Primerica's CEO Discusses Q4 2013 Results - Earnings Call Transcript

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 |  About: Primerica, Inc. (PRI)
by: SA Transcripts

Operator

Good morning. And welcome to the Primerica Fourth Quarter 2013 Financial Results Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation there will be an opportunity to ask questions. (Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Kathryn Kieser. Please go ahead.

Kathryn Kieser

Thank you, Amy. Good morning, everyone. Thank you for joining us as we discuss Primerica's results for the fourth quarter of 2013. Yesterday afternoon, we issued our press release reporting financial results for the quarter ended December 31, 2013. A copy of the press release is available in the Investor Relations section of our website at investors.primerica.com.

With us on the call this morning are Rick Williams, our Chairman and Co-CEO; John Addison, our Chairman of Primerica Distribution and Co-CEO; and Alison Rand, our CFO.

We referenced certain non-GAAP financial measures in our press release and on this call. These non-GAAP measures are provided because management uses them in making financial, operating and planning decisions, and in evaluating the company's performance.

We believe these measures will assist you in assessing the company's underlying performance for the periods being reported. These non-GAAP measures have limitations and reconciliations between non-GAAP and GAAP financial measures are attached to our press release. You can see our GAAP results on page three of the presentation.

On today's call, we will make forward-looking statements in accordance with the Safe Harbor provision of the Securities Litigation Reform Act of 1995. Forward-looking statements include any statement that may project, indicate or imply future results, events, performance or achievements, and may contain words such as expect, intend, plan, anticipate, estimate, and believe or similar words derived from those words. They are not guarantees and such statements involve risks and uncertainties that could cause actual results to differ material from these statements.

For a discussion of these risks, please see risk factors contained in our Form 10-K for the year ended December 31, 2012.

This morning's call is being recorded and webcast live on the Internet. The webcast and corresponding slides will be available in the Investor Relations section of our website for at least 30 days after the presentation. After the prepared remarks, we will open the call for questions from our dial-in participants.

Now I'll turn the call over to Rick.

Rick Williams

Thank you, Kathryn, and good morning, everyone. Welcome to Primerica's fourth quarter 2013 earnings call. In 2013 we delivered shareholder value by focusing on initiatives to drive long-term sales and earnings growth, while actively deploying capital.

Beginning on slide four, you can see operating revenues for the full year 2013 increased 7% to $1.26 billion, driven by term life net premium growth of 10% and strong investment savings products performance compared to 2012.

Positive market conditions, as well as enhancements to our ISP product offerings let to an 11% increase in ISP sales and a 20% increase in client asset values at the end of 2013 versus a year ago period.

Net operating income was $171 million, down $3.5 million in 2013 compared to 2012, partially reflecting a $12.1 million year-over-year decline in net investment income related to lower yield on invested assets, as well as lower invested asset base following the repurchase common stock and warrants.

The lower net operating income also reflects a $28.1 million increase in insurance and operating expenses due to higher growth related and employee related expenses. Expenses associated with the move to our new headquarters and $11.4 million of legal fees and expenses related to the Florida Retirement System matter, which impacted operating earnings per share by $0.13 in 2013.

Although, FRS expenses put downward pressure on 2013 results, active capital deployment drove a 9% increase in net operating earnings per diluted share to $2.97 compared with $2.72 in 2012, and ROE increased 70 basis points to 15% in 2013, 14.3% in 2012.

Due to the high cost -- the high defense costs and the risk associated with continued litigation, we entered into a Memorandum of Understanding to settle the FRS matter in January. The successful litigation of these matters was a substantial factor in reducing the potential costs of the settlement.

In the fourth quarter of 2013, we established $9.3 million reserve based on our best estimate of the total settlement amount were up to 238 claimants and a $6.4 million reserve was established for awards related to prior arbitrations, other potential settlements and the payment of claimants, attorneys fees and expenses.

Claimant benefits will be in the form of future payments beginning in 2024. The claimant law firms are recommended the settlement is being in the best interest of their clients, under the terms of the agreement, a minimum percentage of claimants must agree to settle their claims before we are committed to waive settlement.

