Exhibit 99.1
[Horace Mann Educators Corporation Logo]
J. Michael Henderson
Vice President & Treasurer
Horace Mann Educators
Corporation
(217) 788-5708
www.horacemann.com
HORACE MANN REPORTS RESULTS
FOR THIRD QUARTER
SPRINGFIELD, Ill., November 4, 2002 -- Horace Mann Educators Corporation
(NYSE:HMN) today reported net income of $0.6 million, or 2 cents per share, for
the third quarter ended September 30, 2002, which was significantly impacted by
$8.6 million of after-tax realized investment losses. Net income for the third
quarter of 2001 was $9.0 million, or 22 cents per share. For the first nine
months of 2002, the company reported a net loss of $2.2 million, or 5 cents per
share, including after-tax realized investment losses of $33.8 million. Net
income was $20.8 million, or 51 cents per share, for the same period in 2001.
The company reported third quarter 2002 operating income of $11.4 million, or 28
cents per share, compared to $9.0 million, or 22 cents per share, for the same
period in 2001. For the first nine months of 2002, operating income was $36.3
million, or 88 cents per share, compared to $21.3 million, or 52 cents per
share, for the same period last year. Per-share amounts are stated on a diluted
basis. Operating income is defined by the company as net income before the
after-tax impact of realized investment gains and losses and non-recurring
items. Non-recurring items in 2002 included restructuring charges, debt
retirement costs and class action litigation charges. In the prior year,
non-recurring items primarily included an adjustment to the provision for prior
years' taxes.
Return on equity was 11 percent based on operating income and less than 1
percent based on net income for the 12 months ended September 30, 2002.
1
"Key third quarter performance indicators show that Horace Mann's efforts to
enhance growth and improve profitability of its insurance operations continue to
yield positive results," said Louis G. Lower II, President and Chief Executive
Officer of Horace Mann. "Our annuity and automobile lines continued their
impressive top-line growth, bolstered by further gains in the productivity of
our growing agent force. Also, the profitability of our homeowners line improved
substantially over last year, and voluntary automobile results for the current
accident year are encouraging."
In the current periods, operating income benefited from mild weather; improved
property and casualty loss trends for the 2002 accident year, strengthened by
the impact of rate increases on earned premiums; and the company's restructuring
of its Massachusetts automobile business. These positive prior year comparisons
in the company's property and casualty segment were partially offset in the
third quarter of 2002 by adverse development of prior years' reserves. For the
first nine months of 2002, prior years' reserve strengthening was somewhat less
than in the comparable period in 2001. Operating income in 2002 was also
adversely impacted by (1) decreases in investment income due to investment
credit issues, (2) tightening margins on variable annuities resulting from
declining market valuations, and (3) higher company-wide operating expenses
resulting primarily from transition costs related to changes in the company's
retirement plans and lower employee incentive compensation expenses in 2001. In
addition, operating income in 2002 benefited from a $1.6 million reduction in
federal income taxes, due to an updated estimate of the current year tax rate,
and from the January 1, 2002 discontinuance of goodwill amortization.
Results of Operations
Core lines premiums written and contract deposits increased 7 percent and 6
percent compared to the third quarter and first nine months of 2001,
respectively, excluding $3.2 million and $13.4 million, respectively, of
Massachusetts voluntary automobile premiums written in the 2001 periods. The
growth resulted from continued strong gains in the annuity segment and rate
increases in the property and automobile lines.
Average agent productivity for all lines of business increased 10 percent
compared to the first nine months of 2001. "In the last two years average agent
productivity has soared 57 percent, reflecting our heightened focus on
recruiting better agents and training and equipping agents more effectively. In
addition, our new compensation system rewards success in building new educator
business," Lower said.
2
"These actions also have contributed to improved agent retention which, coupled
with successful recruiting of new agents, resulted in 2 percent growth in the
agent force over the last 12 months - our first 12 month gain in agent count
since June 1999," Lower continued.
Property and Casualty
Written premiums for voluntary property and casualty insurance increased 7
percent in the current quarter and first nine months, adjusted for Massachusetts
automobile. Average written premium per policy increased approximately 6 percent
for automobile and 12 percent for homeowners in the last twelve months.
