Horace Mann Educators Q2 2024 Earnings Report

Horace Mann Educators EPS Results

• Actual EPS: $0.20
• Consensus EPS: $0.19
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: $0.03

Horace Mann Educators Revenue Results

• Actual Revenue: $388.10 million
• Expected Revenue: $288.67 million
• Beat/Miss: Beat by +$99.43 million
• YoY Revenue Growth: +8.90%

Horace Mann Educators Announcement Details

• Quarter: Q2 2024
• Date: 8/7/2024
• Time: After Market Closes
• Conference Call Date: Thursday, August 8, 2024
• Conference Call Time: 9:00AM ET

Horace Mann Educators (NYSE:HMN), based in Springfield, Illinois, specializes in insurance and retirement solutions tailored to educators and school employees across the United States. Founded in 1945, the company partners with public school districts to deliver property and casualty insurance products—including auto, home and liability coverage—through a network of dedicated local agents. Its targeted approach focuses on understanding the unique needs and schedules of teachers, administrators and other school staff, distinguishing its services within the broader insurance market.

In addition to property and casualty offerings, Horace Mann provides life and disability insurance, annuities and retirement plan products designed to help educators plan for financial security beyond their teaching careers. These product lines are supported by the company’s in-house underwriting and claims management capabilities, ensuring responsive service and tailored solutions. Educational seminars and online tools further reinforce its commitment to the professional development and well-being of its policyholders.

Operating primarily in the U.S., Horace Mann maintains relationships with thousands of school districts through a specialized sales force embedded in local communities. This localized distribution model enables the company to align product design and risk assessment with the regional requirements of public education institutions. Led by President and Chief Executive Officer Steven C. Kerber, Horace Mann continues to build on its long-standing mission to serve the financial needs of those shaping tomorrow’s leaders.

Horace Mann Educators Q2 2024 Earnings Call Transcript

Key Takeaways

• Horace Mann reported Q2 core earnings of $0.20 per diluted share, up from $0.03 a year ago, with revenues rising 9% and net premiums earned up 8%.
• The Property & Casualty combined ratio improved 13 points to 111.5%, aided by favorable prior-year auto reserve development and rate increases, supporting an underwriting profit in 2024 and target profitability in 2025.
• Mark-to-market valuation adjustments in the commercial mortgage loan fund portfolio trimmed first-half net investment income and prompted lower full-year EPS guidance of $2.40–$2.70, despite cash yields remaining around 7.5%.
• Supplemental and group benefits sales grew 20%, core 403 plan deposits rose 6%, and the blended benefits ratio continued improving, underscoring strong momentum in worksite and retirement offerings.
• Year-to-date share repurchases totaled 231,000 shares for $7.7 million, with $28 million remaining under authorization, reflecting management’s confidence in the stock’s valuation.

Presentation

[Operator]

Good morning, and welcome to the Horace Mann second quarter of 2024 results conference call. All participants will be in a listen-only mode for the duration of the call, and should you need any assistance, please signal a conference specialist by pressing the Star key followed by 0. After today's presentation, there will also be an opportunity to ask questions. To ask a question, you may press Star, then 1 on your telephone keypad, and to withdraw a question, you may press Star, then 2. Also, please be aware that today's call is being recorded. I would now like to turn the call over to Brendan Dawe, Vice President, Investor Relations. Please go ahead.

[Brendan Dawal, Head of Investor Relations at Horace Mann Educators Corporation]

Thank you. Welcome to Horace Mann's discussion of our second quarter results. Yesterday, we issued our earnings release, 10-Q, investor supplement and investor presentation. Copies are available on the investors page on our website. Marita Zuraitis, President and Chief Executive Officer, and Bret Conklin, Executive Vice President and Chief Financial Officer, will give the formal remarks on today's call. With us for Q&A, we have Matt Sharpe, Steve McAnena, Ryan Greenier, and Mark Desrochers. 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.

[Brendan Dawal, Head of Investor Relations at Horace Mann Educators Corporation]

Actual results may differ materially due to a variety of factors, which are described in our news release and SEC filings. In our prepared remarks, we use some non-GAAP measures. Reconciliations of these measures to the most comparable GAAP measures are available in our investor supplement. I'll now turn the call over to Marita.

