Horace Mann Educators Corporation · NYSE:HMN
Horace Mann Educators — Q3 2021 Earnings Presentation
40 slides from Horace Mann Educators's earnings presentation, Nov 3, 2021
Slide 1: Third Quarter 2021 Investor Presentation
Third Quarter 2021 Investor Presentation November 3, 2021 Information as September 30, 2021, unless otherwise noted
Slide 2: Safe Harbor Statement and Non-GAAP Measures
Safe Harbor Statement and Non-GAAP Measures Certain statements made in this presentation should be considered forward-looking as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements give expectations or forecasts of future events. These statements are related t
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 • Founded by • $14.3B in assets(1) • Educators have • Business mix Educators for preferred risk balanced between Educators in 1945 • $1.4B in premium profile
Slide 4: 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 5: Delivering value proposition for educator customers by focusing on "PDI"
Delivering value proposition for educator customers by focusing on “PDI” Serving K-12 Educator Market Focused Focused on “PDI” “PDI” Products Homogenous customer set with attractive • Products designed to meet educators’ risk profiles needs and protect their unique risks Distribution • Knowledgeable
Slide 6: Madison National Life – strategic addition
Madison National Life – strategic addition $172.5M transaction expected to close in early 2022; funded with cash on hand and additional borrowing on revolving line of credit Accelerates shareholder value creation Enhances PDI Products Immediately accretive • Adds new suite of employer-sponsored bene
Slide 7: Madison National Life – snapshot
Madison National Life – snapshot Statutory Revenue 2020 Premium Mix by Product ($ in millions) $128.5 $111.9 $117.3 $16.1 $11.6 $4.4 $46.2 Long-term $12.7 $5.3 43% $5.3 disability Group term life $millions $14.1 Short-term $100.4 $108.0 13% disability $93.9 Dental/Vision $25.2 Other 23% $6.3 $16.2 6
Slide 8: Enhancing distribution to maximize value of solutions for educators
Enhancing distribution to maximize value of solutions for educators Established Horace Mann: Individual insurance and financial services Educators choose solutions, working with exclusive agents or via educator-facing website and other service options Educators · Homogenous customer set with attract
Slide 9: Growth journey continues with accretive transaction, bringing further transformation
Growth journey continues with accretive transaction, bringing further transformation 2014-2018: 2019-2021: 2022-2025: Fix and Build Transformation Leverage Leadership Our performance: Our plan: Our path: Established solutions orientation; Smart integration of key Accelerated shareholder value filled
Slide 10: Accelerating shareholder value creation by increasing educator market share
Accelerating shareholder value creation by increasing educator market share Strategic progress toward long-term double-digit ROE objective will continue in 2021, even though the effect of changes in policyholder behavior due to pandemic expected to gradually return to more “normal” levels 2021 consi
Slide 11: Q4 2021 core EPS expected to be between 65 cents and 80 cents
Q4 2021 core EPS(1) expected to be between 65 cents and 80 cents • Full-year 2021 core ROE now expected to be near 10% - All business areas showing some signs of momentum, but pace continues to vary by segment and geography compared to pre-pandemic environment • Fourth-quarter 2021 net investment in
Slide 12: Go-forward strategic drivers of ROE
Go-forward strategic drivers of ROE Sales: Grow sales by cross selling products while leveraging distribution to add new customers and school locations Each $10M of: Generates: New Supplemental sales ~15 basis points of ROE New Property and Casualty sales ~7.5 basis points of ROE New Life and Retire
Slide 13: Focus on long-term shareholder value
Focus on long-term shareholder value Strong book value growth and 3.2% dividend yield(1) $50 10% $46.19 CAGR $45 $43.74 $40.58 $40 $35.38 $36.14 $35 $32.56 $30.57 $30 $28.09 $25.62 $25 $22.94 $20.25 $20 $15 • 13 consecutive years of dividend increases $10 • Target ~50% payout ratio $5 • $81M in shar
Slide 14: PDI growth strategy leads to industry-leading cross-sell and retention
PDI growth strategy leads to industry- leading cross-sell and retention 14
Slide 15: Sizeable opportunity within existing K-12 educator market and adjacent segments
