All right. We are going to get started. Pleased to have Primerica with us today. To my left is Glenn Williams, CEO, and Alison Rand, CFO, and also want to recognize Kathryn Kieser from Investor Relations. Glenn, maybe I'll just kick it off. Do you want to provide some high-level comments on Primerica and where things currently stand for the company?
Sure. I'd love to. Thanks, Ryan. If you're following Primerica at all, you know that we've had a pretty exceptional run over the last eight quarters of some very healthy growth in our business, particularly on the distribution front. We've been very pleased that we've had ongoing distribution growth. Our end of August numbers for our sales force size are at 114,250. That has been as a result of strong recruiting over the recent time period, as well as a strong licensing pull-through ratio. We're very pleased with that that has been now ongoing for a while. Of course, the growth in our sales force then leads to growth in our production. Our insurance apps issued in the last quarter are up about 14%.
As we look at our investment business, which did incur some headwinds earlier in the year, we were down about 9% the first quarter, down a little less at 6% in the second quarter. We're continuing to see some firming of that business as we head into the future. All of that's positive being driven by the distribution growth at the front end of our business and resulting in pull-through in all areas of production. Of course, that results in some very positive financials. As we've seen, with 13% growth year-to-date in net operating income, 22% growth in our earnings per share, and a 250 basis point increase in our ROAE. Overall, Ryan, we've had good success in the production side of our business that's flowing through into some strong financials.
We continue to see our mandate to grow organically, to grow earnings, as well as to actively manage capital. We're still running that same play.
You mentioned the strong agent recruiting. Can you talk a little bit more about what some of the key drivers have been? It's been particularly strong the last couple of years, I guess. Both internally at Primerica, and if any external factors have also contributed.
Sure. Just start with the external factors. We do feel like the environment is a positive environment for us right now. As you probably are aware, we live on Main Street. We're a middle-market company, we do see a reasonably high level of confidence kind of attitudinally in the middle market. I think they're feeling pretty good about employment opportunities, stability in their jobs. They're seeing cost of living, particularly gasoline prices, are reasonable, there's a little feeling of comfort there that I think adds a little tailwind to our business. More directly and under our control, we've worked very hard on the fundamentals of our business to be able to deliver a strong recruiting message, an attractive message for those people that see themselves as potential entrepreneurs and want to start a Primerica business to build a business of their own.
I believe we're doing a better job of telling our story, a more attractive job. We're also communicating better overall as we've leveraged some of our technology leadership to be better communicators, both to our sales force, to our end clients, and to our potential recruits, our communication has been improved. I think we've had disciplined and judicious use of our incentive programs and our compensation to put incentives and compensation in the right place. I think all of that combines to really drive a very healthy recruiting rate in our business.
Along the same lines, productivity has also increased. It's been running towards the higher end of the typical historical range you've talked about for Term Life. Are the same things driving productivity increases, and do you think it can continue to travel towards that higher end?
Yeah, there is a lot of consistency there. Again, if you know our business, it's a pretty simple calculation. You take the size of our sales force and multiply it times our productivity, which travels in a fairly narrow range, and you can kind of predict or project what kind of production we're going to do. We have been traveling at the high end of that range, and I think there is a lot of consistency in why recruiting has succeeded and the success in productivity. A lot of the credit goes to our sales force leaders. Our leadership in the sales force has really bought into our focus on growing our business, on meeting the needs of the middle market. It's just a huge unmet need out there in both the protection side, the income protection side, and the investment side of our business.
They see the success that we've been able to achieve in our business. We're a momentum business in a lot of ways, so the more success you have, the more you can showcase it to create new success. We've really had a very deep level of leadership buy-in, and that's led to everything kind of moving to the upper end of our traditional scales, and productivity being one of those.
Shifting a little bit to margins, to Term Life margins, we're running around 17%. The last couple of years and this year, you've guided to 19%. Can you talk about some of the key reasons margins have expanded?
Sure.
Also, is the 19% level sustainable?
Sure. A couple of things that we've been noting with regard to the margin improvement. One is just the volumes that we're seeing. If you think about the growing volume base, we have better fixed cost absorption for one. Also, if you think about life insurance fees and mortality improvements throughout the years, that the business we're underwriting today, we generally have to set up a lower level of mortality cost than we did for business that was five or six years ago underwritten. That's been one general trend that we've seen. Further along the lines of mortality, we have put in play a new process, a new adjudication system on our disability claims. You saw a bit of a pop this last quarter of benefit from that.
