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 6, 2017
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, 2016 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 6, 2017, Horace Mann Educators Corporation issued a press release reporting its financial results for the three and twelve month periods ended December 31, 2016. 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 7, 2017.
| Item 9.01: | Financial Statements and Exhibits |
| (d) | Exhibits. |
| 99.1 | Glossary of Selected Terms |
| 99.2 | Press release dated February 6, 2017 reporting financial results for the three and twelve month periods ended December 31, 2016. |
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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 & | ||
| Acting Chief Financial Officer | |||
| (Principal Financial and | |||
| Accounting Officer) | |||
Date: February 6, 2017
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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/or manage more than one Exclusive Agency territory. |
| · | 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 claims and claim 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 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 investment contracts (annuities) and life products with account values, 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 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 2016
NET INCOME PER SHARE OF $0.48; OPERATING EPS OF $0.52
| · | Solid operating results across all business segments |
| · | Fourth quarter Property and Casualty combined ratio of 99.1%, including 7.3 points of catastrophes |
| · | Life sales continue to increase at a double-digit rate; solid sales in both Property and Casualty and Retirement |
| · | Retirement assets under management increased 7% |
SPRINGFIELD, Ill., February 6, 2017 — Horace Mann Educators Corporation (NYSE:HMN) today reported financial results for the three and twelve months ended December 31, 2016:
| Horace Mann Financial Highlights | |||||||
|
Three months ended December 31, |
Twelve months ended December 31, | ||||||
|
($ in millions, except per share amounts) |
2016 | 2015 | Change | 2016 | 2015 | Change | |
| Total revenues | $282.8 | $276.1 | 2.4% | $1,128.9 | $1,080.4 | 4.5% | |
| Net income | 19.9 | 21.1 | -5.7% | 83.8 | 93.5 | -10.4% | |
| Net realized investment gains (losses) after tax | (1.5) | 3.1 | 2.3 | 8.6 | |||
| Operating income* | 21.4 | 18.0 | 18.9% | 81.5 | 84.9 | -4.0% | |
| Per diluted share: | |||||||
| Net income | 0.48 | 0.50 | -4.0% | 2.02 | 2.20 | -8.2% | |
| Net realized investment gains (losses) after tax | (0.04) | 0.07 | 0.05 | 0.20 | |||
| Operating income* | 0.52 | 0.43 | 20.9% | 1.97 | 2.00 | -1.5% | |
| Book value per share | 32.15 | 31.18 | 3.1% | ||||
|
Book value per share excluding the fair value adjustment for investments* |
27.79 | 26.86 | 3.5% | ||||
|
Property and Casualty segment net income |
9.6 | 7.9 | 21.5% | 25.6 | 40.0 | -36.0% | |
|
Property and Casualty combined ratio |
99.1% | 98.6% | 0.5 pts | 101.5% | 97.0% | 4.5 pts | |
|
Property and Casualty underlying combined ratio* |
93.5% | 95.2% | -1.7 pts | 92.9% | 91.7% | 1.2 pts | |
| Retirement (1) segment net income | $ 11.4 | $ 10.4 | 9.6% | $ 50.7 | $ 43.4 | 16.8% | |
| Life segment net income | 3.5 | 4.4 | -20.5% | 16.6 | 15.0 | 10.7% | |
* 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.
(1) Effective December 31, 2016, the “Annuity” reporting segment was renamed “Retirement”.
“Horace Mann’s full year operating income of $1.97 per diluted share included fourth quarter operating income of $0.52 per diluted share. Fourth quarter earnings reflected strong investment returns in all business lines, an elevated level of Property and Casualty catastrophe losses, largely related to Hurricane Matthew, offset by a 1.7 point improvement in underlying Property and Casualty results. Sales results in the Life segment remain strong, with continued double-digit momentum, and we experienced 6% growth in Property and Casualty sales for the full year,” said Horace Mann’s President and Chief Executive Officer Marita Zuraitis.
