HORACE MANN EDUCATORS CORP /DE/ (HMN) FY 2024 MD&A

ITEM 7. I Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

($ in millions, except per share data)

Measures within this MD&A that are not based on accounting principles generally accepted in the United States of America (non-GAAP) are marked with an asterisk (*) the first time they are presented within this Part II - Item 7. An explanation of these measures is contained in the Glossary of Selected Terms included as Exhibit 99.1 to this Annual Report on Form 10-K and are reconciled to the most directly comparable measures prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) in the Appendix to the Company's Fourth Quarter 2024 Investor Supplement.

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

This MD&A covers the following:

Introduction

The purpose of our MD&A is to provide an understanding of our consolidated results of operations and financial condition and should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in Part II - Item 8 of this Annual Report on Form 10-K. Our MD&A generally discusses the results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023. For a discussion of the results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022, please refer to Part II - Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission (SEC) on February 27, 2024.

HMEC is an insurance holding company focused on helping America’s educators and others who serve the community achieve lifelong financial success. Through our subsidiaries, we market and underwrite individual and group insurance and financial solutions tailored to the needs of the educational community including:

•personal lines of property and casualty insurance, primarily auto and property coverages

•retirement products, primarily tax-qualified fixed, variable and fixed indexed annuities

•life insurance, primarily traditional term and whole life insurance products

•worksite direct insurance products, including cancer, heart, hospital, supplemental disability and accident

•employer-sponsored insurance products, primarily long-term disability and short-term disability

We market our products primarily to K-12 teachers, administrators and other employees of public schools and their families, whether they engage with Horace Mann directly or through their district/employer, as well as other markets of those who serve the community.

We conduct and manage our business in four reporting segments. The three reporting segments representing the major lines of business, are: (1) Property & Casualty (primarily personal lines of auto and property insurance products), (2) Life & Retirement (primarily tax-qualified fixed and variable annuities as well as life insurance products), and (3) Supplemental & Group Benefits (primarily cancer, heart, hospital, supplemental disability, accident, short-term and long-term group disability, and group term life coverages). We do not allocate the impact of corporate-level transactions to these reporting segments, consistent with the basis for management's evaluation of the results of those segments, but classify those items in the fourth reporting segment, Corporate & Other. Corporate & Other includes corporate debt service, net investment gains (losses) and certain public company expenses, as well as corporate debt retirement costs, when applicable. In addition to these transactions, Corporate & Other also includes legacy commercial claims. See Part II - Item 8, Note 17 of the Consolidated Financial Statements in this Annual Report on Form 10-K for more information.

Consolidated Financial Highlights

For 2024, net income increased $57.8 million compared to the prior year primarily due to improved underlying auto and property loss ratios* and favorable prior years' reserve development, partially offset by higher interest credited.

Consolidated Results of Operations

Net Premiums and Contract Charges Earned

For 2024, net premiums and contract charges earned increased $88.9 million as the Property & Casualty segment continues to implement rate and inflation adjustments to coverage values.

Net Investment Income

Total net investment income in 2024 increased $0.9 million, primarily due to higher returns on the fixed-income portfolio. Lower commercial mortgage loan funds income was partially offset by higher returns on limited partnership interests in various equity funds. The annualized investment yield on the portfolio excluding limited partnership interests* was as follows:

During 2024, we continued to identify and purchase investments with attractive risk-adjusted yields relative to market conditions without venturing into asset classes or individual securities that would be inconsistent with our overall investment guidelines for the core portfolio. We also funded commercial mortgage loan funds and limited partnership interests in line with our intended allocation to this portion of our portfolio to increase yields while balancing protection and risk.

Net Investment Losses

For 2024, net investment losses decreased $6.7 million. The breakdown of net investment gains (losses) by transaction type were as follows:

From time to time, we may sell fixed maturity securities subsequent to the reporting date that were considered temporarily impaired at the reporting date. Generally, such sales are due to issuer specific events occurring subsequent to the reporting date that result in a change in our intent to hold a fixed maturity security.

Other Income

For 2024, other income increased $6.8 million primarily due to an indemnification agreement associated with the employer-sponsored business line.

Benefits, Claims and Settlement Expenses

For 2024, benefits, claims and settlement expenses decreased $24.1 million due to favorable prior year development in 2024 in the Property & Casualty segment.

Interest Credited

For 2024, interest credited increased $10.2 million, driven primarily by higher credited rates on the retained annuity block along with higher interest rates on advances received from the Federal Home Loan Bank of Chicago (FHLB). The net dollar contribution from FHLB advances increased year over year as the higher interest credited rates are more than offset by higher earnings from the floating rate securities backing the program.

Under the deposit method of accounting, the interest credited on the reinsured annuity block continues to be reported. The average deferred annuity credited rate, excluding the reinsured annuity block, was 3.2% for 2024 and 2.9% for 2023.

Operating Expenses

For 2024, operating expenses increased 8.6% reflecting inflation, higher incentive compensation, and investments being made in infrastructure.

Deferred Policy Acquisition Costs (DAC) Amortization Expense

For 2024, DAC amortization expense increased $9.9 million, primarily due to premium increases in the Property & Casualty segment driving higher DAC asset levels partially offset by lower levels of write-offs in the Life & Retirement segment as annuity persistency has been stable in the current year.

Interest Expense

For 2024, interest expense increased $4.9 million, due to an increase in the interest rate as well as an increase in the level of debt associated with the issuance of the 2023 Senior Notes.

Income Tax Expense (Benefit)

The effective income tax rate on our pretax income, including net investment gains (losses) was 20.1% and 15.6% for the years ended December 31, 2024 and 2023, respectively. Income from investments in tax-advantaged securities decreased the effective income tax rates by 3.4 and 7.5 percentage points for 2024 and 2023, respectively.

