Horace Mann Educators Corp (HMN) Q1 2021 Earnings Call Transcript

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Horace Mann Educators Corp (HMN 1.07%)
Q1 2021 Earnings Call
May 5, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome. The Horace Mann Educators First Quarter of 2021 Investors' Call. [Operator Instructions] [Operator Instructions]

I'd like to turn the call over to Ms. Heather Wietzel, Vice President of Investor Relations. Please go ahead.

Heather Wietzel -- Vice President of Investor Relations

Thank you, and good morning, everyone. Welcome to Horace Mann's discussion of our first quarter results. Yesterday, we issued our earnings release and investors supplement. Copies are available on the Investor's page of our website, along with our investor presentation, which was posted this morning. Marita Zuraitis, President and Chief Executive Officer, and Bret Conklin, Executive Vice President and Chief Financial Officer, will give the formal remarks on today's call.

With us for QA&, we have Matt Sharpe on Distribution, Mark Desrochers on P&C, Tyson Sanders on Supplemental, Mike Weckenbrock on Life and Retirement, and Ryan Greenier on Investment. 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 news release and SEC filings. In our prepared remarks, we used some non-GAAP measures. Reconciliations of these measures to the most comparable GAAP measures are available in our news release.

I'm now turning the call over to Marita.

Marita Zuraitis -- President And Chief Executive Officer

Thanks, Heather, and good morning, everyone. Before we start today, I want to welcome Tyson Sanders to our quarterly investor calls. Tyson has been a part of our supplemental team for seven years, and has run day-to-day operations for the past year. He joined my senior team in March, and I know you'll appreciate his knowledge of the business. On to earnings. Last night, we reported Horace Mann's highest first quarter results ever, with core EPS of $1.10.

All four segments had higher year-over-year core earnings, with our property and casualty segment recording an 86.2% combined ratio, despite seven points of catastrophe losses. We saw encouraging signs of sales momentum in March, particularly in retirement, that continued into April. As many educators start their relationship with Horace Mann through retirement savings enrollment, this bodes well for future cross-sell opportunities.

Bret will go through the results in detail, but the highlights of the quarter also included 21% growth in investment income for our managed portfolio, and a 7.6% increase in book value, excluding unrealized gains. This strong start positions us to meet our full year 2021 core earnings guidance, and demonstrates further progress toward our long-term goal of a sustainable double-digit return on equity. Our annualized core return on equity for the first quarter was nearly 13%, although pandemic-related policy holder behavior changes in the auto and supplemental lines added about 2.5 points.

We are committed to and confident in our ability to achieve a double-digit return on equity that extends into the post-vaccine world. We expect to see benefits in 2021 from the three drivers we are pushing to sustain ROE at our target level. First, benefiting from additional net investment income by increasing the allocation to alternative investments, which have a higher return profile. In the first quarter, annualized returns in our alternative portfolio were very strong, at nearly 11%, primarily from private equity limited partnership investments.

Considering the strong global economic outlook, we remain confident in continued strong contributions from this asset class. Second, expense management. Beyond the shorter term pandemic-related expense reductions, we continue to realize savings from actions such as the full integration of the supplemental segment in 2020, as well as the benefits from continued infrastructure improvements. Third, cross-sell and new sales. We are seeing encouraging signs of sales growth, bolstered by the rollout of COVID-19 vaccines across the country.

Educators want help identifying strategies to plan for their futures. March was the highest month for annuity contract deposits in several years, and April was another strong month. March and April were good months for life sales, with applications submissions trending up. In auto, although written premiums are down compared to pre-pandemic first quarter of 2020, we are seeing signs of progress. We've been more aggressive in pricing for new business in several key profits states, which has driven a jump in new business auto production.

We're planning additional investments in new business in more states, where our profitability outlook supports those moves. In addition, March new unit counts in auto were higher than March of 2020. Just one month doesn't make a trend, but it's clear our agents are actively engaged. For supplemental, we expect to see growth later this year as educators complete their annual benefit enrollments. Ultimately, although the pandemic extended our transition to growth, we have used the time to strengthen our value proposition for educators, school districts, and their administrators.

We were quick to acknowledge the new challenges educators were facing, and focused on making interacting with us easier and more efficient by accelerating ease of doing business enhancements and virtual meeting capabilities. And although pandemic-related circumstances are limiting some typical sales activities, we are clearly seeing signs of momentum. For school district administrators, the pandemic accelerated their need for help addressing educator recruitment and retention.

As we mentioned last quarter, we're currently partnering with school districts representing about 130,000 educator households, to provide our student loan solutions online platform for their employees. This solution helps educators receive the public service loan forgiveness they deserve, along with other resources to help manage student loan debt. During the quarter, we completed the rollout of a new platform to the districts that use Horace Mann for section 125 administration, improving service levels for districts and their staff.

