SPRINGFIELD, Ill., July 30 /PRNewswire-FirstCall/ -- Horace Mann Educators
Corporation (NYSE: HMN) today reported net income of $4.5 million (11 cents
per share) and $18.8 million (45 cents per share) for the three and six months
ended June 30, 2008, respectively, compared to net income of $23.1 million
(52 cents per share) and $46.4 million ($1.04 per share) for the same periods
in 2007. Included in net income were net realized losses on securities of
$8.1 million ($5.1 million after tax, or 12 cents per share) and $10.5 million
($6.7 million after tax, or 16 cents per share) for the three and six months
ended June 30, 2008, respectively. In the prior year, the second quarter
earnings reflected net realized investment losses of $0.9 million
($0.6 million after tax, or 1 cent per share) and the six months reflected net
realized investment gains of $2.6 million ($1.7 million after tax, or 4 cents
per share). All per-share amounts are stated on a diluted basis.
"As previously announced, industry-wide catastrophe losses had an adverse
impact on our second quarter net income of approximately 28 cents per share as
compared to the same period last year. In addition, Horace Mann's second
quarter results also reflected the continued impact of a challenging financial
market environment and the adverse effect of a slowing economy on both home
and auto sales," said Louis G. Lower II, President and Chief Executive
Officer. "That said, our underlying fundamentals of profitability remain
solid. For the current accident year and excluding catastrophes, our
voluntary auto combined ratio increased somewhat but was within our
expectations, and the increase in our property combined ratio on the same
basis was driven primarily by non-catastrophe weather-related losses.
Meanwhile, for the quarter and year to date -- excluding the impact of the
valuation of deferred policy acquisition costs -- both annuity and life
segment earnings exceeded prior year."
"Due to the significant level of catastrophe costs experienced this
quarter, along with the adverse financial market performance in the first six
months of the year, we are decreasing our full year 2008 estimate of net
income before realized investment gains and losses to between $1.30 and $1.45
per share," Lower stated. "This projection reflects an average level of
property and casualty catastrophe losses and relatively flat financial market
performance in the second half of the year. The revised estimate also
anticipates 5 cents per share of expenses related to the recent decision to
consolidate the company's property and casualty field claims offices."
In the second quarter of 2008, the company completed its $25 million share
repurchase authorization announced in April 2008. During the three months
ended June 30, 2008, the company repurchased a total of 1,561,849 shares of
its common stock at an aggregate cost of $24.8 million, or an average cost of
$15.93 per share. Total shares outstanding on June 30, 2008 and 2007 were
39,061,788 and 43,275,184, respectively.
Segment Earnings
Net income for the property and casualty segment of $1.9 million for the
quarter decreased $16.0 million compared to the same period in 2007, including
the $11.3 million increase in after tax catastrophe costs. Pretax catastrophe
costs in the current quarter were $22.4 million compared to $4.9 million
incurred in the second quarter of 2007. The second quarter 2008 property and
casualty combined ratio was 106.7 percent, including 16.6 percentage points
due to catastrophe costs, compared to 89.1 percent, including 3.7 percentage
points due to catastrophe costs, in the prior year period. Favorable prior
years' reserve development totaling $2.4 million was recorded in the current
quarter, which represented 1.8 percentage points on the combined ratio,
compared to $5.6 million, or 4.2 percentage points on the combined ratio,
recorded in the second quarter of 2007.
Annuity segment net income of $5.1 million for the quarter was equal to
the second quarter of 2007. Compared to the prior year and similar to the
first three months of 2008, current period improvements in the interest margin
were offset by the adverse impact of the financial markets on both the
valuation of deferred policy acquisition costs and the level of contract
charges earned. Life segment net income of $5.2 million for the current
quarter increased $1.6 million compared to the same period a year earlier,
reflecting growth in investment income and lower mortality costs.
Segment Revenues
The company's total premiums written and contract deposits declined 2
percent compared to both the second quarter and first half of 2007, largely
due to expected decreases in single premium annuity deposit receipts in 2008.
Property and casualty premiums written increased 2 percent compared to
prior year, reflecting lower catastrophe reinsurance premiums and an increase
in average property and auto premiums per policy.
