HORACE MANN EDUCATORS CORPORATION SPRINGFIELD, Ill., July 23, 2014 /PRNewswire/ -- Horace Mann Educators Corporation (NYSE:HMN) today reported financial results for the three and six months ended June 30, 2014:
Horace Mann Financial Highlights
--------------------------------
Three months ended Six months ended
June 30, June 30,
-------- --------
($ in millions, except per share amounts)
2014 2013 Change 2014 2013 Change
--- ---- ---- ------ ---- ---- ------
Total revenues $264.8 $265.6 -0.3% $526.0 $520.2 1.1%
-------------- ------ ------ ---- ------ ------ ---
Net income 20.4 26.0 -21.5% 48.8 53.0 -7.9%
---------- ---- ---- ----- ---- ---- ----
Net income per diluted share 0.48 0.63 -23.8% 1.16 1.29 -10.1%
---------------------------- ---- ---- ----- ---- ---- -----
Operating income* 18.2 16.0 13.8% 45.5 38.6 17.9%
---------------- ---- ---- ---- ---- ---- ----
Operating income per
diluted share*
0.43 0.39 10.3% 1.08 0.94 14.9%
--- ---- ---- ---- ---- ---- ----
Book value per share 31.40 27.72 13.3%
-------------------- ----- ----- ----
Book value per share excluding
the fair value adjustment
for investments*
24.51 22.79 7.5%
--- ----- ----- ---
Property and Casualty segment
net income
4.9 4.1 19.5% 18.9 14.3 32.2%
--- --- --- ---- ---- ---- ----
Property and Casualty
combined ratio
102.7% 103.3% -0.6 pts 98.2% 100.3% -2.1 pts
--- ----- ----- -------- ---- ----- --------
Property and Casualty underlying
combined ratio*
88.5% 89.0% -0.5 pts 90.3% 92.3% -2.0 pts
--- ---- ---- -------- ---- ---- --------
Annuity segment net income $11.5 $9.2 25.0% $23.8 $20.3 17.2%
-------------------------- ----- ---- ---- ----- ----- ----
Life segment net income 5.0 5.6 -10.7% 8.9 9.9 -10.1%
----------------------- --- --- ----- --- --- -----
* 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.
"Horace Mann's second quarter operating income was $0.43 per diluted share, led by strong annuity results, as well as solid earnings in our life and property and casualty segments," said Horace Mann's President and CEO Marita Zuraitis. "In our annuity segment, assets under management increased 11% over the 12 months, and the interest spread was better than expected. For the life segment, net income decreased primarily due to a more normal level of mortality losses. The property and casualty combined ratio of 102.7% reflected the impact of 16.3 points of catastrophe losses driven by May and June hail storms. Annuity sales were strong, up 34%, led by a successful full quarter of fixed indexed annuity sales. Life sales increased significantly, reflecting growth in both single premium and recurring premium products, and property and casualty sales increased 2%."
Property and Casualty Segment
The property and casualty segment recorded net income of $4.9 million for the current quarter compared to $4.1 million for the same period in 2013. The total property and casualty combined ratio of 102.7% was 0.6 percentage point lower than the second quarter of 2013. The underlying property and casualty combined ratio of 88.5% improved 0.5 percentage point compared to the prior year quarter. The improvement primarily reflected a decrease in the expense ratio, accompanied by improvement in the underlying auto loss ratio offset by an increase in the property underlying loss ratio.
Pretax catastrophe losses in the current quarter of $23.5 million, or 16.3 points, increased $1.0 million, or 0.2 points, compared to a year ago. Favorable prior years' reserve development of $3.0 million, or 2.1 points, was recorded in the second quarter, compared to $2.6 million, or 1.8 points, of favorable development recorded in the prior year.
For the six months, property and casualty net income of $18.9 million increased $4.6 million compared to the same period in 2013. The year-to-date combined ratio and underlying combined ratio of 98.2% and 90.3%, respectively, improved 2.1 percentage points and 2.0 percentage points compared to the first half of 2013, primarily reflecting improvement in the underlying auto loss ratio. The current expense ratio was consistent with last year's six month result.
