UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, ~~2019~~2020

ORor

☐TRANSITION REPORT PURSUANT TO SECTION 13 orOR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number 1-10890

HORACE MANN EDUCATORS CORPORATION

(Exact name of registrant as specified in its charter)



Delaware	37-0911756
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1 Horace Mann Plaza, Springfield, Illinois 62715-0001

(Address of principal executive ~~offices, including Zip~~offices) (Zip Code)

Registrant’s ~~Telephone Number, Including Area Code:~~telephone number, including area code: 217-789-2500



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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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



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

As of July 31, ~~2019,~~2020, the registrant had ~~41,198,167~~41,344,546 common shares, ~~of Common Stock,~~$0.001 par value, ~~$0.001 per share,~~ outstanding.

HORACE MANN EDUCATORS CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, ~~2019~~2020

~~INDEX~~TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION		Page

Item 1.	Consolidated Financial Statements ~~(Unaudited)~~

	Report of Independent Registered Public Accounting Firm	1

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

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

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

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

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

	Notes to Consolidated Financial Statements (Unaudited)
	Note 1 - Basis of Presentation and Significant Accounting Policies	7
	Note 2 - ~~Acquisitions~~Investments	1110
	Note 3 - ~~Investments~~Fair Value of Financial Instruments	1215
	Note 4 - ~~Fair Value of Financial Instruments~~Derivatives	1721
	Note 5 - ~~Derivative Instruments~~Deposit Asset on Reinsurance	22
	Note 6 - ~~Deposit Asset on Reinsurance~~Goodwill and Intangible Assets, net	2423
	Note 7 - ~~Property and Casualty~~ Unpaid Claims and Claim Expenses	25
	Note 8 - ~~Debt~~Reinsurance	26
	Note 9 - ~~Reinsurance~~Commitments	2726
	Note 10 - ~~Commitments~~Segment Information	27
	Note 11 - ~~Segment Information~~Accumulated Other Comprehensive Income (Loss)	28
	Note 12 - ~~Operating Leases~~	29
	~~Note 13 -~~ Supplemental Disclosure of Consolidated Cash and Cash Flow Information	30
	~~Note 14 - Goodwill~~	3029

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3129

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5152

Item 4.	Controls and Procedures	5153

PART II - OTHER INFORMATION

Item 1A.	Risk Factors	5254

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5254

Item 5.	Other Information	5355

Item 6.	Exhibits	5355

SIGNATURES		5759

PART I: FINANCIAL INFORMATION

Item 1.IConsolidated Financial Statements

~~Item 1. Financial Statements (Unaudited)~~

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

Report of Independent Registered Public Accounting Firm��

To the Shareholders and Board of Directors

Horace Mann Educators Corporation:

Results of Review of Interim Financial Information

We have reviewed the consolidated balance sheet of Horace Mann Educators Corporation and subsidiaries (the Company) as of June 30, ~~2019,~~2020, the related consolidated statements of operations, comprehensive income (loss) and changes in shareholders' equity for the three-month and six-month periods ended June 30, ~~2019~~2020 and ~~2018,~~2019, and cash flows for the six-month ~~periods~~period ended June 30, ~~2019~~2020 and ~~2018,~~2019, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, ~~2018,~~2019, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated ~~March 1, 2019,~~February 28, 2020, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, ~~2018,~~2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

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

We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.



/s/ KPMG LLP
KPMG LLP

Chicago, Illinois
August ~~8, 2019~~7, 2020



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

HORACE MANN EDUCATORS CORPORATION

CONSOLIDATED BALANCE SHEETS

($ in thousands, except share data)


	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
	(Unaudited)						(Unaudited)
ASSETS
Investments
Fixed maturity securities, available for sale, at fair value (amortized cost 2019, $5,241,755; 2018, $7,373,911)	$	5,534,270		$	7,515,318
Equity securities, at fair value	100,143			111,750
Fixed maturity securities, available for sale, at fair value (amortized cost 2020, $5,604,405; 2019, $5,456,980)							$	6,021,983		$	5,791,676
Equity securities at fair value							90,338			101,864
Limited partnership interests	351,515			328,516			392,192			383,717
Short-term and other investments	433,688			295,093			376,297			361,976
Total investments	6,419,616			8,250,677			6,880,810			6,639,233
Cash	7,616			11,906			82,390			25,508
Deferred policy acquisition costs	279,041			298,742			257,129			276,668
Deposit asset on reinsurance	2,315,330			—			2,373,267			2,346,166
Intangible assets, net							169,845			177,217
Goodwill	29,458			47,396			49,079			49,079
Other assets	417,460			422,047			442,284			474,364
Separate Account (variable annuity) assets	2,310,886			2,001,128			2,316,900			2,490,469
Total assets	$	11,779,407		$	11,031,896		$	12,571,704		$	12,478,704

LIABILITIES AND SHAREHOLDERS’ EQUITY
Policy liabilities
Investment contract and life policy reserves	$	5,776,769		$	5,711,193
Investment contract and policy reserves							$	6,320,577		$	6,234,452
Unpaid claims and claim expenses	398,339			396,714			444,558			442,854
Unearned premiums	270,163			276,225			266,406			279,163
Total policy liabilities	6,445,271			6,384,132			7,031,541			6,956,469
Other policyholder funds	821,880			767,988			741,859			647,283
Other liabilities	403,812			290,358			404,421			384,173
Short-term debt							135,000			135,000
Long-term debt	297,881			297,740			302,172			298,025
Separate Account (variable annuity) liabilities	2,310,886			2,001,128			2,316,900			2,490,469
Total liabilities	10,279,730			9,741,346			10,931,893			10,911,419
Preferred stock, $0.001 par value, authorized 1,000,000 shares; none issued	—			—			—			—
Common stock, $0.001 par value, authorized 75,000,000 shares; issued, 2019, 66,036,205; 2018, 65,820,369	66			66
Common stock, $0.001 par value, authorized 75,000,000 shares; issued, 2020, 66,218,003; 2019, 66,088,808							66			66
Additional paid-in capital	476,353			475,109			483,754			480,962
Retained earnings	1,318,329			1,216,582			1,375,737			1,352,539
Accumulated other comprehensive income (loss), net of tax:
Net unrealized investment gains on fixed maturity securities	203,077			96,941			279,129			230,448
Net funded status of benefit plans	(12,185		)	(12,185		)	(10,767		)	(10,767		)
Treasury stock, at cost, 2019, 24,850,484 shares; 2018, 24,850,484 shares	(485,963		)	(485,963		)
Treasury stock, at cost, 2020, 24,902,579 shares; 2019, 24,850,484 shares							(488,108		)	(485,963		)
Total shareholders’ equity	1,499,677			1,290,550			1,639,811			1,567,285
Total liabilities and shareholders’ equity	$	11,779,407		$	11,031,896		$	12,571,704		$	12,478,704

See Notes to Consolidated Financial Statements.



Horace Mann Educators Corporation	2	Quarterly Report on Form 10-Q

HORACE MANN EDUCATORS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

($ in thousands, except per share data)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Revenues
Insurance premiums and contract charges earned	$	208,096		$	205,610		$	417,881		$	408,608		$	225,431		$	208,096		$	461,696		$	417,881
Net investment income	93,458			97,101			186,258			188,965			80,410			93,458			162,685			186,258
Net investment gains (losses)	146,333			735			153,750			(919		)	3,162			146,333			(15,302		)	153,750
Other income	3,591			2,811			6,802			5,092			5,926			6,223			13,095			12,097

Total revenues	451,478			306,257			764,691			601,746			314,929			454,110			622,174			769,986

Benefits, losses and expenses
Benefits, claims and settlement expenses	152,692			168,278			292,076			311,840			143,010			152,692			281,670			292,076
Interest credited	53,594			51,071			106,516			101,105			50,674			53,594			102,219			106,516
DAC amortization expense	31,648			26,586			56,621			53,291
Operating expenses	55,252			50,218			109,305			98,387			55,775			57,343			116,437			113,518
DAC unlocking and amortization expense													20,426			31,648			50,401			56,621
Intangible asset amortization expense													3,686			541			7,372			1,082
Interest expense	3,312			3,291			6,615			6,464			3,941			3,312			8,169			6,615
Other expense	28,025			—			28,025			—
Other expense - goodwill impairment													—			28,025			—			28,025

Total benefits, losses and expenses	324,523			299,444			599,158			571,087			277,512			327,155			566,268			604,453

Income before income taxes	126,955			6,813			165,533			30,659			37,417			126,955			55,906			165,533
Income tax expense	33,133			896			39,545			4,587			6,839			33,133			6,856			39,545

Net income	$	93,822		$	5,917		$	125,988		$	26,072		$	30,578		$	93,822		$	49,050		$	125,988

Net income per share
Basic	$	2.25		$	0.14		$	3.02		$	0.63		$	0.73		$	2.25		$	1.17		$	3.02
Diluted	$	2.24		$	0.14		$	3.01		$	0.63		$	0.73		$	2.24		$	1.17		$	3.01

Weighted average number of shares and equivalent shares
Basic	41,762			41,600			41,685			41,531			41,879			41,762			41,856			41,685
Diluted	41,921			41,735			41,851			41,659			41,996			41,921			42,008			41,851

Net investment gains (losses)
Total other-than-temporary impairment losses on securities	$	(34	)	$	(1,177	)	$	(271	)	$	(1,287	)	$	(523	)	$	(34	)	$	(4,215	)	$	(271	)
Portion of losses recognized in other comprehensive income (loss)	—			—			—			—			—			—			—			—
Net other-than-temporary impairment losses on securities recognized in earnings	(34		)	(1,177		)	(271		)	(1,287		)	(523		)	(34		)	(4,215		)	(271		)
Sales and other, net	142,067			1,789			146,905			3,992			352			142,067			4,909			146,905
Change in fair value - equity securities	3,441			(1,156		)	6,948			(6,342		)	6,600			3,441			(7,886		)	6,948
Change in fair value and gains realized on settlements - derivative instruments	859			1,279			168			2,718
Change in fair value and gains (losses) realized on settlements - derivatives													(3,267		)	859			(8,110		)	168
Total	$	146,333		$	735		$	153,750		$	(919	)	$	3,162		$	146,333		$	(15,302	)	$	153,750

See Notes to Consolidated Financial Statements.



Horace Mann Educators Corporation	3	Quarterly Report on Form 10-Q

HORACE MANN EDUCATORS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

($ in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended June 30,					Six Months Ended June 30,
	2019			2018			2019		2018			2020		2019			2020		2019
Comprehensive income (loss)
Net income	$	93,822		$	5,917		$	125,988	$	26,072		$	30,578	$	93,822		$	49,050	$	125,988
Other comprehensive income (loss), net of tax:
Change in net unrealized investment gains (losses) on fixed maturity securities	(7,762		)	(52,444		)	106,136		(159,540		)	142,450		(7,762		)	48,681		106,136
Change in net funded status of benefit plans	—			—			—		—			—		—			—		—
Cumulative effect of change in accounting principle	—			—			—		(15,041		)
Other comprehensive income (loss)	(7,762		)	(52,444		)	106,136		(174,581		)	142,450		(7,762		)	48,681		106,136
Total	$	86,060		$	(46,527	)	$	232,124	$	(148,509	)	$	173,028	$	86,060		$	97,731	$	232,124

See Notes to Consolidated Financial Statements.



Horace Mann Educators Corporation	4	Quarterly Report on Form 10-Q

HORACE MANN EDUCATORS CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

($ in thousands, except per share data)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Common stock, $0.001 par value
Beginning balance	$	66		$	66		$	66		$	65		$	66		$	66		$	66		$	66
Options exercised	—			—			—			—			—			—			—			—
Conversion of common stock units	—			—			—			—			—			—			—			—
Conversion of restricted stock units	—			—			—			1			—			—			—			—
Ending balance	66			66			66			66			66			66			66			66

Additional paid-in capital
Beginning balance	474,336			466,277			475,109			464,246			481,917			474,336			480,962			475,109
Options exercised and conversion of common stock units and restricted stock units	344			2,384			(1,761		)	2,259			447			344			268			(1,761		)
Share-based compensation expense	1,673			1,991			3,005			4,147			1,390			1,673			2,524			3,005
Ending balance	476,353			470,652			476,353			470,652			483,754			476,353			483,754			476,353

Retained earnings
Beginning balance	1,236,621			1,254,394			1,216,582			1,231,177			1,357,833			1,236,621			1,352,539			1,216,582
Net income	93,822			5,917			125,988			26,072			30,578			93,822			49,050			125,988
Dividends, 2019, $0.2875, $0.5750 per share; 2018, $0.2850, $0.5700 per share	(12,114		)	(12,006		)	(24,241		)	(23,985		)
Dividends, 2020, $0.30, $0.60 per share; 2019, $0.2875, $0.5750 per share													(12,674		)	(12,114		)	(25,343		)	(24,241		)
Cumulative effect of change in accounting principle	—			—			—			15,041			—			—			(509		)	—
Ending balance	1,318,329			1,248,305			1,318,329			1,248,305			1,375,737			1,318,329			1,375,737			1,318,329

Accumulated other comprehensive income (loss), net of tax:
Beginning balance	198,654			164,823			84,756			286,960			125,912			198,654			219,681			84,756
Change in net unrealized investment gains on fixed maturity securities	(7,762		)	(52,444		)	106,136			(159,540		)
Change in net unrealized investment gains (losses) on fixed maturity securities													142,450			(7,762		)	48,681			106,136
Change in net funded status of benefit plans	—			—			—			—			—			—			—			—
Cumulative effect of change in accounting principle	—			—			—			(15,041		)
Ending balance	190,892			112,379			190,892			112,379			268,362			190,892			268,362			190,892

Treasury stock, at cost
Beginning balance	(485,963		)	(480,881		)	(485,963		)	(480,875		)	(488,108		)	(485,963		)	(485,963		)	(485,963		)
Acquisition of shares	—			(80		)	—			(86		)	—			—			(2,145		)	—
Ending balance	(485,963		)	(480,961		)	(485,963		)	(480,961		)	(488,108		)	(485,963		)	(488,108		)	(485,963		)

Shareholders’ equity at end of period	$	1,499,677		$	1,350,441		$	1,499,677		$	1,350,441
Shareholders' equity at end of period													$	1,639,811		$	1,499,677		$	1,639,811		$	1,499,677

See Notes to Consolidated Financial Statements.



Horace Mann Educators Corporation	5	Quarterly Report on Form 10-Q

HORACE MANN EDUCATORS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

($ in thousands)

Six Months Ended
June 30,
2019 2018
Cash flows - operating activities
Premiums collected $ 396,887
$ 392,103
Policyholder benefits paid (275,437 ) (272,769 )
Policy acquisition and other operating expenses paid (161,863 ) (141,620 )
Income taxes paid (78 ) (7,393 )
Investment income collected 139,210
184,749
Interest expense paid (6,440 ) (6,190 )
Other 5,557
2,429
Net cash provided by operating activities 97,836
151,309

Cash flows - investing activities

Fixed maturity securities

Purchases (644,104 ) (551,984 )
Sales 501,739
190,023
Maturities, paydowns, calls and redemptions 342,998
383,090
Equity securities
Purchases (5,282 ) (6,028 )
Sales and repayments 17,122
5,783
Limited partnership interests
Purchases (29,357 ) (33,031 )
Sales 15,029
9,457
Change in short-term and other investments, net (156,748 ) (109,711 )
Acquisition of business, net of cash acquired (18,198 ) —
Net cash provided by (used in) investing activities 23,199
(112,401 )

Cash flows - financing activities

Dividends paid to shareholders (23,630 ) (23,320 )
Acquisition of treasury stock —
(86 )
Proceeds from exercise of stock options 722
2,460
Withholding tax payments on RSUs tendered (3,366 ) (2,155 )
Annuity contracts: variable, fixed and FHLB funding agreements

Deposits 266,310
199,074
Benefits, withdrawals and net transfers to
Separate Account (variable annuity) assets
(214,243 ) (218,694 )
Life policy accounts
Deposits 4,638
3,163
Withdrawals and surrenders (1,733 ) (2,525 )
Change in deposit asset on reinsurance, net (134,682 ) —
Change in book overdrafts (19,341 ) 3,795
Net cash used in financing activities (125,325 ) (38,288 )

Net increase (decrease) in cash (4,290 ) 620

Cash at beginning of period 11,906
7,627

Cash at end of period $ 7,616
$ 8,247



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

See Notes to Consolidated Financial Statements.



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

HORACE MANN EDUCATORS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~JUNE~~June 30, ~~2019~~2020 and ~~2018~~

~~($ in thousands, except per share data and unless noted otherwise)~~2019

~~Note~~NOTE 1 - Basis of Presentation and Significant Accounting Policies

Business

~~The accompanying unaudited consolidated financial statements of~~ Horace Mann Educators Corporation ~~(HMEC;~~is a holding company for insurance subsidiaries that market and ~~together with its subsidiaries,~~underwrite personal lines of property and casualty insurance products (primarily personal lines of automobile and property insurance), supplemental insurance products (primarily heart, cancer, accident and limited short-term supplemental disability coverages), retirement products (primarily tax-qualified annuities) and life insurance, primarily to K-12 teachers, administrators and other employees of public schools and their families (collectively, HMEC, the Company or Horace Mann).

On July 1, 2019, the Company acquired NTA Life Enterprises, LLC (NTA). As a result, the Company’s reporting segments were changed effective in the third quarter of 2019. A newly created Supplemental segment was added to report on the personal lines of supplemental insurance products that are marketed and underwritten by NTA.

Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the ~~U.S.~~United States of America (GAAP) and with the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in annual financial statements prepared in conformity with GAAP, but are not required for interim reporting purposes, have been omitted. These Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Part II - Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31, 2019. The ~~Company believes that these consolidated~~results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year.

The accompanying Consolidated Financial Statements and Notes are unaudited. These financial statements ~~contain~~reflect all adjustments ~~(consisting~~(generally consisting only of normal recurring accruals) which are, in the opinion of management, necessary ~~to present fairly~~for the ~~Company’s~~fair presentation of the consolidated financial position, ~~as of June 30, 2019, the consolidated~~ results of operations ~~comprehensive income (loss), changes in shareholders’ equity~~ and cash flows for the ~~six month~~interim periods. The Company's significant accounting policies are summarized in Part II - Item 8, Note 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

Effective for the year ended December 31, 2019, the Company decided to change the approach it uses for presentation in its Consolidated Statements of Cash Flows from the direct method to the indirect method as management considers presentation under the indirect method as more comparable to the method used by others in the insurance industry. Accordingly, the Company has recast all prior periods ~~ended June 30, 2019~~presented in the Consolidated Statements of Cash Flows to conform to the current year’s presentation.

The Company has reclassified the presentation of certain prior period information to conform to the current year's presentation.

Consolidation

All intercompany transactions and ~~2018.~~ balances between HMEC and its subsidiaries and affiliates have been eliminated.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from ~~those~~these estimates.

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

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

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

~~Investment Contract and Life Policy Reserves~~



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

~~The following table summarizes investment contract and life policy reserves.~~

($ in thousands) June 30, 2019 December 31, 2018
Investment contract reserves $ 4,605,272
$ 4,555,856
Life policy reserves 1,171,497
1,155,337
Total $ 5,776,769
$ 5,711,193

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

~~Accumulated Other Comprehensive Income (Loss)~~

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

($ in thousands)
Net Unrealized Investment Gains (Losses) on Fixed Maturity Securities ⁽¹⁾⁽²⁾

Net Funded Status of
Benefit Plans ⁽¹⁾

Total ⁽¹⁾
Beginning balance, April 1, 2019 $ 210,839
$ (12,185 ) $ 198,654
Other comprehensive income (loss) before reclassifications 107,163
—
107,163
Amounts reclassified from AOCI (114,925 ) —
(114,925 )
Net current period other comprehensive income (loss) (7,762 ) —
(7,762 )
Ending balance, June 30, 2019 $ 203,077
$ (12,185 ) $ 190,892

Beginning balance, January 1, 2019 $ 96,941
$ (12,185 ) $ 84,756
Other comprehensive income (loss) before reclassifications 227,466
—
227,466
Amounts reclassified from AOCI (121,330 ) —
(121,330 )
Net current period other comprehensive income (loss) 106,136
—
106,136
Ending balance, June 30, 2019 $ 203,077
$ (12,185 ) $ 190,892

~~________________~~


⁽¹⁾	~~All amounts are net of tax.~~


⁽²⁾	The pretax amounts reclassified from AOCI, $145,474 thousand and $153,582 thousand, are included in net investment gains (losses) and the related income tax expenses, $30,549 thousand and $32,252 thousand, are included in income tax expense in the Consolidated Statements of Operations for the three and six month periods ended June 30, 2019, respectively.

