Q2 2020 Horace Mann Educators Corp Earnings Call
Good morning, and welcome to Horace Mann second quarter 2020 results conference call.
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I would now like to turn the conference over to other whats all Vice President Investor Relations. Please go ahead.
Thank you and good morning, everyone welcome to Horace Mann's discussion of our second quarter results.
Yesterday, we issued our earnings release.
Copies are available on the investors page of our website, along with our Investor presentation, which was posted this morning.
That's right as President and Chief Executive Officer, and Bret Conklin Executive Vice President and Chief Financial Officer, what gives a formal remarks on todays call.
With us for Q1 day, we have not sharpen distribution marked Russia on P.S.C. Wade Rubenstein and supplemental like what can Brock unless retirement and Ryan Greenier Ananda.
Before turning it over to Maria I want to note that our presentation. Today includes forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
The company cautions investors that any forward looking statements include risks and uncertainties and are not guarantees of future performance.
As forward looking statements are based on managements current expectations and we assume no obligation to update though.
Actual results may differ materially due to a variety of factors, which are described in our news release NFC filings.
In our prepared remarks, we used some non-GAAP measures reconciliations of these measures to the most comparable GAAP measures are available in our news release.
That I'll now turn the call over Tia Maria.
Thanks, how they're good morning, everyone and welcome to our call last night, we reported second quarter core earnings of 67 cents per diluted share.
These results clearly reflect the value we bring to the educators we serve.
Our solutions orientation as well is the positive impact of our long term profitability initiatives.
And the transformational actions we took in 2019. They also reflect some unusual pandemic related effects that make comparisons to other periods challenging.
Right well help distinguish between the positive outcomes of our strategic initiatives and the ways in which the pandemic has influenced our performance later in the call.
But at a high level, we are raising our 2020 full year core EPS guidance to a range between $2.80 and $3 to reflect the strong first half results.
In my remarks, I want to focus on how we are adjusting and evolving our business practices to better meet the needs of a more physically defense educator workforce.
For the past 75 years, what has remained constant at Horace Mann as our commitment to supporting educators today educators are facing immense challenges in their professional lives on top of the challenge is the pandemic has caused and all of our personal lives whether educators are in schools.
At home or working in a hybrid model in the upcoming school year, we're here to help them protect what they have today and prepare for a successful tomorrow.
We delivered on that promise this quarter in three ways.
First we helped customers across the country affected by tornadoes and others severe weather repair their homes and property. We have a regularly noted that second quarter is historically, our most costly quarter for catastrophes, but this quarter's weather was especially severe causing 34 point.
7 million in damage to our customers inline with the extremely high industry cat losses this quarter.
The second quarter continues the trend of more severe weather that we have seen accelerate over the past decade.
Catastrophe loss costs added 22 points to our combined ratio, which is higher than both our five year and 10 year average as.
I remain proud of our employees an agency for quickly and compassionately, helping educators put their lives back together, but I'm, especially proud of that commitment during a pandemic when everyone is facing challenges in their own lives as well.
Second we provided premium flexibility to our customers on both the company wide and individual basis, our PNC results reflected the impact of 10 million in premium credits for the reduction in driving during the second quarter across all of our products Grace period. It was available through this.
Second quarter, and we worked with customers to adjust coverages as needed and third we continue to invest in new solutions to help educators with the issues they face.
For example for four years, our agents been employees have helped educators addressed the burden of student loan debt through complementary student loans solutions programs, beginning with small group and one on one meetings. This direct consultative model provided guidance on federal student loan forget.
MS programs and payment plan options through this program, we identified 250 million and forgiveness opportunities for educators.
We are scaling up the program. This school year by partnering with tuition Io to offer complementary online student loan management accounts for all educators nationwide.
Educator student loan debt is holding them back from reaching life milestones and taking care of their own families a factor contributing to the national teacher shortage.
In June 34% of educator surveyed by Horace Mann, we're considering leaving the profession within the next three years for a higher paying jobs. The current climate could very well accelerate this trend driving good teachers, who care about their students out at the profession.
And overwhelming majority of teachers told us that having their student loans forgiven or a lower monthly payment would make them more likely to stay in their chosen field as a company dedicated to supporting educators, we want to help facilitate that not only to help those teachers, but also the communities that benefit.
From their influence.
Looking ahead, we remain committed to our long term objective of a double digit return on equity and significant education market share expansion.
