Horace Mann Educators Corp (HMN) 2016 Q4 法說會逐字稿

Greetings, and welcome to the Horace Mann's fourth-quarter and full-year 2016 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ryan Greenier, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Donna, and good morning, everyone. Welcome to Horace Mann's discussion of our fourth-quarter and full-year 2016 results. Yesterday we issued our earnings release and investor financial supplement, and copies are available on the investors page of our website.

Our speakers today are Marita Zuraitis, President and Chief Executive Officer, and Bret Conklin, Senior Vice President and Acting Chief Financial Officer. Bill Caldwell, Executive Vice President of Property and Casualty, and Matt Sharpe, Executive Vice President of Life and Retirement, are also available for the question-and-answer session that follows our prepared comments.

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 press release and SEC filings.

In our prepared remarks, we may use some non-GAAP financial measures. Reconciliations of these measures to the most comparable GAAP measures are available in the supplemental sections of our press release. Now I'll turn the call over to Marita Zuraitis.

Thanks, Ryan. Good morning, everyone, and welcome to our call.

As many as you know, Dwayne Hallman, our Chief Financial Officer, passed away last week. Dwayne was an inspiring leader, and a true partner in establishing and executing Horace Mann's mission to serve educators. His contributions to our success at Horace Mann are significant, and he left an indelible mark on his coworkers and this Company. In his absence, Bret Conklin, our Senior Vice President and Chief Accounting Officer, has assumed Acting CFO responsibilities and has prepared remarks this morning.

Turning to our business results, after yesterday's market close, Horace Mann reported fourth-quarter operating earnings of $0.52 per share, which brings the full-year operating earnings to $1.97 per share. These were solid results considering the impact of weather, elevated industry auto loss trends, and a challenging interest rate environment. And these results continue to highlight the benefits of our multi-line business model.

2016 was a year of significant strategic investments and advancements for Horace Mann. Our product offerings continue to evolve, addressing issues educators face every day. We enhanced our Horace Mann general agency offerings to include more property options for coastal exposures, and expanded our brokered life insurance solutions for specialty cases.

In addition to these enhancements, we also introduced student loan solutions, which helps educators reduce the burden of student loan debt. To date, we have helped refinance millions of dollars in student loans, and redirect their monthly savings to retirement accounts.

From an infrastructure standpoint, we're making good progress modernizing our life and retirement systems, and are in phase 1 of a multi-year effort to modernize the full suite of our P&C systems. In addition, we've made it easier for customers and agents to do business with us with improved digital tools, like a mobile app to submit damage photos and other claim documentation, and an easy-to-use online self-enrollment for our retirement advantage products.

From a distribution standpoint, we continue to build complementary distribution (technical difficulty) channels to allow customers to access us on their terms, essentially increasing the number of ways to introduce Horace Mann to educators. Because we know that their financial needs become more complex, they will seek the advice of a trusted advisor at the point-of-sale. For example, in 2016 we enhanced our online auto quote quoting tool, providing more options and reducing the amount of time it takes to deliver a quote to a customer. By streamlining the user experience and improving our digital presence, we are seeing meaningful increases in the number of customers that begin their Horace Mann relationship using this channel.

And we continue to invest in the agency channel, a key differentiator for Horace Mann in the marketplace. Our captive agent force is a key component to our unique value proposition and an integral part of the education ecosystem, solving for the issues educators and school districts face on a daily basis.

Our exclusive agents are the face of Horace Mann in schools across the country, helping educators protect what they have today and prepare for a successful tomorrow. In 2016, our agency force conducted 3,500 workshops in schools on financial literacy, retirement readiness, and student loan assistance. In addition, they helped school districts secure over $66 million in crowd-funding grants with the assistance of DonorsChoose.

I'm pleased to report that agency productivity continues to improve, and the proof is in our sales volumes. P&C sales increased 6%; retirement sales were strong.

