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~~June 30, ~~2017~~2020

☐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,~~offices) (Zip Code)

Registrant’s telephone number, including ~~Zip Code)~~area code: 217-789-2500

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



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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes 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 ☑

As of ~~October~~July 31, ~~2017,~~2020, the registrant had ~~40,667,211~~41,344,546 common shares, ~~of Common Stock,~~$0.001 par value, ~~$0.001 per share,~~ outstanding.

HORACE MANN EDUCATORS CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED ~~SEPTEMBER~~JUNE 30, ~~2017~~2020

~~INDEX~~TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION		Page

Item 1.	Consolidated Financial Statements

	Report of Independent Registered Public Accounting Firm	1

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

	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)	3

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

	Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)	5

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (Unaudited)	6

	Notes to Consolidated Financial Statements (Unaudited)
	Note 1 - Basis of Presentation and Significant Accounting Policies	7
	Note 2 - Investments	1210
	Note 3 - Fair Value of Financial Instruments	1715
	Note 4 - ~~Derivative Instruments~~Derivatives	21
	Note 5 - Deposit Asset on Reinsurance	22
	Note 56 - ~~Property~~Goodwill and ~~Casualty Unpaid Claims and Claim Expenses~~Intangible Assets, net	2423
	Note 67 - ~~Debt~~Unpaid Claims and Claim Expenses	25
	Note 78 - Reinsurance	26
	Note 89 - Commitments	26
	Note 910 - Segment Information	27
	Note 11 - Accumulated Other Comprehensive Income (Loss)	28
	Note 12 - Supplemental Disclosure of Consolidated Cash and Cash Flow Information	29

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2829

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4652

Item 4.	Controls and Procedures	4653

PART II - OTHER INFORMATION

Item 1A.	Risk Factors	4654

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4854

Item 5.	Other Information	4855

Item 6.	Exhibits	4955

SIGNATURES		5359

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~PART I: FINANCIAL INFORMATION

Item 1.IConsolidated Financial Statements

~~The~~

Report of Independent Registered Public Accounting Firm��

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~~June 30, ~~2017,~~2020, the related consolidated statements of operations, ~~and~~ comprehensive income (loss) and changes in shareholders' equity for the ~~three~~three-month and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2020 and ~~2016, and the related consolidated statements of changes in shareholders�� equity,~~2019, and cash flows for the ~~nine-month periods~~six-month period ended ~~September~~June 30, ~~2017~~2020 and ~~2016. These~~2019, 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, 2019, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2020, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

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

We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the ~~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~~August 7, 2020



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

HORACE MANN EDUCATORS CORPORATION

CONSOLIDATED BALANCE SHEETS

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


	September 30, 2017			December 31, 2016			June 30, 2020			December 31, 2019
	(Unaudited)						(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
Fixed maturity securities, available for sale, at fair value (amortized cost 2020, $5,604,405; 2019, $5,456,980)							$	6,021,983		$	5,791,676
Equity securities at fair value							90,338			101,864
Limited partnership interests							392,192			383,717
Short-term and other investments	547,227			401,015			376,297			361,976
Total investments	8,337,136			7,999,372			6,880,810			6,639,233
Cash	6,692			16,670			82,390			25,508
Deferred policy acquisition costs	257,214			267,580			257,129			276,668
Deposit asset on reinsurance							2,373,267			2,346,166
Intangible assets, net							169,845			177,217
Goodwill	47,396			47,396			49,079			49,079
Other assets	344,443			321,874			442,284			474,364
Separate Account (variable annuity) assets	2,051,467			1,923,932			2,316,900			2,490,469
Total assets	$	11,044,348		$	10,576,824		$	12,571,704		$	12,478,704

LIABILITIES AND SHAREHOLDERS’ EQUITY
Policy liabilities
Investment contract and life policy reserves	$	5,540,045		$	5,447,969
Investment contract and policy reserves							$	6,320,577		$	6,234,452
Unpaid claims and claim expenses	341,784			329,888			444,558			442,854
Unearned premiums	262,029			246,274			266,406			279,163
Total policy liabilities	6,143,858			6,024,131			7,031,541			6,956,469
Other policyholder funds	717,369			708,950			741,859			647,283
Other liabilities	493,810			378,620			404,421			384,173
Short-term debt							135,000			135,000
Long-term debt	247,403			247,209			302,172			298,025
Separate Account (variable annuity) liabilities	2,051,467			1,923,932			2,316,900			2,490,469
Total liabilities	9,653,907			9,282,842			10,931,893			10,911,419
Preferred stock, $0.001 par value, authorized 1,000,000 shares; none issued	—			—			—			—
Common stock, $0.001 par value, authorized 75,000,000 shares; issued, 2017, 65,382,877; 2016, 64,917,683	65			65
Common stock, $0.001 par value, authorized 75,000,000 shares; issued, 2020, 66,218,003; 2019, 66,088,808							66			66
Additional paid-in capital	462,068			453,479			483,754			480,962
Retained earnings	1,165,282			1,155,732			1,375,737			1,352,539
Accumulated other comprehensive income (loss), net of taxes:
Net unrealized investment gains on fixed maturity and equity securities	255,718			175,738
Accumulated other comprehensive income (loss), net of tax:
Net unrealized investment gains on fixed maturity securities							279,129			230,448
Net funded status of benefit plans	(11,817		)	(11,817		)	(10,767		)	(10,767		)
Treasury stock, at cost, 2017, 24,721,372 shares; 2016, 24,672,932 shares	(480,875		)	(479,215		)
Treasury stock, at cost, 2020, 24,902,579 shares; 2019, 24,850,484 shares							(488,108		)	(485,963		)
Total shareholders’ equity	1,390,441			1,293,982			1,639,811			1,567,285
Total liabilities and shareholders’ equity	$	11,044,348		$	10,576,824		$	12,571,704		$	12,478,704

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

and Significant Accounting Policies (continued)

~~Accumulated Other Comprehensive Income (Loss)~~

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

Adoption of New Accounting Standards

($ 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


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

~~(2)~~

The pretax amounts reclassified from accumulated other comprehensive income (loss), $(3,726) thousand and $(2,401) thousand, are included in net realized investment gains and losses and the related income tax expense, $(1,304) thousand and $(840) thousand, are included in income tax expense in the Consolidated Statements of Operations for the three and nine month periods ended September 30, 2017, respectively.

~~Note 1 - Basis~~Measurement 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


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

~~(2)~~

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

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

~~Adopted Accounting Standards~~

~~Employee Share-based Payment Accounting~~

Effective January 1, 2017, the Company adopted new accounting guidance for employee share-based payments which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The recognition and classification of the excess tax benefit provisions were applied prospectively in the results 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.

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

~~Pending Accounting Standards~~

~~Revenue Recognition~~

Financial Instruments

In ~~May 2014,~~June 2016, the Financial Accounting Standards Board ~~(“FASB”)~~(FASB) issued ~~accounting~~ guidance which revises the credit loss recognition criteria for certain financial assets measured at amortized cost, including reinsurance recoverables. The new guidance replaces the existing incurred loss recognition model with an expected loss recognition model. The objective of the expected credit loss model is for a reporting entity to ~~provide~~recognize its estimate of expected credit losses for affected financial assets in a ~~single comprehensive model~~valuation allowance that when deducted from the amortized cost basis of the related financial assets results in ~~accounting~~a net carrying value at the amount expected to be collected. A reporting entity must consider all relevant information available when estimating expected credit losses, including details about past events, current conditions, and reasonable and supportable forecasts over the life of an asset. Financial assets may be evaluated individually or on a pooled basis when they share similar risk characteristics. The measurement of credit losses for ~~revenue arising from contracts with customers. The guidance applies~~available for sale debt securities measured at fair value is not affected except that credit losses recognized are limited to ~~all contracts with customers; however, insurance contracts are specifically excluded from this updated guidance.~~the amount by which fair value is below amortized cost and the carrying value adjustment is recognized through a valuation allowance which may change over time but once recorded cannot subsequently be reduced to an amount below zero. The guidance is effective for ~~annual~~ reporting periods beginning after December 15, ~~2017, including interim periods within those years. Early adoption is permitted only~~2019, and for ~~annual reporting periods~~most affected instruments must be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to beginning ~~after December 15, 2016.~~retained earnings.

The Company’s implementation activities are complete and the impacts related to the Company’s commercial mortgage loan portfolio, agent advances, reinsurance recoverables and off-balance-sheet credit exposures for unfunded commercial mortgage loan commitments. The Company ~~plans to adopt~~adopted the new 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.~~2020 and recognized a cumulative effect adjustment that decreased retained earnings by $0.5 million.

Future Adoption of New Accounting Standards

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

Accounting for Long-Duration Insurance Contracts

In ~~January 2016,~~August 2018, the FASB issued accounting and disclosure guidance that contains targeted improvements to ~~improve certain aspects~~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 ~~recognition, measurement, presentation and disclosure~~related contracts with no interest accruing on the DAC balance. The new guidance also introduces a new category of ~~financial instruments. Among other things,~~contract features associated with deposit type contracts referred to as market risk benefits (MRBs). Contract features meeting the ~~guidance revises the accounting related to the classification and measurement~~definition of ~~investments in equity securities and the presentation of certain fair value changes for financial liabilities~~a MRB will be measured at fair value. ~~The Company’s results of operations~~New disclosures will be ~~impacted as changes~~required for long-duration insurance contracts in ~~fair value of equity securities will be reported in net income instead of reported in other comprehensive income. The effective date of~~order to provide better transparency into 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 settlementexposure of insurance ~~claims (pertains to claimants); (5) proceeds from~~entities and the ~~settlement~~drivers 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.their results. For public business entities, the guidance is effective for annual reporting periods beginning after December 15, ~~2017,~~2021, including interim periods within those ~~years, using a retrospective approach. The~~years. With regards to the liability for future policy benefits and DAC, the guidance ~~allows prospective adoption for individual issues if it is impracticable~~applies 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 classificationscontracts 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~~force as of the ~~Company.~~

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

~~Accounting for Leases~~

~~In February 2016,~~ the ~~FASB issued accounting~~earliest period presented and ~~disclosure~~may be applied retrospectively. With regards to MRBs, the 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 leasesis 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 leasesapplied retrospectively 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.~~presented. Early ~~application~~adoption is permitted. Management is currently evaluating the impact this guidance will have on the results of operations and financial position of the Company.

Accounting Policies

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

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

~~In June 2016,~~



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

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

Credit Impairments of Fixed Maturity Securities

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

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

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

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

For fixed maturity securities the Company intends to sell or for which it is more likely than not that the Company will be required to sell before an anticipated recovery in value, the full amount of the impairment is included in net investment gains (losses). The new ~~guidance replaces~~cost basis of the ~~incurred loss~~investment is the previous amortized cost basis less the impairment ~~methodology and requires an organization to measure and recognize all current expected credit losses (“CECL”)~~recognized in net investment gains (losses). The new cost basis is not adjusted 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 their credit loss estimates. Companies will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Credit losses related toany subsequent recoveries in fair value.

The Company reports investment income accrued separately from fixed maturity securities, available for sale, ~~debt securities -- which represent over 90% of Horace Mann’s total investment portfolio -- will be recorded through~~and has elected not to measure an allowance for credit losses for investment income accrued. Investment income accrued is written off through net investment gains (losses) at the time the issuer of the fixed maturity security defaults or is expected to default on payments.

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

Subsequent Event

PG&E Corporation and Pacific Gas and Electric Company (together, PG&E) emerged from bankruptcy on July 1, 2020, the date the Debtors' and Shareholder Proponents' Joint Chapter 11 Plan of Reorganization Dated June 19, 2020 (the Plan) became effective. In accordance with ~~this allowance having~~the terms of the Plan, PG&E funded a ~~limit equal~~trust from which the Company and other subrogation claimants will receive payments related 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~~2018 California Camp Fire in the ~~financial statements. For public business entities~~third quarter of 2020. The Company expects to recognize in the third quarter of 2020 a subrogation benefit related to these claims of approximately $4.8 million pretax, net of expenses and amounts that ~~are SEC filers,~~would inure to the guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those years, using a modified-retrospective approach. Early application is permitted for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. Management is evaluating the impact this guidance will have on the results of operations and financial positionbenefit of the ~~Company.~~Company's reinsurers, and the return of $3.5 million pretax of reinsurance reinstatement premiums for a total of $8.3 million.

~~Simplifying the Test for Goodwill Impairment~~



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

In January 2017, the FASB issued guidance to simplify the accounting for goodwill impairment. The guidance removes Step 2 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 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. 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 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 application is permitted. Management believes the adoption of this accounting guidance will not have a material effect on how it tests goodwill for impairment.

~~Note~~

NOTE 2 - Investments

Net Investment Income

The ~~Company’s~~components of net 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-Kincome for the ~~year ended December 31, 2016.~~ following periods were:



($ in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Fixed maturity securities	$	58,861		$	83,561		$	118,307		$	167,877
Equity securities	1,182			1,392			2,390			2,590
Limited partnership interests	(3,485		)	9,449			(6,184		)	15,900
Short-term and other investments	2,784			(21,451		)	5,641			(18,063		)
Investment expenses	(2,886		)	(2,688		)	(5,111		)	(5,241		)
Net investment income - investment portfolio	56,456			70,263			115,043			163,063
Investment income - deposit asset on reinsurance	23,954			23,195			47,642			23,195
Total net investment income	$	80,410		$	93,458		$	162,685		$	186,258

Net Investment Gains (Losses)

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



($ in thousands)	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019
Fixed maturity securities	$	(642	)	$	141,548	$	460		$	141,749
Equity securities	7,071			3,926		(7,652		)	11,833
Short-term investments and other	(3,267		)	859		(8,110		)	168
Net investment gains (losses)	$	3,162		$	146,333	$	(15,302	)	$	153,750

The ~~Company’s investment portfolio included no other free-standing derivative financial instruments (futures, forwards, swaps, option contracts~~Company, from time to time, sells invested assets subsequent to the reporting date that were considered temporarily impaired at the reporting date. Such sales are due to issuer specific events occurring subsequent to the reporting date that result in a change in the Company's intent or ~~other financial instruments with similar characteristics),~~ability to hold an invested asset. The types of events that may result in a sale include significant changes in the economic facts and ~~there were no other embedded derivative features~~circumstances related to the ~~Company’s~~invested asset, significant unforeseen changes in liquidity needs, or changes in the Company's investment ~~or insurance products during the nine month periods ended September 30, 2017 and 2016.~~strategy.

