HORACE MANN EDUCATORS CORPORATION SPRINGFIELD, Ill., Feb. 9, 2015 /PRNewswire/ -- Horace Mann Educators Corporation (NYSE: HMN) today reported financial results for the three and twelve months ended December 31, 2014:
Horace Mann Financial Highlights
--------------------------------
Three months ended Twelve months ended
December 31, December 31,
------------ ------------
($ in millions, except
per share 2014 2013 Change 2014 2013 Change
amounts)
-------
Total revenues $269.1 $259.1 3.9% $1,060.7 $1,031.2 2.9%
-------------- ------ ------ --- -------- -------- ---
Net income 30.0 34.3 -12.5% 104.2 110.9 -6.0%
---------- ---- ---- ----- ----- ----- ----
Net income per diluted
share 0.71 0.81 -12.3% 2.47 2.66 -7.1%
---------------------- ---- ---- ----- ---- ---- ----
Operating income* 28.7 33.4 -14.1% 97.3 96.5 0.8%
---------------- ---- ---- ----- ---- ---- ---
Operating income per 0.68 0.79 -13.9% 2.30 2.32 -0.9%
diluted share*
-------------
Book value per share 32.65 27.14 20.3%
-------------------- ----- ----- ----
Book value per share
excluding 25.38 23.83 6.5%
the fair value adjustment
for investments*
---------------
Property and Casualty
segment 16.2 19.0 -14.7% 46.9 44.4 5.6%
net income
----------
Property and Casualty 91.9% 87.4% 4.5 pts 96.1% 96.3% -0.2 pts
combined ratio
--------------
Property and Casualty 94.4% 91.0% 3.4 pts 92.5% 92.4% 0.1 pts
underlying combined
ratio*
-------------------
Annuity segment net
income $11.2 $12.8 -12.5% $45.3 $44.7 1.3%
------------------- ----- ----- ----- ----- ----- ---
Life segment net income 4.7 4.7 0.0% 17.5 20.4 -14.2%
----------------------- --- --- --- ---- ---- -----
* These measures are not based on
accounting principles generally
accepted in the United States
("non-GAAP"). They are
reconciled to the most directly
comparable GAAP measures in the
supplemental numerical pages of
this document. An explanation of
these measures is contained in
the Glossary of Selected Terms
included as an exhibit in the
company's reports filed with the
SEC.
"Including fourth quarter operating income of $0.68 per diluted share, Horace Mann's full year operating income was $2.30 per diluted share, reflecting another year of strong performance across all three segments of our multiline insurance platform. Sales in the fourth quarter were strong, with double-digit increases in all three of our segments," said Horace Mann's President and CEO Marita Zuraitis. "The full year property and casualty combined ratio of 96.1% reflected a decreased level of catastrophe losses and continued improvement in auto underlying results, partially offset by a higher level of non-catastrophe losses in property. Excluding unlocking, net income in the annuity segment increased 9% for the year, primarily due to growth in assets under management as well as proactive actions to maintain favorable net interest spreads. For the life segment, net income decreased primarily due to a more normal level of mortality losses, compared to the favorable experience for full year 2013. Annuity sales continued to be strong, up over 20% for the quarter and full year, led by sales of the new fixed indexed annuity product. Sales of our life products with recurring premiums increased 50% for the quarter and 30% on a full year basis. And, auto sales increased 13% and 6% for the quarter and full year, respectively."
"We are projecting full-year 2015 operating income of between $2.15 and $2.35 per diluted share," stated Zuraitis. "This estimate anticipates continued improvement in our underlying property and casualty combined ratio, somewhat offset by a lower amount of favorable prior years' reserve development, investment interest rate pressure and continued strategic investments in our operations."
Property and Casualty Segment
For the full year, property and casualty net income of $46.9 million increased $2.5 million compared to 2013. The combined ratio of 96.1% improved 0.2 percentage point and the underlying combined ratio was comparable to full year 2013, primarily reflecting improvement in the underlying auto loss ratio. This improvement was offset somewhat by a higher underlying property loss ratio, resulting from a recent trend of more severe non-catastrophe weather. Both catastrophe losses and favorable prior years' reserve development were slightly lower than the 2013 amounts. On an underlying basis, the full year auto combined ratio of 101.0% improved 1.1 points, reflecting improvement in the loss ratio. For property, the underlying combined ratio of 76.5% was 3.5 percentage points higher than the prior year, reflecting the aforementioned trend of more severe non-catastrophe weather. The full year total property and casualty expense ratio of 27.4% was comparable to the prior year.