Total property and casualty written premiums of $148.2 million and $285.4 million each increased 3% compared to the three and six months ended June 30, 2013. The growth was driven by increases in average premium per policy for both auto and property accompanied by reductions in catastrophe reinsurance costs.
Horace Mann's auto sales increased 4% and 1% compared to the three and six months ended June 30, 2013, respectively. Declines in property new business of 9% for the quarter and 11% for the six months were largely due to continued risk mitigation initiatives. On a combined basis, property and casualty sales increased 2% compared to the second quarter of 2013 and decreased 1% compared to the first half of 2013. Policy retention continues to be strong with the auto and property policy retention rates for the current period at 85% and 89%, respectively.
Annuity Segment
Annuity segment net income of $11.5 million and $23.8 million for the three and six months ended June 30, 2014 increased $2.3 million and $3.5 million, respectively, compared to the same periods in 2013. For the first half of 2014, the annualized net interest spread of 205 basis points on fixed annuity assets reflected continued solid investment portfolio performance and elevated security prepayment activity from the first quarter of 2014. The favorable net interest spread, accompanied by the increase in fixed annuity assets under management, resulted in the net interest margin increasing 11% compared to the first half of 2013. The deferred policy acquisition costs unlocking in the current quarter had a $0.4 million pretax positive impact on annuity segment net income compared to a $1.0 million pretax negative impact in the prior year second quarter; for the six months, the positive impacts were minimal in both years. Total annuity assets under management of $5.5 billion increased 11% compared to June 30, 2013, and total cash value persistency remained strong at approximately 95%.
For the three and six months ended June 30, 2014, annuity deposits of $118.0 million and $218.3 million increased 20% and 16%, 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. For both periods, recurring deposit receipts also exceeded the prior year amounts.
Annuity sales by the company's agency force increased 41% and 32% compared to the three and six months ended June 30, 2013, respectively, while annuity sales from the independent agent distribution channel decreased 10% and 2% compared to the same periods. As a result, Horace Mann's total annuity sales for the current quarter and six months increased 34% and 27%, respectively, led by sales of the company's new fixed indexed annuity product.
Life Segment
Life segment net income of $5.0 million for the second quarter and $8.9 million for the first half of the year decreased $0.6 million and $1.0 million compared to the respective periods in 2013. In the current year, mortality losses were a more normal level, partially offset by an increase in investment income.
In 2014, life segment insurance premiums and contract deposits of $26.2 million for the current quarter and $49.0 million for the six months increased 4% and 2% compared to the respective periods a year earlier. Life persistency of 96% was comparable to 12 months earlier. For the first six months, Horace Mann life sales of $5.0 million increased 43% compared to the prior year due to growth in the second quarter.
Investment Results
Total net investment income increased 5% and 6% compared to the three and six months ended June 30, 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 $3.5 million and $5.2 million in the current quarter and six months, respectively.
Horace Mann's net unrealized investment gains on fixed maturity and equity securities of $501.2 million at June 30, 2014 increased 33% compared to the $376.2 million net unrealized gain at March 31, 2014, primarily due to the decline in interest rates during the current quarter. Net unrealized gains were $232.5 million at December 31, 2013 and $344.5 million at June 30, 2013.
Webcast Conference Call
Horace Mann's senior management will discuss the company's second quarter financial results with investors and analysts on July 24, 2014 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 March 31, 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 Six Months Ended
June 30, June 30,
-------- --------
2014 2013 % Change 2014 2013 % Change
---- ---- -------- ---- ---- --------
EARNINGS SUMMARY
----------------
Net income $20.4 $26.0 -21.5% $48.8 $53.0 -7.9%
Net realized investment gains, after tax 2.2 10.0 -78.0% 3.3 14.4 -77.1%
Operating income (A) 18.2 16.0 13.8% 45.5 38.6 17.9%
Per diluted share:
Net income $0.48 $0.63 -23.8% $1.16 $1.29 -10.1%
Net realized investment gains, after tax $0.05 $0.24 -79.2% $0.08 $0.35 -77.1%
Operating income (A) $0.43 $0.39 10.3% $1.08 $0.94 14.9%
Weighted average number of shares
and equivalent shares (in millions) - Diluted 42.3 41.4 2.2% 42.2 41.2 2.4%
RETURN ON EQUITY
----------------
Net income return on equity (B) 9.2% 9.8% N.M.
