Horace Mann Educators Corporation

Good afternoon, and welcome to the Horace Mann Educators First Quarter 2024 Investor 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. 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 Brett Conklin, Chief Financial Officer. Please go ahead.

Thank you, and welcome to Horace Mann's discussion of our first quarter results. Yesterday, we issued our earnings release, 10Q, Investor Supplement, and Investor Presentations. Copies are available on the Investors page of our website. Marita Ziraitis, President and Chief Executive Officer, and I will give the formal remarks on today's call. With us for Q&A, we have Matt Sharp, Steve Macanena, Ryan Grenier, Mark DeRocher, and Mike Weckenbrock. 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 includes 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. Reconciliation of these measures to the most comparable GAAP measures are available in our investor supplement. And now I'll turn the call over to Marita.

Thanks, Brett, and welcome, everyone. Yesterday, we reported first quarter core earnings of $0.60 per diluted share, a nearly threefold increase from last year's first quarter, primarily due to the progress we've made in restoring P&C profitability. Total revenues were up 9% and earned premiums and contract charges were up 8% over prior year. These results reflect strong sales momentum in our retail division led by a 35% increase in property and casualty sales premium. We realized a dramatic improvement in the profitability of our PNC business and continued to benefit from the strength of our diversified business model built to meet the needs of educators and public sector employees. While net investment income on the managed portfolio was up 7% for the quarter, we saw a handful of real estate-related funds perform below target levels due to a mark-to-market valuation adjustment consistent with the experience of the broader industry. This obscured some of the progress we are making in life and retirement and the supplemental and group benefit segments. Brett will talk about the outlook for the individual segments later in the call, but at a high level, we remain confident in our 2024 full-year outlook of core EPS in the range of $3 to $3.30, net investment income closer to the lower end of the current range of $465 to $475 million, and return on equity near 9%. Today, I would like to focus my remarks on the progress we're making across the business to reach the profitability targets and gain market share. First and foremost, we are making substantial progress towards restoring PNC segment profitability. Our reported first quarter PNC combined ratio of 99.9% was a 13-point improvement over prior year, combined with strong segment net investment income returns This led to a first quarter segment profit of $11 million, a $22 million increase compared to a year ago. As an aside, first quarter catastrophe losses remain elevated. Industry losses exceeded the 10-year industry average, and Horace Mann's first quarter losses also exceeded our 10-year and 5-year averages. However, when comparing quarter over quarter, our catastrophe and non-catastrophe losses were lower than prior year. The majority of our combined ratio improvement is due to the successful execution of our multi-year profitability restoration strategy. From 2022 through the end of 2024, we expect our rate increases and non-rate underwriting actions to equate to total premium increases of nearly 40% in auto and nearly 50% in property. Despite these increases, policyholder retention has largely remained steady and consistent with our historically strong retention. We attribute this to our loyal customer base, our educator-specific benefits, and the overall value we provide. We strive to offer a fair price over the lifetime of a customer relationship, and we equip our agents with the information to explain the economic context to customers. Over the course of 2024, we are currently planning for a country-wide average of 10% to 15% rate increases in both auto and property. This plan includes recent approvals from California for a 22% increase in homeowners and a 13% increase in auto, both of which are now in effect. In addition, we expect an increase in property average renewal premium in the mid-single digits attributable to higher home coverage values. We continuously review emerging trends and will adjust our rate plans as needed to ensure segment profitability. In the property line, we continue to roll out underwriting as well as terms and conditions changes to ensure we continue to accurately price our risk. In particular, we have implemented new roof rating schedules and have received approval with effective dates within the next 90 days in six highly wind-prone states, with filings pending in three additional states. These schedules set convective storm claim settlement rates that take into account the age and construction materials of roofs. When fully earned in, we expect about a three-point impact to the property combined ratio. On a normalized basis, our life and retirement and supplemental and group benefits segments are near or above target profitability. However, in the first quarter, segment earnings were impacted by lower-than-expected net investment income due to mark-to-market adjustments on three commercial mortgage funds and limited partnership real estate investments. This adjustment is valuation-driven and has not impacted our cash returns. The life and retirement segment remains a steady contributor to earnings, and a strategically significant entry point to the education market. A core competency of our agency force is providing financial wellness and retirement planning workshops in schools across the country, building relationships as a trusted advisor with both educators and their employers. The supplemental and group benefits segment is a less capital intensive higher margin business that provides corporate earnings diversification. As we have talked about in the past, our target blended benefits ratio for this business is 43%, which takes into account pre-pandemic customer utilization levels. We are seeing the benefit ratio continue to trend towards this long term target. This quarter, the benefit ratio was 36% compared to 33% a year ago. With our profitability targets within reach across the business, We are testing, adjusting, and scaling our strategies to grow educator households. Within the retail division, we are especially well prepared with strong momentum in our exclusive agency channel. The market has been challenging over the past few years, and we've worked with our agents to ensure their businesses remain healthy. Over the past year, we've seen a steady increase in exclusive agent recruiting, a 16% increase in average agency income, and a 22% increase in agency P&C premium production. Agent enthusiasm is strong, and we're seeing the impact in solid top-line results. Looking ahead, our efforts are centered around supporting agency new business and cross-sell production, enhancing digital capabilities, and improving the effectiveness of our digital sales funnel to align with educator preferences. In general, educators want to do research and browse online, but when they are ready to buy, they are looking to talk to a trusted advisor. Let me provide a few examples. We have seen success with a hyper local digital marketing program targeting educators. Through this and other programs, we have driven 15% more traffic to our website this year compared to last. In addition, We recently launched a new version of our website, which increased the number of quotes started by more than 50%. Over the past year, getting better leads to agents has helped contribute to an over 20% increase in new PNC business compared to the first quarter of 2023. And that's in an increasing rate environment. In the worksite division, we're building on our strong foundation to drive growth in both the employer sponsored and worksite direct lines. We continue to refine and improve our product set to meet educator and employer expectations and to introduce product enhancements to our supplemental policy offerings. These enhanced features meet specific customer demand and provide higher average premiums. We are also seeing strong momentum in sales trends. We continue to add sales and enrollment headcount on the worksite direct side of the business. On the employer sponsored side, we are working to leverage our existing broker partnerships to expand distribution. Since last year, we grew our number of covered lives to 836,000. Before I turn the call back to Brett, I want to touch on our efforts to have a positive impact on all of Horace Mann's stakeholders. We are in the midst of Teacher Appreciation Week, but Horace Mann has planned events throughout the entire month of May to thank educators for everything they do. Centered around educators' desire for work-life balance, we're hosting contests, an exclusive virtual event for educators with celebrities, musicians, and self-care experts. Locally, we're announcing the winners of Springfield Public School Educator and Administrator of the Year Awards. We also recently published our 2023 Corporate Social Responsibility Reporting. outlined the actions we've taken to support educators, our customers, our employees, our agents, and our local communities. A few highlights. We contributed nearly $1 million to charitable causes through the Horseman Educators Foundation and the Horseman Educators Corporation. We reduced our carbon emissions by 55% over base year 2019, and we increased corporate transparency by publishing our U.S. Equal Opportunity Commission EE01 Workforce Data Report. In March, our Board of Directors increased the quarterly shareholder dividend by 3%. This is the 16th consecutive year the Board has increased the shareholder dividend, underscoring our commitment to long-term shareholder value creation. In closing, by successfully executing on our strategic plans, we remain solidly on track to achieve our long-term goals a larger share of the education market and a double-digit shareholder return on equity in 2025. Thanks. I'll now turn the call back over to Brett.