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Primerica Inc (PRI -0.95%)
Q1 2019 Earnings Call
May. 8, 2019, 10:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning. My name is Christine and I'll be your conference operator today. At this time, I would like to welcome everyone to the Primerica, Inc. Q1 2019 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I will now turn the call over to Nicole Russell, Senior Vice President, Investor Relations. You may begin your conference.

Nicole Russell -- Senior Vice President, Investor Relations

Thank you, Christine, and good morning, everyone. Welcome to Primerica's First Quarter Earnings Call. A copy of our press release along with materials relevant to today's call are posted on our Investor Relations section of our website at investors.primerica.com.

Joining our call today are Chief Executive Officer, Glenn Williams; and our Chief Financial Officer, Alison Rand. Glenn and Alison will deliver prepared remarks and then we will open the call for questions.

During our call, some of our comments may contain forward-looking statements in accordance with the safety (ph) harbor provision of the Securities Litigation Reform Act. The Company does not assume any duty to update or revise these statements to reflect new information. We reference you to our most recent Form 10-K filing as modified by subsequent Form 10-Q filings for a list of risk and uncertainties that could cause actual results to materially differ from those expressed or implied.

We will also reference certain non-GAAP measures, which we believe provide additional insight into the Company's operations. Reconciling of non-GAAP measures to their respective GAAP numbers are included at the end of our earnings press release and are available on our Investor Relations website.

I would now like to turn the call over to Glenn.

Glenn J. Williams -- Chief Executive Officer

Thank you, Nicole, and thanks, everyone, for joining us today. I will focus my prepared remarks on the highlights from our most recent quarter and offer some observations on recent trends. Then Alison will review our financial results.

Turning to Slide three in our presentation deck, you can see that we continue to report solid financial results. Adjusted operating revenues increased 6%, adjusted net operating income rose 14%, and adjusted operating EPS is up 19% year-over-year.

On the capital deployment front, we repurchased $53.6 million of our common stock in the first quarter and we are on pace to meet our annual target of $225 million for 2019. Solid earnings and continued active capital deployment resulted in an industry-leading adjusted operating ROAE of 20.3% during the quarter. These results show the resiliency of our financial model and our ability to withstand short-term softness in distribution momentum.

Slides four and five provide a summary of our distribution results. Recruiting, licensing and the number of life insurance policies issued declined compared to a strong first quarter last year while productivity dipped below our historical range to 0.16 policies per life insurance licensed representative per month. The weakness in productivity was most noticeable in January and February. March and April productivity numbers have recovered to our historical range. Other metrics such as the size of the sales force, ISP sales, and average client asset values were largely unchanged year-over-year.

After three years of running at top speed, we started to see momentum slow last summer. As I mentioned in the past, it's not unusual for our sales force to catch its breath after an extended period of high productivity. We consider this part of the natural ebb and flow of our business.

As we work toward recovering momentum in the near term, we are encouraged by the underlying dynamics in our marketplace. Our clients need for our products and services are at record levels in the middle market and consumer confidence on Main Street is strong. Additionally, the unique strength of our business model remain intact.

We're actively making adjustments that focus and prioritize activities for our field leadership and I think of our ability to do this in three broad categories. First, our communication capabilities and short-term incentives focus the sales force on the most immediate opportunities. Second, we continuously make incremental improvements to our processes to help our sales force conduct business more effectively. A recent example of this is, EZ-Key, which provides a tool to simplify the process of making an investment sale.

In the area of sales force growth, we recently made incremental improvements in our process by refocusing our licensing resources around the most effective method for getting new recruits licensed. We call this the perfect path for licensing and expect that it will provide a higher degree of discipline around the licensing process. While these incremental improvements take longer to implement, their impact on our business grows over time. In addition to these short-term incentives and incremental improvements, we continually strive to create more significant modifications, which take more time to design, pilot, and evaluate. This month, we introduced a new program that simultaneously improves the attractiveness of our recruiting message, enhances our field training activities, and has the potential to increase the productivity of new reps. While it's very early in the game, there's a heightened level of excitement and energy around this new program.