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

($ in thousands)
Net Unrealized Investment
Gains (Losses)
on Fixed Maturity Securities ⁽¹⁾⁽²⁾

Net Funded Status of
Benefit Plans ⁽¹⁾

Total⁽¹⁾⁽³⁾
Beginning balance, April 1, 2018, $ 178,040
$ (13,217 ) $ 164,823
Other comprehensive income (loss) before reclassifications (52,873 ) —
(52,873 )
Amounts reclassified from AOCI 429
—
429
Net current period other comprehensive income (loss) (52,444 ) —
(52,444 )
Ending balance, June 30, 2018 $ 125,596
$ (13,217 ) $ 112,379

Beginning balance, January 1, 2018 $ 300,177
$ (13,217 ) $ 286,960
Other comprehensive income (loss) before reclassifications (162,412 ) —
(162,412 )
Amounts reclassified from AOCI 2,872
—
2,872
Cumulative effect of change in accounting principle ⁽³⁾
(15,041 ) —
(15,041 )
Net current period other comprehensive income (loss) (174,581 ) —
(174,581 )
Ending balance, June 30, 2018 $ 125,596
$ (13,217 ) $ 112,379

~~________________~~


⁽¹⁾	~~All amounts are net of tax.~~


⁽²⁾	~~The pretax amounts reclassified from AOCI, $(544) thousand and~~ ~~$(3,636) thousand~~, are included in Net investment gains (losses) and the related income tax expenses, $(115) thousand and $(764) thousand, are included in Income tax expense in the Consolidated Statements of Operations for the three and six month periods ended June 30, 2018, respectively.


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

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

~~Adopted~~New Accounting Standards

~~Accounting for Leases~~

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

~~Simplifying the Test for Goodwill Impairment~~

Effective for the quarter ended June 30, 2019, the Company adopted guidance to simplify the accounting for goodwill impairment. Adoption of this guidance removed Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation. Goodwill impairment is now the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

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

~~Pending Accounting Standards~~

Measurement of Credit Losses on Financial Instruments

In June 2016, the ~~FASB~~Financial Accounting Standards Board (FASB) issued guidance ~~to improve~~which revises the credit loss recognition criteria for certain financial ~~reporting by requiring timelier recording of credit losses on loans and other financial instruments,~~assets measured at amortized cost, including reinsurance ~~receivables, held by companies.~~recoverables. The new guidance replaces the existing incurred loss ~~impairment methodology~~recognition model with an expected loss recognition model. The objective of the expected credit loss model is for ~~financial instruments other than available for sale debt securities and requires an organization~~a reporting entity to ~~measure and~~ recognize ~~all current~~its estimate of expected credit losses ~~(CECL)~~ for affected financial assets ~~held~~in a valuation allowance that when deducted from the amortized cost basis of the related financial assets results in a net carrying value at the amount expected to be collected. A reporting ~~date based on historical experience,~~entity must consider all relevant information available when estimating expected credit losses, including details about past events, current conditions, and reasonable and supportable forecasts. Companies will need to utilize forward-looking information to better estimate their credit losses. Companies will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Anyforecasts over the life of an asset. Financial assets may be evaluated individually or on a pooled basis when they share similar risk characteristics. The measurement of credit losses ~~related to~~for available for sale debt securities ~~will be recorded through an allowance for~~measured at fair value is not affected except that credit losses ~~with this allowance having a limit equal~~recognized are limited to the amount by which fair value is below amortized ~~cost.~~cost and the carrying value adjustment is recognized through a valuation allowance which may change over time but once recorded cannot subsequently be reduced to an amount below zero. The ~~guidance also requires enhanced qualitative and quantitative disclosures to provide additional information about the amounts recorded in the financial statements.~~

~~This~~ guidance is effective for ~~annual and interim~~ reporting periods beginning after December 15, ~~2019. Early adoption is permitted~~2019, and for most affected instruments must be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to beginning ~~after December 15, 2018. Upon adoption,~~retained earnings.

The Company’s implementation activities are complete and the impacts related to the Company’s commercial mortgage loan portfolio, agent advances, reinsurance recoverables and off-balance-sheet credit exposures for unfunded commercial mortgage loan commitments. The Company adopted the new guidance ~~will be applied using the modified-retrospective approach, by which~~on January 1, 2020 and recognized a ~~cumulative-effect~~cumulative effect adjustment ~~will be made to~~that decreased retained earnings asby $0.5 million.

Future Adoption of the beginning of the first reporting period in which the guidance is effective. The guidance will have the most impact on the Company’s available for sale fixed maturity securities portfolio. However, as the Company’s fixed maturity securities portfolio is weighted towards higher rated bonds (97.1% investment grade, based on fair value, with an average quality rating of A+ at June 30, 2019), the Company does not expect that the effect of adoption will be material.

New Accounting Standards

Accounting for Long-Duration Insurance Contracts

In August 2018, the FASB issued accounting and disclosure guidance that contains targeted improvements to the accounting for long-duration insurance contracts. Under the new guidance, the cash flow assumptions used to measure the liability for future policy benefits for traditional insurance contracts will be required to be updated at least annually with changes recognized as a benefit expense (i.e., assumptions will no longer be locked-in). Insurance entities will be required to use a standard discount rate to measure the liabilities that will be equivalent to the yield from a high-quality bond. The new guidance also changes the amortization of deferred acquisition costs (DAC) to be on a constant-level basis over the expected term of the related contracts with no interest accruing on the DAC balance. The new guidance also introduces a new category of contract features associated with deposit type contracts referred to as market risk benefits (MRBs). Contract features meeting the definition of a MRB will be measured at fair value. New disclosures will be required for long-duration insurance contracts in order to provide better transparency into the exposure of insurance entities and the drivers of their results. For public business entities, the guidance is effective for annual reporting periods beginning after December 15, ~~2020,~~2021, including interim periods within those years. With regards to the liability for future policy benefits and DAC, the guidance applies to contracts in force as of the beginning of the earliest period presented and may be applied retrospectively. With regards to MRBs, the guidance is to be applied retrospectively at the beginning of the earliest period presented. Early adoption is permitted. Management is currently evaluating the impact this guidance will have on the results of operations and financial position of the Company.

Accounting Policies

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

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



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

~~Note 2~~NOTE 1 - ~~Acquisitions~~Basis of Presentation and Significant Accounting Policies (continued)

Credit Impairments of Fixed Maturity Securities

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

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

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

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

For fixed maturity securities the Company intends to sell or for which it is more likely than not that the Company will be required to sell before an anticipated recovery in value, the full amount of the impairment is included in net investment gains (losses). The new cost basis of the investment is the previous amortized cost basis less the impairment recognized in net investment gains (losses). The new cost basis is not adjusted for any subsequent recoveries in fair value.

The Company reports investment income accrued separately from fixed maturity securities, available for sale, and ~~Benefit Consultants Group, Inc. (BCG) entered into a Stock Purchase Agreement under which~~has elected not to measure an allowance for credit losses for investment income accrued. Investment income accrued is written off through net investment gains (losses) at the time the issuer of the fixed maturity security defaults or is expected to default on payments.

Uncollectible available for sale fixed maturity securities are written off when the Company ~~acquired all~~determines that no additional payments of ~~the outstanding capital stock of BCG with a transaction valued at $25 million. The acquisition was approved by the Company’s Board~~principal or interest will be received.

Subsequent Event

PG&E Corporation and ~~closed~~Pacific Gas and Electric Company (together, PG&E) emerged from bankruptcy on January 2, 2019. The acquisition of BCG gave rise to recognition of intangible assets of $16.2 million and goodwill of $10.1 million as a result of the purchase accounting. The intangible assets are reported as Other assets in the Consolidated Balance Sheets. Intangible assets that are amortizable have lives of 10 to 16 years.

On July 1, ~~2019,~~2020, the ~~Company completed its acquisition~~date the Debtors' and Shareholder Proponents' Joint Chapter 11 Plan of all the equity interests in National Teachers Associates Life Insurance Company (NTA) pursuant to a Purchase Agreement (Agreement) dated as of December 10, 2018, by and among the Company and Ellard Family Holdings, Inc., Brian M. Ellard and The JCE Exempt Trust. The purchase price of the transaction was $425 million which includes $20 million representing NTA’s share of "adjusted earnings" (as determined inReorganization Dated June 19, 2020 (the Plan) became effective. In accordance with the terms of the ~~Agreement)~~Plan, PG&E funded a trust from ~~July 1,~~which the Company and other subrogation claimants will receive payments related to the 2018 California Camp Fire in the third quarter of 2020. The Company expects to ~~July 1, 2019. As~~recognize in the third quarter of 2020 a ~~result~~subrogation benefit related to these claims of approximately $4.8 million pretax, net of expenses and amounts that would inure to the benefit of the ~~acquisition, NTA became~~Company's reinsurers, and the return of $3.5 million pretax of reinsurance reinstatement premiums for a ~~wholly owned subsidiary~~total of the Company. NTA provides supplemental insurance products, including heart and cancer, to the education market. NTA's results will be reported in a newly created operating segment titled "Supplemental".$8.3 million.



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

~~Note 3~~NOTE 2 - Investments

Net Investment Income

The components of net investment income for the following periods were:



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

Net Investment Gains (Losses)

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



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

The Company, from time to time, sells invested assets subsequent to the reporting date that were considered temporarily impaired at the reporting date. Such sales are due to issuer specific events occurring subsequent to the reporting date that result in a change in the Company's intent or ability to hold an invested asset. 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 Gains (Losses) by Transaction Type

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



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



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

NOTE 2 - Investments (continued)

Fixed Maturity Securities

The ~~Company’s~~Company's investment portfolio is comprised primarily of fixed maturity securities. Amortized cost, net unrealized investment gains (losses) and fair values of all fixed maturity securities in the portfolio were as follows:

($ in thousands)
Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value
June 30, 2019
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:⁽¹⁾

Mortgage-backed securities $ 550,059
$ 37,900
$ 1,201
$ 586,758
Other, including U.S. Treasury securities 546,396
20,574
533
566,437
Municipal bonds 1,472,794
127,700
801
1,599,693
Foreign government bonds 45,303
2,064
—
47,367
Corporate bonds 1,226,962
96,535
2,211
1,321,286
Other mortgage-backed securities 1,400,241
20,786
8,298
1,412,729
Totals $ 5,241,755
$ 305,559
$ 13,044
$ 5,534,270

December 31, 2018
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:⁽¹⁾

Mortgage-backed securities $ 778,038
$ 22,724
$ 13,321
$ 787,441
Other, including U.S. Treasury securities 835,096
16,127
17,681
833,542
Municipal bonds 1,884,313
133,150
13,494
2,003,969
Foreign government bonds 83,343
2,321
760
84,904
Corporate bonds 2,054,105
64,296
38,891
2,079,510
Other mortgage-backed securities 1,739,016
10,467
23,531
1,725,952
Totals $ 7,373,911
$ 249,085
$ 107,678
$ 7,515,318

~~________________~~



($ in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
June 30, 2020
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:⁽¹⁾
Mortgage-backed securities	$	635,342	$	83,843	$	211	$	718,974
Other, including U.S. Treasury securities	333,428		41,453		—		374,881
Municipal bonds	1,633,297		174,211		1,958		1,805,550
Foreign government bonds	39,643		3,907		—		43,550
Corporate bonds	1,705,963		169,498		13,021		1,862,440
Other asset-backed securities	1,256,732		16,978		57,122		1,216,588
Totals	$	5,604,405	$	489,890	$	72,312	$	6,021,983

December 31, 2019
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:⁽¹⁾
Mortgage-backed securities	$	684,543	$	41,263	$	1,487	$	724,319
Other, including U.S. Treasury securities	436,665		22,824		621		458,868
Municipal bonds	1,545,787		141,996		1,580		1,686,203
Foreign government bonds	42,801		2,569		—		45,370
Corporate bonds	1,464,444		118,775		1,795		1,581,424
Other asset-backed securities	1,282,740		20,883		8,131		1,295,492
Totals	$	5,456,980	$	348,310	$	13,614	$	5,791,676

⁽¹⁾

Fair value includes securities issued by Federal National Mortgage Association (FNMA) of ~~$370,182 thousand~~$392.6 million and ~~$441,308 thousand;~~$405.1 million; Federal Home Loan Mortgage Corporation (FHLMC) of ~~$256,531 thousand~~$312.9 million and ~~$417,308 thousand;~~$283.1 million; and Government National Mortgage Association (GNMA) of ~~$79,141 thousand~~$145.6 million and ~~$96,466 thousand~~$147.4 million as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.



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

~~Note 3~~NOTE 2 - Investments ~~(Continued)~~(continued)

The following table presents the fair value and gross unrealized losses offor fixed maturity securities in an unrealized loss position at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The Company views the decrease in fair value of all of the fixed maturity securities with unrealized losses at June 30, ~~2019 --~~2020 — which was driven largely by increasing interest rates, spread widening, financial market illiquidity and/or market volatility from the date of acquisition --— as temporary. ~~For fixed maturity securities, management does~~As of June 30, 2020, the Company has not ~~have~~made the ~~intent~~decision to sell ~~the securities~~ and it is not more likely than not the Company will be required to sell ~~the~~fixed maturity securities with unrealized losses before ~~the~~an anticipated recovery ~~of their amortized cost bases, and management expects to recover the entire amortized cost bases of the fixed maturity securities.~~in value. Therefore, it was determined that the unrealized losses on the securities presented in the table below were not other-than-temporarily impaired as of June 30, ~~2019.~~2020.


($ in thousands)	12 Months or Less					More than 12 Months					Total					12 Months or Less					More than 12 Months					Total
	Fair Value			Gross Unrealized Losses		Fair Value			Gross Unrealized Losses		Fair Value			Gross Unrealized Losses		Fair Value			Gross Unrealized Losses		Fair Value			Gross Unrealized Losses		Fair Value			Gross Unrealized Losses
June 30, 2019
June 30, 2020
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	$	10,504		$	27	$	44,564		$	1,174	$	55,068		$	1,201	$	8,344		$	130	$	933		$	81	$	9,277		$	211
Other	11,463			32		37,575			501		49,038			533		37			—		—			—		37			—
Municipal bonds	16,900			93		34,031			708		50,931			801		81,279			1,958		—			—		81,279			1,958
Foreign government bonds	—			—		—			—		—			—		—			—		—			—		—			—
Corporate bonds	27,858			518		32,997			1,693		60,855			2,211		209,868			12,127		6,060			894		215,928			13,021
Other mortgage-backed securities	391,170			3,895		277,694			4,403		668,864			8,298
Other asset-backed securities																448,358			38,339		387,453			18,783		835,811			57,122
Total	$	457,895		$	4,565	$	426,861		$	8,479	$	884,756		$	13,044	$	747,886		$	52,554	$	394,446		$	19,758	$	1,142,332		$	72,312

Number of positions with a gross unrealized loss	143					156					299					594					109					703
Fair value as a percentage of total fixed maturity securities fair value	8.3		%			7.7		%			16.0		%
Fair value as a percentage of total fixed maturity securities at fair value																12.4		%			6.6		%			19.0		%

December 31, 2018
December 31, 2019
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	$	193,447		$	5,026	$	157,295		$	8,295	$	350,742		$	13,321	$	72,422		$	1,282	$	2,620		$	205	$	75,042		$	1,487
Other	263,497			6,746		246,213			10,935		509,710			17,681		38,341			619		1,527			2		39,868			621
Municipal bonds	291,869			7,603		95,297			5,891		387,166			13,494		91,195			977		9,160			603		100,355			1,580
Foreign government bonds	16,250			760		—			—		16,250			760		—			—		—			—		—			—
Corporate bonds	818,519			27,429		99,171			11,462		917,690			38,891		58,198			886		16,622			909		74,820			1,795
Other mortgage-backed securities	913,858			16,076		291,442			7,455		1,205,300			23,531
Other asset-backed securities																218,710			1,970		442,791			6,161		661,501			8,131
Total	$	2,497,440		$	63,640	$	889,418		$	44,038	$	3,386,858		$	107,678	$	478,866		$	5,734	$	472,720		$	7,880	$	951,586		$	13,614

Number of positions with a gross unrealized loss	1,052					359					1,411					330					137					467
Fair value as a percentage of total fixed maturity securities fair value	33.2		%			11.8		%			45.0		%
Fair value as a percentage of total fixed maturity securities at fair value																8.3		%			8.2		%			16.5		%

Fixed maturity securities with an investment grade rating represented ~~84.0%~~84.5% of the gross unrealized losses as of June 30, ~~2019.~~2020. With respect to fixed maturity securities involving securitized financial assets, the underlying collateral cash flows were stress tested to determine there was no adverse change in the present value of cash flows below ~~their~~the amortized cost ~~bases.~~basis.



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

~~Note 3~~NOTE 2 - Investments ~~(Continued)~~(continued)

Credit Losses

The following table summarizes the cumulative amounts related to the Company's credit loss component of other-than-temporary impairment (OTTI) losses on fixed maturity securities held as of June 30, 2020 and 2019 that the Company did not intend to sell as of those dates, and it was not more likely than not that the Company would be required to sell the securities before an anticipated recovery in value, for which the non-credit portions of OTTI losses were recognized in OCI:



($ in thousands)	Six Months Ended June 30,
	2020			2019
Cumulative credit loss⁽¹⁾
Beginning of period	$	1,529		$	1,529
New credit losses	184			—
Increases to previously recognized credit losses	—			—
Losses related to securities sold or paid down during the period	(103		)	—
	$	1,610		$	1,529


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

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

Maturities of Fixed Maturity Securities

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



($ in thousands)	Percent of Total Fair Value				June 30, 2020
	June 30, 2020		December 31, 2019		Fair Value		Amortized Cost
Estimated expected maturity:
Due in 1 year or less	4.0	%	3.6	%	$	240,942	$	240,701
Due after 1 year through 5 years	27.9	%	27.4	%	1,680,037		1,650,193
Due after 5 years through 10 years	30.1	%	29.6	%	1,814,204		1,680,118
Due after 10 years through 20 years	24.7	%	26.1	%	1,487,294		1,314,841
Due after 20 years	13.3	%	13.3	%	799,506		718,552
Total	100.0	%	100.0	%	$	6,021,983	$	5,604,405

Average option-adjusted duration, in years	6.2		6.0



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

NOTE 2 - Investments (continued)

Sales of Fixed Maturity and Equity Securities

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



($ in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019 ⁽¹⁾			2020			2019 ⁽¹⁾
Fixed maturity securities
Proceeds received	$	196,004		$	442,015		$	294,162		$	501,739
Gross gains realized	5,506			147,774			10,285			148,316
Gross losses realized	(5,625		)	(5,976		)	(5,893		)	(6,081		)

Equity securities
Proceeds received	$	10,602		$	1,633		$	12,059		$	17,122
Gross gains realized	1,721			389			2,040			5,134
Gross losses realized	(1,249		)	(166		)	(1,805		)	(510		)


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

Net Unrealized Investment Gains (Losses) on Fixed Maturity Securities

The following table reconciles net unrealized investment gains (losses) on fixed maturity securities, net of tax, included in accumulated other comprehensive income (AOCI), before the impact of DAC:



($ in thousands)	Three Months Ended June 30,					Six Months Ended June 30,
	2020		2019			2020			2019
Net unrealized investment gains (losses) on fixed maturity securities, net of tax
Beginning of period	$	149,876	$	245,319		$	264,410		$	111,712
Change in net unrealized investment gains (losses) on fixed maturity securities	174,932		100,693			71,159			240,705
Reclassification of net investment (gains) losses on securities to net income	5,079		(114,925		)	(5,682		)	(121,330		)
End of period	$	329,887	$	231,087		$	329,887		$	231,087

Limited Partnership Interests

As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the carrying value of equity method limited ~~partnerships~~partnership interests totaled ~~$351,515 thousand~~$392.2 million and ~~$328,516 thousand,~~$383.7 million, respectively. Principal factors influencing carrying value appreciation or decline include operating performance, comparable public company earnings multiples, capitalization rates and the economic environment. The Company recognizes an impairment loss for equity method limited ~~partnerships~~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.

