================================================================================

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, 1998
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to

Commission file number 1-10890

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

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

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

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

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

As of October 31, 1998, 42,531,594 shares of Common Stock, par value $0.001
per share, were outstanding, net of 16,739,596 shares of treasury stock.

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HORACE MANN EDUCATORS CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 1998

INDEX

Page
----
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997.................. 1

Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1998 and 1997... 2

Consolidated Statements of Changes in Shareholders'
Equity for the Nine Months Ended September 30, 1998
and 1997.................................................. 3

Consolidated Statements of Cash Flows for the
Three and Nine Months Ended September 30, 1998 and 1997... 4

Notes to Consolidated Financial Statements................. 5

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 12

PART II - OTHER INFORMATION............................................... 23

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

Item 6. Exhibits and Reports on Form 8-K

SIGNATURES................................................................ 24

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

September 30, December 31,
1998 1997
------------- ------------

ASSETS
Investments
Fixed maturities, available for sale, at market
(amortized cost, 1998, $2,518,978; 1997, $2,535,538)........ $2,643,010 $2,638,794
Short-term and other investments............................. 130,421 130,252
Short-term investments, loaned securities collateral......... 77,510 -
---------- ----------
Total investments....................................... 2,850,941 2,769,046
Cash.......................................................... 12,799 353
Accrued investment income and premiums receivable............. 98,670 103,951
Value of acquired insurance in force and goodwill............. 102,383 107,976
Deferred policy acquisition costs............................. 94,166 85,883
Other assets.................................................. 121,897 104,943
Variable annuity assets....................................... 999,545 959,760
---------- ----------
Total assets........................................... $4,280,401 $4,131,912
========== ==========
LIABILITIES, REDEEMABLE SECURITIES AND SHAREHOLDERS' EQUITY

Policy liabilities
Fixed annuity contract liabilities........................... $1,228,206 $1,245,459
Interest-sensitive life contract liabilities................. 392,505 364,205
Unpaid claims and claim expenses............................. 315,148 322,335
Future policy benefits....................................... 179,570 179,562
Unearned premiums............................................ 179,816 166,996
---------- ----------
Total policy liabilities............................... 2,295,245 2,278,557
Other policyholder funds...................................... 125,777 122,107
Other liabilities............................................. 209,300 126,847
Short-term debt............................................... 45,000 42,000
Long-term debt................................................ 99,627 99,599
Variable annuity liabilities.................................. 996,195 956,253
---------- ----------
Total liabilities...................................... 3,771,144 3,625,363
---------- ----------

Warrants, subject to redemption............................... 220 577
---------- ----------

Preferred stock............................................... - -
Common stock.................................................. 59 59
Additional paid-in capital.................................... 336,649 340,564
Retained earnings............................................. 401,911 349,274
Accumulated other comprehensive income (Net
unrealized gains on fixed maturities and equity securities).. 71,664 62,167
Treasury stock, at cost....................................... (301,246) (246,092)
---------- ----------
Total shareholders' equity.............................. 509,037 505,972
---------- ----------
Total liabilities, redeemable
securities, and shareholders' equity............... $4,280,401 $4,131,912
========== ==========

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,
------------------ -------------------
1998 1997 1998 1997
-------- -------- -------- --------

Insurance premiums written and contract deposits.. $209,686 $188,911 $616,705 $563,834
======== ======== ======== ========

Revenues
Insurance premiums and
contract charges earned........................ $144,536 $135,078 $429,094 $402,385
Net investment income............................ 47,781 49,271 144,458 148,979
Realized investment gains........................ 4,247 1,585 13,599 3,230
-------- -------- -------- --------
Total revenues............................... 196,564 185,934 587,151 554,594
-------- -------- -------- --------

Benefits, losses and expenses
Benefits, claims and settlement expenses......... 96,563 89,925 301,308 271,714
Interest credited................................ 23,495 24,227 71,426 73,082
Policy acquisition expenses amortized............ 11,015 10,937 34,149 33,035
Operating expenses............................... 27,057 27,484 80,684 77,090
Amortization of intangible assets................ 1,856 2,666 5,593 8,077
Interest expense................................. 2,394 1,842 7,098 7,067
-------- -------- -------- --------
Total benefits, losses and expenses.......... 162,380 157,081 500,258 470,065
-------- -------- -------- --------

Income from continuing operations before income
taxes and discontinued operations................ 34,184 28,853 86,893 84,529
Income tax expense................................ 9,251 7,376 23,853 22,756
-------- -------- -------- --------
Income from continuing operations................. 24,933 21,477 63,040 61,773
Discontinued operations:
Loss on discontinuation, net of
applicable income tax benefits................. - (3,481) - (3,481)
-------- -------- -------- --------

Net income........................................ $ 24,933 $ 17,996 $ 63,040 $ 58,292
======== ======== ======== ========

Earnings (loss) per share
Basic
Income from continuing operations.............. $ 0.58 $ 0.48 $ 1.45 $ 1.34
Discontinued operations:
Loss on discontinuation...................... - (0.08) - (0.08)
-------- -------- -------- --------
Net income..................................... $ 0.58 $ 0.40 $ 1.45 $ 1.26
======== ======== ======== ========
Diluted
Income from continuing operations.............. $ 0.57 $ 0.46 $ 1.43 $ 1.31
Discontinued operations:
Loss on discontinuation...................... - (0.07) - (0.07)
-------- -------- -------- --------
Net income..................................... $ 0.57 $ 0.39 $ 1.43 $ 1.24
======== ======== ======== ========

