Horace Mann(HMN) - 2025 Q1 - Quarterly Report

PART I Item 1. Consolidated Financial Statements The consolidated financial statements for Q1 2025 reflect a slight asset decrease, significant net income growth, and robust operating cash flow Consolidated Balance Sheets | Balance Sheet Highlights ($ in millions) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Investments | 7,007.4 | 6,916.4 | | Total Assets | 14,396.1 | 14,487.8 | | Total Liabilities | 13,053.3 | 13,200.3 | | Total Shareholders' Equity | 1,342.8 | 1,287.5 | - Total assets slightly decreased from $14.49 billion at the end of 2024 to $14.40 billion as of March 31, 2025. Total shareholders' equity increased to $1.34 billion from $1.29 billion over the same period, primarily due to net income and changes in accumulated other comprehensive income[9] Consolidated Statements of Operations and Comprehensive Income (Loss) | Statement of Operations ($ in millions, except per share) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total Revenues | 416.4 | 386.0 | | Total Benefits, Losses and Expenses | 368.9 | 353.0 | | Income Before Income Taxes | 47.5 | 33.0 | | Net Income | 38.2 | 26.5 | | Diluted EPS | $0.92 | $0.64 | - Net income increased by 44.2% year-over-year, from $26.5 million in Q1 2024 to $38.2 million in Q1 2025. This resulted in a diluted earnings per share of $0.92, up from $0.64 in the prior-year quarter[10] - Comprehensive income for Q1 2025 was $69.3 million, an increase from $48.2 million in Q1 2024, driven by both higher net income and a positive change in net unrealized investment gains on fixed maturity securities[10] Consolidated Statements of Changes in Shareholders' Equity - Total shareholders' equity increased from $1,287.5 million at the beginning of the period to $1,342.8 million at the end of Q1 2025[9][12] - The company paid dividends of $0.35 per share, totaling $14.7 million in Q1 2025, an increase from $0.34 per share ($14.3 million total) in Q1 2024[12] Consolidated Statements of Cash Flows | Cash Flow Summary ($ in millions) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | 140.8 | 74.5 | | Net Cash Used in Investing Activities | (35.1) | (59.5) | | Net Cash Used in Financing Activities | (113.5) | (24.3) | | Net Decrease in Cash | (7.8) | (9.3) | - Net cash from operating activities nearly doubled to $140.8 million in Q1 2025 from $74.5 million in Q1 2024, indicating stronger operational cash generation[15] Notes to Consolidated Financial Statements - The company operates in four reporting segments: Property & Casualty, Life & Retirement, Supplemental & Group Benefits, and Corporate & Other[19] - The most significant critical accounting estimates involve the valuation of hard-to-value fixed maturity securities, credit loss impairments, future policy benefit reserves, and property and casualty unpaid claims reserves[25] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management's discussion highlights Q1 2025 net income growth from Property & Casualty improvements and investment income, reaffirming full-year core earnings guidance and strong capital Consolidated Financial Highlights & Results of Operations | Key Metrics | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total Revenues ($M) | 416.4 | 386.0 | | Net Income ($M) | 38.2 | 26.5 | | Diluted EPS | $0.92 | $0.64 | | Book Value per Share | $32.79 | $29.57 | - Net income increased by $11.7 million (44.2%) YoY, primarily due to improved Property & Casualty results from underwriting actions, favorable reserve development, and higher net investment income[110] - Net premiums and contract charges earned grew 8.4% to $298.3 million, largely from rate and inflation adjustments in the Property & Casualty segment[112][113] - Net investment income rose 10.0% to $115.9 million, driven by strong returns from the fixed income portfolio and higher limited partnership returns[112][114] Outlook for 2025 - The company estimates full-year 2025 core earnings will be in the range of $3.85 to $4.15 per diluted share, targeting a core return on equity of 10%+[128] - Key assumptions for the 2025 outlook include: - P&C Auto combined ratio in the mid-90s and Property at or below 90 - Life & Retirement net interest spread between 220 and 230 bps - Supplemental & Group Benefits blended benefit ratio of 39% - Net investment income between $470 million and $480 million pre-tax[131] Results of Operations by Segment | Segment Core Earnings ($ in millions) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Property & Casualty | 26.8 | 10.6 | | Life & Retirement | 7.9 | 9.9 | | Supplemental & Group Benefits | 14.0 | 13.8 | | Corporate & Other (Loss) | (4.0) | (8.5) | - The Property & Casualty segment's net income