Horace Mann Educators Q1 2025 Earnings Call Transcript

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May 7, 2025

Key Takeaways

  • Record Q1 core EPS of $1.70, a 73% increase year-over-year, driven by solid business profitability and strong growth momentum.
  • Property & Casualty combined ratio improved to 89.4%, a 10.5-point betterment from prior year, benefiting from pricing actions, lower claim frequency and favorable reserve development.
  • Top-line sales momentum continues with individual supplemental sales up 61%, auto sales up 8% and annuity net contract deposits up 6%, fuelled by omnichannel distribution investments.
  • Total net investment income rose 10% to $116 million, while internally managed portfolio income increased 15%, driven by higher limited partnership returns and strong fixed income yields.
  • Life & Retirement earnings fell year-over-year due to higher mortality within expectations and underperformance in a commercial mortgage loan fund.
AI Generated. May Contain Errors.
Earnings Conference Call
Horace Mann Educators Q1 2025
00:00 / 00:00

Transcript Sections

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Operator

Good day and welcome to the Horace Mann Educators First Quarter 2025 Investors Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Brendan Dewall, Vice President, Investor Relations. Please go ahead.

Brendan Dawal
Brendan Dawal
VP of Investor Relations at Horace Mann Educators Corporation

Thank you. Welcome to Horace Mann's discussion of our first quarter 2025 results. Yesterday, we issued our earnings release, 10Q, investor supplement, and investor presentation. Copies are available on the investors page of our website. Marita Zuraitis, President and Chief Executive Officer, and Ryan Greenier, Executive Vice President and Chief Financial Officer, will give the formal remarks on today's call. We also have Steve McAnena, Executive Vice President and Chief Operating Officer, with us for Q&A. 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, including risks and uncertainties, 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
Brendan Dawal
VP 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
Marita Zuraitis
CEO at Horace Mann Educators Corporation

Thanks, Brendan, and hello everyone. Yesterday, we reported first quarter core EPS of $1.07, a sizable increase over prior year and a record first quarter. The results reflect solid business profitability and strong growth momentum, highlighting the ability of our multi-line business model to deliver consistent and reliable earnings. We are well on track to achieve our 2025 goals, including a shareholder return on equity above 10% for the year. Today, I'm going to discuss how our business continues to deliver strong profitability as we execute on our strategy to drive sustained profitable growth. In the first quarter, property and casualty segment performance was particularly strong, with a reported combined ratio of 89.4%, a 10.5-point improvement over prior year. This reflects the profitability restoration work we completed in 2024, lower property frequency, and favorable prior year development in both auto and property.

Marita Zuraitis
Marita Zuraitis
CEO at Horace Mann Educators Corporation

As we noted last quarter, our exposure to California wildfires was limited. We estimate the impact of the wildfires to be $3.7 million, which includes $1 million in fair plan assessments. Excluding California wildfires, first quarter catastrophe losses were below both prior year and our historical averages. In property, we experienced lower than typical ex-cat claim frequency. Additionally, we are seeing the benefit of our roof settlement schedule and specific initiatives in claims to control costs of non-weather perils. In life and retirement, earnings were below prior year, primarily due to higher mortality, which was within our expected actuarial range. In individual supplemental and group benefits, earnings were slightly above prior year due to lower policyholder benefits utilization in individual supplemental, as well as higher segment net investment income.

Marita Zuraitis
Marita Zuraitis
CEO at Horace Mann Educators Corporation

Total net investment income of $116 million was a 10% increase over prior year, while income on our internally managed portfolio increased by 15%, driven by higher limited partnership returns and continued strong returns from our growing fixed income portfolio. Turning to top-line results, first quarter sales were strong, individual supplemental sales up 61%, auto sales up 8%, and annuity net contract deposits up 6%. This momentum is being driven through more points of distribution, improved agent productivity, and more efficient and consistent lead generation. The investments we have made in our omnichannel distribution capabilities are advancing our efforts to drive sustained profitable growth. A few examples. Over the past year, we have realized a 40% increase in website visitors and recently added individual supplemental products to our online quoting capabilities.

