%"],["Allocated net investment income","","","36,486","","","","27,030","","","","19,922","","","","9,456","","","","35","%","","","7,108","","","","36","%"],["Other, net","","","48,970","","","","46,079","","","","40,848","","","","2,891","","","","6","%","","","5,231","","","","13","%"],["Total revenues","","","1,575,686","","","","1,382,770","","","","1,227,231","","","","192,916","","","","14","%","","","155,539","","","","13","%"],["Benefits and expenses:"],["Benefits and claims","","","703,897","","","","593,948","","","","475,330","","","","109,949","","","","19","%","","","118,618","","","","25","%"],["Amortization of DAC","","","241,451","","","","216,208","","","","248,711","","","","25,243","","","","12","%","","","(32,503",")","","","(13",")%"],["Insurance expenses","","","197,262","","","","182,471","","","","172,316","","","","14,791","","","","8","%","","","10,155","","","","6","%"],["Insurance commissions","","","18,457","","","","17,592","","","","10,781","","","","865","","","","5","%","","","6,811","","","","63","%"],["Total benefits and expenses","","","1,161,067","","","","1,010,219","","","","907,138","","","","150,848","","","","15","%","","","103,081","","","","11","%"],["Income before income taxes","","$","414,619","","","$","372,551","","","$","320,093","","","","42,068","","","","11","%","","","52,458","","","","16","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Refer to the 2020 MD&A for discussions of 2019 items and comparisons between 2020 and 2019 financial results."]] [[/GREPCENT_TABLE]] Net premiums. Direct premiums increased in 2021 from 2020 largely due to strong sales of new policies in recent periods that contributed to growth in the in-force book of business.  Also contributing to the increase in direct premiums are high levels of persistency experienced as a result of favorable public sentiment for protection products since the onset of the COVID-19 pandemic.  This is partially offset by an increase in ceded premiums, which includes $77.2 million in higher non-level YRT reinsurance ceded premiums as business not subject to the IPO coinsurance transactions ages, reduced by $41.5 million in lower coinsurance ceded premiums due to the run-off of business subject to the IPO coinsurance transactions.   Allocated net investment income. Allocated net investment income increased in 2021 from 2020 due to an increase in the assumed net interest accreted to our Term Life Insurance segment’s future policy benefit reserve liability less deferred acquisition costs as our Term Life Insurance segment’s in-force business continues to grow. 59 Benefits and claims. Benefits and claims increased in 2021 from 2020 primarily due to higher mortality experience as a result of the COVID-19 pandemic as well as larger reserve increases due to growth in net premiums. Total benefits and claims experience increased in 2021 by approximately $63 million of claims, net of reinsurance, in excess of historical trends compared to approximately $33 million of excess claims, net of reinsurance, in 2020. Most of the increase in excess claims is due to COVID-19. Benefit reserves increased by approximately $26 million in 2021 due to higher persistency in both 2021 and 2020. Amortization of DAC. The amortization of DAC increased in 2021 from 2020 as a result of higher net premiums. Persistency during both periods was well above historical levels, but began to normalize in 2021 compared to the elevated levels experienced in 2020. This high persistency reduced the amortization of DAC by approximately $48 million in 2021 compared to approximately $53 million in 2020.  Insurance expenses. Insurance expenses increased in 2021 from 2020 primarily due to an increase in expenses of $15.7 million as a result of growth in the business and employee-related expenses. This increase was partially offset by a decrease in expenses of $4.4 million as a result of event cancellations and a reduction in independent sales force-related expenses in 2021 as a result of the COVID-19 pandemic. Investment and Savings Products Segment. Our results of operations for the Investment and Savings Products segment for the years ended December 31, 2021, 2020, and 2019 were as follows: [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","2021 vs. 2020 change","","","2020 vs. 2019 change(1)"],["","","2021","","","2020","","","2019(1)","","","$","","","%","","","$","","","%"],["","","(Dollars in thousands)"],["Revenues:"],["Commissions and fees:"],["Sales-based revenues","","$","401,508","","","$","284,651","","","$","282,887","","","$","116,857","","","","41","%","","$","1,764","","","","1","%"],["Asset-based revenues","","","441,303","","","","339,904","","","","318,149","","","","101,399","","","","30","%","","","21,755","","","","7","%"],["Account-based revenues","","","86,939","","","","83,041","","","","80,555","","","","3,898","","","","5","%","","","2,486","","","","3","%"],["Other, net","","","12,097","","","","11,271","","","","10,017","","","","826","","","","7","%","","","1,254","","","","13","%"],["Total revenues","","","941,847","","","","718,867","","","","691,608","","","","222,980","","","","31","%","","","27,259","","","","4","%"],["Expenses:"],["Amortization of DAC","","","8,668","","","","7,055","","","","4,549","","","","1,613","","","","23","%","","","2,506","","","","55","%"],["Insurance commissions","","","14,904","","","","13,184","","","","12,735","","","","1,720","","","","13","%","","","449","","","","4","%"],["Sales