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Horace Mann(HMN) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations, changes in shareholders' equity, and cash flows, along with detailed explanatory notes Consolidated Balance Sheets Total assets increased to $14,728.3 million by June 30, 2025, with corresponding increases in liabilities and shareholders' equity, driven by growth in investments and separate account variable annuity assets | Metric | June 30, 2025 ($ millions) | December 31, 2024 ($ millions) | | :----- | :------------------------- | :----------------------------- | | Total Assets | 14,728.3 | 14,487.8 | | Total Liabilities | 13,368.0 | 13,200.3 | | Total Shareholders' Equity | 1,360.3 | 1,287.5 | | Total Investments | 7,040.6 | 6,916.4 | | Separate Account variable annuity assets | 3,863.3 | 3,708.8 | Consolidated Statements of Operations and Comprehensive Income (Loss) Net income significantly increased for both the three and six months ended June 30, 2025, driven by higher total revenues and a decrease in total benefits, losses, and expenses | Metric | 3 Months Ended June 30, 2025 ($ millions) | 3 Months Ended June 30, 2024 ($ millions) | % Change (3 Months) | 6 Months Ended June 30, 2025 ($ millions) | 6 Months Ended June 30, 2024 ($ millions) | % Change (6 Months) | | :----- | :---------------------------------------- | :---------------------------------------- | :------------------ | :---------------------------------------- | :---------------------------------------- | :------------------ | | Total Revenues | 411.7 | 388.1 | 6.1% | 828.1 | 774.1 | 7.0% | | Net Income | 29.4 | 3.8 | 673.7% | 67.6 | 30.3 | 123.1% | | Basic EPS | 0.71 | 0.09 | 688.9% | 1.64 | 0.74 | 121.6% | | Diluted EPS | 0.71 | 0.09 | 688.9% | 1.63 | 0.73 | 123.3% | | Total Benefits, Losses and Expenses | 375.2 | 383.5 | -2.2% | 744.1 | 736.5 | 1.0% | | Metric | 3 Months Ended June 30, 2025 ($ millions) | 3 Months Ended June 30, 2024 ($ millions) | 6 Months Ended June 30, 2025 ($ millions) | 6 Months Ended June 30, 2024 ($ millions) | | :----- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net Income | 29.4 | 3.8 | 67.6 | 30.3 | | Other Comprehensive Income (Loss), net of tax | 5.3 | 9.6 | 36.4 | 31.3 | | Comprehensive Income | 34.7 | 13.4 | 104.0 | 61.6 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased to $1,360.3 million by June 30, 2025, primarily due to net income and positive changes in accumulated other comprehensive income, despite increased dividends paid | Metric | 3 Months Ended June 30, 2025 ($ millions) | 3 Months Ended June 30, 2024 ($ millions) | 6 Months Ended June 30, 2025 ($ millions) | 6 Months Ended June 30, 2024 ($ millions) | | :----- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Shareholders' Equity at End of Period | 1,360.3 | 1,208.8 | 1,360.3 | 1,208.8 | | Net Income | 29.4 | 3.8 | 67.6 | 30.3 | | Dividends Paid | (14.6) | (14.2) | (29.3) | (28.5) | | Change in Accumulated Other Comprehensive Income (Loss) | (217.1) | (282.7) | (217.1) | (282.7) | Consolidated Statements of Cash Flows Operating cash flow significantly increased to $272.1 million for the six months ended June 30, 2025, while financing activities saw a substantial increase in cash usage | Metric | 6 Months Ended June 30, 2025 ($ millions) | 6 Months Ended June 30, 2024 ($ millions) | % Change | | :----- | :---------------------------------------- | :---------------------------------------- | :------- | | Net Cash Provided by Operating Activities | 272.1 | 114.7 | 137.2% | | Net Cash Used in Investing Activities | (72.0) | (87.2) | -17.4% | | Net Cash Used in Financing Activities | (197.3) | (42.6) | 363.1% | | Net Decrease in Cash | 2.8 | (15.1) | -118.5% | | Cash at End of Period | 40.9 | 14.6 | 180.1% | Notes to Consolidated Financial Statements This section provides detailed notes on accounting policies, investments, fair value, insurance contracts, reinsurance, segment information, AOCI, cash flow, and contingencies Note 1 - Basis of Presentation and Significant Accounting Policies Horace Mann, a holding company for insurance subsidiaries, serves K-12 educators across four segments, with financial statements prepared under GAAP and an immaterial out-of-period correction noted - Horace Mann Educators Corporation is a holding company for insurance subsidiaries, primarily serving K-12 teachers, administrators, and public school employees and their families17 - The Company operates in four reporting segments: Property & Casualty, Life & Retirement, Supplemental & Group Benefits, and Corporate & Other18 - An immaterial out-of-period correction of an error related to private debt securities decreased net investment income by $10.2 million pre-tax ($8.1 million after-tax) for the quarter ended June 30, 2025, impacting Life & Retirement ($5.3 million) and Supplemental & Group Benefits ($2.8 million)21 - Significant critical accounting estimates include valuation of hard-to-value fixed maturity securities, credit loss impairments, future policy benefit reserves, and property and casualty unpaid claims and claim expense reserves26 - New accounting standards, ASU 