HORACE MANN EDUCATORS CORP /DE/

Previous wording

Measures within this MD&A that are not based on accounting principles generally accepted in the United States of America (non-GAAP) are marked with an asterisk (*) the first time they are presented within this Part I - Item 2. An explanation of these measures is contained in the Glossary of Selected Terms included as Exhibit 99.1 to this Quarterly Report on Form 10-Q and are reconciled to the most directly comparable measures prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) in the Appendix to the Company's Second Quarter 2025 Investor Supplement.

Current wording

Measures within this MD&A that are not based on accounting principles generally accepted in the United States of America (non-GAAP) are marked with an asterisk (*) the first time they are presented within this Part I - Item 2. An explanation of these measures is contained in the Glossary of Selected Terms included as Exhibit 99.1 to this Quarterly Report on Form 10-Q and are reconciled to the most directly comparable measures prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) in the Appendix to the Company's Third Quarter 2025 Investor Supplement.

Previous wording

Statements made in this Quarterly Report on Form 10-Q that are not historical in nature are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to known and unknown risks, uncertainties and other factors. Horace Mann Educators Corporation (referred to in this Quarterly Report on Form 10-Q as "we", "our", "us", the "Company", "Horace Mann" or "HMEC") is an insurance holding company. We are not under any obligation to (and expressly disclaim any such obligation to) update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. It is important to note that our actual results could differ materially from those projected in forward-looking statements due to a number of risks and uncertainties inherent in our business. Also, see Part I - Items 1 and 1A in our Annual Report on Form 10-K for the year ended December 31, 2024 for additional information regarding risks and uncertainties.

Current wording

unknown risks, uncertainties and other factors. Horace Mann Educators Corporation (referred to in this Quarterly Report on Form 10-Q as "we", "our", "us", the "Company", "Horace Mann" or "HMEC") is an insurance holding company. We are not under any obligation to (and expressly disclaim any such obligation to) update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. It is important to note that our actual results could differ materially from those projected in forward-looking statements due to a number of risks and uncertainties inherent in our business. Also, see Part I - Items 1 and 1A in our Annual Report on Form 10-K for the year ended December 31, 2024 for additional information regarding risks and uncertainties.

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Our vision is to be the company of choice to provide insurance and financial solutions for all educators and others who serve their communities, whether they engage with Horace Mann directly or through their district/employer. We believe the unique value of Horace Mann is providing solutions tailored for educators at each stage of their lives, empowering them to achieve lifelong financial success. Our motivation stems from our gratitude for educators: They are looking after our children's futures, and we believe they deserve someone to

Current wording

Our vision is to be the company of choice to provide insurance and financial solutions for all educators and others who serve their communities, whether they engage with Horace Mann directly or through their district/employer. We believe the unique value of Horace Mann is providing solutions tailored for educators at each stage of their lives, empowering them to achieve lifelong financial success. Our motivation stems from our gratitude for educators: They are looking after our children's futures, and we believe they deserve someone to look after theirs. Our commitment to having a positive impact on our customers' lives extends to all our corporate stakeholders, including employees, agents, investors and the communities where we live and work.

Previous wording

For the three and six months ended June 30, 2025, net income increased $25.6 million and $37.3 million, respectively, primarily due to improved Property & Casualty segment results reflecting the effect of rate and non-rate underwriting actions as well as the impact of lower catastrophe losses.

Current wording

For the three and nine months ended September 30, 2025, net income increased $24.0 million and $61.3 million, respectively, primarily due to improved Property & Casualty segment results reflecting both the actions the Company has taken to reduce earnings volatility, and to a larger degree, unusually less severe weather activity including the impact of lower catastrophe losses.

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For the three and six months ended June 30, 2025, net premiums and contract charges earned increased $21.7 million and $44.8 million, as the Property & Casualty segment continues to implement rate and inflation adjustments to coverage values.

Current wording

For the three and nine months ended September 30, 2025, net premiums and contract charges earned increased $21.2 million and $66.0 million, as the Property & Casualty segment continues to implement rate and inflation adjustments to coverage values and the Company sees strong growth in our Supplemental and Group Benefits segment.

