Horace Mann Educators Corporation

Good day, and welcome to the Whoresman Educators Q2 2021 Investor 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 of 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, investor supplement, and investor presentation. Copies of all three are available on the Investors page of our website. On today's call, Marita Zoraitis, President and Chief Executive Officer, and Brett Conklin, Executive Vice President and Chief Financial Officer, will give the formal remarks. With us for Q&A, we have Matt Sharp on business development and distribution, Mark DeRocher on P&C, Tyson Sanders on supplemental, and Mike Weckenbrock on life and retirement, with Ryan Green here available on investments. 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 uncertainty and are not guarantees of future performance. These 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 GAAP measures are available in our news release. Now, I'll turn the call over to Marita.

Thanks, Heather, and good morning, everyone. Last night, we reported second quarter core earnings of $1.02, our highest second quarter result ever. We benefited from particularly strong investment income in our alternatives portfolio and lower-than-guided catastrophe losses. As previously announced, this led us to raise our full-year core EPS guidance to a range of $3.50 to $3.70, with an expected return on equity above 10%. We saw strong earnings growth in each segment in the second quarter and solid sales momentum in the retirement line. Annuity contract deposits increased by double digits over the prior year. Brett will go over the quarterly results in more detail later in the call. I want to focus on our progress towards our long-term objectives of a sustainable double-digit ROE and significant expansion in the education market. Over the past year and a half, Through unprecedented disruption in all aspects of our day-to-day life, Horace Mann has continued to be successful. I attribute this success to two factors. First, our unwavering dedication to the deserving education market. We know our customers, we know them well, and we respond to the issues they face. Second, our multi-line model. We have the premium and earnings risk diversification that enables us to remain focused on our long-term objectives throughout occurrences of weather volatility, market volatility, and mortality and morbidity trend changes. While the COVID-19 pandemic added an extra year to the transformational stage of our growth journey, it also gave us time to analyze and improve the ways we can fulfill our value proposition for the education market. Examples of the outcomes of this focus include an accelerated integration of NTA agents, initiating key improvements in infrastructure, and expansion of our student loan solutions program nationwide. It also set the stage for the entry into the employer paid benefits market with the planned acquisition of Madison National Life Insurance Company. This acquisition brings together two educator-centric companies with complementary strengths in product distribution and infrastructure. Horace Mann's most established channel for serving educators has always been individual products sold through our agency force of local, trusted advisors. In recent years, we invested in upgrading our Section 125 Benefits Administration program, which enables school districts to offer voluntary worksite plans. benefits including our individual supplemental products are provided or introduced through the school district but paid for by individual educators in some cases educators can fund these purchases with pre-tax dollars Madison National represents a new third way for us to serve educators in line with emerging workplace trends school districts are increasingly adding and enhancing employee benefits to attract and retain educators for hard to fill positions. Madison National's employer paid and sponsored group products will enable us to provide educators with solutions like short and long-term disability while helping school districts improve recruiting and retention efforts. Districts generally work with independent benefit brokers to purchase Madison National's group products and educator staff are automatically enrolled. With this addition, Horace Mann will now have complementary distribution capabilities in each of the ways the country's 6.5 million public K-12 educators receive insurance solutions, dramatically increasing our addressable market. In terms of scope, Horace Mann has at least one educator household located in 75% of the roughly 12,000 K-12 school districts in our market footprint. When we bought NTA, we added approximately 120,000 educator households. With the acquisition of Madison National, we gain a solid base in this growth segment as they serve 1,200 districts that provide employer-paid and sponsored products to about 350,000 educators. There's some overlap between Horace Mann's presence and those of NTA and Madison National, but each of the transactions has clearly added to our market share. And with the Madison National transaction, our total addressable market expands to include a portion of the $160 billion that school districts spend annually on employer-paid benefits, a market sector that has grown more than 30% over the past five years. As we look at ways in which Madison National aligns with our business strategy from a product perspective, Madison National brings 60 years of experience designing and underwriting a portfolio of group products. These products can offer educators peace of mind that their families will be able to respond to unexpected events without depleting their savings. From a distribution perspective, independent brokers are key in the complex public sector benefit space where districts, particularly large ones, rely on their assistance to design plans and offerings that are typically offered to every employee in the district. Working with independent brokers is completely complementary to our established distribution through local trusted advisors. We have already signed a long-term distribution agreement with National Insurance Services, an employee benefit brokerage subsidiary of Assured Partners, that has been a key distribution partner for Madison National for nearly 40 years. It will take effect concurrently with the acquisition, giving us immediate access to the employer-paid and sponsored portion of the market. After the transaction closes, we will be complementing Madison National's current group offerings, which includes supplemental products, with enhanced offerings. Our product development team has been leveraging NTA's 50-plus years of success in supplemental markets, to accelerate filings for group products customized for educators such as cancer and hospitalization. These will allow us to work with Madison National and NIS to provide a comprehensive group product suite. In terms of infrastructure, Madison National brings an exceptional, experienced team focused on delivering great educator customer experiences supported by modern and scalable infrastructure. They're ready to add scale, and we're the right partner to help them do so. In 2022, we expect Madison National to add 50 basis points of ROE with upside potential in future years. we remain focused on three additional drivers of higher ROE across the entire business. First, driving higher net investment income by increasing the allocation to alternative investments. While alternative portfolio returns can be volatile, recent performance clearly illustrates the value this asset class brings. Second, expense initiatives. We continue to realize savings from actions such as the full integration of the supplemental segment in 2020, as well as benefits from continued infrastructure improvements. Third, market share expansion through cross-sell and new sales through each of our distribution channels. Before I turn the call over to Brett, I want to add that as educators across the country prepare to return to in-person learning environments this fall, we have similarly prepared to support them during the back to school season. We bring the ability to combine the new virtual marketing approaches we tested and refined over the past year and a half with our traditional in-person activities. We look to build on the sales momentum we established in the first half of the year and are seeing a lot of optimism in the agency force around scheduling meetings and events in their schools this fall. The 2021-22 school year will certainly be more normal than the previous one. However, there is concern about new COVID-19 variants. We believe most schools will avoid a return to a hybrid or remote environment. Notably, nearly 90% of educators are vaccinated against COVID-19, a far higher rate than the general population. Further, educators have overwhelmingly made the case that the best educational environment for students is in-person. At Horace Mann, this past year and a half has provided us an ever-growing list of reasons and reminders of why we do what we do. It is an honor to serve the educators who have gone above and beyond to reach every student through the COVID-19 pandemic. Their dedication and selflessness to our country's children continues to inspire us to do more, and this year, we will. Thank you, and with that, I'll ask Brett to take you through the results.