[Marita Zuraitis, President and CEO at Horace Mann Educators Corporation]

Thanks, Brendan, and good morning, everyone. Yesterday, we reported second quarter core earnings of $0.20 per diluted share, a significant improvement over prior year and in line with our pre-announcement. Total revenues were up 9%, with net premiums and contract deposits earned up 8%. Our property and casualty profitability restoration strategy remains on track to reach an underwriting profit in 2024 and target profitability in 2025. Our agency force is driving profitable growth in both our retail and worksite divisions. Property and casualty sales were up 37%. Supplemental and group benefit sales were up 20%. These results underscore our confidence in achieving our objective of a double-digit shareholder return on equity in 2025. As we noted in our pre-announcement, in the first half of 2024, we recorded some mark-to-market valuation adjustments related to our commercial mortgage loan fund portfolio.

[Marita Zuraitis, President and CEO at Horace Mann Educators Corporation]

The CML portfolio is roughly 9% of our total investments and is held within our life and retirement and supplemental and group benefits portfolios. Bret will give more details as well as the specific accounting requirements later in the call. First, I want to take a step back to provide some perspective on our year-over-year investment results. In the first half of 2024, total net investment income on the managed portfolio rose more than 3% over prior year, despite the returns on commercial mortgage loan funds that were meaningfully below historical averages. The core fixed maturity portfolio is performing very well in the high interest rate environment. At the end of the second quarter, our pre-tax investment yield rose to 4.46%, and new money rates exceeded the portfolio book yield by 163 basis points.

[Marita Zuraitis, President and CEO at Horace Mann Educators Corporation]

Even with the revised outlook for commercial mortgage loan funds in 2024, we expect higher total net investment income for the full year on the strength of our core managed portfolio performance. While the valuation pressure in the commercial mortgage loan portfolio has impacted reported investment income, we do expect to see a tailwind in investment income as market factors impacting the commercial real estate sector begin to recover. Most importantly, these valuation marks have not impacted cash returns on this portfolio, which remains strong at about 7.5%. Today, I want to focus my remarks on the strength of our underlying business, the results we are seeing from a fully engaged and more productive agency force, and the value we are providing to our educator and employer customers.

[Marita Zuraitis, President and CEO at Horace Mann Educators Corporation]

In Property and Casualty, we continue to make progress towards our objective of an underwriting profit in 2024. Our reported combined ratio of 111.5%, which reflects expected second quarter seasonality, improved 13 points over prior year. We also recorded favorable prior year development, a net $6.2 million reserve release, primarily related to lower than expected severity in auto physical damage claims from accident year 2023. The auto combined ratio for the quarter was 97.2%, which includes 6.2 points from the favorable prior year development. We continue to see physical damage trends moderating and feel confident in our ability to reach target profitability in 2025. We continue to successfully implement our auto and property rate plans and will monitor and respond to trends as necessary.

[Marita Zuraitis, President and CEO at Horace Mann Educators Corporation]

We are at rate adequacy in the vast majority of our book and have line of sight to reach rate adequacy in the remainder. In addition, we continue to react to state-level loss trends with additional rate filings as necessary. As we've noted before, second quarter historically comprises about half of our full year catastrophe load. The $41 million in losses from 28 PCS-declared catastrophes in the second quarter stemmed primarily from record severe convective storm activity across the country. These losses were slightly lower compared to catastrophes in second quarter 2023, but continue to trend above our 5- and 10-year historical averages, in line with industry experience. We have implemented new roof rating schedules, which are effective at policy renewal in 6 of our most wind-prone states. Our first look at the potential impact this quarter appeared favorable, with close to $1 million in estimated cost savings.

[Marita Zuraitis, President and CEO at Horace Mann Educators Corporation]

As a reminder, we expect the full impact of this program to be about three points on the property loss ratio when earned in through all applicable 12-month policies. In Life and Retirement, we continue to see educators respond positively to our value proposition and our core product offerings. This segment remains a cornerstone of our value proposition for educators to protect what they have today and prepare for a successful tomorrow. We are able to partner with employers to bring financial wellness and retirement planning resources to educators, including 403 plans and our Retirement Advantage mutual fund platform. 403 plans are how many educators are introduced to Horace Mann and enable us to cross-sell complementary products to new customers. These core 403 product deposits have increased 6% year to date and have a healthy sales pipeline.

