Glossary of Selected Terms
The following measures are used by the Company’s management to evaluate performance against historical results and establish targets on a consolidated basis. A number of these measures are components of net income or the balance sheet but, in some cases, are not based on accounting principles generally accepted in the United States of America (non-GAAP) under applicable SEC rules because they are not displayed as separate line items in the Consolidated Statements of Operations or Consolidated Balance Sheets or are not required to be disclosed in the Notes to the Consolidated Financial Statements or, in some cases, there is inclusion or exclusion of certain items not ordinarily included or excluded in accordance with accounting principles generally accepted in the United States of America (GAAP).
In the opinion of the Company’s management, a discussion of these measures provides investors, financial analysts, rating agencies and other financial statement users with a better understanding of the significant factors that comprise the Company’s periodic results of operations and how management evaluates the Company's financial performance. Internally, the Company's management uses the measures to evaluate performance against historical results, to establish financial targets on a consolidated basis and for other reasons.
Some of these measures exclude net investment gains (losses), net of tax, and/or net unrealized investment gains on fixed maturity securities, net of tax, which can be significantly impacted by both discretionary and other economic factors and are not necessarily indicative of operating trends. Also, some of these measures exclude goodwill and intangible asset impairments, net of tax, deferred policy acquisition costs (DAC) unlocking, net of tax, and intangible asset amortization, net of tax.
Other companies may calculate these measures differently, and, therefore, their measures may not be comparable to those used by the Company’s management.
Adjusted book value per share - The result of dividing (1) total shareholders’ equity excluding after tax net unrealized investment gains (losses) on fixed maturity securities (including the related effect from DAC) by (2) ending shares outstanding. Book value per share is the most directly comparable GAAP measure. Management believes it is useful to consider the trend in book value per share excluding net unrealized investment gains (losses) on fixed maturity securities in conjunction with book value per share to identify and analyze the change in net worth. Management also believes the non-GAAP measure is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period and are generally driven by economic developments, primarily financial market conditions, the magnitude and timing of which are generally not influenced by the Company’s underlying insurance operations.
Tangible book value per share - The result of dividing (1) total shareholders’ equity excluding after tax net unrealized investment gains (losses) on fixed maturity securities (including the related effect from DAC), goodwill and other intangible assets (including the related impact of deferred taxes) by (2) ending shares outstanding. Book value per share is the most directly comparable GAAP measure.
Debt to total capitalization ratio, excluding net unrealized investment gains (losses) on fixed maturity securities - The result of dividing (1) total debt by (2) total debt plus common shareholders' equity excluding after tax net unrealized investment gains (losses) on fixed maturity securities (including the related effect from DAC) from common shareholders' equity. The debt to total capitalization ratio is the most directly comparable GAAP measure.
Catastrophe costs - The sum of catastrophe losses, net of reinsurance and before income tax benefits that includes allocated loss adjustment expenses and reinsurance reinstatement premiums, excluding unallocated loss adjustment expenses.
Catastrophe losses - In categorizing property and casualty claims as being from a catastrophe, the Company utilizes the designations of the Property Claim Services, a subsidiary of Insurance Services Office, Inc., and additionally beginning in 2007, includes losses from all such events that meet the definition of covered loss in the Company’s primary catastrophe excess of loss reinsurance contract, and reports claims and claim expense amounts net of reinsurance recoverables. A catastrophe is a severe loss resulting from natural and man-made events within a particular territory, including risks such as hurricane, fire, earthquake, windstorm, explosion, terrorism and other similar events, that causes $25 million or more in insured property and casualty losses for the industry and affects a significant number of property and casualty insurers and policyholders. Each catastrophe has unique characteristics. Catastrophes are not predictable as to timing or amount of loss in
advance. Their effects are not included in earnings or claim and claim expense reserves prior to occurrence. In the opinion of the Company’s management, a discussion of the impact of catastrophes is meaningful for investors to understand the variability in periodic earnings.
Core earnings (loss) - Consolidated net income (loss) excluding the after-tax impact of net investment gains (losses), discontinued operations, the after-tax impact of goodwill and intangible asset impairments, the effect of changes in tax laws and tax rates at enactment date, and the cumulative effect of changes in accounting principles when applicable. Net income is the most directly comparable GAAP measure.
•Pretax core earnings (loss) - Pretax net income (loss) excluding the pretax impact of net investment gains (losses), discontinued operations, the pretax impact of goodwill and intangible asset impairments and cumulative effect of changes in accounting principles when applicable. Income before income taxes is the most directly comparable GAAP measure.
