Horace Mann Educators - Earnings Call - Q4 2024

Executive Summary

• Record quarter: Core EPS $1.62, up 92.9% YoY; total revenues $409.0M (+1.5% YoY). GAAP diluted EPS was $0.92, down 3.2% YoY due to non-core legacy commercial exposures and investment marks.
• 2025 guidance introduced: Core EPS $3.60–$3.90, double-digit ROE; total net investment income $470–$480M; assumed catastrophe losses $90M (~11% of net earned premium).
• P&C profitability restored: FY 2024 combined ratio 97.9% (improved 15 pts YoY); reinsurance costs down >10% for 2025 renewal; targeting mid-90s combined ratio in 2025 (auto mid-90s, property ≤90%).
• Stock reaction: Shares rose into and after results/call (Feb 5 close $38.83, +2.0%; Feb 6 close $40.82, +0.3%; Feb 7 close $41.16, +1.0%). Data from market-data skill fetch_prices.py (event window 2025-02-04 to 2025-02-07).

What Went Well and What Went Wrong

What Went Well

• “Record fourth quarter core earnings of $1.62 per share, a 93% increase over prior year” as P&C profit restoration and strong segment performance converged.
• FY P&C combined ratio improved to 97.9% (−15.4 pts YoY) with $29.5M prior-year reserve releases and lower non-cat weather losses; auto and property retention remained strong (85.3% and 89.6%) despite rate actions.
• Growth engines: Auto, life, and individual supplemental delivered double-digit sales growth; Q4 individual supplemental sales set a record at $5.5M, +12.6% YoY for FY.

What Went Wrong

• Non-core legacy commercial exposures: $18M reserves + $2M expenses pretax in Q4 for historical policies from as early as the 1960s, creating EPS drag (−$0.37 per share in Q4).
• Life & Retirement net interest spread compressed (172 bps vs. 218 bps in 2023) due to lower commercial mortgage loan (CML) fund returns, pressuring segment earnings; management expects improvement but remains conservative for 2025.
• Catastrophe environment remains a headwind: FY 2024 cat losses $94.9M (12.8 pts on combined ratio); 2025 assumption still $90M, weighted to Q2 seasonality.

Transcript

Operator (participant)

Good day, and welcome to the Horace Mann Educators Fourth Quarter 2024 Investor Call. All participants will be in a listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad, and to withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Brendan Dawal, Vice President of Investor Relations. Please go ahead, sir.

Brendan Dawal (VP of Investor Relations)

Thank you. Welcome to Horace Mann's discussion of our fourth quarter and full year 2024 results. Yesterday, we issued our earnings release, investor supplement, and investor presentation. Copies are available on the investors' page of our website. Marita Zuraitis, President and Chief Executive Officer, and Ryan Greenier, Executive Vice President and Chief Financial Officer, will give the formal remarks on today's call.

With us for Q&A, we have Steve McAnena and Mark Desrochers. 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 include 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. Reconciliations of these measures to the most comparable GAAP measures are available in our investor supplement. I'll now turn the call over to Marita.

Marita Zuraitis (President and CEO)

Thanks, Brendan, and good morning, everyone. Horace Mann delivered a record fourth quarter with very strong results that showcase the earnings power of all of our businesses. Before we dive further into the details, I want to comment on the recent wildfires in Southern California.

Our thoughts are with those affected by these devastating events. Our claims team is working with our affected policyholders to provide quick and compassionate assistance, delivering on our promise of distinctive service. As a partner to the firefighting community, we deeply appreciate the heroic efforts of the first responders serving their communities.

Ryan will provide more details later in the call, but our current estimate of direct policyholder losses is in the conservative range of $5-$10 million. Turning to this quarter's results, yesterday, Horace Mann reported record fourth quarter core earnings of $1.62 per share, a 93% increase over prior year.

Full year 2024 core EPS of $3.18, more than double our 2023 earnings, and core return on equity of 8.8%. In 2024, we did exactly what we set out to do: restore P&C profitability while positioning Horace Mann for sustained profitable household growth. Specifically, from a bottom-line perspective, in property and casualty, we reported a full year combined ratio of 98%, a 15-point improvement over prior year.