Strategic actions, we've taken over the past several years have positioned us very well for the current environment last year's transaction to reinsure, a block of legacy annuity business with 4.5% minimum crediting rates significantly mitigated our interest rate risk.
The addition of our supplemental segment is diversifying earnings and providing another solution that educators want our profitability initiatives, including improving our underlying auto loss ratio by more than five points reinforced our strong financial foundation.
These factors contributed to our 9% return on equity for the quarter pandemic related factors also contributed for example, PMC earnings increased as average auto frequency dropped substantially for the entire second quarter, but our telematics data shows that people have.
Started taking longer trips that they are driving at different times, a day and that generally there is less congestion.
This is consistent with anecdotal comments that people are opting to drive for their summer travel. This year bottom line mileages, returning to more normal levels, but the miles driven are different than pre pandemic Myles.
The pandemic is also having an impact on the trajectory of our market share expansion new sales for our supplemental line, especially have historically relied more heavily on worksite marketing efforts consistent with industry practice.
While the retirement segment saw 3% growth in annuity deposits, we were not surprised that there was a short term impact on our overall second quarter sales whether due to complexity is brought on by the pandemic whereby fewer face to face interactions.
But our relationships with educators are built on more than a physical location, we understand the issues that they are facing and we work together to solve them.
That's what educators deserve and what Weve proudly accomplished over the past 75 years.
We always aim to interact with educators in a way they prefer and that remains applicable whether schools are open or not in the current environment. Obviously more educators are conducting business virtually and we have the tools in place to provide a seamless experience for both agents and customers remember Horace Mann has.
Relationships with educators in roughly half the schools in the country. Some of our agency traditionally reached educators with in building interactions others, primarily reached educators through direct marketing referrals and events many agents do both.
We're now seeing more agents fully engaged in our end to end virtual sales process, including online financial wellness workshops and appointment setting our online workshops are going, especially well as we are utilizing the same technology. Many educators have recently adopted for teaching.
We are also piloting a number of new virtual events and engagement strategies that leverage our 75 years, serving the education market. These includes social media based teacher appreciation event special back to school promotions that encouraged digital engagement and special offers for student loan.
Solutions, leveraging our new relationship with tuition Io successful approaches will be about valuable part of our marketing tool cat whatever the post a vaccine world looks like.
Well, reaching educators that school will always be beneficial for agents, it's not required for us to be successful. We are successful because we provide products designed to meet educators unique needs knowledgeable trusted distribution tailored to educator preferences, a modern scale.
Global infrastructure, that's easy to do business with.
That doesn't change during a pandemic what we are doing is focusing on those approaches that better aligned with educator preferences in this pre vaccine environment.
During these challenging times people are more likely to focus on protection and preparation and this is especially true for educators. We are proud to provide the solutions to help educators protect what they have today and prepare for a lifetime of financial success.
For 75 years, the core of our business has been a deep appreciation for the work that educators do that appreciation has only grown in 2020 as we all more fully understand the impact educators have on our families our communities and our country. Thank you and with the.
I'll turn the call over to Brett.
Thanks, Merida and good morning, everyone. As Merida noted our core earnings were up four times over last year's second quarter.
Property and casualty core earnings were substantially higher than the year ago period.
We're benefiting from a long term improvements in underlying auto loss ratio that we had achieved over the past few years, but the short term effect of lower auto frequency due to reduce driving was also significant.
Lower auto frequency more than offset the effect of auto premium rebates as well as unusually high catastrophe losses on our property results.
The supplemental business made another strong earnings contribution the second quarter is normally there lightest for new business, but sales were lower than normal due to limited worksite access due to the pandemic.
Annuity contract deposits grew again in the retirement segment as our educator customer base continues to look for ways to secure their financial future. Our retirement products are just one of the ways. We can help them achieve their financial objectives.
Our managed investment portfolio has held up well despite this year's economic volatility.
The modest sequential decline in net investment income due to the mark to market adjustments and the alternatives portfolio, primarily impacted the property and casualty segment.
The losses, we booked in the second quarter reflected the first quarter performance up limited partnership funds that report on a one quarter lag.
As we indicated in Yesterdays release, we've increased our full year 2020 core EPS guidance range to $2, an 80 cents to $3.
We've raised our expectations to reflect some updates to our assumptions for the property and casualty segment, which I'll discuss in a moment.
Performance for other segments remains generally in line with the expectations. We described when we announced first quarter results.
