HORACE MANN EDUCATORS CORP DE

Our investment strategy is primarily focused on generating income to support product liabilities, and balances principal protection and 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, 2024, net investment income from our managed investment portfolio increased 7.0% to $79.9 million. The increase reflected stronger income from the fixed income portfolios, partially offset by weaker returns in the commercial mortgage and limited partnership portfolios, primarily related to real estate. 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, 2024, pretax net investment gains increased $6.1 million. The net investment gains in the current period are primarily due to changes in fair values of equity securities compared with net investment losses in the prior period due to dispositions of securities.

Pretax net unrealized investment losses on fixed maturity securities as of March 31, 2024 were up $25.1 million, or 6.0%, compared to December 31, 2023, primarily due to an increase of 32 basis points in US Treasury rates.

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 18 additional industry sectors. Food and beverage, telecommunications, broadcasting and media, technology and retail represented $211.8 million of fair value at March 31, 2024, with the remaining 13 sectors each representing less than $34.5 million.

(2)At March 31, 2024, 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, 41.0% are tax-exempt and 75.3% 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, 2024.

(4) Based on fair value, 94.6% of the collateralized loan obligation securities were rated investment grade based on ratings assigned by a nationally recognized statistical ratings organization (NRSO- S&P, Moody's, Fitch, Dominion, A.M. Best, Morningstar, Egan Jones and Kroll).

As of March 31, 2024, our diversified fixed maturity securities portfolio consisted of 3,698 investment positions, issued by 2,414 entities, and totaled approximately $5.3 billion in fair value. This portfolio was 92.6% 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, 2024, 93.0% 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 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)At March 31, 2024, the AA rated fair value amount included $391.2 million of U.S. Government and federally sponsored agency securities and $662.660 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, 2024, the fixed maturity securities portfolio had $499.4 million of pretax gross unrealized investment losses on $3,737.0 million of fair value related to 2,511 positions. Of the investment positions with gross unrealized losses, there were 433 trading below 80.0% of the carrying value as of March 31, 2024. The Company views the decrease in fair value of all of the fixed maturity securities with unrealized losses as of March 31, 2024 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.

Unrealized investment losses rose due to an increase in interest rates. As of March 31, 2024, the 10-year U.S. Treasury yield increased 32 basis points since December 31, 2023, rising from 3.88% as of December 31, 2023 to 4.20% as of March 31, 2024, the impacts of which were partially offset by tighter credit spreads during the same time period, with investment grade and high yield tighter by 11 and 22 basis points, respectively. As of March 31, 2024, investment grade and high yield total returns were down -0.11% and up 1.47%, respectively, since December 31, 2023.