Good morning, and welcome to the Horace Mann Q4 and full- year 2021 results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question from the queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Heather Wietzel, Investor Relations. Please go ahead.
Thank you, and good morning, everyone. Welcome to Horace Mann's discussion of our Q4 and full- year 2021 results. Yesterday, we issued our earnings release, investor supplement, and investor presentation, all of which are available on the investor page of our website. 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 Q&A, we have Matthew Sharpe on supplemental and group benefits, Mark Desrochers on property and casualty, and Mike Weckenbrock on life and retirement, plus Ryan Greenier on investments. 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 also use some non-GAAP measures. Reconciliations of these measures to the most comparable GAAP measures is available in our news release. I'll now turn the call over to Marita.
Thanks, Heather, and good morning, everyone. Last night, Horace Mann reported Q4 core earnings of $0.97 and full- year 2021 core earnings of $3.59 per diluted share. This marks our second consecutive year of record earnings and core return on equity of over 10%. It also positions us well for strong results in 2022 and achievement of our longer-term targets of 10% average annual EPS growth and sustained double-digit ROEs. Today, I will briefly discuss our 2021 results, which Bret will cover in more detail. He will also discuss our commitment to accelerating shareholder value creation as we continue to execute on our strategic roadmap, which is driving significantly greater earnings power for the company. Since 2018, we have more than doubled our expectations for capital generation to $50 million in 2022 and beyond.
While our first priority for excess capital remains supporting profitable growth, which further drives shareholder value, we will continue to utilize our share repurchase program and continue our track record of annual shareholder dividend increases. I want to focus the majority of my remarks on the steps we're taking to achieve our targets, as well as comment on how this aligns with the strategy we executed to bring us to where we are today, positioned to be the company of choice to help all educators protect what they have today and prepare for a successful tomorrow. In Q4 , all segments finished ahead of expectations, reflecting our solid underlying performance as well as strong net investment income due to the very strong returns on our limited partnership portfolio.
Across the board, the results illustrate the value of our multi-year focus on products, distribution, and infrastructure to better serve the education market. In particular, we continue to be very pleased with the results of our retirement segment, where annuity sales increased 5% over prior- year. Throughout the COVID-19 pandemic, our educator customers remained keenly focused on preparing for the future. As we continue to introduce new districts and households to our retirement product suite, we gain more opportunities to introduce our individual insurance products to new educators. As we have expected for more than a year, auto loss costs returned to pre-pandemic levels. For the P&C industry, this hasn't been so much an issue of if as an issue of when. Combined with inflation-driven factors as expected, this led to an auto loss ratio above the unusually low- level of last year.
Bret will give more details on our 2022 rate plan, but we're confident we will remain competitive with fair pricing for our education market while addressing the inflationary pressure. Despite the higher auto loss ratio as well as catastrophe loss costs about double last year's Q4 , our P&C business was profitable in the quarter. For the year, catastrophe losses were about even with 2020, with both years running ahead of our 10-year average. We continue to see growth momentum in the supplemental business with another quarter of sequential sales growth. We also continue to see temporary changes in policyholder behavior- related to the pandemic. Now let me spend a little time talking about Horace Mann's long-term view now that Madison National Life is officially on board. I'd like to welcome any Madison National employees on the line to the company.
We are excited to be working together as one team serving the education market. We worked side by side with Madison's team in the months leading up to the close to ensure a smooth initial integration, which we've seen with all hands on deck for the first month and a lot of enthusiasm for what we can accomplish together. The beauty of bringing together two such similar companies, mission-centric with decades of experience in the education market, is that neither of us has to change who we are. We can simply build a stronger company together. With this strengthened value proposition, Horace Mann remains focused on helping educators achieve lifelong financial success and evolving to meet the needs of the education marketplace. We continue to be guided in our day-to-day operations by our commitment to educators and desires to have a positive impact on all of our stakeholder groups.
This commitment is the core strength that will enable our company to grow and serve more educators with distinction. To achieve our long-term objectives of an expanded market share and accelerated shareholder value, we implemented a multi-year PDI strategy to enhance our product offerings, strengthen our distribution, and modernize our infrastructure. Our transformational phase to position ourselves for market growth culminated with the acquisition of Madison National, and as a result, we now have the capability to provide educators with the products they need, whether purchased individually or through their employer. Under the Horace Mann umbrella, we have aligned our operations into two focused divisions, retail and worksite, to maximize our potential to respond to the needs of educators and school districts. The retail division is largely our legacy lines of business.