Net Investment Gains (Losses) by Transaction Type

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

~~Note~~



($ in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Credit impairment write-downs	$	—		$	—		$	—		$	—
Change in intent write-downs	(523		)	(34		)	(4,215		)	(271		)
Net other-than-temporary impairment losses on securities recognized in earnings	(523		)	(34		)	(4,215		)	(271		)
Sales and other, net	352			142,067			4,909			146,905
Change in fair value - equity securities	6,600			3,441			(7,886		)	6,948
Change in fair value and gains (losses) realized on settlements - derivatives	(3,267		)	859			(8,110		)	168
Net investment gains (losses)	$	3,162		$	146,333		$	(15,302	)	$	153,750



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

NOTE 2 - Investments ~~(Continued)~~

(continued)

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
June 30, 2020
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	$	—	$	635,342	$	83,843	$	211	$	718,974
Other, including U.S. Treasury securities	653,237		24,705		6,922		671,020		—		333,428		41,453		—		374,881
Municipal bonds	1,669,273		177,359		4,428		1,842,204		—		1,633,297		174,211		1,958		1,805,550
Foreign government bonds	93,761		6,416		—		100,177		—		39,643		3,907		—		43,550
Corporate bonds	2,635,313		190,548		4,158		2,821,703		—		1,705,963		169,498		13,021		1,862,440
Other mortgage-backed securities	1,529,052		26,879		5,803		1,550,128		1,335
Other asset-backed securities											1,256,732		16,978		57,122		1,216,588
Totals	$	7,194,397	$	460,619	$	24,382	$	7,630,634	$	1,335	$	5,604,405	$	489,890	$	72,312	$	6,021,983

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

December 31, 2016
December 31, 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	$	587,355	$	34,256	$	6,720	$	614,891	$	—	$	684,543	$	41,263	$	1,487	$	724,319
Other, including U.S. Treasury securities	458,745		18,518		10,120		467,143		—		436,665		22,824		621		458,868
Municipal bonds	1,648,252		143,733		22,588		1,769,397		—		1,545,787		141,996		1,580		1,686,203
Foreign government bonds	93,864		5,102		297		98,669		—		42,801		2,569		—		45,370
Corporate bonds	2,672,818		152,229		14,826		2,810,221		—		1,464,444		118,775		1,795		1,581,424
Other mortgage-backed securities	1,691,093		21,153		15,859		1,696,387		1,618
Other asset-backed securities											1,282,740		20,883		8,131		1,295,492
Totals	$	7,152,127	$	374,991	$	70,410	$	7,456,708	$	1,618	$	5,456,980	$	348,310	$	13,614	$	5,791,676

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 thousand~~$392.6 million and ~~$272,668 thousand;~~$405.1 million; Federal Home Loan Mortgage Corporation ~~(“FHLMC”)~~(FHLMC) of ~~$373,676 thousand~~$312.9 million and ~~$378,683 thousand;~~$283.1 million; and Government National Mortgage Association ~~(“GNMA”)~~(GNMA) of ~~$109,873 thousand~~$145.6 million and ~~$115,627 thousand~~$147.4 million as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.


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

~~Note~~



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

NOTE 2 - Investments ~~(Continued)~~

(continued)

The following table presents the fair value and gross unrealized losses offor fixed maturity ~~and equity~~ securities in an unrealized loss position at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. The Company views the decrease in fair value of all of the fixed maturity securities with unrealized losses at ~~September~~June 30, ~~2017 --~~2020 — 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 June 30, 2020, the Company has not ~~have~~made the ~~intent~~decision to sell ~~the securities~~ and it is not more likely than not the Company will be required to sell fixed maturity securities with unrealized losses before an anticipated recovery in value. Therefore, it was determined that the unrealized losses on the securities ~~before~~presented in the ~~anticipated recovery~~table below were not other-than-temporarily impaired as of the amortized cost bases, and management expects to recover the entire amortized cost bases of the fixed maturity securities. For equity securities, the Company has the ability and intent to hold the securities for the recovery of cost and recovery of cost is expected within a reasonable period of time.

June 30, 2020.

($ 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
June 30, 2020
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	$	8,344		$	130	$	933		$	81	$	9,277		$	211
Other	37			—		—			—		37			—
Municipal bonds	81,279			1,958		—			—		81,279			1,958
Foreign government bonds	—			—		—			—		—			—
Corporate bonds	209,868			12,127		6,060			894		215,928			13,021
Other asset-backed securities	448,358			38,339		387,453			18,783		835,811			57,122
Total	$	747,886		$	52,554	$	394,446		$	19,758	$	1,142,332		$	72,312

Number of positions with a gross unrealized loss	594					109					703
Fair value as a percentage of total fixed maturity securities at fair value	12.4		%			6.6		%			19.0		%

December 31, 2019
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	$	72,422		$	1,282	$	2,620		$	205	$	75,042		$	1,487
Other	38,341			619		1,527			2		39,868			621
Municipal bonds	91,195			977		9,160			603		100,355			1,580
Foreign government bonds	—			—		—			—		—			—
Corporate bonds	58,198			886		16,622			909		74,820			1,795
Other asset-backed securities	218,710			1,970		442,791			6,161		661,501			8,131
Total	$	478,866		$	5,734	$	472,720		$	7,880	$	951,586		$	13,614

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

Fixed maturity ~~and equity~~ securities with an investment grade rating represented ~~92%~~84.5% of the gross unrealized losses as of ~~September~~June 30, ~~2017.~~2020. With respect to fixed maturity securities involving securitized financial assets, the underlying collateral cash flows were stress tested to determine there was no adverse change in the present value of cash flows below the amortized cost basis.



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

NOTE 2 - Investments (continued)

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~~June 30, ~~2017~~2020 and ~~2016~~2019 that the Company did not intend to sell as of those dates, and it was not more likely than not that the Company would be required to sell the securities before ~~the~~an anticipated recovery ~~of the amortized cost bases,~~in value, for which the non-credit portions of OTTI losses were recognized in ~~other comprehensive income:~~

OCI:


($ in thousands)	Nine Months Ended September 30,					Six Months Ended June 30,
	2017			2016		2020			2019
Cumulative credit loss (1)
Beginning of period	$	13,703		$	7,844	$	1,529		$	1,529
New credit losses	—			300		184			—
Increases to previously recognized credit losses	1,994			2,480		—			—
Gains related to securities sold or paid down during the period	(2		)	—
End of period	$	15,695		$	10,624
Losses related to securities sold or paid down during the period						(103		)	—
						$	1,610		$	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~~an anticipated recovery of ~~the amortized cost basis.~~value.

~~Expected Maturity~~For the three and six months ended June 30, 2020, there was no allowance recognized for current expected credit losses with respect to fixed maturity securities classified as available for sale.

Maturities of Fixed Maturity Securities

The following table presents the distribution of the Company’s fixed maturity securities portfolio by estimated expected maturity. Estimated expected maturities differ from contractual maturities, reflecting assumptions regarding ~~borrowers’~~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~~mortgage-backed securities, estimated expected maturities consider broker-dealer survey prepayment assumptions and are verified for consistency with the interest rate and economic environments.


($ in thousands)	Percent of Total Fair Value				September 30, 2017				Percent of Total Fair Value				June 30, 2020
	September 30, 2017		December 31, 2016		Fair Value		Amortized Cost		June 30, 2020		December 31, 2019		Fair Value		Amortized Cost
Estimated expected maturity:
Due in 1 year or less	3.4	%	3.9	%	$	256,527	$	250,803	4.0	%	3.6	%	$	240,942	$	240,701
Due after 1 year through 5 years	27.5		28.7		2,097,243		1,998,498		27.9	%	27.4	%	1,680,037		1,650,193
Due after 5 years through 10 years	33.3		35.2		2,540,303		2,431,895		30.1	%	29.6	%	1,814,204		1,680,118
Due after 10 years through 20 years	23.3		19.5		1,780,760		1,654,259		24.7	%	26.1	%	1,487,294		1,314,841
Due after 20 years	12.5		12.7		955,801		858,942		13.3	%	13.3	%	799,506		718,552
Total	100.0	%	100.0	%	$	7,630,634	$	7,194,397	100.0	%	100.0	%	$	6,021,983	$	5,604,405

Average option-adjusted duration, in years	6.0		5.9						6.2		6.0

~~Note~~



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

NOTE 2 - Investments ~~(Continued)~~

(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,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2020			2019 ⁽¹⁾			2020			2019 ⁽¹⁾
Fixed maturity securities
Proceeds received	$	85,841		$	94,706		$	315,531		$	351,739		$	196,004		$	442,015		$	294,162		$	501,739
Gross gains realized	2,293			2,966			8,862			13,824			5,506			147,774			10,285			148,316
Gross losses realized	(181		)	(102		)	(1,558		)	(1,542		)	(5,625		)	(5,976		)	(5,893		)	(6,081		)

Equity securities
Proceeds received	$	3,514		$	4,479		$	20,510		$	17,101		$	10,602		$	1,633		$	12,059		$	17,122
Gross gains realized	477			790			3,227			1,960			1,721			389			2,040			5,134
Gross losses realized	(293		)	(21		)	(721		)	(862		)	(1,249		)	(166		)	(1,805		)	(510		)

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.~~Introduction

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

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

~~Executive Summary~~

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

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

Coronavirus Disease (COVID-19) Considerations

Beginning in March 2020, the global pandemic associated with the novel coronavirus COVID-19 and related economic conditions introduced unprecedented challenges for our country. Those challenges are ongoing. We relied on our previously developed Corporate Pandemic Plan to address preparation, prevention and response measures specific to COVID-19 while allowing flexibility to quickly react to evolving circumstances and implement varying actions accordingly.

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

As of the end of June 2020, we had approximately 85% of our employees working remotely. We anticipate another 15% of our workforce will return to the offices by the end of August 2020. The return to office plans are being guided by data from the Center for Disease Control. We currently anticipate limiting office occupancy to no more than 50% of pre-COVID-19 levels to enable effective social distancing for some time. We are also implementing other prevention strategies to reduce the transmission of COVID-19, such as requiring face masks in common office areas.

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

Horace Mann markets primarily to K-12 teachers, administrators and other employees of public schools and their families and we estimate that 80% of our customer base are educators or other individuals employed by public school systems. In our experience, educators generally remain employed during periods of economic disruption. That largely remained true through the end of the recently completed 2019-2020 school year, as educators were typically asked to teach remotely when areas of the country took steps to minimize the spread of COVID-19 in their communities.

We continue to work with our network of exclusive agents to make sure they are making use of the tools that allow them to virtually reach current and potential educator customers. Our plans for this fall’s return to school includes a variety of new and modified forums to give teachers access to the financial solutions we provide. However, growth in new sales has slowed since the pandemic began, particularly sales generated from in-person events at schools. This may be exacerbated if public school systems face budget constraints in the fall due to the economic impacts of the pandemic and/or continue to restrict all "in school" access.

For further discussion regarding the current period and potential future impacts of COVID-19 and related economic conditions on us, see "Outlook for 2020" and other content within this MD&A as well as Part II—Item 1A.

In addition, over the past several years, we proactively de-risked our portfolio in anticipation of a recession and believe we are well positioned for the current dislocation in the markets. Although we have experienced the



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

impacts of market volatility on our fixed maturity security and limited partnership interest valuations in the second quarter of 2020, the investment portfolio is well diversified, is 95.3% investment grade-rated and has an average rating of A+. The annuity reinsurance agreement, entered into in the second quarter of 2019, which reinsured a $2.2 billion block of in force fixed annuities with a minimum crediting rate of 4.5%, helps mitigate the risk of not being able to generate spreads on the annuity business that meet our return targets. We believe our capital and reserves are adequate to address any unusual loss patterns resulting from COVID-19.

Amid rapidly changing dynamics, we are continuing to evaluate all aspects of our operations and making necessary adjustments to manage our business. Ultimately, the extent of the impact will depend on how long it takes for the economy to return to some degree of normality. To date, these steps have been effective and maintained business continuity. Based on assumptions that presume a return to a normal operating environment within six months, capital and liquidity are expected to remain at or near target levels. We believe we are financially strong despite the potential impact of the COVID-19 pandemic and continued to produce solid operating results in the second quarter of 2020.

Consolidated Financial Highlights

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



($ in millions)	Three Months Ended June 30,				2020-2019		Six Months Ended June 30,						2020-2019
	2020		2019		Change %		2020			2019			Change %
Total revenues	$	314.9	$	454.1	-30.7	%	$	622.2		$	770.0		-19.2	%
Net income	30.5		93.8		-67.5	%	49.0			126.0			-61.1	%
Per diluted share:
Net income	0.73		2.24		-67.4	%	1.17			3.01			-61.1	%
Net investment gains (losses), after tax	0.06		2.74		N.M.		(0.28		)	2.88			N.M.
Book value per share							$	39.69		$	36.41		9.0	%
Net income return on equity - last twelve months							6.9		%	8.6		%
Net income return on equity - annualized							6.1		%	18.1		%

For the three ~~month period~~and six months ended ~~September~~June 30, ~~2017, the Company’s~~2020, net income decreased $63.3 million and $77.0 million, respectively. The decrease was primarily due to recognition of ~~$26.5~~a $106.9 million after tax realized investment gain in the second quarter of 2019 with respect to the transfer of investments as consideration in connection with the annuity reinsurance transaction. That gain was partially offset by more favorable results from Property and Casualty as well as the inclusion of results from the newly added Supplemental segment in the current periods.



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

Consolidated Results of Operations

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



($ in millions)	Three Months Ended June 30,				2020-2019		Six Months Ended June 30,					2020-2019
	2020		2019		Change %		2020			2019		Change %
Insurance premiums and contract charges earned	$	225.4	$	208.1	8.3	%	$	461.7		$	417.9	10.5	%
Net investment income	80.4		93.5		-14.0	%	162.7			186.3		-12.7	%
Net investment gains (losses)	3.2		146.3		N.M.		(15.3		)	153.7		N.M.
Other income	5.9		6.2		-4.8	%	13.1			12.1		8.3	%
Total revenues	314.9		454.1		-30.7	%	622.2			770.0		-19.2	%

Benefits, claims and settlement expenses	143.0		152.7		-6.4	%	281.7			292.1		-3.6	%
Interest credited	50.7		53.6		-5.4	%	102.2			106.5		-4.0	%
Operating expenses	55.7		57.3		-2.8	%	116.4			113.5		2.6	%
DAC unlocking and amortization expense	20.4		31.6		-35.4	%	50.4			56.6		-11.0	%
Intangible asset amortization expense	3.7		0.6		N.M.		7.4			1.1		N.M.
Interest expense	4.0		3.3		21.2	%	8.2			6.6		24.2	%
Other expense - goodwill impairment	—		28.0		N.M.		—			28.0		N.M.
Total benefits, losses and expenses	277.5		327.1		-15.2	%	566.3			604.4		-6.3	%

Income before income taxes	37.4		127.0		-70.6	%	55.9			165.6		-66.2	%
Income tax expense	6.9		33.2		-79.2	%	6.9			39.6		-82.6	%
Net income	$	30.5	$	93.8	-67.5	%	$	49.0		$	126.0	-61.1	%

Insurance Premiums and Contract Charges Earned

For the three and six months ended June 30, 2020, insurance premiums and contract charges earned increased $17.3 million and $43.8 million, respectively, primarily due to the addition of earned premiums from Supplemental. These were partially offset by lower premiums earned by Property and Casualty, including recognition of $9.8 million of automobile premium credits to our policyholders related to reduced driving activity due to COVID-19.

