Horace Mann Reports Results for q2 and Revises Full Year Estimate
SPRINGFIELD, Ill.--Aug. 6, 2001--Horace Mann Educators Corporation today reported an operating loss of $1.4 million, or 4 cents per share, for its second quarter ended June 30, 2001.Operating income for the same period in 2000 was $9.6 million, or 23 cents per share.
For the first six months of 2001, operating income was $12.3 million, or 30 cents per share, compared to $24.0 million, or 58 cents per share, for the same period last year. 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 and non-recurring items.
Operating income for the second quarter of 2001 was adversely affected primarily by strengthening of prior years' property and casualty reserves, which reduced current period operating income by 18 cents per share.
"Due to the unanticipated reserve actions taken in June, we are now estimating 2001 full year operating income of between 85 and 95 cents per share," said Louis G. Lower II, president and chief executive officer of Horace Mann.
Since the fourth quarter of last year, the company has continued to refine its process and methods for evaluating property and casualty reserves and has selected a new independent property and casualty actuarial consulting firm. During the second quarter of 2001, a comprehensive review of property and casualty loss reserving methodologies and assumptions was completed in conjunction with the new actuarial firm. Based on this further enhanced analysis and the opinion of the new actuarial firm, prior years' net reserves - predominantly related to 1999 and prior accident years - were increased by $11 million at June 30, 2001. This consisted primarily of an $8 million reduction in reserves to be ceded by the company to its reinsurers and reinsurance facilities, including $1.5 million related to the company's automobile residual market business, primarily in Massachusetts; $2.0 million for its voluntary automobile ceded excess liability coverage; and approximately $4.5 million related to its educators professional liability product.
"Building on the improvements made in the fourth quarter, we believe that our enhanced process, better data and a new actuarial firm have resulted in appropriate refinements to our reserve estimates, with all reserves now fully vetted, including the more volatile liability excess loss coverages. The second quarter strengthening results in a level of net reserves which is conservatively positioned within a reasonable range of expected outcomes," said Lower. The company's property and casualty net reserves were $272 million and $229 million at June 30, 2001 and 2000, respectively.
"While prior years' reserve strengthening has impacted us for a second time in recent periods, the additional actions we have taken are appropriate. With reserve levels now $40 million higher than at this time last year, we have an even stronger financial foundation to build upon going forward," Lower continued.
Also during the second quarter of 2001, severe weather, particularly Tropical Storm Allison and wind and hail storms throughout the Midwest, increased weather-related property and casualty claims approximately $5 million pretax, compared to the second quarter of 2000. Total weather-related losses, both catastrophe and non-catastrophe, reduced operating income for the second quarter of 2001 by approximately 8 cents per share.
"Despite the disappointing earnings this quarter, we believe that there are no adverse implications for the run rate of our business going forward. Positive indicators of future performance include: growth in our automobile line with very acceptable underlying combined ratios and improving retention; homeowner severity improvements and the impact of aggressive rate actions beginning to flow through renewals; annuity sales up over 75 percent year-to-date with improved persistency despite a difficult equity market environment; life sales up 18 percent with improved persistency and margins; expense ratios remaining under control and consistently better than industry averages; and improved agent productivity for both newly hired agents and the overall agency force," Lower stated.
The company reported a second quarter 2001 net loss of $4.9 million, or 12 cents per share, compared to net income of $9.7 million, or 23 cents per share, in the same period a year earlier. After-tax realized investment losses totaled $3.6 million in the second quarter of 2001, compared to gains of $0.2 million in the same period in 2000.
For the first six months of 2001, net income was $11.8 million, or 29 cents per share, compared to $22.4 million, or 54 cents per share, in the first six months of 2000. Through six months, after-tax realized investment losses were $0.6 million, compared to losses of $1.5 million in the first half of 2000.
Return on equity was 3 percent based on operating income and 2 percent based on net income for the 12 months ended June 30, 2001.
Premiums written and contract deposits for both the second quarter and the first six months of 2001 increased 7 percent over a year earlier, driven by continued double-digit growth in the annuity segment.
"Top line improvement is most notable in our annuity sector, which was the initial focus of our growth efforts. We tripled our investment options through an aggressive new product development effort and also developed proprietary asset allocation software that enables agents to help our educator customers select the best investment program for their individual needs and circumstances," he said. "As a result, new annuity sales have increased dramatically and were up about 60 percent and 75 percent, respectively, in the second quarter and first half compared to the comparable periods a year ago. These outstanding results clearly demonstrate we are on the right track."