We are clearly seeing the benefit of the significant rate increases implemented over the last three years. In addition, roof rating schedules have been implemented in our most wind and hail-prone states, with the new terms and conditions taking effect at renewal. These include required minimum wind and hail deductibles. From a top-line perspective, premiums and contract deposits increased 8% over prior year. P&C net premiums earned increased 14%.

In addition, we grew sales by double-digit percentages in auto, individual supplemental, and lifelines by investing in our agency force and lead generation capabilities. Net investment income increased over prior year due to the strong core fixed income returns, a benefit of the continued higher interest rate environment.

While underperforming in the first half of the year, the commercial mortgage loan fund portfolio contributed $17 million in the second half, exceeding our mid-year estimate of $10-$12 million. These results clearly illustrate the significant efforts taken to restore P&C profitability, as well as the strength of our multi-line business model through various business cycles. This strong foundation enables us to now concentrate our focus on driving sustained profitable growth and continued increase in shareholder value.

We are guiding 2025 core earnings within the range of $3.60-$3.90 per share, with a shareholder return on equity of at least 10%. With more sustained profitable growth, we have the opportunity to drive return on equity even further into the double-digit range. Our strategy to accomplish this is twofold: maintain business profitability while strategically investing in driving profitable growth.

Let me start by talking about target profitability by segment. In property and casualty, our focus is to reach a mid-90s combined ratio while mitigating earnings volatility in the property line. For both auto and property, we will continue to take rate as needed to keep pace with anticipated loss trends, likely in the mid-single digits for 2025 on a blended basis. We continue to leverage industry-leading tools to better model severe weather risk to better manage property exposure.

In Life and Retirement, we expect the steady earnings contribution from the segment to continue, bolstered by the very strong investment yields we have achieved in our core fixed income portfolio. The 2025 outlook for our Commercial Mortgage Loan Funds and limited partnerships portfolios remains conservative but represents an improvement over 2024. In Supplemental and Group Benefits, our pre-tax profit margin remains above our profitability targets due to lower policyholder utilization.

Our expectation is that utilization will continue to trend back towards more typical levels with time and as we continue to grow this business. Our initiatives to improve Horace Mann's products, distribution, and infrastructure continually evolve to better meet the needs of our market. With profit restoration complete, our product focus will turn to operational efficiencies and product enhancements.

Later this year, we will introduce our next-generation cancer product in our individual supplemental line, which will build upon that flagship product and include new benefits that reflect the advancements in cancer treatments. In addition, we continue to make investments to modernize our P&C pricing processes to reduce cycle time and give our business the flexibility to respond even faster to changes and trends.

To further our distribution effectiveness, we are continuing to invest in our agency force and successful lead generation strategies. Recently, we rolled out our state-of-the-art customer relationship management platform, Catalyst, to our exclusive agency force and internal teams.

This tool leverages advanced technology and AI to drastically simplify workflows and enhance customer interactions with features like predictive analytics, digital documentation integration, and streamlined marketing capabilities. This investment equips agents with more sophisticated tools to focus on building customer relationships and their agencies in 2025 and beyond.

Our agency force remains strong. In 2024, we grew our points of distribution, and across the board, our agents are more productive. Over the past year, agency production is up 10%, and average agent income is up 20%. Many of us spent last week with agents at our annual sales conference, and morale is strong.

On the infrastructure front, we continue to make investments in technology to enhance the operational effectiveness of our business. For example, in the individual supplemental line, we are nearing completion of straight-through processing capabilities, which will automate and accelerate many elements of the sales cycle. To close, our 2024 performance was very strong and illustrated what our multi-line, niche market business model can achieve with solid profitability across the enterprise.

By executing on our strategic and scalable growth strategy, we will achieve our 2025 goals of a larger share of the market, record core earnings, and a sustainable double-digit shareholder return on equity. Thanks. I'll now turn the call over to Ryan.