Net Investment Income

Excluding accreted investment income on the deposit asset on reinsurance, for the three and six months ended June 30, 2020, net investment income decreased ~~$0.4~~$13.8 million ~~compared~~and $48.0 million, respectively, primarily due to a $2.1 billion reduction in invested assets from investments transferred under the annuity reinsurance transaction in the second quarter of 2019 as well as lower than expected returns on limited partnership investments. Investment yields continue to be impacted by the low interest rate environment of recent years. The annualized investment yield on the investment portfolio excluding limited partnership interests* was as follows:



	Three Months Ended June 30,		Six Months Ended June 30,
	2020	2019	2020	2019
Investment yield, excluding limited partnership interests, pretax - annualized*	4.4%	4.7%	4.4%	4.8%
Investment yield, excluding limited partnership interests, after tax - annualized*	3.5%	3.8%	3.6%	3.8%

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



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

Net Investment Gains (Losses)

For the three and six months ended June 30, 2020, net investment gains decreased $143.1 million and $169.0 million, respectively, primarily as a result of a realized investment gain of $135.3 million recognized during the second quarter of 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 were as follows:



($ in millions)	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019
Net other-than-temporary impairment losses on securities recognized in earnings	$	(0.5	)	$	—	$	(4.2	)	$	(0.3	)
Sales and other, net	0.4			142.1		4.9			146.9
Change in fair value - equity securities	6.6			3.4		(7.9		)	6.9
Change in fair value and gains (losses) realized on settlements - derivatives	(3.3		)	0.8		(8.1		)	0.2
Net investment gains (losses)	$	3.2		$	146.3	$	(15.3	)	$	153.7

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

Other Income

For the three and six months ended June 30, 2020, other income was comparable to the prior ~~year period including an increase in Property~~periods.

Benefits, Claims and ~~Casualty net income of $6.7 million offset by a $4.9 million reduction in net realized investment gains.~~Settlement Expenses

For the three ~~month period~~and six months ended ~~September~~June 30, ~~2017, Property~~2020, benefits, claims and ~~Casualty net income~~settlement expenses decreased $9.7 million and $10.4 million, respectively, driven primarily by improved automobile loss experience partially offset by higher catastrophe losses and the addition of benefits, claims and settlement expenses from the Supplemental segment. The improved automobile loss experience is a result of lower frequency of losses related to reduced driving activity due to COVID-19.

Interest Credited

For the three and six months ended June 30, 2020, interest credited decreased $2.9 million and $4.3 million, respectively, driven primarily by a lower level of Federal Home Loan Bank (FHLB) funding agreements. Under the deposit method of accounting, the interest credited on the annuity reinsured block continues to be reported. The average deferred annuity credited rate, excluding the reinsured block was 2.5% at June 30, 2020 and June 30, 2019, respectively.

Operating Expenses

For the three months ended June 30, 2020, operating expenses decreased $1.6 million, primarily due to the inclusion of $9.8 million of operating expenses from Supplemental operations that was more than offset by expense reduction initiatives that began in 2019 as well as a lower level of expenses realized in 2020 due to COVID-19. For the six months ended June 30, 2020, operating expenses increased $2.9 million, primarily due to ~~$13.4~~the inclusion of $19.6 million of operating expenses from Supplemental operations offset by expense reduction initiatives that began 2019 as well as a lower level of expenses realized in 2020 due to COVID-19.

Deferred Acquisition Costs (DAC) Unlocking and Amortization Expense

For the three months ended June 30, 2020, DAC unlocking and amortization expense decreased $11.2 million primarily due to $4.6 million of favorable DAC unlocking in Retirement for the current quarter (primarily market performance) compared to ~~$6.7~~$5.6 million of unfavorable DAC unlocking in the prior year quarter primarily due to accelerated amortization of the DAC asset associated with the reinsured annuity block. For the six months ended June 30, 2020, DAC unlocking and amortization expense decreased $6.2 million primarily due to the aforementioned DAC accelerated amortization that occurred in the prior year period. ~~The Property~~For Life, DAC unlocking resulted in an immaterial change to amortization for the three and ~~Casualty combined ratio of 95.8% improved 5.7 points compared to~~six months ended June 30, 2020.



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

Intangible Asset Amortization Expense

For the ~~prior year period. These improvements were~~three and six months ended June 30, 2020, intangible asset amortization expense increased $3.1 million and $6.3 million, respectively, primarily due to ~~an improved underlying auto loss ratio*, reflecting~~ the ~~impact~~acquisition of ~~rate actions~~NTA Life Enterprises, LLC (NTA) in 2019.

Interest Expense

For the three and ~~continued profitability initiatives,~~six months ended June 30, 2020, interest expense increased $0.7 million and $1.6 million, respectively, as ~~well as a strong underlying property loss ratio and lower expenses. Prior years' reserves continue to develop favorably; however, the favorable development~~we utilized our senior revolving credit facility in the third quarter of ~~$0.5~~2019 to partially fund the acquisition of NTA on July 1, 2019.

Other Expense - Goodwill Impairment

For the three and six month periods ended June 30, 2019, other expense represented a goodwill impairment charge in Retirement resulting from the annuity reinsurance transaction.

Income Tax Expense

The effective income tax rate on our pretax income, including net investment gains (losses), was 12.3% and 23.9% for the six months ended June 30, 2020 and 2019, respectively. Income from investments in tax-advantaged securities reduced the effective income tax rates by 5.3 and 1.4 percentage points for the six months ended June 30, 2020 and 2019, respectively. The goodwill impairment charge in the Retirement segment increased the effective income tax rate by 3.5 percentage points at June 30, 2019.

On March 27, 2020, H.R. 748, the Coronavirus Aid, Relief, and Economic Security Act, “the CARES Act”, was signed into legislation. The CARES Act includes tax provisions relevant to businesses, and some of the significant changes include allowance of a five year carryback of net operating losses for 2018-2020 and the suspension of the 80% limitation of taxable income for net operating loss carryforwards for 2018-2020. The effects of the CARES Act are reflected in our income tax expense calculations as of March 31, 2020. Accounting Standards Codification Topic 740: Income Taxes requires that the impact of the CARES Act be recognized in the period in which the law was enacted. As a result, total income tax expense for the six months ended June 30, 2020 includes a benefit of $2.8 million ~~pretax~~(that reduced the effective income tax rate by 5.0 percentage points) to reflect a net operating loss carryback to taxable years for which the corporate rate was ~~$0.2~~35% as compared to the current corporate rate of 21%.

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

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

Outlook for 2020

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

The impacts of COVID-19 and related economic conditions on our results continue to be highly uncertain and outside our control. The scope, duration and magnitude of the direct and indirect effects of COVID-19 continue to evolve in ways that are difficult or impossible to anticipate. In addition, because the unprecedented COVID-19 environment has only impacted our insurance operations for slightly more than three months, we do not believe its impact on our results for the first half of 2020 will be indicative of our results for the remainder of 2020. For additional information on the risks posed by COVID-19, see “Our business may be adversely affected by the recent COVID-19 outbreak” included in Part II - Item 1A in this Quarterly Report on Form 10-Q.

At the time of issuance of this Quarterly Report on Form 10-Q, we estimate that 2020 full year net income will be within a range of $2.80 to $3.00 per diluted share based on analysis of COVID-19 scenarios. The increase in the range from the Outlook for 2020 we discussed in the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020 anticipates an increase in the Property and Casualty segment results as discussed below.



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

Property and Casualty

Net written premiums for 2020 are expected to be below 2019 levels due to the recognition of $9.8 million ~~pretax~~of COVID-19 related premium credits in the second quarter and lower levels of new business due to the pandemic. Retention remains stable. We expect rate increases will continue to average in the low-single digits across the automobile and property books. The expense ratio is expected to be flat with the 2019 expense ratio of 26.9 points.

We experienced a lower level of automobile loss frequency resulting from temporary changes in policyholder driving patterns due to COVID-19 during the second quarter. Frequency was most favorably impacted in the month of April, with May and June levels rising sequentially. We anticipate frequency will continue to moderate as miles driven move back to near historic levels, but we project it will be lower than 2019 levels for the ~~amount a~~remainder of the year ~~ago. Catastrophe activity~~with an offsetting increase in severity. A 10% drop in automobile frequency represents approximately $2 million in pretax earnings per month, excluding the potential for higher severity.

In connection with the emergence of PG&E Corporation and Pacific Gas and Electric Company (together, PG&E) from bankruptcy on July 1, 2020, in the third quarter of ~~2017 totaled $8.6~~2020, we expect to recognize favorable prior year reserve development of approximately $4.8 million, pretax ~~compared~~and net of reinsurance, along with the return of reinsurance reinstatement premiums of approximately $3.5 million, for a total of $8.3 million, related to ~~$8.4~~the 2018 Camp Fire in California. The 2018 California Camp Fire generated gross losses of $150.0 million, and, net losses after reinsurance of $37.9 million pretax in 2018. See Part I - Item I, Note 1 in this Quarterly Report on Form 10-Q for further discussion regarding the ~~prior year period. Losses related~~PG&E subrogation claims.

As a result, the Property and Casualty full-year combined ratio is expected to ~~Hurricane Harvey were $5.0 million pretax and losses related~~be 91% to ~~Hurricane Irma were $2.5 million pretax. The remainder, $1.2 million pretax, of~~93%, including catastrophe losses ~~related~~of approximately 10 points, reflecting the higher level of catastrophes in the second quarter. We anticipate net investment income below our previous guidance due to ~~four additional events.~~lower than anticipated returns on limited partnership interests. Income for Property and Casualty is now anticipated to be in the range of $70 million to $75 million, reflecting the strong six-month results with the catastrophe losses assumption adjusted for the unusually high second quarter catastrophe losses.

Supplemental

~~On an underlying basis,~~Supplemental is anticipated to generate a pretax profit margin in the third quarter 2017 auto combined ratio*low to mid 20% range and net investment income should continue to benefit from portfolio repositioning. As a result, we continue to anticipate net income between $31 million and $33 million. New sales are being negatively impacted by school closings due to COVID-19, delaying the growth of ~~103.4% improved 4.9 points and~~this segment.

Retirement

Retirement net investment income is reflecting further spread compression with rates on new investments below the ~~property combined ratio~~average portfolio earned rate, lower than anticipated returns on limited partnership interests, as well as the impact 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~~invested assets as a result of ~~an increase in earned premium due~~the annuity reinsurance transaction and use of capital to ~~rate actions combined with continued stabilization in auto loss trends.~~purchase NTA. Market volatility may continue to impact DAC amortization and asset-based fees. The ~~underlying property loss ratio of 46.3% improved 6.6 points compared to the prior year period primarily as a result~~impact of lower ~~non-catastrophe weather-related losses in the current quarter.~~

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 in an increase in the average premium per policy for both auto and property. Policy retention continuesnet investment income is anticipated to be ~~strong with auto and property policy retention rates of 83.0% and 87.6%, respectively.~~

For the three month period ended September 30, 2017, Retirement net income of $13.6 million decreased $2.1 million or 13.4% compared to the prior year period which is primarily due to a $3.4 million pretax decrease in net interest margin and a $1.0 million pretax increase in operating expensespartially offset by a ~~$1.1 million pretax increase in contract charges.~~

~~For the three month period ended September 30, 2017, Life~~reduced level of operating expenses. As a result, we continue to expect net income for Retirement to be in the range of ~~$4.8~~$22 million ~~increased $0.2~~to $24 million.

Life

We continue to expect Life to generate net income between $10 million and $12 million, reflecting a reduced level of net investment income with mortality costs continuing to meet expectations.

As described in Critical Accounting Estimates, certain of our significant accounting measurements require the use of estimates and assumptions. As additional information becomes available, adjustments may be required. Those adjustments are charged or credited to income for the period in which the adjustments are made and may impact actual results compared to ~~the prior year period primarily due to lower operating expenses. Life insurance premiums~~our estimates above. Additionally, see Forward-looking Information and ~~contract deposits* of $26.4 million decreased 2.9% compared to 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 compared to a year ago reflecting a record level of catastrophe losses,~~Part II - Item 1A in this Quarterly Report on Form 10-Q as well as ~~elevated non-catastrophe weather-related losses~~Part I - Items 1 and 1A in our Annual Report on Form 10-K for the year ended December 31, 2019 concerning other important factors that ~~occurred in the first half~~could impact actual results. We believe that a projection of ~~the year.~~net income is not appropriate on a forward-looking basis because it is not possible to provide a valid forecast of net investment gains (losses), which can vary substantially from one period to another and may have a significant impact on net income.

For the nine month period ended September 30, 2017, Property and Casualty net income decreased to $2.2 million compared to net income of $16.0 million in the prior year period as a result of elevated catastrophe losses and non-catastrophe weather-related losses that occurred 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.



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

On an underlying basis, the nine month 2017 auto loss ratio of 77.0% increased 0.5 points compared to the prior year period. For property, the underlying nine month loss ratio 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.

Total Property 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.

For the nine month period ended September 30, 2017, Retirement net income of $36.9 million decreased $2.4 million compared to the prior year period which is primarily due to a $6.8 million pretax increase in operating expenses including costs related to the Company's continued infrastructure and strategic investments, 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 to the prior year period. The decline in annuity deposits was related to lower sales of single premium annuity products in the current year.

For the nine month period ended September 30, 2017, Life net income of $14.3 million increased $1.2 million compared to the prior year period. Life insurance premiums and contract deposits increased 1.8%, to $79.8 million compared to the prior year period. Life persistency of 95.3% was comparable to 12 months earlier.

~~The Company’s book value per share was $34.20 at September 30, 2017, an increase of 6.4% compared to December 31, 2016 and a decrease of 4.8% compared to a year ago.~~

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~~us to make estimates and assumptions based on information available at the time the consolidated financial statements are prepared. These estimates and assumptions affect the reported amounts of ~~the Company's~~our consolidated assets, liabilities, shareholders' equity and net ~~income and cash flows.~~income. Certain accounting estimates are particularly sensitive because of their significance to ~~the Company's~~our consolidated financial statements and because of the possibility that subsequent events and available information may differ markedly from management's judgments at the time the consolidated financial statements were prepared.