2023-09 (Income Tax Disclosures) and ASU 2024-04 (Expense Disaggregation Disclosures), will be effective for the Company in future periods but are not expected to impact consolidated financial position, results of operations, or cash flows27282930 Note 2 - Investments Net investment income increased for the three months ended June 30, 2025, driven by limited partnership returns, while fixed maturity securities showed $454.5 million in gross unrealized losses due to interest rate changes | ($ in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Fixed maturity securities | 59.4 | 72.0 | 131.0 | 142.4 | | Equity securities | 1.0 | 1.4 | 2.0 | 2.6 | | Limited partnership interests | 23.2 | 8.2 | 39.5 | 14.4 | | Short-term and other investments | 5.2 | 4.3 | 10.6 | 9.0 | | Investment expenses | (3.1) | (3.2) | (5.9) | (5.8) | | Net investment income - investment portfolio | 85.7 | 82.7 | 177.2 | 162.6 | | Investment income - deposit asset on reinsurance | 25.1 | 25.7 | 49.5 | 51.2 | | Total net investment income | 110.8 | 108.4 | 226.7 | 213.8 | | ($ in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Fixed maturity securities | (4.1) | (2.3) | (3.9) | (3.3) | | Equity securities | (0.7) | (2.1) | (2.0) | 0.5 | | Short-term investments and other | (1.1) | (1.5) | (3.3) | (0.9) | | Net investment gains (losses) | (5.9) | (5.9) | (9.2) | (3.7) | - The Company's fixed maturity securities portfolio had $454.5 million in gross unrealized losses as of June 30, 2025, primarily due to interest rate changes, not credit losses. The Company expects to recover the entire amortized cost basis of these securities3637 - As of June 30, 2025, 97.1% of fixed maturity securities with gross unrealized losses for more than 12 months were investment grade38 | Estimated Expected Maturity | Amortized Cost, net ($ millions) | Fair Value ($ millions) | Percent of Total Fair Value | | :------------------------ | :------------------------------- | :---------------------- | :-------------------------- | | Due in 1 year or less | 2,251.8 | 2,189.5 | 40.2% | | Due after 1 year through 5 years | 925.6 | 898.5 | 16.5% | | Due after 5 years through 10 years | 925.0 | 893.4 | 16.4% | | Due after 10 years through 20 years | 981.5 | 859.8 | 15.8% | | Due after 20 years | 763.5 | 612.1 | 11.2% | | Total | 5,847.4 | 5,453.3 | 100.0% | | Average option-adjusted duration, in years | 5.7 | | | - Fixed maturity securities with a fair value of $1,127.7 million were on deposit with the Federal Home Loan Bank of Chicago (FHLB) as collateral for funding agreements, advances, and borrowings as of June 30, 202547 Note 3 - Fair Value of Financial Instruments Level 3 invested assets constituted 9.1% of the total investment portfolio at fair value, with total financial assets measured at fair value reaching $5,716.8 million as of June 30, 2025 - As of June 30, 2025, Level 3 invested assets comprised 9.1% of the Company's total investment portfolio at fair value51 | Financial Assets | Carrying Amount ($ millions) | Fair Value ($ millions) | Level 1 ($ millions) | Level 2 ($ millions) | Level 3 ($ millions) | | :--------------- | :--------------------------- | :---------------------- | :------------------- | :------------------- | :------------------- | | Total fixed maturity securities | 5,453.3 | 5,453.3 | 29.8 | 4,942.4 | 481.1 | | Equity securities | 58.3 | 58.3 | 1.3 | 52.7 | 4.3 | | Limited partnership interests | 33.7 | 33.7 | — | — | 33.7 | | Short-term investments | 155.6 | 155.6 | 155.6 | — | — | | Other investments | 15.9 | 15.9 | — | 15.9 | — | | Totals (Financial Assets) | 5,716.8 | 5,716.8 | 186.7 | 5,011.0 | 519.1 | | Separate Account variable annuity assets | 3,863.3 | 3,863.3 | 3,863.3 | — | — | | Financial Liabilities | 78.1 | 78.1 | — | 4.1 | 74.0 | - For the six months ended June 30, 2025, the Company had net gains of $4.9 million with respect to Level 3 financial assets and net losses of $5.6 million attributable to changes in the fair value of Level 3 financial liabilities5455 | Financial Instruments Not Carried at Fair Value | Carrying Amount ($ millions) | Fair Value ($ millions) | Level 1 ($ millions) | Level 2 ($ millions) | Level 3 ($ millions) | | :-------------------------------------------- | :--------------------------- | :---------------------- | :------------------- | :------------------- | :------------------- | | Other investments | 219.7 | 222.9 | — | 37.5 | 185.4 | | Deposit asset on reinsurance | 2,412.6 | 2,145.2 | — | — | 2,145.2 | | Policyholders' account balances | 5,090.9 | 4,726.0 | — | — | 4,726.0 | | Other policyholder funds | 1,005.8 | 1,005.8 | — | 1,002.9 | 2.9 | | Long-term debt | 547.5 | 577.1 | — | 577.1 | — | Note 4 - Short-Duration Insurance Contracts Property & Casualty and Group Benefits segments reported net favorable prior years' reserve development for the six months ended June 30, 2025, with total unpaid claims increasing to $576.6 million | ($ in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net reserves, beginning of period | 318.4 | 314.6 | 319.8 | 312.8 | | Total claims and claim expenses incurred | 136.4 | 152.8 | 254.9 | 277.5 | | Total claims and claim