Horace Mann Educators Corporation (HMN) has been a trusted partner to the educational community for over a century, providing tailored insurance and financial solutions that empower educators to achieve lifelong financial success. With a steadfast commitment to its niche market, Horace Mann has weathered industry challenges, adapted to evolving customer needs, and emerged as a diversified financial services provider serving the unique requirements of those who dedicate their lives to shaping young minds.
Company History and Growth
The company's origins trace back to 1945 when it was founded in Springfield, Illinois to offer insurance and financial solutions specifically designed for educators and their families. Over the decades, Horace Mann has grown to become one of the largest providers of auto, homeowners, and life insurance products to the education market. In 1975, Horace Mann was acquired by INA Corporation (which later became CIGNA Corporation), providing the company with additional resources and capabilities to expand its offerings and reach.
Throughout its history, Horace Mann has pursued strategic growth initiatives, both organically and through acquisitions. Notable acquisitions include the 2003 purchase of National Teachers Associates Life Insurance Company, which expanded the company's product portfolio. In the early 2000s, Horace Mann faced challenges including elevated catastrophe losses and changes in the education market that impacted its sales and persistency. The company responded by diversifying its product portfolio, expanding distribution channels, and enhancing operational efficiency, which helped navigate through this period and position the company for future growth.
In 2018, Horace Mann made two significant strategic moves to further solidify its market position. The company acquired Madison National Life Insurance Company to expand its group benefits capabilities, while also divesting its commercial lines business to focus more on its core personal lines and supplemental products for the education market. These transactions strengthened Horace Mann's position as a leading multi-line insurance and financial solutions provider to the education community.
Financials
Horace Mann's financial performance has demonstrated resilience, with the company reporting annual revenue of $1.43 billion and net income of $45.0 million for the fiscal year ended December 31, 2023. The company's operating cash flow (OCF) and free cash flow (FCF) for the same period both stood at $302.10 million.
For the third quarter of 2024, Horace Mann reported revenue of $412.10 million, representing a year-over-year growth of 8.80%. Net income for the quarter was $34.30 million, with both OCF and FCF reaching $143.90 million. The increase in revenue for the quarter was primarily driven by higher net premiums and contract charges earned in the Property & Casualty segment, as the company continues to implement and earn in rate and other actions. Net investment income decreased slightly due to lower returns in the limited partnership portfolio.
Liquidity
The company's balance sheet reflects a strong liquidity position, with $39.80 million in cash as of September 30, 2024. Horace Mann's debt-to-equity ratio stood at 0.46 as of the same date, indicating a prudent approach to leverage. The company has access to a $325.00 million revolving credit facility, which expires in July 2026, providing additional financial flexibility. As of September 30, 2024, the company had no borrowings outstanding under this revolver. Additionally, Horace Mann had $959.50 million in funding agreement borrowings from the Federal Home Loan Bank of Chicago as of the same date.
Business Segments
Horace Mann operates through four reporting segments: Property and Casualty, Life and Retirement, Supplemental and Group Benefits, and Corporate and Other.
The Property and Casualty segment, which accounts for 46% of total revenue, has been the focal point of Horace Mann's strategic efforts in recent years. This segment primarily markets private passenger auto insurance and residential home insurance, offering standard auto coverages and property coverage including both homeowners and renters policies. Educators receive a discounted rate and the Educator Advantage package of features for both auto and property coverage. The segment has implemented a multi-year profitability restoration strategy, involving rate increases and non-rate actions, to address industry-wide challenges. As a result, the Property and Casualty combined ratio improved by 19 percentage points year-over-year in the third quarter of 2024, reaching 97.9%, demonstrating the success of these initiatives.
The Life and Retirement segment, contributing 36% of total revenue, has provided a stable earnings base for Horace Mann. This segment markets 403(b) tax-qualified fixed, fixed indexed and variable annuities, the Horace Mann Retirement Advantage open architecture platform for 403(b)7 and other defined contribution plans, and other retirement products to educators, as well as traditional term and whole life insurance products. Horace Mann is one of the largest participants in the K-12 educator portion of the 403(b) tax-qualified annuity market. The segment's net written premiums and contract deposits of $421.0 million as of the third quarter of 2024 reflect the enduring appeal of the company's 403(b) tax-qualified annuity products among the educator demographic. While the segment's net interest margins have faced some headwinds due to rising interest rates, Horace Mann remains confident in its ability to navigate the dynamic market environment.
Horace Mann's Supplemental and Group Benefits segment, accounting for 19% of total revenue, has also demonstrated resilience. This segment markets employer-sponsored group solutions for districts and other public employers, as well as worksite direct products typically distributed through the employer channel. The Worksite business provides group term life, disability and specialty health insurance, along with supplemental products including cancer, heart, hospital, supplemental disability and accident coverages. The segment's premiums and contract charges earned of $190.6 million in the third quarter of 2024 reflect a diversified product portfolio. The segment's strong persistency, with a 91.5% worksite direct product premium persistency rate, underscores the value proposition Horace Mann offers to its customers.
The Corporate and Other segment does not allocate the impact of corporate-level transactions to the operating segments but classifies those items separately. This includes ongoing transactions such as corporate debt service, net investment gains/losses, and certain public company expenses.
Market Focus and Strategy
The company's commitment to its niche market has been a key driver of its success. Horace Mann's deep understanding of the unique financial needs and preferences of educators has enabled it to develop tailored products and services that resonate with its target audience. This focus has fostered strong customer loyalty, with the company boasting policyholder retention rates of 86.6% in Auto and 90.1% in Property as of the third quarter of 2024.
Horace Mann's growth strategy is centered on expanding its presence within the education sector, both through organic initiatives and strategic acquisitions. The company's agency force, which has grown in both size and productivity, has been instrumental in capturing new business, with a 24% year-over-year increase in Auto sales and a 14% increase in Life sales in the third quarter of 2024. Additionally, Horace Mann's investments in digital capabilities have yielded positive results, with a 50% increase in online quote activity following recent website and quoting functionality enhancements.
Industry Challenges and Company Response
Despite the challenges faced by the insurance industry, Horace Mann has demonstrated its ability to navigate turbulent waters. The company's proactive approach to addressing profitability concerns in its Property and Casualty segment, coupled with its diversified revenue streams and unwavering focus on the education market, have positioned it for long-term success.
Future Outlook
Looking ahead, Horace Mann has provided guidance for the full year 2024, expecting core earnings per share to be within a range of $2.40 to $2.70. This outlook reflects the company's confidence in its ability to achieve sustainable profitability across all its business segments, while continuing to invest in growth opportunities that will drive long-term shareholder value.
For the third quarter of 2024, Horace Mann reported core earnings of $0.76 per diluted share, a 73% increase over the prior year and in line with the midyear guidance. The company remains on track to meet its strategic goals, including achieving a sustainable double-digit shareholder return on equity in 2025.
As Horace Mann Educators Corporation celebrates its rich history and looks towards the future, the company remains steadfast in its mission to empower educators and their communities, providing the financial tools and solutions they need to achieve lifelong success. With its proven track record, diversified business model, and unwavering commitment to its niche market, Horace Mann is poised to continue its legacy as a trusted partner to the educational community.