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, 20172022
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, 2017,2022, the registrant had 40,667,21140,898,295 common shares, of Common Stock,$0.001 par value, $0.001 per share, outstanding.





HORACE MANN EDUCATORS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERQUARTERLY PERIOD ENDED SEPTEMBER 30, 20172022
INDEXTABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
Page
Item 1.
1
Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and
December, 31 2021
2
Consolidated Statements of Operations and Comprehensive Income (Loss) for the
Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)
3
Consolidated Statements of Comprehensive Income
4
Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine
Months Ended September 30, 2022 and 2021 (Unaudited)
54
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (Unaudited)
65
Note 1 - Basis of Presentation and Significant Accounting Policies
76
Note 2 - InvestmentsAcquisitions
129
Note 3 - Investments
10
Note 4 - Fair Value of Financial Instruments
1715
Note 4 - Derivative Instruments
22
Note 5 - PropertyGoodwill and CasualtyIntangible Assets
21
Note 6 - Unpaid Claims and Claim Expenses
2423
Note 6 - Debt
25
Note 7 - Reinsurance
2624
Note 8 - Commitments
2624
Note 9 - Segment Information
2725
Note 10 - Accumulated Other Comprehensive Income (Loss)
26
Note 11 - Supplemental Consolidated Cash and Cash Flow Information
27
Item 2.
and Results of Operations
28
Item 3.
4649
Item 4.
4650
Item 1A.
4651
Item 2.
4851
Item 5.
4851
Item 6.
4951
5356






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 sheetsheets of Horace Mann Educators Corporation and subsidiaries (the Company) as of September 30, 2017,2022, the related consolidated statements of operations, and comprehensive income (loss) and changes in shareholders' equity for the three and nine-month periods ended September 30, 20172022 and 2016, and the related consolidated statements of changes in shareholders��� equity,2021, and cash flows for the nine-month periods ended September 30, 20172022 and 2016. These2021, 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 sheets of the Company as of December 31, 2021, 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 25, 2022, 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, 2021, 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, 20172022 
Horace Mann Educators Corporation1Quarterly Report on Form 10-Q



HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in thousands,millions, 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, 2022December 31, 2021
(Unaudited)
Assets
Investments
Fixed maturity securities, available for sale, at fair value
(amortized cost, net 2022, $5,904.1; 2021, $5,797.7)
$5,272.1 $6,239.3 
Equity securities at fair value113.8 147.2 
Limited partnership interests997.5 712.8 
Short-term and other investments254.6 350.2 
Total investments6,638.0 7,449.5 
Cash36.2 133.7 
Deferred policy acquisition costs440.1 248.0 
Reinsurance balances receivable497.5 153.2 
Deposit asset on reinsurance2,525.6 2,481.5 
Intangible assets192.2 145.4 
Goodwill56.3 43.5 
Other assets328.6 288.1 
Separate Account variable annuity assets2,599.6 3,441.0 
Total assets$13,314.1 $14,383.9 
Liabilities and Shareholders' Equity
Policy liabilities
Investment contract and policy reserves$7,068.1 $6,577.8 
Unpaid claims and claim expenses481.9 425.9 
Unearned premiums266.5 255.1 
Total policy liabilities7,816.5 7,258.8 
Other policyholder funds1,000.7 945.9 
Other liabilities322.8 428.2 
Short-term debt249.0 249.0 
Long-term debt248.9 253.6 
Separate Account variable annuity liabilities2,599.6 3,441.0 
Total liabilities12,237.5 12,576.5 
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, 2022, 66,612,323; 2021, 66,436,821
0.1 0.1 
Additional paid-in capital500.4 495.3 
Retained earnings1,500.4 1,524.9 
Accumulated other comprehensive income (loss), net of tax: 
Net unrealized investment gains (losses) on fixed maturity securities(396.7)290.7 
Net funded status of benefit plans(10.2)(10.2)
Treasury stock, at cost, 2022, 25,714,153 shares;
2021, 25,043,337 shares
(517.4)(493.4)
Total shareholders’ equity1,076.6 1,807.4 
Total liabilities and shareholders’ equity$13,314.1 $14,383.9 
See





The accompanying Notes toare an integral part of these Consolidated Financial Statements.
Horace Mann Educators Corporation2Quarterly Report on Form 10-Q


HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
($ in thousands,millions, except per share data)
Three Months Ended
September 30,		Nine Months Ended
September 30,
 2022202120222021
Statements of Operations
Revenues  
Net premiums and contract charges earned$257.8 $225.4 $769.5 $678.8 
Net investment income97.6 103.7 300.7 308.4 
Net investment losses(12.8)(6.5)(43.8)(10.6)
Other income0.4 7.0 9.7 22.1 
Total revenues343.0 329.6 1,036.1 998.7 
Benefits, losses and expenses
Benefits, claims and settlement expenses173.6 164.8 558.2 446.2 
Interest credited45.9 51.9 129.1 153.7 
Operating expenses75.6 64.3 229.7 182.8 
DAC unlocking and amortization expense23.3 22.9 76.7 70.5 
Intangible asset amortization expense4.2 3.3 12.6 9.8 
Interest expense5.3 3.4 13.5 10.4 
Total benefits, losses and expenses327.9 310.6 1,019.8 873.4 
Income before income taxes15.1 19.0 16.3 125.3 
Income tax expense1.2 2.7 0.4 23.0 
Net income$13.9 $16.3 $15.9 $102.3 
Net income per share
Basic$0.33 $0.39 $0.38 $2.44 
Diluted$0.33 $0.39 $0.38 $2.43 
Weighted average number of shares and equivalent shares
Basic41.4 42.0 41.7 42.0 
Diluted41.6 42.2 41.9 42.2 
Statements of Comprehensive Income (Loss)
Net income$13.9 $16.3 $15.9 $102.3 
Other comprehensive income (loss), net of tax:
Change in net unrealized investment losses on fixed maturity securities(176.3)(25.3)(687.4)(59.4)
Change in net funded status of benefit plans— — — — 
Other comprehensive loss(176.3)(25.3)(687.4)(59.4)
Comprehensive income (loss)$(162.4)$(9.0)$(671.5)$42.9 

  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

The accompanying Notes toare an integral part of these Consolidated Financial Statements.
Horace Mann Educators Corporation3Quarterly Report on Form 10-Q


HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (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







































See Notes to Consolidated Financial Statements.


HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
($ in thousands,millions, except per share data)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Common stock, $0.001 par value
Beginning balance$0.1 $0.1 $0.1 $0.1 
Options exercised— — — — 
Conversion of common stock units— — — — 
Conversion of restricted stock units— — — — 
Ending balance0.1 0.1 0.1 0.1 
Additional paid-in capital
Beginning balance498.1 490.7 495.3 488.4 
Options exercised and conversion of common stock
units and restricted stock units
0.2 0.2 (1.1)(1.0)
Share-based compensation expense2.1 2.0 6.2 5.5 
Ending balance500.4 492.9 500.4 492.9 
Retained earnings
Beginning balance1,499.9 1,494.4 1,524.9 1,434.6 
Net income13.9 16.3 15.9 102.3 
Dividends, 2022, $0.32 per share; 2021, $0.31 per share(13.4)(13.2)(40.4)(39.4)
Ending balance1,500.4 1,497.5 1,500.4 1,497.5 
Accumulated other comprehensive income (loss), net of tax:
Beginning balance(230.6)321.0 280.5 355.1 
Change in net unrealized investment losses
on fixed maturity securities
(176.3)(25.3)(687.4)(59.4)
Change in net funded status of benefit plans— — — — 
Ending balance(406.9)295.7 (406.9)295.7 
Treasury stock, at cost
Beginning balance(507.4)(489.6)(493.4)(488.1)
Acquisition of shares(10.0)(0.2)(24.0)(1.7)
Ending balance(517.4)(489.8)(517.4)(489.8)
Shareholders' equity at end of period$1,076.6 $1,796.4 $1,076.6 $1,796.4 

  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








The accompanying Notes toare an integral part of these Consolidated Financial Statements.
Horace Mann Educators Corporation4Quarterly Report on Form 10-Q


HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
($ in thousands)millions)
Nine Months Ended
September 30,
20222021
Cash flows - operating activities
Net income$15.9 $102.3 
Adjustments to reconcile net income to net cash provided by operating activities:
     Net investment losses43.8 10.6 
     Depreciation and intangible asset amortization20.7 16.7 
     Share-based compensation expense6.7 6.0 
     Income from equity method investments, net of dividends or distributions2.1 (31.1)
     Changes in:
      Insurance liabilities403.3 75.1 
      Amounts due under reinsurance agreements(344.3)(1.6)
      Income tax liabilities(6.0)2.3 
      Other operating assets and liabilities(31.0)(9.0)
      Other, net4.6 6.8 
Net cash provided by operating activities115.8 178.1 
Cash flows - investing activities  
Fixed maturity securities  
Purchases(901.3)(1,228.1)
Sales529.9 319.2 
Maturities, paydowns, calls and redemptions428.8 631.5 
Equity securities
Purchases(4.5)(45.0)
Sales and repayments7.0 1.0 
Limited partnership interests
Purchases(332.3)(202.1)
Sales45.5 69.4 
Change in short-term and other investments, net95.4 103.1 
Acquisition of business, net of cash acquired(164.4)— 
Net cash used in investing activities(295.9)(351.0)
Cash flows - financing activities  
Dividends paid to shareholders(39.5)(38.6)
FHLB borrowings— 1.0 
Principal repayment on FHLB borrowings(5.0)(50.0)
Acquisition of treasury stock(24.0)(1.7)
Proceeds from exercise of stock options— 0.3 
Withholding tax payments on RSUs tendered(2.4)(2.0)
Annuity contracts: variable, fixed and FHLB funding agreements:  
Deposits516.7 833.2 
Benefits, withdrawals and net transfers to
   Separate Account variable annuity assets		(340.6)(342.1)
  Principal repayment on FHLB funding agreements(94.0)(204.0)
Life policy accounts: 
Deposits7.7 6.7 
Withdrawals and surrenders(2.8)(3.0)
Change in deposit asset on reinsurance(32.4)(17.2)
Net increase in reverse repurchase agreements95.2 — 
Change in book overdrafts3.7 8.2 
Net cash provided by financing activities82.6 190.8 
Net increase (decrease) in cash(97.5)17.9 
Cash at beginning of period133.7 22.3 
Cash at end of period$36.2 $40.2 
  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


SeeThe accompanying Notes toare an integral part of these Consolidated Financial Statements.
Horace Mann Educators Corporation5Quarterly Report on Form 10-Q


HORACE MANN EDUCATORS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017 and 2016
($ 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 togetherunderwrite personal lines of property and casualty insurance products (primarily personal lines of auto and property insurance), life insurance products, retirement products (primarily tax-qualified fixed and variable annuities), voluntary supplemental insurance products (primarily cancer, heart, hospital, supplemental disability and accident coverages), and employer-sponsored group benefit products (primarily short-term and long-term group disability, and group term life coverages), primarily to K-12 teachers, administrators and other employees of public schools and their families (collectively, HMEC, the Company or Horace Mann).
As described in Note 2, the Company acquired Madison National Life Insurance Company, Inc. (Madison National) effective January 1, 2022. In conjunction with the acquisition, management changed how it manages and conducts its subsidiaries,business resulting in three operating segments: (1) Property & Casualty, (2) Life & Retirement, and (3) Supplemental & Group Benefits (which includes the “Company” or “Horace Mann”)results of Madison National).
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 thereto should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Part II - Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31, 2021. The Company believes that these consolidated financial statements containresults of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year.
The accompanying Consolidated Financial Statements and Notes thereto are unaudited and reflect 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 month periodsinterim 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, 2021.
The Company has reclassified the presentation of certain prior period information to conform to the current year's presentation.
Consolidation
All intercompany transactions and balances between HMEC and its subsidiaries and affiliates have been eliminated.
Accounting Policies
Reverse Repurchase Agreements
Beginning in the second quarter of 2022, the Company entered into reverse repurchase agreements to sell securities for cash. Such reverse repurchase agreements are primarily used as a financing tool for general corporate purposes and may be used as a tool to enhance yield on the investment portfolio.
A reverse repurchase agreement is a transaction in which one party (transferor) agrees to sell securities to another party (transferee) in return for cash (or securities), with a simultaneous agreement to repurchase the same securities (or substantially similar securities) at a specified price on a specified date. These transactions are generally short-term in nature, and therefore, the carrying amounts of these instruments approximate fair value.
Horace Mann Educators Corporation6Quarterly Report on Form 10-Q


NOTE 1 - Basis of Presentation and Significant Accounting Policies (continued)
In connection with reverse repurchase agreements, the Company transfers primarily U.S. government, government agency and corporate securities and receives cash. For reverse repurchase agreements, the Company receives cash in an amount equal to at least 95% of the fair value of the securities transferred (i.e., the collateral), and the agreements with third parties contain contractual provisions to allow for additional collateral to be obtained when necessary. The Company accounts for reverse repurchase agreements as secured borrowings. The securities transferred under reverse repurchase agreements are included in Fixed maturity securities with the obligation to repurchase those securities reported in Other liabilities on the Company's Consolidated Balance Sheets. The fair value of the collateral was $95.8 million as of September 30, 20172022 and 2016. $0 as of December 31, 2021. The obligation for securities sold under reverse repurchase agreements was a net amount of $95.2 million as of September 30, 2022 and $0 as of December 31, 2021.
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 reporting 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.
The subsidiariesmost significant critical accounting estimates include valuation of HMEC markethard-to-value fixed maturity securities, evaluation of credit loss impairments for fixed maturity securities, evaluation of goodwill and underwrite personal linesintangible assets for impairment, valuation of annuity and life deferred policy acquisition costs, valuation of liabilities for property and casualty (primarily personal linesunpaid claims and claim expenses, valuation of automobilecertain investment contracts and homeowners)policy reserves and valuation of assets acquired and liabilities assumed under purchase accounting and purchase price allocation.
Future Adoption of New Accounting Standards
Accounting for Long-Duration Insurance Contracts
In August 2018, the FASB issued targeted improvements to the accounting and disclosure guidance for long-duration insurance retirement annuities (primarily tax-qualified products) and lifecontracts (i.e., ASU 2018-12). The guidance in ASU 2018-12 (ASU) significantly changes how insurers account for long-duration 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 includedcontracts. The guidance in the Company’s Annual Report on Form 10-KASU also significantly expands the disclosure requirements 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.
long-duration insurance contracts.
The Company reclassifiedwill adopt 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

Note 1 - Basis of Presentation (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 on fixed maturity and equity securities and the after tax change in net funded status of benefit plans for the period as shown in the Consolidated Statement of Changes in Shareholders’ Equity. The following tables reconcile these components.
($ in thousands) Net Unrealized Investment Gains and Losses on Fixed Maturity and Equity Securities (1)(2) Benefit Plans (1) Total (1)
       
Beginning balance, July 1, 2017 $243,510
 $(11,817) $231,693
Other comprehensive income (loss)
before reclassifications
 9,786
 —
 9,786
Amounts reclassified from accumulated
other comprehensive income (loss)
 2,422
 —
 2,422
Net current period other
comprehensive income
 12,208
 —
 12,208
Ending balance, September 30, 2017 $255,718
 $(11,817) $243,901
       
Beginning balance, January 1, 2017 $175,738
 $(11,817) $163,921
Other comprehensive income (loss)
before reclassifications
 78,419
 —
 78,419
Amounts reclassified from accumulated
other comprehensive income (loss)
 1,561
 —
 1,561
Net current period other
comprehensive income
 79,980
 —
 79,980
Ending balance, September 30, 2017 $255,718
 $(11,817) $243,901

(1)All amounts are net of tax.
(2)The pretax amounts reclassified from accumulated other comprehensive income (loss), $(3,726) thousand and $(2,401) thousand, are included in net realized investment gains and losses and the related income tax expense, $(1,304) thousand and $(840) thousand, are included in income tax expense in the Consolidated Statements of Operations for the three and nine month periods ended September 30, 2017, respectively.
Note 1 - Basis 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 and Losses on Fixed Maturity and Equity Securities”.
Adopted Accounting Standards
Employee Share-based Payment Accounting
EffectiveASU effective January 1, 2017,2023, using 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,modified retrospective transition method where permitted, 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
In May 2014, the Financial Accounting Standards Board (“FASB”) issued accounting guidance to provide a single comprehensive model in accounting for revenue arising from contracts with customers. The guidance applies to all contracts with customers; however, insurance contracts are specifically excluded from this updated guidance. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those years. Early adoption is permitted only for annual reporting periods beginning after December 15, 2016. The Company plans to adoptapply the guidance as of January 1, 2018.2021 (and record transition adjustments as of January 1, 2021) in the Company’s 2023 consolidated financial statements. Prior periods presented (years 2021 and 2022) will be adjusted to apply the new method of accounting retrospectively under the ASU.
While the requirements of the ASU represent a significant change from existing GAAP, the adoption of the ASU will not impact cash flows on the Company’s policies, or the underlying economics of the Company’s business. The Company's insurance subsidiaries' risk-based capital amounts and ratios, and regulatory dividends will not be impacted as the National Association of Insurance contract revenueCommissioners has rejected the adoption of ASU 2018-12.
The Company has created a governance framework and is managing a detailed implementation plan to support timely application of the guidance in the ASU. The Company has made progress and continues to fall underrefine key accounting policy decisions, technology solutions and internal controls. These activities include, but are not limited to, modifications of actuarial valuation, accounting and financial reporting processes and systems including internal controls.
The table below summarizes the scopeareas of ASC 944, Financial Services - Insurance,significant change and ASC 605, Revenue Recognition. The Company performed an evaluationeach significant area of change for the non-insurance contract revenue that would be subject to ASC 606, Revenue from Contracts with Customers,method of adoption and concluded that there is not a materialexpected impact to the consolidated financial statements upon adoption on January 1, 2018.

Recognition and Measurement of Financial Assets and Liabilities
In January 2016, the FASB issued accounting guidance to improve certain aspects of the recognition, measurement, presentation and disclosure of financial instruments.  Among other things, the guidance revises the accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The Company’sCompany's results of operations will be impactedand financial condition as changes in fair value of equity securities will be reported in net income instead of reported in other comprehensive income. The effective date ofa result from adopting the guidance is for interimASU at transition 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 relatedsubsequent to the classification of cash receipts and cash payments for eight specific issues. The FASB acknowledged that current GAAP either is unclear or does not include specific guidance on these eight cash flow classification issues: (1) debt prepayment or extinguishment costs; (2) settlement of zero-coupon bonds (pertains to issuers); (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims (pertains to claimants); (5) proceeds from the settlement of corporate-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions (pertains to transferors) and (8) separately identifiable cash flows and application of the predominance principle. For public business entities, the guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those years, using a retrospective approach. The guidance allows prospective adoption for individual issues if it is impracticable to apply the amendments retrospectively for those issues. Early application is permitted. Management believes the adoption of this accounting guidance will not have a material effect on the classifications in the Company’s consolidated statement of cash flows. The adoption of this accounting guidance will not have any effect on the results of operations or financial position of the Company.

date.
Note
Horace Mann Educators Corporation7Quarterly Report on Form 10-Q


NOTE 1 - Basis of Presentation (Continued)

and Significant Accounting Policies (continued)
Area of significant changeImpacts at transition (January 1, 2021)Impacts subsequent to the effective date
Cash flow assumptions for measuring the liability for future policy benefits
Under current accounting guidance, assumptions for traditional long-duration insurance contracts (e.g., mortality, lapses, etc.), are locked-in at issuance.

The new guidance requires insurers to review, and if necessary, update the cash flow assumptions used to measure liabilities for future policy benefits periodically. The change in the liability estimate as a result of updating cash flow assumptions will be recognized in net income.

The Company expects to adopt this guidance on a modified retrospective basis as of the earliest period presented in the year of adoption. Upon adoption, there will be an adjustment to retained earnings as a result of capping the net premium ratio at 100%.

