View this article online: https://www.claimsjournal.com/news/midwest/2003/05/02/28543.htm
Illinois-based Horace Mann Educators Corporation reported net income of $8.1 million, or 19 cents per share, for the first quarter ended March 31, 2003. Net income for the first quarter of 2002 was $15.6 million, or 38 cents per share. All per-share amounts are stated on a diluted basis.
First quarter 2003 operating income, which is a non-GAAP financial measure defined by the company, was $11.2 million, or 26 cents per share, compared to $13.9 million, or 34 cents per share, for the same period in 2002. Operating income is defined by the company as net income before the after-tax impact of realized investment gains and losses and non-operating items. Current period after-tax realized investment losses were $3.1 million, or 7 cents per share, compared to realized investment gains of $1.7 million, or 4 cents per share, in the first quarter of 2002. There were no non-operating items in the first quarters of 2003 and 2002.
The company’s management utilizes the operating income measure in comparing core operating performance across reporting periods, but acknowledges that its definition of operating income may not be comparable to other companies.
In the current period, net income benefited from the impact of property and casualty rate increases on earned premiums – with the growth in average premium per policy outpacing current accident year loss costs – and the company’s restructuring of its Massachusetts automobile business.
These positive prior year comparisons were offset by adverse development of property and casualty prior years’ reserves, which resulted in an after-tax charge of $2.8 million for the quarter. Current period net income also was negatively impacted by (1) decreases in investment income related to investment credit issues and declining interest rates, (2) tightening margins on variable annuities resulting from adverse financial market conditions, (3) heavier weather-related losses than a year ago and (4) investment impairment charges.
“Horace Mann continues to focus on initiatives to build revenue growth and enhance profitability,” said Louis Lower II, president and CEO of Horace Mann. “In spite of the winter storms, a less than robust financial market and adverse development of prior years’ voluntary automobile loss reserves, first quarter 2003 results are consistent with our previously announced operating income guidance for the full year of $1.25 to $1.35 per share.”
The company’s core lines premiums written and contract deposits increased five percent compared to the first quarter of 2002, primarily resulting from rate increases in the property and automobile lines.
“While we experienced a somewhat larger first quarter decline in agents than a year ago, our March 31, 2003 agent count of 884 represented a five percent increase over the last 12 months,” added Lower. “Average agent productivity for all lines of business declined compared to the first quarter of 2002. The impact of changes in the average experience level of our agent force, as well as severe weather in large geographic segments of the company’s market and client concerns regarding economic conditions, resulted in a slight decline in total sales.”
Written premiums for voluntary property and casualty insurance increased eight percent in the current quarter. The growth was a result of increases in average written premium per policy of approximately six percent for automobile and 16 percent for homeowners compared to the first quarter of 2002. Excluding Massachusetts, the number of automobile policies in force decreased slightly compared to a year earlier, while homeowners policies in force decreased by three percent.
First quarter 2003 net income for the property and casualty segment was $6.6 million, compared to $7.2 million for the same period in 2002. Horace Mann’s property and casualty statutory combined ratio was 99.5 percent for the first quarter of 2003, compared to 100.4 percent a year earlier.
The first quarter of 2003 property and casualty combined ratio of 99.5 percent included adverse prior years’ loss reserve development which represented 3.3 percentage points of the combined ratio, or $2.8 million after tax. Adverse development of automobile liability reserves related to accident years 2001 and prior represented $2.5 million after tax of the total strengthening. In the first quarter of 2002, development of prior years’ reserves had no net impact on earnings. Compared to last year, the higher level of weather-related losses in the first quarter of 2003 represented an increase in the combined ratio of approximately 2 percentage points.
The voluntary automobile statutory loss ratio for the first quarter of 2003 was 75.9 percent, compared to 75.5 percent for the same period in 2002. The current period included 5.8 percentage points due to adverse development of prior years’ reserves. The increase in average voluntary automobile premium in the current period exceeded the increase in average current accident year loss costs.
Despite a higher level of weather-related losses, the property statutory loss ratio of 74.1 percent for the first quarter of 2003 improved 4.5 percentage points from the same period in 2002, reflecting an increase in average premium per policy and the positive effects of loss containment initiatives.
The first quarter 2003 property and casualty statutory expense ratio of 24.3 percent, while comparable to the full year 2002 ratio, reflected an increase of two percentage points compared to the first quarter of last year. This variance reflected higher automobile new business commissions, investments in technology and underwriting initiatives and the required statutory classification of escrowed North Carolina automobile rate dispute amounts.