Primerica
Annual Report 2020

Plain-text annual report

2020 Annual Report Financial Highlights (in millions, except per share amounts) GAAP Total Revenues Net Income Stockholders’ Equity Diluted Earnings Per Share1 Book Value Per Share1 2020 2019 Change5 $2,217.5 $2,052.5 $386.2 $366.4 $1,835.9 $1,652.5 $9.57 $8.62 $46.71 $40.10 Term Life Net Premiums $1,309.7 $1,166.5 End of Period Client Asset Value ($ in billions) $81.5 $70.5 Weighted Average Shares Used to Calculate Diluted EPS 40.2 Common Shares Repurchased End of Period Share Count2 2.2 39.3 42.3 1.9 41.2 Cash Dividends Declared Per Common Share $1.60 $1.36 Market Price Per Share at Year End $133.93 $130.56 Total Shareholder Return Debt-to-Capital3 4% 35% 16.9% 18.5% 8% 5% 11% 11% 16% 12% 16% -5% 17% -5% 18% 3% nm nm Operating4 2020 2019 Change5 Adjusted Operating Revenues $2,224.5 $2,042.2 Adjusted Net Operating Income $391.6 $358.4 Diluted Adjusted Operating Income Per Share1 $9.70 $8.43 Adjusted Net Operating Income Return on Adjusted Stockholders’ Equity 24.7% 23.5% 9% 9% 15% nm 1 Percent change in per share calculations is calculated prior to rounding per share amounts 2 Share count reflects outstanding common shares and excludes restricted stock units (RSUs) 3 Debt-to-capital is that of the parent company only. Capital in the debt-to-capital ratio includes stockholders’ equity and the note payable 4 A reconciliation of GAAP results to operating results can be found on our website at https://investors.primerica.com 5 Certain variances are noted as “nm” to indicate not meaningful ON THE COVER: Primerica representative Angie Reed Hogans of Atlanta, GA uses virtual meeting tools and other technology innovations to stay in touch with her clients. What we experienced in 2020 was nothing short of unprecedented: unprecedented loss, unprecedented disruption, and the unprecedented need for Primerica. , 7 0 9 4 3 2 1 2 5 0 3 1 , 6 3 7 0 3 1 , 1 2 1 , 6 2 1 7 2 8 6 1 1 , Dear Fellow Stockholders, What we experienced in 2020 was nothing short of unprecedented: unprecedented loss, unprecedented disruption, and the unprecedented need for Primerica. Our hearts go out to those who suffered the loss of a loved one, health, jobs or financial security. These losses created disruptions in the daily lives of families and in their plans for the future. Families reacted to their lack of financial preparation, which created an unprecedented demand for Primerica’s products and business opportunity and drove record business results. Over the past 44 years, Primerica has become a leading provider of financial solutions to middle-income families. We offer valuable financial education to our clients about the importance of protecting income, reducing debt and investing for the future. The products and services we provide have never been more important to the families that we are privileged to serve. Our more than 134,000 independent life insurance licensed representatives and 2,800 employees remain steadfast in our long-standing commitment to a single mission: creating financially independent families. The power of our distribution model is rooted in our sales force and their concern for clients. We ended 2020 with 134,9071 life insurance- licensed representatives and 25,859 securities licensed representatives who remain singularly focused on helping our clients achieve their financial objectives. Their focus and accomplishments made this one of our most successful years in business. 1 Due to COVID-19, various states enacted special licensing measures. The number of life insurance representatives at year-end includes 3,597 licenses issued on a temporary basis and 2,508 licenses with extended renewal dates. 90k 2016 2017 2018 2019 2020 I ) D O R E P F O D N E ( E C R O F S E L A S D E S N E C L - E C N A R U S N I I I E F L F O E Z S I 2020 RECORDS 400,345 NEW RECRUITS $109 Billion NEW FACE AMOUNT ISSUED $859 Billion TERM FACE AMOUNT IN FORCE $7.8 Billion INVESTMENT & SAVINGS PRODUCTS SOLD $82 Billion CLIENT ASSET VALUES “We are so proud to be able to give our clients a way to change their financial future for the better. Knowing that you work with a company that follows through on their promises to their clients is priceless.” LORENZO CARRION & DANIELA ALMARAZ The People at the Heart of Primerica The leadership, diversity and reach of positioned to educate clients by helping our sales force is the key to our success. them understand the appropriate level Our unique business model allows our of protection needed and assist them in representatives to successfully educate and creating a financial strategy. serve middle-income families in the U.S. and Canada who are often overlooked by other traditional institutions. Our home office employees also play an important role in the company’s success. Our business continuity plans allowed us to For so many families across North America respond quickly to the pandemic and pivot and beyond, COVID-19 revealed the to a remote work setting in a matter of days, weaknesses in their financial game plan which helped maintain a high service level and the instability of their career outlook. for clients and our sales force. Through our sales force, we were perfectly Straightforward Solutions for Middle-Income Families The pandemic has illuminated the gaps that and recognized asset management firms exist in life insurance coverage for too many families across North America. Research2 in the industry. Our products are simple to understand and are presented by our sales shows that the “protection gap,” the amount force with a focus on education, so that our of life insurance needed but not in force, in clients make informed purchase decisions. the United States could be as large as $25 trillion, half of which is estimated to be in the middle market. In 2020, after a successful pilot period, our mortgage distribution business expanded to five states, enabling us to address the As the #2 issuer of term life insurance needs of clients seeking to consolidate debt. coverage in North America, we have the While still small, this program offers clients breadth and scope to reach middle-income the opportunity to lower interest rates and families. We firmly believe that term life accelerate repayment of debt. We expect insurance offers the best income protection to continue to enlarge our footprint in at the most affordable price, which is why 2021, and as of the writing of this letter we it is the only type of coverage we sell. are doing business in eight states. We will We also offer mutual funds, annuities and continue to explore other product options managed accounts, which are professionally that complement our current solutions and managed by some of the most respected meet client needs. 2 Swiss Re Institute: “Life Underinsurance in the U.S.: Bridging the USD $25 Trillion Mortality Protection Gap,” September 21, 2018.. 7 5 9 $ 2 6 8 $ . . 1 6 7 $ 3 3 7 $ . . 9 5 4 $ 6 8 3 $ 6 6 3 $ 0 5 3 $ 4 2 3 $ 9 1 2 $ 2016 2016 2017 2018 2019 2020 2016 2016 2017 2018 2019 2020 Second Largest Issuer OF TERM LIFE INSURANCE IN NORTH AMERICA Mike and Rosie Harris of San Antonio, TX have been clients of Primerica representative David Lipsit since 2000. David helped them get on track for a better financial future. DAVID & VANESSA LIPSIT DILUTED EARNINGS PER SHARENET INCOME ($ IN MILLIONS)CAGRCAGR20%15%EarningsIncomeMany Primerica representatives like René Turner quickly pivoted to using new and innovative technology tools that help keep their businesses moving forward. Looking Ahead Our leading-edge technology is a strength through websites, social media and print. we will leverage for future support of our During 2021, we will continue to make better sales force and clients. Our business is use of technology to enhance the client capable of end-to-end electronic processing experience and allow our sales force to be and communication. Web-conferencing more productive. tools allow for efficient digital client interaction, while our TurboApp technology is designed to submit digital applications and capture remote electronic signatures. We set a positive tone early in 2021 through a series of kickoff events that allowed us to engage with the most senior leaders in our sales force. Delivered virtually this year, Our advanced communications tools allow our message cast a powerful vision for the us to provide direction to the sales force year ahead and generated excitement to via our broadcast TV capabilities, as well as increase momentum. 9 0 1 $ PRIMERICA IS ONE OF ONLY A FEW COMPANIES IN HISTORY TO CROSS OVER $100 BILLION OF DIRECT- WRITTEN TERM FACE AMOUNT ISSUED IN A SINGLE YEAR. 6 9 $ 5 9 $ 4 9 $ $728 $100 BILLION 0 9 $ $80 2016 2017 2018 2019 2020 . 5 7 $ . 8 7 $ . 0 7 $ . 2 6 $ $52 . 6 5 $ $4 2016 2017 2018 2019 2020 $82INVESTMENT & SAVINGS PRODUCTS SALES AND CLIENT ASSET VALUES ($ IN BILLIONS)SalesEnding Assets$859TERM LIFE INSURANCE FACE AMOUNT ($ IN BILLIONS)Annual IssuedIn Force Creating Value for Our Stakeholders Since 1977, Primerica has embraced is comprised of 380 companies across having a sales force and an employee 11 sectors; representing 44 countries base that reflects the diverse population and regions. This is Primerica’s second that we serve. We continually work consecutive year to be included in the to foster an environment of diversity, Bloomberg index. equality and inclusion, which results in a collaborative culture with our employees. This commitment to our people has helped Primerica earn multiple awards, with the most recent honor of earning the 2021 “Top Workplaces USA” recognition. We placed fifth in the Financial Services category and third in the “Top Leader” category for a company of our size. Our business success is reflected in our 2020 financial results with 9% growth in adjusted operating revenues and 15% growth in diluted adjusted operating EPS year-over- year. As shown in the chart below, total stockholder return over the last five years was 200% compared to 56% for the S&P 500 Insurance Index. In 2020, we returned 76% of our adjusted operating earnings Primerica was also included in the 2021 to stockholders through a combination of Bloomberg Gender-Equality Index, which share repurchases and quarterly dividends. 56% 200%201620152017201820192020TOTAL STOCKHOLDER RETURN VS. THE S&P 500 INSURANCE INDEXS&P 500 Insurance IndexPrimerica, Inc.COMPANY RECOGNITION USA 3RD | TOP LEADER 5TH | FINANCIAL SERVICES 2ND CONSECUTIVE YEAR Primerica continues to foster an environment of growth, leadership and success within the home office. Shanthala Rao began her Primerica career in 2001 and currently works in Information Technology. We demonstrated our resilience throughout the COVID-19 disruptions in 2020 and we are a stronger company as a result of working together through these challenges. The pandemic cast a spotlight on the need for middle-income families to prepare for the unexpected and the Primerica team is positioned to meet clients’ financial needs in 2021 and beyond. We look forward to continuing our positive impact on the lives of our clients, our representatives and our stockholders in the future. Thank you for your commitment to Primerica. GLENN J. WILLIAMS CHIEF EXECUTIVE OFFICER Board of Directors LEFT TO RIGHT: John A. Addison, Jr., Gary L. Crittenden, Beatriz R. Perez, Joel M. Babbit, Glenn J. Williams, P. George Benson, Cynthia N. Day, C. Saxby Chambliss, Barbara A. Yastine, D. Richard Williams, Sanjeev Dheer UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 OR For the transition period from to Commission File Number: 001-34680 Primerica, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 1 Primerica Parkway Duluth, Georgia (Address of principal executive offices) 27-1204330 (I.R.S. Employer Identification No.) 30099 (ZIP Code) Title of each class Common Stock Registrant’s telephone number, including area code: (770) 381-1000 Securities registered pursuant to Section 12(b) of the Act: Trading Symbol(s) PRI Securities registered pursuant to Section 12(g) of the Act: None Name of each exchange on which registered New York Stock Exchange Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. È Yes ‘ No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ‘ Yes È No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. È Yes ‘ No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). È Yes ‘ No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer È Non-accelerated filer ‘ ‘ Accelerated filer Smaller reporting company ‘ Emerging growth company ‘ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. È Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ‘ Yes È No The aggregate market value of the voting common equity held by non-affiliates of the registrant as of June 30, 2020, was $4,603,734,941. The number of shares of the registrant’s Common Stock outstanding at February 28, 2021, with $0.01 par value, was 39,344,207. Documents Incorporated By Reference Certain information contained in the Proxy Statement for the Company’s Annual Meeting of Stockholders to be held on May 12, 2021 is incorporated by reference into Part III hereof. TABLE OF CONTENTS PART I Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Item 3. Item 4. Properties Legal Proceedings Mine Safety Disclosures Item X. Information About Our Executive Officers and Certain Significant Employees PART II Item 5. Item 7. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Item 9. Financial Statements and Supplementary Data Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accounting Fees and Services PART IV Item 15. Exhibits, Financial Statement Schedules Signatures Page 1 1 31 52 52 53 53 54 57 57 59 88 90 147 147 149 150 150 151 151 152 152 153 153 170 CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS Investors are cautioned that certain statements contained in this report as well as some statements in periodic press releases and some oral statements made by our officials during our presentations are “forward-looking” statements. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain the words “expect”, “intend”, “plan”, “anticipate”, “estimate”, “believe”, “will be”, “will continue”, “will likely result”, and similar expressions, or future conditional verbs such as “may”, “will”, “should”, “would”, and “could”. In addition, any statement concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible actions taken by us or our subsidiaries are also forward- looking statements. These forward-looking statements involve external risks and uncertainties, including, but not limited to, those described under the section entitled “Risk Factors” included herein. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to a variety of risks and uncertainties, many of which are beyond the control of our management team. All forward-looking statements in this report and subsequent written and oral forward- looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by these risks and uncertainties. These risks and uncertainties include, among others: • our failure to continue to attract new recruits, retain sales representatives or license or maintain the licensing of sales representatives would materially adversely affect our business, financial condition and results of operations; • there are a number of laws and regulations that could apply to our distribution model, which could require us to modify our distribution structure; • • • there may be adverse tax, legal or financial consequences if the independent contractor status of sales representatives is overturned; the Company’s or the independent sales representatives’ violation of, or non-compliance with, laws and regulations and related claims and proceedings could expose us to material liabilities; any failure to protect the confidentiality of client information could adversely affect our reputation and have a material adverse effect on our business, financial condition and results of operations; • we may face significant losses if our actual experience differs from our expectations regarding mortality or persistency; • our insurance business is highly regulated, and statutory and regulatory changes may materially adversely affect our business, financial condition and results of operations; • • • a decline in the regulatory capital ratios of our insurance subsidiaries could result in increased scrutiny by insurance regulators and ratings agencies and have a material adverse effect on our business, financial condition and results of operations; a significant ratings downgrade by a ratings organization could materially adversely affect our business, financial condition and results of operations; the failure by any of our reinsurers or reserve financing counterparties to perform its obligations to us could have a material adverse effect on our business, financial condition and results of operations; • our Investment and Savings Products segment is heavily dependent on mutual fund and annuity products offered by a relatively small number of companies, and, if these products fail to remain competitive Primerica 2020 Annual Report i CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS • • • with other investment options or we lose our relationship with one or more of these companies, our business, financial condition and results of operations may be materially adversely affected; the Company’s or the securities-licensed sales representatives’ violations of, or non-compliance with, laws and regulations could expose us to material liabilities; if heightened standards of conduct or more stringent licensing requirements, such as those adopted by the Securities and Exchange Commission and those proposed or adopted by the Department of Labor, state legislatures or regulators or Canadian securities regulators, are imposed on us or the sales representatives, or selling compensation is reduced as a result of new legislation or regulations, it could have a material adverse effect on our business, financial condition and results of operations; if our suitability policies and procedures, or our policies and procedures for compliance with federal or state regulations governing standards of care, were deemed inadequate, it could have a material adverse effect on our business, financial condition and results of operations; • non-compliance with applicable regulations could lead to revocation of our subsidiary’s status as a non-bank custodian; • licensing requirements will impact the size of the mortgage loan sales force; • our U.S. mortgage distribution business is highly regulated and subject to various federal and state laws, changes in which could affect the cost or our ability to distribute our products and could materially adversely affect our business, financial condition and results of operations; • the effects of economic down cycles could materially adversely affect our business, financial condition and results of operations; pandemic, or other catastrophic events, could materially adversely impact our business, financial condition and results of operations; in the event of a disaster, our business continuity plan may not be sufficient, which could have a material adverse effect on our business, financial condition and results of operations; if one of our, or a third-party partner’s, significant information technology systems fails, if its security is compromised, or if the Internet becomes disabled or unavailable, our business, financial condition and results of operations may be materially adversely affected; the current legislative and regulatory climate with regard to cybersecurity may adversely affect our business, financial condition, and results of operations; credit deterioration in, and the effects of interest rate fluctuations and changes to benchmark reference interest rates on, our invested asset portfolio and other assets that are subject to changes in credit quality and interest rates could materially adversely affect our business, financial condition and results of operations; valuation of our investments and the determination of expected credit losses when the fair value of our available-for-sale invested assets is below amortized costs are both based on estimates that may prove to be incorrect; changes in accounting standards can be difficult to predict and could adversely impact how we record and report our financial condition and results of operations; the inability of our subsidiaries to pay dividends or make distributions or other payments to us in sufficient amounts would impede our ability to meet our obligations and return capital to our stockholders; • • • • • • • • major public health pandemics, epidemics • we are subject to various federal, state and or outbreaks, specifically, the novel coronavirus COVID-19 (“COVID-19”) provincial laws and regulations in the United States and Canada, changes in which or ii CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS violations of which may require us to alter our business practices and could materially adversely affect our business, financial condition and results of operations; the current legislative and regulatory climate with regard to financial services may adversely affect our business, financial condition, and results of operations; litigation and regulatory investigations and actions may result in financial losses and harm our reputation; a significant change in the competitive environment in which we operate could negatively affect our ability to maintain or increase our market share and profitability; the loss of key employees could negatively affect our financial results and impair our ability to implement our business strategy; • • • • • we may be materially adversely affected by currency fluctuations in the United States dollar versus the Canadian dollar; • any acquisition, of or investment in, businesses that we may undertake that does not perform as we expect or that is difficult for us to integrate could materially adversely impact our business, financial condition and results of operations; and • the market price of our common stock may fluctuate. Developments in any of these areas could cause actual results to differ materially from those anticipated or projected or cause a significant reduction in the market price of our common stock. The foregoing list of risks and uncertainties may not contain all of the risks and uncertainties that could affect us. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report may not in fact occur. Accordingly, undue reliance should not be placed on these statements. We undertake no obligation to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise, except as otherwise required by law. Primerica 2020 Annual Report iii PART I ITEM 1. BUSINESS. Primerica, Inc. (“Primerica”, “we”, “us” or the “Parent Company”) is a leading provider of financial products to middle-income households in the United States and Canada with 134,907 licensed sales representatives as of December 31, 2020. These independent licensed representatives (“sales representatives” or “sales force”) assist our clients in meeting their needs for term life insurance, which we underwrite, and mutual funds, annuities, managed investments and other financial products, which we distribute primarily on behalf of third parties. We insured over 5.5 million lives and had approximately 2.6 million client investment accounts as of December 31, 2020. Our business model uniquely positions us to reach underserved middle-income consumers in a cost-effective manner and has proven itself in both favorable and challenging economic environments. Our mission is to serve middle-income families by helping them make informed financial decisions and providing them with a strategy and tools to gain financial independence. Our distribution model is designed to: • Address our clients’ financial Licensed sales representatives needs. primarily use our proprietary financial needs analysis tool (“FNA”) and an educational approach to demonstrate how our product offerings can provide financial protection for our clients’ families, save for their retirement and other needs, and manage their debt. Typically, our clients are the friends, family members and personal acquaintances of sales representatives. Meetings are generally held in informal, face-to-face settings either in person or through remote communication tools, usually while clients are in their homes. • Provide a business opportunity. We provide an entrepreneurial business opportunity for individuals to distribute financial products. Low entry fees as well as the ability to select their own schedules and time commitments allow sales representatives to supplement their income by starting their own independent businesses without leaving their current jobs. Our unique compensation structure, technology, sales support and back-office processing are designed to enable sales representatives to successfully grow their independent businesses. We believe there is significant opportunity to meet the increasing array of financial services needs of our clients. We intend to leverage the sales force to meet such client needs, which will drive long-term value for all of our stakeholders. Our strategy is organized across four primary areas: • Maximizing sales force growth, leadership and productivity; • Broadening and strengthening our protection product portfolio; • Providing offerings that enhance our Investment and Savings Products (“ISP”) business; and • Developing digital capabilities to deepen our client relationships. CorporateStructure We conduct our core business activities in the United States through three principal entities, all of which are direct or indirect wholly owned subsidiaries of the Parent Company: • Primerica Financial Services, LLC (“PFS”), our general agency and marketing company; • Primerica Life Insurance Company (“Primerica Life”), our principal life insurance underwriting company; and • PFS Investments Inc. (“PFS Investments”), our investment and savings products company, broker-dealer and registered investment advisor. Primerica Life is domiciled in Tennessee, and its wholly owned subsidiary, National Benefit Life Primerica 2020 Annual Report 1 ITEM 1. BUSINESS Insurance Company (“NBLIC”), domiciled life insurance underwriting company. is a New York- We conduct our core business activities in Canada through three principal entities, all of which are indirect wholly owned subsidiaries of the Parent Company: • Primerica Life Insurance Company of Canada (“Primerica Life Canada”), our Canadian life insurance underwriting company; • PFSL Investments Canada Ltd. (“PFSL Investments Canada”), our Canadian licensed mutual fund dealer; and • PFSL Fund Management Ltd. (“PFSL Fund Management”), our Canadian investment funds manager. Primerica was incorporated in the United States as a Delaware corporation in October 2009 to serve as a holding company for the Primerica businesses (collectively, the “Company”). Our businesses, which prior to April 1, 2010, were wholly owned indirect subsidiaries of Citigroup Inc. (“Citigroup”), were transferred to us by Citigroup on April 1, 2010 in a reorganization pursuant to which we completed an initial public offering in April 2010 (the “IPO”). On March 31, 2010, we entered into certain coinsurance transactions to cede between 80% and 90% of the risks and rewards of our term life insurance policies that were in force at year-end 2009. We administer all policies subject to these coinsurance agreements. OurClients Our clients are generally middle-income consumers, which we define as households with $30,000 to $100,000 of annual income. According to the 2019 U.S. Census Bureau Current Population Survey, the latest period for which data is available, almost 50% of U.S. households fall in this range. We believe that we understand the financial needs of the middle- income segment, which include: • Many have inadequate or no life insurance coverage. Individual life insurance sales in the United States declined from 12.5 million 2 policy sales in 1975 to 9.4 million policy sales in 2019, the latest period for which data is available, according to LIMRA, a worldwide association of insurance and financial services companies. We believe that term life insurance, which we have provided to middle-income clients for many years, is generally the best option for them to meet their life insurance needs. • Many need help saving for retirement and other personal goals. Many middle-income families find it challenging to save for retirement and other personal goals. By developing personalized savings programs for our clients using our proprietary FNA and offering a wide range of mutual funds, annuities, managed investments and segregated fund products sponsored and managed by established firms, sales representatives are well equipped to help clients develop long-term savings plans to address their financial needs. We allow our clients to establish monthly contributions to investment savings plans with as little as $25 per month. • Many need to reduce their debt. Many middle-income families have numerous debt obligations from credit cards, auto loans, and home mortgages. We help our clients address these financial burdens by providing personalized and client-driven debt resolution techniques. • Many prefer to meet face-to-face when considering financial products. Historically, many middle-income consumers have indicated a preference to meet face-to-face when considering financial products or services. As such, we have designed our distribution model to address this preference in a cost-effective manner through a network of more than 134,000 life insurance-licensed sales representatives. Due to the COVID-19 pandemic, in-person meetings with clients were limited during 2020. Our life-licensed representatives have pivoted to the use of remote communication tools to readily meet our clients’ desire for digital face-to-face meetings. OurDistributionModel Our distribution model, which is a modified traditional insurance agency model, is designed to reach and serve middle-income consumers efficiently through the sales force. Key characteristics of our unique distribution model include: • • • Sales Independent entrepreneurs: representatives are independent contractors building and operating their own businesses. This approach means that sales representatives are entrepreneurs who take responsibility for selling products, recruiting and developing other sales representatives, setting their own schedules and managing and paying the administrative expenses associated with their sales activities. Low barriers to entry: By offering a flexible time commitment opportunity, we are able to attract a significant number of recruits who desire to earn supplemental income and generally concentrate on smaller-sized transactions typical of middle-income consumers. Sales representatives are able to start their independent businesses for low fees, for which they receive technological support, pre-licensing training and access to licensing examination preparation programs. Sales representatives sell or refer products directly to consumers, and therefore our business opportunity does not require recruits to purchase and resell our products. Most sales representatives begin selling products on a part-time basis, which enables them to hold jobs while exploring an entrepreneurial business opportunity with us. Sales force leadership: A sales representative who has built a successful organization and has obtained his or her life insurance and securities licenses can achieve the sales designation of Regional Vice President (“RVP”), which qualifies him or her for a higher commission schedule. RVPs are independent contractors who open and operate offices for their sales organizations and devote their full-time attention to their businesses. RVPs also support and monitor the sales representatives, on whose sales ITEM 1. BUSINESS • • they earn commissions, in achieving compliance with applicable regulatory requirements. RVPs’ efforts to expand their businesses are a primary driver of our success. Innovative compensation structure: We have developed an innovative system for compensating the sales force that is contingent upon product sales. We advance to sales representatives a significant portion of their insurance commissions, which are subject to chargebacks, upon their submission of an insurance application and the first month’s premium payment. In addition to being a source of motivation, this advance provides sales representatives with immediate cash flow to offset their costs. In addition, monthly production bonuses are paid to RVPs whose sales organizations meet certain sales levels. With compensation tied to sales activity, our approach accommodates varying degrees of individual productivity, which allows us to effectively use a large group of part-time sales representatives while providing a variable cost structure. In addition, we incentivize RVPs with quarterly stock awards based largely on sales production (“agent equity awards”), which aligns their interests with those of our stockholders. Large, dynamic sales force: Members of the sales force primarily serve their friends, family members and personal acquaintances through individually driven networking activities. We believe that this warm market approach is an effective way to distribute our product offerings because it facilitates face-to-face interaction initiated by a trusted acquaintance of the prospective client, which is difficult to replicate using other distribution approaches. Due to the large size of the sales force and the active recruiting of new sales representatives, the sales force is able to continually access an expanding base of prospective clients without engaging costly media channels. Primerica 2020 Annual Report 3 ITEM 1. BUSINESS • Motivational culture: In addition to the motivation for sales representatives to achieve financial success, we seek to create a culture that inspires and rewards sales representatives for their personal successes and those of their sales organizations through sales force recognition events and contests. We also use Intranet-streamed broadcasts and local, regional and national meetings to inform and teach sales representatives, as well as facilitate camaraderie and the exchange of ideas across the sales force. These initiatives encourage and empower sales representatives to develop their own successful sales organizations. • Building and maintaining Inclusive culture: an ethnically and demographically diverse sales force is important to us, as we believe the sales force reflects the middle market communities we serve. As the communities we serve become more diverse, the sales force does as well. StructureandScalabilityoftheSales Force New sales representatives are recruited by existing sales representatives. When these new recruits become sales representatives, they become part of the sales organization of the sales representative who recruited them as well as the sales organizations to which the recruiting sales representative belongs. We encourage sales representatives to bring in new recruits to build their own sales organizations, enabling the Company to reach more middle-income families. RVPs establish and maintain their own offices, which we refer to as field offices. Additionally, they are responsible for funding the costs of their administrative staff, marketing materials, travel, training and certain recognition events for the sales representatives in their respective sales organizations. Field offices provide a location for sales representatives to conduct recruiting meetings, training events and sales-related meetings, disseminate our Intranet-streamed 4 broadcasts, conduct compliance functions, and house field office business records. Some business locations house more than one field office. At December 31, 2020, approximately 5,500 field offices in 3,000 locations were managed by sales representatives that served as RVPs. Due to the COVID-19 pandemic, in-person meetings were limited during 2020. Many meetings and functions of field offices have been performed using remote communication tools. RVPs play a major role in training, motivating and monitoring their sales force organization. Because the sales representative’s compensation grows with the productivity of his or her sales organization, our distribution model provides financial rewards to sales representatives who successfully develop, support and monitor productive sales representatives. In addition to our commission structure, we offer the Primerica Ownership Program. This program provides qualifying RVPs a contractual right, upon meeting certain criteria, to transfer their Primerica businesses to another RVP or a qualifying family member at such time as they desire. Furthermore, we have developed proprietary tools and technology to enable RVPs to reduce the time spent on administrative responsibilities associated with their sales organizations so they can devote more time to the sales, recruiting and training activities that drive our growth. We believe that our tools and technology, coupled with our sales compensation programs, further incentivize sales representatives to become RVPs. Both the structure of the sales force and the capacity of our support capabilities provide us with a high degree of scalability as we grow our business. Our support systems and technology are capable of supporting a large sales force and a high volume of transactions. In addition, by sharing training and compliance activities with RVPs, we are able to grow the Company without incurring proportionate overhead expenses. RecruitmentofSalesRepresentatives The recruitment of sales representatives is undertaken by existing sales representatives, who identify prospects and share with them the benefits of associating with our organization. Sales representatives showcase the Company as dynamic and capable of improving the lives of middle-income families. After the initial contact, prospective recruits typically are invited to an opportunity meeting, conducted in person or through remote communication tools, which is conducted by an RVP. The objective of an opportunity meeting is to inform prospective recruits about our mission and their opportunity to start their own businesses by becoming sales representatives. At the conclusion of each opportunity meeting, attendees who are interested are asked to complete an application and pay a nominal fee to commence their pre-licensing training and licensing examination preparation programs and, depending on the state or province, to cover their licensing exam registration costs, which are provided by the Company generally at no additional charge. Recruits are not obligated to purchase any of the products we offer in order to become sales representatives, though they may elect to make such purchases. Recruits may become our clients or provide us with access to their friends, family members and personal acquaintances. As a result, we Number of new recruits ITEM 1. BUSINESS continually work to improve our systematic approach to recruiting and training new sales representatives. Similar to other distribution systems that rely upon part-time sales representatives and typical of the life insurance industry in general, we experience wide disparities in the productivity of individual sales representatives. Many new recruits do not get licensed, often due to the time commitment required to obtain licenses and various regulatory and licensing hurdles. Many licensed sales representatives are only marginally active, as there are no minimum life insurance production requirements. As a result, we plan for this disparate level of productivity and view a continuous recruiting cycle as a key component of our distribution model. Our distribution model is designed to address the varying productivity associated with sales representatives by paying production-based compensation, emphasizing recruiting, and developing initiatives to address barriers to licensing new recruits. By providing commissions to sales representatives on the sales generated by their sales organization, our compensation structure aligns the interests of sales representatives with our interests in recruiting new representatives and creating sustainable sales production. The following table provides information on new recruits and life insurance-licensed sales representatives: Year ended December 31, 2020 2019 2018 400,345 282,207 290,886 Number of newly life insurance-licensed sales representatives 48,106 44,739 48,041 Number of life insurance-licensed sales representatives, at period end(1) 134,907 130,522 130,736 Average number of life insurance-licensed sales representatives during period 133,302 130,370 128,977 (1) Number of life insurance-licensed sales representatives, at December 31, 2020 includes 3,597 temporary licenses that were issued in response to the COVID-19 pandemic and 2,508 licenses that were extended due to the COVID-19 pandemic. We define new recruits as individuals who have submitted an independent business application to become sales representatives together with payment of the nominal fee to commence their pre-licensing training. Certain recruits may not meet the compliance standards to become a sales representative, and others elect to withdraw prior to becoming actively engaged. Primerica 2020 Annual Report 5 ITEM 1. BUSINESS On average, it takes approximately three months for sales representatives to complete the necessary applications and pre-licensing coursework and to pass the applicable state or provincial examinations to obtain a license to sell our term life insurance products. Challenges associated with the COVID-19 pandemic led to a temporary suspension of in-person licensing preparation classes and the temporary closing of examinations centers, both of which led to representatives taking additional time to complete the licensing process in 2020. As a result, individuals recruited to become sales representatives within a given fiscal period may not become licensed sales representatives or meet compliance standards until a subsequent period. SalesForceMotivation,Training, CommunicationandSalesSupport Tools Motivating, training and communicating with the sales force are critical to our success and that of the sales force. Through our proven system of Motivation. sales force recognition events, contests and communications, we provide incentives that drive our results. Motivation is driven largely by sales representatives’ desire to achieve higher levels of financial success by building their own businesses as sales representatives. The opportunity to help underserved middle-income households address financial challenges is also a source of motivation for many sales representatives. We motivate sales representatives to succeed in their businesses by: compensating sales representatives for product sales made by them and their sales organizations; training sales representatives on financial fundamentals so they can confidently and effectively assist our clients; reducing the administrative burden on the sales force, which allows them to devote more of their time to building a sales organization and selling products; • • • 6 • • creating a culture in which sales representatives are encouraged to achieve goals through the recognition of their sales and recruiting achievements, as well as those of their sales organizations; and conducting numerous local, regional and national meetings to help inform and motivate the sales force. We have historically hosted a biennial international convention. In previous years, tens of thousands of sales representatives, including new recruits, have attended our conventions and associated meetings at their own expense, which we believe further demonstrates their commitment to our organization and mission. In July 2021, we planned to host our biennial international convention and associated meetings. However, due to the current level of uncertainty related to the COVID-19 pandemic and the social-distancing requirements that might still be in place, we have made the decision to reschedule the biennial international convention to the summer of 2022. Primerica Online (“POL”), delivered Training, Communication and Sales Support Tools. through a secure Intranet website and a cross- platform mobile application (“Primerica App”), is our primary tool designed to support sales representatives and assist them in building their own businesses. We provide sales representatives with communication, training, and sales support tools on POL that allow both new and experienced sales representatives to offer financial information and products to our clients. POL provides sales representatives with access to various business tracking and management tools, licensing support tools, product-specific training, and sales procedures and tools. Additionally, POL provides access to internal training programs and videos covering sales, management skills, business ownership, and compliance. We also use POL to provide real-time recognition of sales representatives’ successes and scoreboards for sales force production, contests, and incentive trips. In addition, POL is a gateway to our product providers and product support. Subscribers generally pay a small monthly fee to subscribe to POL, which helps cover the cost of developing new resources and maintaining this support system. A limited version of POL that provides access to Primerica e-mail, compliance and compensation information, newsletters and bulletins is available at no cost. The primary features and tools available on POL include: • Training and Licensing Tools: POL provides sales representatives with access to study tools for life insurance and securities licensing examinations such as pre-licensing study materials, on-demand videos, personalized licensing study plans, exam simulators, progress tracking, and exam and license registration. POL also provides training materials and access to obtain online certifications to sell certain other distributed products. • Communication Tools: POL provides access to marketing materials for our product offerings, Company news and events, live streaming shows, on-demand videos, home office bulletins, Primerica e-mail, contact lists, and a hosted professional business website for sales representatives. We broadcast and deliver video content on POL through our own digital video channel, PFN TV. We create original broadcasts and videos that enable senior management to provide business updates to the sales force as well as training and motivational presentations. We broadcast live programs hosted by home office management and selected RVPs that focus on new developments and provide motivational messages to the sales force. We also broadcast training-oriented programs to the sales force on a weekly basis and profile successful sales representatives, allowing these individuals to educate and train other sales representatives by sharing their methods for success. • Sales Support and Client Management Tools offered through POL: – Our Financial Needs Analysis: Our FNA is a proprietary, needs-based analysis ITEM 1. BUSINESS tool. The FNA gives sales representatives the ability to collect and synthesize client financial data and develop a financial analysis for the client that is easily understood. The FNA helps our clients understand their financial needs in the areas of debt, financial protection, and savings as well as introduces prudent financial concepts, such as regular saving and accelerating the repayment of high cost credit card debt, to help them reach their financial goals. The FNA also provides clients with a snapshot of their current financial position and identifies their life insurance, savings and debt resolution needs. – Our Point-of-Sale Application Tool: Our point-of-sale technology, TurboApps, is an internally developed system that streamlines the application process for our insurance and investment products. These applications automatically populate client information from the FNA to eliminate redundant data collection and provide real-time feedback to eliminate incomplete and illegible applications. Integrated with our paperless field office management system described below and with our home office systems, TurboApps allows RVPs and us to realize the efficiencies of straight-through-processing of application data and other information collected on sales representatives’ mobile devices, which results in expedited processing of product sales. TurboApps also features EZ-Key, which is a tool that helps sales representatives guide clients through the investment decision process and ultimately provides investment alternatives based on the client’s individual situation. TurboApps is available on the sales representatives’ portal, POL and our mobile platform, the Primerica App. – Primerica App: The mobile Primerica App platform has experienced broad adoption and provides the sales force with access to the critical components Primerica 2020 Annual Report 7 ITEM 1. BUSINESS needed to start, build and maintain their businesses. We continually enhance and expand the scope and resources available in this strategic platform. – Virtual Base Shop: In an effort to ease the administrative burden on RVPs and simplify sales force operations, we make available to RVPs a secure Intranet- based paperless field office management system as part of the POL subscription. This virtual office is designed to automate the RVP’s administrative responsibilities and can be accessed by subscribing sales representatives in an RVP’s immediate sales organization, which we refer to as his or her base shop. – Shareholder Account Manager (“SAM”): SAM is a web-based tool that allows securities-licensed sales representatives to service client investments in mutual funds accessed through our transfer agent recordkeeping platform. – Client Relationship Manager (“CRM”): Our CRM tool allows sales representatives and their RVPs to organize client information, such as personal contact information, product relationships, account details, notes, appointments, follow-ups, and marketing campaigns, in one place to enable fast and convenient access for managing client relationships. In addition, our publications department produces materials to support, motivate and inform the sales force. We sell recruiting materials, sales brochures, business cards and stationery and provide communications services that include web design, print presentations, graphic design and script writing. We also produce a weekly mailing that includes materials promoting our current incentives, as well as the latest news about our product offerings. Performance-BasedCompensation Structure Our commission structure is rooted in our origin 8 as an insurance agency. Sales representatives, who are independent contractors, can receive compensation in multiple ways, including: • • sales commissions and fees based on their personal sales, referrals, and client assets under management; sales commissions based on sales and referrals by sales representatives in their sales organizations and fees based on client assets under management in their sales organizations; and • bonuses and other compensation, including agent equity awards, generated by their own sales performance, the aggregate sales performance of their sales organizations and other criteria. Our compensation structure pays commissions to the sales representative who sells the product and to several representatives above the selling representative within their sales organization. With respect to term life insurance sales, commissions are calculated based on the total first-year premium (excluding the policy fee) for all policies and riders. To motivate the sales force, we compensate sales representatives for term life insurance product sales as quickly as possible. We advance a majority of the insurance commission upon the submission of a completed application and the first month’s premium payment. As the client makes his or her premium payments, the commission is earned by the sales representative and the commission advance is recovered by the Company. If premium payments are not made by the client and the policy terminates, any outstanding advance commission is charged back to the sales representative. The chargeback, which only occurs in the first year of a policy, equals that portion of the advance that was made, but not earned, by the sales representative because the client did not pay the full premium for the period of time for which the advance was made to the sales representative. Chargebacks, which occur in the normal course of business, may be recovered by reducing any cash amounts otherwise payable by the Company to the sales representative. Sales representatives and representatives above them in their sales organizations are contractually obligated to repay us any commission advances that are ultimately not earned due to the underlying policy lapsing prior to the full commission being earned. Additionally, we hold back a portion of the commissions earned by sales representatives as a reserve out of which we may recover chargebacks. The amounts held back are referred to as deferred compensation account commissions (“DCA commissions”). DCA commissions are available to reduce amounts owed to the Company by sales representatives and they provide a sales representative with a cushion against the chargeback obligations of representatives in their sales organization. DCA commissions, unless applied to amounts owed, are ultimately released to sales representatives. We pay most term life insurance commissions during the first policy year. One of our term riders provides for coverage increases after the first year. For such riders, we pay first-year and renewal commissions only for premium increases related to the increased coverage. Additionally, we pay renewal commissions on some older in-force policies. At the end of a policy’s level premium paying period, we pay commissions on policy exchanges and bonuses on some policy exchanges and continuations. We also pay bonuses as a percentage of premiums to RVPs with respect to sales of term life policies and riders, up to a maximum premium. Bonuses are paid to RVPs for achieving specified production levels. For most mutual funds (non-managed investments) and annuity products, commissions are paid both on the sale and on the value of assets under management. Commissions are calculated based on the dealer reallowance and trail compensation actually paid to us. For managed investment products, fees earned are based on the assets under management and represent the fee we receive as compensation for as long as we retain the account. For our Canadian segregated fund investment products, we pay sales representatives a sales commission based on the amount invested and a monthly fee based on clients’ asset values. ITEM 1. BUSINESS We also pay the sales force with respect to mortgage originations, sales of prepaid legal services subscriptions, and referrals for customers purchasing other distributed products. Mortgage originations commissions paid to the sales force are earned for each closed mortgage loan based on a fixed percentage of the loan amount. Prepaid legal services commissions paid to the sales force are earned in fixed amounts on a monthly basis as long as the prepaid legal service subscription remains active. Commissions related to other distributed products are calculated based on the type of product sold or referred. In addition to these methods of compensation, RVPs can earn quarterly agent equity awards based largely on sales production. SalesForceLicensingandSupport The states, provinces and territories in which sales representatives operate generally require sales representatives to obtain and maintain licenses to sell our insurance and securities products, requiring sales representatives to pass applicable examinations. Sales representatives may also be required to maintain licenses to sell certain of our other distributed products. To encourage new recruits to obtain their life insurance licenses, we either pay directly or reimburse the sales representative for certain licensing-related fees and expenses once he or she passes the applicable exam and obtains the applicable life insurance license. In addition, new recruits are eligible to earn compensation if they participate in field training observations with experienced sales representatives and complete the licensing process within a specified timeframe. To sell insurance products, sales representatives must be licensed by their resident state, province or territory and by any other state, province or territory in which they do business. In most states, sales representatives must also be appointed by our applicable insurance subsidiary. Our in-house life insurance licensing program offers new recruits a significant number of classroom life insurance pre-licensing courses to meet applicable state and provincial licensing requirements and Primerica 2020 Annual Report 9 ITEM 1. BUSINESS prepares recruits to pass applicable licensing exams. To sell mutual funds and variable annuity products, U.S. sales representatives must be registered with the Financial Industry Regulatory Authority (“FINRA”) and hold the appropriate license(s) designated by each state in which they sell securities products, as well as be appointed by the annuity underwriter in the states in which they market annuity products. Sales representatives must meet all state and federal regulatory requirements and be designated as an investment advisor representative in order to sell our managed investment products. We contract with third-party training firms to conduct securities license exam preparation for sales representatives, and we also offer supplemental training tools. To offer mortgage loan products, sales representatives must be individually licensed as mortgage loan originators by the states in which they do business and, in some states, they must also be individually licensed as mortgage brokers. Canadian sales representatives selling mutual fund products are required to be registered by the securities regulators in the provinces and territories in which they sell mutual fund products. Canadian sales representatives who are licensed to sell our insurance products do not need any further licensing to sell our segregated funds products. For sales of our other distributed products, appropriate state, provincial and territorial licensing may be required. SupervisionandCompliance To ensure compliance with various federal, state, provincial and territorial legal requirements, we and the RVPs share responsibility for maintaining an overall compliance program that involves compliance training and supporting as well as monitoring the activities of sales representatives. We work with the RVPs to develop and maintain appropriate compliance procedures and systems. 