UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 orOR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2019~~March 31, 2020

ORor

☐TRANSITION REPORT PURSUANT TO SECTION 13 orOR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number 1-10890

HORACE MANN EDUCATORS CORPORATION

(Exact name of registrant as specified in its charter)



Delaware	37-0911756
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1 Horace Mann Plaza, Springfield, Illinois 62715-0001

(Address of principal executive ~~offices, including Zip~~offices) (Zip Code)

Registrant’s ~~Telephone Number, Including Area Code:~~telephone number, including area code: 217-789-2500



Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par value	HMN	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☑



~~Securities registered pursuant to Section 12(b) of the Act:~~
~~Title of each class~~	~~Trading Symbol~~	~~Name of each exchange~~ ~~on which registered~~
~~Common Stock, $0.001 par value~~	~~HMN~~	~~New York Stock Exchange~~

As of ~~July 31, 2019,~~April 30, 2020, the registrant had ~~41,198,167~~41,291,833 common shares, ~~of Common Stock,~~$0.001 par value, ~~$0.001 per share,~~ outstanding.

HORACE MANN EDUCATORS CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED ~~JUNE 30, 2019~~MARCH 31, 2020

~~INDEX~~TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION		Page

Item 1.	Consolidated Financial Statements ~~(Unaudited)~~

	Report of Independent Registered Public Accounting Firm	1

	Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December, 31 2019	2

	Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019 (Unaudited)	3

	Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2020 and 2019 (Unaudited)	4

	Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2020 and 2019 (Unaudited)	5

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (Unaudited)	6

	Notes to Consolidated Financial Statements (Unaudited)
	Note 1 - Basis of Presentation and Significant Accounting Policies	7
	Note 2 - ~~Acquisitions~~Investments	1110
	Note 3 - ~~Investments~~Fair Value of Financial Instruments	1215
	Note 4 - ~~Fair Value of Financial Instruments~~Derivatives	1720
	Note 5 - ~~Derivative Instruments~~Deposit Asset on Reinsurance	21
	Note 6 - Goodwill and Intangible Assets, net	22
	Note 67 - ~~Deposit Asset on Reinsurance~~Unpaid Claims and Claim Expenses	24
	Note 78 - ~~Property and Casualty Unpaid Claims and Claim Expenses~~Reinsurance	25
	Note 89 - ~~Debt~~Commitments	25
	Note 10 - Segment Information	26
	Note 911 - ~~Reinsurance~~Accumulated Other Comprehensive Income (Loss)	27
	Note ~~10 - Commitments~~	27
	~~Note 11 - Segment Information~~	28
	~~Note~~ 12 - ~~Operating Leases~~	29
	~~Note 13 -~~ Supplemental Disclosure of Consolidated Cash Flow Information	30
	~~Note 14 - Goodwill~~	3027

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3128

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5149

Item 4.	Controls and Procedures	5150

PART II - OTHER INFORMATION

Item 1A.	Risk Factors	5251

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52

Item 5.	Other Information	5352

Item 6.	Exhibits	5352

SIGNATURES		5756

PART I: FINANCIAL INFORMATION

Item 1.IConsolidated Financial Statements

~~Item 1. Financial Statements (Unaudited)~~

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Horace Mann Educators Corporation:

Results of Review of Interim Financial Information

We have reviewed the consolidated balance sheet of Horace Mann Educators Corporation and subsidiaries (the Company) as of ~~June 30, 2019,~~March 31, 2020, the related consolidated statements of operations, comprehensive income (loss) and changes in shareholders' equity for the three-month period ended March 31, 2020 and ~~six-month periods ended June 30,~~ 2019, ~~and 2018,~~ and cash flows for the ~~six-month periods~~three-month period ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, ~~2018,~~2019, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated ~~March 1, 2019,~~February 28, 2020, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, ~~2018,~~2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.



/s/ KPMG LLP
KPMG LLP

Chicago, Illinois
~~August~~May 8, ~~2019~~2020



Horace Mann Educators Corporation	1	Quarterly Report on Form 10-Q

HORACE MANN EDUCATORS CORPORATION

CONSOLIDATED BALANCE SHEETS

($ in thousands, except share data)

June 30, 2019 December 31, 2018
(Unaudited)
ASSETS
Investments
Fixed maturity securities, available for sale, at fair value
(amortized cost 2019, $5,241,755; 2018, $7,373,911)
$ 5,534,270
$ 7,515,318
Equity securities, at fair value 100,143
111,750
Limited partnership interests 351,515
328,516
Short-term and other investments 433,688
295,093
Total investments 6,419,616
8,250,677
Cash 7,616
11,906
Deferred policy acquisition costs 279,041
298,742
Deposit asset on reinsurance 2,315,330
—
Goodwill 29,458
47,396
Other assets 417,460
422,047
Separate Account (variable annuity) assets 2,310,886
2,001,128
Total assets $ 11,779,407
$ 11,031,896

LIABILITIES AND SHAREHOLDERS’ EQUITY
Policy liabilities
Investment contract and life policy reserves $ 5,776,769
$ 5,711,193
Unpaid claims and claim expenses 398,339
396,714
Unearned premiums 270,163
276,225
Total policy liabilities 6,445,271
6,384,132
Other policyholder funds 821,880
767,988
Other liabilities 403,812
290,358
Long-term debt 297,881
297,740
Separate Account (variable annuity) liabilities 2,310,886
2,001,128
Total liabilities 10,279,730
9,741,346
Preferred stock, $0.001 par value, authorized
1,000,000 shares; none issued
—
—
Common stock, $0.001 par value, authorized 75,000,000 shares;
issued, 2019, 66,036,205; 2018, 65,820,369
66
66
Additional paid-in capital 476,353
475,109
Retained earnings 1,318,329
1,216,582
Accumulated other comprehensive income (loss), net of tax:
Net unrealized investment gains on fixed maturity securities 203,077
96,941
Net funded status of benefit plans (12,185 ) (12,185 )
Treasury stock, at cost, 2019, 24,850,484 shares;
2018, 24,850,484 shares
(485,963 ) (485,963 )
Total shareholders’ equity 1,499,677
1,290,550
Total liabilities and shareholders’ equity $ 11,779,407
$ 11,031,896



	March 31, 2020			December 31, 2019
	(Unaudited)
ASSETS
Investments
Fixed maturity securities, available for sale, at fair value (amortized cost 2020, $5,653,466; 2019, $5,456,980)	$	5,843,183		$	5,791,676
Equity securities at fair value	87,033			101,864
Limited partnership interests	389,318			383,717
Short-term and other investments	281,697			361,976
Total investments	6,601,231			6,639,233
Cash	41,247			25,508
Deferred policy acquisition costs	297,815			276,668
Deposit asset on reinsurance	2,356,253			2,346,166
Intangible assets, net	173,531			177,217
Goodwill	49,079			49,079
Other assets	498,798			474,364
Separate Account (variable annuity) assets	1,954,201			2,490,469
Total assets	$	11,972,155		$	12,478,704

LIABILITIES AND SHAREHOLDERS’ EQUITY
Policy liabilities
Investment contract and policy reserves	$	6,273,640		$	6,234,452
Unpaid claims and claim expenses	438,403			442,854
Unearned premiums	266,247			279,163
Total policy liabilities	6,978,290			6,956,469
Other policyholder funds	716,318			647,283
Other liabilities	412,628			384,173
Short-term debt	135,000			135,000
Long-term debt	298,098			298,025
Separate Account (variable annuity) liabilities	1,954,201			2,490,469
Total liabilities	10,494,535			10,911,419
Preferred stock, $0.001 par value, authorized 1,000,000 shares; none issued	—			—
Common stock, $0.001 par value, authorized 75,000,000 shares; issued, 2020, 66,180,077; 2019, 66,088,808	66			66
Additional paid-in capital	481,917			480,962
Retained earnings	1,357,833			1,352,539
Accumulated other comprehensive income (loss), net of tax:
Net unrealized investment gains on fixed maturity securities	136,679			230,448
Net funded status of benefit plans	(10,767		)	(10,767		)
Treasury stock, at cost, 2020, 24,902,579 shares; 2019, 24,850,484 shares	(488,108		)	(485,963		)
Total shareholders’ equity	1,477,620			1,567,285
Total liabilities and shareholders’ equity	$	11,972,155		$	12,478,704

See Notes to Consolidated Financial Statements.



Horace Mann Educators Corporation	2	Quarterly Report on Form 10-Q

HORACE MANN EDUCATORS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

($ in thousands, except per share data)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
Revenues
Insurance premiums and contract charges earned	$	208,096		$	205,610		$	417,881		$	408,608		$	236,265		$	209,785
Net investment income	93,458			97,101			186,258			188,965			82,275			92,800
Net investment gains (losses)	146,333			735			153,750			(919		)	(18,464		)	7,417
Other income	3,591			2,811			6,802			5,092			7,169			5,874

Total revenues	451,478			306,257			764,691			601,746			307,245			315,876

Benefits, losses and expenses
Benefits, claims and settlement expenses	152,692			168,278			292,076			311,840			138,660			139,384
Interest credited	53,594			51,071			106,516			101,105			51,545			52,922
DAC amortization expense	31,648			26,586			56,621			53,291
Operating expenses	55,252			50,218			109,305			98,387			60,662			56,175
DAC unlocking and amortization expense													29,975			24,973
Intangible asset amortization expense													3,686			541
Interest expense	3,312			3,291			6,615			6,464			4,228			3,303
Other expense	28,025			—			28,025			—

Total benefits, losses and expenses	324,523			299,444			599,158			571,087			288,756			277,298

Income before income taxes	126,955			6,813			165,533			30,659			18,489			38,578
Income tax expense	33,133			896			39,545			4,587			17			6,412

Net income	$	93,822		$	5,917		$	125,988		$	26,072		$	18,472		$	32,166

Net income per share
Basic	$	2.25		$	0.14		$	3.02		$	0.63		$	0.44		$	0.77
Diluted	$	2.24		$	0.14		$	3.01		$	0.63		$	0.44		$	0.77

Weighted average number of shares and equivalent shares
Basic	41,762			41,600			41,685			41,531			41,827			41,610
Diluted	41,921			41,735			41,851			41,659			42,019			41,785

Net investment gains (losses)
Total other-than-temporary impairment losses on securities	$	(34	)	$	(1,177	)	$	(271	)	$	(1,287	)	$	(3,692	)	$	(236	)
Portion of losses recognized in other comprehensive income (loss)	—			—			—			—			—			—
Net other-than-temporary impairment losses on securities recognized in earnings	(34		)	(1,177		)	(271		)	(1,287		)	(3,692		)	(236		)
Sales and other, net	142,067			1,789			146,905			3,992			4,557			4,838
Change in fair value - equity securities	3,441			(1,156		)	6,948			(6,342		)	(14,486		)	3,506
Change in fair value and gains realized on settlements - derivative instruments	859			1,279			168			2,718
Change in fair value and gains (losses) realized on settlements - derivatives													(4,843		)	(691		)
Total	$	146,333		$	735		$	153,750		$	(919	)	$	(18,464	)	$	7,417

See Notes to Consolidated Financial Statements.



Horace Mann Educators Corporation	3	Quarterly Report on Form 10-Q

HORACE MANN EDUCATORS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

Change in net unrealized investment gains

(losses) on fixed maturity securities

See Notes to Consolidated Financial Statements.



Horace Mann Educators Corporation	4	Quarterly Report on Form 10-Q

HORACE MANN EDUCATORS CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

($ in thousands, except per share data)

Options exercised and conversion of common stock

units and restricted stock units

Dividends, 2019, $0.2875, $0.5750 per share;

2018, $0.2850, $0.5700 per share

Accumulated other comprehensive income (loss),

Change in net unrealized investment gains

on fixed maturity securities

Change in net unrealized investment gains (losses) on fixed maturity

See Notes to Consolidated Financial Statements.



Horace Mann Educators Corporation	5	Quarterly Report on Form 10-Q

HORACE MANN EDUCATORS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Benefits, withdrawals and net transfers to

Separate Account (variable annuity) assets



	Three Months Ended March 31,
	2020			2019
Cash flows from operating activities
Net income	$	18,472		$	32,166
Adjustments to reconcile net income to net cash provided by operating activities
Net investment (gains) losses	18,463			(7,417		)
Amortization of premiums and accretion of discounts on fixed maturity securities, net	953			504
Depreciation and intangible asset amortization	5,283			1,357
Share-based compensation expense	1,220			1,472
Changes in:
Accrued investment income	(9,460		)	(2,871		)
Insurance liabilities	65,676			95,616
Premium receivables	2,189			2,796
Deferred policy acquisitions	(4,400		)	(700		)
Reinsurance recoverables	272			19,024
Income tax liabilities	1,057			6,539
Other operating assets and liabilities	(15,743		)	(17,723		)
Other	3,449			(5,960		)
Net cash provided by operating activities	87,431			124,803

Cash flows - investing activities
Fixed maturity securities
Purchases	(535,278		)	(307,451		)
Sales	98,158			59,724
Maturities, paydowns, calls and redemptions	237,939			136,141
Equity securities
Purchases	(4,114		)	(3,569		)
Sales and repayments	1,457			15,489
Limited partnership interests
Purchases	(14,120		)	(8,842		)
Sales	2,331			9,858
Change in short-term and other investments, net	73,632			(29,341		)
Acquisition of business, net of cash acquired	—			(18,198		)
Net cash used in investing activities	(139,995		)	(146,189		)

Cash flows - financing activities
Dividends paid to shareholders	(12,383		)	(11,790		)
Acquisition of treasury stock	(2,145		)	—
Proceeds from exercise of stock options	480			583
Withholding tax payments on RSUs tendered	(1,280		)	(3,311		)
Annuity contracts: variable, fixed and FHLB funding agreements
Deposits	192,655			157,305
Benefits, withdrawals and net transfers to Separate Account (variable annuity) assets	(101,688		)	(109,246		)
Life policy accounts
Deposits	2,562			2,714
Withdrawals and surrenders	(1,194		)	(904		)
Change in deposit asset on reinsurance	(13,277		)	—
Change in book overdrafts	4,573			(18,590		)
Net cash provided by financing activities	68,303			16,761
Net increase (decrease) in cash	15,739			(4,625		)
Cash at beginning of period	25,508			11,906
Cash at end of period	$	41,247		$	7,281

See Notes to Consolidated Financial Statements.



Horace Mann Educators Corporation	6	Quarterly Report on Form 10-Q

HORACE MANN EDUCATORS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~($ in thousands, except per share data and unless noted otherwise)~~

~~Note~~NOTE 1 - Basis of Presentation and Significant Accounting Policies

~~The accompanying unaudited consolidated financial statements of~~ Horace Mann Educators Corporation ~~(HMEC;~~is a holding company for insurance subsidiaries that market and ~~together with its subsidiaries,~~underwrite personal lines of property and casualty insurance products (primarily personal lines of automobile and property insurance), supplemental insurance products (primarily heart, cancer, accident and limited short-term supplemental disability coverages), retirement products (primarily tax-qualified annuities) and life insurance, primarily to K-12 teachers, administrators and other employees of public schools and their families (collectively, HMEC, the Company or Horace Mann).

On July 1, 2019, the Company acquired NTA Life Enterprises, LLC (NTA). As a result, the Company’s reporting segments were changed effective in the third quarter of 2019. A newly created Supplemental segment was added to report on the personal lines of supplemental insurance products that are marketed and underwritten by NTA.

Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the ~~U.S.~~United States of America (GAAP) and with the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in annual financial statements prepared in conformity with GAAP, but are not required for interim reporting purposes, have been omitted. These Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Part II - Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31, 2019. The ~~Company believes that these consolidated~~results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year.

The accompanying Consolidated Financial Statements and Notes are unaudited. These financial statements ~~contain~~reflect all adjustments ~~(consisting~~(generally consisting only of normal recurring accruals) which are, in the opinion of management, necessary ~~to present fairly~~for the ~~Company’s~~fair presentation of the consolidated financial position, ~~as of June 30, 2019, the consolidated~~ results of operations ~~comprehensive income (loss), changes in shareholders’ equity~~ and cash flows for the ~~six month~~interim periods. The Company's significant accounting policies are summarized in Part II - Item 8, Note 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

Effective for the year ended December 31, 2019, the Company decided to change the approach it uses for presentation in its Consolidated Statements of Cash Flows from the direct method to the indirect method as management considers presentation under the indirect method as more comparable to the method used by others in the insurance industry. Accordingly, the Company has recast all prior periods ~~ended June 30, 2019~~presented in the Consolidated Statements of Cash Flows to conform to the current year’s presentation.

The Company has reclassified the presentation of certain prior period information to conform to the current year's presentation.

All intercompany transactions and ~~2018.~~ balances between HMEC and its subsidiaries and affiliates have been eliminated.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from ~~those~~these estimates.

The subsidiaries of HMEC market and underwrite personal lines of property and casualty insurance products (primarily personal lines of automobile and property insurance), retirement products (primarily tax-qualified annuities) and life insurance, primarily to K-12 teachers, administrators and other employees of public schools and their families. HMEC’s principal operating subsidiaries are Horace Mann Life Insurance Company, Horace Mann Insurance Company, Teachers Insurance Company, Horace Mann Property & Casualty Insurance Company and Horace Mann Lloyds.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

~~The results of operations for the three and six month periods ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year.~~

~~Investment Contract and Life Policy Reserves~~



Horace Mann Educators Corporation	7	Quarterly Report on Form 10-Q

~~The following table summarizes investment contract and life policy reserves.~~

($ in thousands) June 30, 2019 December 31, 2018
Investment contract reserves $ 4,605,272
$ 4,555,856
Life policy reserves 1,171,497
1,155,337
Total $ 5,776,769
$ 5,711,193

~~Note~~NOTE 1 - Basis of Presentation ~~(Continued)~~(continued)

~~Accumulated Other Comprehensive Income (Loss)~~

Accumulated other comprehensive income (loss) (AOCI) represents the accumulated change in shareholders’ equity from transactions and other events and circumstances from non-shareholder sources. For the Company, AOCI includes the after tax change in net unrealized investment gains (losses) onThe most significant accounting estimates include valuation of hard-to-value fixed maturity securities (including evaluation of other-than-temporary impairments), evaluation of goodwill and ~~the after tax change in net funded status~~intangible assets for impairment, valuation of ~~benefit plans~~supplemental, annuity and life deferred policy acquisition costs, valuation of liabilities for ~~the periods as shown in the Consolidated Statements~~property and casualty unpaid claims and claim expenses, valuation of ~~Changes in Shareholders’ Equity. The following tables reconcile these components.~~certain investment contracts and policy reserves and valuation of assets acquired and liabilities assumed under purchase accounting.

