00:06 Good day, and welcome to the Horace Mann Third Quarter Investor Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. 00:34 I would now like to turn the conference over to Heather Wietzel, Vice President of Investor Relations. Please go ahead.

00:42 Thank you, and good morning, everyone. Welcome to Horace Mann's discussion of our third quarter results. Yesterday, we issued our earnings release, investor supplement, and investor presentation. Copies are available on the Investor page of our website. 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. 01:05 With us for Q&A, we have Matt Sharpe on Business Development and Distribution; Mark Desrochers on P&C, Tyson Sanders on Supplemental; Mike Weckenbrock on Life and Retirement; and Ryan Greenier on investments. 01:18 Before turning it to 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 nineteen ninety five. 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. 01:59 I'll now turn the call over to Marita.

02:05 Thanks, Heather, and good morning everyone. Last night we've reported third quarter core earnings of zero point five zero per diluted share, reflecting our continued strong business performance throughout twenty twenty one. In addition, net investment income was up eleven percent on the strength of our alternative investment strategy. In line with our previous announcement, catastrophe losses were above our ten-year average, which drove the core earnings decrease from prior year, along with auto loss costs approaching pre-pandemic levels. 02:38 Our underlying P&C performance remains strong. As we've stated before, our educator customer base is insulated but not immune from larger industry trends. The auto line is reflecting changes in driver behavior that we fully expect it to normalize, and it remains profitable despite rising costs. We have already initiated rate filings to address these rising costs. 03:06 In property, we also continue to see the effects of supply chain disruption, and other factors contributing to higher prices, which we are addressing with inflation adjustments and appropriate rate increases. We will enter twenty twenty two with solid underlying performance and expect to remain competitively priced in both auto and property as we move through the year. 03:33 Bret will discuss each business segment and outlook later in the call, but we expect a strong fourth quarter with zero point six five dollars to zero point eight zero dollars in core EPS, and full-year return on equity, close to ten percent. This marks the steady increase in our ROE attributable to our strategic initiatives and is another strong step towards our long-term objective of a sustained double-digit ROE. 04:01 The third quarter encompasses back-to-school season for our agency force, and their successes were encouraging for our long-term outlook, particularly what it means for expanding our education market share in twenty…

14:23 Thanks, Marita, and good morning everyone. Our third quarter core EPS of zero point five zero dollars reflected strong performance across our businesses as Marita discussed. It is also a testament to the value of the revenue and earnings diversification we've accomplished in recent years. In a quarter where the P&C industry at large was impacted by heavy catastrophe losses, Horace Mann achieved a healthy overall profit and we're on track to deliver record or near-record results for the full year. 14:55 We also expect twenty twenty one return on equity near ten percent moving steadily closer to our target of a sustainable double-digit ROE. Diversifying our business has resulted in steadier, more consistent capital generation which will improve the consistency of our shareholder value creation over the long term. Adding the profitable and growing business of Madison national will further diversify our business and will further enhance the consistency of our capital generation. 15:29 You may recall that to purchase Madison National we will combine excess capital with new borrowing on our expanded revolving credit facility to finance the one seventy two point five million dollars purchase price. When we close our debt to total capitalization will be approximately twenty five percent supporting our current credit ratings. 15:51 After Madison National joins us, Horace Mann should generate more than fifty million dollars in excess capital annually. Looking ahead, we're committed to continuing to build on our successful track record of capital allocation to increase EPS and generate higher ROE's. Beyond supporting anticipated growth, we have several levers to further enhance shareholder value. 16:16 First, there is almost nineteen million dollars remaining on our stock repurchase authorization. Further, we expect to maintain our track record of annual increases in our cash dividend, which is currently generating a yield slightly…

27:30 Thank you, Brett. Operator, we are ready for questions.

27:43 We will now begin to ask question-and-answer session. Our first question comes from Meyer Shields with KBW. Please go ahead.

Thanks, and good morning. One thing that we're trying to get our arms around is just the regulatory friction in terms of getting auto rate increases approved. I was hoping you could sort of just give us your expectations and your experience so far?

28:41 Sure. Let me turn it over to Mark since he's obviously much closer to that. Go ahead, Mark.

28:46 Yes. I mean, obviously, we're in a completely different situation than we might have experienced historically. And it would be difficult, I think, to predict, but we believe there's a number of jurisdictions that we don't anticipate significant regulatory restrictions. And there are certainly others where we do. Notably, California comes to mind. It's a big portion of our book. We expect that to be a challenge. 29:15 However, what I would say there is our rating structure is very responsive to mileage changes. So as mileage starts to increase back in some of those jurisdictions, we do expect to see premium naturally flow back in even in those places we cannot get rate.

