Q1 2021 Horace Mann Educators Corp Earnings Call
Good morning, and welcome.
The Horace Mann educators first quarter 2021. After this call all participants will be on listen only mode can you need assistance. Please signal conference specialist by pressing star followed by zero.
After the presentation between opportunity to ask questions. Please note that this event is being recorded.
I'd like to turn the call I'll work, that's how we're watchful Vice President of Investor Relations. Please go ahead. Thank you and good morning, everyone. Welcome to Horace Mann's discussion of our first quarter results yesterday, we issued our earnings release and Investor supplement copies are available on the investors page of our website, along with our Investor presentation, which was posted this morning.
Are you does your items, President and Chief Executive Officer, Bret Conklin Executive Vice President and Chief Financial Officer will give the formal remarks on today's call.
With us for Q&A, we have Matt Sharpe on distributions Mark Desrochers on P&C Tyson Sanders on supplemental Mike working Brock on life and retirement and Ryan Greener on investment.
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 1095, the company cautions investors that any forward looking statements include risks and uncertainties and are not guarantees of future performance.
These forward looking statements are based on management's current expectations and we assume no obligation to update them.
Actual results may differ materially due to a variety of factors, which are described in our news release and SEC filings.
In our prepared remarks, we use some non-GAAP measures reconciliations of these measures to the most comparable GAAP measures are available on our news release.
I'll now turn the call over to Marita.
Thanks, Heather and good morning, everyone before we start today I want to welcome Tyson Sanders to our quarterly Investor calls.
<unk> has been a part of our supplemental team for seven years and has run day to day operations for the past year. He joined my senior team in March and I know, you'll appreciate his knowledge of the business.
On to earnings last night, we reported Horace Mann's highest first quarter result ever with core EPS of $1 10.
All four segments had higher year over year core earnings with our property and casualty segment recording and 86, 2% combined ratio.
<unk> seven points of catastrophe losses.
We saw encouraging signs of sales momentum in March, particularly in retirement that continued into April as many educators start the relationship with Horace Mann through retirement savings enrollment this bodes well for future cross sell opportunities.
Bret will go through the results in detail, but the highlights of the quarter also included 21% growth in investment income for our managed portfolio and a seven 6% increase in book value excluding unrealized gains.
This strong start positions us to meet our full year 2021 core earnings guidance and demonstrates further progress towards our long term goal of a sustainable double digit return on equity.
Our annualized core return on equity for the first quarter was nearly 13%, although pandemic related policyholder behavior changes in the auto and supplemental lines added about two and a half points.
We are committed to and confident in our ability to achieve a double digit return on equity that extends into the post vaccine world.
We expect to see benefits in 2021 from the three drivers we are pushing to sustain our Roe.
At our target level first benefiting from additional net investment income by increasing the allocation to alternative investments.
Which have a higher return profile in the first quarter annualized returns in our alternative portfolio were very strong at nearly 11%.
Primarily from private equity limited partnership investments considering the strong global economic outlook. We remain confident in continued strong contributions from this asset class.
Yeah.
Second expense management.
Beyond the shorter term pandemic related expense reductions, we continue to realize savings from actions such as the full integration of the supplemental segment in 2020 as well as the benefits from continued infrastructure improvements.
Third cross sell and new sales, we are seeing encouraging signs of sales growth bolstered by the rollout of COVID-19 vaccines across the country educators want help identifying strategies to plan for their futures March was the highest month for annuity contract deposits in.
On several years and April was another strong month March and April were good months for life sales with application submissions trending up.
And auto although written premiums are down compared to pre pandemic first quarter of 2020, we are seeing signs of progress we've been more aggressive in pricing for new business in several key profitable states.
Which has driven a jump in new business auto production, we're planning additional investments in new business in more states, where our profitability outlook supports those moves.
In addition March new unit counts and auto were higher than March of 2020, just one month doesn't make a trend, but it's clear our agents are actively engaged for supplemental we expect to see growth later this year as the educators complete their annual benefit enrollments.
Ultimately, although the pandemic extended our transition to growth.
We have used the time to strengthen our value proposition for educators school districts and their administrators. We were quick to acknowledge the new challenges educators were facing and focused on making interacting with us easier and more efficient by accelerating ease of doing business enhancements and virtual meeting case.
Abilities.
Although pandemic related circumstances are limiting some typical sales activities, we are clearly seeing signs of momentum.
Per school district administrators, the pandemic accelerated their need for help addressing educator recruitment and retention as we mentioned last quarter. We're currently partnering with school districts, representing about 130000 educator households to provide our student loan solutions online platform for.
Their employees.
