Horace Mann Reports Results for Third Quarter
SPRINGFIELD, Ill.--Nov. 6, 2001--Horace Mann Educators Corporation today reported operating income of $9.0 million, or 22 cents per share, for its third quarter ended September 30, 2001.Operating income for the same period in 2000 was $9.9 million, or 25 cents per share.
For the first nine months of 2001, operating income was $21.3 million, or 52 cents per share, compared to $33.9 million, or 83 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.
"Although third quarter operating income is down from last year and fell somewhat short of our expectations, key underlying performance measures in each of our core lines indicate that the changes we have implemented to accelerate Horace Mann's business growth and enhance profitability are producing positive results," said Louis G. Lower II, president and chief executive officer of Horace Mann. "These include continued double-digit gains in annuity deposits; growth in the number of automobile policies in force accompanied by acceptable underlying combined ratios; the growing impact of aggressive rate actions for homeowners policies flowing through renewals and new business; and life insurance sales up 15 percent with improved persistency.
"The September 11 terrorist attacks on the United States of America did not result in any material claims for Horace Mann from either life or property and casualty policies," said Lower. "Nonetheless, we are not immune to future secondary effects such as those generated by declining variable annuity account values and anticipated increases in reinsurance costs. However, we believe these impacts will be manageable.
"Our nine-month results and generally positive underlying trends support a full year 2001 operating income estimate of between 85 cents and 90 cents per share. And while we are still refining our 2002 plans, preliminary projections point to an operating earnings per share range of $1.15 to $1.30 for next year," Lower said.
The decline in third quarter operating income compared to prior year was attributable primarily to the property and casualty segment. Factors which adversely impacted earnings in the current quarter included additional claims costs related to severe weather events which occurred late in the second quarter of 2001, accounting for approximately 10 cents per share, and adverse homeowners loss experience, primarily in the month of September, of approximately 5 cents per share. These items were partially offset by a lower level of catastrophe losses, worth approximately 5 cents per share, and a reduction in corporate level expenses, representing approximately 6 cents per share. While the financial markets had an adverse impact on annuity segment results for the third quarter of 2001, this was offset by a reduction in supplementary contract reserves.
For the first nine months of 2001, operating income was also impacted by previously reported strengthening of prior years' property and casualty reserves, which reduced second quarter earnings by 18 cents per share, and by an increase in severe weather which reduced operating income by 6 cents per share compared to the first half of 2000.
The company reported net income for the third quarter of 2001 of $9.0 million, or 22 cents per share, compared to $12.2 million, or 30 cents per share, in the same period a year earlier. After-tax realized investment losses totaled $1.3 million in the third quarter of 2001, compared to losses of $0.5 million in the same period in 2000.
For the first nine months of 2001, net income was $20.8 million, or 51 cents per share, compared to $34.6 million, or 84 cents per share a year ago. Through nine months, after-tax realized investment losses were $1.9 million, comparable to losses of $2.0 million in the first nine months of 2000.
Net income for the third quarter and first nine months reflected non-operating federal income tax benefits of $1.3 million in 2001 and $2.8 million in 2000 resulting from resolution of a dispute with the IRS regarding the company's federal tax liability in prior years.
Return on equity was 3 percent based on operating income and 2 percent based on net income for the 12 months ended September 30, 2001.
Premiums written and contract deposits increased 6 percent and 7 percent compared to the third quarter and the first nine months of 2001, respectively, driven by continued double-digit growth in the annuity segment.
"Since the fall of 2000, when we tripled our annuity investment options and provided our agents with proprietary asset allocation software, new annuity sales have accelerated dramatically and are up more than 50 percent through the first nine months of 2001," Lower said.
New annuity deposits increased 16 percent in the current quarter and 19 percent in the first nine months, including a year-to-date increase of 62 percent in new single premium and rollover deposits. New scheduled annuity deposits through nine months increased 4 percent. Reflecting continued improvement in recent quarterly trends, cash value retention for fixed and variable annuities was 92 percent and 91 percent, respectively, over the last 12 months. The number of annuity contracts outstanding increased 9 percent over the same period.
