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

FORM 10-Q 

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
or
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-10890

HORACE MANN EDUCATORS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware37-0911756
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1 Horace Mann Plaza, Springfield, Illinois      62715-0001
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: 217-789-2500
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange
on which registered
Common Stock, $0.001 par valueHMNNew York Stock Exchange


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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes No

As of July 31, 2022, the registrant had 40,897,461 common shares, $0.001 par value, outstanding.



HORACE MANN EDUCATORS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022
TABLE OF CONTENTS

Page
   
Item 1.
 
   
 
   
 
   
 
   
 
   
 
   
  
 
 
 
 
 
 
   
Item 2.
   
Item 3.
   
Item 4.
   
 
   
Item 1A.
   
Item 2.
   
Item 5.
   
Item 6.
   



PART I: FINANCIAL INFORMATION
ITEM 1. I Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Horace Mann Educators Corporation:

Results of Review of Interim Financial Information
We have reviewed the consolidated balance sheets of Horace Mann Educators Corporation and subsidiaries (the Company) as of June 30, 2022, the related consolidated statements of operations, comprehensive income (loss) and changes in shareholders' equity for the three and six-month periods ended June 30, 2022 and 2021, and cash flows for the six-month periods ended June 30, 2022 and 2021, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 25, 2022, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
 
/s/ KPMG LLP
KPMG LLP
 
 
Chicago, Illinois
 
August 8, 2022
 
Horace Mann Educators Corporation
1
Quarterly Report on Form 10-Q



HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in millions, except share data)
June 30, 2022December 31, 2021
(Unaudited)
Assets
Investments
Fixed maturity securities, available for sale, at fair value
(amortized cost, net 2022, $6,046.5; 2021, $5,797.7)
$5,688.0 $6,239.3 
Equity securities at fair value
117.3 147.2 
Limited partnership interests828.4 712.8 
Short-term and other investments302.7 350.2 
Total investments
6,936.4 7,449.5 
Cash50.1 133.7 
Deferred policy acquisition costs389.9 248.0 
Reinsurance balances receivable497.6 153.2 
Deposit asset on reinsurance2,507.1 2,481.5 
Intangible assets196.4 145.4 
Goodwill56.3 43.5 
Other assets313.5 288.1 
Separate Account (variable annuity) assets2,811.2 3,441.0 
Total assets$13,758.5 $14,383.9 
Liabilities and Shareholders' Equity
Policy liabilities
Investment contract and policy reserves$7,053.8 $6,577.8 
Unpaid claims and claim expenses490.5 425.9 
Unearned premiums252.6 255.1 
Total policy liabilities
7,796.9 7,258.8 
Other policyholder funds1,027.6 945.9 
Other liabilities364.9 428.2 
Short-term debt249.0 249.0 
Long-term debt248.8 253.6 
Separate Account (variable annuity) liabilities2,811.2 3,441.0 
Total liabilities12,498.4 12,576.5 
Preferred stock, $0.001 par value, authorized
1,000,000 shares; none issued
  
Common stock, $0.001 par value, authorized 75,000,000 shares;
issued, 2022, 66,608,045; 2021, 66,436,821
0.1 0.1 
Additional paid-in capital498.1 495.3 
Retained earnings1,499.9 1,524.9 
Accumulated other comprehensive (loss) income, net of tax: 
Net unrealized investment gains (losses) on fixed maturity securities(220.4)290.7 
Net funded status of benefit plans
(10.2)(10.2)
Treasury stock, at cost, 2022, 25,418,708 shares;
2021, 25,043,337 shares
(507.4)(493.4)
Total shareholders’ equity1,260.1 1,807.4 
Total liabilities and shareholders’ equity$13,758.5 $14,383.9 






See Notes to Consolidated Financial Statements.
Horace Mann Educators Corporation
2
Quarterly Report on Form 10-Q



HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
($ in millions, except per share data)
Three Months Ended
June 30,
Six Months Ended
June 30,
 2022202120222021
Statements of Operations
Revenues  
Net premiums and contract charges earned$255.8 $225.8 $511.7 $453.4 
Net investment income105.2 109.2 203.1 204.7 
Net investment gains (losses)(15.5)4.9 (31.0)(4.1)
Other income0.8 7.2 9.3 15.1 
Total revenues
346.3 347.1 693.1 669.1 
Benefits, losses and expenses
Benefits, claims and settlement expenses207.6 147.1 384.6 281.4 
Interest credited42.4 51.2 83.2 101.8 
Operating expenses77.3 60.5 154.1 118.5 
DAC unlocking and amortization expense27.0 23.5 53.4 47.6 
Intangible asset amortization expense4.2 3.2 8.4 6.5 
Interest expense4.3 3.5 8.2 7.0 
Total benefits, losses and expenses
362.8 289.0 691.9 562.8 
Income (loss) before income taxes(16.5)58.1 1.2 106.3 
Income tax expense (benefit)(4.0)11.4 (0.8)20.3 
Net income (loss)$(12.5)$46.7 $2.0 $86.0 
Net income (loss) per share
Basic$(0.30)$1.11 $0.05 $2.05 
Diluted$(0.30)$1.11 $0.05 $2.04 
Weighted average number of shares and equivalent shares
Basic41.8 42.0 41.8 42.0 
Diluted41.8 42.1 42.0 42.1 
Statements of Comprehensive Income (Loss)
Net income (loss)$(12.5)$46.7 $2.0 $86.0 
Other comprehensive income (loss), net of tax:
Change in net unrealized investment gains
(losses) on fixed maturity securities
(240.4)88.6 (511.1)(34.1)
Change in net funded status of benefit plans    
Other comprehensive income (loss)(240.4)88.6 (511.1)(34.1)
Comprehensive income (loss)$(252.9)$135.3 $(509.1)$51.9 








See Notes to Consolidated Financial Statements.
Horace Mann Educators Corporation
3
Quarterly Report on Form 10-Q



HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
($ in millions, except per share data)
Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
Common stock, $0.001 par value
Beginning balance$0.1 $0.1 $0.1 $0.1 
Options exercised— — — 
Conversion of common stock units— — — 
Conversion of restricted stock units— — — 
Ending balance0.1 0.1 0.1 0.1 
Additional paid-in capital
Beginning balance496.6 489.2 495.3 488.4 
Options exercised and conversion of common stock
units and restricted stock units
(0.7)— (1.2)(1.2)
Share-based compensation expense2.2 1.5 4.0 3.5 
Ending balance498.1 490.7 498.1 490.7 
Retained earnings
Beginning balance1,525.9 1,460.8 1,524.9 1,434.6 
Net income (loss)(12.5)46.7 2.0 86.0 
Dividends, 2022, $0.32 per share; 2021, $0.31 per share
(13.5)(13.1)(27.0)(26.2)
Ending balance1,499.9 1,494.4 1,499.9 1,494.4 
Accumulated other comprehensive income (loss), net of tax:
Beginning balance9.8 232.4 280.5 355.1 
Change in net unrealized investment gains (losses)
on fixed maturity securities
(240.4)88.6 (511.1)(34.1)
Change in net funded status of benefit plans— — — — 
Ending balance(230.6)321.0 (230.6)321.0 
Treasury stock, at cost
Beginning balance(495.6)(489.6)(493.4)(488.1)
Acquisition of shares(11.8)— (14.0)(1.5)
Ending balance(507.4)(489.6)(507.4)(489.6)
Shareholders' equity at end of period$1,260.1 $1,816.6 $1,260.1 $1,816.6 

















See Notes to Consolidated Financial Statements.
Horace Mann Educators Corporation
4
Quarterly Report on Form 10-Q



HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
($ in millions)
Six Months Ended
June 30,
20222021
Cash flows - operating activities
Net income$2.0 $86.0 
Adjustments to reconcile net income to net cash provided by operating activities:
     Net investment losses31.0 4.1 
     Depreciation and intangible asset amortization7.9 11.1 
     Share-based compensation expense4.4 3.8 
     Income from equity method investments, net of dividends or distributions(3.8)(24.6)
     Changes in:
      Accrued investment income (4.6)(3.3)
      Insurance liabilities411.8 35.6 
      Amounts due under reinsurance agreements(344.3)(1.3)
      Income tax liabilities(6.3)6.5 
      Other operating assets and liabilities(21.2)(5.8)
      Other3.1 4.5 
Net cash provided by operating activities80.0 116.6 
Cash flows - investing activities  
Fixed maturity securities  
Purchases(784.6)(872.3)
Sales365.3 163.8 
Maturities, paydowns, calls and redemptions346.8 443.7 
Equity securities
Purchases(4.3)(36.1)
Sales and repayments6.8 0.7 
Limited partnership interests
Purchases(147.8)(141.4)
Sales36.4 41.2 
Change in short-term and other investments, net49.7 57.3 
Acquisition of business, net of cash acquired(164.4) 
Net cash used in investing activities(296.1)(343.1)
Cash flows - financing activities  
Dividends paid to shareholders(26.4)(25.7)
FHLB borrowings 1.0 
Principal repayment on FHLB borrowings(5.0)(25.0)
Acquisition of treasury stock(14.0)(1.5)
Proceeds from exercise of stock options 0.3 
Withholding tax payments on RSUs tendered(2.3)(2.0)
Annuity contracts: variable, fixed and FHLB funding agreements:  
Deposits332.9 515.9 
Benefits, withdrawals and net transfers to
   Separate Account (variable annuity) assets
(223.4)(216.2)
  Principal repayment on FHLB funding agreements(10.0) 
Life policy accounts: 
Deposits4.6 4.4 
Withdrawals and surrenders(1.9)(2.1)
Change in deposit asset on reinsurance(24.4)(13.0)
Net increase in reverse repurchase agreements95.8  
Change in book overdrafts6.6 (2.5)
Net cash provided by financing activities132.5 233.6 
Net increase (decrease) in cash(83.6)7.1 
Cash at beginning of period133.7 22.3 
Cash at end of period$50.1 $29.4 
See Notes to Consolidated Financial Statements.
Horace Mann Educators Corporation
5
Quarterly Report on Form 10-Q



HORACE MANN EDUCATORS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 - Basis of Presentation and Significant Accounting Policies
Business
Horace Mann Educators Corporation is a holding company for insurance subsidiaries that market and underwrite personal lines of property and casualty insurance products (primarily personal lines of auto and property insurance), life insurance products, retirement products (primarily tax-qualified fixed and variable annuities), voluntary supplemental insurance products (primarily cancer, heart, hospital, supplemental disability and accident coverages), and employer-sponsored group benefit products (primarily short-term and long-term group disability, and group term life coverages), primarily to K-12 teachers, administrators and other employees of public schools and their families (collectively, HMEC, the Company or Horace Mann).
As described more fully in Note 2, the Company acquired Madison National Life Insurance Company, Inc. (Madison National) effective January 1, 2022. In conjunction with the acquisition, management changed how it manages and conducts business resulting in three operating segments: (1) Property & Casualty, (2) Life & Retirement, and (3) Supplemental & Group Benefits (which includes the results of Madison National).
Basis of Presentation
The accompanying Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and with the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in annual financial statements prepared in conformity with GAAP, but are not required for interim reporting purposes, have been omitted. These Consolidated Financial Statements and Notes thereto should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Part II - Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year.
The accompanying Consolidated Financial Statements and Notes thereto are unaudited. These financial statements reflect all adjustments (generally consisting only of normal recurring accruals) which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position, results of operations and cash flows for the interim periods. The Company's significant accounting policies are summarized in Part II - Item 8, Note 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
The Company has reclassified the presentation of certain prior period information to conform to the current year's presentation.
Consolidation
All intercompany transactions and balances between HMEC and its subsidiaries and affiliates have been eliminated.
Accounting Policies
Reverse Repurchase Agreements
Beginning in the second quarter of 2022, the Company entered into reverse repurchase agreements to sell securities for cash. Such reverse repurchase agreements are primarily used as a financing tool for general corporate purposes and may be used as a tool to enhance yield on the investment portfolio.
A reverse repurchase agreement is a transaction in which one party (transferor) agrees to sell securities to another party (transferee) in return for cash (or securities), with a simultaneous agreement to repurchase the same securities (or substantially similar securities) at a specified price on a specified date. These transactions are generally short-term in nature, and therefore, the carrying amounts of these instruments approximate fair value.
Horace Mann Educators Corporation
6
Quarterly Report on Form 10-Q



