Executive Summary / Key Takeaways

• Strategic Transformation Driving Profitability: Horace Mann has successfully executed a multi-year profitability restoration in its Property & Casualty segment, achieving a 97% combined ratio in Q2 2025, a significant 15-point improvement year-over-year. This foundational shift, coupled with robust performance in Life & Retirement and Supplemental & Group Benefits, underpins a record Q2 2025 core EPS of $1.06 and a trailing 12-month core ROE of 12.6%.
• Technology and Niche Focus as Core Moats: HMN leverages its 80-year dedication to educators with differentiated technology like the Catalyst CRM and HMScore. These tools enhance agent productivity, streamline operations, and deepen customer engagement, reinforcing HMN's competitive advantage in a specialized, resilient market.
• Strong Growth Momentum and Diversified Earnings: Strategic investments in distribution, marketing, and product enhancements are yielding tangible growth. Auto sales are up 10% year-to-date, and individual supplemental sales surged 43% in Q2 2025. Acquisitions of NTA and MNL have diversified earnings, providing stability through economic cycles.
• Upgraded 2025 Outlook and Long-Term Targets: Management has raised its full-year 2025 core EPS guidance to $4.15-$4.45, anticipating continued strong performance. The company is targeting a 10% average compound annual growth rate in core EPS and a sustained 12-13% core ROE by 2028, driven by profitable growth and disciplined capital allocation.
• Prudent Capital Management: HMN maintains a strong balance sheet with adequate liquidity, a compelling dividend yield (2.98% TTM), and an active share repurchase program, including a new $50 million authorization. The company prioritizes profitable growth as the most accretive use of capital.

The Educator Advantage: A Niche-Driven Growth Story

Horace Mann Educators Corporation (HMN) stands as a unique entity in the financial services landscape, having dedicated its 80-year history to serving America's educators and those who support their communities. This specialized focus has shaped HMN's multi-line business model, encompassing Property & Casualty, Life & Retirement, and Supplemental & Group Benefits. The company's overarching strategy centers on providing tailored solutions that empower educators to achieve lifelong financial success, a value proposition that fosters deep loyalty and differentiates HMN in a competitive industry.

The insurance sector, particularly personal lines, has recently experienced significant volatility, marked by inflationary pressures on claims costs and unpredictable catastrophe events. However, HMN's educator-centric approach has provided a resilient foundation. Its customer base, characterized by greater job security in economic downturns, contributes to stable demand for its bundled insurance and financial products. This strategic positioning allows HMN to pursue sustained profitable growth, even as broader industry trends like increased shopping behavior and intense competition in the monoline auto space persist.

HMN's competitive stance is defined by its specialized market and integrated offerings. While larger, diversified players like Aflac (AFL), Principal Financial Group (PFG), MetLife (MET), and Lincoln National Corporation (LNC) boast greater scale and broader product ranges, HMN's strength lies in its deep understanding of the educator demographic. Its exclusive agent network, coupled with a brand built on trust and tailored services, fosters superior customer retention. This contrasts with the broader distribution models of its rivals, where personalization might be less pronounced.

Financially, HMN's margins, such as its TTM Gross Profit Margin of 33.05% and Net Profit Margin of 8.85%, are generally lower than those of some larger competitors like Aflac (41% Gross, 28% Net) or Principal Financial Group (46% Gross, 10% Net). This reflects the inherent efficiencies of scale enjoyed by larger players. However, HMN's targeted approach aims to generate strong returns on equity through focused growth within its niche, rather than competing solely on price. The company's strategy is to offer a fair price over the life cycle, leveraging its comprehensive product suite and specialized service.

Technological Edge: Fueling Engagement and Efficiency

A cornerstone of Horace Mann's strategy and a key differentiator in the competitive landscape is its commitment to technological innovation. The company has strategically invested in proprietary platforms and digital tools designed to enhance agent productivity, streamline operations, and deepen engagement with its educator clientele.