Annuity segment operating income was $5.4 million for the third quarter of 2001 and $14.8 million for the first nine months, compared to $5.8 million and $16.8 million, respectively, for the same periods last year. In the current quarter, the financial markets had an adverse impact on variable annuity fees and on valuations of deferred policy acquisition costs and value of business acquired. Also in the quarter, the company chose to establish a GAAP guaranteed minimum death benefit reserve. The resulting reductions in operating income were offset by the release of reserves for supplementary contracts, resulting from a systems conversion. On a net basis, the third quarter income decline resulted primarily from higher operating expenses related to growth in annuity business volume as well as reduced surrender charges for fixed and variable annuities. For the first nine months of 2001, operating income was further impacted by reduced fee income related to decreases in variable annuity market values in the first half of the year.
Total written premium for voluntary property and casualty insurance increased 5 percent in the third quarter and 4 percent in the first nine months compared to the same periods in 2000. The average premium per policy and the number of policies in force increased for both automobile and homeowners.
Third quarter 2001 operating income for the property and casualty segment was $2.1 million, compared to $6.4 million for the year-earlier period, with the decrease due primarily to additional development related to severe weather events in the second quarter of 2001 and adverse homeowners loss experience in the current quarter, partially offset by favorable catastrophe experience. Through nine months, operating income for the segment was $0.2 million in 2001 and $18.3 million a year ago. Additional factors contributing to this earnings decline included strengthening of prior years' reserves and severe weather.
The voluntary automobile loss ratio, excluding catastrophe losses, was 78.2 percent for the third quarter of 2001, 0.1 percentage point better than the same period last year. After nine months, the voluntary automobile loss ratio, excluding catastrophe losses, was 77.9 percent, up 3.5 percentage points compared to last year. The year-to-date increase was due primarily to strengthening of prior years' reserves in the second quarter of 2001, including automobile residual market business in Massachusetts, compared to reserve releases in 2000.
On October 18, Horace Mann announced that it has formed a marketing alliance with The Commerce Group, Inc. for the sale of automobile insurance in the state of Massachusetts. "Through this alliance, Horace Mann will provide its Massachusetts customers with Commerce Insurance automobile policies, while continuing to write other Horace Mann products, including property and life insurance and retirement annuities," Lower said. Horace Mann will cease writing automobile insurance policies in Massachusetts no later than January 1, 2002, and has paid $6.4 million to the Commonwealth Automobile Reinsurers (C.A.R.) as full payment of its proportionate liability to C.A.R. for policy years 2002 and beyond. That payment and other related expenses of approximately $1 million will be reflected in the fourth quarter of 2001 as a non-operating income restructuring charge of approximately 12 cents per share. The company expects that this transaction will have a positive impact on operating income of approximately 10 cents per share in 2003 and beyond. The improvement in 2002 earnings will be somewhat less reflecting the run-off of current policies in force. The company plans to utilize the benefits of this transaction to invest in its marketing, customer service and technology infrastructures.
The non-catastrophe property loss ratio of 99.7 percent for the third quarter of 2001 was up 16.9 percentage points from the same period last year, including approximately 10 percentage points attributable to the additional development of second quarter 2001 weather losses. Through nine months, the non-catastrophe property loss ratio was 94.8 percent, up 10.4 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.
"Rate increases implemented over the last 12 months are beginning to have a significant impact on average premium per policy," Lower said. "We are continuing to approach the pricing and underwriting of our homeowners products aggressively, to accelerate margin recovery in this segment. Actions include tightening of underwriting guidelines, reunderwriting existing policies, and implementing coverage and policy form restrictions in selected states."
Horace Mann's property and casualty combined ratio was 104.9 percent for the third quarter of 2001, compared to 99.7 percent a year earlier. After nine months, the property and casualty combined ratio was 107.7 percent in 2001, compared to 99.9 percent in 2000. The increases in the third quarter and first nine months reflected weather-related and fire losses and also reserving actions. Incurred catastrophe losses were $10.8 million and $12.8 million in the first nine months of 2001 and 2000, respectively.
Life segment insurance premiums for the current quarter and nine months declined 4 percent and 3 percent, respectively, compared to prior year, due primarily to a decline in disability income business. Life segment operating income for this year's third quarter was $3.8 million, equal to prior year. For the first nine months of 2001, life segment operating income was $13.2 million, compared to $10.6 million a year earlier. The improvement resulted primarily from higher margins in the company's individual life business.
At September 30, 2001, the agent force totaled 853, a 14 percent decline from a year earlier, with the number of experienced agents also down 14 percent. "The transition to a new compensation system that emphasizes selling new educator business was completed on August 1. This transition resulted in higher-than-normal agent attrition. At the end of the second quarter, we had 875 agents and subsequently processed about 75 terminations and resignations. Our starting agent count under the new compensation system was approximately 800," Lower said. "Many of the agents who left this year were among our lower producing agents, which has had a positive impact on average productivity. Further improvement will result as we recruit, train and equip our agents to compete successfully in the educator market."
