Horace Mann Educators Corporation

Good morning and welcome to the Horace Mann fourth quarter and full year 2021 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 touchtone phone. To withdraw your question from the queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Heather Wetzel, Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to Horace Mann's discussion of our fourth quarter and full year 2021 results. Yesterday, we issued earnings release, investor supplement, and investor presentation, all of which are available on the investor page of our website. Marita Zoraitis, President and Chief Executive Officer, and Brett Conklin, Executive Vice President and Chief Financial Officer, who gives the formal remarks on today's call. With us for Q&A, we have Matt Sharp on supplemental and group benefits, Mark DeRocher on property and casualty, and Mike Weckenbrock on life and retirement, plus Ryan Greenyear 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 uncertainties 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 also used some non-GAAP measures, reconciliations of these measures to the most comparable GAAP measures available in our news release. I'll now turn the call over to Marita.

Thanks, Heather, and good morning, everyone. Last night, Horace Mann reported fourth quarter core earnings of 97 cents and full year 2021 core earnings of $3.59 per diluted share. This marks our second consecutive year of record earnings and core return on equity of over 10%. It also positions us well for strong results in 2022 and achievement of our longer-term targets of 10% average annual EPS growth and sustained double-digit ROEs. Today, I will briefly discuss our 2021 results, which Brett will cover in more detail. He will also discuss our commitment to accelerating shareholder value creation as we continue to execute on our strategic roadmap, which is driving significantly greater earnings power for the company. Since 2018, we have more than doubled our expectations for capital generation to 50 million in 2022 and beyond. While our first priority for excess capital remains supporting profitable growth, which further drives shareholder value, we will continue to utilize our share repurchase program and continue our track record of annual shareholder dividend increases. I want to focus the majority of my remarks on the steps we're taking to achieve our targets, as well as comment on how this aligns with the strategy we executed to bring us to where we are today. positioned to be the company of choice to help all educators protect what they have today and prepare for a successful tomorrow. In the fourth quarter, all segments finished ahead of expectations, reflecting our solid underlying performance as well as strong net investment income due to the very strong returns on our limited partnership portfolio. Across the board, the results illustrate the value of our multi-year focus on products, distribution, and infrastructure, to better serve the education market. In particular, we continue to be very pleased with the results of our retirement segment, where annuity sales increased 5% over prior year. Throughout the COVID-19 pandemic, our educator customers remained keenly focused on preparing for the future. As we continue to introduce new districts and households to our retirement product suite, we gain more opportunities to introduce our individual insurance products to new educators. As we have expected for more than a year, auto loss costs returned to pre-pandemic levels. For the P&C industry, this hasn't been so much an issue of if as an issue of when. Combined with inflation-driven factors as expected, this led to an auto loss ratio above the unusually low level of last year. Brett will give more details on our 2022 rate plan, but we're confident we will remain competitive with fair pricing for our education market while addressing the inflationary pressure. Despite the higher auto loss ratio, as well as catastrophe loss costs about double last year's fourth quarter, our P&C business was profitable in the quarter. For the year, catastrophe losses were about even with 2020, with both years running ahead of our 10-year average. We continue to see growth momentum in the supplemental business, with another quarter of sequential sales growth. We also continue to see temporary changes in policyholder behavior related to the pandemic. Now let me spend a little time talking about Horace Mann's long-term view now that Madison National Life is officially on board. I'd like to welcome any Madison National employees on the line to the company. We are excited to be working together as one team serving the education market. We worked side by side with Madison's team in the months leading up to the close to ensure a smooth initial integration, which we've seen with all hands on deck for the first month and a lot of enthusiasm for what we can accomplish together. The beauty of bringing together two such similar companies, mission-centric with decades of experience in the education market, is that neither of us has to change who we are. We can simply build a stronger company together. With this strength and value proposition, Horace Mann remains focused on helping educators achieve lifelong financial success and evolving to meet the needs of the education marketplace. We continue to be guided in our day-to-day operations by our commitment to educators and desires to have a positive impact on all of our stakeholder groups. This commitment is the core strength that will enable our company to grow and serve more educators with distinction. To achieve our long-term objectives of an expanded market share and accelerated shareholder value, we implemented a multi-year PDI strategy to enhance our product offerings, strengthen our distribution, and modernize our infrastructure. Our transformational phase to position ourselves for market growth culminated with the acquisition of Madison National, and as a result, we now have the capability to provide educators with the products they need whether purchased individually or through their employer. Under the horseman umbrella, we have aligned our operations into two focus divisions, retail and worksite, to maximize our potential to respond to the needs of educators and school districts. The retail division is largely our legacy lines of business. We built the worksite business through the NTA and Madison National Acquisitions, giving us the capabilities to provide voluntary and employer-paid benefits, which dramatically expands our growth opportunities. To briefly revisit what that means, there are roughly 7.5 million K-12 educators in our core market, and the demand for educators grows steadily each year. After the addition of Madison National, Horace Mann is serving roughly 1 million households through either individual or worksite solutions. Historically, the customer base has been around 80% educators. The opportunity is substantial, and we know this market better than anyone else. Our