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Section 1: 8-K (PRI 2011 FORM 10-K UPDATE)

PRI_12.31.2011 10-K/U

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) May 8, 2012

Primerica, Inc.
(Exact name of registrant as specified in its charter)
 
Commission File Number: 001-34680
Delaware
 
27-1204330
(State or other jurisdiction of incorporation)
 
(I.R.S. Employer Identification No.)
3120 Breckinridge Boulevard
Duluth, Georgia
 
30099
(Address of principal executive offices)
 
(ZIP Code)
 
 
 
Registrant's telephone number, including area code: (770) 381-1000
 
 
 
Not applicable.
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 



Item 8.01 Other Events.
Primerica, Inc. (the “Company”) is filing this Current Report on Form 8-K to update certain items in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (the "2011 Annual Report"). On January 1, 2012, the Company adopted Accounting Standards Update 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts ("ASU 2010-26") retrospectively. In accordance with the requirements of the Securities and Exchange Commission (the "SEC"), we are required to revise previously issued financial statements using the deferral and recognition guidance under ASU 2010-26 for each of the years presented in the 2011 Annual Report, if those financial statements are incorporated by reference in certain subsequent filings with the SEC made under the Securities Act of 1933, as amended, even though those financial statements relate to periods prior to the adoption of ASU 2010-26. The revision of the previously issued 2011 Annual Report is being made in accordance with applicable accounting rules and should not be read as a restatement of the 2011 Annual Report. The reduction to our deferred policy acquisition costs asset, or DAC, was approximately $146.2 million as of December 31, 2011 and approximately $114.3 as of December 31, 2010. The reduction to net income was approximately $21.1 million in 2011, approximately $25.3 million in 2010, and approximately $11.9 million in 2009.  The net impact of adoption reduced stockholders' equity by approximately $96.0 million as of December 31, 2011, by approximately $75.0 million as of December 31, 2010, and by approximately $176.5 million as of December 31, 2009.
The following items of the 2011 Annual Report are being updated retrospectively to reflect the adoption described above (which items as updated are included in Exhibits 99.1 through 99.6 to this filing and incorporated herein by reference):
Item 1. Business (Segment Financial and Geographic Disclosures section);
Item 6. Selected Financial Data;
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations;
Item 7A. Quantitative and Qualitative Disclosures About Market Risk;
Item 8. Financial Statements and Supplementary Data; and
Item 15. Exhibits, Financial Statement Schedules ((c) Financial Statement Schedules section).
This Current Report on Form 8-K modifies and updates the disclosures presented in the 2011 Annual Report for (i) matters relating to the adoption of ASU 2010-26 and its associated impact and (ii) the addition of Note 19 to the consolidated and combined financial statements to disclose the occurrence of subsequent events first publicly disclosed by the Company in its Current Reports on Forms 8-K filed with the SEC on April 2, 2012 and April 18, 2012.
The information in this report should be read in conjunction with the 2011 Annual Report, which was filed with the SEC on February 28, 2012. More current information is contained in the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012 (the “Form 10-Q”) and the Company's other filings with the SEC. The Form 10-Q and other SEC filings contain important information regarding events, developments and updates to certain expectations of the Company that have occurred subsequent to the filing of the 2011 Annual Report.



1


Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit
Number
  
Description
 
 
 
23.1
 
Consent of KPMG LLP
99.1
 
Updated Primerica, Inc. 2011 Annual Report on Form 10-K - Item 1. Business (Segment Financial and Geographic Disclosures section).
99.2
 
Updated Primerica, Inc. 2011 Annual Report on Form 10-K - Item 6. Selected Financial Data.
99.3
 
Updated Primerica, Inc. 2011 Annual Report on Form 10-K - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
99.4
 
Updated Primerica, Inc. 2011 Annual Report on Form 10-K - Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
99.5
 
Updated Primerica, Inc. 2011 Annual Report on Form 10-K - Item 8. Financial Statements and Supplementary Data.
99.6
 
Updated Primerica, Inc. 2011 Annual Report on Form 10-K - Item 15. Exhibits, Financial Statement Schedules ((c) Financial Statement Schedules section).
101.INS*
 
XBRL Instance Document (1)
101.SCH*
 
XBRL Taxonomy Extension Schema
101.CAL*
 
XBRL Taxonomy Extension Calculation Linkbase
101.DEF*
 
XBRL Taxonomy Extension Definition Linkbase
101.LAB*
 
XBRL Taxonomy Extension Label Linkbase
101.PRE*
 
XBRL Taxonomy Extension Presentation Linkbase
____________________
* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. The financial information contained in the XBRL(eXtensible Business Reporting Language)-related documents is unaudited and unreviewed.
(1) Includes the following materials contained in this Annual Report on Form 10-K for the year ended December 31, 2011, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated and Combined Statements of Income, (iii) Consolidated and Combined Statements of Stockholders’ Equity, (iv) Consolidated and Combined Statements of Comprehensive Income, (v) Consolidated and Combined Statements of Cash Flows, (vi) Notes to Consolidated and Combined Financial Statements.



2


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
Primerica, Inc.
 
 
 
 
 
 
May 8, 2012
 
By:
/s/ Alison S. Rand
 
 
 
Alison S. Rand
 
 
 
 
Executive Vice President and
 
 
 
Chief Financial Officer







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Section 2: EX-23.1 (UPDATED PRI 2011 FORM 10-K EXHIBIT 23)

PRI_Exhibit 23.1


EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Primerica, Inc.:
We consent to the incorporation by reference in registration statement No. 333-173271 on Form S-3 and Nos. 333-165834 and 333-176508 on Form S-8 of Primerica, Inc. of our reports dated February 28, 2012, except as to Notes 1, 2, 6, 11, 12, 13, 14 and 19 and Schedules II and III, which are as of May 8, 2012, with respect to the consolidated balance sheets of Primerica, Inc. and subsidiaries (the Company) as of December 31, 2011 and 2010, and the related consolidated and combined statements of income, stockholders' equity, comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2011, and all related financial statement schedules, which reports appear in the Primerica, Inc. Form 8-K filed on May 8, 2012.
Our reports on the consolidated and combined financial statements and schedules dated February 28, 2012, except as to Notes 1, 2, 6, 11, 12, 13, 14 and 19 and Schedules II and III, which are as of May 8, 2012, refer to the completion in April 2010 of the Company’s initial public offering and a series of related transactions. Our reports also refer to the retrospective adoption of the provisions of ASU 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts, as of January 1, 2012, and the adoption of the provisions of FASB Staff Position Accounting Standards No. 115-2 and Financial Accounting Standards No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (included in FASB ASC Topic 320, Investments – Debt and Equity Securities) as of January 1, 2009.

/s/ KPMG LLP
Atlanta, Georgia
May 8, 2012




EX 23.1-1
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Section 3: EX-99.1 (UPDATED PRI 2011 FORM 10-K ITEM 1)

PRI_Exhibit 99.1


EXHIBIT 99.1
ITEM 1. BUSINESS.
Segment Financial and Geographic Disclosures
We have two primary operating segments - Term Life Insurance and Investment and Savings Products. The Term Life Insurance segment includes underwriting profits on our in-force book of term life insurance policies, net of reinsurance, which are underwritten by our life insurance company subsidiaries. The Investment and Savings Products segment includes mutual funds and variable annuities distributed through licensed broker-dealer subsidiaries and includes segregated funds, an individual annuity savings product that we underwrite in Canada through Primerica Life Canada. We also have a Corporate and Other Distributed Products segment, which consists primarily of revenues and expenses related to the distribution of non-core products, prepaid legal services and various insurance products other than our core term life insurance products.

Information regarding operations by segment follows:
 
Year ended December 31,
 
2011
 
2010
 
2009
 
(In thousands)
Revenues:
 
 
 
 
 
Term life insurance segment
$
554,995

 
$
808,568

 
$
1,742,065

Investment and savings products segment
396,703

 
361,807

 
300,140

Corporate and other distributed products segment
151,395

 
191,488

 
178,196

Total revenues
$
1,103,093

 
$
1,361,863

 
$
2,220,401

Income (loss) before income taxes:
 
 
 
 
 
Term life insurance segment
$
162,450

 
$
261,483

 
$
641,118

Investment and savings products segment
117,076

 
113,530

 
93,404

Corporate and other distributed products segment
(35,617
)
 
(13,544
)
 
7,273

Total income before income taxes
$
243,909

 
$
361,469

 
$
741,795

Information regarding operations by country follows: 
 
Year ended December 31,
 
2011
 
2010
 
2009
 
(In thousands)
Revenues by country:
 
 
 
 
 
United States
$
895,067

 
$
1,136,414

 
$
1,922,047

Canada
208,026

 
225,449

 
298,354

Total revenues
$
1,103,093

 
$
1,361,863

 
$
2,220,401

Income before income taxes by country:
 
 
 
 
 
United States
$
181,151

 
$
282,492

 
$
621,083

Canada
62,758

 
78,977

 
120,712

Total income before income taxes
$
243,909

 
$
361,469

 
$
741,795

Information regarding assets by segment follows:
 
December 31,
 
2011
 
2010
 
2009
 
(In thousands)
Assets:
 
 
 
 
 
Term life insurance segment
$
6,009,162

 
$
5,642,243

 
$
8,750,179

Investment and savings products segment
2,591,137

 
2,615,916

 
2,192,583

Corporate and other distributed products segment
1,251,521

 
1,511,250

 
2,487,121

Total assets
$
9,851,820

 
$
9,769,409

 
$
13,429,883


EX 99.1-1



Information regarding long-lived assets by country follows:
 
December 31,
 
2011
 
2010
 
2009
 
(In thousands)
Long-lived assets:
 
 
 
 
 
United States
$
84,550

 
$
90,566

 
$
90,905

Canada
316

 
1,114

 
1,265

Total long-lived assets
$
84,866

 
$
91,680

 
$
92,170

For information on risks relating to our Canadian operation, see "Risk Factors" and "Item 7A. Quantitative and Qualitative Information About Market Risks – Canadian Currency Risk."


EX 99.1-2
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Section 4: EX-99.2 (UPDATED PRI 2011 FORM 10-K ITEM 6)

PRI_Exhibit 99.2


EXHIBIT 99.2
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data should be read in conjunction with the section entitled “Management's Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated and combined financial statements and accompanying notes included elsewhere in this report.
The selected historical income statement data may not be indicative of the revenues and expenses that would have existed or resulted if we had operated independently of Citi. Similarly, the selected historical balance sheet data as of and prior to December 31, 2009 may not be indicative of the assets and liabilities that would have existed or resulted if we had operated independently of Citi. The selected historical financial data are not necessarily indicative of the financial position or results of operations as of any future date or for any future period.
Our corporate reorganization has resulted and will continue to result in financial performance that is materially different from that reflected in the historical financial data that appear elsewhere in this report. Due to the timing of our corporate reorganization and its impact on our financial position and results of operations, year-over-year comparisons of our financial position and results of operations will reflect significant non-comparable accounting transactions and account balances. See “Management's Discussion and Analysis of Financial Condition and Results of Operations – The Transactions.”
 