We built the worksite business through the NTA and Madison National acquisitions, giving us the capabilities to provide voluntary and employer-paid benefits, which dramatically expands our growth opportunities. To briefly revisit what that means, there are roughly 7.5 million K-12 educators in our core market, and the demand for educators grows steadily each year. After the addition of Madison National, Horace Mann is serving roughly 1 million households through either individual or worksite solutions. Historically, the customer base has been around 80% educators. The opportunity is substantial, and we know this market better than anyone else. Our solutions and programs are tailored to meet educator needs at each stage of their lives. What motivates us is the understanding that educators are incredibly deserving of dedicated solutions and support.
A clear example of this is our Student Loan Solutions program, which helps educators take advantage of the Public Service Loan Forgiveness program. Despite degree requirements on par with many private sector jobs, educators take home lower salaries than other professions with similar prerequisites. Many educators forego higher-paying private sector jobs because they have a passion for what they do. They choose the profession because it's a calling, because they want to make a difference. Even before COVID-19, educator attrition was high. Over the past two- years, the job has become undeniably more difficult as educators took on the roles of frontline workers during the global pandemic. The concern of educator burnout is widespread and is magnifying staffing concerns among school district administrators.
School districts looking to attract and retain highly qualified educators are often unable to do much in terms of salaries, which are often dependent on state and local budgets. One area they can provide more value to educators is in workplace benefits that increasingly resemble those in the private sector, with employer-paid and voluntary life, disability, and supplemental insurance coverage. That's the need from a worksite perspective. Across the education market, we are serving a homogeneous market with similar characteristics, buying habits, and risk factors. They appreciate individualized guidance and education, which we provide through programs like Financial Wellness Workshops and Student Loan Solutions. They are conservative, responsible savers, and risk-averse, which leads them to retirement products like the annuities and mutual fund products Horace Mann offers.
They are loyal, which results in higher policyholder retention in personal lines, and Horace Mann's customer retention increases the more products a customer has. By bringing Horace Mann and Madison National together and building on the progress from bringing NTA on board several years ago, we have the products, distribution, and infrastructure to take care of educators' protection and savings needs however they receive coverage, whether they buy it themselves, receive it through their employer, or both. It's also worth noting that our supplemental group and retail businesses have strong and complementary presence in different geographies, which sets the stage for leveraging existing district and educator relationships for cross-sell. In the foundation phase of our strategy, we defined our key initiatives, such as improving our auto loss ratio, and delivered the results we had described.
We are similarly working on key initiatives to deliver profitable growth in 2022 and beyond. The first is to cross-sell more customers. The more solutions we can provide to meet educator needs, the higher our policyholder retention. This is the true value of our multi-line model, being able to help solve all of our customer needs for insurance and financial solutions by building a lifelong relationship with our clients. Now more than ever, we have more ways to do that. That brings us to our second initiative, which is to take advantage of current industry dynamics to leverage auto as a source of new households. Historically, many of our new customers came to Horace Mann through the garage, although this dynamic shifted during the pandemic. Educators focused more on savings products and less on reevaluating their current protection products.
We were not surprised that shopping for auto was not their priority at that point, and we see the potential for educators to now start thinking about auto and other protection products. Before I turn to the other initiatives, I wanna pause briefly to revisit our strategy and approach for personal lines. Horace Mann has long focused on offering a fair auto price over the life of a customer relationship. The educators who buy are very loyal as our retention rates demonstrate, and they often become package customers, not just of homeowners, but potentially also buyers of savings products. We believe our relationship approach to bundling contributes to our long-term track record of strong retention and cross-sell metrics. Another area of focus is maximizing our worksite opportunity.
We want to expand Madison National's reach with employer-paid products now concentrated in the Midwest into Horace Mann's national footprint, particularly into the southern markets where NTA had developed a strong presence. We'll complement that with efforts to expand the supplemental reach with voluntary products into Madison National's Midwestern geographies. Reaching new districts and introducing them to the Horace Mann companies will lead to further cross-sell opportunities for our retail products. To support our growth plans, we must continue to build on our digital capabilities to ensure our operations run efficiently and educators connect with us in the manner they prefer. Finally, we must maintain our distinctive service mindset in every decision and every interaction.
