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

FORM 10-Q

(MARK ONE)
[x]QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 1-10890

HORACE MANN EDUCATORS CORPORATION
(Exact name of registrant as specified in its charter)

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

1 Horace Mann Plaza, Springfield, Illinois 62715-0001
(Address of principal executive offices) (Zip Code)

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

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

As of July 31, 2001, 40,596,625 shares of Common Stock, par value $0.001
per share, were outstanding, net of 19,341,296 shares of treasury stock.

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HORACE MANN EDUCATORS CORPORATION
FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2001

INDEX

Page
----

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Independent Auditors' Review Report ....................... 1

Consolidated Balance Sheets as of
June 30, 2001 and December 31, 2000 .................... 2

Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2001 and 2000 ...... 3

Consolidated Statements of Changes in Shareholders' Equity
for the Six Months Ended June 30, 2001 and 2000 ........ 4

Consolidated Statements of Cash Flows for the
Three and Six Months Ended June 30, 2001 and 2000 ...... 5

Notes to Consolidated Financial Statements ................ 6

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................. 13

Item 3. Quantitative and Qualitative Disclosures about Market
Risk ................................................. 28

PART II - OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders .... 28

Item 6. Exhibits and Reports on Form 8-K ....................... 28

SIGNATURES ............................................................... 29

INDEPENDENT AUDITORS' REVIEW REPORT

The Board of Directors and Shareholders
Horace Mann Educators Corporation:

We have reviewed the consolidated balance sheet of Horace Mann Educators
Corporation and subsidiaries as of June 30, 2001, and the related consolidated
statements of operations and cash flows for the three-month and six-month
periods ended June 30, 2001 and 2000, and the related consolidated statements of
changes in shareholders' equity for the six-month periods ended June 30, 2001
and 2000. These consolidated financial statements are the responsibility of the
Company's management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.

Based on our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States of America.

We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Horace Mann Educators Corporation and subsidiaries as of December 31, 2000, and
the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for the year then ended (not presented herein); and in
our report dated February 8, 2001, we expressed an unqualified opinion on those
consolidated financial statements.

/s/ KPMG LLP

KPMG LLP

Chicago, Illinois
August 6, 2001

HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

June 30, December 31,
2001 2000
---------- ------------

ASSETS

Investments

Fixed maturities, available for sale, at market (amortized
cost, 2001, $2,683,049; 2000, $2,615,156) ............................ $2,696,004 $2,607,738
Short-term and other investments ....................................... 96,574 99,728
Short-term investments, loaned securities collateral ................... 348,937 204,881
---------- ----------
Total investments .................................................. 3,141,515 2,912,347
Cash ...................................................................... 18,631 21,141
Accrued investment income and premiums receivable ......................... 103,002 101,405
Value of acquired insurance in force and goodwill ......................... 88,232 92,260
Deferred policy acquisition costs ......................................... 148,970 141,604
Other assets .............................................................. 115,772 116,756
Variable annuity assets ................................................... 1,011,755 1,035,067
---------- ----------
Total assets ....................................................... $4,627,877 $4,420,580
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY

Policy liabilities
Fixed annuity contract liabilities ..................................... $1,253,000 $1,217,756
Interest-sensitive life contract liabilities ........................... 499,787 481,140
Unpaid claims and claim expenses ....................................... 324,294 308,881
Future policy benefits ................................................. 180,998 180,049
Unearned premiums ...................................................... 173,403 174,428
---------- ----------
Total policy liabilities ........................................... 2,431,482 2,362,254
Other policyholder funds .................................................. 122,586 122,233
Other liabilities ......................................................... 469,061 324,312
Short-term debt ........................................................... 49,000 49,000
Long-term debt ............................................................ 99,743 99,721
Variable annuity liabilities .............................................. 1,011,755 1,035,067
---------- ----------
Total liabilities .................................................. 4,183,627 3,992,587
---------- ----------
Preferred stock ........................................................... - -
Common stock .............................................................. 60 60
Additional paid-in capital ................................................ 338,732 338,243
Retained earnings ......................................................... 455,878 452,624
Accumulated other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on fixed
maturities and equity securities ..................................... 8,476 (4,038)
Minimum pension liability adjustment ................................... (937) (937)
Treasury stock, at cost ................................................... (357,959) (357,959)
---------- ----------
Total shareholders' equity ......................................... 444,250 427,993
---------- ----------
Total liabilities and shareholders' equity ....................... $4,627,877 $4,420,580
========== ==========

See accompanying notes to consolidated financial statements.

HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)

Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2001 2000 2001 2000
---- ---- ---- ----

Insurance premiums written
and contract deposits ....................................... $218,225 $204,466 $425,997 $398,978
======== ======== ======== ========
Revenues
Insurance premiums and
contract charges earned ................................... $151,990 $150,590 $301,907 $297,929
Net investment income ....................................... 49,835 47,601 98,598 95,109
Realized investment gains (losses) .......................... (5,719) 204 (1,035) (2,341)
-------- -------- ------ --------
Total revenues ............................................ 196,106 198,395 399,470 390,697
-------- -------- -------- --------
Benefits, losses and expenses
Benefits, claims and settlement expenses .................... 134,813 113,864 242,590 217,075
Interest credited ........................................... 24,508 22,755 48,317 45,510
Policy acquisition expenses amortized ....................... 13,256 13,577 27,314 27,318
Operating expenses .......................................... 26,798 29,222 56,292 58,427
Amortization of intangible assets ........................... 1,770 2,399 3,677 4,800
Interest expense ............................................ 2,323 2,521 4,847 5,032
Restructuring charges ....................................... (175) - (175) -
Litigation charges .......................................... - 100 - 100
-------- -------- -------- --------
Total benefits, losses and expenses ....................... 203,293 184,438 382,862 358,262
-------- -------- -------- --------
Income (loss) before income taxes .............................. (7,187) 13,957 16,608 32,435
Income tax expense (benefit) ................................... (2,261) 4,275 4,836 10,027
-------- -------- -------- --------

Net income (loss) .............................................. $ (4,926) $ 9,682 $ 11,772 $ 22,408
======== ======== ======== ========
Net income (loss) per share
Basic ....................................................... $ (0.12) $ 0.24 $ 0.29 $ 0.55
========= ======== ======== ========
Diluted ..................................................... $ (0.12) $ 0.23 $ 0.29 $ 0.54
========= ======== ======== =========
Weighted average number of shares
and equivalent shares (in thousands)
Basic ..................................................... 40,554 40,913 40,539 41,034
Diluted ................................................... 40,874 41,085 40,800 41,218

See accompanying notes to consolidated financial statements.

HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share data)

Six Months Ended
June 30,
------------------------
2001 2000
---- ----

Common stock
Beginning balance ................................................. $ 60 $ 59
Options exercised, 2001, 64,575 shares;
2000, 515,000 shares; and shares
awarded, 2000, 10,000 shares .................................... - 1
Conversion of Director Stock Plan units, 2001, 10,293 shares ...... - -
--------- ---------
Ending balance ....................................................... 60 60
--------- ---------
Additional paid-in capital
Beginning balance ................................................. 338,243 333,892
Options exercised, conversion of Director Stock Plan
units and shares awarded ........................................ 964 4,764
Catastrophe-linked equity put option premium ...................... (475) (475)
--------- ---------
Ending balance .................................................... 338,732 338,181
--------- ---------
Retained earnings
Beginning balance ................................................. 452,624 449,023
Net income ........................................................ 11,772 22,408
Cash dividends, 2001, $0.21 per share;
2000, $0.21 per share ........................................... (8,518) (8,692)
--------- ---------
Ending balance .................................................... 455,878 462,739
--------- ---------
Accumulated other comprehensive income (loss), net of taxes:
Beginning balance ................................................. (4,975) (40,016)
Change in net unrealized gains (losses) on
fixed maturities and equity securities ........................ 12,514 (7,151)
(Increase) decrease in minimum pension
liability adjustment .......................................... - -
--------- ---------
Ending balance .................................................... 7,539 (47,167)
--------- ---------
Treasury stock, at cost
Beginning balance, 2001, 19,341,296 shares;
2000, 18,258,896 shares ......................................... (357,959) (342,816)
Purchase of 720,000 shares in 2000 (See note 5) ................... - (10,562)
--------- ---------
Ending balance, 2001, 19,341,296 shares;
2000, 18,978,896 shares ......................................... (357,959) (353,378)
--------- ---------
Shareholders' equity at end of period ................................ $ 444,250 $ 400,435
========= =========
Comprehensive income
Net income ........................................................ $ 11,772 $ 22,408
Other comprehensive income, net of taxes:
Change in net unrealized gains (losses)
on fixed maturities and equity securities ..................... 12,514 (7,151)
(Increase) decrease in minimum pension
liability adjustment .......................................... - -
--------- ---------
Other comprehensive income .................................. 12,514 (7,151)
--------- ---------
Total ..................................................... $ 24,286 $ 15,257
========= =========

See accompanying notes to consolidated financial statements.

HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2001 2000 2001 2000
---- ---- ---- ----

Cash flows from operating activities
Premiums collected ......................................... $ 154,669 $ 154,401 $ 316,458 $ 311,316
Policyholder benefits paid ................................. (116,557) (120,122) (240,035) (238,011)
Policy acquisition and
other operating expenses paid ............................ (45,286) (48,482) (92,100) (91,696)
Federal income taxes paid .................................. - (14,501) - (16,101)
Investment income collected ................................ 45,161 45,798 94,599 97,301
Interest expense paid ...................................... (6) (827) (4,154) (4,950)
Other ...................................................... (867) (1,535) (1,154) (2,684)
--------- --------- --------- ---------
Net cash provided by operating activities .............. 37,114 14,732 73,614 55,175
--------- --------- --------- ---------
Cash flows provided by (used in) investing activities
Fixed maturities
Purchases ................................................ (330,303) (194,778) (688,388) (295,944)
Sales .................................................... 208,151 86,739 470,932 147,078
Maturities ............................................... 70,217 73,123 136,916 134,009
Net cash provided by short-term
and other investments .................................... 14,180 66,212 7,086 34,084
--------- --------- --------- ---------
Net cash provided by (used in) investing activities .... (37,755) 31,296 (73,454) 19,227
--------- --------- --------- ---------
Cash flows provided by (used in) financing activities
Purchase of treasury stock ................................. - (4,597) - (10,562)
Dividends paid to shareholders ............................. (4,261) (4,328) (8,518) (8,692)
Principal repayments on Bank Credit Facility ............... - - - -
Exercise of stock options .................................. 874 - 964 4,765
Catastrophe-linked equity put option premium ............... (238) (238) (475) (475)
Annuity contracts, variable and fixed
Deposits ................................................. 61,697 51,261 120,649 99,477
Maturities and withdrawals ............................... (40,094) (81,324) (93,879) (165,989)
Net transfer from (to) variable annuity assets ........... (15,641) 6,158 (19,125) 17,129
Net decrease in life policy account balances ............... (1,210) (1,290) (2,286) (2,275)
--------- --------- --------- ---------
Net cash provided by (used in) financing activities .... 1,127 (34,358) (2,670) (66,622)
--------- --------- --------- ---------
Net increase (decrease) in cash ............................... 486 11,670 (2,510) 7,780
Cash at beginning of period ................................... 18,145 18,958 21,141 22,848
--------- --------- --------- ---------
Cash at end of period ......................................... $ 18,631 $ 30,628 $ 18,631 $ 30,628
========= ========= ========= =========

See accompanying notes to consolidated financial statements.

HORACE MANN EDUCATORS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
(Dollars in thousands, except per share data)

Note 1 - Basis of Presentation

The accompanying unaudited consolidated financial statements of Horace Mann
Educators Corporation ("HMEC"; and together with its subsidiaries, the
"Company") have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission. Certain information and note disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted. The Company believes that these financial statements
contain all adjustments (consisting of normal recurring accruals) necessary to
present fairly the Company's consolidated financial position as of June 30, 2001
and December 31, 2000, the consolidated results of operations and cash flows for
the three and six months ended June 30, 2001 and 2000 and the consolidated
changes in shareholders' equity for the six months ended June 30, 2001 and 2000.

The subsidiaries of HMEC sell and underwrite tax-qualified retirement
annuities and private passenger automobile, homeowners, and life insurance
products, primarily to educators and other employees of public schools and their
families. The Company's principal operating subsidiaries are Horace Mann Life
Insurance Company, Horace Mann Insurance Company, Teachers Insurance Company,
Horace Mann Property & Casualty Insurance Company (formerly Allegiance Insurance
Company) and Horace Mann Lloyds.

It is suggested that these financial statements be read in conjunction with
the financial statements and the related notes included in the Company's
December 31, 2000 Form 10-K.

The results of operations for the three and six months ended June 30, 2001
are not necessarily indicative of the results to be expected for the full year.

Note 2 - Restructuring Charges

In December 2000, the Company recorded restructuring charges of $2,236
pretax ($1,453, or $0.04 per share, after tax) reflecting two changes in the
Company's operations. Specifically, the Company restructured the operations of
its group insurance business, thereby eliminating 39 jobs, and its credit union
marketing group, eliminating 20 additional positions. The changes will improve
business results and more closely align these functions with the Company's
strategic direction. Employee termination costs, for termination of an estimated
50 individuals, represented severance, vacation buy-out and related payroll
taxes. The eliminated positions encompass management, professional and clerical
responsibilities. As of June 30, 2001, 39 individuals have been terminated with
two additional terminations scheduled later in 2001. Termination of lease
agreements represented office space used by the credit union marketing group.
The remaining charge was attributable primarily to the write-off of software
related to these two areas. Restructuring charges were separately identified in
the Statement of Operations for the year ended December 31, 2000. None of the
cash restructuring costs were paid as of December 31, 2000.

Note 2 - Restructuring Charges-(Continued)

The following table provides information about the components of the charge
taken in December 2000, the balance of accrued amounts at December 31, 2000 and
June 30, 2001, and payment activity during the six months ended June 30, 2001.
The adjustment to employee termination costs during the six months ended June
30, 2001 reflected placement of nine individuals from terminated positions into
other open positions within the Company.

Original Reserve at Reserve at
Pretax December 31, June 30,
Charge 2000 Payments Adjustments 2001
-------- ------------ -------- ----------- ----------

Charges to earnings:
Employee termination
costs ....................... $1,827 $1,827 $522 $(221) $1,084
Termination of lease
agreements .................. 285 285 50 - 235
Write-off of capitalized
software .................... 106 - - - -
Other ......................... 18 18 43 46 21
------ ------ ---- ----- ------
Total .................... $2,236 $2,130 $615 $(175) $1,340
====== ====== ==== ===== ======

Note 3 - Debt

Indebtedness outstanding was as follows:

June 30, December 31,
2001 2000
-------- ------------

Short-term debt:
$65,000 Bank Credit Facility, commitment to
December 31, 2001. (IBOR + 0.325%,
5.0% as of June 30, 2001) .......................................... $ 49,000 $ 49,000
Long-term debt:
6 5/8% Senior Notes, due January 15, 2006.
Face amount less unaccrued discount
of $257 and $279 (6.7% imputed rate) ............................... 99,743 99,721
-------- --------
Total ............................................................ $148,743 $148,721
======== ========

The Company's earnings in the fourth quarter of 2000 could have caused a
breach of a financial covenant of the Company's Bank Credit Facility in 2001
but, in the first quarter of 2001, the lender agreed to modify that covenant for
the first, second and third quarters of 2001. Notwithstanding that modification,
earnings for the second quarter of 2001 will cause a breach of that covenant.
Management has begun discussions with representatives of the lender to address
this issue. Prior to the determination of second quarter earnings, management
had also begun discussions with representatives of the lender about a possible
replacement credit facility which would need to be implemented prior to the
maturity of the existing Bank Credit Facility on December 31, 2001. The Company
cannot predict the outcome of these discussions, either with regard to the
breach of financial covenant caused by the second quarter earnings, or with
regard to a replacement credit facility. However, management believes that even
if such discussions are

Note 3 - Debt-(Continued)

not successful, the Company should be able to obtain replacement financing for
the Bank Credit Facility elsewhere, but the Company cannot predict on what terms
and conditions such financing would be available, and the availability of
alternative financing is always subject to prevailing market conditions at the
time of securing such financing.

Note 4 - Investments

The following table presents the composition and value of the Company's
fixed maturity securities portfolio by rating category. The Company has
classified the entire fixed maturity securities portfolio as available for sale,
which is carried at market value.

