<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[x]QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10890
HORACE MANN EDUCATORS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 37-0911756
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Horace Mann Plaza, Springfield, Illinois 62715-0001
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 217-789-2500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of October 31, 1997, 22,363,706 shares of Common Stock, par value $0.001
per share, were outstanding, net of 7,216,298 shares of treasury stock.
================================================================================
<PAGE>
HORACE MANN EDUCATORS CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
Page
----
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996............................................... 1
Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1997
and 1996............................................................................... 2
Consolidated Statements of Changes in Shareholders'
Equity for the Nine Months Ended September 30, 1997
and 1996............................................................................... 3
Consolidated Statements of Cash Flows for the
Three and Nine Months Ended September 30, 1997
and 1996............................................................................... 4
Notes to Consolidated Financial Statements................................................ 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................. 10
PART II - OTHER INFORMATION................................................................................ 21
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES................................................................................................. 22
</TABLE>
<PAGE>
HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Investments
Fixed maturities, available for sale, at market (amortized
cost, 1997, $2,553,344; 1996, $2,609,077)...................................... $2,640,070 $2,658,512
Short-term and other investments................................................ 132,082 125,824
---------- ----------
Total investments......................................................... 2,772,152 2,784,336
Cash............................................................................. 14,398 13,704
Accrued investment income and premiums receivable................................ 94,835 107,682
Value of acquired insurance in force and goodwill................................ 110,561 118,638
Other assets..................................................................... 182,818 151,830
Variable annuity assets.......................................................... 936,895 684,836
---------- ----------
Total assets.............................................................. $4,111,659 $3,861,026
========== ==========
LIABILITIES, REDEEMABLE SECURITIES AND SHAREHOLDERS' EQUITY
Policy liabilities
Annuity contract liabilities.................................................... $1,267,925 $1,286,110
Interest-sensitive life contract liabilities.................................... 355,306 326,955
Unpaid claims and claim expenses................................................ 335,124 358,853
Future policy benefits.......................................................... 178,942 182,336
Unearned premiums............................................................... 162,402 155,776
---------- ----------
Total policy liabilities.................................................. 2,299,699 2,310,030
Other policyholder funds......................................................... 120,887 118,549
Other liabilities................................................................ 118,753 129,075
Short-term debt.................................................................. 42,000 34,000
Long-term debt................................................................... 99,590 99,564
Variable annuity liabilities..................................................... 933,795 684,836
---------- ----------
Total liabilities......................................................... 3,614,724 3,376,054
---------- ----------
Warrants, subject to redemption.................................................. 577 577
---------- ----------
Preferred stock.................................................................. - -
Common stock..................................................................... 30 29
Additional paid-in capital....................................................... 340,755 330,263
Net unrealized gains on fixed
maturities and equity securities................................................ 50,914 29,736
Retained earnings................................................................ 327,559 278,669
Treasury stock, at cost.......................................................... (222,900) (154,302)
---------- ----------
Total shareholders' equity................................................ 496,358 484,395
---------- ----------
Total liabilities, redeemable
securities, and shareholders' equity................................... $4,111,659 $3,861,026
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Insurance premiums written
and contract deposits................. $188,911 $180,551 $563,834 $520,894
======== ======== ======== ========
Revenues
Insurance premiums and
contract charges earned............. $135,078 $126,156 $402,385 $372,486
Net investment income................. 49,271 49,451 148,979 148,642
Realized investment gains (losses).... 1,585 (132) 3,230 2,603
-------- -------- -------- --------
Total revenues..................... 185,934 175,475 554,594 523,731
-------- -------- -------- --------
Benefits, losses and expenses
Benefits, claims and
settlement expenses................. 89,925 89,022 271,714 261,172
Interest credited..................... 24,227 23,923 73,082 71,225
Policy acquisition
expenses amortized.................. 10,937 10,306 33,035 30,236
Operating expenses.................... 27,484 23,644 77,090 71,763
Amortization of intangible assets..... 2,666 2,802 8,077 8,501
Interest expense...................... 1,842 2,552 7,067 8,022
Debt retirement costs................. - - - 1,319
-------- -------- -------- --------
Total benefits, losses
and expenses..................... 157,081 152,249 470,065 452,238
-------- -------- -------- --------
Income from continuing operations
before income taxes and
discontinued operations............... 28,853 23,226 84,529 71,493
Income tax expense...................... 7,376 5,334 22,756 19,078
-------- -------- -------- --------
Income from continuing operations....... 21,477 17,892 61,773 52,415
Discontinued operations:
Loss from operations, net of
applicable income tax benefits....... - (1,568) - (3,577)
Loss on discontinuation, net of
applicable income tax benefits....... (3,481) - (3,481) -
-------- -------- -------- --------
Net income.............................. $ 17,996 $ 16,324 $ 58,292 $ 48,838
======== ======== ======== ========
Earnings (loss) per share
Income from continuing operations..... $ 0.95 $ 0.77 $ 2.67 $ 2.24
Discontinued operations:
Loss from operations................. - (0.08) - (0.16)
Loss on discontinuation.............. (0.15) - (0.15) -
-------- -------- -------- --------
Net income.............................. $ 0.80 $ 0.69 $ 2.52 $ 2.08
======== ======== ======== ========
Weighted average number of shares
and equivalent shares (in thousands).. 22,585 23,474 23,111 23,449
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Common stock
Beginning balance..................................... $ 29 $ 29
Options exercised, 1997, 363,212 shares;
1996, 136,000 shares................................. 1 -
Conversion of Director Stock
Plan units, 1997, 1,144 shares....................... - -
--------- ---------
Ending balance........................................ 30 29
--------- ---------
Additional paid-in capital
Beginning balance..................................... 330,263 323,920
Options exercised and conversion of
Director Stock Plan units............................ 11,742 3,335
Catastrophe-linked equity
put option premium................................... (1,250) -
--------- ---------
Ending balance........................................ 340,755 327,255
--------- ---------
Net unrealized gains (losses) on
fixed maturities and equity securities
Beginning balance.................................... 29,736 76,151
Increase (decrease) for the period................... 21,178 (63,762)
--------- ---------
Ending balance....................................... 50,914 12,389
--------- ---------
Retained earnings
Beginning balance.................................... 278,669 224,366
Net income........................................... 58,292 48,838
Cash dividends, 1997, $0.405; 1996,
$0.33 per share..................................... (9,402) (7,739)
--------- ---------
Ending balance....................................... 327,559 265,465
--------- ---------
Treasury stock, at cost
Beginning balance, 5,588,098 shares.................. (154,302) (154,302)
Purchase of 1,449,800 shares (See note 5)............ (68,598) -
--------- ---------
Ending balance, 1997, 7,037,898 shares;
1996, 5,588,098 shares.............................. (222,900) (154,302)
--------- ---------
Shareholders' equity at end of period................. $ 496,358 $ 450,836
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Premiums collected............................ $ 154,356 $ 146,670 $ 462,657 $ 427,886
Policyholder benefits paid.................... (116,508) (116,876) (353,003) (335,378)
Policy acquisition and other
operating expenses paid...................... (44,727) (39,220) (126,977) (121,105)
Federal income taxes paid..................... (2,626) - (46,703) (10,651)
Investment income collected................... 53,111 51,094 152,853 151,796
Interest expense paid......................... (2,610) (4,226) (8,423) (7,382)
Other......................................... (2,853) (4,639) (4,354) (2,437)
--------- --------- --------- ---------
Net cash provided
by operating activities.................... 38,143 32,803 76,050 102,729
--------- --------- --------- ---------
Cash flows from investing activities
Fixed maturities
Purchases.................................... (189,029) (206,079) (768,418) (722,154)
Sales........................................ 191,994 152,155 648,621 512,435
Maturities................................... 42,679 46,391 173,986 149,764
Net cash received from
short-term and other investments............. (30,245) (2,321) (9,056) 33,161
--------- --------- --------- ---------
Net cash provided by
(used in) investing activities............. 15,399 (9,854) 45,133 (26,794)
--------- --------- --------- ---------
Cash flows from financing activities
Dividends paid to shareholders................ (3,047) (2,580) (9,402) (7,739)
Principal borrowing (payments) on
Bank Credit Facility......................... - (8,000) 8,000 (25,000)
Purchase of treasury stock.................... (7,163) - (68,598) -
Exercise of stock options..................... 2,270 1,688 11,743 3,335
Catastrophe-linked equity
put option premium........................... - - (1,250) -
Proceeds from issuance
of Senior Notes.............................. - - - 98,530
Retirement of Convertible Notes............... - - - (102,890)
Annuity contracts, variable and fixed
Deposits..................................... 42,165 36,698 143,947 122,241
Maturities and withdrawals................... (51,951) (33,355) (122,061) (99,982)
Net transfer to variable
annuity assets.............................. (29,938) (19,405) (84,005) (62,966)
Net increase in interest-sensitive
life account balances........................ 144 320 1,137 1,045
--------- --------- --------- ---------
Net cash used
in financing activities.................... (47,520) (24,634) (120,489) (73,426)
--------- --------- --------- ---------
Net increase (decrease) in cash................ 6,022 (1,685) 694 2,509
Cash at beginning of period.................... 8,376 13,712 13,704 9,518
--------- --------- --------- ---------
Cash at end of period.......................... $ 14,398 $ 12,027 $ 14,398 $ 12,027
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HORACE MANN EDUCATORS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
(Dollars in thousands)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements of Horace Mann
Educators Corporation (the "Company") have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The Company believes that these financial statements contain all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the Company's consolidated financial position as of September 30, 1997
and December 31, 1996 and the consolidated results of operations, changes in
shareholders' equity and cash flows for the three and nine months ended
September 30, 1997 and 1996.
