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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 September 30, 2001

[ ] 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 October 31, 2001, 40,727,625 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 SEPTEMBER 30, 2001

INDEX

Page
----

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

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

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

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

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

Consolidated Statements of Cash Flows for the
Three and Nine Months Ended September 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 .................... 14

Item 3. Quantitative and Qualitative Disclosures about
Market Risk ............................................ 32

PART II - OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders ...... 32

Item 6. Exhibits and Reports on Form 8-K ......................... 32

SIGNATURES ................................................................. 33

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 September 30, 2001, and the related
consolidated statements of operations and cash flows for the three-month and
nine-month periods ended September 30, 2001 and 2000, and the related
consolidated statements of changes in shareholders' equity for the nine-month
periods ended September 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
November 6, 2001

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

September 30, December 31,
2001 2000
------------- ------------
ASSETS

Investments
Fixed maturities, available for sale, at market (amortized
cost, 2001, $2,700,120; 2000, $2,615,156).................................. $ 2,765,141 $ 2,607,738
Short-term and other investments............................................. 116,857 99,728
Short-term investments, loaned securities collateral......................... 405,076 204,881
------------ ------------
Total investments........................................................ 3,287,074 2,912,347
Cash............................................................................ 23,516 21,141
Accrued investment income and premiums receivable............................... 112,471 101,405
Value of acquired insurance in force and goodwill............................... 85,357 92,260
Deferred policy acquisition costs............................................... 153,328 141,604
Other assets.................................................................... 115,401 116,756
Variable annuity assets......................................................... 850,468 1,035,067
------------ ------------
Total assets............................................................. $ 4,627,615 $ 4,420,580
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Policy liabilities
Fixed annuity contract liabilities........................................... $ 1,265,357 $ 1,217,756
Interest-sensitive life contract liabilities................................. 509,223 481,140
Unpaid claims and claim expenses............................................. 323,342 308,881
Future policy benefits....................................................... 181,650 180,049
Unearned premiums............................................................ 186,921 174,428
------------ ------------
Total policy liabilities................................................. 2,466,493 2,362,254
Other policyholder funds........................................................ 123,410 122,233
Other liabilities............................................................... 555,150 324,312
Short-term debt................................................................. 49,000 49,000
Long-term debt.................................................................. 99,755 99,721
Variable annuity liabilities.................................................... 850,468 1,035,067
------------ ------------
Total liabilities........................................................ 4,144,276 3,992,587
------------ ------------
Preferred stock................................................................. - -
Common stock.................................................................... 60 60
Additional paid-in capital...................................................... 341,024 338,243
Retained earnings............................................................... 460,660 452,624
Accumulated other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on fixed
maturities and equity securities........................................... 40,491 (4,038)
Minimum pension liability adjustment......................................... (937) (937)
Treasury stock, at cost......................................................... (357,959) (357,959)
------------ ------------
Total shareholders' equity............................................... 483,339 427,993
------------ ------------
Total liabilities and shareholders' equity............................. $ 4,627,615 $ 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 Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2001 2000 2001 2000
---- ---- ---- ----

Insurance premiums written
and contract deposits......................... $224,307 $210,002 $650,304 $608,980
======== ======== ======== ========

Revenues
Insurance premiums and
contract charges earned..................... $155,117 $150,220 $457,024 $448,149
Net investment income......................... 49,867 48,168 148,465 143,277
Realized investment losses.................... (1,853) (822) (2,888) (3,163)
-------- -------- -------- --------

Total revenues 203,131 197,566 602,601 588,263
-------- -------- -------- --------

Benefits, losses and expenses
Benefits, claims and settlement expenses...... 118,805 112,196 361,395 329,271
Interest credited............................. 24,034 23,308 72,351 68,818
Policy acquisition expenses amortized......... 14,688 13,498 42,002 40,816
Operating expenses............................ 31,064 31,078 87,356 89,505
Amortization of intangible assets............. 2,374 2,386 6,051 7,186
Interest expense.............................. 2,314 2,593 7,161 7,625
Restructuring reserve adjustment.............. - - (175) -
Litigation charges............................ - - - 100
-------- -------- -------- --------

Total benefits, losses and expenses......... 193,279 185,059 576,141 543,321
-------- -------- -------- --------

Income before income taxes...................... 9,852 12,507 26,460 44,942
Income tax expense.............................. 2,064 3,100 6,900 13,127
Adjustment to the provision for prior
years' taxes................................ (1,269) (2,800) (1,269) (2,800)
-------- -------- -------- --------

Net income...................................... $ 9,057 $ 12,207 $ 20,829 $ 34,615
======== ======== ======== ========

Net income per share
Basic......................................... $ 0.22 $ 0.30 $ 0.51 $ 0.85
======== ======== ======== ========
Diluted....................................... $ 0.22 $ 0.30 $ 0.51 $ 0.84
======== ======== ======== ========

Weighted average number of shares
and equivalent shares (in thousands)
Basic....................................... 40,659 40,550 40,579 40,872
Diluted..................................... 40,977 40,708 40,834 41,040

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)

Nine Months Ended
September 30,
-------------------
2001 2000
---- ----

Common stock
Beginning balance....................................................$ 60 $ 59
Options exercised, 2001, 188,575 shares;
2000, 555,000 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........................................... 3,494 5,276
Catastrophe-linked equity put option premium......................... (713) (713)
-------- ---------
Ending balance....................................................... 341,024 338,455
-------- ---------

