Primerica's (PRI) CEO Glenn Williams On Q4 2016 Results - Earnings Call Transcript

| About: Primerica, Inc. (PRI)
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Primerica, Inc. (NYSE:PRI) Q4 2016 Earnings Conference Call February 9, 2017 10:00 AM ET


Kathryn Kieser - EVP, IR

Glenn Williams - CEO

Alison Rand - CFO


Ryan Krueger - KBW

Dan Bergman - Citigroup

Mark Hughes - SunTrust Robinson Humphrey

Sean Dargan - Wells Fargo

Adam Klauber - William Blair



Good morning and welcome to the Primerica Q4 2016 Financial Results Conference Call and Webcast. All participants will be in a listen-only mode [Operator Instructions]. After today 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, Executive Vice President of Investor Relations. Please go ahead.

Kathryn Kieser

Thank you. Good morning, everyone. Welcome to Primerica's fourth quarter earnings call. A copy of our earnings release, financial supplement, presentation and webcast of today's call are available on our website at Glenn Williams, our Chief Executive Officer and Alison Rand, our Chief Financial Officer, will deliver prepared remarks. Then we will open it up for questions.

We reference certain non-GAAP financial measures in our press release and on this call. These non-GAAP measures have limitations and reconciliations between GAAP and non-GAAP financial measures are attached to our press release.

We will also make forward-looking statements in accordance with the Safe Harbor Provision of the Securities Litigation Reform Act. The company will not revise or update these statements to reflect new information, subsequent events or changes in strategy.

Risk and uncertainties that could cause actual events to differ material from those expressed or implied are discussed in the company's 2015 annual report on form 10-K, as updated by our quarterly reports on form 10-Q.

Now I will turn the call over to Glenn.

Glenn Williams

Thanks, Kathryn and good morning, everyone. I’ll start with our 2016 achievements then move to fourth quarter results and wrap up with the opportunities ahead of us. For the full year 2016, we continue to execute our strategy to drive growth and improve performance by expanding distribution, deploying mobile technology and repurchasing shares.

On page three, you can see our net operating income grew 13% and we achieved a 22% increase in operating EPS and a 210 basis point increase in operating ROE compared with 2015. The solid foundation we built over the last couple of years is focused on growing our sales force and its leadership to meet the expanding needs of middle income clients. At the same time we have been working on incremental enhancements across our business to produce positive financial results.

Technologies played a significant role in the improved performance of our core model. Our commitment to developing mobile technology capabilities throughout our business has led to delivering and enhanced client experience, greater processing efficiencies, more comprehensive representative training and higher sales force productivity.

New mobile sales also appeal to a broader spectrum of age groups and provide a platform for more effective interaction with perspective clients, recruits and our sales force. By utilizing robust communications we were able to deliver messaging that informed and motivated our sales force. We also encouraged real-time feedback from our senior leaders, which enabled us to achieve greater success with our sales incentives and real time recognition programs. These initiatives have created strong alignment between the sales force and the company.

We also continue to work on every facet of life insurance licensing, including state and prudential processes, representative education and test preparation. Our objective is to increase licensing success for the broader spectrum of recruits. As an example, we work diligently to prepare for the implementation of the new Canadian licensing process in 2016.

Our efforts resulted in continued growth of the Canadian life insurance sales force now at its record size. These strategic initiatives have led to a very attractive value proposition for our representatives and helped increase the size of our life license sales force to 116,827 up 9% from the end of 2015.

The productivity of our life insurance sales force also remained at the top end of the historical range for seven quarters, which led to the 15% growth in life insurance policies issued in 2016. This growth has far exceeded the 1% increase in application activity for individually underwritten life insurance policies reported by the MIB Life index in 2016.

The Term Life segment achieved strong results in 2016 with revenues increasing 13% and operating income before income taxes up 23% year-over-year. The Term Life operating margin expanded 150 basis points from 2015, reflecting business growth, improved claims experience in 2016 and the benefit of renegotiated reinsurance rates in previous years.

Turning to our Investment and Savings Products business, ISP operating revenues and operating income before income taxes remained relatively consistent year-over-year despite headwinds experienced in 2016. Product sales were impacted by uncertainty in the market early in the year and throughout 2016 variable annuity sales were weaker industry wide, impart due to the impending DOL fiduciary rule.