10 Generally, RVPs must obtain a principal license (FINRA Series 26 in the United States and Branch Manager license in Canada), and, as a result, they assume additional regulatory responsibility over the activities of their sales organizations. Additional supervision is provided by designated principal-licensed home office personnel, referred to as Regional Securities Principals (“RSPs”). RSPs are required to supervise and monitor activity across all product lines and report any compliance issues they observe to our Compliance Department. In addition, our Compliance Department regularly runs surveillance reports designed to monitor the activity of the sales force and investigates any unusual or suspicious activity identified during these reviews or during periodic inspections of RVP offices. All sales representatives are required to participate, in person or through remote communication tools, in our annual compliance meeting, a program administered by our senior management and our legal and compliance staff. We provide a compliance training overview across all product lines and require the completion of compliance checklists by each licensed sales representative for each product he or she offers. Additionally, sales representatives receive periodic compliance communications, both in writing and through videos, regarding new compliance developments and business issues of significance. Our Field Audit Department regularly conducts audits of all sales representative offices, including scheduled and no-notice audits. Our Field Audit Department reviews regulatory- required records that are not maintained at our home office. Any compliance deficiencies noted in the audit must be corrected, and we carefully monitor all corrective action. Audit deficiencies are addressed through reprimands, probations and contract terminations. OurProductOfferings Reflecting our philosophy of helping middle- income clients with their financial product needs and ensuring compatibility with our distribution model, our product offerings generally meet the following criteria: • Consistent with sound individual finance principles: Products must be consistent with good personal finance principles for middle-income consumers, such as financial protection, encouraging long-term savings and reducing debt. • Designed to support multiple client Products are designed to address goals: and support a broad range of financial goals rather than compete with or cannibalize each other. For example, term ITEM 1. BUSINESS life insurance does not compete with mutual funds because term life insurance has no cash value or investment element. • Ongoing needs based: Products are generally designed to meet the ongoing financial needs of many middle-income consumers. This long-term approach bolsters our relationship with our clients by allowing us to continue to serve them as their financial needs evolve. We use three operating segments to organize, evaluate and manage our business: Term Life Insurance; Investment and Savings Products; and Corporate and Other Distributed Products. The following table provides information on our principal product offerings and the principal sources thereof by operating segment as of December 31, 2020. Operating Segment Term Life Insurance Principal Product Offerings Term Life Insurance Investment and Savings Products Mutual Funds and Certain Retirement Plans Managed Investments Principal Sources of Products (Applicable Geographic Territory) Primerica Life (U.S. (except New York), the District of Columbia and certain territories) NBLIC (New York) Primerica Life Canada (Canada) American Century Investments (U.S.) American Funds (U.S.) Equitable Distributors, LLC (U.S.) Franklin Templeton Investments (U.S. and Canada) Legg Mason Global Asset Management (U.S.) (1) VOYA Financial, Inc. (U.S.) Invesco (U.S. and Canada) AGF Investments (Canada) PFSL Fund Management Ltd. (Canada) Mackenzie Investments (Canada) Fidelity Investments (U.S. and Canada) PFS Investments (dba Primerica Advisors) (as a program sponsor) (U.S.) Variable Annuities American General Life Insurance Company and its affiliates (U.S.) Equitable Distributors, LLC (U.S.) Brighthouse Financial, Inc. (U.S.) Lincoln National Life Insurance Company and its affiliates (U.S.) Fixed Indexed Annuities American General Life Insurance Company and Fixed Annuities its affiliates (U.S.) Lincoln National Life Insurance Company and its affiliates (U.S.) Universal Life Insurance Company (Puerto Rico) Brighthouse Financial, Inc. (U.S.) Universal Life Insurance Company (Puerto Rico) Primerica 2020 Annual Report 11 ITEM 1. BUSINESS Operating Segment Principal Product Offerings (Applicable Geographic Territory) Corporate and Other Distributed Products Employer Sponsored Retirement Plans Segregated Funds Mortgage Loans (2) Prepaid Legal Services ID Theft Defense Supplemental Health and Accidental Death & Disability Insurance Auto and Homeowners’ Insurance (3) Home Automation Solutions (3) American Funds (U.S.) Equitable Distributors, LLC (U.S.) VOYA Financial, Inc. (U.S.) Primerica Life Canada (Canada) Quicken Loans, LLC. (U.S.) B2B Bank (Canada) 8Twelve Mortgage Corp. (Canada) LegalShield (U.S. and Canada) LegalShield (U.S. and Canada) The Edge Benefits Inc. and its affiliates (Canada) Various insurance companies, as offered through Answer Financial, Inc. (U.S.) SurexDirect.com Ltd. (Canada) Vivint, Inc. (U.S.) and Vivint Canada, Inc. (Canada) (1) On July 31, 2020, Franklin Resources, Inc., operating as Franklin Templeton Investment, completed its acquisition of Legg Mason, Inc., the parent company of Legg Mason Global Asset Management. In the U.S., mortgage loans are made by Quicken Loans, LLC. In Canada, representatives can refer mortgage loans to B2B Bank and 8Twelve Mortgage Corp. Referrals only. (2) (3) TermLifeInsurance Through our three life insurance subsidiaries – Primerica Life, NBLIC and Primerica Life Canada – we offer term life insurance to clients in the United States, its territories, the District of Columbia and Canada. In 2019, the latest period for which data is available from LIMRA, we ranked as a leading provider of individual term life insurance in the United States. We believe that term life insurance is generally a better alternative for middle-income clients than cash value life insurance. Term life insurance provides a guaranteed death benefit if the insured dies during the fixed coverage period of an in-force policy, thereby providing financial protection for his or her named beneficiaries in return for the periodic payment of premiums. Term insurance products, which are sometimes referred to as pure protection products, have no savings or investment features. By buying term life insurance rather than cash value life insurance, a policyholder initially pays a lower premium and, as a result, may have funds available to invest for retirement and other 12 needs. We also believe that a person’s need for life insurance is inversely proportional to that person’s need for retirement savings, a concept we refer to as the theory of decreasing responsibility. Young adults with children, new mortgages and other obligations need to buy higher amounts of insurance to protect their family from the loss of future income resulting from the death of a primary bread winner. With its lower initial premium, term life insurance lets young families buy more coverage for their premium dollar when their needs are greatest and still have the ability to have funds for their retirement and other savings goals. We design our term life insurance products to be easily understood by, and meet the needs of, our clients. Clients purchasing our term life insurance products generally seek stable, longer- term income protection products for themselves and their families. In response to this demand, we offer term life insurance products with initial level-premium coverage periods that range from 10 to 35 years and a wide range of coverage face amounts. Policies remain in force until expiration or until the policyholder ceases to make premium payments and terminates the policy. Our in-force term life insurance policies have level premiums for the stated term period. As such, the policyholder pays the same amount each year. After the initial policy term, the policyholder has the option to continue coverage or by renewing or converting their contract. Both options result in higher premiums due to the policyholder’s attained age. One of the innovative term life insurance products that we offer is TermNow, our rapid issue term life product that provides for face amounts of up to $300,000 (local currency). ITEM 1. BUSINESS TermNow allows a sales representative to submit an application via TurboApps and, with the client’s permission, allows the Company to access databases, including Medical Information Bureau (“MIB”) data in the United States and Canada and prescription drug, clinical lab, motor vehicle, and criminal records in the United States, as part of the underwriting process. The Company uses this data and the client’s responses to application questions to determine any additional underwriting requirements. Results of these processes are reported in real time to our underwriting system, which then determines whether or not we can rapidly issue a policy. The average face amount of our in-force policies issued in 2020 was approximately $240,600. The following table sets forth selected information regarding our term life insurance product portfolio: Life insurance issued: Number of policies issued Face amount issued (in millions) Life insurance in force: Number of policies in force Face amount in force (in millions) Pricing and Underwriting. We believe that effective pricing and underwriting are significant drivers of the profitability of our life insurance business and we have established our pricing assumptions to be consistent with our underwriting practices. We set pricing assumptions for expected claims, lapses and expenses based on our experience and other factors while also considering the competitive environment. These other factors include: • expected changes from relevant experience due to changes in circumstances, such as (i) revised underwriting procedures affecting future mortality and reinsurance rates, (ii) new product features, and (iii) revised administrative programs affecting sales Year ended December 31, 2020 2019 2018 352,868 287,809 301,589 $ 109,436 $ 93,994 $ 95,209 December 31, 2020 2019 2018 2,787,992 2,641,483 2,606,825 $ 858,818 $ 808,262 $ 781,041 levels, expenses, and client continuation or termination of policies; and • observed trends in experience that we expect to continue, such as general mortality changes in the general population and better or worse policy persistency (the period over which a policy remains in force) due to changing economic conditions. Under our current underwriting guidelines, we individually assess each insurable adult applicant and place each applicant into a risk classification based on current health, medical history, and other risk factors. Each classification (generally preferred plus, preferred, non-tobacco and tobacco) has specific criteria. We may decline an applicant’s request for coverage if his or her health or activities create unacceptable risks. Primerica 2020 Annual Report 13 ITEM 1. BUSINESS Sales representatives ask applicants a series of questions regarding the applicant’s medical history. We may also consider information about the applicant from third-party sources, such as the MIB, prescription drug databases, motor vehicle records and physician statements. If we believe that further information regarding an applicant’s medical history is necessary, we use a third-party provider and its trained personnel to contact the applicant by telephone to obtain a more detailed medical history. The report resulting from this process is electronically transmitted to us and is evaluated in our underwriting process. Paramedical requirements are also normally required on applicants applying for Custom Advantage, our traditionally-underwritten term life product. To accommodate the significant volume of insurance business that we process, we and the sales force use specialized technology. We offer sales representatives an electronic life insurance application that supports term life insurance products. Approximately 97% of the life insurance applications we received in 2020 were submitted electronically via TurboApps. Sales representatives utilize video collaboration tools to assist with the completion of the life insurance application and submit completed applications through TurboApps. The majority of applications completed in 2020 resulted from remote meetings with applicants. Our electronic life insurance application reduces errors in submitted applications, collects the applicant’s electronic signatures and populates the RVP’s sales log. Once an application is complete, the pertinent application data is uploaded to our life insurance administrative systems, which manage the underwriting process by electronically analyzing data, recommending underwriting decisions, identifying requirements for higher face amounts or older ages and communicating with the sales representative and third-party service providers. Claims Management. Our insurance subsidiaries processed over 18,200 life insurance benefit claims in 2020 on policies underwritten by us and sold by sales representatives. In 2020, we experienced elevated claims volumes due to premature deaths of our insureds caused by the 14 COVID-19 pandemic. For additional information regarding the impact of COVID-19 on our claims expense, the related reinsurance effects, and policyholder persistency, see Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) included elsewhere in this report. Claims fall into three categories: death, waiver of premium (applicable to disabled policyholders who purchased this benefit for which we agree to waive life insurance premiums during a qualifying disability), or terminal illness. The claim may be reported by a sales representative, a beneficiary or, in the case of qualifying disability or terminal illness, the policyholder. Following are the benefits paid by us for each category of claim: Year ended December 31, 2020 2019 2018 (In thousands) $1,676,017 $1,447,375 $1,391,755 51,823 49,712 46,690 11,501 14,584 16,474 Death Waiver of premium Terminal illness(1) (1) We consider claims paid for terminal illness to be loans made to the policyholder that are repaid to us from the death benefit upon the death of the insured. In the United States, after coverage has been in force for two years, we may not contest the policy for misrepresentations in the application or the suicide of the insured. In Canada, we have a similar two-year contestability period, but we are permitted to contest insurance fraud at any time. As a matter of policy, we do not contest any coverage issued by us to replace the face amount of another insurance company’s individual coverage to the extent the replaced coverage would not be contestable by the replaced company. We believe this approach helps sales representatives sell replacement policies, as it reassures clients that claims made under their replacement policies are not more likely to be contested as to the face amount replaced. Through our claims administration system, we record, process and pay the appropriate benefit for any reported claim. Our claims system is used by our home office claims adjusters to order medical and investigative reports from third-party providers, calculate amounts due to the beneficiary (including interest), and report payments to the appropriate reinsurance providers. Primerica Life and NBLIC regularly consult the Social Security Administration’s Death Master File in accordance with applicable state requirements. These processes help identify potential deceased insureds for whom claims have not been presented in the normal course of business. If unreported deaths are identified, Primerica Life and NBLIC attempt to determine if a valid claim exists, to locate beneficiaries, and to pay benefits accordingly. Reinsurance. We use reinsurance primarily to reduce the volatility risk with respect to mortality. Since 1994, we have reinsured death benefits in the United States on a first dollar quota share yearly renewable term basis. We pay premiums to each reinsurer based on rates in the applicable agreement. We generally reinsure between 80% and 90% of the mortality risk for all term life insurance policies, excluding coverage under certain riders. We also reinsure substandard cases on a facultative basis to capitalize on the extensive experience some of our reinsurers have with substandard cases. A substandard case has a level of risk that is acceptable to us, but at higher premium rates than a standard case because of the health, habits or occupation of the applicant. While our reinsurance agreements have indefinite terms, both we and our reinsurers are entitled to discontinue any reinsurance agreement as to future policies by giving advance notice of 90 days to the other. Each reinsurer’s ability to terminate coverage for existing policies is limited to circumstances such as a material breach of contract or nonpayment of premiums by us. Each reinsurer has the right to increase rates with certain restrictions. If a reinsurer increases rates, we have the right to immediately recapture the business. Either party may offset any balance due from the other party. For additional information on our reinsurance, see Note 1 (Description of Business, Basis of ITEM 1. BUSINESS Presentation, and Summary of Significant Accounting Policies) and Note 6 (Reinsurance) to our consolidated financial statements included elsewhere in this report. Financial Strength Ratings. Ratings with respect to financial strength are an important factor in establishing our competitive position and maintaining public confidence in us and our ability to market products. Ratings organizations review the financial performance and condition of most insurers and provide opinions regarding financial strength, operating performance and ability to meet obligations to policyholders. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Financial Ratings.” InvestmentandSavingsProducts We believe that many middle-income families have significant unmet retirement and savings needs. Using our FNA tool, sales representatives help our clients understand their current financial situations and how they can use time- tested financial principles, such as prioritizing personal savings, to reach their savings goals. Our product offerings include saving and investment vehicles that seek to meet the needs of clients in all stages of life. Through PFS, PFS Investments, Primerica Life Canada, PFSL Investments Canada, and licensed sales representatives, we distribute and sell to our clients a variety of mutual funds, managed investments, variable, index-linked, and fixed annuities, fixed indexed annuities and segregated funds. As of December 31, 2020, approximately 25,859 sales representatives were licensed to distribute mutual funds in the United States (including Puerto Rico) and Canada. As of December 31, 2020, approximately 13,689 sales representatives were licensed and appointed to distribute annuities in the United States and approximately 12,244 sales representatives were licensed to sell segregated funds in Canada. Mutual Funds. licensed sales representatives primarily distribute mutual funds from the following select asset In 2020, in the United States, Primerica 2020 Annual Report 15 ITEM 1. BUSINESS management firms: American Century Investments, American Funds, Franklin Templeton, Legg Mason (a wholly-owned subsidiary of Franklin Templeton as of July 31, 2020), and Invesco. These firms have diversified product offerings, including domestic and international equity, fixed-income and money market funds. Each firm continually evaluates its fund offerings and adds new funds on a regular basis. Additionally, their product offerings reflect diversified asset classes and varied investment styles. We have selling agreements with a number of other fund companies, and we believe that, collectively, these asset management firms provide funds that meet the investment needs of our clients. During 2020, Franklin Templeton, Legg Mason, Invesco, and American Funds accounted for approximately 97% of our mutual fund sales in the United States. Legg Mason and Invesco each have large wholesaling teams that support the sales force in distributing their mutual fund products. Our selling agreements with these firms all have indefinite terms and provide for termination at will. A wholly owned indirect subsidiary of the Parent Company and affiliate of PFS Investments, Primerica Shareholder Services, Inc. (“PSS”), provides transfer agent recordkeeping services to investors who purchase shares of mutual funds offered by certain of our fund families through PFS Investments. In exchange for these services, PSS receives recordkeeping and account maintenance fees from the applicable fund company. PSS has retained BNY Mellon Asset Servicing to perform the necessary transfer agent recordkeeping services for these accounts on its proprietary SuRPAS system. PFS Investments serves as the Internal Revenue Service (“IRS”) approved non-bank custodian for customers that open individual retirement accounts (“IRA”) (or certain other retirement accounts) with PFS Investments and invest in shares of mutual funds offered by certain of our fund families. For these services, PFS Investments receives an annual custodian fee. In Canada, sales representatives offer Primerica- branded Concert™ Series funds, which accounted 16 for approximately 26% of our Canadian mutual fund product sales in 2020. Our Concert™ Series funds consist of five different asset allocation funds and a money market fund with varying investment objectives. Each Concert™ Series fund is a money market fund and a fund of funds that allocates fund assets among equity, income and money market mutual funds of AGF Investments, a leading asset management firm in Canada. The asset allocation within each Concert™ Series fund is determined on an advisory contract basis by Morneau Shepell Asset and Risk Management Ltd. The principal non-proprietary funds that we offer our clients in Canada are funds of AGF Investments, Mackenzie Investments, Fidelity Investments, and Invesco. Sales of these non-proprietary funds accounted for approximately 72% of mutual fund product sales in Canada in 2020. Like our U.S. fund family list, the asset management partners we have chosen in Canada have a diversified offering of equity, fixed-income and money market funds, including domestic and international funds with a variety of investment styles. A key part of our investment philosophy for our clients is the long-term benefits of dollar cost averaging through systematic investing. To accomplish this, we assist our clients by facilitating monthly contributions to their investment account by bank draft against their checking accounts for as little as $25 per month. During the year ended December 31, 2020, average client assets held in individual retirement accounts in the United States and Canada accounted for an estimated 74% and 69% of total average client account assets, respectively. The Canadian counterpart to our individual retirement accounts (“IRAs”) are Registered Retirement Savings Plans (“RRSPs”). RRSPs and IRAs behave similarly, providing up-front tax deductions on contributions and enabling clients to earn income on a tax-deferred basis. Our high concentration of retirement plan accounts and our systematic savings philosophy are beneficial to us as these accounts tend to have lower redemption rates than the industry and, therefore, generate more recurring asset-based revenues. Managed Investments. PFS Investments (dba PFS Advisors) is a registered investment advisor in the United States, and it offers a managed investments program, Primerica Advisors Lifetime Investment Platform (the “Lifetime Investment Platform”), which we launched in 2017. The Lifetime Investment Platform is a robust advisory offering designed for clients who have at least $25,000 of investable assets. It provides our customers access to mutual fund and exchange-traded fund investment models designed and managed by several unaffiliated investment advisers. PFS Investments, as sponsor and portfolio manager of the program, evaluates models for inclusion in the program and conducts ongoing due diligence of the models and unaffiliated investment advisers made available through the program. TD Ameritrade Institutional, an unaffiliated broker-dealer, provides custody, trade execution, clearing, settlement and other services for customer assets invested through the Lifetime Investment Platform. Variable Annuities. U.S. securities licensed sales representatives also distribute variable annuities issued by American General Life Insurance Company and its affiliates (“AIG”), Equitable Financial Life Insurance Company (“Equitable Life”), Lincoln National Life Insurance Company and its affiliates (“Lincoln National”), and Brighthouse Life Insurance Company (“Brighthouse Life”). Variable annuities are insurance products that enable our clients to invest in accounts with attributes similar to mutual funds, but also have benefits not found in mutual funds, including death benefits that protect beneficiaries from losses due to a market downturn and income benefits that guarantee future income payments for the life of the policyholder(s). We also offer index-linked annuities issued by Equitable Life, Brighthouse Life, and Lincoln National. Index-linked annuities are insurance contracts that provide investors with potential growth, subject to a cap, and partial downside protection against losses. Gains and losses are measured over a fixed period, typically three to six years, based on the performance of a securities index. Although linked to an index, an investment in these ITEM 1. BUSINESS contracts does not involve ownership of any underlying portfolio securities by the client. Each of these companies bears the insurance risk on its variable annuities and index-linked variable annuities that we distribute. Fixed Indexed Annuities. We offer fixed indexed annuity products in the U.S. through Lincoln National, AIG, and Universal Life Insurance Company (“Universal Life”) (Puerto Rico). These products combine safety of principal and guaranteed rates of return with additional investment options tied to equity market indices that allow for returns that move based on the performance of an index. We believe these and other fixed annuity products give both life and securities representatives more ways to assist our clients with their retirement planning needs. Fixed Annuities. We sell fixed annuities underwritten by Brighthouse Financial, Inc. in the U.S. Our current offering includes a fixed premium deferred annuity and a single premium immediate annuity. The fixed premium deferred annuity allows our clients to accumulate savings on a tax deferred basis with safety of principal and a guaranteed rate of return. The single premium immediate annuity provides clients with an immediate income alternative. In Puerto Rico, we currently offer two annuity products: a fixed annuity and a fixed bonus annuity underwritten by Universal Life. These products provide guarantees against loss with several income options. In Employer Sponsored Retirement Plans. the United States, we also offer Employer Sponsored Retirement Plans (“ESRPs”), such as 401(k) plans, primarily to small and medium-sized businesses. The ESRPs we distribute are offered by a limited number of third-party providers, including American Funds Distributors, Inc. (“American Funds”), Equitable Distributors, LLC, and VOYA Financial, Inc., which together account for most of our ESRP business. In addition, we distribute 457(b) plans to governmental entities. Our licensed representatives generally provide educational and administrative services with respect to ESRPs, which includes helping our ESRP clients Primerica 2020 Annual Report 17 ITEM 1. BUSINESS understand the benefits of offering a tax-deferred retirement plan and assisting their employees realize the need to save for retirement and the benefits of doing so in an ESRP. In Canada, we offer Segregated Funds. segregated fund products, branded as our Common Sense FundsTM, that have some of the characteristics of our variable annuity products distributed in the United States. Our Common Sense FundsTM are underwritten by Primerica Life Canada and offer our clients the ability to participate in a diversified managed investments program that can be opened for as little as $25. While the assets and corresponding liability (reserves) are recognized on our consolidated balance sheets, the assets are held in separate accounts for the benefit of the segregated fund contract owners and are not commingled with the general assets of the Company. There are three fund products within our segregated funds offerings: the Asset Builder Funds, the Strategic Retirement Income Fund (“SRIF”), and a money market fund known as the Cash Management Fund. The investment objective of Asset Builder Funds is long-term capital appreciation combined with some guarantee of principal. Unlike mutual funds, our Asset Builder Funds product guarantees clients at least 75% of their net contributions (net of withdrawals) at the earlier of the date of their death or at the Asset Builder Funds’ maturity date, which is selected by the client. The portfolio consists of both equities and fixed- income securities with the equity component consisting of a pool of primarily large cap Canadian and U.S. equities and the fixed-income component consisting of Canadian federal government zero coupon treasuries and government-backed floating rate notes. The portion of the Asset Builder Funds’ portfolio allocated to zero coupon treasuries are held in sufficient quantity to satisfy the guarantees payable at the maturity date of each Asset Builder Fund. As a result, our potential loss exposure is very low as it comes from the guarantees payable upon the death of the client prior to the maturity date. 18 The investment objective of the SRIF is to provide income during retirement plus the opportunity for modest capital appreciation. The SRIF product guarantees clients 75% of their net contributions (net of withdrawals) at the earlier of the date of their death or age 100. The portfolio consists of both equities and fixed- income securities, with the equities consisting of a pool of primarily large cap Canadian and U.S. equities that are capped at 25% of the portfolio. The balance is a fixed-income portfolio consisting of investment-grade government and corporate bonds. The high quality of the investments and the percentage cap on equities results in a relatively low potential loss exposure. All accounts in the SRIF are held as Registered Retirement Income Funds which carry government-mandated minimum annual withdrawals. Similar to the Asset Builder Funds, our potential exposure for loss associated with the SRIF is very low because its investment allocations are conservatively aligned with the risks of the client contracts. The Cash Management Fund invests in government guaranteed short-term bonds and short-term commercial and bank papers, with the principal investment objective being the provision of interest income while maintaining liquidity and preserving capital. With the guarantee level at 75% and in light of the time until the scheduled maturity of our segregated funds contracts, we currently do not believe it is necessary to allocate any corporate capital as reserves for segregated fund contract benefits. In the United States, we earn Investment and Savings Products Revenue. revenue from our ISP business in three ways: commissions and payments earned on the sale of such products; fees and payments earned based upon client asset values; and account- based revenue. On the sale of mutual funds (not including managed investments) and annuities, we earn a dealer re-allowance or commission on new purchases as well as trail commissions on the assets held in our clients’ accounts. We also receive marketing and distribution fees from most of our mutual fund and annuity providers. These payments are typically a percentage of sales or a percentage of the clients’ total asset values, or a combination of both. For investments into the Lifetime Investment Platform, we receive an asset-based fee as compensation for the investment advisory and other administrative services we provide. As the IRS-approved non-bank custodian for certain funds noted above, PFS Investments receives annual fees on a per-account basis for as long as it services the account. As explained above, PSS receives transfer agent recordkeeping fees for the services it provides to the fund families noted above in “Mutual Funds” section. An individual client account may include multiple fund positions for which we earn recordkeeping fees. Because the total amount of these fees fluctuates with the number of such accounts and positions within those accounts, the opening or closing of accounts has a direct impact on our revenues. From time to time, the fund companies for which we provide these services request that accounts or positions with small balances be closed. In Canada, we earn revenue from the sales of our investment and savings products in two ways: commissions (or dealer re-allowance) on mutual fund sales and fees paid based upon clients’ asset values (mutual fund trail commissions and investment advisory fees from segregated funds and Concert™ Series funds). On segregated funds, we may earn deferred sales charges for early withdrawals at an annual declining rate within seven years of an investor’s original contribution. We also offer our clients a product option in which there is no deferred sales charge. OtherDistributedProducts We distribute other products, including mortgage loans through mortgage-licensed loan originators, prepaid legal services, auto and homeowners’ insurance referrals, and home automation solutions. In Canada, we also offer mortgage loan referrals and insurance offerings for small businesses. While some of these ITEM 1. BUSINESS products are Primerica-branded, all of them are underwritten or otherwise provided by a third party. We have an arrangement with Quicken Loans, LLC. (“Quicken Loans”), a mortgage lender, whereby Primerica Mortgage, LLC (“Primerica Mortgage”), a state-licensed mortgage broker, offers mortgage loans through its mortgage loan originator licensed representatives. We launched the program as a pilot in 2019 offering refinance mortgages. During 2020, we introduced additional pilot programs, which included offering purchase-money mortgages, and expanded the number of states in which we are licensed. We plan to continue to expand our mortgage program in 2021. We receive compensation from Quicken Loans for each closed loan based on a fixed percentage of the loan amount for mortgage brokering services provided and pay compensation to the representatives for services rendered. We offer our U.S. and Canadian clients a Primerica-branded prepaid legal services program on a subscription basis that is underwritten and provided by LegalShield. The prepaid legal services program offers a network of attorneys in each state, province or territory to assist subscribers with legal matters such as drafting wills, living wills and powers of attorney, trial defense and motor vehicle-related matters. We receive a commission based on sales and renewals of these subscriptions. We have an arrangement with Answer Financial, Inc. (“Answer Financial”), an independent insurance agency, whereby U.S. sales representatives refer clients to Answer Financial to receive multiple, competitive auto and homeowners’ insurance quotes. Answer Financial’s comparative quote process allows clients to easily identify the underwriter that is most competitively priced for their type of risk. We receive commissions based on completed auto and homeowners’ placement of insurance and policy renewals and pay sales representatives a flat referral fee for each completed application and policy renewal. We have an arrangement with Vivint, Inc. (“Vivint”), a company that offers homeowners in Primerica 2020 Annual Report 19 ITEM 1. BUSINESS the U.S. and many provinces in Canada a comprehensive suite of products and services to protect and remotely control, monitor and manage their homes using any Internet- connected smart device. We receive commissions based on referrals that result in a subscription to Vivint’s home services and pay sales representatives a referral fee for each such subscription. In the Canadian provinces of Alberta, Ontario and British Columbia (with respect to homeowners’ insurance only), we have an arrangement with SurexDirect.com Ltd. (“Surex Direct”), an independent insurance agency, whereby sales representatives refer clients to Surex Direct to receive multiple, competitive auto and homeowners’ insurance quotes. Surex Direct’s comparative quote process allows clients to easily identify the underwriter that is most competitively priced for their type of risk. We receive referrals based on completed auto and homeowners’ placement of insurance and policy renewals and pay sales representatives a flat referral fee for each completed application and policy renewal. In Canada, we have a referral program for mortgage loan products offered by a third-party lender, B2B Bank and 8Twelve Mortgage Corp., a mortgage broker. Due to regulatory requirements, sales representatives in Canada only refer clients to the lender and are not involved in the loan application and closing process. We receive referral fees based on the funded loan amount and, in turn, pay a commission to sales representatives. In Canada, we offer insurance products, including supplemental medical and dental, accidental death, and disability, to small businesses. These insurance products are underwritten and provided by The Edge Benefits Inc. and its affiliates. We receive a commission based on sales and renewals of these policies. Regulation Our business is subject to extensive laws and governmental regulations, including administrative determinations, court decisions 20 and similar constraints. The purpose of the laws and regulations affecting our business is primarily to protect our clients and other consumers. Many of the laws and regulations to which we are subject are regularly re-examined, and existing or future laws and regulations may become more restrictive or otherwise adversely affect our operations. Regulatory authorities periodically make inquiries regarding compliance by us and our subsidiaries with insurance, securities and other laws and regulations regarding the conduct of our insurance and securities businesses. At any given time, a number of financial or market conduct examinations of our subsidiaries may be ongoing. We cooperate with such inquiries and take corrective action when warranted. Regulation of Our Insurance Business. Primerica Life, as a Tennessee- domiciled insurer, is regulated by the Tennessee Department of Commerce and Insurance and is licensed to transact business in the United States (except New York), the District of Columbia and certain U.S. territories. NBLIC, as a New York- domiciled life insurance underwriting company and a wholly owned subsidiary of Primerica Life, is regulated by the New York State Department of Financial Services (“NYDFS”) and is licensed to transact business in all 50 U.S. states, the District of Columbia and the U.S. Virgin Islands. State insurance laws and regulations regulate all aspects of our U.S. insurance business. Such regulation is vested in state agencies having broad administrative and, in some instances, discretionary power dealing with many aspects of our business, which may include, among other things, premium rates and increases thereto, reserve requirements, marketing practices, advertising, privacy, policy forms, grace periods, reinsurance reserve requirements, acquisitions, mergers, and capital adequacy. Our U.S. insurance subsidiaries are required to file certain annual, quarterly and periodic reports with the supervisory agencies in the jurisdictions in which they do business, and their business and accounts are subject to examination by such agencies at any time. These examinations generally are conducted under National Association of Insurance Commissioners (“NAIC”) guidelines. Under the rules of these jurisdictions, insurance companies are examined periodically (generally every three to five years) by one or more of the supervisory agencies on behalf of the states in which they do business. Our most recent examinations of the financial condition and affairs of Primerica Life and NBLIC, as well as Peach Re, Inc. (“Peach Re”) and Vidalia Re, Inc. (“Vidalia Re”), special purpose financial captive insurance companies and wholly owned subsidiaries of Primerica Life, performed by the respective domiciliary state insurance department at the time of the exams, were completed during 2016 with no material findings or recommendations noted. As of December 31, 2020, Primerica Life and NBLIC were undergoing scheduled examinations by their respective domiciliary states. Primerica Life Canada is federally incorporated and provincially licensed and is required to file periodic reports with Canadian regulatory agencies. It transacts business in all Canadian provinces and territories. Primerica Life Canada is regulated federally by the Office of the Superintendent of Financial Institutions Canada (“OSFI”) and provincially by the Superintendents of Insurance for each province and territory. Canadian federal and provincial insurance laws regulate all aspects of our Canadian insurance business. OSFI regulates insurers’ corporate governance, financial and prudential oversight, and regulatory compliance, while provincial and territorial regulators oversee insurers’ market conduct practices and related compliance. Primerica Life Canada files quarterly and annual financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) and other locally accepted standards with OSFI in compliance with legal and regulatory requirements. OSFI conducts periodic detailed examinations of insurers’ business and financial practices, including the control environment, internal and external auditing and minimum capital adequacy, surpluses and related testing, legislative compliance and appointed actuary requirements. These examinations also address regulatory compliance with anti-money laundering ITEM 1. BUSINESS practices, outsourcing, related-party transactions, privacy and corporate governance. Provincial regulators conduct periodic market conduct examinations of insurers doing business in their jurisdiction. In addition to federal and provincial oversight, Primerica Life Canada is also subject to the guidelines set out by the Canadian Life and Health Insurance Association (“CLHIA”). CLHIA is an industry association that works closely with federal and provincial regulators to establish market conduct guidelines and sound business and financial practices addressing matters such as sales representative suitability and screening, insurance illustrations and partially guaranteed savings products. The laws and regulations governing our U.S. and Canadian insurance businesses include numerous provisions governing the marketplace activities of insurers, including policy filings, payment of insurance commissions, disclosures, advertising, product replacement, sales and underwriting practices and complaints and claims handling. The state insurance regulatory authorities in the United States and the federal and provincial regulators in Canada generally enforce these provisions through periodic market conduct examinations. In addition, most U.S. states and Canadian provinces and territories, as well as the Canadian federal government, have laws and regulations governing the financial condition of insurers, including standards of solvency, types and concentration of investments, establishment and maintenance of reserves, reinsurance and requirements of capital adequacy. As discussed previously, U.S. state insurance law and Canadian provincial insurance law also require certain licensing of insurers and their agents. Insurance Holding Company Regulation; Limitations on Dividends. The states in which our U.S. insurance subsidiaries are domiciled have enacted legislation and adopted regulations regarding insurance holding company systems. These laws require registration of, and periodic reporting by, insurance companies domiciled within the jurisdiction that control, or are controlled by, Primerica 2020 Annual Report 21 ITEM 1. BUSINESS other corporations or persons so as to constitute an insurance holding company system. These laws also affect the acquisition of control of insurance companies as well as transactions between insurance companies and companies controlling them. The Parent Company is a holding company that has no significant operations. Our primary asset is the capital stock of our subsidiaries, and our primary liability is $375.0 million in principal amount of senior unsecured notes (the “Senior Notes”). As a result, we depend on dividends or other distributions from our insurance and other subsidiaries as the principal source of cash to meet our obligations, including the payment of interest on, and repayment of, principal of any debt obligations. Primerica Life Primerica Life Canada For additional information on dividend capacity and restrictions, see Note 15 (Statutory Accounting and Dividend Restrictions) to our consolidated financial statements included elsewhere in this report. Policy and Contract Reserve Sufficiency Analysis. Under the laws and regulations of their jurisdictions of domicile, our U.S. insurance subsidiaries are required to conduct annual analyses of the sufficiency of their life insurance statutory reserves. In addition, other U.S. jurisdictions in which our U.S. subsidiaries are licensed may have certain reserve requirements that differ from those of their domiciliary jurisdictions. In each case, a qualified actuary must submit an opinion that states that the aggregate statutory reserves, when considered in light of the assets held with respect to such reserves, make good and sufficient provision for the associated contractual obligations and related expenses of the insurer. If such an opinion cannot be provided, then the affected insurer must set up additional reserves by moving funds from surplus. Our U.S. insurance subsidiaries most recently submitted these 22 The states in which our U.S. insurance subsidiaries are domiciled impose certain restrictions on our insurance subsidiaries’ ability to pay dividends to us. In Canada, dividends can be paid subject to the paying insurance company’s continuing compliance with regulatory requirements and upon notice to OSFI. We determine the dividend capacity of our insurance subsidiaries using statutory accounting principles (“SAP”) promulgated by the NAIC and each subsidiary’s domiciliary state in the United States and using IFRS in Canada. The following table sets forth the amount of cash and distributions paid or payable by our insurance subsidiaries: Year ended December 31, 2020 2019 2018 (In thousands) $170,000 $270,000 $200,000 22,532 22,544 22,755 opinions without qualification to applicable insurance regulatory authorities. Primerica Life Canada is also required to conduct regular analyses of the sufficiency of its life insurance statutory reserves. Life insurance reserving and reporting requirements are completed by Primerica Life Canada’s appointed actuary. Materials provided by the appointed actuary are filed with OSFI as part of our annual filing and are subject to OSFI’s review. Based upon this review, OSFI may institute remedial action against Primerica Life Canada as OSFI deems necessary. Primerica Life Canada has not been subject to any such remediation or enforcement by OSFI. Surplus and Capital Requirements. U.S. insurance regulators have the discretionary authority, in connection with the ongoing licensing of our U.S. insurance subsidiaries, to limit or prohibit the ability of an insurer to issue new policies if, in the regulators’ judgment, the insurer is not maintaining a minimum amount of surplus or is in hazardous financial condition. Insurance regulators may also limit the ability of an insurer to issue new life insurance policies and annuity contracts above an amount based upon the face amount and premiums of policies of a similar type issued in the prior year. We do not believe that the current or anticipated levels of statutory surplus of our U.S. insurance subsidiaries present a material risk that any such regulator would limit the amount of new policies that our U.S. insurance subsidiaries may issue. The NAIC has established risk-based capital (“RBC”) standards for U.S. life insurance companies, as well as a risk-based capital model act (the “RBC Model Act”) that has been adopted by the state insurance regulatory authorities. The RBC Model Act provides that life insurance companies must submit an annual RBC report to state regulators regarding their RBC based upon four categories of risk: asset risk; insurance risk; interest rate risk; and business risk. For each category, the capital requirement is determined by applying factors that vary based upon the degree of risk to various asset, premium and policy benefit reserve items. The formula is intended to be used by insurance regulators as an early warning tool to identify possible weakly capitalized companies for purposes of initiating further regulatory action. If an insurer’s RBC falls below specified levels, then the insurer would be subject to different degrees of regulatory action depending upon the level. These actions range from requiring the insurer to propose actions to correct the capital deficiency to placing the insurer under regulatory control. In Canada, OSFI has authority to request an insurer to enter into a prudential agreement implementing measures to maintain or improve the insurer’s safety and soundness. OSFI also may issue orders to an insurer directing it to refrain from unsafe or unsound practices or to take action to remedy financial concerns. OSFI has neither requested that Primerica Life Canada enter into any prudential agreement nor has OSFI issued any order against Primerica Life Canada. In Canada, OSFI oversees an insurer’s minimum capital requirement and determines the sum of capital requirements for five categories of risk: asset default risk; mortality/morbidity/lapse risks; changes in interest rate environment risk; ITEM 1. BUSINESS segregated funds risk and foreign exchange risk. These capital requirements are measured using the Life Insurance Capital Adequacy Tests (“LICAT”) established by OSFI to determine if any regulatory action is required to be taken. NAIC Pronouncements and Reviews. The NAIC promulgates model insurance laws and regulations for adoption by the states in order to standardize insurance industry accounting and reporting guidance. Although many state regulations emanate from NAIC model statutes and pronouncements, SAPs continue to be established by individual state laws, regulations and permitted practices. Certain changes to NAIC model statutes and pronouncements, particularly as they affect accounting issues, may take effect automatically without affirmative action by a given state. With respect to some financial regulations and guidelines, non-domiciliary states sometimes defer to the interpretation of the insurance department of the state of domicile. However, neither the action of the domiciliary state nor the action of the NAIC is binding on a non-domiciliary state. Accordingly, a non-domiciliary state could choose to follow a different interpretation. The NAIC has established guidelines to assess the financial strength of insurance companies for U.S. state regulatory purposes. The NAIC conducts annual reviews of the financial data of insurance companies primarily through the application of 12 financial ratios prepared on a statutory basis. The annual statements are submitted to state insurance departments to assist them in monitoring insurance companies in their state. Statutory Accounting Principles. SAP is a basis of accounting developed by U.S. insurance regulators to monitor and regulate the solvency of insurance companies. In developing SAP, insurance regulators were primarily concerned with evaluating an insurer’s ability to pay all of its current and future obligations to policyholders. As a result, statutory accounting focuses on conservatively valuing the assets and liabilities of insurers, generally in accordance with standards specified by the insurer’s domiciliary jurisdiction. Uniform statutory Primerica 2020 Annual Report 23 ITEM 1. BUSINESS accounting practices are established by the NAIC and generally adopted by regulators in the various U.S. jurisdictions. These accounting principles and related regulations determine, among other things, the amounts our insurance subsidiaries may ultimately pay to us as dividends, and they differ in many instances from U.S. generally accepted accounting principles (“U.S. GAAP”), which are designed to measure a business on a going-concern basis. Under U.S. GAAP, incremental direct costs of successful policy acquisitions are capitalized when incurred and then amortized over the life of the associated policies. The valuation of assets and liabilities under U.S. GAAP is based in part upon best estimate assumptions made by the insurer. U.S. GAAP-basis stockholders’ equity represents the ownership interest in the U.S. GAAP-measured net assets held by stockholders. As a result, the values for assets, liabilities and equity reflected in financial statements prepared in accordance with U.S. GAAP will be different from those reflected in financial statements prepared under SAP. State Insurance Guaranty Funds Laws. Under most state insurance guaranty fund laws, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. Most insurance guaranty fund laws currently provide that an assessment may be excused or deferred if it would threaten an insurer’s own financial strength. In addition, assessments may be partially offset by credits against future state premium taxes. Other Regulatory Changes. From time to time, various jurisdictions make changes to the state or provincial licensing examination process that may make it more difficult for sales representatives to obtain their life insurance licenses. In addition, certain jurisdictions have passed laws or proposed regulations that require insurers and insurance agents in the sale of life insurance, including term life insurance and annuities, to disclose conflicts of interest to consumers or meet standards of care requiring that their advice be in the customer’s best interest. The impact on our business and the level of resources necessary to conform to such 24 new regulations will vary depending on the extent of changes required and the jurisdictions that adopt such regulations. Regulation of Our Investment and Savings Products Business. PFS Investments is registered with, and regulated by, FINRA and the Securities and Exchange Commission (“SEC”). It is subject to regulation by the Department of Labor (“DOL”) with respect to certain retirement plans, and by state securities agencies. PFS Investments operates as an introducing broker- dealer, which does not hold client accounts, and is also registered in all 50 U.S. states and certain territories. All aspects of PFS Investments’ business are regulated, including sales methods and charges, trade practices, the use and safeguarding of customer securities, capital structure, recordkeeping, conduct and supervision of registered representatives. PFS Investments is required to file monthly reports as well as annual audited financial statements with the SEC pursuant to Section 17 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 17a-5 thereunder. As part of filing these reports, PFS Investments is subject to minimum net capital requirements, as mandated by Rule 15c3-1 of the Exchange Act. In the United States, clients acquire securities products from PFS Investments in either a brokerage or advisory relationship. In a brokerage relationship, a PFS Investments registered representative making recommendations is subject to a “best interest” standard under SEC regulations and FINRA rules and in some cases, state rules. PFS Investments markets mutual funds and variable annuities on a brokerage basis. In an advisory relationship, namely our managed investment offerings, PFS Investments and its investment advisory representative have a fiduciary obligation to the client and conduct ongoing monitoring of the client’s investments. PFS Investments is also approved as a non-bank custodian under IRS regulations and, in that capacity, may act as a custodian or trustee for certain retirement accounts. In addition, PFS Investments is an SEC-registered investment ITEM 1. BUSINESS advisor and, under the name Primerica Advisors, offers managed investment programs. In most states, sales representatives are required to obtain an additional license to offer these programs. regulation by the MFDA. These regulators have broad administrative powers, including the power to limit or restrict the conduct of our business and impose censures or fines for failure to comply with the law or regulations. PSS is registered with the SEC as a transfer agent and, accordingly, is subject to SEC rules and examinations. Acting in this capacity, PSS and third-party vendors employed by PSS are responsible for certain client investment account shareholder services. PFSL Investments Canada is a mutual fund dealer registered with and regulated by the Mutual Fund Dealers Association of Canada (the “MFDA”), the national self-regulatory organization for the distribution side of the Canadian mutual fund industry. It is also registered with provincial and territorial securities commissions throughout Canada (collectively referred to as the “Canadian Securities Administrators” or “CSA”). As a registered mutual fund dealer, PFSL Investments Canada performs the suitability review of mutual fund investment recommendations, and like our U.S. broker-dealer, it does not hold client accounts. PFSL Investments Canada is subject to the rules and regulations established by the Canadian Securities Administrators for the sale of securities, which include standards of conduct for the firm and its sales representatives. PFSL Investments Canada is required to file monthly and annual financial statements and reports with the MFDA that are prepared to comply with the prescribed MFDA reporting requirements. The MFDA has established a risk adjusted capital standard for mutual fund dealers. Its formula is designed to provide advance warning of a member encountering difficulties. If a mutual fund dealer falls below specified levels, then restrictions would apply until rectified, including not being able to act on certain matters without prior written consent from the MFDA. PFSL Investments Canada sales representatives are required to be registered in the provinces and territories in which they do business, including regulation by the Autorité des marchés financiers in Quebec, and are also subject to PFSL Fund Management in Canada is registered as an Investment Fund Manager in connection with our Concert™ Series mutual funds and is regulated by provincial securities commissions. PFSL Fund Management is required to file quarterly and annual financial statements with the Ontario Securities Commission (“OSC”) prepared to meet the requirements of National Instrument 31-103, Registration Requirements, Exemptions and Ongoing Registrant Obligations, based on the financial reporting framework specified in National Instrument 52-107, Acceptable Accounting Principles and Auditing Standards. PFSL Fund Management is required to maintain a minimum level of capital and file its quarterly and annual calculation of excess working capital with the OSC. As an investment fund manager, PFSL Fund Management is required to file periodic reports with provincial and territorial securities commissions throughout Canada for its Concert™ Series mutual funds. Such reports include semi-annual and annual financial statements prepared in accordance with IFRS. As the segregated funds are separate accounts of Primerica Life Canada, the segregated funds are also regulated by OSFI and included as part of the quarterly and annual financial statement filings for Primerica Life Canada. In addition, the segregated funds are also subject to the guidelines set out by the CLHIA. In Regulation of Mortgage Loan Products. the United States, state mortgage banking, brokering and lending laws regulate our mortgage distribution business. In the United States, Primerica Mortgage, LLC is regulated by state banking commissioners and other equivalent regulators as well as by the Consumer Financial Protection Bureau. Our mortgage distribution business must comply with the laws, rules and regulations, as well as judicial and administrative decisions, in all of the jurisdictions in which we are licensed to offer mortgage and Primerica 2020 Annual Report 25 ITEM 1. BUSINESS unsecured loans, as well as an extensive body of federal laws and regulations. These state and federal laws and regulations address the type of loan products that can be offered to consumers through predatory lending and high cost loan laws and the type of licenses that must be obtained by individuals and entities seeking to solicit mortgage loan applications from consumers. As a mortgage broker licensee, Primerica Mortgage, LLC is subject to periodic examinations by regulators. To offer mortgage loan products, sales representatives must be individually licensed as mortgage loan originators by the states in which they do business (and in some states as both mortgage brokers and mortgage loan originators). See “Risk Factors – Other Risks Related to Our Business – Licensing requirements will impact the size of the mortgage loan sales force.” In addition, our mortgage distribution business is subject to various other federal laws, including the Truth In Lending Act and its implementing regulation, Regulation Z, the Equal Credit Opportunity Act and its implementing regulation, Regulation B, the Fair Housing Act and the Home Ownership Equity Protection Act. We are also subject to the Real Estate Settlement Procedures Act (“RESPA”) and its implementing regulation, Regulation X, which requires timely disclosures related to the nature and costs of real estate settlement amounts and limits those costs and compensation to amounts reasonably related to the services performed. We are also subject to the Dodd-Frank Wall Street Reform and Consumer Protection Act and any implementing regulations. In Canada, our loan activities are more limited and the sales representatives only provide mortgage loan referrals to B2B Bank and 8Twelve Mortgage Corp. The sales representatives are not required to obtain mortgage loan licensure from any regulatory entity to make these referrals. Other Laws and Regulations. Our business is subject to a number of additional laws and regulations. 26 The USA Patriot Act of 2001 (the “Patriot Act”) contains anti-money laundering and financial transparency laws and mandates the implementation of various regulations applicable to broker-dealers and other financial services companies, including insurance companies. The Patriot Act seeks to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering. U.S. federal and state laws and regulations require financial institutions, including insurance companies, to protect the security and confidentiality of consumer financial information and to notify consumers about their policies and practices relating to their collection and disclosure of consumer information and their policies relating to protecting the security and confidentiality of that information. Similarly, federal and state laws and regulations also govern the disclosure and security of consumer health information. In particular, regulations promulgated by the U.S. Department of Health and Human Services regulate the disclosure and use of protected health information by health insurers and others (including certain life insurers), the physical and procedural safeguards employed to protect the security of that information and the electronic storage and transmission of such information. Congress and state legislatures are expected to consider additional legislation relating to privacy and other aspects of consumer information. The Federal Trade Commission (“FTC”), through the Federal Trade Commission Act (the “FTC Act”), is responsible for protecting consumers and competition by preventing anticompetitive, deceptive, and unfair business practices. This includes regulation of deceptive trade practices such as pyramiding and unsubstantiated earnings or lifestyle claims in advertisements, including on social media. The Financial Consumer Agency of Canada (“FCAC”), a Canadian federal regulatory body, is responsible for ensuring that federally regulated financial institutions, which include Primerica Life Canada, comply with federal consumer protection laws and regulations, voluntary codes of conduct and their own public commitments. The Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) is Canada’s financial intelligence unit. Its mandate includes ensuring that entities subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act comply with reporting, recordkeeping and other obligations under that act. We are also subject to privacy laws under the jurisdiction of federal and provincial privacy commissioners and the consumer complaints provisions of federal insurance laws under the mandate of the FCAC, which requires insurers to belong to a complaints ombud-service and file a copy of their complaints handling policy with the FCAC. Competition We operate in a highly competitive environment with respect to the sale of financial products and the retention of the more productive members of the sales force. Competitors with respect to our term life insurance products consist both of stock and mutual insurance companies, as well as other financial intermediaries. Competitive factors affecting the sale of life insurance products include the level of premium rates, benefit features, risk selection practices, compensation of sales representatives and financial strength ratings from ratings agencies such as A.M. Best. In offering our securities products, sales representatives compete with a range of other advisors, broker-dealers and direct channels, including wirehouses, regional broker-dealers, independent broker-dealers, insurers, banks, asset managers, registered investment advisors, mutual fund companies and other direct distributors. The mutual funds that we offer face competition from other mutual fund families and alternative investment products, such as exchange-traded funds, while our managed investment programs compete with other fee-based advisory services offered by financial services firms. Our annuity products compete with products from numerous other companies. Competitive factors affecting the sale of annuity ITEM 1. BUSINESS products include price, product features, investment performance, commission structure, perceived financial strength, claims-paying ratings, service, and distribution capabilities. PrivacyandInformationSecurity Our business is dependent on maintaining a secure, confidential environment for our clients, employees and other partners’ information. Information security and privacy is critically important as we rely more heavily on mobile technologies to conduct business and bring solutions to our clients who entrust their data to us. We have built sophisticated information technology platforms to support our clients and operations and the sales force. Our data center houses an enterprise-class IBM mainframe as well as modern distributed and cloud technology infrastructure. Our business applications, many of which are proprietary, are supported by application developers and data center staff at our main campus. Primerica’s information security teams provide services, including project consulting, threat management, application and infrastructure assessments, secure configuration management, and information security administration. Additionally, we support advanced business continuity and disaster recovery capabilities. The Company institutes a three-lines-of-defense model for information security risk assurance, in which management owns the risk, our enterprise risk management team assesses the risk and oversees compliance with internal guidelines and policies, and our internal audit team provides independent assurance of the effectiveness of the first two lines of defense. Primerica’s management continually assesses information security risk, working with industry experts for maturity and technical assessments. Primerica’s enterprise risk management and internal audit functions conduct regular assessments and audits, and report the results to Primerica’s Board of Directors (the “Board of Directors” or the “Board”) at least quarterly. The Company has two core policies that govern our home office initiatives in this critical area: Primerica 2020 Annual Report 27 ITEM 1. BUSINESS (i) Information Security Policy; and (ii) Data Loss Prevention Policy. These policies are reviewed annually and updated as needed. They address both the processes and technical requirements needed to protect the environments in which data is processed, as well as how it is maintained, governed, and protected. We also impose mandatory privacy and information security controls and various data security protection requirements on the sales force. These required controls are based on varying governing laws and regulations. Primerica’s senior executive leadership is actively involved in managing privacy and information security risk, including participation in a risk steering group that holds quarterly meetings, coordinates corporate security initiatives to enable Primerica to optimize spending, manage infrastructure, and minimize privacy and security risk. This group also provides high-level guidance on technology- and security-related issues of importance to the Company, and is composed of several of Primerica’s top executives. We have an Incident Response Plan that is reviewed and updated regularly. Our Incident Response Team consists of employees from our information security, legal, compliance, public relations, and operational teams. This plan is designed to help Primerica identify and promptly respond to information security incidents, contain and eradicate such incidents, notify affected parties and, where appropriate, notify government and regulatory authorities. The roles and responsibilities of Primerica personnel and third-party vendors in responding to information security incidents are well- documented and include when and to whom incidents should be reported based on level of severity. On a semi-annual basis, the team undertakes facilitator-led trainings and simulations of information security incidents. Primerica also has purchased cyber insurance coverage. The reporting of all cyber-related risks and assessments is ongoing to senior management and to our Board of Directors, and our Board of Directors has oversight responsibility for our cyber security program pursuant to the plan. The Board receives a quarterly report from management on cyber security. We train our entire full- and part-time employee workforce and third parties with access to Company systems in information security, how to recognize and understand privacy-related risks, and ways to mitigate data and privacy issues, with certain positions requiring additional, specialized training. We also perform regular tests to determine whether our employees can recognize phishing emails. Similarly, maintaining data security and privacy is an integral part of our annual compliance training for our independent sales representatives. HumanCapitalManagement Employees. General. As of December 31, 2020, we had 1,966 full-time employees in the United States and 264 full-time employees in Canada. In addition, as of December 31, 2020, we had 525 on-call employees in the United States and 69 on-call employees in Canada who provided services on an as-needed hourly basis. The following table provides information about the diversity of our full-time and on-call U.S. employees(1) at December 31, 2020: Executive Management(2) Non-Executive Management(3) Professionals(4) All Other Employees(5) Number of Employees 94 407 638 1,352 2,491 Black or African American Asian Hispanic or Latino Female Male 46.8% 53.2% 3.2% 6.4% 2.1% 60.0% 40.0% 4.2% 23.8% 5.7% 53.1% 46.9% 17.2% 25.7% 6.3% 68.1% 31.9% 4.3% 38.2% 13.1% Other White 1.1% 87.2% 0.5% 65.8% 2.2% 48.6% 3.0% 41.5% 62.1% 37.9% 7.5% 31.4% 9.7% 2.3% 49.0% (1) Reflects U.S. employees only, as comparable data is not required by law to be collected in Canada. 