Horace Mann Educators Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2024

There are 11 speakers on the call.

Operator

Good afternoon, and welcome to the Horace Mann Educators First Quarter 2024 Investor Conference Call. All participants will be in listen only mode. Please note, this event is being recorded. I would now like to turn the conference over to Brett Conklin, Chief Financial Officer. Please go ahead.

Speaker 1

Thank you, and welcome to Horace Mann's discussion of our Q1 results. Yesterday, we issued our earnings release, 10 Q, investor supplement and investor presentations. Copies are available on the Investors page of our website. Marita Zareidis, President and Chief Executive Officer, and I will give the formal remarks on today's call. With us for Q and A, we have Matt Sharp, Steve McAnenna, Ryan Grenier, Mark Deroscher and Mike Weckenbrock.

Speaker 1

Before turning it over to Marita, I want to note that our presentation today includes forward looking statements as defined in the Private Securities Litigation Reform Act of 1995. The company cautions investors that any forward looking statements includes risks and uncertainties and are not guarantees of future performance. These forward looking statements are based on management's current expectations and we assume no obligation to update them. Actual results may differ materially due to a variety of factors, which are described in our news release and SEC filings. In our prepared remarks, we use some non GAAP measures.

Speaker 1

Reconciliation of these measures to the most comparable GAAP measures are available in our investor supplement. And now I'll turn the

Speaker 2

call over to Marita. Thanks, Brett, and welcome, everyone. Yesterday, we reported 1st quarter core earnings of $0.60 per diluted share, a nearly threefold increase from last year's Q1, primarily due to the progress we've made in restoring P and C profitability. Total revenues were up 9% and earned premiums and contract charges were up 8% over prior year. These results reflect strong sales momentum in our retail division, led by a 35% increase in property and casualty sales premium.

Speaker 2

We realized a dramatic improvement in the profitability of our P and C business and continued to benefit from the strength of our diversified business model built to meet the needs of educators and public sector employees. While net investment income on the managed portfolio was up 7% for the quarter, we saw a handful of real estate related funds perform below target levels due to a mark to market valuation adjustment consistent with the experience of the broader industry. This obscured some of the progress we are making in Life and Retirement and the Supplemental and Group Benefits segments. Brett will talk about the outlook for the individual segments later in the call, but at a high level, we remain confident in our 2024 full year outlook of core EPS in the range of $3 to 3.30 net investment income closer to the lower end of the current range of $465,000,000 to $475,000,000 and return on equity near 9%. Today, I would like to focus my remarks on the progress we're making across the business to reach the profitability targets and gain market share.

Speaker 2

1st and foremost, we are making substantial progress towards restoring P and C segment profitability. Our reported Q1 P and C combined ratio of 99.9% was a 13 point improvement over prior year. Combined with strong segment net investment income returns, this led to a 1st quarter segment profit of 11,000,000 dollars a $22,000,000 increase compared to a year ago. As an aside, 1st quarter catastrophe losses remain elevated. Industry losses exceeded the 10 year industry average and Horace Mann's 1st quarter losses also exceeded our 10 year and 5 year averages.

Speaker 2

However, when comparing quarter over quarter, our catastrophe and non catastrophe losses were lower than prior year. The majority of our combined ratio improvement is due to the successful execution of our multiyear profitability restoration strategy. From 2022 through the end of 2024, we expect our rate increases and non rate underwriting actions to equate to total premium increases of nearly 40% in auto and nearly 50% in property. Despite these increases, policyholder retention has largely remained steady and consistent with our historically strong retention. We attribute this to our loyal customer base, our educator specific benefits and the overall value we provide.

Speaker 2

We strive to offer a fair price over the lifetime of a customer relationship and we equip our agents with the information to explain the economic context to customers. Over the course of 2024, we are currently planning for a country ride average of 10% to 15% rate increases in both auto and property. This plan includes recent approvals from California for a 22% increase in homeowners and a 13% increase in auto, both of which are now in effect. In addition, we expect an increase in property average renewal premium in the mid single digits attributable to higher home coverage values. We continuously review emerging trends and will adjust our rate plans as needed to ensure segment profitability.

