Horace Mann Educators Corporation · NYSE:HMN
Horace Mann Educators — Merger or Acquisition (June 2019)
22 slides from Horace Mann Educators's merger presentation, Jun 24, 2019
Slide 1: Horace Mann Reinsures $2.9 Billion Legacy Annuity Block with RGA and Describes NTA Acquisition Financing
Horace Mann Reinsures $2.9 Billion Legacy Annuity Block with RGA and Describes NTA Acquisition Financing June 24, 2019
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: Financing plan sets the stage for accelerated profitable growth
Financing plan sets the stage for accelerated profitable growth Component Benefit 1. Reinsuring $2.9 billion legacy annuity Reduces ongoing interest rate risk; releases block $200 million of capital 2. New $225 million revolving line of credit Enhances financial flexibility while replaces prior faci
Slide 4: National Teachers Associates acquisition
National Teachers Associates acquisition 4
Slide 5: NTA transaction to accelerate profitable growth
NTA transaction to accelerate profitable growth • Supplemental insurance Aligned with "PDI" Growth Strategy in Education Market provider offering heart, cancer, accident and Products limited supplemental • Adds complementary supplemental insurance products disability coverages designed to meet educa
Slide 6: NTA acquisition strengthens Horace Mann's long-term strategy
NTA acquisition strengthens Horace Mann’s long-term strategy Longevity Financial Niche Multiline strength market model • Founded by Educators • $11.6B in assets(1) • Educators have preferred • Revenues balanced between for Educators® in 1945 risk profile P&C and L&R HORACE MANN • $1.2B in 2018 premi
Slide 7: NTA products enhance Horace Mann's already strong solutions orientation
NTA products enhance Horace Mann’s already strong solutions orientation Retirement Preparing to retire Established educator New educator Issues: Issues: • How to manage Issues: • Worried about retirement • Protecting assets ensuring smooth income Pre-educator • Protecting retirement • Need to plan I
Slide 8: Reinsurance transaction builds on advantages of NTA by reducing exposure to interest-sensitive business
Reinsurance transaction builds on advantages of NTA by reducing exposure to interest-sensitive business Pre-transactions: Retirement business NTA: at 40% of earnings(1) Adds geographies Life Supplemental insurance unaffected by weather Property volatility & Casualty Morbidity not strongly corr
Slide 9: Transaction summary
Transaction summary Transaction • Horace Mann to acquire 100% of NTA in an all-cash transaction • Stated purchase price of $405 million • Funding: – $185 million of $200 million in capital released from reinsurance Deal Value transaction – $85 million NTA excess capital – approved by Texas regulator
Slide 10: Reinsuring Legacy Annuity Block
Reinsuring Legacy Annuity Block
Slide 11: Timing is right for the reinsurance transaction
Timing is right for the reinsurance transaction Transaction Objectives Strategic Rationale Eliminate exposure to high Long term portfolio modeling indicated this guaranteed crediting rate policies block of business unlikely to achieve target pricing spreads / ROE Reduce proportion of earnings from i
Slide 12: Annuity assets under management pre-transaction
Annuity assets under management pre-transaction Total Annuity AUM ($ in millions) $7.0 Billion Annuity Portfolio(1) • Straightforward product design meets educator $6,973 needs $6,765 $6.713 $6,427 ‒ No guaranteed living or withdrawal benefits $5,997 ‒ Minimal GMDB exposure $5,699 $5,365 ‒ Product d
Slide 13: RGA to reinsure $2.9B block, Horace Mann retains $2.1B fixed annuity portfolio
RGA to reinsure $2.9B block, Horace Mann retains $2.1B fixed annuity portfolio Total Annuity AUM ($ in millions) $2.9B Legacy Block Transaction • RGA reinsuring $2.9B legacy block $6,973 $6,713 – $2.2 of fixed annuities through coinsurance structure – $0.7 of variable annuities through Mod- Co struc
Slide 14: Smaller fixed annuity portfolio to generate higher profit margin due to improved net investment spread
Smaller fixed annuity portfolio to generate higher profit margin due to improved net investment spread Average Crediting Rate on Fixed Annuities at Horace Mann Retains $2.1 Billion in Fixed 3/31/19 Annuities • Net investment spread of ~215 bps anticipated for second half of 2019 vs. prior guidance o
Slide 15: Revolving Line of Credit
Revolving Line of Credit
Slide 16: Summary of Terms & Conditions
Summary of Terms & Conditions Joint Lead Arrangers: PNC Capital Markets LLC, JPMorgan Chase Bank, N.A. The Northern Trust Company, U.S. Bank National Association, Group: KeyBank National Association, Comerica Bank and Illinois National Bank Facility: $225 million revolving credit facility Letter of
Slide 17: Financial impact
Financial impact 17
Slide 18: Guidance updates based on financing plan and adding NTA
Guidance updates based on financing plan and adding NTA Accelerates progress toward double-digit ROE while reducing earnings volatility Core EPS guidance unchanged at $2.00 to $2.20 • NTA should add about $0.30 • Reinsurance transaction reduces contribution from Retirement business by about 2019 $0.
Slide 19: Reinsurance transaction adds about 8% to book value, which enhances long-term shareholder value
Reinsurance transaction adds about 8% to book value,(1) which enhances long-term shareholder value Top-quartile book value growth(1) and 2.8% dividend yield(2) 10% $40 CAGR $35 $30 $25 $20 $15 • 11 consecutive years of dividend increases $10 • Target ~50% payout ratio • $77M in share repurchases sin
Slide 20: Appendix
Appendix
Slide 21: Glossary of Selected Terms
Glossary of Selected Terms • Book value per share excluding the fair value adjustment for investments - The result of dividing total shareholders’ equity excluding after tax net unrealized investment gains and losses on securities, including the related effect on certain deferred policy acquisition
Slide 22: Contact
Contact Heather J. Wietzel Vice President, Investor Relations heather.wietzel@horacemann.com 217.788.5144 investors.horacemann.com 22
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