Previous wording

For the three and six months ended June 30, 2025, total net investment income increased $2.4 million and $12.9 million. The increase for the quarter is primarily due to continued strong returns from our fixed income portfolio and higher returns from our commercial mortgage loan and limited partnership funds. Excluding the reduction in net investment income due to an immaterial out-of-period correction of an error of $10.2 million, net investment income increased $12.6 million and $23.1 million for the three and six months ended June 30, 2025. The annualized investment yield on the portfolio excluding limited partnership interests* was as follows:

Current wording

For the three and nine months ended September 30, 2025, total net investment income increased $6.6 million and $19.5 million. The increase for the quarter is primarily due to continued strong returns from our fixed income portfolio and higher returns from our limited partnership funds. Excluding the reduction in net investment income due to an immaterial out-of-period correction of an error of $10.2 million, net investment income increased $29.7 million for the nine months ended September 30, 2025. The annualized investment yield on the portfolio excluding limited partnership interests* was as follows:

Previous wording

The higher investment yields, excluding limited partnership interests, for the six months ended June 30, 2025 reflected stronger income from the fixed income portfolios.

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The higher investment yields, excluding limited partnership interests, for the nine months ended September 30, 2025 reflected stronger income from the fixed income portfolios.

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securities that would be inconsistent with our overall investment guidelines for the core portfolio. We continue to fund at levels that allow us to maintain our targeted allocation to commercial mortgage loan funds and limited partnership interests while maintaining balance between principal protection and risk.

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During the three and nine months ended September 30, 2025, we continued to identify and purchase investments with attractive risk-adjusted yields relative to market conditions without venturing into asset classes or individual securities that would be inconsistent with our overall investment guidelines for the core portfolio. We continue to fund at levels that allow us to maintain our targeted allocation to commercial mortgage loan funds and limited partnership interests while maintaining balance between principal protection and risk.

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For the three and six months ended June 30, 2025, total net investment losses were comparable to prior year and increased by $5.5 million, respectively. The breakdown of net investment gains (losses) by transaction type were as follows:

Current wording

For the three and nine months ended September 30, 2025, total net investment losses were comparable to prior year and increased by $6.0 million, respectively. The breakdown of net investment gains (losses) by transaction type were as follows:

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For the three and six months ended June 30, 2025, other income decreased $0.5 million and increased $1.8 million, respectively.

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For the three and nine months ended September 30, 2025, other income decreased $0.9 million and increased $0.9 million, respectively.

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Benefits, claims and settlement expenses decreased $23.8 million for the three months ended June 30, 2025 due to lower catastrophe losses and underlying losses in the Property & Casualty segment as well as lower life mortality. Benefits, claims and settlement expenses decreased $16.9 million for the six months ended June 30, 2025 due to lower catastrophe losses and underlying losses in the Property & Casualty segment which were partially offset by higher benefits for long term disability in Group.

Current wording

For the three and nine months ended September 30, 2025, benefits, claims and settlement expenses decreased $20.3 million and $37.2 million due to lower catastrophe losses and underlying losses in the Property & Casualty segment as well as lower Life benefits related to assumption changes during the quarter.

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For the three and six months ended June 30, 2025, interest credited decreased $1.1 million and $1.2 million.

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For the three and nine months ended September 30, 2025, interest credited increased $0.9 million and $1.2 million.

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Under the deposit method of accounting, the interest credited on the reinsured annuity block continues to be reported. The average deferred annuity credited rate, excluding the reinsured annuity block, was 3.3% and 3.1% as of June 30, 2025 and June 30, 2024, respectively.

Current wording

Under the deposit method of accounting, the interest credited on the reinsured annuity block continues to be reported. The average deferred annuity credited rate, excluding the reinsured annuity block, was 3.4% and 3.1% as of September 30, 2025 and September 30, 2024, respectively.

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For the three and six months ended June 30, 2025, operating expenses increased 16.7% and 12.1%, reflecting inflation, investments being made in growth initiatives and infrastructure, and increased compensation accruals driven by better than expected results.

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For the three and nine months ended September 30, 2025, operating expenses increased $13.4 million and $33.6 million, reflecting continued investments in growth and higher incentives driven by better than expected results.

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For the three and six months ended June 30, 2025, DAC amortization expense increased $2.9 million and $5.5 million, primarily due to premium increases in the Property & Casualty segment driving higher commission and underwriting expenses which increase DAC asset levels.

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For the three and nine months ended September 30, 2025, DAC amortization expense increased $3.4 million and $8.9 million, primarily due to premium increases in the Property & Casualty segment driving higher commission and underwriting expenses which increase DAC asset levels.

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For the three and six months ended June 30, 2025, intangible asset amortization expense decreased $0.1 million and $0.1 million.

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For the three and nine months ended September 30, 2025, intangible asset amortization expense was flat with prior year.

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For the three and six months ended June 30, 2025, interest expense decreased $0.1 million and increased $0.1 million, respectively.

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For the three and nine months ended September 30, 2025, interest expense increased $0.2 million and $0.3 million, respectively.

