HMN Horace Mann Educators Corporation

SPRINGFIELD, Ill., Aug. 3 /PRNewswire-FirstCall/ -- Horace Mann Educators Corporation (NYSE:HMN) today reported net income of $33.6 million (72 cents per share) and $60.2 million ($1.29 per share), respectively, for the three and six months ended June 30, 2005, compared to net income of $18.9 million (41 cents per share) and $40.6 million (89 cents per share) for the same periods in 2004. Included in net income were net realized gains on securities of $4.3 million ($2.8 million after tax, or 7 cents per share) and $9.0 million ($5.9 million after tax, or 13 cents per share) for the three and six months ended June 30, 2005, respectively, compared to net realized losses on securities of $0.8 million ($0.5 million after tax, or 2 cents per share) for the second quarter of 2004 and net realized gains of $4.5 million ($2.9 million after tax, or 6 cents per share) for the six months ended June 30, 2004. All per-share amounts are stated on a diluted basis. "Horace Mann produced strong earnings again in the second quarter, primarily driven by continued strength in property and casualty profit margins," said Louis G. Lower II, President and Chief Executive Officer. "As in recent quarters, our underlying auto and homeowners 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. And, along with the industry, we also benefited in the quarter from a relatively low level of catastrophe losses," Lower added. In addition to the strong operating results, Horace Mann received IRS refunds in the current quarter, including amounts related to tax years 1996 and 1997, which are now deemed to be closed. This resulted in the elimination of the contingent tax liability related to those two years which reduced second quarter 2005 federal income tax expense by $2.7 million. In addition, $1.4 million of interest on the tax refund amounts was received and recorded as pretax income in the current quarter. "Based on results for the first half of the year, we are increasing our estimate of full year 2005 net income before realized investment gains and losses by 25 cents to between $1.80 and $1.90 per share," said Lower. "In addition to the second quarter tax refund benefit, this projection reflects continued favorable property and casualty underwriting trends, while remaining appropriately cautious regarding potential catastrophe losses in the second half of the year." Segment Earnings Net income for the property and casualty segment improved $7.0 million for the quarter and $13.6 million for the six months compared to the prior year periods primarily as a result of the factors cited above. Net income for the annuity segment of $3.1 million for the second quarter was $0.4 million greater than prior year, as increased contract charges and fees, lower mortality and benefit costs and tax refund interest more than offset increased amortization of deferred policy acquisition costs and value of acquired insurance in force. For the six months ended June 30, 2005, annuity segment net income declined $1.1 million primarily as a result of valuations of deferred policy acquisition costs and value of acquired insurance in force. Annuity segment earnings for the current periods also reflected declines in the interest margin, which were partially offset by lower operating expenses. Life segment net income increased approximately $2 million for both the quarter and six months compared to prior year, due primarily to lower expenses, including a favorable impact from the valuation of deferred policy acquisition costs between periods. Segment Revenues The company's premiums written and contract deposits decreased 3 percent and 4 percent