HORACE MANN EDUCATORS CORP /DE/

Previous wording

Measures within this MD&A that are not based on accounting principles generally accepted in the United States of America (non-GAAP) are marked with an asterisk (*) the first time they are presented within this Part I - Item 2. An explanation of these measures is contained in the Glossary of Selected Terms included as Exhibit 99.1 to this Quarterly Report on Form 10-Q and are reconciled to the most directly comparable measures prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) in the Appendix to the Company's Third Quarter 2024 Investor Supplement.

Current wording

Measures within this MD&A that are not based on accounting principles generally accepted in the United States of America (non-GAAP) are marked with an asterisk (*) the first time they are presented within this Part I - Item 2. An explanation of these measures is contained in the Glossary of Selected Terms included as Exhibit 99.1 to this Quarterly Report on Form 10-Q and are reconciled to the most directly comparable measures prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) in the Appendix to the Company's First Quarter 2025 Investor Supplement.

Previous wording

For the three and nine months ended September 30, 2024, net income increased $22.6 million and $59.1 million primarily due to improved Property & Casualty segment results reflecting the effect of rate and non-rate underwriting actions as well as the impact of favorable prior years' reserve development and lower net investment losses in Corporate & Other.

Current wording

For the three months ended March 31, 2025, net income increased $11.7 million primarily due to improved Property & Casualty segment results reflecting the effect of rate and non-rate underwriting actions as well as the impact of favorable prior years' reserve development and higher net investment income partially offset by higher mortality in Life & Retirement and net investment losses in Corporate & Other.

Previous wording

For the three and nine months ended September 30, 2024, net premiums and contract charges earned increased $23.1 million and $62.6 million, as the Property & Casualty segment continues to implement and earn in rate and other actions.

Current wording

For the three months ended March 31, 2025, net premiums and contract charges earned increased $23.1 million, as the Property & Casualty segment continues to implement rate and inflation adjustments to coverage values.

Previous wording

For the three and nine months ended September 30, 2024, total net investment income decreased $5.9 million and $1.0 million. The decrease for the quarter is primarily due to lower returns for our limited partnership interests while the nine month variance is due to lower returns in our commercial mortgage loan funds in the first half of the year. The annualized investment yield on the portfolio excluding limited partnership interests* was as follows:

Current wording

For the three months ended March 31, 2025, total net investment income increased $10.5 million. The increase for the quarter is primarily due to strong returns from our fixed income portfolio and higher limited partnership returns. The annualized investment yield on the portfolio excluding limited partnership interests* was as follows:

Previous wording

The higher investment yields, excluding limited partnership interests, for the three months ended September 30, 2024 reflected stronger income from the fixed income portfolios. The lower investment yield for nine months ended September 30, 2024 are due to commercial mortgage loan fund returns that were below historic averages in the first six months of 2024 significantly offset by the stronger income from the fixed income portfolio.

Current wording

The higher investment yields, excluding limited partnership interests, for the three months ended March 31, 2025 reflected stronger income from the fixed income portfolios.

Previous wording

During the three and nine months ended September 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.

Current wording

During the three months ended March 31, 2025, 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.

Previous wording

For the three months ended September 30, 2024, total net investment losses decreased by $12.2 million. For the nine months ended, September 30, 2024, net investment losses decreased $29.8 million. The breakdown of net investment gains (losses) by transaction type were as follows:

Current wording

For the three months ended March 31, 2025, total net investment losses increased by $5.5 million. The breakdown of net investment gains (losses) by transaction type were as follows:

Previous wording

For the nine months ended September 30, 2024, other income increased $5.8 million, due to lower offsets compared to the prior year from an indemnification agreement associated with the employer-sponsored business line and the impact of strong financial markets on asset based fees.

Current wording

For the three months ended March 31, 2025, other income increased $2.3 million, primarily due to lower offsets compared to the prior year from an indemnification agreement associated with the group benefits business line and the impact of strong financial markets on asset based fees.