Sizeable opportunity within existing K-12 educator market and adjacent segments U.S educator market(1) • 6.5 million K-12 educators nationwide • Current customer base of roughly 470,000 educator households Higher K-12 (~600,000 total households) in about education K-12 teachers administrators 3,983,
Slide 16: K-12 educators have similar characteristics and can be reached through a consistent channel
K-12 educators have similar characteristics and can be reached through a consistent channel Conservative Work close Fiscally & loyal to home responsible • Usually buy higher • Generally live close • Focused on insurance limits to school with short achieving goals • Tend to bundle commutes • Strong d
Slide 17: Employer-sponsored products strengthens educator solutions orientation
Employer-sponsored products strengthens educator solutions orientation The right solutions help educators meet Retirement their need for financial security at every Preparing to life stage retire Established educator New Issues: • How to manage educator Issues: retirement income • Worried about Issu
Slide 18: Pandemic lessons learned: Remote learning no substitute for in-person instruction
Pandemic lessons learned: Remote learning no substitute for in-person instruction Educators’ assessment of students’ 2020-2021 academic progress vs. previous years(1) Educators say extra measures needed to account for lost academic and social- About the same 15% emotional learning(1) • 53% see a nee
Slide 19: Business details and results
Business details and results
Slide 20: Third-quarter reflected strong business performance
Third-quarter reflected strong business performance Below prior year due to catastrophe losses and auto loss costs approaching pre-pandemic levels plus inclusion of Camp Fire subrogation recovery in third-quarter 2020 Core EPS $3.00 • Net income of 39 cents per diluted share and core earnings of 50
Slide 21: P&C segment: Providing coverage to protect what educators have today
P&C segment: Providing coverage to protect what educators have today P&C Net Written Premium ($636M)(1) Opportunity • Preferred risk profile • Loyal customers less likely to leave due to rate actions Products • Auto, homeowners, renters and umbrella • Majority of P&C business is bundled Auto and Hom
Slide 22: P&C segment: Catastrophe losses, higher auto frequency leads to core loss
P&C segment: Catastrophe losses, higher auto frequency leads to core loss; underlying profitability remains strong Net written premium 3Q21 results 800 683 663 682 634 636 614 • Segment core loss due to catastrophe loss 600 costs and auto loss costs continuing to move $millions 400 closer to pre-pan
Slide 23: Supplemental segment: Providing options for educators to address unexpected events
Supplemental segment: Providing options for educators to address unexpected events Supplemental coverage in-force(1) Opportunity • Educators facing rising out-of-pocket healthcare costs Other 4% • No correlation between Supplemental morbidity risk, Life mortality risk or P&C weather risks Products S
Slide 24: Supplemental segment: Highest sales quarter since beginning of pandemic
Supplemental segment: Highest sales quarter since beginning of pandemic Operating ratios 50% 3Q21 results • $2.0 million in sales - 42.9% increase over 3Q 2020; reflects improving 41.5% access in some geographies 40.0% 40% 38.7% 37.6% • Continued strong core earnings* due to: 36.0% 36.3% - Higher ne
Slide 25: Retirement segment: Helping educators meet their financial goals with tailored solutions
Retirement segment: Helping educators meet their financial goals with tailored solutions Assets under administration 14 Opportunity • Educators face complicated retirement system 12 2019 reinsurance offerings transaction of legacy 10 annuity block with minimum • Educators want guidance to plan for t
Slide 26: Retirement segment: Product suite meets unique needs of educator market
Retirement segment: Product suite meets unique needs of educator market Net annuity contract deposits* 3Q21 results 600 • 2.3% increase in net annuity contract 500 deposits for Q3; 5.7% increase YTD 502 • 84.9% rise in core earnings excluding 447 439 448 400 419 429 DAC unlocking* on strong investme
Slide 27: Life segment: Sizeable opportunity in our middle-market educator niche
Life segment: Sizeable opportunity in our middle-market educator niche Individual insurance in force(1) Opportunity • Many educators are uninsured or underinsured Products Traditional term • Basic coverages appropriate for 70% educator income levels Experience Life • Full suite of Life products avai