Looking at the business by segment for property in casually core earnings more than doubled to $11.3 million from $5.1 million last year.
Premiums were down about 10%, primarily because of the premium credits the 15% credit recognizes the lower level of driving by policyholders in April and May.
The reported combined ratio improved eight points from last year's second quarter, primarily because the quarter began with low loss frequency due to reduced driving.
According to data from HM drive, our telematics App daily customer miles driven started trending upward starting in mid April.
Loss frequency average well below our historical levels over the entire quarter for the equivalent of about 25 million and reduce losses.
In addition to the lower frequency related to the pandemic. The combined ratio reflects the long term benefits of the progress we've made over several years to improve our auto results as well as a 6.8 point improvement to the second quarter property underlying loss ratio largely from lower non cat weather.
Or losses, and 22.2 points from catastrophe losses, 9.3 points higher than last year's second quarter.
Fundamental progress we've made in property and casualty certainly supports our strong outlook for the segment.
However, our revised outlook for $70 million to $75 million in PMT segment earnings also reflects four other assumptions first when we think about frequency and severity in the coming months, we're anticipating total mileage to continue to move back to near historic levels. That's.
Said Hmm drive supports those miles are likely to be different than before.
For example, more long distance driving and less concentration during two school in home from school hours, while those differences may help keep frequency lower we see indication that severity is moving higher as a result, we have planned for an underlying auto loss ratio near pre pandemic lever.
Sales for the remainder of the year.
Second we have raised our full year catastrophe guidance to approximately 10 point on the full year combined ratio or about $60 million to $70 million through the first half of the year catastrophe losses totaled $43.5 million.
Second half catastrophe losses have averaged about $21 million over the past 10 years.
Third lower net investment income for the segment due to the performance of the alternative portfolio and finally, the suburbs patient benefits related to Pgts successful emergence from bankruptcy on July 1st.
In the third quarter favorable prior year Reserve development will include approximately 4.8 million pre tax for our share of the recovered losses.
Third quarter premiums will include approximately 3.5 million for the return of reinsurance reinstatement premiums.
Policyholder retention remained steady and we're seeing some rebound in new business. However rates appear very stable in the current environment. So net written premiums for 2020 will be below 2019, even before the 10 million dollar impact of the premium credit.
Turning to supplemental over the first four quarters. This business has been part of Horace Mann. It is provided 14% of total premiums and contract charges and about 32% of core earnings dramatically illustrating the diversification value. It provides.
This quarter supplemental added $33.3 million in premiums and segment core earnings were $9.5 million.
Net investment income on the supplemental portfolio was in line with our expectations.
Supplemental sales were $700000 in the second quarter, new relationships to then Ta have traditionally come from in person events at schools and historically been lowered in the summer months.
As we said last quarter, we're accelerating the integration of the Mt agents into our distribution system. So that they have access to more tools to reach more customers. We expect sales to begin to return to a more normal trajectory in the coming months.
Premium persistency remained stable at about 89% with almost 300000 policies in force as we've said policyholder retention for this business is relatively stable quarter to quarter.
We are still benefiting from the changes and policyholder behavior related to covert 19. For example, policyholders may opt to treat minor accidental injuries at home rather than visit the health care facility our outlook for Supplementals full year core earnings remains in the range of $31 million to $33 million.
Collars with the pretax profit margin moving toward the low to mid Twentys.
For the life segment sales were below last year's second quarter, primarily because of lower sales of single premium products.
Sales of recurring premium products were stable core earnings for the quarter also reflected lower net investment income.
We continue to expect this segment will deliver $10 million to $12 million in excess earnings in 2020 with mortality continuing to meet expectations.
The volume of claims related to covert 19 remains very low with face values, averaging about 30000.
For the retirement segment, we are now close to having comparable year over year results. Following last year's annuity reinsurance transaction. The reinsurance agreement address the interest rate risk of a legacy block of individual annuities with a minimum crediting rate of 4.5%.
We continue to see growth as our solutions for augmenting retirement savings remain a core need for educators.
Annuity contract deposits were up nearly 3% for the quarter and they continue to be an important part of the products that.
Annuities appeal to the financial objectives of our educator customers, while complementing our growing suite of fee based products.
For the quarter retirement earnings ex DAC were $6 million down from a year ago, but more than double the first quarter operating expenses continue to trend down which will be a long term positive and net investment income recovered. We continue to expect core earnings for 2020 will be in the range of.
