Horace Mann Educators Corporation

Hello, and welcome to the Horace Mann Educators Q2 2023 Investor Call. All participants will be in listen-only mode. Should you need assistance, please sign up for a conference special followed by 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, please press star, then two. Please note, today's event is being recorded. And now I'd like to turn the conference over to Heather Weissel, Vice President, Investor Relations. Please go ahead, ma'am.

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 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 today's formal remarks. With us for Q&A, we have Matt Sharp, Mark DeRocher's, Mike Weckenbrock, Ryan Greenyear, and Steve Macanana. 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. The 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 investor supplement. I'll now turn the call over to Marita.

Thanks, Heather, and hello, everyone. Last night, we reported second quarter core earnings of $0.03 per share in line with our preannouncement. Despite the severe weather losses, Horace Mann continues to see the benefits of the earnings and revenue diversification efforts we've completed over the past five years. Both the supplemental and group benefits and the life and retirement segments provided solid core earnings contributions again this quarter. Before we start, I want to welcome our new Chief Operating Officer, Steve McInenna, to the call. Steve joined us in May. bringing his more than 25 years of experience overseeing large personal lines, financial services, and worksite businesses to Horace Mann. In his first months with us, he has already been an asset to the team as we look to build on our growing momentum in household acquisition and market share expansion. Back to the quarter. As Brett will discuss in more detail later in the call, we now expect full-year core EPS, of $1.20 to $1.45, primarily due to higher catastrophe losses. Our confidence in our long-term business strategy and the results Horace Mann can deliver remains unchanged. We continue to expect 2024 core ROE near 10%. We believe educators deserve a partner who is looking out for their financial wellness, one that will help them protect what they have today and prepare for a successful tomorrow. And we believe educators want a partner that has solutions tailored to educators' needs, delivered through knowledgeable distribution, and built on customer-friendly infrastructure. Our multi-line approach sets us apart not only for customers, but as a business as well. Our business diversification allows us more flexibility as a larger entity when challenges arise in one of the segments. Before I talk about the actions we are taking to address external factors facing the property and casualty industry, I would like to talk about how our multiline approach is enabling us to serve more educator households with more products through more channels. Our worksite division, which encompasses our employer-sponsored products, as well as our worksite direct products, allows us to reach educators through their school district employers We're expanding on the infrastructure that we gained with the NTA Life and Madison National acquisitions to support accelerated growth, including a unified product platform we introduced this year. In our employer-sponsored lines alone, we offer coverage to more than 750,000 employees. The division continues to perform above our expectations. In the first half of the year, worksite direct product sales doubled. while employer-sponsored product sales increased by 50%. We are actively introducing an enhanced group supplemental product line this fall, bringing to bear the strengths of both acquired businesses. The products are chosen by the employer and underwritten at the group level to provide employees options for purchase. Employers appreciate our longstanding reputation in the educator niche, and educators value our solutions orientation. To accelerate the pace of growth in this segment, we are also investing in expanding our distribution reach, recruiting agents to support the worksite direct business, and expanding our relationships with benefit brokers that bring solutions to employers. We're making strides in both fronts and continue to build brand recognition in this space. Turning to the retail side of the business, we're also seeing successful agent recruiting. with new agents reaching key milestones at a pace we haven't seen since before the pandemic. Sales growth in our life and retirement segment remains encouraging, with net annuity contract deposits increasing 8% for the quarter and life sales up year-to-date. We continue to see a nice contribution to life sales from the Worksite Direct agents, an early indicator of the cross-sell potential across divisions. The value of our diversification is clear. Horace Mann can remain profitable in 2023 despite the unprecedented pressure on the personal lines P&C industry. Our life and retirement earnings continue to be solid, and we are benefiting from growing contributions from the worksite business. With that context, let me give you an update on the actions we're taking to address the challenging lost cost environment affecting the property and casualty industry. In auto, the rate plan we have been implementing since