UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q 

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172020
or
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[  ]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)
Delaware37-0911756
(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
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange
on which registered
Common Stock, $0.001 par valueHMNNew York Stock Exchange
Registrant’s Telephone Number, Including Area Code: 217-789-2500

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

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

Indicate by check mark whether the registrant’sregistrant is a large accelerated filer, status, as such terms are definedan 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☐

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. ☐ 

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

As of October 31, 2017,2020, the registrant had 40,667,21141,412,903 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 30, 20172020
INDEX
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1.
1
Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December, 31 2019
2
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)
3
Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)
4
Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)
5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (Unaudited)
6
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 InstrumentsDerivatives
2221
Note 5 - PropertyDeposit Asset on Reinsurance
22
Note 6 - Goodwill and CasualtyIntangible Assets, net
23
Note 7 - Unpaid Claims and Claim Expenses
2425
Note 6 - Debt
25
Note 7 - Reinsurance
26
Note 8 - CommitmentsReinsurance
26
Note 9 - Segment InformationCommitments
2726
Note 10 - Segment Information
27
Note 11 - Accumulated Other Comprehensive Income (Loss)
28
Note 12 - Supplemental Consolidated Cash and Cash Flow Information
29
Item 2.
and Results of Operations
2829
Item 3.
4652
Item 4.
4653
Item 1A.
4654
Item 2.
4854
Item 5.
4855
Item 6.
4955
5359






PART I: FINANCIAL INFORMATION
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Item 1.IConsolidated Financial Statements
TheReport 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 30, 2017,2020, the related consolidated statements of operations, and comprehensive income (loss) and changes in shareholders' equity for the threethree-month and nine-month periods ended September 30, 20172020 and 2016, and the related consolidated statements of changes in shareholders��� equity,2019, and cash flows for the nine-month periodsperiod ended September 30, 20172020 and 2016. These2019, and the related notes (collectively, the consolidated interim financial statementsinformation). 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 reviewhave 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, 20176, 2020 
Horace Mann Educators Corporation1Quarterly Report on Form 10-Q



HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share data)
  September 30, 2017 December 31, 2016
  (Unaudited)  
ASSETS
Investments    
Fixed maturity securities, available for sale, at fair value
(amortized cost 2017, $7,194,397; 2016, $7,152,127)
 $7,630,634
 $7,456,708
Equity securities, available for sale, at fair value
(cost 2017, $140,200; 2016, $134,013)
 159,275
 141,649
Short-term and other investments 547,227
 401,015
Total investments 8,337,136
 7,999,372
Cash 6,692
 16,670
Deferred policy acquisition costs 257,214
 267,580
Goodwill 47,396
 47,396
Other assets 344,443
 321,874
Separate Account (variable annuity) assets 2,051,467
 1,923,932
Total assets $11,044,348
 $10,576,824
     
LIABILITIES AND SHAREHOLDERS’ EQUITY
Policy liabilities    
Investment contract and life policy reserves $5,540,045
 $5,447,969
Unpaid claims and claim expenses 341,784
 329,888
Unearned premiums 262,029
 246,274
Total policy liabilities 6,143,858
 6,024,131
Other policyholder funds 717,369
 708,950
Other liabilities 493,810
 378,620
Long-term debt 247,403
 247,209
Separate Account (variable annuity) liabilities 2,051,467
 1,923,932
Total liabilities 9,653,907
 9,282,842
Preferred stock, $0.001 par value, authorized
1,000,000 shares; none issued
 —
 —
Common stock, $0.001 par value, authorized 75,000,000 shares;
issued, 2017, 65,382,877; 2016, 64,917,683
 65
 65
Additional paid-in capital 462,068
 453,479
Retained earnings 1,165,282
 1,155,732
Accumulated other comprehensive income (loss), net of taxes:    
Net unrealized investment gains on fixed maturity
and equity securities
 255,718
 175,738
Net funded status of benefit plans (11,817) (11,817)
Treasury stock, at cost, 2017, 24,721,372 shares;
2016, 24,672,932 shares
 (480,875) (479,215)
Total shareholders’ equity 1,390,441
 1,293,982
Total liabilities and shareholders’ equity $11,044,348
 $10,576,824






September 30, 2020December 31, 2019
(Unaudited)
ASSETS
Investments
Fixed maturity securities, available for sale, at fair value
(amortized cost 2020, $5,672,315; 2019, $5,456,980)
$6,168,558 $5,791,676 
Equity securities at fair value102,303 101,864 
Limited partnership interests418,187 383,717 
Short-term and other investments453,037 361,976 
Total investments7,142,085 6,639,233 
Cash65,475 25,508 
Deferred policy acquisition costs241,981 276,668 
Deposit asset on reinsurance2,402,539 2,346,166 
Intangible assets, net166,287 177,217 
Goodwill49,079 49,079 
Other assets447,414 474,364 
Separate Account (variable annuity) assets2,488,528 2,490,469 
Total assets$13,003,388 $12,478,704 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Policy liabilities
Investment contract and policy reserves$6,402,471 $6,234,452 
Unpaid claims and claim expenses454,516 442,854 
Unearned premiums272,660 279,163 
Total policy liabilities7,129,647 6,956,469 
Other policyholder funds744,494 647,283 
Other liabilities487,794 384,173 
Short-term debt135,000 135,000 
Long-term debt302,247 298,025 
Separate Account (variable annuity) liabilities2,488,528 2,490,469 
Total liabilities11,287,710 10,911,419 
Preferred stock, $0.001 par value, authorized
1,000,000 shares; NaN issued
0 0 
Common stock, $0.001 par value, authorized 75,000,000 shares;
issued, 2020, 66,298,901; 2019, 66,088,808
66 66 
Additional paid-in capital486,763 480,962 
Retained earnings1,399,527 1,352,539 
Accumulated other comprehensive income (loss), net of tax: 
Net unrealized investment gains on fixed maturity securities328,197 230,448 
Net funded status of benefit plans(10,767)(10,767)
Treasury stock, at cost, 2020, 24,902,579 shares;
2019, 24,850,484 shares
(488,108)(485,963)
Total shareholders’ equity1,715,678 1,567,285 
Total liabilities and shareholders’ equity$13,003,388 $12,478,704 







See Notes to Consolidated Financial Statements.
Horace Mann Educators Corporation2Quarterly Report on Form 10-Q


HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
($ in thousands, except per share data)
Three Months Ended
September 30,		Nine Months Ended
September 30,
 2020201920202019
Revenues  
Insurance premiums and contract charges earned$235,353 $239,681 $697,049 $657,562 
Net investment income93,718 93,071 256,403 279,329 
Net investment gains (losses)2,469 (2,156)(12,833)151,594 
Other income5,540 6,040 17,478 16,941 
Total revenues337,080 336,636 958,097 1,105,426 
Benefits, losses and expenses
Benefits, claims and settlement expenses151,425 154,191 433,095 446,267 
Interest credited51,030 53,576 153,249 160,092 
Operating expenses57,837 63,632 173,117 175,954 
DAC unlocking and amortization expense24,561 26,344 74,962 82,965 
Intangible asset amortization expense3,558 3,781 10,930 4,863 
Interest expense3,553 4,608 11,722 11,223 
Other expense - goodwill impairment0 0 0 28,025 
Total benefits, losses and expenses291,964 306,132 857,075 909,389 
Income before income taxes45,116 30,504 101,022 196,037 
Income tax expense8,642 5,050 15,498 44,595 
Net income$36,474 $25,454 $85,524 $151,442 
Net income per share
Basic$0.87 $0.61 $2.04 $3.63 
Diluted$0.87 $0.60 $2.03 $3.61 
Weighted average number of shares and equivalent shares
Basic41,916 41,785 41,865 41,715 
Diluted42,058 42,030 42,013 41,911 
Net investment gains (losses)
  Total other-than-temporary impairment losses
on securities		$(1,057)$(5)$(5,272)$(276)
  Portion of losses recognized in other
comprehensive income (loss)		0 0 0 0 
Net other-than-temporary impairment losses
on securities recognized in net income
(1,057)(5)(5,272)(276)
Sales and other, net3,736 608 8,645 147,513 
Change in fair value - equity securities2,242 1,081 (5,644)8,029 
  Change in fair value and gains (losses) realized
on settlements - derivatives		(2,452)(3,840)(10,562)(3,672)
Total$2,469 $(2,156)$(12,833)$151,594 

  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
         
Revenues  
  
    
Insurance premiums and contract charges earned $198,935
 $191,050
 $590,375
 $564,860
Net investment income 92,320
 94,847
 275,025
 270,685
Net realized investment gains (losses) (3,486) 3,985
 (1,656) 6,911
Other income 2,048
 1,294
 4,813
 3,581
         
Total revenues 289,817
 291,176
 868,557
 846,037
         
Benefits, losses and expenses     

 

Benefits, claims and settlement expenses 134,895
 135,710
 444,870
 403,631
Interest credited 50,078
 48,658
 148,200
 142,924
Policy acquisition expenses amortized 24,210
 24,474
 73,904
 73,113
Operating expenses 44,172
 44,337
 139,156
 130,478
Interest expense 2,978
 2,975
 8,879
 8,858
         
Total benefits, losses and expenses 256,333
 256,154
 815,009
 759,004
         
Income before income taxes 33,484
 35,022
 53,548
 87,033
Income tax expense 6,933
 8,099
 9,418
 23,091
         
Net income $26,551
 $26,923
 $44,130
 $63,942
         
Net income per share     

 

Basic $0.64
 $0.66
 $1.07
 $1.55
Diluted $0.64
 $0.65
 $1.06
 $1.55
         
Weighted average number of common and
common equivalent shares (in thousands)
        
Basic 41,433
 41,092
 41,337
 41,155
Diluted 41,575
 41,347
 41,467
 41,386
         
Net realized investment gains (losses)        
Total other-than-temporary impairment losses
on securities
 $(6,091) $(160) $(12,452) $(7,686)
Portion of losses recognized in other
comprehensive income
 —
 —
 —
 (290)
Net other-than-temporary impairment losses
on securities recognized in earnings
 (6,091) (160) (12,452) (7,396)
Realized investment gains, net 2,605
 4,145
 10,796
 14,307
Total $(3,486) $3,985
 $(1,656) $6,911





See Notes to Consolidated Financial Statements.
Horace Mann Educators Corporation3Quarterly Report on Form 10-Q


HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
($ in thousands)
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Comprehensive income  
  
    
Net income $26,551
 $26,923
 $44,130
 $63,942
Other comprehensive income, net of taxes:  
  
    
Change in net unrealized investment gains
on fixed maturity and equity securities
 12,208
 7,638
 79,980
 162,124
Change in net funded status of benefit plans —
 —
 —
 —
Other comprehensive income 12,208
 7,638
 79,980
 162,124
Total $38,759
 $34,561
 $124,110
 $226,066
Three Months Ended
September 30,		Nine Months Ended
September 30,
 2020201920202019
Comprehensive income (loss)  
Net income$36,474 $25,454 $85,524 $151,442 
Other comprehensive income (loss), net of tax:  
Change in net unrealized investment gains
(losses) on fixed maturity securities		49,068 63,304 97,749 169,440 
Change in net funded status of benefit plans0 0 0 0 
Other comprehensive income (loss)49,068 63,304 97,749 169,440 
Total$85,542 $88,758 $183,273 $320,882 
 









































See Notes to Consolidated Financial Statements.
Horace Mann Educators Corporation4Quarterly Report on Form 10-Q


HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
($ in thousands, except per share data)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Common stock, $0.001 par value
Beginning balance$66 $66 $66 $66 
Options exercised— — — — 
Conversion of common stock units— — — — 
Conversion of restricted stock units— — — — 
Ending balance66 66 66 66 
Additional paid-in capital
Beginning balance483,754 476,353 480,962 475,109 
Options exercised and conversion of common stock
units and restricted stock units		1,319 447 1,587 (1,314)
Share-based compensation expense1,690 1,850 4,214 4,855 
Ending balance486,763 478,650 486,763 478,650 
Retained earnings
Beginning balance1,375,737 1,318,329 1,352,539 1,216,582 
Net income36,474 25,454 85,524 151,442 
Dividends, 2020, $0.30, $0.90 per share;
2019, $0.2875, $0.8625 per share
(12,684)(12,120)(38,027)(36,361)
Cumulative effect of change in accounting principle— — (509)— 
Ending balance1,399,527 1,331,663 1,399,527 1,331,663 
Accumulated other comprehensive income (loss), net of tax:
Beginning balance268,362 190,892 219,681 84,756 
Change in net unrealized investment gains (losses)
on fixed maturity securities		49,068 63,304 97,749 169,440 
Change in net funded status of benefit plans— — — — 
Ending balance317,430 254,196 317,430 254,196 
Treasury stock, at cost
Beginning balance(485,963)(485,963)(488,108)(485,963)
Acquisition of shares(2,145)— — — 
Ending balance(488,108)(485,963)(488,108)(485,963)
Shareholders' equity at end of period$1,715,678 $1,578,612 $1,715,678 $1,578,612 

  Nine Months Ended September 30,
  2017 2016
     
Common stock, $0.001 par value    
Beginning balance $65
 $65
Options exercised, 2017, 156,211 shares; 2016, 114,507 shares —
 —
Conversion of common stock units, 2017, 15,981 shares;
2016, 15,629 shares
 —
 —
Conversion of restricted stock units, 2017, 293,002 shares;
2016, 188,207 shares
 —
 —
Ending balance 65
 65
     
Additional paid-in capital    
Beginning balance 453,479
 442,648
Options exercised and conversion of common stock
units and restricted stock units
 2,773
 2,045
Share-based compensation expense 5,816
 6,066
Ending balance 462,068
 450,759
     
Retained earnings    
Beginning balance 1,155,732
 1,116,277
Net income 44,130
 63,942
Cash dividends, 2017, $0.825 per share;
2016, $0.795 per share
 (34,580) (33,241)
Ending balance 1,165,282
 1,146,978
     
Accumulated other comprehensive income, net of taxes    
Beginning balance 163,921
 163,373
Change in net unrealized investment gains on
fixed maturity and equity securities
 79,980
 162,124
Change in net funded status of benefit plans —
 —
Ending balance 243,901
 325,497
     
Treasury stock, at cost    
Beginning balance, 2017, 24,672,932 shares;
2016, 23,971,522 shares
 (479,215) (457,702)
Acquisition of shares, 2017, 48,440 shares;
2016, 701,410 shares
 (1,660) (21,513)
Ending balance, 2017, 24,721,372 shares;
2016, 24,672,932 shares
 (480,875) (479,215)
     
Shareholders’ equity at end of period $1,390,441
 $1,444,084














See Notes to Consolidated Financial Statements.
Horace Mann Educators Corporation5Quarterly Report on Form 10-Q


HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
($ in thousands)
Nine Months Ended
September 30,
20202019
Cash flows - operating activities
Net income$85,524 $151,442 
Adjustments to reconcile net income to net cash provided
by operating activities
     Net investment (gains) losses12,833 (151,594)
     Amortization of premiums and accretion of discounts on
fixed maturity securities, net		4,904 1,023 
     Depreciation and intangible asset amortization17,547 9,751 
     Share-based compensation expense4,578 5,666 
     Other expense - goodwill impairment0 28,025 
     Changes in:
      Accrued investment income(5,476)41,994 
      Insurance liabilities97,952 40,180 
      Premium receivables4,068 (9,671)
      Deferred policy acquisitions(2,546)501 
      Reinsurance recoverables3,265 11,837 
      Income tax liabilities(3,419)34,845 
      Other operating assets and liabilities44,282 56,194 
      Other4,312 (12,957)
           Net cash provided by operating activities267,824 207,236 
Cash flows - investing activities  
Fixed maturity securities  
Purchases(1,093,888)(845,967)
Sales352,766 651,058 
Maturities, paydowns, calls and redemptions525,310 645,946 
Equity securities
Purchases(23,170)(10,510)
Sales and repayments12,368 20,989 
Limited partnership interests
Purchases(59,958)(42,388)
Sales14,594 36,108 
Change in short-term and other investments, net(96,890)(99,702)
Acquisition of businesses, net of cash acquired0 (421,174)
           Net cash used in investing activities(368,868)(65,640)
Cash flows - financing activities  
Dividends paid to shareholders(37,196)(35,477)
   Principal borrowings on Bank Credit Facility0 135,000 
FHLB borrowings4,000 0 
Acquisition of treasury stock(2,145)0 
Proceeds from exercise of stock options2,402 1,105 
Withholding tax payments on RSUs tendered(1,954)(3,560)
Annuity contracts: variable, fixed and FHLB funding agreements  
Deposits462,207 519,636 
Benefits, withdrawals and net transfers to
Separate Account (variable annuity) assets		(284,439)(313,653)
  Principal repayment on FHLB funding agreements0 (275,000)
Life policy accounts 
Deposits6,775 7,143 
Withdrawals and surrenders(2,912)(2,682)
Change in deposit asset on reinsurance(14,797)(130,740)
Change in book overdrafts9,070 (15,925)
           Net cash provided by (used in) financing activities141,011 (114,153)
Net increase in cash39,967 27,443 
Cash at beginning of period25,508 11,906 
Cash at end of period$65,475 $39,349 
  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


See Notes to Consolidated Financial Statements.
Horace Mann Educators Corporation6Quarterly Report on Form 10-Q


HORACE MANN EDUCATORS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 20172020 and 20162019

($ in thousands, except per share data)

NoteNOTE 1 - Basis of Presentation and Significant Accounting Policies

Business
The accompanying unaudited consolidated financial statements of Horace Mann Educators Corporation (“HMEC”;is a holding company for insurance subsidiaries that market and together with its subsidiaries,underwrite personal lines of property and casualty insurance products (primarily personal lines of automobile and property insurance), supplemental insurance products (primarily heart, cancer, accident and limited short-term supplemental disability coverages), retirement products (primarily tax-qualified fixed and variable annuities) and life insurance products, primarily to K-12 teachers, administrators and other employees of public schools and their families (collectively, HMEC, the “Company”Company or “Horace Mann”)Horace Mann).
On July 1, 2019, the Company acquired NTA Life Enterprises, LLC (NTA). As a result, the Company’s reporting segments were changed effective in the third quarter of 2019. A newly created Supplemental segment was added to report on the personal lines of supplemental insurance products that are marketed and underwritten by NTA.
Basis of Presentation
The accompanying Consolidated Financial Statements have been prepared in accordanceconformity with accounting principles generally accepted in the United States (“U.S.”) generally accepted accounting principles (“GAAP”)of America (GAAP) and with the rules and regulations of the Securities and Exchange Commission (“SEC”), specifically Regulation S-X and the instructions to Form 10-Q.(SEC). Certain information and disclosures normally included in annual financial statements prepared in accordanceconformity with GAAP, but are not required for interim reporting purposes, have been omitted. These Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Part II - Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31, 2019. The Company believes that these consolidatedresults of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year.
The accompanying Consolidated Financial Statements and Notes are unaudited. These financial statements containreflect all adjustments (consisting(generally consisting only of normal recurring accruals) which are, in the opinion of management, necessary to present fairlyfor the Company’sfair presentation of the consolidated financial position, as of September 30, 2017, the consolidated results of operations and comprehensive income for the three and nine month periods ended September 30, 2017 and 2016, and the consolidated changes in shareholders’ equity and cash flows for the nine monthinterim periods. The Company's significant accounting policies are summarized in Part II - Item 8, Note 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
Effective for the year ended December 31, 2019, the Company decided to change the approach it uses for presentation in its Consolidated Statements of Cash Flows from the direct method to the indirect method as management considers presentation under the indirect method as more comparable to the method used by others in the insurance industry. Accordingly, the Company has recast all prior periods ended September 30, 2017presented in the Consolidated Statements of Cash Flows to conform to the current year’s presentation.
The Company has reclassified the presentation of certain prior period information to conform to the current year's presentation.
Consolidation
All intercompany transactions and 2016. balances between HMEC and its subsidiaries and affiliates have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (1) the reported amounts of assets and liabilities, (2) disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and (3) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from thosethese estimates.
Horace Mann Educators Corporation7Quarterly Report on Form 10-Q
The subsidiaries of HMEC market and underwrite personal lines of property and casualty (primarily personal lines of automobile and homeowners) insurance, retirement annuities (primarily tax-qualified products) and life insurance, primarily to K-12 teachers, administrators and other employees of public schools and their families. HMEC’s principal operating subsidiaries are Horace Mann Life Insurance Company, Horace Mann Insurance Company, Teachers Insurance Company, Horace Mann Property & Casualty Insurance Company and Horace Mann Lloyds.
These consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
The results of operations for the three and nine month periods ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year.
The Company reclassified the presentation of certain prior period information to conform to the 2017 presentation. See “Adopted Accounting Standards”.

Investment Contract and Life Policy Reserves
This table summarizes the Company’s investment contract and life policy reserves.
($ in thousands) September 30, 2017 December 31, 2016
     
Investment contract reserves $4,428,989
 $4,360,456
Life policy reserves 1,111,056
 1,087,513
Total $5,540,045
 $5,447,969

NoteNOTE 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 critical accounting estimates include valuation of hard-to-value fixed maturity securities (including evaluation of other-than-temporary impairments), evaluation of goodwill and equity securitiesintangible assets for impairment, valuation of supplemental, annuity and the after tax change in net funded statuslife deferred policy acquisition costs, valuation of benefit plansliabilities for the period as shown in the Consolidated Statementproperty 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 - BasisMeasurement 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 to provide a single comprehensive model in accountingwhich revised the credit loss recognition criteria for revenue arising from contracts with customers.certain financial assets measured at amortized cost, including reinsurance recoverables. The guidance appliesreplaced the previous incurred loss recognition model with an expected loss recognition model. The objective of the expected credit loss model is for a reporting entity to recognize its estimate of expected credit losses for affected financial assets in a valuation allowance that when deducted from the amortized cost basis of the related financial assets results in a net carrying value at the amount expected to be collected. A reporting entity must consider all contracts with customers; however, insurance contractsrelevant information available when estimating expected credit losses, including details about past events, current conditions, and reasonable and supportable forecasts over the life of an asset. Financial assets may be evaluated individually or on a pooled basis when they share similar risk characteristics. The measurement of credit losses for available for sale debt securities measured at fair value is not affected except that credit losses recognized are specifically excluded from this updated guidance.limited to the amount by which fair value is below amortized cost and the carrying value adjustment is recognized through a valuation allowance which may change over time but once recorded cannot subsequently be reduced to an amount below zero. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those years. Early adoption is permitted only2019, and for annual reporting periodsmost 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 relate to the Company’s commercial mortgage loan portfolio, agent advances, reinsurance recoverables and off-balance-sheet credit exposures for unfunded commercial mortgage loan commitments. The Company plans to adoptadopted 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 aspectsthe 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 disclosurerelated 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 measurementdefinition of investments in equity securities and the presentation of certain fair value changes for financial liabilitiesa MRB will be measured at fair value. The Company’s results of operationsNew disclosures will be impacted as changesrequired 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 oforder 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 fromentities and the settlementdrivers 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. Theyears. With regards to the liability for future policy benefits and DAC, the guidance allows prospective adoption for individual issues if it is impracticableapplies 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 positionforce as of the Company.

