UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: February 9, 2016
HORACE MANN EDUCATORS CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 1-10890 | 37-0911756 |
| (State of incorporation) | (Commission File Number) | (I.R.S. Employer |
| Identification No.) |
1 Horace Mann Plaza, Springfield, Illinois 62715-0001
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: 217-789-2500
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Forward-looking Information
Statements included in the accompanying press release that state Horace Mann Educators Corporation's (the “Company”) or its management's intentions, hopes, beliefs, expectations or predictions of future events or the Company's future financial performance are forward-looking statements and involve known and unknown risks, uncertainties and other factors. 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. It is important to note that the Company's actual results could differ materially from those projected in such forward-looking statements. Please refer to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2015 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.
| Item 2.02: | Results of Operations and Financial Condition |
On February 9, 2016, Horace Mann Educators Corporation issued a press release reporting its financial results for the three and twelve month periods ended December 31, 2015. A copy of the press release is attached as Exhibit 99.2 and is incorporated by reference herein.
The Company’s Investor Financial Supplement has been posted on the investors page of its website, investors.horacemann.com, and the Investor Presentation is anticipated to be posted there on February 10, 2016.
| Item 9.01: | Financial Statements and Exhibits |
| (d) | Exhibits. |
| 99.1 | Glossary of Selected Terms |
| 99.2 | Press release dated February 9, 2016 reporting financial results for the three and twelve month periods ended December 31, 2015. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| HORACE MANN EDUCATORS CORPORATION | |||
| By: | /s/ Bret A. Conklin | ||
| Name: | Bret A. Conklin | ||
| Title: | Senior Vice President & Controller | ||
| (Principal Accounting Officer) | |||
Date: February 9, 2016
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Exhibit 99.1
Glossary of Selected Terms
The following measures are used by the Company's management to evaluate performance against historical results and establish targets on a consolidated basis. A number of these measures are components of net income or the balance sheet but, in some cases, may be considered non-GAAP financial measures under applicable SEC rules because they are not displayed as separate line items in the Consolidated Statement of Operations or Consolidated Balance Sheet, and in some cases, there is inclusion or exclusion of certain items not ordinarily included or excluded in a GAAP financial measure. In the opinion of the Company's management, a discussion of these measures is meaningful to provide investors with an understanding of the significant factors that comprise the Company's periodic results of operations and financial condition.
Agent - A licensed representative of an insurer in marketing insurance products.
| · | Exclusive Agency - A local Horace Mann agency created and owned by an independent contractor who has signed an Exclusive Agent agreement with the Company (an “Exclusive Agent”). That agreement states that only the Company's products and limited additional third-party vendor products authorized by the Company will be marketed by the agency. An independent contractor may sign multiple Exclusive Agent agreements with the Company and manage more than one Exclusive Agency. |
| · | Employee Agents - Agents who have employee status with the Company and by contract market only the Company's products and limited additional third-party vendor products authorized by the Company. |
| · | Independent Agents - Non-exclusive independent contractors who are under contract with the Company to market the Company's annuity products but who are not restricted to writing only the Company's products and products authorized by the Company. |
Book value per share excluding the fair value adjustment for investments - The result of dividing total shareholders' equity excluding after tax net unrealized gains and losses on fixed maturities and equity securities, including the related effect on certain deferred policy acquisition costs and value of acquired insurance in force, by ending shares outstanding. Book value per share is the most directly comparable GAAP measure. Management believes it is useful to consider the trend in book value per share excluding unrealized net investment gains and losses in conjunction with book value per share to identify and analyze the change in net worth. Management also believes the non-GAAP measure is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period and are generally driven by economic developments, primarily financial market conditions, the magnitude and timing of which are generally not influenced by the Company’s underlying insurance operations.
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Catastrophe costs - The sum of catastrophe losses and property and casualty catastrophe reinsurance reinstatement premiums.
Catastrophe losses - In categorizing property and casualty claims as being from a catastrophe, the Company utilizes the designations of the Property Claim Services, a subsidiary of Insurance Services Office, Inc., and additionally beginning in 2007, includes losses from all such events that meet the definition of covered loss in the Company’s primary catastrophe excess of loss reinsurance contract, and reports loss and loss adjustment expense amounts net of reinsurance recoverables. A catastrophe is a severe loss resulting from natural and man-made events within a particular territory, including risks such as hurricane, fire, earthquake, windstorm, explosion, terrorism and other similar events, that causes $25 million or more in insured property and casualty losses for the industry and affects a significant number of property and casualty insurers and policyholders. Each catastrophe has unique characteristics. Catastrophes are not predictable as to timing or amount of loss in advance. Their effects are not included in earnings or claim and claim adjustment expense reserves prior to occurrence. In the opinion of the Company's management, a discussion of the impact of catastrophes is meaningful for investors to understand the variability in periodic earnings.
Insurance premiums written and contract deposits - Premiums written represent (1) the amount charged for policies issued during a fiscal period for property and casualty business, such amounts may be earned and included in financial results over future fiscal periods, and (2) the amount charged for policies in force during a fiscal period for traditional life and group life business. Amounts are reported net of reinsurance, unless otherwise specified. Contract deposits include amounts received from customers on deposit-type contracts, such as annuities and interest-sensitive life policy accounts, including deposit amounts and any related contract or policy fees. Management utilizes this non-GAAP measure, which is based on statutory accounting principles, in analyzing and evaluating the business growth of its operating segments. Insurance premiums and contract charges earned is the most directly comparable GAAP measure.