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“We are projecting full-year 2017 operating income to between $1.95 and $2.15 per share,” stated Zuraitis. “This estimate anticipates continued improvement in our underlying auto combined ratio, modeled catastrophe losses, as well as modestly lower earnings in the Retirement and Life segments reflecting lower net interest spreads and approximately $0.10 cents of continued strategic investments across all lines of business”.
Property and Casualty Segment
For the full year, Property and Casualty net income of $25.6 million decreased 36%, or $14.4 million, compared to the prior year. On a combined ratio basis, the full year Property and Casualty combined ratio increased 4.5 points to 101.5%. The majority of the increase in the combined ratio was due to a 2.3 point increase in catastrophe losses, or an increase of $15.6 million on a pretax basis. 1.0 point of the increase, or $5.5 million on a pretax basis, was related to a lower level of favorable prior years’ reserve development in 2016 compared to the full year 2015. On an underlying basis, the combined ratio increased 1.2 points to 92.9%. The underlying auto combined ratio increased 2.4 points, to 105.1%, primarily as a result of higher loss frequency and severity. This increase was somewhat offset by a 1.7 point improvement in the underlying property combined ratio, which for full year 2016 was 68.6%. The improvement in property results was primarily driven by the impacts of profitability improvement initiatives, as well as lower catastrophe reinsurance costs.
For the fourth quarter of 2016, Property and Casualty net income of $9.6 million increased 22%, or $1.7 million, compared to the prior year. The Property and Casualty combined ratio of 99.1% increased 0.5 points compared to the fourth quarter of 2015, as a result of 2.3 points of higher catastrophe losses, compared to the prior year. Favorable prior years’ reserve development of 1.7 points, or $2.7 million pretax in the current quarter was $0.2 million pretax higher than the amount a year ago. On an underlying basis, the fourth quarter auto combined ratio of 108.2% improved 1.4 points, and the property combined ratio of 64.3% improved 3.3 points compared to a year ago. These improvements were primarily due to lower expense ratios and continued profitability initiatives.
Total Property and Casualty written premiums of $158.0 million and $634.3 million for the three and twelve months ended December 31, 2016, respectively, each increased 5% compared to the prior year. The growth was driven primarily by increases in average premium per policy for both auto and property, as well as lower catastrophe reinsurance costs.
Total Property and Casualty sales increased 1% and 6% compared to the three and twelve months ended December 31, 2015, respectively. Auto sales were flat for the current quarter but increased 6% for the year, while property sales increased 7% and 5% for the respective periods. Policy retention continues to be strong with auto and property policy retention rates for the current year at 84% and 88%, respectively.
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Retirement Segment
On a reported basis, Retirement segment net income of $11.4 million and $50.7 million for the fourth quarter and full year, increased 10% and 17%, respectively, compared to the same periods in 2015. The impact of unlocking increased pretax income by $2.4 million and $3.7 million as compared to the three and twelve months ended December 31, 2015, respectively.
For the fourth quarter of 2016, Retirement segment net income, excluding deferred policy acquisition costs unlocking (“unlocking”), was $10.8 million, a decrease of $0.6 million compared to the prior year. For the full year, net income on the same basis, or $50.5 million, increased $4.9 million compared to 2015.
The Retirement segment results reflect an increase in net interest margin of $1.7 million for the fourth quarter and $12.4 million for the full year partially offset by an increase in operating expenses. The increase in expenses primarily reflected costs related to the Company’s continued infrastructure and strategic investments.
The 2016 annualized net interest spread on fixed annuity assets improved 9 points, to 193 basis points. The improvement reflected strong investment portfolio performance, including the impact of prepayment activity in the Company’s fixed income portfolios, as well as favorable returns on alternative investments. Total annuity assets under management of $6.4 billion increased 7% compared to the prior year, and total cash value persistency remained strong at approximately 95%.
