Horace Mann Educators Corporation

Horace Mann Educators Corporation

1 Horace Mann Plaza
Springfield, Illinois 62715-0001
U.S.A.
(217) 789-2500
Fax:(217) 788-5157
Web site: http://www.horacemann.com

Public Company
Incorporated: 1945
Employees: 2,700
Total Assets: $3.86 billion (1996)
Stock Exchanges: New York
SICs: 6331 Fire, Marine, & Casualty Insurance; 6311 Life Insurance; 6719 Holding Companies, Not Elsewhere Classified

An insurance holding company, Horace Mann Educators Corporation is a leading insurer serving educators in the United States. The company carries a variety of lines of insurance. First, the company offers private passenger automobile insurance in the forms of personal liability, collision coverage, and comprehensive coverage. Horace Mann also sells homeowners insurance against fire and theft, as well as individual life insurance policies, including traditional term and whole life and flexible life insurance that combines term life with interest-sensitive whole life and interest-bearing accounts. In addition, the company deals in tax-qualified annuities and life insurance and provides group life and disability insurance to school employees.

Serving U.S. Educators

Horace Mann operates predominantly in North Carolina, Texas, Illinois, Minnesota, and California, although its overall market includes the 4.5 million employees in public school districts across the United States. This includes 2.8 million elementary and public school teachers, in addition to 1.7 million administrators, office workers, maintenance personnel, bus drivers, and support staff. According to a Standard & Poor’s insurance rating analysis, “Horace Mann gears its products primarily to teachers and other employees of public schools and their families. This tends to be a well-educated, conservative, and financially stable market that possesses favorable insurance-risk characteristics. Customers typically have moderate annual incomes; employment is not recession sensitive, and many educators belong to two-income households. Their financial planning tends to focus on security, primary insurance needs, and conservative savings.”

Approximately 10 percent of all U.S. school employees are insured by Horace Mann through a network of 1,000 agents (who also act as field underwriters) or through their membership in the National Education Association (NBA). The NBA is comprised of more than two million members, and in 1994 Horace Mann enjoyed NEA-sponsorship in 42 states. “Horace Mann,” a Standard & Poor’s insurance rating analysis revealed, “has flourished by offering a broad range of personal insurance products to primary and secondary educators. The niche marketing strategy, accompanied by prudent underwriting standards, has translated into impressive underwriting margins and strong operating income.”

Indeed, Horace Mann’s agents have been successful for the company. They are, in fact, key to the company’s operations. As Standard & Poor’s indicated: “A cornerstone of Horace Mann’s marketing strategy is its exclusive agency force who are company employees. ... These agents sell only the company’s products and all agents are required to sell both life insurance and property/casualty products. Many of these agents previously were teachers and principals who utilize their contacts among, and knowledge of, the target market. Through personal contact and identification of customers’ needs, the company’s agents seek to build a strong client relationship and provide a complete package of insurance protection.”

Horace Mann Educators Corporation maintains four subsidiaries: Allegiance Life Insurance Company, Horace Mann Life Insurance Company, Horace Mann Service Corporation, and Teachers Insurance Company.

Founded by Educators

Horace Mann’s dedication to the educator market is no surprise since it was founded by two teachers in Springfield, Illinois, in 1945. Wishing to provide automobile insurance for their association peers, the two teachers established the Illinois Education Association Mutual Assurance Company. Later they renamed the company Horace Mann, after the father of public education in the United States, to testify to the company’s commitment to educators.

Expansion began shortly after the company was established. Within two years, Horace Mann offered automobile insurance to teachers in other states. By 1949, the company extended into the life insurance business, providing a full-range of life insurance services to educators and their families. In 1961, when the U.S. Congress created legislation for tax-deferred annuities, Horace Mann also ventured into the annuity market.

Changing Hands

In 1974, INA Corporation, an insurance and financial services company headquartered in Philadelphia, Pennsylvania, began to purchase more and more holdings of Horace Mann. Eventually, INA gained control of the company in 1975. In 1982, INA Corporation merged with Connecticut General Corporation to form CIGNA, a holding company. That year Paul J. Kardos assumed the presidency and position of chief executive officer at Horace Mann. As the company’s leader he guided Horace Mann through a management-led buyout and, later, an initial public offering. (Kardos, a graduate of Grove City College in Pennsylvania, joined Horace Mann in 1977. Previously he worked at the Life Insurance Company of North America.)

