Hello, and welcome to the Horace Mann Fourth Quarter and Year End Result Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to hand the call to Heather Wietzel, Vice President of Investor Relations. Please go ahead.

Thank you. 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 Q&A, we have Matt Sharpe, Steve McAnena, Ryan Greenier and Mike Weckenbrock, Mark Desrochers had an unavoidable conflict, and he's not on the line today. 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 as 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 welcome, everyone. Yesterday we reported full year 2023 core earnings of $1.54, which included fourth quarter earnings of $0.84. We are clearly seeing the value of our strategy to diversify earnings to drive market share growth and to support a sustainable double-digit ROE. I'll give an update on our strategic progress in a moment, but let me start with a look at 2023 across all three of our segments. Sales for the year were strong. Total revenue rose 8% for the year with net premiums and contract deposits up 6% in total, including 11% growth in full year P&C premiums, all segments benefited from the 11% increase in net investment income to a record $445 million. Looking more closely at the results by segment in P&C, there were many signs of progress for the fourth quarter segment earnings were $9 million. We saw average written premium growth. That reflects the actions we've taken since the beginning of 2022. In auto, the cumulative rate impact of 23% through year end, including almost 19% in 2023, drove 16.7% growth in fourth quarter average written premiums over the prior year in property. The cumulative impact of rate actions and inflation adjustments of 25% through year end, including about 15% in 2023, drove 13.2% growth in fourth quarter average written premiums, we continued to see auto earned premium growth ahead of loss cost growth, an inflection point reached in the third quarter and weather activity in the quarter was more typical for the full year results were in line with our updated guidance, reflecting the elevated weather losses experienced in the first nine months of 2023. Life and Retirement was a solid contributor in 2023, delivering earnings of $72 million ahead of our updated guidance on strong net investment income. Net…

Thanks, everyone, for joining our call today. Marina highlighted the value of our diversified business model and the momentum that we are seeing across our businesses. Now I'd like to walk you through the details of the business segment performance and specifics of our outlook for 2024, starting with P&C, including a profit of $8.8 million in the fourth quarter, the P&C segment's 2023 results were in line with our recent guidance, which reflected the elevated cat and non-cat weather activity in the first nine months although weather activity was more typical in the fourth quarter, cat losses for the full year contributed 15 points to the total combined ratio. Our guidance for 2024 includes a cat load of approximately $80 million or about 11 points on the combined ratio. This estimate is in line with our five-year average. It clearly shows the impact of the inflation driven increases in weather related losses over the past several years. It also reflects the expected benefit of our new road schedules and other underwriting actions we are taking to mitigate convective storm volatility. As a reminder, our cat losses tend to be weighted to the second quarter, which typically represents about half of our annual cat losses for 2024. We are expecting a segment combined ratio near 100% with segment earnings of $36 million to $41 million. Both auto and property continued to benefit from our rate and non-rate underwriting actions and are on track to achieve underwriting profitability in 2024. Let me walk through a few details for each line, along with the factors driving our confidence in our outlook for 2024. For auto, net written premiums rose 11% in 2023, with retention flat versus 2022. The underlying loss ratio improved 1.1 points for 2023 and a solid 15.1 points in…

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

Thank you, Heather. We will now begin the question and answer session to ask a question. [Operator Instructions] Today's first question comes from Meyer Shields with KBW. Please go ahead.

Great. Thanks. We're a little hiccup that I know we've talked about this in the past, and I wanted to go through the question that we've discussed in from a slightly different perspective. I know you've talked about the ability to either act as an agent for third party insurers or retain business on the Horace Mann balance sheet really based on expected profitability. And I was wondering, given I guess two things one, the significant volatility that we've seen maybe twice in the last decade in particularly auto insurance. And second, the differentiated multiples that investors into attached to distribution companies instead of underwriters the long term, whether there's any change in the long-term thought of where Horace Mann should participate in the risk transfer?

