horacemann.com
Horace Mann Educators Corporation
2021 Annual Report
on Form 10-K
Proud to be the largest multiline financial services company
FOCUSED ON AMERICA’S EDUCATORS
LONGEVITY
FINANCIAL STRENGTH
• Founded by Educators for Educators in 1945
• $14.4B in assets (1)
• Offering 403(b) tax qualified annuities since 1961
• $1.3B in premium and contract deposits for 2021
• NYSE listed (HMN) since 1991
• $1.6B market capitalization (2)
• Highly rated by all four major rating agencies
NICHE MARKET
MULTILINE MODEL
• Educators have preferred risk profile
• Business mix balanced between segments
• Homogeneous customer set
• Ability to provide total household solutions
• Serving about half of school locations (3) in our
• Provides earnings diversification
market footprint
(1) As of Dec. 31, 2021
(2) As of Jan. 31, 2022
(3) Includes school buildings and administration locations
Filed with SEC on February 25, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
☐ 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)
Delaware
(State or other jurisdiction of incorporation or organization)
37-0911756
(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 class
Common Stock, par value $0.001 per share
Trading Symbol(s)
HMN
Name of each exchange on which registered
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
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 filer
Non-accelerated filer
☑
☐
Accelerated filer
Smaller 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant based on the closing price of the registrant's Common
Stock on the New York Stock Exchange and the shares outstanding on June 30, 2021, was $1,511.2 million.
As of February 16, 2022, the registrant had 41,351,438 shares of Common Stock, par value $0.001 per share, outstanding.
Certain portions of the registrant's Proxy Statement for the 2022 Annual Meeting of Shareholders are incorporated by reference into Part III Items 10, 11,
12, 13 and 14 of this Form 10-K as specified in those Items and will be filed with the Securities and Exchange Commission within 120 days after
December 31, 2021.
Documents Incorporated by Reference
Auditor Name: KPMG LLP
Auditor Location: Chicago, Illinois
Auditor Firm ID: 185
HORACE MANN EDUCATORS CORPORATION
FORM 10-K
YEAR ENDED DECEMBER 31, 2021
INDEX
Part
I
Item
1.
Business
Introduction
Forward-looking Information
Overview, History and Available Information
Corporate Strategy
Human Capital Resources
Reporting Segments
2021 Geographic Composition of Business
Competition
Investments
Cash Flow
Regulation
Changing Climate Conditions
Enterprise Risk Management
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
[Reserved]
Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking Information
Introduction
Consolidated Financial Highlights
Consolidated Results of Operations
Outlook for 2022
Application of Critical Accounting Estimates
Results of Operations by Segment
Investment Results
Liquidity and Capital Resources
Future Adoption of New Accounting Standards
Effects of Inflation and Changes in Interest Rates
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
and Related Shareholder Matters
1A.
1B.
2.
3.
4.
5.
6.
7.
7A.
8.
9.
9A.
9B.
9C.
10.
11.
12.
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
13.
14.
15.
16.
Signatures
II
III
IV
Page
1
1
1
1
3
4
5
13
14
14
16
17
18
19
20
33
33
33
34
34
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37
37
38
39
39
41
43
49
57
60
64
64
65
67
133
133
135
135
136
136
136
136
136
137
148
149
PART I
ITEM 1. I Business
Introduction
Measures within this Annual Report on Form 10-K that are not based on accounting principles generally
accepted in the United States of America (non-GAAP) are marked with an asterisk (*) the first time they are
presented within Part I of this report. An explanation of these measures is contained in the Glossary of Selected
Terms included as Exhibit 99.1 to this Annual Report on Form 10-K and are reconciled to the most directly
comparable measures prepared in accordance with accounting principles generally accepted in the United
States of America (GAAP) in the Appendix to the Company's Fourth Quarter 2021 Investor Supplement.
Forward-looking Information
Horace Mann Educators Corporation (referred to in this report as "we", "our", "us", the "Company", "Horace
Mann" or "HMEC") is an insurance holding company. Our 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 forward-looking statements is contained in Part I - Item 1A and in Part II -
Item 7 of this report.
Overview, History and Available Information
We are an insurance holding company incorporated in Delaware. In 2021, through our subsidiaries, we marketed
and underwrote:
•
•
•
•
personal lines of property and casualty insurance, primarily auto and property coverages
supplemental insurance products, including cancer, heart, hospital, supplemental disability and accident
retirement products, primarily tax-qualified fixed and variable annuities
life insurance, primarily traditional term and whole life insurance products
In 2021 and prior, we conducted and managed our
business through five reporting segments. The four
operating segments, representing the major lines of
business, were: Property & Casualty, Supplemental,
Retirement and Life.
Beginning in 2022, we will conduct business in three
operating segments: (1) Property & Casualty, (2) Life
& Retirement, and (3) Supplemental & Group
Benefits. The Property & Casualty and Life &
Retirement segments will be within the Individual
Insurance & Financial Services Division. The
Supplemental & Group Benefits segment will also
function as a division, and will include the results of
Madison National Life Insurance Company, Inc.
(Madison National), which was acquired effective
January 1, 2022.
Horace Mann Educators Corporation
Annual Report on Form 10-K 1
2021 Premiums Written andContract Deposits* of $1.3 BillionProperty &Casualty47%Supplemental10%Life9%Retirement34% This change aligns with how we will make operating decisions and assess performance, maintaining discrete
segment financial information to evaluate performance and allocate resources.
We do not allocate the impact of corporate-level transactions to the operating segments, consistent with the
basis for management's evaluation of the results of those segments, but classify those items in a separate
reporting segment, Corporate & Other.
Founded by Educators for Educators®, our business began in Springfield, Illinois in 1945 when two school
teachers started selling auto insurance to other teachers within Illinois. We expanded our business to other
states and broadened our product line to include life insurance in 1949, 403(b) tax-qualified retirement annuities
in 1961 and property insurance in 1965. In 2019, we added our Supplemental segment and increased our market
share when we acquired all of the equity interests in NTA Life Enterprises, LLC (NTA). On January 1, 2022, we
enhanced our value proposition for school districts by acquiring Madison National.
Madison National is a leading writer of employer-paid and sponsored benefits provided to educators by K-12
school districts. Founded in 1961 and headquartered in Madison, Wisconsin, it offers short- and long-term group
disability, group term, and worksite solutions products, including accident, critical illness and fixed indemnity.
Over half of Madison National’s premiums are from Midwestern districts, so there is opportunity for geographic
expansion, leveraging Horace Mann’s national footprint.
Our common stock has traded on the New York Stock Exchange (NYSE) under the symbol HMN since our initial
public offering in November 1991.
We provide protection and savings products that primarily benefit K-12 teachers, administrators and other
employees of public schools and their families. Our more than 1 million households typically have moderate
annual incomes. Their financial planning tends to focus on retirement, security, savings and primary insurance
needs. We believe that we are the largest national multi-line insurance and financial services company focused
on the nation's educators as its primary market.
Today, we market primarily through a dedicated sales force of full-time Exclusive Agents supported by our
Customer Contact Center. These agents sell our products and limited third-party vendor products made
available through the Horace Mann General Agency. Some of these agents are former educators or individuals
with close ties to the educational community who utilize their contacts within, and knowledge of, the target
market. Beginning in 2022, we will also work with benefit brokers and others to bring employer-paid and
voluntary benefit solutions for educators directly to district decision makers. School districts, particularly large
ones, often work with organizations with special expertise in benefits plan design to help develop plans that
support employee recruitment and retention.
Our premiums and contract charges earned for the year ended December 31, 2021 were $889.6 million.
Premiums written and contract deposits* for the year ended December 31, 2021 were $1.3 billion. Net income
was $142.8 million. Our total assets were $14.4 billion at December 31, 2021. Total investments were $7.4 billion
at December 31, 2021 and consisted primarily of investment grade fixed maturity securities.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy
statements, and all amendments to those reports, are available free of charge through the Investors section of
our website, investors.horacemann.com, as soon as reasonably practicable after such reports are filed with or
furnished to the Securities and Exchange Commission (SEC). The EDGAR filings of such reports are also
available at the SEC's website, www.sec.gov.