Previous wording

For the three and nine months ended September 30, 2024, interest credited increased $2.1 million and $9.4 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 increased year over year as the higher interest credited rates were consistent with the higher earnings from the floating rate investments backing the program.

Current wording

For the three months ended March 31, 2025, interest credited decreased $0.1 million.

Previous wording

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 2.8% as of September 30, 2024 and September 30, 2023, respectively.

Current wording

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 3.3% and 3.0% as of March 31, 2025 and March 31, 2024, respectively.

Previous wording

For the three and nine months ended September 30, 2024, operating expenses increased 9.5% and 6.3%, reflecting inflation and investments being made in infrastructure.

Current wording

For the three months ended March 31, 2025, operating expenses increased 7.5%, reflecting inflation and investments being made in growth initiatives and infrastructure.

Previous wording

For the three and nine months ended September 30, 2024, DAC amortization expense increased $1.8 million and $6.7 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.

Current wording

For the three months ended March 31, 2025, DAC amortization expense increased $2.6 million, primarily due to premium increases in the Property & Casualty segment driving higher DAC asset levels.

Previous wording

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

Current wording

For the three months ended March 31, 2025, intangible asset amortization expense was flat.

Previous wording

For the three and nine months ended September 30, 2024, interest expense increased $1.2 million and $5.0 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.

Current wording

For the three months ended March 31, 2025, interest expense increased $0.2 million.

Previous wording

The effective income tax rate on our pretax income, including net investment gains (losses), was 19.6% and 9.8% for the nine months ended September 30, 2024 and 2023, respectively. Income from investments in tax-advantaged securities decreased the effective income tax rates by 2.8 and 35.0 percentage points for the nine months ended September 30, 2024 and 2023, respectively.

Current wording

The effective income tax rate on our pretax income, including net investment gains (losses), was 19.6% and 19.7% for the three months ended March 31, 2025 and 2024, respectively. Income from investments in tax-advantaged securities decreased the effective income tax rates by 2.3 and 2.5 percentage points for the three months ended March 31, 2025 and 2024, respectively.

Previous wording

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.

Current wording

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

Previous wording

The following discussion provides forward-looking outlook information for our results of operations and capital position.

Current wording

The following discussion provides outlook information for our results of operations and capital position.

Previous wording

At the time of issuance of this Quarterly Report on Form 10-Q, we estimate that 2024 full year core earnings will be within a range of $2.40 to $2.70 per diluted share. This range is unchanged from the Outlook for 2024 we discussed in our Quarterly Report on Form 10-Q for the period ended June 30, 2024. These results anticipate the following:

Current wording

At the time of issuance of this Quarterly Report on Form 10-Q, we estimate that 2025 full year core earnings* will be within a range of $3.85 to $4.15 per diluted share, generating a core return on equity* of 10%+. These results anticipate the following:

Previous wording

•Net investment income in the range of $440 million to $450 million, which includes approximately $105 million of accreted investment income on the deposit asset on reinsurance in the Life & Retirement segment

Current wording

•Net investment income between $470 million and $480 million pre-tax, or $370-$380 million excluding the accreted investment income on the deposit asset on reinsurance in the Life & Retirement segment

Previous wording

•Approximately $35 million in corporate Interest expense included in results for the Corporate & Other segment

Current wording

•Approximately $35 million to $40 million in corporate Interest expense and other items included in results for the Corporate & Other segment

Previous wording

Information regarding our accounting policies pertaining to these topics is located in the Notes to the Consolidated Financial Statements contained in Part II - Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2023. In addition, discussion of accounting policies, including certain sensitivity information, was presented in Management's Discussion and Analysis of Financial Condition and Results of Operations - Application of Critical Accounting Estimates in that Form 10-K within which we identified the following accounting estimates as critical in that they involve a higher degree of judgment and are subject to a significant degree of variability:

Current wording

Information regarding our accounting policies pertaining to these topics is located in the Notes to the Consolidated Financial Statements contained in Part II - Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2024. In addition, discussion of accounting policies, including certain sensitivity information, was presented in Management's Discussion and Analysis of Financial Condition and Results of Operations - Application of Critical Accounting Estimates in that Form 10-K within which we identified the

Previous wording

The Property & Casualty segment primarily markets private passenger auto insurance and residential home insurance. Horace Mann offers standard auto coverages, including liability, collision and comprehensive. Property coverage includes both homeowners and renters policies. For both auto and property coverage, Horace Mann offers educators a discounted rate and the Educator Advantage® package of features. The Property & Casualty segment represented 46% of total revenues in 2023.

Current wording

The Property & Casualty segment primarily markets private passenger auto insurance and residential home insurance. Horace Mann offers standard auto coverages, including liability, collision and comprehensive. Property coverage includes both homeowners and renters policies. For both auto and property coverage, Horace Mann offers educators a discounted rate and the Educator Advantage® package of features. The Property & Casualty segment represented 49% of total revenues in 2024.

Previous wording

•Lower net investment income driven by limited partnership portfolio

Current wording

•Lower net investment income driven by limited partnership portfolio partially offset by higher fixed income

Previous wording

The Property & Casualty segment three month net income of $10.6 million and nine month net income of $12.6 million, as well as the three month and nine month combined ratios of 97.9% and 103.1%, respectively, reflected the positive effect of rate and non-rate actions as well as positive prior years' reserve development. Net investment income for the three months of 2024 was $3.2 million lower driven by limited partnership portfolio returns while the nine month comparison was $4.0 million higher driven by the fixed income portfolio.

Current wording

The Property & Casualty segment net income of $26.8 million and combined ratio of 89.4% for the first quarter reflected the positive effect of rate and non-rate actions as well as positive prior years' reserve development. Net investment income for the three months of 2024 was $0.6 million lower driven by limited partnership portfolio returns.

Previous wording

The current quarter reflects an increase in net premiums written of 12.7%, with average written premiums rising for both property and auto. Sales* were strong for the quarter, up 27.8% from the prior year, and household retention remains stable.

Current wording

The current quarter reflects an increase in net premiums written* of 7.7%, with average written premiums* rising for both property and auto. Sales* were strong for the quarter, up 9.1% from the prior year, and household retention remains stable.

Previous wording

The three and nine month loss ratios decreased 18.9 points and 14.3 points, respectively, from last year. In addition, $13.0 million and $19.2 million of net favorable prior years' reserve development for the three and nine months of 2024 reduced the loss ratio 6.9 and 3.6 points, respectively. Catastrophe losses for the quarter were $34.0 million, pretax, contributing 18.1 points to the combined ratio. In total, there were 20 events designated as catastrophes by Property Claims Services (PCS) in this year’s third quarter. In the third quarter of 2023, catastrophe losses were $28.7 million, pretax, contributing 17.5 points to the combined ratio, from 25 PCS events.

Current wording

The first-quarter loss ratio decreased 10.6 points from last year reflecting higher average premiums and lower frequency in Property. In addition, $5.3 million of net favorable prior years' reserve development reduced the loss ratio 2.8 points. Catastrophe losses for the quarter were $16.4 million, pretax, contributing 8.5 points to the combined ratio. In total, there were 18 events designated as catastrophes by Property Claims Services (PCS) in this year’s first quarter. In the first quarter of 2024, catastrophe losses were $16.2 million, pretax, contributing 9.3 points to the combined ratio, from 19 PCS events.

Previous wording

The year-over-year increase in average written premiums for auto policies remained elevated in the third quarter at 16.4%, with retention declining slightly despite substantial rate increases. The third-quarter auto underlying loss ratio was 71.5%, improving 8.2 points from the prior year quarter, reflecting the benefit of rate and non-rate actions. The third quarter reported loss ratio benefited 6.7 points from favorable prior years' reserve development.