•Segment core earnings - Determined in the same manner as core earnings (loss) on a consolidated basis. Management uses segment core earnings to analyze each segment's performance and as a tool in making business decisions. Financial statement users also consider core earnings when analyzing the results and trends of insurance companies.
Core earnings (loss) per share - Core earnings on a per common share basis. Earnings per share is the most directly comparable GAAP measure.
Adjusted core earnings (loss) – Determined in the same manner as core earnings (loss) but this measure is further adjusted to exclude DAC unlocking and intangible asset amortization to calculate adjusted core earnings (loss). Net income is the most directly comparable GAAP measure.
•Pretax adjusted core earnings (loss) – Determined in the same manner as pretax core earnings (loss) but this measure is further adjusted to exclude pretax DAC unlocking and pretax intangible asset amortization to calculate pretax adjusted core earnings (loss). Income before income taxes is the most directly comparable GAAP measure.
Net premiums written and contract deposits – Management utilizes this non-GAAP measure, which is based on statutory accounting principles, in analyzing and evaluating business growth. Premiums and contract charges earned is the most directly comparable GAAP measure.
Net premiums written and contract deposits for the Company’s operating segments are as follows:
Property & Casualty
Net premiums written: Reflects the direct and assumed contractually determined amounts charged to policyholders for the effective period of the contract based on the terms and conditions of the contract and reflect gross premiums written less premiums ceded to reinsurers. The difference between premiums written and premiums earned is premiums unearned.
Life & Retirement
Life Insurance Product Lines:
•Net premiums written and contract deposits: Reflects (1) the direct and assumed contractually determined amounts charged to policyholders for the effective period of the contract based on the terms and conditions of the contract and reflect gross premiums written less premiums ceded to reinsurers, and (2) the amount charged for policies in force during a fiscal period for traditional life business. Contract deposits include amounts received from customers on deposit-type contracts.
Retirement Product Lines:
•Net annuity contract deposits: Reflects total recurring deposits and single deposits/rollovers – net of contract deposits ceded to reinsurers.
Supplemental & Group Benefits
Voluntary Product Lines:
•Net premiums written and contract deposits: Reflects (1) the direct and assumed contractually determined amounts charged to policyholders/certificate holders for the effective period of the contract based on the terms and conditions of the contract and reflect gross premiums written less premiums ceded to reinsurers, and (2) the amount charged for policies in force during a fiscal period for traditional life business. Contract deposits include amounts received from customers on deposit-type contracts.
Employer-Sponsored Product Lines:
•Net premiums written: Reflects (1) the direct and assumed contractually determined amounts charged to policyholders for the effective period of the contract based on the terms and conditions of the contract and reflect gross premiums written less premiums ceded to reinsurers, and (2) the amount charged for policies in force during a fiscal period for traditional life business.
Investment yield, excluding limited partnership interests, pretax and after tax - For the three month periods presented, investment yields are calculated by annualizing the result of year-to-date net investment income (adjusted to exclude net investment income from limited partnership interests for the corresponding period) divided by the average quarter-end and beginning of quarter carrying amount of invested assets as presented in the Consolidated Balance Sheets adjusted to exclude FHLB funding agreements, the carrying amount of limited partnership interests, and gross unrealized investment gains (losses) on fixed maturity securities. For full year periods presented, investment yields are calculated by (i) summing the investment yields for each respective three-month period applicable to the year and (ii) dividing that sum per the calculation in (i) by four. Net investment income is the most directly comparable GAAP measure.
Net income return on equity - LTM: The ratio of (1) trailing 12 month net income to (2) the average of ending shareholders’ equity for the current quarter end and the preceding four quarter ends - referred to as the 5 quarter average of shareholder's equity.
•Net income return on equity - Annualized: The ratio of (1) annualized net income to (2) the 2 quarter average of shareholders' equity.
•Core return on equity - LTM: The ratio of (1) trailing 12 month core earnings to (2) the 5 quarter average of shareholders’ equity excluding net unrealized investment gains (losses) on fixed maturity securities and the effect of changes in tax laws and tax rates at enactment date. Net income return on equity - LTM is the most directly comparable GAAP measure.
•Core return on equity - Annualized: The ratio of (1) annualized core earnings to (2) the 2 quarter average of shareholders’ equity excluding net unrealized investment gains (losses) on fixed maturity securities and the effect of changes in tax laws and tax rates at enactment date. Net income return on equity - Annualized is the most directly comparable GAAP measure.