Marita Zuraitis
Marita Zuraitis
CEO at Horace Mann Educators Corporation

Higher website activity, supplemented by growth in our agency force, is fueling strong new business sales and reinforcing the momentum behind our growth strategy. Our recent launch of Catalyst, our proprietary customer relationship management system built specifically for Horace Mann, is already showing signs of early success. Agents are embracing the improved tool as well as the increased lead volume. Empowering our salesforce leads directly to better customer experience, and we've seen agent net promoter scores improve significantly. We just wrapped up our customer campaign highlighting the 80th anniversary of Horace Mann and kicked off efforts for Teacher Appreciation Month in May. These initiatives connect deeply with our education community through virtual events, giveaways, and local activities designed to energize, inspire, and show our gratitude.

Marita Zuraitis
Marita Zuraitis
CEO at Horace Mann Educators Corporation

Across both events, we expect more than 300,000 educators to engage with us, a clear demonstration of how we're building lasting relationships in the communities we serve. Next week at our Investor Day, we plan to take a deep dive into the activities underway that will further our efforts to drive sustained profitable growth. Before I turn the call over to Ryan, I want to touch on our efforts to address the issues that are important to our stakeholders. Supporting our educators, employees, and agents, and strengthening local communities remain a cornerstone of who we are. Last month, we published our 2024 Corporate Social Responsibility Reporting. Highlights from the year include a 61% reduction in scope one and scope two emissions from our 2019 baseline, surpassing our initial targets ahead of the 2030 deadline.

Marita Zuraitis
Marita Zuraitis
CEO at Horace Mann Educators Corporation

Integration of climate risk considerations into our underwriting and investment decisions to proactively address environmental challenges and contributions of nearly $1 million to support education and community-focused nonprofit organizations across both our philanthropic and corporate giving efforts. We are equally committed to delivering long-term value to our shareholders. In March, our Board of Directors approved an increase to the quarterly shareholder dividend, the 17th consecutive year we have done so. In addition, we continue to execute on our share repurchase program. Year to date through May 2nd, we returned $7 million to shareholders in share repurchases. As we have mentioned before, the most accretive use of our capital is to drive profitable growth. Our strong start to the year reinforces our confidence and our ability to execute on this initiative. We recognize the road ahead may be shaped by macroeconomic uncertainty.

Marita Zuraitis
Marita Zuraitis
CEO at Horace Mann Educators Corporation

However, I'd like to highlight Horace Mann's strong financial foundation and our 80-year history succeeding in a number of economic environments, including times of economic disruption. Our business is operating from a position of strength. We are profitable, and our high-quality investment portfolio is positioned to deliver consistent returns through various economic environments. We have an in-demand suite of products tailored to our customer base that has more job security than other occupations in times of economic downturn, and we have the resources to make strategic investments in our business to grow and adapt to best meet the needs of our stakeholders. In closing, our first quarter results illustrate the earnings power of our multi-line business. We are on track to achieve our 2025 goals of a larger share of the education market, record core earnings, and a sustainable double-digit shareholder return on equity.

Marita Zuraitis
Marita Zuraitis
CEO at Horace Mann Educators Corporation

The opportunity is even greater as we move ahead. As we continue to drive sustained profitable growth, we are positioned to achieve an even higher double-digit ROE while successfully serving our customers and delivering superior long-term value to our shareholders. Thank you, and with that, I'll turn the call over to Ryan.

Ryan Greenier
Ryan Greenier
CFO at Horace Mann Educators Corporation

Thanks, Marita. First quarter results are in line with our expectations and reflect solid business profitability and encouraging growth momentum. Before I review the quarterly results, I would like to cover our updated core earnings guidance. Beginning this quarter, we revised our core earnings definition to exclude certain non-core items, including intangible asset amortization and changes in market risk benefits, to better reflect the true operating earnings of our business. In the past, we've reported this number as adjusted core earnings. We still expect the same business performance we laid out earlier this year, and our updated core EPS range of $3.85-$4.15 reflects that. Our supporting materials have been restated to reflect the year-over-year comparisons on this basis.