Weighted average number of shares
and equivalent shares (in thousands)
Basic.......................................... 42,811 45,170 43,523 46,222
Diluted........................................ 43,413 45,902 44,141 46,899

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,
----------------------
1998 1997
---------- ----------

Common stock
Beginning balance.......................................... $ 59 $ 58
Options exercised, 1998, 110,182 shares;
1997, 726,424 shares..................................... - 1
Conversion of Director Stock Plan units,
1997, 2,288 shares....................................... - -
--------- ---------
Ending balance............................................. 59 59
--------- ---------

Additional paid-in capital
Beginning balance.......................................... 340,564 330,234
Options exercised and conversion of
Director Stock Plan units................................ 2,163 11,742
Catastrophe-linked equity put option premium............... (1,475) (1,250)
Purchase of 13,650 warrants................................ (4,603) -
--------- ---------
Ending balance............................................. 336,649 340,726
--------- ---------

Retained earnings
Beginning balance.......................................... 349,274 278,669
Net income................................................. 63,040 58,292
Cash dividends, 1998, $0.24 per share;
1997, $0.2025 per share.................................. (10,403) (9,402)
--------- ---------
Ending balance............................................. 401,911 327,559
--------- ---------

Accumulated other comprehensive income (Net unrealized
gains (losses) on fixed maturities and equity securities)
Beginning balance........................................ 62,167 29,736
Increase (decrease) for the period....................... 9,497 21,178
--------- ---------
Ending balance........................................... 71,664 50,914
--------- ---------

Treasury stock, at cost
Beginning balance, 1998, 14,896,796 shares;
1997, 11,176,196 shares.................................. (246,092) (154,302)
Purchase of 1,706,600 shares in 1998;
2,899,600 shares in 1997 (See note 4).................... (55,154) (68,598)
--------- ---------
Ending balance, 1998, 16,603,396 shares;
1997, 14,075,796 shares.................................. (301,246) (222,900)
--------- ---------

Shareholders' equity at end of period....................... $ 509,037 $ 496,358
========= =========

Comprehensive income
Net income................................................. $ 63,040 $ 58,292
Other comprehensive income................................. 9,497 21,178
--------- ---------
Total.................................................... $ 72,537 $ 79,470
========= =========

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,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------

Cash flows from operating activities
Premiums collected............................ $ 158,449 $ 154,356 $ 465,640 $ 462,657
Policyholder benefits paid.................... (122,320) (116,508) (349,063) (353,003)
Policy acquisition and other
operating expenses paid..................... (43,646) (44,727) (135,613) (126,977)
Federal income taxes paid..................... (4,200) (2,626) (24,600) (46,703)
Investment income collected................... 50,655 53,111 150,139 152,853
Interest expense paid......................... (3,549) (3,860) (8,164) (8,423)
Other......................................... (3,678) (1,603) (3,160) (4,354)
--------- --------- --------- ---------
Net cash provided by
operating activities.................... 31,711 38,143 95,179 76,050
--------- --------- --------- ---------

Cash flows from investing activities
Fixed maturities
Purchases................................... (146,416) (189,029) (629,562) (768,418)
Sales....................................... 91,873 191,994 386,322 648,621
Maturities.................................. 85,698 42,679 282,613 173,986
Net cash (used for) received from
short-term and other investments............ (33,857) (30,245) 148 (9,056)
--------- --------- --------- ---------
Net cash provided by
(used in)investing activities........... (2,702) 15,399 39,521 45,133
--------- --------- --------- ---------

Cash flows from financing activities
Purchase of treasury stock.................... (10,059) (7,163) (55,154) (68,598)
Dividends paid to shareholders................ (3,416) (3,047) (10,403) (9,402)
Principal borrowing
on Bank Credit Facility..................... - - 3,000 8,000
Repurchase of common stock warrants........... - - (4,959) -
Exercise of stock options..................... 273 2,270 2,163 11,743
Catastrophe-linked equity put option premium.. - - (1,475) (1,250)
Annuity contracts, variable and fixed
Deposits.................................... 49,914 42,165 167,313 143,947
Maturities and withdrawals.................. (49,127) (51,951) (140,855) (122,061)
Net transfer to variable annuity assets..... (15,454) (29,938) (81,874) (84,005)
Net increase (decrease) in
life policy account balances................ 194 144 (10) 1,137
--------- --------- --------- ---------
Net cash used in financing activities..... (27,675) (47,520) (122,254) (120,489)
--------- --------- --------- ---------

Net increase in cash........................... 1,334 6,022 12,446 694
Cash at beginning of period.................... 11,465 8,376 353 13,704
--------- --------- --------- ---------
Cash at end of period.......................... $ 12,799 $ 14,398 $ 12,799 $ 14,398
========= ========= ========= =========

See accompanying notes to consolidated financial statements.

HORACE MANN EDUCATORS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and 1997
(Dollars in thousands)

Note 1 - Basis of Presentation

The accompanying unaudited consolidated financial statements of Horace Mann
Educators Corporation (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 generally accepted accounting principles 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,
1998 and December 31, 1997 and the consolidated results of operations, changes
in shareholders' equity and cash flows for the three and nine months ended
September 30, 1998 and 1997.

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, 1997 Form 10-K.

The results of operations for the three and nine months ended September 30,
1998 are not necessarily indicative of the results to be expected for the full
year.