Note 1 - Basisbeginning of Presentation (Continued)


Accounting for Leases
In February 2016, the FASB issued accountingearliest period presented and disclosuremay 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 applicationadoption is permitted. Management is currently evaluating the impact this guidance will have on the results of operations and financial position of the Company.
Accounting Policies
The following accounting policy has been updated to reflect the Company's adoption of Measurement of Credit Losses on Financial Instruments as described above.
The Company conducts a periodic review to identify and evaluate invested assets that may have credit impairments.
In June 2016,
Horace Mann Educators Corporation8Quarterly 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 guidancefactors considered in assessing impairment of fixed maturity securities due to improvecredit-related factors include: (1) the extent to which the fair value has been less than amortized cost; (2) the financial reporting by requiring timelier recordingcondition, 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 loansFinancial 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 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 replacescost basis of the incurred lossinvestment 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 throughand has elected not to measure an allowance for credit losses with this allowance having a limit equal tofor investment income accrued. Investment income accrued is written off through net investment gains (losses) at the amount by which fair value is below amortized cost. The guidance also requires enhanced qualitative and quantitative disclosures to provide additional information abouttime the amounts recorded in the financial statements. For public business entities that are SEC filers, 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 positionissuer of the Company.fixed maturity security defaults or is expected to default on payments.

 SimplifyingUncollectible available for sale fixed maturity securities are written off when the Test for Goodwill Impairment
In January 2017, the FASB issued guidance to simplify the accounting for goodwill impairment. The guidance removes Step 2Company determines that no additional payments 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 testprincipal or interest 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.received.

Note
Horace Mann Educators Corporation9Quarterly Report on Form 10-Q


NOTE 2 - Investments

Net Investment Income
The Company’scomponents 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 as follows:
($ in thousands)Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Fixed maturity securities$56,420 $59,319 $174,727 $227,196 
Equity securities1,130 1,107 3,520 3,697 
Limited partnership interests11,046 6,859 4,862 22,759 
Short-term and other investments2,774 4,207 8,415 (13,856)
Investment expenses(2,151)(2,179)(7,262)(7,420)
Net investment income - investment portfolio69,219 69,313 184,262 232,376 
Investment income - deposit asset on reinsurance24,499 23,758 72,141 46,953 
Total net investment income$93,718 $93,071 $256,403 $279,329 
Net Investment Gains (Losses)
Net investment gains (losses) for the following periods were as follows:
($ in thousands)Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Fixed maturity securities$2,656 $206 $3,116 $141,955 
Equity securities3,982 1,478 (3,670)13,311 
Short-term investments and other(4,169)(3,840)(12,279)(3,672)
Net investment gains (losses)$2,469 $(2,156)$(12,833)$151,594 

The Company’s investment portfolio included no other free-standing derivative financial instruments (futures, forwards, swaps, option contractsCompany, from time to time, sells invested assets subsequent to the reporting date that were considered temporarily impaired at such reporting date. Such sales are due to issuer specific events occurring subsequent to the reporting date that result in a change in the Company's intent or 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 featurescircumstances related to the Company’sinvested 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:
($ in thousands)Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Credit impairment write-downs$0 $0 $0 $0 
Change in intent write-downs(1,057)(5)(5,272)(276)
Net other-than-temporary impairment losses
on securities recognized in net income
(1,057)(5)(5,272)(276)
Sales and other, net3,736 608 8,645 147,513 
Change in fair value - equity securities2,242 1,081 (5,644)8,029 
Change in fair value and gains (losses) realized
on settlements - derivatives
(2,452)(3,840)(10,562)(3,672)
Net investment gains (losses)$2,469 $(2,156)$(12,833)$151,594 
Note
Horace Mann Educators Corporation10Quarterly Report on Form 10-Q


NOTE 2 - Investments (Continued)(continued)


Fixed Maturity and Equity Securities
The Company’sCompany's investment portfolio is comprised primarily of fixed maturity securities and also includes equity securities. The amortizedAmortized 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		Unrealized
Gains		Unrealized
Losses		Fair
Value
September 30, 2020
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations: (1)
Mortgage-backed securities$617,856 $85,219 $213 $702,862 
Other, including U.S. Treasury securities341,771 42,683 317 384,137 
Municipal bonds1,621,308 196,317 1,124 1,816,501 
Foreign government bonds40,143 4,644 0 44,787 
Corporate bonds1,802,423 189,986 8,926 1,983,483 
Other asset-backed securities1,248,814 22,353 34,379 1,236,788 
Totals$5,672,315 $541,202 $44,959 $6,168,558 
December 31, 2019
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations: (1)
Mortgage-backed securities$684,543 $41,263 $1,487 $724,319 
Other, including U.S. Treasury securities436,665 22,824 621 458,868 
Municipal bonds1,545,787 141,996 1,580 1,686,203 
Foreign government bonds42,801 2,569 0 45,370 
Corporate bonds1,464,444 118,775 1,795 1,581,424 
Other asset-backed securities1,282,740 20,883 8,131 1,295,492 
Totals$5,456,980 $348,310 $13,614 $5,791,676 
(1)    Fair value includes securities issued by Federal National Mortgage Association (FNMA) of $390.7 million and $405.1 million; Federal Home Loan Mortgage Corporation (FHLMC) of $322.4 million and $283.1 million; and Government National Mortgage Association (GNMA) of $137.4 million and $147.4 million as of September 30, 2020 and December 31, 2019, respectively.
($ in thousands) 
Amortized
Cost or Cost
 
Unrealized
Investment
Gains
 
Unrealized
Investment
Losses
 
Fair
Value
 
OTTI in
AOCI (1)
September 30, 2017          
Fixed maturity securities          
U.S. Government and federally
sponsored agency obligations (2):
          
Mortgage-backed securities $613,761
 $34,712
 $3,071
 $645,402
 $—
Other, including U.S. Treasury securities 653,237
 24,705
 6,922
 671,020
 —
Municipal bonds 1,669,273
 177,359
 4,428
 1,842,204
 —
Foreign government bonds 93,761
 6,416
 —
 100,177
 —
Corporate bonds 2,635,313
 190,548
 4,158
 2,821,703
 —
Other mortgage-backed securities 1,529,052
 26,879
 5,803
 1,550,128
 1,335
Totals $7,194,397
 $460,619
 $24,382
 $7,630,634
 $1,335
           
Equity securities (3) $140,200
 $20,483
 $1,408
 $159,275
 $—
           
December 31, 2016          
Fixed maturity securities          
U.S. Government and federally
sponsored agency obligations (2):
          
Mortgage-backed securities $587,355
 $34,256
 $6,720
 $614,891
 $—
Other, including U.S. Treasury securities 458,745
 18,518
 10,120
 467,143
 —
Municipal bonds 1,648,252
 143,733
 22,588
 1,769,397
 —
Foreign government bonds 93,864
 5,102
 297
 98,669
 —
Corporate bonds 2,672,818
 152,229
 14,826
 2,810,221
 —
Other mortgage-backed securities 1,691,093
 21,153
 15,859
 1,696,387
 1,618
Totals $7,152,127
 $374,991
 $70,410
 $7,456,708
 $1,618
           
Equity securities (3) $134,013
 $13,210
 $5,574
 $141,649
 $—
(1)Horace Mann Educators CorporationRelated 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 losses11Quarterly Report on such impaired securities relating to changes in the fair value of those securities subsequent to the impairment measurement date.Form 10-Q
(2)Fair value includes securities issued by Federal National Mortgage Association (“FNMA”) of $332,057 thousand and $272,668 thousand; Federal Home Loan Mortgage Corporation (“FHLMC”) of $373,676 thousand and $378,683 thousand; and Government National Mortgage Association (“GNMA”) of $109,873 thousand and $115,627 thousand as of September 30, 2017 and December 31, 2016, respectively.
(3)Includes nonredeemable perpetual preferred stocks, common stocks and closed-end funds.


Note

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 30, 20172020 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 30, 2017 --2020 — which was driven largely by changes inincreasing interest rates, spread widening, financial market illiquidity and/or market volatility from the date of acquisition --— as temporary. For fixed maturity securities, management doesAs of September 30, 2020, the Company has not havemade the intentdecision to sell the securities and it is not more likely than not the Company will be required to sell the fixed maturity securities with unrealized losses before thean anticipated recovery ofin value. Therefore, it was determined that the amortized cost bases, and management expects to recover the entire amortized cost bases ofunrealized losses on the fixed maturity securities. For equity securities presented in the Company has the ability and intent to hold the securities for the recoverytable below were not other-than-temporarily impaired as of cost and recovery of cost is expected within a reasonable period of time.September 30, 2020.
($ in thousands)12 Months or LessMore than 12 MonthsTotal
Fair ValueGross
Unrealized
Losses		Fair ValueGross
Unrealized
Losses		Fair ValueGross
Unrealized
Losses
September 30, 2020
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:
Mortgage-backed securities$8,519 $134 $1,246 $79 $9,765 $213 
Other31,797 317 0 0 31,797 317 
Municipal bonds47,067 1,124 0 0 47,067 1,124 
Foreign government bonds0 0 0 0 0 0 
Corporate bonds203,521 8,444 9,873 482 213,394 8,926 
Other asset-backed securities397,424 24,376 413,159 10,003 810,583 34,379 
Total$688,328 $34,395 $424,278 $10,564 $1,112,606 $44,959 
Number of positions with a
   gross unrealized loss
475 124 599 
Fair value as a percentage of total fixed
   maturity securities at fair value
11.2 %6.9 %18.1 %
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 
Other38,341 619 1,527 2 39,868 621 
Municipal bonds91,195 977 9,160 603 100,355 1,580 
Foreign government bonds0 0 0 0 0 0 
Corporate bonds58,198 886 16,622 909 74,820 1,795 
Other asset-backed securities218,710 1,970 442,791 6,161 661,501 8,131 
Total$478,866 $5,734 $472,720 $7,880 $951,586 $13,614 
Number of positions with a
   gross unrealized loss
330 137 467 
Fair value as a percentage of total fixed
   maturity securities at fair value
8.3 %8.2 %16.5 %
($ 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)


Fixed maturity and equity securities with an investment grade rating represented 92%80.8% of the gross unrealized losses as of September 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 Corporation12Quarterly Report on Form 10-Q


NOTE 2 - Investments (continued)
Credit Losses
The following table summarizes the cumulative amounts related to the Company’sCompany's credit loss component of OTTIother-than-temporary impairment (OTTI) losses on fixed maturity securities held as of September 30, 20172020 and 20162019 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 thean 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,
20202019
Cumulative credit loss (1)
Beginning of period$1,529 $1,529 
New credit losses184 0 
Increases to previously recognized credit losses0 0 
Losses related to securities sold or paid down during the period(103)0 
End of period$1,610 $1,529 
(1)The cumulative credit loss amounts exclude OTTI losses on fixed maturity securities held as of the periods indicated that the Company intended to sell or it was more likely than not that the Company would be required to sell the security before an anticipated recovery in value.
($ in thousands) Nine Months Ended September 30,
  2017 2016
Cumulative credit loss (1)    
Beginning of period $13,703
 $7,844
New credit losses —
 300
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

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

For the three and nine months ended September 30, 2020, there was no allowance recognized for current expected credit losses with respect to fixed maturity securities classified as available for sale.
Expected MaturityMaturities of Fixed Maturity Securities
The following table presents the distribution of the Company’s fixed maturity securities portfolio by estimated expected maturity. Estimated expected maturities differ from contractual maturities, reflecting assumptions regarding borrowers’borrowers' utilization of the right to call or prepay obligations with or without call or prepayment penalties. For structured securities, including mortgage-backed securities and other asset-backed securities, estimated expected maturities consider broker-dealer survey prepayment assumptions and are verified for consistency with the interest rate and economic environments.
($ in thousands)Percent of Total Fair ValueSeptember 30, 2020
September 30, 2020December 31, 2019Fair
Value		Amortized
Cost
Estimated expected maturity:
Due in 1 year or less4.2 %3.6 %$261,323 $258,244 
Due after 1 year through 5 years28.1 %27.4 %1,734,450 1,676,356 
Due after 5 years through 10 years28.9 %29.6 %1,782,261 1,628,583 
Due after 10 years through 20 years24.3 %26.1 %1,496,331 1,309,759 
Due after 20 years14.5 %13.3 %894,193 799,373 
Total100.0 %100.0 %$6,168,558 $5,672,315 
Average option-adjusted duration, in years6.36.0
($ in thousands) Percent of Total Fair Value September 30, 2017
  September 30, 2017 December 31, 2016 
Fair
Value
 
Amortized
Cost
Estimated expected maturity:        
Due in 1 year or less 3.4% 3.9% $256,527
 $250,803
Due after 1 year through 5 years 27.5
 28.7
 2,097,243
 1,998,498
Due after 5 years through 10 years 33.3
 35.2
 2,540,303
 2,431,895
Due after 10 years through 20 years 23.3
 19.5
 1,780,760
 1,654,259
Due after 20 years 12.5
 12.7
 955,801
 858,942
Total 100.0% 100.0% $7,630,634
 $7,194,397
         
Average option-adjusted duration, in years 6.0
 5.9
    
Horace Mann Educators Corporation13Quarterly Report on Form 10-Q


NoteNOTE 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:were as follows:
($ in thousands)Three Months Ended
September 30,		Nine Months Ended
September 30,
202020192020
2019 (1)
Fixed maturity securities
Proceeds received$58,604 $149,319 $352,766 $651,058 
Gross gains realized3,744 1,258 14,029 149,574 
Gross losses realized(31)(1,047)(5,924)(7,128)
Equity securities
Proceeds received$309 $1,367 $12,368 $18,489 
Gross gains realized79 428 2,119 5,562 
Gross losses realized(38)(32)(1,843)(542)
($ in thousands) Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Fixed maturity securities        
Proceeds received $85,841
 $94,706
 $315,531
 $351,739
Gross gains realized 2,293
 2,966
 8,862
 13,824
Gross losses realized (181) (102) (1,558) (1,542)
         
Equity securities        
Proceeds received $3,514
 $4,479
 $20,510
 $17,101
Gross gains realized 477
 790
 3,227
 1,960
Gross losses realized (293) (21) (721) (862)

(1)

Gross gains realized presented above include a $135.3 million realized investment gain associated with a transfer of investments to a reinsurer as consideration paid during the second quarter of 2019 in connection with the reinsurance of a $2.9 billion block of in force fixed and variable annuity business. See Note 5 for further information.
Net Unrealized Investment Gains and Losses(Losses) on Fixed Maturity and Equity Securities
Net unrealized investment gains and losses are computed as the difference between fair value and amortized cost for fixed maturity securities or cost for equity securities. The following table reconciles the net unrealized investment gains and losses,(losses) on fixed maturity securities, net of tax, included in accumulated other comprehensive income (loss)(AOCI), before the impact on deferred policy acquisition costs:of DAC:
($ in thousands)Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Net unrealized investment gains (losses)
on fixed maturity securities, net of tax
Beginning of period$329,887 $231,087 $264,410 $111,712 
Change in net unrealized investment gains
(losses) on fixed maturity securities		56,901 75,283 128,060 315,988 
Reclassification of net investment (gains) losses
on securities to net income		5,244 (1,330)(438)(122,660)
End of period$392,032 $305,040 $392,032 $305,040 
($ in 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

Limited Partnership Interests
Note 2 - Investments (Continued)


As of September 30, 2020 and December 31, 2019, the carrying value of equity method limited partnership interests totaled $418.2 million and $383.7 million, respectively. Principal factors influencing carrying value appreciation or decline include operating performance, comparable public company earnings multiples, capitalization rates and the economic environment. The Company recognizes an impairment loss for equity method limited partnership interests when evidence demonstrates that the loss is other than temporary. Evidence of a loss in value that is other than temporary may include the absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment.
Offsetting of Assets and Liabilities
The Company’s derivative instruments (call options)Company's derivatives are subject to enforceable master netting arrangements. Collateral support agreements associated with each master netting arrangement provide that the Company will receive or pledge financial collateral in the event minimum thresholds arehave been reached.
Horace Mann Educators Corporation14Quarterly Report on Form 10-Q


NOTE 2 - Investments (continued)
The following table presents the instruments that were subject to a master netting arrangement for the Company.
($ in thousands)   
Gross
Amounts
Offset in the
 
Net Amounts
of Assets/
Liabilities
Presented
in the
 
Gross Amounts Not Offset
in the Consolidated
Balance Sheets
  
  
Gross
Amounts
 
Consolidated
Balance
Sheets
 
Consolidated
Balance
Sheets
 
Financial
Instruments
 
Cash
Collateral
Received
 
Net
Amount
September 30, 2017            
Asset derivatives:            
Free-standing derivatives $10,431
 $—
 $10,431
 $—
 $10,954
 $(523)
             
December 31, 2016            
Asset derivatives:            
Free-standing derivatives $8,694
 $—
 $8,694
 $—
 $8,824
 $(130)


($ in thousands)Gross
Amounts
Offset in the
Consolidated
Balance
Sheets		Net Amounts
of Assets/
Liabilities
Presented
in the
Consolidated
Balance
Sheets		Gross Amounts Not Offset
in the Consolidated
Balance Sheets
Gross
Amounts		Financial
Instruments		Cash
Collateral
Received		Net
Amount
September 30, 2020
Asset derivatives:
Free-standing derivatives$10,793 $0 $10,793 $7,952 $1,960 $881 
December 31, 2019
Asset derivatives:
Free-standing derivatives13,239 0 13,239 7,687 6,640 (1,088)
Deposits
At September 30, 20172020 and December 31, 2016,2019, fixed maturity securities with a fair value of $18,133 thousand$26.9 million and $18,119 thousand,$26.0 million, respectively, were on deposit with governmental agencies as required by law in various states infor which the insurance subsidiaries of HMEC conduct business. In addition, at September 30, 20172020 and December 31, 2016,2019, fixed maturity securities with a fair value of $620,558 thousand$697.1 million and $620,489 thousand,$594.2 million, respectively, were on deposit with the Federal Home Loan Bank of Chicago (“FHLB”)(FHLB) as collateral for amounts subject to funding agreements, advances and borrowings which were equal to $575,000 thousand$644.5 million at both of the respective dates.September 30, 2020 and $545.0 million at December 31, 2019. The deposited securities are included in Fixed maturity securities on the Company’s Consolidated Balance Sheets.
NoteNOTE 3 - Fair Value of Financial Instruments

The Company is required under GAAP to disclose estimated fair values for certain financial and nonfinancial assets and liabilities. Fair values of the Company’s insurance contracts other than annuity contracts (which are investment contracts) are not required to be disclosed. However, the estimated fair values of liabilities under all insurance contracts are taken into consideration in the Company’s overall management of interest rate risk through the matching of investment maturities with amounts due under insurance contracts.
Information regarding the three-level hierarchy presented below and the valuation methodologies utilized by the Company to estimate fair values at a pointeach reporting date is included in time is includedPart II - Item 8, Note 4 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, specifically in “Note 3 -- Fair Value of Financial Instruments”.

