UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, ~~2020~~2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 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) (Zip Code)

Registrant’s telephone number, including area code: 217-789-2500

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

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 ☑

As of October 31, ~~2020,~~2021, the registrant had ~~41,412,903~~41,487,550 common shares, $0.001 par value, outstanding.

HORACE MANN EDUCATORS CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE ~~QUARTER~~QUARTERLY PERIOD ENDED SEPTEMBER 30, ~~2020~~2021

TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION		Page

Item 1.	Consolidated Financial Statements

	Report of Independent Registered Public Accounting Firm	1

	Consolidated Balance Sheets as of September 30, ~~2020~~2021 (Unaudited) and December, 31 ~~2019~~2020	2

	Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020 (Unaudited)	3

	~~Consolidated Statements of Comprehensive Income (Loss) for the Three and~~ ~~Nine~~ ~~Months Ended~~ ~~September~~ ~~30, 2020 and 2019 (Unaudited)~~	4

	Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020 (Unaudited)	54

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020 (Unaudited)	65

	Notes to Consolidated Financial Statements (Unaudited)
	Note 1 - Basis of Presentation and Significant Accounting Policies	76
	Note 2 - ~~Investments~~Acquisitions	107
	Note 3 - ~~Fair Value of Financial Instruments~~Investments	157
	Note 4 - ~~Derivatives~~Fair Value of Financial Instruments	2113
	Note 5 - Deposit Asset on Reinsurance	2219
	Note 6 - Goodwill and Intangible Assets ~~net~~	2319
	Note 7 - Unpaid Claims and Claim Expenses	2521
	Note 8 - Reinsurance	2622
	Note 9 - Commitments	2622
	Note 10 - Segment Information	2723
	Note 11 - Accumulated Other Comprehensive Income (Loss)	2824
	Note 12 - Supplemental Consolidated Cash and Cash Flow Information	2925

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2925

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5248

Item 4.	Controls and Procedures	5349

PART II - OTHER INFORMATION

Item 1A.	Risk Factors	5450

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5450

Item 5.	Other Information	5550

Item 6.	Exhibits	5550

SIGNATURES		5955

PART I: FINANCIAL INFORMATION

~~Item~~ITEM 1. I Consolidated Financial Statements

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 September 30, ~~2020,~~2021, the related consolidated statements of operations, comprehensive income (loss) and changes in shareholders' equity for the three-month and nine-month periods ended September 30, ~~2020~~2021 and ~~2019,~~2020, and cash flows for the nine-month period ended September 30, ~~2020~~2021 and ~~2019,~~2020, 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, ~~2019,~~2020, 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 February ~~28, 2020,~~26, 2021, 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, ~~2019,~~2020, 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
November ~~6, 2020~~5, 2021


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

HORACE MANN EDUCATORS CORPORATION

CONSOLIDATED BALANCE SHEETS

($ in ~~thousands,~~millions, except share data)


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
		(Unaudited)					(Unaudited)
ASSETS
Assets						Assets
Investments	Investments					Investments
Fixed maturity securities, available for sale, at fair value (amortized cost 2020, $5,672,315; 2019, $5,456,980)		$	6,168,558	$	5,791,676
Fixed maturity securities, available for sale, at fair value (amortized cost, net 2021, $6,045.6; 2020, $5,788.6)						Fixed maturity securities, available for sale, at fair value (amortized cost, net 2021, $6,045.6; 2020, $5,788.6)	$	6,512.0	$	6,345.3
Equity securities at fair value	Equity securities at fair value	102,303		101,864		Equity securities at fair value	152.3		121.6
Limited partnership interests	Limited partnership interests	418,187		383,717		Limited partnership interests	615.4		449.0
Short-term and other investments	Short-term and other investments	453,037		361,976		Short-term and other investments	251.6		346.3
Total investments	Total investments	7,142,085		6,639,233		Total investments	7,531.3		7,262.2
Cash	Cash	65,475		25,508		Cash	40.2		22.3
Deferred policy acquisition costs	Deferred policy acquisition costs	241,981		276,668		Deferred policy acquisition costs	244.7		229.8
Deposit asset on reinsurance	Deposit asset on reinsurance	2,402,539		2,346,166		Deposit asset on reinsurance	2,477.9		2,420.9
Intangible assets, net		166,287		177,217
Intangible assets						Intangible assets	148.7		158.5
Goodwill	Goodwill	49,079		49,079		Goodwill	43.5		43.5
Other assets	Other assets	447,414		474,364		Other assets	451.9		443.2
Separate Account (variable annuity) assets	Separate Account (variable annuity) assets	2,488,528		2,490,469		Separate Account (variable annuity) assets	3,326.8		2,891.4
Total assets	Total assets	$	13,003,388	$	12,478,704	Total assets	$	14,265.0	$	13,471.8

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities and Shareholders' Equity						Liabilities and Shareholders' Equity
Policy liabilities	Policy liabilities					Policy liabilities
Investment contract and policy reserves	Investment contract and policy reserves	$	6,402,471	$	6,234,452	Investment contract and policy reserves	$	6,569.0	$	6,445.3
Unpaid claims and claim expenses	Unpaid claims and claim expenses	454,516		442,854		Unpaid claims and claim expenses	440.1		438.8
Unearned premiums	Unearned premiums	272,660		279,163		Unearned premiums	261.4		264.5
Total policy liabilities	Total policy liabilities	7,129,647		6,956,469		Total policy liabilities	7,270.5		7,148.6
Other policyholder funds	Other policyholder funds	744,494		647,283		Other policyholder funds	994.3		751.3
Other liabilities	Other liabilities	487,794		384,173		Other liabilities	488.4		453.1
Short-term debt	Short-term debt	135,000		135,000		Short-term debt	135.0		135.0
Long-term debt	Long-term debt	302,247		298,025		Long-term debt	253.6		302.3
Separate Account (variable annuity) liabilities	Separate Account (variable annuity) liabilities	2,488,528		2,490,469		Separate Account (variable annuity) liabilities	3,326.8		2,891.4
Total liabilities	Total liabilities	11,287,710		10,911,419		Total liabilities	12,468.6		11,681.7
Preferred stock, $0.001 par value, authorized 1,000,000 shares; NaN issued		0		0
Common stock, $0.001 par value, authorized 75,000,000 shares; issued, 2020, 66,298,901; 2019, 66,088,808		66		66
Preferred stock, $0.001 par value, authorized 1,000,000 shares; none issued						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, 2021, 66,434,551; 2020, 66,316,797						Common stock, $0.001 par value, authorized 75,000,000 shares; issued, 2021, 66,434,551; 2020, 66,316,797	0.1		0.1
Additional paid-in capital	Additional paid-in capital	486,763		480,962		Additional paid-in capital	492.9		488.4
Retained earnings	Retained earnings	1,399,527		1,352,539		Retained earnings	1,497.5		1,434.6
Accumulated other comprehensive income (loss), net of tax:	Accumulated other comprehensive income (loss), net of tax:					Accumulated other comprehensive income (loss), net of tax:
Net unrealized investment gains on fixed maturity securities	Net unrealized investment gains on fixed maturity securities	328,197		230,448		Net unrealized investment gains on fixed maturity securities	306.9		366.3
Net funded status of benefit plans	Net funded status of benefit plans	(10,767)		(10,767)		Net funded status of benefit plans	(11.2)		(11.2)
Treasury stock, at cost, 2020, 24,902,579 shares; 2019, 24,850,484 shares		(488,108)		(485,963)
Treasury stock, at cost, 2021, 24,947,264 shares; 2020, 24,902,579 shares						Treasury stock, at cost, 2021, 24,947,264 shares; 2020, 24,902,579 shares	(489.8)		(488.1)
Total shareholders’ equity	Total shareholders’ equity	1,715,678		1,567,285		Total shareholders’ equity	1,796.4		1,790.1
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	13,003,388	$	12,478,704	Total liabilities and shareholders’ equity	$	14,265.0	$	13,471.8

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 AND COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Statements of Operations										Statements of Operations
Revenues	Revenues									Revenues
Insurance premiums and contract charges earned		$	235,353	$	239,681	$	697,049	$	657,562
Premiums and contract charges earned										Premiums and contract charges earned	$	225.4	$	235.3	$	678.8	$	697.0
Net investment income	Net investment income	93,718		93,071		256,403		279,329		Net investment income	103.7		93.7		308.4		256.4
Net investment gains (losses)		2,469		(2,156)		(12,833)		151,594
Net investment (losses) gains										Net investment (losses) gains	(6.5)		2.5		(10.6)		(12.8)
Other income	Other income	5,540		6,040		17,478		16,941		Other income	7.0		5.6		22.1		17.5

Total revenues	Total revenues	337,080		336,636		958,097		1,105,426		Total revenues	329.6		337.1		998.7		958.1

Benefits, losses and expenses	Benefits, losses and expenses									Benefits, losses and expenses
Benefits, claims and settlement expenses	Benefits, claims and settlement expenses	151,425		154,191		433,095		446,267		Benefits, claims and settlement expenses	164.8		151.4		446.2		433.1
Interest credited	Interest credited	51,030		53,576		153,249		160,092		Interest credited	51.9		51.1		153.7		153.3
Operating expenses	Operating expenses	57,837		63,632		173,117		175,954		Operating expenses	64.3		57.9		182.8		173.1
DAC unlocking and amortization expense	DAC unlocking and amortization expense	24,561		26,344		74,962		82,965		DAC unlocking and amortization expense	22.9		24.6		70.5		75.0
Intangible asset amortization expense	Intangible asset amortization expense	3,558		3,781		10,930		4,863		Intangible asset amortization expense	3.3		3.5		9.8		10.9
Interest expense	Interest expense	3,553		4,608		11,722		11,223		Interest expense	3.4		3.5		10.4		11.7
Other expense - goodwill impairment		0		0		0		28,025

Total benefits, losses and expenses	Total benefits, losses and expenses	291,964		306,132		857,075		909,389		Total benefits, losses and expenses	310.6		292.0		873.4		857.1

Income before income taxes	Income before income taxes	45,116		30,504		101,022		196,037		Income before income taxes	19.0		45.1		125.3		101.0
Income tax expense	Income tax expense	8,642		5,050		15,498		44,595		Income tax expense	2.7		8.6		23.0		15.5

Net income	Net income	$	36,474	$	25,454	$	85,524	$	151,442	Net income	$	16.3	$	36.5	$	102.3	$	85.5

Net income per share	Net income per share									Net income per share
Basic	Basic	$	0.87	$	0.61	$	2.04	$	3.63	Basic	$	0.39	$	0.87	$	2.44	$	2.04
Diluted	Diluted	$	0.87	$	0.60	$	2.03	$	3.61	Diluted	$	0.39	$	0.87	$	2.43	$	2.03

Weighted average number of shares and equivalent shares	Weighted average number of shares and equivalent shares									Weighted average number of shares and equivalent shares
Basic	Basic	41,916		41,785		41,865		41,715		Basic	42.0		41.9		42.0		41.9
Diluted	Diluted	42,058		42,030		42,013		41,911		Diluted	42.2		42.1		42.2		42.0

Net investment gains (losses)
Total other-than-temporary impairment losses on securities		$	(1,057)	$	(5)	$	(5,272)	$	(276)
Portion of losses recognized in other comprehensive income (loss)		0		0		0		0
Net other-than-temporary impairment losses on securities recognized in net income		(1,057)		(5)		(5,272)		(276)
Sales and other, net		3,736		608		8,645		147,513
Change in fair value - equity securities		2,242		1,081		(5,644)		8,029
Change in fair value and gains (losses) realized on settlements - derivatives		(2,452)		(3,840)		(10,562)		(3,672)
Total		$	2,469	$	(2,156)	$	(12,833)	$	151,594
Statements of Comprehensive (Loss) Income										Statements of Comprehensive (Loss) Income
Net income										Net income	$	16.3	$	36.5	$	102.3	$	85.5
Other comprehensive (loss) income, net of tax:										Other comprehensive (loss) income, net of tax:
Change in net unrealized investment gains (losses) on fixed maturity securities										Change in net unrealized investment gains (losses) on fixed maturity securities	(25.3)		49.1		(59.4)		97.8
Change in net funded status of benefit plans										Change in net funded status of benefit plans	—		—		—		—
Other comprehensive (loss) income										Other comprehensive (loss) income	(25.3)		49.1		(59.4)		97.8
Comprehensive (loss) income										Comprehensive (loss) income	$	(9.0)	$	85.6	$	42.9	$	183.3

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)~~CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Comprehensive income (loss)
Net income $ 36,474 $ 25,454 $ 85,524 $ 151,442
Other comprehensive income (loss), net of tax:
Change in net unrealized investment gains
(losses) on fixed maturity securities 49,068 63,304 97,749 169,440
Change in net funded status of benefit plans 0 0 0 0
Other comprehensive income (loss) 49,068 63,304 97,749 169,440
Total $ 85,542 $ 88,758 $ 183,273 $ 320,882


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Common stock, $0.001 par value
Beginning balance	$	0.1	$	0.1	$	0.1	$	0.1
Options exercised	—		—		—		—
Conversion of common stock units	—		—		—		—
Conversion of restricted stock units	—		—		—		—
Ending balance	0.1		0.1		0.1		0.1

Additional paid-in capital
Beginning balance	490.7		483.8		488.4		481.0
Options exercised and conversion of common stock units and restricted stock units	0.2		1.3		(1.0)		1.6
Share-based compensation expense	2.0		1.7		5.5		4.2
Ending balance	492.9		486.8		492.9		486.8

Retained earnings
Beginning balance	1,494.4		1,375.7		1,434.6		1,352.5
Net income	16.3		36.5		102.3		85.5
Dividends, 2021, $0.31, $0.93 per share; 2020, $0.30, $0.90 per share	(13.2)		(12.7)		(39.4)		(38.0)
Cumulative effect of change in accounting principle	—		—		—		(0.5)
Ending balance	1,497.5		1,399.5		1,497.5		1,399.5

Accumulated other comprehensive income (loss), net of tax:
Beginning balance	321.0		268.4		355.1		219.7
Change in net unrealized investment gains (losses) on fixed maturity securities	(25.3)		49.1		(59.4)		97.8
Change in net funded status of benefit plans	—		—		—		—
Ending balance	295.7		317.5		295.7		317.5

Treasury stock, at cost
Beginning balance	(489.6)		(488.1)		(488.1)		(485.9)
Acquisition of shares	(0.2)		—		(1.7)		(2.2)
Ending balance	(489.8)		(488.1)		(489.8)		(488.1)
Shareholders' equity at end of period	$	1,796.4	$	1,715.8	$	1,796.4	$	1,715.8

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~~CASH FLOWS (UNAUDITED)

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Common stock, $0.001 par value
Beginning balance $ 66 $ 66 $ 66 $ 66
Options exercised — — — —
Conversion of common stock units — — — —
Conversion of restricted stock units — — — —
Ending balance 66 66 66 66
Additional paid-in capital
Beginning balance 483,754 476,353 480,962 475,109
Options exercised and conversion of common stock
units and restricted stock units 1,319 447 1,587 (1,314)
Share-based compensation expense 1,690 1,850 4,214 4,855
Ending balance 486,763 478,650 486,763 478,650
Retained earnings
Beginning balance 1,375,737 1,318,329 1,352,539 1,216,582
Net income 36,474 25,454 85,524 151,442
Dividends, 2020, $0.30, $0.90 per share;
2019, $0.2875, $0.8625 per share
(12,684) (12,120) (38,027) (36,361)
Cumulative effect of change in accounting principle — — (509) —
Ending balance 1,399,527 1,331,663 1,399,527 1,331,663
Accumulated other comprehensive income (loss), net of tax:
Beginning balance 268,362 190,892 219,681 84,756
Change in net unrealized investment gains (losses)
on fixed maturity securities 49,068 63,304 97,749 169,440
Change in net funded status of benefit plans — — — —
Ending balance 317,430 254,196 317,430 254,196
Treasury stock, at cost
Beginning balance (485,963) (485,963) (488,108) (485,963)
Acquisition of shares (2,145) — — —
Ending balance (488,108) (485,963) (488,108) (485,963)
Shareholders' equity at end of period $ 1,715,678 $ 1,578,612 $ 1,715,678 $ 1,578,612


	Nine Months Ended September 30,
	2021		2020
Cash flows - operating activities
Net income	$	102.3	$	85.5
Adjustments to reconcile net income to net cash provided by operating activities:
Net investment losses	10.6		12.8
Amortization of premiums and accretion of discounts on fixed maturity securities, net	3.3		4.9
Depreciation and intangible asset amortization	16.7		17.5
Share-based compensation expense	6.0		4.6

Changes in:
Accrued investment income	(8.1)		(5.5)
Insurance liabilities	75.1		97.9
Premium receivables	(3.4)		4.1
Deferred policy acquisition costs	(0.1)		(2.5)
Reinsurance recoverables	(1.6)		3.3
Income tax liabilities	2.3		(3.4)
Other operating assets and liabilities	2.5		44.3
Other	(27.5)		4.3
Net cash provided by operating activities	178.1		267.8
Cash flows - investing activities
Fixed maturity securities
Purchases	(1,228.1)		(1,093.9)
Sales	319.2		352.8
Maturities, paydowns, calls and redemptions	631.5		525.3
Equity securities
Purchases	(45.0)		(23.2)
Sales and repayments	1.0		12.4
Limited partnership interests
Purchases	(202.1)		(59.9)
Sales	69.4		14.6
Change in short-term and other investments, net	103.1		(96.9)
Net cash used in investing activities	(351.0)		(368.8)
Cash flows - financing activities
Dividends paid to shareholders	(38.6)		(37.2)
FHLB borrowings	1.0		4.0
Principal repayment on FHLB borrowings	(50.0)		—
Acquisition of treasury stock	(1.7)		(2.2)
Proceeds from exercise of stock options	0.3		2.4
Withholding tax payments on RSUs tendered	(2.0)		(2.0)
Annuity contracts: variable, fixed and FHLB funding agreements:
Deposits	833.2		462.2
Benefits, withdrawals and net transfers to Separate Account (variable annuity) assets	(342.1)		(284.4)
Principal repayment on FHLB funding agreements	(204.0)		—
Life policy accounts:
Deposits	6.7		6.8
Withdrawals and surrenders	(3.0)		(2.9)
Change in deposit asset on reinsurance	(17.2)		(14.8)
Change in book overdrafts	8.2		9.1
Net cash provided by financing activities	190.8		141.0
Net increase in cash	17.9		40.0
Cash at beginning of period	22.3		25.5
Cash at end of period	$	40.2	$	65.5

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)~~

~~($ in thousands)~~

Nine Months Ended
September 30,
2020 2019
Cash flows - operating activities
Net income $ 85,524 $ 151,442
Adjustments to reconcile net income to net cash provided
by operating activities
     Net investment (gains) losses 12,833 (151,594)
     Amortization of premiums and accretion of discounts on
fixed maturity securities, net 4,904 1,023
     Depreciation and intangible asset amortization 17,547 9,751
     Share-based compensation expense 4,578 5,666
     Other expense - goodwill impairment 0 28,025
     Changes in:
      Accrued investment income (5,476) 41,994
      Insurance liabilities 97,952 40,180
      Premium receivables 4,068 (9,671)
      Deferred policy acquisitions (2,546) 501
      Reinsurance recoverables 3,265 11,837
      Income tax liabilities (3,419) 34,845
      Other operating assets and liabilities 44,282 56,194
      Other 4,312 (12,957)
           Net cash provided by operating activities 267,824 207,236
Cash flows - investing activities
Fixed maturity securities
Purchases (1,093,888) (845,967)
Sales 352,766 651,058
Maturities, paydowns, calls and redemptions 525,310 645,946
Equity securities
Purchases (23,170) (10,510)
Sales and repayments 12,368 20,989
Limited partnership interests
Purchases (59,958) (42,388)
Sales 14,594 36,108
Change in short-term and other investments, net (96,890) (99,702)
Acquisition of businesses, net of cash acquired 0 (421,174)
           Net cash used in investing activities (368,868) (65,640)
Cash flows - financing activities
Dividends paid to shareholders (37,196) (35,477)
   Principal borrowings on Bank Credit Facility 0 135,000
FHLB borrowings 4,000 0
Acquisition of treasury stock (2,145) 0
Proceeds from exercise of stock options 2,402 1,105
Withholding tax payments on RSUs tendered (1,954) (3,560)
Annuity contracts: variable, fixed and FHLB funding agreements
Deposits 462,207 519,636
Benefits, withdrawals and net transfers to
Separate Account (variable annuity) assets (284,439) (313,653)
  Principal repayment on FHLB funding agreements 0 (275,000)
Life policy accounts
Deposits 6,775 7,143
Withdrawals and surrenders (2,912) (2,682)
Change in deposit asset on reinsurance (14,797) (130,740)
Change in book overdrafts 9,070 (15,925)
           Net cash provided by (used in) financing activities 141,011 (114,153)
Net increase in cash 39,967 27,443
Cash at beginning of period 25,508 11,906
Cash at end of period $ 65,475 $ 39,349

~~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)

~~September 30, 2020 and 2019~~

NOTE 1 - Basis of Presentation and Significant Accounting Policies

Business

Horace Mann Educators Corporation is a holding company for insurance subsidiaries that market and underwrite personal lines of property and casualty insurance products (primarily personal lines of automobile and property insurance), supplemental insurance products (primarily cancer, heart, ~~cancer, accident and limited short-term~~hospital, supplemental disability and accident coverages), retirement products (primarily tax-qualified fixed and variable annuities) and life insurance products, 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 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 thereto 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.~~2020. The results of operations for the three and nine months ended September 30, ~~2020~~2021 are not necessarily indicative of the results to be expected for the full year.

The accompanying Consolidated Financial Statements and Notes thereto are unaudited. These financial statements reflect all adjustments (generally consisting only of normal recurring accruals) which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position, results of operations and cash flows for the 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 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.~~2020.

Consolidation

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

Use of Estimates

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 reporting date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.


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

~~NOTE 1 - Basis of Presentation and Significant Accounting Policies (continued)~~

The most significant critical accounting estimates include 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 ~~supplemental,~~ annuity and life deferred policy acquisition costs, valuation of liabilities for property and casualty unpaid claims and claim expenses and valuation of certain investment contracts and policy ~~reserves and valuation of assets acquired and liabilities assumed under purchase accounting.~~

~~Adoption of New Accounting Standards~~

~~Measurement of Credit Losses on Financial Instruments~~

In June 2016, the Financial Accounting Standards Board (FASB) issued guidance which revised the credit loss recognition criteria for certain financial assets measured at amortized cost, including reinsurance recoverables. The guidance replaced the previous incurred loss recognition model with an expected loss recognition model. The objective of the expected credit loss model is for a reporting entity to recognize its estimate of expected credit losses for affected financial assets 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 entity must consider all relevant information available when estimating expected credit losses, including details about past events, current conditions, and reasonable and supportable forecasts 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 for available for sale debt securities measured at fair value is not affected except that credit losses recognized are limited to the amount by which fair value is below amortized 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 is effective for reporting periods beginning after December 15, 2019, and for most affected instruments must be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to beginning retained earnings.

The Company’s implementation activities are complete and the impacts relate 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 on January 1, 2020 and recognized a cumulative effect adjustment that decreased retained earnings by $0.5 million.reserves.

Future Adoption of 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).


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

NOTE 1 - Basis of Presentation and Significant Accounting Policies (continued)

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 policy 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, ~~2021,~~2022, 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~~ ~~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 12 - ~~Basis of Presentation~~Acquisitions

On July 14, 2021, the Company announced that it entered into a Stock Purchase Agreement (Agreement), by and ~~Significant Accounting Policies (continued)~~

~~Credit Impairments of Fixed Maturity Securities~~

~~Some~~among the Company and Independence Capital Corp. and Independence Holding Company (Seller) to acquire all the equity interests in Madison National Life Insurance Company, Inc., an insurance company organized under the laws of the ~~factors considered~~State of Wisconsin (Madison National). The Agreement provides, among other things, that, upon the terms and subject to the conditions set forth in ~~assessing impairment of fixed maturity securities 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 thatAgreement, the Company will ~~be required~~acquire all the equity interests in Madison National (Acquisition) for $172.5 million. The Seller will have a potential earn-out of up to ~~sell~~$12.5 million payable in cash, if specified financial targets are achieved by 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~~end of ~~New Accounting Standards - Measurement of Credit Losses on Financial Instruments~~ ~~for additional information.~~

~~For fixed maturity securities that~~2023. The Agreement and 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 componentconsummation of the ~~impairment from~~transactions contemplated by the ~~amount related to all other factors~~Agreement have been approved by the Company’s Board of Directors. The Company has cleared the anti-trust review 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~~closing of the impairment and whether the Company expects a recovery in 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 orAcquisition is expected to ~~default on payments.~~occur early during the first quarter of 2022, subject to the satisfaction or waiver of applicable closing conditions as well as approval by certain regulators.

~~Uncollectible available~~

NOTE 3 - Investments

Net Investment Income

The components of net investment income for ~~sale fixed maturity securities are written off when~~ the ~~Company determines that no additional payments of principal or interest will be received.~~following periods were as follows:


($ in millions)	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Fixed maturity securities	$	59.8	$	56.4	$	177.2	$	174.7
Equity securities	1.4		1.1		3.8		3.5
Limited partnership interests	16.8		11.1		51.1		4.9
Short-term and other investments	2.8		2.7		8.5		8.4
Investment expenses	(2.7)		(2.1)		(7.3)		(7.2)
Net investment income - investment portfolio	78.1		69.2		233.3		184.3
Investment income - deposit asset on reinsurance	25.6		24.5		75.1		72.1
Total net investment income	$	103.7	$	93.7	$	308.4	$	256.4


Horace Mann Educators Corporation			97			Quarterly Report on Form 10-Q

NOTE 23 - Investments (continued)

Net Investment ~~Income~~(Losses) Gains

~~The components of net~~Net investment ~~income~~(losses) gains for the following periods were as follows:

($ in thousands) Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Fixed maturity securities $ 56,420 $ 59,319 $ 174,727 $ 227,196
Equity securities 1,130 1,107 3,520 3,697
Limited partnership interests 11,046 6,859 4,862 22,759
Short-term and other investments 2,774 4,207 8,415 (13,856)
Investment expenses (2,151) (2,179) (7,262) (7,420)
Net investment income - investment portfolio 69,219 69,313 184,262 232,376
Investment income - deposit asset on reinsurance 24,499 23,758 72,141 46,953
Total net investment income $ 93,718 $ 93,071 $ 256,403 $ 279,329

~~Net Investment Gains (Losses)~~

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


($ in thousands)		Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)										($ in millions)	Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Fixed maturity securities	Fixed maturity securities	$	2,656	$	206	$	3,116	$	141,955	Fixed maturity securities	$	(4.0)	$	2.7	$	(7.9)	$	3.1
Equity securities	Equity securities	3,982		1,478		(3,670)		13,311		Equity securities	(1.0)		4.0		0.7		(3.6)
Short-term investments and other	Short-term investments and other	(4,169)		(3,840)		(12,279)		(3,672)		Short-term investments and other	(1.5)		(4.2)		(3.4)		(12.3)
Net investment gains (losses)		$	2,469	$	(2,156)	$	(12,833)	$	151,594
Net investment (losses) gains										Net investment (losses) gains	$	(6.5)	$	2.5	$	(10.6)	$	(12.8)

The Company, from time to time, sells ~~invested assets~~fixed maturity securities subsequent to the reporting date that were considered temporarily impaired at such reporting date. Such sales are due to issuer specific events occurring subsequent to the reporting date that result in a change in the Company's intent ~~or ability~~ to ~~hold an invested asset.~~sell a fixed maturity security. The types of events that may result in a sale include significant changes in the economic facts and circumstances related to the invested asset, significant unforeseen changes in liquidity needs, or changes in the Company's investment strategy.

