Greetings, and welcome to Horace Mann First Quarter 2017 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ryan Greenier, Vice President of Investor Relations. Thank you. Mr. Greenier, you may begin.

Thank you, Dough, and good morning, everyone. Welcome to Horace Mann’s discussion of our first quarter 2017 results. Yesterday we issued our earnings release and investor financial supplement. Copies are available on the Investors Page of our Web site. Our speakers today are Marita Zuraitis, President and Chief Executive Officer; and Bret Conklin, Executive Vice President and Chief Financial Officer. Bill Caldwell, Executive Vice President of Property and Casualty; and Matt Sharpe, Executive Vice President of Life and Retirement 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 Legislation Reform Act of 1995. The Company cautions investors that any forward-looking statements include risks and uncertainties and are not guarantees 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 measures. Reconciliations of these measures to the most comparable GAAP measures are available in the supplemental section of our press release. And now I’ll turn the call over to Marita Zuraitis.

Thanks, Ryan, and good morning everyone and welcome to our call. Before we turn to the quarterly results, I want to congratulate Bret Conklin on his appointment to Executive Vice President and Chief Financial Officer. Bret brings over 30 years of insurance industry experience with more than half of those at Horace Mann. Bret has also been a strong contributor to the executive leadership team and I know he will continue to build upon the solid foundation that both he and Dwayne have already established. Turning to the results, the first quarter of 2017 included an unprecedented level of catastrophe losses for both Horace Mann and the industry. The mild winter resulted in early spring and much of the convective storm activity that generally occurs in April and May impacted the first quarter, particularly in March. The National Weather Service reported over 500 tornadoes in the first quarter, a level not seen since the 2008 and 2011 tornado seasons. That said, the elevated level or tornado activity appears to have moderated in April with lower than average storm counts in the month. These national statistics mirror claim patterns that we've seen and while it is still very early so far our April storm losses appear to be at levels below historical averages. This elevated level of convective storm activity generated $17.2 million or 10.8 points of catastrophe losses, which was a record for the first quarter of cat losses at Horace Mann. And weather also impacted our non-cat loss ratio which increased nearly 5 points compared to the reported results and the first quarter of 2016. Basically the first quarter of 2016 at a high-level of catastrophe losses, but favorable non-cat weather. However, in 2017, we saw significantly higher weather events in both cat and non-cat. Based on broader industry…

Thanks, Marita, and good morning, everyone. First quarter operating income of $0.37 per diluted share was $0.25 lower than the prior year quarter with nearly all of the difference related to the higher weather related losses in the P&C segment. Offsetting higher loss cost was a tax related benefit of $0.06, which reflected the impact of adopting the new share-based accounting pronouncement related to restricted stock-based compensation distributions. P&C after-tax income of $2.7 million was about $11 million lower than the prior year quarter. On a reported basis, the combined ratio was 105.5, catastrophe losses were 2.5 points higher, the expense ratio increased 1 point largely related to non-capitalize systems modernization expenses in favorable prior development was 0.7 points lower. Prior accident year property reserves continue to develop favorably and accounted for all of the releases in the quarter. On an underlying basis, the loss ratio of 55.8 increased nearly 6 points, but if you recall we strengthen auto loss reserves first quarter of 2016 by over four points over the course of 2016. As a result, the underlying loss ratio in the first quarter of 2017 for all of P&C is about 2 points higher compared to how the first quarter of 2016 developed, and that increase is largely related to non-cat weather impacts in both property and auto. Within auto, we're seeing loss trends stabilize, the underlying combined ratio was 105.3 very similar to our full-year 2016 results despite the first quarter of 2017 having significant higher weather related losses. The underlying combined ratio for property of 74.5, a profitable result, allows us to absorb quarters with a high-level of cat losses when they occur. P&C written premiums increased 4% to $153 million primarily reflecting rate actions. Sales increased 9% in the quarter with auto up 9%, and…

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

Thank you. [Operator Instructions] Our first question comes from the line of Meyer Shields with KBW. Please proceed with your question.

Great. Thanks. Marita, you mentioned that you’re still on track for 1 point of auto underlying improvement. That sounds pretty optimistic, given the impact of non-cat weather in the quarter. Am I thinking about that the right way that you’re now anticipating if we exclude non-cat weather even more improvement?