New annuity deposits increased 20 percent in the current quarter and 21 percent in the first six months, including year-to-date new single premium and rollover deposits that nearly doubled the deposits made in the first six months of 2000. New scheduled annuity deposits were comparable to last year. Reflecting continued improvement in recent quarterly trends, cash value retention for fixed and variable annuities was 91 percent and 89 percent, respectively, over the last 12 months. The number of annuity contracts outstanding increased 7 percent over the same period.
Annuity segment operating income was $5.2 million for the second quarter of 2001 and $9.4 million for the first six months, compared to $5.6 million and $11.0 million, respectively, for the same periods last year. The income decline in the current periods resulted from: reduced fee income related to decreases in variable annuity market values; reduced surrender charges for fixed and variable annuities; and higher operating expenses related to the growth in annuity business volume.
Total written premium for voluntary property and casualty insurance increased 4 percent in both the second quarter and the first six months compared to the same periods in 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 the year-earlier level, but was up from year-end 2000.
In the second quarter of 2001 the property and casualty segment recorded an operating loss of $9.8 million, compared to operating income of $2.9 million for the same period in 2000. Through six months, the operating loss for the segment was $1.9 million in 2001 compared to operating income of $11.9 million a year ago. The decrease in earnings for this segment was due primarily to strengthening of prior years' reserves and severe weather.
Reflecting improvement from the first quarter, voluntary automobile current accident year loss experience, excluding catastrophes, exceeded the growth in average premium per policy by only six-tenths of a percent in the second quarter of 2001.
"To assure that future premium growth keeps pace with loss experience, we have implemented or are planning automobile rate increases in selected areas and are developing tiered rating systems that will enhance our ability to underwrite and price risks appropriately," Lower said. "Tiered ratings also will create additional growth opportunities by enabling us to broaden our penetration of the educator market."
The voluntary automobile loss ratio, excluding catastrophe losses, was 79.4 percent for the second quarter of 2001, up 5.9 percentage points from the same period last year. After six months, the voluntary automobile loss ratio, excluding catastrophe losses, was 77.7 percent, up 5.3 percentage points compared to last year. In both periods, these increases were due primarily to strengthening of prior years' reserves in 2001, including automobile residual market business in Massachusetts, compared to reserve releases in 2000.
"As disclosed previously, with regard to our residual market automobile business, the company is reviewing its position and strategy for automobile insurance in the state of Massachusetts. We anticipate conclusion of that review during the third quarter," Lower said.
The non-catastrophe property loss ratio of 99.4 percent for the second quarter of 2001 was up 8.0 percentage points from the same period last year. For the six months, the non-catastrophe property loss ratio was 92.3 percent, up 7.0 percentage points from the same period in 2000. The increase primarily reflected a higher level of non-catastrophe weather-related losses compared to a year ago, with fire and other non-weather-related losses also somewhat higher.
"The pricing, underwriting and loss control actions we initiated last year to improve the profitability of the property line are beginning to produce the anticipated results, with minimal effect on policy retention," Lower said. "However, in light of more recent experience and competitive actions, future rate increases will be even more aggressive than our original plans, and we will initiate additional reunderwriting programs. We expect margin improvement to accelerate in subsequent quarters as we realize the full impact of these changes."
Horace Mann's property and casualty combined ratio was 119.1 percent for the second quarter of 2001, compared to 103.8 percent a year earlier. After six months, the property and casualty combined ratio was 109.2 percent in 2001, compared to 100.2 percent in 2000. The increases in the second quarter and first half were driven by reserving actions and weather-related losses. Incurred catastrophe losses were $9.2 million in the first six months of both 2001 and 2000.
Life segment insurance premiums for the current quarter and six months were 2 percent lower than a year earlier, due to a decline in disability income business. Life segment operating income for this year's second quarter was $5.4 million, compared to $3.8 million a year earlier. For the first six months of 2001, life segment operating income was $9.4 million, compared to $6.8 million a year earlier. The improvement resulted primarily from higher margins in the company's individual life business.