Retained earnings
Beginning balance.................................................... 452,624 449,023
Net income........................................................... 20,829 34,615
Cash dividends, 2001, $0.315 per share;
2000, $0.315 per share............................................. (12,793) (12,985)
-------- ---------
Ending balance....................................................... 460,660 470,653
-------- ---------
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........................... 44,529 7,737
(Increase) decrease in minimum pension
liability adjustment............................................. - -
-------- ---------
Ending balance....................................................... 39,554 (32,279)
-------- ---------
Treasury stock, at cost
Beginning balance, 2001, 19,341,296 shares;
2000, 18,258,896 shares............................................(357,959) (342,816)
Purchase of 1,082,400 shares in 2000 (See note 5).................... - (15,143)
-------- ---------
Ending balance, 2001, 19,341,296 shares;
2000, 19,341,296 shares............................................(357,959) (357,959)
-------- ---------

Shareholders' equity at end of period...................................$483,339 $ 418,930
======== =========
Comprehensive income
Net income...........................................................$ 20,829 $ 34,615
Other comprehensive income, net of taxes:
Change in net unrealized gains (losses)
on fixed maturities and equity securities........................ 44,529 7,737
(Increase) decrease in minimum pension
liability adjustment............................................. - -
-------- ---------
Other comprehensive income..................................... 44,529 7,737
-------- ---------
Total........................................................$ 65,358 $ 42,352
======== =========

See accompanying notes to consolidated financial statements.

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

Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2001 2000 2001 2000
---- ---- ---- ----

Cash flows from operating activities
Premiums collected................................ $ 162,778 $ 159,003 $ 479,236 $ 470,319
Policyholder benefits paid........................ (121,159) (108,429) (361,194) (346,440)
Policy acquisition and
other operating expenses paid................... (51,201) (46,854) (143,301) (138,550)
Federal income taxes paid......................... - - - (16,101)
Investment income collected....................... 52,238 48,677 146,837 145,978
Interest expense paid............................. (3,318) (4,206) (7,472) (9,156)
Other............................................. (321) (176) (1,475) (2,860)
--------- --------- --------- ---------

Net cash provided by operating activities..... 39,017 48,015 112,631 103,190
--------- --------- --------- ---------

Cash flows used in investing activities
Fixed maturities
Purchases....................................... (180,745) (292,735) (869,133) (588,679)
Sales........................................... 92,405 235,345 563,337 382,423
Maturities...................................... 79,835 64,612 216,751 198,621
Net cash used for short-term
and other investments........................... (22,031) (39,645) (14,945) (5,561)
--------- --------- --------- ---------

Net cash used in investing activities......... (30,536) (32,423) (103,990) (13,196)
--------- --------- --------- ---------

Cash flows used in financing activities
Purchase of treasury stock........................ - (4,581) - (15,143)
Dividends paid to shareholders.................... (4,275) (4,293) (12,793) (12,985)
Principal repayments on Bank Credit Facility...... - - - -
Exercise of stock options......................... 2,530 512 3,494 5,277
Catastrophe-linked equity put option premium...... (238) (238) (713) (713)
Annuity contracts, variable and fixed
Deposits........................................ 54,213 46,917 174,862 146,394
Maturities and withdrawals...................... (42,149) (78,344) (136,028) (244,333)
Net transfer from (to) variable annuity assets.. (12,114) 16,543 (31,239) 33,672
Net decrease in life policy account balances...... (1,563) (1,238) (3,849) (3,513)
--------- --------- -------- ---------

Net cash used in financing activities......... (3,596) (24,722) (6,266) (91,344)
--------- --------- -------- ---------

Net increase (decrease) in cash...................... 4,885 (9,130) 2,375 (1,350)

Cash at beginning of period.......................... 18,631 30,628 21,141 22,848
--------- --------- -------- ---------

Cash at end of period................................ $ 23,516 $ 21,498 $ 23,516 $ 21,498
========= ========= ======== =========

See accompanying notes to consolidated financial statements.

HORACE MANN EDUCATORS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 September 30,
2001 and December 31, 2000, the consolidated results of operations and cash
flows for the three and nine months ended September 30, 2001 and 2000 and the
consolidated changes in shareholders' equity for the nine months ended September
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 nine months ended September
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 September 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 September 30, 2001, and payment activity during the nine months ended
September 30, 2001. The adjustment to employee termination costs during the nine
months ended September 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, September 30,
Charge 2000 Payments Adjustments 2001
-------- ------------ -------- ----------- -------------

Charges to earnings:
Employee termination
costs ................... $1,827 $1,827 $(773) $(221) $ 833
Termination of lease
agreements .............. 285 285 (50) - 235
Write-off of capitalized
software ................ 106 - - - -
Other ..................... 18 18 (44) 46 20
------ ------ ----- ----- ------
Total ................... $2,236 $2,130 $(867) $(175) $1,088
====== ====== ===== ===== ======

Note 3 - Debt

Indebtedness outstanding was as follows:

September 30, December 31,
2001 2000
------------- ------------

Short-term debt:
$65,000 Bank Credit Facility, commitment to
December 31, 2001. (IBOR + 0.4%,
3.0% as of September 30, 2001) .............. $ 49,000 $ 49,000
Long-term debt:
6 5/8% Senior Notes, due January 15, 2006.
Face amount less unaccrued discount of
$245 and $279 (6.7% imputed rate) ........... 99,755 99,721
-------- --------
Total ..................................... $148,755 $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. As a result of earnings for the
second quarter of 2001, and again based on third quarter 2001 earnings, the
lender agreed to further modify that covenant. Prior to the determination of
second quarter earnings, management had also begun discussions with
representatives of the lender about a possible replacement credit facility to be
implemented prior to the maturity of the existing Bank Credit Facility on
December 31, 2001. At the time of this Report on Form 10-Q, management is in the
final stages of negotiating an extension of the existing Bank Credit Facility
through June 30, 2002. However, management believes that even if such
discussions are not successful, the Company will be able to obtain replacement
financing for the Bank Credit Facility elsewhere, but

Note 3 - Debt-(Continued)

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

AAA .................... 34.6% 42.9% $ 956,936 $ 915,090
AA ..................... 7.4 8.2 204,276 193,778
A ...................... 24.6 20.5 678,534 651,697
BBB .................... 28.8 22.8 797,393 783,185
BB ..................... 1.6 1.3 44,929 49,451
B ...................... 2.2 4.0 60,840 80,306
CCC or lower ........... 0.6 0.1 16,493 21,174
Not rated(2) ........... 0.2 0.2 5,740 5,439
----- ----- ---------- ----------
Total .............. 100.0% 100.0% $2,765,141 $2,700,120
===== ===== ========== ==========

(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 $89 of publicly traded securities not currently rated
by S&P or Moody's and $5,651 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.