Year ended December 31,
 
2011
 
2010
 
2009
 
2008 (2)
 
2007
 
(In thousands, except per-share amounts)
Statements of income data
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
Direct premiums
$
2,229,467

 
$
2,181,074

 
$
2,112,781

 
$
2,092,792

 
$
2,003,595

Ceded premiums
(1,703,075
)
 
(1,450,367
)
 
(610,754
)
 
(629,074
)
 
(535,833
)
Net premiums
526,392

 
730,707

 
1,502,027

 
1,463,718

 
1,467,762

Commissions and fees
412,979

 
382,940

 
335,986

 
466,484

 
545,584

Net investment income
108,601

 
165,111

 
351,326

 
314,035

 
328,609

Realized investment gains (losses), including other-than-temporary impairment losses
6,440

 
34,145

 
(21,970
)
 
(103,480
)
 
6,527

Other, net
48,681

 
48,960

 
53,032

 
56,187

 
41,856

Total revenues
1,103,093

 
1,361,863

 
2,220,401

 
2,196,944

 
2,390,338

Benefits and expenses:
 
 
 
 
 
 
 
 
 
Benefits and claims
242,696

 
317,703

 
600,273

 
938,370

 
557,422

Amortization of deferred policy acquisition costs
104,034

 
147,841

 
352,257

 
127,922

 
295,437

Sales commissions
191,722

 
180,054

 
162,756

 
248,020

 
296,521

Insurance expenses
89,192

 
105,132

 
179,592

 
173,341

 
163,888

Insurance commissions
38,618

 
48,182

 
50,750

 
33,081

 
35,643

Interest expense
27,968

 
20,872

 

 

 

Goodwill impairment

 

 

 
194,992

 

Other operating expenses
164,954

 
180,610

 
132,978

 
152,773

 
136,634

Total benefits and expenses
859,184

 
1,000,394

 
1,478,606

 
1,868,499

 
1,485,545

Income before income taxes
243,909

 
361,469

 
741,795

 
328,445

 
904,793

Income taxes
86,718

 
129,013

 
259,114

 
177,051

 
317,436

Net income
$
157,191

 
$
232,456

 
$
482,681

 
$
151,394

 
$
587,357

Earnings per share - basic
$
2.11

 
$
3.09

(1)
n/a

 
n/a

 
n/a

Earnings per share - diluted
$
2.08

 
$
3.06

(1)
n/a

 
n/a

 
n/a

Dividends per common share
$
0.10

 
$
0.02

 
n/a

 
n/a

 
n/a


EX 99.2-1



 
December 31,
 
2011
 
2010
 
2009
 
2008 (2)
 
2007
 
(In thousands)
Balance sheet data
 
 
 
 
 
 
 
 
 
Investments
$
2,021,504

 
$
2,153,584

 
$
6,471,448

 
$
5,355,458

 
$
5,494,495

Cash and cash equivalents
136,078

 
126,038

 
602,522

 
302,354

 
625,350

Due from reinsurers
3,855,318

 
3,731,002

 
851,635

 
825,791

 
822,750

Deferred policy acquisition costs, net
904,485

 
738,946

 
2,520,251

 
2,478,565

 
2,282,434

Total assets
9,851,820

 
9,769,409

 
13,429,883

 
11,253,055

 
12,778,607

 
 
 
 
 
 
 
 
 
 
Future policy benefits
4,614,860

 
4,409,183

 
4,197,454

 
4,023,009

 
3,650,192

Note payable
300,000

 
300,000

 

 

 

Total liabilities
8,525,170

 
8,412,881

 
8,662,612

 
7,303,772

 
8,147,447

Stockholders' equity
1,326,650

 
1,356,528

 
4,767,271

 
3,949,283

 
4,631,160

____________________
(1)
Calculated on a pro forma basis using weighted-average shares, including the shares issued or issuable upon lapse of restrictions following our April 1, 2010 corporate reorganization as though they had been issued and outstanding on January 1, 2010.
(2)
Includes a $207.5 million pre-tax charge due to a change in our DAC and reserve estimation approach implemented as of December 31, 2008.


EX 99.2-2
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Section 5: EX-99.3 (UPDATED PRI 2011 FORM 10-K ITEM 7)

PRI_Exhibit 99.3


EXHIBIT 99.3

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to inform the reader about matters affecting the financial condition and results of operations of Primerica, Inc. (the “Parent Company”) and its subsidiaries (collectively, "we" or the “Company”) for the three-year period ended December 31, 2011. As a result, the following discussion should be read in conjunction with the consolidated and combined financial statements and accompanying notes that are included herein. This discussion contains forward-looking statements that constitute our plans, estimates and beliefs. These forward-looking statements involve numerous risks and uncertainties, including, but not limited to, those discussed in “Risk Factors." Actual results may differ materially from those contained in any forward-looking statements.
This MD&A is divided into the following sections:
The Transactions
Business Trends and Conditions
Factors Affecting Our Results
Critical Accounting Estimates
Results of Operations
Financial Condition
Liquidity and Capital Resources
The Transactions
We refer to the corporate reorganization, the reinsurance transactions, the concurrent transactions and the private sale described below collectively as the “Transactions.”
The corporate reorganization. The Parent Company was incorporated in Delaware in October 2009 by Citi to serve as a holding company for the life insurance and financial product distribution businesses that we have operated for more than 30 years. At such time, we issued 100 shares of common stock to Citi. These businesses, which prior to April 1, 2010, were wholly owned indirect subsidiaries of Citi, were transferred to us in a reorganization pursuant to which we issued to a wholly owned subsidiary of Citi: (i) 74,999,900 shares of our common stock (of which 24,564,000 shares of common stock were subsequently sold by Citi in our IPO; 16,412,440 shares of common stock were subsequently sold by Citi in mid-April 2010 to Warburg Pincus for a purchase price of $230.0 million (the “private sale”); and 5,021,412 shares of common stock were immediately contributed back to us for equity awards granted to our employees and sales force leaders in connection with our IPO), (ii) warrants to purchase from us an aggregate of 4,103,110 shares of our common stock (which were transferred by Citi to Warburg Pincus pursuant to the private sale), and (iii) the Citi note. Prior to April 1, 2010, we had no material assets or liabilities. Upon completion of the Transactions, the Parent Company's primary asset was and continues to be the capital stock of its operating subsidiaries and its primary liability was and continues to be the Citi note.
The reinsurance transactions. In March 2010, we entered into coinsurance agreements (the “Citi reinsurance agreements”) with two affiliates of Citi and Prime Re, then a wholly owned subsidiary of Primerica Life (collectively, the “Citi reinsurers”). We refer to the execution of these agreements as the “Citi reinsurance transactions.” Under these agreements, we ceded between 80% and 90% of the risks and rewards of our term life insurance policies that were in force at year-end 2009. We also transferred to the Citi reinsurers the account balances in respect of the coinsured policies and approximately $4.0 billion of assets to support the statutory liabilities assumed by the Citi reinsurers, and we distributed to Citi all of the issued and outstanding common stock of Prime Re. As a result, the Citi reinsurance transactions reduced the amount of our capital and substantially reduced our insurance exposure. We retained our operating platform and infrastructure and continue to administer all policies subject to these coinsurance agreements.
The concurrent transactions. During the first quarter of 2010, we declared distributions to Citi of approximately $703 million. We also recognized the income attributable to the policies underlying the Citi reinsurance transactions as well as the income earned on the invested assets backing the reinsurance balances and the extraordinary dividends declared in the first quarter. These items were reflected in the statement of income for the three months ended March 31, 2010. Furthermore, because the Citi reinsurance transactions were given retroactive effect back to

EX 99.3-1



January 1, 2010, we recognized a return of capital on our balance sheet for the income earned on the reinsured policies during the three months ended March 31, 2010.
In April 2010, we completed the following additional concurrent transactions:
we completed the IPO pursuant to the Securities Act of 1933, as amended, and our stock began trading under the ticker symbol “PRI” on the NYSE;
we issued equity awards for 5,021,412 shares of our common stock to certain of our employees, including our officers, and certain of our sales force leaders, including 221,412 shares which were issued upon conversion of existing equity awards in Citi shares that had not yet fully vested; and
Citi accelerated vesting of certain existing Citi equity awards triggered by the IPO and the private sale.
Additionally, we made elections with an effective date of April 1, 2010 under Section 338(h)(10) of the Internal Revenue Code (the “Section 338(h)(10) elections”), which resulted in reductions to stockholders’ equity of $174.7 million and corresponding adjustments to deferred tax balances.
During the first quarter of 2010, our federal income tax return was included as part of Citi’s consolidated federal income tax return. On March 30, 2010, in anticipation of our corporate reorganization, we entered into a tax separation agreement with Citi. In accordance with the tax separation agreement, Citi is responsible for, and shall indemnify and hold the Company harmless from and against, any consolidated, combined, affiliated, unitary or similar federal, state or local income tax liability with respect to the Company for any taxable period ending on or before April 7, 2010, the closing date of the IPO.
The private sale. In February 2010, Citi entered into a securities purchase agreement with Warburg Pincus and us pursuant to which, in mid-April 2010, Citi sold to Warburg Pincus 16,412,440 shares of our common stock and warrants to purchase from us 4,103,110 additional shares of our common stock. The warrants have a seven-year term and an exercise price of $18.00 per share.
Period-over-period comparability. Due to the timing of these transactions and their impact on our financial position and results of operations, period-over-period comparisons will reflect significant non-comparable accounting transactions and account balances. The most significant accounting transaction was the reinsurance transactions described above, which affected both the size and composition of our balance sheet and statement of income. Additionally, the corporate reorganization and the concurrent transactions had a significant impact on the composition of our balance sheet. As a result, our statements of income for the years ended December 31, 2011 and 2010 present income that is significantly lower than in 2009.
From a statement of income perspective, the Transactions impacted ceded premiums, net premiums, net investment income, benefits and claims, amortization of DAC, insurance commissions, insurance expenses, interest expense and income taxes. Actual results for periods ended prior to April 1, 2010 will not be indicative of or comparable to future actual results. Furthermore, actual results for the year ended December 31, 2010 will not be comparable to results in future years as they are affected by the inclusion of three months of operations prior to the Transactions.

Business Trends and Conditions
The relative strength and stability of financial markets and economies in the United States and Canada affect our growth and profitability. Our business is, and we expect will continue to be, influenced by a number of industry-wide and product-specific trends and conditions.
Economic conditions, including high unemployment levels and low levels of consumer confidence, influence investment and spending decisions by middle income consumers, our primary clients. These conditions and factors also impact prospective recruits’ perceptions of the business opportunity that becoming a Primerica sales representative offers, which can drive or dampen recruiting. Consumer spending and borrowing levels remain under pressure, as consumers take a more conservative financial posture including reevaluating their savings and debt management goals. As overall market and economic conditions have improved and stabilized from the lows experienced during the recent economic downturn, sales and the value of consumer investment products across a wide spectrum of asset classes have improved.
Recruiting and Sales Representatives. Recruiting increased in 2011 to 244,756 new recruits from 231,390 new recruits in 2010, benefiting from a surge in new recruits following our North American convention held in June 2011 at the Georgia Dome in Atlanta. We believe that the surge resulted from both a promotion that lowered the Independent Business Application ("IBA") licensing fee charged to new recruits from $99 to $50 through the end of July 2011 and new product and field technology initiatives announced at the 2011 convention.