Note 2 - Debt

Indebtedness outstanding was as follows:

September 30, December 31,
1998 1997
------------- ------------

Short-term debt:
$65,000 Bank Credit Facility, IBOR + 0.325%
(5.6% as of September 30, 1998)............ $ 45,000 $ 42,000
Long-term debt:
6 5/8% Senior Notes, due January 15, 2006.
Face amount less unaccrued discount
of $373 and $401 (6.7% imputed rate)....... 99,627 99,599
-------- --------
Total.................................... $144,627 $141,599
======== ========

Note 3 - 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, 1998
---------------------------- ----------------------
Rating of Fixed September 30, December 31, Carrying Amortized
Maturity Securities(1) 1998 1997 Value Cost
- ------------------------ ------------- ------------ ---------- ----------

AAA............... 43.7% 42.7% $1,154,772 $1,097,282
AA................ 7.8 7.1 206,755 194,701
A................. 19.1 20.3 505,207 475,961
BBB............... 23.0 23.3 607,365 579,342
BB................ 1.4 1.6 36,435 34,550
B................. 4.0 4.0 106,144 107,962
CCC or lower...... 0.1 0.1 2,107 4,795
Not rated(2)...... 0.9 0.9 24,225 24,385
----- ----- ---------- ----------
Total........... 100.0% 100.0% $2,643,010 $2,518,978
===== ===== ========== ==========

(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 $16.5 million of publicly traded securities not
currently rated by S&P or Moody's and $7.7 million of private placement
securities not rated by either S&P or Moody's. The National Association of
Insurance Commissioners (the "NAIC") has rated 88.9% of these private
placements as investment grade.

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

Percent Carrying
of Total Value
--------------------------- -------------
September 30, December 31, September 30,
Scheduled Maturity 1998 1997 1998
- ------------------ ------------ ------------ -------------

Due in 1 year or less................ 5.1% 5.6% $ 134,324
Due after 1 year through 5 years..... 24.2 24.2 640,728
Due after 5 years through 10 years... 31.7 34.8 836,585
Due after 10 years through 20 years.. 19.2 19.6 508,144
Due after 20 years................... 19.8 15.8 523,229
----- ----- ----------
Total.............................. 100.0% 100.0% $2,643,010
===== ===== ==========

The Company loans fixed income securities to third parties, primarily major
brokerage firms. As of September 30, 1998 and December 31, 1997, fixed
maturities with a fair value of $77,510 and $60,388, respectively, were loaned.
The Company separately maintains a minimum of 100%

Note 3 - Investments-(Continued)

of the value of the loaned securities as collateral for each loan. Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities," requires the securities lending collateral
to be classified as investments beginning in 1998 and does not permit
restatement of prior period financial statements. As of September 30, 1998, the
corresponding liability is included in Other Liabilities in the Company's
consolidated balance sheet.

Note 4 - Shareholders' Equity

Share Repurchase Programs

During 1997, the Company repurchased 3,720,600 shares, 8% of the Company's
outstanding shares at December 31, 1996, at an aggregate cost of $91,790 under a
$100,000 stock repurchase program announced in February 1997. In January 1998,
the Company's Board of Directors authorized an additional repurchase of shares
of the Company's common stock up to $100,000. Based on the market price of the
Company's common shares at the time, $100,000 represented approximately 8% of
the Company's then outstanding shares. Shares of common stock may be purchased
from time to time through open market and private purchases, as available. The
repurchase of shares is financed through use of cash and, if needed, the Bank
Credit Facility.

During the nine months ended September 30, 1998, the Company repurchased
1,706,600 shares at an aggregate cost of $55,154 which was financed with cash
from operations.

Note 5 - Value of Annuity Business Acquired

The value of annuity business acquired was recorded as an asset as a result
of the application of purchase accounting at the time the Company was acquired
in 1989 and that asset is being amortized over 20 years in proportion to
projected future gross profits of that business. Significant appreciation and
the resultant growth in annuity assets and the retention of the Company's
annuity business in recent years have favorably impacted projected future gross
profits for the business. Therefore, scheduled annual amortization of the
December 31, 1997 balance has been revised as follows: 1998, $2,494; 1999,
$2,494; 2000, $3,855; 2001, $3,732; and 2002, $3,523. Such amounts will be
evaluated at least annually and amortization schedules updated as indicated. At
September 30, 1998, the value of annuity business acquired, net of amortization,
was $31,681.

Note 6 - Income Taxes

The Internal Revenue Service (the "IRS") regularly audits the Company's
federal income tax returns and is currently conducting an audit of the Company's
1994 and 1995 tax returns. As a result of this audit, certain tax benefits which
the Company has realized in the past will not be available to the Company after
1998. In addition, in the course of the current audit, the IRS is taking the
position thus far that it is not bound by certain documented understandings
contained in the Revenue Agent's Reports (the "RARs") pertaining to the audits
of the Company's 1989 through 1993 tax returns. The Company is vigorously
contesting the IRS' position and believes the IRS should honor the
understandings documented in the RARs. The Company's tax advisors, KPMG Peat
Marwick LLP, concur with the Company's interpretation of the RARs. The outcome
of this matter is uncertain. Therefore, the Company has not accrued a liability
in its financial statements with regard to this matter. The maximum amount of
additional taxes, with respect to the 1994 through 1998 tax years, if any, that
might be due as a result of the resolution of this matter would be less than 5%
of the Company's shareholders' equity as of June 30, 1998. Such additional
taxes, if any, would increase the Company's effective corporate tax rate only in
the year of payment of such taxes.

Note 7 - Comprehensive Income

Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
display of comprehensive income. Comprehensive income represents the change in
shareholders' equity during a reporting period from transactions and other
events and circumstances from non-shareholder sources. For the Company,
comprehensive income is equal to net income plus the change in net unrealized
gains and losses on fixed maturities and equity securities for the period as
shown in the Statement of Changes in Shareholders' Equity in prior periods. The
adoption of SFAS No. 130 resulted in revised and additional disclosures but had
no effect on the financial position, results of operations, or liquidity of the
Company.

