Good day. And welcome to the Horace Mann Educators Third Quarter 2024 Investor Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to hand the call to Brendan Dawal, Vice President of Investor Relations. Please go ahead.

Thank you. Welcome to Horace Mann’s discussion of our third quarter results. Yesterday, we issued our earnings release, 10-Q, investor supplement and investor presentation. Copies are available on the Investors page on our website. Marita Zuraitis, President and Chief Executive Officer; and Ryan Greenier, Executive Vice President and Chief Financial Officer, will give the formal remarks on today’s call. With us for Q&A, we have Bret Conklin; Steve Mcanena; and Mark Desrochers. 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, Brendan, and hello, everyone. Yesterday, we reported third quarter core earnings of $0.76 per diluted share, a 73% increase over prior year and in line with the guidance we set at midyear. Revenues were up 9% and we saw double-digit sales increases in Auto, Life and Individual Supplemental Lines. We are maintaining guidance and continue to expect core EPS in the range of $2.40 to $2.70 for the full year and remain on a solid track to meet our strategic goals of a larger share of the education market and a sustainable double-digit shareholder return on equity in 2025. I want to start today by thanking our claims team for their tireless efforts to take care of our customers affected by Hurricane Helene. We estimate the storm caused $22.5 million in damages for our policyholders, primarily in the Carolinas and Georgia. Because of our frontline team’s compassionate and swift response, we were able to deliver on the promise of distinctive service to our customers in their time of need. There’s a lot of moving parts in the Property & Casualty results, but what I want to highlight is the progress we have made in our underlying loss ratios due to our multiyear P&C profitability restoration strategy of rate and non-rate actions. In Auto, our underlying loss ratio was 71.5%, an 8.2-point improvement over prior year. In Property, it was 41.4%, a 20.4-point improvement over prior year. In the bigger picture, it means even in a quarter like this one, when a single catastrophe event adds 12 points to the combined ratio, we are able to remain profitable in the segment. Our reported combined ratio of just under 98% was nearly a 19-point improvement over third quarter 2023. With additional rate planned in the fourth quarter, our profit restoration actions…

Thanks, Marita. I am excited to take on the new role and continue to partner with the executive leadership team to support the educational community and drive long-term shareholder value creation. Now to the results. Third quarter core earnings were $31.3 million or $0.76 per diluted share, well above the prior year result of $0.44. We continue to expect full year 2024 core EPS in the range of $2.40 to $2.70. Today I’ll talk through results by segment and close with a recap of our capital management strategy. First, in Property-Casualty, net written premiums of $212 million increased by 13% over prior year, primarily on higher average written premiums. The reported combined ratio of 97.9% improved 19 points over the prior year. Higher catastrophe losses were more than offset by strong underlying results and favorable prior year development. Taking each of those components individually, catastrophe losses were $34 million, including $22.5 million from Hurricane Helene, compared to $28.7 million in catastrophe losses in third quarter 2023. We believe our Helene losses, which added 12 points to the combined ratio, were in line with our market share and comparable to others in the industry. Hurricane Milton was a fourth quarter event, but because we have an immaterial amount of exposure in Florida, we expect losses to be close to zero. The P&C underlying loss ratio of 60.7% improved 12.6 points over prior year, reflecting the rate and non-rate actions we’ve taken to restore P&C profitability. We released $13 million in prior year development. The majority of which is from lower than expected severity in Auto liability claims from accident year 2022 and prior. We also released prior year reserves in Property due to lower severity than expected, reflecting cooling inflation trends. In Auto, net written premiums of $129 million increased 9%…

[Operator Instructions] And our first question comes from Meyer Shields of KBW. Please go ahead.

Hi. This is Dean on for Meyer. I wanted to start with the core loss ratio within Personal Auto. Given that the reserve releases were strong over the past few quarters, which implies that the prior year losses are coming down, and coupled with just the moderating loss trends in the current year, I think I was expecting a bit more core loss ratio improvement within Auto. So, could you just say anything you could say on that and how should we expect those initial loss picks as well going forward within Auto?

