Horace Mann reports second-quarter 2023 results in line with pre-announcement

Horace Mann Educators Corporation (NYSE:HMN, Financial) today reported financial results for the three months ended June 30, 2023:

“Continued outsized catastrophe losses are increasingly part of a larger national discussion in many forums affecting the insurance industry,” said Horace Mann President & CEO Marita Zuraitis. ”While we are contributing to this dialogue, we remain clearly focused on helping all educators protect what they have today and prepare for a successful tomorrow. This quarter we helped policyholders recover when severe weather, particularly in the Midwest and Texas, disrupted their lives. We continued to grow our Worksite business, which can help school district employers provide more comprehensive benefits to their employees.

“We are building on the revenue and earnings diversification efforts we’ve made over the past five years to drive market share growth,” Zuraitis continued. “This quarter, sales were up 59%, or $1.3 million, in our Worksite Division. Our sales of worksite direct products over the first half of the year were double last year. In our Retail Division, educators continued to respond favorably to the solutions offered by our Life & Retirement business, with annuity contract deposits up 8%.

“Despite higher catastrophe losses in the Property & Casualty segment, underlying results continue to reflect the rate and non-rate underwriting actions we have been implementing to address loss trends,” Zuraitis said. “In total, Property & Casualty net written premiums were up 8% for the second quarter, with earned premiums up 5%. Retention remained steady, and we’re seeing household growth largely in states where we have the greatest confidence in the pricing outlook. We will continue to address the increased weather activity and inflation through additional filed rate, product changes and enhanced modeling. This includes our filed 20% California auto rate increase as well as a 25% California property rate increase that we filed in June. The state represents about 12% of our P&C customer base.

“In Auto, our rate actions since the beginning of 2022 will generate a cumulative impact of as much as 25% by the end of this year. Auto should generate an underwriting profit during 2024 on our path to our long-term combined ratio target of 97% to 98%,” Zuraitis said. “In Property, we continue to expect average renewal premiums for property to increase by 17% to 20% this year and we now expect a similar impact next year. We expect to achieve our long-term property combined ratio target of 92% to 93% by 2025.

“Our confidence in our long-term strategy to expand our share of the education market remains unchanged as we diversify our earnings profile,” Zuraitis said. “We also remain committed to achieving a sustainable double-digit core return on equity and 10% core EPS growth over the long term. Our 2023 core EPS is expected to be in the range of $1.20 to $1.45 with strong contributions from our Worksite and Life & Retirement business offsetting the impact of weather on Property & Casualty segment results. The benefits of our P&C rate actions will continue to accelerate over the course of 2024 and our diversified business should enable us to deliver core return on equity near the 10% level, which is now the equivalent of about $3.50 in core EPS.”

Segment outlook for 2023

2023 core EPS expected to be between $1.20 to $1.45 (or core earnings of $50 million to $60 million, after tax), in line with pre-announcement:

• Property & Casualty segment core earnings guidance updated to a loss between $27 million and $32 million largely due to weather losses. We now assume a full-year catastrophe loss contribution of $95 million to $100 million, or about 15.5 points to the combined ratio. The longer-term combined ratio target for the segment remains 95-96%.
• Life & Retirement segment core earnings guidance updated to $63 million to $65 million to reflect the lower-than-anticipated fixed annuity spread in the first-half. The longer-term targeted range for the spread remains 220 to 230 basis points.
• Supplemental & Group Benefits segment core earnings guidance updated to $47 million to $50 million to reflect strong first-half performance. The longer-term target for the blended segment benefit ratio remains 43%.

Full-year net investment income expected to be between $429 million and $439 million.

Reporting Segment Results

Horace Mann reports financial results in three reporting segments: (1) Property & Casualty, (2) Life & Retirement, and (3) Supplemental & Group Benefits. The retail business, consisting of the Property & Casualty and Life & Retirement segments, provides insurance and financial services to individual educators through agency and direct channels. The Supplemental & Group Benefits segment provides worksite direct and employer-sponsored benefits through school district employers. These worksite offerings help school districts attract and retain staff.

Horace Mann adopted the Financial Accounting Standards Board’s Accounting Standard Update 2018-12 Financial Services - Insurance: Targeted Improvements to the Accounting for Long-Duration Contracts as of January 1, 2023, with a January 1, 2021 transition date. The company’s 2022 results have been recast to reflect the ASU and are reflected in this release on that basis.

Property & Casualty segment results reflected outsized catastrophe losses
(All comparisons vs. same period in 2022, unless noted otherwise)

The Property & Casualty segment primarily markets private passenger auto insurance and residential home insurance. Horace Mann offers standard auto coverages, including liability, collision and comprehensive. Property coverage includes both homeowners and renters policies. For both auto and property coverage, Horace Mann offers educators a discounted rate and the Educator Advantage^® package of features. The Property & Casualty segment represented 47% of total revenues for the year ended 2022.

The Property & Casualty segment core loss for the second quarter was in line with the company’s preliminary announcement, reflecting the impact of outsized weather activity across the country, which was also a primary factor in continued elevated auto loss frequency. Property & Casualty net premiums written were up 8.2% with average written premiums rising for both property and auto. Segment net investment income for the quarter was 37.7% above the prior year, as returns on the limited partnership portfolio normalized from last year.

The second-quarter combined ratio improved 2.9 points over last year, reflecting the slightly lower level of catastrophe losses this year as well as no change in prior-accident year reserves compared with strengthening in last year’s second quarter. Catastrophe losses for the quarter were $41.5 million, pretax, contributing 26.3 points to the combined ratio. In total, there were 19 events designated as catastrophes by Property Claims Services (PCS) in the year’s second quarter, including multiple severe convective storms across the Midwest and Texas in June. In the second quarter of 2022, catastrophe losses were $45.7 million, pretax, contributing 30.5 points to the combined ratio, from 23 PCS events.

The year-over-year increase in average written premiums for auto policies also improved again in the second quarter to 11.4%, compared with 8.1% in the first quarter and 4.8% in the fourth quarter. The increase reflects auto rate increases of almost 15% nationwide since the beginning of 2022. The second-quarter auto underlying loss ratio was 81.2%, largely reflecting the loss cost factors being addressed