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The effective income tax rate on our pretax income, including net investment gains (losses), was 19.5% and 19.4% for the six months ended June 30, 2025 and 2024, respectively. Income from investments in tax-advantaged securities decreased the effective income tax rates by 2.4 and 3.1 percentage points for the six months ended June 30, 2025 and 2024, respectively.

Current wording

The effective income tax rate on our pretax income, including net investment gains (losses), was 19.0% and 19.6% for the nine months ended September 30, 2025 and 2024, respectively. Income from investments in tax-advantaged securities decreased the effective income tax rates by 2.0 and 2.8 percentage points for the nine months ended September 30, 2025 and 2024, respectively. The effective tax rate for the nine months ended September 30, 2025 was further reduced by 1.2 percentage points due to purchases of transferable tax credits, which are expected to be used in the 2025 tax year. The company has outstanding commitments of $23.0 million related to such purchases as of September 30, 2025.

Previous wording

On July 4, 2025, the One Big Beautiful Bill Act was signed into U.S. law, introducing a broad range of business tax reform provisions. The Company has evaluated the law's provisions on our operations and we do not expect the legislation to have a material impact on our financial statements or effective tax rate. Because the law was enacted after the close of the second quarter, no impacts for this legislation are reflected in results for the six months ended June 30, 2025.

Current wording

On July 4, 2025, the One Big Beautiful Bill Act was signed into U.S. law, introducing a broad range of business tax reform. The Company does not expect the new legislation to have a material impact on its ongoing effective tax rate or financial condition.

Previous wording

At the time of issuance of this Quarterly Report on Form 10-Q, we estimate that 2025 full year core earnings* will be within a range of $4.15 to $4.45 per diluted share, generating a core return on equity* of 10%+. These results anticipate the following:

Current wording

At the time of issuance of this Quarterly Report on Form 10-Q, we estimate that 2025 full year core earnings* will be within a range of $4.50 to $4.70 per diluted share, generating a core return on equity* of over 10%. These results anticipate the following:

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•Property & Casualty segment target profitability of Auto in the mid-90s Combined Ratio and Property at a 90 or below Combined ratio with ~$90 million of catastrophe losses, in line with five-year historical averages

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•Property & Casualty segment target profitability of Auto in the mid-90s Combined Ratio and Property at a 90 or below Combined ratio with ~$65 million of catastrophe losses

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•Net investment income between $470 million and $480 million pre-tax, or $370-$380 million excluding the accreted investment income on the deposit asset on reinsurance in the Life & Retirement segment

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•Net investment income between $473 million and $477 million pre-tax, or $373-$377 million excluding the accreted investment income on the deposit asset on reinsurance in the Life & Retirement segment

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•Approximately $35 million to $40 million in corporate Interest expense and other items included in results for the Corporate & Other segment

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•Approximately $40 million to $45 million in corporate Interest expense and other items included in results for the Corporate & Other segment

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The Property & Casualty segment primarily markets private passenger auto insurance and residential home insurance. Horace Mann offers standard auto coverages, including liability, collision and comprehensive. Property coverage includes both homeowners and renters policies. For both auto and property coverage, Horace Mann offers educators a discounted rate and the Educator Advantage® package of features. The Property & Casualty segment represented 51% of total revenues in 2024.

Current wording

The Property & Casualty segment primarily markets private passenger auto insurance and residential home insurance. Horace Mann offers standard auto coverages, including liability, collision and comprehensive. Property coverage includes both homeowners and renters policies. For both auto and property coverage, Horace Mann offers educators a discounted rate and the Educator Advantage® package of features. The Property & Casualty segment represented 49% of total revenues in 2024.

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•Catastrophe losses lower than prior year by 7.8 points and 4.4 points for the three and six months, respectively

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•Catastrophe losses lower than prior year by 13.3 points and 7.5 points for the three and nine months, respectively

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•Higher net investment income driven by limited partnership portfolio

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•Higher net investment income driven by limited partnership portfolio and the fixed income portfolio

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The Property & Casualty segment three and six month net income of $16.5 million and $43.3 million, as well as the three month and six month combined ratio of 97.0% and 93.3%, respectively, reflected the positive effect of rate and non-rate actions as well as catastrophe losses below prior year and recent prior periods.

Current wording

The Property & Casualty segment three and nine month net income of $31.8 million and $75.1 million, as well as the three month and six month combined ratio of 87.8% and 91.4%, respectively, reflected improved current year underlying results and catastrophe losses below prior year and recent prior periods.

