Horace Mann Educators Corporation · NYSE:HMN
Horace Mann Educators — Q4 2020 Earnings Presentation
40 slides from Horace Mann Educators's earnings presentation, Feb 3, 2020
Slide 1: Full-year 2020 Investor Presentation
Full-year 2020 Investor Presentation February 3, 2020 Information as of December 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 • $13.5B in assets(1) • Educators have • Business mix Educators for • $1.4B 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: 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 6: Key transformational stage in growth journey continues through 2021
Key transformational stage in growth journey continues; extends through 2021 due to pandemic 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 valu
Slide 7: Strong 2021 outlook anticipates progress toward double-digit ROE
Strong 2021 outlook anticipates progress toward long-term objective of double-digit ROE Expect core EPS to be in the range of $3.00 to $3.20, with core ROE* in the range of 9% - 9.5% • Continuing transformation based on unwavering commitment to education market and multi-year emphasis on products, d
Slide 8: 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 Non-repeat
Slide 9: 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 10: Focus on long-term shareholder value
Focus on long-term shareholder value Strong book value growth and 2.9% dividend yield(1) $45 $43.74 9% 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 11: PDI growth strategy leads to industry-leading cross-sell and retention
PDI growth strategy leads to industry- leading cross-sell and retention
Slide 12: 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 Higher K-12 education K-12 administrators 470,000 educator households (~600,000 3,914,542 teachers 3,327,057 359,313 total
Slide 13: 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 14: 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 15: Horace Mann reach expanded to ~600,000 households with NTA transaction
Horace Mann reach expanded to ~600,000 households with NTA transaction Strong P&C/L&R cross-sell experience with educators(1) • Horace Mann policy retention and persistency exceed industry averages and Cross-sold improve with cross-sell efforts customers 18% • 18% multi-line penetration in Horace Ma
Slide 16: Business details and results
Business details and results
Slide 17: Q4 earnings 50% higher than prior year
Q4 earnings 50% higher than prior year Core EPS* • Net income per share declined 28.0% from 2019, largely due to realized $4.00 investment gains in 2019 related to $3.40 annuity reinsurance transaction, with net $3.50 return on equity at 8.1% $3.00 $1.13 • Core earnings per share rose 54.5% to $2.50
Slide 18: 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 ($636M)(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 policyholders purchase
Slide 19: P&C segment: Combined ratio at 92.7% despite higher catastrophe losses
P&C segment: Combined ratio at 92.7% despite higher catastrophe losses Net written premium 800 663 682 683 634 636 605 600 2020 results • Written premiums declined due to $millions 400 lower new business and pandemic- related premium credits in the second 200 quarter • Segment core earnings for the
Slide 20: 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 new agents with Products experience in the education market • Complementary supplemental insurance products designed to meet educators’ ne
Slide 21: Supplemental segment: Product overview
Supplemental segment: Product overview Providing options for educators to address unexpected events Supplemental coverage in-force(1) Cancer Guaranteed renewable limited benefit, specified disease product Other with coverage for individuals and families, providing benefits for 4% certain losses dire
Slide 22: Supplemental segment: Strong margins continue, sales affected by school closures
Supplemental segment: Strong margins continue, sales affected by school closures 2020 Supplemental measures 2020 results Benefits ratio 32.8% • Supplemental segment sales reflect lower sales volume due to limited school access Operating expense ratio 26.7% because of COVID-19 • Strong core earnings
Slide 23: Retirement segment: Helping educators meet their financial goals
Retirement segment: Helping educators meet their financial goals with tailored solutions Retirement Assets Under Administration Opportunity 14 • Educators face complicated retirement 12 system offerings 10 • Educators want guidance to plan for the $billions 8 future 6 4 Products 2 • Fixed annuities,
Slide 24: 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 $4,842 – Supported strategies to drive higher $4,380 ROE $2,139 – Reduced interest rate risk $1,783 $millions – Enabled comp
Slide 25: Retirement segment: Product suite meets unique needs of educator market
