SOURCE: Horace Mann Educators Corp.

Horace Mann Educators Corp.

April 24, 2017 16:33 ET

Horace Mann Reports First Quarter 2017 Net Income per Share and Operating EPS of $0.37

SPRINGFIELD, IL--(Marketwired - April 24, 2017) -

  • Property and Casualty net income results significantly impacted by $0.27 cents of elevated catastrophe losses, as well as adverse non-catastrophe weather-related losses
  • Solid operating results in Retirement and Life segments
  • Retirement assets under management increased 9% from a year ago
  • Sales increased across all business segments; double-digit growth in Life sales continues

Horace Mann Educators Corporation (NYSE: HMN) today reported financial results for the three months ended March 31, 2017:

   
Horace Mann Financial Highlights  
   Three months ended March 31,  
($ in millions, except per share amounts)  2017   2016   Change  
Total revenues  $287.3   $271.3   5.9 %
Net income   15.3    25.2   -39.3
%
 Net realized investment gains (losses) after tax  (0.1)  (0.4)   
Operating income*  15.4   25.6  -39.8%
Per diluted share:             
 Net income  0.37   0.61  -39.3%
  Net realized investment gains (losses) after tax  (0.00)  (0.01)   
 Operating income*  0.37   0.62  -40.3%
Book value per share   32.60    33.11   -1.5 %
Book value per share excluding the fair value adjustment for investments*   27.71    27.05   2.4 %
Property and Casualty segment net income   2.7    13.8   -80.4 %
 Property and Casualty combined ratio   105.5 %  93.8 % 11.7 pts
 Property and Casualty underlying combined ratio*   95.3 %  86.8 % 8.5pts
Retirement segment net income  $11.5   $10.6   8.5 %
Life segment net income   3.9    3.9   N.M.  

N.M. - Not meaningful.
* 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 first quarter operating income was significantly impacted by adverse weather; catastrophe losses were $17.2 million, the highest level ever recorded during the first quarter, and non-catastrophe weather losses also impacted underlying auto and property results. On a positive note, we are seeing signs of improvement in the underlying auto loss ratio when you exclude weather-related impacts. Sales in all business lines were strong, with 9% growth in Property and Casualty, 4% growth in Retirement and continued double-digit growth in Life," said Horace Mann's President and Chief Executive Officer Marita Zuraitis.

Property and Casualty Segment

For the quarter, Property and Casualty net income of $2.7 million was $11.1 million lower compared to the prior year period. The total Property and Casualty combined ratio was 105.5%, reflecting a record level of catastrophe losses in the quarter, as well as elevated non-catastrophe weather-related losses. Catastrophe losses of $17.2 million pretax were $4.5 million higher than the first quarter of 2016, representing 2.5 points of the combined ratio increase. Prior years' reserves continue to develop favorably; however, the favorable development in the current quarter was $1.0 million pretax lower than the amount a year ago, representing 0.7 points of the combined ratio increase.

On an underlying basis, the auto loss ratio of 76.7% was in line with the prior period result on a developed basis, and was in line with full year 2016 results despite the elevated level of weather losses in the first quarter of 2017. The Company remains confident that it is on the right track for 1 point of underlying auto combined ratio improvement for full year 2017. For property, the increase in the underlying loss ratio from 35.9% for the first quarter of 2016 to 46.9% for the first quarter of 2017 was largely related to the impact of higher non-catastrophe weather-related losses.

Compared to the first quarter of 2016, the Property and Casualty expense ratio of 28.3% increased 1.0 point from a year ago reflecting additional costs related to the Company's continued infrastructure investments.

Total Property and Casualty written premiums of $152.9 million for the three months ended March 31, 2017 increased 4% compared to the prior year period. The growth was driven primarily by increases in average premium per policy for both auto and property.

Total Property and Casualty sales increased 9% compared to the first quarter of 2016. Auto sales increased 9% while property sales increased 5% compared to the prior year period. Policy retention continues to be strong with auto and property policy retention rates for the current quarter at 83% and 88%, respectively.

The Company adopted a new accounting rule for employee share-based payment accounting in the first quarter of 2017 that required all income tax effects of awards to be recognized in the income statement when the awards vest or are settled rather than through additional paid-in capital in the equity section of the balance sheet. As a result, Property and Casualty recognized an income tax benefit of $1.6 million in its provision for federal income taxes.