For the fourth quarter of 2014, property and casualty net income of $16.2 million declined 15% compared to the prior year. The current quarter total property and casualty combined ratio of 91.9% increased 4.5 points compared to the prior year, reflecting the impact of elevated seasonal loss experience in auto and lower favorable prior years' reserve development somewhat offset by a reduction in catastrophe losses. On an underlying basis, the fourth quarter auto combined ratio of 107.5% increased 3.3 points compared to a year earlier. For property, the underlying combined ratio was 70.5% for the current quarter, an increase of 4.7 points compared to a year earlier.
Total property and casualty written premiums of $144.4 million and $584.4 million each increased 2% compared to the three and twelve months ended December 31, 2013, respectively. The growth was driven by increases in average premium per policy for both auto and property accompanied by reductions in catastrophe reinsurance costs.
Total property and casualty sales increased 11% and 3% compared to the fourth quarter and twelve months ended December 31, 2013, respectively. Auto sales increased 13% and 6% compared to the fourth quarter and full year 2013, respectively, while property sales increased 5% for the fourth quarter and decreased 6% for the full year. Policy retention continues to be strong with auto and property policy retention rates for the current year at 85% and 88%, respectively.
Annuity Segment
Annuity segment net income increased $0.6 million to $45.3 million for the full year, and decreased $1.6 million to $11.2 million compared to the prior year fourth quarter. These 2014 results included $1.2 million of negative pretax unlocking for the twelve months and $0.3 million of negative pretax unlocking for the fourth quarter, compared to positive unlocking of $3.7 million and $1.8 million in the respective prior year periods.
For the full year 2014, the net interest spread of 201 basis points on fixed annuity assets reflected continued solid investment portfolio performance and proactive crediting rate management, which contributed to a 10% increase in the net interest margin compared to 2013. Total annuity assets under management of $5.7 billion increased 6% compared to December 31, 2013, and total cash value persistency remained strong at approximately 94%.
For the three and twelve months ended December 31, 2014, annuity deposits of $118.9 million and $480.6 million increased 12% and 14%, respectively, compared to the prior year periods, primarily due to an increase in the amount of single premium and rollover deposits received in the current periods, with recurring deposit receipts also exceeding the prior year amounts.
In 2014, Horace Mann's total annuity sales for the fourth quarter and full year increased over 20%, led by sales of the company's new fixed indexed annuity product. Annuity sales by the company's agency force increased approximately 30% compared to the three and twelve months ended December 31, 2013, respectively, while annuity sales from the independent agent distribution channel, which currently produces about 10% of total annuity sales, decreased 30% and 8% compared to the same periods.
Life Segment
Life segment net income of $17.5 million for the full year decreased $2.9 million compared to 2013, primarily attributable to a more normal level of mortality losses -- consistent with actuarial models -- in the current year, compared to the favorable experience in 2013. Net income of $4.7 million for the fourth quarter was equal to the prior year period, including a current period favorable variance in the level of mortality losses.
In 2014, life segment insurance premiums and contract deposits of $29.0 million and $102.7 million for the fourth quarter and full year, respectively, increased 6% and 2% compared to the same periods in 2013. Life persistency of 96% was comparable to 12 months earlier. For the full year, life sales of $11.1 million increased 31% compared to 2013, including notable growth in the fourth quarter.
Investment Results
Total net investment income increased 3% and 5% compared to the three and twelve months ended December 31, 2013, respectively, reflecting higher asset balances in the annuity segment, as well as continued strong performance in the fixed maturity and alternative investment portfolios. Pretax net realized investment gains were $2.2 million and $10.9 million in the current quarter and twelve months, respectively.