~~Management has~~ We have discussed with the Audit Committee the quality, not just the acceptability, of ~~the Company's~~our accounting principles as applied in ~~its~~our financial reporting. The discussions generally included such matters as the consistency of ~~the Company's~~our accounting policies and their application, and the clarity and completeness of ~~the Company's~~our consolidated financial statements, which include related disclosures. ~~For~~Information regarding our accounting policies pertaining to these topics is located in the ~~Company, areas most~~Notes to the Consolidated Financial Statements contained in Part II - Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019.

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

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

Evaluation of goodwill and intangible assets for impairment

~~investments, goodwill,~~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 to December 31, ~~2016,~~2019, at ~~September~~June 30, ~~2017,~~2020, 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~~our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, discussion of accounting policies, including certain sensitivity information, was presented in ~~“Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations -- Critical Accounting ~~Policies”~~Estimates in that Form 10-K.

Results of Operations by Segment

Consolidated financial results primarily reflect the operating results of our four operating segments as well as the corporate and other line. These reporting segments are defined based on financial information we use to evaluate performance and to determine the allocation of resources (see Part I - Item I, Note 1 of the Consolidated Financial Statements in this report for a description of changes to our reporting segments).

~~Insurance Premiums~~Property and ~~Contract Charges~~Casualty

Supplemental

Retirement

Life

Corporate and Other

The determination of segment data are described in more detail in Part I - Item 1, Note 10 of the Consolidated Financial Statements in this report. The following sections provide analysis and discussion of the results of operations for each of the reporting segments as well as investment results.



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

($ 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

~~Number of Policies~~

Property and ~~Contracts in Force~~Casualty

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

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

For the three ~~month period~~and six months ended ~~September~~June 30, ~~2017,~~2020, net income reflected the ~~Company’s premiums written~~following factors:

Written premiums* reduced by $9.8 million of COVID-19 related premium credits

18.0 points and ~~contract deposits~~11.4 points of ~~$318.4~~reduction in the Property and Casualty underlying loss ratio*, respectively

Catastrophe losses increased by 9.3 points and 3.9 points, respectively

A one-time tax benefit of $2.8 million ~~decreased $33.2 million, or 9.4%, primarily~~in the first quarter of 2020 as a result of the CARES Act



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

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



($ in millions, unless otherwise indicated)	Three Months Ended June 30,						2020-2019		Six Months Ended June 30,						2020-2019
	2020			2019			Change %		2020			2019			Change %
Financial Data:
Written premiums*:
Automobile	$	96.7		$	114.6		-15.6	%	$	206.1		$	231.4		-10.9	%
Property and other	59.4			59.7			-0.5	%	103.6			104.6			-1.0	%
Total premiums written	156.1			174.3			-10.4	%	309.7			336.0			-7.8	%
Change in unearned insurance premiums	0.1			(3.0		)	103.3	%	13.0			6.1			113.1	%
Total insurance premiums earned	156.2			171.3			-8.8	%	322.7			342.1			-5.7	%
Incurred claims and claims expenses:
Claims occurring in the current year	109.2			134.4			-18.8	%	214.6			253.2			-15.2	%
Prior years' reserve development	1.0			2.0			-50.0	%	2.0			4.0			-50.0	%
Total claims and claim expenses incurred	108.2			132.4			-18.3	%	212.6			249.2			-14.7	%
Operating expenses, including DAC amortization	40.9			45.4			-9.9	%	84.1			91.9			-8.5	%
Underwriting gain (loss)	7.1			(6.5		)	209.2	%	26.0			1.0			N.M.
Net investment income	6.3			12.7			-50.4	%	16.6			22.9			-27.5	%
Income before income taxes	14.1			6.6			113.6	%	43.9			24.4			79.9	%
Net income/core earnings*	11.3			5.1			121.6	%	37.9			20.1			88.6	%

Operating Statistics:
Automobile
Loss and loss adjustment expense ratio	53.2		%	73.8		%	-20.6	pts	59.8		%	72.3		%	-12.5	pts
Expense ratio	27.1		%	26.6		%	0.5	pts	26.5		%	26.9		%	-0.4	pts
Combined ratio:	80.3		%	100.4		%	-20.1	pts	86.3		%	99.2		%	-12.9	pts
Prior years' reserve development	—		%	-0.9		%	0.9	pts	-0.5		%	-0.9		%	0.4	pts
Catastrophes	3.1		%	1.9		%	1.2	pts	1.5		%	1.3		%	0.2	pts
Underlying combined ratio*	77.2		%	99.4		%	-22.2	pts	85.3		%	98.8		%	-13.5	pts
Property
Loss and loss adjustment expense ratio	99.1		%	84.8		%	14.3	pts	77.8		%	73.9		%	3.9	pts
Expense ratio	24.8		%	26.6		%	-1.8	pts	25.5		%	27.1		%	-1.6	pts
Combined ratio:	123.9		%	111.4		%	12.5	pts	103.3		%	101.0		%	2.3	pts
Prior years' reserve development	-1.8		%	-1.8		%	—		-0.9		%	-1.9		%	1.0	pts
Catastrophes	57.9		%	36.8		%	21.1	pts	36.8		%	27.6		%	9.2	pts
Underlying combined ratio*	67.8		%	76.4		%	-8.6	pts	67.4		%	75.3		%	-7.9	pts

Risks in force (in thousands)
Automobile ⁽¹⁾									418			448			-6.7	%
Property									191			198			-3.5	%
Total									609			646			-5.7	%

⁽¹⁾ Includes assumed risks in force of 4.

On a reported basis, the 12.9 points of improvement in the automobile combined ratio for the six months ended June 30, 2020 was mainly attributable to a 13.1 point reduction in the automobile underlying loss ratio* reflecting lower frequency as well as the ongoing benefit of profitability initiatives. We experienced a lower level of automobile loss frequency resulting from temporary changes in policyholder driving patterns due to COVID-19. Frequency was most favorably impacted in the month of April, with May and June levels rising sequentially, resulting in an average decline in ~~annuity deposits~~frequency for the quarter of approximately 40%. The reported property combined ratio increased 2.3 points for the six months ended June 30, 2020 due to a 9.3 point increase in



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

catastrophe losses. During the six months ended June 30, 2020, the underlying property loss ratio* improved 6.3 points, reflecting lower non-catastrophe weather-related losses.

For the three and six months ended June 30, 2020, total written premiums* decreased $18.2 million and $26.3 million, respectively, primarily due to a $9.8 million reduction in automobile written premiums* during the second quarter of 2020 due to COVID-19 related credits equal to 15% of two months of automobile premiums. In addition, total written premiums declined due to lower ~~sales~~automobile risks in force and a lower level of ~~single premium annuity products. The Company’s premiums and contract charges earned increased $7.9 million, or 4.1%, compared to the prior year period, primarily due to~~rate increases being implemented in ~~average premium per policy for both homeowners and automobile.~~

Total Property and Casualty premiums written increased 4.6%, or $21.7 million, in the first nine months of 2017, compared to the prior year period, primarily due to increases in average written premium per policy for both homeowners and automobile.2020. For ~~2017, the Company’s~~2020, our 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~~six months of ~~2017~~2020 were ~~8.7%~~0.9% for automobile and ~~4.3%~~1.1% for ~~homeowners.~~property. Growth in sales* has slowed as a result of the COVID-19 pandemic.

For the three and six months ended June 30, 2020, automobile written premiums* decreased $17.9 million and $25.3 million, respectively, significantly due to the aforementioned COVID-19 related credits. While the number of automobile risks in force has declined, the average written premium per risk and average earned premium per risk increased 2.5% and 3.6%, respectively, in the first six months of 2020. Based on ~~policies~~risks in force, the ~~current year~~ automobile 12 month retention rate for new and renewal ~~policies~~risks was ~~83.0% compared~~81.6% which was comparable to ~~83.5% at September 30, 2016, with the decrease due to recent rate and underwriting actions. The current~~a 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.~~

Automobile premiums written increased 5.9%, or $18.8 million, compared to the first nine months of 2016. In the first nine months of 2017, the average written premium per policy and average earned premium per policy increased approximately 6.3% and 5.5%, respectively, compared to the prior year period.ago. The number of educator ~~policies~~risks has been stable relative to overall automobile risks as educators represented ~~approximately 85%~~85.4%, 85.5% and 85.5% of the automobile ~~policies~~risks in force ~~at September~~as of June 30, ~~2017,~~2020, December 31, ~~2016~~2019 and ~~September~~June 30, ~~2016.~~2019, respectively.

~~Homeowners premiums~~For the three and six months ended June 30, 2020, property and other written ~~increased 1.7%, or $2.7 million, compared to the first nine months of 2016.~~premiums* decreased slightly. While the number of ~~homeowners policies~~property risks in force has declined, the average written premium per ~~policy~~risk and average earned premium per ~~policy~~risk increased ~~approximately 2.0%~~4.6% and ~~3.2%~~5.6%, respectively, in the first ~~nine~~six months of ~~2017 compared~~2020. Based on risks in force, the property 12 month retention rate for new and renewal risks decreased to ~~the prior year period.~~87.5% from 87.7% at June 30, 2020 and 2019, respectively. The number of educator ~~policies~~risks has been stable relative to overall property risks as educators represented ~~approximately 82%~~82.2%, 82.5% and 82.3% of the ~~homeowners policies~~property risks in force ~~at September~~as of June 30, ~~2017,~~2020, December 31, ~~2016~~2019 and ~~September~~June 30, ~~2016. The number of educator policies and total policies has been, and may~~2019, respectively.

We 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.~~

~~The Company continues~~ to evaluate and implement actions to further mitigate ~~its~~our 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 the nine month period ended September 30, 2017, total annuity deposits received 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.

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 for the variable annuity option was 89.7% and 94.6% for 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 transfer of the Company's 401(k) assets to a third-party provider that occurred during the first half of 2017.

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, net investment income of $92.3 million and $275.0 million decreased 2.7% and increased 1.6% respectively, compared to the prior year periods, reflecting higher asset balances in the Retirement segment 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. The average pretax yield on the total investment portfolio for the nine month period ended September 30, 2017 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 inconsistent 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 partially offset by $4.9 million of gross losses realized primarily on disposal of securities during the period and $7.4 million 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)~~Horace Mann Educators Corporation	~~At September 30, 2017, the fair value amount included $14.0 million of securities which were non-investment grade.~~39	Quarterly Report on Form 10-Q


~~(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.

Retirement

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

For the ~~nine month~~three and six months ended June 30, 2020, net income increased $34.7 million and $21.6 million, respectively, reflecting the following factors:

prior period ~~ended September 30, 2017,~~results include a $28.0 million pretax goodwill impairment charge related to the ~~Company's benefits, claims and settlement expenses increased $41.3~~annuity reinsurance transaction in the second quarter of 2019

$5.6 million ~~or 10.2%, compared to~~pretax of unfavorable DAC unlocking in the prior year ~~period~~quarter primarily ~~reflecting elevated catastrophe losses and non-catastrophe weather-related losses in Property and Casualty that occurred~~due to accelerated amortization of the DAC asset associated with the reinsured annuity block, compared to $4.6 million of favorable DAC unlocking in the ~~first half~~current year quarter due to equity market recovery

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

For the nine month period ended September 30, 2017, the favorable development of prior years’ Property 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. At September 30, 2017,



Horace Mann Educators Corporation	41	Quarterly Report on Form 10-Q

The following table provides certain information for Retirement for the ~~favorable development was predominantly the result of favorable severity trends in the homeowners loss emergence for accident years 2015 and prior.~~periods indicated.



($ in millions, unless otherwise indicated)	Three Months Ended June 30,						2020-2019		Six Months Ended June 30,						2020-2019
	2020			2019			Change %		2020			2019			Change %
Financial Data:
Contract charges earned	$	6.7		$	6.9		-2.9	%	$	14.1		$	15.5		-9.0	%
Net investment income	55.1			62.7			-12.1	%	108.6			127.4			-14.8	%
Interest credited	39.4			42.3			-6.9	%	79.7			84.0			-5.1	%
Net interest margin without net investment gains (losses)	16.7			21.5			-22.3	%	30.8			44.5			-30.8	%
Net interest margin - reinsured block	(1.0		)	(1.1		)	9.1	%	(1.9		)	(1.1		)	-72.7	%
Mortality loss and other reserve charges	1.2			1.2			—	%	2.8			1.8			55.6	%
Operating expenses	13.9			17.4			-20.1	%	30.1			35.5			-15.2	%
DAC and intangible asset amortization expense, excluding DAC unlocking	4.8			4.9			-2.0	%	10.0			10.3			-2.9	%
DAC unlocking	(4.6		)	5.6			-182.1	%	(0.6		)	3.6			-116.7	%
Income (loss) before income taxes	11.2			(24.8		)	N.M.		10.1			(10.2		)	N.M.
Net income (loss)	9.7			(25.0		)	N.M.		8.8			(12.8		)	N.M.
Core earnings	9.7			3.0			223.3	%	8.8			15.2			-42.1	%
Operating Statistics:
Annuity contract deposits*
Variable	$	52.3		$	54.1		-3.3	%	$	110.1		$	102.9		7.0	%
Fixed	59.5			54.9			8.4	%	119.4			113.4			5.3	%
Total	111.8			109.0			2.6	%	229.5			216.3			6.1	%
Single	55.9			55.8			0.2	%	118.1			111.7			5.7	%
Recurring	55.9			53.2			5.1	%	111.4			104.6			6.5	%
Total	111.8			109.0			2.6	%	229.5			216.3			6.1	%
Assets under administration (AUA)
Annuity assets under management ⁽¹⁾									4,324.3			4,170.3			3.7	%
Broker and advisory assets under administration									2,168.0			2,236.1			-3.0	%
Recordkeeping assets under administration									1,460.5			1,395.1			4.7	%
Total									7,952.8			7,801.5			1.9	%
Persistency
Variable annuities									94.9		%	94.3		%	0.6	pts
Fixed annuities									94.2		%	93.9		%	0.3	pts
Total									94.5		%	94.0		%	0.5	pts
Annuity contracts in force (thousands)									230			227			1.3	%
Fixed spread - YTD annualized (basis points)									168			175			-7bps


⁽¹⁾	Amounts reported as of June 30, 2020 and June 30, 2019 exclude $627.6 million and $691.6 million, respectively, of assets under management held under modified coinsurance reinsurance

For the ~~nine month period~~three and six months ended ~~September~~June 30, ~~2016, the favorable development of prior years’ Property~~2020, total annuity contract deposits* increased $2.8 million and ~~Casualty reserves of $4.3~~$13.2 million, ~~was the result of actual~~respectively. Variable annuity 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 2014fixed annuity deposits increased $7.2 million 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%$6.0 million, respectively, for the ~~nine month period~~six months ended ~~September~~June 30, ~~2017, increased 12.5 points compared to~~2020 reflecting 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 impactvalue educators see 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.~~our Retirement savings vehicles.