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

Due in 1 year or less....................... 3.9% 7.0% $ 108,760
Due after 1 year through 5 years............ 24.8 28.8 684,578
Due after 5 years through 10 years.......... 31.1 28.5 859,193
Due after 10 years through 20 years......... 14.2 15.6 393,566
Due after 20 years.......................... 26.0 20.1 719,044
----- ----- ----------
Total................................... 100.0% 100.0% $2,765,141
===== ===== ==========

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 September 30, 2001 and December 31, 2000, fixed
maturities with a fair value of $405,076 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 nine 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 September 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. In the third quarter of 2001, the Company's liability
for the 1997 tax year was resolved, resulting in a release of $1,269 that had
previously been accrued for that tax year. That amount was included in net
income for the three months ended September 30, 2001.

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
September 30, 2001
---------------------------

Premiums written ................ $225,899 $ 7,499 $ 5,907 $224,307
Premiums earned ................. 156,722 7,471 5,866 155,117
Benefits, claims and
settlement expenses ........... 120,651 6,086 4,240 118,805

Three months ended
September 30, 2000
---------------------------

Premiums written ................ $211,571 $ 8,458 $ 6,889 $210,002
Premiums earned ................. 151,691 6,893 5,422 150,220
Benefits, claims and
settlement expenses ........... 115,852 10,051 6,395 112,196

Nine months ended
September 30, 2001
---------------------------

Premiums written ................ $657,133 $20,474 $13,645 $650,304
Premiums earned ................. 463,869 20,745 13,900 457,024
Benefits, claims and
settlement expenses ........... 362,699 15,247 13,943 361,395

Nine months ended
September 30, 2000
---------------------------

Premiums written ................ $613,764 $25,044 $20,260 $608,980
Premiums earned ................. 451,937 19,334 15,546 448,149
Benefits, claims and
settlement expenses ........... 337,280 26,432 18,423 329,271

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 48% of the coverage and
above a retention of $7,500 per occurrence up to $80,000 per occurrence for the
remaining 52% 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 a class action 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
provides additional benefits for current policyholders and compensation to those
who demonstrate they did not understand what they purchased, was approved by the
court on October 31, 2001. While the actual costs incurred by the Company to
resolve this litigation 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 approved by the court in
October 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 Nine Months Ended
September 30, September 30,
-------------------- --------------------
2001 2000 2001 2000
---- ---- ---- ----

Insurance premiums and contract charges earned
Property and casualty ................................. $128,841 $123,044 $376,941 $366,681
Annuity ............................................... 3,834 4,378 11,353 13,097
Life .................................................. 22,763 23,120 69,690 69,305
Intersegment eliminations ............................. (321) (322) (960) (934)
-------- -------- -------- --------
Total ............................................. $155,117 $150,220 $457,024 $448,149
======== ======== ======== ========
Net investment income
Property and casualty ................................. $ 9,453 $ 8,831 $ 27,636 $ 26,618
Annuity ............................................... 26,920 26,482 80,416 78,740
Life .................................................. 13,836 12,813 41,364 37,823
Corporate and other ................................... 15 342 90 996
Intersegment eliminations ............................. (357) (300) (1,041) (900)
-------- -------- -------- --------
Total ............................................. $ 49,867 $ 48,168 $148,465 $143,277
======== ======== ======== ========
Net income
Operating income (loss)
Property and casualty ............................... $ 1,920 $ 6,300 $ 115 $ 18,266
Annuity ............................................. 5,413 5,747 14,823 16,777
Life ................................................ 3,911 3,955 13,236 10,682
Corporate and other, including interest expense ..... (2,252) (6,061) (6,851) (11,789)
-------- ------- ------- -------
Total operating income ............................ 8,992 9,941 21,323 33,936
Realized investment losses, after tax ................. (1,204) (534) (1,877) (2,056)
Restructuring reserve adjustment, after tax ........... - - 114 -
Litigation charges, after tax ......................... - - - (65)
Adjustment to the provision for prior years' taxes .... 1,269 2,800 1,269 2,800
-------- -------- -------- --------
Total ............................................. $ 9,057 $ 12,207 $ 20,829 $ 34,615
======== ======== ======== ========
Amortization of intangible assets
Value of acquired insurance in force
Annuity ............................................. $ 1,508 $ 1,486 $ 3,434 $ 4,463
Life ................................................ 461 495 1,403 1,509
-------- -------- -------- --------
Subtotal .......................................... 1,969 1,981 4,837 5,972
Goodwill .............................................. 405 405 1,214 1,214
-------- -------- -------- --------
Total ............................................. $ 2,374 $ 2,386 $ 6,051 $ 7,186
======== ======== ======== ========

September 30, December 31,
2001 2000
------------- ------------

Assets
Property and casualty ................................ $ 771,477 $ 733,922
Annuity .............................................. 2,692,959 2,639,872
Life ................................................. 1,106,258 969,181
Corporate and other .................................. 96,554 115,584
Intersegment eliminations ............................ (39,633) (37,979)
---------- ----------
Total ............................................ $4,627,615 $4,420,580
========== ==========

Note 10 - Subsequent Event - Massachusetts Automobile Business

On October 18, 2001, Horace Mann announced that it had formed a
marketing alliance with The Commerce Group, Inc. ("Commerce") for the sale of
automobile insurance in the state of Massachusetts. Through this alliance, and
beginning no later than January 1, 2002, Horace Mann will provide its
Massachusetts customers with Commerce automobile insurance policies, while
continuing to write other Horace Mann products, including property and life
insurance and retirement annuities.

