Horace Mann Reports 10 Percent Increase in Operating Income Per Share
6 August 1999
Horace Mann Reports 10 Percent Increase in Operating Income Per Share
SPRINGFIELD, Ill.--Aug. 5, 1999--Horace Mann Educators Corporation today reported operating income of $13.9 million, or 34 cents per share, for the second quarter ended June 30, 1999, compared to $13.6 million, or 31 cents per share a year ago -- an increase of 10 percent per share.After six months, operating income was $33.0 million, or 79 cents per share, compared to $32.0 million, or 72 cents per share in 1998, also a 10 percent increase per share. Per-share amounts are stated on a diluted basis and reflect the impact of share repurchases in 1997, 1998 and the first six months of 1999. Operating income is net income before the after-tax impact of realized investment gains and losses.
"Catastrophe losses in the quarter of $10 million before tax were our second-worst ever, trailing only the record set in last year's second quarter, with an unusually large number of catastrophes that were widespread across the country. Higher than expected claims in property and auto other than catastrophe claims added approximately 5 percentage points to our property and casualty combined ratio for the quarter," said Paul J. Kardos, Chairman of the Board of Directors, President and Chief Executive Officer of Horace Mann.
Total premiums written and contract deposits for Horace Mann's core lines decreased slightly due to the decline in new annuity deposits in the second quarter and first half of the year. Growth continued in the property and casualty and life segments. At quarter-end the number of the Company's experienced agents was up 5 percent, while the number of new agents decreased slightly compared to a year ago. "Although total premium growth has not met our expectations thus far in 1999, we anticipate improvement in the second half of the year," Kardos said.
"Horace Mann continued to pursue its 'best use of capital' philosophy in the second quarter and first half," Kardos said. "As our first priority, we continue to make investments in recruiting and retaining agents, developing new products, improving customer service, expanding our marketing efforts and upgrading technology. Beyond these items and maintaining very strong levels of capital in our insurance operations, capital was invested in the repurchase of Horace Mann shares. By using capital in ways that provide the greatest value for shareholders, we achieved an excellent 16 percent return on equity based on net income for the last 12 months," he said.
Voluntary auto and homeowners insurance written premium increased 3 percent in the second quarter and first half, resulting from growth in both the average premium per policy and the number of auto and homeowners policies in force. Auto and homeowners policies in force increased 2 percent compared to a year ago with two-thirds of the growth produced in the first half of 1999 following no growth in the fourth quarter of 1998. Operating income for this segment decreased approximately 20 percent in the quarter and first six months, due to higher than expected claims in property and auto other than catastrophe claims, including an increase in the average cost per auto claim.
Horace Mann's property and casualty combined ratio was 100.6 percent for the second quarter of 1999, compared to 101.1 percent a year earlier. Before catastrophe losses, the property and casualty combined ratio was 92.5 percent in the current quarter and 92.9 percent through six months of 1999, compared to 87.2 percent and 89.1 percent in the comparable 1998 periods.
"Even with the impact of unusually high weather-related losses, our combined ratio reflects very strong underwriting performance and ranks among the best in the industry," Kardos said.
Compared to the second quarter and the first six months of 1998, new annuity deposits decreased 11 percent in the second quarter and 9 percent for the first half of 1999. "This decline was primarily attributable to a 23 percent decrease in the first six months of this year in single premium deposits, which last year benefitted from new tax legislation contributing to a high volume of single premium and rollover deposits to tax-qualified products. Annuity deposits in the first half of 1999 were also impacted by the recent performance of the Company's variable annuity mutual funds through the first quarter of 1999. After implementing a number of changes, second quarter 1999 performance of the Company's two largest mutual funds, which comprise 90 percent of the Company's variable annuity accumulations, exceeded their comparable Lipper indices," Kardos said. "Another measure of how our annuity segment has performed in 1999 is the 7 percent increase in annuity contracts outstanding over the last 12 months. Also, fixed annuity cash value retention was 93 percent."
Annuity segment operating income increased 19 percent in the second quarter and 15 percent in the first half of 1999. Income gains resulted from 11 percent growth in accumulated variable annuity funds on deposit, 8 percent growth in total margin and deferral of additional sales-related costs. Excluding the deferral of additional sales-related costs, annuity operating income increased 8 percent compared to the first half of 1998, 4 percent in the first quarter increasing to 12 percent growth in the second quarter of 1999.