Market conditions improved in the second half of 2016 and ISP sales ended the year 5% lower than 2015. Client asset values grew to a record $52 billion at year-end including $975 million of positive net flows during 2016.

Over the past few years, we've focused on increasing the profile of our investment and savings business within our sales force and expanding our ISP product offerings. Throughout 2016, we work to develop Primerica's new life time investment platform, which we expect to launch in the second quarter of 2017. It will have multiple approaches, strategies and product types.

This new platform has generated a lot of excitement from our series 65 license representatives, as well as interest from mutual fund license reps in obtaining a series 65 license. Our number of representatives with the series 65 license increased 10% from the end of 2015.

In addition to our strategic initiatives to drive organic growth, we remain committed to increasing stockholder value by actively deploying capital. Our strong and diversified cash flows have allowed us to return a significant amount of our operating earnings to stockholders on an annual basis.

In 2016, we continued optimizing capital by repurchasing $150 million of shares which enabled the retirement of approximately 6% of common stock outstanding as of December 31, 2015. These returns reflect our confidence in our business and future prospects and we're pleased to have returned approximately 85% of operating earnings to stockholders in 2016, including stockholder dividends. We plan to repurchase another $125 million to $150 million of shares in 2017.

Now let's turn to fourth quarter results on page four. Operating revenues increased 10% and net operating income grew 11%, compared with the fourth quarter of 2015. Earnings growth and share repurchases throughout 2016 drove an 18% increase in diluted operating EPS to $1.19 and operating ROAE expanded to 19.2% in the fourth quarter of 2016.

Term Life business results reflected continued momentum in adjusted direct premiums and typically lower fourth quarter persistency experience that was also weaker than historical levels in the period.

Investments and Savings Product performance improved in the fourth quarter due to higher average client asset values and stable product sales year-over-year. ISP segment results also include the full year impact of a change to the annual account based fee structure, implemented in the fourth quarter of 2016.

Turning to page five, in the fourth quarter we saw a 6% increase in new life insurance licenses from the very strong licensing results in the fourth quarter a year ago. The ratio of new recruits obtaining a life insurance license dipped slightly below historical levels due to the 24% increase in recruiting of new representatives versus the prior year period. Fourth quarter recruiting growth was spurred by approximately 4,000 new recruits whose entry fee was waved, as a result of a November initiative to honor the men and women of the military.

On a sequential quarter basis, recruiting and licensing both declined during the typically slower holiday season. We expect the ratio of new life insurance licenses to recruits for the full year of 2017 to continue to be around the 2016 full year level of 17%.

We also expect the ratio of license, non-renewals and terminations to sales force size to remain in the 8% per quarter range for the full year 2017. We are optimistic about continued increase in the size of the sales force with a goal of high single-digit growth on an annualized basis.

On page six, you can see Term Life insurance policies issued increased 14% from the fourth quarter a year-ago, driven by the larger life insurance license sales force and productivity of 0.23 policies for a life insurance license representative per month, which top the high-end of the historical productivity range.

Fourth quarter Investment and Savings Product sales were flat year-over-year, reflecting higher retail mutual fund sales and fixed index annuity sales, offset by a decline in variable annuity sales consistent with industry trends. Net flows were positive $304 million in the fourth quarter and client asset values increased to 11% to a record $52.3 billion at the end of the year.

On a sequential quarter basis, ISP sales increased 5% due to market performance. This sales momentum continued in January. As we begin 2017, I am optimistic about the growth opportunities ahead. The business environment appears to be more positive on a number of fronts. Personal financial confidence on Main Street remains high in the pendulum of regulation is reversing direction, which should be beneficial to our business.

Over the past year, we have devoted significant resources preparing for the implementation of the Department of Labor’s fiduciary rule. We believe the DOL rule will most likely be delayed for future review and Primerica plans to continue actively participating in the rule making process. Our priority continues to be acting in the best interest of our clients. We take an educational approach delivered at the kitchen table; offering middle income families the products and help they need to make prudent financial decisions.

We believe in client choice, whether that means a mutual fund, with an upfront sales charge or an advisory account with an asset base fee. We have an unwavering commitment to serve middle income families and we are guided by their need to save for retirement.

We have been developing robust Investment and Saving Product systems and processes to comply with the DOL rule. We will continue to build our infrastructure and develop changes to our client facing sales tools to enhance our ISP business and position us for future regulatory change. The streamline sales process will make trade execution easier, provide greater operational efficiencies and create a more attractive business for representatives considering obtaining a mutual fund license.

