Q1 2022 Horace Mann Educators Corp Earnings Call

Good day and welcome to the Horace Mann educators first quarter 2022, Investor call. All participants will be in a listen only mode should you need assistance. Please take note of a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone.

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Please note this event is being recorded.

I would now like to turn the conference over to Heather Weitzel, Vice President of Investor Relations. Please go ahead.

And good morning, everyone welcome to Horace Mann's discussion of our first quarter results yesterday, we issued our earnings release Investor supplement and Investor presentation copies are available on the Investor page of our website.

Alright, as President and Chief Executive Officer, and Bret Conklin Executive Vice President Chief Financial Officer will give the formal remarks on today's call with us for Q&A, we have Matt Sharpe and supplemental and group benefits Mark dress shirt and property and casualty, Mike lack in broth and life and retirement and Ryan Green Your Uninvested.

Before turning it over to Marita 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.

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.

Repaired remarks, we use some non-GAAP measures reconciliations of these measures to the most comparable GAAP measures are available in our news release I'll now turn the call over to Marita.

Thanks, Heather and good morning, everyone last night, we reported first quarter core earnings of 64 cents a decrease from prior year well external events affected our bottom line. We are pleased with the sales momentum. We continue to stay in fact April was the strongest sales month, we've had for P&C products since the <unk>.

Beginning of the pandemic and supplemental product sales were double last April .

We're also pleased to have Madison national fully on board and working with us to fulfill our long term objectives.

Sustained double digit return on equity and a larger education market share.

Today I'll first briefly touch on the quarterly results, which Brett will discuss in more detail later in the call then I'll talk about how our commitment to educators and our stakeholders continues to inform our strategic vision and I'll summarize the work we are doing to realize our long term objectives.

For the quarter life, and retirement and supplemental and group benefits segments had steady performance and annuity contract deposits were up 6%. Our total net investment income was up 3% and the current higher interest rate environment bodes well for our portfolio going forward.

Our auto combined ratio improved six six points in the first quarter of 2022 over the fourth quarter of 2021. However in line with the broader industry, our property and casualty earnings continue to be affected by inflation, particularly for auto parts and labor cost.

The impact of inflation was most pronounced in March but our early read of April appears more consistent with January and February despite.

Despite the impact on our near term P&C earnings we remain confident in the profitability and opportunity for the auto line over the long term.

This confidence stems from our auto position pre pandemic, our strategic pricing choices during the pandemic and our longstanding approach for customer cross sell and retention simply put we are focused on offering a fair price for our loyal customers through varied market conditions, we want to keep.

And cross sell our auto customers. If you recall between 2017 in 2019, we undertook an auto pricing and underwriting initiatives to improve profitability, which resulted in a seven point improvement in our underlying auto loss ratio.

Throughout the pandemic, we chose not to lower rates under the assumption that auto frequency would return to quote unquote normal sooner rather than later.

Auto loss trends returned to more historic levels over the course of 2021, we began the process of adding rate where needed to address rising severity.

With inflation accelerating we have updated our rate plan and filing schedule to move ahead with higher single digit to low double digit rate increases in most states. We will continue to evaluate loss cost trends throughout the year, taking rate and underwriting actions as needed.

Minimizing the impact to our educator customers remains a priority we have equipped our agency force with tools and resources to have conversations with our customers on the current industry environment and our agents see more opportunities to quote auto to our educator client base, we do expect the on.

Boeing inflationary pressure on auto loss costs to have an impact on our full year results with that said, we now expect our 2022 core EPS to be at the lower end of our $3 45 to $3.65 range. We continue to expect 10% average annual E. P. S.

Both and sustained double digit Roe.

In 2023 and beyond.

Turning to the long term outlook under our new divisional structure, we are working in tandem to serve educators. However, they received their insurance and financial solutions.

Whether educators are receiving benefits through work.

<unk> solutions from a trusted local advisor or using our convenient direct channels Horace Mann can help them achieve lifelong financial success.

It's a mission that is especially relevant this week, which is teacher appreciation week, our employees and agents are offering their heartfelt. Thanks to the educators, who made a difference in their lives and in communities across the country. We're recognizing the educators, who are dedicated to making sure each and every student is support.

And given the opportunity to reach their full potential.

A natural extension of this commitment to our educator customers is a desire to have a positive impact on all our stakeholder groups.

We do this through integration of ESG factors into both our day to day operations as well as long term planning.

We recently updated our corporate social responsibility reporting which includes a commitment to cut our absolute scope, one and scope two carbon emissions in half by 2030 and achieved net zero carbon emissions by 2050, we've already reduced our emissions by about a third.

Since 2019 through initiatives like installation of a more efficient HVAC system and more than 500 solar panels at our Springfield, Illinois headquarters.

We also undertook an updated materiality assessment to ensure our direction remains aligned with the priorities of our stakeholder groups in late 2021 in early 2022, we solicited feedback on the ESG topics of most importance to investors employees agents and customers.

