Good day and welcome to the Horace Mann Educators Q4 2022 investor call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw from the question queue, please press star then two. 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 fourth quarter and full year 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. With us for the Q&A, we have Matt Sharpe, Mark Desrochers, Mike Weckenbrock, and Ryan Greenier. 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 investor supplement. I’ll now turn the call over to Marita.

Thanks Heather, and hello everyone. In line with our pre-announcement, last night we reported full year 2022 core earnings per share of $1.09, which included a fourth quarter core loss of $0.11 per share. Inflation’s continued pressure has driven escalated industry-wide loss costs and resulted in disappointing results for our property and casualty business. I’ll spend much of my time today unpacking how we are meeting the challenges facing the P&C industry. After that, I want to discuss and pivot to the substantial progress we achieved on the growth initiatives we laid out a year ago in conjunction with adding Madison National and expanding our educator value proposition to fully meet the needs of both educators and school districts. Sustained growth across both our retail and worksite divisions will be the most accurate predictor of our company’s long term success. Over the course of 2022, we made important progress against our plan, leveraging our leadership position in the education market to increase sales and build relationships, in other words to expand our share of the education market. In 2023, we will build on these successes, leveraging our sales momentum and distribution partnerships while resuming our trajectory towards our long term goal of a sustained double-digit return on equity. Bret will discuss the details of 2023 guidance later in the call, but at a high level, we expect core earnings per share to double over 2022 and be between $2 and $2.30 with return on equity rising to 6% as we head towards the double-digit ROE we expect for 2024. Our guidance anticipates a solid contribution from the worksite business with benefit ratios in that business moving closer to our long term targets: year-over-year improvement in life and retirement business, even as spreads compress, and a return to profitability for the…

Thanks everyone for joining our call today. Marita gave a thorough summary of the challenges of 2022 and what we are looking forward to achieving in 2023 and beyond, so let me go right into the details by segment, starting with P&C. The loss for the P&C segment for the quarter and the year was in line with our preliminary announcement and largely due to the impact of inflation on loss cost. In addition, net investment income for P&C reflected a total limited partnership return of 7.9% compared to 20.3% in 2021. This year, the contribution from LPs in this segment began trending upward in the third and fourth quarters, in line with the overall recovery in this sector. Turning to the underwriting results, total written premiums rose 4.7% this quarter compared with last quarter’s 1.6% increase as we begin to see the benefits of the rate actions that have been implemented to date. Retention remained very strong, rising for both auto and property with strong auto sales coming largely from states where we’re most confident in the outlook for pricing. I’ll address the auto and property books in a moment, but we will certainly see the growth rate in total written premiums accelerate over 2023 and 2024 with earned premium growth following. Full year cat losses contributed 13 points to this year’s combined ratio versus 12.7 points in 2021. Fourth quarter cat losses included Winter Storm Elliot, which spanned more than 30 states. For our 2023 guidance, our cat loss assumption equals about 10 points on the full year combined ratio - that’s our 10-year average, which aligns with the calculation based on historical frequency and a modeled increase in severities due to inflation, partially offset by a model decrease in exposures. In the investor presentation, we have provided…

Thank you. Operator, we’re ready for questions.

Thank you. We will now begin the question and answer session. [Operator instructions] Our first question comes from Greg Peters with Raymond James. Please go ahead.

Hey, good afternoon. This is Sid on for Greg. Just wanted to touch on the personal auto side of things. Starting to see used car prices come down a little bit, and understand it’s just a portion of loss trends, but maybe you can comment on if you’re expecting to see any moderation in severity through 2023 and if that’s baked into the 106 to 107 auto combined ratio or if that’s just rate increases and underwriting actions getting you to that.