the beginning of 2022 to address inflation and the return to pre-pandemic levels of frequency is proceeding as we planned, with up to 25 points of cumulative rate expected by year-end 2023. As a result, the underlying loss ratio is approaching the inflection point we anticipated, and based on this trajectory, we will generate an underwriting profit during 2024 on our path to a long-term combined ratio target of 97% to 98%. We have filed and are continuing to file for rate as needed to address anticipated loss cost trends. For example, we have filed for a California auto rate increase of 20%, reflecting our loss experience in that state for the past three years. We are hopeful that we'll be able to put that rate into use in the first half of 2024. We are pleased that retention is holding across our auto and property books, but we also know that pricing changes can have an impact on our customers. We will continue to be thoughtful about balancing customer impact with the reality of current lost cost trends. We have equipped our agents with the data and resources for discussions with policyholders. For property, The increase in adverse weather frequency, intensity, and geographic reach means we need to take a multifaceted approach. We are addressing the increased loss costs associated with the more severe weather events in three ways, additional filed rate, product changes, and enhanced modeling. First rate, we expect to meet our rate plan of 12 percent to 15 percent increases nationwide by the end of the year. In addition, We continue to implement inflation guard increases that allow us to make adjustments for higher home coverage values at renewal. So, the impact on average renewal premium through year end is closer to a 17 to 20 percent increase. As we evaluate the impact of continued elevated weather losses, we've already doubled our planned rate increases for property for 2024. We now expect the impact on average written premiums next year will be approaching this year's levels. One important example is the property rate increase of about 25 percent we have pending in California. We'll work closely with the department to bring that filing to resolution with the impact expected on renewals in 2024. Second, we are looking to modify policy terms and conditions to mitigate the cost of damages. For example, in several key states, we are implementing an age of roof loss settlement process that will result in significant savings to offset higher loss costs and catastrophe volatility in those states. Lastly, we are continually updating and enhancing our modeling sophistication. We have brought in new tools specifically to help us better understand the impact of severe convective storms, and we will integrate that data into our future rate and underwriting actions. These actions to further address severe weather will start to contribute in 2024, but the full benefit can be expected in 2025. As Brett will discuss, these actions keep us on track to our combined ratio targets and will respond with further actions if external factors require. As our business grows more diversified, the property and casualty segment becomes a smaller part of the larger business. but retains its strategic importance. For example, as the most broadly purchased Personal Lines product, auto remains a key entry point to educator households. Turning to the current financial concerns facing educators, student loan repayments will resume this fall after a three-year federal pause. This milestone disproportionately affects teachers, who often have higher educational requirements for their jobs and lower salaries than workers in the private sector. And while some borrowers may have counted on $10,000 or $20,000 one-time loan forgiveness assistance, that isn't likely to be broadly available anytime soon. To be clear, the Biden administration's plan that was blocked by the Supreme Court is completely separate from the public service loan forgiveness program that is the bedrock of our student loan solutions program. We're in the midst of an awareness campaign to encourage educators who may have been counting on one-time forgiveness to engage with us instead. Our free online accounts connect educators with resources and support to navigate the often confusing process of obtaining the public service loan forgiveness that they deserve. To date, we've helped educators identify more than 600 million of loan forgiveness, solidifying our value as a true partner to the education community. Back-to-school preparations are underway across the company. We are engaging with our agents both in person and online to prepare for the school year. Last month, I traveled to South Carolina to meet with many of our worksite agents, and I was encouraged by the amount of enthusiasm from veteran and new agents alike. Before I turn the call over to Brett, I want to take a step back to reiterate our confidence in our long-term strategy to gain market share and achieve a sustained double digit return on equity. On occasion, external challenges may slow our progress, but we are clearly building a more resilient company with a more diversified earnings profile. This has clear benefits for investors, employees, agents, and most importantly, our educator customers. And with that, I'll turn the call over to Brett.