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Tracy Tan

Thank you, Glenn. Good morning, everyone. In my prepared remarks today, I will review our fourth quarter financial results and then provide an outlook for key financial measures for 2025.
We ended the year with great momentum, reaching the $3 billion revenue mark for the first time, and delivering strong performance for our stockholders.
Starting with Term Life segment. Fourth quarter revenue of $451 million increased 4% compared to the prior year period, driven by 6% higher adjusted direct premiums.
Looking more closely at our financial ratios. The benefits and claims ratio during the fourth quarter of 2024 was 58.6% compared to 58.2% in the prior year. Benefits and claims were adversely affected by a $4.2 million remeasurement loss recognized during the period, that resulted from a refinement to our actuarial model for estimating reserves, which was not related to any assumption changes.
Excluding the model refinement, the benefits and claims ratio was 57.9%, favorable to the prior year period, primarily due to better mortality experience and in line with our full year guidance of around 58%. The debt amortization and insurance commissions ratio at 12.2% was largely consistent with the prior year period. Overall, last rates remain elevated, but year-over-year trends appear to be stabilizing.
We believe persistency will normalize over time. While we recognize that higher lapses can constrain future ADP growth, they have not meaningfully affected our key financial ratio.
The fourth quarter insurance expense ratio increased from 7.1% in the prior year period to 8% in 2024. This year-over-year change was driven primarily by increased variable expenses associated with growth in direct premiums, recruiting and licensing, higher performance-based employee incentive compensation as well as higher ongoing technology investments in digital tools.
Finally, the Term Life operating margin was 21.3% compared to 22.6% in the prior year period, while pretax income remains unchanged year-over-year.
As we look ahead, we expect ADP growth of around 5% in 2025. We believe the benefits and claims ratio and the DAC amortization and insurance commissions ratio will remain stable at around 58% and 12%, respectively.
For the full year, we expect the operating margin to be around 22%, although we foresee some level of variability due to the normal seasonality inherent in insurance expenses. As a reminder, our first quarter expenses are usually higher due to the grant of management equity awards to the retirement-eligible employees that are fully expensed when granted, as well as other employee-related and operational expenses unique to the first quarter.
Turning next to the Investment and Savings Products segment. Fourth quarter revenues of $286 million increased 29% due to a combination of favorable equity market conditions, driving client asset values higher, and strong demand for our investment solutions. Pretax income of $82 million increased 31%.
Sales-based revenues increased 42%, while revenue generating sales rose 39%. Revenues grew at a higher rate than sales due to continued strong demand for variable annuity, while sales-based commission expenses generally rose in line with correlated sales. Asset-based revenues increased 27%, slightly outpacing the growth in average client asset values due to continued growth in the US managed accounts and Canadian mutual funds sold under the proprietary distributor model for which we earn higher asset-based fees. Asset-based commission expenses grew at a similar pace to correlated revenues when including commissions on Canadian segregated funds which are recognized as insurance commissions and debt amortization.
The Corporate and Other Distributed Products segment incurred a pretax adjusted operating loss up $1 million during the fourth quarter of 2024 compared to a pretax adjusted operating loss of $5.4 million in the prior year period. The improvement was due in part to a $3.3 million adjustment to the ceded reserve for a closed block of long-term life insurance business in the prior year period and $2.6 million of higher net investment income as the segment continues to benefit from higher yielding investments and the growth in the size of the portfolio. The segment also incurred higher operating expenses, which I will address shortly when I review total consolidated operating expenses.
Our invested asset portfolio ended the year with a net unrealized loss of $206 million versus a net unrealized loss of $131 million at the end of September. We believe the change in unrealized losses during the quarter was a function of interest rate movements and not underlying credit concerns, and we have no present intention to dispose of them. The portfolio is well diversified and of high quality with an average rating of eight.
Finally, fourth quarter consolidated insurance and other operating expenses were $152 million, up 13% year-over-year. The primary drivers of expense growth were higher variable costs associated with growth of our ISP and Term Life segment, higher employee-related incentive compensation due to the company's overall strong performance in 2024 as well as increased investments on technology.
Looking ahead to 2025, we expect full year consolidated insurance and other operating expenses to increase by around $40 million or 6% to 8%. This includes $12 million to support the growth in the business, $12 million in higher employee staffing costs and $16 million higher technology costs.
As I mentioned earlier, we expect operating expenses on a dollar basis to be elevated in the first quarter, with year-over-year growth rate in line with our full year guidance. We also expect fourth quarter 2025 expenses to normalize compared to prior year due to strong performance driven in 2024 higher expenses.
Moving to our capital position. The holding company had cash and invested assets of $497 million at the end of December 2024. As of December 31, 2024, Primerica Life's estimated RBC ratio was 430%.
With that, operator, I'll open the line for questions.

