SPRINGFIELD, Ill.–(BUSINESS WIRE)–Horace Mann Educators Corporation (NYSE:HMN) today reported financial results for the three months and full-year ended December 31, 2022:

“In addition to the overall 5.4% in rate actions in 2022, we now expect auto rates to increase in the range of 18% to 20% over the next four quarters”

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“The temporary impact of industry-wide 2022 events on our financial performance, including inflationary pressure and market volatility, does not detract from our unwavering commitment to be a trusted partner to the educational community,” said President and CEO Marita Zuraitis. “Our optimism for Horace Mann’s long-term success is underscored by the progress we made in 2022 to further diversify our business base and cement our position as the leading provider of education market solutions for both school districts and individual educators.

“The strong sales momentum we saw in the fourth quarter built on our successful back-to-school season, supporting our ability to resume our trajectory toward a double-digit return on equity in 2023,” Zuraitis added. “In our new Worksite Division, 2022 sales rose almost two and a half times over last year, bolstered by the newly acquired employer-sponsored products added in the Madison National acquisition, which continues to exceed our expectations. Sales of worksite direct supplemental products are reflecting improved school access. In the fourth quarter, sales reached their highest quarterly level since before the pandemic.

“In our Retail Division, educators continued to respond favorably to the solutions offered by our Life & Retirement business with annualized Life sales up 7%. Retirement results also remain strong, even as financial market volatility has been a headwind,” said Zuraitis. “In our Property & Casualty business, our focus has been on the acceleration of our rate plan, along with implementation of non-rate underwriting actions, so we can remain on track to our longer-term profitability targets for this business. Auto sales are up again in the fourth quarter, largely in states where we are confident in the outlook for pricing, reflecting the strength of our relationships within the education market.

“In addition to the overall 5.4% in rate actions in 2022, we now expect auto rates to increase in the range of 18% to 20% over the next four quarters,” Zuraitis said. “We believe this plan – bolstered by non-rate actions – should result in an auto combined ratio between 97% and 98% in 2024. Further, we expect property rate increases in the range of 12% to 15% over the next four quarters. Combined with the impact of ‘inflation guard’ increases to raise coverage values, we expect average renewal premiums for property to increase by 17% to 20% in 2023. This puts us on track to our targeted property combined ratio between 92% and 93% for 2024.

“We remain confident that we will increase our share of the education market as we grow through all channels over the course of the next several years,” Zuraitis said. “As we return to our longer-term profitability targets in the Property & Casualty segment, we believe our 2023 core EPS will be in the range of $2.00 to $2.30. We are assuming a full-year limited partnerships portfolio contribution in line with our average historical returns and a full-year catastrophe loss contribution of about 10 points to the combined ratio. In 2024, we believe we will return to a double-digit return on equity as core EPS approaches $4, driven by our profitable growth.”

Segment outlook for 2023

2023 core EPS guidance of $2.00 to $2.30 (or core earnings of $84 million to $96 million, after tax) includes full-year net investment income from the managed portfolio between $330 million and $340 million, reflecting stronger returns from our commercial mortgage loan portfolio as well as the benefits of the rising rate environment over the past 12 months. Limited partnership returns are estimated near their 10-year average of 8.5%. 2023 total net investment income is expected to be between $434 million and $444 million.

Guidance for each segment reflects the following:

• Property & Casualty segment core earnings of between $5 million to $10 million in 2023 from a loss of $44.4 million in 2022, reflecting the growing benefit of rate and non-rate underwriting actions. The longer-term combined ratio target for the segment remains 95-96%.

• Life & Retirement segment core earnings of $67 million to $70 million in 2023, compared to $52.6 million in 2022. The guidance takes into account the adoption of LDTI effective Jan. 1, 2023. In 2023, the spread on the fixed annuity business is expected to be in the range of 220 to 230 basis points, above the target threshold for this business.

• Supplemental & Group Benefits segment core earnings of $40 million to $44 million in 2023, compared to $58.5 million in 2022. The segment benefit ratio is expected to be near the longer-term target of 43% compared with 36.7% in 2022 as utilization returns to pre-pandemic levels. In addition, the pretax profit margin will reflect the investment being made in this segment’s infrastructure as well as a higher allocation of corporate expenses to reflect the segment’s utilization of shared staff, distribution and other resources.

Reporting Segment Results

Beginning with first quarter 2022, Horace Mann is reporting financial results in three reporting segments: (1) Property & Casualty, (2) Life & Retirement, and (3) Supplemental & Group Benefits. The retail business, consisting of the Property & Casualty and Life & Retirement segments, provides insurance and financial services to individual educators through agency and direct channels. The Supplemental & Group Benefits segment provides worksite direct and employer-sponsored benefits through school district employers. These worksite offerings help school districts attract and retain staff. This segment includes the results of Madison National Life Insurance Company, Inc. (Madison National) that was acquired effective January 1, 2022.