Percent of
Carrying Value June 30, 2001
--------------------------- ---------------------------
Rating of Fixed June 30, December 31, Carrying Amortized
Maturity Securities(1) 2001 2000 Value Cost
---------------------- -------- ------------ ---------- ----------

AAA ............................ 35.5% 42.9% $ 957,362 $ 935,738
AA ............................. 7.2 8.2 193,454 186,942
A .............................. 25.2 20.5 677,996 665,147
BBB ............................ 26.8 22.8 722,853 728,921
BB ............................. 2.1 1.3 55,466 57,389
B .............................. 2.5 4.0 68,223 81,119
CCC or lower ................... 0.5 0.1 14,422 21,952
Not rated(2) ................... 0.2 0.2 6,228 5,841
----- ----- ---------- ----------
Total ....................... 100.0% 100.0% $2,696,004 $2,683,049
===== ===== ========== ==========

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

(2) This category includes $386 of publicly traded securities not currently
rated by S&P or Moody's and $5,842 of private placement securities not
rated by either S&P or Moody's. The National Association of Insurance
Commissioners (the "NAIC") has rated 98.0% of these private placements as
investment grade.

The following table presents a maturity schedule of the Company's fixed
maturity securities. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.

Percent Carrying
of Total Value
-------------------------- ----------
June 30, December 31, June 30,
Scheduled Maturity 2001 2000 2001
------------------ -------- ------------ ----------

Due in 1 year or less ............................ 4.1% 7.0% $ 109,175
Due after 1 year through 5 years ................. 26.0 28.8 700,480
Due after 5 years through 10 years ............... 31.9 28.5 861,278
Due after 10 years through 20 years .............. 14.0 15.6 376,794
Due after 20 years ............................... 24.0 20.1 648,277
----- ----- ----------
Total .......................................... 100.0% 100.0% $2,696,004
===== ===== ==========

Note 4 - Investments-(Continued)

The Company's investment portfolio includes no derivative financial
instruments (futures, forwards, swaps, option contracts or other financial
instruments with similar characteristics).

The Company reviews the market value of the investment portfolio on a
monthly basis to determine if there are any securities that have fallen below
75% of book value. This review, in conjunction with the Company's investment
managers' monthly credit reports and current market data, is the basis for
determining if a security should be written down in value. A write-down is
recorded when the decline in value is deemed to be other-than-temporary in
nature.

The Company lends fixed income securities to third parties, primarily major
brokerage firms. As of June 30, 2001 and December 31, 2000, fixed maturities
with a fair value of $348,937 and $204,881, respectively, were on loan. The
Company separately maintains a minimum of 100% of the value of the loaned
securities as collateral for each loan. Securities lending collateral is
classified as investments with a corresponding liability included in Other
Liabilities in the Company's consolidated balance sheet, in accordance with the
applicable accounting guidance.

Note 5 - Shareholders' Equity

Share Repurchase Programs

During the first six months of 2001, the Company did not repurchase shares
of its common stock under its stock repurchase program consistent with
management's stated intention to utilize excess capital to support the Company's
strategic growth initiatives. Since early 1997, 8,165,100 shares, or 17% of the
shares outstanding on December 31, 1996, have been repurchased at an aggregate
cost of $203,657, equal to an average cost of $24.94 per share. Including shares
repurchased in 1995, the Company has repurchased 33% of the shares outstanding
on December 31, 1994. The repurchase of shares was financed through use of cash
and, when necessary, the Bank Credit Facility. However, the Company has not
utilized the Bank Credit Facility for share repurchases since the second quarter
of 1999. As of June 30, 2001, $96,343 remained authorized for future share
repurchases.

Note 6 - Income Taxes

As previously reported, the Company has been contesting proposed additional
federal income taxes relating to a settlement agreement with the Internal
Revenue Service ("IRS") for prior years' taxes. In the third quarter of 1999,
the Company recorded an additional federal income tax provision of $20,000
representing the maximum exposure of the Company to the IRS with regard to the
issue for all of the past tax years in question (1994 through 1997). In 2000,
the Company reached a final resolution with the IRS for the tax years 1994, 1995
and 1996 in an amount that was $8,682 less than was previously accrued. That
amount was included in net income for the year ended December 31, 2000, $2,800
in the three months ended September 30, 2000 and $5,882 in the three months
ended December 31, 2000.

Note 7 - Reinsurance

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

Ceded to Assumed
Gross Other from State
Amount Companies Facilities Net
-------- --------- ---------- ---------

Three months ended
June 30, 2001
------------------------------------
Premiums written ........................................ $221,166 $ 6,825 $ 3,884 $218,225
Premiums earned ......................................... 154,573 6,614 4,031 151,990
Benefits, claims and
settlement expenses ................................... 130,774 1,371 5,410 134,813

Three months ended
June 30, 2000
------------------------------------
Premiums written ........................................ $206,203 $ 8,666 $ 6,929 $204,466
Premiums earned ......................................... 151,503 6,679 5,766 150,590
Benefits, claims and
settlement expenses ................................... 116,090 9,707 7,481 113,864

Six months ended
June 30, 2001
------------------------------------
Premiums written ........................................ $431,234 $12,975 $ 7,738 $425,997
Premiums earned ......................................... 307,147 13,274 8,034 301,907
Benefits, claims and
settlement expenses ................................... 242,048 9,161 9,703 242,590

Six months ended
June 30, 2000
------------------------------------
Premiums written ........................................ $402,193 $16,586 $13,371 $398,978
Premiums earned ......................................... 300,246 12,441 10,124 297,929
Benefits, claims and
settlement expenses ................................... 221,428 16,381 12,028 217,075

Note 7 - Reinsurance-(Continued)

The Company maintains an excess and catastrophe treaty reinsurance program.
The Company reinsures 95% of catastrophe losses above a retention of $8,500 per
occurrence up to $80,000 per occurrence for 52% of the coverage and above a
retention of $7,500 per occurrence up to $80,000 per occurrence for the
remaining 48% of the coverage. In addition, the Company's predominant insurance
subsidiary for property and casualty business written in Florida reinsures 90%
of hurricane losses in that state above a retention of $10,300 up to $50,300
with the Florida Hurricane Fund, based on the Fund's resources. These programs
are augmented by a $100,000 equity put and reinsurance agreement. This equity
put provides an option to sell shares of the Company's convertible preferred
stock with a floating rate dividend at a pre-negotiated price in the event
losses from catastrophes exceed the catastrophe reinsurance program coverage
limit. Before tax benefits, the equity put provides a source of capital for up
to $154,000 of catastrophe losses above the reinsurance coverage limit. For
liability coverages, including the educator excess professional liability
policy, the Company reinsures each loss above a retention of $500 up to $20,000.
The Company also reinsures each property loss, including catastrophe losses that
in the aggregate are less than the retention levels above, above a retention of
$250 up to $2,500.

The maximum individual life insurance risk retained by the Company is $200
on any individual life and $100 is retained on each group life policy. Excess
amounts are reinsured.

NOTE 8 - Contingencies

Lawsuits and Legal Proceedings

In December 2000, the Company recorded an after tax charge of $5,000,
representing the Company's best estimate of the actual and anticipated costs of
defending and ultimately resolving litigation brought against the Company in
regards to its disability insurance product. The lawsuit is on behalf of certain
policyholders who purchased the Company's disability insurance product and
allege that they were not adequately made aware of certain features. In July
2001, the Company submitted a settlement agreement to the court which was
mutually agreed upon by all parties to this lawsuit. The settlement, which would
provide additional benefits for current policyholders and compensation to those
who demonstrate they did not understand what they purchased, is now pending
court approval. While the actual costs for the Company to resolve this issue
could be either less or more than the liability established in 2000, management
believes that, based on facts and circumstances available at this time and on
the settlement agreement submitted to the court in July 2001, the amount
recorded will be adequate to resolve the matter. Disability insurance
represented less than 1% of the Company's insurance premiums written and
contract deposits for the year ended December 31, 2000.

There are various other lawsuits and legal proceedings against the Company.
Management and legal counsel are of the opinion that the ultimate disposition of
such other litigation will have no material adverse effect on the Company's
financial position or results of operations.

Assessments for Insolvencies of Unaffiliated Insurance Companies

The Company is also contingently liable for possible assessments under
regulatory requirements pertaining to potential insolvencies of unaffiliated
insurance companies. Liabilities, which are established based upon regulatory
guidance, have been insignificant.