For the three months ended December 31, 2016, annuity deposits of $128.3 million increased 2% compared to the prior year period, while annuity deposits of $520.2 million for the full year 2016 decreased 5% compared to a year ago. The majority of the decline in annuity deposits for the current year was due to an elevated level of non-recurring deposits in the first half of 2015 related to changes in the Company’s employee retirement savings plans.
Horace Mann’s total annuity sales decreased 3% and 4% for the current quarter and full year, respectively, with the full year change primarily reflecting reductions in single premium and rollover deposits, largely related to the Company’s employee retirement savings plans.
Life Segment
Life segment net income of $3.5 million for the fourth quarter of 2016 decreased $0.9 million compared to the prior period. On a full year basis, the Life segment net income of $16.6 million increased $1.6 million compared to the prior period, primarily as a result of an increase in investment income and a decrease in mortality expenses in 2016.
Life segment insurance premiums and contract deposits of $29.6 million and $108.0 million for the fourth quarter of 2016 and full year, increased 4% and 5%, respectively, compared to the same periods in 2015. Life sales of $4.9 million increased $1.4 million compared to the fourth quarter of 2015, primarily due to a $1.5 million increase in single premium sales. On a year-to-date basis, Life sales of $15.6 million increased $4.7 million, with the majority of the increase attributable to single premium sales. Life persistency of 96% was comparable to 12 months earlier.
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Investment Results
Total net investment income increased 7% and 9% compared to the three and twelve months ended December 31, 2015, respectively. While asset balances in the Retirement segment continued to grow, overall investment results reflected the increase in investment prepayment activity and favorable returns on alternative investments, partially offset by the impact of the current low interest rate environment. Pretax net realized investment gains (losses) were $(2.8) million and $4.1 million for the three and twelve months ended December 31, 2016, respectively.
Horace Mann’s net unrealized investment gains on fixed maturity and equity securities were $312.2 million at December 31, 2016, compared to net unrealized investment gains of $309.8 million at December 31, 2015.
Though no share buyback activity occurred in the fourth quarter, the Company repurchased 701,410 shares of its common stock at an aggregate cost of $21.5 million under its share repurchase program during 2016. As of December 31, 2016, the Company had a remaining authorization of $29.5 million.
Webcast Conference Call