28 ITEM 1. BUSINESS (2) (3) Includes employees at the Senior Vice President level and above. Includes employees at the Assistant Vice President and Vice President levels and non-Assistant Vice President managers. (4) All remaining exempt (as defined by the Fair Labor Standards Act) employees. (5) All remaining non-exempt employees. Because management recognized that racial diversity at senior management levels lags other employee levels, we engaged a diversity consulting firm in late 2019 to review the racial and ethnic diversity of our employee workforce and provide recommendations to enhance the pipeline of racially diverse talent within the Company. Further, in the fourth quarter of 2020 we enhanced our senior executive management team with a seasoned leader who brings deep experience in employee and leadership development to, among other things, serve as our Chief Administrative Officer, and lead our efforts to create and implement programs, processes and protocols that focus on diversity, equality, and inclusion. For more information on the role and responsibilities of this new member of Primerica’s operating team, see “Information About Our Executive Officers and Certain Significant Employees.” Primerica prides itself on having a collaborative culture with our employees. As such, none of our employees are members of any labor union, and we have never experienced any business interruption as a result of any labor disputes. For a more detailed description of our employee initiatives, see our 2020 Corporate Sustainability Report (available at www.investors.primerica.com), which is not incorporated by reference into this report or any filings with the SEC into which this report is incorporated by reference. Talent Development. A core strength is that our senior executives average approximately 30 years with the Company, and many employees have been with Primerica for over 20 years. The result of this longevity and loyalty is that many of our long-term executives and employees will reach retirement age over the coming years. Management is focused on enhancing succession planning and talent pipeline identification and development both through the hiring of external talent and the adoption of new internal programs that focus on performance management and employee development. Compensation and Total Rewards. Primerica’s compensation philosophy is designed to attract, retain and motivate highly competent employees at all levels through compensation programs and practices. The Company strives for a pay for performance culture with a combination of individual and Company performance as factors in determining total rewards. Approximately 350 of our employees participate in an annual incentive program that reflects both corporate performance and individual achievement. Incentive awards to officers are paid in both cash and equity (with a higher proportion being paid in equity for higher level officers) while Assistant Vice Presidents receive all of their incentive awards in cash. Employees below the level of Assistant Vice President are eligible for cash bonuses based on individual performance. In 2020, all non-bonus eligible employees received a small cash payment to recognize the results of their extraordinary efforts during the COVID-19 pandemic. Among other things, our employee benefits package includes health and dental insurance, various paid-leave options, parental leave, in-office doctors’ visits, a robust employee assistance program, and a 401(k) retirement savings plan with a generous company match. Although the Company was exempt from coverage under the Family First Coronavirus Response Act because we have more than 500 employees, we created a special paid sick leave policy that provided new sick leave benefits (in addition to our pre-existing policies) regarding planned and unplanned time off and short-term disability benefits. Primerica 2020 Annual Report 29 ITEM 1. BUSINESS Employee Engagement and Wellness. Employees are highly satisfied at Primerica, as evidenced by our employee retention rate in 2020 of 92%. Further, in both 2019 and 2020 we were recognized by Forbes as a Best Employer for Women, and we were named to the 2020 Bloomberg Gender Equality Index. In January 2021, we were named to the 2021 Bloomberg Gender Equality Index. We were also recognized as a regional “Top Workplace” by the Atlanta Journal-Constitution for eight consecutive years from 2014 to 2021 with the most recent recognition being confirmed in mid-December 2020. In 2021, we were nationally recognized for the first time as a “Top Workplace USA” by the employee engagement service partner that conducted the regional survey. In order to monitor employee satisfaction, we conduct annual employee surveys and provide detailed results to managers and our Board of Directors. Changes to policies, programs, and benefits packages are made based on this feedback. In addition, each year we hold a series of town hall meetings at our Georgia headquarters and our Canadian head office during which all employees hear Company updates and have the opportunity to ask questions of senior management. Since March 2020, our Chief Executive Officer has shared a weekly video message with all employees and held a company-wide virtual Town Hall meeting with all employees. It is anticipated this practice will continue in 2021 until it is safe to resume traditional engagement practices. The Company took, and continues to take, steps to ensure the health and safety of employees during the COVID-19 pandemic. In addition to moving the vast majority of employees to remote work, we developed a four stage plan to gradually repopulate our facilities as the risk of the pandemic declines. The Company has been in stage two of its re-opening plan (based on the lifting of widespread stay at home orders) since July 2020 and will assess in the second quarter of 2021 when to move to stage three. For those employees coming into our corporate offices, we followed the guidelines of nationally recognized health organizations to ensure we maintain a clean, safe and comfortable working 30 environment. In addition, we provided masks for employees, implemented sanitation stations and conducted temperature checks as warranted. Contact tracing protocols are in place and are activated upon learning that any employee has contracted COVID-19. Independent Contractors. A description of the independent contractor sales force is included elsewhere in this section. See “– Our Distribution Model”, “– Recruitment of Sales Representatives”, “– Sales Force Motivation, Training, Communication and Sales Support Tools” “– Performance-Based Compensation Structure” and “– Supervision and Compliance.” The independent contractor sales force is extremely diverse, as it reflects the communities in which the sales representatives live and work. Further, the sales force utilizes strategic market groups to encourage professional and personal growth and development, including Women in Primerica, the African American Leadership Council and the Hispanic American Leadership Council, which we refer to as our Strategic Markets. These groups provide opportunities for networking and mentorship, sales and business management training and deep learning opportunities customized for these respective market segments. For a more detailed description of sales force initiatives, see our 2020 Corporate Sustainability Report (available at www.investors.primerica.com), which is not incorporated by reference into this report or any filings with the SEC into which this report is incorporated by reference. Primerica’s Board of Board of Directors. Directors values diversity among its members. As of December 2020, 27% of our Board members were racially or ethnically diverse and 27% of our Board members were women. In August 2020, the Board adopted a Board Diversity policy, requiring consideration of Board candidates based on merit against objective criteria tied to the needs of the Board and the Company at the time of nomination to the Board while giving due regard to diverse characteristics such as gender, race, ethnicity, country of origin, nationality or cultural background and other personal characteristics. Further, diverse Board candidates are to be considered whenever the Board commences a director search. The Board Diversity policy is available on the investor relations page of our corporate website (www.investors.primerica.com). In addition, our Board receives regular updates on the Company’s efforts to improve diversity, equality and inclusion among its employees and independent contractors. AvailableInformation We make available free of charge on our website (www.primerica.com) our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable upon filing such information with, or furnishing it to, the SEC. The Company’s reports are also available on the SEC’s website. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, at www.sec.gov. We routinely post financial and other information, including information about our corporate responsibility and sustainability efforts on the investor relations page of our corporate website (www.investors.primerica.com). Information included on any Company websites is not incorporated by reference into this report or any other filings with the SEC into which this report is incorporated by reference. ITEM 1A. RISK FACTORS. RisksRelatedtoOurDistribution Structure Our failure to continue to attract new recruits, retain sales representatives or license or maintain the licensing of sales representatives would materially adversely affect our business, financial condition and results of operations. New sales representatives provide us with access to new clients, enable us to increase sales and provide the next generation of successful sales ITEM 1. BUSINESS representatives. As is typical with distribution businesses, we experience a high rate of turnover among part-time sales representatives, which requires us to attract, retain and motivate a large number of sales representatives. Recruiting is performed by current sales representatives, and the effectiveness of recruiting is generally dependent upon our reputation as a provider of a rewarding and potentially lucrative income opportunity, as well as the general competitive and economic environment. Whether recruits are motivated to complete their training and licensing requirements and commit to selling our products depends in part on the effectiveness of our compensation and promotional programs, as well as the competitiveness of such programs compared with other companies, including other part-time business opportunities and the recruits’ desire to help middle-income families in their communities. If our new business opportunity and the products we distribute do not generate sufficient interest to attract new recruits, motivate them to become licensed sales representatives and maintain their licenses, and incentivize them to sell our products and recruit other new sales representatives, our business would be materially adversely affected. Certain key RVPs have large sales organizations that include thousands of sales representatives. These key RVPs are responsible for attracting, motivating, supporting and assisting the sales representatives in their sales organizations. The loss of one or more key RVPs together with a substantial number of their sales representatives for any reason could materially adversely affect our financial results and could impair our ability to attract new sales representatives. Furthermore, if we or any other businesses with a similar distribution structure engage in practices resulting in increased negative public attention for our business model, the resulting reputational challenges could adversely affect our ability to attract new recruits. Companies such as ours that use independent agents to sell directly to customers can be the subject of negative commentary on website postings, Primerica 2020 Annual Report 31 ITEM 1A. RISK FACTORS social media and other non-traditional media. This negative commentary can spread inaccurate or incomplete information about distribution companies in general or our Company in particular, which can make our recruiting more difficult. From time to time, various jurisdictions make changes to the state or provincial licensing examination process that may make it more difficult for sales representatives to obtain their life insurance and/or securities licenses. For example, FINRA is considering changing the continuing education (“CE”) regulatory requirement from a three-year period to an annual requirement for securities-licensed representatives. In addition, the North American Securities Administrators Association approved a model rule for participating states that imposes a CE requirement for investment advisor representatives for the first time. Such changes could place an increased burden on representatives to maintain their securities licenses, which could negatively impact the size of the active securities sales force in the event that representatives do not complete the applicable CE requirements on a timely basis. There are a number of laws and regulations that could apply to our distribution model, which could require us to modify our distribution structure. We have not been, and are not currently, subject to business opportunity laws because the amounts paid by the new sales representatives to us: (i) are less than the minimum thresholds set by many state and provincial statutes and (ii) are not fees paid for the right to participate in a business, but rather are for bona fide expenses such as state and provincial-required insurance examinations and pre-licensing training. We have not been, and are not currently, subject to franchise laws for similar reasons. However, there is a risk that a governmental agency or court could disagree with our assessment or that these laws and regulations could change. In addition, although we do not believe that the FTC’s Business 32 Opportunity Rule applies to our Company, it could be interpreted in a manner inconsistent with our interpretation. Becoming subject to business opportunity or franchise laws or regulations could require us to provide additional disclosures and regulate the manner in which we recruit sales representatives that may increase the expense of, or adversely impact our recruitment of new sales representatives. There are various laws and regulations, including laws of general application such as the FTC Act, that prohibit fraudulent or deceptive practices including but not limited to pyramid schemes. Historically, the FTC has defined a pyramid scheme as an arrangement in which new participants are required to pay a fee for the right to sell a product and the right to receive, for recruiting other persons to participate, rewards that are primarily unrelated to the sale of products to ultimate users. The application of these laws and regulations to a given set of business practices is inherently fact-based and, therefore, is subject to interpretation by applicable enforcement authorities. Although we believe that our business practices comply with applicable laws and regulations, there is a risk that a governmental agency or court could disagree with our assessment, or that these laws and regulations could change in actuality or in application, which could require us to restructure our operations or result in regulatory fines, penalties, or other costs, or reputational harm or could otherwise adversely affect our business, financial condition and results of operations. Various unfair and deceptive trade practices laws and regulations could potentially be invoked to challenge aspects of our recruiting of sales representatives. In particular, we and the sales representatives use promotional materials in recruiting that describe the potential business opportunity available if someone becomes a sales representative and information with respect to earnings and lifestyle statements. These materials and statements made by us or the sales representatives may be deemed to be unfair, deceptive, or misleading under the FTC Act or other federal, state and provincial laws or regulations and could result in regulatory fines, penalties or other costs, or reputational harm. Being out of compliance with the aforementioned laws and regulations could require changes to the recruiting of sales representatives, which could have a materially adverse effect on our business, financial condition and results of operations. There may be adverse tax, legal or financial consequences if the independent contractor status of sales representatives is overturned. Sales representatives are independent contractors who operate their own businesses. Although we believe that we have properly classified sales representatives as independent contractors, there is a risk that the IRS, the Canada Revenue Agency, a court or other authority will take a different view. Furthermore, the tests governing the determination of whether an individual is considered to be an independent contractor or an employee are fact- sensitive and vary from jurisdiction to jurisdiction. Laws and regulations that govern the status and misclassification of independent sales representatives are subject to change or interpretation. The classification of workers as independent contractors has been the subject of increasing federal, state and provincial legislative, regulatory and judicial interest over the last several years. Legislative and regulatory proposals have been introduced by federal and state authorities, and judicial decisions have been made, that call for or result in greater scrutiny of independent contractor classifications. There is no assurance that our business activities would be excluded. We cannot predict the outcome of any such legislative, regulatory, or judicial activity. If there is an adverse determination with respect to the classification of some or all of the independent contractors by a court or governmental agency, we could incur significant costs in complying with such laws and regulations, including in respect of tax withholding, social security payments, retirement ITEM 1A. RISK FACTORS plan contributions and recordkeeping, employee benefits, payment of wages or modification of our business model, any of which could have a material adverse effect on our business, financial condition and results of operations. In addition, there is the risk that we may be subject to significant monetary liabilities arising from fines or judgments as a result of any such actual or alleged non-compliance with federal, state, or provincial laws. The Company’s or the independent sales representatives’ violation of, or non-compliance with, laws and regulations and related claims and proceedings could expose us to material liabilities. Extensive federal, state, provincial and territorial laws regulate our product offerings and our relationships with our clients, imposing certain requirements that sales representatives must follow. At any given time, we may have pending state, federal or provincial examinations or inquiries of our investment and savings products, insurance, mortgage, and other businesses. In addition to imposing requirements that sales representatives must follow in their dealings with clients, these laws and regulations generally require us to maintain a system of supervision reasonably designed to ensure that sales representatives comply with the requirements to which they are subject. We have policies and procedures to comply with these laws and regulations. However, despite these compliance and supervisory efforts, the breadth of our operations and the broad regulatory requirements could result in oversight failures and instances of non-compliance on the part of the Company or the sales representatives. From time to time, we are subject to private litigation as a result of alleged misconduct by representatives. Non-compliance with laws or regulations by the sales representatives could result in adverse findings in either examinations or litigation and could subject us to sanctions, monetary liabilities, restrictions on or the loss of the operation of our business, or reputational harm, any of which could have a material Primerica 2020 Annual Report 33 ITEM 1A. RISK FACTORS adverse effect on our business, financial condition and results of operations. RisksRelatedtoOurInsuranceBusiness andReinsurance Any failure to protect the confidentiality of client information could adversely affect our reputation and have a material adverse effect on our business, financial condition and results of operations. Various government bodies have established rules protecting the privacy and security of personal information, which vary significantly from jurisdiction to jurisdiction. Many sales representatives, employees, and third-party service providers have access to, and routinely process, personal information of clients on paper and on personal and company-owned hardware, the cloud and mobile devices through a variety of media, including the Internet and software applications. We rely on internal processes and controls to protect the confidentiality of client information that is accessible to, or in the possession of, our Company, our employees and the sales representatives. If a sales representative, employee, or third-party service provider intentionally or unintentionally discloses or misappropriates confidential client information or our data is the subject of a cybersecurity attack, or if we fail to maintain adequate internal controls or sales representatives, employees, or service providers fail to comply with our policies and procedures, misappropriation or intentional or unintentional inappropriate disclosure or misuse of client information could occur. Such internal control inadequacies or non-compliance could materially damage our reputation or lead to civil or criminal penalties, which, in turn, could have a material adverse effect on our business, financial condition and results of operations. 34 We may face significant losses if our actual experience differs from our expectations regarding mortality or persistency. We set prices for life insurance policies based upon expected claim payment patterns derived from assumptions we make about the mortality rates, or likelihood of death, of our policyholders in any given year. The long-term profitability of these products depends upon how our actual mortality rates compare to our pricing assumptions. For example, if mortality rates are higher than those assumed in our pricing assumptions, we could be required to make more death benefit payments under our life insurance policies or to make such payments sooner than we had projected, which may decrease the profitability of our term life insurance products and result in an increase in the cost of our subsequent reinsurance transactions. The prices and expected future profitability of our life insurance products are also based, in part, upon assumptions related to persistency. Actual persistency that is lower than our persistency assumptions could have an adverse effect on profitability, especially in the early years of a policy, primarily because we would be required to accelerate the amortization of expenses we deferred in connection with the acquisition of the policy. Actual persistency that is higher than our persistency assumptions could have an adverse effect on profitability in the later years of a block of policies because the anticipated claims experience is higher in these later years. If actual persistency is significantly different from that assumed in our pricing assumptions, our reserves for future policy benefits may prove to be inadequate. We are precluded from adjusting premiums on our in-force business during the initial term of the policies, and our ability to adjust premiums on in-force business after the initial policy term is limited to the maximum premium rates in the policy. Our assumptions and estimates regarding mortality and persistency require us to make numerous judgments and, therefore, are inherently uncertain. If we conclude, based on our current expectations for mortality, persistency and other assumptions, that our future policy benefit reserves, together with future premiums, are insufficient to cover actual or expected claims payments and the scheduled amortization of our deferred policy acquisition costs (“DAC”), we would be required to first accelerate our amortization of DAC and then increase our future policy benefit reserves in the period in which we make the determination, which could materially adversely affect our business, financial condition and results of operations. Our insurance business is highly regulated, and statutory and regulatory changes may materially adversely affect our business, financial condition and results of operations. Life insurance statutes and regulations are generally designed to protect the interests of the public and policyholders. Those interests may conflict with the interests of our stockholders. Currently, in the United States, the power to regulate insurance resides almost exclusively with the states, which grant state insurance regulators broad powers to regulate almost all aspects of our insurance business. Much of this state regulation follows model statutes or regulations developed or amended by the NAIC, which is composed of the insurance commissioners of each U.S. jurisdiction. The NAIC re-examines and amends existing model laws and regulations (including holding company regulations), in addition to determining whether new ones are needed. The Federal Insurance Office is authorized to, among other things, study methods to modernize and improve insurance regulation. We cannot predict with certainty whether, or in what form, reforms will be enacted and, if so, whether the enacted reforms will materially affect our business. Changes in federal statutes, financial services regulation and federal taxation, ITEM 1A. RISK FACTORS in addition to changes to state statutes and regulations, may be more restrictive than current requirements or may result in higher costs, and could materially adversely affect our business, financial condition and results of operations. On July 18, 2018, the NYDFS issued final amendments to its suitability regulation for annuities (the “NY Amended Suitability Rule”), which imposes certain duties and obligations on insurers and insurance producers in the sale of life insurance, including term life insurance, and annuities. Firms and insurance representatives are required to ensure that transactions are suitable and consistent with the customer’s “best interest”. The NY Amended Suitability Rule became effective for annuity products on August 1, 2019 and for life insurance products on February 1, 2020. In February 2020, the NAIC approved revisions to the Suitability in Annuity Transactions Model Regulation (“NAIC Annuities Best Interest Rule”) requiring producers to act in the “best interest” of consumers when recommending an annuity, and several states have adopted, and others are proposing to adopt, the NAIC Annuities Best Interest Rule. The NY Amended Suitability Rule and the NAIC Annuities Best Interest Rule impose a higher standard of care, enhanced disclosure, and other obligations with respect to life and/or annuities recommendations, which may increase our regulatory or litigation risk. Federal and provincial insurance laws regulate all aspects of our Canadian insurance business. Changes to federal or provincial statutes and regulations may be more restrictive than current requirements or may result in higher costs, which could materially adversely affect our business, financial condition and results of operations. If OSFI determines that our corporate actions do not comply with applicable Canadian law, Primerica Life Canada could face sanctions or fines, and be subject to increased capital requirements or other requirements. The Minister of Finance (Canada) approved our indirect acquisition of Primerica Life Canada in 2010 with the expectation that we will provide ongoing financial, managerial or operational support to this subsidiary as necessary. If OSFI determines Primerica Life Canada is not receiving Primerica 2020 Annual Report 35 Our financial strength and credit ratings are significantly influenced by the statutory surplus amounts and RBC and LICAT ratios of our insurance company subsidiaries. Ratings agencies may change their internal models, effectively increasing or decreasing the amount of statutory capital our insurance subsidiaries must hold to maintain their current ratings. Ratings agencies also may downgrade the ratings of securities held in our insurance subsidiaries’ portfolios, which could result in a reduction of our insurance subsidiaries’ statutory capital and surplus and RBC. Our insurance subsidiaries may need additional capital and, if needed, we may not be able to provide it to maintain the targeted RBC and LICAT levels to support their business operations, either of which may impact our financial strength and credit ratings. The failure of any of our insurance subsidiaries to meet its applicable RBC and LICAT requirements or minimum capital and surplus requirements could subject it to further examination or corrective action imposed by insurance regulators, including limitations on its ability to write additional business, supervision by regulators or seizure or liquidation. Any corrective action imposed could have a material adverse effect on our business, financial condition and results of operations. A decline in RBC or LICAT also limits the ability of our insurance subsidiaries to pay dividends or make distributions and could be a factor in causing ratings agencies to downgrade the financial strength ratings of all our insurance subsidiaries. Such downgrades would have an adverse effect on our ability to write new insurance policies and, therefore, could have a material adverse effect on our business, financial condition and results of operations. ITEM 1A. RISK FACTORS adequate support from the Parent Company under applicable Canadian law, Primerica Life Canada may be subject to increased capital requirements or other requirements deemed appropriate by OSFI. If there are extraordinary changes to U.S. or Canadian statutory or regulatory requirements, we may be unable to fully comply with or maintain all required insurance licenses and approvals and the regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our insurance activities or impose fines or penalties on us, which could materially adversely affect our business, financial condition and results of operations. We cannot predict with certainty the effect any proposed or future legislation or regulatory initiatives may have on the conduct of our business. A decline in the regulatory capital ratios of our insurance subsidiaries could result in increased scrutiny by insurance regulators and ratings agencies and have a material adverse effect on our business, financial condition and results of operations. Each of our U.S. insurance subsidiaries is subject to RBC standards (imposed under the laws of its respective jurisdiction of domicile). The RBC formula for U.S. life insurance companies generally establishes capital requirements relating to asset, insurance, interest rate and business risks. Our U.S. insurance subsidiaries are required to report RBC calculations annually to the applicable state department of insurance and the NAIC. Our Canadian life insurance subsidiary is subject to the Life Insurance Capital Adequacy Test Guideline (“LICAT”), and is required to provide its capital ratio calculations to the Canadian regulators. The capitalization of our insurance subsidiaries is maintained at levels in excess of the effective minimum requirements of the NAIC in the United States and OSFI in Canada. In any particular year, statutory capital and surplus amounts and RBC and LICAT ratios may increase or decrease depending on a variety of factors, many of which are outside of our control. 36 A significant ratings downgrade by a ratings organization could materially adversely affect our business, financial condition and results of operations. Each of our insurance subsidiaries, with the exception of Peach Re and Vidalia Re, has been assigned a financial strength rating by A.M. Best. Primerica Life currently also has an insurer financial strength rating from each of Standard & Poor’s (“S&P”) and Moody’s. The financial strength ratings of our insurance subsidiaries are subject to periodic review using, among other things, the ratings agencies’ proprietary capital adequacy models, and are subject to revision or withdrawal at any time. Insurance financial strength ratings are directed toward the concerns of policyholders and are not intended for the protection of stockholders or as a recommendation to buy, hold or sell securities. Our financial strength ratings will affect our competitive position relative to other insurance companies. If the financial strength ratings of our insurance subsidiaries fall below certain levels, some of our policyholders may move their business to our competitors. In addition, the models used by ratings agencies to determine financial strength are different from the capital requirements set by insurance regulators. Ratings organizations review the financial performance and financial conditions of insurance companies, and provide opinions regarding financial strength, operating performance and ability to meet obligations to policyholders. A significant downgrade in the financial strength ratings of any of our insurance subsidiaries, or the announced potential for a downgrade, could have a material adverse effect on our business, financial condition and results of operations If the rating agencies or regulators change their approach to financial strength ratings and statutory capital requirements, we may need to take action to maintain current ratings and capital adequacy ratios, which could have a material adverse effect on our business, financial condition and results of operations. ITEM 1A. RISK FACTORS The Parent Company currently has investment grade credit ratings from S&P, Moody’s, and A.M. Best. These ratings are indicators of a debt issuer’s ability to meet the terms of debt obligations and are important factors in its ability to access liquidity in the debt markets. A rating downgrade by a rating agency can occur at any time if the rating agency perceives an adverse change in our financial condition, results of operations or ability to service debt. If such a downgrade occurs, it could have a material adverse effect on our financial condition and results of operations in many ways, including adversely limiting our access to capital in the unsecured debt market and potentially increasing the cost of such debt. The failure by any of our reinsurers or reserve financing counterparties to perform its obligations to us could have a material adverse effect on our business, financial condition and results of operations. We extensively use reinsurance in the United States to diversify our risk and to manage our loss exposure to mortality risk. Reinsurance does not relieve us of our direct liability to our policyholders, even when the reinsurer is liable to us. We, as the insurer, are required to pay the full amount of death benefits even in circumstances where we are entitled to receive payments from the reinsurer. Our reinsurers may be unable to pay the amounts they owe us on a timely basis or at all. Further, reinsurers might refuse or fail to pay losses that we cede to them or might delay payment. Since death benefit claims may be paid long after a policy is issued, we bear credit risk with respect to our reinsurers. The creditworthiness of our reinsurers may change before we can recover amounts to which we are entitled. Any such failure to pay by our reinsurers could have a material adverse effect on our business, financial condition and results of operations. Two of our reinsurers are in receivership, both of which are associated with small blocks of business that are in runoff. While it is uncertain at this time how much of their claim obligations these reinsurers will ultimately Primerica 2020 Annual Report 37 ITEM 1A. RISK FACTORS be able to pay, we have recognized an allowance for the expected credit losses associated with their reinsurance recoverable balances in our statement of financial position. We also have in place coinsurance agreements that we originally entered into at the time of our IPO, pursuant to which 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. Under this arrangement, our existing reinsurance agreements remain in place. Each coinsurer entered into trust agreements with our respective insurance subsidiaries and a trustee pursuant to which the coinsurer placed assets (primarily treasury and fixed-income securities) in trust for such subsidiary’s benefit to secure the coinsurer’s obligations to such subsidiary. Each such coinsurance agreement requires each coinsurer to maintain assets in trust, which amount will not be less than the amount of the reserves for the coinsured liabilities. In Canada, the IPO coinsurer must hold pledged assets in an amount sufficient for us to take credit for reinsurance in a Canadian financial institution, not affiliated with the IPO coinsurer, with our Canadian insurance company having an enforceable security interest that has priority over any other security interest for the pledged assets. Furthermore, our insurance subsidiaries have the right to recapture the business upon the occurrence of an event of default under their respective coinsurance agreement subject to any applicable cure periods. While any such recapture would be at no cost to us, such recapture would result in a substantial increase in our insurance exposure and require us to be fully responsible for the management of the assets set aside to support statutory reserves. The type of assets we might obtain as a result of a recapture may not be as liquid as our current invested asset portfolio and could result in an unfavorable impact on our risk profile. There is no assurance that the relevant coinsurer will pay the coinsurance obligations owed to us now or in the future or that it will pay these obligations on a timely basis. If any of the coinsurers becomes insolvent, the trust account to support the obligations of such coinsurer is 38 insufficient to pay such coinsurer’s obligations to us and we fail to enforce our right to recapture the business, it could have a material adverse effect on our business, financial condition and results of operations. We have entered into transactions by which we finance redundant statutory reserves of certain issue years of our term life insurance business. Under these transactions, we pay a fee to financial counterparties for their commitment to support redundant reserves and provide corresponding statutory reinsurance credit, allowing us to more efficiently manage our capital. If the financial strength of these counterparties was significantly impaired to the extent that their support of our redundant reserves could no longer be relied upon, it could have a material adverse effect on our business, financial condition, and results of operations. RisksRelatedtoOurInvestmentsand SavingsProductsBusiness Our Investment and Savings Products segment is heavily dependent on mutual fund and annuity products offered by a relatively small number of companies, and, if these products fail to remain competitive with other investment options or we lose our relationship with one or more of these companies, our business, financial condition and results of operations may be materially adversely affected. We earn a significant portion of our earnings through our relationships with a small group of mutual fund and annuity companies. A decision by one or more of these companies to alter or discontinue their current arrangements or product offerings with us, or a change in law or regulation that compels us to alter or discontinue such arrangements, could materially adversely affect our business, financial condition and results of operations. If any of our investment and savings products fail to achieve satisfactory investment performance, our clients may seek higher yielding or lower cost alternative investment products, and we could experience higher redemption rates. In addition, we earn a growing portion of our earnings through our asset-based advisory platform. A mix shift of new investments to our advisory platform could materially impact cash flows to our business, financial condition and results of operations. In recent years there has been an increase in the popularity of alternative investments such as exchange traded funds (ETFs), which we do not currently offer on our brokerage platform, but which are available indirectly to our clients on our advisory platform. These investment options typically have low fee structures and provide some of the attributes of mutual funds, such as risk diversification. If these products continue to gain traction among our client base as viable alternatives to mutual fund investments, or if other product innovations not offered by us gain traction, our investment and savings products revenues could decline. In addition to sales commissions and asset- based compensation, a portion of our earnings from investment and savings products comes from recordkeeping services that we provide to mutual fund companies and from fees earned for custodial services that we provide to clients with retirement plan accounts in the funds of these mutual fund companies. We also receive marketing and support fees from each of these mutual fund companies. A decision by one or more of these fund companies to alter or discontinue their current arrangements with us, or a change in law or regulation that compels us to alter or discontinue such arrangements, would materially adversely affect our business, financial condition and results of operations. The Company’s or the securities-licensed sales representatives’ violations of, or non-compliance with, laws and regulations could expose us to material liabilities. Our subsidiary broker-dealer and registered investment advisor, PFS Investments, and the sales representatives, are subject to federal and state regulation of its securities business. Investment advisory representatives likewise are held to a high standard of conduct. Our ITEM 1A. RISK FACTORS subsidiary, PSS, is a registered transfer agent engaged in the recordkeeping business and is subject to SEC regulation. Violations of laws or regulations applicable to the activities of PFS Investments or PSS, or violations by a third party with which PFS Investments or PSS contracts, could subject us to regulatory actions and/or litigation and could result in the imposition of cease and desist orders, fines or censures, restitution to clients, suspension or revocation of SEC registration, suspension or expulsion from FINRA, reputational damage and legal expense, any of which could materially adversely affect our business, financial condition and results of operations. Our Canadian broker-dealer subsidiary, PFSL Investments Canada and the sales representatives are subject to the securities laws of the provinces and territories of Canada in which we sell our mutual fund products and to the rules of the MFDA, the self-regulatory organization governing mutual fund dealers. PFSL Investments Canada is subject to periodic review by both the MFDA and the provincial and territorial securities commissions to assess its compliance with, among other things, applicable capital requirements and sales practices and procedures. These regulators have broad administrative powers and may impose sanctions that could materially adversely affect our business, financial condition and results of operations. If heightened standards of conduct or more stringent licensing requirements, such as those adopted by the SEC and those proposed or adopted by the Department of Labor (“DOL”) state legislatures or regulators or Canadian securities regulators, are imposed on us or the sales representatives, or selling compensation is reduced as a result of new legislation or regulations, it could have a material adverse effect on our business, financial condition and results of operations. The U.S. sales representatives are subject to federal and state regulation as well as state Primerica 2020 Annual Report 39 ITEM 1A. RISK FACTORS licensing requirements. PFS Investments, Inc., which is regulated as a broker-dealer, and U.S. sales representatives are currently subject to general anti-fraud limitations under the Exchange Act and SEC rules and regulations, as well as other conduct standards prescribed by the FINRA. These standards generally require that broker-dealers and their sales representatives disclose conflicts of interest that might affect the advice or recommendations they provide and require them to make suitable investment recommendations to their customers. On June 5, 2019, the SEC adopted rules and interpretations addressing the standards of conduct applicable to broker- dealers and investment advisers and their associated persons (collectively, the “SEC Rulemaking”). Among other things, the SEC Rulemaking: (i) creates a new “best interest” standard of conduct for broker-dealers (“Reg BI”), and (ii) imposes new disclosure requirements through summary forms intended to clarify relationships among brokers, advisers, and their retail customers (“Form CRS”). The SEC Rulemaking had a compliance date of June 30, 2020 for Reg BI and Form CRS. On December 15, 2020, the DOL published an interpretation of, and class exemption regarding, the rules governing fiduciary investment advice with respect to IRAs and other retirement accounts (the “DOL Rule”). The effective date of the DOL Rule is February 16, 2021 and the DOL extended its non-enforcement policy through December 20, 2021. The SEC Rulemaking and the DOL Rule in their current forms impose higher standards of care and enhanced obligations that increase regulatory and litigation risk to our business. In addition to federal regulators, certain states have proposed or passed laws or proposed or issued regulations requiring investment advisers, broker-dealers, and/or insurance agents to meet fiduciary standards or standards of care that their advice be in the customer’s best interest, and to mitigate and disclose conflicts of interest to consumers of investment and insurance products. The severity of the impact that such state laws or regulations could have on our business vary from state to state depending on 40 the content of the legislation or regulation and how it would be applied by state regulators and interpreted by the courts, but such laws or regulations could disrupt our brokerage business in the relevant state. We cannot quantify the financial impact, if any, of any changes to our business that may be necessary in order to comply with such laws or regulations at this time. On February 20, 2020, the CSA published final rule amendments, applicable in all provinces except Ontario, to prohibit upfront sales commissions by fund companies for the sale of mutual funds offered under a prospectus in Canada (“DSC Ban”). The final amendments have an effective date of June 1, 2022. The CSA indicated that the participating provinces’ prohibition of upfront sales commissions by fund companies will require firms to discontinue the use of the mutual fund deferred sales charge compensation model, which is the primary model for the mutual funds we distribute in Canada. These rules will result in changes in compensation arrangements with both the fund companies that offer the mutual fund products we distribute and sales representatives in the participating provinces. The deferred sales charge compensation model is permitted to be used until the effective date. While Ontario has disagreed with the prohibition of upfront sales commissions by fund companies and is not at this time participating in adoption of the DSC Ban, the Ontario Securities Commission has proposed several restrictions on the use of the deferred compensation model, including a $50,000 maximum account size and a limitation on the maximum term of the deferred sales charge schedule to three years compared to current industry practice where the maximum term can be up to seven years. These restrictions, if any, will also be effective June 1, 2022. We have not finished the process of determining the types of changes we will make in response to the DSC Ban and the restrictions in Ontario, therefore, we are unable to quantify the potential impact on our financial condition or results of operations. In Canada, on October 3, 2019, the CSA published final rule amendments intended to better align the interest of securities dealers and representatives with the interests of their clients, improve outcomes for clients, and make clearer to clients the nature and terms of their relationship with registered firms and their representatives. Collectively these amendments are referred to as the Client Focused Reforms (“CFRs”). The CFRs, among other things, require registered firms to identify and mitigate conflicts of interest between registered firms and their representatives, on one hand, and clients, on the other, such that recommendations may be made in clients’ best interest. The CFRs are subject to ministerial approval and have staggered implementation dates. The implementation date to address conflicts and to improve disclosure was December 31, 2020 and the implementation date to enhance overall suitability rules, know your client rules, and know your product requirements is December 31, 2021. The implementation date to address conflicts changed from December 31, 2020 to June 30, 2021 to provide additional time due to COVID-19. CFRs will require changes to our sales process and back-office systems and processes and may necessitate changes in compensation arrangements with the fund companies that offer the mutual fund products we distribute in Canada. Although not expected at this time, the impact of such changes could have a material adverse effect on our investment and savings products business in Canada. Heightened standards of conduct or restrictions on compensation as a result of any of the above items or other similar proposed rules or regulations could also increase the compliance and regulatory burdens on the sales representatives and could lead to increased litigation and regulatory risks, changes to our business model, a decrease in the number of licensed representatives and a reduction in the products we offer to our clients, any of which could have a material adverse effect on our business, financial condition and results of operations. ITEM 1A. RISK FACTORS regulations governing standards of care, were deemed inadequate, it could have a material adverse effect on our business, financial condition and results of operations. We review the account applications that we receive for our investment and savings products for suitability, for compliance with the SEC Rulemaking and the DOL Rule, and for compliance with other federal or state regulations governing standards of care. We believe that the policies and procedures we implement to help sales representatives assist clients in making investment choices are reasonably designed to achieve compliance with applicable securities laws and regulations and to satisfy other applicable federal, state, and provincial standards of care. Nonetheless, it is possible that the SEC, FINRA, the DOL, the IRS, state securities and insurance regulators or MFDA may not agree. Further, we could be subject to regulatory actions or private litigation, which could materially adversely affect our business, financial condition and results of operations. The support tools we make available to the sales force are designed to educate potential and existing clients, help identify their financial needs, generally introduce the potential benefits of our product offerings, and identify suitable investment products. The tools themselves or the assumptions and methods of analyses embedded in them could be challenged and subject us to regulatory action by the SEC, the DOL, FINRA or other regulators, or private litigation, which could materially adversely affect our business, financial condition and results of operations. Non-compliance with applicable regulations could lead to revocation of our subsidiary’s status as a non-bank custodian. If our suitability policies and procedures, or our policies and procedures for compliance with federal or state PFS Investments is a non-bank custodian of retirement accounts, as permitted under Treasury Regulation 1.408-2. A non-bank Primerica 2020 Annual Report 41 ITEM 1A. RISK FACTORS custodian is an entity that is not a bank and that is permitted by the IRS to act as a custodian for retirement plan account assets of our clients. The IRS retains authority to revoke or suspend that status if it finds that PFS Investments is unwilling or unable to administer retirement accounts in a manner consistent with the requirements of the applicable regulations. Revocation of PFS Investments’ non-bank custodian status would affect its ability to earn revenue for providing such services and, consequently, could materially adversely affect our business, financial condition and results of operations. RisksRelatedtoOurMortgage DistributionBusiness Licensing requirements will impact the size of the mortgage loan sales force. To offer mortgage loan products, sales representatives must be individually licensed as mortgage loan originators by the states in which they do business and, in some states, they must also be individually licensed as mortgage brokers. These licensing requirements include enrollment in the Nationwide Multistate Licensing System, application to state regulators for individual licenses, a minimum of 20 hours of pre-licensing education, an annual minimum of eight hours of continuing education, and the successful completion of both national and state tests or a national test with uniform state content. Compliance with these licensing regimes (including background and credit checks) have proven to be a barrier for many sales representatives. In addition, the tests have historically been challenging for the sales representatives to pass. Primerica Mortgage, LLC must also be licensed at the company level as a Mortgage Broker (or equivalent) and, in almost all states, representatives’ offices, must be licensed as branch offices. To offer mortgage loans in a state, individual representatives, offices, and Primerica Mortgage, LLC must be licensed as required by state law. These licenses must be renewed on an annual basis. Failure of sales representatives to obtain the required licenses and comply with ongoing licensing 42 requirements would adversely affect the size of the mortgage loan sales force, which could materially adversely affect our mortgage distribution business. Our mortgage distribution business is highly regulated and subject to various federal, state and provincial laws and regulations in the U.S. and Canada, changes in which could affect the cost or our ability to distribute our products and could materially adversely affect our business, financial condition and results of operations. Our U.S. mortgage distribution business is subject to a wide array of laws at the federal, state, and local levels, and it is regulated by the Consumer Financial Protection Bureau and state mortgage regulators, which have the authority to examine, supervise and enforce applicable laws, regulations and policies. Federal law and regulations impose prohibitions and restrictions on the manner and amount of compensation paid in connection with a mortgage loan transaction and establish a federal ability to repay standard for all mortgage loans. Other laws could have the effect of limiting the availability of certain loan products in the market and adversely impact the range of products offered and the volume of loan business. Additionally, we must comply with various state and local laws and policies concerning our lender, compensation, fair lending, supervision, the provision of consumer disclosures, net branching, predatory lending and high cost loans and recordkeeping. Differing interpretations of, changes in, or violations of, any of these laws or regulations could subject us to damages, fines, or sanctions and could affect the cost or our ability to distribute our products, which could materially adversely affect our business, financial condition, and results of operations. Remediation for noncompliance with federal, state or local laws could be costly and significant fines may be incurred. Failure to comply with applicable laws could result in potential litigation liability. Further, the lender ITEM 1A. RISK FACTORS must comply with applicable federal, state, and local laws and regulations, and any noncompliance by such lender may adversely impact our U.S. mortgage distribution business. lapses or surrenders of insurance policies, and some of our policyholders may choose to defer paying insurance premiums or stop paying insurance premiums altogether. In Canada, sales representatives offer mortgage loans on a referral basis only. Various provincial mortgage brokerage laws strictly prescribe the requirements applicable to a mortgage referral program in order for individuals who make the referrals to be exempt from the requirement to be licensed as mortgage brokers. Differing interpretations of, changes in, or violations of, any of the applicable exemptions under mortgage brokerage laws could subject us to damages, fines or sanctions and could have a material adverse effect on our ability to offer mortgage loan referrals in Canada. In addition, sales representatives selling mutual funds must comply with the disclosure requirements of the MFDA and applicable securities laws governing mortgage referral arrangements. Failure to comply with such disclosure requirements could result in regulatory sanctions, which could have a material adverse effect on our ability to offer mortgage loan referrals in Canada. RisksRelatedtoEconomicDowncycles, PublicHealthCrisesorCatastrophes, andDisasters The effects of economic down cycles could materially adversely affect our business, financial condition and results of operations. Our business, financial condition and results of operations may be materially adversely affected by economic downturns in the United States and Canada, as well as issues in the global economy that may have repercussions on our local markets. Economic downturns, which are often characterized by higher unemployment, lower household income, lower valuation of retirement savings accounts, lower corporate earnings, lower business investment and lower consumer spending, have adversely affected the demand for the term life insurance, investment and savings and other financial products that we sell. We may experience an elevated incidence of Our investment and savings products business is sensitive to the performance of the equity markets. A protracted long-term downturn in equity market performance brought about in an economic downturn could adversely affect new sales and cause clients to liquidate mutual funds and other investments sold by sales representative. This could cause a decrease in the asset value of client accounts, reduce our trailing commission revenues and result in a decline in the fair value of our invested asset portfolio. Further, volatility in equity markets or downturns could discourage purchases of the investment products that we distribute and could have a materially adverse effect on our business, including our ability to recruit and retain sales representatives. Major public health pandemics, epidemics or outbreaks, specifically, the COVID-19 pandemic, or other catastrophic events, could materially adversely impact our business, financial condition and results of operations. Our operations are exposed to the risk of major public health pandemics, epidemics or outbreaks (a “major public health crisis”), such as the COVID-19 pandemic, or other catastrophic events (“catastrophic events”), which, among other things, could cause a large number of premature deaths of our insureds. Although we have ceded a significant majority of our mortality risk to reinsurers, a major public health crisis or catastrophic event could cause substantial volatility in our financial results for a period of time and could also materially harm the financial condition of our reinsurers, increase the probability of default on reinsurance recoveries or decrease the availability of reinsurance on new business. In addition, most of the jurisdictions in which our insurance subsidiaries are licensed to transact business require life insurers to participate in guaranty Primerica 2020 Annual Report 43 ITEM 1A. RISK FACTORS associations, which raise funds to pay contractual benefits owed pursuant to insurance policies issued by impaired, insolvent or failed issuers. A major public health crisis or catastrophic event could require extraordinary assessments on our insurance companies, which could have a material adverse effect on our business, financial condition and results of operations. A major public health crisis or catastrophic event could negatively impact our ability to attract new recruits, train and license the sales force, and incentivize the sales force to sell our products. If a significant number of sales representatives were to be impacted by a major public health crisis or catastrophic event, it could have a material adverse effect on recruiting, licensing, and our ability to write new business. A major public health crisis or catastrophic event could also cause significant volatility in global financial markets and disrupt the economy and the demand for the term life insurance, investment and savings and other financial products that we sell. Our investment portfolio and the valuations of invested assets we hold could also be materially adversely affected. Specifically with respect to the COVID-19 pandemic, social distancing recommendations (collectively, “prevention measures”) inhibited and continue to inhibit the face-to-face setting sales representatives primarily used to meet the needs of clients, attract new recruits, and retain and motivate sales representatives. Such face-to-face interactions may not be adequately replaced by technological solutions. Further, prevention measures have negatively impacted and may continue to impact completion of paramedical tests necessary to underwrite some of our life insurance applicants. Prevention measures also caused and continue to cause limited availability and capacity of licensing test centers, which negatively impact the ability of sales representatives to obtain the licenses necessary to sell certain of our products, including life insurance, securities and mortgages. Finally, prevention measures have caused the cancellation of large meetings that we use to motivate the sales force to sell our products. Throughout 2020 and into 2021, 44 prevention measures have been adopted, relaxed and re-adopted by various jurisdictions, and this is unlikely to change until a vaccine is widely available in the United States and Canada. We cannot predict the impact that any such measures could have on our business and results of operations. The COVID-19 pandemic has led to an economic downturn and it is uncertain how long this economic downturn will last. This economic downturn has resulted in higher unemployment rates, lower household income and significant fluctuations in consumer spending, all of which could adversely affect the persistency of in force business, the demand for the term life insurance, investment and savings and other financial products that we sell, our liquidity and our ability to attract new recruits. It could also negatively impact product providers and business partners with whom we have long-standing business relationships, which could materially adversely affect our business. Many state governments required that insurance companies temporarily extend grace periods, and we have adopted other measures intended to enable customers to maintain life insurance policies when facing financial hardships due to the COVID-19 pandemic. We do not yet know the impact this will have on the future persistency of our life insurance policies. Further, the significant volatility in the North American equity markets in the first quarter of 2020 impacted, and potential future volatility could impact, the value of clients’ investment accounts and may have a negative effect on the Company’s sales of investment and savings products, both of which could have an adverse effect on our business, financial condition and results of operations. We cannot predict accurately how legal and regulatory responses to concerns about the COVID-19 pandemic will impact our business. For example, liability could result if persons are infected with COVID-19 at one of our offices or by one of the sales representatives and it is determined that we did not exercise reasonable precautions in how we protect our workplaces. The extent to which the COVID-19 pandemic may impact our business, financial condition and results of operations will depend on future developments that are highly uncertain and cannot be predicted accurately, including new information that may emerge concerning the severity of the COVID-19 pandemic, the duration of the pandemic and actions taken to contain or mitigate its impact. In the event of a disaster, our business continuity plan may not be sufficient, which could have a material adverse effect on our business, financial condition and results of operations. Our infrastructure supports a combination of local and remote recovery solutions for business resumption in the event of a disaster, including a security incident. In the event of either a campus-wide destruction or the inability to access our data center or main campus in Duluth, Georgia, our business recovery plan provides for a limited number of our employees to perform their work functions via a dedicated business backup/recovery site located around 20 miles from our main campus or by remote access from an employee’s home. However, in the event of campus-wide destruction, our business recovery plan may be inadequate, and our employees and the sales representatives may be unable to carry out their work, which could have a material adverse effect on our business, financial condition and results of operations. RisksRelatedtoInformation TechnologyandCybersecurity If one of our, or a third-party partner’s, significant information technology systems fails, if its security is compromised, or if the Internet becomes disabled or unavailable, our business, financial condition and results of operations may be materially adversely affected. Our business is highly dependent upon the effective operation of our information technology systems and third-party technology ITEM 1A. RISK FACTORS systems, networks and clouds to record, process, transmit and store information, including sensitive customer and proprietary information. We rely on these systems throughout our business for a variety of functions including to conduct many of our business activities and transactions with customers, sales representatives, vendors and other third parties, to prepare our financial statements and to communicate with our Board of Directors. Further, our information technology systems and applications run a variety of third-party and proprietary software intended to support the sales force. Our business also relies on the use by employees, representatives and other third parties of electronic mobile devices, such as laptops, tablets and smartphones, which are particularly vulnerable to loss and theft. Maintaining the integrity of these systems and networks is critical to the success of our business operations, including the retention of sales representatives and customers, and to the protection of our proprietary information and our customers’ confidential and personal information. We could experience a failure of one or more of these systems or could fail to complete all necessary data reconciliation or other conversion controls when implementing new software systems. In addition, despite the implementation of security and back-up measures, our information technology systems may be vulnerable to physical or electronic intrusions, viruses or other attacks, programming errors and similar disruptions. We are subject to international, federal and state regulations, and in some cases contractual obligations, that require us to establish and maintain policies and procedures designed to protect sensitive customer, employee, sales representative and third-party information. We have implemented and maintain security measures, including industry-standard commercial technology, designed to protect against breaches of security and other interference with our systems and networks resulting from attacks by third parties, including hackers, and from employee or representative error or malfeasance. We continually assess our ability to monitor, respond to, and recover from Primerica 2020 Annual Report 45 ITEM 1A. RISK FACTORS such threats. We also require third-party vendors, who in the provision of services to us are provided with or process information pertaining to our business or our customers, to meet certain information security standards. Despite the measures we have taken and may in the future take to address and mitigate cybersecurity and technology risks, we cannot assure that our systems and networks will not be subject to breaches or interference. Any such breaches or interference by third parties or by sales representatives or employees that may occur in the future including the failure of any one of these systems for any reason, could cause significant interruptions to our operations, which could have a material adverse effect on our business, financial condition and results of operations. Anyone who is able to circumvent our security measures and penetrate our information technology systems could access, view, misappropriate, alter, or delete information in the systems, including personally-identifiable client information, health information, and proprietary business information. In addition, an increasing number of jurisdictions require that regulators and clients be notified if a security breach results in the disclosure of personally- identifiable client information or health information, which could exacerbate the harm to our business, financial condition or results of operations. We cannot be certain that advances in criminal capabilities, discovery of new vulnerabilities, attempts to exploit vulnerabilities in our systems, data thefts, physical system or network break-ins or inappropriate access, or other developments will not compromise or breach the technology or other security measures protecting the networks and systems used in connection with our business. Operating system failures, ineffective system implementation, loss of the Internet or the compromise of security with respect to internal, external or third-party operating systems or electronic devices could subject us to significant civil and criminal liability, harm our reputation, interrupt our business operations, deter people from purchasing our products, require us to incur significant technical, legal and other 46 expenses, and adversely affect our internal control over financial reporting, business, financial condition, or results of operations. The current legislative and regulatory climate with regard to cybersecurity may adversely affect our business, financial condition, and results of operations. Various international, federal and state legislative and regulatory bodies are considering or have considered, proposed, or adopted new standards and rules regarding protection of personally-identifiable information. NYDFS’s Cybersecurity Requirements for Financial Services Companies require covered financial services institutions to implement a cybersecurity program designed to protect information systems. The NAIC has adopted the Insurance Data Security Model Law (“Model Law”), which, among other things, would require insurers and insurance producers to develop and maintain a written information security program, conduct risk assessments, and assess the data security practices of third-party service providers. The Model Law, which has some similarities as well as differences from the NYDFS’s cybersecurity regulation, has been adopted by a significant number of states. In addition, the California Consumer Protection Act of 2018 and related laws and regulations (“CCPA”) are designed to give consumers more control over their personal data. The CCPA, which imposes strict liability for security incidents under certain circumstances, became effective in January 2020. All 50 U.S. states and Canada have breach notification requirements. Such laws or regulations could require us to implement new technologies or revise and maintain policies and procedures designed to protect sensitive customer, employee, representative and third-party information. Being subject to, or out of compliance with, the aforementioned laws and regulations could result in material costs, fines, penalties or litigation, which could materially adversely affect our business, financial condition and results of operations. FinancialRisksAffectingOurBusiness Credit deterioration in, and the effects of interest rate fluctuations and changes to benchmark reference interest rates on, our invested asset portfolio and other assets that are subject to changes in credit quality and interest rates could materially adversely affect our business, financial condition and results of operations. A large percentage of our invested asset portfolio is invested in fixed-income securities. As a result, credit deterioration and interest rate fluctuations could materially affect the value of and earnings generated by our invested asset portfolio. During periods of declining market interest rates, we must invest the cash we receive as interest, return of principal on our investments and cash from operations in lower- yielding, high-grade instruments or in lower- credit instruments to maintain comparable returns. Issuers of fixed-income securities could also decide to prepay their obligations to borrow at lower market rates, which would increase our reinvestment risk. If interest rates generally increase, the fair value of our fixed rate income portfolio decreases. Additionally, if the fair value of any security in our invested asset portfolio decreases, we may realize losses if we deem the value of the security to be other-than- temporarily impaired. We also have an asset on deposit with a coinsurer backing a 10% coinsurance agreement entered into at the time of our IPO. The fair value of this asset is influenced by fluctuation in credit spreads and interest rates, and changes in fair value are recognized in income. To the extent that any fluctuations in fair value or interest rates are significant or we recognize impairments that are material, it could have a material adverse effect on our business, financial condition and results of operations. The value of certain of our investments are tied to benchmark reference interest rates, such as the London Interbank Offered Rate (“LIBOR”). In 2022, financial markets will begin transitioning away from LIBOR as a reference interest rate for securities and contract terms, with full transition ITEM 1A. RISK FACTORS expected by June 30, 2023. The discontinuation of LIBOR or a switch to an alternative reference rate could adversely impact the value and liquidity of certain investments that use LIBOR as a reference rate and could cause increased cost or uncertainties regarding changes required to be made to contracts that reference LIBOR. As of December 31, 2020, investments that are tied to LIBOR represent less than 5% of our invested asset portfolio. Valuation of our investments and the determination of expected credit losses when the fair value of our available-for-sale invested assets is below amortized cost are both based on estimates that may prove to be incorrect. Our portfolio of invested assets primarily consists of fixed-maturity securities that are classified as available-for-sale. When the fair value of any of our available-for-sale invested assets declines below amortized cost, an impairment exists and we recognize a loss in either our statement of income or in other comprehensive income based on our assessment of expected credit losses. The determination of the fair value of certain invested assets, particularly those that do not trade on a regular basis, requires an assessment of available data and the use of assumptions and estimates. Once it is determined that the fair value of an available-for-sale security is below its carrying value, we first determine if we intend to sell or will more-likely-than-not be required to sell the security before the expected recovery of its amortized cost. If we intend to sell or will more-likely-than-not be required to sell the security, then we recognize the impairment as a credit loss in our condensed consolidated statements of income by writing down the security’s amortized cost to its fair value. If we do not intend to sell or it is not more-likely- than-not that we will be required to sell the security before the expected recovery of its amortized cost, we recognize the portion of the impairment that is due to a credit loss, if any, in our condensed consolidated statement of income through an allowance. The portion of the Primerica 2020 Annual Report 47 ITEM 1A. RISK FACTORS impairment that is due to factors other than a credit loss is recognized in other comprehensive income in the condensed consolidated statement of comprehensive income as an unrealized loss. The determination of whether an impairment is due to credit factors is subjective and involves a variety of assumptions and estimates. There are various risks and uncertainties associated with determining whether an impairment is due to credit factors when the fair value of available-for-sale securities declines below amortized cost. To the extent that we are incorrect in our determination of the fair value of our investment securities or our determination of whether an impairment is due to factors for available-for-sale securities, we may realize losses that never actually materialize or may fail to recognize losses within the appropriate reporting period. Changes in accounting standards can be difficult to predict and could adversely impact how we record and report our financial condition and results of operations. Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. U.S. GAAP is a continuously evolving set of financial accounting and reporting standards that govern the preparation of our financial statements. Changes to U.S. GAAP can be difficult to implement and can materially impact how we record and report our financial condition and results of operations. An upcoming change in U.S. GAAP that will impact how we record and report our financial condition and results of operations is Accounting Standards Update No. 2018-12, Financial Services – Insurance (Topic 944) – Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”). The amendments in this update will change the accounting guidance we follow for long- duration insurance contracts. The most notable amendment included in ASU 2018-12 will require us to update assumptions used in 48 measuring future policy benefits, including mortality, persistency, and disability rates, at least annually instead of locking those assumptions at contract inception and reflecting differences in assumptions and actual performance as the experience occurs. ASU 2018-12 also includes changes to how we amortize DAC and determine and update the discount rate assumptions used in measuring future policy benefits reserves while increasing the level of financial statement disclosures required. The amendments in ASU 2018-12 are scheduled to be effective for the Company beginning in 2023 as of the earliest period presented in the consolidated financial statements. We anticipate that the adoption of ASU 2018-12 will have a pervasive impact on our consolidated financial statements and related disclosures and will require changes to certain of our processes, systems, and controls. This new accounting standard, in addition to other financial reporting standard changes being discussed by the Financial Accounting Standards Board (“FASB”) and the SEC, could adversely impact both our financial condition and results of operations as reported on a U.S. GAAP basis. Additionally, the Company’s insurance company subsidiaries prepare statutory financial statements in accordance with accounting principles designated by regulators in the jurisdictions in which they are domiciled. The financial statements of our U.S. insurance subsidiaries are prepared in accordance with SAPs prescribed or permitted by state insurance departments and the NAIC. SAPs, including actuarial methodologies for estimating reserves, are subject to continuous evaluation by the NAIC and state insurance departments. Similarly, our Canadian life insurance subsidiary is required to prepare statutory financial statements in accordance with IFRS, as prescribed by the OSFI in Canada. The International Accounting Standard Board’s (the “IASB”) new accounting standard for insurance contracts (“IFRS 17”) will become effective in 2023. IFRS 17 will significantly overhaul the measurement model for insurance contracts at our Canadian life insurance subsidiary for statutory reporting purposes. The statutory financial statements of our insurance company subsidiaries, which are used to determine dividend capacity and risk-based capital, could be adversely affected by this and other future changes implemented by jurisdictional insurance departments. Therefore, the ability of our insurance companies to comply with regulatory minimum capital requirements and ultimately pay dividends to the Parent Company could be adversely impacted. The inability of our subsidiaries to pay dividends or make distributions or other payments to us in sufficient amounts would impede our ability to meet our obligations and return capital to our stockholders. Operations of the Company are conducted by its subsidiaries. As such, Primerica, Inc. is a holding company that has no significant operations. Our primary asset is the capital stock of our subsidiaries and our primary liability is our Senior Notes. We rely primarily on dividends and other payments from our subsidiaries to meet our operating costs, other corporate expenses, and Senior Note obligations, as well as to return capital to our stockholders. The ability of our subsidiaries to pay dividends to us depends on their earnings, covenants contained in existing and future financing or other agreements and on regulatory restrictions. The ability of our insurance subsidiaries to pay dividends will further depend on their statutory income and surplus. If the cash we receive from our subsidiaries pursuant to dividend payments and tax sharing arrangements is insufficient for us to fund our obligations or if a subsidiary is unable to pay dividends to us, we may be required to raise cash through the incurrence of debt, the issuance of equity or the sale of assets. However, given the historic volatility in the capital markets, there is no assurance that we would be able to raise cash by these means. The jurisdictions in which our insurance subsidiaries are domiciled impose certain restrictions on their ability to pay dividends to us. In the United States, these restrictions are ITEM 1A. RISK FACTORS based, in part, on the prior year’s statutory income and surplus. In general, dividends up to specified levels are considered ordinary and may be paid without prior approval. Dividends in larger amounts are subject to approval by the insurance commissioner of the state of domicile. In Canada, dividends can be paid, subject to the paying insurance company continuing to meet the regulatory requirements for capital adequacy and liquidity and upon 15 days’ minimum notice to OSFI. More stringent restrictions could be adopted from time to time by jurisdictions in which our insurance subsidiaries are domiciled, and such restrictions could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable to us by our subsidiaries without prior approval by regulatory authorities. In addition, in the future, we may become subject to debt covenants or other agreements that limit our ability to return capital to our stockholders. The ability of our insurance subsidiaries to pay dividends to us is also limited by our need to maintain the financial strength ratings assigned to us by the ratings agencies. If any of our subsidiaries were to become insolvent, liquidate, or otherwise reorganize, we, as sole stockholder, will have no right to proceed against the assets of that subsidiary. Furthermore, with respect to our insurance subsidiaries, we, as sole stockholder, will have no right to cause the liquidation, bankruptcy, or winding-up of the subsidiary under the applicable liquidation, bankruptcy or winding-up laws, although, in Canada, we could apply for permission to cause liquidation. The applicable insurance laws of the jurisdictions in which each of our insurance subsidiaries is domiciled would govern any proceedings relating to that subsidiary. The insurance authority of that jurisdiction would act as a liquidator or rehabilitator for the subsidiary. Both creditors of the subsidiary and policyholders (if an insurance subsidiary) would be entitled to payment in full from the subsidiary’s assets before we, as the sole stockholder, would be entitled to receive any distribution from the subsidiary. If the ability of our insurance or non-insurance subsidiaries to pay dividends or make other Primerica 2020 Annual Report 49 ITEM 1A. RISK FACTORS distributions or payments to us is materially restricted by regulatory requirements, bankruptcy, or insolvency, or our need to maintain our financial strength ratings, or is limited due to operating results or other factors, it could materially adversely affect our ability to fund our obligations and return capital to our stockholders. RisksRelatedtoLegislativeand RegulatoryChanges We are subject to various federal, state and provincial laws and regulations in the United States and Canada, changes in which or violations of which may require us to alter our business practices and could materially adversely affect our business, financial condition and results of operations. Our business is subject to many regulations that relate to, among other things, consumer protection, fair credit reporting, financial privacy, consumer fraud, anti-money laundering, worker classification standards, corporate taxation and transactions with certain countries. These laws and regulations often are subject to the political climate. Changes in, or violations of, any of these laws or regulations may require additional compliance procedures, or result in enforcement proceedings, sanctions or penalties, which could have a material adverse effect on our business, financial condition, and results of operations. The current legislative and regulatory climate with regard to financial services may adversely affect our business, financial condition, and results of operations. The volume of legislative and regulatory activity relating to financial services has increased substantially in recent years, and the level of enforcement actions and investigations by federal, state and provincial regulators may increase correspondingly. Legislative, regulatory 50 and enforcement activity at the federal level may contribute to heightened activity at the state and provincial level. If we or the sales representatives become subject to new requirements or regulations, it could result in increased litigation, regulatory risks, changes to our business model, a decrease in the number of securities-licensed representatives or a reduction in the products we offer to our clients or the profits we earn, which could have a material adverse effect on our business, financial condition and results of operations. Regulators could also adopt laws or interpret existing laws in a way that would require retroactive changes to our business, accounting practices, or redundant reserve financing structures. Any such retroactive changes could have a material adverse effect on our business, financial condition and results of operations. GeneralRisksFactors Litigation and regulatory investigations and actions may result in financial losses and harm our reputation. We face a risk of litigation and regulatory investigations and actions in the ordinary course of operating our businesses. From time to time, we are subject to private litigation as a result of alleged sales representative misconduct or alleged failure of the Company to follow applicable insurance, securities or other laws or regulations. If we become subject to any such litigation, the associated legal expense and any judgment or settlement of the claims could have a material adverse effect on our business, financial condition and results of operations. For example, multi-state treasurer unclaimed property audits by 30 jurisdictions are focused on the life insurance claims paying practices of our subsidiaries, Primerica Life and NBLIC, but have been inactive in recent years. The potential outcome of such actions is difficult to predict but could subject us to adverse consequences. We cannot reasonably estimate the likelihood or the impact of additional costs or liabilities that could result from resolution of these matters, or the effect these matters may have on the conduct of our business, financial condition and results of operations. We are also routinely subject to regulatory inquiries, such as information requests, subpoenas and books and record examinations, from state, provincial and federal regulators and other authorities and from time to time, regulatory investigations as a result of alleged sales representative misconduct or alleged failure of the Company to follow applicable laws or regulations. A substantial legal liability or a significant regulatory action against us could have a material adverse effect on our business, financial condition and results of operations. Moreover, even if we ultimately prevail in any litigation, regulatory action or investigation, we could suffer significant reputational harm and we could incur significant legal expenses, either of which could have a material adverse effect on our business, financial condition and results of operations. In addition, increased regulatory scrutiny and any resulting investigations or proceedings could result in new legal precedents and industry-wide regulations or practices that could materially adversely affect our business, financial condition and results of operations. A significant change in the competitive environment in which we operate could negatively affect our ability to maintain or increase our market share and profitability. We face competition in all of our business lines. Our competitors include financial services companies, banks, investment management firms, broker-dealers, insurance companies, insurance brokers, direct sales companies, and technology companies. In many of our product offerings, we face competition from competitors that may have greater market share or breadth of distribution, offer a broader range of products, services or features, assume a greater level of risk, have lower profitability expectations, have lower fee and expense ratios, have higher financial strength ratings or offer more robust digital tools and self-service capabilities than we do. More recently, significant capital has been invested in ITEM 1A. RISK FACTORS direct-to-consumer offerings, including wealth management, retirement and life insurance products. In addition, regulatory changes and competitive factors are leading to innovations in product offerings and compensation structures. To the extent these entrants create a significant change in the competitive environment, our ability to maintain or increase our market share and profitability could be materially adversely affected. The loss of key employees could negatively affect our financial results and impair our ability to implement our business strategy. Our success substantially depends on our ability to attract and retain key members of our senior management team. The efforts, personality and leadership of our senior management team have been, and will continue to be, critical to our success. The loss of service of our senior management team due to disability, death, retirement or some other cause could reduce our ability to successfully motivate the sales representatives, or implement our business plan which could have a material adverse effect on our business, financial condition and results of operations. Although our executive officers have entered into employment agreements with us, there is no assurance that they will complete the term of their employment agreements or that they or the Company will renew them upon expiration. We may be materially adversely affected by currency fluctuations in the United States dollar versus the Canadian dollar. The Canadian dollar is the functional currency for our Canadian subsidiaries and our financial results, reported in U.S. dollars, are affected by changes in the currency exchange rate. The assets, liabilities, revenues, and expenses of our Canadian subsidiaries are generally all denominated in Canadian dollars. However, the Canadian dollar financial statements of our Canadian subsidiaries are translated into U.S. dollars in our consolidated financial statements. Therefore, significant exchange rate fluctuations Primerica 2020 Annual Report 51 ITEM 1A. RISK FACTORS between the U.S. dollar and the Canadian dollar could have a material adverse effect on our financial condition and results of operations. A weaker Canadian dollar relative to the U.S. dollar would result in lower levels of reported revenues, expenses, net income, assets, liabilities and accumulated other comprehensive income as translated in our U.S. dollar reporting currency financial statements. In addition, our net investment in our Canadian subsidiaries is significantly affected by fluctuations in the exchange rate between the U.S. dollar and the Canadian dollar. Any acquisition of or investment in businesses that we may undertake that does not perform as we expect or that is difficult for us to integrate could materially adversely impact our business, financial condition and results of operations. At any particular time, we may be in various stages of assessment, discussion, and negotiation with regard to one or more potential acquisitions or investments, not all of which will be consummated. Acquisitions involve numerous risks and uncertainties and may be of businesses in which we lack operational or market experience. If we complete one or more acquisitions, our results of operations and financial condition may be adversely affected by a number of factors, including but not limited to: regulatory or compliance issues that could arise; a rating downgrade by a rating agency if it perceives an adverse change in our financial condition; changes in regulations and laws; the failure of the acquired businesses to achieve the results we have projected in either the near or long term; the assumption of unexpected liabilities, including litigation risks; the difference between the estimated and actual fair value of assets acquired and liabilities assumed; the difficulties of imposing adequate financial and operating controls on the acquired companies and their management and the potential cost that might be incurred to implement adequate controls; the difficulties in the integration of the operations, technologies, services and products of the acquired companies; and the failure to achieve the strategic objectives of these 52 acquisitions. Further, completion of one or more acquisitions may cause our Board to suspend the payment of dividends and/or share repurchases. The market price of our common stock may fluctuate. The stock market in general, and the market for companies in the financial services industry in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Also, broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. Our stock could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control. ITEM 1B. UNRESOLVED STAFF COMMENTS. Not applicable. ITEM 2. PROPERTIES. Our executive offices and business operations are housed primarily at our home office facility located in Duluth, Georgia. Our home office facility consists of general office space where our primary business operations are maintained including our information technology infrastructure and our media production studios. We lease the building, which is approximately 345,000 square feet, under a lease expiring in June 2028. We also maintain a regional head office location for our Canadian operations in Mississauga, Ontario. Our Canadian head office location consists of general office space under a lease expiring in October 2030. We lease general office space for our NBLIC subsidiary in Long Island City, New York under a lease expiring in March 2030. Each of these leased properties is used by all of our operating segments. We believe that our existing facilities in the U.S. and Canada are adequate for our current requirements and for our operations for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS ITEM 3. LEGAL PROCEEDINGS. We are involved from time to time in legal disputes, regulatory inquiries and arbitration proceedings in the normal course of business. Additional information regarding certain legal proceedings to which we are a party is described under “Contingent Liabilities” in Note 16 (Commitments and Contingent Liabilities) to our consolidated financial statements included elsewhere in this report, and such information is incorporated herein by reference. As of the date of this report, we do not believe any pending legal proceeding to which Primerica or any of its subsidiaries is a party is required to be disclosed pursuant to this item. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. Primerica 2020 Annual Report 53 ITEM X. INFORMATION ABOUT OUR EXECUTIVE OFFICERS AND CERTAIN SIGNIFICANT EMPLOYEES ITEM X. SIGNIFICANT EMPLOYEES INFORMATION ABOUT OUR EXECUTIVE OFFICERS AND CERTAIN Our executive officers are elected by our Board of Directors. The name, age at March 1, 2021, and position of each of our executive officers and certain significant employees are presented below. These officers comprise our senior management team. Name Age Position Glenn J. Williams 61 Chief Executive Officer Peter W. Schneider Alison S. Rand Gregory C. Pitts John A. Adams Michael C. Adams Lisa A. Brown Estee Faranda Jeffrey S. Fendler William A. Kelly Kathryn E. Kieser Michael W. Miller Robert H. Peterman, Jr. Brett A. Rogers Julie A. Seman 64 53 58 President Executive Vice President and Chief Financial Officer Executive Vice President and Chief Operating Officer 62 Chief Executive Officer, Primerica Life Insurance Company of Canada 64 51 Executive Vice President and Chief Business Technology Officer Executive Vice President and Chief Administrative Officer 46 Chief Executive Officer, PFS Investments 64 65 51 43 55 55 51 Executive Vice President and Chief Compliance and Risk Officer Executive Vice President and Co-Head of Business Technology Executive Vice President and Chief Reputation Officer Executive Vice President, Head of Corporate Development and Strategic Planning and President of Primerica Mortgage, LLC Executive Vice President and Chief Marketing Officer Executive Vice President and General Counsel Executive Vice President, Field Distribution, Primerica Life, Client Solutions and Strategic Markets Set forth below is biographical information concerning our executive officers. Glenn J. Williams has served as Chief Executive Officer since April 2015. He served as President from 2005 to April 2015, as Executive Vice President of Field and Product Marketing for international operations from 2000 to 2005, as President and Chief Executive Officer of Primerica Canada from 1996 to 2000, and in roles of increasing responsibility as part of Primerica’s international expansion team in Canada from 1985 to 2000. He began his career with Primerica in 1981 as a member of the Company’s sales force and joined the home office team in 1983. Mr. Williams earned his B.S. in education from Baptist University of America. He currently serves on the board of trustees for the Georgia Baptist Foundation. 54 Peter W. Schneider has served as President since April 2015. He served as Executive Vice President, General Counsel, and Chief Administrative Officer from 2000 to April 2015 and as Corporate Secretary from 2000 through January 2014. He was a Partner at the law firm of Rogers & Hardin LLP in Atlanta, Georgia from 1988 to 2000. Mr. Schneider earned both his B.S. in political science and industrial relations and his J.D. from the University of North Carolina at Chapel Hill. He serves on the boards of directors of the Securities Industry and Financial Markets Association (SIFMA) and the Camp John W. Hanes (YMCA). Alison S. Rand has served as Executive Vice President and Chief Financial Officer since 2000 and in various capacities at the Company since 1995. Prior to 1995, Ms. Rand worked in the audit department of KPMG LLP. Ms. Rand earned her B.S. in accounting from the University of Florida and is a certified public accountant. She is Chair of the board of directors of Cool Girls, Inc., Vice Chair of the Audit Committee of the University of Florida National Foundation board of directors and a member of the Executive Committee of the board of directors of Junior Achievement of Georgia. She also serves on the Terry College of Business Executive Education CFO Roundtable Advisory Board. Gregory C. Pitts has served as Executive Vice President and Chief Operating Officer since December 2009, as Executive Vice President since 1995 with responsibilities within the Term Life Insurance and Investment and Savings Products segments, and the information technology division and in various capacities at the Company since 1985. Mr. Pitts earned his B.S.B.A. in general business from the University of Arkansas. He serves on the board of directors of the Boy Scouts of America Atlanta Area Council. Set forth below is biographical information concerning certain significant employees. John A. Adams has served as the Chief Executive Officer of Primerica Life Insurance Canada since 2003. He previously served Primerica Life Canada as Chief Financial Officer and before that as Vice President of Finance. Before joining Primerica, Mr. Adams served as the Director of Finance of a major Canadian university and Treasurer of an insurance group of companies. He began his career in 1980 with KPMG LLP. He graduated from Trinity College at the University of Toronto with a Bachelor of Commerce, and is a Chartered Accountant and Chartered Professional Accountant. Mr. Adams has provided industry leadership as a board member of the Investment Funds Institute of Canada (the mutual fund industry association) since 2005, having served as its Board Chairman from 2015 to 2017. He has also served as a board member of the Federation of Mutual Fund Dealers. Michael C. Adams has served as Co-Head of Business Technology since December 2017, as Chief Business Technology Officer since April 2010, as Executive Vice President responsible for ITEM X. INFORMATION ABOUT OUR EXECUTIVE OFFICERS AND CERTAIN SIGNIFICANT EMPLOYEES business technology since 1998 and in various capacities at the Company since 1980. Mr. Adams earned his B.A. in business and economics from Hendrix College in 1978. Lisa A. Brown has served as Executive Vice President and Chief Administrative Officer since October 2020. She oversees the Company’s Human Resources, Talent Management, Facilities and Physical Securities functions and leads the Company’s efforts to create and implement programs, processes and protocols that focus on diversity, equality and inclusion. She also works closely with Marketing leaders to support our Strategic Markets affinity groups in the field. Prior to joining Primerica, Ms. Brown held several leadership positions at Delta Air Lines for more than 20 years overseeing Delta’s wholly-owned subsidiaries, fleet, procurement, talent development and operations functions. She earned her B.S. degree in Human Resources Administration from Michigan State University and a Masters of Business Administration from Kennesaw State University. Ms. Brown is a member of the board of directors of Cool Girls, Inc. Estee Faranda has served as Chief Executive Officer of PFS Investments since March 2020 and as Executive Vice President from January 2020 to March 2020. Before joining the Company in January 2020, she was at Envestnet from March 2015 to January 2020 where she held several leadership positions, built an asset management network and was responsible for all asset management products on the Envestnet platform. Prior to Envestnet, Ms. Faranda spent eight years at Morningstar Investment Management. Ms. Faranda serves on the board of directors of the American Securities Association (ASA). She attended Kean University and spent six years in the United States Naval Reserve. Jeffrey S. Fendler has served as Executive Vice President and Chief Compliance and Risk Officer of the Company since February 2014. He served as President of Primerica Life from 2005 through January 2014 and in various capacities at the Company since 1980. Mr. Fendler received a B.A. in economics from Tulane University. William A. Kelly has served as Executive Vice President and Co-Head of Business Technology Primerica 2020 Annual Report 55 ITEM X. INFORMATION ABOUT OUR EXECUTIVE OFFICERS AND CERTAIN SIGNIFICANT EMPLOYEES since December 2017. He served as Executive Vice President of PFS Investments from March 2020 to August 2020, as Chief Executive Officer from May 2018 to March 2020, as President and Chief Executive Officer from 2005 to May 2018, and in various capacities at the Company since 1985. Mr. Kelly graduated from the University of Georgia with a B.B.A. in accounting. Kathryn E. Kieser has served as Executive Vice President and Chief Reputation Officer of Primerica, Inc. and President and Chair of the Primerica Foundation since January 2019. Previously, she served as Executive Vice President of Investor Relations from April 2010 to December 2018. Ms. Kieser joined Primerica in October 1995 and has held many positions over her career including Vice President of Sales and Product Marketing, Senior Vice President of Auto and Homeowners Insurance, and Chief Marketing Officer for Primerica Life Insurance Company. Ms. Kieser earned her B.S. degree in Business Administration from Auburn University and a Master of Science degree from Georgia State University. She serves on the boards of directors for the Gwinnett Chamber of Commerce and the Community Foundation for Northeast Georgia. Michael W. Miller has served as Executive Vice President and Head of Corporate Development and Strategic Planning since September 2015. He leads the Company’s strategic undertakings, including strategic partnerships, organic growth initiatives, M&A and long-term business planning. He has also been President of Primerica Mortgage, LLC since January 2018. He was previously a senior investment banker at Lazard from 2006 to September 2015, where he specialized in providing strategic advice to a broad array of financial institutions and their regulators. While at Lazard, Mr. Miller advised on over $85 billion of successful transactions and restructuring assignments. Mr. Miller also worked in the insurance industry in various capacities. He holds a B.S. from Brigham Young University in Business Administration and Finance and earned the Charted Property & Casualty Underwriter designation. Robert H. Peterman, Jr. has served as Executive Vice President and Chief Marketing Officer since 56 June 2018. He previously served as President of Primerica Distribution from December 2013 to June 2018, where he was responsible for recruiting, licensing, licensing education, field compensation, field equity, and decision support. In 2005, he became Executive Vice President and was given responsibility for the Company’s Grow the Sales Force initiative. He also served as Chief Executive Officer of Primerica’s New York life insurance company from January 2017 to June 2018. Mr. Peterman joined the Company in October 1984 and has served in many varying roles throughout the business. Brett “Ben” A. Rogers has served as Executive Vice President and General Counsel since May 2019. Previously, he was a Partner at Rogers & Hardin LLP in Atlanta, Georgia, where he represented Primerica as outside counsel for more than 20 years. At Rogers & Hardin, his practice focused on complex business matters, including securities litigation, arbitration, and general commercial litigation. Mr. Rogers received a B.A. from Dickinson College and his J.D. with honors from Florida State University. Julie A. Seman has served since May 2018 as Executive Vice President and Chief Marketing Officer of Field Distribution, Digital Distribution, Primerica Life, Client Solutions, and Strategic Markets. From August 2014 she has been responsible for sales force growth and increased product distribution through the training and development of financial services representatives in the United States, Canada, Puerto Rico and Guam. In addition, Ms. Seman augments Primerica’s strategic markets which include African American, Hispanic, Partnership and Women with a focus on personal financial education and entrepreneurship. Prior thereto, she was Senior Vice President of Client Solutions from April 2010 to August 2014 where she supervised all front-end products, including Auto & Home Marketing and Legal Protection and oversaw field communication tools. Ms. Seman joined the Company in September 1998 and has served in many roles with increasing responsibility. Ms. Seman received her B.S. in Business Management from Southern Illinois University. PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. MarketInformation Our common stock of is listed for trading on the New York Stock Exchange (“NYSE”) under the symbol “PRI.” Holders As of February 28, 2021, we had 140 holders of record of our common stock. Dividends In the first quarter of 2021, we declared a quarterly dividend to stockholders of $0.47 per share. We currently expect to continue to pay comparable quarterly cash dividends to holders of our common stock. Our payment of cash dividends is at the discretion of our Board of Directors in accordance with applicable law after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs and plans for growth. Under Delaware law, we can only pay dividends either out of surplus or out of the current or the immediately preceding year’s earnings. Therefore, no assurance is given that we will continue to pay any dividends to our common stockholders, or as to the amount of any such dividends. IssuerPurchasesofEquitySecurities Depending on market conditions, shares of our common stock may be repurchased from time to time at prevailing market prices through open market or privately negotiated transactions. The Parent Company has no obligation to repurchase any shares. Subject to applicable corporate and securities laws, repurchases may be made at such times and in such amounts as management deems appropriate. Repurchases under a publicly announced program can be discontinued at any time if management believes additional repurchases are not warranted. During the quarter ended December 31, 2020, we repurchased shares of our common stock as follows: Period Total number of shares purchased (1) Average price paid per share (1) October 1-31, 2020 115,433 November 1-30, 2020 December 1-31, 2020 Total 44 419 115,896 $115.68 111.65 134.06 $115.74 Total number of shares purchased as part of publicly announced plans or programs (2) Approximate dollar value of shares that may yet be purchased under the plans or programs (3) 115,433 — — $68,605,883 68,605,883 68,605,883 $115,433 $68,605,883 (1) Consists of (a) repurchases and withholdings of 463 shares at an average price of $131.93 arising from share-based compensation withholdings, and (b) open market share repurchases under the share repurchase program approved by our Board of Directors. (2) On February 10, 2020, our Board of Directors authorized a share repurchase program, which was announced on February 11, 2020, for up to $300.0 million of our outstanding common stock (including $50.0 million remaining from the prior repurchase program) for purchases through June 30, 2021. No further repurchases will be made under this repurchase program. (3) On February 9, 2021, our Board of Directors authorized a share repurchase program, which was announced on February 10, 2021, for up to $300.0 million of our outstanding common stock (including $68.6 million remaining from the prior repurchase program) for purchases through June 30, 2022. As a result, no further repurchases will occur under the prior repurchase program. Primerica 2020 Annual Report 57 ITEM 5. COMMON STOCK AND STOCKHOLDER MATTERS For more information on our share repurchases, see Note 12 (Stockholders’ Equity) to our consolidated financial statements included elsewhere in this report. StockPerformanceTable(1) The following graph compares the performance of our common stock to the S&P MidCap 400 Index and the S&P 500 Insurance Index by assuming $100 was invested in each investment option as of December 31, 2015 and the reinvestment of all dividends. The S&P MidCap 400 Index measures the performance of the United States middle market capitalization (“mid-cap”) equities sector. The S&P 500 Insurance Index is a capitalization-weighted index of domestic equities of insurance companies traded on the NYSE and NASDAQ. Our common stock is included in the S&P MidCap 400 index. Total Stockholder Performance l e u a V x e d n I $350 $300 $250 $200 $150 $100 $50 5 1 0 2 / 1 3 / 2 1 6 1 0 2 / 1 3 / 2 1 7 1 0 2 / 1 3 / 2 1 8 1 0 2 / 1 3 / 2 1 9 1 0 2 / 1 3 / 2 1 0 2 0 2 / 1 3 / 2 1 Primerica, Inc. S&P 500 Insurance S&P MidCap 400 Index Primerica, Inc. S&P 500 Insurance S&P MidCap 400 Period Ended 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 $100.00 $148.33 $219.88 $213.54 $288.50 $299.77 100.00 100.00 117.58 120.74 136.62 140.35 121.30 124.80 156.94 157.49 156.25 179.01 (1) The stock performance table is not deemed “soliciting material” or subject to Section 18 of the Exchange Act. 58 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”, “us” or the “Company”) for the three-year period ended December 31, 2020. As a result, the following discussion should be read in conjunction with the consolidated 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 section generally discusses 2020 and 2019 items and comparisons between 2020 and 2019 financial results. Discussions of 2018 items and comparisons between 2019 and 2018 financial results can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “2019 MD&A”). This MD&A is divided into the following sections: • Business Trends and Conditions • Factors Affecting Our Results • Critical Accounting Estimates • Results of Operations • • Financial Condition Liquidity and Capital Resources ITEM 7. MD&A BusinessTrendsandConditions 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 unemployment levels and consumer confidence, influence investment and spending decisions by middle-income consumers, who are generally our primary clients. These conditions and factors also impact prospective recruits’ perceptions of the business opportunity that becoming a sales representative offers, which can drive or dampen recruiting. Consumer spending and borrowing levels affect how consumers evaluate their savings and debt management plans. In addition, interest rates and equity market returns impact consumer demand for the savings and investment products we distribute. Our customers’ perception of the strength of the capital markets may influence their decisions to invest in the investment and savings products we distribute. The financial and distribution results of our operations in Canada, as reported in U.S. dollars, are affected by changes in the currency exchange rate. As a result, changes in the Canadian dollar exchange rate may significantly affect the result of our business for all amounts translated and reported in U.S. dollars. During the year ended December 31, 2020, market conditions changed rapidly due to the impact of the novel coronavirus COVID-19 (“COVID-19”) pandemic. Measures taken to combat the spread of COVID-19 led to economic uncertainty and market volatility in the United States and Canada that will continue to impact our business for an uncertain period of time. To date, this economic decline, partial recovery and continued uncertainty have resulted in elevated unemployment rates, lower household income, sharp fluctuations in consumer spending, and historic levels of government stimulus. In addition, market volatility has led to large fluctuations in the fair value of securities held in our invested asset portfolio. The impact on our operating results for the year ended Primerica 2020 Annual Report 59 ITEM 7. MD&A December 31, 2020 caused by the spread of COVID-19 is discussed in more detail later in this section, the Results of Operations section, and the Financial Condition section. Due to the evolving and uncertain nature of this event, it currently is not possible to estimate the impact the COVID-19 pandemic will have on our business in future periods. However, we believe COVID-19 will continue to create uncertainty in the following business trends and conditions: • The ability of new recruits to obtain the requisite licenses to sell our products has been, and will likely continue to be limited, by the availability of licensing jurisdictions to administer exams and maintain licensing operations. • We have experienced and will continue to experience an increase in mortality expense due to premature deaths of our insureds caused by COVID-19 infections. The ultimate mortality expense due to COVID-19 is unknown. Any increase in mortality expense will be mitigated by reinsurance as we have ceded a significant majority of our mortality risk to reinsurers we believe to be creditworthy. • To date, the impact of COVID-19 has led to historically high levels of persistency throughout all policy durations and increased policy sales as a result of strong public sentiment towards owning life insurance products. It is unknown how long New recruits New life-licensed sales representatives Life-licensed sales representatives, at period end these trends will continue and to what extent persistency levels and policy sales will normalize as the current fear associated with the COVID-19 pandemic subsides. Also, the prolonged impact of elevated unemployment and lower household income may cause deterioration in persistency of existing term life insurance policies. Refer to the Factors Affecting Our Results section for more information about how persistency impacts our financial results. The effects of these trends and conditions are discussed below and in the Results of Operations section. Size of the Independent Sales Force. Our ability to increase the size of the independent sales force (“sales representatives” or “sales force”) is largely based on the success of the sales force’s recruiting efforts as well as training and motivating recruits to get licensed to sell life insurance. We believe that recruitment and licensing levels are important to sales force trends, and growth in recruiting and licensing is usually indicative of future growth in the overall size of the sales force. Recruiting changes do not always result in commensurate changes in the size of the licensed sales force because new recruits may obtain the requisite licenses at rates above or below historical levels. Details on new recruits activity and life-licensed sales representative activity were as follows: Year ended December 31, 2020 2019 2018 400,345 282,207 290,886 48,106 44,739 48,041 134,907 130,522 130,736 New recruits increased in 2020 compared to 2019 due to positive recruiting momentum at the onset of the COVID-19 pandemic combined with the effect of offering discounted business application fees for several months during the year. After the discounted fee offerings expired in July 2020, recruiting momentum remained strong through December 2020. The number of new life-licensed sales representatives increased in 2020, but faced challenges presented by the COVID-19 pandemic that included the suspensions of in-person licensing preparation classes and the closing of licensing examination centers. In order to address these challenges, we enhanced current incentive programs that encourage recruits to complete the licensing 60 process, expanded the reach of online offerings for licensing exam preparation and facilitated the use of remote testing where offered. As examination centers have reopened, we have noted delays in available testing dates due to the backlog that accumulated during COVID-19 related closures. In response to this backlog, many states are issuing temporary licenses and are offering remote testing options. In addition, many states are extending renewal dates to allow licensees adequate time to complete the renewal process. At December 31, 2020, the Company had 134,907 independent life-licensed representatives compared to 130,522 at ITEM 7. MD&A December 31, 2019. The number of independent life-licensed representatives at year end included 3,597 individuals with COVID-19 temporary licenses and 2,508 licenses with extended renewals dates. We estimate that approximately 4,200 of these individuals will either not pursue the steps necessary to obtain a permanent license or not renew an expiring license. Term Life Insurance Product Sales and Face Amount In 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 (historically between 0.18 and 0.22), were as follows: Year ended December 31, Average number of life-licensed sales representatives Number of new policies issued Average monthly rate of new policies issued per life-licensed sales representative 2020 2019 133,302 130,370 128,977 352,868 287,809 301,589 2018 0.22 0.18 0.19 New policies issued during 2020 increased significantly compared to 2019 as a result of continued favorable public sentiment for protection products in response to the COVID-19 pandemic. The ability of life-licensed representatives to adopt virtual communication tools, when combined with extensive point-of-sales technologies and existing products, allowed them to readily meet our client’s needs. These factors drove productivity in 2020 to the high end of our historical range. While sales of new policies were strong in 2020, the effect of continued weakness in household income caused by the COVID-19 pandemic and a change in public sentiment that is less favorable to protection products following the pandemic could adversely impact sales in future periods. The changes in the face amount of our in-force book of term life insurance policies were as follows: Year ended December 31, % of beginning balance 2019 % of beginning balance 2018 % of beginning balance 2020 Face amount in force, beginning of period $808,262 Net change in face amount: (Dollars in millions) $781,041 $763,831 Issued face amount Terminations Foreign currency 109,436 (60,848) 1,968 14% 93,994 (8)% (71,519) 4,746 * 12% 95,209 (9)% (70,291) (7,708) 1% Net change in face amount 50,556 6% 27,221 3% 17,210 12% (9)% (1)% 2% Face amount in force, end of period $858,818 $808,262 $781,041 * Less than 1%. Primerica 2020 Annual Report 61 ITEM 7. MD&A The face amount of term life policies in force increased from 2019 to 2020 as the level of face amount issued continued to exceed the face amount terminated. As a percentage of the beginning face amount in force, issued face amount increased while terminated face amount decreased, highlighting the strong demand for both buying and maintaining protection products in 2020. Our average issued face amount per policy decreased in 2020 compared to 2019 to approximately $240,600 from $248,500 primarily due to the increased use of TermNow, our rapid issue term life product that provides for face amounts up to $300,000. A lower percentage of applicants purchased our traditionally-underwritten product in response to challenges in satisfying paramedical underwriting requirements due to the COVID-19 pandemic. Investment and Savings Product Sales, Asset Values and Accounts/Positions. Investment and savings products sales and average client asset values were as follows: Product sales: Retail mutual funds Annuities and other Year ended December 31, 2020 vs. 2019 change 2019 vs. 2018 change 2020 2019 2018 $ % $ % (Dollars in millions) $ 4,391 $ 4,056 $ 3,964 $ 335 8% $ 92 2% 2,210 2,397 2,096 (187) (8)% 301 14% Total sales-based revenue generating product sales Managed investments Segregated funds and other 6,601 6,453 6,060 148 2% 393 6% 900 342 739 341 753 227 161 22% (14) (2)% 1 * 114 50% Total product sales $ 7,843 $ 7,533 $ 7,040 $ 310 4% $ 493 7% Average client asset values: Retail mutual funds Annuities and other Managed investments Segregated funds $42,570 $39,896 $38,108 $2,674 7% $1,788 20,524 19,176 18,315 1,348 7% 861 5% 5% 4,201 2,413 3,563 2,394 3,009 2,410 638 18% 554 18% 19 * (16) * Total average client asset values $69,708 $65,029 $61,842 $4,679 7% $3,187 5% * Less than 1%. 62 The rollforward of asset values in client accounts was as follows: ITEM 7. MD&A Asset values, beginning of period Net change in asset values: Inflows Redemptions Net flows Change in fair value, net Foreign currency, net Net change in asset values Year ended December 31, % of beginning balance 2019 % of beginning balance 2018 % of beginning balance 2020 (Dollars in millions) $70,537 $57,704 $61,167 7,843 (5,538) 2,305 8,521 170 10,996 11% (8)% 3% 12% * 16% 7,533 (6,428) 1,105 11,221 507 12,833 13% (11)% 2% 19% 1% 22% 7,040 (5,944) 1,096 (3,712) (847) (3,463) 12% (10)% 2% (6)% (1)% (6)% Asset values, end of period $81,533 $70,537 $57,704 * Less than 1%. Average number of fee-generating positions was as follows: Year ended December 31, 2020 vs. 2019 change 2019 vs. 2018 change 2020 2019 2018 Positions % Positions % (Positions in thousands) Average number of fee-generating positions (1): Recordkeeping and custodial Recordkeeping only 2,060 2,005 2,081 678 644 658 Total average number of fee- generating positions 2,738 2,649 2,739 55 34 89 3% (76) 5% (14) 3% (90) (4)% (2)% (3)% (1) We receive transfer agent recordkeeping fees by mutual fund positions. An individual client account may include multiple mutual fund positions. We may also receive fees, which are earned on a per account basis, for custodial services that we provide to clients with retirement plan accounts that hold positions in these mutual funds. Product sales. The increase in investment and savings product sales in 2020 from 2019 was due to a combination of strong demand for mutual funds and, to a lesser degree, higher sales of managed accounts as a result of continued equity market recovery following the negative market reaction to the COVID-19 pandemic in early 2020. This was partially offset by lower sales of fixed and variable annuity products, which experienced lower demand as product providers offered less attractive benefits due to the historically low interest rate environment. Average client asset values. Average client asset values increased as of December 31, 2020 from December 31, 2019 despite market volatility caused by the COVID-19 pandemic. During the first quarter of 2020, market volatility led to a significant decline in client asset values primarily due to market reaction and economic uncertainty associated with the onset of the COVID-19 pandemic. After the initial decline, equity markets recovered and expanded, which led to average client asset values being higher than the prior year. Also contributing to the increase were continued higher inflows and lower redemption activity in 2020 compared to 2019. Primerica 2020 Annual Report 63 ITEM 7. MD&A Rollforward of client asset values. Ending client asset values increased in 2020 from 2019, which was largely attributable to overall market appreciation experienced during 2020 as market values recovered from lows in the first quarter of 2020 and proceeded to increase to levels higher than the pre-COVID-19 pandemic levels. Also contributing to the increases was lower redemption activity in 2020 as clients opted to hold investments in the face of market volatility, and higher net sales of mutual funds and managed accounts. Average number of fee-generating positions. The average number of fee-generating positions increased in 2020 from 2019 primarily due to the cumulative effect of retail mutual fund sales in recent periods that led to an increase in the number of retail mutual fund positions serviced on our transfer agent recordkeeping platform. Significant regulatory changes. Standards of care. On June 5, 2019, the Securities and Exchange Commission (“SEC”) adopted rules and interpretations addressing the standards of conduct applicable to broker-dealers and investment advisers and their associated persons (collectively, the “SEC Rulemaking”). Among other things, the SEC Rulemaking: (i) creates a new “best interest” standard of conduct for broker-dealers (“Reg BI”), and (ii) imposes new disclosure requirements through summary forms intended to clarify relationships among brokers, advisers, and their retail customers (“Form CRS”). The SEC Rulemaking had a compliance date of June 30, 2020 for Reg BI and Form CRS. We made certain changes to our sales processes, policies, and procedures in order to comply with the SEC Rulemaking. While we acknowledge that its higher standards of care and enhanced obligations increase regulatory and litigation risk, the SEC Rulemaking has not caused significant disruption to our business. On December 15, 2020, the Department of Labor (“DOL”) published an interpretation of, and class exemption regarding, the rules governing fiduciary investment advice with respect to Individual Retirement Accounts (“IRAs”) and 64 other retirement accounts (the “DOL Rule”). The effective date of the DOL Rule is February 16, 2021 and the DOL extended its non-enforcement policy through December 20, 2021. The DOL Rule in its current form imposes a higher standard of care and enhanced obligations that increase regulatory and litigation risk to our business. In addition to federal regulators, certain states have proposed or passed laws or proposed or issued regulations requiring investment advisers, broker-dealers, and/or insurance agents to meet fiduciary standards or standards of care that their advice be in the customer’s best interest, and to mitigate and disclose conflicts of interest to consumers of investment and insurance products. The severity of the impact that such state laws or regulations could have on our business vary from state to state depending on the content of the legislation or regulation and how it would be applied by state regulators and interpreted by the courts, but such laws or regulations could disrupt our brokerage or advisory businesses in the relevant state. We cannot quantify the financial impact, if any, of any changes to our business that may be necessary in order to comply with such laws or regulations at this time. Restrictions on compensation models in Canada. On February 20, 2020, the organization of provincial and territorial securities regulators (collectively referred to as the “Canadian Securities Administrators” or “CSA”) published final rule amendments, applicable in all provinces except Ontario, to prohibit upfront sales commissions by fund companies for the sale of mutual funds offered under a prospectus in Canada (“DSC Ban”). The final amendments have an effective date of June 1, 2022. The CSA indicated that the participating provinces’ prohibition of upfront sales commissions by fund companies will require firms to discontinue the use of the mutual fund deferred sales charge compensation model, which is the primary model for the mutual funds we distribute in Canada. These rules will result in changes in compensation arrangements with both the fund companies that offer the mutual fund products we distribute and sales representatives in the participating provinces. The deferred sales charge compensation model is permitted to be used until the effective date. While Ontario has disagreed with the prohibition of upfront sales commissions by fund companies and is not at this time participating in adoption of the DSC Ban, the Ontario Securities Commission has proposed several restrictions on the use of the deferred compensation model, including a $50,000 maximum account size and a limitation on the maximum term of the deferred sales charge schedule to three years compared to current industry practice where the maximum term can be up to seven years. These restrictions, if any, will also be effective June 1, 2022. We have not finished the process of determining the types of changes we will make in response to the DSC Ban and the restrictions in Ontario, therefore, we are unable to quantify the potential impact on our financial condition or results of operations. FactorsAffectingOurResults Term Life Insurance Segment. Our Term Life Insurance segment results are primarily driven by sales volumes, how closely actual experience matches our pricing assumptions, terms and use of reinsurance, and expenses. Sales and policies in force. Sales of 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 as it is earned over the term of the policy, and eligible acquisition expenses are 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 in a period will have a more immediate impact on our cash flows than on revenue and expense recognition in that period. Historically, we have found that while sales volume of term life insurance products between fiscal periods may vary based on a variety of factors, the productivity of sales representatives generally remains within a range (i.e., an average ITEM 7. MD&A monthly rate of new policies issued per life- licensed sales representative between 0.18 and 0.22). The volume of our term life insurance products sales will fluctuate in the short term, but over the longer term, our sales volume generally correlates to the size of the independent sales force. 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 generally 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, disability, and interest rates at the time of issuance, sales force commission rates, issue and underwriting expenses, operating expenses and the characteristics of the insureds, including the distribution of 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. 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 actual persistency is lower than our pricing assumptions, we must accelerate the amortization of deferred policy acquisition costs (“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 future policy benefit reserves associated with any given policy will change over the term of such policy. As a general matter, future policy benefit reserves are lowest at the inception of a policy term and rise steadily to a peak before declining to Primerica 2020 Annual Report 65 ITEM 7. MD&A 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 will impact results to the extent actual experience deviates from the persistency assumptions that are locked-in at time of issue. • Mortality. Our profitability will fluctuate to the extent actual mortality rates differ from the assumptions that are locked-in at time of issue. We mitigate a significant portion of our mortality exposure through reinsurance. • Disability. Our profitability will fluctuate to the extent actual disability rates, including recovery rates for individuals currently disabled, differ from the assumptions that are locked-in at the time of issue or time of disability. Interest Rates. We use an assumption for future interest rates that initially reflects the portfolio’s current reinvestment rate gradually increasing over seven years to a level consistent with our expectation of future yield growth. Both DAC and the future policy benefit reserve liability increase with the assumed interest rate. Since DAC is higher than the future policy benefit reserve liability in the early years of a policy, a lower assumed interest rate generally will result in lower profits. In the later years, when the future policy benefit reserve liability is higher than DAC, a lower assumed interest rate generally will result in higher profits. These assumed interest rates, which like other pricing assumptions are locked-in at issue, impact the timing but not the aggregate amount of DAC and future policy benefit reserve changes. We allocate net investment income generated by the investment portfolio to the Term Life Insurance segment in an amount equal to the assumed net interest accreted to the segment’s U.S. generally accepted • 66 accounting principles (“U.S. GAAP”)- measured future policy benefit reserve liability less DAC. All remaining net investment income, and therefore the impact of actual interest rates, is attributed to the Corporate and Other Distributed Products segment. Reinsurance. We use reinsurance extensively, which has a significant effect on our results of operations. We have generally reinsured between 80% and 90% of the mortality risk on our term life insurance (excluding coverage under certain riders) on a quota share yearly renewable term (“YRT”) basis. 