Speaker 2

In the property line, we continue to roll out underwriting as well as terms and conditions changes to ensure we continue to accurately price our risk. In particular, we have implemented new roof rating schedules and have received approval with effective dates within the next 90 days in 6 highly wind prone states with filings pending in 3 additional states. These schedules set convective storm claim settlement rates that take into account the age and construction materials of roofs. When fully earned in, we expect about a 3 point impact to the property combined ratio. On a normalized basis, our Life and Retirement and Supplemental and Group Benefits segments are near or above target profitability.

Speaker 2

However, in the Q1, segment earnings were impacted by lower than expected net investment income due to mark to market adjustments on 3 commercial mortgage funds and limited partnership real estate investments. This adjustment is valuation earnings and a strategically significant entry point to the education market. A core competency of our agency force is providing financial wellness and retirement planning workshops in schools across the country, building relationships as a trusted advisor with both educators and their employers. The supplemental and group benefits segment is a less capital intensive higher margin business that provides corporate earnings diversification. As we have talked about in the past, our target blended benefits ratio for this business is 43%, which takes into account pre pandemic customer utilization levels.

Speaker 2

We are seeing the benefit ratio continue to trend towards this long term target. This quarter, the benefit ratio was 36% compared to 33% a year ago. With our profitability targets within reach across the business, we are testing, adjusting and scaling our strategies to grow educator households. Within the retail division, we are especially well prepared with strong momentum in our exclusive agency channel. The market has been challenging over the past few years and we've worked with our agents to ensure their businesses remain healthy.

Speaker 2

Over the past year, we've seen a steady increase in exclusive agent recruiting, a 16% increase in average agency income and a 22% increase in agency P and C premium production. Agent enthusiasm is strong and we're seeing the impact in solid top line results. Looking ahead, our efforts are centered around supporting agency new business and cross sell production, enhancing digital capabilities and improving the effectiveness of our digital sales funnel to align with educator preferences. In general, educators want to do research and browse online, but when they are ready to buy, they are looking to talk to a trusted advisor. Let me provide a few examples.

Speaker 2

We have seen success with a hyper local digital marketing program targeting educators. Through this and other programs, we have driven 15% more traffic to our website this year compared to last. In addition, we recently launched a new version of our website, which increased the number of quotes started by more than 50%. Over the past year, getting better leads to agents has helped contribute to an over 20% increase in new P and C business compared to the Q1 of 2023 and that's in an increasing rate environment. In the worksite division, we're building on our strong foundation to drive growth in both the employer sponsored and worksite direct lines.

Speaker 2

We continue to refine and improve our product set to meet educator our product set to meet educator and employer expectations and to introduce product enhancements to our supplemental policy offerings. These enhanced features meet specific customer demand and provide higher average premiums. We are also seeing strong momentum in sales trends. We continue to add sales and enrollment headcount on the worksite direct side of the business. On the employer sponsored side, we are working to leverage our existing broker partnerships to expand distribution.

Speaker 2

Since last year, we grew our number of covered lives to 836,000. Before I turn the call back to Brett, I want to touch on our efforts to have a positive impact on all of Horace Mann's stakeholders. We are in the midst of teacher appreciation week, but Horace Mann has planned events throughout the entire month of May to thank educators for everything they do. Centered around educators' desire for work life balance, we're hosting contests, an exclusive virtual event School Educator and Administrator of the Year Awards. We also recently published our 2023 Corporate Responsibility reporting, outline the actions we've taken to support educators, our customers, our employees, our agents and our local communities.

Speaker 2

A few highlights. We contributed nearly $1,000,000 to charitable causes through the Horace Mann Educators Foundation and the Horace Mann Educators Corporation. We reduced our carbon by publishing our U. S. Equal Opportunity Commission EEO-one workforce data report.