Also available in the Investors section of our website are our corporate governance principles, code of conduct,
and code of ethics, as well as the charters of the HMEC Board of Directors (Board) Audit Committee,
Compensation Committee, Executive Committee, Investment and Finance Committee, and Nominating and
Governance Committee. Copies also may be obtained by writing to Investor Relations, Horace Mann Educators
Corporation, 1 Horace Mann Plaza, Springfield, Illinois 62715-0001. Our environmental, social and governance
reporting is available through the corporate social responsibility section of our website, csr.horacemann.com.
On June 15, 2021, our Chief Executive Officer (CEO) submitted the Annual Section 12(a) CEO Certification to the
NYSE without any qualifications. We filed with the SEC, as exhibits to the Annual Report on Form 10-K for the
year ended December 31, 2020, the CEO and Chief Financial Officer (CFO) certifications required under Section
302 of the Sarbanes-Oxley Act.
2 Annual Report on Form 10-K
Horace Mann Educators Corporation
Corporate Strategy
Our vision is to be the company of choice to provide financial solutions for educators and others who serve their
communities. We believe the unique value of Horace Mann is providing solutions tailored for educators at each
stage of their lives, empowering them to achieve lifelong financial success.
Education Market
With the addition of Madison National, we serve approximately 1 million households in the United States of
America (U.S.). Horace Mann, Madison National and NTA have all served a customer base of about 80%
educators. There is significant opportunity to grow in this niche market. The U.S. Department of Education
estimates that there are approximately 7.5 million K-12 school teachers, administrators and support staff
nationwide, and the number of needed educator positions continues to grow.
Because of the primary focus on this niche market, we have a largely homogeneous customer set with similar
characteristics and preferred risk profiles. This allows for more precise underwriting processes and more
targeted marketing operations, amplifying the benefit of successful approaches.
Growth Strategy
We established our solutions orientation for the education market through a focus on products, distribution and
infrastructure (PDI):
• Products designed to meet educators’ needs and protect their unique risks;
• Knowledgeable, trusted distribution tailored to educator preferences; and
• Modern, scalable infrastructure that is easy to do business with.
Since July 2019, we completed several transactions to support our PDI strategy: acquiring NTA and Madison
National, as well as reinsuring a $2.9 billion block of legacy annuity business. The annuity reinsurance
transaction reduced interest rate risk while releasing capital that was redeployed into higher-margin products.
As a result, we have become a larger, more diverse company that expects to leverage our transformation to
increase our share of the education market.
With the addition of Madison National's offerings, we can now offer a full suite of employer-paid and voluntary
benefits to help school districts address educator recruitment and retention. Educators are generally paid less
than private-sector jobs with similar educational requirements, and attrition has long been high compared to
other professions. The COVID-19 pandemic continues to exacerbate school district administrators' staffing
concerns. One avenue administrators pursue to address educator compensation is adding or improving
employee benefit packages.
Relevant Products
At the core of our value proposition is the commitment to providing relevant products and solutions to address
the issues that educators face at each stage of their career and life. Our protection products, including auto,
property, life, disability and specialty health insurance, as well as our savings products, are tailored to meet the
insurance and financial services needs of educators. Over the past few years, we have strengthened those
offerings with the addition of employer-paid group products, as well as the introduction of our Retirement
Advantage® open architecture platform for 403(b)(7) and other defined contribution plans. We modernized our
traditional life insurance products, and made significant improvements in our auto and property offerings.
We offer complimentary solutions for educators as well. One example is Student Loan Solutions, relevant for
many educators and particularly those new to the profession for whom student loan debt may preclude saving
for retirement at the point when those savings would have the most time to grow and make a significant impact
at retirement age. We offer complimentary online student loan management accounts for all educators
nationwide, which includes guidance on how to successfully qualify for federal student loan forgiveness available
to public sector employees.
Trusted Distribution
We aim to provide solutions to educators however they get their protection and savings products, whether that
is through an individual purchase or coverage is provided through their school district employer. The core
Horace Mann Educators Corporation
Annual Report on Form 10-K 3
component of the individual educator strategy is our local agents, who support the educational community
through both in-person and virtual activities, such as providing financial wellness workshops and hosting school
events. Our trusted adviser model builds particularly strong brand loyalty and affinity.
To meet the preferences of customers who prefer "on demand" services, our direct sales team is available by
phone or electronically to respond to questions or bind coverages. Customers can also secure auto, property
and life quotes and coverage comparisons online. As customer needs become more complex, they frequently
seek the help of a trusted advisor.
For our employer-paid worksite offerings, we will primarily work through established benefit brokers that assist in
the design of employee benefits plans and offerings. In addition, we will continue to enhance our Section 125
Employer Services platform offering to expand the menu of benefits available to all school district employees,
such as retirement savings and voluntary supplemental insurance products. Worksite distribution often includes
the support of a benefit enrollment team.
To build brand awareness, engage with the educator community, and stay abreast of developments and
challenges faced by educators, we partner with multiple national, state and local associations. Through strategic
alliances with a diverse group of educator associations (e.g., the American Association of School Administrators,
The School Superintendents Association and the Association of School Business Officials), we build
relationships with administrators. Through partnerships with some state and local National Education
Association (NEA) teacher associations, we have the opportunity to build our brand awareness and discuss
issues and challenges faced by individual educators.
Modern Infrastructure
We are implementing a multi-year effort to upgrade our infrastructure and enhance our digital capabilities to
ensure our operation runs efficiently and educators can connect with us in the manner they prefer. Key projects
include the Guidewire property and casualty platform, which increases customer convenience through improved
digital capabilities, e-signatures, real-time policy issuance and changes, coverage comparison features and
consolidated billing, and the LifePro administration system for our life, annuity and supplemental products,
which offers substantial benefits in terms of customer experience and operating efficiencies.
In 2017, we completed the first phase of a Guidewire implementation focused on the claims system that resulted
in reduced cycle times and more insight into customer and loss trends. The second phase (which is focused on
policy administration and billing) is currently underway. As of January 2022, the system was launched in seven
states, representing close to 40% of total Property & Casualty premiums written. Similar to the claims system
implementation, it offers substantial benefits in terms of data segmentation and analysis, digital capabilities and
ease of use.
In 2022, we are implementing LifePro for new life insurance policies, leveraging the knowledge gained in our
supplemental business, which has used LifePro for seven years. Over the next three years, we expect to
implement additional life and retirement products.
During the pandemic, we accelerated planned technology solutions, including video meetings software,
enhanced e-signature capabilities, and dynamic online appointment setting tools. These upgrades made it easier
for both agents and customers to conduct business online, including annual policy reviews where our agents
address any new or additional coverage needs. These upgrades will serve us well in the future, allowing us to
easily pivot between in-person and virtual customer engagement, depending on individual situations.
Human Capital Resources
Horace Mann's mission of helping educators achieve lifelong financial success resonates strongly with our 1,450
employees. Almost 90% of employees and agents said serving educators is an important reason why they work
at Horace Mann in a 2019 survey. In interactions with customers, each other and all stakeholders, we aim to
reflect the core values at the heart of who we are: compassionate, trustworthy, straightforward, approachable,
respectful and knowledgeable.
We believe that an engaged employee base is critical to deliver on our commitment to educators and achieve
our business objectives. Our strategy to attract and retain talented employees is based on offering a competitive
Total Rewards package, a flexible work environment and investing in employee professional development. In
4 Annual Report on Form 10-K
Horace Mann Educators Corporation
addition to competitive base salaries, every Horace Mann employee is eligible for an annual bonus program
based on company performance and annual merit increases based on individual performance.
We strive to have policies and practices in place to attract top talent, maintain high levels of employee
engagement and increase retention, such as reviewing highly skilled and hard-to-fill positions to ensure market
competitiveness and creating a robust “stay interview” process. In 2021, we introduced a hybrid workforce
model, in which more than 70% of our employees have the ability to work remotely as part of their regular
weekly schedule.
We have long strived to foster an inclusive culture in which individual differences are recognized, respected and
appreciated. In 2021, we took several steps to deliberately advance our focus in this cultural initiative, including
introducing company-wide learning opportunities hosted by our Diversity, Equity and Inclusion (DEI) Council, and
designating Juneteenth as a company holiday beginning in 2022. For the fourth year in a row, Horace Mann was
named to the Bloomberg Gender-Equality Index, which recognizes corporate commitment to transparency in
gender reporting and advancing women’s equality.
We have no collective bargaining agreements with any employees.
