Horace Mann (HMN) Posts Q2 Catastrophe Loss Estimates

Horace Mann Educators Corp. (NYSE:HMN) estimates pre-tax catastrophe loss in the range of $27 million to $28 million for second quarter of 2016. Concurrently, the company expects the catastrophe loss to hamper the bottom line by 42–44 cents in the reported quarter.

The Zacks Consensus Estimate for the second quarter is currently pegged at 41 cents, which translates to a year-over-year growth of 13.9%. We expect the estimates to move down as analysts incorporate the impact of the catastrophe loss.

Being an insurer, Horace Mann is exposed to losses from natural disasters. This in turn affects its underwriting results. The catastrophe loss is expected to account for 17–18 percentage points (pp) deterioration in second-quarter combined ratio. Therefore, Horace Mann expects Property and Casualty combined ratio to be in the range of 111–112 pp. Though the loss stemmed from 14 different catastrophe events across the globe, adverse weather conditions in Texas and the Midwest were mainly responsible for it.

Also, the company has experienced an increase in the claim counts in auto policy due to more weather-related events in the quarter. As a result, the company is likely to have incurred higher-than-expected loss.

In the last quarter too, Horace Mann had to incur a loss of $12.7 million, which hurt the bottom line. Combined ratio deteriorated 340 basis points year over year in the Property and Casualty segment. This was due to an increase in loss and loss adjustment ratio and expense ratio.

Horace Mann is scheduled to announce its second-quarter results on Jul 27. However, our proven model does not conclusively show that the company will beat on earnings. This is because Horace Mann carries a Zacks Rank #4 (Sell) and has an Earnings ESP of 0.00%, which makes surprise prediction difficult. We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

The industry is estimated to incur an expected loss between $15 billion and $20 billion or more due to 25 weather events in the second quarter.

Other insurers too reported their catastrophe loss estimates for the second quarter. AXIS Capital Holdings Limited (NYSE:AXS) estimates catastrophe loss to be around $104 million, Aspen Insurance Holdings Ltd. (NYSE:AHL) anticipates catastrophe loss of approximately $65 million and Navigators Group, Inc. (NASDAQ:NAVG) loss estimates stand at around $12 million.