Total shares outstanding on September 30, 2001 and 2000 were 40,716,625 and 40,515,757, respectively. The company did not repurchase shares of its common stock during the first nine months of 2001.
Book value per share was $11.87 at September 30, 2001, an increase of 15 percent compared to a year earlier, including the effects of unrealized investment gains and losses. Excluding unrealized investment gains and losses, book value per share was slightly lower than 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)
Quarter Ended
September 30,
HIGHLIGHTS 2001 2000 % Change
Operations
Insurance premiums written
and contract deposits
Core lines (1) $212.3 $200.0 6.2%
Total 224.3 210.0 6.8%
Operating income (2) 9.0 9.9 -9.1%
Property & Casualty statutory
combined ratio (1) 104.9% 99.7%
Property & Casualty statutory
combined ratio before
catastrophes (1) 103.6% 96.7%
Per Share
Operating income (2)
Basic $0.23 $0.25 -8.0%
Diluted $0.22 $0.25 -12.0%
Operating income before
amortization of intangible
assets - diluted $0.26 $0.28 -7.1%
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 $593.7 million, the property & casualty
statutory combined ratio was 99.5% and the property & casualty
statutory combined ratio before catastrophes was 96.0% for the
nine months ended September 30, 2000.
(2) Net income before the after tax impact of realized investment
gains and losses, restructuring charges, litigation charges and
provision for prior years' taxes.
HORACE MANN EDUCATORS CORPORATION
Highlights and Digest of Earnings
(Dollars in Millions, Except Per Share Data)
Nine Months Ended
September 30,
HIGHLIGHTS 2001 2000 % Change
Operations
Insurance premiums written
and contract deposits
Core lines (1) $632.7 $592.1 6.9%
Total 650.3 609.0 6.8%
Operating income (2) 21.3 33.9 -37.2%
Return on equity (3) 1.6% 14.0%
Property & Casualty statutory
combined ratio (1) 107.7% 99.9%
Property & Casualty statutory
combined ratio before
catastrophes (1) 104.8% 96.4%
Experienced agents 566 660 -14.2%
Total agents 853 988 -13.7%
(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 $593.7 million, the property & casualty
statutory combined ratio was 99.5% and the property & casualty
statutory combined ratio before catastrophes was 96.0% for the
nine months ended September 30, 2000.
(2) Net income before the after tax impact of realized investment
gains and losses, restructuring charges, litigation charges and
provision for prior years' taxes.
(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)
Nine Months Ended
September 30,
2001 2000 % Change
Per Share
Operating income (2)
Basic $0.53 $0.83 -36.1%
Diluted $0.52 $0.83 -37.3%
Operating income before
amortization of intangible
assets - diluted $0.62 $0.94 -34.0%
Dividends paid $0.315 $0.315 -
Book value (4) $11.87 $10.34 14.8%
Financial Position
Total assets $4,627.6 $4,346.0 6.5%
Long-term debt 99.8 99.7
Total shareholders' equity 483.3 418.9 15.4%
(2) Net income before the after tax impact of realized investment
gains and losses, restructuring charges, litigation charges and
provision for prior years' taxes.
(4) Before the market value adjustment for investments, book value per
share was $10.88 at September 30, 2001 and $11.14 at September 30,
2000. Ending shares outstanding were 40,716,625 at September 30,
2001, 40,517,757 at December 31, 2000 and 40,515,757 at September
30, 2000.
