Exhibit 99.1
[Horace Mann Educators Corporation Logo]
Dwayne D. Hallman
Senior Vice
President - Finance
Horace Mann Educators
Corporation
(217) 788-5708
www.horacemann.com
HORACE MANN REPORTS RESULTS
FOR FIRST QUARTER
SPRINGFIELD, Ill., May 1, 2003 -- Horace Mann Educators Corporation (NYSE:HMN)
today reported net income of $8.1 million, or 19 cents per share, for the first
quarter ended March 31, 2003. Net income for the first quarter of 2002 was $15.6
million, or 38 cents per share. All per-share amounts are stated on a diluted
basis.
First quarter 2003 operating income, which is a non-GAAP financial measure
defined by the company, was $11.2 million, or 26 cents per share, compared to
$13.9 million, or 34 cents per share, for the same period in 2002. Operating
income is defined by the company as net income before the after-tax impact of
realized investment gains and losses and non-operating items. Current period
after-tax realized investment losses were $3.1 million, or 7 cents per share,
compared to realized investment gains of $1.7 million, or 4 cents per share, in
the first quarter of 2002. There were no non-operating items in the first
quarters of 2003 and 2002. The company's management utilizes the operating
income measure in comparing core operating performance across reporting periods,
but acknowledges that its definition of operating income may not be comparable
to other companies. Reconciliations of the company's operating income to GAAP
net income are located on page 2 of the numerical exhibit portion of this
release.
In the current period, net income benefited from the impact of property and
casualty rate increases on earned premiums -- with the growth in average premium
per policy outpacing current accident year loss costs -- and the company's
restructuring of its Massachusetts automobile business.
These positive prior year comparisons were offset by adverse development of
property and casualty prior years' reserves, which resulted in an after-tax
charge of $2.8 million for the quarter. Current period net income also was
negatively impacted by (1) decreases in investment income related to investment
credit issues and declining interest rates, (2) tightening margins on variable
annuities resulting from adverse financial market conditions, (3) heavier
weather-related losses than a year ago and (4) investment impairment charges.
"Horace Mann continues to focus on initiatives to build revenue growth and
enhance profitability," said Louis G. Lower II, President and Chief Executive
Officer of Horace Mann. "In spite of the winter storms, a less than robust
financial market and adverse development of prior years' voluntary automobile
loss reserves, first quarter 2003 results are consistent with our previously
announced operating income guidance for the full year of $1.25 to $1.35 per
share."
Results of Operations
The company's core lines premiums written and contract deposits increased 5
percent compared to the first quarter of 2002, primarily resulting from rate
increases in the property and automobile lines.
"While we experienced a somewhat larger first quarter decline in agents than a
year ago, our March 31, 2003 agent count of 884 represented a 5 percent increase
over the last 12 months," Lower said. "Average agent productivity for all lines
of business declined compared to the first quarter of 2002. The impact of
changes in the average experience level of our agent force, as well as severe
weather in large geographic segments of the company's market and client concerns
regarding economic conditions, resulted in a slight decline in total sales."
Property and Casualty
Written premiums for voluntary property and casualty insurance increased 8
percent in the current quarter. The growth was a result of increases in average
written premium per policy of approximately 6 percent for automobile and 16
percent for homeowners compared to the first quarter of 2002. Excluding
Massachusetts, the number of automobile policies in force decreased slightly
compared to a year earlier, while homeowners policies in force decreased by 3
percent.
First quarter 2003 net income for the property and casualty segment was $6.6
million, compared to $7.2 million for the same period in 2002. Horace Mann's
property and casualty statutory combined ratio was 99.5 percent for the first
quarter of 2003, compared to 100.4 percent a year earlier.
The first quarter of 2003 property and casualty combined ratio of 99.5 percent
included adverse prior years' loss reserve development which represented 3.3
percentage points of the combined ratio, or $2.8 million after tax. Adverse
development of automobile liability reserves related to accident years 2001 and
prior represented $2.5 million after tax of the total strengthening. In the
first quarter of 2002, development of prior years' reserves had no net impact on
earnings. Compared to last year, the higher level of weather-related losses in
the first quarter of 2003 represented an increase in the combined ratio of
approximately 2 percentage points.
