Third Quarter Earnings Estimate
20 October 1999
Third Quarter Earnings Estimate
SPRINGFIELD, Ill.--Oct. 20, 1999--Based on a preliminary review of results, Horace Mann Educators Corporation expects that operating earnings for the third quarter of 1999 will be between 35 and 38 cents per share, compared to the consensus estimate of analysts in a First Call Corporation poll of 47 cents per share. The anticipated shortfall is due to the Company's property business including catastrophe losses from Hurricane Floyd and higher than expected non-catastrophe property claims."For the full year, 1999 operating earnings are estimated to be between $1.65 and $1.75 per share, compared to the analysts' consensus estimate of $1.79," said Paul J. Kardos, chairman of the board of directors, president and chief executive officer of Horace Mann. Mr. Kardos added, "The shortfall in our third quarter earnings as against analysts' estimates was caused by higher claims on our homeowners business, with about half of the shortfall caused by higher than anticipated catastrophes, principally Hurricane Floyd, and the other half caused by higher than expected non-catastrophe property claims. The good news is that our shortfall was not caused by developments in our automobile business. Unlike a number of our competitors who have announced earnings shortfalls and attributed such to trends in their automobile business, our entire shortfall is accounted for by higher homeowners' insurance claims. In fact, during the third quarter, our average voluntary automobile insurance premium increased in excess of loss cost developments in the quarter, and our automobile loss ratio in the third quarter dropped from the loss ratio for the first half of the year, so that business remains quite healthy for us."
Third quarter catastrophe losses are expected to total $6.7 million pretax, most as a result of Hurricane Floyd. On an after tax basis, catastrophe losses for the quarter are expected to be approximately 10 cents per share.
Excluding catastrophe losses, the Company experienced a higher than expected property loss ratio in the third quarter. The property loss ratio excluding catastrophes will be approximately 78 percent for the third quarter, approximately 10 percentage points higher than the same period last year, representing about 4 cents per share. Property claims reflected an increase in fire and other non-catastrophe weather losses.
The Company's excellent third quarter 1999 voluntary automobile loss ratio excluding catastrophes will be approximately 69 percent, or nearly 4 percentage points lower than in the first two quarters of 1999. This improvement reflects an increase in average premium per policy that has outpaced loss costs during the third quarter and has kept pace with loss costs for the first nine months of 1999. This favorable development of the automobile loss ratio reflects a number of operational changes, principally savings realized to date from new claims evaluation software that was fully installed by June of this year.
Horace Mann has settled certain litigation in Alabama related to life insurance policies, including the lawsuit in which a verdict of $12.35 million was rendered against the Company on June 25, 1999. 40 cases have been disposed of in this settlement for a net after tax and after receipt of insurance proceeds cost to Horace Mann of approximately $1 million, or 2 cents per share. The third quarter financial statements will include this cost as a charge to net income but it will be excluded from the determination of operating income for the quarter.
As previously reported, the Company has been contesting proposed additional federal income taxes relating to a settlement agreement with the Internal Revenue Service ("IRS") for prior years' taxes. Based on recent developments in that process, it appears that the Company may be forced to litigate the issue with the IRS in order to reach a resolution of the issue acceptable to the Company. Therefore, the Company has, in the third quarter, recorded an additional federal income tax provision of $20 million, or 48 cents per share, representing the maximum exposure of the Company to the IRS with regard to the issue for all of the past tax years in question. While the ultimate resolution of the issue, through settlement or litigation, may result in the Company paying less than the maximum exposure, given the vagaries of litigation and the lack of progress in reaching an acceptable agreement with the IRS, management believes it prudent to book the maximum exposure at this time. None of the $20 million reserve has been paid as of this date. This reserve will be a charge to net income in the third quarter but will be excluded from the determination of reported operating income.
Horace Mann expects to report its full third quarter results on Thursday, November 4.
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. Additional 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.
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.