Horace Mann Educators (NYSE:HMN)
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SPRINGFIELD, Ill., Feb. 8 /PRNewswire-FirstCall/ -- Horace Mann Educators Corporation (NYSE:HMN) today reported net income of $16.1 million (35 cents per share) and $77.3 million ($1.67 per share), respectively, for the three and twelve months ended December 31, 2005, compared to $28.3 million (61 cents per share) and $56.3 million ($1.25 per share) for the same periods in 2004. Included in net income were net realized gains on securities of $0.7 million ($0.4 million after tax, or 1 cent per share) and $9.8 million ($6.4 million after tax, or 13 cents per share) for the three and twelve months ended December 31, 2005, respectively, compared to net realized gains of $2.9 million ($1.9 million after tax, or 4 cents per share) and $12.2 million ($7.9 million after tax, or 17 cents per share) for the three and twelve months ended December 31, 2004, respectively. All per-share amounts are stated on a diluted basis.
"As previously announced, Horace Mann's fourth quarter 2005 earnings reflected a significant level of catastrophe costs for the company -- $13.2 million after tax, or 28 cents per share, for the quarter. Looking beyond the catastrophe costs, property and casualty non-catastrophe loss ratios continued to be favorable in the fourth quarter, although somewhat higher than prior year due to the severe winter weather that impacted several key states in the first half of December," said Louis G. Lower II, President and Chief Executive Officer. "Our underlying auto and homeowners results continued to benefit from tightened underwriting standards and pricing actions taken in recent years, ongoing improvements in claims processes, cost containment initiatives, and generally low non-catastrophe claim frequencies. Property and casualty earnings for the quarter also benefited by $3.4 million after tax from continued favorable development of prior years' claim reserves," Lower added.
For full year 2005, the company's federal income tax expense reflected a reduction of $9.1 million from the closing of six prior tax years. Federal income tax expense for the third quarter was reduced by $6.4 million as a result of closing tax years 1998 through 2001 with favorable resolution of the contingent tax liabilities related to those four years. In the second quarter of 2005, resolution of tax years 1996 and 1997 reduced federal income tax expense by $2.7 million, and interest on the tax refund amounts of $1.4 million was received and recorded as pretax income.
"Our underlying 2005 results support a preliminary estimate of full year 2006 net income before realized investment gains and losses of between $1.65 and $1.80 per share," said Lower. "This projection anticipates favorable underlying property and casualty underwriting results -- with a combined ratio in the low 90s -- and also reflects additional costs of approximately 16 cents per share associated with an enhanced catastrophe reinsurance program. The 2006 reinsurance program includes increased coverage for a single event to a maximum of $110 million as well as a new aggregate excess of loss treaty with a $20 million limit on losses in excess of $20 million."
Segment Earnings
Net income for the property and casualty segment decreased $9.5 million for the quarter and increased $17.4 million for the year compared to the 2004 periods. The $20.3 million pretax of catastrophe costs incurred in the fourth quarter of 2005 was attributed primarily to an estimated $15 million of losses and loss adjustment expenses related to Hurricane Wilma, a $1 million increase in the estimated net losses from Hurricane Rita and a $1.3 million assessment from Louisiana related to Hurricane Katrina. In the fourth quarter of 2004, catastrophe costs of $12.3 million pretax were due primarily to a re-estimate of expected net losses and reinsurance reinstatement premiums related to Hurricanes Charley, Frances, Ivan and Jeanne. In addition to catastrophes, earnings for the fourth quarter of 2005 were also negatively effected by severe winter weather in early December, primarily impacting the auto line. The reserve studies as of December 31, 2005 and 2004 identified favorable development of prior years' reserves of $5.3 million in the current quarter and adverse development of $3.8 million in the fourth quarter of 2004. These year-end studies also resulted in recognition of favorable property and casualty claim and claim expense reserve development for the first three quarters of each year totaling $5 million in 2005 and $13 million in 2004.