Current wording

The year-over-year increase in average written premiums* for auto policies remained elevated in the first quarter at 10.1%, with retention declining slightly despite substantial rate increases. The first-quarter auto underlying loss ratio* was 67.0%, improving 4.6 points from the prior year quarter, reflecting the benefit of higher average earned premium. The first quarter reported loss ratio benefited 1.9 points from favorable prior years' reserve development.

Previous wording

The year-over-year increase in average written premiums for property policies was 18.2% in the third quarter, as rate increases and inflation adjustments to coverage values continue to take effect and retention remains strong. The third-quarter property underlying loss ratio was 41.4%, a 20.4 point decrease from prior year reflecting the increase in average written premium and the elevated non-catastrophe weather losses in the prior year.

Current wording

The year-over-year increase in average written premiums* for property policies was 16.3% in the first quarter, as rate increases and inflation adjustments to coverage values continue to take effect and retention remains strong. The first-quarter property underlying loss ratio* was 35.7%, a 9.3 point decrease from prior year reflecting the increase in average written premium* and lower frequency.

Previous wording

The Life & Retirement segment markets 403(b) tax-qualified fixed, fixed indexed and variable annuities; the Horace Mann Retirement Advantage® open architecture platform for 403(b)(7) and other defined contribution plans; and other retirement products to educators as well as traditional term and whole life insurance products. Horace Mann is one of the largest participants in the K-12 educator portion of the 403(b) tax-qualified annuity market, measured by 403(b) net premiums written on a statutory accounting basis. The Life & Retirement segment represented 36% of total revenues in 2023.

Current wording

The Life & Retirement segment markets 403(b) tax-qualified fixed, fixed indexed and variable annuities; the Horace Mann Retirement Advantage® open architecture platform for 403(b)(7) and other defined contribution plans; and other retirement products to educators as well as traditional term and whole life insurance products. Horace Mann is one of the largest participants in the K-12 educator portion of the 403(b) tax-qualified annuity market, measured by 403(b) net premiums written on a statutory accounting basis. The Life & Retirement segment represented 32% of total revenues in 2024.

Previous wording

•Benefits expense in Retirement benefited from a favorable market risk benefit adjustment in the prior year quarter

Current wording

•Benefits expense in Retirement increased due to unfavorable market risk benefit adjustment in the current year and favorable adjustment in the prior year

Previous wording

•Annualized quarterly and nine month net interest spread on fixed annuities down 46 basis points and 59 basis points, respectively, due to higher interest credited rate on our retained block and lower returns on commercial mortgage loan funds during the first six months of 2024

Current wording

•Annualized quarterly net interest spread on fixed annuities up 46 basis points

Previous wording

Life & Retirement segment net income for the three and nine months ended September 30, 2024, of $14.8 million and $38.8 million was down 29.2% and 25.8%, respectively, primarily due to a lower net interest spread and unfavorable benefits. The spread was affected by higher interest credited and lower returns related to commercial mortgage loan funds during the first six months of 2024. Benefits and change in reserves reflected a lower favorable market risk benefit adjustment compared to the prior year and higher mortality. While the net spread from our FHLB funding agreements remained stable compared with 2023, higher FHLB borrowing costs and increased advances drove the higher interest credited expense along with a higher interest credited rate on our retained block.

Current wording

Life & Retirement segment net income for the three months ended March 31, 2025, of $6.8 million was down 41.9% primarily due to unfavorable benefits. Benefits and change in reserves reflected a $3.7 million higher market risk benefit adjustment compared to the prior year and higher mortality. The net spread increase reflects improvement from our FHLB funding agreements compared with 2024, lower FHLB borrowing costs and increased advances drove the favorable comparison.

