SPRINGFIELD, Ill., April 29 /PRNewswire-FirstCall/ -- Horace Mann
Educators Corporation (NYSE: HMN) today reported net income of $13.4 million
(33 cents per share) for the three months ended March 31, 2009, compared to
$14.3 million (34 cents per share) for the same period in 2008. Included in
net income were net realized losses on securities of $0.8 million ($0.6
million after tax, or 2 cents per share) for the three months ended March 31,
2009. In the first quarter of 2008, net income included net realized
investment losses of $2.4 million ($1.6 million after tax, or 4 cents per
share). All per-share amounts are stated on a diluted basis.
"Against the backdrop of continued volatility and uncertainty in the
financial markets, Horace Mann's underlying profit fundamentals remained
strong, producing net income before realized investment gains and losses of 35
cents per share for the quarter, which included transition costs, totaling
approximately 8 cents per share, related to our property and casualty claims
office consolidation and distribution strategy initiatives," said Louis G.
Lower II, President and Chief Executive Officer. "For the current accident
year and excluding catastrophes, our property and casualty combined ratio of
approximately 94 percent for the quarter was about two and a half percentage
points higher than the prior year period, reflecting a combined 3.3 percentage
point increase in the loss adjustment and underwriting expense ratios related
to the claims and distribution initiatives. In addition, excluding the
impacts of the valuation of deferred policy acquisition costs and change in
the guaranteed minimum death benefit reserve, combined annuity and life
segment pretax earnings increased slightly compared to prior year results,"
continued Lower. "Meanwhile, compared to first quarter 2008, average agent
productivity continued to improve in our lead auto and annuity lines, in spite
of the difficult competitive and economic environments."
Segment Earnings
The property and casualty segment recorded net income of $12.4 million for
the quarter, a decrease of $0.6 million compared to the same period in 2008,
including $4.4 million of pretax charges related to the claims office
consolidation and distribution initiatives. Pretax catastrophe costs in the
current quarter were $4.5 million compared to $5.4 million incurred in the
first quarter of 2008. The first quarter 2009 property and casualty combined
ratio was 94.6 percent, including 3.3 percentage points due to catastrophe
costs, compared to 93.5 percent, including 4.1 percentage points due to
catastrophe costs, in the prior year period. Favorable prior years' reserve
development totaling $3.4 million was recorded in the first quarter, which
represented 2.5 percentage points on the combined ratio, compared to $2.7
million, or 2.0 percentage points on the combined ratio, recorded in the first
quarter of 2008.
Annuity segment net income was $1.2 million for the three months ended
March 31, 2009, reflecting a decrease of $1.8 million compared to the same
period in 2008. For the current period, financial market performance over the
past 12 months adversely affected the level of charges and fees earned on
variable contract deposits compared to the prior year. In the first quarter,
the negative market performance also had an adverse impact on both the
valuation of annuity deferred policy acquisition costs and the level of
guaranteed minimum death benefit reserves. The interest margin earned on
fixed annuity assets was slightly higher in the current quarter compared to a
year earlier.
"While financial market performance once again negatively impacted our
variable annuity earnings, our fixed annuity business, which represents over
70 percent of our annuity account values, continued to perform consistently
with our expectations," noted Lower. "Further, total annuity net fund flows
were positive in the quarter, as they were throughout 2008, and total cash
value persistency of nearly 94 percent increased about 2 percentage points
compared to a year earlier."
Life segment net income of $3.4 million for the first quarter increased
$0.8 million compared to the same period in 2008, reflecting growth in
investment income and a decrease in mortality costs. Life persistency
remained in excess of 94 percent.
Segment Revenues
The company's total premiums written and contract deposits declined a
modest 1 percent compared to the first quarter of 2008, primarily reflecting
decreases in annuity deposit receipts in the current period.
Total property and casualty premiums written increased 2 percent compared
to the first three months of 2008, primarily reflecting increases in average
property and auto premiums per policy.
Annuity new contract deposits received decreased 7 percent compared to the
three months ended March 31, 2008. Scheduled, flexible-premium annuity
deposit receipts decreased 15 percent compared to the prior year, while
rollover deposits increased 12 percent compared to the first quarter of 2008.
Life segment insurance premiums and contract deposits decreased slightly
compared to the prior year.