Property & Casualty segment results reflected impact of inflation
(All comparisons vs. same period in 2021, unless noted otherwise)

The Property & Casualty insurance segment primarily markets private passenger auto insurance and residential home insurance. Horace Mann offers standard auto coverages, including liability, collision and comprehensive. Property coverage includes both homeowners and renters policies. For both auto and property coverage, Horace Mann offers educators a discounted rate and the Educator Advantage^® package of features. The Property & Casualty segment represented 47% of total revenues for the year ended 2022.

The Property & Casualty segment core loss for the fourth quarter and full-year were in line with the company’s preliminary announcement. As expected, Property & Casualty net premiums written were up slightly for the year with average written premiums rising for both property and auto over the course of the year. In addition, segment net investment income for the year and quarter was well below the prior year when outsized returns in the limited partnership fund portfolio benefited this segment.

The combined ratio rose for both periods, largely due to recognition of continued elevated industry-wide loss costs driven by inflation. The company continues to implement rate and other underwriting actions that address these trends. Catastrophe losses for the year were in line with the prior year, while catastrophe losses for the quarter were $12.4 million, pretax. Winter Storm Elliott, which spanned more than 30 states between December 21-25, represented $8 million of the total.

The year-over-year increase in average written premiums for property policies continued to improve throughout 2022, reaching 10.1% in the fourth quarter, as rate increases of 4.9% and inflation adjustments to coverage values took effect. The full-year property underlying loss ratio was 50.1%, reflecting non-catastrophe water and fire losses above the prior year. The full-year property loss ratio included $6.0 million in favorable prior-accident year reserve development.

The year-over-year increase in average written premiums for auto policies also improved throughout 2022, reaching 4.8% in the fourth quarter, reflecting rate actions averaging 5.4% in 2022. The full-year auto underlying loss ratio was 82.8%, reflecting higher severity due to the ongoing impact of inflation and other loss cost factors. In addition, auto frequency moved closer to pre-pandemic levels. The full-year auto loss ratio included $28.0 million in unfavorable prior-accident year reserve development, recognizing the impact on severity of overall inflation, including higher medical costs, increased usage of medical services and the current judicial environment.

Life & Retirement segment core earnings of $53 million in 2022
(All comparisons vs. same period in 2021, unless noted otherwise)

The Life & Retirement segment markets 403(b) tax-qualified fixed, fixed indexed and variable annuities; the Horace Mann Retirement Advantage® open architecture platform for 403(b)(7) and other defined contribution plans; and other retirement products to educators as well as traditional term and whole life insurance products. Horace Mann is one of the largest participants in the K-12 educator portion of the 403(b) tax-qualified annuity market, measured by 403(b) net premiums written on a statutory accounting basis. The Life & Retirement segment represented 36% of total revenues for the year ended 2022.

Life & Retirement segment core earnings, which excludes an after-tax impairment charge of $3.8 million for goodwill and intangible assets, were $52.6 million for the year. Adjusted core earnings, which further excludes DAC unlocking and intangible asset amortization, were $57.5 million for the year. For the segment, net investment income reflected full-year limited partnership returns slightly below their 10-year average compared to the unusually high returns seen in 2021 while commercial mortgage loan portfolio returns declined due to rising interest rates. Operating expenses were in line with 2021.

The net interest spread on our fixed annuity business was 246 basis points in 2022 compared to 290 basis points in 2021. Charges and fees declined for the year due to market volatility. For the life products, mortality experience improved from 2021.

For the Retirement business, net annuity contract deposits were $429.3 million for the year and $105.0 million for the fourth-quarter. Educators continue to begin their relationship with Horace Mann through 403(b) retirement savings products, including the company’s attractive annuity products, which provide encouraging cross-sell opportunities. Total cash value persistency remained strong at 93.7%.

Horace Mann currently has $4.9 billion in annuity assets under management, including $2.2 billion of fixed annuities, $2.2 billion of variable annuities and $0.5 billion of fixed indexed annuities. Assets under administration, which includes Horace Mann Retirement Advantage® and other advisory and recordkeeping assets, were down from a year ago as equity market performance affects assets under management. Life insurance in force rose to $20.0 billion at year-end 2022.

Supplemental & Group Benefits segment core earnings of $59 million in 2022
(All comparisons vs. same period in 2021, unless noted otherwise)

The Supplemental & Group Benefits segment markets employer-sponsored group worksite solutions for districts and other public employers, as well as worksite direct products typically distributed through the worksite channel. The worksite business provides group term life, disability and specialty health insurance along with worksite supplemental products including cancer, heart, hospital, supplemental disability and accident coverages. The Supplemental & Group Benefits segment represented 21% of total revenues for the year ended 2022.

Supplemental & Group Benefits segment core earnings were up 27.2% while adjusted core earnings were up 28.2% for the year, reflecting the strong pretax profit margin due to the addition of the newly acquired employer-sponsored products. Benefit ratios for the worksite direct and employer-sponsored products lines for the year were below longer-term targets largely due to continued strong performance across the product lines as well as the release of reserves related to lapsed policies. Fourth-quarter benefit ratios continued to reflect expected quarterly fluctuations due to seasonality and other factors.