Slide 28: Life segment: Profitable in-force block
Life segment: Profitable in-force block Life sales(1) & premium written 12 140 3Q21 results 120 • Annualized sales in line with last year 9 - Strong new sales of recurring premium policies 100 - Increase in sales of single premium policies 80 • Core earnings for the quarter rose 18.6% $millions $mil
Slide 29: Investments: High-quality, well-diversified portfolio
Investments: High-quality, well-diversified portfolio Constructed to support insurance liabilities through various market cycles Portfolio composition(1) $7.4 billion fair value $6.5 billion fixed-maturity portfolio Short-term U.S. Treasury Non- Non-Agency RMBS 1% & Agency 6% • 64% A-rated or higher
Slide 30: Alternative portfolio: Diversified across strategies, risk and vintage year
Alternative portfolio: Diversified across strategies, risk and vintage year Diversified $615M alternative investment portfolio • More than half of the portfolio is income- producing investment grade senior commercial mortgage loan (CML) and investment-grade (IG) infrastructure debt funds Hedge Funds
Slide 31: Alternative portfolio is a growing contributor to net investment income
Alternative portfolio is a growing contributor to net investment income Targeting high-single digit returns Return averages 6.5% since 2012(1) • Strong YTD annualized return of 13.99%, 16% $700 driven by outperformance in Private Equity 13.99% and Venture Capital. 14% $600 • Given economic and inter
Slide 32: Strong capital position, with more than adequate capital to grow businesses
Strong capital position, with more than adequate capital to grow businesses Capital Ratios • Capital management strategies support 650% 0.0 strong capital ratios - P&C loss reserves held at top half of independent 569% actuarial range - Conservative L&R product design 550% 536% 0.5 - New Supplementa
Slide 33: Appendix
Appendix
Slide 34: Highly rated by all rating agencies
Highly rated by all rating agencies Education market focus, earnings diversification and capital strength cited Agency Rating Outlook (affirmed/reviewed) • AM Best upgraded Financial Strength Rating of subsidiary NTA Life to A AM Best A Stable (Excellent) in recent rating action Company (7/14/21) •
Slide 35: Committed to Corporate Social Responsibility
Committed to Corporate Social Responsibility Increased ESG Board Established Horace Mann Increased transparency oversight Educators Foundation • Updated Board charters • 501(c)(3) nonprofit • Disclosed new to confirm Board-level organization environmental commitment and • Funded with initial steward
Slide 36: Strong corporate governance policies aligned with long-term shareholder interests
Strong corporate governance policies aligned with long-term shareholder interests Effective board Performance-based Governance best structure NEO compensation practices • Separate CEO and • Up to 78% of NEOs’ target • Clawback provision for both chairman compensation linked to cash & equity awards p
Slide 37: Strong and stable P&C reserves further reduce potential earnings volatility
Strong and stable P&C reserves further reduce potential earnings volatility Net P&C Reserve Position • Appropriate conservatism – Disciplined reserving practices Independent Actuary HMN – Recent favorable reserve development consistent with independent ($M) Low High Held observations • Strong claims
Slide 38: Current single-event catastrophe reinsurance provides PML coverage for a 1-in-400+ years event
Current single-event catastrophe reinsurance provides PML coverage for a 1-in-400+ years event Multiple Line XOL / Casualty(1) Property(1) $20M ~400+ yrs $175M THIRD LAYER 2nd LAYER CASUALTY $85M xs $90M CLASH & CONTINGENCY $10M xs $10M $90M SECOND LAYER $10M $40M xs $50M 1st LAYER CASUALTY CLASH &
Slide 39: Updated 2021 analyst modeling considerations
Updated 2021 analyst modeling considerations Nine-month Q4 2021 2020 actual 2021 actual guidance Segment guidance includes net investment income: Property & Casualty core earnings $76.5 million $42.5 million $10-13 million • Longer-term combined ratio target remains 95% to 96% • Fourth-quarter 2021
Slide 40: Horace Mann at a glance
Horace Mann at a glance Exchange ticker symbol NYSE:HMN Share Price $39.18(1) Weighted Average Diluted Shares (for 3Q21) 42.2 million Market Capitalization $1.6 billion(1) Annualized Dividend Per Share $1.24 Dividend Yield Per Share 3.2%(1) Book Value Per Share* $35.90(2) Analyst Coverage Dowling &
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