29:37 Okay. That actually brings me to my next question. And it's more of a conceptual one. Is there any way of incorporating car values into physical damage pricing?

29:50 I mean, to some extent, they are in there in terms of the original cost new in terms of vehicle symbols, but are you referring to changes in used car pricing and things like that?

30:06 Yes, exactly. Because that seems to have been a broader issue. I don't know if it was issue across the industry. And it's typically less of a problem when the exposure unit incorporates value. I just don't know whether that's feasible?

30:22 I think, it's a good question. It's something it's worth looking at. It's not something we've dealt with. Typically, as an industry, historically, right, where we have seeing these surge in used car pricing, but I get you drawing the analogy to what we might see on the property side, where we can get it through property inflation changes.

30:46 Okay. No, that's helpful. And then finally, I was hoping if you dig in a little bit. If we look at the accident year ex cat loss ratio in property, it was actually to my mind, fantastic. And I was wondering if there was anything unusual in there?

30:59 Well, I mean, we -- as you know, we have a pretty strong performing underlying book that in the early part of the year, we had commented several times on the increase that we had seen in both fire activity and non-weather water losses. And when we look at this quarter, that strong kind of underlying frequency is there, but we also have just less -- we've seen less of the fire in non-water losses, especially the larger more significant ones of those. They can be lumpy from quarter-to-quarter. And we're certainly still seeing, I think, very similar trends to what others are seeing. When you look at the cost of materials and labor that -- on a claim-by-claim basis, those are certainly up, but we saw significantly reduced frequency, I think, in the kind of large fire and large non-weather water losses.

31:55 And Meyer, this is Bret. If I could just add, even when you look at the fourth quarter last year, it's not unusual to be at that lower level underlying. So it's unusual compared to last year for the third quarter, but sometimes property, as Mark said, can be lumpy and have pretty low underlying loss ratios.

32:19 The key point there is that, good underlying profitable book of business that underlies that for sure.

32:29 Right. Absolutly understood. Great. Thank you very much.

32:36 Our next question comes from Matt Carletti with JMP. Please go ahead.

32:42 Hi. Thanks, Good morning. Marita, in your opening comments you termed kind of the back-to-school process, which has happened since we last spoke and I think you said encouraging. I was hoping you could dig in a little deeper there and just give us some color on from a kind of operational or tactical standpoint. What were some of the successes that you walked away and thought that -- things that you put in place really worked? And what might be some of the challenges that you still face in adapting to, I think, as you termed today, a very fluid rebound out of the pandemic?

33:19 Yes, Matt, I think you -- as you usually do, embedded in your question there is certainly the answer. I think, both encouraging and fluid. I think, they're good words. And historically, we've always had variations by geography. But in this environment, I think, those variations are by geography, by district and in many cases, even by building. And I think, we've all seen those variations and fluidity in this kind of environment across all of our lives, quite frankly. 33:50 And I think, this is clearly a time we're having local agents at the point of sale, the strength of our distribution. They've shown their resilience, they've shown their creativity. We talk about outdoor activities. I can't tell you how much has taken place in parking lots. But the fact that we have local people that we're not all trying to do this in a centralized virtual way is really solidifying our strength and our distribution out there. But Horace Mann has always taken a very holistic approach to the educator market. We talk about the sum of our parts is where our strength is, and that's true. 34:31 But when you step back and you really look at what we've done, there is positive momentum. There has been positive momentum. I mean, you look at Retirement, this third quarter the sales were the highest they've been in several years, even including pre-pandemic environments. That means many new customers to Horace Mann, not fully cross sold, but our goal will be to cross-sell them the way we do them -- the way we usually do. 35:02 Supplemental, which was hardest hit by the pandemic, traditionally fully worksite had the best quarter since the spring of twenty twenty when this all started. We're seeing cross-sell momentum in our Life…

37:13 Okay. That's very helpful. No, the color is great. I appreciate it. One other higher-level question for you. I'm just trying to think about -- you mentioned a couple of times, I think, in your comments kind of expanding the TAM or the addressable market for Horace Mann. And so, whether it's in a number of households or dollars of premium or however, you can kind of give it a feel. How do you think about kind of what old Horace Mann, what I mean by that is like, pre-NTA, pre-Madison National, what old Horace Mann's TAM was for lack of a better word and what New Horace Mann's TAM is? And then, some gauge, if you kind of -- what you -- how you guys view your market share currently within that sandbox?

