Horace Mann(US:HMN)2024-08-07 20:45PART I - FINANCIAL INFORMATION Consolidated Financial Statements The consolidated financial statements present the company's financial position as of June 30, 2024, and its results of operations and cash flows for the three and six months then ended Consolidated Balance Sheets As of June 30, 2024, total assets were $14.28 billion, a slight increase from $14.05 billion at December 31, 2023, driven by separate account variable annuity assets Consolidated Balance Sheet Highlights ($ in millions) | Account | June 30, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $14,282.1 | $14,049.9 | | Total Investments | $6,851.0 | $6,830.5 | | Separate Account variable annuity assets | $3,544.7 | $3,294.1 | | Total Liabilities | $13,073.3 | $12,874.6 | | Total policy liabilities | $7,690.4 | $7,831.4 | | Separate Account variable annuity liabilities | $3,544.7 | $3,294.1 | | Long-term debt | $546.5 | $546.0 | | Total Shareholders' Equity | $1,208.8 | $1,175.3 | Consolidated Statements of Operations and Comprehensive Income (Loss) The company reported a net income of $3.8 million for Q2 2024, a significant turnaround from a net loss of $12.8 million in Q2 2023, driven by higher total revenues Key Operating Results ($ in millions, except per share data) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $388.1 | $356.4 | $774.1 | $710.3 | | Net premiums and contract charges earned | $280.9 | $260.7 | $556.1 | $516.6 | | Net investment income | $108.4 | $108.5 | $213.8 | $208.9 | | Net Income (Loss) | $3.8 | ($12.8) | $30.3 | ($6.2) | | Diluted EPS | $0.09 | ($0.31) | $0.73 | ($0.15) | | Comprehensive Income (Loss) | $13.4 | ($25.0) | $61.6 | $33.6 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased to $1,208.8 million at June 30, 2024, primarily due to net income and positive AOCI, partially offset by dividends and treasury stock acquisitions - Dividends paid were $0.34 per share in Q2 2024, up from $0.33 per share in Q2 20236 - The company acquired $4.5 million of treasury stock in the first six months of 2024 under its share repurchase authorization6 Consolidated Statements of Cash Flows Net cash provided by operating activities decreased to $114.7 million in H1 2024, while net cash used in investing activities increased, resulting in an overall cash decrease of $15.1 million Consolidated Cash Flow Summary ($ in millions) | Activity | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $114.7 | $153.9 | | Net cash used in investing activities | ($87.2) | ($44.6) | | Net cash used in financing activities | ($42.6) | ($129.0) | | Net decrease in cash | ($15.1) | ($19.7) | | Cash at end of period | $14.6 | $23.1 | Notes to Consolidated Financial Statements (Unaudited) The notes provide detailed disclosures on accounting policies, investment portfolio, fair value measurements, insurance liabilities, segment performance, and contingencies - The company operates in four reporting segments: Property & Casualty, Life & Retirement, Supplemental & Group Benefits, and Corporate & Other9 - The most significant critical accounting estimates involve valuation of hard-to-value securities, credit loss impairments, future policy benefit reserves, and P&C unpaid claims reserves13 - The company has outstanding commitments to fund investments, primarily in limited partnership interests, totaling $503.6 million as of June 30, 202486 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial performance, highlighting increased net income for H1 2024 and an updated full-year 2024 core earnings outlook, confirming a stable financial position Consolidated Results of Operations Net income for H1 2024 rose to $30.3 million from a loss of $6.2 million, primarily due to increased net premiums and reduced net investment losses - Net income for H1 2024 increased by $36.5 million year-over-year, mainly due to improved Property & Casualty results, lower catastrophe losses, and reduced net investment losses93 - Net premiums and contract charges earned increased by 7.6% in H1 2024, largely from rate actions in the Property & Casualty segment9394 - The effective income tax rate was 19.4% for H1 2024, compared to 17.3% for H1 2023103 Outlook for 2024 The company revised its full-year 2024 core earnings guidance to $2.40-$2.70 per diluted share, primarily due to lower-than-expected net investment income - Full-year 2024 core earnings guidance is now estimated to be between $2.40 and $2.70 per diluted share106 - The Property & Casualty segment is expected to have a combined ratio near 100% for 