As reported last quarter, Horace Mann began deferring additional sales-related costs in 1999 for all new life and annuity contracts, consistent with common industry accounting practices. Additional life segment net deferrals were $0.6 million after tax and additional annuity segment net deferrals were $0.4 million after tax for the second quarter, equal to the first quarter 1999 amounts. Future quarterly results are expected to include similar amounts of additional net deferrals.
Life insurance premiums increased 5 percent in the quarter and 3 percent through six months from the comparable 1998 periods. Life operating income for the second quarter of 1999 was $3.6 million, compared to $3.0 million last year. Through the first half of 1999, life operating income was $8.5 million, compared to $5.7 million for the same period in 1998. Both 1999 periods included the net deferral of additional sales-related costs. In addition, life segment earnings for the first half reflected a decrease in amortization of deferred acquisition costs to reflect current mortality estimates and positive experience on a small closed block of individual A&H business. Excluding these items, life segment earnings through six months increased 5 percent.
Excluding a non-cash charge for amortization of intangible assets, operating income was 36 cents per share for the current quarter and 84 cents per share through six months, increases of 9 percent compared to the respective periods last year.
Second quarter net income was $10.4 million, or 25 cents per share, down from $15.6 million, or 36 cents per share, last year. Through the first half of 1999, net income was $27.5 million, or 65 cents per share, compared to $38.1 million, or 86 cents per share, in 1998. The declines were attributable to after-tax realized investment losses of $3.5 million in the current quarter and $5.5 million for the six months, compared to after-tax realized investment gains of $2.0 million and $6.1 million in the respective periods last year. The net losses in the first half of 1999 were about two-thirds due to credit decisions and rate of return considerations in the Company's fixed income investment portfolio and about one-third due to the sale of U. S. Treasury securities in a rising interest rate environment for duration management purposes. Gains in the first half of 1998 included calls and tenders in the Company's bond portfolio as well as credit and rate of return decisions.
During the first six months of 1999, the company repurchased 1,075,300 shares of Horace Mann stock at an average aggregate cost of $23.27 per share, 485,600 of which were repurchased during the second quarter. Shares repurchased over the last 24 months represented 11 percent of the shares outstanding on June 30, 1999. The shares repurchased in the current quarter increased the total number of shares repurchased since early 1997 to 7,082,700, or 15 percent of the shares outstanding on December 31, 1996, at an average cost of $26.61 per share. Including shares repurchased in 1995, the company has repurchased 32 percent of the shares outstanding on December 31, 1994. The share repurchase program has been financed through cash generated from operations, which has contributed to the reduction of investment income and earnings while having a net positive impact on earnings per share. Total shares outstanding on June 30, 1999 and 1998 were 41,022,344 and 42,982,894, respectively, a 5 percent reduction.
Book value per share was $10.57 at June 30, 1999, a decrease of 7 percent compared to a year earlier. Excluding unrealized investment gains and losses, book value per share increased 7 percent over the 12-month period.
Founded in 1945 and headquartered in Springfield, Illinois, Horace Mann sells retirement annuities and automobile, homeowners and life insurance to the nation's educators through an exclusive sales force of more than 1,000 agents.
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
June 30,
HIGHLIGHTS 1999 1998 % Change
Operations
Insurance premiums written and
contract deposits
Core lines $203.6 $205.7 -1.0%
Total 207.6 210.0 -1.1%
Operating income (1) 13.9 13.6 2.2%
Property & Casualty statutory
combined ratio 100.6% 101.1%
Property & Casualty statutory
combined ratio before
catastrophes 92.5% 87.2%
Per Share
Operating income (1)
Basic $0.34 $0.32 6.3%
Diluted $0.34 $0.31 9.7%
Operating income before
amortization of intangible
assets - diluted $0.36 $0.33 9.1%
Dividends paid $0.0925 $0.08 15.6%
(1) Net income before the after tax impact of realized investment
gains and losses.
