Horace Mann(HMN) - 2021 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Consolidated Financial Statements This section presents Horace Mann Educators Corporation's unaudited consolidated financial statements, showing total assets of $14.19 billion and net income of $86.0 million for the first half of 2021 Consolidated Balance Sheets As of June 30, 2021, total assets increased to $14.19 billion, liabilities to $12.37 billion, and shareholders' equity to $1.82 billion Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $14,190.1 | $13,471.8 | | Total Investments | $7,587.5 | $7,262.2 | | Separate Account Assets | $3,256.7 | $2,891.4 | | Total Liabilities | $12,373.5 | $11,681.7 | | Total Policy Liabilities | $7,211.7 | $7,148.6 | | Separate Account Liabilities | $3,256.7 | $2,891.4 | | Total Shareholders' Equity | $1,816.6 | $1,790.1 | Consolidated Statements of Operations and Comprehensive Income (Loss) For the six months ended June 30, 2021, total revenues increased to $669.1 million, net income rose to $86.0 million, but comprehensive income decreased to $51.9 million Statement of Operations Highlights (in millions, except per share data) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Total Revenues | $669.1 | $622.2 | | Net Investment Income | $204.7 | $162.7 | | Income Before Income Taxes | $106.3 | $55.9 | | Net Income | $86.0 | $49.0 | | Diluted EPS | $2.04 | $1.17 | | Comprehensive Income (Loss) | $51.9 | $97.7 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased to $1.82 billion by Q2 2021, driven by $86.0 million in net income, partially offset by dividends and a decrease in other comprehensive income - For the six months ended June 30, 2021, retained earnings increased by $59.8 million, reflecting $86.0 million in net income less $26.2 million in dividends paid[17] - Accumulated other comprehensive income decreased by $34.1 million in the first six months of 2021, primarily due to changes in net unrealized investment gains on fixed maturity securities[17] Consolidated Statements of Cash Flows For the six months ended June 30, 2021, net cash from operations was $116.6 million, investing activities used $343.1 million, and financing activities provided $233.6 million, resulting in a $7.1 million net cash increase Consolidated Cash Flow Summary (in millions) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $116.6 | $165.6 | | Net Cash used in Investing Activities | ($343.1) | ($195.0) | | Net Cash from Financing Activities | $233.6 | $86.3 | | Net Increase in Cash | $7.1 | $56.9 | Notes to Consolidated Financial Statements This section provides detailed disclosures supporting the consolidated financial statements, covering basis of presentation, a planned acquisition, investment portfolio, and segment performance - On July 14, 2021, the Company agreed to acquire Madison National Life Insurance Company, Inc. for $172.5 million, with a potential earn-out of up to $12.5 million, expected to close in the first quarter of 2022[31] - To help fund the acquisition of Madison National, the Company amended its credit facility on July 12, 2021, increasing the available line of credit from $225.0 million to $325.0 million[32][33] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial condition and results of operations, highlighting a 75.5% increase in six-month net income to $86.0 million, the planned acquisition of Madison National, and raised full-year 2021 EPS guidance - The company entered a definitive agreement to acquire Madison National Life Insurance Company for $172.5 million, a move expected to be immediately accretive to EPS and ROE and strengthen product offerings and distribution[92][93] Consolidated Financial Highlights (YTD June 30) | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $669.1M | $622.2M | 7.5% | | Net Income | $86.0M | $49.0M | 75.5% | | Diluted EPS | $2.04 | $1.17 | 74.4% | - Full-year 2021 net income guidance was increased to a range of $3.50 to $3.70 per diluted share, reflecting strong Q2 net investment income and lower-than-expected catastrophe losses[118] Results of Operations by Segment This section details the performance of the company's segments, showing increased net income across Property and Casualty, Supplemental, Retirement, and Life segments, while the Corporate and Other segment reduced its net loss Net Income (Loss) by Segment - Six Months Ended June 30 (in millions) | Segment | 2021 | 2020 | | :--- | :--- | :--- | | Property and Casualty | $47.2 | $37.9 | | Supplemental | $23.4 | $20.0 | | Retirement | $22.1 | $8.8 | | Life | $5.7 | $2.5 | | Corporate and Other | ($12.4) | ($20.2) | | Total | $86.0 | $49.0 | Investment Results Total net investment income increased 25.8% to $204.7 million for the first half of 2021, with the fixed maturity securities portfolio valued at $6.6 billion and largely investment grade - For the six months ended June 30, 2021, net investment income from the investment portfolio increased by $40.1 million (34.8%) year-over-year, primarily due to more favorable returns on limited partnership interests[160] - As of June 30, 2021, the fixed maturity securities portfolio had a fair value of $6.56 billion, with an average credit quality of A+ and 87.8% of the portfolio rated investment grade[165] Liquidity and Capital Resources The company maintains strong liquidity and capital, with $116.6 million in net cash from operations, total capital of $2.23 billion, and a debt-to-total capital ratio of 18.5%, while increasing its credit facility to $325.0 million - Total debt as a percentage of total capital was 18.5% at June 30, 2021, which is below the company's long-term target of 25%[186] - The company paid $25.7 million in dividends in the first six months of 2021 and repurchased 39,685 shares; $19.1 million remained available under the share repurchase program as of June 30, 2021[188][189] - The company's insurance subsidiaries can pay up to $161.9 million in dividends in 2021 without prior regulatory approval, of which $24.0 million was paid in the first half of the year[185] - Following the announcement of the planned acquisition of Madison National, rating agencies AM Best, Fitch, and Moody's affirmed the company's ratings with a stable outlook[200] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is market value risk, the potential for invested assets to decrease in value, and interest rate risk, both managed by coordinating asset and liability durations and maintaining a diversified portfolio - The company's primary market risk is market value risk, the potential for invested assets to decrease in value[203] - Significant changes in interest rates expose the company to the risk of reduced income due to the spread between investment earnings and credited rates on liabilities[205] - Market risk is managed by aligning the projected cash flows of assets and liabilities, maintaining reasonable durations, and focusing on investment quality, liquidity, and diversification[206] Controls and Procedures As of June 30, 2021, management concluded that the company's disclosure controls and procedures are effective, with no material weaknesses or significant changes in internal control over financial reporting - As of June 30, 2021, the CEO and CFO concluded that the company's disclosure controls and procedures are effective[208] - There were no changes during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[209] PART II - OTHER INFORMATION Risk Factors There are no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - There are no material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020[212] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchases, with 200 shares bought back at an average price of $37.01 during Q2 2021, and $19.1 million remaining authorized for future repurchases Issuer Purchases of Equity Securities (Q2 2021) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 1 - 30 | 0 | N/A | | May 1 - 31 | 0 | N/A | | June 1 - 30 | 200 | $37.01 | | Total | 200 | $37.01 | - As of June 30, 2021, approximately $19.1 million remained authorized for future share repurchases under the company's program[213] Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate documents, material contracts, and CEO/CFO certifications