solutions and programs are tailored to meet educator needs at each stage of their lives. What motivates us is the understanding that educators are incredibly deserving of dedicated solutions and support. A clear example of this is our student loan solutions program, which helps educators take advantage of the federal public service loan forgiveness program. Despite degree requirements on par with many private sector jobs, educators take home lower salaries than other professions with similar prerequisites. Many educators forego higher paying private sector jobs because they have a passion for what they do. They choose the profession because it's a calling, because they want to make a difference. Even before COVID-19, educator attrition was high. Over the past two years, the job has become undeniably more difficult as educators took on the roles of frontline workers during the global pandemic. The concern of educator burnout is widespread and is magnifying staffing concerns among school district administrators. School districts looking to attract and retain highly qualified educators are often unable to do much in terms of salaries, which are often dependent on state and local budgets. One area they can provide more value to educators is in workplace benefits that increasingly resemble those in the private sector with employer-paid and voluntary life, disability, and supplemental insurance coverage. That's the need from a worksite perspective. Across the education market, we are serving a homogeneous market with similar characteristics, buying habits, and risk factors. They appreciate individualized guidance and education, which we provide through programs like financial wellness workshops and student loan solutions. They are conservative, responsible savers and risk-averse, which leads them to retirement products like the annuities and mutual fund products Horace Mann offers. They are loyal, which results in higher policyholder retention in personal lines, and Horace Mann's customer retention increases the more products a customer has. By bringing Horace Mann and Madison National together and building on the progress from bringing NTA on board several years ago, we have the products, distribution, and infrastructure to take care of educators' protection and savings needs, however they receive coverage, whether they buy it themselves, receive it through their employer, or both. It's also worth noting that our supplemental group and retail businesses have strong and complementary presence in different geographies, which sets the stage for leveraging existing district and educator relationships for cross-sell. In the foundation phase of our strategy, we defined our key initiatives, such as improving our auto loss ratio and delivered the results we had described. We are similarly working on key initiatives to deliver profitable growth in 2022 and beyond. The first is to cross-sell more customers. The more solutions we can provide to meet educator needs, the higher our policyholder retention. This is the true value of our multi-line model, being able to help solve all of our customer needs for insurance and financial solutions by building a lifelong relationship with our clients, now more than ever, We have more ways to do that. That brings us to our second initiative, which is to take advantage of current industry dynamics to leverage auto as a source of new households. Historically, many of our new customers came to Horace Mann through the garage, although this dynamic shifted during the pandemic. Educators focused more on savings products and less on reevaluating their current protection products. We were not surprised that shopping for auto was not their priority at that point, and we see the potential for educators to now start thinking about auto and other protection products. Before I turn to the other initiatives, I want to pause briefly to revisit our strategy and approach for personal lines. Horace Mann has long focused on offering a fair auto price over the life of a customer relationship. The educators who buy are very loyal, as our retention rates demonstrate. And they often become package customers, not just of homeowners, but potentially also buyers of savings products. We believe our relationship approach to bundling contributes to our long-term track record of strong retention and cross-sell metrics. Another area of focus is maximizing our worksite opportunity. We want to expand Madison National's reach with employer-paid products now concentrated in the Midwest, into Horace Mann's national footprint, particularly into the southern markets where NTA had developed a strong presence. We'll complement that with efforts to expand the supplemental reach with voluntary products into Madison National's Midwestern geographies. Reaching new districts and introducing them to the Horace Mann companies will lead to further cross-sell opportunities for our retail products. To support our growth plans, we must continue to build on our digital capabilities to ensure our operations run efficiently and educators connect with us in the manner they prefer. Finally, we must maintain our distinctive service mindset in every decision and every interaction. Horace Mann has been successful because we put our educator customers at the center of everything we do, and we can only continue to be successful if we evolve with our customers' changing needs and preferences. In today's environment, this effort will continue to set us apart. Looking ahead for 2022, we expect EPS will be in the range of $3.45 to $3.65 with ROE near 10%. Our guidance has net investment income in line with 2021, factoring in limited partnership returns closer to historic averages after a stellar performance in 2021. The guidance also includes at least 15 cents from newly acquired Madison National Life's current business activity, as well as initial contributions of strategic growth initiatives that will drive results in 2023 and beyond when we are targeting average annual EPS growth of 10%. Before I turn the call over to Brett, I want to note an additional example of how we live our commitment to our stakeholders every day. For the fourth year in a row, Horace Mann has been named to the Bloomberg Gender Equality Index, which recognizes corporate commitment to transparency in gender reporting and advancing women's equality. The reference index measures gender equality across five pillars, female leadership and talent pipeline, equal pay and gender pay parity, inclusive culture, sexual harassment policies, and pro-women brand. Being included in this index for the fourth consecutive year underscores Horace Mann's commitment to building and maintaining an inclusive corporate culture where every employee feels heard, respected, and appreciated. We aim to build on this progress in 2022 by continuing to diversify our workforce to make sure we fully understand and represent the education market we so proudly serve. Thank you, and with that, I'll turn the call over to Brett.