NOTE 1 - Basis of Presentation and Significant Accounting Policies (continued)
In connection with reverse repurchase agreements, the Company transfers primarily U.S. government, government agency and corporate securities and receives cash. For reverse repurchase agreements, the Company receives cash in an amount equal to at least 95% of the fair value of the securities transferred, and the agreements with third parties contain contractual provisions to allow for additional collateral to be obtained when necessary. The Company accounts for reverse repurchase agreements as secured borrowings. The securities transferred under reverse repurchase agreements are included in Fixed maturity securities with the obligation to repurchase those securities reported in Other liabilities on the Company's Consolidated Balance Sheets. The fair value of the securities transferred was $99.5 million as of June 30, 2022 and $0 as of December 31, 2021. The obligation for securities sold under reverse repurchase agreements was a net amount of $95.8 million as of June 30, 2022 million and $0 as of December 31, 2021.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the reporting date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
The most significant critical accounting estimates include valuation of hard-to-value fixed maturity securities, evaluation of credit loss impairments for fixed maturity securities, evaluation of goodwill and intangible assets for impairment, valuation of annuity and life deferred policy acquisition costs, valuation of liabilities for property and casualty unpaid claims and claim expenses, valuation of certain investment contracts and policy reserves and valuation of assets acquired and liabilities assumed under purchase accounting and purchase price allocation.
Future Adoption of New Accounting Standards
Accounting for Long-Duration Insurance Contracts
In August 2018, the FASB issued targeted improvements to the accounting and disclosure guidance for long-duration insurance contracts (i.e., ASU 2018-12). The guidance in ASU 2018-12 (ASU) significantly changes how insurers account for long-duration insurance contracts. The guidance in the ASU also significantly expands the disclosure requirements for long-duration insurance contracts.
The Company will adopt the ASU effective January 1, 2023, using the modified retrospective transition method where permitted, and apply the guidance as of January 1, 2021 (and record transition adjustments as of January 1, 2021) in the Company’s 2023 consolidated financial statements. Prior periods presented (years 2021 and 2022) will be adjusted to apply the new method of accounting retrospectively under the ASU.
While the requirements of the ASU represent a significant change from existing GAAP, the adoption of the ASU will not impact cash flows on the Company’s policies, or the underlying economics of the Company’s business. The Company's insurance subsidiaries' risk-based capital amounts and ratios, and regulatory dividends will not be impacted as the National Association of Insurance Commissioners has rejected the adoption of ASU 2018-12.
The Company has created a governance framework and is managing a detailed implementation plan to support timely application of the guidance in the ASU. The Company has made progress and continues to refine key accounting policy decisions, technology solutions and internal controls. These activities include, but are not limited to, modifications of actuarial valuation, accounting and financial reporting processes and systems including internal controls.
The table below summarizes the areas of significant change and each significant area of change for the method of adoption and expected impact to the Company's results of operations and financial condition as a result from adopting the ASU at transition and subsequent to the effective date.
Horace Mann Educators Corporation
7
Quarterly Report on Form 10-Q



NOTE 1 - Basis of Presentation and Significant Accounting Policies (continued)
Area of significant changeImpacts at transition (January 1, 2021)Impacts subsequent to the effective date
Cash flow assumptions for measuring the liability for future policy benefits
Under current accounting guidance, assumptions for traditional long-duration insurance contracts (e.g., mortality, lapses, etc.), are locked-in at issuance.