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

As of December 31, 2024, our federal income tax returns for years prior to 2021 are no longer subject to examination by the Internal Revenue Service. We do not anticipate any assessments for tax years that remain subject to examination to have a material effect on our financial position or results of operations. See Part II - Item 8, Note 11 of the Consolidated Financial Statements in this Annual Report on Form 10-K for further information.

Outlook for 2025

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

Consolidated Results

At the time of issuance of this Annual Report on Form 10-K, we estimate that 2025 full year net income will be within a range of $3.60 to $3.90 per diluted share, generating a core return on equity* of 10%+. These results anticipate the following:

•Property & Casualty segment target profitability of Auto in the mid-90s Combined Ratio and Property at a 90 or below Combined ratio with ~$90 million of catastrophe losses, in line with five-year historical averages

•Life & Retirement segment long-term target net interest spread between 220 and 230 bps and mortality in line with actuarial assumptions

•Supplemental & Group Benefits segment target blended benefit ratio of 39%

•Net investment income between $470 million and $480 million pre-tax, or $370-$380 million excluding the accreted investment income on the deposit asset on reinsurance in the Life & Retirement segment

•Approximately $35 million to $40 million in corporate Interest expense and other items included in results for the Corporate & Other segment

As described in Critical Accounting Estimates, certain of our significant accounting measurements require the use of estimates and assumptions. As additional information becomes available, adjustments may be required. Those adjustments are charged or credited to net income for the period in which the adjustments are made and may impact actual results compared to our estimates above. Additionally, see forward-looking information in Part I - Items 1 and 1A of this Annual Report on Form 10-K concerning other important factors that could impact actual results. Our projections due not include a forecast of net investment gains (losses), which can vary substantially from one period to another and may have a significant impact on net income.

Application of Critical Accounting Estimates

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

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

•Valuation of hard-to-value fixed maturity securities

•Evaluation of credit loss impairments for fixed maturity securities

•Valuation of future policy benefit reserves

•Valuation of liabilities for property and casualty unpaid claims and claim expense reserves

Although variability is inherent in these accounting estimates, we believe the amounts provided are appropriate based upon the facts available during preparation of the consolidated financial statements.

Valuation of Hard-to-Value Fixed Maturity Securities

The fair value of a fixed maturity security is the price that would be received in an orderly transaction between market participants at the measurement date. We obtain prices from third-party valuation service providers, our investment managers, and custodian bank, each of which use a variety of valuation service providers, broker quotes, and modeled prices. When necessary, we also internally model securities to develop a price. Differences in prices between the sources that we consider reliable are researched and we use the price that we consider most representative of an exit price in determining the fair value. Typical inputs used by these pricing sources include, but are not limited to, reported trades, broker quotes, yield curves, and involve the benchmarking of similar securities, rating designations, sector groupings, issuer spreads and/or estimated cash flows, prepayment speeds and default rates, among others, in determining the inputs to the prices. Our fixed maturity securities portfolio is primarily publicly traded, which allows for a high percentage of the fixed maturity securities portfolio to be priced through pricing services using observable inputs. Approximately 90.9% of the fixed maturity securities portfolio, based on fair value, was priced through valuation services or priced using observable inputs as of December 31, 2024.

The valuation of hard-to-value fixed maturity securities (generally 75 - 125 securities) is more subjective because the markets are less liquid and there is a lack of observable market inputs. This may increase the potential that the estimated fair value of an investment is not reflective of the price at which an actual transaction would occur at the measurement date. When the valuation service providers cannot provide prices, the investment managers obtain price quotes from brokers, which may be binding or non-binding price quotes. For those securities where the investment manager cannot obtain broker quotes, or for securities that are internally managed, the manager or the Company's investment professionals will model the security, generally using cash flows discounted at the appropriate current market rate. Valuation service providers' valuation methodologies, as well as investment managers’ modeling methodologies, are sometimes matrix-based, using indicative evaluation measures and adjustments for specific security characteristics and market sentiment. The selection of the market inputs and assumptions used to estimate the fair value of hard-to-value fixed maturity securities requires judgment and may include: benchmark yield, liquidity premium, prepayment speeds and default rates, spreads, weighted average life and credit rating. The cash flows are based on the contractual terms of the individual security and are adjusted for the inputs and assumptions as appropriate, and the cash flows are then discounted by the yield as determined by the assumptions. The extent of the use of each market input depends on the market sector and market conditions. Depending on the security, the priority of the use of inputs may change or some market inputs may not be relevant or additional inputs may be necessary.

As part of determining the fair value of fixed maturity securities, including hard-to-value fixed maturity securities, we address the estimation uncertainty in the fair value estimates through our valuation processes. The uncertainty is caused by the availability and observability of the fair value, and more specifically the inputs to fair value, of individual securities. We assess whether individual prices have become stale, are using appropriate methodologies and assumptions, exceed certain acceptable thresholds as compared to previous prices and alternative pricing sources, and how those prices are developed and assessed when provided by valuation service providers. In addition, we may evaluate prices for individual securities by comparing the prices to broker prices or prices based on internal models.

Individual fixed maturity securities may have variability based on security specific inputs and characteristics, but overall our portfolio duration is approximately 5.6 years, meaning a 100 basis point increase in yield would result in an approximately 6% decrease in the fair value of fixed maturity securities. As of December 31, 2024, Level 3 invested assets comprised 9.5% of our total investment portfolio based on fair value. Invested assets are classified as Level 3 when fair value is determined based on unobservable inputs and those inputs are significant to the determination of fair value.

