Horace Mann Educators Corporation
2012 Annual Report and 10-K
Financial Highlights
(Dollars in millions, except per share data)
Year Ended December 31,
2012
2011 (A) 2010 (A)
Operations
Insurance premiums written and
contract deposits (B) $ 1,067.7
103.9
Net income
86.3
Operating income (B)
Return on equity (C)
9.0%
Property & casualty
combined loss and expense ratio
98.3%
Per share
$ 2.51
Net income-diluted
Operating income (B)-diluted
$ 2.08
Dividends paid $ 0.55
$ 31.65
Book value
Book value excluding the fair
$ 1,078.4
70.5
46.1
7.5%
$ 1,052.0
80.1
64.7
9.8%
106.6%
100.9%
$
$
$
$
1.95
1.70 $
1.58
1.11 $
0.46 $
0.35
26.53 $ 21.36
value adjustment for investments (B)
$ 21.93
$
19.79 $ 18.55
Financial position
Total assets
$ 8,167.7
Short-term debt 38.0
Long-term debt 199.8
1,245.8
Total shareholders’ equity
$ 7,435.2
$ 6,945.7
38.0 38.0
199.7
199.7
847.1
1,055.4
(A) Reflects the retrospective adoption on January 1, 2012 of new accounting guidance for deferred policy
acquisition costs. For additional explanation, see the Company’s consolidated financial statements.
(B) For a definition of this non-GAAP measure, see the Company’s SEC filings.
(C) Based on 12-month net income and average quarter-end shareholders’ equity.
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 • 2012 Annual Report
Letter to Shareholders
2012 financial results reflect our
core strengths
Shareholders were rewarded in 2012, as Horace
Mann continued to demonstrate the value of
its multiline business model by producing solid
underlying earnings across all three segments
of our insurance platform while maintaining
focus on serving our educator customers.
Successful execution of the key performance
priorities established for 2012 helped us
achieve operating income* of $2.08 per share,
an increase of $0.97 compared to prior year.
Our financial performance, coupled with
our strong capital position and conservative
risk management philosophy, once again
contributed to a consistent track record of
shareholder value creation. Book value per
share excluding the fair value adjustment for
investments increased 11 percent in 2012,
to end the year at $21.93. Strong stock price
performance culminated in a year-end share
price of $19.96, which generated a total
shareholder return (stock price appreciation
plus dividends) of 50 percent in 2012.
Indicative of Horace Mann’s strong capital
position and sustainable earnings power, a
dividend increase of 23 percent was declared
in December of 2012. This was followed in
March of 2013 by another 22 percent increase,
as the Board of Directors transitioned its
dividend and capital management review
process from the fourth to the first quarter.
Shareholder dividends have now increased
86 percent compared to the level preceding the
2008 financial crisis.
In 2012, we utilized $16 million to buy back
shares of Horace Mann stock, bringing
the total amount repurchased under the
current $50 million authorization to nearly
$18 million. We plan to remain active, but
opportunistic, in our share buy-back activities
to at least mitigate some or all of the dilutive
impact of our equity incentive programs.
However, given the current stock price to book
value relationship, we anticipate our level of
repurchases to moderate in 2013.
Delivering on our key priorities for 2012
Our solid financial performance in 2012 was
driven by the contributions of everyone at
Horace Mann toward delivering on the five
key performance priorities established at the
beginning of the year. At the top of our list
was increasing agency productivity levels
while also growing the size of our agency
force. Horace Mann Exclusive Agencies
and employee agents rose to the challenge,
producing double-digit sales increases across
all product lines, while agency count increased
for the fourth consecutive year.
Second, we reversed the negative growth
trends in our auto line through state-specific
pricing, underwriting and marketing
programs, as new business increased
20 percent and policy retention improved
1.7 percentage points.
We also made progress toward a third key
priority – improving the profitability of
our property line. A 2 percentage point
improvement in the property underlying
combined ratio** in 2012 reflected the
benefits of our pricing, underwriting and
claims initiatives.
Fourth, we wanted to build on the positive
results we had achieved in our annuity
business over the past few years. We recorded
our fourth consecutive year of record sales
in 2012, in no small part due to the dramatic
increase in the number of state teacher
retirement seminars conducted by our agents,
while annuity segment net income increased
significantly compared to the prior year.
* Net income before realized investment gains and
losses, a non-GAAP measure.
** Combined ratio excluding catastrophe costs and prior
years’ reserve development, a non-GAAP measure.
Horace Mann Educators Corporation • 2012 Annual Report
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And fifth, we were pleased to have achieved
a 40 percent increase in sales of Horace
Mann life products, as we initiated a long-
term, multi-faceted strategy to grow our
underwritten, mortality-based business.
