Horace Mann Educators (NYSE:HMN)
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SPRINGFIELD, Ill., Oct. 31 /PRNewswire-FirstCall/ -- Horace Mann Educators Corporation (NYSE:HMN) today reported net income of $18.4 million (41 cents per share) and $64.8 million ($1.45 per share) for the three and nine months ended September 30, 2007, respectively, compared to net income of $19.4 million (43 cents per share) and $70.1 million ($1.55 per share) for the same periods in 2006. Included in net income was a net realized loss on securities of $0.5 million ($0.3 million after tax, or 1 cent per share) for the third quarter of 2007 and net realized gains of $2.1 million ($1.4 million after tax, or 3 cents per share) for the nine months ended September 30, 2007. In 2006, net realized investment gains were $0.8 million ($0.5 million after tax, or 1 cent per share) and $5.3 million ($3.4 million after tax, or 8 cents per share) for the respective three and nine month periods. All per-share amounts are stated on a diluted basis.
"Horace Mann continues to produce strong results in 2007. The third quarter represented another solid earnings period for the company, consistent with prior year and our expectations," said Louis G. Lower II, President and Chief Executive Officer. "In our property and casualty segment, the current quarter and nine months' combined ratios excluding catastrophes and prior years' reserve development of approximately 91 percent exceeded prior year and were somewhat above our expectations, primarily due to an increase in property claims frequency. In spite of the benign hurricane season, catastrophe losses in the quarter were greater than prior year and somewhat higher than normal primarily as a result of storms in the Midwest. Favorable prior years' reserve development continued in the third quarter, although at a reduced level compared to last year. Annuity segment earnings exceeded our expectations in the quarter and continued well ahead of prior year, driven by increased investment spreads and contract charges. Life segment earnings were also strong, reflecting growth in investment income and favorable mortality experience."
"Our growth initiatives demonstrated continued progress as well," continued Lower. "While total new auto unit sales were down in the third quarter compared to prior year, virtually all of the decrease was a by-product of our property catastrophe risk mitigation efforts in Florida. Through nine months, total new auto sales units increased 2 percent, including a 3 percent growth in units sold to new auto policyholders."
"In terms of our year-end earnings outlook, at this time we are unable to fully assess the fourth quarter effect of the Southern California wildfires. However, based on the current preliminary information available, we do not anticipate that these fires will have a significant impact on our current estimate of full year 2007 net income before realized investment gains and losses of between $1.80 and $1.95 per share," said Lower.
Segment Earnings
Net income for the property and casualty segment of $10.4 million for the quarter decreased $4.1 million compared to the same period in 2006, with year-to-date income down $8.2 million. The current year property and casualty combined ratios were 96.7 percent and 91.8 percent for the third quarter and nine months, respectively, compared to 91.2 percent and 88.3 percent in the prior year periods. Pretax catastrophe costs in the current quarter were $10.3 million compared to $7.2 million incurred in the third quarter of 2006. Favorable prior years' reserve development totaling $3.7 million was recorded in the current quarter, down from the $5.1 million recorded in the third quarter of last year.
Annuity segment net income of $5.2 million for the quarter increased $1.8 million compared to the third quarter of 2006, contributing to a year-to-date increase of $3.8 million. In addition to double-digit growth in the interest margin and contract charges earned, there was a small positive effect from valuations of deferred policy acquisition costs and value of acquired insurance in force in the current period. Life segment net income of $5.5 million for this year's third quarter and $12.7 million for the nine months each increased approximately $1.5 million compared to a year earlier, reflecting growth in investment income and lower mortality costs.
Segment Revenues
The company's total premiums written and contract deposits increased 1 percent for the quarter and 2 percent for the nine months compared to the prior year. As previously disclosed, in August 2007 the National Education Association ("NEA") educator excess professional liability insurance policy expired. As the primary component of involuntary and other property and casualty premiums, this policy represented approximately $8.6 million of premiums written in the prior year third quarter and nine months. Current quarter and year-to-date property and casualty premiums written reflected slight increases due to growth in average property premium per policy and growth in policies in force, however these were more than offset by a decrease in average auto premium per policy, higher catastrophe reinsurance premiums and the impact of the NEA educator excess professional liability insurance policy expiration.