Sure, this is Mark. I think as we’ve gone through the pandemic, it’s been quite a challenge to project loss cost trends, both for Horace Mann and the industry. We saw quite an unprecedented level of frequency drop at the height of the pandemic, but as we’ve all seen, quickly followed by inflation that we haven’t seen in probably three to four decades at the same time, with frequency starting to increase back towards pre-pandemic levels. With that being said, we have seen some moderation on the physical damage side of things when we compare the first half of the year to the second half of the year, but those trends still remain above what I would view as kind of the long term historical levels, and our expectation going into 2023 is that they will continue to moderate but remain above the historical levels, which is why we’ve focused a lot of our activity on the rate actions that both Marita and Bret described, and we have a slide in our investor deck on Page 14 which lays out how we think rate’s going to flow in country-wide throughout 2023, which is going to produce about an overall 18% to 20% increase throughout 2023, and that’s on top of the 5.4% that we raised rates during 2022. In addition, I would comment on additional non-rate actions that we’re taking, whether it be discount verification, mileage verification programs, more aggressive new and renewal underwriting, as well as some actions we’re taking in claims to ensure that we’re utilizing our internal staff and our preferred shops to adjust physical damage claims to get the best possible outcomes.

Yes, and specifically to your question on used car prices, Mark’s pricing models, the team’s setting of picks for our coming year would include their anticipated number around used car pricing. It bounced a lot during the two years of the pandemic, and certainly last year as well. Information is readily available and we use that in our pricing models, for sure.

All right, thanks for the answer.

Yes.

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

Thank you very much. In your prepared remarks, you talked about utilizing third party partners more for P&C. How could this look, and maybe how material of the in-force could it impact? Thank you.

Yes John, hi. Good question. I can turn it over to Mark for some of the specifics, but just very high level, if you remember several years ago, not too long after I joined the company, we started a concept called the Horace Mann general agency, and that concept was really around the theory that it didn’t make any sense for us to say no to an educator, for example if they had an antique car, if they had a summer cupcake business and needed a BOP policy. If they were a non-standard auto customer, if it really wasn’t within the conservative and tight underwriting framework of a Horace Mann, we could rely on other carriers and still keep the customer within the Horace Mann family, especially as it related to P&C, because as we say over and over again, we’re not just a P&C company, we’re an educator company. If the independent agent that we would send them to by saying no is any good, that independent agent is going to say, when was the last time somebody asked you about your life insurance, can I help you with an umbrella policy, or whatever the case may be. That early concept got us to a pretty decent size of premium with third party carriers. We leverage a lot of carriers, whether it’s high valued home, whether it’s non-standard auto, and that worked well for us. The concept has broadened a little bit as we think about is there a way in which we can broaden that in these types of environments when even a standard customer might be a customer that, for whatever reason in a given state, call it scale - you know, we use the example of Rhode Island. When you’re writing K through 12 public educators in the State of Rhode Island, that’s not a large set of customers, would we be better off relying on industry data and companies that have bigger scale in that state rather than doing it ourselves. It really is broadening the concept that we originally had and have done quite successfully to maybe have a larger share of fee income, where we’re not taking underwriting risk but have the ability to be Horace Mann first when it makes sense to be Horace Mann first.

That’s very helpful, thank you.

Do you have anything to add to that, Mark?

Yes, the only thing I would add is I think there is opportunities, for instance when we’re taking underwriting actions, like we have a standard practice now, if we’re going to take underwriting action on a particular risk, right, we’re going to look to those third parties automatically rather than just sending the customer off on their own, especially in a tough environment on the property side, where it may be a challenge for them to find other coverage. I think there’s going to be, to Marita’s point, increased opportunities where places we’re pushing a lot of rate, that if we’re risking losing that customer, there may be an opportunity for us to keep that customer in the fold by leveraging our third parties.

And what we’ve learned with some good partner carriers is the ability to bring that customer back to Horace Mann, when and if that makes sense, we’ve had a lot of flexibility to do that because we’re doing this with a limited number of strategic partners. I’d say with improved process and the improved technology that comes with it, we believe we can probably by the end of next year begin to see a lot more scale than how we had attempted to do this in the early years. Think about if an agent had a customer, they’re going to an internal contact center, they’re working with our internal people, our internal people are placing that with another carrier. If we have better process and better technology, and we can do that with a smart algorithm and straight through processing, it becomes much easier to scale what I think was a good strategic start to this thought process.