($ in thousands)
Net Unrealized Investment Gains (Losses) on Fixed Maturity Securities ⁽¹⁾⁽²⁾

Net Funded Status of
Benefit Plans ⁽¹⁾

Total ⁽¹⁾
Beginning balance, April 1, 2019 $ 210,839
$ (12,185 ) $ 198,654
Other comprehensive income (loss) before reclassifications 107,163
—
107,163
Amounts reclassified from AOCI (114,925 ) —
(114,925 )
Net current period other comprehensive income (loss) (7,762 ) —
(7,762 )
Ending balance, June 30, 2019 $ 203,077
$ (12,185 ) $ 190,892

Beginning balance, January 1, 2019 $ 96,941
$ (12,185 ) $ 84,756
Other comprehensive income (loss) before reclassifications 227,466
—
227,466
Amounts reclassified from AOCI (121,330 ) —
(121,330 )
Net current period other comprehensive income (loss) 106,136
—
106,136
Ending balance, June 30, 2019 $ 203,077
$ (12,185 ) $ 190,892

~~________________~~


⁽¹⁾	~~All amounts are net of tax.~~


⁽²⁾	The pretax amounts reclassified from AOCI, $145,474 thousand and $153,582 thousand, are included in net investment gains (losses) and the related income tax expenses, $30,549 thousand and $32,252 thousand, are included in income tax expense in the Consolidated Statements of Operations for the three and six month periods ended June 30, 2019, respectively.

~~Note 1 - Basis~~Adoption of ~~Presentation (Continued)~~

($ in thousands)
Net Unrealized Investment
Gains (Losses)
on Fixed Maturity Securities ⁽¹⁾⁽²⁾

Net Funded Status of
Benefit Plans ⁽¹⁾

Total⁽¹⁾⁽³⁾
Beginning balance, April 1, 2018, $ 178,040
$ (13,217 ) $ 164,823
Other comprehensive income (loss) before reclassifications (52,873 ) —
(52,873 )
Amounts reclassified from AOCI 429
—
429
Net current period other comprehensive income (loss) (52,444 ) —
(52,444 )
Ending balance, June 30, 2018 $ 125,596
$ (13,217 ) $ 112,379

Beginning balance, January 1, 2018 $ 300,177
$ (13,217 ) $ 286,960
Other comprehensive income (loss) before reclassifications (162,412 ) —
(162,412 )
Amounts reclassified from AOCI 2,872
—
2,872
Cumulative effect of change in accounting principle ⁽³⁾
(15,041 ) —
(15,041 )
Net current period other comprehensive income (loss) (174,581 ) —
(174,581 )
Ending balance, June 30, 2018 $ 125,596
$ (13,217 ) $ 112,379

~~________________~~


⁽¹⁾	~~All amounts are net of tax.~~


⁽²⁾	~~The pretax amounts reclassified from AOCI, $(544) thousand and~~ ~~$(3,636) thousand~~, are included in Net investment gains (losses) and the related income tax expenses, $(115) thousand and $(764) thousand, are included in Income tax expense in the Consolidated Statements of Operations for the three and six month periods ended June 30, 2018, respectively.


⁽³⁾	~~The Company adopted guidance on January 1, 2018 that resulted in reclassifying $15,041 thousand of after tax net unrealized gains on equity securities from AOCI to Retained earnings.~~

~~Comparative information for elements that are not required to be reclassified in their entirety to net income in the same reporting period is disclosed in Note 3.~~

~~Adopted~~New Accounting Standards

~~Accounting for Leases~~

Effective for the quarter ended March 31, 2019, the Company adopted guidance for leases and elected to utilize a cumulative-effect adjustment to the opening balance of retained earnings. Accordingly, the Company’s reporting for the comparative periods prior to adoption continue to be presented in the financial statements in accordance with previous lease accounting guidance. The Company elected to apply all practical expedients in the guidance for transition for leases in effect at adoption, including using hindsight to determine the lease term of existing leases, the option to not reassess whether an existing contract is a lease or contains a lease and whether the lease is an operating or finance lease. The adoption of the guidance resulted in the Company recognizing an initial $14,499 thousand lease liability equal to the present value of lease payments and an initial $13,908 thousand right-of-use (ROU) asset, which is the corresponding lease liability adjusted for qualifying accrued lease payments. The lease liability and ROU asset are reported in Other liabilities and Other assets on the Consolidated Balance Sheets. The impact of these changes at adoption had no impact on net income or shareholders' equity.

~~Simplifying the Test for Goodwill Impairment~~

Effective for the quarter ended June 30, 2019, the Company adopted guidance to simplify the accounting for goodwill impairment. Adoption of this guidance removed Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation. Goodwill impairment is now the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

~~Note 1 - Basis of Presentation (Continued)~~

~~Pending Accounting Standards~~

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued guidance ~~to improve~~which revises the credit loss recognition criteria for certain financial ~~reporting by requiring timelier recording of credit losses on loans and other financial instruments,~~assets measured at amortized cost, including reinsurance ~~receivables, held by companies.~~recoverables. The new guidance replaces the existing incurred loss ~~impairment methodology~~recognition model with an expected loss recognition model. The objective of the expected credit loss model is for ~~financial instruments other than available for sale debt securities and requires an organization~~a reporting entity to ~~measure and~~ recognize ~~all current~~its estimate of expected credit losses ~~(CECL)~~ for affected financial assets ~~held~~in a valuation allowance that when deducted from the amortized cost basis of the related financial assets results in a net carrying value at the amount expected to be collected. A reporting ~~date based on historical experience,~~entity must consider all relevant information available when estimating expected credit losses, including details about past events, current conditions, and reasonable and supportable forecasts. Companies will need to utilize forward-looking information to better estimate their credit losses. Companies will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Anyforecasts over the life of an asset. Financial assets may be evaluated individually or on a pooled basis when they share similar risk characteristics. The measurement of credit losses ~~related to~~for available for sale debt securities ~~will be recorded through an allowance for~~measured at fair value is not affected except that credit losses ~~with this allowance having a limit equal~~recognized are limited to the amount by which fair value is below amortized ~~cost.~~cost and the carrying value adjustment is recognized through a valuation allowance which may change over time but once recorded cannot subsequently be reduced to an amount below zero. The ~~guidance also requires enhanced qualitative and quantitative disclosures to provide additional information about the amounts recorded in the financial statements.~~

~~This~~ guidance is effective for ~~annual and interim~~ reporting periods beginning after December 15, ~~2019. Early adoption is permitted~~2019, and for most affected instruments must be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to beginning ~~after December 15, 2018. Upon adoption,~~retained earnings.

The Company’s implementation activities are complete and the impacts related to the Company’s commercial mortgage loan portfolio, agent advances, reinsurance recoverables and off-balance-sheet credit exposures for unfunded commercial mortgage loan commitments. The Company adopted the new guidance ~~will be applied using the modified-retrospective approach, by which~~on January 1, 2020 and recognized a ~~cumulative-effect~~cumulative effect adjustment ~~will be made to~~that decreased retained earnings asby $0.5 million.

Future Adoption of the beginning of the first reporting period in which the guidance is effective. The guidance will have the most impact on the Company’s available for sale fixed maturity securities portfolio. However, as the Company’s fixed maturity securities portfolio is weighted towards higher rated bonds (97.1% investment grade, based on fair value, with an average quality rating of A+ at June 30, 2019), the Company does not expect that the effect of adoption will be material.

New Accounting Standards

Accounting for Long-Duration Insurance Contracts

In August 2018, the FASB issued accounting and disclosure guidance that contains targeted improvements to the accounting for long-duration insurance contracts. Under the new guidance, the cash flow assumptions used to measure the liability for future policy benefits for traditional insurance contracts will be required to be updated at least annually with changes recognized as a benefit expense (i.e., assumptions will no longer be locked-in). Insurance entities will be required to use a standard discount rate to measure the liabilities that will be equivalent to the yield from a high-quality bond. The new guidance also changes the amortization of deferred acquisition costs (DAC) to be on a constant-level basis over the expected term of the related contracts with no interest accruing on the DAC balance. The new guidance also introduces a new category of contract features associated with deposit type contracts referred to as market risk benefits (MRBs). Contract features meeting the definition of a MRB will be measured at fair value. New disclosures will be required for long-duration insurance contracts in order to provide better transparency into the exposure of insurance entities and the drivers of their results. For public business entities, the guidance is effective for annual reporting periods beginning after December 15, ~~2020,~~2021, including interim periods within those years. With regards to the liability for future policy benefits and DAC, the guidance applies to contracts in force as of the beginning of the earliest period presented and may be applied retrospectively. With regards to MRBs, the guidance is to be applied retrospectively at the beginning of the earliest period presented. Early adoption is permitted. Management is currently evaluating the impact this guidance will have on the results of operations and financial position of the Company.

Accounting Policies

The following accounting policy has been updated to reflect the Company's adoption of Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments as described above.

The Company conducts a periodic review to identify and evaluate invested assets that may have credit impairments.



Horace Mann Educators Corporation	8	Quarterly Report on Form 10-Q

NOTE 1 - Basis of Presentation (continued)

Credit Impairments of Fixed Maturities

Some of the factors considered in assessing impairment of fixed maturities due to credit-related factors include: (1) the extent to which the fair value has been less than amortized cost; (2) the financial condition, near-term and long-term prospects for the issuer, including the relevant industry conditions and trends, and implications of rating agency actions and offering prices; (3) the likelihood of the recoverability of principal and interest; and (4) whether it is more likely than not that the Company will be required to sell the investment prior to an anticipated recovery in value.

Beginning on January 1, 2020, credit losses are recognized through an allowance account. See Note 1 - Adoption of New Accounting Standards - Measurement of Credit Losses on Financial Instruments for additional information.

For fixed maturity securities that the Company does not intend to sell or for which it is more likely than not that the Company would not be required to sell before an anticipated recovery in value, the Company separates the credit loss component of the impairment from the amount related to all other factors and reports the credit loss component in net investment gains (losses). The impairment related to all other factors (non-credit factors) is reported in other comprehensive income (OCI). The allowance is adjusted for any additional credit losses and subsequent recoveries. Upon recognizing a credit loss, the cost basis is not adjusted.

For fixed maturity securities where the Company records a credit loss, a determination is made as to the cause of the impairment and whether the Company expects a recovery in the value. For fixed maturity securities where the Company expects a recovery in value, the constant effective yield method is utilized, and the investment is amortized to par.

For fixed maturity securities the Company intends to sell or for which it is more likely than not that the Company will be required to sell before an anticipated recovery in value, the full amount of the impairment is included in net investment gains (losses). The new cost basis of the investment is the previous amortized cost basis less the impairment recognized in net investment gains (losses). The new cost basis is not adjusted for any subsequent recoveries in fair value.

The Company reports investment income accrued separately from fixed maturity securities, available for sale, and has elected not to measure an allowance for credit losses for investment income accrued. Investment income accrued is written off through net investment gains (losses) at the time the issuer of the fixed maturity security defaults or is expected to default on payments.

Uncollectible available for sale fixed maturity securities are written off when the Company determines that no additional payments of principal or interest will be received.



Horace Mann Educators Corporation	9	Quarterly Report on Form 10-Q

~~Note~~NOTE 2 - ~~Acquisitions~~Investments

Net Investment Income

The components of net investment income for the following periods were:



($ in thousands)	Three Months Ended March 31,
	2020			2019
Fixed maturity securities	$	59,446		$	84,316
Equity securities	1,208			1,198
Limited partnership interests	(2,699		)	6,451
Short-term and other investments	2,857			3,388
Investment expenses	(2,225		)	(2,553		)
Net investment income - investment portfolio	58,587			92,800
Investment income - deposit asset on reinsurance	23,688			—
Total net investment income	$	82,275		$	92,800

Net Investment Gains (Losses)

Net investment gains (losses) for the following periods were:



($ in thousands)	Three Months Ended March 31,
	2020			2019
Fixed maturity securities	$	1,102		$	201
Equity securities	(14,723		)	7,907
Short-term investments and other	(4,843		)	(691		)
Net investment gains (losses)	$	(18,464	)	$	7,417

The Company, ~~and Benefit Consultants Group, Inc. (BCG) entered into~~from time to time, sells invested assets subsequent to the reporting date that were considered temporarily impaired at the reporting date. Such sales are due to issuer specific events occurring subsequent to the reporting date that result in a Stock Purchase Agreement under which the Company acquired all of the outstanding capital stock of BCG with a transaction valued at $25 million. The acquisition was approved by the Company’s Board and closed on January 2, 2019. The acquisition of BCG gave rise to recognition of intangible assets of $16.2 million and goodwill of $10.1 million as a result of the purchase accounting. The intangible assets are reported as Other assetschange in the ~~Consolidated Balance Sheets. Intangible assets~~Company's intent or ability to hold an invested asset. The types of events that ~~are amortizable have lives of 10~~may result in a sale include significant changes in the economic facts and circumstances related to ~~16 years.~~the invested asset, significant unforeseen changes in liquidity needs, or changes in the Company's investment strategy.

Net Investment Gains (Losses) by Transaction Type

The following table reconciles net investment gains (losses) pretax by transaction type:



($ in thousands)	Three Months Ended March 31,
	2020			2019
Impairment write-downs	$	—		$	—
Change in intent write-downs	(3,692		)	(236		)
Net OTTI losses recognized in earnings	(3,692		)	(236		)
Sales and other, net	4,557			4,838
Change in fair value - equity securities	(14,486		)	3,506
Change in fair value and gains (losses) realized on settlements - derivatives	(4,843		)	(691		)
Net investment gains (losses)	$	(18,464	)	$	7,417

On July 1, 2019, the Company completed its acquisition of all the equity interests in National Teachers Associates Life Insurance Company (NTA) pursuant to a Purchase Agreement (Agreement) dated as of December 10, 2018, by and among the Company and Ellard Family Holdings, Inc., Brian M. Ellard and The JCE Exempt Trust. The purchase price of the transaction was $425 million which includes $20 million representing NTA’s share of "adjusted earnings" (as determined in accordance with the terms of the Agreement) from July 1, 2018 to July 1, 2019. As a result of the acquisition, NTA became a wholly owned subsidiary of the Company. NTA provides supplemental insurance products, including heart and cancer, to the education market. NTA's results will be reported in a newly created operating segment titled "Supplemental".



Horace Mann Educators Corporation	10	Quarterly Report on Form 10-Q

~~Note 3~~NOTE 2 - Investments (continued)

Fixed Maturity Securities

The ~~Company’s~~Company's investment portfolio is comprised primarily of fixed maturity securities. Amortized cost, net unrealized investment gains (losses) and fair values of all fixed maturity securities in the portfolio were as follows:

($ in thousands)
Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value
June 30, 2019
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:⁽¹⁾

Mortgage-backed securities $ 550,059
$ 37,900
$ 1,201
$ 586,758
Other, including U.S. Treasury securities 546,396
20,574
533
566,437
Municipal bonds 1,472,794
127,700
801
1,599,693
Foreign government bonds 45,303
2,064
—
47,367
Corporate bonds 1,226,962
96,535
2,211
1,321,286
Other mortgage-backed securities 1,400,241
20,786
8,298
1,412,729
Totals $ 5,241,755
$ 305,559
$ 13,044
$ 5,534,270

December 31, 2018
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:⁽¹⁾

Mortgage-backed securities $ 778,038
$ 22,724
$ 13,321
$ 787,441
Other, including U.S. Treasury securities 835,096
16,127
17,681
833,542
Municipal bonds 1,884,313
133,150
13,494
2,003,969
Foreign government bonds 83,343
2,321
760
84,904
Corporate bonds 2,054,105
64,296
38,891
2,079,510
Other mortgage-backed securities 1,739,016
10,467
23,531
1,725,952
Totals $ 7,373,911
$ 249,085
$ 107,678
$ 7,515,318

~~________________~~



($ in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
March 31, 2020
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:⁽¹⁾
Mortgage-backed securities	$	676,322	$	75,985	$	392	$	751,915
Other, including U.S. Treasury securities	430,193		38,540		60		468,673
Municipal bonds	1,626,005		151,302		7,376		1,769,931
Foreign government bonds	42,802		1,804		754		43,852
Corporate bonds	1,649,405		77,572		41,204		1,685,773
Other mortgage-backed securities	1,228,739		6,068		111,768		1,123,039
Totals	$	5,653,466	$	351,271	$	161,554	$	5,843,183

December 31, 2019
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:⁽¹⁾
Mortgage-backed securities	$	684,543	$	41,263	$	1,487	$	724,319
Other, including U.S. Treasury securities	436,665		22,824		621		458,868
Municipal bonds	1,545,787		141,996		1,580		1,686,203
Foreign government bonds	42,801		2,569		—		45,370
Corporate bonds	1,464,444		118,775		1,795		1,581,424
Other mortgage-backed securities	1,282,740		20,883		8,131		1,295,492
Totals	$	5,456,980	$	348,310	$	13,614	$	5,791,676

⁽¹⁾

Fair value includes securities issued by Federal National Mortgage Association (FNMA) of ~~$370,182 thousand~~$413.3 million and ~~$441,308 thousand;~~$405.1 million; Federal Home Loan Mortgage Corporation (FHLMC) of ~~$256,531 thousand~~$308.4 million and ~~$417,308 thousand;~~$283.1 million; and Government National Mortgage Association (GNMA) of ~~$79,141 thousand~~$151.1 million and ~~$96,466 thousand~~$147.4 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.



Horace Mann Educators Corporation	11	Quarterly Report on Form 10-Q

~~Note 3~~NOTE 2 - Investments ~~(Continued)~~(continued)

The following table presents the fair value and gross unrealized losses offor fixed maturity securities in an unrealized loss position at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The Company views the decrease in fair value of all of the fixed maturity securities with unrealized losses at ~~June 30, 2019 --~~March 31, 2020 — which was driven largely by increasing interest rates, spread widening, financial market illiquidity and/or market volatility from the date of acquisition --— as temporary. ~~For fixed maturity securities, management does~~As of March 31, 2020, the Company has not ~~have~~made the ~~intent~~decision to sell ~~the securities~~ and it is not more likely than not the Company will be required to sell ~~the~~fixed maturity securities with unrealized losses before ~~the~~an anticipated recovery ~~of their amortized cost bases, and management expects to recover the entire amortized cost bases of the fixed maturity securities.~~in value. Therefore, it was determined that the unrealized losses on the securities presented in the table below were not other-than-temporarily impaired as of ~~June 30, 2019.~~March 31, 2020.