And we clearly have life back in our life business. Sales increased over 40% to $15.6 million. Adequate life insurance protection is an essential part of a holistic financial plan, and many educators do not have, or do not have enough, life insurance coverage. We're helping solve for this gap, educating consumers on the importance of life insurance, and helping them find dollars to pay for it.

Our customer base is growing. We continue to add new educator households while keeping our current customers. Life and retirement persistency rates continue to be in the mid-90%s. And despite a challenging P&C environment and aggressive rate actions to improve profitability, our industry-leading P&C retention ratios continue to be in the mid- to high-80%s. These achievements are a lot to be proud of, but we have more work to do to achieve our goal of increasing market share in the educator market, and improving profitability to move us closer to a low double-digit ROE.

2016 was clearly a challenging year for the P&C industry. Weather and auto loss trends impacted everyone, and we are not immune. Our combined ratio of 101.5% increased 4.5 points, largely due to increases in catastrophe, but also due to higher auto loss trends.

From a catastrophe perspective, we had 9.7 points of losses, a level not seen since 2011 when devastating tornadoes created significant damage across the Midwest and Southeast. This year we saw a significant increase in convective storm activity with grapefruit-size hail in Texas, battering winds, and torrential flooding in Louisiana. And fourth-quarter results included the impact of Hurricane Matthew, which caused significant damage in one of our larger markets, the Carolinas. All said, the nature of these storms impacted not only property, but auto as well.

2016 auto catastrophe losses were historic: 10 million or 2.5 points on the auto combined ratio, a level never seen at Horace Mann. And the macro industry trends in auto are concerning, the industry is battling an unprecedented increase in auto frequencies. And despite all the safety enhancements in modern vehicles, fatalities and accident severities are on the rise. Drivers today are more distracted than ever, and it's not just mobile phones.

The sophistication and complexity of new vehicle technology, and increases in the number of connected vehicles, are clearly contributing to the rise in accident frequency, as well as accident severities. We, like many in the industry, are seeing this in our claims data. We're seeing higher accident counts and more severe damage. And when you have a collision at a higher rate of speed, you typically have more bodily injury claims.

Our educators tend to be better, more responsible drivers, and therefore, they are somewhat insulated from these trends, but they are not completely immune from the environment around them. We began seeing an uptick in auto losses in mid-2015, and we reacted quickly in response to these trends. We began tightening underwriting, increasing rates, and implementing claim enhancements with the goal of improving profitability. These actions, combined with the fact that the majority of our policies are on a six-month billing cycle, resulted in higher earned rates increased in 2016.

Unfortunately, despite our aggressive actions, the rate we took was not sufficient to cover rising loss-cost trends. As a result, we continue to take rate, and in 2016 exceeded our original plan by 50 basis points, ending the year at 6.5%. Our initial outlook for 2017 indicates an 8% rate plan, but we will adjust accordingly as we see changes in the auto loss trend. We will provide more specifics on 2017 guidance later in the call, but from where we stand today, we would expect to see modest improvement in the underlying auto loss ratio in 2017.

Despite the weather impacts of 2016, our underlying property book continues to perform extremely well, and is an important contributor to the profitability of our P&C line. The majority of our P&C customers bundle auto and property, and this combination results in strong retentions but also higher lifetime profitability. We continue to promote bundling, not only for the profitability benefits but also to ensure we are providing a complete insurance solution for the household.

Turning to the retirement business, 2016 was a solid year. Ex-DAC operating earnings increased 11% on strong net investment income, as well as solid sales and deposit activity. At the end of 2016, retirement assets under management were nearly $6.5 billion, an increase of over 7% compared to the prior year.

We know that our 403(b) and retirement offerings are, in many cases, the first product in educator purchases from us. Therefore, it is important to ensure the customer experience is consistent and aligned with our solution orientation. We have spent the past few years building enhanced online enrollment capabilities, a scalable infrastructure, and most importantly an innovative product offering that is integrated and aligned with our solution orientation.