surged to $26.8 million from $10.6 million, driven by a significantly improved combined ratio of 89.4% and $5.3 million of favorable prior years' reserve development[139][140][142] - The Life & Retirement segment's net income decreased to $6.8 million from $11.7 million, primarily due to an unfavorable market risk benefit adjustment and higher mortality costs[152] - The Supplemental & Group Benefits segment's net income was stable at $11.2 million. A lower benefits ratio in individual supplemental products was offset by a higher benefits ratio in group benefits due to increased long-term disability claims[161] Investment Results - Net investment income from the managed portfolio increased 14.5% to $91.5 million in Q1 2025, primarily due to higher returns in the limited partnership portfolio[167] - The total fixed maturity and equity securities portfolio was valued at $5.52 billion as of March 31, 2025, with 94.8% of the portfolio rated investment grade[170][171][172] - Pretax net unrealized investment losses on fixed maturity securities decreased to $400.0 million from $442.7 million at year-end 2024, mainly due to a decrease in US Treasury rates[167][168] Liquidity and Capital Resources - Total capital was $1.89 billion as of March 31, 2025, with long-term debt of $547.2 million. The debt-to-total capital ratio was 29.0%[193] - Shareholders' equity was $1.34 billion, with a book value per share of $32.79. The company holds $1.2 billion in highly liquid assets (cash, U.S. government securities, public equities)[189][194] - In Q1 2025, the company paid dividends of $14.3 million and repurchased 3,240 shares for approximately $0.1 million. $26.2 million remains authorized for future share repurchases[195][196][216] - The insurance subsidiaries can pay up to $148.8 million in dividends to the holding company in 2025 without prior regulatory approval, of which $22.0 million was paid in Q1[192] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is market value risk on invested assets, managed by aligning asset and liability cash flows and durations, with no material changes from prior year-end - The primary market risk exposure is market value risk, stemming from potential decreases in the value of invested assets[206] - The company manages risk by matching the projected cash inflows of assets with the projected cash outflows of liabilities, while maintaining reasonable durations and diversification[208] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material weaknesses or significant changes in internal control - Based on an evaluation as of March 31, 2025, the CEO and CFO concluded that the company's disclosure controls and procedures are effective[210] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[211] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is defending against litigation and claims related to legacy commercial lines policies following the 2023 liquidation of R&Q Reinsurance Company, which had assumed these obligations - The company is defending against a lawsuit and various claims related to legacy commercial lines policies (asbestos, environmental, sexual molestation) from the late 1960s and early 1970s[97] - These issues arose following the March 2023 liquidation of R&Q Reinsurance Company, which had assumed these obligations through a series of transactions. The company recorded $15.7 million in after-tax costs related to these matters in Q4 2024[98][99] Item 1A. 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, 2024 - There are no material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[215] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2025, the company repurchased 3,240 shares of common stock under its authorized program, with approximately $26.2 million remaining for future repurchases | Period | Shares Purchased | Average Price Paid | Total Value ($) | Remaining Authorization ($M) | | :--- | :--- | :--- | :--- | :--- | | Jan 2025 | 0 | N/A | 0 | 26.3 | | Feb 2025 | 3,140 | $40.01 | 125,631 | 26.2 | | Mar 2025 | 100 | $40.01 | 4,001 | 26.2 | | Q1 Total | 3,240 | $40.01 | 129,632 | 26.2 | Item 5. Other Information No director or executive officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the first quarter of 2025 - No director or officer required to file Section 16 reports adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the three months ended March 31, 2025[218] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, agreements, plans, and certifications by the CEO and CFO - The filing includes certifications from the CEO (Marita Zuraitis) and CFO (Ryan E. Greenier) pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[224] - A glossary of selected terms is filed as Exhibit 99.1[224]