HORACE MANN EDUCATORS CORP /DE/

Our investment strategy is primarily focused on generating income while balancing principal protection and investment risk. 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 the company's reinsurance of policy liabilities related to legacy individual annuities written in 2002 or earlier.

For the three months ended March 31, 2026, net investment income from our managed investment portfolio decreased $4.4 million, primarily due to lower returns in limited partnerships. The investment yield on the portfolio excluding limited partnership interests was 4.5%, with new money yields continuing to exceed portfolio yields in the core fixed maturity securities portfolio.

For the three months ended March 31, 2026, pretax net investment losses decreased $1.1 million.

Pretax net unrealized investment losses on fixed maturity securities as of March 31, 2026 increased $55.2 million, or 17.7%, compared to December 31, 2025, primarily due to an increase of 15 basis points in US Treasury rates and investment-grade credit spreads that were wider by 11 basis points.

Fixed Maturity and Equity Securities Portfolios

The table below presents our fixed maturity and equity securities portfolios 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 22 additional industry sectors. Telecommunications, Manufacturing, Food and Beverage, Retail, Leisure and Entertainment represented $198.6 million of fair value at March 31, 2026, with the remaining 17 sectors each representing less than $29.1 million.

(2)At March 31, 2026, 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, 41.8% are tax-exempt and 78.1% 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- at March 31, 2026.

(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 March 31, 2026, our diversified fixed maturity securities portfolio consisted of 4,063 investment positions, issued by 2,703 entities, and totaled approximately $5.8 billion in fair value. This portfolio was 97.7% investment grade, based on fair value, with an average quality rating of A+. Our investment guidelines target single corporate issuer concentrations to 0.5% of invested assets for AAA or AA 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 March 31, 2026, 96.1% of these combined portfolios were investment grade, based on fair value, with an overall average 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 assigned by an NRSRO when available, If no rating is available from an NRSRO, then an internally developed rating may be used. Ratings for publicly traded securities are determined when the securities are acquired and are updated monthly to reflect any changes in ratings.

(2)At March 31, 2026, the AA-rated fair value amount included $312.9 million of U.S. Government and federally sponsored agency securities and $668.2 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 NRSRO.

As of March 31, 2026, the fixed maturity securities portfolio had $423.8 million of pretax gross unrealized investment losses on $3,985.0 million of fair value related to 2,607 positions. Of the investment positions with gross unrealized losses, there were 380 trading below 80.0% of the carrying value as of March 31, 2026. The Company views the decrease in fair value of all of the fixed maturity securities with unrealized losses as of March 31, 2026 as due to factors other than a credit loss. Future changes in circumstances related to these and other securities could require subsequent recognition of impairment. See Part II - Item 8, Note 2 of the Consolidated Financial Statements in this Quarterly Report on Form 10-Q for more information.

Increases in U.S. Treasury yields and credit spreads contributed to an increase in unrealized investment losses. As of March 31, 2026, the 10-year U.S. Treasury yield increased 15 basis points since December 31, 2025, rising from 4.17% as of December 31, 2025 to 4.32% as of March 31, 2026. Credit spreads were wider during the same time period, with investment grade and high yield credit spreads increasing by 11 basis points and 51 basis points, respectively. As of March 31, 2026, investment grade and high yield total returns were -0.54% and -0.50%, respectively, since December 31, 2025.