We have built, and plan to launch, an educational tool administered by our agents during the sales process and annual review, which will help analyze a customer's financial and household information. The output of this tool is personalized education to help customers achieve their retirement goals, but also to provide recommendation on appropriate homeowners and auto insurance, as well as life insurance options for protection and wealth accumulation. In short, this proprietary tool provides a holistic, goal-based approach to assist our customers with all of their household financial needs.

At the center of the savings component of this model is our new employer-based and individual retirement advantage products. These offerings feature transparencies as a percentage of assets under management, flexibility to move between products with no surrender charges, and a best-of-breed selection of third-party mutual funds and subaccounts with a continued focus on increasing client value and reducing overall costs.

These retirement advantage products will replace our current 403(b) and IRA offerings with a targeted second-quarter release. This product shift is designed to harmonize compensation of our agents across all tax types, and ensure a consistent customer experience across all new retirement sales. We believe our harmonized approach, combined with our innovative new products, will capitalize on the disruption in the retirement space, and we're poised to take advantage of our first-mover position.

To reach more educators and ensure we capitalize on this innovative new product offering, we have expanded our institutional sales team, led by [Bruce Cochran]. As you may recall, Bruce joined the Organization in the second quarter of 2016, and leads our newly created institutional retirement solutions team. We have expanded this team, hiring seasoned 403(b) institutional sales talent with proven track records of success.

This team of experienced business-to-business marketers will improve our competitiveness in medium to large school district market. We expect this to result in accelerated 403(b) growth. We already have an active pipeline of RFP opportunities and we are excited to introduce our innovative retirement advantage product to more school districts. We're confident the combination of our new educational pool, our innovated new retirement product platform, and the growth of the experienced institutional team will result in an acceleration of growth in retirement assets under management over time.

Let me turn the call over to Bret for a discussion of fourth-quarter and full-year 2016 results. Then, after Bret's comments, I'll provide our operating earnings and key driver guidance for 2017. Bret?

Thanks, Marita, and good morning, everyone. Fourth-quarter operating income was $0.52 per diluted share, $0.09 higher than the prior year. Stronger net investment income results across all segments accounted for $0.07 of the increase.

In addition, we have modestly favorable DAC unlocking this quarter compared to negative DAC unlocking in the prior period, which accounted for $0.04. And if you recall, we refinanced our debt in the fourth quarter of last year and incurred $0.05 of cost related to the debt issuance. Offsetting these favorable variances was $0.06 of higher cat losses in the current quarter.

P&C after-tax income of $9.6 million was $1.7 million higher than the prior-year quarter. This included $11.6 million pre-tax or 7.3 points of cat losses, which was $4 million higher than the prior year. Hurricane Matthew accounted for the vast majority of cat losses, and the impact related to this event was within the range we pre-announced on our third-quarter earnings call. In addition to Matthew, the relatively warm weather in the fourth quarter resulted in a higher-than-normal level of wind and thunderstorm activity across the Southeast.

Auto results for the quarter were impacted by accident frequency and physical damage severity that remain at an elevated level. As a result, the underlying combined ratio for the quarter was 108.2%, a 1.4 point improvement compared to the prior year. Though much of the improvement was related to a lower expense ratio, we are encouraged that the auto loss trends appear to be stabilizing, although, like the broader industry, they remain at an elevated level.

Given the uncertainty around elevated auto loss trends, we've been prudent in our reserving action, and this is the first quarter in 2016 where we have seen favorable emergence in auto reserves. During the quarter, we had $1.4 million or 1.3 points of favorable prior-year reserve development in the quarter, largely related to liability-related coverages for accident years 2014 and earlier. Underlying property results continue to be strong, and the combined ratio on this basis improved 3 points to 64.3%.

Operating income, excluding DAC unlocking, in the retirement segment was $10.8 million in the quarter, $600,000 lower than the prior year. A higher level of operating expenses related to strategic investments and infrastructure modernization were the primary drivers of the increase. Partially offsetting the increase was a $3.8 million increase in net investment income, driven by strong alternative returns and pre-payment activity in the fixed-income portfolio.