Community leaders and company leadership.

What we found was that while issues like business business ethics, and data security remains top priorities across stakeholder groups human capital topics, such as diversity equity and inclusion and employee development grew in importance since our last stakeholder engagement survey, we will take this stakeholder input.

Into account as we continuously update our long term ESG plan.

It is against this backdrop that we entered the leadership phase of Horace Mann's growth journey.

And our foundational phase we implemented a multi year strategy that included enhancing our product offerings strengthening our distribution and modernizing our infrastructure.

And our transformational phase, we added capabilities and scale with our acquisitions and improved our overall profitability through the improvement in our underlying auto loss ratio and by re insuring a legacy annuity block during the pandemic, we virtualized our sales process.

East and invested in agency support to enable agents to reach educators wherever they were.

Our two goals remain unchanged first capturing and expanded education market share there is substantial opportunity within the K through 12 educator space of $7 5 million individuals' slide 17 in our Investor presentation breaks down how we are thinking about our short end.

Long term opportunities here, we consider our retail and voluntary supplemental customers as a natural cross sell space for us we.

We have proven effective cross sell processes in place for this group with our newest customers and the Worksite space, we have the opportunity over the next several years to test and learn how to cross sell individual insurance and financial services products to educators reached through employer sponsored products.

Looking through a wider lens beyond Horace Mann customers, we have relationships with roughly 1 million educator households. This includes participants in our student loan solutions program, which helps educators take advantage of the federal public service loan forgiveness program broader still.

We have engaged with far more educators through financial wellness workshops, social media.

Previous quotes and more.

With nearly 80 years of history in the educator space, we know a lot about our nations educators, but we have yet to fully understand the buying propensity and preferences of those $7 5 million individual educators as well as the districts that employ them. We're currently undertaking even more.

In depth research into the education market to better understand educator demographics around financial service needs further refined sales processes and maximize cross sell opportunities.

Second we remain committed to accelerating shareholder value through a sustained double digit return on equity this year and beyond we expect to generate $50 million in excess capital annually, while our first priority for excess capital remains supporting profitable growth, which further drive shareholder value.

We continue to return capital to shareholders through dividend increases and share repurchases in March our board of directors approved a 3% increase in the annual dividend. This is the 14th consecutive year, we've increased the dividend in closing we're excited about the future as one.

Companies supporting educators, and achieving lifelong financial success through both individual insurance and financial solutions and employer sponsored group coverages.

Thank you and with that I'll turn the call over to Brett. Thanks, Marita and good morning, everyone. As Marita noted Horace Mann reported core EPS of <unk> 64 cents below last year because of inflation and other factors affecting P&C results.

Value over the revenue and earnings diversification. We've accomplished in recent years was demonstrated with steady results in both our life and retirement and supplemental and group benefits segments.

The results of newly acquired Madison National are included in the Worksite supplemental and group benefits segment.

And as Marita said this business is performing within management's expectation.

One technical note starting this quarter, we've added adjusted core earnings and tangible book value to our materials along with related ROE calculations.

We are defining adjusted as core earnings excluding DAC unlocking and the amortization of intangible assets.

Noncash items.

We believe these metrics are useful when evaluating our capacity for capital generation.

Also I'll touch on our full year EPS guidance later in my remarks, but first let me run briefly through the results and outlook considerations for each segment.

As expected P&C net written premiums were slightly below last year's first quarter. The benefit of stronger retention is being somewhat offset by new business volumes that remain below historical levels due to the lingering effect of the pandemic on sales segment earnings.

<unk> reflected a year over year decline in underwriting income as well as lower first quarter net investment income due to the performance of the limited partnership funds allocated to this segment's portfolio.

Looking at auto and property results separately the change in the auto loss ratio, primarily reflected the anticipated increase in frequency towards pre pandemic levels over.

Over the past year miles driven has steadily moved closer to pre pandemic levels and the impact of that change comes as no surprise.

Similar to others in the industry. We are also seeing higher auto loss severity due to inflation, which was the other factor in the increase in the auto loss ratio.

As we've said Horace Mann is well prepared to leverage the disruption underway in the auto market and we believe the three point improvement in auto retention since last year's first quarter is one sign that we're on the right track.

As Marita noted we had achieved our targeted auto profitability prior to the pandemic and did not respond to its early stages with rate decreases to gain market share our strategy used by direct marketers.

Instead, we remain committed to our long term strategic approach of providing our policyholders with a fair price over the life of their policy.

Further auto average premiums are level with last year and pandemic related mileage changes have stabilized.

With inflationary pressures raising costs associated with claims our auto rate plan now includes rate increases in the high single to low double digit range in states, representing almost 80% of our premiums.

For property the first quarter underlying loss ratio was strong at 52, 3%, although higher than last year's first quarter due to elevated fire losses. There is no pattern or trend to report and as noted in the past. This line can be lumpy on a quarterly basis.

