Morning. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Primerica, Inc. Q4 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star then two. Please note this event is being recorded. Thank you. I would now turn the call over to Nicole Russell, Head of Investor Relations. You may begin your conference.
Thank you, Kate, and good morning, everyone. Welcome to Primerica's fourth quarter earnings call. A copy of our earnings press release, along with materials that are relevant to today's call, are posted on the Investor Relations sections of our website at investors.primerica.com. Joining our call today, our Chief Executive Officer, Glenn Williams, and our Chief Financial Officer, Alison Rand. Glenn and Alison will deliver prepared remarks, and then we'll open the call up for questions. During our call, some of our comments may contain forward-looking statements in accordance with the safe harbor provision of the Securities Litigation Reform Act.
We do refer you to our most recent Form 10-K, as modified by subsequent Forms 10-Q, for a list of risks and uncertainties that could cause actual results to materially differ from those expressed or implied. We will also reference certain non-GAAP measures which we believe provide additional insight into the company's operations. Reconciliations of non-GAAP measures to their respective GAAP numbers are included at the end of our earnings press release and are available on our Investor Relations website. I would now like to turn the call over to Glenn.
Thank you, Nicole, and thanks to everyone for joining us. I'll start my prepared remarks today with some highlights from 2020. Then I will provide a review of our most recent quarter and end with a few observations as we start the new year. In many ways, 2020 was a record year for Primerica. We began the year with strong production momentum across our business. In January, February, and the first half of March, prior to the onset of COVID-19, we had significant growth in recruiting, licensing, life sales, and investment sales. As the pandemic began to impact our production, we saw a brief disruption followed by record demand for our financial solutions and our business opportunity. For many middle-income families, the disruption revealed the weaknesses in their financial game plan and their career outlook.
Primerica's ability to quickly adapt and meet this demand resulted in annual production records across our business, including annual Term Life placed in force of over $109 billion, investment sales of over $7.8 billion, and client asset values totaling $82 billion at year-end. In addition, the uncertainty in job stability and business sustainability led to record recruiting. The disruption to state and provincial licensing processes negatively impacted our permanent license pull-through rates and slowed the growth of our permanently licensed sales force. These production results led to strong financial results. Starting on slide three of our presentation deck, you can see we reported yet another strong quarter, which, when added to the first nine months of the year, led financial results in 2020 to an all-time high.
Looking first at fourth quarter results, adjusted operating revenues of $595 million increased 12% compared to the fourth quarter of 2019, while diluted adjusted operating income per share of $2.45 increased 10% compared to the fourth quarter of 2019. Full-year results set new records, with adjusted operating revenues of $2.2 billion growing 9% and diluted adjusted operating income per share of $9.70 growing 15%. Adjusted operating ROAE during the quarter was 23.4% compared to 23.7% in last year's fourth quarter, while full-year adjusted operating ROE was 24.7% compared to 23.5% in 2019. During 2020, we returned a total of $296 million in capital to our stockholders through a combination of $231 million in share repurchases and $64 million in dividends, which represents a 5% increase compared to 2019 and a total payout rate of 76% of adjusted operating earnings. Total share repurchases in 2020 were slightly below our target.
We accelerated our buyback activity early in the year when markets were severely disrupted by the onset of COVID-19, which increased the impact on the number of shares outstanding, and we chose not to resume buybacks. The strength and stability of our business gives us confidence to continue capital deployment. Earlier this month, the board of directors authorized the repurchase of up to $300 million in common stock through June 2022. Additionally, the board raised the first quarter dividend by 18% to $0.47 per share. Turning next to slide four for a closer review of our distribution results. We added 80,599 new recruits and 12,119 new life license representatives during the fourth quarter. This represents a 33% increase in new recruits and a 9% increase in the number of permanent or temporary licenses year-over-year.
Temporary licensing and extended renewal measures during the COVID crisis continue to impact licensing and the size of the sales force. We ended 2020 with 134,907 life-licensed insurance reps. Included in the year-end count were approximately 3,600 COVID temporary licenses and approximately 2,500 licenses with extended renewal dates. While it's very difficult to project how many individuals with temporary licenses will take the steps necessary to obtain a permanent license, or how many licenses with extended renewal dates will be renewed, early indications suggest that approximately 4,200 licenses included in the year-end total could eventually be eliminated. Turning to slide five. As I noted earlier, we continue to see strong demand for Term Life insurance products. During the fourth quarter, we issued 87,307 new policies, a 22% increase compared to the same period in 2019.