compared to the quarter and six months of the prior year, respectively. For property and casualty, premiums written declined as increases in average automobile and homeowners premium per policy -- which were moderated to some extent by the improvement in quality in the books of business -- 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. Deposits to fixed accounts decreased in the current low interest rate environment, while variable annuity deposits increased compared to a year earlier. Life segment insurance premiums and contract deposits were somewhat lower than in the first half of 2004, primarily reflecting the shift in sales mix toward partner products. Sales and Distribution Compared to record levels of annuity sales in the prior year, total new annuity sales decreased 11 percent in the first half of 2005. 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, second quarter results reduced the rate of decline for annuity, homeowners and auto. On a year-to- date basis, total average productivity per agent in 2005 was comparable to the prior year. Horace Mann's career agency force totaled 837 agents at June 30, 2005. "In addition to the number of experienced agents increasing in each of the last five quarters, the agency force is now larger than it was a year ago," Lower said. "The total number of agents increased during both the first and second quarters compared to the end of last year. And we anticipate continued although more moderate, growth throughout the remainder of this year." 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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 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) Quarter Ended Six Months Ended June 30, % June 30, % 2005 2004 Change 2005 2004 Change DIGEST OF EARNINGS Net income $33.6 $18.9 77.8% $60.2 $40.6 48.3% Net income per share: Basic $0.78 $0.44 77.3% $1.40 $0.95 47.4% Diluted (A) $0.72 $0.41 75.6% $1.29 $0.89 44.9% Weighted average number of shares and equivalent shares: Basic 42.9 42.7 42.9 42.7 Diluted (A) 47.8 47.3 47.8 47.3 HIGHLIGHTS Operations Insurance premiums written and contract deposits $247.4 $256.1 -3.4% $481.1 $500.9 -4.0% Return on equity (B) 13.5% 9.0% Property & Casualty GAAP combined ratio 84.3% 90.8% 85.4% 92.2% Property & Casualty combined ratio before catastrophes 82.2% 89.0% 83.7% 90.8% Experienced agents 573 503 13.9% Financed agents 264 302 -12.6% Total agents 837 805 4.0% Additional Per Share Information Dividends paid $0.105 $0.105 - $0.21 $0.21 - Book value (C) $14.79 $11.77 25.7% Financial Position Total assets $5,824.2 $5,398.6 7.9% Short-term debt - 25.0 Long-term debt 190.9 144.7 Total shareholders' equity 634.4 503.4 26.0% (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 $12.64 at June 30, 2005 and $11.22 at June 30, 2004. Ending shares outstanding were 42,894,078 at June 30, 2005, 42,846,643 at December 31, 2004 and 42,759,953 at June 30, 2004. - 1 - HORACE MANN EDUCATORS CORPORATION Statements of Operations and Supplemental GAAP Consolidated Data (Dollars in Millions) Quarter Ended Six Months Ended June 30, % June 30, % 2005 2004 Change 2005 2004 Change STATEMENTS OF OPERATIONS Insurance premiums written and contract deposits $247.4 $256.1 -3.4% $481.1 $500.9 -4.0% Insurance premiums and contract charges earned $168.2 $169.1 -0.5% $336.5 $336.7 -0.1% Net investment income 48.4 46.9 3.2% 96.0 95.5 0.5% Realized investment gains (losses) 4.3 (0.8) 9.0 4.5 Total revenues 220.9 215.2 2.6% 441.5 436.7 1.1% Benefits, claims and settlement expenses 95.0 106.9 198.0 218.4 Interest credited 28.6 26.9 56.7 53.3 Policy acquisition expenses amortized 18.9 17.4 37.2 33.8 Operating expenses 30.6 34.6 -11.6% 