Beyond these specific initiatives, there are other efforts under way that should enhance the backdrop for our business. First, our biennial convention takes place in mid-June and as we've seen in the past, will certainly have a positive impact. In addition, you might have noticed our heightened media profile with recent publicity around our financial security monitor survey of middle-income families that was highlighted by USA TODAY and other news outlets across the country. As you can see, there are several moving parts in our effort to reaccelerate momentum and I expect that these will collectively have a positive impact on our future growth trajectory. Despite a slow start to 2019, I still believe we will show year-over-year growth in recruiting, licensing, the size of our sales force, and issued life insurance policies.

Moving now to our investments in savings business. As I noticed earlier, sales and average client asset values were largely in line with 2018 results. We're seeing solid demand for our Lifetime Investment Platform and continued interest in the suite of variable annuities with product guarantees that we introduced last spring.

Total ISP sales during the quarter were $1.76 billion compared to the high watermark of $1.78 billion last year. During the current quarter, we also had net inflows of $227 million, up slightly compared to last year's first quarter. Opportunities have never been more attractive for reps who want to broaden their practice to include investment products and tools such as EZ-Key that made it easier to expand into the securities business. Approximately 25,000 reps are currently licensed to sell mutual funds including 3,554 individuals who are also licensed to sell advisory products. Our sales force is excited about the growth prospects provided by the Lifetime Investment Platform and other enhancements that are planned for roll out later this year.

We continue to invest in technology to maintain cutting-edge tools for our sales force and we're always looking for opportunities to leverage this capability across a wide range of attractive products to help our clients achieve their protection and financial goals. A recent example of this is the new mortgage origination program I mentioned in my prepared remarks last quarter. We are on track to launch a limited mortgage pilot program in Q2. Should the pilot prove successful, it will position us to help our clients get on a path to reducing their debt burden, which will create opportunities for those families to save and invest for the future. We are employing a leading point-of-sale system tailored to our reps needs. The pilot will also help us identify areas for potential additional investments and improvements. We anticipate approximately 100 mortgage licensed representatives will participate in the pilot. If the pilot meets our objectives, we would embark on a multi-year disciplined roll out as we obtain necessary state-by-state regulatory approval and build additional infrastructure to support this program.

As we look ahead, we see positive trends in April's numbers. We have a disciplined approach to the future and we are executing against our plan. We believe that we can leverage the excitement around our biennial convention to reinvigorate our growth. A key role for us as leaders of this organization is to motivate our sales force toward success.

Now, I'll turn it over to Alison.

Alison S. Rand -- Executive Vice President and Chief Financial Officer

Thank you, Glenn, and good morning, everyone. Starting on Slide six, Term Life pre-tax income for the quarter was $70.3 million, up 18% versus the prior year period. Growth in adjusted direct premiums, which increased 11% year-over-year continues to drive the segment's earnings expansion. Incurred claims for the quarter were in line with historical trends as was the benefit in claims ratio at 58.4%, which is typically elevated in the first quarter. During the prior year period, incurred claims were higher due to normal claims volatility resulting in a $2 million year-over-year improvement. The benefits and claims ratio should continue to be in the 58% to 58.5% range for the remainder of the year.

The DAC amortization ratio at 16.8% was consistent with the prior year period and our expectations. Persistency in the quarter was generally in line with 2018 levels. We expect the DAC amortization ratio to be consistent with prior year levels for the remainder of the year and to be around 16% on a full year basis.

The net insurance expense ratio for the quarter was 8.1% or about $3 million higher than the prior year period largely due to growth in the business and typical inflationary increases.

I will discuss Companywide expenses later in the call, but I want to highlight that we expect Term Life infrastructure modernization efforts and other initiatives for 2019 to increase the full year insurance expense ratio to the low-to-mid 8% range in 2019. Term Life margins will see modest pressure accordingly, but are expected to remain at or above 18.5% for the year.

The financial supplement shows the ratio of premium ceded to the IPO coinsurance as a percentage of legacy direct premiums. Given that in 2017 we stopped ceding policies that continue after reaching an end of their initial policy term, the level of premiums ceded to the IPO coinsurers has been declining faster than it had been prior to 2017. We expect the premiums ceded to the IPO coinsurers to continue to decrease by about 5% to 6% per year and for these premiums as a percentage of legacy direct premiums to decline by 2% to 2.5% year-over-year over the next several years.