Operating income return on equity excluding the fair value
adjustment for investments (A) (C) 10.8% 10.7% N.M.
FINANCIAL POSITION
------------------
Per share (D):
Book value $31.40 $27.72 13.3%
Effect of the fair value adjustment for
investments (E) $6.89 $4.93 39.8%
Book value excluding the fair value adjustment for
investments (A) $24.51 $22.79 7.5%
Dividends paid $0.23 $0.195 17.9% $0.46 $0.39 17.9%
Ending number of shares outstanding (in millions) (D) 40.9 39.9 2.5%
Total assets $9,446.2 $8,355.8 13.0%
Short-term debt 38.0 38.0 -
Long-term debt 199.9 199.8 0.1%
Total shareholders' equity 1,283.1 1,106.3 16.0%
ADDITIONAL INFORMATION
----------------------
Exclusive agencies (F) 620 615 0.8%
Employee agents (G) 87 121 -28.1%
Total 707 736 -3.9%
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
40,859,718 at
June 30, 2014
and
39,911,504 at
June 30,
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 Six Months Ended
June 30, June 30,
-------- --------
2014 2013 % Change 2014 2013 % Change
---- ---- -------- ---- ---- --------
STATEMENTS OF OPERATIONS
------------------------
Insurance premiums and contract charges earned $179.1 $171.5 4.4% $354.5 $340.7 4.1%
Net investment income 81.4 77.4 5.2% 164.4 154.8 6.2%
Net realized investment gains 3.5 15.4 -77.3% 5.2 22.3 -76.7%
Other income 0.8 1.3 -38.5% 1.9 2.4 -20.8%
Total revenues 264.8 265.6 -0.3% 526.0 520.2 1.1%
Benefits, claims and settlement expenses 127.2 120.8 5.3% 239.2 233.5 2.4%
Interest credited 43.7 42.1 3.8% 86.8 83.5 4.0%
Policy acquisition expenses amortized 22.5 23.0 -2.2% 45.5 43.1 5.6%
Operating expenses 39.3 39.0 0.8% 79.2 77.8 1.8%
Interest expense 3.6 3.5 2.9% 7.1 7.1 -
Total benefits, losses and
expenses 236.3 228.4 3.5% 457.8 445.0 2.9%
Income before income taxes 28.5 37.2 -23.4% 68.2 75.2 -9.3%
Income tax expense 8.1 11.2 -27.7% 19.4 22.2 -12.6%
Net income $20.4 $26.0 -21.5% $48.8 $53.0 -7.9%
PREMIUMS WRITTEN AND CONTRACT DEPOSITS
--------------------------------------
Property & Casualty $148.2 $144.2 2.8% $285.4 $276.1 3.4%
Annuity deposits 118.0 98.4 19.9% 218.3 188.6 15.7%
Life 26.2 25.1 4.4% 49.0 48.1 1.9%
Total $292.4 $267.7 9.2% $552.7 $512.8 7.8%
SEGMENT NET INCOME (LOSS)
------------------------
Property & Casualty $4.9 $4.1 19.5% $18.9 $14.3 32.2%
Annuity 11.5 9.2 25.0% 23.8 20.3 17.2%
Life 5.0 5.6 -10.7% 8.9 9.9 -10.1%
Corporate and other (A) (1.0) 7.1 N.M. (2.8) 8.5 N.M.
