Horace Mann Educators Corporation
2011 Annual Report and 10-K
Financial Highlights
(Dollars in millions, except per share data)
Year Ended December 31, 2011
2010
2009
Operations
Insurance premiums written and
contract deposits $ 1,078.4 $1,052.0 $ 1,003.7
Net income 70.5 80.9 73.5
Return on equity (1) 7.3% 9.6% 12.7%
Property & casualty
combined loss and expense ratio 106.7% 100.9% 99.5%
Total Exclusive Agencies and
Employee Agents 745 741 716
Per share
Net income per share:
Basic $ 1.77 $ 2.05 $ 1.88
Diluted $ 1.70 $ 1.97 $ 1.81
Dividends paid $ 0.46 $ 0.35 $ 0.2375
Book value (2) $ 27.33 $ 22.19 $ 18.36
Financial position
Total assets $ 7,483.7 $6,996.3 $ 6,334.2
Short-term debt 38.0 38.0 38.0
Long-term debt 199.7 199.7 199.6
Total shareholders’ equity 1,086.9 880.0 719.5
(1) Based on 12-month net income and average quarter-end shareholders’ equity.
(2) Before the fair value adjustment for investments, book value per share was $20.66 at December 31, 2011,
$19.42 at December 31, 2010 and $17.79 at December 31, 2009.
Forward-looking information
It is important to note that the Company’s actual results could differ materially from those projected in forward-
looking statements. Additional information concerning factors that could cause actual results to differ materially
from those in the forward-looking statements is contained from time to time in the Company’s SEC filings.
Copies of these filings may be obtained by contacting the Company or the SEC.
The Horace Mann Value Proposition
At Horace Mann, we strive to provide lifelong financial well-being for educators and their families through
personalized service, advice and a full range of tailored insurance and financial products.
Horace Mann Educators Corporation • 2011 Annual Report
Letter to Shareholders
Strong financial results despite difficult
property and casualty environment
In 2011, Horace Mann continued to
demonstrate the value of our multiline
business model. While our property and
casualty segment was adversely impacted
by a significant level of industry-wide
catastrophe losses, our annuity and life
segments provided stable results which
were consistent with our expectations.
In spite of the record level of catastrophe
losses, 2011 net income of $70.5 million
was only $10.4 million less than prior year.
Excluding net realized investment gains of
$0.59 per share, operating income was
$1.11 per share, a decrease of $0.49
compared to the prior year, with more than
all of that variance due to the $86 million
of pretax catastrophe losses incurred in
2011 – losses well above historical levels.
Through the wide range of severe weather
events that impacted our policyholders
during 2011, we are proud of the
responsiveness, dedication and empathy
that Horace Mann's agents and claims
professionals demonstrated during this
extended and highly stressful period of
time. The human impact, including loss
of lives, was devastating and our thoughts
and prayers continue to be with the
affected families.
In spite of the magnitude of these
catastrophe losses, our capital position
continued to improve and our leverage
ratios and overall financial strength remain
very solid. The strength of our franchise
and capital position was validated in 2011
by A.M. Best’s upgrade of Horace Mann
Life Insurance Company’s financial
strength rating to “A” from “A-” . Also
reflective of our strong capital position,
in December the Board of Directors
announced an 18 percent increase in
the quarterly dividend to $0.13 per share,
the highest per share dividend level in
the company’s history, along with the
authorization of a $50 million share
repurchase program. These actions
were favorably received by both existing
and new shareholders and demonstrate
the Board’s commitment to manage
capital for the benefit of our shareholders
and policyholders.
In addition to the year’s earnings, our
strong investment portfolio continued to
reflect increases in net unrealized
investment gains in 2011, resulting in a
reported book value per share of $27.33 at
year-end, a 23 percent increase compared
to a year earlier. Looking back over the
prior five years, our conservative risk
management philosophy, in both our
underlying business and our investment
portfolio, has provided our shareholders
with a solid 12 percent annualized growth
in reported book value per share amid a
very volatile time period in both the
economy and the insurance industry.
Excluding the investment portfolio fair
value adjustment, the December 31, 2011
book value per share of $20.66 increased a
total of 38 percent over the last five years.
Competitive industry dynamics and
limited economic improvement
challenge auto and property growth
In 2011, business growth in the property
and casualty industry was muted due to a
continuation of lackluster growth in the
Horace Mann Educators Corporation • 2011 Annual Report
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U.S. economy. Despite slight increases in
sales of autos and homes during the year,
sales remained well below pre-financial
crisis levels. Horace Mann was not
immune to the impacts of the economy as
evidenced by our lack of growth in this
segment’s policy count in 2011. Primarily
due to the record level of catastrophe
losses, our full year property and casualty
segment reported operating income was
$5.8 million, down from $27.0 million in
2010 and well below our expectations for
the year. Of particular note, however, in
the second half of 2011 the company had
higher levels of both profitability and sales
compared to the prior year and produced
results that were comparable to our
expectations for that period.
With regard to our auto line of business,
reversing declines in sales and business
retention while also maintaining a balanced
profit perspective was a critical priority.