It is suggested that these financial statements be read in conjunction with
the financial statements and the notes thereto contained in the December 31,
1996 Form 10-K filed by the Company.
The results of operations for the three and nine months ended September 30,
1997 are not necessarily indicative of the results to be expected for the full
year.
The Company has reclassified the presentation of certain prior period
information to conform with the 1997 presentation including the presentation of
discontinued operations for all periods.
Note 2 - Discontinued Operations
In December 1996, the Company announced its strategic decision to withdraw
from the group medical insurance business over the following two years. The
Company's results of operations for the year ended December 31, 1996 included an
accrual for anticipated losses during the phase-out period and a related income
tax recoverable.
The Company has accelerated the timetable for its withdrawal from the group
medical insurance business anticipating termination of more than 90% of that
business by December 1997 and the remaining business in 1998. As a result of
this acceleration and higher-than-expected claims, net income for the three and
nine months ended September 30, 1997 includes a charge of $3,481 for anticipated
additional losses during the remainder of the phase-out period, net of related
income tax benefits of $1,874.
5
<PAGE>
Note 3 - Debt
Indebtedness outstanding was as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Short-term debt:
$65,000 Bank Credit Facility, IBOR + 0.325%
(6.1% as of September 30, 1997)............. $ 42,000 $ 34,000
Long-term debt:
6 5/8% Senior Notes, due January 15, 2006.
Face amount less unaccrued discount
of $410 and $436 (6.7% imputed rate)......... 99,590 99,564
-------- --------
Total...................................... $141,590 $133,564
======== ========
</TABLE>
Note 4 - Investments
The following sets forth the composition and value of the Company's fixed
maturity securities portfolio by rating category. The Company has classified
the entire fixed maturity securities portfolio as available for sale, which is
carried at market value.
<TABLE>
<CAPTION>
Percent of
Carrying Value September 30, 1997
---------------------------- ----------------------
Rating of Fixed September 30, December 31, Carrying Amortized
Maturity Securities(1) 1997 1996 Value Cost
- ---------------------- ------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
AAA..................... 40.7% 46.4% $1,073,211 $1,045,800
AA...................... 7.6 9.4 199,386 192,115
A....................... 20.1 22.3 530,342 512,617
BBB..................... 25.1 16.4 663,852 639,476
BB...................... 2.0 1.4 53,550 50,851
B....................... 3.8 3.7 100,876 94,836
CCC or lower............ - - 782 567
Not rated(2)............ 0.7 0.4 18,071 17,082
----- ----- ---------- ----------
Total................... 100.0% 100.0% $2,640,070 $2,553,344
===== ===== ========== ==========
</TABLE>
(1) Ratings are as assigned primarily by Standard & Poor's Corporation ("S&P")
when available, with remaining ratings as assigned on an equivalent basis by
Moody's Investors Service, Inc. ("Moody's"). Ratings for publicly traded
securities are determined when the securities are acquired and are updated
monthly to reflect any changes in ratings.
(2) This category is comprised primarily of private placement securities not
rated by either S&P or Moody's. The National Association of Insurance
Commissioners (the "NAIC") has rated 86.8% of these private placements as
investment grade. $0.8 million of the remaining $1.3 million of private
placements were rated as investment grade by the NAIC in 1995 and are under
review for the assignment of a current rating.
6
<PAGE>
Note 4 - Investments - (Continued)
The following table presents a maturity schedule of the Company's fixed
maturity securities. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
Percent Carrying
of Total Value
---------------------------- --------------
September 30, December 31, September 30,
Scheduled Maturity 1997 1996 1997
- ------------------ ------------- ------------ -------------
<S> <C> <C> <C>
Due in 1 year or less................ 6.1% 5.7% $ 162,055
Due after 1 year through 5 years..... 24.7 28.7 652,620
Due after 5 years through 10 years... 34.2 32.9 902,085
Due after 10 years through 20 years.. 20.3 18.9 536,481
Due after 20 years................... 14.7 13.8 386,829
----- ----- ----------
Total................................ 100.0% 100.0% $2,640,070
===== ===== ==========
</TABLE>
Note 5 - Shareholders' Equity
Subsequent Events-Stock Split and Dividend Increase
On November 12, 1997, the Board of Directors authorized a two-for-one stock
split distributable on December 15, 1997 to shareholders of record on November
28, 1997. On November 12, 1997, the Board of Directors also authorized the sixth
increase in the Company's quarterly dividend since the Company's initial public
offering in November 1991. The regular dividend increased by 19% to $0.16 per
share on a pre-split basis.
Share Repurchase Program
In February 1997, the Company's Board of Directors adopted a repurchase
program for shares of the Company's common stock, with an initial repurchase
limit of $100 million. Based on the market price of the Company's common shares
at the time the Board adopted this program, $100 million represented
approximately 9% of the Company's outstanding shares. Shares of common stock may
be purchased from time to time through open market and private purchases, as
available. Share repurchases will be financed with cash from operations and, if
needed, the Bank Credit Facility.
As of September 30, 1997, the Company had repurchased 1,449,800 shares at
an aggregate cost of $68,598, or $47.32 per share, which was financed primarily
with cash from operations, including dividends of $80,000 from the property and
casualty subsidiaries.
7
<PAGE>
Note 6 - Reinsurance
The Company recognizes the cost of reinsurance premiums over the
contract periods for such premiums in proportion to the insurance protection
provided. Amounts recoverable from reinsurers for unpaid claims and claim
settlement expenses, including estimated amounts for unsettled claims, claims
incurred but not reported and policy benefits are estimated in a manner
consistent with the insurance liability associated with the policy. The effect
of reinsurance on premiums written; premiums earned; and benefits, claims and
settlement expenses were as follows:
<TABLE>
<CAPTION>
Ceded to Assumed
Gross Other from State
Amount Companies Facilities Net
-------- --------- ----------- --------
<S> <C> <C> <C> <C>
Three months ended
September 30, 1997
- ------------------
Premiums written................. $195,463 $ 6,429 $ (123) $188,911
Premiums earned.................. 136,904 6,035 4,209 135,078
Benefits, claims and
settlement expenses............. 94,065 7,961 3,821 89,925
Three months ended
September 30, 1996
- ------------------
Premiums written................. $178,628 $ 5,507 $ 7,430 $180,551
Premiums earned.................. 124,864 5,636 6,928 126,156
Benefits, claims and
settlement expenses............. 88,771 6,969 7,220 89,022
Nine months ended
September 30, 1997
- ------------------
Premiums written................. $572,842 $17,390 $ 8,382 $563,834
Premiums earned.................. 402,404 16,011 15,992 402,385
Benefits, claims and
settlement expenses............. 280,178 25,169 16,705 271,714
Nine months ended
September 30, 1996
- ------------------
Premiums written................. $516,584 $17,095 $21,405 $520,894
Premiums earned.................. 368,428 17,447 21,505 372,486
Benefits, claims and
settlement expenses............. 259,076 20,647 22,743 261,172
</TABLE>
8
<PAGE>
Note 6 - Reinsurance - (Continued)
The Company maintains an excess and catastrophe treaty reinsurance program
for its property and casualty subsidiaries. In 1997, the Company reinsures 95%
of catastrophe losses above a retention of $7.5 million per occurrence up to $65
million per occurrence. The Company's catastrophe reinsurance program is
augmented by a $100 million equity put. This equity put provides for an option
to sell shares of the Company's convertible preferred stock with a floating rate
dividend at a pre-negotiated price in the event of losses from a catastrophe,
individually or in the aggregate, which exceed $65 million. The fee for the
equity put has been charged directly to additional paid-in capital. For
liability coverages, including the educator professional liability policy, the
Company reinsures each loss up to $20 million above a retention of $500,000. The
Company reinsures each property loss up to $1.5 million above a retention of
$500,000.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking Information
Statements made in the following discussion that state the Company's or
management's intentions, hopes, beliefs, expectations or predictions of the
future are forward-looking statements. It is important to note that the
Company's actual results could differ materially from those projected in such
forward-looking statements due to, among other risks and uncertainties inherent
in the Company's business, the following important factors:
. Changes in the composition of the Company's assets and liabilities through
acquisitions or divestitures.