The Company expects the impact of such adjustment will likely result in an after-tax decrease to retained earnings of less than $5 million.
The Company does not expect any material impacts to its results of operations subsequent to the effective date of the ASU.
Discount rate assumption for measuring the liability for future policy benefits
Under current accounting guidance, the-then current discount rate is locked-in at issuance.

The new guidance requires insurers to update the discount rate assumption used to measure liabilities for future policy benefits at each reporting period, and the discount rate utilized must be based on an upper-medium grade fixed income instrument yield. The change in the liability estimate as a result of updating the discount rate assumption will be recognized in other comprehensive income.
The Company expects to adopt this guidance on a modified retrospective basis as of the earliest period presented in the year of adoption. Upon adoption, there will be an adjustment to accumulated other comprehensive income (AOCI) as a result of remeasuring in force contract liabilities using a standard discount rate to measure the liabilities that will be equivalent to the yield from a high-quality bond and the adjustment will largely reflect the difference between discount rates locked-in at contract inception versus current discount rates at transition.

The Company currently estimates that the transition date impact from adoption is likely to result in an after-tax decrease to AOCI in a range between $475 million and $525 million.

The Company expects material impacts to AOCI subsequent to the effective date of the ASU due to subsequent increases and decreases in discount rates.
Market risk benefits
Under current accounting guidance, certain benefit features of annuity contracts (e.g., GMDB, etc.) are accounted for using a benefit ratio methodology.

The new guidance created a new category of benefit features called market risk benefits that will be measured at fair value with changes in fair value attributable to a change in the instrument-specific credit risk recognized in other comprehensive income.

The Company will adopt this guidance on a retrospective basis as of the earliest period presented in the year of adoption. Upon adoption, the Company expects an impact to AOCI for the cumulative effect of changes in the instrument-specific credit risk between contract issue date and transition date and retained earnings for the difference between fair value and carrying value at the transition date, excluding the changes in the instrument-specific credit risk.

The Company is currently evaluating the impact of these adjustments but anticipates they will likely reduce AOCI and retained earnings by less than $15 million after-tax.

Subsequent to the effective date of the ASU, the Company expects market risk benefits will add volatility to benefits expense which could be material. The Company is currently evaluating the impacts of these adjustments subsequent to the effective date of the ASU.
Deferred policy acquisition costs (DAC) including shadow DAC
Under current accounting guidance, for all annuity contracts, DAC is amortized over 20 years in proportion to estimated gross profits. For individual life contracts, DAC is amortized in proportion to anticipated premiums over the terms of the insurance policies (10, 15, 20, 30) years. For IUL, DAC is amortized in proportion to estimated gross profits over 30 years.

The new guidance requires DAC and other balances to be amortized on a constant level basis over the expected term of the related contracts.
The Company expects to adopt this guidance on a modified retrospective basis as of the earliest period presented in the year of adoption. Upon adoption, the Company expects an adjustment to AOCI for the removal of cumulative adjustments to DAC associated with unrealized investment gains and losses previously recorded in AOCI.

The impact of this adjustment will likely result in an after-tax increase to AOCI in a range between $70 million and $75 million upon adoption.

Subsequent to the effective date of the ASU, the Company expects a significant reduction in volatility of DAC unlocking due to the removal of investment performance and market impacts and an insignificant decrease in amortization expense due to the treatment of interest expense and method of amortizing DAC.
Horace Mann Educators Corporation8Quarterly Report on Form 10-Q


NOTE 2 - Acquisitions
Effective January 1, 2022, the Company acquired all the equity interests in Madison National pursuant to a Stock Purchase Agreement (Agreement) dated as of July 14, 2021. The final adjusted purchase price of the transaction was $172.3 million. The seller of Madison National has a potential earn-out of up to $12.5 million payable in cash, if specified financial targets are achieved by the end of 2023. As a result of the acquisition, Madison National became a wholly owned subsidiary of the Company. Madison National is a leading writer of employer-sponsored benefits provided to educators by K-12 school districts. Founded in 1961 and headquartered in Madison, Wisconsin, Madison National offers short-term and long-term group disability, group term life, and worksite solutions products, including accident and critical illness.
Madison National's results are being reported in the operating segment titled "Supplemental & Group Benefits". The amount of revenues and pretax income for Madison National since the date of acquisition included in the Company's Consolidated Statement of Operations for the nine months ended September 30, 2022 are $106.7 million and $8.8 million (inclusive of the $3.5 million non-cash impact from amortization of intangible assets under purchase accounting), respectively.
The Company anticipates completing the process of estimating the fair value of Madison National assets acquired and liabilities assumed, including, but not limited to, intangible assets, policy reserves and certain tax-related balances by year end. Accordingly, the Company’s preliminary estimates and the allocation of the final adjusted purchase price to the assets acquired and liabilities assumed are subject to change as the Company completes the process. In accordance with Accounting for Leases
In February 2016,Standards Codification (ASC) 805, Business Combinations, changes if any, to the FASB issued accountingpreliminary estimates and disclosure guidance to improve financial reporting and comparability among organizations about leasing transactions. Underallocation of the new guidance, for leases with lease terms of more than 12 months, a lesseefinal adjusted purchase price will be requiredreported in the Company’s consolidated financial statements as an adjustment to recognizethe opening balance sheet. Based on the Company’s preliminary allocation of the final adjusted purchase price, the fair values of the assets acquired and liabilities onassumed were as follows:
($ in millions)
Assets:
Investments$90.4 
Cash and short-term investments123.4 
Reinsurance recoverable356.0 
Intangible assets(1)
59.4 
Other assets23.2 
Liabilities:
Investment contract and policy reserves274.5 
Unpaid claims and claim expenses48.2 
Unearned premiums1.5 
Other policyholder funds152.8 
Other liabilities15.9 
Total identifiable net assets acquired159.5 
Goodwill(2)
12.8 
Purchase price$172.3 
(1)    Intangible assets consist of the balance sheetvalue of business acquired, value of customer relationships and state licenses. The intangible assets that are amortizable have estimated lives of one to ten years. See Note 5 for further information.
(2)    The amount of goodwill that is expected to be deductible for federal income tax purposes is $18.6 million.















Horace Mann Educators Corporation9Quarterly Report on Form 10-Q


NOTE 3 - Investments
Net Investment Income
The components of net investment income for the rights and obligations created by those leases. Consistent with current accounting guidance,following periods were as follows:
($ in millions)Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Fixed maturity securities$63.9 $59.8 $184.5 $177.2 
Equity securities1.8 1.4 7.1 3.8 
Limited partnership interests5.1 16.8 31.3 51.1 
Short-term and other investments2.8 2.8 8.2 8.5 
Investment expenses(2.7)(2.7)(7.8)(7.3)
Net investment income - investment portfolio70.9 78.1 223.3 233.3 
Investment income - deposit asset on reinsurance26.7 25.6 77.4 75.1 
Total net investment income$97.6 $103.7 $300.7 $308.4 
Net Investment Losses
Net investment losses for the recognition, measurement and presentation of expenses and cash flows arisingfollowing periods were as follows:
($ in millions)Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Fixed maturity securities$(10.7)$(4.0)$(15.9)$(7.9)
Equity securities(4.4)(1.0)(32.5)0.7 
Short-term investments and other2.3 (1.5)4.6 (3.4)
Net investment losses$(12.8)$(6.5)$(43.8)$(10.6)

The Company, 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 leasestime to be recognized on the balance sheet, the new guidance will require both operating and capital leasestime, sells fixed maturity securities subsequent to be recognized on the balance sheet. In transition to the new guidance, companies are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those years. Early application is permitted. Management is evaluating the impact this guidance will have on the results of operations and financial position of the Company.
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued guidance to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments, including reinsurance receivables, held by companies. The new guidance replaces the incurred loss impairment methodology and requires an organization to measure and recognize all current expected credit losses (“CECL”) for financial assets held at the reporting date basedthat 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 to sell a fixed maturity security. The types of events that may result in a sale include significant changes in the economic facts and circumstances related to the invested asset, significant unforeseen changes in liquidity needs, or changes in the Company's investment strategy.
Net Investment Losses by Transaction Type
The following table reconciles net investment losses by transaction type:
($ in millions)Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Credit loss impairments$(0.6)$(6.6)$(2.8)$(7.7)
Intent-to-sell impairments(6.2)— (7.6)(2.1)
Total impairments(6.8)(6.6)(10.4)(9.8)
Sales and other, net(3.9)2.7 (3.9)2.2 
Change in fair value - equity securities(4.4)(1.1)(34.1)0.4 
Change in fair value and gains (losses) realized
on settlements - derivatives
2.3 (1.5)4.6 (3.4)
Net investment losses$(12.8)$(6.5)$(43.8)$(10.6)





Horace Mann Educators Corporation10Quarterly Report on Form 10-Q


NOTE 3 - Investments (continued)
Allowance for Credit Loss Impairments on historical experience, current conditions, and reasonable and supportable forecasts. Companies will need to utilize forward-looking information to better inform theirFixed Maturity Securities
The following table presents changes in the allowance for credit loss estimates. Companies will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Credit losses related toimpairments on fixed maturity securities classified as available for sale debtfor the category of other asset-backed securities -- which represent over 90%(no other categories of Horace Mann’s total investment portfolio -- will be recorded throughfixed maturity securities have an allowance for credit losses with this allowance having a limit equal to the amount by which fair value is below amortized cost. The guidance also requires enhanced qualitative and quantitative disclosures to provide additional information about the amounts recorded in the financial statements. 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 position of the Company.loss impairments):

 Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued guidance to simplify the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill for reporting units with zero or negative carrying amounts. Public business entities should adopt the guidance prospectively for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early application is permitted. Management believes the adoption of this accounting guidance will not have a material effect on how it tests goodwill for impairment.

Note 2 - Investments

The Company’s investment portfolio includes free-standing derivative financial instruments (currently over the counter (“OTC”) index call option contracts) to economically hedge risk associated with its fixed indexed annuity (“FIA”) and indexed universal life (“IUL”) products’ contingent liabilities. The Company’s FIA and IUL products include embedded derivative features that are discussed in “Note 1 -- Summary of Significant Accounting Policies -- Investment Contract and Life Policy Reserves -- Reserves for Fixed Indexed Annuities and Indexed Universal Life Policies” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The Company’s investment portfolio included no other free-standing derivative financial instruments (futures, forwards, swaps, option contracts or other financial instruments with similar characteristics), and there were no other embedded derivative features related to the Company’s investment or insurance products during the nine month periods ended September 30, 2017 and 2016.
Note 2 - Investments (Continued)


($ in millions)Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Beginning balance$9.5 $1.1 $7.7 $— 
Credit losses on fixed maturity securities for which credit losses were not previously reported— 6.6 — 7.7 
Net increase related to credit losses previously reported0.6 — 2.8 — 
Reduction of credit allowances related to sales— — — — 
Write-offs— — (0.4)— 
Ending balance$10.1 $7.7 $10.1 $7.7 
Fixed Maturity and Equity Securities
The Company’sCompany's investment portfolio is comprised primarily of fixed maturity securities and also includes equity securities. The amortizedAmortized cost, or cost,net, gross unrealized investment gains (losses) and losses, fair values and other-than-temporary impairment (“OTTI”) included in accumulated other comprehensive income (“AOCI”) of all fixed maturity and equity securities in the portfolio were as follows:
($ in millions)Amortized
Cost, net		Gross Unrealized
Gains		Gross Unrealized
Losses		Fair
Value
September 30, 2022
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:(1)
Mortgage-backed securities$643.7 $1.5 $66.1 $579.1 
Other, including U.S. Treasury securities408.3 0.4 66.0 342.7 
Municipal bonds1,440.9 14.5 147.5 1,307.9 
Foreign government bonds37.2 — 1.7 35.5 
Corporate bonds2,228.8 10.0 311.0 1,927.8 
Other asset-backed securities1,145.2 2.9 69.0 1,079.1 
Totals$5,904.1 $29.3 $661.3 $5,272.1 
December 31, 2021
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:(1)
Mortgage-backed securities$612.1 $51.9 $1.5 $662.5 
Other, including U.S. Treasury securities342.5 27.7 4.3 365.9 
Municipal bonds1,519.7 184.4 0.7 1,703.4 
Foreign government bonds40.2 3.4 — 43.6 
Corporate bonds2,217.7 176.2 5.2 2,388.7 
Other asset-backed securities1,065.5 16.6 6.9 1,075.2 
Totals$5,797.7 $460.2 $18.6 $6,239.3 
(1)    Fair value includes securities issued by Federal National Mortgage Association (FNMA) of $337.5 million and $376.7 million; Federal Home Loan Mortgage Corporation (FHLMC) of $271.1 million and $326.5 million; and Government National Mortgage Association (GNMA) of $90.2 million and $112.1 million as of September 30, 2022 and December 31, 2021, respectively.
($ 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 2

NOTE 3 - 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, 20172022 and December 31, 2016,2021, respectively. The Company views the decrease in fair value of all of the fixed maturity securities with unrealized losses at September 30, 2017 --2022 — 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, 2022, 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 in value. There has been a significant increase in interest rates since December 31, 2021, driven mostly by increases in U.S. Treasury rates, though credit spreads also widened. The 10-year U.S. Treasury yield increased 232 basis points for the nine months ended September 30, 2022, rising from 1.51% at December 31, 2021 to 3.83% at September 30, 2022. Additionally, credit spreads widened during the same time period, with investment grade and high yield wider by 69 and 233 basis points, respectively. These upward movements in rates caused market yields in the Company's portfolios to rise sharply, with downward pressure on prices. Investment grade and high yield total returns for the nine months ended September 30, 2022 were down 18.3% and 14.6%, respectively. The Bloomberg Barclays Index Yield-to-Worst for Investment Grade rose 3.4% for the nine months ended September 30, 2022, ending at 5.7%, while the High Yield Index increased by 5.5% to 9.7%. The Company's portfolios generated sizable unrealized losses as a result of sharp increases in interest rates. 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 indicative of cost and recoveryany impairments as of cost is expected within a reasonable period of time.September 30, 2022.
($ in millions)12 Months or LessMore than 12 MonthsTotal
Fair ValueGross
Unrealized
Losses		Fair ValueGross
Unrealized
Losses		Fair ValueGross
Unrealized
Losses
September 30, 2022
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:
Mortgage-backed securities$472.2 $51.5 $51.3 $14.6 $523.5 $66.1 
Other266.6 36.6 58.0 29.4 324.6 66.0 
Municipal bonds1,035.5 143.5 9.7 4.0 1,045.2 147.5 
Foreign government bonds35.4 1.7 — — 35.4 1.7 
Corporate bonds1,496.6 280.0 80.3 31.0 1,576.9 311.0 
Other asset-backed securities776.2 52.4 213.9 16.6 990.1 69.0 
Total$4,082.5 $565.7 $413.2 $95.6 $4,495.7 $661.3 
Number of positions with a
   gross unrealized loss
3,002 303 3,305 
Fair value as a percentage of total fixed
   maturity securities at fair value
77.4 %7.8 %85.2 %
December 31, 2021
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:
Mortgage-backed securities$67.4 $1.3 $3.9 $0.2 $71.3 $1.5 
Other59.5 1.7 35.1 2.6 94.6 4.3 
Municipal bonds56.8 0.7 0.6 — 57.4 0.7 
Foreign government bonds— — — — — — 
Corporate bonds220.7 3.8 44.1 1.4 264.8 5.2 
Other asset-backed securities379.0 3.8 128.2 3.1 507.2 6.9 
Total$783.4 $11.3 $211.9 $7.3 $995.3 $18.6 
Number of positions with a
   gross unrealized loss
516 122 638 
Fair value as a percentage of total fixed
   maturity securities at fair value
12.6 %3.4 %16.0 %


($ 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)Horace Mann Educators CorporationIncludes nonredeemable perpetual preferred stocks, common stocks and closed-end funds.12Quarterly Report on Form 10-Q


Note 2

NOTE 3 - Investments (Continued)(continued)


Fixed maturity and equity securities with an investment grade rating represented 92%94.9% of the gross unrealized losses as of September 30, 2017.2022. 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.
Credit Losses
The following table summarizes the cumulative amounts related to the Company’s credit loss component of OTTI losses on fixed maturity securities held as of September 30, 2017 and 2016 that the Company did not intend to sell as of those dates, and it was not more likely than not that the Company would be required to sell the securities before the anticipated recovery of the amortized cost bases, for which the non-credit portions of OTTI losses were recognized in other comprehensive income:
($ 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.

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 millions)Percent of Total Fair ValueSeptember 30, 2022
September 30, 2022December 31, 2021Fair
Value		Amortized
Cost, net
Estimated expected maturity:
Due in 1 year or less3.9 %4.0 %$204.0 $204.6 
Due after 1 year through 5 years26.0 27.0 1,369.3 1,439.0 
Due after 5 years through 10 years28.3 27.7 1,492.6 1,621.7 
Due after 10 years through 20 years25.5 23.9 1,348.3 1,551.8 
Due after 20 years16.3 17.4 857.9 1,087.0 
Total100.0 %100.0 %$5,272.1 $5,904.1 
Average option-adjusted duration, in years6.56.7
($ 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
    

Note 2 - Investments (Continued)


Sales of Fixed Maturity and Equity Securities

Proceeds received from sales of fixed maturity and equity securities, each determined using the specific identification method, and gross gains and gross losses realized as a result of those sales for each period were:were as follows:
($ in millions)Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Fixed maturity securities
Proceeds received$164.6 $155.4 $529.9 $319.2 
Gross gains realized1.1 3.2 4.7 6.2 
Gross losses realized(5.0)(0.7)(10.2)(4.3)
Equity securities
Proceeds received$0.2 $0.3 $6.0 $1.0 
Gross gains realized— 0.1 1.7 0.3 
Gross losses realized— — (0.1)— 
($ 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)








Horace Mann Educators Corporation13Quarterly Report on Form 10-Q


NOTE 3 - Investments (continued)

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 millions)Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Net unrealized investment gains (losses)
   on fixed maturity securities, net of tax
Beginning of period$(283.2)$399.4 $348.9 $439.8 
Change in net unrealized investment gains
   (losses) on fixed maturity securities		(228.0)(34.9)(886.5)(77.0)
Reclassification of net investment losses
   on fixed maturity securities to net income		11.9 3.9 38.3 5.6 
End of period$(499.3)$368.4 $(499.3)$368.4 
($ 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
Investments in limited partnership interests are accounted for using the equity method of accounting (EMA) and include interests in commercial mortgage loan funds, private equity funds, infrastructure debt funds, infrastructure equity funds and other funds. Principal factors influencing carrying amount appreciation or decline include operating performance, comparable public company earnings multiples, capitalization rates and the economic environment. The Company recognizes an impairment loss for EMA limited partnership interests when evidence demonstrates that the loss is other than temporary. Evidence of a loss in value that is other than temporary may include the absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment. The carrying amounts of EMA limited partnership interests were as follows:
Note 2 - Investments (Continued)
($ in millions)
September 30, 2022December 31, 2021
Commercial mortgage loan funds$601.5 $346.8 
Private equity funds73.4 74.0 
Infrastructure equity funds70.2 58.3 
Infrastructure debt funds67.4 62.4 
Other funds(1)
185.0 171.3 
Total$997.5 $712.8 


(1)Other funds consist primarily of limited partnership interests in corporate mezzanine, venture capital and other fund strategies.
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 have been reached. The Company’s reverse repurchase agreements are reached.
also subject to enforceable master netting arrangements but there was no offsetting in their presentation in the Company’s Consolidated Balance Sheets. Information regarding the Company's derivatives is contained in Part II - Item 8, Note 5 in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. The following table presents the instruments that were subject to a master netting arrangement for the Company.
Horace Mann Educators Corporation14Quarterly Report on Form 10-Q
($ 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)


NOTE 3 - Investments (continued)
($ in millions)Gross
Amounts
Offset in the
Consolidated
Balance
Sheets		Net Amounts
of Assets/
Liabilities
Presented
in the
Consolidated
Balance
Sheets		Gross Amounts Not Offset
in the Consolidated
Balance Sheets
Gross
Amounts		Financial
Instruments		Cash
Collateral
Received		Net
Amount
September 30, 2022
Asset derivatives:
Free-standing derivatives$2.0 $— $2.0 $— $1.8 $0.2 
December 31, 2021
Asset derivatives:
Free-standing derivatives$10.7 $— $10.7 $4.5 $6.4 $(0.2)
Deposits
At September 30, 20172022 and December 31, 2016,2021, fixed maturity securities with a fair value of $18,133 thousand$30.0 million and $18,119 thousand,$26.2 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, 20172022 and December 31, 2016,2021, fixed maturity securities with a fair value of $620,558 thousand$920.7 million and $620,489 thousand,$870.1 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$842.5 million at both of the respective dates.September 30, 2022 and $787.5 million at December 31, 2021. The deposited securities are included inreported as Fixed maturity securities on the Company’s Consolidated Balance Sheets.
Note 3NOTE 4 - 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) and EMA limited partnership interests are not required to be disclosed. However, the estimated fair values of liabilities under all insurance contracts are taken into consideration in the Company’s overall management of interest rate risk through the matching of investment maturities with amounts due under insurance contracts.
Information regarding the three-level fair value 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”.