•Adjusted core return on equity - LTM: The ratio of (1) trailing 12 month adjusted core earnings to (2) the 5 quarter average of shareholders’ equity excluding net unrealized investment gains (losses) on fixed maturity securities and the effect of changes in tax laws and tax rates at enactment date. Net income return on equity - LTM is the most directly comparable GAAP measure.
•Adjusted core return on equity - Annualized: The ratio of (1) annualized adjusted core earnings to (2) the 2 quarter average of shareholders’ equity excluding net unrealized investment gains (losses) on fixed maturity securities and the effect of changes in tax laws and tax rates at enactment date. Net income return on equity - Annualized is the most directly comparable GAAP measure.
Net reserves - Property and casualty unpaid claim and claim expense reserves net of anticipated reinsurance recoverables.
Prior years’ reserve development - A measure which the Company reports for its Property & Casualty segment which identifies the increase or decrease in net incurred claim and claim expense reserves at successive valuation dates for claims which occurred in previous calendar years. In the opinion of management, a discussion of prior years’ loss reserve development is useful to investors as it allows them to assess the impact
on current period earnings of incurred claims experience from the current calendar year and previous calendar years.
Property & Casualty operating statistics - Operating measures utilized by the Company and the insurance industry regarding the relative profitability of property and casualty underwriting results.
•Loss ratio - The ratio of (1) the sum of net incurred losses and loss adjustment expenses to (2) net earned premiums.
•Underlying loss ratio - The sum of the loss ratio adjusted to remove the effect of catastrophe losses and prior years' reserve development. The loss ratio is the most directly comparable GAAP measure. Management believes this ratio provides a valuable measure of the Company's underlying underwriting performance that may be obscured by the effects of catastrophe losses and prior years' reserve development, the amounts of which may be significant and may vary significantly between periods.
•Expense ratio - The ratio of (1) the sum of operating expenses and the amortization of policy acquisition costs to (2) net earned premiums.
•Combined ratio - The sum of the loss ratio and the expense ratio. A combined ratio less than 100% generally indicates profitable underwriting prior to the consideration of net investment income.
•Underlying combined ratio or combined ratio excluding catastrophe costs and prior years’ reserve development - The sum of the loss ratio and the expense ratio adjusted to remove the effect of catastrophe losses and prior years’ reserve development. The combined ratio is the most directly comparable GAAP measure. Management believes this ratio provides a valuable measure of the Company’s underlying underwriting performance that may be obscured by the effects of catastrophe losses and prior years’ reserve development, the amounts of which may be significant and may vary significantly between periods.
Sales – Sales data pertains to Horace Mann products and excludes authorized products sold by exclusive agents that are underwritten by third-party vendors. Sales should not be viewed as a substitute for any GAAP measure, including "sales" as it relates to non-insurance companies, and the Company’s definition of sales, sales deposits or new annualized sales might differ from that used by other companies. The Company utilizes sales information as a performance measure that indicates the productivity of its agency force. Sales are also a leading indicator of future revenue trends.
Sales for the Company’s operating segments are as follows:
Property & Casualty
•Sales: Sales are measured as premiums to be collected over the 12 months following the sale of new automobile and property policies.
Life & Retirement
Life Insurance Product Lines:
•Annualized sales: Annualized sales are based on the total yearly premium that the Company would expect to receive if all first year recurring premium policies would remain in-force, plus 10% of single and indexed universal life excess premiums. Annualized sales measure activity associated with gaining new insurance business in the current period, and includes deposits received related to universal-life-type products.
Supplemental & Group Benefits
Voluntary Product Lines:
•Sales: Based on application received date on the submitted policy and measured as the submitted annual premium.
Employer-Sponsored Product Lines:
•Sales: Sales are measured based on the first year annualized premium on the effective date of sale.
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| | News release for immediate release |
Contact information:
Heather J. Wietzel
Vice President, Investor Relations and Enterprise Communications
217.788.5144
investorrelations@horacemann.com
Horace Mann announces second-quarter results were affected by
higher-than-historical average catastrophe activity and equity market declines
Updates full-year earnings guidance due to external events; sales momentum continues
To announce final second-quarter 2022 financial results on August 4
SPRINGFIELD, Ill., July 13, 2022 – Horace Mann Educators Corporation (NYSE:HMN) today announced it experienced second-quarter catastrophe losses well above the company’s 10-year historical average. In addition, the significant equity market declines during the quarter resulted in unfavorable DAC unlocking.