This solution helps educators received the public service loan forgiveness day deserve along with other resources to help manage student loan debt.
During the quarter, we completed the rollout of a new platform to the district's debt used Horace Mann Force section 125 administration.
Improving service levels for districts and their staffs.
We believe many of these districts, which represent approximately 40000 educators will offer our supplemental products to their employees in the upcoming benefits enrollment period. These educators could have the opportunity to select our supplemental products on a tax advantaged basis.
This section 125 models seamlessly integrates virtual and in person consultation during the benefits enrollment process enhancing our capabilities to help administrators address the challenges they face.
We're also accelerating the build out of our group's supplemental products just like we accelerated the integration of the supplemental agents.
Rollout of vaccines means that many schools have now resumed in person instruction, which is a good thing for districts for educators and for students were leveraging those opportunities as they develop but hybrid learning environments, social distancing and other precautions remain as pharmaceutical companies.
Undertake clinical testing for vaccine efficacy in children.
Turning to the agency force as we've noted in 2020, we focused on the integration of supplemental agents. This had the benefit of allowing us to fill uncut bird territories with successful agents experienced in working with school district officials and educators as the environment becomes more.
Our conducive to bringing new agents up to speed, we're turning to recruitment and the pipeline is filling.
Overall, I'm very pleased with how we use 2020 to prepare and where we are today moving into the growth phase we have discussed over the past several years we.
We have the right products to meet educators unique needs knowledgeable trusted distribution tailored to educator preferences and modern scalable infrastructure that is easy to do business with.
Our revolving virtual sales tools bring important efficiency advantage and makes the opportunity to do business in person a bonus bringing all these pieces together position us well for making progress towards our goal of significantly larger educator market share.
Before I turn the call over to Brett I want to take a moment to recognize teacher appreciation week at Horace Mann, we are continually inspired by the dedication of our country's educators to their students are respect that has only grown over the past year.
Working across multiple sometimes simultaneous teaching settings, they remained focused on reaching and helping each and every student.
As a member of our communities in the early days of the pandemic. We provided funding to help educators provides school supplies for their students at home.
Recently educators said communities in school districts could help them help students move forward by narrowing the focus on grade level standards and deemphasizing teaching to standardized testing.
Staffing with more per our professionals to provide targeted health and expanding social emotional learning resources to help students processed the events of the past year.
To address these needs in our headquarters location the newly formed tourists Mann educators Foundation made its first donation to implement a social emotional learning program for Houston, All the elementary and Middle School classes in the Springfield, Illinois Public School District.
The Horace Mann Educators Foundation was formed last year and funded with an initial contribution of $1 million. It's giving philosophy is based on the belief that educators are the experts and how to best help students succeed the foundation's primary focus will be on needs identified as broad.
Blocks by educators schools and districts.
Our mission to take care of the educators, who take care of our children has guided our company for the past 75 years that mission, we will continue to be critical to our growth and success moving forward.
And with that I'll turn the call over to Brett.
Thank you Marita and good morning, everyone first quarter EPS was a record dollar intense.
<unk>, 41% over last year, our second consecutive record quarter, and a solid step towards achieving our full year EPS guidance of $3 to $3 20.
Further core ROE for the first quarter was nearly 13% and 11, 2% for the 12 months, which was up from seven 6% for the prior 12 months.
Although the pandemic and other unusual factors clearly contributed to the improvement our strategic initiatives, we're equally as important and we remain on track to our long term target of sustainable double digit Roe.
As we said last quarter, our current year guidance presumes, a gradual recovery from the lingering effects of the COVID-19 pandemic on results.
We're encouraged by initial signs of momentum in sales as a vaccine rollout has accelerated.
Going to dive right into the performance and outlook for each segment and then I'll finish up with what the rest of 2021 on beyond holds for Horace Mann.
For property and casualty core earnings were up four 9% for the quarter, reflecting a two four point improvement in the reported combined ratio driven by continued lower auto loss cost and partially offset by higher catastrophe losses.
Premiums for the year were down about 8% due to continued lower new business volume.
We saw more than half a point improvement in auto policyholder retention and property retention remained in line with recent quarters and rates were generally stable.
Underwriting income was up year over year, largely due to the improved combined ratio P&C.
<unk> net investment income was up four 9%, reflecting favorable returns on the alternatives portfolio, while income tax expense was higher.
That is largely because last year's tax expense was reduced by a onetime tax benefit due to the cares act treatment of carry backs of net operating losses.
The biggest driver of the improved combined ratio in the quarter was seven seven point improvement in the underlying auto loss ratio from last year's largely pre pandemic first quarter.