2021.
Note 3
Horace Mann Educators Corporation15Quarterly Report on Form 10-Q


NOTE 4 - 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 thosefinancial assets and financial liabilities measured and carried at fair value on a recurring basis. During the nine months ended September 30, 2022 and 2021, there were no transfers between Level 1 and Level 2. At September 30, 2017,2022, Level 3 invested assets comprised 3.3%7.4% of the Company’s total investment portfolio at fair value.
($ in millions)Carrying
Amount		Fair
Value		Fair Value Measurements at
Reporting Date Using
 Level 1Level 2Level 3
September 30, 2022
Financial Assets
Investments
Fixed maturity securities
U.S. Government and federally
   sponsored agency obligations:
Mortgage-backed securities$579.1 $579.1 $— $576.5 $2.6 
Other, including U.S. Treasury securities342.8 342.7 24.5 318.2 — 
Municipal bonds1,307.9 1,307.9 — 1,254.6 53.3 
Foreign government bonds35.4 35.5 — 35.5 — 
Corporate bonds1,927.8 1,927.8 12.8 1,675.2 239.8 
Other asset-backed securities1,079.1 1,079.1 — 974.5 104.6 
Total fixed maturity securities5,272.1 5,272.1 37.3 4,834.5 400.3 
Equity securities113.8 113.8 22.4 89.4 2.0 
Short-term investments51.4 51.4 49.0 2.4 — 
Other investments34.0 34.0 — 34.0 — 
Totals$5,471.3 $5,471.3 $108.7 $4,960.3 $402.3 
Separate Account variable annuity assets(1)
$2,599.6 $2,599.6 $2,599.6 $— $— 
Financial Liabilities
Investment contract and policy reserves,
 embedded derivatives
$0.4 $0.4 $— $0.4 $— 
Other policyholder funds, embedded derivatives$89.9 $89.9 $— $— $89.9 
December 31, 2021
Financial Assets
Investments
Fixed maturity securities
U.S. Government and federally
   sponsored agency obligations:
Mortgage-backed securities$662.5 $662.5 $— $662.5 $— 
Other, including U.S. Treasury securities365.9 365.9 17.7 348.2 — 
Municipal bonds1,703.4 1,703.4 — 1,642.6 60.8 
Foreign government bonds43.6 43.6 — 43.6 — 
Corporate bonds2,388.7 2,388.7 14.9 2,163.5 210.3 
Other asset-backed securities1,075.2 1,075.2 — 976.3 98.9 
Total fixed maturity securities6,239.3 6,239.3 32.6 5,836.7 370.0 
Equity securities147.2 147.2 35.2 110.6 1.4 
Short-term investments157.8 157.8 157.8 — — 
Other investments43.6 43.6 — 43.6 — 
Totals$6,587.9 $6,587.9 $225.6 $5,990.9 $371.4 
Separate Account (variable annuity) assets(1)
$3,441.0 $3,441.0 $3,441.0 $— $— 
Financial Liabilities     
Investment contract and policy reserves,
 embedded derivatives
$2.1 $2.1 $— $2.1 $— 
Other policyholder funds, embedded derivatives$106.6 $106.6 $— $— $106.6 
($ 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 assets represent contractholder funds invested in various actively traded mutual funds that have daily quoted net asset values that are readily determinable for identical assets that the Company can access. 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


Note 3NOTE 4 - 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 3financial assets and financial liabilities measured at fair value on a recurring basis.basis using significant unobservable inputs (Level 3) were as follows:
($ in millions)Financial Assets
Financial
Liabilities(1)
Municipal
Bonds		Corporate
Bonds

Mortgage-Backed
and Other
Asset-
Backed
Securities(2)
Total
Fixed
Maturity
Securities		Equity
Securities		Total
Beginning balance, July 1, 2022$51.0 $270.5 $97.1 $418.6 $1.4 $420.0 $93.2 
Transfers into Level 3(3)
— 20.5 12.2 32.7 0.8 33.5 — 
Transfers out of Level 3(3)
— (34.8)— (34.8)— (34.8)— 
Total gains or losses
Net investment gains (losses)
 included in net income related
 to financial assets
— — (0.8)(0.8)(0.1)(0.9)— 
Net investment (gains) losses
 included in net income related
 to financial liabilities
— — — — — — (4.6)
Net unrealized investment gains
 (losses) included in OCI
(5.3)(7.4)(3.9)(16.6)— (16.6)— 
Purchases0.2 8.4 7.9 16.5 — 16.5 — 
Issuances— — — — — — 2.7 
Sales— — — — — — — 
Settlements— — — — — — — 
Paydowns, maturities and distributions7.4 (17.4)(5.3)(15.3)(0.1)(15.4)(1.4)
Ending balance, September 30, 2022$53.3 $239.8 $107.2 $400.3 $2.0 $402.3 $89.9 
Beginning balance, January 1, 2022$60.8 $210.3 $98.9 $370.0 $1.4 $371.4 $106.6 
Transfers into Level 3(3)
— 144.0 34.5 178.5 0.8 179.3 — 
Transfers out of Level 3(3)
(3.2)(34.9)(4.8)(42.9)— (42.9)— 
Total gains or losses
Net investment gains (losses)
 included in net income related
 to financial assets
— — (3.1)(3.1)(0.1)(3.2)— 
Net investment (gains) losses
 included in net income related
 to financial liabilities
— — — — — — (14.4)
Net unrealized investment gains
 (losses) included in OCI
(11.6)(18.7)(11.3)(41.6)— (41.6)— 
Purchases0.2 13.3 7.9 21.4 — 21.4 — 
Issuances— — — — — — 4.8 
Sales— — (2.1)(2.1)— (2.1)— 
Settlements— — — — — — — 
Paydowns, maturities and distributions7.1 (74.2)(12.8)(79.9)(0.1)(80.0)(7.1)
Ending balance, September 30, 2022$53.3 $239.8 $107.2 $400.3 $2.0 $402.3 $89.9 
(1)Represents embedded derivatives, all related to the Company's fixed indexed annuity products, reported in Other policyholder funds in the Company's Consolidated Balance Sheets.
(2)Includes U.S. Government and federally sponsored agency obligations for mortgage-backed securities and other asset-backed securities.
(3)Transfers into and out of Level 3 during the three and nine months ended September 30, 2022 were related to changes in the primary pricing source and changes in observability of external information used in determining fair value. 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 3
NOTE 4 - Fair Value of Financial Instruments (Continued)

(continued)

($ in millions)Financial Assets
Financial
Liabilities(1)
Municipal
Bonds		Corporate
Bonds

Mortgage-Backed
and Other
Asset-
Backed
Securities(2)
Total
Fixed
Maturity
Securities		Equity
Securities		Total
Beginning balance, July 1, 2021$58.6 $150.5 $115.5 $324.6 $0.3 $324.9 $108.9 
Transfers into Level 3(3)
— 55.7 4.0 59.7 — 59.7 — 
Transfers out of Level 3(3)
— — — — — — — 
Total gains or losses
Net investment gains (losses)
 included in net income related
 to financial assets
— — (6.6)(6.6)0.1 (6.5)— 
Net investment (gains) losses
 included in net income related
 to financial liabilities
— — — — — — 0.7 
Net unrealized investment gains
 (losses) included in OCI
(0.3)(0.1)6.6 6.2 — 6.2 — 
Purchases— — — — — — — 
Issuances— — — — — — 1.4 
Sales— — — — — — — 
Settlements— — — — — — — 
Paydowns, maturities and distributions(0.1)(1.1)(21.0)(22.2)— (22.2)(4.3)
Ending balance, September 30, 2021$58.2 $205.0 $98.5 $361.7 $0.4 $362.1 $106.7 
Beginning balance, January 1, 2021$59.6 $155.8 $139.4 $354.8 $0.3 $355.1 $104.5 
Transfers into Level 3(3)
— 108.3 10.2 118.5 — 118.5 — 
Transfers out of Level 3(3)
— (56.7)(19.2)(75.9)— (75.9)— 
Total gains or losses
Net investment gains (losses)
 included in net income related
 to financial assets
— — (7.7)(7.7)0.1 (7.6)— 
Net investment (gains) losses
 included in net income related
 to financial liabilities
— — — — — — 8.2 
Net unrealized investment gains
 (losses) included in OCI
(0.9)1.0 8.7 8.8 — 8.8 — 
Purchases— — — — — — — 
Issuances— — — — — — 3.3 
Sales— — — — — — — 
Settlements— — — — — — — 
Paydowns, maturities and distributions(0.5)(3.4)(32.9)(36.8)— (36.8)(9.3)
Ending balance, September 30, 2021$58.2 $205.0 $98.5 $361.7 $0.4 $362.1 $106.7 
($ in thousands) Financial Assets 
Financial
Liabilities(1)
  
Municipal
Bonds
 
Corporate
Bonds
 
Mortgage-
Backed
Securities (2)
 
Total
Fixed
Maturity
Securities
 
Equity
Securities
 
Short-term
Investments
 Total  
Beginning balance, July 1, 2016 $47,647
 $73,408
 $96,581
 $217,636
 $6
 $—
 $217,642
 $47,706
Transfers into Level 3 (3) —
 10,375
 7,655
 18,030
 —
 —
 18,030
 —
Transfers out of Level 3 (3) —
 (5,967) (788) (6,755) —
 —
 (6,755) —
Total gains or losses                
Net realized investment gains (losses) included in net
income related to financial assets
 —
 1
 (56) (55) —
 —
 (55) —
Net realized (gains) losses
included in net income
related to financial liabilities
 —
 —
 —
 —
 —
 —
 —
 68
Net unrealized investment gains
(losses) included in other
comprehensive income
 (2,361) 1,292
 3,951
 2,882
 —
 —
 2,882
 —
Purchases —
 —
 —
 —
 —
 —
 —
 —
Issuances —
 —
 —
 —
 —
 —
 —
 6,710
Sales —
 —
 —
 —
 —
 —
 —
 —
Settlements —
 —
 —
 —
 —
 —
 —
 —
Paydowns, maturities
and distributions
 (120) (1,488) (5,194) (6,802) —
 —
 (6,802) 695
Ending balance, September 30, 2016 $45,166
 $77,621
 $102,149
 $224,936
 $6
 $—
 $224,942
 $55,179
                 
Beginning balance, January 1, 2016 $30,379
 $67,575
 $75,466
 $173,420
 $6
 $—
 $173,426
 $39,021
Transfers into Level 3 (3) 14,751
 21,451
 32,281
 68,483
 —
 —
 68,483
 —
Transfers out of Level 3 (3) —
 (5,967) (788) (6,755) —
 —
 (6,755) —
Total gains or losses                
Net realized investment gains
(losses) included in net
income related to
financial assets
 —
 (656) (56) (712) —
 —
 (712) —
Net realized (gains) losses
included in net income
related to financial liabilities
 —
 —
 —
 —
 —
 —
 —
 2,066
Net unrealized investment gains
(losses) included in other
comprehensive income
 420
 3,073
 4,173
 7,666
 —
 —
 7,666
 —
Purchases —
 —
 —
 —
 —
 —
 —
 —
Issuances —
 —
 —
 —
 —
 —
 —
 15,194
Sales —
 —
 —
 —
 —
 —
 —
 —
Settlements —
 —
 —
 —
 —
 —
 —
 —
Paydowns, maturities
and distributions
 (384) (7,855) (8,927) (17,166) —
 —
 (17,166) (1,102)
Ending balance, September 30, 2016 $45,166
 $77,621
 $102,149
 $224,936
 $6
 $—
 $224,942
 $55,179
(1)    Represents embedded derivatives, all related to the Company's fixed indexed annuity products, reported in Other policyholder funds in the Company's Consolidated Balance Sheets.

(1)Represents embedded derivatives, all related to the Company’s FIA products, reported in Other policyholder funds in the Company’s Consolidated Balance Sheets.
(2)Includes U.S. Government and federally sponsored agency obligations for mortgage-backed securities and other mortgage-backed securities.
(3)Transfers into and out of Level 3 during the three and nine month periods ended September 30, 2016 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.

(2)    Includes U.S. Government and federally sponsored agency obligations for mortgage-backed securities and other asset-backed securities.
At(3)    Transfers into and out of Level 3 during the three and nine months ended September 30, 2017,2021 were attributable to changes in the availability of observable market information for individual fixed maturity securities. The Company's policy is to recognize transfers into and out of the levels as having occurred at the end of the reporting period in which the transfers were determined.

For the three and nine months ended September 30, 2022, the Company impaired twohad net investment losses of $0.9 million and $3.2 million that were included in net income and were primarily attributable to credit loss impairments for Level 3 securities for a $1,874 thousand realized loss. Atfinancial assets. For the three and nine months ended September 30, 2016, there were no2022, the Company had net realized investment gains or lossesof $4.6 million and $14.4 million that were included in earnings thatnet income and 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; for the three and nine month periods ended September 30, 2016, the respective loss amounts were $68 thousand and $2,066 thousand.
financial liabilities.
Note 3
Horace Mann Educators Corporation18Quarterly Report on Form 10-Q


NOTE 4 - 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 millions)
Financial
Assets
Fair Value at
September 30, 2022
Valuation Technique(s)Unobservable Inputs
Range
(Weighted Average)
and Single Point Best Estimate(1)
Municipal bonds$53.3 discounted cash flowoption adjusted spread330 - 446 bps
Corporate bonds239.8 discounted cash flow
N spread(2)
363 bps
discounted cash flow
T spread(3)
16 - 403 bps
discounted cash flowyield3.8% - 11.2%
discounted cash flowexit cap rate6.2%
discounted cash flowoccupancy rate31.0% - 100.0%
discounted cash flowoption adjusted spread242 - 393 bps
discounted cash flowweighted average cost of capital5.0%
discounted cash flowdiscount rate11.3% - 12.0%
market comparableEV / Fwd EBITDA (x)5.1x
Mortgage-backed and other asset-backed securities107.2 discounted cash flowdiscount margin30.4%
discounted cash flowdiscount rate16.0% - 21.0%
discounted cash flowmedian comparable yield17.2% - 33.1%
discounted cash flowyield7.0% - 7.4%
discounted cash flowLIBOR1.0%
discounted cash flowPDI spread6.8%
discounted cash flowSBL spread4.5%
discounted cash flowweighting17.0% - 83.0%
discounted cash flowCPR20.0%
discounted cash flowdefault rate annual4.0%
discounted cash flowrecovery65.0%
discounted cash flowN spread463 bps
discounted cash flowT Spread226 bps
Equity securities2.0black-scholesvolatilitylow 32.0% - high 47.0%
($ in millions)
Financial
Liabilities
Fair Value at
September 30, 2022
Valuation Technique(s)Unobservable Inputs
Range
(Weighted Average)
and Single Point Best Estimate(1)
Derivatives
embedded in
fixed indexed annuity products		$89.9 discounted cash flowlapse rate5.3%
mortality multiplier(4)
66.8%
      option budget 0.9% - 3.3%
non-performance adjustment(5)
5.0%
(1)    When a range of unobservable inputs is not readily available, the Company uses a single point best estimate.
(2)    "N spread" is the interpolated weighted average life point on the swap curve.
(3)    "T spread" is a specific point on the OTR curve.
(4)    Mortality multiplier is applied to the Annuity 2000 table.
(5)    Determined as a percentage of the risk-free rate.



Horace Mann Educators Corporation19Quarterly Report on Form 10-Q


NOTE 4 - Fair Value of Financial Instruments (continued)
The valuation techniques and significant unobservable inputs used in the fair value measurement for financial assets and financial liabilities classified as Level 3 are subject to the control processes as described in “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, 2016.2021. Generally, valuation techniques for fixed maturity securities include spread pricing, matrix pricing and discounted cash flow methodologies; include inputs such as quoted prices for identical or similar securities that are less liquid; and are based on lower levels of trading activity than securities classified as Level 2. The valuation techniques and significant unobservable inputs used in the fair value measurement for equity securities classified as Level 3 use similar valuation techniques and significant unobservable inputs as those used for fixed maturity securities.
The sensitivity of the estimated fair values to changes in the significant unobservable inputs for fixed maturity and equity securities included in Level 3 generally relate to interest rate spreads, illiquidity 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
Value
The Company has various other financial assets and financial liabilities used in the normal course of business that are not carried at fair value, but for which fair value disclosure is required. These financial assets and financial liabilities are further described in Part II - Item 8, Note 4 in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. The following table presents the carrying value,amount, fair value and fair value hierarchy of these financial assets and financial liabilities.
($ in millions)Carrying
Amount		Fair
Value		Fair Value Measurements at
Reporting Date Using
Level 1Level 2Level 3
September 30, 2022
Financial Assets
Other investments$169.1 $172.5 $— $— $172.5 
Deposit asset on reinsurance2,525.6 2,164.9 — — 2,164.9 
Financial Liabilities
Investment contract and policy reserves,
fixed annuity contracts
5,005.8 5,068.8 — — 5,068.8 
Investment contract and policy reserves,
account values on life contracts
109.5 119.3 — — 119.3 
Other policyholder funds910.8 910.8 — 857.9 52.9 
Short-term debt249.0 249.0 — — 249.0 
Long-term debt248.9 249.5 — 249.5 — 
December 31, 2021
Financial Assets
Other investments$148.8 $152.4 $— $— $152.4 
Deposit asset on reinsurance2,481.5 2,935.1 — — 2,935.1 
Financial Liabilities     
Investment contract and policy reserves,
fixed annuity contracts
4,941.3 5,004.9 — — 5,004.9 
Investment contract and policy reserves,
account values on life contracts
105.4 115.4 — — 115.4 
Other policyholder funds839.3 839.3 — 782.8 56.5 
Short-term debt249.0 249.0 — — 249.0 
Long-term debt253.6 277.4 — 277.4 — 
($ 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
 —
 —

Note 4 - Derivative Instruments


The Company offers FIA products, which are deferred fixed annuities that guarantee the return of principal to the contractholder and credit interest based on a percentage of the gain in a specified market index, and IUL 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, in the Consolidated Statements of Operations.
The change in fair value of the derivatives includes the gains or losses recognized at the expiration of the option term or early termination and the changes in fair value for open positions. Call options are not purchased to fund the index liabilities which may arise after the next deposit anniversary date. On the respective anniversary dates of the indexed deposits, the index used to compute the annual index credit is reset and new one-year call options are purchased to fund the next annual index credit. The cost of these purchases is managed through the terms of the FIA and IUL contracts, which permit changes to index return caps, participation rates and/or asset fees, subject to guaranteed minimums on each contract’s anniversary date. By adjusting the index return caps, participation rates or asset fees, crediting rates generally can be managed except in cases where the contractual features would prevent further modifications.
The future annual index credits on FIA contracts are treated as a “series of embedded derivatives” over the expected life of the applicable contract with a corresponding reserve recorded. For the IUL contracts, the embedded derivative represents a single year liability for the index return.
The Company carries all derivative instruments as assets or liabilities in the Consolidated Balance Sheets at fair value. The Company elected to not use hedge accounting for derivative transactions related to the FIA and IUL products. As a result, the Company records 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, including derivative instruments embedded in FIA and IUL contracts, presented in the Consolidated Balance Sheets were as follows:
($ 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 those embedded derivatives represent the rights of the policyholder to receive index credits over the entire period the FIA contracts are expected to be in force, which typically exceeds 10 years. The changes in fair value of derivatives included in the Consolidated Statements of Operations were as follows:
($ in thousands) Three Months Ended September 30, Nine Months Ended September 30,
  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.20Quarterly Report on Form 10-Q