We don't think we're going to see that same delta, if you will, but we do see the level of claims, the level of the reserves have come down from the new adjudication system continuing. One of the things I said in the call, we said 19% was a good rate for this year and looking into the future, and I alluded to some emerging trends. The thing that may go against the margin is our end of term business. We obviously sell a level term product, generally anywhere from 20 years to 35 years in duration. As part of our separation from Citi, the coinsurance agreement we entered into accounted for that 80% of end-of-term type business was subject to that reinsurance agreement. Effective in 2017, contractually, we will now keep those risks.
We will have more end-of-term exposure in our net retention than we've had in the past. All that said, the things I was commenting on that are the positives and the one I didn't mention was lower YRT rates, and that goes in line with the fact that there's been improving mortality. Those will all continue. We do see as a slight headwind, this higher end of term exposure. With all that being said, we do see the margin staying around 19% for the foreseeable future.
All right, thank you. I guess on the premium growth side, you talked about the 10% plus over the next few years. I guess, can you, for those less familiar, talk a little bit about what's driving the high growth rate structurally, and then how long you can continue at that level?
Sure. The structural piece has to do with our separation, again, from Citi. That same reinsurance contract I mentioned, we ceded 80% of our book of business on a coinsurance basis to Citi. Essentially, when we started out in 2010, we looked almost like a startup company from the standpoint of our in-force book of business. It was very small. At the same time, we're a 35-year-old company with a 35-year-old sales force, infrastructure, et cetera, and business model. If you just do the math, the algebra of it, we started with a very small in-force base. We put on our normal level of business a couple hundred million dollars worth of premium like we do every year. You're compounding that growth very quickly.
In the first year, two years after we went public, you were seeing 30%-40% growth rates, which clearly we're not going to be able to maintain. Now with the level of in-force business that we have in relation to what we put on each year, it still stays above 10%, and that's at least for the next several years. That's the structural aspect of it. The other piece of it gets back to what Glenn was just referring to, which is that we've had real growth in our issued business over the last 24 months or so. That's really compounded the growth rate to what was maybe 10% to something like you're seeing now, which is in the 12%-14%.
You mentioned the reinsurance agreement changing. Will that boost your premium growth as well? How should we think about that?
Yeah. It's not huge because relatively speaking, it's a small amount of premium, but the net premiums will go up because we'll be retaining more. Mortality will go up accordingly. We don't think it has a huge impact on the margins, but it does put a little bit of pressure just because that's older business, more mortality costs associated with it.
Okay. I guess you touched a little bit about YRT rates coming down.
Can you talk more about your overall reinsurance strategy?
Sure.
Have you made any material changes to that over the last few years?
No. We've been using YRT, yearly renewable term reinsurance since the 1990s. We now cede, and we've been ceding 90% of our mortality costs for the last, gosh, 1994 is I think when we raised it. It's been a long part of our process. We like to lock in our costs. We like to be able to know upfront what the mortality cost is going to be, take out the variability in the business, function as a distribution company. That model, I don't see changing. We have nine reinsurers in our pool. I think that's where we get a lot of pricing leverage because there's always people that are interested in getting into our pool. We do provide immediate market share for anybody who's interested in mortality risk. We have very good relationships with these individual companies.
They're the names that you would expect, the Swiss Re's, RGAs, et cetera. I don't see anything changing in the foreseeable future.
Just following up on what you said, can you just elaborate a little bit more on what you said on the change in the disabled, I guess, life impact?
Yeah. It's not a huge number. The good thing is we lock in so much of our mortality cost. When we have a $2 million swing, that looks large. If you put in the.
Sure
of the business we write, it's really not that volatile. We did change the methods that we go through in order to either first establish someone as being disabled under that privilege or also to recertify that they're disabled after a year. I would just say we're using an outside provider.
Okay
to help us be more state-of-the-art and more current in our standards on that.
Net, that's a positive. The YRT rates are positive.
Volume
The volume are positive. That should offset the headwinds.
Correct
from the coinsurance.
Correct.
Okay. I guess on technology, it's definitely been something life insurers have discussed a lot more recently, needing to invest in technology. You obviously have a very large sales force. Technology is very important. Can you just talk more about what you've done, where you stand in terms of being up to date on the right technology.