Ryan Greenier (SVP and Deputy CFO)

Thanks, Marita. Today, I will add some color to the fourth quarter and full year results, as well as discuss our 2025 guidance. At the corporate level, full year 2024 core earnings of $132 million, or $3.18 per diluted share, was more than double the prior year result. Core return on equity of 8.8% was a 4.5-point improvement over 2023.

Record fourth quarter core EPS of $1.62, a 93% increase over the prior year, reflected both the profitability restoration we completed in the property casualty segment, as well as each segment performing at or above our expectations. For 2025, we are streamlining our corporate guidance to focus on a more holistic view of the earnings power of the total enterprise, along with the long-term profitability targets for the individual businesses. You can see the guidance details in our investor presentation on page 12.

As Marita mentioned, we expect a core EPS in the range of $3.60-$3.90 and a double-digit return on equity. Guidance includes total net investment income in the range of $470-$480 million. In our managed portfolio, we expect net investment income between $370-$380 million, which reflects the continued benefit of the higher interest rate environment, as well as conservative expectations for commercial mortgage loan and limited partnership returns that are an improvement over 2024 but remain below historic averages.

Full year 2024 reported commercial mortgage loan and limited partnership returns were 3.42% and 4.65%, compared to full year 2025 forecasted returns of 6.25% and 7.25%. We are assuming catastrophe losses of $90 million, or about 11% of the net earned premium for the full year.

This estimate is in line with our five-year historical average on an exposure-weighted basis and reflects the expected benefits of the underwriting actions we've taken to reduce earnings volatility in property. As a reminder, our catastrophe losses tend to be weighted to the second quarter, which typically represents about half of our annual cat losses. The California wildfires will be a first quarter 2025 event.

As Marita mentioned, our current estimate of direct policyholder losses is in the range of $5-$10 million, as we are underrepresented in the LA area relative to our statewide market share. Turning to 2024 results by segment. In property casualty, we clearly see the success of our multi-year profitability restoration strategy of rate and non-rate underwriting actions reflected in the results. Full year core earnings for the segment were $49.1 million, an $85 million improvement over the prior year.

Annual net written premiums of $779.3 million increased 13.9% over prior year, primarily on higher average written premiums. The reported combined ratio of 97.9% improved 15.4 points over prior year, primarily reflecting improved underlying results, as well as favorable prior year development and slightly lower catastrophe losses. We released $29.5 million in prior year development in 2024. Auto releases were $15.2 million.

Property was $14.3 million, of which $10.3 million was in the fourth quarter. It was related to favorable severity from accident years 2023 and prior. For the full year, the majority of releases were in shorter tail coverages like auto property damage and property, where we're seeing the benefit of lower severities and improved claims processes. Full year catastrophe losses were $94.9 million, compared to $97.6 million a year ago. This represents a 12.8-point impact on the combined ratio.

More than 25% of the full year catastrophe losses were related to Hurricane Helene. The P&C underlying loss ratio of 61.9% improved 9.3 points over the prior year, reflecting both higher average premium and lower non-catastrophe weather losses. Full year segment sales were strong at $100.9 million, a 29% increase over the prior year. In auto, net written premiums of $490.7 million increased 11.8% over the prior year.

The combined ratio of 98.4 improved 13.3 points, primarily due to higher average premiums. Despite substantial rate increases, policyholder retention declined only one percentage point to 85.3%. In property, net written premiums were $288.6 million, a 17.7% increase over prior year. The combined ratio of 96.4 improved 19.7 points, reflecting improved underwriting results, largely due to favorable weather and favorable prior year development. Household retention remained steady at 89.6%.

As Marita mentioned, our profitability target for the P&C segment is a combined ratio in the mid-90s, which we expect to achieve in 2025, as rate and non-rate underwriting actions fully earn in across the book. If you break the combined ratio down by product line, we're underwriting auto to the mid-90s and property to 90 or below. Also, in the investor presentation appendix, we provide details on our 2025 reinsurance program that renewed in January.

