Horace Mann Stops the Bleeding

August 6, 2003

Springfield, Ill.-based Horace Mann Educators Corp. reported net income of $2.1 million (5 cents per share) and $10.2 million (24 cents per share), respectively, for the three and six months ended June 30, 2003, compared to net losses of $18.4 million (45 cents per share) and $2.8 million (7 cents per share) for the three and six month periods ended June 30, 2002.

Included in net income were net realized gains on securities of $2.2 million ($1.5 million after tax, or 3 cents per share) for the second quarter of 2003 and net realized losses of $2.5 million ($1.6 million after tax, or 4 cents per share) for the first half of 2003, compared to net realized losses of $41.3 million ($26.9 million after tax, or 65 cents per share) and $38.7 million ($25.2 million after tax, or 61 cents per share) for the comparable periods in 2002. All per-share amounts are stated on a diluted basis.

As previously announced, the company’s net income for the second quarter and six months ended June 30, 2003 was unfavorably affected by approximately 15 cents per share due to an increase in property and casualty claims reserves. Based on June 30, 2003 reserve studies, total property and casualty reserves were increased by $10 million compared to March 31, 2003.

In July 2002, Horace Mann announced the restructuring of its claims operations to improve operating and cost efficiencies and customer service. While the company has begun to realize improvements in its claims handling process and is confident in the ultimate benefits to be gained from the redesign of its claims operation, those benefits have not been realized as quickly as the company had originally anticipated.

In addition, the estimation of claims costs, settlement rates and severity has been complicated in recent quarters due to the degree of change involved. As a result of these factors, and in light of the pattern of adverse prior years’ reserve development observed over the last four quarters, the June 30, 2003 reserve re-estimate reflects a strengthening of prior years’ reserves, primarily voluntary automobile, and an increased level of conservatism in the less developed 2002 and 2003 accident years.

Net income was also adversely impacted by widespread severe weather experienced in the current period. Second quarter 2003 catastrophe losses of $7.3 million after tax were nearly three times greater than the same period last year and approximately 6 cents per share above expected levels. Compared to 2002, an increase in losses from weather-related catastrophes decreased net income $4.6 million for the quarter and $5.9 million for the six months.

Non- catastrophe weather-related losses were also greater in 2003 compared to the prior year—by approximately $2.1 million after tax in the second quarter and $3.2 million after tax for the six months. In addition, net income comparisons to prior year continued to be negatively impacted by (1) lower interest rates and decreases in investment income related to investment credit issues experienced in 2002 and (2) lower margins on variable annuities.

Horace Mann is the largest national multiline insurance company focusing on educators’ financial needs and provides retirement annuities, life insurance, property/casualty insurance, and other financial solutions.

Topics Claims Profit Loss Property Casualty

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