In the life segment, ex-DAC operating earnings declined $1.1 million due to slightly higher income tax expenses, as well as the first-year expense and reserve impacts of accelerating volumes of single premium new business. On a full-year basis, consolidated operating earnings were $1.97 per share, $0.03 lower than the prior year.

Weather and auto loss trends pressured P&C results in 2016, yet our retirement and life segment ex-DAC operating earnings increased 11% and 9%, respectively. This year's operating performance demonstrates the power of the true multi-line model. P&C had a challenging auto and cat year, yet retirement and life earnings continue to grow, resulting in a relatively stable earnings profile.

Full-year P&C operating income was $25.6 million, a $14.4 million decline compared to the prior year. The combined ratio of 101.5% was 3.5 points worse than the prior year, with the majority of the increase reflecting a higher level of cat activity and lower prior-year development.

During 2016, we experienced $60 million pre-tax or 9.7 points of cat losses; this was significantly higher than our loss experience over the past four years, and exceeded our average annual model losses by nearly 4 points. On an underlying basis, the combined ratio of 92.9% was 1.2 points worse than the prior year. While underlying property results remain strong, auto loss trends were challenging in 2016, underscoring the importance of a bundled P&C product offering.

Ex-DAC operating earnings in the retirement segment increased nearly $5 million to $50.5 million. Strong investment returns and strong growth in assets under management more than offset nearly $8 million in additional operating expenses. We continue to invest in the future of our businesses, and as Marita mentioned, we are building the infrastructure and distribution to support significantly larger sales volume in the years ahead.

In the life segment, full-year ex-DAC operating earnings of $16.3 million increased $1.3 million. Much of the increase was related to a lower level of mortality costs in 2016, as death benefits were in line with expectations versus an elevated level in the prior year. In addition, we continue to invest in improving life infrastructure and had a modestly higher level of operating expenses in 2016.

Consolidated net investment income was $361 million for the year, nearly $30 million higher than the prior year. Alternative investment income increased over $11 million, and we experienced nearly $9 million in pre-payment activity in the fixed income portfolio over the course of the year. The remainder of the increase in income was a result of higher asset balances in the retirement segment.

Despite the challenging interest rate environment, our annualized net investment yield increased 15 basis points compared to the prior year to 5.21%. We continue to be successful in sourcing opportunities to put money at work at attractive risk adjusted returns without going down in credit quality or extending duration. We achieved a new money rate of nearly 4% over the course of 2016, and maintained a neutral duration position compared to our liabilities.

Turning to the balance sheet, we generated about $75 million of statutory operating income in 2016. And while our RBC ratios aren't final, we estimate P&C is around 570% with a premium-to-surplus ratio of about 1.35, and the life company RBC is around 450%. We have a healthy cushion of excess capital which we plan to use to fund continued organic growth. And now let me turn the call back over to Marita for our 2017 outlook.

Thanks, Bret. We have spent the past few years building a solid foundation that celebrates our unique value proposition and supports scalable growth. Looking ahead to 2017, I'm confident we have the right products, distribution, and infrastructure in place to accelerate profitable growth.

Our operating income guidance for 2017 is $1.95 to $2.15 per share. This estimate includes nearly $0.10 of strategic investment in our retirement business that we expect will accelerate our growth momentum. Excluding these one-time investments, the mid-point of our earnings guidance represents a 9% earnings growth over 2016.

Within P&C, we expect the underlying combined ratio to increase about 1 point compared to 2016 levels. The increase is driven by the expectation of a more normalized non-cat weather experience in property, somewhat offset by a 1 point improvement in the auto loss ratio. Getting our auto book to targeted returns is a multi-year journey, but we expect to make progress in 2017. Aggressive rate actions in late 2015 and 2016 are earning in. And our rate plan is 8% for 2017.

We expect this, along with the disciplined underwriting, continued claims enhancements, and an intense focus on pursuing growth in profitable geographies and segments will result in a 1 point of improvement to the underlying auto combined ratio over the course of 2017. Underlying property results were very strong in 2016, and our 2017 guidance includes an assumption that non-cat weather-related losses return to a more normalized level. As a result, underlying property results are 2 to 3 points higher, or in the low 70%s.