Excluding Massachusetts, the number of automobile policies in force was equal to
a year earlier, while homeowners policies in force decreased by 3 percent
compared to the prior year.
Third quarter 2002 operating income for the property and casualty segment was
$5.6 million, compared to $2.1 million for the same period last year. Through
nine months, operating income for the segment was $16.1 million, compared to
$0.2 million a year ago. Horace Mann's property and casualty statutory combined
ratio was 102.3 percent for the third quarter of 2002, compared to 104.9 percent
a year earlier. For the nine months, the combined ratio was 103.3 percent,
compared to 107.7 percent in 2001. For both the quarter and nine months, the
statutory loss ratio for the segment showed improvement compared to the prior
year.
The voluntary automobile statutory loss ratio for the third quarter of 2002 was
72.8 percent, compared to 77.8 percent for the same period in 2001. Through nine
months, the voluntary automobile loss ratio was 76.8 percent, including 0.6
percentage points due to class action litigation, compared to 79.2 percent last
year. The increase in average voluntary automobile premium in the first nine
months exceeded the increase in average current accident year loss costs, as
accident frequencies trended lower and severities increased only modestly.
The property statutory loss ratio of 88.0 percent for the third quarter of 2002
improved 18.3 percentage points from the same period in 2001, reflecting
favorable weather, an increase in average premium per policy and loss
containment initiatives. For the nine months, the property loss ratio of 83.8
percent improved 19.4 percentage points compared to 2001.
"These results demonstrate that the rate increases and underwriting actions we
have taken to restore profitability to our homeowners line are yielding the
intended result," Lower said. "We plan to continue taking aggressive actions to
achieve targeted levels of profitability in this line of business."
3
In the third quarter of 2002, favorable current accident year loss trends were
partially offset by adverse prior years' property and casualty reserve
development of $4.1 million after tax. The development related primarily to
automobile and homeowners loss adjustment expense and professional liability
loss reserves from accident years 1999, 2000 and 2001. For the first nine
months, strengthening of prior years' reserves in 2002 totaled $5.7 million
after tax, compared to $7.7 million after tax in the prior year.
The property and casualty statutory expense ratio increased 4.2 percentage
points for the quarter and 3.2 percentage points for the nine months. On a
statutory accounting basis the property and casualty expense ratio reflected
severance and other charges related to the restructure of the property and
casualty claims operation, which represented 2.9 and 1.1 percentage points for
the three and nine months ended September 30, 2002, respectively. These
non-operating charges are further described later in this release. In addition,
the expense ratio reflected this segment's portion of the increase in
company-wide operating expenses as well as higher automobile new business
commissions.
Annuity
New annuity deposits increased 14 percent in the current quarter and 9 percent
year-to-date, primarily reflecting growth of 13 percent and 12 percent in new
scheduled annuity deposits for the quarter and nine months, respectively. New
single premium and rollover deposits increased 15 percent and 4 percent for the
current quarter and nine months, respectively. At September 30, 2002, cash value
retention for fixed and variable annuities for the prior 12 months increased to
94 percent and 92 percent, compared to 92 percent and 91 percent, respectively,
a year earlier. The number of annuity contracts outstanding increased 6 percent
over that 12 month period.
"New annuity sales by Horace Mann agents increased by 12 percent in the quarter,
and total annuity sales were up 16 percent supplemented by our growing
independent agent distribution initiative," Lower said. "Most notable is our
success in offering fixed and variable annuities through independent agents to
Chicago public school employees. Approximately 1,500 new flexible premium
contracts have been sold through this channel representing over $7 million in
contract deposits on an annual basis, $2.1 million of which have been received
since this effort began on April 1. Independent agent distribution represents a
significant growth opportunity for Horace Mann, and we are well on our way to
achieving our 2002 targets in this channel."
4
Annuity segment operating income was $3.1 million for the third quarter of 2002,
compared to $5.4 million for the same period in 2001. For the nine months,
annuity operating income was $12.3 million, compared to $14.8 million for the
prior year. In both periods, 2002 income was adversely impacted by reductions in
investment income due to investment credit issues, reserve increases due to
improved mortality of our annuity business in payout status, and the increase in
company-wide operating expenses. In addition, valuation of annuity segment
deferred acquisition costs and value of acquired insurance in force at September
30, 2002 resulted in after-tax increases in amortization of $1.2 million for the
current quarter and $0.8 million for the nine months, reflecting lower than
expected market appreciation offset by the impact of realized investment losses.