Annuity new contract deposits decreased 9 percent compared to the three
and six months ended June 30, 2007. Scheduled, flexible-premium annuity
deposit receipts decreased slightly compared to the prior year, while rollover
deposits declined approximately 20 percent. Life segment insurance premiums
and contract deposits were comparable to the prior year.
Sales and Distribution
Total new auto sales units were 5 percent and 8 percent lower in the three
and six months ended June 30, 2008, respectively, than in the prior year
periods. "Second quarter true new auto sales volume, while not where we
wanted it to be, improved sequentially reflecting productivity gains in the
current period," said Lower. Annuity new business decreased 12 percent and 14
percent for the three and six months ended June 30, 2008, compared to the same
periods a year earlier, primarily due to the expected decline in single
premium rollover deposits. "IRS transition regulations for the 403(b) annuity
marketplace have reduced new rollover deposits industry-wide," said Lower.
The company's career agents produced a 4 percent increase in new flexible-
premium annuity business, offset by a decline in this business from
independent agents.
The number of career agents declined 12 percent to 721 agents at June 30,
2008 compared to 12 months earlier. "As anticipated, our decline in agent
count primarily reflects the loss of lower-producing agents and a reduction in
new agent hires as we transition our hiring standards to target only those
individuals we believe will be successful in the new Agency Business Model,"
Lower noted. Including 322 licensed producers who work for the agents, Horace
Mann's total points of distribution increased to 1,043, a growth of 3 percent
over prior year.
"We continue to be very pleased with the progress we are making in
transitioning to our new Agency Business Model. While it's still early in the
migration process, the approximately 200 agents who have completed Horace
Mann's agency business school have continued to outperform our other agents in
all key productivity measures, with double-digit increases in true new auto
units, new flexible annuity premiums and total first year earned commissions
in the second quarter, compared to prior year," said Lower. "Agency business
school graduate productivity, continued increases in policyholder retention
and a consistent growth trend in educator policies in force have helped offset
the decline in agent count and the adverse competitive and economic
environments, resulting in positive property and casualty written premium
growth and only a slight decline in property and casualty policies in force."
Realized Investment Gains and Losses
In 2008, pretax net realized investment losses were $8.1 million for the
second quarter, including $11.2 million of impairment write-downs and
$0.3 million of realized impairment losses on securities that were disposed of
during the quarter. The impairment write-downs were primarily related to two
collateralized debt obligation securities and five equity securities,
including four financial industry preferred stock issues. "While we realized
additional investment losses this quarter, our conservative investment
portfolio continues to serve us well in the current financial market
environment," said Lower.
Horace Mann -- the largest national multiline insurance company focusing
on educators' financial needs -- provides auto and homeowners insurance,
retirement annuities, life insurance and other financial solutions. Founded
by educators for educators in 1945, the company is headquartered in
Springfield, Ill. For more information, visit http://www.horacemann.com.
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 is not under any obligation to (and expressly disclaims any such
obligation to) update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. Please refer to the
company's Quarterly Report on Form 10-Q for the period ended March 31, 2008
and the company's past and future filings and reports filed with the
Securities and Exchange Commission for information concerning the important
factors that could cause actual results to differ materially from those in
forward-looking statements.
HORACE MANN EDUCATORS CORPORATION
Digest of Earnings and Highlights (Unaudited)
(Dollars in Millions, Except Per Share Data)
Quarter Ended Six Months Ended
June 30, June 30,
2008 2007 % Change 2008 2007 % Change
DIGEST OF EARNINGS
Net income $4.5 $23.1 -80.5% $18.8 $46.4 -59.5%
Net income per share:
Basic $0.11 $0.54 -79.6% $0.46 $1.08 -57.4%
Diluted (A) $0.11 $0.52 -78.8% $0.45 $1.04 -56.7%
Weighted average number
of shares and equivalent
shares (in millions) (B):
Basic 40.1 43.2 -7.2% 40.6 43.2 -6.0%
Diluted (A) 41.2 44.9 -8.2% 41.7 45.1 -7.5%
HIGHLIGHTS
Operations
Insurance premiums
written and contract
deposits $245.0 $250.8 -2.3% $469.6 $481.1 -2.4%
Return on equity (C) 8.5% 15.0% N.M.