Loss costs continue to reflect changing driving patterns due to the pandemic as well as the ongoing benefit from the progress we've made over several years to enhance our pricing segmentation and improve our long term model profitability.
Over the course of 2021, we anticipate auto loss ratios gradually rising toward our long term target levels, while we presumed some favorable changes to driving patterns become more permanent we expect those will be offset by factors increasing loss severity.
And we anticipate fairly stable rates in 2021.
Because of the strong auto results the combined ratio improved despite the $2 2 million dollar increase in cat losses above last year's level and a higher property loss ratio.
Cat losses added seven points to the combined ratio compared with five three points last year.
Although april's catastrophe losses are not outsized, we remain very mindful of our historical second quarter cat loss experience with the 10 year average at almost $30 million or 20 points equivalent to about half of the historical full year average our 2021 EPS guidance continues to <unk>.
<unk>, our full year cat loss load of nine to nine five points.
The underlying property loss ratio was three three points higher than last year's first quarter, primarily because of higher non cat weather losses, and non weather water losses.
For full year 2021, we anticipate the underlying property loss ratio will be stable with rates expected to rise in the low single digits. Finally, the expense ratio improved by half a point, partially benefiting from the timing of some expenses.
Over the course of the year, we expect to continue to benefit from our expense optimization programs, even as we add back some travel and other activities that were curtailed for much of 2020.
Our strong first quarter for property and casualty keeps us on track to achieve our full year combined ratio. That's in line with our longer term target of 95% to 96% and the $54 million to $58 million in 2021 core earnings that we've guided to for this segment.
Turning to supplemental the segment contributed $31 $7 million on premiums and $11 $4 million to core earnings as it continues to experience favorable trends in reserves and the short term benefit of changes in policyholder behavior due to COVID-19.
Net investment income on the supplemental portfolio reflects the solid progress we are making in improving the supplemental investment yield.
Supplemental sales were $1 million in the first quarter across the industry supplemental products have traditionally been sold through a worksite enrollment model and have been the most impacted by the limitations of a virtual only model.
<unk> Mann agents continue to cross sell supplemental products to their existing educator customers and we continue to support benefit enrollments with steady sales metrics and more open geographies.
Premium persistency rose one point during the quarter to 91, 5% a testament to the value educators placed on these coverages with about 284000 policies in force.
Nonetheless, the return to the historical sales trajectory of the supplemental business is likely to require more normal benefit enrollment processes and the use of our newer virtual capabilities. So we can provide consultative guidance on the products to educators.
Our outlook for supplemental 2021 core earnings of $33 million to $35 million reflects the expectation that there will be a gradual shift in policyholder claims behavior, resulting in a full year pretax profit closer to our longer term target of mid 20%.
For the life segment annualized sales were even with last year with further improvement in the lapse ratio application activity is trending up and the number of issued recurring term and whole life policies was in line with pre pandemic levels March was the second highest month for life sales since the pandemic.
Again in April continued strong.
Core earnings reflected mortality trends that were above actuarial expectations consistent with recent industry trends. The volume of claims related to COVID-19 remains low with face values, averaging 35000 and the.
The average duration of the policies paid in the first quarter with over 30 years.
Mortality costs were partially offset by higher net investment income segue.
Segment net investment income was up 25, 6%, reflecting favorable returns on the alternatives portfolio.
We continue to expect life segment 2021 core earnings will be in the range of $17 million to $19 million.
For the retirement segment first quarter core earnings ex DAC unlocking were up more than four times last year, reflecting the strong net interest margin debt.
On locking was favorable.
Net interest spread improved 102 basis points over last year's first quarter to 253 bps in part due to strong returns on the alternatives portfolio.
This is above our threshold to achieve a double digit ROE in this business.
Our solutions for augmenting retirement savings remain a core need for educators March was the highest month for annuity contract deposits for several years and April was also strong for the full quarter those deposits were even with last year's first quarter.
Our educator customers continue to see annuities is an important way to achieve their financial objectives and they are complemented by our suite of fee based products.
We continue to anticipate retirement core earnings ex DAC unlocking will be in the range of $38 million to $40 million.
Turning to investments total net investment income on the managed portfolio was up 21% to $71 $1 million largely because of improving valuations for our alternatives portfolio, which generally reports on a one quarter lag.
Total net investment income rose 16%.
Driven by signs of a strengthening economy. The equity market continues to rise, which resulted in strong private equity returns and other.
Turn it up strategies like private credit infrastructure and commercial mortgage loan funds posted solid performance in the quarter.
We remain confident in our allocation to alternative investments and are targeting a high single digit return from this diversified portfolio.
