Q1 2025 Horace Mann Educators Corp Earnings Call
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Speaker Change: Good day, and welcome to the Horace Mann Educators' first quarter, 2025, investors call. All participants will be in listen only mode. Should you need assistance? Please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions.
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to withdraw your question, please press star then to.
Please note, this event is being recorded.
I would now like to turn the p-
and so, over to Brendan Dawal.
Vice President, Vester Relations
Thank you.
Please go ahead.
Speaker Change: Thank you. Welcome to Horace Mann's discussion of our first quarter 2025 results.
Speaker Change: Yesterday, we issued our earnings release, 10Q Investors Supplement, and Investors Presentation. Copies are available on the Investors page of our website.
Speaker Change: Marita Zuraitis, President and Chief Executive Officer, and Ryan Greenier, Executive Vice President and Chief Financial Officer, will give the formal remarks on today's call. We also have Steve McAnena, Executive Vice President and Chief Operating Officer with us for Q and A.
Speaker Change: Before turning it over to Marita, I want to note that our presentation today includes four looking statements, as defined in the private security litigation reform act of 1995.
Speaker Change: The company cautions investors at any forward-looking statements including risks and uncertainties and are not guarantees of future performance.
Speaker Change: 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 in SEC filings.
Speaker Change: and our prepared remarks will use some non-GAAP measures . Reconciliation of these measures to the most comparable GAAP measures are available in our investor's supplement.
I'll now turn the call over to Marita.
Marita Zuraitis: Thanks, Brendan, and hello everyone. Yesterday we reported First Quarter Core EPS.
Marita Zuraitis: of $1.7, a sizeable increase over prior year and a record first quarter. The results reflect solid business profitability and strong growth momentum, highlighting the ability of our multi-line business model to deliver consistent and reliable earnings.
Marita Zuraitis: We are well on track to achieve our 2025 goals, including a shareholder return on equity above 10% for the year.
Marita Zuraitis: Today, I'm going to discuss how our business continues to deliver strong profitability, as we execute on our strategy to drive sustained profitable growth.
Marita Zuraitis: In the first quarter, property and casualty segment performance was particularly strong with a reported combined ratio of 89.4%, a 10.5-point improvement over prior year.
Marita Zuraitis: This reflects the profitability, restoration work we completed in 2024, lower property frequency, and favorable prior year development in both auto and property.
Marita Zuraitis: As we noted last quarter, our exposure to California wildfires was limited. We estimate the impact of the wildfires to be $3.7 million which includes $1 million in fair plan assessments.
Marita Zuraitis: Excluding California wildfires, first quarter catastrophe losses were below both prior year and our historical averages.
Marita Zuraitis: In property, we experienced lower than typical XCAT claim frequency. Additionally, we are seeing the benefit of our roof settlement schedule and specific initiatives in claims to control costs of non-weather perils.
Marita Zuraitis: In life and retirement, earnings were below prior year, primarily due to higher mortality, which was within our expected actuarial range.
Marita Zuraitis: In individual supplemental and group benefits earnings were slightly above prior year due to lower policyholder benefits utilization in individual supplemental, as well as higher segment net investment income.
Marita Zuraitis: Total net investment income of 116 million was a 10% increase over prior year.
Marita Zuraitis: While income on our internally managed portfolio increased by 15%, driven by higher limited partnership returns, and continued strong returns from our growing fixed income portfolio.
Marita Zuraitis: Turning to top line results, first quarter sales were strong, individual supplemental sales up 61%, auto sales up 8%, and annuity net contract deposits up 6%
Marita Zuraitis: This momentum is being driven through more points of distribution, improved agent productivity, and more efficient and consistent lead generation.
Marita Zuraitis: The investments we have made in our on-the-channel distribution capabilities are advancing our efforts to drive sustained, profitable growth. A few examples.
Marita Zuraitis: Over the past year, we have realized a 40% increase in website visitors and recently added individual supplemental products to our online coding capabilities.
Marita Zuraitis: Higher website activity, supplemented by growth in our agency force, is fueling strong new business sales and reinforcing the momentum behind our growth strategy.