Speaker 2

In March, our Board of Directors increased the quarterly shareholder dividend by 3%. This is the 16th consecutive year the Board has increased the shareholder dividend, underscoring our commitment to long term shareholder value creation. In closing, by successfully executing on our strategic plans, we remain solidly on track to achieve our long term goals, a larger share of the education market and a double digit shareholder return on equity in 2025. Thanks. I'll now turn the call back over to Brett.

Speaker 2

Thanks, Marita. 1st quarter core earnings were $24,800,000 or $0.60 per diluted share,

Speaker 1

a nearly threefold increase over prior year. Our P and C profitability restoration strategy is making significant progress and we remain on track to be within our full year 2024 core EPS guidance range of $3 to $3.30 Let me break down the results by individual business segment performance, starting with P and C. 1st quarter profit of $11,000,000 was a $22,000,000 improvement over the prior year. Net investment income was triple last year's returns due to solid performance in limited partnerships and higher yields on the fixed income portfolio. Net written premiums rose more than 15% to $172,000,000 primarily on the premium increases and underwriting actions we implemented over the past year.

Speaker 1

The reported combined ratio of 99.9 percent improved 13 points over prior year. Cat losses added 9 points to the total combined ratio compared to nearly 15 points a year ago. In the Q1, property claims services designated 19 events as cats compared to 23 a year ago. As Marita mentioned earlier, from 2022 through the end of 2024, we expect total premium increases of nearly 40% in auto and 50% in property, which underscores our confidence that the PMC segment will be profitable for the full year as well as reaching our targeted combined ratio of 95% to 96% in 2025. Turning to auto, net written premiums of $117,000,000 increased 15% over prior year, primarily on rate actions.

Speaker 1

The combined ratio of 100.8% improved 10 points over prior year. In terms of loss cost trends, we saw lower frequency likely attributable to more mild winter weather and severity generally in line with expectations. Despite the higher premiums, policyholder retention remained strong at 87%. In property, net written premiums were 56,000,000 dollars a 16% increase over prior year. The combined ratio of 97.7% reflected lower non cat weather and cat losses.

Speaker 1

Those cat losses are slightly above our expectations as they are above our 5 year historic average. This is generally in line with the broader industry, which also experienced cat losses above historical averages. Although property average written premiums were significantly higher, our policyholder retention remained strong at 90%. Turning to life and retirement. Core earnings of $12,000,000 were below prior year by 16% due to lowered interest margins, while net investment income on the segment's fixed income and FHLB portfolios increased 4% due to higher reinvestment rates, returns on the commercial mortgage loan fund portfolio and limited partnerships were lower than both our expectations in prior year.

Speaker 1

This was due to negative returns in 1 commercial mortgage loan fund as well as 2 real estate equity limited partnerships. These same funds also impacted results in the supplemental and Group Benefits segment. In the Retirement business, net annuity contract deposits in total were down slightly at $105,000,000 However, deposits in our core 403 products remained strong. Over the Q1, accounts on our fee based mutual fund platform, Retirement Advantage, reached nearly $20,000 In addition, the market risk benefit adjustment in retirement was favorable. As Marita mentioned, our retirement products are a cornerstone of Horace Mann's value proposition and an important entry point to the education market.

Speaker 1

Annualized life sales increased 5% over prior year. Mortality costs for the quarter were in line with prior year and persistency remains strong at about 96%. In supplemental and group benefits, earnings of $11,000,000 were down from prior year by $3,000,000 due to 14% lower net investment income and a 2.3. Increase in the benefits ratio. Premiums and contract charges earned were $64,000,000 down slightly from prior year and sales of $7,000,000 were down 20 percent from prior year.

Speaker 1

As a reminder, the employer sponsored line sales are inherently lumpy depending on case size. The sales comparison to prior year is unfavorable partially due to a large employer sponsored sale in the Q1 of 2023. The long term target for the blended benefits ratio is 43%, which assumes policyholder utilization reverts to pre pandemic levels. In the Q1, the benefits ratio was 36% compared to 33% a year ago. Historically, benefits usage in the employer sponsored line is heaviest in the Q1.