Horace Mann has been successful because we put our educator customers at the center of everything we do, and we can only continue to be successful if we evolve with our customers' changing needs and preferences. In today's environment, this effort will continue to set us apart. Looking ahead for 2022, we expect EPS will be in the range of $3.45-$3.65 with ROE near 10%. Our guidance has net investment income in line with 2021, factoring in limited partnership returns closer to historic averages after a stellar performance in 2021. The guidance also includes at least $0.15 from newly acquired Madison National Life's current business activity, as well as initial contributions of strategic growth initiatives that will drive results in 2023 and beyond, when we are targeting average annual EPS growth of 10%.
Before I turn the call over to Bret, I wanna note an additional example of how we live our commitment to our stakeholders every day. For the fourth- year in a row, Horace Mann has been named to the Bloomberg Gender-Equality Index, which recognizes corporate commitment to transparency in gender reporting and advancing women's equality. The reference index measures gender equality across five pillars, female leadership and talent pipeline, equal pay and gender pay parity, inclusive culture, sexual harassment policies, and pro-women brand. Being included in this index for the fourth consecutive year underscores Horace Mann's commitment to building and maintaining an inclusive corporate culture where every employee feels heard, respected, and appreciated. We aim to build on this progress in 2022 by continuing to diversify our workforce to make sure we fully understand and represent the education market we so proudly serve. Thank you.
With that, I'll turn the call over to Bret.
Thank you, Marita, and good morning, everyone. As Marita noted, Horace Mann reported record core EPS as well as core ROE above 10% for the second consecutive year. Q4 2021 core EPS was $0.97, significantly above the top- end of our guidance for the quarter. Every segment exceeded our expectations, largely reflecting strong net investment income growth driven by the performance of our limited partnership portfolio. More importantly, the value of the revenue and earnings diversification we've accomplished in recent years was clearly demonstrated as we achieved these results even while the auto loss ratio returns to pre-pandemic levels, which wasn't a surprise to us and shouldn't be a surprise to anyone else based on the resumption of more normal driving patterns across the country. In a moment, I'll talk more about our outlook with Madison National as part of Horace Mann.
First, let me run briefly through the highlights of 2021. 2021 property and casualty premiums were $608 million. Retention remains strong, although new business volume continues below historical levels. Underlying segment results for the year were impacted by auto loss frequency returning to near pre-pandemic levels as miles driven has increased. Further, severity is elevated for both auto and property. Nonetheless, with a healthy contribution from investment income, P&C core earnings were strong. For Q4 , P&C segment earnings were $15 million. Our combined ratio was 99.9%, a solid result considering cat losses were almost double last year's Q4 . Our retention rose 2.5 percentage points for auto policies and 1.5 percentage points for property in 2021.
In auto, Q4 underlying loss ratio was 79.3%, an increase of 11.9 points compared to the prior- year quarter, when loss activity was unusually low due to the pandemic. Auto loss levels increased mainly due to miles driven and claims frequency, effectively returning to near pre-pandemic levels as well as higher loss severity- related to inflation. As we've said before, Horace Mann is well- prepared to leverage disruptions in the auto market. First, our loss ratio going into the pandemic was at the profitability levels we had targeted. Second, we did not respond to the early stages of the pandemic with rate decreases to gain market share, a strategy used by direct marketers. Instead, as Marita described, we remain committed to our long-term strategic approach of providing our policyholders with a fair price over the life of their policy.
In the current environment, we are seeking rate to address the higher costs associated with claims. As a result, our auto rate plan for 2022 sees rate increases in the 6.5%-7% range in states representing about 75% of our premiums. In property, Q4 underlying loss ratio improved by 4.8 points from the prior-year quarter to 37.3%, despite higher severity due to labor and material cost increases. In addition, we continue to make certain that insured values are keeping pace with inflation. The combined impact of the rate increases and inflation-driven coverage changes is expected to lead to average premiums rising in the high- single-digit to low- double-digits range over the course of 2022.
Turning to Supplemental, full- year core earnings were $46 million, up 7% over the prior-y ear as net investment income rose 39%. Over the course of the year, we experienced favorable trends in reserves and through temporary changes in policyholder behavior due to the pandemic. For Q4 , the segment contributed $31 million in premiums and $12 million to core earnings, with margins remaining better than our longer-term expectations. Supplemental sales were $2.2 million in Q4 , the highest quarterly sales performance since the pandemic began. Sales for 2020 included one pre-pandemic quarter. Although we are still not back to those levels, we expect to see steady progress over the coming quarters.