Claimants counsel has a period of 90 days to meet the client participation thresholds, although this timetable can be extended by agreement. As this stage we cannot determine the likelihood of these thresholds will be met, what we can we accurately determine the likelihood that most of the claimants will settle their claims.

With any settlement there is always a chance of some residual litigation, but we believe that our prior successes in the litigation and the structure of this settlement make the chance of future FRS claims less likely.

Turning back to full year performance in 2013, Primerica returned over 100% of operating earnings to shareholders through $25.1 million of shareholder dividends and $154.7 million of common stock and warrant repurchases. These transactions retired all warrants from 5% of Primerica's common stock outstanding as of December 31, 2012. Less than four-year since the IPO we have retired 29% of Primerica's common stock outstanding.

Primerica's total shareholder return of 44.7% included dividends -- including dividends significantly outpaced the S&P 500 in 2013. In 2013, we increase shareholder dividends to $0.11 per share or $0.44 for the full year 2013, compared with $0.24 in 2012, maintaining our 1% dividend yield. In January of 2014 our shareholder dividend was increased to $0.12.

For the fourth quarter of 2013, net operating income increased 12% to $46.8 million. Net operating income per diluted share increased 22% to $0.84 and ROE expanded to 16.4%. We expect ROE to remain in the 15% to 16% range near-term with potential expansion beyond 2014.

On a quarterly basis, ROE will fluctuate with income and timing of capital deployment. For example, there will be download pressure on ROE in the first quarter of 2014 due to timing of employee-related expenses and the build-up of equity in advance of more significant share repurchases in the second half of the year.

Our Board of Directors has authorized a share repurchase program and we expect to repurchase up to 150 million of common stock in 2014. Approximately one-third of these repurchases will happen in the first half of 2014 and the other two-thirds will happen in the second half of the year after the accrual of their redundant reserve financing transaction.

Following the financing transaction, Primerica Life Insurance Company will dividend approximately 110 million to the holding company in our RBC ratio, which was estimated to be in excess 490% at year-end, will increase significantly and then decrease over time as new policies are issued and ordinary dividends are declared. As the fourth quarter of 2013 demonstrated, earnings growth and ROE expansion is achievable when key drivers of our diverse business including sales volumes, market performance, persistency and mortality are strong or improving, capital redeployment remains a focus.

Allison will walk through more fourth quarter financial results in a minute. Let me give you a brief overview of production results for the quarter. Our Term Life business issue policies were consistent with the prior year period. The number of policies issued per life licensed representative per month remained in historical productivity range.

In the fourth quarter, our average annualized premium per issued policy increased 4% to $826 compared with $796 in the year go period and increase from $813 in the third quarter of 2013. Our investment savings product sales increased 3% in the fourth quarter compared with a year-ago quarter.

Year-over-year sales growth was relatively strong when compared to the fourth quarter of 2012 which benefited from a significant increase in fixed indexed annuity sales, prior to our product change. Managed account client assets grew year-over-year from $582 million at the end of last year to $1.1 billion at the end of this year.

Sequentially, investment savings product sales increased 2% from the third quarter. Growth in our total client asset values at the end of the fourth quarter was in line with the U.S. and Canadian markets, up 20% to $44.99 billion from the prior year period and increased 7% from September 30, 2013.

In January 2014, two changes were made to our Board of Directors. First, Dan Zilberman has resigned due to his recent relocation to London. Dan has been a valued member of the board since our IPO when he was designated by Warburg Pincus to be one of Primerica’s directors.

In January, we were pleased to elect Cynthia Day to our Board of Directors. As the President, Chief Executive Officer of Citizens Bancshares Corporation and Citizens Trust Bank, Cynthia understands the needs of middle income households and the financial challenges they face. Her experience and expertise in financial services industry will be an asset to our Board.

Now John will discuss distribution results.

John Addison

Thanks Rick. Good morning everybody. We’re trying to make it through another snow jam here in Atlanta. The incentive enhancements made our business opportunity, product portfolio and client experience in 2013 drove over 3% increase in the size of our life insurance license sales force and an 11% increase in ISP sales in 2013 versus 2012.

Our average annualized issued premium in face amount of life insurance policies, both increased year-over-year. And we experienced a healthy 6% growth in the number of our Regional Vice Presidents which represent new distribution outlets across America.