Retirement segment: Product suite meets unique needs of educator market Annuity contract deposits* 2020 results 600 • Annuity contract deposits rose 4.5% over prior year, reflecting the value educators continue 500 to see in our Retirement savings products 503.3 501.8 462.5 483.4 • Core earnings* ex
Slide 26: 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 70% Experience educator income levels Life • Full suite of Life products avai
Slide 27: Life segment: Profitable in-force block
Life segment: Profitable in-force block Life Sales & Premium Written 2020 results 24 120 • Life sales down on stable new sales of 21 recurring term and whole life policies, and 100 lower new sales of more complex products 18 such as single premium and Indexed 80 15 Universal Life policies $millions
Slide 28: Investments: High-quality, well-diversified portfolio
Investments: High-quality, well-diversified portfolio Constructed to support insurance liabilities through various market cycles Portfolio Composition(1) $7.1 billion fair value $6.3 billion core fixed-maturity portfolio Non-Agency U.S. Treasury RMBS Short-term 2% & Agency 6% • 72% A-rated or higher
Slide 29: Alternative portfolio: Strong long-term investment returns supported by diversification
Alternative portfolio: Strong long-term investment returns supported by diversification Diversified $449M alternative investment portfolio Alternative portfolio investments return avg 6.5%(1) 12% $500 10.97% 10% Hedge Funds $400 14% 8.17% 8.04% 8% 7.10% 7.22% IG Senior CMLs $300 $millions % return I
Slide 30: Strong capital position, with more than adequate capital to grow our businesses
Strong capital position, with more than adequate capital to grow our businesses Capital Ratios 650% 0.0 615% • Capital management strategies 569% support strong capital ratios 550% 536% 0.5 – P&C loss reserves held at top half of independent actuarial Premium / Surplus Ratio 507% 500% range RBC Rati
Slide 31: Appendix
Appendix
Slide 32: Highly rated by all rating agencies
Highly rated by all rating agencies Education market focus, earnings diversification and capital strength cited Current Financial Strength Ratings Agency Rating Outlook (affirmed/reviewed) AM Best A Stable (7/2/20) Fitch A Stable (9/22/20) Moody’s A2 Stable (10/8/20) S&P A Stable (2/19/20) 32
Slide 33: Committed to Corporate Social Responsibility
Committed to Corporate Social Responsibility Incorporating ESG factors into business decisions and balancing the needs of stakeholders We prioritize understanding climate change and Environment mitigating associated risk, as well as reducing our environmental footprint. Social We strive to have a si
Slide 34: Strong corporate governance policies aligned with long-term shareholder interests
Strong corporate governance policies aligned with long-term shareholder interests Effective board Performance-based Governance best structure NEO compensation practices • Separate CEO and • Up to 76% of NEOs’ target • Clawback provision for both chairman compensation linked to cash & equity awards p
Slide 35: Strong and stable P&C reserves further reduce potential earnings volatility
Strong and stable P&C reserves further reduce potential earnings volatility Net P&C Reserve Position • Appropriate conservatism – Disciplined reserving practices Independent Actuary HMN – Recent favorable reserve development consistent with independent ($M) Low High Held observations 2020 $217.9 $27
Slide 36: Current single-event catastrophe reinsurance provides PML coverage
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 $50M 1st LAYER CASUALTY CLASH &
Slide 37: Consolidated GAAP income statements
Consolidated GAAP income statements ($ in Millions) 2015 2016 2017 2018 2019 2020 Written premiums and contract deposits* $1,256.5 $1,262.5 $1,227.1 $1,235.0 $1,324.5 $1,305.0 Insurance premiums and contract charges earned $731.9 $759.1 $794.7 $817.3 $898.0 $930.7 Net investment income 332.6 361.2 3
Slide 38: Consolidated GAAP balance sheets
Consolidated GAAP balance sheets ($ in Millions) 2015 2016 2017 2018 2019 2020 Assets Investments $7,648.0 $7,999.3 $8,352.3 $8,250.7 $6,639.2 $7,262.2 Cash 15.5 16.7 7.6 11.9 25.5 22.3 DAC 253.2 267.6 257.8 298.7 276.7 229.8 Deposit asset on reinsurance — — — — 2,346.2 2,420.9 Intangible assets, ne
Slide 39: 2021 analyst modeling considerations
2021 analyst modeling considerations 2021 2020 Actual Guidance Assumptions Property & Casualty core earnings $76.5 million $54-$58 million • Full-year combined ratio expected to be in line with longer-term target of 95% to 96% • Catastrophe load of approximately 9.5 points on the combined ratio • Un
Slide 40: Horace Mann at a glance
Horace Mann at a glance Exchange ticker symbol NYSE:HMN Share Price $42.04(1) Shares Outstanding 41.4 million(1)(2) Market Capitalization $1.7 billion(1) Annualized Dividend Per Share $1.20(1) Dividend Yield Per Share 2.9%(1) Average Daily Volume 201K shares (52-week average daily volume as of 12/31
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