. Prevailing interest rate levels, including the impact of interest rates on
(i) unrealized gains and losses on the Company's investment portfolio and
the related after-tax effect on the Company's shareholders' equity and
total capital and (ii) the book yield of the Company's investment
portfolio.
. The impact of fluctuations in the capital markets on the Company's ability
to refinance outstanding indebtedness or repurchase shares of the Company's
outstanding common stock.
. The frequency and severity of catastrophes such as hurricanes, earthquakes
and storms, and the ability of the Company to maintain a favorable
catastrophe reinsurance program.
. The Company's ability to develop and expand its agency force and its direct
product distribution systems, as well as the Company's ability to maintain
and secure product sponsorships by local, state and national education
associations.
. The competitive impact of new entrants such as mutual funds and banks into
the tax deferred annuity products markets, and the Company's ability to
profitably expand its property and casualty business in highly competitive
environments.
. Changes in insurance regulations, including (i) those effecting the ability
of the Company's insurance subsidiaries to distribute cash to the holding
company and (ii) those impacting the Company's ability to profitably write
property and casualty insurance policies in one or more states.
. Changes in federal income tax laws and changes resulting from federal tax
audits effecting corporate tax rates or taxable income, and regulations
changing the relative tax advantages of the Company's life and annuity
products to customers.
. The Company's ability to maintain favorable claims-paying ability ratings.
. Adverse changes in policyholder mortality and morbidity rates.
10
<PAGE>
Discontinued Operations
On December 9, 1996, the Company announced its strategic decision to
withdraw from the group medical insurance business over the following two years.
Announcing in October, 1997 that it was accelerating the withdrawal, the Company
anticipates termination of more than 90% of that business by December 1997 and
the remaining business in 1998. In the following discussions of results of
operations, group medical results are reported separately as discontinued
operations for all periods.
Nine Months Ended September 30, 1997 Compared With Nine Months Ended September
30, 1996
Insurance Premiums and Contract Charges Earned
Insurance premiums and contract charges earned, which excludes annuity and
life contract deposits, increased 8.0% for the nine months ended September 30,
1997, compared to the same period in 1996.
Insurance premiums written and contract deposits of $563.8 million for the
nine months ended September 30, 1997 increased 8.3%, compared to $520.8 million
for the same period in 1996, driven principally by a 17.8% increase in annuity
deposits and a 5.8% growth in property and casualty premiums written. Insurance
premiums written and contract deposits in the Company's primary product lines,
automobile (excluding involuntary), property, annuity and life, increased 9.8%
to $546.9 million for the nine months ended September 30, 1997, compared to
$498.3 million for the same period in 1996. Involuntary automobile business
includes allocations of business from state mandatory automobile insurance
facilities and assigned risk business. Involuntary automobile premiums written
for the nine months ended September 30, 1997 decreased 24.9% compared to the
same period in 1996.
Automobile (excluding involuntary) and homeowners earned premiums increased
7.7% to $312.1 million for the nine months ended September 30, 1997, compared to
$289.8 million for the same period in 1996, primarily as a result of a 7.1%
increase in automobile (excluding involuntary) and homeowners policies in force.
The 828,000 automobile (excluding involuntary) and homeowners policies in force
at September 30, 1997 represented an increase of 55,000 policies since September
30, 1996 and an increase of 42,000 policies since December 31, 1996.
Automobile (excluding involuntary) and homeowners premiums written
increased 8.2% to $321.1 million for the nine months ended September 30, 1997,
compared to $296.9 million for the same period in 1996. For the nine months
ended September 30, 1997, new direct premiums written of $37.0 million increased
16.4% compared to $31.8 million for the same period last year. Renewal direct
premiums written of $287.9 million for the nine months ended September 30, 1997
increased 7.3% compared to $268.4 million for the same period in 1996.
For the nine months ended September 30, 1997, life insurance premiums and
contract charges earned were $61.9 million, compared to $59.6 million for the
same period in 1996,
11
<PAGE>
representing an increase of 3.9%. Life insurance in force on September 30, 1997
increased 4.7% compared to September 30, 1996. The lapse rate of 7.5% for the
nine months ended September 30, 1997 improved 0.5 percentage points compared to
8.0% reported for the same period in 1996. In the first quarter of 1997, the
Company began selling five new term life products developed to meet customer
needs. These products started to contribute to premium growth in the second
quarter of 1997 and have generated approximately $1.7 million of premium through
September 30, 1997.
Annuity contract charges earned increased 36.9% to $8.9 million for the
nine months ended September 30, 1997, compared to $6.5 million for the same
period in 1996, due to a 53% increase in variable annuity cash value on deposit.
Total annuity deposits received during the nine months ended September 30, 1997
increased 17.8% to $143.9 million, compared to $122.2 million for the same
period in 1996, reflecting an $11.6 million, or 13.1%, increase in scheduled
deposits for retirement annuities and a $10.1 million, or 30.0%, increase in
rollover deposits from other companies and single premiums. Three new variable
annuity funds were added to the Horace Mann family of funds in the first quarter
of 1997 in response to educators' requests for additional investment options.
The addition of a small cap fund, an international equity fund and a socially
responsible fund brings the total variable annuity fund options to seven.
Net Investment Income
Net investment income of $149.0 million for the nine months ended September
30, 1997 increased 0.3% compared to $148.6 million for the same period in 1996.
Investments (at amortized cost) decreased 1.2%, or $33.5 million, from September
30, 1996. The pretax yield on average investments was 7.4% (4.9% after tax) for
both the nine months ended September 30, 1997 and the same period in 1996.
Realized Investment Gains and Losses
Realized investment gains were $3.2 million for the nine months ended
September 30, 1997, compared to $2.6 million for the same period in 1996.
Benefits, Claims and Settlement Expenses
Total benefits, claims and settlement expenses increased 4.0% to $271.7
million for the nine months ended September 30, 1997, compared to $261.2 million
for the same period in 1996.
Property and casualty claims and settlement expenses were $243.3 million
for the nine months ended September 30, 1997, compared to $231.3 million for the
same period in 1996. The property and casualty loss ratio of 73.4% for the nine
months ended September 30, 1997 was 2.1 percentage points less than the 75.5%
reported for the same period in 1996. For the first nine months of 1996, losses
from severe weather were higher than those incurred in the current year.
Catastrophe losses after reinsurance but before federal income tax benefits for
the nine months ended September 30, 1997 were $6.2 million and accounted for 1.9
points on the loss ratio, compared to catastrophe losses of $19.3 million, 6.3
points on the loss ratio, for the same period
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in 1996. The provision for losses and loss adjustment expenses for insured
events in prior years continued to reflect favorable development. Income before
income taxes benefited by $39.2 million and $47.4 million for the nine months
ended September 30, 1997 and 1996, respectively, including $12.3 million and
$14.3 million for the three months ended September 30, 1997 and 1996,
respectively, as a result of a reduction in the estimated amounts needed to
settle prior years' claims.
The Company increased its catastrophe reinsurance coverage for 1997. The
1997 reinsurance program covers 95% of catastrophe losses in excess of $7.5
million up to $65 million for each catastrophe. The Company's catastrophe
reinsurance program is augmented by a $100 million equity put. This equity put
provides for an option to sell shares of the Company's convertible preferred
stock with a floating rate dividend at a pre-negotiated price in the event of
losses from a catastrophe, individually or in the aggregate, which exceed $65
million.
Life benefits were $28.4 million for the nine months ended September 30,
1997, reflecting a 5.0% decrease, compared to $29.9 million for the same period
in 1996. For the nine months ended September 30, 1996, claims for group
disability business were unusually low and returned to more normal levels in the
current year. The first nine months of 1997 also reflected average individual
life mortality experience compared to higher mortality in the same period last
year.
Interest Credited to Policyholders
Interest credited to policyholders was $73.1 million for the nine months
ended September 30, 1997, 2.7% more than the $71.2 million interest credited for
the same period in 1996. Interest credited to fixed annuity contracts increased
0.3% to $57.7 million for the nine months ended September 30, 1997, from $57.5
million for the same period in 1996. The fixed annuity average annual interest
rate credited was 5.6% for the nine months ended September 30, 1997 and 1996.
Fixed rate annuity accumulated deposits decreased 0.9% over the 12 months ended
September 30, 1997.
Life insurance interest credited increased $1.7 million, or 12.4%, to $15.4
million for the nine months ended September 30, 1997, compared to the same
period in 1996, primarily as a result of continued growth in the interest-
sensitive whole life insurance reserves and account balances.