Sales and Distribution
For the three months ended March 31, 2009, total new auto sales units were
5 percent lower in the current period than in the prior year. "In spite of
the adverse prior year comparison in total units, average agent true new auto
productivity increased in the current period," said Lower. Flexible premium
annuity sales increased nearly 100 percent in the quarter compared to the
prior year. Coupled with growth of 30 percent in single premium rollover
deposits, including both Horace Mann and partner company products, total
annuity sales increased 50 percent compared to the first three months of 2008.
"Horace Mann has approved annuity payroll reduction capabilities in
approximately one-third of the 15,500 public school districts in the United
States and maintained that position through the 2008 transition to new IRS
403(b) regulations. This access will continue to benefit the Company's
marketing opportunities," said Lower.
While the 675 Horace Mann agents at March 31, 2009 reflected an 11 percent
decrease compared to a year earlier, the number of agents increased in the
current quarter, reversing a two-year period of decline during the early
stages of the company's transition to its Agency Business Model. Including
412 licensed producers who work for the agents, Horace Mann's total points of
distribution increased to 1,087, a growth of 4 percent over a year earlier.
"We are encouraged by the increase in the number of agents in the first
quarter. Based on current trends, we anticipate surpassing prior year's agent
count by the end of the third quarter. That expectation, coupled with the
positive impact on agent productivity of our new agency business model and the
recent enhancements made to our field sales management structure, bodes well
for Horace Mann's future growth prospects," said Lower.
Investment Gains and Losses
In the first quarter of 2009, pretax net realized investment losses were
$0.8 million, which were comprised of $13.4 million of impairment write-downs,
primarily below investment grade perpetual preferred stocks; $1.6 million of
realized impairment losses on securities that were disposed of during the
quarter, primarily high-yield investments; and $2.4 million of impairments on
securities that the company no longer intends to hold until the value fully
recovers, primarily high-yield bonds. These amounts were largely offset by
$16.6 million of realized gains on security sales.
Net unrealized investment losses on fixed maturity and equity securities
continued to be under pressure in the first quarter, and Horace Mann's March
31, 2009 balance of $359.6 million increased compared to the $327.2 million
level recorded at the end of 2008. "With credit spreads for some asset
classes widening further during the first quarter, on top of unprecedented
December 31 levels, it remains our considered judgment that our unrealized
balance continues in large part to reflect a remarkably disruptive credit
market in a crisis mode where liquidity has been severely impaired, with
spreads and prices disconnected from rational valuation across all asset
classes," said Lower. "Given our insignificant exposure to sub-prime, Alt-A
and other lower-quality structured securities, coupled with the credit
enhancement of the existing TARP program and the ongoing commitments of the
United States and European governments to support most of our financial
institution holdings, and the overall quality and performance of our CMBS
holdings, we remain comfortable with the underlying credit quality of our
investment portfolio."
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 Annual Report on Form 10-K for the year ended December 31, 2008 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.
HORACE MANN EDUCATORS CORPORATION
Digest of Earnings and Highlights (Unaudited)
(Dollars in Millions, Except Per Share Data)
Three Months Ended
March 31,
---------
2009 2008 % Change
---- ---- --------
DIGEST OF EARNINGS
------------------
Net income $13.4 $14.3 -6.3%
Net income per share:
Basic $0.34 $0.35 -2.9%
Diluted $0.33 $0.34 -2.9%
Weighted average number of shares
and equivalent shares
(in millions) (A):
Basic 39.2 41.1 -4.6%
Diluted 40.4 42.1 -4.0%
HIGHLIGHTS
----------
Operations
----------
Insurance premiums written and
contract deposits $221.3 $224.6 -1.5%
Return on equity (B) 1.9% 11.0% N.M.
Property & Casualty GAAP
combined ratio 94.6% 93.5% N.M.
Effect of catastrophe costs on
the Property & Casualty
combined ratio 3.3% 4.1% N.M.
Dedicated agents (C) 675 758 -10.9%
Licensed producers (D) 412 284 45.1%
Total points of distribution 1,087 1,042 4.3%
Additional Per Share Information
--------------------------------
Dividends paid $0.0525 $0.105 -50.0%
Book value (E) $11.35 $15.82 -28.3%
Financial Position
------------------
Total assets $5,526.4 $6,080.3 -9.1%
Short-term debt 38.0 - N.M.
Long-term debt 199.6 199.5 0.1%
Total shareholders' equity 444.7 642.7 -30.8%
N.M. - Not meaningful.