Horace Mann’s senior management will discuss the company’s fourth quarter financial results with investors and analysts on February 7, 2017 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 financial services company focusing on educators' financial needs — provides auto, homeowners and life insurance, retirement products 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, 2016 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.
# # #
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HORACE MANN EDUCATORS CORPORATION
Financial Highlights (Unaudited)
(Dollars in Millions, Except Per Share Data)
| Three Months Ended | Year Ended | |||||||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||||||
| 2016 | 2015 | % Change | 2016 | 2015 | % Change | |||||||||||||||||||
| EARNINGS SUMMARY | ||||||||||||||||||||||||
| Net income | $ | 19.9 | $ | 21.1 | -5.7 | % | $ | 83.8 | $ | 93.5 | -10.4 | % | ||||||||||||
| Net realized investment gains (losses), after tax (see below) | (1.5 | ) | 3.1 | -148.4 | % | 2.3 | 8.6 | -73.3 | % | |||||||||||||||
| Operating income (A) | 21.4 | 18.0 | 18.9 | % | 81.5 | 84.9 | -4.0 | % | ||||||||||||||||
| Per diluted share: | ||||||||||||||||||||||||
| Net income | $ | 0.48 | $ | 0.50 | -4.0 | % | $ | 2.02 | $ | 2.20 | -8.2 | % | ||||||||||||
| Net realized investment gains (losses), after tax (see below) | $ | (0.04 | ) | $ | 0.07 | -157.1 | % | $ | 0.05 | $ | 0.20 | -75.0 | % | |||||||||||
| Operating income (A) | $ | 0.52 | $ | 0.43 | 20.9 | % | $ | 1.97 | $ | 2.00 | -1.5 | % | ||||||||||||
| Weighted average number of shares and equivalent shares (in millions) - Diluted | 41.5 | 42.1 | -1.4 | % | 41.5 | 42.4 | -2.1 | % | ||||||||||||||||
| RETURN ON EQUITY | ||||||||||||||||||||||||
| Net income return on equity (B) | 6.2 | % | 7.1 | % | N.M. | |||||||||||||||||||
| Operating income return on equity excluding the fair value adjustment for investments (A) (C) | 7.4 | % | 7.9 | % | N.M. | |||||||||||||||||||
| FINANCIAL POSITION | ||||||||||||||||||||||||
| Per share (D): | ||||||||||||||||||||||||
| Book value | $ | 32.15 | $ | 31.18 | 3.1 | % | ||||||||||||||||||
| Effect of the fair value adjustment for investments (E) | $ | 4.36 | $ | 4.32 | 0.9 | % | ||||||||||||||||||
| Book value excluding the fair value adjustment for investments (A) | $ | 27.79 | $ | 26.86 | 3.5 | % | ||||||||||||||||||
| Dividends paid | $ | 0.265 | $ | 0.250 | 6.0 | % | $ | 1.06 | $ | 1.00 | 6.0 | % | ||||||||||||
| Ending number of shares outstanding (in millions) (D) | 40.2 | 40.6 | -1.0 | % | ||||||||||||||||||||
| Total assets | $ | 10,576.8 | $ | 10,057.0 | 5.2 | % | ||||||||||||||||||
| Short-term debt | - | - | N.M. | |||||||||||||||||||||
| Long-term debt, current and noncurrent | 247.2 | 247.0 | 0.1 | % | ||||||||||||||||||||
| Total shareholders' equity | 1,294.0 | 1,264.7 | 2.3 | % | ||||||||||||||||||||
| ADDITIONAL INFORMATION | ||||||||||||||||||||||||
| Net realized investment gains (losses) | ||||||||||||||||||||||||
| Before tax | $ | (2.8 | ) | $ | 3.9 | N.M. | $ | 4.1 | $ | 12.7 | -67.7 | % | ||||||||||||
| After tax | (1.5 | ) | 3.1 | N.M. | 2.3 | 8.6 | -73.3 | % | ||||||||||||||||