Policy Acquisition and Operating Expenses
Policy acquisition and operating expenses represent the Company's insurance
underwriting expenses. For the nine months ended September 30, 1997, policy
acquisition and operating expenses of $110.1 million increased $8.1 million, or
7.9%, compared to $102.0 million for the first nine months of 1996. The 1997
property and casualty expense ratio was 19.3%, compared to 19.2% for the same
period in 1996.
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Amortization of Intangible Assets
Amortization of intangible assets decreased by $0.4 million to $8.1 million
for the nine months ended September 30, 1997, compared to $8.5 million for the
same period in 1996, as a result of a scheduled decrease in the non-cash
amortization of the value of acquired insurance in force related to the 1989
acquisition of the Company.
Interest Expense
The Company's interest expense of $7.1 million for the nine months ended
September 30, 1997 was $0.9 million, or 11.3%, less than the same period in 1996
as a result of repayments of borrowings related to the repurchase of shares of
its common stock during the second quarter of 1995. The debt to capital ratio
of 22.2% as of September 30, 1997 was within the Company's target operating
range of 20% to 25%.
Income Tax Expense
The effective income tax rate was 26.9% for the nine months ended September
30, 1997 compared to the 26.7% effective income tax rate for the same period
last year. Income from investments in tax-advantaged securities reduced the
effective income tax rate 3 percentage points in 1997 and 1996 and acquisition
related tax benefits reduced the effective rate 6 percentage points in 1997 and
1996.
Operating Income
Operating income (income from continuing operations before realized
investment gains and losses and 1996 debt retirement costs) was $59.7 million
for the nine months ended September 30, 1997, compared to $51.6 million for the
same period in 1996, an increase of 15.7%. Operating income in 1997 benefited
from mild weather.
Included in the Company's operating income are non-cash charges for the
amortization of the value of acquired insurance in force and goodwill related to
the 1989 acquisition of the Company. Excluding these non-cash charges for the
amortization of intangible assets, operating income was $65.0 million for the
nine months ended September 30, 1997, compared to $57.1 million for the same
period in 1996.
Property and casualty segment operating income was $43.0 million for the
nine months ended September 30, 1997, compared to $36.5 million for the same
period in 1996. Milder weather compared to the same period last year contributed
to these results. For the first nine months, after tax catastrophe losses were
$4.1 million in 1997, compared to $12.5 million for 1996. The property and
casualty combined loss and expense ratio for the nine months ended September 30,
1997 was 92.7%, compared to the 94.7% reported for the same period in 1996.
Life insurance segment operating income was $9.4 million for the nine
months ended September 30, 1997, compared to the $9.2 million reported for the
same period in 1996. The
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1997 life results reflect modest growth in business volume offset by a return to
more normal levels of both group disability claims and individual life mortality
experience, compared to lower-than-average disability claims and higher-than-
average life mortality in the first nine months of 1996.
Annuity segment operating income of $13.9 million for the nine months ended
September 30, 1997 increased 14.9%, compared to the $12.1 million reported for
the same period in 1996, reflecting strong growth in variable annuity deposits
and an increase in the fixed net interest margin. Annuity segment profit
continues to shift from the interest margin on fixed annuity accumulations to
fees on variable mutual fund deposits. Total accumulated fixed and variable
annuity deposits of $2,313.1 million increased $310.8 million, or 15.5%,
compared to September 30, 1996. This increase resulted from a net increase in
funds on deposit of 9.0% plus net increases in market value of underlying mutual
funds of $139.5 million.
Income from Continuing Operations
Income from continuing operations, which includes realized investment
gains, for the nine months ended September 30, 1997 was $61.8 million, or $2.67
per share, reflecting a 17.9% increase in income and a 19.2% increase in income
per share compared to the same period in 1996. The Company's share repurchase
program had a minimal impact on earnings and earnings per share for the first
nine months of 1997; however, the impact will be recognized more fully in future
quarters. After tax realized investment gains were $2.1 million for the nine
months ended September 30, 1997, compared to $1.7 million for the same period in
1996. Income from continuing operations for the nine months ended September 30,
1996 also reflected the costs of the early redemption of $100 million of
convertible notes of $0.9 million, or $0.04 per share.
Net Income
Net income, which includes discontinued operations, was $58.3 million, or
$2.52 per share, for the nine months ended September 30, 1997, compared to $48.8
million, or $2.08 per share, for the same period in 1996, an increase of 21.2%
on a per share basis.
The Company has accelerated the timetable for its withdrawal from the group
medical insurance business anticipating termination of more than 90% of that
business by December 1997 and the remaining business in 1998. As a result of
this acceleration and higher-than-expected claims, net income for the three and
nine months ended September 30, 1997 includes an after tax charge of $3.5
million, or $0.15 per share, for anticipated additional losses during the
remainder of the phase-out period.
The discontinued group medical business operating loss was $3.6 million for
the nine months ended September 30, 1996. The Company's net income for the year
ended December 31, 1996 included an after tax charge of $3.9 million for
anticipated losses during the two year phase-out period for the discontinued
group medical insurance business.
15
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Liquidity and Financial Resources
Investments
The Company's investment strategy emphasizes high quality investment grade,
publicly traded fixed income securities. At September 30, 1997, fixed income
securities comprised 95.2% of total investments. Of the fixed income investment
portfolio, 93.5% was investment grade and 99.6% was publicly traded. The
average quality of the total fixed income portfolio was A+ at September 30,
1997.
The duration of the investment portfolio is managed to provide cash flow to
satisfy policyholder liabilities as they become due. The average option
adjusted duration of total investments was 4.3 years at September 30, 1997 and
4.4 years at December 31, 1996. The Company has included in its annuity
products substantial surrender penalties to reduce the likelihood of unexpected
increases in policy or contract surrenders. All annuities issued since 1982 and
approximately 70% of all outstanding fixed annuity accumulated cash values are
subject in most cases to substantial early withdrawal penalties.
Cash Flow
The short-term liquidity requirements of the Company, within a 12-month
operating cycle, are for the timely payment of claims and benefits to
policyholders, operating expenses, interest payments and federal income taxes.
Cash flow in excess of these amounts has been used to pay dividends to
shareholders, retire short-term debt and repurchase shares of the Company's
common stock. Long-term liquidity requirements, beyond one year, are
principally for the payment of future insurance policy claims and benefits and
retirement of long-term notes.
Operating Activities
As a holding company, HMEC conducts its principal operations in the
personal lines segment of the property and casualty and life insurance
industries through its subsidiaries. HMEC's insurance subsidiaries generate cash
flow from premium and investment income, generally well in excess of their
immediate needs for policy obligations, operating expenses and other cash
requirements. Net cash provided by operating activities was $76.1 million for
the nine months ended September 30, 1997 compared to $102.7 million for the same
period in 1996 with the decrease primarily due to an increase in federal income
tax payments. In both years, cash provided by operating activities primarily
reflected net cash generated by the insurance subsidiaries.
Payment of principal and interest on debt, fees related to the catastrophe-
linked equity put option, dividends to shareholders and parent company operating
expenses, as well as the share repurchase program, are dependent upon the
ability of the insurance subsidiaries to pay cash dividends or make other cash
payments to HMEC, including tax payments pursuant to tax sharing agreements.
The insurance subsidiaries are subject to various regulatory restrictions which
limit the amount of annual dividends or other distributions, including loans or
cash advances, available
16
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to HMEC without prior approval of the insurance regulatory authorities.
Dividends which may be paid by the insurance subsidiaries to HMEC during 1997
without prior approval are approximately $89 million. In 1997, the Company
received approval from the Illinois and California Departments of Insurance for
extraordinary dividends and a total of $70 million in extraordinary dividends
have been paid by the property and casualty subsidiaries. HMEC used cash from
the extraordinary dividends primarily to repurchase shares of the Company's
common stock. Although regulatory restrictions exist, dividend availability
from subsidiaries has been, and is expected to be, more than adequate for HMEC's
capital needs.
Investing Activities
HMEC's insurance subsidiaries maintain significant investments in fixed
maturity securities to meet future contractual obligations to policyholders. In
conjunction with its management of liquidity and other asset/liability
management objectives, the Company, from time to time, will sell fixed maturity
securities prior to maturity and reinvest the proceeds in other investments with
different interest rates, maturities or credit characteristics. Accordingly,
the Company has classified the entire fixed maturities portfolio as available
for sale. During the first nine months of 1997, net cash provided by investing
activities was $45.1 million. This net amount reflects $768.4 million in
purchases of fixed maturity investments, funded by net investment sales or
maturities of $813.5 million.
Financing Activities
Financing activities include the receipt and withdrawal of funds by annuity
policyholders, payment of scheduled dividends, transactions related to the
Company's common stock and borrowings and repayments under the Company's debt
facilities. Shareholder dividends paid for the nine months ended September 30,
1997 were $9.4 million. In 1997, the Company paid fees of $1.3 million related
to the catastrophe-linked equity put which augments its reinsurance program and
such fees were charged directly to additional paid-in capital.
