HMN Horace Mann Educators Corporation

Horace Mann Reports Results for First Quarter SPRINGFIELD, Ill., May 4 /PRNewswire-FirstCall/ -- Horace Mann Educators Corporation (NYSE:HMN) today reported net income of $26.6 million (57 cents per share) for the three months ended March 31, 2005, compared to $21.7 million (47 cents per share) for the same period in 2004. Included in net income were net realized gains on securities of $4.7 million ($3.1 million after tax, or 6 cents per share) for the current period, compared to $5.3 million ($3.4 million after tax, or 7 cents per share) for the first three months of 2004. All per-share amounts are stated on a diluted basis. "Horace Mann produced strong earnings in the first quarter, primarily driven by continued strength in our property and casualty profit margins," said Louis G. Lower II, President and Chief Executive Officer. "As in recent quarters, the underlying property and casualty results benefited from aggressive underwriting and pricing actions taken in 2003 and 2004, ongoing improvements in claims processes, cost containment initiatives, and a continuing low level of non-catastrophe claim frequencies," Lower added. Segment Earnings The property and casualty segment recorded net income of $19.7 million for the quarter, an increase over the prior year primarily as a result of the factors cited above. Net income for the annuity segment of $2.4 million for the first three months was lower than prior year, due largely to valuations of deferred policy acquisition costs and value of acquired insurance in force. Annuity segment earnings for the current period also reflected a decline in the interest margin, which was partially offset by lower operating expenses. Life segment net income of $3.2 million for the quarter was up slightly compared to prior year, due primarily to the valuation of deferred policy acquisition costs. Segment Revenues The company's premiums written and contract deposits decreased 5 percent for the quarter compared to the first three months of 2004. While the quality of the company's automobile and property business continues to improve, increases in average premium per policy for both lines were more than offset by the decline in policies in force. The decrease in annuity new contract deposits was due primarily to a reduction in single premium and rollover deposit receipts, partially offset by growth in new scheduled annuity deposits compared to the prior year. While deposits to fixed accounts decreased in the current low interest rate environment, variable annuity deposits increased compared to a year earlier. Life segment insurance premiums and contract deposits were somewhat lower than in the first three months of 2004, primarily reflecting the shift in sales mix toward partner products. Sales and Distribution Compared to a record level of annuity sales in the prior year, total new annuity sales decreased 18 percent in the first quarter. This decline was due primarily to a lower level of annuity new business from independent agents, reflecting the company's desired shift in mix of business from this channel. While total career agent sales decreased in the current period compared to a year earlier in all product lines, average productivity per agent was comparable to the prior year's level. Horace Mann's career agency force totaled 820 agents at March 31, 2005. "While the agency force is smaller than it was a year ago, the number of experienced agents has increased in each of the last four quarters," Lower said. "The total number of agents increased during the first quarter compared to the end of last year and we anticipate continued, although more moderate, growth throughout 2005." 