Yes. Thank you, Meyer. It's Marita. I appreciate the question and you've asked that question from several different angles, and I really appreciate it. I mean for us, I think it starts with at the very core. We're an educator company. We're not just a P&C company, and that's how we think about ourselves first. So for us from the very beginning, it's been about household acquisition. How do we attract and retain educators and now others who serve the community to the horsemen value proposition. And for us, we have many, many ways now to do that. I mean you saw us build product and build solutions we've done that. You've seen us acquire capabilities with NTA and M&L, and you've seen us partner with other carriers like what you're talking about with our third party strategy and we've done that in many ways, and I still think there's more ways to do it. When you think about Progressive for motorcycles and boats, you think about Chubb for higher-valued homes Those were products that made a lot of sense for us not to manufacture, right, but there's other uses as well. And you've seen some of that this year and clearly in the fourth quarter, our approach in Rhode Island because it was small difficult to get to scale, not a lot of volume. You can think about geographic concentrations and how you think about places where you might want to step in and use those capabilities strategically. So our third party strategy makes a lot of sense. But for us, it really is not about that it's about finding more educators and retaining more educators. And I think we've done a really good job on in that evolution, if you will. I mean, if you look at the investor deck. We've reached 1 million educator households. That's a lot more than we had just two or three years ago and roughly 15% or so market shares. The K through 12 educators in our footprint. So we've used a lot of levers. But for me, it really is about finding more winning more and keeping more. We've got good sales momentum in the fourth quarter. We have solid retention and persistency. We're not a distributor, but we certainly can use those capabilities to find more win more and keep more. I get your comment about multiples. We are building a nice bucket of fee income. It's not yet to the point where we would think about that the way you're asking the question, but I'll take those fees all day long as we build on that as well. I don't know if there's anything, Stephen, you want to talk about as it relates to our momentum and some of the things we're doing to expand that momentum.

Yes, sure. Thanks, Marita, and thanks for the question. And I think what I'd like to do is just really provide a little context and then and then sort of address the issue Marina raised. So context, most of our new business, the majority within retail comes from our agency force. And that's important to know because we think our agency force is very healthy as we navigated through and continue to navigate through a challenging market. One of our guiding principles was to insulate our agents as best we can from the effects of what I would say, profit restoration. When you look at the numbers, actually think we have a pretty healthy engaged agency plant. We look at things like new business production growth in the number of agents in growth in agency income. And so for me, I look at this and say our starting point, our current position is quite strong. Now as we look to the future, we're making investments in both the agency force and in what I would call digital slash lead management capabilities and I'll just give you a little color from the agency plan. We're going to keep doing what we're doing. So that means, as Maria spoke earlier, we're going to continue to appoint new agents will continue to thoughtfully enhance our incentive plans to drive new business growth. And obviously, we'll advance our analytic capabilities, helping agents to be even more effective than they are today and they're quite effective today. At the same time, we're going to build new capabilities to allow educators to work with us when and where they want. And so in terms of the things we're building, I'd break it down into three areas. First, building out the generation or marketing capabilities driving educators to Horace Mann; second, we're upgrading our digital capabilities to capitalize on educators that really come to us digitally and want to interact with us digitally. And lastly, we're building analytics and process to ensure that we get educators to the channel their preference when it comes time for them to buy. And so we think these capabilities we're building are important because we obviously know that consumers want to most of them shop online, but they actually want to buy offline. So building bridges, providing seamless interactions across all the channels we think is critical. That's really a win-win for all parties and so easy to kind of get caught up in the details. And what I'll do is just summarize by saying, I think we have a really good set of agent base tactics that are tried and true that are going to get us growth, but we're also building a digital presence that we think will be integrated with the agency channel and should further bolster our ability to drive sustained profitable growth as we move forward.

Okay. Thank you, both. That was very helpful, very thorough. And second question, and I apologize if I missed this, but we're in a sort of weird situation right now where the level of earned rate increases have changed dramatically over the course of the year just because of the pace of written increases and I'm wondering if we take out catastrophe losses, how much of a differentiator was that in the seasonality of the underlying loss ratios in auto and home?

Yes, I mean, Meyer, you know, typically, the second quarter is our largest cat quarter. I think for us in the industry, when you look at 2023, it may have been slightly on. We've touched in all the quarters, if you will. I mean, just think of the amount of hail, which is why roofs scheduling across the industry is so important and a bigger lever for us and many others. I don't think there was a quarter other than maybe the fourth quarter that was lighter for the industry on in 2023. It did seem I mean you get sick of listening to the evening news and get worked up, but there was a fair amount of water where there isn't normally a lot of water and certainly heightened hail that the industry has been talking about and writing about. So I think what you see as it relates to cats for us and the industry kind of spread out a little bit more than you might normally see. But historically, the second quarter is still our highest quarter, and that's how we planned in 2024 as well that we would expect that to be a higher quarter. It will be interesting in 2025 with the full impact of rate schedules in the majority of places where you need roof schedules with broader use of deductibles and percentage wind deductibles, what that will look like prospectively for the second quarter for us. But that's how I'd answer that question.