Every day we strive to improve the business for our representatives, clients and stockholders. Our theme for this year is unfinished business. The work we have accomplished over the past several years has paid off, but there is still a lot left to do. Working side-by-side with our sales force, I feel good about our ability to meet the growing demands of main street clients and provide appropriate solutions for their financial challenges, in order to drive future growth and long-term value for all of our stakeholders.

With that, let me turn it over to Alison.

Alison Rand

Thank you, Glenn, and good morning, everyone. Today, I will share with you the key drivers behind our fourth quarter segment financial results, and then conclude with a companywide review of insurance and operating expenses.

Starting on slide seven, in the fourth quarter, our Term Life segment’s operating revenue increased 13% and adjusted direct premiums increased 14% year-over-year, reflecting continued strength in Term Life production as well as growth in the in force business not subject to IPO related co-insurance.

Operating income before income taxes grew 11%, while operating margins contracted modestly to 17.3% from 17.7% year-over-year. As we have typically seen in the fourth quarter, persistency was seasonally lower than in other quarters and in addition was weaker than in the prior year period.

In the aggregate, claims were largely in line with the historical trends with higher life insurance claims being offset by lower disabled life claims. As we've historically done in the fourth quarter we finalized our new business assumptions for 2016 sales increasing the persistency assumption for later policy duration based on recent experience.

The net impact of weaker persistency claims experience and finalizing business assumptions was approximately $3 million unfavorable for the quarter. The benefits and claims ratio improved slightly to 58% from 58.3% in the fourth quarter of 2015 as lower reserves from the weaker persistency were offset by higher reserves from the finalizing a business assumption. DAC amortization ratio increased to 17.9% from 17% in the prior year mainly due to the weaker persistency. The net insurance expense ratio was consistent with the fourth quarter a year ago.

On a sequential quarter basis, both income before income taxes and the Term Life operating margins declined from the third quarter of 2016. These trends are driven by the seasonally lower persistency in the fourth quarter combined with third quarter claims experience that was $3 million favorable to historical levels. The net insurance expense ratio was in line with the third quarter.

Looking ahead to 2017, we expect attractive adjusted direct premium growth in the mid-teens as a result of recent and continuing strength in policy issuance combined with the coinsurance transactions we enter into at the time of the IPO. On an annualized basis, we expect the benefits and claims ratio to remain in the 58% to 59% range and the DAC amortization ratio to be around 15%. The insurance expense ratio should show slight improvement from the 2016 level and Term Life operating margins are expected to be in the 19% to 20% range for 2017.

Moving now to our Investment and Savings Products segment, on slide eight we see both our ISP operating revenues and operating income before income taxes increased 6% from the fourth quarter a year ago, while revenue generating product sales were consistent with the year ago period. Sales based revenues declined 2% looks like being a shift in product mix from variable annuities to U.S. retail mutual funds.

The sale based net revenue was consistent year-over-year. Net revenue ratio was consistent year-over-year. Asset based revenues increased 8% year-over-year in line with average current asset value and the asset based net revenue ratio was consistent year-over-year. Canadian segregated fund DAC amortization was lower than normal, reflecting an updated assumption for lower future redemptions based on emerging experience. The similar adjustment was made in the fourth quarter of 2015.

Account based revenues grew year-over-year largely reflecting an increase in our account based fee structure on U.S. qualified accounts. The $4.1 million full year impact of this change was recognized in the fourth quarter. Although going forward it will be accrued quarterly as it is earned. This was also the largest driver of the 14% sequential quarter growth in ISP income before income taxes.

On slide nine you can see the corporate and other distributed product segment operating revenues were $28.3 million and operating losses for income taxes were $6.4 million in the fourth quarter of 2016. Net investment income continues to be impacted by low investment portfolio and market yields. Additionally in the fourth quarter there was a $0.2 million negative total return on the deposit assets stacking an IPO related reinsurance agreement as a result of a negative $1.3 million mark-to-market adjustment on the assets.

Net unrealized gains on our invested asset portfolio decreased from $110.4 million at September 30, 2016 to $65.8 million at quarter end due to increasing interest rates during the quarter. The average book yield of our fixed income portfolio at quarter end was 4.21%, down slightly from September 30th as is generally reinvested on a short-term basis.