Horace Mann will cease writing automobile insurance policies in
Massachusetts no later than January 1, 2002, and on October 18, 2001 paid $6,438
to the Commonwealth Automobile Reinsurers ("C.A.R.") as full payment of its
proportionate liability to C.A.R. for policy years 2002 and beyond. That payment
and other related expenses of approximately $1,000, totaling approximately 12
cents per share, will be reflected as a restructuring charge in Horace Mann's
financial statements for the fourth quarter of 2001.

The Company expects that this transaction will have a positive impact on
operating income of approximately 10 cents per share in 2003 and beyond. The
improvement in 2002 earnings will be somewhat less reflecting the run-off of
current policies in force. The Company plans to utilize the benefits of this
transaction to invest in its marketing, customer service and technology
infrastructures. On a full year basis, the Company's Massachusetts automobile
business has represented premiums written and earned of approximately $28,000.
In 2002, premiums written for this business will be reduced to zero, and
premiums earned will be reduced significantly reflecting run-off of the policies
in force at December 31, 2001.

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 impact of fluctuations in the financial markets on the Company's
variable annuity fee revenues, valuations of deferred policy acquisition
costs and value of acquired insurance in force, and the level of
guaranteed minimum death benefit reserves.

. 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.

September 11, 2001

The September 11, 2001 terrorist attacks on the United States of America
did not result in any material claims against the Company from either life or
property and casualty policies.

The Company has experienced some secondary short-term impacts. In the
third quarter of 2001, financial market changes had an adverse impact on
variable annuity fees, valuations of deferred policy acquisition costs and value
of acquired insurance in force, and the level of a guaranteed minimum death
benefit reserve established during the quarter. Also, in the weeks following the
attack, the Company experienced a slowdown in new business volume for life
insurance. However, during the same period of time, new business for the
Company's other segments reflected an increase, compared to the same period last
year.

The credit quality of the Company's investment portfolio has not been
materially impacted by the economic effects of the attack. The Company holds
approximately $20 million of investment grade fixed maturity securities related
to the aviation and leisure industries, and these securities had an unrealized
loss of approximately $3 million at September 30, 2001. The high yield portion
of the Company's fixed maturity securities portfolio has no exposure to the
aviation, lodging or leisure industries.

The Company is not immune to future secondary effects of this event such
as those generated by additional fluctuations in variable annuity account values
and anticipated increases in reinsurance costs. Management believes these
impacts will be manageable.

Results of Operations

The Horace Mann Value Proposition

In 2000, the Company's management announced steps to focus on 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. New compensation and
evaluation systems have been implemented to improve the performance of the
Company's agents and agency managers. The Company has begun targeting
high-priority geographic markets with dedicated staff teams. New approaches to
customer service are being developed and tested that will free agents to spend
more time selling. Additional distribution options are being initiated 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 articulates the Company's overarching
strategy and business purpose: 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

Nine Months Ended Growth Over
September 30, Prior Year
------------------- --------------------
2001 2000 Percent Amount
------ ------ ------- ------

Automobile and property (voluntary).... $371.7 $357.2 4.1% $14.5
Annuity deposits....................... 174.9 146.4 19.5% 28.5
Life................................... 86.1 88.5 -2.7% (2.4)
----- ------ -----
Subtotal - core lines............. 632.7 592.1 6.9% 40.6
Involuntary and other
property & casualty.................. 17.6 16.9 4.1% 0.7
------ ------ -----
Total............................. $650.3 $609.0 6.8% $41.3
====== ====== =====

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

Nine Months Ended Growth Over
September 30, Prior Year
------------------- --------------------
2001 2000 Percent Amount
------ ------ ------- ------

Automobile and property (voluntary).... $361.0 $351.1 2.8% $ 9.9
Annuity................................ 11.4 13.1 -13.0% (1.7)
Life................................... 68.7 68.4 0.4% 0.3
------ ------ -----
Subtotal - core lines............. 441.1 432.6 2.0% 8.5
Involuntary and other
property & casualty.................. 15.9 15.5 2.6% 0.4
------ ------ -----
Total............................. $457.0 $448.1 2.0% $ 8.9
====== ====== =====

Premiums written and contract deposits for the Company's core lines
increased 6.9% compared to the first nine 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 September 30, 2001, the Company's exclusive agent force totaled 853,
a 13.7% decline from a year earlier. The number of experienced agents in the
agent force, 566, was down 14.2% at September 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 has changed what is expected from its agents.
Historically, agent compensation and rewards focused on profitability, service
and tenure with the Company. The new direction continues to focus on
profitability but also places 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 nine months of 2001 was
within 15 agents of the prior year's first nine 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 became
effective January 1, 2001 for agency managers. The new compensation plan for all
agents was implemented on August 1, 2001, and there were approximately 800
agents at the time of implementation. Management believes these actions, along
with other strategic initiatives, will have a positive impact on agent
productivity in the future.