2019.
Note
Horace Mann Educators Corporation15Quarterly Report on Form 10-Q


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


Financial Instruments Measured and Carried at Fair Value
on a Recurring Basis
The following table presents the Company’sCompany's fair value hierarchy for those assets and liabilities measured and carried at fair value on a recurring basis. During the nine months ended September 30, 2020 and 2019, there were no transfers between Level 1 and Level 2. At September 30, 2017,2020, Level 3 invested assets comprised 3.3%5.0% of the Company’s total investment portfolio at fair value.
($ in thousands) Fair Value Measurements at
 CarryingFairReporting Date Using
 AmountValueLevel 1Level 2Level 3
September 30, 2020
Financial Assets
Investments
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:
Mortgage-backed securities$702,862 $702,862 $0 $690,663 $12,199 
Other, including U.S. Treasury securities384,137 384,137 18,446 365,691 0 
Municipal bonds1,816,501 1,816,501 0 1,750,830 65,671 
Foreign government bonds44,787 44,787 0 44,787 0 
Corporate bonds1,983,483 1,983,483 14,076 1,848,222 121,185 
Other asset-backed securities1,236,788 1,236,788 0 1,108,189 128,599 
Total fixed maturity securities6,168,558 6,168,558 32,522 5,808,382 327,654 
Equity securities102,303 102,303 36,274 65,941 88 
Short-term investments254,309 254,309 250,206 4,103 0 
Other investments30,245 30,245 0 30,245 0 
Totals$6,555,415 $6,555,415 $319,002 $5,908,671 $327,742 
Separate Account (variable annuity) assets (1)
$2,488,528 $2,488,528 $2,488,528 $0 $0 
Financial Liabilities
Investment contract and policy reserves,
 embedded derivatives
$1,703 $1,703 $0 $1,703 $0 
Other policyholder funds, embedded derivatives$98,070 $98,070 $0 $0 $98,070 
December 31, 2019
Financial Assets
Investments
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:
Mortgage-backed securities$724,319 $724,319 $0 $711,004 $13,315 
Other, including U.S. Treasury securities458,868 458,868 17,699 441,169 0 
Municipal bonds1,686,203 1,686,203 0 1,641,912 44,291 
Foreign government bonds45,370 45,370 0 45,370 0 
Corporate bonds1,581,424 1,581,424 14,470 1,463,002 103,952 
Other asset-backed securities1,295,492 1,295,492 0 1,161,979 133,513 
Total fixed maturity securities5,791,676 5,791,676 32,169 5,464,436 295,071 
Equity securities101,864 101,864 49,834 51,923 107 
Short-term investments172,667 172,667 172,667 0 0 
Other investments25,997 25,997 0 25,997 0 
Totals$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 $0 $0 
Financial Liabilities     
Investment contract and policy reserves,
 embedded derivatives
$1,314 $1,314 $0 $1,314 $0 
Other policyholder funds, embedded derivatives$93,733 $93,733 $0 $0 $93,733 
($ in thousands)   Fair Value Measurements at
  Carrying Fair Reporting Date Using
  Amount Value Level 1 Level 2 Level 3
September 30, 2017          
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
Other, including U.S. Treasury securities 671,020
 671,020
 13,484
 657,536
 —
Municipal bonds 1,842,204
 1,842,204
 —
 1,792,992
 49,212
Foreign government bonds 100,177
 100,177
 —
 100,177
 —
Corporate bonds 2,821,703
 2,821,703
 14,798
 2,712,660
 94,245
Other mortgage-backed securities 1,550,128
 1,550,128
 —
 1,431,802
 118,326
Total fixed maturity securities 7,630,634
 7,630,634
 28,282
 7,337,277
 265,075
Equity securities 159,275
 159,275
 103,552
 55,717
 6
Short-term investments 111,488
 111,488
 111,488
 —
 —
Other investments 21,944
 21,944
 —
 21,944
 —
Totals $7,923,341
 $7,923,341
 $243,322
 $7,414,938
 $265,081
Financial Liabilities          
Investment contract and life policy
reserves, embedded derivatives
 $390
 $390
 $—
 $390
 $—
Other policyholder funds,
embedded derivatives
 72,986
 72,986
 —
 —
 72,986
           
December 31, 2016          
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
Other, including U.S. Treasury securities 467,143
 467,143
 13,631
 453,512
 —
Municipal bonds 1,769,397
 1,769,397
 —
 1,722,900
 46,497
Foreign government bonds 98,669
 98,669
 —
 98,669
 —
Corporate bonds 2,810,221
 2,810,221
 13,532
 2,736,498
 60,191
Other mortgage-backed securities 1,696,387
 1,696,387
 —
 1,595,143
 101,244
Total fixed maturity securities 7,456,708
 7,456,708
 27,163
 7,218,198
 211,347
Equity securities 141,649
 141,649
 98,632
 43,011
 6
Short-term investments 44,918
 44,918
 44,167
 —
 751
Other investments 20,194
 20,194
 —
 20,194
 —
Totals $7,663,469
 $7,663,469
 $169,962
 $7,281,403
 $212,104
Financial Liabilities  
  
  
  
  
Investment contract and life policy
reserves, embedded derivatives
 $158
 $158
 $—
 $158
 $—
Other policyholder funds,
embedded derivatives
 59,393
 59,393
 —
 —
 59,393
(1)    Separate Account (variable annuity) liabilities are equal to the estimated fair value of the Separate Account (variable annuity) assets.
Horace Mann Educators Corporation16Quarterly Report on Form 10-Q


NoteNOTE 3 - Fair Value of Financial Instruments (Continued)

(continued)

Changes in Level 3 Fair Value Measurements
During the nine month period ended September 30, 2017, an equity security was transferred into Level 1 from Level 2 as a result of increased liquidity in the market and a sustained increase in the market activity for this asset. The following table presents reconciliations for the periods indicatedreconciliation for all Level 3 assets and liabilities measured at fair value on a recurring basis.basis using significant unobservable inputs (Level 3) was as follows:
($ in thousands)Financial Assets
Financial
Liabilities (1)
Municipal
Bonds		Corporate
Bonds
Other
Mortgage-
Backed
Securities(2)
Total
Fixed
Maturity
Securities		Equity
Securities		Total
Beginning balance, July 1, 2020$73,171 $126,292 $200,146 $399,609 $115 $399,724 $93,619 
Transfers into Level 3 (3)
6,209 6,798 8,663 21,670 0 21,670 0 
Transfers out of Level 3 (3)
(16,708)(12,511)(70,950)(100,169)0 (100,169)0 
Total gains or losses
Net investment gains (losses)
 included in net income related
 to financial assets
0 0 (238)(238)(27)(265)— 
Net investment (gains) losses
 included in net income related
 to financial liabilities
— — — — — — 4,406 
Net unrealized investment gains
(losses) included in OCI
3,150 551 6,321 10,022 0 10,022 0 
Purchases0 0 0 0 0 0 0 
Issuances0 0 0 0 0 0 1,951 
Sales0 0 0 0 0 0 0 
Settlements0 0 0 0 0 0 0 
Paydowns, maturities and distributions(151)55 (3,144)(3,240)0 (3,240)(1,906)
Ending balance, September 30, 2020$65,671 $121,185 $140,798 $327,654 $88 $327,742 $98,070 
Beginning balance, January 1, 2020$44,291 $103,952 $146,828 $295,071 $107 $295,178 $93,733 
Transfers into Level 3 (3)
80,686 39,601 95,377 215,664 0 215,664 0 
Transfers out of Level 3 (3)
(62,625)(26,699)(77,335)(166,659)0 (166,659)0 
Total gains or losses
Net investment gains (losses)
 included in net income related
 to financial assets
0 0 (238)(238)(19)(257)— 
Net investment (gains) losses
 included in net income related
 to financial liabilities
— — — — — — 5,330 
Net unrealized investment gains
(losses) included in OCI
3,962 378 (14,780)(10,440)0 (10,440)0 
Purchases0 6,875 1,890 8,765 0 8,765 0 
Issuances0 0 0 0 0 0 5,818 
Sales0 0 0 0 0 0 0 
Settlements0 0 0 0 0 0 0 
Paydowns, maturities and distributions(643)(2,922)(10,944)(14,509)0 (14,509)(6,811)
Ending balance, September 30, 2020$65,671 $121,185 $140,798 $327,654 $88 $327,742 $98,070 
(1)Represents embedded derivatives, all related to the Company's fixed indexed annuity products, reported in Other policyholder funds in the Company's Consolidated Balance Sheets.
(2)Includes U.S. Government and federally sponsored agency obligations for mortgage-backed securities and other mortgage-backed securities.
(3)Transfers into and out of Level 3 during the three and nine months ended September 30, 2020 were attributable to changes in the availability of observable market information for individual fixed maturity securities. The Company's policy is to recognize transfers into and out of the levels as having occurred at the end of the reporting period in which the transfers were determined.
($ 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

(1)Horace Mann Educators CorporationRepresents embedded derivatives, all related to the Company’s FIA products, reported in Other policyholder funds in the Company’s Consolidated Balance Sheets.17Quarterly Report on Form 10-Q
(2)Includes U.S. Government and federally sponsored agency obligations for mortgage-backed securities and other mortgage-backed securities.
(3)Transfers into and out of Level 3 during the three and nine month periods ended September 30, 2017 were attributable to changes in the availability of observable market information for individual fixed maturity securities and short-term investments. The Company’s policy is to recognize transfers into and transfers out of the levels as having occurred at the end of the reporting period in which the transfers were determined.

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

(continued)

($ in thousands)Financial Assets
Financial
Liabilities (1)
Municipal
Bonds		Corporate
Bonds
Other
Mortgage-
Backed
Securities (2)
Total
Fixed
Maturity
Securities		Equity
Securities		Total
Beginning balance, July 1, 2019$46,984 $79,222 $128,438 $254,644 $69 $254,713 $85,961 
Transfers into Level 3 (3)
0 18,916 21,004 39,920 1 39,921 0 
Transfers out of Level 3 (3)
0 (2,822)(449)(3,271)0 (3,271)0 
Total gains or losses
Net investment gains (losses)
 included in net income related
 to financial assets
0 0 0 0 46 46 — 
Net investment (gains) losses
 included in net income related
 to financial liabilities
— — — — — — 3,661 
Net unrealized investment gains
 (losses) included in OCI
842 1,744 397 2,983 0 2,983 0 
Purchases0 0 0 0 0 0 0 
Issuances0 0 0 0 0 0 2,033 
Sales0 0 0 0 0 0 0 
Settlements0 0 0 0 0 0 0 
Paydowns, maturities and distributions(121)(387)(2,685)(3,193)0 (3,193)(2,557)
Ending balance, September 30, 2019$47,705 $96,673 $146,705 $291,083 $116 $291,199 $89,098 
Beginning balance, January 1, 2019$47,531 $80,742 $120,211 $248,484 $5 $248,489 $78,700 
Transfers into Level 3 (3)
0 24,798 42,938 67,736 65 67,801 0 
Transfers out of Level 3 (3)
0 (7,698)(449)(8,147)0 (8,147)0 
Total gains or losses
Net investment gains (losses)
 included in net income related
 to financial assets
0 0 0 0 46 46 — 
Net investment (gains) losses
 included in net income related
 to financial liabilities
— — — — — — 8,366 
Net unrealized investment gains
 (losses) included in OCI
649 6,254 3,052 9,955 0 9,955 0 
Purchases0 1,566 0 1,566 0 1,566 0 
Issuances0 0 0 0 0 0 7,482 
Sales0 0 (607)(607)0 (607)0 
Settlements0 0 0 0 0 0 0 
Paydowns, maturities and distributions(475)(8,989)(18,440)(27,904)0 (27,904)(5,450)
Ending balance, September 30, 2019$47,705 $96,673 $146,705 $291,083 $116 $291,199 $89,098 
(1)    Represents embedded derivatives, all related to the Company's fixed indexed annuity products, reported in Other policyholder funds in the Company's Consolidated Balance Sheets.
($ in thousands) Financial Assets 
Financial
Liabilities(1)
  
Municipal
Bonds
 
Corporate
Bonds
 
Mortgage-
Backed
Securities (2)
 
Total
Fixed
Maturity
Securities
 
Equity
Securities
 
Short-term
Investments
 Total  
Beginning balance, July 1, 2016 $47,647
 $73,408
 $96,581
 $217,636
 $6
 $—
 $217,642
 $47,706
Transfers into Level 3 (3) —
 10,375
 7,655
 18,030
 —
 —
 18,030
 —
Transfers out of Level 3 (3) —
 (5,967) (788) (6,755) —
 —
 (6,755) —
Total gains or losses                
Net realized investment gains (losses) included in net
income related to financial assets
 —
 1
 (56) (55) —
 —
 (55) —
Net realized (gains) losses
included in net income
related to financial liabilities
 —
 —
 —
 —
 —
 —
 —
 68
Net unrealized investment gains
(losses) included in other
comprehensive income
 (2,361) 1,292
 3,951
 2,882
 —
 —
 2,882
 —
Purchases —
 —
 —
 —
 —
 —
 —
 —
Issuances —
 —
 —
 —
 —
 —
 —
 6,710
Sales —
 —
 —
 —
 —
 —
 —
 —
Settlements —
 —
 —
 —
 —
 —
 —
 —
Paydowns, maturities
and distributions
 (120) (1,488) (5,194) (6,802) —
 —
 (6,802) 695
Ending balance, September 30, 2016 $45,166
 $77,621
 $102,149
 $224,936
 $6
 $—
 $224,942
 $55,179
                 
Beginning balance, January 1, 2016 $30,379
 $67,575
 $75,466
 $173,420
 $6
 $—
 $173,426
 $39,021
Transfers into Level 3 (3) 14,751
 21,451
 32,281
 68,483
 —
 —
 68,483
 —
Transfers out of Level 3 (3) —
 (5,967) (788) (6,755) —
 —
 (6,755) —
Total gains or losses                
Net realized investment gains
(losses) included in net
income related to
financial assets
 —
 (656) (56) (712) —
 —
 (712) —
Net realized (gains) losses
included in net income
related to financial liabilities
 —
 —
 —
 —
 —
 —
 —
 2,066
Net unrealized investment gains
(losses) included in other
comprehensive income
 420
 3,073
 4,173
 7,666
 —
 —
 7,666
 —
Purchases —
 —
 —
 —
 —
 —
 —
 —
Issuances —
 —
 —
 —
 —
 —
 —
 15,194
Sales —
 —
 —
 —
 —
 —
 —
 —
Settlements —
 —
 —
 —
 —
 —
 —
 —
Paydowns, maturities
and distributions
 (384) (7,855) (8,927) (17,166) —
 —
 (17,166) (1,102)
Ending balance, September 30, 2016 $45,166
 $77,621
 $102,149
 $224,936
 $6
 $—
 $224,942
 $55,179
(2)    Includes U.S. Government and federally sponsored agency obligations for mortgage-backed securities and other mortgage-backed securities.

(1)Represents embedded derivatives, all related to the Company’s FIA products, reported in Other policyholder funds in the Company’s Consolidated Balance Sheets.
(2)Includes U.S. Government and federally sponsored agency obligations for mortgage-backed securities and other mortgage-backed securities.
(3)Transfers into and out of Level 3 during the three and nine month periods(3)    Transfers into and out of Level 3 during the three and nine months ended September 30, 2016 were attributable to changes in the availability of observable market information for individual fixed maturity securities. The Company’s policy is to recognize transfers into and transfers out of the levels as having occurred at the end of the reporting period in which the transfers were determined.

At September 30, 2017,2019 were attributable to changes in the availability of observable market information for individual fixed maturity securities. The Company's policy is to recognize transfers into and out of the levels as having occurred at the end of the reporting period in which the transfers were determined.

For the nine months ended September 30, 2020 and September 30, 2019, the Company impaired twohad $0.3 million and 0 net investment losses on Level 3 securities for a $1,874 thousand realized loss. Atfinancial assets, respectively. For the three and nine months ended September 30, 2016, there2020, net investment losses of $4.4 million and $5.3 million were no net realized investment gains or losses included in earningsnet income that were attributable to changes in the fair value of Level 3 assets still held. For the three and nine month periods ended September 30, 2017, net realized losses of $2,587 thousand and $6,133 thousand, respectively, were included in earnings that were attributable to the changes in the fair value of Level 3 liabilities (embedded derivatives) still held;financial liabilities; for the three and nine month periodsmonths ended September 30, 2016,2019, the respective loss amountsnet investment losses were $68 thousand$3.7 million and $2,066 thousand.
$8.4 million.
Note
Horace Mann Educators Corporation18Quarterly Report on Form 10-Q


NOTE 3 - Fair Value of Financial Instruments (Continued)

(continued)
Quantitative Information about Level 3 Fair Value Measurements
The following table provides quantitative information about the significant unobservable inputs for recurring fair value measurements categorized within Level 3.
($ in thousands)
Financial
Assets		Fair Value at
September 30, 2020		Valuation Technique(s)Unobservable Inputs
Range
(Weighted Average)
and Single Point Best Estimate (1)
Municipal bonds$65,671 discounted cash flow
I spread (2)
578 bps
Corporate bonds121,185 discounted cash flow
N spread (3)
320 - 818 bps
market comparableoption adjusted spread12.54%
Other asset-backed securities128,599 vendor pricehaircut3.00% - 5.00%
discounted cash flowconstant prepayment rate20.00%
discounted cash flow
T spread (4)
235 - 800 bps
discounted cash flow
PDI interest margin (5)
7.13%
discounted cash flow
SBL interest margin (6)
4.50%
Government mortgage-backed securities12,199 vendor pricehaircut3.00% - 5.00%
Equity securities88 Black Scholesequity valuelow - $43.27; high - $44.53
($ in thousands)
Financial
Liabilities		Fair Value at
September 30, 2020		Valuation Technique(s)Unobservable Inputs
Range
(Weighted Average)
and Single Point Best Estimate (1)
Derivatives
embedded in
fixed indexed annuity products		$98,070 discounted cash flowlapse rate5.25%
mortality multiplier (7)
61.00%
      option budget 1.00% - 2.50%
non-performance adjustment (8)
5.00%
(1)    When a range of unobservable inputs is not readily available, the Company uses a single point best estimate.
(2)    "I spread" is the interpolated weighted average life point on the "on the run" (OTR) point of the curve.
(3)    "N spread" is the interpolated weighted average life point on the swap curve.
(4)    "T spread" is a specific point on the OTR curve.
(5)    "PDI" stands for private debt investment.
(6)    "SBL" stands for broadly syndicated loans.
(7)    Mortality multiplier is applied to the Annuity 2000 table.
(8)    Determined as a percentage of a risk-free rate.

The valuation techniques and significant unobservable inputs used in the fair value measurement for financial assets and liabilities classified as Level 3 are subject to the control processes as described in “Note 3 -- Fair Value of Financial Instruments -- Investments”Part II - Item 8, Note 4 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2019. Generally, valuation techniques for fixed maturity securities include spread pricing, matrix pricing and discounted cash flow methodologies; include inputs such as quoted prices for identical or similar securities that are less liquid; and are based on lower levels of trading activity than securities classified as Level 2. The valuation techniques and significant unobservable inputs used in the fair value measurement for equity securities classified as Level 3 use similar valuation techniques and significant unobservable inputs as those used for fixed maturity securities.
Horace Mann Educators Corporation19Quarterly Report on Form 10-Q


NOTE 3 - Fair Value of Financial Instruments (continued)
The sensitivity of the estimated fair values to changes in the significant unobservable inputs for fixed maturity and equity securities included in Level 3 generally relate to interest rate spreads, illiquidity premiumsinclude: benchmark yield, liquidity premium, estimated cash flows, prepayment and default rates.speeds, spreads, weighted average life, and credit rating. Significant spread widening in isolation will adversely impact the overall valuation, while significant spread tightening will lead to substantial valuation increases. Significant increases (decreases) in illiquidity premiums in isolation will result in substantially lower (higher) valuations. Significant increases (decreases) in expected default rates in isolation will result in substantially lower (higher) valuations.
Financial Instruments Not Carried at Fair Value; Disclosure Required
The Company has various other financial assets and financial liabilities used in the normal course of business that are not carried at fair value, but for which fair value disclosure is required. These financial assets and financial liabilities are further described in Part II - Item 8, Note 4 in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. The following table presents the carrying value, fair value and fair value hierarchy of these financial assets and financial liabilities.
($ in thousands)Fair Value Measurements at
CarryingFairReporting Date Using
AmountValueLevel 1Level 2Level 3
September 30, 2020
Financial Assets
Investments
Other investments$168,500 $172,303 $0 $0 $172,303 
Deposit asset on reinsurance2,402,539 2,925,672 0 0 2,925,672 
Financial Liabilities
Investment contract and policy reserves,
fixed annuity contracts
4,812,911 4,720,941 0 0 4,720,941 
Investment contract and policy reserves,
account values on life contracts
97,522 102,290 0 0 102,290 
Other policyholder funds646,424 646,424 0 590,687 55,737 
Short-term debt135,000 135,000 0 0 135,000 
Long-term debt302,247 331,829 0 331,829 0 
December 31, 2019
Financial Assets
Investments
Other investments$163,312 $167,185 $0 $0 $167,185 
Deposit asset on reinsurance2,346,166 2,634,012 0 0 2,634,012 
Financial Liabilities     
Investment contract and policy reserves,
fixed annuity contracts
4,675,774 4,609,880 0 0 4,609,880 
Investment contract and policy reserves,
account values on life contracts
93,465 98,332 0 0 98,332 
Other policyholder funds553,550 553,550 0 495,812 57,738 
Short-term debt135,000 135,000 0 0 135,000 
Long-term debt298,025 322,678 0 322,678 0 
Horace Mann Educators Corporation20Quarterly Report on Form 10-Q

($ in thousands)   Fair Value Measurements at
  Carrying Fair Reporting Date Using
  Amount Value Level 1 Level 2 Level 3
September 30, 2017          
Financial Assets          
Investments          
Other investments $154,630
 $159,253
 $—
 $—
 $159,253
Financial Liabilities          
Investment contract reserves 4,428,989
 4,338,318
 —
 —
 4,338,318
Life policy reserves, account values on life contracts 81,520
 86,906
 —
 —
 86,906
Other policyholder funds 644,383
 644,383
 —
 575,579
 68,804
Long-term debt 247,403
 264,781
 264,781
 —
 —
           
December 31, 2016          
Financial Assets          
Investments          
Other investments $151,965
 $156,536
 $—
 $—
 $156,536
Financial Liabilities  
  
  
  
  
Investment contract reserves 4,360,456
 4,280,528
 —
 —
 4,280,528
Life policy reserves, account values on life contracts 79,591
 85,066
 —
 —
 85,066
Other policyholder funds 649,557
 649,557
 —
 575,253
 74,304
Long-term debt 247,209
 248,191
 248,191
 —
 —

NoteNOTE 4 - Derivative InstrumentsDerivatives


The Company offers FIAfixed indexed annuity (FIA) products, which are deferred fixed annuities that guarantee the return of principal to the contractholder and credit interest based on a percentage of the gain in a specified market index, and IULindex. The Company also offers indexed universal life (IUL) products which also credit interest based on a percentage of the gain in a specified market index. When deposits are received for FIA and IUL contracts, a portion is used to purchase derivatives consisting of OTC call options on the applicable market indices to fund the index credits due to FIA and IUL policyholders. For the Company, substantially all of such call options are one-year options purchased to match the funding requirements of the underlying contracts. The call options are carried at fair value with changes in fair value included in Net realized investment gains and losses, a component of Revenues,(losses) in the Consolidated Statements of Operations.
The change in fair value of the derivatives includes the gains or losses recognized at the expiration of the option term or early termination and the changes in fair value for open positions. Call options are not purchased to fund the index liabilities which may arise after the next deposit anniversary date. On the respective anniversary dates of the indexed deposits, the index used to computedetermine the annual index credit is reset and new one-year call options are purchased to fund the next annual index credit. The cost of these purchases is managed through the terms of the FIA and IUL contracts, which permit changes to index return caps, participation rates and/or asset fees, subject to guaranteed minimums on each contract’scontract's anniversary date. By adjusting the index return caps, participation rates or asset fees, crediting rates generally can be managed except in cases where the contractual features would prevent further modifications.
The future annual index credits on FIA contracts are treatedaccounted for as a “series"series of embedded derivatives”derivatives" over the expected life of the applicable contract with a corresponding reserve recorded. For the IUL, contracts, the embedded derivative represents a single year liability for the index return.
The Company carries all derivative instruments as assets or liabilitiesderivatives at fair value in the Consolidated Balance Sheets at fair value.Sheets. The Company elected to not use hedge accounting for derivative transactions related to the FIA and IUL products. As a result, the Company recordsrecognizes the purchased call options and the embedded derivatives related to the provision of a contingent return at fair value, with changes in the fair value of the derivatives recognized immediately as Net realized investment gains (losses) in the Consolidated Statements of Operations. The fair values of derivative instruments,derivatives, including derivative instrumentsderivatives embedded in FIA and IUL contracts, are presented in the Consolidated Balance Sheets were as follows:
($ in thousands)September 30, 2020December 31, 2019
Assets
Derivatives, included in Short-term and other investments$10,793 $13,239 
Liabilities
FIA - embedded derivatives, included in Other policyholder funds98,070 93,733 
IUL - embedded derivatives, included in
Investment contract and policy reserves		1,703 1,314 
($ in thousands) September 30, 2017 December 31, 2016
Assets  
  
Derivative instruments, included in Short-term and other investments $10,431
 $8,694
     
Liabilities  
  
FIA - embedded derivatives, included in Other policyholder funds $72,986
 $59,393
IUL - embedded derivatives,
included in Investment contract and life policy reserves
 390
 158


Note 4 - Derivative Instruments (Continued)


In general, the change in the fair value of the embedded derivatives related to FIA contracts will not correspond to the change in fair value of the purchased call options because the purchased call options are one-year options while the options valued in thosethe embedded derivatives represent the rights of the policyholder to receive index credits over the entire period the FIA contracts are expected to be in force, which typically exceeds 10 years. The changes in fair value of derivatives for FIA and IUL included in the Consolidated Statements of Operations were as follows:
($ in thousands)Three Months Ended
September 30,		Nine Months Ended
September 30,
 2020201920202019
Change in fair value of derivatives: (1)
Net investment gains (losses)$2,666 $(149)$(5,124)$5,280 
Change in fair value of embedded derivatives:
Net investment gains (losses)(5,118)(3,691)(5,438)(8,952)
(1)Includes gains or losses recognized at the expiration of the option term or early termination and the changes in fair value for open options.