expense payments | 133.7 | 136.2 | 253.6 | 259.1 | | Net reserves, end of period | 321.0 | 331.2 | 321.0 | 331.2 | - The Company recognized $5.5 million and $10.8 million of net favorable prior years' reserve development for Property & Casualty for the three and six months ended June 30, 2025, respectively, due to favorable loss trends in auto and property for accident years 2024 and prior65 | ($ in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net reserves, beginning of period | 83.1 | 86.7 | 79.7 | 88.9 | | Total claims and claim expenses incurred | 15.6 | 16.1 | 34.4 | 30.2 | | Total claims and claim expense payments | 11.3 | 14.7 | 26.7 | 31.0 | | Net reserves, end of period | 87.4 | 88.1 | 87.4 | 88.1 | - Net favorable prior years' reserve development for Group Benefits was $2.6 million for the six months ended June 30, 2025, primarily from favorable loss trends in group life and disability for loss years 2024 and prior68 | ($ in millions) | As of June 30, 2025 | As of December 31, 2024 | | :-------------- | :------------------ | :---------------------- | | Property & Casualty | 419.8 | 420.6 | | Group Benefits | 113.2 | 104.9 | | Other than short-duration | 43.6 | 43.7 | | Total unpaid claims and claims expenses | 576.6 | 569.2 | Note 5 - Long-Duration Insurance Contracts Net liability for future policy benefits slightly increased to $1,624.4 million, while policyholders' account balances decreased and Separate Account variable annuity liabilities rose as of June 30, 2025 | ($ in millions) | June 30, 2025 | December 31, 2024 | | :-------------- | :------------ | :---------------- | | Whole life | 279.5 | 275.2 | | Term life | 141.0 | 131.8 | | Experience life | 743.1 | 746.6 | | Limited-pay whole life | 54.6 | 52.1 | | Supplemental health | 198.5 | 203.5 | | SPIA (life contingent) | 97.1 | 97.3 | | Limited-pay whole life DPL | 5.5 | 5.2 | | SPIA (life contingent) DPL | 1.5 | 1.5 | | Reconciling items | 103.7 | 109.6 | | Total LFPB | 1,624.4 | 1,622.8 | | ($ in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Whole life | 7.4 | 6.9 | 14.4 | 13.8 | | Term life | 11.1 | 11.0 | 22.8 | 22.2 | | Experience life | 7.3 | 7.7 | 14.7 | 15.4 | | Limited-pay whole life | 1.6 | 1.6 | 3.4 | 3.4 | | Supplemental health | 31.2 | 30.0 | 62.1 | 60.4 | | SPIA (life contingent) | 0.7 | 0.5 | 1.3 | 1.7 | | Total | 59.3 | 57.7 | 118.7 | 116.9 | | ($ in millions) | June 30, 2025 | December 31, 2024 | | :-------------- | :------------ | :---------------- | | Indexed universal life | 82.3 | 72.9 | | Experience Life | 56.5 | 58.0 | | Fixed account annuities | 4,495.1 | 4,508.4 | | Fixed indexed account annuities | 388.6 | 409.5 | | SPIA (non-life contingent) | 27.9 | 28.6 | | Reconciling items | 26.0 | 22.9 | | Total | 5,076.4 | 5,100.3 | | ($ in millions) | June 30, 2025 | December 31, 2024 | | :-------------- | :------------ | :---------------- | | Balance, end of period | 3,863.3 | 3,708.8 | | ($ in millions) | June 30, 2025 | December 31, 2024 | | :-------------- | :------------ | :---------------- | | Whole life | 24.6 | 23.8 | | Term life | 34.8 | 34.2 | | Experience life | 5.4 | 5.5 | | Limited pay whole life | 8.1 | 8.0 | | Indexed universal life | 20.3 | 19.2 | | Supplemental health | 12.1 | 10.6 | | Total annuities | 209.4 | 211.4 | | Reconciling item | 36.7 | 34.5 | | Total | 351.4 | 347.2 | - The Company reviewed significant assumptions for mortality and lapses in Q2 2025 and Q2 2024 and found actual experience materially consistent with underlying assumptions, thus no changes to future assumptions were made89 Note 6 - Reinsurance The Company recognizes reinsurance costs over contract periods and estimates recoverable amounts from reinsurers consistent with insurance liabilities. For the six months ended June 30, 2025, net premiums written and contract deposits were $812.0 million, net premiums and contract charges earned were $600.9 million, and benefits, claims, and settlement expenses were $366.7 million, reflecting the impact of reinsurance activities | ($ in millions) | Direct Amount | Ceded to Other Companies | Assumed from Other Companies | Net Amount | | :-------------- | :------------ | :----------------------- | :--------------------------- | :--------- | | Net premiums written and contract deposits | 830.3 | 30.5 | 12.2 | 812.0 | | Net premiums and contract charges earned | 618.6 | 29.7 | 12.0 | 600.9 | | Benefits, claims and settlement expenses | 381.7 | 22.0 | 7.0 | 366.7 | Note 7 - Segment Information The Company manages its business through four segments, with Property & Casualty, Life & Retirement, and Supplemental & Group Benefits reporting positive core earnings for the six months ended June 30, 2025 - The Company's Chief Operating Officer (CODM) reviews financial performance and allocates resources based on core earnings, which excludes after-tax impacts of net investment gains/losses, discontinued operations, impairments, and non-recurring items93 | ($ in millions) | Property & Casualty | Life & Retirement | Supplemental & Group Benefits | Corporate & Other | Totals | | :-------------- | :------------------ | :---------------- | :---------------------------- | :---------------- | :----- | | Net premiums and contract charges earned | 197.3 | 39.6 | 65.7 | — | 302.6 | | Net investment income | 14.9 | 97.2 | 10.6 | (1.6) | 121.1 | | Total segment revenues | 212.9 | 141.7 | 74.4 | (1.1) | 427.9 | | Total segment expenses | 191.6 | 111.5 | 57.3 | 12.4 | 372.8 | | Pretax profit (loss) | 21.3 | 30.2 | 17.1 | (13.5) | 55.1 | | Segment profit (loss) (Core earnings) | 16.5 | 24.6 | 13.4 | (10.3) | 44.2 | | Net income | 16.5 | 20.0 | 7.9 | (15.0) | 29.4 | | ($ in millions) | Property & Casualty | Life & Retirement | Supplemental & Group Benefits | Corporate & Other | Totals | | :-------------- | :------------------ | :---------------- | :---------------------------- | :---------------- | :----- | | Net premiums and contract charges earned | 390.0 | 78.1 | 132.8 | — | 600.9 | | Net investment income | 26.6 | 186.2 | 20.0 | 4.1 | 236.9 | | Total segment revenues | 418.6 | 274.0 | 149.8 | 5.1 | 847.5 | | Total segment expenses | 363.9 | 234.1 | 114.8 | 23.8 | 736.6 | | Pretax profit (loss) | 54.7 | 39.9 | 35.0 | (18.7) | 110.9 | | Segment profit (loss) (Core earnings) | 43.3 | 32.5 | 27.4 | (14.3) | 89.0 | | Net income | 43.3 | 26.8 | 19.1 | (21.6) | 67.6 | | ($ in millions) | June 30, 2025 | December 31, 2024 | | :-------------- | :------------ | :---------------- | | Property & Casualty | 1,335.2 | 1,272.3 | | Life & Retirement | 11,865.7 | 11,670.7 | | Supplemental & Group Benefits | 1,370.2 | 1,377.6 | | Corporate & Other | 193.5 | 191.0 | | Intersegment eliminations | (36.3) | (23.8) | | Total | 14,728.3 | 14,487.8 | Note 8 - Accumulated Other Comprehensive Income (Loss) AOCI improved to $(217.1) million as of June 30, 2025, primarily due to a positive change in net unrealized investment gains on fixed maturity securities | ($ in millions) | Net Unrealized Investment Gains (Losses) on Fixed Maturity Securities | Net Reserve Remeasurements Attributable to Discount Rates | Net Funded Status of Benefit Plans | Total | | :-------------- | :------------------------------------------------------------------ | :-------------------------------------------------------- | :--------------------------------- | :---- | | Beginning balance, January 1, 2025 | (357.4) | 110.9 | (7.0) | (253.5) | | Net current period other comprehensive income (loss) | 47.5 | (11.1) | — | 36.4 | | Ending balance, June 30, 2025 | (309.9) | 99.8 | (7.0) | (217.1) | Note 9 - Supplemental Consolidated Cash and Cash Flow Information Total cash and restricted cash increased to $40.9 million as of June 30, 2025, with cash paid for interest at $16.9 million and income taxes at $21.5 million for the six months | ($ in millions) | June 30, 2025 | December 31, 2024 | | :-------------- | :------------ | :---------------- | | Cash | 38.7 | 33.1 | | Restricted cash | 2.2 | 5.0 | | Total cash and restricted cash | 40.9 | 38.1 | | ($ in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------- | :----------------------------- | :----------------------------- | | Interest | 16.9 | 16.8 | | Income taxes | 21.5 | 13.3 | Note 10 - Contingencies and Commitments The Company faces legal proceedings related to legacy commercial lines policies, recording $15.7 million in Q4 2024 for these liabilities, and has $423.0 million in unfunded investment commitments - Horace Mann Insurance Company (HMIC) is defending against litigation and investigating claims related to legacy, long-tail commercial lines policies (asbestos, environmental, sexual molestation) from the late 1960s and early 1970s, following the liquidation of R&Q Reinsurance Company106107 - In Q4 2024, the Company recorded $15.7 million (after-tax) in costs related to these non-core legacy commercial liability policies108 - Unfunded commitments to fund investments, primarily in limited partnership interests, were $423.0 million as of June 30, 2025, down from $449.9 million at December 31, 2024109 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) This MD&A analyzes the Company's financial condition, operational results, corporate strategy, and future outlook, including critical accounting estimates and liquidity Introduction This introduction provides context for the MD&A, clarifying non-GAAP measures and forward-looking statements, and directs readers to other financial reports for additional information Corporate Strategy Horace Mann aims to be the preferred provider of insurance and financial solutions for educators, operating through four distinct reporting segments - Horace Mann's vision is to be the company of choice for insurance and financial solutions for educators and those who serve their communities, providing tailored solutions for lifelong financial success116117 - The Company manages its business through four reporting segments: Property & Casualty, Life & Retirement, Supplemental & Group Benefits, and Corporate & Other118 Consolidated Financial Highlights Total revenues increased by 6.1% for the three months ended June 30, 2025, with net income surging by 673.7%, driven by improved Property & Casualty results and lower catastrophe losses | Metric | 3 Months Ended June 30, 2025 ($ millions) | 3 