We believe many of these districts, which represent approximately 40,000 educators, will offer our supplemental products to their employees in the upcoming benefits enrollment period. These educators could have the opportunity to select our supplemental products on a tax advantaged basis. This Section 125 model seamlessly integrates virtual and in-person consultation during the benefits enrollment process, enhancing our capabilities to help administrators address the challenges they face.

We're also accelerating the build-out of our group supplemental products, just like we accelerated the integration of the supplemental agents. The rollout of vaccines means that many schools have now resumed in-person instruction, which is a good thing for districts, for educators, and for students. We're leveraging those opportunities as they develop, but hybrid learning environments, social distancing, and other precautions remain, as pharmaceutical companies undertake clinical testing for vaccine efficacy in children. Turning to the agency force.

As we've noted in 2020, we focused on the integration of supplemental agents. This had the benefit of allowing us to fill uncovered territories with successful agents, experienced in working with school district officials and educators. As the environment becomes more conducive to bringing new agents up to speed, we're turning to recruitment and the pipeline is filling. Overall, I'm very pleased with how we used 2020 to prepare, and where we are today, moving into the growth phase we've discussed over the past several years.

We have the right products to meet educators' unique needs, knowledgeable, trusted distribution, tailored to educator preferences, and modern, scalable infrastructure that is easy to do business with. Our evolving virtual sales tools bring important efficiency advantage, and makes the opportunity to do business in-person a bonus. Bringing all these pieces together position us well for making progress toward our goal of significantly larger educator market share. Before I turn the call over to Bret, I want to take a moment to recognize Teacher Appreciation Week.

At Horace Mann, we are continually inspired by the dedication of our country's educators to their students, a respect that has only grown over the past year. Working across multiple, sometimes simultaneous teaching settings, they remained focused on reaching and helping each and every student. As a member of our communities in the early days of the pandemic, we provided funding to help educators provide school supplies for their students at home.

Recently, educators said communities and school districts could help them help students move forward by narrowing the focus on grade level standards and de-emphasizing teaching to standardized testing, staffing with more paraprofessionals to provide targeted help, and expanding social emotional learning resources, to help students process the events of the past year. To address these needs in our headquarters location, the newly formed Horace Mann Educators Foundation made its first donation to implement a social emotional learning program for use in all the elementary and middle school classes in the Springfield, Illinois public school district.

The Horace Mann Educators Foundation was formed last year, and funded with an initial contribution of $1 million. Its giving philosophy is based on the belief that educators are the experts in how to best help students succeed. The foundation's primary focus will be on needs identified as roadblocks by educators, schools, and districts. Our mission, to take care of the educators who take care of our children, has guided our company for the past 75 years. That mission will continue to be critical to our growth and success moving forward. Thank you.

And with that, I'll turn the call over to Bret.

Bret A. Conklin -- Executive Vice President And Chief Financial Officer

Thank you, Marita, and good morning, everyone. First quarter EPS was a record $1.10, 41% over last year our second consecutive record quarter, and a solid step toward achieving our full year EPS guidance of $3 to $3.20. Further, core ROE for the first quarter was nearly 13%, and 11.2% for the 12 months, which was up from 7.6% for the prior 12 months. Although the pandemic and other unusual factors clearly contributed to the improvement, our strategic initiatives were equally as important, and we remain on track to our long-term target of sustainable double digit ROE.

As we said last quarter, our current year guidance presumes a gradual recovery from the lingering effects of the COVID-19 pandemic on results. We're encouraged by initial signs of momentum and sales as a vaccine rollout is accelerated. I'm going to dive right into the performance and outlook for each segment, and then I'll finish up with what the rest of 2021 and beyond holds for Horace Mann. For property and casualty, core earnings were up 4.9% for the quarter, reflecting a 2.4 point improvement in the reported combined ratio, driven by continued lower auto loss costs, and partially offset by higher catastrophe losses.

Premiums for the year were down about 8% due to continued lower new business volume. We saw more than 0.5 point improvement in auto policy holder retention, and property retention remained in line with recent quarters and rates were generally stable. Underwriting income was up year over year, largely due to the improved combined ratio. P&C net investment income was up 4.9%, reflecting favorable returns on the alternatives portfolio, while income tax expense was higher. That is largely because last year's tax expense was reduced by a onetime tax benefit due to the CARES Act treatment of carrybacks of net operating losses.

The biggest driver of the improved combined ratio in the quarter was a 7.7 point improvement in the underlying auto loss ratio from last year's, largely pre-pandemic first quarter. Loss costs continue to reflect changing driving patterns due to the pandemic, as well as the ongoing benefit from the progress we've made over several years to enhance our pricing segmentation and improve our long-term model profitability. Over the course of 2021, we anticipate auto loss ratios gradually rising toward our long-term target levels. While we presume some favorable changes to driving patterns become more permanent, we expect those will be offset by factors increasing loss severity, and we anticipate fairly stable rates in 2021.

