Horace Mann(US:HMN)2024-08-09 01:37Financial Data and Key Metrics Changes - The company reported second quarter core earnings of $0.20 per diluted share, a significant increase from $0.03 a year ago [4][16] - Total revenues increased by 9%, with net premiums and contract deposits earned rising by 8% [4] - The pre-tax investment yield rose to 4.46%, with new money rates exceeding the portfolio book yield by 163 basis points [5] Business Line Data and Key Metrics Changes - Property and Casualty (P&C) sales increased by 37%, while supplemental and group benefit sales rose by 20% [4] - In the P&C segment, net written premiums rose nearly 17% to $199 million, with a combined ratio of 111.5, improving by 13 points over the prior year [21] - Life and retirement core earnings were $12 million, down 29% year-over-year due to lower income from commercial mortgage loan funds [23] - Worksite direct sales increased by 14%, with employer-sponsored sales also up, although overall sales volume in the second quarter was generally light [12][24] Market Data and Key Metrics Changes - The number of covered lives in the employer-sponsored business reached 830,000, a 2% increase over the prior year [12] - Catastrophe losses in the second quarter amounted to $41 million, slightly lower than the previous year but above historical averages [8][21] Company Strategy and Development Direction - The company aims to achieve an underwriting profit in the P&C segment in 2024 and target profitability in 2025, with a goal of a double-digit return on equity [4][13] - The diversified business model is expected to generate about $50 million in excess capital annually above dividends and interest expenses [25] - Share repurchases are part of a thoughtful capital management strategy, with $7.7 million spent on buybacks year-to-date [14][40] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving target profitability across all segments by 2025, despite challenges in the commercial mortgage loan portfolio [14][25] - The company anticipates a recovery in investment income as market conditions improve, particularly in the commercial real estate sector [6][20] - Management noted that the agency force is more engaged and productive, contributing to strong retail sales growth [11] Other Important Information - The company has implemented new roof rating schedules in six wind-prone states, with initial estimates showing close to $1 million in cost savings [9] - The company has been actively engaging with educators through appreciation activities, resulting in doubled website traffic [14] Q&A Session Summary Question: Discussion on auto accident frequency and severity trends - Management noted that elevated accident frequency in the quarter was due to seasonal factors, with overall frequency flat year-over-year [27][28] Question: Inquiry about the delta between filed rate increases - Management indicated that while rate increases have been broad, future adjustments may align more closely with underlying coverage inflation [29] Question: Timeline for recovery in unrealized marks in the CML portfolio - Management stated that two-thirds of the CML portfolio will mature over the next 18 months, which is expected to provide a tailwind for investment income [30][31] Question: Interest rates and their impact on CML portfolio valuation - Management explained that the portfolio primarily consists of floating-rate loans, which have helped cash yields but put pressure on valuations [32][33] Question: Favorable prior year developments and their sustainability - Management expressed confidence in the favorable trends observed in auto claims, although future developments cannot be guaranteed [34][36][37] Question: Share repurchase strategy and expectations - Management reiterated that share repurchases are opportunistic and part of a broader capital management strategy, with confidence in excess capital production capabilities [38][40]