Annuity segment net income of $3.2 million for the fourth quarter was $0.3 million less than in the prior year. The current period reflected decreased amortization of deferred policy acquisition costs and value of acquired insurance in force, while the fourth quarter of 2004 included a favorable accrual adjustment to federal income tax expense. For the year ended December 31, 2005, annuity segment net income increased $2.5 million primarily as a result of the contingent income tax liability reductions recorded in the second and third quarters of 2005. Annuity segment earnings for the current periods also reflected declines in the interest margin. For the quarter, life segment net income decreased slightly compared to prior year. For full year 2005, life segment net income decreased $1.4 million primarily as a result of an increase in the effective income tax rate recorded in the third quarter.
Segment Revenues
The company's premiums written and contract deposits increased slightly compared to the fourth quarter of 2004 and decreased 3 percent compared to full year 2004 with the effect of property and casualty reinsurance reinstatement premiums representing one-half percentage point of the annual decline. For property and casualty, full year premiums written declined, as increases in average auto and homeowners premium per policy -- which were moderated to some extent by the improvement in quality in the books of business -- were more than offset by the decline in policies in force and the higher level of reinsurance reinstatement premiums. In the third and fourth quarters, the growth in new scheduled annuity deposits exceeded the reduction in single premium and rollover deposit receipts. However, the full year decrease in annuity new contract deposits compared to 2004 was due primarily to a reduction in single premium and rollover deposits, partially offset by growth in new scheduled annuity deposit receipts. Full year deposits to fixed accounts decreased 7 percent, reflecting the current interest rate environment, while variable annuity deposits increased 4 percent compared to the prior year. Life segment insurance premiums and contract deposits decreased 3 percent compared to full year 2004, reflecting the shift in sales mix toward partner products.
Sales and Distribution
Compared to record levels of annuity sales in the prior year, total new annuity sales decreased 4 percent in 2005. This decline was narrowed during the third and fourth quarters as the level of annuity new business from independent agents increased following a transition period to implement the company's desired shift in mix of business from this channel. Improved auto and property sales in the fourth quarter of 2005 -- driven by gains in average agent productivity for these products -- pushed these lines to full year growth over 2004. Total career agent sales for the year decreased compared to 2004 reflecting a modest decline in average overall productivity per agent.
Horace Mann's career agency force totaled 855 agents at December 31, 2005. "The total number of agents increased sequentially in each of the four quarters of 2005 and was up 7 percent for the full year. The number of experienced agents -- a key component of the total agency force -- increased more than 10 percent during 2005 and showed growth in each of the last seven quarters," Lower said. "We anticipate continued, although more modest, growth in our agency force in 2006."
Horace Mann -- the largest national multiline insurance company focusing on educators' financial needs -- provides auto and homeowners insurance, retirement annuities, life insurance and other financial solutions. Founded by educators for educators in 1945, the company is headquartered in Springfield, Ill. For more information, visit http://www.horacemann.com/ .
Statements included in this news release that are not historical in nature are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties. Horace Mann is not under any obligation to (and expressly disclaims any such obligation to) update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 and the company's past and future filings and reports filed with the Securities and Exchange Commission for information concerning the important factors that could cause actual results to differ materially from those in forward-looking statements.
HORACE MANN EDUCATORS CORPORATION
Digest of Earnings and Highlights
(Dollars in Millions, Except Per Share Data)
Quarter Ended Year Ended
December 31, December 31,
% %
2005 2004 Change 2005 2004 Change
DIGEST OF EARNINGS
Net income $16.1 $28.3 -43.1% $77.3 $56.3 37.3%
Net income per
share:
Basic $0.37 $0.66 -43.9% $1.80 $1.32 36.4%
Diluted (A)(B) $0.35 $0.61 -42.6% $1.67 $1.25 33.6%
Weighted average
number of shares
and equivalent
shares:
Basic 43.0 42.8 42.9 42.8
Diluted (A)(B) 48.0 47.5 47.9 47.3
HIGHLIGHTS
Operations
Insurance premiums
written and
contract deposits
(C)(D) $242.7 $242.0 0.3% $972.6 $998.4 -2.6%
Return on equity (E) 13.2% 10.3%
Property & Casualty
GAAP combined ratio 96.9% 88.2% 95.6% 100.5%
Effect of
catastrophe costs
on the Property &
Casualty combined
ratio 14.5% 8.4% 12.3% 13.4%
Experienced agents 600 539 11.3%
Financed agents 255 261 -2.3%
Total agents 855 800 6.9%
Additional Per Share
Information
Dividends paid $0.105 $0.105 - $0.42 $0.42 -
Book value (F) $13.51 $13.45 0.4%
Financial Position
Total assets $5,835.9 $5,371.9 8.6%
Short-term debt - 25.0
Long-term debt 190.9 144.7
Total shareholders'
equity 580.6 576.2 0.8%
(A) Effective December 31, 2004, the Company adopted EITF Consensus 04-8,
"The Effect of Contingently Convertible Instruments on Diluted
Earnings per Share". The Company's Senior Convertible Notes represent
4.3 million equivalent shares and have annual interest expense of
$2.7 million after tax. Diluted per share information for all periods
is presented on a basis consistent with this consensus.