~~Credit Losses~~

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

($ in thousands) Six Months Ended
June 30,
2019 2018
Cumulative credit loss⁽¹⁾

Beginning of period $ 1,529
$ 3,825
New credit losses —
—
Increases to previously recognized credit losses —
246
Losses related to securities sold or paid down during the period —
—
End of period $ 1,529
$ 4,071

~~________________~~


⁽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.

~~Maturities of Fixed Maturity Securities~~

The following table presents the distribution of the Company’s fixed maturity securities portfolio by estimated expected maturity. Estimated expected maturities differ from contractual maturities, reflecting assumptions regarding borrowers’ utilization of the right to call or prepay obligations with or without call or prepayment penalties. For structured securities, including mortgage-backed securities and other asset-backed securities, estimated expected maturities consider broker-dealer survey prepayment assumptions and are verified for consistency with the interest rate and economic environments.

($ in thousands) Percent of Total Fair Value June 30, 2019
June 30, 2019 December 31, 2018
Fair
Value

Amortized
Cost
Estimated expected maturity:
Due in 1 year or less 4.7 % 4.8 % $ 258,331
$ 252,586
Due after 1 year through 5 years 26.7 % 22.8 % 1,478,291
1,439,296
Due after 5 years through 10 years 29.6 % 32.8 % 1,638,887
1,555,825
Due after 10 years through 20 years 25.6 % 26.5 % 1,414,857
1,316,715
Due after 20 years 13.4 % 13.1 % 743,904
677,333
Total 100.0 % 100.0 % $ 5,534,270
$ 5,241,755

Average option-adjusted duration, in years 5.6
5.9

~~Note 3 - Investments (Continued)~~

~~Sales of Fixed Maturity and Equity Securities~~

($ in thousands) Three Months Ended
June 30, Six Months Ended
June 30,

2019 ⁽¹⁾
2018
2019 ⁽¹⁾
2018
Fixed maturity securities
Proceeds received $ 442,015
$ 100,129
$ 501,739
$ 190,023
Gross gains realized 147,774
2,352
148,316
4,022
Gross losses realized (5,976 ) (1,584 ) (6,081 ) (1,637 )

Equity securities
Proceeds received $ 1,633
$ 3,735
$ 17,122
$ 5,783
Gross gains realized 389
977
5,134
1,593
Gross losses realized (166 ) (147 ) (510 ) (181 )

~~________________~~


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

~~Net Investment Gains (Losses)~~

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

($ in thousands) Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
Impairment write-downs $ —
$ —
$ —
$ —
Change in intent write-downs (34 ) (1,177 ) (271 ) (1,287 )
Net OTTI losses recognized in earnings (34 ) (1,177 ) (271 ) (1,287 )
Sales and other, net 142,067
1,789
146,905
3,992
Change in fair value - equity securities 3,441
(1,156 ) 6,948
(6,342 )
Change in fair value and gains (losses) realized
on settlements - derivative instruments
859
1,279
168
2,718
Net investment gains (losses) $ 146,333
$ 735
$ 153,750
$ (919 )

~~Note 3 - Investments (Continued)~~

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

~~The following table reconciles net unrealized investment gains (losses) on fixed maturity securities, net of tax, included in AOCI, before the impact of DAC:~~

($ in thousands) Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
Net unrealized investment gains (losses)
on fixed maturity securities, net of tax

Beginning of period $ 245,319
$ 206,293
$ 111,712
$ 286,176
Change in net unrealized investment gains
(losses) on fixed maturity securities
100,693
(61,724 ) 240,705
(129,009 )
Reclassification of net investment (gains) losses
on securities to net income
(114,925 ) 429
(121,330 ) 2,872
Cumulative effect of change in accounting principle ⁽¹⁾
—
—
—
(15,041 )
End of period $ 231,087
$ 144,998
$ 231,087
$ 144,998

~~________________~~


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

Offsetting of Assets and Liabilities

The ~~Company’s derivative instruments (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.



Horace Mann Educators Corporation	14	Quarterly Report on Form 10-Q

NOTE 2 - Investments (continued)

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


($ in thousands)			Gross Amounts Offset in the		Net Amounts of Assets/ Liabilities Presented in the		Gross Amounts Not Offset in the Consolidated Balance Sheets								Gross Amounts Offset in the Consolidated Balance Sheets			Net Amounts of Assets/ Liabilities Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts		Consolidated Balance Sheets		Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount		Gross Amounts				Financial Instruments			Cash Collateral Received		Net Amount
June 30, 2019
June 30, 2020
Asset derivatives:
Free-standing derivatives	$	8,753	$	—	$	8,753	$	—	$	8,663	$	90	$	7,276	$	—		$	7,276	$	4,340	$	2,600	$	336

December 31, 2018
December 31, 2019
Asset derivatives:
Free-standing derivatives	$	2,647	$	—	$	2,647	$	—	$	1,868	$	779	13,239		—			13,239		7,687		6,640		(1,088		)

~~Note 3 - Investments (Continued)~~

Deposits

At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, fixed maturity securities with a fair value of ~~$18,073 thousand~~$26.9 million and ~~$17,695 thousand,~~$26.0 million, respectively, were on deposit with governmental agencies as required by law in various states in which the insurance subsidiaries of HMEC conduct business. In addition, at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, fixed maturity securities with a fair value of ~~$787,421 thousand~~$701.9 million and ~~$740,016 thousand,~~$594.2 million, respectively, were on deposit with the Federal Home Loan Bank of Chicago (FHLB) as collateral for amounts subject to funding agreements, advances and borrowings which were equal to ~~$725,000 thousand~~$644.5 million at June 30, ~~2019~~2020 and ~~$675,000 thousand~~$545.0 million at December 31, ~~2018.~~2019. The deposited securities are included in Fixed maturity securities on the Company’s Consolidated Balance Sheets.

~~Note 4~~NOTE 3 - Fair Value of Financial Instruments

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

Information regarding the three-level hierarchy presented below and the valuation methodologies utilized by the Company to estimate fair values at each reporting date is included in Part II - Item 8, Note 34 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.



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

~~Note 4~~NOTE 3 - Fair Value of Financial Instruments ~~(Continued)~~(continued)

Financial Instruments Measured and Carried at Fair Value

on a Recurring Basis

The following table presents the ~~Company’s~~Company's fair value hierarchy for those assets and liabilities measured and carried at fair value on a recurring basis. During the six months ended June 30, 2020 and 2019, there were no transfers between Level 1 and Level 2. At June 30, ~~2019,~~2020, Level 3 invested assets comprised ~~4.0%~~6.3% of the Company’s total investment portfolio at fair value.


($ in thousands)					Fair Value Measurements at										Fair Value Measurements at
	Carrying		Fair		Reporting Date Using						Carrying		Fair		Reporting Date Using
	Amount		Value		Level 1		Level 2		Level 3		Amount		Value		Level 1		Level 2		Level 3
June 30, 2019
June 30, 2020
Financial Assets
Investments
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	$	586,758	$	586,758	$	—	$	584,070	$	2,688	$	718,974	$	718,974	$	—	$	694,513	$	24,461
Other, including U.S. Treasury securities	566,437		566,437		16,288		550,149		—		374,881		374,881		18,520		356,361		—
Municipal bonds	1,599,693		1,599,693		—		1,552,709		46,984		1,805,550		1,805,550		—		1,732,379		73,171
Foreign government bonds	47,367		47,367		—		47,367		—		43,550		43,550		—		43,550		—
Corporate bonds	1,321,286		1,321,286		13,997		1,228,067		79,222		1,862,440		1,862,440		12,773		1,723,375		126,292
Other mortgage-backed securities	1,412,729		1,412,729		—		1,286,979		125,750
Other asset-backed securities											1,216,588		1,216,588		—		1,040,903		175,685
Total fixed maturity securities	5,534,270		5,534,270		30,285		5,249,341		254,644		6,021,983		6,021,983		31,293		5,591,081		399,609
Equity securities	100,143		100,143		57,530		42,544		69		90,338		90,338		35,269		54,954		115
Short-term investments	247,872		247,872		246,872		1,000		—		182,670		182,670		179,651		3,019		—
Other investments	24,503		24,503		—		24,503		—		23,604		23,604		—		23,604		—
Totals	$	5,906,788	$	5,906,788	$	334,687	$	5,317,388	$	254,713	$	6,318,595	$	6,318,595	$	246,213	$	5,672,658	$	399,724
Separate Account (variable annuity) assets ⁽¹⁾	$	2,310,886	$	2,310,886	$	2,310,886	$	—	$	—	$	2,316,900	$	2,316,900	$	2,316,900	$	—	$	—
Financial Liabilities
Investment contract and life policy reserves, embedded derivatives	$	940	$	940	$	—	$	940	$	—
Investment contract and policy reserves, embedded derivatives											$	1,113	$	1,113	$	—	$	1,113	$	—
Other policyholder funds, embedded derivatives	$	85,961	$	85,961	$	—	$	—	$	85,961	$	93,619	$	93,619	$	—	$	—	$	93,619

December 31, 2018
December 31, 2019
Financial Assets
Investments
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	$	787,441	$	787,441	$	—	$	784,224	$	3,217	$	724,319	$	724,319	$	—	$	711,004	$	13,315
Other, including U.S. Treasury securities	833,542		833,542		13,291		820,251		—		458,868		458,868		17,699		441,169		—
Municipal bonds	2,003,969		2,003,969		—		1,956,438		47,531		1,686,203		1,686,203		—		1,641,912		44,291
Foreign government bonds	84,904		84,904		—		84,904		—		45,370		45,370		—		45,370		—
Corporate bonds	2,079,510		2,079,510		12,281		1,986,487		80,742		1,581,424		1,581,424		14,470		1,463,002		103,952
Other mortgage-backed securities	1,725,952		1,725,952		—		1,608,958		116,994
Other asset-backed securities											1,295,492		1,295,492		—		1,161,979		133,513
Total fixed maturity securities	7,515,318		7,515,318		25,572		7,241,262		248,484		5,791,676		5,791,676		32,169		5,464,436		295,071
Equity securities	111,750		111,750		64,330		47,415		5		101,864		101,864		49,834		51,923		107
Short-term investments	122,222		122,222		117,296		4,926		—		172,667		172,667		172,667		—		—
Other investments	16,147		16,147		—		16,147		—		25,997		25,997		—		25,997		—
Totals	$	7,765,437	$	7,765,437	$	207,198	$	7,309,750	$	248,489	$	6,092,204	$	6,092,204	$	254,670	$	5,542,356	$	295,178
Separate Account (variable annuity) assets ⁽¹⁾	$	2,001,128	$	2,001,128	$	2,001,128	$	—	$	—	$	2,490,469	$	2,490,469	$	2,490,469	$	—	$	—
Financial Liabilities
Investment contract and life policy reserves, embedded derivatives	$	248	$	248	$	—	$	248	$	—
Investment contract and policy reserves, embedded derivatives											$	1,314	$	1,314	$	—	$	1,314	$	—
Other policyholder funds, embedded derivatives	$	78,700	$	78,700	$	—	$	—	$	78,700	$	93,733	$	93,733	$	—	$	—	$	93,733

~~________________~~

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



Horace Mann Educators Corporation	16	Quarterly Report on Form 10-Q

~~Note 4~~NOTE 3 - Fair Value of Financial Instruments ~~(Continued)~~(continued)

~~During the six month periods ended June 30, 2019 and 2018, there were no transfers between~~Changes in Level ~~1 and Level 2.~~ 3 Fair Value Measurements

The ~~following table presents reconciliations for the periods indicated~~reconciliation for all ~~Level 3~~ assets and liabilities measured at fair value on a recurring ~~basis.~~basis using significant unobservable inputs (Level 3) was as follows:

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

Municipal
Bonds

Corporate
Bonds

Other
Mortgage-
Backed
Securities ⁽²⁾

Total
Fixed
Maturity
Securities

Equity
Securities
Total
Beginning balance, April 1, 2019 $ 47,756
$ 82,482
$ 135,790
$ 266,028
$ 5
$ 266,033
$ 84,629
Transfers into Level 3⁽³⁾
—
2,808
—
2,808
64
2,872
—
Transfers out of Level 3 ⁽³⁾
—
(4,876 ) —
(4,876 ) —
(4,876 ) —
Total gains or losses
Net investment gains (losses) included in
net income related to financial assets
—
—
—
—
—
—
—
Net realized (gains) losses included in net
income related to financial liabilities
—
—
—
—
—
—
371
Net unrealized investment gains
(losses) included in OCI
(537 ) 1,961
2,807
4,231
—
4,231
—
Purchases —
1,566
—
1,566
—
1,566
—
Issuances —
—
—
—
—
—
2,431
Sales —
—
(607 ) (607 ) —
(607 ) —
Settlements —
—
—
—
—
—
—
Paydowns, maturities and distributions (235 ) (4,719 ) (9,552 ) (14,506 ) —
(14,506 ) (1,470 )
Ending balance, June 30, 2019 $ 46,984
$ 79,222
$ 128,438
$ 254,644
$ 69
$ 254,713
$ 85,961

Beginning balance, January 1, 2019 $ 47,531
$ 80,742
$ 120,211
$ 248,484
$ 5
$ 248,489
$ 78,700
Transfers into Level 3 ⁽³⁾
—
5,882
21,934
27,816
64
27,880
—
Transfers out of Level 3 ⁽³⁾
—
(4,876 ) —
(4,876 ) —
(4,876 ) —
Total gains or losses
Net investment gains (losses) included in
net income related to financial assets —
—
—
—
—
—
—
Net realized (gains) losses included in net
income related to financial liabilities —
—
—
—
—
—
4,705
Net unrealized investment gains
(losses) included in OCI
(193 ) 4,510
2,655
6,972
—
6,972
—
Purchases —
1,566
—
1,566
—
1,566
—
Issuances —
—
—
—
—
—
5,449
Sales —
—
(607 ) (607 ) —
(607 ) —
Settlements —
—
—
—
—
—
—
Paydowns, maturities and distributions (354 ) (8,602 ) (15,755 ) (24,711 ) —
(24,711 ) (2,893 )
Ending balance, June 30, 2019 $ 46,984
$ 79,222
$ 128,438
$ 254,644
$ 69
$ 254,713
$ 85,961

~~________________~~



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

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


⁽¹⁾	Represents embedded derivatives, all related to the Company's fixed indexed annuity products, reported in Other policyholder funds in the ~~Company’s~~Company's Consolidated Balance Sheets.


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


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



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

NOTE 3 - Fair Value of Financial Instruments (continued)



($ in thousands)	Financial Assets																	Financial Liabilities⁽¹⁾
	Municipal Bonds			Corporate Bonds			Other Mortgage- Backed Securities ⁽²⁾			Total Fixed Maturity Securities			Equity Securities		Total
Beginning balance, April 1, 2019	$	47,756		$	82,482		$	135,790		$	266,028		$	5	$	266,033		$	84,629
Transfers into Level 3 ⁽³⁾	—			2,808			—			2,808			64		2,872			—
Transfers out of Level 3 ⁽³⁾	—			(4,876		)	—			(4,876		)	—		(4,876		)	—
Total gains or losses
Net investment gains (losses) included in net income related to financial assets	—			—			—			—			—		—			—
Net realized (gains) losses included in net income related to financial liabilities	—			—			—			—			—		—			371
Net unrealized investment gains (losses) included in OCI	(537		)	1,961			2,807			4,231			—		4,231			—
Purchases	—			1,566			—			1,566			—		1,566			—
Issuances	—			—			—			—			—		—			2,431
Sales	—			—			(607		)	(607		)	—		(607		)	—
Settlements	—			—			—			—			—		—			—
Paydowns, maturities and distributions	(235		)	(4,719		)	(9,552		)	(14,506		)	—		(14,506		)	(1,470		)
Ending balance, June 30, 2019	$	46,984		$	79,222		$	128,438		$	254,644		$	69	$	254,713		$	85,961

Beginning balance, January 1, 2019	$	47,531		$	80,742		$	120,211		$	248,484		$	5	$	248,489		$	78,700
Transfers into Level 3 ⁽³⁾	—			5,882			21,934			27,816			64		27,880			—
Transfers out of Level 3 ⁽³⁾	—			(4,876		)	—			(4,876		)	—		(4,876		)	—
Total gains or losses
Net investment gains (losses) included in net income related to financial assets	—			—			—			—			—		—			—
Net realized (gains) losses included in net income related to financial liabilities	—			—			—			—			—		—			4,705
Net unrealized investment gains (losses) included in OCI	(193		)	4,510			2,655			6,972			—		6,972			—
Purchases	—			1,566			—			1,566			—		1,566			—
Issuances	—			—			—			—			—		—			5,449
Sales	—			—			(607		)	(607		)	—		(607		)	—
Settlements	—			—			—			—			—		—			—
Paydowns, maturities and distributions	(354		)	(8,602		)	(15,755		)	(24,711		)	—		(24,711		)	(2,893		)
Ending balance, June 30, 2019	$	46,984		$	79,222		$	128,438		$	254,644		$	69	$	254,713		$	85,961


⁽¹⁾	Represents embedded derivatives, all related to the Company's fixed indexed annuity products, reported in Other policyholder funds in the Company's Consolidated Balance Sheets.


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

⁽³⁾

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

~~Note 4 - Fair Value of Financial Instruments (Continued)~~

($ in thousands) Financial Assets
Financial
Liabilities⁽¹⁾
Municipal
Bonds Corporate
Bonds
Other
Mortgage-
Backed
Securities ⁽²⁾
Total
Fixed
Maturity
Securities Equity
Securities Total
Beginning balance, April 1, 2018 $ 49,748
$ 78,780
$ 115,334
$ 243,862
$ 6
$ 243,868
$ 78,486
Transfers into Level 3 ⁽³⁾
—
29,709
18,322
48,031
—
48,031
—
Transfers out of Level 3 ⁽³⁾
—
(11,279 ) (4,230 ) (15,509 ) —
(15,509 ) —
Total gains or losses
Net investment gains (losses) included in
net income related to financial assets —
(246 ) —
(246 ) —
(246 ) —
Net realized (gains) losses included in net
income related to financial liabilities
—
—
—
—
—
—
(1,291 )
Net unrealized investment gains
(losses) included in OCI 397
(700 ) 1,659
1,356
—
1,356
—
Purchases —
—
—
—
—
—
—
Issuances —
—
—
—
—
—
2,107
Sales —
—
—
—
—
—
—
Settlements —
—
—
—
—
—
—
Paydowns, maturities and distributions (224 ) (3,601 ) (2,024 ) (5,849 ) —
(5,849 ) (1,514 )
Ending balance, June 30, 2018 $ 49,921
$ 92,663
$ 129,061
$ 271,645
$ 6
$ 271,651
$ 77,788

Beginning balance, January 1, 2018 $ 49,328
$ 72,979
$ 107,944
$ 230,251
$ 6
$ 230,257
$ 80,733
Transfers into Level 3 ⁽³⁾
—
40,487
33,144
73,631
—
73,631
—
Transfers out of Level 3 ⁽³⁾
—
(11,279 ) (4,230 ) (15,509 ) —
(15,509 ) —
Total gains or losses
Net investment gains (losses) included in
net income related to financial assets —
(246 ) —
(246 ) 3
(243 ) —
Net (gains) losses included in net
income related to financial liabilities
—
—
—
—
—
—
(3,513 )
Net unrealized investment gains
(losses) included in OCI 840
(1,587 ) 637
(110 ) —
(110 ) —
Purchases —
—
—
—
—
—
—
Issuances —
—
—
—
—
—
3,439
Sales —
—
—
—
(3 ) (3 ) —
Settlements —
—
—
—
—
—
—
Paydowns, maturities and distributions (247 ) (7,691 ) (8,434 ) (16,372 ) —
(16,372 ) (2,871 )
Ending balance, June 30, 2018 $ 49,921
$ 92,663
$ 129,061
$ 271,645
$ 6
$ 271,651
$ 77,788

~~________________~~


⁽¹⁾	~~Represents embedded derivatives, all related to the Company’s fixed indexed annuity products, reported in Other policyholder funds in the Company’s Consolidated Balance Sheets.~~


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

⁽³⁾

Transfers into and out of Level 3 during the three and six month periods ended June 30, 2018 were attributable to changes in the availability of observable market information for individual fixed maturity securities . The Company’sCompany's policy is to recognize transfers into and transfers out of the levels as having occurred at the end of the reporting period in which the transfers were determined.