In recent earnings calls, we have discussed the drivers of adjusted direct premium growth and provided the historical and estimated impact of these drivers. Last quarter, we communicated that adjusted direct premiums were expected to grow around 11% for 2019. While sales in the first quarter were lower than anticipated, 2019 adjusted direct premium growth should still be around 11% assuming net sales are 3% higher than the prior year for the remainder of the year. We expect adjusted direct premiums to continue to grow beyond 2019, but at a decreasing rate. We've shared that if issued policies increased by 3% per year, the adjusted direct premium growth rate should decline by about 1.5% per year for the next few years with the deceleration tapering off thereafter.

The first column on the chart on Slide seven depicts these estimates. The next three columns show how issued policy levels impact growth. Even if sales levels were flat, adjusted direct premiums would grow by about 9% in 2020 and 7% in 2021 highlighting the financial strength of the Term Life business and the continued benefit of the IPO reinsurance structure.

Sales growth of 6% per year would lead to adjusted direct premiums growth of around 10% in 2020 and 9% in 2021 while 10% growth in sales will keep adjusted direct premiums growing around 10% per year for the years shown.

Turning next to our Investment & Savings Products segment on Slide eight. Revenues were flat year-over-year as elevated volatility in the financial markets at the end of 2018 carried over to the early part of the year, creating headwind for sales and client asset values.

As markets improved during the quarter, both sales and client asset values recovered. Demand for variable annuities remains strong increasing to 27% of sales in the quarter versus 21% in the prior year period. This mix shift in sales is driving an increase in the sales-based net revenue ratio as annuities generally have higher sales-based earnings component than other investment products. While client asset values recovered during the quarter, the low market levels at the beginning of 2019, put pressure on average client asset values causing a slight decline versus the prior year. Asset-based revenues and commissions declined year-over-year accordingly.

Since the launch of our Lifetime Investment Platform in the second quarter of 2017, we have transitioned clients from the Freedom Portfolio to our new Lifetime Platform with the final transfers occurring in January of this year. The Freedom Portfolio client fee structure included record keeping and custodian fees, whereas the Lifetime Platform does not. As a result, account-based revenues declined about 5% year-over-year and fee-generating positions declined by 6%. We expect account-based revenues to grow modestly for the rest of the year as new retail mutual fund positions are added to our record keeping platform. Account-based net revenue per fee-generating position increased 10% to $3.20 during the first quarter of 2018 due to reductions in fees paid that were negotiated with our record keeping platform provider in December of 2017. The fee reductions are phased in over the contract period with the final reduction occurring in 2020.

While revenues were flat, ISP income before income taxes increased 7%. This increase is largely attributable to lower segregated fund DAC amortization year-over-year of $3 million, which was impacted by both the strong Canadian markets this quarter and the less favorable market in 2018. The change in DAC amortization was the main driver of the increase in the asset-based net revenue ratio. Operating expenses in this segment were consistent with the prior year period.

Let's move now to a review of our invested asset portfolio and adjusted net investment income on Slide nine. The 8% or $1.6 million increase in adjusted net investment income was principally due to growth in the invested asset portfolio year-over-year. The portfolio yielded 3.85% at the end of the quarter and the yield on maturities was almost identical to that of new investments. The average yield on maturities for the rest of the year is relatively high at 4.6%, so it may be difficult to replace the maturing yield with new purchases at current market rates. The average yield on maturities in 2020 of approximately 3.5% will create a lower hurdle for improving portfolio yield with new purchases. We expect to see continued growth in the size of the invested asset portfolio as our business grows, which should largely offset the yield headwind in 2019.

Now let's move to Slide 10 for a further discussion of insurance and other operating expenses. Companywide expenses for the quarter were $109 million or about 5% higher than the prior year period. First quarter expenses are typically elevated due to the annual grant of management equity awards. We expect second quarter expenses to be approximately $104 million.

Last quarter I provided a detailed outline of investments we plan to make in 2019, indicating an expected growth rate in total insurance and other operating expenses of 6% to 8%. First quarter spending on various infrastructure and modernization products was lower than our projections, but we believe this is largely due to timing of projects and we expect expense levels to pick up as the year unfolds. At this time, we are not adjusting our full year expense estimates and still expect insurance and other operating expenses to increase between $24 million and $31 million over 2018 on a full year basis.