Sure. I'd love to. Many people see us, Ryan, as a company with such a large living sales force, they automatically assume that maybe we're not technology-friendly or technology-savvy, and just the opposite's true. We believe that we have a technological advantage in the marketplace, and we've worked very hard in order to support and to grow a sales force that size, you can't do it without excellent technology. There are a number of areas where we believe we're kind of leading the market, especially in the insurance industry, which is not always known for our technological advancements. The first place is in our capability to actually execute transactions. We do business in clients' homes, as we like to say, at the kitchen table, with a sales force that's very large, very diverse, and often very inexperienced.
Most people that join Primerica are joining from a background other than the financial services industry. They're learning how to be in business. They're learning how to be in the financial services business. They're learning about our product set, sales skills, all of those things. We have to have a very simple process at the kitchen table. One of the things that helps us do that is our ability to execute transactions electronically from the client's home straight through to our underwriting and life insurance issuance area or straight through our execution desk at our broker-dealer. Today, we do about 90% of our life insurance applications come from the client's home electronically to us.
A significant number of those are issued by going through an intelligent underwriting system that's all done electronically, without being touched by human hands, and some issued in as little as two to three minutes and reported back to the agent and the client while they're still sitting at the kitchen table. It's pretty revolutionary anywhere in the insurance business, but when you think about it being executed by often a part-time representative, it makes it extra special. About 80% of our investment sales are transmitted electronically from the client's kitchen table to execution at our broker-dealer or at our mutual fund and variable annuity manufacturers. We have a high reliance on technology, but it's used to support the live relationship between a representative and a client, not instead of a representative.
We don't use direct-to-consumer technology, it's so simple it almost could be direct to consumer. That's just how simple you have to make it. That's one advantage that we believe we have that probably puts us in a leading position in the industry. The other we referenced earlier when we were talking about recruiting and building a sales force of that size, communications is absolutely critical. Our ability to communicate with 114,000-plus licensed reps and a couple of 100,000 people at any one time that are trying to get licensed is an important part of our kind of recipe for success.
We've invested heavily and worked very hard to make our communications technology, whether it's interactive communications or our ability to communicate with our sales force and equipping them to communicate with each other through our representative application, the Primerica app, as we call it, has been downloaded almost a quarter of a million times this year, it has wide usage. It's a very effective app, and it's used broadly by brand-new people and by people who have been part of our company for 30 years. Those are just a couple of examples of the way that we are making those investments. We're doing the same thing on the investment side of our business as we look at our new Managed Account platform that we've talked about on our earnings call coming out the end of this year, the first of next year.
Clearly, as we adapt to the changing regulatory landscape, that advantage of having that technology structure in place will allow us to adapt more quickly to some of the regulatory changes out there.
Shifting a little bit to your investment and savings business, it's about 40% of earnings. Can you go into your latest thoughts on the DOL and how you see that impacting Primerica at this point?
Yeah. It's been a long time. We've been working on it as the industry has for a long time. I think some pieces are finally coming into focus. Clearly, the release of the final rule answered a lot of the questions about what are the best ways to do business and took some ideas off the table and put other newer, and to a certain extent, better ideas on the table. We were pleased with that because it clarified some of the direction. Working through all of the pieces of the DOL rule, how to use the Best Interest Contract Exemption effectively and appropriately is what we're going through right now and what the industry is going through right now. I think the good news, probably like all of us in this industry have been frustrated with how long it takes to get all those questions answered.
I know I certainly have, but some things are starting to come into focus. You're starting to see those reported in industry media. One of the recent examples we've talked a lot with some attending a conference today about, there's been a lot of focus on where will compensation on various products come out. There was a lot of media coverage recently that A-share mutual funds, which are a staple of our mutual fund business, that we believe very important for the future of the small Main Street investor, are likely to change and differences in compensation, because a lot of the focus of the DOL rule has been on differential compensation, are going to migrate to the middle, and they're going to coalesce around kind of an industry standard that has less variance in it than we've had historically.
What was reported in the media, was that might be in the 3%-3.5% range for A-shares going forward. It might bring the top end of A-share expenses down. It may even bring the bottom end of A-share expenses up, but that remains to be seen. We feel good about that because our average compensation that we put into the commission grid on mutual funds is about 3.5%. It's in the same neighborhood as where we lived, and therefore, not very disruptive to our business when you look at the overall financial impact. We do need to recognize that there's still a lot of change embedded in what I just said, and we will have to adapt to a significant amount of change. At least financially and mathematically, it's in the neighborhood of our average today.