| Per share, diluted | $ | (0.04 | ) | $ | 0.07 | N.M. | $ | 0.05 | $ | 0.20 | -75.0 | % | ||||||||||||
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 40,244,751 at December 31, 2016 and 40,566,032 at December 31, 2015. |
| (E) | Net of the related impact on deferred policy acquisition costs and the applicable deferred taxes. |
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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, | |||||||||||||||||||||||
| 2016 | 2015 | % Change | 2016 | 2015 | % Change | |||||||||||||||||||
| STATEMENTS OF OPERATIONS | ||||||||||||||||||||||||
| Insurance premiums and contract charges earned | $ | 194.2 | $ | 187.0 | 3.9 | % | $ | 759.1 | $ | 731.9 | 3.7 | % | ||||||||||||
| Net investment income | 90.5 | 84.3 | 7.4 | % | 361.2 | 332.6 | 8.6 | % | ||||||||||||||||
| Net realized investment gains (losses) | (2.8 | ) | 3.9 | -171.8 | % | 4.1 | 12.7 | -67.7 | % | |||||||||||||||
| Other income | 0.9 | 0.9 | 0.0 | % | 4.5 | 3.2 | 40.6 | % | ||||||||||||||||
| Total revenues | 282.8 | 276.1 | 2.4 | % | 1,128.9 | 1,080.4 | 4.5 | % | ||||||||||||||||
| Benefits, claims and settlement expenses | 137.5 | 128.3 | 7.2 | % | 541.1 | 496.4 | 9.0 | % | ||||||||||||||||
| Interest credited | 49.1 | 46.7 | 5.1 | % | 192.0 | 182.8 | 5.0 | % | ||||||||||||||||
| Policy acquisition expenses amortized | 23.6 | 25.5 | -7.5 | % | 96.7 | 98.9 | -2.2 | % | ||||||||||||||||
| Operating expenses | 42.5 | 41.8 | 1.7 | % | 173.1 | 157.4 | 10.0 | % | ||||||||||||||||
| Interest expense | 2.9 | 5.8 | -50.0 | % | 11.8 | 15.4 | -23.4 | % | ||||||||||||||||
| Total benefits, losses and expenses | 255.6 | 248.1 | 3.0 | % | 1,014.7 | 950.9 | 6.7 | % | ||||||||||||||||
| Income before income taxes | 27.2 | 28.0 | -2.9 | % | 114.2 | 129.5 | -11.8 | % | ||||||||||||||||
| Income tax expense | 7.3 | 6.9 | 5.8 | % | 30.4 | 36.0 | -15.6 | % | ||||||||||||||||
| Net income | $ | 19.9 | $ | 21.1 | -5.7 | % | $ | 83.8 | $ | 93.5 | -10.4 | % | ||||||||||||
| PREMIUMS WRITTEN AND CONTRACT DEPOSITS | ||||||||||||||||||||||||
| Property & Casualty | $ | 158.0 | $ | 150.8 | 4.8 | % | $ | 634.3 | $ | 605.8 | 4.7 | % | ||||||||||||
| Retirement deposits | 128.3 | 125.8 | 2.0 | % | 520.2 | 548.0 | -5.1 | % | ||||||||||||||||
| Life | 29.6 | 28.6 | 3.5 | % | 108.0 | 102.7 | 5.2 | % | ||||||||||||||||
| Total | $ | 315.9 | $ | 305.2 | 3.5 | % | $ | 1,262.5 | $ | 1,256.5 | 0.5 | % | ||||||||||||
| SEGMENT NET INCOME (LOSS) | ||||||||||||||||||||||||
| Property & Casualty | $ | 9.6 | $ | 7.9 | 21.5 | % | $ | 25.6 | $ | 40.0 | -36.0 | % | ||||||||||||
| Retirement | 11.4 | 10.4 | 9.6 | % | 50.7 | 43.4 | 16.8 | % | ||||||||||||||||
| Life | 3.5 | 4.4 | -20.5 | % | 16.6 | 15.0 | 10.7 | % | ||||||||||||||||
| Corporate and other (A) | (4.6 | ) | (1.6 | ) | 187.5 | % | (9.1 | ) | (4.9 | ) | 85.7 | % | ||||||||||||
| Net income | $ | 19.9 | $ | 21.1 | -5.7 | % | $ | 83.8 | $ | 93.5 | -10.4 | % | ||||||||||||