Marita Zuraitis: Our recent launch of Catalyst, our proprietary customer relationship management system, built specifically for Horace Mann, is already showing signs of early success. Agents are embracing the improved tool, as well as the increased lead volume.
Marita Zuraitis: Empowering our Salesforce leads directly to better customer experience, and we've seen the agent net promoter scores improved significantly.
Marita Zuraitis: We just wrapped up our customer campaign highlighting the 80th anniversary of Horace Mann and kicked off efforts for Teacher Appreciation Month in May.
Marita Zuraitis: These initiatives connect deeply with a education community through virtual events, giveaways, and local activities designed to energize, inspire and show our gratitude.
Marita Zuraitis: Across both events, we expect more than 300,000 educators to engage with us, a clear demonstration of how we're building lasting relationships in the communities we serve.
Marita Zuraitis: Next week, at our investor day, we plan to take a deep dive into the activities underway that will further our efforts to drive sustained profitable growth.
Marita Zuraitis: Before I turn the call over to Ryan, I want to touch on our efforts to address the issues that are important to our stakeholders, supporting our educators, employees, and agents, and strengthening local communities remain a cornerstone of who we are.
Last month, we published our 2024 Corporate Social Responsibility Reporting.
Marita Zuraitis: Highlights from the year include a 61% reduction in scope 1 and scope 2 emissions from our 2019 baseline surpassing our initial targets ahead of the 2030 deadline.
Marita Zuraitis: Integration of climate risk considerations into our underwriting and investment decisions to proactively address environmental challenges.
Marita Zuraitis: and contributions of nearly $1 million to support education and community-focused nonprofit organizations across both our philanthropic and corporate-giving efforts.
Thank you. Thank you.
Marita Zuraitis: We are equally committed to delivering long-term value to our shareholders. In March, our Board of Directors approved an increase to the quarterly shareholder dividend.
Marita Zuraitis: The 17th consecutive year we have done so. In addition, we continue to execute on our Share Repurchase Program year-to-date through May 2nd, we return $7 million to shareholders in Share Repurchases.
Marita Zuraitis: As we have mentioned before, the most accretive use of our capital is to drive profitable growth. Our strong start to the year reinforces our confidence and our ability to execute on this initiative.
Marita Zuraitis: We recognize the road ahead may be shaped by macroeconomic uncertainty. However, I'd like to highlight Horace Mann's strong financial foundation and our 80-year history succeeding in a number of economic environments, including times of economic disruption.
Marita Zuraitis: Our business is operating from a position of strength. We are profitable and our high quality investment portfolio is positioned to deliver consistent returns through various economic
that has more job security than other occupations.
in times of economic downturn.
to grow and adapt and adapt.
to best meet the needs of our stakeholders for our stakeholders.
Marita Zuraitis: In closing, our first quarter results illustrate the earnings power of our multi-line business. We are on track to achieve our 2025 goals of a larger share of the education market, record core earnings, and a sustainable double-digit shareholder return on equity.
The opportunity is even greater as we move ahead .
Marita Zuraitis: As we continue to drive sustained profitable growth, we are positioned to achieve an even higher double budget ROE, while successfully serving our customers and delivering superior long-term value to our shareholders.
Ryan Greenier: Thank you, and with that I'll turn the call over to Ryan.
Ryan Greenier: Thanks, Marita. First quarter results are in line with our expectations and reflect solid business profitability and encouraging growth momentum.
Ryan Greenier: Before I review the quarterly results, I would like to cover our updated core earnings guidance.
Ryan Greenier: Beginning this quarter, we revised our core earnings definition to exclude certain non-core items, including intangible asset amortization and changes in market risk benefits to better reflect the true operating earnings of our business.
Ryan Greenier: In the past, we purported this number as adjusted core earnings.
Ryan Greenier: We still expect the same business performance we laid out earlier this year, and our updated core EPS range of $3.85 to $4.15 reflects that.
Ryan Greenier: Our supporting materials have been restated to reflect the year-over-year comparisons on this basis.
Ryan Greenier: Our 2025 guidance assumptions remain the same. Roughly 90 million will have to be tasked with a few losses in line with our five-year historical average.
Ryan Greenier: Total net investment income in the range of 470 to 480 million with managed portfolio income of 370 to 380 million and interest expense and other corporate items of 35 to 40 million.
