Investments

3 Months Ended

Mar. 31, 2025

Investments, Debt and Equity Securities [Abstract]

(5) Investments

Available-for-sale Securities. The amortized cost, gross unrealized gains and losses, and fair value of available-for-sale (“AFS”) securities were as follows:


	March 31, 2025
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
	(In thousands)
Securities available-for-sale, carried at fair value:
Fixed-maturity securities:
U.S. government and agencies	$	9,820	$	39	$	(241	)	$	9,618
Foreign government		176,001		2,344		(4,880	)		173,465
States and political subdivisions		128,161		134		(13,595	)		114,700
Corporates		2,001,518		16,857		(100,159	)		1,918,216
Residential mortgage-backed securities		606,584		1,963		(58,196	)		550,351
Commercial mortgage-backed securities		110,935		124		(9,885	)		101,174
Other asset-backed securities		212,805		1,478		(5,336	)		208,947
Total fixed-maturity securities	$	3,245,824	$	22,939	$	(192,292	)	$	3,076,471


	December 31, 2024
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
	(In thousands)
Securities available-for-sale, carried at fair value:
Fixed-maturity securities:
U.S. government and agencies	$	9,822	$	7	$	(326	)	$	9,503
Foreign government		171,033		1,597		(6,206	)		166,424
States and political subdivisions		128,359		96		(14,886	)		113,569
Corporates		1,929,350		11,853		(116,095	)		1,825,108
Residential mortgage-backed securities		552,611		536		(66,590	)		486,557
Commercial mortgage-backed securities		110,426		87		(11,068	)		99,445
Other asset-backed securities		250,882		1,396		(6,758	)		245,520
Total fixed-maturity securities	$	3,152,483	$	15,572	$	(221,929	)	$	2,946,126

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.

The scheduled maturity distribution of the AFS fixed-maturity securities portfolio as of March 31, 2025 was as follows:


	Amortized cost		Fair value
	(In thousands)
Due in one year or less	$	243,056	$	242,571
Due after one year through five years		755,087		742,655
Due after five years through 10 years		803,929		753,763
Due after 10 years		513,428		477,010
		2,315,500		2,215,999
Mortgage- and asset-backed securities		930,324		860,472
Total AFS fixed-maturity securities	$	3,245,824	$	3,076,471

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.

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 amounts of the Surplus Note and the LLC Note have reached their peaks and are expected to decrease over time to coincide with the amount of policy reserves contractually supported under the Vidalia Re Coinsurance Agreement. Both the Surplus Note and the LLC Note mature on December 31, 2030 and bear interest at an annual interest rate of 4.50%. This financing agreement 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 LLC Note is guaranteed by Hannover Re through a credit enhancement feature in exchange for a fee, which is reflected in interest expense in our unaudited condensed consolidated statements of income. The Parent Company has agreed to support Vidalia Re’s obligation to pay the credit enhancement fee incurred on the LLC Note.

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 they 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 unaudited condensed consolidated financial statements. Hannover Re’s financial strength rating by A.M. Best was A+ as of March 31, 2025.

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 March 31, 2025, the LLC Note had an estimated unrealized holding loss of $52.9 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.

As of March 31, 2025 and December 31, 2024, no credit losses have been recognized on the LLC Note.

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 value of investments on deposit was $8.1 million and $8.0 million as of March 31, 2025 and December 31, 2024, respectively.

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 in our unaudited condensed 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 in our unaudited condensed consolidated balance sheets during the terms of the loans, and we do not report them as sales. Cash collateral received and reinvested was $97.6 million and $86.0 million as of March 31, 2025 and December 31, 2024, respectively.

Net Investment Income. The components of net investment income were as follows:


	Three months ended March 31,
	2025			2024
	(In thousands)
Fixed-maturity securities (available-for-sale)	$	33,513		$	29,936
Fixed-maturity security (held-to-maturity)		14,669			15,785
Equity securities		314			390
Policy loans and other invested assets		1,032			461
Cash, cash equivalents and short-term investments		6,519			6,982
Total return on deposit asset underlying 10% coinsurance agreement(1)		2,388			2,174
Gross investment income		58,435			55,728
Investment expenses		(2,095	)		(2,137	)
Investment income net of investment expenses		56,340			53,591
Interest expense on surplus note		(14,669	)		(15,785	)
Net investment income	$	41,671		$	37,806

(1)

Includes $0.5 million and $(0.1) million of net gains (losses) recognized for the change in fair value of the deposit asset underlying the 10% coinsurance agreement for the three months ended March 31, 2025 and 2024, respectively.