For the nine months ended September 30, 1997, receipts from annuity
contracts of $143.9 million were greater than contract maturities and
withdrawals of $122.0 million. Net transfers to variable annuity assets were
$84.0 million during the first nine months of 1997 compared to $63.0 million
during the same period in 1996. Interest-sensitive life account balances
increased $1.1 million during the first nine months of 1997.
Through September 30, 1997, the Company had repurchased 1,449,800 shares at
an aggregate cost of $68.6 million, or $47.32 per share, which was financed
primarily with cash from operations, including extraordinary dividends of $70.0
million from the property and casualty subsidiaries. Of these treasury shares,
293,200, 1,026,900 and 129,700 were repurchased during the first, second and
third quarters, respectively, of 1997. During the nine months ended September
30, 1997, the Company received $11.7 million related to the exercise of common
stock options.
17
<PAGE>
Capital Resources
Historically, the Company's insurance subsidiaries have generated capital
in excess of what has been needed to support business growth. These excess
amounts have been paid to HMEC through dividends. HMEC has then utilized these
dividends and its access to the capital markets to retire long-term debt,
repurchase shares of its common stock, increase dividends to its shareholders
and fulfill other corporate purposes. Management anticipates that the Company's
sources of capital will continue to generate capital in excess of the needs for
business growth, debt interest payments and shareholder dividends.
The total capital of the Company was $638.6 million at September 30, 1997,
including $99.6 million of long-term debt and $42.0 million of short-term debt.
Long-term debt as a percentage of total shareholders' equity was 20.1% as of
September 30, 1997, compared to 20.6% as of December 31, 1996 with the change
including the effects of the repurchase of shares for treasury stock. Total
debt-to-capital at September 30, 1997 was 22.2%, well within the Company's
target operating range of 20% to 25%.
Shareholders' equity was $496.4 million at September 30, 1997, including an
unrealized after tax gain in the Company's investment portfolio of $50.9 million
and the related impact on deferred policy acquisition costs associated with
interest-sensitive policies. The market value of the Company's common stock and
the market value per share were $1,265.0 million and $56 1/8, respectively, at
September 30, 1997. Book value per share was $22.02 at September 30, 1997,
$19.76 excluding investment market value adjustments.
In January 1996, the Company issued $100.0 million face amount of 6 5/8%
Senior Notes ("Senior Notes"), which will mature on January 15, 2006, at a
discount of 0.5%. Interest on the Senior Notes is payable semi-annually. The
Senior Notes are redeemable in whole or in part, at any time at the Company's
option. The net proceeds from the sale of the Senior Notes were used to finance
the redemption of the Company's convertible notes.
As of September 30, 1997 and December 31, 1996, the Company had short-term
debt comprised of $42.0 million and $34.0 million, respectively, outstanding
under the Bank Credit Facility. The Bank Credit Facility allows unsecured
borrowings of up to $65.0 million at Interbank Offering Rates plus 0.3% to 0.5%
or Bank of America National Trust and Savings Association reference rates. The
rate on the borrowings under the Bank Credit Facility was Interbank Offering
Rate plus 0.3%, or 6.1%, as of September 30, 1997. The commitment for the Bank
Credit Facility terminates on December 31, 2001.
The Company's ratio of earnings to fixed charges for the nine months ended
September 30, 1997 was 12.9x compared to 9.9x for the same period in 1996.
Total shareholder dividends were $9.4 million for the nine months ended
September 30, 1997.
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Recent Accounting Changes
Earnings Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 supersedes previous accounting guidance on this subject
and specifies the computation, presentation and disclosure requirements for
earnings per share ("EPS"). SFAS No. 128 will be implemented in the Company's
December 31, 1997 financial statements; earlier application is not permitted.
Upon implementation, SFAS No. 128 requires restatement of all prior-period EPS
data presented.
SFAS No. 128 requires dual presentation of EPS replacing primary EPS with a
presentation of basic EPS and replacing fully diluted EPS with diluted EPS. The
effects on the Company's EPS of implementing SFAS No. 128 are not anticipated to
be material.
Capital Structure Disclosures
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure" which will be implemented in the Company's 1997
financial statements. It is not anticipated that the implementation of SFAS No.
129 will require significant revision of prior disclosures because the
information required by SFAS No. 129 had been covered in previous accounting
guidance.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" which will be implemented in the Company's March 31, 1998 financial
statements. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income will represent the change in
shareholders' equity during a reporting period from transactions and other
events and circumstances from non-owner sources. For the Company, it is
anticipated that comprehensive income will be substantially equal to net income
plus the change in net unrealized gains and losses on fixed maturities and
equity securities for the period.
Segment Disclosures
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which will be implemented in the
Company's March 31, 1998 financial statements. SFAS No. 131 establishes
standards for the way public companies are to report information about operating
segments in annual financial statements and requires those companies to report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The Company
anticipates that implementation of this pronouncement will not have a material
effect on the disclosures contained in its annual
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financial statements and related notes but will expand its interim financial
statements and related notes to include segment information such as revenues,
earnings, assets and a reconciliation of segment earnings to consolidated
earnings. The Company's operations will continue to include the following
segments consistent with previously reported financial information: property and
casualty insurance, annuities, life insurance, and corporate and other.
20
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PART II: OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
None.
Item 6: Exhibits and Reports on Form 8-K
(a) The following items are filed as Exhibits. Management contracts
and compensatory plans are indicated by an asterisk (*).
(10) Material contracts:
10.1* Horace Mann Supplemental Employee Retirement Plan,
1997 Restatement.
(11) Statement re computation of per share earnings.
(27) Financial Data Schedule.
(b) No reports on Form 8-K were filed by the Company during the third
quarter of 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HORACE MANN EDUCATORS CORPORATION
(Registrant)
Date November 14, 1997 Paul J. Kardos
--------------------------- ---------------------------------
Paul J. Kardos, President and
Chief Executive Officer
Date November 14, 1997 Larry K. Becker
--------------------------- ---------------------------------
Larry K. Becker, Executive
Vice President and Chief
Financial Officer
22
<PAGE>
Exhibit 10.1
HORACE MANN
SUPPLEMENTAL EMPLOYEE
RETIREMENT PLAN
(SERP)
1997 RESTATEMENT
1
<PAGE>
ARTICLE I - GENERAL
1.1 Establishment. Effective 01 January 1992, Horace Mann Educators
Corporation and Horace Mann Service Corporation (collectively referred to
as the "Company") established an unfunded, deferred compensation plan on
behalf of certain designated management or highly compensated employees of
the Company or any subsidiary of the Company which has adopted the Horace
Mann Pension Plan ("HMPP"). This document defines the provisions of such
plan and shall be known as the "Horace Mann Supplemental Employee
Retirement Plan" (the "Plan" or "SERP").
Effective 12 February 1997, the Plan was amended and restated to include
the same vesting provisions as contained in the HMPP.
1.2 Purpose. The Company maintains the HMPP which is intended to meet the
requirements of a "qualified" retirement plan under Section 401(a) of the
Internal Revenue Code of 1986, as amended ("Code"). The HMPP was amended
effective 01 January 1992, to contain a new benefit formula designed to
comply with the requirements for a qualified retirement plan as a result of
the Tax Reform Act of 1986 and other legislative and regulatory
developments. As of 31 December 1991, the HMPP's original primary offset
formula was frozen. This Plan was established to replace benefits lost due
to diminution of benefit accruals for the Eligible Employees. Also, this
Plan is intended to be an unfunded, deferred compensation plan for this
select group of management or highly compensated employees, as described in
Sections 201(2), 301(a)(3), and 401(s)(1) of the Employee Retirement Income
Security Act of 1974 ("ERISA").
1.3 Application of Plan. The terms of this Plan are applicable only to the
Eligible Employees who were in the active employ of the Company before
August 29, 1989 and after January 1, 1992.
1.4 Sponsorship. Horace Mann Service Corporation maintains and sponsors the
Plan.
ARTICLE II - DEFINITIONS
The following terms, whenever used in the following capitalized form, shall
have the meaning set forth below unless the context clearly indicates otherwise,
or unless modified by an Appendix attached hereto:
2.1 "Committee" means the Committee appointed pursuant to the terms of the
HMPP, with the responsibility and authority described therein.
2.2 "Company"means Horace Mann Educators Corporation and Horace Mann Service
Corporation and any successors thereto.
2.3 "Compensation" means the Compensation recognized for a Participant under
the HMPP at the same point in time.
2.4 "Eligible Employee" means those designated management or highly compensated
Employees in the Appendix, but only for the period prior to their
Termination of Employment.
2
<PAGE>
2.5 "Employer" or "HMSC" means Horace Mann Service Corporation.
2.6 "ERISA" means the Employee Retirement Income Security Act of 1974, as from
time to time amended.