Evaluation of Credit Loss Impairments for Fixed Maturity Securities

For fixed maturity securities classified as available for sale, the difference between amortized cost, net of a credit loss allowance (i.e., amortized cost, net) and fair value, net of certain other items and deferred income taxes is reported as a component of accumulated other comprehensive income (loss) (i.e., AOCI) on the Consolidated

Balance Sheets and is not reflected in the operating results of any period until reclassified to net income upon the consummation of a transaction with an unrelated third party or when a credit loss allowance transaction is recorded. We evaluate fixed maturity securities where fair value is below amortized cost on a quarterly basis to determine if a credit loss allowance is necessary. These reviews, in conjunction with our investment managers’ quarterly credit reports and relevant factors such as (1) has the security missed any scheduled principal or interest payments in the current quarter; (2) has the security been downgraded to below investment grade by rating agencies or if the security was below investment grade at time of purchase, has the security been downgraded by two or more notches since acquisition; (3) has the security declined in value by more than 10% compared to the prior quarter; (4) has the market yield changed by more than 50 basis points; are all considered in the impairment assessment process.

For each fixed maturity security where fair value is below amortized cost, we assess whether management with the appropriate authority has made the decision to sell or whether it is more likely than not we will be required to sell the security before the anticipated recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, any existing credit loss allowance is written-off and the amortized cost basis of the security is written down to the fair value, with the losses recorded as a net investment loss.

If we have not made the decision to sell the fixed maturity security and it is not more likely than not we will be required to sell the fixed maturity security before the anticipated recovery of its amortized cost basis, we evaluate whether we expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. We estimate the anticipated recovery based on the best estimate of future cash flows considering past events, current conditions and reasonable and supportable forecasts. The estimated future cash flows are discounted at the security’s effective interest rate and are compared to the amortized cost basis of the security. The determination of whether we expect to received cash flow sufficient to recover the entire amortized cost basis of the security is inherently subjective, and methodologies may vary depending on facts and circumstances specific to the security. Our investment managers will calculate the anticipated recovery value of the security by performing a discounted cash flow analysis based on the present value of future cash flows. The discount rate is generally the effective interest rate of the security at the time of purchase for fixed-rate securities. We will then review the assumptions/methodologies for reasonableness. The information reviewed generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, and the value of underlying collateral. Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed maturity securities, and other market data relevant to the realizability of contractual cash flows, may also be considered.

If we do not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed maturity security, a credit loss allowance is recorded as a net investment loss for the shortfall in expected cash flows; however, the amortized cost basis, net of the credit loss allowance, may not be lower than the fair value of the security. The portion of the unrealized loss related to factors other than credit remains classified in AOCI. If we determine that the fixed maturity security does not have sufficient cash flows or other information to estimate the anticipated recovery value for the security, we may conclude that the entire decline in fair value is deemed to be credit related and the loss is recognized as a net investment loss. Subsequent changes in the anticipated recoveries, limited by the amount of previous taken credit allowances, are recorded through changes in the allowance for credit losses and recognized through net investment loss.

When a security is disposed or deemed uncollectible and written-off, we reverse amounts previously recognized in the credit loss allowance through net investment loss.

Valuation of Future Policy Benefit Reserves

The Company adopted ASU 2018-12 for Liabilities for future policy benefits (LFPB) on a modified retrospective basis such that those balances were adjusted to conform to ASU 2018-12 on January 1, 2021.

The LFPB represents the cost of claims, minus projected future net premiums, that we estimate we will eventually pay to our policyholders and the related expenses for our traditional and limited-payment long duration contracts. Liabilities for future policy benefits are initially established in the same period in which we issue a policy, and equal the difference between projected future policy benefits and projected future net premiums, allowing a margin for expenses and profit. The liabilities for future policy benefits build up and release over time, based on the emergence of cash flows, including premiums received and claims paid, and updated expectations for future cash flows.

The liabilities are estimated using assumptions that include discount rate, mortality, morbidity, lapses, and expenses. For traditional and limited-payment contracts, a standard discount rate is used to remeasure the liabilities that is equivalent to market level yields for upper-medium-grade (low credit risk) fixed income instruments. The discount rate assumption is updated quarterly. For liability cash flows that are projected beyond the duration of market-observable level yields for upper-medium-grade (low credit risk) fixed income instruments, we use the last market-observable level yield and use linear interpolation to determine yield assumptions for durations that do not have market-observable yields.

The LFPB is sensitive to the discount rate. The potential effect of a decrease of 50 basis points in the discount rate as of December 31, 2024 would result in an increase to the liability for future policy benefits of approximately $85 million and the potential effect of an increase of 50 basis points in the discount rate would result in a decrease to the liability for future policy benefits of approximately $77 million.

Cash flow assumptions are reviewed and updated, as needed, at least annually. Mortality, morbidity, lapse, and expense assumptions used in cash flow modeling are based on judgments that consider our historical experience, industry data, and other factors. On a quarterly basis, cohort level cash flow measures are updated based on the emergence of actual experience. The updated cash flows, based on experience emergence and any assumption updates, are used to determine the updated net premiums, the portion of the gross premium required to provide for all benefits and expenses, excluding acquisition costs or any costs that are required to be charged to expense as incurred. The updated net premium ratio is used to calculate the updated liability for future policy benefits as of the beginning of the quarter, at the original discount rate. To the extent the present value of future benefits and expenses exceeds the present value of future gross premiums, an immediate charge is recognized in net income, such that net premiums are set equal to gross premiums. The potential impact of increasing (decreasing) our long-term mortality assumption by 5% is an increase (decrease) to the LFPB of approximately $10 million. The potential impact of increasing (decreasing) our long-term lapse assumption by 10% is a decrease (increase) to the LFPB of approximately $2.0 million. The potential impact of increasing (decreasing) our long-term morbidity assumption by 5% in an increase (decrease) to the LFPB of approximately $4 million.