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. In 2010, as part of our corporate reorganization and the initial public offering of our common stock, we entered into significant coinsurance transactions (the “IPO coinsurance transactions”) with entities then affiliated with Citigroup, Inc. (collectively, the “IPO coinsurers”) and 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 administer all such policies subject to these coinsurance agreements. Policies reaching the end of their initial level term period are no longer ceded under the IPO coinsurance transactions. 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. Coinsurance also reduces the change in future policy benefit reserves in direct proportion to the percentage ceded, while YRT reinsurance does not significantly impact the change in these reserves. • Amortization of DAC. DAC, and therefore amortization of DAC, is reduced on a pro-rata basis for the coinsured business, including the business reinsured with the IPO coinsurers. 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. There is no impact on insurance expenses associated with our YRT contracts. 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. and Canadian mortality risk on new business. 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, marketing and support, and distribution fees, and the number of transfer agent recordkeeping ITEM 7. MD&A positions and non-bank custodial fee-generating accounts we administer. Sales. We earn commissions and fees, such as dealer re-allowances and marketing and distribution 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 the independent sales force. We generally experience seasonality in our Investment and Savings Products segment results due to our high concentration of sales of retirement account products. These accounts are typically funded in February through April, coincident with our clients’ tax return preparation season. While we believe the size of the independent 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, which 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) on mutual fund and annuity assets in the United States and Canada. In the United States, we also earn investment advisory and administrative fees on assets in managed investments. In Canada, we earn management fees on certain mutual fund assets and on the segregated funds for which we serve as investment manager. Asset values are influenced by new product sales, ongoing contributions to existing accounts, redemptions and the change in market values in existing accounts. While we offer a wide variety of asset classes and investment styles, our clients’ accounts are primarily invested in equity funds. Positions. We earn transfer agent recordkeeping fees for administrative functions we perform on behalf of several of our mutual fund providers. An individual client account may include multiple fund positions for which we earn transfer agent recordkeeping fees. We may also receive fees earned for non-bank custodial services that we provide to clients with retirement plan accounts. Primerica 2020 Annual Report 67 ITEM 7. MD&A Sales mix. While our investment and savings products all provide similar long-term economic returns to the Company, our results in a given fiscal period will be affected by changes in the overall mix of products within these categories. Examples of changes in the sales mix that influence our results include the following: • • • sales of 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 managed investments and segregated funds, no upfront revenues; sales of a higher proportion of managed investments and segregated funds products will spread the revenues generated over time because we earn higher revenues based on assets under management for these accounts each period as opposed to earning upfront revenues based on product sales; and sales of a higher proportion of mutual fund products sold will impact the timing and amount of revenue we earn given the distinct transfer agent recordkeeping and non-bank custodial services we provide for certain mutual fund products we distribute. Corporate and Other Distributed Products Segment. We earn revenues and pay commissions and referral fees within our Corporate and Other Distributed Products segment for mortgage loan originations, prepaid legal services, auto and homeowners’ insurance referrals, and other financial products, all of which are originated by third parties. Our Corporate and Other Distributed Products segment also includes in-force policies from several discontinued lines of insurance underwritten by National Benefit Life Insurance Company (“NBLIC”). Corporate and Other Distributed Products segment net investment income reflects actual net investment income recognized by the Company less the amount allocated to our Term Life Insurance segment based on the assumed net interest accreted to the segment’s 68 U.S. GAAP-measured future policy benefit reserve liability less DAC. Actual net investment income reflected in the Corporate and Other Distributed Products segment is impacted by the size and performance of our invested asset portfolio, which can be influenced by interest rates, credit spreads, and the mix of invested assets. The Corporate and Other Distributed Products segment also includes corporate income and expenses not allocated to our other segments, general and administrative expenses (other than expenses that are allocated to our Term Life Insurance or Investment and Savings Products segments), interest expense on notes payable, redundant reserve financing transactions and our revolving credit facility, as well as realized gains and losses on our invested asset portfolio. Capital Structure. Our financial results are affected by our capital structure, which includes our senior unsecured notes (the “Senior Notes”), redundant reserve financing transactions, our revolving credit facility, and our common stock. See Note 10 (Debt), Note 12 (Stockholders’ Equity) and Note 16 (Commitments and Contingent Liabilities) to our consolidated financial statements included elsewhere in this report for more information on changes in our capital structure. Foreign Currency. The Canadian dollar is the functional currency for our Canadian subsidiaries and our consolidated financial results, reported in U.S. dollars, are affected by changes in the currency exchange rate. As such, the translated amount of revenues, expenses, assets and liabilities attributable to our Canadian subsidiaries will be higher or lower in periods where the Canadian dollar appreciates or weakens relative to the U.S. dollar, respectively. The year-end exchange rates (USD per CAD) used by the Company to translate our Canadian dollar functional currency assets and liabilities into U.S. dollars increased by 2% in 2020 from 2019. The average exchange rates used by the Company in 2020 to translate our Canadian dollar functional currency revenues and expenses into U.S. dollars decreased 1% compared to 2019. See “Results of Operations” and “Financial Condition” and “Quantitative and Qualitative Disclosures About Market Risk – Canadian Currency Risk” and Note 3 (Segment and Geographical Information) to our consolidated financial statements included elsewhere in this report for more information on our Canadian subsidiaries and the impact of foreign currency on our financial results. Income Taxes. The profitability of the Company and its subsidiaries is affected by income taxes assessed by federal, state, and U.S. territorial jurisdictions in the U.S. and federal and provincial jurisdictions in Canada. Changes in tax legislation may impact the measurement of our deferred tax assets and liabilities and the amount of income tax expense we incur. CriticalAccountingEstimates We prepare our financial statements in accordance with U.S. GAAP. These principles are established primarily by the Financial Accounting Standards Board. 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 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies) to our consolidated financial statements included elsewhere in this report. The most significant items on our consolidated balance sheets are based on fair value determinations, accounting estimates and actuarial determinations, which are susceptible to changes in future periods and could 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 DAC, future policy benefit reserves and corresponding amounts recoverable from reinsurers, income taxes, and the valuation of investments. The preparation and evaluation of these critical accounting estimates involve the use of various assumptions developed from management’s ITEM 7. MD&A analyses and judgments. Subsequent experience or use of other assumptions could produce significantly different results. 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 include commissions and policy issue expenses. Deferrable term life insurance policy acquisition costs are amortized over the initial level premium-paying period of the related policies in proportion to premium income and include assumptions made by us regarding persistency, expenses, interest rates and claims, which are updated on new business to reflect recent experience. These assumptions may not be modified, or unlocked on in-force term life insurance business, unless recoverability testing deems estimated future cash flows to be inadequate. DAC is subject to recoverability testing annually and when circumstances indicate that recoverability is uncertain. In particular, the balance of DAC in our Term Life Insurance segment is susceptible to differences between estimated persistency assumptions and actual persistency experienced. If actual lapses are different from pricing assumptions for a particular period, the amount of DAC amortized for that period will be affected. For example, if actual annual lapses at each policy duration are 10% higher, we would recognize approximately $26 million of additional amortization of DAC expense as of December 31, 2020. Conversely, if actual annual lapses are 10% lower than anticipated, we would recognize approximately $26 million of lower amortization of DAC expense as of December 31, 2020 We believe that a plus or minus 10% annual lapse rate is a reasonably possible variation. In 2020, we experienced extraordinarily lower lapse rates as a result of policyholder sentiment associated with the COVID-19 pandemic. The impact of the lower lapse rates, which were approximately 20% lower than 2019 (varying by duration), resulted in approximately $53 million of lower DAC amortization expense year-over-year. Differences between actual and expected Primerica 2020 Annual Report 69 ITEM 7. MD&A persistency also impact the balance of future policy benefit reserves and reinsurance recoverables as discussed below. For additional information on DAC, see Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies) and Note 7 (Deferred Policy Acquisition Costs) to our consolidated financial statements included elsewhere in this report. Liabilities for future policy Future Policy Benefit Reserves and Reinsurance. benefits on our term life insurance products are reserves established for death claims and waiver of premium benefits and have been computed using a net level method and include assumptions as to mortality, persistency, interest rates, disability rates, and other assumptions based on our historical experience, modified as necessary for new business to reflect anticipated trends and to include provisions for possible adverse deviation. Reserves related to reinsured policies are accounted for using assumptions consistent with those used to determine the future policy benefit reserves and are included in reinsurance recoverables in our consolidated balance sheets. Similar to the term life insurance DAC discussion above, we do not modify the assumptions used to establish future policy benefit reserves during the policy term unless recoverability testing deems them to be inadequate and there is no remaining DAC associated with the underlying policies. Our results depend significantly upon the extent to which our actual experience is consistent with the assumptions we used in determining our future policy benefit reserves. Our future policy benefit reserve assumptions and estimates require significant judgment and, therefore, are inherently uncertain. We cannot determine with precision the ultimate amounts that we will pay for actual claims or the timing of those payments. The net impact of differences between actual and expected persistency on future policy benefit reserves and reinsurance recoverables will partially offset the earnings impact recognized from DAC amortization noted above. In our Term Life Insurance segment, if actual annual lapses at each policy duration are 70 10% higher, the additional future policy benefit reserves that would be released is approximately $26 million, partially offset by the release of the corresponding recoverable from reinsurers asset of approximately $10 million using balances as of December 31, 2020. Conversely, the impact of a 10% decrease to lapse rates would increase future policy reserves approximately $26 million, partially offset by the recognition of approximately $10 million of reinsurance recoverables. Higher lapses in later policy 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. Actual lapses in 2020 were approximately 20% lower than 2019, and as opposed to the example provided, the reductions were somewhat weighted to early durations. The earnings impact was approximately $26 million of higher benefits and claims expense net of reinsurance recoverables year-over-year. For additional information on future policy benefits and reinsurance, see Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies) and Note 6 (Reinsurance) to our consolidated financial statements included elsewhere in this report. 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) temporary 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 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. 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. In light of the multiple tax jurisdictions in which we operate, our tax returns are subject to routine audit by the Internal Revenue Service and other taxation authorities. These audits at times may produce alternative views regarding particular tax positions taken in the year(s) of review. As a result, the Company records uncertain tax positions, which require recognition at the time when it is deemed more likely than not that the position in question will be upheld. Although management believes that the judgment and estimates involved are reasonable and that the necessary provisions have been recorded, changes in circumstances or unexpected events could adversely affect our financial position, results of operations, and cash flows. For additional information on income taxes, see Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies) and Note 11 (Income Taxes) to our consolidated financial statements included elsewhere in this report. Invested Assets. We hold primarily fixed- maturity securities, including bonds and redeemable preferred stocks. 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. We also hold a credit- enhanced note, which we classified as a held-to-maturity security that was issued in exchange for a surplus note (the “Surplus Note”) with an equal principal amount as part of a redundant reserve financing transaction. All of these securities are carried at fair value, except for the held-to-maturity security, which is carried at amortized cost. Unrealized gains and losses on available-for-sale securities are included as a separate component of other comprehensive income in our consolidated statements of comprehensive income. We also hold equity securities, including common and non-redeemable preferred stock. These equity securities are measured at fair value and changes in unrealized gains and losses are recognized in net income. Changes in fair value of trading securities are included in net income in the accompanying consolidated statements of income in the period in which the change occurred. ITEM 7. MD&A 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 three fair value measurement categories prescribed by U.S. GAAP. 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. Credit Losses for Available-for-sale Fixed-maturity Securities. 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 the impairment as a credit loss in our consolidated statements of income by writing down the amortized cost basis to the fair value. For available-for-sale securities in an unrealized loss position that we do not intend to sell or it is not more-likely- than-not that we will be required to sell before the expected recovery of the amortized cost basis, we recognize the portion of the impairment that is due to a credit loss in our consolidated statements of income through an allowance. We reverse credit losses previously recognized in the allowance in situations where the estimate of credit losses on those securities has declined. We do not consider the length of time an available-for-sale security has been in an unrealized loss position when estimating credit losses. Analyses that we perform to determine whether an impairment is due to a credit loss or other factors involve the use of estimates, Primerica 2020 Annual Report 71 ITEM 7. MD&A assumptions, and subjectivity. We evaluate a number of quantitative and qualitative factors when determining the credit loss on individual securities, including issuer-specific risks as well as relevant macroeconomic risks. If these factors or future events change, we could experience material credit losses recognized in our consolidated statements of income for available-for-sale securities in future periods, which could adversely affect our financial condition, results of operations and the size and quality of our invested assets portfolio. For additional information on our invested assets, see Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies), Note 4 (Investments) and Note 5 (Fair Value of Financial Instruments) to our consolidated financial statements included elsewhere in this report. ResultsofOperations 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. • 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 distribution fees from product originators, fees for non-bank custodial services rendered in our capacity as nominee on client retirement accounts funded by mutual funds on our servicing platform, transfer agent recordkeeping fees for mutual funds on our servicing platform, and fees associated with the sale of other distributed products. • 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. 72 Investment income recorded on our held-to-maturity invested asset and the offsetting interest expense recorded for our Surplus Note are included in net investment income. • Realized investment gains (losses). Primarily reflects the difference between amortized cost and amounts realized on the sale of available-for-sale securities, credit losses recognized on available-for-sale securities, and changes in the fair value of equity securities. • Other, net. Reflects revenues generated primarily from the fees charged for access to Primerica Online (“POL”), our primary sales force support tool, as well as revenues from the sale of other miscellaneous items. 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 directly associated with the sale of an insurance policy or segregated fund, including sales commissions, medical examination and other underwriting costs, and other eligible policy issuance costs. • • Sales commissions. Represents commissions to the sales representatives in connection with the sale of investment and savings products, and products other than insurance products. 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, and other corporate and administrative fees and expenses related to our insurance operations. Insurance • • expenses also include both indirect policy issuance costs and costs associated with unsuccessful efforts to acquire new policies. Insurance commissions. Reflects sales commissions with respect to insurance products that are not eligible for deferral. Interest expense. Reflects interest on our notes payable, any interest and the commitment fee on our revolving credit facility, the financing charges related to the letter of credit issued under the credit facility agreement with Deutsche Bank, fees paid for the credit enhancement feature on our held-to-maturity invested asset, and a finance charge incurred pursuant to one of our coinsurance agreements with an IPO coinsurer. • 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, non-bank custodial and ITEM 7. MD&A transfer agent recordkeeping administrative costs, outsourcing and professional fees, and other corporate and administrative fees and expenses. Insurance expenses and other operating expenses directly attributable to the Term Life Insurance and the Investment and Savings Products segments are recorded directly to the applicable segment. We allocate certain other revenue and operating expenses that are not directly attributable to a specific operating segment using methods expected to reasonably measure the benefit received by each reporting segment. Such methods include time studies, recorded usage, revenue distribution, and sales force representative distribution. These allocated items include fees charged for access to POL and costs incurred for technology, sales force support, occupancy and other general and administrative costs. Costs that are not directly charged or allocated to our two primary operating segments are included in our Corporate and Other Distributed Products segment. Primerica 2020 Annual Report 73 ITEM 7. MD&A Primerica, Inc. and Subsidiaries Results. Our results of operations for the years ended December 31, 2020, 2019, and 2018 were as follows: Year ended December 31, 2020 vs. 2019 change 2019 vs. 2018 change (1) 2020 2019 2018(1) $ % $ % (Dollars in thousands) Revenues: Direct premiums Ceded premiums Net premiums Commissions and fees Investment income net of investment expenses Interest expense on surplus note Net investment income Realized investment gains (losses) Other, net $ 2,907,149 $ 2,753,866 $ 2,667,104 $153,283 11,037 (1,581,164) (1,569,729) (1,580,766) 6% $ 86,762 1% (11,435) 3% (1)% 1,326,383 751,271 1,184,137 713,804 1,085,940 677,607 142,246 37,467 12% 98,197 5% 36,197 9% 5% 141,287 142,398 118,915 (1,111) (1)% 23,483 20% (57,473) (48,325) (37,485) 9,148 19% 10,840 29% 83,814 94,073 81,430 (10,259) (11)% 12,643 16% (4,996) 61,069 4,965 55,525 (2,121) 56,987 (9,961) 5,544 * 7,086 10% (1,462) * (3)% Total revenues 2,217,541 2,052,504 1,899,843 165,037 8% 152,661 8% Benefits and expenses: Benefits and claims Amortization of DAC Sales commissions Insurance expenses Insurance commissions Interest expense Other operating expenses Total benefits and expenses Income before income taxes Income taxes 615,569 224,321 376,636 188,117 32,134 28,839 245,195 493,820 254,552 357,198 178,817 25,051 28,811 237,144 457,583 239,730 335,384 168,156 24,490 28,809 229,607 121,749 (30,231) 19,438 9,300 7,083 28 8,051 25% 36,237 (12)% 14,822 5% 21,814 5% 10,661 561 2 7,537 28% * 3% 8% 6% 7% 6% 2% * 3% 1,710,811 1,575,393 1,483,759 135,418 9% 91,634 6% 506,730 120,566 477,111 110,720 416,084 91,990 29,619 9,846 6% 61,027 15% 9% 18,730 20% Net income $ 386,164 $ 366,391 $ 324,094 $ 19,773 5% $ 42,297 13% (1) * Refer to the 2019 MD&A for discussions of 2018 items and comparisons between 2019 and 2018 financial results. Less than 1% or not meaningful Total revenues. Total revenues increased in 2020 from 2019 driven by the impact of strong sales and significant positive trends in persistency in recent periods on direct premiums for term life insurance policies that are not subject to the IPO coinsurance transactions. Commissions and fees from our Investment and Savings Products segment increased largely due to growth in average client asset values. Net investment income decreased in 2020 from 2019 largely due to the negative impact from a lower total return on the deposit asset backing the 10% coinsurance agreement that is subject 74 to deposit method accounting. The lower year- over-year total return of $9.2 million on this deposit asset was primarily due to a negative mark-to-market adjustment as the prices of fixed income securities held within the deposit asset fell during 2020 compared to an increase in 2019. Also contributing to a decrease in net investment income were lower yields on our invested asset portfolio of approximately $9.0 million. The decrease in net investment income was partially offset by the larger size of the invested asset portfolio, which resulted in an increase in net investment income of approximately $7.5 million in 2020 compared to 2019. Investment income net of investment expenses includes interest earned on our held-to-maturity invested asset, which is completely offset by interest expense on the Surplus Note, thereby eliminating any impact on net investment income. Amounts recognized for each line item will remain offsetting and will fluctuate from period to period along with the principal amounts of the held-to-maturity asset and the Surplus Note based on the balance of reserves being contractually supported under a redundant reserve financing transaction used by Vidalia Re, Inc. (“Vidalia Re”), a special purpose financial captive insurance company and wholly owned subsidiary of Primerica Life Insurance Company (“Primerica Life”). For more information on the Surplus Note, see Note 10 (Debt) and for additional information on the redundant reserve financing transaction used by Vidalia Re, see Note 4 (Investments) to our consolidated financial statements included elsewhere in this report. Realized investment gains (losses) was a loss in 2020 compared to a gain in 2019. This was primarily due to a $2.5 million negative mark-to-market adjustment on equity securities held within our invested asset portfolio that were in industries adversely affected by the COVID-19 pandemic and which had not fully recovered as of year-end. Also contributing to the realized investment loss in 2020 is the recognition of $3.8 million credit losses for specific issuers that operate in distressed industry sectors that were particularly affected ITEM 7. MD&A by deteriorating economic conditions during 2020. Other net revenues increased in 2020 from 2019 largely due to a $9.5 million increase in fees received for access to POL, our primary sales force support tool. The increase in these fees is consistent with subscriber growth, as the size of the independent sales force and number of new recruits continued to increase. Fees collected for POL subscriptions are allocated between our Term Life Insurance segment and our Investment and Savings Products segment based on the estimated number of sales representatives that are licensed to sell products in each respective segment. The increase in these fees was accompanied by higher spending reflected in insurance and other operating expenses to support and enhance POL. These increases were partially offset by a waiver of approximately $3.0 million of certain policy administrative fees paid by our representatives as we provided relief in response to the COVID-19 pandemic. Total benefits and expenses. Total benefits and expenses increased significantly in 2020 from 2019 primarily due to the growth in benefits and claims as a result of higher mortality experience caused by the COVID-19 pandemic and growth in our in-force book of business due to positive persistency trends experienced in 2020. Positive persistency also led to a decrease in the amortization of DAC, which partially offset the increases in benefits and claims. Also contributing to the increase in benefits and expenses in 2020 are higher insurance and other operating expenses to support growth in the business, enhanced technology-related capabilities, as well as increased employee- related expenses. These increases were partially offset by a decrease in insurance and other operating expenses as a result of business travel restrictions and event cancellations in response to the COVID-19 pandemic. Income taxes. Our effective income tax rate for 2020 was 23.8%, relatively consistent with 23.2% in 2019. For additional information, see the discussions of results of operations by segment below. Primerica 2020 Annual Report 75 ITEM 7. MD&A Term Life Insurance Segment. Our results for the Term Life Insurance segment for the years ended December 31, 2020, 2019, and 2018 were as follows: Year ended December 31, 2020 vs. 2019 change 2019 vs. 2018 change(1) 2020 2019 2018(1) $ % $ % (Dollars in thousands) Revenues: Direct premiums Ceded premiums $ 2,883,583 $ 2,728,844 $ 2,640,830 $154,739 11,539 (1,573,751) (1,562,383) (1,573,922) 6% $ 88,014 1% (11,368) 3% (1)% Net Premiums 1,309,661 1,166,461 1,067,079 143,200 12% 99,382 9% Allocated net investment income Other, net 27,030 46,079 19,922 40,848 13,747 42,374 7,108 5,231 36% 13% (1,526) 6,175 45% (4)% Total revenues 1,382,770 1,227,231 1,123,200 155,539 13% 104,031 9% Benefits and expenses: Benefits and claims Amortization of DAC Insurance expenses Insurance commissions Total benefits and expenses Income before income taxes 593,948 216,208 182,471 17,592 475,330 248,711 172,316 10,781 441,775 228,613 160,645 10,263 118,618 (32,503) 10,155 6,811 25% 33,555 (13)% 20,098 6% 11,671 518 63% 8% 9% 7% 5% 1,010,219 907,138 841,296 103,081 11% 65,842 8% $ 372,551 $ 320,093 $ 281,904 52,458 16% 38,189 14% (1) Refer to the 2019 MD&A for discussions of 2018 items and comparisons between 2019 and 2018 financial results. Net premiums. Direct premiums increased in 2020 from 2019 due to high levels of persistency experienced during the year ended December 31, 2020 as a result of favorable public sentiment for protection products in response to the COVID-19 pandemic. Also contributing to the increase in direct premiums were strong sales of new policies throughout 2020 that contributed to growth in the in-force book of business. Ceded premiums included $62.2 million in higher non-level YRT reinsurance ceded premiums as business not subject to the IPO coinsurance transactions ages, reduced by $50.6 million in lower coinsurance ceded premiums due to the run-off of business subject to the IPO coinsurance transactions. Allocated net investment income. Allocated net investment income increased in 2020 from 2019 due to an increase in the assumed net interest accreted to our Term Life Insurance segment’s future policy benefit reserve liability less deferred acquisition costs as our Term Life Insurance segment’s in-force business continues to grow. 76 Benefits and claims. Benefits and claims increased in 2020 from 2019 primarily due to higher mortality experience as a result of the COVID-19 pandemic as well as larger benefit reserve increases due to favorable persistency trends. Total claims increased for the year ended December 31, 2020 by $33.0 million over historical trends, which was primarily driven by COVID-19 related claims. Benefit reserve increases due to higher persistency were approximately $26.0 million for the year ended December 31, 2020. In addition, benefit reserves increased by $5.5 million for the year ended December 31, 2020 due to lower interest rates applied to 2020 business. Amortization of DAC. The amortization of DAC decreased in 2020 from 2019 primarily due to high levels of persistency experienced throughout all policy durations as a result of favorable public sentiment for protection products in response to the COVID-19 pandemic. This reduced the amortization of DAC ITEM 7. MD&A by approximately $53.0 million for the year ended December 31, 2020. Insurance expenses Insurance expenses. increased in 2020 from 2019 primarily due to increases in expenses of approximately $17.2 million to support growth in the business, enhance technology-related capabilities, as well as higher employee-related expenses, partially offset by a decrease in expenses of approximately $6.0 million as a result of business travel restrictions, event cancellations and reduction in other business activities in response to the COVID-19 pandemic. Insurance commissions. Insurance commissions increased in 2020 from 2019 as a result of higher non-deferrable sales force promotional activities. Cost savings from COVID-19 pandemic insurance expenses decreases discussed above were used in part to fund these sales force promotional activities. Investment and Savings Products Segment. Our results of operations for the Investment and Savings Products segment for the years ended December 31, 2020, 2019, and 2018 were as follows: Year ended December 31, 2020 vs. 2019 change 2019 vs. 2018 change(1) 2020 2019 2018(1) $ % $ % (Dollars in thousands) Revenues: Commissions and fees: Sales-based revenues Asset-based revenues Account-based revenues Other, net 1% $22,896 $284,651 $282,887 $259,991 $ 1,764 14,497 7% 21,755 (1,247) 2,486 3% 386 1,254 13% 303,652 81,802 9,631 318,149 80,555 10,017 339,904 83,041 11,271 9% 5% (2)% 4% Total revenues 718,867 691,608 655,076 27,259 4% 36,532 6% Expenses: Amortization of DAC Insurance commissions Sales commissions: Sales-based Asset-based Other operating expenses 7,055 13,184 4,549 12,735 9,766 12,567 2,506 55% 4% 449 (5,217) 168 (53)% 1% 201,148 154,572 140,264 199,690 141,655 141,167 185,221 133,943 139,667 1,458 12,917 (903) 1% 9% (1)% 14,469 7,712 1,500 8% 6% 1% 4% Total expenses 516,223 499,796 481,164 16,427 3% 18,632 Income before income taxes $202,644 $191,812 $173,912 $10,832 6% $17,900 10% (1) Refer to the 2019 MD&A for discussions of 2018 items and comparisons between 2019 and 2018 financial results. Commissions and fees. Commissions and fees increased in 2020 from 2019 primarily due to the growth in asset-based revenues as average client asset values increased due to market appreciation, continued higher inflows, and lower redemption activity during the year. Account-based revenues also increased in 2020 due to the cumulative effect of retail mutual fund sales in recent periods that led to an increase in the number of retail mutual fund positions serviced on our transfer agent recordkeeping platform. Contributing modestly to the increase in commissions and fees were higher sales-based revenues, which increased due to growth in mutual fund sales but were offset by declining annuity sales. Amortization of DAC. Amortization of DAC increased in 2020 from 2019 largely due to weaker market performance of the funds underlying our Canadian segregated funds product caused by market volatility and economic uncertainty associated with the COVID-19 pandemic in first quarter of 2020 compared with stronger market performance Primerica 2020 Annual Report 77 ITEM 7. MD&A throughout 2019. Both periods reflect lower amortization of DAC as a result of favorable redemption experience. Sales commissions. The increase in sales-based and asset-based commissions in 2020 from 2019 was generally consistent with the increase in sales-based revenues. When considering that asset-based expenses for our Canadian segregated funds were reflected within insurance commissions and amortization of DAC, the increase in asset-based commissions in 2020 from 2019 was consistent with the increase in asset-based revenues excluding the Canadian segregated funds. Other operating expenses. Other operating expenses decreased in 2020 from 2019 due to the phase-in of reduced fees paid to a service provider for the Company’s transfer agent recordkeeping platform and business travel restrictions and event cancellations in response to the COVID-19 pandemic. These decreases were partially offset by increases in expenses due to growth in the business and higher employee-related expenses. Corporate and Other Distributed Products Segment. Our results of operations for the Corporate and Other Distributed Products segment for the years ended December 31, 2020, 2019, and 2018 were as follows: Revenues: Direct premiums Ceded premiums Net Premiums Commissions and fees Allocated investment income net of Year ended December 31, 2020 vs. 2019 change 2019 vs. 2018 change(1) 2020 2019 2018(1) $ % $ % (Dollars in thousands) $ 23,566 $ 25,022 $ 26,274 $ (1,456) (6)% $ (1,252) (6,844) (7,346) (7,413) (502) (7)% (67) (5)% (1)% 16,722 43,675 17,676 32,213 18,861 32,162 (954) (5)% (1,185) (6)% 11,462 36% 51 * investment expenses 114,257 122,476 105,168 (8,219) (7)% 17,308 Interest expense on surplus note (57,473) (48,325) (37,485) 9,148 19% 10,840 16% 29% Allocated net investment income 56,784 74,151 67,683 (17,367) (23)% 6,468 10% Realized investment gains (losses) Other, net Total revenues Benefits and expenses: Benefits and claims Amortization of DAC Insurance expenses Insurance commissions Sales commissions Interest expense Other operating expenses (4,996) 3,719 4,965 4,660 (2,121) (9,961) * 7,086 * 4,982 (941) (20)% (322) (6)% 115,904 133,665 121,567 (17,761) (13)% 12,098 10% 21,621 18,490 15,808 3,131 17% 2,682 17% 1,058 5,646 1,358 20,916 28,839 104,931 1,292 6,501 1,535 15,853 28,811 95,977 1,351 7,511 1,660 16,220 28,809 89,940 (234) (18)% (59) (4)% (855) (13)% (1,010) (13)% (177) (12)% 5,063 32% (125) (367) (8)% (2)% 28 8,954 * 9% 9% 2 6,037 7,160 * 7% 4% Total benefits and expenses 184,369 168,459 161,299 15,910 Loss before income taxes $ (68,465) $ (34,794) $ (39,732) $ 33,671 97% $ (4,938) (12)% Refer the 2019 MD&A for discussions of 2018 items and comparisons between 2019 and 2018 financial results. Less than 1% or not meaningful (1) * 78 Total revenues. Total revenues decreased in 2020 from 2019 largely due to the decrease in net investment income and realized gains (losses) as discussed in the Primerica, Inc. and Subsidiaries Results of Operations section above combined with an increase in the allocation of net investment income accreted to our Term life Insurance segment as our in-force business continued to grow. Partially offsetting this decrease was commission revenues from the expansion of our U.S. mortgage distribution business. Closed mortgage loan volume of approximately $442.5 million generated mortgage commission revenues of approximately $8.7 million during the year ended December 31, 2020 compared to closed mortgage loan volume of $31.1 million and mortgage commission revenues of approximately $0.7 million during the year ended December 31, 2019. Total Benefits and Expenses. Total benefits and expenses increased in 2020 from 2019 as a result of higher operating expenses primarily due to employee and technology-related expenses and higher sales commissions driven by increased sales in our mortgage distribution business. Also contributing to the increase were elevated claims in closed blocks of life insurance business and $0.9 million of higher losses for write-offs of reinsurance recoverables on closed blocks of business. FinancialCondition Investments. Our insurance business is primarily focused on selling term life insurance, which does not include an investment component for the policyholder. The invested asset portfolio funded by premiums from our term life insurance business does not involve the substantial asset accumulations and spread requirements that exist with other non-term life insurance products. As a result, the profitability of our term life insurance business is not as sensitive to the impact that interest rates have on our invested asset portfolio and investment income as the profitability of other companies that distribute non-term life insurance products. ITEM 7. MD&A We follow a conservative investment strategy designed to emphasize the preservation of our invested assets and provide adequate liquidity for the prompt payment of claims. To meet business needs and mitigate risks, our investment guidelines provide restrictions on our portfolio’s composition, including limits on asset type, per issuer limits, credit quality limits, portfolio duration, limits on the amount of investments in approved countries and permissible security types. We also manage and monitor our allocation of investments to limit the accumulation of any disproportionate concentrations of risk among industry sectors or issuer countries outside of the U.S. and Canada. In addition, as of December 31, 2020, we did not hold any country of issuer concentrations outside of the U.S. or Canada that represented more than 5% of the fair value of our available-for-sale invested asset portfolio or any industry concentrations of corporate bonds that represented more than 10% of the fair value of our available-for-sale invested asset portfolio. We invest a portion of our portfolio in assets denominated in Canadian dollars to support our Canadian operations. Additionally, to ensure adequate liquidity for payment of claims, we take into account the maturity and duration of our invested asset portfolio and our general liability profile. We also hold within our invested asset portfolio a credit enhanced note (“LLC Note”) issued by a limited liability company owned by a third-party service provider which is classified as a held-to-maturity security. The LLC Note, which is scheduled to mature on December 31, 2030, was obtained in exchange for the Surplus Note of equal principal amount issued by Vidalia Re. For more information on the LLC Note, see Note 4 (Investments) to our consolidated financial statements included elsewhere in this report. We have an investment committee composed of members of our senior management team that is responsible for establishing and maintaining our investment guidelines and supervising our investment activity. Our investment committee regularly monitors our overall investment results and our compliance with our investment Primerica 2020 Annual Report 79 ITEM 7. MD&A objectives and guidelines. We use a third-party investment advisor to assist us in the management of our investing activities. Our investment advisor reports to our investment committee. Our invested asset portfolio is subject to a variety of risks, including risks related to general economic conditions, market volatility, interest rate fluctuations, liquidity risk and credit and default risk. Investment guideline restrictions have been established to minimize the effect of these risks but may not always be effective due to factors beyond our control. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. A significant increase in interest rates could result in significant losses, realized or unrealized, in the value of our invested asset portfolio. For example, from December 31, 2019 to March 31, 2020, market volatility and economic uncertainty associated with the COVID-19 pandemic caused a sharp increase in credit spreads, which translated to a reduction in the net unrealized gain on our available-for-sale securities portfolio from $82.2 million to a net unrealized loss of $1.3 million. From March 31, 2020 to December 31, 2020, credit spreads tightened sharply and bond markets recovered, resulting in growth of the net unrealized gain on our available-for-sale securities portfolio to $163.3 million. Additionally, with respect to some of our investments, we are subject to prepayment and, therefore, reinvestment risk. Details on asset mix (excluding our held-to-maturity security) were as follows: U.S. government and agencies Foreign government States and political subdivisions Corporates Mortgage- and asset-backed securities Equity securities Trading securities Cash and cash equivalents Total * Less than 1%. December 31, 2020 December 31, 2019 Fair value Cost or amortized cost Fair value Cost or amortized cost * 6% 6% 53% 15% 1% 1% * 6% 6% 52% 16% 1% 1% * 6% 5% 56% 21% 1% 1% * 6% 5% 55% 21% 1% 2% 18% 18% 10% 10% 100% 100% 100% 100% The composition and duration of our portfolio will vary depending on several factors, including the yield curve and our opinion of the relative value among various asset classes. The year-end average rating, duration and book yield of our fixed-maturity portfolio (excluding our held-to-maturity security) were as follows: Average rating of our fixed-maturity portfolio Average duration of our fixed-maturity portfolio December 31, 2020 December 31, 2019 A A 4.7 years 3.6 years Average book yield of our fixed-maturity portfolio 3.44% 3.54% 80 ITEM 7. MD&A Ratings for our investments in fixed-maturity securities are determined using Nationally Recognized Statistical Rating Organizations designations and/or equivalent ratings. The distribution of our investments in fixed-maturity securities (excluding our held-to-maturity security) by rating, including those classified as trading securities, were as follows: December 31, 2020 December 31, 2019 Amortized cost (1) % Amortized cost (1) % AAA AA A BBB Below investment grade Not rated Total (Dollars in thousands) $ 433,763 19% $ 555,640 294,429 13% 271,936 515,752 22% 543,351 979,867 42% 885,497 90,947 2,780 4% * 59,190 2,389 * $2,317,538 100% $2,318,003 100% 24% 12% 23% 38% 3% (1) * Includes trading securities at carrying value and available-for-sale securities at amortized cost. Less than 1%. The ten largest holdings within our fixed-maturity securities invested asset portfolio (excluding our held-to-maturity security) were as follows: $ Issuer Government of Canada Province of Ontario Canada Province of Quebec Canada Province of Alberta Canada Province of New Brunswick Canada Enbridge Inc. Province of British Columbia Canada Province of Newfoundland and Labrador Wells Fargo & Co. General Motors Co. December 31, 2020 Fair value Amortized cost (1) Unrealized gain (loss) Credit rating 21,814 $ (Dollars in thousands) 21,008 $ 806 20,179 16,713 13,198 12,534 12,430 11,063 10,385 10,337 10,199 19,222 15,106 12,236 11,644 11,630 10,604 957 1,607 962 890 800 459 9,213 1,172 10,041 9,263 296 936 AAA A+ AA- A+ A+ BBB+ AAA A A- BBB Total – ten largest holdings $ 138,852 $ 129,967 $8,885 Total – fixed-maturity securities $2,480,911 $2,317,538 Percent of total fixed-maturity securities 6% 6% (1) Includes trading securities at carrying value and available-for-sale securities at amortized cost. For additional information on our invested asset portfolio, see Note 4 (Investments) and Note 5 (Fair Value of Financial Instruments) to our consolidated financial statements included elsewhere in this report. Primerica 2020 Annual Report 81 ITEM 7. MD&A Other Significant Assets and Liabilities. The balances of and changes in other significant assets and liabilities were as follows: Assets: Reinsurance recoverables December 31, 2020 2019 Change $ % (Dollars in thousands) $4,273,904 $4,169,823 $104,081 2% Deferred policy acquisition costs, net 2,629,644 2,325,750 303,894 13% Liabilities: Future policy benefits Reinsurance recoverables. Reinsurance recoverables reflects future policy benefit reserves and claim reserves ceded to reinsurers, including the IPO coinsurers. Reinsurance recoverables as of December 31, 2020 increased compared with December 31, 2019 primarily due to higher mortality experience as well as larger ceded reserves due to favorable persistency trends, both driven by the effects of the COVID-19 pandemic. Deferred policy acquisition costs, net. The increase in DAC was primarily a result of the cumulative impact of incremental commissions and expenses deferred as a result of new business in 2020 not subject to the IPO coinsurance agreements and significant improvements in persistency as a result of favorable public sentiment for protection products in response to the COVID-19 pandemic. Future policy benefits. The increase in future policy benefits was a result of the growth in our in-force book of business due to strong sales of new policies and persistency improvements. For additional information, see the notes to our consolidated financial statements included elsewhere in this report. LiquidityandCapitalResources Dividends and other payments to the Parent Company from its subsidiaries are our principal sources of cash. The amount of dividends paid by the subsidiaries is dependent on their capital needs to fund future growth and applicable regulatory restrictions. The primary uses of funds 82 $6,790,557 $6,446,569 $343,988 5% by the Parent Company include the payments of stockholder dividends, interest on notes payable, general operating expenses, and income taxes, as well as repurchases of shares of our common stock outstanding. During 2020, our life insurance underwriting companies declared and paid ordinary dividends of $192.5 million to the Parent Company. See Note 15 (Statutory Accounting and Dividend Restrictions) to our consolidated financial statements included elsewhere in this report for more information on insurance subsidiary dividends and statutory restrictions. In addition, in 2020 our non-life insurance subsidiaries declared and paid dividends of $185.5 million to the Parent Company. At December 31, 2020, the Parent Company had cash and invested assets of $350.2 million. The Parent Company’s subsidiaries generate operating cash flows primarily from term life insurance premiums (net of premiums ceded to reinsurers), income from invested assets, commissions and fees collected from the distribution of investment and savings products as well as other financial products. The subsidiaries’ principal operating cash outflows include the payment of insurance claims and benefits (net of ceded claims recovered from reinsurers), commissions to the sales force, insurance and other operating expenses, interest expense for future policy benefit reserves financing transactions, and income taxes. The distribution and underwriting of term life insurance requires upfront cash outlays at the time the policy is issued as we pay a substantial majority of the sales commission during the first year following the sale of a policy and incur costs for underwriting activities at the inception of a policy’s term. During the early years of a policy’s term, we generally receive level term premiums in excess of claims paid. We invest the excess cash generated during earlier policy years in fixed-maturity and equity securities held in support of future policy benefit reserves. In later policy years, cash received from the maturity or sale of invested assets is used to pay claims in excess of level term premiums received. Historically, cash flows generated by our businesses, primarily from our existing block of term life policies and our investment and savings products, have provided us with sufficient liquidity to meet our operating requirements. We have maintained strong cash flows despite the COVID-19 pandemic due to strong persistency and our use of reinsurance. Although Net cash provided by (used in) operating activities Net cash provided by (used in) investing activities Net cash provided by (used in) financing activities Effect of foreign exchange rate changes on cash ITEM 7. MD&A our future cash flow could be adversely affected by further deterioration of economic conditions caused by the COVID-19 pandemic, we anticipate that cash flows from our businesses will continue to provide sufficient operating liquidity over the next 12 months. If necessary, we could seek to enhance our liquidity position or capital structure through sales of our available-for-sale investment portfolio, changes in the timing or amount of share repurchases, borrowings against our revolving credit facility, or some combination of these sources. Additionally, we believe that cash flows from our businesses and potential sources of funding will sufficiently support our long-term liquidity needs. Cash Flows. The components of the changes in cash and cash equivalents were as follows: Year ended December 31, 2020 2019 2018 (1) (In thousands) $ 643,417 $ 485,513 $ 478,067 (53,529) (201,884) (232,801) (301,790) (290,134) (260,997) 2,595 1,243 (2,093) Change in cash and cash equivalents $ 290,693 $ (5,262) $ (17,824) (1) Refer to the 2019 MD&A for discussions of 2018 items and comparisons between 2019 and 2018 financial results. Operating Activities. Cash provided by operating activities increased in 2020 from 2019 largely due to growth in direct premiums from higher sales of new policies and positive persistency trends in recent periods. The impact of direct premium growth and the additional layering of net premiums from term life insurance policies not subject to the IPO coinsurance transactions has continued to drive positive incremental cash flows. Higher benefits and claims recognized during 2020 did not significantly impact cash flows due to an increase in claims payable at December 31, 2020 and a corresponding increase in ceded claims owed from reinsurers. Also contributing to the increase in cash from operating activities was the timing of investments in trading securities at our broker-dealer subsidiary. Partially offsetting the increase in cash from operating activities in 2020 versus 2019 were higher cash expenditures for policy acquisition costs due to the growth in new policy sales. Investing Activities. Cash flows used in investing activities decreased in 2020 from 2019 as a result of lower purchases of investment securities due to limited reinvestment opportunities and higher sales and maturities of available-for-sale securities in our invested asset portfolio. Financing Activities. Cash used in financing activities increased in 2020 from 2019 as expected due to higher dividends paid to stockholders as the Company increased its per share dividend in 2020. Also contributing to the increase in cash used in financing activities were higher share repurchases in 2020. Primerica 2020 Annual Report 83 ITEM 7. MD&A The National Risk-Based Capital (“RBC”). Association of Insurance Commissioners (“NAIC”) has established RBC standards for U.S. life insurers, as well as a risk-based capital model act (the “RBC Model Act”) that has been adopted by the insurance regulatory authorities. The RBC Model Act requires that life insurers annually submit a report to state regulators regarding their RBC based upon four categories of risk: asset risk; insurance risk; interest rate risk and business risk. The capital requirement for each is determined by applying factors that vary based upon the degree of risk to various asset, premiums and policy benefit reserve items. The formula is an early warning tool to identify possible weakly capitalized companies for purposes of initiating further regulatory action. As of December 31, 2020, our U.S. life insurance subsidiaries maintained statutory capital and surplus substantially in excess of the applicable regulatory requirements and remain well positioned to support existing operations and fund future growth. In Canada, an insurer’s minimum capital requirement is overseen by the Office of the Superintendent of Financial Institutions (“OSFI”) and determined as the sum of the capital requirements for five categories of risk: asset default risk; mortality/morbidity/lapse risks; changes in interest rate environment risk; segregated funds risk; and foreign exchange risk. As of December 31, 2020, Primerica Life Insurance Company of Canada was in compliance with Canada’s minimum capital requirements as determined by OSFI. For more information regarding statutory capital requirements and dividend capacities of our insurance subsidiaries, see Note 15 (Statutory Accounting and Dividend Restrictions) to our consolidated financial statements included elsewhere in this report for more information. Redundant Reserve Financings. The Model Regulation entitled Valuation of Life Insurance Policies, commonly known as Regulation XXX, requires insurers to carry statutory policy benefit reserves for term life insurance policies with long-term premium guarantees which are often significantly in excess of the future policy benefit 84 reserves that insurers deem necessary to satisfy claim obligations (“redundant policy benefit reserves”). Accordingly, many insurance companies have sought ways to reduce their capital needs by financing redundant policy benefit reserves through bank financing, reinsurance arrangements and other financing transactions. We have established Peach Re, Inc. (“Peach Re”) and Vidalia Re as special purpose financial captive insurance companies and wholly owned subsidiaries of Primerica Life. Primerica Life has ceded certain term life policies issued prior to 2011 to Peach Re as part of a Regulation XXX redundant reserve financing transaction (the “Peach Re Redundant Reserve Financing Transaction”) and has ceded certain term life policies issued in 2011 through 2017 to Vidalia Re as part of a Regulation XXX redundant reserve financing transaction (the “Vidalia Re Redundant Reserve Financing Transaction”). These redundant reserve financing transactions allow us to more efficiently manage and deploy our capital. The NAIC has adopted a model regulation for determining reserves using a principle-based approach (“principle-based reserves” or “PBR”), which is designed to reflect each insurer’s own experience in calculating reserves and move away from a single prescriptive reserving formula. Primerica Life adopted PBR as of January 1, 2018. PBR significantly reduced the redundant statutory policy benefit reserve requirements while still ensuring adequate liabilities are held. The regulation only applies for business issued after the effective date. See Note 4 (Investments), Note 10 (Debt) and Note 16 (Commitments and Contingent Liabilities) to our consolidated financial statements included elsewhere in this report for more information on these redundant reserve financing transactions. The Company has Notes Payable. $375.0 million of publicly-traded, Senior Notes outstanding issued at a price of 99.843% with an annual interest rate of 4.75%, payable semi- annually in arrears on January 15 and July 15. The Senior Notes mature July 15, 2022. We were in compliance with the covenants of the Senior Notes at December 31, 2020. No events of default occurred on the Senior Notes during the year ended December 31, 2020. Financial Ratings. As of December 31, 2020, the investment grade credit ratings for our Senior Notes were as follows: Agency Moody’s Senior Notes rating Baa1, stable outlook Standard & Poor’s A-, stable outlook A.M. Best Company a-, stable outlook As of December 31, 2020, Primerica Life’s financial strength ratings were as follows: Agency Moody’s Financial strength rating A1, stable outlook Standard & Poor’s AA-, stable outlook A.M. Best Company A+, stable outlook Securities Lending. We participate in securities lending transactions with brokers to increase investment income with minimal risk. See Note 4 (Investments) to our consolidated financial statements included elsewhere in this report for additional information. Short-Term Borrowings. We had no short- term borrowings as of or during the year ended December 31, 2020. Vidalia Re issued a Surplus Surplus Note. Note in exchange for the LLC Note as a part of the Vidalia Re Redundant Reserve Financing Transaction. The Surplus Note has a principal amount equal to the LLC Note and is scheduled to mature on December 31, 2030. For more information on the Surplus Note, see Note 10 (Debt) to our consolidated financial statements included elsewhere in this report. ITEM 7. MD&A Off-Balance Sheet Arrangements. We have no transactions, agreements or other contractual arrangements to which an entity unconsolidated with the Company is a party, under which the Company maintains any off-balance sheet obligations or guarantees as of December 31, 2020. Credit Facility Agreement. We maintain an unsecured $200.0 million revolving credit facility (“Revolving Credit Facility”) with a syndicate of commercial banks that has a scheduled termination date of December 19, 2022. Amounts outstanding under the Revolving Credit Facility bear interest at a periodic rate equal to the London Interbank Offered Rate (“LIBOR”) or the base rate, plus in either case an applicable margin. The Revolving Credit Facility contains language that allows for the Company and the lenders to agree on a comparable or successor reference rate in the event LIBOR is no longer available. The Revolving Credit Facility also permits the issuance of letters of credit. The applicable margins are based on our debt rating with such margins for LIBOR rate loans and letters of credit ranging from 1.125% to 1.625% per annum and for base rate loans ranging from 0.125% to 0.625% per annum. Under the Revolving Credit Facility, we incur a commitment fee that is payable quarterly in arrears and is determined by our debt rating. This commitment fee ranges from 0.125% to 0.225% per annum of the aggregate $200.0 million commitment of the lenders under the Revolving Credit Facility. As of December 31, 2020, no amounts have been drawn under the Revolving Credit Facility and we were in compliance with its covenants. Furthermore, no events of default have occurred under the Revolving Credit Facility in 2020. Primerica 2020 Annual Report 85 ITEM 7. MD&A Contractual Obligations. Our contractual obligations, including payments due by period, were as follows: December 31, 2020 Total Liability Total Payments Less than 1 year 1-3 years 3-5 years More than 5 years (In millions) Future policy benefits $6,791 $25,444 $1,645 $3,147 $2,914 $17,738 Policy claims and other benefits payable Other policyholder funds Long-term debt principal Interest obligations Commissions Purchase obligations Lease obligations Income tax payable Other liabilities 520 448 375 8 39 29 54 21 520 448 375 90 39 45 63 21 520 448 — 28 38 27 8 21 493 454 420 — — 375 35 1 15 16 — 34 — — — 13 — 3 16 — — — — — 14 — — 23 — — Total contractual obligations $8,778 $27,499 $3,155 $3,623 $2,946 $17,775 Our liability for future policy benefits represents the present value of estimated future policy benefits to be paid, less the present value of estimated future net benefit premiums to be collected. Net benefit premiums represent the portion of gross premiums required to provide for all benefits and associated expenses. These benefit payments are contingent on policyholders continuing to renew their policies and make their premium payments. Our contractual obligations table discloses the impact of benefit payments that will be due assuming the underlying policy renewals and premium payments continue as expected in our actuarial models. The future policy benefit payments represented in the table are presented on an undiscounted basis, gross of any amounts recoverable through reinsurance agreements and gross of any premiums to be collected. We expect to fully fund the obligations for future policy benefits from cash flows from general account invested assets, claims reimbursed by reinsurers, and from future premiums. These estimations are based on mortality and lapse assumptions comparable with our historical experience. Due to the significance of the 86 assumptions used, the amounts presented could materially differ from actual results. Policy claims and other benefits payable represents claims and benefits that have been incurred but not paid to policyholders. Other policyholders’ funds primarily represent claim payments left on deposit with us. Long-term debt principal relates to our Senior Notes. Interest obligations (reported within other liabilities in our consolidated balance sheets) reflect expected interest on our Senior Notes, the commitment fee on our Revolving Credit Facility, the financing charges related to an issued letter of credit, fees paid for the credit enhancement feature on the LLC Note, and a finance charge incurred pursuant to one of our IPO coinsurance agreements as of December 31, 2020. We did not include the principal or interest on the Surplus Note in the table above as the payments due for these items are contractually offset by the principal and interest on the LLC Note as long as we hold the LLC Note. The Company asserts its positive intent and ability to hold the LLC Note until maturity. Commissions represent commissions that have been earned by the sales force but have not been paid as of December 31, 2020. We are only obligated to pay commissions as earned from sales of our products. The total liability amount is reported within other liabilities in our consolidated balance sheets. Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms. These obligations consist primarily of accounts payable and certain accrued liabilities, including committed funds related to meetings and conventions for the sales force, plus a variety of vendor commitments funding our ongoing business operations. The total liability amount is reported within other liabilities in our consolidated balance sheets. ITEM 7. MD&A Our lease obligations primarily represent payments for leases related to office space. For additional information on leases see Note 19 (Leases) to our consolidated financial statements included elsewhere in this report. Income tax payable represents income taxes owed at year-end. Other liabilities are obligations reported within the consolidated balance sheets and consist primarily of amounts due under reinsurance agreements and general accruals and payables. The total payments within the table differ from the amounts presented in our consolidated balance sheets due to the exclusion of amounts where a reasonable estimate of the period of settlement cannot be determined. For additional information concerning our commitments and contingencies, see Note 16 (Commitments and Contingent Liabilities) to our consolidated financial statements included elsewhere in this report. Primerica 2020 Annual Report 87 ITEM 7A. MARKET RISK ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Market risk is the risk of the loss of fair value resulting from adverse changes in market rates and prices, such as interest rates and foreign currency exchange rates. Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying financial instruments are traded. Sensitivity analysis measures the impact of hypothetical changes in interest rates, foreign exchange rates and other market rates or prices on the profitability of market-sensitive financial instruments. The following discussion about the potential effects of changes in interest rates and Canadian currency exchange rates is based on shock-tests, which model the effects of interest rate and Canadian exchange rate shifts on our financial condition and results of operations. Although we believe shock tests provide the most meaningful analysis permitted by the rules and regulations of the SEC, they are constrained by several factors, including the necessity to conduct the analysis based on a single point in time and by their inability to include the extraordinarily complex market reactions that normally would arise from the market shifts modeled. Although the following results of shock tests for changes in interest rates and Canadian currency exchange rates may have some limited use as benchmarks, they should not be viewed as forecasts. These disclosures also are selective in nature and address, in the case of interest rates, only the potential direct impact on our financial instruments and, in the case of Canadian currency exchange rates, the potential translation impact on net income from our Canadian subsidiaries. They do not include a variety of other potential factors that could affect our business as a result of these changes in interest rates and Canadian currency exchange rates. The fair value of the fixed- Interest Rate Risk. maturity securities (excluding the held-to-maturity security) in our invested asset portfolio as of December 31, 2020 and 2019 was $2.5 billion and $2.4 billion, respectively. One of the primary 88 market risks for this portion of our invested asset portfolio is interest rate risk. One means of assessing the exposure of our fixed-maturity securities portfolios to interest rate changes is a duration-based analysis that measures the potential changes in market value resulting from a hypothetical change in interest rates of 100 basis points across all maturities. This model is sometimes referred to as a parallel shift in the yield curve. Under this model, with all other factors constant and assuming no offsetting change in the value of our liabilities, we estimated that such an increase in interest rates would cause the fair value of our fixed-maturity securities portfolios to decline by $105.6 million, or 4%, based on our actual securities positions as of December 31, 2020. For comparative purposes, the same increase in rates would have caused the fair value of our fixed-maturity securities portfolios to decline by $81.6 million, or 3%, based on our actual securities positions as of December 31, 2019. Canadian Currency Risk. We also have exposure to foreign currency exchange risk to the extent we conduct business in Canada. A strong Canadian dollar relative to the U.S. dollar results in higher levels of reported revenues, expenses, net income, assets, liabilities, and accumulated comprehensive income (loss) in our U.S. dollar financial statements, and a weaker Canadian dollar would have the opposite effect. Generally, our Canadian dollar- denominated assets are held in support of our Canadian dollar-denominated liabilities. For the year ended December 31, 2020, 14% of our revenues from operations, excluding realized investment gains, and 19% of income before income taxes were generated by our Canadian operations. For the year ended December 31, 2019, 15% of our revenues from operations, excluding realized investment gains, and 18% of income before income taxes were generated by our Canadian operations. One means of assessing exposure to changes in Canadian currency exchange rates is to model the effects on reported income using a sensitivity analysis. We analyzed our Canadian currency exposure for the year ended December 31, 2020. Net exposure was measured assuming a 10% decrease in the value of the Canadian dollar relative to the U.S. dollar. We estimated that such a decrease would decrease our income before income taxes for the year ended December 31, 2020 by $9.5 million. Our investment in the net assets of our Canadian operations is also subject to Canadian currency risk. If we were to assume a 10% decrease in Canadian currency exchange rates compared to the U.S. dollar, the translated value of our net investment in our Canadian subsidiaries in U.S. dollars would decrease by $36.6 million based on net assets as of December 31, 2020. For comparative purposes, a similar decrease in Canadian currency exchange rates compared to the U.S. dollar would have caused the translated value of our net investment in our Canadian subsidiaries in U.S. dollars to decline by $32.4 million based on net assets as of December 31, 2019. Historically, we have not hedged this exposure, although we may elect to do so in future periods. The impact of translating the balance of net assets of our Canadian operations is recorded in our consolidated balance sheets within the accumulated other comprehensive income component of stockholders’ equity. Credit Risk. We extensively use reinsurance in the United States to diversify our insurance and underwriting risk and to manage our loss exposure to mortality risk. Reinsurance does not relieve us of our direct liability to our policyholders. Due to factors such as insolvency, adverse underwriting results or inadequate investment returns, our reinsurers may not be able to pay the amounts they owe us on a timely basis or at all. Further, reinsurers might refuse or fail to pay losses that we cede to them or might delay payment. To limit our exposure with any one reinsurer, we monitor the concentration of credit risk we have with our reinsurance counterparties, as well as their financial condition. We manage this reinsurer credit risk through analysis and monitoring of the credit- worthiness of each of our reinsurance partners to minimize collection issues. Also, for reinsurance contracts with unauthorized reinsurers, we require collateral such as letters of credit. For information on our reinsurance exposure and reinsurers, see Note 6 (Reinsurance) to our consolidated financial statements included elsewhere in this report. In connection with the Peach Re Redundant Reserve Financing Transaction, the Company assumes credit ITEM 7A. MARKET RISK risk associated with Deutsche Bank’s ability to make payment to us in fulfillment of its obligations under a letter of credit. Such a draw on the letter of credit would only be requested in the event that the assets held in support of the liabilities assumed by Peach Re were insufficient, which, based on actuarial analysis, is unlikely. Concurrent with the execution of the Vidalia Re Redundant Reserve Financing Transaction between Vidalia Re and Primerica Life, Vidalia Re entered into a Surplus Note Purchase Agreement (the “Surplus Note Purchase Agreement”) with Hannover Life Reassurance Company of America and certain of its affiliates (collectively, “Hannover Re”) and a newly- formed limited liability company (the “LLC”) owned by a third-party service provider. Under the Surplus Note Purchase Agreement, Vidalia Re issued the Surplus Note to the LLC in exchange for the LLC Note of equal principal amount. The Company assumes credit risk associated with a credit enhancement feature provided by Hannover Re, which bears the obligation to absorb the LLC’s losses in the event of a Surplus Note default in exchange for a fee. For information on the Peach Re Redundant Reserve Financing Transaction, see Note 16 (Commitments and Contingent Liabilities) and for information on the Surplus Note Purchase Agreement, see Note 4 (Investments) and Note 10 (Debt) to our consolidated financial statements included elsewhere in this report. We also bear credit risk on our investment portfolio related to the uncertainty associated with the continued ability of an obligor to make timely payments of principal and interest. In an effort to meet business needs and mitigate credit and other portfolio risks, we established investment guidelines that provide restrictions on our portfolio’s composition, including limits on asset type, per issuer limits, credit quality limits, portfolio duration, limits on the amount of investments in approved countries and permissible security types. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition” for details on our investment portfolio, including investment strategy, asset mix, and credit ratings. Primerica 2020 Annual Report 89 ITEM 8. FINANCIAL STATEMENTS ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Primerica, Inc.: OpinionontheConsolidatedFinancialStatements We have audited the accompanying consolidated balance sheets of Primerica, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedules I, II, III, and IV (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. BasisforOpinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. CriticalAuditMatter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements; and (2) involved our especially challenging, subjective, or complex judgment. The communication 90 of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. ITEM 8. FINANCIAL STATEMENTS Estimateofthefuturepolicybenefitsfortermlifeinsurancecontracts As described in Note 1 to the consolidated financial statements, the Company estimates future policy benefits for term life insurance contracts using assumptions, such as mortality – the likelihood of death, persistency – how long an insurance contract remains active, and disability rates – the period of time a policyholder remains disabled. These assumptions are based on historical experience modified, as necessary, to reflect anticipated trends. These assumptions are not modified during the policy term unless a premium deficiency is identified. The liability for future policy benefits for term life insurance contracts was $6,791 million as of December 31, 2020. We identified the evaluation of mortality, persistency, and disability rate assumptions (assumptions) used to estimate future policy benefits as a critical audit matter. The evaluation of these assumptions required complex auditor judgment due to a high degree of measurement uncertainty. Additionally, specialized actuarial skills and knowledge were needed to evaluate the Company’s assumptions due to the judgmental nature and level of disaggregation used in determining the assumptions. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s process for developing the estimate of future policy benefits for term life insurance contracts. This included controls related to the Company’s development, review, and approval of the assumptions used to estimate the future policy benefits at the time of contract issuance. We also involved actuarial professionals with specialized skills and knowledge, who assisted in: • • • comparing the methods the Company used to determine the assumptions used to estimate the future policy benefits to generally accepted actuarial standards evaluating the Company’s assumptions used for term life insurance contracts issued during the year by 1) comparing the assumptions to the Company’s most recent actual term life insurance historical experience studies and the 2020 term life insurance contract pricing assumptions; and 2) assessing modifications for anticipated trends and assessment for the provision for possible adverse deviation assessing the level of disaggregation and granularity of the Company’s term life insurance historical experience studies used in determining the assumptions • performing an analysis of the trends in the Company’s future policy benefits based on historical development trends to assess the Company’s ability to develop assumptions • developing independent estimates, based on the Company’s data and assumptions, of the future policy benefits for a selection of term life insurance contracts issued during the year and in prior years and comparing to the Company’s estimated future policy benefits. /s/ KPMG LLP We have served as the Company’s auditor since 2007. Atlanta, Georgia March 1, 2021 Primerica 2020 Annual Report 91 ITEM 8. FINANCIAL STATEMENTS Assets: Investments: PRIMERICA, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2020 December 31, 2019 (In thousands) Fixed-maturity securities available-for-sale, at fair value (amortized cost: $2,301,238 in 2020 and $2,274,770 in 2019) Fixed-maturity security held-to-maturity, at amortized cost (fair value: $1,606,208 in 2020 and $1,299,102 in 2019) Equity securities, at fair value (historical cost: $32,031 in 2020 and $32,671 in 2019) Trading securities, at fair value (cost: $16,359 in 2020 and $43,257 in 2019) Policy loans $ 2,464,611 1,346,350 38,023 16,300 30,199 $ 2,356,996 1,184,370 40,684 43,233 32,927 Total investments Cash and cash equivalents Accrued investment income Reinsurance recoverables Deferred policy acquisition costs, net Agent balances, due premiums and other receivables Intangible assets, net Income tax receivable Deferred income taxes Operating lease right-of-use assets Other assets Separate account assets Total assets Liabilities and Stockholders’ Equity: Liabilities: Future policy benefits Unearned and advance premiums Policy claims and other benefits payable Other policyholders’ funds Notes payable Surplus note Income tax payable Deferred income taxes Operating lease liabilities Other liabilities Payable under securities lending Separate account liabilities Commitments and contingent liabilities (see Commitments and Contingent Liabilities note) Total liabilities Stockholders’ equity: Common stock ($0.01 par value; authorized 500,000 in 2020 and 2019; issued and outstanding 39,306 shares in 2020 and 41,207 shares in 2019) Paid-in capital Retained earnings Accumulated other comprehensive income (loss), net of income tax: Unrealized foreign currency translation gains (losses) Net unrealized investment gains (losses) on available-for-sale securities Total stockholders’ equity Total liabilities and stockholders’ equity See accompanying notes to consolidated financial statements. 92 3,895,483 547,569 17,618 4,273,904 2,629,644 259,448 45,275 4,035 69,255 46,567 456,967 2,659,520 3,658,210 256,876 17,361 4,169,823 2,325,750 227,100 45,275 1,020 69,472 47,265 384,634 2,485,745 $14,905,285 $13,688,531 6,790,557 17,136 519,711 447,765 374,415 1,345,772 21,048 202,448 52,806 566,068 72,154 2,659,520 6,446,569 15,470 339,954 388,663 374,037 1,183,728 20,224 188,997 53,487 510,443 28,723 2,485,745 13,069,400 12,036,040 393 — 412 — 1,705,786 1,593,281 1,578 128,128 (5,765) 64,563 1,835,885 1,652,491 $14,905,285 $13,688,531 ITEM 8. FINANCIAL STATEMENTS PRIMERICA, INC. AND SUBSIDIARIES Consolidated Statements of Income Revenues: Direct premiums Ceded premiums Net premiums Commissions and fees Investment income net of investment expenses Interest expense on surplus note Net investment income Realized investment gains (losses) Other, net Total revenues Benefits and expenses: Benefits and claims Amortization of deferred policy acquisition costs Sales commissions Insurance expenses Insurance commissions Interest expense Other operating expenses Total benefits and expenses Income before income taxes Income taxes Net income Earnings per share: Basic earnings per share Diluted earnings per share Weighted-average shares used in computing earnings per share: Basic Diluted Supplemental disclosures: Total impairment losses Impairment losses recognized in other comprehensive income before income taxes Net impairment losses recognized in earnings Other net realized investment gains (losses) Net gains (losses) recognized on equity securities Year ended December 31, 2020 2019 2018 (In thousands, except per-share amounts) $ 2,907,149 $ 2,753,866 $ 2,667,104 (1,580,766) (1,569,729) (1,581,164) 1,326,383 1,184,137 1,085,940 751,271 141,287 713,804 142,398 677,607 118,915 (57,473) (48,325) (37,485) 83,814 (4,996) 61,069 94,073 4,965 55,525 81,430 (2,121) 56,987 2,217,541 2,052,504 1,899,843 615,569 224,321 376,636 188,117 32,134 28,839 493,820 254,552 357,198 178,817 25,051 28,811 457,583 239,730 335,384 168,156 24,490 28,809 245,195 237,144 229,607 1,710,811 1,575,393 1,483,759 506,730 120,566 477,111 110,720 416,084 91,990 $ 386,164 $ 366,391 $ 324,094 $ $ 9.60 9.57 $ $ 8.65 8.62 $ $ 7.35 7.33 40,065 42,181 43,854 40,185 42,314 43,985 $ (4,254) $ (1,333) $ (152) — (4,254) 1,693 (2,435) — (1,333) 1,091 5,207 — (152) 487 (2,456) Net realized investment gains (losses) $ (4,996) $ 4,965 $ (2,121) See accompanying notes to consolidated financial statements. Primerica 2020 Annual Report 93 ITEM 8. FINANCIAL STATEMENTS PRIMERICA, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income Net income Other comprehensive income (loss) before income taxes: Unrealized investment gains (losses) on available-for-sale securities: Change in unrealized holding gains (losses) on investment securities Reclassification adjustment for realized investment (gains) losses included in net income Foreign currency translation adjustments: Year ended December 31, 2020 2019 2018 (In thousands) $386,164 $366,391 $324,094 78,533 91,160 (59,661) 2,614 253 (45) Change in unrealized foreign currency translation gains (losses) 7,343 15,299 (25,059) Total other comprehensive income (loss) before income taxes 88,490 106,712 (84,765) Income tax expense (benefit) related to items of other comprehensive income (loss) 17,582 19,480 (12,690) Other comprehensive income (loss), net of income taxes 70,908 87,232 (72,075) Total comprehensive income $457,072 $453,623 $252,019 See accompanying notes to consolidated financial statements. 94 ITEM 8. FINANCIAL STATEMENTS PRIMERICA, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders’ Equity Common stock: Balance, beginning of period Repurchases of common stock Net issuance of common stock Balance, end of period Paid-in capital: Balance, beginning of period Share-based compensation Net issuance of common stock Repurchases of common stock Balance, end of period Retained earnings: Balance, beginning of period Cumulative effect from the adoption of new accounting standards, net Net income Dividends Repurchases of common stock Balance, end of period Accumulated other comprehensive income (loss): Balance, beginning of period Cumulative effect from the adoption of new accounting standards, net Change in foreign currency translation adjustment, net of income tax expense (benefit) Change in net unrealized investment gains (losses) during the period, net of income taxes: Balance, end of period Total stockholders’ equity Dividends declared per share Year ended December 31, 2020 2019 2018 (In thousands) $ 412 $ (22) 3 393 427 $ (19) 4 412 443 (21) 5 427 — 29,079 (3) (29,076) — 27,208 (4) (27,204) — 26,707 (5) (26,702) — — — 1,593,281 1,489,520 1,375,090 (1,240) 386,164 (64,346) (208,073) — 366,391 (57,630) (205,000) 24,610 324,094 (44,140) (190,134) 1,705,786 1,593,281 1,489,520 58,798 (28,434) 43,568 — — 73 7,343 15,299 (25,059) 63,565 129,706 71,933 58,798 (47,016) (28,434) $1,835,885 $1,652,491 $1,461,513 $ 1.60 $ 1.36 $ 1.00 See accompanying notes to consolidated financial statements. Primerica 2020 Annual Report 95 ITEM 8. FINANCIAL STATEMENTS PRIMERICA, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Cash flows from operating activities: Net income Adjustments to reconcile net income to cash provided by (used in) operating activities: Change in future policy benefits and other policy liabilities Deferral of policy acquisition costs Amortization of deferred policy acquisition costs Deferred tax provision Change in income taxes Realized investment (gains) losses Accretion and amortization of investments Depreciation and amortization Change in reinsurance recoverables Change in agent balances, due premiums and other receivables Trading securities sold, matured, or called (acquired), net Share-based compensation Change in other operating assets and liabilities, net Year ended December 31, 2020 2019 2018 (In thousands) $ 386,164 $ 366,391 $ 324,094 574,060 (512,634) 224,321 266 (5,008) 4,996 751 17,697 (100,185) (32,348) 26,694 19,027 39,616 297,832 (424,106) 254,552 (841) (5,187) (4,965) (720) 18,300 (12,825) (11,965) (29,601) 17,533 21,115 266,513 (432,390) 239,730 2,590 2,365 2,121 (1,894) 12,417 37,261 14,383 (8,808) 17,251 2,434 Net cash provided by (used in) operating activities 643,417 485,513 478,067 Cash flows from investing activities: Available-for-sale investments sold, matured or called: Fixed-maturity securities — sold Fixed-maturity securities — matured or called Short-term investments — matured or called Equity securities — sold Available-for-sale investments acquired: Fixed-maturity securities Short-term investments Equity securities — acquired Purchases of property and equipment and other investing activities, net Cash collateral received (returned) on loaned securities, net Sales (purchases) of short-term investments using securities lending collateral, net 67,760 429,147 — 2,581 42,202 403,969 8,250 3,136 (522,123) (633,106) — (3,272) (27,622) 43,431 (43,431) — (898) (25,437) (23,839) 23,839 51,726 362,413 — 2,093 (626,826) (8,169) (521) (13,517) (37,224) 37,224 Net cash provided by (used in) investing activities (53,529) (201,884) (232,801) Cash flows from financing activities: Dividends paid Common stock repurchased Tax withholdings on share-based compensation Finance leases Net cash provided by (used in) financing activities Effect of foreign exchange rate changes on cash Change in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Supplemental disclosures of cash flow information: Income taxes paid Interest paid (64,346) (231,431) (5,739) (274) (57,630) (225,037) (7,186) (281) (44,140) (210,146) (6,711) — (301,790) 2,595 (290,134) 1,243 (260,997) (2,093) 290,693 256,876 (5,262) 262,138 (17,824) 279,962 $ 547,569 $ 256,876 $ 262,138 $ 123,305 27,853 $ 115,051 28,053 $ 88,348 27,899 See accompanying notes to consolidated financial statements. 96 FINANCIAL STATEMENTS — NOTE 1 PRIMERICA, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (1) Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies Description of Business. Primerica, Inc. (the “Parent Company”), together with its subsidiaries (collectively, “we”, “us” or the “Company”), is a leading provider of financial products to middle- income households in the United States and Canada through a network of independent contractor sales representatives (“sales representatives” or “sales force”). We assist our clients in meeting their needs for term life insurance, which we underwrite, and mutual funds, annuities, managed investments and other financial products, which we distribute primarily on behalf of third parties. Our primary subsidiaries include the following entities: Primerica Financial Services, LLC (“PFS”), a general agency and marketing company; Primerica Life Insurance Company (“Primerica Life”), our principal life insurance company; Primerica Financial Services (Canada) Ltd., a holding company for our Canadian operations, which includes Primerica Life Insurance Company of Canada (“Primerica Life Canada”) and PFSL Investments Canada Ltd. (“PFSL Investments Canada”); and PFS Investments Inc. (“PFS Investments”), an investment products company and broker-dealer. Primerica Life, domiciled in Tennessee, owns National Benefit Life Insurance Company (“NBLIC”), a New York insurance company. Peach Re, Inc. (“Peach Re”) and Vidalia Re, Inc. (“Vidalia Re”) are special purpose financial captive insurance companies and wholly owned subsidiaries of Primerica Life. Peach Re and Vidalia Re have each entered into separate coinsurance agreements with Primerica Life whereby Primerica Life has ceded certain level-premium term life insurance policies to Peach Re and Vidalia Re (respectively, the “Peach Re Coinsurance Agreement” and the “Vidalia Re Coinsurance Agreement”). Basis of Presentation. We prepare our financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). These principles are established primarily by the Financial Accounting Standards Board (“FASB”). Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect financial statement balances, revenues and expenses and cash flows, as well as the disclosure of contingent assets and liabilities. Management considers available facts and knowledge of existing circumstances when establishing the estimates included in our financial statements. The most significant items that involve a greater degree of accounting estimates and actuarial determinations subject to change in the future are the valuation of investments, deferred policy acquisition costs (“DAC”), future policy benefit reserves and corresponding amounts recoverable from reinsurers, and income taxes. Estimates for these and other items are subject to change and are reassessed by management in accordance with U.S. GAAP. Actual results could differ from those estimates. Consolidation. The accompanying consolidated financial statements include the accounts of the Company and those entities required to be consolidated under U.S. GAAP. All material intercompany profits, transactions, and balances among the consolidated entities have been eliminated. Reclassifications. Certain reclassifications have been made to prior-period amounts to conform to current-period reporting classifications. These reclassifications had no impact on net income or total stockholders’ equity. Foreign Currency Translation. Assets and liabilities of our Canadian subsidiaries are translated into U.S. dollars using year-end exchange rates, and the translation adjustments are reported in other comprehensive income (loss). Revenues and expenses of our Canadian Primerica 2020 Annual Report 97 FINANCIAL STATEMENTS — NOTE 1 subsidiaries are translated monthly at amounts that approximate weighted-average exchange rates. Investments. following bases: Investments are reported on the • Available-for-sale (“AFS”) fixed-maturity securities, including bonds and redeemable preferred stocks, are carried at fair value. • Our held-to-maturity fixed-maturity security is carried at amortized cost. • • Equity securities, including common and nonredeemable preferred stocks, are carried at fair value. Changes in fair value of equity securities are included in realized investment gains (losses) in the period in which the change occurred. Trading securities, which primarily consist of bonds held by PFS Investments, are carried at fair value. Changes in fair value of trading securities are included in realized investment gains (losses) in the period in which the change occurred. • Policy loans are carried at unpaid principal balances, which approximate fair value. Investment transactions are recorded on a trade- date basis. We use the specific-identification method to determine the realized gains or losses from securities transactions and report the realized gains or losses in the accompanying consolidated statements of income. Unrealized gains and losses on AFS securities are included as a separate component of other comprehensive income (loss), except for credit loss impairment discussed below, in the accompanying consolidated statements of comprehensive income. For an AFS security with an amortized cost that exceeds its fair value, we first determine if we intend to sell or will more-likely-than-not be required to sell the security before the expected recovery of its amortized cost. If we intend to sell or will more-likely-than-not be required to sell the security, then we recognize the impairment as a credit loss in our consolidated statements of income by writing down the 98 security’s amortized cost to its fair value. If we do not intend to sell or it is not more-likely-than-not that we will be required to sell the security before the expected recovery of its amortized cost, we recognize the portion of the impairment that is due to a credit loss, if any, in our consolidated statement of income through an allowance. The portion of the impairment that is due to factors other than a credit loss is recognized in other comprehensive income in the consolidated statement of comprehensive income as an unrealized loss. Credit losses recognized in the allowance for credit losses are reversed in situations where the estimate of credit losses on those securities has declined. When determining whether an impairment is due to a credit loss or other factors, we determine the extent to which we do not expect to recover the security’s amortized cost and record such amount, if any, as a credit loss. Factors we consider in determining whether the security’s decline in fair value is below amortized cost due to a credit loss include the magnitude of the security’s decline in fair value below its amortized cost, the financial condition, long and near-term prospects for the issuer, industry conditions and trends, rating agency actions, the payment structure of the security, likelihood of the recoverability of principal and interest, and our ability and intent to hold the security for a period of time sufficient to allow for the anticipated recovery of its amortized cost. In assessing our ability and intent to hold the security for a period of time to allow for the anticipated recovery of its amortized cost, we also consider our anticipated sources of cash to fund operating activities and share repurchases. If we do not anticipate recovering a security’s amortized cost basis, we estimate the present value of the security’s expected cash flows and recognize the difference from amortized cost (using fair value as a floor) as a credit loss. Interest income on fixed-maturity securities is recorded when earned by determining the effective yield, which gives consideration to amortization of premiums, accretion of discounts, and any previous credit losses. Dividend income on equity securities is recorded when declared. These amounts are included in net investment income in the accompanying consolidated statements of income. Included within fixed-maturity securities are loan-backed and asset-backed securities. Amortization of the premium or accretion of the discount uses the retrospective method. The effective yield used to determine amortization/ accretion is calculated based on actual and historical projected future cash flows and updated quarterly. Cash and Cash Equivalents. Cash and cash equivalents include cash on hand, money market instruments, and all other highly liquid investments purchased with an original or remaining maturity of three months or less at the date of acquisition. Reinsurance. We use reinsurance extensively, utilizing yearly renewable term (“YRT”) and coinsurance agreements. Under YRT agreements, we reinsure only the mortality risk, while under coinsurance, we reinsure a proportionate part of all risks arising under the reinsured policy. Under coinsurance, the reinsurer receives a proportionate part of the premiums, less commission allowances, and is liable for a corresponding part of all benefit payments. All reinsurance contracts in effect for the three- year period ended December 31, 2020 transfer a reasonable possibility of substantial loss to the reinsurer or are accounted for under the deposit method of accounting. Ceded premiums are treated as a reduction to direct premiums and are recognized when due to the assuming company. Ceded claims are treated as a reduction to direct benefits and are recognized when the claim is incurred on a direct basis. Ceded policy reserve changes are also treated as a reduction to benefits and claims expense and are recognized during the applicable financial reporting period. Reinsurance premiums, commissions, expense reimbursements and benefits and reserves related to reinsured long-duration contracts are accounted for over the life of the underlying contracts using assumptions consistent with those used to account for the underlying policies. Amounts recoverable from reinsurers are estimated in a manner consistent with the FINANCIAL STATEMENTS — NOTE 1 claim liabilities and future policy benefits associated with reinsured policies. Ceded policy reserves and claims liabilities relating to insurance ceded are shown as reinsurance recoverables on the accompanying consolidated balance sheets. We analyze and monitor the credit-worthiness of each of our reinsurance partners to minimize collection issues. For reinsurance contracts with unauthorized reinsurers, we require collateral such as letters of credit. To the extent we receive ceding allowances to cover policy and claims administration under reinsurance contracts, these allowances are treated as a reduction to insurance commissions and expenses and are recognized when due from the assuming company. To the extent we receive ceding allowances reimbursing commissions that would otherwise be deferred, the amount of commissions deferrable will be reduced. The corresponding DAC balances are reduced on a pro rata basis by the portion of the business reinsured with reinsurance agreements that meet risk transfer provisions. The reduced DAC will result in a corresponding reduction of amortization expense. We estimate and recognize lifetime expected credit losses for reinsurance recoverables. In estimating the allowance for expected credit losses for reinsurance recoverables, we factor in the underlying collateral for reinsurance agreements where available. Specifically, for reinsurers with underlying trust assets, we compare the reinsurance recoverables balance to the underlying trust assets that mitigate the potential exposure to credit losses. We also analyze the financial condition of the reinsurers, as determined by third-party rating agencies, to determine the probability of default for the reinsurers. We then utilize a third-party credit default study to calculate an expected credit loss given default rate or recovery rate. The probability of default and loss given default rates are then applied to the reinsurers’ recoverable balance, while also factoring in any third-party letters of credit that support the reinsurance agreement, in order to calculate our current expected credit loss allowance. Primerica 2020 Annual Report 99 FINANCIAL STATEMENTS — NOTE 1 DAC. 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 deferred policy acquisition costs mainly include commissions and policy issue expenses. All other acquisition-related costs, including unsuccessful acquisition and renewal efforts, are charged to expense as incurred. Also, administrative costs, rent, depreciation, occupancy, equipment, and all other general overhead costs are considered indirect costs and are charged to expense as incurred. DAC for term life insurance policies is amortized over the initial premium-paying period of the related policies in proportion to premium revenue. DAC for Canadian segregated funds is amortized over the life of the underlying policies at a constant rate based on the present value of the estimated gross profits expected to be realized over the life of the underlying policies. DAC is subject to recoverability testing annually and when impairment indicators exist. Intangible Assets. Intangible assets, which are included in other assets, are amortized over their estimated useful lives. Any intangible asset that was deemed to have an indefinite useful life is not amortized but is subject to an annual impairment test. An impairment exists if the carrying value of the indefinite-lived intangible asset exceeds its fair value. For the other intangible assets, which are subject to amortization, an impairment is recognized if the carrying amount is not recoverable and exceeds the fair value of the intangible asset. The components of intangible assets were as follows: December 31, 2020 2019 Gross carrying amount Accumulated amortization Net carrying amount Gross carrying amount Accumulated amortization Net carrying amount (In thousands) Indefinite-lived intangible asset $45,275 n/a $45,275 $45,275 n/a $45,275 Amortizing intangible asset — Total intangible assets $45,275 — $— — — $45,275 $45,275 — $— — $45,275 We have an indefinite-lived intangible asset related to the 1989 purchase of the right to contract with the sales force. This asset represents the core distribution model of our business, which is our primary competitive advantage to profitably distribute term life insurance and investment and savings products on a significant scale, and as such, is considered to have an indefinite life. This indefinite-lived intangible asset is supported by a significant portion of the discounted cash flows of our future business. We assessed this asset for impairment as of October 1, 2020 and determined that no impairment had occurred. There have been no subsequent events requiring further analysis. We also had an amortizing intangible asset related to a 1995 sales agreement termination payment to Management Financial Services, Inc. This asset, which was fully amortized in 2019, was supported by a non-compete agreement with the founder of our business model that expired in 2019. We calculated the amortization of this contract buyout on a straight-line basis over 24 years, which represented the life of the non-compete agreement. Intangible asset amortization expense was $2.8 million in 2019 and $3.4 million in 2018. 100 Property and Equipment. Property and equipment, which are included in other assets, are stated at cost, less accumulated depreciation. Depreciation is recognized on a straight-line basis over the asset’s estimated useful life, which is estimated as follows: FINANCIAL STATEMENTS — NOTE 1 Data processing equipment and software Leasehold improvements Furniture and other equipment Depreciation expense is included in other operating expenses in the accompanying consolidated statements of income. Depreciation expense was $18.0 million, $15.7 million, and $9.0 million for the years ended December 31, 2020, 2019, and 2018, respectively. Property and equipment balances were as follows: Data processing equipment and software December 31, 2020 2019 (In thousands) $ 104,364 $ 86,794 Leasehold improvements 18,764 19,079 Other, principally furniture and equipment Accumulated depreciation Net property and equipment 35,099 31,391 158,227 137,264 (100,500) (91,148) $ 57,727 $ 46,116 Separate Accounts. The separate accounts are primarily comprised of contracts issued by the Company through its subsidiary, Primerica Life Canada, pursuant to the Insurance Companies Act (Canada). The Insurance Companies Act authorizes Primerica Life Canada to establish the separate accounts. The separate accounts are represented by individual variable insurance contracts. Purchasers of variable insurance contracts issued by Primerica Life Canada have a direct claim to the benefits of the contract that entitles the Estimated Useful Life 3 to 7 years Lesser of 15 years or remaining life of lease 5 to 15 years holder to units in one or more investment funds (the “Funds”) maintained by Primerica Life Canada. The Funds invest in assets that are held for the benefit of the owners of the contracts. The benefits provided vary in amount depending on the fair value of the Funds’ net assets. The Funds’ assets are administered by Primerica Life Canada and are held separate and apart from the general assets of the Company. The liabilities reflect the variable insurance contract holders’ interests in the Funds’ net assets based upon actual investment performance of the respective Funds. Separate account operating results relating to contract holders’ interests are excluded from our consolidated statements of income. Primerica Life Canada’s contract offerings guarantee the maturity value at the date of maturity (or upon death, whichever occurs first) to be equal to 75% of the sum of all contributions made, net of withdrawals, on a first-in, first-out basis. Otherwise, the maturity value or death benefit will be the accumulated value of units allocated to the contract at the specified valuation date. Future policy benefits Policyholder Liabilities. are accrued over the current and renewal periods of the contracts. Liabilities for future policy benefits on traditional life insurance products are reserves established for death claims and waiver of premium benefits and have been computed using a net level method, using assumptions as to interest rates, mortality, persistency, disability rates and other assumptions based on our experience, modified as necessary to reflect anticipated trends and to include provisions for possible adverse deviation. The underlying mortality tables are the Society of Actuaries (“SOA”) 65-70, Primerica 2020 Annual Report 101 FINANCIAL STATEMENTS — NOTE 1 SOA 75-80, SOA 85-90, and the 91 Bragg, modified to reflect various underwriting classifications and assumptions. Interest rate reserve assumptions at December 31, 2020 and 2019 ranged from 3.0% to 7.0%. For policies issued in 2010 and after, we have been using an increasing interest rate assumption to reflect the historically low interest rate environment. The liability for policy claims and other benefits payable on traditional life insurance products includes estimated unpaid claims that have been reported to us and claims incurred but not yet reported. The future policy benefit reserves we establish are necessarily based on estimates, assumptions and our analysis of historical experience. We do not modify the assumptions used to establish future policy benefit reserves during the policy term unless a premium deficiency is identified. Our results depend significantly upon the extent to which our actual claims experience is consistent with the assumptions we used in determining our future policy benefit reserves and pricing our products. Our future policy benefit reserve assumptions and estimates require significant judgment and, therefore, are inherently uncertain. We cannot determine with precision the ultimate amounts that we will pay for actual claims or the timing of those payments. Unearned and Advance Premiums. Unearned and advance premiums primarily consist of premiums received from policyholders in advance of the premiums due date. Unearned and advance premiums are deferred upon collection and recognized as premiums revenue upon the premium due date. Other Policyholders’ Funds. Other policyholders’ funds primarily represent claim payments left on deposit with us. Litigation. The Company is involved from time-to-time in legal disputes, regulatory inquiries and arbitration proceedings in the normal course of business. Contingent litigation- related losses are recognized when probable and can be reasonably estimated. Legal costs, such as attorneys’ fees and other litigation- related expenses that are incurred in connection 102 with resolving litigation are expensed as incurred. These disputes are subject to uncertainties, including indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation. Due to the difficulty of estimating costs of litigation, actual costs may be substantially higher or lower than any amounts reserved. Income Taxes. We are subject to the income tax laws of the United States, its states, municipalities, and certain unincorporated territories, and those of Canada. These tax laws can be complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. In establishing a provision for income tax expense, we must make judgments and interpretations about the applicability of these tax laws. We also must make estimates about the future impact certain items will have on taxable income in the various tax jurisdictions, both domestic and foreign. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized 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. 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. Premium Revenues. Traditional life insurance products consist principally of those products with fixed and guaranteed premiums and benefits, and are primarily related to term products. Premiums are recognized as revenues when due. Commissions and Fees. We receive commissions and fees revenue from the sale of various non-life insurance products. Commissions revenue is generally received on the sale of mutual funds and annuities. We also receive trail commissions revenue from mutual fund and annuity products based on the net asset value of shares sold by us. We, in turn, pay sales commissions to the sales force. We also receive investment advisory and administrative fees based on the average daily net asset value of client assets held in managed investments programs and contracts related to separate account assets issued by Primerica Life Canada. We, in turn, pay asset-based commissions to the sales force. We earn recordkeeping fees for transfer agent recordkeeping services that we perform on behalf of several of our mutual fund providers and custodial fees for services performed as a non-bank custodian of our clients’ retirement plan accounts. See Note 18 (Revenue from Contracts with Customers) for details related to our commission and fees revenues recognition policies. Benefits and Expenses. Benefit and expense items are charged to income in the period in which they are incurred. Both the change in policyholder liabilities, which is included in benefits and claims, and the amortization of deferred policy acquisition costs will vary with policyholder persistency. For employee and Share-Based Transactions. director share-based compensation awards, we determine a grant date fair value based on the price of our publicly-traded common stock and recognize the related compensation expense, adjusted for actual forfeitures, in the consolidated statements of income on a straight-line basis over the requisite service period for the entire award. For non-employee share-based compensation, we recognize the impact during the period of performance, and the fair value of the award is measured as of the grant date, which occurs in the same quarter as the service period. To the extent non-employee share-based compensation is an incremental direct cost of successful acquisitions or renewals of life insurance policies that result directly from and are essential to the policy acquisition(s) and would not have been incurred had the policy acquisition(s) not occurred, we defer and amortize the fair value of the awards in the same manner as other deferred policy acquisition costs. FINANCIAL STATEMENTS — NOTE 1 Earnings Per Share (“EPS”). The Company has outstanding equity awards that consist of restricted stock units (“RSUs”), performance- based stock units (“PSUs”), and stock options. The RSUs maintain non-forfeitable dividend rights that result in dividend payment obligations on a one-to-one ratio with common shares for any future dividend declarations. Unvested RSUs are deemed participating securities for purposes of calculating EPS as they maintain dividend rights. See Note 13 (Earnings Per Share) for details related to the calculations of our basic and diluted EPS using the two-class method. In June 2016, the New Accounting Principles. FASB issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments (“ASC 326”). ASC 326 introduced new guidance for accounting for credit losses on financial instruments within its scope, including reinsurance recoverables, by replacing the previous approach that delayed recognition until it was probable a loss had been incurred with a current approach that estimates an allowance for anticipated credit losses on the basis of an entity’s own expectations. The objective of the current approach for estimating credit losses is to require consideration of a broader range of forward-looking information, which is expected to result in earlier recognition of credit losses on financial instruments. AFS securities are excluded from the scope of financial instruments that require measurement of credit losses on the basis of a forward-looking expected loss estimate under ASC 326. The incurred probable loss approach for measuring losses on AFS securities in the consolidated statements of income remains under ASC 326, however, an entity is allowed to reverse credit losses previously recognized in an allowance for AFS securities in situations where the estimate of credit losses on those securities has declined. The amendments in ASC 326 also preclude an entity from considering the length of time an AFS security has been in an unrealized loss position to avoid recording a credit loss and removes the requirement to consider recoveries or declines in fair value after Primerica 2020 Annual Report 103 FINANCIAL STATEMENTS — NOTE 1 the balance sheet date. We adopted the amendments in ASC 326 as of the January 1, 2020 application date through a cumulative- effect adjustment to beginning retained earnings of $1.2 million, net of taxes. Furthermore, the adoption of ASC 326 did not result in any material changes to impairment losses recognized in our consolidated statements of income for AFS securities. Refer to Note 4 (Investments) and Note 6 (Reinsurance) for more information on credit losses. In August 2018, the FASB issued Future Application of Accounting Standards. Accounting Standards Update No. 2018-12, Financial Services – Insurance (Topic 944) – Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”). The amendments in this update change accounting guidance for insurance companies that issue long-duration contracts, including term life insurance. ASU 2018-12 requires companies that issue long-duration insurance contracts to update assumptions used in measuring future policy benefits, including mortality, disability, and persistency, at least annually instead of locking those assumptions at contract inception and reflecting differences in assumptions and actual performance as the experience occurs. ASU 2018-12 also includes changes to how insurance companies that issue long-duration contracts amortize DAC and determine and update the discount rate assumptions used in measuring future policy benefits reserves while increasing the level of financial statement disclosures required. The guidance in ASU 2018-12 will be applied to the earliest period presented in the consolidated financial statements beginning on the effective date. On November 5, 2020, the FASB issued ASU 2020-11, Financial Services – Insurance (Topic 944): Effective Date and Early Application, which deferred the effective date of ASU 2018-12 by an additional year, moving the effective date from January 1, 2022 to January 1, 2023. The adoption of ASU 2018-12 will have an impact on our consolidated financial statements and related disclosures and will require changes to certain of our processes, systems, and controls. We are currently working on processes that will allow us to obtain the requisite data, modify our valuation system, and develop key assumptions that will be necessary to evaluate and implement this standard. As such, we are unable to determine the magnitude of the impact ASU 2018-12 will have on our consolidated financial statements at this time. In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The guidance in ASU 2019-12 is effective for the Company beginning January 1, 2021. The impact of ASU 2019-12 will not have a material effect on our consolidated financial statements. Recently-issued accounting guidance not discussed above is not applicable, is immaterial to our consolidated financial statements, or did not or is not expected to have a material impact on our business. 104 FINANCIAL STATEMENTS — NOTE 2 (2) Other Comprehensive Income The components of other comprehensive income (“OCI”), including the income tax expense or benefit allocated to each component, were as follows: Year ended December 31, 2020 2019 2018 (In thousands) Foreign currency translation adjustments: Change in unrealized foreign currency translation gains (losses) before income taxes $ 7,343 $15,299 $(25,059) Income tax expense (benefit) on unrealized foreign currency translation gains (losses) — — — Change in unrealized foreign currency translation gains (losses), net of income taxes $ 7,343 $15,299 $(25,059) Unrealized gain (losses) on available-for-sale securities: Change in unrealized holding gains (losses) arising during period before income taxes $78,533 $91,160 $(59,661) Income tax expense (benefit) on unrealized holding gains (losses) arising during period 17,033 19,427 (12,681) Change in unrealized holding gains (losses) on available-for-sale securities arising during period, net of income taxes Reclassification from accumulated OCI to net income for (gains) losses realized on available-for-sale securities Income tax (expense) benefit on (gains) losses reclassified from accumulated OCI to net income Reclassification from accumulated OCI to net income for (gains) losses realized on available-for-sale securities, net of income taxes Change in unrealized gains (losses) on available-for-sale securities, net of income taxes and reclassification adjustment 61,500 71,733 (46,980) 2,614 549 253 53 (45) (9) 2,065 200 (36) $63,565 $71,933 $(47,016) (3) Segment and Geographical Information Segments. 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 retail and managed mutual funds and 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. In the United States, we distribute mutual fund and annuity products of several third-party companies. We also earn fees for transfer agent recordkeeping functions and Primerica 2020 Annual Report 105 FINANCIAL STATEMENTS — NOTE 3 non-bank custodial services that we provide for certain mutual funds products we distribute. In Canada, we offer a Primerica-branded fund-of-funds mutual fund product, as well as mutual funds of well-known mutual fund companies. These two operating segments are managed separately because their products serve different needs — term life insurance income protection versus wealth-building savings products. We also have a Corporate and Other Distributed Products segment, which consists primarily of revenues and expenses related to several discontinued lines of insurance other than our core term life insurance products and the distribution of various other financial products Revenues: Term life insurance segment Investment and savings products segment Corporate and other distributed products segment generally underwritten or offered by third-party providers. All of the Company’s net investment income, except for the portion allocated to the Term Life Insurance segment that represents the assumed interest accreted to its U.S. GAAP- measured future policy benefit reserve liability less DAC, is attributed to the Corporate and Other Distributed Products segment. In addition, interest expense incurred by the Company as well as realized gains and losses on our invested asset portfolio are entirely attributed to the Corporate and Other Distributed Products segment. Notable information included in profit or loss by segment was as follows: Year ended December 31, 2020 2019 2018 (In thousands) $1,382,770 $1,227,231 $1,123,200 718,867 115,904 691,608 133,665 655,076 121,567 Total revenues $2,217,541 $2,052,504 $1,899,843 Net investment income: Term life insurance segment $ 27,030 $ 19,922 $ 13,747 Investment and savings products segment — — — Corporate and other distributed products segment 56,784 74,151 67,683 Total net investment income $ 83,814 $ 94,073 $ 81,430 Amortization of DAC: Term life insurance segment Investment and savings products segment Corporate and other distributed products segment $ 216,208 $ 248,711 $ 228,613 7,055 1,058 4,549 1,292 9,766 1,351 Total amortization of DAC $ 224,321 $ 254,552 $ 239,730 106 Non-cash share-based compensation expense: Term life insurance segment Investment and savings products segment Corporate and other distributed products segment FINANCIAL STATEMENTS — NOTE 3 Year ended December 31, 2020 2019 2018 (In thousands) $ 3,612 $ 3,605 $ 3,045 12,370 3,440 10,475 4,135 2,695 10,421 Total non-cash share-based compensation expense $ 19,027 $ 17,520 $ 17,251 Income (loss) before income taxes: Term life insurance segment $ 372,551 $ 320,093 $ 281,904 Investment and savings products segment 202,644 191,812 173,912 Corporate and other distributed products segment (68,465) (34,794) (39,732) Total income before income taxes $ 506,730 $ 477,111 $ 416,084 Insurance expenses and other operating expenses directly attributable to the Term Life Insurance and the Investment and Savings Products segments are recorded directly to the applicable segment. We allocate certain other revenue and operating expenses that are not directly attributable to a specific operating segment using methods expected to reasonably measure the benefit received by each reporting segment. Such methods include time studies, recorded usage, revenue distribution, and sales force representative distribution. These allocated items include fees charged for access to Primerica Online (“POL”) and costs incurred for technology, sales force support, occupancy and other general and administrative costs. Costs that are not directly charged or allocated to our two primary operating segments are included in our Corporate and Other Distributed Products segment. Total assets by segment were as follows: Assets: Term life insurance segment December 31, 2020 December 31, 2019 December 31, 2018 (In thousands) $ 6,985,086 $ 6,546,129 $ 6,322,555 Investment and savings products segment (1) 2,769,445 2,598,493 2,298,238 Corporate and other distributed products segment 5,150,754 4,543,909 3,974,255 Total assets $14,905,285 $13,688,531 $12,595,048 (1) The Investment and Savings Products segment includes assets held in separate accounts. Excluding separate accounts, the Investment and Savings Products segment assets were $110.0 million, $112.8 million, and $102.8 million as of December 31, 2020, 2019, and 2018, respectively. Assets specifically related to a segment are held in that segment. All invested assets held by the Company, including the deposit asset recognized in connection with our 10% coinsurance agreement (the “10% Coinsurance Agreement”) and the held-to-maturity security received in connection with the Vidalia Re Coinsurance Agreement, are reported as assets of the Corporate and Other Distributed Products segment. DAC is recognized in a particular segment based on the product to which it relates. Separate account assets supporting the Primerica 2020 Annual Report 107 FINANCIAL STATEMENTS — NOTE 3 segregated funds product in Canada are held in the Investment and Savings Products segment. Any remaining unallocated assets are reported in the Corporate and Other Distributed Products segment. Geographical Information. Results of operations by country and long-lived assets — primarily tangible assets reported in other assets in our consolidated balance sheets — were as follows: Revenues by country: United States Canada Total revenues Income before income taxes by country: United States Canada Year ended December 31, 2020 2019 2018 (In thousands) $1,895,708 $1,747,609 $1,607,140 321,833 304,895 292,703 $2,217,541 $2,052,504 $1,899,843 $ 411,751 $ 390,431 $ 337,914 94,979 86,680 78,170 Total income before income taxes $ 506,730 $ 477,111 $ 416,084 Long-lived assets by country: United States Canada December 31, 2020 December 31, 2019 December 31, 2018 (In thousands) $53,281 $41,200 $30,999 4,446 4,916 4,997 Total long-lived assets $57,727 $46,116 $35,996 108 FINANCIAL STATEMENTS — NOTE 4 (4) Investments AFS Securities. The period-end cost or amortized cost, gross unrealized gains and losses, and fair value of AFS fixed-maturity securities were as follows: Securities available-for-sale, carried at fair value: Fixed-maturity securities: U.S. government and agencies Foreign government States and political subdivisions Corporates Residential mortgage-backed securities Commercial mortgage-backed securities Other asset-backed securities Amortized cost December 31, 2020 Gross unrealized gains Gross unrealized losses (In thousands) Fair value $ 9,747 $ 400 $ (3) $ 10,144 169,967 161,058 13,324 9,632 (39) (1) 183,252 170,689 1,506,549 124,164 (2,545) 1,628,168 261,376 107,020 85,521 11,419 5,901 1,816 (54) (56) (585) 272,741 112,865 86,752 Total fixed-maturity securities $2,301,238 $166,656 $(3,283) $2,464,611 Securities available-for-sale, carried at fair value: Fixed-maturity securities: U.S. government and agencies Foreign government States and political subdivisions Corporates Residential mortgage-backed securities Commercial mortgage-backed securities Other asset-backed securities Amortized cost December 31, 2019 Gross unrealized gains Gross unrealized losses (In thousands) Fair value $ 10,197 $ 287 $ — $ 10,484 154,945 120,000 6,362 3,288 (235) (695) 161,072 122,593 1,436,877 63,892 (1,118) 1,499,651 305,897 128,913 117,941 6,848 3,191 970 (222) (99) (243) 312,523 132,005 118,668 Total fixed-maturity securities $2,274,770 $84,838 $(2,612) $2,356,996 All of our AFS mortgage- and asset-backed securities represent beneficial interests in variable interest entities (“VIEs”). We are not the primary beneficiary of these VIEs because we do not have the power to direct the activities that most significantly impact the entities’ economic performance. The maximum exposure to loss as a result of our involvement in these VIEs equals the carrying value of the securities. Primerica 2020 Annual Report 109 FINANCIAL STATEMENTS — NOTE 4 The scheduled maturity distribution of the AFS fixed-maturity securities portfolio as of December 31, 2020 was as follows: Due in one year or less Due after one year through five years Due after five years through 10 years Due after 10 years Mortgage- and asset-backed securities Total AFS fixed-maturity securities Amortized cost Fair value (In thousands) $ 178,278 $ 180,954 831,986 546,330 290,727 894,191 598,767 318,341 1,847,321 1,992,253 453,917 472,358 $2,301,238 $2,464,611 Expected maturities may differ from scheduled contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties. Trading Securities. The costs and fair values of the fixed-maturity securities classified as trading securities were as follows: Fixed-maturity securities Held-to-maturity Security. Concurrent with the execution of the Vidalia Re Coinsurance Agreement, Vidalia Re entered into a Surplus Note Purchase Agreement (the “Surplus Note Purchase Agreement”) with Hannover Life Reassurance Company of America and certain of its affiliates (collectively, “Hannover Re”) and a newly formed limited liability company (the “LLC”) owned by a third- party service provider. Under the Surplus Note Purchase Agreement, Vidalia Re issued a surplus note (the “Surplus Note”) to the LLC in exchange for a credit enhanced note from the LLC with an equal principal amount (the “LLC Note”). The principal amount of both the LLC Note and the Surplus Note will fluctuate over time to coincide with the amount of reserves contractually supported under the Vidalia Re Coinsurance Agreement. Both the LLC Note and the Surplus Note mature on December 31, 2030 and bear interest at an annual interest rate of 4.50%. The LLC Note is guaranteed by Hannover Re through a credit 110 December 31, 2020 December 31, 2019 Cost Fair value Cost Fair value (In thousands) $16,359 $16,300 $43,257 $43,233 enhancement feature in exchange for a fee, which is reflected in interest expense on our consolidated statements of income. The LLC is a VIE as its owner does not have an equity investment at risk that is sufficient to permit the LLC to finance its activities without Vidalia Re or Hannover Re. The Parent Company, Primerica Life, and Vidalia Re share the power to direct the activities of the LLC with Hannover Re, but do not have the obligation to absorb losses or the right to receive any residual returns related to the LLC’s primary risks or sources of variability. Through the credit enhancement feature, Hannover Re is the ultimate risk taker in this transaction and bears the obligation to absorb the LLC’s losses in the event of a Surplus Note default in exchange for the fee. Accordingly, the Company is not the primary beneficiary of the LLC and does not consolidate the LLC within its consolidated financial statements. The LLC Note is classified as a held-to-maturity debt security in the Company’s invested asset portfolio as we have the positive intent and ability to hold the security until maturity. As of December 31, 2020, the LLC Note had an estimated unrealized holding gain of $259.9 million based on its amortized cost and estimated fair value. The estimated fair value of the LLC Note is expected to be at least equal to the estimated fair value of the offsetting Surplus Note. See Note 5 (Fair Value of Financial Instruments) for information on the fair value of our financial instruments and see Note 10 (Debt) for more information on the Surplus Note. As of December 31, 2020, no credit losses have been recognized on the LLC Note held-to-maturity security. Investments on Deposit with Governmental Authorities. As required by law, we have investments on deposit with governmental authorities and banks for the protection of policyholders. The fair values of investments on deposit were $7.7 million and $7.5 million as of December 31, 2020 and 2019, respectively. FINANCIAL STATEMENTS — NOTE 4 Securities Lending Transactions. We participate in securities lending transactions with broker-dealers and other financial institutions to increase investment income with minimal risk. We require minimum collateral on securities loaned equal to 102% of the fair value of the loaned securities. We accept collateral in the form of securities, which we are not able to sell or encumber, and to the extent the collateral declines in value below 100%, we require additional collateral from the borrower. Any securities collateral received is not reflected on our consolidated balance sheets. We also accept collateral in the form of cash, all of which we reinvest. For loans involving unrestricted cash collateral, the collateral is reported as an asset with a corresponding liability representing our obligation to return the collateral. We continue to carry the loaned securities as invested assets on our consolidated balance sheets during the terms of the loans, and we do not report them as sales. Cash collateral received and reinvested was $72.2 million and $28.7 million as of December 31, 2020 and 2019, respectively. Investment Income. The components of net investment income were as follows: Fixed-maturity securities (available-for-sale) Fixed-maturity security (held-to-maturity) Equity securities Policy loans and other invested assets Cash and cash equivalents Total return on deposit asset underlying 10% coinsurance agreement(1) Gross investment income Investment expenses Investment income net of investment expenses Interest expense on surplus note Net investment income Year ended December 31, 2020 2019 2018 (In thousands) $ 82,805 $ 81,828 $ 79,356 57,473 48,325 37,485 1,751 1,244 1,202 1,845 1,069 4,758 1,955 1,159 3,433 4,253 13,429 3,643 148,728 151,254 127,031 (7,441) (8,856) (8,116) 141,287 142,398 118,915 (57,473) (48,325) (37,485) $ 83,814 $ 94,073 $ 81,430 (1) Includes $2.0 million, $5.4 million, and $(1.7) million of net gains (losses) recognized for the change in fair value of the deposit asset underlying the 10% coinsurance agreement for the year ended December 31, 2020, 2019, and 2018, respectively. Primerica 2020 Annual Report 111 FINANCIAL STATEMENTS — NOTE 4 The components of net realized investment gains (losses), as well as details on gross realized investment gains and (losses) were as follows: Net realized investment gains (losses): Gross gains from sales of available-for-sale securities Gross losses from sales of available-for-sale securities Credit losses impairment of available-for-sale securities Net gains (losses) recognized in net income during the period on equity securities Gains (losses) from bifurcated options Gains (losses) on trading securities Net realized investment gains (losses) Year ended December 31, 2020 2019 2018 (In thousands) $ 2,595 $ 1,373 $ 1,162 (955) (293) (4,254) (1,333) (965) (152) (2,435) 5,207 (2,456) 57 (4) — 11 290 — $(4,996) $ 4,965 $(2,121) The proceeds from sales or other redemptions of available-for-sale securities were as follows: Proceeds from sales or other redemptions Year ended December 31, 2020 2019 2018 (In thousands) $496,907 $454,421 $414,139 The components of net gains (losses) recognized in net income on equity securities still held as of period-end were as follows: Net gains (losses) recognized on equity securities Less: Net gains (losses) recognized on equity securities sold Net gains (losses) recognized in net income on equity securities still held as of period-end Year ended December 31, 2020 2019 2018 (In thousands) $(2,435) $5,207 $(2,456) (281) (254) (48) $(2,154) $5,461 $(2,408) Accrued Interest. Accrued interest is recorded in accordance with the original interest schedule of the underlying security. In the event of default, the Company’s policy is to no longer accrue interest on these securities and to write off any remaining accrued interest. As a result, the Company has made the policy election to not record an allowance for credit losses on accrued interest. 