Question and Answer Session

Operator

(Operator Instructions)
Wilma Burdis, Raymond James.

Wilma Burdis

Could you talk about -- is 5% ADP growth, a good run rate? Or is there still a boost in that figure from the IPO reinsurance transaction?

Tracy Tan

Good morning, Wilma. ADP growth guidance of 5% growth has considered the runoff of insurance. And clearly, the ADP growth is directly impacted by the large in-force block that we have and the premiums that it continues to generate as well as the new sales that get layered on. And we also have considered the higher lapses in this guidance as well. So the 5% does consider the coinsurance runoff, as you know, that is running off at a faster pace, that's being considered as well.

Wilma Burdis

Okay. Great. And then could you talk about what's driving the strong ISP sales despite a little bit of pressure on the life side due to cost of living pressures? And then along those same lines, how do you see lapses trending into 2025? Is there some evidence that we put a peak?

Glenn Williams

Sure. Let me take the first part of that, and then we'll turn to Tracy for the lapses, Wilma.
Yeah. Fortunately, our two businesses are complementary, but they also have different dynamics that drive them in different directions at different times. And I think that's part of the uniqueness of our model. So while we are seeing cost of living pressures that are a headwind for our life business and even for the small transaction business on the ISP side, the systematic savers, often they are saving $25, $50, $100 a month. They're under the same kind of budgeting pressures at home that are our life -- they're the same people as our life clients. So they're experiencing the same pressures.
What we see that's a little bit -- or a lot exempt from that are those that are rolling over retirement plans, potentially or moving retirement plans, either out of the 401(k) from a former employer or out of a previous plan sponsor over to Primerica. Those aren't generally impacted by cost of living. They are retirement plans, so people are not prone to withdraw from them as often either. So that lends a little stickier.
So the bigger tickets aren't impacted by cost of living pressure. And that's really what drives the volume in a significant way or the large sales. It takes a lot of small sales to add up to one large sale as you know. And so those large sales, that money is still in motion. I think we're experiencing that. And I think most of our peers are experiencing a lot of movement between big accounts. And so we're benefiting from that and not experiencing the headwind from cost of living on that front.
Tracy, do you want to talk a little bit about how we see persistency?

Tracy Tan

That's right. I will. On the persistency and the last experience for 2024, overall, we continue to see elevated lapses, but we have seen the trend stabilizing. Fourth quarter, clearly, there was a leveling of lapses. So we're not seeing that increasing on a year-over-year basis.
One thing I definitely want to point out is 2024, we had adverse impact from the prior year last restriction. So overall, '24, if you remove that, less restriction, the 2024 trending is coming down in terms of the lapse elevation levels.
And also higher lapses are across multiple durations, but mostly pronounced in earlier durations of two to five, for example. And the persistency for those, when we look at it on a cumulative basis, is actually really improving and slightly better on a cumulative basis than pre-pandemic period.
So during the pandemia period, we had extraordinarily low lapses. Those that would have lapsed stayed on with those policies and after the pandemic, and we see elevated lapses because of the catch-up. But overall, the cumulative impact, when we look at from the 2020 forward, is actually better than pandemic period now.
And we also believe that the higher lapses is mostly driven by the cost of living pressure on the middle-income families, which it takes a few years for them to get back, and it depends on the speed and the degree with which they're purchasing power and the ability to afford improves. But over time, we do believe that we will be returning to our normal levels. And our ADP guidance also already considered those elevated lapses as well. So I hope that helps, Wilma.