See Part II – Item 8, Note 6 of the Consolidated Financial Statements in this Annual Report on Form 10-K for more information.

Valuation of Liabilities for Property & Casualty Unpaid Claims and Claim Expense Reserves

Underwriting results of Property & Casualty are significantly influenced by estimates of our ultimate liability for insured events. There is a high degree of uncertainty inherent in the estimates of ultimate losses underlying the liabilities for unpaid claims and claim expenses. This inherent uncertainty is particularly significant for liability-related exposures due to the extended period, often many years that transpire between a loss event, receipt of related claims data from policyholders and ultimate settlement of the claim. Reserves for Property & Casualty claims include provisions for payments to be made on reported claims (case reserves), incurred but not yet reported (IBNR) claims and associated settlement expenses (together, loss reserves).

The process by which these reserves are established requires reliance upon estimates based on known facts and on interpretations of circumstances, including our experience with similar cases and historical trends involving claim payments and related patterns, pending levels of unpaid claims and product mix, as well as other factors including court decisions, economic conditions, public attitudes and medical costs. We calculate and record a single best estimate of the reserve as of each reporting date.

In addition, during 2024 property & casualty includes loss and loss adjustment reserves and IBNR related to legacy commercial claims. The claims, which include asbestos, environmental, and sexual molestation claims, are related to legacy, long-tail commercial lines policies that were issued as early as the 1960s, under a previous ownership structure in business lines in which we no longer operate.

Changes to reserves are recorded in the period in which development factor changes result in reserve re-estimates. A detailed discussion of the process utilized to estimate loss reserves, risk factors considered and the impact of adjustments recorded during recent years is included in Part II - Item 8, Note 5 of the Consolidated Financial Statements in this Annual Report on Form 10-K.

Based on our products and coverages, historical experience, and modeling of various actuarial methodologies used to develop reserve estimates, there is the potential of variability of the Property & Casualty loss reserves.

There are a number of assumptions involved in the determination of our property & casualty loss reserves. Among the key factors affecting recorded loss reserves for both long-tail and short-tail related coverages, claim severity and claim frequency are of particular significance. We estimate that a 2.0% change in claim severity or claim frequency for unpaid losses is a reasonably likely scenario based on recent experience and would result in a change in the estimated direct reserves of approximately $3.9 million for long-tail liability related exposures (auto liability coverages) and approximately $1.5 million for short-tail liability related exposures (property and auto physical damage coverages). Actual results may differ, depending on the magnitude and direction of the deviation.

Our actuaries discuss their loss and loss adjustment expense actuarial analysis with management. As part of this discussion, the indicated point estimate of the IBNR loss reserve by line of business (coverage) is reviewed. Our actuaries also discuss any indicated changes to the underlying assumptions used to calculate the indicated point estimate. Any variance between the indicated reserves from these changes in assumptions and the previously carried reserves is reviewed. After discussion of these analyses and all relevant risk factors, management determines whether the reserve balances require adjustment. Our best estimate of loss reserves may change depending on a revision in the underlying assumptions.

Our liabilities for unpaid claims and claim expense reserves for property & casualty were as follows:

(1)These amounts are gross, before reduction for ceded reinsurance reserves.

The facts and circumstances leading to our re-estimate of reserves relate to revisions of the development factors used to predict how losses are likely to develop from the end of a reporting period until all claims have been paid. Re-estimates occur because actual loss amounts are different than those predicted by the estimated development factors used in prior reserve estimates. As of December 31, 2024, the impact of a reserve re-estimation resulting in a 1.0% increase in net reserves would be a decrease of approximately $2.1 million in net income. A reserve re-estimation resulting in a 1.0% decrease in net reserves would increase net income by approximately $2.1 million.

Favorable prior years' reserve re-estimates increased net income in 2024 by approximately $29.5 million pretax, primarily the result of favorable loss trends for auto and property for accident years 2023 and prior. In addition, during 2024 the Company recognized $17.7 million of losses arising from the legacy commercial line exposures. The Company had no reserves for these liabilities prior to 2024. No prior years' reserve development was recorded in 2023.

Results of Operations by Segment

Consolidated financial results primarily reflect the results of Property & Casualty, Life & Retirement, and Supplemental & Group Benefits reporting segments as noted in the Introduction section of this MD&A, as well as the Corporate & Other reporting segment. These segments are defined based on financial information management uses to evaluate performance and to determine the allocation of resources.

The determination of segment data is described in more detail in Part II - Item 8, Note 17 of the Consolidated Financial Statements in this Annual Report on Form 10-K. The following sections provide analysis and discussion of results of operations for each of the reporting segments as well as investment results.

Property & Casualty

2024 net income reflected the following factors:

•Increases in average written premium per policy

•Improved underlying property loss ratio* due to favorable frequency

•Favorable prior years' reserve development in the current year

•Higher net investment income on fixed maturity investments

The following table provides certain financial information for Property & Casualty for the years indicated.

(1)    (Favorable) unfavorable.

(2)    Includes assumed risks in force of 4.

Catastrophe losses incurred were as follows:(1)

(1)    See Part I - Item 1 - Reporting Segments - Property & Casualty for further details regarding catastrophe losses for the past five years.

Including a profit of $36.5 million in the fourth quarter, the Property & Casualty segment’s net income for the full year 2024 reflected favorable prior years' reserve development in the current year and non-catastrophe loss activity for much of the year. Property & Casualty net premiums written were up 13.9% for the year and segment net investment income was up 21.4% for the year.