Our mid-year buying yield convention created some downward pressure on distribution results in the first half of the year. Typically recruiting and life insurance sales trend lower in the first half of the convention year because we do not run incentive trip and after the convention there is a lift in production.

As we said in the past in the first half of 2013, our sales force were still adjusting to the significant change made to life insurance compensation in late 2012. This resulted in a 10% decline in recruiting and 7% decline in policies issue compared with the first half of 2013.

In our June convention, we announced new product offerings, technology enhancements and incentives that drove over significant improvement in distribution results. Recruiting of new representatives increased 6%, new life insurance licenses grew 7% and life insurance policies issued increased 1% in the second half of 2013 compared with the second half of 2012.

Our investment and savings product business hit an all-time record in both sales and client asset base in 2013 due to expanded product offerings and platform enhancements as well as positive market performance. We also made progress in growing the size of our life insurance license sales force through increased licensing ratios and lower non-renewal rates.

We believe the vast middle income market opportunity will enable us to continue to grow the size of our sales force in 2014 and believe the sales force can grow in the mid single digit range on an annualized basis. Keep in mind with -- sequential basis, the size of our life insurance licensed sales force may slightly decline in the first quarter of 2014 due to seasonally low new license, new insurance life insurance licenses following the lower recruiting levels, typical of the fourth quarter.

A sequential decline in the first quarter of 2014 would be significantly less than the sequential decline in the first quarter of 2013. We began 2014 with a two-day event attended by 300 of our most senior sales force leaders that culminated with a company wide webcast to kick off the New Year.

These events were followed by 17 group meetings with our Regional Vice Presidents in their offices across the U.S. and Canada. At these meetings, we talked about the efforts to build long-term distribution growth, including the importance of developing new recruits and focusing on new leaders, promotions and order to grow future Regional Vice Presidents.

We also highlighted the improvements we made to the business opportunity and how we are proactively working on incentive programs and technology. This forum provided the opportunity to explain some refinements we have made to our incentive program qualifications to focus more on developing new productive life insurance licensed representatives.

We also promoted the incentive trip we launched in December where we will be taking 1500 couples to La Costa Resort in California in August of 2014. Next week, we’ll be in Waikiki out of the snow with 1500 qualifiers of the Hawaii incentive trip where we’ll continue to emphasize these messages.

Our sales force responded positively to the January event and our RVPs now have a clear understanding of our 2014 priorities. Primerica’s business fundamentals are strong and we plan to build on 2013 achievements to generate growth in 2014.

Now I'll turn it over to Alison to go through our financial results.

Alison Rand

Thank you, John. Good morning everyone. Earlier in the call, Rick highlighted key aspects of our full year 2013 results. Let me now take you through the results for the fourth quarter as well as a new Equity Rollforward added to our financial supplement this quarter.

In the fourth quarter, operating revenues increased by 8% and net operating income increased 12% versus a year ago period primarily reflecting growth in New Term Premiums and strong Investment and Savings Product performance, including a 19% growth in average client asset value.

Results in the quarter also reflects lower net investment income due to lower yields on invested assets and a smaller invested base following share repurchases. Insurance and other operating expenses were held to the lower end of the guidance we provided last quarter.

On Slide 7, Term Life operating revenues increased 10% driven by 11% increase in net premium. Net investment income allocated to Term Life with required assets partially offset by lower yield on invested assets. Term Life operating income before income taxes is 14% year-over-year reflecting modest expense growth and general improvement in consistency.

Benefits and claims grew in line with net premium at incurred claim levels were consistent with historical period.

Turning to the Term Life sub segment, new Term pre-tax operating income as a percentage of direct premiums expanded year-over-year from 11% to 15%, reflecting improved persistency and modest expense growth in relation to the building of the enforced block.

In legacy, pre-tax operating income was 7.2% of direct premium during the current quarter, which was in line with the previous quarter and the prior year period. Fourth quarter benefited from about a $1 million reversal of previously amortized commissions that positively impacted legacy DAC amortization.

Additionally, a premium tax refund benefited legacy insurance expenses in the quarter. As I have mentioned in the past in 2014, we expect the legacy premiums as a percentage of direct premium to decline to the mid 6% range with quarterly fluctuations from mortality and persistency levels and any unusual expense item.