Premium persistency remains strong, improving two points in the quarter to 92.5%, a testament to the value educators place on these coverages with about 278,000 policies in force. In the life segment, sales continued their steady pace and persistency remained consistent throughout the year. Core earnings for both the full- year and Q4 were ahead of last year as strong net investment income offset elevated mortality costs. For the retirement segment, annuity contract deposits were up 5% for the year, while segment core earnings excluding DAC unlocking rose 90%. Full- year earnings benefited from higher net investment income, which resulted in an increase in the net interest spread to 290 basis points from 212 basis points in 2020, largely due to strong returns on the limited partnership portfolio.
Further, contract charges earned rose 30%, largely due to strong equity market performance. Core earnings ex DAC unlocking were up 45% in Q4 , reflecting the continued strong net interest margin. The spread on our fixed annuity business remains comfortably above our threshold to achieve a double-digit return on equity in this business. Our solutions for augmenting retirement savings remain a core need for educators, and retirement products are proving first to be an important entry into districts in this environment, and second, a great introduction of Horace Mann to district employees and educators. Over time, this will provide new cross-sell opportunities we can leverage as the external environment improves.
While still a small part of the total, we are also beginning to see measurable progress in the number of Retirement Advantage contracts in force with another solid quarter, bringing the end-of-year total to 15,000, up 15% over prior year. Retirement Advantage is the fee-based mutual fund platform that we believe represents long-term value for this business segment. Turning to investments, total net investment income on the managed portfolio was up more than 23% to $321 million for the year, with total net investment income up 18%.
The increase in net investment income on the managed portfolio was due to the contribution of our limited partnership portfolio. We're allocating these alternative strategies to generate a higher income contribution than could be generated through traditional fixed income investment in today's markets without any meaningful shift in the risk profile of the overall portfolio. This approach proved its value in 2021, with returns running ahead of our historical levels due to the relative strength of equity valuations, which resulted in strong private equity and venture capital returns. Our other strategies, such as private credit, infrastructure, and real estate also posted solid performance. Our commercial mortgage loan fund portfolio continues to perform as expected. Overall, we expect these strategies will combine to generate high- single-digit annual returns on average over time.
The traditional fixed income portfolio had a pre-tax yield of 4.27% in 2021, compared with 4.2% a year ago. Q4 purchase activity continued to focus on sectors and issuers with more attractive relative value, such as triple B corporate and high- yield credit. The core new money rate was 3.83% in Q4 of 2021. Before I turn to our outlook, we funded the Madison National acquisition which closed on January first as we had planned with cash on hand and additional borrowings on our revolving credit facility. We drew on the line at the end of December, so at year-end, total debt was $502.6 million, with $249 million outstanding on the line of credit.
The debt-to-cap ratio, excluding net unrealized investment gains, is 24.9%, which aligns with levels appropriate for our current financial strength ratings. Further, RBCs at year-end were all in line with our targets for the subsidiaries. Corporate expenses ran a bit above our normal run rate in Q4 because of costs associated with the Madison National acquisition. In 2022, corporate expense will reflect the higher interest expense associated with the additional borrowings. During Q4 , we repurchased almost 100,000 shares for a total of approximately $3.5 million and more than 50,000 shares since the first of this year for approximately $2 million. We have about $13 million remaining on the current repurchase authorization. That's an ideal segue for what we see for 2022 and beyond.
As Marita discussed, we expect the leadership phase of our journey will show the value of the strategies we have been implementing for a number of years to make Horace Mann an even stronger and more diverse organization, better able to serve educators while also providing solid returns to shareholders. Out of that strength, we see Horace Mann generating at least $50 million in excess capital each year. Beyond supporting growth opportunities, we have several levers to further enhance shareholder value, in particular, share repurchase. Further, we expect to maintain our track record of 13- years of annual increases in our cash dividend, which is currently generating a yield above 3%. As we stated in the news release, we expect 2022 EPS in the range of $3.45-$3.65 with ROE near 10%.
That expectation includes at least $0.15 from Madison's current business activity as well as initial contributions of strategic growth initiatives that will drive results in 2023 and beyond. Further, it anticipates limited partnership portfolio returns closer to our historical averages and net investment income in line with 2021, totaling approximately $310 million-$320 million. Looking at business performance, we will report financial results in three operating segments in 2022. Property and Casualty, Life and Retirement, and Supplemental and Group Benefits. Our guidance is based on that new structure. Property and Casualty 2022 core earnings are expected to be in the range of $44 million-$48 million.
