Good morning. My name is Tasha, and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth quarter 2011 earnings conference call. [Operator Instructions] Thank you. Mr. Nelson, you may begin your conference.

Thank you, and good morning, everyone, and welcome to Horace Mann's Fourth Quarter 2011 Earnings Conference Call. Yesterday, we released our earnings report, including financial statements as well as supplemental business segment information. If you need a copy of this press release, it is available on the Investors page of our website. This morning, we'll cover our results for the fourth quarter in our prepared remarks. The following management members will make presentations today and be available for questions: Pete Heckman, President and Chief Executive Officer; Dwayne Hallman, Executive Vice President and Chief Financial Officer; Tom Wilkinson, Executive Vice President, Property and Casualty; Matt Sharpe, Executive Vice President, Annuity and Life; and Steve Cardinal, Executive Vice President, Marketing. As a reminder, the following discussion may contain forward-looking statements regarding Horace Mann and its anticipated or expected results of operations. Our actual results may differ materially from those projected in these forward-looking statements. These forward-looking statements are made based on management's current expectations and beliefs as of the date and time of this call. For a discussion of the risks and uncertainties that could affect actual results, please refer to the company's public filings with the SEC. We undertake no obligation to publicly update or revise such forward-looking statements to reflect actual results or changes in assumptions or other factors that could affect these statements. Also in our prepared remarks or responses to questions, we may make mention to non-GAAP financial measures. Reconciliations of such non-GAAP financial measures are available on the Investors page of our website. Finally, this call is being recorded, and an Internet replay will be available on our website until March 9, 2012. Now I will turn the call over to Pete Heckman for his comments.

Thanks, Todd. Good morning, everyone, and welcome to our call. After yesterday's market close, Horace Mann reported operating income, which excludes realized investment gains and losses, of $30 million or $0.72 per share for the fourth quarter, as P&C catastrophe losses moderated to more normal expected levels and financial markets performance improved, which provided good visibility to the strong underlying results of our multi-line business model, particularly in our property insurance and annuity lines. While fourth quarter results exceeded our expectations and were significantly better than a year ago, full year 2011 operating EPS of $1.11 was adversely impacted by a record level of industry-wide catastrophe losses, which accounted for more than our $0.49 shortfall to prior year earnings. In spite of that, Horace Mann's book value per share, excluding FAS 115, increased 6% year-over-year and we maintained our strong capital position. The 18% dividend increase announced by our Board of Directors in December, resulting in a current dividend yield of approximately 3.25%, coupled with the $50 million share repurchase authorization, is a reflection of the company's sustainable earnings power, its current excess capital position and undervalued stock price and the Board's ongoing commitment to manage capital to the benefit of the shareholders. Dwayne, Tom, Matt and Steve will provide more detail on our 2011 results, but I'd like to offer up a final assessment of our performance relative to the 4 priorities that we established early last year. Our first objective was to grow the agency force and increase agent productivity. We did increase the number of agencies and agents for the third year in a row and we increased new sales levels year-over-year in all lines of business, with the exception of property. Our second key focus area last year was to improve the underlying profitability of our…

Thank you, Pete, and good morning, everyone. Horace Mann reported fourth quarter operating income of $0.72 per share, which was $0.33 per share more than the same period in 2010, primarily driven by expanded annuity investment margins and materially improved property line earnings, including favorable prior year's reserve development and a reduced level of catastrophe and sinkhole losses. Relative to our expectations, operating earnings of $1.11 per share for the full year were better than our revised guidance and favorable to analyst consensus estimates. These full year results were $0.49 less than prior year, with 2011 significant P&C catastrophe claims accounting for more than the difference. All in all, our operating results, excluding cats and DAC unlocking, were generally consistent with our expectations for the full year and clearly point to the strength of our underlying operations. We reported a 23% increase in GAAP book value per share year-over-year, driven by our solid operating results and investment portfolio, which continues to perform very well. With the combination of continued low Treasury yields and tightened spreads during the quarter, the net unrealized gain was approximately $441 million at year end, pushing book value to $27.33 per share. The book value per share, excluding net unrealized gains, was $20.66, an increase of 6% over prior year end. First, focusing on investments, we produced another quarter of solid results. We realized net investment gains of approximately $5 million of pre-tax in the quarter, with only a de minimis level of impairment write-downs. The realized gains resulted primarily from strategic sales, driven by the significant drop in Treasury rates and a minimal level of portfolio rebalancing, reflecting a slight bias towards shortening the duration in the Annuity and Life portfolios. As we've stated in the past, we remain confident in the quality of our…