commissions:"],["Sales-based","","","287,359","","","","201,148","","","","199,690","","","","86,211","","","","43","%","","","1,458","","","","1","%"],["Asset-based","","","206,201","","","","154,572","","","","141,655","","","","51,629","","","","33","%","","","12,917","","","","9","%"],["Other operating expenses","","","150,130","","","","140,264","","","","141,167","","","","9,866","","","","7","%","","","(903",")","","","(1",")%"],["Total expenses","","","667,262","","","","516,223","","","","499,796","","","","151,039","","","","29","%","","","16,427","","","","3","%"],["Income before income taxes","","$","274,585","","","$","202,644","","","$","191,812","","","$","71,941","","","","36","%","","$","10,832","","","","6","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Refer to the 2020 MD&A for discussions of 2019 items and comparisons between 2020 and 2019 financial results."]] [[/GREPCENT_TABLE]] Commissions and fees. Commissions and fees increased in 2021 from 2020 in part due to higher sales-based revenues driven by robust demand for mutual fund and variable annuity investment products. Also contributing to the increase were growth in asset-based revenues reflecting higher average client asset values driven by market appreciation and continued positive net flows. Amortization of DAC. Amortization of DAC increased in 2021 from 2020 primarily due to favorable redemption experience of the funds underlying our Canadian segregated funds product in the prior year, which normalized in 2021. Sales commissions. The increase in sales-based commissions in 2021 from 2020 was generally consistent with the increase in sales-based revenue. When considering that asset-based expenses for our Canadian segregated funds were reflected within insurance commissions and amortization of DAC, the increase in asset-based commissions in 2021 compared to 2020 was consistent with the increase in asset-based revenues excluding the Canadian segregated funds. Other operating expenses. Other operating expenses increased in 2021 from 2020 primarily due to growth in the business. Senior Health Segment. Our results of operations for the Senior Health segment for the year ended December 31, 2021 were as follows: 60 [[GREPCENT_TABLE]] [["","","Year ended December 31, 2021(1)"],["","","(Dollars in thousands)"],["Revenues:"],["Commissions and fees","","$","50,903"],["Other, net","","","9,537"],["Total revenues","","","60,440"],["Benefits and expenses:"],["Contract acquisition costs","","","52,788"],["Goodwill impairment loss","","","76,000"],["Other operating expenses","","","16,702"],["Total benefits and expenses","","","145,490"],["Income (loss) before income taxes","","$","(85,050",")"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Results of operations for 2021 have no comparable period metrics due to our acquisition of e-TeleQuote on July 1, 2021."]] [[/GREPCENT_TABLE]] Commissions and fees. Commissions and fees reflect the lifetime value of commissions expected to be received for approved Medicare insurance policies distributed on behalf of health insurance carriers as well as tail revenue adjustments recognized to the expected value of commissions for policies distributed in previous periods. The volume of policies distributed was impacted by heighted agent attrition while the LTV’s of those policies include current estimates for renewal rates and chargeback activity considering recent trends of elevated policy churn. In addition, a $4.9 million negative tail revenue adjustment was recognized in the period due to lower renewal rates on policies with performance obligations satisfied in prior periods. This adjustment reflects unprecedented policy churn activity driven by heightened levels of advertising and consumer awareness of plans with dynamic features offered by carriers. Other, net. Marketing development revenue was received for providing marketing services on behalf of certain health insurance carriers in 2021. Marketing development revenue provides additional revenue for delivering approved policies and are based on meeting agreed-upon objectives with certain health insurance carriers. Agreements for marketing development revenue are generally short-term in nature and can vary from period to period Contract acquisition costs. Contract acquisition costs are primarily comprised of costs associated with acquiring leads from third parties and internally generated leads including fees paid to Primerica Senior Health certified independent sales representatives as well as compensation, training and licensing costs associated with e-TeleQuote’s licensed health insurance agents. Contract acquisition costs reflect high lead costs as a result of lower productivity because of heightened agent attrition in a tight labor market. Goodwill impairment loss. Reflects the non-cash goodwill impairment charge recognized during the period, which represents the excess of the Senior Health reporting unit’s carrying value over its estimated fair value as of December 31, 2021. Other operating expenses. Represents other operating expenses incurred during the period. These expenses are not directly tied to the distribution of Medicare insurance products and consist of intangible amortization, depreciation, technology and communications, and other administrative fees. Also included in Other operating expenses was $5.8 million of amortization expense for intangible assets and internally developed software identified as part of the e-TeleQuote acquisition. Corporate and Other Distributed Products Segment. Our results of operations for the Corporate and Other Distributed Products segment for the years ended