UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


~~[X]~~	~~QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

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

For the quarterly period ended September 30, ~~2017~~2019


~~[ ]~~	~~TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

☐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, including Zip Code)

Registrant’s Telephone Number, Including Area Code: 217-789-2500

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 X ☑No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes X ☑No ☐

Indicate by check mark whether the ~~registrant’s~~registrant is a large accelerated filer, ~~status, as such terms are defined~~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	X☑	Accelerated filer		☐
Non-accelerated filer	☐	Smaller reporting company		☐
~~Emerging growth 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. ☐

I~~ndicate~~Indicate by check mark whether the registrant is a shell company as(as defined in Rule 12b-2 of the Exchange Act.

) Yes ☐No X ☑



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

As of October 31, ~~2017,~~2019, the registrant had ~~40,667,211~~41,219,737 shares of Common Stock, par value $0.001 per share, outstanding.

HORACE MANN EDUCATORS CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, ~~2017~~2019

INDEX



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, 2019 (Unaudited) and December, 31 2018	2

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)	3

	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)	4

	Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)	5

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 (Unaudited)	6

	Notes to Consolidated Financial Statements (Unaudited)
	Note 1 - Basis of Presentation	7
	Note 2 - ~~Investments~~Acquisitions	1211
	Note 3 - ~~Fair Value of Financial Instruments~~Investments	1713
	Note 4 - ~~Derivative~~Fair Value of Financial Instruments	2218
	Note 5 - ~~Property and Casualty Unpaid Claims and Claim Expenses~~Derivative Instruments	2423
	Note 6 - ~~Debt~~Deposit Asset on Reinsurance	25
	Note 7 - ~~Reinsurance~~Unpaid Claims and Claim Expenses	26
	Note 8 - ~~Commitments~~Debt	2627
	Note 9 - Reinsurance	28
	Note 10 - Commitments	28
	Note 11 - Segment Information	2729
	Note 12 - Operating Leases	30
	Note 13 - Supplemental Cash Flow Information	31
	Note 14 - Goodwill and Intangible Assets, net	31

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2834

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4657

Item 4.	Controls and Procedures	4657

PART II - OTHER INFORMATION

Item 1A.	Risk Factors	4658

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4860

Item 5.	Other Information	4861

Item 6.	Exhibits	4961

SIGNATURES		5365

PART I: FINANCIAL INFORMATION

1. Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

~~The~~To the Shareholders and Board of Directors ~~and Shareholders~~

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, ~~2017,~~2019, the related consolidated statements of operations, ~~and~~ comprehensive income (loss) and changes in shareholders' equity for the ~~three~~three-month and nine-month periods ended September 30, ~~2017~~2019 and ~~2016, and the related consolidated statements of changes in shareholders�� equity,~~2018, and cash flows for the nine-month periods ended September 30, ~~2017~~2019 and ~~2016. These~~2018, and the related notes (collectively, the consolidated interim financial ~~statements~~information). Based on our reviews, we are not aware of any material modifications that should be made to the ~~responsibility of the Company’s management.~~consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We ~~conducted our review~~have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the consolidated balance sheet of the Company as of December 31, 2018, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 1, 2019, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2018, 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 ~~Public Company Accounting Oversight Board (United States),~~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.

Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them 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), the consolidated balance sheet of Horace Mann Educators Corporation and subsidiaries as of December 31, 2016, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 1, 2017, we expressed an unqualified opinion on those consolidated financial statements.



/s/ KPMG LLP
KPMG LLP

Chicago, Illinois
November 8, ~~2017~~2019

HORACE MANN EDUCATORS CORPORATION

CONSOLIDATED BALANCE SHEETS

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

September 30, 2017 December 31, 2016
(Unaudited)
ASSETS
Investments
Fixed maturity securities, available for sale, at fair value
(amortized cost 2017, $7,194,397; 2016, $7,152,127)
$ 7,630,634
$ 7,456,708
Equity securities, available for sale, at fair value
(cost 2017, $140,200; 2016, $134,013)
159,275
141,649
Short-term and other investments 547,227
401,015
Total investments 8,337,136
7,999,372
Cash 6,692
16,670
Deferred policy acquisition costs 257,214
267,580
Goodwill 47,396
47,396
Other assets 344,443
321,874
Separate Account (variable annuity) assets 2,051,467
1,923,932
Total assets $ 11,044,348
$ 10,576,824

LIABILITIES AND SHAREHOLDERS’ EQUITY
Policy liabilities
Investment contract and life policy reserves $ 5,540,045
$ 5,447,969
Unpaid claims and claim expenses 341,784
329,888
Unearned premiums 262,029
246,274
Total policy liabilities 6,143,858
6,024,131
Other policyholder funds 717,369
708,950
Other liabilities 493,810
378,620
Long-term debt 247,403
247,209
Separate Account (variable annuity) liabilities 2,051,467
1,923,932
Total liabilities 9,653,907
9,282,842
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, 2017, 65,382,877; 2016, 64,917,683
65
65
Additional paid-in capital 462,068
453,479
Retained earnings 1,165,282
1,155,732
Accumulated other comprehensive income (loss), net of taxes:
Net unrealized investment gains on fixed maturity
and equity securities
255,718
175,738
Net funded status of benefit plans (11,817 ) (11,817 )
Treasury stock, at cost, 2017, 24,721,372 shares;
2016, 24,672,932 shares
(480,875 ) (479,215 )
Total shareholders’ equity 1,390,441
1,293,982
Total liabilities and shareholders’ equity $ 11,044,348
$ 10,576,824

~~See Notes to Consolidated Financial Statements.~~

~~HORACE MANN EDUCATORS CORPORATION~~

~~CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)~~

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

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016

Revenues

Insurance premiums and contract charges earned $ 198,935
$ 191,050
$ 590,375
$ 564,860
Net investment income 92,320
94,847
275,025
270,685
Net realized investment gains (losses) (3,486 ) 3,985
(1,656 ) 6,911
Other income 2,048
1,294
4,813
3,581

Total revenues 289,817
291,176
868,557
846,037

Benefits, losses and expenses

Benefits, claims and settlement expenses 134,895
135,710
444,870
403,631
Interest credited 50,078
48,658
148,200
142,924
Policy acquisition expenses amortized 24,210
24,474
73,904
73,113
Operating expenses 44,172
44,337
139,156
130,478
Interest expense 2,978
2,975
8,879
8,858

Total benefits, losses and expenses 256,333
256,154
815,009
759,004

Income before income taxes 33,484
35,022
53,548
87,033
Income tax expense 6,933
8,099
9,418
23,091

Net income $ 26,551
$ 26,923
$ 44,130
$ 63,942

Net income per share

Basic $ 0.64
$ 0.66
$ 1.07
$ 1.55
Diluted $ 0.64
$ 0.65
$ 1.06
$ 1.55

Weighted average number of common and
common equivalent shares (in thousands)

Basic 41,433
41,092
41,337
41,155
Diluted 41,575
41,347
41,467
41,386

Net realized investment gains (losses)
Total other-than-temporary impairment losses
on securities
$ (6,091 ) $ (160 ) $ (12,452 ) $ (7,686 )
Portion of losses recognized in other
comprehensive income
—
—
—
(290 )
Net other-than-temporary impairment losses
on securities recognized in earnings
(6,091 ) (160 ) (12,452 ) (7,396 )
Realized investment gains, net 2,605
4,145
10,796
14,307
Total $ (3,486 ) $ 3,985
$ (1,656 ) $ 6,911



	September 30, 2019			December 31, 2018
	(Unaudited)
ASSETS
Investments
Fixed maturity securities, available for sale, at fair value (amortized cost 2019, $5,453,433; 2018, $7,373,911)	$	5,839,560		$	7,515,318
Equity securities, at fair value	105,483			111,750
Limited partnership interests	354,611			328,516
Short-term and other investments	433,336			295,093
Total investments	6,732,990			8,250,677
Cash	39,349			11,906
Deferred policy acquisition costs	269,215			298,742
Deposit asset on reinsurance	2,342,305			—
Intangible assets, net	181,145			—
Goodwill	48,744			47,396
Other assets	410,663			422,047
Separate Account (variable annuity) assets	2,308,134			2,001,128
Total assets	$	12,332,545		$	11,031,896

LIABILITIES AND SHAREHOLDERS’ EQUITY
Policy liabilities
Investment contract and policy reserves	$	6,207,888		$	5,711,193
Unpaid claims and claim expenses	412,272			396,714
Unearned premiums	285,215			276,225
Total policy liabilities	6,905,375			6,384,132
Other policyholder funds	672,845			767,988
Other liabilities	434,626			290,358
Short-term debt	135,000			—
Long-term debt	297,953			297,740
Separate Account (variable annuity) liabilities	2,308,134			2,001,128
Total liabilities	10,753,933			9,741,346
Preferred stock, $0.001 par value, authorized 1,000,000 shares; none issued	—			—
Common stock, $0.001 par value, authorized 75,000,000 shares; issued, 2019, 66,063,569; 2018, 65,820,369	66			66
Additional paid-in capital	478,650			475,109
Retained earnings	1,331,663			1,216,582
Accumulated other comprehensive income (loss), net of tax:
Net unrealized investment gains on fixed maturity securities	266,381			96,941
Net funded status of benefit plans	(12,185		)	(12,185		)
Treasury stock, at cost, 2019, 24,850,484 shares; 2018, 24,850,484 shares	(485,963		)	(485,963		)
Total shareholders’ equity	1,578,612			1,290,550
Total liabilities and shareholders’ equity	$	12,332,545		$	11,031,896

See Notes to Consolidated Financial Statements.

HORACE MANN EDUCATORS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

($ in thousands, except per share data)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenues
Insurance premiums and contract charges earned	$	239,681		$	206,820		$	657,562		$	615,428
Net investment income	93,071			99,083			279,329			288,048
Net investment gains (losses)	(2,156		)	2,803			151,594			1,884
Other income	3,822			2,612			10,624			7,704

Total revenues	334,418			311,318			1,099,109			913,064

Benefits, losses and expenses
Benefits, claims and settlement expenses	154,191			161,846			446,267			473,686
Interest credited	53,576			52,124			160,092			153,229
Operating expenses	61,414			50,989			169,637			149,376
DAC unlocking and amortization expense	26,344			26,066			82,965			79,357
Intangible asset amortization expense	3,781			—			4,863			—
Interest expense	4,608			3,253			11,223			9,717
Other expense - goodwill impairment	—			—			28,025			—

Total benefits, losses and expenses	303,914			294,278			903,072			865,365

Income before income taxes	30,504			17,040			196,037			47,699
Income tax expense	5,050			4,512			44,595			9,099

Net income	$	25,454		$	12,528		$	151,442		$	38,600

Net income per share
Basic	$	0.61		$	0.30		$	3.63		$	0.93
Diluted	$	0.60		$	0.30		$	3.61		$	0.93

Weighted average number of shares and equivalent shares
Basic	41,785			41,683			41,715			41,586
Diluted	42,030			41,850			41,911			41,727

Net investment gains (losses)
Total other-than-temporary impairment losses on securities	$	(5	)	$	(70	)	$	(276	)	$	(1,357	)
Portion of losses recognized in other comprehensive income (loss)	—			—			—			—
Net other-than-temporary impairment losses on securities recognized in earnings	(5		)	(70		)	(276		)	(1,357		)
Sales and other, net	608			(1,331		)	147,513			2,661
Change in fair value - equity securities	1,081			2,000			8,029			(4,342		)
Change in fair value and gains realized on settlements - derivatives	(3,840		)	2,204			(3,672		)	4,922
Total	$	(2,156	)	$	2,803		$	151,594		$	1,884

See Notes to Consolidated Financial Statements.

HORACE MANN EDUCATORS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

($ in thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Comprehensive income

Net income $ 26,551
$ 26,923
$ 44,130
$ 63,942
Other comprehensive income, net of taxes:

Change in net unrealized investment gains
on fixed maturity and equity securities
12,208
7,638
79,980
162,124
Change in net funded status of benefit plans —
—
—
—
Other comprehensive income 12,208
7,638
79,980
162,124
Total $ 38,759
$ 34,561
$ 124,110
$ 226,066



	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019		2018
Comprehensive income (loss)
Net income	$	25,454	$	12,528		$	151,442	$	38,600
Other comprehensive income (loss), net of tax:
Change in net unrealized investment gains (losses) on fixed maturity securities	63,304		(49,638		)	169,440		(209,178		)
Change in net funded status of benefit plans	—		—			—		—
Cumulative effect of change in accounting principle	—		—			—		(15,041		)
Other comprehensive income (loss)	63,304		(49,638		)	169,440		(224,219		)
Total	$	88,758	$	(37,110	)	$	320,882	$	(185,619	)

See Notes to Consolidated Financial Statements.

HORACE MANN EDUCATORS CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

($ in thousands, except per share data)


	Nine Months Ended September 30,
	2017			2016			Three Months Ended September 30,						Nine Months Ended September 30,
							2019			2018			2019			2018
Common stock, $0.001 par value
Beginning balance	$	65		$	65		$	66		$	66		$	66		$	65
Options exercised, 2017, 156,211 shares; 2016, 114,507 shares	—			—
Conversion of common stock units, 2017, 15,981 shares; 2016, 15,629 shares	—			—
Conversion of restricted stock units, 2017, 293,002 shares; 2016, 188,207 shares	—			—
Options exercised							—			—			—			—
Conversion of common stock units							—			—			—			—
Conversion of restricted stock units							—			—			—			1
Ending balance	65			65			66			66			66			66

Additional paid-in capital
Beginning balance	453,479			442,648			476,353			470,652			475,109			464,246
Options exercised and conversion of common stock units and restricted stock units	2,773			2,045			447			1,003			(1,314		)	3,262
Share-based compensation expense	5,816			6,066			1,850			1,941			4,855			6,088
Ending balance	462,068			450,759			478,650			473,596			478,650			473,596

Retained earnings
Beginning balance	1,155,732			1,116,277			1,318,329			1,248,305			1,216,582			1,231,177
Net income	44,130			63,942			25,454			12,528			151,442			38,600
Cash dividends, 2017, $0.825 per share; 2016, $0.795 per share	(34,580		)	(33,241		)
Dividends, 2019, $0.2875, $0.8625 per share; 2018, $0.2850, $0.8550 per share							(12,120		)	(12,019		)	(36,361		)	(36,004		)
Cumulative effect of change in accounting principle							—			—			—			15,041
Ending balance	1,165,282			1,146,978			1,331,663			1,248,814			1,331,663			1,248,814

Accumulated other comprehensive income, net of taxes
Accumulated other comprehensive income (loss), net of tax:
Beginning balance	163,921			163,373			190,892			112,379			84,756			286,960
Change in net unrealized investment gains on fixed maturity and equity securities	79,980			162,124
Change in net unrealized investment gains (losses) on fixed maturity securities							63,304			(49,638		)	169,440			(209,178		)
Change in net funded status of benefit plans	—			—			—			—			—			—
Cumulative effect of change in accounting principle							—			—			—			(15,041		)
Ending balance	243,901			325,497			254,196			62,741			254,196			62,741

Treasury stock, at cost
Beginning balance, 2017, 24,672,932 shares; 2016, 23,971,522 shares	(479,215		)	(457,702		)
Acquisition of shares, 2017, 48,440 shares; 2016, 701,410 shares	(1,660		)	(21,513		)
Ending balance, 2017, 24,721,372 shares; 2016, 24,672,932 shares	(480,875		)	(479,215		)
Beginning balance							(485,963		)	(480,961		)	(485,963		)	(480,875		)
Acquisition of shares							—			—			—			(86		)
Ending balance							(485,963		)	(480,961		)	(485,963		)	(480,961		)

Shareholders’ equity at end of period	$	1,390,441		$	1,444,084
Shareholders' equity at end of period							$	1,578,612		$	1,304,256		$	1,578,612		$	1,304,256

See Notes to Consolidated Financial Statements.

HORACE MANN EDUCATORS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

($ in thousands)

Nine Months Ended September 30,
2017 2016
Cash flows - operating activities
Premiums collected $ 598,882
$ 557,816
Policyholder benefits paid (410,241 ) (422,184 )
Policy acquisition and other operating expenses paid (208,248 ) (207,825 )
Federal income taxes paid (10,061 ) (18,156 )
Investment income collected 271,717
259,373
Interest expense paid (5,821 ) (6,072 )
Other 976
1,884

Net cash provided by operating activities 237,204
164,836

Cash flows - investing activities

Fixed maturity securities

Purchases (1,041,744 ) (1,097,880 )
Sales 315,531
351,739
Maturities, paydowns, calls and redemptions 691,169
634,686
Purchase of other invested assets (98,109 ) (42,578 )
Net cash used in equity securities, short-term
and other investments
(54,281 ) (75,665 )

Net cash used in investing activities (187,434 ) (229,698 )

Cash flows - financing activities

Dividends paid to shareholders (34,580 ) (33,241 )
Acquisition of treasury stock (1,661 ) (21,513 )
Proceeds from exercise of stock options 3,815
2,361
Withholding tax payments on RSUs tendered (2,745 ) (3,321 )
Annuity contracts: variable, fixed and FHLB funding agreements

Deposits 348,900
391,944
Benefits, withdrawals and net transfers to
Separate Account (variable annuity) assets
(295,064 ) (240,489 )
Transfer of Company 401(k) assets to a third-party provider (77,898 ) —
Life policy accounts
Deposits 3,357
2,957
Withdrawals and surrenders (3,340 ) (3,151 )
Change in bank overdrafts (532 ) 7,422

Net cash (used in) provided by financing activities (59,748 ) 102,969

Net (decrease) increase in cash (9,978 ) 38,107

Cash at beginning of period 16,670
15,509

Cash at end of period $ 6,692
$ 53,616



	Nine Months Ended September 30,
	2019			2018
Cash flows - operating activities
Premiums collected	$	674,170		$	598,443
Policyholder benefits paid	(404,086		)	(419,736		)
Policy acquisition and other operating expenses paid	(253,101		)	(218,464		)
Income taxes paid	(12,696		)	(8,719		)
Investment income collected	204,186			277,178
Interest expense paid	(6,948		)	(6,537		)
Other	5,711			(4,691		)
Net cash provided by operating activities	207,236			217,474

Cash flows - investing activities
Fixed maturity securities
Purchases	(845,967		)	(1,044,002		)
Sales	651,058			360,246
Maturities, paydowns, calls and redemptions	645,946			577,425
Equity securities
Purchases	(10,510		)	(8,578		)
Sales and repayments	20,989			8,493
Limited partnership interests
Purchases	(42,388		)	(84,444		)
Sales	36,108			11,754
Change in short-term and other investments, net	(99,702		)	(4,700		)
Acquisition of businesses, net of cash acquired	(421,174		)	—
Net cash used in investing activities	(65,640		)	(183,806		)

Cash flows - financing activities
Dividends paid to shareholders	(35,477		)	(35,016		)
Principal borrowings on Bank Credit Facility	135,000			—
Acquisition of treasury stock	—			(86		)
Proceeds from exercise of stock options	1,105			3,191
Withholding tax payments on RSUs tendered	(3,560		)	(2,190		)
Annuity contracts: variable, fixed and FHLB funding agreements
Deposits	519,636			326,003
Benefits, withdrawals and net transfers to Separate Account (variable annuity) assets	(313,653		)	(333,473		)
Principal repayment on FHLB funding agreements	(275,000		)	—
Life policy accounts
Deposits	7,143			5,618
Withdrawals and surrenders	(2,682		)	(3,766		)
Change in deposit asset on reinsurance, net	(130,740		)	—
Change in book overdrafts	(15,925		)	4,855
Net cash used in financing activities	(114,153		)	(34,864		)

Net increase (decrease) in cash	27,443			(1,196		)

Cash at beginning of period	11,906			7,627

Cash at end of period	$	39,349		$	6,431

See Notes to Consolidated Financial Statements.

HORACE MANN EDUCATORS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, ~~2017~~2019 and ~~2016~~2018

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

Note 1 - Basis of Presentation

The accompanying unaudited consolidated financial statements of Horace Mann Educators Corporation ~~(“HMEC”;~~(HMEC; and together with its subsidiaries, the ~~“Company”~~Company or ~~“Horace Mann”)~~Horace Mann) have been prepared in ~~accordance~~conformity with ~~United States (“U.S.”)~~accounting principles generally accepted ~~accounting principles (“GAAP”)~~in the U.S. (GAAP) and with the rules and regulations of the Securities and Exchange Commission ~~(“SEC”), specifically Regulation S-X and the instructions to Form 10-Q.~~(SEC). Certain information and disclosures normally included in annual financial statements prepared in ~~accordance~~conformity with GAAP, but are not required for interim reporting purposes, have been omitted. The Company believes that these consolidated financial statements contain all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to present fairly the ~~Company’s~~Company's consolidated financial position as of September 30, ~~2017,~~2019, the consolidated results of operations, ~~and~~ comprehensive income (loss) and changes in shareholders’ equity for the three and nine month periods ended September 30, ~~2017~~2019 and ~~2016, and the consolidated changes in shareholders’ equity~~2018 and cash flows for the nine month periods ended September 30, ~~2017~~2019 and ~~2016.~~2018. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect ~~(1)~~ the reported amounts of assets and liabilities, ~~(2)~~ disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and ~~(3)~~ the reported amounts of revenues and expenses during the reporting period. Actual results could differ from ~~those~~these estimates.

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

As described more fully in Note 2, the Company acquired NTA on July 1, 2019. As a result, the Company’s reporting segments have changed effective in the third quarter of 2019. A new reporting segment titled "Supplemental" was added to report on the personal lines of supplemental insurance products (primarily heart, cancer, accident and limited supplemental disability coverages) that are marketed and underwritten by NTA.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes to consolidated financial statements included in Item 8 of the ~~Company’s~~Company's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

The results of operations for the three and nine month periods ended September 30, ~~2017~~2019 are not necessarily indicative of the results to be expected for the full year.

The Company has reclassified the presentation of certain prior period information to conform to the ~~2017~~current presentation. ~~See “Adopted Accounting Standards”.~~

~~Investment Contract and Life Policy Reserves~~

~~This table summarizes the Company’s investment contract and life policy reserves.~~

($ in thousands) September 30, 2017 December 31, 2016

Investment contract reserves $ 4,428,989
$ 4,360,456
Life policy reserves 1,111,056
1,087,513
Total $ 5,540,045
$ 5,447,969

Note 1 - Basis of Presentation (Continued)

Cash

Cash reported on the Consolidated Balance Sheet at September 30, 2019 includes restricted cash in the amount of $672 thousand, representing funds held in segregated accounts for insurance premiums to be remitted to insurance companies on behalf of the Company’s customers or for the purpose of reimbursement to cafeteria plan participants.

Investment Contract and Policy Reserves

The following table summarizes investment contract and policy reserves.



($ in thousands)	September 30, 2019		December 31, 2018
Investment contract reserves	$	4,658,148	$	4,555,856
Policy reserves	1,549,740		1,155,337
Total	$	6,207,888	$	5,711,193

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) (AOCI) represents the accumulated change in shareholders’ equity from transactions and other events and circumstances from non-shareholder sources. For the Company, ~~accumulated other comprehensive income (loss)~~AOCI includes the after tax change in net unrealized investment gains ~~and losses~~(losses) on fixed maturity ~~and equity~~ securities and the after tax change in net funded status of benefit plans for the ~~period~~periods as shown in the Consolidated ~~Statement~~Statements of Changes in Shareholders’ Equity. The following tables reconcile these components.

($ in thousands) Net Unrealized Investment Gains and Losses on Fixed Maturity and Equity Securities (1)(2) Benefit Plans (1) Total (1)

Beginning balance, July 1, 2017 $ 243,510
$ (11,817 ) $ 231,693
Other comprehensive income (loss)
before reclassifications
9,786
—
9,786
Amounts reclassified from accumulated
other comprehensive income (loss)
2,422
—
2,422
Net current period other
comprehensive income
12,208
—
12,208
Ending balance, September 30, 2017 $ 255,718
$ (11,817 ) $ 243,901

Beginning balance, January 1, 2017 $ 175,738
$ (11,817 ) $ 163,921
Other comprehensive income (loss)
before reclassifications
78,419
—
78,419
Amounts reclassified from accumulated
other comprehensive income (loss)
1,561
—
1,561
Net current period other
comprehensive income
79,980
—
79,980
Ending balance, September 30, 2017 $ 255,718
$ (11,817 ) $ 243,901



($ in thousands)	Net Unrealized Investment Gains (Losses) on Fixed Maturity 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			—			64,577
Amounts reclassified from AOCI	(1,273		)	—			(1,273		)
Net current period other comprehensive income (loss)	63,304			—			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			—			292,043
Amounts reclassified from AOCI	(122,603		)	—			(122,603		)
Net current period other comprehensive income (loss)	169,440			—			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 ~~accumulated other comprehensive income (loss), $(3,726)~~AOCI, $1,612 thousand and ~~$(2,401)~~$155,194 thousand, are included in net ~~realized~~ investment gains ~~and losses~~(losses) and the related income tax ~~expense, $(1,304)~~expenses, $339 thousand and ~~$(840)~~$32,591 thousand, are included in income tax expense in the Consolidated Statements of Operations for the three and nine month periods ended September 30, ~~2017,~~2019, respectively.

Note 1 - Basis of Presentation (Continued)

($ in thousands) Net Unrealized Investment Gains and Losses on Fixed Maturity and Equity Securities (1)(2) Benefit Plans (1) Total (1)

Beginning balance, July 1, 2016 $ 329,653
$ (11,794 ) $ 317,859
Other comprehensive income (loss)
before reclassifications
9,912
—
9,912
Amounts reclassified from accumulated
other comprehensive income (loss)
(2,274 ) —
(2,274 )
Net current period other
comprehensive income
7,638
—
7,638
Ending balance, September 30, 2016 $ 337,291
$ (11,794 ) $ 325,497

Beginning balance, January 1, 2016 $ 175,167
$ (11,794 ) $ 163,373
Other comprehensive income (loss)
before reclassifications
167,692
—
167,692
Amounts reclassified from accumulated
other comprehensive income (loss)
(5,568 ) —
(5,568 )
Net current period other
comprehensive income
162,124
—
162,124
Ending balance, September 30, 2016 $ 337,291
$ (11,794 ) $ 325,497



($ in thousands)	Net Unrealized Investment Gains (Losses) on Fixed Maturity Securities ⁽¹⁾⁽²⁾			Net Funded Status of Benefit Plans ⁽¹⁾			Total⁽¹⁾
Beginning balance, July 1, 2018,	$	125,596		$	(13,217	)	$	112,379
Other comprehensive income (loss) before reclassifications	(49,165		)	—			(49,165		)
Amounts reclassified from AOCI	(473		)	—			(473		)
Net current period other comprehensive income (loss)	(49,638		)	—			(49,638		)
Ending balance, September 30, 2018	$	75,958		$	(13,217	)	$	62,741

Beginning balance, January 1, 2018	$	300,177		$	(13,217	)	$	286,960
Other comprehensive income (loss) before reclassifications	(211,577		)	—			(211,577		)
Amounts reclassified from AOCI	2,399			—			2,399
Cumulative effect of change in accounting principle ⁽³⁾	(15,041		)	—			(15,041		)
Net current period other comprehensive income (loss)	(224,219		)	—			(224,219		)
Ending balance, September 30, 2018	$	75,958		$	(13,217	)	$	62,741

______________


⁽¹⁾	All amounts are net of tax.

