Good morning. My name is Breanna, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Horace Mann First Quarter 2014 Earnings Conference Call. [Operator Instructions] Ryan Greenier, Vice President of Investor Relations, you may begin your conference.

Thank you, Breanna, and good morning, everyone. Welcome to Horace Mann's discussion of our first quarter 2014 results. Yesterday, we issued our earnings release and investor financial supplement. Copies are available on the Investor page of our website. Our speakers today are Marita Zuraitis, President and Chief Executive Officer; and Dwayne Hallman, Executive Vice President and Chief Financial Officer. Steve Cardinal, Executive Vice President of Property and Casualty; and Matt Sharpe, Executive Vice President of Annuity and Life, are also available for the question-and-answer session that follows our prepared comments. Before turning it over to Marita, I wanted to note that our presentation today includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The company cautions investors that any forward-looking statement include risks and uncertainties and is not a guarantee of future performance. These forward-looking statements are based on management's current expectations and we assume no obligation to update these statements. Actual results may differ materially due to a variety of factors, which are described in our press release and SEC filings. In our prepared remarks, we may use some non-GAAP financial measures. Reconciliations of these measures to the most comparable GAAP measure are available in the supplemental section of our press release. And now I'll call -- I'll turn the call over to Marita Zuraitis.

Thanks, Ryan, and good morning, everyone, and welcome to our call. After yesterday's market close, Horace Mann reported first quarter operating income of $0.65 per share, a strong result reflecting continued profitability improvements in P&C, notwithstanding some winter weather-related losses, as well as higher annuity investment income. Importantly, top and bottom line results were strong in all 3 of our segments. The P&C underlying combined ratio improved 3.3 points to 92.1%, driven by continued margin expansion in auto. Written premiums continued decline, up 4% largely on rate actions, and reserves continue to develop favorably. X DAC, annuity earnings, increased 23% reflecting the 10% increase in assets under management, as well as higher-than-anticipated net investment income. Annuity sales increased 19% with both Horace Mann and independent agents posting sales increase -- increases over the prior year. While our new fixed index annuity introduction is off to a good start, we saw strong sales in all of our annuity product offerings, supported by a new electronic application for annuities. Life sales continue to grow, and we are encouraged by our agents' increasing ability to sell Horace Mann products. Earnings for the life segment declined reflecting a higher level of mortality in the quarter, partially offset by an increase in net investment income. Altogether, the results were a strong start to 2014 and contributed to an 8% annual increase in book value per share, which ended the quarter at $24.27, excluding net unrealized gains on investments. We are making progress on initiatives that support the multiyear strategy to further improve profitability and accelerate organic growth. These activities position Horace Mann to become a larger, more dominant player in the educator space. From a product perspective, we had an exciting first quarter. As I mentioned earlier, we launched the Horace Mann fixed index annuity…

Thanks, Marita. And good morning, everyone. First quarter operating income of $0.65 per diluted share was a strong result, largely due to favorable results in the property and casualty and annuity segments. P&C after-tax income of $14 million was almost $4 million higher than the prior year quarter. On an underlying basis, the combined ratio improved 3.3 points to 92.1, led by a 5-point improvement in the underlying loss -- auto loss ratio, which was 71.8 for the quarter. The total P&C expense ratio of 27.7 was in line with full year 2013 results and consistent with our earnings guidance. Catastrophe losses were 4.4 points in the quarter, only modestly higher than the prior year. Within auto, we're seeing the benefit of rate actions taken over the last couple of years. Margins continued to expand as rate increases outpaced loss cost. While the first-quarter winter weather impacted collisions and physical damage coverages, we saw improved liability experience compared to prior year. Our auto BI loss estimates for the first quarter of 2014 are a few points better than our initial 2013 estimates, which ultimately developed favorably over the course of 2013. In addition to providing some benefit to our current accident year loss ratio, the favorable BI loss trends also resulted in overall continued favorable prior year reserve development. We believe changes we've made in the claim operations are also contributing to some of this improvement. But the same time, we're mindful of the longer-tailed nature of liability lines and the overall industry severity trends in our loss-estimate selections. In regards to property, the underlying loss ratio was comparable to prior year, even including winter weather impacts. In the quarter, both increases in average premium per policy and reductions in catastrophe reinsurance costs provided offsets to the non-cat weather-related losses.…

Thanks, Dwayne. Breanna, please open up the lines to begin the Q&A portion of the call.

[Operator Instructions] Your first question comes from the line of Bob Glasspiegel JB Capital.

A couple of numbers questions to start off. How much did mortality negatively impact you? And how big of a positive was prepays in annuity?

Bob, mortality losses are up about $1 million from prior year in the quarter. And on the prepayment activity in total, it was just over $2 million. And that was roughly 70% in annuity segment and 30% in life.

Okay. Marita, on the agent productivity, it seems like you're implying that there's been sort of a step up in performance standards versus the history. What the -- what element is a common characteristic of the agents that you're not keeping? Were they employee agents? Or -- and was it lack of technology expertise or just something else that would drive the culling today?