[Marita Zuraitis, President and CEO at Horace Mann Educators Corporation]

Against this backdrop, we're realizing improvements in the number and quality of leads our internal teams are providing to agents. We upgraded our website, improved our online quoting functionality, and tested a number of digital marketing programs. We're now working to scale up the most successful approaches in the back half of the year and into 2025. Taken all together, the result is strong retail sales growth from an engaged agency plan. Auto sales were up 29% in the second quarter. Life sales were up 27%. Our close ratios remain consistent with historic levels. The growth is coming from more agencies writing more policies and writing higher premium policies. In the first half of 2024, average agency income increased 14% over prior year. Our retail distribution recruiting is strong and slightly ahead of our plans.

[Marita Zuraitis, President and CEO at Horace Mann Educators Corporation]

We are seeing more new agents reach key milestones faster, which speaks to the quality and productivity level of our agency force. Similar to retail, our worksite division has realized productivity increases in the agency force. Worksite direct sales are up 14%. Notably, recent sales results have even surpassed NTA's pre-pandemic levels. Customers and agents are responding well to recent product enhancements to our offerings, and we continue to update our product set to meet customer needs. Benefits utilization continues to remain below pre-pandemic levels, but is trending towards our long-term target of 43% on a sequential basis. In the employer-sponsored business, our number of covered lives is 830,000, a 2% increase over prior year. As we've noted before, this business has a longer sales cycle, up to 18 months, and sales quarter to quarter can be lumpy.

[Marita Zuraitis, President and CEO at Horace Mann Educators Corporation]

We continue to leverage our existing broker partnerships to expand distribution and are focused on adding more partners. Before I turn the call over to Bret, I want to reiterate how well-positioned Horace Mann is to reach our goals of an expanded share of the education market and a sustainable double-digit ROE in 2025 and beyond. Our diversified business model provides strong, steady earnings. With the broader P&C earnings pressure facing the industry over the past few years, we've been able to consistently report income on a consolidated basis. And while life and retirement earnings have been lower in the first half of 2024 due to lower net investment income, we anticipate eventual recovery of most of the CML mark-to-market valuation adjustments. To put it more simply, we have a clear line of sight to target profitability in all segments in 2025, and we are growing profitably across the business.

[Marita Zuraitis, President and CEO at Horace Mann Educators Corporation]

This is the basis of our current view of company value. One of the levers to create further shareholder value is to buy back shares when we believe market conditions are favorable, and we believe that has been the case recently. So far in 2024, we've bought back 230,987 shares at a total cost of $7.7 million. In addition, I want to touch on some of the activities we've been doing in schools to bookend the summer. Before the school year ended, we completed an entire month of teacher appreciation activities, including exclusive virtual events with celebrities and entertainers who thanked teachers directly. Our website traffic doubled over the beginning of the year, and we were able to follow up with thousands of educators who wanted to hear more about Horace Mann.

[Marita Zuraitis, President and CEO at Horace Mann Educators Corporation]

As our educators head back to school this month, our agents will be there right alongside them. Our aim for the third quarter is to help educators be set for success, both professionally and personally. ... We are confident in our ability to increase our share of the education market, precisely because we're here for educators, and we know how to help them succeed better than anyone else. Thanks. And with that, I'll turn the call over to Bret.

[Bret Conklin, EVP and CFO at Horace Mann Educators Corporation]

Thanks, Marita. Second quarter core earnings were $8.4 million, or $0.20 per diluted share, a significant increase from $0.03 a year ago. Our P&C profitability restoration strategy remains on track to return an underwriting profit in 2024 and reach target profitability in 2025. We're also seeing strong growth momentum across the segments. As we noted in our pre-announcement, we now expect a full year core EPS of $2.40-$2.70, primarily due to lower than anticipated income on our commercial mortgage loan funds, as well as first half catastrophes that were above our five-year exposure weighted average. Today, I'll start my remarks with more detail on investments and then speak to the performance of each of the three segments.