The voluntary automobile statutory loss ratio for the first quarter of 2003 was
75.9 percent, compared to 75.5 percent for the same period in 2002. The current
period included 5.8 percentage points due to adverse development of prior years'
reserves. The increase in average voluntary automobile premium in the current
period exceeded the increase in average current accident year loss costs.
2
Despite a higher level of weather-related losses, the property statutory loss
ratio of 74.1 percent for the first quarter of 2003 improved 4.5 percentage
points from the same period in 2002, reflecting an increase in average premium
per policy and the positive effects of loss containment initiatives.
The first quarter 2003 property and casualty statutory expense ratio of 24.3
percent, while comparable to the full year 2002 ratio, reflected an increase of
2 percentage points compared to the first quarter of last year. This variance
reflected higher automobile new business commissions, investments in technology
and underwriting initiatives and the required statutory classification of
escrowed North Carolina automobile rate dispute amounts.
Annuity
New annuity deposits increased 2 percent in the current quarter, primarily
reflecting an 11 percent increase in new single premium and rollover deposits.
New scheduled annuity deposits decreased 3 percent compared to a year earlier.
At March 31, 2003, retention of fixed and variable accumulated annuity deposits
for the prior 12 months was 94 percent and 92 percent, compared to 94 percent
and 93 percent, respectively, a year earlier. The number of annuity contracts
outstanding increased 5 percent over that 12 month period.
New annuity sales by Horace Mann agents decreased 10 percent in the quarter
while total annuity sales decreased only 1 percent for the same period,
reflecting the positive impact of Horace Mann's growing independent agent
distribution initiative. Severe weather during the period and clients' concerns
about the economy negatively impacted new sales for this segment.
Annuity segment net income was $2.3 million for the first quarter of 2003
compared to $4.7 million for the same period in 2002. Current period earnings
were adversely impacted by an after-tax reduction in the net interest margin of
$1.1 million, primarily reflecting lower investment income resulting from
investment credit issues and declining interest rates. In addition, valuation of
annuity segment deferred acquisition costs and value of acquired insurance in
force at March 31, 2003 resulted in an after-tax increase in amortization of
$0.6 million for the current quarter, primarily reflecting lower than expected
market appreciation. Similar valuations a year earlier decreased after-tax
amortization $0.1 million for the first quarter. An increase in reserves for
guaranteed minimum death benefits (GMDB) decreased after-tax income by $0.2
million in the current quarter, compared to no impact a year earlier. Fee income
related to variable annuity deposits decreased compared to the prior year,
primarily as a result of adverse market conditions.
Life
Life segment insurance premiums and contract deposits declined 4 percent for the
three months compared to the same period a year earlier, reflecting a decline in
new business and business retention. Compared to December 31, 2002, however,
life policies and insurance in force increased 1 percent and 0.5 percent,
respectively.
3
Life segment net income of $3.8 million for the current period was equal to the
prior year. Valuation of life segment deferred acquisition costs at March 31,
2003 resulted in an after-tax decrease in amortization of $0.1 million. A
similar valuation in 2002 resulted in no adjustments. In the current period,
there was a small increase in mortality costs compared to a year earlier.
Realized Investment Gains and Losses
In the first quarter of 2003, after-tax realized investment losses were $3.1
million, compared to after-tax realized gains of $1.7 million in the prior year.
In the current period, impairment of one of the company's collateralized debt
obligation (CDO) securities in the amount of $2.0 million after tax and other
fixed income impairment charges of $2.0 million after tax, primarily related to
two airline industry issuers, were partially offset by gains from portfolio sale
transactions.
Total shares outstanding on March 31, 2003 and 2002 were 42,701,528 and
40,814,374, respectively. The company has not repurchased shares of its common
stock since the third quarter of 2000.
Book value per share was $12.73 at March 31, 2003, an increase of 18 percent
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 slightly compared to March 31, 2002. Return on equity based
on net income was less than 1 percent for the twelve months ended March 31,
2003.
Horace Mann -- the largest national multiline insurance company focusing on the
financial needs of educators and their families -- provides retirement
annuities, auto, life and property insurance, and other financial solutions.
