Good morning and welcome to the Horace Mann Second Quarter 2020 Results Conference Call. All participants will be in listen-only mode. [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 second quarter results. Yesterday, we issued our earnings release and investor supplement. Copies are available on the Investors page of our website along with our investor presentation, which was posted this morning. Marita Zuraitis, President and Chief Executive Officer and Bret Conklin, Executive Vice President and Chief Financial Officer will give the formal remarks on today's call. With us for Q&A, we have Matt Sharpe on Distribution; Mark Desrochers on P&C; Wade Rugensteinon supplemental; Mike Weckenbrockon Life and Retirement; and Ryan Greenier on Investments. Before turning 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 now turn the call over to Marita.

Thanks, Heather. Good morning, everyone, and welcome to our call. Last night, we reported second quarter core earnings of $0.67 per diluted share. These results clearly reflect the value we bring to the educators we serve through our solutions orientation, as well as the positive impact of our long-term profitability initiatives, and the transformational actions we took in 2019. They also reflect some unusual pandemic-related effects that make comparisons to other periods challenging. Bret will help distinguish between the positive outcomes of our strategic initiatives and the ways in which the pandemic has influenced our performance later in the call. But at a high level, we are raising our 2020 full-year core EPS guidance to a range between $2.80 and $3, to reflect the strong first half results. In my remarks, I want to focus on how we are adjusting and evolving our business practices to better meet the needs of a more physically distant educator workforce. For the past 75 years, what has remained constant at Horace Mann is our commitment to supporting educators. Today, educators are facing immense challenges in their professional lives, on top of the challenges the pandemic has caused in all of our personal lives. Whether educators are in schools, at home or working in a hybrid model in the upcoming school year, we're here to help them protect what they have today and prepare for a successful tomorrow. We delivered on that promise this quarter in three ways. First, we helped customers across the country affected by tornadoes and other severe weather, repaired their homes and property. We have regularly noted that second quarter is historically our most costly quarter for catastrophes, but this quarter's weather was especially severe, causing $34.7 million in damage to our customers, in line with the extremely high industry…

Thanks, Marita, and good morning, everyone. As Marita noted, our core earnings were up 4x over last year's second quarter. Property and Casualty core earnings were substantially higher than the year ago period. We're benefiting from the long-term improvements in underlying auto loss ratio that we had achieved over the past few years, but the short-term effect of lower auto frequency due to reduced driving was also significant. Lower auto frequency more than offset the effect of auto premium rebates as well as unusually high catastrophe losses on our property results. The Supplemental business made another strong earnings contribution. The second quarter is normally their lightest for new business, but sales were lower than normal due to limited worksite access due to the pandemic. Annuity contract deposits grew again in the Retirement segment as our educator customer base continues to look for ways to secure their financial future. Our retirement products are just one of the ways we can help them achieve their financial objectives. Our managed investment portfolio has held up well despite this year's economic volatility. The modest sequential decline in net investment income due to the mark-to-market adjustments in the Alternatives portfolio, primarily impacted the Property and Casualty segment. The losses we booked in the second quarter reflected the first quarter performance of limited partnership funds that report on a one quarter lag. As we indicated in yesterday's release, we've increased our full-year 2020 core EPS guidance range to $2.80 to $3. We've raised our expectations to reflect some updates to our assumptions for the Property and Casualty segment, which I'll discuss in a moment. Performance for our other segments remains generally in line with the expectations we described when we announced first quarter results. Looking at the business by segment. For Property and Casualty, core earnings…

Yes, we are ready for questions.

[Operator Instructions] And the first question will come from Matt Carletti with JMP Securities. Please go ahead.

Good morning.

Good morning, Matt.

Good morning.

Marita. I was hoping you could maybe expand on some of the comments you had at the beginning the call about adapting to the current environment and more specifically, maybe talk a bit more depth about how you adapt to selling and what is looking like an increasingly remote environment at least in the near-term, maybe a little bit on how that differs between kind of the existing schools you are in and trying to get in the schools that you aren't in. Are there areas of your book lines of business or otherwise where that's more challenging versus others. And lastly, what - on the other side of this one things get back closer to normal. Do you think you'll be left with tools that will – you will still be able to leverage in that environment or they really just - people prefer in personally just use them while you're remote now?

