SPRINGFIELD, Ill.–(BUSINESS WIRE)–Horace Mann Educators Corporation (NYSE:HMN) today reported financial results for the three months ended March 31, 2021:

“Our strong first quarter results are a solid start to 2021 and reflect the value that Horace Mann continues to provide to the education market,” said Horace Mann President and CEO Marita Zuraitis. “Since the beginning of the COVID-19 pandemic, educators have worked tirelessly to reach their students — working longer hours in multiple classroom environments, while still dealing with the impact of the pandemic on their personal lives. Horace Mann is a company built on a dedication to educators, and this past year has only deepened our commitment to helping educators achieve the lifelong financial success that they deserve.

“The adjustments that we made at Horace Mann over the past year to adapt to a fully virtual model — online financial workshops, ease of doing business enhancements, and virtual engagement events — will only strengthen our market position as we enter the ‘more normal’ 2021-2022 school year,” Zuraitis continued. “We are also ready to leverage the steps we have taken in distribution, most notably the full integration of the Supplemental agency force. We are seeing encouraging signs of sales momentum, particularly in product areas such as retirement savings and traditional term and whole life insurance, as the vaccine rolls out and schools reopen.

“Increasing the share of educators who we help with financial solutions is key to achieving a sustainable double-digit return on equity,” commented Zuraitis. “But we also remain focused on boosting investment income by deliberately increasing allocation to higher-yielding alternative investments, as well as remaining intently focused on optimizing expenses while increasing efficiencies and synergies to ensure we are responsive to customer needs.

“This strong start to 2021 is the first step toward achieving our full-year core EPS guidance of $3.00 to $3.20,” Zuraitis added. “Our outlook anticipates that Auto and Supplemental loss ratios will move closer to historical levels over the course of 2021 as policyholder behavior gradually evolves in a post-vaccine environment. In addition, our guidance anticipates full-year 2021 Property and Casualty catastrophe losses adding 9 to 9.5 points to the combined ratio. Although we did not see outsized catastrophe losses in April, we historically experience about half of our full-year catastrophe losses in the second quarter.

“Overall, we continue to expect solid progress this year from strategic actions,” Zuraitis concluded. “Achieving our 2021 ROE target of 9% to 9.5% will keep us on the path to a sustainable, long-term double-digit ROE.”

Property and Casualty Segment First-Quarter Combined Ratio at 86.2%

(All comparisons vs. same period in 2020, unless noted otherwise)

Our Property and Casualty insurance segment primarily markets private passenger automobile insurance and residential home insurance. We offer standard automobile coverages, including liability, collision and comprehensive. Property coverage includes both homeowners and renters policies. For both automobile and property coverage, we offer educators a discounted rate and the Educator Advantage^® package of features. The Property and Casualty segment represented 53% of 2020 total revenues and contributed $76.5 million to 2020 core earnings.

Property and Casualty premiums written declined due to continued lower new business. Auto average premiums were down slightly, driven partly by changes in miles driven, while property average premiums rose slightly. The auto policy retention rate of 81.9% improved modestly in the first quarter while the property retention rate of 87.3% remained in line with recent experience.

Overall, segment core earnings for the quarter rose 4.9%, largely due to the 2.4 point improvement in the combined ratio, despite a 1.7 point increase in the catastrophe loss ratio, offset by higher income tax expense. In the first quarter of 2020, the company’s tax expense was reduced by a one-time tax benefit of $2.8 million as a result of the CARES Act.

The underlying combined ratio improved by 4.7 points over last year’s first quarter, largely due to the low underlying auto loss ratio. The underlying auto loss ratio improved 7.7 points, reflecting loss costs that continue to reflect changing driving patterns due to COVID-19, as well as the ongoing benefit of profitability initiatives. The underlying property loss ratio rose 3.3 points, primarily because of higher non-catastrophe weather losses and non-weather water losses.

In the first quarter, the company incurred $11.0 million of catastrophe losses from 13 events that added 7.0 points to the combined ratio. The company’s full-year 2021 guidance continues to reflect a catastrophe loss assumption of approximately 9 to 9.5 points on the combined ratio, as second-quarter events historically have represented approximately 50% of the total catastrophe losses for the year.

Supplemental Segment Contributed $11.4 million to First-Quarter Earnings

(All comparisons vs. same period in 2020, unless noted otherwise)

Our Supplemental insurance segment specializes in marketing supplemental insurance products, including cancer, heart, hospital, supplemental disability and accident for the education market. The segment represented 12% of 2020 total revenues and contributed $43.1 million to 2020 core earnings.

Supplemental segment sales were $1.0 million in the first quarter, continuing to reflect limited school access because of the COVID-19 pandemic. Sales are expected to increase as school reopenings extend to more areas. Persistency was up slightly at 91.5%.

Strong core earnings reflected higher net investment income as well as favorable business trends including some continued short-term benefit from changes in policyholder behavior due to COVID-19. Segment expenses include the non-cash impact of amortization of intangible assets under purchase accounting that reduced core earnings by $2.9 million pretax. The pretax profit margin remains above management’s longer-term expectations because of the pandemic-related changes in policyholder behavior.