The increase in the underlying loss ratio was partially offset by cat losses below last year's level with the property combined ratio at 92, 3%.

Household retention has risen to one points for property, even as average premiums have risen 5% due to inflation adjustments to covered values made in recent months.

We expect renewal pricing increases should move closer to high single digits over the course of the year.

Briefly on the P&C segment outlook as we look to the remainder of 2022, we will be continuing to file and implement our rate plan for auto and to monitor coverage values and rate needs and property.

We expect to see those actions influence underwriting profitability over the course of the year.

In the combined life and retirement segment core earnings were up three 5% with total benefits and expenses unchanged.

Adjusted core earnings, which excludes DAC unlocking were up 26, 1%.

Both the retirement and life businesses continued to perform in line with the trends we saw during 2021.

Retirement net annuity contract deposits rose five 9% over last year's first quarter with total cash value persistency strong at 94, 3%.

We continue to see how our solutions for augmenting retirement savings remain a coordinated for educators and how retirement products are an important entre into districts in this environment.

The net interest spread was 286 bps up from a year ago, reflecting strong investment returns.

<unk> business is comfortably above our threshold to achieve a double digit ROE in this business, we had another quarter of progress with retirement advantage, where contracts enforced increased to about 16000 retirement.

The retirement advantage is the fee based mutual fund platform that we believe creates long term potential for this business segment.

Life sales continued at a steady pace, albeit slightly below a year ago and persistency remained consistent mortality costs were below last year's first quarter.

Our outlook for the LNR segment continues to anticipate higher net investment income with the spread remaining near the 2021 level and mortality consistent with actuarial expectations.

Now, let me turn to the new supplemental and group benefits segment. This.

This segment combined with the results from the supplemental segment, we created when we acquired the MTA in 2019 with the results for Madison National.

Madison National's results were added effective January one of this year, which makes some of the comparisons to 2021 performance less meaningful.

For the full segment first quarter premiums and contract charges earnings were $69 9 million of which the new employer sponsored products represented $39 8 million total.

Total sales for this segment were $3 7 million sale.

Sales of voluntary products were $1 4 million in the first quarter, a 40% increase over prior year with persistency remaining very strong at 92, 1% sale.

Sales of employer sponsored products added another $2 $3 million in line with our expectation for Madison National's first quarter as part of Horace Mann.

Amortization of intangible assets under purchase accounting reduced core earnings by $3 9 million pretax versus $2 9 million pre tax in the first quarter of 2021.

Therefore core earnings were down slightly with adjusted core earnings up four 4%.

Net investment income for this segment reflected the addition of the Madison National portfolio effective January one.

We expect to see investment yield improve for this segment over the remainder of this year and into 2023 as.

As we optimize that portfolio.

The pre tax profit margin declined because of the addition of the newly acquired employer sponsored products, which are expected to generate a lower margin than voluntary products in the first quarter total benefits also reflected normal seasonality for the employer sponsored products.

The benefit ratio for the voluntary products continues to reflect some benefit of changes in policyholder behavior due to the pandemic.

Our full year outlook for the supplemental and group benefits segment assumes claims utilization will move closer to pre pandemic levels, leading to full year benefit ratios of about 35% for voluntary products and about 50% for employer paid products.

Amortization of intangible assets is expected to be approximately $13 million or <unk> 30 per share after tax for the year.

Turning to investments total net investment income on the managed portfolio was up almost 3% to $73 million with total net investment income up two 5%.

The increase in net investment income on the managed portfolio was partially due to a higher contribution from our commercial mortgage loan fund portfolio. The return on our limited partnership portfolio of 769% was below the record setting returns we saw last year, but still a strong return given market volatility.

The traditional fixed income portfolio had a yield of $4 two 6% in the first quarter compared with $4, one 6% a year ago.

With the increase in interest rates, we continue to find good opportunities to add high quality corporate exposure into the portfolio at rates north of 4%.

The core new money rate was 4.04% in the first quarter and based on current market conditions. We continue to anticipate it will remain above 4% for the year in light of the current outlook for interest rate increases.

Our allocation to commercial mortgage loan and limited partnership funds are expected to generate a higher income contribution than could be generated through traditional fixed income investments in today's markets without any meaningful shift in the risk profile of the overall portfolio.

Overall, we expect these strategies will combine to generate high single digit annual returns on average over time.

As we look to the full year, we continue to expect net investment income from the managed portfolio will be in line with 2021 with the underlying assumption that limited partnership portfolio returns are closer to our historical average for the full year after last year's outperformance and that.

A good segue to our expectation that 2022 core EPS is more likely to be at the lower end of the guidance range of $3 45 to.

To $3 65.

We provided when we announced year end 2021 results. This view was largely due to the impact of inflation on our near term auto results. Although it's also influenced by the potential impact of market volatility on DAC unlocking.