($ in thousands)	12 Months or Less					More than 12 Months					Total					12 Months or Less					More than 12 Months					Total
	Fair Value			Gross Unrealized Losses		Fair Value			Gross Unrealized Losses		Fair Value			Gross Unrealized Losses		Fair Value			Gross Unrealized Losses		Fair Value			Gross Unrealized Losses		Fair Value			Gross Unrealized Losses
June 30, 2019
March 31, 2020
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	$	10,504		$	27	$	44,564		$	1,174	$	55,068		$	1,201	$	23,168		$	302	$	1,003		$	90	$	24,171		$	392
Other	11,463			32		37,575			501		49,038			533		15,736			60		—			—		15,736			60
Municipal bonds	16,900			93		34,031			708		50,931			801		191,688			7,376		—			—		191,688			7,376
Foreign government bonds	—			—		—			—		—			—		13,225			754		—			—		13,225			754
Corporate bonds	27,858			518		32,997			1,693		60,855			2,211		549,628			39,268		5,761			1,936		555,389			41,204
Other mortgage-backed securities	391,170			3,895		277,694			4,403		668,864			8,298		651,595			71,055		329,304			40,713		980,899			111,768
Total	$	457,895		$	4,565	$	426,861		$	8,479	$	884,756		$	13,044	$	1,445,040		$	118,815	$	336,068		$	42,739	$	1,781,108		$	161,554

Number of positions with a gross unrealized loss	143					156					299					1,080					104					1,184
Fair value as a percentage of total fixed maturity securities fair value	8.3		%			7.7		%			16.0		%			24.7		%			5.8		%			30.5		%

December 31, 2018
December 31, 2019
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	$	193,447		$	5,026	$	157,295		$	8,295	$	350,742		$	13,321	$	72,422		$	1,282	$	2,620		$	205	$	75,042		$	1,487
Other	263,497			6,746		246,213			10,935		509,710			17,681		38,341			619		1,527			2		39,868			621
Municipal bonds	291,869			7,603		95,297			5,891		387,166			13,494		91,195			977		9,160			603		100,355			1,580
Foreign government bonds	16,250			760		—			—		16,250			760		—			—		—			—		—			—
Corporate bonds	818,519			27,429		99,171			11,462		917,690			38,891		58,198			886		16,622			909		74,820			1,795
Other mortgage-backed securities	913,858			16,076		291,442			7,455		1,205,300			23,531		218,710			1,970		442,791			6,161		661,501			8,131
Total	$	2,497,440		$	63,640	$	889,418		$	44,038	$	3,386,858		$	107,678	$	478,866		$	5,734	$	472,720		$	7,880	$	951,586		$	13,614

Number of positions with a gross unrealized loss	1,052					359					1,411					330					137					467
Fair value as a percentage of total fixed maturity securities fair value	33.2		%			11.8		%			45.0		%			8.3		%			8.2		%			16.5		%

Fixed maturity securities with an investment grade rating represented ~~84.0%~~89.0% of the gross unrealized losses as of ~~June 30, 2019.~~March 31, 2020. With respect to fixed maturity securities involving securitized financial assets, the underlying collateral cash flows were stress tested to determine there was no adverse change in the present value of cash flows below ~~their~~the amortized cost ~~bases.~~basis.



Horace Mann Educators Corporation	12	Quarterly Report on Form 10-Q

~~Note 3~~NOTE 2 - Investments ~~(Continued)~~(continued)

Credit Losses

The following table summarizes the cumulative amounts related to the Company's credit loss component of other-than-temporary impairment (OTTI) losses on fixed maturity securities held as of March 31, 2020 and 2019 that the Company did not intend to sell as of those dates, and it was not more likely than not that the Company would be required to sell the securities before an anticipated recovery in value, for which the non-credit portions of OTTI losses were recognized in OCI:



($ in thousands)	Three Months Ended March 31,
	2020		2019
Cumulative credit loss⁽¹⁾
Beginning of period	$	1,529	$	1,529
New credit losses	185		—
Increases to previously recognized credit losses	—		—
Losses related to securities sold or paid down during the period	—		—
	$	1,714	$	1,529


⁽¹⁾	The cumulative credit loss amounts exclude OTTI losses on securities held as of the periods indicated that the Company intended to sell or it was more likely than not that the Company would be required to sell the security before an anticipated recovery of value.

For the three months ended March 31, 2020, there was no allowance recognized for current expected credit losses with respect to fixed maturity securities classified as available for sale.

Maturities of Fixed Maturity Securities

The following table presents the distribution of the Company’s fixed maturity securities portfolio by estimated expected maturity. Estimated expected maturities differ from contractual maturities, reflecting assumptions regarding borrowers' utilization of the right to call or prepay obligations with or without call or prepayment penalties. For structured securities, including mortgage-backed securities and other mortgage-backed securities, estimated expected maturities consider broker-dealer survey prepayment assumptions and are verified for consistency with the interest rate and economic environments.



($ in thousands)	Percent of Total Fair Value				March 31, 2020
	March 31, 2020		December 31, 2019		Fair Value		Amortized Cost
Estimated expected maturity:
Due in 1 year or less	4.0	%	3.6	%	$	230,397	$	233,386
Due after 1 year through 5 years	26.3	%	27.4	%	1,535,965		1,572,373
Due after 5 years through 10 years	29.4	%	29.6	%	1,719,303		1,661,161
Due after 10 years through 20 years	26.5	%	26.1	%	1,550,562		1,435,920
Due after 20 years	13.8	%	13.3	%	806,956		750,626
Total	100.0	%	100.0	%	$	5,843,183	$	5,653,466

Average option-adjusted duration, in years	6.1		6.0



Horace Mann Educators Corporation	13	Quarterly Report on Form 10-Q

NOTE 2 - Investments (continued)

Sales of Fixed Maturity and Equity Securities

Proceeds received from sales of fixed maturity and equity securities, each determined using the specific identification method, and gross gains and gross losses realized as a result of those sales for each period were:



($ in thousands)	Three Months Ended March 31,
	2020			2019
Fixed maturity securities
Proceeds received	$	98,158		$	59,724
Gross gains realized	4,779			542
Gross losses realized	(268		)	(105		)

Equity securities
Proceeds received	$	1,457		$	15,489
Gross gains realized	319			4,745
Gross losses realized	(556		)	(344		)

Net Unrealized Investment Gains (Losses) on Fixed Maturity Securities

The following table reconciles net unrealized investment gains (losses) on fixed maturity securities, net of tax, included in AOCI, before the impact of DAC:



($ in thousands)	Three Months Ended March 31,
	2020			2019
Net unrealized investment gains (losses) on fixed maturity securities, net of tax
Beginning of period	$	264,410		$	111,712
Change in net unrealized investment gains (losses) on fixed maturity securities	(103,773		)	140,012
Reclassification of net investment (gains) losses on securities to net income	(10,761		)	(6,405		)
End of period	$	149,876		$	245,319

Limited Partnership Interests

As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the carrying value of equity method limited ~~partnerships~~partnership interests totaled ~~$351,515 thousand~~$389.3 million and ~~$328,516 thousand,~~$383.7 million, respectively. Principal factors influencing carrying value appreciation or decline include operating performance, comparable public company earnings multiples, capitalization rates and the economic environment. The Company recognizes an impairment loss for equity method limited ~~partnerships~~partnership interests when evidence demonstrates that the loss is other than temporary. Evidence of a loss in value that is other than temporary may include the absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment.

~~Credit Losses~~

The following table summarizes the cumulative amounts related to the Company’s credit loss component of other-than-temporary impairment (OTTI) losses on fixed maturity securities held as of June 30, 2019 and 2018 that the Company did not intend to sell as of those dates, and it was not more likely than not that the Company would be required to sell the securities before the anticipated recovery of the amortized cost bases, for which the non-credit portions of OTTI losses were recognized in OCI:

($ in thousands) Six Months Ended
June 30,
2019 2018
Cumulative credit loss⁽¹⁾

Beginning of period $ 1,529
$ 3,825
New credit losses —
—
Increases to previously recognized credit losses —
246
Losses related to securities sold or paid down during the period —
—
End of period $ 1,529
$ 4,071

~~________________~~


⁽¹⁾	The cumulative credit loss amounts exclude OTTI losses on securities held as of the periods indicated that the Company intended to sell or it was more likely than not that the Company would be required to sell the security before the recovery of the amortized cost basis.

~~Maturities of Fixed Maturity Securities~~

The following table presents the distribution of the Company’s fixed maturity securities portfolio by estimated expected maturity. Estimated expected maturities differ from contractual maturities, reflecting assumptions regarding borrowers’ utilization of the right to call or prepay obligations with or without call or prepayment penalties. For structured securities, including mortgage-backed securities and other asset-backed securities, estimated expected maturities consider broker-dealer survey prepayment assumptions and are verified for consistency with the interest rate and economic environments.

($ in thousands) Percent of Total Fair Value June 30, 2019
June 30, 2019 December 31, 2018
Fair
Value

Amortized
Cost
Estimated expected maturity:
Due in 1 year or less 4.7 % 4.8 % $ 258,331
$ 252,586
Due after 1 year through 5 years 26.7 % 22.8 % 1,478,291
1,439,296
Due after 5 years through 10 years 29.6 % 32.8 % 1,638,887
1,555,825
Due after 10 years through 20 years 25.6 % 26.5 % 1,414,857
1,316,715
Due after 20 years 13.4 % 13.1 % 743,904
677,333
Total 100.0 % 100.0 % $ 5,534,270
$ 5,241,755

Average option-adjusted duration, in years 5.6
5.9

~~Note 3 - Investments (Continued)~~

~~Sales of Fixed Maturity and Equity Securities~~

($ in thousands) Three Months Ended
June 30, Six Months Ended
June 30,

2019 ⁽¹⁾
2018
2019 ⁽¹⁾
2018
Fixed maturity securities
Proceeds received $ 442,015
$ 100,129
$ 501,739
$ 190,023
Gross gains realized 147,774
2,352
148,316
4,022
Gross losses realized (5,976 ) (1,584 ) (6,081 ) (1,637 )

Equity securities
Proceeds received $ 1,633
$ 3,735
$ 17,122
$ 5,783
Gross gains realized 389
977
5,134
1,593
Gross losses realized (166 ) (147 ) (510 ) (181 )

~~________________~~


⁽¹⁾	Gross gains realized presented above include a $135.3 million realized investment gain associated with a transfer of investments to a reinsurer as consideration paid during the second quarter of 2019 in connection with the reinsurance of a $2.9 billion block of in force fixed and variable annuity business. See Notes 6 and 13 for further information.

~~Net Investment Gains (Losses)~~

~~The following table reconciles net investment gains (losses) pretax by transaction type:~~

($ in thousands) Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
Impairment write-downs $ —
$ —
$ —
$ —
Change in intent write-downs (34 ) (1,177 ) (271 ) (1,287 )
Net OTTI losses recognized in earnings (34 ) (1,177 ) (271 ) (1,287 )
Sales and other, net 142,067
1,789
146,905
3,992
Change in fair value - equity securities 3,441
(1,156 ) 6,948
(6,342 )
Change in fair value and gains (losses) realized
on settlements - derivative instruments
859
1,279
168
2,718
Net investment gains (losses) $ 146,333
$ 735
$ 153,750
$ (919 )

~~Note 3 - Investments (Continued)~~

~~Net Unrealized Investment Gains (Losses) on Fixed Maturity Securities~~

~~The following table reconciles net unrealized investment gains (losses) on fixed maturity securities, net of tax, included in AOCI, before the impact of DAC:~~

($ in thousands) Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
Net unrealized investment gains (losses)
on fixed maturity securities, net of tax

Beginning of period $ 245,319
$ 206,293
$ 111,712
$ 286,176
Change in net unrealized investment gains
(losses) on fixed maturity securities
100,693
(61,724 ) 240,705
(129,009 )
Reclassification of net investment (gains) losses
on securities to net income
(114,925 ) 429
(121,330 ) 2,872
Cumulative effect of change in accounting principle ⁽¹⁾
—
—
—
(15,041 )
End of period $ 231,087
$ 144,998
$ 231,087
$ 144,998

~~________________~~


⁽¹⁾	Effective January 1, 2018, with the adoption of new accounting guidance for recognition and measurement of financial instruments, available for sale equity securities were reclassified to equity securities at fair value and the related net unrealized gains were reclassified from AOCI to Retained earnings.

Offsetting of Assets and Liabilities

The ~~Company’s derivative instruments~~Company's derivatives (call options) are subject to enforceable master netting arrangements. Collateral support agreements associated with each master netting arrangement provide that the Company will receive or pledge financial collateral in the event minimum thresholds have been reached.



Horace Mann Educators Corporation	14	Quarterly Report on Form 10-Q

NOTE 2 - Investments (continued)

The following table presents instruments that were subject to a master netting arrangement for the Company.


($ in thousands)			Gross Amounts Offset in the		Net Amounts of Assets/ Liabilities Presented in the		Gross Amounts Not Offset in the Consolidated Balance Sheets								Gross Amounts Offset in the Consolidated Balance Sheets			Net Amounts of Assets/ Liabilities Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts		Consolidated Balance Sheets		Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount		Gross Amounts				Financial Instruments			Cash Collateral Received		Net Amount
June 30, 2019
March 31, 2020
Asset derivatives:
Free-standing derivatives	$	8,753	$	—	$	8,753	$	—	$	8,663	$	90	$	2,622	$	—		$	2,622	$	1,688	$	1,060	$	(126	)

December 31, 2018
December 31, 2019
Asset derivatives:
Free-standing derivatives	$	2,647	$	—	$	2,647	$	—	$	1,868	$	779	13,239		—			13,239		7,687		6,640		(1,088		)

~~Note 3 - Investments (Continued)~~

At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, fixed maturity securities with a fair value of ~~$18,073 thousand~~$27.0 million and ~~$17,695 thousand,~~$26.0 million, respectively, were on deposit with governmental agencies as required by law in various states in which the insurance subsidiaries of HMEC conduct business. In addition, at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, fixed maturity securities with a fair value of ~~$787,421 thousand~~$679.7 million and ~~$740,016 thousand,~~$594.2 million, respectively, were on deposit with the Federal Home Loan Bank of Chicago (FHLB) as collateral for amounts subject to funding agreements, advances and borrowings which were equal to ~~$725,000 thousand~~$620.0 million at ~~June 30, 2019~~March 31, 2020 and ~~$675,000 thousand~~$545.0 million at December 31, ~~2018.~~2019. The deposited securities are included in Fixed maturity securities on the Company’s Consolidated Balance Sheets.

~~Note 4~~NOTE 3 - Fair Value of Financial Instruments

The Company is required under GAAP to disclose estimated fair values for certain financial and nonfinancial assets and liabilities. Fair values of the Company’s insurance contracts other than annuity contracts (which are investment contracts) are not required to be disclosed. However, the estimated fair values of liabilities under all insurance contracts are taken into consideration in the Company’s overall management of interest rate risk through the matching of investment maturities with amounts due under insurance contracts.

Information regarding the three-level hierarchy presented below and the valuation methodologies utilized by the Company to estimate fair values at each reporting date is included in Part II - Item 8, Note 34 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.



Horace Mann Educators Corporation	15	Quarterly Report on Form 10-Q

~~Note 4~~NOTE 3 - Fair Value of Financial Instruments ~~(Continued)~~(continued)

Financial Instruments Measured and Carried at Fair Value

on a Recurring Basis

The following table presents the ~~Company’s~~Company's fair value hierarchy for those assets and liabilities measured and carried at fair value on a recurring basis. During the three months ended March 31, 2020 and 2019, there were no transfers between Level 1 and Level 2. At ~~June 30, 2019,~~March 31, 2020, Level 3 invested assets comprised ~~4.0%~~5.9% of the Company’s total investment portfolio at fair value.

U.S. Government and federally

sponsored agency obligations:

Separate Account (variable annuity) assets ⁽¹⁾

Investment contract and life policy

reserves, embedded derivatives

Investment contract and policy reserves,

embedded derivatives

~~________________~~

⁽¹⁾ Separate Account (variable annuity) liabilities are equal to the estimated fair value of the Separate Account (variable annuity) assets.



Horace Mann Educators Corporation	16	Quarterly Report on Form 10-Q

NOTE 3 - Fair Value of Financial Instruments ~~(Continued)~~(continued)

~~During the six month periods ended June 30, 2019 and 2018, there were no transfers between~~Changes in Level ~~1 and Level 2.~~ 3 Fair Value Measurements

The ~~following table presents reconciliations for the periods indicated~~reconciliation for all ~~Level 3~~ assets and liabilities measured at fair value on a recurring ~~basis.~~basis using significant unobservable inputs (Level 3) was as follows:

Transfers into Level 3⁽³⁾

Transfers out of Level 3 ⁽³⁾

Net investment gains (losses) included in

net income related to financial assets

Net realized (gains) losses included in net

income related to financial liabilities

Net unrealized investment gains

(losses) included in OCI

Transfers into Level 3 ⁽³⁾

Transfers out of Level 3 ⁽³⁾

Net unrealized investment gains

(losses) included in OCI

~~________________~~



($ in thousands)	Financial Assets																		Financial Liabilities⁽¹⁾
	Municipal Bonds			Corporate Bonds			Other Mortgage- Backed Securities⁽²⁾			Total Fixed Maturity Securities			Equity Securities			Total
Beginning balance, January 1, 2020	$	44,291		$	103,952		$	146,828		$	295,071		$	107		$	295,178		$	93,733
Transfers into Level 3⁽³⁾	63,751			18,833			22,475			105,059			—			105,059			—
Transfers out of Level 3 ⁽³⁾	—			(10,022		)	(2,947		)	(12,969		)	—			(12,969		)	—
Total gains or losses
Net investment gains (losses) included in net income related to financial assets	—			—			—			—			(24		)	(24		)	—
Net realized (gains) losses included in net income related to financial liabilities	—			—			—			—			—			—			(5,042		)
Net unrealized investment gains (losses) included in OCI	(3,026		)	(5,481		)	(24,362		)	(32,869		)	—			(32,869		)	—
Purchases	—			6,875			1,890			8,765			—			8,765			—
Issuances	—			—			—			—			—			—			1,354
Sales	—			—			—			—			—			—			—
Settlements	—			—			—			—			—			—			—
Paydowns, maturities and distributions	(124		)	(2,464		)	(3,357		)	(5,945		)	—			(5,945		)	(2,539		)
Ending balance, March 31, 2020	$	104,892		$	111,693		$	140,527		$	357,112		$	83		$	357,195		$	87,506

Beginning balance, January 1, 2019	$	47,531		$	80,742		$	120,211		$	248,484		$	5		$	248,489		$	78,700
Transfers into Level 3 ⁽³⁾	—			3,074			21,934			25,008			—			25,008			—
Transfers out of Level 3 ⁽³⁾	—			—			—			—			—			—			—
Total gains or losses
Net investment gains (losses) included in net income related to financial assets	—			—			—			—			—			—			—
Net realized (gains) losses included in net income related to financial liabilities	—			—			—			—			—			—			4,334
Net unrealized investment gains (losses) included in OCI	344			2,549			(152		)	2,741			—			2,741			—
Purchases	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			3,018
Sales	—			—			—			—			—			—			—
Settlements	—			—			—			—			—			—			—
Paydowns, maturities and distributions	(119		)	(3,883		)	(6,203		)	(10,205		)	—			(10,205		)	(1,423		)
Ending balance, March 31, 2019	$	47,756		$	82,482		$	135,790		$	266,028		$	5		$	266,033		$	84,629

Transfers into and out of Level 3 during the three months ended March 31, 2020 and ~~six month periods ended June 30,~~ 2019 were attributable to changes in the availability of observable market information for individual fixed maturity securities. The ~~Company’s~~Company's policy is to recognize transfers into and transfers out of the levels as having occurred at the end of the reporting period in which the transfers were determined.

