Good morning and welcome to Horace Mann's Third Quarter Investor Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Heather Wietzel, Vice President, Investor Relations. Please go ahead.

Thank you and good morning everyone. Welcome to Horace Mann's discussion of our third quarter 2019 results. Yesterday, we issued our earnings release and investor supplement. Copies are available on the Investor Page of our website along with our investor presentation which was posted this morning. Our speakers today are; Marita Zuraitis, President and Chief Executive Officer; and Bret Conklin, Executive Vice President and Chief Financial Officer. They are in two different locations. Joining Marita in Bermuda for the Q&A is Bill Caldwell, EVP Product. Bret is here in Springfield along with; Matt Sharpe, EVP Strategy and Business Development; Wade Rugenstein, EVP Operations; and Ryan Greenier, VP Corporate Finance.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 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 news release and SEC filings. In our prepared remarks, we use some non-GAAP measures reconciliations of these measures to the most comparable GAAP measures are available in our news release.With that I'll turn the call over to Marita.

Thanks Heather. Good morning everyone and welcome to our call. Last night we reported third quarter core earnings of $0.64 per diluted share more than double last year's result. Our annualized core ROE was 8.3%. These results show that our deliberate actions to enhance our value proposition to the education market including important strategic transactions are taking hold.We are on a path to accelerating shareholder value creation and substantially growing our education market share. I'll talk more in a minute about how we're leveraging our leadership position in the education market to become the financial services company of choice for all educators.But first, let me touch on a few highlights of this transformative year. Most notably, NTA became a part of Horace Mann at the start of the third quarter as the supplemental segment. In its first three months NTA contributed $6.9 million in earnings with a solid pre-tax profit margin in line with the level of profitability, we anticipated.As we've discussed the stable contribution of the supplemental segment will provide important sales and earnings diversification. We're very pleased with the first stages of our integration efforts which have been bolstered by the fact that both companies are working from the same foundation a mission-centric culture dedicated to serving educators.As we've noted before, we are undertaking a thoughtful staged approach to our cross-sell strategy to ensure we're building sustainable growth. More than half of the Horace Mann agents have been appointed to sell supplemental products and are working to integrate the new products into the sales process.We expect an additional $5 million to $7 million of incremental annual earnings by 2021 from cross selling the supplemental products to Horace Mann households. We're also kicking-off the first steps to reach some of the NTA customers with PNC products during the fourth…

Thanks, Marita, and good morning everyone. As Marita noted, the $0.64 of third quarter core earnings demonstrate that we are better equipped than ever before to meet the financial needs of educators. Our transformative efforts in multi-year initiatives focus on improving our products, distribution and infrastructure have resulted in a larger, more diverse company with a clear path to a double-digit ROE.This is the first quarter that National Teachers Associates or NTA is included in our results as the supplemental segment contributing $6.9 million or $0.16 per share to core earnings. This aligns with our expectations for a 12 million to $14 million contribution in the second half of this year. Although, we are not providing historical earnings information for NTA, these results do align with their performance before becoming part of Horace Mann.In our ongoing business segments, results were solid. Underlying P&C profitability remains on track. We also continue to benefit from the significantly reduced interest spread risk in a retirement segment following the reinsurance transaction earlier in the year. In life profitability remains strong.I'm going to begin with a review of segment results and outlook, before I summarize the details of our updated EPS guidance for 2019. Let me start with the new supplemental segment.Supplemental added $32.9 million in premiums and contract charges or 14% of our third quarter total. Net investment income on the supplemental portfolio was $3.7 million. Due to its strong profit margin, the segment contributed 25% of core earnings illustrating the diversification value it brings. Premium persistency was 88.9% with almost 300,000 policies in force. As we've said, premiums for this business are relatively stable quarter-to-quarter.The benefits ratio was a healthy 44.7% for the quarter with the operating expense ratio at 28.2%. These ratios generally align with our go-forward expectations, but we'll give color…

Alison, I think, we're ready to poll for questions.

All right. Thank you. And we will now begin the question-and-answer session. [Operator Instructions] Our first question today will come from Matt Carletti of JMP. Please go ahead.

Hey! Thanks. Good morning.

Good morning.

Good morning, Matt.