We were very pleased with the renewal process this year, and risk-adjusted reinsurance cost declined over 10% for 2025, reflecting our prudent approach to exposure management. In life and retirement, core earnings of $56.3 million were below prior year, primarily due to lower net interest margins. The net interest spread on our fixed annuity business declined to 172 basis points, compared to 218 in 2023. This reflected lower commercial mortgage loan fund returns.

Our longer-term target for net interest spread on our fixed annuity business remains in the range of 220 to 230 basis points. Net written premiums and contract deposits of $573.9 million were a slight increase over the prior year, and in the retirement business, deposits in our core 403(b) products remained strong, and persistency was steady at 91.4%. In the life business, annualized life sales increased 11.8% over prior year, and persistency improved slightly, ending the year above 96%.

Moving to supplemental and group benefits. The segment contributed $60.4 million to core earnings, a 10% increase over prior year. Q4 benefits and changes in reserves reflect a favorable impact from the annual reserve assumption review, primarily related to favorable morbidity in our group long-term disability book. As a result, the combined benefits ratio remains below our long-term expectation.

We continue to expect the benefit ratio to tick up with more normal utilization trends and as we continue to grow this business. In Individual Supplemental, net written premiums and contract deposits of $121.3 million were a slight increase over prior year. The pre-tax profit margin of 35.7% was down a percentage point from prior year but remains above our profitability target.

We continue to see very strong customer demand for these products and had record sales of $5.5 million in the fourth quarter. Full year sales of $17 million were a 12.6% increase over prior year, and persistency remained strong at 90.5%. In group benefits, net written premiums and contract deposits of $133.2 million were slightly below prior year. The pre-tax profit margin of 17.4% was very strong, and covered lives grew to 838,000 with strong persistency.

I also want to comment on a one-time item we've noted in our materials as non-core legacy commercial exposures. As noted in our 10-K last year, we were named as a defendant in a litigation and presented with claims related to legacy commercial policies. These commercial policies were issued as early as the 1960s under a previous ownership structure in business lines which we no longer operate. In the fourth quarter, we recorded $18 million of reserves and $2 million of expenses pre-tax related to these matters.

We believe the reserve selected is prudent, conservative, and appropriate to cover a wide range of possible outcomes. Turning to investments, full year net investment income on the managed portfolio of $357.6 million was slightly above prior year. Let me break the results down into our three distinct portfolios.

In our core fixed maturities portfolio, which represents about 80% of our total investments, income of $287 million was up 6.6% over prior year. Our core fixed income new money yield in the fourth quarter was 5.38%, which exceeded the portfolio book yield by over 100 basis points. In commercial mortgage loan funds, income of $21.5 million was below prior year due to unfavorable valuation adjustments on the portfolio during the first half of the year, as required by equity method of accounting.

We believe we have reached the inflection point with significantly improved returns in the second half of the year. For perspective, commercial mortgage loan investment income in the first half of the year was about $4 million, compared to $17 million in the second half.

In limited partnerships, income of $23.3 million was a 7.9% increase over the prior year, with strong results from private credit, infrastructure-related funds, and private equity, partially offset by lower returns in real estate equity.

At year-end 2024, adjusted book value was $37.54. Adjusted book value better shows the intrinsic value of our business by adjusting for both unrealized investment losses and net reserve remeasurements attributable to discount rates. We use adjusted book value when we talk about our core return on equity.

The ratio of debt to capital on a similarly adjusted basis was 26.3% at year-end, an appropriate level for our current financial strength ratings. We remain committed to driving shareholder value creation through an annual dividend with a compelling yield, and we will continue to opportunistically buy back shares when market conditions are favorable.

For the full year 2024, we repurchased 256,000 shares at a total cost of $8.5 million and an average price of $33.31. We have about $26 million remaining on our current share repurchase authorization. As we have stated before, our first priority in the most accretive use of excess capital is to fund profitable growth. In 2025, we are well-positioned to strategically deploy funds on marketing technologies and tactics in a thoughtful way while maintaining our disciplined approach to expense management.