In 2022, we're planning for an underlying auto loss ratio slightly higher than the 2021 level as auto frequency remains near pre-pandemic levels, with inflation driving higher severity in both auto and property lines. Guidance reflects a cat loss assumption of approximately 9.5 points on the combined ratio, in line with the 10-year average. The longer-term P&C combined ratio target remains at 95%-96%. We are planning for net investment income to be lower in this segment as it benefited from strong limited partnership returns in 2021. Life and Retirement segment 2022 core earnings are expected to be in the range of $74 million-$77 million.
In this segment, we're planning for net investment income to be up slightly, maintaining the net interest spread near the 2021 level. Our guidance reflects mortality returning to actuarial expectations given our focused niche of educators and their high- vaccination rates. Supplemental and group benefits segment 2022 core earnings are expected to be in the range of $47 -$50 million. This segment will include our current supplemental business as well as Madison National in a small group life block from our legacy life segment. Our plans anticipate claims utilization for supplemental and disability products to return to near pre-pandemic levels, leading to a benefit ratio about 35% for voluntary products and about 50% for employer paid products.
As a result of the Madison National transaction, 2022 total amortization of intangible assets is expected to increase by $0.08-$0.12 per share over 2021. Looking even further ahead, I want to share an update on where we stand with our work on the Accounting Standards Update 2018-12 for targeted improvements to the accounting for long-duration contracts. Last year, we began the assessment of how this standard would impact our legacy life and retirement business. That process is well- underway but not complete. Now that we've completed the Madison National transaction, we've been working on the assessment of our supplemental and group benefit businesses, although the impact here is likely to be minimal due to the nature of their liabilities.
Broadly, although the standard does not change long-term earnings, underlying economics, cash flows, or statutory accounting, it does require cash flow assumptions, underlying reserves for the impacted businesses to be reviewed and updated at least annually. There is widespread agreement that when the standard is adopted in 2023, the industry will be using lower interest rates than were used in existing assumptions, which is expected to result in initial AOCI adjustments that lower book value. The initial earnings impact is more complex to develop with many product specific factors to consider. Similar to most affected companies, we expect to be able to offer more details by mid-year. In closing, we're very pleased with 2021 results. We're also confident that we will be building from this success as we move forward.
2022 EPS is expected to be in the range of $3.45-$3.65, including the contribution from Madison's current business activity as well as initial contributions of the strategic growth initiatives that drive results in 2023 and beyond. We have strengthened Horace Mann's value proposition for the education market, and this sets the stage for significant profitable growth over the long- term to generate value for all of our stakeholders, which is reflected in our long-term targets, 10% average annual EPS growth, and a continuation of the double-digit ROEs we have delivered for the past several years. Thank you. With that, I'll turn it back to Heather.
Thank you, Bret. Operator, we're ready for questions.
We will now begin the question-and-answer session. To ask a question, you may press Star, then One on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star then Two. The first question is from Gary Ransom of Dowling & Partners. Please go ahead.
Yes, good morning. I wanted to focus on the rate versus loss trend in personal auto. Obviously, severity happens immediately and rates happen over time. Your guidance of a slightly worse loss ratio probably has a lot more front-end loaded in 2022. I just wondered if you could talk a little bit about what you're seeing on severity and sort of the timing of the corrective actions.
Yeah, Gary, thanks for your question. Very thoughtful, and as usual, part of the answer is embedded right there in the question. Before I turn it over to Mark on the specifics, I want to go back just a little bit and remind everyone of our focus on building a company with a sustained long-term double-digit ROE. One of the key levers of that ROE improvement was our auto loss ratio improvement. We did the hard work, which included reduction of PIF in some difficult places like Florida and Colorado and broader underwriting action that, you know, shrunk auto units, but it put us in a better position.
To give you a plug, your Dowling & Partners IBNR number 49, not that I read it, compared loss ratio improvement among the auto players and noted that Horace Mann had strong improvement compared to our peers. Of course, folks are starting to drive again. Of course, the lack of rate adequacy over the last few years in the industry would begin to catch up. We're not that far off from where we said we would be and where we thought we would be. Let me turn it over to Mark with some of the specifics regarding severity. Mark?
Yeah. First, I think it'd be good to give some context to our auto results. You know, when I look at the full- year and the quarter, results were actually fairly consistent with our expectations. I think as we noted in some prior calls, we expected the loss cost to return to pre-pandemic levels by the end of 2021 or early 2022. You know, clearly we're at that point. If we look at the underlying loss costs in Q4, they're about low- single- digit above where we were in 2019 before the pandemic. However, without the pandemic, with normal inflation, we would have expected loss costs to be up probably mid-single digits over the prior two- years. But clearly, I think the components of how we've got to this point are a bit different than we expected.