(B) As prescribed by U.S. generally accepted accounting principles, the
quarter earnings per share amounts were computed discretely and the
antidilutive effects of potential common shares outstanding were
excluded from weighted average shares and equivalent shares - diluted
for the third quarter of 2005 and 2004. Accordingly, the sum of the
per share amounts for the four quarters does not equal the year-to-
date per share amount.
(C) As a result of catastrophes in the third quarter of both 2005 and
2004, the Company incurred additional ceded premiums, to reinstate its
property and casualty reinsurance coverage, of $0.5 million and
$1.0 million for the three months and $9.9 million and $5.0 million
for the years ended December 31, 2005 and 2004, respectively.
Excluding these reinstatement premiums from both years, the percentage
changes were 0.1% and -2.1% for the three and twelve months ended
December 31, 2005, respectively.
(D) Reflecting resolution of the challenge to automobile rates in North
Carolina, in the fourth quarter of 2004 the Company returned to
policyholders $4.0 million of previously escrowed premiums, resulting
in a reduction to written premiums. Excluding the escrow payment and
the reinstatement premiums described in note (C), the written premium
growth rates were -1.5% and -2.5% for the three and twelve months
ended December 31, 2005, respectively.
(E) Based on trailing 12-month net income and average quarter-end
shareholders' equity.
(F) Before the fair value adjustment for investments, book value per share
was $12.85 at December 31, 2005 and $11.45 at December 31, 2004.
Ending shares outstanding were 42,972,028 at December 31, 2005 and
42,846,643 at December 31, 2004.
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HORACE MANN EDUCATORS CORPORATION
Statements of Operations and Supplemental GAAP Consolidated Data
(Dollars in Millions)
Quarter Ended Year Ended
December 31, December 31,
% %
2005 2004 Change 2005 2004 Change
STATEMENTS OF
OPERATIONS
Insurance premiums
written and contract
deposits (A) $242.7 $242.0 0.3% $972.6 $998.4 -2.6%
Insurance premiums and
contract charges
earned (A) $170.0 $172.9 -1.7% $664.9 $674.7 -1.5%
Net investment income 49.7 47.9 3.8% 194.6 191.4 1.7%
Realized investment
gains 0.7 2.9 9.8 12.2
Total revenues 220.4 223.7 -1.5% 869.3 878.3 -1.0%
Benefits, claims and
settlement expenses 114.1 106.5 442.7 484.4
Interest credited 29.8 28.1 115.9 108.7
Policy acquisition
expenses amortized 17.1 18.2 71.5 70.0
Operating expenses 35.4 34.3 3.2% 131.2 132.7 -1.1%
Amortization of
intangible assets 0.8 2.2 5.1 6.0
Interest expense (B) 2.3 1.7 8.9 6.8
Total benefits,
losses and expenses 199.5 191.0 4.5% 775.3 808.6 -4.1%
Income before income
taxes 20.9 32.7 -36.1% 94.0 69.7 34.9%
Income tax expense
(C) 4.8 4.4 16.7 13.4
Net income $16.1 $28.3 -43.1% $77.3 $56.3 37.3%
ANALYSIS OF PREMIUMS
WRITTEN AND CONTRACT
DEPOSITS (A)
Property & Casualty
Automobile and
property (voluntary) $131.7 $132.1 -0.3% $535.2 $552.5 -3.1%
Involuntary and other
property & casualty 2.0 0.8 11.7 9.8
Total Property &
Casualty 133.7 132.9 0.6% 546.9 562.3 -2.7%
Annuity deposits 79.9 78.6 1.7% 320.1 327.0 -2.1%
Life 29.1 30.5 -4.6% 105.6 109.1 -3.2%
Total $242.7 $242.0 0.3% $972.6 $998.4 -2.6%
ANALYSIS OF SEGMENT
NET INCOME (LOSS)
Property & Casualty $11.1 $20.6 -46.1% $45.0 $27.6 63.0%
Annuity 3.2 3.5 -8.6% 15.1 12.6 19.8%
Life 3.3 3.7 -10.8% 13.4 14.8 -9.5%
Corporate and other
(D) (1.5) 0.5 3.8 1.3
Net income 16.1 28.3 -43.1% 77.3 56.3 37.3%
Catastrophe costs,
after tax, included
above (E) (13.2) (8.0) (45.0) (49.1)
(A) See additional information on page 1 regarding the effects of property
and casualty catastrophe reinsurance reinstatement premiums and
escrowed North Carolina automobile premiums.
