Horace Mann Educators Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report; the filing does not provide a complete standalone fourth-quarter summary in the supplied text. Horace Mann is an insurance holding company serving educators and others who serve their communities through Property & Casualty, Life & Retirement, and Supplemental & Group Benefits businesses.
Financial performance
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $1,491.9 million | $1,381.6 million |
| Net income | $45.0 million | $19.8 million |
| Diluted earnings per share | $1.09 | $0.47 |
| Net investment income | $444.8 million | $400.9 million |
| Net investment losses | $(24.0) million | $(56.5) million |
| Net cash from operating activities | $302.1 million | $171.5 million |
| Cash at year-end | $29.7 million | $42.8 million |
| Total debt | $546.0 million | $498.0 million |
| Shareholders’ equity | $1,175.3 million | $1,098.3 million |
| Book value per share | $28.78 | $26.85 |
Revenue rose 8.0%, while net income more than doubled, primarily reflecting higher investment income and lower investment losses; higher interest credited, DAC amortization, and the effective tax rate partly offset the improvement. Net investment income increased 11.0%, benefiting from higher returns on floating-rate investments. The portfolio had $417.6 million of pretax unrealized losses on fixed-maturity securities at year-end, improved from $571.9 million in 2022.
Segment results: Property & Casualty reported a $35.5 million net loss (versus a $44.4 million loss); Life & Retirement earned $71.5 million (up 12.1%); Supplemental & Group Benefits earned $54.9 million (down 16.7%); and Corporate & Other reported a $45.9 million net loss. The P&C combined ratios were 111.7% for auto and 116.1% for property; catastrophe losses were $97.6 million, up from $80.0 million. The consolidated net income return on equity was 4.0%, compared with 1.6% in 2022.
Operating cash flow increased by $130.6 million. Investing activities used $107.4 million and financing activities used $207.8 million; year-end cash declined by $13.1 million. Management reported $1.1 billion in cash and specified readily liquid securities and stated operating cash flow should meet near-term operating needs. Total capital was $1,721.3 million, including $546.0 million of long-term debt. Debt was 31.7% of total capital including unrealized fixed-income losses, above the company’s 25% long-term target; the adjusted ratio cited by the company was 26.9%.
Material changes versus 2022
- Property & Casualty net premiums written rose 10.8%, mainly from rate actions and property coverage-value adjustments, while risks in force declined 2.2%. Current-year claims rose, including higher catastrophe and non-catastrophe weather losses; unlike 2022, there was no net prior-year P&C reserve development in 2023.
- Life & Retirement net income improved with investment income, but its fixed-annuity net interest spread narrowed to 218 basis points from 246 basis points. Persistency weakened: annuity cash-value persistency was 91.5%, versus 93.7%.
- Supplemental & Group Benefits net income fell as premiums declined with the run-off of an indemnified block and operating expenses increased. Segment premiums earned were down 5.7%; excluding the run-off block, management said they increased 1.9%.
- In September 2023, the company issued $300 million of 7.25% senior notes due 2028 and used proceeds to repay $249 million outstanding under its revolving credit facility. The remaining $250 million of 2015 senior notes carries a 4.50% coupon and matures in 2025.
- The company adopted long-duration insurance accounting standard ASU 2018-12 in 2023 and recast prior-year figures. The filing says adoption did not change policy cash flows or the underlying economics of the business.
Outlook, risks, and unusual items
For 2024, management projected net income of $3.00–$3.30 per diluted share and core return on equity near 9%. Assumptions include 8%–9% growth in net premiums and contract charges earned, net investment income of $465–$475 million, operating expense growth of about 5.5%, and approximately $35 million of corporate interest expense. Projections exclude net investment gains and losses.
- Property & Casualty: 2024 net income forecast of $36–$41 million, combined ratio near 100%, and catastrophe losses of about $80 million. The longer-term combined-ratio target is 95%–96% in 2025.
- Life & Retirement: 2024 net income forecast of $77–$81 million; fixed-annuity spread expected above the 220–230 basis-point target range, with mortality modestly higher than in 2023.
- Supplemental & Group Benefits: 2024 net income forecast of $47–$50 million; management expects claims utilization to move closer to pre-pandemic levels.
Key risks include catastrophe and climate-related losses; inflation in repair, medical, and labor costs; uncertain insurance reserves and claims development; interest-rate, credit, and investment valuation exposure; competition and access to educator distribution channels; and reliance on reinsurers, vendors, and technology systems. A claim concerning legacy commercial policies and reinsurance arrangements was pending following the liquidation of R&Q Reinsurance Company. The company said potential claims could be material but that it could not reasonably estimate any resulting payment. Unfunded investment commitments were $502.6 million at year-end. The filing reports no other pending litigation with a reasonable possibility of material loss.
Financial statements received an unqualified audit opinion from KPMG, and management and the auditor reported effective internal control over financial reporting. The filing identifies hard-to-value fixed-maturity securities and P&C claim reserves as critical audit matters.
Important facts for investors to verify
- Whether 2024 guidance is tracking to plan, particularly P&C pricing, catastrophe experience, and the path to the 2025 combined-ratio target.
- Reserve adequacy and subsequent development, especially given inflation-sensitive auto liability claims and the elevated 2023 catastrophe losses.
- Investment portfolio quality, unrealized losses, limited-partnership returns, and sensitivity of investment spreads and policyholder behavior to interest-rate changes.
- Debt service and refinancing needs, including the 2025 maturity, the 7.25% notes, and debt-to-capital relative to the company’s target.
- Progress on the legacy R&Q-related claims and any change in the company’s ability to estimate or reserve for potential exposure.
- Regulatory limits on subsidiary dividends: up to approximately $112.3 million could be paid in 2024 without prior approval, subject to applicable restrictions.