From an expense perspective, we continue to invest in all of our businesses, and as a result, expect the expense ratio to remain around 27.5%, a level we expect to persist over the multi-year implementation phase of our new P&C systems. Our catastrophe estimate is around 6 points, which represents our average annual modeled losses of our current book of auto and property business. We expect sales momentum to continue in 2017, with both auto and property businesses growing, continued strong retention, and mid-digit rate increases to result in a 4% to 6% increase in net written premium.

Putting it all together, we expect 2017 to be a year of incremental profit improvement in P&C. We are laser focused on improving auto profitability, and will continue to react to changes in loss trends quickly.

Expenses in the retirement segment increased as a result of our strategic investments that I mentioned earlier. In addition, we assume a lower level of investment pre-payment activity and modestly lower alternative income. And as a result, the net interest margin declines into the [$180 millions], reflecting the low interest rate environment. While rates have increased, spreads continue to tighten, and as a result our expectation is that new money rates will be around 4% again in 2017. Therefore, our guidance assumes a modest decline in retirement operating earnings in 2017.

Our life earning assumptions reflect mortality consistent with our actuarial models, as well as continued net investment income pressure given our reinvestment rate assumptions. As a result, we expect life segment earnings to be in the range of $14 million to $16 million. Overall, our operating income guidance of $1.95 to $2.15 per share reflects the challenging macroeconomic backdrop of elevated auto severity trends, prolonged low interest rates, and $0.10 of strategic investments that will position us to capitalize on the opportunities of our new retirement platform.

In closing, 2016 was a strong year for Horace Mann. We continue to make significant progress enhancing our product offerings, expanding distribution, and improving our infrastructure. These investments are the right tools to create long-term shareholder value.

Because of our intense focus on the educator market at Horace Mann, we are confident that our new proprietary educational tool will serve this deserving group in a differentiated and unique way. We frequently said that there are only two types of educators: Horace Mann customers and future Horace Mann customers. And with this new tool, combined with the other significant improvements we've made over the past few years, I am more confident than ever that we are on the right path to achieving our goal of being the preferred financial services company for the nation's educators, and we expect to see further market-share gains in 2017. Thanks, and now I'll turn the call back to Ryan to start our Q&A.

Thanks, Marita. Donna, please open up the line to begin the Q&A portion of the call.

(Operator Instructions)

Bob Glasspiegel, Janney Montgomery Scott. Please proceed with your question.

Good morning Horace Mann, and condolences to you and Dwayne's family on the big loss.

Thanks Bob. Dwayne, as you can imagine, left us with a very strong team and they're ready to step up and that's exactly what they're doing but we appreciate the comments.

You anticipated my segue, which was going to be that I do think he has a strong team that's been my experience. With that said, you anticipate an outside search or not?

You know, that's probably way too early to tell at this point Bob. Our plans are to go with a good secession plan that we had in place. Bret obviously has stepped up to the plate over the last few days. Tough time for us, but a great team around him and were going to take some time and figure that out.

But I feel good about the support I've got around the table and in usual Dwayne fashion, he had all of these folks involved in every aspect of the business, although we're going to miss him personally, I don't think were to skip a beat.

I appreciate that, moving on. Southeast losses in January -- I think we've seen a record number of January events are coming up about warm weather. Any early indication of whether the Mississippi Georgia matches up with your book of business?

Yes, I would say way too early to tell, but there's nothing concerning us at this time. You know, obviously what you've got is probably more January storm activity but also much warmer January when you add those things together I don't see anything out of pattern of what we normally see in a January and nothing that we are concerned about.

Okay, that's good news. What's the excess capital at the parent and the holding companies that targeted RBC ratios? Have you done the math on that?

Yes Bob, this is Bret Conklin, as I mentioned in my prepared remarks were still finalizing RBC estimates at this point, but our excess capital is about $80 million in total and that's in excess of [$425] and [$500] RBCs at the life in P&C companies respectively. At the holding co there's about $3 million to $5 million of cash up at the holding level company.