Horace Mann's net unrealized investment gains on fixed maturity and equity securities were $528.6 million at December 31, 2014, compared to $479.5 million of net unrealized gains at September 30, 2014. Net unrealized gains were $232.5 million at December 31, 2013.
Webcast Conference Call
Horace Mann's senior management will discuss the company's fourth quarter financial results with investors and analysts on February 10, 2015 at 9:30 a.m. Eastern Time. The conference call will be webcast live on the Internet at investors.horacemann.com and archived later in the day for replay.
Horace Mann -- the largest national multiline insurance company focusing on educators' financial needs -- provides auto and homeowners insurance, retirement annuities, life insurance and other financial solutions. Founded by Educators for Educators(®) in 1945, the company is headquartered in Springfield, Ill. For more information, visit www.horacemann.com.
Statements included in this news release that are not historical in nature are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties. Horace Mann is not under any obligation to (and expressly disclaims any such obligation to) update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the company's Quarterly Report on Form 10-Q for the period ended September 30, 2014 and the company's past and future filings and reports filed with the Securities and Exchange Commission for information concerning the important factors that could cause actual results to differ materially from those in forward-looking statements. The information contained in this press release includes financial measures which are based on methodologies other than United States generally accepted accounting principles ("GAAP"). Reconciliations of non-GAAP measures to the closest GAAP measures are contained in the supplemental numerical pages of this release and additional descriptions of the non-GAAP measures are contained in the Glossary of Selected Terms included as an exhibit to the company's SEC filings.
HORACE MANN EDUCATORS CORPORATION
Financial Highlights (Unaudited)
(Dollars in Millions, Except Per Share Data)
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2014 2013 % Change 2014 2013 % Change
---- ---- -------- ---- ---- --------
EARNINGS SUMMARY
----------------
Net income $30.0 $34.3 -12.5% $104.2 $110.9 -6.0%
Net realized investment
gains, after tax 1.3 0.9 44.4% 6.9 14.4 -52.1%
Operating income (A) 28.7 33.4 -14.1% 97.3 96.5 0.8%
Per diluted share:
$0.71 $0.81 -12.3% $2.47 $2.66 -7.1%
Net income
$0.03 $0.02 50.0% $0.17 $0.34 -50.0%
Net realized investment gains, after tax
Operating income (A) $0.68 $0.79 -13.9% $2.30 $2.32 -0.9%
Weighted average number of shares
42.4 42.2 0.5% 42.2 41.6 1.4%
and equivalent shares (in millions)
-Diluted
RETURN ON EQUITY
----------------
Net income return on equity (B) 8.4% 9.6% N.M.
Operating income return on equity excluding the
fair value
9.7% 10.6% N.M.
adjustment for investments (A) (C)
FINANCIAL POSITION
------------------
Per share (D):
$32.65 $27.14 20.3%
Book value
$7.27 $3.31 119.6%
Effect of the fair value adjustment for
investments (E)
Book value excluding the fair value adjustment for
investments (A) $25.38 $23.83 6.5%
Dividends paid $0.230 $0.195 17.9% $0.92 $0.78 17.9%
Ending number of shares outstanding (in millions)
(D) 40.9 40.5 1.0%
Total assets $9,768.5 $8,826.7 10.7%
Short-term debt 38.0 38.0 -
Long-term debt, current and noncurrent 199.9 199.9 -
Total shareholders' equity 1,336.5 1,099.3 21.6%
ADDITIONAL INFORMATION
----------------------
Exclusive agencies (F) 682 654 4.3%
Employee agents (G) 73 105 -30.5%
Total 755 759 -0.5%
N.M. - Not meaningful.
(A) These measures are not based on
accounting principles generally
accepted in the United States
("non-GAAP"). An explanation
of these measures is contained
in the Glossary of Selected
Terms included as an exhibit in
the Company's reports filed with
the SEC.
(B) Based on trailing 12-month net
income and average quarter-end
shareholders' equity.
(C) Based on trailing 12-month
operating income and average
quarter-end shareholders'
equity which has been adjusted
to exclude the fair value
adjustment for investments, net
of the related impact on
deferred policy acquisition
costs and the applicable
deferred taxes.