Annuity new contract deposits increased 10 percent and 7 percent compared to the three and nine months ended September 30, 2006, respectively, due to growth in scheduled annuity deposit receipts. For the nine months, deposits to fixed accounts increased 6 percent, and variable annuity deposits increased 9 percent. Life segment insurance premiums and contract deposits decreased 2 percent and 1 percent compared to the three and nine months ended September 30, 2006, respectively.
Sales and Distribution
Total new auto sales units increased 2 percent compared to the first nine months of 2006. Annuity new business decreased 8 percent for the nine months compared to a year earlier. In 2006, annuity sales benefitted from increased opportunities for rollover deposits in six states that had initiated programs allowing educators to privatize a portion of their state retirement funds. The current period also reflected a decline in fixed indexed annuity partner product sales.
"While the decline in current year annuity sales is disappointing, we had a smaller decline in the third quarter and are pleased with the growth in total annuity revenues and accumulated account values. We are also pleased to see the year-to-date sales growth in our auto line, although the rate of growth was somewhat lower than our expectations primarily due to the reduced sales volume in Florida. Positive results from initiatives such as the property and casualty Educator Segmentation (Pricing) Model and our Product Management Organization are driving year-to-date improvements in average auto productivity per agent while also supporting Horace Mann's transition to our new Agency Business Model," said Lower.
Horace Mann's career agency force totaled 797 agents at September 30, 2007, a 4 percent decline compared to 12 months earlier. "As we continue transitioning to our new Agency Business Model, we expect the agent count to continue to decline somewhat over the intermediate term, while our total points of distribution increase as a result of the growing number of licensed producers supporting agents who adopt the new model," Lower noted.
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 period ended June 30, 2007 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 (Unaudited)
(Dollars in Millions, Except Per Share Data)
Quarter Ended Nine Months Ended
September 30, September 30,
2007 2006 % Change 2007 2006 % Change
DIGEST OF EARNINGS
Net income $18.4 $19.4 -5.2% $64.8 $70.1 -7.6%
Net income per
share:
Basic $0.42 $0.45 -6.7% $1.50 $1.63 -8.0%
Diluted (A) $0.41 $0.43 -4.7% $1.45 $1.55 -6.5%
Weighted average
number of shares
and equivalent
shares:
Basic 43.3 43.0 43.2 43.0
Diluted (A) 44.3 45.0 44.8 46.0
HIGHLIGHTS
Operations
Insurance
premiums
written and
contract
deposits $254.4 $252.3 0.8% $735.5 $723.9 1.6%
Return on
equity (B) 14.2% 15.0%
Property &
Casualty GAAP
combined ratio 96.7% 91.2% 91.8% 88.3%
Effect of
catastrophe
costs on the
Property &
Casualty
combined ratio 7.7% 5.4% 4.4% 4.8%
Experienced agents 576 589 -2.2%
Financed agents 221 244 -9.4%
Total agents 797 833 -4.3%
Additional
Per Share
Information
Dividends paid $0.105 $0.105 - $0.315 $0.315 -
Book value (C) $15.73 $14.33 9.8%
Financial
Position
Total assets $6,295.3 $6,277.5 0.3%
Short-term debt - -
Long-term debt 199.5 232.0
Total shareholders'
equity 680.9 616.4 10.5%
(A) Effective December 31, 2004, the Company adopted EITF Consensus 04-8,
"The Effect of Contingently Convertible Instruments on Diluted
Earnings per Share". Diluted per share information for all periods is
presented on a basis consistent with this consensus. Prior to the
repurchases in 2006, the Company's Senior Convertible Notes
represented 4.3 million equivalent shares and had annual interest
expense of $2.7 million after tax. On May 14, 2007, the Company
redeemed all remaining Senior Convertible Notes. For the nine months
ended September 30, 2007, the Senior Convertible Notes represented 0.6
million equivalent shares and had after tax interest expense of $0.3
million.
(B) Based on trailing 12-month net income and average quarter-end
shareholders' equity.
(C) Before the fair value adjustment for investments, book value per share
was $16.21 at September 30, 2007 and $14.17 at September 30, 2006.
Ending shares outstanding were 43,294,959 at September 30, 2007 and
43,026,839 at September 30, 2006.