Net Reserves - Property and casualty unpaid claim and claim expense reserves net of anticipated reinsurance recoverables.
Operating income or Net income before realized investment gains and losses - Net income adjusted to exclude after tax realized investment gains and losses. Net income is the most directly comparable GAAP measure. Management believes the measure provides investors with a valuable measure of the Company’s ongoing performance because it reveals trends in the business that may be obscured by the net effect of realized investment gains and losses. Realized investment gains and losses may vary significantly between periods and are generally driven by business decisions and external economic developments that are unrelated to the insurance underwriting process. Operating income is used by management along with other components of net income to assess their performance and adjusted measures of operating income and operating income per diluted share are used in incentive compensation programs. Management believes that a projection of net income including after tax realized investment gains and losses is not appropriate on a forward-looking basis because it is not possible to provide a valid forecast of realized investment gains and losses, which can vary substantially from one period to another and may have a significant impact on net income.
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Prior Years' Reserve Development - A measure which the Company reports for its property and casualty segment which identifies the increase or decrease in net incurred claim and claim adjustment expense reserves at successive valuation dates for claims which occurred in previous calendar years. In the opinion of the Company's management, a discussion of prior years' loss reserve development is useful to investors as it allows them to assess the impact on current period earnings of incurred claims experience from the current calendar year and previous calendar years.
Property and casualty operating statistics - Operating measures utilized by the Company and the insurance industry regarding the relative profitability of property and casualty underwriting results.
| · | Loss Ratio or Loss and Loss Adjustment Expense Ratio - The ratio of (1) the sum of net incurred losses and loss adjustment expenses to (2) net earned premiums. |
| · | Expense Ratio - The ratio of (1) the sum of operating expenses and the amortization of policy acquisition costs to (2) net earned premiums. |
| · | Combined Ratio - The sum of the Loss Ratio and the Expense Ratio. A Combined Ratio less than 100% generally indicates profitable underwriting prior to the consideration of investment income. |
| · | Combined Ratio Excluding Catastrophes and Prior Years' Reserve Development or Underlying Combined Ratio - The sum of the Loss Ratio and the Expense Ratio adjusted to remove the effect of catastrophe costs and prior years' reserve development. The Combined Ratio is the most directly comparable GAAP measure. Management believes this ratio provides a valuable measure of the Company’s underlying underwriting performance that may be obscured by the effects of catastrophe costs and prior years’ reserve development, the amounts of which may be significant and may vary significantly between periods. |
Return on equity - The ratio of (1) trailing 12-month net income to (2) the average of ending shareholders' equity for the current quarter end and the preceding four quarter ends.
Sales or Annualized New Sales - Sales represent the amount of new business sold during the period and exclude renewal of policies sold in previous periods. Sales are measured by the Company as premiums and deposits to be collected over the 12 months following the sale of a new policy for annuity, life, automobile and homeowners business, as well as increases in contributions to annuity and certain life business, and this time period may extend into the following calendar year. In addition, the Company may disclose new policy count (units) information for automobile and homeowners business. Sales data pertains to Horace Mann products and excludes authorized products sold by Exclusive Agents, Employee Agents, and their licensed staff which are underwritten by third-party vendors. Sales should not be viewed as a substitute for any financial measure determined in accordance with GAAP, including "sales" as it relates to non-insurance companies, and the Company's definition of sales might differ from that used by other companies. The Company utilizes sales information as a performance measure that indicates the productivity of its agency force. Sales are also a leading indicator of future revenue trends.
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Exhibit 99.2
[Horace Mann Educators Corporation logo]
Contact information:
Ryan Greenier, Vice President, Investor Relations
217-788-5738
HORACE MANN REPORTS FOURTH QUARTER 2015
OPERATING EPS OF $0.43
| · | Full year operating income of $2.00 per diluted share |
| · | Fourth quarter income reflected elevated catastrophe losses, lower alternative investment returns, negative DAC unlocking and debt refinancing expenses |
| · | Full year auto sales increased 7%; policy-in-force growth of 1.2% |
| · | Book value per share excluding the fair value adjustment for investments of $26.86, up 6% compared to a year ago |
SPRINGFIELD, Ill., February 9, 2016 — Horace Mann Educators Corporation (NYSE:HMN) today reported financial results for the three and twelve months ended December 31, 2015:
| Horace Mann Financial Highlights | |||||||
Three months ended December 31, |
Twelve months ended December 31, | ||||||
($ in millions, except per share amounts) |
2015 |
2014 |
Change |
2015 |
2014 |
Change | |
| Total revenues | $276.1 | $269.1 | 2.6% | $1,080.4 | $1,060.7 | 1.9% | |
| Net income | 21.1 | 30.0 | -29.7% | 93.5 | 104.2 | -10.3% | |
| Net income per diluted share | 0.50 | 0.71 | -29.6% | 2.20 | 2.47 | -10.9% | |
| Operating income* | 18.0 | 28.7 | -37.3% | 84.9 | 97.3 | -12.7% | |
Operating income per diluted share* |
0.43 |
0.68 |
-36.8% |
2.00 |
2.30 |
-13.0% | |
| Book value per share | 31.18 | 32.65 | -4.5% | ||||
Book value per share excluding the fair value adjustment for investments* |
26.86 |
25.38 |
5.8% | ||||
Property and Casualty segment net income |
7.9 |
16.2 |
-51.2% |
40.0 |
46.9 |
-14.7% | |
Property and Casualty combined ratio |
98.6% |
91.9% |
6.7 pts |
97.0% |
96.1% |
0.9 pts | |
Property and Casualty underlying combined ratio* |
95.2% |
94.4% |
0.8 pts |
91.7% |
92.5% |
-0.8 pts | |
| Annuity segment net income | $ 10.4 | $ 11.2 | -7.1% | $ 43.4 | $ 45.3 | -4.2% | |
| Life segment net income | 4.4 | 4.7 | -6.4% | 15.0 | 17.5 | -14.3% | |
* These measures are not based on accounting principles generally accepted in the United States (“non-GAAP”). They are reconciled to the most directly comparable GAAP measures in the supplemental numerical pages of this document. An explanation of these measures is contained in the Glossary of Selected Terms included as an exhibit in the company’s reports filed with the SEC.