2024, with catastrophe losses anticipated at approximately $90 million107 - The Life & Retirement segment's net income is now estimated to be between $50 million and $56 million, with the fixed annuity spread below the target range108 Results of Operations by Segment Property & Casualty segment significantly improved in H1 2024, while Life & Retirement net income decreased, and Supplemental & Group Benefits remained stable Segment Net Income (Loss) - Six Months Ended June 30 ($ in millions) | Segment | 2024 | 2023 | | :--- | :--- | :--- | | Property & Casualty | $2.0 | ($33.0) | | Life & Retirement | $24.0 | $31.4 | | Supplemental & Group Benefits | $25.1 | $25.8 | | Corporate & Other | ($20.8) | ($30.4) | | Total Net Income (Loss) | $30.3 | ($6.2) | Investment Results Total net investment income increased 2.3% in H1 2024, despite weak commercial mortgage loan fund returns, with the fixed maturity portfolio maintaining high quality - Net investment income from the managed portfolio increased by $5.4 million in H1 2024, though returns from commercial mortgage loan funds were weak130 - Pretax net unrealized investment losses on fixed maturity securities increased to $471.1 million as of June 30, 2024, primarily due to a 52 basis point rise in US Treasury rates since year-end 2023130131 - The fixed maturity and equity securities portfolio had an average quality rating of A+ and was 93.0% investment grade as of June 30, 2024133134 Liquidity and Capital Resources The company maintains a strong liquidity and capital position with $114.7 million in operating cash flow and a stable debt-to-capital ratio, while continuing dividend payments and share repurchases - Book value per share was $29.60 as of June 30, 2024, up from $26.96 a year prior92149 - In H1 2024, the company paid $27.8 million in dividends and repurchased 140,782 shares for $4.5 million150151 - The insurance subsidiaries can pay up to $112.3 million in dividends in 2024 without prior regulatory approval, of which $45.0 million was paid in H1 2024148 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is market value risk, managed by coordinating asset and liability durations to maximize income while ensuring liquidity and diversification - The primary market risk is market value risk, stemming from potential decreases in the value of invested assets159 - The company manages risk by matching the durations of assets and liabilities and diversifying its portfolio160 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material weaknesses or significant changes in internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of June 30, 2024162 - No material changes were made to the internal control over financial reporting during the second quarter of 2024163 PART II - OTHER INFORMATION Legal Proceedings The company is involved in litigation related to legacy commercial lines claims from the late 1960s and early 1970s, following a reinsurer's liquidation, and is defending itself against these claims - The company is defending against litigation and claims related to legacy commercial lines policies reinsured through pooling arrangements in the late 1960s and early 1970s84 - These matters arose after the March 2023 liquidation of R&Q Reinsurance Company, which had assumed the obligations85 Risk Factors There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023 - There are no material changes to the risk factors disclosed in the 2023 Annual Report on Form 10-K164 Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2024, the company repurchased 140,782 shares of common stock for $33.58 per share, with approximately $30.2 million remaining available under the repurchase program Issuer Purchases of Equity Securities (Q2 2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2024 | 4,164 | $33.98 | | May 2024 | 53,980 | $34.22 | | June 2024 | 82,638 | $33.15 | | Total Q2 | 140,782 | $33.58 | Other Information No director or executive officer adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2024 - No director or officer required to file Section 16 reports adopted, modified, or terminated a Rule 10b5-1 trading plan during Q2 2024166 Exhibits This section lists filed exhibits, including corporate documents, material contracts, and CEO/CFO certifications required by the Sarbanes-Oxley Act - Filed exhibits include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act179 - A Glossary of Selected Terms is filed as Exhibit 99.1179 Signatures The report is duly signed on August 7, 2024, by Marita Zuraitis, Bret A. Conklin, and Kimberly A. Johnson