Reporting Segments
In 2021, we conducted and managed our business through five reporting segments: Property & Casualty,
Supplemental, Retirement, Life and Corporate & Other.
These segments are defined based on the way management organizes the segments for making operating
decisions and assessing performance. Management maintains discrete financial information for these segments
to evaluate performance and allocate resources.
The calculations of segment data are described in more detail in Part II - Item 8, Note 19 of the Consolidated
Financial Statements in this report. Additionally, the business operations of each segment are explained in this
section. The financial performance of each segment is discussed in Part II - Item 7 of this report.
Property & Casualty
Our primary property and casualty insurance
products include private passenger auto insurance
and residential home insurance.
We offer standard auto coverages, including liability,
collision and comprehensive. Property coverage
includes both homeowners and renters policies. For
both auto and property coverage, we offer
educators a discounted rate and the Educator
Advantage® package of features. This includes
value-added benefits specifically for educators,
such as liability coverage for transporting students
in an insured vehicle and reimbursement for stolen
school fundraising items.
We have programs in a majority of states to provide
higher-risk auto and property coverages. We also
have a number of other insurance coverages with
third-party vendors that underwrite and bear the risk
of such insurance. We receive commissions on
these risks.
376,302 auto risks in force and
176,446 property risks in force at December 31, 2021.
Similarly, we have increased our offering of third-party vendor products in many areas to meet additional
educator needs such as coverage for small business owners or classic/collector autos.
Horace Mann Educators Corporation
Annual Report on Form 10-K 5
2021 Property & CasualtyPremiums Earned of $617 MillionAuto65%Property andother liability35% Year
2021
2020
2019
2018
2017
Catastrophe Losses (Pretax)(1)
The number of catastrophe events and the level of catastrophe losses can fluctuate significantly from year to
year. Our catastrophe losses for the last five years are shown in the following table ($ in millions).
Month
Event Description
States/Region
Total
$
78.2
February
Winter Storm Viola
AR, IL, LA, MO, OK, TN, TX
August
Hurricane Ida
AL, AK, CT, DE, DC, FL, GA, KY, LA, MD,
MA, MS, NJ, NY, NC, PA ,RI, TN, VI, WV
December Wildfire Marshall
CO
Other single events less than $5.0 million
August
Derecho
IA, IL, IN, KS, MI, MN, MO, NE, OH, SD, WI
August
Hurricane Laura
AR, LA, MS, TN, TX
October
Hurricane Delta
AL, AR, GA, LA, MS, NC, SC, TX
October
Hurricane Zeta
AL, GA, LA, MS, NC, SC
Other single events less than $5.0 million
$
$
May
Wind and Hail
CO, IA, IL, IN, KS, MO, NE, OH, OK, PA, WY
Other single events less than $5.0 million
5.1
24.0
5.3
43.8
84.4
6.5
9.5
3.3
2.7
62.4
52.0
5.5
46.5
June
July
Wind and Hail
Carr Fire
CO, UT
CA
September Hurricane Florence
Southeast and Mid-Atlantic
October
Hurricane Michael
Southeastern U.S.
November Camp Fire(2)
Other single events less than $5.0 million
May
June
Wind, Hail, Tornado
Wind and Hail
August
Hurricane Harvey
August
Hurricane Irma
CA
CO
MN (primarily)
Southeastern U.S.
Eastern U.S.
Other single events less than $5.0 million
(1) Net of reinsurance and before income tax benefits. Includes allocated loss adjustment expenses.
(2)
As recognized in 2018 and excludes subrogation recoveries of $4.8 million pretax received in 2020.
$
114.1
8.2
5.9
11.4
4.5
31.2
52.9
61.8
10.0
10.0
4.8
3.0
34.0
$
6 Annual Report on Form 10-K
Horace Mann Educators Corporation
Fluctuations in catastrophe losses impact a property and casualty insurance company's claims and claim
expenses incurred and paid.
Claims and Claim Expenses Incurred(1), 2019 - 2021 ($ in millions)
(1) Claims and claim expenses incurred include the impact of prior years' reserve development as quantified in Property & Casualty reserves.
Catastrophe totals are net of reinsurance and before income tax benefits.
Property & Casualty Reserves
Property & Casualty unpaid claims and claim expenses (loss reserves) represent management's estimate of
ultimate unpaid costs of losses and settlement expenses for reported claims and claims that have been incurred
but not yet reported (IBNR). We calculate and record a single best estimate of the reserve as of each reporting
date in conformity with generally accepted actuarial standards. We engage an independent property and
casualty actuarial consulting firm to prepare an independent study of our Property & Casualty reserves at
December 31st of each year. For additional information regarding the process used to estimate Property &
Casualty reserves and the risk factors involved, as well as a summary reconciliation of the beginning and ending
Property & Casualty insurance claims and claim expense reserves and prior years' reserve development
recorded in each of the three years ended December 31, 2021, see Part I - Item 1A - Risk Factors - "Our
property and casualty loss reserves may not be adequate", Part II - Item 7, Application of Critical Accounting
Estimates and Results of Operations for the Property & Casualty Segment, and Part II - Item 8, Note 8 of the
Consolidated Financial Statements of this report.
All of our reserves for Property & Casualty unpaid claims and claim expenses are carried at the full value of
estimated liabilities and are not discounted for interest expected to be earned on the reserves. Due to the nature
of our personal lines business, we have no exposure to losses related to claims for toxic waste cleanup, other
environmental remediation or asbestos-related illnesses other than claims under property insurance policies for
environmental related items such as mold.
Property & Casualty Reinsurance
All reinsurance is obtained through contracts which generally are entered into for each calendar year. Although
reinsurance does not legally discharge us from primary liability for the full amount of our risks, it does allow for
recovery from assuming reinsurers to the extent of the reinsurance ceded. Past due reinsurance recoverables as
of December 31, 2021 were not material.
We maintain catastrophe excess of loss reinsurance coverage. For 2021, our catastrophe excess of loss
reinsurance coverage consisted of one contract in addition to a minimal amount of coverage by the Florida
Hurricane Catastrophe Fund. The catastrophe excess of loss reinsurance contract provided 95% coverage for
catastrophe losses above a $25.0 million retention per occurrence up to $175.0 million per occurrence. This
contract consisted of three layers, each of which provided for one mandatory reinstatement. The layers were
$25.0 million excess of $25.0 million, $40.0 million excess of $50.0 million and $85.0 million excess of $90.0
million. Our 2022 catastrophe excess of loss reinsurance coverage is unchanged from 2021.
Horace Mann Educators Corporation
Annual Report on Form 10-K 7
$476$431$448$424$347$370$52$84$78Non-catastropheCatastrophe201920202021 We have not joined the California Earthquake Authority (CEA). Our exposure to losses from earthquakes is
managed through our underwriting standards, our earthquake policy coverage limits and deductible levels, and
the geographic distribution of our business, as well as our reinsurance program. After reviewing the exposure to
earthquake losses from our own risks and from what it would be with participation in the CEA, including
estimated start-up and ongoing costs related to CEA participation, we believe it is in our best economic interest
to offer earthquake coverage directly to our property policyholders.
For liability coverages in 2021, we reinsured each loss above a retention of $1.0 million up to $5.0 million per
occurrence and $20.0 million in a clash event. A clash cover is a reinsurance casualty excess contract requiring
two or more casualty coverages or risks issued by us to be involved in the same loss occurrence for coverage to
apply. Our 2021 liability contract provides 85% coverage for losses of $1.0 million up to $5.0 million. For 2022,
the reinsurance layer of $1.0 million up to $5.0 million occurrence has been eliminated. The 2022 clash event
coverage is unchanged from 2021.
We market personal lines excess liability risks. The limits of these risks are $1.0 million to $5.0 million in excess
of $0.5 million of underlying auto and homeowners liability coverage. We reinsure these risks on a quota share
basis with General Reinsurance Corporation who assumes 95% of losses, including allocated loss adjustment
expenses and premiums for all states except Massachusetts. For business written in Massachusetts, the quota
share portion is 75%.
For auto insurance sold in Michigan, Personal Injury Protection (PIP) unlimited coverage is offered in compliance
with Michigan state law. For these risks with unlimited coverage, we participate in the Michigan Catastrophic
Claims Association (MCCA). For risks issued in 2021, MCCA reimbursed PIP losses including allocated loss
adjustment expenses in excess of $0.6 million.