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 nine months ended September 30, 2000, the
Company recorded, in the first quarter, an estimate of its portion of the
adverse settlement of $2.4 million pretax, comprised of $1.6 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
4.1% for the first nine months of 2001, including the effect of the North
Carolina settlement in the prior year. The average premium per policy and the
number of policies in force increased for both automobile and homeowners,
compared to a year earlier. Voluntary automobile insurance premium written
increased 2.7% ($7.3 million) compared to the first nine months of 2000 and
homeowners premium increased 8.2% ($7.2 million). The property and casualty
increase in premiums written resulted from growth in average premium per policy
of 3% for automobile and 8% for homeowners, compared to a year earlier, as the
impact of rate actions has begun to flow through policy renewals and new
business. Over the prior 12 months, unit growth was 0.9%, bringing policies in
force at September 30, 2001 to 888,000. Compared to December 31, 2000, total
property and casualty policies in force increased 12,000 with an 8,000 unit
increase in automobile and a 4,000 unit increase in homeowners.

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
September 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
nine months ended September 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 nine months of 2000, new annuity deposits
increased 19.5%, reflecting a 62.2% increase in new single premium and rollover
deposits and a 3.6% increase in scheduled deposits received. New deposits to
variable annuities decreased 1.9%, or $1.7 million, and new deposits to fixed
annuities were 52.5% 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 September 30, 2001 were
$0.9 billion, $195.0 million less than

a year earlier, an 18.7% decrease including the impact of financial market
values. Variable annuity accumulated deposit retention improved 6.3 percentage
points over the 12 months to 90.8%. Also, this retention improved 6.7 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 September 30, 2001 was
92.2%, 3.4 percentage points better than the same period last year. Reflecting
recent quarterly trends, this showed improvement of 3.5 percentage points
compared to retention of 88.7% for the 12 months ended December 31, 2000. The
number of annuity contracts outstanding increased 8.8%, or 11,000 contracts,
compared to September 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 nine months ended
September 30, 2001, the amount of variable annuity surrenders was 54% lower than
for the same period last year. The amount of fixed annuity surrenders decreased
41% compared to the first nine months of 2000.

For the nine months ended September 30, 2001, annuity segment contract
charges earned decreased 13.0%, or $1.7 million, compared to the first nine
months of 2000. The decline reflected the improvements in retention of variable
and fixed accumulated values, as described above, as well as the impact of
fluctuations in the financial markets on the Company's variable annuity fee
revenues. The 13.0% decline recorded for the nine month period is comparable to
the 13.8% decrease reported for the first six months of 2001.

Life segment premiums and contract deposits for the first nine months of
2001 were 2.7% 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 nearly
equal to the first nine months of 2000. The life insurance in force lapse ratio
was 8.5% for the twelve months ended September 30, 2001, compared to 8.8% for
the same period last year.

Net Investment Income

Investment income of $148.5 million for the first nine months of 2001
increased 3.6%, or $5.2 million, (3.5% 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 2.2% over the past 12
months. The average pretax yield on the investment portfolio was 7.2% (4.8%
after tax) for the first nine 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 $2.9 million for the nine months
ended September 30, 2001, compared to net realized investment losses of $3.2
million for the first nine months of 2000. The net realized losses in the
current period primarily resulted from the sale, for credit reasons, of three
fixed income securities and the impairment of one fixed income security, which
were only partially offset by 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.
18

Benefits, Claims and Settlement Expenses

Nine Months Ended Growth Over
September 30, Prior Year
------------------- --------------------
2001 2000 Percent Amount
------ ------ ------- ------

Property and casualty............. $328.7 $295.3 11.3% $33.4
Annuity........................... (0.5) - (0.5)
Life.............................. 33.2 34.0 -2.4% (0.8)
------ ------ -----
Total........................... $361.4 $329.3 9.7% $32.1
====== ====== =====

Property and casualty
statutory loss ratio:
Before catastrophe losses..... 84.3% 77.0% 7.3%
After catastrophe losses...... 87.2% 80.5% 6.7%

In the first nine 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. In the first nine months of 2000, the
Company experienced a net release of prior years' property and casualty
reserves.

Net strengthening of reserves for property and casualty claims occurring
in prior years, excluding involuntary business, was $11.1 million in the first
nine months of 2001, compared to favorable development of $2.0 million for the
same period in 2000. Total reserves for property and casualty claims occurring
in prior years, including involuntary business, were strengthened $11.8 million
in the current period, compared to favorable development of $2.0 million in the
first nine months of 2000.

During the first half of 2001, the Company continued to refine its
process and methods for evaluating property and casualty reserves and 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 excess
professional liability product. No material changes to the Company's reserves
for prior accident years were made during the third quarter of 2001. The
Company's property and casualty net reserves were $275 million and $227 million
at September 30, 2001 and 2000, respectively.

In October 2001, the Company reached conclusion on its strategic
direction for automobile business in the state of Massachusetts. For further
discussion, see "Results of Operations -- Recent Developments -- Massachusetts
Automobile Business."

In the first nine 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 (with additional
development related to these events recorded in the third 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............ 99.7% 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 2002 and beyond. In
light of experience and competitive actions in the first nine months of 2001,
future rate increases are anticipated to be more aggressive than the Company's
original plans. The Company has also initiated tightening of underwriting
guidelines and additional reunderwriting programs and has implemented coverage
and policy form restrictions in selected states. 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 nine months of 2001, incurred catastrophe losses for all
lines were $10.8 million including a net benefit of $1.4 million due to
favorable development of reserves for 2000 catastrophe losses. Incurred
catastrophe losses were $12.8 million in the first nine months of 2000.

The voluntary automobile loss ratio excluding catastrophe losses was
77.9% for the first nine months of 2001, 3.5 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 nine months of 2000, which represented
approximately 2.5 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 nine months of 2000.