In 1989, Kardos and other Horace Mann management purchased the company from CIGNA with the financial assistance of an investor group. GGvA, an investment banking firm specializing in management-led buyouts, controlled the LBO. That same year, Horace Mann began managing Allegiance Insurance Company, a property and casualty insurance firm located in California.

Kardos coordinated Horace Mann’s initial public offering in 1991. Each share of common stock sold for $18. At that time, the company’s focus also shifted away from exposure to collateralized mortgage obligations (CMOs) and towards investment in tax-exempt securities, as market conditions have been attractive.

Horace Mann acquired Allegiance Insurance, which by then served 400,000 educators, in 1994. The company also introduced a program that year, Pathways, to facilitate the sale of life insurance by its agents. Pathways trained agents to close sales. “The Pathways program is a highly effective training tool that provides agents with a step-by-step process for closing sales in all lines of business,” revealed a Horace Mann annual report. “Its success is demonstrated by the many experienced Horace Mann agents who rely on the program.” And close sales they did.

In 1995, Horace Mann was able to repurchase half of GGvA’s interest in the company. In July, Horace Mann issued a secondary offering of stock to sell the remaining six million shares at $23.38 each in the United States and abroad. In addition, more than 900,000 over-allotment shares worth $20 million were sold, reducing borrowings under the company’s bank credit line. At the time, Kardos reported that: “We are pleased by the positive market acceptance of our offering, as evidenced by several market barometers. We gained a large number of new institutional investors, enhanced the liquidity of our shares by increasing public float by some 40 percent, and witnessed a more than 20 percent share price gain since the stock repurchase and secondary offering were announced.” The overall effect of the sales, though, was to close the disposition of a 44 percent control interest of common stock. “Removing this uncertainty,” said Kardos in Business Week, “returns our total focus to business growth and further increases shareholder value.”

The company also expanded the size of its board of directors in 1995. Directors grew from eight to nine in number. Horace Mann also introduced its AutoEase program in all 50 states. The program allowed the payment of monthly automobile insurance premiums through electronic funds transfers from bank accounts.

A Year of Milestones

In 1996, Ward’s Financial included Horace Mann on its lists of the 50 top property/casualty and life/health insurers. This placed the company among the safest and best-performing insurers in the United States. To be included on the lists, an insurer had to withstand scrutiny of its performance over the past five years. Ward’s Financial listed only the companies with the highest profits demonstrating the most security in each market segment.

At this time, the National Education Association selected Horace Mann to provide professional liability insurance for its 2.2 million members in a three-year contract. The company’s plans offered NEA members protection from personal financial liability as the result of employment-related occurrences.

For the first time in the company’s history, its sales force exceeded 1,000 agents in 1996. “Two primary factors drove this growth,” noted the 1996 annual report. “First, our recruiting efforts have become more targeted and effective, so that not only are we hiring more agents, those we are hiring now are more likely to succeed. Second, we are seeing positive results from programs designed to improve agent retention. Most of these are geared to new agents—those with less than two years experience—since turnover drops off sharply once agents pass this milestone.”

Company Perspectives:

For more than 50 years, Horace Mann’s greatest strength has been its commitment to meeting the insurance needs of America’s educators and their families. This focus has made the company a leader in its field, a position it maintains by offering high-quality, competitively priced products and a superior level of customer service.

One existing program, the Pathways program, was revised and extended to include automobile and homeowners insurance as well as life insurance to assist agents in closing sales. The company also developed new programs to enhance the effectiveness of agents. For instance, Horace Mann instituted the Service on Call program to assist newer agents not yet able to secure office support or secretarial staff. The program allowed an agent to forward calls to a home office when he or she was on sales calls. This enabled home office service representatives to respond personally to callers. In addition Horace Mann issued new educational and promotional material about annuities for its agents, as well as distributed three videos about retirement planning for use at seminars.

