Horace Mann reports full-year 2021 net income of $3.39 per share and record core earnings* of $3.59 per share

 Fourth-quarter 2021 net income of $0.96 per share and core earnings* of $0.97 per share

• Full-year net income and core earnings per share ahead of prior year, largely due to 18% increase in net investment income on strong limited partnership portfolio returns
  • Full-year 2021 net income return on equity of 8.0% with core ROE of 10.3%
• Fourth quarter demonstrated value of multi-year emphasis on products, distribution and infrastructure to serve education market
  • Supplemental fourth-quarter sales highest since onset of pandemic; Life and Retirement fourth-quarter sales up year over year
  • Fourth-quarter earnings for each segment ahead of expectations due to strong net investment income despite after-tax catastrophe losses of $9 million and auto loss ratio returning to pre-pandemic level
• Book value per share up 1% and book value excluding net unrealized gains* up 7% from year-end 2020
• Expect 2022 EPS in range of $3.45-$3.65 and ROE near 10%; in 2023 and beyond, targeting 10% average annual EPS growth and sustained double-digit ROEs
  • 2022 guidance includes at least 15 cents from newly acquired Madison National Life Insurance Company’s current business activity, as well as initial contributions of the strategic growth initiatives that drive results in 2023 and beyond
  • Guidance continues to reflect catastrophe loss assumption in line with 10-year average and net investment income contribution with limited partnership portfolio returns closer to the historical averages
  • Larger, more diverse organization should generate more than $50 million in excess capital each year, available to support growth and to return to shareholders

Horace Mann Educators Corporation (NYSE:HMN) today reported financial results for the three months ended December 31, 2021:

“For the second consecutive year, Horace Mann reported record core earnings, with core return on equity again above 10%. All our business areas are showing some encouraging signs of momentum, although the pace continues to vary by segment and geography compared to the pre-pandemic environment — partially due to regional variations in the course of the pandemic and differing community responses,” said Horace Mann President and CEO Marita Zuraitis. “We continue to see strong growth in our Retirement line, with sales up 5% over prior year as educators continue to focus on their long-term financial success. We have long benefited from cross-sell opportunities through Retirement relationships in new districts. And despite the inherent seasonality of fourth-quarter benefit enrollments, the Supplemental segment posted its strongest sales quarter since the pandemic began. We are pleased with this progress and look forward to its acceleration in 2022.

“Our results continue to benefit from our intentional diversification into limited partnership investments and commercial mortgage loan funds investments,” Zuraitis continued. “As a result, net investment income for the year was ahead of our original guidance by about $33 million, or more than 75 cents per share. The benefit of the higher net investment income was partially offset by full-year catastrophe losses above our 10-year average by about $15 million, or approximately 35 cents per share.

“With the addition of Madison National Life on Jan. 1, we dramatically improved our value proposition for school districts and educators,” Zuraitis said. “In 2022, we aim to leverage our expanded product offerings to increase our share of the educator market. Whether educators are buying insurance and financial solutions from a local, trusted advisor; through one of our direct channels; or receiving them through their school district employer, Horace Mann can be the partner to provide it.

“We expect our acquisition of Madison National and acceleration of growth through all channels will help us achieve our targeted 2022 core EPS and ROE, as the contribution from our limited partnerships portfolio is expected to return to our average historical returns,” Zuraitis said. “We also are assuming catastrophe losses in line with our 10-year average.

“Beginning in 2023, we are targeting 10% average annual EPS growth and sustained double-digit ROEs, driven by our profitable growth,” Zuraitis added. “We expect the stronger and more diverse company that Horace Mann has become to generate more than $50 million in excess capital each year. Going forward, we expect to continue to prioritize growth in our capital plans. At the same time, we are committed to maintaining our 13-year track record of annual increases in our cash dividend and returning capital to shareholders through repurchases.”

Segment guidance

2022 guidance includes accretion from Madison National’s current business activity as well as estimates of the initial contributions of strategic growth initiatives. Full-year net investment income is estimated to total about $310 million to $320 million, in line with 2021, with limited partnership portfolio returns modeled closer to the historical averages. Beginning with first quarter 2022, Horace Mann will report financial results in three operating segments. The new Life & Retirement segment will combine the current Life and Retirement segments. The Supplemental & Group Benefits segment will include the Supplemental business as well as the results of Madison National Life.