The same media talked about on the VA side, that it's not going to be identical for variable annuities and mutual funds. Variable annuities will demand a premium appropriately, and that can be justified through neutral factors, which is an important part of the DOL rule, that it's a more complicated product, it takes a different level of expertise, more time to sell it, a more sophisticated customer, a larger ticket size. All of those go into justifying a slightly higher compensation. The media reported that that would probably be around the 5% range, which is about the average for Primerica in our VA business. Again, something that's close enough to where we are today that it's not terribly disruptive to our financials, if indeed that's the way that comes out. Those are just a couple of examples of some of the specifics finally coming through.
I think they've been long awaited. It's created a lot of frustration. There's still a lot more to do. We're using the best advisors in the industry, both legal and other consultants. We're staying very plugged in to what the rest of the industry is doing, both on the distribution and on the manufacturer side, to make sure that the business plan we create fits nicely in the context of the industry as a whole. I think we are starting to finally get down to some answers to some of the many questions that have been asked. We've got until April before the first phase is implemented, and then till the end of next year. That gives us time to get the job done. There's probably no time to waste. The industry's going to be working very hard to get that done.
That's really helpful. I have a few follow-ups to that. One would be when you talked about the different ranges that are getting settled at. I guess, is the DOL setting these ranges, or how are they being determined?
No, absolutely not. There are principles embedded in the DOL discussion, in the DOL rule, of fair compensation without bias that leads you to recommend one product over another. Where there is differential compensation, there are neutral factors. That's terminology from the rule used to justify any differences that might exist. What is happening is the industry, with the help of a lot of third parties, because we know we're all going to be judged after the fact on the conclusions we come to, trying to figure out how to come up with ranges that fit inside those parameters. It's not being dictated by the DOL. I do believe that the industry's going to create industry standards, if you will, that will all be similar.
I don't believe they'll be identical. They'll be within ranges. Any differences will be justifiable by those neutral factors.
Got it. Related to that, you talked about the upfront commissions. If you have any updated thoughts on kind of trail commissions and revenue sharing and where those two factors are settling now?
Yeah. It seems like the trail commissions at the 25 basis points are still what's being considered. That's kind of the industry norm today on an A-share. That doesn't appear to be changing greatly.
Again, a lot of this remains to be seen, to be worked out, just reporting on what the conversation is happening in kind of real time. I don't think that you're going to see a significant amount of change there. The revenue-sharing dynamic is very different. Those are all proprietary agreements between distributors and product providers, and so there's probably less uniformity in those today. One of the kind of tricky wickets that we'll deal with is all trying to figure out how to meet the assumption that all of those should be relatively uniform when, in fact, most people don't know what each other's revenue-sharing agreements are, and so even making those uniform. I do think some industry standards will develop through these conversations, and people will migrate toward the standards, even in those areas.
I don't know, Alison, if you have anything to add to that.
No, I definitely agree. The one thing I'd highlight that we have as a benefit is that we work with a relatively small group of providers. 70% of our business comes from two fund families, and about 80 comes from the six that are on our platform. When you talk about differing relationships, we sort of have, I'd say, a closer proximity in all of those relationships, and so much of our business comes from a handful of companies that I think it gives us a little bit of a benefit with regard to negotiating that. I think what you've heard from a lot of firms is that they're going to have to cut out various players that aren't big in their business because they're just never going to be able to get them close to somebody that's a big provider for them.
Is the view on revenue sharing that it just has to be equal within your own organization, but that with revenue-sharing payments can be much different at Primerica versus Raymond James, or?
An interesting thing is, remember, it will all be disclosed.
Yep.
Whether it has to be or not, it will be known based on disclosure what we're getting compensated versus a Raymond James or anybody else. I don't think they're as disparaged as some may think.
Okay.
Just by knowing what our relationships are, we've negotiated all of them independently, they're all sort of around the same scheme, if you will, between what happens based on sales and what happens based on assets. I think you'll see some consistency. The difference will be, again, in all of it's about fee for service. What service, what access do we provide? What wholesaling mechanisms are there? It's not just as straightforward as what's the percentage. You have to look at what comes with that.