~~Note 4 - Fair Value of Financial Instruments (Continued)~~

Financial
Liabilities⁽¹⁾

Mortgage-
Backed
Securities ⁽²⁾

Transfers into Level 3 ⁽³⁾

Transfers out of Level 3 ⁽³⁾

Net realized (gains) losses included in net

income related to financial liabilities

Transfers into Level 3 ⁽³⁾

Transfers out of Level 3 ⁽³⁾

Net (gains) losses included in net

income related to financial liabilities

~~________________~~

For the ~~six month period~~three months ended ~~June 30,~~March 31, 2020 and March 31, 2019, the Company had no0 net losses on Level 3 securities. For the ~~six month period~~three months ended ~~June 30, 2018, the Company had a realized net loss on two Level 3 securities of $243 thousand. For the three and six month periods ended June 30, 2019,~~March 31, 2020, net investment ~~losses~~gains of ~~$371 thousand and $4,705 thousand~~$5.0 million were included in earnings that were attributable to the changes in the fair value of Level 3 liabilities (embedded derivatives) still held; for the three ~~and six month periods~~months ended ~~June 30, 2018,~~March 31, 2019, the respective ~~gain amounts~~net investment losses were ~~$1,291 thousand and $3,513 thousand.~~$4.3 million.



Horace Mann Educators Corporation	17	Quarterly Report on Form 10-Q

~~Note 4~~NOTE 3 - Fair Value of Financial Instruments ~~(Continued)~~(continued)

Quantitative Information about Level 3 Fair Value Measurements

The following table provides quantitative information about the significant unobservable inputs for recurring fair value measurements categorized within Level 3.

The valuation techniques and significant unobservable inputs used in the fair value measurement for financial assets and liabilities classified as Level 3 are subject to the control processes as described in Part II - Item 8, Note 34 in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. Generally, valuation techniques for fixed maturity securities include spread pricing, matrix pricing and discounted cash flow methodologies; include inputs such as quoted prices for identical or similar securities that are less liquid; and are based on lower levels of trading activity than securities classified as Level 2. The valuation techniques and significant unobservable inputs used in the fair value measurement for equity securities classified as Level 3 use similar valuation techniques and significant unobservable inputs as those used for fixed maturity securities.



Horace Mann Educators Corporation	18	Quarterly Report on Form 10-Q

NOTE 3 - Fair Value of Financial Instruments (continued)

The sensitivity of the estimated fair values to changes in the significant unobservable inputs for fixed maturity and equity securities included in Level 3 ~~generally relate to interest rate spreads, illiquidity premiums~~include: benchmark yield, liquidity premium, estimated cash flows, prepayment and default ~~rates.~~speeds, spreads, weighted average life, and credit rating. Significant spread widening in isolation will adversely impact the overall valuation, while significant ~~spread~~ tightening will lead to substantial valuation increases. Significant increases (decreases) in illiquidity premiums in isolation will result in substantially lower (higher) valuations. Significant increases (decreases) in expected default rates in isolation will result in substantially lower (higher) valuations.

Financial Instruments Not Carried at Fair Value; Disclosure Required

The Company has various other financial assets and financial liabilities used in the normal course of business that are not carried at fair value, but for which fair value disclosure is required. The following table presents the carrying value, fair value and fair value hierarchy of these financial assets and financial liabilities.

Investment contract and policy reserves,

fixed annuity contracts

Investment contract and policy reserves,

account values on life contracts

Investment contract and policy reserves,

fixed annuity contracts



Horace Mann Educators Corporation	19	Quarterly Report on Form 10-Q

~~Note 5~~NOTE 4 - ~~Derivative Instruments~~Derivatives

The Company offers fixed indexed annuity (FIA) products, which are deferred fixed annuities that guarantee the return of principal to the contractholder and credit interest based on a percentage of the gain in a specified market index. The Company also offers indexed universal life (IUL) products which credit interest based on a percentage of the gain in a specified market index. When deposits are received for FIA and IUL contracts, a portion is used to purchase derivatives consisting of call options on the applicable market indices to fund the index credits due to FIA and IUL policyholders. For the Company, substantially all such call options are one-year options purchased to match the funding requirements of the underlying contracts. The call options are carried at fair value with changes in fair value included in Net investment gains (losses)~~, a component of revenues,~~ in the Consolidated Statements of Operations.

The change in fair value of derivatives includes the gains or losses recognized at the expiration of the option term or early termination and the changes in fair value for open positions. Call options are not purchased to fund the index liabilities which may arise after the next deposit anniversary date. On the respective anniversary dates of the indexed deposits, the index used to ~~compute~~determine the annual index credit is reset and new one-year call options are purchased to fund the next annual index credit. The cost of these purchases is managed through the terms of the FIA and IUL contracts, which permit changes to index return caps, participation rates and/or asset fees, subject to guaranteed minimums on each ~~contract’s~~contract's anniversary date. By adjusting the index return caps, participation rates or asset fees, crediting rates generally can be managed except in cases where the contractual features would prevent further modifications.

The future annual index credits on FIA are accounted for as a "series of embedded derivatives" over the expected life of the applicable contract with a corresponding reserve recorded. For IUL, the embedded derivative represents a single year liability for the index return.

The Company carries all ~~derivative instruments~~derivatives at fair value in the Consolidated Balance Sheets. The Company elected to not use hedge accounting for derivative transactions related to the FIA and IUL products. As a result, the Company recognizes the purchased call options and the embedded derivatives related to the provision of a contingent return at fair value, with changes in the fair value recognized immediately as Net investment gains (losses) in the Consolidated Statements of Operations. The fair values of ~~derivative instruments,~~derivatives, including ~~derivative instruments~~derivatives embedded in FIA and IUL contracts, are presented in the Consolidated Balance Sheets as follows:

IUL - embedded derivatives, included in

Investment contract and life policy reserves

IUL - embedded derivatives, included in

Investment contract and policy reserves

~~Note 5 - Derivative Instruments (Continued)~~

In general, the change in the fair value of the embedded derivatives related to FIA will not correspond to the change in fair value of the purchased call options because the purchased call options are one-year options while the options valued in the embedded derivatives represent the rights of the policyholder to receive index credits over the entire period the FIA contracts are expected to be in force, which typically exceeds 10 years. The changes in fair value of derivatives included in the Consolidated Statements of Operations were as follows:

Change in fair value of derivatives:⁽¹⁾



Horace Mann Educators Corporation	20	Quarterly Report on Form 10-Q

NOTE 4 - Derivatives (continued)

The ~~Company’s~~Company's strategy attempts to mitigate potential risk of loss under these agreements through a regular monitoring process, which evaluates the ~~program’s~~program's effectiveness. The Company is exposed to risk of loss in the event of nonperformance by the counterparties and, accordingly, option contracts are purchased from multiple counterparties, which are evaluated for creditworthiness prior to purchase of the contracts. All of these options have been purchased from nationally recognized financial institutions with a Standard and ~~Poor’s~~Poor's Global Inc. (S&P)/Moody's Investors Service, Inc. (Moody's) long-term credit rating of "BBB+/~~A1"~~A3" or higher at the time of purchase and the maximum credit exposure to any single counterparty is subject to concentration limits. The Company also obtains credit support agreements that allow it to request the counterparty to provide collateral when the fair value of the exposure to the counterparty exceeds specified amounts.

The notional amount and fair value of call options by counterparty and each ~~counterparty’s~~counterparty's long-term credit ratings were as follows:

As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company held ~~$8,663 thousand~~$2.7 million and ~~$1,868 thousand,~~$14.3 million, respectively, of cash and financial instruments received from counterparties for derivative collateral, which is included in Other liabilities on the Consolidated Balance Sheets. This derivative collateral limits the Company’s maximum amount of economic loss due to credit risk that would be incurred if parties to the call options failed completely to perform according to the terms of the contracts to ~~$250 thousand~~$0.3 million per counterparty.

~~Note 6~~NOTE 5 - Deposit Asset on Reinsurance

In the second quarter of 2019, the Company reinsured a $2.9 billion block of in force fixed and variable annuity business with a minimum crediting rate of 4.5%. This represented approximately 50% of the Company’s in force fixed annuity account balances. The arrangement contains investment guidelines and a trust to help meet the Company’s risk management objectives.

The annuity reinsurance transaction was effective April 1, 2019. Under the agreement, approximately $2.2 billion of fixed annuity reserves were reinsured on a coinsurance basis for consideration of approximately $2.3 billion which resulted in recognition of an after tax realized investment gain of $106.9 million. The separate account assets and liabilities of approximately $0.7 billion were reinsured on a modified coinsurance basis and thus, remain on the ~~Company’s~~Company's consolidated financial statements, but the related results of operations are fully reinsured.

The Company determined that the reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk. Therefore, the Company recognizes the reinsurance agreement using the deposit method of accounting. The assets transferred to the reinsurer as consideration paid is reported as a Deposit asset on reinsurance. As amounts are received or paid, consistent with the underlying reinsured contracts, the Deposit asset on reinsurance is adjusted. The Deposit asset on reinsurance is accreted to the estimated ultimate cash flows using the interest method and the adjustment is reported as Net investment ~~income.~~income in the Consolidated Statements of Operations.



Horace Mann Educators Corporation	21	Quarterly Report on Form 10-Q

NOTE 6 - Goodwill and Intangible Assets, net

The Company conducts impairment testing for goodwill at least annually, or more often if events, changes or circumstances indicate that the carrying amount may not be recoverable. See Part II - Item 8, Note 1 in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for further description of impairment testing.

There were no changes in the carrying amount of goodwill by reporting unit for the three months ended March 31, 2020. The carrying amount of goodwill by reporting unit as of March 31, 2020 was as follows:

As of March 31, 2020, the outstanding amounts of definite-lived intangible assets subject to amortization are attributable to the acquisitions of BCG and NTA during 2019. The acquisition of BCG resulted in initial recognition of definite-lived intangible assets subject to amortization in the amount of $14.1 million and the acquisition of NTA resulted in initial recognition of definite-lived intangible assets subject to amortization in the amount of $160.4 million. As of March 31, 2020 the outstanding amounts of definite-lived intangible assets subject to amortization were as follows:

In regards to the definite-lived intangible assets in the table above, the value of business acquired intangible asset represents the present value of the expected underwriting profit within policies that were in force on the date of acquisition. The value of distribution acquired intangible asset represents the present value of future business to be written by the existing agency force. The value of agency relationships intangible asset represents the present value of the commission overrides retained by NTA. The value of customer relationships intangible asset represents the present value of the expected profits from existing BCG customers in force at the date of acquisition. All of the aforementioned definite-lived intangible assets were valued using the income approach.



Horace Mann Educators Corporation	22	Quarterly Report on Form 10-Q

NOTE 6 - Goodwill and Intangible Assets, net (continued)

Estimated future amortization of the Company's definite-lived intangible assets were as follows:

The value of business acquired intangible asset is being amortized by product based on the present value of future premiums to be received. The value of distribution acquired intangible asset is being amortized on a straight-line basis. The value of agency relationships intangible asset is being amortized based on the present value of future premiums to be received. The value of customer relationships intangible asset is being amortized based on the present value of future profits to be received.

Indefinite-lived intangible assets (not subject to amortization) as of March 31, 2020 were as follows:

The trade names intangible asset represents the present value of future savings accruing NTA by virtue of not having to pay royalties for the use of the trade names, valued using the relief from royalty method. The state licenses intangible asset represents the regulatory licenses held by NTA that were valued using the cost approach.



Horace Mann Educators Corporation	23	Quarterly Report on Form 10-Q

NOTE 7 - ~~Property and Casualty~~ Unpaid Claims and Claim Expenses

The following table is a summary reconciliation of the beginning and ending Property and Casualty unpaid claims and claim expense reserves for the periods indicated. The table presents reserves on both a gross and net (after reinsurance) ~~bases.~~basis. The total net Property and Casualty insurance claims and claim expense incurred amounts are reflected in the Consolidated Statements of Operations. The end of the period gross reserve (before reinsurance) balances and the reinsurance recoverable balances are reflected on a gross basis in the Consolidated Balance Sheets.

Beginning gross reserves⁽¹⁾

Net reserves, beginning of period ⁽²⁾

Decrease in estimated reserves for claims occurring

Total claims and claim expenses incurred ⁽⁴⁾

Claims and claim expense payments

for claims occurring during:

Net reserves, end of period⁽²⁾

Ending gross reserves⁽¹⁾

~~________________~~



($ in thousands)	Three Months Ended March 31,
	2020			2019
Property and Casualty
Beginning gross reserves⁽¹⁾	$	386,976		$	367,180
Less: reinsurance recoverables	120,506			89,725
Net reserves, beginning of period ⁽²⁾	266,470			277,455
Incurred claims and claim expenses:
Claims occurring in the current period	105,454			118,767
Decrease in estimated reserves for claims occurring in prior periods⁽³⁾	(1,000		)	(2,000		)
Total claims and claim expenses incurred ⁽⁴⁾	104,454			116,767
Claims and claim expense payments for claims occurring during:
Current period	43,463			45,714
Prior periods	64,258			67,135
Total claims and claim expense payments	107,721			112,849
Net reserves, end of period⁽²⁾	263,203			281,373
Plus: reinsurance recoverables	119,045			78,328
Ending gross reserves⁽¹⁾	$	382,248		$	359,701

Unpaid claims and claim expenses as reported in the Consolidated Balance Sheets also include reserves for Supplemental, Life and Retirement of ~~$30,477 thousand~~$56.2 million and ~~$27,016 thousand~~$33.8 million as of ~~June 30, 2019~~March 31, 2020 and ~~2018,~~2019, respectively, in addition to Property and Casualty reserves.

Benefits, claims and settlement expenses as reported in the Consolidated Statements of Operations also include amounts for Supplemental, Life and Retirement of ~~$20,281 thousand~~$34.2 million and ~~$42,898 thousand~~$22.6 million for the three months ended March 31, 2020 and ~~six month periods ended June 30,~~ 2019, respectively, in addition to Property and Casualty amounts. ~~Benefits, claims and settlement expenses for Life and Retirement were $21,273 thousand and $44,147 thousand for the three and six month periods ended June 30, 2018, respectively.~~

Net favorable development of total reserves for Property and Casualty claims occurring in prior years was ~~$4.0~~$1.0 million and ~~$0.3~~$2.0 million for the ~~six month periods~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The favorable development for the ~~six month period~~three months ended ~~June 30,~~March 31, 2020 was the result of favorable loss trends in auto liability loss emergence for accident years 2019 and prior. The favorable development for the three months ended March 31, 2019 was predominately the result of favorable loss trends in auto and homeowners loss emergence for accident years 2018 and prior. ~~The favorable development for the six month period ended June 30, 2018 was predominately the result of favorable loss trends in homeowners emergence for accident years 2017 and prior.~~



Horace Mann Educators Corporation	24	Quarterly Report on Form 10-Q

~~Note~~NOTE 8 ~~- Debt~~

~~Indebtedness outstanding was as follows:~~

~~The 4.50% Senior Notes due 2025 (Senior Notes due 2025) and the FHLB borrowing are described in Note 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.~~

On June 21, 2019, the Company, as borrower, replaced its current line of credit with a new five-year Credit Agreement (Bank Credit Facility). The new Bank Credit Facility increased the amount available on this senior revolving credit facility to $225 million from $150 million. PNC Capital Markets, LLC and JPMorgan Chase Bank, N.A. served as joint leads on the new agreement, with The Northern Trust Company, U.S. Bank National Association, KeyBank National Association, Comerica Bank and Illinois National Bank participating in the syndicate. Terms and conditions of the new Bank Credit Facility are substantially consistent with the prior agreement, with an interest rate based on LIBOR plus 115 basis points.

On July 1, 2019, the Company utilized the senior revolving credit facility to partially fund the acquisition of NTA. As of August 1, 2019, the amount outstanding on the senior revolving credit facility was $135 million. The unused portion of the Bank Credit Facility is subject to a variable commitment fee, which was 0.15% on an annual basis at June 30, 2019.

~~Note 9~~ - Reinsurance

The Company recognizes the cost of reinsurance premiums over the contract periods for such premiums in proportion to the insurance protection provided. Amounts recoverable from reinsurers for unpaid claims and claim settlement expenses, including estimated amounts for unsettled claims, claims incurred but not yet reported and policy benefits, are estimated in a manner consistent with the insurance liability associated with the policy. The effects of reinsurance on premiums written and contract deposits; premiums and contract charges earned; and benefits, claims and settlement expenses were as follows:


($ in thousands)	Gross Amount		Ceded to Other Companies ⁽¹⁾		Assumed from Other Companies		Net Amount		Gross Amount		Ceded to Other Companies ⁽¹⁾		Assumed from Other Companies		Net Amount
Three months ended June 30, 2019
Three months ended March 31, 2020
Premiums written and contract deposits⁽²⁾	$	314,897	$	6,028	$	2,822	$	311,691	$	333,731	$	6,310	$	1,337	$	328,758
Premiums and contract charges earned	213,415		8,155		2,836		208,096		243,170		8,377		1,472		236,265
Benefits, claims and settlement expenses	153,436		2,797		2,053		152,692		139,532		1,984		1,112		138,660

Three months ended June 30, 2018
Three months ended March 31, 2019
Premiums written and contract deposits⁽²⁾	$	305,864	$	5,483	$	1,341	$	301,722	$	299,093	$	5,848	$	2,149	$	295,394
Premiums and contract charges earned	209,892		5,505		1,223		205,610		213,256		5,822		2,351		209,785
Benefits, claims and settlement expenses	170,459		3,330		1,149		168,278		142,052		4,292		1,624		139,384

Six months ended June 30, 2019
Premiums written and contract deposits ⁽²⁾	$	613,990	$	11,876	$	4,971	$	607,085
Premiums and contract charges earned	426,671		13,977		5,187		417,881
Benefits, claims and settlement expenses	295,488		7,089		3,677		292,076

Six months ended June 30, 2018
Premiums written and contract deposits⁽²⁾	$	594,680	$	10,997	$	2,047	$	585,730
Premiums and contract charges earned	417,629		11,033		2,012		408,608
Benefits, claims and settlement expenses	322,427		12,344		1,757		311,840

~~________________~~

~~Note 10~~NOTE 9 - Commitments

Investment Commitments

From time to time, the Company has outstanding commitments to ~~purchase~~fund investments ~~and/or~~in limited partnership interests, commercial mortgage loans and bank loans. Such unfunded commitments ~~to lend funds under bridge loans. Unfunded commitments to purchase investments~~ were ~~$157.4~~$389.9 million and ~~$145.4~~$306.2 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.