Note 8 - Reinsurance

The Company recognizes the cost of reinsurance premiums over the contract
periods for such premiums in proportion to the insurance protection provided.
Amounts recoverable from reinsurers for unpaid claims and claim settlement
expenses, including estimated amounts for unsettled claims, claims incurred but
not 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, 1998
------------------------

Premiums written........ $212,259 $ 7,446 $ 4,873 $209,686
Premiums earned......... 147,150 7,068 4,454 144,536
Benefits, claims and
settlement expenses... 104,477 12,244 4,330 96,563

Three months ended
September 30, 1997
------------------------

Premiums written........ $195,463 $ 6,429 $ (123) $188,911
Premiums earned......... 136,904 6,035 4,209 135,078
Benefits, claims and
settlement expenses... 94,065 7,961 3,821 89,925

Nine months ended
September 30, 1998
------------------------

Premiums written........ $622,946 $19,903 $13,662 $616,705
Premiums earned......... 435,145 18,864 12,813 429,094
Benefits, claims and
settlement expenses... 321,819 31,251 10,740 301,308

Nine months ended
September 30, 1997
------------------------

Premiums written........ $572,842 $17,390 $ 8,382 $563,834
Premiums earned......... 402,404 16,011 15,992 402,385
Benefits, claims and
settlement expenses... 280,178 25,169 16,705 271,714

Note 8 - Reinsurance-(Continued)

The Company maintains an excess and catastrophe treaty reinsurance program
for its property and casualty subsidiaries. The Company reinsures 95% of
catastrophe losses above a retention of $7.5 million up to $80 million for each
catastrophe in 1998. This program is augmented by a $100 million equity put that
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, individually or in the aggregate during a calendar year, 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. The fee for the equity put has been
charged directly to additional paid-in capital. For liability coverages,
including the educator professional liability policy, the Company reinsures each
loss above a retention of $0.5 million up to $20 million. The Company also
reinsures each property loss above a retention of $0.5 million up to $1.5
million.

Note 9 - Segment Information

Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131 specifies
the presentation and disclosure of operating segment information reported in the
annual and interim reports issued to shareholders and requires that reported
segment information be consistent with what the Company's management uses to
make operating decisions and assess performance. The adoption of SFAS No. 131
had no effect on the financial position, results of operations, or liquidity of
the Company. Adoption of SFAS No. 131 resulted in no changes in the way the
Company has reported its segment results with the exception of realized
investment gains and losses which are managed in the aggregate and accordingly
have been reclassified to the Corporate and Other segment. Segment information
for prior periods has been restated to conform to this presentation.

The Company's operations include the following operating segments: property
and casualty, annuity and life insurance. The property and casualty insurance
segment includes primarily personal lines automobile and homeowners products.
The annuity segment includes primarily fixed and variable tax-qualified annuity
products. The life insurance segment includes primarily interest-sensitive life
and traditional life products.

Note 9 - Segment Information-(Continued)

Summarized financial information for these segments is as follows:

Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- -----------

Revenues
Property and casualty........... $129,254 $121,246 $382,515 $ 363,396
Annuity......................... 30,764 31,538 92,731 94,042
Life............................ 32,554 31,590 98,433 93,673
Corporate and other, including
realized investment gains..... 4,264 1,836 14,290 4,312
Intersegment eliminations....... (272) (276) (818) (829)
-------- -------- -------- ----------
Total..................... $196,564 $185,934 $587,151 $ 554,594
======== ======== ======== ==========

Net income
Operating income
Property and casualty......... $ 15,401 $ 13,967 $ 35,767 $ 42,957
Annuity....................... 5,886 5,137 16,950 13,923
Life.......................... 3,410 3,544 8,944 9,412
Corporate and other,
including interest expense.. (2,524) (2,202) (7,460) (6,619)
-------- -------- -------- ----------
Total operating income.... 22,173 20,446 54,201 59,673
Realized investment gains,
after tax..................... 2,760 1,031 8,839 2,100
Discontinued operations:
Loss on discontinuation....... - (3,481) - (3,481)
-------- -------- -------- ----------
Total..................... $ 24,933 $ 17,996 $ 63,040 $ 58,292
======== ======== ======== ==========

September 30, December 31,
1998 1997
------------- ------------

Assets
Property and casualty........... $ 754,804 $ 742,487
Annuity......................... 2,608,594 2,531,309
Life............................ 851,231 777,488
Corporate and other............. 94,472 125,624
Intersegment eliminations....... (28,700) (44,996)
---------- ----------
Total..................... $4,280,401 $4,131,912
========== ==========

Revenues include insurance premiums and contract charges earned, net
investment income and realized investment gains and losses. Operating income is
equal to income from continuing operations before realized investment gains,
after tax.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in millions)

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 effecting 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 effecting corporate tax rates or taxable income, and regulations
changing the relative tax advantages of the Company's life and annuity
products to customers.

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

. Adverse changes in policyholder mortality and morbidity rates.

Nine Months Ended September 30, 1998 Compared With Nine Months Ended September
30, 1997

The combined results of the last four quarters represent a solid 18% return
on equity. Results could have been even better but for a series of severe storms
during the second quarter that produced a record level of catastrophe claims for
that quarter for the property-casualty insurance industry and for Horace Mann.