For the six ~~month period~~months ended June 30, 2020 and June 30, 2019, the Company had no0 net losses on Level 3 securities. For the three and six ~~month period~~months ended June 30, ~~2018, the Company had a realized net loss on two Level 3 securities of $243 thousand. For the three and six month periods ended June 30, 2019,~~2020, net investment losses of ~~$371 thousand~~$6.0 million and ~~$4,705 thousand~~$0.9 million 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 six ~~month periods~~months ended June 30, ~~2018,~~2019, the respective ~~gain amounts~~net investment losses were ~~$1,291 thousand~~$0.4 million and ~~$3,513 thousand.~~$4.7 million.



Horace Mann Educators Corporation	18	Quarterly Report on Form 10-Q

~~Note 4~~NOTE 3 - Fair Value of Financial Instruments ~~(Continued)~~(continued)

Quantitative Information about Level 3 Fair Value Measurements

The following table provides quantitative information about the significant unobservable inputs for recurring fair value measurements categorized within Level 3.



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



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


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


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


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


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


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


⁽⁶⁾	"PDI" stands for private debt investment.


⁽⁷⁾	"SBL" stands for broadly syndicated loans.


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


⁽⁹⁾	Determined as a percentage of a risk-free rate.

The valuation techniques and significant unobservable inputs used in the fair value measurement for financial assets and liabilities classified as Level 3 are subject to the control processes as described in Part II - Item 8, Note 34 in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. Generally, valuation techniques for fixed maturity securities include spread pricing, matrix pricing and discounted cash flow methodologies; include inputs such as quoted prices for identical or similar securities that are less liquid; and are based on lower levels of trading activity than securities classified as Level 2. The valuation techniques and significant unobservable inputs used in the fair value measurement for equity securities classified as Level 3 use similar valuation techniques and significant unobservable inputs as those used for fixed maturity securities.



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

NOTE 3 - Fair Value of Financial Instruments (continued)

The sensitivity of the estimated fair values to changes in the significant unobservable inputs for fixed maturity and equity securities included in Level 3 ~~generally relate to interest rate spreads, illiquidity premiums~~include: benchmark yield, liquidity premium, estimated cash flows, prepayment and default ~~rates.~~speeds, spreads, weighted average life, and credit rating. Significant spread widening in isolation will adversely impact the overall valuation, while significant ~~spread~~ tightening will lead to substantial valuation increases. Significant increases (decreases) in illiquidity premiums in isolation will result in substantially lower (higher) valuations. Significant increases (decreases) in expected default rates in isolation will result in substantially lower (higher) valuations.

Financial Instruments Not Carried at Fair Value; Disclosure Required

The Company has various other financial assets and financial liabilities used in the normal course of business that are not carried at fair value, but for which fair value disclosure is required. These financial assets and financial liabilities are further described in Part II - Item 8, Note 4 in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. The following table presents the carrying value, fair value and fair value hierarchy of these financial assets and financial liabilities.


($ in thousands)					Fair Value Measurements at										Fair Value Measurements at
	Carrying		Fair		Reporting Date Using						Carrying		Fair		Reporting Date Using
	Amount		Value		Level 1		Level 2		Level 3		Amount		Value		Level 1		Level 2		Level 3
June 30, 2019
June 30, 2020
Financial Assets
Investments
Other investments	$	161,313	$	166,023	$	—	$	—	$	166,023	$	168,541	$	172,364	$	—	$	—	$	172,364
Deposit asset on reinsurance											2,373,267		2,846,176		—		—		2,846,176
Financial Liabilities
Investment contract and life policy reserves, fixed annuity contracts	4,605,272		4,529,317		—		—		4,529,317
Investment contract and life policy reserves, account values on life contracts	90,239		93,366		—		—		93,366
Investment contract and policy reserves, fixed annuity contracts											4,742,272		4,651,533		—		—		4,651,533
Investment contract and policy reserves, account values on life contracts											95,885		100,673		—		—		100,673
Other policyholder funds	735,919		735,919		—		676,460		59,459		648,240		648,240		—		590,693		57,547
Short-term debt											135,000		135,000		—		—		135,000
Long-term debt	297,881		315,938		—		315,938		—		302,172		332,385		—		332,385		—

December 31, 2018
December 31, 2019
Financial Assets
Investments
Other investments	$	156,725	$	161,449	$	—	$	—	$	161,449	$	163,312	$	167,185	$	—	$	—	$	167,185
Deposit asset on reinsurance											2,346,166		2,634,012		—		—		2,634,012
Financial Liabilities
Investment contract and life policy reserves, fixed annuity contracts	4,555,849		4,478,338		—		—		4,478,338
Investment contract and life policy reserves, account values on life contracts	87,229		90,402		—		—		90,402
Investment contract and policy reserves, fixed annuity contracts											4,675,774		4,609,880		—		—		4,609,880
Investment contract and policy reserves, account values on life contracts											93,465		98,332		—		—		98,332
Other policyholder funds	689,287		689,287		—		626,325		62,962		553,550		553,550		—		495,812		57,738
Short-term debt											135,000		135,000		—		—		135,000
Long-term debt	297,740		291,938		—		291,938		—		298,025		322,678		—		322,678		—



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

~~Note 5~~NOTE 4 - ~~Derivative Instruments~~Derivatives

The Company offers fixed indexed annuity (FIA) products, which are deferred fixed annuities that guarantee the return of principal to the contractholder and credit interest based on a percentage of the gain in a specified market index. The Company also offers indexed universal life (IUL) products which credit interest based on a percentage of the gain in a specified market index. When deposits are received for FIA and IUL contracts, a portion is used to purchase derivatives consisting of call options on the applicable market indices to fund the index credits due to FIA and IUL policyholders. For the Company, substantially all such call options are one-year options purchased to match the funding requirements of the underlying contracts. The call options are carried at fair value with changes in fair value included in Net investment gains (losses)~~, a component of revenues,~~ in the Consolidated Statements of Operations.

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

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

The Company carries all ~~derivative instruments~~derivatives at fair value in the Consolidated Balance Sheets. The Company elected to not use hedge accounting for derivative transactions related to the FIA and IUL products. As a result, the Company recognizes the purchased call options and the embedded derivatives related to the provision of a contingent return at fair value, with changes in the fair value recognized immediately as Net investment gains (losses) in the Consolidated Statements of Operations. The fair values of ~~derivative instruments,~~derivatives, including ~~derivative instruments~~derivatives embedded in FIA and IUL contracts, are presented in the Consolidated Balance Sheets as follows:


($ in thousands)	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Assets
Derivative instruments, included in Short-term and other investments	$	8,753	$	2,647
Derivatives, included in Short-term and other investments					$	7,276	$	13,239

Liabilities
FIA - embedded derivatives, included in Other policyholder funds	$	85,961	$	78,700	93,619		93,733
IUL - embedded derivatives, included in Investment contract and life policy reserves	940		248
IUL - embedded derivatives, included in Investment contract and policy reserves					1,113		1,314

~~Note 5 - Derivative Instruments (Continued)~~

In general, the change in the fair value of the embedded derivatives related to FIA will not correspond to the change in fair value of the purchased call options because the purchased call options are one-year options while the options valued in the embedded derivatives represent the rights of the policyholder to receive index credits over the entire period the FIA contracts are expected to be in force, which typically exceeds 10 years. The changes in fair value of derivatives included in the Consolidated Statements of Operations were as follows:

($ in thousands) Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
Change in fair value of derivatives:⁽¹⁾

Revenues
Net investment gains (losses) $ 1,375
$ (2 ) $ 5,429
$ (851 )

Change in fair value of embedded derivatives:
Revenues
Net investment gains (losses) $ (516 ) $ 1,281
$ (5,261 ) $ 3,569

~~________________~~



($ in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Change in fair value of derivatives: ⁽¹⁾
Net investment gains (losses)	$	3,210		$	1,375		$	(7,790	)	$	5,429

Change in fair value of embedded derivatives:
Net investment gains (losses)	(6,477		)	(516		)	(320		)	(5,261		)


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



Horace Mann Educators Corporation	21	Quarterly Report on Form 10-Q

NOTE 4 - Derivatives (continued)

The ~~Company’s~~Company's strategy attempts to mitigate potential risk of loss under these agreements through a regular monitoring process, which evaluates the ~~program’s~~program's effectiveness. The Company is exposed to risk of loss in the event of nonperformance by the counterparties and, accordingly, option contracts are purchased from multiple counterparties, which are evaluated for creditworthiness prior to purchase of the contracts. All of these options have been purchased from nationally recognized financial institutions with a Standard and ~~Poor’s~~Poor's Global Inc. (S&P)/Moody's Investors Service, Inc. (Moody's) long-term credit rating of "BBB+/~~A1"~~A3" or higher at the time of purchase and the maximum credit exposure to any single counterparty is subject to concentration limits. The Company also obtains credit support agreements that allow it to request the counterparty to provide collateral when the fair value of the exposure to the counterparty exceeds specified amounts.

The notional amount and fair value of call options by counterparty and each ~~counterparty’s~~counterparty's long-term credit ratings were as follows:


($ in thousands)	June 30, 2019						December 31, 2018				June 30, 2020						December 31, 2019
	Credit Rating		Notional		Fair		Notional		Fair		Credit Rating		Notional		Fair		Notional		Fair
Counterparty	S&P	Moody's	Amount		Value		Amount		Value		S&P	Moody's	Amount		Value		Amount		Value
Bank of America, N.A.	A+	Aa2	$	156,800	$	3,560	$	144,500	$	870	A+	Aa2	$	185,100	$	5,090	$	174,900	$	8,523
Barclays Bank PLC	A	A2	72,500		1,696		28,500		247		A	A1	108,500		1,747		115,300		3,347
Citigroup Inc.	BBB+	A3	—		—		—		—		BBB+	A3	—		—		—		—
Credit Suisse International	A+	A1	16,100		295		16,100		55		A+	A1	—		—		—		—
Societe Generale	A		55,000		3,202		89,100		1,475		A	A1	18,400		439		27,800		1,369

Total			$	300,400	$	8,753	$	278,200	$	2,647			$	312,000	$	7,276	$	318,000	$	13,239

As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company held ~~$8,663 thousand~~$6.9 million and ~~$1,868 thousand,~~$14.3 million, respectively, of cash and financial instruments received from counterparties for derivative collateral, which is included in Other liabilities on the Consolidated Balance Sheets. This derivative collateral limits the Company’s maximum amount of economic loss due to credit risk that would be incurred if parties to the call options failed completely to perform according to the terms of the contracts to ~~$250 thousand~~$0.3 million per counterparty.

~~Note 6~~NOTE 5 - Deposit Asset on Reinsurance

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

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

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



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

NOTE 6 - Goodwill and Intangible Assets, net

The Company conducts impairment testing for goodwill at least annually, or more often if events, changes or circumstances indicate that the carrying amount may not be recoverable. See Part II - Item 8, Note 1 in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for further description of impairment testing.

There were no changes in the carrying amount of goodwill by reporting unit for the three and six months ended June 30, 2020. The carrying amount of goodwill by reporting unit as of June 30, 2020 was as follows:



($ in thousands)	June 30, 2020
Property and Casualty	$	9,460
Supplemental	19,621
Retirement	10,087
Life	9,911
Total	$	49,079

As of June 30, 2020, the outstanding amounts of definite-lived intangible assets subject to amortization are attributable to the acquisitions of BCG and NTA during 2019. The acquisition of Benefit Consultants Group, Inc. (BCG) resulted in initial recognition of definite-lived intangible assets subject to amortization in the amount of $14.1 million and the acquisition of NTA resulted in initial recognition of definite-lived intangible assets subject to amortization in the amount of $160.4 million. As of June 30, 2020 the outstanding amounts of definite-lived intangible assets subject to amortization were as follows:



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

In regards to the definite-lived intangible assets in the table above, the value of business acquired intangible asset represents the present value of the expected underwriting profit within policies that were in force on the date of acquisition. The value of distribution acquired intangible asset represents the present value of future business to be written by the existing agency force. The value of agency relationships intangible asset represents the present value of the commission overrides retained by NTA. The value of customer relationships intangible asset represents the present value of the expected profits from existing BCG customers in force at the date of acquisition. All of the aforementioned definite-lived intangible assets were valued using the income approach.



Horace Mann Educators Corporation	23	Quarterly Report on Form 10-Q

NOTE 6 - Goodwill and Intangible Assets, net (continued)

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



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

The value of business acquired intangible asset is being amortized by product based on the present value of future premiums to be received. The value of distribution acquired intangible asset is being amortized on a straight-line basis. The value of agency relationships intangible asset is being amortized based on the present value of future premiums to be received. The value of customer relationships intangible asset is being amortized based on the present value of future profits to be received.

Indefinite-lived intangible assets (not subject to amortization) as of June 30, 2020 were as follows:



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

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



Horace Mann Educators Corporation	24	Quarterly Report on Form 10-Q

NOTE 7 - ~~Property and Casualty~~ Unpaid Claims and Claim Expenses

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

($ in thousands) Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
Property and Casualty

Beginning gross reserves⁽¹⁾
$ 359,701
$ 331,255
$ 367,180
$ 319,182
Less: reinsurance recoverables 78,328
62,917
89,725
57,409
Net reserves, beginning of period ⁽²⁾
281,373
268,338
277,455
261,773
Incurred claims and claim expenses:

Claims occurring in the current period 134,411
147,005
253,178
267,993
Decrease in estimated reserves for claims occurring
in prior periods⁽³⁾
(2,000 ) —
(4,000 ) (300 )
Total claims and claim expenses incurred ⁽⁴⁾
132,411
147,005
249,178
267,693
Claims and claim expense payments
for claims occurring during:

Current period 83,755
80,403
129,469
127,451
Prior periods 39,512
45,006
106,647
112,081
Total claims and claim expense payments 123,267
125,409
236,116
239,532
Net reserves, end of period⁽²⁾
290,517
289,934
290,517
289,934
Plus: reinsurance recoverables 77,345
62,883
77,345
62,883
Ending gross reserves⁽¹⁾
$ 367,862
$ 352,817
$ 367,862
$ 352,817

~~________________~~



($ in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Property and Casualty
Beginning gross reserves⁽¹⁾	$	382,248		$	359,701		$	386,976		$	367,180
Less: reinsurance recoverables	119,045			78,328			120,506			89,725
Net reserves, beginning of period ⁽²⁾	263,203			281,373			266,470			277,455
Incurred claims and claim expenses:
Claims occurring in the current period	109,167			134,411			214,621			253,178
Decrease in estimated reserves for claims occurring in prior periods⁽³⁾	(1,000		)	(2,000		)	(2,000		)	(4,000		)
Total claims and claim expenses incurred ⁽⁴⁾	108,167			132,411			212,621			249,178
Claims and claim expense payments for claims occurring during:
Current period	61,420			83,755			104,883			129,469
Prior periods	37,542			39,512			101,800			106,647
Total claims and claim expense payments	98,962			123,267			206,683			236,116
Net reserves, end of period⁽²⁾	272,408			290,517			272,408			290,517
Plus: reinsurance recoverables	116,083			77,345			116,083			77,345
Ending gross reserves⁽¹⁾	$	388,491		$	367,862		$	388,491		$	367,862


⁽¹⁾	Unpaid claims and claim expenses as reported in the Consolidated Balance Sheets also include reserves for Supplemental, Life and Retirement of ~~$30,477 thousand~~$56.1 million and ~~$27,016 thousand~~$30.5 million as of June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, in addition to Property and Casualty reserves.


⁽²⁾	Reserves net of anticipated reinsurance recoverables.


⁽³⁾	Shows the amounts by which the Company decreased its reserves in each of the periods indicated for claims occurring in previous periods to reflect subsequent information on such claims and changes in their projected final settlement costs.

⁽⁴⁾

Benefits, claims and settlement expenses as reported in the Consolidated Statements of Operations also include amounts for Supplemental, Life and Retirement of ~~$20,281 thousand~~$34.8 million and ~~$42,898 thousand~~$69.1 million for the three and six ~~month periods~~ months ended June 30, ~~2019,~~2020, respectively, in addition to Property and Casualty amounts. Benefits, claims and settlement expenses for Life and Retirement were ~~$21,273 thousand~~$20.3 million and ~~$44,147 thousand~~ $42.9 millionfor thethree and six ~~month periods~~ months ended June 30, ~~2018,~~2019, respectively.

Net favorable development of total reserves for Property and Casualty claims occurring in prior years was ~~$4.0~~$2.0 million and ~~$0.3~~$4.0 million for the six ~~month periods~~months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The favorable development for the six ~~month period~~months ended June 30, 2020 was the result of favorable loss trends in auto and homeowners loss emergence for accident years 2019 and prior. The favorable development for the six months ended June 30, 2019 was the result of favorable loss trends in auto and homeowners loss emergence for accident years 2018 and prior. ~~The favorable development for the six month period ended June 30, 2018 was predominately the result of favorable loss trends in homeowners emergence for accident years 2017 and prior.~~



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

~~Note~~NOTE 8 ~~- Debt~~

~~Indebtedness outstanding was as follows:~~

($ in thousands) June 30, 2019 December 31, 2018
Short-term debt:

Bank Credit Facility, expires June 21, 2024 $ —
$ —

Long-term debt:

4.50% Senior Notes, due December 1, 2025. Aggregate principal amount of $250,000 thousand less unaccrued discount of $458 and $488 thousand (4.5% imputed rate) and unamortized debt issuance costs of $1,661 thousand and $1,772 thousand 247,881
247,740
FHLB borrowing 50,000
50,000
Total $ 297,881
$ 297,740

~~The 4.50% Senior Notes due 2025 (Senior Notes due 2025) and the FHLB borrowing are described in Note 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.~~

~~Credit Agreement with Financial Institutions (Bank Credit Facility~~)

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

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

~~Note 9~~ - Reinsurance

The Company recognizes the cost of reinsurance premiums over the contract periods for such premiums in proportion to the insurance protection provided. Amounts recoverable from reinsurers for unpaid claims and claim settlement expenses, including estimated amounts for unsettled claims, claims incurred but not yet reported and policy benefits, are estimated in a manner consistent with the insurance liability associated with the policy. The effects of reinsurance on premiums written and contract deposits; premiums and contract charges earned; and benefits, claims and settlement expenses were as follows:


($ in thousands)	Gross Amount		Ceded to Other Companies ⁽¹⁾		Assumed from Other Companies		Net Amount		Gross Amount		Ceded to Other Companies ⁽¹⁾		Assumed from Other Companies		Net Amount
Three months ended June 30, 2020
Premiums written and contract deposits⁽²⁾									$	332,379	$	6,379	$	3,169	$	329,169
Premiums and contract charges earned									230,635		8,307		3,103		225,431
Benefits, claims and settlement expenses									143,285		2,407		2,132		143,010

Three months ended June 30, 2019
Premiums written and contract deposits⁽²⁾	$	314,897	$	6,028	$	2,822	$	311,691	$	314,897	$	6,028	$	2,822	$	311,691
Premiums and contract charges earned	213,415		8,155		2,836		208,096		213,415		8,155		2,836		208,096
Benefits, claims and settlement expenses	153,436		2,797		2,053		152,692		153,436		2,797		2,053		152,692

Three months ended June 30, 2018
Six months ended June 30, 2020
Premiums written and contract deposits⁽²⁾	$	305,864	$	5,483	$	1,341	$	301,722	$	666,110	$	12,689	$	4,506	$	657,927
Premiums and contract charges earned	209,892		5,505		1,223		205,610		473,805		16,684		4,575		461,696
Benefits, claims and settlement expenses	170,459		3,330		1,149		168,278		282,817		4,391		3,244		281,670

Six months ended June 30, 2019
Premiums written and contract deposits ⁽²⁾	$	613,990	$	11,876	$	4,971	$	607,085	$	613,990	$	11,876	$	4,971	$	607,085
Premiums and contract charges earned	426,671		13,977		5,187		417,881		426,671		13,977		5,187		417,881
Benefits, claims and settlement expenses	295,488		7,089		3,677		292,076		295,488		7,089		3,677		292,076

Six months ended June 30, 2018
Premiums written and contract deposits⁽²⁾	$	594,680	$	10,997	$	2,047	$	585,730
Premiums and contract charges earned	417,629		11,033		2,012		408,608
Benefits, claims and settlement expenses	322,427		12,344		1,757		311,840

~~________________~~


⁽¹⁾	Excludes the annuity reinsurance ~~agreement~~transaction accounted for ~~under~~using the deposit method that is discussed in Note 6.5.