[Bret Conklin, EVP and CFO at Horace Mann Educators Corporation]

Within our $7 billion investment portfolio, over 80% of our assets are invested in our fixed income portfolios, which have a weighted average credit rating of A+. These portfolios have clearly benefited from the higher interest rate environment and are performing above our expectations. At the end of the second quarter, our core new money yield was 5.88%, well above the core pre-tax yield of 4.25%. The portfolio is concentrated in investment-grade corporates, municipals, and high-quality agency and agency MBS securities. We have $627 million, or about 9% of our portfolio, in commercial mortgage loan funds.

[Bret Conklin, EVP and CFO at Horace Mann Educators Corporation]

We hold these assets in fund structures across a diverse group of managers to provide access to broader markets, geographies, property types, borrowers, and loan types versus the direct loan origination strategy used by many of our life industry peers. We therefore follow the equity method of accounting for these funds. Essentially, we're booking quarterly adjustments based on current real estate property valuations that have a one-quarter lag and can be impacted by market factors like interest rates and the level of real estate transaction. Most of the underlying loans within these funds have maturities of five years or less. If loans that have been marked to market mature and potentially pay off or refinance at par, we would expect to see a tailwind in investment income.

[Bret Conklin, EVP and CFO at Horace Mann Educators Corporation]

Most importantly, as Marita mentioned, these valuation marks have not impacted cash returns on this portfolio, which remains strong at about 7.5%. The majority of our total commercial real estate exposure is in multifamily and industrial, both of which are generally performing well. We continue to monitor office exposure closely, which represents less than 3% of the total investment portfolio. These investments are concentrated in senior commercial mortgage loan funds. It is primarily well-amenitized, well-located, and generally newer construction Class A exposure. What this means for 2024 is overall net investment income that is slightly higher than 2023 compared to the high single-digit increase we assumed in our original guidance. As I previously mentioned, valuations are based on market factors, and we see the potential for an investments tailwind in the future.

[Bret Conklin, EVP and CFO at Horace Mann Educators Corporation]

The commercial mortgage loan funds report on a 1-quarter lag, so we have some early insight into Q3 returns. Right now, we expect $10 million-$12 million of net investment income from CMLs in the second half of 2024, a notable increase from the $4 million of net investment income in the first half of the year. This is due to a lower level of negative valuation adjustments across the funds. As a result, we expect CML income to remain below historical averages on a full year basis. We expect further improvement in 2025. Turning to the business segment performance, Property and Casualty net written premiums rose nearly 17% to $199 million, primarily on premium increases implemented over the past 18 months.

[Bret Conklin, EVP and CFO at Horace Mann Educators Corporation]

The reported combined ratio of 111.5 improved 13 points over prior year, including 3.5 points of favorable prior year reserve development. The $6.2 million reserve release is primarily related to auto physical damage claims from accident year 2023. Catastrophe losses of $41 million added almost 23 points to the reported combined ratio, compared to over 26 points a year ago. We have mentioned before that second quarter typically accounts for about half of our full-year cat load. Second quarter losses were above our 5-year and 10-year historic averages. This is consistent with the broader industry, which experienced record levels of severe convective storm activity. In auto, net written premiums of $122 million increased 15% over prior year, primarily on rate actions.

[Bret Conklin, EVP and CFO at Horace Mann Educators Corporation]

The combined ratio of 97.2 improved 17 points over prior year. In terms of loss cost trends, we saw favorable severity trends in the quarter. Frequency was unfavorable on a quarterly basis, but flat year-to-date. Policyholder retention remains strong at 86.6%, despite substantial rate increases. In property, net written premiums were $77 million, a 20% increase over prior year. The combined ratio reflected cat losses that were below prior year, but elevated compared to our historical averages. Despite higher premiums, our policyholder retention remains strong at 90%. Looking ahead to the full year, we slightly narrowed our P&C earnings guidance range to $36 million-$39 million to adjust for first half results, primarily on higher cat costs. We continue to expect to reach a segment underwriting profit in 2024.

[Bret Conklin, EVP and CFO at Horace Mann Educators Corporation]

Turning to Life and Retirement, core earnings of $12 million were below prior year by 29% due to lower than anticipated income on our commercial mortgage loan funds and higher interest credited. In the retirement business, deposits in our core 403(b) products have increased 6% year-to-date, and accounts on our fee-based mutual fund platform, Retirement Advantage, surpassed 20,000. As Marita mentioned, our retirement products are a cornerstone of Horace Mann's value proposition, an important entry point to the education market. Annualized life sales increased 27% over prior year. Mortality costs for the quarter were comparable to the prior year, and persistency remains strong at about 96%.