Previous wording

For the Retirement business, net annuity contract deposits were up 1.0% for the quarter at $126.8 million, while deposits to the retained 403(b) block remained stable. Educators continue to begin their relationship with Horace Mann through 403(b) retirement savings products, which provide encouraging cross-sell opportunities. Average persistency has declined slightly from the prior year.

Current wording

For the Retirement business, net annuity contract deposits were up 6.0% for the quarter at $110.8 million, on the strength of our core 403(b) products. Educators continue to begin their relationship with Horace Mann through 403(b) retirement savings products, which provide encouraging cross-sell opportunities. Average persistency rose from the prior period to 91.6%.

Previous wording

Horace Mann currently has $5.5 billion in annuity assets under management, including $2.1 billion of fixed annuities, $3.0 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, continue to benefit from the strong equity markets.

Current wording

Horace Mann currently has $5.4 billion in annuity assets under management, including $2.2 billion of fixed annuities, $2.9 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 down due to the effect of equity market performance on assets under management.

Previous wording

Life annualized sales* were $2.5 million, up 13.6% for the quarter and persistency remains strong. Life insurance in force rose to $20.9 billion at quarter-end.

Current wording

Life annualized sales* were $2.4 million, up 4.3% for the quarter and persistency remains strong. Life insurance in force rose to $21.1 billion at quarter-end.

Previous wording

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

Current wording

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 $506.7 million of the Life & Retirement investment portfolio and related investable cash flows will be reinvested at current market rates.

Previous wording

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 $2.0 million in year one and $6.0 million in year two, reducing the annualized net interest spread on fixed annuities by approximately 7 basis points and 21 basis points in the respective periods, compared to the current period annualized net interest spread on fixed annuities. We could also consider potential changes in rates credited to policyholders, tempered by any restrictions on the ability to adjust policyholder rates due to guaranteed minimum crediting rates.

Current wording

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 $2.4 million in year one and $4.7 million in year two, reducing the annualized net interest spread on fixed annuities by approximately 9 basis points and 17 basis points in the respective periods, compared to the current period annualized net interest spread on fixed annuities. We could also consider potential changes in rates credited to policyholders, tempered by any restrictions on the ability to adjust policyholder rates due to guaranteed minimum crediting rates.

Previous wording

The Supplemental & Group Benefits segment markets employer-sponsored group solutions for districts and other public employers, as well as worksite direct products typically distributed through the employer channel. The Worksite business provides group term life, disability and specialty health insurance, along with supplemental products including cancer, heart, hospital, supplemental disability and accident coverages. The Supplemental & Group Benefits segment represented 19% of total revenues in 2023.

Current wording

The Supplemental & Group Benefits segment markets group solutions for districts and other public employers, as well as individual supplemental products typically distributed through the employer channel. The Supplemental & Group Benefits segment provides group term life, disability and specialty health insurance, along with supplemental products including cancer, heart, hospital, supplemental disability and accident coverages. The Supplemental & Group Benefits segment represented 18% of total revenues in 2024.

Previous wording

•Higher benefits ratio for worksite direct products for the nine months reflecting the anticipated increase in utilization

Current wording

•Higher benefits ratio for group benefits

Previous wording

Total sales* for the nine months ended September 30, 2024 were $19.4 million with worksite direct product sales of $11.5 million and employer-sponsored products of $7.9 million. Worksite direct sales increased 7.5% and employer sponsored sales decreased 21.0%. Employer sponsored sales may vary significantly between comparable periods due to differences in average case size and specific timing of new cases can result in quarter over quarter variances. Persistency remains strong for the segment.

Current wording

Total sales* for the three months ended March 31, 2025 were $8.4 million with individual supplemental product sales of $11.5 million and group benefits products of $7.9 million. Individual supplemental sales increased 60.6% due to strong customer demand and group benefits sales decreased 6.1%. Group benefits sales may vary significantly between comparable periods due to differences in average case size and specific timing of new cases can result in quarter over quarter variances. Persistency remains strong for the segment.