Our long term view of our potential remains fundamentally unchanged. We continue to target, 10% average annual EPS growth and sustained double digit ROE is driven by our profitable growth beginning in 2023.

Every day, we see the values of the strategies, we've been implementing for a number of years to make Horace Mann, and even stronger and more diverse organization better able to serve educators, while also providing solid returns to shareholders.

Further we continue to see Horace Mann generating at least $50 million in excess capital each year and that's in addition to the more than 50 million, we already pay in cash dividends.

On supporting growth opportunities, we have several ways, we can use capital to enhance shareholder value in particular opportunistic share repurchases.

Thank you and with that I'll turn it back to Heather.

Thank you operator, we're ready for questions.

We will now begin the question and answer session to ask a question you May Press Star then one on a touchtone time.

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If at any time your question that's been addressed and we would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our right.

And our first question will come from Gary Ransom with Dowling and partners. Please go ahead.

Okay.

Good morning, I I wanted to ask about loss trends, a little bit more I wonder if you could just give us a sense of the.

Typical type of car the educators or are they more new cars with lots of technology, where chip shorter ship shortages are involved.

Are they older cars I I don't know I was just wondering if you can give us a sense of how your mix might be different in any way from others.

Probably makes sense Gerry for turning it over to our resident expert Mark do you want to take that.

Yeah sure Gary I mean, our our book is probably typically a little bit older than the average.

For the fleet across the country in general.

You know not.

Anything significant in terms of the impact of high priced cars or anything like that or or lots of newer cars.

But I still think that we.

We're certainly not immune from some of the trends in terms of overall used car pricing the labor shortage issues.

Any issues around.

Parts being available that that that has a broad impact.

Even if our fleet is slightly older than that.

The country wide fleet.

Can you clarify what you were talking about when you said March was a little bit higher and then January February and.

Yeah.

Laura.

What was the difference there.

Yeah. So when we look at March.

It was an unusual uptick in <unk>.

What I would say is a more severe accidents. So that you have the impact of inflation.

Driving up the severity, but we also saw higher impact.

Losses that we would associate with longer trips being taken during March that we speculated associated with people traveling during spring break and our early view when we look at April kind of confirms that this appears to be an anomaly and April looks more like we would expect.

Right Okay.

And then over on the liability side.

Is there anything going on in the social inflation, that's evident to you or attorney rep or anything like that yeah.

Yeah, I mean, I do think we are seeing more increased social inflation.

As courts opened up there there's definitely been an uptick in both attorney representation and I think the aggressiveness.

Some of those attorneys in terms of going after settlement, so I think that.

Like the rest of the industry, we're starting to see some of that.

We turn to what we might have thought at the latter end of time, just before the pandemic kicked in.

And just one other question on this topic I.

What has basically happened when you look at used cars you had a couple of step functions up.

In summer of last year, and kind of the fall of last year and things have kind of leveled out.

Are you actually seeing a leveling in the sense of sequential even though it's up year over year by a substantial amount or we are things flattening out at this point.

Yes, I mean, we are starting to see a little bit of that flattening out I think like others are seeing but I think there was another period of time, maybe in the fall when we saw that for a short period and then it.

Spiked again, so I am cautious.

I'm cautiously optimistic that that will continue to see a kind of level out and start to normalize a little bit but yeah. We're certainly seeing those same kind of trends.

Alright, Thank you and I.

I'd kind of like to ask it a different subject for Merida you mentioned in your prepared remarks about studying what the what the educator market is doing how they're thinking and you know how to cross sell.

But.

I have you have you learned anything or is there any way you can describe how your customer views of the Horace Mann brand and any you know the.

And across products or the dimension across service.

I don't know if you could share anything that would be helpful. In understanding what's going on out there yeah.

Yeah, Gary I really appreciate your thoughtful questions first in auto and then the one you just asked on strategy I do feel compelled on the auto strategy question to go back a little bit and I think I, probably said it over and over again in the script with a lot of words, but I think it's important we did the hard work.

<unk>.

To set a solid profitability foundation, and auto and Thats really working out quite well for us will react to these trends as we are now appropriately and will ensure ongoing solid results.

In our auto segment as we always had and I appreciate Mark's answers I think he he gets this well and we're lucky to have his expertise.

Here in our company and that serves us well on the strategy question. We tried in the investor deck on page 17 to begin to give you a glimpse into the answer that question.

I think it's remarkable that we actually closed on Madison National in this quarter and you're asking that question and that does say a lot about us we I'm just like MTA before it spent an awful lot of time with these people were in the same space and Ta was 80% educators <unk>, 80%.

Educators. So we have learned a lot even before the close so for US beginning to show you. How we think about our total addressable market and working up at the top of that page, there's obvious cross sell opportunities between our retail products.

Our retail segment DNC in LNR with individuals supplemental products and we're seeing that today.