“The confluence of external events that is temporarily impacting our financial performance does not detract from our unwavering commitment to the education market and the achievement of our long-term financial objectives,” said President and CEO Marita Zuraitis. “However, largely based on the level of catastrophe losses and effects of equity market declines, we are updating our full-year 2022 core earnings per share guidance range to $2.10 to $2.30, including a second-quarter loss per share of approximately 10 cents to 20 cents.
“Horace Mann continues to leverage its leadership position in the education market, with top-line sales progress continuing to support our long-term objectives,” Zuraitis continued. “Our Supplemental & Group Benefits segment is seeing momentum build, with voluntary product sales in the second quarter almost $1 million above the prior year level. Newly acquired Madison National continues to meet our expectations, and we remain very optimistic about the long-term growth potential of employer-sponsored and voluntary offerings sold through the worksite. In addition, auto sales continue at the strongest levels since the pandemic began.
“At the same time, we are supporting our policyholders in the Midwest and Plains states who were affected by the multiple severe thunderstorm, wind and hail events concentrated in May,” Zuraitis said. “Due to the level of storm activity, we now expect our catastrophe losses for the second quarter will be approximately $44 million to $47 million, pretax.
“As we noted on our first-quarter call, in line with the broader industry, we began to see higher near-term auto and property loss costs because of inflation,” Zuraitis commented. “Inflation is also affecting the settlement of claims from recent accident years that remain open because of pandemic-related systemic delays. In second-quarter results, we are planning to recognize the effect of those inflationary trends by adding approximately $6 million, pretax, to Property & Casualty reserves. We also continue to implement rate and other underwriting changes that address these inflationary trends.”
Total net investment income from the managed portfolio for 2022 is expected to be at the low end of the guided range of $310 million to $320 million. This largely reflects net investment income on the core portfolio at the low end of expectations due to lower portfolio balances resulting from elevated catastrophe losses. This will be somewhat offset by full-year returns close to historical averages for the portfolio of commercial mortgage loan funds. Due to equity market declines, returns on limited partnership funds are now expected to be below historical averages for the second half of the year.
Reflecting the catastrophe losses and inflationary trends, full-year core earnings for the Property & Casualty segment are now expected to be in the range of $10 million to $14 million, compared with guidance of $44 million to $48 million provided when the company announced year-end results. The revised full-year 2022 guidance also reflects the company’s assumption that catastrophe losses in the second half of the year will contribute between $20 million and $22 million, pretax, unchanged from previous guidance and in line with the 10-year average for second-half catastrophe losses.
Largely due to the effect of equity market declines, full-year core earnings for the Life & Retirement segment are now expected to be in the range of $56 million to $59 million, compared with guidance of $74 million to $77 million provided when the company announced year-end results. The change in guidance for Life & Retirement reflects approximately $6 million (after tax) of market-performance-related DAC unlocking in the first half of 2022. Equity market declines also are resulting in lower charges and fees on asset-based accounts.
“Now, more than ever, Horace Mann remains dedicated to helping our nation’s educators protect what they have today and prepare for a successful tomorrow,” Zuraitis concluded. “We expect to resume our trajectory toward a sustainable double-digit return on equity in 2023. Our capital generating capacity remains strong. We have used $14 million to repurchase a total of 375,371 shares through the first six months of 2022, and the Board of Directors authorized a new $50 million share repurchase plan in late May.”
Second-quarter financial results to be announced August 4
Horace Mann plans to release its second-quarter 2022 results on Thursday, August 4, at 6:30 p.m. Eastern Time. At that time, the quarterly news release, investor supplement and investor presentation will be available on the company’s website at investors.horacemann.com.
Management will host a conference call to discuss the financial results on Friday, August 5 at 11:00 a.m. Eastern Time. Investors can access the webcast of the call via the Events page of the company’s investor site or by dialing 844-735-3325. For the webcast, please log on to the site several minutes in advance to register and download any required audio software. On-demand replay will be available later that day.
About Horace Mann
Horace Mann Educators Corporation is the largest financial services company focused on helping America’s educators and others who serve the community achieve lifelong financial success. The company offers individual and group insurance and financial solutions tailored to the needs of the educator community. Founded by Educators for Educators® in 1945, the company is headquartered in Springfield, Illinois. For more information, visit horacemann.com.
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