Thank you very much. A follow-up question, other companies have done voluntary retirements or workforce reductions given declines in fees on assets in some of their more AUM-sensitive businesses. Has that been completed, or are there thoughts for that? Thank you.

Do you mean for Horace Mann employees?

Yes, with markets lower, assets lower as a result, fees on assets can be impacted by that.

Yes, first what I would say is from an overall retirement standpoint, we had a very strong year last year. I think the nature of our customers again, we can say what we always say, insulated but not immune. If you’re asking the broader expense question as it relates to staffing and expenses, our plan remains relatively flat for expenses. We look at it, we focus on it, we’ll be thoughtful around it. We’ve got decent growth in our plan, but we set an expense target in P&C and are very clear about that target, and we’ll remain disciplined around expenses, as we always have. Bret, I don’t know if you want to--

Yes, just to add a couple comments, John, to Marita’s point, the L&R segment is actually--we even provided the guidance between the $67 million to $70 million, which has certainly increased significantly from the ’22 actual, and to Marita’s comment about managing expenses, certainly that’s something we pride ourselves on here as well as doing strategic spend with some of the growth initiatives we’ve been talking about for the last couple years. We typically target a percentage of total revenues with respect to expenses, and that actually is remaining around 28% between both our plan for ’22--or for ’23 and what the actual percentage was in ’22.

Yes, I mean, because of our size, we have to, and it makes sense to remain disciplined on overall expenses. We learned a lot as far as efficiency during the pandemic and didn’t run back to the way we always did things, and I think that’s really helpful for us to employ those learnings as far as how we interact with folks in the place, how we interact with our agents, how our agents do business, as well as lot of the major technology initiatives that we’ve funded for over the last three to five years, and those are starting to come through - I mean, building those products but also building the pipes for growth so that as this growth begins to build and we’re confident in that, we actually have the pipes that can handle it.

Thanks.

Thanks John.

Again, if you’d like to ask a question, please press star then one at this time. Our next question comes from Derek Han with KBW. Please go ahead.

Thank you. My first question is on the supplemental and group benefit segment. Can you talk a little bit more about the infrastructure investments that you’re making, and just curious how you’re thinking about how these investments are going to contribute maybe through cross-sales or maybe better efficiency.

Hey Matt, I think it would be a great opportunity for you to talk about what you’re investing in and what you’re building, the additional sales folks that you’ve hired, so I’m going to turn it over to you.

Okay, thanks Marita. Yes, the investments we’re making in the supplemental and group division are primarily people. We do have some systems modifications and system builds to support the distribution model, but mostly it’s people, so hiring sales leadership on the institutional side or the employer sponsored side was a key factor - we added a bunch of people there, and then growing our direct sales force as well. That’s where the bulk of the investment’s going.

Got it, that’s really helpful. Then my second question is on personal auto. It looks like you’re baking in an additional rate increase in California for this year. Is there increasing receptiveness within that state, and are you planning on filing for any additional rate increases aside from the one that you talked about last quarter, as well as this quarter?

Yes, we have one pending--well, two pending technically in each company, but one pending rate increase for 6.9% that we’re actively working with the Department of Insurance. We’ve answered, we think, all their questions, we think we’ve justified the rate. We’re hopeful that we’ll receive an approval soon. They have approved a small number of filings, and if you look at the order in which those filings came in, they all predated this edition of our filing, so we’re fairly confident that something will happen soon. Then once we do receive that approval, we do anticipate making another filing because, like everybody else in the industry, the rate is needed; however, we only included the one first filing that we anticipate getting approval soon into our guidance for 2023.

Got it, thank you.

This concludes our question and answer session. I would like to turn the conference back over to Heather Wietzel for any closing remarks.

Thank you and thank you everyone for joining us today. Look forward to talking to people over the coming weeks and most definitely look forward to seeing as many of you as possible in person when we’re at IASA in early March. With that, have a great day. Thank you.

Thanks everybody.

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