“Horace Mann’s full year operating income of $2.00 per diluted share included fourth quarter operating income of $0.43 per diluted share, which reflected debt retirement related costs of roughly $0.05 per share. Property and casualty results in the quarter were impacted by an elevated level of catastrophe losses, as well as increased loss severities in auto. Underlying property results continue to be strong. Importantly, we grew auto policies in force as a result of an increase in sales and continued strong
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retention. Annuity results reflected the negative equity market performance in the quarter, as well as the continued impact of the low interest rate environment. Annuity sales continue to be strong. In the life segment, we introduced our new Indexed Universal Life product, which we expect to favorably impact sales in 2016,” said Horace Mann’s President and CEO Marita Zuraitis.
“We are projecting full-year 2016 operating income of between $2.15 and $2.35 per diluted share,” stated Zuraitis. “This estimate anticipates continued improvement in our underlying property and casualty combined ratio, somewhat offset by a lower amount of favorable prior years’ reserve development, modestly lower earnings in the annuity and life segments reflecting investment interest rate pressure, and continued strategic investments across all of our operations”.
Property and Casualty Segment
For the full year, property and casualty net income of $40.0 million decreased 15%, or $6.9 million, compared to the prior year. The 2015 total property and casualty combined ratio of 97.0% increased 0.9 point compared to a year earlier, including an underlying loss ratio that was nearly equal to the prior year. Catastrophe losses were $6.9 million pretax higher than full year 2014, representing 0.9 point of the combined ratio increase. Prior years’ reserves continue to develop favorably; however, the favorable development in 2015 was $4.5 million pretax less than the 2014 amount, representing 0.8 point of the combined ratio increase — a decrease in auto exceeded the increase in property compared to the prior year. On an underlying basis, the full year auto combined ratio of 102.7% increased approximately 1.5 points compared to a year earlier, primarily as a result of higher loss severity. For property, the underlying combined ratio was 70.3% for 2015, which was 6.2 points lower than 2014, primarily reflecting the impacts of initiatives to improve profitability, as well as lower reinsurance costs.
For the fourth quarter of 2015, property and casualty net income of $7.9 million decreased 51%, or $8.3 million, compared to the prior year, including an increase in current accident year auto loss severity. The fourth quarter total property and casualty combined ratio of 98.6% increased 6.7 points compared to the fourth quarter of 2014. The $5.6 million pretax increase in catastrophe losses compared to the prior year fourth quarter represented 3.7 points of the combined ratio increase; favorable prior years’ reserve development was $3.1 million less than the prior year amount, primarily for auto, contributing 2.2 points to the combined ratio increase in 2015. On an underlying basis, the fourth quarter auto combined ratio of 109.6% was approximately 2 points higher than a year earlier, primarily driven by higher loss severity. For property, the underlying combined ratio was 67.6% for the fourth quarter, approximately 3 points lower than the fourth quarter of 2014 due to continued profitability improvement initiatives.
Total property and casualty written premiums of $150.8 million and $605.8 million for the three and twelve months ended December 31, 2015, respectively, each increased 4% compared to the respective prior year periods. The growth was driven primarily by increases in average premium per policy for both auto and property, accompanied by reductions in catastrophe reinsurance costs and an increase in auto policies in force.
Total property and casualty sales increased 9% and 6% compared to the fourth quarter and twelve months of 2014, respectively. Auto sales increased 11% and 7% compared to the respective prior year periods, while property sales were comparable to the fourth quarter of 2014 and increased 2% for the full year. Policy retention continues to be strong with auto and property policy retention rates for the current year at 85% and 88%, respectively.
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Annuity Segment
For the fourth quarter of 2015, annuity segment net income excluding deferred policy acquisition costs unlocking (“unlocking”) was $11.4 million and equal to the prior year period, including a $0.8 million pretax increase in the net interest margin. For full year 2015, net income on the same basis of $45.6 million decreased $0.5 million compared to 2014. On a reported basis, annuity segment net income of $10.4 million and $43.4 million for the fourth quarter and full year decreased 7% and 4%, respectively, compared to the same periods in 2014. In the 2015 periods, the impact of unlocking deferred policy acquisition costs decreased pretax income by $1.2 million and $2.2 million compared to the three and twelve months ended December 31, 2014, respectively.