EX 99.3-2



Our ability to increase the size of our sales force is largely based on the success of our recruiting efforts and our ability to train and motivate recruits to get licensed. We believe that recruiting levels are an important advance indicator of sales force trends, and growth in recruiting is usually indicative of future growth in the overall size of the sales force. However, because new recruits do not always obtain licenses, recruiting results do not always result in commensurate increases in the size of our licensed sales force.
The size of our life-licensed sales force declined to 91,176 sales representatives as of December 31, 2011 from 94,850 sales representatives at December 31, 2010 as new life license growth lagged recruiting growth primarily due to a reduction in the licensing pull-through rate and an increase in terminations. Historically, our pull-through rate following a recruiting surge has been lower than in other periods.
Term Life Insurance Product Sales and Face Amount In Force. We issued 237,535 new life insurance policies in 2011, compared with 223,514 new policies in 2010. Sales of our term life insurance products increased in 2011 largely as a result of our June 2011 introduction of TermNow, our new rapid issue term life insurance product for face values of $250,000 and below, and increased productivity coming out of our 2011 convention.
While our average issued face amount was approximately $248,400 in 2011 compared with approximately $267,000 in 2010, total face amount in force increased to approximately $664.96 billion as of December 31, 2011 compared with approximately $656.79 billion a year ago, largely due to persistency that continued to improve relative to prior year and the stronger Canadian dollar. These drivers were partially offset by the decline in the average face amount of our newly issued policies, primarily as a result of TermNow sales.
Investment and Savings Product Sales and Asset Values. Investment and savings products sales were higher in 2011, totaling $4.27 billion, compared with $3.62 billion in 2010. We believe the increase in sales reflects the impact of internal exchanges for variable annuities offering enhanced guarantee terms as well as increasing demand for our products as a result of improving financial market conditions.
The assets in our clients’ accounts are invested in diversified funds comprised mainly of U.S. and Canadian equity and fixed-income securities. The average value of assets in client accounts increased to $34.87 billion in 2011, from $31.91 billion in 2010, while the period-end asset value declined to $33.66 billion at December 31, 2011, compared with $34.87 billion a year ago. The 2011 decrease in period-end asset values relative to the 2011 increase in average client asset values reflects the magnitude and timing of current and prior-year market movements.
Invested Asset Portfolio Size and Yields. Our portfolio continues to reflect strong market value gains as interest rates and spreads continue to remain low. As of December 31, 2011, our invested assets, excluding policy loans and cash, had a cost or amortized cost basis of $1.83 billion and a net unrealized gain of $153.2 million, compared with $1.95 billion at cost or amortized cost and net unrealized gain of $157.4 million at December 31, 2010.

Factors Affecting Our Results
Term Life Insurance Segment. Our Term Life Insurance segment results are primarily driven by sales, accuracy of our pricing assumptions, terms and use of reinsurance, investment income and expenses.
Sales and policies in force. Sales of new term policies and the size and characteristics of our in-force book of policies are vital to our results over the long term. Premium revenue is recognized when due over the term of the policy and acquisition expenses are generally deferred and amortized ratably with the level premiums of the underlying policies. However, because we incur significant cash outflows at or about the time policies are issued, including the payment of sales commissions and underwriting costs, changes in life insurance sales volume will have a more immediate effect on our cash flows.

EX 99.3-3



Historically, we have found that while sales volume of term life insurance products may vary between fiscal periods based on a variety of factors, the productivity of our individual sales representatives remains within a relatively narrow range and, consequently, our sales volume over the longer term generally correlates to the size of our sales force. The average number of life-licensed sales representatives and the number of term life insurance policies issued, as well as the average monthly rate of new policies issued per life-licensed sales representative, were as follows: 
 
Year ended December 31,
 
2011
 
2010
 
2009
Average number of life-licensed sales representatives
91,855

 
96,840

 
100,569

Number of new policies issued
237,535

 
223,514

 
233,837

Average monthly rate of new policies issued per life-licensed sales representative
0.22x
(1)
0.19x

 
0.19x

____________________
(1) Our 2011 processing cycle provided five additional days of policy processing. Excluding the policies processed during these additional days, the average monthly rate of new policies issued per life licensed sales representative would have been .21x for 2011.
During 2011, the increased productivity of our individual sales representatives was driven by the post-convention recruiting surge discussed earlier and sales of our new TermNow product. The elevated level of new recruits generated more warm market referrals and sales opportunities as new recruits set appointments with their field trainers to begin the sales training process. Further, our new TermNow product uses prescription databases to begin the underwriting process in real time at the point of application so TermNow policies are issued faster than our prior products which required oral fluid testing. This underwriting process has led to an increase in, and acceleration of, issued policies since the introduction of TermNow in June 2011. As a result of these two factors, productivity for 2011 was at the high end of our historical range.
Pricing assumptions. Our pricing methodology is intended to provide us with appropriate profit margins for the risks we assume. We determine pricing classifications based on the coverage sought, such as the size and term of the policy, and certain policyholder attributes, such as age and health. In addition, we utilize unisex rates for our term life insurance policies. The pricing assumptions that underlie our rates are based upon our best estimates of mortality, persistency and investment yields at the time of issuance, sales force commission rates, issue and underwriting expenses, operating expenses and the characteristics of the insureds, including sex, age, underwriting class, product and amount of coverage. Our results will be affected to the extent there is a variance between our pricing assumptions and actual experience.
Persistency. We use historical experience to estimate pricing assumptions for persistency rates. Persistency is a measure of how long our insurance policies stay in force. As a general matter, persistency that is lower than our pricing assumptions adversely affects our results over the long term because we lose the recurring revenue stream associated with the policies that lapse. Determining the near-term effects of changes in persistency is more complicated. When persistency is lower than our pricing assumptions, we must accelerate the amortization of DAC. The resultant increase in amortization expense is offset by a corresponding release of reserves associated with lapsed policies, which causes a reduction in benefits and claims expense. The reserves associated with a given policy will change over the term of such policy. As a general matter, reserves are lowest at the inception of a policy term and rise steadily to a peak before declining to zero at the expiration of the policy term. Accordingly, depending on when the lapse occurs in relation to the overall policy term, the reduction in benefits and claims expense may be greater or less than the increase in amortization expense and, consequently, the effects on earnings for a given period could be positive or negative. Persistency levels are meaningful to our results to the extent actual experience deviates from the persistency assumptions used to price our products.
Mortality. We use historical experience to estimate pricing assumptions for mortality. Our profitability is affected to the extent actual mortality rates differ from those used in our pricing assumptions. We mitigate a significant portion of our mortality exposure through reinsurance. Variances between actual mortality experience and the assumptions and estimates used by our reinsurers affect the cost and, potentially, the availability of reinsurance.
Investment Yields. We generally use a level investment yield rate which reflects yields currently available. For 2011 and 2010 new issues, we are using an increasing interest rate assumption to reflect the historically low interest rate environment. Both the DAC asset and the reserve liability increase with the assumed investment yield rate. Since the DAC asset is higher than the reserve liability in the early years of a policy, a lower assumed investment yield generally will result in lower profits. In the later years, when the

EX 99.3-4



reserve liability is higher than the DAC asset, a lower assumed investment yield generally will result in higher profits. Actual investment yields will impact the net investment income allocated to the Term Life Insurance segment, but will not impact the DAC asset or reserve liability.
Reinsurance. We use reinsurance extensively, which has a significant effect on our results of operations. Since the mid-1990s, we have reinsured between 60% and 90% of the mortality risk on our U.S. term life insurance policies on a quota share YRT basis. We have not generally reinsured the mortality risk on Canadian term life insurance polices. YRT reinsurance permits us to fix future mortality exposure at contractual rates by policy class. To the extent actual mortality experience is more or less favorable than the contractual rate, the reinsurer will earn incremental profits or bear the incremental cost, as applicable. In contrast to coinsurance, which is intended to eliminate all risks (other than counterparty risk of the reinsurer) and rewards associated with a specified percentage of the block of policies subject to the reinsurance arrangement, the YRT reinsurance arrangements we enter into are intended only to reduce volatility associated with variances between estimated and actual mortality rates.
On March 31, 2010, we entered into various coinsurance agreements with the Citi reinsurers to cede between 80% and 90% of our term life insurance policies that were in force at year-end 2009 as part of our corporate reorganization.
The effect of our reinsurance arrangements on ceded premiums and benefits and expenses on our statement of income follows:
Ceded premiums. Ceded premiums are the premiums we pay to reinsurers. These amounts are deducted from the direct premiums we earn to calculate our net premium revenues. Similar to direct premium revenues, ceded coinsurance premiums remain level over the initial term of the insurance policy. Ceded YRT premiums increase over the period that the policy has been in force. Accordingly, ceded YRT premiums generally constitute an increasing percentage of direct premiums over the policy term.
Benefits and claims. Benefits and claims include incurred claim amounts and changes in future policy benefit reserves. Reinsurance reduces incurred claims in direct proportion to the percentage ceded.
Amortization of DAC. Amortization of DAC is reduced on a pro-rata basis for the business coinsured with Citi. There is no impact on amortization of DAC associated with our YRT contracts.
Insurance expenses. Insurance expenses are reduced by the allowances received from coinsurance, including the business reinsured with Citi.
We may alter our reinsurance practices at any time due to the unavailability of YRT reinsurance at attractive rates or the availability of alternatives to reduce our risk exposure. We presently intend to continue ceding approximately 90% of our U.S. mortality risk on new business issued subsequent to the Citi reinsurance transactions.
Net investment income. Term Life Insurance segment net investment income is composed of two elements: allocated net investment income and the market return associated with the deposit asset underlying the 10% reinsurance agreement we executed in connection with the Transactions. We allocate net investment income by applying the ratio of: (i) the book value of the invested assets allocated to the Term Life Insurance segment to the book value of the Company’s total invested assets to (ii) total net investment income, net of the income associated with the 10% reinsurance agreement. Invested assets are allocated to the Term Life Insurance segment based on the book value of the invested assets necessary to meet statutory reserve requirements and our targeted capital objectives. Net investment income is also impacted by the performance of our invested asset portfolio and the market return on the deposit asset which can be affected by interest rates, credit spreads and the mix of invested assets.
Expenses. Results are also affected by variances in client acquisition, maintenance and administration expense levels.
Investment and Savings Products Segment. Our Investment and Savings Products segment results are primarily driven by sales, the value of assets in client accounts for which we earn ongoing management, service and distribution fees and the number of fee generating accounts we administer.
Sales. We earn commissions and fees, such as dealer re-allowances, and marketing and support fees, based on sales of mutual fund products and annuities. Sales of investment and savings products are influenced by the overall demand for investment products in the United States and Canada, as well as by the size and productivity of our sales force. We generally experience seasonality in our Investment and Savings Products segment results due to