⁽²⁾

The pretax amounts reclassified from ~~accumulated other comprehensive income (loss), $3,499~~AOCI, $599 thousand and ~~$8,566~~$(3,037) thousand, are included in ~~net realized~~Net investment gains ~~and losses~~(losses) and the related income tax ~~expense, $1,225~~expenses, $126 thousand and ~~$2,998~~$(638) thousand, are included in ~~income~~Income tax expense in the Consolidated Statements of Operations for the three and nine month periods ended September 30, ~~2016,~~2018, respectively.


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

Comparative information for elements that are not required to be reclassified in their entirety to net income in the same reporting period is ~~located~~disclosed in ~~“Note 2 -- Investments -- Net Unrealized Investment Gains and Losses on Fixed Maturity and Equity Securities”.~~Note 3.

Adopted Accounting Standards

~~Employee Share-based Payment~~ Accounting for Leases

Effective ~~January 1, 2017,~~for the quarter ended March 31, 2019, the Company adopted ~~new accounting~~ guidance for ~~employee share-based~~leases and elected to utilize a cumulative-effect adjustment to the opening balance of retained earnings. Accordingly, the Company’s reporting for the comparative periods prior to adoption continues to be presented in the financial statements in accordance with previous lease accounting guidance. The Company elected to apply all practical expedients in the guidance for transition for leases in effect at adoption, including using hindsight to determine the lease term of existing leases, the option to not reassess whether an existing contract is a lease or contains a lease and whether the lease is an operating or finance lease. The adoption of the guidance resulted in the Company recognizing an initial $14,499 thousand lease liability equal to the present value of lease payments and an initial $13,908 thousand right-of-use (ROU) asset, which ~~simplifies several aspects~~is the corresponding lease liability adjusted for qualifying accrued lease payments. The lease liability and ROU asset are reported in Other liabilities and Other assets on the Consolidated Balance Sheets. The impact of these changes at adoption had no impact on net income or shareholders' equity.

Simplifying the Test for Goodwill Impairment

Effective for the quarter ended June 30, 2019, the Company adopted guidance to simplify the accounting for ~~share-based payment transactions, including the income tax consequences, classification~~goodwill impairment. Adoption of ~~awards as either equity or liabilities, and classification on the statement of cash flows. The recognition and classification~~this guidance removed Step 2 of the ~~excess tax benefit provisions were applied prospectively in~~goodwill impairment test, which required a hypothetical purchase price allocation. Goodwill impairment is now the ~~results~~amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of operations. This adoption resulted in additional excess tax benefits of $2,864 thousand which reduced the current provision for income taxes in the results of operations. The statutory tax withholding classification, which are cash payments made to taxing authorities for withheld taxes funded through tendered shares, were applied retrospectively and the Company reclassified the statutory tax withholding requirements in the statement of cash flows from Other in operating activities to Withholding tax payments on RSUs tendered in financing activities. This statutory withholding reclassification resulted in $2,745 thousand and $3,321 thousand being included in financing activities for the nine month periods ended September 30, 2017 and 2016, respectively. There were no cumulative effect adjustments upon adoption of the new accounting guidance.goodwill.

Note 1 - Basis of Presentation (Continued)

Pending Accounting Standards

~~Revenue Recognition~~

In May 2014, the Financial Accounting Standards Board (“FASB”) issued accounting guidance to provide a single comprehensive model in accounting for revenue arising from contracts with customers. The guidance applies to all contracts with customers; however, insurance contracts are specifically excluded from this updated guidance. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those years. Early adoption is permitted only for annual reporting periods beginning after December 15, 2016. The Company plans to adopt the guidance as of January 1, 2018. Insurance contract revenue continues to fall under the scope of ASC 944, Financial Services - Insurance, and ASC 605, Revenue Recognition. The Company performed an evaluation of the non-insurance contract revenue that would be subject to ASC 606, Revenue from Contracts with Customers, and concluded that there is not a material impact to the consolidated financial statements upon adoption on January 1, 2018.

~~Recognition and Measurement of Financial Assets and Liabilities~~

In January 2016, the FASB issued accounting guidance to improve certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. Among other things, the guidance revises the accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The Company’s results of operations will be impacted as changes in fair value of equity securities will be reported in net income instead of reported in other comprehensive income. The effective date of the guidance is for interim and annual reporting periods beginning after December 15, 2017. The guidance has not yet been adopted. Had the Company adopted the guidance on September 30, 2017, $15,718 thousand of after-tax unrealized gains on equity securities would have been reclassified from accumulated other comprehensive income to retained earnings. The actual amount reclassified upon adoption will vary depending on the future changes in fair value of the Company's equity portfolio.

~~Statement of Cash Flows -- Classification~~

In August 2016, the FASB issued guidance to reduce diversity in practice in the statement of cash flows between operating, investing and financing activities related to the classification of cash receipts and cash payments for eight specific issues. The FASB acknowledged that current GAAP either is unclear or does not include specific guidance on these eight cash flow classification issues: (1) debt prepayment or extinguishment costs; (2) settlement of zero-coupon bonds (pertains to issuers); (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims (pertains to claimants); (5) proceeds from the settlement of corporate-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions (pertains to transferors) and (8) separately identifiable cash flows and application of the predominance principle. For public business entities, the guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those years, using a retrospective approach. The guidance allows prospective adoption for individual issues if it is impracticable to apply the amendments retrospectively for those issues. Early application is permitted. Management believes the adoption of this accounting guidance will not have a material effect on the classifications in the Company’s consolidated statement of cash flows. The adoption of this accounting guidance will not have any effect on the results of operations or financial position of the Company.

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

~~Accounting for Leases~~

In February 2016, the FASB issued accounting and disclosure guidance to improve financial reporting and comparability among organizations about leasing transactions. Under the new guidance, for leases with lease terms of more than 12 months, a lessee will be required to recognize assets and liabilities on the balance sheet for the rights and obligations created by those leases. Consistent with current accounting guidance, the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or an operating lease. However, while current guidance requires only capital leases to be recognized on the balance sheet, the new guidance will require both operating and capital leases to be recognized on the balance sheet. In transition to the new guidance, companies are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those years. Early application is permitted. Management is evaluating the impact this guidance will have on the results of operations and financial position of the Company.

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued guidance to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments, including reinsurance receivables, held by companies. The new guidance replaces the incurred loss impairment methodology for financial instruments other than available for sale debt securities and requires an organization to measure and recognize all current expected credit losses ~~(“CECL”)~~(CECL) for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Companies will need to utilize forward-looking information to better ~~inform~~estimate their credit ~~loss estimates.~~losses. Companies will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. ~~Credit~~Any credit losses related to available for sale debt securities ~~-- which represent over 90% of Horace Mann’s total investment portfolio --~~ will be recorded through an allowance for credit losses with this allowance having a limit equal to the amount by which fair value is below amortized cost. The guidance also requires enhanced qualitative and quantitative disclosures to provide additional information about the amounts recorded in the financial statements.

This guidance is effective for annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted beginning after December 15, 2018. Upon adoption, the guidance will be applied using the modified-retrospective approach, by which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The guidance will have the most impact on the Company's available for sale fixed maturity securities portfolio. However, as the Company's fixed maturity securities portfolio is weighted towards higher rated bonds (96.7% investment grade, based on fair value, with an average quality rating of A+ at September 30, 2019), the Company does not expect that the effect of adoption will be material.

Accounting for Long-Duration Insurance Contracts

In August 2018, the FASB issued accounting and disclosure guidance that contains targeted improvements to the accounting for long-duration insurance contracts. Under the new guidance, the cash flow assumptions used to measure the liability for future policy benefits for traditional insurance contracts will be required to be updated at least annually with changes recognized as a benefit expense (i.e., assumptions will no longer be locked-in). Insurance entities will be required to use a standard discount rate to measure the liabilities that will be equivalent to the yield from a high-quality bond. The new guidance also changes the amortization of deferred acquisition costs (DAC) to be on a constant-level basis over the expected term of the related contracts with no interest accruing on the DAC balance. The new guidance also introduces a new category of contract features associated with deposit type contracts referred to as market risk benefits (MRBs). Contract features meeting the definition of a MRB will be measured at fair value. New disclosures will be required for long-duration insurance contracts in order to provide better transparency into the exposure of insurance entities and the drivers of their results. For public business entities, ~~that are SEC filers,~~ the guidance is effective for annual reporting periods beginning after December 15, ~~2019,~~2021, including interim periods within those ~~years, using a modified-retrospective approach.~~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 ~~application~~adoption is ~~permitted for annual reporting periods, and interim periods within those years, beginning after December 15, 2018.~~permitted. Management is evaluating the impact this guidance will have on the results of operations and financial position of the Company.

~~Simplifying~~

Note 2 - Acquisitions

On January 2, 2019, the ~~Test~~Company completed its acquisition of all the equity interests in Benefit Consultants Group, Inc. (BCG) for ~~Goodwill Impairment~~

~~In January 2017, the FASB issued guidance~~a total purchase consideration of $25 million. BCG provides advisory and benefit plan record keeping services. BCG's results are reported in Retirement. The acquisition of BCG gave rise to ~~simplify the accounting for~~recognition of intangible assets of $16.2 million and goodwill ~~impairment. The guidance removes Step 2~~of $10.1 million as a result of the ~~goodwill impairment test, which requires a hypothetical~~ purchase ~~price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not~~accounting. The intangible assets that are amortizable have lives of 10 to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary.16 years. See Note 14 for further information. The ~~same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the~~ amount of goodwill that is expected to be deductible for reporting units with zero or negative carrying amounts. Public business entities should adopt the guidance prospectively for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early applicationfederal income tax purposes is ~~permitted. Management believes the adoption of this accounting guidance will not have a material effect on how it tests goodwill for impairment.~~$10.1 million.

On July 1, 2019, the Company acquired all the equity interests in NTA pursuant to a Purchase Agreement (Agreement) dated as of December 10, 2018. The purchase price of the transaction was $425 million which includes $20 million representing NTA’s share of "adjusted earnings" (as determined in accordance with the terms of the Agreement) from July 1, 2018 to July 1, 2019. The purchase price adjustment is subject to finalization within 135 days of the acquisition date pursuant to the terms of the Agreement. As a result of the acquisition, NTA became a wholly owned subsidiary of the Company. NTA provides supplemental insurance products (primarily heart, cancer, accident and limited supplemental disability coverages) primarily within the public sector for which approximately 80% are individuals employed by educational institutions, with the remainder employed in state and local governments and emergency services facilities. NTA's results are being reported in a newly created reporting segment titled "Supplemental".

The Company has not yet completed the process of estimating the fair value of NTA assets acquired and liabilities assumed, including, but not limited to, intangible assets, policy reserves, certain tax-related balances and certain investments. Accordingly, the Company’s preliminary estimates and the allocation of the purchase price to the assets acquired and liabilities assumed are subject to change as the Company completes the process. In accordance with Accounting Standards Codification (ASC) 805, Business Combinations, changes if any, to the preliminary estimates and allocation of the purchase price will be reported in the Company’s financial statements as an adjustment to the opening balance sheet. Based on the Company’s preliminary allocation of the purchase price, the fair values of the assets acquired and liabilities assumed were as follows:



($ in millions)
Assets:
Investments	$	542.6
Cash and short-term investments	73.8
Intangible assets ⁽¹⁾	169.8
Other assets	18.3
Liabilities:
Policy reserves	366.8
Policy claims	21.8
Unearned premiums	4.1
Other liabilities	5.5
Total identifiable net assets acquired	406.3
Goodwill ⁽²⁾	19.3
Purchase price	$	425.6

_____________


⁽¹⁾	Intangible assets consist of the value of business acquired, value of distribution acquired, agency relationships, trade names and state licenses. The intangible assets that are amortizable have estimated lives of 14 to 35 years. See Note 14 for further information.


⁽²⁾	The amount of goodwill that is expected to be deductible for federal income tax purposes is $17.9 million.

Note 2 - Acquisitions (Continued)

The following unaudited pro forma information presents the Company's results of operations as if the acquisition of NTA occurred on January 1, 2018. The adjustments to arrive at the unaudited pro forma information below includes, among other things, adjustments for lost investment income on the cash used to fund the acquisition, amortization of an estimated fair value adjustment on NTA's policy reserves, amortization of acquired intangible assets, interest expense on debt incurred to finance the acquisition and exclusion of certain transaction costs attributable to the acquisition as such costs are considered non-recurring.



($ in thousands, except per share data)	Unaudited
	Nine Months Ended September 30,		Year Ended December 31,
	2019		2018
Total revenues	$	1,175,977	$	1,339,896
Total expenses	967,352		1,288,690
Income before income taxes	208,625		51,206
Net income	$	161,463	$	43,373

Net income per share: ⁽¹⁾
Basic	$	3.87	$	1.04
Diluted	$	3.85	$	1.04

___________


⁽¹⁾	The unaudited pro forma basic and diluted net income per share calculations are based on the Company's historical basic and diluted weighted average number of shares outstanding for the nine months ended September 30, 2019 and the year ended December 31, 2018.

The unaudited pro forma financial information is not necessarily indicative of the consolidated results of operations that might been achieved had the transaction in fact occurred at the beginning of the periods presented, nor does the information project results for any future period. The unaudited pro forma information does not include the impact of any future cost savings or synergies that may be achieved as a result of the acquisition.

Note 23 - Investments

The Company’s investment portfolio includes free-standing derivative financial instruments (currently over the counter (“OTC”) index call option contracts) to economically hedge risk associated with its fixed indexed annuity (“FIA”) and indexed universal life (“IUL”) products’ contingent liabilities. The Company’s FIA and IUL products include embedded derivative features that are discussed in “Note 1 -- Summary of Significant Accounting Policies -- Investment Contract and Life Policy Reserves -- Reserves for Fixed Indexed Annuities and Indexed Universal Life Policies” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The Company’s investment portfolio included no other free-standing derivative financial instruments (futures, forwards, swaps, option contracts or other financial instruments with similar characteristics), and there were no other embedded derivative features related to the Company’s investment or insurance products during the nine month periods ended September 30, 2017 and 2016.

~~Note 2 - Investments (Continued)~~

Maturity Securities

~~Fixed Maturity and Equity Securities~~

The ~~Company’s~~Company's investment portfolio is comprised primarily of fixed maturity ~~securities and also includes equity~~ securities. ~~The amortized~~Amortized cost, ~~or cost,~~net unrealized investment gains (losses) and ~~losses,~~ fair values ~~and other-than-temporary impairment (“OTTI”) included in accumulated other comprehensive income (“AOCI”)~~ of all fixed maturity ~~and equity~~ securities in the portfolio were as follows:


($ in thousands)	Amortized Cost or Cost		Unrealized Investment Gains		Unrealized Investment Losses		Fair Value		OTTI in AOCI (1)		Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
September 30, 2017
September 30, 2019
Fixed maturity securities
U.S. Government and federally sponsored agency obligations (2):
U.S. Government and federally sponsored agency obligations:⁽¹⁾
Mortgage-backed securities	$	613,761	$	34,712	$	3,071	$	645,402	$	—	$	698,794	$	55,868	$	307	$	754,355
Other, including U.S. Treasury securities	653,237		24,705		6,922		671,020		—		430,149		28,161		135		458,175
Municipal bonds	1,669,273		177,359		4,428		1,842,204		—		1,511,967		164,811		356		1,676,422
Foreign government bonds	93,761		6,416		—		100,177		—		45,301		2,616		2		47,915
Corporate bonds	2,635,313		190,548		4,158		2,821,703		—		1,465,217		121,861		1,970		1,585,108
Other mortgage-backed securities	1,529,052		26,879		5,803		1,550,128		1,335		1,302,005		23,465		7,885		1,317,585
Totals	$	7,194,397	$	460,619	$	24,382	$	7,630,634	$	1,335	$	5,453,433	$	396,782	$	10,655	$	5,839,560

Equity securities (3)	$	140,200	$	20,483	$	1,408	$	159,275	$	—

December 31, 2016
December 31, 2018
Fixed maturity securities
U.S. Government and federally sponsored agency obligations (2):
U.S. Government and federally sponsored agency obligations:⁽¹⁾
Mortgage-backed securities	$	587,355	$	34,256	$	6,720	$	614,891	$	—	$	778,038	$	22,724	$	13,321	$	787,441
Other, including U.S. Treasury securities	458,745		18,518		10,120		467,143		—		835,096		16,127		17,681		833,542
Municipal bonds	1,648,252		143,733		22,588		1,769,397		—		1,884,313		133,150		13,494		2,003,969
Foreign government bonds	93,864		5,102		297		98,669		—		83,343		2,321		760		84,904
Corporate bonds	2,672,818		152,229		14,826		2,810,221		—		2,054,105		64,296		38,891		2,079,510
Other mortgage-backed securities	1,691,093		21,153		15,859		1,696,387		1,618		1,739,016		10,467		23,531		1,725,952
Totals	$	7,152,127	$	374,991	$	70,410	$	7,456,708	$	1,618	$	7,373,911	$	249,085	$	107,678	$	7,515,318

Equity securities (3)	$	134,013	$	13,210	$	5,574	$	141,649	$	—

______________

⁽¹⁾

Related to securities for which an unrealized loss was bifurcated to distinguish the credit-related portion and the portion driven by other market factors. Represents the amount of OTTI losses in AOCI which was not included in earnings; amounts also include net unrealized investment gains and losses on such impaired securities relating to changes in the fair value of those securities subsequent to the impairment measurement date.

~~(2)~~

Fair value includes securities issued by Federal National Mortgage Association ~~(“FNMA”)~~(FNMA) of ~~$332,057~~$429,676 thousand and ~~$272,668~~$441,308 thousand; Federal Home Loan Mortgage Corporation ~~(“FHLMC”)~~(FHLMC) of ~~$373,676~~$290,964 thousand and ~~$378,683~~$417,308 thousand; and Government National Mortgage Association ~~(“GNMA”)~~(GNMA) of ~~$109,873~~$154,226 thousand and ~~$115,627~~$96,466 thousand as of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively.


~~(3)~~	~~Includes nonredeemable perpetual preferred stocks, common stocks and closed-end funds.~~

Note 23 - Investments (Continued)

The following table presents the fair value and gross unrealized losses of ~~fixed maturity and equity~~ securities in an unrealized loss position at September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively. The Company views the decrease in fair value of all of the securities with unrealized losses at September 30, ~~2017~~2019 -- which was driven largely by ~~changes in~~increasing interest rates, spread widening, financial market illiquidity and/or market volatility from the date of acquisition -- as temporary. ~~For fixed maturity securities, management does~~As of September 30, 2019, the Company has not ~~have~~made the ~~intent~~decision to sell ~~the securities~~ and it is not more likely than not the Company will be required to sell ~~the~~fixed maturity securities with unrealized losses before ~~the anticipated~~ recovery of the amortized cost ~~bases, and management expects to recover~~basis. Therefore, it was determined that the ~~entire amortized cost bases of the fixed maturity securities. For equity securities, the Company has the ability and intent to hold~~unrealized losses on the securities ~~for~~presented in the ~~recovery~~table below were not other-than-temporarily impaired as of ~~cost and recovery of cost is expected within a reasonable period of time.~~

September 30, 2019.

($ in thousands) 12 Months or Less More than 12 Months Total
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
September 30, 2017
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities $ 111,456
$ 2,213
$ 12,879
$ 858
$ 124,335
$ 3,071
Other 275,332
5,901
16,979
1,021
292,311
6,922
Municipal bonds 118,881
2,731
32,710
1,697
151,591
4,428
Foreign government bonds —
—
—
—
—
—
Corporate bonds 138,207
2,287
49,931
1,871
188,138
4,158
Other mortgage-backed securities 349,600
3,985
126,297
1,818
475,897
5,803
Total fixed maturity securities 993,476
17,117
238,796
7,265
1,232,272
24,382
Equity securities (1) 10,547
692
2,192
716
12,739
1,408
Combined totals $ 1,004,023
$ 17,809
$ 240,988
$ 7,981
$ 1,245,011
$ 25,790

Number of positions with a
gross unrealized loss
393
77
470

Fair value as a percentage of
total fixed maturity and
equity securities fair value
12.9 % 3.1 % 16.0 %

December 31, 2016
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities $ 186,439
$ 6,176
$ 3,235
$ 544
$ 189,674
$ 6,720
Other 219,372
10,120
—
—
219,372
10,120
Municipal bonds 408,163
19,006
9,928
3,582
418,091
22,588
Foreign government bonds 24,182
297
—
—
24,182
297
Corporate bonds 459,402
11,056
57,261
3,770
516,663
14,826
Other mortgage-backed securities 640,691
10,470
229,106
5,389
869,797
15,859
Total fixed maturity securities 1,938,249
57,125
299,530
13,285
2,237,779
70,410
Equity securities (1) 56,676
4,567
7,956
1,007
64,632
5,574
Combined totals $ 1,994,925
$ 61,692
$ 307,486
$ 14,292
$ 2,302,411
$ 75,984

Number of positions with a
gross unrealized loss
629
102
731

Fair value as a percentage of
total fixed maturity and
equity securities fair value
26.3 % 4.0 % 30.3 %


~~(1)~~	~~Includes nonredeemable perpetual preferred stocks, common stocks and closed-end funds.~~

~~Note 2 - Investments (Continued)~~



($ in thousands)	12 Months or Less					More than 12 Months					Total
	Fair Value			Gross Unrealized Losses		Fair Value			Gross Unrealized Losses		Fair Value			Gross Unrealized Losses
September 30, 2019
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	$	21,323		$	204	$	2,795		$	103	$	24,118		$	307
Other	12,712			128		2,024			7		14,736			135
Municipal bonds	11,707			74		13,185			282		24,892			356
Foreign government bonds	2,500			2		—			—		2,500			2
Corporate bonds	57,329			1,145		16,371			825		73,700			1,970
Other mortgage-backed securities	320,293			3,498		293,852			4,387		614,145			7,885
Total	$	425,864		$	5,051	$	328,227		$	5,604	$	754,091		$	10,655

Number of positions with a gross unrealized loss	214					102					316
Fair value as a percentage of total fixed maturity securities fair value	7.3		%			5.6		%			12.9		%

December 31, 2018
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	$	193,447		$	5,026	$	157,295		$	8,295	$	350,742		$	13,321
Other	263,497			6,746		246,213			10,935		509,710			17,681
Municipal bonds	291,869			7,603		95,297			5,891		387,166			13,494
Foreign government bonds	16,250			760		—			—		16,250			760
Corporate bonds	818,519			27,429		99,171			11,462		917,690			38,891
Other mortgage-backed securities	913,858			16,076		291,442			7,455		1,205,300			23,531
Total	$	2,497,440		$	63,640	$	889,418		$	44,038	$	3,386,858		$	107,678

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

Fixed maturity ~~and equity~~ securities with an investment grade rating represented ~~92%~~77.5% of the gross unrealized losses as of September 30, ~~2017.~~2019. 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.

Note 3 - Investments (Continued)

Limited Partnership Interests

As of September 30, 2019 and December 31, 2018, the carrying value of equity method limited partnerships totaled $354,611 thousand and $328,516 thousand, respectively. Principal factors influencing carrying value appreciation or decline include operating performance, comparable public company earnings multiples, capitalization rates and the economic environment. The Company recognizes an impairment loss for equity method limited partnerships when evidence demonstrates that the loss is other than temporary. Evidence of a loss in value that is other than temporary may include the absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment.

Credit Losses

The following table summarizes the cumulative amounts related to the ~~Company’s~~Company's credit loss component of ~~OTTI~~other-than-temporary impairment (OTTI) losses on fixed maturity securities held as of September 30, ~~2017~~2019 and ~~2016~~2018 that the Company did not intend to sell as of those dates, and it was not more likely than not that the Company would be required to sell the securities before the anticipated recovery of the amortized cost ~~bases,~~basis, for which the non-credit portions of OTTI losses were recognized in other comprehensive ~~income:~~

income (loss) (OCI):


($ in thousands)	Nine Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2019		2018
Cumulative credit loss (1)
Beginning of period	$	13,703		$	7,844	$	1,529	$	3,825
New credit losses	—			300		—		—
Increases to previously recognized credit losses	1,994			2,480		—		246
Gains related to securities sold or paid down during the period	(2		)	—
Losses related to securities sold or paid down during the period						—		(2,542		)
End of period	$	15,695		$	10,624	$	1,529	$	1,529

_____________


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

~~Expected Maturity~~

Note 3 - Investments (Continued)

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’~~borrowers' utilization of the right to call or prepay obligations with or without call or prepayment penalties. For structured securities, including mortgage-backed securities and other asset-backed securities, estimated expected maturities consider broker-dealer survey prepayment assumptions and are verified for consistency with the interest rate and economic environments.