Founded by educators for educators in 1945, the company is headquartered in
Springfield, Ill. Horace Mann is publicly traded on the New York Stock Exchange
(ticker symbol HMN). 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
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
Digest of Earnings and Highlights
(Dollars in Millions, Except Per Share Data)
Quarter Ended
March 31,
-----------------------------------
2003 2002 % Change
DIGEST OF EARNINGS
Net income $ 8.1 $ 15.6 -48.1%
Net income per share:
Basic $ 0.19 $ 0.38 -50.0%
Diluted $ 0.19 $ 0.38 -50.0%
Weighted average number of shares and equivalent shares:
Basic 42.7 40.8
Diluted 42.9 41.2
HIGHLIGHTS
Operations
Insurance premiums written and contract deposits
Core lines $ 219.5 $ 209.9 4.6%
Total 219.6 211.7 3.7%
Operating Income (A) 11.2 13.9 -19.4%
Return on equity (B) 0.8% 5.3%
Property & Casualty statutory combined ratio 99.5% 100.4%
Property & Casualty statutory combined ratio before catastrophes 97.9% 100.2%
Experienced agents 497 520 -4.4%
Financed agents 387 320 20.9%
Total agents 884 840 5.2%
Per Share
Operating income, diluted (A) $ 0.26 $ 0.34 -23.5%
Dividends paid $ 0.105 $ 0.105 -
Book value (C) $ 12.73 $ 10.75 18.4%
Financial Position
Total assets $4,907.8 $4,859.4 1.0%
Short-term debt - 53.0
Long-term debt 144.7 99.8
Total shareholders' equity 543.5 438.6 23.9%
(A) A non-GAAP financial measure defined by the company as net income before
the after-tax impact of realized investment gains and losses and
non-operating items. A reconciliation of operating income to net income is
provided on the following page. Horace Mann's method of calculating
operating income may differ from that of other companies and therefore
comparability may be limited.
(B) Based on 12-month net income and average quarter-end shareholders' equity.
(C) Before the market value adjustment for investments, book value per share
was $10.59 at March 31, 2003 and $10.92 at March 31, 2002. Ending shares
outstanding were 42,701,528 at March 31, 2003, 42,691,244 at December 31,
2002 and 40,814,374 at March 31, 2002.
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HORACE MANN EDUCATORS CORPORATION
Statements of Operations and Income Reconciliations
(Dollars in Millions, Except Per Share Data)
Quarter Ended
March 31,
-----------------------------------
2003 2002 % Change
STATEMENTS OF OPERATIONS
Insurance premiums written and contract deposits (A) $219.6 $211.7 3.7%
Insurance premiums and
contract charges earned (A) $158.3 $155.6 1.7%
Net investment income 47.5 49.7 -4.4%
Realized investment gains (losses) (4.7) 2.6
Total revenues 201.1 207.9 -3.3%
Benefits, claims and settlement expenses 110.9 110.8
Interest credited 25.4 24.1
Policy acquisition expenses amortized 17.1 14.6
Operating expenses 33.6 32.4 3.7%
Amortization of intangible assets 1.6 1.3
Interest expense 1.6 2.1
Total benefits, losses and expenses 190.2 185.3 2.6%
Income before income taxes 10.9 22.6 -51.8%
Income tax expense 2.8 7.0
Net income $ 8.1 $ 15.6 -48.1%
RECONCILIATIONS:
OPERATING INCOME TO NET INCOME (B)
Income
Operating income (C) $ 11.2 $ 13.9 -19.4%
Realized investment gains (losses), after tax (3.1) 1.7
Net income 8.1 15.6 -48.1%
Income Per Share, Diluted
Operating income (C) $ 0.26 $ 0.34 -23.5%
Realized investment gains (losses), after tax ($0.07) $ 0.04
Net income $ 0.19 $ 0.38 -50.0%
(A) Effective December 31, 2001, Horace Mann ceased writing automobile
insurance policies in Massachusetts. See footnote (A) on page 3 for
quantification.
(B) A reconciliation of operating income to net income is not accessible on a
forward-looking basis because it is not possible to provide a reliable
forecast of realized investment gains and losses, which can vary
substantially from one period to another and may have a significant impact
on net income. At this time, any other reconciling items to net income are
assumed to be zero in 2003.