Last follow-up was, you mentioned 5% roughly for variable annuities. Is indexed annuities, are they being viewed as similar to variable annuities in terms of compensation?
Yep, very similar.
Very similar.
In our channel. I think the industry has seen those two converging over time. That's certainly what we're experiencing.
Right.
I think you continue to see that.
Okay. Just wanted to open it up if there's any questions in the audience. All right.
Okay.
Oh, yep. There's one right there.
This might be a naive question, when you're selling a stock mutual fund versus a bond mutual fund, do the DOL rules require that the fees or the compensation on those be similar, or does it allow for higher commissions on a stock fund than a bond fund?
Yeah. That's a great question. The rules don't dictate any of this, what they say is anytime you've got a differential, you have to justify it by a neutral factor. There's some things that I believe the industry's going to look at and say, "You know what? That's not worth wasting a neutral factor argument on." In reality, most income funds and equity funds have slightly different compensation structures, but they're very close. My personal guess is most of those will find common ground so that we don't even have to deal with that. They're close enough now. Let's just levelize those and get them all together, and let's take that conversation off the table, and let's have the conversation about a more significant differential where we need to use that energy. You're exactly right.
It's not dictated, but my guess is those are probably going to levelize at a single place, would be my guess.
This is kind of related to something I already asked, I guess, how will the industry know what is okay and what is not okay? I think that's one of the biggest challenges is there's legal tail risk. I guess, do you expect the DOL to provide feedback to the industry on if what you've come up with is acceptable or, I guess, how will you know?
Yeah, I think it's going to be a combination of things. I do think there's some safety in the herd that if we establish an industry standard, it's going to be more likely to be accepted than if you've got one-off ideas that are out there kind of separated from the herd. A lot of legal advice is being given as these are created. ERISA's been around since the 1970s. There's a lot of case law, there's a lot of thought going into what some of these concepts mean well before now. All that's being taken into consideration. I do think there are open dialogues with the DOL on their reaction to some of these. In reality, the DOL won't be enforcing all of that. The plaintiffs will be enforcing this sometime during the rest of our careers.
We've got to anticipate that some of these things will be challenged. A lot of it is not going to be clear letter law where there was a law that was written. You either violated it or you abided by it. It's going to be interpretation. I think there's a whole body of decisions over time that will be created. We're trying to conduct ourselves as an industry in a way to absolutely minimize that risk as we go. Think about what our actions today and the advice we're giving to clients today might look like five years or even 10 years from now in light of market upheaval and so forth. That's one of the reasons that this is progressing at such an excruciatingly slow pace
is all of this careful thought going into this, trying to anticipate
Yeah
how that might turn out in the end.
One thing I've heard mixed things about is some distributors potentially, even though the DOL Rule only applies to retirement plans, maybe kind of just setting everything at 1 level. I guess, where do you think that stands for you at this point?
I think that that's quite a possibility, is it has a spill-over effect because in running any kind of organization, I'm obviously most familiar with ours, the smaller number of ways you do things, the simpler you can run an organization. If indeed A-shares for qualified plans change, as we've discussed, having a different class of A-share for a non-qualified plan very likely might not make sense. It's confusing.
Yeah.
The client may be purchasing both, salespeople are going to be selling both, if you just have a single type of A-share, there's a ton to be said for that. I do think there's going to be, for consistency and simplicity's sake, adoption of some of these concepts in areas where they're not even required, just to have a simple process and a simple business plan. It's very likely.
Shifting to capital management, you've guided to $150 million of buyback this year and $125 million next year. Can you help us think more about the level of capital generation you'd expect kind of longer term beyond that? If there's any type of rule of thumb to go by.
Sure. I think when we set the 150 in the first place, we were looking for a number that would be sustainable.
Okay.
I won't say indefinitely, but sustainable for a number of years. The 125 for next year is predicated on a couple of things. One is that the volume of business that we've been putting on the books over the last two years is really well above, and it's a good thing.
Yeah
It's well above where we've been in the past. If you're familiar with statutory accounting, it does require you to keep more capital on the books. Our hurdle was a little bit higher than we had anticipated. In the long run, that all becomes distributable earnings, so it's a good thing. The other thing is, principle-based reserving is in fact going in in 2017. It's a good rule in that it'll make our balance sheet far more efficient without having to do any types of transactions, reserve financing transactions, but it will take a few years for the reserves to build under that regime because it's a prospective adoption. A little bit for next year is just seeing how that translates, watching how those rules develop, because they're already talking about changing the rules for 2018. It's just keeping an eye on that.