~~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~~At June 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~~2020, annuity assets under management ~~measures~~were $154.0 million above a year ago primarily due to positive net inflows. Variable assets under management, excluding amounts held under the ~~difference between 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 $70.0 million primarily due to positive net inflows. The ~~nine month 2017~~year to date annualized net interest spread on fixed ~~annuity assets was 188 basis points, a decrease of~~annuities, excluding reinsurance, decreased 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.



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

~~The Company~~

We actively ~~manages its~~manage our interest rate risk exposure, considering a variety of factors, including earned interest rates, credited interest rates and the relationship between the expected durations of assets and liabilities. ~~Management estimates~~We estimate that over the next 12 months approximately ~~$467~~$528.1 million of the Retirement and Life combined investment portfolio and related investable cash flows will be reinvested at current market rates. As interest rates remain at low levels, borrowers may prepay or redeem the securities with greater frequency in order to borrow at lower market rates, which could increase investable cash flows and exacerbate the reinvestment ~~risk~~.

risk.

As a general guideline, for a 100 basis point decline in the average reinvestment rate and based on ~~the Company’s~~our existing policies and investment portfolio, the impact from investing in that lower interest rate environment could further reduce Retirement ~~segment~~ net investment income by approximately ~~$1.8~~$2.0 million in year one and ~~$5.4~~$6.1 million in year two, further reducing the annualized net interest spread on fixed annuities by approximately 48 basis points and 11

21 basis points in the respective periods, compared to the current period annualized net interest ~~spread. The Company~~spread on fixed annuities. We could also consider potential changes in rates credited to policyholders, tempered by any restrictions on the ability to adjust policyholder rates due to minimum guaranteed crediting rates.

The expectation for future annualized net interest spreads on fixed annuities is also an important component in the amortization of ~~deferred policy acquisition costs.~~DAC. In terms of the sensitivity of this amortization to the annualized net interest spread on fixed annuities, based on ~~deferred policy acquisition costs~~DAC as of ~~September~~June 30, ~~2017~~2020 and assuming all other assumptions are met, a 10 basis point deviation in the current year targeted annualized net interest rate spread on fixed annuities assumption would impact amortization between ~~$0.30~~$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 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%, helps mitigate the risk of not being able to generate appropriate spreads on the annuity business. Information regarding the interest crediting rates and balances equal to the minimum guaranteed rate for deferred annuity account values excluding the reinsured block is shown below.


($ in millions)	September 30, 2017										June 30, 2020
					Deferred Annuities at										Deferred Annuities at
	Total Deferred Annuities				Minimum Guaranteed Rate						Total Deferred Annuities				Minimum Guaranteed Rate
	Percent of Total		Accumulated Value (“AV”)		Percent of Total Deferred Annuities AV		Percent of Total		Accumulated Value		Percent of Total		Accumulated Value (AV)		Percent of Total Deferred Annuities AV		Percent of Total		Accumulated Value
Minimum guaranteed interest rates:
Less than 2%	24.9	%	$	1,083.8	51.3	%	14.7	%	$	556.5	53.7	%	$	1,299.3	49.4	%	37.5	%	$	642.1
Equal to 2% but less than 3%	7.1		307.4		83.0	%	6.8		255.1		11.8	%	286.2		83.4	%	13.9	%	238.8
Equal to 3% but less than 4%	14.1		614.0		99.9	%	16.3		613.4		25.3	%	612.8		99.9	%	35.7	%	612.4
Equal to 4% but less than 5%	52.6		2,288.7		100.0	%	60.7		2,288.7		7.1	%	170.5		100.0	%	9.9	%	170.5
5% or higher	1.3		55.4		100.0	%	1.5		55.4		2.1	%	50.5		100.0	%	3.0	%	50.5
Total	100.0	%	$	4,349.3	86.7	%	100.0	%	$	3,769.1	100.0	%	$	2,419.3	70.9	%	100.0	%	$	1,714.3

~~Policy Acquisition Expenses Amortized~~

Amortized policy acquisition expenses were $24.2 million for the three month period ended September 30, 2017, comparable to the $24.5 million for the prior year period. For Retirement, the unlocking of deferred policy acquisition costs (“unlocking”) resulted in a $0.7 million decrease in amortization for the three month period ended September 30, 2017 as compared to a $0.1 million decrease in amortization in the prior year period.

Amortized policy acquisition expenses were $73.9 million for the nine month period ended September 30, 2017 compared to $73.1 million for the prior year period. The increase was largely attributable to increased written premium in Property 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.



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

~~Operating Expenses~~

Life

~~For the three month period ended September 30, 2017, operating expenses of $44.2 million were comparable to the prior year period as the current period benefitted from decreases~~(All comparisons vs. same periods in ~~incentive compensation accruals as well as lower employee medical costs.~~2019, unless noted otherwise)

For the ~~nine month period~~three and six months ended ~~September~~June 30, ~~2017, operating expenses of $139.1~~2020, net income and core earnings* decreased $3.3 million ~~increased $8.5~~and $6.0 million, ~~or 6.5%, compared~~respectively, reflecting lower net investment income and higher mortality costs. Claims related to ~~the prior year period, consistent~~COVID-19 total less than $1.0 million with management’s expectations as the Company makes expenditures supporting targeted strategies in product, distribution and infrastructure which are intended to enhance the overall customer experience, increase sales and support favorable policy retention and business cross-sale ratios.

~~The Property and Casualty expense ratio 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 pretax income, including net realized investment gains and losses, was 17.6% and 26.6% for 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.

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, 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.

~~Net Income~~

average face values averaging about $30 thousand.

For the three ~~month period~~and six months ended ~~September~~June 30, ~~2017,~~2020, insurance premiums and contract deposits* decreased $0.8 million and $2.4 million, respectively, primarily due to a decline in sales* of single premiums. The ordinary life insurance in force lapse ratio was 4.2% for the ~~Company’s net income of $26.5 million decreased $0.4 million~~12 months ended June 30, 2020 compared to 4.5% for the ~~prior year period. For~~12 months ended June 30, 2019.

The following table provides certain information for the ~~nine month period ended September 30, 2017,~~Life segment for 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 half of the year. Additional detail is included in the “Executive Summary” at the beginning of this MD&A.periods indicated.

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

($ 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, unless otherwise indicated)	Three Months Ended June 30,						2020-2019		Six Months Ended June 30,						2020-2019
	2020			2019			Change %		2020			2019			Change %
Financial Data:
Insurance premiums and contract deposits*	$	27.6		$	28.4		-2.8	%	$	52.4		$	54.8		-4.4	%
Insurance premiums and contract charges earned	29.2			29.9			-2.3	%	58.6			60.3			-2.8	%
Net investment income	15.6			18.3			-14.8	%	31.2			36.4			-14.3	%
Benefits and settlement expenses	21.1			19.1			10.5	%	43.3			41.1			5.4	%
Interest credited	11.3			11.3			—	%	22.5			22.5			—	%
Operating expenses	8.3			9.2			-9.8	%	17.4			18.6			-6.5	%
DAC amortization expense, excluding unlocking	2.0			2.1			-4.8	%	3.9			4.1			-4.9	%
DAC unlocking	(0.2		)	(0.1		)	N.M.		(0.3		)	(0.1		)	N.M.
Income before income taxes	2.3			6.7			-65.7	%	3.0			10.7			-72.0	%
Net income / core earnings*	1.9			5.2			-63.5	%	2.5			8.5			-70.6	%

Operating Statistics:
Life insurance in force									$	19,565		$	18,598		5.2	%
Number of policies in force (thousands)									201			199			1.0	%
Average face amount in force (in dollars)									$	97,306		$	93,506		4.1	%
Lapse ratio (ordinary life insurance in force)									4.2		%	4.5		%	-0.3	pts
Mortality costs									$	19.3		$	18.0		7.2	%

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

~~(1)~~

The Corporate and Other segment includes interest expense on debt, net realized investment gains and losses, corporate debt retirement costs (when applicable), certain public company expenses and other corporate-level items. The Company does not allocate the impact of corporate-level transactions to the operating segments, consistent with the basis for management’s evaluation of the results of those segments.

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.~~

~~Outlook~~



Horace Mann Educators Corporation	44	Quarterly Report on Form 10-Q

Corporate and Other

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

The following table provides certain financial information for ~~2017~~Corporate and Other for the periods indicated.



($ in millions)	Three Months Ended June 30,						2020-2019		Six Months Ended June 30,						2020-2019
	2020			2019			Change %		2020			2019			Change %
Interest expense	$	3.9		$	2.9		34.5	%	$	7.9		$	5.9		33.9	%
Net investment gains (losses) pretax	3.2			146.3			N.M.		(15.3		)	153.7			N.M.
Tax on net investment gains (losses)	0.7			31.6			N.M.		(3.3		)	33.2			N.M.
Net investment gains (losses) after tax	2.5			114.7			N.M.		(12.0		)	120.5			N.M.
Net income (loss)	(1.9		)	108.5			-101.8	%	(20.2		)	110.2			-118.3	%
Core earnings (loss)*	(4.4		)	(6.2		)	29.0	%	(8.2		)	(10.3		)	20.4	%

For the three and six months ended June 30, 2020, net income decreased primarily due to recognition of a $106.9 million after tax realized investment gain in the second quarter of 2019 with respect to the transfer of investments as consideration in connection with the annuity reinsurance transaction.

Investment Results

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



($ in millions)	Three Months Ended June 30,				2020-2019		Six Months Ended June 30,					2020-2019
	2020		2019		Change %		2020			2019		Change %
Net investment income - Investment portfolio	$	56.5	$	70.3	-19.6	%	$	115.1		$	163.1	-29.4	%
Investment income - Deposit asset on reinsurance	23.9		23.2		3.0	%	47.6			23.2		105.2	%
Total net investment income	80.4		93.5		-14.0	%	162.7			186.3		-12.7	%
Pretax net investment gains (losses)	3.2		146.3		N.M.		(15.3		)	153.7		N.M.
Pretax net unrealized investment gains on fixed maturity securities							417.6			292.5		42.8	%

Excluding accreted investment income on the deposit asset on reinsurance, for the three and six months ended June 30, 2020, net investment income decreased $13.8 million and $48.0 million, respectively. The decline was primarily due to a $2.1 billion reduction in invested assets from investments transferred under the annuity reinsurance transaction in the second quarter of 2019 as well as lower than expected returns on limited partnership interests.

For the six months ended June 30, 2020, the pretax net investment loss was primarily due to the change in fair value of equity securities as well as options that we use to hedge our fixed indexed annuity (FIA) and indexed universal life (IUL) products somewhat offset by gains in the related derivatives embedded in FIA. Pretax net investment gains for the three and six months ended June 30, 2019 reflect a realized investment gain of $135.3 million recognized during the second quarter of 2019 in connection with the transfer of investments related to the annuity reinsurance transaction. Pretax net unrealized investment gains on fixed maturity securities were up $125.1 million compared to a year ago, reflecting a decline in the 10-year U.S. Treasury yield of 135 basis points that more than offset wider credit spreads for investment grade securities.



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

Fixed Maturity and Equity Securities Portfolios

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



($ in millions)	June 30, 2020
	Number of Issuers	Fair Value		Amortized Cost or Cost		Pretax Net Unrealized Gain (Loss)
Fixed maturity securities
Corporate bonds
Banking & Finance	134	$	476.8	$	436.0	$	40.8
Insurance	49	193.9		174.1		19.8
HealthCare,Pharmacy	69	132.0		119.2		12.8
Energy ⁽¹⁾	68	127.2		114.4		12.8
Real Estate	34	120.0		113.0		7.0
Transportation	38	94.5		92.0		2.5
Technology	37	87.8		81.5		6.3
Utilities	55	85.5		74.6		10.9
Food and Beverage	31	76.6		66.7		9.9
Broadcasting & Media	25	61.1		52.3		8.8
All other corporates⁽²⁾	306	407.0		382.2		24.8
Total corporate bonds	846	1,862.4		1,706.0		156.4
Mortgage-backed securities
U.S. Government and federally sponsored agencies	270	503.1		448.7		54.4
Commercial⁽³⁾	125	348.7		319.6		29.1
Other	42	63.4		63.7		(0.3		)
Municipal bonds ⁽⁴⁾	597	1,805.6		1,633.3		172.3
Government bonds
U.S.	34	374.9		333.4		41.5
Foreign	7	43.6		39.7		3.9
Collateralized loan obligations ⁽⁵⁾	136	633.3		655.4		(22.1		)
Asset-backed securities	106	387.0		404.6		(17.6		)
Total fixed maturity securities	2,163	$	6,022.0	$	5,604.4	$	417.6

Equity securities
Non-redeemable preferred stocks	16	$	62.8
Common stocks	95	6.5
Closed-end fund	1	21.0
Total equity securities	112	$	90.3

Total	2,275	$	6,112.3


⁽¹⁾	At June 30, 2020, the fair value amount included $8.6 million which were non-investment grade.


⁽²⁾	The All other corporates category contains 19 additional industry sectors. Telecom, Retail, Consumer Products, Metal & Mining and Misc. represented $222.4 million of fair value at June 30, 2020, with the remaining 14 sectors each representing less than $32.2 million.


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


⁽⁴⁾	Holdings are geographically diversified, 52.5% are tax-exempt and 76.8% are revenue bonds tied to essential services, such as mass transit, water and sewer. The overall credit quality of the municipal bond portfolio was AA- at June 30, 2020.


⁽⁵⁾	Based on fair value, 95.8% of the collateralized loan obligation securities were rated investment grade by Standard and Poor's Global Inc. (S&P), Moody's Investors Service, Inc. (Moody's) and/or Fitch Ratings, Inc. (Fitch) at June 30, 2020.



Horace Mann Educators Corporation	46	Quarterly Report on Form 10-Q

At June 30, 2020, our diversified fixed maturity securities portfolio consisted of 3,393 investment positions, issued by 2,163 entities, and totaled approximately $6.0 billion in fair value. This portfolio was 92.8% investment grade, based on fair value, with an average quality rating of A+. Our investment guidelines target single corporate issuer concentrations to 0.5% of invested assets for AAA or AA rated securities, 0.35% of invested assets for A or BBB rated securities, and $5.0 million for non-investment grade securities.

Fixed Maturity Securities - COVID-19 Related Impacts

In late 2016, we determined the time of this Quarterly Report on Form 10-Q, management estimates that 2017 full year net income before net realized investment gains and 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 halfeconomy was approaching later stages of the ~~year returning~~credit cycle and began to ~~historic averages. The full year auto underlying combined ratio~~upgrade portfolio quality. Over the past three years, recessionary expectations were extended due to the fiscal stimulus, which lengthened the credit cycle. In 2019, management determined that it had achieved its investment initiatives and the portfolio was well positioned for any dislocation in the markets.

