Horace Mann Reports Results for First Quarter
SPRINGFIELD, Ill.--April 26, 2001--Horace Mann Educators Corporation today reported operating income of $13.7 million, or 34 cents per share, for the first quarter ended March 31, 2001.Operating income for the same period in 2000 was $14.4 million, or 35 cents per share. Per-share amounts are stated on a diluted basis. Operating income is net income before the after-tax impact of realized investment gains and losses.
"Horace Mann is off to a solid start in 2001, as the actions we took in 2000 to re-ignite growth and enhance profitability continue to gain traction," said Louis G. Lower II, president and chief executive officer of Horace Mann. "As previously indicated, we anticipate that 2001 full year operating income will fall within a range of $1.00 to $1.20 per share, and our first quarter results are in line with that estimate."
Current quarter operating income was comparable to a year ago. Earnings for the current period benefitted from lower catastrophe losses compared to a year ago, but this benefit was offset by a higher level of non-catastrophe weather-related losses. Also, this year's first quarter results reflected no net impact from prior years' property and casualty reserve changes, compared to a net release of reserves a year ago. Operating income for the first quarter of 2000 reflected a non-recurring charge related to the first quarter settlement of private passenger automobile rate filing cases in North Carolina.
First quarter 2001 net income was $16.7 million, or 41 cents per share, compared to net income of $12.7 million, or 31 cents per share, in the same period a year earlier. The company had $3.0 million of after tax realized investment gains in the first quarter of 2001, compared to losses of $1.7 million in the same period in 2000.
Return on equity based on both operating income and net income was 6 percent for the 12 months ended March 31, 2001.
Premiums written and contract deposits for the first quarter increased 7 percent over a year earlier, driven by double-digit growth in the annuity segment.
"New annuity sales continued to accelerate, increasing more than 90 percent from last year's first quarter, following a 30 percent gain in the fourth quarter of 2000," Mr. Lower said. "These gains demonstrate the positive impact of our significantly expanded annuity investment options and our new proprietary asset allocation software that helps agents assist educators in selecting the best investment program for their individual needs and circumstances."
New annuity deposits increased 22 percent in the current quarter, including more than 90 percent growth in new single premium and rollover deposits and approximately 5 percent growth in new scheduled annuity deposits. Reflecting continued improvement in recent quarterly trends, cash value retention for fixed and variable annuities was 89 percent and 86 percent, respectively, over the last 12 months. The number of annuity contracts outstanding increased 5 percent over the same period.
Annuity segment operating income was $4.2 million for the first quarter of 2001 compared to $5.4 million for the same period last year. The income decline in the current quarter resulted from reduced fee income related to decreases in both variable annuity market values and surrender charges for fixed and variable annuities. In addition, operating expenses increased, reflecting the growth in annuity business volume.
Total written premium for voluntary property and casualty insurance increased 3 percent in the current quarter compared to the first quarter of 2000. The average premium per policy increased for both automobile and homeowners, as did the number of homeowners policies in force. The number of automobile policies in force was slightly lower than year-earlier levels, but showed an increase as compared to year-end 2000.
Current accident year loss experience for voluntary automobile insurance, excluding catastrophes, exceeded average premium growth per policy by approximately 2 percentage points. "This performance compares favorably to expected industry results," Mr. Lower said. "Our plans to implement tiered rating systems for automobile and homeowners business remain on track, which we expect will have a positive impact on both loss ratios and business growth in the educator market. Tiered rating together with price increases implemented and planned should return us to rate adequacy with average premium growth keeping pace with average loss experience."
The voluntary automobile combined ratio excluding catastrophe losses was 95.8 percent for the first three months of 2001, up 5.0 percentage points from the same period last year. This increase was primarily due to prior years' reserve releases in 2000.
The non-catastrophe property loss ratio of 85.1 percent for the first three months of 2001 was up 6.1 percentage points from the same period last year. The increase primarily reflected a higher level of non-catastrophe weather-related losses, compared to a year ago.
"We continue to see positive effects from the pricing, underwriting and loss control actions we have taken to improve the profitability of the property line," Mr. Lower said. "However, the full impact of these initiatives will not be realized until well into 2001. Despite aggressive pricing action over the last six months, homeowners renewal ratios have thus far exceeded our expectations."
Horace Mann's property and casualty combined ratio was 99.1 percent for the first quarter of 2001, compared to 96.5 percent a year earlier. The increase was primarily due to the difference in prior years' reserve changes - which had no net impact on the current quarter, while the first quarter of 2000 reflected net releases of $2.0 million. Approximately offsetting the higher level of non-catastrophe weather-related losses, the current quarter reflected a net benefit of $1.4 million from catastrophes due to favorable development of reserves for 2000 catastrophe losses. Incurred catastrophe losses were $2.6 million in the first quarter of 2000.
First quarter 2001 operating income for the property and casualty segment was $7.9 million, compared to $9.0 million for the same period in 2000, reflecting the factors described above.
Life segment insurance premiums for the current quarter were approximately 2 percent lower than a year earlier, reflecting a decline in disability income business. Life segment operating income for this year's first quarter was $4.0 million, compared to $3.0 million a year earlier. The change was primarily attributable to an increase in margins and mortality costs that were somewhat lower in the current quarter compared to the same period last year.
At March 31, 2001, the agent force totaled 901, a 13 percent decline from a year earlier, with the number of experienced agents down 7 percent. "Total agent count is down primarily due to terminations of less-productive agents," Mr. Lower said. "However, overall agent productivity continues to rise. The number of new hires was ahead of a year ago, in spite of the fact that we have implemented more stringent agent selection criteria to improve agent productivity and retention in the future."
