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 First Quarter 2025 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 Second Quarter 2025 Investor Supplement.

Previous 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.

Current wording

For the three and six months ended June 30, 2025, net income increased $25.6 million and $37.3 million, respectively, primarily due to improved Property & Casualty segment results reflecting the effect of rate and non-rate underwriting actions as well as the impact of lower catastrophe losses.

Previous 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.

Current wording

For the three and six months ended June 30, 2025, net premiums and contract charges earned increased $21.7 million and $44.8 million, as the Property & Casualty segment continues to implement rate and inflation adjustments to coverage values.

Previous 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:

Current wording

For the three and six months ended June 30, 2025, total net investment income increased $2.4 million and $12.9 million. The increase for the quarter is primarily due to continued strong returns from our fixed income portfolio and higher returns from our commercial mortgage loan and limited partnership funds. Excluding the reduction in net investment income due to an immaterial out-of-period correction of an error of $10.2 million, net investment income increased $12.6 million and $23.1 million for the three and six months ended June 30, 2025. 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 March 31, 2025 reflected stronger income from the fixed income portfolios.

Current wording

The higher investment yields, excluding limited partnership interests, for the six months ended June 30, 2025 reflected stronger income from the fixed income portfolios.

Previous 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.

Current wording

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 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:

Current wording

For the three and six months ended June 30, 2025, total net investment losses were comparable to prior year and increased by $5.5 million, respectively. The breakdown of net investment gains (losses) by transaction type were as follows:

Previous wording

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

Current wording

For the three and six months ended June 30, 2025, interest credited decreased $1.1 million and $1.2 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 3.3% and 3.0% as of March 31, 2025 and March 31, 2024, 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 3.1% as of June 30, 2025 and June 30, 2024, respectively.

Previous 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.

Current wording

For the three and six months ended June 30, 2025, operating expenses increased 16.7% and 12.1%, reflecting inflation, investments being made in growth initiatives and infrastructure, and increased compensation accruals driven by better than expected results.

Previous 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.

Current wording

For the three and six months ended June 30, 2025, DAC amortization expense increased $2.9 million and $5.5 million, primarily due to premium increases in the Property & Casualty segment driving higher commission and underwriting expenses which increase DAC asset levels.

Previous wording

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

Current wording

For the three and six months ended June 30, 2025, intangible asset amortization expense decreased $0.1 million and $0.1 million.

Previous wording

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

Current wording

For the three and six months ended June 30, 2025, interest expense decreased $0.1 million and increased $0.1 million, respectively.

Previous 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.

Current wording

The effective income tax rate on our pretax income, including net investment gains (losses), was 19.5% and 19.4% for the six months ended June 30, 2025 and 2024, respectively. Income from investments in tax-advantaged securities decreased the effective income tax rates by 2.4 and 3.1 percentage points for the six months ended June 30, 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

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 appropriately based on changes in facts or law. We have no unrecorded liabilities from uncertain tax filing positions.

Previous 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:

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 $4.15 to $4.45 per diluted share, generating a core return on equity* of 10%+. These results anticipate the following:

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, 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

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 following accounting estimates as critical in that they involve a higher degree of judgment and are subject to a significant degree of variability:

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 49% of total revenues in 2024.

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 51% of total revenues in 2024.

Previous wording

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

Current wording

•Higher net investment income driven by limited partnership portfolio

Previous 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.

Current wording

The current quarter reflects an increase in net premiums written* of 6.1%, with average written premiums* rising for both property and auto. Sales* were steady for the quarter, up 5.5% from the prior year, and household retention remains in line with expectations.

Previous 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.

Current wording

The three and six month loss ratios decreased 16.2 and 13.5 points from last year reflecting higher average premiums and catastrophe losses that were below recent prior periods. In addition, $5.5 million and $10.8 million of net favorable prior years' reserve development for the three and six months reduced the loss ratio 2.8 points for both comparisons. Catastrophe losses for the quarter were $29.7 million, pretax, contributing 15.0 points to the combined ratio. In total, there were 20 events designated as catastrophes by Property Claims Services (PCS) in this year’s second quarter. The lower catastrophe losses are driven by lower frequency and severity of policyholder claims. In the second quarter of 2024, catastrophe losses were $40.9 million, pretax, contributing 22.8 points to the combined ratio, from 28 PCS events.

Previous 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.

Current wording

The year-over-year increase in average written premiums* for auto policies remained elevated in the second quarter at 8.8%, with retention declining slightly, and in line with expectations, given substantial rate increases. The second-quarter auto underlying loss ratio* was 68.7%, improving 5.5 points from the prior year quarter, reflecting the benefit of higher average earned premium. The second quarter reported loss ratio benefited 1.2 points from favorable prior years' reserve development.

Previous 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.

Current wording

The year-over-year increase in average written premiums* for property policies was 11.6% in the second quarter, as rate increases and inflation adjustments to coverage values continue to take effect. Policyholder retention remains strong. The second-quarter property underlying loss ratio* was 36.8%, a 14.1 point decrease from prior year reflecting the increase in average earned premium* and lower frequency and severity.