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

Further, we believe the investment portfolio is ~~anticipated~~well positioned to withstand an extended period of elevated investment market volatility, and has relatively modest exposure to asset sectors that it expects to be ~~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~~most impacted by the ~~prolonged low interest rate environment~~public health response to COVID-19. While we expect other segments of the economy to be disrupted, we believe these effects will be most acute in these sectors. Exposure to these sectors totals 6.8% of the investment portfolio, and as of June 30, 2020, informed by extensive stress testing and portfolio review, management continues to hold the ~~interest spread~~following securities in the sectors that have experienced more pronounced price dislocation due to their perceived exposure to COVID-19 related impacts:



($ in millions)	June 30, 2020
	Number of Issuers	Fair Value		Amortized Cost or Cost		Pretax Net Unrealized Investment Gains (Losses)			Credit Quality
Fixed maturity securities ⁽¹⁾
Travel and leisure	48	$	107.3	$	106.4	$	0.9		BBB+
Energy-related	83	150.6		135.3		15.3			BBB+
Retail	22	66.5		62.8		3.7			A-
Aircraft	55	145.7		175.2		(29.5		)	A-
Total fixed maturity securities	208	$	470.1	$	479.7	$	(9.6	)	BBB+


⁽¹⁾	Below investment grade securities included in this population account for $55.7 million of amortized cost, $52.8 million of fair value, and $2.9 million of net unrealized investment losses. There are 90 issuers with an average rating of BB-. The majority of these securities are concentrated in the energy sector.



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

Rating of Fixed Maturity Securities and Equity Securities ⁽¹⁾

The following table presents the composition and fair value of our fixed maturity and equity securities portfolios by rating category. At June 30, 2020, 92.5% of these combined portfolios were investment grade, based on fair value, with an overall average quality rating of A+. We have classified the entire fixed maturity securities portfolio as available for sale, which is ~~anticipated to grade down~~carried at fair value.



($ in millions)	Percent of Portfolio
	Fair Value				June 30, 2020
	December 31, 2019		June 30, 2020		Fair Value		Amortized Cost
Fixed maturity securities
AAA	11.5	%	11.6	%	$	698.5	$	685.2
AA⁽²⁾	42.7		41.0		2,468.4		2,232.1
A	23.3		20.5		1,235.7		1,148.0
BBB	18.9		19.7		1,188.7		1,112.1
BB	1.7		2.1		123.8		124.5
B	0.4		0.9		54.1		55.4
CCC or lower	—		0.1		3.0		3.6
Not rated⁽³⁾	1.5		4.1		249.8		243.5
Total fixed maturity securities	100.0	%	100.0	%	$	6,022.0	$	5,604.4
Equity securities
AAA	—	%	—	%	$	—
AA	—		—		—
A	—		0.6		0.5
BBB	59.3		68.1		61.5
BB	—		0.9		0.8
B	—		—		—
CCC or lower	—		—		—
Not rated	40.7		30.4		27.5
Total equity securities	100.0	%	100.0	%	$	90.3

Total					$	6,112.3


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


⁽²⁾	At June 30, 2020, the AA rated fair value amount included $374.9 million of U.S. Government and federally sponsored agency securities and $706.0 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.

At June 30, 2020, the ~~low 180s. The Company expects to invest approximately $0.10 per diluted share in Retirement~~fixed maturity securities portfolio had $72.3 million of pretax gross unrealized investment losses on $1,142.3 million of fair value related to 703 positions. Of the Company's strategic initiatives in product, distribution and infrastructure. Life mortality experience was more favorable than anticipated for the first half 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~~positions with gross unrealized losses, there were 32 trading below 80.0% of the ~~continued low interest rate environment, management anticipates~~carrying value at June 30, 2020.

We view the ~~Company’s overall portfolio yield~~unrealized investment losses of all our fixed maturity securities at June 30, 2020 as temporary. Future changes in circumstances related to ~~decline by approximately 10 basis points over the course~~these and other securities could require subsequent recognition 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~~June 30, ~~2017~~2020 and ~~2016, the Company~~2019, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. As such, ~~the Company is~~we are not exposed to any financing, liquidity, market or credit risk that could arise if ~~the Company~~we engaged in such relationships.



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

Investments

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

- Investments Results in this report.

Cash Flow

~~The~~Our 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~~our 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 our common stock. Long-term liquidity requirements, beyond one year, are principally for the payment of future insurance and annuity policy claims and benefits, as well as retirement of ~~long-term~~ debt. The following table summarizes our consolidated cash flows activity for the periods indicated.



($ in millions)	Six Months Ended June 30,						2020-2019
	2020			2019			Change %
Net cash provided by operating activities	$	165.6		$	97.8		69.3	%
Net cash provided by (used in) investing activities	(195.0		)	23.2			N.M.
Net cash provided by (used in) financing activities	86.3			(125.3		)	168.9	%
Net increase (decrease) in cash	56.9			(4.3		)	N.M.
Cash at beginning of period	25.5			11.9			114.3	%
Cash at end of period	$	82.4		$	7.6		N.M.

Operating Activities

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

For the ~~nine month period~~six months ended ~~September~~June 30, ~~2017,~~2020, net cash provided by operating activities increased ~~compared to the same period in 2016, largely~~$67.8 million, primarily due to ~~an increase~~lower claims paid on insurance policies in ~~Premiums collected and Investment~~the current year partially offset by lower investment income collected in the current year as a result of a $2.1 billion reduction of invested assets from investments transferred under the annuity reinsurance transaction in the second quarter of 2019.

Investing Activities

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

Financing Activities

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



Horace Mann Educators Corporation	49	Quarterly Report on Form 10-Q

Horace Mann Life Insurance Company (HMLIC) and NTA (both subsidiaries of HMEC) operate under funding agreements with FHLB. For the six months ended June 30, 2020, HMLIC and NTA collectively received $95.5 million from FHLB under funding agreements and for the six months ended June 30, 2019, HMLIC received $50.0 million from FHLB under a funding agreement. Receipt of these funds are reported in Annuity Contracts: Variable, Fixed and FHLB Funding Agreements, Deposits in the Consolidated Statements of Cash Flows. Advances to HMLIC and NTA from FHLB under funding agreements totaled $590.5 million as of June 30, 2020. For the six months ended June 30, 2020, cash inflows from annuity contract deposits (excluding the $95.5 million received from FHLB in the current year and the $50.0 million received from FHLB in the prior year) increased $13.2 million, or 6.1%, compared to the prior year period. Cash outflows from annuity contract benefits, withdrawals and net transfers to Separate Account (variable annuity) assets decreased $17.3 million, or 8.1%, compared to the prior year period.

Capital Resources

~~Payments~~We have determined the amount of ~~principal~~capital which is needed to adequately fund and ~~interest~~support business growth, primarily based on risk-based capital formulas including those developed by the National Association of Insurance Commissioners. Historically, our insurance subsidiaries have generated capital in excess of such needed capital. These excess amounts have been paid to us through dividends. We have then utilized these dividends and our access to the capital markets to fund growth initiatives, service and retire debt, pay dividends to our shareholders, repurchase shares of our common stock and ~~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~~corporate purposes. If necessary, we also have ~~this dependency. 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~~us without prior approval of the insurance regulatory authorities. The aggregate amount of dividends that may be paid in ~~2017~~2020 from all of ~~HMEC’s~~our insurance subsidiaries without prior regulatory approval is ~~approximately $91.0~~$105.3 million, excluding the impact and timing of prior dividends, of which ~~$44.9~~$103.0 million was paid during the ~~nine month period~~six months ended ~~September~~June 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. Management anticipates2020. We anticipate that ~~the Company’s~~our sources of capital will continue to generate sufficient capital to meet the needs for business growth, debt interest payments, shareholder dividends and ~~its~~our share repurchase program. Additional information is contained in ~~“Notes to~~Part II - Item 8, Note 14 of the Consolidated Financial Statements ~~-- Note 10 -- Statutory Information and Restrictions” of the Company’s~~in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

~~The total~~Total capital ~~of the Company~~ was ~~$1,637.8~~$2,077.0 million at ~~September~~June 30, ~~2017,~~2020, including ~~$247.4~~$437.2 million of short-term and long-term ~~debt and no short-term debt outstanding.~~debt. Total debt represented ~~17.9%~~21.0% of total capital including net unrealized investment gains on fixed maturity securities (24.3% excluding net unrealized investment gains ~~and losses (15.1%~~on fixed maturity securities*) at June 30, 2020, which was below our long-term target of 25%.

Shareholders' equity was $1,639.8 million at June 30, 2020, including net unrealized investment gains ~~and losses) at September 30, 2017, which was below the Company’s long-term target of 25%.~~

~~Shareholders’ equity was $1,390.4 million at September 30, 2017, including a net unrealized investment gain~~on fixed maturity securities in ~~the Company’s~~our investment portfolio of ~~$255.7~~$279.1 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 market value of ~~the Company’s~~our common stock and the market value per share were ~~$1,600.0~~$1,517.5 million and ~~$39.35,~~$36.73, respectively, at ~~September~~June 30, ~~2017.~~2020. Book value per share was ~~$34.20~~$39.69 at ~~September~~June 30, ~~2017~~2020 ($~~27.91~~32.93 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~~our investment portfolio at ~~September~~June 30, ~~2017~~2020 is included in ~~“Results~~Part I - Item 1, Note 2 of ~~Operations -- Net Realized~~the Consolidated Financial Statements as well as in Part I - Item 2 - Investment ~~Gains and Losses (Pretax)”.~~

Results in this report.

Total shareholder dividends paid were ~~$34.6~~$24.8 million for the ~~nine month period~~six months ended ~~September~~June 30, ~~2017.~~2020. In March and May ~~and September 2017,~~2020, the Board of Directors ~~announced~~(Board) approved regular quarterly dividends of ~~$0.275~~$0.30 per share.

For the ~~nine month period~~six months ended ~~September~~June 30, ~~2017, the Company~~2020, we repurchased ~~48,440~~52,095 shares of ~~its~~our 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~~$41.17 under ~~its~~our share repurchase program, which is further described in ~~“Notes to~~Part II - Item 8, Note 13 of the Consolidated Financial Statements ~~-- Note 9 -- Shareholders’ Equity and Common Stock Equivalents” of the Company’s~~in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019. As of ~~September~~June 30, ~~2017, $27.8~~2020, $20.6 million remained authorized for future share repurchases under the share repurchase program.



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

The following table summarizes our debt obligations.



($ in millions)	Effective Interest Rates	Final Maturity
	Effective Interest Rates	Final Maturity	June 30, 2020		December 31, 2019
Short-term debt
Bank Credit Facility	Variable	2024	$	135.0	$	135.0
Long-term debt ⁽¹⁾
4.50% Senior Notes, Aggregate principal amount of $250,000 less unaccrued discount of $395 and $426 and unamortized debt issuance costs of $1,433 and $1,549	4.50%	2025	248.2		248.0
Federal Home Loan Bank borrowing	0.52%	2022	54.0		50.0
Total			$	437.2	$	433.0

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

As of ~~September~~June 30, ~~2017, the Company~~2020, we had outstanding $250.0 million aggregate principal amount of 4.50% Senior Notes ~~(“Senior Notes due 2025”)~~(Senior Notes), which will mature on December 1, 2025, issued at a discount resulting in an effective yield of 4.53%. Interest on the Senior Notes ~~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~~Part II - Item 8, Note 10 of the Consolidated Financial Statements ~~-- Note 7 -- Debt” of the Company’s~~in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019. The Senior Notes ~~due 2025~~ are traded in the open market (HMN 4.50).

As of June 30, 2020, we had $54.0 million of borrowings outstanding with FHLB. The Board has authorized a maximum amount equal to 15% of net aggregate admitted assets less separate account assets of the insurance subsidiaries for FHLB borrowings. For the total $54.0 million received, $4.0 million matures on May 17, 2021, $25.0 million matures on October 5, 2022 and $25.0 million matures on December 2, 2022. Interest on the borrowings accrue at an annual weighted average rate of 0.52% as of June 30, 2020. The $54.0 million of FHLB borrowings is reported as Long-term debt in the Consolidated Balance Sheets.

As of ~~September~~June 30, ~~2017, the Company~~2020, we had ~~no balance~~$135.0 million of short-term debt outstanding under ~~its~~our Bank Credit Facility. On June 21, 2019, we, as borrower, replaced our current line of credit with a new five-year Credit Agreement (Bank Credit Facility). 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.

On July 1, 2019, we utilized the senior revolving credit facility to partially fund the acquisition of NTA. As of June 30, 2020, the amount outstanding on the senior revolving credit facility was $135.0 million. The $90.0 million unused portion of the Bank Credit Facility is available for use and subject to a variable commitment fee, which was 0.15% on an annual basis at ~~September~~June 30, ~~2017.~~

2020.

To provide additional capital management flexibility, ~~the Company~~we 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~~us 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 asat the time of issuance of this Quarterly Report on Form 10-Q.

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



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

COVID-19 Liquidity and Capital Resources Considerations

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

Financial Ratings

~~HMEC’s~~Our 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 long-term debt securities.~~our Senior Notes. The ratings that are assigned by these agencies, which are subject to change, can impact, among other things, ~~the Company’s~~our 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~~our securities.

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

subsidiaries. Only A.M. Best currently rates our Supplemental segment's subsidiaries. Assigned ratings and respective affirmation/review dates as of July 31, 2020 were as follows:



	Insurance Financial						Affirmed/
	Strength Ratings (Outlook)				Debt Ratings
	(Outlook)			~~(Outlook)~~Reviewed
~~As of October 31, 2017~~
~~S&P~~	A	~~(stable)~~		~~BBB~~	~~(stable)~~
~~Moody’s~~A.M. Best
~~Horace Mann Life Insurance Company~~	A3	~~(positive)~~		~~N.A.~~
~~HMEC’s Property and Casualty subsidiaries~~	A3	~~(positive)~~		~~N.A.~~	7/2/2020
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 subsidiaries	A-		(stable)		N.A.
Fitch	A		(stable)		BBB	(stable)	6/2/2020
Moody's	A2		(stable)		Baa2	(stable)	7/2/2019
S&P	A		(stable)		BBB	(stable)	2/19/2020

~~N.A. – Not applicable.~~

Reinsurance Programs

Information regarding the reinsurance ~~program~~programs for ~~the Company’s~~our Property and Casualty, ~~segment~~Supplemental and Life segments is located in ~~“Business -- Property and Casualty Segment -- Property and Casualty Reinsurance”~~Part II - Item 8, Note 9 of the ~~Company’s~~Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

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

ITEM 3.IQuantitative and Qualitative Disclosures about Market ~~Value~~ Risk

Market value risk, ~~the Company’s~~our primary market risk exposure, is the risk that ~~the Company’s~~our 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~~our assets and prevailing market yields for similar assets, (2) an unfavorable change in the liquidity of ~~the~~an investment, (3) an unfavorable change in the financial prospects of the issuer of ~~the~~an investment, or (4) a downgrade in the credit rating of the issuer of ~~the~~an investment. ~~See also “Results~~Also see Consolidated Results of Operations ~~-- Net Realized Investment Gains and Losses (Pretax)”~~in Part I - Item 2 of this report regarding net investment gains (losses).