($ in thousands)	Percent of Total Fair Value				September 30, 2017				Percent of Total Fair Value				September 30, 2019
	September 30, 2017		December 31, 2016		Fair Value		Amortized Cost		September 30, 2019		December 31, 2018		Fair Value		Amortized Cost
Estimated expected maturity:
Due in 1 year or less	3.4	%	3.9	%	$	256,527	$	250,803	4.0	%	4.8	%	$	234,818	$	228,604
Due after 1 year through 5 years	27.5		28.7		2,097,243		1,998,498		26.5	%	22.8	%	1,546,779		1,499,348
Due after 5 years through 10 years	33.3		35.2		2,540,303		2,431,895		29.3	%	32.8	%	1,709,053		1,601,491
Due after 10 years through 20 years	23.3		19.5		1,780,760		1,654,259		24.9	%	26.5	%	1,454,033		1,318,362
Due after 20 years	12.5		12.7		955,801		858,942		15.3	%	13.1	%	894,877		805,628
Total	100.0	%	100.0	%	$	7,630,634	$	7,194,397	100.0	%	100.0	%	$	5,839,560	$	5,453,433

Average option-adjusted duration, in years	6.0		5.9						6.0		5.9

~~Note 2 - Investments (Continued)~~

Sales of Fixed Maturity and Equity Securities

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



($ in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019 ⁽¹⁾			2018
Fixed maturity securities
Proceeds received	$	149,319		$	170,223		$	651,058		$	360,246
Gross gains realized	1,258			3,980			149,574			8,002
Gross losses realized	(1,047		)	(5,893		)	(7,128		)	(7,530		)

Equity securities
Proceeds received	$	1,367		$	2,710		$	18,489		$	8,493
Gross gains realized	428			885			5,562			2,478
Gross losses realized	(32		)	(321		)	(542		)	(502		)

_____________


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

($ in thousands) Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Fixed maturity securities
Proceeds received $ 85,841
$ 94,706
$ 315,531
$ 351,739
Gross gains realized 2,293
2,966
8,862
13,824
Gross losses realized (181 ) (102 ) (1,558 ) (1,542 )

Equity securities
Proceeds received $ 3,514
$ 4,479
$ 20,510
$ 17,101
Gross gains realized 477
790
3,227
1,960
Gross losses realized (293 ) (21 ) (721 ) (862 )

Note 3 - Investments (Continued)

Net Investment Gains (Losses)

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



($ in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Impairment write-downs	$	—		$	—		$	—		$	—
Change in intent write-downs	(5		)	(70		)	(276		)	(1,357		)
Net OTTI losses recognized in earnings	(5		)	(70		)	(276		)	(1,357		)
Sales and other, net	608			(1,331		)	147,513			2,661
Change in fair value - equity securities	1,081			2,000			8,029			(4,342		)
Change in fair value and gains (losses) realized on settlements - derivatives	(3,840		)	2,204			(3,672		)	4,922
Net investment gains (losses)	$	(2,156	)	$	2,803		$	151,594		$	1,884

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

~~Net unrealized investment gains and losses are computed as the difference between fair value and amortized cost for fixed maturity securities or cost for equity securities.~~ The following table reconciles ~~the~~ net unrealized investment gains ~~and losses,~~(losses) on fixed maturity securities, net of tax, included in ~~accumulated other comprehensive income (loss),~~AOCI, before the impact ~~on deferred policy acquisition costs:~~

of DAC:

($ in thousands) Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net unrealized investment gains and losses
on fixed maturity securities, net of tax

Beginning of period $ 270,834
$ 371,456
$ 197,978
$ 198,714
Change in net unrealized investment
gains and losses
10,133
20,827
83,547
188,912
Reclassification of net realized
investment (gains) losses to net income
2,587
(11,072 ) 2,029
(6,415 )
End of period $ 283,554
$ 381,211
$ 283,554
$ 381,211

Net unrealized investment gains and losses
on equity securities, net of tax

Beginning of period $ 10,631
$ 8,183
$ 4,963
$ 2,649
Change in net unrealized investment
gains and losses
1,933
(2,052 ) 7,905
4,846
Reclassification of net realized
investment (gains) losses to net income
(165 ) 2,211
(469 ) 847
End of period $ 12,399
$ 8,342
$ 12,399
$ 8,342



($ in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net unrealized investment gains (losses) on fixed maturity securities, net of tax
Beginning of period	$	231,087		$	144,998		$	111,712		$	286,176
Change in net unrealized investment gains (losses) on fixed maturity securities	75,283			(57,903		)	315,988			(186,912		)
Reclassification of net investment (gains) losses on securities to net income	(1,330		)	(473		)	(122,660		)	2,399
Cumulative effect of change in accounting principle ⁽¹⁾	—			—			—			(15,041		)
End of period	$	305,040		$	86,622		$	305,040		$	86,622

_____________

~~Note 2 - Investments (Continued)~~


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

Offsetting of Assets and Liabilities

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

Note 3 - Investments (Continued)

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


($ in thousands)			Gross Amounts Offset in the		Net Amounts of Assets/ Liabilities Presented in the		Gross Amounts Not Offset in the Consolidated Balance Sheets									Gross Amounts Offset in the		Net Amounts of Assets/ Liabilities Presented in the		Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts		Consolidated Balance Sheets		Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount			Gross Amounts		Consolidated Balance Sheets		Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount
September 30, 2017
September 30, 2019
Asset derivatives:
Free-standing derivatives	$	10,431	$	—	$	10,431	$	—	$	10,954	$	(523	)	$	10,685	$	—	$	10,685	$	—	$	10,338	$	347

December 31, 2016
December 31, 2018
Asset derivatives:
Free-standing derivatives	$	8,694	$	—	$	8,694	$	—	$	8,824	$	(130	)	$	2,647	$	—	$	2,647	$	—	$	1,868	$	779

Deposits

At September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, fixed maturity securities with a fair value of ~~$18,133~~$26,119 thousand and ~~$18,119~~$17,695 thousand, respectively, were on deposit with governmental agencies as required by law in various states in which the insurance subsidiaries of HMEC conduct business. In addition, at September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, fixed maturity securities with a fair value of ~~$620,558~~$629,010 thousand and ~~$620,489~~$740,016 thousand, respectively, were on deposit with the Federal Home Loan Bank of Chicago ~~(“FHLB”)~~(FHLB) as collateral for amounts subject to funding agreements, advances and borrowings which were equal to $575,000 thousand at ~~both of the respective dates.~~September 30, 2019 and $675,000 thousand at December 31, 2018. The deposited securities are included in Fixed maturity securities on the Company’s Consolidated Balance Sheets.

Note 34 - Fair Value of Financial Instruments

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

Information regarding the three-level hierarchy presented below and the valuation methodologies utilized by the Company to estimate fair values at ~~a point~~each reporting date is included in ~~time is included~~Item 8, Note 3 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016, specifically in “Note 3 -- Fair Value of Financial Instruments”.~~2018.

Note 34 - Fair Value of Financial Instruments (Continued)

Financial Instruments Measured and Carried at Fair Value

The following table presents the ~~Company’s~~Company's fair value hierarchy for those assets and liabilities measured and carried at fair value on a recurring basis. At September 30, ~~2017,~~2019, Level 3 invested assets comprised ~~3.3%~~4.3% of the Company’s total investment portfolio at fair value.


($ in thousands)					Fair Value Measurements at										Fair Value Measurements at
	Carrying		Fair		Reporting Date Using						Carrying		Fair		Reporting Date Using
	Amount		Value		Level 1		Level 2		Level 3		Amount		Value		Level 1		Level 2		Level 3
September 30, 2017
September 30, 2019
Financial Assets
Investments
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	$	645,402	$	645,402	$	—	$	642,110	$	3,292	$	754,355	$	754,355	$	—	$	749,551	$	4,804
Other, including U.S. Treasury securities	671,020		671,020		13,484		657,536		—		458,175		458,175		17,779		440,396		—
Municipal bonds	1,842,204		1,842,204		—		1,792,992		49,212		1,676,422		1,676,422		—		1,628,717		47,705
Foreign government bonds	100,177		100,177		—		100,177		—		47,915		47,915		—		47,915		—
Corporate bonds	2,821,703		2,821,703		14,798		2,712,660		94,245		1,585,108		1,585,108		14,506		1,473,929		96,673
Other mortgage-backed securities	1,550,128		1,550,128		—		1,431,802		118,326		1,317,585		1,317,585		—		1,175,684		141,901
Total fixed maturity securities	7,630,634		7,630,634		28,282		7,337,277		265,075		5,839,560		5,839,560		32,285		5,516,192		291,083
Equity securities	159,275		159,275		103,552		55,717		6		105,483		105,483		57,876		47,491		116
Short-term investments	111,488		111,488		111,488		—		—		237,819		237,819		237,819		—		—
Other investments	21,944		21,944		—		21,944		—		23,935		23,935		—		23,935		—
Totals	$	7,923,341	$	7,923,341	$	243,322	$	7,414,938	$	265,081	$	6,206,797	$	6,206,797	$	327,980	$	5,587,618	$	291,199
Separate Account (variable annuity) assets ⁽¹⁾											$	2,308,134	$	2,308,134	$	2,308,134	$	—	$	—
Financial Liabilities
Investment contract and life policy reserves, embedded derivatives	$	390	$	390	$	—	$	390	$	—
Investment contract and policy reserves, embedded derivatives											$	1,145	$	1,145	$	—	$	1,145	$	—
Other policyholder funds, embedded derivatives	72,986		72,986		—		—		72,986		$	89,098	$	89,098	$	—	$	—	$	89,098

December 31, 2016
December 31, 2018
Financial Assets
Investments
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	$	614,891	$	614,891	$	—	$	611,476	$	3,415	$	787,441	$	787,441	$	—	$	784,224	$	3,217
Other, including U.S. Treasury securities	467,143		467,143		13,631		453,512		—		833,542		833,542		13,291		820,251		—
Municipal bonds	1,769,397		1,769,397		—		1,722,900		46,497		2,003,969		2,003,969		—		1,956,438		47,531
Foreign government bonds	98,669		98,669		—		98,669		—		84,904		84,904		—		84,904		—
Corporate bonds	2,810,221		2,810,221		13,532		2,736,498		60,191		2,079,510		2,079,510		12,281		1,986,487		80,742
Other mortgage-backed securities	1,696,387		1,696,387		—		1,595,143		101,244		1,725,952		1,725,952		—		1,608,958		116,994
Total fixed maturity securities	7,456,708		7,456,708		27,163		7,218,198		211,347		7,515,318		7,515,318		25,572		7,241,262		248,484
Equity securities	141,649		141,649		98,632		43,011		6		111,750		111,750		64,330		47,415		5
Short-term investments	44,918		44,918		44,167		—		751		122,222		122,222		117,296		4,926		—
Other investments	20,194		20,194		—		20,194		—		16,147		16,147		—		16,147		—
Totals	$	7,663,469	$	7,663,469	$	169,962	$	7,281,403	$	212,104	$	7,765,437	$	7,765,437	$	207,198	$	7,309,750	$	248,489
Separate Account (variable annuity) assets ⁽¹⁾											$	2,001,128	$	2,001,128	$	2,001,128	$	—	$	—
Financial Liabilities
Investment contract and life policy reserves, embedded derivatives	$	158	$	158	$	—	$	158	$	—
Investment contract and policy reserves, embedded derivatives											$	248	$	248	$	—	$	248	$	—
Other policyholder funds, embedded derivatives	59,393		59,393		—		—		59,393		$	78,700	$	78,700	$	—	$	—	$	78,700

________________

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

Note 34 - Fair Value of Financial Instruments (Continued)

During the nine month ~~period~~periods ended September 30, ~~2017, an equity security was transferred into~~2019 and 2018, there were no transfers between Level 1 ~~from~~and Level ~~2 as a result of increased liquidity in the market and a sustained increase in the market activity for this asset.~~2. The following table presents reconciliations for the periods indicated for all Level 3 assets and liabilities measured at fair value on a recurring basis.


($ in thousands)	Financial Assets																				Financial Liabilities(1)			Financial Assets																	Financial Liabilities⁽¹⁾
	Municipal Bonds			Corporate Bonds			Mortgage- Backed Securities (2)			Total Fixed Maturity Securities			Equity Securities		Short-term Investments			Total						Municipal Bonds			Corporate Bonds			Other Mortgage- Backed Securities ⁽²⁾			Total Fixed Maturity Securities			Equity Securities		Total
Beginning balance, July 1, 2017	$	49,123		$	77,052		$	120,324		$	246,499		$	6	$	—		$	246,505		$	67,995
Beginning balance, July 1, 2019																								$	46,984		$	79,222		$	128,438		$	254,644		$	69	$	254,713		$	85,961
Transfers into Level 3 (3)	—			23,501			11,961			35,462			—		—			35,462			—			—			18,916			21,004			39,920			1		39,921			—
Transfers out of Level 3 (3)	—			1			(881		)	(880		)	—		—			(880		)	—			—			(2,822		)	(449		)	(3,271		)	—		(3,271		)	—
Total gains or losses
Net realized investment gains (losses) included in net income related to financial assets	—			(1		)	(160		)	(161		)	—		—			(161		)	—
Net investment gains (losses) included in net income related to financial assets																								—			—			—			—			46		46			—
Net realized (gains) losses included in net income related to financial liabilities	—			—			—			—			—		—			—			2,587			—			—			—			—			—		—			3,661
Net unrealized investment gains (losses) included in other comprehensive income	382			(192		)	(377		)	(187		)	—		—			(187		)	—
Net unrealized investment gains (losses) included in OCI																								842			1,744			397			2,983			—		2,983			—
Purchases	—			—			—			—			—		—			—			—			—			—			—			—			—		—			—
Issuances	—			—			—			—			—		—			—			3,752			—			—			—			—			—		—			2,033
Sales	—			(1,999		)	—			(1,999		)	—		—			(1,999		)	—			—			—			—			—			—		—			—
Settlements	—			—			—			—			—		—			—			—			—			—			—			—			—		—			—
Paydowns, maturities and distributions	(293		)	(4,117		)	(9,249		)	(13,659		)	—		—			(13,659		)	(1,348		)	(121		)	(387		)	(2,685		)	(3,193		)	—		(3,193		)	(2,557		)
Ending balance, September 30, 2017	$	49,212		$	94,245		$	121,618		$	265,075		$	6	$	—		$	265,081		$	72,986
Ending balance, September 30, 2019																								$	47,705		$	96,673		$	146,705		$	291,083		$	116	$	291,199		$	89,098

Beginning balance, January 1, 2017	$	46,497		$	60,191		$	104,659		$	211,347		$	6	$	751		$	212,104		$	59,393
Beginning balance, January 1, 2019																								$	47,531		$	80,742		$	120,211		$	248,484		$	5	$	248,489		$	78,700
Transfers into Level 3 (3)	5,214			55,420			36,482			97,116			—		—			97,116			—			—			24,798			42,938			67,736			65		67,801			—
Transfers out of Level 3 (3)	(5,557		)	(11,962		)	(881		)	(18,400		)	—		(751		)	(19,151		)	—			—			(7,698		)	(449		)	(8,147		)	—		(8,147		)	—
Total gains or losses
Net realized investment gains (losses) included in net income related to financial assets	—			(1		)	(1,874		)	(1,875		)	—		—			(1,875		)	—
Net investment gains (losses) included in net income related to financial assets																								—			—			—			—			46		46			—
Net realized (gains) losses included in net income related to financial liabilities	—			—			—			—			—		—			—			6,133			—			—			—			—			—		—			8,366
Net unrealized investment gains (losses) included in other comprehensive income	3,540			263			1,945			5,748			—		—			5,748			—
Net unrealized investment gains (losses) included in OCI																								649			6,254			3,052			9,955			—		9,955			—
Purchases	—			—			—			—			—		—			—			—			—			1,566			—			1,566			—		1,566			—
Issuances	—			—			—			—			—		—			—			10,538			—			—			—			—			—		—			7,482
Sales	—			(1,999		)	—			(1,999		)	—		—			(1,999		)	—			—			—			(607		)	(607		)	—		(607		)	—
Settlements	—			—			—			—			—		—			—			—			—			—			—			—			—		—			—
Paydowns, maturities and distributions	(482		)	(7,667		)	(18,713		)	(26,862		)	—		—			(26,862		)	(3,078		)	(475		)	(8,989		)	(18,440		)	(27,904		)	—		(27,904		)	(5,450		)
Ending balance, September 30, 2017	$	49,212		$	94,245		$	121,618		$	265,075		$	6	$	—		$	265,081		$	72,986
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 FIA~~Company's fixed indexed annuity products, reported in Other policyholder funds in the ~~Company’s~~Company's Consolidated Balance Sheets.


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

⁽³⁾

Transfers into and out of Level 3 during the three and nine month periods ended September 30, 2017 were attributable to changes in the availability of observable market information for individual fixed maturity securities and short-term investments. The Company’s policy is to recognize transfers into and transfers out of the levels as having occurred at the end of the reporting period in which the transfers were determined.

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

($ in thousands) Financial Assets
Financial
Liabilities(1)

Municipal
Bonds

Corporate
Bonds

Mortgage-
Backed
Securities (2)

Total
Fixed
Maturity
Securities

Equity
Securities

Short-term
Investments
Total
Beginning balance, July 1, 2016 $ 47,647
$ 73,408
$ 96,581
$ 217,636
$ 6
$ —
$ 217,642
$ 47,706
Transfers into Level 3 (3) —
10,375
7,655
18,030
—
—
18,030
—
Transfers out of Level 3 (3) —
(5,967 ) (788 ) (6,755 ) —
—
(6,755 ) —
Total gains or losses
Net realized investment gains (losses) included in net
income related to financial assets
—
1
(56 ) (55 ) —
—
(55 ) —
Net realized (gains) losses
included in net income
related to financial liabilities
—
—
—
—
—
—
—
68
Net unrealized investment gains
(losses) included in other
comprehensive income
(2,361 ) 1,292
3,951
2,882
—
—
2,882
—
Purchases —
—
—
—
—
—
—
—
Issuances —
—
—
—
—
—
—
6,710
Sales —
—
—
—
—
—
—
—
Settlements —
—
—
—
—
—
—
—
Paydowns, maturities
and distributions
(120 ) (1,488 ) (5,194 ) (6,802 ) —
—
(6,802 ) 695
Ending balance, September 30, 2016 $ 45,166
$ 77,621
$ 102,149
$ 224,936
$ 6
$ —
$ 224,942
$ 55,179

Beginning balance, January 1, 2016 $ 30,379
$ 67,575
$ 75,466
$ 173,420
$ 6
$ —
$ 173,426
$ 39,021
Transfers into Level 3 (3) 14,751
21,451
32,281
68,483
—
—
68,483
—
Transfers out of Level 3 (3) —
(5,967 ) (788 ) (6,755 ) —
—
(6,755 ) —
Total gains or losses
Net realized investment gains
(losses) included in net
income related to
financial assets
—
(656 ) (56 ) (712 ) —
—
(712 ) —
Net realized (gains) losses
included in net income
related to financial liabilities
—
—
—
—
—
—
—
2,066
Net unrealized investment gains
(losses) included in other
comprehensive income
420
3,073
4,173
7,666
—
—
7,666
—
Purchases —
—
—
—
—
—
—
—
Issuances —
—
—
—
—
—
—
15,194
Sales —
—
—
—
—
—
—
—
Settlements —
—
—
—
—
—
—
—
Paydowns, maturities
and distributions
(384 ) (7,855 ) (8,927 ) (17,166 ) —
—
(17,166 ) (1,102 )
Ending balance, September 30, 2016 $ 45,166
$ 77,621
$ 102,149
$ 224,936
$ 6
$ —
$ 224,942
$ 55,179


~~(1)~~	~~Represents embedded derivatives, all related to the Company’s FIA 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 month periods ended September 30, 2016~~2019 were attributable to changes in the availability of observable market information for individual fixed maturity securities. The ~~Company’s~~Company's policy is to recognize transfers into and transfers out of the levels as having occurred at the end of the reporting period in which the transfers were determined.

Note 4 - Fair Value of Financial Instruments (Continued)



($ 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, 2018	$	49,921		$	92,663		$	129,061		$	271,645		$	6		$	271,651		$	77,788
Transfers into Level 3 ⁽³⁾	—			—			17,030			17,030			—			17,030			—
Transfers out of Level 3 ⁽³⁾	—			—			(970		)	(970		)	—			(970		)	—
Total gains or losses
Net investment gains (losses) included in net income related to financial assets	—			—			—			—			—			—			—
Net realized (gains) losses included in net income related to financial liabilities	—			—			—			—			—			—			2,205
Net unrealized investment gains (losses) included in OCI	(471		)	128			(6,184		)	(6,527		)	—			(6,527		)	—
Purchases	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			3,940
Sales	—			—			(187		)	(187		)	—			(187		)	—
Settlements	—			—			—			—			—			—			—
Paydowns, maturities and distributions	(121		)	(3,926		)	(15,466		)	(19,513		)	—			(19,513		)	(1,668		)
Ending balance, September 30, 2018	$	49,329		$	88,865		$	123,284		$	261,478		$	6		$	261,484		$	82,265

Beginning balance, January 1, 2018	$	49,328		$	72,979		$	107,944		$	230,251		$	6		$	230,257		$	80,733
Transfers into Level 3 ⁽³⁾	—			40,487			50,174			90,661			—			90,661			—
Transfers out of Level 3 ⁽³⁾	—			(11,279		)	(5,200		)	(16,479		)	—			(16,479		)	—
Total gains or losses
Net investment gains (losses) included in net income related to financial assets	—			(246		)	—			(246		)	3			(243		)	—
Net (gains) losses included in net income related to financial liabilities	—			—			—			—			—			—			(1,308		)
Net unrealized investment gains (losses) included in OCI	369			(1,459		)	(5,547		)	(6,637		)	—			(6,637		)	—
Purchases	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			7,379
Sales	—			—			(187		)	(187		)	(3		)	(190		)	—
Settlements	—			—			—			—			—			—			—
Paydowns, maturities and distributions	(368		)	(11,617		)	(23,900		)	(35,885		)	—			(35,885		)	(4,539		)
Ending balance, September 30, 2018	$	49,329		$	88,865		$	123,284		$	261,478		$	6		$	261,484		$	82,265

_____________


⁽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 month periods ended September 30, 2018 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 transfers out of the levels as having occurred at the end of the reporting period in which the transfers were determined.

For the nine month period ended September 30, ~~2017,~~2019, the Company ~~impaired two~~had no net losses on Level 3 securities. For the nine month period ended September 30, 2018, the Company had a realized net loss on three Level 3 securities ~~for a $1,874 thousand realized loss. At September 30, 2016, there were no net realized investment gains or losses included in earnings that were attributable to changes in the fair value~~ of ~~Level 3 assets still held.~~$243 thousand. For the three and nine month periods ended September 30, ~~2017,~~2019, net ~~realized~~investment losses of ~~$2,587~~$3,661 thousand and ~~$6,133~~$8,366 thousand ~~respectively,~~ were included in earnings that were attributable to the changes in the fair value of Level 3 liabilities (embedded derivatives) still held; for the three and nine month periods ended September 30, ~~2016, the respective loss amounts~~2018, net investment losses were ~~$68~~$2,205 thousand and ~~$2,066~~net investment gains were $1,308 thousand.

Note 34 - Fair Value of Financial Instruments (Continued)

The valuation techniques and significant unobservable inputs used in the fair value measurement for financial assets and liabilities classified as Level 3 are subject to the control processes as described in ~~“Note~~Item 8, Note 3 ~~-- Fair Value of Financial Instruments -- Investments”~~ in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. 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.

The sensitivity of the estimated fair values to changes in the significant unobservable inputs for fixed maturity and equity securities included in Level 3 generally relate to interest rate spreads, illiquidity premiums and default rates. Significant spread widening in isolation will adversely impact the overall valuation, while significant spread tightening will lead to substantial valuation increases. Significant increases (decreases) in illiquidity premiums in isolation will result in substantially lower (higher) valuations. Significant increases (decreases) in expected default rates in isolation will result in substantially lower (higher) valuations.

Financial Instruments Not Carried at Fair Value; Disclosure Required

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


($ in thousands)					Fair Value Measurements at										Fair Value Measurements at
	Carrying		Fair		Reporting Date Using						Carrying		Fair		Reporting Date Using
	Amount		Value		Level 1		Level 2		Level 3		Amount		Value		Level 1		Level 2		Level 3
September 30, 2017
September 30, 2019
Financial Assets
Investments
Other investments											$	171,579	$	175,478	$	—	$	—	$	175,478
Deposit asset on reinsurance											2,342,305		2,619,640		—		—		2,619,640
Financial Liabilities
Investment contract and policy reserves, fixed annuity contracts											4,658,148		4,581,321		—		—		4,581,321
Investment contract and policy reserves, account values on life contracts											91,788		94,899		—		—		94,899
Other policyholder funds											583,747		583,747		—		526,113		57,634
Short-term debt											135,000		135,000		—		—		135,000
Long-term debt											297,953		318,271		—		318,271		—

December 31, 2018
Financial Assets
Investments
Other investments	$	154,630	$	159,253	$	—	$	—	$	159,253	$	156,725	$	161,449	$	—	$	—	$	161,449
Financial Liabilities
Investment contract reserves	4,428,989		4,338,318		—		—		4,338,318
Life policy reserves, account values on life contracts	81,520		86,906		—		—		86,906
Investment contract and policy reserves, fixed annuity contracts											4,555,849		4,478,338		—		—		4,478,338
Investment contract and policy reserves, account values on life contracts											87,229		90,402		—		—		90,402
Other policyholder funds	644,383		644,383		—		575,579		68,804		689,287		689,287		—		626,325		62,962
Short-term debt											—		—		—		—		—
Long-term debt	247,403		264,781		264,781		—		—		297,740		291,938		—		291,938		—

December 31, 2016
Financial Assets
Investments
Other investments	$	151,965	$	156,536	$	—	$	—	$	156,536
Financial Liabilities
Investment contract reserves	4,360,456		4,280,528		—		—		4,280,528
Life policy reserves, account values on life contracts	79,591		85,066		—		—		85,066
Other policyholder funds	649,557		649,557		—		575,253		74,304
Long-term debt	247,209		248,191		248,191		—		—

Note 45 - Derivative Instruments

The Company offers ~~FIA~~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, and IUL~~index. The Company also offers indexed universal life (IUL) products which ~~also~~ 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 ~~OTC~~ call options on the applicable market indices to fund the index credits due to FIA and IUL policyholders. For the Company, substantially all of 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 ~~realized~~ investment gains ~~and losses,~~(losses), a component of ~~Revenues,~~revenues, in the Consolidated Statements of Operations.