(D) Ending shares outstanding were
40,936,618 at December 31, 2014
and 40,511,551 at December 31,
2013.
(E) Net of the related impact on
deferred policy acquisition
costs and the applicable
deferred taxes.
(F) Local Horace Mann agencies
created and owned by independent
contractors who have signed
Exclusive Agent agreements with
the Company ("Exclusive
Agents"). Those agreements state
that only the Company's products
and limited additional third-
party vendor products authorized
by the Company will be marketed
by the agencies. An independent
contractor may sign multiple
Exclusive Agent agreements with
the Company and manage more than
one Exclusive Agency.
(G) Agents who have employee status
with the Company and by contract
market only the Company's
products and limited additional
third-party vendor products
authorized by the Company.
- 1 -
HORACE MANN EDUCATORS CORPORATION
Statements of Operations and Supplemental Consolidated Data (Unaudited)
(Dollars in Millions)
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2014 2013 % Change 2014 2013 % Change
---- ---- -------- ---- ---- --------
STATEMENTS OF OPERATIONS
------------------------
Insurance premiums
and contract charges
earned $182.2 $176.4 3.3% $715.8 $690.9 3.6%
Net investment income 82.8 80.4 3.0% 329.8 313.6 5.2%
Net realized
investment gains 2.2 1.3 69.2% 10.9 22.2 -50.9%
Other income 1.9 1.0 90.0% 4.2 4.5 -6.7%
Total revenues 269.1 259.1 3.9% 1,060.7 1,031.2 2.9%
Benefits, claims and
settlement expenses 111.8 102.1 9.5% 468.4 448.3 4.5%
Interest credited 44.8 43.5 3.0% 176.1 169.9 3.6%
Policy acquisition
expenses amortized 23.8 20.6 15.5% 93.8 84.6 10.9%
Operating expenses 43.0 40.9 5.1% 162.1 160.1 1.2%
Interest expense 3.6 3.5 2.9% 14.2 14.2 -
Total benefits,
losses and expenses 227.0 210.6 7.8% 914.6 877.1 4.3%
Income before income
taxes 42.1 48.5 -13.2% 146.1 154.1 -5.2%
Income tax expense 12.1 14.2 -14.8% 41.9 43.2 -3.0%
Net income $30.0 $34.3 -12.5% $104.2 $110.9 -6.0%
PREMIUMS WRITTEN AND CONTRACT DEPOSITS
------------------------------------
Property & Casualty $144.4 $141.8 1.8% $584.4 $570.4 2.5%
Annuity deposits 118.9 106.2 12.0% 480.6 423.0 13.6%
Life 29.0 27.4 5.8% 102.7 100.8 1.9%
$292.3 $275.4 6.1% $1,167.7 $1,094.2 6.7%
Total
SEGMENT NET INCOME (LOSS)
------------------------
Property & Casualty $16.2 $19.0 -14.7% $46.9 $44.4 5.6%
Annuity 11.2 12.8 -12.5% 45.3 44.7 1.3%
Life 4.7 4.7 - 17.5 20.4 -14.2%
Corporate and other
(A) (2.1) (2.2) -4.5% (5.5) 1.4 N.M.
$30.0 $34.3 -12.5% $104.2 $110.9 -6.0%
Net income
N.M. - Not meaningful.
(A) The Corporate and Other segment
includes interest expense on debt
and the impact of realized
investment gains and losses and
other corporate level items. The
Company does not allocate the
impact of corporate level
transactions to the insurance
segments consistent with how
management evaluates the results
of those segments. See detail for
this segment on page 4.
- 2 -
HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview (Unaudited)
(Dollars in Millions)
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2014 2013 % Change 2014 2013 % Change
---- ---- -------- ---- ---- --------
PROPERTY & CASUALTY
-------------------
Premiums written $144.4 $141.8 1.8% $584.4 $570.4 2.5%
Premiums earned 147.7 143.7 2.8% 581.8 561.9 3.5%
Net investment income 9.2 9.3 -1.1% 36.8 36.2 1.7%
Other income 1.2 - N.M. 1.4 0.2 N.M.