Net Investment (Losses) Gains ~~(Losses)~~ by Transaction Type

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

($ in thousands) Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Credit impairment write-downs $ 0 $ 0 $ 0 $ 0
Change in intent write-downs (1,057) (5) (5,272) (276)
Net other-than-temporary impairment losses
on securities recognized in net income
(1,057) (5) (5,272) (276)
Sales and other, net 3,736 608 8,645 147,513
Change in fair value - equity securities 2,242 1,081 (5,644) 8,029
Change in fair value and gains (losses) realized
on settlements - derivatives
(2,452) (3,840) (10,562) (3,672)
Net investment gains (losses) $ 2,469 $ (2,156) $ (12,833) $ 151,594


($ in millions)	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Credit loss impairments(1)	$	(6.6)	$	—	$	(7.7)	$	—
Intent-to-sell impairments	—		(1.1)		(2.1)		(5.3)
Total impairments on investments recognized in net income	(6.6)		(1.1)		(9.8)		(5.3)
Sales and other, net	2.7		3.7		2.2		8.6
Change in fair value - equity securities	(1.1)		2.3		0.4		(5.6)
Change in fair value and losses realized on settlements - derivatives	(1.5)		(2.4)		(3.4)		(10.5)
Net investment (losses) gains	$	(6.5)	$	2.5	$	(10.6)	$	(12.8)

(1) For the nine months ended September 30, 2021, the Company recognized a valuation allowance of $7.7 million for credit loss impairments with respect to fixed maturity securities available for sale.


Horace Mann Educators Corporation			108			Quarterly Report on Form 10-Q

NOTE 23 - Investments (continued)

Allowance for Credit Loss Impairments on Fixed Maturity Securities

The following table presents changes in the allowance for credit loss impairments on fixed maturity securities classified as available for sale for the category of other asset-backed securities (no other categories of fixed maturity securities have an allowance for credit loss impairments):


($ in millions)	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Beginning balance	$	1.1	$	—	$	—	$	—
Credit losses on fixed maturity securities for which credit losses were not previously reported	6.6		—		7.7		—
Net (increases) decreases related to credit losses previously reported	—		—		—		—
Reduction of credit allowances related to sales	—		—		—		—
Write-offs	—		—		—		—
Ending balance	$	7.7	$	—	$	7.7	$	—

Fixed Maturity Securities

The Company's investment portfolio is comprised primarily of fixed maturity securities. Amortized cost, net, gross 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
September 30, 2020
($ in millions)										($ in millions)	Amortized Cost, net		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2021										September 30, 2021
Fixed maturity securities	Fixed maturity securities									Fixed maturity securities
U.S. Government and federally sponsored agency obligations: (1)	U.S. Government and federally sponsored agency obligations: (1)									U.S. Government and federally sponsored agency obligations:(1)
Mortgage-backed securities	Mortgage-backed securities	$	617,856	$	85,219	$	213	$	702,862	Mortgage-backed securities	$	636.2	$	58.3	$	1.0	$	693.5
Other, including U.S. Treasury securities	Other, including U.S. Treasury securities	341,771		42,683		317		384,137		Other, including U.S. Treasury securities	385.7		28.8		5.6		408.9
Municipal bonds	Municipal bonds	1,621,308		196,317		1,124		1,816,501		Municipal bonds	1,592.5		184.1		1.1		1,775.5
Foreign government bonds	Foreign government bonds	40,143		4,644		0		44,787		Foreign government bonds	40.2		3.8		—		44.0
Corporate bonds	Corporate bonds	1,802,423		189,986		8,926		1,983,483		Corporate bonds	2,268.8		189.4		6.6		2,451.6
Other asset-backed securities	Other asset-backed securities	1,248,814		22,353		34,379		1,236,788		Other asset-backed securities	1,122.2		21.1		4.8		1,138.5
Totals	Totals	$	5,672,315	$	541,202	$	44,959	$	6,168,558	Totals	$	6,045.6	$	485.5	$	19.1	$	6,512.0

December 31, 2019
December 31, 2020										December 31, 2020
Fixed maturity securities	Fixed maturity securities									Fixed maturity securities
U.S. Government and federally sponsored agency obligations: (1)	U.S. Government and federally sponsored agency obligations: (1)									U.S. Government and federally sponsored agency obligations:(1)
Mortgage-backed securities	Mortgage-backed securities	$	684,543	$	41,263	$	1,487	$	724,319	Mortgage-backed securities	$	605.5	$	79.6	$	0.3	$	684.8
Other, including U.S. Treasury securities	Other, including U.S. Treasury securities	436,665		22,824		621		458,868		Other, including U.S. Treasury securities	395.0		39.2		1.0		433.2
Municipal bonds	Municipal bonds	1,545,787		141,996		1,580		1,686,203		Municipal bonds	1,612.3		215.7		0.5		1,827.5
Foreign government bonds	Foreign government bonds	42,801		2,569		0		45,370		Foreign government bonds	40.2		4.9		—		45.1
Corporate bonds	Corporate bonds	1,464,444		118,775		1,795		1,581,424		Corporate bonds	1,905.2		221.6		3.9		2,122.9
Other asset-backed securities	Other asset-backed securities	1,282,740		20,883		8,131		1,295,492		Other asset-backed securities	1,230.4		24.1		22.7		1,231.8
Totals	Totals	$	5,456,980	$	348,310	$	13,614	$	5,791,676	Totals	$	5,788.6	$	585.1	$	28.4	$	6,345.3

(1) Fair value includes securities issued by Federal National Mortgage Association (FNMA) of ~~$390.7~~$394.9 million and ~~$405.1~~$387.1 million; Federal Home Loan Mortgage Corporation (FHLMC) of ~~$322.4~~$337.8 million and ~~$283.1~~$344.3 million; and Government National Mortgage Association (GNMA) of ~~$137.4~~$118.2 million and ~~$147.4~~$132.3 million as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.


Horace Mann Educators Corporation			119			Quarterly Report on Form 10-Q

NOTE 23 - Investments (continued)

The following table presents the fair value and gross unrealized losses for fixed maturity securities in an unrealized loss position at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The Company views the decrease in fair value of all of the fixed maturity securities with unrealized losses at September 30, ~~2020~~2021 — which was driven largely by increasing interest rates, spread widening, financial market illiquidity and/or market volatility from the date of acquisition — as temporary. As of September 30, ~~2020,~~2021, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell the fixed maturity securities with unrealized losses before an anticipated recovery in value. Therefore, it was determined that the unrealized losses on the fixed maturity securities presented in the table below were not ~~other-than-temporarily impaired~~indicative of any impairments as of September 30, ~~2020.~~2021.


($ in thousands)		12 Months or Less					More than 12 Months					Total
($ in millions)																	($ in millions)	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
September 30, 2020
September 30, 2021																	September 30, 2021
Fixed maturity securities	Fixed maturity securities																Fixed maturity securities
U.S. Government and federally sponsored agency obligations:	U.S. Government and federally sponsored agency obligations:																U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	Mortgage-backed securities	$	8,519		$	134	$	1,246		$	79	$	9,765		$	213	Mortgage-backed securities	$	69.5		$	0.9	$	2.1		$	0.1	$	71.6		$	1.0
Other	Other	31,797			317		0			0		31,797			317		Other	106.1			4.4		15.0			1.2		121.1			5.6
Municipal bonds	Municipal bonds	47,067			1,124		0			0		47,067			1,124		Municipal bonds	52.2			1.0		1.4			0.1		53.6			1.1
Foreign government bonds	Foreign government bonds	0			0		0			0		0			0		Foreign government bonds	—			—		—			—		—			—
Corporate bonds	Corporate bonds	203,521			8,444		9,873			482		213,394			8,926		Corporate bonds	214.1			5.3		36.1			1.3		250.2			6.6
Other asset-backed securities	Other asset-backed securities	397,424			24,376		413,159			10,003		810,583			34,379		Other asset-backed securities	187.6			1.1		205.4			3.7		393.0			4.8
Total	Total	$	688,328		$	34,395	$	424,278		$	10,564	$	1,112,606		$	44,959	Total	$	629.5		$	12.7	$	260.0		$	6.4	$	889.5		$	19.1

Number of positions with a gross unrealized loss	Number of positions with a gross unrealized loss	475					124					599					Number of positions with a gross unrealized loss	401					129					530
Fair value as a percentage of total fixed maturity securities at fair value	Fair value as a percentage of total fixed maturity securities at fair value	11.2		%			6.9		%			18.1		%			Fair value as a percentage of total fixed maturity securities at fair value	9.7		%			4.0		%			13.7		%

December 31, 2019
December 31, 2020																	December 31, 2020
Fixed maturity securities	Fixed maturity securities																Fixed maturity securities
U.S. Government and federally sponsored agency obligations:	U.S. Government and federally sponsored agency obligations:																U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	Mortgage-backed securities	$	72,422		$	1,282	$	2,620		$	205	$	75,042		$	1,487	Mortgage-backed securities	$	4.9		$	0.1	$	2.6		$	0.2	$	7.5		$	0.3
Other	Other	38,341			619		1,527			2		39,868			621		Other	95.9			1.0		—			—		95.9			1.0
Municipal bonds	Municipal bonds	91,195			977		9,160			603		100,355			1,580		Municipal bonds	18.1			0.5		—			—		18.1			0.5
Foreign government bonds	Foreign government bonds	0			0		0			0		0			0		Foreign government bonds	—			—		—			—		—			—
Corporate bonds	Corporate bonds	58,198			886		16,622			909		74,820			1,795		Corporate bonds	126.6			3.7		10.9			0.2		137.5			3.9
Other asset-backed securities	Other asset-backed securities	218,710			1,970		442,791			6,161		661,501			8,131		Other asset-backed securities	316.9			17.2		409.3			5.5		726.2			22.7
Total	Total	$	478,866		$	5,734	$	472,720		$	7,880	$	951,586		$	13,614	Total	$	562.4		$	22.5	$	422.8		$	5.9	$	985.2		$	28.4

Number of positions with a gross unrealized loss	Number of positions with a gross unrealized loss	330					137					467					Number of positions with a gross unrealized loss	308					123					431
Fair value as a percentage of total fixed maturity securities at fair value	Fair value as a percentage of total fixed maturity securities at fair value	8.3		%			8.2		%			16.5		%			Fair value as a percentage of total fixed maturity securities at fair value	8.9		%			6.7		%			15.6		%

Fixed maturity securities with an investment grade rating represented ~~80.8%~~86.7% of the gross unrealized losses as of September 30, ~~2020.~~2021. 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 the amortized cost basis.


Horace Mann Educators Corporation			1210			Quarterly Report on Form 10-Q

NOTE 23 - Investments (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 September 30, 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) Nine Months Ended
September 30,
2020 2019
Cumulative credit loss (1)
Beginning of period $ 1,529 $ 1,529
New credit losses 184 0
Increases to previously recognized credit losses 0 0
Losses related to securities sold or paid down during the period (103) 0
End of period $ 1,610 $ 1,529

~~(1)~~The cumulative credit loss amounts exclude OTTI losses on fixed maturity 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 in value.

For the three and nine months ended September 30, 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, 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 September 30, 2020
September 30, 2020 December 31, 2019 Fair
Value Amortized
Cost
Estimated expected maturity:
Due in 1 year or less 4.2 % 3.6 % $ 261,323 $ 258,244
Due after 1 year through 5 years 28.1 % 27.4 % 1,734,450 1,676,356
Due after 5 years through 10 years 28.9 % 29.6 % 1,782,261 1,628,583
Due after 10 years through 20 years 24.3 % 26.1 % 1,496,331 1,309,759
Due after 20 years 14.5 % 13.3 % 894,193 799,373
Total 100.0 % 100.0 % $ 6,168,558 $ 5,672,315
Average option-adjusted duration, in years 6.3 6.0


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


($ in millions)	Percent of Total Fair Value				September 30, 2021
	September 30, 2021		December 31, 2020		Fair Value		Amortized Cost, net
Estimated expected maturity:
Due in 1 year or less	4.0	%	4.0	%	$	260.5	$	253.7
Due after 1 year through 5 years	26.2	%	28.3	%	1,703.6		1,620.1
Due after 5 years through 10 years	28.1	%	28.0	%	1,830.4		1,685.7
Due after 10 years through 20 years	23.9	%	24.6	%	1,559.5		1,411.2
Due after 20 years	17.8	%	15.1	%	1,158.0		1,074.9
Total	100.0	%	100.0	%	$	6,512.0	$	6,045.6

Average option-adjusted duration, in years	6.8		6.4

~~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 as follows:


($ in thousands)		Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)										($ in millions)	Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019 (1)			2021		2020		2021		2020
Fixed maturity securities	Fixed maturity securities									Fixed maturity securities
Proceeds received	Proceeds received	$	58,604	$	149,319	$	352,766	$	651,058	Proceeds received	$	155.4	$	58.6	$	319.2	$	352.8
Gross gains realized	Gross gains realized	3,744		1,258		14,029		149,574		Gross gains realized	3.2		3.7		6.2		14.0
Gross losses realized	Gross losses realized	(31)		(1,047)		(5,924)		(7,128)		Gross losses realized	(0.7)		—		(4.3)		(5.9)

Equity securities	Equity securities									Equity securities
Proceeds received	Proceeds received	$	309	$	1,367	$	12,368	$	18,489	Proceeds received	$	0.3	$	0.3	$	1.0	$	12.4
Gross gains realized	Gross gains realized	79		428		2,119		5,562		Gross gains realized	0.1		0.1		0.3		2.1
Gross losses realized	Gross losses realized	(38)		(32)		(1,843)		(542)		Gross losses realized	—		—		—		(1.8)

~~(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 Note 5 for further information.

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 accumulated other comprehensive income (AOCI), before the impact of DAC:

($ in thousands) Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Net unrealized investment gains (losses)
on fixed maturity securities, net of tax
Beginning of period $ 329,887 $ 231,087 $ 264,410 $ 111,712
Change in net unrealized investment gains
(losses) on fixed maturity securities 56,901 75,283 128,060 315,988
Reclassification of net investment (gains) losses
on securities to net income 5,244 (1,330) (438) (122,660)
End of period $ 392,032 $ 305,040 $ 392,032 $ 305,040


($ in millions)	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net unrealized investment gains (losses) on fixed maturity securities, net of tax
Beginning of period	$	399.4	$	329.9	$	439.8	$	264.4
Change in net unrealized investment gains (losses) on fixed maturity securities	(34.9)		56.9		(77.0)		128.1
Reclassification of net investment (gains) losses on fixed maturity securities to net income	3.9		5.2		5.6		(0.5)
End of period	$	368.4	$	392.0	$	368.4	$	392.0


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

NOTE 3 - Investments (continued)

Limited Partnership Interests

~~As of September 30, 2020 and December 31, 2019, the carrying value of equity method~~Investments in limited partnership interests ~~totaled $418.2 million~~are accounted for using the equity method of accounting and ~~$383.7 million, respectively.~~include interests in senior commercial mortgage loan funds, infrastructure debt funds, infrastructure equity funds, hedge funds and other funds. Principal factors influencing carrying ~~value~~amount 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 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. The carrying amounts of equity method limited partnership interests were as follows:


($ in millions)
	September 30, 2021		December 31, 2020
Senior commercial mortgage loan funds	$	265.8	$	149.6
Infrastructure debt funds	62.7		58.3
Infrastructure equity funds	59.1		52.1
Hedge funds	51.1		63.2
Other funds(1)	176.7		125.8
Total	$	615.4	$	449.0

(1)Other funds consist primarily of limited partnership interests in private equity, real estate equity and corporate mezzanine funds.

Offsetting of Assets and Liabilities

The Company's derivatives 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~~ Information regarding the Company's derivatives is contained in Part II - ~~Investments (continued)~~

Item 8, Note 4 in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. The following table presents instruments that were subject to a master netting arrangement for the Company.


($ in thousands)				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
($ in millions)														($ in millions)						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				Gross Amounts Offset in the Consolidated Balance Sheets				Net Amounts of Assets/ Liabilities Presented in the Consolidated Balance Sheets			Financial Instruments			Cash Collateral Received			Net Amount							Gross Amounts									Financial Instruments					Cash Collateral Received					Net Amount
September 30, 2020
September 30, 2021																	September 30, 2021
Asset derivatives:	Asset derivatives:																Asset derivatives:
Free-standing derivatives	Free-standing derivatives	$	10,793	$	0			$	10,793		$	7,952		$	1,960		$	881	Free-standing derivatives			$	10.6				$	—			$	10.6				$	9.8				$	3.5				$	(2.7)

December 31, 2019
December 31, 2020																	December 31, 2020
Asset derivatives:	Asset derivatives:																Asset derivatives:
Free-standing derivatives	Free-standing derivatives	13,239		0			13,239			7,687			6,640			(1,088)	Free-standing derivatives			$	16.8			$	—				$	16.8			$	13.7				$	2.6				$	0.5

Deposits

At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, fixed maturity securities with a fair value of ~~$26.9~~$26.4 million and ~~$26.0~~$26.9 million, respectively, were on deposit with governmental agencies as required by law in various states for which the insurance subsidiaries of HMEC conduct business. In addition, at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, fixed maturity securities with a fair value of ~~$697.1~~$923.6 million and ~~$594.2~~$707.3 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 ~~$644.5~~$837.5 million at September 30, ~~2020~~2021 and ~~$545.0~~$644.5 million at December 31, ~~2019.~~2020. The deposited securities are ~~included in~~reported as Fixed maturity securities on the Company’s Consolidated Balance Sheets.


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

NOTE 34 - Fair Value of Financial Instruments

The Company is required 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) and equity method limited partnership interests 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 43 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.


Horace Mann Educators Corporation			1513			Quarterly Report on Form 10-Q

NOTE 34 - Fair Value of Financial Instruments (continued)

Financial Instruments Measured and Carried at Fair Value on a Recurring Basis

The following table presents the Company's fair value hierarchy for ~~those~~financial assets and financial liabilities measured and carried at fair value on a recurring basis. During the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, there were no transfers between Level 1 and Level 2. At September 30, ~~2020,~~2021, Level 3 invested assets comprised ~~5.0%~~5.4% of the Company’s total investment portfolio at fair value.


($ in thousands)						Fair Value Measurements at
($ in millions)												($ in millions)	Carrying Amount		Fair Value			Fair Value Measurements at Reporting Date Using
		Carrying		Fair		Reporting Date Using											Level 1			Level 2			Level 3
		Amount		Value		Level 1		Level 2		Level 3
September 30, 2020
September 30, 2021												September 30, 2021
Financial Assets	Financial Assets											Financial Assets
Investments	Investments											Investments
Fixed maturity securities	Fixed maturity securities											Fixed maturity securities
U.S. Government and federally sponsored agency obligations:	U.S. Government and federally sponsored agency obligations:											U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	Mortgage-backed securities	$	702,862	$	702,862	$	0	$	690,663	$	12,199	Mortgage-backed securities	$	693.5	$	693.5		$	—		$	693.5		$	—
Other, including U.S. Treasury securities	Other, including U.S. Treasury securities	384,137		384,137		18,446		365,691		0		Other, including U.S. Treasury securities	408.9		408.9			17.9			391.0			—
Municipal bonds	Municipal bonds	1,816,501		1,816,501		0		1,750,830		65,671		Municipal bonds	1,775.5		1,775.5			—			1,717.3			58.2
Foreign government bonds	Foreign government bonds	44,787		44,787		0		44,787		0		Foreign government bonds	44.0		44.0			—			44.0			—
Corporate bonds	Corporate bonds	1,983,483		1,983,483		14,076		1,848,222		121,185		Corporate bonds	2,451.6		2,451.6			14.5			2,232.1			205.0
Other asset-backed securities	Other asset-backed securities	1,236,788		1,236,788		0		1,108,189		128,599		Other asset-backed securities	1,138.5		1,138.5			—			1,040.0			98.5
Total fixed maturity securities	Total fixed maturity securities	6,168,558		6,168,558		32,522		5,808,382		327,654		Total fixed maturity securities	6,512.0		6,512.0			32.4			6,117.9			361.7
Equity securities	Equity securities	102,303		102,303		36,274		65,941		88		Equity securities	152.3		152.3			39.3			112.6			0.4
Short-term investments	Short-term investments	254,309		254,309		250,206		4,103		0		Short-term investments	52.3		52.3			36.1			16.2			—
Other investments	Other investments	30,245		30,245		0		30,245		0		Other investments	43.2		43.2			—			43.2			—
Totals	Totals	$	6,555,415	$	6,555,415	$	319,002	$	5,908,671	$	327,742	Totals	$	6,759.8	$	6,759.8		$	107.8		$	6,289.9		$	362.1
Separate Account (variable annuity) assets (1)	Separate Account (variable annuity) assets (1)	$	2,488,528	$	2,488,528	$	2,488,528	$	0	$	0	Separate Account (variable annuity) assets(1)	$	3,326.8	$	3,326.8		$	3,326.8		$	—		$	—
Financial Liabilities	Financial Liabilities											Financial Liabilities
Investment contract and policy reserves, embedded derivatives	Investment contract and policy reserves, embedded derivatives	$	1,703	$	1,703	$	0	$	1,703	$	0	Investment contract and policy reserves, embedded derivatives	$	2.3	$	2.3		$	—		$	2.3		$	—
Other policyholder funds, embedded derivatives	Other policyholder funds, embedded derivatives	$	98,070	$	98,070	$	0	$	0	$	98,070	Other policyholder funds, embedded derivatives	$	106.7	$	106.7		$	—		$	—		$	106.7

December 31, 2019
December 31, 2020												December 31, 2020
Financial Assets	Financial Assets											Financial Assets
Investments	Investments											Investments
Fixed maturity securities	Fixed maturity securities											Fixed maturity securities
U.S. Government and federally sponsored agency obligations:	U.S. Government and federally sponsored agency obligations:											U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	Mortgage-backed securities	$	724,319	$	724,319	$	0	$	711,004	$	13,315	Mortgage-backed securities	$	684.8	$	684.8		$	—		$	673.7		$	11.1
Other, including U.S. Treasury securities	Other, including U.S. Treasury securities	458,868		458,868		17,699		441,169		0		Other, including U.S. Treasury securities	433.2		433.2			18.4			414.8			—
Municipal bonds	Municipal bonds	1,686,203		1,686,203		0		1,641,912		44,291		Municipal bonds	1,827.5		1,827.5			—			1,767.9			59.6
Foreign government bonds	Foreign government bonds	45,370		45,370		0		45,370		0		Foreign government bonds	45.1		45.1			—			45.1			—
Corporate bonds	Corporate bonds	1,581,424		1,581,424		14,470		1,463,002		103,952		Corporate bonds	2,122.9		2,122.9			14.9			1,952.2			155.8
Other asset-backed securities	Other asset-backed securities	1,295,492		1,295,492		0		1,161,979		133,513		Other asset-backed securities	1,231.8		1,231.8			—			1,103.5			128.3
Total fixed maturity securities	Total fixed maturity securities	5,791,676		5,791,676		32,169		5,464,436		295,071		Total fixed maturity securities	6,345.3		6,345.3			33.3			5,957.2			354.8
Equity securities	Equity securities	101,864		101,864		49,834		51,923		107		Equity securities	121.6		121.6			39.2			82.1			0.3
Short-term investments	Short-term investments	172,667		172,667		172,667		0		0		Short-term investments	141.8		141.8			137.7			4.1			—
Other investments	Other investments	25,997		25,997		0		25,997		0		Other investments	36.3		36.3			—			36.3			—
Totals	Totals	$	6,092,204	$	6,092,204	$	254,670	$	5,542,356	$	295,178	Totals	$	6,645.0	$	6,645.0		$	210.2		$	6,079.7		$	355.1
Separate Account (variable annuity) assets (1)	Separate Account (variable annuity) assets (1)	$	2,490,469	$	2,490,469	$	2,490,469	$	0	$	0	Separate Account (variable annuity) assets(1)	$	2,891.4	$	2,891.4		$	2,891.4		$	—		$	—
Financial Liabilities	Financial Liabilities											Financial Liabilities
Investment contract and policy reserves, embedded derivatives	Investment contract and policy reserves, embedded derivatives	$	1,314	$	1,314	$	0	$	1,314	$	0	Investment contract and policy reserves, embedded derivatives	$	2.5	$	2.5		$	—		$	2.5		$	—
Other policyholder funds, embedded derivatives	Other policyholder funds, embedded derivatives	$	93,733	$	93,733	$	0	$	0	$	93,733	Other policyholder funds, embedded derivatives	$	104.5	$	104.5		$	—		$	—		$	104.5

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


Horace Mann Educators Corporation			1614			Quarterly Report on Form 10-Q

NOTE 34 - Fair Value of Financial Instruments (continued)

Changes in Level 3 Fair Value Measurements

The reconciliation for all financial assets and financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) ~~was~~were as follows:


($ in thousands)		Financial Assets												Financial Liabilities (1)
($ in millions)																($ in millions)	Financial Assets												Financial Liabilities(1)
		Municipal Bonds		Corporate Bonds		Other Mortgage- Backed Securities(2)		Total Fixed Maturity Securities		Equity Securities		Total					Municipal Bonds		Corporate Bonds		Mortgage-Backed and Other Asset- Backed Securities(2)		Total Fixed Maturity Securities		Equity Securities		Total
Beginning balance, July 1, 2020		$	73,171	$	126,292	$	200,146	$	399,609	$	115	$	399,724	$	93,619
Beginning balance, July 1, 2021																Beginning balance, July 1, 2021	$	58.6	$	150.5	$	115.5	$	324.6	$	0.3	$	324.9	$	108.9
Transfers into Level 3 (3)	Transfers into Level 3 (3)	6,209		6,798		8,663		21,670		0		21,670		0		Transfers into Level 3(3)	—		55.7		4.0		59.7		—		59.7		—
Transfers out of Level 3 (3)	Transfers out of Level 3 (3)	(16,708)		(12,511)		(70,950)		(100,169)		0		(100,169)		0		Transfers out of Level 3(3)	—		—		—		—		—		—		—
Total gains or losses	Total gains or losses															Total gains or losses
Net investment gains (losses) included in net income related to financial assets	Net investment gains (losses) included in net income related to financial assets	0		0		(238)		(238)		(27)		(265)		—		Net investment gains (losses) included in net income related to financial assets	—		—		(6.6)		(6.6)		0.1		(6.5)		—
Net investment (gains) losses included in net income related to financial liabilities	Net investment (gains) losses included in net income related to financial liabilities	—		—		—		—		—		—		4,406		Net investment (gains) losses included in net income related to financial liabilities	—		—		—		—		—		—		0.7
Net unrealized investment gains (losses) included in OCI	Net unrealized investment gains (losses) included in OCI	3,150		551		6,321		10,022		0		10,022		0		Net unrealized investment gains (losses) included in OCI	(0.3)		(0.1)		6.6		6.2		—		6.2		—
Purchases	Purchases	0		0		0		0		0		0		0		Purchases	—		—		—		—		—		—		—
Issuances	Issuances	0		0		0		0		0		0		1,951		Issuances	—		—		—		—		—		—		1.4
Sales	Sales	0		0		0		0		0		0		0		Sales	—		—		—		—		—		—		—
Settlements	Settlements	0		0		0		0		0		0		0		Settlements	—		—		—		—		—		—		—
Paydowns, maturities and distributions	Paydowns, maturities and distributions	(151)		55		(3,144)		(3,240)		0		(3,240)		(1,906)		Paydowns, maturities and distributions	(0.1)		(1.1)		(21.0)		(22.2)		—		(22.2)		(4.3)
Ending balance, September 30, 2020		$	65,671	$	121,185	$	140,798	$	327,654	$	88	$	327,742	$	98,070
Ending balance, September 30, 2021																Ending balance, September 30, 2021	$	58.2	$	205.0	$	98.5	$	361.7	$	0.4	$	362.1	$	106.7

Beginning balance, January 1, 2020		$	44,291	$	103,952	$	146,828	$	295,071	$	107	$	295,178	$	93,733
Beginning balance, January 1, 2021																Beginning balance, January 1, 2021	$	59.6	$	155.8	$	139.4	$	354.8	$	0.3	$	355.1	$	104.5
Transfers into Level 3 (3)	Transfers into Level 3 (3)	80,686		39,601		95,377		215,664		0		215,664		0		Transfers into Level 3(3)	—		108.3		10.2		118.5		—		118.5		—
Transfers out of Level 3 (3)	Transfers out of Level 3 (3)	(62,625)		(26,699)		(77,335)		(166,659)		0		(166,659)		0		Transfers out of Level 3(3)	—		(56.7)		(19.2)		(75.9)		—		(75.9)		—
Total gains or losses	Total gains or losses															Total gains or losses
Net investment gains (losses) included in net income related to financial assets	Net investment gains (losses) included in net income related to financial assets	0		0		(238)		(238)		(19)		(257)		—		Net investment gains (losses) included in net income related to financial assets	—		—		(7.7)		(7.7)		0.1		(7.6)		—
Net investment (gains) losses included in net income related to financial liabilities	Net investment (gains) losses included in net income related to financial liabilities	—		—		—		—		—		—		5,330		Net investment (gains) losses included in net income related to financial liabilities	—		—		—		—		—		—		8.2
Net unrealized investment gains (losses) included in OCI	Net unrealized investment gains (losses) included in OCI	3,962		378		(14,780)		(10,440)		0		(10,440)		0		Net unrealized investment gains (losses) included in OCI	(0.9)		1.0		8.7		8.8		—		8.8		—
Purchases	Purchases	0		6,875		1,890		8,765		0		8,765		0		Purchases	—		—		—		—		—		—		—
Issuances	Issuances	0		0		0		0		0		0		5,818		Issuances	—		—		—		—		—		—		3.3
Sales	Sales	0		0		0		0		0		0		0		Sales	—		—		—		—		—		—		—
Settlements	Settlements	0		0		0		0		0		0		0		Settlements	—		—		—		—		—		—		—
Paydowns, maturities and distributions	Paydowns, maturities and distributions	(643)		(2,922)		(10,944)		(14,509)		0		(14,509)		(6,811)		Paydowns, maturities and distributions	(0.5)		(3.4)		(32.9)		(36.8)		—		(36.8)		(9.3)
Ending balance, September 30, 2020		$	65,671	$	121,185	$	140,798	$	327,654	$	88	$	327,742	$	98,070
Ending balance, September 30, 2021																Ending balance, September 30, 2021	$	58.2	$	205.0	$	98.5	$	361.7	$	0.4	$	362.1	$	106.7

(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~~asset-backed securities.

(3)Transfers into and out of Level 3 during the three and nine months ended September 30, 2021 were attributable to changes in the availability of observable market information for individual fixed maturity securities. The Company's policy is to recognize transfers into and out of the levels as having occurred at the end of the reporting period in which the transfers were determined.


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

NOTE 4 - Fair Value of Financial Instruments (continued)


($ in millions)	Financial Assets												Financial Liabilities(1)
	Municipal Bonds		Corporate Bonds		Mortgage-Backed and Other Asset- Backed Securities(2)		Total Fixed Maturity Securities		Equity Securities		Total
Beginning balance, July 1, 2020	$	73.2	$	126.3	$	200.1	$	399.6	$	0.1	$	399.7	$	93.6
Transfers into Level 3(3)	6.2		6.8		8.7		21.7		—		21.7		—
Transfers out of Level 3(3)	(16.7)		(12.5)		(71.0)		(100.2)		—		(100.2)		—
Total gains or losses
Net investment gains (losses) included in net income related to financial assets	—		—		(0.3)		(0.3)		—		(0.3)		—
Net investment (gains) losses included in net income related to financial liabilities	—		—		—		—		—		—		4.4
Net unrealized investment gains (losses) included in OCI	3.2		0.5		6.3		10.0		—		10.0		—
Purchases	—		—		—		—		—		—		—
Issuances	—		—		—		—		—		—		2.0
Sales	—		—		—		—		—		—		—
Settlements	—		—		—		—		—		—		—
Paydowns, maturities and distributions	(0.2)		0.1		(3.1)		(3.2)		—		(3.2)		(1.9)
Ending balance, September 30, 2020	$	65.7	$	121.2	$	140.7	$	327.6	$	0.1	$	327.7	$	98.1

Beginning balance, January 1, 2020	$	44.3	$	104.0	$	146.8	$	295.1	$	0.1	$	295.2	$	93.7
Transfers into Level 3(3)	80.7		39.6		95.4		215.7		—		215.7		—
Transfers out of Level 3(3)	(62.6)		(26.7)		(77.4)		(166.7)		—		(166.7)		—
Total gains or losses
Net investment gains (losses) included in net income related to financial assets	—		—		(0.3)		(0.3)		—		(0.3)		—
Net investment (gains) losses included in net income related to financial liabilities	—		—		—		—		—		—		5.3
Net unrealized investment gains (losses) included in OCI	4.0		0.3		(14.8)		(10.5)		—		(10.5)		—
Purchases	—		6.9		1.9		8.8		—		8.8		—
Issuances	—		—		—		—		—		—		5.9
Sales	—		—		—		—		—		—		—
Settlements	—		—		—		—		—		—		—
Paydowns, maturities and distributions	(0.7)		(2.9)		(10.9)		(14.5)		—		(14.5)		(6.8)
Ending balance, September 30, 2020	$	65.7	$	121.2	$	140.7	$	327.6	$	0.1	$	327.7	$	98.1

(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 asset-backed securities.

(3) Transfers into and out of Level 3 during the three and nine months ended September 30, 2020 were attributable to changes in the availability of observable market information for individual fixed maturity securities. The Company's policy is to recognize transfers into and out of the levels as having occurred at the end of the reporting period in which the transfers were determined.


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

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

($ 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, July 1, 2019 $ 46,984 $ 79,222 $ 128,438 $ 254,644 $ 69 $ 254,713 $ 85,961
Transfers into Level 3 (3)
0 18,916 21,004 39,920 1 39,921 0
Transfers out of Level 3 (3)
0 (2,822) (449) (3,271) 0 (3,271) 0
Total gains or losses
Net investment gains (losses)
included in net income related
to financial assets
0 0 0 0 46 46 —
Net investment (gains) losses
included in net income related
to financial liabilities
— — — — — — 3,661
Net unrealized investment gains
(losses) included in OCI
842 1,744 397 2,983 0 2,983 0
Purchases 0 0 0 0 0 0 0
Issuances 0 0 0 0 0 0 2,033
Sales 0 0 0 0 0 0 0
Settlements 0 0 0 0 0 0 0
Paydowns, maturities and distributions (121) (387) (2,685) (3,193) 0 (3,193) (2,557)
Ending balance, September 30, 2019 $ 47,705 $ 96,673 $ 146,705 $ 291,083 $ 116 $ 291,199 $ 89,098
Beginning balance, January 1, 2019 $ 47,531 $ 80,742 $ 120,211 $ 248,484 $ 5 $ 248,489 $ 78,700
Transfers into Level 3 (3)
0 24,798 42,938 67,736 65 67,801 0
Transfers out of Level 3 (3)
0 (7,698) (449) (8,147) 0 (8,147) 0
Total gains or losses
Net investment gains (losses)
included in net income related
to financial assets
0 0 0 0 46 46 —
Net investment (gains) losses
included in net income related
to financial liabilities
— — — — — — 8,366
Net unrealized investment gains
(losses) included in OCI
649 6,254 3,052 9,955 0 9,955 0
Purchases 0 1,566 0 1,566 0 1,566 0
Issuances 0 0 0 0 0 0 7,482
Sales 0 0 (607) (607) 0 (607) 0
Settlements 0 0 0 0 0 0 0
Paydowns, maturities and distributions (475) (8,989) (18,440) (27,904) 0 (27,904) (5,450)
Ending balance, September 30, 2019 $ 47,705 $ 96,673 $ 146,705 $ 291,083 $ 116 $ 291,199 $ 89,098

~~(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.~~

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

~~For the nine months ended September 30, 2020 and September 30, 2019, the Company had $0.3 million and 0 net investment losses on Level 3 financial assets, respectively.~~ For the three and nine months ended September 30, ~~2020,~~2021, the Company had net investment losses of ~~$4.4~~$6.5 million and ~~$5.3~~$7.6 million, respectively, that were included in net income and were primarily attributable to credit loss impairments for Level 3 financial assets; for both the three and nine months ended September 30, 2020, the Company had $0.3 million of net investment losses on Level 3 financial assets, respectively, that were included in net income. For the three and nine months ended September 30, 2021, the Company had net investment losses of $0.7 million and $8.2 million, respectively, that were included in net income and were attributable to changes in the fair value of Level 3 financial liabilities; for the three and nine months ended September 30, ~~2019,~~2020, the respective net investment losses were ~~$3.7~~$4.4 million and ~~$8.4~~$5.3 million.


Horace Mann Educators Corporation			1816			Quarterly Report on Form 10-Q

NOTE 34 - Fair Value of Financial Instruments (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.

($ in ~~thousands)~~millions)

Financial
Assets

Fair Value at

September 30, ~~2020~~2021

Valuation Technique(s)

Unobservable Inputs

Range

(Weighted Average)

and Single Point Best Estimate(1)

Municipal bonds

~~65,671~~58.2

discounted cash flow

I spread(2)

~~578~~307 - 391 bps

Corporate bonds

~~121,185~~205.0

discounted cash flow

N spread(3)

~~320~~272 - ~~818~~553 bps

market comparable

option adjusted spread

12.54%

Other asset-backed securities

~~128,599~~98.5

vendor price

haircut

3.00% - 5.00%

discounted cash flow

constant prepayment rate

20.00%

discounted cash flow

T spread(4)

235 - 800 bps

discounted cash flow

PDI interest margin(5)

7.13%

discounted cash flow

SBL interest margin(6)

4.50%

~~Government mortgage-backed securities~~

~~12,199~~

~~vendor price~~

~~haircut~~

~~3.00% - 5.00%~~

Equity securities

880.4

Black Scholes

equity value

low - ~~$43.27;~~28.00%; high - ~~$44.53~~35.00%

($ in thousands)

($ in millions)

Financial
Liabilities

Fair Value at
September 30, 2020

Valuation Technique(s)

Unobservable Inputs

Range

(Weighted Average)

and Single Point Best Estimate (1)

Financial
Liabilities

Fair Value at

September 30, 2021

Valuation Technique(s)

Unobservable Inputs

Range

(Weighted Average)

and Single Point Best Estimate(1)

Derivatives
embedded in
fixed indexed annuity products

98,070

discounted cash flow

lapse rate

5.25%

Derivatives
embedded in
fixed indexed annuity products

106.7

discounted cash flow

lapse rate

5.30%

mortality multiplier (7)

61.00%

mortality multiplier(7)

63.00%

option budget

1.00% - 2.50%

option budget

0.90% - 2.50%

non-performance adjustment (8)

5.00%

non-performance adjustment(8)

5.00%

(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.

(4) "T spread" is a specific point on the OTR curve.

(5) "PDI" stands for private debt investment.

(6) "SBL" stands for broadly syndicated loans.

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

(8) Determined as a percentage of a risk-free rate.

The valuation techniques and significant unobservable inputs used in the fair value measurement for financial assets and financial liabilities classified as Level 3 are subject to the control processes as described in Part II - Item 8, Note 43 in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. 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			1917			Quarterly Report on Form 10-Q

NOTE 34 - 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 include: benchmark yield, liquidity premium, estimated cash flows, prepayment and default speeds, spreads, weighted average life and credit rating. Significant spread widening in isolation will adversely impact the overall valuation, while significant 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~~Value

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. These financial assets and financial liabilities are further described in Part II - Item 8, Note 43 in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. The following table presents the carrying ~~value,~~amount, fair value and fair value hierarchy of these financial assets and financial liabilities.

($ in thousands) Fair Value Measurements at
Carrying Fair Reporting Date Using
Amount Value Level 1 Level 2 Level 3
September 30, 2020
Financial Assets
Investments
Other investments $ 168,500 $ 172,303 $ 0 $ 0 $ 172,303
Deposit asset on reinsurance 2,402,539 2,925,672 0 0 2,925,672
Financial Liabilities
Investment contract and policy reserves,
fixed annuity contracts
4,812,911 4,720,941 0 0 4,720,941
Investment contract and policy reserves,
account values on life contracts
97,522 102,290 0 0 102,290
Other policyholder funds 646,424 646,424 0 590,687 55,737
Short-term debt 135,000 135,000 0 0 135,000
Long-term debt 302,247 331,829 0 331,829 0
December 31, 2019
Financial Assets
Investments
Other investments $ 163,312 $ 167,185 $ 0 $ 0 $ 167,185
Deposit asset on reinsurance 2,346,166 2,634,012 0 0 2,634,012
Financial Liabilities
Investment contract and policy reserves,
fixed annuity contracts
4,675,774 4,609,880 0 0 4,609,880
Investment contract and policy reserves,
account values on life contracts
93,465 98,332 0 0 98,332
Other policyholder funds 553,550 553,550 0 495,812 57,738
Short-term debt 135,000 135,000 0 0 135,000
Long-term debt 298,025 322,678 0 322,678 0


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

~~NOTE 4 - 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) 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 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 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 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 derivatives, including derivatives embedded in FIA and IUL contracts, are presented in the Consolidated Balance Sheets as follows:

($ in thousands) September 30, 2020 December 31, 2019
Assets
Derivatives, included in Short-term and other investments $ 10,793 $ 13,239
Liabilities
FIA - embedded derivatives, included in Other policyholder funds 98,070 93,733
IUL - embedded derivatives, included in
Investment contract and policy reserves 1,703 1,314


($ in millions)	Carrying Amount		Fair Value		Fair Value Measurements at Reporting Date Using
					Level 1		Level 2		Level 3
September 30, 2021
Financial Assets
Other investments	$	156.2	$	159.8	$	—	$	—	$	159.8
Deposit asset on reinsurance	2,477.9		2,945.0		—		—		2,945.0
Financial Liabilities
Investment contract and policy reserves, fixed annuity contracts	4,942.5		5,063.0		—		—		5,063.0
Investment contract and policy reserves, account values on life contracts	103.2		112.6		—		—		112.6
Other policyholder funds	887.6		887.6		—		832.7		54.9
Short-term debt	135.0		135.0		—		—		135.0
Long-term debt	253.6		282.1		—		282.1		—

December 31, 2020
Financial Assets
Other investments	$	168.3	$	172.1	$	—	$	—	$	172.1
Deposit asset on reinsurance	2,420.9		3,030.6		—		—		3,030.6
Financial Liabilities
Investment contract and policy reserves, fixed annuity contracts	4,847.6		4,963.3		—		—		4,963.3
Investment contract and policy reserves, account values on life contracts	98.7		108.4		—		—		108.4
Other policyholder funds	646.8		646.8		—		590.7		56.1
Short-term debt	135.0		135.0		—		—		135.0
Long-term debt	302.3		331.1		—		331.1		—

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 for FIA and IUL included in the Consolidated Statements of Operations were as follows:

($ in thousands) Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Change in fair value of derivatives: (1)
Net investment gains (losses) $ 2,666 $ (149) $ (5,124) $ 5,280
Change in fair value of embedded derivatives:
Net investment gains (losses) (5,118) (3,691) (5,438) (8,952)

~~(1)~~

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


Horace Mann Educators Corporation			2118			Quarterly Report on Form 10-Q

~~NOTE 4 - Derivatives (continued)~~

The Company's strategy attempts to mitigate potential risk of loss under these agreements through a regular monitoring process, which evaluates the 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 Global Inc. (S&P)/Moody's Investors Service, Inc. (Moody's) long-term credit rating of "BBB+/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 long-term credit ratings were as follows:~~

($ in thousands) September 30, 2020 December 31, 2019
Credit Rating Notional Fair Notional Fair
Counterparty S&P Moody's Amount Value Amount Value
Bank of America, N.A. A+ Aa2 $ 198,100 $ 9,135 $ 174,900 $ 8,523
Barclays Bank PLC A A1 98,900 1,658 115,300 3,347
Citigroup Inc. BBB+ A3 0 0 0 0
Credit Suisse International A+ A1 0 0 0 0
Societe Generale A A1 0 0 27,800 1,369
Total $ 297,000 $ 10,793 $ 318,000 $ 13,239

As of September 30, 2020 and December 31, 2019, the Company held $9.9 million and $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 $0.3 million per counterparty.

NOTE 5 - Deposit Asset on Reinsurance

~~In the second quarter of 2019, the~~The Company ~~reinsured~~reinsures a ~~$2.9~~$3.2 billion block of in force fixed and variable annuity business with a minimum crediting rate of 4.5%. ~~This represented~~The reinsured fixed business represents 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~~Under the annuity reinsurance ~~transaction was effective April 1, 2019. Under the~~ agreement, approximately ~~$2.2~~$2.4 billion of fixed annuity reserves ~~were~~are 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.~~basis. The separate account assets and liabilities of approximately ~~$0.7~~$0.8 billion ~~were~~are reinsured on a modified coinsurance basis and thus, remain on the Company's consolidated financial statements, but the related results of operations are fully reinsured.

The ~~Company determined that the~~annuity 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.~~reinsurance on the Company's Consolidated Balance Sheets. 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 in~~income. Interest accreted on the ~~Consolidated Statements of Operations.~~Deposit asset on reinsurance was $25.6 million and $75.1 million for the three and nine months ended September 30, 2021, respectively. Interest accreted on the Deposit asset on reinsurance was $24.5 million and $72.1 million for the three and nine months ended September 30, 2020, respectively.


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

NOTE 6 - Goodwill and Intangible Assets ~~net~~

The Company conducts impairment testing for goodwill and intangible assets 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~~2020 for further description of impairment testing.

There were no changes in the carrying amount of goodwill by reporting unit for the ~~nine~~three months ended September 30, ~~2020.~~2021. The carrying amount of goodwill by reporting unit as of September 30, ~~2020~~2021 was as follows:

($ in ~~thousands)~~millions)

September 30, ~~2020~~2021

Property and Casualty

~~9,460~~9.5

Supplemental

~~19,621~~19.6

Retirement

~~10,087~~4.5

Life

~~9,911~~9.9

Total

~~49,079~~43.5

As of September 30, ~~2020,~~2021, the outstanding amounts of definite-lived intangible assets subject to amortization are attributable to the acquisitions of Benefit Consultants Group, Inc. (BCG) and NTA Life Enterprises, LLC (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 September 30, ~~2020~~2021 the outstanding amounts of definite-lived intangible assets subject to amortization were as follows:

($ 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 (9,113)
Value of distribution acquired (4,355)
Value of agency relationships (3,417)
Value of customer relationships (2,835)
Total (19,720)
Net intangible assets subject to amortization: $ 154,756


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

NOTE 6 - Goodwill and Intangible Assets (continued)


($ in millions)	Weighted Average
	Useful Life (in Years)
At inception:
Value of business acquired	30	$	94.4
Value of distribution acquired	17	54.0
Value of agency relationships	14	17.0
Value of customer relationships	10	9.1
Total	23	174.5
Accumulated amortization and impairments:
Value of business acquired		(15.9)
Value of distribution acquired		(10.9)
Value of agency relationships		(5.7)
Value of customer relationships		(4.1)
Total		(36.6)
Net intangible assets subject to amortization:		$	137.9

With 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~~			23			~~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:


($ in thousands)
($ in millions)				($ in millions)
Year Ending December 31,	Year Ending December 31,			Year Ending December 31,
2020 (excluding the nine months ended September 30, 2020)		$	3,558
2021		13,411
2021 (excluding the nine months ended September 30, 2021)				2021 (excluding the nine months ended September 30, 2021)	$	3.2
2022	2022	12,433		2022	12.1
2023	2023	11,577		2023	11.2
2024	2024	10,805		2024	10.5
2025				2025	9.8
Thereafter	Thereafter	102,972		Thereafter	91.1
Total	Total	$	154,756	Total	$	137.9

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 September 30, ~~2020~~2021 were as follows:


($ in ~~thousands)~~millions)
Trade names	$	~~8,645~~7.9
State licenses	~~2,886~~2.9
Total	$	~~11,531~~10.8

The trade names intangible asset represents the present value of future savings accruing to NTA and BCG 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			2420			Quarterly Report on Form 10-Q

NOTE 7 - 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) 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.


($ in thousands)		Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)										($ in millions)	Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Property and Casualty	Property and Casualty									Property and Casualty
Beginning gross reserves (1)	Beginning gross reserves (1)	$	388,491	$	367,862	$	386,976	$	367,180	Beginning gross reserves(1)	$	368.4	$	388.5	$	372.2	$	387.0
Less: reinsurance recoverables	Less: reinsurance recoverables	116,083		77,345		120,506		89,725		Less: reinsurance recoverables	108.9		116.1		112.9		120.5
Net reserves, beginning of period (2)	Net reserves, beginning of period (2)	272,408		290,517		266,470		277,455		Net reserves, beginning of period(2)	259.5		272.4		259.3		266.5
Incurred claims and claim expenses:	Incurred claims and claim expenses:									Incurred claims and claim expenses:
Claims occurring in the current period	Claims occurring in the current period	125,622		122,470		340,243		375,648		Claims occurring in the current period	132.5		125.6		345.4		340.2
Decrease in estimated reserves for claims occurring in prior periods (3)	Decrease in estimated reserves for claims occurring in prior periods (3)	(7,200)		(3,500)		(9,200)		(7,500)		Decrease in estimated reserves for claims occurring in prior periods(3)	(3.0)		(7.2)		(7.2)		(9.2)
Total claims and claim expenses incurred (4)	Total claims and claim expenses incurred (4)	118,422		118,970		331,043		368,148		Total claims and claim expenses incurred(4)	129.5		118.4		338.2		331.0
Claims and claim expense payments for claims occurring during:	Claims and claim expense payments for claims occurring during:									Claims and claim expense payments for claims occurring during:
Current period	Current period	91,008		101,499		195,891		230,968		Current period	96.8		91.0		210.3		195.9
Prior periods	Prior periods	19,280		29,747		121,080		136,394		Prior periods	26.4		19.3		121.4		121.1
Total claims and claim expense payments	Total claims and claim expense payments	110,288		131,246		316,971		367,362		Total claims and claim expense payments	123.2		110.3		331.7		317.0
Net reserves, end of period (2)	Net reserves, end of period (2)	280,542		278,241		280,542		278,241		Net reserves, end of period(2)	265.8		280.5		265.8		280.5
Plus: reinsurance recoverables	Plus: reinsurance recoverables	114,773		76,526		114,773		76,526		Plus: reinsurance recoverables	109.6		114.8		109.6		114.8
Ending gross reserves (1)	Ending gross reserves (1)	$	395,315	$	354,767	$	395,315	$	354,767	Ending gross reserves(1)	$	375.4	$	395.3	$	375.4	$	395.3

(1)Unpaid claims and claim expenses as reported in the Consolidated Balance Sheets also include reserves for Supplemental, Retirement and Life ~~and Retirement~~ of ~~$59.2~~$64.7 million and ~~$57.5~~$59.2 million as of September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, in addition to Property and Casualty reserves.

(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.