(C) A non-GAAP financial measure defined by the company as net income before
the after-tax impact of realized investment gains and losses and
non-operating items. Horace Mann's method of calculating operating income
may differ from that of other companies and therefore comparability may be
limited.
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HORACE MANN EDUCATORS CORPORATION
Supplemental GAAP Consolidated Data
(Dollars in Millions)
Quarter Ended
March 31,
----------------------------------
2003 2002 % Change
Analysis of Premiums Written
and Contract Deposits
Automobile and property (voluntary) (A) $128.5 $118.9 8.1%
Annuity deposits 64.3 63.3 1.6%
Life insurance 26.7 27.7 -3.6%
Subtotal - core lines 219.5 209.9 4.6%
Involuntary and other property & casualty (A) 0.1 1.8
Total (A) 219.6 211.7 3.7%
Total, excluding Massachusetts automobile (A) 219.6 210.3 4.4%
Analysis of Net Income
Property & Casualty
Before catastrophes $ 8.0 $ 7.3 9.6%
Catastrophe losses, after tax (1.4) (0.1)
Total Property & Casualty 6.6 7.2 -8.3%
Annuity 2.3 4.7 -51.1%
Life 3.8 3.8 -
Corporate and other (B) (4.6) (0.1)
Net income 8.1 15.6 -48.1%
(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 - -
Total - $ 1.4
Premiums earned
Voluntary automobile and core lines - 4.2
Total $ 0.2 6.2
Policies in force (in thousands)
Voluntary automobile - 18
(B) The Corporate and Other segment includes interest expense on debt and the
impact of realized investment gains and losses and other reconciling items
to net income. The Company does not allocate the impact of corporate level
transactions to the insurance segments consistent with management's
evaluation of the results of those segments. See detail for this segment on
page 5.
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HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview
(Dollars in Millions)
Quarter Ended
March 31,
----------------------------------
2003 2002 % Change
Property & Casualty
Premiums written (A) $128.6 $ 120.7 6.5%
Premiums earned (A) 131.6 128.0 2.8%
Net investment income 8.2 9.6 -14.6%
Losses and loss adjustment expenses 99.3 100.0
Operating expenses (includes policy acquisition expenses amortized) 31.8 28.0
Income before tax 8.7 9.6
Net income 6.6 7.2
Net investment income, after tax 6.6 7.2 -8.3%
Catastrophe losses, after tax 1.4 0.1
Statutory operating statistics:
Loss and loss adjustment expense ratio 75.2% 78.1%
Expense ratio 24.3% 22.3%
Combined ratio 99.5% 100.4%
Combined ratio before catastrophes 97.9% 100.2%
Automobile and property detail:
Premiums written (voluntary) (A) $128.5 $ 118.9 8.1%
Automobile (A) 98.6 92.7 6.4%
Property 29.9 26.2 14.1%
Premiums earned, including Massachusetts (voluntary) (A) 129.4 124.5 3.9%
Premiums earned, excluding Massachusetts (voluntary) (A) 129.4 120.3 7.6%
Automobile, excluding Massachusetts (A) 95.2 89.3 6.6%
Automobile, including Massachusetts (A) 95.2 93.5 1.8%
Property 34.2 31.0 10.3%
Policies in force (voluntary) (in thousands) (A) 852 881 -3.3%
Automobile, excluding Massachusetts (A) 571 574 -0.5%
Automobile, including Massachusetts (A) 571 592 -3.5%
Property 281 289 -2.8%
Voluntary automobile statutory operating statistics:
Loss and loss adjustment expense ratio 75.9% 75.5%
Expense ratio 23.3% 21.8%
Combined ratio 99.2% 97.3%
Combined ratio before catastrophes 99.0% 97.1%
Total property statutory operating statistics:
Loss and loss adjustment expense ratio 74.1% 78.6%
Expense ratio 26.2% 23.1%
Combined ratio 100.3% 101.7%
Combined ratio before catastrophes 94.6% 101.6%
Prior years' reserves favorable (adverse) development, pretax
Voluntary automobile ($5.6) $ 0.5
Total property 0.4 0.1
Other property and casualty 0.9 (0.7)
Total (4.3) (0.1)
(A) Effective December 31, 2001, Horace Mann ceased writing automobile
insurance policies in Massachusetts. See footnote (A) on page 3 for
quantification.
