HORACE MANN EDUCATORS CORP /DE/ Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Strong first quarter core EPS of $1.07, record first quarter. On track to achieve 2025 goals, including ROE above 10%.
• Property and Casualty segment strong with combined ratio improvement, limited CA wildfire impact. Life and Retirement earnings below prior year due to higher mortality. Individual Supplemental and Group Benefits earnings slightly above prior year.
• First quarter sales strong: Individual supplemental up 61%, auto up 8%, annuity net contract deposits up 6%.
• Investments in omnichannel distribution capabilities: 40% increase in website visitors, individual supplemental products added to online quoting, launch of Catalyst CRM showing early success.
• Customer campaigns: 80th anniversary of Horace Mann and Teacher Appreciation Month, expecting over 300,000 educators to engage.

Segment Performance

• Property and Casualty: Reported combined ratio of 89.4%, a 10.5 point improvement over prior year. Core earnings $27 million, more than double prior year. Net written premiums $185 million, up 8%. Catastrophe losses $16.4 million, slightly above prior year but excluding CA wildfires, below prior year and historical averages. P&C sales $25 million, up 9%. Auto net written premiums $122 million, up 4%, combined ratio 95% improved 5.8 points. Property net written premiums $64 million, up 15%, combined ratio 79.9% improved 17.8 points.
• Life and Retirement: Core earnings $8 million, below prior year due to higher mortality. Net written premiums and contract deposits $140 million, up 7%. Retirement net annuity contract deposits up 6% on core 403(b) products, persistency 91.6%. Life annualized sales up 4%, persistency nearly 96%.
• Individual Supplemental and Group Benefits: Contributed $14 million of core earnings, slight increase over prior year. Net written premiums $67.6 million, up 5%. Individual Supplemental net premiums $31 million, slight increase, benefits ratio 28.4% below prior year, sales $5 million, up 61%. Group Benefits covered lives modestly increased, net written premiums $37 million, up 7%, benefits ratio 53.3% due to seasonality. Total net investment income $116 million, up 10%, managed portfolio income up 15%.

Guidance

• Revised core earnings definition to exclude certain non-core items, updated core EPS range $3.85 to $4.15.
• 2025 guidance: roughly $90 million of catastrophe losses (in line with 5-year historical average), total net investment income $470 million to $480 million, managed portfolio income $370 million to $380 million, interest expense and other corporate items $35 million to $40 million.

Risks

• Macroeconomic uncertainty could impact performance. Life and Retirement segment may be affected by mortality blips within actuarial expectations. Individual Supplemental and Group Benefits have small book size leading to outsized quarter-over-quarter variances and seasonality considerations.

Q: Can you talk a little bit about the run rate earnings power of the Life and the Supplemental and Group Benefits segments? Was 1Q '25 a good level?

A: Ryan Greenier mentioned Life Retirement is a 'ballast' business with occasional mortality blips within expectations, and for Supplemental and Group, benefit ratio was close to longer-term blended ratio with first quarter seasonality.

Q: Could you talk about the cat activity in 2Q '25 year-to-date? And also remind us how we should account for seasonality going into the second quarter?

A: Steve McAnena said April cats were in line with expectations, second quarter historically is heaviest for catastrophes with about 50% of cat load typically in Q2, and full year cat estimate maintained.

Q: Curious about the individual supplemental distribution in the quarter. Were there any new school districts added that drove that growth in the quarter?

A: Steve McAnena said 61% growth was due to good success with benefit specialists, strong activity, and Q1 '24 was a light sales quarter making year-over-year comparison challenging, with 12-month rolling growth around 12%.

Q: Sticking with Supplemental and Group Benefits. We've seen other companies begin to talk about increasing the reserves for Supplemental and Group Benefits products to assume some level of macro deterioration that would lead to increased utilization. Is that something you've begun to reserve for? Or how do you think through that?

A: Ryan Greenier said quarterly reserve changes related to claim counts, annual reserve assumption review done, no cause for concern as public sector has performed well in recessionary environments, and nothing changing current assumptions.