Speaker 1

Turning to investments, Overall net investment income was up 5%, while returns on the managed portfolio were up 7%. Income on the fixed maturities portfolio was up 4% from the prior year, reflecting reinvestment rates that have exceeded portfolio yield for the past 8 quarters. Our core fixed income new money yield in the Q1 was 5.44%, 124 basis points above the average portfolio yield and had an average duration of 7 years. The portfolio remains high quality at A plus and remains concentrated in investment grade corporates, municipals and high quality agency and agency MBS securities positioning us well for a potential recessionary environment without sacrificing income. Given the Q1 underperformance related to commercial mortgage loan and real estate related limited partnership funds, we now expect full year net investment income on our managed portfolio to be closer to the low end of our guidance range of $360,000,000 to $370,000,000 On a segment basis, P and C NII is ahead of expectations with LNR and S and GB below.

Speaker 1

In summary, we remain focused on long term shareholder value creation. The year is off to a strong start with profit restoration and sales momentum taking center stage in the P and C segment. We continue to make solid progress toward our long term objectives of an expanded market share and a double digit shareholder return on equity in 2025. We are excited and optimistic about the future. Thank you.

Speaker 1

And operator, we're ready for questions.

Operator

We will now begin the question and answer session. Our first question comes from Meyer Shields with KBW. Please go ahead.

Speaker 3

Good. Thanks and thanks for taking my questions. First Maria, in your comments you talked about lower frequency attributable to benign weather in the winter. And I'm wondering whether for your book of business, we're seeing any impact from rising gasoline prices on frequency?

Speaker 4

Yes. Hey, Meyer, this is Mark. I'll take that question. When we look at the Q1, when we look at the overall frequency, we are down from an accident frequency standpoint about 3% or 4%. I would say one third of that more or less is weather related, probably about another third is actually some mix and underwriting changes that we've made.

Speaker 4

And when we look at the other third, we are seeing some reduced driving activity that we would attribute some of that lower frequency to. So I think that when you look at the weather impact, that's likely to not be recurring. I think that the underwriting and mix actions, we expect that benefit to continue to roll through. In terms of the driving behavior, it's a little harder predict what that will run for the rest of the year, but certainly it had an impact in the Q1.

Speaker 2

Yes. And when you think the type of weather activity in the Q1, whether it's us or anyone else in the industry, the bucketing between cat and non cat always gets interesting, right? How many tip over and fall into it, we use a PCS definition, fall into that definition of cat or whether you have weather activity that doesn't quite meet that definition. But I agree with what Mark had said as far as overall frequency trends. We're not going to assume anything in that, but we're certainly pleased with what we're seeing in the auto book for sure.

Speaker 3

Okay, perfect. That's very helpful. But I guess and I guess in terms of follow-up, how rapidly assuming that some of these favorable trends persist and I know you're not counting on it, which I think is the right call, but if these favorable trends persist, how quickly can you sort of change the pricing approach and maybe shoot 4, 5 to 10 instead of 10 to 15 for price adequacy that's a little bit more competitive?

Speaker 2

Yes. It's interesting. I with the team of actuaries that we have in the organization, this is all real time. I mean, Mark and his folks will take the information from the Q1 and the Q1 of last year rolls off and the Q1 of this year rolls on. And obviously, in this dynamic pricing environment that we've been in, in a couple of years, this has been real time.

Speaker 2

So it is pretty quick in being able to react. Obviously, you have a handful of states where that's a longer timeline. We certainly saw that in California, very pleased with getting that rate filing. You've heard about the property in the past, but we mentioned in the script getting our auto rate filing approved in California. As soon as that happens, the team gets worked gets working on that next rate filing and thinking about what that data looks like when a quarter is rolling off and a new quarter is rolling on.

Speaker 2

So it's pretty real time. I don't know if you have anything to add that, Mark?

Speaker 4

Yes. I would add a couple of points, Morita. I think, first of all, we in addition to tracking our loss ratio and our rate changes relative to the competitors, we take a pretty close look at our close rates in terms of what's our success rate in issuing a policy for every policy we quote. And even as some of the competitors have gotten a little bit more aggressive over the last quarter, we've not seen any drop off in that. So we certainly don't see it yet.