NOTE 5 - Goodwill and Intangible Assets
The Company’s strategy attempts to mitigate potential risk of loss under these agreements through a regular monitoring process, which evaluatesCompany conducts impairment testing for goodwill and intangible assets at least annually, or more often if events, changes or circumstances indicate that the program’s effectiveness. The Company is exposed to risk of losscarrying amount may not be recoverable. See Part II - Item 8, Note 1 in the event of nonperformance byCompany's Annual Report on Form 10-K for the counterparties and, accordingly, option contracts are purchased from multiple counterparties, which are evaluatedyear ended December 31, 2021 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") long-term credit rating of “BBB+” 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.
more information regarding impairment testing.
The notionalcarrying amount and fair value of call optionsgoodwill by counterparty and each counterparty’s long-term credit ratings werereporting unit as of September 30, 2022 was as follows:
($ in millions)December 31, 2021ImpairmentAcquisitionSeptember 30, 2022
Property & Casualty$9.5 $— $— $9.5 
Life & Retirement14.4 — — 14.4 
Supplemental & Group Benefits19.6 — 12.8 32.4 
Total$43.5 $— $12.8 $56.3 
($ 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, 20172022, the outstanding amounts of definite-lived intangible assets subject to amortization are attributable to the acquisitions of Benefit Consultants Group, Inc. (BCG) and December 31, 2016,NTA Life Enterprises, LLC (NTA) during 2019, as well as the Company held $10,954 thousandacquisition of Madison National during 2022. The acquisitions of BCG, NTA and $8,824 thousand, respectively,Madison National resulted in initial recognition of cash received from counterparties for derivative collateral, which is included in Other liabilitiesdefinite-lived intangible assets subject to amortization in the Consolidated Balance Sheets. This derivative collateral limitsamounts of $14.1 million, $160.4 million and $56.5 million, respectively. As of September 30, 2022 the Company’s maximum amountoutstanding amounts of economic loss duedefinite-lived intangible assets subject to credit risk that would be incurred if partiesamortization were as follows:
($ in millions)Weighted Average
Useful Life (in Years)
At inception:
Value of business acquired28$100.1 
Value of distribution acquired1754.0 
Value of agency relationships1417.0 
Value of customer relationships1059.9 
Total20231.0 
Accumulated amortization and impairments:
Value of business acquired(26.6)
Value of distribution acquired(13.8)
Value of agency relationships(7.7)
Value of customer relationships(4.5)
Total(52.6)
Net intangible assets subject to amortization:$178.4 
With regards to the call options failed completely to perform according todefinite-lived intangible assets in the termstable above, the value of business acquired intangible asset represents the present value of the contractsexpected 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 $250 thousand per counterparty.
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 as well as the present value of future business to be produced by Madison National's existing independent producing brokers. All of the aforementioned definite-lived intangible assets were valued using the income approach.
Note
Horace Mann Educators Corporation21Quarterly Report on Form 10-Q


NOTE 5 - PropertyGoodwill and CasualtyIntangible Assets (continued)
Estimated future amortization of the Company's definite-lived intangible assets were as follows:
($ in millions)
Year Ending December 31,
2022 (excluding the nine months ended September 30, 2022)$4.1 
202315.5 
202415.1 
202514.8 
202614.5 
Thereafter114.4 
Total$178.4 
The value of business acquired intangible asset is being amortized by product based on the present value of future premiums to be received. The value of distribution acquired intangible asset is being amortized on a straight-line basis. The value of agency relationships intangible asset is being amortized based on the present value of future premiums to be received. The value of customer relationships intangible assets are being amortized based on the present value of future profits to be received for BCG and based on the present value of future premiums for Madison National.
Indefinite-lived intangible assets not subject to amortization as of September 30, 2022 were as follows:
($ in millions)
Trade names$7.9 
State licenses5.9 
Total$13.8 
The trade names intangible asset represents the present value of future savings accruing to NTA and BCG by virtue of not having to pay royalties for the use of the trade names, valued using the relief from royalty method. The state licenses intangible asset represents the regulatory licenses held by NTA and Madison National that were valued using the cost approach.
Horace Mann Educators Corporation22Quarterly Report on Form 10-Q


NOTE 6 - 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)reinsurance balances and the reinsurance recoverable balancesbalances) are reflected on a gross basis in the Consolidated Balance Sheets.
($ in millions)Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Property & Casualty  
Beginning gross reserves(1)
$378.4 $368.4 $362.4 $372.2 
Less: reinsurance recoverables109.8 108.9 110.3 112.9 
Net reserves, beginning of period(2)
268.6 259.5 252.1 259.3 
Incurred claims and claim expenses:  
Claims occurring in the current period120.3 132.5 372.8 345.4 
Increase (decrease) in estimated reserves for claims occurring in prior periods(3)
2.0 (3.0)8.0 (7.2)
Total claims and claim expenses incurred(4)
122.3 129.5 380.8 338.2 
Claims and claim expense payments
for claims occurring during:
  
Current period102.8 96.8 221.1 210.3 
Prior periods29.7 26.4 153.4 121.4 
Total claims and claim expense payments132.5 123.2 374.5 331.7 
Net reserves, end of period(2)
258.4 265.8 258.4 265.8 
Plus: reinsurance recoverables109.0 109.6 109.0 109.6 
Ending gross reserves(1)
$367.4 $375.4 $367.4 $375.4 
(1)Unpaid claims and claim expenses as reported in the Consolidated Balance Sheets also include reserves for Life & Retirement and Supplemental & Group Benefits of $114.5 million and $64.7 million as of September 30, 2022 and 2021, respectively, in addition to Property & Casualty reserves.
($ 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.
(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.

(3)Shows the amounts by which the Company increased (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.
Net favorable development(4)Benefits, claims and settlement expenses as reported in the Consolidated Statements of Operations also include amounts for Life & Retirement and Supplemental & Group Benefits of $51.3 million and $177.4 million for the three and nine months ended September 30, 2022, respectively, in addition to Property & Casualty amounts. Benefits, claims and settlement expenses for Life & Retirement and Supplemental & Group Benefits of $35.3 million and $108.0 million for the three and nine months ended September 30, 2021, respectively.

Development of total reserves for Property and& Casualty claims occurring in prior years was $2,100 thousand$8.0 million net unfavorable and $4,300 thousand$7.2 million net favorable for the nine month periodsmonths ended September 30, 20172022 and 2016,2021, respectively. The favorableunfavorable development for both of the nine month periodsmonths ended September 30, 2017 and 20162022 was predominantly the result of unfavorable loss trends in auto offset by favorable severityloss trends in homeowners loss emergence. This favorable development wasemergence for accident years 20152021 and prior for the nine month period ended September 30, 2017 and accident years 2014 and prior for the nine month period ended September 30, 2016.
prior.
Note 6 - Debt
Horace Mann Educators Corporation23Quarterly 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.
NoteNOTE 7 - 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 net premiums written and contract deposits; net premiums and contract charges earned; and benefits, claims and settlement expenses were as follows:
($ in millions)Direct
Amount
Ceded to
Other
Companies(1)
Assumed
from Other
Companies		Net
Amount
Three months ended September 30, 2022    
Net premiums written and contract deposits(2)
$390.3 $15.4 $13.4 $388.3 
Net premiums and contract charges earned262.0 17.6 13.4 257.8 
Benefits, claims and settlement expenses177.3 8.4 4.7 173.6 
Three months ended September 30, 2021    
Net premiums written and contract deposits(2)
$366.0 $5.5 $2.6 $363.1 
Net premiums and contract charges earned230.9 8.1 2.6 225.4 
Benefits, claims and settlement expenses164.5 1.5 1.8 164.8 
Nine months ended September 30, 2022
Net premiums written and contract deposits(2)
$1,124.4 $46.7 $39.5 $1,117.2 
Net premiums and contract charges earned783.4 53.5 39.6 769.5 
Benefits, claims and settlement expenses577.4 34.2 15.0 558.2 
Nine months ended September 30, 2021
Net premiums written and contract deposits(2)
$1,037.8 $17.0 $6.6 $1,027.4 
Net premiums and contract charges earned696.6 24.6 6.8 678.8 
Benefits, claims and settlement expenses444.7 3.0 4.5 446.2 
(1)    
($ 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.
(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 Exhibit 99.1 in the Company's reports filed with the SEC.
NoteNOTE 8 - Commitments

Investment Commitments
From time to time, theThe Company has outstanding commitments to purchasefund investments and/orprimarily in limited partnership interests. Such unfunded commitments to lend funds under bridge loans. Unfunded commitments to purchase investments were $111,265 thousand$715.5 million and $135,054 thousand at$858.1 million as of September 30, 20172022 and December 31, 2016,2021, respectively.
Horace Mann Educators Corporation24Quarterly Report on Form 10-Q


NoteNOTE 9 - Segment Information


The Company conducts and manages its business throughin four reporting segments. The three operating segments, representing the major lines of business, are: (1) Property and& Casualty primarily(primarily personal lines automobileof auto and homeownersproperty insurance products;products), (2) Life & Retirement primarily(primarily tax-qualified fixed and variable annuities;annuities as well as life insurance products), and Life,(3) Supplemental & Group Benefits (primarily cancer, heart, hospital, supplemental disability, accident, short-term and long-term group disability, and group term life insurance.coverages). 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 fourth 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 in Corporate & Other have also have included corporate debt retirement costs/gains,costs, when applicable.
In 2021 and prior, the Company conducted and managed its business through four operating segments: (1) Property & Casualty, (2) Supplemental, (3) Retirement, and (4) Life. The change in operating segments in 2022 aligns with leadership assignments and how the Company makes operating decisions and assesses performance as well as maintaining discrete financial information to evaluate performance and allocate resources. Accordingly, the presentation of prior period segment information has been reclassified to conform to the current year's presentation.
Summarized financial information for these segments is as follows:
($ in millions)Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Net premiums and contract charges earned
Property & Casualty$152.4 $153.3 $452.5 $464.1 
Life & Retirement37.1 40.4 109.7 118.3 
Supplemental & Group Benefits68.3 31.7 207.3 96.4 
Total$257.8 $225.4 $769.5 $678.8 
Net investment income
Property & Casualty$8.0 $11.3 $22.9 $43.8 
Life & Retirement81.4 85.8 254.0 247.4 
Supplemental & Group Benefits8.7 7.2 25.4 19.0 
Corporate & Other— — — — 
Intersegment eliminations(0.5)(0.6)(1.6)(1.8)
Total$97.6 $103.7 $300.7 $308.4 
Net income (loss)
Property & Casualty$(2.5)$(4.7)$(19.4)$42.5 
Life & Retirement12.7 19.1 41.8 47.0 
Supplemental & Group Benefits19.2 11.5 43.6 34.8 
Corporate & Other(15.5)(9.6)(50.1)(22.0)
Total$13.9 $16.3 $15.9 $102.3 
($ in millions)September 30, 2022December 31, 2021
Assets
Property & Casualty$1,052.1 $1,243.4 
Life & Retirement10,719.4 12,064.7 
Supplemental & Group Benefits1,431.7 858.8 
Corporate & Other177.9 281.8 
Intersegment eliminations(67.0)(64.8)
Total$13,314.1 $14,383.9 
($ 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

($ 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 Corporation25Quarterly Report on Form 10-Q


NOTE 10 - 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 millions)
Net Unrealized Investment
 Gains (Losses)
 on Securities(1)
Net Funded Status of
Benefit Plans(1)
Total(1)
Beginning balance, July 1, 2022$(220.4)$(10.2)$(230.6)
Other comprehensive loss before reclassifications(188.2)— (188.2)
Amounts reclassified from AOCI(2)
11.9 — 11.9 
Net current period other comprehensive loss(176.3)— (176.3)
Ending balance, September 30, 2022$(396.7)$(10.2)$(406.9)
Beginning balance, July 1, 2021$332.2 $(11.2)$321.0 
Other comprehensive income before reclassifications(29.3)— (29.3)
Amounts reclassified from AOCI(3)
4.0 — 4.0 
Net current period other comprehensive income(25.3)— (25.3)
Ending balance, September 30, 2021$306.9 $(11.2)$295.7 
Beginning balance, January 1, 2022$290.7 $(10.2)$280.5 
Other comprehensive loss before reclassifications(725.7)— (725.7)
Amounts reclassified from AOCI(2)
38.3 — 38.3 
Net current period other comprehensive loss(687.4)— (687.4)
Ending balance, September 30, 2022$(396.7)$(10.2)$(406.9)
Beginning balance, January 1, 2021$366.3 $(11.2)$355.1 
Other comprehensive loss before reclassifications(65.0)— (65.0)
Amounts reclassified from AOCI(3)
5.6 — 5.6 
Net current period other comprehensive loss(59.4)— (59.4)
Ending balance, September 30, 2021$306.9 $(11.2)$295.7 
(1)All amounts are net of tax.
(2)The pretax amounts reclassified from AOCI, $(15.0) million and $(48.4) million, are included in Net investment gains losses and the related income tax benefits, $(3.2) million and $(10.2) million, are included in income tax expense in the Consolidated Statements of Operations for the three and nine months ended September 30, 2022, respectively.
(3)The pretax amounts reclassified from AOCI, $(5.0) million and $(7.1) million, are included in Net investment losses and the related income tax benefits, $(1.0) million and $(1.5) million, are included in income tax expense in the Consolidated Statements of Operations for the three and nine months ended September 30, 2021, respectively.

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








Horace Mann Educators Corporation26Quarterly Report on Form 10-Q


MANAGEMENT’S DISCUSSION AND ANALYSIS OFNOTE 11 - Supplemental Consolidated Cash and Cash Flow Information
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)
($ in millions)
September 30, 2022December 31, 2021
Cash$35.2 $133.0 
Restricted cash1.0 0.7 
Total cash and restricted cash reported in the Consolidated Balance Sheets$36.2 $133.7 
($ in millions)Nine Months Ended
September 30,
20222021
Cash paid for:
Interest$9.1 $7.3 
Income taxes6.4 20.2 
Non-cash investing activities with 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, 2022 and 2021, respectively.


















Horace Mann Educators Corporation27Quarterly Report on Form 10-Q


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 2022 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 I - Item 1A in this Quarterly Report on Form 10-Q and in the Company’sour Annual Report on Form 10-K for the year ended December 31, 2016. That discussion includes factors such as:2021 for additional information regarding risks and uncertainties.

This MD&A covers the following:
Page
28
29
30
32
33
34
Property & Casualty
34
Life & Retirement
37
Supplemental & Group Benefits
40
Corporate & Other
41
41
44
Introduction
The impact that a prolonged economic recession may havepurpose of this MD&A is to provide an understanding of our consolidated results of operations and financial condition. This MD&A should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in Part I - Item 1 of this report.
HMEC is an insurance holding company focused on helping America’s educators and others who serve the Company’s investment portfolio; volume of new business for automobile, homeowners, retirementcommunity achieve lifelong financial success. Through our subsidiaries, we market and life products; policy renewal rates;underwrite individual and additional annuity contract deposit receipts.
Fluctuations ingroup insurance and financial solutions tailored to 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 yieldneeds 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.educational community including:
The frequency and severity of events such as hurricanes, storms, earthquakes and wildfires, and the ability of the Company to provide accurate estimates of ultimate claim costs in its consolidated financial statements.
Horace Mann Educators Corporation28Quarterly Report on Form 10-Q
The Company’s risk exposure to catastrophe-prone areas. Based on full year 2016 Property and Casualty direct earned premiums, the Company’s ten largest states represented 57% of the segment total. Included in this top ten group are certain states which are considered more prone to catastrophe occurrences: California, North Carolina, Texas, South Carolina, Florida and Louisiana.

The ability of the Company to maintain a favorable catastrophe reinsurance program considering both availability and cost; and the collectibility of reinsurance receivables.
Adverse changes in market appreciation, interest spreads, business persistency and policyholder mortality and morbidity rates and the resulting impact on both estimated reserves and the amortization of deferred policy acquisition costs.
The Company’s ability to refinance outstanding indebtedness or repurchase shares of the Company’s common stock.
The Company’s ability to (1) develop and expand its marketing operations, including agents and other points of distribution, (2) maintain and secure access to educators, school administrators, principals and school business officials; and (3) profitably expand its Property and Casualty business in highly competitive environments.
The effects of economic forces and other issues affecting the educator market including, but not limited to, federal, state and local budget deficits and cut-backs and adverse changes in state and local tax revenues. The effects of these forces can include, among others, teacher layoffs and early retirements, as well as individual concerns regarding employment and economic uncertainty.


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

Executive Summary
Through its subsidiaries, HMEC markets and underwrites •personal lines of property and casualty insurance, annuitiesprimarily auto and property coverages
•retirement products, primarily tax-qualified fixed and variable annuities
•life insurance, in the U.S. The Company markets itsprimarily traditional term and whole life insurance products
•voluntary insurance products, including cancer, heart, hospital, supplemental disability and accident
•employer-sponsored insurance products, primarily long-term disability and short-term disability
We market our products primarily to K-12 teachers, administrators and other employees of public schools and their families.
Effective January 1, 2022, we acquired all the equity interests in Madison National Life Insurance Company, Inc., an insurance company organized under the laws of the State of Wisconsin (Madison National), for $172.3 million. The Seller has a potential earn-out of up to $12.5 million payable in cash, if specified financial targets are achieved by the end of 2023. As a result of the acquisition, Madison National became a wholly owned subsidiary of HMEC.
Beginning in 2022, we are conducting and managing our business in three operating segments: (1) Property & Casualty, (2) Life & Retirement (composed of individual life insurance products and retirement products), and (3) Supplemental & Group Benefits (composed of voluntary and employer-sponsored insurance products). The Supplemental & Group Benefits segment includes the results of Madison National. We do not allocate the impact of corporate-level transactions to the operating segments, consistent with the basis for management's evaluation of the results of those segments, but classify those items in a separate reporting segment, Corporate & Other. See Part I - Item 1, Note 9 of the Consolidated Financial Statements in this report for more information.
Consolidated Financial Highlights
(All comparisons vs. same periods in 2021, unless noted otherwise)
($ in millions)Three Months Ended
September 30,		2022-2021Nine Months Ended
September 30,		2022-2021
20222021Change %20222021Change %
Total revenues$343.0 $329.6 4.1 %$1,036.1 $998.7 3.7 %
Net income13.9 16.3 -14.7 %15.9 102.3 -84.5 %
Per diluted share:
Net income0.33 0.39 -15.4 %0.38 2.43 -84.4 %
Net investment losses, after tax(0.24)(0.11)N.M.(0.82)(0.19)N.M.
Book value per share$26.32 $43.30 -39.2 %
Net income return on equity - last twelve months3.8 %8.5 %
Net income return on equity - annualized1.5 %7.6 %

For the three month periodand nine months ended September 30, 2017, the Company’s net income of $26.5 million decreased $0.4 million compared to the prior year period including an increase in Property and Casualty net income of $6.7 million offset by a $4.9 million reduction in net realized investment gains.

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

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

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 Casualty2022, net income decreased to $2.2$2.4 million compared to net income of $16.0and $86.4 million, in the prior year period as a result of elevated catastrophe losses and non-catastrophe weather-related losses that occurred in the first half of the year. The Property and Casualty combined ratio of 106.5% increased 4.1 points compared to a year ago. Pretax catastrophe losses were $9.8 million higher than the prior year period; favorable prior years' reserve development was $2.2 million pretax less than the prior year period.