37:59 Yes. Always a really hard question for us. And if you can hold that thought, it really is a big part of what we are working on right now. As we close in on the acquisition of Madison National, as we digest all the learnings from NTA, I get encouraged about more ways to reach educators, right? We know what the K-12 population looks like. And although that waxes and wanes slightly, it's still a knowable number, right? How many K-12 educators out there? 38:34 We have good information on the amount of extended educators that are out there beyond K-12. And then, when you start thinking about others who serve the community, the twenty percent of NTA's business that was firefighters, the new endorsement with the International Association of Firefighters, what that could be and what that becomes. I think the denominator is very clear. And we're working really hard on being able to express the numerator a little more clearly, meaning, what do we have in-house today so that you can start to see the leading indicators a little sooner? 39:14 For example, when we think about Student Loan Solutions and our work with educators on their student loans, they might have a product yet, but they're still in the Horace Mann family. When we think about all the customers that may be single-threaded from just an individual supplemental product. They're in the Horace Mann family, and they are a customer. So building that pyramid up from the foundation. We're dealing with them on a solution, whether it's student loan or DonorsChoose to, okay, now they have their first product. The cross-sell propensity as they work up to be a full customer, we're hoping to be able to give you a little more transparency on that lifecycle of a customer, if you will, and what that total household value is worth to us. 40:05 And as you can imagine, the information and the data we get from NTA and from Madison National with those acquisitions are added to the more robust data work we've been doing on what you call the traditional Horace Mann, now all Horace Mann. And in this environment, folks are entering the family a little bit differently than maybe they have before. So we have the historic data. But think about the ability to have a retirement conversation and the willingness to have a retirement conversation, that might have been a customer that's been in the past entered through the garage, and now they're entering in different way. And we have the data, we're capturing the data, and we're working through that. 40:51 So we can give you much more transparency around that numerator discussion but what we get encouraged about .

41:00 little more detail down the road. Thank you for the answers.

41:14 Our next question comes from John Barnidge with Piper Sandler. Please go ahead.

41:20 Good morning and thank you for taking my question. Can you maybe talk about claims utilization trends for Supplemental? Number of industry participants continue to see some level of tailwind. And so, I'm just curious, where are we on that path of normalizing claims trends?

41:38 Yes. I mean, I don't really think we've seen a dramatic change. Obviously, we saw the pandemic related effects on claims patterns within Supplemental, and that has certainly maybe not gotten back to a more normal level as quickly as we might have anticipated, which obviously is a good thing from a margin perspective. But we fully expect that to return to a more normal level at some point, for sure.

42:15 Yes. And John, this is Bret. If you go back to our Supplemental page in the investor deck, you can see the gradual incline in the benefits paid ratio. South of thirty one percent at the first quarter, slightly above thirty one percent at the end of June and then in the third quarter it was thirty three point five percent. As Marita mentioned, still running below what we would expect. But we are continuing to expect probably an uptick in that in the fourth quarter as well. Here again, who knows when it will get back to normal, if you will. But we are seeing a slight uptick in that ratio quarter after quarter and are planning for that in the fourth quarter as well.

43:09 Thank you for the answer. A follow-up, on that slide around guidance, the alternatives portfolio, is that mid-to-high single-digit quarterly return or annualized?

43:22 That's on an annualized basis, John.

43:24 Certainly, we are -- I think, year-to-date, we're hovering around twenty percent on the alternative or on the limited partnerships.

43:34 Thanks, Bret, that's real helpful. And my final question. I wanted to go back to your commentary about steady progress expected on Supplemental, keeping in mind holidays. Is that suggested that there may be sequential deceleration in sales for the fourth quarter?

43:54 I think we're not declaring a deceleration, but just with the holidays and schools closed it sold in a worksite environment that accesses during the holidays slightly limited. But we were very encouraged in the third quarter with the two million dollars in sales. So -- but we're not saying that there's an absolute deceleration.

44:19 Yes. I mean, there is a natural seasonality to the Supplemental business considering around enrollments. And that's still there, but what I get excited about is seeing an increase in the trend of being able to be there to have the conversations. And that certainly is increasing. It's also going to be interesting to see the benefit and the power of an NTA together with the benefit and the power of a Madison National, and what that means in this space going forward. But I would say, if you took a normal trend to Supplemental sales, that trend is still there. We're just starting to see some of the restriction of a COVID environment easing a bit.