EX 99.3-5



our high concentration of sales of retirement account products. While we believe the size of our sales force is a factor in driving sales volume in this segment, there are a number of other variables, such as economic and market conditions, that may have a significantly greater effect on sales volume in any given fiscal period.
Asset values in client accounts. We earn marketing and distribution fees (trail commissions or, with respect to U.S. mutual funds, 12b-1 fees) and management fees on mutual fund, annuity, managed account and segregated funds products based on asset values in client accounts. Our investment and savings products primarily consist of funds composed of equity securities. Asset values are influenced by new product sales, ongoing contributions to existing accounts, redemptions and changes in equity markets, net of expenses.
Accounts. We earn recordkeeping fees for administrative functions we perform on behalf of several of our mutual fund providers and custodial fees for services as a non-bank custodian for certain of our mutual fund clients’ retirement plan accounts.
Sales Mix. While our investment and savings products all have similar long-term earnings characteristics, our results in a given fiscal period will be affected by changes in the overall mix of products within these broad categories. Examples of changes in the sales mix that influence our results include the following:
sales of a higher proportion of mutual fund products of the several mutual fund families for which we act as recordkeeper will generally increase our earnings because we are entitled to recordkeeping fees on these accounts;
sales of variable annuity products in the United States will generate higher revenues in the period such sales occur than sales of other investment products that either generate lower upfront revenues or, in the case of segregated funds, no upfront revenues;
sales and administration of a higher proportion of mutual funds that enable us to earn marketing and support fees will increase our revenues and profitability;
sales of a higher proportion of retirement products of several mutual fund families will tend to result in higher revenue generation due to our ability to earn custodial fees on these accounts; and
sales of a higher proportion of managed accounts products will generally extend the length of time over which revenues can be earned because we are entitled to revenues based on assets under management for these accounts.
Corporate and Other Distributed Products Segment. We earn revenues and pay commissions and referral fees for various other insurance products, prepaid legal services and other financial products, all of which are originated by third parties. NBLIC, our New York life insurance subsidiary, also underwrites a mail-order student life policy and a short-term disability benefit policy, neither of which is distributed by our sales force, and has in-force policies from several discontinued lines of insurance.
The Corporate and Other Distributed Products segment is affected by corporate income and expenses not allocated to our other segments, net investment income (other than net investment income allocated to our Term Life Insurance segment), general and administrative expenses (other than expenses that are allocated to our Term Life Insurance or Investment and Savings Products segments), management equity awards, equity awards granted to our sales force leaders at the time of our IPO, interest expense on the Citi note and realized gains and losses on our invested asset portfolio.

Critical Accounting Estimates
We prepare our financial statements in accordance with U.S. GAAP. These principles are established primarily by the FASB. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions based on currently available information when recording transactions resulting from business operations. Our significant accounting policies are described in Note 1 to our consolidated and combined financial statements. The most significant items on the balance sheet are based on fair value determinations, accounting estimates and actuarial determinations which are susceptible to changes in future periods and which affect our results of operations and financial position.
The estimates that we deem to be most critical to an understanding of our results of operations and financial position are those related to the valuation of investments, reinsurance, DAC, future policy benefit reserves, and income taxes. The preparation and evaluation of these critical accounting estimates involve the use of various

EX 99.3-6



assumptions developed from management’s analyses and judgments. Subsequent experience or use of other assumptions could produce significantly different results.
Invested Assets
We hold primarily fixed-maturity securities, including bonds and redeemable preferred stocks, and equity securities, including common and non-redeemable preferred stock. We have classified these invested assets as available-for-sale, except for the securities of our U.S. broker-dealer subsidiary, which we have classified as trading securities. All of these securities are carried at fair value.
Fair value. Fair value is the price that would be received upon the sale of an asset in an orderly transaction between market participants at the measurement date. Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information. We classify and disclose all invested assets carried at fair value in one of the following three categories:
Level 1. Quoted prices for identical instruments in active markets;
Level 2. Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3. Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
As of each reporting period, we classify all invested assets in their entirety based on the lowest level of input that is significant to the fair value measurement. Significant levels of estimation and judgment are required to determine the fair value of certain of our investments. The factors influencing these estimations and judgments are subject to change in subsequent reporting periods. The fair value and hierarchy classifications of our invested asset portfolio were as follows:
 
December 31, 2011
 
Fair value
 
% of total
 
(Dollars in thousands)
Level 1 invested assets
$
18,325

 
*
Level 2 invested assets
1,970,246

 
99%
Level 3 invested assets
6,937

 
*
Total invested assets
$
1,995,508

 
100%
____________________
* Less than 1%
In assessing the fair value of our investments, we use a third-party pricing service for approximately 94% of our securities. The remaining securities are primarily private securities valued using models based on observable inputs on public corporate spreads having similar tenors (e.g., sector, average life and quality rating) and liquidity and yield based on quality rating, average life and treasury yields. All data inputs come from observable data corroborated by independent third-party sources. In the absence of sufficient observable inputs, we utilize non-binding broker quotes, which are reflected in our Level 3 classification.
We perform internal reasonableness assessments on fair value determinations within our portfolio throughout the month and at month-end, including pricing variance analyses and comparisons to alternative pricing sources and benchmark returns. If a fair value appears unusual relative to these assessments, we will re-examine the inputs and may challenge a fair value assessment made by the pricing service. If there is a known pricing error, we will request a reassessment by the pricing service. If the pricing service is unable to perform the reassessment on a timely basis, we will determine the appropriate price by requesting a reassessment from an alternative pricing service or other qualified source as necessary. We do not adjust quotes or prices except in a rare circumstance to resolve a known error.
For additional information, see Notes 1, 3 and 4 to our consolidated and combined financial statements.
Other-than-temporary impairments. We recognize unrealized gains and losses on our available-for-sale portfolio as a separate component of accumulated other comprehensive income. The determination of whether a decline in fair value below amortized cost is other-than-temporary is both objective and subjective. Furthermore, this determination can involve a variety of assumptions and estimates, particularly for invested assets that are not actively traded in established markets. We evaluate a number of factors when determining the impairment status of

EX 99.3-7



individual securities. These factors include the economic condition of various industry segments and geographic locations and other areas of identified risk.
For available-for-sale securities in an unrealized loss position that we intend to sell or would more-likely-than-not be required to sell before the expected recovery of the amortized cost basis, we recognize an impairment charge for the difference between amortized cost and fair value as a realized investment loss in our statements of income. For available-for-sale securities in an unrealized loss position for which we have no intent to sell and believe that it is more-likely-than-not that we will not be required to sell before the expected recovery of the amortized cost basis, only the credit loss component of the difference between cost and fair value is recognized in earnings, while the remainder is recognized in accumulated other comprehensive income. The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security.
For certain securitized financial assets with contractual cash flows, including asset-backed securities, we periodically update our best estimate of cash flows over the life of the security. Securities that are in an unrealized loss position are reviewed at least quarterly for other-than-temporary impairment. If the fair value of a securitized financial asset is less than its cost or amortized cost and there has been a decrease in the present value of the estimated cash flows since the last revised estimate, considering both timing and amount, an other-than-temporary impairment charge is recognized. Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third-party sources along with certain assumptions and judgments regarding the future performance of the underlying collateral. Projections of expected future cash flows may change based upon new information regarding the performance of the underlying collateral.
Other categories of fixed-income securities that are in an unrealized loss position are also reviewed at least quarterly to determine if an other-than-temporary impairment is present based on certain quantitative and qualitative factors. We consider a number of factors in determining whether the impairment is other-than-temporary. These include:
actions taken by rating agencies;
default by the issuer;
the significance of the decline;
the intent to sell and the ability to hold the investment until recovery of the amortized cost basis, as noted above;
the time period during which the decline has occurred;
an economic analysis of the issuer;
the financial strength, liquidity, and recoverability of the issuer; and
an analysis of the underlying collateral.
Although no set formula is used in this process, the investment performance, collateral position, and continued viability of the issuer are significant measures that are considered.
The other-than-temporary impairment analysis that we perform on our equity securities primarily focuses on the severity of the unrealized loss as well as the length of time the security’s fair value has been below amortized cost. The other-than-temporary impairments that we recognized in realized investment gains as a charge to earnings were as follows:
 
Year ended
 
December 31, 2011
 
(In thousands )
Other-than-temporary impairments
$
(2,015
)
Realized investment gains, including other-than-temporary impairments
6,440

For additional information, see Notes 1 and 3 to our consolidated and combined financial statements.
Reinsurance
We use reinsurance extensively. We determine if a contract provides indemnification against loss or liability in relation to the amount of insurance risk to which the reinsurer is subject. We review all contractual terms, particularly those that may limit the amount of insurance risk to which the reinsurer is subject that may delay the timely reimbursement of claims. If we determine that the possibility of a significant loss from insurance risk will occur

EX 99.3-8



only under remote circumstances, we record the contract under the deposit method of accounting with the net amount receivable reflected in other assets on our consolidated and combined balance sheets. The reinsurance contracts in effect at December 31, 2011, including the Citi reinsurance agreements, meet U.S. GAAP risk transfer provisions, except as noted below. Ceded policy reserves and claims liabilities relating to insurance ceded under these contracts are shown as due from reinsurers in our balance sheets. We believe that one of the Citi reinsurance transactions (a 10% YRT transaction with an experience refund provision) will have limited transfer of insurance risk and that there will be only a remote chance of loss under the contract. As such, we have accounted for this agreement under the deposit method of accounting.
Ceded premiums are treated as a reduction of direct premiums and are recognized when due to the assuming company. Ceded claims are treated as a reduction of direct benefits and are recognized when the claim is incurred on a direct basis. Ceded policy reserve changes are also treated as a reduction of benefits and are recognized during the applicable financial reporting period. Under YRT arrangements, we determine the ceded reserve by recognizing the cost of reinsurance as a level percentage of the direct premium collected. The expected reinsurance cost is the expected reinsurance premium paid less expected reinsurance claims received. We determine ceded future policy benefit reserves for coinsurance in the same manner as direct policy reserves.
We calculate claim liabilities and policy benefits consistently for all policies, regardless of whether or not the policy is reinsured. Once the direct claim liabilities are estimated, we estimate the amounts attributable to the reinsurers. Liabilities for unpaid reinsurance claims are produced from claims and reinsurance system records, which contain the relevant terms of the individual reinsurance contracts. We monitor claims due from reinsurers to ensure that balances are settled on a timely basis. We review incurred but not reported claims to ensure that appropriate amounts are ceded. We analyze and monitor the creditworthiness of each of our reinsurers to minimize collection issues.
For additional information on reinsurance, see Notes 1 and 5 to our consolidated and combined financial statements.
Deferred Policy Acquisition Costs
We defer incremental direct costs of successful contract acquisitions that result directly from and are essential to the contract transaction(s) and that would not have been incurred had the contract transaction(s) not occurred. These costs mainly include commissions and policy issue expenses. The recovery of such costs is dependent on the future profitability of the related policies, which, in turn, is dependent principally upon mortality, persistency, the expense of administering the business, and investment returns, as well as upon certain economic variables, such as inflation. DAC is subject to recoverability testing annually and when circumstances indicate that recoverability is uncertain. We make certain assumptions regarding persistency, expenses, interest rates and claims. These assumptions may not be modified, or unlocked, unless recoverability testing deems them to be inadequate. We update assumptions for new business to reflect the most recent experience.
Deferrable term life insurance policy acquisition costs are amortized over the premium-paying period of the related policies in proportion to premium income. If actual lapses or withdrawals are different from pricing assumptions for a particular period, DAC amortization will be affected. If the number of policies that lapse are 1% higher than the number of policies that we expected to lapse in our pricing assumptions, approximately 1% more of the existing DAC balance will be amortized, which would have been equal to approximately $8.1 million as of December 31, 2011 (assuming such lapses were distributed proportionately among policies of all durations). We believe that a lapse rate in the number of policies that is 1% higher than the rate assumed in our pricing assumptions is a reasonably possible variation. Higher lapses in the early durations would have a greater effect on DAC amortization since the DAC balances are higher at the earlier durations. Differences in actual mortality rates compared to our pricing assumptions will not have a material effect on DAC amortization. Due to the inherent uncertainties in making assumptions about future events, materially different experience from expected results in persistency or mortality could result in a material increase or decrease of DAC amortization in a particular period.
Deferrable acquisition costs for Canadian segregated funds are amortized over the life of the policies in relation to historical and future estimated gross profits before amortization. The gross profits and resulting DAC amortization will vary with actual fund returns, redemptions and expenses.
We adopted ASU 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (ASU 2010-26) retrospectively.
For additional information on DAC, see Notes 1 and 6 to our consolidated and combined financial statements.

