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Horace Mann Educators Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 9, 2011 02:18PM
Horace Mann Educators Corp. (HMN) filed Quarterly Report for the period ended 2011-09-30.
Highlight of Business Operations:Total voluntary automobile and homeowners premium written decreased 2.2%, or $9.1 million, in the first nine months of 2011, with approximately 1 percentage point of the decrease related to the Companys Florida homeowners non-renewal program which is described below. Automobile and homeowners average written premium per policy each increased compared to the prior year, with the impact more than offset by a reduced level of policies in force in the current period. For the Companys automobile and homeowners business, rate changes effective during the first nine months of 2011 averaged 2% and 9%, respectively, compared to 7% and 10%, respectively, during the same period in 2010. At September 30, 2011, there were 489,000 voluntary automobile and 240,000 homeowners policies in force, for a total of 729,000 policies, compared to a total of 760,000 policies at December 31, 2010 and 772,000 policies at September 30, 2010. Management believes that the Companys rate and risk mitigation actions have had a negative impact, in some locations, on its policy retention rates and its sales levels.
Voluntary homeowners premium written decreased 0.4% ($0.5 million) compared to the first nine months of 2010, net of catastrophe reinsurance premiums ceded that were less than the prior year. The average written and earned premium per policy increased 5% and 6%, respectively, in the first nine months of 2011 compared to a year earlier. Homeowners policies in force at September 30, 2011 decreased 12,000 compared to December 31, 2010 and 16,000 compared to September 30, 2010. The number of educator policies represented approximately 77% and 76% of the homeowners policies in force at September 30, 2011 and 2010, respectively. Growth in the number of educator policies that had been consistent sequentially for several years was offset somewhat beginning in the third quarter of 2010 by expected reductions due to the Companys risk mitigation programs, including actions in catastrophe-prone coastal areas, involving policies of both educators and non-educators. The Company continues to evaluate and implement actions to further mitigate its risk exposure in hurricane-prone areas, as well as other areas of the country. Such actions could include, but are not limited to, non-renewal of homeowners policies, restricted agent geographic placement, limitations on agent new business sales, further tightening of underwriting standards and increased utilization of third-party vendor products.
For the Company, as well as other personal lines property and casualty companies, new business levels have been adversely impacted by the economy and the overall lower level of automobile and home sales compared to a few years ago. For the first nine months of 2011, total new automobile sales units were 5.6% less than the same period in the prior year, while true new automobile sales were 6.6% less than in the prior year. In the third quarter of 2011, true new auto sales units increased 7.1% compared to a year earlier, although total new auto sales units were comparable to the prior year. New homeowners sales units decreased 10.1% compared to the first nine months of 2010. Management believes that automobile and homeowners sales levels also have been negatively impacted by the Companys rate actions.
Driven by increases in single premium and rollover deposits, total annuity sales increased 22.3% for the nine months ended September 30, 2011. Single premium and rollover deposits for Horace Mann annuity products increased 28.7% compared to the same period in 2010. In addition, the Companys new scheduled deposit business (measured on an annualized basis at the time of sale, compared to the reporting of new contract deposits which are recorded when cash is received) increased 21.1% compared to the first nine months of 2010, including growth of 23.6% for the three months ended September 30, 2011. In the first nine months of 2011, sales of third-party vendor annuity products, a relatively minor component of total annuity sales, decreased 23.5% compared to the first nine months of 2010. Sales of Horace Mann products by the Independent Agent distribution channel, included in the information above, increased 31.7% compared to the prior year, a comparison also impacted by current period growth in single premium and rollover deposits. The Companys annuity sales levels in recent years have been impacted both positively and negatively as K-12 educators respond to uncertainties regarding employment prospects during the economic recession. In situations where educator retirements increase, opportunities arise for single premium and rollover deposit business. For employed educators, uncertainty about their futures creates challenges for new sales of scheduled deposit business.
For the nine months ended September 30, 2011, the Companys net realized investment gains of $32.7 million included $33.3 million of gross gains realized on security sales and calls partially offset by $0.6 million of realized losses on securities that were disposed of during the nine months. There were no other-than-temporary impairment write-downs on securities in the current period. Gains realized on security disposals during the first nine months of 2011 included $0.3 million related to securities on which the Company had previously recognized other-than-temporary impairment write-downs.
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