($ in thousands) Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Change in fair value of derivatives (1):        
Revenues        
Net realized investment gains $2,943
 $562
 $7,109
 $422
         
Change in fair value of embedded derivatives:        
Revenues        
Net realized investment losses $(2,702) $(76) $(6,363) $(2,077)
(1)Horace Mann Educators CorporationIncludes the gains or losses recognized at the expiration of the option term or early termination and the changes in fair value for open options.21Quarterly Report on Form 10-Q


NOTE 4 - Derivatives (continued)
The Company’sCompany's strategy attempts to mitigate potential risk of loss under these agreements through a regular monitoring process, which evaluates the program’sprogram's effectiveness. The Company is exposed to risk of loss in the event of nonperformance by the counterparties and, accordingly, option contracts are purchased from multiple counterparties, which are evaluated for creditworthiness prior to purchase of the contracts. All of these options have been purchased from nationally recognized financial institutions with a Standard and Poor’s Financial Services LLC ("S&P")Poor's Global Inc. (S&P)/Moody's Investors Service, Inc. (Moody's) long-term credit rating of “BBB+”"BBB+/A3" or higher at the time of purchase and the maximum credit exposure to any single counterparty is subject to concentration limits. The Company also obtains credit support agreements that allow it to request the counterparty to provide collateral when the fair value of the exposure to the counterparty exceeds specified amounts.
The notional amount and fair value of call options by counterparty and each counterparty’scounterparty's long-term credit ratings were as follows:
($ in thousands)September 30, 2020December 31, 2019
Credit RatingNotionalFairNotionalFair
CounterpartyS&PMoody'sAmountValueAmountValue
Bank of America, N.A.A+Aa2$198,100 $9,135 $174,900 $8,523 
Barclays Bank PLCAA198,900 1,658 115,300 3,347 
Citigroup Inc.BBB+A30 0 0 0 
Credit Suisse InternationalA+A10 0 0 0 
Societe GeneraleAA10 0 27,800 1,369 
Total$297,000 $10,793 $318,000 $13,239 
($ in thousands) September 30, 2017 December 31, 2016
  Credit Rating Notional Fair Notional Fair
Counterparty S&P Amount Value Amount Value
           
Bank of America, N.A. A+ $74,400
 $2,466
 $38,500
 $1,934
Barclays Bank PLC A 68,900
 3,017
 66,800
 1,543
Citigroup Inc. BBB+ —
 —
 —
 —
Credit Suisse International A 29,100
 2,041
 65,200
 4,281
Societe Generale A 68,900
 2,907
 15,600
 936
           
Total   $241,300
 $10,431
 $186,100
 $8,694

As of September 30, 20172020 and December 31, 2016,2019, the Company held $10,954 thousand$9.9 million and $8,824 thousand,$14.3 million, respectively, of cash and financial instruments received from counterparties for derivative collateral, which is included in Other liabilities inon the Consolidated Balance Sheets. This derivative collateral limits the Company’s maximum amount of economic loss due to credit risk that would be incurred if parties to the call options failed completely to perform according to the terms of the contracts to $250 thousand$0.3 million per counterparty.
NoteNOTE 5 - Deposit Asset on Reinsurance
In the second quarter of 2019, the Company reinsured a $2.9 billion block of in force fixed and variable annuity business with a minimum crediting rate of 4.5%. This represented approximately 50% of the Company’s in force fixed annuity account balances. The arrangement contains investment guidelines and a trust to help meet the Company’s risk management objectives.
The annuity reinsurance transaction was effective April 1, 2019. Under the agreement, approximately $2.2 billion of fixed annuity reserves were reinsured on a coinsurance basis for consideration of approximately $2.3 billion which resulted in recognition of an after tax realized investment gain of $106.9 million. The separate account assets and liabilities of approximately $0.7 billion were reinsured on a modified coinsurance basis and thus, remain on the Company's consolidated financial statements, but the related results of operations are fully reinsured.
The Company determined that the reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk. Therefore, the Company recognizes the reinsurance agreement using the deposit method of accounting. The assets transferred to the reinsurer as consideration paid is reported as a Deposit asset on reinsurance. As amounts are received or paid, consistent with the underlying reinsured contracts, the Deposit asset on reinsurance is adjusted. The Deposit asset on reinsurance is accreted to the estimated ultimate cash flows using the interest method and the adjustment is reported as Net investment income in the Consolidated Statements of Operations.
Horace Mann Educators Corporation22Quarterly Report on Form 10-Q


NOTE 6 - Goodwill and Intangible Assets, net

The Company conducts impairment testing for goodwill and intangible assets at least annually, or more often if events, changes or circumstances indicate that the carrying amount may not be recoverable. See Part II - Item 8, Note 1 in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for further description of impairment testing.
There were no changes in the carrying amount of goodwill by reporting unit for the nine months ended September 30, 2020. The carrying amount of goodwill by reporting unit as of September 30, 2020 was as follows:
($ in thousands)September 30, 2020
Property and Casualty$9,460 
Supplemental19,621 
Retirement10,087 
Life9,911 
Total$49,079 

As of September 30, 2020, the outstanding amounts of definite-lived intangible assets subject to amortization are attributable to the acquisitions of Benefit Consultants Group, Inc. (BCG) and NTA during 2019. The acquisition of BCG resulted in initial recognition of definite-lived intangible assets subject to amortization in the amount of $14.1 million and the acquisition of NTA resulted in initial recognition of definite-lived intangible assets subject to amortization in the amount of $160.4 million. As of September 30, 2020 the outstanding amounts of definite-lived intangible assets subject to amortization were as follows:
($ in thousands)Weighted Average
Useful Life (in Years)
At inception:
Value of business acquired30$94,419 
Value of distribution acquired1753,996 
Value of agency relationships1416,981 
Value of customer relationships109,080 
Total23174,476 
Accumulated amortization:
Value of business acquired(9,113)
Value of distribution acquired(4,355)
Value of agency relationships(3,417)
Value of customer relationships(2,835)
Total(19,720)
Net intangible assets subject to amortization:$154,756 
In regards to the definite-lived intangible assets in the table above, the value of business acquired intangible asset represents the present value of the expected underwriting profit within policies that were in force on the date of acquisition. The value of distribution acquired intangible asset represents the present value of future business to be written by the existing agency force. The value of agency relationships intangible asset represents the present value of the commission overrides retained by NTA. The value of customer relationships intangible asset represents the present value of the expected profits from existing BCG customers in force at the date of acquisition. All of the aforementioned definite-lived intangible assets were valued using the income approach.
Horace Mann Educators Corporation23Quarterly Report on Form 10-Q


NOTE 6 - Goodwill and Intangible Assets, net (continued)
Estimated future amortization of the Company's definite-lived intangible assets were as follows:
($ in thousands)
Year Ending December 31,
2020 (excluding the nine months ended September 30, 2020)$3,558 
202113,411 
202212,433 
202311,577 
202410,805 
Thereafter102,972 
Total$154,756 
The value of business acquired intangible asset is being amortized by product based on the present value of future premiums to be received. The value of distribution acquired intangible asset is being amortized on a straight-line basis. The value of agency relationships intangible asset is being amortized based on the present value of future premiums to be received. The value of customer relationships intangible asset is being amortized based on the present value of future profits to be received.
Indefinite-lived intangible assets (not subject to amortization) as of September 30, 2020 were as follows:
($ in thousands)
Trade names$8,645 
State licenses2,886 
Total$11,531 
The trade names intangible asset represents the present value of future savings accruing to NTA and BCG by virtue of not having to pay royalties for the use of the trade names, valued using the relief from royalty method. The state licenses intangible asset represents the regulatory licenses held by NTA that were valued using the cost approach.
Horace Mann Educators Corporation24Quarterly Report on Form 10-Q


NOTE 7 - Unpaid Claims and Claim Expenses


The following table is a summary reconciliation of the beginning and ending Property and Casualty unpaid claims and claim expense reserves for the periods indicated. The table presents reserves on both a gross and net (after reinsurance) bases.basis. The total net Property and Casualty insurance claims and claim expense incurred amounts are reflected in the Consolidated Statements of Operations. The end of the period gross reserve (before reinsurance) balances and the reinsurance recoverable balances are reflected on a gross basis in the Consolidated Balance Sheets.
($ in thousands)Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Property and Casualty  
Beginning gross reserves (1)
$388,491 $367,862 $386,976 $367,180 
Less: reinsurance recoverables116,083 77,345 120,506 89,725 
Net reserves, beginning of period (2)
272,408 290,517 266,470 277,455 
Incurred claims and claim expenses:  
Claims occurring in the current period125,622 122,470 340,243 375,648 
Decrease in estimated reserves for claims occurring
in prior periods (3)
(7,200)(3,500)(9,200)(7,500)
Total claims and claim expenses incurred (4)
118,422 118,970 331,043 368,148 
Claims and claim expense payments
for claims occurring during:
  
Current period91,008 101,499 195,891 230,968 
Prior periods19,280 29,747 121,080 136,394 
Total claims and claim expense payments110,288 131,246 316,971 367,362 
Net reserves, end of period (2)
280,542 278,241 280,542 278,241 
Plus: reinsurance recoverables114,773 76,526 114,773 76,526 
Ending gross reserves (1)
$395,315 $354,767 $395,315 $354,767 
(1)Unpaid claims and claim expenses as reported in the Consolidated Balance Sheets also include reserves for Supplemental, Life and Retirement of $59.2 million and $57.5 million as of September 30, 2020 and 2019, respectively, in addition to Property and Casualty reserves.
($ in thousands) Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Property and Casualty segment  
  
    
Beginning Gross reserves (1) $329,831
 $320,961
 $307,757
 $301,569
Less: reinsurance recoverables 58,897
 60,499
 61,199
 50,332
Net reserves, beginning of period (2) 270,934
 260,462
 246,558
 251,237
Incurred claims and claim expenses:  
  
    
Claims occurring in the current period 115,393
 116,709
 386,945
 351,270
Decrease in estimated reserves for
claims occurring in prior periods (3)
 (500) (700) (2,100) (4,300)
Total claims and claim expenses incurred (4) 114,893
 116,009
 384,845
 346,970
Claims and claim expense payments
for claims occurring during:
  
  
    
Current period 97,188
 99,832
 245,213
 228,462
Prior periods 28,054
 27,976
 125,605
 121,082
Total claims and claim expense payments 125,242
 127,808
 370,818
 349,544
Net reserves, end of period (2) 260,585
 248,663
 260,585
 248,663
Plus: reinsurance recoverables 57,302
 61,893
 57,302
 61,893
Ending Gross reserves (1) $317,887
 $310,556
 $317,887
 $310,556
(2)Reserves net of anticipated reinsurance recoverables.
(3)Shows the amounts by which the Company decreased its reserves in each of the periods indicated for claims occurring in previous periods to reflect subsequent information on such claims and changes in their projected final settlement costs.
(1)Unpaid claims and claim expenses as reported in the Consolidated Balance Sheets also include reserves for the Life and Retirement segments of $23,897 thousand and $22,231 thousand as of September 30, 2017 and 2016, respectively, in addition to Property and Casualty segment reserves.
(2)Reserves net of anticipated reinsurance recoverables.
(3)Shows the amounts by which the Company decreased its reserves in each of the periods indicated for claims occurring in previous periods to reflect subsequent information on such claims and changes in their projected final settlement costs.
(4)Benefits, claims and settlement expenses as reported in the Consolidated Statements of Operations also include amounts for the Life and Retirement segments of $20,002 thousand and $60,025 thousand for the three and nine month periods ended September 30, 2017, respectively, in addition to the Property and Casualty segment amounts. Benefits, claims and settlement expenses for the Life and Retirement segments for the three and nine month periods ended September 30, 2016 were $19,701 thousand and $56,661 thousand, respectively.
(4)Benefits, claims and settlement expenses as reported in the Consolidated Statements of Operations also include amounts for Supplemental, Life and Retirement of $33.0 million and $102.1 million for the three and nine months ended September 30, 2020, respectively, in addition to Property and Casualty amounts. Benefits, claims and settlement expenses for Supplemental, Life and Retirement were $35.2 million and$78.1 million for the three and nine months ended September 30, 2019, respectively.

Net favorable development of total reserves for Property and Casualty claims occurring in prior years was $2,100 thousand$9.2 million and $4,300 thousand$7.5 million for the nine month periodsmonths ended September 30, 20172020 and 2016,2019, respectively. The favorable development for both of the nine month periodsmonths ended September 30, 2017 and 20162020 was predominantly the result of favorable severityloss trends in automobile and homeowners loss emergence. This favorable development wasemergence of $4.0 million for accident years 20152019 and prior and $5.2 million of subrogation received largely related to the 2018 Camp Fire in California. The favorable development for the nine month periodmonths ended September 30, 20172019 was the result of favorable loss trends in automobile and homeowners loss emergence for accident years 20142018 and prior for the nine month period ended September 30, 2016.
prior.
Note 6 - Debt
Horace Mann Educators Corporation25Quarterly Report on Form 10-Q


Indebtedness outstanding was as follows:
($ in thousands) September 30, 2017 December 31, 2016
Short-term debt:  
  
Bank Credit Facility, expires July 30, 2019 $—
 $—
     
Long-term debt:  
  
4.50% Senior Notes, due December 1, 2025. Aggregate principal amount of $250,000 thousand less unaccrued discount of $561 thousand and $603 thousand (4.5% imputed rate) and unamortized debt issuance costs of $2,036 thousand and $2,188 thousand 247,403
 247,209

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


The Company recognizes the cost of reinsurance premiums over the contract periods for such premiums in proportion to the insurance protection provided. Amounts recoverable from reinsurers for unpaid claims and claim settlement expenses, including estimated amounts for unsettled claims, claims incurred but not yet reported and policy benefits, are estimated in a manner consistent with the insurance liability associated with the policy. The effects of reinsurance on premiums written and contract deposits; premiums and contract charges earned; and benefits, claims and settlement expenses were as follows:
($ in thousands)Gross
Amount
Ceded to
Other
Companies (1)
Assumed
from Other
Companies		Net
Amount
Three months ended September 30, 2020    
Premiums written and contract deposits (2)
$368,577 $2,146 $2,422 $368,853 
Premiums and contract charges earned237,193 4,261 2,421 235,353 
Benefits, claims and settlement expenses59,401 (90,161)1,863 151,425 
Three months ended September 30, 2019    
Premiums written and contract deposits (2)
$374,598 $5,968 $2,586 $371,216 
Premiums and contract charges earned245,200 8,181 2,662 239,681 
Benefits, claims and settlement expenses154,718 2,310 1,783 154,191 
Nine months ended September 30, 2020
Premiums written and contract deposits (2)
$1,034,687 $14,835 $6,928 $1,026,780 
Premiums and contract charges earned710,998 20,945 6,996 697,049 
Benefits, claims and settlement expenses342,218 (85,770)5,107 433,095 
Nine months ended September 30, 2019
Premiums written and contract deposits (2)
$988,588 $17,844 $7,557 $978,301 
Premiums and contract charges earned671,871 22,158 7,849 657,562 
Benefits, claims and settlement expenses450,206 9,399 5,460 446,267 
(1)    
($ in thousands) 
Gross
Amount
 
Ceded to
Other
Companies
 
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
Premiums and contract charges earned 202,988
 5,216
 1,163
 198,935
Benefits, claims and settlement expenses 135,508
 1,831
 1,218
 134,895
         
Three months ended September 30, 2016  
  
  
  
Premiums written and contract deposits $356,155
 $5,555
 $934
 $351,534
Premiums and contract charges earned 195,654
 5,584
 980
 191,050
Benefits, claims and settlement expenses 139,114
 4,642
 1,238
 135,710
         
Nine months ended September 30, 2017        
Premiums written and contract deposits $940,063
 $16,342
 $2,980
 $926,701
Premiums and contract charges earned 603,794
 16,415
 2,996
 590,375
Benefits, claims and settlement expenses 450,997
 8,899
 2,772
 444,870
         
Nine months ended September 30, 2016        
Premiums written and contract deposits $960,945
 $17,244
 $2,881
 $946,582
Premiums and contract charges earned 579,283
 17,305
 2,882
 564,860
Benefits, claims and settlement expenses 422,352
 21,748
 3,027
 403,631

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.
Note 8NOTE 9 - Commitments

Investment Commitments
From time to time, the Company has outstanding commitments to purchasefund investments and/orin limited partnership interests, commercial mortgage loans and bank loans. Such unfunded commitments to lend funds under bridge loans. Unfunded commitments to purchase investments were $111,265 thousand$484.9 million and $135,054 thousand$306.2 million at September 30, 20172020 and December 31, 2016,2019, respectively.

Horace Mann Educators Corporation26Quarterly Report on Form 10-Q


Note 9NOTE 10 - Segment Information


The Company conducts and manages its business through four5 segments. See Note 1 for a description of the Company's reporting segments that changed effective in the third quarter of 2019. The three4 operating segments, representing the major lines of insurance business, are: Property and Casualty primarily(primarily personal lines automobile and homeownersproperty insurance products;products), the newly created Supplemental (primarily heart, cancer, accident and limited short-term supplemental disability insurance coverages), Retirement primarily(primarily tax-qualified fixed and variable annuities;annuities) and Life life insurance.(life insurance). The Company does not allocate the impact of corporate-level transactions to these operating segments, consistent with the basis for management’smanagement's evaluation of the results of those segments, but classifies those items in the fourthfifth segment, Corporate and Other. In addition to ongoing transactions such as corporate debt service, net realized investment gains and losses(losses) and certain public company expenses, such items also have included corporate debt retirement costs/gains,costs, when applicable. Summarized financial information for these segments is as follows:
($ in thousands)Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Insurance premiums and contract charges earned
Property and Casualty$166,070 $170,483 $488,756 $512,626 
Supplemental (1)
32,480 32,921 98,772 32,921 
Retirement7,389 6,624 21,486 22,133 
Life29,414 29,653 88,035 89,882 
Total$235,353 $239,681 $697,049 $657,562 
Net investment income
Property and Casualty$13,632 $10,726 $30,250 $33,587 
Supplemental (1)
4,321 3,691 11,876 3,691 
Retirement58,115 60,770 166,684 188,193 
Life18,244 18,453 49,432 54,829 
Corporate and Other(30)0 (142)(37)
Intersegment eliminations(564)(569)(1,697)(934)
Total$93,718 $93,071 $256,403 $279,329 
Net income (loss)
Property and Casualty$15,810 $14,194 $53,669 $34,347 
Supplemental (1)
10,546 6,943 30,562 6,943 
Retirement7,792 5,915 16,578 (6,979)
Life4,306 5,101 6,869 13,617 
Corporate and Other(1,980)(6,699)(22,154)103,514 
Total$36,474 $25,454 $85,524 $151,442 
($ in thousands)September 30, 2020December 31, 2019
Assets
Property and Casualty$1,354,685 $1,327,099 
Supplemental828,760 747,602 
Retirement8,609,262 8,330,127 
Life2,108,067 1,964,993 
Corporate and Other167,697 172,955 
Intersegment eliminations(65,083)(64,072)
Total$13,003,388 $12,478,704 
($ in thousands) Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Insurance premiums and contract charges earned        
Property and Casualty $163,209
 $155,727
 $481,987
 $461,520
Retirement 7,393
 6,448
 20,753
 18,614
Life 28,333
 28,875
 87,635
 84,726
Total $198,935
 $191,050
 $590,375
 $564,860
         
Net investment income        
Property and Casualty $9,167
 $10,018
 $26,457
 $28,997
Retirement 64,340
 66,174
 192,921
 186,950
Life 18,999
 18,852
 56,215
 55,338
Corporate and Other 17
 15
 47
 44
Intersegment eliminations (203) (212) (615) (644)
Total $92,320
 $94,847
 $275,025
 $270,685
         
Net income (loss)        
Property and Casualty $13,407
 $6,715
 $2,186
 $16,047
Retirement 13,603
 15,732
 36,933
 39,348
Life 4,788
 4,583
 14,283
 13,072
Corporate and Other (5,247) (107) (9,272) (4,525)
Total $26,551
 $26,923
 $44,130
 $63,942
(1)    Acquired on July 1, 2019. The nine month comparison is not meaningful.