Turning to the results [inaudible]
Ryan Greenier: Poor earnings of $45 million, or $1.7 per share, was a 73% increase over the prior year.
Ryan Greenier: Court return on equity of 10.6% was a 4.9-point improvement over prior year. Reflecting the profitability restoration work we completed in 2024.
Ryan Greenier: Total net written premiums and contract deposits were up 7% with total revenues up 8%.
Ryan Greenier: In the property casualty segment, core earnings were 27 million, more than double the prior year.
Ryan Greenier: Netwritten premiums of 185 million increased 8% over prior year, primarily on higher average written premiums.
Ryan Greenier: Of no, we recently received approvals for both auto and property rate increases in California.
Ryan Greenier: The auto rate increase of 14.5% went into effect in mid-April. We are starting to see a marginal impact on auto-new business as a result of the cumulative rate increases in California over the last two years, in line with our expectations. We are starting to see a marginal impact on auto-new business as a result of the cumulative rate increase of 14.5% went into effect in mid-April.
Ryan Greenier: The property increase of just under 20% will go into effect July 1st.
Ryan Greenier: The P&C reported combine ratio of 89.4% and proved 10.5 points over prior year, reflecting improved underlying results in favorable prior year reserve development, partially offset by hired tax for fee costs.
Ryan Greenier: The 5.3 million in prior year development included 3 million in property reflecting favorable severity trends.
Ryan Greenier: The remaining $2.3 million in auto reflects better than expected physical damage loss costs.
catastrophe losses of 16.4 million were slightly above prior year.
Ryan Greenier: Excluding the California wildfires, first-quarter catastrophe losses were below prior year and
Ryan Greenier: As a reminder, our second quarter is typically our highest quarter for catastrophe costs.
Ryan Greenier: DNC sales were strong at $25 million, a 9% increase over prior year. In auto, net written premiums of $122 million increased 4% over prior year.
Ryan Greenier: The combined ratio of 95% improved 5.8 points, primarily due to higher average premiums.
Ryan Greenier: Household retention decreased slightly to 84% in line with our expectations.
Ryan Greenier: In property, net written premiums were $64 million, a 15% increase over prior year. The combined ratio of 79.9% improved 17.8 points, reflecting lower non-weather losses.
Policy Holder Retention Remains Steady at 89% All right.
Ryan Greenier: In life and retirement, core earnings of 8 million were below prior year, primarily due to higher mortality, which was within our expected actuarial range.
Ryan Greenier: Netwritten premiums and contract deposits of 140 million were an increase of 7% over prior year.
Ryan Greenier: In the retirement business, net annuity contract deposits increased by 6% on the strength of a core 403B products. Persistency rose to 91.6%.
Moving to Individual Supplemental and Group Benefits [inaudible]
Ryan Greenier: The segment contributed 14 million of core earnings, a slight increase over prior year.
Ryan Greenier: Netwritten premiums of $67.6 million were an increase of 5% over a prior year.
Ryan Greenier: An individual supplemental net premiums of 31 million for a slight increase over prior year. The benefits ratio of 28.4% is below prior year as we continue to see favorable policy holder utilization trends relative to our longer-term expectations.
Ryan Greenier: We also continue to see very strong customer demand for these products with sales of 5 million in the quarter, 61% increase over prior year.
Ryan Greenier: In-group benefits, covered lives modestly increased over the prior year. Netwritten premiums of $37 million increased 7% over the prior year. The benefits ratio of 53.3% reflected typical first quarter seasonality, which we did not see in the prior year quarter.
Ryan Greenier: Keep in mind for both individual supplemental and group benefits that our book size is relatively small. This can lead to outsized quarter over quarter variances on a short-term basis while we continue to grow these businesses.
Ryan Greenier: Total net investment income on the managed portfolio of 92 million was a 15% increase over the prior year.
Ryan Greenier: We continue to see very strong results from our core fixed income portfolio.
Ryan Greenier: The annualized pre-tax investment yield on the portfolio was 5.09% in the first quarter with core new money yields of 5.51%
Ryan Greenier: This is the 13th consecutive quarter that new money yields in the core portfolio have exceeded average book yield.