On a sequential basis, Term Life income remained consistent with the third quarter, primarily reflecting growth in premium offset by seasonally lower persistency. Fourth quarter persistency experience is typically the least favorable of the year with DAC amortization expected to grow faster than net premiums compared with other quarters. As I mentioned, the seasonal persistency impact was somewhat offset by the reversal of previously amortized commissions this quarter.

On Slide 8, you will see our Investment and Savings Products operating revenues increased 10% versus the prior year period, reflecting growth in sales and average client asset values. Operating income before income taxes grew 13% year-over-year as Canadian segregated fund market performance exceeded DAC amortization assumptions, resulting in lower DAC amortization in the fourth quarter of 2013.

Year-over-year comparisons of DAC amortization were particularly strong when also considering the weak market performance in the fourth quarter of last year at accelerated DAC amortization in that period. Operating expenses -- operating expense growth year-over-year was modest.

During the fourth quarter, ISP revenue generating sales increased 4%, while sales-based revenues grew 8%, reflecting strong fully commissioned variable annuity sales in the quarter versus an elevated level of variable annuity internal transfers that generated lower commissions in the prior year period. The year ago period benefited from a volume related variable annuity incentive payments that was not received in 2013 due to our switch to a multi provider platform.

ISP asset related -- asset-based revenue and income dynamics are driven by the underlying performance at both the U.S. and Canadian market as well as specific product performance. Versus the prior year period, average client assets grew 19% and asset-based revenue increased 15%, or asset-based commissions grew 24% in the fourth quarter of 2013.

Canadian segregated funds average client asset values declined slightly from the year ago period, creating mount pressure on product revenue mix due to the higher relative rate of revenue generation than other sources of asset-based revenue. As we’ve noted in the past, we recognized asset-based revenue on Canadian segregated funds, but commission expenses associated with this product are recognized over time as amortization of DAC and insurance commission.

Asset-based revenue and asset-based commission growth are more closely aligned if Canadian segregated funds are removed from asset-based revenues in the comparison. On a sequential basis, ISP revenues increased 5%, and operating income before income taxes increased 12% compared with the third quarter. These results reflect 5% growth in asset-based revenue growth, lower Canadian segregated fund DAC amortizations and slightly lower expenses.

On Slide 9, you can see that corporate and Other Distributed Products operating revenues declined $3.7 million and the operating losses before income taxes increased $1.6 million from the prior year period. Net investment income allocated to corporate and other declined $2.7 million, primarily due to growth in Term Life required assets, lower yields on invested assets and continued capital optimizations through share repurchases.

Net investment income in this segment will continue to decline when this Term Life required assets increase and as capital is deployed to enhance shareholder value. And our New York subsidiary, benefits and claims improved by $1.8 million, primarily as a result of favorable claims experience.

Turning to Slide 10, our investments and cash were $1.98 billion as of December 30, 2013, with about $74 million held at a holding company level. Our net unrealized gain was $100 million, down from $113 million at September 30th, reflecting generally higher rates at year end.

The average book yield of investments excluding cash at quarter end was 4.93%, down from 5.19% at September 30th, as higher yielding securities matured and were replaced with lower yielding securities reflecting current market yields. During the quarter, we saw an average yields are maturing and called securities were almost 8%.

This compared to an average yield on purchases of around 3% for the quarter. This new money rate was down from the third quarter due to a higher proportion of purchases during the quarter, seeing short-term investments made by our non-life companies and holding company.

While the general increase in interest rates since the first part of 2013 has allowed us to modestly increase the yield on purchases, we do not expect to be able to replace the yield on our maturities given current market rates and therefore, we will continue to experience downward pressure on the yields of our portfolio. Over the next 12 months, approximately 14% or $227 million of our portfolio will mature in an effective yield of about 4.5%.

On Slide 11, you can see the adjusted stockholders’ equity Rollforward we added to our supplemental financial information this quarter. Most of the line items are self explained individually, but let me explain the three primary components of other net. The other net line item includes the annual management equity grants that are typically issued in the first quarter and are ratably expensed throughout the three-year vesting period.