Regarding allocation between segments, we would expect approximately two-thirds of the annual increase to fall in the Term Life segment driven by the growth in the premium base and the implementation of various Term Life-related initiatives. The remainder of the increase should be split between the ISP and C&O segments. We remain disciplined in how we approach these investments and will revise our estimates in the next earnings call if necessary.

As I wrap up and move to Slide 11, our tax rate of 22.7% during the quarter is consistent with our full year estimate of approximately 23%. As we noted in our release, taxes in the first quarter of the prior year included a benefit of $1.8 million associated with the Tax Cuts and Jobs Act of 2017, which reduced the GAAP tax rate by 2.1%.

We will remain as we have since our IPO committed to maintaining a strong balance sheet and continue to demonstrate a strong capital position with Primerica Life Insurance Company's statutory risk-based capital ratio estimated to be around 460% and holding company liquidity of $167 million at the end of March. We will continue to take out ordinary dividends from Primerica Life to the extent available with the goal of maintaining our near term RBC ratio in the low-to-mid 400% range.

Now, let's open the line up for questions.

Questions and Answers:


Thank you. (Operator Instructions) Your first question comes from the line of Peter Xuan from KBW. Your line is open.

Glenn J. Williams -- Chief Executive Officer

Hey, good morning, Peter.


Peter, if you're on mute, please unmute.

Peter Xuan -- Keefe, Bruyette & Woods, Inc. -- Analyst

Hi, good morning. Sorry about that. Thanks for taking my question. I wanted to ask on ISP. Do you mind providing any perspective on how much sales improved throughout the quarter? And if there's any commentary so far into the second quarter, has it gone back to more kind of normalized levels? Thanks.

Glenn J. Williams -- Chief Executive Officer

Sure. Peter, it's a great question. We did see through the vast majority of our business, our momentum strengthen as the first quarter progressed. And then in April, we had another good month, we are very pleased with and that's particularly true in our ISP side of our business. April was a very strong month, I would characterize it as for our ISP business and we also saw our product mix levelized and normalized a little bit and we were actually up in every line of product VA and Lifetime, we've talked a lot about, but also mutual funds, fixed-indexed annuities and fixed annuities were all up. So we're continuing to see strengthening in that slope of that momentum.

Peter Xuan -- Keefe, Bruyette & Woods, Inc. -- Analyst

Great, thanks. And kind of more higher level on just the prior outlook of 3% Term Life sales growth for 2019. I just wanted to ask, I know you provided some earlier commentary, but kind of how does that change following just the quarter results and also what are some key initiatives that are planned around the June sales convention?

Glenn J. Williams -- Chief Executive Officer

Okay. Same trend that I described for ISP we saw during the first quarter and as in the kind of our leading indicators continue to strengthen through the quarter and we're strong again in the month of April. At this point, I do believe that the year will be positive in those areas. I mentioned in my prepared remarks, we're watching as we go to see exactly how we would characterize that, but we do believe they will be up and we’ll continue to provide commentary on that as we see the results of the initiatives that we're working on.

We do expect the convention to be a very positive dynamic in our business. Our registrations are up over our last convention and so we're expecting a very strong attendance. We don't necessarily announce initiatives from that platform. When you're in a room with between 40,000 and 50,000 people, your ability to communicate details is limited. And so, our methodology is a little more like what I described in the prepared remarks. For example, we've launched a fairly significant and in fact a very significant change to our field training program effective in May. We got a constant communication plan going through this month and our objective is, is to have that embedded nicely by the time we arrive in June at the convention so that we can start to see results faster. We found historically, if we make a major change at the convention, the time to digest it and implement it is actually extended because it's just so hard to communicate details in such a large event. So we've used our more effective communication channels that drive deeper into the organization. In May, we'll get that information out there and get it rolling and then, of course, we'll promote it and celebrate it like crazy at the convention, which is the perfect platform for that and that's just one example.

