Horace Mann (HMN) Q2 FY26 earnings call: guidance and Q&A

Can you explain the pricing structure of Horace Mann's PFML business and how often it can be repriced?

The PFML business has a higher benefit ratio offset by a lower expense ratio, making its profitability geography different. It can be repriced annually. The initial higher utilization was expected and factored into pricing. It's sold as part of short-term disability, combining economics, and is consistent with industry trends for mandatory state offerings.

“The paid family medical leave business, when I think about the economic profile of that compared to the rest of our group offerings, the benefit ratio is higher, but that's offset by a meaningfully lower expense ratio. So net-net, the geography, if you will, of the profitability by line is a little bit different than the short-term, long-term disability in term life offerings. We do have an opportunity to reprice that annually.”

asked by Wilma Jackson Burdis · answered by Ryan Greenier

What drove the increase in fixed annuity spread and the decrease in NII guidance, specifically regarding asset classes?

The fixed annuity spread increase was primarily driven by strong limited partnership earnings, particularly venture capital investments. The NII guidance decrease was due to expectations for certain alternative strategies (private equity, infrastructure debt, real estate) being more sensitive to a 'higher for longer' interest rate environment, resulting in lower but still positive anticipated returns. Core fixed income new money yields remain strong at 5.85%.

“The biggest driver of variability in the fixed annuity spread number is limited partnership earnings as well as commercial mortgage loan earnings. And the rebound this quarter, we had a particularly strong limited partnership quarter in our Life & Retirement segment. We had a number of venture capital investments that had very strong returns and we saw that come through.”

asked by Wilma Jackson Burdis · answered by Ryan Greenier

Is a high single-digit EPS accretion estimate for the Medical Mutual of Ohio deal in the ballpark, and how will it play out in coming quarters?

The annual run rate EPS accretion from the acquisitions is estimated at $0.40 to $0.50, primarily impacting 2027 and beyond. For 2026, the first acquisition (employer services/EAP) closes in Q4, meaning only one quarter of earnings will be recognized, which will be offset by the full cost of the transaction (foregone investment income, interest expense). The strategic lift from broadening solutions and expanding reach is also significant.

“When I think about what that transaction does for us on an annual run rate basis, I think something in the neighborhood of $0.40 to $0.50 overall and that's really 2027 go forward. The timing of the closes of the transactions. The first one, the employer services business, that's with the EAP business. It's a recurring fee type business, quite attractive from an ROE and earnings perspective. But that closes in the fourth quarter.”

asked by Wilma Jackson Burdis · answered by Ryan Greenier

Should investors assume share buybacks will be paused given the recent M&A activity, or is there more direct guidance on capital allocation?

Maintaining a strong balance sheet and financial flexibility is the first priority. Buybacks are an important, opportunistic lever for returning capital, not an on/off switch. The businesses generate efficient free cash flow, with a 75% target conversion, which will be enhanced by acquisitions. The company has $37 million remaining on its authorization and will weigh buybacks against other internal uses and market conditions.

“I wouldn't think of buyback as being an on or off switch. I think of it as being opportunistic. So we'll weigh it against other uses for the capital internally as well as market conditions. So we've got $37 million left on our authorization. You saw us be quite active in the first quarter with buyback. So we'll have to see what the market looks like.”

asked by Michael Zaremski · answered by Ryan Greenier

P&C results are excellent, but organic policy growth needs work. What are the current loss trend views for auto/home, and is the industry trend better than expected?

The company's strategy is not monoline auto; it focuses on household growth, which is increasing. New auto business is grown in targeted profitable areas. Auto decline rate is improving, but the company won't chase growth at the expense of discipline. HMGA allows placing business with third parties if not profitable internally. For auto loss trends, Q2 was favorable due to weather and other factors, leading to low single-digit frequency trends and favorable physical damage severity. Liability loss trend is mid-single digit. The 2026 rate plan of mid-single digits is on track, but favorable weather is not expected to continue in H2.

“The first half for auto was particularly favorable. Favorable weather as well as other factors we believe is driving the low single-digit frequency trends that we're seeing. In addition to that, we're seeing favorable severity on physical damage coverages. Our liability loss trend is in the mid-single digit.”

asked by Michael Zaremski · answered by Ryan Greenier