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, | |||||||||||||||||||||||
| 2016 | 2015 | % Change | 2016 | 2015 | % Change | |||||||||||||||||||
| PROPERTY & CASUALTY | ||||||||||||||||||||||||
| Premiums written | $ | 158.0 | $ | 150.8 | 4.8 | % | $ | 634.3 | $ | 605.8 | 4.7 | % | ||||||||||||
| Premiums earned | 159.0 | 152.4 | 4.3 | % | 620.5 | 596.0 | 4.1 | % | ||||||||||||||||
| Net investment income | 10.0 | 7.7 | 29.9 | % | 39.0 | 33.5 | 16.4 | % | ||||||||||||||||
| Other income (loss) | (0.2 | ) | - | N.M. | 0.6 | 0.2 | N.M. | |||||||||||||||||
| Losses and loss adjustment expenses (LAE) | 117.1 | 108.9 | 7.5 | % | 464.1 | 420.3 | 10.4 | % | ||||||||||||||||
| Operating expenses (includes policy acquisition expenses amortized) | 40.4 | 41.4 | -2.4 | % | 165.7 | 158.1 | 4.8 | % | ||||||||||||||||
| Income before tax | 11.3 | 9.8 | 15.3 | % | 30.3 | 51.3 | -40.9 | % | ||||||||||||||||
| Net income | 9.6 | 7.9 | 21.5 | % | 25.6 | 40.0 | -36.0 | % | ||||||||||||||||
| Net investment income, after tax | 8.0 | 6.5 | 23.1 | % | 31.2 | 28.4 | 9.9 | % | ||||||||||||||||
| Catastrophe costs (A) | ||||||||||||||||||||||||
| After tax | 7.6 | 5.0 | 52.0 | % | 39.1 | 28.9 | 35.3 | % | ||||||||||||||||
| Before tax | 11.6 | 7.6 | 52.6 | % | 60.0 | 44.4 | 35.1 | % | ||||||||||||||||
| Prior years' reserves favorable (adverse) development, before tax | ||||||||||||||||||||||||
| Automobile | 1.4 | 0.1 | N.M. | 1.4 | 4.3 | -67.4 | % | |||||||||||||||||
| Property | 1.3 | 2.4 | -45.8 | % | 5.6 | 7.0 | -20.0 | % | ||||||||||||||||
| Other liability | - | - | - | - | 1.2 | -100.0 | % | |||||||||||||||||
| Total | 2.7 | 2.5 | 8.0 | % | 7.0 | 12.5 | -44.0 | % | ||||||||||||||||
| Operating statistics: | ||||||||||||||||||||||||
| Loss and loss adjustment expense ratio | 73.7 | % | 71.5 | % | N.M. | 74.8 | % | 70.5 | % | N.M. | ||||||||||||||
| Expense ratio | 25.4 | % | 27.1 | % | N.M. | 26.7 | % | 26.5 | % | N.M. | ||||||||||||||
| Combined ratio | 99.1 | % | 98.6 | % | N.M. | 101.5 | % | 97.0 | % | N.M. | ||||||||||||||
| Effect on the combined ratio of: | ||||||||||||||||||||||||
| Catastrophe costs (A) | 7.3 | % | 5.0 | % | N.M. | 9.7 | % | 7.4 | % | N.M. | ||||||||||||||
| Prior years' reserve development | -1.7 | % | -1.6 | % | N.M. | -1.1 | % | -2.1 | % | N.M. | ||||||||||||||
| Combined ratio excluding the effects of catastrophe costs and prior years' reserve development ("underlying combined ratio") (B) | 93.5 | % | 95.2 | % | N.M. | 92.9 | % | 91.7 | % | N.M. | ||||||||||||||
| Policies in force (voluntary) (in thousands) | 705 | 711 | -0.8 | % | ||||||||||||||||||||
| Automobile | 485 | 487 | -0.4 | % | ||||||||||||||||||||
| Property | 220 | 224 | -1.8 | % | ||||||||||||||||||||
| Policy renewal rate (voluntary) - 12 months | ||||||||||||||||||||||||
| Automobile | 83.5 | % | 84.7 | % | N.M. | |||||||||||||||||||
| Property | 87.8 | % | 88.3 | % | 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, | |||||||||||||||||||||||
| 2016 | 2015 | % Change | 2016 | 2015 | % Change | |||||||||||||||||||