Retirement Segment Benefits from Improving Net Investment Spread

(All comparisons vs. same period in 2020, unless noted otherwise)

Our Retirement segment primarily markets 403(b) tax-qualified fixed, fixed index and variable annuities; the Horace Mann Retirement Advantage^® open architecture platform for 403(b)(7) and other defined contribution plans; and other retirement products to educators. Horace Mann is one of the largest participants in the K-12 educator portion of the 403(b) tax-qualified annuity market, measured by 403(b) net written premium on a statutory accounting basis. The Retirement segment represented 21% of 2020 total revenues and contributed $28.2 million to 2020 core earnings.

Annuity contract deposits were level with last year’s first quarter. Horace Mann’s relationships with educators often begins with our 403(b) retirement savings products, including our competitively priced annuity products, and we are encouraged by the cross-sell opportunities they provide. Total cash value persistency remained strong at 95.1% for variable annuities and 95.0% for fixed annuities.

Horace Mann currently has $5.0 billion in annuity assets under management, including $2.2 billion of fixed annuities, $2.3 billion of variable annuities and $0.5 billion of fixed indexed annuities. Assets under administration, which includes Retirement Advantage and other advisory and recordkeeping assets, was up 20.9% from a year ago, as assets under management rose largely due to strong stock market performance over the past 12 months.

The net interest spread was 253 points in the first quarter, reflecting strong investment returns particularly in limited partnership investments. Core earnings excluding DAC unlocking were up four-fold primarily due to the strong net interest margin. In last year’s first quarter, DAC unlocking was negative because of equity market volatility.

Life Segment First-Quarter Core Earnings Flat with Last Year

(All comparisons vs. same period in 2020, unless noted otherwise)

Our Life insurance segment primarily markets traditional term and whole life insurance products to educators. The Life segment represented 14% of 2020 total revenues and contributed $10.4 million to 2020 core earnings.

First-quarter annualized Life sales were unchanged from last year on steady new sales of recurring term and whole life policies, and lower new sales of Indexed Universal Life policies. Life core earnings* reflected first-quarter mortality costs above expectations offset by higher net investment income. Full-year persistency for life products of 96.1% improved from the prior year period.

Investment Portfolio Sees Strong First Quarter due to Alternatives Portfolio

(All comparisons vs. same period in 2020, unless noted otherwise)

Our investment strategy is primarily focused on generating income to support product liabilities, and balances principal protection and risk. Total net investment income includes net investment income on the investment portfolio managed by Horace Mann, as well as accreted investment income on the deposit asset on reinsurance related to the company’s reinsurance of policy liabilities related to legacy individual annuities written in 2002 or earlier.

Total net investment income was up 16.0%. Net investment income on the managed portfolio rose 21.3%, reflecting the favorable alternatives portfolio returns in this year’s first quarter compared with negative mark-to-market adjustments on limited partnership investments in the first quarter of 2020. This quarter, favorable returns on limited partnership investments offset slightly lower yields on fixed maturity investments in the core portfolio.

Pretax net investment losses were $9.0 million, including $3.2 million in total impairments on investments. The company’s fixed maturity securities portfolio is in a net unrealized investment gain position of $363.6 million at March 31, 2021.

Book Value Excluding Net Unrealized Investment Gains Up 8% Year Over Year

At March 31, 2021, shareholders’ equity was $1.69 billion, or $40.83 per share. Excluding net unrealized investment gains on fixed maturity securities, shareholders’ equity was $1.45 billion, or $34.95 per share.* At March 31, 2021, total debt was $437.4 million, with $135.0 million outstanding on the company’s line of credit. The ratio of debt-to-capital excluding net unrealized investment gains* was 23.2%.

During the first quarter, Horace Mann repurchased 39,485 shares of common stock at an average price of $38.44. As of March 31, 2021, $19.1 million remained authorized for future share repurchases under the share repurchase program.

Quarterly Webcast

Horace Mann’s senior management will discuss the company’s first-quarter financial results with investors on May 5, 2021 at 9:00 a.m. Eastern Time. The conference call will be webcast live at investors.horacemann.com and archived later in the day for replay.

About Horace Mann

Horace Mann Educators Corporation (NYSE: HMN) is the largest financial services company focused on providing America’s educators and school employees with insurance and retirement solutions. Founded by Educators for Educators^® in 1945, the company is headquartered in Springfield, Illinois. For more information, visit horacemann.com.

Safe Harbor Statement and Non-GAAP Measures

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, 2020 and the company’s past and future filings and reports filed with the Securities and Exchange Commission (SEC) for information concerning important factors that could cause actual results to differ materially from those in forward-looking statements. Information contained in this news release include measures which are based on methodologies other than accounting principles generally accepted in the United States of America (GAAP). Reconciliations of non-GAAP measures to the closest GAAP measures are contained in the Appendix to the Investor Supplement 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.