In closing, 2024's core earnings were among the highest in the company's history, including a record fourth-quarter result, and we expect 2025 to be even better. By capitalizing on the profitability improvements made to the business and fully leveraging our growth strategies and market knowledge, we will meet our long-term goal of a sustainable double-digit shareholder return on equity in 2025.

We are proud of our progress and excited for this next chapter for Horace Mann. Before we turn to Q&A, I want to mention that Horace Mann is planning to host an Investor Day in May at the New York Stock Exchange.

We will present a deep dive into our strategic initiatives to drive sustained profitable growth, with more detail on our go forward plans at the corporate level and by individual business lines. We'll be providing more information on that soon. Thank you, operator, and now we're ready for questions.

Operator (participant)

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Once again, that's star then one if you have a question. And today's first question comes from Wilma Burdis with Raymond James. Please go ahead.

Wilma Burdis (Analyst)

Hey, good morning. Could you talk a little bit about what gives you confidence in the CML returns? CML returns improving. And then could you help us think about maybe quantifying the potential drag on the 2025 guide, EPS guide based on those lower returns? Thanks.

Ryan Greenier (SVP and Deputy CFO)

Good morning, Wilma. It's Ryan. You know, on CMLs, as I said in prepared remarks, you know, we do think we are at an inflection point, and we're confident about the direction that that portfolio is going for us as well as the broader sector. You know, you're always going to have property-specific idiosyncratic risk. It's just the nature of the asset class.

But overall, what we're seeing is we're seeing the broad-based valuation adjustments that impacted our returns in the first half of 2024 largely abate. You know, the economy remains strong. Values are actually going up for industrial properties. And in many areas, many geographies, the multifamily story is quite good.

So, you know, we loaded a 6.25 assumption in 2025. This is about a $600 million asset class for us. And if you think about it, our cash returns that we disclosed in the investor presentation for you are, you know, in the low eights at this point.

So you could put 200 basis points on that. But remember, we're not out of the woods yet. So I feel pretty confident we're moving in the right direction, and it's going to be a better year. But I still don't think we'll recover, you know, all of that adjustment in 2025.

Wilma Burdis (Analyst)

Thank you. Just one on cats, and then hopefully I can sneak in another question really quick. But sure. Cats cost is $90 million for 2025 versus kind of a hundred in 2024. Understand there's the California wildfires in there. It seems pretty manageable. But maybe just talk about how much that changed from business growth versus some of the cat mitigation efforts you put in place. Thanks.

Ryan Greenier (SVP and Deputy CFO)

So the cat losses are actually down a little bit. They were closer to $95 in 2024, Wilma. So our pick on a dollar basis is a little lower than actual performance. But I don't know if.

Marita Zuraitis (President and CEO)

And you have to remember those numbers are exposure-adjusted, and they would include the usual math that we would do every year when we think about five- and 10-year averages. I don't know if you have anything to add to that, Mark.

Mark Desrochers (SVP, Head of P&C and Corporate Chief Actuary)

No, I think you've got it exactly right, Marita. I mean, we generally look at our five and ten-year averages, make adjustments for changes in exposures and planned actions that we have around any aggregation mitigation that we're doing, as well as the impact of the roof schedule, and that all plays in.

And so I think what you are seeing is that number come down even as, you know, the overall exposure, and maybe it's not rooftop count, but the exposure is going up just because the, you know, replacement costs are rising each year.

Marita Zuraitis (President and CEO)

Yeah. And we feel very confident about the property underwriting and mitigation efforts we have underway, whether it's underwriting, whether it's coverage, whether it's pricing, whether it's the models that we are bringing to bear in a pretty modern way. We feel good about those efforts, and we think they are reflected in the numbers that we've put forward for 2025 and feel even more confident past 2025.

Wilma Burdis (Analyst)

Okay. Thank you. And then could you, if you have a few more minutes, maybe just give us some updates on how you're thinking about growth, just more specifically on how you plan to execute on growing the different lines of businesses. Thank you.

Marita Zuraitis (President and CEO)

Yeah. You know, one of the things Ryan in his script mentioned our investor day in May, and we're quite excited to be able to unpack with a little more specificity the growth plans that we have for the business. Obviously, it was really important for us to show the Street the earnings power of our company. And I believe this quarter is clearly showing that.