Marita, I was hoping you might be able to just remind us or kind of walk us through your updated thoughts now with NTA closed and on board of more the logistics.And how we should expect to see the cross-sell start to take place in terms of, the ease of licensing or additional licensing or lack thereof of legacy Horace Mann agents to sell NTA products and vice versa?

Yeah. If you don't mind Matt, I'm going to let Wade jump in on that. He has been front and center on our integration efforts. And I know he has some specifics that he's like to share. And then, I can come back…

Okay.

…and then add anything for the top if necessary.

Great.

Hi. This is Wade. As far as integration the expression we continue to use as the top of sales integration and the first priority is, to get the Horace Mann agents appointed with NTA and start that process and in the second phase of that will be getting the NTA agents up to speed on the Horace Mann projects.So I think that's gone really well. We made a lot of progress since close and to now. And still work to be done. But a lot of energy within the sales force. And I don't know Matt if you want to comment on that a little bit more.

Thanks Wade. Yeah. Matt it's Matt Sharpe. How are you this morning? One of the things to consider was we already had an established sales force within NTA, so they have a couple of hundred agents that are already selling. So the priority of the integration was to make sure that we didn't disrupt that sales force in any way and maintain the sales momentum that we had going on with NTA.The second phase of it was licensing appointing all of our agents, educating them on the products and starting to integrate those products into the sales process. And that's going to take some time.As Marita mentioned in her opening comments about, half of our agents already appointed. And the vast majority of them already possess the license to sell the products. So it's just a matter of working our way through the field force, during that training and integrating that product into their sales process.

Okay great, very helpful.

The only thing I'd add Matt -- if I can just add to that when we think about the role that we put Wade in early on, some of the benefit there was by having him initially over all technology for the organization and now overall operations. I think we got a running start on connecting the wires that need to take place in most integration efforts having done many of these in my past.There is a fair amount of time in connecting companies because we're both in a common space with a common mission doing work site marketing in the schools for as long as we both have the connection of the value propositions in the culture were easy, but there's still a fair amount of infrastructure and systems and operational synergies in connections that need to take place in any integration.By having Wade involved in that early, quite frankly, even right before and during close, we had time to do a lot of that work. So, I think we get a running start. So, that -- to your question we can immediately focus on how we drive that cross-sell and Matt said it well. The idea was first do no harm right. We want to continue to grow and do well in the supplemental products but quickly turning it to how do we take advantage of the cross-sell opportunity. But it's exciting to me that we did get a running start on the integration.Matthew John Carletti JMP Securities LLC Research Division - MD and Senior Analyst 10Okay, great. And then just a more of a numbers question still on NTA. I mean we obviously got the quarterly financials. Can you give us a little bit of color on kind of what we could this order of magnitude kind of what sort of sales growth has been kind of the baseline there since we don't have the year-ago to compare against?

Yes, I think from a historical perspective, we've had a little growth from 2018 to 2019 in the third quarter, continue to have a very healthy sales pipeline, and interest in the product. So, third quarter is very normal quarter for us and continue to have good momentum going into the fourth quarter.

And maybe just -- this is Bret. To tack onto what Wade shared, obviously, the first time for the supplemental coming-out party if you will and very pleased that what we've been talking about to analysts investors is actually showing up in the numbers and you can literally see the diversification in the business mix that that brings to the Horace Mann consolidated financial picture. So, the increase in the top line and the ROEs that segment provides is exactly what we hoped it to be with more upside to come.Matthew John Carletti JMP Securities LLC Research Division - MD and Senior Analyst 13Okay. And then one last clarification question just so I make sure to about this right way the when you guys give your ROE guidance the basis or the denominator and that we should use so reported not tangible book, but ex-unrealized gains on the fixed income portfolio, is that correct?

That's correct Matt.

Great. Wonderful. Well, congrats on having NTA on board and best of luck going forward.

Thanks Matt.

Thanks.

Our next question today will come from John Barnidge of Sandler O'Neill. Please go ahead.

Thanks I appreciate your comments. Sorry excuse me -- the New York and SEC inquiries and you have no low no surrender charge transparent pricing. Can you kind of talk a little bit about how we should be thinking about? This is actually an opportunity to accelerate some of the consolidation that's been going on the education market. And obviously Horace Mann does multiple products across the spectrum.