Because of the strong auto results, the combined ratio improved, despite the $2.2 million increase in cat losses above last year's level, and a higher property loss ratio. Cat losses added seven points to the combined ratio, compared with 5.3 points last year. Although April's catastrophe losses are not outsized, we remain very mindful of our historical second quarter cat loss experience, with the 10-year average at almost $30 million, or 20 points, equivalent to about half of the historical full year average. Our 2021 EPS guidance continues to include a full year cat loss load of nine to 9.5 points.

The underlying property loss ratio was 3.3 points higher than last year's first quarter, primarily because of higher noncat weather losses and nonweather water losses. For full year 2021, we anticipate the underlying property loss ratio will be stable, with rates expected to rise in the low single digits. Finally, the expense ratio improved by 0.5 point, partially benefiting from the timing of some expenses. Over the course of the year, we expect to continue to benefit from our expense optimization programs, even as we add back some travel and other activities that were curtailed for much of 2020.

The strong first quarter for property and casualty keeps us on track to achieve a full year combined ratio that's in line with our longer term target of 95% to 96%, and the $54 million to $58 million in 2021 core earnings that we've guided to for this segment. Turning to supplemental. The segment contributed $31.7 million in premiums and $11.4 million to core earnings, as it continues to experience favorable trends in reserves, and the short-term benefit of changes in policy holder behavior due to COVID-19.

Net investment income on the supplemental portfolio reflects the solid progress we are making in improving this supplemental investment yield. Supplemental sales were a $1 million in the first quarter. Across the industry, supplemental products have traditionally been sold through a work site enrollment model and have been the most impacted by the limitations of a virtual-only model. Horace Mann agents continue to cross-sell supplemental products to their existing educator customers, and we continue to support benefit enrollments with steady sales metrics in more open geographies.

Premium persistency rose one point during the quarter to 91.5%, a testament to the value educators place on these coverages, with about 284,000 policies enforced. Nonetheless, the return to the historical sales trajectory of the supplemental business is likely to require more normal benefit enrollment processes, and the use of our newer virtual capabilities, so we can provide consultative guidance on the products to educators. Our outlook for supplementals 2021 core earnings, of $33 million to $35 million, reflects the expectation that there will be a gradual shift in policy holder claims behavior, resulting in a full year pre-tax profit closer to our longer-term target of mid twenties percent.

For the life segment, annualized sales were even with last year, with further improvement in the lapse ratio. Application activity is trending up, and the number of issued recurring-term and whole life policies was in line with pre-pandemic levels. March was the second highest month for life sales since the pandemic began, and April continued strong. Core earnings reflected mortality trends that were above actuarial expectations, consistent with recent industry trends. The volume of claims related to COVID-19 remains low, with face values averaging 35,000.

The average duration of the policies paid in the first quarter was over 30 years. Mortality costs were partially offset by higher net investment income. Segment net investment income was up 25.6%, reflecting favorable returns on the alternatives portfolio. We continue to expect life segment 2021 core earnings will be in the range of $17 million to $19 million. For the retirement segment, first quarter core earnings, ex DAC unlocking, were up more than four times last year, reflecting the strong net interest margin. DAC unlocking was favorable.

The net interest spread improved 102 basis points over last year's first quarter, to 253 bps, in part due to strong returns on the alternatives portfolio. This is above our threshold to achieve a double-digit ROE in this business. Our solutions for augmenting retirement savings remain a core need for educators. March was the highest month for annuity contract deposits for several years, and April was also strong. For the full quarter, those deposits were even with last year's first quarter. Our educator customers continue to see annuities is an important way to achieve their financial objectives, and they are complimented by our suite of fee-based products.

We continue to anticipate retirement core earnings, ex DAC unlocking, will be in the range of $38 million to $40 million. Turning to investments, total net investment income on the managed portfolio was up 21% to $71.1 million, largely because of improving valuations for our alternatives portfolio, which generally reports on a 1-quarter lag. Total net investment income rose 16%. Driven by signs of a strengthening economy, the equity market continues to rise, which resulted in strong private equity returns, and other alternative strategies like private credit, infrastructure, and commercial mortgage loan funds posted solid performance in the quarter.

We remain confident in our allocation to alternative investments, and are targeting a high single-digit return from this diversified portfolio. The core fixed income portfolio had a yield of 4.2% in the first quarter, compared with 4.51% a year ago. In the first quarter, we continue to focus purchases in our core portfolio on high quality corporate and government agency securities, while opportunistically adding high yield exposure. The core new money rate was 2.83% in the first quarter, and based on current market conditions, we continue to anticipate a core new money rate of about 3% for the year.

Net realized losses in the first quarter were $9 million, including $3.2 million of total impairments on investments, largely related to tactical trading decisions to improve portfolio yield. For 2021, we continue to expect total net investment income will be between $370 million and $390 million, including approximately a $100 million of accreted investment income on the deposit asset on reinsurance. This expectation for investment income is captured in the segment-by-segment outlook summarized in our investor presentation, and in our core guidance range of $3 to $3.20.