On an underlying basis, the nine month 2017 auto loss ratio of 77.0% increased 0.5 points compared to the prior year period. For property, the underlying nine month loss ratio of 49.7% increased 6.1 points compared to the prior year period and was largely relatedrespectively, primarily due to the impact of higher non-catastrophe weather-relatedinflation and other factors driving auto loss severity, equity market declines as well as higher net investment losses that occurredmainly from changes in the first halffair values of the year. The expense ratio for Propertyequity securities and Casualty of 26.7% was slightly below the prior year period.investment impairments.

Horace Mann Educators Corporation29Quarterly Report on Form 10-Q
Total Property and Casualty written premiums of $498.0 million increased 4.6% compared to the prior year period. The growth was driven primarily by rate actions which resulted in an increase in the average premium per policy for both auto and property.

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

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

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

Critical Accounting Policies
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires the Company's management to make estimates and assumptions based on information available at the time the consolidated financial statements are prepared. These estimates and assumptions affect the reported amounts of the Company's consolidated assets, liabilities, shareholders' equity, net income and cash flows. Certain accounting estimates are particularly sensitive because of their significance to the Company's consolidated financial statements and because of the possibility that subsequent events and available information may differ markedly from management's judgments at the time the consolidated financial statements were prepared.
Management has discussed with the Audit Committee the quality, not just the acceptability, of the Company's accounting principles as applied in its financial reporting. The discussions generally included such matters as the consistency of the Company's accounting policies and their application, and the clarity and completeness of the Company's consolidated financial statements, which include related disclosures. For the Company, areas most subject to significant management judgments include: fair value measurements, other-than-temporary impairment of


investments, goodwill, deferred policy acquisition costs for investment contracts and life insurance products with account values, liabilities for property and casualty claims and claim expenses, liabilities for future policy benefits, deferred taxes and valuation of assets and liabilities related to the defined benefit pension plan.
Compared to December 31, 2016, at September 30, 2017, there were no material changes to accounting policies for areas most subject to significant management judgments identified above. In addition to disclosures in “Notes to Consolidated Financial Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, discussion of accounting policies, including certain sensitivity information, was presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations -- Critical Accounting Policies” in that Form 10-K.

Results of Operations
(All comparisons vs. same periods in 2021, unless noted otherwise)
Insurance
($ in millions)Three Months Ended
September 30,		2022-2021Nine Months Ended
September 30,		2022-2021
20222021Change %20222021Change %
Net premiums and contract charges earned$257.8 $225.4 14.4 %$769.5 $678.8 13.4 %
Net investment income97.6 103.7 -5.9 %300.7 308.4 -2.5 %
Net investment losses(12.8)(6.5)N.M.(43.8)(10.6)N.M.
Other income0.4 7.0 -94.3 %9.7 22.1 -56.1 %
Total revenues343.0 329.6 4.1 %1,036.1 998.7 3.7 %
Benefits, claims and settlement expenses173.6 164.8 5.3 %558.2 446.2 25.1 %
Interest credited45.9 51.9 -11.6 %129.1 153.7 -16.0 %
Operating expenses75.6 64.3 17.6 %229.7 182.8 25.7 %
DAC unlocking and amortization expense23.3 22.9 1.7 %76.7 70.5 8.8 %
Intangible asset amortization expense4.2 3.3 27.3 %12.6 9.8 28.6 %
Interest expense5.3 3.4 55.9 %13.5 10.4 29.8 %
Total benefits, losses and expenses327.9 310.6 5.6 %1,019.8 873.4 16.8 %
Income before income taxes15.1 19.0 -20.5 %16.3 125.3 -87.0 %
Income tax expense1.2 2.7 -55.6 %0.4 23.0 -98.3 %
Net income$13.9 $16.3 -14.7 %$15.9 $102.3 -84.5 %

Net Premiums and Contract Charges
($ 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 and Contracts in Force
(actual counts)
  September 30, 2017 December 31, 2016 September 30, 2016
Property and Casualty      
Automobile 482,035 484,915 486,229
Property 217,377 220,137 221,094
Total 699,412 705,052 707,323
Retirement 221,309 219,105 215,445
Life 196,978 197,937 197,792
Earned
For the three month periodand nine months ended September 30, 2017, the Company’s premiums written and contract deposits of $318.4 million decreased $33.2 million, or 9.4%, primarily as a result of a decline in annuity deposits due to lower sales of single premium annuity products. The Company’s2022, net premiums and contract charges earned increased $7.9$32.4 million or 4.1%, compared to the prior year period,and $90.7 million, respectively, primarily due to increases in average premium per policy for both homeownersthe inclusion of Madison National partially offset by lower net premiums earned by Property & Casualty and automobile.

Total Property and Casualty premiums written increased 4.6%, or $21.7 million, in the first nine months of 2017, compared to the prior year period, primarily due to increases in average written premium per policy for both homeowners and automobile. For 2017, the Company’s full year rate plan anticipates low-double digit average rate increases for automobile and mid-single digit average rate increases for homeowners (including states with no rate actions for both automobile and homeowners); average approved rate changes during the first nine months of 2017 were 8.7% for automobile and 4.3% for homeowners.


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

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. The number of educator policies represented approximately 85% of the automobile policies in force at September 30, 2017, December 31, 2016 and September 30, 2016.
Homeowners premiums written increased 1.7%, or $2.7 million, compared to the first nine months of 2016. While the number of homeowners policies in force has declined, the average written premium per policy and average earned premium per policy increased approximately 2.0% and 3.2%, respectively, in the first nine months of 2017 compared to the prior year period. The number of educator policies represented approximately 82% of the homeowners policies in force at September 30, 2017, December 31, 2016 and September 30, 2016. The number of educator policies and total policies has been, and may continue to be, impacted by the Company’s risk mitigation programs, including actions in catastrophe-prone coastal areas, involving policies of both educators and non-educators.
The Company continues to evaluate and implement actions to further mitigate its risk exposure in hurricane-prone areas, as well as other areas of the country. Such actions could include, but are not limited to, non-renewal of homeowners policies, restricted agent geographic placement, limitations on agent new business sales, further tightening of underwriting standards and increased utilization of third-party vendor products.
For the nine month period ended September 30, 2017, total annuity deposits received by Retirement decreased 11.0%, or $43.0 million, compared to the prior year period. For the first nine months of 2017, the decrease reflected a 1.1% increase in recurring deposit receipts and a 18.8% decrease in single premium and rollover deposit receipts.
For the nine month period ended September 30, 2017, new deposits to fixed accounts of $221.2 million decreased 19.4%, or $53.1 million, and new deposits to variable accounts of $127.7 million increased 8.6%, or $10.1 million, compared to the prior year period.
Total annuity accumulated value on deposit of $6.6 billion at September 30, 2017 increased 4.9% compared to a year earlier, reflecting the increase from new deposits received, market appreciation as well as favorable retention. Accumulated value retention for the variable annuity option was 89.7% and 94.6% for the 12 month periods ended September 30, 2017 and 2016, respectively; fixed annuity retention was 92.6% and 94.6% for the respective periods. The accumulated value retention for both variable and fixed annuities was impacted by the transfer of the Company's 401(k) assets to a third-party provider that occurred during the first half of 2017.
Variable annuity accumulated balances of $2.1 billion at September 30, 2017 increased 9.5% compared to September 30, 2016, as positive impacts of deposits and favorable financial market performance offset withdrawals and net transfers to the guaranteed interest rate fixed account option. Compared to the nine month period ended September 30, 2016, Retirementlower contract charges earned increased 11.8%, or $2.2 million.by Life & Retirement.
Net Investment Income
Life premiumsTotal net investment income decreased $6.1 million and contract deposits$7.7 million for the three and 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 compared2022, respectively. The decreases were primarily attributable to 4.1%returns below our historical average in our portfolio of limited partnership interests. Investment yields have risen 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% comparedrecent investments due to the first nine months of 2016,rising interest rate environment. The annualized investment yield on the portfolio excluding limited partnership interests* was 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.follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Investment yield, excluding limited partnership interests,
pretax - annualized*
4.3%4.3%4.3%4.3%
Investment yield, excluding limited partnership interests,
after tax - annualized*
3.4%3.5%3.4%3.4%

During the second quarter of 2017, the Company introduced Department of Labor compliant annuity products featuring a level commissions structure and flexibility to move between products without surrender charges. The Company continues to focus on agent training and marketing programs which emphasize retirement planning. Annuity sales by Horace Mann’s Exclusive Distributors decreased 9.2% compared to the first nine months of 2016. Sales from the Independent Agent distribution channel, which represent approximately 7.3% of total annuity sales in the first nine months of 2017, which are largely single premium and rollover annuity deposits, decreased approximately 29.0% compared to a year earlier. As a result, total Horace Mann annuity sales from the combined distribution channels decreased 11.0%, or $43.0 million, compared to the first nine months of 2016. It should be noted that historically, reported annuity sales for HM products were determined based on annualized new recurring deposits as well as single deposits/rollovers. Effective January 1, 2017, reported annuity sales are now determined based on total recurring deposits as well as single deposits/rollovers. All historical annuity sales information presented has been revised to conform to the new reporting methodology.
The Company’s introduction of new educator-focused portfolios of term and whole life products in recent years, including a single premium whole life product, as well as the Company’s Indexed Universal Life (“IUL”) product, have contributed to an increase in sales of proprietary life products. For the first nine months of 2017, sales of Horace Mann’s proprietary life insurance products totaled $11.6 million, representing an increase of 8.4%, or $0.9 million, compared to the prior year period, including an increase of $1.4 million for single premium sales.
Distribution
At September 30, 2017, there was a combined total of 694 Exclusive Distributors, compared to 683 at December 31, 2016 and 681 at September 30, 2016. The Company continues to expect higher quality standards for Exclusive Distributors to focus on improving both customer experience and agent productivity in their respective territories. The dedicated sales force is supported by the Company’s customer contact center which provides a means for educators to begin their experience directly with the Company, if that is their preference. The customer contact center is also able to assist educators in territories which are not currently served by Exclusive Distributors.
As mentioned above, the Company also utilizes a nationwide network of Independent Agents who comprise an additional distribution channel for the Company’s 403(b) tax-qualified annuity products. The Independent Agent distribution channel included 274 authorized agents at September 30, 2017. During the nine month period ended September 30, 2017, this channel generated $25.5 million in annuity sales for the Company compared to $35.9 million for the prior year period, with the new business primarily comprised of single and rollover deposit business in both periods.
Net Investment Income
For the three and nine month periods ended September 30, 2017, net investment income of $92.3 million and $275.0 million decreased 2.7% and increased 1.6% respectively, compared to the prior year periods, reflecting higher asset balances in the Retirement segment offset by the impact of the current low interest rate environment. Average invested assets increased 4.8% over the 12 months ended September 30, 2017. The average pretax yield on the total investment portfolio for the nine month period ended September 30, 2017 of 5.1% (3.4% after tax) was comparable to the prior year period. During the nine month period ended September 30, 2017, management2022, we continued to identify and purchase investments including a modest level of alternative investments, with attractive risk-adjusted yields relative to market conditions without venturing into asset classes or individual securities that would be inconsistent with our overall investment guidelines for the Company’s overall conservative investment guidelines.core portfolio. We continue to fund commercial mortgage loan funds and limited partnership interests in line with our intent to increase our allocation to these portfolios to increase yields while balancing principal protection and risk.


Horace Mann Educators Corporation30Quarterly Report on Form 10-Q


Net Realized Investment Gains and Losses (Pretax)
For the three month periodand nine months ended September 30, 2017,2022, net realized investment losses were $3.5increased $6.3 million compared toand $33.2 million, respectively, mainly from changes in fair values of equity securities and impairments. The breakdown of net realized investment gains of $4.0 million in the prior year period. The net realized investment losses for the three month period ended September 30, 2017 included $5.7 million of gross realized gains on disposal of securities offset(losses) by $3.1 million of gross realized losses primarily on disposal of securities and expiration of call options during the period and $6.1 million of charges for other-than-temporary impairment (“OTTI”) recorded primarily on fixed maturity securities in the construction sector.transaction type were as follows:
($ in millions)Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Credit loss and intent-to-sell impairments$(6.8)$(6.6)$(10.4)$(9.8)
Sales and other, net(3.9)2.7 (3.9)2.2 
Change in fair value - equity securities(4.4)(1.1)(34.1)0.4 
Change in fair value and losses realized on settlements - derivatives2.3 (1.5)4.6 (3.4)
Net investment losses$(12.8)$(6.5)$(43.8)$(10.6)
For the nine month period ended September 30, 2017, net realized investment losses of $1.7 million included $18.6 million of gross realized gains on disposal of securities offset by $7.8 million of gross losses realized primarily on disposal of securities and expiration of call options during the period and $12.5 million of OTTI charges recorded on certain equity and fixed maturity securities.
For the nine month period ended September 30, 2016, net realized investment gains of $6.9 million included $19.2 million of gross realized gains on disposal of securities partially offset by $4.9 million of gross losses realized primarily on disposal of securities during the period and $7.4 million of OTTI charges recorded largely on Puerto Rico and energy sector fixed maturity securities, as well as some equity securities.
The Company, fromFrom time to time, sellswe may sell fixed maturity securities subsequent to the balance sheetreporting date that were considered temporarily impaired at the balance sheetsuch reporting date. Such sales are due to issuer specificissuer-specific events occurring subsequent to the balance sheetreporting date that result in a change in the Company’sour intent to sell an invested asset.


Fixed Maturity and Equity Securities Portfolios
The table below presents the Company’sa fixed maturity security.
Other Income
For the three and equity securities portfolios by major asset class, including the ten largest sectors of the Company’s corporate bond holdings (based on fair value). Compared to December 31, 2016, credit spreads were tighter across most asset classes and U.S. Treasury rates declined, which resulted in higher net unrealized investment gains in the fixed maturity securities portfolio atnine months ended 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 tied2022, other income decreased $6.6 million and $12.4 million, respectively, primarily due to essential services, such as mass transit, water and sewer. The overall credit quality of the municipal bond portfolio was AA- at September 30, 2017.
(5)Based on fair value, 96% of the collateralized debt obligation securities were rated investment grade by Standard and Poor’s Corporation (“S&P”) and/or Moody’s Investors Service, Inc. (“Moody’s”) at September 30, 2017.



At September 30, 2017, the Company’s diversified fixed maturity securities portfolio consistedinclusion 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.



Madison National.
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 periodand nine months 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's2022, benefits, claims and settlement expenses increased $41.3$8.8 million or 10.2%, comparedand $112.0 million, respectively, primarily due to the prior year period primarily reflecting elevated catastrophean increase in auto losses and non-catastrophe weather-related lossesthe inclusion of Madison National, partially reduced by an offsetting change in Propertyinterest credited of $10.3 million and Casualty that occurred in the first half of the year.$31.0 million, respectively.
Interest Credited
For the three and nine month periodmonths 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, 2017,2022, interest credited decreased $6.0 million and $24.6 million, respectively, driven primarily by an offsetting change in benefits, claims and settlement expenses of $10.3 million and $31.0 million, respectively. Under the Retirement segment increased 4.6% compared todeposit method of accounting, the prior year period reflecting a 5.1% increase in average accumulated fixed deposits, at an average crediting rate of 3.5%.
The net interest spread on fixed annuity assets under management measures the difference between the rate of income earnedcredited on the underlying invested assets and the rate of interest which policyholders are credited on their account values.reinsured annuity block continues to be reported. The nine month 2017 annualized net interest spread on fixed annuity assets was 188 basis points, a decrease of 7 basis points compared to the prior year period.
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 theaverage deferred annuity account values,credited rate, excluding the credited interest ratereinsured annuity block, was equal to the minimum guaranteed rate. Due to limitations on the Company’s ability to further lower interest crediting rates, coupled with the expectation for continued low reinvestment interest rates, management anticipates fixed annuity spread compression in future periods. The majority of assets backing the net interest spread on fixed annuity business is invested in fixed maturity securities.
The Company actively manages its interest rate risk exposure, considering a variety of factors, including earned interest rates, credited interest rates and the relationship between the expected durations of assets and liabilities. Management estimates that over the next 12 months approximately $467 million of the Retirement and Life combined investment portfolio and related investable cash flows will be reinvested at current market rates. As interest rates remain at low levels, borrowers may prepay or redeem the securities with greater frequency in order to borrow at lower market rates, which could increase investable cash flows and exacerbate the reinvestment risk.
As a general guideline, for a 100 basis point decline in the average reinvestment rate and based on the Company’s 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 million in year one and $5.4 million in year two, further reducing the net interest spread by approximately 4 basis points and 11


basis points in the respective periods, compared to the current period annualized net interest spread. The Company could also consider potential changes in rates credited to policyholders, tempered by any restrictions on the ability to adjust policyholder rates due to minimum guaranteed crediting rates.
The expectation for future net interest spreads is also an important component in the amortization of deferred policy acquisition costs. In terms of the sensitivity of this amortization to the net interest spread, based on deferred policy acquisition costs2.4% as of September 30, 20172022 and assuming all other assumptions are met, a 10 basis point deviation in the current year targeted interest rate spread assumption would impact amortization between $0.30 million and $0.40 million. This result may change depending on the magnitude and direction of any actual deviations but represents a range of reasonably likely experience for the noted assumption.
Additional information regarding the interest crediting rates and balances equal to the minimum guaranteed rate for deferred annuity account values is shown below.
($ 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 Company will continue to be disciplined in executing strategies to mitigate the negative impact on profitability of a sustained low interest rate environment. However, the success of these strategies may be affected by the factors discussed in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, and other factors discussed herein.
Policy Acquisition Expenses Amortized
Amortized policy acquisition expenses were $24.2 million for the three month period ended September 30, 2017, comparable to the $24.5 million for the prior year period. For Retirement, the unlocking of deferred policy acquisition costs (“unlocking”) resulted in a $0.7 million decrease in amortization for the three month period ended September 30, 2017 as compared to a $0.1 million decrease in amortization in the prior year period.

Amortized policy acquisition expenses were $73.9 million for the nine month period ended September 30, 2017 compared to $73.1 million for the prior year period. The increase was largely attributable to increased written premium in Property and Casualty. For Retirement, unlocking resulted in a $0.7 million favorable change in amortization for the nine month period ended September 30, 2017 as compared to the prior year period.


2021, respectively.
Operating Expenses
For the three month periodand nine months ended September 30, 2017,2022, operating expenses of $44.2increased $11.3 million were comparableand $46.9 million, respectively, primarily due to the prior year period as the current period benefitted from decreases in incentive compensation accruals as well as lower employee medical costs.inclusion of Madison National.

Deferred Policy Acquisition Costs (DAC) Unlocking and Amortization Expense
For the three and nine month periodmonths ended September 30, 2017, operating expenses of $139.12022, DAC unlocking and amortization expense increased $0.4 million increased $8.5and $6.2 million, or 6.5%, comparedrespectively, due to equity market declines leading to unfavorable DAC unlocking in the prior year period, consistent with management’s expectations asLife & Retirement segment, partially offset by reduced amortization expense in the Company makes expenditures supporting targeted strategies in product, distributionProperty & Casualty segment.
Intangible Asset Amortization Expense
For the three and infrastructure which are intended to enhance the overall customer experience, increase sales and support favorable policy retention and business cross-sale ratios.
The Property and Casualty expense ratio of 26.7% for the nine month periodmonths ended September 30, 2017 was slightly below2022, intangible asset amortization expense increased $0.9 million and $2.8 million, respectively, due to the prior year period.acquisition of Madison National.
Interest Expense
For the three and nine months ended September 30, 2022, interest expense increased $1.9 million and $3.1 million, respectively, due to an increase in interest rates on the Bank Credit Facility.


