HORACE MANN EDUCATORS CORP /DE/

(1) In the second quarter of 2025, the Company recorded a reduction in net investment income due to an immaterial out-of-period correction of an error. See additional disclosure contained in Note 1 of the December 31, 2025 Form 10-K.

Net Premiums and Contract Charges Earned

For 2025, net premiums and contract charges earned increased $82.4 million due to sales* growth and implemented rate and inflation adjustments in the Property & Casualty segment and strong growth from higher sales* in Supplemental and Group Benefits.

Total net investment income in 2025 increased $18.6 million, primarily due to improved core fixed income, commercial mortgage loan fund results, and strong limited partnership returns. 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 $28.8 million. The annualized investment yield on the portfolio excluding limited partnership interests* was as follows:

(1) In the second quarter of 2025, the Company recorded a reduction in net investment income due to an immaterial out-of-period correction of an error. See additional disclosure contained in Note 1 of the December 31, 2025 Form 10-K.

During 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. The company continues to deploy capital in accordance with its strategic asset allocation framework, with the objective of maintaining diversification while balancing risk and return. Investments are allocated across public and private fixed income strategies, commercial mortgage loan funds, and limited partnership interests based on relative value considerations, portfolio capacity, and income objectives.

Net Investment Losses

For 2025, net investment losses decreased $4.3 million. The breakdown of net investment gains (losses) by transaction type were as follows:

From time to time, we may sell fixed maturity securities subsequent to the reporting date that were considered temporarily impaired at the reporting date. Generally, such sales are due to issuer specific events occurring subsequent to the reporting date that result in a change in our intent to hold a fixed maturity security.

Other Income

For 2025, other income increased $0.9 million.

Benefits, Claims and Settlement Expenses

For 2025, benefits, claims and settlement expenses decreased $33.5 million due to lower catastrophe losses and improved underlying loss ratios* in the Property & Casualty segment.

Interest Credited

For 2025, interest credited increased $1.0 million, driven primarily by higher credited rates on the retained annuity block. This was mostly offset by lower interest rates on advances received from the Federal Home Loan Bank of Chicago (FHLB) and lower interest credited related to our reinsured annuity block.

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% for 2025 and 3.2% for 2024.

Operating Expenses

For 2025, operating expenses increased $51.1 million reflecting investments being made in technology, marketing, and distribution to help drive efficiencies and growth. 2025 operating expenses also reflected costs related to the termination of the Horace Mann Pension Plan and elevated donations to the Horace Mann Educators Foundation.

Deferred Policy Acquisition Costs (DAC) Amortization Expense

For 2025, DAC amortization expense increased $13.4 million, primarily due to premium increases in the Property & Casualty segment driving higher DAC asset levels.

Interest Expense

For 2025, interest expense increased $1.8 million, due to an increase in the level of debt associated with the issuance of the 2025 Senior Notes that were used to repay the 2015 Senior Notes.

Income Tax Expense (Benefit)

The effective income tax rate on our pretax income, including net investment gains (losses) was 19.4% and 20.1% for the years ended December 31, 2025 and 2024, respectively. Income from investments in tax-advantaged securities reduced the effective income tax rate by 2.4 and 3.4 percentage points for 2025 and 2024, respectively. For the year ended December 31, 2025, the effective tax rate was further reduced by 0.7 percentage points as a result of purchases of transferable tax credits to be utilized for the 2025 tax year.

We record liabilities for uncertain tax filing positions when it is more likely than not that the position will not be sustainable upon audit by taxing authorities. These liabilities are reevaluated routinely and are adjusted appropriately based on changes in facts or law. We have no unrecorded liabilities from uncertain tax filing positions.

As of December 31, 2025, our federal income tax returns for years prior to 2022 are no longer subject to examination by the Internal Revenue Service. We do not expect any assessments for tax years that remain subject to examination to have a material effect on our financial position or results of operations. On July 4, 2025, the One Big Beautiful Bill Act was enacted into U.S. law, introducing various business tax reforms. We do not expect this legislation to have a material impact on our effective tax rate, financial condition, or results of operations. See Part II - Item 8, Note 11 of the Consolidated Financial Statements in this Annual Report on Form 10-K for further information.