Insurance Premiums and Contract Charges

Insurance Premiums Written and Contract Deposits

Nine Months Ended Increase (Decrease)
September 30, from Prior Year
----------------- -------------------
1998 1997 Percent Amount
-------- ------- ---------- -------

Automobile and property
(voluntary).............. $345.3 $321.1 7.5% $24.2
Annuity deposits........... 167.3 143.9 16.3% 23.4
Life insurance............. 83.9 81.9 2.4% 2.0
------ ------ -----
Subtotal - core lines.. 596.5 546.9 9.1% 49.6
Involuntary and other
property & casualty...... 20.2 16.9 19.5% 3.3
------ ------ -----
Total.................. $616.7 $563.8 9.4% $52.9
====== ====== =====

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

Nine Months Ended Increase (Decrease)
September 30, from Prior Year
----------------- -------------------
1998 1997 Percent Amount
-------- ------- -------- ---------

Automobile and property
(voluntary).............. $335.4 $312.1 7.5% $23.3
Annuity.................... 11.5 8.9 29.2% 2.6
Life....................... 64.4 61.9 4.0% 2.5
------ ------ -----
Subtotal - core lines.. 411.3 382.9 7.4% 28.4
Involuntary and other
property & casualty...... 17.8 19.5 -8.7% (1.7)
------ ------ -----
Total.................. $429.1 $402.4 6.6% $26.7
====== ====== =====

Insurance premiums written and contract deposit growth of 9.4% was
principally driven by higher agent productivity and the continuing growth in our
agent force. Bolstering the productivity gains, the number of experienced agents
was 3.9% higher than last September 30. In total, we ended the quarter with
1,059 exclusive full-time agents compared to 1,035 agents 12 months earlier.

The growth in new annuity deposits of 16.3% included a 28.8% increase in new
deposits to variable mutual fund annuities and represented the 13th consecutive
quarter of double-digit growth. Variable annuity accumulated deposits were $1
billion, $63 million more than a year ago, a 6.7% increase. The number of
annuity contracts in force increased 7.3%, or 8,000 contracts,

compared to last September 30. During the first quarter, we introduced new IRA
annuities in response to recent tax legislation. While the 403(b) annuity
remains a better alternative for most educators, initial sales of these IRA
annuities generated 2.9 percentage points of the 16.3% growth in new annuity
deposits. The new IRA retirement options have created heightened customer
interest and an excellent opportunity for agents to meet with both potential and
existing customers. Beginning in March 1997, three additional mutual funds - a
small cap fund, an international equity fund, and a socially responsible fund -
were made available to annuity customers. At September 30, 1998, there were
nearly $60 million of customer deposits in these three new funds.

Voluntary automobile and home insurance premium growth was 7.5% for the
first nine months of the year. Automobile insurance premium increased 6.8%, or
$17.2 million, compared to last year, and home insurance premium increased
10.1%, or $7.0 million. Approximately half of the property and casualty increase
resulted from unit growth of 3.7% bringing quarter end policies in force to
859,000. The number of property and casualty policies in force has shown steady
growth for 12 consecutive quarters. The Company's average annual premium per
policy for both automobile and home insurance increased approximately 4%
compared to a year earlier. For home insurance, the Company's average effective
premium per policy increased 7% compared to the first nine months of 1997
including the impact of increased deductibles and reduced coverage in coastal
areas.

Life premium growth was 2.4% for the first nine months. This growth included
new business from term life products introduced early in 1997.

Retention of business continues to be strong in each of our segments. Over
the last 12 months based on policies in force, the property and casualty
retention rate was 89%, life insurance 95% and annuity 94%. The life retention
rate was equal to last year, while annuity and property and casualty were 0.5
and 0.7 percentage points, respectively, less than a year ago. The annuity
decline was due to retention of 92% on a large block of older contracts that
attained a no-penalty surrender option during the last half of 1997. Property
and casualty retention is less than a year ago influenced by premium rate
increases implemented during the past 12 months.

Net Investment Income

Investment income of $144.5 million for the nine months decreased 3.0%, or
$4.5 million, compared to last year due primarily to a decrease in the
investment portfolio. Average investments (excluding the securities lending
collateral) decreased 2.0% over the past 12 months reflecting the utilization of
capital for the share repurchase program and customers' preference for variable
as opposed to fixed annuity contracts. Approximately $3 million of the
investment income decrease was offset by a decline in interest credited to fixed
annuity deposits, moderating the effect on operating earnings. Excluding the
effect of the share repurchase program, net investment income would have been
$151.1 million, a slight increase compared to the first nine months of 1997. The
pretax yield on average investments was 7.3% (4.8% after tax) for the first nine
months of 1998 compared to a pretax yield of 7.4% (4.9% after tax) last year.

Realized Investment Gains and Losses

The higher level of realized gains in 1998 represents an increase in fixed
maturity security calls and tenders in the current low interest rate
environment.

Benefits, Claims and Settlement Expenses

Nine Months Ended Increase (Decrease)
September 30, from Prior Year
------------------- ------------------
1998 1997 Percent Amount
--------- -------- ------- ------

Property and casualty.... $269.2 $243.3 10.6% $25.9
Life..................... 32.1 28.4 13.0% 3.7
------ ------ -----
Total.................. $301.3 $271.7 10.9% $29.6
====== ====== =====

Property and casualty
statutory loss ratio:
Before catastrophes.. 69.0% 71.5% -2.5%
After catastrophes... 76.3% 73.4% 2.9%

Improvements in non-weather related frequency and severity of claims were
reflected in a lower property and casualty loss ratio before catastrophes
despite a decrease in the favorable development of claims occurring in prior
years of $22.0 million in 1998 compared to $39.2 million in 1997.

