Third Quarter 2026 Investor Call - HORACE MANN EDUCATORS CORP

Financial Performance:

• Reported record Q3 2026 core earnings per share (EPS) of $2.06, a 50% year-over-year increase, and 14.2% trailing 12-month core shareholder return on equity (ROE).
• Total net investment income surged 17% to nearly $140 million, driven by limited partnership returns exceeding 20% (above the 8.5% long-term expectation) and a 100+ basis point premium in new money yields over book yield.
• Property and casualty (P&C) core earnings rose 22% to $39 million, with a combined ratio of 83.6% (upgraded ~4 points), driven by favorable prior-year reserve development ($8M total: $2.5M property, $5.5M auto).
• Life and retirement core earnings doubled year-over-year; life sales grew 3% (quarterly) and 13% (YTD), with reserve releases from actuarial assumption reviews boosting results.
• Supplemental and group benefits generated $19 million in core earnings (+10% YoY), with group sales up 67% YTD following the addition of paid family and medical leave coverage.
• Tangible book value per share increased 9% YoY.

Guidance and Future Outlook:

• Raised full-year 2026 core EPS guidance to $5.75–$5.95 per share from previous levels.
• Provided an illustrative normalized 2026 core EPS range of $4.25–$4.45 to exclude one-time benefits (favorable catastrophes, reserve releases, and LP windfalls) for baseline evaluation.
• Maintains three-year strategic goals: 10% annualized growth in normalized core EPS and a sustainable core shareholder ROE of 12–13%.
• Updated full-year catastrophe assumption set at approximately $60 million, and net investment income guidance adjusted to $485–$495 million (managed portfolio income $385–$395 million).
• Expects remaining two Medical Mutual of Ohio transactions to close in Q1 2027, contributing 40–50 cents of core EPS annually and adding ~100 basis points to core ROE post-integration.
• On track to achieve $10 million in expense savings by end of 2026, targeting a 25–50 basis point improvement in the expense ratio.

Business Segments and Product Lines:

• P&C: Strong auto retention and pricing power despite some shopping-related churn in specific markets (e.g., Texas, Georgia, California); property line benefited from benign weather and strong rate realization.
• Life & Retirement: Retirement assets under administration grew 8% YoY; limited partnership fund portfolio delivered exceptional returns, reinforcing diversified investment strategy.
• Benefits: Individual supplemental sales grew at a 25% annualized rate over two years; Group benefits expanded with ESI acquisition (adding ~1 million lives, >50% in education) and paid family/medical leave.
• Distribution: Launched "Horace Mann Club" with 18,000+ users; expanded partnerships with Crayola and added professional development resources for educators.
• Acquisitions: ESI acquisition closed Oct 1st with smooth integration; using excess capital for ESI and evaluating debt/capital mix for remaining Medical Mutual transactions.

Market and Competitive Landscape:

• Operating in a competitive auto market with elevated shopping trends, yet maintaining niche insulation through high cross-selling and bundling (P&C to Life/Retirement).
• Group benefits segment (predominantly public sector) showing strong growth and stability compared to industry peers facing challenges in the public sector.
• P&C portfolio optimization and rate actions have successfully restored profitability across geographies, allowing for disciplined growth in high-return markets.
• New money yields in fixed income remain attractive (~6%), providing a competitive edge in reinvestment environments.

Risks and Challenges:

• Auto retention faces short-term pressure from market dynamics and shopping behaviors; recovery in specific large markets (TX, GA, CA) is expected to be gradual.
• One-time financial benefits (favorable weather, reserve releases, LP returns) are non-recurring and must be excluded when evaluating underlying business trends.
• Regulatory timing risks remain in California for home insurance rate filings.
• Catastrophe losses and LP fund returns are volatile by nature; management cautions against over-reliance on these items for forward baselines.

Management Commentary and Tone:

• Tone was highly confident and optimistic, describing the quarter as the "strongest in company history" and reaffirming "position of strength."
• Management emphasized disciplined execution, strategic capital allocation, and the value of their diversified multi-line business model.
• Highlighted successful integration of recent acquisitions and the strategic fit of adding employee assistance and well-being solutions.
• Expressed commitment to returning capital to shareholders via dividends and opportunistic share repurchases.

Analyst Questions and Answers:

• P&C Margins: Confirmed outperformance driven by both lower-than-average catastrophes/benign weather and successful multi-year rate/non-rate underwriting actions; California rate filing nearing approval.
• Capital Allocation: ESI funded via excess capital; remaining acquisitions will likely use a mix of debt and capital, targeting a high-20s debt-to-capital ratio; share buybacks remain opportunistic.
• Reinvestment Opportunities: Identified attractive reinvestment options in both the fixed-income portfolio (new money yields near 6%) and profitable growth initiatives (e.g., Group platform expansion).
• LP Returns: Clarified that Q3 LP returns were driven by broad mark-to-market valuation increases across venture capital and private equity portfolios, not specific IPOs.
• Benefit Ratios: Group benefit ratio expected to normalize around 50% long-term (vs. 30% for individual supplemental); Q3 favorability included one-time reserve releases.
• Cross-Selling: Noted strong natural cross-sell between P&C and Life/Retirement; Group benefits serve as a new on-ramp to expand the total customer ecosystem and increase per-household touchpoints.

Other Key Points:

• Returned $16 million to shareholders in Q3 ($15M dividends, $1M buybacks), with $36M remaining on the repurchase authorization.
• The "Medical Mutual of Ohio" transaction suite is a key driver for future earnings accretion, with the first deal (ESI) already closed and two more pending Q1 2027 closure.
• Company emphasizes a shift from being a "product company" to a "solutions provider" for educators, leveraging its niche status to drive retention despite industry-wide inflation and competition.
• Actuarial assumption reviews resulted in favorable reserve releases across Life, Supplemental, and Group lines, though management notes these are cyclical, not recurring annually at this magnitude.