HORACE MANN EDUCATORS CORP DE

2023 net income reflected the following factors:

•9.3% increase in net investment income due to higher returns on floating rate securities

•Decline of 28 basis points in the annualized net interest spread due to lower returns on the limited partnership fund investments and lower spread on the FHLB funding agreements year over year

•Higher DAC amortization due to write-offs related to declines in annuity persistency

•Flat mortality costs

The following table provides certain information for the Life & Retirement segment for the years indicated.

The Life & Retirement segment net income rose 12.1% in 2023 reflecting higher net investment income. Net investment income rose 9.3% for the full-year as higher returns on floating rate securities more than offset lower returns from limited partnerships. The annualized net interest spread in our fixed annuity business was 218 basis points for the full year compared to 246 basis points in 2022, largely due to lower limited partnership returns as well as higher FHLB borrowing costs as credit spreads tightened year over year. The net dollar contribution from our FHLB funding agreements remained stable compared with 2022, with FHLB interest expense reflected in interest credited. In addition, 2022 net income reflected an after-tax impairment charge of $3.8 million for goodwill and intangible assets due to lower than anticipated revenues associated with the BCG business of the Retirement operating segment.

For 2023, net annuity contract deposits* for variable and fixed annuities increased 6.2% for the year to $455.9 million. Educators continue to begin their relationship with Horace Mann through 403(b) retirement savings products, including the company’s attractive annuity products, which provide encouraging cross-sell opportunities. Cash value persistency remained strong at 91.5%.

Life annualized sales were $9.3 million for the year. Life insurance in force rose to $20.5 billion at year-end.

Horace Mann currently has $5.2 billion in annuity assets under management, including $2.2 billion of fixed annuities, $2.6 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 7.0%, benefiting from the strong equity markets.

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 $494.2 million of the Life & Retirement investment portfolio and related investable cash flows will be reinvested at current market rates.

Interest rates remained high throughout 2023. However, the risk of a deep recession or shock to the economy, such as a global pandemic, could result in a return to historically low interest rates. The current environment of higher interest rates have afforded us the opportunity to invest new insurance cash flows and reinvested cash flows at higher yields, which should be a benefit to net investment income, but the higher interest rates have caused net unrealized investment losses in the portfolios.

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 $1.9 million in year one and $5.7 million in year two, reducing the annualized net interest spread by approximately 7 basis points and 20 basis points in the respective periods, compared to the current period annualized net interest spread. We could also consider potential changes in rates credited to policyholders, tempered by any restrictions on the ability to adjust policyholder rates due to minimum guaranteed crediting rates.

We reinsure a $2.4 billion block of in force fixed annuities with a minimum crediting rate of 4.5% which helps mitigate the risk of not being able to generate appropriate spreads on the annuity business. Information regarding the interest crediting rates and balances equal to the guaranteed minimum crediting rates for deferred annuity account values excluding the reinsured block is shown below.