The components of investment gains (losses), as well as details on gross realized investment gains (losses) and other investment gains (losses) were as follows:


	Three months ended March 31,
	2025			2024
	(In thousands)
Realized investment gains (losses):
Gross gains from sales, maturities and calls of available-for-sale fixed-maturity securities	$	17		$	7
Gross losses from sales, maturities and calls of available-for-sale fixed-maturity securities		(96	)		-
Gross losses from sales, maturities and calls of equity securities		(3	)		-
Net realized investment gains (losses):		(82	)		7
Other investment gains (losses):
Market gains (losses) recognized in net income during the period on equity securities		829			1,296
Gains (losses) from bifurcated options		5			(5	)
Gains (losses) on trading securities		5			7
Other investment gains (losses):		839			1,298
Investment gains (losses)	$	757		$	1,305

The proceeds from sales or other redemptions of AFS securities were as follows:


	Three months ended March 31,
	2025		2024
	(In thousands)
Proceeds from sales or other redemptions	$	100,041	$	86,418

Accrued Interest. Accrued interest is recorded in accordance with the contractual 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.

Credit Losses for AFS Fixed-maturity Securities. The following tables summarize all AFS securities in an unrealized loss position for which an allowance for credit losses has not been recorded as of March 31, 2025 and December 31, 2024, aggregated by major security type and by length of time such securities have continuously been in an unrealized loss position:


	March 31, 2025
	Less than 12 months					12 months or longer
	Fair value		Unrealized losses			Fair value		Unrealized losses
	(In thousands)
Fixed-maturity securities:
U.S. government and agencies	$	-	$	-		$	5,734	$	(241	)
Foreign government		7,964		(91	)		70,616		(4,789	)
States and political subdivisions		9,981		(293	)		100,513		(13,302	)
Corporates		364,821		(6,988	)		951,542		(93,171	)
Residential mortgage-backed securities		48,475		(849	)		327,389		(57,347	)
Commercial mortgage-backed securities		1,990		(8	)		88,803		(9,877	)
Other asset-backed securities		19,736		(62	)		111,478		(5,274	)
Total fixed-maturity securities	$	452,967	$	(8,291	)	$	1,656,075	$	(184,001	)


	December 31, 2024
	Less than 12 months					12 months or longer
	Fair value		Unrealized losses			Fair value		Unrealized losses
	(In thousands)
Fixed-maturity securities:
U.S. government and agencies	$	3,529	$	(19	)	$	5,660	$	(307	)
Foreign government		15,044		(139	)		83,923		(6,067	)
States and political subdivisions		9,933		(350	)		99,389		(14,536	)
Corporates		398,232		(9,422	)		1,000,264		(106,673	)
Residential mortgage-backed securities		106,276		(2,605	)		327,850		(63,985	)
Commercial mortgage-backed securities		2,005		(1	)		89,876		(11,067	)
Other asset-backed securities		15,086		(81	)		114,077		(6,677	)
Total fixed-maturity securities	$	550,105	$	(12,617	)	$	1,721,039	$	(209,312	)

The amortized cost of AFS securities with a cost basis in excess of their fair values were $2,301.3 million and $2,493.1 million as of March 31, 2025 and December 31, 2024, respectively.

As of March 31, 2025, no allowance for credit losses was recorded for AFS securities. Substantially all of the unrealized losses were the result of change in market interest rates compared to the date the securities were acquired rather than the credit quality of the securities, and we have no present intention to dispose of them.

We did not recognize any credit losses on AFS securities for the three months ended March 31, 2025 and 2024 in the unaudited condensed consolidated statements of income. We recognize credit losses on securities due to: (i) our intent to sell them (unless the securities are sold and the loss is realized during the same quarter when we designate the securities as intend to sell); (ii) adverse credit events indicating that we will not receive the security’s contractual cash flows when contractually due, such as news of an impending filing for bankruptcy; (iii) analyses of the issuer’s most recent financial statements or other information indicating that significant liquidity deficiencies, significant losses and large declines in capitalization exist; and (iv) analyses of rating agency information for issuances with severe ratings downgrades indicating a significant increase in the possibility of default.

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 each of March 31, 2025 and December 31, 2024. 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.

Primerica, Inc. 10-Q