Previous wording

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

Current wording

•Annualized quarterly net interest spread on fixed annuities up 30 basis points

Previous 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%.

Current wording

For the Retirement business, net annuity contract deposits were up 7.8% for the quarter at $110.2 million. 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 91.7%.

Previous 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.

Current wording

Horace Mann currently has $5.7 billion in annuity assets under management, including $2.2 billion of fixed annuities, $3.1 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 due to the effect of equity market performance on assets.

Previous 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.

Current wording

Life annualized sales* were $2.5 million for the quarter. Persistency remains strong. Life insurance in force rose to $21.2 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 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.

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

Previous wording

•Higher benefits ratio for group benefits

Current wording

•Lower benefits ratio for group benefits for the quarter and higher benefits ratio for the year

Previous 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.

Current wording

Total sales* for the three and six months ended June 30, 2025 increased $0.4 million with individual supplemental product sales increasing $1.7 million and group benefits products decreasing $1.3 million. Individual supplemental sales increased 42.5% due to strong customer demand. Variability in sales between comparable periods is typical for Group Benefits given the relatively small scale and the longer sales cycle of this business. Persistency remains strong for the segment.

Previous wording

For the three months ended March 31, 2025, the net results improved $0.2 million primarily due to higher net investment income included in revenues offset by higher net investment losses.

Current wording

For the three and six months ended June 30, 2025, the net results decreased $1.0 million and $0.8 million, primarily due to lower net investment income in the quarter and higher net investment losses and operating expenses offset by higher net investment income included in revenues for the year.

Previous wording

For the three months ended March 31, 2025, net investment income from our managed investment portfolio increased $11.6 million. The increase was primarily driven by higher returns in the limited partnership portfolio. The investment yield on the portfolio excluding limited partnership interests was 4.6%, with new money yields continuing to exceed portfolio yields in the core fixed maturity securities portfolio.

Current wording

For the three and six months ended June 30, 2025, net investment income from our managed investment portfolio increased $3.0 million and $14.6 million. The increase was primarily driven by higher returns in limited partnerships, including commercial mortgage loan funds. The 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.

Previous wording

For the three months ended March 31, 2025, pretax net investment losses increased $5.5 million. The increase was due to realized losses on dispositions of invested assets.

Current wording

For the three and six months ended June 30, 2025, pretax net investment losses increased $0.0 million and $5.5 million. The increase was due to realized losses on dispositions of invested assets.

Previous wording

Pretax net unrealized investment losses on fixed maturity securities as of March 31, 2025 were down $42.7 million, or 15.1%, compared to December 31, 2024, primarily due to a decrease of 10 basis points in US Treasury rates and investment-grade credit spreads that were tighter by 10 basis points.

Current wording

Pretax net unrealized investment losses on fixed maturity securities as of June 30, 2025 were down $77.0 million, or 30.6%, compared to December 31, 2024, primarily due to a decrease of 10 basis points in US Treasury rates and investment-grade credit spreads that were tighter by 10 basis points.

Previous wording

(1)The All other corporates category contains 20 additional industry sectors. Technology ,Retail, Food and Beverage, Telecommunication, and Metal & Mining represented $201.5 million of fair value at March 31, 2025, with the remaining 15 sectors each representing less than $37.4 million.

Current wording

(1)The All other corporates category contains 20 additional industry sectors. Telecommunications, Food and Beverage, Retail, Broadcasting & Media, and Metal & Mining represented $189.6 million of fair value at June 30, 2025, with the remaining 15 sectors each representing less than $33.9 million.

Previous wording

(3)Holdings are geographically diversified, 39.8% are tax-exempt and 78.3% 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, 2025.

Current wording

(3)Holdings are geographically diversified, 39.8% are tax-exempt and 77.3% 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 June 30, 2025.

Previous wording

(4) Based on fair value, 97.6% 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).

Current wording

(4) Based on fair value, 99.8% 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).

Previous wording

As of March 31, 2025, our diversified fixed maturity securities portfolio consisted of 3,915 investment positions, issued by 2,561 entities, and totaled approximately $5.5 billion in fair value. This portfolio was 94.8% 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.

Current wording

As of June 30, 2025, our diversified fixed maturity securities portfolio consisted of 3,942 investment positions, issued by 2,588 entities, and totaled approximately $5.5 billion in fair value. This portfolio was 97.2% investment grade, based on fair value, with an average quality rating of AA-. Our investment guidelines target single

Previous wording

The following table presents the composition and fair value of our fixed maturity and equity securities portfolios by rating category. As of March 31, 2025, 94.8% 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.

Current wording

The following table presents the composition and fair value of our fixed maturity and equity securities portfolios by rating category. As of June 30, 2025, 94.7% 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.

Previous wording

(2)At March 31, 2025, the AA rated fair value amount included $363.1 million of U.S. Government and federally sponsored agency securities and $805.6 million of mortgage-backed and other asset-backed securities issued by U.S. Government and federally sponsored agencies.

Current wording

(2)At June 30, 2025, the AA rated fair value amount included $362.4 million of U.S. Government and federally sponsored agency securities and $602.8 million of mortgage-backed and other asset-backed securities issued by U.S. Government and federally sponsored agencies.