In closing, our profitable businesses are generating capital, and we're committed to prudently using that capital to create value for shareholders. In the first quarter, we increased our quarterly shareholder dividend for the 13th consecutive year. We also opportunistically repurchased almost 40,000 shares of Horace Mann stock in February. There is $19.1 million remaining on our existing repurchase authorization. That said, our top priority for excess capital remains growing our businesses at returns that meet or exceed our ROE targets.

As we gradually move into a post-vaccine environment, we expect to see more opportunities to put that capital to work, to support market share expansion. We believe we are prepared to leverage these opportunities, and have proven we can nimbly respond to new challenges. We expect 2021 will show another step on the steady upward trajectory we've been on for the past several years, toward our long-term objectives of sustainable double-digit ROE and increased education market share. Thank you.

And with that, I'll turn it back to Heather.

Heather Wietzel -- Vice President of Investor Relations

Operator, we're ready for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from John Barnidge at Piper Sandler. I think we lost Mr. Barnidge. So Gary Ransom, you're up at this time.

Gary Ransom -- Piper Sandler -- Analyst

Hi. I was wondering if you could talk a little bit about frequency and severity in auto. I'm looking across various companies and it seems to be coming back at different paces for different companies as we reopen. I wonder if you could just also talk about it in terms of your geography. California might be one thing, other parts of the country might be another, and just comment generally on how you see that trajectory of frequency returning to normal over the next few months.

Heather Wietzel -- Vice President of Investor Relations

Yes. Gary, before I turn it over to Mark, one of the things that we always try to remind everyone is the educator segment that we're in, and we always talk about that segment. We're not immune to trends, but somewhat insulated. So with that as a backdrop drop, I'll let Mark go a little bit deeper on the details. Mark?

Mark R. Desrochers -- Senior Vice President, Property And Casualty And Chief Corporate Actuary

Sure. Given some of the changes we've seen in the nature of accident frequency, most notably that we're seeing a lot fewer fender-bender type events, we tend to focus a lot more right now on what's going on with the overall loss costs. And our loss costs, they do remain below pre-pandemic levels but, as we expected, they're moving slowly back toward what we saw prior to the pandemic. Each month, the overall loss costs are closing in toward that pre-pandemic level.

And as Bret mentioned in the script, we expect that to normalize as we get to the end of this year, early next year, the loss cost compared to pre-pandemic levels are pretty consistently down across most of the accident-related coverages. The one exception I would note is UM/UIM, where we're actually seeing loss costs that are at or above pre-pandemic levels.

Gary Ransom -- Piper Sandler -- Analyst

I get that you're talking about the overall loss costs, but if we focus in a little bit on severity, there definitely are certain components of the cost of repair and medical costs are going up, and I wonder if you could comment on what you're seeing there, whether there's any acceleration or change in the kind of cost you're seeing in the last few months

Mark R. Desrochers -- Senior Vice President, Property And Casualty And Chief Corporate Actuary

Yes. There's definitely an increase. I'm sorry, Gary. Yes, there's definitely an increase in severity, but I'd say it falls into a couple of different areas, or a few different areas. One, there's just the normal rate of inflation. Two, we are certainly seeing some impact of supply chain issues driving up costs of repairs. But one of the biggest factors we're seeing from digging into the data is, when you take out some of the smaller events, what's left is just -- has a larger average severity. And that's accounting for a lot of what we're seeing in the increased severity.

Marita Zuraitis -- President And Chief Executive Officer

And Gary, this is Marita. One thing I'd add to that, again, back to the educator segment, when you think about variability in the data across the industry, and you think about swings, whether it's loss costs, whether it's severity trends, whether it's pricing, our range is not quite as wide as the industry. I mean we tend not to have large pricing increases, and therefore not large pricing decreases. Obviously, when the industry was trying to write the profitability scenario, we all saw some pretty big pricing increases, and we've talked about that over the quarters, but with the exception of those times, we tend to be pretty tight.

We did restore the profitability of our book of business. We did increase pricing for that profit restoration, and that worked. I mean we see our profitability, our trends, much more similar to our historic averages. We have a profitable auto book. It speaks to the nature of the clients that we have in our educator book. And a lot of the profitability that underlies this is the work that we've done over the last couple of years on restoring the profitability of that book. And it was heavy lifting, and I think we did a very good job.

So I do think we have to remember that we tend not to swing, and have a wide range of variability. The one exception to this is the frequency trends. When the world came to a stop for a while there, we all saw a pretty big drop as, as we all know, in frequency. And that's a trend that even educators weren't going to escape.

Gary Ransom -- Piper Sandler -- Analyst

Just looking at how the educators behave, particularly, there was a lot of shopping going on for auto insurance over the last year, probably up. And this is a general statement, rather than an educator's statement. But did you see that, at all, in educators? Was there anything in, as you go out, agents trying to do it? Are you getting any more quote opportunities at all or was it just subdued and stable?