Similar valuations a year ago increased after-tax amortization $0.5 million for
the third quarter and $0.4 million for the nine months. An increase in reserves
for guaranteed minimum death benefits ("GMDB") reduced 2002 after-tax operating
income by $0.3 million for the current quarter and $0.4 million for the nine
months. The company's GAAP GMDB reserve was initially established in the third
quarter of 2001 resulting in a $0.7 million after-tax charge to income in that
period. Variable annuity fee income decreased slightly compared to the prior
year, with declining market valuations more than offsetting the growth in
annuity deposits and improved retention.
Life
Life segment insurance premiums and contract deposits declined 4 percent for the
current quarter and 5 percent for the first nine months, compared to the same
periods a year earlier, due to a decrease in both new business and
interest-sensitive life product deposits. Life segment operating income was $4.4
million for the third quarter of 2002 and $13.5 million for the first nine
months, each approximately $0.5 million greater than the prior year. Mortality
experience on ordinary life business was comparable to last year. Valuation of
life segment deferred acquisition costs at September 30, 2002 resulted in
reductions in amortization of $0.2 million and $0.6 million after tax for the
quarter and nine months, respectively, due to the impact of realized investment
losses. There were no amortization adjustments in the prior year.
Subsequent to filing the Form 10-Q for the period ended June 30, 2002, the
company determined that redundant reserves had been inadvertently established on
certain life insurance policies. To ensure comparability between periods, the
reduction in life segment reserves, equal to $0.9 million after tax, or 2 cents
per share, has been reflected as an adjustment to operating income in the
year-to-date 2002 results and was not reflected in third quarter 2002 operating
income.
5
Realized Investment Losses
For the third quarter and first nine months of 2002, after-tax realized
investment losses were $8.6 million and $33.8 million, respectively. The current
quarter losses resulted in large part from the impairment of fixed income
securities issued by companies in the communications sector, primarily Qwest
Communications International Inc. and the NTL companies. The nine month results
were also significantly impacted by communications sector impairment losses,
including the company's sale of all securities issued by WorldCom, Inc. In 2001,
after-tax realized investment losses were $1.3 million and $1.9 million for the
third quarter and nine months ended September 30, respectively.
Non-Recurring Items
In July 2002, the company announced the restructuring of its property and
casualty claims operations. Charges of $2.7 million after tax, or 7 cents per
share, for severance and other costs related to closure of certain claims
offices were reflected in the third quarter of 2002 as a non-operating income
restructuring charge. The company expects to realize operating and cost
efficiencies and also improve customer service by consolidating claims office
locations throughout the United States, implementing a new claims administration
system, and performing certain claims reporting and adjusting functions
internally versus utilizing external service providers.
In May and September 2002, the company used a portion of the proceeds from the
sale of its Senior Convertible Notes to repay the outstanding balance under its
bank credit agreement and repurchase $61.2 million of its outstanding Senior
Notes and $40.0 million aggregate principal amount, $19.0 million carrying
value, of its outstanding Senior Convertible Notes. September repurchases
resulted in an after-tax gain of $0.5 million, or 1 cent per share, which was
reflected in net income. Year-to-date debt retirement resulted in an after-tax
charge of $1.0 million, or 3 cents per share. As of September 30, 2002, the
company had total outstanding debt of $187.7 million, consisting of $38.8
million of Senior Notes and $148.9 million of Senior Convertible Notes.
In June 2002, the company recorded an after-tax charge of $1.0 million to net
income, representing the company's best estimate of the costs of resolving class
action lawsuits related to diminished value brought against the company. And,
net income for the third quarter and first nine months of 2001 reflected
non-operating federal income tax benefits of $1.3 million.
6
Total shares outstanding on September 30, 2002 and 2001 were 40,853,319 and
40,716,625, respectively. The company has not repurchased shares of its common
stock since the third quarter of 2000.
Book value per share was $11.93 at September 30, 2002, a slight increase
compared to 12 months earlier, including the effects of unrealized investment
gains and losses. Excluding unrealized investment gains and losses, book value
per share decreased 6 percent compared to September 30, 2001.
