Horace Mann Educators Corporation Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Record third quarter core EPS of $1.36, a 64% increase over prior year; trailing 12-month core return on equity at 13.8%.
• Total revenues up 6% for the quarter, with net premiums and contract charges earned up over 7%.
• Supplemental and Group Benefits segment had oversized growth: individual supplemental sales up 40%, Group Benefits had record sales.
• Raised full-year core EPS guidance to $4.50 to $4.70.
• Strategic priorities include accelerating investments, leveraging GenAI for efficiency, and strategic partnerships (e.g., Teach for America, Grand Canyon University).
• Integrated omnichannel approach driving customer acquisition and service, with Life and Retirement sales boosted by back-to-school campaign.
• Leveraging GenAI to enhance productivity, such as automating call summary notes to reduce administrative burden.

Segment Performance

• Property Casualty: Core earnings were $32 million, tripling year-over-year. Net written premiums were $232 million, up 9%. Combined ratio was 87.8%, improving 10.1 points. Auto net written premiums were $132 million, slightly up, with a combined ratio of 94.9% (improved 3 points). Property net written premiums were $99 million, up 20%, with a combined ratio of 75.3% (significantly improved).
• Life and Retirement: Core earnings were $15 million, in line with the prior year. Net written premiums and contract deposits were $170 million. Annual actuarial assumption reviews led to reserve changes, with favorable mortality impacting Life and Retirement pretax reserves.
• Supplemental and Group Benefits: Contributed $18 million to core earnings, in line with the prior year. Net written premiums were $66 million. Individual supplemental net written premiums were $31 million, up 3%, with a benefits ratio of 25.4% (decreased 2.4 points). Group Benefits net written premiums were $35 million, up 8%, with a benefits ratio of 35.7% (below prior year).

Guidance

• Raised full-year core EPS guidance to a range of $4.50 to $4.70.
• Assumes roughly $65 million catastrophe losses for the full year, total net investment income in the range of $473 million to $477 million (managed portfolio income $373 million to $377 million).
• Expect to make a significant donation of $3 million to $7 million to the Horace Mann Educators Foundation in the fourth quarter.
• Reflects strategic investments to build on growth momentum while maintaining expense discipline.

Risks

• Catastrophe loss variability; reliance on probabilistic and deterministic models to estimate cat losses, as actual losses can differ materially from expectations.
• Industry competition, which can impact retention and pricing.
• Regulatory changes that could affect operations and product offerings.
• Uncertainty around the impact of GenAI implementation and integration across the organization.

Question and Answer

Q: Jack on for Mike, asking about organic policy count growth trajectory, especially in P&C operations.

A: Marita Zuraitis responded that there's sales momentum across all businesses, with new business up across all lines and retention steady. Individual supplemental up 41%, Group up 91%, Life up 16%, Retirement up 9%, Property up 8%, auto up 4%. Retention is steady in various segments.

Q: Follow-up on EPS guidance, walking through moving pieces including net assumption review, auto margin seasonality, and strategic investments.

A: Ryan Greenier explained the updated guidance range, mentioning updated cat assumption, narrowed net investment income, increased corporate/other expenses by $5 million, including the Foundation donation. Marita Zuraitis expanded on balancing investment for future with expense discipline and the importance of investing in growth to drive scale.

Q: Question on Supplemental and Group Benefits regarding lead management systems and partnerships with alternative asset managers.

A: Marita Zuraitis said they are making investments in lead generation, distribution, and product, with a lead management partner in place. Ryan Greenier discussed the best-of-breed approach to asset management partnerships, noting the educator market's preference for fixed and fixed index products.

Q: Question on cat losses, effectiveness of mitigation programs, and outlook for 2026.

A: Ryan Greenier noted cat losses were below initial guidance due to low activity, but insured value growth offsets some of that. Non-rate actions like deductibles are working. Outlook for 2026 doesn't expect a significant decline in cat losses, with rate plans aligned to maintain profitability targets.