Horace Mann Educators Corporation · NYSE:HMN
Horace Mann Educators — Q2 2024 Earnings Presentation
43 slides from Horace Mann Educators's earnings presentation, Aug 8, 2024
Slide 1: Second Quarter 2024 Investor Presentation
Second Quarter 2024 Investor Presentation August 7, 2024 Information as of June 30, 2024, unless otherwise noted
Slide 2: Safe Harbor Statement and Non-GAAP Measures
Safe Harbor Statement and Non-GAAP Measures Certain statements included in this presentation, including those regarding our earnings outlook, expected catastrophe losses, our investment strategies, our plans to implement additional rate actions, our plans relating to share repurchases and dividends,
Slide 3: Our Foundation: Financially sound company with strong strategy for profitable growth
Our Foundation: Financially sound company with strong strategy for profitable growth Financial Niche Multiline Longevity strength market model • 1945: Founded by Educators for • $14.0B in assets(1) • Educators have preferred • Business mix balanced Educators to sell auto insurance • $1.5B in net pre
Slide 4: Reported second-quarter 2024 core EPS of $0.20; full-year guidance revised
Reported second-quarter 2024 core EPS of $0.20; full- year 2024 core EPS guidance revised to $2.40-$2.70 Second-quarter 2024 results significantly improved over the prior year reflecting sustained progress in P&C profitability, as well as the continued strength of our diversified business model $48.
Slide 5: On track to reach sustainable double-digit ROE by 2025
On track to reach sustainable double-digit ROE by 2025 Full-year 2024 core EPS guidance revised to $2.40 to $2.70 Diversified business well positioned for 2024 and beyond 2024 enterprise strategic priorities • Retail: • Restore Property & Casualty segment - Property & Casualty segment profit restora
Slide 6: Driven by a noble mission
Driven by a noble mission Mission We listen to and understand educators and those who serve our community. They are taking care of our children’s future. We believe they deserve someone to look after theirs. Vision We aspire to be the company of choice to provide financial solutions for all educator
Slide 7: Driving shareholder value growth through business diversification and cross-sell
Driving shareholder value growth through business diversification and cross-sell K-12 educator market offers substantial growth potential with additional opportunities in adjacent markets of others who serve the community Market share has climbed to • Business diversification expands customer approx
Slide 8: Commitment to making a positive impact extends to all stakeholders
Commitment to making a positive impact extends to all stakeholders Our ESG commitment is ingrained in long-term strategy and day-to-day operations • Published inaugural Task Force on Climate-Related Disclosures (TCFD) We are committed to doing report in 2023, detailing our awareness and maintenance
Slide 9: Strategic emphasis on solutions tailored for educators at every life stage
Strategic emphasis on solutions tailored for educators and others who serve the community at every life stage Retirement Preparing to retire Established Career Early Issues: Career • How to manage Issues: • Worried about retirement income Issues: ensuring smooth • Need to plan wealth Pre-career • Pr
Slide 10: Delivering value proposition for educator customers
Delivering value proposition for educator customers Focus on Retail ‘PDI’ provided roadmap for fix-and-build and transformational stages Serving K-12 Educator Market Focused on Retail “PDI” Products Homogenous customer set with attractive • Products designed to meet educators’ needs risk profiles an
Slide 11: PDI implementation in leadership phase to drive strong shareholder value creation
PDI implementation in leadership phase to drive strong shareholder value creation Focus in 2024 and beyond is distribution initiatives to drive market share expansion Product: Complete Infrastructure: Ongoing • We have built a robust set of products, relevant to our Distribution: Focus market niche
Slide 12: Transformation has driven strong shareholder value creation
Transformation has driven strong shareholder value creation 7.2% compound annual growth in adjusted book value plus accumulated dividends since 2010 $49.84 $50.56 $48.12 $48.63 $44.09 $40.93 $35.73 $36.49 $32.91 $30.92 $28.44 • 16 consecutive years of dividend increases with current yield of 4.1%(1)
Slide 13: Stage set for accelerated shareholder value creation as market share expands
Stage set for accelerated shareholder value creation as market share expands Largest financial services company focused on meeting the needs of educators and others who serve our communities $1,250 Net Premiums and Contract Charges Earned (in millions) $1,000 20% 15% $750 $500 School access 65% limi
Slide 14: Earnings trajectory illustrates clear path to sustainable double-digit ROE