The 2015 annual net interest spread of 184 basis points on fixed annuity assets continued to reflect solid investment portfolio performance and disciplined crediting rate management, with the decrease compared to the 2014 annual net interest spread of 204 attributable to pressures of the low interest rate environment and lower alternative investment returns in 2015. The net interest margin was comparable to full year 2014. Total annuity assets under management of $6.0 billion increased 5% compared to December 31, 2014, and total cash value persistency remained strong at approximately 95%.
For the three and twelve months ended December 31, 2015, annuity deposits of $125.8 million and $548.0 million increased 6% and 14%, respectively, compared to the prior year periods. The full year increase of $67.4 million included an increase of approximately $30 million attributable to changes in the company’s employee retirement savings plans. Excluding that item, the remaining full year increase of approximately $35 million, or 7%, was primarily due to notable growth in the amount of single premium and rollover deposits received in 2015, accompanied by growth in recurring deposit receipts.
Horace Mann’s total annuity sales increased 7% and 9% compared to the three and twelve months ended December 31, 2014, respectively, reflecting growth in single premium and rollover deposits as well as recurring deposit business. For the full year, annuity sales by the company’s agency force increased 8% compared to the prior year, while annuity sales from the independent agent distribution channel, which currently produces about 10% of total annuity sales, increased 16%.
Life Segment
Life segment net income of $4.4 million and $15.0 million for the three and twelve months, respectively, decreased $0.3 million and $2.5 million compared to the same periods in 2014, primarily attributable to an increase in mortality losses in 2015, compared to the prior year periods.
In 2015, life segment insurance premiums and contract deposits of $28.6 million for the fourth quarter and $102.7 million for the full year were comparable to the same periods in 2014. Life persistency of 96% was comparable to 12 months earlier. For the full year, life sales of $10.9 million decreased $0.2 million compared to 2014, including a decrease of $0.3 million in the fourth quarter.
Investment Results
Total net investment income increased 2% and 1% compared to the three and twelve months ended December 31, 2014, respectively. While asset balances in the annuity segment continued to grow, overall investment results reflected the impact of the current interest rate environment, as well as lower alternative investment returns in 2015. Pretax net realized investment gains were $3.9 million and $12.7 million for the three and twelve months ended December 31, 2015, respectively.
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Horace Mann’s net unrealized investment gains on fixed maturity and equity securities were $309.8 million at December 31, 2015, compared to net unrealized gains of $403.2 million at September 30, 2015 and $528.6 million at December 31, 2014.
Capital Management
During the fourth quarter of 2015, the company repurchased 186,594 shares of its common stock at an aggregate cost of $6.2 million, under its share repurchase program. As of December 31, 2015, the company had a remaining authorization of $51.0 million.
As previously disclosed, in November 2015, the company issued $250.0 million of 4.50% Senior Notes due in 2025. Proceeds were used to redeem the company’s outstanding 6.85% Senior Notes due 2016 and fully repay the balance outstanding under the bank credit facility. The company incurred approximately $3 million pretax, or $0.05 per diluted share, of debt retirement related costs in the fourth quarter of 2015, largely due to the make-whole premium on the senior notes that were redeemed.
Webcast Conference Call
Horace Mann’s senior management will discuss the company’s fourth quarter financial results with investors and analysts on February 10, 2016 at 9:00 a.m. Eastern Time. The conference call will be webcast live on the Internet at investors.horacemann.com and archived later in the day for replay.
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 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 September 30, 2015 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. The information contained in this press release includes financial measures which are based on methodologies other than United States generally accepted accounting principles (“GAAP”). Reconciliations of non-GAAP measures to the closest GAAP measures are contained in the supplemental numerical pages of this release and additional descriptions of the non-GAAP measures are contained in the Glossary of Selected Terms included as an exhibit to the company’s SEC filings.
# # #
HORACE MANN EDUCATORS CORPORATION
Financial Highlights (Unaudited)
