Horace Mann Reports Results for Second Quarter

SPRINGFIELD, Ill., July 28 /PRNewswire-FirstCall/ -- Horace Mann Educators Corporation (NYSE: HMN) today reported net income of $23.0 million (56 cents per share) and $45.6 million ($1.12 per share) for the three and six months ended June 30, 2010, compared to $18.6 million (46 cents per share) and $32.0 million (79 cents per share) for the same periods in 2009.  Included in net income were net realized gains on securities of $8.3 million ($5.5 million after tax, or 13 cents per share) and $13.2 million ($8.6 million after tax, or 21 cents per share) for the three and six months ended June 30, 2010, respectively.  In the same periods in 2009, net income included net realized investment gains of $11.0 million ($7.2 million after tax, or 18 cents per share) and $10.2 million ($6.6 million after tax, or 16 cents per share), respectively.  All per-share amounts are stated on a diluted basis.

“The continued improvement in Horace Mann’s net unrealized investment gain position, coupled with strong underlying operating results in the second quarter -- particularly in our lead auto and annuity lines -- resulted in a June 30, 2010 reported book value per share of $22.17, an increase of 55 percent over the last twelve months,” said Louis G. Lower, President and Chief Executive Officer.  “Net income before realized investment gains and losses was 43 cents per share for the second quarter compared to 28 cents a year ago, led by improved results in our auto line,” continued Lower.  “Even with a significant level of second quarter catastrophe losses and an increase in Florida sinkhole claims, our property and casualty earnings increased substantially compared to the second quarter of the prior year.  The current accident year combined ratio excluding catastrophes was just below 90 percent in the current quarter, which was nearly 5 percentage points better than the same period last year.  The improvement in the segment’s combined ratio was primarily driven by a decrease in the auto loss ratio.  Combined annuity and life segment net income increased in the second quarter compared to prior year, including a notable improvement in the interest margin, partially offset by the impact of this quarter’s valuation of annuity deferred policy acquisition costs.”

Segment Earnings

The property and casualty segment recorded net income of $8.5 million for the quarter, an increase of $4.9 million compared to the same period in 2009.  Pretax catastrophe costs in the current quarter of $16.2 million were slightly higher than the $15.1 million incurred in the second quarter of 2009.  The second quarter 2010 property and casualty combined ratio was 99.0 percent, including 11.6 percentage points due to catastrophe costs, compared to 103.8 percent, including 11.1 percentage points due to catastrophe costs, in the prior year period.  Excluding claim settlement expenses, Florida sinkhole losses incurred in the current quarter and for the six months of $4.5 million and $8.0 million, respectively, were consistent with the company’s experience in the last two quarters of 2009; however, they were higher than the $1.5 million and $2.8 million incurred in the three and six months ended June 30, 2009.  “While high catastrophe and sinkhole losses continue to be a headwind to property and casualty earnings, our Florida risk mitigation plan, primarily focused on non-renewals, is currently ahead of schedule,” said Lower.  Favorable prior years' reserve development totaling $2.8 million was recorded in the second quarter, which represented 2.0 percentage points on the combined ratio, compared to $2.1 million, or 1.5 percentage points on the combined ratio, recorded in the second quarter of 2009.  In addition to the prior year development, favorable current accident year reserve development of $1.5 million was also recorded in the second quarter of 2010 in the auto line.

Annuity segment net income was $6.9 million for the three months ended June 30, 2010, increasing $0.6 million compared to the same period in 2009.  The current quarter included increased amortization as a result of the valuation of deferred policy acquisition costs of $5.3 million compared to prior year, partially offset by a $1.4 million reduction in the Company’s liability for uncertain tax positions.  The interest margin earned on fixed annuity assets increased 34 percent compared to the second quarter of 2009, with year-to-date net interest spreads reaching 2.02 percent for the current period, up 46 basis points compared to a year ago.  Charges and fees earned in the quarter, primarily on variable annuity contracts, increased 32 percent compared to prior year.  Total annuity net fund flows continued to be positive in the current period, as they were throughout 2008 and 2009, with total accumulated account values increasing 11 percent compared to 12 months earlier.  Total cash value persistency of 94 percent increased slightly compared to prior year.