Building a multi-line model, a well-diversified earnings stream, we knew that we needed to work hard, like the rest of the industry, on P&C profit restoration so that you could see the true earnings power of the company.

And I believe this quarter demonstrates that. So for us, it's really exciting to be able to sit down with you in May and show you all the work we've been doing behind the scenes in really laying out the capabilities required to drive that growth agenda. Strong growth numbers in 2024, strong growth numbers in the quarter.

We are not, you know, not paying attention to the competitive landscape. We understand it, and we still feel very strongly that we can continue to grow this business. The tools, the capabilities we're building are for the long haul, but we're really excited about showing you how we think about that growth agenda in 2025 and certainly beyond.

Operator (participant)

Thank you, and our next question today comes from John Barnidge with Piper Sandler. Please go ahead.

John Barnidge (Analyst)

Good morning. Thanks for the opportunity. My question, the first one, with industry pricing kind of approaching rate adequacy for personal lines, does this put more options on the table, particularly on the property side where results are left less differentiated versus auto, where the educator base is more of a differentiator with the strategic focus of the organization really being on reducing earnings volatility?

Marita Zuraitis (President and CEO)

Yeah. I mean, John, one of the things that's interesting for us is we have been insuring educators for 80 years through every cycle. The amount of data we have on these educators, our intimate understanding of this group of folks, you know, really helps us navigate through cycles, continue to grow.

Our strong retention in this business, I think, speaks for itself. And at the end of the day, if we don't give an educator a reason not to be with us, they probably would prefer to be with the educator company. And that's been, you know, our strategy all along. It's never been about providing the lowest price.

Our strategy isn't to sell on price, and yet we understand the competitive dynamics of the marketplace, and we know that it matters. So I'm really not sure how to give you anything else other than the fact that we've been doing it for a long time. We've navigated many cycles quite well. I think the last one was quite different.

It was different for us. It was different for the industry, and we feel like we are back to a more historic level of profitability in that business and feel strong that we all learned a lot through this, and we may be conservative, but we feel really good about our dynamics going forward. I don't know if you have anything to add to that, Mark.

Mark Desrochers (SVP, Head of P&C and Corporate Chief Actuary)

No, I think you said it well, Marita. I mean, I do think, obviously, for us and our educator clients, you know, looking at that, the bundling of products is important to us, and, you know, property goes along with auto, but we want to be thoughtful about it, you know, from a property perspective. You know, clearly, that's a place to differentiate, but we also have to be cognizant of, you know, the volatility and the aggregation issues.

So for us, it is about, you know, offering the total product suite, but at the same time, filling in with what we might need with other third-party partners, you know, where we can't do it because either we don't have the product or, you know, we don't feel great about our pricing or we have, you know, potential concerns with how our aggregation may be filling up, and we want to manage that volatility. So I think it is a holistic approach, and I think it does help us differentiate a little bit from maybe folks that are focused primarily on the commodity auto product.

Ryan Greenier (SVP and Deputy CFO)

And John, I'll just add, this is Ryan. You know, we're targeting a 90 combined ratio or lower for that line, and we feel that does provide an appropriate return for the business.

John Barnidge (Analyst)

Thank you for those answers. My follow-up question, any updates on changes to deductibles and roof schedules and the impact you're starting to see on the business there? Can't help but notice the meaningful prior year reserve development the last couple of quarters.

Marita Zuraitis (President and CEO)

Yeah. I mean, I love that question, John, because we're actually seeing that hard work come through. Do you want to take that, Mark?

Mark Desrochers (SVP, Head of P&C and Corporate Chief Actuary)

Sure. No, I think we are both in what you're seeing with the prior year reserve development, but also if you look at the fourth quarter, you know, I think it was a really good quarter. I think there were a number of factors. I'd say, you know, we are seeing the impact of both shifts in, you know, wind deductible, wind and hail deductibles, as well as the impact of the roof schedule.