Okay, good luck on 2017, thanks.

Thanks Bob.

(Operator Instructions)

Meyer Shields of KBW. Please proceed with your question.

Thanks, good morning. I also want to offer our sympathies on Dwayne unfortunate passing.

Thank you.

Two quick questions in terms of the guidance. One, if I've done the math right, the $0.10 impact retirement related investments about $6.5 million-- I trying to figure out what the corresponding number was in 2016.

I think before we go there, maybe a little more explanation on the $0.10 and I can have Matt give you little more specifics as to some of the buckets for 2016, but if you think about the PDI investments that we have made so far, I think they've clearly hit the mark. I mean 28% CAGR in our life business, multiple years of high single digit growth in assets under management, we've got momentum back in the P&C business with consistent mid-single digit growth. We've kept very strong industry-leading both persistency and retention.

So I think we've proven that when we invest in the business, we make those investments work and I think we have a proven track record over the last several years of doing just that. Matt can give you little more specifics about what those investments are in the retirements phase but I thought it was important for us to put that in context before we answer the past question. Matt.

Thanks Marita. Good morning. The strategic investments are related to completing the product in new educational tool built, related to our [strategy shift] that was precipitated a little bit by the Department of Labor.

Also building out as Marita said in her script, the additional BtoB capabilities expanding our reach into the medium and larger size school district in the adjacent market, such as private a K12 [space]. That's a key for us driving scales our lines across all of our lines of business not just in the retirement phase. The-- we started making those investments in 2016 and will continue to make those investments in 2017.

Okay. That's helpful. Second, also in terms of the guidance. I think I got wrong my initial take with regard to the reserve development that is anticipated in the guidance. I was wondering if I could get something both numerically and conceptionally what [favorable] developments has anticipated?

Yes, this is Bret Conklin again, I guess as it relates to our 2017 guidance, we did not factor in any material amount of reserve releases and as we done in the past we will record it, when we see it. I think if you've tracked us a while, we had a 10 year record of net-favorable reserve releases however, you can look back at the last three years and that favorable development certainly has been less and what has been in the years prior to that. But as far as our guidance is concerned, there's not a material amount in our 2017 numbers.

Okay, and then two other quick questions. The P&C expenses in the quarter were down a little more than $1 million year-over-year. Was there anything unusual in that, or is fourth quarter a decent run rate?

This is Bret again, I wouldn't say there was anything overly unusual both this year and last year even for the full-year are probably slightly less than what we were anticipating running at. As Marita mentioned, that was at the [27.5%] level with respect to expense ratio. I would mention that we did have a true-up adjustment with respect to some employee related benefits cost in the fourth quarter of this year but nothing material.

So if you kind of look at the run rate year-over-year we're basically about flat but as we continue investments in the P&C infrastructure arena, we would anticipate going back up to the [27.5%] run rate that we've mentioned in years past.

I think Bret is exactly right. I think focusing on that [27.5%] run rate that we talked about, quite frankly, for some time is really the key, but in this level of investment in P&C, it might be lumpy quarter over quarter because it's really a timing issue when we see a difference but very confident on that [27.5%] run rate and when you look at where we are vis-a-vis our competitors, even with this level of investment, I think it's quite competitive.

Yes, that makes sense. Finally, I was hoping you comment a little bit on loss trends within the property book.

In the property book we're just contemplating, as we do in every planning cycle, of normalize cat activity -- normalize ex-cat activity weather. So it's not really that we expect the book to perform any worse in the long run, it's just over a very exceptional year from a weather perspective.

And in our conservative nature as we've always done, you're not going to bank on this level of property profitability but at the same time, I'm not going to have a problem with planning in the [70s].

That's true. Okay, thanks so much for your help.

Thanks a lot.

Matt Carletti of JMP Securities.

