Business Overview

Horace Mann Educators Corporation (HMN) is the largest multiline financial services company focused on serving America's educators and those who support their communities. With a rich 80-year history, Horace Mann has established itself as a trusted partner to the education sector, providing a comprehensive suite of insurance and financial solutions tailored to the unique needs of teachers, administrators, and other school employees.

Horace Mann was founded in 1945 by two Illinois school teachers who saw a need to provide automobile insurance to their fellow educators. Originally named the Illinois Education Association (IEA), the company quickly expanded its offerings and geographical reach. In 1949, Horace Mann broadened its product line to include group and individual life insurance. The company further diversified its portfolio by introducing 403(b) tax-qualified retirement annuities in 1961 and homeowners insurance in 1965.

The company's ownership structure has undergone several changes over the years. In 1968, INA Corporation, a Philadelphia-based insurance and financial services corporation, acquired a 25% interest in Horace Mann. By 1975, INA had acquired the entire company. In 1982, INA Corporation merged with Connecticut General Corporation, forming CIGNA Corporation. Horace Mann remained under CIGNA's ownership until 1989 when an investor group led by Gibbons, Green, van Amerongen, L.P. acquired the company. This led to Horace Mann becoming an independent entity once again, and in November 1991, the company went public, trading on the New York Stock Exchange under the symbol HMN.

Horace Mann has continued to grow and expand its market presence through both organic growth and strategic acquisitions. In 2019, the company significantly increased its market share by acquiring all of the equity interests in NTA Life Enterprises, LLC. This acquisition brought National Teachers Associates Life Insurance Company and NTA Life Insurance Company of New York under the Horace Mann umbrella, further strengthening its position in the education market.

Most recently, in 2022, Horace Mann enhanced its value proposition for school districts by acquiring Madison National Life Insurance Company, Inc. from its former parent, Independence Holding Company. This acquisition has further solidified Horace Mann's position as a comprehensive provider of financial services to the education sector.

Today, Horace Mann's business is organized into three main reporting segments: Property & Casualty, Life & Retirement, and Supplemental & Group Benefits.

The Property & Casualty segment

is the company's largest, providing personal auto and homeowners insurance primarily to educators and their families. The Life & Retirement segment offers tax-qualified fixed and variable annuities, as well as individual life insurance products. The Supplemental & Group Benefits segment markets supplemental health and group disability/life coverages to school districts and their employees.

Horace Mann's focus on the education market has allowed it to develop a deep understanding of its target customers' unique needs and challenges. This niche expertise, coupled with strong partnerships with educational associations, has enabled the company to establish a leading market position, with approximately 80% of its customer base comprising educators. As of the end of 2024, Horace Mann served around 1 million educator households across 47 states.

Financial Performance and Outlook

Horace Mann's financial performance in recent years has been impressive, with the company delivering record results in 2024. For the full year 2024, the company reported net income of $102.8 million, or $2.48 per diluted share, and core earnings* of $132 million, or $3.18 per share. This represented a more than doubling of the company's 2023 core earnings. Total revenue for 2024 reached $1.60 billion, with annual operating cash flow and free cash flow both at $452.1 million.

The strong 2024 performance was driven by a combination of factors, including:

• Improved profitability in the Property & Casualty segment, with the segment's combined ratio improving by 15.4 points to 97.9% for the full year. This was the result of rate actions, non-rate underwriting initiatives, and favorable prior-year reserve development.
• Steady earnings contributions from the Life & Retirement and Supplemental & Group Benefits segments, which provide a ballast to the company's overall results.
• Increased net investment income, driven by higher yields in the core fixed-income portfolio.

For the fourth quarter of 2024, Horace Mann reported revenue of $409 million, a 2% increase year-over-year. Net income for the quarter was $38.2 million, a significant 92% increase from the same period in 2023. The strong quarterly results were driven by improved underlying auto and property loss ratios and favorable prior year reserve development.

Looking ahead, Horace Mann is well-positioned for continued success. For 2025, the company is guiding for core earnings in the range of $3.60 to $3.90 per share, with a target shareholder return on equity of at least 10%. This guidance reflects the company's confidence in its ability to maintain profitability across its diversified business lines while strategically investing in growth initiatives.

Horace Mann expects total net investment income to be in the range of $470 million to $480 million for 2025. The company is assuming catastrophe losses of $90 million, or about 11% of net earned premium, for the full year 2025. For the property and casualty segment, Horace Mann is targeting a mid-90s combined ratio in 2025.

Liquidity

Horace Mann maintains a strong liquidity position to meet its obligations to policyholders and other stakeholders. As of December 31, 2024, the company had $38.1 million in cash and a debt-to-equity ratio of 0.42. Additionally, Horace Mann has access to a $325 million revolving credit facility, which was fully available as of the end of 2024. This strong liquidity profile, combined with the company's diverse business segments and investment portfolio, provides financial flexibility and stability.

Key Risks and Considerations

As with any insurance company, Horace Mann faces exposure to catastrophe losses, which can introduce volatility in its financial results. The company mitigates this risk through the use of reinsurance and prudent risk management practices. Additionally, Horace Mann's focus on the education market means its fortunes are tied to trends and developments in that sector, such as enrollment levels, school district budgets, and legislative/regulatory changes.

The company also faces competition from national and regional insurance providers, as well as emerging digital/direct-to-consumer models. Horace Mann's ability to maintain its competitive edge and market share will be crucial to its long-term success.

Industry Trends

The property and casualty insurance industry has seen increased catastrophe losses and higher claims costs in recent years due to factors like severe weather events and inflation. Horace Mann has taken underwriting actions to mitigate these trends, as evidenced by the significant improvement in its combined ratio.

The life insurance and annuity industry has faced pressure from low interest rates, but Horace Mann has maintained a steady earnings contribution from its Life and Retirement segment. The supplemental insurance market has seen strong demand, which has benefited Horace Mann's Supplemental Group Benefits segment.

Human Capital Resources

Horace Mann has approximately 1,750 employees working across four office locations and throughout the country as part of its remote workforce. The company focuses on attracting, developing, retaining, and engaging talent to align with its strategic goals. Horace Mann maintains policies and practices to enhance organizational performance, foster inclusion and engagement, and increase retention, including competitive compensation, comprehensive benefits, flexible work arrangements, and robust employee training and development opportunities.

Horace Mann completed a biennial employee engagement survey in 2024, with 74% of employees participating. Employees identified manager trust and support, flexibility, and inclusion as strengths, while indicating a need for additional focus on total rewards, communication channels, recognition, and strategic alignment. The company has employee-led resource groups focused on mentorship, inclusion, community support, and awareness, and has been named to the Bloomberg Gender-Equality Index every year from 2019 to 2023.

Horace Mann's human capital management strategies are overseen by the Board of Directors Compensation Committee, with the Chief Human Resources Officer directly responsible for talent acquisition, retention, engagement, total rewards, and development. The company believes its human capital initiatives are critical to attracting and retaining the talent necessary to execute its strategic goals and serve the educational community.

Overall, Horace Mann's diversified business model, deep market expertise, and strong financial position make it a compelling investment opportunity in the insurance sector. The company's consistent track record of profitable growth and commitment to serving the education community position it well for the future.

*Core earnings is a non-GAAP financial measure. Please refer to the company's investor materials for a reconciliation to the most directly comparable GAAP measure.