Thanks, Matt. I appreciate the question. We obviously spent a fair amount of time in the script addressing this, and you spent a fair amount of time asking a very good question. I mean at the end of the day, I think this starts with the fact that we've been doing this 75 years. We've been in there is homogeneous segments serving educators for a very long period of time. And if you think about the changes that have occurred in our country and to the education system over time, we're a company that adapts to a fair amount of change and manages this quite well regardless of the outcome of a pandemic. This is a company that adapts well to change. I mean, our core principle of protecting educators and helping them protect what they have today and secure their retirement is just something that we do, not being pure product purveyors is probably also helpful to us that solution orientation that we provide, we know this space well. We have strong relationships, we talk to educators, we see what they face and we adjust our business model. I mean, let's face it in this kind of environment. We're not alone every business, every individual has to adjust to this very odd set of circumstances that we find ourselves in, and there is a lot of unknowns, but what we do know is that there will be some limit to school access. So what we did is we assumed that we would have little or no access for this entire school year and we've built that into our business plans. We have completely virtualized our sales process. Most of the capabilities were already built. Because of the modernization efforts that we built into our PDI plans, whether it's e-signature,…

Great, that's very helpful. I guess, just one follow-up to that, just you guys are clearly, it sound likes tackling this very head-on and adapting very quickly. Do you have a sense just in general terms, would you characterize your competition is doing the same or are they dragging feet more. They just don't have the tools to do it, because I know a lot of the stuff you guys had kind of underway already before this happened? How would you kind of classify the competition generally on that?

You know, I think what I'd say is, I'm glad we're us. I don't want to speak about competition, but I'll speak about us. I mean, we can pivot now with the addition of our supplemental product line, the things that we did in 2019 to position ourselves. I think we did what we said we would do, and we built a very strong total value proposition for what educators need probably now more than ever. So I believe in our agents ability to respond. I think they are relationships with the schools that they work with and the individual customers that they work with is really important and something that we can leverage. When you think about school Access, we're in half of the buildings across the country, we have relationships, so I am extremely strong, some just beginning. I think it's harder to start a school relationship virtually, but I give us a better shot at doing that because of the relationships we have with the school next door or the relationship we have with the association that someone be it launched 2 or that a teacher moves to we're known in this space. We're number one in the market doing what we're doing with educators, so I give our chances to navigate this environment much higher probability than those that are trying to do it on a single product basis. Many of our agents have full access now. Many of our successful agents don't have physical access. When you saw some of the access restrictions coming from unfortunate school shootings or violence in our school systems we adopted well to that and got through it. So we know the market and I like the fact that we've got a full cadre of products to sell these educators and even more importantly built on solutions understanding what they're facing right now, and I think we all know with what we're watching on TV and reading in the newspaper, it's a difficult environment for them to navigate, and we're here to help them, help them through that and they're turning to us.

Well, thank you very much for the color and best of luck.

Thanks.

Thanks, Matt.

The next question comes from John Barnidge with Piper Sandler. Please go ahead.

Thank you. Can you quantify COVID claims experience it was de minimis but just wanted to figure that out?

Sure, John, this is Bret. I think even taking you back to the first quarter we mentioned, we only had a couple COVID with claims on that side. But through the second quarter cumulative both and first and second quarter, we've had about 24 claims with an average face value of $30,000. So from a $1 amount just slightly less than $1 million and I would also add that when you kind of look at our mortality. The increase in the mortality is actually greater than the prior year. And it's really a matter of fact that the prior year was more favorable than the current year being unfavorable we're actually pretty much spot-on to our plan. But that kind of gives you the magnitude slightly less than $1 million.

Okay, great, thank you very much. My other question I have, there was a comment in the press release about the timeline you would choose some long-term targets may be extended. Can you expand on this a little bit because I know slide deck or Page 7 of the slide deck. It's still has had double-digit core ROE for 2021 to 2025 is there?