Months Ended June 30, 2024 ($ millions) | % Change (3 Months) | 6 Months Ended June 30, 2025 ($ millions) | 6 Months Ended June 30, 2024 ($ millions) | % Change (6 Months) | | :----- | :---------------------------------------- | :---------------------------------------- | :------------------ | :---------------------------------------- | :---------------------------------------- | :------------------ | | Total revenues | 411.7 | 388.1 | 6.1% | 828.1 | 774.1 | 7.0% | | Net income | 29.4 | 3.8 | 673.7% | 67.6 | 30.3 | 123.1% | | Net Investment gains (losses), after tax | (4.7) | (4.6) | -2.2% | (7.3) | (2.9) | 151.7% | | Per diluted share: Net income | 0.71 | 0.09 | 688.9% | 1.63 | 0.73 | 123.3% | | Book value per share (as of June 30, 2025 / Dec 31, 2024) | | | | 33.31 | 29.60 | 12.5% | | Net income return on equity - annualized | 8.7% | 1.3% | 7.4 pts | 10.2% | 5.1% | 5.1 pts | - Net income increased primarily due to improved Property & Casualty segment results, reflecting the effect of rate and non-rate underwriting actions, and lower catastrophe losses119 Consolidated Results of Operations Total revenues increased by 6.1% for the three months and 7.0% for the six months ended June 30, 2025, with net income growing substantially due to lower expenses and improved investment performance | ($ in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (3 Months) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (6 Months) | | :-------------- | :--------------------------- | :--------------------------- | :------------------ | :--------------------------- | :--------------------------- | :------------------ | | Net premiums and contract charges earned | 302.6 | 280.9 | 7.7% | 600.9 | 556.1 | 8.1% | | Net investment income | 110.8 | 108.4 | 2.2% | 226.7 | 213.8 | 6.0% | | Net investment gains (losses) | (5.9) | (5.9) | —% | (9.2) | (3.7) | N.M. | | Total revenues | 411.7 | 388.1 | 6.1% | 828.1 | 774.1 | 7.0% | | Benefits, claims and settlement expenses | 183.5 | 207.3 | -11.5% | 366.7 | 383.6 | -4.4% | | Operating expenses | 96.9 | 83.0 | 16.7% | 187.7 | 167.5 | 12.1% | | Net income | 29.4 | 3.8 | 673.7% | 67.6 | 30.3 | 123.1% | - Net premiums and contract charges earned increased by 7.7% for the three months and 8.1% for the six months ended June 30, 2025, primarily due to rate and inflation adjustments in the Property & Casualty segment122 - Total net investment income increased by $2.4 million for the three months and $12.9 million for the six months ended June 30, 2025, driven by strong returns from the fixed income portfolio and higher returns from commercial mortgage loan and limited partnership funds123 - Benefits, claims and settlement expenses decreased by $23.8 million for the three months and $16.9 million for the six months ended June 30, 2025, due to lower catastrophe losses and underlying losses in the Property & Casualty segment, as well as lower life mortality128 - Operating expenses increased by 16.7% for the three months and 12.1% for the six months, reflecting inflation, investments in growth initiatives and infrastructure, and increased compensation accruals130 - The effective income tax rate was 19.5% for the six months ended June 30, 2025, with tax-advantaged securities decreasing the rate by 2.4 percentage points134 Outlook for 2025 The Company projects 2025 full-year core earnings between $4.15 and $4.45 per diluted share, targeting a core return on equity of 10%+, with specific segment profitability and catastrophe loss estimates - Estimated 2025 full-year core earnings* are projected to be $4.15 to $4.45 per diluted share, aiming for a core return on equity* of 10%+139 - Property & Casualty segment targets include an Auto Combined Ratio in the mid-90s and Property at 90 or below, with approximately $90 million in catastrophe losses140 - Life & Retirement segment targets a long-term net interest spread between 220 and 230 bps and mortality in line with actuarial assumptions140 - Supplemental & Group Benefits segment targets a blended benefit ratio of 39%140 - Net investment income is projected to be between $470 million and $480 million pre-tax140 Application of Critical Accounting Estimates Significant estimates for financial statements include valuation of fixed maturity securities, credit loss impairments, future policy benefit reserves, and property and casualty unpaid claims - Critical accounting estimates include valuation of hard-to-value fixed maturity securities, evaluation of credit loss impairments for fixed maturity securities, valuation of future policy benefit reserves, and valuation of liabilities for property and casualty unpaid claims and claim expense reserves143 - As of June 30, 2025, there were no material changes to accounting policies for areas most subject to significant management judgments compared to December 31, 2024142 Results of Operations by Segment This section details the financial performance of the Company's four reporting segments, analyzing key revenue, expense, and profitability drivers for the current and prior periods Property & Casualty The Property & Casualty segment reported improved net income for the three