Good afternoon, and welcome to the Horace Mann Educators' First Quarter 2024 Investor Conference Call. [Operator Instructions] I would now like to turn the conference over to Bret Conklin, Chief Financial Officer. Please go ahead.

Thank you, and welcome to Horace Mann's discussion of our first quarter results. Yesterday, we issued our earnings release, 10-Q, investor supplement and investor presentations. Copies are available on the Investors page of our website. Marita Zuraitis, President and Chief Executive Officer, and I will give the formal remarks on today's call. With us for Q&A, we have Matt Sharpe, Steve McAnena, Ryan Greenier, Mark Desrochers, and Mike Weckenbrock. 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 includes 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. Reconciliation of these measures to the most comparable GAAP measures are available in our investor supplement. And now I'll turn the call over to Marita.

Thanks, Bret, and welcome, everyone. Yesterday, we reported first quarter core earnings of $0.60 per diluted share, a nearly threefold increase from last year's first quarter primarily due to the progress we've made in restoring P&C profitability. Total revenues were up 9%, and earned premiums and contract charges were up 8% over prior year. These results reflect strong sales momentum in our retail division, led by a 35% increase in property and casualty sales premium. We realized a dramatic improvement in the profitability of our P&C business and continued to benefit from the strength of our diversified business model built to meet the needs of educators and public sector employees. While net investment income on the managed portfolio was up 7% for the quarter, we saw a handful of real estate-related funds perform below target levels due to a mark-to-market valuation adjustment, consistent with the experience of the broader industry. This obscured some of the progress we are making in Life and Retirement and the Supplemental & Group Benefits segments. Brett will talk about the outlook for the individual segments later in the call, but at a high level, we remain confident in our 2024 full year outlook of core EPS in the range of $3 to $3.30, net investment income closer to the lower end of the current range of $465 million to $475 million and return on equity near 9%. Today, I would like to focus my remarks on the progress we're making across the business to reach the profitability targets and gain market share. First and foremost, we are making substantial progress towards restoring P&C segment profitability. Our reported first quarter P&C combined ratio of 99.9% was a 13 point improvement over prior year. Combined with strong segment net investment income returns, this led to a first…

Thanks, Marita. First quarter core earnings were $24.8 million or $0.60 per diluted share, a nearly threefold increase over prior year. Our P&C profitability restoration strategy is making significant progress, and we remain on track to be within our full year 2024 core EPS guidance range of $3 to $3.30. Let me break down the results by individual business segment performance, starting with P&C. First quarter profit of $11 million was a $22 million improvement over the prior year. Net investment income was triple last year's returns due to solid performance in limited partnerships and higher yields on the fixed income portfolio. Net written premiums rose more than 15% to $172 million, primarily on the premium increases and underwriting actions we implemented over the past year. The reported combined ratio of 99.9% improved 13 points over prior year. CAT losses added 9 points to the total combined ratio compared to nearly 15 points a year ago. In the first quarter, property claims services designated 19 events as CAT compared to 23 a year ago. As Marita mentioned earlier, from 2022 through the end of 2024, we expect total premium increases of nearly 40% in auto and 50% in property, which underscores our confidence that the P&C segment will be profitable for the full year as well as reaching our targeted combined ratio of 95% to 96% in 2025. Turning to auto, net written premiums of $117 million increased 15% over prior year, primarily on rate actions. The combined ratio of 100.8% improved 10 points over prior year. In terms of loss cost trends, we saw lower frequency likely attributable to more mild winter weather and severity generally in line with expectations. Despite the higher premiums, policyholder retention remained strong at 87%. In property, net written premiums were $56 million, a…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Meyer Shields with KBW.

First, Marita, in your comments, you talked about lower frequency attributable to benign weather in the winter. And I'm wondering whether for your book of business, we're seeing any impact from rising gasoline prices on frequency?

