Slide 1: First Quarter 2020 Investor Presentation
First Quarter 2020 Investor Presentation May 8, 2020 Information as of March 31, 2020
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 • $12.0B in assets(1) • Educators have • Business mix Educators for • $1.3B in premium preferred risk balanced between Educators in 1945 and con
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: Understanding and helping address educators' needs during COVID-19 pandemic
Understanding and helping address educators’ needs during COVID-19 pandemic Financial relief Remote teaching Feeling connected • 15% credit on auto resources • Virtual Teacher premium • Free classroom lessons Appreciation Week • Grace period through and resources activities, like lunch June on insur
Slide 6: 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 on “PDI” Products Homogenous customer • Products designed to meet educators’ needs and protect set with attractive risk their unique risks profiles Distribution • Knowledgeable, trusted dist
Slide 7: 2020 outlook unchanged under conservative COVID-19 scenario analysis
2020 outlook unchanged under conservative COVID-19 scenario analysis Despite unexpected circumstances, full-year 2020 core EPS guidance range remains at $2.55 to $2.75 with core ROE* above 8% • First-quarter core earnings slightly ahead of management expectations despite variations by segment, some
Slide 8: Key transformational stage in growth journey continues
Key transformational stage in growth journey continues 2014-2018: 2019-2020: 2021-2025: Fix and Build Transformation Leverage Leadership Our performance: Our plan: Our path: Established solutions orientation; Smart integration of key Accelerated shareholder value filled PDI gaps to set stage for tra
Slide 9: Focus on long-term shareholder value
Focus on long-term shareholder value Strong book value growth and 3.2% dividend yield(1) $45 9% $40.95 CAGR $40.58 $40 $35.38 $36.14 $35 $32.56 $30.57 $30 $28.09 $25.62 $25 $22.94 $20.25 $20 $15 • 12 consecutive years of dividend increases $10 • Target ~50% payout ratio • $79M in share repurchases s
Slide 10: PDI growth strategy leads to industry-leading cross-sell and retention
PDI growth strategy leads to industry- leading cross-sell and retention
Slide 11: 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) • 6.4 million K-12 educators nationwide • Current customer base of roughly 470,000 Higher K-12 education K-12 administrators educator households (600,000+ total 3,914,542 teachers 344,211 household
Slide 12: 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 13: Solutions tailored for educators at every life stage
Solutions tailored for educators at every life stage Retirement Preparing to retire Established educator New Issues: educator Issues: • How to manage Issues: • Worried about retirement income Pre-educator • Protecting assets ensuring smooth • Need to plan • Protecting retirement wealth transfer Issu
Slide 14: Targeted marketing efforts drive more cross-line sales, which leads to higher retention
Targeted marketing efforts drive more cross- line sales, which leads to higher retention Cross-selling improves Horace Mann Strong cross-sell expertise(1) persistency(3) • Educator customer cross-line penetration of 19% far • Horace Mann policy retention and persistency exceed exceeds industry avera
Slide 15: Business details and results
Business details and results
Slide 16: 25% increase in core earnings over prior Q1
25% increase in core earnings over prior Q1 Core EPS* • Business is fully operational with agents and $1.00 95% of company staff working remotely to support educators with insurance and retirement solutions $0.80 • Net income down, largely due to realized losses on investments due to mark-to-market
Slide 17: 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 Opportunity ($683M)(1) • Preferred risk profile • Loyal customers less likely to leave due to rate actions Products • Auto, homeowners, renters and umbrella Property • Majority of P&C business is bundled Aut
Slide 18: P&C segment: Significantly improving profitability continues
P&C segment: Significantly improving profitability continues; premium growth below prior year Net written premium 800 688 683 684 663 675 605 634 600 Q1 Results • Written premiums declined due $millions 400 to lower policy counts and a lower level of rate increases 200 being implemented in 2020 0 •
Slide 19: Supplemental segment adds high-margin, in-demand solutions
Supplemental segment adds high-margin, in-demand solutions Aligned with "PDI" Growth Strategy in Education Market ✓ NTA acquisition added 150,000+ households and 220 agents Products experienced with worksite marketing • Complementary supplemental insurance products designed to meet educators’ needs
Slide 20: Supplemental segment: Product overview
Supplemental segment: Product overview Providing options for educators to address unexpected events Supplemental coverage in-force(1) Cancer Other Guaranteed renewable limited benefit, specified disease product 4% with coverage for individuals and families, providing benefits for certain losses dire
Slide 21: Supplemental segment: Strong margins provide steady contribution to earnings
Supplemental segment: Strong margins provide steady contribution to earnings Q1’20 Supplemental measures Q1 Results Benefit ratio 31.8% • Segment added $10.5 million to core earnings, with pretax profit margin temporarily Operating expense ratio 27.1% above management’s longer- term expectations Pre
Slide 22: Retirement segment: Helping educators meet their financial goals
Retirement segment: Helping educators meet their financial goals with tailored solutions Retirement Assets Under Administration Opportunity • Educators face complicated retirement 12 system offerings 10 • Educators want guidance to plan for the 8 future $billions 6 Products 4 • Fixed annuities, vari