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

~~Note 10~~NOTE 9 - Commitments

Investment Commitments

From time to time, the Company has outstanding commitments to ~~purchase~~fund investments ~~and/or~~in limited partnership interests, commercial mortgage loans and bank loans. Such unfunded commitments ~~to lend funds under bridge loans. Unfunded commitments to purchase investments~~ were ~~$157.4~~$358.9 million and ~~$145.4~~$306.2 million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.



Horace Mann Educators Corporation	26	Quarterly Report on Form 10-Q

~~Note 11~~NOTE 10 - Segment Information

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


($ in thousands)	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Insurance premiums and contract charges earned
Property and Casualty	$	171,303		$	167,333		$	342,143		$	332,791		$	156,212		$	171,303		$	322,686		$	342,143
Supplemental													33,302			N/A			66,292			N/A
Retirement	6,931			7,825			15,509			15,893			6,717			6,931			14,097			15,509
Life	29,862			30,452			60,229			59,924			29,200			29,862			58,621			60,229
Total	$	208,096		$	205,610		$	417,881		$	408,608		$	225,431		$	208,096		$	461,696		$	417,881

Net investment income
Property and Casualty	$	12,643		$	10,300		$	22,861		$	19,816		$	6,325		$	12,643		$	16,618		$	22,861
Supplemental													4,035			N/A			7,555			N/A
Retirement	62,684			67,787			127,423			131,956			55,044			62,684			108,569			127,423
Life	18,324			19,166			36,376			37,506			15,630			18,324			31,188			36,376
Corporate and Other	(14		)	42			(37		)	78			(58		)	(14		)	(112		)	(37		)
Intersegment eliminations	(179		)	(194		)	(365		)	(391		)	(566		)	(179		)	(1,133		)	(365		)
Total	$	93,458		$	97,101		$	186,258		$	188,965		$	80,410		$	93,458		$	162,685		$	186,258

Net income (loss)
Property and Casualty	$	5,101		$	(10,896	)	$	20,153		$	(1,174	)	$	11,289		$	5,101		$	37,859		$	20,153
Supplemental													9,479			N/A			20,016			N/A
Retirement	(25,045		)	14,141			(12,894		)	25,562			9,733			(25,045		)	8,786			(12,894		)
Life	5,239			5,879			8,516			9,666			1,922			5,239			2,563			8,516
Corporate and Other	108,527			(3,207		)	110,213			(7,982		)	(1,845		)	108,527			(20,174		)	110,213
Total	$	93,822		$	5,917		$	125,988		$	26,072		$	30,578		$	93,822		$	49,050		$	125,988


($ in thousands)	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Assets
Property and Casualty	$	1,281,344		$	1,236,362		$	1,283,328		$	1,327,099
Supplemental							810,122			747,602
Retirement	8,493,089			7,866,969			8,317,079			8,330,127
Life	1,911,569			1,821,351			2,048,910			1,964,993
Corporate and Other	145,022			149,014			168,108			172,955
Intersegment eliminations	(51,617		)	(41,800		)	(55,843		)	(64,072		)
Total	$	11,779,407		$	11,031,896		$	12,571,704		$	12,478,704

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



Horace Mann Educators Corporation	27	Quarterly Report on Form 10-Q

~~Note 12~~NOTE 11 - ~~Operating Leases~~

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 Company has various operating lease agreements, primarily for real estate (claims and marketing offices in a few states) as well as for computer equipment and copier machines. Such leases have remaining lease terms of 1 years to 6 years, some of which may include options to extend the leases for up to 10 years.

~~The components of lease expense were as follows:~~following table reconciles these components.

($ in thousands) Three Months Ended
June 30, 2019 Six Months Ended
June 30, 2019
Operating lease cost $ 791
$ 1,600
Short-term lease cost 27
51
Total lease cost $ 818
$ 1,651



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

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


⁽¹⁾	All amounts are net of tax.


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



($ in thousands)	Net Unrealized Investment Gains (Losses) on Securities ⁽¹⁾⁽²⁾			Net Funded Status of Benefit Plans ⁽¹⁾			Total ⁽¹⁾
Beginning balance, April 1, 2019	$	210,839		$	(12,185	)	$	198,654
Other comprehensive income (loss) before reclassifications	107,163			—			107,163
Amounts reclassified from AOCI	(114,925		)	—			(114,925		)
Net current period other comprehensive income (loss)	(7,762		)	—			(7,762		)
Ending balance, June 30, 2019	$	203,077		$	(12,185	)	$	190,892

Beginning balance, January 1, 2019	$	96,941		$	(12,185	)	$	84,756
Other comprehensive income (loss) before reclassifications	227,466			—			227,466
Amounts reclassified from AOCI	(121,330		)	—			(121,330		)
Net current period other comprehensive income (loss)	106,136			—			106,136
Ending balance, June 30, 2019	$	203,077		$	(12,185	)	$	190,892

⁽¹⁾All amounts are net of tax.


⁽²⁾	The pretax amounts reclassified from AOCI, $145.5 million and $153.6 million, are included in Net investment gains (losses) and the related income tax expenses, $30.5 million and $32.3 million, are included in Income tax expense in the Consolidated Statements of Operations for the three and six month periods ended June 30, 2019, respectively.

Comparative information for elements that are not required to be reclassified in their entirety to net income in the same reporting period is disclosed in Note 2.

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

($ in thousands) Three Months Ended
June 30, 2019 Six Months Ended
June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities $ 575
$ 1,341



Horace Mann Educators Corporation	28	Quarterly Report on Form 10-Q

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

($ in thousands, except lease term and discount rate) June 30, 2019
Assets
Right of use assets, included in Other assets $ 12,692

Liabilities
Operating lease liabilities, included in Other liabilities $ 13,429

Weighted Average Remaining Lease Term 5.00

Weighted Average Discount Rate 4.10 %

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

($ in thousands)
Year Ending December 31,
2019 (excluding the six months ended June 30, 2019) $ 1,448
2020 3,108
2021 3,028
2022 2,943
2023 2,246
Thereafter 2,111
Total future minimum lease payments 14,884
Less imputed interest (1,455 )
Total $ 13,429

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

~~Note 13~~NOTE 12 - Supplemental Disclosure of Consolidated Cash and Cash Flow Information



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



($ in thousands)	Six Months Ended June 30,
	2020			2019
Cash paid (recovered) during the six months for:
Interest	$	8,247		$	6,440
Income taxes	(617		)	78

Non-cash investing activities include $2.1 billion of investments ~~and policy loans~~ transferred to a reinsurer as consideration paid during the second quarter of 2019 in connection with the ~~Company’s~~Company's reinsurance of a $2.9 billion block of in force fixed and variable annuity business. See Note 65 for further information.

Non-cash investing activities in respect to modifications or exchanges of fixed maturity securities ~~was~~as well as paid-in-kind activity for policy loans were insignificant for the three and six months ended June 30, 2020 and 2019, ~~and 2018,~~ respectively.

~~Note 14 - Goodwill~~

The Company conducts impairment testing for goodwill at least annually, or more often if events, changes or circumstances indicate that the carrying amount may not be recoverable. See Note 1 in the Company's Annual Report on Form 10-K for the year ended 2018 for further descriptionITEM 2.IManagement's Discussion and Analysis of ~~impairment testing.~~

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

~~Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~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 ~~U.S.~~United States of America (non-GAAP) are marked with an asterisk (*) the first time they are presented within this Part I - Item 2. An explanation of these measures is contained in the Glossary of Selected Terms included as Exhibit 99.1 to this Quarterly Report on Form 10-Q and are reconciled to the most directly comparable measures prepared in accordance with accounting principles generally accepted in the ~~U.S.~~United States of America (GAAP) in the Appendix to the Company's Second Quarter ~~2019~~2020 Investor Supplement.

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

Forward-looking Information

Statements made in the following discussion that are not historical in nature are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to known and unknown risks, uncertainties and other factors. Horace Mann Educators Corporation ~~(HMEC;~~(referred to in Part I - Items 2 - 4 and ~~together with its subsidiaries,~~Part II of this report as "we", "our", "us", the ~~Company~~"Company", "Horace Mann" or ~~Horace Mann)~~"HMEC") is an insurance holding company. ~~Horace Mann is~~We are not under any obligation to (and expressly ~~disclaims~~disclaim any such obligation to) update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. It is important to note that ~~the Company’s~~our actual results could differ materially from those projected in forward-looking statements due to a number of risks and uncertainties inherent in ~~the Company’s~~our business. See Part II - Item 1A in this Quarterly Report on Form 10-Q ~~and~~as well as in ~~the Company’s~~Part I - Item 1A in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 for additional information regarding risks and uncertainties.



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

~~Introduction~~

Introduction

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

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

Coronavirus Disease (COVID-19) Considerations

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

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

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

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

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

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

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

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



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

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

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

Consolidated Financial Highlights

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

($ in millions) Three Months Ended
June 30, 2019-2018 Six Months Ended
June 30, 2019-2018
2019 2018 Change % 2019 2018 Change %
Total revenues $ 451.5
$ 306.2
47.5 % $ 764.7
$ 601.7
27.1 %
Net income 93.8
5.9
N.M. 126.0
26.1
N.M.
Per diluted share:
Net income $ 2.24
$ 0.14
N.M. $ 3.01
$ 0.63
N.M.
Net investment gains (losses), after tax 2.74
0.01
N.M. 2.88
(0.01 ) N.M.
Book value per share $ 36.41
$ 32.93
10.6 %
Net income return on equity - last twelve months 8.6 % 12.7 %

Net income return on equity - annualized 18.1 % 3.7 %

~~___________________~~

~~N.M. - The Company defines increases or decreases greater than or equal to 150% as "N.M." or not meaningful.~~

~~Net Income~~



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

For the three and six ~~month periods~~months ended June 30, ~~2019, the Company's~~2020, net income ~~increased $87.9~~decreased $63.3 million and ~~$99.9~~$77.0 million, ~~respectively, compared to the prior year periods~~respectively. The decrease was primarily due to recognition of a $106.9 million after tax realized investment gain in the ~~three month period ended June 30, 2019. The gain was associated~~second quarter of 2019 with respect to the transfer of investments as consideration in connection with the annuity reinsurance ~~of approximately 50% of the Company's fixed annuity account balances effective April 1, 2019. The impact from the realized investment~~transaction. That gain was partially offset by ~~a $28.0 million goodwill impairment charge. See Item 1, Note 6~~more favorable results from Property and ~~Note 14~~Casualty as well as the inclusion of results from the ~~Consolidated Financial Statements for more information regarding the annuity reinsurance transaction and the goodwill impairment charge.~~

~~Net income (loss) by segment is as follows:~~

($ in millions) Three Months Ended
June 30, 2019-2018 Six Months Ended
June 30, 2019-2018
2019 2018 Change % 2019 2018 Change %
Analysis of net income (loss) by segment:

Property and Casualty $ 5.1
$ (10.9 ) 146.8 % $ 20.1
$ (1.2 ) N.M.
Retirement (25.0 ) 14.1
N.M. (12.8 ) 25.5
N.M.
Life 5.2
5.9
-11.9 % 8.5
9.7
-12.4 %
Corporate and Other 108.5
(3.2 ) N.M. 110.2
(7.9 ) N.M.
Net income $ 93.8
$ 5.9
N.M. $ 126.0
$ 26.1
N.M.

~~___________________~~

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

~~The net loss for the Retirement~~newly added Supplemental segment in the ~~three month period ended June 30, 2019 is primarily due to the $28.0 million goodwill impairment which was triggered by the annuity reinsurance transaction.~~current periods.

The aforementioned $106.9 million after tax realized investment gain recognized in the three month period ended June 30, 2019 associated with the annuity reinsurance transaction is reported in the results for the Corporate and Other segment.



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

Consolidated Results of Operations

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

($ in millions) Three Months Ended
June 30, 2019-2018 Six Months Ended
June 30, 2019-2018
2019 2018 Change % 2019 2018 Change %
Insurance premiums and
contract charges earned
$ 208.1
$ 205.6
1.2 % $ 417.9
$ 408.6
2.3 %
Net investment income 93.5
97.1
-3.7 % 186.3
189.0
-1.4 %
Net investment gains (losses) 146.3
0.7
N.M. 153.7
(1.0 ) N.M.
Other income 3.6
2.8
28.6 % 6.8
5.1
33.3 %
Total revenues 451.5
306.2
47.5 % 764.7
601.7
27.1 %

Benefits, claims and settlement expenses 152.7
168.3
-9.3 % 292.1
311.9
-6.3 %
Interest credited 53.6
51.1
4.9 % 106.5
101.1
5.3 %
DAC amortization expense 31.6
26.5
19.2 % 56.6
53.2
6.4 %
Operating expenses 55.3
50.2
10.2 % 109.3
98.4
11.1 %
Interest expense 3.3
3.3
— % 6.6
6.5
1.5 %
Other expense 28.0
—
N.M. 28.0
—
N.M.
Total benefits, losses and expenses 324.5
299.4
8.4 % 599.1
571.1
4.9 %

Income before income taxes 127.0
6.8
N.M. 165.6
30.6
N.M.
Income tax expense 33.2
0.9
N.M. 39.6
4.5
N.M.
Net income $ 93.8
$ 5.9
N.M. $ 126.0
$ 26.1
N.M.

~~___________________~~

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



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

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

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

Insurance Premiums and Contract Charges Earned

For the three and six ~~month periods~~months ended June 30, ~~2019,~~2020, insurance premiums and contract charges earned increased ~~$2.5~~$17.3 million and ~~$9.3~~$43.8 million, respectively, ~~compared to the prior year periods,~~ primarily due to ~~increases in average~~the addition of earned premiums from Supplemental. These were partially offset by lower premiums earned by Property and Casualty, including recognition of $9.8 million of automobile premium ~~per policy for both automobile and property.~~

credits to our policyholders related to reduced driving activity due to COVID-19.

Net Investment Income

Excluding accreted ~~net~~ investment income on the deposit asset on reinsurance, ~~net investment income~~ for the three and six ~~month periods~~months ended June 30, ~~2019 declined~~2020, net investment income decreased $13.8 million and $48.0 million, respectively, primarily ~~because~~due to a $2.1 billion reduction in invested assets ~~decreased 22.2%~~ from ~~December 31, 2018 due to assets~~investments transferred under the annuity reinsurance transaction in the second quarter of 2019 as well as lower than expected ~~new money rates and prepayments that were partially offset by stronger~~ returns on ~~alternative~~limited partnership investments. Investment yields continue to be impacted by the low interest rate environment of recent years. ~~Annualized~~The annualized investment yield on the investment portfolio ~~yield is presented in the following table:~~excluding limited partnership interests* was as follows:

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
Pretax yield 5.1% 5.3% 5.1% 5.1%
After tax yield 4.1% 4.2% 4.1% 4.1%



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

During the three and six ~~month period~~months ended June 30, ~~2019, management~~2020, we continued to identify and purchase investments, including a modest level of ~~alternative investments,~~limited partnership interests, with attractive risk-adjusted yields relative to market conditions without venturing into asset classes or individual securities that would be inconsistent with ~~the Company's~~our overall conservative investment guidelines.



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

Net Investment Gains (Losses) ~~- Pretax~~

For the three and six ~~month periods~~months ended June 30, ~~2019,~~2020, net investment gains ~~increased $145.6~~decreased $143.1 million and ~~$154.7~~$169.0 million, respectively, ~~compared to the prior year periods~~primarily as a result of a realized investment gain of $135.3 million recognized during the ~~three month period ended June 30,~~second quarter of 2019 in connection with the transfer of investments related to the aforementioned annuity reinsurance transaction. The breakdown of net investment gains (losses) by transaction type ~~is shown in the following table:~~were as follows:


($ in millions)	Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019			2018			2020			2019		2020			2019
OTTI losses recognized in earnings	$	—	$	(1.2	)	$	(0.3	)	$	(1.3	)
Net other-than-temporary impairment losses on securities recognized in earnings												$	(0.5	)	$	—	$	(4.2	)	$	(0.3	)
Sales and other, net	142.1		1.8			146.9			4.0			0.4			142.1		4.9			146.9
Change in fair value - equity securities	3.4		(1.2		)	6.9			(6.4		)	6.6			3.4		(7.9		)	6.9
Change in fair value and gains (losses) realized on settlements - derivative instruments	0.8		1.3			0.2			2.7
Change in fair value and gains (losses) realized on settlements - derivatives												(3.3		)	0.8		(8.1		)	0.2
Net investment gains (losses)	$	146.3	$	0.7		$	153.7		$	(1.0	)	$	3.2		$	146.3	$	(15.3	)	$	153.7

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

Other Income

For the three and six ~~month periods~~months ended June 30, ~~2019,~~2020, other income ~~increased compared~~was comparable to the prior ~~year periods primarily due to inclusion of BCG brokerage fees.~~

periods.

Benefits, Claims and Settlement Expenses

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

Interest Credited

For the three and six ~~month periods~~months ended June 30, ~~2019, benefits, claims and settlement expenses~~2020, interest credited decreased ~~$15.6~~$2.9 million and ~~$19.8~~$4.3 million, respectively, ~~compared to the prior year periods,~~ driven primarily by ~~improved automobile and property loss ratios.~~

~~Interest Credited~~

~~For the three and six month periods ended June 30, 2019, the increase in Retirement interest credited reflected higher interest costs on~~a lower level of Federal Home Loan Bank (FHLB) funding ~~agreements as well as a 2.3% increase in average accumulated fixed deposits.~~agreements. Under the deposit method of accounting, the interest credited on the annuity reinsured block continues to be reported. The average deferred annuity credited rate, excluding the reinsured block was 2.5% at June 30, ~~2019, excluding the reinsured block,~~2020 and ~~3.6% at~~ June 30, ~~2018.~~2019, respectively.

~~DAC Amortization Expense~~

Operating Expenses

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

Deferred Acquisition Costs (DAC) Unlocking and Amortization Expense

For the three months ended June 30, 2020, DAC unlocking and amortization expense ~~increased $5.1~~decreased $11.2 million primarily due to $4.6 million of favorable DAC unlocking in Retirement for the current quarter (primarily market performance) compared to $5.6 million of unfavorable DAC unlocking in the prior year ~~period~~quarter primarily due to ~~$5.1 million of~~ accelerated amortization of the DAC asset associated with the reinsured annuity block. For the six ~~month period~~months ended June 30, ~~2019,~~2020, DAC unlocking and amortization ~~increased $3.4~~expense decreased $6.2 million ~~compared to the prior year period~~primarily due to the aforementioned DAC accelerated amortization ~~partially offset by $3.2 million of favorable DAC unlocking~~that occurred in ~~Retirement due to market performance.~~the prior year period. For Life, DAC unlocking resulted in an immaterial change to amortization for the three and six ~~month periods~~months ended June 30, ~~2019.~~2020.

~~Operating Expenses~~



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

Intangible Asset Amortization Expense

For the three and six ~~month periods~~months ended June 30, ~~2019, increases in operating expenses were consistent with management's expectations as the current periods include $2.8~~2020, intangible asset amortization expense increased $3.1 million and ~~$5.6~~$6.3 million, respectively, ~~of expenses pertaining to BCG and the prior year periods benefited from a $2.2 million legal expense recovery.~~

~~The Property and Casualty expense ratio of 26.9% for the six month period ended June 30, 2019 was 0.5 points above the prior year period~~ primarily due to the ~~legal expense recovery noted above.~~

acquisition of NTA Life Enterprises, LLC (NTA) in 2019.

Interest Expense

For the three and six ~~month periods~~months ended June 30, ~~2019,~~2020, interest expense ~~was comparable~~increased $0.7 million and $1.6 million, respectively, as we utilized our senior revolving credit facility in the third quarter of 2019 to ~~June 30, 2018.~~

partially fund the acquisition of NTA on July 1, 2019.

