Horace Mann Educators Corporation

Hello and welcome to the Horace Mann fourth quarter and year end result 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 telephone keypad. And to withdraw from the question queue, you may press star then two. I would now like to hand the call to Heather Weitzel, Vice President of Investor Relations. Please go ahead.

Thank you. Welcome to Horace Mann's discussion of our fourth quarter and full year results. Yesterday, we issued our earnings release, investor supplement, and investor presentation. Copies are available on the investor page of our website. Marita Zeraitis, 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, Steve McEnany, Ryan Greenier, and Mike Weckenbrock. Mark DeRocher's had an unavoidable conflict and is not on the line today. 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 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 welcome, everyone. Yesterday, we reported full-year 2023 core earnings of $1.54, which included fourth-quarter earnings of 84 cents. We are clearly seeing the value of our strategy to diversify earnings, to drive market share growth, and to support a sustainable double-digit ROE. I'll give an update on our strategic progress in a moment, but let me start with a look at 2023. Across all three of our segments, sales for the year were strong. Total revenue rose 8% for the year, with net premiums and contract deposits up 6% in total, including 11% growth in full-year P&C premiums. All segments benefited from the 11% increase in net investment income to a record $445 million. Looking more closely at the results by segment, In P&C, there were many signs of progress. For the fourth quarter, segment earnings were $9 million. We saw average written premium growth that reflects the actions we've taken since the beginning of 2022. In auto, the cumulative rate impact of 23% through year-end, including almost 19% in 2023, drove 16.7% growth in fourth quarter average written premiums over the prior year. In property, the cumulative impact of rate actions and inflation adjustments of 25% through year end, including about 15% in 2023, drove 13.2% growth in fourth quarter average written premiums. We continue to see auto earned premium growth ahead of lost cost growth, an inflection point we reached in the third quarter. And weather activity in the quarter was more typical. For the full year, results were in line with our updated guidance, reflecting the elevated weather losses experienced in the first nine months of 2023. Life in retirement was a solid contributor in 2023, delivering earnings of $72 million, ahead of our updated guidance on strong net investment income. Net annuity contract deposits were up 6% for the year, Educators continue to begin their relationship with Horace Mann through 403b retirement savings products, which provide encouraging cross-sell opportunities. Life sales were consistent year over year. Worksite agents, enrolling educators, and others who serve their communities in individual supplemental products are continuing to cross-sell our life products, contributing nearly 15% of sales for the full year. Supplemental and group benefits segment full-year net income was $55 million, at the top end of our updated guidance, providing valuable earnings diversification. Benefit ratios for both the worksite direct and employer-sponsored product lines still reflect lower-than-historic utilization but continue to move closer to our long-term targets. Total segment sales were up 63% with improved persistency. Our relationship with the International Association of Firefighters remains strong, with sales in this segment almost doubling from 2022. In addition, our momentum with group business has started to show signs of acceleration, as we saw the total number of covered lives increase by more than 6% in 2023, and we introduced horseman group benefits to over 65 new school districts, about half of which came from a newly developed relationship, with an association of districts. In summary, we are pleased with the progress we saw throughout the year and are very confident with what comes next. Although Brett will discuss details of our 2024 outlook later in the call, let me give you a high-level overview. First, we expect the business to deliver core earnings of $3 to $3.30, more than double this year. This takes into account an incrementally higher level of interest expense of $5 million because of our new senior debt. Second, full-year core ROE should be around 9% on track to achieving a sustained 10 plus percent ROE in 25 and beyond. Year-over-year improvement in the P&C segment is the key to our continued progress. Rate and non-rate actions already implemented or approved, as well as stabilizing auto loss trends gives us a high level of confidence in our outlook for this segment. Both auto and property are on track to underwriting profits in 2024 and to our target combined ratios in 2025. Our filing plan for 2024 adds 10 to 15% of additional rate for both auto and property, and we will continuously review emerging trends and adjust appropriately, just like we did in 2023. In property, there will also be 4% to 5% of additional premium impact from the change in coverage amounts related to this year's inflation factor. The most significant non-rate impact in 2024 will be our roof rating schedules, a change occurring across most of the industry to mitigate the volatility of convective storm activity. We've already