Our productivity rate at 0.21 policies per life insurance licensed rep per month compares to 0.18 in the prior year period. Highlights from our investment and savings product sales segment are presented on slide six. Sales of $2.1 billion during the quarter increased 4% year-over-year. Sales of mutual funds and managed accounts continue to show solid year-over-year growth, while demand for variable annuities remains subdued. Fourth quarter net client inflows were robust at $642 million. As we've seen all year, quarterly comparisons significantly outpaced the prior year period due to a combination of higher sales and lower redemptions. Despite continued challenges posed by the pandemic, 2021 is off to a strong start. We kicked off the year with a virtual version of our traditional senior leadership meeting.
This event brings our most senior sales force leadership together over 2 days to share our vision for the new year, as well as improvements to our business and incentives to create excitement. This event was followed by 5 virtual regional vice president meetings covering the U.S. and Canada. These events allow us to engage with the most influential leaders in our sales force and set the tone early in the year to generate excitement and sustain momentum. Response to the virtual format was extremely positive. Our messages were successful in casting a powerful vision for 2021 and beyond. As we look further into 2021, the current level of uncertainty related to the COVID pandemic and the social distancing requirements that might still be in place this summer, we've made the decision to reschedule the biennial Primerica convention to the summer of 2022.
This event attracts approximately 50,000 attendees. Always generates a lot of excitement. Rescheduling the convention was the appropriate decision under the current circumstances to ensure that we experience the maximum positive impact. That no one misses the opportunity to be recognized for their sales achievements, to hear powerful messages from field leaders, and to network with our business partners and peers. In lieu of the live event this year, we are planning a series of virtual meetings and incentives to help sustain momentum. January 2021's preliminary production results are positive, even compared to our strong pre-COVID results from 2020. In January, we saw growth across our business in recruiting, life sales, and investment sales. Licensing continued to be challenged due to the lack of classroom training opportunities and exam backlogs.
A key question for 2021 will be whether we see sustained client sentiment in favor of our products and opportunity. Our view is that the disruption in 2020 clearly revealed client needs in these areas. A record number of clients took action. These needs that suddenly became priorities have existed for many years and will continue to exist in 2021 and beyond. However, it remains unknown how they will be prioritized by potential clients in the future. We're going to face some noisy comparisons as we approach the one-year anniversary of various measures that were put in place to help us navigate the business challenges caused by the pandemic. In the Term Life segment, licensing and the size of the sales force should begin to normalize as the licensing process stabilizes. However, the noise from temporary measures instituted in 2020 will make year-over-year changes difficult to evaluate.
We also anticipate sales volume to moderate from record 2020 levels. Due to the pandemic's decelerating impact during 2021, production may be lower compared to the prior year period, starting in the second quarter. At the same time, there are too many variables for us to accurately forecast 2021 sales, but we expect that they may normalize below 2020 levels. In the ISP segment, we're assuming a relatively normal year as our clients continue to invest for the future despite the pandemic. January preliminary results are showing year-over-year growth as momentum continues. While it is still very early, we believe first quarter sales will be at or slightly above first quarter 2020 levels. We believe we'll also see some long-term positives coming out of the pandemic, such as remote testing, which provides an alternative path to licensing, and more usage of web conferencing tools, which can improve efficiency.
With that, I'll turn it over to Alison.
Thank you, Glenn, and good morning, everyone. Starting on slide seven with our Term Life segment, operating revenues of $369 million increased 16% year-over-year, while operating income of $89 million grew 9%. The Term Life operating margin, which is typically lower in the fourth quarter due to seasonal persistency trends, was 18.2%, down from 19.2% in the prior year period. COVID continued to have an impact on the quarter's results, as did our annual actuarial assumption setting for 2020 business. Starting with COVID, the fourth quarter saw a significant rise in COVID-related death claims, combined with continued demand for life insurance in the form of both new sales and strong policy persistency. The number of policies issued increased 22% year-over-year, with the company reaching a record level of face amount issued in 2020.