Property & Casualty
GAAP combined ratio 106.7% 89.1% N.M. 100.2% 89.3% N.M.
Effect of catastrophe
costs on the Property
& Casualty combined
ratio 16.6% 3.7% N.M. 10.4% 2.7% N.M.
Experienced agents 549 577 -4.9%
Financed agents 172 244 -29.5%
Total agents 721 821 -12.2%
Licensed producers 322 187 72.2%
Total points of
distribution (D) 1,043 1,008 3.5%
Additional Per Share
Information
Dividends paid $0.105 $0.105 0.0% $0.21 $0.21 0.0%
Book value (E) $15.13 $15.08 0.3%
Financial Position
Total assets $6,053.0 $6,476.5 -6.5%
Short-term debt - - 0.0%
Long-term debt 199.5 199.5 0.0%
Total shareholders'
equity 591.1 652.5 -9.4%
N.M. - Not meaningful.
(A) Effective December 31, 2004, the Company adopted EITF Consensus 04-8,
"The Effect of Contingently Convertible Instruments on Diluted
Earnings per Share". Diluted per share information for all periods is
presented on a basis consistent with this consensus. On May 14, 2007,
the Company redeemed all remaining Senior Convertible Notes. For the
three and six months ended June 30, 2007, the Senior Convertible Notes
represented 0.6 million and 0.9 million equivalent shares and had
after tax interest expense of $0.1 million and $0.3 million,
respectively.
(B) In November and December 2007, the Company repurchased 1,111,600
shares of its common stock at an aggregate cost of $20.7 million, or
an average cost of $18.66 per share. During the three months ended
March 31, 2008, the Company repurchased 1,636,376 shares of its
common stock at an aggregate cost of $29.5 million, or an average cost
of $18.01 per share. During the three months ended June 30, 2008, the
Company repurchased 1,561,849 shares of its common stock at an
aggregate cost of $24.8 million, or an average cost of $15.93 per
share.
(C) Based on trailing 12-month net income and average quarter-end
shareholders' equity.
(D) Includes licensed producers working in exclusive agents' offices and
excludes independent agents.
(E) Book value per share excluding the fair value adjustment for
investments was $16.71 at June 30, 2008 and $15.88 at June 30, 2007.
Ending shares outstanding were 39,061,788 at June 30, 2008 and
43,275,184 at June 30, 2007.
- 1 -
HORACE MANN EDUCATORS CORPORATION
Statements of Operations and Supplemental GAAP Consolidated Data
(Unaudited)
(Dollars in Millions)
Quarter Ended Six Months Ended
June 30, June 30,
2008 2007 % Change 2008 2007 % Change
STATEMENTS OF OPERATIONS
Insurance premiums and
contract charges earned $163.8 $163.5 0.2% $326.3 $324.7 0.5%
Net investment income 57.8 55.4 4.3% 114.4 110.3 3.7%
Net realized investment
gains (losses) (8.1) (0.9) N.M. (10.5) 2.6 N.M.
