Greetings and welcome to the Horace Mann Second Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. I’d now like to turn the conference over to Ryan Greenier, Vice President of Investor Relations. Thank you, Please go ahead.

Thank you, Brenda and good morning everyone. Welcome to Horace Mann’s discussion of our second quarter results. Yesterday, we issued our earnings release and investor financial supplement. Copies are available on the investors’ 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; Bill Caldwell, Executive Vice President of Property & 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 want 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 statements 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 them. 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 measures are available in the supplemental section of our press release. I’ll now 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 second quarter operating income of $0.36 per share. This was a solid quarter for us, but as you know historically second quarter has the highest levels of weather related impacts and this year’s results reflected that. When we impact the results, we like the underlying trends we’re seeing. We’re clearly on the right track and making solid progress finding, winning and keeping more educator households. The normal second quarter weather volatility impacted quarterly P&C results. In annuity results were strong, assets under management grew 7%. Disciplined spread management continues to help offset the impact of our interest rate environment. In the life segment, mortality losses were elevated versus the more normal experience in the prior year. On a year-to-date basis, we’re tracking consistent with our overall profitability goals. In P&C the underlying current accident year combined ratio improved by 1.6 points. Property was better than 5.6 points, while auto is basically flat and we are seeing momentum in auto new business. In annuity topline growth continues to be strong and profitability is solid, in light we continue to successfully grow. Year-to-date operating earnings at $1.08 per share are consistent with prior year and we continue to grow book value per share excluding net unrealized gains at a favorable quite pace. Ending the quarter at $26.30, a 7% increase compared to a year-ago. Looking more closely at our P&C business, we incurred 14.5 points of catastrophe losses in the second quarter primarily due to convective storm activity. We are seeing year-to-date progress in our P&C book. The defensive actions we’ve implemented along with the rate plan that continues to outpace loss cost, our supporting continued margin expansion underlying property results have improved over…

Thanks, Marita, and good morning. Second quarter operating income of $0.36 per diluted share, reflected the impact of property and casualty catastrophe losses in elevated life mortality. Someone offset my strong results in the annuity segment. P&C after-tax income of $3.3 million was $1.6 million lower than the prior year quarter largely due to an increase in the auto loss ratio compared to the very favorable results in the second quarter of the prior year. Including in the results was $21.3 million or 14.5 points of catastrophe losses. Both cap and non-cap property losses were modestly lower than the prior year, but still at elevated levels. As we’ve said before, given the size of our book, there can be some quarterly volatility in our results. Therefore, we look at the year-to-date trends to determine we’re on track to continue to produce margin improvement. Looking at our results to the first two quarters, the comparison of the prior year is more in line with what we would expect given the higher severity trend in physical damage than Marita referenced a few minutes ago. In the property line we are seeing the benefit of rate actions or reinsurance cost and the impact of our underwriting actions. That the first half of the year the underlying combined ratio improved by more than 5 points. Looking at our P&C book in total, the reported combined ratio of 97 improved by more than 1 point compared to the prior year-to-date. Catastrophes of 2.7 points were modestly higher than our expectations due to storms in the Southwest and Midwest. In addition, we had nearly 1 point of development related to the first quarter catastrophes. As you may recall, the winter storms were particularly severe. And we won’t surprise to see unusual claims emergence related to these…

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

Certainly [Operator instructions] Our first question comes from the line of Bob Glasspiegel with Janney. Please go ahead with your questions.

Good morning, Horace Mann. Quick question on auto, how much do you think non-cap weather penalized the underwriting in auto?

Hey Bob, this is Bill Caldwell.

Hey Bill.

Hi, how are you?

Doing great.

This is a reminder and we talked last quarter we didn’t remember celebrate last quarter and we are not really overly concerned about this quarter, comparisons to an unusually favorable second quarter in 2014, and on underlying basis, on year-to-date basis are rough less than last year’s performance?

That said we do recognize an uptick is physical damage severity primarily associated with the increased weather activity combined with improvements in vehicle technology. When you think about the value price vehicle that our educators typically drive, there is more technology in this vehicles but not only increase parts but also labor and refinishing costs. I just want to know that frequency has stayed relatively stable adverse to what some of our competitors are seeing, so we do although we are growing the few things frequency stable which is a sign of good underwriting quality, we do led the new business mix coming in educator cross sold good credit in underwriting tiers. And lastly we are confident that our rate actions continue to underwriting defensive actions and targeted improvements in competitive position will continue to improve our last ratio fraction at this point.

And Bob, I think that Bill is absolutely right, looking back to last year, you remember that we had a better second quarter than the first quarter this year’s the opposite, we got a better first quarter over the second quarter. But half year over half year we are tracking well. We’ve talked all along that auto loss ratios a game of inches we are seeing fractions of loss ratio improvement on a year-to-date basis, you know we are on track. I remind you too that our educator book produce as better than average industry last ratio on an absolute basis any way, we’ve got a good book of business, we’ve got a mid 90s combined target and its still our target and we think we’re on track.