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

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

The Company carries all ~~derivative instruments as assets or liabilities~~derivatives at fair value in the Consolidated Balance ~~Sheets at fair value.~~Sheets. The Company elected to not use hedge accounting for derivative transactions related to the FIA and IUL products. As a result, the Company ~~records~~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 ~~of the derivatives~~ recognized immediately as Net ~~realized~~ investment gains (losses) in the Consolidated Statements of Operations. The fair values of ~~derivative instruments,~~derivatives, including ~~derivative instruments~~derivatives embedded in FIA and IUL contracts, are presented in the Consolidated Balance Sheets ~~were~~ as follows:


($ in thousands)	September 30, 2017		December 31, 2016		September 30, 2019		December 31, 2018
Assets
Derivative instruments, included in Short-term and other investments	$	10,431	$	8,694
Derivatives included in Short-term and other investments					$	10,685	$	2,647

Liabilities
FIA - embedded derivatives, included in Other policyholder funds	$	72,986	$	59,393	$	89,098	$	78,700
IUL - embedded derivatives, included in Investment contract and life policy reserves	390		158
IUL - embedded derivatives, included in Investment contract and policy reserves					1,145		248

Note 45 - Derivative Instruments (Continued)

In general, the change in the fair value of the embedded derivatives related to FIA ~~contracts~~ 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 ~~those~~the embedded derivatives represent the rights of the policyholder to receive index credits over the entire period the FIA contracts are expected to be in force, which typically exceeds 10 years. The changes in fair value of derivatives included in the Consolidated Statements of Operations were as follows:


($ in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2019			2018			2019			2018
Change in fair value of derivatives (1):
Change in fair value of derivatives:⁽¹⁾
Revenues
Net realized investment gains	$	2,943		$	562		$	7,109		$	422
Net investment gains (losses)													$	(149	)	$	4,683		$	5,280		$	3,832

Change in fair value of embedded derivatives:
Revenues
Net realized investment losses	$	(2,702	)	$	(76	)	$	(6,363	)	$	(2,077	)
Net investment gains (losses)													$	(3,691	)	$	(2,479	)	$	(8,952	)	$	1,090

________________


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

The ~~Company’s~~Company's strategy attempts to mitigate potential risk of loss under these agreements through a regular monitoring process, which evaluates the ~~program’s~~program's effectiveness. The Company is exposed to risk of loss in the event of nonperformance by the counterparties and, accordingly, option contracts are purchased from multiple counterparties, which are evaluated for creditworthiness prior to purchase of the contracts. All of these options have been purchased from nationally recognized financial institutions with a Standard and ~~Poor’s Financial Services LLC ("S&P")~~Poor's Global Inc. (S&P)/Moody's Investors Service, Inc. (Moody's) long-term credit rating of ~~“BBB+”~~"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~~counterparty's long-term credit ratings were as follows:


($ in thousands)	September 30, 2017					December 31, 2016				September 30, 2019						December 31, 2018
	Credit Rating	Notional		Fair		Notional		Fair		Credit Rating		Notional		Fair		Notional		Fair
Counterparty	S&P	Amount		Value		Amount		Value		S&P	Moody's	Amount		Value		Amount		Value

Bank of America, N.A.	A+	$	74,400	$	2,466	$	38,500	$	1,934	A+	Aa2	$	145,100	$	5,026	$	144,500	$	870
Barclays Bank PLC	A	68,900		3,017		66,800		1,543		A	A2	101,700		2,271		28,500		247
Citigroup Inc.	BBB+	—		—		—		—		BBB+	A3	—		—		—		—
Credit Suisse International	A	29,100		2,041		65,200		4,281		A+	A1	—		—		16,100		55
Societe Generale	A	68,900		2,907		15,600		936		A	A1	60,700		3,388		89,100		1,475

Total		$	241,300	$	10,431	$	186,100	$	8,694			$	307,500	$	10,685	$	278,200	$	2,647

As of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, the Company held ~~$10,954~~$10,338 thousand and ~~$8,824~~$1,868 thousand, respectively, of cash received from counterparties for derivative collateral, which is included in Other liabilities inon the Consolidated Balance Sheets. This derivative collateral limits the Company’s maximum amount of economic loss due to credit risk that would be incurred if parties to the call options failed completely to perform according to the terms of the contracts to $250 thousand per counterparty.

Note 56 - ~~Property~~Deposit Asset on Reinsurance

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

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

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

Note 7 - Unpaid Claims and Claim Expenses

Property and Casualty

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


($ in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016			2017			2016			2019			2018		2019			2018
Property and Casualty segment
Beginning Gross reserves (1)	$	329,831		$	320,961		$	307,757		$	301,569
Property and Casualty
Beginning gross reserves⁽¹⁾													$	367,862		$	352,817	$	367,180		$	319,182
Less: reinsurance recoverables	58,897			60,499			61,199			50,332			77,345			62,883		89,725			57,409
Net reserves, beginning of period (2)	270,934			260,462			246,558			251,237			290,517			289,934		277,455			261,773
Incurred claims and claim expenses:
Claims occurring in the current period	115,393			116,709			386,945			351,270			122,470			140,035		375,648			408,028
Decrease in estimated reserves for claims occurring in prior periods (3)	(500		)	(700		)	(2,100		)	(4,300		)	(3,500		)	—		(7,500		)	(300		)
Total claims and claim expenses incurred (4)	114,893			116,009			384,845			346,970			118,970			140,035		368,148			407,728
Claims and claim expense payments for claims occurring during:
Current period	97,188			99,832			245,213			228,462			101,499			106,187		230,968			233,638
Prior periods	28,054			27,976			125,605			121,082			29,747			28,997		136,394			141,078
Total claims and claim expense payments	125,242			127,808			370,818			349,544			131,246			135,184		367,362			374,716
Net reserves, end of period (2)	260,585			248,663			260,585			248,663			278,241			294,785		278,241			294,785
Plus: reinsurance recoverables	57,302			61,893			57,302			61,893			76,526			63,262		76,526			63,262
Ending Gross reserves (1)	$	317,887		$	310,556		$	317,887		$	310,556
Ending gross reserves⁽¹⁾													$	354,767		$	358,047	$	354,767		$	358,047

_____________


⁽¹⁾	Unpaid claims and claim expenses as reported in the Consolidated Balance Sheets also include reserves for ~~the~~Supplemental, Life and Retirement ~~segments~~ of ~~$23,897~~$57,505 thousand and ~~$22,231~~$26,589 thousand as of September 30, ~~2017~~2019 and ~~2016,~~2018, respectively, in addition to Property and Casualty ~~segment~~ 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 ~~the~~Supplemental, Life and Retirement ~~segments~~ of ~~$20,002~~$35,221 thousand and ~~$60,025~~$78,119 thousand for the three and nine month periods ended September 30, ~~2017,~~2019, respectively, in addition to ~~the~~ Property and Casualty ~~segment~~ amounts. Benefits, claims and settlement expenses for ~~the~~ Life and Retirement ~~segments~~were $21,811 thousand and $65,958 thousand for the three and nine month periods ended September 30, ~~2016 were $19,701 thousand and $56,661 thousand,~~2018, respectively.

Net favorable development of total reserves for Property and Casualty claims occurring in prior years was ~~$2,100 thousand~~$7.5 million and ~~$4,300 thousand~~$0.3 million for the nine month periods ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. The favorable development for both of the nine month periods ended September 30, 2017 and 2016 was predominantly the result of favorable severity trends in homeowners loss emergence. This favorable development was for accident years 2015 and prior for the nine month period ended September 30, ~~2017~~2019 was the result of favorable loss trends in auto and homeowners loss emergence for accident years ~~2014~~2018 and ~~prior~~prior. The favorable development for the nine month period ended September 30, ~~2016.~~2018 was predominately the result of favorable loss trends in homeowners emergence for accident years 2017 and prior.

Note 68 - Debt

Indebtedness outstanding was as follows:


($ in thousands)	September 30, 2017		December 31, 2016		September 30, 2019		December 31, 2018
Short-term debt:
Bank Credit Facility, expires July 30, 2019	$	—	$	—
Bank Credit Facility, expires June 21, 2024					$	135,000	$	—

Long-term debt:
4.50% Senior Notes, due December 1, 2025. Aggregate principal amount of $250,000 thousand less unaccrued discount of $561 thousand and $603 thousand (4.5% imputed rate) and unamortized debt issuance costs of $2,036 thousand and $2,188 thousand	247,403		247,209
4.50% Senior Notes, due December 1, 2025. Aggregate principal amount of $250,000 thousand less unaccrued discount of $442 and $488 thousand (4.5% imputed rate) and unamortized debt issuance costs of $1,605 thousand and $1,772 thousand					247,953		247,740
FHLB borrowing					50,000		50,000
Total					$	432,953	$	297,740

The ~~Credit Agreement with certain financial institutions (“Bank Credit Facility”) and~~ 4.50% Senior Notes due 2025 ~~(“Senior~~(Senior Notes due ~~2025”)~~2025) and the FHLB borrowing are described in ~~“Notes to Consolidated Financial Statements --~~Item 8, Note 7 ~~-- Debt”~~ of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

Credit Agreement with Financial Institutions (Bank Credit Facility)

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

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

Note 79 - 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		Assumed from Other Companies		Net Amount		Gross Amount		Ceded to Other Companies ⁽¹⁾		Assumed from Other Companies		Net Amount
Three months ended September 30, 2017
Premiums written and contract deposits	$	322,428	$	5,189	$	1,116	$	318,355
Three months ended September 30, 2019
Premiums written and contract deposits⁽²⁾									$	374,598	$	5,968	$	2,586	$	371,216
Premiums and contract charges earned	202,988		5,216		1,163		198,935		245,200		8,181		2,662		239,681
Benefits, claims and settlement expenses	135,508		1,831		1,218		134,895		154,718		2,310		1,783		154,191

Three months ended September 30, 2016
Premiums written and contract deposits	$	356,155	$	5,555	$	934	$	351,534
Three months ended September 30, 2018
Premiums written and contract deposits⁽²⁾									$	342,268	$	5,370	$	1,199	$	338,097
Premiums and contract charges earned	195,654		5,584		980		191,050		210,953		5,385		1,252		206,820
Benefits, claims and settlement expenses	139,114		4,642		1,238		135,710		163,912		3,207		1,141		161,846

Nine months ended September 30, 2017
Premiums written and contract deposits	$	940,063	$	16,342	$	2,980	$	926,701
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	603,794		16,415		2,996		590,375		671,871		22,158		7,849		657,562
Benefits, claims and settlement expenses	450,997		8,899		2,772		444,870		450,206		9,399		5,460		446,267

Nine months ended September 30, 2016
Premiums written and contract deposits	$	960,945	$	17,244	$	2,881	$	946,582
Nine months ended September 30, 2018
Premiums written and contract deposits⁽²⁾									$	936,948	$	16,367	$	3,246	$	923,827
Premiums and contract charges earned	579,283		17,305		2,882		564,860		628,582		16,418		3,264		615,428
Benefits, claims and settlement expenses	422,352		21,748		3,027		403,631		486,339		15,551		2,898		473,686

_____________


⁽¹⁾	Excludes the annuity reinsurance agreement accounted for under the deposit method that is discussed in Note 6.


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

Note 810 - Commitments

Investment Commitments

From time to time, the Company has outstanding commitments to purchase investments and/or commitments to lend funds under bridge loans. ~~Unfunded~~Such unfunded commitments ~~to purchase investments~~ were ~~$111,265 thousand~~$198.3 million and ~~$135,054 thousand~~$145.4 million at September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively.

Note 911 - Segment Information

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



($ in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Insurance premiums and contract charges earned
Property and Casualty	$	170,483		$	168,653		$	512,626		$	501,444
Supplemental	32,921			N/A			32,921			N/A
Retirement	6,624			8,031			22,133			23,924
Life	29,653			30,136			89,882			90,060
Total	$	239,681		$	206,820		$	657,562		$	615,428

Net investment income
Property and Casualty	$	10,726		$	12,361		$	33,587		$	32,177
Supplemental	3,691			N/A			3,691			N/A
Retirement	60,770			67,750			188,193			199,706
Life	18,453			19,123			54,829			56,629
Corporate and Other	—			41			(37		)	119
Intersegment eliminations	(569		)	(192		)	(934		)	(583		)
Total	$	93,071		$	99,083		$	279,329		$	288,048

Net income (loss)
Property and Casualty	$	14,194		$	(3,190	)	$	34,347		$	(4,364	)
Supplemental	6,943			N/A			6,943			N/A
Retirement	5,915			12,120			(6,979		)	37,682
Life	5,101			5,331			13,617			14,997
Corporate and Other	(6,699		)	(1,733		)	103,514			(9,715		)
Total	$	25,454		$	12,528		$	151,442		$	38,600



($ in thousands)	September 30, 2019			December 31, 2018
Assets
Property and Casualty	$	1,297,585		$	1,236,362
Supplemental	745,345			N/A
Retirement	8,328,718			7,866,969
Life	1,857,331			1,821,351
Corporate and Other	156,310			149,014
Intersegment eliminations	(52,744		)	(41,800		)
Total	$	12,332,545		$	11,031,896

________________

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

Note 12 - Operating Leases

The Company has various operating lease agreements, primarily for real estate offices as well as for computer equipment and copier machines. Such leases have remaining lease terms of 1 years to 6 years, some of which may include options to extend certain leases for up to an additional 25 years.

The components of lease expense were as follows:



($ in thousands)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost	$	1,124	$	2,720
Short-term lease cost	57		155
Total lease cost	$	1,181	$	2,875

Supplemental cash flow information related to operating leases was as follows:



($ in thousands)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities	$	1,006	$	2,340

Supplemental balance sheet information related to operating leases was as follows:



($ in thousands, except lease term and discount rate)	September 30, 2019
Assets
Right of use assets, included in Other assets	$	17,527
Liabilities
Operating lease liabilities, included in Other liabilities	$	18,439

Weighted average remaining lease term	4.74
Weighted average discount rate	3.78		%

Future minimum lease payments under non-cancellable operating leases as of September 30, 2019 were as follows:



($ in thousands)
Year Ending December 31,
2019 (excluding the nine months ended September 30, 2019)	$	1,108
2020	4,443
2021	4,284
2022	4,156
2023	3,459
Thereafter	2,717
Total future minimum lease payments	20,167
Less imputed interest	(1,728		)
Total	$	18,439

As of September 30, 2019, the Company has no additional operating leases that have not yet commenced.

Note 13 - Supplemental Cash Flow Information

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 6 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 nine months ended September 30, 2019 and 2018, respectively.

Note 14 - Goodwill and Intangible Assets, net

The Company conducts impairment testing for goodwill at least annually, or more often if events, changes or circumstances indicate that the carrying amount may not be recoverable. See Item 8, Note 1 in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 for further description of impairment testing.

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

The changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2019 were as follows:


($ in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,						December 31, 2018		Impairment			Acquisitions		September 30, 2019
	2017			2016			2017			2016
Insurance premiums and contract charges earned
Property and Casualty	$	163,209		$	155,727		$	481,987		$	461,520		$	9,460	$	—		$	—	$	9,460
Supplemental ⁽¹⁾													—		—			19,286		19,286
Retirement	7,393			6,448			20,753			18,614			28,025		(28,025		)	10,087		10,087
Life	28,333			28,875			87,635			84,726			9,911		—			—		9,911
Total	$	198,935		$	191,050		$	590,375		$	564,860		$	47,396	$	(28,025	)	$	29,373	$	48,744

Net investment income
Property and Casualty	$	9,167		$	10,018		$	26,457		$	28,997
Retirement	64,340			66,174			192,921			186,950
Life	18,999			18,852			56,215			55,338
Corporate and Other	17			15			47			44
Intersegment eliminations	(203		)	(212		)	(615		)	(644		)
Total	$	92,320		$	94,847		$	275,025		$	270,685

Net income (loss)
Property and Casualty	$	13,407		$	6,715		$	2,186		$	16,047
Retirement	13,603			15,732			36,933			39,348
Life	4,788			4,583			14,283			13,072
Corporate and Other	(5,247		)	(107		)	(9,272		)	(4,525		)
Total	$	26,551		$	26,923		$	44,130		$	63,942

_____________


⁽¹⁾	Based on preliminary purchase price allocation.

Note 14 - Goodwill and Intangible Assets, net (Continued)

As of September 30, 2019, the outstanding amounts of definite-lived intangible assets subject to amortization are attributable to the acquisitions of BCG and NTA during 2019. The acquisition of BCG resulted in initial recognition of definite-lived intangible assets subject to amortization in the amount of $14,083 thousand and the acquisition of NTA resulted in initial recognition of definite-lived intangible assets subject to amortization in the amount of $160,313 thousand. As of September 30, 2019 the outstanding amounts of definite-lived intangible assets subject to amortization were as follows:

($ in thousands) September 30, 2017 December 31, 2016
Assets
Property and Casualty $ 1,156,959
$ 1,110,958
Retirement 7,793,727
7,449,777
Life 1,988,767
1,912,771
Corporate and Other 135,876
140,104
Intersegment eliminations (30,981 ) (36,786 )
Total $ 11,044,348
$ 10,576,824



($ in thousands)	Useful Life (in Years)
At inception:
Value of business acquired	17 - 35	$	94,419
Value of distribution acquired	16 - 17	53,996
Value of agency relationships	14	16,981
Value of customer relationships	10	9,080
Total		174,476
Accumulated amortization:
Value of business acquired		(1,844		)
Value of distribution acquired		(973		)
Value of agency relationships		(745		)
Value of customer relationships		(1,300		)
Total		(4,862		)
Net intangible assets subject to amortization:		$	169,614

In regards to the definite-lived intangible assets in the table above, the value of business acquired intangible asset represents the present value of the expected underwriting profit within policies that were inforce 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.

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



($ in thousands)
Year Ending December 31,
2019 (excluding the nine months ended September 30, 2019)	$	3,920
2020	14,471
2021	13,396
2022	12,420
2023	11,566
2024	10,796
Thereafter	103,045
Total	$	169,614

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 in 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.

Note 14 - Goodwill and Intangible Assets, net (Continued)

Indefinite-lived intangible assets (not subject to amortization) as of September 30, 2019 were as follows:



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

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

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS ~~(“MD&A”)~~(MD&A)

(Dollars in millions, except per share data)

Measures within this MD&A that are not based on accounting principles generally accepted in the ~~United States (“non-GAAP”)~~U.S. (non-GAAP) are marked bywith an asterisk ~~(“*”~~(*). the first time they are presented within this Item 2. An explanation of these measures is contained in the Glossary of Selected Terms included as ~~an exhibit~~Exhibit 99.1 to this Quarterly Report on Form ~~10-Q.~~

10-Q and are reconciled to the most directly comparable measures prepared in accordance with accounting principles generally accepted in the U.S. (GAAP) in the Appendix to the Company's Third Quarter 2019 Investor Supplement.

Forward-looking Information

Statements made in the following discussion that are not historical in nature are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to known and unknown risks, uncertainties and other factors. Horace Mann Educators Corporation ~~("HMEC";~~(HMEC; and together with its subsidiaries, the ~~"Company"~~Company or ~~"Horace Mann")~~Horace Mann) is an insurance holding company. Horace Mann is not under any obligation to (and expressly disclaims any such obligation to) update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. It is important to note that the Company’s actual results could differ materially from those projected in forward-looking statements due to a number of risks and uncertainties inherent in the ~~Company’s~~Company's business. ~~For additional information regarding risks and uncertainties, see “Item 1A. Risk Factors”~~See Item 1A in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016. That discussion includes factors such as:~~

~~The impact that a prolonged economic recession may have on the Company’s investment portfolio; volume of new business~~2018 for ~~automobile, homeowners, retirement~~additional information regarding risks and ~~life products; policy renewal rates; and additional annuity contract deposit receipts.~~

Fluctuations in the fair value of securities in the Company’s investment portfolio and the related after tax effect on the Company’s shareholders’ equity and total capital through either realized or unrealized investment losses.

Prevailing low interest rate levels, including the impact of interest rates on (1) the Company’s ability to maintain appropriate interest rate spreads over minimum fixed rates guaranteed in the Company’s annuity and life products, (2) the book yield of the Company’s investment portfolio, (3) unrealized gains and losses in the Company’s investment portfolio and the related after tax effect on the Company’s shareholders’ equity and total capital, (4) amortization of deferred policy acquisition costs and (5) capital levels of the Company’s life insurance subsidiaries.

The frequency and severity of events such as hurricanes, storms, earthquakes and wildfires, and the ability of the Company to provide accurate estimates of ultimate claim costs in its consolidated financial statements.

The Company’s risk exposure to catastrophe-prone areas. Based on full year 2016 Property and Casualty direct earned premiums, the Company’s ten largest states represented 57% of the segment total. Included in this top ten group are certain states which are considered more prone to catastrophe occurrences: California, North Carolina, Texas, South Carolina, Florida and Louisiana.

~~The ability of the Company to maintain a favorable catastrophe reinsurance program considering both availability and cost; and the collectibility of reinsurance receivables.~~

Adverse changes in market appreciation, interest spreads, business persistency and policyholder mortality and morbidity rates and the resulting impact on both estimated reserves and the amortization of deferred policy acquisition costs.

~~The Company’s ability to refinance outstanding indebtedness or repurchase shares of the Company’s common stock.~~

The Company’s ability to (1) develop and expand its marketing operations, including agents and other points of distribution, (2) maintain and secure access to educators, school administrators, principals and school business officials; and (3) profitably expand its Property and Casualty business in highly competitive environments.

The effects of economic forces and other issues affecting the educator market including, but not limited to, federal, state and local budget deficits and cut-backs and adverse changes in state and local tax revenues. The effects of these forces can include, among others, teacher layoffs and early retirements, as well as individual concerns regarding employment and economic uncertainty.

Changes in federal and state laws and regulations, which affect the relative tax and other advantages of the Company’s life and annuity products to customers, including, but not limited to, changes in IRS regulations governing Section 403(b) plans.

~~Changes in public employee retirement programs as a result of federal and/or state level pension reform initiatives.~~

~~Changes in federal and state laws and regulations, which affect the relative tax advantage of certain investments or which affect the ability of debt issuers to declare bankruptcy or restructure debt.~~

~~The Company’s ability to effectively implement new or enhanced information technology systems and applications.~~

~~Changes in Cybersecurity regulations as a result of state level requirements.~~uncertainties.

~~Executive Summary~~Introduction

The purpose of this MD&A is to provide an understanding of the Company’s consolidated results of operations and financial condition. This MD&A should be read in conjunction with Item 1 of this report.

HMEC is an insurance holding company. Through its subsidiaries, HMEC markets and underwrites personal lines of property and casualty insurance, supplemental health insurance products, retirement products, including annuities, and life insurance in the U.S. The Company markets its products primarily to K-12 teachers, administrators and other employees of public schools and their families.

~~For~~On July 1, 2019, the ~~three month period ended September 30, 2017,~~Company acquired all of the equity interests in National Teachers Associates Life Insurance Company (NTA). NTA’s insurance subsidiaries predominantly sell a variety of guaranteed renewable supplemental health insurance products (primarily heart, cancer and limited supplemental disability coverages). The insurance subsidiaries also market accidental injury and life insurance products. NTA’s insurance subsidiaries are licensed in 50 states, the U.S. Virgin Islands and the District of Columbia and their marketplace is primarily within the public sector for which approximately 80% are individuals employed by educational institutions, with the remainder employed in state and local governments and emergency services facilities.

This MD&A begins with the Company’s ~~net income~~consolidated financial highlights followed by consolidated results of ~~$26.5 million decreased $0.4 million compared to~~operations, an outlook for future performance, details about critical accounting estimates and the ~~prior year period including an increase in Property and Casualty net income~~results of ~~$6.7 million offset~~operations by ~~a $4.9 million reduction in net realized investment gains.~~segment.

~~For the three month period~~ended September 30, 2017, Property and Casualty net income increased to $13.4 million compared to $6.7 million in the prior year period. The Property and Casualty combined ratio of 95.8% improved 5.7 points compared to the prior year period. These improvements were primarily due to an improved underlying auto loss ratio*, reflecting the impact of rate actions and continued profitability initiatives, as well as a strong underlying property loss ratio and lower expenses. Prior years' reserves continue to develop favorably; however, the favorable development in the third quarter of $0.5 million pretax was $0.2 million pretax lower than the amount a year ago. Catastrophe activity in the third quarter of 2017 totaled $8.6 million pretax compared to $8.4 million pretax in the prior year period. Losses related to Hurricane Harvey were $5.0 million pretax and losses related to Hurricane Irma were $2.5 million pretax. The remainder, $1.2 million pretax, of catastrophe losses related to four additional events.

On an underlying basis, the third quarter 2017 auto combined ratio* of 103.4% improved 4.9 points and the property combined ratio of 79.9% improved 7.8 points as compared to the prior year period. These improvements were driven by both lower loss ratios and improved expense ratios. The underlying auto loss ratio of 74.5% improved 3.2 points compared to the prior year period as a result of an increase in earned premium due to rate actions combined with continued stabilization in auto loss trends. The underlying property loss ratio of 46.3% improved 6.6 points compared to the prior year period primarily as a result of lower non-catastrophe weather-related losses in the current quarter.Consolidated Financial Highlights

~~Total Property and Casualty written premiums* of $177.2 million increased 4.4% compared to the prior year period. The growth was driven primarily by rate actions which resulted~~(All comparisons versus same period in ~~an increase in the average premium per policy for both auto and property. Policy retention continues to be strong with auto and property policy retention rates of 83.0% and 87.6%, respectively.~~2018, unless noted otherwise)



($ in millions)	Three Months Ended September 30,					2019-2018		Nine Months Ended September 30,						2019-2018
	2019			2018		Change %		2019			2018			Change %
Total revenues	$	334.4		$	311.4	7.4	%	$	1,099.1		$	913.1		20.4	%
Net income	25.4			12.5		103.2	%	151.4			38.6			N.M.
Per diluted share:
Net income	$	0.60		$	0.30	100.0	%	$	3.61		$	0.93		N.M.
Net investment gains (losses), after tax	(0.04		)	0.05		N.M.		2.84			0.04			N.M.
Book value per share								$	38.30		$	31.78		20.5	%
Net income return on equity - last twelve months								9.2		%	11.8		%
Net income return on equity - annualized								14.1		%	3.7		%

________________

N.M. - Not meaningful.

Net Income

For the three and nine month ~~period~~periods ended September 30, ~~2017, Retirement~~2019, the Company's net income ~~of $13.6~~increased $12.9 million ~~decreased $2.1~~and $112.8 million, ~~or 13.4% compared to the prior year period which is primarily due to a $3.4 million pretax decrease~~respectively. The increase in net ~~interest margin and a $1.0 million pretax increase in operating expenses offset by a $1.1 million pretax increase in contract charges.~~

~~For~~income for the three month period ~~ended September 30, 2017, Life net income of $4.8 million increased $0.2 million compared to the prior year period~~was primarily due to lower ~~operating expenses. Life insurance premiums~~catastrophe losses in Property and contract deposits*Casualty and the addition of ~~$26.4~~net income from Supplemental offset by a decrease in Retirement net income resulting from the annuity reinsurance transaction. The increase in net income for the nine month period was primarily due to recognition of a $106.9 million ~~decreased 2.9% compared~~after tax realized investment gain in the second quarter of 2019 associated with the annuity reinsurance transaction. The impact from the realized investment gain was partially offset by a $28.0 million annuity goodwill impairment charge. Lower catastrophe costs in Property and Casualty as well as the addition of Supplemental also contributed to the ~~prior year~~increase in net income for the nine month period. See Item 1, Notes 2, 6 and 14 of the Consolidated Financial Statements for more information regarding Supplemental, the annuity reinsurance transaction and the goodwill impairment charge.