The annuity benefits of $(0.5) million recorded in the first nine months
of 2001 were comprised of three components. They were: 1) current period
mortality experience on annuity contracts on payout status, 2) a guaranteed
minimum death benefit reserve on variable annuity contracts established in the
third quarter of 2001 as a result of fluctuations in the financial markets, and
3) a release of reserves for supplementary contracts, resulting from a systems
conversion, recorded in the third quarter of 2001.

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

Interest Credited to Policyholders

Nine Months Ended Growth Over
September 30, Prior Year
------------------- -------------------
2001 2000 Percent Amount
------------------- -------------------

Annuity........ $50.9 $49.1 3.7% $1.8
Life........... 21.5 19.7 9.1% 1.8
----- ----- ----
Total....... $72.4 $68.8 5.2% $3.6
===== ===== ====

The fixed annuity average annual interest rate credited increased to
5.1% for the nine months ended September 30, 2001, compared to 5.0% for the same
period last year. In addition, the average accumulated fixed deposits increased
1.0% for the first nine 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 nine months of 2001,
operating expenses decreased $2.3 million, or 2.6%, 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 nine months of 2000 included non-recurring charges
of $0.8 million for interest on the North Carolina settlement and $2.5 million
attributable to the chief executive officer transition.

The total corporate expense ratio on a statutory accounting basis was
22.9% for the nine months ended September 30, 2001, 0.6 percentage points less
than the same period in 2000. The property and casualty expense ratio, the 16th
lowest of the 100 largest property and casualty insurance groups for 2000 (the
most recent industry ranking available), was 20.5% for the nine months ended
September 30, 2001, compared to 19.4% last year.

Amortization of Policy Acquisition Expenses and Intangible Assets

For the first nine months of 2001, the combined amortization of policy
acquisition expenses and intangible assets was $48.1 million, compared to the
$48.0 million recorded in the same period in 2000.

Amortization of intangible assets decreased to $6.1 million for the nine
months ended September 30, 2001, compared to $7.2 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 nine months ended
September 30, 2001 of $42.0 million were $1.2 million more than the same period
last year primarily from the property and casualty segment. Over the past 12
months, this segment has experienced accelerated growth in business and the
acquisition cost amortization period matches the terms of the insurance policies
(six and twelve months).

Income Tax Expense

Excluding the benefits in both 2001 and 2000 related to the Company's
dispute with the Internal Revenue Service ("IRS") regarding tax years 1994
through 1997, the effective income tax rate on income including realized
investment gains and losses was 26.4% for the nine months ended September 30,
2001, compared to 29.2% for the same period last year.

Income from investments in tax-advantaged securities reduced the
effective income tax rate 11.1 and 6.7 percentage points for the nine months
ended September 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 nine months 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.

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
million 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
the third quarter of 2000, the 1994 and 1995 exposure was resolved for an amount
that was $2.8 million less than was previously accrued and that amount was
included in net income for the nine months ended September 30, 2000. (The 1996
exposure was resolved and reflected in the fourth quarter of 2000.) In the third
quarter of 2001, the Company's liability for the 1997 tax year was resolved,
resulting in a release of $1.3 million that had previously been accrued for that
tax year. That amount was included in net income for the nine months ended
September 30, 2001. The benefits of these dispute resolutions were excluded from
the determination of reported operating income.

Operating Income

For the first nine 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 primarily by strengthening of prior years'
property and casualty claim reserves and by severe weather, compared to a year
ago. Incorporating the unanticipated reserve actions taken in June 2001 and the
Company's nine month results exclusive of those reserve actions, which reflect
generally positive underlying trends, management anticipates that 2001 full year
operating income will be within a range of $0.85 to $0.90 per share. And, while
management is still refining the Company's 2002 plans, preliminary projections
at the time of this Report on Form 10-Q indicate an operating earnings per share
range of $1.15 to $1.30 for 2002.

Operating income by segment was as follows:

Nine Months Ended Growth Over
September 30, Prior Year
------------------- ---------------------
2001 2000 Percent Amount
------ ----- ------- ------

Property & casualty
Before catastrophe losses................... $ 7.2 $26.6 -72.9% $(19.4)
Catastrophe losses, after tax............... (7.0) (8.3) 1.3
------ ----- ------
Total including catastrophe losses..... 0.2 18.3 -98.9% (18.1)
Annuity....................................... 14.8 16.8 -11.9% (2.0)
Life.......................................... 13.2 10.6 24.5% 2.6
Corporate and other expense................... (2.3) (6.8) 4.5
Interest expense, after tax................... (4.6) (5.0) 0.4
----- ----- ------
Total.................................. $21.3 $33.9 -37.2% $(12.6)
===== ===== ======
Total before catastrophe losses........ $28.3 $42.2 -32.9% $(13.9)
===== ===== ======

Property and casualty
statutory combined ratio:
Before catastrophe losses................ 104.8% 96.4% 8.4%
After catastrophe losses................. 107.7% 99.9% 7.8%

Property and casualty segment operating income was lower than in the
first nine months of 2000 due primarily to prior years' reserve increases of
$7.7 million after tax in the current period, compared to releases of $1.3
million after tax for the same period last year. Also, the first nine months of
2001 was affected by a higher level of non-catastrophe weather-related losses.
During the first nine 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. The Company is continuing to
approach the pricing and underwriting of its homeowners products aggressively,
to accelerate margin recovery. Actions include tightening of underwriting
guidelines, reunderwriting existing policies, and implementing coverage and
policy form restrictions in selected states. 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 104.8%
was 8.4 percentage points higher than the first nine months of 2000, reflecting
the factors cited above. Catastrophe losses in the first nine months of 2001
were $7.0 million after tax, including a net benefit of $0.9 million after tax
due to favorable development of reserves for 2000 catastrophe losses. Incurred
catastrophe losses were $8.3 million after tax in 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 nine
months of 2001, compared to favorable development of $1.3 million after tax for
the same period in 2000. The current period reflected an increase in reserves of
$7.7 million after tax, including involuntary business, for property and
casualty claims occurring in prior years, compared to favorable development of
$1.3 million after tax last year representing approximately 3.7 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 nine months of 2001, the net
interest margin was equal to the prior year and fees and contract charges earned
decreased 13.0%. In the third quarter of 2001, financial market changes had an
adverse impact on variable annuity fees, valuations of deferred policy
acquisition costs and value of acquired insurance in force, and the level of a
guaranteed minimum death benefit reserve established during the quarter. These
factors were offset by the release of reserves for supplementary contracts,
resulting from a systems conversion. Variable annuity accumulated deposits were
$0.9 billion at September 30, 2001, $195.0 million, or 18.7%, less than 12
months earlier. Fixed annuity accumulated cash value of $1.4 billion was $51.4
million, or 3.9%, greater than September 30, 2000.

