Insurance is one of the least-liked but most appreciated businesses in the country. It simply has to be marketed with a hard sell, because no one likes to pay for this every month with virtually no tangible benefit. So, when companies figure out the best way to incentivize their sales personnel to sweet-talk customers in the most positive, repeatable way, they tend to be well-rewarded by investors.
That is where Primerica (PRI) has found its niche, as the one-time Citigroup (C) subsidiary is the leading distributor of life insurance and financial products throughout the U.S. and Canada. The company and its units, spun out of Citi two years ago, insure more than 4.3 million individuals while approximately 2 million clients maintain investment accounts with the firm.
What differentiates Primerica from peers is a distribution model that utilizes independent contractors as sales representatives who are in charge of their own offices, expenses and marketing. Additionally, the firm takes a multi-level marketing component that compensates sales representatives for recruiting other sales reps to the company.
Primerica tailors its products to middle-income consumers. It leverages a face-to-face selling approach that focuses on easy-to-understand products that encourage debt reduction, long-term savings and minimizing expenses.
The company traces its roots to 1977 when Arthur L. Williams Jr. formed A.L. Williams & Associates, Inc., an independent life-insurance agency. He started with seven regional vice presidents and a total sales staff of 85 representatives, all selling term life insurance underwritten originally by Financial Assurance, and later by a group of third party providers that would eventually become Primerica Corp.
After a number of mergers and takeovers over the past two decades, Primerica Financial Services emerged as the general agency with Primerica Life Insurance, PFS Investments and Primerica Life of Canada all operating as subsidiaries.
Through these subsidiaries, the company operates three primary business segments: term life insurance, investment and savings products and other distributed products.
The term life division is one of the largest providers of individual term life insurance in the U.S., based on premiums collected. It issued more than 200,000 policies last year alone, representing $73 billion in protection. The company's decision to focus on term life insurance is linked to its philosophy of not offering competing products. Term life insurance has no cash value, and thus doesn't compete with investment products it markets to its clients.
The investment and savings division focuses on products that comprise basic saving and investment vehicles that seek to meet client needs at various stages of life. This includes primarily mutual funds, variable and fixed annuities and segregated funds sold by more than 21,000 licensed sales representatives.
The firm has selling agreements with asset-management firms such as American Funds, Franklin Resources (BEN) and Invesco (IVZ) to distribute their mutual funds. MetLife (MET) underwrites the annuity products.
Lastly, the "other distributed products" group includes prepaid legal services, credit-monitoring services. It also includes referral partnerships with long-term care providers, auto and homeowner insurance companies and mortgage originators.
Primerica defines its middle-income target market as consumers with an annual household income of between $30,000 and $100,000 -- representing nearly 50% of total households. The company believes this market has inadequate or no life insurance coverage, increasing debt, and no direction on retirement savings, and that these folks prefer face-to-face interaction.
Primerica went public on April 1, 2010, after being spun out of Citigroup at $15 per share. The 21.4 million share offering raised $321 million for the Duluth, Ga.,-based firm, and shares have risen 37% since. Many investors won't like the marketing strategy Primerica deploys, but there's no question that it has led to substantial, sustainable growth. Keep it on your radar.