Horace Mann(HMN) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Presents Horace Mann Educators Corporation's unaudited consolidated financial statements for Q1 2024, including balance sheets, income, and cash flows Consolidated Balance Sheets | Balance Sheet Items ($ in millions) | March 31, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total Investments | $6,857.9 | $6,830.5 | | Total Assets | $14,236.3 | $14,049.9 | | Total Liabilities | $13,024.9 | $12,874.6 | | Total Shareholders' Equity | $1,211.4 | $1,175.3 | Consolidated Statements of Operations and Comprehensive Income (Loss) | Income Statement Items ($ in millions) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Total Revenues | $386.0 | $353.9 | | Net Premiums and Contract Charges Earned | $275.2 | $255.9 | | Net Investment Income | $105.4 | $100.4 | | Total Benefits, Losses and Expenses | $353.0 | $345.8 | | Income Before Income Taxes | $33.0 | $8.1 | | Net Income | $26.5 | $6.6 | | Diluted Net Income Per Share | $0.64 | $0.16 | | Comprehensive Income (Loss) | $48.2 | $58.6 | Consolidated Statements of Cash Flows | Cash Flow Items ($ in millions) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $74.5 | $86.4 | | Net Cash Used in Investing Activities | $(59.5) | $(95.3) | | Net Cash Used in Financing Activities | $(24.3) | $(6.5) | | Net Decrease in Cash | $(9.3) | $(15.4) | | Cash at End of Period | $20.4 | $27.4 | Notes to Consolidated Financial Statements Provides detailed explanations of accounting policies, investment performance, fair value measurements, and segment results - The company operates in four reporting segments: Property & Casualty, Life & Retirement, Supplemental & Group Benefits, and Corporate & Other[20] - As of March 31, 2024, the company had outstanding unfunded investment commitments of $524.6 million, primarily in limited partnership interests[105] - The company is involved in litigation related to legacy commercial lines claims, including asbestos and environmental claims, following the liquidation of R&Q Reinsurance Company; potential loss could be material, but an estimate cannot be reasonably provided at this time[102][103][104] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q1 2024 financial performance, including consolidated results, segment performance, investments, and liquidity Consolidated Financial Highlights - Net income for Q1 2024 increased by $19.9 million to $26.5 million, a 301.5% increase from Q1 2023, primarily due to improved Property & Casualty segment results[114] Consolidated Financial Highlights | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Revenues | $386.0M | $353.9M | | Net Income | $26.5M | $6.6M | | Diluted EPS | $0.64 | $0.16 | | Book Value Per Share | $29.57 | $27.87 | Consolidated Results of Operations Consolidated Q1 2024 results show increased revenues and income before taxes, driven by higher premiums and lower benefits expenses - Net premiums and contract charges earned increased by $19.3 million, primarily from the Property & Casualty segment implementing and earning in rate increases[116] - Net investment income rose by $5.0 million, driven by stronger income from the fixed income portfolio, though partially offset by weaker returns in certain commercial mortgage and real estate funds[117] - Benefits, claims and settlement expenses declined by $6.9 million, mainly due to moderated catastrophe and non-catastrophe weather activity in the Property & Casualty segment[121] Outlook for 2024 The company reaffirms its full-year 2024 guidance, projecting net income per diluted share, core return on equity, and segment targets - Consolidated Outlook: - Full-year 2024 net income is estimated to be between $3.00 and $3.30 per diluted share[132] - Core return on equity is expected to be near 9%[133] - Net investment income is projected to be at the low end of the $465 million to $475 million range[132] - Segment Outlook: - Property & Casualty: Net income of $36M to $41M, with a combined ratio near 100%[132] - Life & Retirement: Net income of $77M to $81M, with fixed annuity spread above the 220-230 bps target range[133] - Supplemental & Group Benefits: Net income of $47M to $50M, with a pretax profit on revenue between 20% and 21%[137] Results of Operations by Segment Details performance across Property & Casualty, Life & Retirement, Supplemental & Group Benefits, and Corporate & Other segments Property & Casualty The Property & Casualty segment achieved profitability in Q1 2024, driven by increased premiums and reduced catastrophe losses P&C Metrics | P&C Metrics | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Income (Loss) | $10.6M | $(11.6)M | | Net Premiums Written | $172.1M | $149.1M | | Combined Ratio | 100.8% (Auto), 97.7% (Property) | 110.9% (Auto), 115.8% (Property) | | Catastrophe Losses | $16.2M | $22.4M | - The auto underlying loss ratio improved by 9.0 points to 71.7%, reflecting a 17.5% year-over-year increase in average written premiums[144] - The property underlying loss ratio was 45.0%, benefiting from a 16.1% increase in average written premiums and a decline in non-catastrophe weather losses[145] Life & Retirement The Life & Retirement segment's net income decreased due to a lower net interest spread, impacted by valuation