Retirement Segment

For the first quarter of 2017, Retirement segment net income of $11.5 million increased $0.9 million or 9% compared to the prior year period which is primarily due to a $3.4 million pretax increase in net interest margin offset by a $2.6 million pretax increase in operating expenses including costs related to the Company's continued infrastructure and strategic investments.

The annualized net interest spread on fixed annuity assets was 183 basis points for the first quarters of 2017 and 2016, which reflects the continued low interest rate environment. Total Retirement assets under management of $6.6 billion increased 9% compared to March 31, 2016, and total cash value persistency remained strong at approximately 95%.

For the three months ended March 31, 2017, annuity deposits of $117.3 million increased 4%, or $4.7 million, compared to the prior year period and was attributable to $2.2 million of single premium and $2.5 million of recurring deposits received in 2017.

Life Segment

Life segment net income was $3.9 million for the first quarter of 2017 and comparable to a year ago.

In the current quarter, Life segment insurance premiums and contract deposits of $26.5 million increased 11%, or $2.6 million, compared to the prior year period. Life sales of $4.7 million increased $1.7 million, or 57%, compared to the prior year period, primarily due to an increase in single premium sales. Life persistency of 96% was comparable to 12 months earlier.

Investment Results

Total net investment income increased 7% compared to the three months ended March 31, 2016. In addition to reflecting higher asset balances in the Retirement segment, investment results also reflected an increase in investment prepayment activity and favorable returns on alternative investments, partially offset by the impact of the current low interest rate environment. Pretax net realized investment losses were $0.2 million for the three months ended March 31, 2017, including $2.8 million of other than temporary impairment charges recorded on certain equity and fixed maturity securities.

Horace Mann's net unrealized investment gains on fixed maturity and equity securities were $351.3 million at March 31, 2017, compared to net unrealized investment gains of $312.2 million at December 31, 2016 and $432.9 million at March 31, 2016.

Webcast Conference Call

Horace Mann's senior management will discuss the company's fourth quarter financial results with investors and analysts on April 25, 2017 at 10:00 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 financial services company focusing on educators' financial needs -- provides auto, homeowners and life insurance, retirement products 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 Annual Report on Form 10-K for the year ended December 31, 2016 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      
   March 31,      
   2017   2016   % Change  
EARNINGS SUMMARY               
                
Net income  $15.3   $25.2   -39.3 %
 Net realized investment gains (losses), after tax (see below)   (0.1 )  (0.4 ) -75.0 %
Operating income (A)   15.4    25.6   -39.8 %
                
Per diluted share:               
 Net income  $0.37   $0.61   -39.3 %
  Net realized investment gains (losses), after tax (see below)  $-   $(0.01 ) -100.0 %
 Operating income (A)  $0.37   $0.62   -40.3 %
                
Weighted average number of shares and equivalent shares (in millions) - Diluted   41.3    41.5   -0.5 %
                
                
                
RETURN ON EQUITY               
                
Net income return on equity (B)   5.4 %  6.4 % N.M.  
Operating income return on equity excluding the fair value adjustment for investments (A) (C)   6.5 %  7.4 % N.M.  
                
                
                
FINANCIAL POSITION               
                
Per share (D):               
 Book value  $32.60   $33.11   -1.5 %
  Effect of the fair value adjustment for investments (E)  $4.89   $6.06   -19.3 %
 Book value excluding the fair value adjustment for investments (A)  $27.71   $27.05   2.4 %
                
 Dividends paid  $0.275   $0.265   3.8 %
                
Ending number of shares outstanding (in millions) (D)   40.5    40.4   0.2 %
                
Total assets  $10,779.5   $10,231.4   5.4 %
Long-term debt, current and noncurrent   247.3    247.0   0.1 %
Total shareholders' equity   1,321.8    1,336.0   -1.1 %
                
                
                
ADDITIONAL INFORMATION               
                
Net realized investment gains (losses)               
 Before tax  $(0.2 ) $(0.2 ) N.M.  
 After tax   (0.1 )  (0.4 ) -75.0 %
  Per share, diluted  $-   $(0.01 ) -100.0 %
                
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 40,542,116 at March 31, 2017 and 40,350,937 at March 31, 2016.
(E) Net of the related impact on deferred policy acquisition costs and the applicable deferred taxes.
   