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HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview
(Dollars in Millions)
Quarter Ended
March 31,
-----------------------------------
2003 2002 % Change
Annuity
Contract deposits $ 64.3 $ 63.3 1.6%
Variable 24.2 28.5 -15.1%
Fixed 40.1 34.8 15.2%
Contract charges earned 3.2 3.7 -13.5%
Net investment income 26.5 27.4 -3.3%
Net interest margin (without realized gains) 8.8 10.5
Net margin (includes fees and contract charges earned) 12.4 14.8 -16.2%
Mortality gain (loss) and other reserve changes (0.5) (0.1)
Operating expenses (includes policy acquisition expenses amortized) 7.4 6.6
Income before tax and amortization of intangible assets 4.5 8.1 -44.4%
Amortization of intangible assets 1.2 0.9
Income before tax 3.3 7.2
Net income 2.3 4.7 -51.1%
Annuity contracts in force (in thousands) 148 141 5.0%
Accumulated value on deposit $2,399.4 $2,448.4 -2.0%
Variable 859.3 1,036.0 -17.1%
Fixed 1,540.1 1,412.4 9.0%
Annuity accumulated value retention - 12 months
Variable accumulations 91.9% 93.0%
Fixed accumulations 94.2% 94.1%
Life
Premiums and contract deposits $ 26.7 $27.7 -3.6%
Premiums and contract charges earned 23.5 23.9 -1.7%
Net investment income 13.0 13.0 -
Income before tax 5.9 6.0
Net income 3.8 3.8 -
Life policies in force (in thousands) 267 272 -1.8%
Life insurance in force (in millions) $ 13,259 $ 13,268 -0.1%
Lapse ratio - 12 months
(Ordinary life insurance) 9.1% 9.3%
Corporate and Other (A)
Components of loss before tax:
Realized investment gains (losses) ($4.7) $2.6
Interest expense (1.6) (2.1)
Other operating expenses (0.7) (0.7)
Loss before tax (7.0) (0.2)
Net loss (4.6) (0.1)
(A) The Corporate and Other segment includes interest expense on debt and the
impact of realized investment gains and losses and other reconciling items
to net income. The Company does not allocate the impact of corporate level
transactions to the insurance segments consistent with management's
evaluation of the results of those segments.
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HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview
(Dollars in Millions)
Quarter Ended
March 31,
-----------------------------------
2003 2002 % Change
Investments
Annuity and Life
Fixed maturities, at market
(amortized cost 2003, $2,352.0; 2002, $2,177.0) $2,475.0 $2,164.2
Mortgage loans and real estate 4.7 8.2
Short-term investments 31.9 17.4
Short-term investments, securities lending collateral 370.1 463.6
Policy loans and other 70.0 65.8
---------------- ----------------
Total Annuity and Life investments 2,951.7 2,719.2 8.6%
Property & Casualty
Fixed maturities, at market
(amortized cost 2003, $570.4; 2002, $512.5) 597.5 512.5
Short-term investments 11.4 29.2
Short-term investments, securities lending collateral 4.4 4.6
Other 0.7 0.3
---------------- ----------------
Total Property & Casualty investments 614.0 546.6 12.3%
Corporate investments 0.8 1.3
Total investments 3,566.5 3,267.1 9.2%
Net investment income
Before tax $ 47.5 $ 49.7 -4.4%
After tax 32.2 33.2 -3.0%
Realized investment gains (losses) by investment portfolio included in
Corporate & Other segment income
Property & Casualty ($1.3) $ 1.1
Annuity (0.4) (1.2)
Life (3.0) 2.7
Corporate and Other - -
Total, before tax (4.7) 2.6
Total, after tax (3.1) 1.7
Other Information
End of period goodwill asset $ 47.4 $ 47.4
End of period property and casualty net reserves as of:
March 31, 2003 $ 275.7
December 31, 2002 272.6
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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