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


Horace Mann Educators Corporation27Quarterly Report on Form 10-Q


NOTE 11 - Accumulated Other Comprehensive Income (Loss)
AOCI represents the accumulated change in shareholders’ equity from transactions and other events and circumstances from non-shareholder sources. For the Company, AOCI includes the after tax change in net unrealized investment gains (losses) on fixed maturity securities and the after tax change in net funded status of benefit plans for the periods as shown in the Consolidated Statements of Changes in Shareholders’ Equity. The following table reconciles these components.
($ in thousands)
Net Unrealized Investment
 Gains (Losses)
 on
Securities (1)(2)
Net Funded Status of
Benefit Plans (1)
Total (1)
Beginning balance, July 1, 2020$279,129 $(10,767)$268,362 
Other comprehensive income (loss) before reclassifications54,312 0 54,312 
Amounts reclassified from AOCI(5,244)0 (5,244)
Net current period other comprehensive income (loss)49,068 0 49,068 
Ending balance, September 30, 2020$328,197 $(10,767)$317,430 
Beginning balance, January 1, 2020$230,448 $(10,767)$219,681 
Other comprehensive income (loss) before reclassifications97,311 0 97,311 
Amounts reclassified from AOCI438 0 438 
Net current period other comprehensive income (loss)97,749 0 97,749 
Ending balance, September 30, 2020$328,197 $(10,767)$317,430 
(1)All amounts are net of tax.
(2)The pretax amounts reclassified from AOCI, $6.6 million and $(0.6) million, are included in Net investment gains (losses) and the related income tax expenses, $1.4 million and $(0.1) million, are included in income tax expense in the Consolidated Statements of Operations for the three and nine month periods ended September 30, 2020, respectively.
($ in thousands)
Net Unrealized Investment
Gains (Losses)
on
Securities (1)(2)
Net Funded Status of
Benefit Plans (1)
Total (1)
Beginning balance, July 1, 2019$203,077 $(12,185)$190,892 
Other comprehensive income (loss) before reclassifications64,577 0 64,577 
Amounts reclassified from AOCI(1,273)0 (1,273)
Net current period other comprehensive income (loss)63,304 0 63,304 
Ending balance, September 30, 2019$266,381 $(12,185)$254,196 
Beginning balance, January 1, 2019$96,941 $(12,185)$84,756 
Other comprehensive income (loss) before reclassifications292,043 0 292,043 
Amounts reclassified from AOCI(122,603)0 (122,603)
Net current period other comprehensive income (loss)169,440 0 169,440 
Ending balance, September 30, 2019$266,381 $(12,185)$254,196 
(1)    All amounts are net of tax.
(2)    The pretax amounts reclassified from AOCI, $1.6 million and $155.2 million, are included in Net investment gains (losses) and the related income tax expenses, $0.3 million and $32.6 million, are included in Income tax expense in the Consolidated Statements of Operations for the three and nine month periods ended September 30, 2019, respectively.

Comparative information for elements that are not required to be reclassified in their entirety to net income in the same reporting period is disclosed in Note 2.
Horace Mann Educators Corporation28Quarterly Report on Form 10-Q


MANAGEMENT’S DISCUSSION AND ANALYSIS OFNOTE 12 - Supplemental Consolidated Cash and Cash Flow Information
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)
($ in thousands)September 30,December 31,
20202019
Cash$64,778 $25,206 
Restricted cash697 302 
Total cash and restricted cash shown in the Consolidated Balance Sheets$65,475 $25,508 
($ in thousands)Nine Months Ended
September 30,
20202019
Cash paid during the nine months for:
Interest$9,258 $6,948 
Income taxes18,456 12,696 
Non-cash investing activities include $2.1 billion of investments transferred to a reinsurer as consideration paid during the second quarter of 2019 in connection with the Company's reinsurance of a $2.9 billion block of in force fixed and variable annuity business. See Note 5 for further information.
Non-cash investing activities in respect to modifications or exchanges of fixed maturity securities as well as paid-in-kind activity for policy loans were insignificant for the three and nine months ended September 30, 2020 and 2019, respectively.
ITEM 2.IManagement's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
(Dollars$ in millions, except per share data)

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

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

Forward-looking Information
Statements made in the following discussion that are not historical in nature are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to known and unknown risks, uncertainties and other factors. Horace Mann Educators Corporation ("HMEC";(referred to in Part I - Items 2 - 4 and together with its subsidiaries,Part II of this report as "we", "our", "us", the "Company", "Horace Mann" or "Horace Mann""HMEC") is an insurance holding company. Horace Mann isWe are not under any obligation to (and expressly disclaimsdisclaim any such obligation to) update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. It is important to note that the Company’sour actual results could differ materially from those projected in forward-looking statements due to a number of risks and uncertainties inherent in the Company’sour business. For additional information regarding risks and uncertainties, see “Item 1A. Risk Factors”See Part II - Item 1A in this Quarterly Report on Form 10-Q andas well as in the Company’sPart I - Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2016. That discussion includes factors such as:2019 for additional information regarding risks and uncertainties.
Horace Mann Educators Corporation29Quarterly Report on Form 10-Q


Introduction
The impact that a prolonged economic recession may have on the Company’s investment portfolio; volumepurpose of new business for automobile, homeowners, retirement and life products; policy renewal rates; and additional annuity contract deposit receipts.
Fluctuations in the fair value of securities in the Company’s investment portfolio and the related after tax effect on the Company’s shareholders’ equity and total capital through either realized or unrealized investment losses.
Prevailing low interest rate levels, including the impact of interest rates on (1) the Company’s ability to maintain appropriate interest rate spreads over minimum fixed rates guaranteed in the Company’s annuity and life products, (2) the book yield of the Company’s investment portfolio, (3) unrealized gains and losses in the Company’s investment portfolio and the related after tax effect on the Company’s shareholders’ equity and total capital, (4) amortization of deferred policy acquisition costs and (5) capital levels of the Company’s life insurance subsidiaries.
The frequency and severity of events such as hurricanes, storms, earthquakes and wildfires, and the ability of the Companythis MD&A is to provide accurate estimatesan understanding of ultimate claim costsour consolidated results of operations and financial condition. This MD&A should be read in its consolidated financial statements.conjunction with the Consolidated Financial Statements and Notes thereto contained in Part I - Item 1 of this report.
The Company’s risk exposure to catastrophe-prone areas. Based on full year 2016 PropertyHMEC is an insurance holding company, and Casualty direct earned premiums, the Company’s ten largest states represented 57% of the segment total. Included in this top ten group are certain states which are considered more prone to catastrophe occurrences: California, North Carolina, Texas, South Carolina, Florida and Louisiana.
The ability of the Company to maintain a favorable catastrophe reinsurance program considering both availability and cost; and the collectibility of reinsurance receivables.
Adverse changes in market appreciation, interest spreads, business persistency and policyholder mortality and morbidity rates and the resulting impact on both estimated reserves and the amortization of deferred policy acquisition costs.
The Company’s ability to refinance outstanding indebtedness or repurchase shares of the Company’s common stock.
The Company’s ability to (1) develop and expand its marketing operations, including agents and other points of distribution, (2) maintain and secure access to educators, school administrators, principals and school business officials; and (3) profitably expand its Property and Casualty business in highly competitive environments.
The effects of economic forces and other issues affecting the educator market including, but not limited to, federal, state and local budget deficits and cut-backs and adverse changes in state and local tax revenues. The effects of these forces can include, among others, teacher layoffs and early retirements, as well as individual concerns regarding employment and economic uncertainty.


Changes in federal and state laws and regulations, which affect the relative tax and other advantages of the Company’s life and annuity products to customers, including, but not limited to, changes in IRS regulations governing Section 403(b) plans.
Changes in public employee retirement programs as a result of federal and/or state level pension reform initiatives.
Changes in federal and state laws and regulations, which affect the relative tax advantage of certain investments or which affect the ability of debt issuers to declare bankruptcy or restructure debt.
The Company’s ability to effectively implement new or enhanced information technology systems and applications.
Changes in Cybersecurity regulations as a result of state level requirements.

Executive Summary
Throughthrough its subsidiaries, HMECit markets and underwrites personal lines of property and casualty insurance annuitiesproducts, supplemental insurance products, retirement products, and life insurance products in the U.S. The Company markets itsUnited 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 June 30, 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 September 2020, approximately 20% of our employees have returned to work in one of our office locations. The majority of our employees continue to work remotely. The return to office plans are being guided by data from the Center for Disease Control. We are limiting office occupancy to no more than 50% of pre-COVID-19 levels to enable effective social distancing for some time. We have also implemented other prevention strategies to reduce the potential transmission of COVID-19, such as requiring face masks in common office areas.
Taking into account the 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. As the country entered the 2020-2021 school year facing continued pandemic-related challenges, educators have largely remained employed, although they may be even busier than before, as many are being asked to devote time to both in-person teaching as well as remote learning 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 using virtual tools that can allow them to reach current and potential educator customers when face-to-face interactions are not possible. We are implementing a variety of new and modified forums to provide access to the financial solutions we offer educators. However, growth in new sales has slowed since the pandemic began, particularly sales generated from in-person events at schools. This may be exacerbated if public school systems face budget constraints due to the economic impacts of the pandemic and/or access to "in school" events remains restricted.
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.
Horace Mann Educators Corporation30Quarterly Report on Form 10-Q


In addition, over the past several years, we proactively de-risked our portfolio in anticipation of an economic downturn and believe we are well positioned for the current dislocation in the markets. Although we have experienced the impacts of market volatility on our fixed maturity security and limited partnership interest valuations during 2020, the investment portfolio is well diversified, is 91.7% investment grade-rated and has an average rating of A+. The annuity reinsurance agreement, entered into in the second quarter of 2019, which reinsured a $2.2 billion block of in force fixed annuities with a minimum crediting rate of 4.5%, helps mitigate the risk of not being able to generate spreads on the annuity business that meet our return targets. We believe our capital and reserves are adequate to address any unusual loss patterns resulting from COVID-19.
Amid rapidly changing dynamics, we are continuing to evaluate all aspects of our operations and making necessary adjustments to manage our business. Ultimately, the extent of the impact will depend on how long it takes for the economy to return to some degree of normality. To date, these steps have been effective and have maintained business continuity. Based on assumptions that presume a return to a normal operating environment within twelve months, capital and liquidity are expected to remain at or near target levels. We believe we are financially strong despite the potential impact of COVID-19 and continued to produce solid operating results in the third quarter of 2020.
Consolidated Financial Highlights
(All comparisons vs. same periods in 2019, unless noted otherwise)
($ in millions)Three Months Ended
September 30,		2020-2019Nine Months Ended
September 30,		2020-2019
20202019Change %20202019Change %
Total revenues$337.1 $336.6 0.1 %$958.1 $1,105.4 -13.3 %
Net income36.5 25.4 43.7 %85.5 151.4 -43.5 %
Per diluted share:
Net income0.87 0.60 45.0 %2.03 3.61 -43.8 %
Net investment gains (losses), after tax0.05 (0.04)N.M.(0.24)2.84 N.M.
Book value per share$41.45 $38.30 8.2 %
Net income return on equity - last
twelve months
7.4 %9.2 %
Net income return on equity - annualized6.9 %14.1 %

For the three month periodand nine months ended September 30, 2017, the Company’s2020, net income increased $11.1 million and decreased $65.9 million, respectively over the prior year periods. The three month increase was primarily due to net investment gains and lower operating expenses across all segments. The nine month decrease was primarily due to recognition of $26.5a $106.9 million after tax realized investment gain in the second quarter of 2019 with respect to the transfer of investments as consideration in connection with the annuity reinsurance transaction partially offset by favorable automobile loss experience in the current year period.
Horace Mann Educators Corporation31Quarterly Report on Form 10-Q


Consolidated Results of Operations
(All comparisons vs. same periods in 2019, unless noted otherwise)
($ in millions)Three Months Ended
September 30,		2020-2019Nine Months Ended
September 30,		2020-2019
20202019Change %20202019Change %
Insurance premiums and contract
charges earned
$235.3 $239.7 -1.8 %$697.0 $657.6 6.0 %
Net investment income93.7 93.0 0.8 %256.4 279.3 -8.2 %
Net investment gains (losses)2.5 (2.1)N.M.(12.8)151.6 N.M.
Other income5.6 6.0 -6.7 %17.5 16.9 3.6 %
Total revenues337.1 336.6 0.1 %958.1 1,105.4 -13.3 %
Benefits, claims and settlement expenses151.4 154.2 -1.8 %433.1 446.3 -3.0 %
Interest credited51.1 53.6 -4.7 %153.3 160.1 -4.2 %
Operating expenses57.9 63.6 -9.0 %173.1 175.9 -1.6 %
DAC unlocking and amortization expense24.6 26.3 -6.5 %75.0 82.9 -9.5 %
Intangible asset amortization expense3.5 3.8 -7.9 %10.9 4.9 122.4 %
Interest expense3.5 4.6 -23.9 %11.7 11.2 4.5 %
Other expense - goodwill impairment— — — — 28.0 N.M.
Total benefits, losses and expenses292.0 306.1 -4.6 %857.1 909.3 -5.7 %
Income before income taxes45.1 30.5 47.9 %101.0 196.1 -48.5 %
Income tax expense8.6 5.1 68.6 %15.5 44.7 -65.3 %
Net income$36.5 $25.4 43.7 %$85.5 $151.4 -43.5 %
Insurance Premiums and Contract Charges Earned
For the three and nine months ended September 30, 2020, insurance premiums and contract charges earned decreased $0.4$4.4 million comparedand increased $39.4 million, respectively. The decrease for the three months was primarily due to lower premiums earned by Property and Casualty. The increase for the nine months was primarily due to the addition of earned premiums from the new Supplemental segment partially offset by recognition of $10.7 million of automobile premium credits to our policyholders related to reduced driving activity due to COVID-19.
Net Investment Income
Excluding accreted investment income on the deposit asset on reinsurance, for the three and nine months ended September 30, 2020, net investment income was flat for the three months and decreased $48.0 million for the nine months. 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. Investment yields continue to be impacted by the low interest rate environment of recent years. The annualized investment yield on the portfolio excluding limited partnership interests* was as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Investment yield, excluding limited partnership interests,
pretax - annualized*
4.2%4.6%4.4%4.7%
Investment yield, excluding limited partnership interests,
after tax - annualized*
3.3%3.7%3.5%3.8%

During the three and nine months ended September 30, 2020, we continued to identify and purchase investments, including funding a modest level of limited partnership interests, with attractive risk-adjusted yields relative to market conditions without venturing into asset classes or individual securities that would be inconsistent with our overall conservative investment guidelines.
Horace Mann Educators Corporation32Quarterly Report on Form 10-Q


Net Investment Gains (Losses)
For the three and nine months ended September 30, 2020, net investment gains increased $4.6 million and decreased $164.4 million, respectively. The increase for the three months can be seen in the table below. The decrease for the nine months is primarily 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
September 30,		Nine Months Ended
September 30,
2020201920202019
Net other-than-temporary impairment losses
on securities recognized in net income
$(1.1)$— $(5.3)$(0.3)
Sales and other, net3.7 0.6 8.6 147.5 
Change in fair value - equity securities2.3 1.1 (5.6)8.0 
Change in fair value and gains (losses) realized
on settlements - derivatives
(2.4)(3.8)(10.5)(3.6)
Net investment gains (losses)$2.5 $(2.1)$(12.8)$151.6 

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 nine months ended September 30, 2020, other income was comparable to the prior year period including an increase in Propertyperiods.
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 periodand nine months ended September 30, 2017, Property2020, benefits, claims and Casualty net income increasedsettlement expenses decreased $2.8 million and $13.2 million, respectively, driven primarily by lower benefits in the Supplemental segment for the three months. For the nine months, favorable automobile loss experience as a result of lower frequency of losses related to $13.4 millionreduced driving activity due to COVID-19, is partially offset by higher catastrophe losses and nine months of benefits and settlement expenses from the new Supplemental segment compared to $6.7 millionthree months from Supplemental in the prior year period.
Interest Credited
For the three and nine months ended September 30, 2020, interest credited decreased $2.5 million and $6.8 million, respectively, driven primarily by a lower interest rate and a lower level of Federal Home Loan Bank (FHLB) funding agreements. Under the deposit method of accounting, the interest credited on the reinsured annuity block continues to be reported. The Propertyaverage deferred annuity credited rate, excluding the reinsured annuity block was 2.5% at September 30, 2020 and Casualty combined ratio of 95.8% improved 5.7 points compared toSeptember 30, 2019, respectively.
Operating Expenses
For the prior year period. These improvements werethree and nine months ended September 30, 2020, operating expenses decreased $5.7 million and $2.8 million, respectively, primarily due to an improved underlying auto loss ratio*, reflecting the impact of rate actions and continued profitabilityexpense reduction initiatives that began in 2019 as well as a strong underlying property loss ratiolower level of expenses realized in 2020 due to COVID-19. The nine month decrease was partially offset by the inclusion of $29.4 million of operating expenses from Supplemental operations compared to $10.4 million of operating expenses in the prior year.
Deferred Acquisition Costs (DAC) Unlocking and Amortization Expense
For the three months ended September 30, 2020, DAC unlocking and amortization expense decreased $1.7 million primarily due to $0.7 million of favorable DAC unlocking in Retirement for the current quarter (primarily market performance) compared to no DAC unlocking in the prior year quarter. For the nine months ended September 30, 2020, DAC unlocking and amortization expense decreased $7.9 million primarily due to accelerated amortization of the DAC asset associated with the reinsured annuity block that occurred in the second quarter of 2019. For Life, DAC unlocking resulted in an immaterial change to amortization for the three and nine months ended September 30, 2020.
Horace Mann Educators Corporation33Quarterly Report on Form 10-Q


Intangible Asset Amortization Expense
For the three and nine months ended September 30, 2020, intangible asset amortization expense decreased $0.3 million and increased $6.0 million, respectively. The increase for the nine months was primarily due to the acquisition of NTA Life Enterprises, LLC (NTA) on July 1, 2019.
Interest Expense
For the three and nine months ended September 30, 2020, interest expense decreased $1.1 million for the three months due to lower expenses. Prior years' reserves continue to develop favorably; however,interest rates on our senior revolving credit facility and increased $0.5 million for the favorable developmentnine months as we utilized our senior revolving credit facility in the third quarter of $0.52019 to partially fund the acquisition of NTA on July 1, 2019.
Other Expense - Goodwill Impairment
For the nine months ended September 30, 2019, other expense represented a goodwill impairment charge in Retirement resulting from the annuity reinsurance transaction.
Income Tax Expense
The effective income tax rate on our pretax income, including net investment gains (losses), was 15.3% and 22.7% for the nine months ended September 30, 2020 and 2019, respectively. Income from investments in tax-advantaged securities reduced the effective income tax rates by 4.0 and 1.8 percentage points for the nine months ended September 30, 2020 and 2019, respectively. The goodwill impairment charge in the Retirement segment increased the effective income tax rate by 2.8 percentage points at September 30, 2019.
On March 27, 2020, H.R. 748, 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 three months ended March 31, 2020 includes a benefit of $2.8 million pretax(that reduced the effective income tax rate by 2.8 percentage points) to reflect a net operating loss carryback to taxable years for which the corporate rate was $0.235% as compared to the current corporate rate of 21%.
We record liabilities for uncertain tax filing positions where it is more likely than not that the position will not be sustainable upon audit by taxing authorities. These liabilities are reevaluated routinely and are adjusted appropriately based on changes in facts or law. We have no unrecorded liabilities from uncertain tax filing positions.
At September 30, 2020, 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 the Company’s results continue to be highly uncertain and outside the Company’s control. The scope, duration and magnitude of the direct and indirect effects of COVID-19 continue to evolve in ways that are difficult or impossible to anticipate. For additional information on the risks posed by COVID-19, see “Our business may be adversely affected by the recent COVID-19 outbreak” included in “Part II—Item 1A—Risk Factors” in this Quarterly Report on Form 10-Q.
At the time of issuance of this Quarterly Report on Form 10-Q, we estimate that 2020 full year net income will be within a range of $2.95 to $3.15 per diluted share. The increase in the range from the Outlook for 2020 we discussed in the Quarterly Report on Form 10-Q for the prior quarter ended June 30, 2020 anticipates an increase in the Supplemental segment results as discussed below.
Horace Mann Educators Corporation34Quarterly Report on Form 10-Q


Property and Casualty
Net written premiums for 2020 are expected to be below 2019 levels due lower levels of new business resulting from the pandemic and the recognition of $10.7 million pretaxof COVID-19 related premium credits. Retention remains stable and we anticipate rates will remain stable in the current environment. The expense ratio is expected to be slightly lower than the amount2019 expense ratio of 26.9 points.
Lower levels of automobile loss frequency resulting from temporary changes in policyholder driving patterns due to COVID-19 continued in the third quarter. Frequency was most favorably impacted in the month of April, with May and June levels rising sequentially. Third quarter frequency was approximately 20% below the prior year period. While we anticipate frequency to continue to moderate, we project it will be lower than 2019 levels for the remainder of the year partially offset by an increase in severity. A 10% drop in automobile frequency represents approximately $2 million in pretax earnings per month, excluding the potential for higher severity.
We experienced an elevated level of catastrophes in the third quarter and as a result, our full year ago. Catastrophe activityguidance anticipates catastrophe losses of 13 points to 14 points.
In connection with the emergence of PG&E Corporation and Pacific Gas and Electric Company (together, PG&E) from bankruptcy on July 1, 2020, in the third quarter of 2017 totaled $8.6 million pretax compared to $8.4 million pretax in2020, the prior year period. Losses related to Hurricane Harvey were $5.0 million pretax and losses related to Hurricane Irma were $2.5 million pretax. The remainder, $1.2 million pretax, of catastrophe losses related to four additional events.

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

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 continues 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 expenses offset by a $1.1 million pretax increase in contract charges.

For the three month period ended September 30, 2017, Life net income of $4.8 million increased $0.2 million compared to the prior year period primarily due to lower operating expenses. Life insurance premiums 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, as well as elevated non-catastrophe weather-related losses that occurred in the first half of the year.

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;Company recognized favorable prior years' reserve development was $2.2of approximately $5.2 million, pretax less thanand net of reinsurance, along with the prior year period.