When you look at April the first sign of us being able to have a little more access the world start to open up a little bit we're seeing that.

Momentum in our sales numbers across the board it's early.

There is still noise in the system, it's still.

Hard world out there for all of us, but we're very encouraged by the signs we see in April where we can get out there and take advantage of the natural cross sell that we see in these businesses. There are places where their relationships where on one side of the house and we're leveraging them on the <unk>.

Other and vice versa. We showed you a map where we could begin to show you where we have strength in these businesses, where we can simply leverage the relationships that we have in our educator segment and a known set of customers for these individual entities coming together, we feel good.

About that the learnings that we're also talking about is on the worksite side that might not be as natural that might not be as obvious, but we still think it's there.

We are learning also on the Worksite side that the superintendents and business officials that are making these decisions have a brand affinity to Horace Mann. They know who we are we've spent a lot of time talking about donors choose and bringing dollars to their schools, we are introducing student loan.

<unk> that help their educators, our strategy has been about helping educators attract educators keep educators and help educators.

Tire.

Soundly and and by doing that I think we've really built our reputation.

And we're invited in and we're able to solve more problems in that addressable market. So 17 was kind of a start to show you. How we're thinking about it and there are numbers around that and we're gaining the numbers and the hope is over time, just like we do with everything we do is to be able to give you more transparency.

On the buckets. If you look at page eight where we've always talked very openly about the stages of our journey in that fixed some bill stage. We told you what we were going to do it was about PDI, we needed to build products, we needed to strengthen distribution, we needed to modernize our infrastructure and we've been clear about what we did in that phase in the transfer.

<unk> stage, we added capability, we built scale now we're going to be just as transparent in that growth phase. We've showed you. The levers. We'll told you what it's going to take to do it and we're going to be transparent and showing you. The success we have in each one of those in each one of those levers.

Probably a longer answer than you expected to that question, but we're pretty passionate and pretty.

You know, we've got a lot of energy around what we're learning and what we plan to do around executing around it.

So that was terrific I appreciate that marita.

Thank you very much.

Our next question will come from Matt <unk> with JMP. Please go ahead.

Okay. Thanks, good morning.

Just wanted to follow on Gary's last question. There actually was was what I was going to ask but.

But can I ask you to dig in a little deeper there.

Page 22 in your in your slide deck, and it's clear that at least at a state level.

There's a lot of overlap between Madison national footprint, and kind of the core P&C life and retirement businesses at Horace Mann, if we were to dive in deeper into a lot of those the darker blue states.

At like a school district level is there a lot of overlap at that level or are they or is more of it kind of.

Madison National has the school district that.

Maybe legacy Horace Mann doesn't have a lot of access into I'm, just trying to get an idea of how much kind of overlap already exists there versus potential opportunity to marina to your comments on your brand affinity and name recognition to kind of open the door and maybe.

Get you in there on the others.

Yeah, and we can certainly provide you know that we give you the tip of the iceberg and then we give you more and more data over time to support it and because I again want US you want to remind everyone that this transaction did place to take place in the quarter. So we're giving you.

And early read here, but but for us when we it's all across the board. We have some places where we have very strong presence in a given state with longstanding agencies and good penetration like we've talked about before with PNC in LNR and more.

Many of those states. We also have both an <unk> and an MTA relationship and you can see that then there is other places where maybe from a Horace Mann traditional perspective, we didn't have a strong presence and lo and behold and Ta does or Madison National does so the dissection of.

Can double down in places, where we've got the triple Whammy and everybody has a very strong relationship and we can leverage those but then we also have the benefit of entrants in places with either starting with an MTA relationship and we've already seen that over the course.

Over the last year year, and a half and now with them and now we can start with them and I'm in a relationship where maybe we did not have an NPA or Horace Mann relationship. So for me. It really is about all these things coming together all with a homogeneous understanding of our <unk>.

Mitch in the educator space. So it is about that dissection it's about.

Several different ways to go about this and starting with your strength and leveraging the ultimate cross sell and I don't know if you have anything to add to that Matt, Matt Sharpe spend front and center in the integration first acquisition and integration of MTA, and then where we are with them and al I don't know if you have any color to add.

On top of that Matt If you don't it's okay, but I wanted to give you the opportunity to comment.

Yes, sure thanks for the opportunity and that thanks for the question. There was one other thing I just wanted to clarify or just still a little bit deeper on when you look at the maps on the top of page 22, you are looking at two different distribution models. The left hand side is the Worksite model, where we're selling individuals from the bottom up and I'm all right.

Hand side Youre dealing with the top down sales process using independent benefit consultants that are coming into the district, so they whether they lineup or not but the two approaches are different and they can they can live in the same environment together and the key is being able to.

Integrate those two sales models, so that we can maximize our ability to sell on the ground through the what states sales environment as well as maximize the number of districts that we get.