Net income $20.4 $26.0 -21.5% $48.8 $53.0 -7.9%
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 Six Months Ended
June 30, June 30,
-------- --------
2014 2013 % Change 2014 2013 % Change
---- ---- -------- ---- ---- --------
PROPERTY & CASUALTY
-------------------
Premiums written $148.2 $144.2 2.8% $285.4 $276.1 3.4%
Premiums earned 144.6 139.5 3.7% 288.5 277.4 4.0%
Net investment income 9.4 9.1 3.3% 18.7 18.1 3.3%
Other income - - - 0.2 - N.M.
Losses and loss adjustment expenses (LAE) 109.9 106.1 3.6% 204.9 202.5 1.2%
Operating expenses (includes policy
acquisition expenses amortized) 38.5 38.0 1.3% 78.3 75.7 3.4%
Income before tax 5.6 4.5 24.4% 24.2 17.3 39.9%
Net income 4.9 4.1 19.5% 18.9 14.3 32.2%
Net investment income, after tax 7.9 7.7 2.6% 15.7 15.3 2.6%
Catastrophe costs (A)
After tax 15.3 14.6 4.8% 19.4 18.3 6.0%
Before tax 23.5 22.5 4.4% 29.8 28.2 5.7%
Prior years' reserves favorable (adverse)
development, before tax
Automobile 3.0 2.6 15.4% 7.0 5.9 18.6%
Property - - - - - -
Total 3.0 2.6 15.4% 7.0 5.9 18.6%
Operating statistics:
Loss and loss adjustment expense ratio 76.0% 76.1% N.M. 71.0% 73.0% N.M.
Expense ratio 26.7% 27.2% N.M. 27.2% 27.3% N.M.
Combined ratio 102.7% 103.3% N.M. 98.2% 100.3% N.M.
Effect on the combined ratio of:
Catastrophe costs (A) 16.3% 16.1% N.M. 10.3% 10.2% N.M.
Prior years' reserve development -2.1% -1.8% N.M. -2.4% -2.2% N.M.
Combined ratio excluding the effects of
catastrophe
costs and prior years' reserve
development
("underlying combined ratio") (B) 88.5% 89.0% N.M. 90.3% 92.3% N.M.
Policies in force (voluntary) (in thousands) 712 724 -1.7%
Automobile 480 487 -1.4%
Property 232 237 -2.1%
Policy renewal rate (voluntary) - 12 months
Automobile 84.5% 85.1% N.M.
Property 88.8% 89.5% 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) These measures
are 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 Six Months Ended
June 30, June 30,
-------- --------
2014 2013 % Change 2014 2013 % Change
---- ---- -------- ---- ---- --------
ANNUITY
-------
Contract deposits $118.0 $98.4 19.9% $218.3 $188.6 15.7%
Variable 35.2 35.3 -0.3% 67.7 65.6 3.2%
Fixed 82.8 63.1 31.2% 150.6 123.0 22.4%
Contract charges earned 6.5 5.7 14.0% 12.4 10.8 14.8%
Net investment income 54.4 51.4 5.8% 110.2 102.7 7.3%
Interest credited 32.8 31.4 4.5% 65.1 62.1 4.8%
Net interest margin (without realized investment
gains/losses) 21.6 20.0 8.0% 45.1 40.6 11.1%
Other income 0.5 1.0 -50.0% 1.1 1.7 -35.3%
Mortality loss and other reserve changes (0.4) (0.7) -42.9% (0.8) (1.0) -20.0%
Operating expenses (includes policy
acquisition expenses amortized) 11.4 12.4 -8.1% 23.2 22.0 5.5%
Income before tax 16.8 13.6 23.5% 34.6 30.1 15.0%
Net income 11.5 9.2 25.0% 23.8 20.3 17.2%
Pretax income increase (decrease) due to
evaluation of:
Deferred policy acquisition costs $0.4 $(1.0) N.M. $0.3 $0.6 -50.0%
Guaranteed minimum death benefit
reserve - - - - 0.1 -100.0%
Annuity contracts in force (in thousands) 197 191 3.1%
Accumulated account value on deposit / Assets under management $5,544.7 $4,997.2 11.0%
Variable 1,814.1 1,525.5 18.9%
Fixed 3,730.6 3,471.7 7.5%
Annuity accumulated value retention - 12 months
Variable accumulations 94.1% 94.1% N.M.