The new guidance requires insurers to review, and if necessary, update the cash flow assumptions used to measure liabilities for future policy benefits periodically. The change in the liability estimate as a result of updating cash flow assumptions will be recognized in net income.

The Company expects to adopt this guidance on a modified retrospective basis as of the earliest period presented in the year of adoption. Upon adoption, there will be an adjustment to retained earnings as a result of capping the net premium ratio at 100%.

The Company expects the impact of such adjustment will likely result in an after-tax decrease to retained earnings of less than $5 million.
                                 
The Company does not expect any material impacts to its results of operations subsequent to the effective date of the ASU.
Discount rate assumption for measuring the liability for future policy benefits
Under current accounting guidance, the-then current discount rate is locked-in at issuance.

The new guidance requires insurers to update the discount rate assumption used to measure liabilities for future policy benefits at each reporting period, and the discount rate utilized must be based on an upper-medium grade fixed income instrument yield. The change in the liability estimate as a result of updating the discount rate assumption will be recognized in other comprehensive income.
The Company expects to adopt this guidance on a modified retrospective basis as of the earliest period presented in the year of adoption. Upon adoption, there will be an adjustment to accumulated other comprehensive income (AOCI) as a result of remeasuring in force contract liabilities using a standard discount rate to measure the liabilities that will be equivalent to the yield from a high-quality bond and the adjustment will largely reflect the difference between discount rates locked-in at contract inception versus current discount rates at transition.

The Company currently estimates that the transition date impact from adoption is likely to result in an after-tax decrease to AOCI in a range between $450 million and $550 million.

The Company expects material impacts to AOCI subsequent to the effective date of the ASU due to subsequent increases and decreases in discount rates.
Market risk benefits
Under current accounting guidance, certain benefit features of annuity contracts (e.g., GMDB, etc.) are accounted for using a benefit ratio methodology.

The new guidance created a new category of benefit features called market risk benefits that will be measured at fair value with changes in fair value attributable to a change in the instrument-specific credit risk recognized in other comprehensive income.

The Company will adopt this guidance on a retrospective basis as of the earliest period presented in the year of adoption. Upon adoption, the Company expects an impact to AOCI for the cumulative effect of changes in the instrument-specific credit risk between contract issue date and transition date and retained earnings for the difference between fair value and carrying value at the transition date, excluding the changes in the instrument-specific credit risk.

The Company is currently evaluating the impact of these adjustments but anticipates they will likely reduce AOCI and retained earnings by less than $15 million after-tax.

Subsequent to the effective date of the ASU, the Company expects market risk benefits will add volatility to benefits expense which could be material. The Company is currently evaluating the impacts of these adjustments subsequent to the effective date of the ASU.
Deferred policy acquisition costs (DAC) including shadow DAC
Under current accounting guidance, for all annuity contracts, DAC is amortized over 20 years in proportion to estimated gross profits. For individual life contracts, DAC is amortized in proportion to anticipated premiums over the terms of the insurance policies (10, 15, 20, 30) years. For IUL, DAC is amortized in proportion to estimated gross profits over 30 years.

The new guidance requires DAC and other balances to be amortized on a constant level basis over the expected term of the related contracts.
The Company expects to adopt this guidance on a modified retrospective basis as of the earliest period presented in the year of adoption. Upon adoption, the Company expects an adjustment to AOCI for the removal of cumulative adjustments to DAC associated with unrealized investment gains and losses previously recorded in AOCI.

The impact of this adjustment will likely result in an after-tax increase to AOCI in a range between $65 million and $75 million upon adoption.