Other Expense

- Goodwill Impairment

For the three and six month periods ended June 30, 2019, other expense ~~represents the aforementioned~~represented a goodwill impairment charge in ~~Retirement.~~

Retirement resulting from the annuity reinsurance transaction.

Income Tax Expense

The effective income tax rate on ~~the Company's~~our pretax income, including net investment gains (losses), was ~~23.9%~~12.3% and ~~15.0%~~23.9% for the six ~~month periods~~months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Income from investments in tax-advantaged securities reduced the effective income tax rates by ~~1.4~~5.3 and ~~4.8~~1.4 percentage points for the six ~~month periods~~months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The goodwill impairment charge in the Retirement segment increased the effective income tax rate by 3.5 percentage points at June 30, 2019.

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

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

At June 30, ~~2019, the Company's~~2020, our federal income tax returns for years prior to 2014 are no longer subject to examination by the ~~IRS. Management does~~Internal Revenue Service. We do not anticipate any assessments for tax years that remain subject to examination to have a material effect on ~~the Company's~~our financial position or results of operations.

Outlook for ~~2019~~2020

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

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

At the time of issuance of this Quarterly Report on Form 10-Q, ~~management estimates~~we estimate that ~~2019~~2020 full year core earnings*net income will be within a range of ~~$2.05~~$2.80 to ~~$2.25~~$3.00 per diluted share ~~generating a core return~~based on equity*analysis of ~~between 7.0% and 7.5%. This projection also reflects~~COVID-19 scenarios. The increase in the range from the Outlook for 2020 we discussed in the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020 anticipates an ~~overall effective tax rate of between 16% and 18%.~~

~~Within~~increase in the Property and Casualty ~~planned premium rate increases,~~segment results as ~~well as continued underwriting initiatives,~~discussed below.



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

Property and Casualty

Net written premiums for 2020 are expected to ~~improve~~be below 2019 levels due to the ~~underlying~~recognition of $9.8 million of COVID-19 related premium credits in the second quarter and lower levels of new business due to the pandemic. Retention remains stable. We expect rate increases will continue to average in the low-single digits across the automobile ~~loss ratio* by about 3.0 to 3.5 points~~ and ~~the underlying~~ property ~~loss ratio* by around 3 points. For 2019, management increased the estimate used for catastrophe costs by 20% to be between $45 million and $55 million or 7.0 to 7.5 points.~~books. The expense ratio is expected to be ~~consistent~~flat with the 2019 expense ratio of 26.9 points.

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

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

As a result, the Property and Casualty full-year combined ratio is expected to ~~remain around 27%.~~

~~Net income for Retirement will decrease as a result~~be 91% to 93%, including catastrophe losses of approximately 10 points, reflecting the ~~recent annuity reinsurance transaction and redeployment~~higher level of ~~capital to~~catastrophes in the ~~new Supplemental segment. Net~~second quarter. We anticipate net investment income ~~for Retirement will decline~~below our previous guidance due to ~~the~~ lower ~~investment levels~~than anticipated returns on limited partnership interests. Income for Property and the new money rates are anticipated to remain below the average portfolio earned rate. In addition, expense levels will rise over prior year, offset by increases in fee income and other income due to the inclusion of BCG. As a result, net income for RetirementCasualty is now anticipated to be in the range of ~~$25~~$70 million to ~~$27~~$75 million, reflecting the strong six-month results with the catastrophe losses assumption adjusted for the ~~full year 2019.~~unusually high second quarter catastrophe losses.

Supplemental

~~Life~~Supplemental is anticipated to generate a pretax profit margin in the low to mid 20% range and net investment income should continue to benefit from portfolio repositioning. As a result, we continue to anticipate net income between $31 million and $33 million. New sales are being negatively impacted by school closings due to COVID-19, delaying the growth of this segment.

Retirement

Retirement net investment income is reflecting further spread compression with rates on new investments below the average portfolio earned rate, lower than anticipated returns on limited partnership interests, as well as the impact of lower invested assets as a result of the annuity reinsurance transaction and use of capital to purchase NTA. Market volatility may continue to impact DAC amortization and asset-based fees. The impact of lower net investment income is anticipated to ~~decline 15% over prior year due to the decrease in net investment income noted above accompanied~~be partially offset by a ~~modest increase in mortality costs.~~

~~Net~~reduced level of operating expenses. As a result, we continue to expect net income for ~~the new Supplemental segment is anticipated~~Retirement to be in the range of $22 million to $24 million.

Life

We continue to expect Life to generate net income between $10 million and $12 million, reflecting a reduced level of net investment income with mortality costs continuing to ~~$14 million for the second half of 2019, partially offset by additional interest expense of $2 million in Corporate and Other.~~

meet expectations.

As described in Critical Accounting Estimates, certain of ~~the Company's~~our significant accounting measurements require the use of estimates and assumptions. As additional information becomes available, adjustments may be required. Those adjustments are charged or credited to income for the period in which the adjustments are made and may impact actual results compared to ~~management's~~our estimates above. Additionally, see Forward-looking Information and Part II - Item 1A in this Quarterly Report on Form 10-Q ~~and~~as well as Part I - Items 1 and 1A ~~of the Company's~~in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 concerning other important factors that could impact actual results. ~~Management believes~~We believe that a projection of net income is not appropriate on a forward-looking basis because it is not possible to provide a valid forecast of net investment gains (losses), which can vary substantially from one period to another and may have a significant impact on net income.



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

Critical Accounting Estimates

The preparation of consolidated financial statements in conformity with GAAP requires ~~the Company's management~~us to make estimates and assumptions based on information available at the time the consolidated financial statements are prepared. These estimates and assumptions affect the reported amounts of ~~the Company's~~our consolidated assets, liabilities, shareholders' equity and net ~~income and cash flows.~~income. Certain accounting estimates are particularly sensitive because of their significance to ~~the Company's~~our consolidated financial statements and because of the possibility that subsequent events and available information may differ markedly from management's judgments at the time the consolidated financial statements were prepared. ~~Management has~~We have discussed with the Audit Committee the quality, not just the acceptability, of ~~the Company's~~our accounting principles as applied in ~~its~~our financial reporting. The discussions generally included such matters as the consistency of ~~the Company's~~our accounting policies and their application, and the clarity and completeness of ~~the Company's~~our consolidated financial statements, which include related disclosures. ~~For~~Information regarding our accounting policies pertaining to these topics is located in the ~~Company, areas most~~Notes to the Consolidated Financial Statements contained in Part II - Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019.

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

degree of variability:

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

Evaluation of goodwill and intangible assets for impairment

Valuation of life and annuity deferred policy acquisition costs

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

Valuation of investment contract and ~~life~~ policy reserves

Valuation of assets acquired and liabilities assumed under purchase accounting

Compared to December 31, ~~2018,~~2019, at June 30, ~~2019,~~2020, there were no material changes to accounting policies for areas most subject to significant management judgments identified above. In addition to disclosures in the Notes to Consolidated Financial Statements in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, discussion of accounting policies, including certain sensitivity information, was presented in ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations -- Critical Accounting Estimates in that Form 10-K.

Results of Operations by Segment

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

resources (see Part I - Item I, Note 1 of the Consolidated Financial Statements in this report for a description of changes to our reporting segments).

Property and Casualty

Supplemental

Retirement

Life

Corporate and Other

The ~~calculations~~determination of segment data are described in more detail in Part I - Item 1, Note 1410 of the Consolidated Financial Statements in ~~the Company's Annual Report on Form 10-K for the year ended December 31, 2018.~~this report. The following sections provide analysis and discussion of the results of operations for each of the reporting segments as well as investment results.



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

Property and Casualty

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

For the three and six months ended June 30, 2020, net income reflected the following factors:

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

18.0 points and 11.4 points of reduction in the Property and Casualty underlying loss ratio*, respectively

Catastrophe losses increased by 9.3 points and 3.9 points, respectively

A one-time tax benefit of $2.8 million in the first quarter of 2020 as a result of the CARES Act



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

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

($ in millions, unless otherwise indicated) Three Months Ended
June 30, 2019-2018 Six Months Ended
June 30, 2019-2018
2019 2018 Change % 2019 2018 Change %
Financial Data:

Premiums written*:
Automobile $ 114.6
$ 114.6
— % $ 231.4
$ 229.5
0.8 %
Property and other 59.7
58.4
2.2 % 104.6
102.9
1.7 %
Total premiums written 174.3
173.0
0.8 % 336.0
332.4
1.1 %
Change in unearned insurance premiums (3.0 ) (5.7 )

6.1
0.4

Total insurance premiums earned 171.3
167.3
2.4 % 342.1
332.8
2.8 %
Incurred claims and claims expenses:
Claims occurring in the current year 134.4
147.0
-8.6 % 253.2
268.0
-5.5 %
Prior years' reserve development
2.0
—
N.M. 4.0
0.3
N.M.
Total claims and claim expenses incurred 132.4
147.0
-9.9 % 249.2
267.7
-6.9 %
Operating expenses,
including DAC amortization
45.4
44.8
1.3 % 91.9
87.9
4.6 %
Underwriting gain (loss) (6.5 ) (24.5 ) 73.5 % 1.0
(22.8 ) 104.4 %
Net investment income 12.7
10.3
23.3 % 22.9
19.8
15.7 %
Income (loss) before income taxes 6.6
(13.7 ) 148.2 % 24.4
(2.5 ) N.M.
Net income (loss)/core earnings* 5.1
(10.9 ) 146.8 % 20.1
(1.2 ) N.M.

Operating Statistics:

Automobile
Loss and loss adjustment expense ratio 73.8 % 82.0 % -8.2 pts 72.3 % 79.1 % -6.8 pts
Expense ratio 26.6 % 26.9 % -0.3 pts 26.9 % 26.3 % 0.6 pts
Combined ratio: 100.4 % 108.9 % -8.5 pts 99.2 % 105.4 % -6.2 pts
Prior years' reserve development -0.9 % — % -0.9 pts -0.9 % — % -0.9 pts
Catastrophes 1.9 % 3.3 % -1.4 pts 1.3 % 2.0 % -0.7 pts
Underlying combined ratio* 99.4 % 105.6 % -6.2 pts 98.8 % 103.4 % -4.6 pts
Property
Loss and loss adjustment expense ratio 84.8 % 100.4 % -15.6 pts 73.9 % 83.3 % -9.4 pts
Expense ratio 26.6 % 26.7 % -0.1 pts 27.1 % 26.9 % 0.2 pts
Combined ratio: 111.4 % 127.1 % -15.7 pts 101.0 % 110.2 % -9.2 pts
Prior years' reserve development -1.8 % — % -1.8 pts -1.9 % -0.3 % -1.6 pts
Catastrophes 36.8 % 43.3 % -6.5 pts 27.6 % 30.3 % -2.7 pts
Underlying combined ratio* 76.4 % 83.8 % -7.4 pts 75.3 % 80.2 % -4.9 pts

Policies in force (in thousands)

Automobile ⁽¹⁾
448
471
-4.9 %
Property 198
203
-2.5 %
Total 646
674
-4.2 %

~~___________________~~

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



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

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

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

⁽¹⁾~~June 30, 2019 includes~~ Includes assumed ~~policies~~risks in force of 4.

For the three and six month periods ended June 30, 2019, core earnings* increased $16.0 million and $21.3 million, respectively, compared to the prior year periods. These reflect 7.1 points of improvement in the Property and Casualty combined ratio year to date due to improved underwriting results, lower catastrophe losses and favorable prior years' reserve development.

On a reported basis, the 12.9 points of improvement in the automobile combined ratio for the six ~~month period~~months ended June 30, ~~2019~~2020 was mainly ~~attributed~~attributable to ~~5.2 points of improvement~~a 13.1 point reduction in the automobile underlying loss ratio* reflecting lower frequency as well as the ongoing benefit of profitability initiatives. We experienced a lower level of automobile loss frequency resulting from temporary changes in policyholder driving patterns due to ~~rate actions combined~~COVID-19. Frequency was most favorably impacted in the month of April, with ~~continued stabilization~~May and June levels rising sequentially, resulting in ~~auto loss trends.~~an average decline in frequency for the quarter of approximately 40%. The reported property combined ratio ~~improved~~increased 2.3 points for the six ~~month period~~months ended June 30, ~~2019, reflecting an improvement~~2020 due to a 9.3 point increase in



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

catastrophe losses. During the six months ended June 30, 2020, the underlying property loss ~~ratio of 5.1~~ratio* improved 6.3 points, ~~as well as a 2.7 point improvement due to~~reflecting lower ~~catastrophe~~non-catastrophe weather-related losses.

~~Rate actions were the primary factor for the slight increase in total premiums written* for~~For the three and six ~~month periods~~months ended June 30, ~~2019 compared~~2020, total written premiums* decreased $18.2 million and $26.3 million, respectively, primarily due to a $9.8 million reduction in automobile written premiums* during the ~~prior year periods.~~second quarter of 2020 due to COVID-19 related credits equal to 15% of two months of automobile premiums. In addition, total written premiums declined due to lower automobile risks in force and a lower level of rate increases being implemented in 2020. For ~~2019, the Company's~~2020, our full year rate plan anticipates low-single digit average rate increases (including states with no rate actions) for both automobile and property; average approved rate changes during the first six months of ~~2019~~2020 were ~~5.3%~~0.9% for automobile and ~~4.6%~~1.1% for property. Growth in sales* has slowed as a result of the COVID-19 pandemic.

~~Automobile premiums written* was comparable to~~For the three and six ~~month periods~~months ended June 30, ~~2018. In~~2020, automobile written premiums* decreased $17.9 million and $25.3 million, respectively, significantly due to the aforementioned COVID-19 related credits. While the number of automobile risks in force has declined, the average written premium per risk and average earned premium per risk increased 2.5% and 3.6%, respectively, in the first six months of 2019, the average written premium per policy and average earned premium per policy increased 5.8% and 6.2%, respectively, compared to the prior year period. For automobile, the number of educator policies has been stable relative to overall automobile policies as educators represented 85.3%, 85.4% and 85.4% of the automobile policies in force as of June 30, 2019, December 31, 2018 and June 30, 2018, respectively.2020. Based on ~~policies~~risks in force, the automobile 12 month retention rate for new and renewal ~~policies~~risks was ~~81.3% compared~~81.6% which was comparable to ~~82.6% at~~a year ago. The number of educator risks has been stable relative to overall automobile risks as educators represented 85.4%, 85.5% and 85.5% of the automobile risks in force as of June 30, 2020, December 31, 2019 and June 30, 2019, ~~and 2018, respectively, with the decrease due to recent rate and underwriting actions.~~respectively.

~~Property and other premiums written* increased slightly compared to~~For the three and six ~~month periods~~months ended June 30, ~~2018.~~2020, property and other written premiums* decreased slightly. While the number of property ~~policies~~risks in force has declined, the average written premium per ~~policy~~risk and average earned premium per ~~policy~~risk increased ~~5.2%~~4.6% and ~~4.3%~~5.6%, respectively, in the first six months of 2020. Based on risks in force, the property 12 month retention rate for new and renewal risks decreased to 87.5% from 87.7% at June 30, 2020 and 2019, ~~compared to the prior year period. For property, the~~respectively. The number of educator ~~policies~~risks has been stable relative to overall property ~~policies~~risks as educators represented ~~82.5%~~82.2%, ~~82.4%~~82.5% and ~~82.4%~~82.3% of the property ~~policies~~risks in force as of June 30, ~~2019,~~2020, December 31, ~~2018,~~2019 and June 30, ~~2018, respectively. The property 12 month new and renewal policy retention rate was 87.7% and 88.0% at June 30,~~ 2019, ~~and 2018,~~ respectively.

~~The Company continues~~We continue to evaluate and implement actions to further mitigate ~~its~~our risk exposure in catastrophe-prone areas of the country. Such actions could include, but are not limited to, non-renewal of property policies, restricted agent geographic placement, limitations on agent new business sales, further tightening of underwriting standards and increased utilization of third-party vendor products.



Horace Mann Educators Corporation	39	Quarterly Report on Form 10-Q

Supplemental

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

($ in millions, unless otherwise indicated)

Three Months Ended
June 30,

2020-2019

Six Months Ended
June 30,

2020-2019

2020

2019

Change %

2020

2019

Change %

Financial Data:

Insurance premiums and contract deposits*

33.7

N/A

66.3

N/A

Insurance premiums and contract charges earned

33.3

N/A

66.3

N/A

Net investment income

4.0

N/A

7.5

N/A

Benefits and settlement expenses

12.5

N/A

23.0

N/A

Operating expenses (includes DAC unlocking and amortization expense)

10.1

N/A

20.2

N/A

Intangible asset amortization expense

3.2

N/A

6.4

N/A

Income before income taxes

12.1

N/A

25.5

N/A

Net income / core earnings*

9.5

N/A

20.0

N/A

Operating Statistics:

Supplemental insurance in force (thousands)

298

N/A

Benefits ratio ⁽¹⁾

37.5

N/A

34.7

N/A

Operating expense ratio ⁽²⁾

26.6

N/A

26.9

N/A

Pretax profit margin ⁽²⁾

31.9

N/A

34.0

N/A

Persistency

89.3

N/A

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

⁽¹⁾ Benefits ratio measured to earned premium.

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

For the three and six months ended June 30, 2020, Supplemental sales* were $0.7 million and $4.4 million, respectively, reflecting significantly lower sales volume primarily due to the COVID-19 pandemic as sales are dependent on in-person events at schools. Persistency remains steady at 89.3%.

For the three and six months ended June 30, 2020, Supplemental contributed $9.5 million and $20.0 million, respectively, to net income, reflecting favorable trends in reserves and some short-term benefit from changes in policyholder behavior due to the COVID-19 pandemic. The non-cash impact from amortization of intangible assets recognized in connection with the purchase accounting of NTA reduced pretax net income by $3.2 million and $6.4 million for the three and six months ended June 30, 2020.



Horace Mann Educators Corporation	40	Quarterly Report on Form 10-Q

Retirement

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

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

prior period results include a $28.0 million pretax goodwill impairment charge related to the annuity reinsurance transaction in the second quarter of 2019

$5.6 million pretax of unfavorable DAC unlocking in the prior year quarter primarily due to accelerated amortization of the DAC asset associated with the reinsured annuity block, compared to $4.6 million of favorable DAC unlocking in the current year quarter due to equity market recovery

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



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

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

($ in millions, unless otherwise indicated) Three Months Ended
June 30, 2019-2018 Six Months Ended
June 30, 2019-2018
2019 2018 Change % 2019 2018 Change %
Financial Data:

Contract charges earned $ 6.9
$ 7.9
-12.7 % $ 15.5
$ 15.9
-2.5 %
Net investment income 62.7
67.8
-7.5 % 127.4
132.0
-3.5 %
Interest credited 42.3
39.9
6.0 % 84.0
78.6
6.9 %
Net interest margin without
net investment gains (losses)
21.5
27.9
-22.9 % 44.5
53.4
-16.7 %
Net interest margin - Reinsured block (1.1 ) —
N.M. (1.1 ) —
N.M.
Mortality loss and other reserve charges 1.2
1.4
-14.3 % 1.8
—
3.3
-45.5 %
DAC amortization expense,
excluding unlocking
4.3
4.8
-10.4 % 9.2
9.6
-4.2 %
DAC unlocking 5.6
0.2
N.M. 3.6
0.4
N.M.
Operating expenses 15.4
13.9
10.8 % 31.3
28.3
10.6 %
Other expense - goodwill impairment 28.0
—
N.M. 28.0
—
N.M.
Income (loss) before income taxes (24.8 ) 17.2
N.M. (10.2 ) 31.2
-132.7 %
Net income (loss) (25.0 ) 14.1
N.M. (12.8 ) 25.5
N.M.
Core earnings* 3.0
14.1
-78.7 % 15.2
25.5
-40.4 %
Operating Statistics:
Annuity sales deposits
Variable $ 54.1
$ 50.7
6.7 % $ 102.9
$ 97.5
5.5 %
Fixed 54.9
49.5
10.9 % 113.4
101.5
11.7 %
Total 109.0
100.2
8.8 % 216.3
199.0
8.7 %
Single 55.8
46.9
19.0 % 111.7
95.5
17.0 %
Recurring 53.2
53.3
-0.2 % 104.6
103.5
1.1 %
Total 109.0
100.2
8.8 % 216.3
199.0
8.7 %
Assets under administration (AUA)
Annuity assets under management ⁽¹⁾

4,170.3
6,851.7
-39.1 %
Broker and advisory assets
under administration⁽²⁾

2,236.0
300.5
N.M.
Recordkeeping assets
under administration ⁽²⁾

1,395.1
—
N.M.
Total

7,801.4
7,152.2
9.1 %
Persistency
Variable annuities

94.3 % 94.6 % -0.3 pts
Fixed annuities

93.9 % 94.4 % -0.5 pts
Total

94.0 % 94.5 % -0.5 pts
Annuity contracts in force

227
224
1.3 %
Fixed spread - YTD annualized (basis points)

175
181
-6bps

~~___________________~~

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



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


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

⁽²⁾ ~~2019 includes the results of BCG acquired on January 2, 2019.~~

For the three and six ~~month periods~~months ended June 30, ~~2019, core earnings* decreased $11.1~~2020, total annuity contract deposits* increased $2.8 million and ~~$10.3~~$13.2 million, respectively. Variable annuity and fixed annuity deposits increased $7.2 million and $6.0 million, respectively, ~~as compared to~~for the prior year periods reflecting lower net investment income and accelerated amortization of the DAC asset associated with the reinsured block partially offset by favorable benefits expense from mortality. The current periods also include higher operating expenses from the inclusion of BCG.