While rising rates should continue to provide us with better yielding investment opportunities, the impact of reinvestment will be gradual. Over the next 12 months approximately 10% or $173 million of our portfolio will mature with an average yield of around 3.7%.

The effective income tax rate for the fourth quarter of 2016 was 34.7%, up from 33.8% in the prior year period. The increase was largely due to higher nondeductible expense items and a smaller annual release of exposure reserve relative to the prior year period. Beginning in the first quarter of 2017, we will adopt a new accounting standard which will increase the volatility of our effective tax rate.

Prior to 2017, we recorded the tax benefit or expense for the difference between the stock prices of equity award at the time of grant, investing in the balance sheet. The new accounting standards require this difference to be recorded as an income tax benefit or expense in the income statement.

So, our income tax expense will be affected by future market prices of our common stock. As an illustration, based on employee equity awards that are projected to best in 2017 and yesterday's closing price of $77.50, the impact would be a reduction to income tax expense of about $2.1 million.

We will see this impact in the first quarter as that is when the bulk of the annual awards that are granted to employees best. Additionally on a quarterly basis, sales restrictions lapped on equity awards granted to our independent sales force, which will also reduce result in an adjustment to income tax expense. For the first quarter of 2017, we expect this to further reduce income tax expense by about $700,000.

Now I'll move to a discussion of the company's insurance and other operating expenses. On slide 10, you can see our fourth quarter expenses of $77.9 million were $6.3 million higher than the fourth quarter of last year. The year-over-year change primarily reflect a $2.7 million increase in employee related expenses, $1.6 million spend on DOL fiduciary rule preparation and $2.6 million additional investment in technology infrastructure and mobile initiative.

The latter largely being offset by the year-over-year increase in other net revenues. Premium and growth related expenses of $0.6 million higher, which was lower than the usual increase due to a favorable premium tax rate adjustment in the quarter. Looking ahead to the first quarter of 2017, we expect the typical sequential increases in our insurance and other operating expenses that we normally see.

As a reminder our first quarter expenses are usually higher due to the impact of the annual grant of management equity awards to retirement eligible employees that are fully expensed and granted as well as other annual employee-related and operational increases you need to the first quarter.

We expect a $10 million increase in employee related expenses and additional $1.5 million for seasonal expenses related to annual mailings of privacy letter and mutual fund holders' tax documents in the first quarter.

On previous calls, we indicated that implementation costs for the DOL rule would be about $10 million for 2017. As Glenn discussed, we will remain actively engaged in the fiduciary rule making process and we'll continue to invest in the development of sales tools and processes to enhance our IST business.

While it is too early to have a full view of 2017 expenses for these efforts, given the likely rule delay, we anticipate that 2017 cost will run a few million dollars less than the original $10 million estimate.

As a wrap up let me say that we've remained committed to maintain a strong balance sheet and continue to demonstrate a strong capital position with Primerica life insurance company's statutory risk based capital ratios estimated to be around 450% and holding company liquidity of $68 million at the end of 2016. As the business builds and we continue to take out ordinary dividends we expect our RBC ratio will remain in excess of 400% in 2017.

With that let me open the call up for questions.

Question-and-Answer Session


Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from the Ryan Krueger of KBW. Please go ahead.

Ryan Krueger

Hi, thanks. Good morning. I guess first one for Alison, Term Life margins have continued to trend up over the last few years, is due I think 19% to 20% is kind of the right longer term range for that business or could you give a little bit more color there?

Alison Rand

Sure. And one of the things I didn't talk about in this call that I did talk about last quarter was some business that's coming up with end of term and the change in a contract that we have in the IPO coinsurance. So there is a little bit of pressure in 2017 that will begin to emerge and what I quoted last quarter was that the overarching improvement that we’ve seen in general early persistency as well as mortality are more than offsetting that plus the growth in the book of business is making our expense ratio improve each and every quarter.

So, I do think the 19% to 20% is a good annualized range. I’ll remind you as you’ve seen in this quarter that we do have seasonality especially in persistency with the fourth quarter always being a much weaker quarter than say the first or second actually the second is always our best quarter. So there is definitely seasonality in that ratio, but on an annualized basis that number should be pretty good for the near-term, yes.

Ryan Krueger

Thanks. And then taking into consideration some of the tax items you mentioned for the first quarter, I know it will be impacted by your stock price, but if you can have a base case tax rate expectation for the 2017 at this point.