Yes, John it's Marita. I'm glad you asked the question the way you asked it because that's exactly how we think about it. Obviously, we're well aware of the articles that appeared in The Wall Street Journal. They seem to describe the inquiries into compensation and sales practice. You mentioned it. We have had no inquiries from the SEC or New York. Horace Mann is in most states offering 403B business, but we're not in New York.And we actually as I said very clearly in the script, we actually appreciate efforts that provide what we consider greater transparency into multiple ways in which retirement products are offered in our education market.Horace Mann has offered tax-deferred annuities since 1961. That's actually when Congress first allowed those products to be sold. We recently introduced as you know 403B7 open architecture to mutual fund platform we called it Retirement Advantage. Two-thirds of our annuity account values are actually in fixed accounts which I think speaks to the nature of our conservative retirement planners in the education space.We have over 75 years' worth of history and changes to products and process in response to regulatory changes are kind of natural for us and we evolve we sort with the DOL, we sort with the SEC changes and we'll continue to do that if necessary.But I think what's really key is the Horace Mann sales approach. We work with educators holistically on solutions and not just providing an individual product. Our agents or paid on an asset-based fee for enrolling the educators. We don't offer proprietary mutual funds. Our only proprietary product is a stable valued fixed account investment option that we offer in that 403B retirement platform.You mentioned no loads, no surrender charges and our fees for the product are well under 2%. So, we believe that positions us well. This is what we do. This is what we've always done and we believe the way we sell our products and the transparency that we bring is important there and we believe in choice for educators. It may be a little trite to say when companies compete the consumer wins.But in this case we think that we stack our product and our approach up well against the competitors and we're glad that there is choice and potentially more transparency out there. A lot to unpack but it's an important question so I'm glad you asked it.

Okay. And we will move on to the next question. And we have Gary Ransom of Dowling & Partners. Please go ahead.

Yes good morning. I wanted to ask about the underlying auto loss ratio which if I look at past trends and maybe even consider seasonality is much better than you might have expected and I just wondered if there was something going on there.

Yes, Gary it's Bill. I'd say we've been working on this for quite some time. When I unpacked the frequency and severity frequency is down slightly we would have expected that to be more flat. So, we are seeing favorable frequency and severity although elevated over prior years isn't as high as some of the other companies.Our competitors talking about social inflation again we work in a niche. We're not selling commercial auto policies. We don't have a ton of super high limits and we've taken a lot of actions in the states where this is originating from namely Florida and Georgia.Our Florida base has shrunk nearly two-thirds in terms of policies over the last couple of years. So, yes, we are above where we are beyond where we thought we would be, but it's because of the strategies that we put in place over the last couple of years.

So, it sounds like the underlying loss trends were good size contributor as well. Correct?

Yes.

Okay.

Yes, the combination of the favorable frequency and better-than-expected severities.

Thank you. Another question is on catastrophe guidance. You gave us some guidance that didn't seem to include a real big number for the fourth quarter and I just wanted to make sure you had in your mind all the storms that happened in October and what anything that might have happened in the wildfires. More recently that was all in consideration when you gave that guidance. Is that also true?

Yes, Gary, clearly we know what happened in October. That does not change our guidance. When you think about the wildfires that have recently occurred, I will put these in the bucket of typical wildfire loss. As you know tend to be more rural where educators don't live our underwriting drill has been strong historically. The Camp Fire was obviously a lot different. We're seeing that play out in the courts. But as far as the recent fires that we're talking about for the industry hundreds of losses low hundreds versus thousands in the Camp Fire.So, it's just a more typical here for wild fire and we typically don't have losses in these fires. And there was a storm in Dallas. But that was immaterial to our earnings in October. So, that is in our consideration for the guidance.

All right. I guess that's all I have. Thank you.

Thank you.

Our next question is a follow-up from John Barnidge of Sandler O'Neill. Please go ahead.

Sorry I was on speaker. Going back to Slide 6 of the deck, you talked about double-digit core ROE 2021 and beyond. That suggests an earnings power well above current consensus apps and a special dividend. Am I thinking about that correctly?

You want to repeat your exact comments again John. This is Bret.

So, Slide 6 potential double-digit core ROE 2021 to 2025 consensus exists for 2021. The double-digit core ROE would be suggestive of an earnings power of the company that's well above what consensus is expecting. Am I thinking about that correctly?