Note 9 - Segment Information

The Company conducts and manages its business through four segments. The
three operating segments representing the major lines of insurance business are:
property and casualty insurance, principally personal lines automobile and
homeowners insurance; individual tax-qualified annuity products; and life
insurance. The fourth segment, Corporate and Other, includes primarily debt
service and realized investment gains and losses. Summarized financial
information for these segments is as follows:

Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ---------------------
2001 2000 2001 2000
---- ---- ---- ----

Insurance premiums and contract charges earned
Property and casualty ....................................... $124,917 $123,209 $248,100 $243,637
Annuity ..................................................... 3,733 4,361 7,519 8,719
Life ........................................................ 23,660 23,336 46,927 46,185
Intersegment eliminations ................................... (320) (316) (639) (612)
-------- -------- -------- --------
Total ................................................... $151,990 $150,590 $301,907 $297,929
======== ======== ======== ========
Net investment income
Property and casualty ....................................... $ 9,156 $ 8,867 $ 18,183 $ 17,787
Annuity ..................................................... 26,837 26,081 53,496 52,258
Life ........................................................ 14,168 12,637 27,528 25,010
Corporate and other ......................................... 24 315 75 654
Intersegment eliminations ................................... (350) (299) (684) (600)
-------- -------- -------- --------
Total ................................................... $ 49,835 $ 47,601 $ 98,598 $ 95,109
======== ======== ======== ========
Net income (loss)
Operating income (loss)
Property and casualty ..................................... $ (9,669) $ 2,909 $ (1,805) $ 11,966
Annuity ................................................... 5,181 5,643 9,410 11,030
Life ...................................................... 5,374 3,750 9,325 6,727
Corporate and other, including interest expense ........... (2,208) (2,687) (4,599) (5,728)
-------- -------- -------- --------
Total operating income (loss) ............................ (1,322) 9,615 12,331 23,995
Realized investment gains (losses), after tax ............... (3,718) 132 (673) (1,522)
Restructuring charges, after tax ............................ 114 - 114 -
Litigation charges, after tax ............................... - (65) - (65)
-------- -------- -------- --------
Total ................................................... $ (4,926) $ 9,682 $ 11,772 $ 22,408
======== ======== ======== ========
Amortization of intangible assets
Value of acquired insurance in force
Annuity ................................................... $ 895 $ 1,488 $ 1,926 $ 2,977
Life ...................................................... 471 507 942 1,014
-------- -------- -------- --------
Subtotal ................................................ 1,366 1,995 2,868 3,991
Goodwill .................................................... 404 404 809 809
-------- -------- -------- --------
Total ................................................... $ 1,770 $ 2,399 $ 3,677 $ 4,800
======== ======== ======== ========

June 30, December 31,
Assets 2001 2000
---------- ------------

Property and casualty ......................................................... $ 746,612 $ 733,922
Annuity ....................................................................... 2,778,413 2,639,872
Life .......................................................................... 1,052,075 969,181
Corporate and other ........................................................... 93,665 115,584
Intersegment eliminations ..................................................... (42,888) (37,979)
----------- ----------
Total ....................................................................... $4,627,877 $4,420,580
========== ==========

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in millions, except per share data)

Forward-looking Information

Statements made in the following discussion that state the Company's or
management's intentions, hopes, beliefs, expectations or predictions of the
future are forward-looking statements. It is important to note that the
Company's actual results could differ materially from those projected in such
forward-looking statements due to, among other risks and uncertainties inherent
in the Company's business, the following important factors:

. Changes in the composition of the Company's assets and liabilities through
acquisitions or divestitures.

. Prevailing interest rate levels, including the impact of interest rates
on (i) unrealized gains and losses on the Company's investment portfolio
and the related after-tax effect on the Company's shareholders' equity and
total capital and (ii) the book yield of the Company's investment
portfolio.

. The impact of fluctuations in the capital markets on the Company's ability
to refinance outstanding indebtedness or repurchase shares of the Company's
outstanding common stock.

. The frequency and severity of catastrophes such as hurricanes, earthquakes
and storms, and the ability of the Company to maintain a favorable
catastrophe reinsurance program.

. Future property and casualty loss experience and its impact on estimated
claims and claim adjustment expenses for losses occurring in prior years.

. The Company's ability to develop and expand its agency force and its direct
product distribution systems, as well as the Company's ability to maintain
and secure product sponsorships by local, state and national education
associations.

. The competitive impact of new entrants such as mutual funds and banks into
the tax-deferred annuity products markets, and the Company's ability to
profitably expand its property and casualty business in highly competitive
environments.

. Changes in insurance regulations, including (i) those affecting the ability
of the Company's insurance subsidiaries to distribute cash to the holding
company and (ii) those impacting the Company's ability to profitably write
property and casualty insurance policies in one or more states.

. Changes in federal income tax laws and changes resulting from federal tax
audits affecting corporate tax rates or taxable income, and regulations
changing the relative tax advantages of the Company's life and annuity
products to customers.

. The Company's ability to maintain favorable claims-paying ability ratings.

. Adverse changes in policyholder mortality and morbidity rates.

. The resolution of legal proceedings and related matters.

Six Months Ended June 30, 2001 Compared To Six Months Ended June 30, 2000

The Horace Mann Value Proposition

In 2000, the Company's management announced steps to reenergize the
Company's core business and accelerate growth of the Company's revenues and
profits. These initiatives are intended to make the Company's products more
responsive to customer needs and preferences and expand the Company's product
lines within the personal financial services segment; grow and strengthen the
agent force and make the Company's agents more productive by improving the
products, tools and support the Company provides to them; increase cross-selling
and improve retention in the existing book of business; expand the Company's
penetration of targeted geographic areas and new segments of the educator
market; and broaden the Company's distribution options to complement and extend
the reach of the Company's agent force.

During the fourth quarter of 2000, management began implementing specific
plans that address the initiatives above. The Company has begun targeting
high-priority geographic markets with dedicated staff teams. New compensation
and evaluation systems are being implemented to improve the performance of the
Company's agents and agency managers. New approaches to customer service are
being developed and tested that will free agents to spend more time selling.
Additional distribution options are being examined to capitalize fully on the
value of the Company's payroll deduction slots in schools across the country.
And, the Company will increase its use of technology to improve the efficiency
of its agency force and its administrative operations.

The Horace Mann Value Proposition states the core of the Company's strategy
to reignite its growth: Provide lifelong financial well-being for educators and
their families through personalized service, advice and a full range of tailored
insurance and financial products.

Insurance Premiums and Contract Charges

Insurance Premiums Written and Contract Deposits

Six Months Ended Growth Over
June 30, Prior Year
------------------ -------------------
2001 2000 Percent Amount
---- ---- ------- ------

Automobile and property (voluntary) ........... $241.3 $232.9 3.6% $ 8.4
Annuity deposits .............................. 120.6 99.5 21.2% 21.1
Life .......................................... 58.5 59.7 -2.0% (1.2)
------ ------ -----
Subtotal - core lines .................... 420.4 392.1 7.2% 28.3
Involuntary and other
property & casualty ......................... 5.6 6.9 -18.8% (1.3)
------ ------ -----
Total .................................... $426.0 $399.0 6.8% $27.0
====== ====== =====

Insurance Premiums and Contract Charges Earned
(Excludes annuity and life contract deposits)

Six Months Ended Growth Over
June 30, Prior Year
---------------- -----------------
2001 2000 Percent Amount
---- ---- ------- ------

Automobile and property (voluntary) ................... $238.7 $232.7 2.6% $ 6.0
Annuity ............................................... 7.5 8.7 -13.8% (1.2)
Life .................................................. 46.3 45.6 1.5% 0.7
------ ------ -----
Subtotal - core lines ............................ 292.5 287.0 1.9% 5.5
Involuntary and other
property & casualty ................................. 9.4 10.9 -13.8% (1.5)
------ ------ -----
Total ............................................ $301.9 $297.9 1.3% $ 4.0
====== ====== =====

Premiums written and contract deposits for the Company's core lines
increased 7.2% compared to the first six months of 2000, driven by double-digit
growth in the annuity segment. This comparison includes the North Carolina
settlement recorded in 2000 described below.