2.7 "Final Average Earnings" means the Final Average Earnings recognized for a
Participant under the HMPP at the same point in time.
2.8 "HMPP" means the Horace Mann Pension Plan, as amended from time to time.
2.9 "Hour of Service" means each hour which an Eligible Employee is directly or
indirectly paid or entitled to payment by the Employer for the performance
of duties.
2.10 "Internal Revenue Code" or "Code" means the Internal Revenue Code of 1986,
as amended, and any subsequent Internal Revenue Code. If there is a
subsequent Internal Revenue Code, any references herein to Internal Revenue
Code sections shall be deemed to refer to comparable sections of any
subsequent Internal Revenue Code.
2.11 "Joint and 50% Survivor Annuity" means a reduced monthly benefit payable as
defined in the HMPP.
2.12 "Joint and Survivor Annuity" means a reduced Retirement Benefit payable as
defined in the HMPP.
2.13 "MPPP" means the Horace Mann Money Purchase Pension Plan, as amended from
time to time.
2.14 "Normal Form of Payment" has the same meaning as defined in the HMPP.
2.15 "Participant" means an Eligible Employee who has satisfied the requirements
of the Plan to become a Participant or former Eligible Employee who has an
Accrued Benefit under the Plan.
2.16 "Payment Date" means the relevant date for determining when the retirement
benefits or death benefits shall be paid and the form of payment and shall
be the first day of the month next following a Participant's Termination of
Employment.
2.17 "Plan" means the Plan as herein set forth, or as may be amended hereafter
from time to time.
2.18 "Plan Year" means each twelve-consecutive month period beginning 01 January
1992.
2.19 "Predecessor Employer" means CIGNA Corporation and each other company for
whom employment would earn "eligible service" under the Prior Plan as
defined in the HMPP.
2.20 "Primary Social Security Benefit" means the estimated monthly primary
insurance amount as defined in Appendix I to the HMPP.
2.21 "QDRO" means a domestic relations order which the Committee has determined
to be a qualified domestic relations order within the meaning of Section
414(p) of the Code.
3
<PAGE>
2.22 "Spouse" means a person who is the Participant's Spouse under the
HMPP.
2.23 "Termination of Employment" occurs when a person ceases to be employed by
HMSC.
2.24 "Years of Credited Service" or "Credited Service" means only those periods
of service as defined in the HMPP for purposes of benefit calculation. Any
service beyond 30 years will not be included in the benefit calculation.
2.25 "Years of Eligible Service" or "Eligible Service" means the number of full
and fractional Years of Eligible Service recognized for a Participant as
defined under the HMPP.
ARTICLE III - PARTICIPATION
3.1 Becoming a Participant. Each Eligible Employee shall initially become a
Participant on 01 January 1992.
3.2 Reemployment.
(a) Following Retirement. If a Participant retires from the Company, and
subsequently is re-employed as a full time, part time or temporary
employee who works more than 10 days per month, the Participant's periodic
SERP benefit will cease until he re-retires. Upon his subsequent
retirement, his prior and additional service and earnings, plus any
additional credit earned under the qualified plan(s) will be included in
the recalculation of the Participant's SERP benefit.
In the event the Participant retires and is re-employed and works less
than 10 days a month, the Participant's periodic SERP payment will
continue.
(b) Following Termination of Employment for reason(s) other than
Retirement. If an Eligible Employee's Termination of Employment is for
reason(s) other than Early or Normal Retirement, then upon re-employment
any prior service will be credited as it is credited under the HMPP.
However, to the extent that the Participant received a Lump Sum
distribution under the SERP, as defined in the HMPP, the Participant will
not receive credit under this Plan for that prior service.
3.3 Ceasing to be a Participant. A person will cease to be a Participant with
respect to his Accrued Benefit earned prior to his Termination of
Employment:
(a) if he becomes a Participant in the Executive Supplemental Employee
Retirement Plan (ESERP) then all benefits under this Plan will be
forfeited;
(b) if he loses all of his Years of Credited Service under the HMPP; or
(c) if he dies.
3.4 Appendix Provisions. Notwithstanding terms and provisions to the contrary,
the terms and provisions of any Appendix shall govern.
4
<PAGE>
ARTICLE IV - ELIGIBILITY FOR AND AMOUNT OF RETIREMENT BENEFITS
4.1 Eligibility. Benefits are payable under the SERP only if the Participant
separates from service from the Company and would be considered to be
vested under the HMPP That eligibility would include early, normal, and
postponed retirement. As defined in the HMPP:
(a) For employees who separate from service and are immediately eligible
for retirement benefits:
(I) Normal Retirement Date is the first day of the month coincident
with or next following the month in which the Participant is at least
65 years and has at least 5 years of service;
(ii) Early Retirement Date is the first day of the month coincident
with or following the month in which the Participant is at least 55
years and has at least 10 years of service. Benefits will be reduced
according to the Early Retirement Adjustment Factor Table as contained
in the HMPP; or
(iii) Postponed Retirement Date is the first day of the month
coincident with or next following the Participant's termination of
employment with the Company after his Normal Retirement Date and the
Participant will continue to accrue service under this Plan (up to 30
years) and eligible compensation.
(b) For employees who separate from service, who are vested but not yet
eligible for retirement benefits:
(I) Normal vested benefits are payable as of the first day of the
month coincident with or next following the Participant's 65th
birthday and the Participant has at least 5 years of service and are
calculated in the same manner as provided in the HMPP at the time of
the Participant's separation from service; or
(ii) Early vested benefits are payable as of the first day of the
month coincident with or following the month in which the Participant
is at least 55 years and has at least 10 years of service. Benefits
are calculated in the same manner as provided in the HMPP at the time
of the Participant's separation from service and will be reduced
according to the Deferred Vested Retirement Adjustment Factor Table
as contained in the HMPP.
4.2 Vesting. The SERP benefits are subject to the same vesting provisions as
described in the HMPP.
4.3 Retirement Benefit Calculation. The purpose of the SERP is to provide in
conjunction with benefits payable from the HMPP and the MPPP, a retirement
income equal to the benefit provided under the pre-01 January 1992 HMPP as
stated in the "guaranteed benefit" at age 65 years.
(a) A Participant who attains his Normal Retirement Date as an Eligible
Employee shall have a retirement benefit equal to his Accrued Benefit,
defined in the same manner as the Accrued Benefit in the HMPP. The SERP
base benefit formula is:
5
<PAGE>
*an average of the Participant's highest 36 consecutive months of Eligible
Earnings;
*times 2%;
*times Years of Credited Service under the HMPP (up to 30 years);
*minus 50% of the Primary Income Social Security Benefit;
*equals the Participant's lifetime only benefit at age 65 years.
(b) To determine what benefit, if any, is due under the SERP, the
following calculation would be performed.
*SERP lifetime only base benefit;
*minus the lifetime only benefit payable from the HMPP;
*minus the lifetime only benefit payable from the MPPP, as defined in the
HMPP;
*equals the lifetime only benefit payable from the SERP.
If the combined payable benefits from the HMPP and the MPPP are greater
than the SERP, then no benefits are payable from the SERP. This would
apply to any other forms of benefits payable (such as, early retirement or
surviving spouse options). In addition, the SERP will not pay supplemental
benefits due to IRC statutory limitations.
4.4 Commencement of Retirement Benefits. All Retirement Benefits will be paid
as of the appropriate Payment Date. In the event payment of a Retirement
Benefit does not commence or is not made until after a Participant's
Payment Date, the Plan will pay to such Participant all amounts due and
unpaid since the Payment Date in accordance with the form of payment in
effect on the Payment Date.
ARTICLE V - DEATH BENEFITS
5.1 Entitlement to Death Benefits.
(a) Amount and Conditions of Spouse's Death Benefit. Upon the death on or
after 01 January 1992 and prior to the Payment Date of any Retirement
Benefit, of a Participant who has satisfied the Conditions hereinafter
described, the Spouse of such Participant shall be entitled to a Death
Benefit commencing on the Spouse's Payment Date and in the amount described
hereinafter:
(i) With respect to a Participant who is not an Eligible Employee on
his date of death, and whose death occurs after he has attained his
Normal Retirement Date or Early Retirement Date, the Death Benefit
shall be an amount that the Participant would have been paid had the
Participant commenced to receive Retirement Benefits on what would
have been the Participant's Payment Date and had he died the next day.
(ii) In the case of a Participant who is an Eligible Employee on the
date of his death and who has accrued not less than five (5) Years of
Eligible Service, the Death Benefit shall be an amount equal to fifty
percent (50%) of the Participant's Accrued Benefit payable in a Single
Life Annuity.
(b) No Death Benefit. If a Death Benefit is not applicable in accordance
with Section 5.1(a), or the Spouse dies before the Payment Date of such
Death Benefit, no Death Benefit shall be paid from the Plan.