Marita Zuraitis -- President And Chief Executive Officer

Yes. I mean, Gary, I would say generally what we saw, and we see it in our sales trends as well is, we saw a very busy group of people focused on educating kids in a real tough time. They had fully virtual, they had back to the school, they had hybrid, and they had constant change. And I think their focus was on trying to create an education environment in the worst possible scenario any of us could imagine.

What we saw is, we were able to get a hold of them and we were able to have the retirement conversations that we needed to have with them. And you saw a pretty constant retirement enrollment, and numbers in retirement, through the pandemic. And certainly, as Bret said in his script, with our March and April activity in the retirement line, then you saw life sales, as educators thought about life insurance, as we all did, questioned the environment that we were in.

We saw pretty steady life sales, with March and April for life being very strong, and with application counts now being up. And then, when you go past that, when you think about auto, I'm not sure our educators thought that quoting their auto was the most important thing they needed to do over the last couple of months. And in supplemental, what we found was, across the whole industry, that is something that's typically done in the school systems.

And we spent our time focusing on getting ready for the fall season, getting ready for enrollment and improving our virtual tools, getting our supplemental agents up to speed and integrated, and doing the things that we could do in that space to get ready for the sales momentum that we feel is coming. But even in auto, when you think about auto, what we saw was March of 2021 being stronger than March of 2020. We saw April of 2021 being much stronger than April of 2020. So they're back in the game, they're back -- start to think about a broader set of questions, but I don't think auto insurance was educators' top priority over the last 10 to 12 months.

Operator

Next question from John Barnidge, Piper Sandler. Please go ahead.

John Barnidge -- Piper Sandler -- Analyst

Apologize, I didn't take the mute off fast enough. Like to hear more about your thoughts around supplemental sales, maybe vaccine distribution ramped through the quarter, lots of schools reopened, maybe sales activity and expectations between now and school opening. I'm really just trying to triangulate and think through if this summer dynamic, this time around, may be different, given the return.

Marita Zuraitis -- President And Chief Executive Officer

Yes, I talked a little bit about that, John, and we tried the best we could to give you some color in both of our scripts. This is a work site sale, right? This is truly a sold product. And we took time to ramp up. We built platforms, we improved our approaches. We taught the historic supplemental agents our full value proposition and our other lines of business. We put these agents in previously uncovered territories, and taught them our full value proposition.

We really positioned ourselves for growth toward the second half of the year, and it was thoughtful. It's what we planned for. It's what we assumed. It's what we even told the world was going to be the case. When we looked at sales very early in the pandemic, we looked at 2021 being very similar to 2020, as far as the total size, and ability to grow, but in reverse. And we expected that growth would ramp up toward the second half of the year, mostly in the supplemental business, we knew it would be the business most affected by this.

And we also knew that we would improve the profitability because of folks' maybe hesitancy to seek care, and have the activities necessary to have a claim in that business. But we also knew that the sales would be soft until agents across the industry were back in the game in the schools, doing the enrollments that need to be done. We are very well positioned for the benefits enrollment cycles for the 2021-'22 year, and we have really shored up our products. Our filings in these states are in really good shape. We talked about the filing of group products and building of platforms. We feel like we took the time we needed to position this very profitable business for growth in the latter half of this year, and certainly into 2022 and beyond.

John Barnidge -- Piper Sandler -- Analyst

Within that vein, you made a fair point about getting the agents meeting with the teachers and educating on supplemental. We're really only three months out, right now, from return to school for the academic year. Can you talk about what you've maybe been told, and I know it differs between urban, rural states, around physical access to schools expected for the fall, maybe as it relates to this, as compared to this current academic year and a pre-pandemic year.

Marita Zuraitis -- President And Chief Executive Officer

Yes, it's a great question, and one that we think about and talk about all the time, and it's not just a question we ask ourselves as it relates to a pandemic, although that certainly magnifies it. Access is always a question for us, and we have various levels of access across our footprint today. I mean, first, I'm really proud of the company, our agents, our employees, what we did during this time period. They got creative. When I think about how our agents accessed educators in parking lots, and anywhere where they could, to make this work, just like everybody else adapted in this kind of an environment, they found new ways to support their educator clients.

And as a company, we built new tools and new platforms, we tested new sales practices. So as we move forward, what I know is we will have the benefit of physicality again, combined with all the virtual and platform changes and improvements we made during the pandemic. When I think about, a lot of folks say, what's the permanent change going to be in the post-vaccine world? Is it going to mean no access? And I don't think that's the case. We lived through various degrees of access in the past, and we're finding what we did during the pandemic actually improved our relationships with schools.

We were there when they needed technology, we were there when they needed internet access. We were there supporting educators with our student loan solutions platform, with their retirement needs, all through this pandemic environment. And I think it's only strengthened how the districts feel about our value proposition, and the company, that we are supporting them through this. We, for example, in our Section 125 work, we transformed our Section 125 platform for these schools to a much more robust platform, and have the ability to sell our supplemental products through many of those Section 125 platforms.