[Bret Conklin, EVP and CFO at Horace Mann Educators Corporation]

For the full year outlook, we have adjusted Life and Retirement segment earnings down to a range of $50 million-$56 million due to lower expected net investment income related to the commercial mortgage loan funds. Turning to worksite, in the Supplemental and Group Benefits segment, earnings of $14 million were above prior year by 19% on higher net investment income and lower policyholder benefits utilization. Premiums and contract charges earned were $64 million, down slightly from prior year. The blended benefits ratio of 39% was below prior year, but trending toward our target of 43% on a sequential basis. Sales were up 20%, mostly on the strength of the worksite direct line. Our employer-sponsored sales were up as well, but like the broader group benefits industry, our second quarter generally is light sales volume.

[Bret Conklin, EVP and CFO at Horace Mann Educators Corporation]

For the full year, we have adjusted our Supplemental and Group Benefits segment up to an earnings range of $49 million-$52 million, which is mostly due to lower benefits utilization in the first half of the year. While we continue to expect utilization will return to pre-pandemic levels, the pace is slower than we originally anticipated. As we move into the back half of the year, we continue to prioritize long-term shareholder value creation. At our targeted profitability across the segments, Horace Mann is capable of generating about $50 million in excess capital above what we pay in shareholder dividends and interest expense annually. Our first priority remains on funding profitable growth. Second, we are committed to increasing the annual shareholder dividend, as we have for the past 16 years. Third, we opportunistically buy back shares when market conditions are favorable.

[Bret Conklin, EVP and CFO at Horace Mann Educators Corporation]

Year-to-date, through August second, we have repurchased approximately 231,000 shares at a cost of $7.7 million. We have about $28 million remaining on our current share repurchase authorization. In closing, Horace Mann has a clear line of sight to target profitability across our segments, a strong balance sheet, and solid growth momentum. With these pieces in place, we are well-positioned to expand our market share and achieve a 10% shareholder return on equity in 2025. Thank you. Operator, we're ready for questions.

[Operator]

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 are using a speakerphone, please pick up your handset before pressing the keys. To withdraw a question, please press star, then two. At this time, we will pause just momentarily to assemble our roster. Our first question will come from Meyer Shields with KBW. Please go ahead.

[Meyer Shields, Managing Director at KBW]

Great. Good morning, everyone. I wanted to ask a question based on Bret's comments, because when we look at, I guess, the rate of earned rate increase or the pace of earned rate increase and what seems to be decelerating severity trends, I guess I would have expected the underlying accident or loss ratio in auto to improve by a little bit more than it had. I was hoping you could talk through... I think it's the frequency issue that, that probably opposed that. I was hoping you could add a little detail to what's going on there.

[Bret Conklin, EVP and CFO at Horace Mann Educators Corporation]

Sure, Meyer. This is Mark. I'll take that question. You know, when we look at auto frequency, the accident frequency in the quarter was a bit elevated, compared to 2023. I think it's primarily attributable to the fact that spring break, across much of the country was a little bit later this year. So some of what would normally come as accident frequency in the first quarter leaked into the second quarter. I think that's a, you know, a little bit exacerbated by the fact that, you know, we have our educator niche. But if you look at the first half of the year in aggregate, accident frequency is pretty much flat year-over-year.

[Bret Conklin, EVP and CFO at Horace Mann Educators Corporation]

And if we look at severity, you know, the metal coverages are definitely coming down. I think on the bodily injury and UM side, we continue to see trends in the kind of mid to high single digits, you know, somewhat a function of continued social inflation. But in the aggregate, auto loss costs for the first half of the year, about 5% over where they were in 2023, which is pretty much dead on to what we expected.

[Meyer Shields, Managing Director at KBW]

Okay, that's very helpful. I guess a follow-up question on that is the delta between filed rate increases on the liability side and on the metal side or the physical damage side, is that changing, as we see the physical damage trends abate?