Higher sales, along with stable persistency throughout the year, moved the growth rate in adjusted direct premiums up to 15% year-over-year and added about $7 million to pre-tax income in the quarter. Persistency remains strong across all policy durations, with fourth quarter lapse rates nearly 30% lower in the aggregate year-over-year. Higher persistency resulted in $23 million lower DAC amortization and $13 million higher benefit reserve increases being recognized for a net contribution of $10 million to pre-tax income in the fourth quarter. We continue to attribute the strong persistency as well as elevated sales volumes to fears driven by the pandemic and expect levels to normalize as the risks associated with COVID subside. Looking at claims, we recorded an estimated $14 million of COVID-related death benefits, net of reinsurance during the quarter, the highest level since the onset of the pandemic.
We previously estimated $9 million for the quarter based on 85,000 expected deaths in the U.S. and Canada. However, with the spike in COVID-related deaths in December, actual reported deaths in the population were 140,000. Our level of incurred losses in relation to total reported population deaths remain consistent with third quarter experience. When combining the net impact of COVID on sales, persistency, and claims, we recognize an increase in pre-tax income of around $3 million for the quarter. Moving on to actuarial assumption setting. As we typically do in the fourth quarter, we locked in our GAAP actuarial assumptions for 2020 business this period. The most significant impact came from reducing the ultimate valuation rate from 5.3%-4% to reflect the sustained low interest rate environment.
Lowering the valuation rate pushes GAAP earnings out to later years, but it does not change the overall cash flows associated with the business. This change, along with a secondary impact of reflecting lower first duration lapses, resulted in a full-year increase in benefit reserves of $5.5 million and a minor impact on DAC amortization being recognized in the quarter. To wrap up fourth quarter Term Life results, we saw year-over-year increases in both insurance commissions and insurance expenses. Insurance commissions increased with sales volume, as well as special licensing incentives to keep new recruits engaged and working towards permanent licensing. We largely funded these special initiatives with dollars that were originally earmarked for incentive trips, which are typically recorded as insurance expenses. The increase in insurance expenses for the quarter was largely driven by growth in the business and technology initiatives.
As we look to 2021, given the tailwind created by strong sales and persistency in 2020, we expect adjusted direct premiums to continue to grow in the 12%-13% range on a full year basis, with higher growth rates early in the year that taper as the year unfolds. The uncertainty surrounding the COVID pandemic make it particularly difficult to project our results. In general terms, we believe COVID-related deaths, and likewise, the sales and policy persistency, will remain high for the first half of 2021. We currently estimate first quarter 2021 claims at approximately $21 million, which is based on a projection of 210,000 deaths in the U.S. and Canada. As more people become vaccinated, the level of COVID deaths should decline significantly, with our benefits and claims ratio reverting to between 58%-59% in the latter part of the year.
We continue to believe the unusually strong level of persistency experienced in 2020 is not sustainable long term. The pace and extent to which persistency normalizes will likely be correlated to how quickly COVID fears subside, combined with the health of the economy in 2021. Turning now to our investment and savings product segment on slide eight, operating revenues of $193 million increased 6%, and pre-tax income of $57 million rose 7%. Sales-based revenues were largely unchanged year-over-year, although revenue-generating sales increased 5%. Looking at the composition of product sales revealed that mutual funds, which have a lower sales-based commission rate, were up 17%, while annuity sales declined 15%. Asset-based revenues were up 11%, in line with the increase in average client asset value. Expenses from both sales and asset-based commissions moved in correlation with their respective revenues.
Canadian segregated fund DAC amortization continued to be low due to favorable market performance and redemption levels. In our Corporate and other Distributed Product segment on slide nine, our operating loss grew by $4.3 million. Consolidated net investment income was flat year-over-year as growth in the size of the portfolio largely offset the impact of lower interest rates. On a segment basis, NII reported in the corporate and other segment was down $2.2 million as we continue to allocate a larger portion of NII to the Term Life segment in support of the growing block of business. Benefits and claims were $2.1 million higher year-over-year, largely due to a reserve adjustment on a closed block of business to reflect the sustained low interest rate environment.
In both the current and prior year periods, there were charges in the $2 million range associated with reinsurance on closed blocks that largely offset each other. The mortgage distribution business added $3.7 million of revenue and about $1 million to pre-tax income during the quarter. To help track the performance of this business, we've added closed U.S. mortgage volume and commission revenue received on mortgage loans to our financial supplement. On slide 10, consolidated insurance and other operating expenses were $113 million during the fourth quarter, increasing 6% year-over-year and in line with our prior guidance. Approximately a third of the increase was due to continued investments in various technology initiatives, while the remainder was comprised of expenses that support the growth in our business and higher employee-related costs.