I really think we spent a lot of time getting ready for a much stronger second half of the year for us. And we are not seeing signs of, where we had access in the past, the school districts not allowing us back. And I know that because even during the pandemic, they allowed us to be in the parking lot. They allowed us to do many of the things that we did outside, and in small groups, that we used to be able to do in large meeting settings.

Operator

Thank you. Next question comes from Matt Carletti of JMP.

Matt Carletti -- JMP -- Analyst

Marita, I was hoping to follow on, on just the general observations on growth returning, and wondering if there's anything you've been able to observe from, there's been a real split in kind of the pace at which individual states are reopening. Texas and Florida on one end, places like California and New York on others. Have you guys been able to see any takeaways at a more granular level, on a state-by-state basis, in terms of, as geographies reopen, kind of the activities you're seeing, and maybe that tells us something about the future?

Marita Zuraitis -- President And Chief Executive Officer

Yes, I think it mirrors the world that we live in, right? We're all in a pretty odd time. What do you do? When do you do it? How fast can you get there? Hesitancy. We're humans, And I think we're seeing that clearly in our space as well. It's not only on a state-by-state basis, but it's on a district-by-district basis. And I think it's going to be fast in some places, gradual in other places, and slow in other places, just like we see how the world opens up generally, and how people respond to the work environment, returning to the office, hybrid situations.

And our situation is the same. And in many cases, we're using tools and techniques to help agents get back in the game. Whether it is different incentive programs in the supplemental space, whether it is providing unique opportunities for agents to take advantage, to stick their toe back in. I mean think about the world that we're in, and how this reopening will happen. It's happening the same thing here. We're pushing hard, and in some cases it will be gradual, in some cases it's going to be pretty quick, and in other cases, it may take a little bit of time, and that's probably appropriate.

I mean we've been following the appropriate guidelines. We have been very careful. And when you have a sales process, that includes physical interaction, you've got to be thoughtful about how you do it, and how you transition back, but make no mistake, it's happening. The trends that we're seeing in March and April are real. We expected them to happen. And in some places I think they're going to be fast, and in other places, I think it's going to be gradual. But we have a, what we call, back to school calendar. We have back to school activities.

And this year, although it's going to be a little bit different and our groups will be a little bit smaller, we are doing back to school events. Our agents are ready to get back in the game. We've talked a lot about, will the summer look like a regular summer? Will we see some pent-up demand in the summer that maybe you wouldn't typically see in our trends in a normal summer? So what we know about our data, it's going to move around a little bit over the next few months, and not be a typical year, just like last year wasn't a typical year, but we are encouraged with the momentum that we're seeing. And we said that this year was going to be a little soft, and in total, it probably will, but we feel good about the trajectory that we're seeing and it's clearly in the data.

Matt Carletti -- JMP -- Analyst

Okay, great. And then one quick, other one, just, you want to ask a question on the uptick and the life mortality trends in the quarter. I know it's not specific to Horace Mann, we've seen it at other companies across the industry. Just if you have any thoughts on, for your book, what might be driving that. Is there a COVID impact there? Is it something completely unrelated to COVID? Just any thoughts you might have there?

Bret A. Conklin -- Executive Vice President And Chief Financial Officer

Yes, Matt. This is Bret. Let me take it up, and if Mike wants to add a little color, he can, but I think you described it well. We have -- one quarter doesn't make a trend, and certainly we've seen a little bit of an uptick in our mortality. I think, as you recall, we had a very strong 2019 and we had an elevated level, compared to that year, last year. Yes, we're running a little bit ahead of what we had anticipated, but nothing that we haven't seen before. Here again, the COVID impact is very small, with what we've seen today. So, Mike, if you want to add any other color to that?

Michael B. Weckenbrock -- Senior Vice President, Retirement And Life

Thanks, Bret. I think you covered it. I think, as you mentioned before, our COVID volume, related to claims, is relatively small. And even with face amounts averaging around 35,000, average duration's still around 30 years for the first quarter. So, we continue to monitor, we don't see a permanent shift. And to that end, we are seeing positive signs of return to normal in April, and we'll continue to monitor it, but not a permanent shift.

Marita Zuraitis -- President And Chief Executive Officer

Yes. The only other thing I'd add is we've had a fair amount of discussion as it relates to the potential of the lack of people seeking treatment, and whether or not you talk about COVID impact as it relates to cause of death, but you also look behind the numbers and although we are not seeing it in the data, we know that there's a fair amount of conversation out there, other folks have commented and talked about it.

We're not seeing it in the data, but yet you know intellectually that there may be some underlying trends where potentially someone putting off a test or putting off treatment, although it might not be indicated as COVID, could be finding its way into the numbers. But I think Bret and Mike are both right. When we look at what we saw in mortality in the quarter, we know our April number and what we're seeing in April, and that did not continue in April. So we feel pretty confident, we have a long track record in this business. The actuaries have their quarter of what they expect in the data. And when we look at it through four months, it's not unusually outside.