All in all, I think we're in the same basic range that we've been.
Okay.
Just sort of knocking it down a little bit for 2017 in consideration of those two factors.
You've, I think, probably have had some Regulation XXX reserves build that you have not financed over the last couple of years.
Yeah.
Do you have any potential to do anything there?
Sure. That also, that's a great point, could really change what we do next year. Bless you. There are both the 2015 and 2016 blocks are not financed.
Okay.
We do have the last transaction that we did through 2014. We do have an option to open up and put some more business in that. We will look to do that, and if we were able to do that would free up some more capital as well.
Is there any sizing you can help us with on that?
It doesn't make sense to do it this year.
Okay.
It would be next year just because the reserves haven't built up enough. By next year, it could be enough to get us back up to that 150.
Okay.
Again, you've got to go through the whole process with the regulator and the like, none of it's guaranteed, we're certainly not counting on it at this point.
Okay. Just shifting, you talked a little bit about how you're rolling out a new advisory platform.
I guess, what are some of the changes that you're making, and is this something that you'll raise the minimums on potentially and be a little bit more wide-reaching than your previous advisory platform?
Yeah. A little bit of a history on that. We recognized that there was an opportunity in the managed account, the advisory business, a number of years ago, even though that's probably at the upper end of the middle market that we're accustomed to. We do a lot of business in the upper end of the middle market. We established a managed account product in conjunction with a partner. It's been a fairly successful rollout, but it was a very narrow product. We wanted to put our toe in the water and see if this was a business we could succeed in. Been very pleased with the results.
Both because the opportunity has continued to expand. Our sales force has been very receptive to it on the offensive front. Also on the defensive front, it's a little bit of a safe haven on the DOL Rule that already lives over in the fiduciary world. We made the decision earlier this year to expand from simply a product to a platform of products, adding a variety of strategists so that you can have both strategic and tactical money management across a variety of mutual fund and ETF-type products. It gives you a real ability to mix and match, to blend both strategists and product types and so forth in a much more robust kind of managed account platform. It's clearly something that will meet the needs of the upper end of our clientele as well as our sales force.
We're very excited about the potential it holds. Again, we may find some business migrate over there because of the DOL Rule, since that's already a fiduciary standard in that part of the business. We think it has a big upside for us. There was obviously some expenses in bringing a platform. It will be a state-of-the-art platform, so we're using the most current technology with the most current providers and partners in building that business. We hope to have it out end of this year, early next year, in time that if it is useful when the DOL transition is up and running and ready to go. We're beginning the process of planning the training for our representatives that'll be involved.
It's a pretty significant product rollout, but it's broader than just adding a product because it is a whole series of products on a platform. We're feeling very good about the opportunity it creates for us.
Are there any other questions in the audience? If not, I just wanted to follow up on you were talking about the use of technology for issuance of Term Life products. I guess, to what extent do you issue policies on a simplified underwriting basis versus kind of medical testing at this point?
Well, the way that all evolved is all the way back in 2007, as we started to see the evolution of the underwriting process in life insurance was going to more of a database underwriting rather than the traditional kind of bodily fluid underwriting.
Yeah
Doctor report underwriting, which is obviously very slow, very expensive. As we looked at that and started to get in conjunction with our reinsurers to make sure that we had a broader view of this than just the Primerica view, on an industry-wide view, the reinsurers gave us confidence that the accuracy of that underwriting capability was equal to the more old-fashioned underwriting. We don't even call it a simplified underwriting.
Okay.
It's fully underwritten either way. Just one is done electronically by hitting those three databases, the Medical Information Bureau, the driver's database, as well as the national prescription database. You can underwrite a policy with about the same accuracy as you can doing it the old-fashioned way. The difference is you can do that in a matter of minutes. As we looked at that emerging technology, we said, "What if we built a product? We live in a world of instant gratification. What if we build a product around that?" We already had the amazing capability to execute transactions from the client's home electronically. What if we went ahead and transmitted that application, had it underwritten, and then on all the appropriate cases, had the report of the results sent back immediately?