Looking ahead to 2021, we anticipate insurance and other operating expenses will increase between $40 million and $45 million, or 9%-10% year-over-year. We expect about 40% of the increase to hit the Term Life segment, with the remaining increase split fairly evenly between ISP and Corporate and Other. About a third or $15 million of the total increase is tied directly to revenue sources such as premium taxes, ISP asset-based fees, and record-keeping fees. Salaries and benefit-related expenses are expected to be about $10 million higher year-over-year. This increase is larger than normal due to unusually low licensing instructor salaries during 2020, as fewer pre-licensing classes were held as a result of COVID-19.
We also experienced lower travel-related expenses during 2020, and while we expect COVID-19-related travel restrictions to remain in place through the first half of the year, we do expect normalization later in 2021, adding about $2 million in expenses. We will continue to invest in priorities to grow the business and provide tools for our agents and employees. Continued investment in technology will add approximately $5 million to our operating expense base. Strategic enhancements to our business platforms, including adding stake to our mortgage distribution business, introducing life wholesalers to support the sales force, evaluating deferred sales charge alternatives in Canada, and expanding our Lifetime Investment Platform will add about $12 million in related expenses. As Glenn mentioned, we are rescheduling our biennial convention to the summer of 2022, and will conduct virtual meetings and special incentives in 2021 to help sustain momentum.
When comparing this to the field meeting and incentives we conducted in 2021, we expect about a $4 million year-over-year reduction in meeting-related insurance and other operating expenses in 2021. Turning to slide 11, our invested assets portfolio remains well diversified across industries and issuers. The company's invested asset portfolio has performed well during 2020 with only modest impairment. At year-end, the net unrealized gain was $163 million and the average credit rating was A. Finally, on slide 12, liquidity at the holding company remains very strong with invested assets and cash of $350 million at year-end, and Primerica Life statutory risk-based capital ratio estimated to be around 400%. The ratio fell from the prior quarter level as economic reserves on one of our captive entities were higher than expected due to higher persistency.
We are comfortable with RBC at this level and expect it to increase somewhat in 2021. With that, operator, I open the line up for questions.
We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two. The first question is from Mark Hughes of Truist. Please go ahead.
Good morning, Mark.
Thank you very much. Good morning. Alison, you have in the past, given some indication on operating margin within the Term Life business. You clearly described a lot of moving parts and a lot of uncertainty. I just wonder whether directionally, if you could talk about the expectations, maybe what do you think about Q1? You've described the $21 million in incremental mortality, but presumably there's some offsets around DAC. I'm curious how that shakes out for Q1, and then thoughts perhaps for the full year.
Sure, Mark. You are correct. I do normally give that. As I said in my prepared remarks, this year is just unusually difficult to predict what's going to happen, especially as the year unfolds. Early on, we're focused very much on trying to keep you very current in our guidance based on what we feel very more comfortable knowing. The $21 million that I quoted for life claims, what would likely come along with that, and quite frankly, what we have seen in January, is that we continue to see strong results on both sales and persistency. That persistency component's important because it's the one that will obviously drive the impact on DAC, and to a lesser degree, the reserve. If you look at what happened this particular quarter, net net, we ended up at about a $3 million positive.
I hate to say positive due to COVID, but the net result or impact of all the COVID items was about $3 million increase to the bottom line or pre-tax income, excuse me. I can't say for sure whether the persistency offset will be complete to that $21 million, but we do expect it to provide a lot of positives in the form of DAC amortization and growth in adjusted direct premiums. I do think there are definitely offsets. At this point, I cannot really predict what will happen for the remainder of the quarter and certainly not For the rest of the year. I do wish it was different, but as we've learned throughout COVID, the expected is completely unexpected and vice versa. At this point, that's about as much information as I can provide.
Okay. When we think about persistency in the latter part of the year-
Yeah
if persistency, say, normalizes, that's not necessarily a bad guy, it's just the absence of a good guy. Is that the right way to think about it?