No, I think you are in a couple of things. Obviously, we've got some as we came out at the with our last dividend notice with the expense synergy goals that were baked into our future guidance that's one piece of it.Obviously, just bringing NTA a board into the family now itself doing nothing with that was going to add an additional 1% of ROE. But I think there are several things that come into play out in the 2021 to 2025.Obviously, we're not content with just hooking the company up if you will. There is cross-sell opportunities that as Marita have mentioned in her prepared remarks the $5 million to $7 million for 2021. I would say that's probably on the conservative side and that's just -- as Matt was talking about and Wade having our agents if you will sell the NTA products first, but then there is ultimately NTA selling the Horace Mann products. So, there is I think aspect of going out in the future and then also just growing our current book of business.Now that as Bill mentioned we've been working on the profitability of the auto book for several years and we've got back to a point that it is generating the 10% ROE which had not been in the past. So, kind of combining you could certainly see what the ROE of the supplemental segment coupled with the P&C segment and then future growth of the book that we have today is going to get us to that double-digit ROE in the future.

Yes, this is Marita. The only thing I'd add that Bret that was a good unpacking of the ROE picture. In the investor presentation that directional ROE slide only included those components that we have already in slate. That directional slide included no growth and as Bret said now that we look at our products being accretive to that ROE growth is on top of that trajectory that we included that we didn't include in that chart.So we feel that when we think about the phases of our strategy that first phase being the fix and build phase where we built product where we improved solutions to our agents, where we modernized our infrastructure, and drove some efficiencies that we're now able to see some of those expenses coming out allowed us to really look at 2019 and into 2020 as that transformative stage where we take advantage of the acquisition of NTA and BCG the reinsurance transaction to derisk the portfolio and fund for the NTA transaction and then obviously the work that we're doing to improve our infrastructure.I think it positions us extremely well for that next phase which we refer to as the growth phase and when we look at unpacking this ROE, it includes all that hard work we've done and doesn't yet anticipate the growth that we know is clearly there at that next phase of our journey.

[Operator Instructions] Our next question will come from Freddie Sleiffer of KBW. Please go ahead.

Good morning. My first question is just on auto and apologies if I missed this earlier, but what average rate increases are you still putting through book and are you seeing these accelerate or decelerate quarter-over-quarter?

Our rate plans for this year is mid-single-digits in auto and we will meet that plan and I would say categorizing next year, we're starting to see deceleration in rates. Rates will be less than 5% next year.

Okay, great. And then just moving on to supplemental the mobility and operating expense ratio has come in much lower than we were expecting these a good run rate for model going forward or should we expect some seasonality in results?

No, I think what was included in the results are the run rates. I think even in my prepared remarks the pretax profit margins 20% plus so no significant changes there with respect to the run rate of supplemental.

Okay. And then just following up on that given the strong loss and expense ratios is there a regulatory limit on how low these can be?

This is Wade. It's something we monitor. There is not a limit in terms of our products. It's something that we keep an eye on and it's pleased with the results and there's a lot of good work that goes into getting those resolved all the way through the sales process and to how we administer the policies.

Okay, great. That's it. Thanks for the answers.

Next, we have a follow up from--

Thanks Freddie.

And we have a follow-up from John Barnidge of Sandler O'Neill. Please go ahead.

Sorry I was on speaker. Going back to slide 6 of the deck, you talked about double-digit core ROE 2021 and beyond. That suggests an earnings power well above current consensus apps and a special dividend. Am I thinking about that correctly?

You want to repeat your exact comments again, John. This is Bret.

So slide 6, potential double-digit core ROE 2021 to 2025, consensus exists for 2021. The double-digit core ROE would be suggestive of an earnings power of the company that's well above what consensus is expecting. Am I thinking about that correctly?

No, I think you are in a couple of things. Obviously we've got some as we came out at the -- with our last dividend notice with the expense synergy goals that were baked into our future guidance that's one piece of it, obviously, just bringing NTA a board into the family in and of itself doing nothing with that was going to add an additional 1% of ROE. But I think there are several things that come into play out in the 2021 to 2025.Obviously we're not content with just hooking the company up if you will. There is cross-sell opportunities that as Marita have mentioned in her prepared remarks, the $5 million to $7 million for 2021. I would say that's probably on the conservative side and that's just -- as Matt was talking about and Wade having our agents if you will sell the NTA products first, but then there is ultimately NTA selling the Horace Mann products.So there is I think that aspect of going out in the future and then also just growing our current book of business. Now that as Bill mentioned we've been working on the profitability of the auto book for several years and we've got back to a point that it is generating the 10% ROE, which had not been in the past. So, kind of, combining you could certainly see what the ROE of the supplemental segment coupled with the P&C segment and then future growth of the book that we have today is going to get us to that double-digit ROE in the future.

