HORACE MANN EDUCATORS CORP DE

Net Premiums and Contract Charges Earned

For 2024, net premiums and contract charges earned increased $88.9 million as the Property & Casualty segment continues to implement rate and inflation adjustments to coverage values.

Total net investment income in 2024 increased $0.9 million, primarily due to higher returns on the fixed-income portfolio. Lower commercial mortgage loan funds income was partially offset by higher returns on limited partnership interests in various equity funds. The annualized investment yield on the portfolio excluding limited partnership interests* was as follows:

During 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 also funded commercial mortgage loan funds and limited partnership interests in line with our intended allocation to this portion of our portfolio to increase yields while balancing protection and risk.

Net Investment Losses

For 2024, net investment losses decreased $6.7 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 the reporting date. Generally, such sales are due to issuer specific events occurring subsequent to the reporting date that result in a change in our intent to hold a fixed maturity security.

Other Income

For 2024, other income increased $6.8 million primarily due to an indemnification agreement associated with the employer-sponsored business line.

Benefits, Claims and Settlement Expenses

For 2024, benefits, claims and settlement expenses decreased $24.1 million due to favorable prior year development in 2024 in the Property & Casualty segment.

Interest Credited

For 2024, interest credited increased $10.2 million, driven primarily by higher credited rates on the retained annuity block along with higher interest rates on advances received from the Federal Home Loan Bank of Chicago (FHLB). The net dollar contribution from FHLB advances increased year over year as the higher interest credited rates are more than offset by higher earnings from the floating rate securities 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 3.2% for 2024 and 2.9% for 2023.

Operating Expenses

For 2024, operating expenses increased 8.6% reflecting inflation, higher incentive compensation, and investments being made in infrastructure.

Deferred Policy Acquisition Costs (DAC) Amortization Expense

For 2024, DAC amortization expense increased $9.9 million, primarily due to premium increases in the Property & Casualty segment driving higher DAC asset levels partially offset by lower levels of write-offs in the Life & Retirement segment as annuity persistency has been stable in the current year.

Interest Expense

For 2024, interest expense increased $4.9 million, due to an increase in the interest rate as well as an increase in the level of debt associated with the issuance of the 2023 Senior Notes.

Income Tax Expense (Benefit)

The effective income tax rate on our pretax income, including net investment gains (losses) was 20.1% and 15.6% for the years ended December 31, 2024 and 2023, respectively. Income from investments in tax-advantaged securities decreased the effective income tax rates by 3.4 and 7.5 percentage points for 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 December 31, 2024, our federal income tax returns for years prior to 2021 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. See Part II - Item 8, Note 11 of the Consolidated Financial Statements in this Annual Report on Form 10-K for further information.