Alison Rand

It’s hard to say because we can’t determine what that one particular item will be until the awards best and we know what the stock price is that day, but putting aside that particular item, we would expect our tax rate to be very much in line with where we have been in 2016. So, there is nothing other than that really happening unusually in our tax rate.

Ryan Krueger

Okay, great. Thanks a lot.


The next question comes from Dan Bergman of Citi. Please go ahead.

Dan Bergman

Hi, good morning.

Glenn Williams

Good morning, Dan.

Dan Bergman

Even backing after crudes added through the military member initiative you mentioned recruiting levels are really strong in the fourth quarter. I just want to see if there is any additional color you can provide on what drove the momentum and whether you expect it to continue ahead? And I guess big picture how should we think about the strength in terms of the mix between kind of company initiatives and things you are doing drives out versus kind of the left from the overall macro environment?

Glenn Williams

Thank you Dan, it’s a good question. And as always if Primerica seems there are number of factors all working at the same time. We have had ongoing strength in our recruiting and I think that's reflective of the ongoing improvements that we try to make in our business at every front from the way we communicate our business opportunity to new recruits to the technology and the messaging that we are able to deliver on that technology.

And so I think we made improvements so there which have helped our recruiting gain strength. I also think that our sale force as I mentioned in my comments and the company are very much in alignment, we are very growth focused and doing the things whether it’s the messaging or our ongoing incentives that support a growth theme and a growth dynamic.

And so I think it’s a number of small things that are compounding overtime other than that military recruiting outreach and we’ve always had a strong relationship with members of the military both active duty and veterans we just chose to use the month of Veterans Day and Remembers Day in Canada to do especial initiative. But that's really the only thing we’ve done that has kind of that one time unusual impact the rest of it is incremental improvements that we are doing.

And also as you point out I do think the environment is very positive as I mentioned I think the personal financial confidence on Main Street continues to be strong and people believe it appears to us believe that that will continue for some time. And so that's clearly an environmental positive that we are gaining benefit from at the same as what we are doing here.

Dan Bergman

Got it, very helpful, thanks. Maybe switching gears a little bit agent productivity in terms of life sales; I believe was above the high end of historical levels and generally has been pretty strong recently. I just want to get a sense of what has been driving that and where you expect productivity trend going forward. And really how much of the left - is there any left you are seeing in that metric from the strong recent recruiting levels?

Glenn Williams

Well, I think all these things travel together when the environment is positive and our sales force is feeling very optimistic about the future all our numbers get better. The relationship between recruiting and sales, there is a relationship obviously because when we recruit it expands the size of our distribution system and also that gives us new warm markets to work in. So there is that indirect relationship there.

But at the same time I think it’s the same types of things I described about recruiting, we look at the efficiency both for us and for our sales force of delivering products. We look at our sales messaging clearly the middle market is more abundant than ever there is a greater need in the middle market so it’s not only a positive environment, there are fewer and fewer competitors out there trying to meet those needs in our opinion.

And so it gives us a huge opportunity so again it’s things that we are doing in here to deliberately take advantage of what's emerging, it's the environment outside that’s positive right now. And those have worked together along with the growing size of our sales force. Those things have worked together to increase productivity and we're kind of getting the double positive of an extremely large sales force operating at the top end of the productivity corridor.

Dan Bergman

That’s very helpful. Thank you.


The next question comes from Mark Hughes with SunTrust. Please go ahead.

Mark Hughes

Good morning. You've got your convention coming up as I understand in June in Indianapolis how much does that contribute to your upbeat view on recruiting. And is there any particular focus this time around, I know it's historically been a strong catalyst for new recruits. Are you shifting the emphasis this time or how should we think about it?

Glenn Williams

No I think we would be very pleased if we could reproduce the impact of our convention in 2015. Of course we're in a new location because of the termination of the old Dome in Atlanta and the incomplete new stadium in Atlanta. We’ve moved out of Atlanta to Indianapolis for this convention in '17 we'll be back in Atlanta in 2019. But actually the different location has provided the positive; there is an excitement about being in a different place, it's more central to the geography of our business. And so that give us an opportunity to try to appeal for more people for larger attendance.