(4)Benefits, claims and settlement expenses as reported in the Consolidated Statements of Operations also include amounts for Supplemental, Retirement and Life of $35.3 million and$108.0 million for the three and nine months ended September 30, 2021, respectively, in addition to Property and Casualty amounts. Benefits, claims and settlement expenses as reported in the Consolidate Statements of Operations also include amounts for Supplemental, Retirement and Life of $33.0 million and ~~$102.1~~$102.1 million for the three and nine months ended September 30, 2020, respectively, in addition to Property and Casualty amounts. ~~Benefits, claims and settlement expenses for Supplemental, Life and Retirement were $35.2 million and$78.1 million for the three and nine months ended September 30, 2019, respectively.~~

Net favorable development of total reserves for Property and Casualty claims occurring in prior years was ~~$9.2~~$7.2 million and ~~$7.5~~$9.2 million for the nine months ended September 30, 2021 and 2020, respectively. The favorable development for the nine months ended September 30, 2021 was the result of favorable loss trends in automobile and homeowners loss emergence for accident years 2020 and ~~2019, respectively.~~prior. The favorable development for the nine months ended September 30, 2020 was the result of favorable loss trends in automobile and homeowners loss emergence ~~of $4.0 million~~ for accident years 2019 and ~~prior and~~prior; including $5.2 million of subrogation received largely related to the 2018 Camp Fire in California. ~~The favorable development for the nine months ended September 30, 2019 was the result of favorable loss trends in automobile and homeowners loss emergence for accident years 2018 and prior.~~


Horace Mann Educators Corporation			2521			Quarterly Report on Form 10-Q

NOTE 8 - 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
($ in millions)										($ in millions)	Gross Amount		Ceded to Other Companies(1)		Assumed from Other Companies		Net Amount
Three months ended September 30, 2021										Three months ended September 30, 2021
Premiums written and contract deposits(2)										Premiums written and contract deposits(2)	$	366.0	$	5.5	$	2.6	$	363.1
Premiums and contract charges earned										Premiums and contract charges earned	230.9		8.1		2.6		225.4
Benefits, claims and settlement expenses										Benefits, claims and settlement expenses	164.5		1.5		1.8		164.8

Three months ended September 30, 2020	Three months ended September 30, 2020									Three months ended September 30, 2020
Premiums written and contract deposits (2)	Premiums written and contract deposits (2)	$	368,577	$	2,146	$	2,422	$	368,853	Premiums written and contract deposits(2)	$	368.6	$	2.1	$	2.4	$	368.9
Premiums and contract charges earned	Premiums and contract charges earned	237,193		4,261		2,421		235,353		Premiums and contract charges earned	237.1		4.2		2.4		235.3
Benefits, claims and settlement expenses	Benefits, claims and settlement expenses	59,401		(90,161)		1,863		151,425		Benefits, claims and settlement expenses	59.4		(90.1)		1.9		151.4

Three months ended September 30, 2019
Nine months ended September 30, 2021										Nine months ended September 30, 2021
Premiums written and contract deposits (2)	Premiums written and contract deposits (2)	$	374,598	$	5,968	$	2,586	$	371,216	Premiums written and contract deposits(2)	$	1,037.8	$	17.0	$	6.6	$	1,027.4
Premiums and contract charges earned	Premiums and contract charges earned	245,200		8,181		2,662		239,681		Premiums and contract charges earned	696.6		24.6		6.8		678.8
Benefits, claims and settlement expenses	Benefits, claims and settlement expenses	154,718		2,310		1,783		154,191		Benefits, claims and settlement expenses	444.7		3.0		4.5		446.2

Nine months ended September 30, 2020	Nine months ended September 30, 2020									Nine months ended September 30, 2020
Premiums written and contract deposits (2)	Premiums written and contract deposits (2)	$	1,034,687	$	14,835	$	6,928	$	1,026,780	Premiums written and contract deposits(2)	$	1,034.7	$	14.8	$	6.9	$	1,026.8
Premiums and contract charges earned	Premiums and contract charges earned	710,998		20,945		6,996		697,049		Premiums and contract charges earned	710.9		20.9		7.0		697.0
Benefits, claims and settlement expenses	Benefits, claims and settlement expenses	342,218		(85,770)		5,107		433,095		Benefits, claims and settlement expenses	342.2		(85.8)		5.1		433.1

Nine months ended September 30, 2019
Premiums written and contract deposits (2)		$	988,588	$	17,844	$	7,557	$	978,301
Premiums and contract charges earned		671,871		22,158		7,849		657,562
Benefits, claims and settlement expenses		450,206		9,399		5,460		446,267

(1) Excludes the annuity reinsurance transaction accounted for using the deposit method that is discussed in Note 5.

(2) This measure is not based on accounting principles generally accepted in the 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~~Exhibit 99.1 in the Company's reports filed with the SEC.

NOTE 9 - Commitments

Investment Commitments

~~From time to time, the~~The Company has outstanding commitments to fund investments primarily in limited partnership ~~interests, commercial mortgage loans and bank loans.~~interests. Such unfunded commitments were ~~$484.9~~$911.4 million and ~~$306.2~~$571.9 million atas of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.


Horace Mann Educators Corporation			2622			Quarterly Report on Form 10-Q

NOTE 10 - Segment Information

The Company conducts and manages its business through 5 segments. ~~See Note 1 for a description of the Company's reporting segments that changed effective in the third quarter of 2019.~~ The 4 operating segments, representing the major lines of ~~insurance~~ business, are: Property and Casualty (primarily personal lines of automobile and property insurance products), ~~the newly created~~ Supplemental (primarily cancer, heart, ~~cancer, accident and limited short-term~~hospital, supplemental disability ~~insurance~~and accident coverages), Retirement (primarily tax-qualified fixed and variable annuities) and Life (life ~~insurance)~~insurance products). The Company does not allocate the impact of corporate-level transactions to these operating segments, consistent with the basis for management's evaluation of the results of those segments, but classifies those items in the 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:


($ in thousands)		Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)										($ in millions)	Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Insurance premiums and contract charges earned
Premiums and contract charges earned										Premiums and contract charges earned
Property and Casualty	Property and Casualty	$	166,070	$	170,483	$	488,756	$	512,626	Property and Casualty	$	153.3	$	166.0	$	464.1	$	488.7
Supplemental (1)		32,480		32,921		98,772		32,921
Supplemental										Supplemental	31.0		32.5		94.3		98.8
Retirement	Retirement	7,389		6,624		21,486		22,133		Retirement	9.9		7.4		27.7		21.5
Life	Life	29,414		29,653		88,035		89,882		Life	31.2		29.4		92.7		88.0
Total	Total	$	235,353	$	239,681	$	697,049	$	657,562	Total	$	225.4	$	235.3	$	678.8	$	697.0

Net investment income	Net investment income									Net investment income
Property and Casualty	Property and Casualty	$	13,632	$	10,726	$	30,250	$	33,587	Property and Casualty	$	11.3	$	13.7	$	43.8	$	30.3
Supplemental ~~(1)~~	Supplemental ~~(1)~~	4,321		3,691		11,876		3,691		Supplemental ~~(1)~~	7.1		4.3		18.7		11.8
Retirement	Retirement	58,115		60,770		166,684		188,193		Retirement	64.8		58.1		187.2		166.7
Life	Life	18,244		18,453		49,432		54,829		Life	21.1		18.2		60.5		49.4
Corporate and Other	Corporate and Other	(30)		0		(142)		(37)		Corporate and Other	—		—		(0.1)		(0.1)
Intersegment eliminations	Intersegment eliminations	(564)		(569)		(1,697)		(934)		Intersegment eliminations	(0.6)		(0.6)		(1.7)		(1.7)
Total	Total	$	93,718	$	93,071	$	256,403	$	279,329	Total	$	103.7	$	93.7	$	308.4	$	256.4

Net income (loss)	Net income (loss)									Net income (loss)
Property and Casualty	Property and Casualty	$	15,810	$	14,194	$	53,669	$	34,347	Property and Casualty	$	(4.7)	$	15.8	$	42.5	$	53.7
Supplemental (1)		10,546		6,943		30,562		6,943
Supplemental										Supplemental	11.4		10.6		34.8		30.6
Retirement	Retirement	7,792		5,915		16,578		(6,979)		Retirement	14.1		7.8		36.2		16.6
Life	Life	4,306		5,101		6,869		13,617		Life	5.1		4.3		10.8		6.8
Corporate and Other	Corporate and Other	(1,980)		(6,699)		(22,154)		103,514		Corporate and Other	(9.6)		(2.0)		(22.0)		(22.2)
Total	Total	$	36,474	$	25,454	$	85,524	$	151,442	Total	$	16.3	$	36.5	$	102.3	$	85.5

($ in thousands) September 30, 2020 December 31, 2019
Assets
Property and Casualty $ 1,354,685 $ 1,327,099
Supplemental 828,760 747,602
Retirement 8,609,262 8,330,127
Life 2,108,067 1,964,993
Corporate and Other 167,697 172,955
Intersegment eliminations (65,083) (64,072)
Total $ 13,003,388 $ 12,478,704

~~(1)~~ ~~Acquired on July 1, 2019. The nine month comparison is not meaningful.~~


($ in millions)	September 30, 2021		December 31, 2020
Assets
Property and Casualty	$	1,269.0	$	1,324.9
Supplemental	863.8		811.5
Retirement	9,893.4		9,198.7
Life	2,142.6		2,044.5
Corporate and Other	165.4		182.3
Intersegment eliminations	(69.2)		(90.1)
Total	$	14,265.0	$	13,471.8


Horace Mann Educators Corporation			2723			Quarterly Report on Form 10-Q

NOTE 11 - 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 following table reconciles these components.


($ in thousands)		Net Unrealized Investment Gains (Losses) on Securities (1)(2)		Net Funded Status of Benefit Plans (1)		Total (1)
($ in millions)								($ in millions)	Net Unrealized Investment Gains (Losses) on Securities(1)		Net Funded Status of Benefit Plans(1)		Total(1)
Beginning balance, July 1, 2021								Beginning balance, July 1, 2021	$	332.2	$	(11.2)	$	321.0
Other comprehensive income (loss) before reclassifications								Other comprehensive income (loss) before reclassifications	(29.3)		—		(29.3)
Amounts reclassified from AOCI(2)								Amounts reclassified from AOCI(2)	4.0		—		4.0
Net current period other comprehensive income (loss)								Net current period other comprehensive income (loss)	(25.3)		—		(25.3)
Ending balance, September 30, 2021								Ending balance, September 30, 2021	$	306.9	$	(11.2)	$	295.7

Beginning balance, July 1, 2020	Beginning balance, July 1, 2020	$	279,129	$	(10,767)	$	268,362	Beginning balance, July 1, 2020	$	279.1	$	(10.7)	$	268.4
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	54,312		0		54,312		Other comprehensive income (loss) before reclassifications	54.3		—		54.3
Amounts reclassified from AOCI		(5,244)		0		(5,244)
Amounts reclassified from AOCI(3)								Amounts reclassified from AOCI(3)	(5.2)		—		(5.2)
Net current period other comprehensive income (loss)	Net current period other comprehensive income (loss)	49,068		0		49,068		Net current period other comprehensive income (loss)	49.1		—		49.1
Ending balance, September 30, 2020	Ending balance, September 30, 2020	$	328,197	$	(10,767)	$	317,430	Ending balance, September 30, 2020	$	328.2	$	(10.7)	$	317.5

Beginning balance, January 1, 2021								Beginning balance, January 1, 2021	$	366.3	$	(11.2)	$	355.1
Other comprehensive income (loss) before reclassifications								Other comprehensive income (loss) before reclassifications	(65.0)		—		(65.0)
Amounts reclassified from AOCI(2)								Amounts reclassified from AOCI(2)	5.6		—		5.6
Net current period other comprehensive income (loss)								Net current period other comprehensive income (loss)	(59.4)		—		(59.4)
Ending balance, September 30, 2021								Ending balance, September 30, 2021	$	306.9	$	(11.2)	$	295.7

Beginning balance, January 1, 2020	Beginning balance, January 1, 2020	$	230,448	$	(10,767)	$	219,681	Beginning balance, January 1, 2020	$	230.4	$	(10.7)	$	219.7
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	97,311		0		97,311		Other comprehensive income (loss) before reclassifications	97.3		—		97.3
Amounts reclassified from AOCI		438		0		438
Amounts reclassified from AOCI(3)								Amounts reclassified from AOCI(3)	0.5		—		0.5
Net current period other comprehensive income (loss)	Net current period other comprehensive income (loss)	97,749		0		97,749		Net current period other comprehensive income (loss)	97.8		—		97.8
Ending balance, September 30, 2020	Ending balance, September 30, 2020	$	328,197	$	(10,767)	$	317,430	Ending balance, September 30, 2020	$	328.2	$	(10.7)	$	317.5

(1)All amounts are net of tax.

(2)The pretax amounts reclassified from AOCI, $(5.0) million and $(7.1) million, are included in Net investment gains (losses) and the related income tax expenses, $(1.0) million and $(1.5) million, are included in income tax expense in the Consolidated Statements of Operations for the three and nine months ended September 30, 2021, respectively.

(3) The pretax amounts reclassified from AOCI, $6.6 million and $(0.6) million, are included in Net investment gains (losses) and the related income tax expenses, $1.4 million and $(0.1) million, are included in ~~income tax expense in the Consolidated Statements of Operations for the three and nine month periods ended September 30, 2020, respectively.~~

($ in thousands)
Net Unrealized Investment
Gains (Losses)
on
Securities (1)(2)
Net Funded Status of
Benefit Plans (1)
Total (1)
Beginning balance, July 1, 2019 $ 203,077 $ (12,185) $ 190,892
Other comprehensive income (loss) before reclassifications 64,577 0 64,577
Amounts reclassified from AOCI (1,273) 0 (1,273)
Net current period other comprehensive income (loss) 63,304 0 63,304
Ending balance, September 30, 2019 $ 266,381 $ (12,185) $ 254,196
Beginning balance, January 1, 2019 $ 96,941 $ (12,185) $ 84,756
Other comprehensive income (loss) before reclassifications 292,043 0 292,043
Amounts reclassified from AOCI (122,603) 0 (122,603)
Net current period other comprehensive income (loss) 169,440 0 169,440
Ending balance, September 30, 2019 $ 266,381 $ (12,185) $ 254,196

~~(1)~~ ~~All amounts are net of tax.~~

~~(2)~~ The pretax amounts reclassified from AOCI, $1.6 million and $155.2 million, are included in Net investment gains (losses) and the related income tax expenses, $0.3 million and $32.6 million, are included in Income tax expense in the Consolidated Statements of Operations for the three and nine ~~month periods~~months ended September 30, ~~2019,~~2020, respectively.

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 2.3.


Horace Mann Educators Corporation			2824			Quarterly Report on Form 10-Q

NOTE 12 - Supplemental Consolidated Cash and Cash Flow Information


($ in thousands)		September 30,		December 31,
($ in millions)						($ in millions)
		2020		2019			September 30, 2021		December 31, 2020
Cash	Cash	$	64,778	$	25,206	Cash	$	38.9	$	21.8
Restricted cash	Restricted cash	697		302		Restricted cash	1.3		0.5
Total cash and restricted cash shown in the Consolidated Balance Sheets		$	65,475	$	25,508
Total cash and restricted cash reported in the Consolidated Balance Sheets						Total cash and restricted cash reported in the Consolidated Balance Sheets	$	40.2	$	22.3


($ in thousands)		Nine Months Ended September 30,
($ in millions)						($ in millions)	Nine Months Ended September 30,
		2020		2019			2021		2020
Cash paid during the nine months for:
Cash paid for:						Cash paid for:
Interest	Interest	$	9,258	$	6,948	Interest	$	7.3	$	9.3
Income taxes	Income taxes	18,456		12,696		Income taxes	20.2		18.5

Non-cash investing activities ~~include $2.1 billion of investments 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 5 for further information.~~

~~Non-cash investing activities in~~ respect to modifications or exchanges of fixed maturity securities as well as paid-in-kind activity for policy loans were insignificant for the three and nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

ITEM 2. I Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

($ in millions, except per share data)

Measures within this MD&A that are not based on accounting principles generally accepted in the United States of America (non-GAAP) are marked with an asterisk (*) the first time they are presented within this Part I - Item 2. An explanation of these measures is contained in the Glossary of Selected Terms included as Exhibit 99.1 to this Quarterly Report on Form 10-Q and are reconciled to the most directly comparable measures prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) in the Appendix to the Company's Third Quarter ~~2020~~2021 Investor Supplement.

Increases or decreases in this 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 (referred to in Part I - Items 2 - 4 and Part II of this report as "we", "our", "us", the "Company", "Horace Mann" or "HMEC") is an insurance holding company. We are not under any obligation to (and expressly disclaim 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 our actual results could differ materially from those projected in forward-looking statements due to a number of risks and uncertainties inherent in our business. See Part ~~II - Item 1A in this Quarterly Report on Form 10-Q as well as in Part~~ I - Item 1A in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 for additional information regarding risks and uncertainties.


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

Introduction

The purpose of this MD&A is to provide an understanding of 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, and through its subsidiaries, ~~it markets~~we market and ~~underwrites~~underwrite personal lines of property and casualty insurance products, supplemental insurance products, retirement products and life insurance products in the 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.


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

This MD&A covers our consolidated financial highlights followed by consolidated results of operations, an outlook for future performance, details about critical accounting estimates, results of operations by segment, investment results and ~~investment results.~~liquidity and capital resources.

On July 14, 2021, we entered into a definitive agreement to acquire all the equity interests in Madison National Life Insurance Company, Inc. (Madison National) for $172.5 million. Madison National is a leading writer of employer-paid and sponsored benefits provided to educators by K-12 school districts. The transaction is expected to close early in the first quarter of 2022, subject to regulatory approval and other customary closing conditions. The transaction is expected to be funded with cash on hand and additional borrowings on our Bank Credit Facility which was extended to 2026 and expanded by $100.0 million to $325.0 million to provide ample liquidity. At closing, our leverage ratio is expected to be approximately 25% which is our long-term target and aligns with levels appropriate for our current financial strength ratings.

Madison National offers short- and long-term group disability, group life and other products, with K-12 school districts representing 80% of 2020 premiums. The acquisition of Madison National is expected to be immediately accretive to our EPS and ROE and is expected to accelerate our progress on all fronts of our multi-year strategic plan: strengthening our product offerings, enhancing our distribution, and adding capabilities to our infrastructure. With the addition of Madison National, we will be able to serve K-12 educators through a new distribution channel that is entirely complementary to our strengths in individual products sold through local, trusted advisors.

Coronavirus Disease (COVID-19) Considerations

Beginning in March 2020, the global pandemic associated with the novel coronavirus COVID-19 and related economic conditions introduced unprecedented challenges for our country. Those challenges are ongoing. 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.

As discussed in ~~the Quarterly~~our Annual Report on Form ~~10-Q~~10-K for the ~~quarterly period~~year ended ~~June 30,~~December 31, 2020, we successfully ~~transitioned~~met the ~~organization, through our employees and agents, from one that relied on in-person experience to one that has become primarily virtual. While the current environment continues to present~~ challenges ~~our operations are being conducted successfully and we continue to support our agents and serve our customers in an effective manner.~~

As of the ~~end of September 2020, approximately 20% of our employees have returned to work~~pandemic environment and are now operating in ~~one of our office locations. The majority of our employees continue to work remotely. The~~a hybrid model. Our return to office plans are being guided by data from the Center for Disease Control. ~~We are limiting office occupancy to no more than 50% of pre-COVID-19 levels to enable effective social distancing for some time. We have also implemented other prevention strategies to reduce~~

In the ~~potential transmission of COVID-19, such as requiring face masks in common office areas.~~

~~Taking into account the virtual work~~hybrid working environment, we ~~have implemented additional~~continue to monitor cybersecurity ~~measures~~ including increasing security and network monitoring to proactively identify and prevent potential security threats and vulnerabilities. We also are identifying and assessing critical third-party vendors and ensuring their ability to continue to perform as anticipated.

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 public school systems. In our experience, educators generally remain employed during periods of economic disruption. As the country entered the 2020-2021 school year facing continued pandemic-related challenges,Although educators have largely remained employed ~~although they may be even busier than before, as many are being asked to devote time to both~~through the pandemic, the impact of the pandemic resulted in slower growth in new sales, particularly sales generated from in-person ~~teaching as well as remote learning to minimize the spread of COVID-19 in their communities.~~

events at schools. We continue to work with our network of exclusive agents to make sure they are using virtual and other tools ~~that~~so they can ~~allow them to~~ reach current and potential educator customers when face-to-face interactions are not possible. We are implementing a variety of new and modified forums to provide access to the financial solutions we offer educators. However, growth in new sales has slowed since the pandemic began, particularly sales generated from in-person events at schools. This may be exacerbated if public school systems face budget constraints due to the economic impactsregardless of the ~~pandemic and/or~~level of access they have to ~~"in school" events remains restricted.~~a specific school.

For further discussion regarding the current period and potential future impacts of COVID-19 and related economic conditions on ~~us,~~HMEC, see ~~"Outlook~~Outlook for ~~2020"~~2021 and other content within this MD&A as well as Part ~~II—~~I - Item ~~1A.~~1A in our Annual Report on Form 10-K for the year ended December 31, 2020.


Horace Mann Educators Corporation			3026			Quarterly Report on Form 10-Q

In addition, over the past several years, we proactively de-risked our portfolio in anticipation of an economic downturn and believe we are 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 during 2020, the investment portfolio is well diversified, is 91.7% 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 spreads on the annuity business that meet our return targets. 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 have maintained business continuity. Based on assumptions that presume a return to a normal operating environment within twelve months, capital and liquidity are expected to remain at or near target levels. We believe we are financially strong despite the potential impact of COVID-19 and continued to produce solid operating results in the third quarter of 2020.

Consolidated Financial Highlights

(All comparisons vs. same periods in ~~2019,~~2020, unless noted otherwise)


($ in millions)	($ in millions)	Three Months Ended September 30,				2020-2019		Nine Months Ended September 30,						2020-2019		($ in millions)	Three Months Ended September 30,				2021-2020		Nine Months Ended September 30,						2021-2020
		2020		2019		Change %		2020			2019			Change %			2021		2020		Change %		2021			2020			Change %
Total revenues	Total revenues	$	337.1	$	336.6	0.1	%	$	958.1		$	1,105.4		-13.3	%	Total revenues	$	329.6	$	337.1	-2.2	%	$	998.7		$	958.1		4.2	%
Net income	Net income	36.5		25.4		43.7	%	85.5			151.4			-43.5	%	Net income	16.3		36.5		-55.3	%	102.3			85.5			19.6	%
Per diluted share:	Per diluted share:															Per diluted share:
Net income	Net income	0.87		0.60		45.0	%	2.03			3.61			-43.8	%	Net income	0.39		0.87		-55.2	%	2.43			2.03			19.7	%
Net investment gains (losses), after tax		0.05		(0.04)		N.M.		(0.24)			2.84			N.M.
Net investment (losses) gains after tax																Net investment (losses) gains after tax	(0.11)		0.05		N.M.		(0.19)			(0.24)			N.M.
Book value per share	Book value per share							$	41.45		$	38.30		8.2	%	Book value per share							$	43.30		$	41.45		4.5	%
Net income return on equity - last twelve months	Net income return on equity - last twelve months							7.4		%	9.2		%			Net income return on equity - last twelve months							8.5		%	7.4		%
Net income return on equity - annualized	Net income return on equity - annualized							6.9		%	14.1		%			Net income return on equity - annualized							7.6		%	6.9		%

For the three months ended September 30, 2021, net income decreased $20.2 million primarily due to net investment (losses) gains and automobile loss costs that continue to move closer to pre-pandemic levels. For the nine months ended September 30, 2021, net income increased $16.8 million primarily due to net investment income which more than offset the higher automobile loss costs.

Consolidated Results of Operations

(All comparisons vs. same periods in 2020, unless noted otherwise)


($ in millions)	Three Months Ended September 30,				2021-2020		Nine Months Ended September 30,				2021-2020
	2021		2020		Change %		2021		2020		Change %
Premiums and contract charges earned	$	225.4	$	235.3	-4.2	%	$	678.8	$	697.0	-2.6	%
Net investment income	103.7		93.7		10.7	%	308.4		256.4		20.3	%
Net investment (losses) gains	(6.5)		2.5		N.M.		(10.6)		(12.8)		N.M.
Other income	7.0		5.6		25.0	%	22.1		17.5		26.3	%
Total revenues	329.6		337.1		-2.2	%	998.7		958.1		4.2	%

Benefits, claims and settlement expenses	164.8		151.4		8.9	%	446.2		433.1		3.0	%
Interest credited	51.9		51.1		1.6	%	153.7		153.3		0.3	%
Operating expenses	64.3		57.9		11.1	%	182.8		173.1		5.6	%
DAC unlocking and amortization expense	22.9		24.6		-6.9	%	70.5		75.0		-6.0	%
Intangible asset amortization expense	3.3		3.5		-5.7	%	9.8		10.9		-10.1	%
Interest expense	3.4		3.5		-2.9	%	10.4		11.7		-11.1	%
Total benefits, losses and expenses	310.6		292.0		6.4	%	873.4		857.1		1.9	%

Income before income taxes	19.0		45.1		-57.9	%	125.3		101.0		24.1	%
Income tax expense	2.7		8.6		-68.6	%	23.0		15.5		48.4	%
Net income	$	16.3	$	36.5	-55.3	%	$	102.3	$	85.5	19.6	%

Premiums and Contract Charges Earned

For the three and nine months ended September 30, ~~2020, net income increased $11.1~~2021, premiums and contract charges earned decreased $9.9 million and ~~decreased $65.9~~$18.2 million, respectively, ~~over the prior year periods. The three month increase was~~due primarily ~~due~~ to ~~net investment gains~~lower premiums earned by Property and lower operating expenses across all segments. The nine month decrease was primarily due to recognition of a $106.9 million after tax realized investment gain in the second quarter of 2019 with respect to the transfer of investments as consideration in connection with the annuity reinsurance transaction partially offset by favorable automobile loss experience in the current year period.Casualty.


Horace Mann Educators Corporation			3127			Quarterly Report on Form 10-Q

~~Consolidated Results of Operations~~

~~(All comparisons vs. same periods in 2019, unless noted otherwise)~~

($ in millions) Three Months Ended
September 30, 2020-2019 Nine Months Ended
September 30, 2020-2019
2020 2019 Change % 2020 2019 Change %
Insurance premiums and contract
charges earned
$ 235.3 $ 239.7 -1.8 % $ 697.0 $ 657.6 6.0 %
Net investment income 93.7 93.0 0.8 % 256.4 279.3 -8.2 %
Net investment gains (losses) 2.5 (2.1) N.M. (12.8) 151.6 N.M.
Other income 5.6 6.0 -6.7 % 17.5 16.9 3.6 %
Total revenues 337.1 336.6 0.1 % 958.1 1,105.4 -13.3 %
Benefits, claims and settlement expenses 151.4 154.2 -1.8 % 433.1 446.3 -3.0 %
Interest credited 51.1 53.6 -4.7 % 153.3 160.1 -4.2 %
Operating expenses 57.9 63.6 -9.0 % 173.1 175.9 -1.6 %
DAC unlocking and amortization expense 24.6 26.3 -6.5 % 75.0 82.9 -9.5 %
Intangible asset amortization expense 3.5 3.8 -7.9 % 10.9 4.9 122.4 %
Interest expense 3.5 4.6 -23.9 % 11.7 11.2 4.5 %
Other expense - goodwill impairment — — — — 28.0 N.M.
Total benefits, losses and expenses 292.0 306.1 -4.6 % 857.1 909.3 -5.7 %
Income before income taxes 45.1 30.5 47.9 % 101.0 196.1 -48.5 %
Income tax expense 8.6 5.1 68.6 % 15.5 44.7 -65.3 %
Net income $ 36.5 $ 25.4 43.7 % $ 85.5 $ 151.4 -43.5 %

~~Insurance Premiums and Contract Charges Earned~~

For the three and nine months ended September 30, 2020, insurance premiums and contract charges earned decreased $4.4 million and increased $39.4 million, respectively. The decrease for the three months was primarily due to lower premiums earned by Property and Casualty. The increase for the nine months was primarily due to the addition of earned premiums from the new Supplemental segment partially offset by recognition of $10.7 million of automobile premium credits to our policyholders related to reduced driving activity due to COVID-19.