(Dollars in Millions, Except Per Share Data)
| Three Months Ended | Year Ended | |||||||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||||||
| 2015 | 2014 | % Change | 2015 | 2014 | % Change | |||||||||||||||||||
| EARNINGS SUMMARY | ||||||||||||||||||||||||
| Net income | $ | 21.1 | $ | 30.0 | -29.7 | % | $ | 93.5 | $ | 104.2 | -10.3 | % | ||||||||||||
| Net realized investment gains, after tax | 3.1 | 1.3 | 138.5 | % | 8.6 | 6.9 | 24.6 | % | ||||||||||||||||
| Operating income (A) | 18.0 | 28.7 | -37.3 | % | 84.9 | 97.3 | -12.7 | % | ||||||||||||||||
| Per diluted share: | ||||||||||||||||||||||||
| Net income | $ | 0.50 | $ | 0.71 | -29.6 | % | $ | 2.20 | $ | 2.47 | -10.9 | % | ||||||||||||
| Net realized investment gains, after tax | $ | 0.07 | $ | 0.03 | 133.3 | % | $ | 0.20 | $ | 0.17 | 17.6 | % | ||||||||||||
| Operating income (A) | $ | 0.43 | $ | 0.68 | -36.8 | % | $ | 2.00 | $ | 2.30 | -13.0 | % | ||||||||||||
| Weighted average number of shares and equivalent shares (in millions) - Diluted | 42.1 | 42.4 | -0.7 | % | 42.4 | 42.2 | 0.5 | % | ||||||||||||||||
| RETURN ON EQUITY | ||||||||||||||||||||||||
| Net income return on equity (B) | 7.1 | % | 8.4 | % | N.M. | |||||||||||||||||||
| Operating income return on equity excluding the fair value adjustment for investments (A) (C) | 7.9 | % | 9.7 | % | N.M. | |||||||||||||||||||
| FINANCIAL POSITION | ||||||||||||||||||||||||
| Per share (D): | ||||||||||||||||||||||||
| Book value | $ | 31.18 | $ | 32.65 | -4.5 | % | ||||||||||||||||||
| Effect of the fair value adjustment for investments (E) | $ | 4.32 | $ | 7.27 | -40.6 | % | ||||||||||||||||||
| Book value excluding the fair value adjustment for investments (A) | $ | 26.86 | $ | 25.38 | 5.8 | % | ||||||||||||||||||
| Dividends paid | $ | 0.25 | $ | 0.23 | 8.7 | % | $ | 1.00 | $ | 0.92 | 8.7 | % | ||||||||||||
| Ending number of shares outstanding (in millions) (D) | 40.6 | 40.9 | -0.7 | % | ||||||||||||||||||||
| Total assets | $ | 10,059.3 | $ | 9,768.5 | 3.0 | % | ||||||||||||||||||
| Short-term debt | - | 38.0 | -100.0 | % | ||||||||||||||||||||
| Long-term debt, current and noncurrent | 249.3 | 199.9 | 24.7 | % | ||||||||||||||||||||
| Total shareholders’ equity | 1,264.7 | 1,336.5 | -5.4 | % | ||||||||||||||||||||
| ADDITIONAL INFORMATION | ||||||||||||||||||||||||
| Total Horace Mann Exclusive Agencies (F) & Employee Agents (G) | 735 | 755 | -2.6 | % | ||||||||||||||||||||
N.M. - Not meaningful.
| (A) | These measures are not based on accounting principles generally accepted in the United States (“non-GAAP”). An explanation of these measures is contained in the Glossary of Selected Terms included as an exhibit in the Company’s reports filed with the SEC. |
| (B) | Based on trailing 12-month net income and average quarter-end shareholders’ equity. |
| (C) | Based on trailing 12-month operating income and average quarter-end shareholders’ equity which has been adjusted to exclude the fair value adjustment for investments, net of the related impact on deferred policy acquisition costs and the applicable deferred taxes. |
| (D) | Ending shares outstanding were 40,566,032 at December 31, 2015 and 40,936,618 at December 31, 2014. |
| (E) | Net of the related impact on deferred policy acquisition costs and the applicable deferred taxes. |
| (F) | Local Horace Mann agencies created and owned by independent contractors who have signed Exclusive Agent agreements with the Company (“Exclusive Agents”). Those agreements state that only the Company’s products and limited additional third-party vendor products authorized by the Company will be marketed by the agencies. An independent contractor may sign multiple Exclusive Agent agreements with the Company and manage more than one Exclusive Agency. |
| (G) | Agents who have employee status with the Company and by contract market only the Company’s products and limited additional third-party vendor products authorized by the Company. |
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HORACE MANN EDUCATORS CORPORATION
Statements of Operations and Supplemental Consolidated Data (Unaudited)
(Dollars in Millions)
| Three Months Ended | Year Ended | |||||||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||||||
| 2015 | 2014 | % Change | 2015 | 2014 | % Change | |||||||||||||||||||
| STATEMENTS OF OPERATIONS | ||||||||||||||||||||||||
| Insurance premiums and contract charges earned | $ | 187.0 | $ | 182.2 | 2.6 | % | $ | 731.9 | $ | 715.8 | 2.2 | % | ||||||||||||
| Net investment income | 84.3 | 82.8 | 1.8 | % | 332.6 | 329.8 | 0.8 | % | ||||||||||||||||
| Net realized investment gains | 3.9 | 2.2 | 77.3 | % | 12.7 | 10.9 | 16.5 | % | ||||||||||||||||
| Other income | 0.9 | 1.9 | -52.6 | % | 3.2 | 4.2 | -23.8 | % | ||||||||||||||||
| Total revenues | 276.1 | 269.1 | 2.6 | % | 1,080.4 | 1,060.7 | 1.9 | % | ||||||||||||||||
| Benefits, claims and settlement expenses | 128.3 | 111.8 | 14.8 | % | 496.4 | 468.4 | 6.0 | % | ||||||||||||||||