You know, the roof schedule is, you know, not yet countrywide, but it's in the most meaningful states in terms of, you know, we're talking 75%-80% of our roof losses come in those states. And we're certainly seeing that impact, as well as, you know, we certainly experienced lighter weather, like everyone in the fourth quarter.

We've also seen, to some extent, some tempering of the inflationary impact. So, you know, claims are settling, you know, at a lower rate than we might have expected coming into the year. And lastly, I, you know, I'd highlight some of the work that our claims team has done to get on top of claim severity, especially and notably in non-weather water, which makes up a pretty good sized chunk of our ex-cat losses.

You know, we put a lot of effort into water mitigation, and we're seeing that pay off not only in our current quarter results, but I think that's also, you know, part of what we're seeing with what's driving prior year development, that, you know, our ability to get on top of those claims, settle them, not see the same kind of reopen activity on them has helped, you know, give us some confidence that, you know, our reserve position, you know, was probably somewhat conservative. And now that it's become clear, you know, we've released those reserves.

John Barnidge (Analyst)

Thank you.

Operator (participant)

Thank you. And our next question today comes from Meyer Shields with KBW. Please go ahead.

Meyer Shields (Analyst)

Great. Thanks. So two, I guess, frequency-related questions. The first one is in supplemental. Is the fact that there's less utilization than used models, is that having any impact on demand?

Ryan Greenier (SVP and Deputy CFO)

So, Meyer, you know, I think you bring up an important point or a good question around the utilization because we got a couple of questions on some of the supplemental reserve, or I should say benefit ratios. The way we report them in the supplement, they reflect in the fourth quarter our annual reserve review for supplemental and group business, and I will say that the reserve release is very similar to P&C.

You know, they are reflecting the improved underlying business trends that we're seeing in the business, so if I step back and if I look at the, you know, the pretty sizable $9.8 million reserve release in supplemental and group and combine that with what we saw in P&C, that's about $0.35 on a net basis, you know, of reserve releases in the fourth quarter.

So in the supplemental and group business, primarily in group, we are seeing more favorable morbidity experience. Now, if you step back, we purchased MNL a little over two years ago, and we took a pretty conservative and cautious approach to the reserving methodology. That type of business was new to us.

And so over the past two years, we've seen utilization trends be favorable to our pick, but you've also seen macro trends be pretty favorable compared to historic averages. So, you know, longer term, I think, you know, you will see a normalization. May not go all the way back, but we're targeting a high-40s benefit ratio for group and a low-30s for individual supplemental. And as you can see, you know, the demand remains really strong. Sales are good. You know, I don't know.

Marita Zuraitis (President and CEO)

As Ryan said in the script, you know, we had record sales in the fourth quarter. In $5.5 million in the fourth quarter was strong for us, 12.6% over prior year for the full year with persistency in that 90%-95%-ish range. So I would say the demand remains strong.

It's a smaller business for us, but we are very optimistic about not only continued growth in the individual line, but another way to bring new educators and others who serve the community to Horace Mann and starting their relationship with an Individual Supplemental. So we feel good about Individual Supplemental demand. It's small, but it's a good entree for folks into Horace Mann.

Meyer Shields (Analyst)

No, that's perfect. That pulls it together very helpfully. Second, I guess, and I think you touched on this before, but we keep on hearing about lower auto frequency, maybe associated with big rate increases where people are worried about getting canceled if they file small claims, and I'm hoping for a little bit more color on what you're seeing and how your pricing if that proves to be temporary.

Marita Zuraitis (President and CEO)

Do you want to comment on that, Mark?

Mark Desrochers (SVP, Head of P&C and Corporate Chief Actuary)

Yeah, sure, Marita. Thanks, Meyer. I don't know if I'm seeing that phenomenon of less smaller claims because people are worried about pricing. We have certainly seen lower frequency. You know, frequency in the fourth quarter was down about one point over where it was in the fourth quarter of 2023.

You know, however, you know, some of that, you know, I would suspect is related to the aforementioned kind of that I mentioned on property with the lighter weather in the quarter, that that's certainly playing an impact.