The overall accident frequency does remain somewhat lower than pre-pandemic levels, which I would attribute to 2 things. One, we still see some continued changes in driving patterns that haven't returned completely to normal from pre-pandemic patterns. Second, as Marita pointed out, a lot of the effort that we put into improving our book of business leading up to the pandemic, you know, we're starting to kind of realize some of that, you know, some of the actions we've taken. You know, she noted Florida as an example where our share of our PIF countrywide was about 7, you know, reached a high of nearly 7% of our PIF being in Florida, and now today we're down to just about 1%.
Those kind of actions have driven some additional frequency improvement that was a little bit harder to see, I think, during the pandemic. You know, as you appropriately pointed out, Gary, you know, offsetting that, clearly we've seen the same kind of severity trends that many in the industry are seeing, you know, inflationary-driven factors, whether it be increased pricing on used cars, supply chain issues, labor cost, and such. We're definitely seeing that. We do expect the inflationary pressures to continue into 2022. As Brett mentioned, we're taking some rate actions to address those. We're in the process of, you know, filing and implementing rate increases in over 30 states, representing about 75% of the premium.
Rate increases ranging between 5%-10%, you know, averaging in that 6.5%-7% range, as Bret mentioned, within those states. However, even with 70% of our policies being six-month policies, it's gonna take some time for that rate to earn in. As you point out, you know, the severity inflation is here today, the rate will earn in a little bit later, and therefore, we do expect some margin compression throughout 2022. As you pointed out, yes, it will be definitely more front-end loaded as the rate earning starts to accelerate towards the back half of the year.
Can you repeat one number?
Yeah, just two-
Oh, I just wanted to make sure I heard correctly.
Sorry, Gary.
You said 70% of your policies are six-month policies?
6-month. That's correct.
Okay, great. Thank you.
Yeah, just two quick clarifications or additions to that, Mark. Thank you for that detail. All that is included in our guidance, so we're contemplating that. It would be remiss of me not to say you got to remember our educator niche, you know, insulated but not immune. That doesn't change. The risk characteristics, the driving habits, the predictability, everything that comes with that educator niche is there, but they're not immune from some of the broader trends that we see. I just wanted to add those two points, Gary.
Right. Okay. You know, there are other things that you can potentially do that are beyond rate. Most of what I hear from other companies, they're talking about an independent agency system. That's one set of actions that are non-rate you could do. With your distribution, you know, on the one hand, maybe it limits what you can do to some extent, but on the other hand, maybe you can have a more coordinated action. I just wonder whether your distribution system, you know, helps you in any way to put in additional changes, you know, whether it's getting a rate on tiering, you know, somehow getting less new business, you know, kind of underwriting a little bit better. Any comments there would be helpful.
Yeah, Gary, I'll turn it over to Mark if he has any specifics in a minute. What I would say is we control our distribution, right?
Right.
We set the levers, we set the underwriting, and, you know, we control those yes and no decisions. We control the geographies and the levers that we pull in those geographies. I do believe we have a lot more control over that distribution. In addition to that, we also leverage some third-party vendors when it might not be appropriate for Horace Mann to take that risk or price that particular account. That allows us to continue to do our full value proposition and be present almost everywhere. We have some smaller states that maybe over time it doesn't make sense for us to be the paper in those states, and you may see us take some action in places when it doesn't make sense.
We have Massachusetts, where we clearly decided not to manufacture our own auto and to leverage another company in that regard. We use Progressive for non-standard so that we don't have to be in the world of trying to price non-standard business. We have a lot more control over our distribution and a lot more flexibility in what we accept, when we accept it, and how we price it. I don't know if you have anything to add to that, Mark.
Yeah, I think you're hitting all the right points, Marita. The only thing I would add to it is that, you know, if I'm in an independent agency environment and I'm taking a lot of rate or I'm pushing underwriting actions to, you know, re-underwrite or do premium pursuit type actions, in an independent agency environment, that agent quite often will just move the business to another company. One of the advantages, I think, in our distribution system is that, you know, our agents need to work with us, to keep that business and keep that customer. I think that does give us an advantage when we do need to take action, to improve the overall profitability profile.
The other point is where we put agents, right? We have complete control over that. We're not adding new agents in Florida. As a matter of fact, the good, strong agents we have in Florida are focusing on retirement and supplemental, and that's been extremely helpful to our bottom- line. We also have control over where we put them and how many we have. It's a good lever to have.