| Interest credited | 46.7 | 44.8 | 4.2 | % | 182.8 | 176.1 | 3.8 | % | ||||||||||||||||
| Policy acquisition expenses amortized | 25.5 | 23.8 | 7.1 | % | 98.9 | 93.8 | 5.4 | % | ||||||||||||||||
| Operating expenses | 41.8 | 43.0 | -2.8 | % | 157.4 | 162.1 | -2.9 | % | ||||||||||||||||
| Interest expense | 3.5 | 3.6 | -2.8 | % | 13.1 | 14.2 | -7.7 | % | ||||||||||||||||
| Debt retirement costs | 2.3 | - | N.M. | 2.3 | - | N.M. | ||||||||||||||||||
| Total benefits, losses and expenses | 248.1 | 227.0 | 9.3 | % | 950.9 | 914.6 | 4.0 | % | ||||||||||||||||
| Income before income taxes | 28.0 | 42.1 | -33.5 | % | 129.5 | 146.1 | -11.4 | % | ||||||||||||||||
| Income tax expense | 6.9 | 12.1 | -43.0 | % | 36.0 | 41.9 | -14.1 | % | ||||||||||||||||
| Net income | $ | 21.1 | $ | 30.0 | -29.7 | % | $ | 93.5 | $ | 104.2 | -10.3 | % | ||||||||||||
| PREMIUMS WRITTEN AND CONTRACT DEPOSITS | ||||||||||||||||||||||||
| Property & Casualty | $ | 150.8 | $ | 144.4 | 4.4 | % | $ | 605.8 | $ | 584.4 | 3.7 | % | ||||||||||||
| Annuity deposits | 125.8 | 118.9 | 5.8 | % | 548.0 | 480.6 | 14.0 | % | ||||||||||||||||
| Life | 28.6 | 29.0 | -1.4 | % | 102.7 | 102.7 | - | |||||||||||||||||
| Total | $ | 305.2 | $ | 292.3 | 4.4 | % | $ | 1,256.5 | $ | 1,167.7 | 7.6 | % | ||||||||||||
| SEGMENT NET INCOME (LOSS) | ||||||||||||||||||||||||
| Property & Casualty | $ | 7.9 | $ | 16.2 | -51.2 | % | $ | 40.0 | $ | 46.9 | -14.7 | % | ||||||||||||
| Annuity | 10.4 | 11.2 | -7.1 | % | 43.4 | 45.3 | -4.2 | % | ||||||||||||||||
| Life | 4.4 | 4.7 | -6.4 | % | 15.0 | 17.5 | -14.3 | % | ||||||||||||||||
| Corporate and other (A) | (1.6 | ) | (2.1 | ) | -23.8 | % | (4.9 | ) | (5.5 | ) | -10.9 | % | ||||||||||||
| Net income | $ | 21.1 | $ | 30.0 | -29.7 | % | $ | 93.5 | $ | 104.2 | -10.3 | % | ||||||||||||
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. |
| - 2 - |
HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview (Unaudited)
(Dollars in Millions)
| Three Months Ended | Year Ended | |||||||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||||||
| 2015 | 2014 | % Change | 2015 | 2014 | % Change | |||||||||||||||||||
| PROPERTY & CASUALTY | ||||||||||||||||||||||||
| Premiums written | $ | 150.8 | $ | 144.4 | 4.4 | % | $ | 605.8 | $ | 584.4 | 3.7 | % | ||||||||||||
| Premiums earned | 152.4 | 147.7 | 3.2 | % | 596.0 | 581.8 | 2.4 | % | ||||||||||||||||
| Net investment income | 7.7 | 9.2 | -16.3 | % | 33.5 | 36.8 | -9.0 | % | ||||||||||||||||
| Other income | - | 1.2 | -100.0 | % | 0.2 | 1.4 | -85.7 | % | ||||||||||||||||
| Losses and loss adjustment expenses (LAE) | 108.9 | 94.7 | 15.0 | % | 420.3 | 399.5 | 5.2 | % | ||||||||||||||||
| Operating expenses (includes policy acquisition expenses amortized) | 41.4 | 41.2 | 0.5 | % | 158.1 | 159.7 | -1.0 | % | ||||||||||||||||
| Income before tax | 9.8 | 22.2 | -55.9 | % | 51.3 | 60.8 | -15.6 | % | ||||||||||||||||
| Net income | 7.9 | 16.2 | -51.2 | % | 40.0 | 46.9 | -14.7 | % | ||||||||||||||||
| Net investment income, after tax | 6.5 | 7.7 | -15.6 | % | 28.4 | 30.9 | -8.1 | % | ||||||||||||||||
| Catastrophe costs (A) | ||||||||||||||||||||||||
| After tax | 5.0 | 1.3 | N.M. | 28.9 | 24.4 | 18.4 | % | |||||||||||||||||
| Before tax | 7.6 | 2.0 | N.M. | 44.4 | 37.5 | 18.4 | % | |||||||||||||||||
| Prior years’ reserves favorable (adverse) development, before tax | ||||||||||||||||||||||||
| Automobile | 0.1 | 2.7 | -96.3 | % | 4.3 | 13.2 | -67.4 | % | ||||||||||||||||
| Property | 2.4 | 2.2 | 9.1 | % | 7.0 | 2.2 | 218.2 | % | ||||||||||||||||
| Other liability | - | 0.7 | -100.0 | % | 1.2 | 1.6 | -25.0 | % | ||||||||||||||||
| Total | 2.5 | 5.6 | -55.4 | % | 12.5 | 17.0 | -26.5 | % | ||||||||||||||||
| Operating statistics: | ||||||||||||||||||||||||
| Loss and loss adjustment expense ratio | 71.5 | % | 64.1 | % | N.M. | 70.5 | % | 68.7 | % | N.M. | ||||||||||||||
| Expense ratio | 27.1 | % | 27.8 | % | N.M. | 26.5 | % | 27.4 | % | N.M. | ||||||||||||||
| Combined ratio | 98.6 | % | 91.9 | % | N.M. | 97.0 | % | 96.1 | % | N.M. | ||||||||||||||
| Effect on the combined ratio of: | ||||||||||||||||||||||||
| Catastrophe costs (A) | 5.0 | % | 1.3 | % | N.M. | 7.4 | % | 6.5 | % | N.M. | ||||||||||||||
| Prior years’ reserve development | -1.6 | % | -3.8 | % | N.M. | -2.1 | % | -2.9 | % | N.M. | ||||||||||||||
| Combined ratio excluding the effects of catastrophe costs and prior years’ reserve development (“underlying combined ratio”) (B) | 95.2 | % | 94.4 | % | N.M. | 91.7 | % | 92.5 | % | N.M. | ||||||||||||||
| Policies in force (voluntary) (in thousands) | 711 | 710 | 0.1 | % | ||||||||||||||||||||
| Automobile | 487 | 481 | 1.2 | % | ||||||||||||||||||||
| Property | 224 | 229 | -2.2 | % | ||||||||||||||||||||
| Policy renewal rate (voluntary) - 12 months | ||||||||||||||||||||||||
| Automobile | 84.7 | % | 84.7 | % | N.M. | |||||||||||||||||||
| Property | 88.3 | % | 87.9 | % | N.M. | |||||||||||||||||||
N.M. - Not meaningful.