Net Investment Income

Excluding accreted investment income on the deposit asset on reinsurance, for the three and nine months ended September 30, ~~2020,~~2021, net investment income ~~was flat for the three months~~increased $8.9 million and ~~decreased $48.0~~$49.0 million, ~~for the nine months. The decline was~~respectively, primarily due to ~~a $2.1 billion reduction in invested assets from investments transferred under the annuity reinsurance transaction in the second quarter of 2019 as well as lower than expected~~more favorable returns on limited partnership interests. Current year private equity and venture capital returns have been strong, reflecting the strength of the equity markets and the active IPO window. Investment yields continue to be impacted by the low interest rate environment of recent years. The annualized investment yield on the portfolio excluding limited partnership interests* was as follows:


		Three Months Ended September 30,		Nine Months Ended September 30,			Three Months Ended September 30,		Nine Months Ended September 30,
		2020	2019	2020	2019		2021	2020	2021	2020
Investment yield, excluding limited partnership interests, pretax - annualized*	Investment yield, excluding limited partnership interests, pretax - annualized*	4.2%	4.6%	4.4%	4.7%	Investment yield, excluding limited partnership interests, pretax - annualized*	4.4%	4.2%	4.3%	4.4%
Investment yield, excluding limited partnership interests, after tax - annualized*	Investment yield, excluding limited partnership interests, after tax - annualized*	3.3%	3.7%	3.5%	3.8%	Investment yield, excluding limited partnership interests, after tax - annualized*	3.5%	3.3%	3.4%	3.5%

During the three and nine months ended September 30, ~~2020,~~2021, we continued to identify and purchase investments ~~including funding a modest level of limited partnership interests,~~ with attractive risk-adjusted yields relative to market conditions without venturing into asset classes or individual securities that would be inconsistent with our overall ~~conservative~~ investment ~~guidelines.~~


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

guidelines for the core portfolio. We also funded commercial mortgage loan funds and limited partnership interests in line with our intent to increase our allocation to this portion of our portfolio to increase yields while balancing principal protection and risk.

Net Investment (Losses) Gains ~~(Losses)~~

For the three and nine months ended September 30, ~~2020,~~2021, net investment ~~gains~~losses increased ~~$4.6~~$9.0 million and net investment losses decreased ~~$164.4~~$2.2 million, respectively. The increase in net investment losses for the ~~three months can be seen in the table below. The decrease for the nine months~~current quarter is primarily ~~a result~~attributable to recognition of ~~a realized investment gain of $135.3~~$6.6 million ~~recognized during the second quarter of 2019~~ in ~~connection with the transfer of investments related to the aforementioned annuity reinsurance transaction.~~credit loss impairments. The breakdown of net investment (losses) gains ~~(losses)~~ by transaction type were as follows:


($ in millions)	($ in millions)	Three Months Ended September 30,				Nine Months Ended September 30,				($ in millions)	Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Net other-than-temporary impairment losses on securities recognized in net income		$	(1.1)	$	—	$	(5.3)	$	(0.3)
Impairments on investments recognized in net income										Impairments on investments recognized in net income	$	(6.6)	$	(1.1)	$	(9.8)	$	(5.3)
Sales and other, net	Sales and other, net	3.7		0.6		8.6		147.5		Sales and other, net	2.7		3.7		2.2		8.6
Change in fair value - equity securities	Change in fair value - equity securities	2.3		1.1		(5.6)		8.0		Change in fair value - equity securities	(1.1)		2.3		0.4		(5.6)
Change in fair value and gains (losses) realized on settlements - derivatives		(2.4)		(3.8)		(10.5)		(3.6)
Net investment gains (losses)		$	2.5	$	(2.1)	$	(12.8)	$	151.6
Change in fair value and losses realized on settlements - derivatives										Change in fair value and losses realized on settlements - derivatives	(1.5)		(2.4)		(3.4)		(10.5)
Net investment (losses) gains										Net investment (losses) gains	$	(6.5)	$	2.5	$	(10.6)	$	(12.8)

From time to time, we may sell fixed maturity securities subsequent to the reporting date that were considered temporarily impaired at ~~the~~such reporting date. Such sales are due to issuer specific events occurring subsequent to the reporting date that result in a change in our intent to sell ~~an invested asset.~~a fixed maturity security.

Other Income

For the three and nine months ended September 30, ~~2020,~~2021, other income ~~was comparable~~increased $1.4 million and $4.6 million, respectively, due to the ~~prior year periods.~~impact of the strong financial markets on asset based fees.

Benefits, Claims and Settlement Expenses

For the three and nine months ended September 30, ~~2020,~~2021, benefits, claims and settlement expenses ~~decreased $2.8~~increased $13.4 million and ~~$13.2~~$13.1 million, ~~respectively, driven primarily by lower benefits in the Supplemental segment~~respectively. The increase for the ~~three months. For the nine months, favorable~~current quarter is due to an increase in underlying automobile loss experience, ~~as a result of lower frequency of losses related to reduced driving activity due to COVID-19, is partially offset by~~ higher catastrophe losses and ~~nine months of benefits and settlement expenses from the new Supplemental segment compared to three months from Supplemental~~an increase in ~~the prior year period.~~Life benefits.

Interest Credited

For the three and nine months ended September 30, ~~2020,~~2021, interest credited ~~decreased $2.5 million and $6.8 million, respectively, driven primarily by a lower interest rate and a lower level of Federal Home Loan Bank (FHLB) funding agreements.~~was relatively flat. Under the deposit method of accounting, the interest credited on the reinsured annuity block continues to be reported. The average deferred annuity credited rate, excluding the reinsured annuity block, was 2.4% and 2.5% at September 30, ~~2020~~2021 and September 30, ~~2019,~~2020, respectively.

~~Operating Expenses~~

For the three and nine months ended September 30, 2020, operating expenses decreased $5.7 million and $2.8 million, respectively, primarily due to expense reduction initiatives that began in 2019 as well as a lower level of expenses realized in 2020 due to COVID-19. The nine month decrease was partially offset by the inclusion of $29.4 million of operating expenses from Supplemental operations compared to $10.4 million of operating expenses in the prior year.

~~Deferred Acquisition Costs (DAC) Unlocking and Amortization Expense~~

For the three months ended September 30, 2020, DAC unlocking and amortization expense decreased $1.7 million primarily due to $0.7 million of favorable DAC unlocking in Retirement for the current quarter (primarily market performance) compared to no DAC unlocking in the prior year quarter. For the nine months ended September 30, 2020, DAC unlocking and amortization expense decreased $7.9 million primarily due to accelerated amortization of the DAC asset associated with the reinsured annuity block that occurred in the second quarter of 2019. For Life, DAC unlocking resulted in an immaterial change to amortization for the three and nine months ended September 30, 2020.


Horace Mann Educators Corporation			3328			Quarterly Report on Form 10-Q

Operating Expenses

For the three and nine months ended September 30, 2021, operating expenses increased $6.4 million and $9.7 million, respectively. Targeted spend on product, distribution and infrastructure has increased, including costs incurred in performing due diligence on the planned acquisition of Madison National. Increased operating expenses also reflect a lower level of expenses realized in 2020 due to the pandemic.

Deferred Policy Acquisition Costs (DAC) Unlocking and Amortization Expense

For the three and nine months ended September 30, 2021, DAC unlocking and amortization expense decreased $1.7 million and $4.5 million, respectively, as revenue growth has slowed in the Property and Casualty segment.

Intangible Asset Amortization Expense

For the three and nine months ended September 30, ~~2020,~~2021, intangible asset amortization expense decreased ~~$0.3~~$0.2 million and ~~increased $6.0~~$1.1 million, respectively. ~~The increase for the nine months was primarily due to the acquisition of NTA Life Enterprises, LLC (NTA) on July 1, 2019.~~

Interest Expense

For the three and nine months ended September 30, ~~2020,~~2021, interest expense decreased ~~$1.1~~$0.1 million ~~for the three months~~and $1.3 million, respectively, due to lower interest rates on our senior revolving credit ~~facility and increased $0.5 million for the nine months as we utilized our senior revolving credit facility in the third quarter of 2019 to partially fund the acquisition of NTA on July 1, 2019.~~

~~Other Expense - Goodwill Impairment~~

~~For the nine months ended September 30, 2019, other expense represented a goodwill impairment charge in Retirement resulting from the annuity reinsurance transaction.~~facility.

Income Tax Expense

The effective income tax rate, ~~on our pretax income,~~ including net investment (losses) gains, ~~(losses),~~ was ~~15.3%~~18.4% and ~~22.7%~~15.3% for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Income from investments in tax-advantaged securities reduced the effective income tax rates by ~~4.0~~3.3 and ~~1.8~~4.0 percentage points for the nine months ended September 30, 2021 and 2020, ~~and 2019,~~ respectively.

The ~~goodwill impairment charge~~tax effects of legislation enacted in ~~the Retirement segment increased the effective income tax rate by 2.8 percentage points at September 30, 2019.~~

~~On March 27,~~ 2020 ~~H.R. 748,~~due to the Coronavirus Aid, Relief, and Economic Security Act, “the CARES Act”, was signed into legislation. The 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 arepandemic were reflected in our income tax expense calculations as of ~~March 31,~~September 30, 2020. ~~Accounting Standards Codification Topic 740:~~ ~~Income Taxes~~ ~~requires that the impact of the CARES Act be recognized in the period in which the law was enacted. As a result, total~~Total income tax expense for the ~~three~~nine months ended ~~March 31,~~September 30, 2020, ~~includes~~included a benefit of $2.8 million (that reduced the effective income tax rate by 2.8 percentage points) to reflect a net operating loss carryback to taxable years for which the corporate rate was 35% as compared to the current corporate rate of 21%.

We record liabilities for uncertain tax filing positions where it is more likely than not that the position will not be sustainable upon audit by taxing authorities. These liabilities are reevaluated routinely and are adjusted appropriately based on changes in facts or law. We have no unrecorded liabilities from uncertain tax filing positions.

At September 30, ~~2020,~~2021, our federal income tax returns for years prior to 2014 are no longer subject to examination by the Internal Revenue Service. We do not anticipate any assessments for tax years that remain subject to examination to have a material effect on our financial position or results of operations.

Outlook for ~~2020~~2021

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

The impacts of the COVID-19 pandemic and related economic conditions on the Company’s results continue to be highly uncertain and outside the Company’s control. The scope, duration and magnitude of the direct and indirect effects of ~~COVID-19~~the pandemic continue to evolve in ways that are difficult or impossible to anticipate. For additional information on the risks posed by ~~COVID-19,~~the pandemic, see ~~“Our business~~“A large-scale pandemic, the occurrence of terrorism or military actions may ~~be adversely affected by the recent COVID-19 outbreak”~~have an adverse effect on our business” included in ~~“Part II—~~Part I—Item 1A—Risk ~~Factors”~~Factors in ~~this Quarterly~~our Annual Report on Form ~~10-Q.~~10-K for the year ended December 31, 2020.

At the time of issuance of this Quarterly Report on Form 10-Q, we estimate that ~~2020 full year~~2021 fourth quarter core earnings will be in the range of $.65 to $.80 per diluted share resulting in full-year net income ~~will be~~ within a range of ~~$2.95~~$3.27 to ~~$3.15~~$3.42 per diluted ~~share.~~share, generating a core return on equity* of close to 10%. The ~~increase~~outlook assumes a federal statutory corporate tax rate of 21%. The decrease in the range from the Outlook ~~for 2020 we discussed~~included in ~~the~~our Quarterly Report on Form 10-Q for the ~~prior quarter~~quarterly period ended June 30, ~~2020 anticipates an increase~~2021 is due to the higher catastrophe losses experienced in the ~~Supplemental~~third quarter and a higher underlying automobile loss ratio partially offset by higher net investment income. The segment guidance discussed below also anticipates modest variations in results ~~as discussed below.~~for those businesses from our original expectations.


Horace Mann Educators Corporation			3429			Quarterly Report on Form 10-Q

~~Property and Casualty~~

Net written premiums for 2020 are expected to be below 2019 levels due lower levels of new business resulting from the pandemic and the recognition of $10.7 million of COVID-19 related premium credits. Retention remains stable and we anticipate rates will remain stable in the current environment. The expense ratio is expected to be slightly lower than the 2019 expense ratio of 26.9 points.

Lower levels of automobile loss frequency resulting from temporary changes in policyholder driving patterns due to COVID-19 continued in the third quarter. Frequency was most favorably impacted in the month of April, with May and June levels rising sequentially. Third quarter frequency was approximately 20% below the prior year period. While we anticipate frequency to continue to moderate, we project it will be lower than 2019 levels for the remainder of the year partially offset by an increase in severity. A 10% drop in automobile frequency represents approximately $2 million in pretax earnings per month, excluding the potential for higher severity.Investments

We ~~experienced an elevated level of catastrophes in the third quarter and as a result, our full year guidance anticipates catastrophe losses of 13 points to 14 points.~~

In connection with the emergence of PG&E Corporation and Pacific Gas and Electric Company (together, PG&E) from bankruptcy on July 1, 2020, in the third quarter of 2020, the Company recognized favorable prior years' reserve development of approximately $5.2 million, pretax andanticipate fourth-quarter total net ~~of reinsurance, along with the return of reinsurance reinstatement premiums of approximately $3.5 million, largely related to the 2018 Camp Fire in California.~~

~~As a result, the Property and Casualty full-year combined ratio is expected to be 91%-93%. We continue to anticipate net~~investment income ~~for Property and Casualty to~~will be in the range of ~~$70~~$95 million to ~~$75 million.~~

~~Supplemental~~

~~Supplemental is anticipated~~$100 million resulting in a full year range of $405 million to ~~generate a long-term pretax profit margin~~$410 million, including approximately $100 million of accreted investment income on the deposit asset on reinsurance in the ~~low to mid 20% range and~~Retirement segment. Segment ranges noted below include that anticipated level of net investment ~~income should continue to benefit from portfolio repositioning. Supplemental results reflect favorable trends in reserves~~income.

Property and ~~short-term benefit from changes in policyholder behavior due to COVID-19. Because~~Casualty Segment

Primarily because of ~~these factors,~~the impact of underlying automobile loss costs, Property and Casualty’s fourth quarter 2021 net income ~~for Supplemental~~ is now anticipated to be in the range of ~~$37~~$10 million to ~~$39~~$13 million. ~~New sales~~Fourth-quarter 2021 catastrophe losses are ~~being negatively impacted by lack~~modeled between $7 and $9 million, in line with the 10-year average for the quarter.

The pandemic’s favorable impact on automobile loss costs lessened throughout the first nine months of ~~access~~2021. We anticipate frequency will be at or close to ~~schools~~pre-pandemic levels due to ~~COVID-19, delaying~~changing driving patterns as well as higher severity. As a result, the ~~growth~~underlying automobile loss ratio should rise again in the fourth quarter, as it has every quarter in 2021. We are initiating appropriate rate filings in the majority of ~~this segment.~~our states to address the higher severity.

~~Retirement~~For the fourth quarter, we anticipate the underlying property loss ratio will be similar to the third quarter as we reflect inflation in our coverages and initiate appropriate rate filings to address.

~~Retirement~~Supplemental Segment

Our outlook for Supplemental's fourth quarter 2021 net income reflects a strong contribution from net investment income ~~is reflecting further spread compression~~and continued favorable business trends with ~~rates on new investments below~~some continued benefit from changes in policyholder behavior due to 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 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 be partially offset by a reduced level of operating expenses. As a result, we continue to expectpandemic. Fourth-quarter net income for ~~Retirement~~Supplemental is anticipated to be in the range of ~~$22~~$10 million to ~~$24~~$11 million.

~~Life~~Retirement Segment

We ~~continue~~anticipate Retirement will generate net income in the range of $10 to $11 million in fourth quarter, consistent with prior guidance.

Life Segment

We expect Life to generate net income between ~~$10~~$3 million and ~~$12~~$4 million reflecting modeled mortality costs. Sales continue to be negatively impacted by the pre-vaccine environment due to the high level of customer interaction required for sales of more complex products like indexed universal life and larger single premium sales.in fourth quarter, consistent with prior guidance.

As described in Critical Accounting Estimates, certain of 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 net income for the period in which the adjustments are made and may impact actual results compared to our estimates above. Additionally, see Forward-looking Information ~~and Part II - Item 1A~~ in this Quarterly Report on Form 10-Q as well as Part I -– Items 1 and 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 concerning other important factors that could impact actual results. 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.


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

Critical Accounting Estimates

The preparation of consolidated financial statements in conformity with GAAP requires 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 our consolidated assets, liabilities, shareholders' equity and net income. Certain accounting estimates are particularly sensitive because of their significance to 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. We have discussed with the Audit Committee the quality, not just the acceptability, of our accounting principles as applied in our financial reporting. The discussions generally included such matters as the consistency of our accounting policies and their application, and the clarity and completeness of our consolidated financial statements, which include related disclosures. Information regarding our accounting


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

policies pertaining to these topics is located in the Notes to the Consolidated Financial Statements contained in Part II - Item 8 of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

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

•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 ~~supplemental,~~ annuity and life deferred policy acquisition costs

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

•Valuation of certain investment contract and policy reserves

•~~Valuation of assets acquired and liabilities assumed under purchase accounting~~

Compared to December 31, ~~2019,~~2020, at September 30, ~~2020,~~2021, 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 our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, discussion of accounting policies, including certain sensitivity information, was presented in Management's Discussion and Analysis of Financial Condition and Results of Operations -- Critical Accounting Estimates in that Form 10-K.

Results of Operations by Segment

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

•Property and Casualty

•Supplemental

•Retirement

•Life

•Corporate and Other

The determination of segment data ~~are~~is described in more detail in Part I - Item 1, Note 10 of the Consolidated Financial Statements in 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.


Horace Mann Educators Corporation			3631			Quarterly Report on Form 10-Q

Property and Casualty

(All comparisons vs. same periods in ~~2019,~~2020, unless noted otherwise)

For the three and nine months ended September 30, ~~2020,~~2021, net income (loss) reflected the following factors:

~~Three months ended:~~

•~~Claims and claim expenses incurred are flat as a $20.1 million~~An increase in ~~catastrophe losses was offset by lower automobile loss frequency and a $5.2 million subrogation recovery~~

•~~Lower operating expenses due to expense reduction initiatives and COVID-19~~

•~~Higher~~ net investment income ~~driven by~~due to favorable returns on limited partnership interests

~~Nine~~ for the nine months ~~ended:~~

•~~Written premiums* and earned premiums reduced by $10.7 million of COVID-19 related premium credits~~ended September 30, 2021

•~~10.4 points of improvement in the Property and Casualty underlying~~Automobile loss ~~ratio* due~~costs continuing to ~~lower automobile loss frequency~~move closer to pre-pandemic levels

•~~Catastrophe losses increased by 6.7 points~~Lower levels of favorable prior years' reserve development (PYD) recognized in 2021 ($5.2 million of favorable PYD recognized in the prior year quarter due to subrogation received largely related to the 2018 Camp Fire in California)

•~~A one-time tax benefit~~Higher levels of ~~$2.8 million~~catastrophe losses experienced in 2021 which added 25.1 points to the property and casualty combined ratio in the ~~first~~current quarter ~~of 2020 as a result of~~compared to 20.9 points in the ~~CARES Act~~prior year


Horace Mann Educators Corporation			3732			Quarterly Report on Form 10-Q

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

($ in millions, unless otherwise indicated) Three Months Ended
September 30, 2020-2019 Nine Months Ended
September 30, 2020-2019
2020 2019 Change 2020 2019 Change
Financial Data:
Written premiums*:
Automobile $ 109.5 $ 118.8 -7.8 % $ 315.6 $ 350.2 -9.9 %
Property and other 63.3 63.7 -0.6 % 166.9 168.3 -0.8 %
Total premiums written 172.8 182.5 -5.3 % 482.5 518.5 -6.9 %
Change in unearned insurance premiums (6.8) (12.0) 43.3 % 6.2 (5.9) N.M.
Total insurance premiums earned 166.0 170.5 -2.6 % 488.7 512.6 -4.7 %
Incurred claims and claims expenses:
Claims occurring in the current year 125.6 122.5 2.5 % 340.2 375.7 -9.4 %
Prior years' reserve development
7.2 3.5 105.7 % 9.2 7.5 22.7 %
Total claims and claim expenses incurred 118.4 119.0 -0.5 % 331.0 368.2 -10.1 %
Operating expenses, including DAC amortization 41.9 45.0 -6.9 % 126.0 136.9 -8.0 %
Underwriting gain 5.7 6.5 -12.3 % 31.7 7.5 N.M.
Net investment income 13.7 10.7 28.0 % 30.3 33.6 -9.8 %
Income before income taxes 19.8 17.4 13.8 % 63.7 41.8 52.4 %
Net income/core earnings* 15.8 14.2 11.3 % 53.7 34.3 56.6 %
Operating Statistics:
Automobile
Loss and loss adjustment expense
ratio
57.6 % 65.8 % -8.2 pts 59.1 % 70.2 % -11.1 pts
Expense ratio 25.7 % 26.6 % -0.9 pts 26.2 % 26.8 % -0.6 pts
Combined ratio: 83.3 % 92.4 % -9.1 pts 85.3 % 97.0 % -11.7 pts
Prior years' reserve development -0.9 % -3.0 % 2.1 pts -0.6 % -1.6 % 1.0 pts
Catastrophe losses 1.7 % 2.1 % -0.4 pts 1.6 % 1.6 % — pts
Underlying combined ratio* 82.5 % 93.3 % -10.8 pts 84.3 % 97.0 % -12.7 pts
Property
Loss and loss adjustment expense
ratio
97.3 % 78.2 % 19.1 pts 84.5 % 75.3 % 9.2 pts
Expense ratio 24.4 % 26.1 % -1.7 pts 25.1 % 26.7 % -1.6 pts
Combined ratio: 121.7 % 104.3 % 17.4 pts 109.6 % 102.0 % 7.6 pts
Prior years' reserve development -10.8 % — % -10.8 pts -4.3 % -1.2 % -3.1 pts
Catastrophe losses 57.3 % 22.6 % 34.7 pts 43.9 % 25.9 % 18.0 pts
Underlying combined ratio* 75.2 % 81.7 % -6.5 pts 70.0 % 77.3 % -7.3 pts
Risks in force (in thousands)
Automobile (1)
406 441 -7.9 %
Property 187 196 -4.6 %
Total 593 637 -6.9 %


($ in millions, unless otherwise indicated)	Three Months Ended September 30,						2021-2020		Nine Months Ended September 30,						2021-2020
	2021			2020			Change		2021			2020			Change
Financial Data:
Premiums written*:
Automobile	$	103.1		$	109.5		-5.8	%	$	300.1		$	315.6		-4.9	%
Property and other	60.7			63.3			-4.1	%	161.1			166.9			-3.5	%
Total premiums written	163.8			172.8			-5.2	%	461.2			482.5			-4.4	%
Change in unearned premiums	(10.5)			(6.8)			-54.4	%	2.9			6.2			-53.2	%
Total premiums earned	153.3			166.0			-7.7	%	464.1			488.7			-5.0	%
Incurred claims and claims expenses:
Claims occurring in the current year	132.5			125.6			5.5	%	345.4			340.2			1.5	%
Prior years' reserve development(1)	(3.0)			(7.2)			-58.3	%	(7.2)			(9.2)			-21.7	%
Total claims and claim expenses incurred	129.5			118.4			9.4	%	338.2			331.0			2.2	%
Operating expenses, including DAC amortization	42.1			41.9			0.5	%	121.5			126.0			-3.6	%
Underwriting gain (loss)	(18.3)			5.7			N.M.		4.4			31.7			-86.1	%
Net investment income	11.3			13.7			-17.5	%	43.8			30.3			44.6	%
Income (loss) before income taxes	(6.3)			19.8			-131.8	%	52.1			63.7			-18.2	%
Net income (loss) / core earnings (loss)*	(4.7)			15.8			-129.7	%	42.5			53.7			-20.9	%

Operating Statistics:
Automobile
Loss and loss adjustment expense ratio	71.5		%	57.6		%	13.9	pts	66.0		%	59.1		%	6.9	pts
Expense ratio	27.7		%	25.7		%	2.0	pts	26.1		%	26.2		%	-0.1	pts
Combined ratio:	99.2		%	83.3		%	15.9	pts	92.1		%	85.3		%	6.8	pts
Prior years' reserve development(1)	-2.0		%	-0.9		%	-1.1	pts	-1.6		%	-0.6		%	-1.0	pts
Catastrophe losses	2.9		%	1.7		%	1.2	pts	1.9		%	1.6		%	0.3	pts
Underlying combined ratio*	98.3		%	82.5		%	15.8	pts	91.8		%	84.3		%	7.5	pts
Property
Loss and loss adjustment expense ratio	108.9		%	97.3		%	11.6	pts	86.0		%	84.5		%	1.5	pts
Expense ratio	27.2		%	24.4		%	2.8	pts	26.4		%	25.1		%	1.3	pts
Combined ratio:	136.1		%	121.7		%	14.4	pts	112.4		%	109.6		%	2.8	pts
Prior years' reserve development(1)	-1.9		%	-10.8		%	8.9	pts	-1.4		%	-4.3		%	2.9	pts
Catastrophe losses	67.3		%	57.3		%	10.0	pts	38.4		%	43.9		%	-5.5	pts
Underlying combined ratio*	70.7		%	75.2		%	-4.5	pts	75.4		%	70.0		%	5.4	pts

Risks in force (in thousands)
Automobile(2)									381			406			-6.2	%
Property									178			187			-4.8	%
Total									559			593			-5.7	%

(1)(Favorable) unfavorable.

(2) Includes assumed risks in force of 4.