HORACE MANN EDUCATORS CORPORATION
Highlights and Digest of Earnings
Dollars in Millions, Except Per Share Data
Six Months Ended
HIGHLIGHTS June 30,
Operations 1999 1998 % Change
Insurance premiums written and
contract deposits
Core lines $397.1 $398.3 -0.3%
Total 405.7 407.0 -0.3%
Operating income (1) 33.0 32.0 3.1%
Return on equity (2) 15.6% 17.2%
Property & Casualty statutory
combined ratio 98.0% 97.7%
Property & Casualty statutory
combined ratio before
catastrophes 92.9% 89.1%
Agents 1,070 1,046 2.3%
Per Share
Operating income (1)
Basic $0.80 $0.73 9.6%
Diluted $0.79 $0.72 9.7%
Operating income before
amortization of intangible
assets - diluted $0.84 $0.77 9.1%
Dividends paid $0.185 $0.16 15.6%
Book value (3) $10.57 $11.31 -6.5%
Financial Position
Total assets $4,327.8 $4,298.3 0.7%
Long-term debt 99.7 99.6
Total shareholders' equity 433.6 486.1 -10.8%
(1) Net income before the after tax impact of realized investment
gains and losses.
(2) Based on 12-month net income and average quarter-end shareholders'
equity.
(3) Before the market value adjustment for investments, book value per
share was $10.57 at June 30, 1999 and $9.90 at June 30, 1998.
Ending shares outstanding were 41,022,344 at June 30, 1999,
42,091,094 at December 31, 1998 and 42,982,894 at June 30, 1998.
HORACE MANN EDUCATORS CORPORATION
Highlights and Digest of Earnings
Dollars in Millions, Except Per Share Data
Quarter Ended
June 30,
1999 1998 % Change
DIGEST OF EARNINGS
Net income $10.4 $15.6 -33.3%
Earnings per share:
Basic $0.25 $0.36 -30.6%
Diluted $0.25 $0.36 -30.6%
Six Months Ended
June 30,
1999 1998 % Change
DIGEST OF EARNINGS
Net income $27.5 $38.1 -27.8%
Earnings per share:
Basic $0.66 $0.87 -24.1%
Diluted $0.65 $0.86 -24.4%
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 1999 1998 % Change
Insurance premiums written
and contract deposits $207.6 $210.0 -1.1%
Insurance premiums and
contract charges earned $148.6 $143.4 3.6%
Net investment income 47.0 48.2
Realized investment gains (losses) (5.4) 3.0
Total revenues 190.2 194.6
Benefits, claims and
settlement expenses 110.6 107.3
Interest credited 22.9 23.8
Policy acquisition expenses
amortized 13.1 11.7
Operating expenses 24.5 26.6
Amortization of intangible assets 1.7 1.9
Interest expense 2.4 2.3
Total benefits, losses
and expenses 175.2 173.6
Income before income taxes 15.0 21.0
Income tax expense 4.6 5.4
Net income $10.4 $15.6 -33.3%
Operating income (1) $13.9 $13.6 2.2%
(1) 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
Six Months Ended
June 30,
Statements of Operations 1999 1998 % Change
Insurance premiums written
and contract deposits $405.7 $407.0 -0.3%
Insurance premiums and
contract charges earned $294.8 $284.6 3.6%
Net investment income 93.9 96.7
Realized investment gains (losses) (8.5) 9.4
Total revenues 380.2 390.7
Benefits, claims and
settlement expenses 211.9 204.7
Interest credited 46.0 47.9
Policy acquisition expenses
amortized 23.8 23.1
Operating expenses 50.2 53.9
Amortization of intangible assets 3.4 3.7
Interest expense 4.9 4.7
Total benefits, losses
and expenses 340.2 338.0
Income before income taxes 40.0 52.7
Income tax expense 12.5 14.6
Net income $27.5 $38.1 -27.8%
Operating income (1) $33.0 $32.0 3.1%
(1) 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
Quarter Ended
June 30,
Earnings Per Share 1999 1998 % Change
Diluted
Operating income (1) $0.34 $0.31 9.7%
Realized investment gains
(losses) ($0.09) $0.05
Net income $0.25 $0.36 -30.6%
Common and equivalent shares -
weighted average 41.7 44.2
Six Months Ended
June 30,
Earnings Per Share 1999 1998 % Change
Diluted
Operating income (1) $0.79 $0.72 9.7%
Realized investment gains
(losses) ($0.14) $0.14
Net income $0.65 $0.86 -24.4%
Common and equivalent shares -
weighted average 42.0 44.5
(1) Net income before the after tax impact of realized investment
gains and losses.