Horace Mann Educators Corporation	25	Quarterly Report on Form 10-Q

~~Note 11~~NOTE 10 - Segment Information

The Company conducts and manages its business through ~~four~~5 segments. See Note 1 for a description of the Company's reporting segments that changed effective in the third quarter of 2019. The ~~three~~4 operating segments, representing the major lines of insurance business ~~are:~~are, Property and Casualty ~~primarily~~(primarily personal lines automobile and property insurance ~~products;~~products), the newly created Supplemental (primarily heart, cancer, accident and limited short-term supplemental disability insurance coverages), Retirement ~~primarily~~(primarily tax-qualified fixed and variable ~~annuities;~~annuities) and Life ~~life insurance.~~(life insurance). The Company does not allocate the impact of corporate-level transactions to these operating segments, consistent with the basis for ~~management’s~~management's evaluation of the results of those segments, but classifies those items in the ~~fourth~~fifth segment, Corporate and Other. In addition to ongoing transactions such as corporate debt service, net investment gains (losses) and certain public company expenses, such items also have included corporate debt retirement costs, when applicable. Summarized financial information for these segments is as follows:

N/A - The acquisition of NTA closed on July 1, 2019.



Horace Mann Educators Corporation	26	Quarterly Report on Form 10-Q

~~Note 12~~NOTE 11 - ~~Operating Leases~~

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) (AOCI) represents the accumulated change in shareholders’ equity from transactions and other events and circumstances from non-shareholder sources. For the Company, AOCI includes the after tax change in net unrealized investment gains (losses) on fixed maturity securities and the after tax change in net funded status of benefit plans for the periods as shown in the Consolidated Statements of Changes in Shareholders’ Equity. The Company has various operating lease agreements, primarily for real estate (claims and marketing offices in a few states) as well as for computer equipment and copier machines. Such leases have remaining lease terms of 1 years to 6 years, some of which may include options to extend the leases for up to 10 years.

Net Unrealized Investment
Gains (Losses)
on

The pretax amounts reclassified from AOCI, $(13.6) million and $8.1 million, are included in Net investment gains (losses) and the related income tax expenses, $(2.9) million and $1.7 million, are included in Income tax expense in the Consolidated Statements of Operations for the three month periods ended March 31, 2020 and 2019, respectively.

~~Supplemental cash flow~~Comparative information ~~related~~for elements that are not required to ~~operating leases was as follows:~~

~~Supplemental balance sheet information related~~be reclassified in their entirety to ~~operating leases was as follows:~~

~~As of June 30, 2019,~~net income in the ~~Company has no additional operating leases that have not yet commenced.~~same reporting period is disclosed in Note 2.

~~Note 13~~NOTE 12 - Supplemental Disclosure of Consolidated Cash Flow Information



($ in thousands)	Three Months Ended March 31,
	2020			2019
Cash	$	40,655		$	7,281
Restricted cash	592			—
Total cash and restricted cash shown in the Consolidated Balance Sheets and Consolidated Statements of Cash Flows	$	41,247		$	7,281

Cash paid (recovered) during the three months for:
Interest	$	1,414		$	399
Income taxes	(718		)	(125		)

Non-cash investing activities include $2.1 billion of investments and policy loans transferred to a reinsurer as consideration paid during the second quarter of 2019 in connection with the Company’s reinsurance of a $2.9 billion block of in force fixed and variable annuity business. See Note 6 for further information.

Non-cash investing activities in respect to modifications or exchanges of fixed maturity securities ~~was~~as well as paid-in-kind activity for policy loans were insignificant for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

~~Note 14 - Goodwill~~



Horace Mann Educators Corporation	27	Quarterly Report on Form 10-Q

The Company conducts impairment testing for goodwill at least annually, or more often if events, changes or circumstances indicate that the carrying amount may not be recoverable. See Note 1 in the Company's Annual Report on Form 10-K for the year ended 2018 for further description of impairment testing.

The annuity reinsurance transaction described in Note 6 triggered the requirement to evaluate the goodwill associated with the annuity business of the Retirement segment. For the evaluation, the fair value of the Retirement segment was measured using a discounted cash flow method. The carrying value exceeded the fair value, resulting in a $28,025 thousand non-cash impairment charge during the quarter ended June 30, 2019 which represented the entire balance of the goodwill associated with the annuity business of the Retirement segment. The impairment charge was reported as Other expense in the Consolidated Statement of Operations.

~~Item~~ITEM 2. ~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~IManagement's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

(~~Dollars~~$ in millions, except per share data)

Measures within this MD&A that are not based on accounting principles generally accepted in the ~~U.S.~~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 ~~U.S.~~United States of America (GAAP) in the Appendix to the Company's ~~Second~~First Quarter ~~2019~~2020 Investor Supplement.

Increases or decreases in the MD&A that are not meaningful are marked "N.M.".

Forward-looking Information

Statements made in the following discussion that are not historical in nature are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to known and unknown risks, uncertainties and other factors. Horace Mann Educators Corporation ~~(HMEC;~~(referred to in Part I - Items 2 - 4 and ~~together with its subsidiaries,~~Part II of this report as "we", "our", "us", the ~~Company~~"Company", "Horace Mann" or ~~Horace Mann)~~"HMEC) is an insurance holding company. ~~Horace Mann is~~We are not under any obligation to (and expressly disclaims any such obligation to) update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. It is important to note that ~~the Company’s~~our actual results could differ materially from those projected in forward-looking statements due to a number of risks and uncertainties inherent in ~~the Company’s~~our business. See Part II - Item 1A in this Quarterly Report on Form 10-Q ~~and~~as well as in ~~the Company’s~~Part I - Item 1A in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 for additional information regarding risks and uncertainties.

Introduction

The purpose of this MD&A is to provide an understanding of ~~the Company’s~~our consolidated results of operations and financial condition. This MD&A should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in Part I - Item 1 of this report.

HMEC is an insurance holding ~~company. Through~~company and through its subsidiaries, ~~HMEC markets~~we market and ~~underwrites~~underwrite personal lines of property and casualty insurance, supplemental insurance products, retirement products, including annuities, and life insurance in the ~~U.S. The Company markets its~~United States of America (U.S.). We market our products primarily to K-12 teachers, administrators and other employees of public schools and their families.

~~This~~The MD&A ~~begins with the Company’s~~covers our consolidated financial highlights followed by consolidated results of operations, an outlook for future performance, details about critical accounting estimates, ~~and the~~ results of operations by ~~segment.~~segment and investment results.

Coronavirus Disease (COVID-19) Considerations

Beginning in March 2020, the global pandemic associated with the novel coronavirus COVID-19 and related economic conditions began to create unprecedented challenges for our country. We relied on our previously developed Corporate Pandemic Plan to address preparation, prevention and response measures specific to COVID-19 while allowing flexibility to quickly react to evolving circumstances and implement varying actions accordingly. Management continues to evaluate and update our responses as necessary to react to changing circumstances.

Horace Mann is focused on continuing to service policyholders with minimal business disruptions while keeping employees, educator customers and agents safe by leveraging remote work capabilities for employees that allow day-to-day operations to continue smoothly. Steps taken to address and minimize the impacts of COVID-19 include, but are not limited to:



Horace Mann Educators Corporation	28	Quarterly Report on Form 10-Q

Employees:

Deploying prevention strategies to reduce the transmission of COVID-19 in the workplace, in accordance with recommended guidance from the CDC.

Transitioning employees to work remotely in a phased approach to ensure the capability of our systems and networks to support and sustain increased remote activity.

Adhering to social distancing requirements and implementing daily employee health screening questionnaires for essential employees continuing to work in the office locations.

Implementing cybersecurity measures including increasing security and network monitoring to proactively identify and prevent potential security threats and vulnerabilities.

Identifying and assessing critical third-party vendors and ensuring their ability to continue to perform as anticipated.

Preparing a phased return to work strategy based on the guidance of the CDC and scientific experts.

Currently, more than 95% of our work force, including virtually 100% of our claims and customer service staff, is working remotely. The remaining 5% perform critical roles required to be carried out in an office location, such as check coding and processing, mail sorting, building maintenance, and limited management to provide on-site supervision.

Educator Customers:

Horace Mann markets primarily to K-12 teachers, administrators and other employees of public schools and their families and we estimate that 80% of our customer base are educators or other individuals employed by the public school system. In our experience, educators generally remain employed during periods of economic disruption and that remains true in this environment as educators are still teaching, albeit remotely. Steps taken to support our educator customers include:

Developing a communication strategy to provide information on how customers could reach Horace Mann or their Horace Mann agent and how they could access policy and account information online.

Providing a 15% credit on two months' automobile premium because our customers are driving less.

Offering a payment grace period through June on auto, property, supplemental and life insurance payments.

Extending personal automobile coverage to those delivering food, medicine and other essential goods.

Agents:

We also are supporting our network of over 750 exclusive agents with steps including:

Utilizing our Customer Care Center to provide support to all agents and policyholders.

Accelerating planned technology solutions, including video meeting software, enhanced e-signature capabilities and dynamic online appointment setting tools.

Offering expanded support as needed to help agents facing COVID-19 related challenges to continue to work efficiently in a virtual environment.

However, growth in new sales has slowed, particularly generated from in-person events at schools. Since March, schools have been forced to indefinitely postpone planned enrollment and other events as they address COVID-19 closing and other challenges. We anticipate sales levels to return to more normal levels in the third quarter of 2020 when the new school year begins. We are exploring additional ways to reach potential



Horace Mann Educators Corporation	29	Quarterly Report on Form 10-Q

customers and are also seeing very early signs that schools are now ready to tackle developing new forums to give their teachers access to the financial solutions we provide.

Personal automobile loss frequency has declined due to temporary changes in policyholder behavior due to COVID-19 ‘shelter in place’ guidelines implemented across the U.S. We do not offer event cancellation, travel, or pandemic-related coverages which would be negatively impacted by the COVID-19 pandemic. Management believes our potential exposure to losses related to life or supplemental insurance is very low.

In addition, over the past several years, Horace Mann proactively de-risked its portfolio in anticipation of a recession and believes it is well positioned for the current dislocation in the markets. Although we have experienced the impacts of market volatility on our fixed maturity security and limited partnership interest valuations in the first quarter of 2020, the investment portfolio is well diversified, is 95.3% investment grade-rated and has an average rating of A+. The annuity reinsurance agreement, entered into in the second quarter of 2019 which reinsured a $2.2 billion block of in force fixed annuities with a minimum crediting rate of 4.5%, helps mitigate the risk of not being able to generate appropriate spreads on the annuity business. We believe our capital and reserves are adequate to address any unusual loss patterns resulting from COVID-19.

Amid rapidly changing dynamics, we are continuing to evaluate all aspects of our operations and making necessary adjustments to manage our business. Ultimately, the extent of the impact will depend on how long it takes for the economy to return to some degree of normality. To date, these steps have been effective and maintained business continuity. Based on assumptions that presume a return to a normal operating environment within six months, capital and liquidity are expected to remain at or near target levels. We believe we are financially strong despite the potential impact of the COVID-19 pandemic and continued to produce solid operating results in the first quarter.

Consolidated Financial Highlights

($ in millions) Three Months Ended
June 30, 2019-2018 Six Months Ended
June 30, 2019-2018
2019 2018 Change % 2019 2018 Change %
Total revenues $ 451.5
$ 306.2
47.5 % $ 764.7
$ 601.7
27.1 %
Net income 93.8
5.9
N.M. 126.0
26.1
N.M.
Per diluted share:
Net income $ 2.24
$ 0.14
N.M. $ 3.01
$ 0.63
N.M.
Net investment gains (losses), after tax 2.74
0.01
N.M. 2.88
(0.01 ) N.M.
Book value per share $ 36.41
$ 32.93
10.6 %
Net income return on equity - last twelve months 8.6 % 12.7 %

Net income return on equity - annualized 18.1 % 3.7 %

~~___________________~~

~~N.M. - The Company defines increases or decreases greater than or equal to 150% as "N.M." or not meaningful.~~

~~Net Income~~



($ in millions)	Three Months Ended March 31,						2020-2019
	2020			2019			Change %
Total revenues	$	307.3		$	315.9		-2.7	%
Net income	18.5			32.2			-42.5	%
Per diluted share:
Net income	0.44			0.77			-42.9	%
Net investment gains (losses), after tax	(0.34		)	0.14			N.M.
Book value per share	$	35.80		$	34.60		3.5	%
Net income return on equity - last twelve months	11.3		%	2.2		%
Net income return on equity - annualized	4.9		%	9.5		%

For the three ~~and six month periods~~months ended ~~June 30, 2019,~~March 31, 2020, the Company's net income ~~increased $87.9~~decreased $13.7 million ~~and $99.9 million, respectively,~~ compared to the prior year ~~periods~~period primarily due to ~~recognition~~$15.2 million after-tax of ~~a $106.9 million after tax realized investment gain~~losses on changes in ~~the three month period ended June 30, 2019. The gain was associated with the transfer~~fair value of ~~investments~~equity securities as consideration in connection with the reinsurance of approximately 50% of the Company's fixed annuity account balances effective April 1, 2019. The impact from the realized investment gain was partially offset by a $28.0 million goodwill impairment charge. See Item 1, Note 6 and Note 14 of the Consolidated Financial Statements for more information regarding the annuity reinsurance transaction and the goodwill impairment charge.well as derivatives - all due to COVID-19 related market volatility.

~~Net income (loss) by segment is as follows:~~



Horace Mann Educators Corporation	30	Quarterly Report on Form 10-Q

($ in millions) Three Months Ended
June 30, 2019-2018 Six Months Ended
June 30, 2019-2018
2019 2018 Change % 2019 2018 Change %
Analysis of net income (loss) by segment:

Property and Casualty $ 5.1
$ (10.9 ) 146.8 % $ 20.1
$ (1.2 ) N.M.
Retirement (25.0 ) 14.1
N.M. (12.8 ) 25.5
N.M.
Life 5.2
5.9
-11.9 % 8.5
9.7
-12.4 %
Corporate and Other 108.5
(3.2 ) N.M. 110.2
(7.9 ) N.M.
Net income $ 93.8
$ 5.9
N.M. $ 126.0
$ 26.1
N.M.

~~___________________~~

~~N.M. - Not meaningful.~~

The net loss for the Retirement segment in the three month period ended June 30, 2019 is primarily due to the $28.0 million goodwill impairment which was triggered by the annuity reinsurance transaction.

The aforementioned $106.9 million after tax realized investment gain recognized in the three month period ended June 30, 2019 associated with the annuity reinsurance transaction is reported in the results for the Corporate and Other segment.

Consolidated Results of Operations

($ in millions) Three Months Ended
June 30, 2019-2018 Six Months Ended
June 30, 2019-2018
2019 2018 Change % 2019 2018 Change %
Insurance premiums and
contract charges earned
$ 208.1
$ 205.6
1.2 % $ 417.9
$ 408.6
2.3 %
Net investment income 93.5
97.1
-3.7 % 186.3
189.0
-1.4 %
Net investment gains (losses) 146.3
0.7
N.M. 153.7
(1.0 ) N.M.
Other income 3.6
2.8
28.6 % 6.8
5.1
33.3 %
Total revenues 451.5
306.2
47.5 % 764.7
601.7
27.1 %

Benefits, claims and settlement expenses 152.7
168.3
-9.3 % 292.1
311.9
-6.3 %
Interest credited 53.6
51.1
4.9 % 106.5
101.1
5.3 %
DAC amortization expense 31.6
26.5
19.2 % 56.6
53.2
6.4 %
Operating expenses 55.3
50.2
10.2 % 109.3
98.4
11.1 %
Interest expense 3.3
3.3
— % 6.6
6.5
1.5 %
Other expense 28.0
—
N.M. 28.0
—
N.M.
Total benefits, losses and expenses 324.5
299.4
8.4 % 599.1
571.1
4.9 %

Income before income taxes 127.0
6.8
N.M. 165.6
30.6
N.M.
Income tax expense 33.2
0.9
N.M. 39.6
4.5
N.M.
Net income $ 93.8
$ 5.9
N.M. $ 126.0
$ 26.1
N.M.

~~___________________~~

~~N.M. - Not meaningful.~~



($ in millions)	Three Months Ended March 31,					2020-2019
	2020			2019		Change %
Insurance premiums and contract charges earned	$	236.3		$	209.8	12.6	%
Net investment income	82.3			92.8		-11.3	%
Net investment gains (losses)	(18.5		)	7.4		N.M.
Other income	7.2			5.9		22.0	%
Total revenues	307.3			315.9		-2.7	%

Benefits, claims and settlement expenses	138.7			139.4		-0.5	%
Interest credited	51.5			52.9		-2.6	%
Operating expenses	60.7			56.2		8.0	%
DAC unlocking and amortization expense	30.0			25.0		20.0	%
Intangible asset amortization expense	3.7			0.5		N.M.
Interest expense	4.2			3.3		27.3	%
Total benefits, losses and expenses	288.8			277.3		4.1	%

Income before income taxes	18.5			38.6		-52.1	%
Income tax expense	—			6.4		-100.0	%
Net income	$	18.5		$	32.2	-42.5	%

Insurance Premiums and Contract Charges Earned

For the three ~~and six month periods~~months ended ~~June 30, 2019,~~March 31, 2020, insurance premiums and contract charges earned increased ~~$2.5 million and $9.3 million, respectively, compared to the prior year periods,~~$26.5 million. The increase is primarily due to ~~increases in average premium per policy for both automobile and property.~~

the addition of earned premiums from Supplemental.

Net Investment Income

Excluding accreted net investment income on the deposit asset on reinsurance, net investment income decreased $34.2 million for the three ~~and six month periods~~months ended ~~June 30, 2019 declined primarily because~~March 31, 2020 due to a $2.1 billion reduction in invested assets ~~decreased 22.2%~~ from ~~December 31, 2018 due to assets~~investments transferred under the annuity reinsurance transaction in the second quarter of 2019 as well as lower than expected ~~new money rates and prepayments that were partially offset by stronger~~ returns on alternative investments. Investment yields continue to be impacted by the low interest rate environment of recent years. ~~Annualized~~The annualized investment yield on the investment portfolio ~~yield is presented in the following table:~~excluding limited partnership interests* was as follows:

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
Pretax yield 5.1% 5.3% 5.1% 5.1%
After tax yield 4.1% 4.2% 4.1% 4.1%



	Three Months Ended March 31,
	2020	2019
Investment yield, excluding limited partnership interests, pretax - annualized*	4.5%	4.8%
Investment yield, excluding limited partnership interests, after tax - annualized*	3.6%	3.9%

During the ~~six month period~~three months ended ~~June 30, 2019, management~~March 31, 2020, we continued to identify and purchase investments, including a modest level of alternative investments, with attractive risk-adjusted yields relative to market conditions without venturing into asset classes or individual securities that would be inconsistent with ~~the Company's~~our overall conservative investment guidelines.