On a reported basis, the 13.3 point decrease in the auto combined ratio in 2024 was mainly attributable to a 9.1 point decrease in the auto underlying loss ratio* and favorable prior year development. Favorable prior years' auto reserve development of $15.2 million was reported in 2024, reflecting the impact of lower severity.

The reported property combined ratio decreased 19.7 points in 2024 primarily due to a 9.9 point decrease in property underlying ratio* and favorable prior year development. Additionally, there was a 4.7 point decrease in the catastrophe ratio driven by higher premiums.

In 2024, total Property & Casualty net premiums written* increased $94.9 million as rate actions and inflation adjustments to coverage values for property more than offset declines in risks in force. Retention remained strong despite the rate actions with auto at 85.3%, reflecting a one point decline, and property flat at 89.6%.

In 2024, auto net premiums written* increased $51.6 million, primarily due to rate actions partially offset by the continuing decline in auto risks in force. For 2024, average auto net premium written and average net premium earned increased 15.7% and 16.3%, respectively. Property and other net premiums written* increased $43.3 million due to increases in average net premium written and average net premium earned which increased 18.2% and 17.8% respectively, as rate actions and inflation adjustments to coverage values continue to take effect. The number of educator risks has been at or above 80% relative to overall risks in force over the past two years.

We continue to evaluate and implement actions to further mitigate our risk exposure. Such actions could include, but are not limited to, non-renewal of property risks, restricted agent geographic placement, limitations on agent new business sales, further tightening of underwriting standards and increased utilization of third-party vendor products.

Life & Retirement

2024 net income reflected the following factors:

•1.7% decrease in net investment income due to lower returns on the commercial mortgage loan funds

•Decline of 46 basis points in the annualized net interest spread due to higher interest credited with slight decrease in net investment income

•Lower DAC amortization due to lower levels of write-offs as annuity persistency has been stable in the current year

•Life Benefits increased 4%

The following table provides certain information for the Life & Retirement segment for the years indicated.

The Life & Retirement segment net income decreased 21.3% in 2024 reflecting the lower net interest margin. Net investment income decreased 1.7% for the full-year due to lower returns on the commercial mortgage loan funds. The annualized net interest spread in our fixed annuity business was 172 basis points for the full year compared to 218 basis points in 2023, largely due to lower commercial mortgage loan funds and higher credited rates on the retained annuity block. The net dollar contribution from our FHLB funding agreements increased $3.8 million compared with 2023, with FHLB interest expense reflected in interest credited.

For 2024, net annuity contract deposits* for variable and fixed annuities decreased 0.8% for the year to $452.4 million. Educators continue to begin their relationship with Horace Mann through 403(b) retirement savings products, including the company’s attractive annuity products, which provide encouraging cross-sell opportunities. Cash value persistency remained strong at 91.4%.

Life annualized sales* were $10.4 million for the year, which was an 11.8% increase over prior year. Life insurance in force rose to $21.1 billion at year-end.

Horace Mann currently has $5.5 billion in annuity assets under management, including $2.2 billion of fixed annuities, $2.9 billion of variable annuities and $0.4 billion of fixed indexed annuities. Assets under administration, which includes Horace Mann Retirement Advantage® and other advisory and recordkeeping assets, were up 4.8%, benefiting from the strong equity markets.

We actively manage our interest rate risk exposure, considering a variety of factors, including earned interest rates, credited interest rates and the relationship between the expected durations of assets and liabilities. We

estimate that over the next 12 months approximately $512.5 million of the Life & Retirement investment portfolio and related investable cash flows will be reinvested at current market rates.

Interest rates remained relatively elevated throughout 2024. However, the risk of a deep recession or shock to the economy, such as a global pandemic, could result in a return to historically low interest rates. The current environment of higher interest rates have afforded us the opportunity to invest new insurance cash flows and reinvested cash flows at higher yields, which should be a benefit to net investment income, but the higher interest rates have caused net unrealized investment losses in the portfolios.

As a general guideline, based on our existing policies and investment portfolio, the impact from a 100 basis point decline in the average reinvestment rate would reduce Life & Retirement net investment income by approximately $2.0 million in year one and $5.9 million in year two, reducing the annualized net interest spread by approximately 7 basis points and 21 basis points in the respective periods, compared to the current period annualized net interest spread. We could also consider potential changes in rates credited to policyholders, tempered by any restrictions on the ability to adjust policyholder rates due to minimum guaranteed crediting rates.

We reinsure a $2.4 billion block of in force fixed annuities with a minimum crediting rate of 4.5% which helps mitigate the risk of not being able to generate appropriate spreads on the annuity business. Information regarding the interest crediting rates and balances equal to the guaranteed minimum crediting rates for deferred annuity account values excluding the reinsured block is shown below.

Supplemental & Group Benefits

2024 net income reflected the following factors:

•Benefit ratios reflect favorable impact from the annual reserve assumption review

•Slight decline in premium due to run-off* of an indemnified block of employer-sponsored products; net premiums earned increased 2.2% excluding the run-off

The following table provides certain information for Supplemental & Group Benefits for the years indicated.

(1)    Ratio of benefits to net premiums earned.

(2)    Ratio of operating expenses to total revenues.

(3)    Ratio of income before income taxes to total revenues.

2024 net income for the Supplemental & Group Benefits segment was $60.4 million. Segment net premiums earned and benefits expense declined slightly due to an indemnified block that is in run-off. The full-year benefit ratio for the worksite direct product line declined due to a slight increase in lapses. The full-year benefit ratio for

the employer-sponsored product lines declined due to favorable impact from the annual reserve assumption review, primarily related to favorable morbidity in our group long-term disability book. Segment net investment income declined 2.1% due to lower returns on the commercial mortgage loan funds. The non-cash impact of amortization of intangible assets under purchase accounting reduced full-year 2024 core earnings by $14.3 million, pretax, compared to $14.6 million in 2023.