December 31, 2021, 2020, and 2019 were as follows: 61 [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","2021 vs. 2020 change","","","2020 vs. 2019 change(1)"],["","","2021","","","2020","","","2019(1)","","","$","","","%","","","$","","","%"],["","","(Dollars in thousands)"],["Revenues:"],["Direct premiums","","$","22,320","","","$","23,566","","","$","25,022","","","$","(1,246",")","","","(5",")%","","$","(1,456",")","","","(6",")%"],["Ceded premiums","","","(6,666",")","","","(6,844",")","","","(7,346",")","","","(178",")","","","(3",")%","","","(502",")","","","(7",")%"],["Net Premiums","","","15,654","","","","16,722","","","","17,676","","","","(1,068",")","","","(6",")%","","","(954",")","","","(5",")%"],["Commissions and fees","","","62,160","","","","43,675","","","","32,213","","","","18,485","","","","42","%","","","11,462","","","","36","%"],["Allocated investment income net of investment expenses","","","106,309","","","","114,257","","","","122,476","","","","(7,948",")","","","(7",")%","","","(8,219",")","","","(7",")%"],["Interest expense on surplus note","","","(62,207",")","","","(57,473",")","","","(48,325",")","","","4,734","","","","8","%","","","9,148","","","","19","%"],["Allocated net investment income","","","44,102","","","","56,784","","","","74,151","","","","(12,682",")","","","(22",")%","","","(17,367",")","","","(23",")%"],["Realized investment gains (losses)","","","4,665","","","","1,359","","","","826","","","","3,306","","","*","","","","533","","","*"],["Other investment gains (losses)","","","1,207","","","","(6,355",")","","","4,139","","","","7,562","","","*","","","","(10,494",")","","*"],["Investment gains (losses)","","","5,872","","","","(4,996",")","","","4,965","","","","10,868","","","*","","","","(9,961",")","","*"],["Other, net","","","3,971","","","","3,719","","","","4,660","","","","252","","","","7","%","","","(941",")","","","(20",")%"],["Total revenues","","","131,759","","","","115,904","","","","133,665","","","","15,855","","","","14","%","","","(17,761",")","","","(13",")%"],["Benefits and expenses:"],["Benefits and claims","","","18,856","","","","21,621","","","","18,490","","","","(2,765",")","","","(13",")%","","","3,131","","","","17","%"],["Amortization of DAC","","","1,060","","","","1,058","","","","1,292","","","","2","","","*","","","","(234",")","","","(18",")%"],["Insurance expenses","","","5,343","","","","5,646","","","","6,501","","","","(303",")","","","(5",")%","","","(855",")","","","(13",")%"],["Insurance commissions","","","1,171","","","","1,358","","","","1,535","","","","(187",")","","","(14",")%","","","(177",")","","","(12",")%"],["Sales commissions","","","28,748","","","","20,916","","","","15,853","","","","7,832","","","","37","%","","","5,063","","","","32","%"],["Interest expense","","","30,618","","","","28,839","","","","28,811","","","","1,779","","","","6","%","","","28","","","*"],["Loss on extinguishment of debt","","","8,927","","","","-","","","","-","","","","8,927","","","*","","","","-","","","*"],["Other operating expenses","","","130,019","","","","104,931","","","","95,977","","","","25,088","","","","24","%","","","8,954","","","","9","%"],["Total benefits and expenses","","","224,742","","","","184,369","","","","168,459","","","","40,373","","","","22","%","","","15,910","","","","9","%"],["Loss before income taxes","","$","(92,983",")","","$","(68,465",")","","$","(34,794",")","","$","24,518","","","","36","%","","$","33,671","","","","97","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Refer the 2020 MD&A for discussions of 2019 items and comparisons between 2020 and 2019 financial results."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["*","Less than 1% or not meaningful"]] [[/GREPCENT_TABLE]] Total revenues. Total revenues increased in 2021 from 2020 in large part due to growth in commissions and fees, which was primarily the result of the continued expansion of our U.S. mortgage distribution business. Closed mortgage loan volume of $1.2 billion generated mortgage commission revenues of $24.3 million during 2021 compared to closed mortgage loan volume of $442.5 million and mortgage commission revenues of $8.7 million during 2020. Also contributing to the increase in total revenues were investment gains recognized in 2021 versus investment losses recognized in 2020 as discussed in the Primerica, Inc. and Subsidiaries Results section above. These increases were partially offset by a decrease in net investment income during 2021 versus 2020, which was primarily attributable to the impact of more net investment income being allocated to the Term Life Insurance segment and lower yields on the invested asset portfolio, partially offset by growth in the size of the portfolio. Total Benefits and Expenses. Total benefits and expenses increased in 2021 from 2020 as a result of higher other operating expenses due to approximately $12.1 million in transaction-related expenses incurred in connection with the acquisition of e-TeleQuote on July 1, 2021. Also contributing to the increase in other operating expenses were higher technology and employee related expenses. Loss on extinguishment of debt increased in 2021 as a result of the accelerated repayment of senior notes scheduled to mature in 2022. Sales commissions and other operating expenses were $11.1 million higher driven by increased sales in our U.S. mortgage distribution business. Financial Condition Investments. Our insurance business is primarily focused on selling term life insurance, which does not include an investment component for the policyholder. The invested asset portfolio funded by premiums from our term life insurance business does not involve the substantial asset accumulations and spread requirements that exist with other non-term life insurance products. As a result, the profitability of our term life insurance business is not as sensitive to the impact that interest rates have on our invested asset portfolio and investment income as the profitability of other companies that distribute non-term life insurance products. 