Net income (loss) by segment is as follows:



($ in millions)	Three Months Ended September 30,						2019-2018		Nine Months Ended September 30,						2019-2018
	2019			2018			Change %		2019			2018			Change %
Analysis of net income (loss) by segment:
Property and Casualty	$	14.2		$	(3.2	)	N.M.		$	34.3		$	(4.4	)	N.M.
Supplemental	6.9			N/A			N/A		6.9			N/A			N/A
Retirement	5.9			12.1			-51.2	%	(6.9		)	37.6			-118.4	%
Life	5.1			5.3			-3.8	%	13.6			15.0			-9.3	%
Corporate and Other	(6.7		)	(1.7		)	N.M.		103.5			(9.6		)	N.M.
Net income	$	25.4		$	12.5		103.2	%	$	151.4		$	38.6		N.M.

________________

N.M. - Not meaningful.

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

~~For~~The net loss for Retirement in the nine month period ended September 30, ~~2017,~~2019 is primarily due to the ~~Company's net income~~$28.0 million goodwill impairment charge which was triggered by the annuity reinsurance transaction.

The aforementioned $106.9 million after tax realized investment gain recognized in the second quarter of ~~$44.1~~2019 associated with the annuity reinsurance transaction is reported in the results for the Corporate and Other segment.

Consolidated Results of Operations

(All comparisons versus same period in 2018, unless noted otherwise)



($ in millions)	Three Months Ended September 30,					2019-2018		Nine Months Ended September 30,				2019-2018
	2019			2018		Change %		2019		2018		Change %
Insurance premiums and contract charges earned	$	239.7		$	206.8	15.9	%	$	657.6	$	615.4	6.9	%
Net investment income	93.0			99.1		-6.2	%	279.3		288.1		-3.1	%
Net investment gains (losses)	(2.1		)	2.9		N.M.		151.6		1.9		N.M.
Other income	3.8			2.6		46.2	%	10.6		7.7		37.7	%
Total revenues	334.4			311.4		7.4	%	1,099.1		913.1		20.4	%

Benefits, claims and settlement expenses	154.2			161.8		-4.7	%	446.3		473.7		-5.8	%
Interest credited	53.6			52.1		2.9	%	160.1		153.2		4.5	%
Operating expenses	61.4			51.0		20.4	%	169.6		149.4		13.5	%
DAC unlocking and amortization expense	26.3			26.2		0.4	%	82.9		79.4		4.4	%
Intangible asset amortization expense	3.8			—		N.M.		4.9		—		N.M.
Interest expense	4.6			3.2		43.8	%	11.2		9.7		15.5	%
Other expense - goodwill impairment	—			—		N.M.		28.0		—		N.M.
Total benefits, losses and expenses	303.9			294.3		3.3	%	903.0		865.4		4.3	%

Income before income taxes	30.5			17.1		78.4	%	196.1		47.7		N.M.
Income tax expense	5.1			4.6		10.9	%	44.7		9.1		N.M.
Net income	$	25.4		$	12.5	103.2	%	$	151.4	$	38.6	N.M.

________________

N.M. - Not meaningful.

Insurance Premiums and Contract Charges Earned

For the three and nine month periods ended September 30, 2019, insurance premiums and contract charges earned increased $32.9 million ~~decreased $19.8~~and $42.2 million, ~~compared~~respectively. The increase for the three month period is due to ~~a year ago reflecting a record level~~the addition of ~~catastrophe losses,~~earned premiums from Supplemental. The increase for the nine month period is due to the addition of earned premiums from Supplemental as well as ~~elevated non-catastrophe weather-related losses~~increases in average premium per policy for both automobile and property.

Net Investment Income

Excluding accreted net investment income on the deposit asset on reinsurance, net investment income for the three and nine month periods ended September 30, 2019 declined primarily because invested assets decreased 18.4% from December 31, 2018 due to assets transferred under the annuity reinsurance transaction as well as lower than expected new money rates and prepayments that ~~occurred~~were partially offset by stronger returns on alternative investments. Investment yields continue to be impacted by the low interest rate environment of recent years. Annualized investment portfolio yield is presented in the ~~first half of the year.~~following table:



	Three Months Ended September 30,		Nine Months Ended September 30,
	2019	2018	2019	2018
Pretax yield	4.8%	5.3%	5.0%	5.2%
After tax yield	3.8%	4.0%	4.0%	4.1%

~~For~~During the nine month period ended September 30, ~~2017, Property~~2019, management continued to identify and ~~Casualty~~purchase investments, including a modest level of alternative investments, with attractive risk-adjusted yields relative to market conditions without venturing into asset classes or individual securities that would be inconsistent with the Company's overall conservative investment guidelines.

Net Investment Gains (Losses)

For the three and nine month periods ended September 30, 2019, net ~~income~~investment gains decreased $5.0 million and increased $149.7 million, respectively. The decrease for the three month period was primarily due to ~~$2.2 million compared~~changes in fair value and settlements for derivatives. The increase for the nine month period was primarily due to ~~net income~~recognition of ~~$16.0~~a realized investment gain of $135.3 million in the ~~prior year period as a result~~second quarter of ~~elevated catastrophe losses and non-catastrophe weather-related losses that occurred~~2019 in connection with the transfer of investments related to the aforementioned annuity reinsurance transaction. The breakdown of net investment gains (losses) by transaction type is shown in the first half of the year. The Property and Casualty combined ratio of 106.5% increased 4.1 points compared to a year ago. Pretax catastrophe losses were $9.8 million higher than the prior year period; favorable prior years' reserve development was $2.2 million pretax less than the prior year period.following table:



($ in millions)	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
OTTI losses recognized in earnings	$	—		$	—		$	(0.3	)	$	(1.4	)
Sales and other, net	0.6			(1.3		)	147.5			2.7
Change in fair value - equity securities	1.1			2.0			8.0			(4.3		)
Change in fair value and gains (losses) realized on settlements - derivatives	(3.8		)	2.2			(3.6		)	4.9
Net investment gains (losses)	$	(2.1	)	$	2.9		$	151.6		$	1.9

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

Other Income

For the three and nine month ~~2017 auto loss ratio of 77.0%~~periods ended September 30, 2019, other income increased ~~0.5 points~~ compared to the prior year ~~period. For property, the underlying nine month loss ratio~~periods primarily due to inclusion of 49.7% increased 6.1 points compared to the prior year period and was largely related to the impact of higher non-catastrophe weather-related losses that occurred in the first half of the year. The expense ratio for Property and Casualty of 26.7% was slightly below the prior year period.Benefit Consultants Group, Inc. (BCG) brokerage fees.

~~Total Property~~

Benefits, Claims and Casualty written premiums of $498.0 million increased 4.6% compared to the prior year period. The growth was driven primarily by rate actions which resulted in an increase in the average premium per policy for both auto and property.Settlement Expenses

For the three and nine month ~~period~~periods ended September 30, ~~2017, Retirement net income of $36.9~~2019, benefits, claims and settlement expenses decreased $7.6 million ~~decreased $2.4~~and $27.4 million, ~~compared to the prior year period which is~~respectively, driven primarily ~~due to a $6.8 million pretax increase in operating expenses including costs related to the Company's continued infrastructure~~by lower catastrophe losses and ~~strategic investments,~~improved automobile experience, partially offset by a $2.2 million pretax increase in contract charges earned and a $0.9 million pretax increase in net interest margin. The nine month 2017 annualized net interest spread on fixed annuity assets was 188 basis points, a decrease of 7 basis points compared to a year ago. Total Retirement annuity assets under management of $6.6 billion increased 4.9% compared to a year ago, and total cash value persistency remained strong at 89.7% for variable annuities and 92.6% for fixed annuities. Annuity deposits* of $348.9 million decreased 11.0% compared tolosses from the ~~prior year period. The decline in annuity deposits was related to lower sales of single premium annuity products in the current year.~~new Supplemental segment.

Interest Credited

For the three and nine month periods ended September 30, 2019, the increase in Retirement interest credited reflected higher interest costs on Federal Home Loan Bank (FHLB) funding agreements as well as a 2.4% increase in average accumulated fixed deposits. Under the deposit method of accounting, the interest credited on the annuity reinsured block continues to be reported. The average deferred annuity credited rate was 2.5% at September 30, 2019, excluding the reinsured block, and 3.6% at September 30, 2018.

Operating Expenses

For the three and nine month periods ended September 30, 2019, increases in operating expenses were consistent with management's expectations as the current periods include $13.8 million and $18.4 million, respectively, of operating expenses pertaining to NTA and BCG operations.

Deferred Acquisition Costs (DAC) Unlocking and Amortization Expense

For the three and nine month periods ended September 30, 2019, DAC amortization expense increased $0.1 million and $3.5 million, respectively. The increase for the nine month period was primarily due to accelerated amortization of the DAC asset associated with the reinsured annuity block partially offset by favorable DAC unlocking in Retirement due to market performance. For Life, DAC unlocking resulted in an immaterial change to amortization for the three and nine month periods ended September 30, ~~2017, Life net income of $14.3~~2019.

Intangible Asset Amortization Expense

For the three and nine month periods ended September 30, 2019, intangible asset amortization expense increased $3.8 million ~~increased $1.2~~and $4.9 million ~~compared~~due to the ~~prior year period. Life insurance premiums~~acquisitions of NTA and ~~contract deposits~~BCG in 2019.

Interest Expense

For the three and nine month periods ended September 30, 2019, interest expense increased ~~1.8%,~~$1.4 million and $1.5 million, respectively as the Company utilized its senior revolving credit facility in the current quarter to ~~$79.8 million compared to~~partially fund the ~~prior year period. Life persistency~~acquisition of ~~95.3% was comparable to 12 months earlier.~~NTA on July 1, 2019.

Other Expense - Goodwill Impairment

For the three and nine month periods ended September 30, 2019, other expense represents the aforementioned goodwill impairment in Retirement.

Income Tax Expense

The ~~Company’s book value per share~~effective income tax rate on the Company's pretax income, including net investment gains (losses), was ~~$34.20~~22.7% and 19.1% for the nine month periods ended September 30, 2019 and 2018, respectively. Income from investments in tax-advantaged securities reduced the effective income tax rates by 1.8 and 2.8 percentage points for the nine month periods ended September 30, 2019 and 2018, respectively. The goodwill impairment charge in the Retirement segment increased the effective income tax rate by 2.8 percentage points at September 30, ~~2017,~~2019.

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

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

Outlook for 2019

At the time of this Quarterly Report on Form 10-Q, management estimates that 2019 full year core earnings* will be within a range of $2.05 to $2.15 per diluted share, generating a core return on equity* of around 7.0%. This projection also reflects an ~~increase~~effective tax rate of ~~6.4%~~between 16% and 18%.

Within Property and Casualty, planned premium rate increases, as well as continued underwriting initiatives, are expected to improve the underlying automobile loss ratio* by about 3.0 to 3.5 points and the underlying property loss ratio* is anticipated to remain flat compared to full year 2018. Catastrophe costs are projected to be between $50 million and $55 million and the expense ratio is expected to be consistent with 2018 at around 27%.

Net income for Retirement will continue at a lower run rate as a result of the recent annuity reinsurance transaction and redeployment of capital to the new Supplemental segment. Net investment income declines for Retirement are due to the resulting lower levels of invested assets as well as new money rates below the average portfolio earned rate. In addition, expense levels are higher than prior year, offset by increases in fee income and other income due to the inclusion of BCG. As a result, net income for Retirement is anticipated to be in the range of $25 million to $27 million for the full year 2019.

Life net income is anticipated to decline 10-15% from the prior year due to the decrease in net investment income noted above, accompanied by a modest increase in mortality costs.

Net income for the new Supplemental segment is anticipated to be in the range of $12 million to $14 million for the second half of 2019, partially offset by additional interest expense of $2 million in Corporate and Other.

As described in Critical Accounting Estimates, certain of the Company's significant accounting measurements require the use of estimates and assumptions. As additional information becomes available, adjustments may be required. Those adjustments are charged or credited to income for the period in which the adjustments are made and may impact actual results compared to management's estimates above. Additionally, see Forward-looking Information and Item 1A in this Quarterly Report on Form 10-Q and

Items 1 and 1A of the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018 concerning other important factors that could impact actual results. Management believes 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 ~~decrease of 4.8% compared to a year ago.~~significant impact on net income.

Critical Accounting ~~Policies~~Estimates

The preparation of consolidated financial statements in conformity with ~~accounting principles generally accepted in the United States (“GAAP”)~~GAAP requires the Company's management to make estimates and assumptions based on information available at the time the consolidated financial statements are prepared. These estimates and assumptions affect the reported amounts of the Company's consolidated assets, liabilities, shareholders' equity, net income and cash flows. Certain accounting estimates are particularly sensitive because of their significance to the Company's consolidated financial statements and because of the possibility that subsequent events and available information may differ markedly from management's judgments at the time the consolidated financial statements were prepared.

Management has discussed with the Audit Committee the quality, not just the acceptability, of the Company's accounting principles as applied in its financial reporting. The discussions generally included such matters as the consistency of the Company's accounting policies and their application, and the clarity and completeness of the Company's consolidated financial statements, which include related disclosures. For the Company, areas most subject to significant management judgments include: ~~fair value measurements, other-than-temporary impairment of~~

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

Evaluation of goodwill and intangible assets for impairment

Valuation of life and annuity deferred policy acquisition costs ~~for investment contracts and life insurance products with account values,~~

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

Valuation of investment contract and policy ~~benefits, deferred taxes and valuation~~reserves

Valuation of assets acquired and liabilities ~~related to the defined benefit pension plan.~~assumed under purchase accounting

~~Compared~~Except as noted below, compared to December 31, ~~2016,~~2018, at September 30, ~~2017,~~2019, there were no material changes to accounting policies for areas most subject to significant management judgments identified above. In addition to disclosures in ~~“Notes~~the Notes to Consolidated Financial ~~Statements”~~Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2018, discussion of accounting policies, including certain sensitivity information, was presented in ~~“Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations -- Critical Accounting ~~Policies”~~Estimates in that Form 10-K.

Valuation of Assets Acquired and Liabilities Assumed under Purchase Accounting and Purchase Price Allocation

In accounting for the acquisition of NTA, assets acquired and liabilities assumed are recognized based on estimated fair values as of the date of acquisition. The excess of the purchase price when compared to the fair value of the net tangible and identifiable intangible assets acquired is recognized as goodwill. A significant amount of judgment is involved in estimating the individual fair values of tangible assets, intangible assets, and other assets and liabilities. The Company uses all available information to make these fair value determinations and engages third-party consultants for valuation assistance. The fair value of assets and liabilities as of the acquisition date are estimated using a combination of approaches, including the income approach, which requires the Company to project future cash flows and apply an appropriate discount rate; the cost approach, which requires estimates of replacement costs and depreciation and obsolescence estimates; and the market approach. The estimates used in determining fair values are based

on assumptions believed to be reasonable but which are inherently uncertain. Accordingly, actual results may differ materially from the projected results used to determine fair value.

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 aforementioned intangible assets were valued using the income approach. The trade names intangible asset represents the present value of future savings accruing NTA by virtue of not having to pay royalties for the use of the trade names, valued using the relief from royalty method. The state licenses intangible asset represents the regulatory licenses held by NTA that were valued using the cost approach. The valuation of NTA's policy reserves represents the present value of future benefits and expenses associated with the policies, valued using the actuarial appraisal approach.

The valuation of the assets acquired and liabilities assumed of NTA noted above required management to make multiple judgments and assumptions to project future cash flows. Assumptions included future policy and contract charges, premiums, morbidity and mortality, and persistency by product, as well as expenses, investment returns, growth rates, agent termination rates and other factors. One of the most significant inputs in these calculations is the discount rate used to arrive at the present value of the net cash flows. Actual experience on the purchased business may vary from these projections and the recovery of the net assets recorded is dependent upon the future profitability of the related business.

Results of Operations by Segment

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

Property and Casualty

Supplemental (see Note 1 for a description of changes to the Company's reporting segments)

Retirement

Life

Corporate and Other

The calculations of segment data are described in more detail in Item 1, Note 11 of the Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The following sections provide analysis and discussion of results of operations for each of the reporting segments as well as investment results.

Property and Casualty

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

(All comparisons versus same period in 2018, unless noted otherwise)

($ in millions) Three Months Ended September 30,
Change From
Prior Year
Nine Months Ended September 30, Change From
Prior Year
2017 2016 Percent Amount 2017 2016 Percent Amount
Insurance premiums written and contract deposits
(includes annuity and life contract deposits)

Property and Casualty $ 177.2
$ 169.8
4.4 % $ 7.4
$ 498.0
$ 476.3
4.6 % $ 21.7
Retirement (annuity) 114.8
154.6
-25.7 % (39.8 ) 348.9
391.9
-11.0 % (43.0 )
Life 26.4
27.2
-2.9 % (0.8 ) 79.8
78.4
1.8 % 1.4
Total $ 318.4
$ 351.6
-9.4 % $ (33.2 ) $ 926.7
$ 946.6
(2.1 )% $ (19.9 )

Insurance premiums and contract charges earned
(excludes annuity and life contract deposits)

Property and Casualty $ 163.2
$ 155.7
4.8 % $ 7.5
$ 482.0
$ 461.5
4.4 % $ 20.5
Retirement (annuity) 7.5
6.4
17.2 % 1.1
20.8
18.6
11.8 % 2.2
Life 28.3
29.0
-2.4 % (0.7 ) 87.6
84.8
3.3 % 2.8
Total $ 199.0
$ 191.1
4.1 % $ 7.9
$ 590.4
$ 564.9
4.5 % $ 25.5



($ in millions, unless otherwise indicated)	Three Months Ended September 30,						2019-2018		Nine Months Ended September 30,						2019-2018
	2019			2018			Change %		2019			2018			Change %
Financial Data:
Premiums written*:
Automobile	$	118.8		$	120.5		-1.4	%	$	350.2		$	350.0		0.1	%
Property and other	63.7			62.2			2.4	%	168.3			165.1			1.9	%
Total premiums written	182.5			182.7			-0.1	%	518.5			515.1			0.7	%
Change in unearned insurance premiums	(12.0		)	(14.1		)	-14.9	%	(5.9		)	(13.7		)	-56.9	%
Total insurance premiums earned	170.5			168.6			1.1	%	512.6			501.4			2.2	%
Incurred claims and claims expenses:
Claims occurring in the current year	122.5			140.0			-12.5	%	375.7			408.0			-7.9	%
Prior years' reserve development	3.5			—			N.M.		7.5			0.3			N.M.
Total claims and claim expenses incurred	119.0			140.0			-15.0	%	368.2			407.7			-9.7	%
Operating expenses, including DAC amortization	45.0			45.8			-1.7	%	136.9			133.7			2.4	%
Underwriting gain (loss)	6.5			(17.2		)	137.8	%	7.5			(40.0		)	118.8	%
Net investment income	10.7			12.4			-13.7	%	33.6			32.2			4.3	%
Income (loss) before income taxes	17.4			(4.7		)	N.M.		41.8			(7.2		)	N.M.
Net income (loss)/core earnings*	14.2			(3.2		)	N.M.		34.3			(4.4		)	N.M.

Operating Statistics:
Automobile
Loss and loss adjustment expense ratio	65.8		%	72.1		%	-6.3	pts	70.2		%	76.7		%	-6.5	pts
Expense ratio	26.6		%	27.4		%	-0.8	pts	26.8		%	26.7		%	0.1	pts
Combined ratio:	92.4		%	99.5		%	-7.1	pts	97.0		%	103.4		%	-6.4	pts
Prior years' reserve development	-3.0		%	—		%	-3.0	pts	-1.6		%	—		%	-1.6	pts
Catastrophes	2.1		%	0.7		%	1.4	pts	1.6		%	1.6		%	—%
Underlying combined ratio*	93.3		%	98.8		%	-5.5	pts	97.0		%	101.8		%	-4.8	pts
Property
Loss and loss adjustment expense ratio	78.2		%	106.6		%	-28.4	pts	75.3		%	91.1		%	-15.8	pts
Expense ratio	26.1		%	26.7		%	-0.6	pts	26.7		%	26.8		%	-0.1	pts
Combined ratio:	104.3		%	133.3		%	-29.0	pts	102.0		%	117.9		%	-15.9	pts
Prior years' reserve development	—		%	—		%	—%		-1.2		%	-0.2		%	-1.0	pts
Catastrophes	22.6		%	58.6		%	-36.0	pts	25.9		%	39.8		%	-13.9	pts
Underlying combined ratio*	81.7		%	74.7		%	7.0	pts	77.3		%	78.3		%	-1.0	pts

Policies in force (in thousands)
Automobile ⁽¹⁾									441			466			-5.4	%
Property									196			202			-3.0	%
Total									637			668			-4.6	%

________________

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

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

For the three and ~~Contracts~~nine month periods ended September 30, 2019, core earnings* increased $17.4 million and $38.7 million, respectively. This reflects 9.5 points of improvement in ~~Force~~the Property and Casualty combined ratio year to date due to lower catastrophe losses, favorable prior years' reserve development and improved automobile underwriting results.

~~(actual counts)~~

September 30, 2017 December 31, 2016 September 30, 2016
Property and Casualty
Automobile 482,035 484,915 486,229
Property 217,377 220,137 221,094
Total 699,412 705,052 707,323
Retirement 221,309 219,105 215,445
Life 196,978 197,937 197,792

On a reported basis, the improvement in the automobile combined ratio for the nine month period ended September 30, 2019 was mainly attributed to 4.9 points of improvement in the underlying loss ratio* due to rate actions combined with continued stabilization in automobile loss trends. The reported property combined ratio improved 15.9 points for the nine month period ended September 30, 2019 primarily due to lower catastrophe losses. For the three month period ended September 30, ~~2017,~~2019, the ~~Company’s premiums written and contract deposits of $318.4 million decreased $33.2 million, or 9.4%, primarily as a result of a decline~~underlying property loss ratio increased 7.6 points reflecting an increase in ~~annuity deposits due to lower sales of single premium annuity products. The Company’s premiums and contract charges earned increased $7.9 million, or 4.1%, compared to~~non-catastrophe fire loss severity with no increase in frequency. For the ~~prior year~~nine month period ~~primarily due to increases in average premium per policy for both homeowners and automobile.~~ended September 30, 2019, the underlying property loss ratio improved 0.9 points.

~~Total Property and Casualty~~Rate actions were the primary factor for the slight increase in total premiums ~~written increased 4.6%, or $21.7 million, in~~written* for the ~~first~~ nine ~~months of 2017, compared to~~month period ended September 30, 2019. For 2019, the ~~prior year period, primarily due to increases in average written premium per policy for both homeowners and automobile. For 2017, the Company’s~~Company's full year rate plan anticipates ~~low-double~~low-single digit average rate increases ~~for automobile and mid-single digit average rate increases for homeowners~~ (including states with no rate ~~actions~~actions) for both automobile and ~~homeowners);~~property; average approved rate changes during the first nine months of ~~2017~~2019 were ~~8.7%~~4.8% for automobile and ~~4.3%~~3.5% for ~~homeowners.~~

Based on policies in force, the current year automobile 12 month retention rate for new and renewal policies was 83.0% compared to 83.5% at September 30, 2016, with the decrease due to recent rate and underwriting actions. The current year homeowner 12 month retention rate for new and renewal policies was 87.6% at September 30, 2017 compared to 87.8% at September 30, 2016 with the decrease due to recent rate and underwriting actions.property.

Automobile premiums ~~written increased 5.9%, or $18.8 million, compared~~written* were comparable to the ~~first~~three and nine ~~months of 2016.~~month periods ended September 30, 2018. In the first nine months of ~~2017,~~2019, the average written premium per policy and average earned premium per policy increased ~~approximately 6.3%~~4.4% and ~~5.5%~~5.7%, respectively. Based on policies in force, the automobile 12 month retention rate for new and renewal policies decreased to 80.9% from 82.5% at September 30, 2019 and 2018, respectively, ~~compared~~with the decrease due to ~~the prior year period.~~recent rate and underwriting actions. The number of educator policies has been stable relative to overall automobile policies as educators represented ~~approximately 85%~~85.3%, 85.4% and 85.4% of the automobile policies in force atas of September 30, ~~2017,~~2019, December 31, ~~2016~~2018 and September 30, ~~2016.~~2018, respectively.

~~Homeowners~~Property and other premiums ~~written~~written* increased ~~1.7%, or $2.7 million, compared to~~slightly for the ~~first~~three and nine ~~months of 2016.~~month periods ended September 30, 2019. While the number of ~~homeowners~~property policies in force has declined, the average written premium per policy and average earned premium per policy increased ~~approximately 2.0%~~6.4% and ~~3.2%~~5.2%, respectively, in the first nine months of ~~2017 compared~~2019. Based on policies in force, the property 12 month retention rate for new and renewal policies decreased to ~~the prior year period.~~87.3% from 87.9% at September 30, 2019 and 2018, respectively. The number of educator policies has been stable relative to overall property policies as educators represented ~~approximately 82%~~82.6%, 82.4% and 82.4% of the ~~homeowners~~property policies in force atas of September 30, ~~2017,~~2019, December 31, ~~2016~~2018, and September 30, 2016. The number of educator policies and total policies has been, and may continue to be, impacted by the Company’s risk mitigation programs, including actions in catastrophe-prone coastal areas, involving policies of both educators and non-educators.2018, respectively.

The Company continues to evaluate and implement actions to further mitigate its risk exposure in ~~hurricane-prone areas, as well as other~~catastrophe-prone areas of the country. Such actions could include, but are not limited to, non-renewal of ~~homeowners~~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.

~~For~~

Supplemental

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

($ in millions, unless otherwise indicated)

Three Months Ended
September 30,

2019-2018

Nine Months Ended
September 30,

2019-2018

2019

2018

Change %

2019

2018

Change %

Financial Data:

Insurance premiums and contract deposits

32.7

N/A

32.7

N/A

Insurance premiums and

contract charges earned

32.9

N/A

32.9

N/A

Net investment income

3.7

N/A

3.7

N/A

Benefits and settlement expenses

14.7

N/A

14.7

N/A

Operating expenses (includes DAC unlocking and amortization expense)

10.5

N/A

10.5

N/A

Intangible asset amortization expense

3.2

N/A

3.2

N/A

Income before income taxes

8.8

N/A

8.8

N/A

Net income /core earnings*

6.9

N/A

6.9

N/A

Operating Statistics:

Supplemental insurance in force (thousands)

297

N/A

Benefits ratio ⁽¹⁾

44.7

N/A

44.7

N/A

Expense ratio ⁽²⁾

28.2

N/A

28.2

N/A

Pretax profit margin ⁽²⁾

23.7

N/A

23.7

N/A

Persistency

88.9

N/A

______________

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

⁽¹⁾ Benefits ratio measured to earned premium.