On an underlying basis, the nine month 2017 auto loss ratioreturn of 77.0% increased 0.5 points compared to the prior year period. For property, the underlying nine month loss ratioreinsurance reinstatement premiums of 49.7% increased 6.1 points compared to the prior year period and wasapproximately $3.5 million, largely related to the impact of higher non-catastrophe weather-related losses that occurred2018 Camp Fire in California.
As a result, the first half of the year. The expenseProperty and Casualty full-year combined ratio is expected to be 91%-93%. We continue to anticipate net income for Property and Casualty to be in the range of 26.7% was slightly$70 million to $75 million.
Supplemental
Supplemental is anticipated to generate a long-term pretax profit margin in the low to mid 20% range and net investment income should continue to benefit from portfolio repositioning. Supplemental results reflect favorable trends in reserves and short-term benefit from changes in policyholder behavior due to COVID-19. Because of these factors, net income for Supplemental is now anticipated to be in the range of $37 million to $39 million. New sales are being negatively impacted by lack of access to schools due to COVID-19, delaying the growth of this segment.
Retirement
Retirement net investment income is reflecting further spread compression with rates on new investments below the prior year period.

Total Propertyaverage portfolio earned rate, lower than anticipated returns on limited partnership interests, as well as the impact of lower invested assets as a result of the annuity reinsurance transaction and Casualty written premiumsuse of $498.0 million increased 4.6% comparedcapital to the prior year period.purchase NTA. Market volatility may continue to impact DAC amortization and asset-based fees. 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, Retirementimpact of lower net investment income of $36.9 million decreased $2.4 million comparedis anticipated 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,be partially offset by a $2.2reduced level of operating expenses. As a result, we continue to expect net income for Retirement to be in the range of $22 million pretax increaseto $24 million.
Life
We continue to expect Life to generate net income between $10 million and $12 million, reflecting modeled mortality costs. Sales continue to be negatively impacted by the pre-vaccine environment due to the high level of customer interaction required for sales of more complex products like indexed universal life and larger single premium sales.
As described in contract charges earnedCritical Accounting Estimates, certain of our significant accounting measurements require the use of estimates and a $0.9 million pretax increaseassumptions. As additional information becomes available, adjustments may be required. Those adjustments are charged or credited to net income for the period 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 pointswhich the adjustments are made and may impact actual results compared to our estimates above. Additionally, see Forward-looking Information and Part II - Item 1A in this Quarterly Report on Form 10-Q as well as Part I - Items 1 and 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 concerning other important factors that could impact actual results. We believe that a year ago. Total Retirement annuity assets under managementprojection 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 is not appropriate on a forward-looking basis because it is not possible to provide a valid forecast of $14.3 million increased $1.2 million comparednet investment gains (losses), which can vary substantially from one period to the prior year period. Life insurance premiumsanother 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.may have a significant impact on net income.

Horace Mann Educators Corporation35Quarterly Report on Form 10-Q
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 managementus 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'sour 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'sour 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'sour accounting principles as applied in itsour financial reporting. The discussions generally included such matters as the consistency of the Company'sour accounting policies and their application, and the clarity and completeness of the Company'sour consolidated financial statements, which include related disclosures. ForInformation regarding our accounting policies pertaining to these topics is located in the Company, areas mostNotes 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 ofimpairments

•Evaluation of goodwill and intangible assets for impairment

investments, goodwill,•Valuation of supplemental, annuity and life 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 certain investment contract and policy benefits, deferred taxes and valuationreserves
•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 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 “Notesthe Notes to Consolidated Financial Statements”Statements in the Company’sour 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’sManagement'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 ChargesCasualty
•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 Corporation36Quarterly 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 ForceCasualty
(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 periodand nine months ended September 30, 2017,2020, net income reflected the Company’sfollowing factors:
Three months ended:
•Claims and claim expenses incurred are flat as a $20.1 million increase in catastrophe losses was offset by lower automobile loss frequency and a $5.2 million subrogation recovery
•Lower operating expenses due to expense reduction initiatives and COVID-19
•Higher net investment income, driven by favorable returns on limited partnership interests
Nine months ended:
•Written premiums* and earned premiums writtenreduced by $10.7 million of COVID-19 related premium credits
•10.4 points of improvement in the Property and contract depositsCasualty underlying loss ratio* due to lower automobile loss frequency
•Catastrophe losses increased by 6.7 points
•A one-time tax benefit of $318.4$2.8 million decreased $33.2 million, or 9.4%, primarilyin the first quarter of 2020 as a result of the CARES Act
















hmn-20200930_g1.jpg
Horace Mann Educators Corporation37Quarterly Report on Form 10-Q


The following table provides certain financial information for Property and Casualty for the periods indicated.
($ in millions, unless otherwise indicated)Three Months Ended
September 30,		2020-2019Nine Months Ended
September 30,		2020-2019
20202019Change20202019Change
Financial Data:
Written premiums*:
Automobile$109.5 $118.8 -7.8 %$315.6 $350.2 -9.9 %
Property and other63.3 63.7 -0.6 %166.9 168.3 -0.8 %
Total premiums written172.8 182.5 -5.3 %482.5 518.5 -6.9 %
Change in unearned insurance premiums(6.8)(12.0)43.3 %6.2 (5.9)N.M.
Total insurance premiums earned166.0 170.5 -2.6 %488.7 512.6 -4.7 %
Incurred claims and claims expenses:
Claims occurring in the current year125.6 122.5 2.5 %340.2 375.7 -9.4 %
Prior years' reserve development
7.2 3.5 105.7 %9.2 7.5 22.7 %
Total claims and claim expenses incurred118.4 119.0 -0.5 %331.0 368.2 -10.1 %
Operating expenses, including DAC amortization41.9 45.0 -6.9 %126.0 136.9 -8.0 %
Underwriting gain5.7 6.5 -12.3 %31.7 7.5 N.M.
Net investment income13.7 10.7 28.0 %30.3 33.6 -9.8 %
Income before income taxes19.8 17.4 13.8 %63.7 41.8 52.4 %
Net income/core earnings*15.8 14.2 11.3 %53.7 34.3 56.6 %
Operating Statistics:
Automobile
Loss and loss adjustment expense
ratio
57.6 %65.8 %-8.2 pts59.1 %70.2 %-11.1 pts
Expense ratio25.7 %26.6 %-0.9 pts26.2 %26.8 %-0.6 pts
Combined ratio:83.3 %92.4 %-9.1 pts85.3 %97.0 %-11.7 pts
Prior years' reserve development-0.9 %-3.0 %2.1 pts-0.6 %-1.6 %1.0 pts
Catastrophe losses1.7 %2.1 %-0.4 pts1.6 %1.6 %— pts
Underlying combined ratio*82.5 %93.3 %-10.8 pts84.3 %97.0 %-12.7 pts
Property
Loss and loss adjustment expense
ratio
97.3 %78.2 %19.1 pts84.5 %75.3 %9.2 pts
Expense ratio24.4 %26.1 %-1.7 pts25.1 %26.7 %-1.6 pts
Combined ratio:121.7 %104.3 %17.4 pts109.6 %102.0 %7.6 pts
Prior years' reserve development-10.8 %— %-10.8 pts-4.3 %-1.2 %-3.1 pts
Catastrophe losses57.3 %22.6 %34.7 pts43.9 %25.9 %18.0 pts
Underlying combined ratio*75.2 %81.7 %-6.5 pts70.0 %77.3 %-7.3 pts
Risks in force (in thousands)
Automobile (1)
406 441 -7.9 %
Property187 196 -4.6 %
Total593 637 -6.9 %
(1) Includes assumed risks in force of 4.
Horace Mann Educators Corporation38Quarterly Report on Form 10-Q


As a result of the emergence of PG&E Corporation and Pacific Gas and Electric Company (together, PG&E) from bankruptcy on July 1, 2020, in the third quarter of 2020, we recognized favorable prior years' reserve development of $5.2 million, pretax net of reinsurance, as well as return of reinsurance reinstatement premiums of $3.5 million, for a total of $8.7 million, largely related to the 2018 Camp Fire in California. Results reported in 2018 reflected gross losses of $150.0 million and net losses after reinsurance of $37.9 million pretax from the 2018 Camp Fire.
On a reported basis, the 11.7 points of improvement in the automobile combined ratio for the nine months ended September 30, 2020 was mainly attributable to a 12.1 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. The average decline in annuity deposits due to lower sales of single premium annuity products. The Company’s premiums and contract charges earned increased $7.9 million, or 4.1%,auto frequency experienced in the third quarter was approximately 20% compared to the prior year period,quarter. The reported property combined ratio increased 7.6 points for the nine months ended September 30, 2020 due to a 18.0 point increase in catastrophe losses. During the nine months ended September 30, 2020, the underlying property loss ratio* improved 5.7 points, primarily due to increases in average premium per policy for both homeownersthe aforementioned PG&E subrogation recovery.
For the three 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,ended September 30, 2020, total written premiums* decreased $9.7 million and $36.0 million, respectively, primarily due to increasesa reduction in averageautomobile written premium per policy for both homeowners and automobile.premiums*. For 2017, the Company’s full yearremainder of 2020, we anticipate the rate plan anticipates low-doubleenvironment will be relatively stable, resulting in low-single digit average rate increases for automobile and mid-single digit average rate increases for homeowners (including states with no rate actionsactions) for both automobile and homeowners);property for full-year 2020; average approved rate changes duringfor the first nine months of 2017ended 2020 were 8.7%0.5% for automobile and 4.3%1.1% for homeowners.property. Growth in sales* has slowed due to COVID-19.


For the three and nine months ended September 30, 2020, automobile written premiums* decreased $9.3 million and $34.6 million, respectively, due to lower automobile risks in force and a lower level of rate increases implemented as well as COVID-19 related premium credits equal to 15% of two months of automobile premiums. While the number of automobile risks in force has declined, the average written premium per risk and average earned premium per risk remained relatively stable for the nine months ended September 30, 2020. Based on policiesrisks in force, the current year automobile 12 month retention rate for new and renewal policiesrisks was 83.0% compared80.9% which was comparable to 83.5% at September 30, 2016, with the decrease due to recent rate and underwriting actions. The currenta 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 policiesrisks has been stable relative to overall automobile risks as educators represented approximately 85%85.5% of the automobile policiesrisks in force atas of September 30, 2017,2020, December 31, 20162019 and September 30, 2016.2019, respectively.
Homeowners premiums written increased 1.7%, or $2.7 million, compared toFor the firstthree and nine months of 2016.ended September 30, 2020, property and other written premiums* decreased slightly. While the number of homeowners policiesproperty risks in force has declined, the average written premium per policyrisk and average earned premium per policyrisk increased approximately 2.0%3.2% and 3.2%5.1%, respectively, infor the first nine months of 2017 comparedended 2020. Based on risks in force, the property 12 month retention rate for new and renewal risks decreased to the prior year period.86.7% from 87.3% at September 30, 2020 and 2019, respectively. The number of educator policiesrisks has been stable relative to overall property risks as educators represented approximately 82%82.3%, 82.5% and 82.1% of the homeowners policiesproperty risks in force atas of September 30, 2017,2020, December 31, 20162019 and September 30, 2016. The number of educator policies and total policies has been, and may2019, 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 itsour risk exposure in hurricane-prone areas, as well as othercatastrophe-prone areas of the country. Such actions could include, but are not limited to, non-renewal of homeownersproperty policies, restricted agent geographic placement, limitations on agent new business sales, further tightening of underwriting standards and increased utilization of third-party vendor products.
Horace Mann Educators Corporation39Quarterly Report on Form 10-Q
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.Supplemental
Total annuity accumulated value on deposit of $6.6 billion at September 30, 2017 increased 4.9% compared to a year earlier, reflecting the increase from new deposits received, market appreciation as well as favorable retention. Accumulated value retentionThe following table provides certain information for Supplemental for the variable annuity option was 89.7%periods indicated.
($ in millions, unless otherwise indicated)Three Months Ended
September 30,		2020-2019Nine Months Ended
September 30,		2020-2019
20202019Change20202019Change
Financial Data:
Insurance premiums and contract deposits*$32.0 $32.7 -2.1 %$98.3 $32.7 N/A
Insurance premiums and contract charges earned32.5 32.9 -1.2 %98.8 32.9 N/A
Net investment income4.3 3.7 16.2 %11.8 3.7 N/A
Benefits and settlement expenses10.5 14.7 -28.6 %33.5 14.7 N/A
Operating expenses (includes DAC unlocking and amortization expense)10.1 10.5 -3.8 %30.3 10.5 N/A
Intangible asset amortization expense3.1 3.2 -3.1 %9.5 3.2 N/A
Income before income taxes13.6 8.8 54.5 %39.1 8.8 N/A
Net income / core earnings*10.6 6.9 53.6 %30.6 6.9 N/A
Operating Statistics:
Supplemental insurance in force (thousands)292 297 -1.7 %
Benefits ratio (1)
32.3 %44.7 %-12.4 pts33.9 %44.7 %N/A
Operating expense ratio (2)
26.9 %28.2 %-1.3 pts26.9 %28.2 %N/A
Pretax profit margin (2)
36.3 %23.7 %12.6 pts34.7 %23.7 %N/A
Persistency90.1 %88.9 %1.2 pts
N/A - The acquisition of NTA closed on July 1, 2019.
(1)    Benefits ratio measured to earned premium.
(2)    Operating expense ratio 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) assetspretax profit margin measured to a third-party provider that occurred during the first half of 2017.total revenues.
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 yield2020, Supplemental sales* were $1.4 million and $5.8 million, respectively, reflecting significantly lower sales volume primarily due to COVID-19 as sales are dependent 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)
in-person events at schools. Persistency remains steady at 90.1%.
For the three month periodand nine months ended September 30, 2017, net realized investment losses were $3.52020, Supplemental contributed $10.6 million comparedand $30.6 million, respectively, to net realizedincome, reflecting favorable trends in reserves and some short-term benefit from changes in policyholder behavior due to COVID-19. The non-cash impact from amortization of intangible assets recognized in connection with the purchase accounting of NTA reduced pretax net income by $3.1 million and $9.5 million for the three and nine months ended September 30, 2020.
Horace Mann Educators Corporation40Quarterly Report on Form 10-Q


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

For the three and nine months ended September 30, 2020, net income increased $1.9 million and $23.5 million, respectively, reflecting the following factors:
Three months ended:
•Lower operating expenses due to expense reduction initiatives and COVID-19
•Reflecting the benefits of the annuity reinsurance transaction, the net interest margin on the retained annuity block was essentially unchanged despite lower net investment gainsincome
Nine months ended:
•Prior period results include a $28.0 million pretax goodwill impairment charge related to the annuity reinsurance transaction in the second quarter of $4.02019
•$3.6 million pretax of unfavorable DAC unlocking in the prior nine months primarily due to accelerated amortization of the DAC asset associated with the reinsured annuity block, compared to $1.3 million of favorable DAC unlocking in the current nine months due to lower investment results
•Lower levels of net investment income in 2020, reflecting lower invested asset levels resulting from the prior year period. annuity reinsurance transaction and use of capital to purchase NTA as well as lower returns on limited partnership interests








hmn-20200930_g2.jpg
Horace Mann Educators Corporation41Quarterly Report on Form 10-Q


The net realized investment lossesfollowing table provides certain information for Retirement for the periods indicated.
($ in millions, unless otherwise indicated)Three Months Ended
September 30,		2020-2019Nine Months Ended
September 30,		2020-2019
20202019Change20202019Change
Financial Data:
Contract charges earned$7.4 $6.6 12.1 %$21.5 $22.1 -2.7 %
Net investment income58.1 60.8 -4.4 %166.7 188.2 -11.4 %
Interest credited39.7 42.4 -6.4 %119.4 126.4 -5.5 %
Net interest margin without net investment gains (losses)19.4 19.5 -0.5 %50.2 64.0 -21.6 %
Net interest margin - reinsured block(1.0)(1.1)9.1 %(2.9)(2.2)-31.8 %
Mortality loss and other reserve charges1.3 0.9 44.4 %4.1 2.7 51.9 %
Operating expenses15.1 16.7 -9.6 %44.0 51.0 -13.7 %
DAC and intangible asset amortization expense, excluding DAC unlocking5.1 4.9 4.1 %15.1 15.2 -0.7 %
DAC unlocking(0.7)— N.M.(1.3)3.6 -136.1 %
Income (loss) before income taxes8.9 7.0 27.1 %19.0 (3.2)N.M.
Net income (loss)7.8 5.9 32.2 %16.6 (6.9)N.M.
Core earnings7.8 5.9 32.2 %16.6 21.1 -21.3 %
Operating Statistics:
Annuity contract deposits*
Variable$58.5 $54.6 7.1 %$168.6 $157.5 7.0 %
Fixed78.7 73.7 6.8 %198.1 187.1 5.9 %
Total137.2 128.3 6.9 %366.7 344.6 6.4 %
Single83.9 81.3 3.2 %201.9 193.0 4.6 %
Recurring53.3 47.0 13.4 %164.8 151.6 8.7 %
Total137.2 128.3 6.9 %366.7 344.6 6.4 %
Assets under administration (AUA)
Annuity assets under management (1)
4,508.7 4,215.9 6.9 %
Broker and advisory assets under administration2,124.3 2,259.4 -6.0 %
Recordkeeping assets under administration1,399.6 1,422.4 -1.6 %
Total8,032.6 7,897.7 1.7 %
Persistency
Variable annuities94.8 %94.7 %0.1 pts
Fixed annuities94.5 %93.9 %0.6 pts
Total94.6 %94.2 %0.4 pts
Annuity contracts in force (thousands)230 227 1.3 %
Fixed spread - YTD annualized (basis points)188 198 -10 bps
(1)    Amounts reported as of September 30, 2020 and September 30, 2019 exclude $660.1 million and $673.1 million, respectively, of assets under management held under modified coinsurance reinsurance

For the three month periodand nine months ended September 30, 2017 included $5.72020, total annuity contract deposits* increased $8.9 million of gross realized gains on disposal of securities offset by $3.1and $22.1 million, of gross realized losses primarily on disposal of securitiesrespectively. Variable annuity and expiration of call options during the periodfixed annuity deposits increased $11.1 million and $6.1$11.0 million, of chargesrespectively, for other-than-temporary impairment (“OTTI”) recorded primarily on fixed maturity securities in the construction sector.
For the nine month periodmonths 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,2020 as well as some equity securities.
The Company, from timeeducators continue 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 resultfind value 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,our Retirement savings products, including the ten largest sectors of the Company’s corporate bond holdings (based on fair value). Compared to December 31, 2016, credit spreads were tighter across most asset classes and U.S. Treasury rates declined, which resulted in higher net unrealized investment gains in the fixed maturity securities portfolio at September 30, 2017.

($ in millions) September 30, 2017
  
Number of
Issuers
 
Fair
Value
 
Amortized
Cost or
Cost
 
Pretax Net
Unrealized
Investment
Gain (Loss)
Fixed maturity securities  
  
  
  
Corporate bonds  
  
  
  
Banking & Finance 119
 $704.4
 $661.9
 $42.5
Insurance 56
 284.5
 255.4
 29.1
Energy (1) 58
 232.7
 217.8
 14.9
Real Estate 42
 184.6
 175.8
 8.8
Technology 34
 180.6
 172.0
 8.6
HealthCare, Pharmacy 51
 163.1
 152.3
 10.8
Utilities 42
 153.8
 134.5
 19.3
Transportation 37
 150.2
 142.8
 7.4
Telecommunications 26
 110.9
 102.6
 8.3
Food and Beverage 23
 91.1
 87.2
 3.9
All other corporates (2) 215
 565.8
 533.0
 32.8
Total corporate bonds 703
 2,821.7
 2,635.3
 186.4
Mortgage-backed securities  
  
  
  
U.S. Government and federally sponsored agencies 229
 420.4
 391.4
 29.0
Commercial (3) 125
 535.1
 531.4
 3.7
Other 28
 70.1
 69.0
 1.1
Municipal bonds (4) 378
 1,842.2
 1,669.3
 172.9
Government bonds        
U.S. 38
 671.0
 653.2
 17.8
Foreign 15
 100.2
 93.8
 6.4
Collateralized debt obligations (5) 87
 522.4
 517.4
 5.0
Asset-backed securities 101
 647.5
 633.6
 13.9
Total fixed maturity securities 1,704
 $7,630.6
 $7,194.4
 $436.2
         
Equity securities  
  
  
  
Non-redeemable preferred stocks 14
 $64.0
 $61.5
 $2.5
Common stocks 198
 74.7
 58.7
 16.0
Closed-end fund 1
 20.6
 20.0
 0.6
Total equity securities 213
 $159.3
 $140.2
 $19.1
         
Total 1,917
 $7,789.9
 $7,334.6
 $455.3
(1)At September 30, 2017, the fair value amount included $14.0 million of securities which were non-investment grade.
(2)The All other corporates category contains 18 additional industry sectors. Natural gas, broadcasting and media, consumer products, gaming, lodging and dining, retail and metal and mining represented $408.7 million of fair value at September 30, 2017, with the remaining 12 sectors each representing less than $32.7 million.
(3)At September 30, 2017, 100% were investment grade, with an overall credit rating of AA, and the positions were well diversified by property type, geography and sponsor.
(4)Holdings are geographically diversified, approximately 39% are tax-exempt and 78% are revenue bonds tied to essential services, such as mass transit, water and sewer. The overall credit quality of the municipal bond portfolio was AA- at September 30, 2017.
(5)Based on fair value, 96% of the collateralized debt obligation securities were rated investment grade by Standard and Poor’s Corporation (“S&P”) and/or Moody’s Investors Service, Inc. (“Moody’s”) at September 30, 2017.



our competitively priced variable annuities with no surrender charges.
At September 30, 2017, the Company’s diversified fixed maturity securities portfolio consisted of 2,627 investment positions, issued by 1,704 entities, and totaled approximately $7.6 billion in fair value. This portfolio was 96.0% investment grade, based on fair value, with an average quality rating of A+. The Company’s investment guidelines target single corporate issuer concentrations to 0.5% of invested assets for “AA” or “AAA” rated securities, 0.35% of invested assets for “A” or “BBB” rated securities, and 0.2% of invested assets for non-investment grade securities.
The following table presents the composition and fair value of the Company’s fixed maturity and equity securities portfolios by rating category. At September 30, 2017, 95.0% of these combined portfolios were investment grade, based on fair value, with an overall average quality rating of A+. The Company has classified the entire fixed maturity and equity securities portfolios as available for sale, which are carried at fair value.
Rating of Fixed Maturity and Equity Securities (1)

($ in millions) Percent of Portfolio    
  Fair Value September 30, 2017
  December 31, 2016 September 30, 2017 
Fair
Value
 
Amortized
Cost or Cost
Fixed maturity securities  
  
  
  
AAA 8.3% 7.4% $563.1
 $544.6
AA (2) 35.5
 37.3
 2,843.3
 2,690.2
A 23.6
 24.2
 1,845.0
 1,714.8
BBB 28.4
 27.1
 2,071.9
 1,951.0
BB 2.4
 2.4
 187.0
 181.5
B 1.0
 0.8
 64.3
 63.1
CCC or lower 0.2
 0.1
 4.9
 4.9
Not rated (3) 0.6
 0.7
 51.1
 44.3
Total fixed maturity securities 100.0% 100.0% $7,630.6
 $7,194.4
Equity securities  
  
  
  
AAA —
 —
 —
 —
AA —
 —
 —
 —
A —
 —
 —
 —
BBB 35.3% 40.2% $64.0
 $61.5
BB —
 —
 —
 —
B —
 —
 —
 —
CCC or lower —
 —
 —
 —
Not rated 64.7
 59.8
 95.3
 78.7
Total equity securities 100.0% 100.0% $159.3
 $140.2
         
Total  
  
 $7,789.9
 $7,334.6

(1)Ratings are as assigned primarily by S&P when available, with remaining ratings as assigned on an equivalent basis by Moody’s. Ratings for publicly traded securities are determined when the securities are acquired and are updated monthly to reflect any changes in ratings.
(2)At September 30, 2017, the AA rated fair value amount included $671.0 million of U.S. Government and federally sponsored agency securities and $551.4 million of mortgage- and asset-backed securities issued by U.S. Government and federally sponsored agencies.
(3)This category primarily represents private placement and municipal securities not rated by either S&P or Moody’s.