Ryan Greenier
Ryan Greenier
CFO at Horace Mann Educators Corporation

Our 2025 guidance assumptions remain the same: roughly $90 million of catastrophe losses in line with our five-year historical average, total net investment income in the range of $470-$480 million, with managed portfolio income of $370-$380 million, and interest expense and other corporate items of $35-$40 million. Turning to the results, core earnings of $45 million, or $1.07 per share, was a 73% increase over the prior year. Core return on equity of 10.6% was a 4.9-point improvement over prior year, reflecting the profitability restoration work we completed in 2024. Total net written premiums and contract deposits were up 7%, with total revenues up 8%. In the property casualty segment, core earnings were $27 million, more than double the prior year. Net written premiums of $185 million increased 8% over prior year, primarily on higher average written premiums.

Ryan Greenier
Ryan Greenier
CFO at Horace Mann Educators Corporation

Of note, we recently received approvals for both auto and property rate increases in California. The auto rate increase of 14.5% went into effect in mid-April. We are starting to see a marginal impact on auto new business as a result of the cumulative rate increases in California over the last two years, in line with our expectations. The property increase of just under 20% will go into effect July 1st. The P&C reported combined ratio of 89.4% improved 10.5 percentage points over prior year, reflecting improved underlying results and favorable prior year reserve development, partially offset by higher catastrophe costs. The $5.3 million in prior year development included $3 million in property, reflecting favorable severity trends. The remaining $2.3 million in auto reflects better-than-expected physical damage loss costs. Catastrophe losses of $16.4 million were slightly above prior year.

Ryan Greenier
Ryan Greenier
CFO at Horace Mann Educators Corporation

Excluding the California wildfires, first quarter catastrophe losses were below prior year and our historical averages. As a reminder, our second quarter is typically our highest quarter for catastrophe costs. P&C sales were strong at $25 million, a 9% increase over prior year. In auto, net written premiums of $122 million increased 4% over prior year. The combined ratio of 95% improved 5.8 percentage points, primarily due to higher average premiums. Household retention decreased slightly to 84%, in line with our expectations. In property, net written premiums were $64 million, a 15% increase over prior year. The combined ratio of 79.9% improved 17.8 percentage points, reflecting lower non-weather losses. Policyholder retention remained steady at 89%. In life and retirement, core earnings of $8 million were below prior year, primarily due to higher mortality, which was within our expected actuarial range.

Ryan Greenier
Ryan Greenier
CFO at Horace Mann Educators Corporation

Net written premiums and contract deposits of $140 million were an increase of 7% over prior year. In the retirement business, net annuity contract deposits increased by 6% on the strength of our core 403(b) products. Persistency rose to 91.6%. In the life business, annualized life sales increased 4% over prior year, and persistency remained steady at nearly 96%. Moving to individual supplemental and group benefits. The segment contributed $14 million of core earnings, a slight increase over prior year. Net written premiums of $67.6 million were an increase of 5% over prior year. In individual supplemental, net premiums of $31 million were a slight increase over prior year. The benefits ratio of 28.4% is below prior year as we continue to see favorable policyholder utilization trends relative to our longer-term expectations.

Ryan Greenier
Ryan Greenier
CFO at Horace Mann Educators Corporation

We also continue to see very strong customer demand for these products, with sales of $5 million in the quarter, a 61% increase over prior year. Policyholder persistency is 90%. In group benefits, covered lives modestly increased over the prior year. Net written premiums of $37 million increased 7% over prior year. The benefits ratio of 53.3% reflected typical first quarter seasonality, which we did not see in the prior year quarter. Keep in mind for both individual supplemental and group benefits that our book size is relatively small. This can lead to outsized quarter-over-quarter variances on a short-term basis while we continue to grow these businesses. Total net investment income on the managed portfolio of $92 million was a 15% increase over the prior year. We continue to see very strong results from our core fixed income portfolio.

Ryan Greenier
Ryan Greenier
CFO at Horace Mann Educators Corporation

The annualized pre-tax investment yield on the portfolio was 5.09% in the first quarter, with core new money yields of 5.51%. This is the 13th consecutive quarter that new money yields in the core portfolio have exceeded average book yield. With a duration of about seven years in this portfolio, we expect to see continued yield expansion from this trend. Annualized limited partnership returns were 10%, driven by infrastructure and private equity funds. Turning to capital management, as Marita mentioned, we remain focused on driving shareholder value creation. We increased our annual dividend by 3% in March, which was the 17th consecutive year of dividend increases, and we remain actively engaged in executing on our share buyback program. Year to date, through May 2nd, we repurchased 179,000 shares at a total cost of $7 million and an average price of $40.12.