6
<PAGE>
5.2 Claiming Death Benefits. All Death Benefits will be paid commencing as of
the appropriate Payment Date. In the event payment of a Death Benefit does
not commence or is not made until after the Payment Date, the Plan will pay
to such Spouse all amounts due and unpaid since the Payment Date in
accordance with the form of payment automatically in effect on the Payment
Date. Notwithstanding the request or election to the contrary, the Plan
Administrator shall direct an immediate distribution of a Lump Sum payment
(determined pursuant to the appropriate table as defined in the HMPP) if
the value of the Death Benefit payable as of the Payment Date does not
exceed the applicable limit as defined in the HMPP.
ARTICLE VI - FORM AND COMMENCEMENT OF RETIREMENT BENEFITS
6.1 Form and Commencement. As defined in the HMPP, benefits payable under this
Plan shall be paid in the Normal Form of Payment beginning on the
Participant's Payment Date. However, in the manner described in Section
6.2, any benefit due to a Participant under this Plan may be paid in the
form of a Joint and Survivor Annuity or a Lump Sum payment. Each alternate
form of payment shall be in the Actuarial Equivalent as defined in the HMPP
of a Single Life Annuity.
6.2 Participant Elections. A Participant (or a Participant's spouse should the
Participant pre-decease the Participant) shall have the right to elect, by
delivery of written notice to the Plan Administrator at any time prior to
his Payment Date, not to have the Retirement Benefit paid in the Normal
Form of Payment. Any election made by a person pursuant to this Section
may be revoked by such person by delivering written notice to the Plan
Administrator at any time prior to his Payment Date and, once revoked, may
be made again at any time by delivering written notice to the Plan
Administrator prior to his Payment Date. An election to receive payment of
his Retirement Benefit in the form of a Lump Sum shall be subject to the
approval of the Plan Administrator in his or her absolute discretion. The
Plan Administrator shall only approve a Lump Sum form of payment when the
Participant has demonstrated to the Plan Administrator's satisfaction that
he is suffering or will soon be suffering a severe economic hardship due to
severe and unexpected financial emergencies, as described in Section 6.3,
and he has no readily available resources to meet the hardship.
6.3 Hardship. A severe economic hardship shall include:
(a) unreimbursed medical expenses for the Participant, the Participant's
Spouse, or the Participant's dependents;
(b) unreimbursed expense for the Participant, Participant's Spouse or the
Participant's dependents for long-term care, custodial care, or elder care;
(c) purchase of a Participant's primary residence;
(d) mortgage or rent payments to prevent the Participant's eviction from,
or foreclosure on, his principal residence;
(e) unreimbursed educational expense for the Participant or the
Participant's dependents;
(f) payment of expenses in order to prevent the Participant's bankruptcy;
7
<PAGE>
(g) in the cases of terminal illness of the Participant, the Spouse or the
Participant's Dependents;
(h) other financial emergencies of an unforeseen nature, that would impose
severe hardship on the Participant as determined in a nondiscriminatory
manner.
Hardships for purposes of the Plan would not include purchase of a
secondary residence or similar types of real estate, meeting outstanding
credit indebtedness, mortgage balloon payments, refinancing, and other
similar types of events.
In order to qualify for a Lump Sum distribution for the above hardships,
the Participant must not have any other readily available resources that
would meet the Participant's unforeseen, immediate financial need. This
would not include the forced selling of property significantly below its
true value or incurring a substantial penalty because of an early surrender
of a certificate of deposit. If the Participant requests a "hardship" Lump
Sum distribution, he will be required to make the request in writing and to
submit documentation of the financial need and certification of the
unavailability of other resources to meet the need.
The review and approval of the hardship Lump Sum distribution is made by
the Plan Administrator. Should the Participant's request be denied, and he
feels that denial is in error, he should appeal his request within sixty
(60) days of the denial to the Plan Administrator and the Chairperson of
the Pension Committee. Any decision made subsequent to the appeal review
process will be considered final.
Subsequent to review and approval, benefits will be paid approximately
thirty (30) days later by draft without interest from the Payment Date.
6.4 Facility of Payment. All benefits under the Plan shall be paid to the
Participant or Spouse entitled thereto ("Payee") by a check which shall be
endorsed personally by the Payee.
6.5 Effect of Return of Benefit Checks. Each person entitled to benefits under
this Plan shall furnish the Plan Administrator with the address to which
his benefit checks shall be mailed. If any benefit check is mailed by
regular United States Mail to the last address appearing on the Plan
Administrator's record is returned because the addressee is not found at
that address, the mailing of benefit checks shall stop. Thereafter, if the
Plan Administrator receives written notice of the proper address of the
person entitled to receive such benefit checks and is furnished with
evidence satisfactory to the Plan Administrator that such person is living,
all amounts then due shall be forwarded to such person.
6.6 Small Pensions. Notwithstanding a Participant's election otherwise or any
other provision of this Plan, if the Lump Sum value (determined pursuant to
the appropriate Table contained in the HMPP) of a Participant's Retirement
Benefit does not exceed the applicable limit prescribed by the HMPP, the
Plan Administrator shall make full payment of such Retirement Benefit in a
Lump Sum.
ARTICLE VII - PLAN FINANCING
7.1 Funding. All benefits payable under the Plan constitute general corporate
obligations of
8
<PAGE>
the Employer. The amounts payable under the Plan shall be reflected on the
accounting records of the Employer but shall not be construed to create or
require the creation of a trust, custodial, or escrow account. No
Participant (or Spouse of a Participant) shall have any right, title, or
interest whatever in or to any investment reserves, accounts, or funds that
an Employer may purchase, establish, or accumulate to aid in providing
benefits under this Plan. Nothing contained in this Plan, and no action
taken pursuant to its provisions, shall create a trust or fiduciary
relationship of any kind between an Employer and a Participant or any other
person. Neither a Participant or Spouse of a Participant shall acquire any
interest greater than that of an unsecured creditor.
7.2 Employer Contributions. The Employer shall make payments from its general
assets to pay benefits under this Plan in such amounts and at such times as
the Committee, in accordance with the Plan, shall from time to time direct.
7.3 Benefits Payable Only From Corporate Assets. All benefits provided by this
Plan shall be paid solely out of the corporate assets of the Employer.
ARTICLE VIII - ADMINISTRATION
8.1 Pension Committee. The same membership structure, actions, responsibility
and authority shall apply to this Plan as described in the HMPP and the
MPPP. The decision of the Pension Committee in matters within its
jurisdiction shall be final, binding, and conclusive upon the Company and
upon each Eligible Employee, Participant, spouse, and every other person or
party interested or concerned.
8.2 Plan Administrator. The Plan Administrator shall have the same duties and
authority pursuant to this Plan as are described in the HMPP and the MPPP.
All affairs of calculation, payment and administration of the SERP are
conducted by the Plan Administrator. No benefits will be paid under the
terms of this Plan without the authorization of the Plan Administrator.
The Plan Administrator shall be entitled to rely conclusively upon all
tables, valuations, certificates, opinions and reports furnished by any
actuary, accountant, controller, counsel or other person employed or
engaged by the Company with respect to the Plan.
8.3 Liability. The Committee and Plan Administrator shall be free from all
liability, joint and several, for their acts as members of such Committee,
except to the extent that they may have committed wilful misconduct or
otherwise required by federal law.
ARTICLE IX - AMENDMENT AND TERMINATION
9.1 Amendment or Termination. The Company and Pension Committee intend the
Plan to be permanent but reserve the right to amend or terminate the Plan
when, in the sole opinion of the Pension Committee, such amendment or
termination is advisable. Any such amendment or termination shall be made
pursuant to a resolution of the Board of Directors of the Company and shall
be effective as of the date of such resolution. No amendment or
termination of the Plan shall directly or indirectly deprive any
Participant or surviving spouse of all or any portion of any SERP Benefit
payment which has commenced prior to the effective date of the resolution
amending or terminating the Plan.
Unless expressly provided for in this Plan, the Pension Committee may only
amend,
9
<PAGE>
modify, change or revise the Plan by amendment if such amendment could have
been adopted under the first paragraph of this Section and it does not
cause a change in the level or type of expenses to be made to the Plan or
otherwise materially increase the duties and obligation of the Employer
with respect to the Plan.
9.2 Change of Control. In the event of a Change of Control of HMEC (the parent
company of HMSC), certain protection will apply. Any Participant who is
employed by HMSC when a Change of Control occurs, who has signed a
severance agreement and who is discharged for reasons other than cause,
during a three year period subsequent to the Change of Control, will
receive their benefit from the SERP in a lump sum payment equal to their
accrued benefit under the SERP, as defined in Article 4, at the time of
severance. Should this Plan be terminated and not replaced due to a Change
of Control of HMEC, all SERP Participants will receive a lump sum payment
as defined in the HMPP of their accrued benefit as of the date of
termination of the SERP. All payments will be made in a reasonable period
after the triggering event has occurred.