Total segment sales* for the year were $25.6 million, down 2.3% from the prior year, with worksite direct supplemental product sales* of $17.0 million and employer-sponsored products of $8.7 million. Persistency remains strong at 90.5%.

Corporate & Other

The following table provides certain financial information for Corporate & Other for the years indicated.

For 2024, the net loss increased $17.1 million, primarily due to an increase in reserves relate to the legacy commercial exposures and an increase in interest expense partially offset by lower net investment losses.

Investment Results

Total net investment income includes net investment income from our investment portfolio as well as accreted investment income from the deposit asset on reinsurance related to our reinsured block of approximately $2.4 billion of fixed annuity liabilities related to legacy individual annuities written in 2002 or earlier.

For the full year, total net investment income rose 0.2% and net investment income on the managed portfolio increased 1.3%. The full-year increase reflected the benefit from higher interest rates in the fixed-income portfolios. Investment yield on the portfolio excluding limited partnership interests was 5.10%, with new money yields continuing to exceed portfolio yields in the core fixed maturity securities portfolio.

For 2024, pretax net investment losses decreased $6.7 million primarily due to changes in fair values of equity securities and normal portfolio management activity. Pretax net unrealized investment losses on fixed maturity securities as of December 31, 2024 were $454.5 million compared to pretax net unrealized investment losses of $417.6 million as of December 31, 2023, reflecting higher interest rates, driven primarily in increases to the 10-year U.S. Treasury yield, which was up 69 basis points for the year.

Fixed Maturity and Equity Securities Portfolios

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

(1)The All other corporates category contains 19 additional industry sectors. Technology, food and beverage, broadcasting and media, retail and telecommunications represented $204.9 million of fair value at December 31, 2024, with the remaining 13 sectors each representing less than $32.9 million.

(2)As of December 31, 2024, 100% were investment grade, with an overall credit rating of AA+, and the positions were well diversified by property type, geography and sponsor.

(3)Holdings are geographically diversified, 40.9% are tax-exempt and 77.5% are revenue bonds tied to essential services, such as mass transit, water and sewer. The overall credit quality of the municipal bond portfolio was AA- as of December 31, 2024.

(4)Based on fair value, 97.2% of the collateralized loan obligation securities were rated investment grade based on ratings assigned by a nationally recognized statistical ratings organization (NRSRO - S&P, Moody's, Fitch, DBRS, A.M. Best, Egan Jones and Kroll).

As of December 31, 2024, our diversified fixed maturity securities portfolio consisted of 3,897 investment positions, issued by 2,546 entities, and totaled approximately $5.4 billion in fair value. This portfolio was 95.1% investment grade, based on fair value, with an average credit quality rating of A+. Our investment guidelines target single corporate issuer concentrations to 0.5% of invested assets for AA or AAA rated securities, 0.35% of invested assets for A or BBB rated securities, and $5.0 million for non-investment grade securities.

Rating of Fixed Maturity Securities and Equity Securities (1)

The following table presents the composition and fair value of our fixed maturity and equity securities portfolios by rating category. As of December 31, 2024, 94.9% of these combined portfolios were investment grade, based on fair value, with an overall average credit quality rating of A+. We have classified the entire fixed maturity securities portfolio as available for sale, which is carried at fair value.

(1)Ratings are as assigned by a NRSRO when available. If no rating is available from a NRSRO, then a rating provided by the investment manager is used. Ratings for publicly traded securities are determined when the securities are acquired and are updated monthly to reflect any changes in ratings.

(2)As of December 31, 2024, the AA rated fair value amount included $357.6 million of U.S. Government and federally sponsored agency securities and $744.5 million of mortgage-backed and other asset-backed securities issued by U.S. Government and federally sponsored agencies.

(3)This category primarily represents private placement and municipal securities not rated by a NRSO.

As of December 31, 2024, the fixed maturity securities portfolio had $503.0 million of pretax gross unrealized investment losses on $3,600.8 million of fair value related to 2,527 positions. Of the investment positions with gross unrealized investment losses, there were 499 securities trading below 80.0% of the carrying amount as of December 31, 2024. See Part II - Item 8, Note 3 of the Consolidated Financial Statements in this Annual Report on Form 10-K for more information.

Higher interest rates, driven by higher US Treasury yields, have been the main driver of unrealized losses in the fixed maturity securities portfolio, with the 10-year increasing 69 basis points in 2024. Credit spreads partly offset these higher Treasury yields, tightening during the same time period, with investment grade and high yield

tighter by 19 and 36 basis points, respectively. Investment grade and high yield total returns for the year ended December 31, 2024 were up 2.13% and 8.19%, respectively. During the same time period, the Bloomberg Barclays Index Yield-to-Worst for Investment Grade rose 27 basis points, ending at 5.33%, while the High Yield Index fell 10 basis points to 7.49%.

Liquidity and Capital Resources

Our liquidity and access to capital were not materially impacted by inflation or changes in interest rates during the year ended December 31, 2024. For further discussion regarding the potential future impacts of inflation and changes in interest rates, see Part I – Item 1A - Risk Factors and Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations - Effects of Inflation and Changes in Interest Rates of this Annual Report on Form 10-K.

Investments

Information regarding our investment portfolio, which is comprised primarily of investment grade, fixed maturity securities, is presented in Part II - Item 7, Results of Operations by Segment, Part I - Item 1, Investments and in Part II - Item 8, Note 2 of the Consolidated Financial Statements in this Annual Report on Form 10-K.