Also running through this line are the quarterly sales force equity grants for sales and distribution growth, which are expensed in generally DAC in the quarter granted. The third component of the other net line item are the tax adjustments made due to the difference in market value of equity awards at the grant date versus the date the awards are fully vested and delivered.

The tax adjustment component was most prevalent in the second quarter of the past three years as the IPO grant vested. On a go-forward basis, we expect equity increases to other net to be in the $7 million range per quarter, subject to fluctuations in our stock price as well as changes in our equity award program. The first quarter will generally also include a large tax adjustment due to the annual vesting of management equity grants.

Now let's look at trends and insurance and operating expenses on Slide 12. Expenses for the quarter came in at $68 million at the lower end of the range provided last quarter, partly due to the FRS related defense costs coming in at $2.3 million, combined with a premium tax refund and rate adjustments.

Compared to the fourth quarter of 2012, expenses grew by $2.1 million, primarily from employee compensations including the third layer of stock awards commenced in the three-year vesting period. Occupancy related expenses were slightly higher due to the move to our new corporate headquarter.

These expenses were partially offset by lower FRS related defense costs. Our normal increase in growth related expenses was offset by the $0.9 million premium tax refunds previously mentioned and certain other premium tax rate adjustments and releases.

In the first quarter of 2014, we anticipate total insurance and operating expenses in the $71 million to $73 million range. In addition to volume-related expense growth, expenses are typically higher in Q1, as payroll taxes on employees salaries are reset with the New Year and our annual merit increases begins.

Expenses were also increased due to certain one-item adjustments recorded in the fourth quarter of 2013, primarily the premium tax refund and rate adjustments I previously mentioned. These increases will be partially offset by lower FRS-related legal fees and expenses. We currently expect these expenses to be approximately $1 million for the fourth quarter due to the staying litigations of these matters through April 2014.

Now I’ll turn it back over to Rick.

Rick Williams

Fourth quarter results were marked by solid quarter performance across business segments. Our recurring income base and positive investments in savings product performance coupled with the prior share repurchases continue to drive expansion of operating earnings per share and ROE, underscoring the strength of our franchise. As we look to the future we will continue to execute initiatives to grow distribution capabilities, increase earnings and redeploy capital in order to drive long-term shareholder value.

Now we will open it up to questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from Mark Finkelstein at Evercore.

Mark Finkelstein - Evercore

Good morning.

John Addison

Good morning.

Rick Williams

Good morning, Mark.

Mark Finkelstein - Evercore

A few questions. I guess the first question is just on the ROE update, is that purely due to the FSR possible settlement or are there any other factors that drove the higher ROEs and outlook going forward?

Rick Williams

Okay. You mean the prospective ROEs going forward. While obviously without the FRS expenses, the 15% that we did in 2013 would be higher. And as I indicated beyond 2014, we do see some possibility for expansion above that, as the business grows with the layering on, on the life insurance business and as our ISP business grows.

Mark Finkelstein - Evercore

Okay. I guess a question on ISP, you’ve added products, you had good sales in that area, but the flow story hasn’t really kind of turned the corner in a material way in terms of really adding to the flows. When do we hit that point where whether it’s Canadian seg funds or have you kind of start to moderate, do you start to see the growth given the higher sales volumes?

Rick Williams

You mean the growth in net sales, sales less redemptions?

Mark Finkelstein - Evercore

Yes, net flows.

Rick Williams

Yeah, I mean, it did improve year-over-year from $270 million to $384 million and I think that will continue to improve as sales improve. I mean, our redemption rates are relatively flat, as a percentage of AUMs. And as our sales grow that will continue to improve as long as sales do from the level in 2013.

Mark Finkelstein - Evercore

Okay. And then just one final question on the new term, the DAC number, was that -- was the higher sequential DAC purely due to the seasonality factor and the lower persistency, or was there anything else going on in the DAC amortization in the fourth quarter, I am talking about new DAC or terms?

Alison Rand

Or net terms?

Mark Finkelstein - Evercore

Yes.