Core fixed income portfolio had a yield of four 2% in the first quarter compared with $4 five 1% a year ago in the first quarter. We continued to focus purchases in our core portfolio on high quality corporate and government agency securities, while Opportunistically, adding high yield exposure.
On the.
Our core new money rate was 283% in the first quarter and based on current market conditions. We continue to anticipate a core new money rate of about 3% for the year.
Net realized losses in the first quarter were $9 million, including $3 2 million of total impairments on investments largely related to tactical trading decisions to improve portfolio yield.
For 2021, we continue to expect total net investment income will be between 370 and $390 million, including approximately $100 million of accretive investment income on the deposit asset on reinsurance.
This expectation for investment income is captured in this segment by segment outlook summarized on our investor presentation and in our core EPS guidance range of $3 to $3 20.
In closing our profitable businesses are generating capital and we're committed to prudently using that capital to create value for shareholders in the first quarter, we increased our quarterly shareholder dividend for the 13th consecutive year.
We also opportunistically repurchased almost 40000 shares of Horace Mann stock in February.
There was $19 $1 million remaining on our existing repurchase authorization.
That said our top priority for excess capital remains growing our businesses at returns that meet or exceed our ROE targets as we gradually move into a post vaccine environment, we expect to see more opportunities to put that capital to work to support market share expansion.
We believe we are prepared to leverage these opportunities and have proven we can nimbly respond to new challenges. We expect 2021 will show on other step on a steady upward trajectory we've been on for the past several years toward our long term objectives of sustainable double digit Roe.
And increased education market share.
And with that I'll turn it back to Heather.
Operator, we're ready for questions.
Well now begin the question and answer session to ask a question you May Press Star then one on your approach going forward.
On the speaker phone please pickup your handset before pressing Nicky.
Your question. Please press Star then two.
This time, we will pause on them.
On both the roster.
Our first question comes from John Barnidge with Piper Sandler. Please go ahead.
I think we've lost Mr.
So Gary Ransom Europe at this time.
Please go ahead.
Hi, good morning.
Good morning, Good morning, I was wondering if you could.
Talk a little bit about frequency and severity in auto I'm looking across various companies and.
It seems to be coming back at different paces for different companies as we reopened I wonder if you could just also.
Talk about it in terms of your geography, you know from California might be one thing other parts of the country might be another and just.
Just comment generally on how you see that trajectory of frequency returning to normal over the next few months.
Yes, Gary before I turn it over to Mark one of the things that we always try to remind everyone is the educator segment that we're in and we always talk about that segment.
We're not immune to trends, but somewhat insulated so with that as a backdrop drop I'll, let mark go a little bit deeper on the details mark.
Sure.
Even some of the changes we've seen in the nature of accident frequency, most notably debt, we're seeing a lot fewer Fender Bender type events tend to focus a lot more right now on what's going on with overall loss costs and our loss cost they do remain below pre pandemic levels.
As we expected they are moving slowly back towards what we saw prior to the pandemic each month.
The overall loss costs are closing in.
Towards.
That Pete pandemic level as Brent mentioned in the script, we expect that to normalize as we get to the end of this year early next year.
The loss cost.
Compared to pre pandemic levels.
Pretty consistently down across most of the accident related coverages. The one exception I would note is <unk>, we're actually seeing loss cost debt are at or above pre pandemic levels.
Okay.
Oh, I I get that you're talking about the overall loss costs, but if we've.
Focusing on a little bit on severity there definitely is.
There are certain components of the share from repair and medical costs are going up but I wonder if you could comment on what youre seeing there or whether there's any acceleration or or change in the kind of cost cutting in the life, yes, there's definitely an increase.
I'm, sorry, Gary Yes, there's definitely an increase in severity.
But.
I'd say it falls into a couple of different areas are a few different areas. One there's just kind of a normal rate of inflation to we are certainly seeing some impact.
Supply chain issues driving up cost of repairs.
One of the biggest factors were seeing.
And from digging into the data is.
And when you take out some of the smaller events. What's left is just.
It has a larger average severity and.
Thats accounting for a lot of what we're seeing in the increased severity.
And Gary This is marita, one thing I'd add to that again back to the educator segment. When you think about variability in the data across the industry and you think about swings whether its loss cost whether its severity trends, whether it's pricing or range is not quite as wide as the industry.
I mean, we tend not to have.
A large pricing increases and therefore, not large pricing decreases on.
Obviously, when the industry was trying to write the profitability scenario, we all saw some pretty big pricing increases and we've talked about that over the quarters.
But with the exception of those times, we tend to be pretty tight.
We did restore the profitability of our book of business, we day to increasing the increased pricing for that profit restoration in that work I mean, we see our profitability our trends much more similar to our historic averages we have a profitable auto book it speaks to the.