EX 99.3-9



Future Policy Benefits
We calculate and maintain reserves for the estimated future payment of claims to our policyholders based on actuarial assumptions and in accordance with industry practice and U.S. GAAP. Liabilities for future policy benefits on our term life insurance products have been computed using a net level method, including assumptions as to investment yields, mortality, persistency, and other assumptions based on our experience. Many factors can affect these reserves, including mortality trends, investment yields and persistency. Similar to the DAC discussion above, we cannot modify the assumptions used to establish reserves during the policy term unless recoverability testing deems them to be inadequate. Therefore, the reserves we establish are based on estimates, assumptions and our analysis of historical experience. Our results depend significantly upon the extent to which our actual claims experience is consistent with the assumptions we used in determining our reserves and pricing our products. Our reserve assumptions and estimates require significant judgment and, therefore, are inherently uncertain. If actual lapses are different from pricing assumptions for a particular period, the change in the future policy benefits, which is reflected in benefits and claims in our statements of income, will be affected.
If the number of policies that lapse are 1% higher than the number of policies that we expected to lapse in our pricing assumptions, approximately 1% more of the future policy benefit reserves will be released, which would have been equal to approximately $43.9 million as of December 31, 2011 (assuming such lapses were distributed proportionately among policies of all durations). The future policy benefit reserves released from the additional lapses would have been offset by the release of the corresponding reinsurance reserves of approximately $36.0 million as of December 31, 2011. Higher lapses in later durations would have a greater effect on the release of future policy benefit reserves since the future policy benefit reserves are higher at the later durations. Differences in actual mortality rates compared to our pricing assumptions will not have a material effect on future policy benefit reserves. We cannot determine with precision the ultimate amounts that we will pay for actual claims or the timing of those payments.
For additional information on future policy benefits, see Notes 1 and 9 to our consolidated and combined financial statements.
Income Taxes
We account for income taxes using the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequences attributable to (i) differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and (ii) operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We recognize the effect on deferred tax assets and liabilities of a change in tax rates in income in the period that includes the enactment date. Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not applicable to the periods in which we expect the temporary difference will reverse.
For additional information on income taxes, see Notes 1 and 11 to our consolidated and combined financial statements.
Results of Operations
Revenues. Our revenues consist of the following:
Net premiums. Reflects direct premiums payable by our policyholders on our in-force insurance policies, primarily term life insurance, net of reinsurance premiums that we pay to reinsurers.
Net investment income. Represents income, net of investment-related expenses, generated by our invested asset portfolio, which consists primarily of interest income earned on fixed-maturity investments. Investment income earned on assets supporting our statutory reserves and targeted capital is allocated to our Term Life Insurance segment, with the balance included in our Corporate and Other Distributed Products segment.
Commissions and fees. Consists primarily of dealer re-allowances earned on the sales of investment and savings products, trail commissions and management fees based on the asset values of client accounts, marketing and support fees from product originators, custodial fees for services rendered in our capacity as nominee on client retirement accounts funded by mutual funds on our servicing platform, recordkeeping fees for mutual funds on our servicing platform and fees associated with the sale of other distributed products.
Realized investment gains (losses), including other-than-temporary impairments (“OTTI”). Reflects the difference between amortized cost and amounts realized on the sale of invested assets, as well as OTTI charges.

EX 99.3-10



Other, net. Reflects revenues generated from the fees charged for access to our sales force website, printing revenues from the sale of printed materials to sales representatives, incentive fees and reimbursements from product originators, Canadian licensing fees, sales of merchandise to sales representatives, mutual fund customer service fees, fees charged to sales representatives related to life insurance processing responsibilities, and interest charges received from or paid to reinsurers on late payments.
Benefits and Expenses. Our operating expenses consist of the following:
Benefits and claims. Reflects the benefits and claims payable on insurance policies, as well as changes in our reserves for future policy claims and reserves for other benefits payable, net of reinsurance.
Amortization of DAC. Represents the amortization of capitalized costs associated with the sale of an insurance policy or segregated fund, including sales commissions, medical examination and other underwriting costs, and other acquisition-related costs.
Insurance commissions. Reflects sales commissions in respect of insurance products that are not eligible for deferral.
Insurance expenses. Reflects non-capitalized insurance expenses, including staff compensation, technology and communications, insurance sales force-related costs, printing, postage and distribution of insurance sales materials, outsourcing and professional fees, premium taxes, amortization of certain intangibles and other corporate and administrative fees and expenses related to our insurance operations.
Sales commissions. Represents commissions to our sales representatives in connection with the sale of investment and savings products and products other than insurance products.
Interest expense. Reflects interest on the Citi note as well as interest incurred in connection with the Citi reinsurance transactions.
Other operating expenses. Consists primarily of expenses that are unrelated to the distribution of insurance products, including staff compensation, technology and communications, various sales force-related costs, printing, postage and distribution of sales materials, outsourcing and professional fees, amortization of certain intangibles and other corporate and administrative fees and expenses.
We allocate certain operating expenses associated with our sales representatives, including supervision, training and legal, to our two primary operating segments generally based on the average number of licensed representatives in each segment for a given period. We also allocate technology and occupancy costs based on usage. Costs that are not allocated to our two primary segments are included in our Corporate and Other Distributed Products segment.

EX 99.3-11



2011 Compared to 2010
Primerica, Inc. and Subsidiaries Results. Our actual results of operations for the years ended December 31, 2011 and 2010 and our pro forma results of operations for the year ended December 31, 2010 were as follows:
 
 
 
 
 
Actual 2011 v.
 
 
 
Actual 2011 v.
 
Actual
 
Actual 2010 Change
 
Pro forma
 
Pro forma 2010 Change
 
2011
 
2010
 
$
 
%
 
2010
 
$
 
%
 
(Dollars in thousands)
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct premiums
$
2,229,467

 
$
2,181,074

 
$
48,393

 
2
 %
 
$
2,181,074

 
$
48,393

 
2
 %
Ceded premiums
(1,703,075
)
 
(1,450,367
)
 
(252,708
)
 
17
 %
 
(1,746,695
)
 
43,620

 
(2
)%
Net premiums
526,392

 
730,707

 
(204,315
)
 
(28
)%
 
434,379

 
92,013

 
21
 %
Commissions and fees
412,979

 
382,940

 
30,039

 
8
 %
 
382,940

 
30,039

 
8
 %
Net investment income
108,601

 
165,111

 
(56,510
)
 
(34
)%
 
110,376

 
(1,775
)
 
(2
)%
Realized investment gains, including OTTI
6,440

 
34,145

 
(27,705
)
 
(81
)%
 
34,145

 
(27,705
)
 
(81
)%
Other, net
48,681

 
48,960

 
(279
)
 
*

 
48,960

 
(279
)
 
*

Total revenues
1,103,093

 
1,361,863

 
(258,770
)
 
(19
)%
 
1,010,800

 
92,293

 
9
 %
Benefits and expenses:
 
 
 
 
 
 
 
 
 
 


 


Benefits and claims
242,696

 
317,703

 
(75,007
)
 
(24
)%
 
189,499

 
53,197

 
28
 %
Amortization of DAC
104,034

 
147,841

 
(43,807
)
 
(30
)%
 
82,287

 
21,747

 
26
 %
Sales commissions
191,722

 
180,054

 
11,668

 
6
 %
 
180,054

 
11,668

 
6
 %
Insurance expenses
89,192

 
105,132

 
(15,940
)
 
(15
)%
 
79,049

 
10,143

 
13
 %
Insurance commissions
38,618

 
48,182

 
(9,564
)
 
(20
)%
 
46,513

 
(7,895
)
 
(17
)%
Interest expense
27,968

 
20,872

 
7,096

 
34
 %
 
27,809

 
159

 
*

Other operating expenses
164,954

 
180,610

 
(15,656
)
 
(9
)%
 
183,686

 
(18,732
)
 
(10
)%
Total benefits and expenses
859,184

 
1,000,394

 
(141,210
)
 
(14
)%
 
788,897

 
70,287

 
9
 %
Income before income taxes
243,909

 
361,469

 
(117,560
)
 
(33
)%
 
221,903

 
22,006

 
10
 %
Income taxes
86,718

 
129,013

 
(42,295
)
 
(33
)%
 
79,810

 
6,908

 
9
 %
Net income
$
157,191

 
$
232,456

 
$
(75,265
)
 
(32
)%
 
$
142,093

 
$
15,098

 
11
 %
____________________
* Less than 1%
We entered into the Citi reinsurance and reorganization transactions during March and April of 2010. As such, actual results for the year ended December 31, 2010 include three months of operations prior to the Citi reinsurance and reorganization transactions. Actual results for the year ended December 31, 2010 also include income attributable to the underlying policies that were reinsured to Citi on March 31, 2010 as well as net investment income earned on the invested assets backing the reinsurance balances transferred to the Citi reinsurers and a portion of the distributions to Citi made as part of our corporate reorganization. Due to the April 2010 issuance of the Citi note, interest expense only reflects nine months of interest expense in 2010. The Citi reinsurance transaction impacted the Term Life Insurance segment, while the reorganization transactions impacted both the Term Life Insurance and Corporate and Other Distributed Products segments, with the larger impact on the latter segment. The pro forma results presented above give effect to the Citi reinsurance and reorganization transactions, which are described more fully in Notes 2 and 3 to our pro forma statement of income included in "Results of Operations – 2010 Compared to 2009 – Primerica, Inc. and Subsidiaries Pro Forma Results." We believe that the 2010 pro forma results provide additional meaningful information necessary to evaluate our results of operations.
Total revenues. Total revenues declined in 2011 primarily as a result of the Transactions. Excluding approximately $351.1 million of revenues in 2010 that would have been recognized by Citi had the Transactions been effected on January 1, 2010, total revenues would have increased approximately $92.3 million, or 9%, compared with pro forma basis 2010. This increase primarily reflects incremental premiums on New Term policies issued subsequent to the Citi reinsurance transactions ("New Term") and an increase in commissions and fees, largely driven by increased sales of variable annuities in our Investment and Savings Product segment. The increase in total revenues relative

EX 99.3-12



to pro forma basis 2010 was partially offset by the decline in realized investment gains relative to 2010. Realized investment gains in 2010 were largely driven by sales of invested assets in anticipation of our corporate reorganization.
Total benefits and expenses. Total benefits and expenses were lower primarily as a result of the Transactions. Excluding approximately $211.5 million of benefits and expenses in 2010 that would have been recognized by Citi had the Transactions been effected on January 1, 2010, total benefits and expenses would have increased approximately $70.3 million, or 9%, compared with pro forma basis 2010. The increase in total benefits and expenses was primarily a result of the growth in our Term Life and Investment and Savings Products businesses and higher overall operating expenses, including the build out of incremental functions, processes and expenses associated with becoming a public company. The increase in benefits and claims and amortization of DAC, after giving effect to the Transactions, was largely a result of the continued growth in our Term Life business following the Citi reinsurance transactions. Sales commissions were higher consistent with the increase in commission and fee revenue noted in total revenues above. Insurance expenses and other operating expenses increased primarily as a result of initiatives announced at our 2011 convention, higher premium taxes, lower expense allowances due to continued run-off in the block of business ceded to Citi and build out of our expenses post-IPO. The decrease in insurance commissions was largely attributable to the discontinuation of certain 2010 sales force incentive programs that were replaced with programs that more directly rewarded life policy acquisitions. As a result, this shift in incentive program structure increased the portion of 2011 incentive program expense deferrals.
Income taxes. Our effective income tax rate was 35.6% in 2011 and 35.7% in 2010.
For additional information on the effect of the Transactions as well as the significant drivers of revenues and expenses, see the segment results discussions below.
Term Life Insurance Segment. Our actual results for the Term Life Insurance segment for the years ended December 31, 2011 and 2010 and our pro forma results of operations for the year ended December 31, 2010 were as follows:
 
 
 
 
 
Actual 2011 v.
 