Thanks, good morning. Just have one question left, the others have kind of answered already. I was hoping to dig a little bit into the ex-cat [accident] year loss ratio on the auto book. It was up a little bit year-over-year.

I was hoping you could give a little color on what's the difference -- [what's your assessment] of non-cat weather year-over-year is that part of what's driving it? Is it more, just the underlying auto loss trends that we've been seeing? Just trying to get a starting point for where I should think about starting off 2017.

Yes, Matt with ex-catastrophe in auto, it's a little bit harder to pull out I think we talked about this last quarter. We get the catastrophe which would be comp but anything that's on that comp bucket goes into ex-cat weather. So additional accidents, hit in the rear because of rain, that goes for underline loss ratio, so when we look at next year, we're expecting that to be in the normalize environment and covered by rate.

With that said, we'll continue to work in our identify, diagnosis, respond environment. As an example we had a rate plan last year of 6 points. We saw some of that weather activity emerge in March and April time period particularly in the Southeast. We responded pretty quickly and exceeded our rate plan by 50 points.

I've said this pretty frequently. It's hard to do a mid course direction on a rate plan just because of the cycle of the analysis, the filing, the implementation of the rates. So we'll continue to react in that environment and as Marita said, we're looking at 8 points for next year and if we continue to see adverse trends we'll react appropriately.

The good thing about working in a niche, is that we tend to recognize in these trends a lot faster. They stand out more quickly than they would in a broad market book. So we've been talking about these trends for two years and like I said, we'll continue to react in that type of environment.

Talking about it, if you do go back, keep in mind this will be lumpy. In the first quarter of last year we did run that [99] which later developed to a [104] in the second quarter. So if you look at first quarter and second quarter combined, they were about the same but we expect going in the first quarter of 2017 somewhat of a unfavorable comparison just because of that development that happened in the second quarter.

Right, that make sense. More broadly just from a longer-term quarter to quarter seasonality of that book, am I right in thinking about the Q4 historically? Or go forward usually the higher underlying quarter because of the weather involved in it and other quarters in the below lighter?

Yes I would say, I look back over the last couple of years and typically -- if you look at our average of combined ratio for the year, fourth quarter is 4 points to 6 points higher.

Okay thanks.

That's really a myth perspective, but if you look at the states we're in and weighted by our premium for the industry, you would see similar impacts from the market.

And you know, we're clearly not declaring victory but we do like the underlined signs that we saw in the fourth quarter, so you're thinking about the right way.

Great, thanks for the answers. Best of luck in 2017.

Thank you.

Bob Glasspiegel of Janney Montgomery Scott. Please proceed with your question.

Yes, this is a big picture question. Is there anything in President Trump's stated agenda and his education secretary that impacts the Company when one way or another?

Yes, I mean, as we think about this new administration, obviously when we think about changes in Dodd-Frank we think about changes potentially in the DOL fiduciary rule. We think about tax reform, and we've obviously spent a fair amount of time over a protractive election shall we say, modeling the effects for us on those types of things.

But when we think about our education sector, you know Bob, that our roots are in public education but we've grown and expanded to the private sector, the parochial sector, charter schools and in many areas charter schools are actually part of the K-12 payroll slots. So we're focus on the educator.

So I'm not sure his pick or any changes in this administration are going to affect the customers we have available to sell to or our potential market share. We're really focused and think that when we looked out to 2016 and beyond, we've got what it takes to penetrate this broader educational sector and we're feeling really good about our potential growth going forward.

Is the Company sort of market neutral in public versus private education, or I didn't know whether try to get the slots you have to be viewed as a pro lobby for the public sector, education market.

Yes, I mean were an educator company. We don't get heavily involved or aren't particular political. I would say that our roots are in public K-12 we have business and educators across a broad educator market, and I think the way you describe it is correct.

Cool thanks a lot.

Thanks Bob.

(Operator Instructions)

Thanks Donna and thank you to everyone on this morning that joined us on Horace Mann fourth-quarter full-year earnings call. If there are any additional questions please don't hesitate to reach out to Kristi Niles or me. Thank you very much.