The nature of the clients that we have in our educator book and a lot of the profitability that underlies that is the work that we've done over the last couple of years on on restoring the profitability of that book and it was heavy lifting and I think we did.
A very good job. So I do think we have to remember that we tend not to swing and have a wide range of variability. The one exception to this is the frequency trends when the world.
It came to a stop for a while they are and we all saw a pretty.
On a pretty big drop as we all know in frequency and that's a trend that even educators werent going to werent going to escape.
Yes.
Just.
Looking at how the educators free behave particularly.
There was a lot of shopping going on for auto insurance over the last year.
Probably up and this is a job that's a general statement rather than an educators statement, but did you see that at all educators was there anything in.
As you go out you know agents trying to do it are they getting any quote more quote opportunities at all or was it just.
So subdued and stable yeah.
Yeah, I mean, I would say generally what we saw and we see it in our sales trends as well is we saw a very busy group of people focused on educating kids and a real tough time.
They had fully virtual day had back to the school they had high bred and they had constant change and I think their focus was on trying to create an education environment in the worst possible scenario any of us could imagine.
What we saw is we were able to get a hold of them and we were able to have the retirement conversations that we needed to have.
With them and you saw a pretty constant.
Retirement enrollment and numbers in retirement through the pandemic and certainly as Bret said in his script.
With our March and April activity in the retirement line then.
And then you saw on lifestyles.
As educators thought about life insurance as they as we all did question to the environment that we were in we saw pretty steady life sales with with March and April for life, being very strong and with application counts now being up.
And then when you go past that when you think about auto.
I'm not sure our educators thought debt quoting their auto was the most important thing they needed to do over the last couple of months and in the supplemental on what we found was across the whole industry that is something that's typically done.
In the school systems, and we spent our time focusing on getting ready for the fall season, getting ready for enrollment and improving our virtual tools getting our supplemental agents up to speed and integrated and doing the things that we could do in that space to get ready for.
For the sales momentum that we feel is coming on but even in auto when you think about auto what we saw was March of 2021 being stronger than March of 2020, we saw April of 2021 being much stronger than April of 2020, So theyre back.
In the game they are back start to think about.
Broader set.
<unk> of questions, but I don't think auto insurance was educators top priority over the last 10 to 12 months.
Fair enough.
Thank you very much.
Thanks, Gary.
Next question from John Barnidge Piper Sandler. Please go ahead.
Thanks, Paul guys haven't taken viewed on fast enough.
Like to hear more about your thoughts around double middle sales.
Vaccine distribution ramp through the quarter loss in schools reopened maybe sales activity and expectations between now and school opening.
I'm really just trying to triangulate and think through because some are dynamic this time around different given the returns.
Yeah, I mean, I talked a little bit about that John and I and we tried the best we could to give you some color in both of our scripts. This is a work site.
Sale right. This is truly a sold.
Products and we took time to ramp up we built platforms. We improved our approaches we taught the historic supplemental agents, our full value proposition on our other lines of business.
<unk>.
Put these agents and previously uncovered.
Territories and taught them our full value proposition, we really positioned ourselves for growth towards the second half of the year on and.
And it was thoughtful it's what we planned for it's what we assumed it's what we even told the world was going to be the case.
When we looked at sales very early in the pandemic, we looked at 2021 being very similar to 2020 as far as the total size.
<unk> ability to grow but in reverse and we expected debt growth would ramp up towards the second half of the year, mostly in the supplemental business. We knew it would be the business most affected by this and we also knew that we would improve the profitability.
Because of folks.
Maybe hesitancy to seek care and have the activities necessary.
Two to have a claim in that business, but we also knew that the sales would be soft until agents across the industry. We're back in the game in the schools doing the enrollments that need to be done we are very well positioned for the benefits enrollment cycles for the 2000.
'twenty, one 'twenty two year.
And we have really shored up our products our filings in these states are in really good shape, we talked about the filing of group products and building of platforms. We feel like we took the time we needed to position this very profitable profitable business for growth in the latter half of this year in search.
Into 2022 and beyond.
And within that vein, you've made a fair point about giving agents and meeting with the teachers and educating on supplemental we're really only three months out right now from returned to school for the academic year.
Can you talk about what you've been maybe been told.
No.
Between urban and rural states around physical access to schools expected for the fall maybe as it relates to cash.
As compared to the current academic year and a pre pandemic here.
Yes, it's a great question and one that we think about and talk about all the time and it's not just a question we ask ourselves as it relates to a pandemic, although that certainly magnifies. It access is always the question for us and we have various levels of access across our footprint today.