| (A) | Includes allocated loss adjustment expenses and, when applicable, catastrophe reinsurance reinstatement premiums. For the periods presented, there were no reinsurance reinstatement premiums. |
| (B) | This measure is not based on accounting principles generally accepted in the United States (“non-GAAP”). |
| See footnote (A) on page 1 of these supplemental numerical pages. |
| - 3 - |
HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview (Unaudited)
(Dollars in Millions)
| Three Months Ended | Year Ended | |||||||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||||||
| 2015 | 2014 | % Change | 2015 | 2014 | % Change | |||||||||||||||||||
| ANNUITY | ||||||||||||||||||||||||
| Contract deposits | $ | 125.8 | $ | 118.9 | 5.8 | % | $ | 548.0 | $ | 480.6 | 14.0 | % | ||||||||||||
| Variable | 42.3 | 38.2 | 10.7 | % | 174.9 | 140.6 | 24.4 | % | ||||||||||||||||
| Fixed | 83.5 | 80.7 | 3.5 | % | 373.1 | 340.0 | 9.7 | % | ||||||||||||||||
| Contract charges earned | 6.1 | 6.6 | -7.6 | % | 25.4 | 25.6 | -0.8 | % | ||||||||||||||||
| Net investment income | 58.6 | 55.9 | 4.8 | % | 228.4 | 222.1 | 2.8 | % | ||||||||||||||||
| Interest credited | 35.7 | 33.8 | 5.6 | % | 138.7 | 132.5 | 4.7 | % | ||||||||||||||||
| Net interest margin (without realized investment gains/losses) | 22.9 | 22.1 | 3.6 | % | 89.7 | 89.6 | 0.1 | % | ||||||||||||||||
| Other income | 0.6 | 0.5 | 20.0 | % | 2.1 | 1.8 | 16.7 | % | ||||||||||||||||
| Mortality loss and other reserve changes | (1.3 | ) | (0.5 | ) | 160.0 | % | (3.2 | ) | (2.2 | ) | 45.5 | % | ||||||||||||
| Operating expenses (includes policy acquisition expenses amortized) | 13.3 | 12.7 | 4.7 | % | 50.7 | 48.1 | 5.4 | % | ||||||||||||||||
| Income before tax | 15.0 | 16.0 | -6.3 | % | 63.3 | 66.7 | -5.1 | % | ||||||||||||||||
| Net income | 10.4 | 11.2 | -7.1 | % | 43.4 | 45.3 | -4.2 | % | ||||||||||||||||
| Pretax income increase (decrease) due to evaluation of: | ||||||||||||||||||||||||
| Deferred policy acquisition costs | $ | (1.5 | ) | $ | (0.3 | ) | N.M. | $ | (3.4 | ) | $ | (1.2 | ) | N.M. | ||||||||||
| Guaranteed minimum death benefit reserve | - | - | - | (0.1 | ) | (0.1 | ) | - | ||||||||||||||||
| Annuity contracts in force (in thousands) | 211 | 203 | 3.9 | % | ||||||||||||||||||||
| Accumulated account value on deposit / Assets under management | $ | 5,997.7 | $ | 5,698.7 | 5.2 | % | ||||||||||||||||||
| Variable | 1,800.7 | 1,813.6 | -0.7 | % | ||||||||||||||||||||
| Fixed | 4,197.0 | 3,885.1 | 8.0 | % | ||||||||||||||||||||
| Annuity accumulated value retention - 12 months | ||||||||||||||||||||||||
| Variable accumulations | 94.3 | % | 94.0 | % | N.M. | |||||||||||||||||||
| Fixed accumulations | 94.8 | % | 94.5 | % | N.M. | |||||||||||||||||||
| LIFE | ||||||||||||||||||||||||
| Premiums and contract deposits | $ | 28.6 | $ | 29.0 | -1.4 | % | $ | 102.7 | $ | 102.7 | - | |||||||||||||
| Premiums and contract charges earned | 28.5 | 27.9 | 2.2 | % | 110.5 | 108.4 | 1.9 | % | ||||||||||||||||
| Net investment income | 18.2 | 17.9 | 1.7 | % | 71.6 | 71.8 | -0.3 | % | ||||||||||||||||
| Other income | 0.3 | 0.3 | - | 0.8 | 1.1 | -27.3 | % | |||||||||||||||||
| Death benefits/mortality cost/change in reserves | 18.1 | 16.6 | 9.0 | % | 72.9 | 66.7 | 9.3 | % | ||||||||||||||||
| Interest credited | 11.0 | 11.0 | - | 44.1 | 43.6 | 1.1 | % | |||||||||||||||||
| Operating expenses (includes policy acquisition expenses amortized) | 11.5 | 11.4 | 0.9 | % | 43.0 | 44.1 | -2.5 | % | ||||||||||||||||