All right. Thank you very much. That's a good color.
Thank you, Gary.
Thanks.
The next question is from Greg Peters of Raymond James. Please go ahead.
Good morning, thank you for getting me into the queue this quarter. I wanted to step back and have you give us an update on the expense structure of the organization. You know, we hear so many other companies commenting on how they're trying to, through technology transformation and other initiatives, improve the expense ratio component of their operations. Clearly, the acquisition will help to leverage your expense structure. I was looking for further color as we think about, you know, the outlook for expenses, not only just in property casualty, but the other businesses and how you're thinking about it, you know, for this and next year.
Yeah, Greg, this is Bret Conklin. A very, very well-stated question. I guess as it relates to expenses in general, with you tracking us, you know, I think we do a very good job of managing our expenses. If you go back to our journey, if you will, in addition to improving the auto profitability that Marita mentioned a little bit in responding to Gary, we also, you know, a couple of years back had an initiative to, if you will, rightsize our expenses and took out about, you know, $30 million over a couple-year period. As you mentioned, yes, we have done some additional acquisitions, and there will be additional expenses that come from adding Madison National. Obviously, we do target ratios as a percentage of revenues.
One of the things that we have planned for 2022 is we're always gonna have some strategic spend in our budget. As I think Marita had in her prepared remarks, obviously, we do wanna spend strategically in the areas of auto growth, cross-sell, digital capabilities. We still are completing our full modernization of P&C, i.e. Guidewire, and also Mike Weckenbrock and his team are, you know, undertaking some life modernization as well. All the while keeping that, you know, under control, if you will. I would say I hope we always have a certain amount of strategic spend every year. It might be different strategic spend, but obviously, you know, with growth, we can absorb some.
Yes, we'll, you know, I think we've talked about Madison National as just bolted on in our 2022, you know, plan numbers from premium expenses, et cetera. We'll look at, you know, making the most efficient use of, you know, the consolidated entity. I think, you know, you'll see that, you know, the expenses, yes, we are gonna spend a little bit more strategically, certainly in the growth area.
Yeah, Bret, very, very well said. One thing to add is I'm actually very proud of our expense work and, the discipline we've had on expenses. When I think about the transformational stage of our journey, I think about three acquisitions, and all the expenses that come with those acquisitions absorbed. I think about a reinsurance transaction that could have potentially put some pressure on ratios.
I think about the strategic investments that Bret talked about, all funded for, rather than coming, you know, out to the street and saying, "Here's what it's gonna cost and expect X% increase in our expenses." We kind of did it in the normal course of our strategy, and I'm proud about that, and I think we've been pretty transparent on our expense picture, on our spend, and the value of those spends. Thanks for the question.
That's a good color. The second question I had, pivoting to your guidance on investment income. You know, I was looking at, I think it's slide page 30 of your slide deck where you go through the returns on AOP portfolio in 2021, and you suggested it's gonna return to normal. You know, how do we look at, say, the market volatility, you know, on a year-to-date basis and sort of factor that into our assumptions? You know, are we gonna see some increased volatility on a quarterly basis because of this as we map out 2022? Or just give us some added perspective. That was my last question.
Sure. This is Ryan Greenier here. Thanks for the question. You know, in guidance, we model our returns for the limited partnership portfolio very similar to how we think about P&C catastrophes. You know, we take historical average, just given the inherent lumpiness, if you will, of the third of the portfolio that is more equity sensitive. You know, that number is in the mid-8% range for the limited partnership portfolio. When you speak of volatility, you know, most of our outperformance in 2021 came from private equity and venture capital strategies, which, you know, obviously those returns are highly correlated to the equity market. When I think about that third of the overall portfolio that is more volatile, that is probably the largest driver, Greg, and, you know, to a lesser extent, high- yield spreads.
You know, when we think about it, you know, we will, as we move through the year, when we provide guidance updates, we bake in outperformance or underperformance in the LP portfolio, but we always use a forward-looking assumption that reflects our historic average performance.
Got it. Thanks for the color.
Sure.
The next question is from Meyer Shields of KBW. Please go ahead.
Thanks. I was hoping for an update on agent retention in terms of whether the Great Resignation or the, you know, I guess, legitimate questions of the stresses on educators. Is that having an impact on the ability to attract and retain agents?