To address this challenge, we implemented
state-specific pricing, underwriting and
marketing initiatives focused on increasing
auto new business sales. Through these
actions, sales to new auto customers
increased over the prior year with levels
that exceeded our expectations for the third
and fourth quarters. Additionally, the
renewal ratio for existing auto policies
improved in each month of the fourth
quarter compared to the prior year. In
terms of profitability, our underlying auto
combined ratio was up modestly compared
to prior year but within our expectations.
Restoring profitability to acceptable levels
in our property line was another top
priority for the company in 2011.
*Combined ratio excluding catastrophe costs and prior
years’ reserve development.
Through aggressive pricing, underwriting
and claims programs, coupled with the
completion of our Florida property
non-renewal program which significantly
reduced our exposure to sinkhole claims
and further reduced our catastrophe
exposure, we achieved an underlying
property combined ratio* of 70 percent in
the second half of the year. From a top-line
growth perspective, the property line
experienced a 5 percent increase in full year
premium, adjusting for the impact of our
Florida non-renewal program.
To further strengthen our customer and
agent service capabilities, we continued to
make improvements to our property and
casualty infrastructure throughout the year.
The rollout of our auto front-end rating
and underwriting system was largely
completed in 2011. The few remaining
states were implemented in the first quarter
of 2012. We also developed and
implemented an electronic funds transfer
capability to give our property customers
an additional premium payment option.
And, in early 2012, we launched our
first mobile Web application – Horace
Mann Mobile – through the Apple App
Store. This free application allows
customers to manage and view their auto
policy and claim information, as well as
contact an agent.
Continued growth, momentum in
Annuity and Life
The annuity segment continued to
experience strong growth momentum
in 2011 with record sales, up 21 percent
compared to 2010 and up 82 percent since
the depths of the financial crisis in 2008.
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Horace Mann Educators Corporation • 2011 Annual Report
This strong sales momentum is indicative
of educators continuing to turn to Horace
Mann and an agent they trust. Similarly,
a 12 percent increase in new annuity
scheduled deposit business reflects
educators recognizing the need to save
more for their retirement amid discussions
surrounding state pension funding issues.
Both of these favorable trends led to a
continuation of positive net fund flows
and growth in annuity Assets Under
Management (AUM), which increased
5 percent in 2011. In 2012, we expect
growth in AUM to offset the slight decline
in fixed annuity interest spreads anticipated
in the current low interest rate environment.
Turning to the life segment, initiatives
implemented in 2010 to improve the
competitiveness of our core Life by Design
products contributed to an increase in sales
of Horace Mann products. Looking ahead
to 2012, we are placing a stronger focus on
selling Horace Mann life products with a
strategic objective of increasing our
underwritten, mortality-based business
over the long-term.
Combined annuity and life segments net
income exceeded $50 million in 2011.
Excluding the evaluation of deferred
policy acquisition costs, the segments’ total
earnings increased 6 percent over prior
year and continued to perform in line
with expectations.
Transforming agency force,
strengthening brand
Our transition from an employee-based to
an Exclusive Agent (EA) distribution model
is essentially complete. Through this effort,
we have increased our agency force for
the third year in a row and ended 2011
with a combined total of 745 Exclusive
Agencies and Employee Agents, compared
to 741 in 2010 and 716 in 2009. We expect
90 percent of our agency force to be
working in the Agency Business Model
(ABM) / EA distribution model within the
next 2-3 years.
In support of our ABM strategy, we
invested extensively in agent training in
2011 through the expansion of programs
dedicated to State Teacher Retirement
System (STRS) workshops and enhanced
financial services training through The
American College. Agents responded
favorably to the additional training and
conducted nearly 5,000 STRS workshops
in 2011, with over 78,000 educators
participating, a ten-fold increase in
workshops conducted compared to prior
year. At the same time, we enhanced our
Section 125 flexible benefits plan
administration capabilities to further
strengthen relationships with our school
district customers.
To increase Horace Mann’s and our agents’
brand awareness in school districts, in 2011
we launched a strategic partnership with
DonorsChoose.org, a nonprofit
organization that connects teachers to
“citizen philanthropists” who want to
provide financial support to individual
classroom projects. Bolstered by our
agents serving as advocates for the
organization, approximately 30,000
classroom projects were funded through
DonorsChoose.org in schools served by
Horace Mann agents, raising over
Horace Mann Educators Corporation • 2011 Annual Report
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$14 million and benefitting 2.5 million
students during the first year of our partnership.
In addition to our relationship with
DonorsChoose.org, we leveraged a newly-
formed strategic alliance with the
Association of School Business Officials
International (ASBO) to help enhance our
brand awareness with ASBO’s 6,000 school
business management professionals.
Looking ahead to 2012
We believe the strategies we have in place,
combined with our solid financial footing,
will enable us to build on our strengths and
deliver increased profitability in 2012, in
spite of ongoing market challenges. While
we cannot control where severe weather
hits in 2012, we will continue to assess and
implement various catastrophe risk
management programs, such as the recently
completed Florida property non-renewal
program, to further mitigate the potential
earnings volatility in our property and
casualty business.