Employer sponsor and give us a much broader access to the district and then be leveraged by the retail side of the house for all of our traditional products.

Okay, great. Thank you that's great color.

And the next question is unrelated to Madison National in particular, but.

Marita you in the press release and in your comments.

You provided some statistics on a few of the businesses for production in April that was encouraging can you give us a sense of you know we just see the quarter numbers. When you report Q1, but how did kind of that production go kind of January February March across the quarter I'm, just trying to get a feel for if it kind of built across the quarter or if you are seeing.

You can kind of just April just kind of sprung up a little more on each.

Each month within the quarter kind of look more like the average in Q1.

Yeah, you know, it's really been pretty gradual am pretty sequential until April so basically the way I think about it is if you remember our pre pandemic numbers that first quarter of the Royal running together 2019 or 2020.

2020, Okay, yes, too many too many years, but the first quarter of 2020, we saw some pretty good momentum in that first quarter from a growth perspective, and then through the pandemic, obviously with the ebbs and flows of of closures and masks and distraction and our teacher market.

It was a tough slog from a sales perspective, I think we navigated it.

Quite well and concentrated on what we could concentrate on getting ready ramping up doing a lot of the internal work that we certainly did and over the course of the last five six months really seeing a nice gradual uptick pretty sequential across the board and then when we look at April it looks very.

Very different and that makes some sense you had.

<unk> in a certain things occurring during the first quarter that made it.

Sometimes a little more difficult as things were opening closing, but clearly in April the world changed a bit and I think our agents clearly combined what they learned during the pandemic and want to keep that going from an ease of.

Dealing with customers in a more virtual way.

But also had the added benefit of being a little more connected live and in person with those educators and we saw that in.

In April I think as it relates to individual supplemental sales, where those things tend to be more in in person more enrollment related more getting back to the additive effect of doing those things the way. They are normally done pretty much across the industry. We saw a really nice ramp up.

With individual supplemental sales in April as well and from a retirement standpoint, where our customers have been engaged in retirement discussions for obvious reasons throughout the pandemic that was really more consistent throughout the pandemic and we're happy to see that it is.

Continuing because we took the opportunity to remind them how important it is.

And did a lot of work around retirement planning financial literacy and I think Mike and his team did a really good job doubling down on making sure we were having those conversations and that momentum continues.

Alright, Thank you very much for the answers very helpful.

Thank you.

Okay.

Our next question will come from Greg Peters with Raymond James. Please go ahead.

Oh, Hey, good morning, everyone.

Most of my questions have been answered so I'd like to focus in on the comment.

In your segment outlooks around market volatility.

And it's two part.

I realize it's not relevant to all the products in life and retirement supplemental group, but I'm curious about the impact.

Market volatility on sales if there is any and then the second piece or the second part of the question would be just if you can provide us any sort of benchmarks about what the volatility means to DAC unlocking now that Madison Nashville, as part of your footprint.

And you know.

There is obviously in the marketplace increased volatility so any color there would be helpful.

Sure. Greg. This is this is Brett good. Good question certainly we did see some of the volatility that we're referring to show up in the in the first quarter. We did record about just a little bit over $2.5 million of negative DAC unlocking obviously that is confined if you will to our life.

In retirement segment, which is now combined for the first time in this quarter, but specifically it relates to our variable annuities and the largest.

Factor if you will that comes into the fold as usually the market performance, which as you are comparing the actual performance.

Some of the underlying mutual funds to our to our underlying assumption.

And the profits.

So obviously the markets were down specifically the S&P 500, I believe was down about 5% plus in the first quarter. Obviously, we would assume it's embedded in our critical accounting estimates in our Q, where a case, where we would typically assume 8% return so the delta between the two for the quarter result.

And that negative unlocking obviously the equity markets continue to go.

Go down in the month of April So, we're just signaling that as the markets go down we will have some additional negative unlocking to report so that it really doesn't relate to sales.

Per se with respect to that but obviously rates going up.

As they have.

Do do help us with respect to.

The investment yields on the portfolio and certainly we're seeing as we highlighted in my comments for the quarter, what our new money rate was it was hovering above our plan of $3 50, I think the actual results for the quarter were just slightly above 4% and the money, we're putting to work certainly in.

April and May are even even higher than that so that does bode well for net investment income, but really my comment in the talking points of the volatility and it was in the release was solely related to.

The DAC unlocking in the life and retirement segment, you know Brett that's well said I'd add one thing to that and that is where an educator company and the complexity is we have a P&C segment, we have a life and retirement segment and we have a supplemental and group benefit segment.

And the complicating factor in there is on any given quarter, whether its DAC unlocking whether it's auto trends, whether it's cat.

Cats, whatever it is there could be something that would affect one of those individual pieces that you are right to ask about we're right to talk about but the value of this company is the sum of its parts and what I look at as I look at the <unk>.