The non-cash impact of amortization of intangible assets under purchase accounting reduced full-year core earnings by $15.7 million pretax vs. $11.7 million in 2021 due to the Madison National transaction. Segment net investment income rose 32.1% for the year, largely due to the addition of the Madison National portfolio in 2022.

Total sales for the segment were $16.1 million for the year, with fourth-quarter sales of $4.5 million. Fourth-quarter sales of worksite direct supplemental products were up 47.8%, with full-year sales up 41.5% to $9.2 million, with persistency remaining very strong at 90.4%. Full-year sales of employer-sponsored products were $6.9 million.

Consolidated Results

Horace Mann’s investment strategy is primarily focused on generating income to support product liabilities, and balances principal protection and risk. Total net investment income includes net investment income on the investment portfolio managed by Horace Mann, as well as accreted investment income on the deposit asset on reinsurance related to the company’s reinsurance of policy liabilities related to legacy individual annuities written in 2002 or earlier. The Corporate segment reduced total revenues by $56.1 million for the year ended 2022 largely due to realized investment losses.

Full-year net investment income of $401 million
(All comparisons vs. same period in 2021, unless noted otherwise)

Full-year total net investment income and net investment income on the managed portfolio was below last year. For full-year 2022, limited partnership returns were 7.9%. In 2021, limited partnership returns were 20.3%, well above the 10-year average. Investment yield on the portfolio excluding limited partnership interests remained near 4.25%, with new money yields continuing to exceed portfolio yields in the core fixed maturity securities portfolio.

The fixed maturity securities portfolio was in a net unrealized investment loss position of $571.9 million pretax at December 31, 2022, primarily due to the rising interest rate environment. Realized investment losses were largely due to portfolio repositioning activities to improve book yield as well as declines in the fair value of equity securities.

Adjusted book value per share* of $35.33 at year end

At December 31, 2022, shareholders’ equity was $1.09 billion, or $26.60 per share, as higher interest rates resulted in net unrealized investment losses on fixed maturity securities. Excluding the unrealized losses, shareholders’ equity was $1.45 billion, or $35.33 per share*. Share repurchases in 2022 totaled 670,816 shares, with $24.0 million returned to shareholders. As of December 31, 2022, $41.3 million remained authorized for future repurchases under the share repurchase program authorized in 2022. Between Jan. 1 and Feb. 3, 2023, the company repurchased 68,550 shares for a total of $2.3 million.

At December 31, 2022, total debt was $498.0 million, with $249.0 million outstanding on the company’s line of credit. Interest expense was $19.4 million in 2022 compared to $13.9 million in 2021 due to higher interest expense on the line of credit. The ratio of debt-to-capital excluding net unrealized investment gains/losses* was 25.6% at December 31, 2022, which aligns with levels appropriate for the company’s current financial strength ratings.

Quarterly webcast

Horace Mann’s senior management will discuss the company’s fourth-quarter financial results with investors on Feb. 8, 2023 at 12 p.m. Eastern Time. The conference call will be webcast live at investors.horacemann.com and archived later in the day for replay.

About Horace Mann

Horace Mann Educators Corporation (NYSE: HMN) is the largest financial services company focused on helping America’s educators and others who serve the community achieve lifelong financial success. The company offers individual and group insurance and financial solutions tailored to the needs of the educational community. Founded by Educators for Educators^® in 1945, Horace Mann is headquartered in Springfield, Illinois. For more information, visit horacemann.com.

Safe Harbor Statement and Non-GAAP Measures

Certain statements included in this news release, including those regarding our earnings outlook, expected catastrophe losses, our investment strategies, our plans to implement additional rate actions, our plans relating to share repurchases and dividends, our efforts to enhance customer experience and expand our products and solutions to more educators, our strategies to create sustainable long-term growth and double-digit ROEs, our strategy to achieve a larger share of the education market, and other business strategies, constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon Horace Mann and its subsidiaries. Horace Mann cautions investors that such statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond Horace Mann’s control, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking statements included in this document. Certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements can be found in the “Risk Factors” and “Forward-Looking Information” sections included in Horace Mann’s Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission (SEC). The forward-looking statements herein are subject to the risk, among others, that we will be unable to execute our strategy because of market or competitive conditions or other factors. Horace Mann does not undertake to update any particular forward-looking statement included in this document if we later become aware that such statement is not likely to be achieved.

Information contained in this news release include measures which are based on methodologies other than accounting principles generally accepted in the United States of America (GAAP). Reconciliations of non-GAAP measures to the closest GAAP measures are contained in the Appendix to the Investor Supplement and additional descriptions of the non-GAAP measures are contained in the Glossary of Selected Terms included as an exhibit to Horace Mann’s SEC filings.

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