• Property & Casualty segment 2022 core earnings are expected to be in the range of $44 million to $48 million. In 2022, the underlying auto loss ratio is expected to be slightly higher than 2021 level as auto frequency remains near pre-pandemic levels, with inflation driving higher severity in both auto and property lines. Guidance reflects a catastrophe loss assumption of approximately 9.5 points on the combined ratio, in line with the 10-year average. The longer-term combined ratio target remains 95-96%. Net investment income is expected to be lower in this segment, as it benefited from strong limited partnership returns in 2021.

• Life & Retirement segment 2022 core earnings are expected to be in the range of $74 million to $77 million. Net investment income is expected to be up slightly, maintaining the net investment spread near the 2021 level. Guidance reflects mortality returning to actuarial expectations.

• Supplemental & Group Benefits segment 2022 core earnings are expected to be in the range of $47 million to $50 million. Claims utilization for supplemental and disability products is expected to be near pre-pandemic levels leading to a benefit ratio about 35% for voluntary products and about 50% for employer-paid products. As a result of the Madison National transaction, 2022 total amortization of intangible assets is expected to increase by 8 to 12 cents per share over 2021.

Reported results for 2021, discussed on the following pages, are based on the current four operating segments.

Property & Casualty segment full-year core earnings of $57 million with underlying combined ratio at 87.7%

(All comparisons vs. same period in 2020, unless noted otherwise)

The Property & Casualty insurance segment primarily markets private passenger auto insurance and residential home insurance. Horace Mann offers standard auto coverages, including liability, collision and comprehensive. Property coverage includes both homeowners and renters policies. For both auto and property coverage, Horace Mann offers educators a discounted rate and the Educator Advantage^® package of features. The Property & Casualty segment represented 51% of 2021 total revenues and contributed $57.0 million to 2021 core earnings.

The Property & Casualty segment was profitable for both the fourth quarter and full year with stronger net investment income. Catastrophe loss costs were again above historic averages. Auto loss costs were higher in both the fourth quarter and full year largely due to the lower level of loss activity in 2020 periods. This was the result of frequency returning from the pandemic lows experienced in 2020 as well as elevated severity in 2021.

In the fourth quarter, policyholder catastrophe losses were $11.1 million, which added 7.2 points to the company’s combined ratio, compared to $6.1 million or 3.8 points in last year’s fourth quarter. The largest event was the Colorado wildfires in late December, with $5.3 million in policyholder losses.

The full-year auto underlying loss ratio was 69.0%, compared to the prior year auto underlying loss ratio of 60.4%, as driving patterns steadily returned to a more normal level and inflation continued to affect severity. The full-year property underlying loss ratio rose slightly, also reflecting the effect of inflation.

Property & Casualty full-year premiums written of $607.8 million were below last year with new business volume remaining below historical levels due to the continuing impact of the pandemic on sales. For the full year, auto average premiums were flat, even as miles driven has begun to rise. Property average premiums rose as adjustments to coverage values continue to take effect. Rate increases are expected to play an even greater role in the coming quarters.

Supplemental segment full-year core earnings of $46 million with fourth-quarter sales highest since pandemic began

(All comparisons vs. same period in 2020, unless noted otherwise)

The Supplemental insurance segment specializes in marketing supplemental insurance products, including cancer, heart, hospital, supplemental disability and accident for the education market. The segment represented 11% of 2021 total revenues and contributed $46.3 million to 2021 core earnings.

Supplemental segment sales were $2.2 million in the fourth quarter, a 57.1% increase over last year and the highest quarter since the start of the pandemic. Persistency remained very strong at 92.5%.

Strong core earnings for both the quarter and the full year reflected higher net investment income, as well as favorable business trends including some continued benefit from short-term changes in policyholder behavior due to the pandemic. Segment expenses for the year include the non-cash impact of amortization of intangible assets under purchase accounting that reduced core earnings by $11.7 million pretax. Margins remain above management’s longer-term expectations because of the pandemic-related changes in policyholder behavior.

Retirement segment full-year core earnings excluding DAC unlocking of $51 million, benefiting from strong net investment spread

(All comparisons vs. same period in 2020, unless noted otherwise)

The Retirement segment primarily markets 403(b) tax-qualified fixed, fixed index and variable annuities; the Horace Mann Retirement Advantage^® open architecture platform for 403(b)(7) and other defined contribution plans; and other retirement products to educators. Horace Mann is one of the largest participants in the K-12 educator portion of the 403(b) tax-qualified annuity market, measured by 403(b) net written premium on a statutory accounting basis. The Retirement segment represented 24% of 2021 total revenues and contributed $52.0 million to 2021 core earnings.