For property coverages, in 2021, we reinsured each loss above a retention of $1.0 million up to $5.0 million per
risk, including catastrophe losses. Also, we could submit to the reinsurers two per risk losses from the same
occurrence for a total of $8.0 million of property recovery in any one event. Our 2021 property contract provides
85% coverage for losses of $1.0 million up to $5.0 million. This reinsurance layer has been eliminated for 2022.
The following table identifies our most significant reinsurers under the catastrophe first event excess of loss
reinsurance program, their percentage participation in this program and their ratings by A.M. Best Company
(A.M. Best) and Standard & Poor's Global Inc. (S&P) as of January 1, 2022. No other single reinsurer's
percentage participation in 2022 or 2021 exceeds 5%. We monitor reinsurers' financial strength by reviewing
A.M. Best and S&P ratings.
Property Catastrophe First Event Excess of Loss Reinsurance Participants In Excess of 5%
A.M.
Best
Rating
S&P
Rating
A
A+
A+
NR
A+
A+
A+
A+
AA-
A+
AA-
A+
NR - Not rated.
Reinsurer
Parent
Lloyd's of London Syndicates
2022
2021
14.2 % 19.4 %
Everest Reinsurance Company
Everest Re Group, Ltd
10.7 %
7.1 %
Swiss Re Underwriters Agency, Inc.
Swiss Reinsurance Company, Zurich
9.9 %
9.6 %
R+V Versicherung AG
DZ BANK AG
SCOR Global P&C SE
SCOR SE
Transatlantic Reinsurance Company
Alleghany Corporation
8.9 %
8.7 %
6.7 %
6.7 %
5.3 %
4.9 %
8 Annual Report on Form 10-K
Horace Mann Educators Corporation
Supplemental
We entered the supplemental market in July 2019
when we acquired NTA. Our supplemental
insurance products include cancer, heart, hospital,
supplemental disability and accident. A typical
supplemental policy offers "HIPAA Excepted"
benefits with simplified issuance. Our supplemental
products are limited benefit products that offer
defined benefit amounts paid directly to the insured,
and are payable in addition to any other insurance
coverages. An insured can use the supplemental
payments to cover medical or non-medical costs.
Supplemental products remain an important tool in
the changing healthcare landscape with higher
deductible health care plans and expanded
voluntary offerings along with an increasing focus
on health and wellness. Our supplemental products
are well designed, offering indemnity benefits only
rather than reimbursement of actual costs. The
benefit risk is well controlled with no coverage for
pre-existing conditions and specified benefit
maximums per occurrence or time period.
Diagnosis or treatment is required for benefit
payment.
Our supplemental disability products have
elimination and short-term benefit periods. Sound
underwriting techniques and significant underwriting
expertise help ensure loss experience is
commensurate with pricing expectations.
277,896 total Supplemental policies in force at December 31, 2021.
Supplemental Reserves
Supplemental policy reserves represent our best estimate of the present value of future ultimate benefits, net of
future premiums, to be provided for cancer, heart, hospital, supplemental disability and accident claims. Unpaid
claims and claim expenses provide provisions for claims reported to us plus an estimated accrual for IBNR
claims.
Supplemental Reinsurance
We retain all of the risk on our supplemental health product lines, including accidental death risk embedded
within certain products. However, our other accidental death and dismemberment risks issued through all other
policies and riders are ceded 100%. The maximum life insurance risk retained on any individual life by our
Supplemental segment is $100,000. The excess risk on the life insurance products issued by our Supplemental
segment is ceded to and reinsured by a third party that is rated A (Excellent) by A.M. Best.
Retirement
Our Retirement segment primarily markets 403(b) tax-qualified fixed, fixed indexed and variable annuities; the
Horace Mann Retirement Advantage® open architecture platform for 403(b)(7) and other defined contribution
plans; and other retirement products to educators. Educators in our target market continue to benefit from the
provisions of Section 403(b) of the Internal Revenue Code (Code) which allows public school employees and
employees of other tax-exempt organizations, such as not-for-profit private schools, to utilize pretax income to
make periodic contributions to a qualified retirement plan (also see Regulation - Regulation at Federal Level).
Horace Mann Educators Corporation
Annual Report on Form 10-K 9
2021 Supplemental PremiumsEarned of $125 MillionCancer33%Heart24%Accident15%Hospital andOther 4%Supplementaldisability24% We entered the educator retirement annuity market in 1961 and are one of the largest participants in the K-12
educator portion of the 403(b) tax-qualified annuity market, measured by 403(b) net written premium on a
statutory accounting basis. Our 403(b) tax-qualified annuities are voluntarily purchased by individuals employed
by public school systems or other tax-exempt organizations through employee benefit plans of those entities.
In 2021, 47.7% of net annuity contract deposits* were for 403(b) tax-qualified annuities. At December 31, 2021,
62.3% of accumulated annuity value on deposit were 403(b) tax-qualified. To further assist registered
representatives in delivering our value proposition, we have entered into third-party vendor agreements to
market 529 college savings programs and provide brokerage clearing arrangements.
Assets under Management
We market both fixed and variable annuity contracts,
primarily on a tax-qualified basis. Total accumulated
fixed and variable annuity cash value on deposit at
December 31, 2021 was $5.3 billion, net of reinsurance.
Fixed-only annuities provide a guarantee of principal
and a guaranteed minimum rate of return. These
contracts are backed by our general account
investments. We bear the investment risk associated
with the investments and may change the declared
interest rate on these contracts subject to contract
guarantees.
We also offer fixed indexed annuity (FIA) products with
interest crediting strategies linked to the S&P 500 Index
and the Dow Jones Industrial Average (DJIA).
Variable annuities combine a fixed account option with equity-linked and bond-linked sub-account options. By
utilizing tools that provide assistance in determining needs and making asset allocation decisions,
contractholders are able to choose the investment mix that matches their personal risk tolerance and retirement
goals. As of December 31, 2021, we had 121 variable sub-account options including funds managed by some of
the larger participants in the mutual fund industry.
229,629 annuity contracts in force at December 31, 2021.
Annuities are marketed under the Personal Retirement Planner annuity series, which includes a flexible premium
deferred variable annuity, a flexible premium deferred fixed indexed annuity, a single premium deferred fixed
annuity and a single premium immediate annuity. Consistent across all of these products is the elimination of
any surrender charges for early withdrawal.
Assets under Administration
In addition to annuities, we market the Horace Mann Retirement Advantage® open architecture platform for
403(b)(7) and other defined contribution plans. This platform combines a wide array of mutual funds integrated
with a group unallocated fixed annuity stable value fund. This platform provides us with greater flexibility to offer
customized 403(b)(7) and other qualified plan solutions to better meet the needs of school districts and other
non-for-profit plan sponsors. In 2019, we acquired recordkeeping administrator, Benefit Consultants Group, Inc.
(BCG) and we migrated the administration of our Horace Mann Retirement Advantage® platform from a third-
party vendor to the BCG platform. We offer our group unallocated fixed annuity, Horace Mann Stable Value
Solution, as an option within a number of the 401(k) plans BCG administers. BCG had $1.6 billion of
recordkeeping assets under administration as of December 31, 2021.
Annuity Reinsurance
Effective April 1, 2019, we reinsure a $3.2 billion block of in force fixed and variable annuity business with a
minimum crediting rate of 4.5%. The reinsured fixed business represents approximately 50% of our in force
fixed annuity account balances. The arrangement contains investment guidelines and a trust to help meet our
risk management objectives. Under the annuity reinsurance agreement, approximately $2.4 billion of fixed
annuity reserves are reinsured on a coinsurance basis. The separate account assets and liabilities of
approximately $0.8 billion are reinsured on a modified coinsurance basis and thus, remain on our consolidated
10 Annual Report on Form 10-K
Horace Mann Educators Corporation
Retirement Assets UnderManagement of $5.3 BillionFixedannuities41%FIA10%Variableannuities49%
financial statements, but the related results of operations are fully reinsured. The annuity reinsurance agreement
does not expose the reinsurer (i.e., RGA Reinsurance Company, a subsidiary of Reinsurance Group of America,
Incorporated) to a reasonable possibility of a significant loss from insurance risk. Therefore, we recognize the
annuity reinsurance agreement using the deposit method of accounting.