Losses and loss adjustment expenses (LAE) 94.7 85.5 10.8% 399.5 385.6 3.6%
Operating expenses (includes policy
acquisition expenses
amortized) 41.2 40.0 3.0% 159.7 155.5 2.7%
Income before tax 22.2 27.5 -19.3% 60.8 57.2 6.3%
Net income 16.2 19.0 -14.7% 46.9 44.4 5.6%
Net investment income, after tax 7.7 7.7 - 30.9 30.5 1.3%
Catastrophe costs (A)
After tax 1.3 1.9 -31.6% 24.4 26.1 -6.5%
Before tax 2.0 2.9 -31.0% 37.5 40.2 -6.7%
Prior years' reserves favorable (adverse)
development, before
tax
Automobile 2.7 7.5 -64.0% 13.2 17.2 -23.3%
Property 2.2 0.6 266.7% 2.2 0.8 175.0%
Other property
and casualty 0.7 - N.M. 1.6 - N.M.
Total 5.6 8.1 -30.9% 17.0 18.0 -5.6%
Operating statistics:
Loss and loss
adjustment expense
ratio 64.1% 59.5% N.M. 68.7% 68.6% N.M.
Expense ratio 27.8% 27.9% N.M. 27.4% 27.7% N.M.
Combined ratio 91.9% 87.4% N.M. 96.1% 96.3% N.M.
Effect on the
combined ratio
of:
Catastrophe costs (A) 1.3% 2.1% N.M. 6.5% 7.2% N.M.
Prior years' reserve development -3.8% -5.7% N.M. -2.9% -3.3% N.M.
Combined ratio
excluding the
effects of
catastrophe
costs and prior
years' reserve
development
("underlying
combined ratio")
(B) 94.4% 91.0% N.M. 92.5% 92.4% N.M.
Policies in force (voluntary) (in thousands) 710 717 -1.0%
Automobile 481 482 -0.2%
Property 229 235 -2.6%
Policy renewal rate (voluntary) - 12 months
Automobile 84.7% 84.8% N.M.
Property 87.9% 89.0% N.M.
N.M. - Not meaningful.
(A) Includes allocated loss adjustment
expenses and, when applicable,
catastrophe reinsurance
reinstatement premiums.
For the periods presented, there
were no reinsurance reinstatement
premiums.
(B) This measure is not based on
accounting principles generally
accepted in the United States
("non-GAAP").
See footnote (A) on page 1 of
these supplemental numerical
pages.
- 3 -
HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview (Unaudited)
(Dollars in Millions)
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2014 2013 % Change 2014 2013 % Change
---- ---- -------- ---- ---- --------
ANNUITY
-------
Contract deposits $118.9 $106.2 12.0% $480.6 $423.0 13.6%
38.2 34.6 10.4% 140.6 131.7 6.8%
Variable
80.7 71.6 12.7% 340.0 291.3 16.7%
Fixed
Contract charges earned 6.6 5.9 11.9% 25.6 22.6 13.3%
Net investment income 55.9 53.6 4.3% 222.1 208.4 6.6%
Interest credited 33.8 32.7 3.4% 132.5 127.0 4.3%
22.1 20.9 5.7% 89.6 81.4 10.1%
Net interest margin (without realized
investment gains/losses)
Other income 0.5 0.7 -28.6% 1.8 3.0 -40.0%
Mortality loss and other
reserve changes (0.5) (0.4) 25.0% (2.2) (1.8) 22.2%
Operating expenses (includes policy
12.7 9.8 29.6% 48.1 42.0 14.5%
acquisition expenses amortized)
Income before tax 16.0 17.3 -7.5% 66.7 63.2 5.5%
Net income 11.2 12.8 -12.5% 45.3 44.7 1.3%
Pretax income increase (decrease) due to
evaluation of:
$(0.3) $1.8 N.M. $(1.2) $3.7 N.M.
Deferred policy acquisition costs
- 0.1 -100.0% (0.1) 0.2 N.M.
Guaranteed minimum death benefit reserve
Annuity contracts in force (in thousands) 203 195 4.1%
Accumulated account value on deposit /Assets under
management $5,698.7 $5,365.2 6.2%
1,813.6 1,748.0 3.8%
Variable
3,885.1 3,617.2 7.4%
Fixed
Annuity accumulated value retention - 12 months
94.0% 94.0% N.M.