$20 million to $24 million.
Turning to investments total net investment income was down about 1.9 million sequentially as we experienced the negative impact of the first quarter market decline in valuation for our alternatives portfolio, which generally reports on a one quarter lag.
We experienced negative marks across different fund types, including private equity infrastructure private credit and commercial mortgage loan funds.
We remain confident in the long term returns from these investments, but we have reduced our 2020 outlook to reflect their market driven negative performance in the first half of the year.
As a result, we now expect alternative investment income to be between five and $10 million on a full year basis below our longer term return expectation for this asset class.
Further our core fixed maturity portfolio remains well positioned to weather the near term market volatility in cobot 19 induced economic downturn.
The core fixed income portfolio had a yield of 4.39% in the second quarter compared with 4.74% a year ago. The addition of the supplemental portfolio on July Onest last year reduce the yield on the consolidated core portfolio, but we're making solid progress in improving the supplement.
No investment yield.
In the second quarter, the consolidated new money rate was about 4% and based on current market conditions, we anticipate purchases near that level for the remainder of the year.
In the early part of the second quarter, we Opportunistically purchase some triple B and double B rated corporate credit and investment grade asset backed securities at attractive spreads.
As the quarter progress spreads tightened and we saw fewer attractive opportunities as a result, our purchases later in the quarter focused on high quality Municipals in government Agency Securities.
Net realized investment gains of $3.2 million in the second quarter were partially offset by $500000 of impairment losses. In addition, we had the mark to market gains of $6.6 million on equity Securities.
Total 2020 net investment income is now expected to be between 340 and $345 million, including accreted investment income on the deposit asset on reinsurance you will recall. This amount is an actuarial driven calculation and should not be affected in the short term.
By market volatility or prevailing interest rates.
This expectation for investment income is captured in the segment by segment outlook summarized in our investor presentation in in our core EPS guidance range of $2, an 80 cents to $3.
To summarize we continue to see the positive impact of our transformational actions and profitability initiatives, particularly the addition of the supplemental segment and the annuity reinsurance transaction in our retirement segment our outlook for these segments remains unchanged.
And property and casualty full year results will be higher than we anticipated last quarter. Despite slightly lower net investment income because of the suburbs patient recovery as well as the atypical reduction in miles driven because of the pandemic.
These factors have the potential to help us reach in our or we need or 9% for 2020 and were key to the increase in our guidance range for 2020.
But make no mistake, we remain committed to achieving a sustainable double digit return on equity with significant growth in our education market share.
We can achieve the former by executing on our PD I initiatives in completing the integration of Vinci, a fulfilling our cross sell objectives and aligning their investment portfolio with our current strategies.
The current environment may push back our timeline for market expansion, but our objective remains unchanged and it's the same when we've had for 75 years to reach more educators with solutions that help them meet their financial objectives.
Thank you and with that I'll turn it back over to Heather.
Yes, we are ready for questions.
Okay.
Thank you we will now begin the question answer session.
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At this time, we will pause momentarily to assemble roster.
And the first question will come from Matt Carletti with JMP Securities. Please go ahead.
Morning.
Good morning this morning.
Merida I was hoping you could maybe expand on some of the comments you had at the beginning to call about adapting to the current environment and more specifically maybe talk a bit more depth about.
How you adapt to selling in what is looking like an increasingly remote environment at least in the near term.
Maybe a little bit on how that differs between kind of the existing schools, you're in and trying to get into schools that you aren't in.
Are there areas of your book lines of business or otherwise, where that's more challenging versus others.
Lastly.
What we on the other side of this when things get back closer to normal.
Do you think you'll be left with tools that will.
Still be able to leverage in that environment or or they really just up people prefer impersonators usan, while your remote now.
Matt.
Thanks, Matt I. Appreciate the question, we obviously spent a fair amount of time in the script addressing Ness and you spent a fair amount of time asking a very very good question I mean, it at the end to the day I think this starts with the fact that we've been doing this for 75 years, we've been in this homogeneous segments serving educator.
As for very long period of time, and if you think about the changes that have occurred in our country and to the education system over time, we're a company that adapts to a fair amount of change and manages this.
Quite well.
Regardless of.
The outcome of a pandemic.
This is a company that adapts well to change I mean, our core principle of protecting educators and helping them protect what they have to today and secure their retirement is just something that we do not being pure product purveyors is probably also helpful to us that solution or.
Orientation.