62 We follow a conservative investment strategy designed to emphasize the preservation of our invested assets and provide adequate liquidity for the prompt payment of claims. To meet business needs and mitigate risks, our investment guidelines provide restrictions on our portfolio’s composition, including limits on asset type, per issuer limits, credit quality limits, portfolio duration, limits on the amount of investments in approved countries and permissible security types. We also manage and monitor our allocation of investments to limit the accumulation of any disproportionate concentrations of risk among industry sectors or issuer countries outside of the U.S. and Canada. In addition, as of December 31, 2021, we did not hold any country of issuer concentrations outside of the U.S. or Canada that represented more than 5% of the fair value of our available-for-sale invested asset portfolio or any industry concentrations of corporate bonds that represented more than 10% of the fair value of our available-for-sale invested asset portfolio. We invest a portion of our portfolio in assets denominated in Canadian dollars to support our Canadian operations. Additionally, to ensure adequate liquidity for payment of claims, we take into account the maturity and duration of our invested asset portfolio and our general liability profile. We also hold within our invested asset portfolio a credit enhanced note (“LLC Note”) issued by a limited liability company owned by a third-party service provider which is classified as a held-to-maturity security. The LLC Note, which is scheduled to mature on December 31, 2030, was obtained in exchange for the Surplus Note of equal principal amount issued by Vidalia Re, Inc. (“Vidalia Re”), a special purpose financial captive insurance company and wholly owned subsidiary of Primerica Life Insurance Company (“Primerica Life”).  For more information on the LLC Note, see Note 4 (Investments) to our consolidated financial statements included elsewhere in this report. We have an investment committee composed of members of our senior management team that is responsible for establishing and maintaining our investment guidelines and supervising our investment activity. Our investment committee regularly monitors our overall investment results and our compliance with our investment objectives and guidelines. We use a third-party investment advisor to assist us in the management of our investing activities. Our investment advisor reports to our investment committee. Our invested asset portfolio is subject to a variety of risks, including risks related to general economic conditions, market volatility, interest rate fluctuations, liquidity risk and credit and default risk. Investment guideline restrictions have been established to minimize the effect of these risks but may not always be effective due to factors beyond our control. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. A significant increase in interest rates could result in significant losses, realized or unrealized, in the value of our invested asset portfolio. Details on asset mix (excluding our held-to-maturity security) were as follows: [[GREPCENT_TABLE]] [["","","December 31, 2021","","","December 31, 2020"],["","","Fair value","","","Cost or amortized cost","","","Fair value","","","Cost or amortized cost"],["U.S. government and agencies","","1%","","","1%","","","*","","","*"],["Foreign government","","5%","","","5%","","","6%","","","6%"],["States and political subdivisions","","5%","","","5%","","","6%","","","6%"],["Corporates","","53%","","","52%","","","53%","","","52%"],["Mortgage- and asset-backed securities","","20%","","","20%","","","15%","","","16%"],["Short-term investments","","2%","","","3%","","","*","","","*"],["Equity securities","","1%","","","1%","","","1%","","","1%"],["Trading securities","","1%","","","1%","","","1%","","","1%"],["Cash and cash equivalents","","12%","","","12%","","","18%","","","18%"],["Total","","100%","","","100%","","","100%","","","100%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["*","Less than 1%."]] [[/GREPCENT_TABLE]] The composition and duration of our portfolio will vary depending on several factors, including the yield curve and our opinion of the relative value among various asset classes. The year-end average rating, duration and book yield of our fixed-maturity portfolio (excluding our held-to-maturity security) were as follows: [[GREPCENT_TABLE]] [["","","December 31, 2021","","","December 31, 2020"],["Average rating of our fixed-maturity portfolio","","A","","","A"],["Average duration of our fixed-maturity portfolio","","4.8 years","","","4.7 years"],["Average book yield of our fixed-maturity portfolio","","3.12%","","","3.44%"]] [[/GREPCENT_TABLE]] 63 Ratings for our investments in fixed-maturity securities are determined using Nationally Recognized Statistical Rating Organizations designations and/or equivalent ratings. The distribution of our investments in fixed-maturity securities (excluding our held-to-maturity security) by