Alison Rand

Specifically with new term, it’s a combination, it’s really three things that on a sequential basis it is the seasonality, I mean it was slightly more favorable than we would have expected because of better persistency. We saw a lot of efforts as we’ve seen in the third quarter also. So keep that much the difference on a sequential basis.

Year-over-year we saw a more dramatic improvement because of persistency but you also had general growth because of growing in the size of the business, you are growing up the premium base.

Mark Finkelstein - Evercore

Okay, all right. Thank you.

Operator

Our next question comes from Steven Schwartz at Raymond James.

Steven Schwartz - Raymond James

Hey, good morning, everybody. John, I have no tree for you for the snow.

John Addison

I will tell you what, thanks, but in Chicago at least you have sand and salt trucks.

Steven Schwartz - Raymond James

That’s true. But I do ask about weather and given kind of your -- you do have some territoriality I guess if the horrible weather might be affecting 1Q sales results?

John Addison

I think there is a possibility, I mean Januarys were crooning, was a little less than what we had hoped it would be, but we actually feel good about the things we’re doing, and then hopefully coming out of Hawaii with some serious memorable things, but that’s it. This is pure anecdotal here. Having talked in the last week with the bunch of our senior leaders in the Midwest and the Northeast in all honesty including down in here, I mean our business is driving to homes and driving to meetings. So I think it will have an effect. There is no like panacea effect with our field or whatever, but I do think Steven it will have an effect, because Primerica is a business that is as one of our guys describes it, it is in the car driving in (inaudible). So we think it will have an effect, but I don’t think it will have a dramatic effect.

Steven Schwartz - Raymond James

Okay. And just to be ready for the possibility. Rick on FRS, if this doesn’t happen, I mean do you just - it goes back to the way it was or you just fight this out case by case?

Rick Williams

Yeah, if it doesn’t happen that is what happens, so it goes back to a case by case basis with the expenses being elevated like they were in 2012 -- 2013 rather. I am hopeful that will be resolved though, so we will see in a few months.

Steven Schwartz - Raymond James

And Alison a couple of questions for you, to lower the premium tax adjustment that you cited a couple of times, how much was that in the quarter?

Alison Rand

The reason itself was just under a $1 million and then we had a couple $100,000 worth of rate adjustments associated with that so we basically trued up our core rates as well based on the things that we found we were able to get refunds for, about $1.3 million in the aggregate.

Steven Schwartz - Raymond James

$1.3 million pretax, okay. And then there was a -- I didn’t catch that, I apologize, there was a reference to the 6% reference with regards to I think it was legacy premium, what was that?

Alison Rand

That was the legacy, sometimes we call it margin, but technically it’s in our financial supplement as some operating income as a percentage of direct premiums, that ratio was 7.2 for this quarter, it’s a little elevated because of those -- some of that premium tax adjustment as well as what I mentioned with the commission amortization reversal.

Steven Schwartz - Raymond James

Right, yes.

Alison Rand

In legacy. And I was highlighting that as we said in the past we expect that rate to get down into mid-6s this year.

Steven Schwartz - Raymond James

Okay, great. All right. Thank you, guys.

Rick Williams

Thanks, Steven.

Operator

Our next question comes from Jeff Schuman at KBW.

Jeff Schuman - KBW

Thanks. Good morning.

Rick Williams

Good morning.

Jeff Schuman - KBW

I just wanted to know, I like Steven, I feel terrible about your weather, bring me a lot into Hawaii, we could talk about that.

Rick Williams

Jeff, absolutely shower with the flash light this morning, power is out in Clermont, Georgia so we don’t handle, (inaudible) don’t do weather well.

Jeff Schuman - KBW

I am glad you meet into the call. So a couple of questions. John, you had given us some perspective on kind of the sales for count maybe sort of end of the first quarter and then kind of the normalized growth potential. I was wondering if you could talk about couple other factors that also end up impacting sales, one would be productivity which for the quarter in the year was very much within historical ranges, but a little bit, I think down from last year, so may be little prospective on where that might go? And then a new trend in the last couple of quarters have been notable increases in the average premium per policy, I am wondering what’s driving that, is it face amount, is it age, what’s going on there?