You don’t have quantification on what non-cap weather did auto you said it was better year-over-year, but worse than normal, you don’t have a quantification?

You know as well as we know that’s really hard to divide out.

Right.

Obviously whether has an impact both cap and non-cap, Bill mentioned some of the other things that may contribute to a PD severity jump, weather obviously had an impact. It’s very hard to determine exactly what that impact is. As companies you look at the amount of days in a given quarter, where you have weather, where you had a cap, where you had a non-cap, where you had heavy rain and heavy flooding and all I can tell you is in the second quarter that’s a lot of days.

Great.

And it’s hard to impact exactly what that means, but I can tell you is a pretty wet quarter.

Okay. There was – I mean it was just a response to Dwayne’s comment that that non-cap weather was elevated, but just a subjective feel, but not something you quantify that’s fair.

Okay.

You’re growing auto pretty rapidly, where you happy about the auto. I think you said 4% increase in new applications on auto. Do we need like captive breaks a little than response to this or would that be an overreaction?

That would definitely be an overreaction. I like the fact that we were very thoughtful. How we thought about growth? We broke it down by state. We broke it down by the rate in that state. We broke it down by the underwriting in that state by the regulatory climate. And we took our time and we did it in the right way. Again, we have a very homogeneous set of educator clients and anybody who rates on occupation those that this educator segment is a very profitable segment. And quite frankly, we’ve proven this out over a long period of time. We have good underlying auto results. Due to the size of the book, it might be bouncy quarter-over-quarter, but overall a very profitable book of business that we want to grow and we feel very good about it.

Marita I like your conviction, both the direction of auto and given by track record with you and what we’re a…

Great.

Thank you.

Thanks a lot.

Thanks a lot.

Your next question comes from the line of Joe [indiscernible] with KBW. Please go ahead with your questions.

Hi, good morning everyone and thanks for taking my questions. First of all in your prepared remarks, you mentioned an uptake of physical severity. I know in the past, you’ve mentioned targeting mid-single digit auto rate increases. Do you think this room to the upside for getting further rate going forward?

Yes, Joe, it’s Bill Caldwell again. We continually look at our rate plan. And as we see changes in trends, we react very quickly. I wouldn’t say there are significant more rates that need to be taken, but we continually try to say it ahead of loss cost trends, so loss cost trends increase our desire, our rate activity and our rate plans.

Okay.

But that close target, tax arrive at low-mid single digits rate.

Yes, and I would also say considering the bounciness in the industry, I would submit probably not a loan. And we’ll keep an eye on that and if we can get more, we’ll get more.

Certainly, I think – we track [indiscernible] we can certainly seen an uptick, but the cheaper gas and then slightly improving economy there or so.

Exactly, right…

Secondly, just – just with regards to this quarter, just from a capital management perspective, [indiscernible] like there any share repurchases and only a modest amount I believe in the past quarter, clearly the stocks doing well in the past year. So I’m just curious kind of being where you are today has the appetite sort of changed overall or – so we just think about it as Horace Mann being more opportunistic going forward?

Hi, this is Dwayne Hallman here. The last part of your statement about being opportunistic that is the way we’ve approached this way, we publicly have talked about it. Over the last couple of years, if you track where we did buy shares back [indiscernible] you will find that we did very well against the VWAP and did try to take advantage of those opportunities. You’re correct the stock has performed extremely well over the last year at levels where the buyback opportunity was probably a little less for us, especially lined up against where we’re trying to put our capital work in growing the company. As we grow the pipe operations that becomes a bit more of a hog as far as capital is concerned especially at this statutory level, but we’re well very positioned on the P&C side that growth as well. But we watch it every day. If there are opportunities, you will see us buy shares back, but the one thing we don’t do is just blindly going to market and pick up shares everyday just for the sake of buying shares.

Okay, yes, that’s why I touched, I wan to confirm. And then mortality cost, let me just preference this by saying, I know this is kind of an issue that the industry in general is dealing with, but you know is this more of a short-term blip and we’re going to see a reversion to the mean. I mean there is nothing fundamental here that that’s changing any long-term assumptions on your part right?

Joe, it’s Matt Sharpe. How are you today?

Good. How are you?

Fine, great, thanks. Yes, on the mortality as Dwayne pointed out on his comments, it appears to be normal variation driven by the small material block of our in force business and a small number of claims can materially impact those overall results. If you look back in our history – recently history, we have had lumpiness in the results in the 10 to 11 timeframe, we had four quarters about the trend line followed by four out of five quarters below the trend line and one on the trend line. So it’s within the – within the range of normal variation.

Great. Just one last question, recently we’ve seen another dip in oil and oil related names recently. Can you provide us any color around your exposure to the energy sector in the investment portfolio.