Glenn Williams

Wilma, did that get you what you needed? Or is there more we can share?

Wilma Burdis

No. I think that covers it.

Operator

John Barnidge, Piper Sandler.

John Barnidge

Just kind of building on that comment about cost of living pressures and is taking a couple of years to correct. What's the expected duration of that catch-up? And can that really be corrected with that improvement in the cost of living?

Glenn Williams

I think we are going to need to see more improvement in the cost of living. So I think there's a buildup of high expenses of people bridging their budget with withdrawn savings and credit card usage while it's going on. And so that would indicate that we need improvement for a sustained period of time before we start to see it flow through and see some easing of people's buying habits when it comes to buying life insurance or small investments.
So I think that's a complete guess, John, to know exactly how long it takes because we're not sure how much longer the cost-of-living pressures might be here. We saw a little bit of a surprise this morning. I think the market reacted to that they're still here. They haven't gone away.
But I would say, once we get on the other side of things, get normalized, you measure that in a year or more, that you'll still see some of that impact. It will improve over time, and we're watching for in the numbers Tracy just described, we see it as well in persistency, obviously, as well as sales. But that's entirely just a guess. We don't have any empirical evidence to our formula for that. It's just consumer behavior.

John Barnidge

My follow-up question with that, what's the opportunity in that backdrop to increase operational leverage through improved application speed automation? So maybe what took 10 minutes could take three and then it allows the application volume to increase and average agent to be more productive.

Glenn Williams

Sure. That's a great question and one that is on the top of our minds all the time. Tracy mentioned some of the expense numbers, and the largest numbers she mentioned was for technology -- higher technology costs. And those are some of the types of things in addition to reacting to regulatory demands and requirements and other costs of doing business, but we're always looking for a way to make our process easier for both clients and representatives under the assumption that you get two benefits.
Number one is the more likely to complete the process themselves. Someone who's already motivated and in the purchasing process is more likely to follow through if it's easy, if it's short, if it's quick, convenient, and all of that. And obviously, that's more efficient as well. And then that frees up more time for our representatives to see more clients. Should there -- should the limit on their productivity be, I got more people to see that I can get to, often, it's not having enough people to see. So it doesn't solve that problem. But absolutely, that's a big part.
And as we introduced our new product and process a couple of years ago for NextGen, we have significant improvements in all of that. And now, of course, we're going back through to see what the technology that has emerged in the last couple of years can help us in that area, both in the field as well as processing and issuing policies and doing that faster and more efficiently here in the home office. So all of that is on our technology menu to see what we can accomplish as we move through 2025.

Operator

Mark Hughes, Truist Securities.

Mark Hughes

The good VA activity, you're talking about how the large transactions drive volumes. There's a lot of money in motion. Is this a demographic tailwind that should persist?