I mean first I'm really proud of the company our agents our employees what we did during this time period they got creative.
When I think about.
How are agents accessed educators and parking lots and anywhere where they could to make this work just like everybody else.
GAAP did in this kind of an environment. They found new ways to support their educate our clients and as a company, we built new new tools and new platforms, we tested new sales practices. So as we move forward. What I know is we will have the benefit of physicality again combined with all the virtual.
And platform changes and improvements we made.
During the pandemic.
When I think about a lot of folks day whats the permanent change going to be in the post vaccine world is it going to mean no access and I don't think Thats. The case, we lived through various degrees of access in the past and we're finding what we did during the.
Pandemic actually improved our relationships with schools, we were there when they needed technology, we were there when they needed Internet access we were there supporting educators with our student loan solutions platform with their retirement needs all through.
This pandemic environment and I think it's only strengthened how the districts feel about our value proposition and the company.
We are supporting them through that.
For example, in our section 125 work.
We transformed our section 125 platform for these schools to a much more robust platform and have the ability to sell our supplemental products through many of those section 125 platforms. I really think we spent a lot of time getting ready.
Four.
On a much stronger second half of the year for us and we are not seeing signs of where we had access in the past the school districts, not allowing us back and I know that because even during the pandemic. They allowed us to be in the parking lot. They allowed us to do many of the things that we did outside.
And in small groups that we used to be able to do in in large meeting settings.
Thank you very much for your answers Youre welcome.
Thank you next question comes from Matt <unk>.
Please go ahead.
Hey, Thanks, good morning.
I was hoping to follow on on just kind of the general kind of observations on growth returning and wondering if theres anything <unk> been able to observe from there has been a real split in kind of the pace at which individual states are reopening.
Texas and Florida on one in places like California, and New York on others.
Have you guys been able to see any takeaways at a more granular level on a state by state basis in terms of ads.
Yes, geographies reopen kind of the activities you are seeing and maybe that tells us something about the future.
Yeah, I think it mirrors the world that we live in right. We're all in a pretty odd time, what do you do when do you do it how fast can you get there hesitancy, where humans and I think we're seeing that clearly in our space as well, it's not only on a state by state basis, but it's on.
A district by district basis, and I think it's going to be fast in some places gradual and other places and slow in other places just like we see how the world.
Opens up generally and how people respond to the work environment returning to the office hi bred situations and our situation is the same and in many cases, we're using tools and techniques to help agents get back in the game.
Whether it is different incentive programs in the supplemental space, whether it is providing unique opportunities for agents to take advantage to stick their toe back in I mean.
About the world that we're in and how this reopening will happen. It's happening the same thing here, we're pushing hard and in some cases it will be gradual in some cases, it's going to be pretty quick and in other cases. It may take a little bit of time, and that's probably appropriate I mean, we've been we've been following the approval.
Guidelines.
We have been very careful and when you have a sales process that includes physical interaction you've got to be thoughtful about how you do it and how you transition back but make no mistake it's happening.
The trends that we're seeing in March and April are real we expected them to happen and in some places I think theyre going to be fast and in other places I think it is going to be gradual but we we have a what we called back to school calendar, we have back to school activities and this year, although it's going to be a.
Little bit different in our groups will be a little bit smaller we are doing back to school events. Our agents are ready to get back in the game.
We've talked a lot about will this summer it looked like a regular summer will we see some pent up demand in the summer that maybe you wouldn't typically see.
In our trends in a normal summer so what we know about our data it's going to move around a little bit over the next few months and not be a typical year just like last year wasn't a typical year, but we are encouraged with the momentum that we're seeing and we said that this year was going to be a little soft and in <unk>.
Total it probably will but we feel good about the trajectory that we're seeing and it's clearly in the data.
Okay, great. Thank you for that and then one quick other one just.
Do you want to ask a question on the uptick and life mortality trends on the quarter I know it is not specific to Horace Mann, we've seen it at other companies across the industry. Just if you had any thoughts on.
For your book what might be driving that is it is there a COVID-19 impact there.
Clearly unrelated to COVID-19, just any thoughts you might have there.
Yes, Matt This is Brett let me, let me take it and if Mike wants to add a little color on Ken but I think you described it well.
We have one quarter doesn't make a trend and certainly we've seen a little bit of uptick.
And our mortality I think as you recall, we had a very strong 2019, and we had an elevated level compared to that year last year, yes, we're running a little bit ahead of what we had anticipated, but nothing that we haven't seen before here again, the COVID-19 impact is.
Very is very small with what we've seen.
To date.
Mike if you want to add any other color to that.
Thanks, Brian I think you covered it I think as you mentioned before.
Our COVID-19 volume related to claims.