Life insurance earnings increased compared to the first nine months of
2000 due primarily to an increase in margins in the Company's individual life
business.

In the first nine months 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

Nine Months Ended Growth Over
September 30, Prior Year
------------------- -------------------
2001 2000 Percent Amount
------ ------- ------- ------

Operating income .................... $ 0.52 $ 0.83 -37.3% $(0.31)
Realized investment losses .......... (0.04) (0.06) 0.02
Restructuring reserve adjustment .... - - -
Litigation charges .................. - - -
Adjustment to the provision for
prior years' taxes ................. 0.03 0.07 (0.04)
------ ------ ------
Net income ........................ $ 0.51 $ 0.84 -39.3% $(0.33)
====== ====== ======

Net income, which includes realized investment gains and losses and
non-recurring items, for the first nine months of 2001 decreased by $13.8
million, or 39.9%, and net income per diluted share decreased by 39.3% compared
to the same period in 2000. This change included the $12.6 million decline in
operating income. As discussed above in "Income Tax Expense", net income
reflected resolution of federal income tax exposures which increased net income
by $1.3 million for the nine months ended September 30, 2001 and $2.8 million
for the same period in 2000. After tax realized investment losses were
comparable for the two periods.

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

Status of Litigation Regarding Disability Insurance

In December 2000, the Company recorded an after tax charge of $5.0
million, 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 a class
action 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 provides additional benefits for current policyholders and
compensation to those who demonstrate they did not understand what they
purchased, was approved by the court on October 31, 2001. While the actual costs
incurred by the Company to resolve this litigation 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
approved by the court in October 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.

Recent Developments -- Massachusetts Automobile Business

Horace Mann will cease writing automobile insurance policies in
Massachusetts no later than January 1, 2002, and on October 18, 2001 paid $6.4
million to the Commonwealth Automobile Reinsurers ("C.A.R.") as full payment of
its proportionate liability to C.A.R. for policy years 2002 and beyond. That
payment and other related expenses of approximately $1 million will be reflected
in Horace Mann's financial statements for the fourth quarter of 2001 as a
non-operating income restructuring charge of approximately 12 cents per share.

The Company expects that this transaction will have a positive impact on
operating income of approximately 10 cents per share in 2003 and beyond. The
improvement in 2002 earnings will be somewhat less reflecting the run-off of
current policies in force. The Company plans to utilize the benefits of this
transaction to invest in its marketing, customer service and technology
infrastructures. On a full year basis, the Company's Massachusetts automobile
business has represented premiums written and earned of approximately $28
million. In 2002, premiums written for this business will be reduced to zero,
and premiums earned will be reduced significantly reflecting run-off of the
policies in force at December 31, 2001.

Liquidity and Financial Resources

Investments

The Company's investment strategy emphasizes investment grade, publicly
traded fixed income securities. At September 30, 2001, fixed income securities
represented 95.9% of investments excluding the securities lending collateral. Of
the fixed income investment portfolio, 95.4% was investment grade and 99.8% was
publicly traded. The average quality of the total fixed income portfolio was A+
at September 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 4.8 years at September 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 $9 million more than the first nine 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 nine months of 2001, receipts from annuity contracts
increased 19.5%. Annuity contract maturities and withdrawals decreased $108.3
million, or 44.3%, compared to the same period last year, including decreases of
54.0% and 40.8% in surrenders of variable and fixed annuities, respectively.
Reflecting continued improvement in recent quarterly trends, cash value
retention for variable and fixed annuities was 90.8% and 92.2%, respectively,
for the 12 month period ended September 30, 2001. Net transfers to variable
annuity assets increased $64.9 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 nine months of 2001, consistent with
management's stated intention to utilize excess capital to support the Company's
strategic growth initiatives. In the first nine months of 2000, 1,082,400 shares
were repurchased at an aggregate cost of $15.1 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 September 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 $632.1 million at September 30,
2001, including $99.8 million of long-term debt and $49.0 million of short-term
debt. Total debt represented 25.1% of capital (excluding unrealized investment
gains and losses) at September 30, 2001, which was at the upper end of the
Company's target operating range of 20% to 25%.

Shareholders' equity was $483.3 million at September 30, 2001, including
an unrealized gain in the Company's investment portfolio of $40.5 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 $718.6 million and $17.65, respectively, at September 30,
2001. Book value per share was $11.87 at September 30, 2001, $10.88 excluding
investment market value adjustments. At September 30, 2000, book value per share
was $10.34, $11.14 excluding investment market value adjustments. The increase
over the 12 months included the effects of unrealized investment gains and
losses. Excluding these items, book value per share was slightly lower than 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") (BBB+), 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
and identified the outlook for the rating as "Stable". In April 2001, Fitch
reaffirmed their "A" rating and identified the outlook for the rating as
"Stable". However, as a result of factors impacting the Company's earnings for
the three months ended June 30, 2001, Fitch downgraded the rating to "A-" in
August 2001 and identified the outlook for the rating as "Stable". In August
2001, S&P downgraded their rating to "BBB+" and identified the outlook for the
rating as "Stable".