Glenn Williams

It is driven by demographics as we see the older generations that have accumulated something moving that money to get into the best place for their next phase of life as they move from accumulation to distribution, and so there's definitely a piece of that. It's also the not quite ready for retirement or not preparing for retirement yet that are changing jobs and just changing careers. As more job changes happen, more people move their 401(k)s out of the previous employer.
So it's something that we're benefiting from at Primerica. We have long relationships with our clients. And generally, as you know, we're a middle market-focused company. So we may be a higher level of hands-on service to middle market clients than maybe some of our peers have. So as the demographics move in our favor in that range, we are there to kind of service those clients in a way that maybe some of our peers are not.
So it is driven demographically. It's driven by more options as we stated, VAs particularly, with the income guarantees that are in there as people move into income mode. They want to make sure they don't outlive their income. So it's a combination of a lot of hard work on behalf of our team, both in the home office and the field, over the years to be ready. Product improvements and the demographic changes and then the consistency of -- we've had a couple of years of good market performance in a row that builds confidence where people are willing to look for alternatives and maybe improve the returns on their retirement accounts.
So I think we have all four of those things working in our favor right now. And some of the conservatism that you heard is because of the uncertainty. It's not pessimism. It's just uncertainty as we move into a new administration with new policies and new methods, we're not sure how that's going to turn out. So we've kind of approached 2025 with a little bit of an air of conservatism based on those unknowns.

Mark Hughes

And then Tracy, anything on the mortality front? Any changes you might have observed either in the US or Canada?

Tracy Tan

Yeah, Mark, the mortality front, our experiences have been very stable and favorable. So for entire 2024, we've been observing pretty positive trends on mortality. Both in the US and Canada, mortality is very, very low and really not much unfavorable experience to talk about, but US has seen real improvement and particularly in the fourth quarter. So we are hoping to see that continued trend, that would be beneficial.
And in terms of long term, obviously, mortality is difficult to predict, but we do think that pandemic probably has taken off some of the population that now, there are some benefits on the mortality improvement that we've seen across the industry and we, in particular, with our demographics and the experience during pandemic certainly has a positive trend currently going on. I hope that helps, Mark.

Mark Hughes

It does. And then final question, just for my edification, you said the remeasurement loss is not related to assumption changes but a refinement of the model. Can you say what that refinement was? Or is it more technical?

Tracy Tan

Yeah. The refinement is really more a technical software improvement that we've made on the actuarial side of calculation. And since we've moved down to LDTI, we continuously to look for ways to make our calculation more accurate and looking at ways to improve how we produce our results on the method side. So this really has nothing to do with either experience or long-term trends, assumption changes. So this is a really technical side item. And it's a small immaterial in the magnitude of [7 billion] of reserves that we have. Hope that helps.

Mark Hughes

It does.

Operator

Suneet Kamath, Jefferies.

Suneet Kamath

So I wanted to focus on the Life segment just for a minute. It looked like the rep count was up, I guess, 7% year-over-year, but policies issued was up maybe 1%. And I guess, shouldn't we see a tighter sort of correlation between those two growth rates?

Glenn Williams

Yeah. Generally, Suneet, there's been a very close relationship between the size of the sales force and our policy growth. Often there is a difference in timing on that. We did have a significant amount of growth in a relatively compressed period of time. And so one of our productivity dynamics that we're working on in 2025 is to bring that new class of licenses up to productivity level. And that's an opportunity on the upside for us in 2025.
The math of productivity works against you as you grow the sales force and the denominator gets larger, particularly with brand new reps, but we do think there's a lag there, as always, in getting them up to the average productivity level, but we believe there's some upside as we put it all together with the headwinds of the cost of living we talked about earlier and maybe some of the other uncertainty headwinds in middle income payments on the positive side, potential tailwinds or that productivity catch up, and we would expect to see some of that in 2025.

Suneet Kamath

Got it. That makes sense. And then I guess if I heard correctly, it sounds like your guidance for life agent growth for 2025 is around 3%, which is lower than I think it's been historically. Is there something unusual about 2025? Or are you sort of getting to the point where the sales force is kind of so big, it just becomes harder to grow on top of these big numbers?

Glenn Williams

I think it's a bit of us reverting to the mean, Suneet. If you look back in the years prior to that, our sales force growth has been around 4%-ish. I think prior to last year, over multiple years. And so we just see after a year where we had so many things go in our favor, just a dose of conservatism, and things reverting to average in the next year and kind of getting back to that range.
And so -- and again, the uncertainty of just not knowing what's in front of us this early in the year. As the year progresses, we'll refine that projection. So -- but it's starting out pretty close to what a normal year at Primerica is maybe just a little less, but that's the uncertainty factor in it.