A Change of Control shall be deemed to have occurred if (i) there shall be
consummated (1) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation, or pursuant to
which shares of the Company's common stock would be converted into cash,
securities or other property, other than a merger of the Company in which
no Company shareholder's ownership percentage in the surviving corporation
immediately after the merger is less than such shareholder's ownership
percentage in the Company immediately prior to such merger by ten percent
(10%) or more, or (2) any sale, lease exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially
all of the assets of the Company; (ii) the shareholders of the Company
approve any plan or proposal for the liquidation or dissolution of the
Company which is a part of a sale of assets, merger, or reorganization of
the Company or other similar transaction; (iii) any "person" as such term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), is or becomes, directly or indirectly, the
"beneficial owner," as defined in Rule 13d-3 under the Exchange Act, of
securities of the Company that represent 51% or more of the combined voting
power of the Company's then outstanding securities; or (iv) a majority of
the members of the Company's Board of Directors are persons who are then
serving on the Board of Directors without having been elected by the Board
of Directors or having been nominated by the Company for election by its
shareholders.
9.3 Corporate Successors. The Plan shall not be automatically terminated by a
transfer or sale of assets of the Company or by the merger or consolidation
of the Company into or with any other corporation or other entity, but the
Plan shall be continued after such sale, merger or consolidation only if
and to the extent that the transferee, purchaser or successor entity agrees
to continue the Plan. In the event the Plan is not continued by the
transferee, purchaser or successor entity, then the Plan shall terminate
subject to the provisions of paragraphs 9.1 and 9.2.
ARTICLE X - MISCELLANEOUS PROVISIONS
10.1 Maximum Pensions. The provisions of Section 14.11 of the HMPP (or
successor provisions thereof) which impose the Code Section 415 limits on
benefit accruals and all related definitions in the HMPP are incorporated
herein by reference, made a part hereof, and made applicable to limit a
Participant's Retirement Benefit or his Spouse's Death Benefit hereunder.
10
<PAGE>
10.2 Nonalienation of Benefits. No benefit payable at any time under this Plan
shall be subject to any manner to alienation, sale, transfer, assignment,
pledge, attachment, or other legal processes, or encumbrance of any kind.
Any attempt to alienate, sell, transfer, assign, pledge or otherwise
encumber any such benefits, whether currently or thereafter payable, shall
be void. No benefit, nor any fund which may be established for the payment
of such benefits, shall, in any manner, be liable for or subject to the
debts or liabilities of any person entitled to such benefits. If any
person shall attempt to, or shall, alienate, sell, transfer, assign, pledge
or otherwise encumber his benefits under this Plan, or if by reason of his
bankruptcy or other event happening at any time, such benefits would
devolve upon any other person or would not be enjoyed by the person
entitled thereto under the Plan, then the Committee, in its discretion, may
terminate the interest in any such benefits of the person entitled thereto
under the Plan and hold or apply them to or for the benefit of such person
entitled thereto under the Plan in such manner as the Committee may deem
proper.
10.3 No Contract of Employment. Nothing contained in this Plan shall be
construed as a contract of employment between any Employer and any person
or as creating a right of any person to be continued in the employment of
any Employer.
10.4 Termination of Employment. When a person incurs a Termination of
Employment his right to benefits from this Plan shall be determined only by
the terms of this Plan.
10.5 No Duplication of Benefits. No benefits shall be paid to any person under
more than one provision of this Plan for the same period of time.
10.6 Limitations on Liability and Indemnification. Notwithstanding any of the
preceding provisions of the Plan, neither the Company, Plan Administrator,
nor any individual acting as an employee or agent of the Company or as a
member of the Pension Committee shall be liable to any Participant, former
Participant, surviving spouse or any other person for any claim, loss,
liability or expense incurred in connection with the Plan.
Further, the Company shall indemnify and hold harmless each member of the
Board of Directors, each member of the Pension Committee, the Plan
Administrator, and each officer and employee of the Company to whom are
delegated duties, responsibilities and authority with respect to the Plan
against all claims, liabilities, fines and penalties, and all expenses
reasonably incurred by or imposed upon him (including but not limited to
reasonable attorney fees) which are not the result of intentional acts
knowingly in violations of the Plan or the law.
10.7 Reduction for Overpayment. The Committee shall, whenever it determines
that a person has received benefit payments under this Plan in excess of
the amount to which the person is entitled under the terms of the Plan,
make two reasonable attempts to collect such overpayment from the person.
If the person to whom such overpayments were made does not, within a
reasonable time, make the requested repayment to the Plan Administrator,
the overpayment shall be considered as an advance payment of benefits and
the Committee shall direct the Plan Administrator to reduce all future
benefits payable to that person by the actuarial equivalent value of the
overpayment. The Actuarial Equivalency is defined in the same manner as
the HMPP.
10.8 Gender and Number. Except when the context indicates to the contrary when
used herein, masculine terms shall be deemed to include the feminine, and
singular the plural.
11
<PAGE>
10.9 Invalidity of Certain Provisions. If any provision of this Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provisions hereof and the Plan shall be construed and
enforced as if such provisions, to the extent invalid or unenforceable,
had not been included.
10.10 Headings. The headings of articles are included solely for convenience of
reference, and if there is any conflict between such headings and the text
of this Plan, the text shall control.
10.11 Law Governing. The Plan shall be construed and enforced according to the
laws of the State of Illinois (other than its laws respecting choice of
law).
Executed in two counterpart originals effective as of 12 February 1997.
HORACE MANN SERVICE CORPORATION
By: /s/ Kathryn Karr
----------------------------
Plan Administrator
12
<PAGE>
Exhibit 11
Horace Mann Educators Corporation
Computation of Net Income per Share
For the Three and Nine Months Ended September 30, 1997 and 1996
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C>
Primary - reported:
Weighted average number of common shares
outstanding during the period 22,585 23,474 23,111 23,449
------- ------- ------- -------
Net income for the period $17,996 $16,324 $58,292 $48,838
------- ------- ------- -------
Net income per share - assuming no dilution $ 0.80 $ 0.69 $ 2.52 $ 2.08
======= ======= ======= =======
Primary:
Weighted average number of common shares
outstanding during the period 22,585 23,474 23,111 23,449
Weighted average number of common equivalent
shares to reflect the dilutive effect of
common stock equivalent securities:
Warrants 127 118 125 117
Stock options 343 307 304 291
Common stock units related to Deferred
Equity Compensation Plan for Directors 16 2 16 1
------- ------- ------- -------
Total common and common equivalent shares 23,071 23,901 23,556 23,858
------- ------- ------- -------
Net income per share $ 0.78 $ 0.68 $ 2.47 $ 2.05
======= ======= ======= =======
Percentage of dilution compared to reported
net income per share 2.5% 1.4% 2.0% 1.4%
Fully diluted:
Weighted average number of common shares
outstanding during the period 22,585 23,474 23,111 23,449
Weighted average number of common equivalent
shares to reflect the dilutive effect of
common stock equivalent securities:
Warrants 127 118 127 118
Stock options 355 307 347 303
Common stock units related to Deferred
Equity Compensation Plan for Directors 16 2 16 1
------- ------- ------- -------
Total common and common equivalent shares
adjusted to calculate fully diluted earnings
per share 23,083 23,901 23,601 23,871
------- ------- ------- -------
Net income per share -
assuming full dilution $ 0.78 $ 0.68 $ 2.47 $ 2.05
======= ======= ======= =======
Percentage of dilution compared to
reported net income per share 2.5% 1.4% 2.0% 1.4%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 2,640,070<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 34,501
<REAL-ESTATE> 7,664
<TOTAL-INVEST> 2,772,152
<CASH> 14,398
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 81,882
<TOTAL-ASSETS> 4,111,659
<POLICY-LOSSES> 2,137,297<F2>
<UNEARNED-PREMIUMS> 162,402
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 120,887
<NOTES-PAYABLE> 141,590
<COMMON> 30
0
0
<OTHER-SE> 496,328
<TOTAL-LIABILITY-AND-EQUITY> 4,111,659
402,385
<INVESTMENT-INCOME> 148,979
<INVESTMENT-GAINS> 3,230
<OTHER-INCOME> 0
<BENEFITS> 271,714
<UNDERWRITING-AMORTIZATION> 33,035
<UNDERWRITING-OTHER> 77,090
<INCOME-PRETAX> 84,529
<INCOME-TAX> 22,756
<INCOME-CONTINUING> 61,773
<DISCONTINUED> (3,481)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,292
<EPS-PRIMARY> 2.52
<EPS-DILUTED> 2.52
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> Refer to Note 4 - Investments of the Company's Consolidated Notes to
Financial Statements for September 30, 1997.
<F2> Refer to the Company's Consolidated Balance Sheet as of September 30, 1997.
</FN>
</TABLE>