Trajectory of our increased shareholder return our total return over a long period of time and the ability to really build and grow this company over a long period of time and not the quarter over quarter discussions on some of the smaller pieces I like the way that line looks.

Like the earnings power that we've built in this company and we're building it for the long haul, but on any given quarter because we have the sum of the parts. There will be a piece that you will ask about and we will talk about those pieces are important we need to manage them and we do but we are focused on growing our market share in this segment and <unk>.

It profitably for the long haul.

Okay.

Your messages makes sense right up but I just wanted to just clarify is it.

In the answered I think you said, 5% decline in the market and two and a half million dollar DAC and I realize it's a noncash issue is that sort of a good benchmark to use in terms of ratios or.

And I guess getting.

No I think youre getting warm [laughter].

If you as I referred to earlier I think in our I don't have it in front of me and our 10-K I want to say forever.

100 bps difference between our underlying assumption the actual results, it's about three to $400000 pretax. So obviously, if we're assuming 8% for the year, that's assuming a positive 2% the markets were negative five seven times 400 between three.

400 kind of gets you to that $2 5 million dollar number so hopefully that helps but we do disclose that in our.

Our critical accounting estimates with the sensitivities for the for the bigger pieces of the assumptions.

Mix makes complete sense. Thank you for the answer sure. Thanks for the question.

Our next question will come from John Barnidge with Piper Sandler. Please go ahead.

Thank you very much can you maybe talk about your floating rate portfolio, whether reprice completely at <unk> 22, and the upside we should be expecting a prospectively from that thank you.

Sure John This is Ryan thanks for the question.

I'll start with our core fixed income portfolio was nearly all fixed rate, which is aligned with our liability driven investment strategy.

That's focused on book yield so a rising rate environment, certainly helps with the about we put about $1 billion to work on an annual basis.

Bret alluded to the new money yields, but just to put some color around it we're putting money to work about 50 basis points higher than our current portfolio yields.

We're hitting for $4 50 475 at this point in time.

What I'm encouraged by that and like I said, we put about $1 billion to work in that fixed income portfolio, but specifically to your question on floating rate. We do have a commercial mortgage loan portfolio that is almost entirely floating rate tied to LIBOR. So.

Depending on when the loan was originated and so obviously, we will see.

And income lift there as we move through a higher rate environment, our longer term target for that portfolio was 10% of the portfolio of the total portfolio, which would be about say $6 million to $700 million, but where we sit today, we've got $430 million in the ground funded.

We've talked about our expectations there of a mid single mid single digit return, but with the repricing in rates I think you can comfortably move that up to about 6% at this at this point in time.

For that portfolio and finally, I will touch on we do run an <unk> spread lending program, we take fixed predominantly floating rate advances.

Invest in very high quality CLO floating rate securities.

We're matched with floating to floating so the opportunity there really is spread.

So while while the portfolio is floating rate component of that portfolio was meaningful.

It really the return profile of spread based so to put a finer point on it the CML exposures, where we're going to see a pick up one other comment before I turn it over back to you. The CML portfolio has been our life and retirement and supplemental group benefits segments, we've talked a little bit about our investment strategy of where we deploy limited.

In partnership and commercial mortgage loan investments and we focused on capital efficiency and so from a statutory RBC charge perspective, it's more efficient to put them in the LNR and.

Supplemental group now I will say more of the P&C LP exposure is more equity sensitive so youre going to see more volatility in the P&C net investment income line.

During periods of equity market volatility and you saw that this quarter. So just wanted to put a finer point on that for you.

Thanks, a lot I appreciate that.

My follow up question and I'm looking at slide 14 of the supplemental talking about the supplemental group benefits voluntary products I see the benefit ratio actually declined year over year.

And so I was curious if you could talk maybe about the claims utilization trends in the quarter and whether we should think about that product having hit normalized exiting the quarter. Thank you very much.

Yes, I mean, I can start with that and then I can turn it over to Matt, but I think it's important to remember what we told you about the difference between those two businesses and how they run from a benefits ratio perspective. So.

As it relates to both and Ta and <unk>.

It is different the <unk> benefits ratio does tend to run higher and we've shared those numbers with you. So when you look at the division on a blended basis youll see that blended number but we have provided.

A lot of disclosure before.

The deal closed in the first quarter and certainly as we go on those benefit ratios just for us in the industry are different and for the group business. It is higher than the individual business, but I don't know if you have any more color to put on that map.

Yes, Sir.

So if you looked at it.

When you looked at.

The benefit ratio I'll talk about it from both perspectives, both the individual product in the group perspective.

So on the individual.

Product, we saw a little bit higher.

Benefit ratio little bit higher benefit payment on the short term disability and thats, mostly seasonality, which is similar to the way the seasonality works in the green business.

I'd also be some deferred procedures that are part of Bob.

The elevation that we saw in the quarter, which.

Ah resulted in some increased utilization.

On the individual short term Dr block, which is not a surprise given the fact that.