Slide 23: Retirement segment: Annuity reinsurance agreement reduced interest rate risk
Retirement segment: Annuity reinsurance agreement reduced go-forward interest rate risk Total Annuity AUM Horace Mann Retains $4 Billion in AUM • Reinsured $2.9B legacy block $4,380 $4,027 – Supported strategies to drive higher ROE $1,783 $1,415 – Reduced interest rate risk – Enabled company to rede
Slide 24: Retirement segment: Product suite meets unique needs of educator market
Retirement segment: Product suite meets unique needs of educator market Annuity contract deposits* 600 Q1 Results • Annuity contract deposits rose 500 503.3 501.8 9.7% over prior year 472.9 400 447.2 439.1 462.5 447.6 • Net loss for the quarter, due to lower net investment income $millions 300 and n
Slide 25: Life segment: Sizeable opportunity in our middle-market educator niche
Life segment: Sizeable opportunity in our middle-market educator niche Individual insurance in Opportunity force(1) • Many educators are uninsured or underinsured Products Traditional term • Basic coverages appropriate for 69% Experience educator income levels Life(2) • Full suite of Life products a
Slide 26: Life segment: Profitable in-force block
Life segment: Profitable in-force block Life Sales & Premium Written 24 120 Q1 Results 21 100 • Life sales* down from last 18 year on lower single premium 15 80 product sales; recurring $millions $millions premium sales remained 12 60 steady 9 40 • Face amount persistency 6 20 above 95%(1) 3 • Morta
Slide 27: Investments: High-quality, well-diversified portfolio
Investments: High-quality, well-diversified portfolio Constructed to support insurance liabilities through various market cycles Portfolio Composition(1) $6.5 billion fair value $5.9 billion core fixed-maturity portfolio Short-term • 77% A-rated or higher 2% Non-Agency • A+ weighted-average credit q
Slide 28: Fixed maturity portfolio has relatively low exposure to industries most impacted by COVID-19
$5.9 billion fixed maturity portfolio has relatively low exposure to industries most impacted by COVID-19 $454M amortized cost: 93% investment grade: A- average rating; MV/BV ratio of 93% Number of Amortized Pretax Net Unrealized Average Average Average Gain / All Ratings Levels Issuers Cost Gains /
Slide 29: Limited partnership investments: $389 million portfolio
Limited partnership investments: $389 million portfolio focused on balancing risk and returns Alternatives portfolio(1) $400 More traditional funds, such as high-yield corporate credit, mezzanine, real estate, infrastructure and private equity Long-term target return: 10%+ $300 $223 million Funds wi
Slide 30: Strong capital position, with more than adequate capital to grow our businesses
Strong capital position, with more than adequate capital to grow our businesses Capital Ratios 650% 0.0 615% • Capital management strategies have 569% resulted in strong capital ratios 550% 548% 569% 548% 0.5 – P&C loss reserves held at top half of Premium / Surplus Ratio 507% 500% independent actua
Slide 31: Appendix
Appendix
Slide 32: Highly rated by all rating agencies
Highly rated by all rating agencies Education market focus, earnings diversification and capital strength cited Current Financial Strength Ratings Agency Rating Outlook (affirmed/reviewed) S&P A Stable (2/19/20) Moody’s A2 Stable (7/2/19) AM Best A Stable (6/6/19) Fitch A Stable (6/25/19) 32
Slide 33: Committed to Corporate Social Responsibility
Committed to Corporate Social Responsibility Incorporating ESG factors into business decisions and balancing the needs of stakeholders We prioritize understanding climate change and Environment mitigating associated risk, as well as reducing our environmental footprint. Social We strive to have a si
Slide 34: 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 76% of NEOs’ target • Clawback provision for both chairman compensation linked to cash & equity awards p
Slide 35: 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 Independent – Disciplined reserving practices HMN Actuary – Recent favorable reserve development consistent with Low High Held independent observations 2019 $230.4M $278.7M
Slide 36: Current single-event catastrophe reinsurance provides PML coverage
Current single-event catastrophe reinsurance provides PML coverage of approximately 400+ years Multiple Line XOL / Casualty(1) Property(1) $20M $175M ~400+ yrs THIRD LAYER 2nd LAYER CASUALTY $85M xs $90M CLASH & CONTINGENCY $10M xs $10M $90M SECOND LAYER $10M $40M xs $50M 1st LAYER CASUALTY CLASH &
Slide 37: Consolidated GAAP income statement
Consolidated GAAP income statement ($ in Millions) 2015 2016 2017 2018 2019 1Q20 Written premiums and contract deposits $1,256.5 $1,262.5 $1,227.1 $1,235.0 $1,324.5 $328.7 Insurance premiums and contract charges earned $731.9 $759.1 $794.7 $817.3 $898.0 $236.3 Net investment income 332.6 361.2 373.6
Slide 38: Consolidated GAAP balance sheet
Consolidated GAAP balance sheet ($ in Millions) 2015 2016 2017 2018 2019 1Q20 Assets Investments $7,648.0 $7,999.3 $8,352.3 $8,250.7 $6,639.2 $6,601.2 Cash 15.5 16.7 7.6 11.9 25.5 41.2 DAC 253.2 267.6 257.8 298.7 276.7 297.8 Deposit asset on reinsurance — — — — 2,346.2 2,356.3 Intangible assets, net
Slide 39: Updated 2020 Analyst Modeling Considerations
Updated 2020 Analyst Modeling Considerations Updated Original 2020 2019 Actual 2020 Comments Guidance Guidance Property and Casualty Core earnings (after tax) $54.3 million $55-60 million $61-66 million First-quarter underwriting earnings ~$5 million (pre tax) above expectations. Second-quarter expe
Slide 40: Horace Mann at a glance
Horace Mann at a glance Exchange ticker symbol NYSE:HMN Share Price $36.59(1) Shares Outstanding 41.3 million(1)(2) Market Capitalization $1.5 billion(1) Annualized Dividend Per Share $1.20(1) Dividend Yield Per Share 3.2%(1) Average Daily Volume 179K shares (52-week average daily volume as of 3/31/