Thanks, Dwayne, and good morning. Today, I will summarize our Property and Casualty profitability and growth results, as well as providing an outlook for 2012. Starting with profitability, for the quarter, we posted a 92.5% total P&C combined ratio, which was 9 points better than prior year. Our underlying combined ratio, which excludes cat and the impacts of prior-year reserve reestimates, was also 92.5%, 7 points better than last year's fourth quarter. Our profitability gains in the quarter were driven by significant improvement of 26 points in the underlying property combined ratio. Our 62.5% combined ratio, again excluding cats and reserve reestimates, was the lowest quarterly combined ratio in the last 5 years. The completion of the Florida property nonrenewal program in August has virtually eliminated sinkhole losses. Our underwriting programs have contributed to reduce non-cat losses, and we are earning the effects of aggressive rate increases in the last couple of years. For the full year, our property underlying combined ratio improved almost 15 points when compared to 2010. Reduced sinkhole losses contributed over 8 points to the decrease. Again, underwriting programs and increased rates also contributed to the improvement. Moving on to auto results. Historically, the fourth quarter is our highest underlying combined ratio quarter. This quarter, it was 107.7%, up 2.5 points above last year's fourth quarter. For the full year, we posted an underlying 99.9% combined ratio, an increase of just under 3 points compared to last year. The quarterly increase is consistent with the full-year variance and each are impacted by about a 1 point increase in the expense ratio and about a 1.5 points on the loss ratio. The expense ratio is up as we have invested in our growth initiatives, and is in line with our expectations. The loss variance is being driven…

Thanks, Tom, and good morning. I'll spend the next few minutes going over the profitability and growth results for the Annuity and Life segments. Focusing first on the earnings of our Annuity segment, we again saw strong increases in 2 key metrics, account values and margins. Fixed account values increased 12% compared to a year ago, and the associated net interest margin improved for the full year, reflecting management of both the investment portfolio and crediting rate. The resulting net interest spread was 202 basis points for the full year, an increase of 6 basis points compared to 2010. Variable account balances decreased 7% over the prior year end, but the associated M&E fee income increased 9% compared to the full year 2010 due to strong market performance early in 2011. As we have noted in prior calls, our annuity liabilities are very stable, with positive net fund flows again in the fourth quarter, as they have been for the past 4 years. Our total 12-month account value persistency of 94.4% has improved 0.7% compared to prior year. We continue to maintain a very conservative product risk profile, with minimal equity market guarantee exposure on our variable annuity product line. 94% of our in-force account value has either a simple return of premium death benefit or no death benefit guarantee at all. We do not offer other guarantees such as living benefits, and have no hedging or derivative program exposure. Improved market performance had a positive impact on both the valuation of deferred policy acquisition costs and the level of guaranteed minimum death benefit reserves for the quarter. For the full year, flat market performance relative to prior year plus realized capital gains were the main drivers behind the $2.9 million negative impact on the valuation of deferred policy acquisition…