Yes, Meyer, this is Mark. I'll take that question. When we look at the first quarter, we -- when we look at the overall frequency, we are down from an [ action and ] frequency standpoint, about 3% or 4%. I would say one-third of that more or less is weather related. Probably about another third is actually some mix in underwriting changes that we've made. And when we look at the other third, we are seeing some reduced driving activity that we would attribute some of that lower frequency too. So I think that when you look at the weather impact, that's likely to not be recurring, I think the underwriting and mix actions, we expect that benefit to continue to roll through. In terms of the driving behavior, it's a little harder to predict what that will run for the rest of the year, but certainly, it had an impact in the first quarter.

Yes. And when you think about the type of weather activity in the first quarter, whether it's us or anyone else in the industry, the bucketing between CAT and non-CAT always gets interesting, right? How many tip over and fall into it -- we use a PCS definition, fall into that definition of CAT or whether you have weather activity that doesn't quite meet that definition. But I agree with what Mark has said as far as overall frequency trends. We're not going to assume anything in that, but we're certainly pleased with what we're seeing in the auto book for sure.

And I guess in terms of a follow-up, how rapidly -- assuming that some of these favorable trends persist, and I know you're not counting on it, which I think is the right call, but if these favorable trends persist, how quickly can you sort of change the pricing approach and maybe see 4 or 5 to 10 instead of 10 to 15 for price adequacy that's a little bit more competitive?

Yes. It's interesting. I -- with the team of actuaries that we have in the organization, this is all real time. I mean, Mark and his folks will take the information from the first quarter and the first quarter of last year rolls off and the first quarter of this year rolls on. And obviously, in this dynamic pricing environment that we've been in a couple of years, this has been real time. So it is pretty quick in being able to react Obviously, you have a handful of states where that's a longer time line. We certainly saw that in California, very pleased with getting that rate filing. You've heard about the property in the past, but we mentioned in the script getting our auto rate filing approved in California. As soon as that happens, the team gets worked -- gets working on that next rate filing and thinking about what that data looks like when a quarter is rolling off and a new quarter is rolling on. So it's pretty real time. I don't know if you have anything to add to that, Mark?

Yes, I would add a couple of points, Marita. I think, first of all, we -- in addition to tracking our loss ratio and our rate changes relative to the competitors, we take a pretty close look at our close rates in terms of what's our success rate in issuing a policy for every policy we quote? And even as some of the competitors have gotten a little bit more aggressive over the last quarter, we've not seen any drop off in that. So we certainly don't see it yet. We have some flexibility in terms of underwriting actions that we can lift or shift between which companies we may be offering new business quotes on. And clearly, if we have to be more aggressive from a pricing standpoint or slow down the aggressiveness of some of our rate actions, we expect the various regulatory agencies to be slightly more receptive than they might be when we're taking rate increases.

Yes, Meyer, and your questions seem to hint -- are we prepared for an increase in competitiveness across the market? And clearly, I really believe that we are. And we fully expect competition to pick up. I mean when I look at what we're seeing, the dynamics across our distribution, our EA plant is in really good shape. We've had good success in hiring producers, good retention in the producers that we've had for quite some time. We have the ability to offer a lot more than many of our competitors. We're not just a mono line market. Our retention is holding the new business with sales up 35% in the right places. We're making the right investments, and I feel good about us being prepared for an eventual increase in the competitiveness in P&C. I don't know, Steve, if you want to provide any more detail on some of the new enhancements that are starting to show some signs of life?