Variable accumulations
94.5% 95.2% N.M.
Fixed accumulations
LIFE
----
Premiums and contract deposits $29.0 $27.4 5.8% $102.7 $100.8 1.9%
Premiums and contract charges
earned 27.9 26.8 4.1% 108.4 106.4 1.9%
Net investment income 17.9 17.7 1.1% 71.8 69.9 2.7%
Other income 0.3 0.3 - 1.1 1.3 -15.4%
Death benefits/mortality
cost/change in reserves 16.6 16.2 2.5% 66.7 60.9 9.5%
Interest credited 11.0 10.8 1.9% 43.6 42.9 1.6%
Operating expenses (includes policy
11.4 10.8 5.6% 44.1 42.5 3.8%
acquisition expenses amortized)
Income before tax 7.1 7.0 1.4% 26.9 31.3 -14.1%
Net income 4.7 4.7 - 17.5 20.4 -14.2%
Pretax income increase (decrease) due to
evaluation of:
$0.1 $ - N.M. $0.1 $(0.1) N.M.
Deferred policy acquisition costs
Life policies in force (in thousands) 201 200 0.5%
Life insurance in force $15,801 $15,104 4.6%
Lapse ratio - 12 months
4.0% 4.4% N.M.
(Ordinary life insurance)
CORPORATE AND OTHER (A)
----------------------
Components of income (loss) before tax:
$2.2 $1.3 69.2% $10.9 $22.2 -50.9%
Net realized investment gains
(3.6) (3.5) 2.9% (14.2) (14.2) -
Interest expense
Other operating expenses, net investment income
(1.8) (1.1) 63.6% (5.0) (5.6) -10.7%
and other income
Income (loss) before tax (3.2) (3.3) -3.0% (8.3) 2.4 N.M.
Net income (loss) (2.1) (2.2) -4.5% (5.5) 1.4 N.M.
N.M. - Not meaningful.
(A) The Corporate and Other segment
includes interest expense on debt
and the impact of realized
investment gains and losses and
other corporate level items. The
Company does not allocate the
impact of corporate level
transactions to the insurance
segments consistent with how
management evaluates the results
of those segments.
- 4 -
HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview (Unaudited)
(Dollars in Millions)
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2014 2013 % Change 2014 2013 % Change
---- ---- -------- ---- ---- --------
INVESTMENTS
-----------
Annuity and Life
Fixed maturities, at
fair value
(amortized
cost 2014,
$5,597.1; 2013,
$5,023.2) $6,066.1 $5,243.3 15.7%
Equity securities,
at fair value
(cost 2014,
$41.5; 2013,
$35.5) 39.7 32.4 22.5%
Short-term
investments 94.9 152.9 -37.9%
Policy loans 145.4 140.6 3.4%
Other investments 76.0 59.9 26.9%
Total Annuity and Life
investments 6,422.1 5,629.1 14.1%
Property & Casualty
Fixed maturities, at
fair value
(amortized
cost 2014,
$778.1; 2013,
$761.0) 827.0 766.3 7.9%
Equity securities,
at fair value
(cost 2014,
$58.4; 2013,
$49.3) 70.9 59.5 19.2%
Short-term
investments 4.1 13.6 -69.9%
Other investments 36.3 30.7 18.2%
Total Property & Casualty
investments 938.3 870.1 7.8%
Corporate investments 43.1 40.3 6.9%
Total investments 7,403.5 6,539.5 13.2%
Net investment income
Before tax $82.8 $80.4 3.0% $329.8 $313.6 5.2%
After tax 55.6 53.9 3.2% 221.4 210.8 5.0%
Net realized investment gains
Before tax $2.2 $1.3 69.2% $10.9 $22.2 -50.9%
After tax 1.3 0.9 44.4% 6.9 14.4 -52.1%
Per share,
diluted $0.03 $0.02 50.0% $0.17 $0.34 -50.0%
N.M. - Not meaningful.
- 5 -
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SOURCE Horace Mann Educators Corporation