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

Supplemental contributed $6.9 million to net income in its initial quarter with the Company. The pretax profit margin was 23.7% for the three month period ended September 30, ~~2017, total annuity deposits received~~2019 reflecting this business' focus on efficient operations and product mix. The non-cash impact from amortization of intangible assets recognized in connection with the purchase accounting of NTA reduced pretax net income by Retirement decreased 11.0%, or $43.0 million, compared to the prior year period. For the first nine months of 2017, the decrease reflected a 1.1% increase in recurring deposit receipts and a 18.8% decrease in single premium and rollover deposit receipts.$3.2 million.

For the nine month period ended September 30, 2017, new deposits to fixed accounts of $221.2 million decreased 19.4%, or $53.1 million, and new deposits to variable accounts of $127.7 million increased 8.6%, or $10.1 million, compared to the prior year period.

Total annuity accumulated value on deposit of $6.6 billion at September 30, 2017 increased 4.9% compared to a year earlier, reflecting the increase from new deposits received, market appreciation as well as favorable retention. Accumulated value retention

Retirement

The following table provides certain information for Retirement for the ~~variable annuity option was 89.7% and 94.6% for~~periods indicated.

(All comparisons versus same period in 2018, unless noted otherwise)



($ in millions, unless otherwise indicated)	Three Months Ended September 30,						2019-2018		Nine Months Ended September 30,						2019-2018
	2019			2018			Change %		2019			2018			Change %
Financial Data:
Contract charges earned	$	6.6		$	8.0		-17.5	%	$	22.1		$	23.9		-7.5	%
Net investment income	60.8			67.7			-10.2	%	188.2			199.7			-5.8	%
Interest credited	42.4			40.8			3.9	%	126.4			119.4			5.9	%
Net interest margin without net investment gains (losses)	19.5			26.9			-27.5	%	64.0			80.3			-20.3	%
Net interest margin - Reinsured block	(1.1		)	—			N.M.		(2.2		)	—			N.M.
Mortality loss and other reserve charges	0.9			1.5			-40.0	%	2.7			4.8			-43.8	%
Operating expenses	14.5			14.0			3.6	%	44.7			42.3			5.7	%
DAC and intangible asset amortization expense, excluding DAC unlocking	4.9			4.7			4.3	%	15.2			14.3			6.3	%
DAC unlocking	—			(0.3		)	N.M.		3.6			0.1			N.M.
Other expense - goodwill impairment	—			—			N.M.		28.0			—			N.M.
Income (loss) before income taxes	7.0			16.8			-58.3	%	(3.2		)	48.0			-106.7	%
Net income (loss)	5.9			12.1			-51.2	%	(6.9		)	37.6			-118.4	%
Core earnings*	5.9			12.1			-51.2	%	21.1			37.6			-43.9	%
Operating Statistics:
Annuity contract deposits*
Variable	$	54.6		$	53.8		1.5	%	$	157.5		$	151.3		4.1	%
Fixed	73.7			73.2			0.7	%	187.1			174.7			7.1	%
Total	128.3			127.0			1.0	%	344.6			326.0			5.7	%
Single	81.3			80.1			1.5	%	193.0			175.6			9.9	%
Recurring	47.0			46.9			0.2	%	151.6			150.4			0.8	%
Total	128.3			127.0			1.0	%	344.6			326.0			5.7	%
Assets under administration (AUA)
Annuity assets under management ⁽¹⁾									$	4,215.9		$	6,997.7		-39.8	%
Broker and advisory assets under administration⁽²⁾									2,259.4			333.6			N.M.
Recordkeeping assets under administration ⁽²⁾									1,422.4			—			N.M.
Total									$	7,897.7		$	7,331.3		7.7	%
Persistency
Variable annuities									94.7		%	94.5		%	0.2	pts
Fixed annuities									93.9		%	94.2		%	-0.3	pts
Total									94.2		%	94.3		%	-0.1	pts
Annuity contracts in force (thousands)									227			224			1.3	%
Fixed spread - YTD annualized (basis points)									198			182			16	bps

_______________

N.M. - Not meaningful.


⁽¹⁾	Amount reported as of September 30, 2019 excludes $673.1 million of assets under management held under modified coinsurance reinsurance.

⁽²⁾ 2019 includes the 12 month periods ended September 30, 2017 and 2016, respectively; fixed annuity retention was 92.6% and 94.6% for the respective periods. The accumulated value retention for both variable and fixed annuities was impacted by the transferresults of ~~the Company's 401(k) assets to a third-party provider that occurred during the first half of 2017.~~BCG acquired on January 2, 2019.

Variable annuity accumulated balances of $2.1 billion at September 30, 2017 increased 9.5% compared to September 30, 2016, as positive impacts of deposits and favorable financial market performance offset withdrawals and net transfers to the guaranteed interest rate fixed account option. Compared to the nine month period ended September 30, 2016, Retirement contract charges earned increased 11.8%, or $2.2 million.

Life premiums and contract deposits for the nine month period ended September 30, 2017 increased 1.8%, or $1.4 million, compared to the prior year period. The ordinary life insurance in force lapse ratio was 4.7% for the 12 months ended September 30, 2017 compared to 4.1% for the 12 month period ended September 30, 2016.

Sales*

For the first nine months of 2017, Property and Casualty new annualized sales premiums increased 6.6% compared to the first nine months of 2016, as 6.9%, or $4.6 million, growth in new automobile sales was accompanied by growth in homeowners sales of 5.2%, or $0.7 million, compared to the prior year period.

During the second quarter of 2017, the Company introduced Department of Labor compliant annuity products featuring a level commissions structure and flexibility to move between products without surrender charges. The Company continues to focus on agent training and marketing programs which emphasize retirement planning. Annuity sales by Horace Mann’s Exclusive Distributors decreased 9.2% compared to the first nine months of 2016. Sales from the Independent Agent distribution channel, which represent approximately 7.3% of total annuity sales in the first nine months of 2017, which are largely single premium and rollover annuity deposits, decreased approximately 29.0% compared to a year earlier. As a result, total Horace Mann annuity sales from the combined distribution channels decreased 11.0%, or $43.0 million, compared to the first nine months of 2016. It should be noted that historically, reported annuity sales for HM products were determined based on annualized new recurring deposits as well as single deposits/rollovers. Effective January 1, 2017, reported annuity sales are now determined based on total recurring deposits as well as single deposits/rollovers. All historical annuity sales information presented has been revised to conform to the new reporting methodology.

The Company’s introduction of new educator-focused portfolios of term and whole life products in recent years, including a single premium whole life product, as well as the Company’s Indexed Universal Life (“IUL”) product, have contributed to an increase in sales of proprietary life products. For the first nine months of 2017, sales of Horace Mann’s proprietary life insurance products totaled $11.6 million, representing an increase of 8.4%, or $0.9 million, compared to the prior year period, including an increase of $1.4 million for single premium sales.

~~Distribution~~

At September 30, 2017, there was a combined total of 694 Exclusive Distributors, compared to 683 at December 31, 2016 and 681 at September 30, 2016. The Company continues to expect higher quality standards for Exclusive Distributors to focus on improving both customer experience and agent productivity in their respective territories. The dedicated sales force is supported by the Company’s customer contact center which provides a means for educators to begin their experience directly with the Company, if that is their preference. The customer contact center is also able to assist educators in territories which are not currently served by Exclusive Distributors.

As mentioned above, the Company also utilizes a nationwide network of Independent Agents who comprise an additional distribution channel for the Company’s 403(b) tax-qualified annuity products. The Independent Agent distribution channel included 274 authorized agents at September 30, 2017. During the nine month period ended September 30, 2017, this channel generated $25.5 million in annuity sales for the Company compared to $35.9 million for the prior year period, with the new business primarily comprised of single and rollover deposit business in both periods.

~~Net Investment Income~~

For the three and nine month periods ended September 30, ~~2017,~~2019, core earnings* decreased $6.2 million and $16.5 million, respectively. The three month period reflected lower net investment income ~~of $92.3 million and $275.0 million decreased 2.7% and increased 1.6% respectively, compared to~~associated with the ~~prior year periods, reflecting higher asset balances in the Retirement segment~~reinsured block partially offset by ~~the impact of the current low interest rate environment. Average invested assets increased 4.8% over the 12 months ended September 30, 2017.~~favorable mortality costs. The ~~average pretax yield on the total investment portfolio for the~~ nine month period ~~ended September 30, 2017~~reflected lower net investment income and accelerated amortization of 5.1% (3.4% after tax) was comparable to the prior year period. During the nine month period ended September 30, 2017, management continued to identify and purchase investments, including a modest level of alternative investments, with attractive risk-adjusted yields without venturing into asset classes or individual securities that would be inconsistentDAC associated with the ~~Company’s overall conservative investment guidelines.~~

~~Net Realized Investment Gains and Losses (Pretax)~~

For the three month period ended September 30, 2017, net realized investment losses were $3.5 million compared to net realized investment gains of $4.0 million in the prior year period. The net realized investment losses for the three month period ended September 30, 2017 included $5.7 million of gross realized gains on disposal of securities offset by $3.1 million of gross realized losses primarily on disposal of securities and expiration of call options during the period and $6.1 million of charges for other-than-temporary impairment (“OTTI”) recorded primarily on fixed maturity securities in the construction sector.

For the nine month period ended September 30, 2017, net realized investment losses of $1.7 million included $18.6 million of gross realized gains on disposal of securities offset by $7.8 million of gross losses realized primarily on disposal of securities and expiration of call options during the period and $12.5 million of OTTI charges recorded on certain equity and fixed maturity securities.

~~For the nine month period ended September 30, 2016, net realized investment gains of $6.9 million included $19.2 million of gross realized gains on disposal of securities~~reinsured block partially offset by ~~$4.9~~favorable mortality costs. The current periods also include higher operating expenses from the inclusion of BCG.

As a result of the annuity reinsurance transaction, the Company impaired goodwill associated with the annuity business of Retirement and recognized a non-cash impairment charge of $28.0 million ~~of gross losses realized primarily on disposal of securities~~ during the ~~period and $7.4 million~~second quarter of ~~OTTI charges recorded largely on Puerto Rico and energy sector fixed maturity securities, as well as some equity securities.~~

The Company, from time to time, sells securities subsequent to the balance sheet date that were considered temporarily impaired at the balance sheet date. Such sales are due to issuer specific events occurring subsequent to the balance sheet date that result in a change in the Company’s intent to sell an invested asset.

~~Fixed Maturity and Equity Securities Portfolios~~

The table below presents the Company’s fixed maturity and equity securities portfolios by major asset class, including the ten largest sectors of the Company’s corporate bond holdings (based on fair value). Compared to December 31, 2016, credit spreads were tighter across most asset classes and U.S. Treasury rates declined, which resulted in higher net unrealized investment gains in the fixed maturity securities portfolio at September 30, 2017.

($ in millions) September 30, 2017

Number of
Issuers

Fair
Value

Amortized
Cost or
Cost

Pretax Net
Unrealized
Investment
Gain (Loss)
Fixed maturity securities

Corporate bonds

Banking & Finance 119
$ 704.4
$ 661.9
$ 42.5
Insurance 56
284.5
255.4
29.1
Energy (1) 58
232.7
217.8
14.9
Real Estate 42
184.6
175.8
8.8
Technology 34
180.6
172.0
8.6
HealthCare, Pharmacy 51
163.1
152.3
10.8
Utilities 42
153.8
134.5
19.3
Transportation 37
150.2
142.8
7.4
Telecommunications 26
110.9
102.6
8.3
Food and Beverage 23
91.1
87.2
3.9
All other corporates (2) 215
565.8
533.0
32.8
Total corporate bonds 703
2,821.7
2,635.3
186.4
Mortgage-backed securities

U.S. Government and federally sponsored agencies 229
420.4
391.4
29.0
Commercial (3) 125
535.1
531.4
3.7
Other 28
70.1
69.0
1.1
Municipal bonds (4) 378
1,842.2
1,669.3
172.9
Government bonds
U.S. 38
671.0
653.2
17.8
Foreign 15
100.2
93.8
6.4
Collateralized debt obligations (5) 87
522.4
517.4
5.0
Asset-backed securities 101
647.5
633.6
13.9
Total fixed maturity securities 1,704
$ 7,630.6
$ 7,194.4
$ 436.2

Equity securities

Non-redeemable preferred stocks 14
$ 64.0
$ 61.5
$ 2.5
Common stocks 198
74.7
58.7
16.0
Closed-end fund 1
20.6
20.0
0.6
Total equity securities 213
$ 159.3
$ 140.2
$ 19.1

Total 1,917
$ 7,789.9
$ 7,334.6
$ 455.3


~~(1)~~	~~At September 30, 2017, the fair value amount included $14.0 million of securities which were non-investment grade.~~


~~(2)~~	The All other corporates category contains 18 additional industry sectors. Natural gas, broadcasting and media, consumer products, gaming, lodging and dining, retail and metal and mining represented $408.7 million of fair value at September 30, 2017, with the remaining 12 sectors each representing less than $32.7 million.


~~(3)~~	~~At September 30, 2017, 100% were investment grade, with an overall credit rating of AA, and the positions were well diversified by property type, geography and sponsor.~~


~~(4)~~	Holdings are geographically diversified, approximately 39% are tax-exempt and 78% 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, 2017.


~~(5)~~	Based on fair value, 96% of the collateralized debt obligation securities were rated investment grade by Standard and Poor’s Corporation (“S&P”) and/or Moody’s Investors Service, Inc. (“Moody’s”) at September 30, 2017.

At September 30, 2017, the Company’s diversified fixed maturity securities portfolio consisted of 2,627 investment positions, issued by 1,704 entities, and totaled approximately $7.6 billion in fair value. This portfolio was 96.0% investment grade, based on fair value, with an average quality rating of A+. The Company’s investment guidelines target single corporate issuer concentrations to 0.5% of invested assets for “AA” or “AAA” rated securities, 0.35% of invested assets for “A” or “BBB” rated securities, and 0.2% of invested assets for non-investment grade securities.

The following table presents the composition and fair value of the Company’s fixed maturity and equity securities portfolios by rating category. At September 30, 2017, 95.0% of these combined portfolios were investment grade, based on fair value, with an overall average quality rating of A+. The Company has classified the entire fixed maturity and equity securities portfolios as available for sale, which are carried at fair value.

~~Rating of Fixed Maturity and Equity Securities (1)~~

($ in millions) Percent of Portfolio
Fair Value September 30, 2017
December 31, 2016 September 30, 2017
Fair
Value

Amortized
Cost or Cost
Fixed maturity securities

AAA 8.3 % 7.4 % $ 563.1
$ 544.6
AA (2) 35.5
37.3
2,843.3
2,690.2
A 23.6
24.2
1,845.0
1,714.8
BBB 28.4
27.1
2,071.9
1,951.0
BB 2.4
2.4
187.0
181.5
B 1.0
0.8
64.3
63.1
CCC or lower 0.2
0.1
4.9
4.9
Not rated (3) 0.6
0.7
51.1
44.3
Total fixed maturity securities 100.0 % 100.0 % $ 7,630.6
$ 7,194.4
Equity securities

AAA —
—
—
—
AA —
—
—
—
A —
—
—
—
BBB 35.3 % 40.2 % $ 64.0
$ 61.5
BB —
—
—
—
B —
—
—
—
CCC or lower —
—
—
—
Not rated 64.7
59.8
95.3
78.7
Total equity securities 100.0 % 100.0 % $ 159.3
$ 140.2

Total

$ 7,789.9
$ 7,334.6


~~(1)~~	Ratings are as assigned primarily by S&P when available, with remaining ratings as assigned on an equivalent basis by Moody’s. 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, 2017, the AA rated fair value amount included $671.0 million of U.S. Government and federally sponsored agency securities and $551.4 million of mortgage- and 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 or Moody’s.~~

At September 30, 2017, the fixed maturity and equity securities portfolios had a combined $25.8 million pretax of gross unrealized investment losses on $1,245.0 million of fair value related to 470 positions. Of the investment positions (fixed maturity and equity securities) with gross unrealized investment losses, 3 were trading below 80% of the carrying value at September 30, 2017 and were not considered other-than-temporarily impaired. These positions had fair value of $1.5 million, representing less than 0.1% of the Company’s total investment portfolio at fair value, and had a gross unrealized investment loss of $0.7 million.

The Company views the gross unrealized investment losses of all of the securities at September 30, 2017 as temporary. Future changes in circumstances related to these and other securities could require subsequent recognition of OTTI.

~~Benefits, Claims and Settlement Expenses~~

($ in millions) Three Months Ended September 30,
Change From
Prior Year
Nine Months Ended September 30,
Change From
Prior Year
2017 2016 Percent Amount 2017 2016 Percent Amount
Property and Casualty $ 114.9
$ 116.0
-0.9 % $ (1.1 ) $ 384.9
$ 347.0
10.9 % $ 37.9
Retirement 1.6
1.4
14.3 % 0.2
4.0
3.1
29.0 % 0.9
Life 18.4
18.3
0.5 % 0.1
56.0
53.5
4.7 % 2.5
Total $ 134.9
$ 135.7
-0.6 % $ (0.8 ) $ 444.9
$ 403.6
10.2 % $ 41.3

Property and Casualty catastrophe losses,
included above
$ 8.6
$ 8.4
2.4 % $ 0.2
$ 58.2
$ 48.4
20.2 % $ 9.8

~~Property and Casualty Claims and Claim Expenses (“losses”)~~

($ in millions) Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Incurred claims and claim expenses:

Claims occurring in the current year $ 115.4
$ 116.7
$ 387.0
$ 351.3
Decrease in estimated reserves for claims
occurring in prior years (2)
(0.5 ) (0.7 ) (2.1 ) (4.3 )
Total claims and claim expenses incurred $ 114.9
$ 116.0
$ 384.9
$ 347.0

Property and Casualty loss ratio:

Total 70.4 % 74.5 % 79.8 % 75.2 %
Effect of catastrophe costs, included above (1) 5.3 % 5.3 % 12.0 % 10.5 %
Effect of prior years’ reserve development, included above (2) -0.3 % -0.4 % -0.4 % -0.9 %

(1) Property and Casualty catastrophe losses were incurred as follows:

2017 2016
Three months ended
March 31 $ 17.2
$ 12.7
June 30 32.4
27.3
September 30 8.6
8.4
Total year-to-date $ 58.2
$ 48.4
(2) Shows the amounts by which the Company decreased its reserves in each of the periods indicated for claims occurring in previous years to reflect subsequent information on such claims and changes in their projected final settlement costs.
2017 2016
Three months ended
March 31 $ (1.0 ) $ (2.0 )
June 30 (0.6 ) (1.6 )
September 30 (0.5 ) (0.7 )
Total year-to-date $ (2.1 ) $ (4.3 )
2019.

For the three month period ended September 30, ~~2017, the Company's benefits, claims~~2019, annuity contract deposits increased $1.3 million driven by slight increases in both single and ~~settlement expenses decreased $0.8 million, or 0.6%, compared to the prior year period.~~

recurring deposits. For the nine month period ended September 30, ~~2017,~~2019 annuity contract deposits increased $18.6 million driven by single premium deposits. Variable annuity deposits increased $0.8 million and $6.2 million, respectively, for the ~~Company's benefits, claims~~three and settlement expenses increased $41.3 million or 10.2%, compared to the prior year period primarily reflecting elevated catastrophe losses and non-catastrophe weather-related losses in Property and Casualty that occurred in the first half of the year.

~~For the~~ nine month ~~period~~periods ended September 30, ~~2017,~~2019. Fixed annuity deposits increased $0.5 million and $12.4 million, respectively, for the ~~favorable development of prior years’ Property~~three and Casualty reserves of $2.1 million was the result of actual and remaining projected losses for prior years being below the level anticipated in the immediately preceding December 31 loss reserve estimate. nine month periods ended September 30, 2019.

At September 30, ~~2017,~~

~~the favorable development was predominantly the result of favorable severity trends in the homeowners loss emergence for accident years 2015 and prior.~~

For the nine month period ended September 30, 2016, the favorable development of prior years’ Property and Casualty reserves of $4.3 million was the result of actual and remaining projected losses for prior years being below the level anticipated in the immediately preceding December 31 loss reserve estimate. At September 30, 2016, the favorable development was predominantly the result of favorable severity trends in the homeowners loss emergence for accident years 2014 and prior.

For the nine month period ended September 30, 2017, the automobile loss ratio of 80.1% increased by 0.8 points compared to the prior year period, including (1) the impact of catastrophe costs that resulted in a 0.3 point increase and (2) the impacts of higher current accident year non-catastrophe weather-related losses. The homeowners loss ratio of 79.2% for the nine month period ended September 30, 2017, increased 12.5 points compared to the prior year period, including current accident year catastrophe and non-catastrophe weather-related loss experience as well as development of prior years’ reserves that had 1.4 points less favorable impact in the current year. Catastrophe costs represented 30.9 points of the homeowners loss ratio for the current period compared to 25.9 points for the prior year period.

~~Interest Credited to Policyholders~~

($ in millions) Three Months Ended September 30,
Change From
Prior Year
Nine Months Ended September 30, Change From
Prior Year
2017 2016 Percent Amount 2017 2016 Percent Amount
Retirement (annuity) $ 38.8
$ 37.4
3.7 % $ 1.4
$ 114.4
$ 109.4
4.6 % $ 5.0
Life 11.3
11.2
0.9 % 0.1
33.8
33.5
0.9 % 0.3
Total $ 50.1
$ 48.6
3.1 % $ 1.5
$ 148.2
$ 142.9
3.7 % $ 5.3

For the nine month period ended September 30, 2017, interest credited in the Retirement segment increased 4.6% compared to the prior year period reflecting a 5.1% increase in average accumulated fixed deposits, at an average crediting rate of 3.5%.

~~The net interest spread on fixed annuity~~2019, assets under management ~~measures~~were $2.8 billion below a year ago, driven primarily by the ~~difference between~~annuity reinsurance transaction. Variable assets under management, excluding amounts held under the ~~rate of income earned on the underlying invested assets and the rate of interest which policyholders are credited on their account values.~~modified coinsurance agreement, increased by $15.6 million primarily due to market performance. The ~~nine month 2017~~year to date annualized net interest spread on fixed ~~annuity assets was 188~~annuities, excluding reinsured block, increased 16 basis ~~points, a decrease of 7 basis points compared to the prior year period.~~points.

As of September 30, 2017, fixed annuity account values totaled $4.6 billion, including $4.3 billion of deferred annuities. As shown in the table below, for approximately 86.7%, or $3.8 billion of the deferred annuity account values, the credited interest rate was equal to the minimum guaranteed rate. Due to limitations on the Company’s ability to further lower interest crediting rates, coupled with the expectation for continued low reinvestment interest rates, management anticipates fixed annuity spread compression in future periods. The majority of assets backing the net interest spread on fixed annuity business is invested in fixed maturity securities.

The Company actively manages its interest rate risk exposure, considering a variety of factors, including earned interest rates, credited interest rates and the relationship between the expected durations of assets and liabilities. Management estimates that over the next 12 months approximately ~~$467~~$523.0 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 the ~~Company’s~~Company's existing policies and investment portfolio, the impact from investing in that lower interest rate environment could further reduce Retirement ~~segment~~ net investment income by approximately ~~$1.8~~$2.7 million in year one and ~~$5.4~~$8.2 million in year two, further reducing the annualized net interest spread by approximately 48 basis points and 11

29 basis points in the respective periods, compared to the current period annualized net interest spread. The Company 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 is also an important component in the amortization of ~~deferred policy acquisition costs.~~DAC. In terms of the sensitivity of this amortization to the annualized net interest spread, based on ~~deferred policy acquisition costs~~DAC as of September 30, ~~2017~~2019 and assuming all other assumptions are met, a 10 basis point deviation in the current year targeted annualized net interest rate spread assumption would impact amortization between ~~$0.30~~$0.3 million and ~~$0.40~~$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.

~~Additional information~~

The annuity reinsurance agreement entered into in the second quarter of 2019, which reinsured the $2.2 billion block of in force fixed annuities with a minimum crediting rate of 4.5%, mitigates the risk of 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)	September 30, 2017										September 30, 2019
					Deferred Annuities at										Deferred Annuities at
	Total Deferred Annuities				Minimum Guaranteed Rate						Total Deferred Annuities				Minimum Guaranteed Rate
	Percent of Total		Accumulated Value (“AV”)		Percent of Total Deferred Annuities AV		Percent of Total		Accumulated Value		Percent of Total		Accumulated Value (AV)		Percent of Total Deferred Annuities AV		Percent of Total		Accumulated Value
Minimum guaranteed interest rates:
Less than 2%	24.9	%	$	1,083.8	51.3	%	14.7	%	$	556.5	52.5	%	$	1,241.9	46.9	%	35.1	%	$	582.0
Equal to 2% but less than 3%	7.1		307.4		83.0	%	6.8		255.1		12.3	%	291.6		83.1	%	14.6	%	242.3
Equal to 3% but less than 4%	14.1		614.0		99.9	%	16.3		613.4		25.7	%	608.7		99.9	%	36.7	%	608.3
Equal to 4% but less than 5%	52.6		2,288.7		100.0	%	60.7		2,288.7		7.3	%	171.7		100.0	%	10.4	%	171.7
5% or higher	1.3		55.4		100.0	%	1.5		55.4		2.2	%	52.2		100.0	%	3.2	%	52.2
Total	100.0	%	$	4,349.3	86.7	%	100.0	%	$	3,769.1	100.0	%	$	2,366.1	70.0	%	100.0	%	$	1,656.5

The Company 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 ~~“Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,~~Item 1A and other factors ~~discussed herein.~~within this report.

