HORACE MANN EDUCATORS CORP DE

Net Premiums and Contract Charges Earned

For the three and six months ended June 30, 2024, net premiums and contract charges earned increased $20.2 million and $39.5 million, as the Property & Casualty segment continues to implement and earn in rate and other actions.

Net Investment Income

For the three and six months ended June 30, 2024, total net investment income decreased $0.1 million and increased $4.9 million, primarily due to stronger income from all categories except commercial mortgage loan funds which had weaker returns, substantially offsetting the increases in the other portfolios. The annualized investment yield on the portfolio excluding limited partnership interests* was as follows:

The lower investment yields, excluding limited partnership interests, are due to commercial mortgage loan fund returns that were below historic averages in the first six months of 2024.

During the three and six months ended June 30, 2024, 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 for the core portfolio. We continue to fund at levels that allow us to maintain our targeted allocation to commercial mortgage loan funds and limited partnership interests while maintaining balance between principal protection and risk.

Net Investment Gains (Losses)

For the three months ended June 30, 2024, total net investment losses decreased by $11.5 million. For the six months ended, June 30, 2024, net investment losses decreased $17.6 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 such reporting date. Such sales are due to issuer-specific events occurring subsequent to the reporting date that result in a change in our intent to sell a fixed maturity security.

Other Income

For the six months ended June 30, 2024, other income increased $1.8 million, due to lower offsets compared to the prior year from an indemnification agreement associated with the employer-sponsored business line.

Benefits, Claims and Settlement Expenses

Benefits, claims and settlement expenses declined $4.8 millionfor the six months ended June 30, 2024, primarily due to lower catastrophe losses compared to prior year in the Property & Casualty segment as well as the impact of favorable prior years' reserve development in Auto.

Interest Credited

For the three and six months ended June 30, 2024, interest credited increased $3.1 million and $7.3 driven primarily by higher credited rates on the retained annuity block along with higher interest rates on advances from the Federal Home Loan Bank of Chicago (FHLB). The net contribution from FHLB advances remained stable year over year as the higher interest credited rates are offset by higher earnings from the floating rate investments backing the program.

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 3.1% and 2.7% as of June 30, 2024 and June 30, 2023, respectively.

Operating Expenses

For the three and six months ended June 30, 2024, operating expenses increased 3.6% and 4.8%, reflecting inflation and investments being made in infrastructure.

Deferred Policy Acquisition Costs (DAC) Amortization Expense

For the three and six months ended June 30, 2024, DAC amortization expense increased $1.6 million and $4.9 million, primarily due to premium increases in the Property & Casualty segment driving higher DAC asset levels.

Intangible Asset Amortization Expense

For the three and six months ended June 30, 2024, intangible asset amortization expense was flat.

Interest Expense

For the three and six months ended June 30, 2024, interest expense increased $1.8 million and $3.8 million, due to an increase in the interest rate as well as a $48.2 million increase in the level of debt associated with the issuance of the 2023 Senior Notes.

Income Tax Expense

The effective income tax rate on our pretax income, including net investment gains (losses), was 19.4% and 17.3% for the six months ended June 30, 2024 and 2023, respectively. Income from investments in tax-advantaged securities decreased (increased) the effective income tax rates by 3.1 and (6.0) percentage points for the six months ended June 30, 2024 and 2023, respectively.

We record liabilities for uncertain tax filing positions where 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 June 30, 2024, our federal income tax returns for years prior to 2020 are no longer subject to examination by the Internal Revenue Service. We do not anticipate any assessments for tax years that remain subject to examination to have a material effect on our financial position or results of operations.