As a result of the annuity reinsurance transaction, the Company impaired goodwill associated with the annuity business of the Retirement segment and recorded a non-cash impairment charge of $28.0 million during the quartersix months ended June 30, ~~2019.~~

~~For~~2020 reflecting the ~~three and six month periods ended June 30, 2019, contract deposits increased compared to the prior year periods, reflecting increases~~value educators see in single deposits. Variable annuity deposits increased by $3.4 million and $5.4 million for the three and six month periods ended June 30, 2019. Fixed annuity deposits increased by $5.4 million and $11.9 million for the current periods.

our Retirement savings vehicles.

At June 30, ~~2019,~~2020, annuity assets under management ~~decreased by $2.7 billion compared~~were $154.0 million above a year ago primarily due to ~~June 30, 2018 driven by the annuity reinsurance transaction.~~positive net inflows. Variable assets under management, excluding ~~reinsurance,~~amounts held under the modified coinsurance agreement, increased by ~~$115.0~~$70.0 million primarily due to ~~market performance.~~positive net inflows. The year to date annualized net interest spread on fixed annuities, excluding reinsurance, decreased 67 basis points.

~~The Company~~



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

We actively ~~manages its~~manage our interest rate risk exposure, considering a variety of factors, including earned interest rates, credited interest rates and the relationship between the expected durations of assets and liabilities. ~~Management estimates~~We estimate that over the next 12 months approximately ~~$336.0~~$528.1 million of the Retirement and Life combined investment portfolio and related investable cash flows will be reinvested at current market rates. As interest rates remain at low levels, borrowers may prepay or redeem the securities with greater frequency in order to borrow at lower market rates, which could increase investable cash flows and exacerbate the reinvestment ~~risk~~.

risk.

As a general guideline, for a 100 basis point decline in the average reinvestment rate and based on ~~the Company's~~our existing policies and investment portfolio, the impact from investing in that lower interest rate environment could further reduce Retirement net investment income by approximately ~~$1.3~~$2.0 million in year one and ~~$3.8~~$6.1 million in year two, further reducing the annualized net interest spread on fixed annuities by approximately 48 basis points and 1321 basis points in the respective periods, compared to the current period annualized net interest ~~spread. The Company~~spread on fixed annuities. We could also consider potential changes in rates credited to policyholders, tempered by any restrictions on the ability to adjust policyholder rates due to minimum guaranteed crediting rates.

The expectation for future annualized net interest spreads on fixed annuities is also an important component in the amortization of DAC. In terms of the sensitivity of this amortization to the annualized net interest spread on fixed annuities, based on DAC as of June 30, ~~2019~~2020 and assuming all other assumptions are met, a 10 basis point deviation in the current year targeted annualized net interest rate spread on fixed annuities assumption would impact amortization between $0.3 million and $0.4 million. This result may change depending on the magnitude and direction of any actual deviations but represents a range of reasonably likely experience for the noted assumption.

The annuity reinsurance agreement entered ~~into~~ in the second quarter of 2019, which reinsured the $2.2 billion block of in force fixed annuities with a minimum crediting rate of 4.5%, ~~mitigates~~helps mitigate the risk of not being able to generate appropriate spreads on the annuity business. Information regarding the interest crediting rates and balances equal to the minimum guaranteed rate for deferred annuity account values excluding the reinsured block is shown below.


($ in millions)	June 30, 2019										June 30, 2020
					Deferred Annuities at										Deferred Annuities at
	Total Deferred Annuities				Minimum Guaranteed Rate						Total Deferred Annuities				Minimum Guaranteed Rate
	Percent of Total		Accumulated Value (AV)		Percent of Total Deferred Annuities AV		Percent of Total		Accumulated Value		Percent of Total		Accumulated Value (AV)		Percent of Total Deferred Annuities AV		Percent of Total		Accumulated Value
Minimum guaranteed interest rates:
Less than 2%	52.0	%	$	1,216.2	46.9	%	34.7	%	$	570.9	53.7	%	$	1,299.3	49.4	%	37.5	%	$	642.1
Equal to 2% but less than 3%	12.5	%	293.0		82.8	%	14.8	%	242.7		11.8	%	286.2		83.4	%	13.9	%	238.8
Equal to 3% but less than 4%	26.0	%	607.5		99.9	%	36.9	%	607.0		25.3	%	612.8		99.9	%	35.7	%	612.4
Equal to 4% but less than 5%	7.3	%	171.1		100.0	%	10.4	%	171.1		7.1	%	170.5		100.0	%	9.9	%	170.5
5% or higher	2.2	%	52.0		100.0	%	3.2	%	52.0		2.1	%	50.5		100.0	%	3.0	%	50.5
Total	100.0	%	$	2,339.8	70.2	%	100.0	%	$	1,643.7	100.0	%	$	2,419.3	70.9	%	100.0	%	$	1,714.3

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



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

Life

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

For the three and six months ended June 30, 2020, net income and core earnings* decreased $3.3 million and $6.0 million, respectively, reflecting lower net investment income and higher mortality costs. Claims related to COVID-19 total less than $1.0 million with average face values averaging about $30 thousand.

For the three and six months ended June 30, 2020, insurance premiums and contract deposits* decreased $0.8 million and $2.4 million, respectively, primarily due to a decline in sales* of single premiums. The ordinary life insurance in force lapse ratio was 4.2% for the 12 months ended June 30, 2020 compared to 4.5% for the 12 months ended June 30, 2019.

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


($ in millions, unless otherwise indicated)	Three Months Ended June 30,					2019-2018		Six Months Ended June 30,						2019-2018		Three Months Ended June 30,						2020-2019		Six Months Ended June 30,						2020-2019
	2019			2018		Change %		2019			2018			Change %		2020			2019			Change %		2020			2019			Change %
Financial Data:
Insurance premiums and contract deposits	$	28.4		$	28.5	-0.4	%	$	54.8		$	54.3		0.9	%
Insurance premiums and contract deposits*																$	27.6		$	28.4		-2.8	%	$	52.4		$	54.8		-4.4	%
Insurance premiums and contract charges earned	29.9			30.4		-1.6	%	60.3			59.9			0.7	%	29.2			29.9			-2.3	%	58.6			60.3			-2.8	%
Net investment income	18.3			19.2		-4.7	%	36.4			37.5			-2.9	%	15.6			18.3			-14.8	%	31.2			36.4			-14.3	%
Benefits and settlement expenses	19.1			19.9		-4.0	%	41.1			40.9			0.5	%	21.1			19.1			10.5	%	43.3			41.1			5.4	%
Interest credited	11.3			11.2		0.9	%	22.5			22.5			—	%	11.3			11.3			—	%	22.5			22.5			—	%
Operating expenses																8.3			9.2			-9.8	%	17.4			18.6			-6.5	%
DAC amortization expense, excluding unlocking	2.1			1.9		10.5	%	4.1			3.7			10.8	%	2.0			2.1			-4.8	%	3.9			4.1			-4.9	%
DAC unlocking	(0.1		)	—		N.M.		(0.1		)	0.1			N.M.		(0.2		)	(0.1		)	N.M.		(0.3		)	(0.1		)	N.M.
Operating expenses	9.2			9.3		-1.1	%	18.6			18.3			1.6	%
Income before income taxes	6.7			7.3		-8.2	%	10.7			12.0			-10.8	%	2.3			6.7			-65.7	%	3.0			10.7			-72.0	%
Net income /core earnings*	5.2			5.9		-11.9	%	8.5			9.7			-12.4	%
Net income / core earnings*																1.9			5.2			-63.5	%	2.5			8.5			-70.6	%

Operating Statistics:
Life insurance in force								$	18,598		$	17,862		4.1	%									$	19,565		$	18,598		5.2	%
Number of policies in force (in thousands)								199			198			0.5	%
Number of policies in force (thousands)																								201			199			1.0	%
Average face amount in force (in dollars)								$	93,506		$	90,282		3.6	%									$	97,306		$	93,506		4.1	%
Lapse ratio (ordinary life insurance in force)								4.5		%	4.9		%	-0.4	pts									4.2		%	4.5		%	-0.3	pts
Mortality costs								$	18.0		$	17.2		4.7	%									$	19.3		$	18.0		7.2	%

~~___________________~~

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



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

Corporate and Other

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

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



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

For the three and six ~~month periods~~months ended June 30, 2019, core earnings*2020, net income decreased ~~compared to the prior year periods, largely~~primarily due to ~~lower net~~recognition of a $106.9 million after tax realized investment ~~income partially offset by lower mortality costs~~gain in the second quarter of ~~2019.~~2019 with respect to the transfer of investments as consideration in connection with the annuity reinsurance transaction.

Investment Results

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



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

Life premiums and contract deposits*Excluding accreted investment income on the deposit asset on reinsurance, for the three and six ~~month periods ended June 30, 2019 were comparable to the prior year periods. The ordinary life insurance in force lapse ratio was 4.5% for the 12~~ months ended June 30, ~~2019 compared to 4.9% for the 12 month period ended June 30, 2018.~~

~~Corporate and Other~~

($ in millions) Three Months Ended
June 30, 2019-2018 Six Months Ended
June 30, 2019-2018
2019 2018 Change % 2019 2018 Change %
Interest expense $ (2.9 ) $ (3.0 ) 3.3 % $ (5.9 ) $ (6.0 ) 1.7 %
Net investment gains (losses) pretax 146.3
0.7
N.M. 153.7
(1.0 ) N.M.
Tax on net investment gains (losses) 31.6
0.1
N.M. 33.2
(0.3 ) N.M.
Net investment gains (losses) after tax 114.7
0.6
N.M. 120.5
(0.7 ) N.M.
Net income (loss) 108.5
(3.2 ) N.M. 110.2
(7.9 ) N.M.
Core earnings (loss)* (6.2 ) (3.8 ) -63.2 % (10.3 ) (7.2 ) -43.1 %

~~___________________~~

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

For the three and six month periods ended June 30, 2019, core earnings* decreased compared to the prior year periods, driven by $3.1 and $4.0 million, respectively, of pretax acquisition costs associated with BCG and NTA.

~~Investment Results~~

($ in millions) Three Months Ended
June 30, 2019-2018 Six Months Ended
June 30, 2019-2018
2019 2018 Change % 2019 2018 Change %
Net investment income - investment portfolio $ 70.3
$ 97.1
-27.6 % $ 163.1
$ 189.0
-13.7 %
Investment income - Deposit asset on reinsurance 23.2
—
N.M. 23.2
—
N.M.
Pretax net investment gains (losses) 146.3
0.7
N.M. 153.7
(1.0 ) N.M.
Pretax net unrealized investment
gains on fixed maturity securities

292.5
183.5
59.4 %

~~___________________~~

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

~~For the three and six month periods ended June 30, 2019,~~2020, net investment income ~~from the investment portfolio~~decreased $13.8 million and $48.0 million, respectively. The decline was ~~lower than the prior year periods~~ primarily ~~because~~due to a $2.1 billion reduction in invested assets ~~decreased 22.2%~~ from ~~December 31, 2018 due to assets~~investments transferred under the annuity reinsurance transaction in the second quarter of 2019 as well as lower than expected ~~new money rates and prepayments that were somewhat offset by stronger~~ returns on ~~alternative investments.~~

limited partnership interests.

For the ~~three and~~ six ~~month periods~~months ended June 30, ~~2019,~~2020, the pretax net investment ~~gains were driven~~loss was primarily ~~by a $135.3 million pretax realized investment gain related~~due to ~~the transfer of assets as a result of the annuity reinsurance transaction and~~ the change in fair value of equity ~~securities.~~securities as well as options that we use to hedge our fixed indexed annuity (FIA) and indexed universal life (IUL) products somewhat offset by gains in the related derivatives embedded in FIA. Pretax net investment gains for the three and six months ended June 30, 2019 reflect a realized investment gain of $135.3 million recognized during the second quarter of 2019 in connection with the transfer of investments related to the annuity reinsurance transaction. Pretax net unrealized investment gains on fixed maturity securities were up ~~$109.0~~$125.1 million compared to ~~prior~~a year ago, reflecting a decline in the 10-year U.S. Treasury yield of 85135 basis points ~~and tightening investment-grade~~that more than offset wider credit spreads ~~offset by the impact of the aforementioned $135.3 million pretax realized~~for investment ~~gain related to the annuity reinsurance transaction.~~grade securities.



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

Fixed Maturity and Equity Securities Portfolios

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

($ in millions) June 30, 2019

Number of
Issuers

Fair
Value

Amortized
Cost

Pretax Net
Unrealized
Gain (Loss)
Fixed maturity securities

Corporate bonds

Banking & Finance 96
$ 358.3
$ 335.6
$ 22.7
Insurance 36
134.7
120.2
14.5
Real Estate 35
105.9
101.4
4.5
Energy ⁽¹⁾
52
103.5
94.9
8.6
HealthCare, Pharmacy 43
92.2
86.1
6.1
Technology 29
78.8
75.3
3.5
Transportation 29
73.2
68.8
4.4
Utilities 36
59.3
52.1
7.2
Food and Beverage 17
41.7
39.6
2.1
Telecommunications 21
40.7
36.4
4.3
All other corporates⁽²⁾
158
233.0
216.5
16.5
Total corporate bonds 552
1,321.3
1,226.9
94.4
Mortgage-backed securities

U.S. Government and federally sponsored agencies 216
363.6
338.5
25.1
Commercial⁽³⁾
107
340.5
326.6
13.9
Other 25
69.9
69.4
0.5
Municipal bonds ⁽⁴⁾
493
1,599.7
1,472.9
126.8
Government bonds
U.S. 37
566.4
546.4
20.0
Foreign 10
47.4
45.3
2.1
Collateralized loan obligations ⁽⁵⁾
131
753.2
758.2
(5.0 )
Asset-backed securities 94
472.3
457.6
14.7
Total fixed maturity securities 1,665
$ 5,534.3
$ 5,241.8
$ 292.5

Equity securities

Non-redeemable preferred stocks 12
$ 50.5

Common stocks 91
27.9

Closed-end fund 1
21.7

Total equity securities 104
$ 100.1

Total 1,769
$ 5,634.4

~~________________~~



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

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

Total	2,275	$	6,112.3


⁽¹⁾	At June 30, ~~2019,~~2020, the fair value amount included ~~$10.1~~$8.6 million which were non-investment grade.


⁽²⁾	The All other corporates category contains 19 additional industry sectors. ~~Gaming, broadcasting~~Telecom, Retail, Consumer Products, Metal & ~~media, leisure/entertainment, metal~~Mining and ~~mining and retail~~Misc. represented ~~$133.3~~$222.4 million of fair value at June 30, ~~2019,~~2020, with the remaining 14 sectors each representing less than ~~$15.0~~$32.2 million.


⁽³⁾	At June 30, ~~2019,~~2020, 100% were investment grade, with an overall credit rating of AA+, and the positions were well diversified by property type, geography and sponsor.


⁽⁴⁾	Holdings are geographically diversified, ~~54.4%~~52.5% are tax-exempt and ~~77.2%~~76.8% are revenue bonds tied to essential services, such as mass transit, water and sewer. The overall credit quality of the municipal bond portfolio was AA- at June 30, ~~2019.~~2020.


⁽⁵⁾	Based on fair value, ~~97.7%~~95.8% of the collateralized loan obligation securities were rated investment grade by Standard and ~~Poor’s~~Poor's Global Inc. (S&P), ~~Moody’s~~Moody's Investors Service, Inc. ~~(Moody’s)~~(Moody's) and/or Fitch Ratings, Inc. (Fitch) at June 30, ~~2019.~~2020.



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

At June 30, ~~2019, the Company’s~~2020, our diversified fixed maturity securities portfolio consisted of ~~2,615~~3,393 investment positions, issued by ~~1,665~~2,163 entities, and totaled approximately ~~$5.5~~$6.0 billion in fair value. This portfolio was ~~97.1%~~92.8% investment grade, based on fair value, with an average quality rating of A+. ~~The Company’s~~Our investment guidelines target single corporate issuer concentrations to 0.5% of invested assets for AAA or AA rated securities, ~~0.4%~~0.35% of invested assets for A or BBB rated securities, and ~~0.2% of invested assets~~$5.0 million for non-investment grade securities.

Fixed Maturity Securities - COVID-19 Related Impacts

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

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

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



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


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



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

Rating of Fixed Maturity Securities and Equity Securities ⁽¹⁾

The following table presents the composition and fair value of ~~the Company’s~~our fixed maturity and equity securities portfolios by rating category. At June 30, ~~2019, 96.3%~~2020, 92.5% of these combined portfolios were investment grade, based on fair value, with an overall average quality rating of A+. ~~The Company has~~We have classified the entire fixed maturity securities portfolio as available for sale, which is carried at fair value.

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

($ in millions) Percent of Portfolio
Fair Value June 30, 2019
December 31, 2018 June 30, 2019
Fair
Value

Amortized
Cost
Fixed maturity securities

AAA 9.1 % 12.3 % $ 680.6
$ 671.1
AA⁽²⁾
44.5
43.9
2,429.4
2,296.2
A 22.4
22.8
1,260.6
1,171.5
BBB 21.2
17.9
996.4
940.7
BB 1.8
1.8
98.2
95.8
B 0.4
0.4
27.5
27.4
CCC or lower 0.1
0.1
0.5
0.5
Not rated⁽³⁾
0.5
0.8
41.1
38.6
Total fixed maturity securities 100.0 % 100.0 % $ 5,534.3
$ 5,241.8
Equity securities

AAA —
—
—

AA —
—
—

A —
—
—

BBB 49.0 % 50.4 % $ 50.5

BB —
—
—

B —
—
—

CCC or lower —
—
—

Not rated 51.0
49.6
49.6

Total equity securities 100.0 % 100.0 % $ 100.1

Total

$ 5,634.4

~~________________~~



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

Total					$	6,112.3


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


⁽²⁾	At June 30, ~~2019,~~2020, the AA rated fair value amount included ~~$566.4~~$374.9 million of U.S. Government and federally sponsored agency securities and ~~$572.2~~$706.0 million of mortgage-backed and asset-backed securities issued by U.S. Government and federally sponsored agencies.


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

At June 30, ~~2019,~~2020, the fixed maturity securities portfolio had ~~$13.0~~$72.3 million of pretax gross unrealized investment losses on ~~$884.8~~$1,142.3 million of fair value related to ~~299~~703 positions. Of the investment positions with gross unrealized losses, there were ~~three~~32 trading below 80.0% of the carrying value at June 30, ~~2019.~~2020.

~~The Company views~~We view the unrealized investment losses of all ~~of the~~our fixed maturity securities at June 30, ~~2019~~2020 as temporary. Future changes in circumstances related to these and other securities could require subsequent recognition of ~~OTTI.~~

other-than-temporary impairment (OTTI).

Liquidity and Financial Resources

Off-Balance Sheet Arrangements

At June 30, 2020 and 2019, ~~and 2018, the Company~~we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. As such, ~~the Company is~~we are not exposed to any financing, liquidity, market or credit risk that could arise if ~~the Company~~we engaged in such relationships.