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 http://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 Annual Report on Form 10-K for the year ended December 31, 2004 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. HORACE MANN EDUCATORS CORPORATION Digest of Earnings and Highlights (Dollars in Millions, Except Per Share Data) Three Months Ended March 31, 2005 2004 % Change DIGEST OF EARNINGS Net income $26.6 $21.7 22.6% Net income per share: Basic $0.62 $0.51 21.6% Diluted (A) $0.57 $0.47 21.3% Weighted average number of shares and equivalent shares: Basic 42.9 42.7 Diluted (A) 47.6 47.3 HIGHLIGHTS Operations Insurance premiums written and contract deposits $233.7 $244.8 -4.5% Return on equity (B) 11.1% 5.9% Property & Casualty GAAP combined ratio 86.4% 93.5% Property & Casualty combined ratio before catastrophes 85.3% 92.6% Experienced agents 553 496 11.5% Financed agents 267 334 -20.1% Total agents 820 830 -1.2% Additional Per Share Information Dividends paid $0.105 $0.105 - Book value (C) $13.01 $13.50 -3.6% Financial Position Total assets $5,577.5 $5,487.9 1.6% Short-term debt 25.0 25.0 Long-term debt 144.7 144.7 Total shareholders' equity 557.9 576.5 -3.2% (A) Effective December 31, 2004, the Company adopted EITF Consensus 04-8, "The Effect of Contingently Convertible Instruments on Diluted Earnings per Share". The Company's Senior Convertible Notes represent 4.3 million equivalent shares and have annual interest expense of $2.7 million after tax. Diluted per share information for all periods is presented on a basis consistent with this consensus. (B) Based on trailing 12-month net income and average quarter-end shareholders' equity. (C) Before the market value adjustment for investments, book value per share was $11.96 at March 31, 2005 and $10.91 at March 31, 2004. Ending shares outstanding were 42,878,328 at March 31, 2005, 42,846,643 at December 31, 2004 and 42,722,701 at March 31, 2004. - 1 - HORACE MANN EDUCATORS CORPORATION Statements of Operations and Supplemental GAAP Consolidated Data (Dollars in Millions) Three Months Ended March 31, 2005 2004 % Change STATEMENTS OF OPERATIONS Insurance premiums written and contract deposits $233.7 $244.8 -4.5% Insurance premiums and contract charges earned $168.3 $167.6 0.4% Net investment income 47.6 48.6 -2.1% Realized investment gains 4.7 5.3 Total revenues 220.6 221.5 -0.4% Benefits, claims and settlement expenses 103.0 111.5 Interest credited 28.1 26.4 Policy acquisition expenses amortized 18.3 16.4 Operating expenses 30.2 33.6 -10.1% Amortization of intangible assets 1.8 1.3 Interest expense 1.8 1.7 Total benefits, losses and expenses 183.2 190.9 -4.0% Income before income taxes 37.4 30.6 22.2% Income tax expense 10.8 8.9 Net income $26.6 $21.7 22.6% ANALYSIS OF PREMIUMS WRITTEN AND CONTRACT DEPOSITS Property & Casualty Automobile and property (voluntary) $131.4 $134.0 -1.9% Involuntary and other property & casualty 0.2 0.7 Total Property & Casualty 131.6 134.7 -2.3% Annuity deposits 77.5 84.2 -8.0% Life 24.6 25.9 -5.0% Total $233.7 $244.8 -4.5% ANALYSIS OF SEGMENT NET INCOME Property & Casualty Before catastrophes $20.7 $13.9 48.9% Catastrophe costs, after tax (1.0) (0.8) Total Property & Casualty 19.7 13.1 50.4% Annuity 2.4 3.9 -38.5% Life 3.2 3.1 3.2% Corporate and other (A) 1.3 1.6 Net income 26.6 21.7 22.6% (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. See detail for this segment on page 4. - 2 - HORACE MANN EDUCATORS CORPORATION Supplemental Business Segment Overview (Dollars in Millions) Three Months Ended March 31, 2005 2004 % Change PROPERTY & CASUALTY Premiums written $131.6 $134.7 -2.3% Premiums earned 140.3 139.6 0.5% Net investment income 8.0 8.8 -9.1% Losses and loss adjustment expenses (LAE) 91.4 99.6 Operating expenses (includes policy acquisition expenses amortized) 29.9 31.3 -4.5% Income before tax 27.0 17.5 54.3% Net income 19.7 13.1 50.4% Net investment income, after tax 6.8 7.3 -6.8% Catastrophe costs, after tax 1.0 0.8 Catastrophe losses and LAE, before tax 1.6 1.2 Reinsurance reinstatement premiums, before tax - - Operating statistics: Loss and loss adjustment expense ratio 65.2% 71.3% Expense ratio 21.2% 22.2% Combined ratio 86.4% 93.5% Combined ratio before catastrophes 85.3% 92.6% Automobile and property detail: Premiums written (voluntary) 131.4 134.0 -1.9% Automobile 98.4 102.3 -3.8% Property 33.0 31.7 4.1% Premiums earned (voluntary) 138.4 137.5 0.7% Automobile 98.2 100.2 -2.0% Property 40.2 37.3 7.8% Policies in force (voluntary) (in thousands) 807 843 -4.3% Automobile 537 565 -5.0% Property 270 278 -2.9% Voluntary automobile operating statistics: Loss