It really depends on whether you're thinking about things in pure economic terms or in terms in comparison to just the prior year. In, say, the third quarter of 2020, we had exceptionally strong persistency. The impact on DAC in that period was noticeable. While we might revert to a more historical level, it would look potentially negative on a year-over-year basis, but I would categorize it as still being very positive. Reverting to normal and, in fact, reverting to something that's even a little stronger than normal, given now the real awareness, if you will, towards the population, towards owning life insurance and protecting their families, I think are the things that we're striving to achieve.
Again, even though it might look financially like a negative year-over-year, just the way the gapping works, reverting to our historical levels, especially the ones that we were starting to see, I'd say, really just prior to the onset of COVID-19, in my opinion, would be positive.
Right. The mortality, the benefits expense would normalize, the DAC normalizes, maybe net-net, this quarter is a $3 million impact, maybe net-net, those are a little bit of a headwind if it plays out that way later in the year. Is that the right way to think of that?
A headwind definitely with regard to year-over-year.
Yeah, exactly.
It gets difficult. Yeah.
On the other hand, you've still got the tail from the strong sales growth that's driving the top line in the-
Absolutely.
-books of the business.
That actually, because so much of that activity is a little baked in based on what happened in 2020, that's why we were a little more comfortable giving you a forward projection on growth and adjusted direct premium. It just gets obviously a lot more difficult as we think about the COVID-related claims and then the impact on persistency associated with the pandemic.
I had some more, but I'll re-queue . Thank you.
Thank you.
If you have a question, please press star then one. The next question is from Jeff Schmitt of William Blair. Please go ahead.
Good morning, Jeff.
Hi. Good morning. Question on the benefit ratio. Alison, you had mentioned maybe that goes back to that 58%-59%, maybe in the second half of this year. I think you'd mentioned on the prior call that a lot of these sort of benefit payments this year, maybe size like 90%, are sort of pulled forward from basically what would have happened over the next five years. As we look out to 2022, 2023, could that conceivably move below that historical range?
Oh, wow. Okay. I forgot it's already 2021. When you said 2022 and 2023, for a moment, I thought that was really far in the future. 2020, I realize it's been weird on all of us. I apologize. We have been seeing somewhat of a decreasing trend. There's a lot of nuances about it. I think the simpler way to put it is we could see the trend be closer to the 58% versus the 59%. I guess, given COVID and not knowing when it's going to end and then what the ongoing potential impacts might be, it's just hard to predict. There has been, and just one other thing, not that we would see a whole lot of this because of our reinsurance, there have been some changes in the population with regard to mortality improvement.
It had slowed down for a period of time. I believe it is back developing again, but a lot depends on sort of what the mortality improvement trends are in the population itself.
Got it. Okay. That makes sense. Then just turn to the ISP segment, obviously held up really well this year. Net flows were well above historical levels. Are you seeing any shift in some of the agents maybe wanting to sell investment products? I mean, is that something you're kind of marketing more, you're seeing more interest there given how well that's done?
Yeah, Jeff, you see our reps' attention, they're attracted to what's working at any one moment, which is normal human behavior. Clearly we've got some real strength in that line of business right now, which is positive for us because we believe one of the beauties of our business model is having those two complementary main lines of business allows our company and our sales force to flex and find the area that has the momentum that they can take advantage of at the moment. There's definitely a halo effect from the positive things happening in our investment business. At the same time, we're actually seeing the same thing happen because of the client awareness on the life insurance side.
We're having those that may have majored in investments take a look at life insurance, those that may have majored in life insurance take a look at investments, which is a really positive dynamic to have going on. As I alluded to in my remarks, what we believe happened in 2020 is not that a need that had never existed before was created. We believe that the circumstances of 2020 revealed a need that had always been there and will continue to be there and made people more sensitive to their need both for protection, for investing for the future, to get out of debt, our mortgage business that Alison referenced, and also obviously our opportunity. It made all of those a higher priority.
That's really the message that we're giving right now is to make sure that the fact that the health crisis we pray is hopefully winding down, the financial crisis remains in the middle market. We've got to be the reminder of that financial crisis because it was already there and it's still there. It's a positive in all areas of our business right now, Jeff. It's really a pretty unusual situation. It doesn't usually happen exactly like this.
Right. Okay. Well, thank you for the answers.
Glad to help.
This concludes the question and answer session as well as the conference. Thank you for attending today's presentation. You may now disconnect.