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

Investments

Information regarding ~~the Company’s~~our investment portfolio, which is comprised primarily of investment grade fixed maturity securities, is presented in Part I - Item 1, Note 32 of the Consolidated Financial Statements ~~and~~as well as Part I - Item 2 - Investments ~~Results.~~

Results in this report.

Cash Flow

~~The~~Our short-term liquidity requirements, ~~of the Company,~~ within a 12 month operating cycle, are for the timely payment of claims and benefits to policyholders, operating expenses, interest payments and federal income taxes. Cash flow generated from operations has been, and is expected to be, adequate to meet ~~the Company's~~our operating cash needs in the next 12 months. Cash flow in excess of operational needs has been used to fund business growth, pay dividends to shareholders and repurchase shares of ~~HMEC's~~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 ~~the Company's~~our consolidated cash flows activity for the periods indicated.

($ in millions) Six Months Ended
June 30, 2019-2018
2019 2018 Change %
Net cash provided by operating activities $ 97.8
$ 151.3
-35.4 %
Net cash provided by (used in) investing activities 23.2
(112.4 ) 120.6 %
Net cash used in financing activities (125.3 ) (38.3 ) N.M.
Net increase (decrease) in cash (4.3 ) 0.6
N.M.
Cash at beginning of period 11.9
7.6
56.6 %
Cash at end of period $ 7.6
$ 8.2
-7.3 %

~~___________________~~

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



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

Operating Activities

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

For the six months ended June 30, ~~2019,~~2020, net cash provided by operating activities ~~decreased $53.5~~increased $67.8 million, ~~compared to the same period in 2018,~~ primarily due to ~~a decrease~~lower claims paid on insurance policies in ~~Investment~~the current year partially offset by lower investment income collected ~~and an increase~~ in ~~Policy acquisition and other operating expenses paid.~~

the current year as a result of a $2.1 billion reduction of invested assets from investments transferred under the annuity reinsurance transaction in the second quarter of 2019.

Investing Activities

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

~~During the first quarter of 2019, HMEC acquired BCG.~~

Financing Activities

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



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

Horace Mann Life Insurance Company (HMLIC)~~, one~~ and NTA (both subsidiaries of ~~the Company's subsidiaries, operates~~HMEC) operate under funding agreements with FHLB. ~~In January~~For the six months ended June 30, 2020, HMLIC and NTA collectively received $95.5 million from FHLB under funding agreements and for the six months ended June 30, 2019, HMLIC received ~~an additional~~ $50.0 million from FHLB under a funding ~~agreement and receipt~~agreement. Receipt of ~~those~~these funds ~~has been~~are reported in Annuity Contracts: Variable, Fixed and FHLB Funding Agreements, ~~Deposits.~~Deposits in the Consolidated Statements of Cash Flows. Advances to HMLIC and NTA from FHLB under funding agreements totaled ~~$675.0~~$590.5 million as of June 30, ~~2019.~~2020. For the six ~~month period~~months ended June 30, ~~2019,~~2020, cash inflows from annuity contract deposits ~~excluding~~(excluding the $95.5 million received from FHLB ~~transaction,~~in the current year and the $50.0 million received from FHLB in the prior year) increased ~~$17.2~~$13.2 million, or ~~8.7%~~6.1%, compared to the prior year period. Cash outflows from annuity contract benefits, withdrawals and net transfers to Separate Account (variable annuity) assets decreased ~~$4.5~~$17.3 million, or ~~2.0%~~8.1%, compared to the prior year period.

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

Capital Resources

~~The Company has~~We have determined the amount of capital which is needed to adequately fund and support business growth, primarily based on risk-based capital formulas including those developed by the National Association of Insurance ~~Commissioners (NAIC).~~Commissioners. Historically, ~~the Company’s~~our insurance subsidiaries have generated capital in excess of such needed capital. These excess amounts have been paid to ~~HMEC~~us through dividends. ~~HMEC has~~We have then utilized these dividends and ~~its~~our access to the capital markets to fund growth initiatives, service and retire ~~long-term~~ debt, pay dividends to ~~its~~our shareholders, ~~fund growth initiatives,~~ repurchase shares of ~~its~~our common stock and for other corporate purposes. If necessary, ~~HMEC~~we also ~~has~~have other potential sources of liquidity that could provide for additional funding to meet corporate obligations or pay shareholder dividends, which include a revolving line of credit, as well as issuances of various securities. The insurance subsidiaries are subject to various regulatory restrictions which limit the amount of annual dividends or other distributions, including loans or cash advances, available to ~~HMEC~~us without prior approval of the insurance regulatory authorities. The aggregate amount of dividends that may be paid in ~~2019~~2020 from all of ~~HMEC's~~our insurance subsidiaries without prior regulatory approval is ~~$90.7~~$105.3 million, excluding the impact and timing of prior dividends, of which ~~$54.8~~$103.0 million was paid during the six ~~month period~~months ended June 30, ~~2019. Management anticipates~~2020. We anticipate that ~~the Company’s~~our sources of capital will continue to generate sufficient capital to meet the needs for business growth, debt interest payments, shareholder dividends and ~~its~~our share repurchase program. Additional information is contained in Part II - Item 8, Note 1014 of the Consolidated Financial Statements in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

~~The total~~Total capital ~~of the Company~~ was ~~$1,797.6~~$2,077.0 million at June 30, ~~2019,~~2020, including ~~$297.9~~$437.2 million of short-term and long-term debt. Total debt represented ~~18.7%~~21.0% of total capital including net unrealized investment gains on fixed maturity securities (24.3% excluding net unrealized investment gains on fixed maturity ~~securities (16.6% including net unrealized investment gains on fixed maturity securities)~~securities*) at June 30, ~~2019,~~2020, which was below ~~the Company’s~~our long-term target of 25%.

~~Shareholders’~~Shareholders' equity was ~~$1,499.7~~$1,639.8 million at June 30, ~~2019,~~2020, including net unrealized investment gains on fixed maturity securities in ~~the Company’s~~our investment portfolio of ~~$203.1~~$279.1 million after taxes and the related impact of DAC associated with investment contracts and life insurance products with account values. The market value of ~~the Company’s~~our common stock and the market value per share were ~~$1,659.4~~$1,517.5 million and ~~$40.29,~~$36.73, respectively, at June 30, ~~2019.~~2020. Book value per share was ~~$36.41~~$39.69 at June 30, ~~2019~~2020 ($~~31.48~~32.93 excluding net unrealized investment gains on fixed maturity ~~securities)~~securities*).

Additional information regarding net unrealized investment gains on fixed maturity securities in ~~the Company’s~~our investment portfolio at June 30, ~~2019~~2020 is included in Part I - Item 1, Note 32 of the Consolidated Financial Statements ~~and~~as well as in Part I - Item 2 - Investment Results ~~of Operations by Segment~~ in this report.

Total shareholder dividends paid were ~~$23.6~~$24.8 million for the six ~~month period~~months ended June 30, ~~2019.~~2020. In March and May ~~2019,~~2020, the Board of Directors (Board) approved regular quarterly dividends ~~to $0.2875~~of $0.30 per share.

For the six ~~month period~~months ended June 30, ~~2019, the Company did not repurchase any~~2020, we repurchased 52,095 shares of ~~its~~our common stock at an average price per share of $41.17 under ~~its~~our share repurchase program, which is further described in Part II - Item 8, Note 913 of the Consolidated Financial Statements in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. As of June 30, ~~2019, $22.8~~2020, $20.6 million remained authorized for future share repurchases under the share repurchase program.



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

The following table summarizes ~~the Company's~~our debt obligations.

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

Long-term debt:
4.50% Senior Notes, due December 1, 2025. Aggregate principal
amount of $250 million less unaccrued discount of $0.4 million
and $0.5 million (4.5% imputed rate) and unamortized debt
issuance costs of $1.7 million and $1.8 million
247.9
247.7
FHLB borrowing 50.0
50.0
Total $ 297.9
$ 297.7



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

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

As of June 30, ~~2019, the Company~~2020, we had outstanding $250.0 million aggregate principal amount of 4.50% Senior Notes (Senior ~~Notes due 2025)~~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 Part II - Item 8, Note 710 of the Consolidated Financial Statements in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. The Senior Notes ~~due 2025~~ are traded in the open market (HMN 4.50).

As of June 30, ~~2019, the Company~~2020, we had ~~$50.0~~$54.0 million of borrowings outstanding with FHLB. ~~For FHLB borrowings, the~~The Board has authorized a maximum amount equal to ~~the greater~~15% of ~~10% of~~net aggregate admitted assets ~~or 20% of surplus~~less separate account assets of the ~~consolidated property and casualty companies.~~insurance subsidiaries for FHLB borrowings. For the total ~~$50.0~~$54.0 million received, $4.0 million matures on May 17, 2021, $25.0 million matures on October 5, 2022 and $25.0 million matures on December 2, 2022. Interest on the borrowings ~~accrues~~accrue at an annual weighted average rate of ~~2.7230%~~0.52% as of June 30, ~~2019. HMIC's~~2020. The $54.0 million of FHLB borrowings ~~of $50.0 million are included in~~is reported as Long-term debt onin the Consolidated Balance ~~Sheet.~~Sheets.

As of June 30, 2020, we had $135.0 million of short-term debt outstanding under our Bank Credit Facility. On June 21, 2019, ~~the Company,~~we, as borrower, replaced ~~its~~our current line of credit with a new five-year Credit Agreement (Bank Credit Facility). ~~The credit agreement extends the commitment termination date to June 21, 2024 from the previous termination date of June 27, 2023.~~ The new Bank Credit Facility increased the amount available on this senior revolving credit facility to $225.0 million from $150.0 million. PNC Capital Markets, LLC and JPMorgan Chase Bank, N.A. served as joint leads on the new agreement, with The Northern Trust Company, U.S. Bank National Association, KeyBank National Association, Comerica Bank and Illinois National Bank participating in the syndicate. Terms and conditions of the new Bank Credit Facility are substantially consistent with the prior agreement, with an interest rate based on LIBOR plus 115 basis points. ~~The Company~~

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

As described in Note 2, on July 1, 2019, the Company completed its acquisition of NTA utilizing the senior revolving credit facility to fund a portion of the purchase price. As of August 1, 2019, the Company had $135 million outstanding under the senior revolving credit facility.

2020.

To provide additional capital management flexibility, ~~the Company~~we filed a "universal shelf" registration statement on Form S-3 with the Securities and Exchange Commission (SEC) on March 13, 2018. The registration statement, which registered the offer and sale ~~by the Company~~ from time to time of an indeterminate amount of various securities, which may include debt securities, common stock, preferred

stock, depositary shares, warrants, delayed delivery contracts and/or units that include any of these securities, was automatically effective on March 13, 2018. Unless withdrawn by ~~the Company~~us earlier, this registration statement will remain effective through March 13, 2021. No securities associated with the registration statement have been issued asat the time of ~~the date~~issuance of this Quarterly Report on Form 10-Q.

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



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

COVID-19 Liquidity and Capital Resources Considerations

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

Financial Ratings

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

~~Assigned ratings were reviewed by all of~~All four agencies currently have assigned the rating agencies in June and July 2019 in conjunction with the announcement of the Company’s financing plans to purchase NTA. A.M. Best and S&P affirmed the ratings that were in place at December 31, 2018. Moody’s and Fitch affirmed their ratings with a stable outlook, removing negative watches from their respective debt andsame insurance financial strength ratings ~~placed after the announcement of NTA acquisition in December 2018.~~to our Property and Casualty and Life insurance subsidiaries. Only A.M. Best currently rates our Supplemental segment's subsidiaries. Assigned ratings and respective affirmation/review dates as of July 31, ~~2019~~2020 were as ~~follows (the insurance financial strength ratings for the Company’s Property and Casualty insurance subsidiaries and the Company’s principal Life insurance subsidiary are the same):~~follows:



	Insurance Financial				Affirmed/
	Strength Ratings (Outlook)		Debt Ratings (Outlook)		Reviewed
~~As of July 31, 2019~~A.M. Best					7/2/2020
HMEC (parent company)	N.A.		bbb	(stable)
HMEC's Life	A	(stable)	N.A.
HMEC's Property and Casualty subsidiaries	A	(stable)	N.A.
HMEC's Supplemental subsidiaries	A-	(stable)	N.A.
Fitch	A	(stable)	BBB	(stable)	6/2/2020
Moody's	A2	(stable)	Baa2	(stable)	7/2/2019
S&P	A	(stable)	BBB	(stable)
~~Moody’s~~	A2	~~(stable)~~	~~Baa2~~	~~(stable)~~
~~A.M. Best~~	A	~~(stable)~~	~~bbb~~	~~(stable)~~
~~Fitch~~	A	~~(stable)~~	~~BBB~~	~~(stable)~~2/19/2020

Reinsurance Programs

Information regarding the reinsurance ~~program~~programs for ~~the Company’s~~our Property and Casualty, ~~segment~~Supplemental and Life segments is located in Part II - Item ~~1, Reporting Segments~~8, Note 9 of the ~~Company’s~~Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~

Information regarding the reinsurance program for the Company’s Life segment is located in Item 1, Reporting Segments of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

2019.

Effective April 1, 2019, ~~the Company~~we reinsured a block of approximately $2.9 billion ~~block~~ of individual annuity policy liabilities ~~related to legacy individual annuities written in 2002 and prior~~ to AA- S&P rated RGA Reinsurance Company, a subsidiary of Reinsurance Group of America, Incorporated (RGA). The block includes $2.2 billion of fixed annuities reinsured under coinsurance and $0.7 billion of variable annuities reinsured under modified

coinsurance. ~~RGA’s~~RGA's financial obligations for the general account liabilities of the reinsured annuity contracts are secured by its assets placed in a comfort trust for ~~HMLIC’s~~our sole use and benefit. Upon ~~RGA’s~~RGA's material breach of the reinsurance agreement, deterioration of its ~~RBC~~risk-based capital ratio to a certain level, or certain other events, ~~HMLIC~~we may recapture the reinsured business.

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

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



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

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

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

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

2019.

~~Item~~ITEM 4.IControls and Procedures

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

Under the supervision and with the participation of ~~the Company’s~~our management, including ~~the Company’s Chief Executive Officer~~our chief executive officer and ~~Chief Financial Officer, the Company~~chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of ~~the Company’s~~our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 as amended (Exchange Act), as of June 30, ~~2019 pursuant to Rule 13a-15(b) of the Exchange Act.~~2020. Based on this evaluation, the ~~Chief Executive Officer~~chief executive officer and ~~Chief Financial Officer~~chief financial officer concluded that ~~the Company’s~~our disclosure controls and procedures are effective in timely alerting them to material information relating to ~~the Company~~us (including ~~its~~our consolidated subsidiaries) that is required to be included in ~~the Company’s~~our periodic ~~Securities and Exchange Commission~~SEC filings. No material weaknesses in ~~the Company’s~~our disclosure controls and procedures were identified in the evaluation and therefore, no corrective actions were taken. There were no significant changes in ~~the Company’s~~our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

Changes in Internal Control Over Financial Reporting

~~There~~Except as noted below, there were no changes in ~~the Company’s~~our internal control over financial reporting ~~that occurred~~ during the ~~Company’s last fiscal quarter~~period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting.

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

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



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

PART II: OTHER INFORMATION

~~Item~~ITEM 1A.IRisk Factors

At the time of issuance of this Quarterly Report on Form 10-Q, ~~management believes~~we believe there are no material changes from the risk factors as previously disclosed in ~~the Company’s~~Part I - Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. However, the following risk factor has emerged as a result of ~~transactions~~events that occurred ~~during~~subsequent to year end.

Our business may be adversely affected by the ~~three months ended June 30, 2019.~~

recent COVID-19 outbreak.

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

employees contracting COVID-19;

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

sustained lack of ~~its counterparties, including reinsurers who reinsure business from~~access to schools and teachers that could materially impact our sales and premium volumes;

public school systems facing budget constraints due to the ~~Company’s insurance companies.~~

~~The Company’s insurance subsidiaries may cede certain risks to third-party insurance companies through reinsurance. One~~economic impacts of the ~~Company’s~~pandemic that could result in educator layoffs;

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

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

changes in frequency and/or severity of claims;

increased credit risk;

business disruption for insurance ~~subsidiaries, Horace Mann Life Insurance Company (HMLIC), entered into a reinsurance agreement with RGA Reinsurance Company, a subsidiary~~agents who market and sell our insurance products; and

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

Any resulting impact on our business, financial condition, and results of ~~Reinsurance Group of America, Incorporated (RGA)~~operations due to ~~effectuate~~ the ~~reinsurance of a block of HMLIC’s in force fixed and variable annuities on a coinsurance and modified coinsurance basis. The variable portion of~~foregoing cannot be reasonably estimated at this time, although the reinsured annuities is reinsured on a modified coinsurance basis and assets supporting the variable account liabilities are still held by HMLIC in its separate accounts. Because the reinsurance agreement covers a large volume of HMLIC’s in force business, the transaction exposes HMLIC and in turn, the Company, to a concentration of credit risk with respect to this counterparty. RGA’s financial obligations for the general account liabilities of the reinsured annuity contracts are secured by its assets placed in a comfort trust for HMLIC’s sole use and benefit. Upon RGA’s material breach of the reinsurance agreement, deterioration of its RBC ratio to certain level, or certain other events, HMLIC may recapture the reinsured business. However, in the event of RGA’s insolvency, HMLIC’s right to use the assets in the trust accountresults may be ~~delayed. Also if at~~felt for a significant period of time. The full extent to which COVID-19 could affect the ~~time~~global economy, the financial markets and our business, its financial condition and its results of ~~its insolvency the trust account is not funded at a level to fully discharge all its obligations, HMLIC’s claims to the extent not covered by the assets in the trust would~~operations will depend on future developments and factors that cannot be ~~those of a general creditor.~~

predicted.

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

Issuer Purchases of Equity Securities

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



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

conditions. The ~~share repurchase program~~Program does not have an expiration date and may be limited or terminated at any time without notice. During the three ~~month period~~months ended June 30, ~~2019, the Company~~2020, we did not repurchase shares of ~~HMEC~~our common stock. As of June 30, ~~2019, $22.8~~2020, $20.6 million remained authorized for future share repurchases.

~~Item~~ITEM 5.IOther Information

~~The Company is~~We are not aware of any information required to be disclosed in a ~~report~~Current Report on Form 8-K during the three ~~month period~~months ended June 30, ~~2019~~2020 which has not been filed with the SEC.

~~Item~~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") on August 14, 2003.

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

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

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

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

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

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

(10) Material contracts:

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

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



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



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



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

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

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

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

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

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

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

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

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

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

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



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



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



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

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

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

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

10.7*		Summary of HMEC Non-employee Director Compensation.

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, 2019, filed with the SEC on May 10, 2019.~~Salaries.

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

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

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

10.10(a)*		HMSC Executive Change in Control Plan Schedule A Plan ~~Participants, incorporated by reference to Exhibit 10.10(a) to HMEC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, filed with the SEC on May 10, 2019.~~Participants.

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

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



10.11(b)*		HMSC Executive Severance Plan Schedule A ~~Participants, incorporated by reference to Exhibit 10.11(b) to HMEC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, filed with the SEC on May 10, 2019.~~Participants.

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

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

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

(11) Statement regarding computation of per share earnings.

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



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



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

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

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

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

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

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

(99) Additional exhibits:

99.1		Glossary of Selected Terms.

(101) Interactive Data File:

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

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase



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

SIGNATURES

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



		HORACE MANN EDUCATORS CORPORATION
		(Registrant)






Date	August ~~8, 2019~~7, 2020	~~/s/~~/s/ Marita Zuraitis

		Marita Zuraitis
		President and Chief Executive Officer






Date	August ~~8, 2019~~7, 2020	~~/s/~~/s/ Bret A. Conklin

		Bret A. Conklin
		Executive Vice President and
		Chief Financial Officer






Date	August ~~8, 2019~~7, 2020	~~/s/~~/s/ Kimberly A. Johnson

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



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



($ in thousands)	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost	$	791	$	1,600
Short-term lease cost	27		51
Total lease cost	$	818	$	1,651



($ in thousands)
Year Ending December 31,
2019 (excluding the six months ended June 30, 2019)	$	1,448
2020	3,108
2021	3,028
2022	2,943
2023	2,246
Thereafter	2,111
Total future minimum lease payments	14,884
Less imputed interest	(1,455		)
Total	$	13,429