At June 30, 2001, the agent force totaled 875, a 13 percent decline from a year earlier, with the number of experienced agents down 8 percent. "The agent total reflects anticipated attrition as we transition to a new compensation system that rewards agents for selling new business, particularly in the educator market, as well as for business retention and profitability. Average productivity of terminated agents was significantly lower than our current agency force," Lower said. "Our heightened emphasis on agent training has also contributed to significant productivity gains.
"While Horace Mann's turnaround remains a work in progress, the steps we have taken in the last 12 months to generate growth are producing positive results," Lower said. "In addition to strong sales and retention in our annuity line, life insurance sales and persistency are trending positively, and we are growing our automobile insurance business despite rate actions and a challenging competitive environment," he said.
Total shares outstanding on June 30, 2001 and 2000 were 40,592,625 and 40,828,157, respectively. The company did not repurchase shares of its common stock during the first six months of 2001.
Book value per share was $10.94 at June 30, 2001, an increase of 12 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 comparable to a year earlier.
HORACE MANN EDUCATORS CORPORATION
Highlights and Digest of Earnings
(Dollars in Millions, Except Per Share Data)
Quarter Ended
June 30,
HIGHLIGHTS 2001 2000 % Change
Operations
Insurance premiums written
and contract deposits
Core lines (1) $215.4 $200.9 7.2%
Total 218.2 204.5 6.7%
Operating income (loss)(2) (1.4) 9.6
Property & Casualty statutory
combined ratio (1) 119.1% 103.8%
Property & Casualty statutory
combined ratio before
catastrophes (1) 110.7% 98.4%
Per Share
Operating income (loss)(2)
Basic ($0.04) $0.23
Diluted ($0.04) $0.23
Operating income (loss) before
amortization of intangible
assets - diluted ($0.01) $0.27
Dividends paid $0.105 $0.105 -
(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 $393.8 million, the property & casualty
statutory combined ratio was 99.4% and the property & casualty
statutory combined ratio before catastrophes was 95.7% for the six
months ended June 30, 2000. This settlement did not affect results
for the second quarter 2000.
(2) Net income (loss) before the after tax impact of realized
investment gains and losses, restructuring charges and litigation
charges.
HORACE MANN EDUCATORS CORPORATION
Highlights and Digest of Earnings
(Dollars in Millions, Except Per Share Data)
Six Months Ended
June 30,
HIGHLIGHTS 2001 2000 % Change
Operations
Insurance premiums written
and contract deposits
Core lines (1) $420.4 $392.1 7.2%
Total 426.0 399.0 6.8%
Operating income (loss)(2) 12.3 24.0 -48.8%
Return on equity (3) 2.4% 9.6%
Property & Casualty statutory
combined ratio (1) 109.2% 100.2%
Property & Casualty statutory
combined ratio before
catastrophes (1) 105.5% 96.4%
Experienced agents 621 672 -7.6%
Total agents 875 1,005 -12.9%
(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 $393.8 million, the property & casualty
statutory combined ratio was 99.4% and the property & casualty
statutory combined ratio before catastrophes was 95.7% for the six
months ended June 30, 2000. This settlement did not affect results
for the second quarter 2000.
(2) Net income (loss) before the after tax impact of realized
investment gains and losses, restructuring charges and litigation
charges.
(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)
Six Months Ended
June 30,
2001 2000 % Change
Per Share
Operating income (loss)(2)
Basic $0.30 $0.58 -48.3%
Diluted $0.30 $0.58 -48.3%
Operating income (loss) before
amortization of intangible
assets - diluted $0.36 $0.66 -45.5%
Dividends paid $0.21 $0.21 -
Book value (4) $10.94 $9.81 11.5%
Financial Position
Total assets $4,627.9 $4,280.6 8.1%
Long-term debt 99.7 99.7
Total shareholders' equity 444.2 400.4 10.9%
(2) Net income (loss) before the after tax impact of realized
investment gains and losses, restructuring charges and litigation
charges.
(4) Before the market value adjustment for investments, book value per
share was $10.73 at June 30, 2001 and $10.97 at June 30, 2000.
Ending shares outstanding were 40,592,625 at June 30, 2001,
40,517,757 at December 31, 2000 and 40,828,157 at June 30, 2000.