Severe weather-related losses in the first nine months of 1998 more than
offset these underwriting improvements. A series of severe storms struck the
Northern Plains, Upper Midwest, Southeast and Northeast during the second
quarter of 1998, with Minnesota being the hardest hit state, resulting in a
record level of weather-related catastrophe claims for the property-casualty
insurance industry and for the Company. Catastrophe losses in Minnesota during
this period were the worst in that state's history for the industry as well as
the Company.

The increase in life benefits reflected higher individual life mortality
experience compared to the first nine months of 1997.

Interest Credited to Policyholders

Nine Months Ended Increase (Decrease)
September 30, from Prior Year
------------------ -------------------
1998 1997 Percent Amount
-------- ------- -------- ------

Annuity................. $54.4 $57.7 -5.7% $(3.3)
Life.................... 17.0 15.4 10.4% 1.6
----- ----- -----
Total................. $71.4 $73.1 -2.3% $(1.7)
===== ===== =====

Interest credited to fixed annuity contracts decreased as average
accumulated deposits decreased 2.5% over the 12 months ended September 30, 1998.
The fixed annuity average annual interest rate credited was 5.5% in 1998,
compared to a rate of 5.6% last year. Life insurance interest credited increased
as a result of continued growth in the interest-sensitive whole life insurance
reserves.

Policy Acquisition and Operating Expenses

Policy acquisition and operating expenses represent the Company's insurance
underwriting expenses. For 1998, policy acquisition and operating expenses
increased $4.8 million, or 4.4%, compared to last year. The property and
casualty expense ratio, one of the best in the industry, was 18.9% for the nine
months ended September 30, 1998, compared to 19.3% last year.

At the beginning of 1998, the Company adopted the accounting treatment
required by the American Institute of Certified Public Accountants' Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." It is anticipated that adoption of this statement
will initially decrease the Company's operating expenses by approximately $2.5
million before income taxes for 1998 as costs incurred to develop internal-use
software are capitalized and depreciated over their expected useful lives. For
the first nine months, capitalized costs were $1.7 million before income taxes,
approximately $0.02 per share.

Income Tax Expense

The effective income tax rate was 27.5% for the first nine months of 1998
compared to 26.9% for the same period last year. Income from investments in tax-
advantaged securities reduced the effective income tax rate 4 and 3 percentage
points in 1998 and 1997, respectively. Acquisition related tax benefits that are
not expected to recur in future years, as explained below, reduced the effective
rate 6 percentage points in the nine months ended September 30, 1998 and 1997.

The Company filed a Current Report on Form 8-K dated October 29, 1998 that
read as follows:

In addition, in the course of the current audit, the IRS is
taking the position thus far that it is not bound by certain
documented understandings contained in the Revenue Agent's
Reports (the "RARs") pertaining to the audits of the Company's
1989 through 1993 tax returns. The Company is vigorously
contesting the IRS' position and believes the IRS should honor
the understandings documented in the RARs. The Company's tax
advisors, KPMG Peat Marwick LLP, concur with the

Company's interpretation of the RARs. The outcome of this
matter is uncertain. Therefore, the Company has not accrued
a liability in its financial statements with regard to this
matter. The maximum amount of additional taxes, with respect
to the 1994 through 1998 tax years, if any, that might be
due as a result of the resolution of this matter would be
less than 5% of the Company's shareholders' equity as of
June 30, 1998. Such additional taxes, if any, would increase
the Company's effective corporate tax rate only in the year
of payment of such taxes.

Operating Income

For the first nine months of 1998 excluding the impact of catastrophes,
operating income (income from continuing operations before realized investment
gains and losses) increased 11.1%. The Company's after-tax catastrophe losses
through the first nine months exceeded the previous high for a full year -- and
came on the heels of a year in which our catastrophe losses were at near-record
lows. Current year earnings and investment income were also reduced compared to
last year due to the utilization of capital in the Company's share repurchase
programs. Operating income by segment was as follows:

Nine Months Ended Increase (Decrease)
September 30, from Prior Year
------------------ -------------------
1998 1997 Percent Amount
------- -------- ------- -------

Property & casualty:
Before catastrophe losses......... $ 52.4 $ 47.1 11.3% $ 5.3
Catastrophe losses, after tax..... (16.7) (4.1) -307.3% (12.6)
------ ------ ------
35.7 43.0 -17.0% (7.3)
Annuity............................ 17.1 13.9 23.0% 3.2
Life............................... 8.9 9.4 -5.3% (0.5)
Corporate and other................ (2.9) (2.0) (0.9)
Interest expense................... (4.6) (4.6) -
------ ------ ------
Total............................ $ 54.2 $ 59.7 -9.2% $ (5.5)
====== ====== ======
Total before catastrophe losses.. $ 70.9 $ 63.8 11.1% $ 7.1
====== ====== ======

Property and casualty
statutory combined ratio:
Before catastrophes.............. 87.8% 90.8% -3.0%
After catastrophes............... 95.1% 92.7% 2.4%

Property and casualty segment operating income was primarily impacted by
the significant increase in weather-related catastrophe losses. The property and
casualty combined loss and expense ratio for 1998 reflected the higher weather-
related claims partially offset by an improvement in underwriting results.
Property and casualty segment operating income was also adversely affected by a
reduction in investment income in the first nine months of 1998 as compared to
the same period in 1997 which resulted from utilization of capital of the
Company in its share repurchase program. Despite higher catastrophe losses,
automobile results for the nine months produced a combined ratio of 87.7%, 3.3
percentage points better than last year. Automobile current year claim severity
is less than last year and rate increases are keeping pace with loss costs. Due
to unprecedented levels of weather-related losses, the property combined ratio
of 123.7% was 28.6 percentage points higher than last year. In the first nine
months of last year, we experienced very little weather-related losses as
unusually mild weather prevailed across the country.