Fixed accumulations 94.9% 95.4% N.M.
LIFE
----
Premiums and contract deposits $26.2 $25.1 4.4% $49.0 $48.1 1.9%
Premiums and contract charges earned 28.0 26.3 6.5% 53.6 52.5 2.1%
Net investment income 17.9 17.2 4.1% 36.0 34.5 4.3%
Other income 0.3 0.3 - 0.6 0.7 -14.3%
Death benefits/mortality cost/change in reserves 16.9 14.0 20.7% 33.5 30.0 11.7%
Interest credited 10.9 10.7 1.9% 21.7 21.4 1.4%
Operating expenses (includes policy
acquisition expenses amortized) 10.7 10.5 1.9% 21.3 20.9 1.9%
Income before tax 7.7 8.6 -10.5% 13.7 15.4 -11.0%
Net income 5.0 5.6 -10.7% 8.9 9.9 -10.1%
Pretax income increase (decrease) due to
evaluation of:
Deferred policy acquisition costs $0.1 $(0.1) N.M. $0.1 $(0.1) N.M.
Life policies in force (in thousands) 200 200 -
Life insurance in force $15,414 $14,837 3.9%
Lapse ratio - 12 months
(Ordinary life insurance) 4.1% 4.4% N.M.
CORPORATE AND OTHER (A)
----------------------
Components of income (loss) before tax:
Net realized investment gains $3.5 $15.4 -77.3% $5.2 $22.3 -76.7%
Interest expense (3.6) (3.5) 2.9% (7.1) (7.1) -
Other operating expenses, net investment income
and other income (1.5) (1.4) 7.1% (2.4) (2.8) -14.3%
Income (loss) before tax (1.6) 10.5 N.M. (4.3) 12.4 N.M.
Net income (loss) (1.0) 7.1 N.M. (2.8) 8.5 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 Six Months Ended
June 30, June 30,
-------- --------
2014 2013 % Change 2014 2013 % Change
---- ---- -------- ---- ---- --------
INVESTMENTS
-----------
Annuity and Life
Fixed maturities, at fair value (amortized
cost 2014, $5,412.4; 2013, $4,815.9) $5,858.0 $5,136.6 14.0%
Equity securities, at fair value
(cost 2014, $40.5; 2013, $30.4) 40.3 29.4 37.1%
Short-term investments 7.8 49.1 -84.1%
Policy loans 142.2 136.7 4.0%
Other investments 62.0 54.9 12.9%
Total Annuity and Life investments 6,110.3 5,406.7 13.0%
Property & Casualty
Fixed maturities, at fair value (amortized
cost 2014, $775.0; 2013, $775.2) 818.3 794.0 3.1%
Equity securities, at fair value
(cost 2014, $56.7; 2013, $47.6) 69.2 53.6 29.1%
Short-term investments 21.3 7.4 187.8%
Other investments 31.2 10.0 212.0%
Total Property & Casualty investments 940.0 865.0 8.7%
Corporate investments 39.4 25.6 53.9%
Total investments 7,089.7 6,297.3 12.6%
Net investment income
Before tax $81.4 $77.4 5.2% $164.4 $154.8 6.2%
After tax 54.7 52.1 5.0% 110.4 104.2 6.0%
Net realized investment gains
Before tax $3.5 $15.4 -77.3% $5.2 $22.3 -76.7%
After tax 2.2 10.0 -78.0% 3.3 14.4 -77.1%
Per share, diluted $0.05 $0.24 -79.2% $0.08 $0.35 -77.1%
N.M. - Not meaningful.
-5-
SOURCE Horace Mann Educators Corporation
