Horace Mann Educators Corporation

Welcome to the Horace Mann First Quarter 2023 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 first quarter results. Yesterday, we issued our earnings release, investor supplement, and investor presentation. Copies 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, will give the formal remarks on today's call. With us for Q&A, we have Matt Sharp, Mark DeRochers, Mike Weckenbrock, and Ryan Greenyear. 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 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 investor supplement. I'll now turn the call over to Marita.

Thanks, Heather, and hello, everyone. Last night, we reported first quarter core earnings of 23 cents per share in line with our pre-announcement. As we noted then, outsized catastrophe losses affected our quarter's bottom line, consistent with the experience of others in the industry. The first quarter results also confirm that we remain on pace toward our business objectives for the year. In particular, we are very pleased with our top line sales momentum across all segments, as well as what that growth momentum means for our progress towards increasing educator household acquisition and gaining a larger share of the education market. Brett will talk about the details later in the call, but at a high level, we continue to expect core EPS in the range of $2 to $2.30 for the full year, with lower first quarter P&C net investment income being offset by higher than expected supplemental EPS and group benefits first quarter earnings. Today, I want to talk about the progress we are seeing as a result of the transformational actions we've taken over the past few years. Our diversified business model provides more stable earnings and revenues in a quarter like this one, but more importantly, it broadens the solutions and value we can provide to educators and school districts. In the years since we integrated the Worksite Division, our team has made substantial progress building a solid foundation for growth by serving educators through their school district employers. This provides value not only to the educators who receive more coverage, but also to school districts that can provide more robust benefit packages to attract and retain staff. While the sales pipeline in this business is longer, than in the retail division, we're seeing positive outcomes. This year, we expect the supplemental and group benefits segment to contribute 25% of our total earned premiums and contract deposits. The segment's worksite direct line of business saw the highest quarterly sales since 2019. In the employer sponsored line, we are seeing success building relationships and winning business with new districts and associations. This business continues to grow and participation rates within those areas are on the high end of our expectations. We continue to receive good feedback from our school district customers about our enrollment services, including an option for one-on-one enrollment support. In the retail division, we're seeing momentum within the priorities that underlie our strategy. to serve a larger share of the education market. Across the country, school access is improving. Our agency force continues to grow. One of the key programs to which we attribute this growth is an agency mentor model, where a new agent works in an established office before opening their own. What sets Horace Mann apart is that our exclusive agents have distinct territories. So there's cooperation among our agency force that's beneficial for everyone. Our established agents share best practices and resources with our newer agents. In fact, we recently returned from one of our first retail agent leadership trips since the pandemic began. It was a great opportunity to discuss the business in person, and we're seeing a lot of optimism in the agency force looking towards the future. With that said, back to the retail results. Sales of life products increased 22% over prior year, in part benefiting from sales by worksite representatives during enrollment activities. We also have been focusing additional retail agent training and support around our indexed universal life and cash value term products, as educators may be more interested in these options in a higher interest rate environment. In addition, Retirement results remain solid. Property and casualty net written premiums were up 7%, primarily due to the impact of rate and non-rate underwriting actions taking effect. We are on track to meet our profitability goals in this business, including our target of 18 to 20% cumulative points of rate in auto nationwide by the end of 2023. Of note, over the weekend, we received notice that California has approved a 6.9% auto rate increase for the smaller of our underwriting companies in the state. We are confident that we have demonstrated our rate need and expect to see approval in the coming weeks for the other, which represents about 80% of our premiums in the state. We expect our actions will lead to an auto combined ratio between 97% and 98% in 2024. In property, we expect rate increases and non-rate actions to contribute to nationwide premium increases of 17 to 20% over the course of the year. If loss trends exceed our current expectations for property or auto, we will adjust our pricing or underwriting plans as needed. For the quarter, auto average premiums increased 8% over last year, and average property premiums increased almost 10%. So far, our retention is holding. We believe there are three reasons for this. First, property and casualty carriers are implementing similar rate increases to address the impact of high inflation. All aspects of settling claims, including labor, materials, litigation, and medical care, cost more than they did a year ago. Second, we provide more value to educators than just an insurance policy. Many of our PNC customers have retirement plans with us or a student loan solutions account, or they know their local agent as a trusted school partner. Our diversified business creates stronger customer retention. Our auto retention is more than 10 points stronger with customers who have four lines of business with us than with monoline customers. Finally, we're working to help our agents understand the rate environment so they can answer policy holder questions proactively. We respect our customers and we care about our customers. We want to be transparent about what's happening in our business because we want to maintain those relationships. When it makes sense, we retain the business, but we can place customers with trusted third-party carriers when that is more appropriate. To sum up, we're confident in our 2023 outlook and are excited about the growth we're seeing across the business. After addressing the profitability of the property and casualty business over the course of the year, we expect to be near our long-term targets in 2024. We believe this, along with growth across our businesses, will contribute to a 2024 core EPS nearing $4 and a double digit return on equity. Before I turn the call over to Brett, I want to talk about our commitment to corporate social responsibility. We recently released our 2022 reporting that details how we address the issues that are important to our stakeholders while ensuring we run our business ethically, minimize our environmental impact, and support our educators, employees, and communities. To touch on a few of the highlights, In 2022, we successfully reached our objective of cutting our scope one and scope two carbon emissions in half and plan to further reduce our carbon footprint going forward. We increased our corporate transparency by providing new disclosures on business ethics, data security and privacy, and responsible product offerings. We identified 160 million in public service loan forgiveness opportunities for educators. bringing the Total for Horseman Student Loan Solutions Program to more than $600 million in forgiveness opportunities identified. And we completed hundreds of financial wellness workshops in schools across the country, providing free sessions for educators on topics like state teacher retirement systems, classroom crowdfunding, and financial literacy. The need for these financial resources for educators is clear, More than a third of educators say finding a trustworthy financial advisor is an obstacle to their financial security. Many don't think they can afford one. By providing complementary financial education in convenient formats, we're helping more educators become financially secure, which leads to more educators staying in the profession they love. These commitments to educators and other stakeholders are not separate from our business. As a mission-centric organization, it's part of who we are. A good example of this is the activities we've undertaken this week, which is Teacher Appreciation Week. Our agents are hosting events for teachers. Employees are calling our customers to thank them for all that they do. And this week, we will be honoring top educators both locally and nationally. While we are more than happy to share in appreciation events this week, we make it a point to thank educators all year long for their important role in helping prepare our children for the future. Before I wrap up, as you may have seen, we announced the hiring of Steve MacAnenna as our Chief Operating Officer. Steve most recently served as President of Personal Lines and earlier, President of Distribution Life and Financial Services for Farmers Insurance. Before that, he was at Liberty Mutual Group for more than 25 years. His initial focus will be supporting market share expansion in the retail division. He is starting next week, and we will introduce him on our second quarter call. Thank you. And with that, I'll turn the call over to Brett.