Suneet Kamath

Got it. If I could just sneak one more in just on the VA. Do you currently sell the RILA product? Is that a big part of what you're selling these days?

Glenn Williams

Yeah. The index linked to variable annuity?

Suneet Kamath

Correct.

Glenn Williams

Yeah, we do. And we are seeing our product mix shift more and more towards that just like the industry is in a very similar kind of mix shift dynamic to the rest of the industry, with a significant proportion of the VA sales moving to the index-linked VA product.

Operator

Dan Bergman, TD Cowen.

Dan Bergman

I guess to start with the higher share repurchase authorization for 2025 and a pretty big increase in the dividend, capital return looks like it will take another sizable step-up this year. Was there anything unusual in the 2024 statutory earnings? Is there any other onetime items that are boosting that? Or should we think of this as a pretty sustainable level going forward? And I guess, relatedly, what capital are trying to think was 79% of earnings in 2024, is that around where we should expect that ratio to remain longer term?

Tracy Tan

Dan, this is a great question. One of the features of our Primerica business that we are very much focused on and continue to support, it's our ability to generate consistent, sustainable cash and capital return as a percent of earnings. And as you know, historically, we've been very strong on our business being able to generate free cash on a consistent basis, very resilient, regardless of the economics and environment that's going on, and that's what we continue to see.
So in 2024, we were able to return 79%, which is right around 80%. This also highlights our distribution model, which is that we're able to grow on a sustainable level and not tying up our capital as we scale up. And as you see the step-up on the share buyback and the dividend is another evidence of that continued trend. We're able to deliver around 80% in 2025.
So from a business model standpoint, the characteristics of our business model really helps provide that consistency. And we have been confident in terms of our features of our distribution model and the reinsurance of mortality that we have, along with our independent sales force that also helps with the upfront acquisition costs and the growth on operating expenses, all of those features help us provide this level of capital return as a percent of earnings, which is very much in line with a typical distribution model company, and this is what we are pretty much focused on. I hope that helps, Dan.

Dan Bergman

Yeah. Very helpful. And then maybe --

Tracy Tan

Dan, let me answer the question about statutory. There's nothing unusual around that line, and we really are pretty much focused on having a very healthy capital at our insurance side of the business and the RBC ratio. We typically strive to be around 400%, and as much as possible, it's very conservative. That gives us plenty legroom as Glenn put out the vision to continue to drive the top line growth. We're very well positioned to provide that capital to drive our top line growth. Hope that helps, Dan.

Dan Bergman

Got it. Yeah, very, very helpful. And then maybe just switching gears a little bit, following up on the earlier comments around technology. It sounds like higher tech spend is a big driver of the growth in the insurance and operating expenses you're guiding to in 2025. So should we think of this higher technology spend as a new run rate going forward? Or are there any lumpy expenses in there that should subside going forward? I guess maybe said differently, what inning are you in regarding upgrading your technology capabilities? So any color just around that would be great.

Tracy Tan

Yeah. This is very much in line with looking at our capital return, how we use our cash. Part of other priority, in addition to generating very strong capital return as a percent of earnings to shareholders, the remaining cash is very much focused on supporting our growth in terms of having enough capital to support our insurance and noninsurance business as well as investing in organic growth. And we are very confident in our ability to drive our sales force to serve our clients, reach more demographics that we intend to help that's underserved.
So that part of the organic investment into technology is very much in line with our strategic vision and long term to help improve productivity, both on the processing of transactions as well as our ability to provide unified communications with our sales team, sales force, improving client experiences. All of those are part of the technology improvement so that the client can have easier, better way to look at their investments, look at the -- handle the life insurance transactions, and also giving our sales force continued improvement on the tools to improve their productivity as well as our call center, making our call center more scalable to go along with a larger growth sales force as well as a number of transactions.
So in terms of trend, we're going to continue to well focusing on strong return for our stockholders using the remaining capital effectively to help support our organic growth.