Yeah. Thank you for your question. There’s a lot in that. And I break it down into two pieces. First, we probably should tackle the prior year development piece and then we can talk about Auto loss ratio, combined ratio, both in this quarter, sorry, and how we feel about it on an ongoing basis. From a prior year development standpoint, I’ll have Ryan give you a few more details in a minute. But I want to start with the fact that, and I think you all know this, we have a strong and consistent reserve process. As you know, we reported some prior year development in the second quarter, in other than BI. And also in the second quarter, we started to see some early signs of what I’d call potential favorable development trends in the injury lines from 2022 and prior. And also in the third quarter process, we start to see this favorable trend clearly, which is why we reported what we reported in the third quarter. I don’t know what you have to add to that, Ryan.

Sure. I guess I’d just add a little bit of color on Auto. So Auto was an $8 million prior year reserve release. And as Marita said, that’s injury liability from accident year 2022 and earlier. Paid severity is emerging lower than we initially expected. And so what we’re seeing is we’re seeing claims severity settling in trends in the low-to-mid single digits and so we reacted to that this quarter. Importantly, we did not make any adjustments for accident year 2023. And then finally, the other component of it Property was $5 million of the release and similar to Auto, we’re seeing paid severity emerging lower than we initially expected and we think that’s clearly tied to the inflationary pressure that we’re seeing cooling off.

Yeah. Thanks, Ryan. And the other half of your question revolves around loss ratio, combined ratio, which probably has more to do with Auto rate adequacy than anything else. But even there, I think you have to remember our strategy. We’re a niche multi-line writer. I think the strength of our customer retention and how strong those retention numbers are and how strong they’re holding up in this pricing environment is really key for us. We may be a quarter or two behind the giants, if you will, in the Auto line as our rate changes burn in, but we’re clearly on track. I don’t know if you want to add anything to that, Mark.

Yeah. I think Marita, you’re focused on the right thing that we were probably a quarter or two behind some of the larger folks in the industry. So our earning timeframe is lasting a little bit longer. But I’d add to that a little bit, as we’ve seen this increasing rate environment over the last couple of years, we’ve seen a shift in our book of business, which if you go back a couple of years ago was probably 70% or a little bit north six month policies and right now we’re probably a tad under 60%. So that shift alone is probably driving a difference in what your expectations might be by as much as about a 1 point on the loss ratio. So one, we will see that earning continue into the rest of this year and into next year. But also when you look at just the additional rate actions, we’ve been taking probably a little bit, like we said, a quarter or two behind the rest of the industry, we have expectation that, our earned impact going into next year will still be a double-digit year-over-year change. And probably even more when we look at early in the year, closer to mid-teens level year-over-year change and earned premium. So we believe it’s coming. We believe we’re rate adequate because the rate actions that we’ve needed are all in place and they just kind of have to earn their way through.

And pretty much coming in very close to what our internal plans have been for quite a while.

Awesome. That’s great. That was very comprehensive. For my follow-up, just I want to shift to the Life & Retirement segment. I noticed that deposits were up year-over-year for the variable annuities, but they were down for your fixed and your fixed end index annuities. How do you expect that trend to play out over time or is that just, yeah, how should we think about that into 2025?

Sure. This is Ryan. I’ll take your question. Our mix of business in the 403(b) and annuity spaces is pretty consistent. The K through 12 educator demographic, which forms the bulk of our customer -- of our annuity customer base tends to prefer a lower risk fixed and fixed index type of product. Even when they select our variable annuity products, they still tend to have a sizable component in the fixed account. I think it’s important to note that our variable annuity products don’t have living benefits. They’re pretty, they’re pretty simple asset accumulation tools for our demographic that we target. So you’ll see quarter-over-quarter variability, if you will, depending on, case size, et cetera. But overall it’s a pretty consistent book.