60.8 68.2 -10.9% Amortization of intangible assets 1.3 1.2 3.1 2.5 Interest expense (A) 2.5 1.7 4.3 3.4 Total benefits, losses and expenses 176.9 188.7 -6.3% 360.1 379.6 -5.1% Income before income taxes 44.0 26.5 66.0% 81.4 57.1 42.6% Income tax expense (B) 10.4 7.6 21.2 16.5 Net income $33.6 $18.9 77.8% $60.2 $40.6 48.3% ANALYSIS OF PREMIUMS WRITTEN AND CONTRACT DEPOSITS Property & Casualty Automobile and property (voluntary) $137.4 $142.8 -3.8% $268.8 $276.8 -2.9% Involuntary and other property & casualty 1.1 0.6 1.3 1.3 Total Property & Casualty 138.5 143.4 -3.4% 270.1 278.1 -2.9% Annuity deposits 82.0 85.8 -4.4% 159.5 170.0 -6.2% Life 26.9 26.9 - 51.5 52.8 -2.5% Total $247.4 $256.1 -3.4% $481.1 $500.9 -4.0% ANALYSIS OF SEGMENT NET INCOME Property & Casualty Before catastrophes $24.1 $16.8 43.5% $44.8 $30.7 45.9% Catastrophe costs, after tax (1.9) (1.6) (2.9) (2.4) Total Property & Casualty 22.2 15.2 46.1% 41.9 28.3 48.1% Annuity 3.1 2.7 14.8% 5.5 6.6 -16.7% Life 4.9 3.2 53.1% 8.1 6.3 28.6% Corporate and other (C) 3.4 (2.2) 4.7 (0.6) Net income 33.6 18.9 77.8% 60.2 40.6 48.3% (A) The three and six months ended June 30, 2005 include costs of $0.5 million as a result of retiring the 6 5/8% Senior Notes due 2006. (B) The three and six months ended June 30, 2005 reflect a reduction of $2.7 million as a result of closing tax years 1996 and 1997 with favorable resolution of the contingent tax liabilities. The Company also received interest on income tax refunds of $1.4 million pretax reflected as a reduction to Operating Expenses above. (C) 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) Quarter Ended Six Months Ended June 30, % June 30, % 2005 2004 Change 2005 2004 Change PROPERTY & CASUALTY Premiums written $138.5 $143.4 -3.4% $270.1 $278.1 -2.9% Premiums earned 139.3 141.4 -1.5% 279.6 281.0 -0.5% Net investment income 8.4 8.2 2.4% 16.4 17.0 -3.5% Losses and loss adjustment expenses (LAE) 85.4 96.7 176.8 196.3 Operating expenses (includes policy acquisition expenses amortized) 31.2 31.9 -2.2% 61.1 63.2 -3.3% Income before tax 31.1 21.0 48.1% 58.1 38.5 50.9% Net income 22.2 15.2 46.1% 41.9 28.3 48.1% Net investment income, after tax 7.1 7.0 1.4% 13.9 14.3 -2.8% Catastrophe costs, after tax 1.9 1.6 2.9 2.4 Catastrophe losses and LAE, before tax 2.4 2.5 4.0 3.7 Reinsurance reinstatement premiums, before tax 0.5 - 0.5 - Operating statistics: Loss and loss adjustment expense ratio 61.3% 68.5% 63.3% 69.9% Expense ratio 23.0% 22.3% 22.1% 22.3% Combined ratio 84.3% 90.8% 85.4% 92.2% Combined ratio before catastrophes 82.2% 89.0% 83.7% 90.8% Automobile and property detail: Premiums written (voluntary) 137.4 142.8 -3.8% 268.8 276.8 -2.9% Automobile 94.0 99.8 -5.8% 192.4 202.1 -4.8% Property 43.4 43.0 0.9% 76.4 74.7 2.3% Premiums earned (voluntary) 136.8 139.4 -1.9% 275.2 276.9 -0.6% Automobile 96.7 101.4 -4.6% 194.9 201.6 -3.3% Property 40.1 38.0 5.5% 80.3 75.3 6.6% Policies in force (voluntary) (in thousands) 801 837 -4.3% Automobile 533 561 -5.0% Property 268 276 -2.9% Voluntary automobile operating statistics: Loss and loss adjustment expense ratio 67.9% 71.1% 68.8% 72.2% Expense ratio 23.4% 22.4% 22.4% 22.2% Combined ratio 91.3% 93.5% 91.2% 94.4% Combined ratio before catastrophes 91.0% 93.0% 90.9% 94.2% Total property operating statistics: Loss and loss adjustment expense ratio 43.1% 59.8% 47.5% 59.9% Expense ratio 22.4% 22.0% 21.6% 22.2% Combined ratio 65.5% 81.8% 69.1% 82.1% Combined ratio before catastrophes 59.5% 76.3% 64.2% 77.9% Prior years' reserves favorable (adverse) development, pretax Voluntary automobile $0.6 $- $0.6 $- Total property 1.0 - 1.0 - Other property and casualty - - - - Total 1.6 - 1.6 - - 3 - HORACE MANN