Cash Flow

Our short-term liquidity requirements, within a 12 month operating cycle, are for the timely payment of claims and benefits to policyholders, operating expenses, interest payments and federal income taxes. Cash flow generated from operations has been, and is expected to be, adequate to meet our operating cash needs in the next 12 months. Cash flow in excess of operational needs has been used to fund business growth and acquisitions, pay dividends to shareholders and repurchase shares of our common stock. Long-term liquidity requirements, beyond one year, are principally for the payment of future insurance and annuity policy claims and benefits, as well as retirement of debt. The following table summarizes our consolidated cash flows activity for the periods indicated

Operating Activities

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

For 2024, net cash provided by operating activities increased $150.0 million. Fluctuations in net cash provided by operating activities are primarily due to timing of premium and investment income collections and benefits and claims payments.

Investing Activities

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

Financing Activities

Financing activities include primarily payment of dividends, receipt and withdrawal of funds by annuity contractholders, issuances and repurchases of our common stock, finance-type reinsurance agreements, fluctuations in book overdraft balances, and borrowings, repayments and repurchases related to debt facilities.

For 2024, cash outflows for financing activities were $100.1 million higher. The higher cash outflows were due to an increase in net cash outflows on annuity contracts and lower net cash inflows from FHLB funding agreements partially offset by higher net inflows for reverse repurchase agreements.

On September 15, 2023, we issued $300.0 million aggregate principal amount of 7.25% Senior Notes due September 15, 2028 (2023 Senior Notes) and used the net proceeds to fully repay the $249.0 million of outstanding borrowings under our Revolving Credit Facility. The remaining net proceeds from the issuance of the 2023 Senior Notes were available for general corporate purposes.

The following table shows activity from FHLB funding agreements for the periods indicated.

Liquidity Sources and Uses

Our potential sources and uses of funds principally include the following activities:

We actively manage our financial position and liquidity levels in light of changing market, economic and business conditions. Liquidity is managed at both the entity and enterprise level across HMEC and is assessed on both base and stressed level liquidity needs. We believe we have sufficient liquidity to meet these needs. Additionally, we have existing intercompany agreements in place that facilitate liquidity management across HMEC to enhance flexibility.

As of December 31, 2024, we held $1.1 billion of cash, U.S. government and agency fixed maturity securities and public equity securities (excluding non-redeemable preferred stocks and foreign equity securities) which, under normal market conditions, could be rapidly liquidated.

Certain remote events and circumstances could constrain our liquidity. Those events and circumstances include, for example, a catastrophe resulting in extraordinary losses, a downgrade of our Senior Notes rating to non-investment grade status or a downgrade in our insurance subsidiaries' financial strength ratings. The rating agencies also consider the interdependence of our individually rated entities; therefore, a rating change in one entity could potentially affect the ratings of other related entities.

Capital Resources

We have determined the amount of capital which is needed to adequately fund and support business growth, primarily based on risk-based capital formulas including those developed by the NAIC. Historically, our insurance subsidiaries have generated capital in excess of such needed levels. These excess amounts have been paid to us through dividends. We have then utilized these dividends and our access to the capital markets to service and retire debt, pay dividends to our shareholders, fund growth initiatives, repurchase shares of our common stock and for other corporate purposes. If necessary, we also have other potential sources of liquidity that could provide for additional funding to meet corporate obligations or pay shareholder dividends, which include our Revolving Credit Facility, as well as issuances of various securities. The insurance subsidiaries are subject to various regulatory restrictions which limit the amount of annual dividends or other distributions, including loans or cash advances, available to us without prior approval of the insurance regulatory authorities. The aggregate amount of dividends that may be paid in 2025 from all of our insurance subsidiaries without prior regulatory approval is approximately $148.8 million, excluding the impact and timing of prior year dividends, of which $117.1 million was paid during the year ended December 31, 2024. We anticipate that our sources of capital will continue to generate sufficient capital to meet the needs for business growth, debt interest payments, shareholder dividends and our share repurchase program. Additional information is contained in Part II - Item 8, Note 13 of the Consolidated Financial Statements in this Annual Report on Form 10-K.

Total capital was $1,834.5 million as of December 31, 2024, including $547.0 million of long-term debt. Total debt represented 29.8% of total capital including net unrealized investment losses on fixed maturity securities (26.3% of total capital excluding net unrealized investment losses on fixed maturity securities and net reserve remeasurements attributed to discount rates*) as of December 31, 2024, which was slightly above our long-term target of 25.0%.

Shareholders' equity was $1,287.5 million as of December 31, 2024, including net unrealized investment losses on fixed maturity securities and net reserve remeasurements attributed to discount rates. The market value of our common stock and the market value per share were $1,603.1 million and $39.23, respectively, at December 31, 2024. Book value per share was $31.51 as of December 31, 2024 ($37.54 excluding net unrealized investment losses on fixed maturity securities and net reserve remeasurements attributed to discount rates*).

Additional information regarding net unrealized investment gains (losses) on fixed maturity securities as of December 31, 2024 is included in Part II - Item 7, Results of Operations by Segment and Part II - Item 8, Note 2 of the Consolidated Financial Statements in this Annual Report on Form 10-K.

Total shareholder dividends paid were $55.6 million for the year ended December 31, 2024. In 2024, the Board declared regular quarterly dividends of $0.34 per share. Compared to the full year per share dividends paid in 2023 of $1.32, the total 2024 dividends paid per share of $1.36 represented an increase of 3.0%.