Horace Mann Educators Corporation	31	Quarterly Report on Form 10-Q

Net Investment Gains (Losses) ~~- Pretax~~

For the three ~~and six month periods~~months ended ~~June 30, 2019,~~March 31, 2020, net investment gains ~~increased $145.6~~decreased $25.9 million ~~and $154.7 million, respectively,~~ compared to the prior year ~~periods~~period. The decrease was primarily due to $15.2 million after-tax of losses on changes in fair value of equity securities as ~~a result of a realized investment gain of $135.3 million recognized during the three month period ended June 30, 2019 in connection with the transfer of investments~~well as derivatives - all due to COVID-19 related ~~to the aforementioned annuity reinsurance transaction.~~market volatility. The breakdown of net investment gains (losses) by transaction type ~~is shown in the following table:~~were as follows:


($ in millions)	Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended March 31,
	2019		2018			2019			2018			2020			2019
OTTI losses recognized in earnings	$	—	$	(1.2	)	$	(0.3	)	$	(1.3	)	$	(3.7	)	$	(0.2	)
Sales and other, net	142.1		1.8			146.9			4.0			4.5			4.8
Change in fair value - equity securities	3.4		(1.2		)	6.9			(6.4		)	(14.5		)	3.5
Change in fair value and gains (losses) realized on settlements - derivative instruments	0.8		1.3			0.2			2.7
Change in fair value and gains (losses) realized on settlements - derivatives												(4.8		)	(0.7		)
Net investment gains (losses)	$	146.3	$	0.7		$	153.7		$	(1.0	)	$	(18.5	)	$	7.4

~~The Company, from~~From time to time, ~~sells~~we may sell securities subsequent to the reporting date that were considered temporarily impaired at the reporting date. Such sales are due to issuer specific events occurring subsequent to the reporting date that result in a change in ~~the Company's~~our intent to sell an invested asset.

Other Income

For the three ~~and six month periods~~months ended ~~June 30, 2019,~~March 31, 2020, other income increased ~~compared to the prior year periods~~$1.3 million, primarily due to the inclusion of ~~BCG brokerage fees.~~

Supplemental results in the current quarter.

Benefits, Claims and Settlement Expenses

For the three ~~and six month periods~~months ended ~~June 30, 2019,~~March 31, 2020, benefits, claims and settlement expenses decreased ~~$15.6~~$0.7 million ~~and $19.8 million, respectively,~~ compared to the prior year ~~periods,~~period driven primarily by improved automobile loss experience and ~~property loss ratios.~~

lower catastrophe losses offset by the addition of benefits, claims and settlement expenses from the Supplemental segment.

Interest Credited

For the three ~~and six month periods~~months ended ~~June 30, 2019, the increase in Retirement~~March 31, 2020, interest credited ~~reflected higher interest costs on~~decreased $1.4 million compared to the prior year period primarily driven by a lower level of Federal Home Loan Bank (FHLB) funding ~~agreements as well as a 2.3% increase in average accumulated fixed deposits.~~agreements. Under the deposit method of accounting, the interest credited on the annuity reinsured block continues to be reported. The average deferred annuity credited rate was 2.5% at ~~June 30, 2019,~~March 31, 2020, excluding the reinsured block, and 3.6% at ~~June 30, 2018.~~March 31, 2019.

~~DAC Amortization Expense~~

Operating Expenses

For the three ~~month period~~months ended ~~June 30, 2019,~~March 31, 2020, operating expenses increased $4.5 million, primarily due to the inclusion of $10.1 million of operating expenses from Supplemental operations in the current quarter offset by expense reduction initiatives that began in 2019.

Deferred Acquisition Costs (DAC) Unlocking and Amortization Expense

For the three months ended March 31, 2020, DAC amortization expense increased ~~$5.1~~$5.0 million compared to the prior year period primarily due to ~~$5.1~~$5.6 million of accelerated amortization of the DAC asset associated with the reinsured annuity block. For the six month period ended June 30, 2019, DAC amortization increased $3.4 million compared to the prior year period due to the aforementioned DAC accelerated amortization partially offset by $3.2 million of favorableunfavorable DAC unlocking in Retirement due to market performance. For Life, DAC unlocking resulted in an immaterial change to amortization for the three ~~and six month periods~~months ended ~~June 30, 2019.~~March 31, 2020.

~~Operating Expenses~~

Intangible Asset Amortization Expense

For the three ~~and six month periods~~months ended ~~June 30, 2019, increases~~March 31, 2020, intangible asset amortization expense increased $3.2 million primarily due to the acquisition of NTA in ~~operating expenses were consistent with management's expectations as~~2019.

Interest Expense

For the ~~current periods include $2.8~~three months ended March 31, 2020, interest expense increased $0.9 million ~~and $5.6 million, respectively, of expenses pertaining~~compared to ~~BCG and the prior year periods benefited from a $2.2 million legal expense recovery.~~

~~The Property and Casualty expense ratio of 26.9% for the six month period ended June 30, 2019 was 0.5 points above~~ the prior year period ~~primarily due~~as we utilized our senior revolving credit facility in the third quarter of 2019 to partially fund the ~~legal expense recovery noted above.~~acquisition of NTA on July 1, 2019.

~~Interest Expense~~



Horace Mann Educators Corporation	32	Quarterly Report on Form 10-Q

~~For the three and six month periods ended June 30, 2019, interest expense was comparable to June 30, 2018.~~

~~Other Expense~~

~~For the three and six month periods ended June 30, 2019, other expense represents the aforementioned goodwill impairment in Retirement.~~

Income Tax Expense

The effective income tax rate on ~~the Company's~~our pretax income, including net investment gains (losses), was ~~23.9%~~0.0% and ~~15.0%~~16.6% for the ~~six month periods~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. Income from investments in tax-advantaged securities reduced the effective income tax rates by ~~1.4~~7.5 and ~~4.8~~4.2 percentage points for the ~~six month periods~~three months ended ~~June 30,~~March 31, 2020 and 2019, respectively.

On March 27, 2020, H.R. 748, the Coronavirus Aid, Relief, and ~~2018, respectively.~~Economic Security Act, “the CARES Act”, was signed into legislation. The ~~goodwill impairment charge~~CARES Act includes tax provisions relevant to businesses, and some of the significant changes include allowance of a five year carryback of net operating losses for 2018-2020 and the suspension of the 80% limitation of taxable income for net operating loss carryforwards for 2018-2020. The effects of the CARES Act are reflected in our income tax expense calculations as of March 31, 2020. Accounting Standards Codification Topic 740: Income Taxes requires that the impact of the CARES Act be recognized in the ~~Retirement segment increased~~period in which the ~~effective~~law was enacted. As a result, total income tax expense for the three months ended March 31, 2020, includes a benefit of $2.8 million to reflect a net operating loss carryback to taxable years for which the corporate rate ~~by 3.5 percentage points at June 30, 2019.~~was 35% as compared to the current corporate rate of 21%.

~~The Company records~~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. ~~The Company has~~We have no unrecorded liabilities from uncertain tax filing positions.

At ~~June 30, 2019, the Company's~~March 31, 2020, our federal income tax returns for years prior to 2014 are no longer subject to examination by the ~~IRS. Management does~~Internal Revenue Service. We do not anticipate any assessments for tax years that remain subject to examination to have a material effect on ~~the Company's~~our financial position or results of operations.

Outlook for ~~2019~~2020

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

The impacts of COVID-19 and related economic conditions on our results are highly uncertain and outside our control. The scope, duration and magnitude of the direct and indirect effects of COVID-19 are evolving rapidly and in ways that are difficult or impossible to anticipate. In addition, COVID-19 did not begin to affect our financial results until late in the first quarter of 2020. As a result, the impact on results in the first quarter of 2020 is not indicative of the potential impact on results for the remainder of 2020. For additional information on the risks posed by COVID-19, see “Our business may be adversely affected by the recent COVID-19 outbreak” included in “Part II - Item 1A - Risk Factors” in this Quarterly Report on Form 10-Q.

At the time of issuance of this Quarterly Report on Form 10-Q, ~~management estimates~~we continue to estimate that ~~2019~~2020 full year core earnings*net income excluding realized gains (losses) will be within a range of ~~$2.05~~$2.55 to ~~$2.25~~$2.75 per diluted share ~~generating~~based on analysis of COVID-19 scenarios which we believe to be conservative. Although the overall range is unchanged from the Outlook for 2020 we discussed in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019, the potential contribution of our business segments has changed as a ~~core return~~result of COVID-19 and related economic conditions. We now expect overall pretax net investment income to be slightly lower than 2019, with increases from a full year of Supplemental net investment income offset by declines in Retirement net investment income and lower returns on ~~equity* of between 7.0% and 7.5%.~~limited partnership interests. This projection also reflects an overall effective tax rate of between ~~16%~~17% and ~~18%~~19%.

Within Property and Casualty, planned premium rate increases, as well as continued underwriting initiatives, are expected to improve the underlying automobile loss ratio* by about 3.0 to 3.5 points and the underlying property loss ratio* by around 3 points. For 2019, management increased the estimate used for catastrophe costs by 20% to be between $45 million and $55 million or 7.0 to 7.5 points. The expense ratio is expected to be consistent with 2018 and is expected to remain around 27%.

Net income for ~~Retirement will decrease as a result of the recent annuity reinsurance transaction~~Property and redeployment of capital to the new Supplemental segment. Net investment income for Retirement will decline due to the lower investment levels and the new money rates are anticipated to remain below the average portfolio earned rate. In addition, expense levels will rise over prior year, offset by increases in fee income and other income due to the inclusion of BCG. As a result, net income for RetirementCasualty now is anticipated to be in the range of ~~$25~~$61 million to ~~$27~~$66 million, reflecting conservative estimates of automobile loss frequency because of temporary changes in policyholder driving patterns due to COVID-19. A 10% drop in automobile frequency represents approximately $2 million in pretax earnings per month. This excludes potential offsets from other factors such as the potential for higher severity. Net written premiums* for 2020 are now expected to be below 2019 levels as new business has slowed due to the pandemic but retention remains stable. We expect rate increases will continue to average in the low- single digits across the automobile and property books with COVID-19 related premium credits of 15% of two months of automobile premiums weighted to the second half of the year. This outlook includes catastrophe costs of 7.5 points on the full year ~~2019.~~combined ratio, of which as much as 50% typically occur in the second quarter.

Supplemental is anticipated to generate a pretax profit margin in the mid 20% range and net investment income should begin to benefit from portfolio repositioning. As a result, net income now is anticipated to be

~~Life~~



Horace Mann Educators Corporation	33	Quarterly Report on Form 10-Q

between $31 million and $33 million. New sales* are being negatively impacted by school closings due to COVID-19, delaying the growth of this segment.

Retirement net investment income is expected to reflect further spread compression with rates on new investments below the average portfolio earned rate, lower than anticipated returns on limited partnership interests, as well as the impact of lower invested assets as a result of the 2019 annuity reinsurance transaction and use of capital to purchase NTA. Market volatility may continue to impact DAC amortization and asset-based fees. The impact of lower net investment income is anticipated to ~~decline 15% over prior year due to the decrease in net investment income noted above accompanied~~be partially offset by a ~~modest increase in mortality costs.~~

~~Net~~reduced level of operating expenses. As a result, net income for ~~the new Supplemental segment~~Retirement now is anticipated to be in the range of $22 million to $24 million.

Life now is expected to generate net income between $10 million and $12 million, reflecting a reduced level of net investment income and a return to ~~$14 million for the second half of 2019, partially offset by additional interest expense of $2 million in Corporate and Other.~~

modeled mortality cost levels.

As described in Critical Accounting Estimates, certain of ~~the Company's~~our significant accounting measurements require the use of estimates and assumptions. As additional information becomes available, adjustments may be required. Those adjustments are charged or credited to income for the period in which the adjustments are made and may impact actual results compared to ~~management's~~our estimates above. Additionally, see Forward-looking Information and Part II - Item 1A in this Quarterly Report on Form 10-Q ~~and~~as well as Part I - Items 1 and 1A of ~~the Company's~~our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 concerning other important factors that could impact actual results. ~~Management believes~~We believe that a projection of net income is not appropriate on a forward-looking basis because it is not possible to provide a valid forecast of net investment gains (losses), which can vary substantially from one period to another and may have a significant impact on net income.

Critical Accounting Estimates

The preparation of consolidated financial statements in conformity with GAAP requires ~~the Company's management~~us to make estimates and assumptions based on information available at the time the consolidated financial statements are prepared. These estimates and assumptions affect the reported amounts of ~~the Company's~~our consolidated assets, liabilities, shareholders' equity and net ~~income and cash flows.~~income. Certain accounting estimates are particularly sensitive because of their significance to ~~the Company's~~our consolidated financial statements and because of the possibility that subsequent events and available information may differ markedly from management's judgments at the time the consolidated financial statements were prepared. ~~Management has~~We have discussed with the Audit Committee the quality, not just the acceptability, of ~~the Company's~~our accounting principles as applied in ~~its~~our financial reporting. The discussions generally included such matters as the consistency of ~~the Company's~~our accounting policies and their application, and the clarity and completeness of ~~the Company's~~our consolidated financial statements, which include related disclosures. ~~For~~Information regarding our accounting policies pertaining to these topics is located in the ~~Company, areas most~~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, 2019.

We have identified the following accounting estimates as critical in that they involve a higher degree of judgment and are subject to a significant ~~management judgments include:~~

degree of variability:

Valuation of hard-to-value fixed maturity securities, including evaluation of other-than-temporary impairments

Evaluation of goodwill and intangible assets for impairment

Valuation of life and annuity deferred policy acquisition costs

Valuation of liabilities for property and casualty unpaid claims and claim expenses

Valuation of investment contract and ~~life~~ policy reserves

Valuation of assets acquired and liabilities assumed under purchase accounting

Compared to December 31, ~~2018,~~2019, at ~~June 30, 2019,~~March 31, 2020, there were no material changes to accounting policies for areas most subject to significant management judgments identified above. In addition to disclosures in the Notes to Consolidated Financial Statements in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, discussion of accounting policies, including certain sensitivity information, was presented in ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations -- Critical Accounting Estimates in that Form 10-K.



Horace Mann Educators Corporation	34	Quarterly Report on Form 10-Q

Results of Operations by Segment

Consolidated financial results primarily reflect the operating results of ~~three~~four operating segments as well as the corporate and other line. These reporting segments are defined based on financial information ~~management uses~~we use to evaluate performance and to determine the allocation of ~~assets.~~

resources (see Part I - Item I, Note 1 of the Consolidated Financial Statements in this report for a description of changes to our reporting segments).

Property and Casualty

Supplemental

Retirement

Life

Corporate and Other

The ~~calculations~~determination of segment data are described in more detail in Part I - Item 1, Note 1410 of the Consolidated Financial Statements in ~~the Company's Annual Report on Form 10-K for the year ended December 31, 2018.~~this report. The following sections provide analysis and discussion of the results of operations for each of the reporting segments as well as investment results.

Property and Casualty

Net income for three months ended March 31, 2020 improved from the prior year period primarily due to the following factors:

5.6 points of improvement in the Property and Casualty loss ratio for the current quarter due to improved loss ratios for both automobile and property

1.3 points of improvement in the expense ratio due to actions taken in 2019

A one-time income tax benefit of $2.8 million as a result of the CARES Act



Horace Mann Educators Corporation	35	Quarterly Report on Form 10-Q

The following table provides certain financial information for ~~the~~ Property and Casualty ~~segment~~ for the periods indicated.

($ in millions, unless otherwise indicated) Three Months Ended
June 30, 2019-2018 Six Months Ended
June 30, 2019-2018
2019 2018 Change % 2019 2018 Change %
Financial Data:

Premiums written*:
Automobile $ 114.6
$ 114.6
— % $ 231.4
$ 229.5
0.8 %
Property and other 59.7
58.4
2.2 % 104.6
102.9
1.7 %
Total premiums written 174.3
173.0
0.8 % 336.0
332.4
1.1 %
Change in unearned insurance premiums (3.0 ) (5.7 )

6.1
0.4

Total insurance premiums earned 171.3
167.3
2.4 % 342.1
332.8
2.8 %
Incurred claims and claims expenses:
Claims occurring in the current year 134.4
147.0
-8.6 % 253.2
268.0
-5.5 %
Prior years' reserve development
2.0
—
N.M. 4.0
0.3
N.M.
Total claims and claim expenses incurred 132.4
147.0
-9.9 % 249.2
267.7
-6.9 %
Operating expenses,
including DAC amortization
45.4
44.8
1.3 % 91.9
87.9
4.6 %
Underwriting gain (loss) (6.5 ) (24.5 ) 73.5 % 1.0
(22.8 ) 104.4 %
Net investment income 12.7
10.3
23.3 % 22.9
19.8
15.7 %
Income (loss) before income taxes 6.6
(13.7 ) 148.2 % 24.4
(2.5 ) N.M.
Net income (loss)/core earnings* 5.1
(10.9 ) 146.8 % 20.1
(1.2 ) N.M.

Operating Statistics:

Automobile
Loss and loss adjustment expense ratio 73.8 % 82.0 % -8.2 pts 72.3 % 79.1 % -6.8 pts
Expense ratio 26.6 % 26.9 % -0.3 pts 26.9 % 26.3 % 0.6 pts
Combined ratio: 100.4 % 108.9 % -8.5 pts 99.2 % 105.4 % -6.2 pts
Prior years' reserve development -0.9 % — % -0.9 pts -0.9 % — % -0.9 pts
Catastrophes 1.9 % 3.3 % -1.4 pts 1.3 % 2.0 % -0.7 pts
Underlying combined ratio* 99.4 % 105.6 % -6.2 pts 98.8 % 103.4 % -4.6 pts
Property
Loss and loss adjustment expense ratio 84.8 % 100.4 % -15.6 pts 73.9 % 83.3 % -9.4 pts
Expense ratio 26.6 % 26.7 % -0.1 pts 27.1 % 26.9 % 0.2 pts
Combined ratio: 111.4 % 127.1 % -15.7 pts 101.0 % 110.2 % -9.2 pts
Prior years' reserve development -1.8 % — % -1.8 pts -1.9 % -0.3 % -1.6 pts
Catastrophes 36.8 % 43.3 % -6.5 pts 27.6 % 30.3 % -2.7 pts
Underlying combined ratio* 76.4 % 83.8 % -7.4 pts 75.3 % 80.2 % -4.9 pts

Policies in force (in thousands)

Automobile ⁽¹⁾
448
471
-4.9 %
Property 198
203
-2.5 %
Total 646
674
-4.2 %

~~___________________~~

~~N.M. - Not meaningful.~~

⁽¹⁾~~June 30, 2019 includes assumed policies in force of 4.~~

For the three and six month periods ended June 30, 2019, core earnings* increased $16.0 million and $21.3 million, respectively, compared to the prior year periods. These reflect 7.1 points of improvement in the Property and Casualty combined ratio year to date due to improved underwriting results, lower catastrophe losses and favorable prior years' reserve development.