Yes, Meyer just looking at the actual cats to echo Maria's comment, the second quarter of 2023, we have basically $41.5 million of cats of the total of $97.6 million for the year, and it was the highest quarter of before this year. So it played out as we as we thought. I mean, in total, the CATs were higher than we planned. But here again, the lion's share came through the second quarter.

You also have a bucketing issue of cats and non-cat weather since we use a PCPCS. definition and not our own. So that also plays into how you think about cat versus non-cat weather, but clearly for the industry, a very heightened weather year.

Okay, perfect. Thank you again.

You're welcome.

Thank you. The next question comes from Matt Carletti with JMP. Please go ahead.

Thanks. Good morning. I'm answering that they married. I was hoping you could, I guess the best way to maybe just give us an update on kind of the integration of kind of the worksite business following acquisition and just, you know, we think about kind of that. It is a very unique puzzle piece in terms of distribution deals like it should can I raise awareness from opened some doors, cross-sell opportunities? You know, all that kind of stuff that comes with it. Just maybe an update on where we are and how pleased you've been with how that process has gone?

Yes, Matt, great question. And use your words really, really pleased you use the word integration. And that seems like an awful long time ago for us since I think we did it extremely quickly and hit the ground running, understanding the meaningful diversification of earnings that this business was going to pull. I mean, I would say from the very beginning that these acquisitions, both NTA and M&L that eventually formed our Worksite Division, if you will. It was about the strategy. It was about the PDI relevant products to our educator strength. The distribution improved infrastructure in these businesses and it clearly brought all three. I mean, these acquisitions, as we've talked about before, were accretive right out of the chute. But the most important thing is they gave us the earnings diversification that we planned for and certainly in 2023, that was important considering the state of the P&C industry across the board. So I'll turn it over to Matt, but I want to say publicly that Matt Sharpe and his team are executing extremely well on all fronts, and we're very pleased with the team and what this business has brought us. Matt?

Thanks, Marita, and thanks, Matt, for the question. I'll give you a little bit more color. So overall, as Maria said, we couldn't be more pleased with the performance of the supplemental and Group Benefits segment, including all the team members that support it, both from a growth perspective and the earnings diversification. These businesses bring to Horace Mann as Murray that commented on, but not only are we happy with this year's performance. We're also very excited about the outlook of these businesses. We expect these to be among our fastest growing businesses over the next several years. Let me give you a little bit more color on our performance for the worksite direct sales team, which is our individual products division we grew the individual supplemental agent team by 23% in 2023. The growth of the team directly correlates to our sales results. You can see this clearly in our production, more specifically, the agents we appointed over the last two years in 2022 and 2023 accounted for just south of 38% of our total sales in 2023. So in 2024, we continue to focus on the growth of this team and have added additional resources to sustain our momentum in that in the individual division worksite continued to make progress in cross-selling as well, contributing a modest 13% of the overall 2023 Horace Mann life sales. So we're really just getting started there on the employer side of the business, Matt, we're seeing similar results. The momentum in our growth business has started to show signs of acceleration. We continue to be really pleased with our distribution partners and how we align our mutual growth objectives couldn't be tighter there. The total number of covered lives increased over 6%. We introduced the Horace Mann voluntary group products to over 65 new school districts in the past year and across all lines of business in supplemental and group, we grew our covered lives by just under 50,000 participants, bringing the total lives that we cover as of December 31st of last year to just under 800,000 lives with our group products, core sales represented about 51% of our new sales in 2023. And the rest, we predominantly others who serve the community. Also, we also typically refer to it as other public looking ahead in 2024 and beyond, we continue to focus on expanding our benefit broker and consultant relationships to maintain our growth momentum. So overall, very happy with our results for 23, very excited by the growth prospects for 24 and beyond as we expand our distribution relationships and further our cross-sell capabilities. And that kind of gives you the color that I think you were looking for. Is there a follow-up?

No, that's great. Thank you, both. The only follow-up is a numbers question, which I think is for Bret. I'm really just trying to understand kind of what's in a number that gets reported. So in the in the supplemental benefits segment, there's like other income that's been you're negative for, but not big number small number, but negative for a couple of years. It's getting to be a smaller negative. It's kind of trailing off. And just trying to understand, you know, what's in there? What's flowing through? And how should we think about that going forward?