At June 30, 2001, the Company's exclusive agent force totaled 875, a 12.9%
decline from a year earlier. The number of experienced agents in the agent
force, 621, was down 7.6% at June 30, 2001, compared to a year earlier. The
total agent count decreased due primarily to terminations of less-productive
agents. As a result, overall agent productivity continues to increase. The
Company is in the process of changing what is expected from its agents.
Historically, agent compensation and rewards focused on profitability, service
and tenure with the Company. The new direction will continue to focus on
profitability but will also place a greater emphasis on individual agent
productivity, new premium growth, educator business, cross-selling and business
retention. In addition, the Company's agency management team has been
strengthened through the promotions of several of its most experienced and
capable agents. Hiring of new agents during the first six months of 2001 was
within 7 agents of the prior year's first six months, in spite of the Company's
implementation of more stringent agent selection criteria to improve agent
productivity and retention in the future. A new compensation plan was effective
January 1, 2001 for agency managers, and the new compensation plan for all
agents was implemented on August 1, 2001. Management believes these actions,
along with other strategic initiatives, will have a positive impact on agent
productivity in the future and will give every agent the opportunity to achieve
greater financial success while building a long-term relationship with the
Company.

In March 2000, following lengthy negotiations, the North Carolina Rate
Bureau and that state's Commissioner of Insurance agreed to settle the
outstanding 1994, 1996 and 1999 private passenger automobile insurance rate
filing cases resulting in an adverse impact of approximately $250 million for
the insurance industry. For the six months ended June 30, 2000, the Company
recorded an estimate of its portion of the adverse settlement of $2.5 million
pretax, comprised of $1.7 million premium refunds and $0.8 million interest
charges. North Carolina is the Company's second largest property and casualty
state representing approximately 7% of total premiums for the year ended
December 31, 2000.

Total voluntary automobile and homeowners premium written growth was 3.6%
for the first six months of 2001, including the effect of the North Carolina
settlement in the prior year. The average premium per policy increased for both
automobile and homeowners, as did the number

of homeowners policies in force, compared to a year earlier. The number of
automobile policies in force was slightly lower than year-earlier levels, but
showed an increase as compared to December 31, 2000. Voluntary automobile
insurance premium increased 2.6% ($4.6 million) compared to the first six months
of 2000 and homeowners premium increased 6.9% ($3.8 million). The property and
casualty increase in premiums written resulted from growth in average premium
per policy of 2% for automobile and 7% for homeowners, compared to a year
earlier, as the impact of rate actions has begun to flow through policy
renewals. Over the prior 12 months, unit growth was 0.3%, bringing policies in
force at June 30, 2001 to 882,000. Compared to December 31, 2000, total property
and casualty policies in force increased 6,000 with a 3,000 unit increase in
both homeowners and automobile.

Based on policies in force, the property and casualty 12-month retention
rate for new and renewal policies was 88%, equal to the 12 months ended June 30,
2000 despite implemented rate increases over the period. The Company's plans to
implement tiered rating systems for automobile and homeowners business remain on
track, which management expects will have a positive impact on both loss ratios
and business growth in the educator market. Tiered rating, together with price
increases implemented and planned, should return the Company to rate adequacy
with average premium growth keeping pace with average loss experience.

Growth in annuity contract deposits reached double-digit levels for the six
months ended June 30, 2001. In September 2000, the Company more than tripled the
number of choices available to its customers by introducing 21 new investment
options in its tax-deferred annuity product line. At the same time, the Company
provided its agents with proprietary asset allocation software that helps agents
assist educator customers in selecting the best retirement investment programs
for their individual needs and circumstances.

Compared to the first six months of 2000, new annuity deposits increased
21.2%, reflecting a 98.1% increase in new single premium and rollover deposits
and a 0.7% increase in scheduled deposits received. New deposits to variable
annuities decreased 2.4%, or $1.5 million, and new deposits to fixed annuities
were 63.0% higher than a year earlier. The Company offers a dollar cost
averaging program for amounts systematically transferred from the fixed annuity
option to the variable mutual fund investment options over a 12-month period.
Variable annuity accumulated funds on deposit at June 30, 2001 were $1.0
billion, $48.0 million less than a year earlier, a 4.5% decrease including the
impact of stock market values. Variable annuity accumulated deposit retention
improved 3.1 percentage points over the 12 months to 88.6%. Also, this retention
improved 4.5 percentage points compared to the 12 months ended December 31, 2000
reflecting recent quarterly trends following the Company's expansion of variable
investment options and implementation of proprietary asset allocation software.
Fixed annuity cash value retention for the 12 months ended June 30, 2001 was
91.1%, 1.6 percentage points better than the same period last year. Reflecting
recent quarterly trends, this showed improvement of 2.4 percentage points
compared to retention of 88.7% for the 12 months ended December 31, 2000. The
number of annuity contracts outstanding increased 7.2%, or 9,000 contracts,
compared to June 30, 2000.

In 2000, the Company took actions to increase the variable annuity options
available to customers, as described above, and also took steps to improve the
returns of its proprietary mutual funds. For the six months ended June 30, 2001,
the amount of variable annuity surrenders was 53% lower than for the same period
last year. The amount of fixed annuity surrenders decreased 42% compared to the
first half of 2000.

Life segment premiums for the first six months of 2001 were 2.0% lower than
a year earlier, reflecting a decline in disability income business. In 2001, the
Company began ceding a larger portion of its disability income business as part
of the group restructuring announced in the fourth quarter of 2000. Excluding
the disability product from both years' results, life segment premiums written
and contract deposits would be equal to the first six months of 2000. The life
insurance in force lapse ratio was 8.6% for the twelve months ended June 30,
2001, compared to 8.8% for the same period last year.

Net Investment Income

Investment income of $98.6 million for the first six months of 2001
increased 3.7%, or $3.5 million, (3.8% after tax) compared to the prior year due
primarily to growth in the size of the investment portfolio. Average investments
(excluding the securities lending collateral) increased 2.3% over the past 12
months. The average pretax yield on the investment portfolio was 7.2% (4.8%
after tax) for the first six months of 2001, compared to a pretax yield of 7.1%
(4.8% after tax) last year.

Realized Investment Gains and Losses

Net realized investment losses were $1.0 million for the six months ended
June 30, 2001, compared to net realized investment losses of $2.3 million for
the first six months of 2000. The net realized losses in the current period
primarily resulted from the second quarter sale and impairment of two fixed
income securities for credit-related reasons offsetting the first quarter full
repayment of an impaired commercial mortgage loan and the release of a related
reserve for uncollectible mortgages. For the prior year, nearly all of the net
realized gains and losses occurred in the fixed income portfolios.

Benefits, Claims and Settlement Expenses

Six Months Ended Growth
June 30, Prior Year
---------------- -----------------
2001 2000 Percent Amount
---- ---- ------- ------

Property and casualty ................................. $219.8 $194.2 13.2% $25.6
Annuity ............................................... 0.4 - 0.4
Life .................................................. 22.4 22.9 -2.2% (0.5)
------ ------ -----
Total ............................................... $242.6 $217.1 11.7% $25.5
====== ====== =====
Property and casualty statutory loss ratio:
Before catastrophe losses ........................ 84.9% 75.9% 9.0%
After catastrophe losses ......................... 88.6% 79.7% 8.9%

In the first six months of 2001, the Company's benefits, claims and
settlement expenses were affected adversely by strengthening of prior years'
reserves for property and casualty claims and by a higher level of
non-catastrophe weather-related losses. There was a net release of prior years'
property and casualty reserves a year ago.

Net strengthening of reserves for property and casualty claims occurring in
prior years, excluding involuntary business, was $11.1 million in the first six
months of 2001, compared to favorable development of $2.7 million for the same
period in 2000. Total reserves for property and casualty claims occurring in
prior years, including involuntary business, were strengthened $11.0 million in
the current period, compared to favorable development of $2.3 million in the
first six months of 2000.

Since the fourth quarter of last year, the Company has continued to refine
its process and methods for evaluating property and casualty reserves and has
selected a new independent property and casualty actuarial consulting firm.
During the second quarter of 2001, a comprehensive review of property and
casualty loss reserving methodologies and assumptions was completed in
conjunction with the new actuarial firm. Based on this further enhanced analysis
and the opinion of the new actuarial firm, prior years' net reserves -
predominantly related to 1999 and prior accident years - were increased by $11
million at June 30, 2001. This consisted primarily of an $8 million reduction in
reserves to be ceded by the Company to its reinsurers and reinsurance
facilities, including $1.5 million related to the Company's automobile residual
market business, primarily in Massachusetts; $2.0 million for its voluntary
automobile ceded excess liability coverage; and approximately $4.5 million
related to its educators professional liability product. The Company's property
and casualty net reserves were $272 million and $229 million at June 30, 2001
and 2000, respectively.