Strong growth in variable annuity deposits produced excellent annuity
earnings which increased compared to last year. The interest margin on fixed
annuity deposits was comparable to a year ago, while fees collected on variable
annuity business have grown by 29.2% compared to the first nine months of 1997
as a result of growth in the variable annuity business. Annuity segment profit
continues to shift from the interest margin on fixed annuity accumulations to
fees on variable mutual fund deposits. Variable annuity deposits were $1.0
billion at September 30, 1998.

Net Income

Net income, which includes realized investment gains and discontinued
operations, for the first nine months of 1998 reflected an 8.1% increase in net
income and a 15.3% increase in net income per diluted share compared to 1997.
The Company's share repurchase program reduced net income by $4.3 million for
1998 but resulted in an increase of $0.03 in earnings per share for the period.

Net income for the three and nine months ended September 30, 1997 included
an after tax charge of $3.5 million, or $0.07 per share, for anticipated
additional losses during the remainder of the phase-out period as a result of
accelerating the timetable for the Company's withdrawal from the group medical
insurance business and higher-than-expected claims. As of August 31, 1998, all
of the group medical business was terminated.

Liquidity and Financial Resources

Investments

The Company's investment strategy emphasizes investment grade, publicly
traded fixed income securities. At September 30, 1998, fixed income securities
represented 95.3% of investments excluding the securities lending collateral. Of
the fixed income investment portfolio, 93.6% was investment grade and 99.7% was
publicly traded. The average quality of the total fixed income portfolio was A+
at September 30, 1998.

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 4.2 years at September 30, 1998 and 4.3 years
at December 31, 1997. 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 75% 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. Net cash
provided by operating activities increased compared to the first nine months of
1997 primarily due to a decrease in federal income tax payments. In both years,
cash provided by operating activities primarily reflected net cash generated by
the insurance subsidiaries.

Payment of principal and interest on debt, fees related to the catastrophe-
linked equity put option, 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 1998 without prior approval are approximately $82
million. Although regulatory restrictions exist, dividend availability from
subsidiaries has been, and is expected to be, more than 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 maturities portfolio as available for
sale.

Financing Activities

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

For the first nine months of 1998, receipts from annuity contracts were
greater than contract maturities and withdrawals and net transfers to variable
annuity assets decreased compared to last year. Life policy account balances
were equal to last December.

Through September, the Company repurchased 1,706,600 shares of its common
stock at a cost of $55.2 million, or an average cost of $32.32 per share. $8
million of those purchases completed the $100 million share repurchase
authorization announced in 1997 and the remainder was acquired under an
additional $100 million share repurchase authorization announced in January
1998. Since early 1997, 5,427,200 shares, or 11% of the shares outstanding on
December 31, 1996, have been repurchased at a cost of $146.9 million, an average
cost of $27.08 per share. The repurchase of these shares was financed with cash
from operations. As of September 30, 1998, $53 million remained authorized for
share repurchases. During the nine

months ended September 30, 1998, the Company received $2.2 million related to
the exercise of common stock options including tax benefits. During the second
quarter of 1998, the Company also repurchased 60% of its outstanding common
stock warrants for $5.0 million.

Capital Resources

Historically, the Company's insurance subsidiaries have generated capital in
excess of what has been needed to fund business growth. These excess amounts
have been paid to HMEC through dividends. HMEC has then utilized these dividends
and its access to the capital markets to retire long-term debt, repurchase
shares of its common stock, increase and pay dividends to its shareholders 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 total capital of the Company was $653.8 million at September 30, 1998,
including $99.6 million of long-term debt and $45.0 million of short-term debt.
Total debt represented 22.1% of capital at the end of September, within the
Company's target operating range of 20% to 25%.

Shareholders' equity was $509.0 million at September 30, 1998, including an
unrealized gain in the Company's investment portfolio of $71.7 million after
taxes and the related impact on deferred policy acquisition costs associated
with annuity and interest-sensitive life policies. In December 1997, the
Company's common stock was split two-for-one. The market value of the Company's
common stock and the market value per share were $1,280.0 million and $30,
respectively, at September 30, 1998. Book value per share was $11.93 at
September 30, 1998, $10.25 excluding investment market value adjustments.

In January 1996, the Company issued $100.0 million face amount of 6 5/8%
Senior Notes ("Senior Notes"), which will mature on January 15, 2006, at a
discount of 0.5%. Interest on the Senior Notes is payable semi-annually. The
Senior Notes are redeemable in whole or in part, at any time at the Company's
option. The Senior Notes have an investment grade rating from Standard & Poor's
Corporation ("S&P") (A-), Duff & Phelps Credit Rating Co. ("Duff & Phelps") (A),
and Moody's Investors Service, Inc. ("Moody's") (Baa2) and are traded on the New
York Stock Exchange (HMN 6 5/8).

As of September 30, 1998 and December 31, 1997, the Company had short-term
debt of $45.0 million and $42.0 million, respectively, outstanding under the
Bank Credit Facility. The Bank Credit Facility allows unsecured borrowings of up
to $65.0 million at Interbank Offering Rates plus 0.3% to 0.5% or Bank of
America National Trust and Savings Association reference rates. The rate on the
borrowings under the Bank Credit Facility was Interbank Offering Rate plus 0.3%,
or 5.6%, as of September 30, 1998. The commitment for the Bank Credit Facility
terminates on December 31, 2001.

The Company's ratio of earnings to fixed charges for the nine months ended
September 30, 1998 was 13.2x compared to 12.9x for the same period in 1997.