Speaker 4

We have some flexibility in terms of underwriting actions that we can lift or shift between which companies we may be offering new business quotes on. And clearly, if we have to be more aggressive from a pricing standpoint or slow down the aggressiveness of some of our rate actions, we expect the various regulatory agencies to be slightly more receptive than they might be when we're taking rate increases.

Speaker 2

Yes, Meyer, and your question seemed to hint, are we prepared for an increase in competitiveness across the market? And clearly, I really believe that we are. And we fully expect competition to pick up. I mean, when I look at what we're seeing the dynamics across our distribution, our EA plant is in really good shape. We've had good success in hiring producers, good retention in the producers that we've had for quite some time.

Speaker 2

We have the ability to offer a lot more than many of our competitors. We're not just a model line market. Our retention is holding the new business with sales up 35% in the right places. We're making the right investments and I feel good about us being prepared for an eventual increase in the competitiveness in P and C. I don't know if Steve you want to provide any more detail on some of the new enhancements that are starting to show some signs of life?

Speaker 5

Yes, sure. Happy to. I'll kind of pull back. I kind of feel like the upfront comments that were made about the health of the agency force and associated sales momentum just really nailed it. I'll try to just sprinkle a little color as to what else is happening.

Speaker 5

And I guess I'll start with, Marita mentioned agent recruiting in her opening remarks. Recruiting is having a big impact both today, but it's going to have an even bigger impact as we go forward into 2025 and into 2016. Terms of recruiting this year, going really well. We increased our internal recruiting staff. And as a result, we've appointed about 70% more agents, 7 0, more agents than last year.

Speaker 5

So we're absolutely fueling the pipeline of agents. Interesting kind of side note, about half of the recruiting comes from referrals and educators, and Loreta talked about the quality of who we're hiring. To me, that just means we're hiring people that really understand both the role and the space that we're in. And I think we've had really good success with the appointed agent population. I think the second thing is productivity.

Speaker 5

And Mark said this and I'll kind of build on it. Virtually all the new business growth has come from activity, I. E. More quotes. Conversion, as Mark said, effectively flat.

Speaker 5

So this means we're getting all the sales through activity, not through price. In terms of what's driving the quotes, a lot of it is coming from increased leads from, Marita mentioned, our new lead generation capabilities. We kind of observed a pretty sizable increase in leads. And for me, the most interestingexciting part is a lot of what we're doing right now hasn't even been scaled. And what that means is we're seeing pretty meaningful green shoot opportunities that I think are good indicators for kind of future growth potential.

Speaker 5

If I get into specifics on what we're doing to drive leads, I'll just give you 2. One tactic that we've tested and has worked really well, co branded marketing with Education Partners, really, really successful. The other one without getting too technical is a technology we use to tag and digitally market educators while they're at school. Again, really, really effective results. And all this we do with partnership with our agents.

Speaker 5

I think so as I sort of pull back, Maher, we continue to add our agents. Agent productivity on the rise driven by activity, lead volume is rising because of the digital marketing tests. The last thing I'll mention reinforcing something from Marita's remarks is our website. Our goal is really to serve educators where and whenever they want to. For me, kind of supporting that objective, we made changes that both simplify the look feel of the landing page and also streamline some of the quoting process.

Speaker 5

And I'd say like the lead generation efforts that we referenced, we had pretty good progress and about a 50% increase in the number of quotes started. And I think there's even room to get better. And so I think we continue to make changes to the landing page by the way, I think almost every month, just kind of driving continuous improvement. So I kind of say in summary, we've been and we continue to invest in our agents and the ecosystem around them with the goal of driving sustained profitable growth in support of all of our educators. I really like what we've seen and learned in the Q1 and really expect to build on this, as we head into the rest of 'twenty four and beyond.

Speaker 5

So thanks for the

Speaker 6

question. All

Speaker 3

right. Fantastic. That's very, very helpful.

Operator

The next question is from John Barnidge with Piper Sandler. Please go ahead.