Sure. This is Dwayne. As far as our exposure to the energy names and I will include energy utilities, natural gas kind of the whole components we still having that portfolio about $50 million unrealized gain. We have gone through our portfolio and I believe I mentioned it on our last quarterly call. We went through and stressed oil prices. It significantly depressed levels much, much lower than we got – to determine if we had any unusual exposure could anticipate any expected defaults, potential defaults based on a sustained oil price level. And I would say materially below 50. We reacted and made a few trades in our portfolio based on an information where we sit today and our continued view that oil prices will remain lower. We are confident with the holdings that we do have.

All right. Great. That’s all I had. Thanks very much for taking my question today.

Thank you.

Sure.

Our next question is comes from the line of Sean Dargan with Macquarie. Please go ahead with your questions.

Thanks and good morning. I have a question of how to think of your book value in your capital, gap book value as reported as fairly moved over the last year and I think you comment that’s because the unrealized gain position as contracted as interest rates have reason a little and spreads of what not a bit. And is that safe to assume that that shrinking of the unrealized gain position comes from assets back in life liabilities primarily.

Hi, this is Dwayne. Yes, if you look at our portfolio obviously it’s predominantly a life and annuity portfolio. And that’s as you would guess where the unrealized gains sits so on the life company side, very, very different from P&C only company as we are not managing the life and annuity, liabilities or ALM, et cetera based on the unrealized gain or loss position of the book. Our book is very solid its very persistent, its not half money. So even in lot of our stress scenarios we don’t assume that there is going to be a run on the bank or if we going back to the financial stress of ‘08 and ‘09 persistency for us actually went up a bit and didn’t see the stress. So we are more than confident. We can manage through any changes on unrealized gains and losses as it relates to the life and annuity portfolio. On the P&C side, we don’t run a big equity portfolios of unrealized gain there, really tends to be in the – obviously in the bond portfolio, primarily in the mini [ph] portfolio and as you could probably track from our trading activity, one of the traders in the mini [ph] portfolio either. But your assumption was absolutely correct it’s primarily all in the life company portfolio.

All right, and then if I can follow-up, when the rating agencies like your statuary capital, would I be correct to assume that your P&C stack capital is unaffected by changes in unrealized gains on the life side? I mean do they look you holistically, I mean, I’m just trying to figure out what kind of impact does this has in the way that they think about your capital?

From a capital perspective if you look at any of the rating agency formulas was their stress test, if you look at A.M. Best and BCAR our ratings are not supported at all based on unrealized gains or losses. And especially on the P&C side, and probably what it might be alluding to is on the P&C side, some companies due to leverage up their writing based on unrealized gains that might be in their portfolio. That’s not our view, nor if we ever taking that view, because as rates moves, or as equity markets move obviously that leverage get compound substantially, if that was once approached. But from a capital perspective and our ratings – with all the rating agencies, the capital position has never been an area of question [indiscernible] and our rating levels are – as I would say even ratings level is above where we are. It’s a solid capital level.

Got it and if I can just turn to the annuity segment, last quarter, I think, I asked about the DOL fiduciary to the requirement and I’m wondering if your thoughts have changed three months later. And I’m also wondering what kind of perhaps added compliance spend you would need to make sure that you’re compliant with these regulations. I’m wondering what kind of compliance infrastructure you have now and if you think that would be adequate to allow you to comply with whatever finalized rules are coming down the pack?

John it’s Matt. As you think about the DOL, you kind of just step back and think about our overall strategy for solving the need of the K-12 public educators. And it’s primarily along three lines, savings for retirement, primarily 403(b) [ph] which is non-ERISA [ph] segment to the market. Protecting level on life insurance and then managing the risk through auto home and liability in build area. So we would have a broad, multiline relationship strategy, unlike many, model lines, and as you might find out there. So 403(b)s [ph] are not part of the regulatory proposal in our view, because it’s non-ERISA [ph] plan, that’s our interpretation of it. And given our exclusive distribution for us to close relationships we have with our homogenous segment of educator customers I think we’re well positioned to take advantage of any regulatory change and quite frankly we’re used to working in a highly regulated environment and believe we have the infrastructure to modify our business model if necessary on a go forward basis. But there is really, if choosing to tell as almost every vendor will tell you the same answer that I’m giving you, as we see more detailing merge and see whether the proposal is likely to be implemented, I will be able to give you much a tighter answer.

Yes, I would just add, Matt absolutely right, from my perspective. I’m very impressed, how in front of this we are the first half of the talent we have got here Matt’s leadership, and its been a very thoughtful approach and somewhere in your question you are including the size of the company and I think that’s a right thing to think about, but I will tell you per capital from our size, I stack this up against the big guys as far as thoughtful approach of thinking through this. As well as the insulation to some extent our book has not only because of our approach as Matt said, but because of the type of customers that we serve.

Great, thanks.

Yes.

Thank you. This concludes today’s question-and-answer session. I would like to turn the floor back to Mr. Ryan Greenier for closing remarks.

Thank you, Brenda. And thanks to all for joining us this morning on Horace Mann’s second quarter earnings call. As always Kristi and I will available for additional questions so don't hesitate to reach out to us. Thanks.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.