(A) During the three months ended March 31, 2008, the Company repurchased
1,636,376 shares of its common stock at an aggregate cost of
$29.5 million, or an average cost of $18.01 per share. During the
three months ended June 30, 2008, the Company repurchased 1,561,849
shares of its common stock at an aggregate cost of $24.8 million, or
an average cost of $15.93 per share.
(B) Based on trailing 12-month net income and average quarter-end
shareholders' equity.
(C) Agents under contract with the Company to market only the Company's
products and limited additional third-party vendor products
authorized by the Company.
(D) Includes licensed producers working in dedicated agents' offices and
excludes independent agents.
(E) Book value per share excluding the fair value adjustment for
investments was $16.43 at March 31, 2009 and $16.66 at March 31, 2008.
Ending shares outstanding were 39,169,009 at March 31, 2009 and
40,623,637 at March 31, 2008.
-1-
HORACE MANN EDUCATORS CORPORATION
Statements of Operations and Supplemental GAAP Consolidated
Data (Unaudited)
(Dollars in Millions)
Three Months
Ended
March 31,
---------
2009 2008 % Change
---- ---- --------
STATEMENTS OF OPERATIONS
------------------------
Insurance premiums and contract
charges earned $162.5 $162.5 -
Net investment income 57.9 56.6 2.3%
Net realized investment losses (0.8) (2.4) N.M.
Other income 2.9 2.6 11.5%
Total revenues 222.5 219.3 1.5%
Benefits, claims and settlement
expenses 107.8 106.9 0.8%
Interest credited 33.7 32.1 5.0%
Policy acquisition expenses
amortized 23.0 21.0 9.5%
Operating expenses 35.7 34.8 2.6%
Amortization of intangible assets 0.2 1.2 -83.3%
Interest expense 3.5 3.4 2.9%
Total benefits, losses and
expenses 203.9 199.4 2.3%
Income before income taxes 18.6 19.9 -6.5%
Income tax expense 5.2 5.6 -7.1%
Net income $13.4 $14.3 -6.3%
ANALYSIS OF PREMIUMS WRITTEN
AND CONTRACT DEPOSITS
------------------------------------
Property & Casualty
Automobile and property
(voluntary) $128.2 $126.6 1.3%
Involuntary and other property &
casualty 0.9 0.2 350.0%
Total Property & Casualty 129.1 126.8 1.8%
Annuity deposits 68.7 73.9 -7.0%
Life 23.5 23.9 -1.7%
Total $221.3 $224.6 -1.5%
ANALYSIS OF SEGMENT NET INCOME (LOSS)
-------------------------------------
Property & Casualty $12.4 $13.0 -4.6%
Annuity 1.2 3.0 -60.0%
Life 3.4 2.6 30.8%
Corporate and other (A) (3.6) (4.3) -16.3%
Net income 13.4 14.3 -6.3%
Catastrophe costs, after tax,
included above (B) (2.9) (3.5) -17.1%
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.
(B) Includes allocated loss adjustment expenses and catastrophe
reinsurance reinstatement premiums. See also page 3.
-2-
HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview
(Unaudited)
(Dollars in Millions)
Three Months
Ended
March 31,
---------
2009 2008 % Change
---- ---- --------
PROPERTY & CASUALTY
-------------------
Premiums written $129.1 $126.8 1.8%
Premiums earned 135.0 133.0 1.5%
Net investment income 8.3 9.2 -9.8%
Other income 1.4 0.6 133.3%
Losses and loss adjustment expenses (LAE) 93.6 91.7 2.1%
Operating expenses (includes policy
acquisition expenses amortized) 34.2 32.7 4.6%
Income before tax 16.9 18.4 -8.2%
Net income 12.4 13.0 -4.6%
Net investment income, after tax 7.0 7.7 -9.1%
Catastrophe costs, after tax (A) 2.9 3.5 -17.1%
Catastrophe losses and LAE, before tax 4.5 5.4 -16.7%
Reinsurance reinstatement premiums, before tax - - -
Operating statistics:
Loss and loss adjustment expense ratio 69.3% 69.0% N.M.
Expense ratio 25.3% 24.5% N.M.
Combined ratio 94.6% 93.5% N.M.
Effect on the combined ratio of:
Catastrophe costs 3.3% 4.1% N.M.
Claims office consolidation costs
(all in LAE) 2.3% - N.M.