Yes, I mean, I -- when we unpack the weather in the quarter and we remove both the cat and non-cat effect on auto, we still see our way clear to that 1 point of improvement that we have previously announced in our guidance. We've done the math. And like I said, based on what we saw in January and February when we saw more typical, more normal weather, we like the results that we saw on those months and we’re pretty confident that when you strip out these really outsize numbers, we’re right on track with where we thought we would be.

Okay, fantastic. Second question, I guess we saw a little bit of a bump in the P&C expense ratio. Are we still targeting 27.5 for this year?

Absolutely. This is Bret Conklin. I think we’ve mentioned on the year-end call our guidance assumes that the mid 27, 27.5. And just to put things on perspective our first quarter in '16 actually the first quarter was the highest quarter of the year. So there is some seasonality and bumpiness in the expenses, but we’re still targeting 27.5% expense ratio on P&C.

And I would follow-up by saying that this is a Company that has had a very disciplined expense track record and focus, and despite some very targeted strategic investments that underlying discipline hasn’t changed. So we’ve a pretty rigorous drill as you can imagine to keep track of that. So although we have specifically target some very clear investments, the underlying expense ratio of this place remains very competitive and very disciplined. So, no concern on my part to get into what we put in our guidance just as we have in the past.

Okay, fantastic. Thanks so much.

Welcome.

Our next question comes from the line of Bob Glasspiegel from Janney. Please proceed with your question.

Good morning, Horace Mann and congratulations Bret.

Thank you, Bob.

I want to push Meyer's question a little harder on underlying auto. I don’t think you gave the non-cat weather impact isolated to auto, but it sounds like the underlying was even with the year-ago. For the year, it would have been better, if you take a non-cat weather. Are you seeing underlying improvement in autos, what you were saying on an apples-to-apples basis?

Yes, bob, its Bill. We did comment that auto non-cat was about 2 to 3 points on the underling loss ratio. And just to remind everybody when we look at cats, we take this strict definition of TCS, which were auto would only be compressive claims. So these are accidents that happen during severe weather or hell incidents.

So underlying would have been improved. If you take the non-cat 2 to 3 points of year-over-year?

Yes. Bill if you follow the math, Bret brought us up about 4.5 points. First quarter developed about 4.5 points when favorably. The starting point of this quarter minus 3.5 gets us a little bit better than we were in first quarter last year.

I got it. But still up versus reported, but down versus adjusted [ph], it's what you’re saying?

When we expect -- and as Marita said too we’re very confident in our rate plan, a lot of the rates is frontloaded this year. So when you think about the quarter, 25% of the time is passed, 35% of our rate has already been implemented and 60% was already improved. Combine that with last year's rate of 6.5%, we’re seeing the compounded impact of six-month policies, 85% of our business on six-month policies. So we’re really starting to see that. Earn the premium line accelerate pretty quickly.

I got it. Looking out longer term, I mean, your auto book has generally provided long-term superiority in underwriting versus industry in a better loss ratio of mixed because of your preferred book. And even with your struggle last year, I think your came out ahead of where the industry was? Where do you think your margin and auto should be versus the industry -- where are you today as you benchmark versus the industry.

Bob, I think in your question you probably gave yourself the right answer and I think you're thinking about this right. I had said earlier on that I felt that when some of the tapes were done for 2016 that we would continue that 3 to 5 point differential between the industry that we would run 3 to 5 points better than the industry in an underlying auto loss ratio basis and it looks like it's about that four point mark. And I think that's right. I mean, we’ve talked about the educators that we ensure being about a risk profile. The homogenate [ph] of the book, the 70 year experience of dealing with a common set of predictable patterns and good actuarial data in science around those patterns. I still think that we should be in that 3% to 5 point better than the industry and then you throw a little more science and all little more data, on top of it. Could it be more, maybe. But I think it's at least that historical improvement over the industry. So when you remove a lot of touching up to these trends whether its [indiscernible] driving or miles driven or demographic patterns are probably all of the above. We feel like we’re right where we should be and where we told the street we would be.