(B) The year ended December 31, 2005 includes costs of $0.5 million as a
result of retiring the 6 5/8% Senior Notes due 2006.
(C) The year ended December 31, 2005 reflects reductions of $9.1 million
as a result of closing tax years 1998 through 2001 in the third
quarter and tax years 1996 and 1997 in the second quarter with
favorable resolution of the contingent tax liabilities. The Company
also received interest on income tax refunds of $1.4 million pretax in
the second quarter reflected as a reduction to year-to-date Operating
Expenses above.
(D) The Corporate and Other segment includes interest expense on debt and
the impact of realized investment gains and losses and other corporate
level items. The Company does not allocate the impact of corporate
level transactions to the insurance segments consistent with
management's evaluation of the results of those segments. See detail
for this segment on page 4.
(E) Net of anticipated recoveries from the Company's underlying
catastrophe reinsurance program and, in 2004, from the Florida
Hurricane Catastrophe Fund. Includes allocated loss adjustment
expenses and catastrophe reinsurance reinstatement premiums.
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HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview
(Dollars in Millions)
Quarter Ended Year Ended
December 31, December 31,
% %
2005 2004 Change 2005 2004 Change
PROPERTY & CASUALTY
Premiums written
(A)(B) $133.7 $132.9 0.6% $546.9 $562.3 -2.7%
Premiums earned (A) 139.7 143.8 -2.9% 549.6 561.3 -2.1%
Net investment income 8.5 8.3 2.4% 33.2 33.8 -1.8%
Losses and loss
adjustment expenses
(LAE) 101.8 95.2 398.0 439.3
Operating expenses
(includes policy
acquisition expenses
amortized) 33.1 32.8 0.9% 126.8 126.3 0.4%
Income before tax 13.3 24.1 -44.8% 58.0 29.5 96.6%
Net income 11.1 20.6 -46.1% 45.0 27.6 63.0%
Net investment income,
after tax 7.2 7.0 2.9% 28.2 28.6 -1.4%
Catastrophe costs,
after tax (C) 13.2 8.0 45.0 49.1
Catastrophe losses
and LAE, before tax
(D) 19.8 11.3 59.3 70.5
Reinsurance
reinstatement
premiums, before tax 0.5 1.0 9.9 5.0
Operating statistics:
Loss and loss
adjustment expense
ratio 72.9% 66.2% 72.4% 78.3%
Expense ratio 24.0% 22.0% 23.2% 22.2%
Combined ratio 96.9% 88.2% 95.6% 100.5%
Effect of
catastrophe costs
on the combined
ratio 14.5% 8.4% 12.3% 13.4%
Automobile and
property detail:
Premiums written
(voluntary) (A)(B) $131.7 $132.1 -0.3% $535.2 $552.5 -3.1%
Automobile (B) 92.5 93.5 -1.1% 381.1 398.2 -4.3%
Property 39.2 38.6 1.6% 154.1 154.3 -0.1%
Premiums earned
(voluntary) (A) 135.3 140.3 -3.6% 538.8 552.0 -2.4%
Automobile 94.8 101.5 -6.6% 386.0 404.2 -4.5%
Property 40.5 38.8 4.4% 152.8 147.8 3.4%
Policies in force
(voluntary) (in
thousands) 797 818 -2.6%
Automobile 531 545 -2.6%
Property 266 273 -2.6%
Voluntary automobile
operating statistics:
Loss and loss
adjustment expense
ratio 70.7% 64.7% 68.2% 70.6%
Expense ratio 24.5% 21.8% 23.4% 22.0%
Combined ratio 95.2% 86.5% 91.6% 92.6%
Effect of
catastrophe costs
on the combined
ratio 1.1% 0.2% 1.5% 1.0%
Total property
operating
statistics:
Loss and loss
adjustment expense
ratio 75.4% 67.4% 80.5% 96.9%
Expense ratio 23.6% 22.3% 23.3% 22.6%
Combined ratio 99.0% 89.7% 103.8% 119.5%
Effect of
catastrophe costs
on the combined
ratio 45.7% 29.1% 39.3% 47.7%
Prior years' reserves
favorable (adverse)
development, pretax
Voluntary automobile $3.5 $(3.8) $8.8 $(3.8)
Total property 1.8 - 4.3 -
Other property and
casualty - - - -
Total 5.3 (3.8) 13.1 (3.8)
(A) Amounts are net of additional ceded premiums to reinstate the
Company's property and casualty catastrophe reinsurance coverage as
quantified above.
(B) After return of escrowed North Carolina automobile premiums of
$4.0 million for the three and twelve months ended December 31, 2004.
(C) Net of anticipated recoveries from the Company's underlying
catastrophe reinsurance program and, in 2004, from the Florida
Hurricane Catastrophe Fund. Includes allocated loss adjustment
expenses and catastrophe reinsurance reinstatement premiums.
(D) Amounts for the three and twelve months ended December 31, 2005
include the Company's $1.3 million assessment from the Louisiana
Citizens Fair and Coastal Plans. In addition, the amount for the
twelve months ended December 31, 2005 includes the Company's
$1.8 million assessment from the Florida Citizens Property Insurance
Corporation. The Company intends to assess its Louisiana and Florida
property policyholders, respectively, to recoup these amounts.
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HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview
(Dollars in Millions)
Quarter Ended Year Ended
December 31, December 31,
% %
2005 2004 Change 2005 2004 Change
ANNUITY
Contract deposits $79.9 $78.6 1.7% $320.1 $327.0 -2.1%
Variable 39.5 36.9 7.0% 137.8 132.0 4.4%
Fixed 40.4 41.7 -3.1% 182.3 195.0 -6.5%
Contract charges
earned 4.6 4.3 7.0% 17.9 16.7 7.2%
Net investment income 28.9 27.7 4.3% 112.9 109.4 3.2%
Net interest margin
(without realized
gains) 7.8 8.0 -2.5% 31.4 33.7 -6.8%
Mortality gain (loss)
and other reserve
changes (0.4) 0.2 (0.8) (1.2)
Operating expenses
(includes policy
acquisition expenses
amortized) 7.0 7.7 -9.1% 28.5 28.4 0.4%
Income before tax and
amortization of
intangible assets 5.0 4.8 4.2% 20.0 20.8 -3.8%
Amortization of
intangible assets 0.5 1.9 3.7 4.5
Income before tax 4.5 2.9 55.2% 16.3 16.3 -
Net income 3.2 3.5 -8.6% 15.1 12.6 19.8%
Pretax income
increase (decrease)
due to valuation of:
Deferred policy
acquisition costs $0.2 $(0.8) $(1.8) $(1.2)
Value of acquired
insurance in force 0.5 (0.9) 0.2 (0.9)
Guaranteed minimum
death benefit
reserve (0.2) - (0.6) -
Annuity contracts in
force (in thousands) 162 159 1.9%
Accumulated value on
deposit $3,295.4 $3,081.0 7.0%
Variable 1,333.7 1,254.8 6.3%
Fixed 1,961.7 1,826.2 7.4%
Annuity accumulated
value retention - 12
months
Variable
accumulations 91.5% 92.9%
Fixed accumulations 94.5% 95.5%
LIFE
Premiums and contract
deposits $29.1 $30.5 -4.6% $105.6 $109.1 -3.2%
Premiums and contract
charges earned 25.7 24.8 3.6% 97.4 96.7 0.7%
Net investment income 12.5 12.3 1.6% 49.3 49.5 -0.4%