| RETIREMENT | ||||||||||||||||||||||||
| Contract deposits | $ | 128.3 | $ | 125.8 | 2.0 | % | $ | 520.2 | $ | 548.0 | -5.1 | % | ||||||||||||
| Variable | 46.0 | 42.3 | 8.7 | % | 163.6 | 174.9 | -6.5 | % | ||||||||||||||||
| Fixed | 82.3 | 83.5 | -1.4 | % | 356.6 | 373.1 | -4.4 | % | ||||||||||||||||
| Contract charges earned | 6.3 | 6.1 | 3.3 | % | 24.9 | 25.4 | -2.0 | % | ||||||||||||||||
| Net investment income | 62.4 | 58.6 | 6.5 | % | 249.4 | 228.4 | 9.2 | % | ||||||||||||||||
| Interest credited | 37.9 | 35.7 | 6.2 | % | 147.3 | 138.7 | 6.2 | % | ||||||||||||||||
| Net interest margin (without realized investment gains/losses) | 24.5 | 22.9 | 7.0 | % | 102.1 | 89.7 | 13.8 | % | ||||||||||||||||
| Other income | 0.8 | 0.6 | 33.3 | % | 2.8 | 2.1 | 33.3 | % | ||||||||||||||||
| Mortality loss and other reserve changes | (0.8 | ) | (1.3 | ) | -38.5 | % | (3.9 | ) | (3.2 | ) | 21.9 | % | ||||||||||||
| Operating expenses (includes policy acquisition expenses amortized) | 13.6 | 13.3 | 2.3 | % | 54.9 | 50.7 | 8.3 | % | ||||||||||||||||
| Income before tax | 17.2 | 15.0 | 14.7 | % | 71.0 | 63.3 | 12.2 | % | ||||||||||||||||
| Net income | 11.4 | 10.4 | 9.6 | % | 50.7 | 43.4 | 16.8 | % | ||||||||||||||||
| Pretax income increase (decrease) due to evaluation of: | ||||||||||||||||||||||||
| Deferred policy acquisition costs | $ | 0.9 | $ | (1.5 | ) | -160.0 | % | $ | 0.3 | $ | (3.4 | ) | -108.8 | % | ||||||||||
| Guaranteed minimum death benefit reserve | 0.1 | - | N.M. | 0.1 | (0.1 | ) | N.M. | |||||||||||||||||
| Retirement contracts in force (in thousands) | 219 | 211 | 3.8 | % | ||||||||||||||||||||
| Accumulated account value on deposit / Assets under management | $ | 6,427.0 | $ | 5,997.7 | 7.2 | % | ||||||||||||||||||
| Variable | 1,923.9 | 1,800.7 | 6.8 | % | ||||||||||||||||||||
| Fixed | 4,503.1 | 4,197.0 | 7.3 | % | ||||||||||||||||||||
| Retirement accumulated value retention - 12 months | ||||||||||||||||||||||||
| Variable accumulations | 94.7 | % | 94.3 | % | N.M. | |||||||||||||||||||
| Fixed accumulations | 94.6 | % | 94.8 | % | N.M. | |||||||||||||||||||
| LIFE | ||||||||||||||||||||||||
| Premiums and contract deposits | $ | 29.6 | $ | 28.6 | 3.5 | % | $ | 108.0 | $ | 102.7 | 5.2 | % | ||||||||||||
| Premiums and contract charges earned | 28.9 | 28.5 | 1.4 | % | 113.7 | 110.5 | 2.9 | % | ||||||||||||||||
| Net investment income | 18.3 | 18.2 | 0.5 | % | 73.6 | 71.6 | 2.8 | % | ||||||||||||||||
| Other income | 0.2 | 0.3 | -33.3 | % | 0.8 | 0.8 | 0.0 | % | ||||||||||||||||
| Death benefits/mortality cost/change in reserves | 19.6 | 18.1 | 8.3 | % | 73.1 | 72.9 | 0.3 | % | ||||||||||||||||
| Interest credited | 11.2 | 11.0 | 1.8 | % | 44.7 | 44.1 | 1.4 | % | ||||||||||||||||
| Operating expenses (includes policy acquisition expenses amortized) | 10.6 | 11.5 | -7.8 | % | 44.0 | 43.0 | 2.3 | % | ||||||||||||||||
| Income before tax | 6.0 | 6.4 | -6.2 | % | 26.3 | 22.9 | 14.8 | % | ||||||||||||||||