Auto, property growth and profitability
trend positively
Looking more closely at the property and
casualty segment, auto results rebounded in
2012 in response to growth and profitability
strategies initiated in the prior year. The
double-digit increase in true new auto
sales units, coupled with the significant
improvement in our auto retention ratio,
resulted in a stabilization of our auto policies
in force. We expect policy growth to emerge
by the end of 2013 and rate actions in 2012
and 2013 to drive further improvement in auto
underlying profit margins.
To help temper the impact of rate actions on
our customers, agent-level communications
have focused on promoting available discounts,
including discounts for having multiple
Horace Mann products, as well as a review of
coverage options as part of an annual policy
review process. In addition, we expect our
policyholder retention and service strategies
to contribute to ongoing improvements in
the quality of our total property and casualty
book of business. Regular email campaigns
throughout the year promoted the convenience
and advantages of our eDelivery and automatic
payment plan options to our customers.
We also continue to achieve growth in the
number of schools utilizing our payroll
deduction programs.
For our property business in particular, our
focus remains on achieving and maintaining
acceptable levels of profitability. Following
our 9,600 policy non-renewal program in
Florida which was completed in 2011, we
have continued to further mitigate our coastal
** Combined ratio excluding catastrophe costs and prior
years’ reserve development, a non-GAAP measure.
property risk exposure. For 2012, the property
underlying combined ratio** was 76 percent,
two points below prior year, reflecting progress
from our ongoing underwriting and rate
actions, which will continue in 2013. We also
achieved a modest level of premium growth
in our property business, as the impact of
continued rate actions on average premium
offset a lower level of policies in force.
Catastrophe losses in 2012 were significantly
lower than the industry-wide near record level
in 2011 and, compared to most companies
in the industry, the impact of Hurricane
Sandy was minimal for Horace Mann, as we
benefitted from not writing property and
casualty business in New York or New Jersey.
In addition, we continued to see reserves for
prior accident years develop favorably during
the year. Full-year 2012 net income for the
property and casualty segment was $37.1
million, compared to $5.9 million in the prior
year, with an underlying combined ratio** of
93.5 percent for 2012.
Annuity and Life growth
momentum continues
While the interest rate environment continues
to be challenging, earnings in our annuity
segment were well ahead of prior year and
exceeded our expectations in 2012, buoyed by
the strong performance of our conservative
investment portfolio and new business spreads
above our pricing targets.
On the growth side, we achieved a fourth
consecutive record year of annuity sales. A
14 percent increase in Horace Mann agency
sales more than offset a decline in single
premium deposits from the independent
agency channel, which in part reflected
company-initiated reductions. Assets under
management increased 10 percent in 2012
and were positively impacted by the improved
performance of the financial markets.
2
Horace Mann Educators Corporation • 2012 Annual Report
Our life business segment delivered a solid
year overall, led by double-digit growth in
sales of Horace Mann-manufactured life
products. Strong earnings were driven largely
by favorable mortality experience, and life
persistency improved approximately one
percentage point to 96 percent. As we strive
to build on the growth momentum established
in our life business, we introduced a new cash
value term product in the first quarter of 2013,
with positive feedback from the agency force.
Combined annuity and life segment net
income exceeded $60 million in 2012,
increasing 24 percent over prior year.
Strengthening the customer relationship
at all levels
We believe one of the most powerful
advantages we have is the Horace Mann brand
and how we differentiate ourselves from the
competition. To that end, we centered much of
our marketing strategy in 2012 on continuous
service improvements and emphasizing the
customer experience we offer to our niche
market, at both the individual customer and
school district levels. We will continue to use
both internal and J.D. Power survey results
to guide us in achieving improved customer
experience levels in 2013 and beyond.
The strength of our agency distribution
channel is at the heart of the Horace Mann
customer experience. In 2012, we achieved
our fourth consecutive year of agency force
growth, with 760 agencies at the end of the year.
Our agents are helping more customers
to see both the monetary advantages and
convenience of bundling their insurance
products with Horace Mann, which in turn
helps improve policy retention. Approximately
75-80 percent of our auto and property policies
are cross-sold, over 20 percent of our property
and casualty policies earn a tri-line discount
– a fairly unique offering in our industry, and
nearly one in five Horace Mann customers has
both a life or annuity product and a property
and casualty product, which exceeds the
multiline industry average.