Rick Williams

Okay. First on the productivity, one of the things that we said in the script and as you noticed in our numbers is that non-renewals have been better, as well as our licensing rate better. Now there is good news and bad news, mainly good news, but I mean, if there is kind of yen and yen to non-renewal is being higher, because the people that renewed, the marginal renewals, I think speak to that, people feel better, the economy is better, if you remember a couple of three years ago we were talking about renewals being lower because people have to pay to renew their license and if they have a made a sale in a while, if the economy is bad they don’t renew.

Well, that’s gotten better and we are having more people renew their license. But the people that make that decision at the age are the more marginal producers. So that has -- that is one of the reasons that productivity is down a little bit or whatever is that, fortunately size of the sales force is up bit of piece of that is because less marginal non-renewals leaving and more staying.

But again within our historical range, the gold is to grow recruiting and grow the new licenses which when people come in the front door is when they were at their most productive component of it.

Again -- and then also on average size, the average size had gotten to a, it was much higher prior to the collapse in ’08 and stuff like that and it seems to be moving back in a very positive direction. I think a piece of that is we have improved technology a point of distribution on our insurance sales. We have implemented a new web-based financial needs analysis which leads people to sale more to the needs of the person at the kitchen table and we are very positive about the fact that that is moving on the right direction and our goal is to keep it moving back up.

So, I guess, net-net, I would say there are underlying healthy trends to everything we see and as I am preparing to go to Hawaii, John’s message is for, our goal is to get a recruiting improvement, to get recruiting to really move up but to maintain all of the healthy things that we have done on the underlying mechanisms of the business to grow the new licenses but those -- that’s kind of the answer on those two things.

Jeff Schuman - KBW

Okay. That’s very helpful. And one for Alison, just to make sure I got this right. So in the investment portfolio, 2014 maturity is sort of coming out at 4.5%, which is still north of the new money rate, but much closer than the stuff that has been coming out recently as much higher, is that correct?

Alison Rand

That is correct. Obviously, when you are looking at a calendar year’s earning, you have to consider what’s come out in the recent past but on a futuristic looking basis or going forward basis that would definitely the case.

Jeff Schuman - KBW

All right. Thank you.

Operator

Our next question comes from Dan Bergman at UBS.

Dan Bergman - UBS

Hi. Good morning.

Rick Williams

Good morning, Dan.

John Addison

Hi, Dan.

Dan Bergman - UBS

Hey. Just a follow up on Mark’s earlier question, I wonder if you could provide any thoughts on the outlook for investment savings product sales, specifically areas, look like the growth in mutual fund has been a key driver the recent sales stream, given the market volatility we have seen so far in 2014? I wonder to see do you expect any pressure on, retail mutual funds sales going forward and just in general any thoughts on the sales outlook will be much appreciated? Thanks.

John Addison

Rick, why don’t you go first and then I’ll.

Rick Williams

Yeah. I mean, obviously, the volatility in the negative aspect in the market in the first part of January does have some impact on sales and so January sales were not as strong as we have liked, as John mentioned, really the same way with recruiting.

But, overall, I do think that our marketplace has a strong need for the product and we -- as John talked about, we have been improving our tools for reaching the marketplace. So we are expecting growth in year-over-year investment sales maybe not as high as 2013 but still a good year.

John Addison

And just to add in, January, it depends on what the market does over the next few months or whatever. Our business on a negative basis reacts to a real market kind of sustained correction, a sort of one time down one month. It is not -- it does not pull through in the trends of our production or whatever long term. So it -- it really -- the market it really depends on how the market does over the next few months as to how it will affect sales of our funds.

Dan Bergman - UBS

Okay. Great. That was very helpful. And then, just switching gears, so there are 2.3 million of the Florida Retirement System legal fees in the quarter and assuming a potential settlements to finalize, I assume this would decline going forward but any color on the outlook for legal expenses, following the 1 million that you are expecting the first quarter, it would be very helpful. I guess, this January, would this go to zero at some point in the near medium term or remain near that 1 million quarterly level for while. Just any thoughts on that would be very helpful?

Rick Williams

Yeah. It’s hard to give that -- answer to that question because it really does depend upon what the number of opt-outs are. If you had no opt-outs, obviously the number goes to zero. More than likely they will be some but we’re not sure. So we really can’t answer that until we understand how many people do sign up for the settlement itself.