[Mark Desrochers, SVP and Chief Corporate Actuary at Horace Mann Educators Corporation]

I think it likely will, Meyer, but right now, I mean, most of our rate has been, you know, primarily across the board, across all coverages. There are some differences, but not material differences as of yet. But I think as we get into next year and we feel strong about our profitability trajectory, and you get to more kind of inflationary type rate changes, you'll see it match up, I think, much more closely with the underlying coverage inflation.

[Marita Zuraitis, President and CEO at Horace Mann Educators Corporation]

Certainly, as this year's data gets worked into the-

[Meyer Shields, Managing Director at KBW]

Good.

[Marita Zuraitis, President and CEO at Horace Mann Educators Corporation]

into the pipes. Yep.

[Meyer Shields, Managing Director at KBW]

Sorry.

[Bret Conklin, EVP and CFO at Horace Mann Educators Corporation]

Go ahead, Meyer.

[Meyer Shields, Managing Director at KBW]

A timeline of the mark-to-market accreting back to par. I guess maybe the right way to ask is the duration of the real estate portfolio.

[Ryan Greenier, SVP and Chief Investment Officer at Horace Mann Educators Corporation]

Sure, Meyer, this is Ryan. I think you're asking about the timeline, you know, of, of when we think we're going to see some of that recovery in the unrealized. You know, we put a little more detail in the investor presentation on the commercial mortgage loan portfolio this quarter. It's on slides 36 and 37. And you can see that about two-thirds of our CML portfolio will mature over the next 18 months. So as a reminder, with equity method of accounting, we've taken a valuation adjustment, real time, you know, one quarter lag, to every single loan in that limited mortgage loan fund portfolio. That's 249 of them. And clearly, many of them, the vast majority, continue to perform well, and you can see that in the cash yield statistics that we put out on that slide for you.

[Ryan Greenier, SVP and Chief Investment Officer at Horace Mann Educators Corporation]

There's a significant delta between the cash yield and the net investment income, and the net investment income reflects those unrealized adjustments. So with two-thirds of them maturing over the next 18 months, we feel good that there's, you know, a tailwind there, you know, that will play in. Our estimate for second half is conservative. And so I think you're going to see more of that, you know, in 2025 or later, but we feel confident about the trajectory.

[Meyer Shields, Managing Director at KBW]

Okay, fantastic. Thank you so much, and I apologize for my phone.

[Ryan Greenier, SVP and Chief Investment Officer at Horace Mann Educators Corporation]

No problem. Thank you.

[Operator]

Our next question will come from Wilma Burdis with Raymond James. Please go ahead.

[Wilma Burdis, Director at Raymond James & Associates]

Hey, good morning. Could you just talk about the... Oh, can you guys hear me?

[Ryan Greenier, SVP and Chief Investment Officer at Horace Mann Educators Corporation]

Yes.

[Mark Desrochers, SVP and Chief Corporate Actuary at Horace Mann Educators Corporation]

Yes.

[Wilma Burdis, Director at Raymond James & Associates]

Could you just talk about the trajectory of the interest rates that are factored into the current CML portfolio valuation? And maybe just talk about the expectation for rate cuts that's baked into that assumption. Thanks.

[Ryan Greenier, SVP and Chief Investment Officer at Horace Mann Educators Corporation]

Sure, Wilma, this is Ryan. Thanks again for the question. You know, our commercial mortgage loan portfolio is primarily floating rate exposure. Over 80% of the loans, close to 85%, are floating rate, and, you know, that has certainly helped cash yields. But the inverse of that is it puts pressure on the valuation, you know, on cap rates of the underlying portfolio, the underlying loans, the properties supporting the loans. You know, as we move into what will likely be a moderating interest rate environment, that will be a tailwind for the commercial real estate market. It'll provide some relief on the debt service coverage numbers, as well as help support cap rates for the underlying properties.

[Ryan Greenier, SVP and Chief Investment Officer at Horace Mann Educators Corporation]

So we're not necessarily counting on that. We have a lot of confidence in the underlying fundamentals of the properties. You know, as I just said to Meyer, we expect a lot of this unrealized marks to come back as they mature, which is over the next, you know, two-thirds of the portfolio matures over the next 18 months.

[Wilma Burdis, Director at Raymond James & Associates]

Okay. Thank you. And then could you talk about what drove the favorable prior year developments? And is that something that we could see continuing into the second half of the year? Thanks.