Yes, Bob, thanks for the question. Let me give you a full response to the question. When we go back to agent talent, our first half of the year is typically lower than our second half of the year, if you go back and look historically. And I think it's more than an implication of improved productivity and quality standards. We actually have numerically upped the productivity and quality standards that we're holding our agents towards. And not only that, but we're learning what good looks like. And as we push on those, we're using those same standards as we appoint new agents and we bring new agents on to the Horace Mann business, if you will. So we're learning from that. Like we said, the net result in agency count is going to be relatively flat at the end of the year when we look at that altogether. But more importantly, I think as we push on these strategic initiatives, it really is helping the agents be more productive. So when you think about product, if you have good agents and you give them more to sell, they tend to be more productive. And we saw that with the introduction of the FIA product. From the distribution perspective, better training, better sales support, also, makes them more productive. And from an infrastructure standpoint, improving our pipes, improving our efficiency and you saw that with the new electronic application that we put out this quarter. So I think the agents have visible signs of how, with product distribution and infrastructure, we' improving their ability to be more productive and I think they have stronger confidence and a little more belief, if you will, in their ability and our ability to help them be more productive.

Okay. I guess my last question would be, you went into the year sort of looking for in the guidance of 1- to 2-point underlying improvement. And it sounded like in the text, both you, Marita, and Dwayne, sort of indicated auto's improvements a little bit more than we're looking for and led this sort of a 3-point-plus underlying improvement overall. So the fact that you didn't revise guidance, you normally don't after the first quarter, I understand that, it seemed like the speech implied you're ahead of plan and the guidance could be conservative with what you note today. Is that a fair read or...

Yes, it is a fair read, and I can turn it over to Dwayne for more specifics. But before I do that, we had a solid first quarter. But we also know that we have 3 more quarters left to the year. Let me have Dwayne give you some more details.

Thanks, Bob. Yes, I wish I could take the first quarter and annualize it, but unfortunately, we can't. And keep in mind our second and third quarters are -- and especially the second quarter, tend to be our highest cat experience. So although we're out of the gate with a good number, maybe autos, slightly better than what we expected, as you know, we always talk about we'll keep an eye on our year-to-date numbers. So at this point, we wouldn't -- we don't see auto going a different direction despite the solid first quarter, but we still got a long way to go to the year.

Well, we're off to a slow start in tornadoes in April. My prophecy in there, probably is something to go on for May and June.

[Operator Instructions] Your next question comes from the line of Vincent DeAugustino with KBW.

Just for Matt, I guess, for just to start. Just curious if you might be able to sort of touch on some of the annuity sales environment, as far as kind of breaking down what might be some industry-wide phenomenons versus internal drivers to Horace Mann? I know some of the agent productivity and new product-type factors are pretty important to internal things that Horace Mann is doing. But just kind of looking to get some sense on sustainability just with the swing from last quarter.

Vincent, thanks for the question. A lot of our productivity has been driven by the introduction of the new fixed index annuity product. Our product line was a little bit out of position prior to the introduction of this product line. And the fixed index annuity sales represented about 27% of our total annuity sales for the quarter. So it's a pretty big impact in terms of our overall annuity sales. That's driven largely by the fact that our agents sold a third-party product in a very limited way with a few agents, and then we expanded that to a much larger reach, meaning, it's available to our entire distribution force. It also was added with -- we also saw a slight uptick in the independent agent sales, which was also driven by the introduction of the product. And that is a fairly big driver in the independent agent market, not having the fixed index annuity side. I would expect the independent agents to have a continued momentum. On the career agents or the exclusive agent side, the introduction may be lopsided towards the first half of the year because it's a brand new product and it was -- there was pent-up demand for the product in the introduction. But I would expect us to capture the third-party sales that we had last year in the product, which was about $20 million. The fixed index annuities externally industry-wide continued to be growing at a much faster rate than the book value products that we sold prior to that, although the broad industry view doesn't necessarily translate into our niche. Our niche is not driven necessarily by the same factors, other than the independent agent component that I already talked about.

Okay. And kind of a bit of an odd question and it's quite frankly just because the results, pretty much across-the-board, were so good, there's not a lot to nitpick one. But it's a more big picture question, as far as trends kind of in auto manufacturing. And one of the things that had recently come out of a meeting with LKQ that I had, which is a auto parts recycler and aftermarket-type parts supplier. It was that some of the new technology in auto manufacturing, things like composite and aluminum body panels, the new Ford F-150 is a perfect example of this, and the takeaway from that was that some insurers might not necessarily be appropriately pricing in -- loss cost trends on these types of vehicles, where repair may be more difficult and you may end up doing replacement and that sort of things. So I'm just kind of curious from the standpoint of maybe that type of migration, what that might mean for companies like Horace Mann or any auto insurancer where, I think the numbers that was thrown out is there maybe a 10% increase in the cost to insure those types of vehicles. I know some of the exotic ones really wouldn't fit your educator focus, but some of these -- an F-150, I would imagine, would have find its way into one of your households. So just any thoughts you might have there in terms of those of changes would be pretty interesting.

Yes, there's 2 things I'd say to that. One, the talent that we've been able to attract in P&C and the sophistication and the analytical ability and the folks that look at these types of trends, I'm happy to have that kind of talent in-house, combined with some of the changes that we've made in the claim department and some of the initiatives that we're pushing on to get to improved loss analytics on that end of it as well. So I think up front in the pricing and in the back end on claim, we obviously keep track of these trends to drive a better bottom line result. I don't know if I have a specific answer to how this will all work out, but I think the goal is you know these things, you factor it into your pricing on the front end, and then you factor it into how you settle claims on the back end.

And we have no further questions in queue. I'll turn the call back over to Mr. Greenier.

Thanks for joining us this morning on Horace Mann's first quarter earnings call. If anyone has any additional questions, don't hesitate to reach out to me. Thanks.

Thanks.

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