Thanks, Matt, and good morning. I'll provide an update on our agency force, sales results and the continuing impact of our marketing programs. Momentum from the third quarter continued to positively impact sales results in all lines of business in the fourth quarter. As anticipated, we saw continued strength in the sales of auto, annuity and life insurance lines and also saw our property business improve over prior year's fourth quarter. In addition, our December 31 total agency count increased by 4 from the end of 2010 and sequentially by 10 over the third quarter. Let's take a line-by-line look, starting with auto. Our true new unit sales, which represent business from brand-new Horace Mann customers, increased 26% in the quarter and finished up 1% for the full year. Our total auto units, which include add cars or additional units from existing Horace Mann customers, increased 10% during the fourth quarter, but were still down 2% compared to the full year of 2010 as a result of lower volumes of units added to existing policies. We are encouraged by the production trends in the quarter and the second half of the year. In addition, our quote volume was again strong in the fourth quarter, which we believe is a good indicator that our marketing programs are having a positive effect. And just a brief comment on property, we are seeing some sales improvement with the line as new units increased 13% compared to the fourth quarter of 2010, moderating the full year decline to 5%. Annuity sales were once again strong in the quarter, up 17% compared to last year. That 17% reflects a 21% increase in single premium and retirement rollover sale and a modest decrease in flex sales. Single premium and rollover sales have been strong for several…

Thank you. And that concludes our prepared remarks. Tasha, please move to the question-and-answer session.

[Operator Instructions] Your first question comes from the line of Matt Rohrmann.

Just wanted to first start off with if maybe you could give a little color around what you're seeing, in the teaching market specifically. Obviously, over the last 1 or 2 years, we've seen a number of budget cuts and things like that. But I was just curious to see if you saw opportunities in any particular states in terms of expanding your market share there in the teaching submarket.

Matt, this is Steve Cardinal. Yes, we've seen this, that the districts all around are dealing with budgets in different ways. We kind of saw a lot of impact in 2010, where risk or buyouts or other things were happening and that probably helped cause our agency to kind of get in front of them and talk to them about annuities and retirement and work with some of the opportunities that happened from there. So we're seeing school districts manage through and have discussions around what they're going to do on that end, and we see some nice things on the annuity line. It's also -- a lot of places are starting to hire some new teachers and so we're seeing some opportunities in there. We think with both -- with our multiple product lines, it's -- and our agents out working in there, just having someone around to help them understand what they need to do, what -- in retirement or what's going to happen has really been beneficial for us and when we're able to help teachers, beneficial for them.

Okay. And are there any specific states or regions that you're seeing more or less of that compared to, say, the average?

We see it in -- it's kind of happened some -- we're seeing it throughout the country where there's impact on budgets. Places that have well-funded school districts, they're kind of business as usual and we have some of those in every state. And some places, they've had a little more dramatic actions they've had to take with closing a school or shutting down of some other programs within the schools or shortening days and things like that. But generally, it's -- they have a various level teacher count overall. A lot of the cuts that we're seeing are in the administrative side, in aggregate, and -- but I wouldn't look at any one state as more so or less. You can track where the property values are kind of moving more. We probably see a little more action in places like California and Nevada and Arizona and Florida. But overall, they seem to be managing through the cycle in the ways that you'd hope they would.

Okay, great. And then just wanted to quickly touch on the personal auto combined ratio. Sort of forgetting the potential weather impact or historic weather impact, I guess, what areas of improvement do you see there? Is that a type -- as you think over the near to medium term, assuming pricing and loss trends remained fairly stable, that perhaps you could get from sort of a high-90s target to more of a mid-90s target?

Yes, Matt. This is Tom Wilkinson. That pretty much sums up our long-term plan. Our short-term plan is kind of just what you said. We're in the high 90s. We're making some investments. We -- I think we've had a pretty good run with rate regulation and stuff. We're not really running into major issues there. And we anticipate the loss trends to be as -- to be fairly consistent just like they were in the last couple of years, absent the weather. We had a pretty unique auto weather here in 2011. But we think it's pretty stable going forward. And we see [indiscernible]

Okay. And then I guess, Tom, is that going to -- I guess the other side, for the property side, obviously the weather was about as bad as you could get in the Midwest, and then it was rough around the edges as well. Are there any particular states or sets of states that perhaps there's not just a rate opportunity but one that was outsized, that you'd go after more aggressively?