That we provide we know this space well, we have strong relationships, we talked to educators, we see.
What they face some we adjust our business model I mean, let's face it in this kind of environment. We're not alone every business every individual has to adjust to this very odd.
Set of circumstances that we find ourselves in a nurse theres a lot of unknowns, but what we do know is that there will be some limit.
To school access so what we did as we assumed that we would have little or no access for this entire school year and we've built that into our business into our business plans, we've we've completely virtualized our sales process.
Most of the capabilities, we're already dealt on because of the modernization efforts that we built into our into our PD plans, whether its E signature electronic applications online enrollment quit quote capability. All those things are very helpful. In this type of environment, you combine that with some.
Brand new capabilities online financial workshops that we're getting.
An awful lot of people posting.
Posting two and as we mentioned in our script. We're also piloting a lot of new digital engagement strategies and events and will scale up those that are successful and probably not repeat the ones that aren't.
For me when I think about two things our relationship model very helpful. In this environment and our multi line model I mean, we're just not model line product purveyors, we have strong relationships with this very tight.
Hello genius market niche that we have you asked a question about what's a little more challenging I think I'd say, it's probably the supplemental.
Based sales first supplemental for us and quite frankly for the whole industry traditionally were built more around worksite marketing, but again I think this is where our multi line model is very helpful. One of the things I'd say is about a third of the Horace Mann agents are already selling supplemental and.
Assurance and incorporating that into their repeatable sales process into their overall relationship with the client and I think this is where our cross selling opportunities are very helpful to us. We already took this opportunity to accelerate the NT agents selling Horace Mann products if.
You remembered we always talked about that as being the longer pole in the tank, we accelerated at it made sense for us to do that and that will be complete.
This fall and I think I'd sum it up by saying the need for our products doesn't go away. It may be postponed people may have more pressing issues that theyre concerned with but they still need the products in the solution orientation that we bring to the table and lastly, a comment.
Momentum.
You know obviously, we did see a hit two new sales in the second quarter, and I think thats understandable and you're seeing that across the industry, but where we are seeing is may was better than April June was better than May July is better than Jim. So the momentum is picking up as people learn the new way to navigate.
In this environment and take advantage of the relationships that they took that they took years to build long answer to a short question, but I wanted to make sure that I got it in there because I do think it is the question and Thats a rate.
And but we're very optimistic.
Right now that's very helpful. I guess, just one follow up to that just you guys are clearly, yes. It sounds like tackling that very head on and adapting very quickly do you have a sense just in general terms. It would you characterize your competition is doing the same or are they dragging feet more they just don't have the tools to do.
It because I know a lot of this stuff you guys had kind of underway already before that this happened how how would you kind of classify the competition generally on that.
I think what I'd say, if I'm glad were us.
I don't want to speak about competition, but I'll speak about us I mean, we can pivot on now with the addition of our supplemental product line. The things that we did in 2019 to position ourselves I think we did what we said we would do and we built a very strong total value proposition for what educators need.
Probably now.
More than ever so I I believe in our agents ability to respond I think their relationships with the schools.
They work with in the individual customers that they work with is really important and something that we can leverage.
When you think about school access.
We're in half of the buildings across the country, we have relationships. Some extremely strong. Some just beginning I think it's harder to start a school relationship virtually but I give us a better shot and doing that because of the the relationships. We have with the school next store.
Or the relationship we have.
With the association that someone be it launched two or if that a teacher moves to were known in the space. We're number one in the market doing what we're doing with educators.
So I give our chances to navigate this environment.
Much higher probability than those that are trying to do it on a single product basis. You know many of our agents have full access now many of our successful agents don't have physical access and when you saw some of the access restrictions coming from unfortunate school shootings or violence.
Our school systems, we adapted well to that and got through it. So we know the market and I'd like the fact that we've got a full condray of products to sell these educators and even more importantly.
Built on solutions understanding what theyre facing right now and I think we all know with what we're watching on TV and reading in the newspaper, it's it's a difficult environment for them to navigate and we're here to help them help them through that and they're turning to us.
Great. Thank you very much for the color and best of luck.
Thanks.
Thanks, guys.
The next question comes from John Barnidge with Piper Sandler. Please go ahead.
Thanks.
Can you quantify koby claims experience.
Was de Minimis, but just wanted to figure that out.
Sure. John This is this is Brad I think even taking it back to the first quarter. We mentioned, we only had built up all.
Cope with claims on that side, but through the through the.