We have improvements; I've kind of think of things in three buckets. We've got our real-time levers that we can pull which are communication and short-term incentive based, we've got our incremental improvements and I've characterized the EZ-Key is one of those, although it's so impactful, it may move into an even more powerful category because we continue to see success in that and our licensing changes and then more fundamental significant changes are like the field training program that I just described that we launched in May. That program was a year in planning plus five months of piloting and then just implemented. All of those will rehash at the convention, we'll add the excitement, we'll add some new incentives going forward and trying to build off of the fundamental foundation that is -- that we've laid and the growing momentum that we've laid. The convention is a momentum multiplier. And so the more momentum we have as we arrive at the convention, the more multiplication effect we get coming out of the convention. So rather than thinking of it as a place where we suddenly announce all the new stuff, it's a place where we continue to promote and build on some of the announcements made previously and then we also previewed some announcements and generate some excitement about some things that will come between the convention and the end of the year.

Peter Xuan -- Keefe, Bruyette & Woods, Inc. -- Analyst

Great. Really appreciate the detailed response.

Glenn J. Williams -- Chief Executive Officer

Great. Thanks, Peter.


Your next question comes from the line of Dan Bergman from Citi. Your line is open.

Glenn J. Williams -- Chief Executive Officer

Good morning, Dan.

Dan Bergman -- Citi -- Analyst

Hi, good morning. Thanks so much for taking the question. To start, I just wanted to see if there's any more color you could provide on what drove the decline in the life agent productivity in the first quarter? Is there any sense of how much was due to maybe a little bit lower recent recruiting or macro market factors, et cetera and just any more color you can give or quantification on how much of a bounce back in this productivity you've seen as you progress through the quarter and into April?

Glenn J. Williams -- Chief Executive Officer

Sure. Well, we started to see some softness in our momentum all the way back in the middle of last year, Dan. We had a -- in 2018, we had a very strong first quarter and not nearly as strong second quarter and in the second half of the year was much softer. And so, we knew that the first quarter of this year was where the overlap of the difficult comparables from last year and the weakness in the momentum were going to kind of intersect. So I wouldn't look at it as something that's focused just on the first quarter. This is something that we've been watching and taking action against now for almost a year, and it is a very normal part of our business. I mean, we had over a three-year run of uninterrupted momentum and growth, which is extraordinary in the normal cycles of our business and, of course, our plan is to make that run forever if possible but recognizing that at some point, the race horses are going to need to take a rest and when that happens, be prepared to get them back on the track as quickly as possible. And so, that's the whole plan and we've been executing against that plan since -- before the middle of last year. So I wouldn't isolate all of it just for the results you see in the first quarter.

And, of course, after you've grown the sales force significantly as we have, you're -- the size of the numbers can work against you just like it works for you when they're growing. And so, the first quarter is when it is most apparent, but it's something that's been in our system for a while and fortunately, we're starting to see ourselves as we would anticipate and as has been historically true in our business come out of it. That's the reason I was pleased as I looked underneath the first quarter and saw January and February were weaker than March, for example, and we started to see some comeback in March and that's continued and we kind of drawn even to last year or ahead of last year in April according to what category you're looking at on kind of the leading edge of what we're doing on our leading indicators.

Now, the things that it takes a little longer to show up. For example, we recruit first and then it takes a while to get licensed and we submit Life Apps and it takes a while to get Life Apps issued, those things will have a longer recovery time because the pipelines are a little longer, but we are seeing positive trends in all of that. There is no macro environment change. Again, as I stated, confidence on Main Street is strong. The demand for our products continues to grow, the view of our opportunity by our business leaders is good as it's ever been. And so, we just see this as some of the normal ebb and flow in the momentum of our business that we've come to expect over our 42-year history and then we work hard to try to recover as quickly as we can with all of those types of things I was just discussing with Peter. So we are seeing some evidence of good results from our work and we do expect to continue that. We think the convention is going to help add some momentum to it.

Dan Bergman -- Citi -- Analyst

Great, that's very, very helpful. Thank you. And then, I just wanted to see if you can give us an update on the regulatory environment. In particular, any updated thoughts on where things stand with the SEC's best interest proposal and also it seems like there's been some incremental states exploring their own fiduciary vested interest rules like New York, New Jersey, and Nevada I believe. So any color on what you're seeing there and what impact, if any, you expect for Primerica or the industry overall would be great?