Well, I don't know if I would categorize any particular state as being outside of the norm. There's probably some areas in the Midwest that have been hit, have a higher frequency of the storms that have hit the last couple of years that may need a little more rate than others. Not all the states are getting hit. Some of the states are actually in pretty good profitable situation. So we'll target those to where we need the rates, depending upon the recent results.

And I guess what's the -- I don't know if you can provide this, but any area where -- is the Midwest typically up 5% to 10% on the property side? Is that consistent with what you've been seeing?

Yes, that's a pretty good range. The 4% to 6% range that I gave for rates for next year is -- auto is a little bit on the low side, on the lower end of that and property's on the higher end of that, and then -- so there's probably a little bit higher rate need in some of the Midwest states as well as -- we still have rate need in Florida that we're trying to track down.

Your next question comes from the line of Bob Glasspiegel.

Buyback is not in the projections, you say. Based on where the stock is today and capital picture, what would be sort of a rough view of how much stock you could get bought -- you could buy this year?

Well, Bob, we -- of course, when we announced that buyback, we announced it as being opportunistic. We don't have any timeline that we're under or any restrictions, and it will depend on a variety of items, some of which Dwayne mentioned. But we really don't have a firm estimate or commitment either on a monthly or quarterly basis. We just feel as though having that program available makes sense, given where our price is. Short of giving you any detailed estimates, which we really can't, probably thinking in terms of what we've done already, maybe continuing at that rate going forward might be my best counsel. But again, it is opportunistic and we'll make those calls day by day as we go forward.

Can you give me what the stat earnings were for last year and what the holdco position is?

Bob, this is Dwayne. For statutory, the net income year-to-date for P&C was roughly $10 million. You might recall, at the end of '09 -- the end of September, there's about a $11 million negative, so good fourth quarter there. And for Life, the year-to-date number was roughly $54 million.

So is $64 million the rough dividend capacity?

Dividend capacity without regulatory approval is roughly $75 million.

And what's the holding co assets now?

Well, as you know, we don't do any extracurricular activities at the holding company, but as far as a cash position, roughly $15 million to $20 million.

Okay. And just doubling back to -- I think great quarter, obviously. The one bounce-up was auto and I got sort of your guidance for next -- for this year and what's driving it, but was there anything special in the quarter that elevated the combined ratio?

Nothing, Bob. Nothing really extraordinary, just a little bit of seasonality. Historically, our fourth quarter bounces up, and we did see a little bit of a continuation of the non-injury physical damage frequency increases that we saw in Q2 and Q3 and due to, we think, primarily due to weather.

The 106 is not the run rate, what -- I mean, what is sort of like the run rate to get to -- you want to get to 99, it sounded like for 2012, I mean. And you're getting rates of 4%, I mean...

Yes, that's not -- I mean, it's seasonally adjusted or takes over -- a little bit longer period of time. It's -- we're running in the high 90s right now.

Okay. So it's not going to take a major lift to get -- to stay in the 90s?

No, no.

We do have a follow-up question from the line of Matt Rohrmann.

One more. I just wanted to follow up on Bob's question with the buyback. I know we have a ways to go, but looking ahead -- and you don't need too many more days like this in trading to get there. Some companies out there, once they sort of start trading around book value, kind of use that as a hard ceiling in terms of foot in the buyback on or off. Just wanted to get your thoughts in terms of that methodology.

Well, certainly, you're right. As the stock price approaches book value, it becomes less opportunistic, I guess you'd say. We have some dilution from our incentive equity grant programs, and we kind of want to make sure that we reel those in over a period of time. So again, like you say, if the stock price keeps on going up and begins to approach book value, we'll probably pause a little bit and think harder about any repurchases.

Okay. But no hard stop on and off either way?

No, it's how we're going to make kind of on a daily basis.

[Operator Instructions] At this time, there are no further questions.

Thank you, Tasha, and thank you all for participating on our conference call this morning. If you have any further questions, please feel free to contact me, Todd Nelson, directly at (217) 788-5738. Thanks again.

This concludes today's conference call. You may now disconnect.