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

Significant changes in interest rates expose ~~the Company~~us 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~~our investments and the credited interest rates on ~~the Company’s~~our insurance and investment contract liabilities. ~~See also “Results~~Also see Consolidated Results of Operations ~~-- Interest Credited~~in Part I - Item 2 of this report regarding interest credited to ~~Policyholders”.~~policyholders.

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

More detailed descriptions of ~~the Company’s~~our exposure to market value risks and the management of those risks is ~~presented~~contained in ~~“Management’s Discussion and Analysis~~Part II - Item 7A of ~~Financial Condition and Results of Operations -- Market Value Risk” of the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

2019.

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

The information required by Item 305 of Regulation S-K is contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations -- Market Value Risk” contained in this Quarterly Report on Form 10-Q.

~~Item 4:~~ ITEM 4.IControls 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~~our management, including ~~the Company’s Chief Executive Officer~~our chief executive officer and ~~Chief Financial Officer, the Company~~chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of ~~the Company’s~~our 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~~June 30, ~~2017 pursuant to Rule 13a-15(b) of the Exchange Act.~~2020. Based on this evaluation, the ~~Chief Executive Officer~~chief executive officer and ~~Chief Financial Officer~~chief financial officer concluded that ~~the Company’s~~our disclosure controls and procedures are effective in timely alerting them to material information relating to ~~the Company~~us (including ~~its~~our consolidated subsidiaries) that is required to be included in ~~the Company’s~~our periodic ~~Securities and Exchange Commission~~SEC filings. No material weaknesses in ~~the Company’s~~our 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~~our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

Changes in Internal Control Over Financial Reporting

~~There~~Except as noted below, there were no changes in ~~the Company’s~~our 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~~our internal control over financial reporting.

On July 1, 2019, we completed our acquisition of NTA. We are in the process of integrating NTA and our controls over financial reporting. As a result of these integration activities, certain controls will be evaluated and may be changed. Therefore, we have elected to exclude NTA from our assessment of internal control over financial reporting as of June 30, 2020.

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



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

PART II: OTHER INFORMATION

~~Item 1A:~~ ITEM 1A.IRisk Factors

At the time of issuance of this Quarterly Report on Form 10-Q, ~~management believes~~we believe there are no material changes from the risk factors as previously disclosed in ~~the Company’s~~Part I - Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2016. The~~2019. However, the following risk factor ~~is updated~~has emerged as a result of events that occurred subsequent to ~~reflect~~year end.

Our business may be adversely affected by the recent ~~developments; however, in general the described risks are comparable to those previously disclosed.~~

COVID-19 outbreak.

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

employees contracting COVID-19;

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

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

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

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

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

changes in frequency and/or severity of claims;

increased credit risk;

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

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

Any resulting impact on our business, financial condition, and results of ~~operations.~~

~~On April 6, 2016,~~operations due to the ~~DOL released~~foregoing cannot be reasonably estimated at this time, although the results may be felt for a ~~final regulation~~significant period of time. The full extent to which more broadly defines the types of activities that will result in a person being deemed a “fiduciary” for purposes of the prohibited transaction rules of the Employee Retirement Income Security Act (“ERISA”) and Internal Revenue Code Section 4975. Section 4975 prohibits certain kinds of compensation with respect to transactions involving assets 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 of the rule as directed by President Trump.

~~The DOL regulation will~~COVID-19 could affect the ~~ways in which~~global economy, the financial ~~services representatives can be compensated for sales to participants in ERISA employer-sponsored qualified plans~~markets 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 results of operations. While the regulation does not affect non-ERISA employer-sponsored qualified plans, such as public school 403(b) plans, it could have the following impacts, among others:~~

~~It could inhibit our ability to sell and service IRAs, resulting in a change and/or a reduction of the types of products we offer for IRAs, and impact our relationship with current clients.~~

~~It could require changes in the way that we compensate our agents, thereby impacting our agents’ business model.~~

~~It could require changes in our distribution model for financial services products and could result in a decrease in 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,its financial condition and its results of ~~operations.~~

~~In addition, Nevada passed a fiduciary statute~~operations will depend on future developments 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.

factors that cannot be predicted.

~~Item 2:~~ ITEM 2.IUnregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

On ~~December 7, 2011,~~September 30, 2015, the ~~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,~~our common stock, par value $0.001 ~~(the “2011 Plan”)~~(Program). On September 30, 2015, the Board authorized an additional 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 authorizeThe Program authorizes the repurchase of our common ~~shares~~stock in open market or privately negotiated transactions, from time to time, depending on market



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

conditions. The ~~current share repurchase program~~Program does not have an expiration date and may be limited or terminated at any time without notice. During the three ~~month period~~months ended ~~September~~June 30, ~~2017, the Company repurchased~~2020, we did not repurchase shares of ~~HMEC~~our common ~~stock as follows:~~

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

stock. As of June 30, 2020, $20.6 million remained authorized for future share repurchases.

~~Item 5:~~ ITEM 5.IOther Information

~~The Company is~~We are not aware of any information required to be disclosed in a ~~report~~Current Report on Form 8-K during the three ~~month period~~months ended ~~September~~June 30, ~~2017~~2020 which has not been filed with the ~~Securities and Exchange Commission.~~

SEC.

~~Item 6:~~ ITEM 6.IExhibits

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.

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

(10) Material contracts:

10.1		~~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.~~June 24, 2019.

10.1(a)		First Amendment to Credit Agreement dated as of ~~November 16, 2015~~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(a) to ~~HMEC’s~~HMEC's Annual Report on Form 10-K for the year ended December 31, ~~2015,~~2019, filed with the SEC on ~~February 29, 2016.~~March 2, 2020.



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



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.



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



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

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, filed with the SEC on May 9, 2017.~~Salaries.

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

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,~~Participants.

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 ~~10.11(b)~~10.12 to HMEC's ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K for the ~~quarter~~year ended ~~June 30, 2017,~~December 31, 2018, filed with the SEC on ~~August 8, 2017.~~March 1, 2019.

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

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

(11) Statement regarding computation of per share earnings.

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



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



(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



Horace Mann Educators Corporation	58	Quarterly Report on Form 10-Q

SIGNATURES

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



		HORACE MANN EDUCATORS CORPORATION
		(Registrant)






Date	~~November 8, 2017~~August 7, 2020	/s/ Marita Zuraitis

		Marita Zuraitis
		President and Chief Executive Officer






Date	~~November 8, 2017~~August 7, 2020	/s/ Bret A. Conklin

		Bret A. Conklin
		Executive Vice President and
		Chief Financial Officer






Date	~~November 8, 2017~~August 7, 2020	/s/ Kimberly A. Johnson

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



Horace Mann Educators Corporation	59	Quarterly Report on Form 10-Q


	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			Three Months Ended June 30,						Six Months Ended June 30,
													2020			2019			2020			2019
Revenues
Insurance premiums and contract charges earned	$	198,935		$	191,050		$	590,375		$	564,860		$	225,431		$	208,096		$	461,696		$	417,881
Net investment income	92,320			94,847			275,025			270,685			80,410			93,458			162,685			186,258
Net realized investment gains (losses)	(3,486		)	3,985			(1,656		)	6,911
Net investment gains (losses)													3,162			146,333			(15,302		)	153,750
Other income	2,048			1,294			4,813			3,581			5,926			6,223			13,095			12,097

Total revenues	289,817			291,176			868,557			846,037			314,929			454,110			622,174			769,986

Benefits, losses and expenses
Benefits, claims and settlement expenses	134,895			135,710			444,870			403,631			143,010			152,692			281,670			292,076
Interest credited	50,078			48,658			148,200			142,924			50,674			53,594			102,219			106,516
Policy acquisition expenses amortized	24,210			24,474			73,904			73,113
Operating expenses	44,172			44,337			139,156			130,478			55,775			57,343			116,437			113,518
DAC unlocking and amortization expense													20,426			31,648			50,401			56,621
Intangible asset amortization expense													3,686			541			7,372			1,082
Interest expense	2,978			2,975			8,879			8,858			3,941			3,312			8,169			6,615
Other expense - goodwill impairment													—			28,025			—			28,025

Total benefits, losses and expenses	256,333			256,154			815,009			759,004			277,512			327,155			566,268			604,453

Income before income taxes	33,484			35,022			53,548			87,033			37,417			126,955			55,906			165,533
Income tax expense	6,933			8,099			9,418			23,091			6,839			33,133			6,856			39,545

Net income	$	26,551		$	26,923		$	44,130		$	63,942		$	30,578		$	93,822		$	49,050		$	125,988

Net income per share
Basic	$	0.64		$	0.66		$	1.07		$	1.55		$	0.73		$	2.25		$	1.17		$	3.02
Diluted	$	0.64		$	0.65		$	1.06		$	1.55		$	0.73		$	2.24		$	1.17		$	3.01

Weighted average number of common and common equivalent shares (in thousands)
Weighted average number of shares and equivalent shares
Basic	41,433			41,092			41,337			41,155			41,879			41,762			41,856			41,685
Diluted	41,575			41,347			41,467			41,386			41,996			41,921			42,008			41,851

Net realized investment gains (losses)
Net investment gains (losses)
Total other-than-temporary impairment losses on securities	$	(6,091	)	$	(160	)	$	(12,452	)	$	(7,686	)	$	(523	)	$	(34	)	$	(4,215	)	$	(271	)
Portion of losses recognized in other comprehensive income	—			—			—			(290		)
Portion of losses recognized in other comprehensive income (loss)													—			—			—			—
Net other-than-temporary impairment losses on securities recognized in earnings	(6,091		)	(160		)	(12,452		)	(7,396		)	(523		)	(34		)	(4,215		)	(271		)
Realized investment gains, net	2,605			4,145			10,796			14,307
Sales and other, net													352			142,067			4,909			146,905
Change in fair value - equity securities													6,600			3,441			(7,886		)	6,948
Change in fair value and gains (losses) realized on settlements - derivatives													(3,267		)	859			(8,110		)	168
Total	$	(3,486	)	$	3,985		$	(1,656	)	$	6,911		$	3,162		$	146,333		$	(15,302	)	$	153,750



	Three Months Ended June 30,					Six Months Ended June 30,
	2020		2019			2020		2019
Comprehensive income (loss)
Net income	$	30,578	$	93,822		$	49,050	$	125,988
Other comprehensive income (loss), net of tax:
Change in net unrealized investment gains (losses) on fixed maturity securities	142,450		(7,762		)	48,681		106,136
Change in net funded status of benefit plans	—		—			—		—
Other comprehensive income (loss)	142,450		(7,762		)	48,681		106,136
Total	$	173,028	$	86,060		$	97,731	$	232,124



	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



	Six Months Ended June 30,
	2020			2019
Cash flows - operating activities
Net income	$	49,050		$	125,988
Adjustments to reconcile net income to net cash provided by operating activities
Net investment (gains) losses	15,302			(153,750		)
Amortization of premiums and accretion of discounts on fixed maturity securities, net	2,837			(348		)
Depreciation and intangible asset amortization	11,655			4,433
Share-based compensation expense	2,786			3,451
Other expense - goodwill impairment	—			28,025
Changes in:
Accrued investment income	(568		)	20,277
Insurance liabilities	38,416			(51,018		)
Premium receivables	2,063			3,541
Deferred policy acquisitions	1,507			3,766
Reinsurance recoverables	(2,860		)	20,718
Income tax liabilities	7,215			39,466
Other operating assets and liabilities	16,683			61,029
Other	21,503			(7,742		)
Net cash provided by operating activities	165,589			97,836
Cash flows - investing activities
Fixed maturity securities
Purchases	(818,151		)	(644,104		)
Sales	294,162			501,739
Maturities, paydowns, calls and redemptions	372,412			342,998
Equity securities
Purchases	(11,752		)	(5,282		)
Sales and repayments	12,059			17,122
Limited partnership interests
Purchases	(30,310		)	(29,357		)
Sales	5,666			15,029
Change in short-term and other investments, net	(19,058		)	(156,748		)
Acquisition of business, net of cash acquired	—			(18,198		)
Net cash provided by (used in) investing activities	(194,972		)	23,199
Cash flows - financing activities
Dividends paid to shareholders	(24,777		)	(23,630		)
FHLB borrowings	4,000			—
Acquisition of treasury stock	(2,145		)	—
Proceeds from exercise of stock options	899			722
Withholding tax payments on RSUs tendered	(1,517		)	(3,366		)
Annuity contracts: variable, fixed and FHLB funding agreements
Deposits	325,019			266,310
Benefits, withdrawals and net transfers to Separate Account (variable annuity) assets	(196,972		)	(214,243		)
Life policy accounts
Deposits	4,580			4,638
Withdrawals and surrenders	(2,126		)	(1,733		)
Change in deposit asset on reinsurance	(19,894		)	(134,682		)
Change in book overdrafts	(802		)	(19,341		)
Net cash provided by (used in) financing activities	86,265			(125,325		)
Net increase (decrease) in cash	56,882			(4,290		)
Cash at beginning of period	25,508			11,906
Cash at end of period	$	82,390		$	7,616



($ 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)	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


⁽¹⁾	Gross gains realized presented above include a $135.3 million realized investment gain associated with a transfer of investments to a reinsurer as consideration paid during the second quarter of 2019 in connection with the reinsurance of a $2.9 billion block of in force fixed and variable annuity business. See Note 5 for further information.