Operator

The next question comes from Meyer Shields of KBW.

Meyer Shields -- KBW -- Analyst

So we talked a little bit about supply chain influencing severity on the auto side, and I guess we've been getting some questions about what you're seeing and what you're expecting on the property side.

Marita Zuraitis -- President And Chief Executive Officer

Yes, you broke up a little bit there, Meyer. But for Mark's benefit, in case he didn't hear the question, you had asked about supply chain, and we've heard a little bit of it in the auto space and you asked about property and I'm assuming you're talking about the cost of lumber and building supplies and what we're seeing there. So I'll turn it over to Mark and see if he has any additional comments.

Mark R. Desrochers -- Senior Vice President, Property And Casualty And Chief Corporate Actuary

No, we're absolutely seeing the impact of lumber costs, definitely more than doubled over the past year. The thing you've got to remember is that generally speaking, the lumber-related costs are about probably 20% of our overall costs within homeowners. So it's a significant impact but at the same time we have things like inflation guard that we've adjusted to deal with the fact that there's rising replacement costs.

Meyer Shields -- KBW -- Analyst

Okay. That's helpful. A couple of other really small questions. One, when you talk about building a pipeline of recruitment for supplementals, that can have an observable impact on operating expenses?

Marita Zuraitis -- President And Chief Executive Officer

I'm sorry, Meyer. You broke up and we couldn't hear the beginning of that question. You want to try again for us?

Meyer Shields -- KBW -- Analyst

I do. yes. Thanks for your patience. So the supplemental recruitment, is that expected to meaningfully impact expenses over the remaining three quarters of a year?

Marita Zuraitis -- President And Chief Executive Officer

I think you said supplemental recruitment?

Meyer Shields -- KBW -- Analyst

Yes.

Marita Zuraitis -- President And Chief Executive Officer

Was that the question?

Meyer Shields -- KBW -- Analyst

It is, yes.

Marita Zuraitis -- President And Chief Executive Officer

I'm sorry. you were breaking up there a little bit. Do you mean of agents?

Meyer Shields -- KBW -- Analyst

Yes. You had talked about building a pipeline of recruitment, which is clearly the right strategy

Marita Zuraitis -- President And Chief Executive Officer

Sorry about that. The line -- I don't know why it was breaking up, but we got you now. Again, we spent a fair amount of time in 2020, both in our traditional agency plant, and certainly with the NTA agents that were previously supplemental, only agents made a conscious decision in this environment that our best use of resources would be to accelerate their integration, get their training, get their licensing, get them ready to do the full Horace Mann value proposition. What we saw in the first quarter, and we haven't spoken a lot about that, was beginning to pivot that time and attention back into the pipeline, back into organic recruiting.

And we did add agents in the first quarter and are ramping up our recruitment throughout 2021 because it makes sense to do it now, right? You can imagine recruiting in a pandemic environment is difficult. A lot of people are talking about the war for talent and trying to hire people in this environment. We had some decent success in the first quarter and our pipeline is full for the rest of the recruitment cycle. But I think it was wise for us to look internally and put our resources in places where we thought it would bear fruit and that's worked really well for us.

Meyer Shields -- KBW -- Analyst

Okay. Very helpful. And then final question and I don't know enough about the world of education to ask this intelligently, but would the addition of the desired paraprofessionals add meaningfully to your target market base?

Marita Zuraitis -- President And Chief Executive Officer

Yes, it's interesting. Whether it's that survey question or the answers to other survey questions that we asked. Another thing I think we did really well in this environment was connecting with our educator base, asking them these questions, learning even more about the segment that we already knew. I think that, combined with the potential of public education being extended two years, potentially with pre-K to 14, certainly does extend the amount of public employees that we could add into our database, and thinking about our bullseye target, if you will.

I mean we certainly look to pre-K now, we certainly look to community colleges now, but the ability to increase the amount of educators, and I think in this political environment and certainly post pandemic, we're increasing the amount of public educators we have in our target, and spending a fair amount of time getting to know where and how we would think about that expanded opportunity. So clearly, yes.

Operator

And our next question comes from Alex Bolton of Raymond James.

Alex Bolton -- Raymond James -- Analyst

I'm calling in on behalf of Greg Peters. Want to make sure you can hear me OK.

Marita Zuraitis -- President And Chief Executive Officer

We can.

Alex Bolton -- Raymond James -- Analyst

Okay, great. I kind of want to go back to conversations about frequency and COVID driving habits possibly persisting beyond the pandemic. As I think about the educators, it seems work-from-home initiatives may not be able to persist as well as in other industries. Is that a right way to think about it? Or is it just a volume of cars on the road, could be lower due to work from home?