Retirement Assets Under Administration, 2019 - 2021 ($ in billions)
Life
We entered the individual life insurance business in
1949. We primarily offer traditional term and whole
life insurance products as well as indexed universal
life (IUL) products and, from time to time, revise
products and product features or develop new
products. Additionally, we offer educator rates for
our customers.
During 2021, the average face amount of individual
life insurance policies issued by us was
approximately $191,000 and the average face
amount of all life insurance policies in force at
December 31, 2021 was approximately $102,000.
We offer a lineup of several product portfolios. Life
by Design® is a portfolio of our manufactured and
branded life insurance products that specifically
address the financial planning needs of educators.
The Life by Design® portfolio features individual
whole life and individual term products, including
10, 15, 20 and 30-year level term policies. The Life
by Design® policies have premiums that are
guaranteed for the duration of the contract.
Horace Mann Educators Corporation
Annual Report on Form 10-K 11
$11.3$11.8$12.7$4.4$4.8$5.3$2.4$2.4$2.6$1.5$1.5$1.6$3.0$3.1$3.2Annuity AUMBrokerage and advisory AUARecordkeeping AUAReinsured annuity block201920202021200,345 Life Policies In Force as ofDecember 31, 2021Whole Life30%Term Life27%Experience Life21%IUL2%Group Life19%SinglePremiumWhole Life1% We offer a combination product called Life Select® that mixes a base of either traditional whole life, 20-pay life or
life paid-up at age 65 with a variety of term riders to allow for more flexibility in tailoring the coverage to
customers' varying life insurance needs. Additional products include single premium whole life products and
Cash Value Term — a term policy that builds cash value while providing the income protection of traditional level
term life insurance.
We offer an IUL product with interest crediting strategies linked to the S&P 500 Index and the DJIA, offering a
contingent return based on equity market performance. Along with expanded product offerings, new marketing
support tools continue to be introduced to aid the agency force.
We also maintain a closed block of Experience Life policies. This product, discontinued in 2006, represents a
flexible premium life insurance contract consisting mainly of whole life and term elements, along with an interest
bearing policy account.
Life Reinsurance
The maximum individual life insurance risk retained by our Life segment is $500,000 on any individual life, while
either $100,000 or $125,000 is retained on each group life policy depending on the type of coverage. The excess
of the amounts retained are reinsured with life reinsurers that are rated A (Excellent) or above by A.M. Best. We
also maintain a life catastrophe reinsurance program. In 2021, we reinsured 100% of the catastrophe risk in
excess of $1.0 million up to $35.0 million per occurrence, with one reinstatement. For 2021, our catastrophe risk
coverage is unchanged. Our life catastrophe risk reinsurance program covers acts of terrorism and includes
nuclear, biological and chemical explosions but excludes other acts of war.
Corporate & Other
Corporate & Other includes capital raising activities (including debt financing and related interest expense), net
investment gains (losses), certain public company expenses and other corporate-level transactions including
expenses related to business acquisition activity. We do not allocate the impact of corporate-level transactions
to the operating segments, consistent with the basis for management's evaluation of the results of those
segments.
12 Annual Report on Form 10-K
Horace Mann Educators Corporation
2021 Geographic Composition of Business
Our business is geographically diversified. For the year ended December 31, 2021, based on direct premiums
and contract deposits for all product lines, the top five states and their portion of total direct insurance premiums
and contract deposits were California, 10.2%; Texas, 7.5%; North Carolina, 7.0%; Minnesota, 5.4%; and
Pennsylvania, 5.1%.
$622.1 million in direct premiums, defined as premiums earned
before reinsurance as determined under statutory accounting
principles. Our Property & Casualty subsidiaries are licensed to write
business in 48 states and the District of Columbia.
$625.1 million in direct premiums and contract deposits, defined as
premiums collected before reinsurance as determined under
statutory accounting principles. Our principal life subsidiary is
licensed to write business in 49 states and the District of Columbia.
$125.6 million in direct premiums, defined as premiums earned before reinsurance as determined
under statutory accounting principles. Our principal supplemental insurance subsidiaries are
licensed to write business in all 50 states, the U.S. Virgin Islands and the District of Columbia.
Horace Mann Educators Corporation
Annual Report on Form 10-K 13
Property & CasualtyCA11.9%TX8.3%NC7.9%MN5.9%SC4.9%GA4.8%LA4.5%PA3.7%ME3.1%CO2.8%All otherstates42.2%Life & RetirementPA7.2%NC6.4%MN6.1%FL5.6%TX5.3%VA5.2%IN5.0%CA4.9%ME4.3%TN4.3%All otherstates45.7%SupplementalCA28.9%TX13.6%FL6.2%NC5.6%LA5.4%SC5.3%VA4.5%TN4.0%MD3.2%AL3.1%All otherstates20.2% Competition
We have over 75 years of experience serving the education market and are uniquely positioned to tailor financial
solutions for educators at each stage of their lives, empowering them to achieve lifelong financial success. We
believe this helps us succeed in a highly competitive environment. The insurance industry consists of a large
number of insurance companies, some of which have substantially greater financial resources, widespread
advertising campaigns, more diversified product lines, greater economies of scale and/or lower-cost marketing
approaches compared to us. In our target market, we believe that our principal competitive advantages in the
sale of property and casualty and supplemental insurance products are overall service, worksite sales and
service, price, and name recognition. We believe that our principal competitive advantages in the sale of
retirement products and life insurance are worksite sales and service, product features, perceived stability of the
insurer, price, overall service and name recognition.
With our focus on the education market, we can benefit from a homogeneous customer set that permits more
precise underwriting processes and more targeted marketing operations, amplifying the benefit of successful
approaches. We seek to provide:
•
Products designed to meet educators’ needs and protect their unique risks;
• Knowledgeable, trusted distribution tailored to educator preferences; and
• Modern, scalable infrastructure that is easy to do business with.
Competition in this market for personal protection products is from a number of national providers of personal
auto, property, supplemental and life insurance including State Farm, Allstate, Farmers, Liberty Mutual, Aflac,
Unum and Nationwide, as well as a number of regional companies. We also compete for auto business with
other companies such as GEICO, Progressive and USAA, many of which feature direct marketing distribution. A
number of technology start-ups have also entered the market.
National providers of annuities and other financial service platforms that serve the retirement needs of educators
and others that serve the community, include The Variable Annuity Life Insurance Company, a subsidiary of
American International Group; AXA, Voya Financial, Inc., Life Insurance Company of the Southwest, a subsidiary
of National Life Insurance Company; Security Benefit, and Teachers Insurance and Annuity Association – College
Retirement Equities Fund. Select mutual fund families and financial planners also compete in this marketplace.
The market for tax-deferred retirement products in our target market has been impacted by the revised Code
Section 403(b) regulations, which made the 403(b) market more comparable to the 401(k) market than it was in
the past. This change has made the 403(b) market more attractive to some of the larger companies experienced
in 401(k) plans, including both insurance and mutual fund companies, that had not previously been active
competitors in this business.
Investments
Our investment strategy is primarily focused on generating income to support product liabilities, and balances
principal protection and risk. Our investment objectives are implemented through portfolios that primarily
emphasize investment grade fixed maturity securities that are selected to match the anticipated duration of our
liabilities. In addition to these securities, we also invest in limited partnership interests (which include commercial
mortgage loan funds) and equity securities to help improve overall returns.
We have separate investment strategies and guidelines for our Property & Casualty, Supplemental, Retirement
and Life portfolios, which recognize different characteristics of the associated insurance liabilities, as well as
different tax and regulatory environments. We manage interest rate exposure for our portfolios through asset/
liability management techniques that attempt to coordinate the duration of the assets with the duration of the
insurance policy liabilities. Duration of assets and liabilities will generally differ only because of opportunities to
increase yields or because policy values are not interest rate sensitive, as is the case in Property & Casualty and
Supplemental.
The investments of each insurance subsidiary must comply with the insurance laws of such insurance
subsidiary's domiciliary state. These laws prescribe the type and amount of investments that may be purchased
and held by insurance companies. In general, these laws permit investments, within specified limits and subject
14 Annual Report on Form 10-K
Horace Mann Educators Corporation
to certain qualifications, in federal, state and municipal obligations, corporate bonds, mortgage-backed
securities, other asset-backed securities, preferred stocks, common stocks, real estate mortgages, real estate
and alternative investments.