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The current quarter reflects an increase in net premiums written* of 6.1%, with average written premiums* rising for both property and auto. Sales* were steady for the quarter, up 5.5% from the prior year, and household retention remains in line with expectations.

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The current quarter reflects an increase in net premiums written* of 9.3%, with average written premiums* rising for both property and auto. Sales* were steady for the quarter, up 5.4% from the prior year, and household retention remains in line with expectations.

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The three and six month loss ratios decreased 16.2 and 13.5 points from last year reflecting higher average premiums and catastrophe losses that were below recent prior periods. In addition, $5.5 million and $10.8 million of net favorable prior years' reserve development for the three and six months reduced the loss ratio 2.8 points for both comparisons. Catastrophe losses for the quarter were $29.7 million, pretax, contributing 15.0 points to the combined ratio. In total, there were 20 events designated as catastrophes by Property Claims Services (PCS) in this year’s second quarter. The lower catastrophe losses are driven by lower frequency and severity of policyholder claims. In the second quarter of 2024, catastrophe losses were $40.9 million, pretax, contributing 22.8 points to the combined ratio, from 28 PCS events.

Current wording

The three and nine month loss ratios decreased 11.7 and 12.8 points from last year reflecting higher average premiums and catastrophe losses that were below recent prior periods. In addition, $3.0 million and $13.8 million of net favorable prior years' reserve development for the three and nine months reduced the loss ratio 1.5 and 2.3 points, respectively. Catastrophe losses for the quarter were $9.9 million, pretax, contributing 4.8 points to the combined ratio. In total, there were 14 events designated as catastrophes by Property Claims Services (PCS) in this year’s third quarter. The lower catastrophe losses are driven by lower frequency and severity of policyholder claims. In the third quarter of 2024, catastrophe losses were $34.0 million, pretax, contributing 18.1 points to the combined ratio, from 20 PCS events.

Previous wording

The year-over-year increase in average written premiums* for auto policies remained elevated in the second quarter at 8.8%, with retention declining slightly, and in line with expectations, given substantial rate increases. The second-quarter auto underlying loss ratio* was 68.7%, improving 5.5 points from the prior year quarter, reflecting the benefit of higher average earned premium. The second quarter reported loss ratio benefited 1.2 points from favorable prior years' reserve development.

Current wording

The year-over-year increase in average written premiums* for auto policies remained elevated in the third quarter at 6.6%, with retention consistent with the second quarter, and in line with expectations, given the rate actions the Company has taken. The third-quarter auto underlying loss ratio* was 66.6%, improving 4.9 points from the prior year quarter, reflecting the benefit of higher average earned premium. The third quarter reported loss ratio benefited 0.2 points from favorable prior years' reserve development.

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The year-over-year increase in average written premiums* for property policies was 11.6% in the second quarter, as rate increases and inflation adjustments to coverage values continue to take effect. Policyholder retention remains strong. The second-quarter property underlying loss ratio* was 36.8%, a 14.1 point decrease from prior year reflecting the increase in average earned premium* and lower frequency and severity.

Current wording

The year-over-year increase in average written premiums* for property policies was 13.8% in the third quarter, as rate increases and inflation adjustments to coverage values continue to take effect. Policyholder retention remains strong. The third-quarter property underlying loss ratio* was 41.2%, a 0.2 point decrease from prior year reflecting the increase in average earned premium*. The third quarter reported loss ratio benefited 3.6 points from favorable prior years' reserve development.

Previous wording

The Life & Retirement segment markets 403(b) tax-qualified fixed, fixed indexed and variable annuities; the Horace Mann Retirement Advantage® open architecture platform for 403(b)(7) and other defined contribution plans; and other retirement products to educators as well as traditional term and whole life insurance products. Horace Mann is one of the largest participants in the K-12 educator portion of the 403(b) tax-qualified annuity market, measured by 403(b) net premiums written on a statutory accounting basis. The Life & Retirement segment represented 32% of total revenues in 2024.

Current wording

The Life & Retirement segment markets 403(b) tax-qualified fixed, fixed indexed and variable annuities; the Horace Mann Retirement Advantage® open architecture platform for 403(b)(7) and other defined contribution plans; and other retirement products to educators as well as traditional term and whole life insurance products. Horace Mann is one of the largest participants in the K-12 educator portion of the 403(b) tax-qualified annuity market, measured by 403(b) net premiums written on a statutory accounting basis. The Life & Retirement segment represented 34% of total revenues in 2024.