Automobile and property detail:
Premiums written (voluntary) (B) $128.2 $126.6 1.3%
Automobile 92.9 91.8 1.2%
Property 35.3 34.8 1.4%
Premiums earned (voluntary) (B) 134.4 133.3 0.8%
Automobile 91.7 90.9 0.9%
Property 42.7 42.4 0.7%
Policies in force (voluntary) (in thousands) 795 799 -0.5%
Automobile 532 534 -0.4%
Property 263 265 -0.8%
Policy renewal rate (voluntary)
Automobile (6 months) 91.1% 90.8% N.M.
Property (12 months) 88.8% 88.6% N.M.
Voluntary automobile operating statistics:
Loss and loss adjustment expense ratio 70.6% 71.2% N.M.
Expense ratio 25.8% 24.3% N.M.
Combined ratio 96.4% 95.5% N.M.
Effect on the combined ratio of:
Catastrophe costs 0.5% 0.4% N.M.
Claims office consolidation costs
(all in LAE) 2.7% - N.M.
Total property operating statistics:
Loss and loss adjustment expense ratio 66.8% 66.0% N.M.
Expense ratio 24.2% 24.9% N.M.
Combined ratio 91.0% 90.9% N.M.
Effect on the combined ratio of:
Catastrophe costs 9.5% 12.1% N.M.
Claims office consolidation costs
(all in LAE) 1.5% - N.M.
Prior years' reserves favorable (adverse)
development, pretax
Voluntary automobile $2.5 $1.3 92.3%
Total property 0.4 0.4 -
Other property and casualty 0.5 1.0 -50.0%
Total 3.4 2.7 25.9%
N.M. - Not meaningful.
(A) Includes allocated loss adjustment expenses and catastrophe
reinsurance reinstatement premiums.
(B) Amounts are net of additional ceded premiums to reinstate the
Company's property and casualty catastrophe reinsurance coverage, if
any, as quantified above.
-3-
HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview (Unaudited)
(Dollars in Millions)
Three Months Ended
March 31,
---------
2009 2008 % Change
---- ---- --------
ANNUITY
-------
Contract deposits $68.7 $73.9 -7.0%
Variable 26.2 35.6 -26.4%
Fixed 42.5 38.3 11.0%
Contract charges earned 3.2 4.7 -31.9%
Net investment income 34.8 33.1 5.1%
Net interest margin (without
realized investment gains and
losses) 10.8 10.5 2.9%
Other income 0.8 1.3 -38.5%
Mortality loss and other reserve
changes (0.6) (0.5) 20.0%
Operating expenses (includes policy
acquisition expenses amortized) 12.5 11.5 8.7%
Amortization of intangible assets - 0.9 -100.0%
Income before tax 1.7 3.6 -52.8%
Net income 1.2 3.0 -60.0%
Pretax income increase (decrease) due to
valuation of:
Deferred policy acquisition
costs $(3.0) $(2.3) 30.4%
Value of acquired insurance in
force - 0.1 -100.0%
Guaranteed minimum death
benefit reserve (0.5) (0.1) 400.0%
Annuity contracts in force (in
thousands) 175 168 4.2%
Accumulated value on deposit $3,221.8 $3,572.3 -9.8%
Variable 884.3 1,392.8 -36.5%
Fixed 2,337.5 2,179.5 7.2%
Annuity accumulated value retention
- 12 months
Variable accumulations 93.1% 91.3% N.M.
Fixed accumulations 93.9% 91.9% N.M.
LIFE
----
Premiums and contract deposits $23.5 $23.9 -1.7%
Premiums and contract charges earned 24.3 24.8 -2.0%
Net investment income 15.0 14.6 2.7%
Income before tax 5.4 4.4 22.7%
Net income 3.4 2.6 30.8%
Pretax income increase (decrease) due to
valuation of:
Deferred policy acquisition
costs $(0.1) $- N.M.
Life policies in force (in
thousands) 220 226 -2.7%
Life insurance in force $13,651 $13,597 0.4%
Lapse ratio - 12 months
(Ordinary life insurance) 5.5% 5.7% N.M.
CORPORATE AND OTHER (A)
-----------------------
Components of loss before tax:
Net realized investment losses $(0.8) $(2.4) N.M.
Interest expense (3.5) (3.4) 2.9%
Other operating expenses, net
investment income
and other income (1.1) (0.7) 57.1%
Loss before tax (5.4) (6.5) N.M.