Other income 2.7 3.5 -22.9% 5.3 6.1 -13.1%
Total revenues 216.2 221.5 -2.4% 435.5 443.7 -1.8%
Benefits, claims and
settlement expenses 122.1 100.0 22.1% 229.0 198.4 15.4%
Interest credited 32.6 31.6 3.2% 64.7 62.8 3.0%
Policy acquisition
expenses amortized 18.8 18.2 3.3% 39.8 37.3 6.7%
Operating expenses 33.3 34.2 -2.6% 68.1 69.3 -1.7%
Amortization of intangible
assets 1.6 1.3 23.1% 2.8 2.8 0.0%
Interest expense 3.4 3.5 -2.9% 6.8 7.2 -5.6%
Total benefits, losses
and expenses 211.8 188.8 12.2% 411.2 377.8 8.8%
Income before income taxes 4.4 32.7 -86.5% 24.3 65.9 -63.1%
Income tax expense
(benefit) (0.1) 9.6 N.M. 5.5 19.5 -71.8%
Net income $4.5 $23.1 -80.5% $18.8 $46.4 -59.5%
ANALYSIS OF PREMIUMS WRITTEN
AND CONTRACT DEPOSITS
Property & Casualty
Automobile and property
(voluntary) $137.7 $134.9 2.1% $264.3 $259.4 1.9%
Involuntary and other
property & casualty 0.8 0.9 -11.1% 1.0 1.7 -41.2%
Total Property &
Casualty 138.5 135.8 2.0% 265.3 261.1 1.6%
Annuity deposits 80.8 89.0 -9.2% 154.7 170.5 -9.3%
Life 25.7 26.0 -1.2% 49.6 49.5 0.2%
Total $245.0 $250.8 -2.3% $469.6 $481.1 -2.4%
ANALYSIS OF SEGMENT NET
INCOME (LOSS)
Property & Casualty $1.9 $17.9 -89.4% $14.9 $34.7 -57.1%
Annuity 5.1 5.1 0.0% 8.1 8.5 -4.7%
Life 5.2 3.6 44.4% 7.8 7.2 8.3%
Corporate and other (A) (7.7) (3.5) 120.0% (12.0) (4.0) 200.0%
Net income 4.5 23.1 -80.5% 18.8 46.4 -59.5%
Catastrophe costs,
after tax, included
above (B) (14.5) (3.2) 353.1% (18.0) (4.8) 275.0%
N.M. - Not meaningful.
(A) The Corporate and Other segment includes interest expense on debt and
the impact of realized investment gains and losses and other corporate
level items. The Company does not allocate the impact of corporate
level transactions to the insurance segments consistent with how
management evaluates the results of those segments. See detail for
this segment on page 4.
(B) Includes allocated loss adjustment expenses and catastrophe
reinsurance reinstatement premiums. See also page 3.
- 2 -
HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview (Unaudited)
(Dollars in Millions)
Quarter Ended Six Months Ended
June 30, June 30,
2008 2007 % Change 2008 2007 % Change
PROPERTY & CASUALTY
Premiums written $138.5 $135.8 2.0% $265.3 $261.1 1.6%
Premiums earned 134.5 133.6 0.7% 267.5 265.8 0.6%
Net investment income 9.1 9.3 -2.2% 18.3 18.5 -1.1%
Other income 0.5 1.2 -58.3% 1.1 1.7 -35.3%
Losses and loss adjustment
expenses (LAE) 111.0 86.9 27.7% 202.7 172.9 17.2%
Operating expenses
(includes policy
acquisition expenses
amortized) 32.5 32.2 0.9% 65.2 64.6 0.9%
Income before tax 0.6 25.0 -97.6% 19.0 48.5 -60.8%
Net income 1.9 17.9 -89.4% 14.9 34.7 -57.1%
Net investment income,
after tax 7.6 7.6 0.0% 15.3 15.2 0.7%
Catastrophe costs, after
tax (A) 14.5 3.2 353.1% 18.0 4.8 275.0%
Catastrophe losses and
LAE, before tax 22.4 4.9 357.1% 27.8 7.4 275.7%
Reinsurance reinstatement
premiums, before tax - - 0.0% - - 0.0%
Operating statistics:
Loss and loss adjustment
expense ratio 82.5% 65.0% N.M. 75.8% 65.0% N.M.
Expense ratio 24.2% 24.1% N.M. 24.4% 24.3% N.M.
Combined ratio 106.7% 89.1% N.M. 100.2% 89.3% N.M.
Effect of catastrophe
costs on the combined
ratio 16.6% 3.7% N.M. 10.4% 2.7% N.M.
Automobile and property
detail:
Premiums written
(voluntary) (B) $137.7 $134.9 2.1% $264.3 $259.4 1.9%
Automobile 90.3 89.9 0.4% 182.1 181.5 0.3%
Property 47.4 45.0 5.3% 82.2 77.9 5.5%
Premiums earned
(voluntary) (B) 134.1 131.0 2.4% 267.4 260.7 2.6%
Automobile 91.1 91.0 0.1% 182.0 182.1 -0.1%
Property 43.0 40.0 7.5% 85.4 78.6 8.7%
Policies in force
(voluntary) (in
thousands) 799 801 -0.2%
Automobile 535 536 -0.2%
Property 264 265 -0.4%
Policy renewal rate
(voluntary)
Automobile (6 months) 91.3% 91.0% N.M.