Marita Zuraitis -- President And Chief Executive Officer

Yes. I think that I'll go back to my insulated but not immune comment. From the very beginning, we did talk about the frequency benefit from the type of miles driven and the fact that roads would be a little less congested. The fact that commuting patterns will change. So I think the rest of the world going to hybrid environments, the rest of the world stretching out or changing the workday does change the amount of people that are on the road when educators typically go to work and return.

So we do expect that we will see a gradual return to more normal frequency. But make no mistake, we do believe there is some element of permanency or at least semi-permanency there when we think about frequency trends. I don't know if you have anything to add to that, Mark?

Mark R. Desrochers -- Senior Vice President, Property And Casualty And Chief Corporate Actuary

Yes, what I would add is, as we track our educators today, we look at mileage compared to accident frequency. Our mileage is pretty close to pre-pandemic levels, not quite back yet, but the accident frequency change still trails then. So I think it is evidence that even as our teachers, many of whom, while the students may be in a hybrid environment, the teachers are there every day.

Their mileage has returned to normal, but the accident frequency hasn't, which I think is an indicator of the fact that there's just less traffic volume, even if our teachers are going back and forth to work every day, they're going to be involved in less accidents. And you also have to remember that our teachers have spouses and quite often those spouses are in other type of professional environment where they may not be driving as much either. So we have kind of that, both of those impacts playing into the frequency equation.

Alex Bolton -- Raymond James -- Analyst

Okay. I appreciate you clearing up my thought process there. And then, maybe thinking about persistency, retention, lapse it seems to be improving over the past couple of quarters, maybe if I was to think about kind of initiatives cross selling, maybe just clientele loyalty, how do those play into that persistency? Does the virtual sales process, is that helping now or would help, maybe beyond the pandemic?

Marita Zuraitis -- President And Chief Executive Officer

Yes, we think so, and I appreciate the question and this may also connect to the earlier question. When I think about auto retention, and you did see that increase in auto retention, the shopping commentary that we had earlier, our customers are pretty loyal. We tend not to give them reasons to leave us. We try to be a consistent, fair market for their auto. And what we also know is property does tend to follow auto sales. So when we see an uptick like we did in March and April, we would expect that property would eventually follow some of those new customers, as well.

But this is a loyal group of people. The retention certainly is helpful. Another comment is, think about the uptick in retirement through the year. And certainly what we saw in April. Many people start their relationship with Horace Mann through a retirement plan. And those are eventual clients that we can cross out. We also have a client base in Horace Mann that maybe didn't have any supplemental products with previously NTA. And we have the ability to sell supplemental products to those customers as well.

So the pandemic may have helped from a frequency perspective, but it really did at least temporarily suspend some of those cross-sell activities that we could do in a more robust way. And we're anxious and looking forward to taking some of the tools that we've built, taking advantage of the time and the opportunity we took to affect the things that we could affect during this time and put our whole value proposition forward. We tend to cross-sell better than the industry cross-sells. And I think that speaks to this homogeneous niche of educators that we have.

Alex Bolton -- Raymond James -- Analyst

Okay, great. And then maybe just lastly, on catastrophe and catastrophe reinsurance. I'm just wondering if there's anything else that could have counted toward the catastrophe reinsurance retention, or if you have any comments there.

Marita Zuraitis -- President And Chief Executive Officer

You mean in the first quarter? We didn't have any events that would come close to hitting our retention level in the first quarter.

Operator

[Operator Instructions] We have a follow-up question from John Barnidge from Piper Sandler..

John Barnidge -- Piper Sandler -- Analyst

Mark made a comment about non-educator's spouses. I obviously slept at 50%, but is there any way to dimension what percent of auto PIFF are those educators spouses that are non-educators just trying to sense like how much of that frequency benefit could actually permanently somewhat remain.

Marita Zuraitis -- President And Chief Executive Officer

Yes, John. We can get you those numbers. We have full household makeup. We know how many multi-car policies we have. We know the makeup of the household. It's going to differ by state. It's going to differ by district, but yes, we have clear data on that and we can give you a deep dive on that.

Heather Wietzel -- Vice President of Investor Relations

Nick, I think we're set for the Q&A, if I'm not mistaken.

Operator

Yes. Q&A is all done. No other questioners are in the queue, so we'll go back to Heather Wietzel for closing remarks.

Heather Wietzel -- Vice President of Investor Relations

Great. Thank you everyone for joining us today. I look forward to talking in the coming months and feel free to reach out if there's any new questions.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Heather Wietzel -- Vice President of Investor Relations

Marita Zuraitis -- President And Chief Executive Officer

Bret A. Conklin -- Executive Vice President And Chief Financial Officer

Mark R. Desrochers -- Senior Vice President, Property And Casualty And Chief Corporate Actuary

Michael B. Weckenbrock -- Senior Vice President, Retirement And Life

Gary Ransom -- Piper Sandler -- Analyst

John Barnidge -- Piper Sandler -- Analyst

Matt Carletti -- JMP -- Analyst

Meyer Shields -- KBW -- Analyst

Alex Bolton -- Raymond James -- Analyst

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