Second quarter cumulative label first and second quarter, we've had about 24.
Claims with an average face value of $30000. So from a dollar amount.
Just slightly less than a million dollars and I would also add that when you kind of look at our mortality.
The increase in the mortality.
You know is actually.
Greater than the prior year and that's really.
A matter of fact that the prior year was more favorable than the current year being unfavorable were actually pretty much spot onto our plan, but that kind of given.
The magnitude slightly less than a million dollars.
Okay, great. Thank you very much my other question I have.
There was a comment in the press release about the timeline to achieve some long term targets may extend can you expand on this a little bit because I know slide deck said, but our page seven in the slide deck. It still has had double digit core aro either 2021 to 2025 in there.
Yes, I mean, the first thing I'd say as I think it's what I just said in response to Matt.
Question. When you go back and you look at the core components of our we improvement that we outlined those underlying improvements are all there almost exactly the way.
We said whether it was this the reinsurance transaction to mitigate our interest rate risk whether it was the purchase of entity to broaden our product offering and improve our earnings whether it was our auto profitability improvement or the efficiency expense reduction initiatives those.
All add up.
On to the ROI, we improvement that we said that we would generate.
And when I think about how I think about the timeline it does get slightly extended because of the softness in the topline temporarily that we and quite frankly, the whole industry will experience as you know as customers get back to whatever the new normal looks like for.
Everyone Youll begin to see.
You know those numbers start to increase for us and the industry as we all find our our new way and navigate navigate through that so it isn't I wouldn't even say, it's a pause I would just say, it's an extension in those improvements and I feel really good that we can check those boxes that we outlined as far as our ROE improvement and set ourselves up really well.
For the next chapter of our journey, Yes, I guess I would maybe just echo marinas comments and we delivered on the are are we that we set out to achieve a 19, we are certainly delivering on the one point improvement that we set out to achieve in 2020 and and yes. We are reaping some benefits Colgate related but may.
No mistake, what we set out to achieve we are in fact executing on those initiatives that we put in place and obviously, we confirmed our guidance at the end of the first quarter and obviously, we increased our guidance in the second quarter and tackle Murray. This comment we feel very good that we're on.
Operating from a position of strength and yes, we are still focus on growth. It may be in more of a virtual flavor to it but that is continue has been and continues to be a focal point.
Okay. Thank you ill re queue.
The next question will come from Meyer Shields KBW. Please go ahead.
Great Thanks, and good morning.
Morning.
I want to start by asking you about supplemental two quick questions. One is the.
Behaviour policyholder behavior normalizing along with the recovering driving in other words are we seeing the.
The magnitude of the.
Impact shrink month to month.
And your talked in the supplemental there just the covance behavior of the of that group I would say similar.
To our comments and we talked about it that we certainly rates some benefits in the second quarter with having a full quarter of fault, maybe opting out not to go to the hospital or.
Minor activities that certainly benefited.
The benefits ratio, but I would say like.
Auto frequency.
Theres still uncertainty what the latter half of of the year is going to bring there.
So we're we're being cautious with respect to.
Getting ahead of our ski season baking in continual increases in the frequency, yes, there are benefits or frequency, but they lessened as we've moved out in the quarter and really we do anticipate as we talked to in the script that.
That we would anticipate that those getting back to near historic levels, and and probably similar to auto.
When people delay sometimes the severity of those claims can go up too so.
Obviously on the PNC side auto specifically we are.
Anticipating.
Frequency returning back to more normal levels, but also kind of anticipating severity, so probably have a commensurate increase as well.
On the on this supplemental piece I think Brett credit is right and I think about it like everything else, we see in the world. There is a closer to normal wet level that begins to emerge, but you wonder whether it goes back to a full measure pre vaccine right now.
That's probably true about everything we see we see in the world. So we're watching at you're absolutely right I think people postpone some of these things for obvious reasons.
But.
You would expect that post vaccine you would you would assume a more normal more normal run rate.
On the sale side.
The sales side of that Theres been a fair amount of research done about whether there's also a pent up demand for the products post pandemic as people think about.
Protecting risk as people think about out of pocket expenses. After an event like this so there have been a fair amount of studies.
And we are encouraged by the fact that the uptick rate from a sales perspective and supplemental post pandemic might also be favorable.
Okay Thats helpful.
Helpful. Today.
Pricing for supplemental if you kind of pre pandemic behavior.