Yeah. Thanks for the question. You know, it's certainly been a very volatile year or two years almost now for our agents. But I think that in some strange way, it's increased their resolve. It's reminded them of why they do what they do. It's allowed them to make an even bigger impact in the lives of the educators. And I think they jumped into this environment, as they usually do, with both feet. What we saw in 2021, quarter-over-quarter, were pretty consistent, almost to the number, steady numbers, agency count, throughout the year. Certainly, in this world, you see retirements that maybe you didn't expect. We didn't see as many as we actually expected when you think about the great retirement, the great resignation, the great rotation, regardless of the label people are putting on it.
You know, what we're seeing is maybe in our own way, this mission-driven, cause-centric world that we live in as a company has really given people purpose and really bound them to what we do as an organization. We've seen our numbers hold. We also said, you know, on the last call that we felt good about our recruiting efforts. Those are continuing. You know, we did focus on, you know, the integration of NTA agents, getting them to know Horace Mann, our other products, potential cross-sell down the road, concentrating on learning and building with Madison National's distribution partners. We had plenty to do, but our overall agent plant has remained probably more steady than we would have anticipated.
Okay, that's fantastic. Also, Marita Zuraitis, you mentioned that you use Progressive as your non-standard underwriter, and I think you've communicated that in the past. What's the impact to Horace Mann when Progressive temporarily doesn't want to grow because of its own concerns about rate adequacy?
Yeah, I mean, it is a great question. We don't just have Progressive in the Horace Mann general agency, we have other options. There are times where you would say to an educator, you truly have a non-standard risk, and we're not a non-standard company. Our agents have relationships locally with other agencies that might be able to help that customer out, but we don't ever feel compelled to take that on. There's plenty of other things we're doing with that customer, right? You know, we're having student loan discussions, we're having DonorsChoose discussions, we're doing Financial Wellness, and sometimes we're just not the right place for the auto, but we don't get extra pressure. We haven't really found a lot of cases where Progressive wouldn't be there.
They would normally have a price point that would be appropriate because you've got to remember, there's non-standard, and then there's educator non-standards. I would say that you know, Progressive is happy with our loss ratio and happy with our book of business. For the most part, they want you know, whatever we'd be willing to send their way. It's been a good relationship.
Okay, perfect. Thank you so much.
You're welcome.
The next question is from John Barnidge of Piper Sandler. Please go ahead.
Thank you. I wanted to go back to your comment in the guidance about 35% loss ratio for voluntary products and 50% for employer-paid products. Could you maybe talk about the mix between those two different products so we can maybe arrive at a blended number?
Matt, do you wanna take that?
Sure. Happy to. Thanks for the question, John. In 2021, roughly half of the new sales came from each one of those products. Looking forward to 2022, that mix is likely to change a little heavier towards the individual product versus the group product. The other thing to note between the two products is both of those products are priced for a double-digit ROE, and what you're seeing in the difference between those loss ratios is just the product structure and the distribution methodology that happens between those two products.
That's very helpful. Thank you very much. Maybe sticking with supplemental, if we think about the commentary around continued supplemental sales improvement, can you maybe talk about what the assumed sales growth is in legacy supplemental for the contribution from Madison National for 2022? Thank you for the answers.
I'll be happy to answer that question if it's okay, Marita.
Absolutely.
As you look forward to sales in 2022, we're eager to return back to the pre-COVID levels. It looks like momentum is on our side and public sentiment appears to be on our side in terms of keeping the school buildings open. As long as the school buildings remain open and our access starts to improve, I would expect the individual product sales to continue to progress back towards the pre-pandemic levels. Whether we reach the pre-pandemic levels by the end of this year is yet to be seen. Only time will be able to tell, but we're optimistic that we'll be making significant progress back towards that number. On the Madison National side, we don't have any numbers this quarter 'cause they weren't part of the company in the last quarter.
As you look forward, they're not an individual sales environment. They're a corporate sales environment, meaning they sell from the top of the district down, and they're employer-paid benefits, so they're not really impacted as significantly as we were impacted due to the lack of access to the district buildings on an individual basis.
That's very helpful. Thank you very much. Best of luck.
Thank you, John.
Thanks, John.
This concludes our question and answer session. I would like to turn the conference over to Heather Wetzel for closing remarks.
Thank you, and thank you everyone for joining us today. We look forward to talking to everyone soon. Feel free to reach out if you have additional questions. I would point out we are, at this point, planning to attend in person both the APA and Raymond James conferences, and it will be a great chance to catch up with people again in person for the first time in a few years. Reach out with questions. Otherwise, have a great day, and thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.