In our property and casualty segment, we
will strive to sustain the underlying
property combined ratio and ensure
profitable growth in our auto line with a
renewed focus on customer retention. We
also plan to effectively manage annuity
segment profitability in the current low
interest rate environment, which we expect
to have only a minimal impact on 2012
fixed annuity spreads.
In addition, we plan to continue investing
in infrastructure initiatives focused on
further improvements in ease of doing
business for our educator customers and
agents. For instance, we intend to make
enhancements to our school district
database, property and casualty billing
and collection process, auto quoting and
EFT processes, electronic application
process, and digital access and transaction
capabilities. For our agents, we expect a
continuation of broad-based agent training
and cross-functional initiatives focused
on market access and on maintaining
and increasing our financial services
sales momentum.
In 2012 and beyond, we anticipate that a
combination of top-line growth, improved
margins and our fundamentally
conservative investment management
approach will reward our customers,
shareholders, agents and employees, as
Horace Mann further strengthens its
position as the premier multiline insurance
and financial service provider for the K-12
educator market.
Gabriel L. Shaheen
Chairman of
the Board of Directors
Peter H. Heckman
President &
Chief Executive Officer
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Horace Mann Educators Corporation • 2011 Annual Report
Directors
Gabriel L. Shaheen
Chairman of the Board of Directors
Horace Mann Educators Corporation
President and Chief Executive Officer (retired)
Lincoln National Life Insurance Company
Peter H. Heckman
President & Chief Executive Officer
Horace Mann Educators Corporation
Dr. Mary H. Futrell
Co-Director, Center for Curriculum,
Standards and Technology
Professor, Department of Education Leadership
The George Washington University
Stephen J. Hasenmiller
Senior Vice President (retired)
The Hartford Financial Services Group, Inc.
Ronald J. Helow*
Managing Director
New Course Advisors
Roger J. Steinbecker*
Managing Partner (retired)
PricewaterhouseCoopers LLP
Robert Stricker*
Senior Vice President and Principal (retired)
Shenkman Capital Management, Inc.
Charles R. Wright
Senior Executive Vice President and
Chief Agency and Marketing Officer (retired)
State Farm Insurance
*Member of the Audit Committee, each an independent director.
Officers
Peter H. Heckman
President & Chief Executive Officer
Dwayne D. Hallman
Executive Vice President
Chief Financial Officer
Stephen P. Cardinal
Executive Vice President
Chief Marketing Officer
Matthew P. Sharpe
Executive Vice President
Annuity & Life
Thomas C. Wilkinson
Executive Vice President
Property & Casualty
Paul D. Andrews
Senior Vice President
Human Resources and
Administrative Operations
Bret A. Conklin
Senior Vice President
Controller
Ann M. Caparrós
General Counsel & Chief
Compliance Officer
Corporate Secretary
Angela S. Christian
Vice President & Treasurer
Horace Mann Educators Corporation • 2011 Annual Report
In November 1991, Horace Mann Educators Corporation completed an initial public offering of its common
stock at a price of $9 per share. The Company's common stock is traded on the New York Stock Exchange
under the symbol HMN. The following table sets forth the high and low sales prices and the cash dividends
paid per share during the periods indicated.
Market Price
Fiscal Period High Low Dividend Paid
2011
Fourth Quarter $ 14.31 $ 10.51 $ 0.13
Third Quarter 16.11 10.70 0.11
Second Quarter 18.22 14.46 0.11
First Quarter 18.43 15.95 0.11
2010
Fourth Quarter $ 19.50 $ 16.07 $ 0.11
Third Quarter 18.17 14.62 0.08
Second Quarter 17.98 13.57 0.08
First Quarter 15.34 11.16 0.08
Corporate Data
Corporate Office
1 Horace Mann Plaza
Springfield, IL 62715-0001
Telephone: 217-789-2500
website: horacemann.com
Annual Meeting
May 23, 2012
9:00 a.m.
Abraham Lincoln Presidential Library
112 North Sixth Street
Springfield, IL 62701
Independent Accountants
KPMG LLP
303 East Wacker Drive
Chicago, IL 60601
Common Stock
HMEC Stock is traded
on the NYSE (HMN)
Transfer Agent
American Stock Transfer
& Trust Company
59 Maiden Lane
New York, NY 10038
Senior Notes
HMEC senior notes are traded
in the open market (HMN 6.05
and HMN 6.85)
Additional Information
Additional financial data
on HMEC and its subsidiaries
is included in Form 10-K filed
with the Securities and Exchange
Commission. Electronic copies
of HMEC’s SEC filings are
available at horacemann.com.
Printed copies of SEC filings
are available upon written
request from:
Investor Relations
Horace Mann
Educators Corporation
1 Horace Mann Plaza, C-120
Springfield, IL 62715-0001
Horace Mann Educators Corporation • 2011 Annual Report
Horace Mann – the father of American public education
Horace Mann believed every child should receive a basic education, and as a
result worked hard to create a ladder of opportunity for millions of children.
We are proud to share his name.
HA-C00367 (Mar. 12)