and six months ended June 30, 2025, driven by increased premiums, lower underlying loss ratios, and reduced catastrophe losses - Property & Casualty segment net income for the three and six months ended June 30, 2025, was $16.5 million and $43.3 million, respectively, reflecting positive effects of rate and non-rate actions and lower catastrophe losses151 - Net premiums written increased by 6.1% for the quarter, with average written premiums rising for both property and auto. Sales were up 5.5% from the prior year152 - Catastrophe losses for the quarter were $29.7 million (pretax), contributing 15.0 points to the combined ratio, down from $40.9 million (22.8 points) in Q2 2024, due to lower frequency and severity of claims153 - The second-quarter auto underlying loss ratio improved by 5.5 points to 68.7%, benefiting from higher average earned premium. Average written premiums for auto policies increased by 8.8%154 - The second-quarter property underlying loss ratio decreased by 14.1 points to 36.8%, reflecting increased average earned premium and lower frequency and severity. Average written premiums for property policies increased by 11.6%155 | Metric | 3 Months Ended June 30, 2025 ($ millions) | 3 Months Ended June 30, 2024 ($ millions) | % Change (3 Months) | 6 Months Ended June 30, 2025 ($ millions) | 6 Months Ended June 30, 2024 ($ millions) | % Change (6 Months) | | :----- | :---------------------------------------- | :---------------------------------------- | :------------------ | :---------------------------------------- | :---------------------------------------- | :------------------ | | Net premiums written* | 211.4 | 199.2 | 6.1% | 396.7 | 371.3 | 6.8% | | Net premiums earned | 197.3 | 179.2 | 10.1% | 390.0 | 352.4 | 10.7% | | Total losses and loss adjustment expenses | 136.5 | 152.8 | -10.7% | 254.8 | 277.5 | -8.2% | | Underwriting gain (loss) | 5.7 | (20.6) | 127.7% | 26.1 | (20.5) | N.M. | | Net income (loss) | 16.5 | (8.6) | 291.9% | 43.3 | 2.0 | 2,065.0% | | Auto Combined ratio | 98.5% | 97.2% | 1.3 pts | 96.8% | 99.0% | -2.2 pts | | Property Combined ratio | 94.6% | 136.3% | -41.7 pts | 87.3% | 117.5% | -30.2 pts | Life & Retirement The Life & Retirement segment's net income increased by 62.6% for the three months ended June 30, 2025, primarily due to lower life mortality costs and higher net investment income - Life & Retirement segment net income increased by 62.6% for the three months and 11.7% for the six months ended June 30, 2025, primarily due to favorable benefits from lower life mortality costs and higher net investment income163 - Net annuity contract deposits increased by 7.8% for the quarter to $110.2 million164 - The Company manages interest rate risk by coordinating asset and liability cash flows and durations. A 100 basis point decline in the average reinvestment rate is estimated to reduce net investment income by $2.4 million in year one and $4.7 million in year two166167168 | Metric | 3 Months Ended June 30, 2025 ($ millions) | 3 Months Ended June 30, 2024 ($ millions) | % Change (3 Months) | 6 Months Ended June 30, 2025 ($ millions) | 6 Months Ended June 30, 2024 ($ millions) | % Change (6 Months) | | :----- | :---------------------------------------- | :---------------------------------------- | :------------------ | :---------------------------------------- | :---------------------------------------- | :------------------ | | Net premiums written and contract deposits* | 141.7 | 133.6 | 6.1% | 282.0 | 265.2 | 6.3% | | Total revenues | 134.9 | 131.5 | 2.6% | 267.3 | 259.9 | 2.8% | | Benefits and change in reserves | 24.2 | 31.0 | -21.9% | 62.2 | 60.9 | 2.1% | | Net income | 20.0 | 12.3 | 62.6% | 26.8 | 24.0 | 11.7% | | Core earnings* | 24.6 | 12.3 | 100.0% | 32.5 | 22.2 | 46.4% | | Life insurance in force ($ billions) | | | | 21.2 | 20.8 | 2.2% | | Annuity contracts in force (thousands) | | | | 215 | 220 | -2.3% | Supplemental & Group Benefits The Supplemental & Group Benefits segment's net income decreased for the three and six months ended June 30, 2025, due to lower net investment income and higher operating expenses, despite increased individual product sales - Supplemental & Group Benefits segment net income decreased for the three and six months ended June 30, 2025, due to lower net investment income and higher operating expenses from growth investments173 - Individual supplemental product sales increased by 42.5% for the quarter, contributing to a total sales increase of $0.4 million for the three months ended June 30, 2025175 | Metric | 3 Months Ended June 30, 2025 ($ millions) | 3 Months Ended June 30, 2024 ($ millions) | % Change (3 Months) | 6 Months Ended June 30, 2025 ($ millions) | 6 Months Ended June 30, 2024 ($ millions) | % Change (6 Months) | | :----- | :---------------------------------------- | :---------------------------------------- | :------------------ | :---------------------------------------- | :---------------------------------------- | :------------------ | | Net premiums and contract charges earned | 65.7 | 63.7 | 3.1% | 132.8 | 127.9 | 3.8% | | Net investment income | 7.1 | 10.5 | -32.4% | 16.5 | 