Glenn J. Williams -- Chief Executive Officer

Yes, you're exactly right. There is more activity there -- continuing activity and more activity. The SEC is still working through their process, which we believe to be the right approach. As we've said many times before, we are continuing to be involved in that and staying close to that. We encourage states to wait on the SEC, but many are not for all kinds of different reasons they say. And so, we're dealing with those. I think you've mentioned a number of the ones. New York implemented and even included insurance and we've made -- we've adapted our sales model to make sure we're in line and ready for that. It hasn't been terribly disruptive, but it was an extra lift to get ready. New Jersey has got some new announcements made recently that are fairly radical. And so, we're working to understand what those are, what's behind them to make sure many times in these situations, it's not the primary reason for the change that concerns us, it’s the unintended consequences and many times the unintended consequences is it disaffects the middle market more than it does any other market and obviously that's our market, so it's important to us. So we continue to work with every state individually, New Jersey, Nevada, the others. We do that directly and we do that through industry associations. We have a lot of common ground with other members of the industry in the way that we would be impacted.

At this point, we can't size -- there's not enough facts on the table for us to size impact. And so, we're working through that in the understanding of what they're up to and trying to influence and get to a good place where the states would like to be to do good for the consumer, but at the same time, minimize the unintended consequences that might disrupt the middle market and therefore, Primerica more significantly.

So, again, we are involved in the process as always staying close to it. They are generally slow-moving process, not always, but generally and that gives us time to try to influence as we go in any way we can.

Dan Bergman -- Citi -- Analyst

Got it. It's very helpful, thank you.


(Operator Instructions) Your next question comes from the line of Mark Hughes from SunTrust. Your line is open.

Mark Hughes -- SunTrust -- Analyst

Thank you. Good morning.

Glenn J. Williams -- Chief Executive Officer

Good morning, Mark.

Mark Hughes -- SunTrust -- Analyst

Alison, a question for you, you talked about the ceded premium ratio continuing to decline 2% to 2.5% per year, is that total ceded premiums or is that the premiums ceded to the IPO coinsurer?

Alison S. Rand -- Executive Vice President and Chief Financial Officer

It's the latter. It's looking at that premiums ceded to the IPO coinsurers and it’s as a percentage of the legacy block.

Mark Hughes -- SunTrust -- Analyst

Right. Am I -- I was looking at the last transcript, you seem to -- you didn't give any specific guidance, but it seemed like there is more of a view that that might stabilize or flatten. This seems like a more optimistic view that it would continue to decline at 2% to 2.5% for the next several years. Am I reading that properly?

Alison S. Rand -- Executive Vice President and Chief Financial Officer

Yes and no. What I ended up and you can -- this is your memorial paragraph. I added it specifically for you and your question from last quarter. I was speaking more to the concept of the run-off in the premiums ceded to the IPO coinsurers which has been running off around 6%. We think that's going to slow to about 5%, that's the number that's going to sort of slow over time, the amount of run-off you'll have there. You, I think, were asking about the ratio in the financial supplement. That one, again, we do think it will run off -- the amount of run-off will come down a little bit over time. It's probably around 2.5% year-over-year now, that may come down closer to about 2% as we move out a few years, but it's pretty much in this general range. So that's why I just gave the ranges of 5% to 6% and 2% to 2.5%, but you and I were actually talking about different components in that last call. So I wanted to make sure to clarify that on this call.

Mark Hughes -- SunTrust -- Analyst

In the 2% to 2.5%, is that the ratio you're talking about?

Alison S. Rand -- Executive Vice President and Chief Financial Officer

That is how much the ratio will decline. (multiple speakers).

Mark Hughes -- SunTrust -- Analyst

That's the ratio, not absolute dollars. Yes, okay.

Alison S. Rand -- Executive Vice President and Chief Financial Officer


Mark Hughes -- SunTrust -- Analyst

Very good. Glenn, April, were Term Life sales positive in April or just trending less negative?