 
 
Actual 2011 v.
 
Actual
 
Actual 2010 Change
 
Pro forma
 
Pro forma 2010 Change
 
2011
 
2010
 
$
 
%
 
2010
 
$
 
%
 
(Dollars in thousands)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct premiums
$
2,149,594

 
$
2,100,709

 
$
48,885

 
2
 %
 
$
2,100,709

 
$
48,885

 
2
 %
Ceded premiums
(1,688,953
)
 
(1,436,041
)
 
(252,912
)
 
18
 %
 
(1,732,369
)
 
43,416

 
(3
)%
Net premiums
460,641

 
664,668

 
(204,027
)
 
(31
)%
 
368,340

 
92,301

 
25
 %
Allocated net investment income
62,688

 
110,633

 
(47,945
)
 
(43
)%
 
62,294

 
394

 
*

Other, net
31,666

 
33,267

 
(1,601
)
 
(5
)%
 
33,267

 
(1,601
)
 
(5
)%
Total revenues
554,995

 
808,568

 
(253,573
)
 
(31
)%
 
463,901

 
91,094

 
20
 %
Benefits and expenses:
 
 
 
 
 
 
 
 
 
 

 

Benefits and claims
197,159

 
277,653

 
(80,494
)
 
(29
)%
 
149,449

 
47,710

 
32
 %
Amortization of DAC
89,474

 
137,009

 
(47,535
)
 
(35
)%
 
71,455

 
18,019

 
25
 %
Insurance expenses
75,048

 
93,360

 
(18,312
)
 
(20
)%
 
67,277

 
7,771

 
12
 %
Insurance commissions
19,396

 
30,566

 
(11,170
)
 
(37
)%
 
28,897

 
(9,501
)
 
(33
)%
Interest expense
11,468

 
8,497

 
2,971

 
35
 %
 
11,309

 
159

 
1
 %
Total benefits and expenses
392,545

 
547,085

 
(154,540
)
 
(28
)%
 
328,387

 
64,158

 
20
 %
Income before income taxes
$
162,450

 
$
261,483

 
$
(99,033
)
 
(38
)%
 
$
135,514

 
$
26,936

 
20
 %
____________________
* Less than 1%
We entered into the Citi reinsurance and reorganization transactions during March and April of 2010. As such, results for the year ended December 31, 2010 include three months of operations prior to the Citi reinsurance and reorganization transactions. Results for the year ended December 31, 2010 also include income attributable to the underlying policies that were reinsured to Citi on March 31, 2010 as well as net investment income earned on the

EX 99.3-13



invested assets backing the reinsurance balances transferred to the Citi reinsurers and a portion of the distributions to Citi made as part of our corporate reorganization. From a statement of income perspective, these transactions impacted ceded premiums, net premiums, allocated net investment income, benefits and claims, amortization of DAC, insurance commissions, insurance expenses and interest expense. The 2010 Term Life Insurance segment pro forma results presented above give effect to the Citi reinsurance and reorganization transactions, which are described more fully in Notes 2 and 3 to our pro forma statement of income included in "Results of Operations – 2010 Compared to 2009 – Primerica, Inc. and Subsidiaries Pro Forma Results." We believe that the 2010 pro forma segment results provide additional meaningful information necessary to evaluate the results of operations for this segment.
Direct premiums. Direct premiums increased in 2011 primarily as a result of growth in New Term business and premium increases for policies reaching the end of their initial level premium period. The growth in direct premiums was consistent with the growth in face amount in force.
Ceded premiums. The increase in ceded premiums primarily reflects the impact of the Citi reinsurance transactions and the net impact of the ceded premium recoveries discussed in Note 5 to our consolidated and combined financial statements. Adjusting for approximately $296.3 million of additional premiums that would have been ceded to Citi in 2010 had the Citi reinsurance transactions been effected on January 1, 2010, ceded premium would have decreased approximately $43.4 million, or 3%, reflecting continued run-off of the business ceded to Citi, partially offset by age-based increases in YRT reinsurance premiums.
Net premiums. The decline in net premiums primarily reflects the impact on ceded premium of the Citi reinsurance transactions and the net impact of the ceded premium recoveries discussed in ceded premiums above. Excluding the premiums that would have been ceded to Citi in 2010 had the transactions been effected on January 1, 2010, net premiums would have increased approximately $92.3 million, or 25%, reflecting New Term premium growth.
Allocated net investment income. The decrease in allocated net investment income was largely attributable to the Citi reinsurance and reorganization transactions. Excluding approximately $48.3 million of income earned in 2010 on assets that were transferred to Citi in connection with the reinsurance and reorganization transactions, allocated net investment income would have increased approximately $394,000, primarily reflecting a higher allocation as a result of the growth in New Term, substantially offset by the effect of lower asset returns in 2011.
Benefits and claims. The decrease in benefits and claims was largely attributable to the Citi reinsurance and reorganization transactions. Excluding approximately $128.2 million of expenses that would have been recognized by the Citi reinsurers in 2010 had the Citi reinsurance transactions been effected on January 1, 2010, benefits and claims would have increased approximately $47.7 million, or 32%, reflecting growth in the business and a charge of approximately $4 million to record cumulative potential claims related to cross-checking public death records to identify deceased policyholders for whom claims have not been filed and of which we were unaware. Excluding the impact of this charge, the growth in benefits and claims outpaced net premium growth primarily as a result of slightly higher mortality experience.
Amortization of DAC. The decrease in amortization of DAC was largely attributable to the Citi reinsurance and reorganization transactions. Excluding approximately $65.6 million of DAC amortization that would have been recognized by the Citi reinsurers in 2010 had the Citi reinsurance transactions been effected on January 1, 2010, DAC amortization would have increased approximately $18.0 million, or 25%. The growth in DAC amortization was in line with the growth in net premiums.
Insurance expenses. Insurance expenses decreased largely as a result of the Citi reinsurance transactions. Excluding approximately $26.1 million of expense allowances that would have been recognized in 2010 had the transactions been effected on January 1, 2010, insurance expenses would have increased approximately $7.8 million, or 12%. This increase in insurance expenses largely reflects the impact of premium-related taxes, licenses and fees growth, expense allowance run-off in the block of business ceded to Citi, expenses associated with convention initiatives, including the $50 IBA fee promotion and the write-off of medical testing materials, and build out of management compensation and benefits expense post-IPO. These items were partially offset by the 2011 release of management incentive compensation accruals for compensation earned in 2010 but paid in 2011 at a lower rate than had been anticipated.
Insurance commissions. The decrease in insurance commissions was primarily due to our stock compensation program containing certain non-deferrable characteristics in 2010, which were discontinued in 2011.

EX 99.3-14



Product sales and face amount in force. We issued 237,535 new life insurance policies in 2011, compared with 223,514 new policies in 2010, primarily as a result of recruiting growth following our 2011 convention and strong demand for our TermNow product.
The changes in the face amount of our in-force book of term life insurance policies were as follows: 
 
 
Year ended December 31,
 
Change
 
 
2011
 
2010
 
$
 
%
 
 
(Dollars in millions)
Face amount in force, beginning of period
 
$
656,791

 
$
650,195

 
$
6,596

 
1
 %
Issued face amount
 
73,146

 
74,401

 
(1,256
)
 
(2
)%
Terminations
 
(66,951
)
 
(70,964
)
 
4,012

 
(6
)%
Foreign currency
 
1,970

 
3,158

 
(1,188
)
 
(38
)%
Face amount in force, end of period (1)
 
$
664,955

 
$
656,791

 
$
8,164

 
1
 %
____________________
(1)
Totals may not add due to rounding.
Issued face amount declined slightly in 2011 reflecting lower average face amounts, primarily as a result of the introduction of TermNow in June 2011. The impact on issued face amount of lower average size was partially offset by the increase in policy sales. The decrease in terminations resulted from persistency that, while remaining below historical norms, has continued to improve.
Investment and Savings Product Segment. Our results of operations for the Investment and Savings Products segment for the years ended December 31, 2011 and 2010 were as follows: 
 
 
 
 
 
 
Actual 2011 v.
 
 
Actual
 
Actual 2010 Change
 
 
2011
 
2010
 
$
 
%
 
 
(Dollars in thousands)
Revenues:
 
 
 
 
 
 
 
 
Commissions and fees:
 
 
 
 
 
 
 
 
Sales-based revenues
 
$
170,362

 
$
142,606

 
$
27,756

 
19
%
Asset-based revenues
 
173,059

 
167,473

 
5,586

 
3
%
Account-based revenues
 
41,997

 
41,690

 
307

 
*

Other, net
 
11,285

 
10,038

 
1,247

 
12
%
Total revenues
 
396,703

 
361,807

 
34,896

 
10
%
Expenses:
 
 
 
 
 
 
 
 
Amortization of DAC
 
12,482

 
9,330

 
3,152

 
34
%
Insurance commissions
 
8,851

 
7,854

 
997

 
13
%
Sales commissions:
 
 
 
 
 
 
 
 
Sales-based
 
118,387

 
101,022

 
17,365

 
17
%
Asset-based
 
57,901

 
58,129

 
(228
)
 
*

Other operating expenses
 
82,006

 
71,942

 
10,064

 
14
%
Total expenses
 
279,627

 
248,277

 
31,350

 
13
%
Income before income taxes
 
$
117,076

 
$
113,530

 
$
3,546

 
3
%
____________________
* Less than 1%
The Citi reinsurance and reorganization transactions had no impact on the Investment and Savings Products segment.

EX 99.3-15



Supplemental information on the underlying metrics that drove results follows. 
 