Speaker 7

Good afternoon and thank you for the opportunity. My question is around supplemental and Group Benefits Distribution. I believe you called out in your prepared remarks a comp a year ago from the big win in the employer sponsored space. Are there any occurring big wins from a year ago that will not be reoccurring that we should be keeping in mind? I know 3Qs typically have heavy distribution with back to school.

Speaker 7

Thanks.

Speaker 2

John, thanks for the question. Thanks the way you asked it. I think you, as usual, included the answer in your question. Due to the size of this business and the nature of the business, you said it yourself, it can be quite lumpy. I'll turn it over to Matt to see if he has any additional things that he wants to add.

Speaker 2

Matt? Sure.

Speaker 6

I can't help myself. As Brett and Rita indicated, we're pretty happy with the way the supplemental and Group Benefits segment performed this quarter. We also continue to be excited about the growth potential for these businesses over the next several quarters or several years. For the Q1, overall sales were lower on the year over year comparison. As noted, this is partly due to the lumpy nature of the group business.

Speaker 6

In addition, a very solid but slower start to the year on the individual side due in part to weather related closings early in the quarter. So that's not going to repeat. On the at least we hope it's not going to repeat. On the group side, the year over year comparison was a oneone start date that I don't see another one on the horizon for the rest of the year. And it wasn't a non renewal, it was actually a win from last year.

Speaker 6

And the nature of the business is lumpy, so we might get a win that offsets that later in the year. It's really it's an unknowable fact at this point. But the momentum is still very positive on the individual side. We continue to be very optimistic for the year. On the group side, we continue to be optimistic, but recognize that the business is lumpy in a case or 2 in either direction can really move the numbers.

Speaker 2

Yeah. Thanks, Matt. I mean, we're getting the earnings diversification we planned. We remain very optimistic about the growth prospects. And when we look at the pipeline report, it's still quite robust.

Speaker 7

Great. Thank you for that. My follow-up question, can you talk about your assumption around VII and the balance of the year and where your LP marks were concentrated maybe from a sector perspective? Thank you.

Speaker 8

Sure, John. This is Ryan Green here. Thanks for the question. As we said in our prepared remarks, the underperformance in the first quarter was real estate related and it was really driven by 3 specific funds. 2 of them were real estate equity and you saw valuation marks giving up some of the strong performance that we've seen in that space over the last couple of years.

Speaker 8

We're still ahead from an inception to date return perspective on those particular funds. And the CML fund that took a negative mark this quarter is one of our smaller funds. It plays more in the mezzanine lending space and had a handful of more recent vintage transitional multifamily properties that came in with some adverse valuations on the mortgage loans. We believe these are idiosyncratic, they're isolated, that's the nature of commercial real estate and real estate investments. And our overall outlook for LPs and CMLs for the rest of the year, we do believe our full year returns for CMLs in particular will be below our historic averages because of this slow start.

Speaker 8

But we remain optimistic about not only the investment income diversification benefits of the asset class, but the longer term value that it provides. I'll point to the strength in the core fixed income portfolio. We've seen a nice tailwind because of sustained higher interest rates. We're putting money to work at well over 100 basis points wider than what's rolling off. We like that dynamic.

Speaker 8

We've been we've seen that for the past 2 years now and that is a tailwind to our original expectations. So net net, we think we can make up some of the ground similar to how we started last year. As a reminder, last year, Q1 LP performance was actually negative and we ended up coming in ahead of expectations. So we'll see how it goes. 1 quarter doesn't make annual trend, but I remain pretty comfortable in our positioning.

Speaker 7

Thank you.

Operator

Thanks, John. The next question is from Matt Carletti with Citizens JMP. Please go ahead.

Speaker 9

Hey, thanks. Good morning. Actually, I want to follow-up on the real estate fund question. Ryan, it sounds like you're pretty comfortable, but can you help us with maybe how many other kind of real estate focused funds you're invested in, if you

Speaker 3

feel that most of those

Speaker 9

are kind of through the marks process at least from where they stand now or if you do expect some further marks or those kind of in your annual guidance already?