Ryan, well said. I mean, we’ve been in the 403(b) business since there have been 403(b)s. We’re one of the largest writers in the country, and for decades, you can see that consistency in retention of assets in 403(b) core products that we offer. And in the other products, they tend to move a little bit with the economy as some people might chase interest rates. But for our segment, our core book tends to be, we use the word ballast. Some folks can say that’s not a very exciting word, but it is our ballast and it does provide consistent earnings year-over-year and tends not to move. So it’s a big part of our growth and a big part of our customer retention.

Thank you.

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

Good morning. Thank you. Or good afternoon. Thank you for the opportunity.

Hey, John.

Can you talk about the growth opportunity in the segments across the organization now that you’re approaching re-advocacy, both in the educator and those adjacent markets you’re looking to grow in? Thank you.

So, John, I think you weren’t coming through really clear. I think what I heard you say was you want us to talk about the growth opportunity we see in the educator and non-educator segments as we approach rate adequacy. Did I frame that right?

Ryan, you heard it great. Yes.

Okay.

Yeah. Let me kind of break this down between Auto first and then maybe Supplemental & Group Benefits after that. Before I turn it over to Mark to see if he has any comments on Auto growth, I want to start with the fact that we have more agents. Our agents are more productive. We’ve got increased web traffic. We have better digital tools. And our sales numbers are very strong and we are clearly on track for PIF growth in the latter half of 2025 in Auto. But I know Mark probably has some more details to add to that.

Yeah. I mean, I think that the important thing to remember here is that, we are clearly entering an environment where many of the competitors feel like the profitability issues are behind them, and competition will heat up. But right now, as Marita said in the opening script, our close rates are actually holding pretty strong. I would have actually predicted, given where I thought the competition would go, that we might have seen some drop off, but we haven’t. But we’re going to have to watch that closely and I think the most important factor for us is going to be, can we keep that quote volume up? And I think some of the investments that Marita just alluded to, whether it be in our distribution plant and hiring more agents or driving digital lead activity is going to help us not only maintain pace, but hopefully as we go into 2025 increase that lead funnel.

Yeah. Well said, Mark. And if you look at the J.D. Power studies or any of the other shopping behavior is still at an all-time high and we’ve certainly been a benefit of that shopping behavior. So if you want to turn to Supplemental & Group Benefits, before I turn it over to Steve for a few more details, we continue to see clear value in this business. I think it’s important for us to reiterate the fact that the earnings power and earnings diversification of this business is clear. The customer acquisition benefit continues to pull-through. And if you think about our Individual business, we’re now seeing record sales in our group business. As we mentioned in the script, we’re seeing a nice increase in covered lives. And I think it’s important for us to remember that the M&L acquisition that brought us the group capability was two and a half years ahead of, I mean, behind the NTA acquisition that gave us the individual capabilities. And we’ve been in this Individual business now for two and a half years longer than the group business and make no mistake. We are excited about the value and the future that these businesses bring us. Steve?

Yeah. Thanks for the question, John. And I think building on what Marita said, I’ll just talk about worksite. I’ll divide my comments to two parts, because the businesses are fundamentally different. And Marita said it on the Individual Supplemental side, we continue to see really strong new business growth and there’s a couple of things going on there. One is we’re increasing the number of specialists or agents selling the products. We see some improvements in productivity and we’re adding a few additional schools and emergency services, et cetera. So I think our view there is steady, strong growth as we go forward. Employer sponsored or group sales, it’s a totally different business, totally different model. And I think given our book size and sort of what I would say is the inherent variability in our case sizes, it can sometimes make comparisons when you look at the numbers in the supplement, pretty challenging quarter-to-quarter fact, it can be challenging year-over-year kind of to make that real by way of example, third quarter of 2023, I think our largest case was somewhere around $800,000 for the full year 2023, the largest case was north of $1.2 million this year and we’re having, we think a solid year, our largest case is $400,000. And so sort of in the group space, just like I said, given the book size, given the inherent variability in the case sizes, comparisons year-over-year are tricky. When I sort of look back and think about the overall health performance of the business, we obviously start with new business sales, but then we also look at, and Marita references growth advice, and that’s up around 2%. Persistency is strong, 93%. So we feel when we look at those measures and the sales on the group side gives us a pretty complete view of the performance of the business, that the fundamentals are in pretty good shape, sort of a strong foundation to be able to grow the business going forward. I think the last thing I’d say is as we peer ahead to 2025, given the nature of the sales cycle for employers sponsored, meaning we sell policies or sorry, cases today that are effective three months, six months, nine months down the road. We see pretty strong activity and successes and that gives us a pretty decent degree of confidence as we ramp up the 2025 sales cycle. So in short on the, on the worksite side, Individual Supplemental continues to grow at a healthy clip. Employer sponsored benefits, producing healthy growth, near-term activity looks pretty good. And we feel pretty good about 2025 as we get into that extremely encouraging numbers that we see coming up for 2025.