adjustments L&R Metrics | L&R Metrics | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Income | $11.7M | $14.0M | | Net Premiums Written & Deposits | $131.6M | $136.1M | | Net Investment Income | $85.8M | $87.9M | - The segment's net income decline was primarily driven by a lower net interest spread on fixed annuities[149][150] - Total annuity assets under management were $5.3 billion, and life insurance in force rose to $20.6 billion[152] Supplemental & Group Benefits The Supplemental & Group Benefits segment's net income declined due to lower investment income and a higher benefits ratio S&GB Metrics | S&GB Metrics | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Income | $11.0M | $14.0M | | Total Revenues | $69.0M | $71.2M | | Benefits Ratio | 35.6% | 33.3% | | Pretax Profit Margin | 20.2% | 24.9% | - The decline in net income was driven by lower net investment income and a higher benefits ratio, particularly in the worksite direct product line[157][158] Corporate & Other The Corporate & Other segment reported a reduced net loss in Q1 2024, primarily due to net investment gains Corporate & Other Metrics | Corporate & Other Metrics ($ in millions) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Loss | $(6.8) | $(9.8) | | Total Revenues | $0.2 | $0.1 | | Interest Expense | $8.7 | $6.6 | | Net Investment Gains (Losses), Pretax | $2.2 | $(3.9) | Investment Results Net investment income increased in Q1 2024, driven by the fixed income portfolio, despite rising unrealized losses - Net investment income from the managed portfolio increased 7.0% to $79.9 million, reflecting stronger income from fixed income, partially offset by weaker returns in commercial mortgage and limited partnership portfolios[164] - Pretax net unrealized investment losses on fixed maturity securities increased to $442.7 million as of March 31, 2024, up from $417.6 million at year-end 2023, primarily due to a 32 basis point increase in US Treasury rates[164][166] - The fixed maturity securities portfolio totaled $5.3 billion in fair value, was 92.6% investment grade, and had an average quality rating of A+[169] Liquidity and Capital Resources The company maintains strong liquidity and capital, with positive operating cash flow and a manageable debt-to-capital ratio - Net cash provided by operating activities was $74.5 million for Q1 2024, a decrease of $11.9 million from Q1 2023[177][179] - Total capital was $1,757.6 million, including $546.2 million of long-term debt; the debt-to-capital ratio was 31.1% (or 26.7% excluding net unrealized investment losses and net reserve remeasurements)[193] - The company paid dividends of $0.34 per share, totaling $13.9 million in Q1 2024; no shares were repurchased, with $34.9 million remaining authorized[195][196] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is market value risk, managed by coordinating asset and liability cash flows and durations - The primary market risk is market value risk, stemming from potential decreases in the value of invested assets[207] - Interest rate risk is a significant exposure, affecting the spread between interest earned on investments and interest credited on insurance and investment contracts[208] - Risk is managed by matching the projected cash inflows of assets with the projected cash outflows of liabilities and maintaining reasonable durations[210] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal control - Based on an evaluation as of March 31, 2024, the CEO and CFO concluded that the company's disclosure controls and procedures are effective[212] - There were no changes during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[213] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company faces litigation and claims related to legacy commercial lines policies following the R&Q Reinsurance Company liquidation - The company is defending against a lawsuit and various claims related to legacy commercial lines policies from the late 1960s and early 1970s[102] - These claims arose following the March 2023 liquidation of R&Q Reinsurance Company (R&Q), which had assumed the obligations[102][103] - The company states that while potential losses could be material, it is not possible to provide a reasonable estimate of any resultant payment at this stage[104] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the 2023 Annual Report on Form 10-K - There are no material changes to the risk factors disclosed in the 2023 Annual Report on Form 10-K[217] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased in Q1 2024, with $34.9 million remaining authorized for future repurchases - No shares were repurchased during the three months ended March 31, 2024[218] - As of March 31, 2024, $34.9 million remained authorized for future share repurchases[218] Item 5. Other Information CEO Marita Zuraitis adopted a new Rule 10b5-1 trading plan for share sales and option exercises - CEO Marita Zuraitis adopted a new 10b5-1 trading plan on March 14, 2024[220] - The plan allows for the sale of up to 32,000 shares and the exercise of up to 28,051 vested options, and it expires no later than March 31, 2025[220] Item 6. Exhibits Lists exhibits filed with Form 10-Q, including corporate documents, material contracts, and required certifications