Founded in 1945 and headquartered in Springfield, Ill., Horace Mann sells
retirement annuities and automobile, homeowner and life insurance to the
nation's educators and their families.
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
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as the result of new information, future events or
otherwise. Information concerning factors that could cause actual results to
differ materially from those in forward-looking statements is contained from
time to time in the company's public filings with the Securities and Exchange
Commission.
# # #
HORACE MANN EDUCATORS CORPORATION
Highlights and Digest of Earnings
(Dollars in Millions, Except Per Share Data)
Quarter Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2002 2001 % Change 2002 2001 % Change
---- ---- -------- ---- ---- --------
HIGHLIGHTS
- ----------
Operations
- ----------
Insurance premiums written
and contract deposits
Core lines (A) $ 224.1 $ 212.3 5.6% $ 653.8 $ 632.7 3.3%
Core lines, excluding Massachusetts
automobile (A) 224.1 209.1 7.2% 653.8 619.3 5.6%
Total (A) 232.7 224.3 3.7% 663.0 650.3 2.0%
Total, excluding Massachusetts automobile (A) 232.5 218.6 6.4% 661.6 631.1 4.8%
Operating income (B)(C) 11.4 9.0 26.7% 36.3 21.3 70.4%
Return on equity (D) 0.6% 1.6%
Property & Casualty statutory
combined ratio (E) 102.3% 104.9% 103.3% 107.7%
Property & Casualty statutory combined
ratio before catastrophes (E) 101.0% 103.6% 101.7% 104.8%
Experienced agents 512 566 -9.5%
Financed agents 357 287 24.4%
Total agents 869 853 1.9%
Per Share
- ---------
Operating income (B)(C)
Basic $ 0.28 $ 0.23 21.7% $ 0.89 $ 0.53 67.9%
Diluted $ 0.28 $ 0.22 27.3% $ 0.88 $ 0.52 69.2%
Operating income before amortization of
intangible assets - diluted (C) $ 0.31 $ 0.26 19.2% $ 0.95 $ 0.62 53.2%
Dividends paid $ 0.105 $ 0.105 - $ 0.315 $ 0.315 -
Book value (F) $ 11.93 $ 11.87 0.5%
Financial Position
- ------------------
Total assets $4,842.1 $ 4,627.6 4.6%
Short-term debt - 49.0
Long-term debt 187.7 99.8
Total shareholders' equity 487.3 483.3 0.8%
DIGEST OF EARNINGS
- ------------------
Net income (loss) (C) $ 0.6 $ 9.0 ($2.2) $ 20.8
Earnings (loss) per share (C):
Basic $ 0.02 $ 0.22 ($0.05) $ 0.51
Diluted $ 0.02 $ 0.22 ($0.05) $ 0.51
(A) Effective December 31, 2001, Horace Mann ceased writing automobile
insurance policies in Massachusetts. See footnote (A) on page 2 for
quantification.
(B) Net income (loss) before the after-tax impact of realized investment gains
and losses, restructuring charges, debt retirement costs, litigation
charges and adjustment to the provision for prior years' taxes.
(C) Subsequent to filing the Form 10-Q for the period ended June 30, 2002, the
Company determined that redundant reserves had been inadvertently
established on certain life insurance policies. To ensure comparability
between periods, the reduction in life segment reserves, equal to $0.9
million after tax, or 2 cents per share, is reflected in year-to-date 2002
results but not in the third quarter 2002 results.
(D) Based on 12-month net income (loss) and average quarter-end shareholders'
equity.
(E) Includes non-recurring statutory accounting charges, described in footnotes
(B) and (C) on page 4, which are attributed to the Corporate and Other
segment for GAAP segment reporting. In total, these non-recurring charges
increased the statutory combined ratio by 2.9 percentage points and 1.5
percentage points for the three months and nine months ended September 30,
2002, respectively.
(F) Before the market value adjustment for investments, book value per share
was $10.25 at September 30, 2002 and $10.88 at September 30, 2001. Ending
shares outstanding were 40,853,319 at September 30, 2002, 40,735,625 at
December 31, 2001 and 40,716,625 at September 30, 2001.