Horace Mann Educators Corporation			3833			Quarterly Report on Form 10-Q

As a result of the emergence of PG&E Corporation and Pacific Gas and Electric Company (together, PG&E) from bankruptcy on July 1, 2020, in the third quarter of 2020, we recognized favorable prior years' reserve development of $5.2 million, pretax net of reinsurance, as well as return of reinsurance reinstatement premiums of $3.5 million, for a total of $8.7 million, largely related to the 2018 Camp Fire in California. Results reported in 2018 reflected gross losses of $150.0 million and net losses after reinsurance of $37.9 million pretax from the 2018 Camp Fire.

On a reported basis, the ~~11.7 points of improvement~~6.8 point increase in the automobile combined ratio for the nine months ended September 30, ~~2020~~2021 was mainly attributable to a ~~12.1~~7.6 point ~~reduction~~increase in the automobile underlying loss ratio* ~~reflecting lower frequency~~. The increase in the automobile underlying loss ratio reflects a return to more normal driving patterns as well as ~~the ongoing benefit of profitability initiatives. We experienced a lower level of automobile loss frequency resulting from temporary changes~~an increase in ~~policyholder driving patterns due to COVID-19. The average decline in auto frequency experienced in the third quarter was approximately 20% compared to the prior year quarter.~~severity trends. The reported property combined ratio increased ~~7.6~~2.8 points and the property underlying loss ratio* increased 4.1 points for the nine months ended September 30, ~~2020 due to a 18.0 point increase in catastrophe losses. During the nine months ended September 30, 2020, the underlying property loss ratio* improved 5.7 points, primarily~~2021 reflecting higher non-catastrophe fire losses and non-weather water losses as well as overall inflation due to the ~~aforementioned PG&E subrogation recovery.~~cost of labor and materials. The third quarter 2021 property underlying loss ratio compared to the first half of 2021 and the third quarter of 2020 improved due to lower non-catastrophe fire losses and non-weather water losses.

For the three and nine months ended September 30, ~~2020,~~2021, total written premiums*premiums written* decreased ~~$9.7~~$9.0 million and ~~$36.0~~$21.3 million, ~~respectively, primarily due to a reduction in automobile written premiums*.~~respectively. For the remainder of ~~2020,~~2021, we anticipate ~~the rate environment will be relatively stable, resulting in low-single digit~~ average rate increases in the low-single digits (including states with no rate actions) for both automobile and property for ~~full-year 2020; average~~the full year. Average approved rate changes for the nine months ended ~~2020~~September 30, 2021 were ~~0.5% for automobile and 1.1% for property. Growth in sales* has~~insignificant. Sales* have slowed due to COVID-19.

For the three and nine months ended September 30, ~~2020,~~2021, automobile written premiums*premiums written* decreased ~~$9.3~~$6.4 million and ~~$34.6~~$15.5 million, respectively, ~~due to lower automobile risks in force and a lower level of rate increases implemented~~ as ~~well as COVID-19 related premium credits equal to 15% of two months of automobile premiums. While~~ the number of automobile risks in force has ~~declined, the average~~declined. Average premium written ~~premium per risk~~ and average premium earned ~~premium per risk remained relatively stable for the nine months ended September 30, 2020. Based on~~decreased slightly. Educator risks ~~in force, the automobile 12 month retention rate for new and renewal risks was 80.9% which was comparable to~~as a ~~year ago. The number~~percentage of ~~educator risks has been stable relative to~~ overall automobile risks ~~as educators represented 85.5% of the automobile risks in force~~remained stable at 83.5% as of September 30, ~~2020, December 31, 2019 and September 30, 2019, respectively.~~2021.

For the three and nine months ended September 30, ~~2020,~~2021, property and other written premiums*premiums written* decreased ~~slightly. While~~$2.6 million and $5.8 million, respectively, as the number of property risks in force has ~~declined,~~declined. In addition, the ~~average~~2018 California Camp Fire subrogation recovery provided for the return of $3.5 million of reinsurance reinstatement premium in the third quarter of 2020. Average premium written ~~premium per risk~~ and average premium earned ~~premium per risk~~ increased ~~3.2% and 5.1%, respectively, for~~slightly in the first nine months ~~ended 2020. Based on~~of 2021, but with inflationary pressure continuing, adjustments to coverage values and rates are expected to play a greater role in the coming quarters. Educator risks ~~in force, the property 12 month retention rate for new and renewal risks decreased to 86.7% from 87.3% at September 30, 2020 and 2019, respectively. The number~~as a percentage of ~~educator risks has been stable relative to~~ overall property risks ~~as educators represented 82.3%, 82.5% and 82.1% of the property risks in force~~remained stable at 81.2% as of September 30, ~~2020, December 31, 2019 and September 30, 2019, respectively.~~2021.

We continue to evaluate and implement actions to further mitigate 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.


Horace Mann Educators Corporation			3934			Quarterly Report on Form 10-Q

Supplemental

(All comparisons vs. same periods in 2020, unless noted otherwise)

For the three and nine months ended September 30, 2021, net income reflected the following factors:

•Favorable business trends including some continued benefit from changes in policyholder behavior due to the pandemic

•Improved net investment income driven by more favorable returns on limited partnership interests

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

($ in millions, unless otherwise indicated) Three Months Ended
September 30, 2020-2019 Nine Months Ended
September 30, 2020-2019
2020 2019 Change 2020 2019 Change
Financial Data:
Insurance premiums and contract deposits* $ 32.0 $ 32.7 -2.1 % $ 98.3 $ 32.7 N/A
Insurance premiums and contract charges earned 32.5 32.9 -1.2 % 98.8 32.9 N/A
Net investment income 4.3 3.7 16.2 % 11.8 3.7 N/A
Benefits and settlement expenses 10.5 14.7 -28.6 % 33.5 14.7 N/A
Operating expenses (includes DAC unlocking and amortization expense) 10.1 10.5 -3.8 % 30.3 10.5 N/A
Intangible asset amortization expense 3.1 3.2 -3.1 % 9.5 3.2 N/A
Income before income taxes 13.6 8.8 54.5 % 39.1 8.8 N/A
Net income / core earnings* 10.6 6.9 53.6 % 30.6 6.9 N/A
Operating Statistics:
Supplemental insurance in force (thousands) 292 297 -1.7 %
Benefits ratio (1)
32.3 % 44.7 % -12.4 pts 33.9 % 44.7 % N/A
Operating expense ratio (2)
26.9 % 28.2 % -1.3 pts 26.9 % 28.2 % N/A
Pretax profit margin (2)
36.3 % 23.7 % 12.6 pts 34.7 % 23.7 % N/A
Persistency 90.1 % 88.9 % 1.2 pts

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


($ in millions, unless otherwise indicated)	Three Months Ended September 30,						2021-2020		Nine Months Ended September 30,						2021-2020
	2021			2020			Change		2021			2020			Change
Financial Data:
Premiums written and contract deposits*	$	30.9		$	32.0		-3.4	%	$	94.2		$	98.3		-4.2	%
Premiums and contract charges earned	31.0			32.5			-4.6	%	94.3			98.8			-4.6	%
Net investment income	7.1			4.3			65.1	%	18.7			11.8			58.5	%
Benefits and settlement expenses	10.4			10.5			-1.0	%	30.0			33.5			-10.4	%
Operating expenses (includes DAC unlocking and amortization expense)	10.7			10.1			5.9	%	31.3			30.3			3.3	%
Intangible asset amortization expense	2.9			3.1			-6.5	%	8.8			9.5			-7.4	%
Income before income taxes	14.5			13.6			6.6	%	44.5			39.1			13.8	%
Net income / core earnings*	11.4			10.6			7.5	%	34.8			30.6			13.7	%

Operating Statistics:
Supplemental insurance in force (thousands)									280			292			-4.1	%
Benefits ratio(1)	33.5		%	32.3		%	1.2	pts	31.8		%	33.9		%	-2.1	pts
Operating expense ratio(2)	27.7		%	26.9		%	0.8	pts	27.3		%	26.9		%	0.4	pts
Pretax profit margin(2)	37.6		%	36.3		%	1.3	pts	38.8		%	34.7		%	4.1	pts
Persistency									92.2		%	90.1		%	2.1	pts

(1) Benefits ratio measured to earned premium.

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

For the three and nine months ended September 30, ~~2020,~~2021, Supplemental sales* were ~~$1.4~~$2.0 million and ~~$5.8~~$4.2 million, respectively, ~~reflecting significantly lower sales volume primarily due~~which continues to ~~COVID-19~~reflect limited school access because of the pandemic. Sales growth is expected to continue its upward trajectory for the remainder of 2021 and into 2022. Tactics are being implemented to address return-to-school in person selling. Persistency was up 2.1 points at 92.2%.

Net income reflected higher net investment income as ~~sales are dependent on in-person events at schools. Persistency remains steady at 90.1%.~~

~~For the three and nine months ended September 30, 2020, Supplemental contributed $10.6 million and $30.6 million, respectively, to net income, reflecting~~well as favorable business trends ~~in reserves and~~including some ~~short-term~~continued benefit from changes in policyholder behavior due to ~~COVID-19. The~~the pandemic. Segment expenses include the non-cash impact ~~from~~of amortization of intangible assets ~~recognized in connection with the~~under purchase accounting ~~of NTA~~that reduced ~~pretax~~ net income by ~~$3.1~~$2.9 million ~~and $9.5 million~~pretax for the three ~~and nine~~ months ended September 30, ~~2020.~~2021. The pretax profit margin remains above management’s longer-term expectations because of the pandemic-related changes in policyholder behavior.


Horace Mann Educators Corporation			4035			Quarterly Report on Form 10-Q

Retirement

(All comparisons vs. same periods in ~~2019,~~2020, unless noted otherwise)

For the three and nine months ended September 30, ~~2020,~~2021, net income ~~increased $1.9 million and $23.5 million, respectively, reflecting~~reflected the following factors:

~~Three months ended:~~

•~~Lower operating expenses due to expense reduction initiatives and COVID-19~~Strong annualized net interest spread on fixed annuities of 272 bps for the nine months ended September 30, 2021

•~~Reflecting~~Continued growth in net annuity contract deposits* that increased $18.5 million for the ~~benefits of the annuity reinsurance transaction, the net interest margin on the retained annuity block was essentially unchanged despite lower net investment income~~

~~Nine~~nine months ~~ended:~~

•~~Prior period results include a $28.0 million pretax goodwill impairment charge related to the annuity reinsurance transaction in the second quarter of 2019~~ended September 30, 2021

•$3.6 million pretax of unfavorable DAC unlocking in the prior nine months primarily due to accelerated amortization of the DAC asset associated with the reinsured annuity block, compared to $1.3 million of favorable DAC unlocking in the current nine months due to lower investment results

•

Lower levels of net investment income in 2020, reflecting lower invested asset levels resulting from the prior year annuity reinsurance transaction and use of capital to purchase NTA as well as lower returns on limited partnership interests


Horace Mann Educators Corporation			4136			Quarterly Report on Form 10-Q

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


($ in millions, unless otherwise indicated)	($ in millions, unless otherwise indicated)	Three Months Ended September 30,				2020-2019		Nine Months Ended September 30,						2020-2019		($ in millions, unless otherwise indicated)	Three Months Ended September 30,				2021-2020		Nine Months Ended September 30,						2021-2020
		2020		2019		Change		2020			2019			Change			2021		2020		Change		2021			2020			Change
Financial Data:	Financial Data:															Financial Data:
Contract charges earned	Contract charges earned	$	7.4	$	6.6	12.1	%	$	21.5		$	22.1		-2.7	%	Contract charges earned	$	9.9	$	7.4	33.8	%	$	27.7		$	21.5		28.8	%
Net investment income	Net investment income	58.1		60.8		-4.4	%	166.7			188.2			-11.4	%	Net investment income	64.8		58.1		11.5	%	187.2			166.7			12.3	%
Interest credited	Interest credited	39.7		42.4		-6.4	%	119.4			126.4			-5.5	%	Interest credited	40.7		39.7		2.5	%	120.0			119.4			0.5	%
Net interest margin without net investment gains (losses)		19.4		19.5		-0.5	%	50.2			64.0			-21.6	%
Net interest margin without net investment (losses) gains																Net interest margin without net investment (losses) gains	25.0		19.4		28.9	%	70.0			50.2			39.4	%
Net interest margin - reinsured block	Net interest margin - reinsured block	(1.0)		(1.1)		9.1	%	(2.9)			(2.2)			-31.8	%	Net interest margin - reinsured block	(0.9)		(1.0)		10.0	%	(2.8)			(2.9)			3.4	%
Mortality loss and other reserve charges	Mortality loss and other reserve charges	1.3		0.9		44.4	%	4.1			2.7			51.9	%	Mortality loss and other reserve charges	0.9		1.3		-30.8	%	3.6			4.1			-12.2	%
Operating expenses	Operating expenses	15.1		16.7		-9.6	%	44.0			51.0			-13.7	%	Operating expenses	16.9		15.1		11.9	%	48.6			44.0			10.5	%
DAC and intangible asset amortization expense, excluding DAC unlocking	DAC and intangible asset amortization expense, excluding DAC unlocking	5.1		4.9		4.1	%	15.1			15.2			-0.7	%	DAC and intangible asset amortization expense, excluding DAC unlocking	5.3		5.1		3.9	%	15.8			15.1			4.6	%
DAC unlocking	DAC unlocking	(0.7)		—		N.M.		(1.3)			3.6			-136.1	%	DAC unlocking	(0.8)		(0.7)		-14.3	%	(1.8)			(1.3)			-38.5	%
Income (loss) before income taxes		8.9		7.0		27.1	%	19.0			(3.2)			N.M.
Net income (loss)		7.8		5.9		32.2	%	16.6			(6.9)			N.M.
Core earnings		7.8		5.9		32.2	%	16.6			21.1			-21.3	%
Income before income taxes																Income before income taxes	16.8		8.9		88.8	%	43.4			19.0			128.4	%
Net income																Net income	14.1		7.8		80.8	%	36.2			16.6			118.1	%
Core earnings*																Core earnings*	14.1		7.8		80.8	%	36.2			16.6			118.1	%
Operating Statistics:	Operating Statistics:															Operating Statistics:
Annuity contract deposits*
Net annuity contract deposits*																Net annuity contract deposits*
Variable	Variable	$	58.5	$	54.6	7.1	%	$	168.6		$	157.5		7.0	%	Variable	$	71.0	$	58.5	21.4	%	$	200.2		$	168.6		18.7	%
Fixed	Fixed	78.7		73.7		6.8	%	198.1			187.1			5.9	%	Fixed	50.4		60.2		-16.3	%	144.4			157.5			-8.3	%
Total	Total	137.2		128.3		6.9	%	366.7			344.6			6.4	%	Total	121.4		118.7		2.3	%	344.6			326.1			5.7	%
Single	Single	83.9		81.3		3.2	%	201.9			193.0			4.6	%	Single	75.8		68.3		11.0	%	196.6			170.4			15.4	%
Recurring	Recurring	53.3		47.0		13.4	%	164.8			151.6			8.7	%	Recurring	45.6		50.4		-9.5	%	148.0			155.7			-4.9	%
Total	Total	137.2		128.3		6.9	%	366.7			344.6			6.4	%	Total	121.4		118.7		2.3	%	344.6			326.1			5.7	%
Assets under administration (AUA)	Assets under administration (AUA)															Assets under administration (AUA)
Annuity assets under management (1)	Annuity assets under management (1)							4,508.7			4,215.9			6.9	%	Annuity assets under management(1)							5,246.9			4,508.7			16.4	%
Broker and advisory assets under administration	Broker and advisory assets under administration							2,124.3			2,259.4			-6.0	%	Broker and advisory assets under administration							2,499.5			2,124.3			17.7	%
Recordkeeping assets under administration	Recordkeeping assets under administration							1,399.6			1,422.4			-1.6	%	Recordkeeping assets under administration							1,606.3			1,399.6			14.8	%
Total	Total							8,032.6			7,897.7			1.7	%	Total							9,352.7			8,032.6			16.4	%
Persistency	Persistency															Persistency
Variable annuities	Variable annuities							94.8		%	94.7		%	0.1	pts	Variable annuities							94.7		%	94.8		%	-0.1	pts
Fixed annuities	Fixed annuities							94.5		%	93.9		%	0.6	pts	Fixed annuities							94.7		%	94.5		%	0.2	pts
Total	Total							94.6		%	94.2		%	0.4	pts	Total							94.7		%	94.6		%	0.1	pts
Annuity contracts in force (thousands)	Annuity contracts in force (thousands)							230			227			1.3	%	Annuity contracts in force (thousands)							229			230			-0.4	%
Fixed spread - YTD annualized (basis points)								188			198			-10	bps
Retirement Advantage® contracts in force (thousands)																Retirement Advantage® contracts in force (thousands)							14			12			16.7	%
Net interest spread on fixed annuities - YTD annualized (basis points)																Net interest spread on fixed annuities - YTD annualized (basis points)							272			188			84	bps

(1) Amounts reported as of September 30, ~~2020~~2021 and September 30, ~~2019~~2020 exclude ~~$660.1~~$820.2 million and ~~$673.1~~$660.1 million, respectively, of assets under management held under modified coinsurance ~~reinsurance~~reinsurance.

For the ~~three and~~ nine months ended September 30, ~~2020, total~~2021, net annuity contract ~~deposits* increased $8.9 million and $22.1 million, respectively. Variable annuity~~deposits for variable and fixed ~~annuity deposits~~annuities increased ~~$11.1 million and $11.0 million, respectively, for the nine months ended September 30, 2020 as~~$18.5 million. Our relationship with educators ~~continue to find value in~~often begins with our ~~Retirement~~403(b) retirement savings products, including our ~~competitively priced~~attractive annuity products, which provide encouraging cross-sell opportunities. Cash value persistency remained strong at 94.7% for both variable annuities ~~with no surrender charges.~~and fixed annuities.

At September 30, ~~2020,~~2021, annuity assets under management were ~~$292.8~~up $738.2 million, ~~above~~or 16.4%, compared to a year ago primarily due to ~~positive net inflows and~~ market appreciation. ~~Variable~~Assets under administration, which includes Retirement Advantage® and other advisory and recordkeeping assets were up $1.3 billion, or 16.4%, from a year ago, as assets under management ~~excluding amounts held under the modified coinsurance agreement, increased by $193.4 million~~also rose primarily due to ~~positive net inflows and~~strong market ~~appreciation.~~appreciation over the past 12 months. The ~~year to date~~year-to-date annualized net interest spread on fixed annuities, excluding reinsurance, ~~decreased 10~~increased 84 basis ~~points.~~points, primarily reflecting higher net investment income due to returns on limited partnership interests.


Horace Mann Educators Corporation			4237			Quarterly Report on Form 10-Q

We actively manage our interest rate risk exposure, considering a variety of factors, including earned interest rates, credited interest rates and the relationship between the expected durations of assets and liabilities. We estimate that over the next 12 months approximately ~~$490.4~~$529.1 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.

As a general guideline, for a 100 basis point decline in the average reinvestment rate and based on 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 ~~$1.9~~$2.0 million in year one and ~~$5.6~~$6.0 million in year two, further reducing the annualized net interest spread on fixed annuities by approximately 7 basis points and 1920 basis points in the respective periods, compared to the current period annualized net interest spread on fixed annuities. We could also consider potential changes in rates credited to policyholders, tempered by any restrictions on the ability to adjust policyholder rates due to 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 September 30, ~~2020~~2021 and assuming all other assumptions are met, a 10 basis point deviation in the current year targeted annualized net interest rate spread on the 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 in the second quarter of 2019, which reinsured the $2.2~~We reinsure a $2.4 billion block of in force fixed annuities with a minimum crediting rate of 4.5%, which 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)	($ in millions)	September 30, 2020										($ in millions)	September 30, 2021
						Deferred Annuities at
		Total Deferred Annuities				Minimum Guaranteed Rate							Total Deferred Annuities				Deferred Annuities at 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:	Minimum guaranteed interest rates:											Minimum guaranteed interest rates:
Less than 2%	Less than 2%	54.2	%	$	1,334.2	51.6	%	38.9	%	$	688.5	Less than 2%	55.2	%	$	1,393.1	62.7	%	44.6	%	$	873.0
Equal to 2% but less than 3%	Equal to 2% but less than 3%	11.7	%	287.5		83.3	%	13.5	%	239.6		Equal to 2% but less than 3%	11.3	%	285.5		83.5	%	12.2	%	238.3
Equal to 3% but less than 4%	Equal to 3% but less than 4%	25.1	%	619.0		99.9	%	35.0	%	618.5		Equal to 3% but less than 4%	24.8	%	627.1		99.9	%	32.0	%	626.8
Equal to 4% but less than 5%	Equal to 4% but less than 5%	6.9	%	170.9		100.0	%	9.7	%	170.9		Equal to 4% but less than 5%	6.7	%	169.4		100.0	%	8.6	%	169.4
5% or higher	5% or higher	2.1	%	50.6		100.0	%	2.9	%	50.6		5% or higher	2.0	%	50.0		100.0	%	2.6	%	50.0
Total	Total	100.0	%	$	2,462.2	71.8	%	100.0	%	$	1,768.1	Total	100.0	%	$	2,525.1	77.5	%	100.0	%	$	1,957.5

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~~2020 and other factors in this report.


Horace Mann Educators Corporation			4338			Quarterly Report on Form 10-Q

Life

~~Life~~

(All comparisons vs. same periods in ~~2019,~~2020, unless noted otherwise)

For the three and nine months ended September 30, ~~2020,~~2021, net income ~~and core earnings* decreased $0.8 million and $6.8 million, respectively, reflecting~~reflected the following factors:

~~Three months ended:~~•Higher net investment income driven by favorable returns on limited partnership interests

•Higher premiums and contract charges earned

•Higher mortality costs

~~Nine months ended:~~

•~~Lower net investment income and higher mortality costs (the volume of claims related to COVID-19 remains low, with face values averaging about $40,000)~~

For the three and nine months ended September 30, 2020, insurance premiums and contract deposits* decreased $0.8 million and $3.2 million, respectively, primarily due to a decline in sales* of single premiums. The ordinary life insurance in force lapse ratio was 4.3% for the 12 months ended September 30, 2020 compared to 4.5% for the 12 months ended September 30, 2019.

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

($ in millions, unless otherwise indicated) Three Months Ended
September 30, 2020-2019 Nine Months Ended
September 30, 2020-2019
2020 2019 Change 2020 2019 Change
Financial Data:
Insurance premiums and contract deposits* $ 26.9 $ 27.7 -2.9 % $ 79.3 $ 82.5 -3.9 %
Insurance premiums and contract charges earned 29.4 29.7 -1.0 % 88.0 90.0 -2.2 %
Net investment income 18.2 18.4 -1.1 % 49.4 54.8 -9.9 %
Benefits and settlement expenses 21.2 19.6 8.2 % 64.5 60.7 6.3 %
Interest credited 11.2 11.2 — % 33.7 33.7 — %
Operating expenses 8.4 8.9 -5.6 % 25.8 27.5 -6.2 %
DAC amortization expense, excluding unlocking 1.9 2.0 -5.0 % 5.8 6.1 -4.9 %
DAC unlocking (0.2) — N.M. (0.5) (0.1) N.M.
Income before income taxes 5.2 6.4 -18.8 % 8.2 17.1 -52.0 %
Net income / core earnings* 4.3 5.1 -15.7 % 6.8 13.6 -50.0 %
Operating Statistics:
Life insurance in force $ 19,681 $ 18,937 3.9 %
Number of policies in force (thousands) 201 202 -0.5 %
Average face amount in force (in dollars) $ 97,712 $ 93,944 4.0 %
Lapse ratio (ordinary life insurance in force) 4.3 % 4.5 % -0.2pts
Mortality costs $ 28.3 $ 26.4 7.2 %


($ in millions, unless otherwise indicated)	Three Months Ended September 30,				2021-2020		Nine Months Ended September 30,						2021-2020
	2021		2020		Change		2021			2020			Change
Financial Data:
Premiums written and contract deposits*	$	30.1	$	26.9	11.9	%	$	84.8		$	79.3		6.9	%
Premiums and contract charges earned	31.2		29.4		6.1	%	92.7			88.0			5.3	%
Net investment income	21.1		18.2		15.9	%	60.5			49.4			22.5	%
Benefits and settlement expenses	24.0		21.2		13.2	%	74.4			64.5			15.3	%
Interest credited	11.1		11.2		-0.9	%	33.5			33.7			-0.6	%
Operating expenses	9.3		8.4		10.7	%	26.8			25.8			3.9	%
DAC amortization expense, excluding unlocking	1.9		1.9		—	%	5.7			5.8			-1.7	%
DAC unlocking	—		(0.2)		100.0	%	—			(0.5)			100.0	%
Income before income taxes	6.1		5.2		17.3	%	13.1			8.2			59.8	%
Net income / core earnings*	5.1		4.3		18.6	%	10.8			6.8			58.8	%
Operating Statistics:
Life insurance in force							$	20,271		$	19,681		3.0	%
Number of policies in force (thousands)							199			201			-1.0	%
Average face amount in force (in dollars)							$	101,734		$	97,712		4.1	%
Lapse ratio (ordinary life insurance in force)							3.8		%	4.3		%	-0.5	pts
Mortality costs							$	33.4		$	28.3		18.0	%

For the three and nine months ended September 30, 2021, annualized sales* were unchanged on steady new sales of recurring policies and an increase in sales of single premium policies. Full-year persistency for life products of 96.2% remains in line with prior year periods. Mortality costs were elevated.


Horace Mann Educators Corporation			4439			Quarterly Report on Form 10-Q

Corporate and Other

(All comparisons vs. same periods in ~~2019,~~2020, unless noted otherwise)

The following table provides certain financial information for Corporate and Other for the periods indicated.

($ in millions) Three Months Ended
September 30, 2020-2019 Nine Months Ended
September 30, 2020-2019
2020 2019 Change % 2020 2019 Change %
Interest expense $ 3.4 $ 4.3 -20.9 % $ 11.3 $ 10.2 10.8 %
Net investment gains (losses) pretax 2.5 (2.1) N.M. (12.8) 151.6 N.M.
Tax on net investment gains (losses) 0.6 (0.5) N.M. (2.7) 32.7 N.M.
Net investment gains (losses) after tax 1.9 (1.6) N.M. (10.1) 118.9 N.M.
Net income (loss) (2.0) (6.7) 70.1 % (22.2) 103.5 -121.4 %
Core earnings (loss)* (3.9) (5.1) 23.5 % (12.1) (15.4) 21.4 %


($ in millions)	Three Months Ended September 30,				2021-2020		Nine Months Ended September 30,				2021-2020
	2021		2020		Change %		2021		2020		Change %
Interest expense	$	3.4	$	3.4	—	%	$	10.3	$	11.3	-8.8	%
Net investment (losses) gains pretax	(6.5)		2.5		N.M.		(10.6)		(12.8)		N.M.
Tax on net investment (losses) gains	(1.4)		0.6		N.M.		(2.3)		(2.7)		N.M.
Net investment (losses) gains after tax	(5.1)		1.9		N.M.		(8.3)		(10.1)		N.M.
Net loss	(9.6)		(2.0)		N.M.		(22.0)		(22.2)		0.9	%
Core earnings (loss)*	(4.5)		(3.9)		-15.4	%	(13.7)		(12.1)		-13.2	%

For the three months ended September 30, ~~2020,~~2021, the net ~~income~~loss increased primarily due to changes in net investment gains in the current period. For the nine months ended September 30, 2020, net income decreased primarily due to recognition of a $106.9 million after tax realized investment gain in the second quarter of 2019 with respect to the transfer of investments as consideration in connection with the annuity reinsurance transaction.(losses) gains.