Subsequent to the effective date of the ASU, the Company expects a significant reduction in volatility of DAC unlocking due to the removal of investment performance and market impacts and an insignificant decrease in amortization expense due to the treatment of interest expense and method of amortizing DAC.
Horace Mann Educators Corporation
8
Quarterly Report on Form 10-Q



NOTE 2 - Acquisitions
Effective January 1, 2022, the Company acquired all the equity interests in Madison National pursuant to a Stock Purchase Agreement (Agreement) dated as of July 14, 2021. The final adjusted purchase price of the transaction was $172.3 million. The seller of Madison National has a potential earn-out of up to $12.5 million payable in cash, if specified financial targets are achieved by the end of 2023. As a result of the acquisition, Madison National became a wholly owned subsidiary of the Company. Madison National is a leading writer of employer-sponsored benefits provided to educators by K-12 school districts. Founded in 1961 and headquartered in Madison, Wisconsin, Madison National offers short-term and long-term group disability, group term life, and worksite solutions products, including accident and critical illness.
Madison National's results are being reported in the operating segment titled "Supplemental & Group Benefits". The amount of revenues and pretax income for Madison National since the date of acquisition included in the Company's Consolidated Statement of Operations for the six months ended June 30, 2022 are $73.6 million and $0.1 million (inclusive of the $2.4 million non-cash impact from amortization of intangible assets under purchase accounting), respectively.
The Company has not yet completed the process of estimating the fair value of Madison National assets acquired and liabilities assumed, including, but not limited to, intangible assets, policy reserves and certain tax-related balances. Accordingly, the Company’s preliminary estimates and the allocation of the final adjusted purchase price to the assets acquired and liabilities assumed are subject to change as the Company completes the process. In accordance with Accounting Standards Codification (ASC) 805, Business Combinations, changes if any, to the preliminary estimates and allocation of the final adjusted purchase price will be reported in the Company’s financial statements as an adjustment to the opening balance sheet. Based on the Company’s preliminary allocation of the final adjusted purchase price, the fair values of the assets acquired and liabilities assumed were as follows:
($ in millions)
Assets:
Investments$90.4 
Cash and short-term investments123.4 
Reinsurance recoverable356.0 
Intangible assets(1)
59.4 
Other assets23.2 
Liabilities:
Investment contract and policy reserves274.5 
Unpaid claims and claim expenses48.2 
Unearned premiums1.5 
Other policyholder funds152.8 
Other liabilities15.9 
Total identifiable net assets acquired159.5 
Goodwill(2)
12.8 
Purchase price$172.3 
(1)    Intangible assets consist of the value of business acquired, value of customer relationships and state licenses. The intangible assets that are amortizable have estimated lives of one to ten years. See Note 5 for further information.
(2)    The amount of goodwill that is expected to be deductible for federal income tax purposes is $18.6 million.















Horace Mann Educators Corporation
9
Quarterly Report on Form 10-Q



NOTE 3 - Investments
Net Investment Income
The components of net investment income for the following periods were as follows:
($ in millions)Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
Fixed maturity securities$62.0 $59.4 $120.6 $117.4 
Equity securities4.0 1.3 5.3 2.4 
Limited partnership interests13.2 23.0 26.2 34.3 
Short-term and other investments2.7 2.9 5.4 5.7 
Investment expenses(2.5)(2.5)(5.1)(4.6)
Net investment income - investment portfolio
79.4 84.1 152.4 155.2 
Investment income - deposit asset on reinsurance25.8 25.1 50.7 49.5 
Total net investment income
$105.2 $109.2 $203.1 $204.7 
Net Investment Gains (Losses)
Net investment (losses) gains for the following periods were as follows:
($ in millions)Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
Fixed maturity securities$(2.9)$1.5 $(5.2)$(3.9)
Equity securities(12.6)4.4 (28.1)1.7 
Short-term investments and other (1.0)2.3 (1.9)
Net investment gains (losses)$(15.5)$4.9 $(31.0)$(4.1)