-1-
HORACE MANN EDUCATORS CORPORATION
Statements of Operations and Earnings Per Share
(Dollars in Millions, Except Per Share Data)
Quarter Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2002 2001 % Change 2002 2001 % Change
---- ---- -------- ---- ---- --------
Statements of Operations
- ------------------------
Insurance premiums written
and contract deposits (A) $ 232.7 $ 224.3 3.7% $ 663.0 $ 650.3 2.0%
Insurance premiums and
contract charges earned (A) $ 155.6 $ 155.1 0.3% $ 465.5 $ 457.0 1.9%
Net investment income 47.6 49.9 147.6 148.5
Realized investment losses (13.2) (1.9) (51.9) (2.9)
Total revenues 190.0 203.1 561.2 602.6
Benefits, claims and settlement expenses (B) 112.9 118.8 338.2 361.4
Interest credited 24.5 24.1 73.1 72.4
Policy acquisition expenses amortized 16.9 14.7 45.8 42.0
Operating expenses 32.3 30.8 96.3 87.2
Amortization of intangible assets 1.9 2.4 4.6 6.1
Interest expense 2.3 2.4 6.7 7.2
Restructuring charges 4.2 - 4.2 (0.2)
Debt retirement costs (gains) (0.8) - 1.5 -
Litigation charges - - 1.6 -
Total benefits, losses and expenses 194.2 193.2 572.0 576.1
Income (loss) before income taxes (B) (4.2) 9.9 (10.8) 26.5
Income tax expense (benefit) (4.8) 2.2 (8.6) 7.0
Adjustment to the provision for prior years' taxes - (1.3) - (1.3)
Net income (loss) (B) $ 0.6 $ 9.0 ($2.2) $ 20.8
Operating income (B)(C) $ 11.4 $ 9.0 26.7% $ 36.3 $ 21.3 70.4%
Earnings Per Share
- ------------------
Diluted
Operating income (B)(C) $ 0.28 $ 0.22 27.3% $ 0.88 $ 0.52 69.2%
Realized investment losses ($0.20) ($0.03) ($0.81) ($0.04)
Restructing charges ($0.07) - ($0.07) -
Debt retirement gains (costs) $ 0.01 - ($0.03) -
Litigation charges - - ($0.02) -
Adjustment to the provision for prior years' taxes - $ 0.03 - $ 0.03
Net income (loss) (B) $ 0.02 $ 0.22 ($0.05) $ 0.51
Common and equivalent shares -
weighted average 41.0 41.0 41.2 40.8
(A) Effective December 31, 2001, Horace
Mann ceased writing automobile insurance
policies in Massachusetts. This business
represented the following amounts for the
periods indicated:
Premiums written
Voluntary automobile and core lines - $ 3.2 - $ 13.4
Total $ 0.2 5.7 $ 1.4 19.2
Premiums earned
Voluntary automobile and core lines 1.9 3.2 9.3 13.1
Total 3.3 5.4 14.3 19.3
Policies in force (in thousands)
Voluntary automobile 6 23
(B) Subsequent to filing the Form 10-Q for the period ended June 30, 2002, the
Company determined that redundant reserves had been inadvertently
established on certain life insurance policies. To ensure comparability
between periods, the reduction in life segment reserves, equal to $0.9
million after tax, or 2 cents per share, is reflected in year-to-date 2002
results but not in the third quarter 2002 results.
(C) Net income (loss) before the after-tax impact of realized investment gains
and losses, restructuring charges, debt retirement costs, litigation
charges and adjustment to the provision for prior years' taxes.