Total shareholder dividends were $10.4 million for the first nine months of
1998. In February 1997, the Board authorized the fifth consecutive annual
increase in the Company's dividend since the Company's initial public offering
in 1991 and increased the quarterly dividend by 22.7% to $0.0675 per share. In
November 1997, in conjunction with the Company's two-for-one stock split, the
Board of Directors authorized the sixth increase to the Company's quarterly

dividend, the second increase in 1997. The regular quarterly dividend increased
by 19% to $0.08 per share.

The Company's catastrophe reinsurance program is augmented by a $100 million
equity put. 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, individually or in the aggregate
during a calendar year, exceed $80 million, the 1998 coverage limit of the
reinsurance program.

Year 2000

In 1990, the Company established programming standards to address the year
2000 for new computer systems. By early 1995, the Company had developed a
comprehensive plan to address the issue and began converting its existing
computer systems to be year 2000 compliant. At September 30, 1998, nearly 85% of
all business applications, representing 70% of all of the Company's program
code, were year 2000 compliant. Management anticipates completing conversion of
the remaining internal business applications by the end of 1998. Vendors that
have not already completed computer systems conversions have indicated their
plans to become year 2000 compliant by the end of 1998. During 1999, additional
testing of all systems and final reviews of individual personal computer
applications will be completed.

Because of the degree to which systems conversion has already been
completed, the worst-case scenario would be limited to a failure to conclude the
remaining conversion plans (i.e., the 15% of unconverted business applications
and vendor conversions that fail to achieve compliance) by Year 2000. In the
event of this worst-case scenario, the resulting impact would be to limit the
Company's abilities to process business transactions and could have a material
effect on it's business, results of operations and financial condition.

If the remaining system conversion plans are not completed by the end of
1998, the Company will prepare contingency plans to address possible worst-case
scenarios. In addition, non-system contingency plans will also be developed
during 1999 for utility suppliers and other third party service providers. All
contingency plans will include efforts to minimize the likelihood of the
occurrence of worst-case scenarios as well as action plans to be invoked which
will encompass back-up processes that utilize alternative suppliers and third
party service providers and/or do not rely on computer systems, where
appropriate.

Costs for this compliance project represent the allocation of existing
internal information technology resources to address year 2000 compliance and
are not expected to be incremental costs to the Company. The total cost of the
compliance project is estimated to be $6 million, before tax benefits, and is
being funded through operating cash flows. The Company is expensing all costs
associated with these system changes and through September 30, 1998 has expensed
$4.8 million before tax benefits, including a cost of $1.5 million for the nine
months ended September 30, 1998.

Recent Accounting Changes

Employers' Disclosures about Pensions and Other Postretirement Benefits

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which will be implemented in
the Company's December 31,

1998 financial statements. SFAS No. 132 will not affect employee benefits
expense or net income. SFAS No. 132 standardizes the disclosure requirements for
pensions and other postretirement benefits and requires additional information
on changes in the benefit obligations and fair values of plan assets that will
facilitate financial analysis, and eliminates certain disclosures that are no
longer as useful as they were when SFAS No. 87, 88 and 106 were issued.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in 2000.
This statement does not apply to the Company because it does not have any
derivatives or hedges, as defined within the context of SFAS No. 133.

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.
(10) Material contracts. Management contracts and compensatory
plans are indicated by an asterisk (*).

10.1* Horace Mann Educators Corporation 1991 Stock
Incentive Plan, incorporated by reference to Exhibit
10.4 to HMEC's Annual Report on Form 10-K for the
year ended December 31, 1991, filed with the
Securities and Exchange Commission on March 27,
1992.

10.1(a)* Specimen Employee Stock Option Agreement under the
Horace Mann Educators Corporation 1991 Stock
Incentive Plan, incorporated by reference to Exhibit
10.5(a) to HMEC's Annual Report on Form 10-K for the
year ended December 31, 1997, filed with the
Securities and Exchange Commission on March 30,
1998.

10.1(b)* Specimen Director Stock Option Agreement under the
Horace Mann Educators Corporation 1991 Stock
Incentive Plan.

10.1(c)* Amendment to Horace Mann Educators Corporation 1991
Stock Incentive Plan, dated September 11, 1996,
incorporated by reference to Exhibit 10.2(c) to
HMEC's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, filed with the Securities
and Exchange Commission on November 14, 1996.

10.1(d)* Amendment to Horace Mann Educators Corporation 1991
Stock Incentive Plan, dated September 18, 1998.

10.2* Amended and restated agreement entered by and
between HMEC and Paul J. Kardos as of October 6,
1998.

(11) Statement re computation of per share earnings.
(27) Financial Data Schedule.

(b) No reports on Form 8-K were filed by the Company during the third
quarter of 1998.

On October 29, 1998, HMEC filed with the Securities and Exchange
Commission a Current Report on Form 8-K dated October 29, 1998
regarding the effects of a routine Internal Revenue Service audit
of the Company's 1994 and 1995 federal income tax returns on the
Company's effective corporate tax rate in 1999 and beyond. The
complete text of the Form 8-K is included in this Form 10-Q in
Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Nine Months Ended September 30, 1998
Compared With Nine Months Ended September 30, 1997 --Income Tax
Expense.

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 12, 1998 /s/ Paul J. Kardos
---------------------------- ----------------------------

Paul J. Kardos, Chairman of the Board,
President and Chief Executive Officer

Date November 12, 1998 /s/ Larry K. Becker
---------------------------- ----------------------------

Larry K. Becker, Executive
Vice President and Chief
Financial Officer