and loss adjustment expense ratio 69.6% 73.4% Expense ratio 21.4% 22.0% Combined ratio 91.0% 95.4% Combined ratio before catastrophes 90.9% 95.3% Total property operating statistics: Loss and loss adjustment expense ratio 51.9% 60.0% Expense ratio 20.8% 22.4% Combined ratio 72.7% 82.4% Combined ratio before catastrophes 69.0% 79.4% Prior years' reserves favorable (adverse) development, pretax Voluntary automobile $- $- Total property - - Other property and casualty - - Total - - - 3 - HORACE MANN EDUCATORS CORPORATION Supplemental Business Segment Overview (Dollars in Millions) Three Months Ended March 31, 2005 2004 % Change ANNUITY Contract deposits $77.5 $84.2 -8.0% Variable 32.1 31.2 2.9% Fixed 45.4 53.0 -14.3% Contract charges earned 4.3 4.2 2.4% Net investment income 27.7 27.4 1.1% Net interest margin (without realized gains) 8.1 9.1 -11.0% Mortality gain (loss) and other reserve changes 0.1 (0.1) Operating expenses (includes policy acquisition expenses amortized) 7.7 6.5 18.5% Income before tax and amortization of intangible assets 4.8 6.7 -28.4% Amortization of intangible assets 1.4 0.9 Income before tax 3.4 5.8 -41.4% Net income 2.4 3.9 -38.5% Pretax income increase (decrease) due to valuation of: Deferred policy acquisition costs $(1.4) $0.4 Value of acquired insurance in force (0.4) - Guaranteed minimum death benefit reserve (0.1) 0.1 Annuity contracts in force (in thousands) 159 154 3.2% Accumulated value on deposit $3,087.4 $2,831.5 9.0% Variable 1,231.7 1,137.5 8.3% Fixed 1,855.7 1,694.0 9.5% Annuity accumulated value retention - 12 months Variable accumulations 92.9% 92.9% Fixed accumulations 95.4% 95.2% LIFE Premiums and contract deposits $24.6 $25.9 -5.0% Premiums and contract charges earned 23.7 23.8 -0.4% Net investment income 12.2 12.7 -3.9% Income before tax 5.0 4.8 4.2% Net income 3.2 3.1 3.2% Pretax income increase (decrease) due to valuation of: Deferred policy acquisition costs $0.6 $(0.1) Life policies in force (in thousands) 250 256 -2.3% Life insurance in force (in millions) $13,241 $13,272 -0.2% Lapse ratio - 12 months (Ordinary life insurance) 7.2% 7.2% CORPORATE AND OTHER (A) Components of gain before tax: Realized investment gains $4.7 $5.3 Interest expense (1.8) (1.7) Other operating expenses (0.9) (1.1) Income before tax 2.0 2.5 Net income 1.3 1.6 (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. - 4 - HORACE MANN EDUCATORS CORPORATION Supplemental Business Segment Overview (Dollars in Millions) Three Months Ended March 31, 2005 2004 % Change INVESTMENTS Annuity and Life Fixed maturities, at market (amortized cost 2005, $2,752.8; 2004, $2,522.6) $2,823.9 $2,682.1 Short-term investments 10.3 59.4 Short-term investments, securities lending collateral 253.2 385.9 Policy loans and other 83.7 79.8 Total Annuity and Life investments 3,171.1 3,207.2 -1.1% Property & Casualty Fixed maturities, at market (amortized cost 2005, $704.0; 2004, $634.5) 707.7 656.8 Short-term investments 9.6 41.1 Short-term investments, securities lending collateral 2.0 0.9 Other 0.5 0.7 Total Property & Casualty investments 719.8 699.5 2.9% Corporate investments 0.2 0.6 Total investments 3,891.1 3,907.3 -0.4% Net investment income Before tax $47.6 $48.6 -2.1% After tax 32.5 33.2 -2.1% Realized investment gains by investment portfolio included in Corporate and Other segment income Property & Casualty $- $2.3 Annuity 4.7 2.1 Life - 0.9 Corporate and Other - - Total, before tax 4.7 5.3 Total, after tax 3.1 3.4 Per share, diluted $0.06 $0.07 OTHER INFORMATION End of period goodwill asset $47.4 $47.4 End of period property and casualty net reserves (A): March 31, 2005 $313.2 December 31, 2004 309.3 December 31, 2003 283.7 December 31, 2002 231.0 December 31, 2001 241.6 December 31, 2000 223.0 December 31, 1999 206.8 (A) Unpaid claim and claim expense reserves net of anticipated reinsurance recoverables and reduced for checks issued and outstanding. - 5 - DATASOURCE: Horace Mann Educators Corporation CONTACT: Dwayne D. Hallman, Senior Vice President - Finance, of Horace Mann Educators Corporation, +1-217-788-5708 Web site: http://www.horacemann.com/

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