Investment Portfolio at December 31, 2021
($ in millions)
% of
Total
Carrying
Value
Carrying Value
Life and
Total
Retirement Supplemental
Property &
Casualty(7)
Amortized
Cost,
net(8)
Publicly Traded Fixed Maturity Securities, Equity
Securities and Short-term Investments:
U.S. Government and agency obligations:(1)
Mortgage-backed securities
8.9 % $ 662.5 $
546.2 $
104.4 $
11.9 $
Other, including U.S. Treasury securities
4.9
365.9
340.5
13.8
11.6
612.1
342.5
Total publicly traded securities
80.0
5,960.6
4,566.1
Investment grade corporate and public utility
bonds
Non-investment grade corporate and
public utility bonds(2)
Investment grade municipal bonds
Non-investment grade municipal bonds(2)
Investment grade other asset-backed
securities(3)
Non-investment grade other asset-backed
securities(2)(3)
Foreign government bonds
Redeemable preferred stock
Equity securities:
Non-redeemable preferred stocks,
investment grade
Non-redeemable preferred stocks,
non-investment grade
Common stocks
Closed-end fund
Short-term investments(4)
Other Invested Assets:
Investment grade private placements
Non-investment grade private placements(2)
Mortgage loans(5)
Policy loans(5)
Limited partnership interests
Other
Total other invested assets
Total investments(6)
21.8
1,626.4
1,235.2
204.1
187.1
1,483.9
3.0
220.9
21.6
1,607.4
0.8
57.3
185.0
1,114.7
31.4
11.3
113.2
6.7
24.6
379.5
19.2
213.3
1,429.4
54.0
13.6
1,017.6
819.3
108.5
89.8
1,011.7
0.3
0.6
0.4
1.3
0.3
0.1
0.3
2.1
24.6
43.6
29.7
99.8
19.7
5.9
21.5
157.8
24.3
43.6
28.6
92.5
17.2
0.1
—
87.5
6.9
0.9
0.1
1.9
9.6
0.6
513.7
70.0
6.7
142.1
712.8
43.6
485.8
61.1
6.7
141.3
492.9
39.1
20.0
1,488.9
1,226.9
0.3
—
1.1
7.3
1.5
—
—
17.2
589.4
27.9
8.9
—
0.8
48.1
3.5
89.2
—
—
—
—
1.0
5.8
21.5
53.1
30.2
40.2
27.4
99.8
19.7
5.9
21.5
157.8
805.1
5,549.4
—
—
—
—
171.8
1.0
172.8
490.9
70.1
6.7
142.1
712.8
43.6
1,466.2
100.0 % $ 7,449.5 $
5,793.0 $
678.6 $
977.9 $
7,015.6
(1)
(2)
(3)
(4)
All investment grade that includes $325.1 million fair value of investments guaranteed by the full faith and credit of the U.S. Government and
$703.2 million fair value of federally sponsored agency securities which are not backed by the full faith and credit of the U.S. Government.
A non-investment grade rating is assigned to a security when it is acquired or when it is downgraded from investment grade, primarily on the
basis of the S&P rating for such security, or if there is no S&P rating, the Moody's Investors Service, Inc. (Moody's) or Fitch Ratings, Inc.
(Fitch) rating for such security, or if there is no S&P, Moody's or Fitch rating, the National Association of Insurance Commissioners' (NAIC)
rating for such security. The rating agencies monitor securities and their issuers regularly, and make changes to the ratings as necessary. We
incorporate rating changes on a monthly basis.
Includes commercial mortgage-backed securities, asset-backed securities, other mortgage-backed securities and collateralized loan
obligations.
Short-term investments mature within one year of being acquired and are carried at cost, which approximates fair value. Short-term
investments of $157.8 million are all money market funds and not rated.
(5) Mortgage loans are carried at amortized cost, net and policy loans are carried at unpaid principal balances.
(6)
Approximately 7.4% of our investment portfolio, having a carrying value of $551.7 million as of December 31, 2021, consisted of securities
with some form of credit support, such as insurance. Of the securities with credit support as of December 31, 2021, municipal bonds
represented $386.3 million carrying value.
Includes $1.0 million of equity securities and $1.0 million of short-term investments held in Corporate & Other.
The values of limited partnership interests are carried using the equity method of accounting which approximates fair value.
(7)
(8)
Horace Mann Educators Corporation
Annual Report on Form 10-K 15
Fixed Maturity Securities
For reporting purposes, we have classified the entire portfolio of fixed maturity securities as "available for sale"
and the portfolio is carried at fair value. The adjustment for net unrealized investment gains (losses) on fixed
maturity securities available for sale is recognized as a separate component of accumulated other
comprehensive income (AOCI) within shareholders' equity, net of applicable deferred taxes and the related
impact from deferred policy acquisition costs (DAC) associated with annuity contracts and life insurance
products with account values. Fixed maturity securities held for indefinite periods of time include securities that
we intend to use as part of our asset/liability management strategy and that may be sold in response to changes
in interest rates, resultant prepayment risk and other related factors, other than securities that are in an
unrealized loss position for which we have the stated intent to hold until recovery.
Fixed Maturity Securities Portfolio at December 31, 2021
Investment grade
Non-investment grade
Average credit quality
Average option-adjusted duration
Percent maturing in next 5 years
Cash Flow
% of Fixed Maturity
Securities Portfolio
% of Total
Investment Portfolio
85.5 %
14.5 %
A+
6.7
31.0 %
71.6 %
12.1 %
A+
6.7
26.0 %
Information regarding our sources and uses of cash, including payment of principal and interest with respect to
our indebtedness, and payment of dividends to our shareholders, is contained in Part II - Item 8, Note 14 of the
Consolidated Financial Statements and in Part II - Item 7, Liquidity and Capital Resources — Cash Flow and —
Capital Resources of this report.
The ability of our insurance subsidiaries to pay cash dividends to us is subject to state insurance department
regulations which generally permit dividends to be paid for any 12 month period in amounts equal to the greater
of (i) net income for the preceding calendar year or (ii) 10% of surplus, determined in conformity with statutory
accounting principles, as of the preceding December 31st. Any dividend in excess of these levels requires the
prior approval of the Director or Commissioner of the state insurance department of the state in which the
dividend paying insurance subsidiary is domiciled. The aggregate amount of dividends that may be paid in 2022
from all of our insurance subsidiaries, including Madison National, without prior regulatory approval is
approximately $134.8 million, excluding the impact and timing of prior year dividends, of which $57.0 million was
paid during the year ended December 31, 2021.
Notwithstanding the foregoing, if insurance regulators otherwise determine that payment of a dividend or any
other payment to an affiliate would be detrimental to an insurance subsidiary's policyholders or creditors,
because of the financial condition of the insurance subsidiary or otherwise, the regulators may block dividends
or other payments to affiliates that would otherwise be permitted without prior approval.
16 Annual Report on Form 10-K
Horace Mann Educators Corporation
Regulation
General Regulation at State Level
As an insurance holding company, we are subject to extensive regulation by the states in which our insurance
subsidiaries are domiciled or transact business. Some regulations, such as those addressing unclaimed
property, generally apply to all corporations. In addition, the laws of the various states establish regulatory
agencies with broad administrative powers, which relate to a wide variety of matters, including granting and
revoking licenses to transact business, regulating trade practices and rate setting, licensing agents, requiring
statutory financial statements, monitoring insurer solvency and reserve adequacy, and prescribing the type and
amount of investments permitted and the manner in which they may be sold. On an ongoing basis, various state
legislators and insurance regulators examine the nature and scope of state insurance regulation.
In addition to individual state monitoring and regulation, state regulators develop coordinated regulatory policies
through the NAIC. States have adopted NAIC risk-based capital guidelines to evaluate the adequacy of statutory
capital and surplus in relation to an insurance company's risks. Based on current guidelines, the risk-based
capital statutory requirements are not expected to have a negative regulatory impact on our insurance
subsidiaries. At December 31, 2021 and 2020, statutory capital and surplus of each of our insurance subsidiaries
were above required levels. States have also adopted the NAIC's U.S. Own Risk and Solvency Assessment
which requires insurance companies to submit their own assessment of their current and future risks and
provide a consolidated group-level perspective on risk and capital formulated through an internal risk self-
assessment process.