- 1 -  
  
HORACE MANN EDUCATORS CORPORATION  
Statements of Operations and Supplemental Consolidated Data (Unaudited)  
(Dollars in Millions)  
   
   Three Months Ended      
   March 31,      
   2017   2016   % Change  
STATEMENTS OF OPERATIONS               
                
Insurance premiums and contract charges earned  $195.7   $185.5   5.5 %
Net investment income  $90.7   $84.7   7.1 %
Net realized investment gains (losses)  $(0.2 ) $(0.2 ) N.M.  
Other income  $1.1   $1.3   -15.4 %
                
  Total revenues   287.3    271.3   5.9 %
                
                
Benefits, claims and settlement expenses   144.1    119.5   20.6 %
Interest credited   48.8    46.7   4.5 %
Policy acquisition expenses amortized   24.9    24.1   3.3 %
Operating expenses   48.7    42.8   13.8 %
Interest expense   3.0    2.9   3.4 %
                
                
  Total benefits, losses and expenses   269.5    236.0   14.2 %
                
                
Income before income taxes   17.8    35.3   -49.6 %
 Income tax expense   2.5    10.1   -75.2 %
                
Net income  $15.3   $25.2   -39.3 %
                
                
                
PREMIUMS WRITTEN AND CONTRACT DEPOSITS               
                
Property & Casualty  $152.9   $146.7   4.2 %
                
Retirement deposits   117.3    112.6   4.2 %
                
Life   26.5    23.9   10.9 %
                
  Total  $296.7   $283.2   4.8 %
                
                
                
SEGMENT NET INCOME (LOSS)               
                
Property & Casualty  $2.7   $13.8   -80.4 %
                
Retirement   11.5    10.6   8.5 %
                
Life   3.9    3.9   N.M.  
                
Corporate and other (A)   (2.8 )  (3.1 ) -9.7 %
                
 Net income  $15.3   $25.2   -39.3 %
                
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      
   March 31,      
   2017   2016   % Change  
PROPERTY & CASUALTY               
                
Premiums written  $152.9   $146.7   4.2 %
Premiums earned   158.3    152.1   4.1 %
Net investment income   9.2    8.8   4.5 %
Other income (loss)   -    0.4   N.M.  
Losses and loss adjustment expenses (LAE)   122.2    101.2   20.8 %
Operating expenses (includes policy acquisition expenses amortized)   44.7    41.6   7.5 %
Income before tax   0.6    18.5   -96.8 %
Net income   2.7    13.8   -80.4 %
                
Net investment income, after tax   7.4    7.2   2.8 %
                
Catastrophe costs (A)               
 After tax   11.1    8.3   33.7 %
 Before tax   17.2    12.7   35.4 %
                
Prior years' reserves favorable (adverse) development, before tax               
  Automobile   -    -   N.M.  
  Property   1.0    2.0   -50.0 %
  Other liability   -    -   N.M.  
                 
   Total   1.0    2.0   -50.0 %
                
Operating statistics:               
 Loss and loss adjustment expense ratio   77.2 %  66.5 % N.M.  
 Expense ratio   28.3 %  27.3 % N.M.  
 Combined ratio   105.5 %  93.8 % N.M.  
                
  Effect on the combined ratio of:               
   Catastrophe costs (A)   10.8 %  8.3 % N.M.  
   Prior years' reserve development   -0.6 %  -1.3 % N.M.  
                
 Combined ratio excluding the effects of catastrophe costs and prior years' reserve development ("underlying combined ratio") (B)   
95.3
%  
86.8
% 
N.M.
 