-2-
HORACE MANN EDUCATORS CORPORATION
Supplemental GAAP Consolidated Data
(Dollars in Millions, Except Per Share Data)
Quarter Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2002 2001 % Change 2002 2001 % Change
---- ---- -------- ---- ---- --------
Analysis of Premiums Written
and Contract Deposits
- ----------------------------
Automobile and property (voluntary)(A) $ 135.8 $ 130.4 4.1% $ 382.1 $ 371.7 2.8%
Excluding Massachusetts automobile (A) 135.8 127.2 6.8% 382.1 358.3 6.6%
Annuity deposits 61.8 54.3 13.8% 190.2 174.9 8.7%
Life insurance 26.5 27.6 -4.0% 81.5 86.1 -5.3%
Subtotal - core lines (A) 224.1 212.3 5.6% 653.8 632.7 3.3%
Subtotal - core lines, excluding
Massachusetts automobile (A) 224.1 209.1 7.2% 653.8 619.3 5.6%
Involuntary and other property & casualty (A) 8.6 12.0 9.2 17.6
Total (A) 232.7 224.3 3.7% 663.0 650.3 2.0%
Total, excluding Massachusetts automobile (A) 232.5 218.6 6.4% 661.6 631.1 4.8%
Analysis of Net Income (B)
- --------------------------
Insurance operating income (C)
Property & Casualty
Before catastrophes $ 6.7 $ 3.1 $ 20.0 $ 7.2
Catastrophe losses, after tax (1.1) (1.0) (3.9) (7.0)
Total Property & Casualty 5.6 2.1 16.1 0.2
Annuity 3.1 5.4 -42.6% 12.3 14.8 -16.9%
Life (B) 4.4 3.8 15.8% 13.5 13.2 2.3%
Corporate and other (0.2) (0.8) (1.2) (2.3)
Total insurance operating income (B)(C) 12.9 10.5 22.9% 40.7 25.9 57.1%
Interest expense, after tax (1.5) (1.5) (4.4) (4.6)
Total operating income (B)(C) 11.4 9.0 26.7% 36.3 21.3 70.4%
Realized investment losses, after tax (8.6) (1.3) (33.8) (1.9)
Restructuring charges, after tax (2.7) - (2.7) 0.1
Debt retirement gains (costs), after tax 0.5 - (1.0) -
Litigation charges, after tax - - (1.0) -
Adjustment to the provision for prior years' taxes - 1.3 - 1.3
Net income (loss) (B) 0.6 9.0 (2.2) 20.8
Net income (loss) before catastrophes (B) $ 1.7 $ 10.0 $ 1.7 $ 27.8
Per share - diluted $ 0.05 $ 0.24 $ 0.05 $ 0.68
Operating income per share - diluted (B)(C) $ 0.28 $ 0.22 27.3% $ 0.88 $ 0.52 69.2%
Operating income before catastrophes (B) $ 12.5 $ 10.0 25.0% $ 40.2 $ 28.3 42.0%
Per share - diluted $ 0.31 $ 0.24 29.2% $ 0.98 $ 0.69 42.0%
(A) Effective December 31, 2001, Horace Mann ceased writing automobile
insurance policies in Massachusetts. See footnote (A) on page 2 for
quantification.
(B) Subsequent to filing the Form 10-Q for the period ended June 30, 2002, the
Company determined that redundant reserves had been inadvertently
established on certain life insurance policies. To ensure comparability
between periods, the reduction in life segment reserves, equal to $0.9
million after tax, or 2 cents per share, is reflected in year-to-date 2002
results but not in the third quarter 2002 results.
(C) Net income (loss) before the after-tax impact of realized investment gains
and losses, restructuring charges, debt retirement costs, litigation
charges and adjustment to the provision for prior years' taxes.
-3-
HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview
(Dollars in Millions)
Quarter Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2002 2001 % Change 2002 2001 % Change
---- ---- -------- ---- ---- --------
Property & Casualty
- -------------------
Premiums written (A) $ 144.4 $ 142.4 1.4% $ 391.3 $ 389.3 0.5%
Premiums earned (A) 130.2 128.8 1.1% 386.8 376.9 2.6%
Net investment income 8.0 9.4 -14.9% 26.4 27.6 -4.3%
Losses and loss adjustment expenses 101.2 108.8 305.7 328.6
Operating expenses (includes policy
acquisition expenses amortized) 30.7 28.1 87.9 79.3
Operating income (loss) before tax 6.3 1.3 19.6 (3.4)
Operating income 5.6 2.1 16.1 0.2
Net investment income, after tax 6.3 7.2 -12.5% 20.2 21.3 -5.2%