Is relatively small and even with face amounts averaging around 35000 average durations still around 30 years for the first quarter. So we continue to monitor we don't see a permanent shift in debt.
And we are seeing positive signs returned to normal.
<unk> will continue to monitor it but not a permanent shift.
Yes, the only other the.
The only other thing I'd add is we've had a fair amount of discussion as it relates to the potential of the lack of people seeking treatment and whether or not you talk about COVID-19.
Packed as it relates to cause of death, but you also look behind the numbers and although we are not seeing it in the data we know that Theres a fair amount of conversation out there are other folks have commented it and talked about it we're not seeing it in the data, but yet you know intellectually that there may be some.
Some underlying trends were potentially someone putting off a test or putting off treatment, although it might not be indicated as COVID-19 could be finding its way into the numbers, but I think Brett and Mike are both right. When we look at what we saw on mortality in the quarter.
No our April number and what we're seeing in April and that did not continue in April. So we feel pretty confident we have a long track record in this business. The actuaries have their corridor of of what they expect in the data and when we look at it through four months.
It is not unusually outsized.
Alright, Thank you for the color I appreciate it.
Yes.
Thank you. The next question comes from Meyer Shields.
VW. Please go ahead.
Great. Thanks, good morning, everyone.
Good morning, good morning.
So we talked a little bit about <unk>.
Supply chain influencing severity on the auto side I guess, we've been getting some questions about what you're seeing and what you're expecting on the property side.
Yes, you broke up a little bit they are mere bucks per Mark's benefit in case, you didn't hear the question you had asked about supply chain and we've heard a little bit of it in the auto space and you asked about property and I am assuming you are talking about the cost of lumber and building supplies and what we're seeing there so I'll turn it over to Mark.
And see if he has any additional comments.
No we are absolutely seeing.
The impact of lumber cost definitely.
More than doubled over the past year, I think youre going to remember is that generally speaking debt related costs are about.
Probably 20.
20% of our overall cost within homeowners. So it's not it's a significant impact.
But at the same time, we have things like inflation guard.
We've adjusted to deal with the fact that.
This rising replacement costs.
Okay. That's helpful a.
Couple of other really small questions one.
When you talked about building a pipeline of recruitment for supplemental they can have an observable impact on operating expenses.
I'm, sorry, Mary you broke up and we couldn't hear the beginning of that question you want to try again for us.
Thanks for your patience.
Does the supplemental recruitment is that expected to meaningfully impact expenses over the remaining three quarters of the year.
I think you said the supplemental recruitment.
Yes that was that.
Quick question.
It is yeah I'm.
Im sorry, you were breaking you were breaking up there a little bit do you mean of agents.
Yes, you would talk about building a pipeline of recruitment, which has clearly got it okay. Sorry about that the line I don't know why it was breaking up but we got you now.
Again, we spent a fair amount of time in 2020, both in our traditional agency plant and certainly with the MTA agents that were previously supplemental only agents made a conscious decision in this environment that our best use of resources would be to <unk>.
Hello, right, there integration get their training and get their licensing get them ready to do the full Horace Mann value proposition, what we saw in the first quarter and we haven't spoken a lot about that was beginning to pivot that time and attention back into the pipeline back.
Into organic recruiting and we did add agents in the first quarter and are ramping up our recruitment throughout 2021.
Because it makes sense to do it now right you can imagine recruiting in a pandemic environment is difficult in a lot of people are talking about the war for talent and trying to hire on people in this environment. We had some decent success in the first quarter and our pipeline is full for the rest of.
The recruitment cycle, but I think it was wise for us to look internally and put our resources in places, where we thought it would bear fruit and that's worked really well for us.
Okay very helpful. And then final question and I don't know enough about the world of education to ask this intelligently, but with the addition of the desired power professionals add meaningfully to your target market base.
Yeah, it's interesting whether it's whether it's that survey question or the answers to other survey questions that we asked you know another thing I think we did really well in this environment was connecting with our educator base asking them. These questions learning even more about the <unk>.
<unk> that we already knew I think that combined with the potential of public education being extended two years potentially with pre K to 14, certainly does extend the amount of public employees that we could add into <unk>.
Our database and thinking about our bull's eye target. If you will I mean, we certainly look to pre K now, we certainly look to community community colleges now, but the ability to increase the amount of educators and I think in this political environment and certainly post pandemic we're.
Creasing the amount of public educators, we have.
And our target and spending a fair amount of time getting to know where and how we would think about that expanded opportunities. So clearly yes.
Okay fantastic. Thank you so much.
Yes.
Thank you and our next question comes from Alex Bolt on the Raymond James. Please go ahead.