Operator

Jack Matten, BMO Capital Markets.

Jack Matten

So a follow-up question on the outlook for Term Life-issued policies. You talked about cost of living headwinds to put pressure on lapse rates. I'm wondering if you could unpack or quantify how much of a headwind it's been to sales levels over the past year and how much is influencing the guidance for 2% growth in mission policies this year? I think you mentioned they have been of a conservative estimate.

Glenn Williams

Yeah, Jack, I don't think we've broken out exactly what we think our growth might have been if there wasn't headwind. So there's multiple factors playing. The economic headwinds, which, as I mentioned, were created not only by prices, but it's also a function of wage growth or lack thereof for our clients.
It's really difficult to say. If the cost of living had been neutral to middle-income families, we believe sales would have been what they were plus another percentage point or two or three or however many because there are so many other factors involved as well. We just know that the time we spend with clients, helping them prioritize their budgets in order to make room, because every dollar is in play when we sit down with the family.
It's not like they call us over and say, look, I've got this $80, $100 a month. I don't know what to do with. Can you come talk to me about life insurance? We're having to sit down and help them reprioritize their budgets. And that's where we identify the headwinds because as we look at budgets, there's not a lot of waste in them. And so we really have a tough prioritization discussion with clients to free up what they need to begin to protect their incomes and hopefully begin some type of small investment program.
And so it's more of a qualitative reporting in some of our surveying that we do through our financial security monitor, you may be familiar with in the household budget index. All of that is to try to figure out exactly how much resistance is out there. But quantifying and saying it was -- we would have been 2% greater if we've had a neutral cost of living dynamics, a little difficult to do.
So we know the headwinds out there. We know we've been able to overcome it last year. We grew in spite of the headwinds, and we are projecting that we can continue to grow. But we do know there's some resistance to growth as a result of that. So sorry, I can't give you something more specific on how much that is.

Jack Matten

That's very helpful. And just a question on the ISP redemption rates, think like outflows as a percent of beginning assets have started to trend lower in recent quarters. I guess could you just talk about some of the drivers impacting that? I mean do you expect some upward pressure still from some of those cost-of-living challenges or even just given that client asset values are higher levels following kind of the strong market performance over the past couple of years?

Glenn Williams

Generally, it's going to be more driven at Primerica and in the smaller accounts and homes that are closer to the financial edge, redemptions are going to go up when money gets tight, and cost of living pressures happen. We coach our plants not to do that unless you have to. You're working against yourself by redeeming.
But one buffer against that is three-fourth of our accounts are retirement accounts. They're for long term. And often, if they are IRAs or other types of qualified plans, registered plans in Canada, their penalties for withdrawal. So that's another kind of offense around the accounts that prevent them from just putting and taking. We also recommend that people set up an emergency fund, and that's the put and take to account.
So the result of all that is we do believe that we have significantly fewer redemptions percentage-wise than most of the companies in our space. It comes from the good coaching. It comes from primarily long-range retirement planning, and so we protect and build against that and teach continuing to systematically invest in good times and bad.
But we do see that move a little bit with the cost of living. Fortunately, we haven't seen it move a lot. And again, like the discussion we had earlier about what drives volume. The big accounts many times that are moving that are a significant part of our volume, the 401(k) and mature retirement accounts, those are people who are struggling quite as much month-to-month, and so they're not making large redemptions.
We see an increase in a number of smaller redemptions and tough economic times, but it doesn't really impact the large accounts as much as often, unless people go into distribution mode after they return, start a systematic withdrawal plan. But our withdrawal rate is very healthy, lower than the industry average, we believe, and we expect that to continue even if some financial stress does continue on families through 2025.

Operator

There are no further questions at this time. And with that, that does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Have a great day.