rating, including those classified as trading securities, were as follows: [[GREPCENT_TABLE]] [["","","December 31, 2021","","","December 31, 2020"],["","","Amortized cost (1)","","","%","","","Amortized cost (1)","","","%"],["","","(Dollars in thousands)"],["AAA","","$","495,055","","","","19","%","","$","433,763","","","","19","%"],["AA","","","312,418","","","","12","%","","","294,429","","","","13","%"],["A","","","644,775","","","","24","%","","","515,752","","","","22","%"],["BBB","","","1,079,123","","","","41","%","","","979,867","","","","42","%"],["Below investment grade","","","93,294","","","","4","%","","","90,947","","","","4","%"],["Not rated","","","21,078","","","","*","","","","2,780","","","*"],["Total","","$","2,645,743","","","","100","%","","$","2,317,538","","","","100","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Includes trading securities at carrying value and available-for-sale securities at amortized cost."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["*","Less than 1%."]] [[/GREPCENT_TABLE]] The ten largest holdings within our fixed-maturity securities invested asset portfolio (excluding our held-to-maturity security) were as follows: [[GREPCENT_TABLE]] [["","","December 31, 2021"],["Issuer","","Fair value","","","Amortized cost (1)","","","Unrealized gain (loss)","","","Credit rating"],["","","(Dollars in thousands)"],["Government of Canada","","$","16,289","","","$","15,978","","","$","311","","","AAA"],["Province of Ontario Canada","","","15,506","","","","15,194","","","","312","","","A+"],["Province of Quebec Canada","","","14,496","","","","13,595","","","","901","","","AA-"],["Morgan Stanley","","","13,502","","","","13,144","","","","358","","","BBB+"],["TC Energy Corp","","","12,874","","","","12,585","","","","289","","","BBB+"],["Province of Alberta Canada","","","12,664","","","","12,196","","","","468","","","A"],["ConocoPhillips","","","12,414","","","","11,058","","","","1,356","","","A-"],["Enbridge Inc","","","11,923","","","","11,662","","","","261","","","BBB+"],["Ontario Teachers' Pension Plan","","","10,679","","","","10,199","","","","480","","","AA+"],["Oracle Corp","","","10,548","","","","9,611","","","","937","","","AA-"],["Total \u2013 ten largest holdings","","$","130,895","","","$","125,222","","","$","5,673"],["Total \u2013 fixed-maturity securities","","$","2,726,922","","","$","2,645,743"],["Percent of total fixed-maturity securities","","","5","%","","","5","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Includes trading securities at carrying value and available-for-sale securities at amortized cost."]] [[/GREPCENT_TABLE]] For additional information on our invested asset portfolio, see Note 4 (Investments) and Note 5 (Fair Value of Financial Instruments) to our consolidated financial statements included elsewhere in this report. Other Significant Assets and Liabilities. The balances of and changes in other significant assets and liabilities were as follows: [[GREPCENT_TABLE]] [["","","December 31,","","","Change"],["","","2021","","","2020","","","$","","","%"],["","","(Dollars in thousands)"],["Assets:"],["Reinsurance recoverables","","$","4,268,419","","","$","4,273,904","","","$","(5,485",")","","*"],["Deferred policy acquisition costs, net","","","2,943,782","","","","2,629,644","","","","314,138","","","","12","%"],["Liabilities:"],["Future policy benefits","","$","7,138,649","","","$","6,790,557","","","$","348,092","","","","5","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["*","Less than 1%."]] [[/GREPCENT_TABLE]] Reinsurance recoverables. Reinsurance recoverables reflects future policy benefit reserves and claim reserves ceded to reinsurers, including the IPO coinsurers. Reinsurance recoverables as of December 31, 2021 remained consistent compared with December 31, 2020. Deferred policy acquisition costs, net. The increase in DAC was primarily a result of the cumulative impact of incremental commissions and expenses deferred as a result of new business in 2021 not subject to the IPO coinsurance agreements and significant improvements in persistency as a result of favorable public sentiment for protection products in response to the COVID-19 pandemic. Future policy benefits. The increase in future policy benefits was a result of the growth in our in-force book of business due to strong sales of new policies and persistency improvements. For additional information, see the notes to our consolidated financial statements included elsewhere in this report. 64 Liquidity and Capital Resources Dividends and other payments to the Parent Company from its subsidiaries are our principal sources of cash. The amount of dividends paid by the subsidiaries is dependent on their capital needs to fund future growth and applicable regulatory restrictions. The primary uses of funds by the Parent Company include the payments of stockholder dividends, interest on notes payable, general operating expenses, and income taxes, as well as repurchases of shares of our common stock outstanding. During 2021, our life insurance underwriting companies declared and paid ordinary dividends of $170.2 million to the Parent Company. See Note 15 (Statutory Accounting and Dividend Restrictions) to our consolidated financial statements included elsewhere in this report for more information on insurance subsidiary dividends and statutory restrictions. In addition, in 2021 our non-life insurance subsidiaries declared and paid dividends of $217.1 million to the Parent Company. At December 31, 2021, the Parent Company had cash and invested