~~Policy Acquisition Expenses Amortized~~

~~Amortized policy acquisition expenses were $24.2 million~~

Life

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

(All comparisons versus same period in 2018, unless noted otherwise)



($ in millions, unless otherwise indicated)	Three Months Ended September 30,				2019-2018		Nine Months Ended September 30,						2019-2018
	2019		2018		Change %		2019			2018			Change %
Financial Data:
Insurance premiums and contract deposits	$	27.7	$	28.4	-2.5	%	$	82.5		$	82.7		-0.2	%
Insurance premiums and contract charges earned	29.7		30.2		-1.7	%	90.0			90.1			-0.1	%
Net investment income	18.4		19.1		-3.7	%	54.8			56.6			-3.2	%
Benefits and settlement expenses	19.6		20.3		-3.4	%	60.7			61.2			-0.8	%
Interest credited	11.2		11.3		-0.9	%	33.7			33.8			-0.3	%
Operating expenses	8.9		8.9		—	%	27.5			27.2			1.1	%
DAC amortization expense, excluding unlocking	2.0		1.8		11.1	%	6.1			5.5			10.9	%
DAC unlocking	—		0.1		N.M.		(0.1		)	0.2			N.M.
Income before income taxes	6.4		7.0		-8.6	%	17.1			19.0			-10.0	%
Net income /core earnings*	5.1		5.3		-3.8	%	13.6			15.0			-9.3	%

Operating Statistics:
Life insurance in force							$	18,937		$	18,054		4.9	%
Number of policies in force (thousands)							202			198			2.0	%
Average face amount in force (in dollars)							$	93,944		$	91,030		3.2	%
Lapse ratio (ordinary life insurance in force)							4.5		%	4.8		%	-0.3	pts
Mortality costs							$	26.4		$	25.9		1.9	%

______________

N.M. - Not meaningful.

For the three and nine month periods ended September 30, 2019, core earnings* decreased primarily due to lower net investment income.

Life premiums and contract deposits* for the three and nine month periods ended September 30, 2019 slightly decreased due to a decline in single premiums. The ordinary life insurance in force lapse ratio was 4.5% for the 12 months ended September 30, 2019 compared to 4.8% for the 12 month period ended September 30, ~~2017, comparable to the $24.5 million~~2018.

Corporate and Other

The following table provides certain financial information for Corporate and Other for the ~~prior year period. For Retirement, the unlocking of deferred policy acquisition costs (“unlocking”) resulted~~periods indicated.

(All comparisons versus same period in ~~a $0.7 million decrease in amortization for~~2018, unless noted otherwise)



($ in millions)	Three Months Ended September 30,						2019-2018		Nine Months Ended September 30,						2019-2018
	2019			2018			Change %		2019			2018			Change %
Interest expense	$	4.3		$	2.9		48.3	%	$	10.2		$	8.9		14.6	%
Net investment gains (losses) pretax	(2.1		)	2.9			N.M.		151.6			1.9			N.M.
Tax on net investment gains (losses)	(0.5		)	0.7			N.M.		32.7			0.4			N.M.
Net investment gains (losses) after tax	(1.6		)	2.2			N.M.		118.9			1.5			N.M.
Net income (loss)	(6.7		)	(1.7		)	N.M.		103.5			(9.6		)	N.M.
Core earnings (loss)*	(5.1		)	(3.9		)	-30.8	%	(15.4		)	(11.1		)	-38.7	%

________________

N.M. - Not meaningful.

For the three and nine month ~~period~~periods ended September 30, ~~2017~~2019, core earnings* decreased driven by increased interest expense as ~~compared to a $0.1 million decrease in amortization~~the Company utilized its senior revolving credit facility in the ~~prior year period.~~current quarter to partially fund the acquisition of NTA on July 1, 2019 as well as acquisition costs associated with BCG and NTA.

~~Amortized policy acquisition expenses were $73.9 million for~~

Investment Results

(All comparisons versus same period in 2018, unless noted otherwise)



($ in millions)	Three Months Ended September 30,					2019-2018		Nine Months Ended September 30,				2019-2018
	2019			2018		Change %		2019		2018		Change %
Net investment income - investment portfolio	$	69.2		$	99.1	-30.2	%	$	232.3	$	288.1	-19.4	%
Investment income - Deposit asset on reinsurance	23.8			—		N.M.		47.0		—		N.M.
Pretax net investment gains (losses)	(2.1		)	2.9		N.M.		151.6		1.9		N.M.
Pretax net unrealized investment gains on fixed maturity securities								386.1		109.6		N.M.

______________

N.M. - Not meaningful.

For the three and nine month ~~period~~periods ended September 30, ~~2017 compared~~2019, net investment income from the investment portfolio was lower primarily because invested assets were 18.4% below the December 31, 2018 level due to ~~$73.1 million for~~assets transferred under the ~~prior year period. The increase was largely attributable to increased written premium in Property~~annuity reinsurance transaction. In addition, lower than expected new money rates and ~~Casualty. For Retirement, unlocking resulted in a $0.7 million favorable change in amortization for the nine month period ended September 30, 2017 as compared to the prior year period.~~

prepayments were offset by stronger returns on alternative investments.

~~Operating Expenses~~

For the three month period ended September 30, ~~2017, operating expenses~~2019, the pretax net investment loss was driven primarily by change in fair value and settlements of ~~$44.2 million were comparable to the prior year period as the current period benefitted from decreases in incentive compensation accruals as well as lower employee medical costs.~~

derivatives. For the nine month period ended September 30, ~~2017, operating expenses~~2019, pretax net investment gains were driven primarily by a $135.3 million pretax realized investment gain related to the transfer of ~~$139.1~~assets as a result of the annuity reinsurance transaction and the change in fair value of the equity securities portfolio. Pretax net unrealized investment gains on securities were up $276.5 million ~~increased $8.5 million, or 6.5%,~~ compared to December 31, 2018, reflecting a decline in the ~~prior year period, consistent with management’s expectations~~10-year U.S. Treasury yield of 102 basis points and tighter credit spreads across all asset classes as well as the ~~Company makes expenditures supporting targeted strategies in product, distribution and infrastructure which are intended to enhance~~addition of NTA's investment portfolio, offset by the ~~overall customer experience, increase sales and support favorable policy retention and business cross-sale ratios.~~

~~The Property and Casualty expense ratio~~impact of ~~26.7% for~~ the ~~nine month period ended September 30, 2017 was slightly below the prior year period.~~

~~Income Tax Expense~~

~~The effective income tax rate on the Company’s~~aforementioned $135.3 million pretax ~~income, including net~~ realized investment ~~gains and losses, was 17.6% and 26.6% for~~gain related to the nine month periods ended September 30, 2017 and 2016, respectively. Income from investments in tax-advantaged securities reduced the effective income tax rates by 12.5% and 7.4% for the nine month periods ended September 30, 2017 and 2016, respectively. Further, the adoption of a new accounting standard for employee share-based payments on January 1, 2017 reduced the effective income tax rate by 5.3% for the nine month period ended September 30, 2017. The new accounting standard requires that the entire excess tax benefit/deficiency from employee share-based payments be recognized in the income statement rather than allocating the excess tax benefit/deficiency between the equity section of the balance sheet and the income statement.

At September 30, 2017, the Company’s federal income tax returns for years prior to 2014 are no longer subject to examination by the IRS. Management does not anticipate any assessments for tax years that remain subject to examination to have a material effect on the Company’s financial position or results of operations.

annuity reinsurance transaction.

~~Net Income~~Fixed Maturity and Equity Securities Portfolios

~~For the three month period ended September 30, 2017,~~The table below presents the Company’s ~~net income of $26.5 million decreased $0.4 million compared to~~fixed maturity and equity securities portfolios by major asset class, including the prior year period. For the nine month period ended September 30, 2017, the Company's net income of $44.1 million decreased $19.8 million reflecting a record level of catastrophe losses as well as elevated non-catastrophe weather-related losses that occurred in the first half10 largest sectors of the ~~year. Additional detail is included in the “Executive Summary” at the beginning of this MD&A.~~

~~Net income (loss) by segment and net income per share were as follows:~~

Company’s corporate bond holdings (based on fair value).

($ in millions) Three Months Ended September 30,
Change From
Prior Year
Nine Months Ended September 30, Change From
Prior Year
2017 2016 Percent Amount 2017 2016 Percent Amount
Analysis of net income (loss) by segment:

Property and Casualty $ 13.4
$ 6.7
100.0 % $ 6.7
$ 2.2
$ 16.0
-86.3 % $ (13.8 )
Retirement 13.6
15.7
-13.4 % (2.1 ) 36.9
39.3
-6.1 % (2.4 )
Life 4.8
4.6
4.3 % 0.2
14.3
13.1
9.2 % 1.2
Corporate and Other (1) (5.3 ) (0.1 ) N.M.
(5.2 ) (9.3 ) (4.5 ) 106.7 % (4.8 )
Net income $ 26.5
$ 26.9
-1.5 % $ (0.4 ) $ 44.1
$ 63.9
-31.0 % $ (19.8 )

Effect of catastrophe costs, after tax,
included above
$ (5.6 ) $ (5.5 ) 1.8 % $ (0.1 ) $ (37.8 ) $ (31.5 ) 20.0 % $ (6.3 )
Effect of net realized investment gains
(losses), after tax, included above
$ (2.2 ) $ 2.7
N.M.
$ (4.9 ) $ (0.8 ) $ 3.8
-121.1 % $ (4.6 )

Diluted:

Net income per share $ 0.64
$ 0.65
-1.5 % $ (0.01 ) $ 1.06
$ 1.55
-31.6 % $ (0.49 )
Weighted average number of common and
common equivalent shares (in millions)
41.6
41.3
0.7 % 0.3
41.5
41.4
0.2 % 0.1

Property and casualty combined ratio:

Total 95.8 % 101.5 % -
-5.7 pts
106.5 % 102.4 % -
4.1 pts
Effect of catastrophe costs, included above 5.3 % 5.3 % -
0 pts
12.0 % 10.5 % -
1.5 pts
Effect of prior years’ reserve development,
included above
-0.3 % -0.4 % -
0.1 pts
-0.4 % -0.9 % -
0.5 pts



($ in millions)	September 30, 2019
	Number of Issuers	Fair Value		Amortized Cost		Pretax Net Unrealized Gain (Loss)
Fixed maturity securities
Corporate bonds
Banking & Finance	125	$	416.7	$	388.6	$	28.1
Insurance	44	167.2		149.1		18.1
Energy ⁽¹⁾	71	126.9		117.6		9.3
Real Estate	40	114.1		107.5		6.6
HealthCare, Pharmacy	56	113.6		104.8		8.8
Technology	35	95.5		90.5		5.0
Utilities	54	78.3		69.4		8.9
Transportation	31	78.1		72.8		5.3
Telecommunications	27	54.3		48.8		5.5
Food and Beverage	24	50.5		47.2		3.3
All other corporates⁽²⁾	216	289.8		268.8		21.0
Total corporate bonds	723	1,585.0		1,465.1		119.9
Mortgage-backed securities
U.S. Government and federally sponsored agencies	269	525.3		488.7		36.6
Commercial⁽³⁾	119	361.8		339.3		22.5
Other	48	88.5		87.8		0.7
Municipal bonds ⁽⁴⁾	538	1,676.4		1,511.9		164.5
Government bonds
U.S.	36	458.2		430.2		28.0
Foreign	10	47.9		45.3		2.6
Collateralized loan obligations ⁽⁵⁾	118	624.4		628.9		(4.5		)
Asset-backed securities	105	472.0		456.2		15.8
Total fixed maturity securities	1,966	$	5,839.5	$	5,453.4	$	386.1

Equity securities
Non-redeemable preferred stocks	12	$	55.6
Common stocks	94	28.3
Closed-end fund	1	21.6
Total equity securities	107	$	105.5

Total	2,073	$	5,945.0

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


⁽¹⁾	At September 30, 2019, the fair value amount included $10.0 million which were non-investment grade.

⁽²⁾

The ~~Corporate~~All other corporates category contains 19 additional industry sectors. Industrial, broadcasting & media, aerospace and ~~Other segment includes interest expense on debt, net realized investment gains~~defense, metal and ~~losses, corporate debt retirement costs (when applicable), certain public company expenses~~mining and ~~other corporate-level items. The Company does not allocate the impact~~retail represented $158.8 million of ~~corporate-level transactions to the operating segments, consistent~~fair value at September 30, 2019, with the ~~basis for management’s evaluation~~remaining 14 sectors each representing less than $19.0 million.


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


⁽⁴⁾	Holdings are geographically diversified, 52.6% are tax-exempt and 77.7% are revenue bonds tied to essential services, such as mass transit, water and sewer. The overall credit quality of the ~~results~~municipal bond portfolio was AA- at September 30, 2019.


⁽⁵⁾	Based on fair value, 95.8% of ~~those segments.~~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, 2019.

As described in footnote (1) to the table above, the Corporate and Other segment reflects corporate-level transactions. Of those transactions, net realized investment gains and losses may vary notably between reporting periods and are often the driver of fluctuations in the level of this segment’s net income or loss. For the nine month period ended September 30, 2017, net realized investment gains after tax were $0.8 million, compared to net realized investment gains after tax of $3.8 million for the prior year period.

~~Return on average shareholders’ equity based on net income was 4.7% and 6.3% for the trailing 12 month periods ended September 30, 2017 and 2016, respectively.~~

At September 30, 2019, the Company’s diversified fixed maturity securities portfolio consisted of 3,093 investment positions, issued by 1,966 entities, and totaled approximately $5.8 billion in fair value. This portfolio was 96.7% investment grade, based on fair value, with an average quality rating of A+. The Company’s investment guidelines target single corporate issuer concentrations to 0.5% of invested assets for AAA or AA rated securities, 0.4% of invested assets for A or BBB rated securities, and 0.2% of invested assets for non-investment grade securities.

The following table presents the composition and fair value of the Company’s fixed maturity and equity securities portfolios by rating category. At September 30, 2019, 95.9% of these combined portfolios were investment grade, based on fair value, with an overall average quality rating of A+. The Company has classified the entire fixed maturity securities portfolio as available for sale, which is carried at fair value.

Rating of Fixed Maturity Securities and Equity Securities ⁽¹⁾



($ in millions)	Percent of Portfolio
	Fair Value				September 30, 2019
	December 31, 2018		September 30, 2019		Fair Value		Amortized Cost
Fixed maturity securities
AAA	9.1	%	11.2	%	$	650.5	$	634.1
AA⁽²⁾	44.5		43.4		2,533.8		2,348.6
A	22.4		23.0		1,343.9		1,237.6
BBB	21.2		19.1		1,116.6		1,044.1
BB	1.8		1.8		105.3		102.3
B	0.4		0.5		28.9		28.7
CCC or lower	0.1		—		0.5		0.5
Not rated⁽³⁾	0.5		1.0		60.0		57.5
Total fixed maturity securities	100.0	%	100.0	%	$	5,839.5	$	5,453.4
Equity securities
AAA	—		—		—
AA	—		—		—
A	—		—		—
BBB	49.0	%	52.7	%	$	55.6
BB	—		—		—
B	—		—		—
CCC or lower	—		—		—
Not rated	51.0		47.3		49.9
Total equity securities	100.0	%	100.0	%	$	105.5

Total					$	5,945.0

_____________


⁽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, 2019, the AA rated fair value amount included $458.2 million of U.S. Government and federally sponsored agency securities and $741.3 million of mortgage-backed and 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.

~~Outlook for 2017~~

At September 30, 2019, the ~~time~~fixed maturity securities portfolio had $10.7 million of ~~this Quarterly Report~~pretax gross unrealized investment losses on ~~Form 10-Q, management estimates that 2017 full year net income before net realized~~$754.1 million of fair value related to 316 positions. Of the investment ~~gains and~~positions with gross unrealized losses, will be within a range of $1.45 to $1.65 per diluted share. Within Property and Casualty, this projection incorporates the elevated catastrophe losses and non-catastrophe weather-related losses during the first half of 2017, with estimates for weather-related losses for the second halfthere were eight trading below 80.0% of the year returning to historic averages. The full year auto underlying combined ratio is anticipated to be similar to 2016 and the full year property combined ratio, including catastrophe losses, is anticipated to be slightly below 100%. Net income for Retirement will continue to be impacted by the prolonged low interest rate environment and the interest spread is anticipated to grade down to the low 180s. carrying value at September 30, 2019.

The Company ~~expects to invest approximately $0.10 per diluted share~~views the unrealized investment losses of all of the fixed maturity securities at September 30, 2019 as temporary. Future changes in ~~Retirement~~circumstances related to ~~the Company's strategic initiatives in product, distribution~~these and ~~infrastructure. Life mortality experience was more favorable than anticipated for the first half~~other securities could require subsequent recognition of 2017, however, Life net income for the full year is expected to be comparable to 2016, due to a return to higher mortality levels and net investment income pressure. As a result of the continued low interest rate environment, management anticipates the Company’s overall portfolio yield to decline by approximately 10 basis points over the course of 2017, impacting each of the three operating segments. In addition to the segment-specific factors, the Company’s initiatives for customer service and infrastructure improvements, as well as enhanced programs and training for the Company’s agency force, all intended to enhance the overall customer experience and support further improvement in policy retention, sales and business cross-sell ratios, will continue and result in a moderate increase in expense levels compared to 2016.

As described in “Critical Accounting Policies”, certain of the Company’s significant accounting measurements require the use of estimates and assumptions. As additional information becomes available, adjustments may be required. Those adjustments are charged or credited to income for the period in which the adjustments are made and may impact actual results compared to management’s estimate above. Additionally, see “Forward-looking Information” in this Quarterly Report on Form 10-Q and “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 concerning other important factors that could impact actual results. Management believes that a projection of net income including net realized investment gains and losses is not appropriate on a forward-looking basis because it is not possible to provide a valid forecast of net realized investment gains and losses, which can vary substantially from one period to another and may have a significant impact on net income.other-than-temporary impairment (OTTI).

Liquidity and Financial Resources

Off-Balance Sheet Arrangements

At September 30, ~~2017~~2019 and ~~2016,~~2018, the Company 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, the Company is not exposed to any financing, liquidity, market or credit risk that could arise if the Company engaged in such relationships.

Investments

Information regarding the Company’s investment portfolio, which is comprised primarily of investment grade, fixed maturity securities, is ~~located~~presented in ~~“Results~~Item 1, Note 3 of ~~Operations -- Net Realized Investment Gains and Losses (Pretax)” and in~~ the ~~“Notes to~~ Consolidated Financial Statements ~~-- Note~~and Item 2, ~~-- Investments”.~~Investments Results.

Cash Flow

The short-term liquidity requirements of the Company, 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 the ~~Company’s~~Company's operating cash needs in the next 12 months. Cash flow in excess of operational needs has been used to fund business growth,

~~and~~ pay dividends to ~~shareholders.~~shareholders and repurchase shares of HMEC's 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 long-term debt. The following table summarizes the Company's consolidated cash flows activity for the periods indicated.



($ in millions)	Nine Months Ended September 30,						2019-2018
	2019			2018			Change %
Net cash provided by operating activities	$	207.2		$	217.5		-4.7	%
Net cash used in investing activities	(65.6		)	(183.8		)	64.3	%
Net cash used in financing activities	(114.2		)	(34.9		)	N.M.
Net increase (decrease) in cash	27.4			(1.2		)	N.M.
Cash at beginning of period	11.9			7.6			56.6	%
Cash at end of period	$	39.3		$	6.4		N.M.

______________

N.M. - Not meaningful.

Operating Activities

As a holding company, HMEC conducts its principal operations in the personal lines segment of the property and casualty and life insurance industries through its subsidiaries. ~~HMEC’s~~HMEC's 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 generated by the insurance subsidiaries.

For the nine months ended September 30, 2019, net cash provided by operating activities decreased $10.3 million compared to the same period in 2018, primarily due to a decrease in Investment income collected and an increase in Policy acquisition and other operating expenses paid, partially offset by an increase in Premiums collected.

Investing Activities

HMEC's insurance subsidiaries maintain significant investments in fixed maturity securities to meet future contractual obligations to policyholders. In conjunction with its management of liquidity and other asset/liability management objectives, the Company, 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, the Company has classified the entire fixed maturity securities portfolio as available for sale.

During the first quarter of 2019, HMEC acquired BCG and during the third quarter of 2019, HMEC acquired NTA.

Financing Activities

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

Horace Mann Life Insurance Company (HMLIC), one of the Company's subsidiaries, operates under funding agreements with FHLB. In January 2019, HMLIC received an additional $175.0 million from FHLB under funding agreements and receipt of those funds have been reported in Annuity Contracts: Variable, Fixed and FHLB Funding Agreements, Deposits. During the third quarter of 2019, HMLIC paid down $275.0 million on FHLB funding agreements and thus, advances to HMLIC from FHLB under funding agreements totaled $525.0 million as of September 30, 2019. For the nine month period ended September 30, ~~2017, net~~2019, cash ~~provided by operating activities~~inflows from annuity contract deposits, excluding the additional $175.0 million received from FHLB, increased $18.6 million, or 5.7%, compared to the ~~same~~prior year period. Cash outflows from annuity contract benefits, withdrawals and net transfers to Separate Account (variable annuity) assets decreased $19.8 million, or 5.9%, compared to the prior year period.

Financing activities for the nine month period ended September 30, 2019 also includes a one-time cash payment of $124.1 million as part of the initial transfer under the annuity reinsurance transaction.

Capital Resources

~~Payments of principal~~capital markets to service and ~~interest on~~retire long-term debt, pay dividends to its shareholders, fund growth initiatives, repurchase shares of its common stock and ~~parent company operating expenses are largely dependent on the ability of the insurance subsidiaries to pay cash dividends or make~~for other ~~cash payments to HMEC, including tax payments pursuant to tax sharing agreements. Payments for share repurchase programs also have this dependency.~~corporate purposes. If necessary, HMEC also has other potential sources of liquidity that could provide for additional funding to meet corporate obligations or pay shareholder dividends, which include a revolving line of credit, as well as issuances of various securities. The insurance subsidiaries are subject to various regulatory restrictions which limit the amount of annual dividends or other distributions, including loans or cash advances, available to HMEC without prior approval of the insurance regulatory authorities. The aggregate amount of dividends that may be paid in ~~2017~~2019 from all of ~~HMEC’s~~HMEC's insurance subsidiaries without prior regulatory approval is ~~approximately $91.0~~$43.2 million, of which ~~$44.9 million~~$6.5 was paid during the nine month period ended September 30, 2017. Although regulatory restrictions exist, dividend availability from subsidiaries has been, and is expected to be, adequate for HMEC’s capital needs. Additional information is contained in “Notes to Consolidated Financial Statements -- Note 10 -- Statutory Information and Restrictions” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

~~Investing Activities~~

HMEC’s insurance subsidiaries maintain significant investments in fixed maturity securities to meet future contractual obligations to policyholders. In conjunction with its management of liquidity and other asset/liability management objectives, the Company, from time to time, will sell fixed maturity securities prior to maturity, as well as equity securities, and reinvest the proceeds in other investments with different interest rates, maturities or credit characteristics. Accordingly, the Company has classified the entire fixed maturity and equity securities portfolios as available for sale.

~~Financing Activities~~

Financing activities include primarily payment of dividends, the receipt and withdrawal of funds by annuity contractholders, issuances and repurchases of HMEC’s common stock, fluctuations in bank overdraft balances, and borrowings, repayments and repurchases related to its debt facilities.

The Company’s annuity business produced net negative cash flows in the first nine months of 2017. For the nine month period ended September 30, 2017, receipts from annuity contracts decreased $43.0 million, or 11.0%, compared to the prior year period, as described in “Results of Operations -- Insurance Premiums and Contract Charges”. In total, annuity contract benefits, withdrawals and net transfers to variable annuity accumulated cash values increased $54.6 million, or 22.7%, compared to the prior year period. During the nine month period ended September 30, 2017, financing activities included an increase of $77.9 million attributable to fixed account withdrawals due to the transfer of all the Company's 401(k) assets to a third-party provider.

~~Capital Resources~~

The Company has determined the amount of capital which 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 (the “NAIC”). Historically, the Company’s insurance subsidiaries have generated capital in excess of such needed capital. These excess amounts have been paid to HMEC through dividends. HMEC has then utilized these dividends and its access to the capital markets to service and retire long-term debt, pay dividends to its shareholders, fund growth initiatives, repurchase shares of its common stock and for other corporate purposes.2019. Management anticipates that the Company’s sources of capital will continue to generate sufficient capital to meet the needs for business growth, debt interest payments, shareholder dividends and its share repurchase program. Additional information is contained in ~~“Notes to~~Item 8, Note 10 of the Consolidated Financial Statements ~~-- Note 10 -- Statutory Information and Restrictions” of~~in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

The total capital of the Company was ~~$1,637.8~~$2,011.6 million at September 30, ~~2017,~~2019, including ~~$247.4~~$433.0 million of short-term and long-term ~~debt and no short-term debt outstanding.~~debt. Total debt represented ~~17.9%~~24.8% of total capital excluding net unrealized investment gains ~~and losses (15.1%~~on fixed maturity securities (21.5% including net unrealized investment gains ~~and losses)~~on fixed maturity securities) at September 30, ~~2017,~~2019, which was below the ~~Company’s~~Company's long-term target of 25%.

~~Shareholders’~~Shareholders' equity was ~~$1,390.4~~$1,578.6 million at September 30, ~~2017,~~2019, including a net unrealized investment ~~gain~~gains on fixed maturity securities in the Company’s investment portfolio of ~~$255.7~~$266.4 million after taxes and the related impact of ~~deferred policy acquisition costs~~DAC associated with investment contracts and life insurance products with account values. ~~The~~At September 30, 2019, the market ~~value~~capitalization of the ~~Company’s common stock and the market value~~Company was approximately $1,909.4 million (41,213,085 shares at $46.33 per ~~share were $1,600.0 million and $39.35, respectively, at September 30, 2017.~~share). Book value per share was ~~$34.20~~$38.30 at September 30, ~~2017~~2019 ($~~27.91~~31.84 excluding ~~the~~ net unrealized investment gain*gains on fixed maturity securities*).

Additional information regarding ~~the~~ net unrealized investment ~~gain~~gains on fixed maturity securities in the ~~Company’s~~Company's investment portfolio at September 30, ~~2017~~2019 is included in ~~“Results~~Item 1, Note 3 of the Consolidated Financial Statements and in Item 2, Results of Operations ~~-- Net Realized Investment Gains and Losses (Pretax)”.~~by Segment in this report.

Total shareholder dividends paid were ~~$34.6~~$35.5 million for the nine month period ended September 30, ~~2017.~~2019. In March, May and September ~~2017,~~2019, the Board of Directors ~~announced~~approved regular quarterly dividends ~~of $0.275~~to $0.2875 per share.

For the nine month period ended September 30, ~~2017,~~2019, the Company ~~repurchased 48,440~~did not repurchase any shares of its common stock ~~or 0.1% of the outstanding shares at December 31, 2016, at an aggregate cost of $1.7 million, or an average price per share of $34.26~~ under its share repurchase program, which is further described in ~~“Notes to~~Item 8, Note 9 of the Consolidated Financial Statements ~~-- Note 9 -- Shareholders’ Equity and Common Stock Equivalents” of~~in the ~~Company’s~~Company's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. As of September 30, ~~2017, $27.8~~2019, $22.8 million remained authorized for future share repurchases under the repurchase program.

The following table summarizes the Company's debt obligations.