The Catalyst customer relationship management (CRM) platform is a prime example of HMN's core differentiated technology. This homegrown system is engineered to simplify agent workflows and improve interactions with educators. Catalyst integrates predictive analytics, digital documentation, and streamlined marketing capabilities, empowering agents with sophisticated tools to build stronger customer relationships. This directly contributes to HMN's competitive moat by enabling a more efficient and personalized sales process, which is critical in a relationship-driven niche market.

Beyond agent-facing tools, HMN is also advancing customer-centric technologies. The company has enhanced its website and quoting functionality, leading to a 50% increase in quotes started online. This omnichannel approach ensures educators can engage with Horace Mann through local agents, digital channels, or call centers, with seamless transitions between platforms. This flexibility is crucial in meeting evolving customer preferences and converting prospects into loyal customers.

In the individual supplemental line, HMN is nearing completion of straight-through processing capabilities. This initiative aims to automate and accelerate many elements of the sales cycle, from application to policy issuance. The stated goal is to improve operational efficiency, reduce processing times, and enhance the overall customer experience. While specific quantifiable metrics for this program's impact are not yet disclosed, the strategic intent is clear: to lower operational costs and accelerate revenue recognition in a growing segment.

Furthermore, HMN has partnered with TransUnion (TRU) to launch HMScore, an online platform designed to help educators build strong credit habits. HMScore provides access to credit reports and scores, credit monitoring, and score simulation tools, all offered free to educators. This initiative not only builds brand loyalty and awareness but also provides a valuable, complementary financial wellness offering that reinforces HMN's commitment to its target market. This technological offering strengthens HMN's value proposition beyond traditional insurance products, creating a sticky ecosystem for educators. The "so what" for investors is that these technological advancements directly contribute to HMN's competitive advantage by improving operational efficiency, enhancing customer acquisition and retention, and reinforcing its unique brand identity within the educator niche. These innovations are vital for sustaining growth and achieving higher profitability in the long term.

Performance and Strategic Momentum

Horace Mann's financial performance in the second quarter of 2025 reflects the successful execution of its strategic initiatives. The company reported record core earnings of $44.2 million, or $1.06 per diluted share, a nearly threefold increase over the prior year. Total revenues for the quarter grew 6.1% to $411.7 million, while net premiums and contract charges earned increased 7.7% to $302.6 million. This strong performance drove the trailing 12-month core return on equity to an impressive 12.6%.

The Property & Casualty segment, a key focus of the company's profitability restoration efforts, delivered a combined ratio of 97.0% in Q2 2025, a significant 15-point improvement year-over-year. This was driven by the positive impact of rate and non-rate underwriting actions, including the implementation of roof settlement schedules and higher deductibles. Catastrophe losses contributed 15.0 points to the combined ratio at $29.7 million, which was below prior year and historical averages due to lower frequency and severity of policyholder claims. The segment also benefited from $5.5 million in net favorable prior year reserve development, reducing the loss ratio by 2.8 points. The auto underlying loss ratio improved 3.8 points to 96.5%, and the property underlying loss ratio decreased 14.1 points to 65.1%, both reflecting higher average earned premiums and improved loss trends.

The Life & Retirement segment continued to serve as a stable earnings contributor, with core earnings doubling over the prior year. This was primarily due to higher net investment income, driven by strong returns from limited partnership and commercial mortgage loan funds. For the 14th consecutive quarter, new money yields in the core fixed maturity portfolio (5.79% in Q2 2025) exceeded the book yield, indicating continued portfolio yield expansion. Management noted an "inflection point" in commercial mortgage loan funds, where the accounting yield for the first time exceeded the cash return, signaling stabilization in commercial real estate.

In the Supplemental & Group Benefits segment, policyholder utilization remained favorable. Individual supplemental sales achieved a record-breaking quarter, surging 43% year-over-year to $6.0 million in Q2 2025, and were up over 50% year-to-date. This growth underscores the success of strategic investments in this business, which is becoming an increasingly important contributor to HMN's diversified earnings. Operating expenses across the company increased, reflecting investments in growth initiatives and infrastructure, a necessary step to scale profitable businesses.