[Bret Conklin, EVP and CFO at Horace Mann Educators Corporation]

Sure, Wilma, this is Bret, and you know, as usual, let me just start out by as it relates to the P&C reserves. I think most know that we take a very conservative stance as it relates to our P&C reserving, withholding our reserves at the upper half of the actuarial range. You know, and I would also add that we remain very comfortable with our aggregate reserve levels.

[Bret Conklin, EVP and CFO at Horace Mann Educators Corporation]

And to your point on the PYD that we recorded in the second quarter, obviously, we were encouraged by the emerging favorable trends that we're beginning to see, and I think it was in my prepared remarks in the auto claims development pattern, specifically in the auto physical damage coverage. So with that, let me turn it over to Mark, who can kind of talk about the more specifically about the trends that we're seeing.

[Mark Desrochers, SVP and Chief Corporate Actuary at Horace Mann Educators Corporation]

Yeah, absolutely. I mean, all that development essentially came out of, you know, essentially collision and auto property damage, you know, which are short, short-tailed lines. And as those claims are closing, what we're finding is the severity on them has dropped, you know, precipitously from where we thought it was at the time when reserves were set. So, you know, at that time, we were still dealing with the tail end of mid to high single digit severity trends. And now, you know, as they're settling out, you know, we're seeing trends that are more in the very low single digits, and that's really what's driving that prior year development. So we have a very high level of confidence that we're right on these numbers.

[Bret Conklin, EVP and CFO at Horace Mann Educators Corporation]

Yeah, and I can't sit here and guarantee what's going to happen in the second half of this year, but I would just say this: if the trends continue to be favorable, as Mark just described, it would not, you know, surprise me if we would have development. But to say that we will or we won't, I can't do that. But we feel very good about where we're at currently and the trends that we're seeing.

[Wilma Burdis, Director at Raymond James & Associates]

Thank you. If I could sneak one more in, could you just talk a little bit about share repurchases? They were a bit higher in the quarter. You know, cats came in line, but just maybe talk about that and what we could see in the second half of the year and maybe even 25 as P&C operations normalize. Thanks.

[Marita Zuraitis, President and CEO at Horace Mann Educators Corporation]

Yeah, thank you. I'll let Ryan go through the details, but as we always say, share repurchase is just one piece of a very thoughtful capital management strategy. Ryan, you want to take it?

[Ryan Greenier, SVP and Chief Investment Officer at Horace Mann Educators Corporation]

Sure. Thanks for the question, Wilma. You know, as we have a clear line of sight to returning to target profitability in 2025, you know, that translates into about $50 million of excess capital production, and that's on top of the interest expense and a pretty compelling dividend. You know, our capital management priorities are, 1, to fund profitable growth. 2, to support that dividend. We've got a bit over 4% right now of the dividend yield, and we've increased that annually over the past 16 years.

[Ryan Greenier, SVP and Chief Investment Officer at Horace Mann Educators Corporation]

Our approach to buybacks has historically been opportunistic and will continue to be. Like I said, we have a clear line of sight to target profitability. We feel confident in our excess capital production capabilities, and we clearly feel shares are undervalued. And through yesterday, you know, on a year-to-date basis, we bought back, you know, 7.7 million at an average price of $33.30. So, you know, pretty opportunistic approach to what we feel is an undervalued stock price.

[Wilma Burdis, Director at Raymond James & Associates]

Great. Thank you.

[Operator]

As a reminder, you may press star, then one to join the question queue. At this time, we will pause to assemble a roster. With no further questions, this will conclude our question and answer session. I'd like to turn the conference back over to Brendan Dawal for any closing remarks.

[Brendan Dawal, Head of Investor Relations at Horace Mann Educators Corporation]

We'd like to thank you for joining our call today. Please reach out if there are any additional questions, and have a great day.

[Marita Zuraitis, President and CEO at Horace Mann Educators Corporation]

Thank you.

[Operator]

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

Participants

Executives

• Brendan Dawal, Head of Investor Relations
• Bret Conklin, EVP and CFO
• Marita Zuraitis, President and CEO
• Mark Desrochers, SVP and Chief Corporate Actuary
• Ryan Greenier, SVP and Chief Investment Officer

Analysts

• Meyer Shields, Managing Director at KBW
• Wilma Burdis, Director at Raymond James & Associates