Horace Mann Educators Corporation31Quarterly Report on Form 10-Q


Income Tax Expense
The effective income tax rate, on the Company’s pretax income, including net realized investment gains and losses, was 17.6%2.5% and 26.6%18.4% for the nine month periodsmonths ended September 30, 20172022 and 2016,2021, respectively. Income from investments in tax-advantaged securities reduced the effective income tax rates by 12.5%22.8 and 7.4%3.3 percentage points for the nine month periodsmonths ended September 30, 20172022 and 2016,2021, respectively. Further, the adoption of a new accounting standard for employee share-based payments on January 1, 2017 reduced the effective income tax rate by 5.3% for the nine month period ended September 30, 2017. The new accounting standard requires that the entire excess tax benefit/deficiency from employee share-based payments be recognized in the income statement rather than allocating the excess tax benefit/deficiency between the equity section of the balance sheet and the income statement.
The Company recordsWe record liabilities for uncertain tax filing positions where it is more likely than not that the position will not be sustainable upon audit by taxing authorities. These liabilities are reevaluated routinely and are adjusted appropriately based on changes in facts or law. The Company hasWe have no unrecorded liabilities from uncertain tax filing positions.
At September 30, 2017, the Company’s2022, our federal income tax returns for years prior to 20142017 are no longer subject to examination by the IRS. Management doesInternal Revenue Service. We do not anticipate any assessments for tax years that remain subject to examination to have a material effect on the Company’sour financial position or results of operations.

Outlook for 2022

Net Income
For the three month period ended September 30, 2017, the Company’s net incomeThe following discussion provides outlook information for our results 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 income of $44.1 million decreased $19.8 million reflecting a record level of catastrophe lossesoperations and capital position. Horace Mann’s outlook for 2022 reflects accretion from newly acquired Madison National as well as elevated non-catastrophe weather-related losses that occurred in the first halfestimates of the year. Additional detail is included in the “Executive Summary” at the beginninginitial contributions of this MD&A.
Net income (loss) by segment and net income per share were as follows:
($ in millions) Three Months Ended September 30, 
Change From
Prior Year
 Nine Months Ended September 30, Change From
Prior Year
  2017 2016 Percent Amount 2017 2016 Percent Amount
Analysis of net income (loss) by segment:  
  
  
  
        
Property and Casualty $13.4
 $6.7
 100.0 % $6.7
 $2.2
 $16.0
 -86.3 % $(13.8)
Retirement 13.6
 15.7
 -13.4 % (2.1) 36.9
 39.3
 -6.1 % (2.4)
Life 4.8
 4.6
 4.3 % 0.2
 14.3
 13.1
 9.2 % 1.2
Corporate and Other (1) (5.3) (0.1) N.M.
 (5.2) (9.3) (4.5) 106.7 % (4.8)
Net income $26.5
 $26.9
 -1.5 % $(0.4) $44.1
 $63.9
 -31.0 % $(19.8)
                 
Effect of catastrophe costs, after tax,
included above
 $(5.6) $(5.5) 1.8 % $(0.1) $(37.8) $(31.5) 20.0 % $(6.3)
Effect of net realized investment gains
(losses), after tax, included above
 $(2.2) $2.7
 N.M.
 $(4.9) $(0.8) $3.8
 -121.1 % $(4.6)
                 
Diluted:  
  
  
  
        
Net income per share $0.64
 $0.65
 -1.5 % $(0.01) $1.06
 $1.55
 -31.6 % $(0.49)
Weighted average number of common and
common equivalent shares (in millions)
 41.6
 41.3
 0.7 % 0.3
 41.5
 41.4
 0.2 % 0.1
                 
Property and casualty combined ratio:  
  
  
  
        
Total 95.8 % 101.5 % -
 -5.7 pts
 106.5 % 102.4 % -
 4.1 pts
Effect of catastrophe costs, included above 5.3 % 5.3 % -
 0 pts
 12.0 % 10.5 % -
 1.5 pts
Effect of prior years’ reserve development,
included above
 -0.3 % -0.4 % -
 0.1 pts
 -0.4 % -0.9 % -
 0.5 pts
N.M. - Not meaningful.
(1)The Corporate and Other segment includes interest expense on debt, net realized investment gains and losses, corporate debt retirement costs (when applicable), certain public company expenses and other corporate-level items. The Company does not allocate the impact of corporate-level transactions to the operating segments, consistent with the basis for management’s evaluation of the results of those segments.

As described in footnote (1) to the table above, the Corporate and Other segment reflects corporate-level transactions. Of those transactions, net realized investment gains and losses may vary notably between reporting periods and are often the driver of fluctuations in the level of this segment’s net income or loss. For the nine month period ended September 30, 2017, net realized investment gains after tax were $0.8 million, compared to net realized investment gains after tax of $3.8 million for the prior year period.
Return on average shareholders’ equity based on net income was 4.7% and 6.3% for the trailing 12 month periods ended September 30, 2017 and 2016, respectively.








Outlook for 2017
strategic growth initiatives.
At the time of issuance of this Quarterly Report on Form 10-Q, management estimates that 2017 full year net income before net realized investment gains and losseswe now estimate our 2022 core earnings will be within ain the range of $1.45$1.70 to $1.65$2.00 per diluted share. Within Property and Casualty, this projection incorporatesThe decrease from the elevated catastrophe losses and non-catastrophe weather-related losses duringrange discussed in our Outlook for 2022 in the first half of 2017, with estimates for weather-related lossesQuarterly Report on Form 10-Q for the second halfperiod ended June 30, 2022, reflects our nine-month results as well as expectations for continued impacts of inflation and effects of equity market declines.
Total net investment income from the year returning to historic averages. The full year auto underlying combined ratiomanaged portfolio for 2022 is anticipatednow expected to be similarbetween $295 million and $305 million. Commercial mortgage loan fund balances are expected to 2016be lower than originally anticipated due to slower capital call activity and limited partnership fund returns are expected to be below historical averages.
Results for each segment reflects the following:
Property & Casualty Segment
Property & Casualty segment 2022 core earnings are now expected to be a loss of $13 million to $19 million, reflecting nine-month results, normal seasonality in auto loss patterns and the full year property combined ratio, including catastrophecontinued impacts of inflation on auto loss severity. Catastrophe losses is anticipatedare expected to be slightly below 100%. Net incomein line with the company’s 10-year average of approximately $5 million for this period.
We expect property rate changes and inflation adjustments will rise to the mid-teens in 2023. Rate increases will reflect changes in the level of weather activity. Based on the company’s current expectations for frequency and severity, we expect auto rate increases will also rise to the mid-teens in 2023, supported by non-rate underwriting actions.
Life & Retirement will continueSegment
Life & Retirement segment 2022 core earnings are still expected to be impacted by the prolonged low interest rate environment and the interest$56 million to $59 million. The full-year net investment spread is anticipated to grade down to the low 180s. The Company expects to invest approximately $0.10 per diluted share in Retirement related to the Company's strategic initiatives in product, distribution and infrastructure. Life mortality experience was more favorable than anticipated for the first half of 2017, however, Life net income for the full year is expected to be comparable to 2016,below the 2021 level of 290 basis points due to a return to higher mortality levels andthe revised outlook for net investment income pressure. As a result of the continued low interest rate environment, management anticipates the Company’s overall portfolio yieldincome.
Supplemental & Group Benefits Segment
Supplemental & Group Benefits segment 2022 core earnings are now expected to decline by approximately 10 basis points over the course of 2017, impacting each of the three operating segments. In additionbe $55 million 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$58 million, reflecting nine-month results. We continue to enhance the overall customer experience and support further improvement in policy retention, sales and business cross-sellexpect full-year 2022 benefit ratios will continuebe in line with our longer-term targets of approximately 35% for voluntary products and result in a moderate increase in expense levels comparedapproximately 50% for employer-sponsored products. Amortization of intangible assets is expected to 2016.
be approximately $13 million, or 30 cents per share (after tax).
As described in “CriticalCritical Accounting Policies”,Estimates, certain of the Company’sour significant accounting measurements require the use of estimates and assumptions. As additional information becomes available, adjustments may be required.
Horace Mann Educators Corporation32Quarterly Report on Form 10-Q


Those adjustments are charged or credited to net income for the period in which the adjustments are made and may impact actual results compared to management’s estimateour estimates above. Additionally, see “Forward-looking Information”Forward-Looking information in this Quarterly Report on Form 10-Q as well as Part I - Items 1 and “Item 1A. Risk Factors”1A in the Company’sour Annual Report on Form 10-K for the year ended December 31, 20162021 concerning other important factors that could impact actual results. Management believesWe believe 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,(losses), which can vary substantially from one period to another and may have a significant impact on net income.

Application of Critical Accounting Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions based on information available at the time the consolidated financial statements are prepared. These estimates and assumptions affect the reported amounts of our consolidated assets, liabilities, shareholders' equity and net income. Certain accounting estimates are particularly sensitive because of their significance to our consolidated financial statements and because of the possibility that subsequent events and available information may differ markedly from management's judgments at the time the consolidated financial statements were prepared. We have discussed with the Audit Committee the quality, not just the acceptability, of our accounting principles as applied in our financial reporting. The discussions generally included such matters as the consistency of our accounting policies and their application, and the clarity and completeness of our consolidated financial statements, which include related disclosures.
Information regarding our accounting policies pertaining to these topics is located in the Notes to the Consolidated Financial Statements contained in Part II - Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021. In addition, discussion of accounting policies, including certain sensitivity information, was presented in Management's Discussion and Analysis of Financial Condition and Results of Operations -- Application of Critical Accounting Estimates in that Form 10-K within which we have identified the following accounting estimates as critical in that they involve a higher degree of judgment and are subject to a significant degree of variability:
•Valuation of hard-to-value fixed maturity securities
•Evaluation of credit loss impairments for maturity securities
•Evaluation of goodwill and intangible assets for impairment
•Valuation of annuity and life deferred policy acquisition costs
•Valuation of liabilities for property and casualty unpaid claims and claim expenses
•Valuation of certain investment contract and policy reserves
Except as noted below, as of September 30, 2022, there were no material changes to accounting policies for areas most subject to significant management judgments identified above.
Valuation of Assets Acquired and Liabilities Assumed under Purchase Accounting and Purchase Price Allocation
In accounting for the acquisition of Madison National Life Insurance Company, Inc. (Madison National), assets acquired and liabilities assumed are recognized based on estimated fair values as of the date of acquisition. The excess of the purchase price when compared to the fair value of the net tangible and identifiable intangible assets acquired is recognized as goodwill. A significant amount of judgment is involved in estimating the individual fair values of tangible assets, intangible assets, and other assets and liabilities. We used all available information to make these fair value determinations and engaged third-party consultants for valuation assistance. The fair value of assets and liabilities as of the acquisition date were estimated using a combination of approaches, including the income approach, which requires us to project future cash flows and apply an appropriate discount rate; the cost approach, which required estimates of replacement costs and depreciation and obsolescence estimates; and the market approach. The estimates used in determining fair values were based on assumptions believed to be reasonable but which are inherently uncertain. Accordingly, actual results may differ materially from the projected results used to determine fair value.
The value of business acquired intangible asset (VOBA) represents the present value of the expected underwriting profit within policies that were in force on the date of acquisition. The value of customer
Horace Mann Educators Corporation33Quarterly Report on Form 10-Q


relationships acquired intangible asset was valued based on the actuarial appraisal method net of VOBA. This represents expected future premiums arising from ongoing relationships and includes assumed growth in premium in the first projection year as well as all premiums in projection years two through ten. The state licenses intangible asset represents the regulatory licenses held by Madison National that were valued using the cost approach. The valuation of Madison National's policy reserves represents the present value of expected future benefits and expenses associated with the policies, valued using the actuarial appraisal approach.
The valuation of the assets acquired and liabilities assumed of Madison National noted above required management to make multiple judgments and assumptions to project future cash flows. Assumptions included future policy and contract charges, premiums, morbidity and mortality, and persistency by product, as well as expenses, investment returns, growth rates and other factors. One of the most significant inputs in these calculations is the discount rate used to arrive at the present value of the net cash flows. Actual experience on the purchased business may vary from these projections and the recovery of the net assets recorded is dependent upon the future profitability of the related business.
Results of Operations by Segment
Consolidated financial results primarily reflect the results of three operating segments (Property & Casualty, Life & Retirement, and Supplemental & Group Benefits) as noted in the Introduction and Outlook for 2022 sections of this MD&A, as well as the Corporate & Other reporting segment. These segments are defined based on financial information management uses to evaluate performance and to determine the allocation of resources.
The determination of segment data is described in more detail in Part I - Item 1, Note 9 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.
Property & Casualty
(All comparisons vs. same periods in 2021, unless noted otherwise)
For the three and nine months ended September 30, 2022, net loss reflected the following factors:
•Increase in the auto loss ratio due to impact of inflation and other loss cost factors, increased accident severity and increased utilization of medical treatments
•Decrease in net investment income due to lower than historical returns on limited partnership interests in the current year periods versus outsized returns on limited partnership interests in the prior year periods
•Unfavorable prior years' reserve development in the current year periods versus favorable prior years' reserve development in the prior year periods

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Horace Mann Educators Corporation34Quarterly Report on Form 10-Q


The following table provides certain financial information for Property & Casualty for the periods indicated.
($ in millions, unless otherwise indicated)Three Months Ended
September 30,		2022-2021Nine Months Ended
September 30,		2022-2021
20222021Change20222021Change
Financial Data:
Net premiums written*:
Auto$102.5 $103.1 -0.6 %$296.0 $300.1 -1.4 %
Property and other63.9 60.7 5.3 %168.0 161.1 4.3 %
Total net premiums written166.4 163.8 1.6 %464.0 461.2 0.6 %
Change in unearned net premiums(14.0)(10.5)33.3 %(11.5)2.9 N.M
Total net premiums earned152.4 153.3 -0.6 %452.5 464.1 -2.5 %
Incurred claims and claims expenses:
Claims occurring in the current year120.3 132.5 -9.2 %372.8 345.4 7.9 %
Prior years' reserve development(1)
2.0 (3.0)N.M.8.0 (7.2)N.M.
Total claims and claim expenses incurred122.3 129.5 -5.6 %380.8 338.2 12.6 %
Operating expenses, including DAC amortization41.6 42.1 -1.2 %121.1 121.5 -0.3 %
Underwriting gain (loss)(11.5)(18.3)37.2 %(49.4)4.4 N.M.
Net investment income8.0 11.3 -29.2 %22.9 43.8 -47.7 %
Income (loss) before income taxes(2.8)(6.3)55.6 %(23.8)52.1 -145.7 %
Net income (loss)(2.5)(4.7)46.8 %(19.4)42.5 -145.6 %
Core earnings (loss)*(2.5)(4.7)46.8 %(19.4)42.5 -145.6 %
Operating Statistics:
Auto
Loss and loss adjustment expense ratio83.1 %71.5 %11.6 pts84.1 %66.0 %18.1 pts
Expense ratio27.7 %27.7 %— pts26.5 %26.1 %0.4 pts
Combined ratio:110.8 %99.2 %11.6 pts110.6 %92.1 %18.5 pts
Prior years' reserve development(1)
2.0 %-2.0 %4.0 pts4.8 %-1.6 %6.4 pts
Catastrophe losses2.7 %2.9 %-0.2 pts2.3 %1.9 %0.4 pts
Underlying combined ratio*106.1 %98.3 %7.8 pts103.5 %91.8 %11.7 pts
Property
Loss and loss adjustment expense ratio75.1 %108.9 %-33.8 pts84.2 %86.0 %-1.8 pts
Expense ratio26.8 %27.2 %-0.4 pts27.4 %26.4 %1.0 pts
Combined ratio:101.9 %136.1 %-34.2 pts111.6 %112.4 %-0.8 pts
Prior years' reserve development(1)
— %-1.9 %1.9 pts-3.7 %-1.4 %-2.3 pts
Catastrophe losses21.8 %67.3 %-45.5 pts37.8 %38.4 %-0.6 pts
Underlying combined ratio*80.1 %70.7 %9.4 pts77.5 %75.4 %2.1 pts
Risks in force (in thousands)
Auto(2)
368 381 -3.4 %
Property172 178 -3.4 %
Total540 559 -3.4 %
(1)    (Favorable) unfavorable.
(2)    Includes assumed risks in force of 4.

On a reported basis, the 18.5 point increase in the auto combined ratio for the nine months ended September 30, 2022 was mainly attributable to a 11.3 point increase in the auto underlying loss ratio* and a 6.4 point increase in prior years' reserve development. Although frequency continues to trend back up toward pre-
Horace Mann Educators Corporation35Quarterly Report on Form 10-Q


pandemic levels as miles driven continues to increase, higher severity is the primary driver of the increase in auto loss costs. This reflects the challenges being faced by the entire industry, including the unprecedented level of inflation that is driving higher replacement costs; the trend toward more severe accidents; and increased utilization and costs of medical treatments. We continue to implement rate and other underwriting changes that address these trends. Unfavorable prior years' auto reserve development of $14.0 million was reported for the nine months ended September 30, 2022 primarily due to pandemic-related systemic delays that are affecting the settlement of claims from recent accident years that remain open. These open claims are impacted by the higher severities currently being experienced.
The reported property combined ratio and loss ratio decreased 0.8 points and 1.8 points, respectively, for the nine months ended September 30, 2022. Favorable prior years' reserve development of $6.0 million benefited the reported property combined ratio by 2.3 points for the nine months ended September 30, 2022.
For the three and nine months ended September 30, 2022, total net premiums written* increased $2.6 million and $2.8 million, respectively, as rate actions and inflation adjustments to coverage values for property more that offset declines in risks in force. The benefit of stronger retention is being offset by new business volumes that still remain below historical levels due to the lingering effect of the pandemic on sales*.
For the three and nine months ended September 30, 2022, auto net premiums written* decreased $0.6 million and $4.1 million, respectively, primarily due to the continuing decline in auto risks in force partially offset by stabilization of pandemic-related mileage changes. Though average net premium written and average net premium earned were flat for the nine months ended September 30, 2022, average net premium written in the third quarter of 2022 increased sequentially by 4.4% from 1.6% in the second quarter of 2022. The number of educator risks has been over 80% relative to overall auto risks in force over the past two years.
For the three and nine months ended September 30, 2022, property and other net premiums written* increased $3.2 million and $6.9 million, respectively, due to increases in average net premium written and average net premium earned which increased 7.9% and 4.9% for the nine months ended September 30, 2022, respectively, as inflation adjustments to coverage values continue to take effect. With inflationary pressure continuing, adjustments to coverage values and rates are expected to continue to play a role in the coming quarters. The number of educator risks has been at or above 80% relative to overall property risks in force over the past two years.
We continue to evaluate and implement actions to further mitigate our exposure in catastrophe-prone areas of the country. Such actions could include, but are not limited to, non-renewal of property policies, restricted agent geographic placement, limitations on agent new business sales, further tightening of underwriting standards and increased utilization of third-party vendor products.