"Horace Mann is pursuing multiple initiatives to further accelerate profitable business growth. These initiatives include targeting high-priority geographic markets with dedicated staff teams, new compensation and evaluation systems to improve the performance of our agents and agency managers, new approaches to customer service that will free agents to spend more time selling, additional distribution options to capitalize fully on the inherent value of our payroll deduction slots in schools across the country and using technology to improve the efficiency of our agency force and our administrative functions," Mr. Lower said.
Total shares outstanding on March 31, 2001 and 2000 were 40,527,757 and 41,154,357, respectively. The company did not repurchase shares of its common stock during the first quarter of 2001.
Book value per share was $11.57 at March 31, 2001, an increase of 17 percent compared to a year earlier, including the effects of unrealized investment gains and losses and share repurchases. Excluding these items, book value per share was approximately equal to a year earlier.
Founded in 1945 and headquartered in Springfield, Illinois, Horace Mann sells retirement annuities and automobile, homeowners and life insurance to the nation's educators.
Statements included in this news release that are not historical in nature are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties. Horace Mann undertakes no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise. Information concerning factors that could cause actual results to differ materially from those in forward-looking statements is contained from time to time in the company's public filings with the Securities and Exchange Commission.
HORACE MANN EDUCATORS CORPORATION
Highlights and Digest of Earnings
(Dollars in Millions, Except Per Share Data)
Three Months Ended
March 31,
HIGHLIGHTS 2001 2000 % Change
Operations
Insurance premiums written
and contract deposits
Core lines $205.0 $191.2 (1) 7.2%
Total 207.8 194.5 6.8%
Operating income (2) 13.7 14.4 -4.9%
Return on equity (3) 5.8% 9.5%
Property & Casualty statutory
combined ratio 99.1% 96.5%(1)
Property & Casualty statutory
combined ratio before
catastrophes 100.2% 94.3%(1)
Experienced agents 631 675 -6.5%
Total agents 901 1,033 -12.8%
(1) After the Company's portion of the March 2000 industry settlement
of automobile insurance rate filings in North Carolina. Before
this settlement, core lines insurance premiums written and
contract deposits were $192.9 million, the property & casualty
statutory combined ratio was 95.1% and the property & casualty
statutory combined ratio before catastrophes was 93.0% for the
three months ended March 31, 2000.
(2) Net income before the after tax impact of realized investment
gains and losses.
(3) Based on 12-month net income and average quarter-end
shareholders' equity.
HORACE MANN EDUCATORS CORPORATION
Highlights and Digest of Earnings
(Dollars in Millions, Except Per Share Data)
Three Months Ended
March 31,
2001 2000 % Change
Per Share
Operating income (2)
Basic $0.34 $0.35 -2.9%
Diluted $0.34 $0.35 -2.9%
Operating income before
amortization of intangible
assets - diluted $0.37 $0.39 -5.1%
Dividends paid $0.105 $0.105 -
Book value (4) $11.57 $9.93 16.5%
Financial Position
Total assets $4,513.9 $4,232.9 6.6%
Long-term debt 99.7 99.7
Total shareholders' equity 468.8 408.7 14.7%
DIGEST OF EARNINGS
Net income $16.7 $12.7 31.5%
Earnings per share:
Basic $0.41 $0.31 32.3%
Diluted $0.41 $0.31 32.3%
(2) Net income before the after tax impact of realized investment
gains and losses.
(4) Before the market value adjustment for investments, book value
per share was $10.97 at March 31, 2001 and $10.86 at March 31,
2000. Ending shares outstanding were 40,527,757 at March 31,
2001, 40,517,757 at December 31, 2000 and 41,154,357 at March
31, 2000.
HORACE MANN EDUCATORS CORPORATION
Statements of Operations and Earnings Per Share
(Dollars in Millions, Except Per Share Data)
Three Months Ended
March 31,
Statements of Operations 2001 2000 % Change
Insurance premiums written
and contract deposits $207.8 $194.5 (1) 6.8%
Insurance premiums and
contract charges earned $149.9 $147.3 (1) 1.8%
Net investment income 48.8 47.5
Realized investment gains (losses) 4.7 (2.5)
Total revenues 203.4 192.3
Benefits, claims and
settlement expenses 107.8 103.2
Interest credited 23.8 22.8
Policy acquisition expenses
amortized 14.1 13.7
Operating expenses 29.5 29.2
Amortization of intangible assets 1.9 2.4
Interest expense 2.5 2.5
Total benefits, losses
and expenses 179.6 173.8
Income before income taxes 23.8 18.5 (1) 28.6%
Income tax expense 7.1 5.8
Net income $16.7 $12.7 (1) 31.5%
Operating income (2) $13.7 $14.4 (1) -4.9%
(1) After the North Carolina settlement, which reduced insurance
premiums written and contract deposits and insurance premiums
and contract charges earned by $1.7 million, income before
income taxes by $2.5 million, operating income and net income
by $1.7 million and earnings per share by $0.04 for the three
months ended March 31, 2000.
(2) Net income before the after tax impact of realized investment
gains and losses.
HORACE MANN EDUCATORS CORPORATION
Statements of Operations and Earnings Per Share
(Dollars in Millions, Except Per Share Data)
Three Months Ended
March 31,
Earnings Per Share 2001 2000 % Change
Diluted
Operating income (2) $0.34 $0.35 (1) -2.9%
Realized investment gains
(losses) $0.07 ($0.04)
Net income $0.41 $0.31 (1) 32.3%
Common and equivalent shares -
weighted average 40.7 41.3
(1) After the North Carolina settlement, which reduced insurance
premiums written and contract deposits and insurance premiums
and contract charges earned by $1.7 million, income before
income taxes by $2.5 million, operating income and net income
by $1.7 million and earnings per share by $0.04 for the three
months ended March 31, 2000.
(2) Net income before the after tax impact of realized investment
gains and losses.