There really has been no change to the pricing pricing methodology or thought process as it relates to supplemental it's pretty it's pretty standard.
Okay, and then final question on the auto size so.
Everything that we're hearing a 40 of consistent with sort of broader themes.
Covering driving but I was wondering if you could talk about the stability of the trends that you're seeing right now and your ability to respond dynamically we have things like infection rates spiking in a few states.
And then maybe a.
Towing rather than an increase of driving.
Yes, I'm going to actually let mark to Rocher talk specifically on what we are seeing here at Horace Mann in our.
Actual data in terms of that trends in the driving miles the driving behavior and how it's impacting our frequency severity. He can definitely add some color commentary there. So market do you want to talk through that that'd be great.
Sure. Thanks, Brett.
No as you know we.
Track, our HM drive data, our telematics app pretty closely on a weekly even daily basis watching that data as we look at the second quarter throughout the quarter.
As you heard from other companies, we saw steady increase in miles driven.
To the point that it's approaching as Britain radio that both alluded to earlier near normal levels.
But those are different miles than they were from a pre covert standpoint.
When we look at the data that we're seeing in him drive.
What we're seeing is what would typically be a lot of miles say between.
Seven and eight or six and seven in the morning drivers of module and then in the afternoon driving from school that those miles of shifted significantly.
To be spread throughout the middle today, and what we think Thats driving is people are driving close to the same number of miles that they were pretty cobot, but those miles being different has caused the frequency while steadily increasing its well throughout the quarter to not increased at the same rate.
That we've seen.
The increase in miles driven.
But one thing that's really offsetting that is.
Is that we have seen somewhat elevated coverity throughout the quarter. So what would we would typically expect to be.
Low to mid single digit severity across the board now we're seeing more mid high single digits.
And we remain concerned I think as the.
Year Progressive unemployment rates stay high that we have the potential to see increased UN UAN claims.
That would somewhat offset any benefits that we may continue to see on the frequency side.
Okay fantastic. Thank you so much.
You're welcome.
Yeah. The next question will be for Gary Ransom with Dowling and partners. Please go ahead.
Yes, good morning, Hi, how are you hearing geared.
Wanted to ask about the PG any recovery is the.
The 4.8 million portion is that just from your 5% sliver is that correct that number yes, that's exactly right Gary and then the remainder is the return of the reinstatement premium.
So let us come up those two pieces equates to the 8.3 million that will recognize in the third quarter.
Okay.
And I, so if I gross up that 4.8, I can figure out what the what the reinsurers received in the process correct.
Okay. Okay.
All right Yeah, I did want to ask a little bit about the severity question that you just you touched upon it fairly.
Now but.
I feel a lot of the companies are talking about the higher speeds the actual higher impact it's not necessarily just the disappear disappearance of commuting hour Fender benders, but the bad claims actually are worse and I just wondered if you were.
Seeing anything like that as well.
Yes, I'll answer that Gary not not so much believe it or not when we look at the data nation drive we haven't seen.
Significant increase in.
Be.
Our drivers obviously, we're not immune from the effect of speeding in general.
Thats going on in the highway. So we made our drivers may not be speeding to the same extent.
As.
Other companies are seeing but we certainly brought into folks every now and then that.
You know have been speeding and we certainly see no increase.
And thats or severe accidents, so it's for us it hasn't been as much about.
A significant pop in.
And those kinds of accidents and that maybe why we're not seeing.
Severity, even higher which some people have speculated severity could go.
Into double digits, and we haven't seen that.
As of yet.
Okay. That's helpful.
And on the the of the growth potential I mean, this I'm thinking property casualty here and just getting new business I'm.
Everyone is talking about shopping being down generally, but maybe it's starting to return and and I just wondered what you're seeing in that regard as there is I know you're seasonally different but.
As as we get close to the beginning of the school year are you seeing some opportunities to reengage and get a little better growth in new business.
Yes, absolutely Gary as I mentioned, we did see momentum ramping up I mean first folks.
Figuring out there repeatable sales process that tweaks they have to make the tools that they have on to employ you kind of have to reinvent as we all are in our daily lives. The way you do things and our agents are quite resilient in doing that and we're seeing that momentum ramp up.
I like the fact to your point Retentions are clearly holding.
Probably because of the shopping behavior comment that you made but what I would say is what gives us an awful lot of confidence is the fact that we are in.