Catastrophe losses, after tax 1.1 1.0 3.9 7.0
Statutory operating statistics:
Loss and loss adjustment expense ratio 77.7% 84.5% 79.6% 87.2%
Expense ratio 24.6% 20.4% 23.7% 20.5%
Combined ratio 102.3% 104.9% 103.3% 107.7%
Expense ratio impact of restructuring charges (B) 2.9% - 1.1% -
Loss ratio impact of litigation charges (C) - - 0.4% -
Combined ratio before catastrophes 101.0% 103.6% 101.7% 104.8%
Automobile and property detail:
Premiums written (voluntary) (A) $ 135.8 $ 130.4 4.1% $ 382.1 $ 371.7 2.8%
Automobile, excluding Massachusetts (A) 96.8 91.0 6.4% 281.3 263.4 6.8%
Automobile, including Massachusetts (A) 96.8 94.2 2.8% 281.3 276.8 1.6%
Property 39.0 36.2 7.7% 100.8 94.9 6.2%
Premiums earned (voluntary) (A) 126.5 122.3 3.4% 376.7 361.0 4.3%
Automobile (A) 93.9 92.1 2.0% 281.2 272.4 3.2%
Property 32.6 30.2 7.9% 95.5 88.6 7.8%
Policies in force (voluntary) (in thousands) (A) 863 888 -2.8%
Automobile, excluding Massachusetts (A) 573 573 -
Automobile, including Massachusetts (A) 579 596 -2.9%
Property 284 292 -2.7%
Voluntary automobile statutory operating statistics:
Loss and loss adjustment expense ratio 72.8% 77.8% 76.8% 79.2%
Expense ratio 26.7% 21.6% 24.3% 20.5%
Combined ratio 99.5% 99.4% 101.1% 99.7%
Expense ratio impact of restructuring charges (B) 3.4% - 1.2% -
Loss ratio impact of litigation charges (C) - - 0.6% -
Combined ratio before catastrophes 99.1% 99.8% 100.4% 98.4%
Total property statutory operating statistics:
Loss and loss adjustment expense ratio 88.0% 106.3% 83.8% 103.2%
Expense ratio 22.5% 20.1% 21.9% 20.5%
Combined ratio 110.5% 126.4% 105.7% 123.7%
Expense ratio impact of restructuring charges (B) 2.4% - 0.9% -
Combined ratio before catastrophes 106.2% 119.8% 101.2% 115.3%
Prior years' reserves favorable development
(strengthening), pretax
Voluntary automobile, including (C) ($4.0) $ 0.0 ($5.4) ($3.5)
Total property (1.1) (0.7) (1.1) (2.4)
Other property and casualty (1.2) (0.1) (2.3) (5.9)
Total, including (C) (6.3) (0.8) (8.8) (11.8)
(A) Effective December 31, 2001, Horace Mann ceased writing automobile
insurance policies in Massachusetts. See footnote (A) on page 2 for
quantification.
(B) Represents a $4.2 million pretax statutory accounting charge for claims
restructuring costs for the three and nine months ended September 30, 2002.
$3.3 million was charged to voluntary automobile, and $0.9 million was
charged to property.
(C) Represents a $1.6 million pretax statutory accounting charge for class
action litigation for the nine months ended September 30, 2002 which was
recorded in the second quarter of 2002.
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HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview
(Dollars in Millions)
Quarter Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2002 2001 % Change 2002 2001 % Change
---- ---- -------- ---- ---- --------
Annuity
- -------
Contract deposits $ 61.8 $ 54.3 13.8% $ 190.2 $ 174.9 8.7%
Variable 25.7 25.1 2.4% 87.8 87.2 0.7%
Fixed 36.1 29.2 23.6% 102.4 87.7 16.8%
Contract charges earned 3.5 3.9 -10.3% 10.9 11.4 -4.4%
Net investment income 26.4 27.0 -2.2% 81.2 80.5 0.9%
Net interest margin
(without realized gains) 9.1 10.2 30.4 29.6
Net margin (includes fees and
contract charges earned) 13.0 14.7 -11.6% 42.8 42.8 -
Mortality gain (loss) and other reserve changes (1.3) 0.9 (1.9) 0.5
Operating expenses (includes
policy acquisition expenses amortized) 7.9 6.4 21.1 17.8
Operating income before tax and
amortization of intangible assets 3.8 9.2 -58.7% 19.8 25.5 -22.4%
Amortization of intangible assets 1.5 1.5 3.3 3.4
Operating income before tax 2.3 7.7 16.5 22.1