                
Policies in force (voluntary) (in thousands)   703    710   -1.0 %
 Automobile   484    487   -0.6 %
 Property   219    223   -1.8 %
                
Policy renewal rate (voluntary) - 12 months               
 Automobile   83.0 %  84.5 % N.M.  
 Property   87.5 %  88.4 % 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      
   March 31,      
   2017   2016   % Change  
RETIREMENT               
                
Contract deposits  $117.3   $112.6   4.2 %
 Variable   45.4    37.9   19.8 %
 Fixed   71.9    74.7   -3.7 %
Contract charges earned   6.6    6.1   8.2 %
Net investment income   63.4    58.1   9.1 %
Interest credited   37.5    35.6   5.3 %
 Net interest margin (without realized investment gains/losses)   25.9    22.5   15.1 %
Other income   0.9    0.8   12.5 %
Mortality loss and other reserve changes   (1.1 )  (0.9 ) 22.2 %
Operating expenses (includes policy acquisition expenses amortized)   16.1    13.5   19.3 %
Income before tax   16.2    15.0   8.0 %
Net income   11.5    10.6   8.5 %
                
Pretax income increase (decrease) due to evaluation of:               
  Deferred policy acquisition costs  $(0.3 ) $(0.2 ) 50.0 %
  Guaranteed minimum death benefit reserve   -    -   N.M.  
                
Retirement contracts in force (in thousands)   220    212   3.8 %
Accumulated account value on deposit / Assets under management  $6,565.4   $6,024.2   9.0 %
 Variable   2,011.5    1,767.9   13.8 %
 Fixed   4,553.9    4,256.3   7.0 %
Retirement accumulated value retention - 12 months               
 Variable accumulations   94.7 %  94.5 % N.M.  
 Fixed accumulations   94.4 %  94.9 % N.M.  
                
                
                
LIFE               
                
Premiums and contract deposits  $26.5   $23.9   10.9 %
Premiums and contract charges earned   30.8    27.3   12.8 %
Net investment income   18.3    18.0   1.7 %
Other income   0.1    0.1   0.0 %
Death benefits/mortality cost/change in reserves   20.8    17.4   19.5 %
Interest credited   11.2    11.1   0.9 %
Operating expenses (includes policy acquisition expenses amortized)   11.8    10.9   8.3 %
Income before tax   5.4    6.0   -10.0 %
Net income   3.9    3.9   0.0 %
                
Pretax income increase (decrease) due to evaluation of:               
  Deferred policy acquisition costs  $0.1   $0.1   N.M.  
                
Life policies in force (in thousands)   198    201   -1.5 %
Life insurance in force  $17,164   $16,651   3.1 %
Lapse ratio - 12 months               
 (Ordinary life insurance)   4.5 %  4.2 % N.M.  
                
                
                
CORPORATE AND OTHER (A)               
                
Components of income (loss) before tax:               
 Net realized investment gains (losses)  $(0.2 ) $(0.2 ) N.M.  
 Interest expense   (3.0 )  (2.9 ) 3.4 %
                
 Other operating expenses, net investment income and other income   (1.2 )  (1.1 ) 9.1 %
Loss before tax   (4.4 )  (4.2 ) 4.8 %
Net loss   (2.8 )  (3.1 ) -9.7 %
                
                
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     
   March 31,     
   2017  2016  % Change  
INVESTMENTS             
              
Retirement and Life             
 Fixed maturities, at fair value (amortized cost 2017, $6,421.1; 2016, $6,022.9)  $6,732.3  $6,407.0  5.1 %
 Equity securities, at fair value (cost 2017, $80.3; 2016, $35.3)   80.0   35.0  128.6 %
 Short-term investments   61.9   197.0  -68.6 %
 Policy loans   151.5   148.6  2.0 %
 Other investments   174.7   98.8  76.8 %
   Total Retirement and Life investments   7,200.4   6,886.4  4.6 %
              
Property & Casualty             
 Fixed maturities, at fair value (amortized cost 2017, $752.1; 2016, $768.4)   778.4   809.5  -3.8 %
 Equity securities, at fair value (cost 2017, $62.9; 2016, $61.0)   77.0   69.0  11.6 %
 Short-term investments   3.4   7.0  -51.4 %
 Other investments   49.2   40.4  21.8 %
   Total Property & Casualty investments   908.0   925.9  -1.9 %
              
Corporate investments   15.8   12.3  28.5 %
              
   Total investments   8,124.2   7,824.6  3.8 %
              
              
Net investment income             
 Before tax  $90.7  $84.7  7.1 %
 After tax   60.4   56.5  6.9 %
              
                
- 5 -  

Contact Information

  • Contact information:
    Ryan Greenier
    Vice President, Investor Relations
    217-788-5738