assets of $295.4 million. The Parent Company’s subsidiaries generate operating cash flows primarily from term life insurance premiums (net of premiums ceded to reinsurers), income from invested assets, commissions and fees collected from the distribution of investment and savings products, Medicare-related insurance plans as well as other financial products. The subsidiaries’ principal operating cash outflows include the payment of insurance claims and benefits (net of ceded claims recovered from reinsurers), commissions to the sales force, contract acquisition costs, insurance and other operating expenses, interest expense for future policy benefit reserves financing transactions, and income taxes. The distribution and underwriting of term life insurance requires upfront cash outlays at the time the policy is issued as we pay a substantial majority of the sales commission during the first year following the sale of a policy and incur costs for underwriting activities at the inception of a policy’s term. During the early years of a policy’s term, we generally receive level term premiums in excess of claims paid. We invest the excess cash generated during earlier policy years in fixed-maturity and equity securities held in support of future policy benefit reserves. In later policy years, cash received from the maturity or sale of invested assets is used to pay claims in excess of level term premiums received. e-TeleQuote is a senior health insurance distributor of Medicare-related insurance plans. e-Tele-Quote collects cash receipts over a number of years after selling a plan, while the cash outflow for commission expense and other acquisition costs to sell the plans are generally recognized at the time of enrollment. Therefore, net cash flows at e-TeleQuote are expected to be negative for the foreseeable future, with the Parent Company providing working capital to e-TeleQuote. From July 1, 2021 through December 31, 2021, the Parent Company has provided e-TeleQuote with $20.0 million of funding to meet its operating needs, net of cash tax benefits generated by e-TeleQuote and any amounts paid by e-TeleQuote to the Parent Company and other consolidated affiliates for lead generation, finance charges, or other internal arrangements. This amount also excludes cash paid for the cash tax benefit received by the Parent Company and other consolidated affiliates for current operating losses at e-TeleQuote for the period July 1, 2021 through December 31, 2021. Historically, cash flows generated by our businesses, primarily from our existing block of term life policies and our investment and savings products, have provided us with sufficient liquidity to meet our operating requirements. We have maintained strong cash flows despite the COVID-19 pandemic due to strong persistency and our use of reinsurance. We anticipate that cash flows from our businesses will continue to provide sufficient operating liquidity over the next 12 months. If necessary, we could seek to enhance our liquidity position or capital structure through sales of our available-for-sale investment portfolio, changes in the timing or amount of share repurchases, borrowings against our revolving credit facility, or some combination of these sources. Additionally, we believe that cash flows from our businesses and potential sources of funding will sufficiently support our long-term liquidity needs. Cash Flows. The components of the changes in cash and cash equivalents were as follows: [[GREPCENT_TABLE]] [["","","Year ended December 31,"],["","","2021","","","2020","","","2019 (1)"],["","","(In thousands)"],["Net cash provided by (used in) operating activities","","$","656,956","","","$","643,417","","","$","485,513"],["Net cash provided by (used in) investing activities","","","(923,383",")","","","(53,529",")","","","(201,884",")"],["Net cash provided by (used in) financing activities","","","107,974","","","","(301,790",")","","","(290,134",")"],["Effect of foreign exchange rate changes on cash","","","3,385","","","","2,595","","","","1,243"],["Change in cash and cash equivalents","","$","(155,068",")","","$","290,693","","","$","(5,262",")"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Refer to the 2020 MD&A for discussions of 2019items and comparisons between 2020 and 2019 financial results."]] [[/GREPCENT_TABLE]] Operating Activities.  Cash provided by operating activities increased in 2021 from 2020 largely due to higher cash generated by our Term Life Insurance and Investments and Savings Products segments. In our Term Life Insurance segment, the increase in cash receipts from higher premiums more than offset increases in payments for claims and deferred policy acquisition costs. In our Investments and Savings Products segment, the increase in sales-based and asset-based revenue in 2021 generated higher net cash flows from operation compared to 2020. 65 Investing Activities.  Cash used in investing activities increased in 2021 from 2020 primarily due to the purchase of e-TeleQuote and higher purchases of investment securities. In 2021, purchases of securities in our investment portfolio increased due to higher interest rates which provided more attractive reinvestment opportunities for the Company and the deployment of net cash received from the issuance of senior notes. In 2020, we temporarily paused purchases of investment securities in order to preserve liquidity at the onset of the COVID-19 pandemic. Financing Activities.  