18.3 | -9.8% | | Total revenues | 70.9 | 73.0 | -2.9% | 146.3 | 142.0 | 3.0% | | Benefits, settlement expenses and change in reserves | 24.0 | 24.7 | -2.8% | 52.1 | 47.5 | 9.7% | | Net income | 7.9 | 14.1 | -44.0% | 19.1 | 25.1 | -23.9% | | Core earnings* | 13.4 | 17.0 | -21.2% | 27.4 | 30.8 | -11.0% | | Benefits ratio | 36.7% | 38.8% | -2.1 pts | 39.3% | 37.2% | 2.1 pts | | Operating expense ratio | 46.7% | 36.6% | 10.1 pts | 42.8% | 39.0% | 3.8 pts | Corporate & Other The Corporate & Other segment reported net losses for both the three and six months ended June 30, 2025, primarily due to lower net investment income and higher operating expenses - The Corporate & Other segment's net loss for the three and six months ended June 30, 2025, was $15.0 million and $21.6 million, respectively, primarily due to lower net investment income and higher net investment losses and operating expenses177 | Metric | 3 Months Ended June 30, 2025 ($ millions) | 3 Months Ended June 30, 2024 ($ millions) | % Change (3 Months) | 6 Months Ended June 30, 2025 ($ millions) | 6 Months Ended June 30, 2024 ($ millions) | % Change (6 Months) | | :----- | :---------------------------------------- | :---------------------------------------- | :------------------ | :---------------------------------------- | :---------------------------------------- | :------------------ | | Total revenues | (1.1) | 0.2 | -650.0% | 5.1 | 0.4 | N.M. | | Total expenses | 12.4 | 12.1 | 2.5% | 23.8 | 23.0 | 3.5% | | Loss before income taxes | (13.5) | (11.9) | -13.4% | (18.7) | (22.6) | 17.3% | | Core loss* after tax | (10.3) | (9.4) | -9.6% | (14.3) | (17.9) | 20.1% | | Net investment gains (losses), after tax | (4.7) | (4.6) | -2.2% | (7.3) | (2.9) | N.M. | | Net loss | (15.0) | (14.0) | -7.1% | (21.6) | (20.8) | -3.8% | Investment Results Net investment income from the managed portfolio increased for the three and six months ended June 30, 2025, while pretax net unrealized investment losses on fixed maturity securities decreased to $394.1 million - Net investment income from the managed investment portfolio increased by $3.0 million for the three months and $14.6 million for the six months ended June 30, 2025, primarily due to higher returns in limited partnerships179 - Pretax net unrealized investment losses on fixed maturity securities decreased by $77.0 million (30.6%) to $394.1 million as of June 30, 2025, compared to December 31, 2024, mainly due to a decrease in US Treasury rates181188 - As of June 30, 2025, the diversified fixed maturity securities portfolio totaled approximately $5.5 billion in fair value, with 97.2% being investment grade and an average quality rating of AA-184 | ($ in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (3 Months) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (6 Months) | | :-------------- | :--------------------------- | :--------------------------- | :------------------ | :--------------------------- | :--------------------------- | :------------------ | | Net investment income - managed investment portfolio | 85.7 | 82.7 | 3.6% | 177.2 | 162.6 | 9.0% | | Investment income - deposit asset on reinsurance | 25.1 | 25.7 | -2.3% | 49.5 | 51.2 | -3.3% | | Total net investment income | 110.8 | 108.4 | 2.2% | 226.7 | 213.8 | 6.0% | | Pretax net investment gains (losses) | (5.9) | (5.9) | —% | (9.2) | (3.7) | 148.6% | | Rating Category | Fair Value ($ millions) | Percent of Portfolio Fair Value | | :-------------- | :---------------------- | :------------------------------ | | AAA | 631.8 | 11.6% | | AA | 2,377.1 | 43.6% | | A | 1,094.4 | 20.1% | | BBB | 1,071.1 | 19.6% | | BB | 80.4 | 1.5% | | B | 32.9 | 0.6% | | CCC or lower | 2.0 | —% | | Not rated | 163.6 | 3.0% | | Total fixed maturity securities | 5,453.3 | 100.0% | | Total equity securities | 58.3 | | | Total combined portfolios | 5,511.6 | | Liquidity and Capital Resources Net cash provided by operating activities significantly increased to $272.1 million for the six months ended June 30, 2025, with total capital at $1,907.8 million and a debt-to-total capital ratio of 28.7% - The Company's liquidity and access to capital were not materially impacted by inflation or changes in interest rates during the three and six months ended June 30, 2025189 - Net cash provided by operating activities increased by $157.4 million to $272.1 million for the six months ended June 30, 2025194 - Net cash used in financing activities increased by $154.7 million for the six months ended June 30, 2025, primarily due to increased net cash outflow from reverse repurchase agreements, deposit asset on reinsurance, benefits/withdrawals from variable annuities, and FHLB funding agreements199 - Total capital was $1,907.8 million as of June 30, 2025, including $547.5 million of long-term debt. The debt-to-total capital ratio was 28.7% (25.9% excluding net unrealized investment losses and reserve remeasurements), slightly above the long-term target of 25.0%208 - Shareholders' equity was $1,360.3 million as of June 30, 2025. Book value per share was $33.31, and adjusted book value per share was $38.46209 - The Company has a $325.0 million Revolving