HORACE MANN EDUCATORS CORP /DE/

Total net investment income includes net investment income from our managed investment portfolio as well as accreted investment income from the deposit asset on reinsurance related to our reinsured block of approximately $2.3 billion of fixed annuity liabilities related to legacy individual annuities written in 2002 or earlier.

(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 2025 Form 10-K.

For the full year, total net investment income rose 4.2% and net investment income on the managed portfolio increased 6.4%. The full-year increase reflected the benefit from higher interest rates in the fixed-income portfolios. Excluding the reduction in net investment income due to an immaterial out-of-period correction of an error disclosed in Note 1, total net investment income increased $28.8 million, 6.5%. Investment yield on the portfolio excluding limited partnership interests was 4.6%, with new money yields continuing to exceed portfolio yields in the core fixed maturity securities portfolio.

For 2025, pretax net investment losses decreased $4.3 million primarily due to changes in fair values of equity securities and normal portfolio management activity. Pretax net unrealized investment losses on fixed maturity securities as of December 31, 2025 were $312.1 million compared to pretax net unrealized investment losses of $454.5 million as of December 31, 2024, reflecting lower interest rates, driven primarily by a decrease in the 10-year U.S. Treasury yield, which ended the year lower by 40 basis points.

Fixed Maturity and Equity Securities Portfolios

The table below presents our fixed maturity and equity securities portfolio by major asset class, including the 10 largest sectors of our corporate bond holdings (based on fair value).

(1)The All other corporates category contains 21 additional industry sectors. Food and beverage, telecommunications, industry-manufacturing, retail, and leisure-entertainment represented $188.8 million of fair value at December 31, 2025, with the remaining 17 sectors each representing less than $29.8 million.

(2)As of December 31, 2025, 100% were investment grade, with an overall credit rating of AA, and the positions were well diversified by property type, geography and sponsor.

(3)Holdings are geographically diversified, 41.6% are tax-exempt and 77.5% are revenue bonds tied to essential services, such as mass transit, water and sewer. The overall credit quality of the municipal bond portfolio was AA- as of December 31, 2025.

(4)Based on fair value, 99.9% of the collateralized loan obligation securities were rated investment grade based on ratings assigned by a nationally recognized statistical ratings organization (NRSRO - S&P, Moody's, Fitch, DBRS, Egan Jones and Kroll).

As of December 31, 2025, our diversified fixed maturity securities portfolio consisted of 4,002 investment positions, issued by 2,652 entities, and totaled approximately $5.7 billion in fair value. This portfolio was 97.6% investment grade, based on fair value, with an average credit quality rating of A+. Our investment guidelines target single corporate issuer concentrations to 0.5% of invested assets for AA or AAA rated securities, 0.35% of invested assets for A or BBB rated securities, and $5.0 million for non-investment grade securities.

Rating of Fixed Maturity Securities and Equity Securities (1)

The following table presents the composition and fair value of our fixed maturity and equity securities portfolios by rating category. As of December 31, 2025, 96.2% of these combined portfolios were investment grade, based on fair value, with an overall average credit quality rating of A+. We have classified the entire fixed maturity securities portfolio as available for sale, which is carried at fair value.

(1)Ratings are as assigned by a NRSRO when available. If no rating is available from a NRSRO, then a rating provided by the investment manager is used. Ratings for publicly traded securities are determined when the securities are acquired and are updated monthly to reflect any changes in ratings.

(2)As of December 31, 2025, the AA rated fair value amount included $357.6 million of U.S. Government and federally sponsored agency securities and $744.5 million of mortgage-backed and other asset-backed securities issued by U.S. Government and federally sponsored agencies.

(3)This category primarily represents private placement and municipal securities not rated by a NRSO.

As of December 31, 2025, the fixed maturity securities portfolio had $386.2 million of pretax gross unrealized investment losses on $3,279.4 million of fair value related to 2,115 positions. Of the investment positions with gross unrealized investment losses, there were 355 securities trading below 80.0% of the carrying amount as of December 31, 2025. See Part II - Item 8, Note 3 of the Consolidated Financial Statements in this Annual Report on Form 10-K for more information.

Lower interest rates, driven by lower US Treasury yields, have been the main driver of the reduction in unrealized losses in the fixed maturity securities portfolio, with the 10-year declining 40 basis points in 2025. Credit spreads were slightly tighter during the same time period, with investment grade and high yield tighter by 2 and 21 basis points, respectively. Investment grade and high yield total returns for the year ended December 31, 2025 were up 7.77% and 8.62%, respectively. During the same time period, the Bloomberg Barclays Index Yield-to-Worst for Investment Grade declined 52 basis points, ending at 4.81%, while the High Yield Index fell 96 basis points to 6.53%.