Property (12 months) 88.8% 87.8% N.M.
Voluntary automobile
operating statistics:
Loss and loss
adjustment
expense ratio 71.7% 69.9% N.M. 71.4% 69.3% N.M.
Expense ratio 24.3% 24.0% N.M. 24.3% 24.4% N.M.
Combined ratio 96.0% 93.9% N.M. 95.7% 93.7% N.M.
Effect of
catastrophe costs
on the combined
ratio 2.5% 0.7% N.M. 1.4% 0.4% N.M.
Total property operating
statistics:
Loss and loss
adjustment
expense ratio 106.2% 51.0% N.M. 86.2% 52.2% N.M.
Expense ratio 23.9% 25.1% N.M. 24.4% 25.0% N.M.
Combined ratio 130.1% 76.1% N.M. 110.6% 77.2% N.M.
Effect of
catastrophe costs
on the combined
ratio 47.5% 11.0% N.M. 29.8% 8.6% N.M.
Prior years' reserves
favorable (adverse)
development, pretax
Voluntary automobile $2.2 $1.4 57.1% $3.5 $4.4 -20.5%
Total property 0.2 4.2 -95.2% 0.6 6.7 -91.0%
Other property and
casualty - - N.M. 1.0 - N.M.
Total 2.4 5.6 -57.1% 5.1 11.1 -54.1%
N.M. - Not meaningful.
(A) Includes allocated loss adjustment expenses and catastrophe
reinsurance reinstatement premiums.
(B) Amounts are net of additional ceded premiums to reinstate the
Company's property and casualty catastrophe reinsurance coverage, if
any, as quantified above.
- 3 -
HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview (Unaudited)
(Dollars in Millions)
Quarter Ended Six Months Ended
June 30, June 30,
2008 2007 % Change 2008 2007 % Change
ANNUITY
Contract deposits $80.8 $89.0 -9.2% $154.7 $170.5 -9.3%
Variable 35.3 38.9 -9.3% 70.9 75.4 -6.0%
Fixed 45.5 50.1 -9.2% 83.8 95.1 -11.9%
Contract charges
earned 4.9 5.5 -10.9% 9.6 10.9 -11.9%
Net investment income 34.0 32.0 6.2% 67.1 63.5 5.7%
Net interest margin
(without realized
investment gains and
losses) 10.9 9.7 12.4% 21.4 19.2 11.5%
Other income 1.4 1.3 7.7% 2.7 2.5 8.0%
Mortality loss and
other reserve changes 0.4 (0.3) N.M. (0.1) (0.6) -83.3%
Operating expenses
(includes policy
acquisition expenses
amortized) 8.7 8.0 8.7% 20.2 17.7 14.1%
Amortization of
intangible assets 1.3 0.9 44.4% 2.2 2.1 4.8%
Income before tax 7.6 7.3 4.1% 11.2 12.2 -8.2%
Net income 5.1 5.1 0.0% 8.1 8.5 -4.7%
Pretax income increase
(decrease) due to
valuation of:
Deferred policy
acquisition costs $0.2 $0.5 -60.0% $(2.1) $- N.M.
Value of acquired
insurance in force (0.3) 0.1 N.M. (0.2) (0.1) 100.0%
Guaranteed minimum
death benefit
reserve - (0.2) -100.0% (0.1) (0.1) 0.0%
Annuity contracts in
force (in thousands) 168 165 1.8%
Accumulated value on
deposit $3,600.6 $3,723.7 -3.3%
Variable 1,382.7 1,602.8 -13.7%
Fixed 2,217.9 2,120.9 4.6%
Annuity accumulated
value retention - 12
months
Variable accumulations 91.8% 91.2% N.M.
Fixed accumulations 92.4% 92.4% N.M.