Life segment net income of $5.5 million for the second quarter increased $0.5 million compared to the same period in 2009, primarily due to growth in investment income.  Higher mortality costs in the current period were partially offset by lower operating expenses.  Life persistency increased to nearly 95 percent.

Segment Revenues

Compared to 2009, the company's total premiums written and contract deposits decreased 4 percent for the quarter, reducing year-to-date growth to 2 percent, as increases in the property and casualty segment were offset by the current quarter decrease in annuity deposit receipts.

Total property and casualty premiums written increased 3 percent and 2 percent for the current quarter and six months, respectively, each reflecting increases in average property and auto premiums per policy.

Annuity deposits received decreased 13 percent compared to the three months ended June 30, 2009, comprised of a 22 percent reduction in single deposit and rollover receipts and a 6 percent decrease in scheduled, flexible premium annuity deposit receipts.  For the six months, receipts for both types of annuity deposits increased slightly compared to a year earlier.  Life segment insurance premiums and contract deposits decreased 2 percent and 1 percent compared to the prior year three and six months, respectively.

Sales and Distribution

For the three and six months ended June 30, 2010, total new auto sales units decreased 5 percent and 4 percent, respectively, compared to the same periods in the prior year, primarily reflecting decreases in true new auto sales of 7 percent and 4 percent, respectively.  Following the significant growth of 50 percent in the first half of 2009, total annuity sales decreased 23 percent in the current quarter -- largely driven by a decrease in single premium and rollover deposits -- and 16 percent for the six months, which included a decline in flexible premium annuity sales of approximately 50 percent.  Total new life production increased 16 percent and 2 percent compared to the prior year quarter and six months, due primarily to an increase in sales of third-party vendor products.

At June 30, 2010, there were 343 Horace Mann Exclusive Agencies, an increase of 93 compared to December 31, 2009.  The company’s Exclusive Agent opportunity was launched on January 1, 2009.  Of the 343 Exclusive Agencies at quarter-end, 187 were formed by previous Employee Agents and 156 were formed by new appointments.  In addition to the Exclusive Agencies, there were 339 Employee Agents at quarter-end.  Combined, there were 682 Exclusive Agencies and Employee Agents at June 30, 2010, compared to 716 at December 31, 2009 and 684 at June 30, 2009.  “While we did experience a decline in the total number of agencies and agents in the first six months -- including a first quarter seasonal pattern that is not unusual for us -- we are expecting a modest increase over the remainder of 2010,” said Lower.

Investment Gains and Losses

In the second quarter of 2010, pretax net realized investment gains were $8.3 million.  The company realized $14.1 million of gross gains on securities that were disposed of during the quarter, partially offset by a $0.7 million credit-related impairment write-down and $5.1 million of realized impairment losses on other security disposals.

Horace Mann’s net unrealized investment gains on fixed maturity and equity securities of $222.8 million at June 30, 2010 continued to reflect improvement compared to the net unrealized gains of $101.7 million and $36.1 million at March 31, 2010 and December 31, 2009, respectively, and the net unrealized loss of $171.3 million at June 30, 2009.

Horace Mann -- the largest national multiline insurance company focusing on educators' financial needs -- provides auto and homeowners insurance, retirement annuities, life insurance and other financial solutions.  Founded by Educators for Educators® in 1945, the company is headquartered in Springfield, Ill.  For more information, visit www.horacemann.com.

Statements included in this news release that are not historical in nature are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties.  Horace Mann is not under any obligation to (and expressly disclaims any such obligation to) update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  Please refer to the company's Quarterly Report on Form 10-Q for the period ended March 31, 2010 and the company's past and future filings and reports filed with the Securities and Exchange Commission for information concerning the important factors that could cause actual results to differ materially from those in forward-looking statements.

SOURCE Horace Mann Educators Corporation