HORACE MANN EDUCATORS CORPORATION
Statements of Operations and Supplemental GAAP Consolidated Data (Unaudited)
(Dollars in Millions)
Quarter Ended Nine Months Ended
September 30, September 30,
2007 2006 % Change 2007 2006 % Change
STATEMENTS OF
OPERATIONS
Insurance premiums
written and contract
deposits $254.4 $252.3 0.8% $735.5 $723.9 1.6%
Insurance premiums
and contract charges
earned $163.3 $162.7 0.4% $488.0 $487.3 0.1%
Net investment income 56.0 53.1 5.5% 166.3 154.8 7.4%
Net realized
investment gains
(losses) (0.5) 0.8 2.1 5.3
Total revenues 218.8 216.6 1.0% 656.4 647.4 1.4%
Benefits, claims and
settlement expenses 108.6 102.2 307.0 292.9
Interest credited 32.2 31.0 95.0 91.1
Policy acquisition
expenses amortized 18.4 18.1 55.7 54.7
Operating expenses 29.0 32.8 -11.6% 92.2 95.3 -3.3%
Amortization of
intangible assets 1.2 1.3 4.0 4.2
Interest expense (A) 3.4 3.6 10.6 9.4
Total benefits,
losses and expenses 192.8 189.0 2.0% 564.5 547.6 3.1%
Income before income
taxes 26.0 27.6 -5.8% 91.9 99.8 -7.9%
Income tax expense 7.6 8.2 27.1 29.7
Net income $18.4 $19.4 -5.2% $64.8 $70.1 -7.6%
ANALYSIS OF PREMIUMS
WRITTEN AND CONTRACT
DEPOSITS
Property & Casualty
Automobile and
property
(voluntary) $141.7 $138.4 2.4% $401.1 $396.7 1.1%
Involuntary and
other property &
casualty 0.3 9.2 2.0 11.0
Total Property &
Casualty 142.0 147.6 -3.8% 403.1 407.7 -1.1%
Annuity deposits 87.8 79.7 10.2% 258.3 241.1 7.1%
Life 24.6 25.0 -1.6% 74.1 75.1 -1.3%
Total $254.4 $252.3 0.8% $735.5 $723.9 1.6%
ANALYSIS OF SEGMENT
NET INCOME (LOSS)
Property & Casualty $10.4 $14.5 -28.3% $45.1 $53.3 -15.4%
Annuity 5.2 3.4 52.9% 13.7 9.9 38.4%
Life 5.5 4.0 37.5% 12.7 11.0 15.5%
Corporate and other (B) (2.7) (2.5) (6.7) (4.1)
Net income 18.4 19.4 -5.2% 64.8 70.1 -7.6%
Catastrophe costs,
after tax,
included above (C) (6.7) (4.7) (11.5) (12.5)
(A) The three and nine months ended September 30, 2006 included gains of
$0.1 million and $0.2 million, respectively, as a result of
repurchasing a portion of the 1.425% Senior Convertible Notes due
2032.
(B) 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 how
management evaluates the results of those segments. See detail for
this segment on page 4.
(C) Includes allocated loss adjustment expenses and catastrophe
reinsurance reinstatement premiums.
HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview (Unaudited)
(Dollars in Millions)
Quarter Ended Nine Months Ended
September 30, September 30,
2007 2006 % Change 2007 2006 % Change
PROPERTY & CASUALTY
Premiums written $142.0 $147.6 -3.8% $403.1 $407.7 -1.1%
Premiums earned 133.4 133.6 -0.1% 399.2 400.8 -0.4%
Net investment income 9.3 8.9 4.5% 27.8 25.8 7.8%
Losses and loss
adjustment expenses
(LAE) 97.4 89.9 270.3 257.6
Operating expenses
(includes policy
acquisition expenses
amortized) 31.2 31.9 -2.2% 94.1 94.2 -0.1%
Income before tax 14.1 20.7 -31.9% 62.6 74.8 -16.3%
Net income 10.4 14.5 -28.3% 45.1 53.3 -15.4%
Net investment
income, after tax 7.8 7.3 6.8% 23.0 21.6 6.5%
Catastrophe costs,
after tax (A) 6.7 4.7 11.5 12.5
Catastrophe losses and
LAE, before tax (B)(C) 10.3 7.2 17.7 18.6
Reinsurance
reinstatement
premiums, before tax - - - 0.6
Operating statistics:
Loss and loss
adjustment expense
ratio 73.0% 67.3% 67.7% 64.3%
Expense ratio 23.7% 23.9% 24.1% 24.0%
Combined ratio 96.7% 91.2% 91.8% 88.3%
Effect of
catastrophe costs
on the combined
ratio 7.7% 5.4% 4.4% 4.8%
Automobile and
property detail:
Premiums written
(voluntary) (D) $141.7 $138.4 2.4% $401.1 $396.7 1.1%
Automobile 93.1 93.0 0.1% 274.6 277.4 -1.0%
Property 48.6 45.4 7.0% 126.5 119.3 6.0%
Premiums earned
(voluntary) (D) 131.9 131.2 0.5% 392.6 393.0 -0.1%
Automobile 91.2 91.9 -0.8% 273.3 276.8 -1.3%
Property 40.7 39.3 3.6% 119.3 116.2 2.7%
Policies in force
(voluntary)
(in thousands) 801 796 0.6%
Automobile 535 531 0.8%
Property 266 265 0.4%
Policy renewal rate
(voluntary)
Automobile (6 months) 91.4% 91.1%
Property (12 months) 88.2% 87.8%
Voluntary automobile
operating statistics:
Loss and loss
adjustment expense
ratio 69.9% 69.8% 69.5% 64.5%
Expense ratio 23.8% 24.5% 24.2% 24.3%
Combined ratio 93.7% 94.3% 93.7% 88.8%
Effect of
catastrophe costs
on the combined
ratio (C) 0.7% 1.8% 0.5% 0.8%
Total property
operating
statistics:
Loss and loss
adjustment expense
ratio 78.9% 58.3% 61.2% 61.4%
Expense ratio 23.9% 23.8% 24.6% 24.1%
Combined ratio 102.8% 82.1% 85.8% 85.5%
Effect of
catastrophe costs
on the combined
ratio (C) 24.2% 14.1% 13.8% 14.7%
Prior years' reserves
favorable (adverse)
development, pretax
Voluntary
automobile (C) $2.8 $3.8 $7.2 $17.3
Total property (C) 0.9 1.3 7.6 (0.1)
Other property and
casualty - - - -
Total (C) 3.7 5.1 14.8 17.2
(A) Includes allocated loss adjustment expenses and catastrophe
reinsurance reinstatement premiums.
(B) The three and nine months ended September 30, 2007 reflect reductions
of $0.2 million and $0.3 million, respectively, due to net recoupment
from policyholders of assessments previously paid by the Company to
the Florida Citizens Property Insurance Corporation ("Florida
Citizens") and the Louisiana Citizens Fair and Coastal Plans
("Louisiana Citizens"). The three and nine months ended September 30,
2006 reflected reductions of $0.8 million and $2.0 million,
respectively, due to recoupment from policyholders of assessments
previously paid by the Company to Florida Citizens and Louisiana
Citizens.
(C) The nine months ended September 30, 2006 included development of prior
years' reserves for catastrophe losses and LAE in captions related to
catastrophe costs as well as captions related to prior years' reserve
development as follows: total property and casualty, unfavorable
development of $1.4 million; voluntary automobile, favorable
development of $1.5 million; and total property, unfavorable
development of $2.9 million.
(D) Amounts are net of additional ceded premiums to reinstate the
Company's property and casualty catastrophe reinsurance coverage as
quantified above.
HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview (Unaudited)
(Dollars in Millions)
Quarter Ended Nine Months Ended
September 30, September 30,
2007 2006 % Change 2007 2006 % Change
ANNUITY
Contract deposits $87.8 $79.7 10.2% $258.3 $241.1 7.1%
Variable 35.8 30.0 19.3% 111.2 102.2 8.8%
Fixed 52.0 49.7 4.6% 147.1 138.9 5.9%
Contract charges
earned 5.5 5.0 10.0% 16.4 14.6 12.3%
Net investment
income 32.6 30.4 7.2% 96.1 89.1 7.9%
Net interest margin
(without realized
gains) 9.7 8.5 14.1% 28.9 24.9 16.1%
Mortality loss and
other reserve
changes (0.3) (0.6) (0.9) (0.7)
Operating expenses
(includes policy
acquisition
expenses
amortized) 6.2 7.4 -16.2% 21.4 21.7 -1.4%
Amortization of
intangible assets 0.9 0.9 3.0 3.1
Income before tax 7.8 4.6 69.6% 20.0 14.0 42.9%
Net income 5.2 3.4 52.9% 13.7 9.9 38.4%
Pretax income
increase (decrease)
due to valuation of:
Deferred policy
acquisition costs $0.2 $- $0.2 $(0.2)
Value of acquired
insurance in force - - (0.1) (0.1)
Guaranteed minimum
death benefit
reserve - (0.1) (0.1) -
Annuity contracts in
force (in thousands) 164 163 0.6%
Accumulated value on
deposit $3,750.7 $3,470.1 8.1%
Variable 1,610.3 1,414.0 13.9%
Fixed 2,140.4 2,056.1 4.1%
Annuity accumulated
value retention -
12 months
Variable accumulations 90.8% 91.2%
Fixed accumulations 91.9% 93.8%
LIFE
Premiums and
contract deposits $24.6 $25.0 -1.6% $74.1 $75.1 -1.3%
Premiums and contract
charges earned 24.4 24.1 1.2% 72.4 71.9 0.7%
Net investment income 14.3 13.6 5.1% 42.4 39.7 6.8%
Income before tax 8.4 6.0 40.0% 19.6 17.0 15.3%
Net income 5.5 4.0 37.5% 12.7 11.0 15.5%
Pretax income
increase due to
valuation of:
Deferred policy
acquisition costs $(0.1) $(0.1) $- $0.1
Life policies in
force (in thousands) 227 232 -2.2%
Life insurance in
force $13,499 $13,235 2.0%
Lapse ratio - 12
months (Ordinary
life insurance) 5.6% 6.0%
CORPORATE AND OTHER
(A)
Components of loss
before tax:
Net realized
investment gains
(losses) $(0.5) $0.8 $2.1 $5.3
Interest expense (3.4) (3.6) (10.6) (9.4)
Other operating
expenses and net
investment income (0.4) (0.9) (1.8) (1.9)
Loss before tax (4.3) (3.7) (10.3) (6.0)
Net loss (2.7) (2.5) (6.7) (4.1)
(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 how
management evaluates the results of those segments.
HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview (Unaudited)
(Dollars in Millions)
Quarter Ended Nine Months Ended
September 30, September 30,
2007 2006 % Change 2007 2006 % Change
INVESTMENTS
Annuity and Life
Fixed maturities,
at fair value
(amortized
cost 2007,
$3,111.3; 2006,
$3,043.7) $3,077.4 $3,049.7
Short-term
investments 60.8 15.5
Short-term
investments,
securities
lending
collateral 77.6 378.1
Policy loans and
other 148.2 94.3
Total Annuity
and Life
investments 3,364.0 3,537.6 -4.9%
Property & Casualty
Fixed maturities,
at fair value
(amortized cost
2007, $758.7;
2006, $751.3) 758.8 756.7
Short-term
investments 6.3 9.6
Short-term
investments,
securities
lending
collateral - 13.4
Other 32.5 2.8
Total
Property &
Casualty
investments 797.6 782.5 1.9%
Corporate
investments 6.7 37.0
Total
investments 4,168.3 4,357.1 -4.3%
Net investment
income
Before tax $56.0 $53.1 5.5% $166.3 $154.8 7.4%
After tax 38.1 36.2 5.2% 113.0 105.5 7.1%
Net realized
investment
gains (losses)
by investment
portfolio
included in
Corporate and
Other segment
loss
Property &
Casualty $(0.6) $(0.3) $(0.2) $(0.1)
Annuity 0.1 0.5 3.5 2.9
Life - 0.6 (1.2) 2.5
Corporate
and Other - - - -
Total,
before tax (0.5) 0.8 2.1 5.3
Total,
after tax (0.3) 0.5 1.4 3.4
Per share,
diluted $(0.01) $0.01 $0.03 $0.08
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/