Ryan Greenier
Ryan Greenier
CFO at Horace Mann Educators Corporation

We have about $19 million remaining on our current share repurchase authorization. In closing, first quarter results underscore our ability to deliver strong results while positioning the company for sustained profitable household growth. Our multi-line business model provides earnings diversification and allows us to be profitable in a number of economic environments. We delivered a record first quarter and are on track to deliver record core earnings in 2025 and a shareholder return on equity above 10%. As we execute on our profitable growth strategy, we will accelerate shareholder value creation. Thank you. Operator, we are 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. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Wilma Burdis with Raymond James. Please go ahead.

Wilma Burdis
Analyst at Raymond James Associates

Hey, good morning. Could you talk a little bit about the run rate earnings power of the life and the supplemental and group benefit segments? Was 1Q 2025 a good level? Thanks.

Ryan Greenier
Ryan Greenier
CFO at Horace Mann Educators Corporation

Good morning, Wilma. It's Ryan. You know, if I think about the life retirements business, you know, we use the word ballast a lot to describe that business. You know, occasionally you'll see a mortality, you know, blip, if you will, within actuarial expectations, and you saw that this quarter. So mortality was a little elevated. In addition to that, this quarter for life and retirement, the commercial mortgage loan funds that are predominantly in that segment, we had underperformance related to one specific fund. We can talk more about that if you'd like, but if you normalize and take a, you know, mid-single digit, think 6%, 7% annual return assumption for the $600 million of CMLs, that gives you kind of a run rate, if you will, for that contribution, and that's mostly in life and retirement, a little bit in supplemental and group.

Ryan Greenier
Ryan Greenier
CFO at Horace Mann Educators Corporation

Turning to supplemental and group, Wilma, you know, the benefit ratio overall was close to the blended benefit ratio that we would expect longer term. First quarter, we have seasonality, particularly in the group business, but over a longer period of time, if you take like a run rate on that and you take multiple quarters and average it out, I think that gives you a good sense of where that business is. Does that answer your question?

Wilma Burdis
Analyst at Raymond James Associates

Yes, it does. Could you talk about the CAT activity in 2Q 2025 year to date and also remind us how we should account for seasonality going into the second quarter? Thanks.

Stephen McAnena
Stephen McAnena
EVP and COO at Horace Mann Educators Corporation

Thanks for the question, Wilma. This is Steve. For context, I think you're aware the major event for Q1 was California wildfires, and Ryan and Marita mentioned this in their opening remarks. Ultimate loss was $37 million, and that includes $1 million in fair plan assessment. We looked at April CATs, and I'd say CATs were in line with expectations, nothing outsized. I'd say, as we sort of look ahead for the full year, we're going to maintain our full year CAT estimate. We feel pretty good about what we've seen thus far, feel good about what we saw in California wildfires, and hopefully that answered your question.

Ryan Greenier
Ryan Greenier
CFO at Horace Mann Educators Corporation

I'm going to just add on one thing, Wilma, it's Ryan, just as a reminder for folks. Second quarter has historically been our heaviest CAT. You know, about 50% of our CAT load has historically been coming through in the second quarter, and in my script, I gave you our annual guidance, $90 million for catastrophes.

Marita Zuraitis
Marita Zuraitis
CEO at Horace Mann Educators Corporation

Yeah, this would be the first year where we would see the full effect of the roof schedules and other things that we have begun to put in place and have been working on to mitigate that property volatility and keep that number in check.

Operator

Thank you. Our next question comes from John Barnage with Piper Sandler. Please go ahead.

John Barnidge
John Barnidge
Analyst at Piper Sandler Companies

Thank you for the opportunity. Curious about the individual supplemental distribution in the quarter. Were there any new school districts added that drove that growth in the quarter?