Earnings trajectory illustrates clear path to sustainable double-digit ROE through profitable growth Core EPS* 10% average annual Below long-term trendline as severe EPS $4.24 weather, inflation and growth + financial market volatility sustained $3.40 offset benefits of education market focus, ROEs
Slide 15: 2024 revised guidance reflects lower-than-expected net investment income
2024 revised guidance reflects lower-than- expected net investment income; P&C profitability restoration remains on track 2024 core EPS now expected to be in the range of $2.40 to $2.70 (or core earnings of $100 million to $112 million) • Committed to average annual core EPS growth of 10% and sustai
Slide 16: 2024 segment outlooks demonstrate value of business diversification
2024 segment outlooks demonstrate value of business diversification • Updated: Life & Retirement segment core • Property & Casualty segment core earnings of $50 million to $56 million to earnings between $36 million and $39 reflect lower-than-expected net investment million income - Combined ratio e
Slide 17: Benefits of auto rate and other underwriting actions on track to target
Benefits of auto rate and other underwriting actions on track to target Reached inflection point in Q3 2023 on path to targeted Auto combined ratio with earned premium growth moving ahead of loss costs growth and combined ratio improving sequentially Minimum cumulative countrywide impact of actual a
Slide 18: Property results to benefit from multi-faceted approach; on track to target
Property results to benefit from multi- faceted approach; on track to target Addressing more frequent and severe weather activity through additional filed rate, product changes and enhanced modeling Minimum cumulative countrywide • On track to achieve underwriting profitability in impact of actual a
Slide 19: Education market opportunity
Education market opportunity
Slide 20: Sizeable, growing opportunity in core K-12 education market
Sizeable, growing opportunity in core K-12 education market Additional opportunities to grow in legacy adjacent markets U.S. elementary and secondary education teachers, projected(1) • 7.5 million K-12 educators nationwide(1) - ~3.7M teachers in public and private schools; 3,874 3,907 ~3.1M public s
Slide 21: K-12 education a homogeneous market with similar customer characteristics and goals
K-12 education a homogeneous market with similar customer characteristics and goals Reachable through both retail and worksite channels Desire to Responsible, Conservative Dedicated to improve risk-adverse educator total & loyal students and loyal compensation • Strong desire for • Passion for educa
Slide 22: Increased relevance for educators
Increased relevance for educators Helping educators protect what they have today and prepare for a successful tomorrow Retail solutions Worksite solutions • Solutions directly selected by • Solutions offered to educators an educator, often working with via their district employer a trusted financial
Slide 23: Expanded product set aligns with needs throughout life stages
Expanded product set aligns with needs throughout life stages Retirement Preparing to retire Established career New career Pre-career Renters insurance Auto insurance Employer-sponsored life, disability and supplemental health insurance 403(b) retirement plan Home insurance Voluntary supplemental in
Slide 24: Expanded distribution allows educators to engage with Horace Mann the way they choose
Expanded distribution allows educators to engage with Horace Mann the way they choose “Horace Mann Companies” brings together three organizations with decades of commitment to educators and strong reputations in the market Purchase Purchase through from local, employer- trusted agent sponsored progr
Slide 25: Positioned with significant cross-sell opportunities between worksite product lines
Positioned with significant cross-sell opportunities between worksite product lines Over time, cross sell with districts reached by retail businesses presents additional upside Worksite direct (NTA) 2023 premiums(1) Employer-sponsored (MNL) 2023 premiums(1) Property & Casualty 2023 premiums(1) Life
Slide 26: Uniquely positioned to take advantage of education market opportunities
Uniquely positioned to take advantage of education market opportunities Retail customers: Natural cross-sell: Our individual retail customers plus worksite direct P&C and L&R supplemental customers and SLS users are a natural cross-sell universe (including third-party) for our retail products Revenu
Slide 27: Strong retention across retail business lines illustrates value proposition
Strong retention across retail business lines illustrates value proposition for educators Retail customer retention Auto customer retention breakdown 100% 100% 96.2% 95.9% 95% 95% 94.7% 91.5% 90% 88.1% 90% 90.1% 85% 86.3% 86.6% 85% 94.5% 89.9% 80% 88.5% 80% 75% 78.9% 75% Auto-only Auto + property Au
Slide 28: Business details and results
Business details and results
Slide 29: P&C segment: Providing coverage to protect what educators have today