Glenn J. Williams -- Chief Executive Officer

The -- again, we haven't obviously issued April's business, so April is still open based on that, but our front-end applications for Life Insurance were slightly up in April. So we'll see how the issued policies after we've had time to get that through the pipeline, how the issued policies react. They are that item that I mentioned has lag to it and therefore it takes longer to really see the results, but it shouldn't be that long, but at least on -- the leading indicator was up slightly in April.

Mark Hughes -- SunTrust -- Analyst

Okay. Then the change in the account-based revenue, Alison, I think you said you expect that to grow modestly for the rest of the year and you pointed out that's been declining recently kind of mid-single digits. Is it up for the balance of the year, that would be pretty sharp turn about -- will it -- are you implying it will be up by the time we end the year or do you think it'll be up Q2, Q3?

Alison S. Rand -- Executive Vice President and Chief Financial Officer

On a year-over-year basis, so it's -- let me actually, there's two competing dynamics and if you're looking specifically at the account-based revenue, there is just the one dynamic and that is the fact that we had this run-off from the closing of the account from the Freedom Portfolio and that has been a headwind pretty much every quarter for the last year plus. So that headwind is finally gone. So I would say we started closing or transferring those accounts at the end of 2017. By the time we were midway through 2018, a lot of those transfers had really already happened. So year-over-year you have less of a headwind from the closings. So I'd say that headwind dissipates as you move through the year.

The other thing that improves as you go through the year is obviously as we sell or introduce more mutual fund -- retail mutual fund accounts to our platform just with growth in sales, you get more and more accounts. So the one headwind is running off and sort of what I guess you'd call the tailwind or the growth factor is improving. So they'll sort of crisscross each other and that probably happens mid-year, give or take.

The thing on the net ratio there to highlight, we've been focusing what I've just been discussing the revenue component. On the expense side, we did negotiate in late in 2017 some improvements to our fee contracts with our service provider and those are phased in over several years. We saw a benefit in 2018. We have an additional benefit in 2019 and one more coming in 2020. So on a net basis, we're also seeing improvement from lower expenses.

Mark Hughes -- SunTrust -- Analyst

Very good. And then one final question, could you give guidance, I'm sorry, if I missed it for the pre-tax margin on, I guess, adjusted net premiums? I think it's sort of running in the 19% area. Did you give full year expectation on that number?

Alison S. Rand -- Executive Vice President and Chief Financial Officer

I did and what I mentioned was we expect it to be at 18.5% or higher. The factor that will toggle that a little bit in the range is the expenses. So, as we continue to roll out our investments in the business, a lot of them are really focused on the infrastructure behind our Life Insurance business, modernizing those platforms, looking at various developments in underwriting method and so forth. So there maybe some expense weighting towards the Term Life segment that wouldn't be there otherwise and that's why I slightly lowered the range, I think we had been saying closer to prior year, which was around 19%. I expect it to be between 18.5% and 19% based on how those investments unfold.

Mark Hughes -- SunTrust -- Analyst

And I'll ask one more, if I might the -- when I think about 2020 in that sort of the expense outlook, any early thoughts about potential initiative that might impact 2020 or will that be kind of a harvesting year rather than an investing year in terms of the spending?

Alison S. Rand -- Executive Vice President and Chief Financial Officer

I would honestly say I think it's too early to answer that question. Our intention, if you look at the projects that we're working on, are obviously to continue them into 2020 and add to them as you know the financial profile of the Company warrants. That being said, we obviously need to make sure that the efforts we're making are creating rewards, creating benefits to the income of the organization or the wherewithal of the organization. So a little early for us to make that assessment given that we haven't started to spend too much, but that is something we will continue to update the group on as we move through the year. First, on what we expect to spend this year and as the year goes on, what we expect it to look like into the future.

Mark Hughes -- SunTrust -- Analyst

Thank you very much.


There are no further questions at this time. This concludes today's conference call. You may now disconnect.

Duration: 39 minutes

Call participants:

Nicole Russell -- Senior Vice President, Investor Relations

Glenn J. Williams -- Chief Executive Officer

Alison S. Rand -- Executive Vice President and Chief Financial Officer

Peter Xuan -- Keefe, Bruyette & Woods, Inc. -- Analyst

Dan Bergman -- Citi -- Analyst

Mark Hughes -- SunTrust -- Analyst

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