Speaker 8

Sure, Matt. Thanks again for the question. Our so to start with, our allocations to commercial real estate are skewed towards the life retirement supplemental and group portfolios, which you would expect and is consistent with the broader life industry. Our total commercial real estate fund exposure, I should say, is about 12% of the portfolio and over 80% of that is senior commercial mortgage loan funds. And the average LTV there still remains strong at a 71%.

Speaker 8

We've seen some degradation, but again, we remain comfortable with that. The area of concern for the industry is obviously office. Our office exposure is less than $200,000,000 in total. Of that, we have taken more severe marks, if you will, on our real estate on our mortgage loans related to the valuation declines in office. To put it in perspective, we've marked that portfolio down reflecting about a 30% decline in the underlying office equity values.

Speaker 8

Peak to trough estimates, NACREIF estimates are estimating about a 35% decline overall for the better Class A well positioned highly amenitized properties, which represents the base of what we're lending against. So overall, we feel like right now given our practice of marking these to market quarterly due to equity method of accounting, We feel like we've taken the bulk of our marks. We've stress tested the portfolio. We're comfortable with the outcomes. A lot of this is property dependent and interest rate dependent.

Speaker 8

As higher interest rates stay high, it prolongs the valuation pressure that the sector is experiencing. But like I said, we feel largely comfortable with where we were marked today, and we're monitoring office in particular very closely.

Speaker 9

Okay, great. Thank you. And then one quick follow-up really just a definitional kind of want to reconfirm. When you guys talk about kind of getting to a sustainable double digit ROE next year, that the kind of denominator is X fixed income, realized gains and losses. Is that correct?

Speaker 8

Yes. The only thing we take out of that, Matt, would be realized gain losses. So yes, it's a GAAP ROE metric.

Speaker 3

Okay, got it. Thank you.

Operator

The next question is from Greg Peters with Raymond James. Please go ahead.

Speaker 10

Hey, good morning. This is Sid on for Greg. Just wanted to go back to some of the comments on the P and C segment and looking at risk in force, should we expect that to begin to grow over time as the underwriting results get back to targeted levels or maybe I'm not looking at it correctly. So any comments you can provide there would be helpful?

Speaker 2

No, absolutely, we do. We talk about it a lot. I'm going

Speaker 4

to let Mark give you some detail on that. Yes, sure. We've been originally projecting that we would expect to start to see substantial policy in force growth by early 'twenty six. I think with what we've seen with our new business momentum and the fact that our retention rates are actually holding better than we would have expected given our normal kind of price elasticity equations that we probably move that up to somewhere between mid to late 2025 is when we'd expect to start to see hopefully meaningful growth.

Speaker 2

And obviously, with coming quarters, Q2, Q3, if we continue to see sales like it is up 35% in P and C and retention virtually holding, certainly better than what we would put in our internal plans. That could also be sooner. But based on what we know right now, I agree with Mark that towards the end of 2025 is when you'd expect that to turn around.

Speaker 10

Okay. And then as my follow-up, you called out a benefit in the prepared remarks from product changes and property. And just wanted to confirm if you expect to realize the full benefit in 2024 or if it could go into 2025 before, I think you said a full three points?

Speaker 4

Right. I think Marita was referring to the roof schedule is probably the most substantial product change that we've made that we expect to drive that 3 point improvement. And as that earns its way in, we kind of expect it maybe between a quarter and a third of that benefit in 2024, with most of the rest of it coming in 2025 and then just the very nature of the fact that homeowners policies at 12 months, some of it will work its way all the way into 2026 before it's fully earned.

Speaker 10

Okay. Thank you.

Speaker 2

You're welcome.

Operator

Showing no further questions. This concludes our question and answer session. I would like to turn the conference back over to Brett Conklin for any closing remarks.

Speaker 1

Just want to thank everyone for your participation on today's call and we look forward to talking with everyone again next quarter. Thanks.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Powered by Quartr
Earnings Conference Call
Horace Mann Educators Q1 2024
00:00 / 00:00