With regard to its residual market automobile business, the Company is
reviewing its position and strategy for automobile business in the state of
Massachusetts. Management anticipates conclusion of that review during the third
quarter of 2001.

In the first six months of 2001, the higher level of non-catastrophe
property losses included claims attributable to severe weather experienced in
many areas of the country, including Tropical Storm Allison and wind and hail
storms throughout the Midwest during the second quarter as well as winter storms
in the first quarter. The non-catastrophe property loss ratio by quarter and for
the full years 2000 and 1999 was as follows:

2001 2000 1999
---- ---- ----

Non-catastrophe property loss ratio for the:

Quarter ended March 31 .......................... 85.1% 79.0% 81.9%
Quarter ended June 30 ........................... 99.4% 91.4% 72.8%
Quarter ended September 30 ...................... 82.8% 78.1%
Quarter ended December 31 ....................... 80.7% 53.3%

Year ended December 31 .......................... 83.4% 71.0%

After determining that the increase in non-catastrophe property losses
experienced in the early months of 2000 was due to underlying loss trends,
rather than the normal cyclicality of the property business, management began
and has continued to implement pricing, underwriting and loss control
initiatives. Although the Company's actions have begun to have a positive
impact, with minimal effect on policy retention, management expects that the
full impact of these changes will not be realized until well into 2001. In light
of experience and competitive actions in the first half of 2001, future rate
increases are anticipated to be more aggressive than the Company's

original plans. The Company will also initiate additional reunderwriting
programs. Management anticipates that these actions will enable the Company to
improve the profitability of its existing book of homeowners business and
attract new business that meets its profitability standards.

For the first six months of 2001, incurred catastrophe losses for all lines
were $9.2 million including a net benefit of $1.4 million due to favorable
development of reserves for 2000 catastrophe losses. Incurred catastrophe losses
were $9.2 million in the first six months of 2000.

The voluntary automobile loss ratio excluding catastrophe losses was 77.7%
for the first six months of 2001, 5.3 percentage points higher than for the same
period in 2000 due primarily to increases in prior years' reserves in 2001
versus releases in the first half of 2000, which represented approximately 5.9
percentage points of the increase in the loss ratio. Also, on a per-policy basis
for the year, average voluntary automobile earned premium increased 1% and
average current accident year loss costs increased 3% compared to the first six
months of 2000. Reflecting improvement from the first quarter, voluntary
automobile current accident year loss experience, excluding catastrophes,
exceeded the growth in average earned premium per policy by only six-tenths of a
percent in the second quarter of 2001.

The annuity benefits of $0.4 million recorded in the first six months of
2001 represented current period mortality experience on annuity contracts on
payout status.

Life mortality experience in the first six months of 2001 was comparable to
the same period in 2000.

Interest Credited to Policyholders

Six Months Ended Growth Over
June 30, Prior Year
---------------- ------------------
2001 2000 Percent Amount
---- ---- ------- ------

Annuity ................. $34.1 $32.6 4.6% $1.5
Life .................... 14.2 12.9 10.1% 1.3
----- ----- ----
Total ................. $48.3 $45.5 6.2% $2.8
===== ===== ====

The fixed annuity average annual interest rate credited increased to 5.2%
for the six months ended June 30, 2001, compared to 5.0% for the same period
last year. In addition, the average accumulated fixed deposits increased 0.5%
for the first six months of 2001, compared to the same period in 2000. Life
insurance interest credited increased as a result of continued growth in the
interest-sensitive life insurance reserves.

Operating Expenses

Although operating expenses for the current period included increased costs
to support business growth initiatives, for the first six months of 2001,
operating expenses decreased $2.1 million, or 3.6%, compared to last year,
primarily as a result of three items. First, in the fourth quarter of 2000 the
Company increased its capitalization threshold for software costs. Second, the
current period included a lower level of profit-related incentive compensation.
Third, expenses in the first half of 2000 included non-recurring charges of $0.8
million for interest on the North Carolina settlement and $1.9 million
attributable to the chief executive officer transition.

The total corporate expense ratio on a statutory accounting basis was 21.9%
for the six months ended June 30, 2001, 1.2 percentage points less than the same
period in 2000. The property and casualty expense ratio, the 14th lowest of the
100 largest property and casualty insurance groups for 1999 (the most recent
industry ranking available), was 20.6% for the six months ended June 30, 2001,
compared to 20.5% last year.

Amortization of Policy Acquisition Expenses and Intangible Assets

For the first six months of 2001, the combined amortization of policy
acquisition expenses and intangible assets was $31.0 million, compared to the
$32.1 million recorded in the same period in 2000.

Amortization of intangible assets decreased to $3.7 million for the six
months ended June 30, 2001, compared to $4.8 million for the same period in
2000. The decline reflected the lower level of amortization of the value of
annuity business acquired in the 1989 acquisition of the Company ("Annuity VIF")
consistent with the scheduled amortization reported in the Company's Form 10-K
for the year ended December 31, 2000.

Policy acquisition expenses amortized for the six months ended June 30,
2001 of $27.3 million were equal to the same period last year.

Income Tax Expense

The effective income tax rate on income including realized investment gains
and losses was 28.9% for the six months ended June 30, 2001, compared to 30.9%
for the same period last year.

Income from investments in tax-advantaged securities reduced the effective
income tax rate 12.4 and 6.2 percentage points for the six months ended June 30,
2001 and 2000, respectively. While the amount of income from investments in
tax-advantaged securities in the current period was comparable to the first half
of 2000, the reduced level of income before income taxes in 2001 resulted in
this having a more significant impact on the effective income tax rate.

Operating Income

For the first six months of 2001, operating income (net income before the
after-tax impact of realized investment gains and losses and non-recurring
items) was adversely affected by strengthening of prior years' property and
casualty claim reserves and by severe weather, compared to a year ago. Due to
the unanticipated reserve actions taken in June 2001, management now anticipates
that 2001 full year operating income will be within a range of $0.85 to $0.95
per share.

Operating income by segment was as follows:

Six Months Ended Growth Over
June 30, Prior Year
---------------- -----------------
2001 2000 Percent Amount
---- ---- ------- ------

Property & casualty
Before catastrophe losses ......................... $ 4.1 $17.9 -77.1% $(13.8)
Catastrophe losses, after tax ..................... (6.0) (6.0) -
----- ----- ------
Total including catastrophe losses ........... (1.9) 11.9 (13.8)
Annuity ............................................. 9.4 11.0 -14.5% (1.6)
Life ................................................ 9.4 6.8 38.2% 2.6
Corporate and other expense ......................... (1.5) (2.4) 0.9
Interest expense, after tax ......................... (3.1) (3.3) 0.2
----- ----- ------
Total ........................................ $12.3 $24.0 -48.8% $(11.7)
===== ===== ======
Total before catastrophe losses .............. $18.3 $30.0 -39.0% $(11.7)
===== ===== ======
Property and casualty statutory combined ratio:

Before catastrophe losses ...................... 105.5% 96.4% 9.1%
After catastrophe losses ....................... 109.2% 100.2% 9.0%

Property and casualty segment operating income was lower than in the first
six months of 2000 due primarily to prior years' reserve increases of $7.2
million after tax in the current period, compared to releases of $1.5 million
after tax for the same period last year. Also, the first half of 2001 was
affected by a higher level of non-catastrophe weather-related losses. During the
first six months of 2001, the Company's average voluntary automobile insurance
premium per policy increased 1% while average loss costs increased 3%, compared
to the prior year. The Company's plans to implement tiered rating systems for
automobile and homeowners business remain on track, which management expects
will have a positive impact on both loss ratios and business growth for these
products in the Company's target market. An adverse industry settlement of
outstanding automobile insurance rate filing cases for 1994, 1996 and 1999 in
North Carolina, including interest, reduced the Company's property and casualty
segment operating income by $1.7 million after tax in the first quarter of 2000.

The property and casualty combined ratio before catastrophes of 105.5% was
9.1 percentage points higher than the first six months of 2000, reflecting the
factors cited above. Catastrophe losses in the first six months of 2001 were
equal to the same period a year ago. Increases in reserves for property and
casualty claims occurring in prior years, excluding involuntary business, were
$7.2 million after tax in the first six months of 2001, compared to favorable
development of $1.8 million after tax for the same period in 2000. The current
period reflected an increase in reserves of $7.2 million after tax, including
involuntary business, for property and casualty claims occurring in prior years,
compared to favorable development of $1.5 million after tax last year
representing approximately 5.4 percentage points of the increase in the combined
ratio including catastrophes.