Yes I mean the first thing I'd say is, I think it's what I just said, in response to Matt's question, when you go back and you look at the core components of our ROE improvement that we outlined there was underlying improvements are all there almost exactly the way we said. Whether it was the reinsurance transaction to mitigate our interest rate risk whether it was the purchase of NTA to broaden our product offering and improve our earnings, whether it was our auto profitability improvement or the efficiency expense reduction initiatives. Those all added up and to the ROE improvement that we said that we would generate and when I think about how I think about the timeline, it does get slightly extended because of the softness in the topline temporarily that we and quite frankly, the whole industry will experience. As customers get back to whatever the new normal looks like for everyone you'll begin to see those numbers start to increase for us and the industry as we all find our new way and navigate through this. So it isn't, I wouldn't even say it's a pause, I would just say it's an extension in those improvements and I feel really good that we can check those boxes that we outlined as far as our ROE improvement and set ourselves up really well for the next chapter of our journey.

Yes, I guess I would maybe just echo Marita’s comments and we delivered on the ROE that we've set out to achieve in 2019. We are certainly delivering on the one point improvement that we set out to achieve in 2020 and yes we are reaping some benefits COVID related but make no mistake. What we set out to achieve. We are in fact executing on those initiatives that we've put in place and obviously we confirmed our guidance at the end of the first quarter. And obviously, we increased our guidance in the second quarter and to echo Marita’s comment. We feel very good that we're operating from a position of strength. And yes, we are still focused on growth, it may be in more of a virtual flavor to it, but that is continue has been and continues to be the focal point.

Okay, thank you. I'll requeue.

And the next question will come from Meyer Shields with KBW. Please go ahead.

Great, thanks and good morning.

Good morning

I wanted to start by asking about supplemental two quick questions, one is the, behavior policyholder behavior normalizing along with the recovering driving. In other words, are we seeing the magnitude of be impact to shrink month-to-month?

And you're talking the supplemental Meyer just the COVID behavior.

Yes.

Of that group I would say similar to our comments and we talked about it, that we certainly reaped some benefits in the second quarter with having a full quarter of folks may be opting out not to go to the hospital for minor activities that certainly benefited the benefits ratio, but I would say like the auto frequency. There is still uncertainty what the latter half of the year is going to bring there. So we're being cautious with respect to getting ahead of our skis and baking in continual increases in the frequency. Yes there are benefits of frequency, but they lessened as we've moved out in the quarter and really we do anticipate as we talked to you in the script that we would anticipate that those getting back to near historic levels. And probably similar to auto when people delay, sometimes the severity of those claims can go up to. So obviously on the P&C side, auto, specifically we are anticipating frequency return it back to more normal levels, but also kind of anticipating severity to probably have a measured increase as well.

On the supplemental piece I think Bret is right and I think about it, like everything else we see in the world. There is a closer to normal wet level that begins to emerge. But you wonder whether it goes back to a full measure prevaccine right. And that's probably true about everything we see, we see in the world. So we're watching it. You're absolutely right I think people postpone some of these things for obvious reasons. And, but you would expect that post vaccine you would you would assume a more normal run rate. On the sales side of that there's been a fair amount of research done about whether there is also a pent-up demand for the products post pandemic as people think about protecting risk as people think about out of pocket expenses after an event like this. So there have been a fair amount of studies and we are encouraged by the fact that the uptick rate from a sales perspective in supplemental post pandemic might also be favorable.

Okay no, that's positive that's helpful. Should I assume that pricing for supplemental assumes kind of pre-pandemic behavior?

There really has been no change to the pricing methodology or thought process as it relates to supplemental it's pretty, it's pretty standard.

Okay. And then final question on the auto side, so everything that we're hearing the consistent with sort of broader themes of recovering driving. But I was wondering if you could talk about the stability of the trends that you're seeing right now and your ability to respond dynamically when we have things like infection rates spiking in a few states and then maybe a plateauing rather than increase in driving?