Investment Results

(All comparisons vs. same periods in ~~2019,~~2020, unless noted otherwise)

($ in millions) Three Months Ended
September 30, 2020-2019 Nine Months Ended
September 30, 2020-2019
2020 2019 Change % 2020 2019 Change %
Net investment income - Investment portfolio $ 69.2 $ 69.2 — % $ 184.3 $ 232.3 -20.7 %
Investment income - Deposit asset on reinsurance 24.5 23.8 2.9 % 72.1 47.0 53.4 %
Total net investment income 93.7 93.0 0.8 % 256.4 279.3 -8.2 %
Pretax net investment gains (losses) 2.5 (2.1) 219.0 % (12.8) 151.6 -108.4 %
Pretax net unrealized investment gains on fixed maturity securities 496.2 386.1 28.5 %
Our investment strategy is primarily focused on generating income to support product liabilities, and balances principal protection and risk. Total net investment income includes net investment income from our investment portfolio as well as accreted investment income from the deposit asset on reinsurance related to our reinsured block of approximately $2.4 billion of fixed annuity liabilities related to legacy individual policies written in 2002 or earlier.


($ in millions)	Three Months Ended September 30,				2021-2020		Nine Months Ended September 30,				2021-2020
	2021		2020		Change %		2021		2020		Change %
Net investment income - investment portfolio	$	78.1	$	69.2	12.9	%	$	233.3	$	184.3	26.6	%
Investment income - deposit asset on reinsurance	25.6		24.5		4.5	%	75.1		72.1		4.2	%
Total net investment income	103.7		93.7		10.7	%	308.4		256.4		20.3	%
Pretax net investment (losses) gains	(6.5)		2.5		N.M.		(10.6)		(12.8)		N.M.
Pretax net unrealized investment gains on fixed maturity securities							466.4		496.2		-6.0	%

Excluding accreted investment income on the deposit asset on reinsurance, net investment income increased $8.9 million and $49.0 million for the three and nine months ended September 30, ~~2020, net investment income was flat for the three months and decreased $48.0 million for the nine months. The decline was~~2021, primarily due to ~~a $2.1 billion reduction in invested assets from investments transferred under the annuity reinsurance transaction in the second quarter of 2019 as well as lower than expected~~more favorable returns on limited partnership interests.

For the three and nine months ended September 30, ~~2020, the~~2021, pretax net investment ~~loss was primarily due to the change in fair value of equity securities as well as options that we use to hedge our fixed indexed annuity (FIA)~~losses increased $9.0 million and ~~indexed universal life (IUL) products somewhat offset by gains in the related derivatives embedded in FIA. Pretax~~pretax net investment ~~gains~~losses decreased $2.2 million, respectively. The increase in net investment losses for the ~~nine months ended September 30, 2019 reflected a realized investment gain~~current quarter is primarily attributable to recognition of ~~$135.3~~$6.6 million ~~recognized during the second quarter of 2019~~ in ~~connection with the transfer of investments related to the annuity reinsurance transaction.~~credit loss impairments. Pretax net unrealized investment gains on fixed maturity securities were ~~up $161.5~~down $90.3 million compared to December 31, ~~2019,~~2020, reflecting a ~~decline~~58 basis point increase in the 10-year U.S. Treasury yield ~~of 124 basis points~~ that more than offset ~~wider~~tighter credit spreads ~~for investment grade securities.~~across most asset classes.


Horace Mann Educators Corporation			4540			Quarterly Report on Form 10-Q

Fixed Maturity and Equity Securities Portfolios

The table below presents our fixed maturity and equity securities portfolios by major asset class, including the 10 largest sectors of our corporate bond holdings (based on fair value).


($ in millions)	($ in millions)	September 30, 2020							($ in millions)	September 30, 2021
		Number of Issuers	Fair Value		Amortized Cost or Cost		Pretax Net Unrealized Gain (Loss)			Number of Issuers	Fair Value		Amortized Cost, net		Pretax Net Unrealized Gain (Loss)
Fixed maturity securities	Fixed maturity securities								Fixed maturity securities
Corporate bonds	Corporate bonds								Corporate bonds
Banking & Finance	Banking & Finance	146	$	483.9	$	439.1	$	44.8	Banking & Finance	148	$	510.5	$	470.9	$	39.6
Energy(1)									Energy(1)	90	198.5		182.1		16.4
Insurance	Insurance	50	199.4		176.6		22.8		Insurance	54	197.1		173.3		23.8
Energy (1)		75	156.8		143.7		13.1
HealthCare,Pharmacy		76	147.7		134.0		13.7
Healthcare, Pharmacy									Healthcare, Pharmacy	94	182.6		168.6		14.0
Real Estate	Real Estate	35	120.5		112.8		7.7		Real Estate	45	139.6		132.9		6.7
Utilities									Utilities	73	139.6		128.6		11.0
Miscellaneous									Miscellaneous	39	133.8		132.7		1.1
Transportation	Transportation	45	98.9		92.9		6.0		Transportation	50	130.0		121.5		8.5
Food and Beverage									Food and Beverage	38	99.1		87.4		11.7
Technology	Technology	40	89.8		82.3		7.5		Technology	45	97.0		91.9		5.1
Utilities		57	87.5		75.0		12.5
Food and Beverage		30	72.4		61.3		11.1
Broadcasting & Media		26	61.6		52.0		9.6
All other corporates (2)	All other corporates (2)	324	465.0		432.7		32.3		All other corporates(2)	370	623.8		578.9		44.9
Total corporate bonds	Total corporate bonds	904	1,983.5		1,802.4		181.1		Total corporate bonds	1,046	2,451.6		2,268.8		182.8
Mortgage-backed securities	Mortgage-backed securities								Mortgage-backed securities
U.S. Government and federally sponsored agencies	U.S. Government and federally sponsored agencies	268	485.7		431.6		54.1		U.S. Government and federally sponsored agencies	264	487.2		452.6		34.6
Commercial (3)	Commercial (3)	126	351.8		317.5		34.3		Commercial(3)	134	318.5		292.4		26.1
Other	Other	41	59.5		59.6		(0.1)		Other	38	35.8		35.5		0.3
Municipal bonds (4)	Municipal bonds (4)	589	1,816.5		1,621.3		195.2		Municipal bonds(4)	608	1,775.5		1,592.5		183.0
Government bonds	Government bonds								Government bonds
U.S.	U.S.	36	384.1		341.7		42.4		U.S.	40	408.9		385.7		23.2
Foreign	Foreign	7	44.8		40.2		4.6		Foreign	7	44.0		40.2		3.8
Collateralized loan obligations (5)	Collateralized loan obligations (5)	141	663.2		671.7		(8.5)		Collateralized loan obligations(5)	183	687.8		683.6		4.2
Asset-backed securities	Asset-backed securities	112	379.4		386.3		(6.9)		Asset-backed securities	102	302.7		294.3		8.4
Total fixed maturity securities	Total fixed maturity securities	2,224	$	6,168.5	$	5,672.3	$	496.2	Total fixed maturity securities	2,422	$	6,512.0	$	6,045.6	$	466.4

Equity securities	Equity securities								Equity securities
Non-redeemable preferred stocks	Non-redeemable preferred stocks	17	$	74.1					Non-redeemable preferred stocks	28	$	121.3
Common stocks	Common stocks	95	6.9						Common stocks	93	8.9
Closed-end fund	Closed-end fund	1	21.3						Closed-end fund	1	22.1
Total equity securities	Total equity securities	113	$	102.3					Total equity securities	122	$	152.3

Total	Total	2,337	$	6,270.8					Total	2,544	$	6,664.3

(1)At September 30, ~~2020,~~2021, the fair value amount included ~~$10.6~~$381.9 million which were non-investment grade.

(2)The All other corporates category contains 1918 additional industry sectors. ~~Telecom, Retail, Consumer Products, Metal & Mining~~Broadcasting and ~~Misc.~~media, telecommunications, consumer products, industry manufacturing and metal and mining represented ~~$243.4~~$325.8 million of fair value at September 30, ~~2020,~~2021, with the remaining 1413 sectors each representing less than ~~$38.1~~$298.1 million.

(3)At September 30, ~~2020, 100%~~2021, 98.7% 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, ~~52.1%~~49.6% are tax-exempt and ~~77.3%~~76.8% 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 September 30, ~~2020.~~2021.

(5)Based on fair value, ~~95.7%~~91.9% of the collateralized loan obligation securities were rated investment grade by Standard and Poor's Global Inc. (S&P), Moody's Investors Service, Inc. (Moody's) and/or Fitch Ratings, Inc. (Fitch) at September 30, ~~2020.~~2021.


Horace Mann Educators Corporation			4641			Quarterly Report on Form 10-Q

At September 30, ~~2020,~~2021, our diversified fixed maturity securities portfolio consisted of ~~3,513~~3,819 investment positions, issued by ~~2,224~~2,422 entities, and totaled approximately ~~$6.2~~$6.5 billion in fair value. This portfolio was ~~92.1%~~86.4% investment grade, based on fair value, with an average quality rating of A+. Our investment guidelines target single corporate issuer concentrations to 0.5% of invested assets for AAA or AA rated securities, 0.35% of invested assets for A or BBB rated securities, and $5.0 million for non-investment grade securities.

~~Fixed Maturity Securities - COVID-19 Related Impacts~~

In late 2016, we determined the economy was approaching later stages of the credit cycle and began to upgrade portfolio quality. Over the past three years, recessionary expectations were extended due to the fiscal stimulus, which lengthened the credit cycle. In 2019, management determined that it had achieved its investment initiatives and the portfolio was well positioned for any dislocation in the markets.

That proactive effort to improve portfolio quality resulted in a significant reduction in BBB-rated corporate credit, high yield and below-investment-grade structured securities. During this same period, purchases focused on government agency and agency mortgage-backed securities and high quality corporate bonds and municipal securities. Today, that proactive flight to quality has the investment portfolio in all insurance subsidiaries well positioned for market disruptions with ample liquidity.

Further, we believe the investment portfolio is well positioned to withstand an extended period of elevated investment market volatility, and has relatively modest exposure to asset sectors that it expects to be most impacted by the public health response to COVID-19. While we expect other segments of the economy to be disrupted, we believe these effects will be most acute in the sectors listed below. These sectors have experienced more pronounced price dislocation due to their perceived exposure to COVID-19 related impacts. Exposure to these sectors totals 7.1% of the investment portfolio, and as of September 30, 2020, informed by extensive stress testing and portfolio review, management continues to hold the following securities:

($ in millions) September 30, 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 58 $ 121.7 $ 120.3 $ 1.4 BBB
Energy-related 88 157.5 141.1 16.4 BBB+
Retail 27 67.4 63.3 4.1 A
Aircraft 61 157.6 178.1 (20.5) BBB+
Total fixed maturity securities 234 $ 504.2 $ 502.8 $ 1.4 BBB+

~~(1)~~ Below investment grade and non-rated securities included in this population account for $86.5 million of amortized cost, $86.3 million of fair value, and $0.2 million of net unrealized investment losses. There are 108 issuers with an average rating of BB-. The majority of these securities are concentrated in the travel/leisure and retail sectors.


~~Horace Mann Educators Corporation~~			47			~~Quarterly Report on Form 10-Q~~

Rating of Fixed Maturity Securities and Equity Securities(1)

The following table presents the composition and fair value of our fixed maturity and equity securities portfolios by rating category. At September 30, ~~2020, 91.7%~~2021, 85.9% of these combined portfolios were investment grade, based on fair value, with an overall average quality rating of A+. We have classified the entire fixed maturity securities portfolio as available for sale, which is carried at fair value.


($ in millions)	($ in millions)	Percent of Portfolio								($ in millions)	Percent of Portfolio Fair Value				September 30, 2021
		Fair Value				September 30, 2020
		December 31, 2019		September 30, 2020		Fair Value		Amortized Cost			December 31, 2020		September 30, 2021		Fair Value		Amortized Cost, net
Fixed maturity securities	Fixed maturity securities									Fixed maturity securities
AAA	AAA	11.5	%	11.6	%	$	718.7	$	694.1	AAA	11.6	%	9.8	%	$	636.5	$	614.4
AA (2)	AA (2)	42.7		40.2		2,477.5		2,224.4		AA(2)	40.0	%	37.6	%	2,450.3		2,256.5
A	A	23.3		19.9		1,227.7		1,117.4		A	18.7	%	17.0	%	1,104.1		1,004.7
BBB	BBB	18.9		20.4		1,256.0		1,160.3		BBB	21.2	%	22.0	%	1,433.5		1,316.7
BB	BB	1.7		2.7		170.2		167.0		BB	2.4	%	2.9	%	185.6		176.3
B	B	0.4		0.9		54.4		54.4		B	1.1	%	1.3	%	86.5		85.2
CCC or lower	CCC or lower	—		0.1		4.2		4.9		CCC or lower	0.1	%	—	%	2.7		2.6
Not rated (3)	Not rated (3)	1.5		4.2		259.8		249.8		Not rated(3)	4.9	%	9.4	%	612.8		589.2
Total fixed maturity securities	Total fixed maturity securities	100.0	%	100.0	%	$	6,168.5	$	5,672.3	Total fixed maturity securities	100.0	%	100.0	%	$	6,512.0	$	6,045.6
Equity securities	Equity securities									Equity securities
AAA	AAA	—	%	—	%	$	—			AAA	—	%	—	%	$	—
AA	AA	—		—		—				AA	—	%	—	%	—
A	A	—		—		—				A	0.7	%	0.5	%	0.8
BBB	BBB	59.3		69.6		71.2				BBB	62.2	%	66.0	%	100.5
BB	BB	—		2.8		2.9				BB	10.9	%	12.5	%	19.0
B	B	—		—		—				B	—	%	—	%	—
CCC or lower	CCC or lower	—		—		—				CCC or lower	—	%	—	%	—
Not rated	Not rated	40.7		27.6		28.2				Not rated	26.2	%	21.0	%	32.0
Total equity securities	Total equity securities	100.0	%	100.0	%	$	102.3			Total equity securities	100.0	%	100.0	%	$	152.3

Total	Total					$	6,270.8			Total					$	6,664.3

(1)Ratings are as assigned primarily by S&P when available, with remaining ratings as assigned on an equivalent basis by Moody's or Fitch. Ratings for publicly traded securities are determined when the securities are acquired and are updated monthly to reflect any changes in ratings.

(2)At September 30, ~~2020,~~2021, the AA rated fair value amount included ~~$316.4~~$402.1 million of U.S. Government and federally sponsored agency securities and ~~$305.6~~$685.6 million of mortgage-backed and other asset-backed securities issued by U.S. Government and federally sponsored agencies.

(3)This category primarily represents private placement and municipal securities not rated by either S&P, Moody's or Fitch.

At September 30, ~~2020,~~2021, the fixed maturity securities portfolio had ~~$45.0~~$19.1 million of pretax gross unrealized investment losses on ~~$1,112.6~~$889.5 million of fair value related to ~~599~~530 positions. Of the investment positions with gross unrealized losses, there were 3414 trading below 80.0% of the carrying value at September 30, ~~2020.~~2021.

We view the pretax gross unrealized investment losses of all our fixed maturity securities at September 30, ~~2020~~2021 as temporary. Future changes in circumstances related to these and other securities could require subsequent recognition of ~~other-than-temporary impairment (OTTI).~~impairment.


Horace Mann Educators Corporation			42			Quarterly Report on Form 10-Q

Liquidity and ~~Financial~~Capital Resources

Off-Balance Sheet Arrangements

At September 30, ~~2020~~2021 and ~~2019,~~2020, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we engaged in such relationships.


~~Horace Mann Educators Corporation~~			48			~~Quarterly Report on Form 10-Q~~

Investments

Information regarding our investment portfolio, which is comprised primarily of investment grade fixed maturity securities, is presented in Part I - Item 1, Note 23 of the Consolidated Financial Statements as well as Part I - Item 2 - Investments Results in this report.

Cash Flow

Our short-term liquidity requirements, within a 12 month operating cycle, are for the timely payment of claims and benefits to policyholders, operating expenses, interest payments and federal income taxes. Cash flow generated from operations has been, and is expected to be, adequate to meet our operating cash needs in the next 12 months. Cash flow in excess of operational needs has been used to fund business growth, pay dividends to shareholders and repurchase shares of our common stock. Long-term liquidity requirements, beyond one year, are principally for the payment of future insurance and annuity policy claims and benefits, as well as retirement of debt. The following table summarizes our consolidated cash flows activity for the periods indicated.


($ in millions)	($ in millions)	Nine Months Ended September 30,				2020-2019		($ in millions)	Nine Months Ended September 30,				2021-2020
		2020		2019		Change %			2021		2020		Change %
Net cash provided by operating activities	Net cash provided by operating activities	$	267.8	$	207.2	29.2	%	Net cash provided by operating activities	$	178.1	$	267.8	-33.5	%
Net cash used in investing activities	Net cash used in investing activities	(368.8)		(65.6)		N.M.		Net cash used in investing activities	(351.0)		(368.8)		4.8	%
Net cash provided by (used in) financing activities		141.0		(114.2)		N.M.
Net cash provided by financing activities								Net cash provided by financing activities	190.8		141.0		35.3	%
Net increase in cash	Net increase in cash	40.0		27.4		46.0	%	Net increase in cash	17.9		40.0		-55.3	%
Cash at beginning of period	Cash at beginning of period	25.5		11.9		114.3	%	Cash at beginning of period	22.3		25.5		-12.5	%
Cash at end of period	Cash at end of period	$	65.5	$	39.3	66.7	%	Cash at end of period	$	40.2	$	65.5	-38.6	%

Operating Activities

As a holding company, we conduct our principal operations in the personal lines segment of the property and casualty, supplemental and life insurance industries through our subsidiaries. Our insurance subsidiaries generate cash flow from premium and investment income, generally well in excess of their immediate needs for policy obligations, operating expenses and other cash requirements. Cash provided by operating activities primarily reflects net cash flows generated by the insurance subsidiaries.

For the nine months ended September 30, ~~2020,~~2021, net cash provided by operating activities ~~increased $60.6~~decreased $89.7 million, primarily due to ~~lower~~higher claims paid on insurance policies ~~in the current year~~ partially offset by ~~lower~~higher investment income ~~collected in the current year as a result of a $2.1 billion reduction of invested assets from investments transferred under the annuity reinsurance transaction in the second quarter of 2019.~~collected.

Investing Activities

Our insurance subsidiaries maintain significant investments in fixed maturity securities to meet future contractual obligations to policyholders. In conjunction with our management of liquidity and other asset/liability management objectives, we, from time to time, will sell fixed maturity securities prior to maturity, and reinvest the proceeds into other investments with different interest rates, maturities or credit characteristics. Accordingly, we have classified the entire fixed maturity securities portfolio as available for sale.


Horace Mann Educators Corporation			43			Quarterly Report on Form 10-Q

Financing Activities

Financing activities include primarily payment of dividends, receipt and withdrawal of funds by annuity contractholders, changes in the deposit asset on reinsurance, issuances and repurchases of our common stock, fluctuations in book overdraft balances, and borrowings, repayments and repurchases related to debt facilities.

For the nine months ended September 30, 2021, net cash provided by financing activities increased $49.8 million compared to the prior year period, primarily due to a $242.0 million net increase in cash inflows from advances received under Federal Home Loan Bank of Chicago (FHLB) funding agreements partially offset by a $50.0 million principal repayment on FHLB borrowings.

The following table shows activity from FHLB funding agreements for the periods indicated.


($ in millions)	Nine Months Ended September 30,				2021-2020		2021-2020
	2021		2020		Change $		Change %
Balance at beginning of the period	$	590.5	$	495.0	$	95.5	19.3	%
Advances received from FHLB funding agreements	446.0		95.5		350.5		N.M.
Principal repayments on FHLB funding agreements	(204.0)		—		(204.0)		N.M.
Balance at end of the period	$	832.5	$	590.5	$	242.0	41.0	%


Horace Mann Educators Corporation			4944			Quarterly Report on Form 10-Q

~~Horace Mann Life Insurance Company (HMLIC)~~Liquidity Sources and ~~NTA (both subsidiaries~~Uses

Our potential sources and uses of ~~HMEC) operate under funding~~funds principally include the following activities:

Property and Casualty

Supplemental

Retirement

Life

Corporate and Other

Activities for potential sources of funds

Receipt of insurance premiums,

contractholder charges and fees

☑

Recurring service fees, commissions

and overrides

☑

Contractholder fund deposits

☑

Reinsurance and indemnification

program recoveries

☑

Receipts of principal, interest and

dividends on investments

☑

Sales of investments

☑

Funds from FHLB and line of credit

agreements

☑

Intercompany loans

☑

Capital contributions from parent

☑

Dividends or return of capital from

subsidiaries

☑

Tax refunds/settlements

☑

Funds from periodic issuance of

additional securities

☑

Proceeds from debt issuances

☑

Receipt of intercompany settlements

related to employee benefit plans

☑

Activities for potential uses of funds

Payment of claims and related

expenses

☑

Payment of contract benefits,

surrenders and withdrawals

☑

Reinsurance cessions and

indemnification program payments

☑

Operating costs and expenses

☑

Purchase of investments

☑

Repayment of FHLB and line of credit

agreements

☑

Payment or repayment of

intercompany loans

☑

Capital contributions to subsidiaries

☑

Dividends or return of capital to

shareholders/parent company

☑

Tax payments/settlements

☑

Common share repurchases

☑

Debt service expenses and

repayment

☑

Payments related to employee benefit

plans

☑

Payments for acquisitions

☑

We actively manage our financial position and liquidity levels in light of changing market, economic and business conditions. Liquidity is managed at both the entity and enterprise level across HMEC and is assessed on both base and stressed level liquidity needs. We believe we have sufficient liquidity to meet these needs. Additionally, we have existing intercompany agreements with FHLB. For the nine months ended September 30, 2020, HMLIC and NTA collectively received $95.5 million from FHLB under funding agreements and for the nine months ended September 30, 2019, HMLIC received an additional $175.0 million from FHLB under funding agreements as well as repaid FHLB $275.0 of principal. Receipt of these funds are reported in ~~Annuity Contracts: Variable, Fixed and FHLB Funding Agreements, Deposits in the Consolidated Statements of Cash Flows. Advances~~place that facilitate liquidity management across HMEC to ~~HMLIC and NTA from FHLB under funding agreements totaled $590.5 million as~~enhance flexibility.


Horace Mann Educators Corporation			45			Quarterly Report on Form 10-Q

As of September 30, ~~2020. For~~2021, we held $1.1 billion of cash, U.S. government and agency fixed maturity securities and public equity securities (excluding non-redeemable preferred stocks and foreign equity securities) which, under normal market conditions, could be rapidly liquidated.

Certain remote events and circumstances could constrain our liquidity. Those events and circumstances include, for example, a catastrophe resulting in extraordinary losses, a downgrade of our Senior Notes rating to non-investment grade status or a downgrade in our insurance subsidiaries' financial strength ratings. The rating agencies also consider the ~~nine months ended September 30, 2020, cash inflows from annuity contract deposits (excluding~~interdependence of our individually rated entities; therefore, a rating change in one entity could potentially affect the $95.5 million received from FHLB in the current year and the $175.0 million received from FHLB in the prior year) increased $22.1 million, or 6.4%, compared to the prior year period. Cash outflows from annuity contract benefits, withdrawals and net transfers to Separate Account (variable annuity) assets decreased $29.2 million, or 9.3%, compared to the prior year period.ratings of other related entities.

Capital Resources

We have determined the amount of capital ~~which~~that is needed to adequately fund and support business growth, primarily based on risk-based capital formulas, including those developed by the National Association of Insurance Commissioners. Historically, our insurance subsidiaries have generated capital in excess of such needed ~~capital.~~levels. These excess amounts have been paid to us through dividends. We have then utilized these dividends and our access to the capital markets to fund growth initiatives, service and retire debt, pay dividends to our shareholders, repurchase shares of our common stock and for other corporate purposes. If necessary, we also have other potential sources of liquidity that could provide for additional funding to meet corporate obligations or pay shareholder dividends, ~~which include~~including a revolving line of credit, as well as issuances of various securities.

The insurance subsidiaries are subject to various regulatory restrictions ~~which~~that limit the amount of annual dividends or other distributions, including loans or cash advances, available to us without prior approval of the insurance regulatory authorities. The aggregate amount of dividends that may be paid in ~~2020~~2021 from all of our insurance subsidiaries without prior regulatory approval is ~~$105.3~~$161.9 million, excluding the impact and timing of prior dividends, of which ~~$110.0~~$35.0 million was paid during the nine months ended September 30, ~~2020.~~2021. We anticipate that our sources of capital will continue to generate sufficient capital to meet the needs for business growth, debt interest payments, shareholder dividends and our share repurchase program. Additional information is contained in Part II - Item 8, Note 1413 of the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Total capital was ~~$2,152.9~~$2,185.0 million at September 30, ~~2020,~~2021, including ~~$437.2~~$388.6 million of short-term and long-term debt. Total debt represented ~~20.3%~~17.8% of total capital including net unrealized investment gains on fixed maturity securities ~~(24.0%~~(20.7% excluding net unrealized investment gains on fixed maturity securities*) at September 30, ~~2020,~~2021, which was below our long-term target of 25%.

Shareholders' equity was ~~$1,715.7~~$1,796.4 million at September 30, ~~2020,~~2021, including net unrealized investment gains on fixed maturity securities ~~in our investment portfolio~~ of ~~$328.2~~$306.9 million after taxes and the related impact of DAC associated with ~~investment~~annuity contracts and life insurance products with account values. The market value of our common stock and the market value per share were ~~$1,382.6~~$1,650.8 million and ~~$33.40,~~$39.79, respectively, at September 30, ~~2020.~~2021. Book value per share was ~~$41.45~~$43.30 at September 30, ~~2020~~2021 ($~~33.52~~35.90 excluding net unrealized investment gains on fixed maturity securities*).