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



Benefits, Claims and Settlement Expenses
($ in millions) Three Months Ended September 30, 
Change From
Prior Year
 Nine Months Ended September 30, 
Change From
Prior Year
  2017 2016 Percent Amount 2017 2016 Percent Amount
Property and Casualty $114.9
 $116.0
 -0.9 % $(1.1) $384.9
 $347.0
 10.9% $37.9
Retirement 1.6
 1.4
 14.3 % 0.2
 4.0
 3.1
 29.0% 0.9
Life 18.4
 18.3
 0.5 % 0.1
 56.0
 53.5
 4.7% 2.5
Total $134.9
 $135.7
 -0.6 % $(0.8) $444.9
 $403.6
 10.2% $41.3
                 
Property and Casualty catastrophe losses,
included above
 $8.6
 $8.4
 2.4 % $0.2
 $58.2
 $48.4
 20.2% $9.8

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

($ in millions) Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Incurred claims and claim expenses:  
  
    
Claims occurring in the current year $115.4
 $116.7
 $387.0
 $351.3
Decrease in estimated reserves for claims
occurring in prior years (2)
 (0.5) (0.7) (2.1) (4.3)
Total claims and claim expenses incurred $114.9
 $116.0
 $384.9
 $347.0
         
Property and Casualty loss ratio:  
  
    
Total 70.4 % 74.5 % 79.8 % 75.2 %
Effect of catastrophe costs, included above (1) 5.3 % 5.3 % 12.0 % 10.5 %
Effect of prior years’ reserve development, included above (2) -0.3 % -0.4 % -0.4 % -0.9 %

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

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

For the three month period ended September 30, 2017, the Company's benefits, claims and settlement expenses decreased $0.8 million, or 0.6%, compared to the prior year period.

For the nine month period ended September 30, 2017, the Company's benefits, claims and settlement expenses increased $41.3 million or 10.2%, compared to the prior year period primarily reflecting elevated catastrophe losses and non-catastrophe weather-related losses in Property and Casualty that occurred in the first half of the year.
For the nine month period 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,


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

For the nine month period ended September 30, 2016, the favorable development of prior years’ Property and Casualty reserves of $4.3 million was the result of actual and remaining projected losses for prior years being below the level anticipated in the immediately preceding December 31 loss reserve estimate. At September 30, 2016, the favorable development was predominantly the result of favorable severity trends in the homeowners loss emergence for accident years 2014 and prior.
For the nine month period ended September 30, 2017, the automobile loss ratio of 80.1% increased by 0.8 points compared to the prior year period, including (1) the impact of catastrophe costs that resulted in a 0.3 point increase and (2) the impacts of higher current accident year non-catastrophe weather-related losses. The homeowners loss ratio of 79.2% for the nine month period ended September 30, 2017, increased 12.5 points compared to the prior year period, including current accident year catastrophe and non-catastrophe weather-related loss experience as well as development of prior years’ reserves that had 1.4 points less favorable impact in the current year. Catastrophe costs represented 30.9 points of the homeowners loss ratio for the current period compared to 25.9 points for the prior year period.

Interest Credited to Policyholders
($ in millions) Three Months Ended September 30, 
Change From
Prior Year
 Nine Months Ended September 30, Change From
Prior Year
  2017 2016 Percent Amount 2017 2016 Percent Amount
Retirement (annuity) $38.8
 $37.4
 3.7% $1.4
 $114.4
 $109.4
 4.6% $5.0
Life 11.3
 11.2
 0.9% 0.1
 33.8
 33.5
 0.9% 0.3
Total $50.1
 $48.6
 3.1% $1.5
 $148.2
 $142.9
 3.7% $5.3
For the nine month period ended September 30, 2017, interest credited in the Retirement segment increased 4.6% compared to the prior year period reflecting a 5.1% increase in average accumulated fixed deposits, at an average crediting rate of 3.5%.
The net interest spread on fixed2020, annuity assets under management measureswere $292.8 million above a year ago primarily due to positive net inflows and market appreciation. Variable assets under management, excluding amounts held under the difference between the rate of income earned on the underlying invested assetsmodified coinsurance agreement, increased by $193.4 million primarily due to positive net inflows and the rate of interest which policyholders are credited on their account values.market appreciation. The nine month 2017year to date annualized net interest spread on fixed annuity assets was 188annuities, excluding reinsurance, decreased 10 basis points, a decrease of 7 basis points compared to the prior year period.points.
As of September 30, 2017, fixed annuity account values totaled $4.6 billion, including $4.3 billion of deferred annuities. As shown in the table below, for approximately 86.7%, or $3.8 billion of the deferred annuity account values, the credited interest rate was equal to the minimum guaranteed rate. Due to limitations on the Company’s ability to further lower interest crediting rates, coupled with the expectation for continued low reinvestment interest rates, management anticipates fixed annuity spread compression in future periods. The majority of assets backing the net interest spread on fixed annuity business is invested in fixed maturity securities.
Horace Mann Educators Corporation42Quarterly Report on Form 10-Q
The Company

We actively manages itsmanage 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 estimatesWe estimate that over the next 12 months approximately $467$490.4 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’sour 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$1.9 million in year one and $5.4$5.6 million in year two, further reducing the annualized net interest spread on fixed annuities by approximately 47 basis points and 11


19 basis points in the respective periods, compared to the current period annualized net interest spread. The Companyspread 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 costsDAC as of September 30, 20172020 and assuming all other assumptions are met, a 10 basis point deviation in the current year targeted annualized net interest rate spread on the fixed annuities assumption would impact amortization between $0.30$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 informationThe 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, 2020
Deferred Annuities at
Total Deferred AnnuitiesMinimum Guaranteed Rate
Percent
of Total		Accumulated
Value (AV)		Percent of
Total Deferred
Annuities AV		Percent
of Total		Accumulated
Value
Minimum guaranteed interest rates:
Less than 2%54.2 %$1,334.2 51.6 %38.9 %$688.5 
Equal to 2% but less than 3%11.7 %287.5 83.3 %13.5 %239.6 
Equal to 3% but less than 4%25.1 %619.0 99.9 %35.0 %618.5 
Equal to 4% but less than 5%6.9 %170.9 100.0 %9.7 %170.9 
5% or higher2.1 %50.6 100.0 %2.9 %50.6 
Total100.0 %$2,462.2 71.8 %100.0 %$1,768.1 

($ in millions) September 30, 2017
      Deferred Annuities at
  Total Deferred Annuities Minimum Guaranteed Rate
  
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
Equal to 2% but less than 3% 7.1
 307.4
 83.0% 6.8
 255.1
Equal to 3% but less than 4% 14.1
 614.0
 99.9% 16.3
 613.4
Equal to 4% but less than 5% 52.6
 2,288.7
 100.0% 60.7
 2,288.7
5% or higher 1.3
 55.4
 100.0% 1.5
 55.4
Total 100.0% $4,349.3
 86.7% 100.0% $3,769.1

The CompanyWe will continue to be disciplined in executing strategies to mitigate the negative impact on profitability of a sustained low interest rate environment. However, the success of these strategies may be affected by the factors discussed in “Item 1A. Risk Factors”Part I - Item 1A in the Company’sour Annual Report on Form 10-K for the year ended December 31, 2016,2019 and other factors discussed herein.in this report.

Policy Acquisition Expenses Amortized
Amortized policy acquisition expenses were $24.2
Horace Mann Educators Corporation43Quarterly Report on Form 10-Q


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

For the three and nine months ended September 30, 2020, net income and core earnings* decreased $0.8 million and $6.8 million, respectively, reflecting the following factors:
Three months ended:
•Higher mortality costs
Nine months ended:
•Lower net investment income and higher mortality costs (the volume of claims related to COVID-19 remains low, with face values averaging about $40,000)
For the three and nine months ended September 30, 2020, insurance premiums and contract deposits* decreased $0.8 million and $3.2 million, respectively, primarily due to a decline in sales* of single premiums. The ordinary life insurance in force lapse ratio was 4.3% for the 12 months ended September 30, 2020 compared to 4.5% for the 12 months ended September 30, 2019.
The following table provides certain information for the Life segment for the periods indicated.
hmn-20200930_g3.jpg





($ in millions, unless otherwise indicated)Three Months Ended
September 30,		2020-2019Nine Months Ended
September 30,		2020-2019
20202019Change20202019Change
Financial Data:
Insurance premiums and contract deposits*$26.9 $27.7 -2.9 %$79.3 $82.5 -3.9 %
Insurance premiums and contract charges earned29.4 29.7 -1.0 %88.0 90.0 -2.2 %
Net investment income18.2 18.4 -1.1 %49.4 54.8 -9.9 %
Benefits and settlement expenses21.2 19.6 8.2 %64.5 60.7 6.3 %
Interest credited11.2 11.2 — %33.7 33.7 — %
Operating expenses8.4 8.9 -5.6 %25.8 27.5 -6.2 %
DAC amortization expense, excluding unlocking1.9 2.0 -5.0 %5.8 6.1 -4.9 %
DAC unlocking(0.2)— N.M.(0.5)(0.1)N.M.
Income before income taxes5.2 6.4 -18.8 %8.2 17.1 -52.0 %
Net income / core earnings*4.3 5.1 -15.7 %6.8 13.6 -50.0 %
Operating Statistics:
Life insurance in force$19,681 $18,937 3.9 %
Number of policies in force (thousands)201 202 -0.5 %
Average face amount in force (in dollars)$97,712 $93,944 4.0 %
Lapse ratio (ordinary life insurance in force)4.3 %4.5 %-0.2pts 
Mortality costs$28.3 $26.4 7.2 %
Horace Mann Educators Corporation44Quarterly 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 Corporate and Other for the periods indicated.
($ in millions)Three Months Ended
September 30,		2020-2019Nine Months Ended
September 30,		2020-2019
20202019Change %20202019Change %
Interest expense$3.4 $4.3 -20.9 %$11.3 $10.2 10.8 %
Net investment gains (losses) pretax2.5 (2.1)N.M.(12.8)151.6 N.M.
Tax on net investment gains (losses)0.6 (0.5)N.M.(2.7)32.7 N.M.
Net investment gains (losses) after tax1.9 (1.6)N.M.(10.1)118.9 N.M.
Net income (loss)(2.0)(6.7)70.1 %(22.2)103.5 -121.4 %
Core earnings (loss)*(3.9)(5.1)23.5 %(12.1)(15.4)21.4 %

For the three months ended September 30, 2020, net income increased primarily due to net investment gains in the current period. For the nine months ended September 30, 2020, net income decreased primarily due to recognition of a $106.9 million after tax realized investment gain in the second quarter of 2019 with respect to the transfer of investments as consideration in connection with the annuity reinsurance transaction.
Investment Results
(All comparisons vs. same periods in 2019, unless noted otherwise)
($ in millions)Three Months Ended
September 30,		2020-2019Nine Months Ended
September 30,		2020-2019
20202019Change %20202019Change %
Net investment income - Investment portfolio$69.2 $69.2 — %$184.3 $232.3 -20.7 %
Investment income - Deposit asset on reinsurance24.5 23.8 2.9 %72.1 47.0 53.4 %
Total net investment income93.7 93.0 0.8 %256.4 279.3 -8.2 %
Pretax net investment gains (losses)2.5 (2.1)219.0 %(12.8)151.6 -108.4 %
Pretax net unrealized investment gains on fixed maturity securities496.2 386.1 28.5 %

Excluding accreted investment income on the deposit asset on reinsurance, for the three month periodand nine months 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 amortization2020, net investment income was flat 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 $73.9months and decreased $48.0 million for the nine month period ended September 30, 2017 comparedmonths. The decline was primarily due to $73.1 million fora $2.1 billion reduction in invested assets from investments transferred under the prior year period. The increase was largely attributable to increased written premiumannuity reinsurance transaction 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.


Operating Expenses
For the three month period ended September 30, 2017, operating expensessecond quarter of $44.2 million were comparable to the prior year period as the current period benefitted from decreases in incentive compensation accruals2019 as well as lower employee medical costs.

than expected returns on limited partnership interests.
For the nine month periodmonths ended September 30, 2017, operating expenses of $139.1 million increased $8.5 million, or 6.5%, compared2020, the pretax net investment loss was primarily due to the prior year period, consistent with management’s expectationschange 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 Company makes expenditures supporting targeted strategiesrelated derivatives embedded 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%FIA. Pretax net investment gains for the nine month periodmonths ended September 30, 2017 was slightly below2019 reflected a realized investment gain of $135.3 million recognized during the prior year period.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 $161.5 million compared to December 31, 2019, reflecting a decline in the 10-year U.S. Treasury yield of 124 basis points that more than offset wider credit spreads for investment grade securities.

Horace Mann Educators Corporation45Quarterly Report on Form 10-Q
Income Tax Expense

Fixed Maturity and Equity Securities Portfolios
The effective income tax ratetable 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 the Company’s pretax income, including net realized investment gains and losses, was 17.6% and 26.6% for the nine month periods endedfair value).
($ in millions)September 30, 2020
Number of
Issuers		Fair
Value		Amortized
Cost or Cost		Pretax Net
Unrealized
Gain (Loss)
Fixed maturity securities
Corporate bonds
Banking & Finance146 $483.9 $439.1 $44.8 
Insurance50 199.4 176.6 22.8 
Energy (1)
75 156.8 143.7 13.1 
HealthCare,Pharmacy76 147.7 134.0 13.7 
Real Estate35 120.5 112.8 7.7 
Transportation45 98.9 92.9 6.0 
Technology40 89.8 82.3 7.5 
Utilities57 87.5 75.0 12.5 
Food and Beverage30 72.4 61.3 11.1 
Broadcasting & Media26 61.6 52.0 9.6 
All other corporates (2)
324 465.0 432.7 32.3 
Total corporate bonds904 1,983.5 1,802.4 181.1 
Mortgage-backed securities
U.S. Government and federally sponsored agencies268 485.7 431.6 54.1 
Commercial (3)
126 351.8 317.5 34.3 
Other41 59.5 59.6 (0.1)
Municipal bonds (4)
589 1,816.5 1,621.3 195.2 
Government bonds
U.S.36 384.1 341.7 42.4 
Foreign7 44.8 40.2 4.6 
Collateralized loan obligations (5)
141 663.2 671.7 (8.5)
Asset-backed securities112 379.4 386.3 (6.9)
Total fixed maturity securities2,224 $6,168.5 $5,672.3 $496.2 
Equity securities
Non-redeemable preferred stocks17 $74.1 
Common stocks95 6.9 
Closed-end fund1 21.3 
Total equity securities113 $102.3 
Total2,337 $6,270.8 
(1)At September 30, 20172020, the fair value amount included $10.6 million which were non-investment grade.
(2)The All other corporates category contains 19 additional industry sectors. Telecom, Retail, Consumer Products, Metal & Mining and 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 endedMisc. represented $243.4 million of fair value at September 30, 2017 and 2016, respectively. Further,2020, with 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 endedremaining 14 sectors each representing less than $38.1 million.
(3)At September 30, 2017.2020, 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, 52.1% are tax-exempt and 77.3% are revenue bonds tied to essential services, such as mass transit, water and sewer. 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 sectionoverall credit quality of the balance sheetmunicipal bond portfolio was AA- at September 30, 2020.
(5)Based on fair value, 95.7% of the collateralized loan obligation securities were rated investment grade by Standard and the income statement.Poor's Global Inc. (S&P), Moody's Investors Service, Inc. (Moody's) and/or Fitch Ratings, Inc. (Fitch) at September 30, 2020.
Horace Mann Educators Corporation46Quarterly Report on Form 10-Q
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, 2017,2020, our diversified fixed maturity securities portfolio consisted of 3,513 investment positions, issued by 2,224 entities, and totaled approximately $6.2 billion in fair value. This portfolio was 92.1% 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 Company’s federal income tax returnseconomy was approaching later stages of the credit cycle and began to upgrade portfolio quality. Over the past three years, recessionary expectations were extended due to the fiscal stimulus, which lengthened the credit cycle. In 2019, management determined that it had achieved its investment initiatives and the portfolio was well positioned for years priorany dislocation in the markets.
That proactive effort to 2014 are no longer subjectimprove 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 examinationquality has the investment portfolio in all insurance subsidiaries well positioned for market disruptions with ample liquidity.
Further, we believe the investment portfolio is well positioned to withstand an extended period of elevated investment market volatility, and has relatively modest exposure to asset sectors that it expects to be most impacted by the IRS. Management does not anticipate any assessments for tax years that remain subjectpublic health response to examinationCOVID-19. While we expect other segments of the economy to be disrupted, we believe these effects will be most acute in the sectors listed below. These sectors have a material effect onexperienced more pronounced price dislocation due to their perceived exposure to COVID-19 related impacts. Exposure to these sectors totals 7.1% of the Company’s financial position or resultsinvestment portfolio, and as of operations.


Net Income
For the three month period ended September 30, 2017,2020, informed by extensive stress testing and portfolio review, management continues to hold the Company’sfollowing securities:
($ in millions)September 30, 2020
Number of IssuersFair ValueAmortized
Cost or
Cost		Pretax Net Unrealized
Investment
Gains (Losses)		Credit
Quality
Fixed maturity securities (1)
Travel and leisure58 $121.7 $120.3 $1.4 BBB
Energy-related88 157.5 141.1 16.4 BBB+
Retail27 67.4 63.3 4.1 A
Aircraft61 157.6 178.1 (20.5)BBB+
Total fixed maturity securities234 $504.2 $502.8 $1.4 BBB+
(1)    Below investment grade and non-rated securities included in this population account for $86.5 million of amortized cost, $86.3 million of fair value, and $0.2 million of net incomeunrealized investment losses. There are 108 issuers with an average rating of $26.5 million decreased $0.4 million compared to the prior year period. For the nine month period ended September 30, 2017, the Company's net incomeBB-. The majority of $44.1 million decreased $19.8 million reflecting a record level of catastrophe losses as well as elevated non-catastrophe weather-related losses that occurredthese securities are concentrated in the first half of the year. Additional detail is included in the “Executive Summary” at the beginning of this MD&A.
Net income (loss) by segmenttravel/leisure and net income per share were as follows:
retail sectors.
($ 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
N.M. - Not meaningful.
(1)Horace Mann Educators CorporationThe Corporate and Other segment includes interest expense47Quarterly Report 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.Form 10-Q

As described in footnote

Rating of Fixed Maturity Securities and Equity Securities (1) to
The following table presents the table above,composition and fair value of our fixed maturity and equity securities portfolios by rating category. At September 30, 2020, 91.7% of these combined portfolios were investment grade, based on fair value, with an overall average quality rating of A+. We have classified the Corporate and Other segment reflects corporate-level transactions. Of those transactions, net realized investment gains and losses may vary notably between reporting periodsentire fixed maturity securities portfolio as available for sale, which is carried at fair value.
($ in millions)Percent of Portfolio  
 Fair ValueSeptember 30, 2020
December 31, 2019September 30, 2020Fair
Value		Amortized
Cost
Fixed maturity securities
AAA11.5 %11.6 %$718.7 $694.1 
AA (2)
42.7 40.2 2,477.5 2,224.4 
A23.3 19.9 1,227.7 1,117.4 
BBB18.9 20.4 1,256.0 1,160.3 
BB1.7 2.7 170.2 167.0 
B0.4 0.9 54.4 54.4 
CCC or lower— 0.1 4.2 4.9 
Not rated (3)
1.5 4.2 259.8 249.8 
Total fixed maturity securities100.0 %100.0 %$6,168.5 $5,672.3 
Equity securities
AAA— %— %$— 
AA— — — 
A— — — 
BBB59.3 69.6 71.2 
BB— 2.8 2.9 
B— — — 
CCC or lower— — — 
Not rated40.7 27.6 28.2 
Total equity securities100.0 %100.0 %$102.3 
Total$6,270.8 
(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 often the driver of fluctuationsupdated monthly to reflect any changes in the level of this segment’s net income or loss. For the nine month period endedratings.
(2)At September 30, 2017, net realized investment gains after tax were $0.82020, the AA rated fair value amount included $316.4 million compared to net realized investment gains after tax of $3.8U.S. Government and federally sponsored agency securities and $305.6 million for the prior year period.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.
Return on average shareholders’ equity based on net income was 4.7% and 6.3% for the trailing 12 month periods ended
At September 30, 2017 and 2016, respectively.