($ in thousands)			Gross Amounts Offset in the		Net Amounts of Assets/ Liabilities Presented in the		Gross Amounts Not Offset in the Consolidated Balance Sheets									Gross Amounts Offset in the Consolidated Balance Sheets			Net Amounts of Assets/ Liabilities Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts		Consolidated Balance Sheets		Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount			Gross Amounts				Financial Instruments			Cash Collateral Received		Net Amount
September 30, 2017
June 30, 2020
Asset derivatives:
Free-standing derivatives	$	10,431	$	—	$	10,431	$	—	$	10,954	$	(523	)	$	7,276	$	—		$	7,276	$	4,340	$	2,600	$	336

December 31, 2016
December 31, 2019
Asset derivatives:
Free-standing derivatives	$	8,694	$	—	$	8,694	$	—	$	8,824	$	(130	)	13,239		—			13,239		7,687		6,640		(1,088		)


($ 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
June 30, 2020
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	$	718,974	$	718,974	$	—	$	694,513	$	24,461
Other, including U.S. Treasury securities	671,020		671,020		13,484		657,536		—		374,881		374,881		18,520		356,361		—
Municipal bonds	1,842,204		1,842,204		—		1,792,992		49,212		1,805,550		1,805,550		—		1,732,379		73,171
Foreign government bonds	100,177		100,177		—		100,177		—		43,550		43,550		—		43,550		—
Corporate bonds	2,821,703		2,821,703		14,798		2,712,660		94,245		1,862,440		1,862,440		12,773		1,723,375		126,292
Other mortgage-backed securities	1,550,128		1,550,128		—		1,431,802		118,326
Other asset-backed securities											1,216,588		1,216,588		—		1,040,903		175,685
Total fixed maturity securities	7,630,634		7,630,634		28,282		7,337,277		265,075		6,021,983		6,021,983		31,293		5,591,081		399,609
Equity securities	159,275		159,275		103,552		55,717		6		90,338		90,338		35,269		54,954		115
Short-term investments	111,488		111,488		111,488		—		—		182,670		182,670		179,651		3,019		—
Other investments	21,944		21,944		—		21,944		—		23,604		23,604		—		23,604		—
Totals	$	7,923,341	$	7,923,341	$	243,322	$	7,414,938	$	265,081	$	6,318,595	$	6,318,595	$	246,213	$	5,672,658	$	399,724
Separate Account (variable annuity) assets ⁽¹⁾											$	2,316,900	$	2,316,900	$	2,316,900	$	—	$	—
Financial Liabilities
Investment contract and life policy reserves, embedded derivatives	$	390	$	390	$	—	$	390	$	—
Investment contract and policy reserves, embedded derivatives											$	1,113	$	1,113	$	—	$	1,113	$	—
Other policyholder funds, embedded derivatives	72,986		72,986		—		—		72,986		$	93,619	$	93,619	$	—	$	—	$	93,619

December 31, 2016
December 31, 2019
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	$	724,319	$	724,319	$	—	$	711,004	$	13,315
Other, including U.S. Treasury securities	467,143		467,143		13,631		453,512		—		458,868		458,868		17,699		441,169		—
Municipal bonds	1,769,397		1,769,397		—		1,722,900		46,497		1,686,203		1,686,203		—		1,641,912		44,291
Foreign government bonds	98,669		98,669		—		98,669		—		45,370		45,370		—		45,370		—
Corporate bonds	2,810,221		2,810,221		13,532		2,736,498		60,191		1,581,424		1,581,424		14,470		1,463,002		103,952
Other mortgage-backed securities	1,696,387		1,696,387		—		1,595,143		101,244
Other asset-backed securities											1,295,492		1,295,492		—		1,161,979		133,513
Total fixed maturity securities	7,456,708		7,456,708		27,163		7,218,198		211,347		5,791,676		5,791,676		32,169		5,464,436		295,071
Equity securities	141,649		141,649		98,632		43,011		6		101,864		101,864		49,834		51,923		107
Short-term investments	44,918		44,918		44,167		—		751		172,667		172,667		172,667		—		—
Other investments	20,194		20,194		—		20,194		—		25,997		25,997		—		25,997		—
Totals	$	7,663,469	$	7,663,469	$	169,962	$	7,281,403	$	212,104	$	6,092,204	$	6,092,204	$	254,670	$	5,542,356	$	295,178
Separate Account (variable annuity) assets ⁽¹⁾											$	2,490,469	$	2,490,469	$	2,490,469	$	—	$	—
Financial Liabilities
Investment contract and life policy reserves, embedded derivatives	$	158	$	158	$	—	$	158	$	—
Investment contract and policy reserves, embedded derivatives											$	1,314	$	1,314	$	—	$	1,314	$	—
Other policyholder funds, embedded derivatives	59,393		59,393		—		—		59,393		$	93,733	$	93,733	$	—	$	—	$	93,733



($ 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, 2017	$	49,123		$	77,052		$	120,324		$	246,499		$	6	$	—		$	246,505		$	67,995
Transfers into Level 3 (3)	—			23,501			11,961			35,462			—		—			35,462			—
Transfers out of Level 3 (3)	—			1			(881		)	(880		)	—		—			(880		)	—
Total gains or losses
Net realized investment gains (losses) included in net income related to financial assets	—			(1		)	(160		)	(161		)	—		—			(161		)	—
Net realized (gains) losses included in net income related to financial liabilities	—			—			—			—			—		—			—			2,587
Net unrealized investment gains (losses) included in other comprehensive income	382			(192		)	(377		)	(187		)	—		—			(187		)	—
Purchases	—			—			—			—			—		—			—			—
Issuances	—			—			—			—			—		—			—			3,752
Sales	—			(1,999		)	—			(1,999		)	—		—			(1,999		)	—
Settlements	—			—			—			—			—		—			—			—
Paydowns, maturities and distributions	(293		)	(4,117		)	(9,249		)	(13,659		)	—		—			(13,659		)	(1,348		)
Ending balance, September 30, 2017	$	49,212		$	94,245		$	121,618		$	265,075		$	6	$	—		$	265,081		$	72,986

Beginning balance, January 1, 2017	$	46,497		$	60,191		$	104,659		$	211,347		$	6	$	751		$	212,104		$	59,393
Transfers into Level 3 (3)	5,214			55,420			36,482			97,116			—		—			97,116			—
Transfers out of Level 3 (3)	(5,557		)	(11,962		)	(881		)	(18,400		)	—		(751		)	(19,151		)	—
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 realized (gains) losses included in net income related to financial liabilities	—			—			—			—			—		—			—			6,133
Net unrealized investment gains (losses) included in other comprehensive income	3,540			263			1,945			5,748			—		—			5,748			—
Purchases	—			—			—			—			—		—			—			—
Issuances	—			—			—			—			—		—			—			10,538
Sales	—			(1,999		)	—			(1,999		)	—		—			(1,999		)	—
Settlements	—			—			—			—			—		—			—			—
Paydowns, maturities and distributions	(482		)	(7,667		)	(18,713		)	(26,862		)	—		—			(26,862		)	(3,078		)
Ending balance, September 30, 2017	$	49,212		$	94,245		$	121,618		$	265,075		$	6	$	—		$	265,081		$	72,986



($ 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, April 1, 2020	$	104,892		$	111,693		$	140,527		$	357,112		$	83	$	357,195		$	87,506
Transfers into Level 3⁽³⁾	10,726			13,970			64,239			88,935			—		88,935			—
Transfers out of Level 3 ⁽³⁾	(45,917		)	(4,166		)	(3,438		)	(53,521		)	—		(53,521		)	—
Total gains or losses
Net investment gains (losses) included in net income related to financial assets	—			—			—			—			32		32			—
Net realized (gains) losses included in net income related to financial liabilities	—			—			—			—			—		—			5,966
Net unrealized investment gains (losses) included in OCI	3,838			5,308			3,261			12,407			—		12,407			—
Purchases	—			—			—			—			—		—			—
Issuances	—			—			—			—			—		—			2,513
Sales	—			—			—			—			—		—			—
Settlements	—			—			—			—			—		—			—
Paydowns, maturities and distributions	(368		)	(513		)	(4,443		)	(5,324		)	—		(5,324		)	(2,366		)
Ending balance, June 30, 2020	$	73,171		$	126,292		$	200,146		$	399,609		$	115	$	399,724		$	93,619

Beginning balance, January 1, 2020	$	44,291		$	103,952		$	146,828		$	295,071		$	107	$	295,178		$	93,733
Transfers into Level 3 ⁽³⁾	74,477			32,803			86,714			193,994			—		193,994			—
Transfers out of Level 3 ⁽³⁾	(45,917		)	(14,188		)	(6,385		)	(66,490		)	—		(66,490		)	—
Total gains or losses
Net investment gains (losses) included in net income related to financial assets	—			—			—			—			8		8			—
Net realized (gains) losses included in net income related to financial liabilities	—			—			—			—			—		—			924
Net unrealized investment gains (losses) included in OCI	812			(173		)	(21,101		)	(20,462		)	—		(20,462		)	—
Purchases	—			6,875			1,890			8,765			—		8,765			—
Issuances	—			—			—			—			—		—			3,867
Sales	—			—			—			—			—		—			—
Settlements	—			—			—			—			—		—			—
Paydowns, maturities and distributions	(492		)	(2,977		)	(7,800		)	(11,269		)	—		(11,269		)	(4,905		)
Ending balance, June 30, 2020	$	73,171		$	126,292		$	200,146		$	399,609		$	115	$	399,724		$	93,619


⁽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.



($ in thousands)
Financial Assets	Fair Value at June 30, 2020		Valuation Technique(s)	Unobservable Inputs	Range (Weighted Average) and Single Point Best Estimate ⁽¹⁾
Municipal bonds	$	73,171	discounted cash flow	I spread ⁽²⁾	578 bps
Corporate bonds	126,292		discounted cash flow	N spread ⁽³⁾	762 bps
			discounted cash flow	T spread ⁽⁴⁾	378 bps
			discounted cash flow	I spread ⁽²⁾	495 bps
			market comparable	EV / TTM EBITDA (x) ⁽⁵⁾	5.11x
Other asset-backed securities	175,685		discounted cash flow	constant prepayment rate	20.0%
			vendor price	haircut	3.0%
			market comparable	EV / TTM EBITDA (x) ⁽⁵⁾	5.11x
			discounted cash flow	N spread ⁽³⁾	732 bps
			discounted cash flow	PDI interest margin ⁽⁶⁾	7.13%
			discounted cash flow	SBL interest margin ⁽⁷⁾	4.50%
Government mortgage-backed securities	24,461		vendor price	haircut	3.0%
			discounted cash flow	N spread ⁽³⁾	109 bps
			discounted cash flow	constant prepayment yield	100 bps
			discounted cash flow	constant default rate	0
Equity securities	115		Black Scholes	equity value	low - $43.27; high - $44.53



($ in thousands)
Financial Liabilities	Fair Value at June 30, 2020		Valuation Technique(s)	Unobservable Inputs	Range (Weighted Average) and Single Point Best Estimate ⁽¹⁾
Derivatives embedded in fixed indexed annuity products	$	93,619	discounted cash flow	lapse rate	5.25%
				mortality multiplier ⁽⁸⁾	61.00%
				option budget	1.00% - 2.50%
				non-performance adjustment ⁽⁹⁾	5.00%


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


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


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


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


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


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



($ in thousands)	Weighted Average
	Useful Life (in Years)
At inception:
Value of business acquired	30	$	94,419
Value of distribution acquired	17	53,996
Value of agency relationships	14	16,981
Value of customer relationships	10	9,080
Total	23	174,476
Accumulated amortization:
Value of business acquired		(7,393		)
Value of distribution acquired		(3,527		)
Value of agency relationships		(2,774		)
Value of customer relationships		(2,468		)
Total		(16,162		)
Net intangible assets subject to amortization:		$	158,314



($ in thousands)
Year Ending December 31,
2020 (excluding the six months ended June 30, 2020)	$	7,116
2021	13,411
2022	12,433
2023	11,577
2024	10,805
Thereafter	102,972
Total	$	158,314



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


⁽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 thousand~~$56.1 million and ~~$22,231 thousand~~$30.5 million as of ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, 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.


($ 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 June 30, 2020
Premiums written and contract deposits⁽²⁾									$	332,379	$	6,379	$	3,169	$	329,169
Premiums and contract charges earned	202,988		5,216		1,163		198,935		230,635		8,307		3,103		225,431
Benefits, claims and settlement expenses	135,508		1,831		1,218		134,895		143,285		2,407		2,132		143,010

Three months ended September 30, 2016
Premiums written and contract deposits	$	356,155	$	5,555	$	934	$	351,534
Three months ended June 30, 2019
Premiums written and contract deposits⁽²⁾									$	314,897	$	6,028	$	2,822	$	311,691
Premiums and contract charges earned	195,654		5,584		980		191,050		213,415		8,155		2,836		208,096
Benefits, claims and settlement expenses	139,114		4,642		1,238		135,710		153,436		2,797		2,053		152,692

Nine months ended September 30, 2017
Premiums written and contract deposits	$	940,063	$	16,342	$	2,980	$	926,701
Six months ended June 30, 2020
Premiums written and contract deposits ⁽²⁾									$	666,110	$	12,689	$	4,506	$	657,927
Premiums and contract charges earned	603,794		16,415		2,996		590,375		473,805		16,684		4,575		461,696
Benefits, claims and settlement expenses	450,997		8,899		2,772		444,870		282,817		4,391		3,244		281,670

Nine months ended September 30, 2016
Premiums written and contract deposits	$	960,945	$	17,244	$	2,881	$	946,582
Six months ended June 30, 2019
Premiums written and contract deposits⁽²⁾									$	613,990	$	11,876	$	4,971	$	607,085
Premiums and contract charges earned	579,283		17,305		2,882		564,860		426,671		13,977		5,187		417,881
Benefits, claims and settlement expenses	422,352		21,748		3,027		403,631		295,488		7,089		3,677		292,076


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


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



($ in thousands)	Net Unrealized Investment Gains (Losses) on Securities ⁽¹⁾⁽²⁾			Net Funded Status of Benefit Plans ⁽¹⁾			Total ⁽¹⁾
Beginning balance, April 1, 2020	$	136,679		$	(10,767	)	$	125,912
Other comprehensive income (loss) before reclassifications	147,529			—			147,529
Amounts reclassified from AOCI	(5,079		)	—			(5,079		)
Net current period other comprehensive income (loss)	142,450			—			142,450
Ending balance, June 30, 2020	$	279,129		$	(10,767	)	$	268,362

Beginning balance, January 1, 2020	$	230,448		$	(10,767	)	$	219,681
Other comprehensive income (loss) before reclassifications	42,999			—			42,999
Amounts reclassified from AOCI	5,682			—			5,682
Net current period other comprehensive income (loss)	48,681			—			48,681
Ending balance, June 30, 2020	$	279,129		$	(10,767	)	$	268,362


⁽²⁾	The pretax amounts reclassified from AOCI, $6.4 million and $(7.2) million, are included in Net investment gains (losses) and the related income tax expenses, $1.4 million and $(1.5) million, are included in income tax expense in the Consolidated Statements of Operations for the three and six month periods ended June 30, 2020, respectively.



($ in thousands)	June 30,		December 31,
	2020		2019
Cash	$	81,709	$	25,206
Restricted cash	681		302
Total cash and restricted cash shown in the Consolidated Balance Sheets and Consolidated Statements of Cash Flows	$	82,390	$	25,508



($ 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