Yes Meyer I'm going to actually let Mark Desrochers talk specifically and what we are seeing here, Horace Mann in our actual data in terms of the trends in the driving miles the driving behavior and how it's impacting our frequency severity. He can definitely add some color commentary there so Mark if you want to talk through that would be great.

Sure. Thanks, Bret. Meyer, we track our HM drive data our telematics app pretty closely on a weekly even daily basis watching that data and as we look at the second quarter throughout the quarter. As you heard from other companies we saw a steady increase in miles driven to the point that it's approaching as Bret and Marita both alluded to earlier near-normal levels. But those are different miles than they were from a pre-COVID standpoint. When we look at the data that we're seeing in HM drive what we're seeing is what would typically be a lot of miles say between 7 and 8 or 6.7 in the morning drive a lot more school and then in the afternoon, driving from school that those miles have shifted significantly to be spread throughout the middle of the day. And what we think that's driving is people are driving close to the same number of miles that they were pre-COVID. But those miles being different has caused the frequency while steadily increasing its well throughout the quarter to not increase at the same rate that we've seen the increase in miles driven. The one thing that's really offsetting that is that we have seen somewhat elevated severity throughout the quarter. So - we would typically expect to be low to mid single- digit severity across the board. Now we're seeing more mid-to-high-single digits. We remained concerned, I think as the year progresses, if unemployment rates stay high that we have the potential to see increased [indiscernible] claims that would somewhat offset any benefits that we may continue to see on the frequency side.

And the next question will be from Gary Ransom with Dowling & Partners. Please go ahead.

Yes, good morning.

Good morning, Gary.

Good morning, Gary.

I wanted to ask about the PG&E recovery. Is the $4.8 million portion. Is that just from your 5% sliver, is that how to go about that number?

Yes, that's exactly right, Gary, and then they remainder is the return of the reinstatement premium. So let's come of those two pieces equates to the $8.3 million that we'll recognize in the third quarter okay.

Okay. And I - so if I gross up that 4.8, I can figure out what the reinsurers receive in the process.

Correct, correct.

All right. Yes, I did want to ask a little bit about the severity question that you just you touched upon it fairly just now, but a lot of the companies are talking about the higher-speed, the actual higher impact, it's not necessarily just the disappearance of commuting our fender bender, but the bad claims actually are worse. And I just wondered if you are seeing anything like that as well?

Yes, I'll answer that Gary, not so much believe it or not, when we look at the data in HMDrive. We haven't seen significant increase in speeds of our drivers, obviously we're not immune from the effect of speeding in general that's going on in the highway. So we made - our drivers may not be speeding to the same extent as other companies are seeing, but we certainly run into folks every now and then that have been speeding and we certainly see no increase in debts or severe accidents. So for us it hasn't been as much about a significant pop in and those kinds of accidents, and that may be why we're not seeing severity even higher, which some people have speculated severity could go into double-digits, and we haven't seen that as of yet.

Okay, that's helpful. And on the growth potential. I mean this - and I'm thinking Property & Casualty here, and just getting new business. Everyone is talking about shopping being down generally, but maybe it's starting to return. And I just wondered what you're seeing in that regard. I know you're seasonally different, but as we get closer to the beginning of the school year, are you seeing some opportunities to re-engage and get a little better growth in new business?

Yes, absolutely, Gary. As I mentioned, we did see momentum ramping up, I mean first folks figuring out. They are repeatable sales process the tweaks they have to make, the tools that they have to employ, you kind of have to reinvent as we all are in our daily lives, the way you do things and our agents are quite resilient in doing that and we're seeing that momentum ramp up. I like the fact to your point, retentions are clearly holding probably because of the shopping behavior comment that you made. But what I would say is what gives us an awful lot of confidence is the fact that we are in half the school buildings across the country. We have strong educator routes and relationships, and now we have the ability to cross sell across that total value proposition. Right, we spent on an awful lot of time over the last several years building product in improving our infrastructure and modernizing it and strengthening the tools that our distributors have to serve in this segment, and it's all coming together. So when I look at the opportunity for us to cross sell. Now, I've got a third of my Horace Mann agents already writing supplemental insurance ahead of where we thought we'd be. And I've got 120 or so NTA agents joining us, where that conversion will be complete in the fall, where they will be able to sell Horace Mann products to their supplemental clients. And you know, like we said, this creates, it may be taking a little bit longer than we had originally thought. But make no mistake. Is there. The ability to cross sell the existing clients and then the ability to take the strength and bringing it to the other half of the schools that were not in.