Net loss (3.6) (4.3) 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
March 31,
---------
2009 2008 % Change
---- ---- --------
INVESTMENTS
-----------
Annuity and Life
Fixed maturities, at fair value (amortized
cost 2009, $3,025.0; 2008, $3,103.8) $2,713.9 $3,060.5 -11.3%
Equity securities, at fair value
(cost 2009, $50.8; 2008, $52.4) 31.4 46.0 -31.7%
Short-term investments 300.7 120.3 150.0%
Short-term investments, securities
lending collateral - 70.5 -100.0%
Policy loans and other 110.1 103.4 6.5%
----- -----
Total Annuity and Life investments 3,156.1 3,400.7 -7.2%
Property & Casualty
Fixed maturities, at fair value (amortized
cost 2009, $681.6; 2008, $710.1) 658.5 705.7 -6.7%
Equity securities, at fair value
(cost 2009, $21.9; 2008, $41.8) 15.9 38.2 -58.4%
Short-term investments 43.8 11.5 280.9%
Short-term investments, securities
lending collateral - - -
--- ---
Total Property & Casualty investments 718.2 755.4 -4.9%
Corporate investments 23.6 0.1 N.M.
Total investments 3,897.9 4,156.2 -6.2%
Net investment income
Before tax $57.9 $56.6 2.3%
After tax 39.1 38.5 1.6%
Net realized investment gains (losses)
by investment portfolio included in
Corporate and Other segment income (loss)
Property & Casualty $(8.2) $(0.2) N.M.
Annuity 4.1 (3.4) N.M.
Life 3.3 1.2 175.0%
Corporate and Other - - -
--- ---
Total, before tax (0.8) (2.4) -66.7%
Total, after tax (0.6) (1.6) -62.5%
Per share, diluted $(0.02) $(0.04) -50.0%
N.M. - Not meaningful.
-5-
HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview (Unaudited)
(Dollars in Millions)
December 31, June 30, December 31,
March 31, 2009 2008 2008 2007
--------------- ---------- --------- -----------
Net Net
Unrealized Net Unrealized Net
Fair Gain Unrealized Gain Unrealized
Value (Loss) Gain (Loss) (Loss) Gain (Loss)
------ --------- ---------- --------- -----------
FIXED MATURITY & EQUITY
SECURITY INVESTMENTS
Fixed income securities
U.S. government and
federally
sponsored agency
bonds $122.9 $3.4 $4.9 $0.8 $2.3
Municipal bonds 617.2 (3.7) (14.1) (5.1) 6.0
Corporate bonds
Financial
institutions 188.0 (35.3) (19.9) (13.5) (3.0)
Other 1,373.2 (140.0) (122.6) (34.1) 11.0
High yield 132.9 (28.0) (38.0) (9.5) (4.6)
Foreign government
bonds 8.0 (0.1) 0.5 0.9 1.5
Mortgage-backed
securities
Prime agency 512.3 21.2 20.5 (2.3) 1.9
Prime other 15.9 (0.2) (0.6) (1.6) 0.5
Sub-prime, Alt-A 6.6 (0.9) (0.7) (0.6) (0.1)
Commercial
mortgage-backed
securities 238.5 (115.8) (108.6) (23.9) (5.4)
Asset-backed
securities
Sub-prime, Alt-A 3.3 (0.1) 0.1 (0.1) -
Collateralized
debt obligations,
collateralized
loan obligations 15.1 (4.7) (0.4) (2.5) (3.8)
Other 105.7 (8.3) (8.5) (1.1) 0.4
Preferred stocks
Financial
institutions 49.0 (34.2) (29.8) (9.4) (7.6)
Other 29.9 (12.5) (10.0) (4.2) (3.4)
---- ----- ----- ---- ----
Total fixed
income
securities 3,418.5 (359.3) (327.2) (106.2) (4.3)
Common stocks 1.2 (0.3) - 0.3 (0.5)
Derivatives - - - - -
---- ----- ----- ---- ----
Total fixed
maturity and
equity
security
investments $3,419.7 $(359.6) $(327.2) $(105.9) $(4.8)
======== ======= ======= ======= =====
-6-
SOURCE Horace Mann Educators Corporation
CONTACT: Dwayne D. Hallman, Senior Vice President, Finance of Horace
Mann Educators Corporation, +1-217-788-5708/
Web Site: http://www.horacemann.com
(HMN)
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