Horace Mann Educators Corporation36Quarterly Report on Form 10-Q


Life & Retirement
(All comparisons vs. same periods in 2021, unless noted otherwise)
For the three and nine months ended September 30, 2022, net income reflected the following factors:
•A decline of 104 bps in the net interest spread on fixed annuities for the three months ended September 30, 2022 due to lower net investment income
•Substantial volatility in financial markets leading to unfavorable DAC unlocking and lower charges and fees earned on variable annuities and asset-based accounts
•While higher for the current quarter, Life results benefited from lower mortality costs for the nine months ended September 30, 2022

























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Horace Mann Educators Corporation37Quarterly Report on Form 10-Q


The following table provides certain information for Life & Retirement for the periods indicated.
($ in millions)Three Months Ended
September 30,		2022-2021Nine Months Ended
September 30,		2022-2021
20222021Change20222021Change
Life & Retirement
Net premiums written and contract deposits*$138.0 $150.8 -8.5 %$408.0 $427.4 -4.5 %
Net premiums and contract charges earned37.1 40.4 -8.2 %109.7 118.3 -7.3 %
Net investment income81.4 85.8 -5.1 %254.0 247.4 2.7 %
Other income4.1 5.1 -19.6 %13.4 14.9 -10.1 %
Life mortality costs11.1 10.3 7.8 %31.5 33.4 -5.7 %
Interest credited45.5 51.8 -12.2 %128.4 153.4 -16.3 %
Change in reserves21.6 14.5 49.0 %65.8 44.0 49.5 %
Operating expenses24.2 25.7 -5.8 %74.8 74.0 1.1 %
DAC amortization expense, excluding unlocking6.7 6.6 1.5 %21.3 20.1 6.0 %
DAC unlocking0.2 (0.8)N.M.6.4 (1.8)N.M.
Intangible asset amortization expense0.2 0.4 -50.0 %0.8 1.0 -20.0 %
Income before income taxes13.1 22.8 -42.5 %48.1 56.5 -14.9 %
Income tax expense0.4 3.7 -89.2 %6.3 9.5 -33.7 %
Net income12.7 19.1 -33.5 %41.8 47.0 -11.1 %
Core earnings*12.7 19.1 -33.5 %41.8 47.0 -11.1 %
Life policies in force (in thousands)162 163 -0.6 %
Life insurance in force$19,815 $19,384 2.2 %
Life persistency - LTM96.0 %96.2 %-0.2 pts
Annuity contracts in force (in thousands)227 229 -0.9 %
Retirement Advantage® contracts in force (in thousands)
16 14 14.3 %
Cash value persistency - LTM94.0 %94.7 %-0.7 pts

For the three and nine months ended September 30, 2022, life annualized sales* were in line with prior year periods and life persistency remained strong at 96.0%.
For the nine months ended September 30, 2022, net annuity contract deposits* for variable and fixed annuities decreased $20.3 million from strong prior year levels. Educators continue to begin their relationship with Horace Mann through 403(b) retirement savings products, including attractive annuity products, which provide encouraging cross-sell opportunities. Cash value persistency remained strong at 94.0%.
As of September 30, 2022, annuity assets under management were down $515.3 million, or 9.8%, compared to a year ago primarily due to market depreciation. Assets under administration, which includes Retirement Advantage® and other advisory and recordkeeping assets were down $1.4 billion, or 15.4%, compared to a year ago largely due to the effect of equity market performance on assets under management. The year-to-date annualized net interest spread on fixed annuities, excluding reinsurance, decreased 9 basis points compared to a year ago, primarily reflecting lower net investment income.
We actively manage our interest rate risk exposure, considering a variety of factors, including earned interest rates, credited interest rates and the relationship between the expected durations of assets and liabilities. We estimate that over the next 12 months approximately $710.4 million of the Life & Retirement investment portfolio and related investable cash flows will be reinvested at current market rates.
Horace Mann Educators Corporation38Quarterly Report on Form 10-Q


As a general guideline, for a 100 basis point decline in the average reinvestment rate and based on our existing policies and investment portfolio, the impact from investing in that lower interest rate environment could further reduce Life & Retirement net investment income by approximately $2.7 million in year one and $8.1 million in year two, further reducing the annualized net interest spread on fixed annuities by approximately 9 basis points and 27 basis points in the respective periods, compared to the current period annualized net interest spread on fixed annuities. We could also consider potential changes in rates credited to policyholders, tempered by any restrictions on the ability to adjust policyholder rates due to guaranteed minimum crediting rates.
The expectation for future annualized net interest spreads on fixed annuities is also an important component in the amortization of DAC. In terms of the sensitivity of this amortization to the annualized net interest spread on fixed annuities, based on DAC as of September 30, 2022 and assuming all other assumptions are met, a 10 basis point deviation in the current year targeted annualized net interest rate spread on the fixed annuities assumption would impact amortization between $0.3 million and $0.4 million. This result may change depending on the magnitude and direction of any actual deviations but represents a range of reasonably likely experience for the noted assumption.
We reinsure a $2.4 billion block of in force fixed annuities with a minimum crediting rate of 4.5% which helps mitigate the risk of not being able to generate appropriate spreads on the annuity business. Information regarding the interest crediting rates and balances equal to the guaranteed minimum crediting rates for deferred annuity account values excluding the reinsured block is shown below.
($ in millions)September 30, 2022
Total Deferred AnnuitiesDeferred Annuities at
Minimum Guaranteed Rate
Percent
of Total		Accumulated
Value (AV)		Percent of
Total Deferred
Annuities AV		Percent
of Total		Accumulated
Value
Guaranteed minimum crediting rates:
Less than 2%56.3 %$1,436.9 65.7 %47.1 %$943.6 
Equal to 2% but less than 3%11.1 282.2 81.0 11.4 228.6 
Equal to 3% but less than 4%24.2 618.4 100.0 30.9 618.1 
Equal to 4% but less than 5%6.5 165.0 100.0 8.2 165.0 
5% or higher1.9 47.6 100.0 2.4 47.6 
Total100.0 %$2,550.1 78.5 %100.0 %$2,002.9 

We will continue to be disciplined in executing strategies to mitigate the negative impact on profitability of a sustained low interest rate environment. However, the success of these strategies may be affected by the factors discussed in Part I - Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2021 and other factors in this report.










Horace Mann Educators Corporation39Quarterly Report on Form 10-Q


Supplemental & Group Benefits
(All comparisons vs. same periods in 2021, unless noted otherwise)
For the three and nine months ended September 30, 2022, net income reflected the following factors:
•Inclusion of Madison National's results
•Year-to date sales* of voluntary products were up $1.6 million, or 38.1%, and year-to-date sales* of employer-sponsored products added another $5.8 million
•The benefit ratio on employer-sponsored products decreased sequentially due to a lower level of benefits expense reflecting seasonality









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The following table provides certain information for Supplemental & Group Benefits for the periods indicated.
($ in millions)Three Months Ended
September 30,		2022-2021Nine Months Ended
September 30,		2022-2021
20222021Change20222021Change
Supplemental & Group Benefits
Net premiums and contract charges earned$68.3 $31.7 115.5 %$207.3 $96.4 115.0 %
Net investment income8.7 7.2 20.8 %25.4 19.0 33.7 %
Other income(5.2)0.6 N.M.(8.4)1.9 N.M.
Benefits, settlement expenses and change in reserves18.6 10.5 N.M.80.1 30.7 N.M.
Interest credited0.4 0.1 N.M.0.7 0.2 N.M.
Operating expenses (includes DAC unlocking and amortization expense)24.5 11.4 114.9 %76.5 33.1 131.1 %
Intangible asset amortization expense4.0 2.9 37.9 %11.8 8.8 34.1 %
Income before income taxes24.3 14.6 66.4 %55.2 44.5 24.0 %
Net income19.2 11.5 67.0 %43.6 34.8 25.3 %
Core earnings*19.2 11.5 67.0 %43.6 34.8 25.3 %
Benefits ratio(1)
27.8 %33.4 %-5.6  pts39.0 %32.1 %6.9 pts
Operating expense ratio(2)
34.1 %28.9 %5.2  pts34.1 %28.2 %5.9 pts
Pretax profit margin(3)
33.8 %37.0 %-3.2  pts24.6 %37.9 %-13.3 pts
Voluntary products benefits ratio31.4 %33.9 %-2.5  pts31.7 %31.8 %-0.1 pts
Voluntary premium persistency (rolling 12 months)91.3 %92.2 %-0.9  pts91.3 %92.2 %-0.9 pts
Employer-sponsored products benefits ratio25.0 %— %N.M.44.8 %— %N.M.
(1)    Ratio of benefits to net premiums earned.
(2)    Ratio of operating expenses to total revenues.
(3)    Ratio of income before income taxes to total revenues.

For the three and nine months ended September 30, 2022, total sales* were $4.4 million and $11.6 million, respectively. Sales of voluntary products* were $2.2 million and $5.8 million for three and nine months ended
Horace Mann Educators Corporation40Quarterly Report on Form 10-Q


September 30, 2022, respectively, representing increases of 10.0% and 38.1% compared to the prior year periods. Though persistency was slightly lower, it still remains very strong at 91.3%. Sales of employer-sponsored products* added another $5.8 million for the nine months ended September 30, 2022.
The current periods include the results of Madison National which is driving increases in (1) benefits, settlement expenses and change in reserves, (2) operating expenses (includes DAC unlocking and amortization), and (3) intangible asset amortization expense. The non-cash impact of amortization of intangible assets under purchase accounting reduced net income by $4.0 million and $11.8 million pretax for the three and nine months ended September 30, 2022. Pretax profit margin reflects a combination of voluntary and employer-sponsored products.
Corporate & Other
(All comparisons vs. same periods in 2021, unless noted otherwise)
The following table provides certain financial information for Corporate & Other for the periods indicated.
($ in millions)Three Months Ended
September 30,		2022-2021Nine Months Ended
September 30,		2022-2021
20222021Change %20222021Change %
Interest expense$(5.3)$(3.4)-55.9 %$(13.5)$(10.3)-31.1 %
Net investment losses, pretax(12.8)(6.5)N.M.(43.8)(10.6)N.M.
Other operating expenses, net investment income and other income(1.4)(2.2)36.4 %(5.9)(6.9)14.5 %
Net investment losses, after tax(10.1)(5.1)N.M.(34.5)(8.3)N.M.
Net loss(15.5)(9.6)-61.5 %(50.1)(22.0)-127.7 %
Core loss*(5.4)(4.5)-20.0 %(15.6)(13.7)-13.9 %

For the three and nine months ended September 30, 2022, the net loss increased due to net investment losses which are mainly from changes in fair values of equity securities and investment impairments as well as increases in interest expense on the Bank Credit Facility.
Investment Results
(All comparisons vs. same periods in 2021, unless noted otherwise)
Our investment strategy is primarily focused on generating income to support product liabilities, and balances principal protection and risk. Total net investment income includes net investment income from our investment portfolio as well as accreted investment income from the deposit asset on reinsurance related to our reinsured block of approximately $2.4 billion of fixed annuity liabilities related to legacy individual policies written in 2002 or earlier.
($ in millions)Three Months Ended
September 30,		2022-2021Nine Months Ended
September 30,		2022-2021
20222021Change %20222021Change %
Net investment income - investment portfolio$70.9 $78.1 -9.2 %$223.3 $233.3 -4.3 %
Investment income - deposit asset on reinsurance26.7 25.6 4.3 %77.4 75.1 3.1 %
Total net investment income97.6 103.7 -5.9 %300.7 308.4 -2.5 %
Pretax net investment losses(12.8)(6.5)N.M.(43.8)(10.6)N.M.
Pretax net unrealized investment gains (losses) on fixed maturity securities(632.0)466.4 N.M.

Net investment income from our investment portfolio decreased $7.2 million and $10.0 million for the three and nine months ended September 30, 2022 respectively. The decreases were primarily attributable to returns below our historical average in our portfolio of limited partnership interests.
For the three and nine months ended September 30, 2022, pretax net investment losses increased $6.3 million and $33.2 million, respectively, which are mainly from changes in fair values of equity securities and
Horace Mann Educators Corporation41Quarterly Report on Form 10-Q


impairments. Pretax net unrealized investment losses on fixed maturity securities as of September 30, 2022 were $632.0 million compared to pretax net unrealized investment gains of $441.6 million as of December 31, 2021 reflecting a 232 basis point increase in the 10-year U.S. Treasury yield and wider credit spreads across most asset classes.
Fixed Maturity and Equity Securities Portfolios
The table below presents our fixed maturity and equity securities portfolios by major asset class, including the 10 largest sectors of our corporate bond holdings (based on fair value).
($ in millions)September 30, 2022
Number of
Issuers		Fair
Value		Amortized
Cost, net		Pretax Net
Unrealized
Loss
Fixed maturity securities
Corporate bonds
Banking & Finance177 $470.5 $534.2 $(63.7)
Miscellaneous36 152.3 154.4 (2.1)
Insurance58 150.7 170.5 (19.8)
Energy81 134.4 157.7 (23.3)
HealthCare, Pharmacy80 119.7 147.9 (28.2)
Utilities78 111.1 134.5 (23.4)
Real Estate46 105.1 118.2 (13.1)
Transportation50 89.3 102.9 (13.6)
Food and Beverage32 72.1 83.1 (11.0)
Consumer Products53 62.5 80.6 (18.1)
All other corporates(1)
305 460.1 544.7 (84.6)
Total corporate bonds996 1,927.8 2,228.7 (300.9)
Mortgage-backed securities
U.S. Government and federally sponsored agencies249 381.6 425.5 (43.9)
Commercial(2)
159 290.9 322.3 (31.4)
Other31 13.0 14.1 (1.1)
Municipal bonds(3)
616 1,307.9 1,440.9 (133.0)
Government bonds
U.S.44 345.4 412.0 (66.6)
Foreign7 35.4 37.2 (1.8)
Collateralized loan obligations(4)
218 679.7 707.3 (27.6)
Asset-backed securities125 290.4 316.1 (25.7)
Total fixed maturity securities2,445 $5,272.1 $5,904.1 $(632.0)
Equity securities
Non-redeemable preferred stocks29 $97.1 
Common stocks5 1.1 
Closed-end fund1 15.6 
Total equity securities35 $113.8 
Total2,480 $5,385.9 
(1)The All other corporates category contains 18 additional industry sectors. Technology, telecommunications, natural gas, broadcasting and media and industry manufacturing represented $236.4 million of fair value at September 30, 2022, with the remaining 13 sectors each representing less than $223.7 million.
(2)At September 30, 2022, 100% were investment grade, with an overall credit rating of AA+, and the positions were well diversified by property type, geography and sponsor.
(3)Holdings are geographically diversified, 45.6% are tax-exempt and 77.4% 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, 2022.
(4)Based on fair value, 93.3% of the collateralized loan obligation securities were rated investment grade based on ratings assigned by a nationally recognized statistical ratings organization (NRSRO - S&P, Moody's, Fitch, Dominion, A.M. Best, Morningstar, Egan Jones and Kroll).
Horace Mann Educators Corporation42Quarterly Report on Form 10-Q


As of September 30, 2022, our diversified fixed maturity securities portfolio consisted of 3,796 investment positions, issued by 2,445 entities, and totaled approximately $5.3 billion in fair value. This portfolio was 90.9% 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 $5.0 million for non-investment grade securities.
Rating of Fixed Maturity Securities and Equity Securities(1)
The following table presents the composition and fair value of our fixed maturity and equity securities portfolios by rating category. As of September 30, 2022, 90.5% of these combined portfolios were investment grade, based on fair value, with an overall average quality rating of A+. We have classified the entire fixed maturity securities portfolio as available for sale, which is carried at fair value.
($ in millions)Percent of Portfolio
Fair Value		September 30, 2022
December 31, 2021September 30, 2022Fair
Value		Amortized
Cost, net
Fixed maturity securities
AAA10.1 %10.8 %$567.8 $610.1 
AA(2)
37.1 38.6 2,034.2 2,299.9 
A19.2 17.9 944.9 1,040.2 
BBB23.6 23.6 1,247.3 1,436.6 
BB3.1 2.5 131.7 148.2 
B1.3 1.0 52.4 58.8 
CCC or lower— 0.1 2.9 3.2 
Not rated(3)
5.6 5.5 290.9 307.1 
Total fixed maturity securities100.0 %100.0 %$5,272.1 $5,904.1 
Equity securities
AAA— %— %$— 
AA— — — 
A0.5 0.5 0.6 
BBB67.3 70.0 79.7 
BB12.7 13.1 14.9 
B— — — 
CCC or lower— — — 
Not rated19.5 16.4 18.6 
Total equity securities100.0 %100.0 %$113.8 
Total$5,385.9 
(1)Ratings are assigned by an NRSRO when available, If no rating is available from an NRSRO, then an internally developed rating is used. 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, 2022, the AA rated fair value amount included $342.8 million of U.S. Government and federally sponsored agency securities and $570.9 million of mortgage-backed and other asset-backed securities issued by U.S. Government and federally sponsored agencies.
(3)This category primarily represents private placement and municipal securities not rated by a NRSRO.

As of September 30, 2022, the fixed maturity securities portfolio had $661.3 million of pretax gross unrealized investment losses on $4,495.7 million of fair value related to 3,305 positions. Of the investment positions with gross unrealized losses, there were 659 trading below 80.0% of the carrying value as of September 30, 2022.
We view the pretax gross unrealized investment losses of all our fixed maturity securities as of September 30, 2022 as temporary. Future changes in circumstances related to these and other securities could require subsequent recognition of impairment.


Horace Mann Educators Corporation43Quarterly Report on Form 10-Q


Liquidity and FinancialCapital Resources
Off-Balance Sheet Arrangements
AtOur liquidity and access to capital were not materially impacted by inflation or changes in interest rates during the nine months ended September 30, 20172022. For further discussion regarding the potential future impacts of inflation and 2016, the Company did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been establishedchanges in interest rates, see Part I – Item 1A - Risk Factors and Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations - Effects of Inflation and Changes in Interest Rates in our Annual Report on Form 10-K for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. As such, the Company is not exposed to any financing, liquidity, market or credit risk that could arise if the Company engaged in such relationships.
year ended December 31, 2021.
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 3 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”.
- Investment 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,		2022-2021
20222021Change %
Net cash provided by operating activities$115.8 $178.1 -35.0 %
Net cash used in investing activities(295.9)(351.0)15.7 %
Net cash provided by financing activities82.6 190.8 -56.7 %
Net increase (decrease) in cash(97.5)17.9 N.M.
Cash at beginning of period133.7 22.3 N.M.
Cash at end of period$36.2 $40.2 -10.0 %
Operating Activities
As a holding company, HMEC conducts itswe conduct our principal operations in the personal lines segment of the property and casualty, life, retirement, supplemental and lifegroup 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 flows generated by the insurance subsidiaries.
For the nine month periodmonths ended September 30, 2017,2022, net cash provided by operating activities increased compared to the same period in 2016, largelydecreased $62.3 million, primarily due to an increase in Premiums collected and Investment income collected in the current period.
Payments of principal and interesthigher claims paid on debt, dividends to shareholders and parent company operating expenses are largely dependent on the ability of the insurance subsidiaries to pay cash dividends or make other cash payments to HMEC, including tax payments pursuant to tax sharing agreements. Payments for share repurchase programs also have this dependency. If necessary, HMEC also has other potential sources of liquidity that could provide for additional funding to meet corporate obligations or pay shareholder dividends, which include a revolving line of credit, as well as issuances of various securities. The insurance subsidiaries are subject to various regulatory restrictions which limit the amount of annual dividends or other distributions, including loans or cash advances, available to HMEC without prior approval of the insurance regulatory authorities. The aggregate amount of dividends that may be paid in 2017 from all of HMEC’s insurance subsidiaries without prior regulatory approval is approximately $91.0 million, of which $44.9 million was paid during the nine month period ended September 30, 2017. Although regulatory restrictions exist, dividend availability from subsidiaries has been, and is expected to be, adequate for HMEC’s capital needs. Additional information is contained in “Notes to Consolidated Financial Statements -- Note 10 -- Statutory Information and Restrictions” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
policies.
Investing Activities
HMEC’sOur insurance subsidiaries maintain significant investments in fixed maturity securities to meet future contractual obligations to policyholders. In conjunction with itsour management of liquidity and other asset/liability management objectives, the Company,we, from time to time, will sell fixed maturity securities prior to maturity, as well as equity securities, and reinvest the proceeds ininto other investments with different interest rates, maturities or credit characteristics. Accordingly, the Company haswe have classified the entire fixed maturity and equity securities portfoliosportfolio as available for sale.
Investing activities includes our acquisition of Madison National for the nine months ended September 30, 2022.
Financing Activities
Financing activities include primarily payment of dividends, the receipt and withdrawal of funds by annuity contractholders, issuances andchanges in the deposit asset on reinsurance, repurchases of HMEC’sour common stock, fluctuations in bankbook overdraft balances, and borrowings, repayments and repurchases related to its debt facilities.
Horace Mann Educators Corporation44Quarterly Report on Form 10-Q
The Company’s annuity business produced net negative cash flows in the first nine months of 2017.