Yes, sure. Happy to. I'll kind of pull back. I kind of feel like the upfront comments that were made about the health of the agency force and associated sales momentum, just really nailed it. I'll try to just sprinkle a little color as to what else is happening. And I guess I'll start with -- Marita mentioned some agent recruiting in her opening remarks. Recruiting is having a big impact both today, but it's going to have an even bigger impact as we move forward into '25 and into 26. In terms of recruiting this year, going really well. We increased our internal recruiting staff. And as a result, we've appointed about 70% more agents than last year. So we're absolutely fueling the pipeline of agents. Interesting kind of side note, about half of the recruiting comes from referrals and educators. And Marita talked about the quality of who we're hiring. To me, that just means we're hiring people that really understand both the role and the space that we're in. And I think we've had really good success with the appointed agent population. I think the second thing is productivity and Mark said this and I'll kind of build on it, virtually all of the new business growth has come from activity, i.e., more quotes. Conversion, as Mark said, effectively flat. So this means we're getting all the sales through activity, not through price. In terms of what's driving the quotes, a lot of it is coming from increased leads from -- Marita mentioned, our new lead generation capabilities. We kind of observed a pretty sizable increase in leads. And for me, the most interesting/exciting part is a lot of what we're doing right now hasn't even been scaled. And what that means is we're seeing pretty meaningful…

The next question is from John Barnidge with Piper Sandler.

My question is around Supplemental and Group Benefits distribution. I believe you called out in your prepared remarks a [ comp ] a year ago from a big win and the employer sponsored space. Are there any occurring big wins from a year ago that will not be reoccurring and we should be keeping in mind? I know 3Q typically has heavy distribution with back-to-school.

John, thanks for the question. Thanks for the way you asked it. I think you, as usual, included the answer in your question. Due to the size of this business and the nature of the business, you said it yourself, it can be quite lumpy. I'll turn it over to Matt to see if he has any additional things that he wants to add, Matt?

Sure. I can't help myself. As Brett and Marita indicated, we're pretty happy with the way the Supplemental and Group Benefits segment performed this quarter. We also continue to be excited about the growth potential for these businesses over the next several years. For the first quarter, overall sales were lower on the year-over-year comparison, as noted. This is partly due to the lumpy nature of the group business. In addition, a very solid but slower start to the year on the individual side due in part to weather-related closings early in the quarter. So that's not going to repeat on the -- at least we hope it's not going to repeat. On the group side, the year-over-year comparison was a 1/1 start date but I don't see another one on the horizon for the rest of the year. And it wasn't a nonrenewal. It was actually a win from last year. And the nature of the business is lumpy. So we might get a win that offsets that later in the year. It's really -- it's an unknowable fact at this point. But the momentum is still very positive on the individual side. We continue to be very optimistic for the year. On the group side, we continue to be optimistic. We recognize that the business is lumpy and a case or 2 in either direction can really move the numbers.

Yes. Thanks, Matt. I mean we're getting the earnings diversification we planned. We remain very optimistic about the growth prospects. And when we look at the pipeline report, it's still quite robust.

My follow-up question, can you talk about your assumption around VII and the balance of the year and where your LP marks were concentrated, maybe from a sector perspective?

Sure, John. This is Ryan Greenier. Thanks for the question. As we said in our prepared remarks, the underperformance in the first quarter was real estate related, and it was really driven by 3 specific funds. Two of them were real estate equity, and you saw valuation marks giving up some of the strong performance that we've seen in that space over the last couple of years. We're still ahead from an inception-to-date return perspective on those particular funds. And the CML fund that took a negative mark this quarter is one of our smaller funds. It plays more in the mezzanine lending space and had a handful of more recent vintage transitional multifamily properties that came in with some adverse valuations on the mortgage loans. We believe these are idiosyncratic. They're isolated. That's the nature of commercial real estate and real estate investments. And our overall outlook for LPs and CMLs for the rest of the year -- we do believe our full year returns for CMLs in particular, will be below our historic averages because of the slow start, but we remain optimistic about not only the investment income diversification benefits of the asset class, but the longer-term value that it provides. I'll point to the strength in the core fixed income portfolio. We've seen a nice tailwind because of sustained higher interest rates. We're putting money to work at well over a 100 basis points wider than what's rolling off. We like that dynamic. We've been -- we've seen that for the past 2 years now, and that is a tailwind to our original expectations. So net-net, we think we can make up some of the ground similar to how we started last year. As a reminder, last year, first quarter LP performance was actually negative, and we ended up coming in ahead of expectations. So we'll see how it goes. One quarter doesn't make an annual trend, but I remain pretty comfortable in our positioning.