From a liquidity perspective, HMN's financial position remains robust. The company's liquidity and access to capital were not materially impacted by inflation or interest rate changes in the first half of 2025. Net cash provided by operating activities increased by $157.4 million for the six months ended June 30, 2025, demonstrating strong cash flow generation. As of June 30, 2025, HMN held $1.0 billion in highly liquid assets, including cash and U.S. government securities. The debt-to-total-capital ratio stood at 28.7% (25.9% excluding AOCI), slightly above the long-term target of 25%, but manageable given the company's financial strength. The Board authorized a new $50 million share repurchase program in May 2025, with $69.2 million remaining under authorization, and the company has returned $13 million to shareholders year-to-date through July via repurchases.

Outlook and Risk Assessment

Horace Mann's management has expressed strong confidence in its future performance, raising its full-year 2025 core EPS guidance to a range of $4.15 to $4.45. This updated outlook is based on the strong underlying business performance in the first half of the year and reflects a clear line of sight to achieving target profitability across all segments.

Key assumptions for 2025 include:

• Property & Casualty: A target combined ratio in the mid-90s, with Auto in the mid-90s and Property at 90% or below. This assumes $90 million in catastrophe losses for the full year, in line with the company's 5-year historical average. Management emphasizes this is a prudent estimate, acknowledging the historical volatility of the third quarter and recent industry weather activity.
• Life & Retirement: A long-term target net interest spread between 220 and 230 basis points, with mortality in line with actuarial assumptions.
• Supplemental & Group Benefits: A target blended benefit ratio of 39.0%.
• Net Investment Income: Total net investment income is projected to be between $470 million and $480 million, with managed portfolio income ranging from $370 million to $380 million. Corporate interest expense and other items are expected to be $35 million to $40 million.

The company anticipates an inflection point for Auto policies in force (PIF) by the latter part of 2025, with Q2 2025 showing a deceleration in PIF decline (down less than 1% versus Q1). Group sales also saw a record month in July, with Q3 sales expected to be ahead of the prior year, indicating positive momentum. HMN's long-term strategic financial goals include a 10% average compound annual growth rate in core EPS and a sustained 12-13% core return on equity by 2028.

Despite this optimistic outlook, several risks warrant investor attention. Catastrophe volatility remains a significant factor, as unpredictable weather events, particularly hurricanes in the third quarter, can materially impact P&C results. While commercial mortgage loan funds show signs of stabilization, idiosyncratic risks within this asset class persist. The company also faces ongoing litigation and claims related to legacy commercial liabilities from policies issued in the 1960s, for which $15.7 million (after-tax) in costs were recorded in Q4 2024. Furthermore, market value risk on investments, driven by interest rate fluctuations and credit quality, could affect financial performance. The competitive landscape, particularly in the monoline auto space, could intensify, potentially impacting HMN's growth and pricing power.

Conclusion

Horace Mann Educators Corporation has successfully transformed its business, moving past a challenging period of P&C profitability restoration to emerge as a robust, multi-line financial services provider for educators. The company's Q2 2025 results, marked by record core earnings and a strong return on equity, clearly demonstrate the earnings power of its diversified model. This success is deeply rooted in HMN's 80-year commitment to its niche market, which provides a resilient customer base and a distinct competitive advantage.

Strategic investments in technology, such as the Catalyst CRM and HMScore, are enhancing operational efficiency and strengthening customer relationships, reinforcing HMN's unique value proposition against larger, more generalized competitors. With an increased 2025 core EPS guidance and clear long-term targets for sustained double-digit ROE, Horace Mann is positioned for continued profitable growth. While risks such as catastrophe volatility and competitive pressures persist, the company's disciplined approach to underwriting, capital management, and strategic innovation within its specialized market provides a compelling investment thesis for long-term value creation.