Half the school buildings across the country, we have strong educator roots and relationships and now we have the ability to cross sell across that total value proposition right. We spent an awful lot of time over the last several years building product in improving our infrastructure and modernizing it.
And strengthening the tools that are our distributors have to serve this segment and it's all coming together so when I look at the opportunity for us to cross sell now I've got a third of my Horace Mann agents already writing supplemental insurance ahead of where we thought we'd be and I've got 220, or so and T.H.
Agents, joining us where that conversion will be complete in the fall, where there will be able to sell Horace Mann products.
To their supplemental clients and like we said this creates it maybe taking a little bit longer than we had originally thought but make no mistake. It's there.
The ability to cross sell he existing clients and then the ability to take this strength and bringing bringing it to the other half half of the schools that we're not in.
Just a follow up on that when you said a complete in the fall does that mean, all the agents will be license complete there.
Licensing process they need to do.
Yes, yes, okay. Okay. Good.
And then I'll, let maybe my last question is just on.
Telematics and just.
You always there it has the demand increased for that as we've seen maybe at some of the other auto competitors and is there a need.
For a on the actual by the mild product that you detect in your teacher community.
Yes, yes.
Yes.
We certainly seen in a.
Second quarter.
An increase in our HM drive.
Registered users of about 30% from where we were in the first quarter and the first quarter growth was about 15%. So we've seen certainly acceleration I think and demand for for that product and we continue to look to roll it out.
To more states as time goes on and regarding the question on mileage I mean, that's something I think we all need to to look at and evaluate.
Certainly we we have.
More granular.
Rating by mileage in our.
Rating plans, but certainly not.
Got it had a per mile basis, like I think you're you're thinking yeah. That's what I was thinking yes, yes.
Okay.
Thank you very much for those answers.
Thanks, Gary.
Our next question as a follow up question from John Barnidge with Piper Sandler. Please go ahead.
Thank you I kind of want to go back to that comment about sequential improvement in sales volume throughout the quarter in into July I guess, when we get there was a walk down the July being above June was interesting given the dynamics of the traditional summer months do you sense like you've got a rush of demand in July.
Well, how does the July compared to traditional July.
Yes. It is July over July. So you know, it's an interesting question because the way we think about it is is this summer the same as a traditional summer right schools closed earlier, our agent typical summer activity Didnt really.
We become a typical summer activity when you think about back to school back to school wasn't a typical back to school. So we probably did see some smoothing of the wall that we've typically occur in a normal summer. So I'll certainly give you that but we were really happy to see.
We.
Agents remaining in the game agents understanding that this is a typical environment as it is for all of us and they're continuing to push on like all of US I think that they're expanding their hours, they're expanding their outreach their presence and I think thats part of.
What were what we're seeing as well.
That's changed tested and then my other question.
I guess, you're prepared to have a virtual school year the entirety.
That's probably prudent but I was curious what percent of your addressable market of six and a half nearly eight to 12 educators has announced the returning to a physical environment fall at least one day week.
Give me some you know considering considering that changes Daisy.
It's high speed.
Under the guise of who knows whether in.
I hope public schools Rochester here Springfield here, Boston anywhere you look across the country you get an announcement that we're going to be a 100% present and then there's some cases that shut things down then you get an announcement, they're going to be 100% virtual and they bring some back you know at the end of the day, we do.
Decided very early on that we weren't going to spend a lot of time and energy on whether schools were back or not we were going to make a planned assumption that we would be virtual for the whole year plan around that worked really hard on virtualizing, our entire sales process. We're re.
Really hard in bringing the tools that agents needs to do this in a new way and in some ways. It's it's a forcing mechanism for our agents that might have been somewhat.
Less likely to change their sales process, maybe some agents a little more rooted in a traditional face to face sales process will now there's this forcing mechanism as we've all learned through resume and other tools that we may not have used in the past that there is a way to do this and do it well so were.
In the opportunity to virtualize, our sales process. So that when there is physical presence either now in the short term or eventually in the long term when physical presence is there it's icing on the cake and not just the cake. So we took that opportunity to stay to folks assume that you can't get in.
Ken and let's let's let's be there for the educators and in some cases, we're finding that we can reach them that they are posting to our online webinars you saw the increase in retirement sales there conservative folks that prepare in times like this and they're taken our call.
Thank you very much.
Thanks.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Thank you very much and thank you everyone for joining US today, we look forward to connecting over the coming months, whether it's a virtual let's forget that are in person I'll just reiterate that give any follow up questions. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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