Financing activities was a source of cash during 2021 compared to a use of cash during 2020 as we paused our share repurchase program  to accumulate cash used to fund the acquisition of e-TeleQuote and restarted it after closing the acquisition. In addition, during 2021 cash provided by financing activities included $597.3 million in proceeds from the issuance of senior notes offset by $383.7 million in cash used to extinguish our existing senior notes, which were scheduled to mature in 2022.   Risk-Based Capital (“RBC”). The National Association of Insurance Commissioners (“NAIC”) has established RBC standards for U.S. life insurers, as well as a risk-based capital model act (the “RBC Model Act”) that has been adopted by the insurance regulatory authorities. The RBC Model Act requires that life insurers annually submit a report to state regulators regarding their RBC based upon four categories of risk: asset risk; insurance risk; interest rate risk and business risk. The capital requirement for each is determined by applying factors that vary based upon the degree of risk to various asset, premiums and policy benefit reserve items. The formula is an early warning tool to identify possible weakly capitalized companies for purposes of initiating further regulatory action. As of December 31, 2021, our U.S. life insurance subsidiaries maintained statutory capital and surplus substantially in excess of the applicable regulatory requirements and remain well positioned to support existing operations and fund future growth. In Canada, an insurer’s minimum capital requirement is overseen by the Office of the Superintendent of Financial Institutions (“OSFI”) and determined as the sum of the capital requirements for five categories of risk: asset default risk; mortality/morbidity/lapse risks; changes in interest rate environment risk; segregated funds risk; and foreign exchange risk. As of December 31, 2021, Primerica Life Insurance Company of Canada was in compliance with Canada’s minimum capital requirements as determined by OSFI. For more information regarding statutory capital requirements and dividend capacities of our insurance subsidiaries, see Note 15 (Statutory Accounting and Dividend Restrictions) to our consolidated financial statements included elsewhere in this report. Redundant Reserve Financings. The Model Regulation entitled Valuation of Life Insurance Policies, commonly known as Regulation XXX, requires insurers to carry statutory policy benefit reserves for term life insurance policies with long-term premium guarantees which are often significantly in excess of the future policy benefit reserves that insurers deem necessary to satisfy claim obligations (“redundant policy benefit reserves”). Accordingly, many insurance companies have sought ways to reduce their capital needs by financing redundant policy benefit reserves through bank financing, reinsurance arrangements and other financing transactions. We have established Peach Re, Inc. ("Peach Re") and Vidalia Re as special purpose financial captive insurance companies and wholly owned subsidiaries of Primerica Life. Primerica Life has ceded certain term life policies issued prior to 2011 to Peach Re as part of a Regulation XXX redundant reserve financing transaction (the “Peach Re Redundant Reserve Financing Transaction”) and has ceded certain term life policies issued in 2011 through 2017 to Vidalia Re as part of a Regulation XXX redundant reserve financing transaction (the “Vidalia Re Redundant Reserve Financing Transaction”). These redundant reserve financing transactions allow us to more efficiently manage and deploy our capital. The NAIC has adopted a model regulation for determining reserves using a principle-based approach (“principle-based reserves” or “PBR”), which is designed to reflect each insurer’s own experience in calculating reserves and move away from a single prescriptive reserving formula. Primerica Life adopted PBR as of January 1, 2018 and National Benefit Life Insurance Company adopted the New York amended version of PBR effective January 1, 2021.   PBR significantly reduced the redundant statutory policy benefit reserve requirements while still ensuring adequate liabilities are held.  The regulation only applies for business issued after the effective date.  See Note 4 (Investments), Note 10 (Debt) and Note 16 (Commitments and Contingent Liabilities) to our consolidated financial statements included elsewhere in this report for more information on these redundant reserve financing transactions. Notes Payable – Long term. The Company has $600.0 million of publicly-traded, Senior Notes outstanding issued at a price of 99.550% with an annual interest rate of 2.80%, payable semi-annually in arrears on May 19 and November 19. The Senior Notes mature November 19, 2031. We were in compliance with the covenants of the Senior Notes at December 31, 2021. No events of default occurred on the Senior Notes during the year ended December 31, 2021. Notes Payable – Short term. On July 1, 2021, as part of the acquisition of e-TeleQuote, Primerica Health, Inc. (“Primerica Health”) issued the $15.0 million Majority Shareholder Note due July 1, 2022 (the “Majority Shareholder Note”). The rate of interest payable is 1.5% per annum. On January 27, 2022, the Company repaid $9.0 million in principal on the Majority Shareholder Note. The Company entered into an agreement with the Majority Shareholder to repay $3.4 million on April 1, 2022 and the remaining $2.6 million on July 1, 2022. 