Hi, I'm, calling in on behalf of Greg Peters wanting to make sure you can hear me okay.
Can.
Okay great.
I don't want to go back.
Conversations about frequency.
COVID-19 driving habits, possibly persisting beyond the pandemic as I think about the educators. It seems work from home initiatives may not be able to persist as well as in other industries.
Is that the right way to think about it or is.
Is it just.
Volume of cars on the road.
It could be lower due to a work from home.
I mean, I think that I'll go back to my insulated, but not immune comment from the very beginning we did talk about the frequency benefit from that type of miles driven and the fact that roads would be a little less congested the fact that commuting path.
Returns will change so I think the rest of the world going to hybrid environments. The rest of the world stretching out or changing the workday does change the amount of people that are on the road when educators typically go to work and return so we do expect.
<unk> that we will see a gradual return to more normal frequency, but make no mistake. We do believe there is some element of permanent or at least semi permanent is there. When we think about frequency trends I don't know if you have anything to add to that mark.
Yes.
But what I would add is.
As we track our educators today, and we look at mileage compared to accident frequency or mileage is.
Yes.
Pretty close to pre pandemic levels not quite back yet book the accident frequency change still trails net so I think it is evidenced that.
Even as our teachers, many of whom while the students may be in a hybrid environment to teachers are there every day.
Their mileage has returned to normal book the accident frequency Hasnt, which I think is.
An indicator of the fact that Theres just less traffic volume, even if our teachers are going back and forth to work every day, they're going to be evolved in less accidents and you also have to remember that our teachers have spouses and quite often those sponsors are.
Other type of professional environment, where they may not be driving as much either so we have kind of debt both of those impacts playing into the frequency equation.
Okay I appreciate you.
Clearing on my thought process, there and then maybe thinking about persistency retention.
Labs, it seems to be improving over.
The past couple of quarters.
Maybe it was to think about you know kind of initiatives cross selling.
Maybe just.
Clientele loyalty.
How did those play into that persistency.
Does the virtual sales process.
Helping now would help.
Maybe beyond the pandemic.
Yes, we think so and I appreciate the question and this may also connect to the earlier question.
When I think about auto retention and you did see that increase in auto retention. The shopping commentary that we had earlier our customers are pretty loyal we tend not to give them reasons to leave us we try to be a consistent fair market for their auto and.
What we also know is property does tend to follow auto sales. So when we see an uptick like we did in March and April we would expect that property would eventually follow some of those new.
Customers.
As well, but this is a this is a loyal group of people.
Retention certainly is helpful. Another comment is think about the uptick in retirement through the year and certainly what we saw in April many people start their relationship with Horace Mann through.
Our retirement plan and those are eventual clients that we can cross sell.
We also have a client base in Horace Mann that maybe didn't have any supplemental <unk>.
Products with previously NDA, and we have the ability to sell supplemental products to those customers as well. So the pandemic may have helped from a frequency perspective, but it really did at least temporarily suspend some of those cross sell.
<unk> that we could do in a more robust way and we're anxious and looking forward to taking some of the tools that we've built taking advantage of the time and the opportunity we took to affect the things that we could affect during this time and put our whole value proposition forward, we tend to cross sell better than the <unk>.
Industry Cross sells and I think that speaks to this homogeneous niche of educators that we have.
Okay, Great and then maybe just lastly on.
On catastrophe in catastrophe reinsurance.
I'm just kind of wondering if.
If theres anything else that could have counted towards.
The catastrophe reinsurance.
Reinsurance retention.
On.
Or if you have any comments there.
You mean in the first quarter, we didn't have any events that would come close to hitting our retention level in the first quarter.
Okay. Okay. Thank you I appreciate all the answers yet.
And then if you have a question. Please press Star then one.
We have a follow up question from John Barnidge of Piper Sandler. Please go ahead.
Yes, Hey, thank you for getting to me Mark you made a comment.
Non educators spouses.
Obviously, it's less than 50%, but is there any weighted dimension what percent of auto tariffs are those educators spouses that are non educators, just trying to sense like how much of that frequency benefit could actually permanently somewhat.
Yes.
Yes, John we can get you those numbers. We have full household makeup we know how many multi car policies. We have we know that makeup of the household.
Going to differ by state it is going to debt provide district, but yes, we we have clear data on that and we can give you a deep dive on that.
Great. Thank you so much that flow problem.
Great. Thanks.
Yes.
Net.
On the Q&A.
Yes, Q&A as the old bond no other questioners written book.
So we'll go back to Mr. Russell for closing remarks.
Great. Thank you everyone for joining us today on Florida.
The coming months and does not really debt.
Investment.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.