($ in millions)	September 30, 2019		December 31, 2018
Short-term debt:
Bank Credit Facility, expires June 21, 2024	$	135.0	$	—

Long-term debt:
4.50% Senior Notes, due December 1, 2025. Aggregate principal amount of $250 million less unaccrued discount of $0.4 million and $0.5 million (4.5% imputed rate) and unamortized debt issuance costs of $1.6 million and $1.8 million	248.0		247.7
FHLB borrowing	50.0		50.0
Total	$	433.0	$	297.7

As of September 30, ~~2017,~~2019, the Company had outstanding $250.0 million aggregate principal amount of 4.50% Senior Notes ~~(“Senior~~(Senior Notes due ~~2025”)~~2025), which will mature on December 1, 2025, issued at a discount resulting in an effective yield of 4.53%. Interest on the Senior Notes due 2025 is payable semi-annually at a rate of 4.50%. Detailed information regarding the redemption terms of the Senior Notes due 2025 is contained in the ~~“Notes to~~Item 8, Note 7 of the Consolidated Financial Statements ~~-- Note 7 -- Debt” of~~in the ~~Company’s~~Company's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. The Senior Notes due 2025 are traded in the open market (HMN 4.50).

As of September 30, ~~2017,~~2019, the Company had ~~no balance~~$50.0 million outstanding ~~under~~with FHLB. For FHLB borrowings, the Board has authorized a maximum amount equal to the greater of 10% of admitted assets or 20% of surplus of the consolidated property and casualty companies. For the total $50.0 million received, $25.0 million matures on October 5, 2022 and $25.0 million matures on December 2, 2022. Interest on the borrowings accrues at an annual weighted average rate of 2.45% as of September 30, 2019. Horace Mann Insurance Company's (HMIC) FHLB borrowings of $50.0 million are included in Long-term debt on the Consolidated Balance Sheets.

On June 21, 2019, the Company, as borrower, replaced its ~~Bank~~current line of credit with a new five-year Credit ~~Facility.~~Agreement (Bank Credit Facility). The credit agreement extends the commitment termination date to June 21, 2024 from the previous termination date of June 27, 2023. The new Bank Credit Facility ~~provides for unsecured borrowings of up~~increased the amount available on this senior revolving credit facility to $225.0 million from $150.0 ~~million~~million. PNC Capital Markets, LLC and ~~expires on July 30, 2019. Interest accrues at varying spreads relative to prime or Eurodollar base rates and is payable monthly or quarterly depending~~JPMorgan Chase Bank, N.A. served as joint leads on the ~~applicable base rate.~~ new agreement, with The Northern Trust Company, U.S. Bank National Association, KeyBank National Association, Comerica Bank and Illinois National Bank participating in the syndicate. Terms and conditions of the new Bank Credit Facility are substantially consistent with the prior agreement, with an interest rate based on LIBOR plus 115 basis points. As described in Item 1, Note 8 of the Consolidated Financial Statements, the Company utilized the senior revolving credit facility to partially fund the acquisition of NTA. Moving forward, the Company will use the senior revolving credit facility for ongoing working capital, capital expenditures and general corporate expenditures.The unused portion of the Bank Credit Facility is subject to a variable commitment fee, which was 0.15% on an annual basis at September 30, ~~2017.~~

2019. As of September 30, 2019, the Company had $135.0 million outstanding under the senior revolving credit facility.

To provide additional capital management flexibility, the Company filed a ~~“universal shelf”~~"universal shelf" registration statement on Form S-3 with the Securities and Exchange Commission (SEC) on March ~~12, 2015.~~13, 2018. The registration statement, which registered the offer and sale by the Company 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 ~~12, 2015.~~13, 2018. Unless withdrawn by the Company earlier, this

registration statement will remain effective through March ~~12, 2018. The Senior Notes due 2025, described above, were issued utilizing this registration statement.~~13, 2021. No ~~other~~ securities associated with the registration statement have been issued as of the date of this Quarterly Report on Form 10-Q.

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

Financial Ratings

~~HMEC’s~~HMEC's principal insurance subsidiaries are rated by S&P, ~~Moody’s,~~Moody's, A.M. Best Company, Inc. ~~(“A.M. Best”)~~(A.M. Best) and ~~Fitch Ratings, Inc. (“Fitch”).~~Fitch. These rating agencies have also assigned ratings to the ~~Company’s~~Company's long-term debt securities. The ratings that are assigned by these agencies, which are subject to change, can impact, among other things, the ~~Company’s~~Company's access to sources of capital, cost of capital, and competitive position. These ratings are not a recommendation to buy or hold any of the ~~Company’s~~Company's securities.

Assigned ratings for HMEC and its Property and Casualty and its Life insurance subsidiaries were reviewed by all of the rating agencies in June and July 2019 in conjunction with the announcement of the Company's financing plans to purchase NTA. A.M. Best and S&P affirmed the ratings that were in place at December 31, 2018. Moody's and Fitch affirmed their ratings with a stable outlook, removing negative watches from their respective debt and insurance financial strength ratings placed after the announcement of NTA acquisition in December 2018.

All four agencies currently have assigned the same insurance financial strength ratings to the Company's Property and Casualty and the Company's Life insurance subsidiaries. Only A.M Best currently rates the Company's Supplemental segment's subsidiaries. Assigned ratings as of October 31, ~~2017 were unchanged from the disclosure in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Assigned ratings~~2019 were as follows (unless otherwise indicated, the insurance financial strength ratings for the Company’s Property and Casualty insurance subsidiaries and the Company’s principal Life insurance subsidiary are the same):

follows:



	Insurance Financial
	Strength Ratings (Outlook)				Debt Ratings
	~~(Outlook)~~			(Outlook)
As of October 31, ~~2017~~2019
S&P	A		(stable)		BBB	(stable)
Moody’s	A2		(stable)		Baa2	(stable)
A.M. Best
~~Horace Mann Life Insurance Company~~	A3	~~(positive)~~		~~N.A.~~
~~HMEC’s Property and Casualty subsidiaries~~	A3	~~(positive)~~		~~N.A.~~
HMEC (parent company)	N.A.			~~Baa3~~	~~(positive)~~bbb	(stable)
~~A.M. Best~~HMEC's Life	A		(stable)		~~bbb~~N.A.
HMEC's Property and Casualty subsidiaries	A		(stable)		N.A.
HMEC's Supplemental segment's subsidiaries	A-		(stable)		N.A.
Fitch	A		(stable)		BBB	(stable)

~~N.A. – Not applicable.~~

Reinsurance Programs

Information regarding the reinsurance ~~program~~programs for the ~~Company’s~~Company's Property and Casualty ~~segment~~and Life segments is located in ~~“Business -- Property and Casualty Segment -- Property and Casualty Reinsurance”~~Item 8, Note 6 of the ~~Company’s~~Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

~~Information regarding~~

A life insurance subsidiary of the Supplemental segment cedes life insurance risks on both a yearly renewable term and on a coinsurance basis in excess of certain retention limits. Ceding risks does not relieve the originating insurance company of primary liability; however, it does provide for the recovery from the reinsurer of a portion of the benefits paid. The life insurance subsidiary remains contingently liable for all amounts due to the policyholders should the reinsurer default.

Effective April 1, 2019, the Company 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 HMLIC's sole use and benefit. Upon RGA's material breach of the reinsurance ~~program for~~agreement, deterioration of its risk-based capital (RBC) ratio to a certain level, or certain other events, HMLIC may recapture the ~~Company’s Life segment is located in “Business -- Life Segment” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.~~reinsured business.

~~Market Value Risk~~

Market value risk, the Company’s primary market risk exposure, is the risk that the Company’s invested assets will decrease in value. This decrease in value may be due to (1) a change in the yields realized on the Company’s assets and prevailing market yields for similar assets, (2) an unfavorable change in the liquidity of the investment, (3) an unfavorable change in the financial prospects of the issuer of the investment, or (4) a downgrade in the credit rating of the issuer of the investment. See also “Results of Operations -- Net Realized Investment Gains and Losses (Pretax)”.

Significant changes in interest rates expose the Company to the risk of experiencing losses or earning a reduced level of income based on the difference between the interest rates earned on the Company’s investments and the credited interest rates on the Company’s insurance and investment contract liabilities. See also “Results of Operations -- Interest Credited to Policyholders”.

The Company seeks to manage its market value risk by coordinating the projected cash inflows of assets with the projected cash outflows of liabilities. For all its assets and liabilities, the Company seeks 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 the Company. Certain fees that the Company earns from variable annuity deposits are based on the market value of the funds deposited.

More detailed descriptions of the Company’s exposure to market value risks and the management of those risks is presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations -- Market Value Risk” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Item 3:3. Quantitative and Qualitative Disclosures ~~About~~about Market Risk

~~The information required by Item 305~~Market value risk, the Company's primary market risk exposure, is the risk that the Company's invested assets will decrease in value. This decrease in value may be due to (1) a change in the yields realized on the Company's assets and prevailing market yields for similar assets, (2) an unfavorable change in the liquidity of ~~Regulation S-K is contained~~the investment, (3) an unfavorable change in ~~“Management’s Discussion and Analysis~~the financial prospects of ~~Financial Condition and~~the issuer of the investment, or (4) a downgrade in the credit rating of the issuer of the investment. See also Results of Operations --regarding net investment gains (losses).

Significant changes in interest rates expose the Company to the risk of experiencing losses or earning a reduced level of income based on the difference between the interest rates earned on the Company's investments and the credited interest rates on the Company's insurance and investment contract liabilities. See also Results of Operations regarding interest credited to policyholders.

More detailed descriptions of the Company's exposure to market value risks and the management of those risks is presented in Item 7A, Quantitative and Qualitative Disclosures about Market ~~Value Risk” contained in this Quarterly~~Risk of the Company's Annual Report on Form ~~10-Q.~~10-K for the year ended December 31, 2018.

Item 4:4. Controls and Procedures

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

Under the supervision and with the participation of the ~~Company’s~~Company's management, including the ~~Company’s~~Company's Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operation of the ~~Company’s~~Company's disclosure controls and procedures, as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 as amended ~~(the “Exchange Act”)~~(Exchange Act), as

of September 30, ~~2017~~2019 pursuant to Rule 13a-15(b) of the Exchange Act. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the ~~Company’s~~Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) that is required to be included in the ~~Company’s~~Company's periodic Securities and Exchange Commission filings. No material weaknesses in the ~~Company’s~~Company's disclosure controls and procedures were identified in the evaluation and therefore, no corrective actions were taken. There were no significant changes in the ~~Company’s~~Company's 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~~Except as noted below, there were no changes in the ~~Company’s~~Company's internal control over financial reporting ~~that occurred~~ during the ~~Company’s last fiscal quarter~~period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the ~~Company’s~~Company's internal control over financial reporting.

On July 1, 2019, the Company completed its acquisition of NTA. The Company is in the process of integrating NTA and the Company's controls over financial reporting. As a result of these integration activities, certain controls will be evaluated and may be changed. Therefore, the Company has elected to exclude NTA from the Company's assessment of internal control over financial reporting as of September 30, 2019.

Concurrent with the NTA acquisition, changes were made to the relevant business processes and the related control activities over purchase accounting in order to monitor and maintain appropriate controls over financial reporting.

PART II: OTHER INFORMATION

Item ~~1A:~~1A. Risk Factors

At the time of this Quarterly Report on Form 10-Q, management believes there are no material changes from the risk factors as previously disclosed in the ~~Company’s~~Company's Annual Report on Form 10-K for the year ended December 31, ~~2016. The~~2018. However, the following risk factor has emerged as a result of transactions that occurred subsequent to year end.

The Company is ~~updated~~subject to ~~reflect recent developments; however,~~the credit risk of its counterparties, including reinsurers who reinsure business from the Company's insurance companies.

The Company's insurance subsidiaries may cede certain risks to third-party insurance companies through reinsurance. One of the Company's insurance subsidiaries, Horace Mann Life Insurance Company (HMLIC), entered into a reinsurance agreement with RGA Reinsurance Company, a subsidiary of Reinsurance Group of America, Incorporated (RGA) to effectuate the reinsurance of a block of HMLIC's in force fixed and variable annuities on a coinsurance and modified coinsurance basis. The variable portion of the reinsured annuities is reinsured on a modified coinsurance basis and assets supporting the variable account liabilities are still held by HMLIC in its separate accounts. Because the reinsurance agreement covers a large volume of HMLIC's in force business, the transaction exposes HMLIC and in turn, the Company, to a concentration of credit risk with respect to this counterparty. RGA's financial obligations for the general account liabilities of the ~~described risks~~reinsured annuity contracts are ~~comparable~~secured by its assets placed in a comfort trust for HMLIC's sole use and benefit. Upon RGA's material breach of the reinsurance agreement, deterioration of its risk-based capital (RBC) ratio to ~~those previously disclosed.~~

certain level, or certain other events, HMLIC may

~~The Department~~recapture the reinsured business. However, in the event of ~~Labor (“DOL”) fiduciary rule and~~RGA's insolvency, HMLIC's right to use the ~~possible adoption~~assets in the trust account may be delayed. Also, if at the time of its insolvency the trust account is not funded at a level to fully discharge all its obligations, HMLIC's claims to the extent not covered by the ~~Securities and Exchange Commission (“SEC”)~~assets in the trust would be those of a ~~fiduciary standard~~general creditor.

Risks Related to Acquisitions

The integration of ~~care~~National Teachers Associates Life Insurance Company (NTA) into the Company may not be as successful as anticipated.

The NTA acquisition involves numerous operational, strategic, financial, accounting, legal, tax and other risks. Difficulties in executing the acquisition strategy may cause the Company's financial results to differ from its expectations or the expectations of the investor community. Potential difficulties that may be encountered in the integration process include, among other factors:

the inability to successfully integrate the businesses and distribution force of NTA in a manner that permits the Company to achieve the full revenue and cost savings desired from the acquisition;

complexities associated with managing the larger, more complex, business;

loss of key employees

the disruption of, or the loss of momentum in, each company's ongoing business

Lack of successful execution on acquisition strategies could result in impairment of goodwill and intangible assets.

The Company accounted for the NTA and Benefit Consultants Group, Inc.(BCG) acquisitions using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recognized on the Company's consolidated balance sheet at their respective fair values as of the acquisition date, including recognition of intangible assets. Any excess of the purchase consideration over the fair value of the acquired net tangible and intangible assets is recognized as goodwill.

As of September 30, 2019, the Company's consolidated balance sheet reflected preliminary estimates of goodwill and other intangible assets of $29.4 million and $181.1 million, respectively, recognized in connection with the NTA and BCG acquisitions. To the extent the acquisitions do not provide the modeled returns, the value of goodwill or intangible assets could become impaired and thus, the Company may be required to recognize material non-cash charges relating to such impairment.

Risks Related to Supplemental Segment

Actual experience may differ from actuarial assumptions which could adversely affect the Company's profitability, results of operations, and financial condition.

Historical results may not be indicative of future performance due to, among other things, changes in the Company’s mix of business, regulatory actions or changes in legal doctrine impacting the Company's products or lines of business, or any number of economic cyclical effects. Reserves do not represent an exact calculation of future benefit liabilities but are instead actuarial and statistical-based estimates. Actual experience may differ from the Company's reserve assumptions. There are no assurances that reserves will be sufficient to fund the Company's future liabilities in all scenarios. Future loss development may require reserves to be increased, which could adversely affect earnings in current and future periods. Adjustments to reserve amounts may be required in the event of changes from the assumptions regarding future morbidity,

mortality, persistency, and interest rates used in calculating the reserve amounts, which could have a material adverse effect on ~~our business, financial condition and~~the Company's results of ~~operations.~~operations or financial condition.

~~On April 6, 2016,~~Conditions in the ~~DOL released a final regulation which more broadly defines~~general economy and negative developments related thereto could adversely affect the ~~types of activities that will~~Company’s profitability, growth, and financial condition.

Unfavorable economic conditions may result in ~~a person being deemed a “fiduciary” for purposes~~lower sales, lower premium growth and persistency, higher claims incidence, and longer claims duration-any of which may adversely affect the Company's results of operations or financial condition. In particular, factors such as unemployment levels, consumer confidence levels, consumer spending, business investment, and inflation all have the potential to affect the business and economic environment and, ultimately, the amount and profitability of the ~~prohibited transaction rules~~Company. Given the nature of the ~~Employee Retirement Income Security Act (“ERISA”)~~Company's products, in an economic environment characterized by higher unemployment, lower personal income, and ~~Internal Revenue Code Section 4975. Section 4975 prohibits certain kinds~~reduced consumer spending, new product sales may be adversely affected. The Company's premium growth may also be negatively impacted by lower premium growth from existing customers due to lower salary growth and lower growth or decline in the number of ~~compensation with respect to transactions involving assets~~employees in ~~certain accounts, including individual retirement accounts (“IRAs”).~~

~~The DOL rule was originally to be effective on April 10, 2017, but under a delay measure,~~ the ~~fiduciary definition went into effect on June 9, 2017, with certain conditions for prohibited transaction exemption relief delayed until January 1, 2018. The DOL is continuing its examination~~Company's target markets. In addition, during such periods, the Company may experience higher claims incidence, longer claims duration, and/or an increase in policy lapses-any of ~~the rule as directed by President Trump.~~

~~The DOL regulation will affect the ways in~~ which financial services representatives can be compensated for sales to participants in ERISA employer-sponsored qualified plans and sales to IRA customers, and it will impose significant additional legal obligations and disclosure requirements. The DOL regulation could have a material adverse effect on ~~our business and~~the Company's results of ~~operations. While the regulation does not affect non-ERISA employer-sponsored qualified plans,~~operations or financial condition. Programs such as ~~public school 403(b) plans,~~healthcare reform and financial services sector reform may compete with or diminish the need or demand for the Company's products, particularly as it ~~could have~~may affect the ~~following impacts, among others:~~

~~It could inhibit our~~ ability to sell the Company's products through employers or in the workplace.

The Company is subject to extensive regulation which may increase capital requirements, impact the cost or demand for the Company's products, and ~~service IRAs, resulting in a change and/~~adversely affect the Company's profitability, liquidity, or ~~a reduction~~growth.

The Company is subject to extensive regulatory scrutiny. Regulatory authorities have been established (i.e., state insurance departments) and granted broad administrative powers over many aspects of the ~~types~~insurance industry. These laws and regulations can be complex and subject to differing interpretations. Heightened oversight by regulatory authorities could potentially impact the Company's business, results of ~~products we offer for IRAs,~~operations, or financial condition. Existing or future laws and ~~impact our relationship~~regulations may become more restrictive or otherwise adversely affect the Company's operations. Failure to comply with ~~current clients.~~

Itor obtain appropriate exemptions under any applicable laws or regulations could ~~require changes~~result in restrictions on the ~~way that we compensate our agents, thereby impacting our agents’~~Company's ability to do business ~~model.~~

~~It could require changes~~ in ~~our distribution model for financial services products~~one or more of the jurisdictions in which it operates and could result in fines and other sanctions, which could have a ~~decrease in~~material adverse effect on the ~~number of our agents.~~

~~It could increase our costs of doing IRA business and increase our litigation and regulatory risks.~~

~~It could increase the cost and complexity of regulatory compliance for our Retirement segment’s products, including our recently introduced fixed indexed annuity product.~~

Further, in January 2011, under the authority of the Dodd-Frank Act, the SEC submitted a report to Congress recommending that the SEC adopt a fiduciary standard of conduct for broker-dealers. According to the SEC, notice of proposed rulemaking is anticipated in 2017. This regulatory activity by the SEC also has the potential to adversely impact our business, financial condition andCompany's results of ~~operations.~~

In addition, Nevada passed a fiduciary statute and other states are considering passing their own “fiduciary rules.” Individual state regulation of the “fiduciary rules,” with varying legal and compliance requirements, creates market uncertainty.operations or financial condition.

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

Issuer Purchases of Equity Securities

On ~~December 7, 2011,~~September 30, 2015, the ~~Company’s~~Company's Board of Directors ~~(the “Board”)~~ authorized a share repurchase program allowing repurchases of up to $50.0 ~~million of Horace Mann Educators Corporation’s Common Stock, par value $0.001 (the “2011 Plan”). On September 30, 2015, the Board authorized an additional~~million. The share repurchase program ~~allowing repurchases of up to $50.0 million to begin following the completion of the 2011 Plan and utilization of that authorization began in January 2016. Both share repurchase programs authorize~~authorizes the repurchase of common shares in open market or privately negotiated transactions, from time to time, depending on market conditions. The ~~current~~ share repurchase program does not have an expiration date and may be limited or terminated at any time without notice. During the three month period ended September 30, ~~2017,~~2019, the Company ~~repurchased~~did not repurchase shares of HMEC common ~~stock as follows:~~stock. As of September 30, 2019, $22.8 million remained authorized for future share repurchases.

Period

Total Number
of Shares
Purchased

Average Price
Paid Per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Maximum Number
(or Approximate Dollar
Value) of Shares
That May Yet Be
Purchased Under The
Plans or Programs

July 1 - 31 —
—
—
$29.5 million
August 1 - 31 —
—
—
$29.5 million
September 1 - 30 48,440
$ 34.26
48,440
$27.8 million
Total 48,440
$ 34.26
48,440
$27.8 million

Item 5:5. Other Information

The Company is not aware of any information required to be disclosed in a report on Form 8-K during the three month period ended September 30, ~~2017~~2019 which has not been filed with the ~~Securities and Exchange Commission.~~SEC.

Item 6:6. 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”~~"SEC") on August 14, 2003.

3.2		Form of Certificate for shares of Common Stock, $0.001 par value per share, of HMEC, incorporated by reference to Exhibit 4.5 to HMEC’s Registration Statement on Form S-3 (Registration No. 33-53118) filed with the SEC on October 9, 1992.

~~3.3~~		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.

(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.

(10) Material contracts:

10.1		~~Amended and Restated~~ Credit Agreement dated as of ~~July 30, 2014~~June 21, 2019 among HMEC, certain financial institutions named therein and ~~JPMorgan Chase~~PNC Bank, N.A., as administrative agent, incorporated by reference to Exhibit 10.1 to HMEC’s ~~Quarterly~~Current Report on Form ~~10-Q for the quarter ended~~8-K dated June ~~30, 2014,~~24, 2019, filed with the SEC on ~~August 8, 2014.~~

~~10.1(a)~~		First Amendment to Credit Agreement dated as of November 16, 2015 among HMEC, certain financial institutions named therein and JPMorgan Chase 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, 2015, filed with the SEC on February 29, 2016.June 24, 2019.

10.2*		Horace Mann Educators Corporation Amended and Restated 2002 Incentive Compensation Plan (“("2002 Incentive Compensation ~~Plan”~~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.

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), incorporated by reference to Exhibit 10.3 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(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.

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.

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, ~~2017,~~2019, filed with the SEC on August 8, ~~2017.~~2019.

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 March 31, ~~2017,~~2019, filed with the SEC on May ~~9, 2017.~~10, 2019.

10.9*		Form of Severance Agreement between HMEC, Horace Mann Service Corporation ~~(“HMSC”~~("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.

10.9(a)*		Revised Schedule to Severance Agreements between HMEC, HMSC and certain officers of HMEC and/or HMSC, incorporated by reference to Exhibit 10.9(a) to HMEC's Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed with the SEC on August 8, 2017.

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, 2017,~~March 31, 2019, filed with the SEC on ~~August 8, 2017.~~May 10, 2019.

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, 2017,~~March 31, 2019, filed with the SEC on ~~August 8, 2017.~~May 10, 2019.

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.

(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:

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

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 8, ~~2017~~2019	/s/ Marita Zuraitis

		Marita Zuraitis
		President and Chief Executive Officer






Date	November 8, ~~2017~~2019	/s/ Bret A. Conklin

		Bret A. Conklin
		Executive Vice President and
		Chief Financial Officer






Date	November 8, ~~2017~~2019	/s/ Kimberly A. Johnson

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

5365



($ in thousands)	Net Unrealized Investment Gains and Losses on Fixed Maturity and Equity Securities (1)(2)		Benefit Plans (1)			Total (1)

Beginning balance, July 1, 2017	$	243,510	$	(11,817	)	$	231,693
Other comprehensive income (loss) before reclassifications	9,786		—			9,786
Amounts reclassified from accumulated other comprehensive income (loss)	2,422		—			2,422
Net current period other comprehensive income	12,208		—			12,208
Ending balance, September 30, 2017	$	255,718	$	(11,817	)	$	243,901

Beginning balance, January 1, 2017	$	175,738	$	(11,817	)	$	163,921
Other comprehensive income (loss) before reclassifications	78,419		—			78,419
Amounts reclassified from accumulated other comprehensive income (loss)	1,561		—			1,561
Net current period other comprehensive income	79,980		—			79,980
Ending balance, September 30, 2017	$	255,718	$	(11,817	)	$	243,901



($ in millions)	Three Months Ended September 30,				Change From Prior Year					Nine Months Ended September 30,				Change From Prior Year
	2017		2016		Percent		Amount			2017		2016		Percent		Amount
Insurance premiums written and contract deposits (includes annuity and life contract deposits)
Property and Casualty	$	177.2	$	169.8	4.4	%	$	7.4		$	498.0	$	476.3	4.6	%	$	21.7
Retirement (annuity)	114.8		154.6		-25.7	%	(39.8		)	348.9		391.9		-11.0	%	(43.0		)
Life	26.4		27.2		-2.9	%	(0.8		)	79.8		78.4		1.8	%	1.4
Total	$	318.4	$	351.6	-9.4	%	$	(33.2	)	$	926.7	$	946.6	(2.1	)%	$	(19.9	)

Insurance premiums and contract charges earned (excludes annuity and life contract deposits)
Property and Casualty	$	163.2	$	155.7	4.8	%	$	7.5		$	482.0	$	461.5	4.4	%	$	20.5
Retirement (annuity)	7.5		6.4		17.2	%	1.1			20.8		18.6		11.8	%	2.2
Life	28.3		29.0		-2.4	%	(0.7		)	87.6		84.8		3.3	%	2.8
Total	$	199.0	$	191.1	4.1	%	$	7.9		$	590.4	$	564.9	4.5	%	$	25.5



	September 30, 2017	December 31, 2016	September 30, 2016
Property and Casualty
Automobile	482,035	484,915	486,229
Property	217,377	220,137	221,094
Total	699,412	705,052	707,323
Retirement	221,309	219,105	215,445
Life	196,978	197,937	197,792



Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under The Plans or Programs

July 1 - 31	—	—		—	$29.5 million
August 1 - 31	—	—		—	$29.5 million
September 1 - 30	48,440	$	34.26	48,440	$27.8 million
Total	48,440	$	34.26	48,440	$27.8 million