Credit Facility available, expiring May 19, 2030, and a universal shelf registration statement filed in March 2024 for capital management flexibility213216 | ($ in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change | | :-------------- | :----------------------------- | :----------------------------- | :------- | | Net cash provided by operating activities | 272.1 | 114.7 | 137.2% | | Net cash used in Investing Activities | (72.0) | (87.2) | -17.4% | | Net cash used in Financing Activities | (197.3) | (42.6) | 363.1% | | Net decrease in cash | 2.8 | (15.1) | -118.5% | | Cash at end of period | 40.9 | 14.6 | 180.1% | | Debt Type | Interest Rates | Final Maturity | June 30, 2025 ($ millions) | December 31, 2024 ($ millions) | | :-------- | :------------- | :------------- | :------------------------- | :----------------------------- | | Revolving Credit Facility | Variable | 2026 | — | — | | 7.25% 2023 Senior Notes | 7.25% | 2028 | 297.6 | 297.3 | | 4.50% 2015 Senior Notes | 4.50% | 2025 | 249.9 | 249.7 | | Total Long-term debt | | | 547.5 | 547.0 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's primary market risk exposure is market value risk, influenced by changes in investment yields and interest rates, managed through asset-liability coordination and diversification - The primary market risk exposure is market value risk, which can arise from changes in investment yields, liquidity, issuer financial prospects, or credit rating downgrades221 - Significant changes in interest rates expose the Company to the risk of losses or reduced income due to differences between interest rates earned on investments and credited rates on insurance and investment contract liabilities222 - The Company manages market value risk by coordinating projected cash inflows of assets with projected cash outflows of liabilities, maintaining reasonable durations, and ensuring investment quality, liquidity, and diversification223 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material weaknesses or significant changes in internal control - As of June 30, 2025, the CEO and CFO concluded that the Company's disclosure controls and procedures were effective225 - No material weaknesses in disclosure controls and procedures were identified, and no significant changes in internal control over financial reporting occurred during the period225226 PART II - OTHER INFORMATION Item 1. Legal Proceedings Details regarding noteworthy litigation are referenced in Note 10 of the Consolidated Financial Statements within Part I - Item 1 of this report - Noteworthy litigation details are provided in Note 10 of the Consolidated Financial Statements229 Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, have occurred - No material changes to risk factors have occurred since the Annual Report on Form 10-K for the year ended December 31, 2024230 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Board authorized a new $50 million share repurchase program on May 13, 2025, following the existing program, under which 175,492 shares were repurchased during the quarter - The Board authorized a new $50 million share repurchase program (2025 Program) on May 13, 2025, to follow the completion of the existing 2022 Program231 | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that may yet be Purchased under the Program ($ millions) | | :----- | :------------------------------- | :--------------------------- | :---------------------------------------------------------------------------------------- | | April 1 - 30 | 175,192 | 40.14 | 19.2 | | May 1 - 31 | 300 | 40.02 | 69.2 | | June 1 - 30 | — | — | 69.2 | | Total | 175,492 | 40.14 | 69.2 | Item 5. Other Information No executive officers or directors adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - No executive officers or directors adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025233 Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including the Fourth Amendment to Credit Agreement and various certifications | Exhibit No. | Description | | :---------- | :---------- | | 10.1 | Fourth Amendment to Credit Agreement dated as of May 19, 2025 | | 31.1 | Certification by Marita Zuraitis, Chief Executive Officer of HMEC | | 31.2 | Certification by Ryan E. Greenier, Chief Financial Officer of HMEC | | 32.1 | Certification by Marita Zuraitis, Chief Executive Officer of HMEC | | 32.2 | Certification by Ryan E. Greenier, Chief Financial Officer of HMEC | | 99.1 | Glossary of Selected Terms | | 101.INS | XBRL Instance Document | | 101.SCH | XBRL Taxonomy Extension Schema | | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase | | 101.DEF | XBRL Taxonomy Extension Definition Linkbase | | 101.LAB | XBRL Taxonomy Extension Label Linkbase | | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase | SIGNATURES SIGNATURES This section contains the signatures of the authorized representatives of Horace Mann Educators Corporation, certifying the filing of the report on August 6, 2025 - The report was signed by Marita Zuraitis (President and CEO), Ryan E. Greenier (EVP and CFO), and Maureen Temchuk (VP, Controller and CAO) on August 6, 2025237