Ryan Greenier: With the duration of about seven years in this portfolio, we expect to see continued yield expansion from this trend.
Ryan Greenier: Annualized Limited Partnership Returns were 10% driven by infrastructure and private equity funds.
Marita Zuraitis: Turning to capital management, as Marita mentioned, we remain focused on driving shareholder value creation.
Ryan Greenier: We increased our annual dividend by 3% in March, which was the 17th consecutive year of dividend increases.
Ryan Greenier: and we remain actively engaged in executing on our share buyback program. Year-to-date through May 2nd, we repurchased 179,000 shares at a total cost of $7 million and an average price of $40 and 12 cents.
Ryan Greenier: We have about 19 million remaining on our current Share Repurchase Authorization . .
Ryan Greenier: In closing, first quarter results underscore our ability to deliver strong results while positioning the company for sustained profitable household growth.
Ryan Greenier: Our multi-line business model provides earnings diversification and allows us to be profitable in a number of economic environments.
Ryan Greenier: We delivered a record first quarter and are on track to deliver record court earnings in 2025 and a shareholder return on equity above 10%.
Ryan Greenier: As we execute on our profitable growth strategy, we will accelerate shareholder value creation.
Thank you. Operator, we are ready for questions.
Ryan Greenier: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speaker phone, please pick up your hands up before pressing the keys.
Ryan Greenier: If at any time your question has been as dressed and you would like to withdraw your question, please press star then two. At this time we will pause momentarily to assemble our roster.
Speaker Change: Our first question comes from Wilma Burdis with Raymond James. Please go ahead.
Speaker Change: Hey, good morning. Could you talk a little bit about the run rate earnings power of the life and the supplemental and group benefit segments? Was 1-2-25 at good level? Thanks.
Ryan Greenier: Good morning Wilma, it's Ryan. If I think about the life retirement business, we use the word ballast a lot to describe that business.
You know, occasionally you'll see a mortality, you know...
Ryan Greenier: Blip, if you will, within actual expectations. And you saw that this quarter. So mortality was a little elevated. In addition to that, this quarter for life and retirement, the commercial mortgage loan funds that are predominantly in that segment, we had underperformance related to one specific fund.
Ryan Greenier: We can talk more about that if you'd like, but if you normalize and take a, you know, mid-single digits, think six, seven percent annual return assumption for the 600 million of CMLs, that gives you kind of a runway, if you will, for that contribution and that's mostly in life and retirement, a little bit in supplemental and group.
Ryan Greenier: Turning to supplemental and group Wilma, the benefit ratio overall was close to the blended benefit ratio that we would expect longer term.
Ryan Greenier: First quarter, we have seasonality, particularly in the group business, but over a longer period of time, if you take like a run rate on that, and you take multiple quarters and average it out, I think that gives you a good sense of where that business is. Does that answer your question?
Speaker Change: Yes, it does. And then could you talk about the CAT activity in 2Q25 year-to-date and also remind us how we should account for seasonally going into the 2Q25. Thanks.
Steve McAninna: Thanks for the question, Wilma. This is Steve. So for context, I think you're aware the major event for Q1.
California wildfires and Ryan and Marita mention this.
Steve McAninna: in the opening remarks. Ultimate loss was 3.7 and that includes a million bucks in fair plan assessment.
Steve McAninna: We looked at April cats and I'd say cats were in line with expectations, nothing outsized and then I'd say as we sort of look ahead for the full year, we're going to maintain our full year cat estimate.
Steve McAninna: So we feel pretty good about what we've seen thus far, feel good about what we saw in California wildfires and hopefully that answered your question.
Steve McAninna: I'm going to just add, I'm one thing Wilma, it's Ryan, just as a reminder for folks. Second quarter has historically been our heaviest cat.
Steve McAninna: You know, about 50% of our catalogue is typically, has historically been coming through in the second quarter and in my script I gave you our annual guidance, 90 million for catastrophes. Yeah, and this would be the first year where we would see the full effect.
Steve McAninna: of the group schedules and other things that we have begun to put in place and have been working on to mitigate that property volatility and keep that number in check.
Thank you.
Speaker Change: Our next question comes from John Barnidge with Piper Sandler. Please go ahead.
Thank you. Thank you.