The Company, from time to time, sells fixed maturity securities subsequent to the reporting date that were considered temporarily impaired at such reporting date. Such sales are due to issuer-specific events occurring subsequent to the reporting date that result in a change in the Company's intent to sell a fixed maturity security. The types of events that may result in a sale include significant changes in the economic facts and circumstances related to the invested asset, significant unforeseen changes in liquidity needs, or changes in the Company's investment strategy.
Net Investment Gains (Losses) by Transaction Type
The following table reconciles net investment gains (losses) by transaction type:
($ in millions)Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
Credit loss impairments$(1.3)$ $(2.2)$(1.1)
Intent-to-sell impairments(0.5) (1.4)(2.1)
Total impairments on investments recognized in net income(1.8) (3.6)(3.2)
Sales and other, net(1.1)1.6  (0.5)
Change in fair value - equity securities(12.6)4.3 (29.7)1.5 
Change in fair value and gains (losses) realized
on settlements - derivatives
 (1.0)2.3 (1.9)
Net investment gains (losses)$(15.5)$4.9 $(31.0)$(4.1)





Horace Mann Educators Corporation
10
Quarterly Report on Form 10-Q



NOTE 3 - Investments (continued)
Allowance for Credit Loss Impairments on Fixed Maturity Securities
The following table presents changes in the allowance for credit loss impairments on fixed maturity securities classified as available for sale for the category of other asset-backed securities (no other categories of fixed maturity securities have an allowance for credit loss impairments):
($ in millions)Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
Beginning balance$8.3 $1.1 $7.7 $ 
Credit losses on fixed maturity securities for which credit losses were not previously reported   1.1 
Net increase related to credit losses previously reported1.3  2.2  
Reduction of credit allowances related to sales    
Write-offs(0.1) (0.4) 
Ending balance$9.5 $1.1 $9.5 $1.1 
Fixed Maturity Securities
The Company's investment portfolio is comprised primarily of fixed maturity securities. Amortized cost, net, gross unrealized investment gains (losses) and fair values of all fixed maturity securities in the portfolio were as follows:
($ in millions)Amortized
Cost, net
Gross Unrealized
Gains
Gross Unrealized
Losses
Fair
Value
June 30, 2022
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:(1)
Mortgage-backed securities
$640.4 $5.2 $33.8 $611.8 
Other, including U.S. Treasury securities
406.7 3.9 42.0 368.6 
Municipal bonds1,476.7 30.4 80.8 1,426.3 
Foreign government bonds41.2 0.7 0.5 41.4 
Corporate bonds2,342.9 21.8 214.2 2,150.5 
Other asset-backed securities1,138.6 4.5 53.7 1,089.4 
Totals$6,046.5 $66.5 $425.0 $5,688.0 
December 31, 2021
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:(1)
Mortgage-backed securities$612.1 $51.9 $1.5 $662.5 
Other, including U.S. Treasury securities342.5 27.7 4.3 365.9 
Municipal bonds1,519.7 184.4 0.7 1,703.4 
Foreign government bonds40.2 3.4  43.6 
Corporate bonds2,217.7 176.2 5.2 2,388.7 
Other asset-backed securities1,065.5 16.6 6.9 1,075.2 
Totals$5,797.7 $460.2 $18.6 $6,239.3 
(1)    Fair value includes securities issued by Federal National Mortgage Association (FNMA) of $349.4 million and $376.7 million; Federal Home Loan Mortgage Corporation (FHLMC) of $293.1 million and $326.5 million; and Government National Mortgage Association (GNMA) of $96.7 million and $112.1 million as of June 30, 2022 and December 31, 2021, respectively.
Horace Mann Educators Corporation
11
Quarterly Report on Form 10-Q



NOTE 3 - Investments (continued)
The following table presents the fair value and gross unrealized losses for fixed maturity securities in an unrealized loss position at June 30, 2022 and December 31, 2021, respectively. The Company views the decrease in fair value of all of the fixed maturity securities with unrealized losses at June 30, 2022 — which was driven largely by increasing interest rates, spread widening, financial market illiquidity and/or market volatility from the date of acquisition — as temporary. As of June 30, 2022, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell the fixed maturity securities with unrealized losses before an anticipated recovery in value. There has been a significant increase in interest rates since December 31, 2021, driven mostly by increases in Treasury rates, though credit spreads also widened. The 10-year U.S. Treasury yield increased 150 basis points in the first half of 2022, rising from 1.51% at Decem