As of both September 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 0.4%, or 3.0%, as of September
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. As a result of earnings for
the second quarter of 2001, and again based on third quarter 2001 earnings,

the lender agreed to further modify that covenant. Prior to the determination
of second quarter earnings, management had also begun discussions with
representatives of the lender about a possible replacement credit facility to
be implemented prior to the maturity of the existing Bank Credit Facility on
December 31, 2001. At the time of this Report on Form 10-Q, management is in the
final stages of negotiating an extension of the existing Bank Credit Facility
through June 30, 2002. However, management believes that even if such
discussions are not successful, the Company will 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 nine months
ended September 30, 2001 was 4.7x compared to 6.9x for the same period in 2000.

Total shareholder dividends were $12.8 million for the nine months ended
September 30, 2001. In February 2001, May 2001 and August 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 48% of the
coverage and above a retention of $7.5 million per occurrence up to $80 million
per occurrence for the remaining 52% 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. While the Company anticipates that
the cost of its reinsurance coverage will increase as a result of the effects on
the reinsurance market of the September 11, 2001 terrorist attacks, 48% of the
Company's coverage for catastrophe losses has rates which are fixed through
2003. Renewal of the remaining 52% of that coverage is being negotiated as of
the time of this Report on Form 10-Q, and management believes that the rate
increase which will be necessary on that remaining coverage will be manageable.

Insurance Financial Ratings

As disclosed in the 2000 Form 10-K, certain ratings of the Company's
insurance subsidiaries were under review as a result of the Company's earnings
for the three months ended December 31, 2000. Management also 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, these reviews have been completed by all agencies with
the exception of A.M. Best's review of the Company's property and casualty
subsidiaries. While A.M. Best has identified the outlook for the property and
casualty subsidiaries' "A+" ratings as negative, it is not known what further
actions, including possible downgrades of ratings, may occur.

Moody's Investors Service, Inc. ("Moody's") affirmed the Company's
financial strength ratings following the Company's January 2001 preannouncement
of earnings for the three months ended December 31, 2000, and in August 2001
issued an opinion update which again affirmed those ratings. In July 2001,
Moody's assigned a financial strength rating of "A2 (Good)" to Horace Mann
Property and Casualty Insurance Company (formerly Allegiance Insurance Company).
HMLIC, HMIC and TIC are also rated "A2 (Good)" for financial strength by
Moody's.

Fitch, Inc. ("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-". Fitch reaffirmed its "AA-" rating in August 2001 and identified the
outlook for the rating as "Stable".

Standard & Poor's Corporation ("S&P") placed the Company's financial
strength ratings on "CreditWatch with negative implications" in January 2001. In
August 2001, S&P downgraded the Company's financial strength ratings from "AA-"
to "A+" and identified the outlook for the ratings as "Stable".

As of 2001, Horace Mann is one of only two insurance groups that have
been named to The Ward Financial Group's Top 50 for both its property and
casualty and life subsidiaries in each of the last eight years.

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 nine 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 the goodwill impairment testing
prescribed by these statements will have on its consolidated financial position
or results of operations. Amortization of goodwill was $1.2 million for the nine
months ended September 30, 2001 and 2000, and total goodwill amortization for
the year ended December 31, 2000 was $1.6 million.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations", effective for fiscal years beginning after June 15,
2002. The accounting practices in this statement apply to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and (or) the normal operation of a
long-lived asset. This statement will not have a material impact on the Company
because it does not own a significant amount of property and equipment.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", effective for fiscal years
beginning after December 15, 2001. This statement establishes a single
accounting model, based on the framework established in SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", for long-lived assets disposed of by sale, including disposal
of a segment of a business. This statement is not expected to have a material
impact on the Company.

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

None.

Item 6: Exhibits and Reports on Form 8-K

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

(a) The following items are filed as Exhibits. Management
contracts and compensatory plans are indicated by an asterisk
(*).

(10) Material contracts:
10.1 Credit Agreement dated as of December 31, 1996
(the "Bank Credit Facility") among HMEC,
certain banks named therein and Bank of
America National Trust and Savings
Association, as administrative agent (the
"Agent"), incorporated by reference to Exhibit
10.1 to HMEC's Annual Report on Form 10-K for
the year ended December 31, 1996, filed with
the Securities and Exchange Commission on
March 26, 1997.

10.1(a) Waiver Relating to Credit Agreement,
incorporated by reference to Exhibit 10.1(b)
to HMEC's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2001, filed with
the Securities and Exchange Commission on
May 14, 2001.

10.1(b) Waiver Relating to Credit Agreement.
10.1(c) Waiver Relating to Credit Agreement.
10.2* Horace Mann Educators Corporation 2001 Stock
Incentive Plan.
10.2(a)* Specimen Employee Stock Option Agreement
under the Horace Mann Educators Corporation
2001 Stock Incentive Plan.
10.2(b)* Specimen Director Stock Option Agreement
under the Horace Mann Educators Corporation
2001 Stock Incentive Plan.
(11) Statement re computation of per share earnings.

(b) No reports on Form 8-K were filed by the Company during the
third 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 November 13, 2001 /s/ Louis G. Lower II
------------------------- -----------------------------------------
Louis G. Lower II
President and Chief Executive Officer

Date November 13, 2001 /s/ Peter H. Heckman
------------------------- -----------------------------------------
Peter H. Heckman
Executive Vice President
and Chief Financial Officer

Date November 13, 2001 /s/ Thomas K. Manion
------------------------- -----------------------------------------
Thomas K. Manion
Senior Vice President
and Controller