Operating income 3.1 5.4 -42.6% 12.3 14.8 -16.9%
Annuity contracts in force (in thousands) 144 136 5.9%
Cash value on deposit $2,290.1 $2,231.5 2.6%
Variable 817.8 850.4 -3.8%
Fixed 1,472.3 1,381.1 6.6%
Annuity deposit retention - 12 months
Variable accumulations 92.5% 90.8%
Fixed accumulations 94.1% 92.2%
Life
- ----
Premiums and contract deposits $ 26.5 $ 27.6 -4.0% $ 81.5 $ 86.1 -5.3%
Premiums and contract
charges earned 21.9 22.4 -2.2% 67.8 68.7 -1.3%
Net investment income 13.4 13.9 -3.6% 40.6 41.4 -1.9%
Operating income before tax (A) 6.7 6.1 20.9 20.5
Operating income (A) 4.4 3.8 15.8% 13.5 13.2 2.3%
Life policies in force (in thousands) 270 273 -1.1%
Life insurance in force (in millions) $ 13,379 $ 13,097 2.2%
Lapse ratio - 12 months
(Ordinary life insurance) 9.4% 8.5%
Corporate and Other
- -------------------
Interest expense, before tax $ 2.3 $ 2.4 $ 6.7 $ 7.2
Operating loss before tax (2.9) (3.3) (8.6) (10.0)
Operating loss (1.7) (2.3) (5.6) (6.9)
Realized investment losses, after tax (8.6) (1.3) (33.8) (1.9)
Restructuring charges, after tax (2.7) - (2.7) 0.1
Debt retirement costs, after tax 0.5 - (1.0) -
Litigation charges, after tax - - (1.0) -
Adjustment to the provision for prior years' taxes - 1.3 - 1.3
Net loss (12.5) (2.3) (44.1) (7.4)
Experienced agents 512 566 -9.5%
Financed agents 357 287 24.4%
Total agents 869 853 1.9%
(A) Subsequent to filing the Form 10-Q for the period ended June 30, 2002, the
Company determined that redundant reserves had been inadvertently
established on certain life insurance policies. To ensure comparability
between periods, the reduction in life segment reserves, equal to $0.9
million after tax, or 2 cents per share, is reflected in year-to-date 2002
results but not in the third quarter 2002 results.
-5-
HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview
(Dollars in Millions)
Quarter Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2002 2001 % Change 2002 2001 % Change
---- ---- -------- ---- ---- --------
Investments
- -----------
Annuity and Life
Fixed maturities, at market
(amortized cost 2002, $2,216.1; 2001, $2,150.1) $2,301.1 $2,198.9
Mortgage loans and real estate 5.0 10.6
Short-term investments 87.3 35.4
Short-term investments, securities lending collateral 430.5 381.4
Policy loans and other 67.6 64.6
--------- --------
Total Annuity and Life investments 2,891.5 2,690.9 7.5%
Property & Casualty
Fixed maturities, at market
(amortized cost 2002, $567.9; 2001, $550.1) 594.4 566.3
Short-term investments 14.3 3.4
Short-term investments, securities lending collateral 13.3 23.7
Other 0.4 0.3
--------- --------
Total Property & Casualty investments 622.4 593.7 4.8%
Corporate investments 21.1 2.5
Total investments 3,535.0 3,287.1 7.5%
Net investment income
Before tax $ 47.6 $49.9 -4.6% $ 147.6 $ 148.5 -0.6%
After tax 32.1 33.4 -3.9% 99.0 99.8 -0.8%
Realized investment gains (losses) by
investment portfolio included in
Corporate & Other segment income
Property & Casualty ($4.9) ($0.9) ($16.1) ($2.4)
Annuity (4.6) (0.4) (21.8) 2.5
Life (3.7) (0.5) (13.6) (2.9)
Corporate and Other - (0.1) (0.4) (0.1)
Total, before tax (13.2) (1.9) (51.9) (2.9)
Total, after tax (8.6) (1.3) (33.8) (1.9)
Other Information
- -----------------
End of period goodwill asset $ 47.4 $ 47.8
End of period property and casualty net reserves as of:
September 30, 2002 $ 273.2
June 30, 2002 273.5
March 31, 2002 270.5
December 31, 2001 272.0
September 30, 2001 274.6
June 30, 2001 271.6
March 31, 2001 248.6
December 31, 2000 249.8
September 30, 2000 226.9
June 30, 2000 228.8
March 31, 2000 225.3
December 31, 1999 235.4
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