45:11 Thanks for the answers and best of luck.

45:13 Thank you very much.

45:17 Our next question comes from Jeffrey Dunn with Dolling & Partners. Please go ahead.

45:26 I'm sorry, I think, it's supposed to be Gary Ransom, but the -- Thank you for taking my question. I had a big picture question. You've got all these products, there is array of products around the educator. If I postulate a perfect Horace Mann customer that through their life buys all their products from Horace Mann for protection and savings. What does that overall mix of business look like in sort of a present value sense? Are you -- I'm little bit asking Property & Casualty versus Life, but even Supplemental, Life, Retirement within those segments as well. Do you have a sense of that?

46:15 Yes. I mean, we do have a sense of -- when you think about the lifecycle of an educator, what they need, when they need it. And what portion of that we believe we can and should get. So it's a very complicated question that would include our lifecycle chart that we certainly can show to you from studying to be an educator, all the way through Retirement because it's going to -- that answer is going to differ depending on whether you're talking about a twenty year old studying to be a teacher, a brand-new teacher or somebody at sixty getting close to thinking about retirement and what those products are and they change over the lifecycle of that customer. 47:03 I mean, auto is relatively consistent. Most people have a car and they drive, and that would be consistent. But the type of life insurance, the type of annuity product, whether you save for retirement, when you save for retirement, when you think about a need for supplemental products and how they fit, it really is a different answer depending on the lifecycle of the customer. 47:27 And then, we can take that one step further and say, in the entire population, what does that mean as far as how you would split up the size of the company by those pieces, as well as the margin that we would expect by those pieces. And I suspect that's really where you're going with that question. But it's a more complicated answer than a quick response on an earnings call. But that's how we think about it. 47:56 We have a pretty clear view depending on what pocket you fall into, what we should be doing with you. And then, what economic value we believe we should get from that type of educator.

48:10 I guess what I was getting at a little bit is, I was -- I'm sensing that overall those lifecycles, the Supplemental, Retirement products will get more -- become more important over time. And I -- whereas, as you said, auto and property are sort of stable and thinking that those might over the long run grow faster. I don't know if I'm off the mark on that, but --

48:37 No, I don't think you're off the mark at all. I mean, we would hope that as the need for those products, and we're clearly seeing it both on an individual level and a district level as the need for those products become more evident and more robust, especially as districts are trying to solidify their benefits packages to attract and retain educators as you can imagine in this environment, right? I think, that's why we get very encouraged about building the strength of our offering with the addition of NTA and now Madison National that we've got the whole gamut covered. 49:21 And as we can bring more -- as we can build those products that both districts and educators need in their retirement. Potentially, you might see, and I alluded to this in a response to an earlier question, a slightly higher percentage of educator starting their relationship with Horace Mann through a retirement account that maybe might have been a little bit higher entering through the garage. And that's okay. We'll have the ability to be able to cross-sell those accounts and why we're encouraged that many of the retirement deposits that we saw in this very strong quarter, many of those are brand-new Horace Mann customers, which we will have the ability to cross-sell. 50:06 But I agree with you. I think districts, especially are to retain them.

50:22 All right. Thank you. And just switching quickly over to auto. You said along the way that your rates are more sensitive to miles. I just wanted to make sure I understood what you meant. Is that classification upon renewal? Or are you referring to your telematics offerings?

50:43 Yes. That's specifically, Gary, around our renewal classification, right? So as policies renew and we revalidate mileage, the pricing will move and probably most significantly across the country in California.

51:01 Got it. Okay. And then one more on auto. As you start to take rates, I'm just trying to get a sense of whether the rates you are taking are, in fact, what you think is the required rate for the average time of claim out there, six months or whatever the time is. And as opposed to doing it with little smaller steps and purposely trying to not disrupt and taking in a couple of bites instead of going all the way. Is -- are you -- do you understand the question? I'm just trying to see if you're taking it all you think you need right now.

51:49 Yes. I think, it's a great question. And before I turn it over to Mark. I do want to just -- from an industry pressure perspective, I want you to remember that we weren't the company or a company to do lower rates or to ramp up advertising costs to increase sales, right? We're not -- we don't address this as a pure auto play, because we have a holistic approach, because we have the sum of the parts, the delta of what we're talking about here is much smaller for us than it may be for some other pure auto players or large auto players. And I think it's important for us to remember that because we tend to be -- we tend not to sell on price. So therefore, we get our fair share. We realize that price is important, but we tend not to wax and wane as much as the industry does on this issue. So when we talk about being insulated, but not immune, that's what we mean. 52:53 So Mark, I don't know if you want to answer that question specifically.