HORACE MANN EDUCATORS CORPORATION
Highlights and Digest of Earnings
(Dollars in Millions, Except Per Share Data)
Quarter Ended
September 30,
2001 2000 % Change
DIGEST OF EARNINGS
Net income $9.0 $12.2 -26.2%
Earnings per share:
Basic $0.22 $0.30 -26.7%
Diluted $0.22 $0.30 -26.7%
Nine Months Ended
September 30,
2001 2000 % Change
DIGEST OF EARNINGS
Net income $20.8 $34.6 -39.9%
Earnings per share:
Basic $0.51 $0.85 -40.0%
Diluted $0.51 $0.84 -39.3%
HORACE MANN EDUCATORS CORPORATION
Statements of Operations and Earnings Per Share
(Dollars in Millions, Except Per Share Data)
Quarter Ended
September 30,
Statements of Operations 2001 2000 % Change
Insurance premiums written
and contract deposits (1) $224.3 $210.0 6.8%
Insurance premiums and
contract charges earned (1) $155.1 $150.2 3.3%
Net investment income 49.9 48.2
Realized investment gains (losses) (1.9) (0.9)
Total revenues 203.1 197.5
Benefits, claims and
settlement expenses 118.8 112.2
Interest credited 24.1 23.3
Policy acquisition expenses
amortized 14.7 13.5
Operating expenses 30.8 31.0
Amortization of intangible assets 2.4 2.4
Interest expense 2.4 2.6
Restructuring charges - -
Litigation charges - -
Total benefits, losses
and expenses 193.2 185.0
Income before income taxes (1) 9.9 12.5 -20.8%
Income tax expense 2.2 3.1
Provision for prior years' taxes (1.3) (2.8)
Net income (1) $9.0 $12.2 -26.2%
Operating income (1)(2) $9.0 $9.9 -9.1%
(1) After the North Carolina settlement, which reduced insurance
premiums written and contract deposits and insurance premiums and
contract charges earned by $1.6 million, income before income
taxes by $2.4 million, operating income and net income by $1.6
million and earnings per share by $0.04 for the nine months ended
September 30, 2000.
(2) Net income before the after tax impact of realized investment
gains and losses, restructuring charges, litigation charges and
provision for prior years' taxes.
HORACE MANN EDUCATORS CORPORATION
Statements of Operations and Earnings Per Share
(Dollars in Millions, Except Per Share Data)
Nine Months Ended
September 30,
Statements of Operations 2001 2000 % Change
Insurance premiums written
and contract deposits (1) $650.3 $609.0 6.8%
Insurance premiums and
contract charges earned (1) $457.0 $448.1 2.0%
Net investment income 148.5 143.3
Realized investment gains (losses) (2.9) (3.2)
Total revenues 602.6 588.2
Benefits, claims and
settlement expenses 361.4 329.3
Interest credited 72.4 68.8
Policy acquisition expenses
amortized 42.0 40.8
Operating expenses 87.2 89.5
Amortization of intangible assets 6.1 7.2
Interest expense 7.2 7.6
Restructuring charges (0.2) -
Litigation charges - 0.1
Total benefits, losses
and expenses 576.1 543.3
Income before income taxes (1) 26.5 44.9 -41.0%
Income tax expense 7.0 13.1
Provision for prior years' taxes (1.3) (2.8)
Net income (1) $20.8 $34.6 -39.9%
Operating income (1)(2) $21.3 $33.9 -37.2%
(1) After the North Carolina settlement, which reduced insurance
premiums written and contract deposits and insurance premiums and
contract charges earned by $1.6 million, income before income
taxes by $2.4 million, operating income and net income by $1.6
million and earnings per share by $0.04 for the nine months ended
September 30, 2000.
(2) Net income before the after tax impact of realized investment
gains and losses, restructuring charges, litigation charges and
provision for prior years' taxes.
HORACE MANN EDUCATORS CORPORATION
Statements of Operations and Earnings Per Share
(Dollars in Millions, Except Per Share Data)
Quarter Ended
September 30,
Earnings Per Share 2001 2000 % Change
Diluted
Operating income (1)(2) $0.22 $0.25 -12.0%
Realized investment gains
(losses) ($0.03) ($0.02)
Restructuring charges - -
Litigation charges - -
Provision for prior years' taxes $0.03 $0.07
Net income (1) $0.22 $0.30 -26.7%
Common and equivalent shares -
weighted average 41.0 40.7
Nine Months Ended
September 30,
Earnings Per Share 2001 2000 % Change
Diluted
Operating income (1)(2) $0.52 $0.83 -37.3%
Realized investment gains
(losses) ($0.04) ($0.06)
Restructuring charges - -
Litigation charges - -
Provision for prior years' taxes $0.03 $0.07
Net income (1) $0.51 $0.84 -39.3%
Common and equivalent shares -
weighted average 40.8 41.0
(1) After the North Carolina settlement, which reduced insurance
premiums written and contract deposits and insurance premiums and
contract charges earned by $1.6 million, income before income
taxes by $2.4 million, operating income and net income by $1.6
million and earnings per share by $0.04 for the nine months ended
September 30, 2000.
(2) Net income before the after tax impact of realized investment
gains and losses, restructuring charges, litigation charges and
provision for prior years' taxes.