Speaker Change: Thank you for the opportunity. Curious about the individual supplemental distribution in the quarter. Were there any new school districts added that drove that growth in the quarter?
Speaker Change: Hey John , it's Steve, thanks for the question. It's a big number, the 61%. So I guess first thing I'd say is
Speaker Change: We're having pretty good success with our benefit specialists and their selling is up.
Speaker Change: and we feel pretty good. I think the comparison to Q1-24 is kind of interesting, if you sort of look at the investor's supplement.
Speaker Change: I think what you'll note is Q1 of 24 is actually a relatively light sales quarter for us in the individual supplemental space.
Speaker Change: and so the comparison year over year looks massive. We tend to sort of look at, we'll look at quarter of a quarter but then we'll look at things on a 12 month rolling basis.
Speaker Change: And when we looked at things on a 12 month rolling basis, I think the math is around 12 percent.
Speaker Change: of New Business Growth. And our expectation is that something around the number we're going to see for the remainder of the year. So there were no new districts or schools. This was sort of good, continued momentum, strong activity from the benefits specialist.
Speaker Change: coupled with sort of an interesting Q-1 of 24 that was a little light making the year of your comparison, a little challenging to look at.
Speaker Change: Thanks for that, Stephen. My follow-up question is sticking with supplemental group benefits. We've seen other companies begin to talk about increasing the reserves for supplemental group benefits products to assume some level of macro deterioration that would increase utilization. Is that something you've begun to reserve for? Or how do you think through that? Thank you.
Thank you.
Speaker Change: So I'll let Ryan handle the reserving part of the question. What I'll tell you is...
Speaker Change: and I'll keep my remarks to group benefits. Again, it's a similar story to what I just described on individual supplemental sales.
Q1 of 24 was
Speaker Change: Abnormally Favourable for us and so when you compare it to Q1 25
It looks like there is a big increase [inaudible]
Speaker Change: but we think 25 is within expectations. When we look at utilization,
Speaker Change: for the quarter. We sort of looked at it by month. We saw January was slightly elevated. The book is small, the numbers are small, so all you need is a couple of extra claims to sort of distort some of the numbers.
Speaker Change: but January was elevated February and March looked pretty good and so from our perspective we feel good about the our expectations for group benefits.
Speaker Change: and don't really see anything on the horizon that's going to sort of change our opinion on that. I'll let Ryan comment on how we reserve.
Sir John , this is Ryan. Thanks for the question.
Ryan Greenier: You know, I'm a reserving side of things. A lot of the quarterly changes in supplemental and group reserves are related to claim counts, frequency, etc. You know, we do an annual reserve assumption review where we're looking at more of the longer term trends.
Ryan Greenier: You know, there's nothing in our current utilization trends that gives us any cause for concern.
Ryan Greenier: You know, historically, the public sector has performed well compared to other professions in recessionary environments. We'll watch it and respond accordingly, but there's not like I said, there's nothing that has those changing our assumption. Yeah, I think that said well, guys, you know, when you run this, the tapes on previous calls, we've...
said over and over again that our assumption [inaudible]
Ryan Greenier: is that utilization will increase, and we had not seen that increase up to our expectations even in the numbers. So none of this is unexpected for us, none of this is...
Ryan Greenier: Not contemplated in our planning. And as Steve said, some of it, this business is small. Comparisons on any given quarter can be odd. But we are not surprised with what we're seeing and feel good about. I don't know.
Ryan Greenier: You know, the earnings diversification that this business has brought to us and the way it has been performing. So we feel we feel good about where we are in individual supplemental as well as with benefits.
Thanks.
Ryan Greenier: This concludes our question and answer session. I would like to turn the conference back over to Brendan Dawal for any closing remarks.
Ryan Greenier: I would just like to say before we close the call, I want to reiterate that this has been a record quarter for us and an excellent start to the year, and we're really looking forward to our investor day next week in New York, Brendan. Yeah, again as a reminder it's next Tuesday, details are available on our website, thanks and we hope you have a great day.
Ryan Greenier: The conference is now concluded. Thank you for attending today's presentation. You may now just connect.
Music
Speaker Change: John Barnidge, Matthew Carletti, Bret Conklin, Mark Desrochers
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