introduced our roof schedules in both Minnesota and Texas, and we will continue to roll out in other states throughout the year. Once in place, roof claims are settled using a predetermined schedule based on the age and construction material of the roof. About one third of the ultimate benefit of this change will be earned in 2024. In addition to introducing the roof settlement schedules in our most wind-prone states, we will be increasing all peril deductibles and requiring percentage-based wind deductibles in selected markets. We are also leveraging some of the insights from more advanced modeling to take specific underwriting actions or very aggressive price increases at a local market level. Taken together, the impact of these non-rate actions will be important to reaching our targets in 2024 and beyond. With a profitable PNC book on the horizon, we're very excited about the ways we're working to increase our share of the educator market. First is the strength of our exclusive agent network. In the schools, online, or in their communities, our agents help us reach and retain educator customers. Auto quote activity from our agents was up more than 15% in the fourth quarter over last year, as we are encouraging more sales-driven activity in states where we have a clear line of sight to target profitability. And importantly, more than 95% of our 2023 P&C new business has been in these geographies. Combined with our multi-line approach, our EA distribution model allows us to work with our agents in more challenging markets to maintain their focus on educator clients, as well as shift their focus to life and retirement opportunities. Our agents role as trusted financial advisor in the schools and districts they serve clearly distinguishes them from the agents representing many of our peers and aligns well with our advancing digital strategy. Among its many contributions, Steve Macanina and his team are focused on improving our digital capabilities to align with customer preferences. Research shows that about 60% of the time, consumers prefer to speak with a trusted advisor before making insurance-related financial decisions, although many consumers opt to explore options online first. One of the first areas of emphasis for Steve's team is funneling educators interested in our solutions to our exclusive agents. And when appropriate, we can also send interested educators to our inside sales team to build on the successful sales to service initiatives of the past several years. The team recently enhanced the Horace Mann website. Although it's still early, we have seen an uptick in the number of people who start a quote online. Among the changes are enhanced ways to learn about our broad suite of product offerings, as well as the value-added offerings of our Educator Advantage program. A recent update alerted customers to added discounts on home monitoring and security products. The Worksite Division is also enhancing digital capabilities, rolling out the WISE Benefits website several months ago. This site addresses the information needs of districts and municipal representatives. Working with brokers and benefit consultants, these decision makers investigate Horace Mann offerings to learn more about our suite of employer-paid or sponsored products and our company. The new website enhances their experience. And finally, another reason why I'm confident in continued acceleration of our growth momentum is the success we're seeing in agent recruiting across the business. Retail agent recruiting was up 30% in 2023, as we are successfully bringing on board a diverse group to our unique value proposition. Our multi-line product offering and homogeneous customer set are attractive to potential retail agents. And on the work site side, we've added new relationships with key brokers and benefit consultants, as well as increased our individual supplemental agent team by over 20%. which bodes well for continued strong sales growth in this segment. As we look into 2024 and beyond, we're very confident in our outlook for each segment and the value of our multi-line business model. Property and casualty is on track to return to historic profitability, life and retirement to continue to provide a solid earnings contribution and supplemental and group benefits to deliver the diversification value we have created. Further, we're augmenting the way educators can interact with us, making certain we're meeting the needs with solutions that help them protect what they have today and prepare for a successful tomorrow. We will continue to strive to offer a fair price through varied market conditions, creating long-term value for our customers and for our company. But our work goes even further. Our representatives continue to provide financial wellness workshops on topics like student loan forgiveness and state teacher retirement systems. They also help our customers create financial plans, which places our representatives firmly in the role of trusted advisor. On a larger scale, we also support administrators and municipal employers looking to augment recruiting and retention by bolstering benefit packages with employer-paid and sponsored coverages. As we continue to meet the needs of customers and all of our stakeholders, the strength of our value proposition, combined with the outlook for each segment, gives us confidence that we will reach our targets in 2024 and beyond. Thank you. And with that, I'll turn the call over to Brett.