Stephen McAnena
Stephen McAnena
EVP and COO at Horace Mann Educators Corporation

Hey, John, it's Steve. Thanks for the question. It's a big number, the 61%. I guess first thing I'd say is we're having pretty good success with our benefit specialists, and their selling is up, and we feel pretty good. I think the comparison to Q1 2024 is kind of interesting. If you sort of look at the investor supplement and go quarter by quarter, I think what you'll note is Q1 of 2024 was actually a relatively light sales quarter for us in the individual supplemental space. The comparison year over year looks massive. We tend to sort of look at, we'll look at quarter over quarter, but then we'll look at things on a 12-month rolling basis.

Stephen McAnena
Stephen McAnena
EVP and COO at Horace Mann Educators Corporation

When we looked at things on a 12-month rolling basis, I think the math is around 12% new business growth, and our expectation is that's something around the number we're going to see for the remainder of the year. There were no new districts or schools. This was sort of good continued momentum, strong activity from the benefit specialists, coupled with sort of an interesting Q1 of 2024 that was a little light, making the year-over-year comparison a little challenging to look at.

John Barnidge
John Barnidge
Analyst at Piper Sandler Companies

Thanks for that, Stephen. My follow-up question is sticking with supplemental and group benefits. We've seen other companies begin to talk about increasing the reserves for supplemental and group benefits products to assume some level of macro deterioration that would lead to increased utilization. Is that something you've begun to reserve for, or how do you think through that? Thank you.

Stephen McAnena
Stephen McAnena
EVP and COO at Horace Mann Educators Corporation

I'll let Ryan handle the reserving part of the question. What I'll tell you is, and I'll keep my remarks to group benefits. Again, it's a similar story to what I just described on individual supplemental sales. Q1 of 2024 was abnormally favorable for us. When you compare it to Q1 2025, it looks like there is a big increase, but we think 2025 is within expectations. When we looked at utilization for the quarter, we sort of looked at it by month. We saw January was slightly elevated. The book is small, the numbers are small, so all you need is a couple of extra claims to sort of distort some of the numbers. January was elevated. February and March looked pretty good.

Stephen McAnena
Stephen McAnena
EVP and COO at Horace Mann Educators Corporation

From our perspective, we feel good about our expectations for group benefits and do not really see anything on the horizon that is going to sort of change our opinion on that. I'll let Ryan comment on how we reserve.

Ryan Greenier
Ryan Greenier
CFO at Horace Mann Educators Corporation

Sure, John, this is Ryan. Thanks for the question. You know, on the reserving side of things, a lot of the quarterly changes in supplemental and group reserves are related to claim counts, frequency, et cetera. You know, we do an annual reserve assumption review where we're looking at more of the longer-term trends. You know, there's nothing in our current utilization trends that gives us any cause for concern. You know, historically, the public sector has performed well compared to other professions in recessionary environments. We'll watch it and respond accordingly, but there's not, like I said, there's nothing that has us changing our assumption.

Marita Zuraitis
Marita Zuraitis
CEO at Horace Mann Educators Corporation

Yeah, I think that's said well, guys. You know, when you run the tapes on previous calls, we've said over and over again that our assumption is that utilization will increase, and we had not seen that increase up to our expectations even in the numbers. None of this is unexpected for us. None of this is not contemplated in our planning. As Steve said, some of it, this business is small. Comparisons on any given quarter can be odd, but we are not surprised with what we're seeing and feel good about, you know, the earnings diversification that this business has brought to us and the way it has been performing. We feel good about where we are in individual supplemental as well as group benefits.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Brendan Dewall for any closing remarks.

Marita Zuraitis
Marita Zuraitis
CEO at Horace Mann Educators Corporation

I would just like to say before we close the call, I want to reiterate that this has been a record quarter for us and an excellent start to the year, and we're really looking forward to our Investor Day next week in New York. Brendan.

John Barnidge
John Barnidge
Analyst at Piper Sandler Companies

Yeah, again, as a reminder, it's next Tuesday. Details are available on our website. Thanks, and we hope you have a great day.

Executives
    • Brendan Dawal
      Brendan Dawal
      VP of Investor Relations
    • Ryan Greenier
      Ryan Greenier
      CFO
    • Marita Zuraitis
      Marita Zuraitis
      CEO
    • Stephen McAnena
      Stephen McAnena
      EVP and COO
Analysts
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