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•Benefits expense in Life decreased due to lower mortality in the current year

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•Benefits expense in Life decreased due to annual assumption updates related to mortality for both comparisons

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•Annualized quarterly net interest spread on fixed annuities up 30 basis points

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•Annualized quarterly and nine month net interest spread on fixed annuities up 3 basis points and 28 basis points, respectively

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Life & Retirement segment net income for the three and six months ended June 30, 2025, of $20.0 million and $26.8 million was up 62.6% and 11.7%, primarily due to favorable benefits in the Life segment and higher net investment income. Life benefits reflected lower mortality costs in the current quarter compared to the prior year. On a year-to-date basis, mortality costs remain within our expected actuarial range. The net spread increase reflects lower borrowing costs and increased advances from our FHLB funding agreements compared with 2024. Excluding the reduction in net investment income due to an immaterial out-of-period correction of an error of $6.7 million ($5.3 million after tax), net investment income increased $8.2 million and $11.5 million for the three and six months ended June 30, 2025.

Current wording

Life & Retirement segment net income for the three and nine months ended September 30, 2025, of $16.9 million and $43.7 million was up 14.2% and 12.6%, primarily due to favorable benefits in the Life segment for both comparisons and higher net investment income for the nine month comparison. Life benefits reflected favorable assumption changes related to mortality costs in the current quarter compared to the prior year. On a year-to-date basis, mortality costs remain within our expected actuarial range. The net spread increase reflects lower borrowing costs and increased advances from our FHLB funding agreements compared with 2024. Excluding the reduction in net investment income due to an immaterial out-of-period correction of an error of $6.7 million ($5.3 million after tax), net investment income increased $10.9 million for the nine months ended September 30, 2025.

Previous wording

For the Retirement business, net annuity contract deposits were up 7.8% for the quarter at $110.2 million. Educators continue to begin their relationship with Horace Mann through 403(b) retirement savings products, which provide encouraging cross-sell opportunities. Average persistency rose from the prior period to 91.7%.

Current wording

For the Retirement business, net annuity contract deposits were up 9.3% for the quarter at $138.6 million. Educators continue to begin their relationship with Horace Mann through 403(b) retirement savings products, which provide encouraging cross-sell opportunities. Average persistency rose from the prior period to 92.0%.

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Horace Mann currently has $5.7 billion in annuity assets under management, including $2.2 billion of fixed annuities, $3.1 billion of variable annuities and $0.4 billion of fixed indexed annuities. Assets under administration, which includes Horace Mann Retirement Advantage® and other advisory and recordkeeping assets, were up due to the effect of equity market performance on assets.

Current wording

Horace Mann currently has $5.9 billion in annuity assets under management, including $2.2 billion of fixed annuities, $3.3 billion of variable annuities and $0.4 billion of fixed indexed annuities. Assets under administration, which includes Horace Mann Retirement Advantage® and other advisory and recordkeeping assets, were up due to the effect of equity market performance on assets.

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Life annualized sales* were $2.5 million for the quarter. Persistency remains strong. Life insurance in force rose to $21.2 billion at quarter-end.

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Life annualized sales* were $2.9 million for the quarter. Persistency remains strong. Life insurance in force rose to $21.4 billion at quarter-end.

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We actively manage our interest rate risk exposure, considering a variety of factors, including earned interest rates, credited interest rates and the relationship between the expected durations of assets and liabilities. We

Current wording

We actively manage our interest rate risk exposure, considering a variety of factors, including earned interest rates, credited interest rates and the relationship between the expected durations of assets and liabilities. We estimate that over the next 12 months approximately $833.6 million of the Life & Retirement investment portfolio and related investable cash flows will be reinvested at current market rates.

Previous wording

As a general guideline, based on our existing policies and investment portfolio, the impact from a 100 basis point decline in the average reinvestment rate would reduce Life & Retirement net investment income by approximately $2.4 million in year one and $4.7 million in year two, reducing the annualized net interest spread on fixed annuities by approximately 9 basis points and 17 basis points in the respective periods, compared to the current period annualized net interest spread on fixed annuities. We could also consider potential changes in rates credited to policyholders, tempered by any restrictions on the ability to adjust policyholder rates due to guaranteed minimum crediting rates.

Current wording

As a general guideline, based on our existing policies and investment portfolio, the impact from a 100 basis point decline in the average reinvestment rate would reduce Life & Retirement net investment income by approximately $2.6 million in year one, reducing the annualized net interest spread on fixed annuities by approximately 10 basis points, compared to the current period annualized net interest spread on fixed annuities. We could also consider potential changes in rates credited to policyholders, tempered by any restrictions on the ability to adjust policyholder rates due to guaranteed minimum crediting rates.