Income before tax 5.3 4.8 10.4% 22.3 22.0 1.4%
Net income 3.3 3.7 -10.8% 13.4 14.8 -9.5%
Pretax income
increase (decrease)
due to valuation of:
Deferred policy
acquisition costs $0.1 $- $0.7 $(0.4)
Life policies in
force (in thousands) 237 252 -6.0%
Life insurance in
force (in millions) $13,142 $13,223 -0.6%
Lapse ratio - 12
months
(Ordinary life
insurance) 6.5% 7.2%
CORPORATE AND OTHER
(A)
Components of gain
(loss) before tax:
Realized investment
gains $0.7 $2.9 $9.8 $12.2
Interest expense (2.3) (1.7) (8.9) (6.8)
Other operating
expenses (0.6) (0.3) (3.5) (3.5)
Income (loss) before
tax (2.2) 0.9 (2.6) 1.9
Net income (loss) (1.5) 0.5 3.8 1.3
(A) The Corporate and Other segment includes interest expense on debt and
the impact of realized investment gains and losses and other corporate
level items. The Company does not allocate the impact of corporate
level transactions to the insurance segments consistent with
management's evaluation of the results of those segments.
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HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview
(Dollars in Millions)
Quarter Ended Year Ended
December 31, December 31,
% %
2005 2004 Change 2005 2004 Change
INVESTMENTS
Annuity and Life
Fixed maturities, at
market (amortized
cost 2005, $2,923.5;
2004, $2,694.1) $2,967.2 $2,820.4
Short-term investments 7.1 17.3
Short-term investments,
securities lending
collateral 184.7 0.1
Policy loans and other 88.7 83.1
Total Annuity and
Life investments 3,247.7 2,920.9 11.2%
Property & Casualty
Fixed maturities, at
market (amortized
cost 2005, $734.5;
2004, $705.1) 738.3 720.8
Short-term investments 1.4 14.7
Short-term investments,
securities lending
collateral 8.3 -
Other 0.6 0.6
Total Property &
Casualty
investments 748.6 736.1 1.7%
Corporate investments 0.2 0.2
Total investments 3,996.5 3,657.2 9.3%
Net investment income
Before tax $49.7 $47.9 3.8% $194.6 $191.4 1.7%
After tax 34.0 32.8 3.7% 133.1 131.1 1.5%
Realized investment
gains (losses) by
investment portfolio
included in
Corporate and Other
segment income
Property & Casualty $(0.4) $1.7 $1.9 $6.6
Annuity - - 7.9 3.7
Life 1.1 1.4 - 2.1
Corporate and Other - (0.2) - (0.2)
Total, before tax 0.7 2.9 9.8 12.2
Total, after tax 0.4 1.9 6.4 7.9
Per share, diluted $0.01 $0.04 $0.13 $0.17
OTHER INFORMATION
End of period goodwill
asset $47.4 $47.4
End of period property
and casualty net
reserves (A):
December 31, 2005 $311.1
September 30, 2005 334.3
June 30, 2005 314.8
March 31, 2005 313.2
December 31, 2004 309.3
December 31, 2003 283.7
December 31, 2002 231.0
December 31, 2001 241.6
December 31, 2000 223.0
December 31, 1999 206.8
(A) Unpaid claim and claim expense reserves net of anticipated reinsurance
recoverables and reduced for checks issued and outstanding.
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First Call Analyst:
FCMN Contact: ruffatk1@mail.horacemann.com
DATASOURCE: Horace Mann Educators Corporation
CONTACT: Dwayne D. Hallman, Senior Vice President - Finance, of Horace
Mann Educators Corporation, +1-217-788-5708
Web site: http://www.horacemann.com/