We developed a product that we call TermNow, and it was designed to leverage all of these capabilities in a straight-through processing game plan. Today about 60% of our applications come in as TermNow applications. The other 40% are the more traditional product. Of that 60% that comes in TermNow, about 80% of those are issued in two minutes or less. We can even deliver the policy electronically. Rather than the old-fashioned way, even when you have human interaction of going to a client's home and saying, "I'll take the application. It'll be back in a few days or a few weeks with the results," we can do all of that right there.
It's a little more expensive process, although we believe over time prices will come down. So it's a little slightly more expensive product, but it meets that need, that desire to get the job done right then with a fully underwritten product. It's been a success of us making sure that we're on the leading edge as the underwriting technology emerged, but leveraging the technology advantage that we already had in our communication and application ability and kind of created a whole product around it. Rather than it just being an efficiency project.
Yeah
We built a product around it. We look for those opportunities as we change, is there a way to magnify and maximize that change? We've seen the same thing happen on the mobile technology front. We started the process of electronically transmitting applications back on PalmPilots in the old days. Almost nobody that joined our company had a PalmPilot when they joined. They'd have to go out and buy one. Well, today, everybody that joins has a smartphone when they show up. There is no additional equipment needed to succeed at Primerica. You have it in your pocket. All we have to do is create an application that has the functionality and the simplicity, and it's attractive enough and exciting enough that people will use it, and it gives us a huge advantage in the marketplace.
That's why the success of the Primerica app has made. We have so many more users that by being able to have that many more people with that capability, we can communicate more effectively. We've got more people listening when we talk now. It's amazing how these technological advantages build on each other if you look at each one as an opportunity to not just implement that technology and save a few bucks, but can you really maximize its impact? Of course, that's very appealing to the millennial generation. There's all kind of discussion in our industry about will any millennials ever join the insurance industry going forward? We're very appealing in our message to the millennial generation, have huge uptake in the number of millennials joining our business, and that's been one of the drivers of our growth.
The two are related to each other, we believe.
Yeah. Has the mortality experience been similar on this product so far as your traditional underwritten product?
Yeah, absolutely. Again, we reinsure so much of the mortality.
Yeah
Having those reinsurers with us as we develop the product, they've got 90% of the risk anyway.
Okay.
The results have actually been equal to or even better than we anticipated.
It's still a pretty new block.
Yeah.
You don't have a tremendous amount of detail, but Glenn's absolutely right. We're still reinsuring 90% of it.
Yeah. We've actually increased slightly the maximum amount of coverage we offer because the early returns were good, and the reinsurers felt good about it. We went back to them and said, "Look, there is a policy size limit we will do on this new underwriting process, but we've actually increased that some because the comfort with the experience we've had.
All right. Actually we have a question here.
Just to follow up, is pricing the same on TermNow versus traditional? I know that you haven't seen any trending on your book yet, but.
Yes. Our pricing to the consumer is slightly higher on TermNow than it is on the traditionally underwritten product. A piece of that was because early on, the technology was more expensive. The new technology was actually more expensive than the old way of doing business, and so much of it was unknown. You didn't know what the persistency was going to be on a product that you could issue immediately. In some way, persistency impacted negatively. We built in a little safety margin. Clients feel so good about the convenience of getting that decision made, getting that policy in force. I spent an hour with my Primerica agent, and I got it done. It's issued. I've got an email of my policy, and I'm finished. That convenience justifies a slight premium in the premium, if you will.
Just one follow-up. Is the ceding commission any different given that the cost structure is different since you're just utilizing an automated system versus the old traditional way where the cost was a lot more?
We have two unique pools. One's our blood tested pool, and one is this product pool that goes through these other forms of underwriting. We have different. Some cases, we have the same reinsurer in both, but their pricing is different. That's part of the reason. There's more unknown uncertainty around the mortality in this without blood testing, although that's yet to be actually determined. There's more risk that there's differences. Unfortunately, because this hasn't been around that long, both we and the reinsurers have put a little bit of cushion in the pricing associated with that. Yes, the costs are different for the two pools. I think over time, as we get more and more experience using these newer underwriting methods, you may find them converging. That's why the product is priced slightly differently. Again, we are very comfortable.
The way we choose to do reinsurance is if we've got a pool of reinsurers who are willing to take on the risk for what we would otherwise book it as, then we do it. We've been able to find people in both those pools to do that.
All right. Looks like we're out of time. Thank you very much. We appreciate it.