But the event itself is one that we view as an opportunity it’s the one opportunity we have every two years to get the maximum number of people in one place at one time to communicate with everybody at the same time with the same message. We're pretty good at communications we leverage technology and we communicate with a huge community about as well as anybody but there is nothing like communicating with everyone live ones all at the same time.

And so that's where we're deliver a message. As I mentioned my theme for this year our theme as a company for this year is unfinished business and the thinking behind that is let's not look back the last two years at the success we've had and be satisfied with that. And there is still a tremendous amount of work left to do. The need in the marketplace for our clients is bigger than it was two years ago and so that has grown. The need for a great opportunity for people that have an entrepreneurial start that they want to fan into a flame is bigger than it’s ever been.

And so we don't want to become complacent and satisfied we want to continue the growth and that's the messaging of course there is no place to deliver a message like that event. And so we're using the run up to that event we are about four months away.

Excitement level is very high as it always is. And so we're using the anticipation of that event to build the excitement going in to Indianapolis and then we'll use that event to raise excitement and optimism about the future to a new level. So I think it's going to be a very much the same formula and we hope with the same results we saw in 2015.

Mark Hughes

I think you had alluded to continuing strength in the ISP sales in Q1. Is there any benefit you're getting from maybe some turmoil around the DOL rule I think that was one idea was that traditional brokers might abandon this kind of Main Street segment of the market. Is that helping or is that internal initiatives in a strong market that are doing it?

Glenn Williams

I think it's too early to tell whether we're picking up any of the abandoned marketplace whether it be clients or sales people from other companies as they make changes that make sense for their business plans. I do think right now it's driven by our internal initiatives as well as the stronger markets in the fourth quarter. As you know we've experienced a little delay often below our sales react to strong returns, but the returns have been positive.

And I think that every day I think we're gaining a little more certainty about the DOL rule and then something else happens to make it little less certain. But I think do think we've traded negative certainty for positive uncertainty. So while I don't like the uncertainty it's a positive direction. And I think that's helping us. And I think by the way that's helping the whole industry as well.

Mark Hughes

And then finally the - Alison what do you say about the share buyback, what is the plan for investment for share buyback for this year?

Alison Rand

What we've stated is a $125 million to $150 million for 2017.

Mark Hughes

Yes okay. Thank you very much.

Dan Bergman

Thanks Mark.


[Operator Instructions] The next question comes from Sean Dargan of Wells Fargo. Please go ahead.

Glenn Williams

Good morning Sean.

Sean Dargan

Good morning. Thanks I have a question about potential tax reform. I'm wondering if you've done any internal analysis as to what the potential upside could be if the U.S. corporate tax rate is cut to 15% or 20% or 25%.

Alison Rand

Yes, and Sean, we have done some preliminary work and as you well know, everything is extremely preliminary because there is nothing even on the table as of yet. But a couple of points to highlight about some things that are out there. One is we are largely a domestic business and so if the rate was to go to let’s say 20%, we would very much feel the benefit of that, although interestingly enough and our business in Canada would actually be a higher tax regime for us and right now it’s currently obviously the lower tax regime.

So we would still have something above 20% as an effective tax rate, because we have a little bit of business outside the U.S. but for the most part our business is domestic so we would be positioned to take advantage of that any kind of tax rate change pretty thoroughly. Another thing to think about is that we are actually in a deferred tax liability position.

So if in fact the rate was to change we would be able to adjust down that liability or restate that liability to the new tax rate. So that is also something that would the advantageous to us.

Now there is a lot of talk out there about things like the dividend received deduction that’s not a big deal for us, we don’t have a lot of investments that take advantage of that, so that’s one that we’re pretty much in different on. But just and again, we - it’s too early to quantify anything because we don’t know with the tax rate cuts.

On corporate side what other changes they’ll be looking to make, so that sort of the unknown. But my general take as I think we would be well positioned because there so largely a domestic business, and again we have that deferred tax liability.

Sean Dargan

Okay, thanks. And then I have one further question around the FTC guidance on multi-level marketing organizations, I am just wondering if that’s forced any changes or will require any changes to your business model?

Glenn Williams

Thanks Sean, yes we are well aware of the FTC guidance as well as the Herbalife decision, but we want to make sure it’s clear that we’re compliant with the existing FTC rules and that settlement with Herbalife didn’t change any of those rules, at the same time the guidance and that decision, smart businesses are looking and saying what do we get from that, what do we need to take away from that as far as directional change.