P&C segment: Providing coverage to protect what educators have today Horace Mann 2023 revenues(1) Products • Auto, homeowners, renters and umbrella • Majority of P&C business is bundled auto Supplemental and home & Group Benefits • Partnerships through Horace Mann 19% General Agency Property & Casua
Slide 30: P&C segment: Remains on track to full-year profitability
P&C segment: Remains on track to full-year profitability; second-quarter results significantly improved compared to prior year Net Premiums Written* • Second-quarter segment core loss of $8.6 $736 million reflects catastrophe seasonality, the $684 $636 $608 $618 benefit of rate actions, and favorabl
Slide 31: Life & Retirement: Helping educators plan for a strong financial future
Life & Retirement: Helping educators and their families plan for a strong financial future Horace Mann 2023 revenues(1) Products • 403(b) tax-qualified fixed, fixed index and variable annuities Supplemental • Horace Mann Retirement Advantage® open & Group architecture platform for 403(b)(7) and Bene
Slide 32: Life & Retirement: Results impacted by lower net investment income
Life & Retirement: Results impacted by lower net investment income Net annuity contract deposits* • Second-quarter segment core earnings of $12.3 million reflected: $449 $456 $441 - Segment net investment income of $88.9 million, below $429 $429 the prior year due to lower returns on commercial mort
Slide 33: Supplemental & Group Benefits segment: Providing options for unexpected events
Supplemental & Group Benefits segment: Providing options to address unexpected events Horace Mann 2023 revenues(1) Products • Individual limited benefit products that are guaranteed renewable and portable Supplemental - Products include cancer, heart, hospital and accident as well as & Group short-t
Slide 34: Supplemental & Group Benefits: Strong second-quarter results
Supplemental & Group Benefits: Strong second- quarter results on higher net investment income and lower benefits ratio Net premiums and contract charges earned $275.4 $259.8 $256.0 $44.6 $24.6 $18.5 • Second-quarter segment core earnings of $14.1 million reflected: millions $109.6 $114.9 $116.9 $130
Slide 35: High-quality, well-diversified investment portfolio
High-quality, well-diversified investment portfolio Constructed to support insurance liabilities through various market cycles Portfolio composition(1) $6.7 billion fair value • $5.3 billion fixed-maturity portfolio Short-term U.S. Treasury 1% & Agency • 72% A-rated or higher 6% Mortgage Loans • A+
Slide 36: $627M Commercial Mortgage Loan Funds continue to produce strong cash returns
$627M Commercial Mortgage Loan Funds continue to produce strong cash returns Equity method of accounting requires changes in fair value to be reported in net investment income CML NII vs. Distribution Yield³ Analysis • CML funds are held in L&R and S&GB 8.79% 10% 7.80% segments; no allocation in P&C
Slide 37: Commercial Mortgage Loan Fund portfolio characteristics
Commercial Mortgage Loan Fund portfolio characteristics Well diversified by underlying property type, geography & maturity profile By Property Type 6% Office • Underlying loan characteristics 14% 23% Multi-family • 249 loans, average size of ~$50M 5% Retail & Others • Average loan-to-value of 77% In
Slide 38: $485M Limited Partnership Fund Portfolio
$485M Limited Partnership Fund Portfolio Well diversified by strategy(1), vintage year and potential volatility of returns 3% 5% 18% Corporate Mezz Hedge Funds • Inception-to-date performance strong 15% • Average annual return of 9.0% Infrastructure Debt • Resilient portfolio benefits from diligent
Slide 39: Financial leverage and other capital metrics align with financial strength ratings
Financial leverage and other capital metrics align with levels appropriate for current financial strength ratings Capital Ratios 500% 477% 0.0 • More than adequate 459% capital to continue 445% 438% to grow business 439% 0.5 • Conservative Premium / Surplus Ratio 432% 420% 421% 400% 386% targets for
Slide 40: Appendix
Appendix
Slide 41: Highly rated by all rating agencies
Highly rated by all rating agencies Education market focus, earnings diversification and capital strength cited Agency Rating Outlook • Moody’s affirmed Horace Mann Life group’s financial (affirmed/reviewed) strength ratings in July 2024 - Moody’s completed a periodic review of Horace Mann’s ratings
Slide 42: 2024 single-event catastrophe reinsurance provides PML coverage
2024 single-event catastrophe reinsurance provides PML coverage of approximately 400+ years Casualty Property(1) $20M $185M ~400+ yrs 3rd LAYER 2nd LAYER CASUALTY $90M xs $95M CLASH & CONTINGENCY 92% Placed $10M xs $10M $95M $10M 2nd LAYER $35M xs $60M 1st LAYER CASUALTY 90% Placed CLASH & CONTINGEN
Slide 43: Horace Mann at a glance
Horace Mann at a glance Exchange ticker symbol NYSE:HMN Share Price $33.42(1) Weighted Average Diluted Shares (for 2Q24) 41.6 million Market Capitalization $1.4 billion(1) Annualized Dividend Per Share $1.36 Dividend Yield Per Share 4.1%(1) Adjusted Book Value Per Share (at June 30, 2024) $36.33 Ana
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