Annuity segment operating income was below the year-earlier total as a
result of reduced fee income related to decreases in both variable annuity
market values and reduced surrender charges for fixed and variable annuities. In
addition, operating expenses increased in the current period, reflecting the
growth in annuity business volume. For the first six months of 2001, the net
interest margin was comparable to the prior year and fees and contract charges
earned

decreased 13.8%. Variable annuity accumulated deposits were $1.0 billion at June
30, 2001, $48.0 million, or 4.5%, less than 12 months earlier. Fixed annuity
accumulated cash value of $1.4 billion was $36.1 million, or 2.7%, greater than
June 30, 2000.

Life insurance earnings increased compared to the first six months of 2000
due primarily to an increase in margins.

In the first half of 2000, the Corporate and Other Expense category in the
preceding table reflected higher holding company expenses, including charges
related to the chief executive officer transition.

Net Income

Net Income Per Share, Diluted

Six Months Ended Growth Over
June 30, Prior Year
---------------- -----------------
2001 2000 Percent Amount
---- ---- ------- ------

Operating income .................................... $0.30 $ 0.58 -48.3% $(0.28)
Realized investment gains (losses) .................. (0.01) (0.04) 0.03
Restructuring charges ............................... - - -
Litigation charges .................................. - - -
----- ------ ------
Net income ........................................ $0.29 $ 0.54 -46.3% $(0.25)
===== ====== ======

Net income, which includes realized investment gains and losses and
non-recurring items, for the first six months of 2001 decreased by $10.6
million, or 47.3%, and net income per diluted share decreased by 46.3% compared
to the same period in 2000. This change includes the $11.7 million decline in
operating income offset by $0.6 million of after tax realized investment losses
for the first six months of 2001, compared to $1.5 million of after tax realized
investment losses in the same period last year.

Return on shareholders' equity was 3% based on operating income and 2%
based on net income for the 12 months ended June 30, 2001.

Status of Litigation Regarding Disability Insurance

Liquidity and Financial Resources

Investments

The Company's investment strategy emphasizes investment grade, publicly
traded fixed income securities. At June 30, 2001, fixed income securities
represented 96.5% of investments excluding the securities lending collateral. Of
the fixed income investment portfolio, 94.7% was investment grade and 99.8% was
publicly traded. The average quality of the total fixed income portfolio was A+
at June 30, 2001.

The duration of the investment portfolio is managed to provide cash flow to
satisfy policyholder liabilities as they become due. The average option adjusted
duration of total investments was 4.9 years at June 30, 2001 and 4.4 years at
December 31, 2000. The Company has included in its annuity products substantial
surrender penalties to reduce the likelihood of unexpected increases in policy
or contract surrenders. All annuities issued since 1982 and approximately 78% of
all outstanding fixed annuity accumulated cash values are subject in most cases
to substantial early withdrawal penalties.

Cash Flow

The short-term liquidity requirements of the Company, within a 12-month
operating cycle, are for the timely payment of claims and benefits to
policyholders, operating expenses, interest payments and federal income taxes.
Cash flow in excess of these amounts has been used to fund business growth,
retire short-term debt, pay dividends to shareholders and repurchase shares of
the Company's common stock. Long-term liquidity requirements, beyond one year,
are principally for the payment of future insurance policy claims and benefits
and retirement of long-term notes.

Operating Activities

As a holding company, HMEC conducts its principal operations in the
personal lines segment of the property and casualty and life insurance
industries through its subsidiaries. HMEC's 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. Net cash provided by operating
activities was approximately $18 million more than the first six months of 2000,
primarily reflecting a reduction in federal income tax payments in the current
period.

Payment of principal and interest on debt, fees related to the
catastrophe-linked equity put option and reinsurance agreement, dividends to
shareholders and parent company operating expenses, as well as the share
repurchase program, are dependent upon the ability of the insurance subsidiaries
to pay cash dividends or make other cash payments to HMEC, including tax
payments pursuant to tax sharing agreements. The insurance subsidiaries are
subject to various regulatory restrictions which limit the amount of annual
dividends or other distributions, including loans or cash advances, available to
HMEC without prior approval of the insurance regulatory authorities. Dividends
which may be paid by the insurance subsidiaries to HMEC during 2001 without
prior approval are approximately $42 million. Although regulatory restrictions
exist, dividend availability from subsidiaries has been, and is expected to be,
adequate for HMEC's capital needs.

Investing Activities

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

Financing Activities

Financing activities include primarily payment of dividends, the receipt
and withdrawal of funds by annuity contractholders, repurchases of the Company's
common stock, and borrowings and repayments under the Company's debt facilities.
Fees related to the catastrophe-linked equity put option and reinsurance
agreement, which augments its other reinsurance program, have been charged
directly to additional paid-in capital.

For the first six months of 2001, receipts from annuity contracts increased
21.2%. Annuity contract maturities and withdrawals decreased $72.1 million, or
43.4%, compared to the same period last year, including decreases of 52.8% and
41.6% in surrenders of variable and fixed annuities, respectively. Reflecting
continued improvement in recent quarterly trends, cash value retention for
variable and fixed annuities was 88.6% and 91.1%, respectively, for the 12 month
period ended June 30, 2001. Net transfers to variable annuity assets increased
$36.3 million compared to the same period last year reflecting the Company's
expansion of its variable investment options.

The Company did not repurchase shares of its common stock under its stock
repurchase program during the first six months of 2001, consistent with
management's stated intention to utilize excess capital to support the Company's
strategic growth initiatives. In the first six months of 2000, 720,000 shares
were repurchased at an aggregate cost of $10.6 million. The repurchase of shares
was financed through use of cash and, when necessary, the Bank Credit Facility.
However, the Company has not utilized the Bank Credit Facility for share
repurchases since the second quarter of 1999. As of June 30, 2001, $96.3 million
remained authorized for future share repurchases.

Capital Resources

The Company has determined the amount of capital which is needed to
adequately fund and support business growth, primarily based on risk-based
capital formulas including those developed by the National Association of
Insurance Commissioners ("NAIC"). Historically, the Company's insurance
subsidiaries have generated capital in excess of such needed capital. These
excess amounts have been paid to HMEC through dividends. HMEC has then utilized
these dividends and its access to the capital markets to service and retire
long-term debt, increase and pay dividends to its shareholders, fund growth
initiatives, repurchase shares of its common stock and for other corporate
purposes. Management anticipates that the Company's sources of capital will
continue to generate capital in excess of the needs for business growth, debt
interest payments and shareholder dividends.

The NAIC has codified statutory accounting practices, which are expected to
constitute the only source of prescribed statutory accounting practices and were
effective January 1, 2001. Codification changed prescribed statutory accounting
practices and resulted in changes to the accounting practices that insurance
enterprises use to prepare their statutory financial statements. The states of
domicile of the Company's principal operating subsidiaries, Illinois, California
and Texas, have adopted the NAIC's codification. As a result of adopting the
NAIC codification, the Company's statutory surplus of its insurance subsidiaries
increased approximately $19 million.

The total capital of the Company was $592.9 million at June 30, 2001,
including $99.7 million of long-term debt and $49.0 million of short-term debt.
Total debt represented 25.4% of capital (excluding unrealized investment losses)
at June 30, 2001, which was at the upper end of the Company's target operating
range of 20% to 25%.

Shareholders' equity was $444.2 million at June 30, 2001, including an
unrealized gain in the Company's investment portfolio of $8.5 million after
taxes and the related impact on deferred policy acquisition costs and the value
of acquired insurance in force associated with annuity and interest-sensitive
life policies. The market value of the Company's common stock and the market
value per share were $874.8 million and $21.55, respectively, at June 30, 2001.
Book value per share was $10.94 at June 30, 2001, $10.73 excluding investment
market value adjustments. At June 30, 2000, book value per share was $9.81,
$10.97 excluding investment market value adjustments. The increase over the 12
months included the effects of unrealized investment gains and losses and share
repurchases. Excluding these items, book value per share was comparable to a
year earlier.