And so as we frequently do, we will go through our business looking at everything that we do to make sure we’re well within regulation and if we find any sharp edges we try to take those off. And so we have been through a process to look at all of our communications and so forth all of our systems and make sure we feel like we’re playing between the hash marks rather than near the sideline.

And so that’s the kind of approach we have taken, there is some uncertainty here is well with the new administration as what’s going to be the priorities of the FTC, it’s a different type of agency from some of the other agencies that we have talked about in other calls, but clearly we are keeping our finger on the pulse of that, we’re being smart in looking at how we should interpret things in the marketplace and yet there is probably some change ahead and with the new administration even for the FTCs area of focus.

Sean Dargan

All right, thank you.


The next question is from Adam Klauber of William Blair. Please go ahead.

Glenn Williams

Good morning, Adam.

Adam Klauber

Hi, good morning. The registered reps growth has been pretty stable, around 4% with the environment getting a little bit better, is the pipeline building for that too, to get a little bit better?

Glenn Williams

Our ISP reps Adam is that what you’re asking about?

Adam Klauber

Yeah, sorry, the ISP reps, yes.

Glenn Williams

Right. Well again we have actually got two subsets, our ISP sales force is a subset of our life sales force, but even it’s broken into those that are Series 6 and 63 licensed to sell mutual funds, variable annuity and so forth, those that are Series 65 license to offer managed accounts.

As I said in my prepared remarks with the launch of the - pending launch of the lifetime investment platform, we’re generating a lot of excitement, a lot of people gaining, we saw 10% growth in that group that’s getting Series 65 licensed. And the feeder system of course for that is the group that’s already Series 6 and 63 the mutual fund and variable annuity reps.

With the uncertainty in the marketplace in 2016, we were try to be very smart that we just didn’t try to overwhelm all of that uncertainty just with a loud message and there was - we did detect some concern, the uncertainty with the future of the regulations had people saying, let me step back and wait and see what’s going to happen, the tremendous success we were having in our life insurance business certainly provided them something while they were waiting and seeing. And so that was a benefit on that side.

So we did have a pause we wanted to wait for a little clarification and then this year kind of ramp up our messaging and also our systems to help people get licensed. So it's been fairly slow growth in the Series 6 and 63 side of our business, but now as we start to see some of the clouds lift from a regulatory perspective as we gain some certainty, we expect to regain some momentum in that and that sales force should grow pretty much at the same rate as our life insurance sale force over the long-term.

Adam Klauber

Great that's helpful. And then sales of your variable fourth quarter was one of the better quarters of the year and there was clouds over that business clearly. Are you seeing that momentum continue into 2016?

Glenn Williams

We have some rebound as you noticed in the fourth quarter on VA sales, but I think the future is very uncertain and I'm not sure I'm going to declare a trend just out of that kind of rebound in the fourth quarter. I mean overall we were stronger and we had a strong January as I mentioned I was very pleased that the momentum continued into January. But it's still unclear where the product mix regarding VA goes from here. I think it's unclear for us and I think it's unclear for the industry personally. So I wouldn't declare a trend there it's a little too early to tell.

Adam Klauber

Okay, thank you. And then I'm not sure Alison if you had said this you've talked about the life margin what about the ISP margin directionally, where should that go in '17?

Alison Rand

Yes that's a good question we did not adjust that. And a lot of that will has to do with the expenditures we have associated with the Department of Labor rule. And so clearly in 2016 our margins were a little suppressed by that. But so I would say other than those expenses there is nothing that we see that would dramatically change the margins other than the things that we've already talked about so our change in the fee structure et cetera.

So it should be relatively stable that one is a little bit more sensitive to the expenses especially specific large spends on things like DOLs, as well as it will be impacted to some degree by product mix, because we have certain products that are more sales based focused versus other that earn more of their earnings over an asset base. So for example the Seg Fund business in Canada has no upfront sales component of earnings it’s all asset based.

So from period-to-period we see a little more volatility in ISP. But I think if you step back and look economically of what the margins or profitability of the business are, they're very stable.

Adam Klauber

Okay, thanks a lot.


The next question is a follow up from Mark Hughes of SunTrust. Please go ahead.

Mark Hughes

I'm sorry, my question has been answered. Thank you.


Ladies and gentlemen that concludes today's question-and-answer session and thus concludes today's call. We thank you very much for attending the presentation. You may now disconnect your lines. Take care.

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