($ in millions, unless otherwise indicated)	Three Months Ended March 31,						2020-2019
	2020			2019			Change %
Financial Data:
Premiums written*:
Automobile	$	109.4		$	116.8		-6.3	%
Property and other	44.2			44.9			-1.6	%
Total premiums written	153.6			161.7			-5.0	%
Change in unearned insurance premiums	12.9			9.1			41.8	%
Total insurance premiums earned	166.5			170.8			-2.5	%
Incurred claims and claims expenses:
Claims occurring in the current year	105.4			118.8			-11.3	%
Prior years' reserve development	1.0			2.0			-50.0	%
Total claims and claim expenses incurred	104.4			116.8			-10.6	%
Operating expenses, including DAC amortization	43.2			46.5			-7.1	%
Underwriting gain	18.9			7.5			152.0	%
Net investment income	10.3			10.2			1.0	%
Income before income taxes	29.8			17.8			67.4	%
Net income/core earnings*	26.6			15.0			77.3	%

Operating Statistics:
Automobile
Loss and loss adjustment expense ratio	65.8		%	70.8		%	-5.0	pts
Expense ratio	25.9		%	27.2		%	-1.3	pts
Combined ratio:	91.7		%	98.0		%	-6.3	pts
Prior years' reserve development	-0.9		%	-0.9		%	—
Catastrophes	0.2		%	0.8		%	-0.6	pts
Underlying combined ratio*	92.4		%	98.1		%	-5.7	pts
Property
Loss and loss adjustment expense ratio	56.5		%	62.9		%	-6.4	pts
Expense ratio	26.2		%	27.6		%	-1.4	pts
Combined ratio:	82.7		%	90.5		%	-7.8	pts
Prior years' reserve development	—		%	-1.9		%	1.9	pts
Catastrophes	15.8		%	18.3		%	-2.5	pts
Underlying combined ratio*	66.9		%	74.1		%	-7.2	pts

Risks in force (in thousands)
Automobile	424			454			-6.6	%
Property	192			200			-4.0	%
Total	616			654			-5.8	%

On a reported basis, the 6.3 points of improvement in the automobile combined ratio ~~for~~during the ~~six month period ended June 30, 2019~~first quarter of 2020 was mainly ~~attributed~~attributable to ~~5.2~~4.4 points of improvement in the underlying loss ratio*ratio reflecting some temporary changes in policyholder behavior due to ~~rate actions combined with continued stabilization in auto loss trends.~~the COVID-19 pandemic. The reported property combined ratio improved ~~for~~7.8 points during the ~~six month period ended June 30, 2019, reflecting~~first quarter of 2020 due to an ~~improvement in~~improved underlying loss ratio*, lower catastrophes and lower expenses. During the first quarter of 2020, the underlying property loss ratio improved 5.8 points reflecting lower non-catastrophe weather-related and fire losses.



Horace Mann Educators Corporation	36	Quarterly Report on Form 10-Q

Total premiums written* decreased $8.1 million during the first quarter of ~~5.1 points as well as a 2.7 point improvement~~2020 which was primarily due to lower ~~catastrophe losses.~~

~~Rate actions were the primary factor for the slight increase~~automobile risks in ~~total premiums written* for the three~~force and ~~six month periods ended June 30, 2019 compared~~partially due to ~~the prior year periods.~~a lower level of rate increases being implemented in 2020. For ~~2019, the Company's~~2020, our full year rate plan anticipates low-single digit average rate increases (including states with no rate actions) for both automobile and property; average approved rate changes during the first ~~six~~three months of ~~2019~~2020 were ~~5.3%~~1.3% for automobile and ~~4.6%~~1.9% for property.

Growth in sales* has slowed as a result of the COVID-19 pandemic.

Automobile premiums written* ~~was comparable to the three and six month periods ended June 30, 2018. In~~during the first ~~six months~~quarter of ~~2019,~~2020 were $7.4 million lower than a year ago while the average written premium per ~~policy~~risk and average earned premium per ~~policy~~risk increased ~~5.8%~~3.3% and ~~6.2%~~4.5%, respectively, compared to the prior year period. For automobile, the number of educator policies has been stable relative to overall automobile policies as educators represented 85.3%, 85.4% and 85.4% of the automobile policies in force as of June 30, 2019, December 31, 2018 and June 30, 2018, respectively. Based on ~~policies~~risks in force, the automobile 12 month retention rate for new and renewal ~~policies was~~risks decreased to 81.3% ~~compared to 82.6%~~from 81.5% at ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively, with the decrease due to recent rate and underwriting actions.

The number of educator risks has been stable relative to overall automobile risks as educators represented 85.4%, 85.4% and 85.3% of the automobile risks in force as of March 31, 2020, December 31, 2019 and March 31, 2019, respectively.

Property and other premiums written* ~~increased~~decreased slightly ~~compared to~~for the three ~~and six month periods~~months ended ~~June 30, 2018.~~March 31, 2020. While the number of property ~~policies~~risks in force has declined, the average written premium per ~~policy~~risk and average earned premium per ~~policy~~risk increased ~~5.2%~~5.5% and ~~4.3%~~5.6%, respectively, in the first ~~six~~three months of 2020. Based on risks in force, the property 12 month retention rate for new and renewal risks decreased to 87.1% from 87.8% at March 31, 2020 and 2019, ~~compared to the prior year period. For property, the~~respectively. The number of educator ~~policies~~risks has been stable relative to overall property ~~policies~~risks as educators represented ~~82.5%~~82.4%, 82.4% and ~~82.4%~~82.2% of the property ~~policies~~risks in force as of ~~June 30, 2019, December~~March 31, ~~2018, and June 30, 2018, respectively. The property 12 month new and renewal policy retention rate was 87.7% and 88.0% at June 30,~~2020, December��31, 2019, and ~~2018,~~March 31, 2019, respectively.

~~The Company continues~~We continue to evaluate and implement actions to further mitigate ~~its~~our risk exposure in catastrophe-prone areas of the country. Such actions could include, but are not limited to, non-renewal of property policies, restricted agent geographic placement, limitations on agent new business sales, further tightening of underwriting standards and increased utilization of third-party vendor products.

Supplemental

The following table provides certain information for Supplemental for the periods indicated.



($ in millions, unless otherwise indicated)	Three Months Ended March 31,				2020-2019
	2020			2019	Change %
Financial Data:
Insurance premiums and contract deposits*	$	32.6		N/A	N/A
Insurance premiums and contract charges earned	33.0			N/A	N/A
Net investment income	3.5			N/A	N/A
Benefits and settlement expenses	10.5			N/A	N/A
Operating expenses (includes DAC unlocking and amortization expense)	10.1			N/A	N/A
Intangible asset amortization expense	3.2			N/A	N/A
Income before income taxes	13.4			N/A	N/A
Net income / core earnings*	10.5			N/A	N/A

Operating Statistics:
Supplemental insurance in force (thousands)	297			N/A	N/A
Benefits ratio ⁽¹⁾	31.8		%	N/A	N/A
Operating expense ratio ⁽²⁾	27.1		%	N/A	N/A
Pretax profit margin ⁽²⁾	36.0		%	N/A	N/A
Persistency	89.2		%	N/A	N/A

N/A - The acquisition of NTA closed on July 1, 2019.

⁽¹⁾ Benefits ratio measured to earned premium.

⁽²⁾Operating expense ratio and pretax profit margin measured to total revenues.

Supplemental sales* were $3.7 million during the first quarter of 2020, reflecting significantly lower sales volume in the last several weeks of the quarter due to the COVID-19 pandemic as sales are dependent on in-person events at schools. Persistency remains steady at 89.2%.



Horace Mann Educators Corporation	37	Quarterly Report on Form 10-Q

Supplemental contributed $10.5 million to net income during the first quarter of 2020. The first quarter 2020 results reflected favorable trends in reserves and some short-term benefit from changes in policyholder behavior due to the COVID-19 pandemic. The non-cash impact from amortization of intangible assets recognized in connection with the purchase accounting of NTA reduced pretax net income by $3.2 million.

Retirement

Net income during the first quarter of 2020 decreased $13.1 million compared to the prior year period due to the following factors:

unfavorable DAC unlocking in the current quarter from equity market volatility

lower level of net investment income in the current quarter reflecting lower invested asset levels resulting from the prior year annuity reinsurance transaction and lower returns on alternative investments



Horace Mann Educators Corporation	38	Quarterly Report on Form 10-Q

The following table provides certain information for ~~the~~ Retirement ~~segment~~ for the periods indicated.

($ in millions, unless otherwise indicated) Three Months Ended
June 30, 2019-2018 Six Months Ended
June 30, 2019-2018
2019 2018 Change % 2019 2018 Change %
Financial Data:

Contract charges earned $ 6.9
$ 7.9
-12.7 % $ 15.5
$ 15.9
-2.5 %
Net investment income 62.7
67.8
-7.5 % 127.4
132.0
-3.5 %
Interest credited 42.3
39.9
6.0 % 84.0
78.6
6.9 %
Net interest margin without
net investment gains (losses)
21.5
27.9
-22.9 % 44.5
53.4
-16.7 %
Net interest margin - Reinsured block (1.1 ) —
N.M. (1.1 ) —
N.M.
Mortality loss and other reserve charges 1.2
1.4
-14.3 % 1.8
—
3.3
-45.5 %
DAC amortization expense,
excluding unlocking
4.3
4.8
-10.4 % 9.2
9.6
-4.2 %
DAC unlocking 5.6
0.2
N.M. 3.6
0.4
N.M.
Operating expenses 15.4
13.9
10.8 % 31.3
28.3
10.6 %
Other expense - goodwill impairment 28.0
—
N.M. 28.0
—
N.M.
Income (loss) before income taxes (24.8 ) 17.2
N.M. (10.2 ) 31.2
-132.7 %
Net income (loss) (25.0 ) 14.1
N.M. (12.8 ) 25.5
N.M.
Core earnings* 3.0
14.1
-78.7 % 15.2
25.5
-40.4 %
Operating Statistics:
Annuity sales deposits
Variable $ 54.1
$ 50.7
6.7 % $ 102.9
$ 97.5
5.5 %
Fixed 54.9
49.5
10.9 % 113.4
101.5
11.7 %
Total 109.0
100.2
8.8 % 216.3
199.0
8.7 %
Single 55.8
46.9
19.0 % 111.7
95.5
17.0 %
Recurring 53.2
53.3
-0.2 % 104.6
103.5
1.1 %
Total 109.0
100.2
8.8 % 216.3
199.0
8.7 %
Assets under administration (AUA)
Annuity assets under management ⁽¹⁾

4,170.3
6,851.7
-39.1 %
Broker and advisory assets
under administration⁽²⁾

2,236.0
300.5
N.M.
Recordkeeping assets
under administration ⁽²⁾

1,395.1
—
N.M.
Total

7,801.4
7,152.2
9.1 %
Persistency
Variable annuities

94.3 % 94.6 % -0.3 pts
Fixed annuities

93.9 % 94.4 % -0.5 pts
Total

94.0 % 94.5 % -0.5 pts
Annuity contracts in force

227
224
1.3 %
Fixed spread - YTD annualized (basis points)

175
181
-6bps

~~___________________~~

~~N.M. - Not meaningful.~~



($ in millions, unless otherwise indicated)	Three Months Ended March 31,						2020-2019
	2020			2019			Change %
Financial Data:
Contract charges earned	$	7.4		$	8.6		-14.0	%
Net investment income	53.5			64.7			-17.3	%
Interest credited	40.3			41.7			-3.4	%
Net interest margin without net investment gains (losses)	14.1			23.0			-38.7	%
Net interest margin - reinsured block	(0.9		)	—			N.M.
Mortality loss and other reserve charges	1.6			0.6			166.7	%
Operating expenses	16.2			18.1			-10.5	%
DAC and intangible asset amortization expense, excluding DAC unlocking	5.2			5.4			-3.7	%
DAC unlocking	4.0			(2.0		)	N.M.
Income (loss) before income taxes	(1.1		)	14.6			-107.5	%
Net income (loss) / core earnings	(0.9		)	12.2			-107.4	%
Operating Statistics:
Annuity contract deposits*
Variable	$	57.8		$	48.8		18.4	%
Fixed	59.9			58.5			2.4	%
Total	117.7			107.3			9.7	%
Single	62.2			55.9			11.3	%
Recurring	55.5			51.4			8.0	%
Total	117.7			107.3			9.7	%
Assets under administration (AUA)
Annuity assets under management ⁽¹⁾	4,026.6			6,972.7			-42.3	%
Broker and advisory assets under administration	2,093.9			2,191.9			-4.5	%
Recordkeeping assets under administration	1,260.8			1,363.8			-7.6	%
Total	7,381.3			10,528.4			-29.9	%
Persistency
Variable annuities	94.5		%	94.3		%	0.2	pts
Fixed annuities	94.0		%	94.1		%	-0.1	pts
Total	94.1		%	94.1		%
Annuity contracts in force (thousands)	229			226			1.3	%
Fixed spread - YTD annualized (basis points)	151			142			9	bps


⁽¹⁾	Amount reported as of ~~June 30, 2019~~March 31, 2020 excludes ~~$691.6~~$539.6 million of assets under management held under modified coinsurance reinsurance.

⁽²⁾ ~~2019 includes the results of BCG acquired on January 2, 2019.~~

For the three ~~and six month periods~~months ended ~~June 30, 2019, core earnings* decreased $11.1~~March 31, 2020, annuity contract deposits* increased $10.4 million and $10.3 million, respectively, as compared to the prior year periods reflecting lower net investment income and accelerated amortization of the DAC asset associated with the reinsured block partially offsetprimarily driven by ~~favorable benefits expense from mortality. The current periods also include higher operating expenses from the inclusion of BCG.~~

As a result of the annuity reinsurance transaction, the Company impaired goodwill associated with the annuity business of the Retirement segment and recorded a non-cash impairment charge of $28.0 million during the quarter ended June 30, 2019.

~~For the three and six month periods ended June 30, 2019, contract deposits increased compared to the prior year periods, reflecting increases~~an increase in single deposits. Variable annuity and fixed annuity deposits increased ~~by $3.4~~$9.0 million and ~~$5.4~~$1.4 million, respectively, for the three ~~and six month periods~~months ended ~~June 30, 2019. Fixed annuity deposits increased by $5.4 million and $11.9 million for~~March 31, 2020 reflecting the ~~current periods.~~

value educators see in our Retirement savings vehicles.

At ~~June 30, 2019,~~March 31, 2020, annuity assets under management ~~decreased by $2.7~~were $2.9 billion ~~compared to June 30, 2018~~below a year ago, driven primarily by the annuity reinsurance transaction. Variable assets under management, excluding ~~reinsurance, increased~~amounts held under the modified coinsurance agreement, decreased by ~~$115.0~~$269.9 million primarily due to market performance. The year to date annualized net interest spread on fixed annuities ~~excluding~~increased 9 basis points due to a lower averaged crediting rate following the annuity reinsurance ~~decreased 6 basis points.~~transaction.

~~The Company~~



Horace Mann Educators Corporation	39	Quarterly Report on Form 10-Q

We actively ~~manages its~~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. ~~Management estimates~~We estimate that over the next 12 months approximately ~~$336.0~~$595.3 million of the Retirement and Life combined investment portfolio and related investable cash flows will be reinvested at current market rates. As interest rates remain at low levels, borrowers may prepay or redeem the securities with greater frequency in order to borrow at lower market rates, which could increase investable cash flows and exacerbate the reinvestment ~~risk~~.

risk.

As a general guideline, for a 100 basis point decline in the average reinvestment rate and based on ~~the Company's~~our existing policies and investment portfolio, the impact from investing in that lower interest rate environment could further reduce Retirement net investment income by approximately ~~$1.3~~$2.3 million in year one and ~~$3.8~~$6.9 million in year two, further reducing the annualized net interest spread on fixed annuities by approximately 49 basis points and 1324 basis points in the respective periods, compared to the current period annualized net interest ~~spread. The Company~~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 minimum guaranteed crediting rates.

The expectation for future annualized net interest spreads on fixed annuities is also an important component in the amortization of DAC. In terms of the sensitivity of this amortization to the annualized net interest spread on fixed annuities, based on DAC as of ~~June 30, 2019~~March 31, 2020 and assuming all other assumptions are met, a 10 basis point deviation in the current year targeted annualized net interest rate spread on fixed annuities assumption would impact amortization between $0.3 million and $0.4 million. This result may change depending on the magnitude and direction of any actual deviations but represents a range of reasonably likely experience for the noted assumption.

The annuity reinsurance agreement entered ~~into~~ in the second quarter of 2019, which reinsured the $2.2 billion block of in force fixed annuities with a minimum crediting rate of 4.5%, ~~mitigates~~helps mitigate the risk of not being able to generate appropriate spreads on the annuity business. Information regarding the interest crediting rates and balances equal to the minimum guaranteed rate for deferred annuity account values excluding the reinsured block is shown below.


($ in millions)	June 30, 2019										March 31, 2020
					Deferred Annuities at										Deferred Annuities at
	Total Deferred Annuities				Minimum Guaranteed Rate						Total Deferred Annuities				Minimum Guaranteed Rate
	Percent of Total		Accumulated Value (AV)		Percent of Total Deferred Annuities AV		Percent of Total		Accumulated Value		Percent of Total		Accumulated Value (AV)		Percent of Total Deferred Annuities AV		Percent of Total		Accumulated Value
Minimum guaranteed interest rates:
Less than 2%	52.0	%	$	1,216.2	46.9	%	34.7	%	$	570.9	53.4	%	$	1,282.0	49.2	%	37.1	%	$	630.6
Equal to 2% but less than 3%	12.5	%	293.0		82.8	%	14.8	%	242.7		12.0	%	287.7		83.2	%	14.1	%	239.4
Equal to 3% but less than 4%	26.0	%	607.5		99.9	%	36.9	%	607.0		25.4	%	610.6		99.9	%	35.9	%	610.2
Equal to 4% but less than 5%	7.3	%	171.1		100.0	%	10.4	%	171.1		7.1	%	169.7		100.0	%	10.0	%	169.7
5% or higher	2.2	%	52.0		100.0	%	3.2	%	52.0		2.1	%	50.6		100.0	%	2.9	%	50.6
Total	100.0	%	$	2,339.8	70.2	%	100.0	%	$	1,643.7	100.0	%	$	2,400.6	70.8	%	100.0	%	$	1,700.5

~~The Company~~We will continue to be disciplined in executing strategies to mitigate the negative impact on profitability of a sustained low interest rate environment. However, the success of these strategies may be affected by the factors discussed in Part I - Item 1A in our Annual Report on Form 10-K for the year ended December 31,2019 and other factors ~~within~~in this report.



Horace Mann Educators Corporation	40	Quarterly Report on Form 10-Q

For the three months ended March 31, 2020, net income and core earnings* decreased $2.7 million, reflecting lower net investment income.

For the three months ended March 31, 2020, insurance premiums and contract deposits* decreased $1.6 million, primarily due to a decline in sales* of single premiums. The ordinary life insurance in force lapse ratio was 4.7% for the 12 months ended March 31, 2020 compared to 4.6% for the 12 months ended March 31, 2019.

The following table provides certain information for the Life segment for the periods indicated.