Outlook for 2017
At2020, the timefixed maturity securities portfolio had $45.0 million of this Quarterly Reportpretax gross unrealized investment losses on Form 10-Q, management estimates that 2017 full year net income before net realized$1,112.6 million of fair value related to 599 positions. Of the investment gains andpositions with gross unrealized losses, will be within a range of $1.45 to $1.65 per diluted share. Within Property and Casualty, this projection incorporates the elevated catastrophe losses and non-catastrophe weather-related losses during the first half of 2017, with estimates for weather-related losses for the second halfthere were 34 trading below 80.0% of the year returning to historic averages. The full year auto underlying combined ratio is anticipated to be similar to 2016 andcarrying value at September 30, 2020.
We view the full year property combined ratio, including catastropheunrealized investment losses is anticipated to be slightly below 100%. Net income for Retirement will continue to be impacted by the prolonged low interest rate environment and the interest spread is anticipated to grade down to the low 180s. The Company expects to invest approximately $0.10 per diluted shareof all our fixed maturity securities at September 30, 2020 as temporary. Future changes in Retirementcircumstances related to the Company's strategic initiatives in product, distributionthese and infrastructure. Life mortality experience was more favorable than anticipated for the first halfother securities could require subsequent recognition of 2017, however, Life net income for the full year is expected to be comparable to 2016, due to a return to higher mortality levels and net investment income pressure. As a result of the continued low interest rate environment, management anticipates the Company’s overall portfolio yield to decline by approximately 10 basis points over the course of 2017, impacting each of the three operating segments. In addition to the segment-specific factors, the Company’s initiatives for customer service and infrastructure improvements, as well as enhanced programs and training for the Company’s agency force, all intended to enhance the overall customer experience and support further improvement in policy retention, sales and business cross-sell ratios, will continue and result in a moderate increase in expense levels compared to 2016.other-than-temporary impairment (OTTI).
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.

Liquidity and Financial Resources
Off-Balance Sheet Arrangements
At September 30, 20172020 and 2016, the Company2019, 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 iswe are not exposed to any financing, liquidity, market or credit risk that could arise if the Companywe engaged in such relationships.
Horace Mann Educators Corporation48Quarterly Report on Form 10-Q


Investments
Information regarding the Company’sour investment portfolio, which is comprised primarily of investment grade fixed maturity securities, is locatedpresented in “ResultsPart I - Item 1, Note 2 of Operations -- Net Realized Investment Gains and Losses (Pretax)” and in the “Notes to Consolidated Financial Statements -- Noteas well as Part I - Item 2 -- Investments”.
- Investments Results in this report.
Cash Flow
TheOur 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’sour 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)Nine Months Ended
September 30,		2020-2019
20202019Change %
Net cash provided by operating activities$267.8 $207.2 29.2 %
Net cash used in investing activities(368.8)(65.6)N.M.
Net cash provided by (used in) financing activities141.0 (114.2)N.M.
Net increase in cash40.0 27.4 46.0 %
Cash at beginning of period25.5 11.9 114.3 %
Cash at end of period$65.5 $39.3 66.7 %
Operating Activities
As a holding company, HMEC conducts itswe conduct our principal operations in the personal lines segment of the property and casualty and life insurance industries through itsour subsidiaries. HMEC’sOur 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 periodmonths ended September 30, 2017,2020, net cash provided by operating activities increased compared to the same period in 2016, largely$60.6 million, primarily due to an increaselower claims paid on insurance policies in Premiums collected and Investmentthe 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 Corporation49Quarterly 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 nine months ended September 30, 2020, HMLIC and NTA collectively received $95.5 million from FHLB under funding agreements and for the nine months ended September 30, 2019, HMLIC received an additional $175.0 million from FHLB under funding agreements as well as repaid FHLB $275.0 of principal. Receipt of these funds are reported in Annuity Contracts: Variable, Fixed and FHLB Funding Agreements, Deposits in the Consolidated Statements of Cash Flows. Advances to HMLIC and NTA from FHLB under funding agreements totaled $590.5 million as of September 30, 2020. For the nine months ended September 30, 2020, cash inflows from annuity contract deposits (excluding the $95.5 million received from FHLB in the current year and the $175.0 million received from FHLB in the prior year) increased $22.1 million, or 6.4%, compared to the prior year period. Cash outflows from annuity contract benefits, withdrawals and net transfers to Separate Account (variable annuity) assets decreased $29.2 million, or 9.3%, compared to the prior year period.
Capital Resources
PaymentsWe have determined the amount of principalcapital which is needed to adequately fund and interestsupport 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 makefor other cash payments to HMEC, including tax payments pursuant to tax sharing agreements. Payments for share repurchase programscorporate 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 HMECus without prior approval of the insurance regulatory authorities. The aggregate amount of dividends that may be paid in 20172020 from all of HMEC’sour 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$110.0 million was paid during the nine month periodmonths ended September 30, 2017. Although regulatory restrictions exist, dividend availability from subsidiaries has been, and is expected to be, adequate for HMEC’s capital needs. Additional information is contained in “Notes to Consolidated Financial Statements -- Note 10 -- Statutory Information and Restrictions” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
Investing Activities
HMEC’s insurance subsidiaries maintain significant investments in fixed maturity securities to meet future contractual obligations to policyholders. In conjunction with its management of liquidity and other asset/liability management objectives, the Company, from time to time, will sell fixed maturity securities prior to maturity, as well as equity securities, and reinvest the proceeds in other investments with different interest rates, maturities or credit characteristics. Accordingly, the Company has classified the entire fixed maturity and equity securities portfolios as available for sale.
Financing Activities
Financing activities include primarily payment of dividends, the receipt and withdrawal of funds by annuity contractholders, issuances and repurchases of HMEC’s common stock, fluctuations in bank overdraft balances, and borrowings, repayments and repurchases related to its debt facilities.
The Company’s annuity business produced net negative cash flows in the first nine months of 2017. For the nine month period ended September 30, 2017, receipts from annuity contracts decreased $43.0 million, or 11.0%, compared to the prior year period, as described in “Results of Operations -- Insurance Premiums and Contract Charges”. In total, annuity contract benefits, withdrawals and net transfers to variable annuity accumulated cash values increased $54.6 million, or 22.7%, compared to the prior year period. During the nine month period ended September 30, 2017, financing activities included an increase of $77.9 million attributable to fixed account withdrawals due to the transfer of all the Company's 401(k) assets to a third-party provider.


Capital Resources
The Company has determined the amount of capital which is needed to adequately fund and support business growth, primarily based on risk-based capital formulas including those developed by the National Association of Insurance Commissioners (the “NAIC”). Historically, the Company’s insurance subsidiaries have generated capital in excess of such needed capital. These excess amounts have been paid to HMEC through dividends. HMEC has then utilized these dividends and its access to the capital markets to service and retire long-term debt, pay dividends to its shareholders, fund growth initiatives, repurchase shares of its common stock and for other corporate purposes. Management anticipates2020. We anticipate that the Company’sour sources of capital will continue to generate sufficient capital to meet the needs for business growth, debt interest payments, shareholder dividends and itsour share repurchase program. Additional information is contained in “Notes toPart II - Item 8, Note 14 of the Consolidated Financial Statements -- Note 10 -- Statutory Information and Restrictions” of the Company’sin our Annual Report on Form 10-K for the year ended December 31, 2016.2019.
The totalTotal capital of the Company was $1,637.8$2,152.9 million at September 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%20.3% of total capital including net unrealized investment gains on fixed maturity securities (24.0% excluding net unrealized investment gains and losses (15.1%on fixed maturity securities*) at September 30, 2020, which was below our long-term target of 25%.
Shareholders' equity was $1,715.7 million at September 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 gainon fixed maturity securities in the Company’sour investment portfolio of $255.7$328.2 million after taxes and the related impact of deferred policy acquisition costsDAC associated with investment contracts and life insurance products with account values. The market value of the Company’sour common stock and the market value per share were $1,600.0$1,382.6 million and $39.35,$33.40, respectively, at September 30, 2017.2020. Book value per share was $34.20$41.45 at September 30, 20172020 ($27.9133.52 excluding the net unrealized investment gain*gains on fixed maturity securities*).
Additional information regarding the net unrealized investment gaingains on fixed maturity securities in the Company’sour investment portfolio at September 30, 20172020 is included in “ResultsPart I - Item 1, Note 2 of Operations -- Net Realizedthe 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$37.2 million for the nine month periodmonths ended September 30, 2017.2020. In March, 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 periodmonths ended September 30, 2017, the Company2020, we repurchased 48,44052,095 shares of itsour 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 itsour share repurchase program, which is further described in “Notes toPart II - Item 8, Note 13 of the Consolidated Financial Statements -- Note 9 -- Shareholders’ Equity and Common Stock Equivalents” of the Company’sin our Annual Report on Form 10-K for the year ended December 31, 2016.2019. As of September 30, 2017, $27.82020, $20.6 million remained authorized for future share repurchases under the share repurchase program.
Horace Mann Educators Corporation50Quarterly Report on Form 10-Q


The following table summarizes our debt obligations.
($ in millions)Effective
Interest
Rates		Final
Maturity
September 30, 2020December 31, 2019
Short-term debt
Bank Credit FacilityVariable2024$135.0 $135.0 
Long-term debt (1)
   4.50% Senior Notes, Aggregate principal
amount of $250,000 less unaccrued
discount of $378 and $426 and unamortized
debt issuance costs of $1,375 and $1,549		4.50%2025248.2 248.0 
Federal Home Loan Bank borrowing0.48%202254.0 50.0 
Total$437.2 $433.0 
(1)    We designate debt obligations as "long-term" based on maturity date at issuance.

As of September 30, 2017, the Company2020, 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 toPart II - Item 8, Note 10 of the Consolidated Financial Statements -- Note 7 -- Debt” of the Company’sin 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 September 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 borrowing and funding agreements. 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 0.48% as of September 30, 2020. The $54.0 million of FHLB borrowings is reported as Long-term debt in the Consolidated Balance Sheets.
As of September 30, 2017, the Company2020, we had no balance$135.0 million of short-term debt outstanding under itsour 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 upincreased the amount available on this senior revolving credit facility to $225.0 million from $150.0 millionmillion. 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 dependingJPMorgan 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 September 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 30, 2017.


2020.
To provide additional capital management flexibility, the Companywe 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 Companyus 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 the dateissuance of this Quarterly Report on Form 10-Q.
On March 13, 2018, we filed a "shelf" registration statement on Form S-4 with the SEC which became effective on May 2, 2018. Under this registration statement, we may from time to time offer and issue up to 5,000,000 shares of our common stock in connection with future acquisitions of other businesses, assets or securities. Unless withdrawn by us, this registration statement will remain effective indefinitely. No securities associated with the registration statement have been issued at the time of issuance of this Quarterly Report on Form 10-Q.
Horace Mann Educators Corporation51Quarterly Report on Form 10-Q


COVID-19 Liquidity and Capital Resources Considerations
The various impacts of COVID-19 on the U.S. economy, our operations and our investment portfolio have been material. Nonetheless we believe that the liquidity available to our holding company and its operating subsidiaries remains adequate and we do not foresee a need to suspend ordinary dividends or seek additional sources of capital at this time. Our current forecast assumes a return to a normal operating environment within twelve months, and as such, capital and liquidity are expected to remain at or near target levels during that period.
Financial Ratings
HMEC’sOur principal insurance subsidiaries are rated by S&P, Moody’s, A.M. Best Company, Inc. (“A.M. Best”)(A.M. Best), Fitch, Moody's and Fitch Ratings, Inc. (“Fitch”).S&P. 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’sour 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’sour securities.

All four agencies currently have assigned the same insurance financial strength ratings to our Property and Casualty and Life insurance subsidiaries. Only A.M. Best currently rates our Supplemental segment's subsidiaries. Assigned ratings and respective affirmation/review dates as of October 31, 20172020 were unchanged fromas follows:
Insurance FinancialAffirmed/
Strength Ratings (Outlook)Debt Ratings (Outlook)Reviewed
A.M. Best7/2/2020
HMEC (parent company)N.A.bbb(stable)
HMEC's LifeA(stable)N.A.
HMEC's Property and Casualty subsidiariesA(stable)N.A.
HMEC's Supplemental subsidiariesA-(stable)N.A.
FitchA(stable)BBB(stable)9/22/2020
Moody'sA2(stable)Baa2(stable)10/8/2020
S&PA(stable)BBB(stable)2/19/2020
Reinsurance Programs
Information regarding the disclosurereinsurance programs for our Property and Casualty, Supplemental and Life segments is located in Part II - Item 8, Note 9 of the Company’sConsolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2016. Assigned ratings were as follows (unless otherwise indicated, the insurance2019.
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 strength ratingsobligations for the Company’s Propertygeneral account liabilities of the reinsured annuity contracts are secured by its assets placed in a comfort trust for our sole use and Casualty insurance subsidiaries and the Company’s principal Life insurance subsidiary are the same):
Insurance Financial
Strength RatingsDebt Ratings
(Outlook)(Outlook)
Asbenefit. Upon RGA's material breach of October 31, 2017
S&PA(stable)BBB(stable)
Moody’s
Horace Mann Life Insurance CompanyA3(positive)N.A.
HMEC’s Property and Casualty subsidiariesA3(positive)N.A.
HMECN.A.Baa3(positive)
A.M. BestA(stable)bbb(stable)
FitchA(stable)BBB(stable)

N.A. – Not applicable.
Reinsurance Programs
Information regarding the reinsurance program foragreement, deterioration of its risk-based capital ratio to a certain level, or certain other events, we may recapture the Company’s Propertyreinsured business.
ITEM 3.IQuantitative and Casualty segment is located in “Business -- Property and Casualty Segment -- Property and Casualty Reinsurance” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
Information regarding the reinsurance program for 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.

Qualitative Disclosures about Market Value Risk
Market value risk, the Company’sour primary market risk exposure, is the risk that the Company’sour invested assets will decrease in value. This decrease in value may be due to (1) a change in the yields realized on the Company’sour assets and prevailing market yields for similar assets, (2) an unfavorable change in the liquidity of thean investment, (3) an unfavorable change in the financial prospects of the issuer of thean investment, or (4) a downgrade in the credit rating of the issuer of thean investment. See also “ResultsAlso 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 Corporation52Quarterly Report on Form 10-Q



Significant changes in interest rates expose the Companyus 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’sour investments and the credited interest rates on the Company’sour insurance and investment contract liabilities. See also “ResultsAlso see Consolidated Results of Operations -- Interest Creditedin Part I - Item 2 of this report regarding interest credited to Policyholders”.policyholders.
The Company seeksWe seek to manage itsour market value risk by coordinating the projected cash inflows of assets with the projected cash outflows of liabilities. For all itsof our assets and liabilities, the Company seekswe 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 earnswe earn from variable annuity deposits are based on the market value of the funds deposited.
More detailed descriptions of the Company’sour exposure to market value risks and the management of those risks is presentedcontained in “Management’s Discussion and AnalysisPart II - Item 7A of Financial Condition and Results of Operations -- Market Value Risk” of the Company’sour 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’sManagement's Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of the Company’sour management, including the Company’s Chief Executive Officerour chief executive officer and Chief Financial Officer, the Companychief financial officer, we conducted an evaluation of the effectiveness of the design and operation of the Company’sour disclosure controls and procedures, as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 as amended (the “Exchange Act”)(Exchange Act), as of September 30, 2017 pursuant to Rule 13a-15(b) of the Exchange Act.2020. Based on this evaluation, the Chief Executive Officerchief executive officer and Chief Financial Officerchief financial officer concluded that the Company’sour disclosure controls and procedures are effective in timely alerting them to material information relating to the Companyus (including itsour consolidated subsidiaries) that is required to be included in the Company’sour periodic Securities and Exchange CommissionSEC filings. No material weaknesses in the Company’sour disclosure controls and procedures were identified in the evaluation and therefore, no corrective actions were taken. There were no significant changes in the Company’sour internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’sour internal control over financial reporting that occurred during the Company’s last fiscal quarterperiod covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.
Horace Mann Educators Corporation53Quarterly 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 believeswe believe there are no material changes from the risk factors as previously disclosed in the Company’sPart I - Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016. The2019. However, the following risk factor is updatedhas emerged as a result of events that occurred subsequent to reflectyear 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 adoptionglobal pandemic caused by the Securitiesnovel 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 standardthe 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 careCOVID-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 effectimpacts 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 releasedforegoing cannot be reasonably estimated at this time, although the results may be felt for a final regulationsignificant 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 willCOVID-19 could affect the ways in whichglobal economy, the financial services representatives can be compensated for sales to participants in ERISA employer-sponsored qualified plansmarkets 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.operations will depend on future developments and factors that cannot be predicted.

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



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 sharesstock in open market or privately negotiated transactions, from time to time, depending on market
Horace Mann Educators Corporation54Quarterly Report on Form 10-Q


conditions. The current share repurchase programProgram does not have an expiration date and may be limited or terminated at any time without notice. During the three month periodmonths ended September 30, 2017, the Company repurchased2020, we did not repurchase shares of HMECour 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

Item 5:   Other Information
The Company is not awarestock. As of any information required to be disclosed in a report on Form 8-K during the three month period ended September 30, 2017 which has not been filed with the Securities and Exchange Commission.2020, $20.6 million remained authorized for future share repurchases.

ITEM 5.IOther Information

Not applicable.

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.
3.2Form 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, 2014June 21, 2019 among HMEC, certain financial institutions named therein and JPMorgan ChasePNC Bank, N.A., as administrative agent, incorporated by reference to Exhibit 10.1 to HMEC’s QuarterlyCurrent Report on Form 10-Q for the quarter ended8-K dated June 30, 2014,24, 2019, filed with the SEC on August 8, 2014.June 24, 2019.
10.1(a)Horace Mann Educators Corporation55Quarterly Report on Form 10-Q


10.1(a)
First Amendment to Credit Agreement dated as of November 16, 2015June 21, 2019 among HMEC, certain financial institutions named therein and JPMorgan ChasePNC Bank, N.A., as administrative agent, incorporated by reference to Exhibit 10.1(a) to HMEC’sHMEC'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.
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.
Horace Mann Educators Corporation56Quarterly Report on Form 10-Q


10.3(e)*
HMEC 2010 Comprehensive Executive Compensation Plan (As Amended and Restated Effective May 20, 2015) Service-Vested Restricted Stock Units Agreement - Employee Grantee (One-Time Grant Service), incorporated by reference to Exhibit 10.3(e) to HMEC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 9, 2017.
10.3(f)*
Specimen Employee Performance-Based Restricted Stock Units Agreement - Key Strategic Grantee under the HMEC 2010 Comprehensive Executive Compensation Plan incorporated by reference to Exhibit 10.3(e) to HMEC’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed with the SEC on May 6, 2016.
10.3(g)*
Specimen Non-employee Director Restricted Stock Unit Agreement under the HMEC 2010 Comprehensive Executive Compensation Plan, incorporated by reference to Exhibit 10.17(a) to HMEC’s Current Report on Form 8-K dated May 27, 2010, filed with the SEC on June 2, 2010.
10.4*
Horace Mann Supplemental Employee Retirement Plan, 2002 Restatement, incorporated by reference to Exhibit 10.1 to HMEC’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, filed with the SEC on May 15, 2002.


10.5*
Horace Mann Executive Supplemental Employee Retirement Plan, 2002 Restatement, incorporated by reference to Exhibit 10.2 to HMEC’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, filed with the SEC on May 15, 2002.
10.6*
Amended and Restated Horace Mann Nonqualified Supplemental Money Purchase Pension Plan, incorporated by reference to Exhibit 10.9 to HMEC’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 2, 2009.
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, 2017,2020, filed with the SEC on August 8, 2017.7, 2020.
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,June 30, 2020, filed with the SEC on May 9, 2017.August 7, 2020.
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)*10.10*
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, 2017,2020, filed with the SEC on August 8, 2017.7, 2020.
10.11*
HMSC Executive Severance Plan, incorporated by reference to Exhibit 10.16 to HMEC’s Current Report on Form 8-K dated March 7, 2012, filed with the SEC on March 13, 2012.
10.11(a)*
First Amendment to the HMSC Executive Severance Plan, incorporated by reference to Exhibit 10.16(a) to HMEC’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, filed with the SEC on August 9, 2012.
10.11(b)*
HMSC Executive Severance Plan Schedule A Participants, incorporated by reference to Exhibit 10.11(b) to HMEC's Quarterly Report on Form 10-Q for the quarter ended June 30, 2017,2020, filed with the SEC on August 8, 2017.7, 2020.
Horace Mann Educators Corporation57Quarterly Report on Form 10-Q


10.12
Stock Purchase Agreement Among Horace Mann Educators Corporation, and Robert Paglione, Paglione Family Irrevocable Trust F/B/O Adam Paglione, Paglione Family Irrevocable Trust F/B/O Lisa and Jorge Arroyo, Beau Adams and Benefit Consultants Group, Inc. dated as of October 30, 2018, incorporated by reference to Exhibit 10.12 to HMEC's Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 1, 2019.
10.13
Purchase Agreement By and Among Ellard Family Holdings, Inc., Brian M. Ellard, The JCE Exempt Trust and Horace Mann Educators Corporation dated as of December 10, 2018, incorporated by reference to Exhibit 10.13 to HMEC's Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 1, 2019.
10.14
Executive Transition 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.
(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.INSXBRL 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.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LABXBRL Taxonomy Extension Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase
Horace Mann Educators Corporation58Quarterly 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)
HORACE MANN EDUCATORS CORPORATION
(Registrant)
DateNovember 8, 20176, 2020/s/ Marita Zuraitis
Marita Zuraitis
President and Chief Executive Officer
DateNovember 8, 20176, 2020/s/ Bret A. Conklin
Bret A. Conklin
Executive Vice President and
Chief Financial Officer
DateNovember 8, 20176, 2020/s/ Kimberly A. Johnson
Kimberly A. Johnson
Senior Vice President, Controller and
Principal Accounting Officer


53
Horace Mann Educators Corporation59Quarterly Report on Form 10-Q