| Income before tax | 6.4 | 7.1 | -9.9 | % | 22.9 | 26.9 | -14.9 | % | ||||||||||||||||
| Net income | 4.4 | 4.7 | -6.4 | % | 15.0 | 17.5 | -14.3 | % | ||||||||||||||||
| Pretax income increase (decrease) due to evaluation of: | ||||||||||||||||||||||||
| Deferred policy acquisition costs | $ | (0.1 | ) | $ | 0.1 | N.M. | $ | - | $ | 0.1 | -100.0 | % | ||||||||||||
| Life policies in force (in thousands) | 202 | 201 | 0.5 | % | ||||||||||||||||||||
| Life insurance in force | $ | 16,505 | $ | 15,801 | 4.5 | % | ||||||||||||||||||
| Lapse ratio - 12 months (Ordinary life insurance) | 4.1 | % | 4.0 | % | N.M. | |||||||||||||||||||
| CORPORATE AND OTHER (A) | ||||||||||||||||||||||||
| Components of income (loss) before tax: | ||||||||||||||||||||||||
| Net realized investment gains | $ | 3.9 | $ | 2.2 | 77.3 | % | $ | 12.7 | $ | 10.9 | 16.5 | % | ||||||||||||
| Interest expense | (3.5 | ) | (3.6 | ) | -2.8 | % | (13.1 | ) | (14.2 | ) | -7.7 | % | ||||||||||||
| Debt retirement costs | (2.3 | ) | - | N.M. | (2.3 | ) | - | N.M. | ||||||||||||||||
| Other operating expenses, net investment income and other income | (1.3 | ) | (1.8 | ) | -27.8 | % | (5.3 | ) | (5.0 | ) | 6.0 | % | ||||||||||||
| Loss before tax | (3.2 | ) | (3.2 | ) | - | (8.0 | ) | (8.3 | ) | -3.6 | % | |||||||||||||
| Net loss | (1.6 | ) | (2.1 | ) | -23.8 | % | (4.9 | ) | (5.5 | ) | -10.9 | % | ||||||||||||
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)
| Three Months Ended | Year Ended | |||||||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||||||
| 2015 | 2014 | % Change | 2015 | 2014 | % Change | |||||||||||||||||||
| INVESTMENTS | ||||||||||||||||||||||||
| Annuity and Life | ||||||||||||||||||||||||
| Fixed maturities, at fair value (amortized cost 2015, $6,010.7; 2014, $5,597.1) | $ | 6,283.7 | $ | 6,066.1 | 3.6 | % | ||||||||||||||||||
| Equity securities, at fair value (cost 2015, $35.3; 2014, $41.5) | 33.5 | 39.7 | -15.6 | % | ||||||||||||||||||||
| Short-term investments | 146.4 | 94.9 | 54.3 | % | ||||||||||||||||||||
| Policy loans | 148.7 | 145.4 | 2.3 | % | ||||||||||||||||||||
| Other investments | 96.8 | 76.0 | 27.4 | % | ||||||||||||||||||||
| Total Annuity and Life investments | 6,709.1 | 6,422.1 | 4.5 | % | ||||||||||||||||||||
| Property & Casualty | ||||||||||||||||||||||||
| Fixed maturities, at fair value (amortized cost 2015, $774.9; 2014, $778.1) | 807.6 | 827.0 | -2.3 | % | ||||||||||||||||||||
| Equity securities, at fair value (cost 2015, $60.4; 2014, $58.4) | 66.3 | 70.9 | -6.5 | % | ||||||||||||||||||||
| Short-term investments | 4.8 | 4.1 | 17.1 | % | ||||||||||||||||||||
| Other investments | 37.3 | 36.3 | 2.8 | % | ||||||||||||||||||||
| Total Property & Casualty investments | 916.0 | 938.3 | -2.4 | % | ||||||||||||||||||||
| Corporate investments | 22.9 | 43.1 | -46.9 | % | ||||||||||||||||||||
| Total investments | 7,648.0 | 7,403.5 | 3.3 | % | ||||||||||||||||||||
| Net investment income | ||||||||||||||||||||||||
| Before tax | $ | 84.3 | $ | 82.8 | 1.8 | % | $ | 332.6 | $ | 329.8 | 0.8 | % | ||||||||||||
| After tax | 56.4 | 55.6 | 1.4 | % | 222.9 | 221.4 | 0.7 | % | ||||||||||||||||
| Net realized investment gains | ||||||||||||||||||||||||
| Before tax | $ | 3.9 | $ | 2.2 | 77.3 | % | $ | 12.7 | $ | 10.9 | 16.5 | % | ||||||||||||
| After tax | 3.1 | 1.3 | 138.5 | % | 8.6 | 6.9 | 24.6 | % | ||||||||||||||||
| Per share, diluted | $ | 0.07 | $ | 0.03 | 133.3 | % | $ | 0.20 | $ | 0.17 | 17.6 | % | ||||||||||||
| - 5 - |