| Net income | 3.5 | 4.4 | -20.5 | % | 16.6 | 15.0 | 10.7 | % | ||||||||||||||||
| Pretax income increase (decrease) due to evaluation of: | ||||||||||||||||||||||||
| Deferred policy acquisition costs | $ | 0.2 | $ | (0.1 | ) | N.M. | $ | 0.4 | $ | - | N.M. | |||||||||||||
| Life policies in force (in thousands) | 198 | 202 | -2.0 | % | ||||||||||||||||||||
| Life insurance in force | $ | 17,025 | $ | 16,505 | 3.2 | % | ||||||||||||||||||
| Lapse ratio - 12 months | ||||||||||||||||||||||||
| (Ordinary life insurance) | 4.3 | % | 4.1 | % | N.M. | |||||||||||||||||||
| CORPORATE AND OTHER (A) | ||||||||||||||||||||||||
| Components of income (loss) before tax: | ||||||||||||||||||||||||
| Net realized investment gains (losses) | $ | (2.8 | ) | $ | 3.9 | -171.8 | % | $ | 4.1 | $ | 12.7 | -67.7 | % | |||||||||||
| Interest expense | (2.9 | ) | (5.8 | ) | -50.0 | % | (11.8 | ) | (15.4 | ) | -23.4 | % | ||||||||||||
| Other operating expenses, net investment income and other income | (1.6 | ) | (1.3 | ) | 23.1 | % | (5.7 | ) | (5.3 | ) | 7.5 | % | ||||||||||||
| Loss before tax | (7.3 | ) | (3.2 | ) | 128.1 | % | (13.4 | ) | (8.0 | ) | 67.5 | % | ||||||||||||
| Net loss | (4.6 | ) | (1.6 | ) | 187.5 | % | (9.1 | ) | (4.9 | ) | 85.7 | % | ||||||||||||
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, | |||||||||||||||||||||||
| 2016 | 2015 | % Change | 2016 | 2015 | % Change | |||||||||||||||||||
| INVESTMENTS | ||||||||||||||||||||||||
| Retirement and Life | ||||||||||||||||||||||||
| Fixed maturities, at fair value (amortized cost 2016, $6,404.4; 2015, $6,010.7) | $ | 6,684.3 | $ | 6,283.7 | 6.4 | % | ||||||||||||||||||
| Equity securities, at fair value (cost 2016, $70.5; 2015, $35.3) | 66.6 | 33.5 | 98.8 | % | ||||||||||||||||||||
| Short-term investments | 10.0 | 146.4 | -93.2 | % | ||||||||||||||||||||
| Policy loans | 151.9 | 148.7 | 2.2 | % | ||||||||||||||||||||
| Other investments | 159.2 | 96.8 | 64.5 | % | ||||||||||||||||||||
| Total Retirement and Life investments | 7,072.0 | 6,709.1 | 5.4 | % | ||||||||||||||||||||
| Property & Casualty | ||||||||||||||||||||||||
| Fixed maturities, at fair value (amortized cost 2016, $747.7; 2015, $774.9) | 772.4 | 807.6 | -4.4 | % | ||||||||||||||||||||
| Equity securities, at fair value (cost 2016, $63.6; 2015, $60.4) | 75.0 | 66.3 | 13.1 | % | ||||||||||||||||||||
| Short-term investments | 10.9 | 4.8 | 127.1 | % | ||||||||||||||||||||
| Other investments | 45.0 | 37.3 | 20.6 | % | ||||||||||||||||||||
| Total Property & Casualty investments | 903.3 | 916.0 | -1.4 | % | ||||||||||||||||||||
| Corporate investments | 24.0 | 22.9 | 4.8 | % | ||||||||||||||||||||
| Total investments | 7,999.3 | 7,648.0 | 4.6 | % | ||||||||||||||||||||
| Net investment income | ||||||||||||||||||||||||
| Before tax | $ | 90.5 | $ | 84.3 | 7.4 | % | $ | 361.2 | $ | 332.6 | 8.6 | % | ||||||||||||
| After tax | 60.3 | 56.4 | 6.9 | % | 240.6 | 222.9 | 7.9 | % | ||||||||||||||||
N.M. - Not meaningful.
| - 5 - |