LIFE
Premiums and contract
deposits $25.7 $26.0 -1.2% $49.6 $49.5 0.2%
Premiums and contract
charges earned 24.4 24.4 0.0% 49.2 48.0 2.5%
Net investment income 14.9 14.2 4.9% 29.5 28.1 5.0%
Income before tax 7.9 5.7 38.6% 12.3 11.2 9.8%
Net income 5.2 3.6 44.4% 7.8 7.2 8.3%
Pretax income increase
(decrease) due to
valuation of:
Deferred policy
acquisition costs $(0.1) $0.1 N.M. $(0.1) $0.1 N.M.
Life policies in force
(in thousands) 225 230 -2.2%
Life insurance in force $13,647 $13,470 1.3%
Lapse ratio - 12 months
(Ordinary life
insurance) 5.6% 5.9% N.M.
CORPORATE AND OTHER (A)
Components of loss
before tax:
Net realized
investment gains
(losses) $(8.1) $(0.9) N.M. $(10.5) $2.6 N.M.
Interest expense (3.4) (3.5) -2.9% (6.8) (7.2) -5.6%
Other operating
expenses, net
investment income
and other income (0.2) (0.9) -77.8% (0.9) (1.4) -35.7%
Loss before tax (11.7) (5.3) 120.8% (18.2) (6.0) 203.3%
Net loss (7.7) (3.5) 120.0% (12.0) (4.0) 200.0%
N.M. - Not meaningful.
(A) The Corporate and Other segment includes interest expense on debt and
the impact of realized investment gains and losses and other corporate
level items. The Company does not allocate the impact of corporate
level transactions to the insurance segments consistent with how
management evaluates the results of those segments.
- 4 -
HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview (Unaudited)
(Dollars in Millions)
Quarter Ended Six Months Ended
June 30, June 30,
2008 2007 % Change 2008 2007 % Change
INVESTMENTS
Annuity and Life
Fixed maturities, at
fair value (amortized
cost 2008, $3,223.7;
2007, $3,125.9) $3,137.5 $3,075.2 2.0%
Equity securities, at
fair value
(cost 2008, $52.9;
2007, $13.5) 47.7 13.5 253.3%
Short-term investments 52.4 47.1 11.3%
Short-term investments,
securities lending
collateral 63.1 350.1 -82.0%
Policy loans and other 104.3 98.7 5.7%
Total Annuity and
Life investments 3,405.0 3,584.6 -5.0%
Property & Casualty
Fixed maturities, at
fair value (amortized
cost 2008, $682.9;
2007, $753.5) 671.3 745.4 -9.9%
Equity securities, at
fair value
(cost 2008, $39.9;
2007, $8.5) 37.0 8.7 325.3%
Short-term investments 26.1 20.8 25.5%
Short-term investments,
securities lending
collateral - - 0.0%
Total Property &
Casualty investments 734.4 774.9 -5.2%
Corporate investments 4.1 4.3 -4.7%
Total investments 4,143.5 4,363.8 -5.0%
Net investment income
Before tax $57.8 $55.4 4.3% $114.4 $110.3 3.7%
After tax 39.3 37.6 4.5% 77.8 74.9 3.9%
Net realized investment
gains (losses) by
investment portfolio
included in Corporate
and Other segment
gain (loss)
Property & Casualty $(1.5) $0.1 N.M. $(1.7) $0.4 N.M.
Annuity (7.7) 0.2 N.M. (11.1) 3.4 N.M.
Life 1.1 (1.2) N.M. 2.3 (1.2) N.M.
Corporate and Other - - 0.0% - - 0.0%
Total, before tax (8.1) (0.9) N.M. (10.5) 2.6 N.M.
Total, after tax (5.1) (0.6) N.M. (6.7) 1.7 N.M.
Per share, diluted $(0.12) $(0.01) N.M. $(0.16) $0.04 N.M.
N.M. - Not meaningful.
- 5 -
SOURCE Horace Mann Educators Corporation
Contact: Dwayne D. Hallman, Senior Vice President - Finance of Horace Mann Educators Corporation, +1-217-788-5708