So, you know, our thought process on pricing on the auto side right now is, you know, we are expecting the aggregate loss trends for frequency and severity blended together to, you know, move down more towards the low to mid single digits, you know, closer to the long-term average. And that's how we are, you know, planning our pricing at this point. We will watch it very closely.

If it emerges and these frequency trends linger at a lower level, then, you know, we may adjust that pricing level down a little bit, but we'll, you know, like we always do, we'll wait and see how that plays out rather than necessarily being, you know, overreactive and trying to drive market share just through, you know, price decreases. You know, our focus on driving growth is going to all be about how do we get more at bats while maintaining, you know, what we think is a fair and competitive price.

Meyer Shields (Analyst)

Okay, perfect. Thank you so much.

Operator (participant)

Thank you. Our next question comes from Matt Carletti with Citizens JMP. Please go ahead.

Matt Carletti (Analyst)

Hey, thanks. Good morning. Good morning. You guys have spent a bit of time. We've talked about kind of profitability restoration in P&C and feels like we're in a much better spot today than the past couple of years. You know, Ryan, you talked a bit about kind of commercial real estate and feeling a little better there.

I guess if we zoom out and we think about kind of the guidance of the 360-390 EPS for 2025, can you talk a bit about kind of your confidence level in getting to that number versus 2024 and 2023, which felt like there was a lot more variability in both the industry and kind of what's going on at Horace Mann?

And then kind of alongside that, as we think about kind of that range of $0.30 or so, you know, what's the bigger driver, biggest driver of variance? Is there a particular item, maybe cat and P&C, I don't know, that might be the kind of the largest unknown or the largest driver of where we end up?

Marita Zuraitis (President and CEO)

You know, Matt, I think you, when you ask your questions, you usually embed the answer in there, and I think you did it again. You know, I think that we are very confident in our guidance for 2025. You know that we are conservative in our planning and in our assumptions, and that remains. I am very excited to get a lot of the variability behind us.

P&C restoration, profit restoration in P&C was a big nut for the whole industry and certainly for us as well. And with that, you know, catch-up after COVID, all the various moving parts, we feel really good about where we are in that business.

You know, again, it's a sum of parts for us with profit restoration in P&C and more predictability in that line added to the Life and Retirement ballast that is always there. You can go back for as long as we've been doing Life and Retirement as a company, look at the earnings power of that company, and it is not cyclical or as cyclical as what you see in the industry trends in P&C.

So we feel very confident in our ability to estimate and predict that earnings stream from a Life and Retirement perspective. You saw a little impact from an investment income perspective, and that is beginning to work its way through, as Ryan has said as well. And then you look at the strong earnings power of Individual Supplemental and Group Supplemental business, especially the way we do it in our targeted areas of focus.

That is a good earnings producer, very predictable for us. I don't see a lot of variability in our earnings projections as we look at 2025. I would say we're very confident in that range. You mentioned cats, and you know, the science is better. We all know that predicting hurricanes has been something that the industry has gotten better at over time.

I feel the industry is getting better with new tools in predicting convective storm activity. Everyone feels a little bit better about their cats cap estimates, but make no mistake about it, if you didn't notice it, December was pretty benign from a weather perspective.

A big part of many companies' outperformance in P&C was an unprecedented, relatively benign weather month in the month of December that tends to have, you know, a fair amount of ice and snow and other things that drive, you know, at least underlying, you know, performance in the month.

So weather and cats do remain something that the only thing you know when you put a number out there is it's going to be wrong. But I feel pretty good about that science getting better and better over time. Long answer to a short question, but I'd say we feel confident in that range.

Matt Carletti (Analyst)

Great. Thank you very much.

Operator (participant)

Thank you. This concludes today's question and answer session. I'd like to turn the conference back over to Brendan Dawal for any closing remarks. Thank you.

Brendan Dawal (VP of Investor Relations)

I want to also mention that we will be attending AIFA Conference in March. Please let us know if you'd like to meet. Thanks and have a great day.

Operator (participant)

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.