We continue to use our partnerships and
educator recognition and support programs
to further strengthen and raise awareness of
the Horace Mann brand. In 2012, our agency
force conducted nearly 8,000 state teacher
retirement seminars, compared to only 400
two years ago, along with our new Financial
Success seminars which are designed to
help younger educators plan their budgets.
In addition, our DonorsChoose.org
sponsorship continues to reach and benefit
a significant portion of the education
community. Since 2011, more than 72,000
projects have been funded at schools served by
Horace Mann agencies, reaching more than
6.5 million students.
Agents continue to gain market access by
focusing on establishing solid business
relationships at the school district level. In
2012, our agency force expanded its use of
our Employer Benefits Review Service – an
annual review of the products and services
the district provides its employees – as well
as marketing Section 125 flexible benefits
programs to school districts. Further, we
redesigned our school district website for
administrators and school business officials,
and we continued to strengthen our alliance
with the Association of School Business
Officials International. With these collective
efforts, Horace Mann has at least one approved
payroll slot (annuity, auto or life insurance)
in more than 40 percent of the nation’s 13,600
public school districts.
Additionally, we have launched an extensive
social media strategy, which we anticipate will
attract a larger portion of the young educator
Horace Mann Educators Corporation • 2012 Annual Report
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market. We’ve significantly increased
our presence on Twitter and Facebook,
substantially growing our number of “likes” in
2012 and building a strong and loyal “social”
educator community. Horace Mann Mobile
– our first mobile web app – has been well
received since its launch in early 2012.
Our outlook for 2013
To build on the momentum established in
2012, we have established five key priorities for
2013 to further improve growth, profitability,
and the customer experience.
Our first priority is to maintain the high levels
of sales achieved in 2012 for auto and annuity
while further increasing property and casualty
retention ratios. As we continue the state-
specific auto growth initiatives begun in 2012,
we’re launching additional customer contact
programs in 2013 designed to further increase
cross-sales and customer retention.
At the same time, we will strive to further
improve the total property and casualty
combined ratio in 2013 through additional
targeted underwriting and rate actions in both
auto and property.
Our next two priorities are focused on
maintaining the growth momentum
established in our annuity and life segments.
We intend to continue growing and effectively
managing our retirement annuity business
in a challenging interest rate environment,
while maintaining new business spreads at
acceptable levels. At the same time, we expect
to maintain a double-digit sales growth rate in
2013 for our Horace Mann-manufactured life
insurance products.
In addition to our growth and profitability
initiatives, we are making significant
investments to further improve the Horace
Mann customer experience through a series
of service and infrastructure enhancements.
We are expanding our annual policy review
initiative countrywide and providing
customers more service options to meet their
varying needs. We have already expanded
both staffing levels and service hours in
our Customer Care Center to increase our
availability for our educator customers. We
also are enhancing our auto billing processes
to help improve the customer experience.
With the pending retirement of President
and Chief Executive Officer Pete Heckman,
our succession plan will help ensure business
continuity in 2013 and beyond. We continue
to operate with the same senior management
team and same core strategies that have proven
successful and have driven our strong business
results in recent years, and remain focused
on executing against all of our key
performance priorities.
Our long-term goals and strategic mission
remain unchanged – profitable growth,
conservative investment management and
world-class service focused on our educator
customers – all designed to reward our
shareholders and continue to establish
Horace Mann as the premier insurance and
financial services provider focusing on the
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 • 2012 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 &
Administrative Services
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 • 2012 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
2012
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2011
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
$ 19.99
18.88
18.36
18.23
$ 14.31
16.11
18.22
18.43
Corporate Data
Corporate Office
1 Horace Mann Plaza
Springfield, IL 62715-0001
Telephone: 217-789-2500
website: horacemann.com
Annual Meeting
May 22, 2013
9:00 a.m.
Abraham Lincoln Presidential Library
112 North Sixth Street
Springfield, IL 62701
Independent Accountants
KPMG LLP
200 East Randolph Street
Chicago, IL 60601
$ 17.44
16.90
16.16
13.80
$ 10.51
10.70
14.46
15.95
$ 0.16
0.13
0.13
0.13
$ 0.13
0.11
0.11
0.11
Common Stock
HMEC Stock is traded
on the NYSE (HMN)
Transfer Agent
American Stock Transfer
& Trust Company, LLC
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 • 2012 Annual Report
We believe:
Educators are taking care of
our children’s future, and we need
to take care of their future.
Peace of mind should be available
to every educator.
In respect – we treat others
as we would like to be treated.
We can help advise and educate the educators.
We are here to help educators through
a lifetime of changing needs.
We are uniquely qualified to do all this because
we were Founded by Educators for Educators ®.
HA-C00370 (Mar. 13)