Horace Mann Educators Corporation

Good morning and welcome to the Horace Mann second quarter 2020 results conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Heather Wetzel, Vice President, Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to Horace Mann's discussion of our second quarter results. Yesterday, we issued our earnings release and investor supplement. Copies are available on the investors page of our website, along with our investor presentation, which was posted this morning. Marita Zoraitis, President and Chief Executive Officer, and Brett Conklin, Executive Vice President and Chief Financial Officer, will give the formal remarks on today's call. With us for Q&A, we have Matt Sharp on distribution, Mark DeRocher on P&C, Wade Rugenstein on supplemental, Mike Weckenbrock on life and retirement, and Ryan Greenyear on investment. Before turning it over to Marita, I want to note that our presentation today includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The company cautions investors that any forward-looking statements include risks and uncertainties and are not guarantees of future performance. Those forward-looking statements are based on management's current expectations, and we assume no obligation to update them. Actual results may differ materially due to a variety of factors, which are described in our news release and SEC filings. In our prepared remarks, we used some non-GAAP measures. Reconciliations of these measures to the most comparable gap measures are available in our news release. With that, I'll now turn the call over to Marita.

Thanks, Heather. Good morning, everyone, and welcome to our call. Last night, we reported second quarter core earnings of 67 cents per diluted share. These results clearly reflect the value we bring to the educators we serve through our solutions orientation. as well as the positive impact of our long-term profitability initiatives and the transformational actions we took in 2019. They also reflect some unusual pandemic-related effects that make comparisons to other periods challenging. Brett will help distinguish between the positive outcomes of our strategic initiatives and the ways in which the pandemic has influenced our performance later in the call. But at a high level, we are raising our 2020 full-year core EPS guidance to a range between $2.80 and $3 to reflect the strong first half results. In my remarks, I want to focus on how we are adjusting and evolving our business practices to better meet the needs of a more physically distant educator workforce. For the past 75 years, what has remained constant at Horace Mann is our commitment to supporting educators. Today, educators are facing immense challenges in their professional lives, on top of the challenges the pandemic has caused in all of our personal lives. Whether educators are in schools, at home, or working in a hybrid model in the upcoming school year, we're here to help them protect what they have today and prepare for a successful tomorrow. We delivered on that promise this quarter in three ways. First, we helped customers across the country affected by tornadoes and other severe weather repair their homes and property. We have regularly noted that second quarter is historically our most costly quarter for catastrophes, but this quarter's weather was especially severe, causing $34.7 million in damage to our customers, in line with the extremely high industry CAT losses this quarter. The second quarter continues the trend of more severe weather that we have seen accelerate over the past decade. Catastrophe loss costs added 22 points to our combined ratio, which is higher than both our five-year and 10-year averages. I remain proud of our employees and agents for quickly and compassionately helping educators put their lives back together, but I'm especially proud of that commitment during a pandemic when everyone is facing challenges in their own lives as well. Second, we provided premium flexibility to our customers on both a company-wide and individual basis. Our P&C results reflected the impact of $10 million in premium credits for the reduction in driving during the second quarter. Across all of our products, a grace period was available through the second quarter, and we worked with customers to adjust coverages as needed. And third, we continue to invest in new solutions to help educators with the issues they face. For example, for four years, our agents and employees have helped educators address the burden of student loan debt through complimentary student loan solutions programs. Beginning with small group and one-on-one meetings, this direct consultative model provided guidance on federal student loan forgiveness programs and payment plan options. Through this program, we identified $250 million in forgiveness opportunities for educators. We are scaling up the program this school year by partnering with Tuition.io to offer complimentary online student loan management accounts for all educators nationwide. Educator student loan debt is holding them back from reaching life milestones and taking care of their own families a factor contributing to the national teacher shortage. In June, 34% of educators surveyed by Horace Mann were considering leaving the profession within the next three years for a higher paying job. The current climate could very well accelerate this trend, driving good teachers who care about their students out of the profession. An overwhelming majority of teachers told us that having their student loans forgiven or a lower monthly payment would make them more likely to stay in their chosen field. As a company dedicated to supporting educators, we want to help facilitate that, not only to help those teachers, but also the communities that benefit from their influence. Looking ahead, we remain committed to our long-term objective of a double-digit return on equity and significant education market share expansion. The strategic actions we've taken over the past several years have positioned us very well for the current environment. Last year's transaction to reinsure a block of legacy annuity business with 4.5% minimum crediting rates significantly mitigated our interest rate risk. The addition of our supplemental segment is diversifying earnings and providing another solution that educators want. Our profitability initiatives, including improving our underlying auto loss ratio by more than five points, reinforced our strong financial foundation. These factors contributed to our 9% return on equity for the quarter. Pandemic-related factors also contributed. For example, P&C earnings increased as average auto frequency dropped substantially for the entire second quarter. But our telematics data shows that people have started taking longer trips. that they are driving at different times of the day, and that generally there is less congestion. This is consistent with anecdotal comments that people are opting to drive for their summer travel this year. Bottom line, mileage is returning to more normal levels, but the miles driven are different than pre-pandemic miles. The pandemic is also having an impact on the trajectory of our market share expansion. New sales for our supplemental line especially have historically relied more heavily on worksite marketing efforts consistent with industry practice. While the retirement segment saw 3% growth in annuity deposits, we were not surprised that there was a short-term impact on our overall second quarter sales, whether due to complexities brought on by the pandemic or by fewer face-to-face interactions. But our relationships with educators are built on more than a physical location. We understand the issues that they are facing and we work together to solve them. That's what educators deserve and what we've proudly accomplished over the past 75 years. We always aim to interact with educators in a way they prefer and that remains applicable whether schools are open or not. In the current environment, obviously more educators are conducting business virtually And we have the tools in place to provide a seamless experience for both agents and customers. Remember, Horace Mann has relationships with educators in roughly half of the schools in the country. Some of our agents traditionally reached educators with in-building interactions. Others primarily reached educators through direct marketing, referrals, and events. Many agents do both. We are now seeing more agents fully engage in our end-to-end virtual sales process, including online financial wellness workshops and appointment setting. Our online workshops are going especially well as we are utilizing the same technology many educators have recently adopted for teaching. We are also piloting a number of new virtual events and engagement strategies that leverage our 75 years serving the education market. These include social media-based teacher appreciation events, special back-to-school promotions that encourage digital engagement, and special offers for student loan solutions leveraging our new relationship with Tuition.io. Successful approaches will be a valuable part of our marketing toolkit, whatever the post-vaccine world looks like. While reaching educators at school will always be beneficial for agents, it's not required for us to be successful. We are successful because we provide products designed to meet educators' unique needs. Knowledgeable, trusted distribution, tailored to educator preferences, a modern, scalable infrastructure that's easy to do business with. That doesn't change during a pandemic. What we are doing is focusing on those approaches that better align with educator preferences in this pre-vaccine environment. During these challenging times, people are more likely to focus on protection and preparation, and this is especially true for educators. We are proud to provide the solutions to help educators protect what they have today and prepare for a lifetime of financial success. For 75 years, the core of our business has been a deep appreciation for the work that educators do. That appreciation has only grown in 2020 as we all more fully understand the impact educators have on our families, our communities, and our country. Thank you, and with that, I'll turn the call over to Brett.