 
Year ended December 31,
 
Change
 
 
2011
 
2010
 
$
 
%
 
 
(Dollars in millions and accounts in thousands)
Product sales:
 
 
 
 
 
 
 
 
Retail mutual funds
 
$
2,230

 
$
2,141

 
$
89

 
4
 %
Annuities and other
 
1,674

 
1,169

 
505

 
43
 %
Total sales-based revenue generating product sales (1)
 
3,904

 
3,310

 
594

 
18
 %
Segregated funds
 
332

 
314

 
19

 
6
 %
Managed accounts
 
29

 

 
29

 
*
Total product sales (1)
 
$
4,265

 
$
3,624

 
$
641

 
18
 %
Average client asset values:
 
 
 
 
 
 
 
 
Retail mutual funds
 
$
24,105

 
$
22,614

 
$
1,491

 
7
 %
Annuities and other
 
8,276

 
7,095

 
1,181

 
17
 %
Segregated funds
 
2,489

 
2,199

 
290

 
13
 %
Total average asset values in client accounts (1)
 
$
34,870

 
$
31,908

 
$
2,962

 
9
 %
Average number of fee-generating accounts:
 
 
 
 
 
 
 
 
Recordkeeping accounts
 
2,627

 
2,728

 
(101
)
 
(4
)%
Custodial accounts
 
1,956

 
1,990

 
(34
)
 
(2
)%
____________________
* Not meaningful
(1) Totals may not add due to rounding.
Commissions and fees. Commissions and fees increased primarily as a result of economic and market trends and client demand. The increase in sales-based revenues reflect the impact of internal exchanges for the variable annuity products we offer. These internal exchanges were primarily driven by client redemptions of older variable annuity contracts to purchase the current Prime Elite IV variable annuity, which offers an attractive guaranteed income living benefit. Asset-based revenues were driven by higher average asset values during 2011 even though end-of-period asset values were slightly lower than 2010. Account-based revenues were relatively flat compared with 2010 as the impact of a 2011 recordkeeping fee structure change on certain accounts, which had no net effect on income before income taxes, was largely offset by a decline in the number of accounts for which we provide record-keeping services.
Amortization of DAC. The increase in the rate of DAC amortization was primarily driven by the impact of lower investment returns on our Canadian segregated funds products. Growth in account values also led to higher DAC amortization.
Sales commissions. The increase in sales-based commissions was primarily driven by the increases in commissions and fees noted above. Sales-based commission expense lagged the growth in sales-based commission and fees revenue largely as a result of internal exchanges for variable annuities. While the commissions that we receive and then pay to our sales representatives for internal exchange transactions are proportionately lower than those paid for a new sale, sales-related marketing and support fees from internal exchanges are received in full with no associated impact on sales commissions expense.
Other operating expenses. Other operating expenses increased primarily as a result of growth in the business, expenses related to new product introductions, various government relations efforts and the recordkeeping fee structure change noted above in Commissions and fees. The impact of these items was partially offset by the 2011 release of management incentive compensation accruals earned in 2010 but paid in 2011 at a lower rate than had been anticipated.
Product sales. Investment and savings products sales were higher in 2011 largely reflecting the impact of internal exchanges of variable annuities.

EX 99.3-16



Asset values in client accounts. Changes in asset values in client accounts were as follows: 
 
 
Year ended December 31,
 
Change
 
 
2011
 
2010
 
$
 
%
 
 
(Dollars in millions)
Asset values, beginning of period
 
$
34,869

 
$
31,303

 
$
3,566

 
11
 %
Inflows
 
4,265

 
3,624

 
641

 
18
 %
Redemptions
 
(4,275
)
 
(3,691
)
 
(584
)
 
16
 %
Change in market value, net and other
 
(1,195
)
 
3,633

 
(4,828
)
 
*

Asset values, end of period (1)
 
$
33,664

 
$
34,869

 
$
(1,205
)
 
(3
)%
____________________
* Not meaningful
(1) Totals may not add due to rounding.
The assets in our clients’ accounts are invested in diversified funds composed mainly of U.S. and Canadian equity and fixed-income securities. Inflows increased consistent with the increase in sales volume. The amount of redemptions also increased reflecting the increase in average assets under management, while actual redemption rates were relatively level as a percent of average assets under management for both 2011 and 2010. The market return on assets under management in 2011 and 2010 reflects general market value trends. A large portion of the revenues in our Investment and Savings Products segment are derived from commission and fee revenues that are based on the asset values in clients’ accounts. While asset values at the end of 2011 declined relative to 2010, we have seen an increase in our asset-based commission and fee revenues and expenses largely as a result of the increase in average client asset values noted previously.
Corporate and Other Distributed Products Segment. Our actual results of operations for the Corporate and Other Distributed Products segment for the years ended December 31, 2011 and 2010 and our pro forma results of operations for the year ended December 31, 2010, were as follows:
 
 
 
 
 
 
Actual 2011 v.
 
 
 
Actual 2011 v.
 
 
Actual
 
Actual 2010 Change
 
Pro forma
 
Pro forma 2010 Change
 
 
2011
 
2010
 
$
 
%
 
2010
 
$
 
%
 
 
(Dollars in thousands)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct premiums
 
$
79,873

 
$
80,365

 
$
(492
)
 
*
 
$
80,365

 
$
(492
)
 
*
Ceded premiums
 
(14,122
)
 
(14,325
)
 
203

 
(1
)%
 
(14,325
)
 
203

 
(1
)%
Net premiums
 
65,751

 
66,040

 
(289
)
 
*
 
66,040

 
(289
)
 
*
Commissions and fees
 
27,560

 
31,172

 
(3,612
)
 
(12
)%
 
31,172

 
(3,612
)
 
(12
)%
Allocated net investment income
 
45,914

 
54,477

 
(8,563
)
 
(16
)%
 
48,081

 
(2,167
)
 
(5
)%
Realized investment gains, including OTTI
 
6,440

 
34,146

 
(27,706
)
 
(81
)%
 
34,146

 
(27,706
)
 
(81
)%
Other, net
 
5,730

 
5,653

 
77

 
1
 %
 
5,653

 
77

 
1
 %
Total revenues
 
151,395

 
191,488

 
(40,093
)
 
(21
)%
 
185,092

 
(33,697
)
 
(18
)%
Benefits and expenses:
 
 
 
 
 
 
 
 
 
 
 

 

Benefits and claims
 
45,537

 
40,052

 
5,485

 
14
 %
 
40,052

 
5,485

 
14
 %
Amortization of DAC
 
2,078

 
1,502

 
576

 
38
 %
 
1,502

 
576

 
38
 %
Sales commissions
 
15,434

 
20,903

 
(5,469
)
 
(26
)%
 
20,903

 
(5,469
)
 
(26
)%
Insurance expenses
 
14,144

 
11,770

 
2,374

 
20
 %
 
11,770

 
2,374

 
20
 %
Insurance commissions
 
10,371

 
9,762

 
609

 
6
 %
 
9,762

 
609

 
6
 %
Interest expense
 
16,500

 
12,375

 
4,125

 
33
 %
 
16,500

 

 
 %
Other operating expenses
 
82,948

 
108,668

 
(25,720
)
 
(24
)%
 
111,744

 
(28,796
)
 
(26
)%
Total benefits and expenses
 
187,012

 
205,032

 
(18,020
)
 
(9
)%
 
212,233

 
(25,221
)
 
(12
)%
Loss before income taxes
 
$
(35,617
)
 
$
(13,544
)
 
$
(22,073
)
 
*
 
$
(27,141
)
 
$
(8,476
)
 
31%
 ____________________ 
* Less than 1% or not meaningful

EX 99.3-17



We entered into the reorganization transactions during March and April of 2010. As such, actual results for the year ended December 31, 2010 include three months of operations prior to the reorganization transactions. Actual results for the year ended December 31, 2010 include net investment income earned on the invested assets backing the distributions to Citi made as part of our corporate reorganization. Actual interest expense reflects nine months of expense due to the April 2010 issuance of the Citi note. From a statement of income perspective, these transactions impacted net investment income, interest expense and other operating expenses. The 2010 Corporate and Other Distributed Products segment pro forma results presented above give effect to the reorganization transactions, which are described more fully in Note 3 to our pro forma statement of income included in "Results of Operations – 2010 Compared to 2009 – Primerica, Inc. and Subsidiaries Pro Forma Results." We believe that the 2010 pro forma segment results provide additional meaningful information necessary to evaluate the results of operations for this segment.
Total revenues. Total revenues were lower in 2011 largely due to investment gains realized in the first quarter of 2010 in anticipation of our corporate reorganization, lower commissions and fees due to the decline in our lending business and lower allocated net investment income in 2011. Excluding approximately $6.4 million of allocated net investment income that would not have been earned in 2010 had the reorganization transactions been effected on January 1, 2010, allocated net investment income would have decreased approximately $2.2 million, or 5%, primarily as a result of a higher allocation to the Term Life Insurance segment and lower asset returns in 2011. Realized investment gains included $2.0 million of OTTI in 2011, compared with $12.2 million of OTTI in 2010.
Benefits and claims. Benefits and claims were higher due to adverse morbidity experienced in the short-term disability line and adverse claims in various run-off blocks of insurance products, all of which were underwritten by NBLIC, our New York insurance subsidiary. Benefits and claims were also higher due to the impact of a charge of approximately $1.1 million to record cumulative potential claims related to cross-checking public death records to identify deceased policyholders for whom claims have not been filed and of which we were unaware.
Insurance expenses. Insurance expenses were higher in 2011 primarily as a result of a charge for our estimated share of the liquidation plan for Executive Life Insurance Company of New York, an unaffiliated life insurance company, filed by the NYSDFS.
Interest expense. Interest expense for 2010 reflects only nine months of expense due to the April 1, 2010 issuance date of the Citi note.
Other operating expenses. Other operating expenses were lower in 2011 largely due to the recognition of approximately $22.4 million of expenses associated with our IPO-related equity awards granted in the second quarter of 2010. Excluding the impact of this IPO-related expense, other operating expenses would have declined by $6.4 million, or 7%, primarily reflecting a decline in Citi expense allocations and other 2010 expenses related to our IPO. These items were partially offset by costs associated with various capital initiatives in 2011, charges associated with the discontinuation of our lending business, and a $2.7 million charge for the elimination of print inventories as the materials we produce are now predominantly used for internal consumption.