Regulation of insurance continues to evolve. Some changes arise as a result of economic developments, such
as changes in investment laws made to recognize new investment products or to respond to perceived
investment risks, while others reflect concerns about consumer privacy, insurance availability, prices, allegations
of unfair-discriminatory pricing, underwriting practices, or solvency concerns. Over the past several years,
legislation, regulatory measures, and voter initiatives have been introduced, and in some cases adopted, which
deal with use of non-public consumer information, cybersecurity, use of credit information in underwriting and
rating, insurance rate development, rate of return limitations, and the ability of insurers to cancel or non-renew
insurance policies.
Assessments Against Insurers and Mandatory Insurance Facilities
Under insurance insolvency or guaranty laws in most states in which we operate, insurers doing business therein
can be assessed for policyholder losses related to insolvencies of other insurance companies, and many
assessments paid by us pursuant to these laws may be used as credits for a portion of our premium taxes in
certain states. Also, we are required to participate in various mandatory insurance facilities in proportion to the
amount of our direct writings in the applicable state. For the three years ended December 31, 2021, the impacts
of the above industry items were not material to our results of operations.
Regulation at Federal Level
Although the federal government generally does not directly regulate the insurance industry, federal initiatives
often impact the insurance business. Current and proposed federal measures which may significantly affect
insurance and retirement business include employee benefits regulation, standards applied to employer
sponsored retirement plans, standards applied to broker-dealers and investment advisers, controls on the costs
of medical care, medical entitlement programs such as Medicare, structure of retirement plans and accounts,
changes to the insurance industry antitrust exemption, and minimum solvency requirements. Also, see Part I -
Item 1A of this report. Other federal regulation such as the Patient Protection and Affordable Care Act, Fair
Credit Reporting Act, Gramm-Leach-Bliley Act and USA PATRIOT Act, including its anti-money laundering
regulations, also impact our business.
The variable annuities underwritten by Horace Mann Life Insurance Company (HMLIC) are regulated by the SEC.
Horace Mann Investors, Inc., and BCG Securities, Inc., our broker-dealer and Registered Investment Adviser
subsidiaries, are also regulated by the SEC, the Financial Industry Regulatory Authority, Inc., the Municipal
Securities Rule-making Board and various state securities regulators.
Changes in federal income taxation of the build-up of cash value within a life insurance policy or an annuity
contract could have a materially adverse impact on our ability to market and sell such products. Various
Horace Mann Educators Corporation
Annual Report on Form 10-K 17
legislation to this effect has been proposed in the past, but has not been enacted. Although no such legislative
proposals are known to exist at this time, such proposals may be made again in the future. Changes in other
federal and state laws and regulations could also affect the relative tax and other advantages of our annuity and
life products.
Financial Regulation Legislation
In addition, from time to time, the United States Congress and certain federal agencies investigate the current
condition of the insurance industry to determine whether federal regulation is necessary. For example, the Dodd-
Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) created the Federal Insurance Office (FIO)
within the U.S. Department of the Treasury. FIO studies the current insurance regulatory system and is charged
with monitoring and providing specific reports on various aspects of the insurance industry, including the
collection of information about the insurance industry and monitoring the industry for systemic risk. However,
FIO does not have general supervisory or regulatory authority over the business of insurance.
Changing Climate Conditions
Horace Mann continually works to better understand and manage climate risks that directly affect our
stakeholders. This is an important issue for the insurance industry. We recognize climate change as a growing
concern, and continually work to better understand and manage climate risks that directly affect our customers,
insurance products and investment portfolio. Our Board formally recognizes the importance of carbon neutrality.
Our Board oversees our Enterprise Risk Management Committee’s risk assessments and risk mitigation
strategies, including recommended actions to address climate change risks. These actions include managing
climate risks through our ongoing risk assessments to help us improve the accuracy of our climate-related risk
models, refine how we price and underwrite policies, and avoid an over concentration of insurance coverages
and investments in geographies likely to be affected by climate risk. We also have in place a conservative
reinsurance program as an additional layer of protection against large property and casualty catastrophe losses.
Our coverage for $25 million to $175 million of losses shares the risk with other insurance companies.
We also are working to mitigate the impact of climate risks on our results. Rising temperatures and changing
weather patterns in recent years are widely associated with more frequent and severe weather events and
natural catastrophes, leading to higher insurance claims and costs and create additional uncertainty as to future
trends and exposures. We want to be there for our customers in the event of a loss of our customers' property
and help them recover from hurricanes, windstorms, hail, severe winter weather, wildfires and earthquakes. Our
deep commitment to helping our customers was evident in our response to the 2018 Camp Fire in California and
the subsequent launch of a pilot wildfire certification program.
As we look ahead, we believe climate change risks should be understood, modeled and better priced into our
insurance products and services. There are also public policy implications, such as discouraging overbuilding in
high-risk areas through flood insurance requirements and state regulatory approaches to insurance premium
approvals; and modifying and enforcing building codes to better protect at-risk communities against the effects
of natural catastrophes.
Similar to other insurers, we may be subject to increased losses from catastrophes and other weather-related
events that are exacerbated by weather/climate variability.
As we discuss in Part I - Item 1A—Risk Factors—“Catastrophe events, as well as significant weather events not
designated as catastrophes, can have a material adverse affect on our financial condition and results of
operations” of this report, several factors make increased losses more likely:
• More people living in high-risk areas combined with population growth in areas with weaker enforcement
of building codes, urban expansion and an increase in the average size of a house. For example,
hurricane activity has impacted areas further inland than previously experienced, and demographic
changes have resulted in larger populations located in coastal areas that historically have been subject
to severe storms and related storm surge, expanding the potential for losses from hurricanes.
•
Elevated frequency and severity of wildfire losses due in part to record droughts in western states that
some climate studies suggest are likely to increase over time, as well as demographic changes in areas
prone to wildfires.
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Horace Mann Educators Corporation
•
Less reliable catastrophe models due to the increased unpredictability in frequency and severity of
severe weather events, emerging trends in climate conditions, inadequate reflection of regulatory
changes and the other factors mentioned above.
In addition, changing climate conditions may present other issues for our business as discussed in Part I - Item
1A - Risk Factors of this report. For example, among other things:
• Changing climate conditions could also impact the creditworthiness of issuers of securities in which we
invest. For example, water supply adequacy could impact the creditworthiness of bond issuers with
significant assets or business activities in the Southwestern United States, and more frequent and/or
severe hurricanes could impact the creditworthiness of issuers with significant assets or business
activities in the Southeastern United States, among other areas. See Part I - Item 1A—Risk Factors— “If
our investment strategy is not successful, we could suffer unexpected losses” of this report.
•
Increased regulation adopted in response to potential changes in climate conditions may impact us and
our customers, including state insurance regulations that could impact our ability to manage property
exposures in areas vulnerable to significant climate driven losses. For example, one state passed
legislation that restricted a carrier's ability to cancel or non-renew certain policies within or adjacent to
declared state of emergency zip codes. If we are unable to implement risk-based pricing, modify policy
terms or reduce exposures to the extent necessary to address rising losses related to catastrophes and
smaller scale weather events (should those increased losses occur), our business may be adversely
affected. See Part I - Item 1— Business – Regulation of this report.
Enterprise Risk Management
As a multi-line insurance company, we are exposed to many risks which are a function of the products we
underwrite and the environments within which we operate. Since certain risks can be correlated, an event or a
series of events can impact multiple areas of our business simultaneously and have a material effect on our
results of operations, financial position and liquidity. These exposures require an entity-wide view of risk and an
understanding of the potential impact on all aspects of our operations. It also requires us to manage our risk-
taking to be within our appetite in a prudent and balanced effort to create and preserve value for all our
stakeholders. Our Enterprise Risk Management (ERM) activities involve both the identification and assessment of
a broad range of risks and the execution of coordinated strategies to effectively manage them. ERM also
includes an evaluation of our risk capital needs, which takes into account regulatory requirements and credit
rating considerations, in addition to economic and other factors. ERM is an integral part of our business
operations. All risk owners across all functions, all corporate leaders and the Board are engaged in ERM. ERM
involves risk-based analytics, as well as reporting and feedback throughout the enterprise in support of our long-
term financial strategies and objectives.