($ in millions, unless otherwise indicated)	Three Months Ended March 31,						2020-2019
	2020			2019			Change %
Financial Data:
Insurance premiums and contract deposits	$	24.8		$	26.4		-6.1	%
Insurance premiums and contract charges earned	29.4			30.4			-3.3	%
Net investment income	15.6			18.1			-13.8	%
Benefits and settlement expenses	22.2			22.0			0.9	%
Interest credited	11.2			11.2			—	%
Operating expenses	9.1			9.4			-3.2	%
DAC amortization expense, excluding unlocking	1.9			2.0			-5.0	%
DAC unlocking	(0.1		)	—			N.M.
Income before income taxes	0.7			4.0			-82.5	%
Net income / core earnings*	0.6			3.3			-81.8	%

Operating Statistics:
Life insurance in force	$	19,295		$	18,409		4.8	%
Number of policies in force (thousands)	201			198			1.5	%
Average face amount in force (in dollars)	$	96,225		$	92,810		3.7	%
Lapse ratio (ordinary life insurance in force)	4.7		%	4.6		%	0.1	pts
Mortality costs	$	10.1		$	10.5		-3.8	%



	Six Months Ended June 30,
	2019			2018
Cash flows - operating activities
Premiums collected	$	396,887		$	392,103
Policyholder benefits paid	(275,437		)	(272,769		)
Policy acquisition and other operating expenses paid	(161,863		)	(141,620		)
Income taxes paid	(78		)	(7,393		)
Investment income collected	139,210			184,749
Interest expense paid	(6,440		)	(6,190		)
Other	5,557			2,429
Net cash provided by operating activities	97,836			151,309

Cash flows - investing activities
Fixed maturity securities
Purchases	(644,104		)	(551,984		)
Sales	501,739			190,023
Maturities, paydowns, calls and redemptions	342,998			383,090
Equity securities
Purchases	(5,282		)	(6,028		)
Sales and repayments	17,122			5,783
Limited partnership interests
Purchases	(29,357		)	(33,031		)
Sales	15,029			9,457
Change in short-term and other investments, net	(156,748		)	(109,711		)
Acquisition of business, net of cash acquired	(18,198		)	—
Net cash provided by (used in) investing activities	23,199			(112,401		)

Cash flows - financing activities
Dividends paid to shareholders	(23,630		)	(23,320		)
Acquisition of treasury stock	—			(86		)
Proceeds from exercise of stock options	722			2,460
Withholding tax payments on RSUs tendered	(3,366		)	(2,155		)
Annuity contracts: variable, fixed and FHLB funding agreements
Deposits	266,310			199,074
Benefits, withdrawals and net transfers to Separate Account (variable annuity) assets	(214,243		)	(218,694		)
Life policy accounts
Deposits	4,638			3,163
Withdrawals and surrenders	(1,733		)	(2,525		)
Change in deposit asset on reinsurance, net	(134,682		)	—
Change in book overdrafts	(19,341		)	3,795
Net cash used in financing activities	(125,325		)	(38,288		)

Net increase (decrease) in cash	(4,290		)	620

Cash at beginning of period	11,906			7,627

Cash at end of period	$	7,616		$	8,247



($ in thousands)
Financial Assets	Fair Value at March 31, 2020		Valuation Technique(s)	Unobservable Inputs	Range (Weighted Average) and Single Point Best Estimate ⁽¹⁾
Municipal bonds	$	104,892	discounted cash flow	I spread ⁽²⁾	578 bps
Corporate bonds	111,693		discounted cash flow	N spread ⁽³⁾	762 bps
			discounted cash flow	T spread ⁽⁴⁾	378 bps
			discounted cash flow	I spread ⁽²⁾	495 bps
			market comparable	EV / TTM EBITDA (x) ⁽⁵⁾	5.11x
Other mortgage-backed securities	117,195		discounted cash flow	constant prepayment rate	20.0%
			vendor price	haircut	3.0%
			market comparable	EV / TTM EBITDA (x) ⁽⁵⁾	5.11x
			discounted cash flow	N spread ⁽³⁾	732 bps
			discounted cash flow	PDI interest margin ⁽⁶⁾	7.13%
			discounted cash flow	SBL interest margin ⁽⁷⁾	4.50%
Government mortgage-backed securities	23,332		vendor price	haircut	3.0%
			discounted cash flow	N spread ⁽³⁾	109 bps
			discounted cash flow	constant prepayment yield	100 bps
			discounted cash flow	constant default rate	0
Equity securities	83		Black Scholes	equity value	low - $43.27; high - $44.53



Financial Liabilities	Fair Value at March 31, 2020		Valuation Technique(s)	Unobservable Inputs	Range (Weighted Average) and Single Point Best Estimate ⁽¹⁾
Derivatives embedded in FIA products	$	87,506	discounted cash flow	lapse rate	5.25%
				mortality multiplier ⁽⁸⁾	61.00%
				option budget	1.50% - 2.50%
				non-performance adjustment ⁽⁹⁾	5.00%



($ in thousands)	Weighted Average
	Useful Life (in Years)
At inception:
Value of business acquired	30	$	94,419
Value of distribution acquired	17	53,996
Value of agency relationships	14	16,981
Value of customer relationships	10	9,080
Total	23	174,476
Accumulated amortization:
Value of business acquired		(5,545		)
Value of distribution acquired		(2,699		)
Value of agency relationships		(2,132		)
Value of customer relationships		(2,100		)
Total		(12,476		)
Net intangible assets subject to amortization:		$	162,000



($ in thousands)
Year Ending December 31,
2020 (excluding the three months ended March 31, 2020)	$	10,802
2021	13,411
2022	12,433
2023	11,577
2024	10,805
Thereafter	102,972
Total	$	162,000



($ in thousands)	Net Unrealized Investment Gains (Losses) on Fixed Maturity Securities ⁽¹⁾⁽²⁾			Net Funded Status of Benefit Plans ⁽¹⁾			Total ⁽¹⁾
Beginning balance, April 1, 2019	$	210,839		$	(12,185	)	$	198,654
Other comprehensive income (loss) before reclassifications	107,163			—			107,163
Amounts reclassified from AOCI	(114,925		)	—			(114,925		)
Net current period other comprehensive income (loss)	(7,762		)	—			(7,762		)
Ending balance, June 30, 2019	$	203,077		$	(12,185	)	$	190,892

Beginning balance, January 1, 2019	$	96,941		$	(12,185	)	$	84,756
Other comprehensive income (loss) before reclassifications	227,466			—			227,466
Amounts reclassified from AOCI	(121,330		)	—			(121,330		)
Net current period other comprehensive income (loss)	106,136			—			106,136
Ending balance, June 30, 2019	$	203,077		$	(12,185	)	$	190,892


($ in thousands)					Fair Value Measurements at										Fair Value Measurements at
	Carrying		Fair		Reporting Date Using						Carrying		Fair		Reporting Date Using
	Amount		Value		Level 1		Level 2		Level 3		Amount		Value		Level 1		Level 2		Level 3
June 30, 2019
March 31, 2020
Financial Assets
Investments
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	$	586,758	$	586,758	$	—	$	584,070	$	2,688	$	751,915	$	751,915	$	—	$	728,583	$	23,332
Other, including U.S. Treasury securities	566,437		566,437		16,288		550,149		—		468,673		468,673		18,557		450,116		—
Municipal bonds	1,599,693		1,599,693		—		1,552,709		46,984		1,769,931		1,769,931		—		1,665,039		104,892
Foreign government bonds	47,367		47,367		—		47,367		—		43,851		43,851		—		43,851		—
Corporate bonds	1,321,286		1,321,286		13,997		1,228,067		79,222		1,685,773		1,685,773		12,147		1,561,933		111,693
Other mortgage-backed securities	1,412,729		1,412,729		—		1,286,979		125,750		1,123,040		1,123,040		—		1,005,845		117,195
Total fixed maturity securities	5,534,270		5,534,270		30,285		5,249,341		254,644		5,843,183		5,843,183		30,704		5,455,367		357,112
Equity securities	100,143		100,143		57,530		42,544		69		87,033		87,033		42,106		44,844		83
Short-term investments	247,872		247,872		246,872		1,000		—		100,208		100,208		97,179		3,029		—
Other investments	24,503		24,503		—		24,503		—		18,147		18,147		—		18,147		—
Totals	$	5,906,788	$	5,906,788	$	334,687	$	5,317,388	$	254,713	$	6,048,571	$	6,048,571	$	169,989	$	5,521,387	$	357,195
Separate Account (variable annuity) assets ⁽¹⁾	$	2,310,886	$	2,310,886	$	2,310,886	$	—	$	—	$	1,954,201	$	1,954,201	$	1,954,201	$	—	$	—
Financial Liabilities
Investment contract and life policy reserves, embedded derivatives	$	940	$	940	$	—	$	940	$	—
Investment contract and policy reserves, embedded derivatives											$	339	$	339	$	—	$	339	$	—
Other policyholder funds, embedded derivatives	$	85,961	$	85,961	$	—	$	—	$	85,961	$	87,506	$	87,506	$	—	$	—	$	87,506

December 31, 2018
December 31, 2019
Financial Assets
Investments
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	$	787,441	$	787,441	$	—	$	784,224	$	3,217	$	724,319	$	724,319	$	—	$	711,004	$	13,315
Other, including U.S. Treasury securities	833,542		833,542		13,291		820,251		—		458,868		458,868		17,699		441,169		—
Municipal bonds	2,003,969		2,003,969		—		1,956,438		47,531		1,686,203		1,686,203		—		1,641,912		44,291
Foreign government bonds	84,904		84,904		—		84,904		—		45,370		45,370		—		45,370		—
Corporate bonds	2,079,510		2,079,510		12,281		1,986,487		80,742		1,581,424		1,581,424		14,470		1,463,002		103,952
Other mortgage-backed securities	1,725,952		1,725,952		—		1,608,958		116,994		1,295,492		1,295,492		—		1,161,979		133,513
Total fixed maturity securities	7,515,318		7,515,318		25,572		7,241,262		248,484		5,791,676		5,791,676		32,169		5,464,436		295,071
Equity securities	111,750		111,750		64,330		47,415		5		101,864		101,864		49,834		51,923		107
Short-term investments	122,222		122,222		117,296		4,926		—		172,667		172,667		172,667		—		—
Other investments	16,147		16,147		—		16,147		—		25,997		25,997		—		25,997		—
Totals	$	7,765,437	$	7,765,437	$	207,198	$	7,309,750	$	248,489	$	6,092,204	$	6,092,204	$	254,670	$	5,542,356	$	295,178
Separate Account (variable annuity) assets ⁽¹⁾	$	2,001,128	$	2,001,128	$	2,001,128	$	—	$	—	$	2,490,469	$	2,490,469	$	2,490,469	$	—	$	—
Financial Liabilities
Investment contract and life policy reserves, embedded derivatives	$	248	$	248	$	—	$	248	$	—
Investment contract and policy reserves, embedded derivatives											$	1,314	$	1,314	$	—	$	1,314	$	—
Other policyholder funds, embedded derivatives	$	78,700	$	78,700	$	—	$	—	$	78,700	$	93,733	$	93,733	$	—	$	—	$	93,733


⁽¹⁾	Represents embedded derivatives, all related to the Company's fixed indexed annuity products, reported in Other policyholder funds in the ~~Company’s~~Company's Consolidated Balance Sheets.


⁽²⁾	Includes U.S. Government and federally sponsored agency obligations for mortgage-backed securities and other mortgage-backed securities.


⁽¹⁾	~~Represents embedded derivatives, all related to the Company’s fixed indexed annuity products, reported in Other policyholder funds in the Company’s Consolidated Balance Sheets.~~


⁽²⁾	~~Includes U.S. Government and federally sponsored agency obligations for mortgage-backed securities and other mortgage-backed securities.~~


⁽¹⁾	When a range of unobservable inputs is not readily available, the Company uses a single point best estimate.


⁽²⁾	"I spread" is the interpolated weighted average life point on the "on the run" (OTR) point of the curve.


⁽³⁾	"N spread" is the interpolated weighted average life point on the swap curve.


⁽⁵⁾	This represents the enterprise value (EV) for trailing twelve months (TTM) of EBITDA plus multiplier.


⁽⁸⁾	Mortality multiplier is applied to the Annuity 2000 table.


⁽¹⁾	Includes ~~the~~ gains or losses recognized at the expiration of the option term or early termination and the changes in fair value for open options.



($ in thousands)
Trade names	$	8,645
State licenses	2,886
Total	$	11,531


⁽²⁾	Reserves net of anticipated reinsurance recoverables.


⁽³⁾	Shows the amounts by which the Company decreased its reserves in each of the periods indicated for claims occurring in previous periods to reflect subsequent information on such claims and changes in their projected final settlement costs.


⁽¹⁾	Excludes the annuity reinsurance agreement accounted for ~~under~~using the deposit method that is discussed in Note 6.5.


⁽²⁾	This measure is not based on accounting principles generally accepted in the ~~U.S.~~United States of America (non-GAAP). An explanation of this non-GAAP measure is contained in the Glossary of Selected Terms included as an exhibit in the Company's reports filed with the SEC.



($ in thousands)	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost	$	791	$	1,600
Short-term lease cost	27		51
Total lease cost	$	818	$	1,651



($ in thousands, except lease term and discount rate)	June 30, 2019
Assets
Right of use assets, included in Other assets	$	12,692

Liabilities
Operating lease liabilities, included in Other liabilities	$	13,429

Weighted Average Remaining Lease Term	5.00

Weighted Average Discount Rate	4.10		%



($ in thousands)
Year Ending December 31,
2019 (excluding the six months ended June 30, 2019)	$	1,448
2020	3,108
2021	3,028
2022	2,943
2023	2,246
Thereafter	2,111
Total future minimum lease payments	14,884
Less imputed interest	(1,455		)
Total	$	13,429



($ in millions)	Three Months Ended June 30,				2019-2018		Six Months Ended June 30,						2019-2018
	2019		2018		Change %		2019			2018			Change %
Total revenues	$	451.5	$	306.2	47.5	%	$	764.7		$	601.7		27.1	%
Net income	93.8		5.9		N.M.		126.0			26.1			N.M.
Per diluted share:
Net income	$	2.24	$	0.14	N.M.		$	3.01		$	0.63		N.M.
Net investment gains (losses), after tax	2.74		0.01		N.M.		2.88			(0.01		)	N.M.
Book value per share							$	36.41		$	32.93		10.6	%
Net income return on equity - last twelve months							8.6		%	12.7		%
Net income return on equity - annualized							18.1		%	3.7		%



($ in millions)	June 30, 2019
	Number of Issuers	Fair Value		Amortized Cost		Pretax Net Unrealized Gain (Loss)
Fixed maturity securities
Corporate bonds
Banking & Finance	96	$	358.3	$	335.6	$	22.7
Insurance	36	134.7		120.2		14.5
Real Estate	35	105.9		101.4		4.5
Energy ⁽¹⁾	52	103.5		94.9		8.6
HealthCare, Pharmacy	43	92.2		86.1		6.1
Technology	29	78.8		75.3		3.5
Transportation	29	73.2		68.8		4.4
Utilities	36	59.3		52.1		7.2
Food and Beverage	17	41.7		39.6		2.1
Telecommunications	21	40.7		36.4		4.3
All other corporates⁽²⁾	158	233.0		216.5		16.5
Total corporate bonds	552	1,321.3		1,226.9		94.4
Mortgage-backed securities
U.S. Government and federally sponsored agencies	216	363.6		338.5		25.1
Commercial⁽³⁾	107	340.5		326.6		13.9
Other	25	69.9		69.4		0.5
Municipal bonds ⁽⁴⁾	493	1,599.7		1,472.9		126.8
Government bonds
U.S.	37	566.4		546.4		20.0
Foreign	10	47.4		45.3		2.1
Collateralized loan obligations ⁽⁵⁾	131	753.2		758.2		(5.0		)
Asset-backed securities	94	472.3		457.6		14.7
Total fixed maturity securities	1,665	$	5,534.3	$	5,241.8	$	292.5

Equity securities
Non-redeemable preferred stocks	12	$	50.5
Common stocks	91	27.9
Closed-end fund	1	21.7
Total equity securities	104	$	100.1

Total	1,769	$	5,634.4


⁽¹⁾	At ~~June 30, 2019,~~March 31, 2020, the fair value amount included ~~$10.1~~$8.8 million which were non-investment grade.


⁽²⁾	The All other corporates category contains 19 additional industry sectors. ~~Gaming, broadcasting~~Telecom, Retail, Consumer Products, Metal & ~~media, leisure/entertainment, metal~~Mining and ~~mining and retail~~Misc. represented ~~$133.3~~$206.2 million of fair value at ~~June 30, 2019,~~March 31, 2020, with the remaining 14 sectors each representing less than ~~$15.0~~$30.0 million.


⁽³⁾	At ~~June 30, 2019,~~March 31, 2020, 100% were investment grade, with an overall credit rating of AA+, and the positions were well diversified by property type, geography and sponsor.


⁽⁴⁾	Holdings are geographically diversified, ~~54.4%~~51.6% are tax-exempt and ~~77.2%~~77.5% 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, 2019.~~March 31, 2020.


⁽⁵⁾	Based on fair value, ~~97.7%~~95.3% of the collateralized loan obligation securities were rated investment grade by Standard and ~~Poor’s~~Poor's Global Inc. (S&P), ~~Moody’s~~Moody's Investors Service, Inc. ~~(Moody’s)~~(Moody's) and/or Fitch Ratings, Inc. (Fitch) at ~~June 30, 2019.~~March 31, 2020.



($ in millions)	March 31, 2020
	Number of Issuers	Fair Value		Amortized Cost or Cost		Pretax Net Unrealized Investment Gains (Losses)			Credit Quality
Fixed maturity securities ⁽¹⁾
Travel and leisure	46	$	79.2	$	82.5	$	(3.3	)	BBB
Energy-related	77	137.3		134.4		2.9			BBB+
Retail	21	54.0		54.2		(0.2		)	A-
Aircraft	55	150.5		183.4		(32.9		)	A
Total fixed maturity securities	199	$	421.0	$	454.5	$	(33.5	)	A-


⁽¹⁾	Below investment grade securities included in this population account for $34.5 million of amortized cost, $26.6 million of market value, and $7.9 million of net unrealized investment losses. There are 83 issuers with an average rating of BB-. The majority of these securities are concentrated in the energy sector.



($ in millions)	Percent of Portfolio
	Fair Value				June 30, 2019
	December 31, 2018		June 30, 2019		Fair Value		Amortized Cost
Fixed maturity securities
AAA	9.1	%	12.3	%	$	680.6	$	671.1
AA⁽²⁾	44.5		43.9		2,429.4		2,296.2
A	22.4		22.8		1,260.6		1,171.5
BBB	21.2		17.9		996.4		940.7
BB	1.8		1.8		98.2		95.8
B	0.4		0.4		27.5		27.4
CCC or lower	0.1		0.1		0.5		0.5
Not rated⁽³⁾	0.5		0.8		41.1		38.6
Total fixed maturity securities	100.0	%	100.0	%	$	5,534.3	$	5,241.8
Equity securities
AAA	—		—		—
AA	—		—		—
A	—		—		—
BBB	49.0	%	50.4	%	$	50.5
BB	—		—		—
B	—		—		—
CCC or lower	—		—		—
Not rated	51.0		49.6		49.6
Total equity securities	100.0	%	100.0	%	$	100.1

Total					$	5,634.4