For the nine month periodmonths ended September 30, 2017, receipts from annuity contracts2022, net cash provided by financing activities decreased $43.0$108.2 million or 11.0%, compared to the prior year period, as describedprimarily due to a $182.0 million net decrease in “Resultscash inflows from advances received under Federal Home Loan Bank of Operations -- Insurance PremiumsChicago (FHLB) funding agreements and Contract Charges”. In total, annuity contract benefits, withdrawalsa $22.3 increase in cash outflows related to acquisitions of treasury stock partially offset by a $95.2 million net increase in cash inflows from reverse repurchase agreements.
The following table shows activity from FHLB funding agreements for the periods indicated.
($ in millions)Nine Months Ended
September 30,		2022-20212022-2021
20222021Change $Change %
Balance at beginning of the period$782.5 $590.5 $192.0 32.5 %
Advances received from FHLB funding agreements154.0 446.0 (292.0)-65.5 %
Principal repayments on FHLB funding agreements(94.0)(204.0)110.0 N.M.
Balance at end of the period$842.5 $832.5 $10.0 1.2 %


Horace Mann Educators Corporation45Quarterly Report on Form 10-Q


Liquidity Sources and net transfersUses
Our potential sources and uses of funds principally include the following activities:
Property & CasualtyLife & RetirementSupplemental & Group BenefitsCorporate & Other
Activities for potential sources of funds
Receipt of insurance premiums, contractholder charges and fees☑☑☑
Recurring service fees, commissions and overrides☑☑☑☑
Contractholder fund deposits☑☑
Reinsurance and indemnification program recoveries☑☑☑
Receipts of principal, interest and dividends on investments☑☑☑☑
Proceeds from sales of investments☑☑☑☑
Proceeds from FHLB borrowing and funding agreements☑☑☑
Proceeds from reverse repurchase agreements☑☑☑
Intercompany loans☑☑☑☑
Capital contributions from parent☑☑☑
Dividends or return of capital from subsidiaries☑
Tax refunds/settlements☑☑☑☑
Proceeds from periodic issuance of additional securities☑
Proceeds from debt issuances☑
Proceeds from senior revolving credit facility☑
Receipt of intercompany settlements related to employee benefit plans☑
Activities for potential uses of funds
Payment of claims and related expenses☑☑☑
Payment of contract benefits, surrenders and withdrawals☑☑
Reinsurance cessions and indemnification program payments☑☑☑
Payment of operating costs and expenses☑☑☑☑
Payments to purchase investments☑☑☑☑
Repayment of FHLB borrowing and funding agreements☑☑☑
Repayment of reverse repurchase agreements☑☑☑
Payment or repayment of intercompany loans☑☑☑☑
Capital contributions to subsidiaries☑
Dividends or return of capital to shareholders/parent company☑☑☑☑
Tax payments/settlements☑☑☑☑
Common share repurchases☑
Debt service expenses and repayments☑
Repayment on senior revolving credit facility☑
Payments related to employee benefit plans☑
Payments for business acquisitions☑
We actively manage our financial position and liquidity levels in light of changing market, economic and business conditions. Liquidity is managed at both the entity and enterprise level across HMEC and is assessed on both base and stressed level liquidity needs. We believe we have sufficient liquidity to variable annuity accumulated cash values increased $54.6 million, or 22.7%, comparedmeet these needs. Additionally, we have existing intercompany agreements in place that facilitate liquidity management across HMEC to the prior year period. During the nine month period endedenhance flexibility.
Horace Mann Educators Corporation46Quarterly Report on Form 10-Q


As of September 30, 2017, financing activities included an increase2022, we held $937.5 million of $77.9 million attributablecash, U.S. government and agency fixed maturity securities and public equity securities (excluding non-redeemable preferred stocks and foreign equity securities) which, under normal market conditions, could be rapidly liquidated.
Certain remote events and circumstances could constrain our liquidity. Those events and circumstances include, for example, a catastrophe resulting in extraordinary losses, a downgrade of our Senior Notes rating to fixed account withdrawals due tonon-investment grade status or a downgrade in our insurance subsidiaries' financial strength ratings. The rating agencies also consider the transferinterdependence of allour individually rated entities; therefore, a rating change in one entity could potentially affect the Company's 401(k) assets to a third-party provider.


ratings of other related entities.
Capital Resources
The Company hasWe have determined the amount of capital whichthat 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”).Commissioners. Historically, the Company’sour insurance subsidiaries have generated capital in excess of such needed capital.levels. These excess amounts have been paid to HMECus through dividends. HMEC hasWe have then utilized these dividends and itsour access to the capital markets to fund growth initiatives, service and retire long-term debt, pay dividends to itsour shareholders, fund growth initiatives, repurchase shares of itsour common stock and for other corporate purposes. Management anticipatesIf necessary, we also have other potential sources of liquidity that could provide for additional funding to meet corporate obligations or pay shareholder dividends, including a revolving line of credit, as well as issuances of various securities.
The insurance subsidiaries are subject to various regulatory restrictions that limit the Company’samount of annual dividends or other distributions, including loans or cash advances, available to us without prior approval of the insurance regulatory authorities. The aggregate amount of dividends that may be paid in 2022 from all of our insurance subsidiaries without prior regulatory approval is $131.9 million, excluding the impact and timing of prior dividends, of which $129.7 million was paid during the nine months ended September 30, 2022. We anticipate that our sources of capital will continue to generate sufficient capital to meet the needs for business growth, debt interest payments, shareholder dividends and itsour share repurchase program.programs. 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, 2016.2021.
TheTotal capital was $1,574.5 million as of September 30, 2022, including $497.9 million of short-term and long-term debt. Total debt represented 31.6% of total capital of the Company was $1,637.8 millionincluding net unrealized investment losses on fixed maturity securities (25.3% excluding net unrealized investment losses on fixed maturity securities*) at September 30, 2017, including $247.4 million2022, which was slightly above our long-term target of long-term25% for our debt and no short-term debt outstanding. Total debt represented 17.9% of totalto capital ratio excluding net unrealized investment gains and losses (15.1%(losses).
Shareholders' equity was $1,076.6 million as of September 30, 2022, including net unrealized investment gains and losses) at September 30, 2017, which was below the Company’s long-term targetlosses on fixed maturity securities of 25%.
Shareholders’ equity was $1,390.4 million at September 30, 2017, including a net unrealized investment gain in the Company’s investment portfolio of $255.7$396.7 million after taxes and the related impact of deferred policy acquisition costsDAC associated with investmentannuity 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$1,443.3 million and $39.35,$35.29, respectively, atas of September 30, 2017.2022. Book value per share and adjusted book value per share* was $34.20 at$26.32 and $36.02, respectively, as of September 30, 2017 ($27.91 excluding the net unrealized investment gain*).
2022.
Additional information regarding the net unrealized investment gain in the Company’s investment portfolio atgains on fixed maturity securities as of September 30, 20172022 is included in “ResultsPart I - Item 1, Note 3 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 were $34.6paid to shareholders was $39.5 million for the nine month periodmonths ended September 30, 2017.2022. In March, May and September 2017,August of 2022, the Board of Directors announced(Board) approved regular quarterly dividends of $0.275$0.32 per share.
For the nine month periodmonths ended September 30, 2017, the Company2022, we repurchased 48,440670,816 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$35.82 under itsour 2015 and 2022 share repurchase program, which is further described in “Notes toprograms. See Part 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, 2016.2021 for more information. During the second quarter of 2022, our Board authorized $50.0 million of share repurchases under our 2022 share repurchase program. See Part II - Item 2 in this report for further information. As of September 30, 2017, $27.82022, $41.3 million remained authorized for future share repurchases under the 2022 share repurchase program.
Horace Mann Educators Corporation47Quarterly Report on Form 10-Q


The following table summarizes our debt obligations.
($ in millions)Interest
Rates		Final
Maturity		September 30, 2022December 31, 2021
Short-term debt
Bank Credit FacilityVariable2026$249.0 $249.0 
Long-term debt(1)
4.50% Senior Notes, Aggregate principal
amount of $250.0 less unaccrued
discount of $0.3 and $0.3 and unamortized
debt issuance costs of $0.9 and $1.1
4.50%2025248.8 248.6 
FHLB borrowings0.00%2022— 5.0 
Total$497.8 $502.6 
(1)    We designate debt obligations as "long-term" based on maturity date at issuance.

As of September 30, 2017, the Company2022, 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 9 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, 2016.2021. The Senior Notes due 2025 are traded in the open market (HMN 4.50).
As of September 30, 2017, the Company2022, we had no balanceborrowings outstanding under its Bankwith 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 which is below our maximum FHLB borrowing capacity. The $5.0 million FHLB borrowings that was outstanding as of December 31, 2021 is reported as Long-term debt in the Consolidated Balance Sheet.
Effective July 12, 2021, we, as borrower, amended our Credit Facility.Agreement (Bank Credit Facility). The amended Bank Credit Facility provides for unsecured borrowingsincreased the amount available on the senior revolving credit facility from $225.0 million to $325.0 million. PNC Bank, National Association and JPMorgan Chase Bank, N.A. serve as joint lead arrangers under the amended Bank Credit Facility, with The Northern Trust Company, KeyBank National Association, U.S. Bank National Association, Illinois National Bank, and Comerica Bank as lenders participating in the syndicate. Terms and conditions of up to $150.0 million andthe amended Bank Credit Facility are substantially consistent with the prior agreement, with an interest rate based on LIBOR plus 115 basis points. The amended Bank Credit Facility expires on July 30, 2019. Interest accrues at varying spreads relative12, 2026.
On December 31, 2021, we utilized $114.0 million of the senior revolving credit facility to prime or Eurodollar base ratesfund a portion of the acquisition of Madison National that occurred effective January 1, 2022, resulting in an amount outstanding of $249.0 million under the senior revolving credit facility. We expect that the unused portion of the senior revolving credit facility will be available for ongoing working capital, capital expenditures and is payable monthly or quarterly depending on the applicable base rate.general corporate expenditures. The unused portion of the Bank Credit Facility is subject to a variable commitment fee, which was 0.15% on an annual basis at September 30, 2017.


2022.
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, 2015.10, 2021. 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, 2015.10, 2021. 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.10, 2024. 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 Corporation48Quarterly Report on Form 10-Q


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 & Casualty and Life insurance subsidiaries. Only A.M. Best currently rates our Supplemental & Group Benefits subsidiaries. A.M. Best currently rates our NTA Life subsidiary at the same level as our Property & Casualty and Life & Retirement subsidiaries and our Madison National subsidiary is rated A- (Excellent). Assigned ratings and respective affirmation/review dates as of October 31, 20172022 were unchanged fromas follows:
Insurance FinancialAffirmed/
Strength Ratings (Outlook)Debt Ratings (Outlook)Reviewed
A.M. Best
HMEC (parent company)N.A.bbb(stable)7/28/2022
HMEC's Life & Retirement subsidiariesA(stable)N.A.7/28/2022
HMEC's Property & Casualty subsidiariesA(stable)N.A.7/28/2022
HMEC's Supplemental & Group Benefits
subsidiaries
Madison National Life Insurance CompanyA-(stable)N.A.7/28/2022
National Teachers Associates Life
Insurance Company
A(stable)N.A.7/28/2022
FitchA(stable)BBB(stable)8/30/2022
Moody's
   HMEC (parent company)Baa2(stable)8/3/2022
   HMEC's Life GroupA2(stable)7/27/2022
   HMEC's P&C GroupA2(stable)8/3/2022
S&PA(stable)BBB(stable)2/14/2022
Reinsurance Programs
Information regarding the disclosurereinsurance programs for our Property & Casualty, Supplemental, Retirement and Life segments is located in the Company’sPart I - Item 1, Reporting Segments in our Annual Report on Form 10-K for the year ended December 31, 2016. Assigned ratings were as follows (unless otherwise indicated, the insurance financial strength ratings for the Company’s Property2021.
ITEM 3.IQuantitative and Casualty insurance subsidiaries and the Company’s principal Life insurance subsidiary are the same):
Insurance Financial
Strength RatingsDebt Ratings
(Outlook)(Outlook)
As 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 for the Company’s Property 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 losses.
Horace Mann Educators Corporation49Quarterly 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, 2016.2021.

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.2022. 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
ThereExcept as noted below, there were no changes in the Company’sour internal control over financial reporting that occurred(as defined in Rule 13a-15(f) under the Exchange Act) 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.
During the third quarter of 2022, we continued to execute internal controls associated with new processes supporting the implementation of Accounting Standards Update (ASU) 2018-12 for long-duration insurance contracts (LDTI). These controls provide assurance over the estimated impact to accumulated other comprehensive income and retained earnings that is expected upon adoption of LDTI on January 1, 2023, as disclosed in Note 1 to the Consolidated Financial Statements. We will continue to refine and maturate the internal controls associated with LDTI until adoption on January 1, 2023.
Effective January 1, 2022, we completed our acquisition of Madison National Life Insurance Company, Inc. (Madison National). We are in the process of integrating Madison National and our controls over financial reporting. As a result of these integration activities, certain controls will be evaluated and may be changed. Therefore, we have elected to exclude Madison National from our assessment of internal control over financial reporting as of September 30, 2022.
Concurrent with the acquisition of Madison National, changes were made to the relevant business processes and the related control activities over purchase accounting in order to monitor and maintain appropriate controls over financial reporting.
Horace Mann Educators Corporation50Quarterly 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. The following risk factor is updated to reflect recent developments; however, in general the described risks are comparable to those previously disclosed.2021.


The Department of Labor (“DOL”) fiduciary rule and the possible adoption by the Securities and Exchange Commission (“SEC”) of a fiduciary standard of care could have a material adverse effect on our business, financial condition and results of operations.
On April 6, 2016, the DOL released a final regulation which more broadly defines the types of activities that will result in a person being deemed a “fiduciary” for purposes of the prohibited transaction rules of the Employee Retirement Income Security Act (“ERISA”) and Internal Revenue Code Section 4975. Section 4975 prohibits certain kinds of compensation with respect to transactions involving assets in certain accounts, including individual retirement accounts (“IRAs”).
The DOL rule was originally to be effective on April 10, 2017, but under a delay measure, the fiduciary definition went into effect on June 9, 2017, with certain conditions for prohibited transaction exemption relief delayed until January 1, 2018. The DOL is continuing its examination of the rule as directed by President Trump.
The DOL regulation will affect the ways in which financial services representatives can be compensated for sales to participants in ERISA employer-sponsored qualified plans and sales to IRA customers, and it will impose significant additional legal obligations and disclosure requirements. The DOL regulation could have a material adverse effect on our business and 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, financial condition and results of operations.

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



Item 2:   ITEM 2.IUnregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
On December 7, 2011, the Company’sMay 25, 2022, our Board of Directors (the “Board”) authorized a share repurchase program allowing repurchases of up to $50.0$50 million of Horace Mann Educators Corporation’s Common Stock, par value $0.001 (the “2011 Plan”). On September 30, 2015,(i.e., the Board authorized an additional share repurchase program allowing repurchases of up to $50.0 million2022 Program) to begin following the completion of the 2011 Plan and utilization of that authorization began in January 2016.$50 million repurchase plan which was authorized on September 30, 2015 (i.e., the 2015 Program). Both share repurchase programsPrograms authorize the repurchase of our common shares in open market or privately negotiated transactions, from time to time, depending on market conditions. The current share repurchase program doesPrograms do not have an expiration datedates and may be limited or terminated at any time without notice. During the three month periodmonths ended September 30, 2017,2022, the Company repurchased2015 Program was completed and we began repurchasing shares of HMEC common stockunder the 2022 Program as follows:

Period

Total Number
of Shares
Purchased


Average Price
Paid per Share		Total Number of Shares Purchased
under the Programs		Approximate Dollar Value
 of Shares that may yet be
Purchased under the Program
July 1 - 31295,445 $33.87 295,445 $41.3 million
August 1 - 31— — — $41.3 million
September 1 - 30— — — $41.3 million
Total295,445 $33.87 295,445 $41.3 million
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:   ITEM 5.IOther Information
Not applicable.
The Company is not aware of any information required to be disclosed in a report on Form 8-K during the three month period ended September 30, 2017 which has not been filed with the Securities and Exchange Commission.



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.
3.2Horace Mann Educators Corporation51Form 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 StatementQuarterly Report on Form S-3 (Registration No. 33-53118) filed with the SEC on October 9, 1992.10-Q


3.2
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)
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*10.1(b)
Second Amendment to Credit Agreement dated as of July 12, 2021, among HMEC, as borrower, PNC Bank, National Association, as administrative agent, and certain lenders party thereto, incorporated by reference to Exhibit 10.1(b) to HMEC's Current Report on Form 8-K dated July 14, 2021, filed with the SEC on July 14, 2021.
10.2*
Horace Mann Educators Corporation Amended and Restated 2002 Incentive Compensation Plan (“("2002 Incentive Compensation Plan”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.
Horace Mann Educators Corporation52Quarterly Report on Form 10-Q


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)March 3, 2021), incorporated by reference to Exhibit 10.31 (beginning on page 59) to HMEC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017,HMEC’s Proxy Statement, filed with the SEC on May 9, 2017.April 8, 2021.
10.3(a)*
HMEC 2010 Comprehensive Executive Compensation Plan (As Amended and Restated Effective May 20, 2015) (Section 16 Officer) Non-Qualified Stock Option Agreement - Employee Grantee, incorporated by reference to Exhibit 10.3(a) to HMEC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 9, 2017.
10.3(b)*
HMEC 2010 Comprehensive Executive Compensation Plan (As Amended and Restated Effective May 20, 2015) (Non-Section 16) Non-Qualified Stock Option Agreement - Employee Grantee, incorporated by reference to Exhibit 10.3(b) to HMEC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 9, 2017.
10.3(c)*
HMEC 2010 Comprehensive Executive Compensation Plan (As Amended and Restated Effective May 20, 2015) Service-Vested Restricted Stock Units Agreement - Employee Grantee, incorporated by reference to Exhibit 10.3(c) to HMEC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 9, 2017.
10.3(d)*
HMEC 2010 Comprehensive Executive Compensation Plan (As Amended and Restated Effective May 20, 2015) Performance-Based Restricted Stock Units Agreement - Employee Grantee, incorporated by reference to Exhibit 10.3(d) to HMEC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017,2022, filed with the SEC on May 9, 2017.2022.
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*Horace Mann Educators Corporation53Quarterly Report on Form 10-Q


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, 2017,2022, filed with the SEC on August 8, 2017.2022.
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, 2017,2022, filed with the SEC on May 9, 2017.2022.
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,March 31, 2022, filed with the SEC on August 8, 2017.May 9, 2022.
10.11*
HMSC Executive Severance Plan, incorporated by reference to Exhibit 10.16 to HMEC’s Current Report on Form 8-K dated March 7, 2012, filed with the SEC on March 13, 2012.
10.11(a)*
First Amendment to the HMSC Executive Severance Plan, incorporated by reference to Exhibit 10.16(a) to HMEC’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, filed with the SEC on August 9, 2012.
10.11(b)*
HMSC Executive Severance Plan Schedule A Participants, incorporated by reference to Exhibit 10.11(b) to HMEC's Quarterly Report on Form 10-Q for the quarter ended June 30, 2017,March 31, 2022, filed with the SEC on August 8, 2017.May 9, 2022.
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
Stock Purchase Agreement for Madison National Life, incorporated by reference to Exhibit 10.14 to HMEC's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, filed with the SEC on November 5, 2021.
(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.
31.2Horace Mann Educators Corporation54Quarterly Report on Form 10-Q


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 Corporation55Quarterly 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, 20172022/s/ Marita Zuraitis
Marita Zuraitis
President and Chief Executive Officer
DateNovember 8, 20172022/s/ Bret A. Conklin
Bret A. Conklin
Executive Vice President and
Chief Financial Officer
DateNovember 8, 20172022/s/ Kimberly A. Johnson
Kimberly A. Johnson
Senior Vice President, Controller and
Principal Accounting Officer


53
Horace Mann Educators Corporation56Quarterly Report on Form 10-Q