The next question is from Matt Carletti with Citizens JMP.

Actually, I want to follow up on the real estate fund question. Ryan, it sounds like you're pretty comfortable, but can you help us with maybe how many other, kind of, real estate-focused funds you're invested in if you feel that most of those are kind of through the marks process, at least from where they stand now? Or if you do expect some further marks, are those, kind of, in your annual guidance already?

Our -- so to start with, our allocations to commercial real estate are skewed towards the Life Retirement Supplemental and Group portfolios, which you would expect and is consistent with the broader life industry. Our total commercial real estate fund exposure -- our total commercial real estate exposure, I should say, is about 12% of the portfolio. And over 80% of that is senior commercial mortgage loan funds. And the average LTV there still remains strong at 71%. We've seen some degradation, but again, we remain comfortable with that. The area of concern for the industry is obviously office. Our office exposure is less than $200 million in total. Of that, we have taken more severe marks, if you will, on our real estate -- on our mortgage loans related to the valuation declines in office. To put it in perspective, we've marked that portfolio down, reflecting about a 30% decline in the underlying office equity values. Peak to trough estimates, NCREIF estimates are estimating about a 35% decline overall for the better Class A well-positioned, highly amenitized properties, which represents the base of what we're lending against. So overall, we feel like right now, given our practice of marking these to market quarterly due to equity method of accounting, we feel like we've taken the bulk of our marks. We've stress tested the portfolio. We're comfortable with the outcomes. A lot of this is property dependent and interest rate dependent. As higher interest rates stay high, it prolongs the valuation pressure that the sector is experiencing. But like I said, we feel largely comfortable with where we were marked today, and we're monitoring office, in particular, very closely.

And then one quick follow-up, really, just a definitional -- kind of want to reconfirm. When you guys talk about, kind of, getting to a sustainable double-digit ROE next year, that the kind of denominator is ex fixed income realized gains and losses, is that correct?

Yes. The only thing we take out of that, Matt, would be realized gain losses. So yes, it's a GAAP ROE metric.

[Operator Instructions] The next question is from Greg Peters with Raymond James.

This is Sid on for Greg. Just wanted to go back to some of the comments on the P&C segment. And looking at risk in force, should we expect that to begin to grow over time, as the underwriting results get back to targeted levels? Or maybe I'm not looking at it correctly, so any comments you can provide there would be helpful.

No. Absolutely, we do. We talk about it a lot. I'm going to let Mark give you some detail on that.

Yes, sure. We've been originally projecting that we would expect to start to see substantial policy in force growth by early '26. I think with what we've seen with our new business momentum and the fact that our retention rates are actually holding better than we would have expected, given our normal kind of price elasticity equations, that we probably moved that up to somewhere between mid to late 2025 is when we'd expect to start to see, hopefully, meaningful growth.

And obviously, with coming quarters, second quarter, third quarter, if we continue to see sales like it is, up 35% in P&C and retention virtually holding certainly better than what we would put in our internal plans, that could also be sooner. But based on what we know right now, I agree with Mark that towards the end of 2025 is when you'd expect that to turn around.

And then, as my follow-up, you called out a benefit in the prepared remarks from product changes in property. And I just wanted to confirm if you expect to realize the full benefit in 2024 or if it could go into 2025, before -- I think you said a full 3 points.

Right. I think Marita was referring to the roof schedule is probably the most substantial product change that we've made that we expect to drive that 3-point improvement. And as that earns its way in, we kind of expected maybe between quarter and a third of that benefit in 2024, with most of the rest of it coming in 2025 and then just the very nature of the fact that homeowners policy is at 12 months, some of it will work its way all the way into 2026 before it's fully earned.

[Operator Instructions] Showing no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Bret Conklin for any closing remarks.

Just want to thank everyone for your participation on today's call, and we look forward to talking with everyone again next quarter. Thanks.

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