Thank you. And my follow-up question, Ryan, you had some comments about commercial real estate and commercial loan income stabilizing and seeing some early signs there. As we think about annual marks that would come in in the first quarter, should we begin thinking about those becoming gains as opposed to losses or write downs?

Thanks. Thanks for your question, John. Look, it was a, it was a good quarter for CMLs, the annualized quarterly return was 6.4% and we did still see a little bit of drag of unrealized losses on that return, about a 2% drag versus the cash base, the cash return, but that drag is starting to slow. So I’m encouraged at the early signs of stabilization we’re seeing, but at the same time, it’s too soon to say with certainty, exactly how these are going to come in and over what period. We left our forecast for the second half at $10 million to $12 million. We have nearly $10 million of that in hand with the third quarter number. So I hope that gives you a little bit of color of how we’re thinking about it. It does.

It does. Thank you.

The next question comes from Wilma Burdis of Raymond James. Please go ahead.

Hey. Good morning. Can you talk a little bit about how you think about share purchases going into 4Q given the cat results have been pretty much in line for the first two quarters of the year? Thanks.

Hey, Wilma. This is Ryan. Thanks for the question. When I think about the share buyback and use of capital, since you heard in the script, we have a clear line of sight to sustainable double-digit ROEs in 2025 and so this clearly increases our level of conviction in capital deployment. Our first priority is growth. Our second, if you will, we’re committed to a compelling dividend. And finally, our approach on the buyback has been opportunistic. But I’ll point out that we purchased at various price points. So it’s not a static equation. We’re taking a multiyear view and continue to have optimism for a higher share price commensurate with earnings growth and multiple expansion as we execute on our goal of a sustainable double-digit ROE. So, we are tracking ahead of last year and we’re comfortable using that lever when it makes sense.

Yeah. Well said Ryan. And our run rate -- on a run rate basis, our capital accumulation is right on track with what we had talked about and where we thought we would be at this point.

Okay. Great. And then maybe you could dive a little bit more into the PYDs, the favorable PYDs and just -- I guess, the -- a little bit more detail on the drivers and any expectations or I guess continued reviews there going forward? Thanks.

Yeah. I don’t know if there’s too much more to add. I mean, we have a consistent process. It’s a strong process, as we’ve said before, when we looked in the second quarter, we released what was appropriate in the other than injury lines. Like I said, we started to see the potential beginnings of some favorable development in the injury lines. We wanted to see it clearly. We saw that clearly in the third quarter, which is why we released what we released. And there’s not much more to say other than the fact that you go through that consistent process. You call it when you see it and we clearly saw it in the third quarter.

Thank you.

I mean, if you have anything specific, we’d be glad to address your question.

No. I think that helps. Thank you.

Yeah.

This concludes our question-and-answer session. I’d like to turn the call over to Brendan Dawal for any closing remarks.

I’d like to thank you for joining our call today. Please reach out to us if there are any additional questions and have a great day.

The conference is now concluded. Thank you for attending today’s presentation and you may now disconnect.