On May 25, 2022, our Board of Directors authorized a share repurchase program allowing repurchases of up to $50 million (2022 Program) to begin following the completion of the $50 million repurchase plan that was authorized on September 30, 2015 (2015 Program). Both Programs authorize the repurchase of our common shares in open market or privately negotiated transactions, from time to time, depending on market conditions. The Programs do not have expiration dates and may be limited or terminated at any time without notice. During

the third quarter of 2022, the 2015 Program was completed and we began repurchasing shares under the 2022 Program. During 2024, we repurchased 256,159 shares of our common stock at an average price per share of $33.33 under the Programs. In total and through December 31, 2024, 2,164,135 shares have been repurchased under the 2015 and 2022 Programs at an average price of $34.06 per share. The repurchase of shares was funded through use of cash. As of December 31, 2024, $26.3 million remained authorized for future share repurchases under the 2022 Program.

The following table summarizes our debt obligations.

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

On September 15, 2023, we issued $300.0 million aggregate principal amount of 7.25% senior notes (2023 Senior Notes), which will mature on September 15, 2028, issued at a discount resulting in an effective yield of 7.29%. Interest on the 2023 Senior Notes is payable semi-annually at a rate of 7.25%. The 2023 Senior Notes are redeemable in whole or in part, at any time, at our option, at a redemption price equal to the greater of (1) 100% of the principal amount of the notes being redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted, on a semi-annual basis, at the Treasury yield (as defined in the indenture) plus 45 basis points, plus, in either of the above cases, accrued interest to the date of redemption. The 2023 Senior Notes are traded in the open market (HMN 7.25).

The net proceeds from the sale of the 2023 Senior Notes were used to fully repay the $249.0 million balance on the Revolving Credit Facility with remaining net proceeds from the sale to be used for general corporate purposes. As of December 31, 2024, we had $325.0 million available on the Revolving Credit Facility, with an interest rate based on SOFR plus 115 basis points plus the applicable benchmark adjustment spread. The Revolving Credit Facility expires on July 12, 2026. The unused portion of the Revolving Credit Facility is subject to a variable commitment fee, which was 0.15% on an annual basis as of December 31, 2024.

As of December 31, 2024, we had outstanding $250.0 million aggregate principal amount of 4.50% Senior Notes (2015 Senior Notes), which will mature on December 1, 2025, issued at a discount resulting in an effective yield of 4.53%. Interest on the 2015 Senior Notes is payable semi-annually at a rate of 4.50%. Detailed information regarding the redemption terms of the 2015 Senior Notes is contained in the Part II - Item 8, Note 10 of the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2022. The 2015 Senior Notes are traded in the open market (HMN 4.50).

As of December 31, 2024, we had no borrowings outstanding with FHLB. The Board has authorized a maximum amount equal to 15% of net aggregate admitted assets less separate account assets of the insurance subsidiaries for FHLB borrowing and funding agreements which is below our maximum FHLB borrowing capacity.

We had an obligation of $12.0 million for securities sold under reverse repurchase agreements at December 31, 2024 compared to no reverse repurchase agreements outstanding as of December 31, 2023.

To provide additional capital management flexibility, we filed a "universal shelf" registration statement on Form S-3 with the Securities and Exchange Commissions (SEC) on March 8, 2024. The registration statement, which registered the offer and sale from time to time of an indeterminate amount of various securities, which may include debt securities, common stock, preferred stock, depositary shares, warrants, delayed delivery contracts and/or units that include any of these securities, was automatically effective on March 8, 2024. Unless withdrawn

by us earlier, this registration statement will remain effective through March 8, 2027. No securities associated with the registration statement have been issued at the time of issuance of this Annual Report on Form 10-K.

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

Financial Ratings

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

All four agencies currently have assigned the same insurance financial strength ratings to our Property & Casualty and Life insurance subsidiaries. Only A.M. Best currently rates our Supplemental & Group Benefits subsidiaries, with an assigned rating of A (Excellent). Assigned ratings and respective affirmation/review dates as of February 14, 2025 were as follows:

Reinsurance Programs

Information regarding the reinsurance programs for our Property & Casualty, Life & Retirement and Supplemental & Group Benefits segments is located in Part I - Item 1, Reporting Segments of this Annual Report on Form 10-K.

Future Adoption of New Accounting Standards

We have not yet adopted Income Taxes (Topic 740): Improvements to Income Tax Disclosures or Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) Disaggregation of Income Statement because the adoption dates have not occurred. For a discussion of these new accounting standards, see Part II - Item 8, Note 1 of the Consolidated Financial Statements in this Annual Report on Form 10-K.

Effects of Inflation and Changes in Interest Rates

Our operating results are affected significantly in at least three ways by changes in interest rates and inflation and the recent elevated inflation levels we are experiencing are likely to persist for some time. First, inflation directly affects Property & Casualty claims costs. Second, the investment income earned on our investment portfolio and the fair value of the investment portfolio are related to the yields available in the fixed income markets. An increase in interest rates will decrease the fair value of the investment portfolio, but will increase investment income as investments mature and proceeds are reinvested at higher rates. Third, as interest rates increase, competitors will typically increase crediting rates on annuity contracts and life insurance products with account values, and may lower premium rates on property and casualty lines to reflect the higher yields available in the market. The risk of inflation on Property & Casualty claim costs is managed through pricing and rate. The risk of interest rate fluctuation is managed through asset/liability management techniques, including cash flow analysis. In addition, an annuity reinsurance agreement we entered which reinsures a $2.4 billion block of in force fixed annuities with a minimum crediting rate of 4.5%, helps mitigate the risk of not being able to generate appropriate spreads on the annuity business.

For further discussion regarding the potential future impacts of inflation and changes in interest rates, see Part I – Item 1A - Risk Factors.