Dan Bergman - UBS

Okay, I understood.

Rick Williams

All right.

Dan Bergman - UBS

Thank you.

Operator

Our next question comes from Sean Dargan at Macquarie.

Sean Dargan - Macquarie

Thank you and good morning. I have a question about share repurchase. I think Rick was describing share purchase in 2014 starting earlier in aggregate being larger and then I think some people were thinking about, is that a reflection of Massachusetts regulators, excuse me, getting more comfortable with your capital or just your outlook on FRS or what’s kind of driving that change?

Alison Rand

The $150 million that we have been talking about is a consistent number. We’ve mentioned it, I think for the last two quarters but very specifically the timing of the transaction and where -- and/or the repurchases and where the funds would actually be driven from has a lot to do with if and when we get regulatory approval from Massachusetts.

So I don’t think anything really has changed in our outlook there. Really the vast majority of 110 of the 150, we do anticipate coming from the life company. Based on our performance on the statutory basis this year or 2013, we believe all of the money that we need will be able to be extracted on an ordinary dividend basis but we do need to wait for that transaction to be finalized and approved before we can take any action.

Sean Dargan - Macquarie

Okay. And just around your strategy for share repurchase, do you see in the future, may be giving more significant share awards to employees and using share repurchases as a way to diffuse dilution or I mean this is going to be a material driver of your ROE expansion.

John Addison

No, relative to employees and sales force equity, we really intend to hold those programs roughly at the same level they are, so there will be not an expansion from that perspective. And we do see it driving earnings per share and ROE as we are repurchasing capital. Between dividends and share repurchases we will be giving back to the shareholders a large percentage of the earnings, annual earnings with the company. And as earnings grow, you get expansion in earnings per share and ROE.

Sean Dargan - Macquarie

Okay. Thank you.

Operator

Our next question comes from Mark Hughes with SunTrust.

Mark Hughes - SunTrust

Thank you. Good morning.

Rick Williams

Hey, Mark.

Mark Hughes - SunTrust

It’s still pretty clear here in Buckhead, but we’ll see how the day goes.

Rick Williams

It’s not so clear up here. Dade County is not doing well. So it’s coming your way buddy.

Mark Hughes - SunTrust

All right, we’ll look forward to it. The persistency in the legacy block, it seems like that’s been very good. Is there any reason why that would change over the next couple of years, is the age or the profile of that block? Does that lead to a little more loss in policies or is this a good persistency for the foreseeable future?

Alison Rand

I believe this is a good persistency. Again as we mentioned in the past, we do have seasonality to some quarters, we tend to see higher (inaudible) but if you’re looking at on annualized basis, this is a very good ratio to be looking at.

In general that is a pretty stable block of business. Obviously the longer-term life policy stays in-force the more likely it is to continue to stay in-force. So we see a more stable, more predictable level of persistency here than we would say in new term, where the business is a lot of it’s in its first and second duration where we obviously see our highest obsession. So I think it is a good rate. We do need to keep in mind on a quarter-to-quarter basis the seasonality that we normally experience.

Mark Hughes - SunTrust

And then on the expense allowance within the legacy block, I think you’ve given some guidance about the pre-tax margin, maybe going to the mid-6s there. The legacy block or the allowance this quarter was a little higher than usual. I don’t know if you touched on that, but is that part of why you would expect that to moderate a little bit, is that going to come back to more normal levels?

Alison Rand

The allowance really wasn’t a key driver to what we experienced this quarter. That will fluctuate a bit. It is largely driven by two things, one is the city allowances, that’s the biggest piece there, but we do so have some allowances on the owner business that was count short with third party reinsurers way back in the 80s and early 90s. So there’s a little bit of volatility there.

So I don’t think you saw -- we didn’t see anything notable in allowances this quarter. And again that we are drivers as the return this quarter in legacy were obviously the overall performance at the block as well from a mortality standpoint as well as the two items I called out, one, some of that premium tax adjustment went to legacy and then also the reversal of previously amortized commissions about $900,000 there.

Mark Hughes - SunTrust

Thank you.

Rick Williams

Very good. Thank you everybody. Stay warm and have a nice day. See you.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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