52:56 Yes. I mean, specific to the question about rates and do we take it all in one big chunk. Generally, our pricing philosophy is try to be slow and steady. And to Marita's point, if we had not been in a pandemic over the course of the last eighteen months to twenty four months, we may have been taking two or three points. Just to keep up with normal inflation, because we don't really want to be in a position where we have to take significant rate increases. 53:24 Now, does that mean jurisdiction by jurisdiction will be the same? No, there are other jurisdictions we need more rate and it may take a little bit heavier approach there. But we want to be cognizant, I think, of two things. One, retention is important to us and growing our book of business through both new business and retaining our book is a key area of focus. So if we have to temper some of those rate increases in the places maybe we need a little bit more, then that may make more sense in the long run from a financial perspective. 54:01 And also, to some extent, we're reacting to the trends we're seeing. And you listen to what all the other companies are saying, you follow the industry that this is an unprecedented situation. It's a little difficult to predict exactly what's going to happen. I think, we're in a position now from an overall loss cost standpoint. That's probably where we thought we would be in the first quarter or second quarter of next year, and that's when we thought we'd need to take rate. That's kind of been a little steeper, a little faster than we thought. We're starting to take those actions, and we'll have to watch to see how it emerges. 54:37 If we jump and immediately react to some of the significant trends, and then, we see things start to flatten out or even reverse a little bit. We don't want to be overpriced either. So I think steady and cautious is the way to go. But certainly, looking to be a little bit more aggressive than we might be in a normal year where we might be thinking about two or three points.

55:03 As well as our long track record of being conservative in our picks. I mean, you can go back and look. We are not a company to have significant surprises, right? We worked really hard on the profitability initiatives that we had in place prior to the pandemic, and those are there, and we are seeing them. And to Mark's point, we knew we would be here. We planned to be here, and we've already begun to take the appropriate action that we knew we'd be taking at the appropriate time. We have a profitable book of business with a profitable, predictable homogeneous niche. We are not in some of the more problematic places like a Florida and to a great extent. So we feel good about our ability to navigate the place we knew we'd be.

56:03 Thank you very much for those answers.

56:05 Thank you.

56:10 The next question comes from Greg Peters with Raymond James. Please go ahead.

56:15 Good morning. All of my questions have been asked. I guess the final question that hasn't been really covered. I know you guys have been working on improving your operational efficiency across the franchise. The expense ratio was up in your Property Casualty business. Can you just give us an update on sort of how you're approaching overhead across the footprint? I know you're investing in your business, but just some updated perspectives would be helpful. Thank you.

56:43 Sure, Greg. This is Bret. I think with respect, I wouldn't get overly excited about the expense ratio being up for just the quarter. That will go up and down with the timing of several expenses. And I would say, we've typically guided to around the twenty seven percent expense ratio. And don't really see that changing. Obviously, I think we do a good job of managing the expense ratio from an operational efficiency standpoint, that work continues and will continue even well into next year. We're adding another company to the fold. And obviously, we're going to ring out some of the efficiencies there as well. 57:32 So that work as we get bigger and into different lines of business, we're very cognizant of making sure that we're bringing these operations together in the most efficient manner possible. So it's ongoing, but I think we have always guided to around a twenty seven percent expense rate.

57:55 Yes. And we are proud of our expense picture. The fact that a company of our size can absorb acquisition and integration costs, the fact that we can absorb major technology advancements like the implementation of Guidewire, I think it says a lot as to who we are as a company. And I'd also say that some of the decreases that many of us have seen as it relates to travel and entertainment in a pandemic environment. Taking some of those and using them to advance your digital capabilities and your digital road map I think is a wise investment as well. So Bret is right. We have a target. We're holding to that target, but I think we're also thoughtfu,l as to how we advance the company and use the dollars wisely.

58:41 Got it. Thank you for fitting me in.

58:44 Thank you.

58:49 This concludes the question-and-answer session. I would like to turn the call back over to Heather Wietzel for closing remarks.

58:55 Thank you, and thank you, everyone, for joining us today. We look forward to talking again soon. Just as an update, we are looking forward to our Raymond James Virtual Conference next week and JMP Conference Virtual the following week, and we do expect to be doing virtual meetings with Piper in early December. So if you'd like to -- look forward to talking and hope we hear from you. Have a great day.

59:23 The conference is now concluded. Thank you attending todays presentation. You may now disconnect.