Horace Mann Educators Corporation

Good day and welcome to the Horace Mann Educators First Quarter 2022 Investor Call. All participants will be in a 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 a touch-tone phone. 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 Whitesell, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to Horace Mann's discussion of our first quarter results. Yesterday, we issued earnings release, investor supplement, and investor presentation. Copies are available on the investor page of our website. Marita Zuraitis, 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 supplemental and group benefits, Mark DeRocher on property and casualty, Mike Weckenbrock on life and retirement, and Ryan Greenier 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 use some non-GAAP measures. Reconciliations of these measures to the most comparable GAAP measures are available in our news release. I'll now turn the call over to Marita.

Thanks, Heather, and good morning, everyone. Last night, we reported first quarter core earnings of 64 cents, a decrease from prior year. While external events affected our bottom line, we are pleased with the sales momentum we continue to see. In fact, April was the strongest sales month we've had for P&C products since the beginning of the pandemic, and supplemental product sales were double last April. We're also pleased to have Madison National fully on board and working with us to fulfill our long-term objectives and of a sustained double-digit return on equity and a larger education market share. Today, I'll first briefly touch on the quarterly results, which Brett will discuss in more detail later in the call. Then I'll talk about how our commitment to educators and our stakeholders continues to inform our strategic vision. And I'll summarize the work we are doing to realize our long-term objectives. For the quarter, life and retirement and supplemental and group benefit segments had steady performance, and annuity contract deposits were up 6%. Our total net investment income was up 3%, and the current higher interest rate environment bodes well for our portfolio going forward. Our auto combined ratio improved 6.6 points in the first quarter of 2022 over the fourth quarter of 2021, However, in line with the broader industry, our property and casualty earnings continue to be affected by inflation, particularly for auto parts and labor costs. The impact of inflation was most pronounced in March, but our early read of April appears more consistent with January and February. Despite the impact on our near-term P&C earnings, we remain confident in the profitability and opportunity for the auto line over the long term, This confidence stems from our auto position pre-pandemic, our strategic pricing choices during the pandemic, and our longstanding approach for customer cross-sell and retention. Simply put, we are focused on offering a fair price for our loyal customers through varied market conditions. We want to keep and cross-sell our auto customers. If you recall, Between 2017 and 2019, we undertook an auto pricing and underwriting initiative to improve profitability, which resulted in a seven-point improvement in our underlying auto loss ratio. Throughout the pandemic, we chose not to lower rates under the assumption that auto frequency would return to quote-unquote normal sooner rather than later. As auto loss trends returned to more historic levels over the course of 2021, We began the process of adding rate where needed to address rising severity. With inflation accelerating, we have updated our rate plan and filing schedule to move ahead with higher single-digit to low double-digit rate increases in most states. We will continue to evaluate lost cost trends throughout the year, taking rate and underwriting actions as needed. Minimizing the impact to our educator customers remains a priority. We have equipped our agency force with tools and resources to have conversations with our customers on the current industry environment, and our agents see more opportunities to quote auto to our educator client base. We do expect the ongoing inflationary pressure on auto loss costs to have an impact on our full year results. With that said, we now expect our 2022 core EPS to be at the lower end of our $3.45 to $3.65 range. We continue to expect 10% average annual EPS growth and sustained double-digit ROEs in 2023 and beyond. Turning to the long-term outlook, under our new divisional structure, We are working in tandem to serve educators however they receive their insurance and financial solutions. Whether educators are receiving benefits through work, buying solutions from a trusted local advisor, or using our convenient direct channels, Forest Man can help them achieve lifelong financial success. It's a mission that is especially relevant this week, which is Teacher Appreciation Week. our employees and agents are offering their heartfelt thanks to the educators who made a difference in their lives. And in communities across the country, we're recognizing the educators who are dedicated to making sure each and every student is supported and given the opportunity to reach their full potential. A natural extension of this commitment to our educator customers is a desire to have a positive impact on all our stakeholder groups. We do this through integration of ESG factors into both our day-to-day operations as well as long-term planning. We recently updated our corporate social responsibility reporting, which includes a commitment to cut our absolute Scope 1 and Scope 2 carbon emissions in half by 2030 and achieve net zero carbon emissions by 2050. We've already reduced our emissions by about a third since 2019 through initiatives like installation of a more efficient HVAC system and more than 500 solar panels at our Springfield, Illinois headquarters. We also undertook an updated materiality assessment to ensure our direction remains aligned with the priorities of our stakeholder groups. In late 2021 and early 2022, we solicited feedback on the ESG topics of most importance to investors, employees, agents, customers, community leaders, and company leadership. What we found was that while issues like business ethics and data security remain top priorities across stakeholder groups, human capital topics such as diversity, equity, and inclusion, and employee development grew in importance since our last stakeholder engagement survey. We will take this stakeholder input into account as we continuously update our long-term ESG plan. It is against this backdrop that we enter the leadership phase of Horace Mann's growth journey. In our foundational phase, we implemented a multi-year strategy that included enhancing our product offerings, strengthening our distribution, and modernizing our infrastructure. In our transformational phase, we added capabilities and scale with our acquisitions and improved our overall profitability through the improvement in our underlying auto loss ratio and by reinsuring a legacy annuity block. During the pandemic, we virtualized our sales processes and invested in agency support to enable agents to reach educators wherever they were. Our two goals remain unchanged. First, capturing an expanded education market share. There is substantial opportunity within the K-12 educator space of 7.5 million individuals. Slide 17 in our investor presentation breaks down how we are thinking about our short and long-term opportunities here. We consider our retail and voluntary supplemental customers as a natural cross-sell space for us. we have proven effective cross-sell processes in place for this group. With our newest customers in the worksite space, we have the opportunity over the next several years to test and learn how to cross-sell individual insurance and financial services products to educators reached through employer-sponsored products. Looking through a wider lens beyond Horace Mann customers, we have relationships with roughly 1 million educator households, This includes participants in our student loan solutions program, which helps educators take advantage of the federal public service loan forgiveness program. Broader still, we have engaged with far more educators through financial wellness workshops, social media, previous quotes, and more. With nearly 80 years of history in the educator space, we know a lot about our nation's educators. but we have yet to fully understand the buying propensities and preferences of those 7.5 million individual educators, as well as the districts that employ them. We're currently undertaking even more in-depth research into the education market to better understand educator demographics around financial service needs, further refine sales processes, and maximize cross-sell opportunities. Second, we remain committed to accelerating shareholder value through a sustained double-digit return on equity. This year and beyond, we expect to generate $50 million in excess capital annually. While our first priority for excess capital remains supporting profitable growth, which further drives shareholder value, we continue to return capital to shareholders through dividend increases and share repurchases. In March, our board of directors approved a 3% increase in the annual dividend. This is the 14th consecutive year we've increased the dividend. In closing, we're excited about the future as one company supporting educators in achieving lifelong financial success through both individual insurance and financial solutions and employer-sponsored group coverages. Thank you, and with that, I'll turn the call over to Brett. Thank you, Brett.