There may have been deferred procedures embedded within it so that that inc.

Good or at least not a surprise on the group side.

Long term disability claims were slightly elevated but it was consistent with the historical seasonality that we've seen there is also a little noise in that number because the P GAAP and potentially a little from claims backlog, but overall, it's performing the way we were.

Would have expected it to perform overall, so I don't know if that if you had any follow up to that John or.

That's a good question.

Well that was helpful. I mean, my follow up really is persistency in the voluntary products.

60 basis points year over year in Idaho persistency in the voluntary business is something not you, but other participants have actually seen pressures.

As the labor market has become more competitive and people have left so can you maybe.

Such there on the improvement of the persistence of year over year, which is great to see.

Yes, so the persistency on the individual products.

<unk> continues to improve.

I don't know that I have an exact explanation for why the persistency is continuing to perform other than we see a similar persistency trend in the group business and I think it is unique to the segment that we serve we've got very strong persistency both in the individual and on the group side.

Yeah.

Yes, I do think that's very well very well said I think it's another place where.

Insulated, but not immune where are our market segment does help us and that stickiness is been pretty consistent over the years. When we go back and historically look at both MTA and <unk> trends and I think thats right.

The work that we did this has really come out pretty much as expected.

Okay.

Our next question will come from Meyer Shields with <unk>. Please go ahead.

Great. Thanks, Good morning, all.

I think very good outcome.

Good morning, I guess, that's Orion as.

As we see interest rates rise does that impact the planned allocation to alternatives or should we expect that to stay constant.

Good morning, Thank you for the question.

We take a longer term view.

The investment portfolio, when we balance a number of considerations.

Obviously rates are one of them, but capital efficiency risk parameters and at the end of the day, it's a liability driven investment strategy.

Longer term targets are about 5% allocation to the limited partnership bucket, but remember mirror when I talk about limited partnerships, it's a variety of different strategies there.

Two thirds of them are fixed income like with lower volatility and returns and so a higher rate environment in general will impact in a positive way the returns that we get out of those and like I said about a third of whom are equity sensitive we've been pushing a little bit more into real estate equity as of late it's a nice hedge against inflation.

We like the dynamics of the U S real estate market.

And so that's an area where current market environment and events have shifted our allocation somewhat but longer longer term allocation targets are generally within an acceptable range, but that 5% target is probably right I will comment on the core fixed income portfolio the <unk>.

Rising rates allows us to invest up and credit quality were actually marginally.

Our money to work at a marginally higher credit quality position today than say, where we were a couple of quarters ago.

So that dynamic is nice to be able to put into the portfolio.

Okay, No that's very helpful.

Maybe a broader question I guess for Marita.

It seems clear to me that the trajectory of rate increases in P&C is going to catch up with losses should we understand from the comments you made about April sales that you're comfortable.

Growing at current rates with expected retention.

<unk> retention holding up simply because that's where the entire market is going.

Yes, I think it's a great question, because it's one that we ask ourselves everyday and monitor every day.

When you have this many states and a portfolio you obviously have many states that are at or beating our hurdle rate from a loss perspective, and we're very pleased it's planned to see the growth in those places so when youre growing in the right places its actually a double whammy right. It helped.

To your top line perspective for all the reasons why we want that too but it also helps the bottom line from a mix perspective. So we've been very thoughtful and I think a lot of this emanates from all of that really good basic blocking and tackling.

Your stand and improve our profitability that we undertook in the last phase of this journey. So we know very well, where we are rate adequate and one of the benefits and we talk about this a lot of our approach is by having the Horace Mann General agency and by leveraging other companies who.

Have a price point, where believe their price point is where they want to set it to write business. If ours isn't we can rely on those.

Strong third party relationships, we have for them to grow the auto.

And we do a lot of back and forth. There. So the combination of those things make me feel really good about where we're getting the growth how we're getting the growth the cross sell numbers with that growth.

Trust me in places, where we feel we need more rate in our filing more rate we have not put our pedal on the metal we are all underwriters at our core understand this well and have all the levers we need not to have to do it and we talked about this a lot I mean, we are not a market share grab company, we didn't lower.

<unk> to.

To gain market share and then have a bigger gap between what we need and what we have as a matter of fact, we got out of places that we thought were systemically.

And a flawed or harder to do auto business, Florida is probably.

The Best example, so we've done a lot of work to make sure that we can we can grow where it makes sense to grow when it makes sense to grow I think it's a great question, we look at that all the time.

No. That's very helpful clarification. Thank you so much.

Youre welcome.

That's all the time, we have for questions I would like to turn the conference back to Heather Weitzel for any closing remarks.

Thank you and thank you everyone for joining us today I know, we'll be speaking with many of you over the coming weeks.

And look forward to those conversations and of course, if you have any detailed questions you want to follow up on feel free to reach out available in particular next week, another earning season winding down. Thank you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.