Just a follow-up on that, when you said completed in the fall. Does that mean all the agents will be license complete there the licensing process they need to do?

Yes.

Yes. Okay. Okay, good. And then maybe my last question is just on telematics and just always is there. It has the demand increased for that as we've seen maybe at some of the other auto competitors. And is there a need for an actual by the mild product that you detect in your teacher community?

Yes, Gary.

Yes, I mean, go ahead Mark.

We certainly seen in the second quarter, an increase in HMDrive registered users of about 30% from where we were in the first quarter, and the first quarter growth was about 15%. So we've seen certainly acceleration I think and demand for that product and we continue to look to roll it out to more states as time goes on. And regarding the question on mileage. I mean that's something I think we all need to look at and evaluate, certainly we have more granular rating by mileage in our rating plans, but certainly not and at a per mile basis like I think you're thinking there.

Yes, that's what I was thinking out. Yes. Okay, thank you very much for those answers.

Thanks, Gary.

Thanks, Gary.

And our next question is a follow-up question from John Barnidge with Piper Sandler. Please go ahead.

Thank you. I kind of want to go back to that comment about sequential improvement in sales volume throughout the quarter and into July. I guess, when we get there was a lockdown with July above June was interesting given the dynamics of the traditional summer months. Do you sense like you just kind of rush of demand in July. Well, how does the July compared to a traditional July?

Yes, it is July over July. So it's an interesting question, because the way we think about it is the summer, the same as a traditional summer, right schools closed earlier, our agents typical summer activity didn't really become a typical summer activity. When you think about back-to-school, back-to-school wasn't a typical back-to-school. So we probably did see some smoothing of the role that we typically occur in a normal summer. So, I'll certainly give you that, but we were really happy to see agents remaining in the game, agents understanding that this is a typical environment as it is for all of us and they are continuing to push, like all of us. I think that they are expanding their hours. They are expanding their outreach, their presence, and I think that's part of what we're seeing as well.

That's fantastic. And then my other question I guess you're preparing to have a virtual school year the entirety. And that's probably prudent, but I was curious what percent of your addressable market of $6.5 million [indiscernible] educators has announced the returning to a physical environment in the fall. At least one day a week [indiscernible]?

John, you know, considering that changes daily. I think that under the guys of who knows whether it is Chicago Public Schools, Rochester here, Springfield here, Boston anywhere you look across the country, you get an announcement that we're going to be 100% presence and then there are some cases that shut things down, then you get an announcement there going to be a 100% virtual and they bring some back. At the end of the day, we decided very early on that we weren't going to spend a lot of time and energy on whether schools were back or not. We were going to make a planned assumption that we would be virtual for the whole year plan around that worked really hard on virtualizing our entire sales process, we're really hard in bringing the tools that agents need to do this in a new way, and in some ways it's a forcing mechanism for our agents that might have been somewhat less likely to change their sales process, may be some agents are little more rooted in a traditional face-to-face sales process. Well, now there is this forcing mechanism as we've all learned to resume and other tools that we may not have used in the past that there is a way to do this and do it well. So we're taking the opportunity to virtualize our sales process, so that when there is physical presence, either now in the short-term or eventually in the long-term when physical presence is there it's icing on the cake and not just the cake. So we took that opportunity to say to folks assume that you can't get in and let's be there for the educators, and in some cases, we're finding that we can reach them that they're posting to our online webinars. You saw the increase in retirement sales, there are conservative folks that prepare in times like this, and they are taking our calls.

Thank you very much.

Thanks, John.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you very much, and thank you everyone for joining us today. We look forward to connecting over the coming months. Whether it's virtual, which we're good at or in person, feel free to reach out if you have any follow-up questions. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.