Net annuity contract deposits rose 4.6% for the full year. Horace Mann’s relationship with educators often begins with 403(b) retirement savings products, including the company’s attractive annuity products, which provide encouraging cross-sell opportunities. Total cash value persistency remained strong at 94.4% for the fixed and variable annuities.

Horace Mann currently has $5.3 billion in annuity assets under management, including $2.2 billion of fixed annuities, $2.6 billion of variable annuities and $0.5 billion of fixed indexed annuities. Assets under administration, which includes Retirement Advantage and other advisory and recordkeeping assets, was up 9.5% from a year ago, as assets under management continued to rise due to strong equity market performance over the past 12 months.

The net interest spread improved again in the fourth quarter to 290 points for the full year, reflecting the strong returns from the limited partnership portfolio. Core earnings excluding DAC unlocking was up 90.3% for the year, primarily due to the strong net interest margin.

Life segment full-year core earnings were $16 million

(All comparisons vs. same period in 2020, unless noted otherwise)

The Life insurance segment primarily markets traditional term and whole life insurance products to educators. The Life segment represented 14% of 2021 total revenues and contributed $16.1 million to 2021 core earnings.

Life annualized sales were up 2.4% over last year, with fourth-quarter sales up 9.5% on continued sales of recurring premium policies. Life core earnings for the year rose 54.8%, reflecting strong net investment income growth offset by higher mortality costs. Full-year persistency for life products of 96.5% remains in line with prior periods.

Investment portfolio sees strong returns from limited partnership portfolio

(All comparisons vs. same period in 2020, unless noted otherwise)

Horace Mann’s investment strategy is primarily focused on generating income to support product liabilities, and balances principal protection and risk. Total net investment income includes net investment income on the investment portfolio managed by Horace Mann, as well as accreted investment income on the deposit asset on reinsurance related to the company’s reinsurance of policy liabilities related to legacy individual annuities written in 2002 or earlier.

Total net investment income was up 18.1% or $64.9 million for the year. Net investment income on the managed portfolio rose 23.5%, reflecting strong returns on the limited partnership portfolio throughout the year, largely due to private equity and venture capital investments. The company’s fixed maturity securities portfolio is in a net unrealized investment gain position of $441.6 million pretax at December 31, 2021.

Book value excluding net unrealized investment gains up 7% year over year

At December 31, 2021, shareholders’ equity was $1.81 billion, or $43.66 per share. Excluding net unrealized investment gains on fixed maturity securities, shareholders’ equity was $1.52 billion, or $36.64 per share.* During the fourth quarter, Horace Mann repurchased 96,073 shares of common stock at an average price of $37.14. As of December 31, 2021, $15.3 million remained authorized for future share repurchases under the share repurchase program.

The company closed the acquisition of Madison National Life, a provider of group life, disability and specialty health insurance for educators and public sector employees, on Jan. 1, 2022. The transaction was funded with cash on hand and additional borrowings on the company’s revolving credit facility made in late 2021.

As a result, at December 31, 2021, total debt was $502.6 million, with $249.0 million outstanding on the company’s line of credit. The ratio of debt-to-capital excluding net unrealized investment gains* was 24.9% at year-end 2021, which aligns with levels appropriate for the company’s current financial strength ratings.

Investor webcast

Horace Mann’s senior management will discuss the company’s fourth-quarter and full-year financial results with investors on Feb. 2, 2022 at 10:00 a.m. Eastern Time. The conference call will be webcast live at investors.horacemann.com and archived later in the day for replay.

About Horace Mann

Horace Mann Educators Corporation is the largest financial services company focused on helping America’s educators and others who serve the community achieve lifelong financial success. The company offers individual and group life insurance and financial solutions tailored to the needs of the educator community. Founded by Educators for Educators^® in 1945, the company is headquartered in Springfield, Illinois. For more information, visit horacemann.com.

Safe Harbor Statement and Non-GAAP Measures

Statements included in this news release that are not historical in nature are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties. Horace Mann is not under any obligation to (and expressly disclaims any such obligation to) update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021 and the company’s past and future filings and reports filed with the Securities and Exchange Commission (SEC) for information concerning important factors that could cause actual results to differ materially from those in forward-looking statements. Information contained in this news release include measures which are based on methodologies other than accounting principles generally accepted in the United States of America (GAAP). Reconciliations of non-GAAP measures to the closest GAAP measures are contained in the Appendix to the Investor Supplement and additional descriptions of the non-GAAP measures are contained in the Glossary of Selected Terms included as an exhibit to the company’s SEC filings.