HORACE MANN EDUCATORS CORPORATION
Highlights and Digest of Earnings
(Dollars in Millions, Except Per Share Data)
Quarter Ended
June 30,
2001 2000 % Change
DIGEST OF EARNINGS
Net income (loss) ($4.9) $9.7
Earnings (loss) per share:
Basic ($0.12) $0.24
Diluted ($0.12) $0.23
Six Months Ended
June 30,
2001 2000 % Change
DIGEST OF EARNINGS
Net income (loss) $11.8 $22.4 -47.3%
Earnings (loss) per share:
Basic $0.29 $0.55 -47.3%
Diluted $0.29 $0.54 -46.3%
HORACE MANN EDUCATORS CORPORATION
Statements of Operations and Earnings Per Share
(Dollars in Millions, Except Per Share Data)
Quarter Ended
June 30,
Statements of Operations 2001 2000 % Change
Insurance premiums written
and contract deposits (1) $218.2 $204.5 6.7%
Insurance premiums and
contract charges earned (1) $152.0 $150.6 0.9%
Net investment income 49.8 47.6
Realized investment gains (losses) (5.7) 0.2
Total revenues 196.1 198.4
Benefits, claims and
settlement expenses 134.8 113.9
Interest credited 24.5 22.7
Policy acquisition expenses
amortized 13.2 13.6
Operating expenses 26.9 29.3
Amortization of intangible assets 1.8 2.4
Interest expense 2.3 2.5
Restructuring charges (0.2) -
Litigation charges - 0.1
Total benefits, losses
and expenses 203.3 184.5
Income (loss) before income taxes (1) (7.2) 13.9
Income tax expense (benefit) (2.3) 4.2
Net income (loss) (1) ($4.9) $9.7
Operating income (loss) (1)(2) ($1.4) $9.6
(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 six months ended
June 30, 2000. This settlement did not affect results for the
second quarter of 2000.
(2) Net income (loss) before the after tax impact of realized
investment gains and losses, restructuring charges and litigation
charges.
HORACE MANN EDUCATORS CORPORATION
Statements of Operations and Earnings Per Share
(Dollars in Millions, Except Per Share Data)
Six Months Ended
June 30,
Statements of Operations 2001 2000 % Change
Insurance premiums written
and contract deposits (1) $426.0 $399.0 6.8%
Insurance premiums and
contract charges earned (1) $301.9 $297.9 1.3%
Net investment income 98.6 95.1
Realized investment gains (losses) (1.0) (2.3)
Total revenues 399.5 390.7
Benefits, claims and
settlement expenses 242.6 217.1
Interest credited 48.3 45.5
Policy acquisition expenses
amortized 27.3 27.3
Operating expenses 56.4 58.5
Amortization of intangible assets 3.7 4.8
Interest expense 4.8 5.0
Restructuring charges (0.2) -
Litigation charges - 0.1
Total benefits, losses
and expenses 382.9 358.3
Income (loss) before income taxes (1) 16.6 32.4 -48.8%
Income tax expense (benefit) 4.8 10.0
Net income (loss) (1) $11.8 $22.4 -47.3%
Operating income (loss)(1)(2) $12.3 $24.0 -48.8%
(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 six months ended
June 30, 2000. This settlement did not affect results for the
second quarter of 2000.
(2) Net income (loss) before the after tax impact of realized
investment gains and losses, restructuring charges and litigation
charges.
HORACE MANN EDUCATORS CORPORATION
Statements of Operations and Earnings Per Share
(Dollars in Millions, Except Per Share Data)
Quarter Ended
June 30,
Earnings Per Share 2001 2000 % Change
Diluted
Operating income (loss)(1)(2) ($0.04) $0.23
Realized investment gains
(losses) ($0.08) -
Restructuring charges - -
Litigation charges - -
Net income (loss)(1) ($0.12) $0.23
Common and equivalent shares -
weighted average 40.9 41.1
Six Months Ended
June 30,
Earnings Per Share 2001 2000 % Change
Diluted
Operating income (loss)(1)(2) $0.30 $0.58 -48.3%
Realized investment gains
(losses) ($0.01) ($0.04)
Restructuring charges - -
Litigation charges - -
Net income (loss)(1) $0.29 $0.54 -46.3%
Common and equivalent shares -
weighted average 40.8 41.2
(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 six months ended
June 30, 2000. This settlement did not affect results for the
second quarter of 2000.
(2) Net income (loss) before the after tax impact of realized
investment gains and losses, restructuring charges and litigation
charges.