Additional information regarding net unrealized investment gains on fixed maturity securities ~~in our investment portfolio~~ at September 30, ~~2020~~2021 is included in Part I - Item 1, Note 23 of the Consolidated Financial Statements as well as in Part I - Item 2 - Investment Results in this report.

Total shareholder dividends paid ~~were $37.2~~was $38.6 million for the nine months ended September 30, ~~2020.~~2021. In March, May, and September ~~2020,~~2021, the Board of Directors (Board) approved regular quarterly dividends of ~~$0.30~~$0.31 per share.

For the nine months ended September 30, ~~2020,~~2021, we repurchased ~~52,095~~44,685 shares of our common stock at an average price per share of ~~$41.17~~$38.26 under our share repurchase program, which is further described in Part II - Item 8, Note 1312 of the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. As of September 30, ~~2020, $20.6~~2021, $18.9 million remained authorized for future share repurchases under the share repurchase program.


Horace Mann Educators Corporation			5046			Quarterly Report on Form 10-Q

The following table summarizes our debt obligations.


($ in millions)	($ in millions)	Effective Interest Rates	Final Maturity							($ in millions)	Interest Rates	Final Maturity	September 30, 2021		December 31, 2020
				September 30, 2020			December 31, 2019
($ in millions)										($ in millions)	Interest Rates	Final Maturity	September 30, 2021		December 31, 2020
	Short-term debt
Bank Credit Facility	Bank Credit Facility	Variable	2024		$	135.0		$	135.0	Bank Credit Facility	Variable	2026	$	135.0	$	135.0
Long-term debt (1)	Long-term debt (1)									Long-term debt(1)
4.50% Senior Notes, Aggregate principal amount of $250,000 less unaccrued discount of $378 and $426 and unamortized debt issuance costs of $1,375 and $1,549		4.50%	2025		248.2			248.0
Federal Home Loan Bank borrowing		0.48%	2022		54.0			50.0
4.50% Senior Notes, Aggregate principal amount of $250.0 less unaccrued discount of $0.3 and $0.4 and unamortized debt issuance costs of $1.1 and $1.3										4.50% Senior Notes, Aggregate principal amount of $250.0 less unaccrued discount of $0.3 and $0.4 and unamortized debt issuance costs of $1.1 and $1.3	4.50%	2025	248.6		248.3
FHLB borrowings										FHLB borrowings	0.00%	2022	5.0		54.0
Total	Total				$	437.2		$	433.0	Total			$	388.6	$	437.3

(1) We designate debt obligations as "long-term" based on maturity date at issuance.

As of September 30, ~~2020,~~2021, we had outstanding $250.0 million aggregate principal amount of 4.50% Senior Notes (Senior Notes), which will mature on December 1, 2025, issued at a discount resulting in an effective yield of 4.53%. Interest on the Senior Notes is payable semi-annually at a rate of 4.50%. Detailed information regarding the redemption terms of the Senior Notes is contained in the Part II - Item 8, Note 109 of the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. The Senior Notes are traded in the open market (HMN 4.50).

As of September 30, ~~2020,~~2021, we had ~~$54.0~~$5.0 million of borrowings outstanding with FHLB. The Board has authorized a maximum amount equal to ~~15%~~25% of net aggregate admitted assets less separate account assets of the insurance subsidiaries for FHLB borrowing and funding ~~agreements. For the~~agreements which is below our maximum FHLB borrowing capacity. The total ~~$54.0~~$5.0 million received ~~$4.0 million~~ matures on May ~~17, 2021, $25.0 million matures on October 5,~~16, 2022 and ~~$25.0 million matures on December 2, 2022. Interest on the borrowings accrue at an annual weighted average rate of 0.48% as of September 30, 2020. The $54.0 million of FHLB borrowings~~ is reported as Long-term debt in the Consolidated Balance Sheets.

~~As of September 30, 2020, we had $135.0 million of short-term debt outstanding under our Bank Credit Facility. On June 21, 2019,~~Effective July 12, 2021, we, as borrower, ~~replaced~~amended our ~~current line of credit with a new five-year~~ Credit Agreement (Bank Credit Facility). The ~~new~~amended Bank Credit Facility increased the amount available on ~~this~~the senior revolving credit facility tofrom $225.0 million ~~from $150.0~~to $325.0 million. PNC ~~Capital Markets, LLC~~Bank, National Association and JPMorgan Chase Bank, N.A. ~~served~~serve as joint ~~leads on~~lead arrangers under the ~~new agreement,~~amended Bank Credit Facility, with The Northern Trust Company, KeyBank National Association, U.S. Bank National Association, ~~KeyBank~~Illinois National ~~Association,~~Bank, and Comerica Bank ~~and Illinois National Bank~~as lenders participating in the syndicate. Terms and conditions of the ~~new~~amended 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, we utilized~~We expect to utilize the senior revolving credit facility to ~~partially~~ fund a portion of the acquisition of ~~NTA.~~ Madison National, as well as to be available for ongoing working capital, capital expenditures and general corporate expenditures.

As of September 30, ~~2020,~~2021, the amount outstanding on the senior revolving credit facility was $135.0 million. The ~~$90.0~~$190.0 million unused portion of the Bank Credit Facility is available for use and subject to a variable commitment fee, which was 0.15% on an annual basis at September 30, ~~2020.~~2021.

To provide additional capital management flexibility, we filed a "universal shelf" registration statement on Form S-3 with the Securities and Exchange Commission (SEC) on March ~~13, 2018.~~10, 2021. The registration statement, which registered the offer and sale from time to time of an indeterminate amount of various securities, which may include debt securities, common stock, preferred stock, depositary shares, warrants, delayed delivery contracts and/or units that include any of these securities, was automatically effective on March ~~13, 2018.~~10, 2021. Unless withdrawn by us earlier, this registration statement will remain effective through March ~~13, 2021.~~10, 2024. No securities associated with the registration statement have been issued at the time of issuance of this Quarterly Report on Form 10-Q.

On March 13, 2018, we filed a "shelf" registration statement on Form S-4 with the SEC which became effective on May 2, 2018. Under this registration statement, we may from time to time offer and issue up to 5,000,000 shares of our common stock in connection with future acquisitions of other businesses, assets or securities. Unless withdrawn by us, this registration statement will remain effective indefinitely. No securities associated with the registration statement have been issued at the time of issuance of this Quarterly Report on Form 10-Q.


Horace Mann Educators Corporation			5147			Quarterly Report on Form 10-Q

~~COVID-19 Liquidity and Capital Resources Considerations~~

The various impacts of COVID-19 on the U.S. economy, our operations and our investment portfolio have been material. Nonetheless we believe that the liquidity available to our holding company and its operating subsidiaries remains adequate and we do not foresee a need to suspend ordinary dividends or seek additional sources of capital at this time. Our current forecast assumes a return to a normal operating environment within twelve months, and as such, capital and liquidity are expected to remain at or near target levels during that period.

Financial Ratings

Our principal insurance subsidiaries are rated by ~~A.M.~~AM Best Company, Inc. ~~(A.M.~~(AM Best), Fitch, Moody's and S&P. These rating agencies have also assigned ratings to our Senior Notes. The ratings that are assigned by these agencies, which are subject to change, can impact, among other things, our access to sources of capital, cost of capital, and competitive position. These ratings are not a recommendation to buy or hold any of our securities.

Following our July 14 announcement of the planned acquisition of Madison National, AM Best, Fitch and Moody's affirmed our ratings. Among other observations, the agencies noted that, following the close of the transaction, capitalization and leverage metrics are expected to remain in line with rating expectations and the addition of Madison National is expected to improve Horace Mann's value proposition for the education market and further diversify the business.

All four agencies currently have assigned ~~the same~~equivalent insurance financial strength ratings to our Property and Casualty and Life insurance subsidiaries. Only ~~A.M.~~AM Best currently rates our Supplemental segment's subsidiaries, and the firm upgraded those ratings on July 14 to align with those of our other subsidiaries. AM Best noted that the upgrade reflects NTA Life's balance sheet strength as well as the support it receives from the parent company and the full integration of their operations within Horace Mann. Assigned ratings and respective affirmation/review dates as of October 31, ~~2020~~2021 were as follows:

Insurance Financial

Affirmed/

Strength Ratings (Outlook)

Debt Ratings (Outlook)

Reviewed

~~A.M.~~AM Best

7/~~2/2020~~14/2021

HMEC (parent company)

N.A.

bbb

(stable)

HMEC's Life subsidiary

(stable)

N.A.

HMEC's Property and Casualty subsidiaries

(stable)

N.A.

HMEC's Supplemental subsidiaries

A-A

(stable)

N.A.

Fitch

(stable)

BBB

(stable)

9/~~22/2020~~14/2021

Moody's

(stable)

Baa2

(stable)

10/~~8/2020~~28/2021

S&P

(stable)

BBB

(stable)

2/~~19/2020~~18/2021

Reinsurance Programs

Information regarding the reinsurance programs for our Property and Casualty, Supplemental, Retirement and Life segments is located in Part II - Item 8, Note 95 and Note 8 of the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~

Effective April 1, 2019, we reinsured a block of approximately $2.9 billion of individual annuity policy liabilities to AA- S&P rated RGA Reinsurance Company, a subsidiary of Reinsurance Group of America, Incorporated (RGA). The block includes $2.2 billion of fixed annuities reinsured under coinsurance and $0.7 billion of variable annuities reinsured under modified coinsurance. RGA's financial obligations for the general account liabilities of the reinsured annuity contracts are secured by its assets placed in a comfort trust for our sole use and benefit. Upon RGA's material breach of the reinsurance agreement, deterioration of its risk-based capital ratio to a certain level, or certain other events, we may recapture the reinsured business.2020.

ITEM 3. I Quantitative and Qualitative Disclosures about Market Risk

Market value risk, our primary market risk exposure, is the risk that our invested assets will decrease in value. This decrease in value may be due to (1) a change in the yields realized on our assets and prevailing market yields for similar assets, (2) an unfavorable change in the liquidity of an investment, (3) an unfavorable change in the financial prospects of the issuer of an investment, or (4) a downgrade in the credit rating of the issuer of an investment. Also see Consolidated Results of Operations in Part I - Item 2 of this report regarding net investment gains (losses).


Horace Mann Educators Corporation			5248			Quarterly Report on Form 10-Q

Significant changes in interest rates expose us to the risk of experiencing losses or earning a reduced level of income based on the difference between the interest rates earned on our investments and the credited interest rates on our insurance and investment contract liabilities. Also see Consolidated Results of Operations in Part I - Item 2 of this report regarding interest credited to policyholders.

We seek to manage our market value risk by coordinating the projected cash inflows of assets with the projected cash outflows of liabilities. For all of our assets and liabilities, we seek to maintain reasonable durations, consistent with the maximization of income without sacrificing investment quality, while providing for liquidity and diversification. The investment risk associated with variable annuity deposits and the underlying mutual funds is assumed by those contractholders, and not by us. Certain fees that we earn from variable annuity deposits are based on the market value of the funds deposited.

More detailed descriptions of our exposure to market value risks and the management of those risks is contained in Part II - Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

ITEM 4. I Controls and Procedures

Management's Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 as amended (Exchange Act), as of September 30, ~~2020.~~2021. Based on this evaluation, the chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) that is required to be included in our periodic SEC filings. No material weaknesses in our disclosure controls and procedures were identified in the evaluation and therefore, no corrective actions were taken. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Horace Mann Educators Corporation			5349			Quarterly Report on Form 10-Q

PART II: OTHER INFORMATION

ITEM 1A. I Risk Factors

At the time of issuance of this Quarterly Report on Form 10-Q, we believe there are no material changes from the risk factors as previously disclosed in Part I - Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2019. However, the following risk factor has emerged as a result of events that occurred subsequent to year end.~~

~~Our business may be adversely affected by the recent COVID-19 outbreak.~~

The global pandemic caused by the novel coronavirus (COVID-19) was initially reported in December and has developed into a worldwide crisis over the subsequent months, causing significant human suffering and widespread economic damage. By early 2020, COVID-19 spread across the world and efforts to contain the disease intensified. The affects of the outbreak on the U.S. economy, our customers, our agents, our employees, our investments and our communities, as well as any preventative or protective actions that we, our employees and agency force, our third-party service providers and suppliers, or governments may take to mitigate the impact of COVID-19 could have an adverse effect on our ability to conduct business and on our financial condition and results of operations. Impacts to our business could be widespread and material impacts may result, including but not limited to, the following:

•~~employees contracting COVID-19;~~

•~~reductions in our operating effectiveness as our employees work from home;~~

•~~sustained lack of access to schools and teachers that could materially impact our sales and premium volumes;~~

•~~public school systems facing budget constraints due to the economic impacts of the pandemic that could result in educator layoffs;~~

•~~unprecedented volatility in financial markets that could materially affect our investment portfolio valuations and returns as well as our ability to generate targeted spreads on the indexed products;~~

•~~regulatory mandates and/or legislative changes, including premium grace periods and premium credits;~~

•~~changes in frequency and/or severity of claims;~~

•~~increased credit risk;~~

•~~business disruption for insurance agents who market and sell our insurance products; and~~

•~~business disruptions to third parties at which we outsource certain business functions to or on which we rely for technology.~~

Any resulting impact on our business, financial condition, and results of operations due to the foregoing cannot be reasonably estimated at this time, although the results may be felt for a significant period of time. The full extent to which COVID-19 could affect the global economy, the financial markets and our business, its financial condition and its results of operations will depend on future developments and factors that cannot be predicted.2020.

ITEM 2. I Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

On September 30, 2015, the Board authorized a share repurchase program allowing repurchases of up to $50.0 million of our common stock, par value $0.001 (Program). The Program authorizes the repurchase of our common stock in open market or privately negotiated transactions, from time to time, depending on market


~~Horace Mann Educators Corporation~~			54			~~Quarterly Report on Form 10-Q~~

conditions. The Program does not have an expiration date and may be limited or terminated at any time without notice. During the three months ended September 30, ~~2020,~~2021, we ~~did not repurchase~~repurchased shares of our common ~~stock. As of September 30, 2020, $20.6 million remained authorized for future share repurchases.~~stock under the Program as follows:


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased under the Program	Approximate Dollar Value of Shares that may yet be Purchased under the Program
July 1 - 31	5,000	$	36.88	5,000	$	18.9	million
August 1 - 31	—	—		—	$	18.9	million
September 1 - 30	—	—		—	$	18.9	million
Total	5,000	$	36.88	5,000	$	18.9	million

ITEM 5. I Other Information

Not applicable.

ITEM 6. I Exhibits

The following items are filed as Exhibits. Management contracts and compensatory plans are indicated by an asterisk (*).


Exhibit
No.						Description

(3) Articles of incorporation and bylaws:

3.1						Restated Certificate of Incorporation of HMEC, filed with the Delaware Secretary of State on June 24, 2003, incorporated by reference to Exhibit 3.1 to HMEC’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, filed with the Securities and Exchange Commission (the "SEC") on August 14, 2003.

3.2						Bylaws of HMEC, incorporated by reference to Exhibit 3.2 to HMEC’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, filed with the SEC on August 14, 2003.


Horace Mann Educators Corporation			50			Quarterly Report on Form 10-Q



(4) Instruments defining the rights of security holders, including indentures:

4.1						Indenture, dated as of November 23, 2015, by and between HMEC and The Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.1 to HMEC’s Current Report on Form 8-K dated November 18, 2015, filed with the SEC on November 23, 2015.

4.1(a)						Form of HMEC 4.500% Senior Notes due 2025, incorporated by reference to Exhibit 4.2 to HMEC’s Current Report on Form 8-K dated November 18, 2015, filed with the SEC on November 23, 2015.

4.2						Certificate of Designations for HMEC Series A Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 4.3 to HMEC’s Annual Report on Form 10-K for the year ended December 31, 2005, filed with the SEC on March 16, 2006.

4.3						Description of Securities, incorporated by reference to Exhibit 4.3 to HMEC's Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 2, 2020.

(10) Material contracts:

10.1						Credit Agreement dated as of June 21, 2019 among HMEC, certain financial institutions named therein and PNC Bank, N.A., as administrative agent, incorporated by reference to Exhibit 10.1 to HMEC’s Current Report on Form 8-K dated June 24, 2019, filed with the SEC on June 24, 2019.


~~Horace Mann Educators Corporation~~			55			~~Quarterly Report on Form 10-Q~~


10.1(a)						First Amendment to Credit Agreement dated as of June 21, 2019 among HMEC, certain financial institutions named therein and PNC Bank, N.A., as administrative agent, incorporated by reference to Exhibit 10.1(a) to HMEC's Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 2, 2020.

10.1(b)						Second Amendment to Credit Agreement dated as of July 12, 2021, among HMEC, as borrower, PNC Bank, National Association, as administrative agent, and certain lenders party thereto, incorporated by reference to Exhibit 10.1(b) to HMEC's Current Report on Form 8-K dated July 14, 2021, filed with the SEC on July 14, 2021.

10.2*						Horace Mann Educators Corporation Amended and Restated 2002 Incentive Compensation Plan ("2002 Incentive Compensation Plan"), incorporated by reference to Exhibit 10.2 to HMEC’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, filed with the SEC on August 9, 2005.

10.2(a)*						Revised Specimen Employee Stock Option Agreement under the 2002 Incentive Compensation Plan, incorporated by reference to Exhibit 10.6(b) to HMEC’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 2, 2009.

10.2(b)*						Specimen Employee Restricted Stock Unit Agreement under the 2002 Incentive Compensation Plan, incorporated by reference to Exhibit 10.6(d) to HMEC’s Annual Report on Form 10-K for the year ended December 31, 2005, filed with the SEC on March 16, 2006.

10.2(c)*						Revised Specimen Employee Restricted Stock Unit Agreement under the 2002 Incentive Compensation Plan, incorporated by reference to Exhibit 10.6(f) to HMEC’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 2, 2009.

10.2(d)*						Specimen Non-employee Director Restricted Stock Unit Agreement under the 2002 Incentive Compensation Plan, incorporated by reference to Exhibit 10.6(e) to HMEC’s Annual Report on Form 10-K for the year ended December 31, 2005, filed with the SEC on March 16, 2006.


Horace Mann Educators Corporation			51			Quarterly Report on Form 10-Q



10.2(e)*						Revised Specimen Non-employee Director Restricted Stock Unit Agreement under the 2002 Incentive Compensation Plan, incorporated by reference to Exhibit 10.6(h) to HMEC’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 2, 2009.

10.3*						~~First Amendment to the~~ HMEC 2010 Comprehensive Executive Compensation Plan (As Amended and Restated Effective ~~as of May 20, 2015)~~March 3, 2021), incorporated by reference to Exhibit ~~10.3~~1 (beginning on page 59) to ~~HMEC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017,~~HMEC’s Proxy Statement, filed with the SEC on ~~May 9, 2017.~~April 8, 2021.

10.3(a)*						HMEC 2010 Comprehensive Executive Compensation Plan (As Amended and Restated Effective May 20, 2015) (Section 16 Officer) Non-Qualified Stock Option Agreement - Employee Grantee, incorporated by reference to Exhibit 10.3(a) to HMEC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 9, 2017.

10.3(b)*						HMEC 2010 Comprehensive Executive Compensation Plan (As Amended and Restated Effective May 20, 2015) (Non-Section 16) Non-Qualified Stock Option Agreement - Employee Grantee, incorporated by reference to Exhibit 10.3(b) to HMEC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 9, 2017.

10.3(c)*						HMEC 2010 Comprehensive Executive Compensation Plan (As Amended and Restated Effective May 20, 2015) Service-Vested Restricted Stock Units Agreement - Employee Grantee, incorporated by reference to Exhibit 10.3(c) to HMEC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 9, 2017.

10.3(d)*						HMEC 2010 Comprehensive Executive Compensation Plan (As Amended and Restated Effective May 20, 2015) Performance-Based Restricted Stock Units Agreement - Employee Grantee, incorporated by reference to Exhibit 10.3(d) to HMEC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 9, 2017.


~~Horace Mann Educators Corporation~~			56			~~Quarterly Report on Form 10-Q~~

10.3(e)*

HMEC 2010 Comprehensive Executive Compensation Plan (As Amended and Restated Effective May 20, 2015) Service-Vested Restricted Stock Units Agreement - Employee Grantee (One-Time Grant Service), incorporated by reference to Exhibit 10.3(e) to HMEC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 9, 2017.

10.3(f)*

Specimen Employee Performance-Based Restricted Stock Units Agreement - Key Strategic Grantee under the HMEC 2010 Comprehensive Executive Compensation Plan incorporated by reference to Exhibit 10.3(e) to HMEC’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed with the SEC on May 6, 2016.

10.3(g)*

Specimen Non-employee Director Restricted Stock Unit Agreement under the HMEC 2010 Comprehensive Executive Compensation Plan, incorporated by reference to Exhibit 10.17(a) to HMEC’s Current Report on Form 8-K dated May 27, 2010, filed with the SEC on June 2, 2010.

10.4*

Horace Mann Supplemental Employee Retirement Plan, 2002 Restatement, incorporated by reference to Exhibit 10.1 to HMEC’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, filed with the SEC on May 15, 2002.

10.5*

Horace Mann Executive Supplemental Employee Retirement Plan, 2002 Restatement, incorporated by reference to Exhibit 10.2 to HMEC’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, filed with the SEC on May 15, 2002.

10.6*

Amended and Restated Horace Mann Nonqualified Supplemental Money Purchase Pension Plan, incorporated by reference to Exhibit 10.9 to HMEC’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 2, 2009.


Horace Mann Educators Corporation			52			Quarterly Report on Form 10-Q


10.7*						Summary of HMEC Non-employee Director Compensation, incorporated by reference to Exhibit 10.7 to HMEC's Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2020,~~2021, filed with the SEC on August ~~7, 2020.~~6, 2021.

10.8*						Summary of HMEC Named Executive Officer Annualized Salaries, incorporated by reference to Exhibit 10.8 to HMEC's Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2020,~~March 31, 2021, filed with the SEC on ~~August~~May 7, ~~2020.~~2021.

10.9*						Form of Severance Agreement between HMEC, Horace Mann Service Corporation ("HMSC") and certain officers of HMEC and/or HMSC, incorporated by reference to Exhibit 10.13 to HMEC’s Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on February 28, 2013.

10.10*						HMSC Executive Change in Control Plan, incorporated by reference to Exhibit 10.15 to HMEC’s Current Report on Form 8-K dated February 15, 2012, filed with the SEC on February 22, 2012.

10.10(a)*						HMSC Executive Change in Control Plan Schedule A Plan Participants, incorporated by reference to Exhibit 10.10(a) to HMEC's Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2020,~~March 31, 2021, filed with the SEC on ~~August~~May 7, ~~2020.~~2021.

10.11*						HMSC Executive Severance Plan, incorporated by reference to Exhibit 10.16 to HMEC’s Current Report on Form 8-K dated March 7, 2012, filed with the SEC on March 13, 2012.

10.11(a)*						First Amendment to the HMSC Executive Severance Plan, incorporated by reference to Exhibit 10.16(a) to HMEC’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, filed with the SEC on August 9, 2012.

10.11(b)*						HMSC Executive Severance Plan Schedule A Participants, incorporated by reference to Exhibit 10.11(b) to HMEC's Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2020,~~March 31, 2021, filed with the SEC on ~~August~~May 7, ~~2020.~~2021.


~~Horace Mann Educators Corporation~~			57			~~Quarterly Report on Form 10-Q~~



10.12						Stock Purchase Agreement Among Horace Mann Educators Corporation, and Robert Paglione, Paglione Family Irrevocable Trust F/B/O Adam Paglione, Paglione Family Irrevocable Trust F/B/O Lisa and Jorge Arroyo, Beau Adams and Benefit Consultants Group, Inc. dated as of October 30, 2018, incorporated by reference to Exhibit 10.12 to HMEC's Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 1, 2019.

10.13						Purchase Agreement By and Among Ellard Family Holdings, Inc., Brian M. Ellard, The JCE Exempt Trust and Horace Mann Educators Corporation dated as of December 10, 2018, incorporated by reference to Exhibit 10.13 to HMEC's Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 1, 2019.

10.14						~~Executive Transition~~Stock Purchase Agreement ~~between HMSC and Wade A. Rugenstein as of December 5, 2018, incorporated by reference to Exhibit 10.14 to HMEC's Annual Report on Form 10-K~~ for ~~the year ended December 31, 2019, filed with the SEC on March 2, 2020.~~Madison National Life

(11) Statement regarding computation of per share earnings.

(15) KPMG LLP letter regarding unaudited interim financial information.

(31) Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002:

31.1						Certification by Marita Zuraitis, Chief Executive Officer of HMEC.

31.2						Certification by Bret A. Conklin, Chief Financial Officer of HMEC.

(32) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002:


Horace Mann Educators Corporation			53			Quarterly Report on Form 10-Q



32.1						Certification by Marita Zuraitis, Chief Executive Officer of HMEC.

32.2						Certification by Bret A. Conklin, Chief Financial Officer of HMEC.

(99) Additional exhibits:

99.1						Glossary of Selected Terms.

(101) Interactive Data File:

101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH						XBRL Taxonomy Extension Schema

101.CAL						XBRL Taxonomy Extension Calculation Linkbase

101.DEF						XBRL Taxonomy Extension Definition Linkbase

101.LAB						XBRL Taxonomy Extension Label Linkbase

101.PRE						XBRL Taxonomy Extension Presentation Linkbase


Horace Mann Educators Corporation			5854			Quarterly Report on Form 10-Q

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		HORACE MANN EDUCATORS CORPORATION
		(Registrant)






Date	November ~~6, 2020~~5, 2021	/s/ Marita Zuraitis

		Marita Zuraitis
		President and Chief Executive Officer






Date	November ~~6, 2020~~5, 2021	/s/ Bret A. Conklin

		Bret A. Conklin
		Executive Vice President and
		Chief Financial Officer






Date	November ~~6, 2020~~5, 2021	/s/ Kimberly A. Johnson

		Kimberly A. Johnson
		Senior Vice President, Controller and
		Principal Accounting Officer


Horace Mann Educators Corporation			5955			Quarterly Report on Form 10-Q


($ in millions)	September 30, 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	58	$	121.7	$	120.3	$	1.4	BBB
Energy-related	88	157.5		141.1		16.4		BBB+
Retail	27	67.4		63.3		4.1		A
Aircraft	61	157.6		178.1		(20.5)		BBB+
Total fixed maturity securities	234	$	504.2	$	502.8	$	1.4	BBB+