112 FINANCIAL STATEMENTS — NOTE 4 Credit Losses for Available-for-sale Fixed-maturity Securities. The following tables summarizes all AFS securities in an unrealized loss position for which an allowance for credit losses has not been recorded as of December 31, 2020, aggregated by major security type and by length of time such securities have continuously been in an unrealized loss position: Fixed-maturity securities: U.S. government and agencies Foreign government States and political subdivisions Corporates Residential mortgage-backed securities Commercial mortgage-backed securities Other asset-backed securities December 31, 2020 Less than 12 months 12 months or longer Fair value Unrealized losses Fair value Unrealized losses (Dollars in thousands) $ 1,619 $ (3) $ — $ — 4,034 449 68,057 1,672 10,200 11,988 (39) (1) — — — — (1,628) 11,964 (917) (35) (50) (536) 862 2,168 3,150 (19) (6) (49) Total fixed-maturity securities $98,019 $(2,292) $18,144 $(991) The amortized cost of AFS securities with a cost basis in excess of their fair values were $119.4 million as of December 31, 2020. As of December 31, 2020, we did not recognize credit losses in the consolidated statements of income on available-for-sale securities with unrealized losses that were due to interest rate sensitivity and changes in credit spreads. We believe that fluctuations caused by movement in interest rates and credit spreads generally have little bearing on the recoverability of our investments. For those investments that remain in an unrealized loss position we have the ability to hold these investments until maturity or a market price recovery, and we have no present intention to dispose of them. For the year ended December 31, 2020, we recorded approximately $4.3 million for credit losses in the consolidated statements of income on available-for-sale securities, and approximately $3.8 million of the credit losses were recorded as an adjustment to the amortized cost basis due to our intent to sell securities of specific issuers that operate in distressed industry sectors. We recognize credit losses on securities due to: our intent to sell them; adverse credit events, such as news of an impending filing for bankruptcy; analyses of the issuer’s most recent financial statements or other information in which liquidity deficiencies, significant losses, and large declines in capitalization were evident; and analyses of rating agency information for issuances with severe ratings downgrades that indicated a significant increase in the possibility of default. The remaining portion of credit losses was recognized in the allowance for credit losses. Primerica 2020 Annual Report 113 FINANCIAL STATEMENTS — NOTE 4 The rollforward of the allowance for credit losses on available-for-sale securities for the year ended December 31, 2020 was as follows: Allowance for credit losses, beginning of period Additions to the allowance for credit losses on securities for which credit losses were not previously recorded Additional increases (or decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period Year ended December 31, 2020 (In thousands) $ — 525 (51) (474) $ — recent performance to date, including analyst reviews, analyst outlooks and rating agency information; • Analysis of commercial mortgage-backed securities based on an assessment of performance to date, credit enhancement, risk analytics and outlook, underlying collateral, loss projections, rating agency information and available third-party reviews and analytics; • Analysis of residential mortgage-backed securities based on loss projections provided by models compared to current credit enhancement levels; • Analysis of our other investments, as required based on the type of investment; and • Analysis of downward credit migrations that occurred during the quarter. Write-offs charged against the allowance, if any Allowance for credit losses, end of period For the years ended December 31, Other-than-temporary impairment (“OTTI”). 2019 and 2018, which preceded the adoption of ASC 326, we conducted a review each quarter to identify and evaluate impaired investments that had indications of possible OTTI. An investment in a debt security was impaired if its fair value fell below its cost. Factors considered in determining whether an impairment was temporary included the length of time and extent to which fair value was below cost, the financial condition and near-term prospects for the issue, and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery, which may have been maturity. Our review for OTTI generally entailed: • Analysis of individual investments that had fair values less than a pre-defined percentage of amortized cost, including consideration of the length of time the investment had been in an unrealized loss position; • Analysis of corporate fixed-maturity securities by reviewing the issuer’s most 114 The following table summarizes all AFS securities as of December 31, 2019 (prior to adoption of ASC 326), in an unrealized loss position, the aggregate fair value and the gross unrealized loss by length of time such securities have continuously been in an unrealized loss position: FINANCIAL STATEMENTS — NOTE 4 Fixed-maturity securities: U.S. government and agencies Foreign government States and political subdivisions Corporates Residential mortgage-backed securities Commercial mortgage-backed securities Other asset-backed securities December 31, 2019 Less than 12 months 12 months or longer Fair value Unrealized losses Fair value Unrealized losses (Dollars in thousands) $ — $ — $ — $ — 11,824 39,379 52,474 40,690 11,526 22,501 (144) (690) (453) (207) 8,578 4,000 21,739 2,071 (28) 12,835 (190) 4,613 (91) (5) (665) (15) (71) (53) Total fixed-maturity securities $178,394 $(1,712) $53,836 $(900) The amortized costs of AFS securities with a cost basis in excess of their fair values were $234.8 million as of December 31, 2019. As of December 31, 2019, the unrealized losses on our AFS invested asset portfolio were largely caused by interest rate sensitivity and, to a lesser extent, changes in credit spreads. We believed that fluctuations caused by movement in interest rates and credit spreads have little bearing on the recoverability of our investments. We did not consider these investments to be other-than- temporarily impaired because we had the ability to hold these investments until maturity or a market price recovery, and we had no present intention to dispose of them. OTTI recognized in earnings on AFS securities were as follows: OTTI on fixed-maturity securities not in default OTTI on fixed-maturity securities in default Total OTTI recognized in earnings The securities noted above were considered to be other-than-temporarily impaired due to our intent to sell them; adverse credit events, such as news of an impending filing for bankruptcy; analyses of the issuer’s most recent financial statements or other information in which liquidity deficiencies, significant losses and large declines in capitalization were evident; or analyses of rating agency information for issuances with severe ratings downgrades that Year ended December 31, 2019 2018 (In thousands) $1,330 3 $152 — $1,333 $152 indicated a significant increase in the possibility of default. We also recognized OTTI related to invested assets held at the Parent Company that we intended to sell to fund share repurchases where we did not expect to recover its cost basis. Primerica 2020 Annual Report 115 FINANCIAL STATEMENTS — NOTE 5 OTTI recognized in earnings for AFS securities were as follows: Total OTTI related to securities which the Company does not intend to sell or more-likely-than-not will not be required to sell: Total OTTI losses recognized Less portion of OTTI recognized in accumulated other comprehensive income (loss) OTTI recognized in earnings for securities which the Company does not intend to sell or more-likely than-not will not be required to sell before recovery OTTI recognized in earnings for securities which the Company intends to sell or more-likely-than-not will be required to sell before recovery OTTI recognized in earnings Year ended December 31, 2019 2018 (In thousands) $ 3 $152 — — 3 152 1,330 — $1,333 $152 The rollforward of the OTTI recognized in net income for all AFS fixed-maturity securities still held was as follows: Year ended December 31, 2019 (In thousands) Cumulative OTTI recognized in net income for securities still held, beginning of period Additions for securities where no OTTI were recognized prior to the beginning of the period Additions for securities where OTTI have been recognized prior to the beginning of the period Reductions due to sales, maturities, calls, amortization or increases in cash flows expected to be collected over the remaining life of credit- impaired securities Reductions for exchanges of securities previously impaired Cumulative OTTI recognized in net income for securities still held, end of period $2,511 1,126 207 (543) — $3,301 As of December 31, 2019, no OTTI had been recognized on the LLC Note held-to-maturity security. Derivatives. We have a deferred loss related to closed forward contracts, which were settled several years ago, that were used to mitigate our exposure to foreign currency exchange rates that resulted from the net investment in our Canadian operations. The amount of deferred loss included in accumulated other comprehensive income (loss) was $26.4 million as of December 31, 2020 and 116 2019. These deferred losses will not be recognized until such time as we sell or substantially liquidate our Canadian operations, although we have no such intention. (5) Fair Value of Financial Instruments Fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Invested assets recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on 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 levels: • • Level 1. Quoted prices for identical instruments in active markets. Level 1 consists of financial instruments whose value is based on quoted market prices in active markets, such as cash and cash equivalents, exchange-traded common stocks and actively traded mutual fund investments; 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 are observable in active markets. Level 2 includes those financial instruments that are valued using industry-standard pricing methodologies, models or other valuation methodologies. Various inputs are considered in deriving the fair value of the underlying financial instrument, including interest rate and yield curves, credit spread, and foreign exchange rates. All significant FINANCIAL STATEMENTS — NOTE 5 • inputs are observable, or derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace. Financial instruments in this category primarily include: certain public and private corporate fixed-maturity and equity securities; government or agency securities; and certain mortgage- and asset- backed securities; and Level 3. Valuations derived from valuation techniques in which one or more significant inputs are unobservable. Level 3 consists of financial instruments whose fair value is estimated based on industry-standard pricing methodologies and models using significant inputs not based on, nor corroborated by, readily available market information. Valuations for this category primarily consist of non-binding broker quotes. Financial instruments in this category primarily include less liquid mortgage- and asset-backed securities and equity securities. As of each reporting period, all assets and liabilities recorded at fair value are classified in their entirety based on the lowest level of input (Level 3 being the lowest in the hierarchy) 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. Primerica 2020 Annual Report 117 FINANCIAL STATEMENTS — NOTE 5 The estimated fair value and hierarchy classifications for assets and liabilities that are measured at fair value on a recurring basis were as follows: Fair value assets: Available-for-sale fixed-maturity securities: U.S. government and agencies Foreign government States and political subdivisions Corporates Mortgage-and asset-backed securities: Residential mortgage-backed securities Commercial mortgage-backed securities Other asset-backed securities December 31, 2020 Level 1 Level 2 Level 3 Total (In thousands) $ — $ 10,144 $ — $ 10,144 — — 183,252 170,689 6,074 1,622,094 — — — 272,714 112,865 86,752 — — — 27 — — 183,252 170,689 1,628,168 272,741 112,865 86,752 Total available-for-sale securities 6,074 2,458,510 27 2,464,611 Equity securities Trading securities Separate accounts 34,910 1,093 2,020 — — 16,300 2,659,520 — — 38,023 16,300 2,659,520 Total fair value assets $40,984 $5,135,423 $2,047 $5,178,454 Fair value liabilities: Separate accounts $ — $2,659,520 $ — $2,659,520 Total fair value liabilities $ — $2,659,520 $ — $2,659,520 118 Fair value assets: Available-for-sale fixed-maturity securities: U.S. government and agencies Foreign government States and political subdivisions Corporates Mortgage-and asset-backed securities: Residential mortgage-backed securities Commercial mortgage-backed securities Other asset-backed securities Total available-for-sale securities Equity securities Trading securities Separate accounts FINANCIAL STATEMENTS — NOTE 5 December 31, 2019 Level 1 Level 2 Level 3 Total (In thousands) $ — $ 10,484 $ — $ 10,484 — — 161,072 — 122,593 — 161,072 122,593 5,865 1,493,786 — 1,499,651 312,497 26 132,005 — 118,244 424 450 135 5,865 2,350,681 39,499 1,050 — — — — — 312,523 132,005 118,668 2,356,996 40,684 43,233 43,233 — 2,485,745 — 2,485,745 Total fair value assets $45,364 $4,880,709 $585 $4,926,658 Fair value liabilities: Separate accounts $ — $2,485,745 $ — $2,485,745 Total fair value liabilities $ — $2,485,745 $ — $2,485,745 In estimating fair value of our investments, we use a third-party pricing service for approximately 94% of our securities that are measured at fair value on a recurring basis. The remaining securities are primarily thinly traded securities, such as private placements, and are valued using models based on observable inputs on public corporate spreads having similar characteristics (e.g., sector, average life and quality rating), liquidity and yield based on quality rating, average life and U.S. Treasury yields. All observable data inputs are corroborated by independent third-party data. We also corroborate pricing information provided by our third-party pricing service by performing a review of selected securities. Our review activities include obtaining detailed information about the assumptions, inputs and methodologies used in pricing the security; documenting this information; and corroborating it by comparison to independently obtained prices and or independently developed pricing methodologies. Furthermore, we perform internal reasonableness assessments on fair value determinations within our portfolio throughout the year and as of year-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. Because many fixed-maturity securities do not trade on a daily basis, third-party pricing services generally determine fair value using industry- Primerica 2020 Annual Report 119 FINANCIAL STATEMENTS — NOTE 5 standard methodologies, which vary by asset class. For corporates, governments, and agency securities, these methodologies include developing prices by incorporating available market information such as U.S. Treasury curves, benchmarking of similar securities including new issues, sector groupings, quotes from market participants and matrix pricing. Observable information is compiled and integrates relevant credit information, perceived market movements and sector news. Additionally, security prices are periodically back-tested to validate and/or refine models as conditions warrant. Market indicators and industry and economic events are also monitored as triggers to obtain additional data. For certain structured securities (such as mortgage- and asset-backed securities) with limited trading activity, third-party pricing services generally use industry-standard pricing methodologies that incorporate market information, such as index prices or discounting expected future cash flows based on underlying collateral, and quotes from market participants, to estimate fair value. If one or more of these input measures are not deemed observable for a particular security, the security will be classified as Level 3 in the fair value hierarchy. Where specific market information is unavailable for certain securities, pricing models produce estimates of fair value primarily using Level 2 inputs along with certain Level 3 inputs. These models include matrix pricing. The pricing matrix uses current U.S. Treasury rates and credit spreads received from third-party sources to estimate fair value. The credit spreads incorporate the issuer’s industry- or issuer- specific credit characteristics and the security’s time to maturity, if warranted. Remaining unpriced securities are valued using an estimate of fair value based on indicative market prices that include significant unobservable inputs not based on, nor corroborated by, market information, including the utilization of non-binding broker quotes. The roll-forward of the Level 3 assets measured at fair value on a recurring basis was as follows: Level 3 assets, beginning of period Net unrealized gains (losses) included in other comprehensive income Realized gains (losses) and accretion (amortization) recognized in earnings Purchases Settlements Transfers into Level 3 Transfers out of Level 3 Level 3 assets, end of period Year ended December 31, 2020 2019 (In thousands) $ 585 $ 921 3 39 (18) (52) 2,975 — (1,555) (197) — — 424 (493) $ 2,047 $ 585 We obtain independent pricing quotes based on observable inputs as of the end of the reporting period for all securities in Level 2. Those inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, market bids/ offers, quoted prices for similar instruments in markets that are not active, and other relevant data. We monitor these inputs for market indicators, industry and economic events. There were no material transfers between Level 1 and 120 Level 3 during the years ended December 31, 2020 and 2019. The carrying values and estimated fair values of our financial instruments were as follows: FINANCIAL STATEMENTS — NOTE 5 December 31, 2020 December 31, 2019 Carrying value Estimated fair value Carrying value Estimated fair value (In thousands) Assets: Fixed-maturity securities (available-for-sale) $2,464,611 $2,464,611 $2,356,996 $2,356,996 Fixed-maturity security (held-to-maturity)(3) 1,346,350 1,606,208 1,184,370 1,299,102 Equity securities Trading securities Policy loans(3) Deposit asset underlying 10% coinsurance agreement(3) Separate accounts Liabilities: Notes payable(1)(2) Surplus note(1)(3) Separate accounts (1) Carrying value amounts shown are net of issuance costs. (2) Classified as level 2 fair value measurement. (3) Classified as level 3 fair value measurement. The fair values of financial instruments presented above are estimates of the fair values at a specific point in time using various sources and methods, including market quotations and a complex matrix system that takes into account issuer sector, quality, and spreads in the current marketplace. Financial Instruments Recognized at Fair Value in the Balance Sheet. Estimated fair values of investments in AFS securities are principally a function of current spreads and interest rates that are corroborated by independent third-party data. Therefore, the fair values presented are indicative of amounts we could realize or settle at the respective balance sheet date. We do not necessarily intend to dispose of or liquidate such instruments prior to maturity. Trading securities and equity securities, including common and nonredeemable preferred stocks, are carried at fair value. Segregated funds in separate accounts are carried at the underlying value of the variable insurance contracts, which is fair value. 38,023 16,300 30,199 38,023 16,300 30,199 40,684 43,233 32,927 40,684 43,233 32,927 236,865 236,865 233,499 233,499 2,659,520 2,659,520 2,485,745 2,485,745 374,415 399,377 374,037 395,522 1,345,772 1,596,599 1,183,728 1,296,972 2,659,520 2,659,520 2,485,745 2,485,745 The carrying amounts for cash and cash equivalents, receivables, accrued investment income, accounts payable, cash collateral and payables for security transactions approximate their fair values due to the short-term nature of these instruments. Consequently, such financial instruments are not included in the above table. (6) Reinsurance We use reinsurance extensively, which has a significant effect on our results of operations. Reinsurance arrangements do not relieve us of our primary obligation to the policyholder. Our reinsurance contracts typically do not have a fixed term. In general, the reinsurers’ ability to terminate coverage for existing cessions is limited to such circumstances as material breach of contract or nonpayment of premiums by the ceding company. Our reinsurance contracts generally contain provisions intended to provide the ceding company with the ability to cede future business on a basis consistent with historical terms. However, either party may Primerica 2020 Annual Report 121 FINANCIAL STATEMENTS — NOTE 6 terminate any of the contracts with respect to the future business upon appropriate notice to the other party. Generally, the reinsurance contracts do not limit the overall amount of the loss that can be incurred by the reinsurer. Our policy is to limit the amount of life insurance retained on the life of any one person to $1 million. To limit our exposure with any one reinsurer, we monitor the concentration of credit risk we have with our reinsurance counterparties, as well as their financial condition. Reinsurance recoverables represents ceded policy reserve balances and ceded claim liabilities. The amounts of ceded claim liabilities included in reinsurance recoverables that we paid and which are recoverable from those reinsurers were $24.3 million and $24.3 million as of December 31, 2020 and 2019, respectively. Benefits and claims ceded to reinsurers for 2020, 2019, and 2018 were $1,653.6 million, $1,311.3 million, and $1,279.0 million, respectively. In connection with our corporate reorganization that included an initial public offering (“IPO”) of our common stock by Citigroup, Inc. (“Citigroup”), Primerica Life, Primerica Life Canada and NBLIC entered into significant coinsurance transactions (the “IPO coinsurance agreements”) on March 30, 2010 with three insurance companies then affiliated with Citigroup (collectively, the “IPO coinsurers”). Under the IPO coinsurance agreements, we ceded between 80% and 90% of the risks and rewards of our term life insurance policies in force at year-end 2009. Because these agreements were part of a business reorganization among entities under common control, they did not generate any deferred gain or loss upon their execution. 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 the IPO coinsurers. Each of the account balances transferred were at book value with no gain or loss recorded in net income. Beginning in 2017, policies reaching the end of their initial term period are no longer ceded under the IPO coinsurance transactions, but the existing YRT reinsurance already in place prior to the IPO will continue. 122 Three of the IPO coinsurance agreements satisfy U.S. GAAP risk transfer rules. Under these agreements, we ceded between 80% and 90% of our term life future policy benefit reserves, and we transferred a corresponding amount of assets to the IPO coinsurers. These transactions did not impact our future policy benefit reserves. As such, we have recorded an asset for the same amount of risk transferred in reinsurance recoverables. We also reduced DAC by a corresponding amount, which reduces future amortization expenses. In addition, we are transferring between 80% and 90% of all future premiums and benefits and claims associated with these policies to the corresponding reinsurance entities. We receive ongoing ceding allowances, which are reflected as a reduction to insurance expenses, to cover policy and claims administration expenses as well as certain corporate overhead charges under each of these reinsurance contracts. In the 10% Coinsurance Agreement, we ceded to Prime Reinsurance Company (“Prime Re”), an affiliate of Citigroup, 10% of our U.S. (except New York) term life insurance business in force at year-end 2009 subject to an experience refund provision. As the 10% Coinsurance Agreement includes an experience refund provision, it does not satisfy U.S. GAAP risk transfer rules. As a result, we have accounted for this contract using deposit method accounting and have recognized a deposit asset in other assets on our consolidated balance sheets for assets backing the economic reserves. The deposit asset held in support of this agreement was $236.9 million and $233.5 million at December 31, 2020 and 2019, respectively. We make contributions to the deposit asset during the life of the agreement to fulfill our responsibility of funding the economic reserve. The market return on the deposit asset is reflected in net investment income during the life of the agreement. Prime Re is responsible for ensuring that there are sufficient assets to meet all statutory requirements. The finance charge on the statutory reserves in excess of economic reserves funded by Prime Re in support of the 10% Coinsurance Agreement is 0.5% per annum and is reflected in interest expense in our consolidated statements of income. The following table represents the Company’s in-force life insurance as of December 31, 2020 and 2019: FINANCIAL STATEMENTS — NOTE 6 Direct life insurance in-force Amounts ceded to other companies Net life insurance in-force December 31, 2020 December 31, 2019 (Dollars in thousands) $ 861,392,223 $ 810,995,295 (742,356,917) (702,727,956) $ 119,035,306 $ 108,267,339 Percentage of reinsured life insurance in-force 86% 87% Reinsurance recoverables includes ceded reserve balances and ceded claim liabilities. Reinsurance recoverables and financial strength ratings by reinsurer were as follows: Pecan Re Inc.(1)(2) SCOR Global Life Reinsurance Companies(3) Munich Re of Malta(2)(5) Swiss Re Life & Health America Inc.(4) December 31, 2020 December 31, 2019 Reinsurance recoverables A.M. Best rating Reinsurance recoverables A.M. Best rating $2,654,698 395,804 285,350 251,409 (In thousands) NR $2,696,924 A+ NR A+ 352,049 286,433 233,572 NR A+ NR A+ American Health and Life Insurance Company(2) 163,082 B++ 167,471 B++ Munich American Reassurance Company Korean Reinsurance Company RGA Reinsurance Company Hannover Life Reassurance Company TOA Reinsurance Company All other reinsurers Allowance for credit losses 137,312 123,568 125,492 41,201 34,212 68,920 (7,144) A+ A A+ A+ A — 118,372 108,410 100,328 33,772 26,160 48,679 (2,347) A+ A A+ A+ A — Reinsurance recoverables $4,273,904 $4,169,823 NR – not rated (1) Pecan Re Inc. (“Pecan Re”) is a wholly owned subsidiary of Swiss Re Life & Health America Inc. (“Swiss Re”). (2) Entity is an IPO coinsurer. Reinsurance recoverables includes balances ceded under coinsurance transactions of term life insurance policies that were in force as of December 31, 2009. Amounts shown are net of their share of the reinsurance receivable from other reinsurers. Reinsurance agreements are collateralized by underlying trust assets at least equal to the value of reserves ceded. Includes amounts ceded to Transamerica Reinsurance Companies and fully retroceded to SCOR Global Life Reinsurance Companies. Includes amounts ceded to Lincoln National Life Insurance and fully retroceded to Swiss Re Life & Health America Inc. (3) (4) (5) Entity is rated AA- by S&P. Primerica 2020 Annual Report 123 FINANCIAL STATEMENTS — NOTE 7 Certain reinsurers with which we do business receive group ratings. Individually, those reinsurers are SCOR Global Life Americas Reinsurance Company, SCOR Global Life U.S.A. Reinsurance Company, SCOR Global Life Re Insurance Company of Delaware, and SCOR Global Life of Canada. The IPO coinsurance agreements include provisions to ensure that Primerica Life, Primerica Life Canada and NBLIC receive full regulatory credit for the reinsurance treaties. Under these agreements, the ceded business can be recaptured with no fee in the event the IPO coinsurers do not comply with the various safeguard provisions in their respective IPO coinsurance agreements. Pecan Re also has entered into a capital maintenance agreement requiring Swiss Re to provide additional funding, if needed, at any point during the term of the agreement up to the maximum as described in the capital maintenance agreement. The rollforward of the allowance for credit losses on reinsurance recoverables for the year ended December 31, 2020 was as follows: Balance, beginning of period(1) Current period provision for expected credit losses Less: Recoveries of expected credit losses previously recorded Balance, at the end of period Year ended December 31, 2020 (In thousands) $3,917 3,235 (8) $7,144 (1) The beginning balance for the year ended December 31, 2020 reflects the adjustment made to the allowance for credit losses balance for the adoption of ASC 326 on January 1, 2020. Prior to the adoption of ASC 326, credit losses on reinsurance recoverables were recognized based on an incurred loss model that recognized credit losses if probable and reasonably estimable. For the year ended December 31, 2019, we recognized credit losses of $2.3 million for claims ceded on a closed block of business as a result of one of our reinsurance counterparties being ordered into receivership. (7) 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. The amortization of DAC associated with term life insurance policies uses assumptions regarding persistency, expenses, interest rates and mortality consistent with the assumptions used to calculate future policy benefit reserves. 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. 124 For DAC associated with Canadian segregated funds, the assumptions used in determining amortization expense are evaluated regularly and are updated if actual experience or other evidence suggests revisions to earlier estimates are appropriate. DAC amortization for term life insurance policies is affected by differences between the original assumptions used for persistency, expenses, interest rates and claims and actual results and are recognized in the period in which the change occurs. For policies underlying the Canadian segregated funds, gross profits and the resulting DAC amortization will vary with actual fund returns, redemptions and expenses. Due to the inherent uncertainties in making assumptions about future events, a materially different experience from expected results could result in a material increase or decrease of DAC amortization in a particular period. DAC is subject to recoverability testing annually and when impairment indicators exist. The recoverability of DAC is dependent on the future profitability of the related policies, which, in turn, is dependent principally upon mortality, persistency, investment returns, and the expense of administering the business, as well as upon certain economic variables, such as inflation. DAC balance, beginning of period Capitalization Amortization Foreign exchange translation and other FINANCIAL STATEMENTS — NOTE 8 The balances and activity in DAC were as follows: Year ended December 31, 2020 2019 2018 (In thousands) $2,325,750 $2,133,920 $1,951,892 522,705 433,769 441,874 (224,321) (254,552) (239,730) 5,510 12,613 (20,116) DAC balance, end of period $2,629,644 $2,325,750 $2,133,920 (8) Separate Accounts The Funds primarily consist of a series of branded investment funds known as the Asset Builder Funds, a registered retirement fund known as the Strategic Retirement Income Fund (“SRIF”), and a money market fund known as the Cash Management Fund. The principal investment objective of the Asset Builder Funds is to achieve long-term growth while preserving capital. The principal objective of the SRIF is to provide a stream of investment income during retirement plus the opportunity for modest capital appreciation. The Asset Builder Funds and the SRIF use diversified portfolios of publicly-traded Canadian stocks, investment-grade corporate bonds, Government of Canada bonds, and foreign equity investments to achieve their objectives. The Cash Management Fund invests in government guaranteed short-term bonds and short-term commercial and bank papers, with the principal investment objective being the provision of interest income while maintaining liquidity and preserving capital. Under these contract offerings, benefit payments to contract holders or their designated beneficiaries are only due upon death of the annuitant or upon reaching a specific maturity date. Benefit payments are based on the value of the contract holder’s units in the portfolio at the payment date, but are guaranteed to be no less than 75% of the contract holder’s contribution, adjusted for withdrawals. Account values are not guaranteed for withdrawn units if contract holders make withdrawals prior to the maturity dates. Maturity dates for contracts investing in the Asset Builder Funds and Cash Management Fund vary by contract and range from 10 years from the contract issuance date to December 31, 2070. Contracts investing in the SRIF mature when the policyholder reaches age 100, which is a minimum of 20 years after issue. The SRIF is designed to provide periodic retirement income payments and as such, regular withdrawals, subject to legislated minimums, are anticipated. The cumulative effects of the periodic withdrawals are expected to substantially reduce both account and minimum guaranteed values prior to maturity. Both the asset and the liability for the separate accounts reflect the net value of the underlying assets in the portfolio as of the reporting date. Primerica Life Canada’s exposure to losses under the guarantee at the time of account maturity is limited to contract holder accounts that have declined in value more than 25%, adjusted for withdrawals, since the contribution date prior to maturity. Because maturity dates are of a long- term nature, the likelihood guarantee payments are required at any given point is very small. Additionally, the portfolios consist of a very large number of individual contracts, further spreading the risk related to the guarantee being exercised upon death. The length of the contract terms provides significant opportunity for the underlying portfolios to recover any short-term losses prior to maturities or deaths of the contract holders. Furthermore, the Funds’ investment allocations are aligned with the maturity risks of the related contracts and Primerica 2020 Annual Report 125 FINANCIAL STATEMENTS — NOTE 9 include investments in Government Strip Bonds and floating-rate notes. We periodically assess the exposure related to these contracts to determine whether any additional liability should be recorded. As of December 31, 2020 and 2019, an additional liability for these contracts was deemed to be unnecessary. The following table represents the fair value of assets supporting separate accounts by major investment category: Fixed-income securities Equity securities Cash and cash equivalents Due to/from funds Other Total separate accounts assets Year ended December 31, 2020 2019 (In thousands) $1,212,275 $ 970,098 1,362,399 1,318,351 87,046 199,723 (2,251) (2,489 ) 51 62 $2,659,520 $2,485,745 (9) Policy Claims and Other Benefits Payable Changes in policy claims and other benefits payable were as follows: Policy claims and other benefits payable, beginning of period Year ended December 31, 2020 2019 2018 (In thousands) $ 339,954 $ 313,862 $ 307,401 Less reinsured policy claims and other benefits payable 388,797 318,653 322,137 Net balance, beginning of period Incurred related to current year Incurred related to prior years (1) Total incurred Claims paid related to current year, net of reinsured policy claims received Reinsured policy claims received related to prior years, net of claims paid Total paid Foreign currency translation Net balance, end of period (48,843) (4,791) (14,736) 236,157 186,857 176,854 (4,033) (869) (1,355) 232,124 185,988 175,499 (268,914) (244,997) (187,453) 60,144 14,614 22,426 (208,770) (230,383) (165,027) 170 343 (527) (25,319) (48,843) (4,791) Add reinsured policy claims and other benefits payable 545,030 388,797 318,653 Balance, end of period $ 519,711 $ 339,954 $ 313,862 (1) Includes the difference between our estimate of claims incurred but not yet reported at year end and the actual incurred claims reported after year end. 126 FINANCIAL STATEMENTS — NOTE 10 See Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies) for details regarding the accounting for policyholder liabilities. (10) Debt Notes Payable. Notes payable consisted of the following: 4.75% Senior Notes, due July 15, 2022 Unamortized issuance discount on notes payable Total notes payable As of December 31, 2020, we had $375.0 million in principal amount of publicly-traded, senior unsecured notes (the “Senior Notes”). The Senior Notes were issued in 2012 at a price of 99.843% of the principal amount with an annual interest rate of 4.75%, payable semi-annually in arrears on January 15 and July 15, and are scheduled to mature on July 15, 2022. As of December 31, 2020, we were in compliance with the covenants of the Senior Notes. No events of default occurred on the Senior Notes during the year ended December 31, 2020. As unsecured senior obligations, the Senior Notes rank equally in right of payment with all existing and future unsubordinated indebtedness and senior to all existing and future subordinated indebtedness of the Parent Company. The Senior Notes are structurally subordinated in right of payment to all existing and future liabilities of our subsidiaries. In addition, the Senior Notes contain covenants that restrict our ability to, among other things, create or incur any indebtedness that is secured by a lien on the capital stock of certain of our subsidiaries, and merge, consolidate or sell all or substantially all of our properties and assets. Surplus Note. As of December 31, 2020, the principal amount outstanding on the Surplus Note issued by Vidalia Re was $1.3 billion, which is equal to the principal amount of the LLC Note. The principal amount of both the Surplus Note and the LLC Note will fluctuate over time to coincide with the amount of policy reserves being contractually supported under the Vidalia Re Coinsurance Agreement. Both the LLC Note and the Surplus Note mature on December 31, 2030 and bear interest at an annual interest rate December 31, 2020 December 31, 2019 (In thousands) $375,000 $375,000 (107) (174) $374,893 $374,826 of 4.50%. Based on the estimated reserves for policies issued in 2011 through 2017 that have been ceded under the Vidalia Re Coinsurance Agreement, the principal amounts of the Surplus Note and the LLC Note are expected to reach $1.5 billion each. This financing arrangement is non-recourse to the Parent Company and Primerica Life, meaning that neither of these companies has guaranteed the Surplus Note or is otherwise liable for reimbursement for any payments triggered by the LLC Note’s credit enhancement feature. The Parent Company has agreed to support Vidalia Re’s obligation to pay the credit enhancement fee incurred on the LLC Note. See Note 4 (Investments) for more information on the LLC Note. Revolving Credit Facility. We maintain an unsecured $200.0 million revolving credit facility (“Revolving Credit Facility”) with a syndicate of commercial banks that has a scheduled termination date of December 19, 2022. Amounts outstanding under the Revolving Credit Facility bear interest at a periodic rate equal to LIBOR or the base rate, plus in either case an applicable margin. The Revolving Credit Facility contains language that allows for the Company and the lenders to agree on a comparable or successor reference rate in the event LIBOR is not available. The Revolving Credit Facility also permits the issuance of letters of credit. The applicable margins are based on our debt rating with such margins for LIBOR rate loans and letters of credit ranging from 1.125% to 1.625% per annum and for base rate loans ranging from 0.125% to 0.625% per annum. Under the Revolving Credit Facility, we incur a commitment fee that is payable quarterly in Primerica 2020 Annual Report 127 FINANCIAL STATEMENTS — NOTE 11 arrears and is determined by our debt rating. This commitment fee ranges from 0.125% to 0.225% per annum of the aggregate $200.0 million commitment of the lenders under the Revolving Credit Facility. As of December 31, 2020, no amounts have been drawn under the Revolving Credit Facility and we were in compliance with its covenants. Furthermore, no events of default have occurred under the Revolving Credit Facility during the year ended December 31, 2020. (11) Income Taxes Income tax expense. Income tax expense (benefit) consists of the following: Current Deferred Total (In thousands) $ 88,837 $ 853 $ 89,690 26,749 4,714 (547) 26,202 (40) 4,674 $120,300 $ 266 $120,566 $ 76,289 $ 6,628 $ 82,917 32,239 (7,469) 24,770 3,033 — 3,033 $111,561 $ (841) $110,720 $ 50,691 $ 17,399 $ 68,090 36,028 (14,809) 21,219 2,681 — 2,681 $ 89,400 $ 2,590 $ 91,990 Year ended December 31, 2020 Federal Foreign State and local Total tax expense Year ended December 31, 2019 Federal Foreign State and local Total tax expense Year ended December 31, 2018 Federal Foreign State and local Total tax expense 128 FINANCIAL STATEMENTS — NOTE 11 Effective tax rate reconciliation. Total income tax expense is different from the amount determined by multiplying income before income taxes by the U.S. statutory federal tax rate of 21% for the years ended December 31, 2020 and 2019 and 2018. The reconciliation for such difference follows: Year ended December 31, 2020 2019 2018 Amount Percentage Amount Percentage Amount Percentage (Dollars in thousands) Computed tax expense $106,413 21.0% $100,193 21.0% $87,378 21.0% Difference between foreign statutory rate and U.S. statutory rate Recognition of foreign tax credits Change in valuation allowance on foreign tax credits Other 5,075 — — 9,078 1.0% —% —% 1.8% 4,898 — — 5,629 1.0% —% —% 1.2% 4,474 1.1% (6,069) (1.5)% 6,069 138 1.5% —% Total tax expense / effective rate $120,566 23.8% $110,720 23.2% $91,990 22.1% Deferred tax assets and liabilities. The main components of deferred income tax assets and liabilities were as follows: December 31, 2020 2019 (In thousands) Deferred tax assets: Future policy benefit reserves and unpaid policy claims $ 285,926 $ 245,247 Future deductible liabilities Foreign tax credits Other Total deferred tax assets before valuation allowance Valuation allowance on foreign tax credits 18,933 46,455 35,320 17,920 46,455 41,615 386,634 351,237 (46,455) (46,455) Total deferred tax assets after valuation allowance $ 340,179 $ 304,782 Deferred tax liabilities: Deferred policy acquisition costs Investments Reinsurance deposit asset Other Total deferred tax liabilities Net deferred tax liabilities (352,312) (314,969) (32,316) (17,630) (49,742) (49,035) (39,002) (42,675) (473,372) (424,309) $(133,193) $(119,527) Primerica 2020 Annual Report 129 Therefore, there were no other deferred tax asset valuation allowances as of December 31, 2020 or 2019. Controlled foreign corporations. The Company has direct ownership of a group of controlled foreign corporations in Canada. We have not made a permanent reinvestment assertion for any unremitted earnings in Canada; therefore, we have recorded a deferred tax liability to account for Canadian withholding taxes that will occur upon repatriation of such earnings and we continue to record deferred tax liabilities to account for Canadian withholding taxes as earnings are recognized. The Company has no intentions to sell or substantially liquidate our Canadian operations and, therefore, has not provided for any additional outside basis difference for the amount of book basis in excess of tax basis in its Canadian subsidiaries. In addition, it is not practicable to determine the amount of the unrecognized deferred tax liability related to any additional outside basis difference in these entities. Unrecognized tax benefits. The total amount of unrecognized benefits on uncertain tax positions that, if recognized, would affect our effective tax rate was approximately $16.0 million and $14.7 million as of December 31, 2020 and 2019, respectively. We recognize interest expense related to unrecognized tax benefits in tax expense net of federal income tax. The total amount of accrued interest and penalties in the consolidated balance sheets was $2.8 million and $2.3 million as of December 31, 2020 and 2019, respectively. Additionally, we recognized less than $0.3 million of interest expense related to unrecognized tax benefits in the consolidated statements of income for the years ended December 31, 2020, 2019 and 2018. FINANCIAL STATEMENTS — NOTE 11 The majority of total deferred tax assets are attributable to future policy benefit reserves and unpaid policy claims, which represents the difference between the financial statement carrying value and tax basis for liabilities related to future policy benefits. The tax basis for future policy benefit reserves and unpaid policy claims is actuarially determined in accordance with guidelines set forth in the respective jurisdictional tax codes in the U.S. and Canada. The majority of total deferred tax liabilities are attributable to DAC, which represents the difference between the policy acquisition costs capitalized for U.S. GAAP purposes and those capitalized for tax purposes, as well as the difference in the resulting amortization methods. The Company has state net operating losses resulting in a deferred tax asset of approximately $10.3 million, which are available for use through 2037. The Company has no other material net operating loss or credit carryforwards other than foreign tax credit carryforwards. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, carryback and carryforward periods, and tax planning strategies in making this assessment. As of December 31, 2020, management identified excess foreign tax credits of approximately $46.5 million that could not be used to offset the mandatory deemed repatriation of foreign earnings tax stipulated by the Tax Cuts and Jobs Act of 2017 and believes it will not be able to utilize these foreign tax credits in the future. Therefore, the Company established a deferred tax asset for these foreign tax credits with a corresponding full valuation allowance. These foreign tax credits are available for use through 2027. With the exception of these foreign tax credits, management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize its deferred tax assets. 130 A reconciliation of the change in the unrecognized income tax benefit for the years ended December 31, 2020 and 2019 is as follows: FINANCIAL STATEMENTS — NOTE 12 Unrecognized tax benefits, beginning of period Change in prior period unrecognized tax benefits Change in current period unrecognized tax benefits Reductions as a result of a lapse in statute of limitations Unrecognized tax benefits, end of period December 31, 2020 2019 (In thousands) $15,805 $15,173 40 (583) 3,296 3,036 (2,037) (1,821) $17,104 $15,805 We have an immaterial amount of penalties included in calculating our provision for income taxes. There is no significant change that is reasonably possible to occur within twelve months of the reporting date. December 31, 2017 and thereafter for federal income tax purposes. We are currently open to audit in Canada for tax years ended December 31, 2016 and thereafter for federal and provincial income tax purposes. The major tax jurisdictions in which we operate are the United States and Canada. We are currently open to tax audit by the Internal Revenue Service for the year ended (12) Stockholders’ Equity A reconciliation of the number of shares of our common stock follows: Common stock, beginning of period Shares issued for stock options exercised Shares of common stock issued upon lapse of RSUs Common stock retired Common stock, end of period The above reconciliation excludes RSUs and PSUs, which do not have voting rights. As sales restrictions on RSUs lapse and PSUs are earned, we issue common shares with voting rights. As of December 31, 2020, we had a total of 289,371 RSUs and 81,796 PSUs outstanding. The PSU outstanding balance is based on the number of PSUs granted pursuant to the award agreement; however, the actual number of common shares earned could be higher or lower based on actual versus targeted performance. See Note 14 (Share Based Transactions) for a discussion of the PSU award structure. On February 10, 2020 our Board of Directors authorized a share repurchase program for up to Year ended December 31, 2020 2019 2018 (In thousands) 41,207 42,694 44,251 — 335 4 438 33 528 (2,236) (1,929) (2,118) 39,306 41,207 42,694 $300.0 million of our outstanding common stock for purchases through June 30, 2021 (the “share repurchase program”). Under the share repurchase program, we repurchased 2,184,259 shares of our common stock in the open market for an aggregate purchase price of $231.4 million through December 31, 2020. Of this $68.6 million remains available for repurchases of our outstanding common stock under the share repurchase program as of December 31, 2020. On February 9, 2021, our Board of Directors authorized a new share repurchase program for up to $300.0 million of our outstanding common stock (including $68.6 million from the prior repurchase program) for purchases through June 30, 2022. Primerica 2020 Annual Report 131 FINANCIAL STATEMENTS — NOTE 13 (13) Earnings Per Share The Company has outstanding common stock and equity awards that consist of RSUs, PSUs and stock options. The RSUs maintain non-forfeitable dividend rights that result in dividend payment obligations on a one-to-one ratio with common shares for any future dividend declarations. Unvested RSUs are deemed participating securities for purposes of calculating EPS as they maintain dividend rights. We calculate EPS using the two-class method. Under the two-class method, we allocate earnings to common shares and vested RSUs outstanding for the period. Earnings attributable to unvested participating securities, along with the corresponding share counts, are excluded from EPS as reflected in our consolidated statements of income. In calculating basic EPS, we deduct from net income any dividends and undistributed earnings allocated to unvested RSUs and then divide the result by the weighted-average number of common shares and vested RSUs outstanding for the period. We determine the potential dilutive effect of PSUs and stock options outstanding (“contingently-issuable shares”) on EPS using the treasury-stock method. Under this method, we determine the proceeds that would be received from the issuance of the contingently- issuable shares if the end of the reporting period were the end of the contingency period. The proceeds from the contingently-issuable shares include the remaining unrecognized compensation expense of the awards and the cash received for the exercise price on stock options. We then use the average market price of our common shares during the period the contingently-issuable shares were outstanding to determine how many shares we could repurchase with the proceeds raised from the issuance of the contingently-issuable shares. The net incremental share count issued represents the potential dilutive securities. We then reallocate earnings to common shares and vested RSUs by incorporating the increased fully-diluted share count to determine diluted EPS. 132 The calculation of basic and diluted EPS was as follows: FINANCIAL STATEMENTS — NOTE 14 Year ended December 31, 2019 2018 2020 Basic EPS: Numerator: Net income (In thousands, except per-share amounts) $386,164 $366,391 $324,094 Income attributable to unvested participating securities (1,671) (1,654) (1,893) Net income used in calculating basic EPS $384,493 $364,737 $322,201 Denominator: Weighted-average vested shares Basic EPS Diluted EPS: Numerator: Net income 40,065 42,181 43,854 $ 9.60 $ 8.65 $ 7.35 $386,164 $366,391 $324,094 Income attributable to unvested participating securities (1,667) (1,650) (1,888) Net income used in calculating diluted EPS $384,497 $364,741 $322,206 Denominator: Weighted-average vested shares 40,065 42,181 43,854 Dilutive effect of incremental shares to be issued for contingently-issuable shares 120 133 131 Weighted-average shares used in calculating diluted EPS 40,185 42,314 43,985 Diluted EPS $ 9.57 $ 8.62 $ 7.33 (14) Share-Based Transactions The Company has outstanding equity awards under the Primerica, Inc. Second Amended and Restated 2010 Omnibus Incentive Plan (“2010 OIP”), which expired in 2020 in accordance with its terms and under which no future awards will be made, and the Primerica, Inc. 2020 Omnibus Incentive Plan (the “2020 OIP”, and together with the 2010 OIP, the “OIP”), which was approved by the Company’s stockholders on May 13, 2020. The OIP provides for the issuance of equity awards, including stock options, stock appreciation rights, restricted stock, deferred stock, RSUs, PSUs, and stock payment awards, as well as cash-based awards. In addition to time-based vesting requirements, awards granted under the OIP may also be subject to specified performance criteria. Under the OIP, the Company issues equity awards to our management (officers and other key employees), non-employees who served on our Board of Directors, and sales force leaders. As of December 31, 2020, we had 1.9 million shares available for future grants under the 2020 OIP. Employee and Director Share-Based Compensation. As of December 31, 2020, the Company had outstanding RSUs, PSUs, and stock options issued to our management (officers and other key employees), as well as RSUs issued to our directors, under the OIP. Primerica 2020 Annual Report 133 FINANCIAL STATEMENTS — NOTE 14 RSUs. • RSUs granted to management generally have time-based vesting requirements with equal and annual graded vesting over approximately three years subsequent to the grant date, but also generally vest upon voluntary termination of employment by any employee who is “retirement eligible” as of his or her termination date. In order to be retirement eligible, an employee must be at least 55 years old and his or her age plus years of service with the Company must equal at least 75. • RSUs granted to directors have time-based vesting requirements with equal and quarterly graded vesting over four quarters subsequent to the grant date. • In addition, certain directors elected to defer their cash and/or equity retainers into deferred RSUs, which vest immediately or, if applicable, on the dates the RSUs would have vested. All of our outstanding employee and director RSU awards are eligible for dividend equivalents regardless of vesting status. We recognized expense and tax benefit offsets as follows for employee and director RSU share- based compensation: Total equity awards expense recognized Tax benefit associated with total employee and director share-based compensation Year ended December 31, 2020 2019 2018 (In thousands) $11,218 $10,557 $10,684 1,455 1,434 1,495 The following table summarizes employee and director RSU activity during the years ended December 31, 2020, 2019, and 2018. Unvested employee and director RSUs, December 31, 2017 Granted Forfeited Vested Unvested employee and director RSUs, December 31, 2018 Granted Forfeited Vested Unvested employee and director RSUs, December 31, 2019 Granted Forfeited Vested Unvested employee and director RSUs, December 31, 2020 (1) Less than 1,000 shares 134 Weighted-average measurement-date fair value per share Shares (Shares in thousands) 312 106 —(1) (186) 232 93 —(1) (145) 180 94 —(1) (108) 166 $ 59.10 100.00 82.20 58.51 78.22 123.04 104.38 70.53 107.59 119.03 121.42 101.75 117.87 As of December 31, 2020, total compensation cost not yet recognized in our consolidated financial statements related to employee and director RSU awards with time-based vesting conditions yet to be reached was $4.3 million, and the weighted-average period over which cost will be recognized was 0.8 years. PSUs. The Company issued PSUs to certain of its executive officers under the OIP as part of their annual equity compensation. To date, PSU awards have included a performance target of a specified average annual Return on Adjusted Equity (“ROAE”) and EPS growth (starting with the 2020 award) for the Company over a three-year performance period, as well as a threshold ROAE and EPS growth below which no shares would be earned and an ROAE and EPS growth metric at which the maximum number of FINANCIAL STATEMENTS — NOTE 14 shares can be earned. Awards are earned two months after the performance period ends. Depending on the ROAE and EPS growth, if applicable, achieved within the specified range, recipients may receive shares of common stock equal to between 0% and 150% of the number of PSUs granted. In addition, PSUs accrue forfeitable dividend equivalents, which are also paid out based on the number of shares earned. PSU awards provide for vesting upon the voluntary termination of employment by any employee who is “retirement eligible” as of his or her termination date. The number of shares that will be earned for a retirement-eligible employee is equal to the amount calculated using the Company’s actual performance metrics for the entire performance period, even if that employee retires prior to the completion of the performance period. In connection with our granting of PSU awards, we recognized expense and tax benefit offsets as follows: Total employee PSU award expense Tax benefit associated with total employee PSU award expense Year ended December 31, 2020 2019 2018 (In thousands) $4,179 $3,516 $3,240 — — 191 Primerica 2020 Annual Report 135 FINANCIAL STATEMENTS — NOTE 14 The following table summarizes PSU activity during the years ended December 31, 2020, 2019, and 2018. Unvested employee PSUs, December 31, 2017 Granted Forfeited Vested Unvested employee PSUs, December 31, 2018 Granted Forfeited Performance Adjustment Vested Unvested employee PSUs, December 31, 2019 Granted Forfeited Performance Adjustment Vested Unvested employee PSUs, December 31, 2020(1) Weighted-average measurement-date fair value per share Shares (Shares in thousands) 54 31 — — 85 25 — 4 (23) 92 26 — 5 (41) 82 $ 67.42 100.55 — — 79.34 122.62 — 41.88 41.88 98.79 121.42 — 80.45 80.45 113.99 (1) The 2018 PSU awards outstanding are based on target. Based on the actual performance achieved during the three-year performance period ended December 31, 2020, recipients will receive an aggregate of 33,605 shares of common stock on the vesting date of March 1, 2021. The 2019 PSU awards outstanding are based on target. Depending upon the performance achieved during the performance period, recipients may receive between 0 and 38,225 shares of common stock. The 2020 PSU awards outstanding are based on target. Depending upon the performance achieved during the performance period, recipients may receive between 0 and 38,601 shares of common stock. As of December 31, 2020 total unrecognized compensation related PSU awards was $0.7 million, and the weighted-average period over which cost was 0.8 years. Stock Options. From 2013 to 2016, the Company issued stock options to certain of its executive officers under the OIP as part of their annual equity compensation. Stock options were granted with an exercise price equal to the fair market value of our common stock on the grant date, and they expire 10 years from the date of grant. These options had time-based restrictions with equal and annual graded vesting over a three-year period and are all fully vested. Upon retirement, employees have the lesser of three years or the remaining option term to exercise any vested options. We did not issue any stock options in 2020, 2019 or 2018. 136 Compensation expense and related tax benefits recognized for stock option awards were as follows: FINANCIAL STATEMENTS — NOTE 14 Expense recognized for stock option awards Tax benefit recognized for stock option awards Year ended December 31, 2020 2019 2018 (In thousands) $— $ 6 $39 — — 8 The following table summarizes activity related to stock options outstanding and exercisable during the years ended December 31, 2020, 2019, and 2018: Outstanding Exercisable Number of shares Weighted average exercise price Number of shares Weighted average exercise price (Shares in thousands) $45.15 32 $47.26 Outstanding at December 31, 2017 Granted Exercised Outstanding at December 31, 2018 Granted Exercised Outstanding at December 31, 2019 Granted Exercised 107 — (33) 74 — (4) 70 — — — 47.59 44.07 — 41.20 44.23 — — Outstanding at December 31, 2020 70 44.23 Range of granted option exercise prices outstanding at December 31, 2020 $41.20 (average term remaining — 3.1 years) $53.50 (average term remaining — 4.2 years) $41.88 (average term remaining — 5.2 years) 3 14 52 $41.20 53.50 41.88 44 45.55 70 44.23 70 3 14 52 44.23 $41.20 53.50 41.88 The aggregate intrinsic value represents the difference between the exercise price of our stock options and the quoted closing price of our common stock. The aggregate intrinsic value of exercisable stock options was $6.3 million as of December 31, 2020, which represents the aggregate intrinsic value of stock options outstanding. The intrinsic value, tax benefit realized and value of shares withheld related to option exercise activity are summarized as follows: Intrinsic value of options exercised Tax benefit realized from the options exercised Value of issued shares withheld to satisfy option exercise price Year ended December 31, 2020 2019 2018 (In thousands) $— $369 $1,953 — — — — 161 1,562 Primerica 2020 Annual Report 137 FINANCIAL STATEMENTS — NOTE 14 As of December 31, 2020, there was no unrecognized compensation cost related to outstanding options. Non-Employee Share-Based Compensation. Non-employee share-based transactions relate to the granting of RSUs to members of the sales force (“agent equity awards”). Agent equity awards are generally granted as a part of quarterly contests for successful life insurance policy acquisitions and for sales of investment and savings products for which the grant and the service period occur within the same quarterly reporting period. The following table summarizes non-employee RSU activity during the years ended December 31, 2020, 2019, and 2018. Unvested non-employee RSUs, December 31, 2017 Granted Vested Unvested non-employee RSUs, December 31, 2018 Granted Vested Unvested non-employee RSUs, December 31, 2019 Granted Vested Unvested non-employee RSUs, December 31, 2020 Weighted-average measurement-date fair value per share Shares (Shares in thousands) 32 124 (122) 34 105 (115) 24 128 (126) 26 $ 91.88 102.43 101.01 97.71 124.51 115.01 132.68 106.65 105.71 134.75 Agent equity awards are measured using the fair market value at the grant date and vest during the service period, which occur within the same quarterly reporting period. To the extent that these awards are an incremental direct cost of successful acquisitions of life insurance policies that result directly from and are essential to the policy acquisition(s) and would not have been incurred had the policy acquisition(s) not occurred, we defer and amortize the fair value of the awards in the same manner as other deferred policy acquisition costs. All agent equity awards that are not directly related to the acquisition of life insurance policies are recognized as expense in the quarter granted and earned. Details on the granting and valuation of these awards were as follows: Quarterly incentive awards expense recognized currently Quarterly incentive awards expense deferred Tax benefit associated with incentive awards Year ended December 31, 2020 2019 2018 (Dollars in thousands, except per-share amounts) $ 3,630 $3,441 $3,288 10,071 2,692 9,663 2,465 9,484 2,437 As of December 31, 2020, all agent equity awards were fully vested with the exception of approximately 26 thousand shares that will vest on January 1, 2021. 