In January 1996, the Company issued $100.0 million face amount of 6 5/8%
Senior Notes ("Senior Notes") at a discount of 0.5% which will mature on January
15, 2006. Interest on the Senior Notes is payable semi-annually. The Senior
Notes are redeemable in whole or in part, at any time at the Company's option.
The Senior Notes have an investment grade rating from Standard & Poor's
Corporation ("S&P") (A-), Fitch, Inc. ("Fitch") (A), and Moody's Investors
Service, Inc. ("Moody's") (Baa1) and are traded on the New York Stock Exchange
(HMN 6 5/8). As a result of factors impacting the Company's earnings for the
three months ended December 31, 2000, S&P placed the Company's debt rating on
"CreditWatch with negative implications" and Fitch placed the Company's debt
rating on "Rating Watch Negative" in January 2001 and February 2001,
respectively. Moody's issued a statement in February 2001 affirming their
rating. In April 2001, Fitch reaffirmed their "A" rating and identified the
outlook for the rating as "Stable". Management has met with representatives from
S&P and anticipates that the CreditWatch status will be resolved in the second
half of 2001, based on further analysis of the 2000 year-end financial
statements and supplemental data as well as review of results for the second
quarter of 2001. Management has initiated discussions with each of the agencies
rating its debt as a result of earnings reported for the quarter ended June 30,
2001. At the time of this Report on Form 10-Q, it is not known what actions,
including possible downgrades of ratings, may occur.

As of both June 30, 2001 and December 31, 2000, the Company had short-term
debt of $49.0 million outstanding under the Bank Credit Facility. The Bank
Credit Facility allows unsecured borrowings of up to $65.0 million at Interbank
Offering Rates plus 0.3% to 0.5% or Bank of America National Trust and Savings
Association reference rates. The rate on the borrowings under the Bank Credit
Facility was Interbank Offering Rate plus 0.3%, or 5.0%, as of June 30, 2001.
The commitment for the Bank Credit Facility terminates on December 31, 2001. The
Company's earnings in the fourth quarter of 2000 could have caused a breach of a
financial covenant of the Company's Bank Credit Facility in 2001 but, in the
first quarter of 2001, the lender

agreed to modify that covenant for the first, second and third quarters of 2001.
Notwithstanding that modification, earnings for the second quarter of 2001 will
cause a breach of that covenant. Management has begun discussions with
representatives of the lender to address this issue. Prior to the determination
of second quarter earnings, management had also begun discussions with
representatives of the lender about a possible replacement credit facility which
would need to be implemented prior to the maturity of the existing Bank Credit
Facility on December 31, 2001. The Company cannot predict the outcome of these
discussions, either with regard to the breach of financial covenant caused by
the second quarter earnings, or with regard to a replacement credit facility.
However, management believes that even if such discussions are not successful,
the Company should be able to obtain replacement financing for the Bank Credit
Facility elsewhere, but the Company cannot predict on what terms and conditions
such financing would be available, and the availability of alternative financing
is always subject to prevailing market conditions at the time of securing such
financing.

The Company's ratio of earnings to fixed charges for the six months ended
June 30, 2001 was 4.5x compared to 7.5x for the same period in 2000.

Total shareholder dividends were $8.5 million for the six months ended June
30, 2001. In February 2001 and May 2001, the Board of Directors announced
regular quarterly dividends of $0.105 per share.

The Company reinsures 95% of catastrophe losses above a retention of $8.5
million per occurrence up to $80 million per occurrence for 52% of the coverage
and above a retention of $7.5 million per occurrence up to $80 million per
occurrence for the remaining 48% of the coverage. In addition, the Company's
predominant insurance subsidiary for property and casualty business written in
Florida reinsures 90% of hurricane losses in that state above a retention of
$10.3 million up to $50.3 million with the Florida Hurricane Fund, based on the
Fund's resources. These catastrophe reinsurance programs are augmented by a $100
million equity put and reinsurance agreement. This equity put provides an option
to sell shares of the Company's convertible preferred stock with a floating rate
dividend at a pre-negotiated price in the event losses from catastrophes exceed
the catastrophe reinsurance program coverage limit. Before tax benefits, the
equity put provides a source of capital for up to $154 million of catastrophe
losses above the reinsurance coverage limit.

Insurance Financial Ratings

As disclosed in the 2000 Form 10-K, certain ratings of the Company's
insurance subsidiaries are being reviewed as a result of the Company's earnings
for the three months ended December 31, 2000. Management also has initiated
discussions with each of the agencies rating its insurance subsidiaries as a
result of earnings reported for the quarter ended June 30, 2001. At the time of
this Report on Form 10-Q, it is not known what actions, including possible
downgrades of ratings, may occur.

Fitch placed the Company's financial strength ratings on "Rating Watch
Negative" in February 2001. Although the Company's insurance subsidiaries remain
in the "AA (very strong)" rating category, in April 2001, Fitch downgraded
Horace Mann's financial strength ratings one notch from "AA" to "AA-".

S&P placed the Company's financial strength ratings on "CreditWatch with
negative implications" in January 2001. Management has met with representatives
from S&P and anticipates that the CreditWatch status will be resolved in the
second half of 2001, based on further analysis of the 2000 year-end financial
statements and supplemental data as well as discussions regarding results for
the quarter ended June 30, 2001.

Market Risk

Market risk is the risk that the Company will incur losses due to adverse
changes in market rates. The Company's primary market risk exposure is the risk
that the Company will incur economic losses due to adverse changes in interest
rates. This risk arises as the Company's profitability is affected by the
spreads between interest yields on investments and rates credited on insurance
liabilities.

The Company manages its market risk by coordinating the projected cash
outflows of assets with the projected cash outflows of liabilities. For all its
assets and liabilities, the Company seeks to maintain reasonable durations,
consistent with the maximization of income without sacrificing investment
quality and providing for liquidity and diversification. The risks associated
with mutual fund investments supporting variable annuity products are assumed by
those contractholders, and not by the Company.

There have been no material changes during the first six months of 2001 in
the market risks the Company is exposed to and the management of those risks,
which are described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's 2000 Form 10-K.

Recent Accounting Changes

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations", effective for all business combinations initiated after June 30,
2001, and No. 142, "Goodwill and Other Intangible Assets", effective for fiscal
years beginning after December 15, 2001. SFAS No. 141 requires the purchase
method of accounting be used for all business combinations. Goodwill and certain
intangible assets will remain on the balance sheet and not be amortized. SFAS
No. 142 establishes a new method of testing goodwill for impairment. On an
annual basis, and when there is reason to suspect that their values may have
been diminished or impaired, these assets must be tested for impairment. The
amount of goodwill determined to be impaired will be expensed to current
operations. The Company has not determined the impact, if any, that these
statements will have on its consolidated financial position or results of
operations.

Amortization of goodwill was $0.8 million for the six months ended June 30,
2001 and 2000. Total goodwill amortization for the year ended December 31, 2000
was $1.6 million.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

The information required by Item 305 of Regulation S-K is contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in this Form 10-Q.

PART II: OTHER INFORMATION

Item 4: Submission of Matters to a Vote of Security Holders

At the Company's Annual Meeting of Shareholders held on May 18, 2001,
34,418,265 shares of Common Stock were represented and entitled to vote. The
results of the matters submitted to a vote of security holders are shown in the
table below.

Votes Votes
For Against Abstentions
--- ------- -----------

Election of the following nominees to hold the
office of Director until the next Annual
Meeting of Shareholders and until their
respective successors have been duly
elected and qualified:

William W. Abbott 33,698,239 720,026 -
Mary H. Futrell 33,716,769 701,496 -
Donald E. Kiernan 33,698,239 720,026 -
Louis G. Lower II 29,289,975 5,128,290 -
Joseph J. Melone 33,554,489 863,776 -
Jeffrey L. Morby 33,553,339 864,926 -
Shaun F. O'Malley 33,698,539 719,726 -
Charles A. Parker 33,697,739 720,526 -
William J. Schoen 33,698,539 719,726 -

Approval of the Company's 2001 Stock
Incentive Plan. 26,848,525 6,826,885 742,855

Item 6: Exhibits and Reports on Form 8-K

Exhibit
No. Description
------- -----------

(a) The following item is filed as an Exhibit.

(11) Statement re computation of per share earnings.

(b) No reports on Form 8-K were filed by the Company during the
second quarter of 2001.

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 13, 2001 /s/ Louis G. Lower II
--------------------------- ----------------------------------------

Louis G. Lower II
President and Chief Executive Officer

Date August 13, 2001 /s/ Peter H. Heckman
--------------------------- --------------------------------------

Peter H. Heckman
Executive Vice President
and Chief Financial Officer

Date August 13, 2001 /s/ Thomas K. Manion
--------------------------- --------------------------------------

Thomas K. Manion
Senior Vice President
and Controller