Primerica (PRI) Ratings, Outlook Affirmed at Moody's

Moody's Investors Service has affirmed the Baa2 senior debt rating of Primerica, Inc. (NYSE: PRI) and the A2 insurance financial strength (IFS) rating of its primary life insurance operating subsidiary, Primerica Life Insurance Company (PLIC). The outlook on the ratings remains stable.

RATINGS RATIONALE

According to Moody's Vice President and Senior Credit Officer, Ann Perry, "The affirmation of Primerica's ratings and stable outlook reflect the company's strong financial profile, including good asset quality and sound risk adjusted capital under a stress scenario, offset by a weaker business profile." In addition, the rating agency noted that Primerica has good financial flexibility, including good cash flow coverage of its interest expense aided by unregulated entities that generate sizeable free cash, and good financial flexibility with financial leverage in the mid 20 percent range. Primerica also benefits from consistent profitability (return on capital of 9.7% in 2013), driven in part by good technology and operating scale, and uncomplicated asset liability management, given its predictable and non-interest sensitive liability cash flows. Commenting on the stability of earnings, Moody's said that approximately one third of the company's earnings in 2013 were generated by commissions earned on the sale of third party products such as mutual funds and annuities without adding incremental risk to the company's balance sheet.

Moody's said that these strengths are offset by challenges in Primerica's business model. To maintain new business revenues, the company's large distribution system is dependent on significant and constant agent recruiting, which is likely to be constrained in economic downturns. In addition, Primerica's primary life operating company, PLIC, relies on a narrowly focused product portfolio of term life business that produces sizeable regulatory "XXX" reserves, which must be supported by the company's capital base and ability to generate future earnings, or handled through an outside reserve financing arrangement.

RATING DRIVERS

According to Moody's, Primerica's ratings could go up as a result of1) Financial and total leverage of less than 20%; 2) Consistent cash flow coverage of more than 6 times and 3) Increased diversification beyond term life and third-party mutual fund and annuity distribution. On the other hand, Primerica's ratings could go down as a result of 1) Adjusted financial leverage of greater than 30%; 2) Earnings coverage below 6 times; 3) Cash flow coverage less than 4 times; 4) NAIC RBC ratio (company action level) below 300%; or 5) Return on Capital of less than 5%.

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