Sure, Matt, this is Brad. Obviously, there is a nuance with an item that does flow through the P&L in that line item. But to be specific under the terms of the sale of Madison national, we did agree to assume a block of run-off specialty health business for IHC, which was their former parent company and IHC, in turn, basically agreed to indemnify us for that block covering any loss or gain. So obviously the premiums the losses, the expenses flow through the P&L, as you would expect them to. However, and they have had underwriting profits the last two years since we've owned them in, in essence, it's a zero-sum game as we're being indemnified good or bad of the results. And it's really that offset since they had income in underwriting income. We offset that by booking and expense in the other income line item that is in a runoff as state. So that will continue to become smaller as we get to 24 and beyond. So I guess the key takeaway, Matt, is it is a zero-sum game. There is no P&L impact as it relates to that. But the geography is a little different. And like I said, it will it will run off over time.

Perfect. Very helpful. That makes sense.

Yes, Matt, we really appreciate your worksite question. And to recap that, when you think about it with P & C on track to get back to historic profitability for us. Our L&R business producing consistent earnings and the ballast that it's been for decades combined with the supplemental and Group Benefits diversification benefit, strong positive earnings contribution. And then you look at sales momentum across the board. We enter 2024 in a very optimistic place about the earnings power of this Company going forward.

Understood. Thank you very much for the color for you at Snap. Thank you.

Thank you. The next question is from John Barnidge with Piper Sandler. Please go ahead.

Good morning. Thank you for the opportunity. With the improved property casualty outlook, it suggests generating excess capital prospectively. Should we be thinking about more active share repurchases again? Or how do you think about the inorganic or product development opportunity set within the Company given the growth outside of the traditional educator?

Yes, a good question. I don't think our capital management approach has changed, right. We think about using the capital that we're generating. And remembering remember this year, we returned to more positive capital generation. First uses for growth. I mean, you saw the growth in the fourth quarter, we're optimistic about the group growth growth that we planned for 2024. So having a positive excess capital generation of these businesses and the power that we see to use that for growth first priority and excited about being back in that position. Again, then we think about and, you know, uses like share repurchases, which we have done consistently in the past as well. I don't know if you have anything to add to that, Bret?

Yes, I think Marie, to summarize it well, first and foremost, it's profitable growth. And I would say, first and foremost, it's returning the P and C segment to profitability and generating that typical level of excess capital. I think Ryan and I probably have repeated on numerous calls when we are operating at our targeted profit levels and we will generate $50 million of excess capital on top of the dividends that we pay so we feel very good what we see with the turnaround in the P&C segments. It's in our investor presentation, the delta between the loss of this year in the income of next year. That is the lever of our increase in our earnings for this year. So I would echo the same thing. The priorities for that excess capital remain unchanged.

Thank you for that. My follow-up question, you talked about being on track to reach sustainable double-digit ROE by 2025 with outlook for 2024 EPS 303 to 330 and then your adjusted book value, does that suggest while returning to an earnings power approaching $4 again?

Yes, John, I think you're spot on with respect to that.

No doubt about it your math.

Yes, we're going to present to you.

Yes. Thank you.

Your next question is from Greg Peters with Raymond James. Please go ahead.

Hey, good morning. This is Sid on for Greg. I wanted to focus on the PIP count in the P&C segment. I believe in your prepared remarks you mentioned auto quotes were up 15% and just with your combined ratio guidance of around 100%. Can you help frame how we should think about growth in policy counts moving forward from here?

Yes, I don't think I said, I don't think it ever changes for us, right? We are not the type of company that thinks about a growth lever is on or off. We're not the type of company that's going to close down or say we're open. We clearly have targets. We're happy that the majority by a lot, 95% of new business right now is coming from places where we feel we can achieve and sustain that target profitability that we have and clearly stated and demonstrated. So for us, we like the fact that we saw strong momentum in both PIP and premium in the fourth quarter and are very optimistic about our ability to grow that P&C line in 2024 and beyond. But we really don't again think about this as an on on-off off switch and go back to that original question about third parties, clearly in places where it makes sense for us to rely on good third party partners, we can and we will. But we're always thinking about attracting and retaining new educator and other to serve the community customers.

All right. Thanks for the answer.

Thank you.

Thank you. This concludes our question and answer session. I would now like to turn the call back to Heather Wietzel for closing remarks.

Thank you, everyone, for joining us on the call today, and I look forward to additional conversations if anyone has any follow-up questions and do want to remind everyone, we will be at Eva and happy to work with you on scheduling, some tons out of that can be busy. And so just reach out or if you're not going to be there are your schedules full reach out we'll find another time to get together. So thank you again.

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