EX 99.3-18



2010 Compared to 2009
Primerica, Inc. and Subsidiaries Actual Results. We executed the Transactions in March and April of 2010. As such, actual results will not be comparable due to the initial and ongoing effects and recognition of the Citi reinsurance and reorganization transactions. We believe the pro forma results presented in the next section provide meaningful additional information for the evaluation of our financial results. Our statements of income were as follows:
 
 
Year ended December 31,
 
Change
 
 
2010
 
2009
 
$
 
%
 
 
(Dollars in thousands)
Revenues:
 
 
 
 
 
 
 
 
Direct premiums
 
$
2,181,074

 
$
2,112,781

 
$
68,293

 
3
 %
Ceded premiums
 
(1,450,367
)
 
(610,754
)
 
(839,613
)
 
137
 %
Net premiums
 
730,707

 
1,502,027

 
(771,320
)
 
(51
)%
Commissions and fees
 
382,940

 
335,986

 
46,954

 
14
 %
Net investment income
 
165,111

 
351,326

 
(186,215
)
 
(53
)%
Realized investment (losses) gains, including OTTI
 
34,145

 
(21,970
)
 
56,115

 
*
Other, net
 
48,960

 
53,032

 
(4,072
)
 
(8
)%
Total revenues
 
1,361,863

 
2,220,401

 
(858,538
)
 
(39
)%
Benefits and expenses:
 
 
 
 
 
 
 
 
Benefits and claims
 
317,703

 
600,273

 
(282,570
)
 
(47
)%
Amortization of DAC
 
147,841

 
352,257

 
(204,416
)
 
(58
)%
Sales commissions
 
180,054

 
162,756

 
17,298

 
11
 %
Insurance expenses
 
105,132

 
179,592

 
(74,460
)
 
(41
)%
Insurance commissions
 
48,182

 
50,750

 
(2,568
)
 
(5
)%
Interest expense
 
20,872

 

 
20,872

 
*
Other operating expenses
 
180,610

 
132,978

 
47,632

 
36
 %
Total benefits and expenses
 
1,000,394

 
1,478,606

 
(478,212
)
 
(32
)%
Income before income taxes
 
361,469

 
741,795

 
(380,326
)
 
(51
)%
Income taxes
 
129,013

 
259,114

 
(130,101
)
 
(50
)%
Net income
 
$
232,456

 
$
482,681

 
$
(250,225
)
 
(52
)%
____________________
* Not meaningful
Net premiums. Net premiums were lower in 2010 primarily as a result of the significant increase in ceded premiums associated with the Citi reinsurance agreements executed on March 31, 2010. The effect of these agreements on net premiums is reflected in the Term Life Insurance segment.
Net investment income. Net investment income declined during 2010 primarily as a result of the impact on our invested asset base of the asset transfers that we executed in connection with our corporate reorganization in 2010. On March 31, 2010, we transferred approximately $4.0 billion of assets to support the statutory liabilities assumed by the Citi reinsurers and in April 2010, we paid dividends to Citi of approximately $675.7 million. Lower yields on invested assets also negatively impacted net investment income during 2010.
Commissions and fees. The increase in commissions and fees in 2010 was primarily driven by activity in our Investment and Savings Product segment as a result of improved market conditions and increased demand for our products, partially offset by declines in our lending business as reflected in our Corporate and Other Distributed Products segment results.
Total benefits and expenses. The decrease in total benefits and expenses in 2010 primarily reflects lower benefits and claims, lower amortization of DAC and lower insurance expenses largely as a result of the Citi reinsurance agreements. These declines were partially offset by an increase in interest expense as a result of the Citi note and other operating expenses as a result of initial and one-time expenses incurred in connection with the IPO, including equity award expenses. The changes associated with the Citi reinsurance agreements impacted the Term Life Insurance segment, while the changes in interest and other operating expenses primarily impacted the Corporate and Other Distributed Products segment.
Income taxes. Our effective income tax rate was 35.7% in 2010 and 34.9% in 2009.

EX 99.3-19



Primerica, Inc. and Subsidiaries Pro Forma Results. The following pro forma statement of income is intended to provide information about how the Transactions would have affected our financial statements if they had been consummated as of January 1, 2010. Because the Transactions were concluded during 2010, pro forma adjustment to our balance sheet was not necessary as of December 31, 2010. Based on the timing of the Transactions, pro forma adjustments to our statement of income were necessary for the first three months of 2010. The pro forma statement of income does not necessarily reflect the results of operations that would have resulted had the Transactions occurred as of January 1, 2010, nor should it be taken as indicative of our future results of operations. Our unaudited pro forma statement of income for the year ended December 31, 2010 is set forth below.
 
Year ended
December 31, 2010
Actual (1)
 
Adjustments for the Citi reinsurance transactions (2)
 
Adjustments
for the reorganization
and other concurrent transactions (3)
 
Year ended December 31, 2010
Pro forma
 
(In thousands, except per-share amounts)
Revenues:
 
 
 
 
 
 
 
Direct premiums
$
2,181,074

 
$

 
$

 
$
2,181,074

Ceded premiums
(1,450,367
)
 
(296,328
)
(A)

 
(1,746,695
)
Net premiums
730,707

 
(296,328
)
 

 
434,379

Commissions and fees
382,940

 

 

 
382,940

Net investment income
165,111

 
(47,566
)
(B)
(7,169
)
(H)
110,376

Realized investment (losses) gains, including OTTI
34,145

 

 

 
34,145

Other, net
48,960

 

 

 
48,960

Total revenues
1,361,863

 
(343,894
)
 
(7,169
)
 
1,010,800

Benefits and expenses:
 
 
 
 
 
 
 
Benefits and claims
317,703

 
(128,204
)
(C)

 
189,499

Amortization of DAC
147,841

 
(65,554
)
(D)

 
82,287

Sales commissions
180,054

 

 

 
180,054

Insurance expenses
105,132

 
(26,083
)
(E)

 
79,049

Insurance commissions
48,182

 
(1,669
)
(E)

 
46,513

Interest expense
20,872

 
2,812

(F)
4,125

(I)
27,809

Other operating expenses
180,610

 

 
3,076

(J)
183,686

Total benefits and expenses
1,000,394

 
(218,698
)
 
7,201

 
788,897

Income before income taxes
361,469

 
(125,196
)
 
(14,370
)
 
221,903

Income taxes
129,013

 
(44,137
)
(G)
(5,066
)
(G)
79,810

Net income
$
232,456

 
$
(81,059
)
 
$
(9,304
)
 
$
142,093

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
3.09

 
 
 
 
 
$
1.89

Diluted
$
3.06

 
 
 
 
 
$
1.87

Weighted-average shares:
 
 
 
 
 
 
 
Basic
72,099

 
 
 
 
 
72,099

Diluted
72,882

 
 
 
 
 
72,882

See accompanying notes to the pro forma statement of income.
Notes to the Pro Forma Statement of Income – Unaudited
(1) The actual statement of income included income attributable to the underlying policies that were reinsured to Citi on March 31, 2010 as well as net investment income earned on the invested assets backing the reinsurance balances and the distributions to Citi made as part of our corporate reorganization.
(2) Adjustments for the Citi reinsurance transactions.
Concurrent with the reorganization of our business and prior to completion of the IPO, we formed a new subsidiary, Prime Re, and we made an initial capital contribution to it. We also entered into a series of coinsurance agreements with Prime Re and with other Citi subsidiaries. Under these agreements, we ceded between 80% and 90% of the

EX 99.3-20



risks and rewards of our term life insurance policies that were in force at December 31, 2009. Concurrent with signing these agreements, we transferred the corresponding account balances in respect of the coinsured policies along with the assets to support the statutory liabilities assumed by Prime Re and the other Citi subsidiaries.
We believe that three of the Citi coinsurance agreements, which we refer to as the risk transfer agreements, satisfy U.S. GAAP risk transfer rules. Under the risk transfer agreements, we ceded between 80% and 90% of our term life future policy benefit reserves, and we transferred a corresponding amount of invested assets to the Citi reinsurers. These transactions did not and will not impact our future policy benefit reserves, and we recorded an asset for the same amount of risk transferred in due from reinsurers. We also reduced deferred acquisition costs by between 80% and 90%, which will reduce future amortization expenses. In addition, we will transfer between 80% and 90% of all future premiums and benefits and claims associated with these policies to the corresponding reinsurance entities. We will receive ongoing ceding allowances as a reduction to insurance expenses to cover policy and claims administration expenses under each of these reinsurance contracts. One coinsurance agreement, which we refer to as the deposit agreement, relates to a 10% reinsurance transaction that includes an experience refund provision and does not satisfy U.S. GAAP risk transfer rules. We account for this contract under the deposit method. Under deposit method accounting, the amount we pay to the reinsurer will be treated as a deposit and is reported on the balance sheet as an asset in other assets. The Citi coinsurance agreements did not generate any deferred gain or loss upon their execution because these transactions were part of a business reorganization among entities under common control. The net impact of these transactions was reflected as an increase in paid-in capital. Prior to the completion of the IPO, we effected a reorganization in which we transferred all of the issued and outstanding capital stock of Prime Re to Citi. Each of the assets and liabilities, including the invested assets and the distribution of Prime Re, was transferred at book value with no gain or loss recorded on our income statement.
For the year ended December 31, 2010, the pro forma statement of income assumes the reinsurance transactions were effected as of January 1, 2010 for policies in force as of year-end 2009.
(A) Reflects premiums ceded to the Citi reinsurers for the specific policies covered under the risk transfer agreements.
(B) Reflects net investment income on a pro-rata share of invested assets transferred to the Citi reinsurers. The net investment income was estimated by multiplying the actual investment income by the ratio of the amount of assets transferred to our total portfolio of invested assets. The amount also includes the change in fair value of the deposit asset related to the 10% reinsurance agreement being accounted for under the deposit method.
(C) Reflects benefits and claims ceded to the Citi reinsurers for the specific policies covered under the risk transfer agreements.
(D) Reflects the DAC amortization ceded to the Citi reinsurers for the specific policies covered under the risk transfer agreements.
(E) Reflects the non-deferred expense allowance received from the Citi reinsurers under the risk transfer agreements.
(F) Reflects a finance charge payable to the Citi reinsurer in respect of the deposit agreement. The annual finance charge is 3% of our excess reserves. Excess reserves are equal to the difference between our required statutory reserves and our economic reserves, which is the amount we determine is necessary to satisfy obligations under our in-force policies.
(G) Reflects income tax at the respective period’s effective tax rate.
(3) Adjustments for the reorganization and other concurrent transactions.
The pro forma statement of income for the year ended December 31, 2010 assumes the reorganization transactions were executed as of January 1, 2010.
(H) Reflects a pro-rata reduction of net investment income on assets distributed to Citi as an extraordinary distribution.
(I) Reflects interest expense on a $300.0 million, 5.5% interest note payable issued to Citi.
(J) Reflects expense associated with equity awards granted on April 1, 2010 in connection with the IPO. The $3.1 million expense reflects one quarter of vesting related to management awards that continue to vest over three years. These expenses are reflected in actual results for periods following the IPO.
For more detailed commentary on the drivers of our revenues and expenses, see the discussion of results of operations by segment below.

EX 99.3-21



Term Life Insurance Segment Actual Results. We entered into the Citi reinsurance and reorganization transactions, which are described more fully in Notes 2 and 3 to our pro forma statement of income above, during March and April of 2010. As such, actual results for the year ended December 31, 2010 include approximately three months of operations that do not reflect the Citi reinsurance and reorganization transactions, and actual results for the year ended December 31, 2009 do not reflect the effects of the Citi reinsurance and reorganization transactions. Term Life Insurance segment actual results were as follows:
 
 
Year ended December 31,
 
Change
 
 
2010
 
2009
 
$
 
%
 
 
(Dollars in thousands)
Revenues:
 
 
 
 
 
 
 
 
Direct premiums
 
$
2,100,709

 
$
2,030,988

 
$
69,721

 
3
 %
Ceded premiums
 
(1,436,041
)
 
(596,791
)
 
(839,250
)
 
141
 %
Net premiums
 
664,668

 
1,434,197

 
(769,529
)
 
(54
)%
Allocated net investment income
 
110,633

 
274,212

 
(163,579
)
 
(60
)%
Other, net
 
33,267

 
33,656

 
(389
)
 
(1
)%
Total revenues
 
808,568

 
1,742,065

 
(933,497
)
 
(54
)%
Benefits and expenses:
 
 
 
 
 
 
 
 
Benefits and claims
 
277,653

 
559,038

 
(281,385
)
 
(50
)%
Amortization of DAC
 
137,009

 
343,514

 
(206,505
)
 
(60
)%
Insurance commissions
 
30,566

 
33,048

 
(2,482
)
 
(8
)%
Insurance expenses
 
93,360

 
165,347

 
(71,987
)
 
(44
)%
Interest expense
 
8,497

 

 
8,497

 
*
Total benefits and expenses
 
547,085

 
1,100,947

 
(553,862