Yeah, this is Marita. The only thing I'd add Bret that was a good unpacking of the ROE picture. In the investor presentation that directional ROE slide only included those components that we have already in slate. That directional slide included no growth and as Bret said now that we look at our products being accretive to that ROE, growth is on top of that trajectory that we included -- that we didn't include in that chart.So we feel that when we think about the phases of our strategy that first phase being the fix and build phase where we built product, where we improved solutions to our agents where we modernized our infrastructure and drove some efficiencies that we're now able to see some of those expenses coming out allowed us to really look at 2019 and into 2020 as that transformative stage where we take advantage of the acquisition of NTA and BCG, the reinsurance transaction to de-risk the portfolio and fund for the NTA transaction and then obviously the work that we're doing to improve our infrastructure.I think it positions us extremely well for that next phase, which we refer to as the growth phase and when we look at unpacking this ROE, it includes all that hard work we've done and doesn't yet anticipate the growth that we know is clearly there at that next phase of our journey.

[Operator Instructions] Our next question will come from Freddie Sleiffer of KBW. Please go ahead.

Good morning. My first question is just on auto and apologies if I missed this earlier, but what average rate increases are you still putting through book and are you seeing these accelerate or decelerate quarter-over-quarter?

Our rate plans for this year is mid-single digits in auto and we will meet that plan, and I would say categorizing next year we're starting to see deceleration in rates. Rates will be less than 5% next year.

Okay, great. And then just moving on to supplemental, the mobility and operating expense ratio has come in much lower than we were expecting, so are these a good run rate for model going forward, or should we expect some seasonality in results?

No, I think what was included in the results are the run rates. I think even in my prepared remarks, the pre-tax profit margins 20% plus, so no significant changes there with respect to the run rate of supplemental.

Okay. And then just following up on that given the strong loss and expense ratios, is there a regulatory limit on how low these can be?

This is Wade. It's something we monitor. There is not a limit in terms of our products. It's something that we keep an eye on and it's pleased with the results and there's a lot of good work that goes into getting those resolved all the way through the sales process and to how we administer the policies.

Great, great. That's it. Thanks for the answers.

Next we have a follow up from…

Thanks Freddie.

And we have a follow-up from John Barnidge of Sandler O'Neill. Please go ahead.

Yeah, just going back to your answer on the SEC in New York. I'm just curious do you think this could accelerate consolidation of slots in the schools?

Yeah. John, we obviously have been doing this for a long period of time and it does tend to come in waves. We've seen some emergence to single providers and then back to more of an open enrollment more providers. We have not seen a decrease in our slots. It's been relatively consistent. We don't have a problem opening slots in schools. Again we have a very clear way of bringing our 403(b) business into schools. It hasn't changed. It remains the same. Again I think this is positive for educators and potentially positive for us in that more folks we will think more the way we think, which is transparency and is about bringing clear product capabilities and choice to the educators to supplement their retirement.

What I'm trying to get at is, do you think it could actually be something with, which you could benefit?

Yeah, I mean I think potentially where we benefit is the educators' benefit. I think that when there is more transparency, I think when there is more choice there are less situations where we might be blocked from a particular school that has a single provider. But for us, we keep on doing what we're doing. We have not seen a decrease in enrollments. We've seen an increase. We're happy about our retirement trajectory. The more we build capability, the more we build solutions. The more we provide transparency, the more we provide choice. I think the more we'll be able to continue to grow our enrollments and therefore our assets under management.

Thanks very much for your answer.

You're welcome.

Ladies and gentlemen this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Heather Wietzel for closing remarks.

Allison, thank you and thank you everyone for joining us today. I'll be available by phone if there are any follow-up questions and we look forward to seeing folks over the next couple of months. Our next trip will be into New York next week for the JMP conference, we'll also be traveling with some of the other folks. So let me know if you're interested in a visit as well. Thank you.

The conference is now concluded and we thank you for attending today's presentation. You may now disconnect your lines.