Toward the end of the year, Horace Mann began to withdraw from the group medical insurance business. The company’s group medical line lost $1.2 million in 1995 and more than $3 million in 1996. Though the group medical line accounted for close to seven percent of Horace Mann’s total premiums written, the company intended to stop writing new group medical policies by January 1997 and to cease renewing group medical insurance policies by January 1998. According to Kardos, “Horace Mann’s strategic withdrawal from the group medical business will allow the company to focus on its core lines of business, including its group life and disability insurance.” Ending its group medical line cost the company $8 million in net operating losses plus charges for severance and other expenses. In total, 40 positions were eliminated at Horace Mann by 1998.

A Year of Innovations

Innovations—focusing on core business lines—to assist agents continued throughout 1997. Horace Mann provided its leading 400 agents with a database on disk to assist with their monthly marketing programs. Updated monthly, the disk helped agents identify clients for cross-selling. The disk even contained information and programming to pre-fill paperwork for agents. Horace Mann planned to extend this service to others besides leading agents in the years ahead.

Horace Mann also introduced new products for agents to sell in 1997. The company launched five new term life products and three new variable annuity funds, notably small cap, international, and socially responsible funds.

In March 1997, Horace Mann accepted an Aon Group option program enabling the company to replace up to $100 million in equity in the event of a catastrophe. A risk management innovation, this multi-year, $100 million Catastrophe Equity Put was fully underwritten by Centre Reinsurance Ltd. and completed Horace Mann’s plans to augment its reinsurance structure. When Horace Mann finalized the program, its rating by A. M. Best increase from “excellent” to “superior.”

Priorities in the Future

Horace Mann hoped to strengthen its relationship with educators and their organizations in the future. By the year 2000, the total educator market should reach 10 million. Horace Mann expected a two percent growth in its target market by 2000, with an eight percent annual turnover in the teacher market. Moreover, the company anticipated an increase of five million non-teacher school employees to the year 2000.

To serve its growing market, Horace Mann planned to invest in its agents, products, and customer service. The company hoped to control expenses in the future and to anticipate and counter moves by its competitors, thereby enhancing value for Horace Mann shareholders. “Our plan...,” wrote chairman of the board Ralph S. Saul and Kardos in their 1996 letter to shareholders, “is to build on our successes and further accelerate the company’s forward momentum.”

Principal Subsidiaries

Allegiance Life Insurance Company; Horace Mann Life Insurance Company; Horace Mann Service Corporation; Teachers Insurance Company.

Further Reading

“Aon Announces Completion of $100 Million Catastrophe Equity Put for Horace Mann Educators Corporation,” Business Wire, March 31, 1997, p. 3311339.

“Corporate Profile for Horace Mann Educators,” Business Wire, September 1, 1995, p. 9011088.

“Corporate Profile for Horace Mann Educators,” Business Wire, September 27, 1996, p. 9271013.

“Horace Mann Completes Secondary Offering; Over-allotment Proceeds of $20 Million Will Be Used to Reduce Bank Borrowings,” Business Wire, July 31, 1995, p. 7311116.

“Horace Mann Educators Announces Public Offering,” Business Wire, July 20, 1995, p. 7201028.

“Horace Mann Educators Expands Size of Board of Directors,” Business Wire, June 15, 1995, p. 6151149.

“Horace Mann to Accelerate Withdrawal from Group Medical Business,” Business Wire, October 16, 1997, p. 10161408.

“Horace Mann to Provide Liability Insurance for NEA Members,” Business Wire, April 22, 1996, p. 4221161.

“Horace Mann to Withdraw from Group Medical Insurance Business,” Business Wire, December 9, 1996, p. 12091247.

Lenckus, Dave, “To Make Ward’s List, Insurers Must Meet Tough Requirements,” Business Insurance, August 26, 1996.

_____, “Ward’s List Looks Beyond Numbers,” Business Insurance, August 26, 1996.

“Standard & Poor’s Insurance Rating Analysis, Life/Health: Horace Mann Life Insurance Company,” New York: Standard & Poor’s, January 17, 1996.

“Standard & Poor’s Insurance Rating Analysis, Property/Casualty: Horace Mann Insurance Company,” New York: Standard & Poor’s, January 31, 1996.

—Charity Anne Dorgan