138 (15) Statutory Accounting and Dividend Restrictions U.S. Insurance Subsidiaries. Our two underwriting U.S. insurance subsidiaries are Primerica Life and NBLIC. Primerica Life wholly owns Peach Re and Vidalia Re, and ceded to each in separate coinsurance arrangements certain level-premium term life insurance policies. Our U.S. insurance subsidiaries are required to report their results of operations and financial position to state authorities on the basis of statutory accounting practices prescribed or permitted by such authorities and the National Association of Insurance Commissioners (“NAIC”), which is a comprehensive basis of accounting other than U.S. GAAP. Prescribed statutory accounting practices include a variety of publications of the NAIC, as well as state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. The Company’s principal life insurance company, Primerica Life, prepares its statutory financial statements on the basis of accounting practices prescribed or permitted by the NAIC and the Tennessee Department of Commerce and Insurance (“Tennessee DOCI”) and includes the statutory financial statements of its wholly owned insurance subsidiaries, NBLIC, Peach Re, and Vidalia Re. NBLIC’s statutory financial statements are prepared on the basis of accounting practices prescribed or permitted by the NAIC or the New York State Department of Financial Services, while the statutory financial statements of Peach Re and Vidalia Re are prepared on the basis of accounting practices prescribed or permitted by the NAIC or the Vermont Department of Financial Regulation (“Vermont DOI”). Our U.S. insurance subsidiaries’ ability to pay dividends to their parent is subject to and limited by the various laws and regulations of their respective states. There are no regulatory restrictions on the ability of the Parent Company to pay FINANCIAL STATEMENTS — NOTE 15 dividends (other than limitations under the Delaware General Corporation Law that provide that dividends on common stock shall be declared by the Board of Directors out of surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or the preceding prior fiscal year). Primerica Life’s statutory ordinary dividend capacity is based on the greater of: (1) the previous year’s statutory net gain from operations (excluding pro rata distributions of any class of the insurer’s own securities) or (2) 10% of the previous year-end statutory surplus (net of capital stock). Dividends that, together with the amount of other distributions or dividends made within the preceding 12 months, exceed this statutory limitation are referred to as extraordinary dividends and require advance notice to the Tennessee DOCI, and are subject to potential disapproval. Dividends paid from other than statutory unassigned surplus require approval of the commissioner of the Tennessee DOCI. Primerica Life’s statutory capital and surplus as of December 31, 2020 and 2019 were as follows: December 31, 2020 December 31, 2019 (In thousands) Statutory capital and surplus $650,114 $666,055 Primerica Life’s statutory net gain from operations was $395.4 million, $508.6 million, and $547.9 million for 2020, 2019 and 2018, respectively. Primerica Life made no pro rata distributions of any class of its own securities during 2020. During 2020, Primerica Life paid ordinary dividends of $170.0 million to the Parent Company. As of January 1, 2021, the amount of dividends Primerica Life could pay from statutory unassigned surplus without prior approval of the commissioner of the Tennessee DOCI was $152.4 million, which is prescribed by the amount of statutory unassigned surplus on that date. Primerica 2020 Annual Report 139 FINANCIAL STATEMENTS — NOTE 16 Primerica Life’s investment basis in NBLIC, Peach Re, and Vidalia Re reflect their statutory capital and surplus amounts recorded in accordance with statutory accounting practices prescribed or permitted by the NAIC and/or each subsidiary’s state of domicile; New York and Vermont. Peach Re was formed as a special-purpose financial captive insurance company and, with the explicit permission of the Vermont DOI, has included the value of a letter of credit serving as collateral for its policy reserves as an admitted asset in its statutory capital and surplus. This permitted accounting practice was critical to the organization and operational plans of Peach Re and explicitly included in the licensing order issued by the Vermont DOI. The impact of this permitted practice as of December 31, 2020 was $206.1 million on Peach Re’s statutory capital and surplus. As of December 31, 2020, even if Peach Re had not been permitted to include the letter of credit as an admitted asset, Primerica Life would not have been below the minimum statutory capital and surplus level that triggers a regulatory action event. There are no other permitted accounting practices that are not encompassed in prescribed statutory accounting practices. Canadian Insurance Subsidiary. Primerica Life Canada is incorporated under the provisions of the Canada Business Corporations Act and is a domiciled Canadian Company subject to regulation under the Insurance Companies Act (Canada) by the Office of the Superintendent of Financial Institutions in Canada (“OSFI”) and by Provincial Superintendents of Financial Institutions/Insurance in those provinces in which Primerica Life Canada is licensed. The statutory financial statements of Primerica Life Canada reported to OSFI are prepared in accordance with International Financial Reporting Standards (“IFRS”). Primerica Life Canada’s capacity to pay ordinary dividends to its parent is limited by OSFI regulations to the extent that its capital exceeds internal capital targets. OSFI requires companies to set internal target levels of capital sufficient to provide for all the risks of the insurer, including risks specified in OSFI’s capital guidelines. As of December 31, 2020 and 2019, Primerica Life Canada’s statutory capital and surplus satisfied 140 regulatory requirements and was $506.1 million and $454.6 million, respectively. In Canada, dividends can typically be paid subject to the paying insurance company continuing to have adequate capital and forms of liquidity as defined by OSFI following the dividend payment and upon 15 days minimum notice to OSFI. However, in response to the COVID-19 pandemic, OSFI set the expectation that payment of dividends above amounts paid prior to March 2020 would be halted, unless otherwise approved by OSFI. Primerica Life Canada’s dividend capacity at January 1, 2021 was estimated to be $113.6 million, which was calculated based on satisfying the Company’s internal capital targets. However, Primerica Life Canada would currently be limited to annualized dividends of $23.6 million as a result of the dividend halt unless otherwise permitted by OSFI. (16) Commitments and Contingent Liabilities Letter of Credit. Peach Re maintains a Credit Facility Agreement with Deutsche Bank (the “Credit Facility Agreement”) to support certain obligations for a portion of the reserves (commonly referred to as Regulation XXX reserves) related to level premium term life insurance policies ceded to Peach Re from Primerica Life under the Peach Re Coinsurance Agreement. Under the Credit Facility Agreement, Deutsche Bank issued a letter of credit in the initial amount of $450.0 million with a term expiring on December 31, 2025 (the “LOC”) for the benefit of Primerica Life, the direct parent of Peach Re. Subject to certain conditions, the amount of the LOC periodically increased up to a maximum amount of approximately $507.0 million, which was reached in 2014. As of December 31, 2020, the amount outstanding under the LOC was $206.1 million. This amount will continue to decline over the remaining term of the LOC to correspond with declines in the Regulation XXX reserve. Pursuant to the terms of the Credit Facility Agreement, in the event amounts are drawn under the LOC by Primerica Life, Peach Re will be obligated, subject to certain limited conditions, to reimburse Deutsche Bank for the amount of any draws and interest thereon. Peach Re has collateralized its obligations to Deutsche Bank by granting it a security interest in all of its assets with the exception of amounts held in a special account established to meet minimum asset thresholds required by state regulatory authorities. As of December 31, 2020, the Company was in compliance with all financial covenants under the Credit Facility Agreement. Contingent Liabilities. The Company is involved from time-to-time in legal disputes, regulatory inquiries and arbitration proceedings in the normal course of business. These disputes are subject to uncertainties, including the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation. As such, the Company is unable to estimate the possible loss or range of loss that may result from these matters unless otherwise indicated. (17) Benefit Plans We sponsor a defined contribution plan for the benefit of our employees. The expense associated with this plan was approximately $10.0 million, $8.9 million, and $8.4 million in 2020, 2019, and 2018, respectively. FINANCIAL STATEMENTS — NOTE 17 (18) Revenue from Contracts with Customers Our revenues from contracts with customers primarily include: • Commissions and fees earned for the marketing and distribution of investment and savings products underwritten by mutual fund companies and annuity providers. For purposes of revenue recognition, mutual fund companies and annuity providers are considered the customers in marketing and distribution arrangements. • Fees earned for investment advisory and administrative services within our managed investments program. • Account-based fees for transfer agent recordkeeping functions and non-bank custodial services. • Fees associated with the distribution of other third-party financial products. • Other revenue from the sale of miscellaneous products and services including monthly subscription fees from the sales representatives for access to POL, our primary sales force support tool. Premiums from insurance contracts we underwrite, fees received from segregated funds insurance contracts, and income earned on our invested assets are excluded from the definition of revenues from contracts with customers in accordance with U.S. GAAP. Primerica 2020 Annual Report 141 FINANCIAL STATEMENTS — NOTE 18 The disaggregation of our revenues from contracts with customers were as follows: Term Life Insurance segment revenues: Other, net Year ended December 31, 2020 2019 2018 (In thousands) $ 46,079 $ 40,848 $ 42,374 Total segment revenues from contracts with customers Revenues from sources other than contracts with customers 46,079 1,336,691 40,848 1,186,383 42,374 1,080,826 Total Term Life Insurance segment revenues $1,382,770 $1,227,231 $1,123,200 Investment and Savings Products segment revenues: Commissions and fees: Sales-based revenues Asset-based revenues Account-based revenues Other, net $ 284,651 $ 282,887 $ 259,991 245,295 81,802 9,631 260,451 80,555 10,017 282,080 83,041 11,271 Total segment revenues from contracts with customers Revenues from sources other than contracts with customers (segregated funds) 661,043 633,910 596,719 57,824 57,698 58,357 Total Investment and Savings Products segment revenues $ 718,867 $ 691,608 $ 655,076 Corporate and Other Distributed Products segment revenues: Commissions and fees(1) Other, net Total segment revenues from contracts with customers Revenues from sources other than contracts with customers $ 43,675 $ 32,213 $ 32,162 3,719 47,394 68,510 4,660 36,873 96,792 4,982 37,144 84,423 Total Corporate and Other Distributed Products segment revenues $ 115,904 $ 133,665 $ 121,567 (1) Commissions and fees for the year ended December 31, 2020 and 2019 include $5.5 million and $5.5 million, respectively, attributable to performance obligations satisfied in a previous reporting period and represent the collection of variable consideration in the transaction price that had been previously constrained. We recognize revenue upon the satisfaction of the related performance obligation, unless the transaction price includes variable consideration that is constrained; in such case, we recognize revenue when the uncertainty associated with the constrained amount is subsequently resolved. Variable consideration is not treated as constrained to the extent it is probable that no significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is resolved. We have no material obligations for refunds of commission and fees on contracts with customers subsequent to completion of our performance obligation. Investment and Savings Products Marketing and Distribution Services. We receive commissions and fees from mutual fund companies and annuity providers for the marketing and distribution by the licensed sales representatives of investment and 142 savings products underwritten by such companies and providers. We recognize the sales-based marketing and distribution revenue received from such companies and providers at the point in time our performance obligation to them is satisfied, which is the trade date. The sales-based commissions from mutual fund companies and annuity providers are known and are due at the same time our performance obligation to such mutual fund companies and annuity providers is satisfied. We also receive ongoing asset-based commissions from mutual fund companies and annuity providers each reporting period based on client asset values. We do not recognize revenue for asset-based marketing and distribution commissions until the end of each subsequent reporting period when the amount becomes known and due from mutual fund companies or annuity providers as this revenue represents variable consideration that is fully constrained at the point in time our distinct performance obligation to mutual fund companies and annuity providers is satisfied. We consider variable consideration in the form of asset-based marketing and distribution commissions to be fully constrained as the amounts we will be entitled to collect are highly uncertain and susceptible to factors outside of our control. Such factors include the market values of assets under management and the length of time investors hold their accounts. Asset-based marketing and distribution commissions recognized during the current period are almost exclusively attributable to distinct performance obligations satisfied to mutual fund companies and annuity providers in previous periods. Investment Advisory and Administrative Services. We provide investment advisory and administrative services over time to investors in the managed investments program we offer. We recognize revenue as our performance obligation is satisfied over time for daily investment advisory and administrative services that are substantially the same and have the same pattern of delivery. Fees for these services, which are based on a percentage of client assets in the managed investments program, become known and are charged to investors during the same reporting period in which the daily investment advisory and administrative services are performed. FINANCIAL STATEMENTS — NOTE 18 Account-based Services. We provide distinct transfer agent recordkeeping services for certain mutual funds we distribute and non-bank custodial services to investors purchasing investment products we distribute through qualified retirement accounts in the United States. Fees charged for these account-based services consist primarily of a stated fee for each investment position or each qualified retirement account. Generally, our performance obligation for each account-based service arrangement is satisfied over time and is substantially the same with the same pattern of delivery. We recognize revenue to which we are entitled for each investment position or each qualified account over time based on the time-based pro-rata amount earned each reporting period. Distribution of Other Third-party Financial Products. We distribute various other financial products on behalf of third parties to consumers. We receive upfront commissions and/or renewal commissions from product providers for sales of other financial product sales we have arranged. We recognize revenue at the point in time our performance obligation to product providers is satisfied, which is generally on the date the financial product is purchased by the consumer from the product provider. For certain financial products, most notably prepaid legal subscriptions and auto and homeowners’ insurance referrals, we receive ongoing renewal commissions that coincide with recurring payments received by product providers from active subscribers or policyholders. Ongoing renewal commissions represent variable consideration that will not be resolved until after the reporting period in which our performance obligation has been satisfied. We estimate variable consideration in the transaction price for these financial products (with the exception of miscellaneous products for which we expect nominal ongoing commissions) as the expected amount of commissions to be received over the life of the subscription or referred policy and apply a constraint so that it is probable that a subsequent change in estimate will not result in a significant revenue reversal. Management judgment primarily is required to determine the average life of a subscription or referred policy, which we establish based on historical information. We recognize Primerica 2020 Annual Report 143 FINANCIAL STATEMENTS — NOTE 18 variable consideration in excess of the amount constrained in subsequent reporting periods when the uncertainty is resolved and the excess amounts are due from the product providers. Revenue for Other Services. We recognize revenue from the sale of other miscellaneous products and services, including monthly subscription fees from the sales representatives for access to POL, upon the transfer of the promised product or service. For POL subscriptions, we satisfy our performance obligation by providing subscribers access to the promised services over time during each monthly subscription period. Revenue recognized from the sale of other miscellaneous products and services becomes known and charged at the same time we satisfy the corresponding performance obligation. Contract Balances. For revenue associated with ongoing renewal commissions on other distributed financial products, we record a contract asset for the amount of ongoing renewal commissions we anticipate collecting in reporting periods subsequent to the sale or referral, less amounts that are constrained, in other assets. The contract asset is reduced for commissions that are billed and become due receivables from product providers during the reporting period. Activity in the contract asset account was as follows: Balance, beginning of period Current period sales, net of collection of renewal commissions Balance, at the end of period December 31, 2020 December 31, 2019 (In thousands) $51,701 3,144 $54,845 $50,119 1,582 $51,701 No significant estimate adjustments were made to the contract asset and no impairment losses were recognized on the contract asset during the year ended December 31, 2020 and 2019. Incremental costs to obtain or fulfill contracts, most notably sales commissions to the sales representatives, are not incurred prior to the recognition of the related revenue. Therefore, we have no assets recognized for incremental costs to obtain or fulfill contracts. (19) Leases We have operating leases for our executive office operations and other real estate leases of office space and finance leases for certain office equipment. Our leases have remaining lease terms of 1 year to 10 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 3 years, exercisable at the Company’s discretion. Operating lease right-of-use assets and operating lease liabilities are presented separately in our consolidated balance sheets. As of December 31, 2020 and December 31, 2019, finance lease right-of-use assets of $0.9 million and $0.7 million, respectively, and finance lease liabilities of $0.9 million and $0.7 million, respectively, were recorded within Other assets and Other liabilities within our consolidated balance sheets. The Company determines its lease liabilities, which are measured at the present value of future lease payments, using the Company’s incremental secured borrowing rate that is commensurate with the term of the underlying lease or the rate implicit in the lease if readily determinable. 144 The components of lease expense were as follows: FINANCIAL STATEMENTS — NOTE 19 Operating lease cost Operating lease cost Year ended December 31, 2020 2019 (In thousands) $7,638 $7,650 Variable lease cost (includes taxes, common area maintenance and insurance) 725 675 Finance lease cost Depreciation of finance lease assets Interest on lease liabilities Total lease cost Other information related to leases was as follows: Supplemental Cash Flows Information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used in operating leases(1) Operating cash flows used in finance leases(1) Financing cash flows used in finance leases 280 56 277 46 $8,699 $8,648 December 31, 2020 December 31, 2019 (In thousands) $7,737 $7,656 56 274 46 281 (1) Included in change in other operating assets and liabilities, net in the accompanying consolidated statements of cash flows. Weighted Average Remaining Lease Term Operating leases Finance leases Weighted Average Discount Rate Operating leases Finance leases December 31, 2020 December 31, 2019 (In thousands) 8 years 4 years 9 years 3 years 4.5% 7.1% 4.6% 6.8% Primerica 2020 Annual Report 145 FINANCIAL STATEMENTS — NOTE 19 Future minimum lease payments under non-cancellable leases were as follows: Year Ended December 31, 2021 2022 2023 2024 2025 Thereafter Total minimum rental commitments for operating leases Less imputed interest Total lease liabilities Operating Leases Finance Leases (In thousands) $ 7,937 $ 320 7,938 7,916 7,905 7,839 23,167 62,702 9,896 267 194 161 83 — 1,025 123 $52,806 $ 902 146 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There have been no changes in, or disagreements with, accountants on accounting and financial disclosure matters during the years ended December 31, 2020 and 2019. ITEM 9A. CONTROLS AND PROCEDURES. DisclosureControlsandProcedures The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report (the “Evaluation Date”). Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ChangesinInternalControlOver FinancialReporting There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Management’sAnnualReportOn InternalControlOverFinancial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. With the participation of the Chief Executive Officer and the Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control — Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2020. Our independent auditor, KPMG LLP, an independent registered public accounting firm, has issued an attestation report on the effectiveness of our internal control over financial reporting. This attestation report appears below. Primerica 2020 Annual Report 147 9A. CONTROLS AND PROCEDURES Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Primerica, Inc.: OpiniononInternalControlOverFinancialReporting We have audited Primerica, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedules I, II, III, and IV (collectively, the consolidated financial statements), and our report dated March 1, 2021 expressed an unqualified opinion on those consolidated financial statements. BasisforOpinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report On Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. DefinitionandLimitationsofInternalControlOverFinancialReporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP Atlanta, Georgia March 1, 2021 148 ITEM 9B. OTHER INFORMATION. Not applicable. ITEM 9B. OTHER INFORMATION Primerica 2020 Annual Report 149 PART III Pursuant to General Instruction G to Form 10-K and as described below, portions of Items 10 through 14 of this report are incorporated by reference from the Company’s definitive Proxy Statement relating to the Company’s 2021 Annual Meeting of Stockholders (the “Proxy Statement”), which will be filed with the SEC within 120 days of December 31, 2020, pursuant to Regulation 14A under the Exchange Act. The Report of the Audit Committee of our Board of Directors and the Report of the Compensation Committee of our Board of Directors to be included in the Proxy Statement shall be deemed to be furnished in this report and shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended, as a result of such furnishing. Our website address is www.primerica.com. You may obtain free electronic copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports from the investors section of our website. These reports are available on our website as soon as reasonably practicable after we electronically file them with the SEC. These reports should also be available through the SEC’s website at www.sec.gov. We have adopted corporate governance guidelines. The guidelines and the charters of our Board committees are available in the corporate governance subsection of the investor relations section of our website, www.primerica.com, and are also available in print upon written request to the Corporate Secretary, Primerica, Inc., 1 Primerica Parkway, Duluth, GA 30099. Item 10. Directors, Executive Officers and Corporate Governance. For a list of executive officers, see Part I, Item X. Information About Our Executive Officers and Certain Significant Employees included elsewhere in this report. 150 We have adopted a written Code of Conduct that applies to all directors, officers and employees, including a separate code that applies to only our principal executive officers and senior financial officers in accordance with Section 406 of the Sarbanes-Oxley Act of 2002 and the rules of the SEC promulgated thereunder. Our Code of Conduct is available in the corporate governance subsection of the investor relations section of our website, www.primerica.com, and is available in print upon written request to the Corporate Secretary, Primerica, Inc., 1 Primerica Parkway, Duluth, GA 30099. In the event that we make changes in, or provide waivers from, the provisions of the Code of Conduct that the SEC requires us to disclose, we will disclose these events in the corporate governance section of our website. Except for the information above and the information set forth in Part I, Item X. Information About Our Executive Officers and Certain Significant Employees, the information required by this item will be contained under the following headings in the Proxy Statement and is incorporated herein by reference: • Matters to be Voted on — Proposal 1: Election of Directors; • Governance — Director Independence; • Governance — Environmental, Social, and Governance (“ESG”) Matters – Our Corporate Culture; • Board of Directors — Board Members; • Board of Directors — Board Committees; • • Stock Ownership — Delinquent Section 16(a) Reports; Executive Compensation — Employment Agreements; • Audit Matters — Audit Committee Report; and • Related Party Transactions. ITEM 11. EXECUTIVE COMPENSATION. Item 11. Executive Compensation. The information required by this item will be contained under the following headings in the Proxy Statement and is incorporated herein by reference: • Board of Directors — Board Committees — Compensation Committee; • Board of Directors — Director Compensation; and • Executive Compensation. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. SecuritiesAuthorizedforIssuanceUnderEquityCompensationPlans We have two compensation plans under which our equity securities are authorized for issuance. The Primerica, Inc. 2020 Omnibus Incentive Plan was approved by our stockholders in May 2020. The Primerica, Inc. Stock Purchase Plan for Agents and Employees was approved by our sole stockholder in March 2010. The following table sets forth certain information relating to these equity compensation plans at December 31, 2020. Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance Equity compensation plans approved by stockholders: Primerica, Inc. Second Amended and Restated 2020 Omnibus Incentive Plan 344,089(1) $44.23(2) 1,870,633(3) Primerica, Inc. Stock Purchase Plan for Agents and Employees Total Equity compensation plans not approved by stockholders — 344,089 — $44.23 1,847,874(4) 3,718,507 n/a n/a n/a (1) Consists of 192,371 and 69,922 shares to be issued in connection with unvested restricted stock units and outstanding stock options, respectively. Also includes 81,796 shares to be issued to certain executive officers in connection with outstanding performance stock units if the Company achieves the targeted level of performance specified in the award agreement over a three-year period. Based on the actual Return on Adjusted Equity achieved within the three-year performance period ended December 31, 2020, recipients of the 2018 performance-based stock units will receive 33,605 shares of common stock on the vesting date, March 1, 2021 versus the targeted 30,579 shares. See Note 12 (Stockholders’ Equity) and Note 14 (Share- Based Transactions) to our consolidated financial statements included elsewhere in this report for more information on the equity awards outstanding. (2) Represents the weighted average exercise price of the 69,922 stock options outstanding. (3) The number of shares of our common stock available for future issuance is 2,442,102 (represents 2,000,000 shares available under the 2020 OIP and 442,102 shares outstanding that were granted under the 2010 OIP and made available for issuance pursuant to the terms of 2020 OIP) less the cumulative number of awards granted under the plan plus the cumulative number of awards canceled under the plan. (4) Represents shares of our common stock, which have already been issued and are outstanding, available to be purchased by employees and agents under the plan. The number of outstanding shares available to be purchased is 2,500,000 less the cumulative number of outstanding shares purchased to date under the plan. Primerica 2020 Annual Report 151 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. Other information required by this item will be contained under the following headings in the Proxy Statement and is incorporated herein by reference: • Stock Ownership — Ownership of Our Common Stock. Certain Relationships and Item 13. Related Transactions, and Director Independence. The information required by this item will be contained under the following headings in the Proxy Statement and is incorporated herein by reference: • Introductory paragraph to Governance; • Board of Directors — Board Committees; and • Related Party Transactions. Item 14. Principal Accounting Fees and Services. The information required by this item will be contained under the following headings in the Proxy Statement and is incorporated herein by reference: • Matters to be Voted on — Proposal 3: Ratification of the Appointment of KPMG LLP as Our Independent Registered Public Accounting Firm; • Board of Directors — Board Committees — • Governance — Director Independence; Audit Committee; and • Audit Matters — Fees and Services of KPMG. 152 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. (a) 1. FINANCIAL STATEMENTS Included in Part II, Item 8, of this report: Primerica, Inc.: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2020 and 2019 Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2020 Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended December 31, 2020 Consolidated Statements of Stockholders’ Equity for each of the years in the three-year period ended December 31, 2020 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2020 Notes to Consolidated Financial Statements 2. FINANCIAL STATEMENT SCHEDULES Included in Part IV of this report: Schedule I — Consolidated Summary of Investments — Other than Investments in Related Parties as of December 31, 2020 Schedule II — Condensed Financial Information of Registrant as of December 31, 2020 and 2019, and for each of the years in the three-year period ended December 31, 2020 Schedule III — Supplementary Insurance Information as of December 31, 2020 and 2019, and for each of the years in the three-year period ended December 31, 2020 Schedule IV — Reinsurance for each of the years in the three-year period ended December 31, 2020 3. EXHIBIT INDEX – 90 92 93 94 95 96 97 160 161 167 169 An “Exhibit Index” has been filed as part of this report beginning on the following page and is incorporated herein by reference. Schedules other than those listed above are omitted because they are not required, are not material, are not applicable, or the required information is shown in the financial statements or notes thereto. (b) Exhibit Index. The agreements included as exhibits to this report are included to provide information regarding the terms of these agreements and are not intended to provide any other factual or disclosure information about the Company or its subsidiaries, our business or the other parties to these agreements. These agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and: • should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; Primerica 2020 Annual Report 153 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES • may have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; • may apply standards of materiality in a way that is different from what may be viewed as material to our investors; and • were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time, and should not be relied upon by investors. Exhibit Number 3.1 Description Reference Amended and Restated Certificate of Incorporation of the Registrant. Incorporated by reference to Exhibit 3.1 to Primerica’s Current Report on Form 8-K filed May 24, 2013 (Commission File No. 001-34680). Incorporated by reference to Exhibit 3.2 to Primerica’s Annual Report on Form 10-K for the year ended December 31, 2019 filed February 26, 2020 (Commission File No. 001-34680) . Incorporated by reference to Exhibit 4.1 to Primerica’s Current Report on Form 8-K filed July 16, 2012 (Commission File No. 001-34680). Incorporated by reference to Exhibit 4.2 to Primerica’s Current Report on Form 8-K filed July 16, 2012 (Commission File No. 001-34680). Incorporated by reference to Exhibit 4.3 (included in Exhibit 4.2 filed herewith) to Primerica’s Current Report on Form 8-K filed July 16, 2012 (Commission File No. 001-34680). Filed with the Securities and Exchange Commission as part of this Annual Report. Incorporated by reference to Exhibit 10.1 to Primerica’s Current Report on Form 8-K filed December 20, 2017 (Commission File No. 001-34680). Incorporated by reference to Exhibit 10.3 to Primerica’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (Commission File No. 001- 34680). 3.2 Second Amended and Restated Bylaws of the Registrant. 4.1 4.2 Indenture, dated July 16, 2012, among the Registrant and Wells Fargo Bank, National Association, as trustee. First Supplemental Indenture, dated July 16, 2012, among the Registrant and Wells Fargo Bank, National Association, as trustee. 4.3 Form of 4.750% Senior Notes due 2022. 4.4 Description of Registrant’s Securities 10.1 Credit Agreement, dated as of December 19, 2017 10.2 Tax Separation Agreement dated as of March 30, 2010 by and between the Registrant and Citigroup Inc. 154 Exhibit Number 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Description Reference Amended and Restated 80% Coinsurance Agreement dated March 31, 2016 by and between Primerica Life Insurance Company and Pecan Re Inc. Incorporated by reference to Exhibit 10.2 to Primerica’s Annual Report on Form 10-K for the year ended December 31, 2016 (Commission File No. 001-34680). 10% Coinsurance Agreement dated March 31, 2010 by and between Primerica Life Insurance Company and Prime Reinsurance Company, Inc. Incorporated by reference to Exhibit 10.6 to Primerica’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (Commission File No. 001-34680). Amendment No. 1 dated as of October 5, 2015 to the 10% Coinsurance Agreement dated March 31, 2010 by and between Primerica Life Insurance Company and Prime Reinsurance Company, Inc. Amendment No. 2 dated as of January 25, 2016 to the 10% Coinsurance Agreement dated March 31, 2010 by and between Primerica Life Insurance Company and Prime Reinsurance Company, Inc. Amendment No. 3 dated as of March 31, 2016 to the 10% Coinsurance Agreement dated March 31, 2010 by and between Primerica Life Insurance Company and Prime Reinsurance Company, Inc. Amended and Restated 80% Coinsurance Trust Agreement dated March 31, 2016 among Primerica Life Insurance Company, Pecan Re Inc. and The Bank of New York Mellon. 10% Coinsurance Economic Trust Agreement dated March 29, 2010 among Primerica Life Insurance Company, Prime Reinsurance Company, Inc. and The Bank of New York Mellon. Amendment No. 1 dated as of March 31, 2016 to the 10% Coinsurance Economic Trust Agreement dated March 29, 2010 among Prime Reinsurance Company, Inc. Primerica Life Insurance Company, and The Bank of New York Mellon. 10% Coinsurance Excess Trust Agreement dated March 29, 2010 among Primerica Life Insurance Company, Prime Reinsurance Company, Inc. and The Bank of New York Mellon. Incorporated by reference to Exhibit 10.29 to Primerica’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 (Commission File No. 001-34680). Incorporated by reference to Exhibit 10.1 to Primerica’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (Commission File No. 001-34680). Incorporated by reference to Exhibit 10.2 to Primerica’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (Commission File No. 001-34680). Incorporated by reference to Exhibit 10.7 to Primerica’s Annual Report on Form 10-K for the year ended December 31, 2016 (Commission File No. 001-34680). Incorporated by reference to Exhibit 10.8 to Primerica’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (Commission File No. 001-34680). Incorporated by reference to Exhibit 10.5 to Primerica’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (Commission File No. 001-34680). Incorporated by reference to Exhibit 10.9 to Primerica’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (Commission File No. 001-34680). Primerica 2020 Annual Report 155 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Description Reference Amendment No. 1 dated as of March 31, 2016 to the 10% Coinsurance Excess Trust Agreement dated March 29, 2010 among Prime Reinsurance Company, Inc. Primerica Life Insurance Company, and The Bank of New York Mellon. Incorporated by reference to Exhibit 10.6 to Primerica’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (Commission File No. 001-34680). Amended and Restated Capital Maintenance Agreement dated as of March 31, 2016 by and between Citigroup Inc. and Prime Reinsurance Company, Inc. Incorporated by reference to Exhibit 10.7 to Primerica’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (Commission File No. 001-34680). 90% Coinsurance Agreement dated March 31, 2010 by and between National Benefit Life Insurance Company and American Health and Life Insurance Company. Reinsurance Trust Agreement dated November 23, 2020 among National Benefit Life Insurance Company, American Health and Life Insurance Company, and JP Morgan Chase Bank, N.A. Coinsurance Agreement dated March 31, 2010 by and between Primerica Life Insurance Company of Canada and Financial Reassurance Company 2010, Ltd. (currently known as Munich Re Life Insurance Company of Vermont). Coinsurance Amending Agreement dated as of December 31, 2011 among Primerica Life Insurance Company of Canada and Financial Reassurance Company 2010, Ltd. (currently known as Munich Re Life Insurance Company of Vermont). Coinsurance Amending Agreement dated as of October 20, 2016 among Primerica Life Insurance Company of Canada, Munich Re Life Insurance Company of Vermont (formerly known as Financial Reassurance Company 2010, Ltd.) and Munich-American Holding Corporation. Coinsurance Agreement Novation Amendment dated as of December 15, 2016 among Primerica Life Insurance Company of Canada, Munich Re Life Insurance Company of Vermont and Munich Re of Malta P.L.C. Incorporated by reference to Exhibit 10.11 to Primerica’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (Commission File No. 001-34680). Filed with the Securities and Exchange Commission as part of this Annual Report. Incorporated by reference to Exhibit 10.13 to Primerica’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (Commission File No. 001-34680). Incorporated by reference to Exhibit 10.19 to Primerica’s Annual Report on Form 10-K for the year ended December 31, 2016 (Commission File No. 001-34680). Incorporated by reference to Exhibit 10.20 to Primerica’s Annual Report on Form 10-K for the year ended December 31, 2016 (Commission File No. 001-34680). Incorporated by reference to Exhibit 10.19 to Primerica’s Annual Report on Form 10-K for the year ended December 31, 2019 (Commission File No. 001-34680). Exhibit Number 10.12 10.13 10.14 10.15 10.16 10.17 10.18 10.19 156 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Exhibit Number 10.20 10.21 Description Reference Coinsurance Amending Agreement dated as of January 1, 2018 among Primerica Life Insurance Company of Canada and Munich Re of Malta P.L.C. Incorporated by reference to Exhibit 10.20 to Primerica’s Annual Report on Form 10-K for the year ended December 31, 2019 (Commission File No. 001-34680). Monitoring and Reporting Agreement dated as of March 31, 2016 by and among Primerica Life Insurance Company and Pecan Re Inc. Incorporated by reference to Exhibit 10.21 to Primerica’s Annual Report on Form 10-K for the year ended December 31, 2016 (Commission File No. 001-34680). 10.22* Primerica, Inc. Stock Purchase Plan for Agents and Employees. 10.23* Primerica, Inc. 2020 Omnibus Incentive Plan. Incorporated by reference to Exhibit 10.45 to Primerica’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (Commission File No. 001-34680). Incorporated by reference to Exhibit 10.1 to Primerica’s Registration Statement on Form S-8 filed (Commission File No. 333-238268) 10.25* 10.26* 10.27* 10.28* 10.29* 10.30* 10.31* Form of Primerica, Inc. Performance Stock Unit Award Agreement under the Primerica, Inc. 2010 Omnibus Incentive Plan (2018 awards). Incorporated by reference to Exhibit 10.24 to Primerica’s Annual Report on Form 10-K for the year ended December 31, 2018 (Commission File No. 001-34680) Form of Primerica, Inc. Performance Stock Unit Award Agreement under the Primerica, Inc. 2010 Omnibus Incentive Plan (2019 awards). Incorporated by reference to Exhibit 10.26 to Primerica’s Annual Report on Form 10-K for the year ended December 31, 2019 (Commission File No. 001-34680). . Form of Primerica, Inc. Performance Stock Unit Award Agreement under the Primerica, Inc. 2010 Omnibus Incentive Plan (2020 awards). Filed with the Securities and Exchange Commission as part of this Annual Report. Form of U.S. Employee Restricted Stock Unit Restated Award Agreement under the Primerica, Inc. 2010 Omnibus Incentive Plan (2018 awards). Incorporated by reference to Exhibit 10.27 to Primerica’s Annual Report on Form 10-K for the year ended December 31, 2018 (Commission File No. 001-34680). Form of U.S. Employee Restricted Stock Unit Restated Award Agreement under the Primerica, Inc. 2010 Omnibus Incentive Plan (2019 awards). Incorporated by reference to Exhibit 10.29 to Primerica’s Annual Report on Form 10-K for the year ended December 31, 2019 (Commission File No. 001-34680). Form of U.S. Employee Restricted Stock Unit Restated Award Agreement under the Primerica, Inc. 2010 Omnibus Incentive Plan (2020 awards). Form of Restated Nonqualified Stock Option Award Agreement under the Primerica, Inc. 2010 Omnibus Incentive Plan (2014 awards). Filed with the Securities and Exchange Commission as part of this Annual Report. Incorporated by reference to Exhibit 10.2 to Primerica’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 (Commission File No. 001-34680). Primerica 2020 Annual Report 157 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Exhibit Number 10.32* 10.33* 10.34 Description Reference Form of Restated Nonqualified Stock Option Award Agreement under the Primerica, Inc. 2010 Omnibus Incentive Plan (2015 awards). Form of Restated Nonqualified Stock Option Award Agreement under the Primerica, Inc. 2010 Omnibus Incentive Plan (2016 awards). Form of Director Restricted Stock Unit Award Agreement under the Primerica, Inc. 2020 Omnibus Incentive Plan (2020 awards). Incorporated by reference to Exhibit 10.22 to Primerica’s Annual Report on Form 10-K for the year ended December 31, 2015 (Commission File No. 001-34680). Incorporated by reference to Exhibit 10.33 to Primerica’s Annual Report on Form 10-K for the year ended December 31, 2016 (Commission File No. 001-34680). Filed with the Securities and Exchange Commission as part of this Annual Report. 10.35* Form of Indemnification Agreement for Directors and Officers. Amended and Restated Employment Agreement, dated as of January 2, 2015, between the Registrant and Mr. Glenn J. Williams. Amended and Restated Employment Agreement, dated as of January 2, 2015, between the Registrant and Mr. Peter W. Schneider. Amendment dated as of November 17, 2015 to the Amended and Restated Employment Agreement, dated as of January 2, 2015, between the Registrant and Mr. Peter W. Schneider. Incorporated by reference to Exhibit 10.48 to Primerica’s Registration Statement on Form S-1 (File No. 333-162918). Incorporated by reference to Exhibit 99.4 to Primerica’s Current Report on Form 8-K filed January 5, 2015 (Commission File No. 001-34680). Incorporated by reference to Exhibit 99.5 to Primerica’s Current Report on Form 8-K filed January 5, 2015 (Commission File No. 001-34680). Incorporated by reference to Exhibit 10.30 to Primerica’s Annual Report on Form 10-K for the year ended December 31, 2015 (Commission File No. 001-34680). Amended and Restated Employment Agreement, dated as of January 2, 2015, between the Registrant and Ms. Alison S. Rand. Incorporated by reference to Exhibit 99.6 to Primerica’s Current Report on Form 8-K filed January 5, 2015 (Commission File No. 001-34680). Amendment dated as of November 17, 2015 to the Amended and Restated Employment Agreement, dated as of January 2, 2015, between the Registrant and Ms. Alison S. Rand. Incorporated by reference to Exhibit 10.32 to Primerica’s Annual Report on Form 10-K for the year ended December 31, 2015 (Commission File No. 001-34680). Amended and Restated Employment Agreement, dated as of January 2, 2015, between the Registrant and Mr. Gregory C. Pitts. Incorporated by reference to Exhibit 99.7 to Primerica’s Current Report on Form 8-K filed January 5, 2015 (Commission File No. 001-34680). Amendment dated as of November 17, 2015 to the Amended and Restated Employment Agreement, dated as of January 2, 2015, between the Registrant and Mr. Gregory C. Pitts. Incorporated by reference to Exhibit 10.34 to Primerica’s Annual Report on Form 10-K for the year ended December 31, 2015 (Commission File No. 001-34680). 10.36* 10.37* 10.38* 10.39* 10.40* 10.41* 10.42* 158 Exhibit Number 10.43 21.1 23.1 31.1 31.2 32.1 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Description Reference Nonemployee Directors’ Deferred Compensation Plan, effective as of January 1, 2011, adopted on November 10, 2010. Incorporated by reference to Exhibit 10.31 to Primerica’s Annual Report on Form 10-K for the year ended December 31, 2010 (Commission File No. 001-34680). Subsidiaries of the Registrant. Consent of KPMG LLP. Rule 13a-14(a)/15d-14(a) Certification, executed by Glenn J. Williams, Chief Executive Officer. Rule 13a-14(a)/15d-14(a) Certification, executed by Alison S. Rand, Executive Vice President and Chief Financial Officer. Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350), executed by Glenn J. Williams, Chief Executive Officer, and Alison S. Rand, Executive Vice President and Chief Financial Officer. Filed with the Securities and Exchange Commission as part of this Annual Report. Filed with the Securities and Exchange Commission as part of this Annual Report. Filed with the Securities and Exchange Commission as part of this Annual Report. Filed with the Securities and Exchange Commission as part of this Annual Report. Filed with the Securities and Exchange Commission as part of this Annual Report. 101.INS Inline XBRL Instance Document The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH Inline XBRL Taxonomy Extension Schema 101.CAL 101.DEF 101.LAB 101.PRE 104 Inline XBRL Taxonomy Extension Calculation Linkbase Inline XBRL Taxonomy Extension Definition Linkbase Inline XBRL Taxonomy Extension Label Linkbase Inline XBRL Taxonomy Extension Presentation Linkbase Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101). * Identifies a management contract or compensatory plan or arrangement. Primerica 2020 Annual Report 159 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (c) Financial Statement Schedules. Schedule I Consolidated Summary of Investments — Other Than Investments in Related Parties PRIMERICA, INC. Type of Investment Fixed maturities: Bonds(1): December 31, 2020 Cost Fair value Amount at which shown in the balance sheet (In thousands) United States government and government agencies and authorities States, municipalities, and political subdivisions Foreign governments Public utilities Convertibles and bonds with warrants attached All other corporate bonds(1) Certificates of deposit Redeemable preferred stocks $ 195,732 $ 206,208 $ 206,208 161,058 169,967 170,689 183,252 170,689 183,252 — — — — — — 3,131,508 3,520,720 3,260,862 176 5,447 176 6,074 176 6,074 Total fixed maturities 3,663,888 4,087,119 3,827,261 Equity securities: Common stocks: States, municipalities and political subdivision Public utilities Banks, trusts and insurance companies Industrial, miscellaneous and all other Nonredeemable preferred stocks Total equity securities Mortgage loans on real estate Real estate Policy loans Other long-term investments Short-term investments 1,974 6,469 1,974 9,769 16,686 17,699 5,063 1,839 7,489 1,092 32,031 38,023 — — — — 1,974 9,769 17,699 7,489 1,092 38,023 — — 30,199 30,199 30,199 — — — — — — Total investments $3,726,118 $4,155,341 $3,895,483 (1) The amount shown on the consolidated balance sheet does not match the amortized cost or cost or fair value for “All other corporate bonds” due to our held-to-maturity security, which is carried at cost on the consolidated balance sheet and all other fixed maturities are carried at fair value. See the report of independent registered public accounting firm. 160 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Schedule II Condensed Financial Information of Registrant PRIMERICA, INC. (Parent Only) Condensed Balance Sheets Assets Investments: Fixed-maturity securities available-for-sale, at fair value (amortized cost: $116,441 in 2020 and $206,550 in 2019) Equity securities, at fair value (historical cost: $1,980 in 2020 and $2,090 in 2019) Total investments Cash and cash equivalents Due from affiliates* Other receivables Income tax receivable Deferred income taxes Investment in subsidiaries* Other assets Total assets Liabilities and Stockholders’ Equity Liabilities: Notes payable Current income tax payable Deferred income taxes Interest payable Other liabilities Commitments and contingent liabilities (see Note F) Total liabilities Stockholders’ equity: Common stock ($0.01 par value; authorized 500,000 in 2020 and 2019; issued and outstanding 39,306 shares in 2020 and 41,207 shares in 2019) Paid-in capital Retained earnings Accumulated other comprehensive income, net of income tax Total stockholders’ equity Total liabilities and stockholders’ equity * Eliminated in consolidation. See the accompanying notes to condensed financial statements. See the report of independent registered public accounting firm. December 31, 2020 2019 (In thousands) $ 119,614 $ 208,526 2,294 2,250 121,908 228,303 3,847 693 2,633 10,251 1,861,411 440 210,776 59,150 1,267 1,383 1,026 12,151 1,756,845 608 $2,229,486 $2,043,206 374,415 — 8,345 8,214 2,627 374,037 — 7,441 8,214 1,023 393,601 390,715 393 — 1,705,786 129,706 412 — 1,593,281 58,798 1,835,885 1,652,491 $2,229,486 $2,043,206 Primerica 2020 Annual Report 161 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Schedule II Condensed Financial Information of Registrant PRIMERICA, INC. (Parent Only) Condensed Statements of Income Revenues: Dividends from subsidiaries* Net investment income Realized investment gains (losses), including credit losses Total revenues Expenses: Interest expense Other operating expenses Total expenses Income before income taxes Income taxes Income before equity in undistributed earnings of subsidiaries Equity in undistributed earnings of subsidiaries* Net income * Eliminated in consolidation. See the accompanying notes to condensed financial statements. See the report of independent registered public accounting firm. Year ended December 31, 2020 2019 2018 (In thousands) $378,063 $398,129 $302,932 3,670 175 4,973 256 2,306 (128) 381,908 403,358 305,110 18,673 13,903 18,669 18,695 9,898 7,478 32,576 28,567 26,173 349,332 374,791 278,937 (3,540) (2,940) (5,578) 352,872 377,731 284,515 33,292 (11,340) 39,579 $386,164 $366,391 $324,094 162 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Schedule II Condensed Financial Information of Registrant PRIMERICA, INC. (Parent Only) Condensed Statements of Comprehensive Income Net income Other comprehensive income (loss) before income taxes: Unrealized investment gains (losses): Equity in unrealized holding gains (losses) on investment Year ended December 31, 2020 2019 2018 (In thousands) $386,164 $366,391 $324,094 securities held by subsidiaries 62,618 70,998 (46,382) Change in unrealized holding gains (losses) on investment securities Reclassification adjustment for realized investment (gains) losses included in net income Foreign currency translation adjustments: 1,372 1,440 (931) (175) (256) 128 Equity in unrealized foreign currency translation gains (losses) of subsidiaries 7,343 15,299 (25,059) Total other comprehensive income (loss) before income taxes 71,158 87,481 (72,244) Income tax expense (benefit) related to items of other comprehensive income (loss) 250 249 (169) Other comprehensive income (loss), net of income taxes 70,908 87,232 (72,075) Total comprehensive income $457,072 $453,623 $252,019 See the accompanying notes to condensed financial statements. See the report of independent registered public accounting firm. Primerica 2020 Annual Report 163 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Schedule II Condensed Financial Information of Registrant PRIMERICA, INC. (Parent Only) Condensed Statements of Cash Flows Cash flows from operating activities: Net income Adjustments to reconcile net income to cash provided by (used in) operating activities: Equity in undistributed earnings of subsidiaries* (1) Deferred tax provision Change in income taxes Realized investment (gains) losses Accretion and amortization of investments Share-based compensation Change in due to/from affiliates* Trading securities sold, matured, or called (acquired), net Change in other operating assets and liabilities, net Year ended December 31, 2020 2019 2018 (In thousands) $ 386,164 $ 366,391 $ 324,094 (42,030) 2,553 (1,607) (175) 1,777 1,447 (2,580) (6) 3,030 (95,014) 1,067 2,464 (256) 257 1,487 1,225 — 2,001 (44,095) (1,983) (6,151) 128 103 1,365 780 — (120) Net cash provided by (used in) operating activities 348,573 279,622 274,121 Cash flows from investing activities: Available-for-sale investments sold, matured or called: Fixed maturity securities — sold Fixed-maturity securities — matured or called Short-term investments — matured or called Equity securities — sold Available-for-sale investments acquired: Fixed-maturity securities(1) Short-term investments Equity securities acquired Net cash provided by (used in) investing activities Cash flows from financing activities: Dividends paid Common stock repurchased Tax withholdings on share-based compensation Net cash provided by (used) in financing activities Change in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Supplemental disclosures of cash flow information: Interest paid 26,256 131,894 — 212 6,481 179,950 8,250 76 1,603 104,836 — 150 (36,190) — (76) (157,510) — (611) (144,760) (8,169) (265) 122,096 36,636 (46,605) (64,346) (231,431) (5,739) (57,630) (225,037) (7,186) (44,140) (210,146) (6,711) (301,516) (289,853) (260,997) 169,153 59,150 26,405 32,745 (33,481) 66,226 $ 228,303 $ 59,150 $ 32,745 $ 18,118 $ 18,117 $ 18,146 Eliminated in consolidation. * (1) Does not include $33.6 million, $127.2 million, and $27.6 million of fixed-maturity securities transferred from subsidiaries in the form of noncash dividends for the years ended December 31, 2020, 2019 and 2018, respectively. See the accompanying notes to condensed financial statements. 164 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Schedule II Condensed Financial Information of Registrant PRIMERICA, INC. (Parent Only) Notes to Condensed Financial Statements (A) Description of Business Primerica, Inc. (“we”, “us” or the “Company”) is a holding company with our primary asset being the capital stock of our wholly owned operating subsidiaries, and our primary liability being $375.0 million in principal amount of senior unsecured notes issued in a public offering in 2012 (the “Senior Notes”). Our subsidiaries assist clients in meeting their needs for term life insurance, which our insurance subsidiaries underwrite, and mutual funds, annuities, managed investments and other financial products, which our subsidiaries distribute primarily on behalf of third parties. Our primary subsidiaries include the following entities: Primerica Financial Services, LLC, a general agency and marketing company; Primerica Life Insurance Company (“Primerica Life”), our principal life insurance company; PFS Investments Inc., an investment products company and broker-dealer; and Primerica Financial Services (Canada) Ltd., a holding company for our Canadian operations, which includes Primerica Life Insurance Company of Canada and PFSL Investments Canada Ltd. Primerica Life, domiciled in Tennessee, owns National Benefit Life Insurance Company, a New York insurance company. In addition, we established Peach Re, Inc. (“Peach Re”) and Vidalia Re, Inc. (“Vidalia Re”) as special purpose financial captive insurance companies domiciled in Vermont and wholly owned subsidiaries of Primerica Life. (B) Basis of Presentation These condensed financial statements reflect the results of operations, financial position and cash flows for the Company. We prepare our financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). These principles are established primarily by the Financial Accounting Standards Board. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect financial statement balances, revenues and expenses and cash flows, as well as the disclosure of contingent assets and liabilities. Management considers available facts and knowledge of existing circumstances when establishing the estimates included in our financial statements. The most significant item that involves a greater degree of accounting estimates subject to change in the future is the determination of our investments in subsidiaries. Estimates for this and other items are subject to change and are reassessed by management in accordance with U.S. GAAP. Actual results could differ from those estimates. The accompanying condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto of Primerica, Inc. and subsidiaries included in Part II, Item 8 of this report. (C) Note Payable In July 2012, we issued the Senior Notes in a public offering at a price of 99.843% of the principal amount with an annual interest rate of 4.75%, payable semi-annually in arrears on January 15 and July 15. The Senior Notes mature on July 15, 2022. As unsecured senior obligations, the Senior Notes rank equally in right of payment with all existing and future unsubordinated indebtedness and senior to all existing and future subordinated indebtedness of the Company. The Senior Notes are structurally subordinated in right of payment to all existing and future liabilities of our subsidiaries. In addition, the Senior Notes contain covenants that restrict our ability to, among other things, create or incur any indebtedness that is Primerica 2020 Annual Report 165 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES secured by a lien on the capital stock of certain of our subsidiaries, and merge, consolidate or sell all or substantially all of our properties and assets. We were in compliance with the covenants of the Senior Notes as of December 31, 2020. No events of default occurred on the Senior Notes during the year ended December 31, 2020. (D) Revolving Credit Facility We maintain an unsecured $200.0 million revolving credit facility (“Revolving Credit Facility”) with a syndicate of commercial banks that has a scheduled termination date of December 19, 2022. Amounts outstanding under the Revolving Credit Facility bear interest at a periodic rate equal to LIBOR or the base rate, plus in either case an applicable margin. The Revolving Credit Facility contains language that allows for the Company and the lenders to agree on a comparable or successor reference rate in the event LIBOR is no longer available. The Revolving Credit Facility also permits the issuance of letters of credit. The applicable margins are based on our debt rating with such margins for LIBOR rate loans and letters of credit ranging from 1.125% to 1.625% per annum and for base rate loans ranging from 0.125% to 0.625% per annum. Under the Revolving Credit Facility, we incur a commitment fee that is payable quarterly in arrears and is determined by our debt rating. This commitment fee ranges from 0.125% to 0.225% per annum of the aggregate $200.0 million commitment of the lenders under the Revolving Credit Facility. As of December 31, 2020, no amounts have been drawn under the Revolving Credit Facility and we were in compliance with its covenants. Furthermore, no events of default have occurred under the Revolving Credit Facility during the year ended December 31, 2020. (E) Dividends For the years ended December 31, 2020, 2019, and 2018, the Company received dividends from our non-life insurance subsidiaries of $185.5 million, $105.6 million, and $80.1 million, 166 respectively. For the years ended December 31, 2020, 2019, and 2018, the Company received dividends from our life insurance subsidiaries of $192.5 million, $292.5 million, and $222.8 million, respectively. (F) Commitments and Contingent Liabilities Peach Re and Vidalia Re have each entered into separate coinsurance agreements with Primerica Life whereby Primerica Life has ceded certain level-premium term life insurance policies to Peach Re and Vidalia Re. In conjunction with these coinsurance agreements, we have capital maintenance agreements with both Peach Re and Vidalia Re. Each capital maintenance agreement may require us at times to make capital contributions to Peach Re and Vidalia Re to ensure that their regulatory accounts, as defined in the coinsurance agreements with Primerica Life, will not be less than $20.0 million for each financial captive insurance company. For Peach Re, the regulatory account will only be used to satisfy obligations under its coinsurance agreement after all other available assets have been used, including a letter of credit issued by Deutsche Bank for the benefit of Primerica Life. For Vidalia Re, the regulatory account will only be used to satisfy obligations under its coinsurance agreement after all other available assets have been used, including its held-to-maturity security ultimately guaranteed by Hannover Life Reassurance Company of America. The Company is involved from time-to-time in legal disputes, regulatory inquiries and arbitration proceedings in the normal course of business. These disputes are subject to uncertainties, including large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation. As such, the Company is unable to estimate the possible loss or range of loss that may result from these matters. ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Schedule III Supplementary Insurance Information PRIMERICA, INC. December 31, 2020 Term Life Insurance Investment and Savings Products Corporate and Other Distributed Products Deferred policy acquisition costs Future policy benefits Unearned and advance premiums Policy claims and other benefits payable Separate account liabilities (In thousands) $2,543,795 $6,579,600 $16,633 $508,425 $ — 62,876 — 22,973 210,957 — 503 — 2,659,469 11,286 51 Total $2,629,644 $6,790,557 $17,136 $519,711 $2,659,520 December 31, 2019 Term Life Insurance Investment and Savings Products Corporate and Other Distributed Products $2,239,515 $6,244,193 $14,933 $330,660 $ — 62,196 — 24,039 202,376 — 537 — 2,485,683 9,294 62 Total $2,325,750 $6,446,569 $15,470 $339,954 $2,485,745 Primerica 2020 Annual Report 167 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Premium revenue Net investment income Benefits and claims Amortization of deferred policy acquisition costs Other operating expenses Premiums written (In thousands) Year ended December 31, 2020 Term Life Insurance $1,309,661 $27,030 $593,948 $216,208 $200,063 $ — Investment and Savings Products — — — 7,055 509,167 — Corporate and Other Distributed Products Total 16,722 56,784 21,621 1,058 161,691 701 $1,326,383 $83,814 $615,569 $224,321 $870,921 $701 Year ended December 31, 2019 Term Life Insurance $1,166,461 $19,922 $475,330 $248,710 $183,097 $ — Investment and Savings Products — — — 4,549 495,248 — Corporate and Other Distributed Products Total 17,676 74,151 18,490 1,293 148,676 741 $1,184,137 $94,073 $493,820 $254,552 $827,021 $741 Year ended December 31, 2018 Term Life Insurance $1,067,079 $13,747 $441,775 $228,613 $170,908 $ — Investment and Savings Products — — — 9,766 471,398 — Corporate and Other Distributed Products Total 18,861 67,683 15,808 1,351 144,140 792 $1,085,940 $81,430 $457,583 $239,730 $786,446 $792 See the report of independent registered public accounting firm. 168 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Schedule IV Reinsurance PRIMERICA, INC. Year ended December 31, 2020 Gross amount Ceded to other companies Assumed from other companies Net amount (Dollars in thousands) Percentage of amount assumed to net Life insurance in force $861,392,223 $742,356,917 $— $119,035,306 — % Premiums: Life insurance $ 2,906,083 $ 1,580,427 Accident and health insurance 1,066 339 Total premiums $ 2,907,149 $ 1,580,766 $— — $— $ 1,325,656 727 $ 1,326,383 — % — % — % Year ended December 31, 2019 Gross amount Ceded to other companies Assumed from other companies Net amount (Dollars in thousands) Percentage of amount assumed to net Life insurance in force $810,995,295 $702,727,956 $— $108,267,339 — % Premiums: Life insurance $ 2,752,774 $ 1,569,403 Accident and health insurance 1,092 326 Total premiums $ 2,753,866 $ 1,569,729 $— — $— $ 1,183,371 766 $ 1,184,137 — % — % — % Year ended December 31, 2018 Gross amount Ceded to other companies Assumed from other companies Net amount (Dollars in thousands) Percentage of amount assumed to net Life insurance in force $783,979,673 $682,708,797 $— $101,270,876 — % Premiums: Life insurance $ 2,665,947 $ 1,580,815 Accident and health insurance 1,157 349 Total premiums $ 2,667,104 $ 1,581,164 $— — $— $ 1,085,132 808 $ 1,085,940 — % — % — % See the report of independent registered public accounting firm. Primerica 2020 Annual Report 169 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Primerica, Inc. By: /s/ Alison S. Rand Alison S. Rand Executive Vice President and Chief Financial Officer March 1, 2021 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ D. Richard Williams D. Richard Williams /s/ Glenn J. Williams Glenn J. Williams /s/ Alison S. Rand Alison S. Rand /s/ John A. Addison, Jr. John A. Addison, Jr. /s/ Joel M. Babbit Joel M. Babbit /s/ P. George Benson P. George Benson /s/ C. Saxby Chambliss C. Saxby Chambliss /s/ Gary L. Crittenden Gary L. Crittenden /s/ Cynthia N. Day Cynthia N. Day /s/ Sanjeev Dheer Sanjeev Dheer /s/ Beatriz R. Perez Beatriz R. Perez /s/ Barbara A. Yastine Barbara A. Yastine 170 Chairman of the Board March 1, 2021 Chief Executive Officer (Principal Executive Officer) and Director March 1, 2021 Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Director Director Director Director Director Director Director Director Director March 1, 2021 March 1, 2021 March 1, 2021 March 1, 2021 March 1, 2021 March 1, 2021 March 1, 2021 March 1, 2021 March 1, 2021 March 1, 2021 Stockholder Information Annual Meeting The annual meeting of stockholders of Primerica, Inc. will be held on Wednesday, May 12, 2021 at 8:30 a.m. in the Primerica Theater located in our Corporate Office. Corporate Office Primerica, Inc. 1 Primerica Parkway Duluth, GA 30099 (770) 381-1000 www.primerica.com Investor Contact (866) 694-0420 investorrelations@primerica.com Media Contact (866) 694-0420 mediarelations@primerica.com Form 10-K Copies of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, including financial statements, are available on the Company’s Investor Relations website at http://investors. primerica.com or by written request to Investor Relations. Common Stock Trading Symbol: PRI New York Stock Exchange Transfer Agent and Registrar Computershare Inc. 150 Royall Street Canton, MA 02021 Written Requests by Mail: Computershare Inc. P.O. Box 505000 Louisville, KY 40233-5000 Written Requests by Overnight Delivery: Computershare Inc. 462 South 4th Street Suite 1600 Louisville, KY 40202 Toll Free Number: 1-866-517-2488 (US, Canada, Puerto Rico) Phone Number: 1-781-575-4223 (non-US) Stockholder Website: www.computershare.com/investor Board of Directors John A. Addison, Jr. CEO, Addison Leadership Group Joel M. Babbit Co-Founder and CEO, Narrative Content Group, LLC P. George Benson Professor of Decision Sciences and Former President, The College of Charleston C. Saxby Chambliss Partner, DLA Piper Gary L. Crittenden Private Investor Cynthia N. Day President and CEO of Citizens Bancshares Corporation and Citizens Trust Bank Sanjeev Dheer President and CEO, CENTRL Inc. Beatriz R. Perez SVP and Chief Communications, Sustainability and Strategic Partnerships Officer for The Coca-Cola Company D. Richard Williams Chairman of the Board Glenn J. Williams CEO, Primerica, Inc. Barbara A. Yastine Former Chairman, President and CEO, Ally Bank © 2021 Primerica / 58885 / 3.21 / 1549020 

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