I was going to take the glass up full interpretation, push it even further. I mean, if you does any studies and whether the teacher population does less texting and driving or …?

Yes, actually as you can imagine, spend an off a lot of time talking about that and I think you can go back to cat strips where we talked about its hard to believe that the people who teach students not to drink and drive and not to text and drive, wouldn’t have a disproportionate less likelihood to get behind the wheel and texted. And I still believe that that is true. Obviously, we look at route causes. We look at when distract to driving and more specifically texting is involved with a claim. But as the industry has spend an off a lot of time talking about until police reports, until the stigma of distract to driving, reaches that of Life, operating under the influence of either drugs and alcohol. It's not an exact science, but I think with all this attention, I mean actually it's distracted driving awareness week here in Illinois. Just all the [indiscernible] on the news, all the attention of the industry groups is on this issue. So rate will be the answer until a more systemic answer is more a broad based. But I think you’re absolutely right. I think our teacher population would be less likely to have a risky behavior behind the wheel, which is probably why our loss ratio is consistently better than the industry.

Thank you for your answers.

You’re welcome.

[Operator Instructions] Our next question comes from the line of Matt Carletti from JMP. Please proceed with question.

Hey, thanks good morning. Just wanted to follow up on Bob's kind of questioning on auto. I guess. Marita the question is, as you think about your auto business longer term, with the benefit of a few years to let the rate earn through and things like that. If we normalize a normal cap, no development. What do you view is the boggy for the combined ratio for that business? Is it kind of high 90s where it's been in the past, is it breakeven, is it better than that?

Yes, I mean, we feel very confident in the point we put in the 2017 plan and I think ran through that Math. And longer term that targeted high 90s combined is probably where we need to be. One of the benefits, the big benefit of Horace Mann is, how much we cross-sell on the property side of the house and that these are total accounts. But even beyond that the multiline model and what we’re seeing on the strength of the retirement side and now the strength of the Life side. It's a multiline model where our agents are skilled in that and then you see that come through in the retention. So not only attracting those customers, but retaining them at a much higher level in the ballast that our earnings get from that multiline model is quite accretive to us. But I feel confident that we can achieve that high 90s combined ratio on the auto and with the right way the rest of the book is performing, I think that’s a pretty good result and drives the targeted ROEs that we’ve been talking about.

Yes, that makes perfect sense and I agree that’s a good target. I guess, the -- my follow-up question that would just be in terms of given that dynamic of the bundle product I think we agree that there is you have a stickier client set. In terms of pricing in auto, do you feel you’re at the point where you’re kind of at that edge of elasticity that if you pushed more quicker, you would really start to impact retention or do you think if need be you have that lever to pull? Because I think I’m just trying to get a feel for is this just going to be a -- I’m picking a number here, three year process, something like that to get sub 100 on that auto combined or if need be [indiscernible] accelerate a little harder there or do you think it would really impact retention from this point?

I mean it's an interesting point in time question. What we think now versus what we thought a year and a half ago is much different. I really look to the amount of rate that we've been able to push in the book and to build commentary are getting in the book with 60% already baked. We targeted an eight, we’re probably getting something closer to a nine. You know the problem is the trends for the industry continue, other companies and you've seen it and heard it and you'll hear more that I'm sure this quarter as well that the companies are pushing hard for a lot more price and filing a lot more rate increases to cover that trend. So, for us our frequencies are flattening out. When you take weather out it -- out of it, like we said in the script low mid single-digit. Severity is relatively flat. I think you're starting to see those rate increases earn in and this starting to work its way through the auto industry. So I'm optimistic that we can get this book back to where it would more typically perform, but we also take some confidence in seeing ourselves continue to have that margin better than the industry at that 3 to 5 point mark. So I think your question is more of an industry question than a Horace Mann question, because we continue to keep that delta of our performance in our auto book. Sure it's a much higher level, but we continue to outperform the industry. And I don't see any reason in the data why we won't continue to do that.

Okay. Thank you for the answers and best of luck rest of the year.

Thanks.

There are no further questions in queue. I’d like to hand the call back over to management for closing comments.

Thank you everyone for joining us this morning on Horace Mann's first quarter earnings call. If there are any further questions, please don't hesitate to reach out to me or Kristi Niles. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.