Horace Mann Improves, But Ends Down for the Year

February 10, 2003

Horace Mann Educators Corp., based in Springfield, Ill., today reported net income of $13.5 million, or 33 cents per share, for the fourth quarter, up from $4.8 million, or 12 cents per share, for the year-earlier quarter. But for the year, the company reported net income of $11.3 million, or 28 cents per share, down $25.6 million, or 63 cents per share, in 2001.

In the current periods, net income and operating income benefited from positive developments in the company’s property and casualty segment, Horace Mann Property & Casualty Insurance Co., including: the impact of rate increases on earned premiums; improved 2002 accident year loss trends; lower weather-related losses; and the company’s restructuring of its Massachusetts automobile business. In addition, net income and operating income in 2002 benefited from the Jan. 1, 2002 discontinuance of goodwill amortization.

These positive prior year comparisons were partially offset by adverse development of property and casualty prior years’ reserves, which resulted in after-tax charges of $9.9 million and $15.6 million for the three and twelve months ending Dec. 31, 2002, respectively.

2002 operating earnings also were negatively affected by (1) decreases in investment income due to lost income related to investment credit issues and declining interest rates, (2) tightening margins on variable annuities resulting from adverse market conditions, and (3) higher company-wide operating expenses resulting primarily from transition costs related to changes in the company’s retirement plans and higher employee incentive compensation expenses in 2002.

Written premiums for voluntary property and casualty insurance increased 10 percent in the current quarter and 7 percent for the full year, adjusted for Massachusetts automobile. The growth was a result of increases in average written premium per policy of approximately 6 percent for automobile and 14 percent for homeowners in the last twelve months. Excluding Massachusetts, the number of automobile policies in force was equal to a year earlier, while homeowners policies in force decreased by 3 percent.

Fourth quarter 2002 operating income for the property and casualty segment was $3.8 million, compared to $5.0 million for the same period in 2001. For the full year, operating income for the segment was $19.9 million, compared to $5.2 million a year ago. Horace Mann’s property and casualty statutory combined ratio was 104.8 percent for the fourth quarter of 2002, compared to 104.4 percent a year earlier. For the twelve months, the combined ratio was 103.6 percent, compared to 106.8 percent in 2001.

The property statutory loss ratio of 73.5 percent for the fourth quarter of 2002 improved 7.1 percentage points from the same period in 2001, reflecting lower weather-related losses, an increase in average premium per policy and the positive effects of loss containment initiatives. For the twelve months, the property loss ratio of 81.0 percent improved 16.0 percentage points compared to 2001.

The property and casualty statutory expense ratio increased 1.8 percentage points for the quarter and 2.8 percentage points for the full year. On a statutory accounting basis the property and casualty expense ratio reflected severance and other charges recorded in the third quarter related to the restructuring of the property and casualty claims operation, which represented 0.8 percentage points for the twelve months ending Dec. 31, 2002.

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