66 Financial Ratings. As of December 31, 2021, the investment grade credit ratings for our Senior Notes were as follows: [[GREPCENT_TABLE]] [["Agency","","Senior Notes rating"],["Moody's","","Baa1, stable outlook"],["Standard & Poor's","","A-, stable outlook"],["A.M. Best Company","","a-, stable outlook"]] [[/GREPCENT_TABLE]] As of December 31, 2021, Primerica Life’s financial strength ratings were as follows: [[GREPCENT_TABLE]] [["Agency","","Financial strength rating"],["Moody's","","A1, stable outlook"],["Standard & Poor's","","AA-, stable outlook"],["A.M. Best Company","","A+, stable outlook"]] [[/GREPCENT_TABLE]] Securities Lending. We participate in securities lending transactions with brokers to increase investment income with minimal risk. See Note 4 (Investments) to our consolidated financial statements included elsewhere in this report for additional information. Surplus Note. Vidalia Re issued a Surplus Note in exchange for the LLC Note as a part of the Vidalia Re Redundant Reserve Financing Transaction. The Surplus Note has a principal amount equal to the LLC Note and is scheduled to mature on December 31, 2030. For more information on the Surplus Note, see Note 10 (Debt) to our consolidated financial statements included elsewhere in this report. Off-Balance Sheet Arrangements. We have no transactions, agreements or other contractual arrangements to which an entity unconsolidated with the Company is a party, under which the Company maintains any off-balance sheet obligations or guarantees as of December 31, 2021. Credit Facility Agreement. We maintain an unsecured $200.0 million Revolving Credit Facility with a syndicate of commercial banks that has a scheduled termination date of June 22, 2026. Amounts outstanding under the Revolving Credit Facility bear interest at a periodic rate equal to the London Interbank Offered Rate (“LIBOR”) or the base rate, plus in either case an applicable margin. The Revolving Credit Facility contains language that allows for the Company and the lenders to agree on a comparable or successor reference rate in the event LIBOR is no longer available.  The Revolving Credit Facility also permits the issuance of letters of credit.  The applicable margins are based on our debt rating with such margins for LIBOR rate loans and letters of credit ranging from 1.000% to 1.625% per annum and for base rate loans ranging from 0.000% to 0.625% per annum. Under the Revolving Credit Facility, we incur a commitment fee that is payable quarterly in arrears and is determined by our debt rating. This commitment fee ranges from 0.100% to 0.225% per annum of the aggregate $200.0 million commitment of the lenders under the Revolving Credit Facility. As of December 31, 2021, no amounts were outstanding under the Revolving Credit Facility and we were in compliance with its covenants.  Furthermore, no events of default occurred under the Revolving Credit Facility in 2021. Contractual Obligations. Our material cash requirements from known contractual and other obligations primarily consist of following: Future Policy Benefits. Our liability for future policy benefits, which is presented in the consolidated balance sheets, represents the present value of estimated future policy benefits to be paid, less the present value of estimated future net benefit premiums to be collected. Net benefit premiums represent the portion of gross premiums required to provide for all benefits and associated expenses. These benefit payments are contingent on policyholders continuing to renew their policies and make their premium payments. We expect to fully fund the obligations for future policy benefits from cash flows from general account invested assets, claims reimbursed by reinsurers, and from future premiums. Policy Claims. Policy claims, which is presented in the consolidated balance sheets and Note 9 (Policy Claims and Other Benefits Payable), represents claims and benefits that have been incurred but not paid to policyholders and are assumed to be due within a year. Other Policyholder Funds. Other policyholders’ funds, which is presented in the consolidated balance sheet, primarily represent claim payments left on deposit with us that are payable on demand. Notes Payable and Interest Obligations. We have debt obligations for the principal balance of our Senior Notes and the Majority Shareholder Note, which are presented in the consolidated balance sheets and described further in Note 10 (Debt) to our consolidated financial statements included elsewhere in the report. We also maintain interest obligations for interest on our Senior Notes, the commitment fee on our Revolving Credit Facility, interest on our short term Majority Shareholder Note, the financing charges related to an issued letter of credit, fees paid for the credit enhancement feature on the LLC Note and a finance charge incurred pursuant to one of our IPO coinsurance agreements as of December 31, 2021. We did not expect the principal or interest on the Surplus Note will result in any cash requirements as the payments due for these items are contractually offset by the principal and interest on the LLC Note as long as we hold the LLC Note. The Company asserts its positive intent and ability to hold the LLC Note until maturity.   Lease Obligations. Our lease obligations primarily represent payments for operating leases related to office space. For additional information on leases see Note 19 (Leases) to our consolidated financial statements included elsewhere in this report. 67 For additional information concerning our commitments and contingencies, see Note 16 (Commitments and Contingent Liabilities) to our consolidated financial statements included elsewhere in this report.