EDUCATORS CORPORATION Supplemental Business Segment Overview (Dollars in Millions) Quarter Ended Six Months Ended June 30, % June 30, % 2005 2004 Change 2005 2004 Change ANNUITY Contract deposits $82.0 $85.8 -4.4% $159.5 $170.0 -6.2% Variable 35.8 34.6 3.5% 67.9 65.8 3.2% Fixed 46.2 51.2 -9.8% 91.6 104.2 -12.1% Contract charges earned 4.4 4.1 7.3% 8.7 8.3 4.8% Net investment income 27.9 26.8 4.1% 55.6 54.2 2.6% Net interest margin (without realized gains) 7.8 8.1 -3.7% 15.9 17.2 -7.6% Mortality gain (loss) and other reserve changes - (0.6) 0.1 (0.7) Operating expenses (includes policy acquisition expenses amortized) 6.9 6.9 - 14.6 13.4 9.0% Income before tax and amortization of intangible assets 5.3 4.7 12.8% 10.1 11.4 -11.4% Amortization of intangible assets 0.9 0.8 2.3 1.7 Income before tax 4.4 3.9 12.8% 7.8 9.7 -19.6% Net income 3.1 2.7 14.8% 5.5 6.6 -16.7% Pretax income increase (decrease) due to valuation of: Deferred policy acquisition costs $(1.0) $- $(2.4) $0.4 Value of acquired insurance in force - 0.1 (0.4) 0.1 Guaranteed minimum death benefit reserve - - (0.1) 0.1 Annuity contracts in force (in thousands) 160 156 2.6% Accumulated value on deposit $3,157.4 $2,908.2 8.6% Variable 1,262.0 1,165.5 8.3% Fixed 1,895.4 1,742.7 8.8% Annuity accumulated value retention - 12 months Variable accumulations 92.4% 93.4% Fixed accumulations 95.1% 95.5% LIFE Premiums and contract deposits $26.9 $26.9 - $51.5 $52.8 -2.5% Premiums and contract charges earned 24.5 23.6 3.8% 48.2 47.4 1.7% Net investment income 12.2 12.2 - 24.4 24.9 -2.0% Income before tax 7.6 5.0 52.0% 12.6 9.8 28.6% Net income 4.9 3.2 53.1% 8.1 6.3 28.6% Pretax income increase (decrease) due to valuation of: Deferred policy acquisition costs $(0.1) $(0.6) $0.5 $(0.7) Life policies in force (in thousands) 245 254 -3.5% Life insurance in force (in millions) $13,228 $13,253 -0.2% Lapse ratio - 12 months (Ordinary life insurance) 6.9% 7.3% CORPORATE AND OTHER (A) Components of gain (loss) before tax: Realized investment gains (losses) $4.3 $(0.8) $9.0 $4.5 Interest expense (2.5) (1.7) (4.3) (3.4) Other operating expenses (0.9) (0.9) (1.8) (2.0) Income (loss) before tax 0.9 (3.4) 2.9 (0.9) Net income (loss) 3.4 (2.2) 4.7 (0.6) (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) Quarter Ended Six Months Ended June 30, % June 30, % 2005 2004 Change 2005 2004 Change INVESTMENTS Annuity and Life Fixed maturities, at market (amortized cost 2005, $2,803.2; 2004, $2,593.7) $2,939.0 $2,633.9 Short-term investments 17.3 8.4 Short-term investments, securities lending collateral 289.6 343.4 Policy loans and other 85.1 81.2 Total Annuity and Life investments 3,331.0 3,066.9 8.6% Property & Casualty Fixed maturities, at market (amortized cost 2005, $730.0; 2004, $684.8) 746.7 683.7 Short-term investments 9.1 5.5 Short-term investments, securities lending collateral 11.4 - Other 0.6 0.6 Total Property & Casualty investments 767.8 689.8 11.3% Corporate investments 18.1 0.6 Total investments 4,116.9 3,757.3 9.6% Net investment income Before tax $48.4 $46.9 3.2% $96.0 $95.5 0.5% After tax 33.1 32.2 2.8% 65.6 65.4 0.3% Realized investment gains (losses) by investment portfolio included in Corporate and Other segment income Property & Casualty $2.1 $(0.2) $2.1 $2.1 Annuity 3.2 0.1 7.9 2.2 Life (1.0) (0.7) (1.0) 0.2 Corporate and Other - - - - Total, before tax 4.3 (0.8) 9.0 4.5 Total, after tax 2.8 (0.5) 5.9 2.9 Per share, diluted $0.07 $(0.02) $0.13 $0.06 OTHER INFORMATION End of period goodwill asset $47.4 $47.4 End of period property and casualty net reserves (A): June 30, 2005 $314.8 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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