We use property and casualty catastrophe models that are run by our reinsurance intermediary. Life and
retirement asset cash flows are projected using third-party software for certain security types. We also utilize
proprietary third-party computer modeling processes to evaluate capital adequacy. These analytical techniques
are an integral component of our ERM process and further support our long-term financial strategies and
objectives.
Within Horace Mann, ERM is an ongoing assessment process used to identify and manage or mitigate risk,
which will continue to influence our strategy and direction. The ERM Committee objectives include the following:
•
Apply appropriate consideration to risk in strategic and operational decision-making
• Define and communicate risk appetite and risk management policies
•
Approve and oversee processes aimed at identifying, evaluating, and managing risk
• Monitor and discuss emerging risks and risk management capabilities
The ERM Committee is composed of senior executives from across Horace Mann and has ultimate oversight
over the risk management process, with each leader having ownership and accountability over certain identified
key risks. In 2020, a Chief Risk Officer (CRO) was appointed and, in conjunction with the ERM Committee, is
responsible for working with the business leaders to ensure that they are actively monitoring and managing their
Horace Mann Educators Corporation
Annual Report on Form 10-K 19
key risks. The CRO is also responsible for developing and monitoring key corporate level risks that encompass
more than one business/division. There is ongoing and regular communication within the ERM Committee.
Members of the ERM Committee are responsible for updates to the Board and various Board committees on key
risks and emerging risk topics. The interaction of all the various individuals, committees, reports, and processes
results in an on-going process, which we believe puts us in the best position to effectively and efficiently manage
risk.
Our ERM efforts build upon the foundation of an effective internal control environment. However, we can provide
only reasonable, not absolute, assurance that these objectives will be met. Further, the design of any risk
management or control system must reflect the fact that there are resource constraints, and the benefits must
be considered relative to their costs. As a result, the possibility of material financial loss remains despite our
significant and comprehensive ERM efforts. An investor should carefully consider the risks and all of the other
information set forth in this Annual Report on Form 10-K, including disclosures in Part I - Item 1A—Risk Factors,
Part II - Item 7A—Quantitative and Qualitative Disclosures About Market Risk, and Part II - Item 8—Financial
Statements and Supplementary Data.
ITEM 1A. I Risk Factors
The following are certain risk factors that could affect our business, financial position and results of operations.
The risks that we have highlighted in the following section of this report are not the only ones that we face.
Our business involves various risks and uncertainties which are based on the lines of business we write as well
as more global risks associated with the general business and insurance industry environments.
Further, to the effects of COVID-19 and resulting disruptions on our business and operations as discussed in
Item 7 of this report and in the risk factors below, additional or unforeseen effects from COVID-19 and the global
economic climate may give rise to or amplify many of the risk factors discussed below.
Risks Related to Economic Conditions, Market Conditions and Investments
Volatile financial markets and adverse economic environments can affect financial market risk
as well as our financial condition and results of operations.
Financial markets in the U.S. and elsewhere can experience extreme volatility and disruption for uncertain
periods of time. During such times, stresses affecting the global banking system can lead to economic volatility,
which can exert significant downward pressure on prices of equity securities and many other investment asset
classes and result in severely constrained credit and capital markets, particularly for financial institutions, and an
overall loss of investor confidence. Many states and local governments can also be impacted by adverse
economic conditions, which could have an impact on both our niche market and our investment portfolio. Like
other financial institutions that face significant financial market risk in their operations, we have been adversely
affected by these conditions and could be adversely impacted by similar circumstances in the future. Our ability
to access the capital markets to refinance outstanding indebtedness or raise capital could be impaired during
significant financial market disruptions.
As discussed further in subsequent risk factors, in addition to the effects of financial markets volatility, a
prolonged economic recession may have other adverse impacts on our financial condition and results of
operations.
If our investment strategy is not successful, we could suffer unexpected losses.
The success of our investment strategy is crucial to the success of our business. Specifically, our fixed maturity
securities portfolio is subject to a number of risks including:
•
interest rate risk, which is the risk that interest rates will decline and funds reinvested will earn less than
expected;
• market value risk, which is the risk that invested assets will decrease in value due to changes in yields
realized on the assets and prevailing market yields for similar assets, an unfavorable change in the
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Horace Mann Educators Corporation
liquidity of the asset or an unfavorable change in the financial prospects or a downgrade in the credit
rating of the issuer of the asset;
•
credit risk, which is the risk that the value of certain investments become impaired due to deterioration
in the financial condition of one or more issuers of those instruments or the deterioration in performance
or credit quality of the underlying collateral of certain structured securities and, ultimately, the risk of
permanent loss in the event of default by an issuer or underlying credit;
• market fundamentals risk, which is the risk that there are changes in the market that can have an
unfavorable impact on securities valuation such as availability of credit in the capital markets, re-pricing
of credit risk, reduced market liquidity due to broker-dealers' unwillingness to hold inventory, and
increased market volatility;
•
•
•
concentration risk, which is the risk that the portfolio may be too heavily concentrated in the securities
of one or more issuers, sectors or industries, which could result in a significant decrease in the value of
the portfolio in the event of deterioration in the financial condition of those issuers or the market value of
their securities;
liquidity risk, which is the risk that liabilities are surrendered or mature sooner than anticipated requiring
the sale of assets at an undesirable time to provide for policyholder surrenders, withdrawals or claims;
and,
regulatory risk, which is the risk that regulatory bodies or governments, in the U.S. or in other countries,
may make substantial investments or take significant ownership positions in, or ultimately nationalize,
financial institutions or other issuers of securities held in our investment portfolio, which could adversely
impact the seniority or contractual terms of the securities. Regulatory risk could also come from changes
in tax laws or bankruptcy laws that could adversely impact the valuation and/or after tax yields of certain
invested assets.
Although our defined benefit pension plan has been frozen since 2002, declining financial markets could also
cause, and in the past have caused, the value of the investments in this plan to decrease, resulting in additional
pension expense, a reduction in other comprehensive income and an increase in required contributions to this
plan, which could have an adverse effect on our financial condition and results of operations.
The determination of fair value of our fixed maturity securities portfolio includes methodologies,
estimations and assumptions that are subject to differing interpretations and could result in
changes to investment valuations that may materially affect our financial condition and results
of operations.
The determination of fair value is made at a specific point in time, based on available market information and
judgments about financial instruments, including estimates of the timing and amounts of expected future cash
flows and the credit standing of the issuer or counterparty. The use of different methodologies and assumptions
may have a material effect on the estimated fair value amounts. During periods of market disruption, including
periods of rapidly widening credit spreads or illiquidity, it may be difficult to value certain securities if trading
becomes less frequent and/or market data becomes less observable. There may be certain asset classes that
were in active markets with significant observable data that become illiquid due to the financial environment. In
such cases, fair value determination may require more subjectivity and management judgment and those fair
values may differ materially from the value at which the investments could ultimately be sold. Further, rapidly
changing and unprecedented credit and equity market conditions could materially impact the valuation of
securities and the period-to-period changes in fair value could vary significantly. The difference between fair
value and amortized cost, net of applicable deferred income taxes and the related impact on DAC associated
with annuity contracts and life insurance products with account values is reflected as a component of AOCI
within shareholders' equity. Decreases in the fair value of investments could have a material adverse effect on
our financial condition and results of operations.
Equity method adjustments on certain investments in limited partnership interests as well as fair
value accounting for equity securities and derivatives may reduce profitability and/or cause
volatility in our results of operations.
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Annual Report on Form 10-K 21
We invest in limited partnership interests, which are accounted for using the equity method of accounting. This
means that our proportionate share of the changes in fair value of the underlying net asset values are reported in
net investment income in the Consolidated Statements of Operations. As a result, the amount of net investment
income recognized from these investments can vary substantially from period to period. Equity and credit
market volatility may reduce net investment income from these types of investments and negatively impact the
results of operations. Changes in fair value from applying fair value accounting to equity securities, which are
reported in net investment gains (losses) in the Consolidated Statements of Operations, may cause volatility in
our results of operations.
The application of fair value accounting for derivatives and embedded derivatives in FIA and IUL products may
cause volatility in our results of operations.
Risks Related to Property & Casualty Segment
Catastrophe events, as well as significant weather events not designated as catastrophes, can
have a material adverse affect on our financial condition and results of operations.
Underwriting results of property and casualty insurers are subject to weather and other conditions prevailing in
an accident year. While one year may be relatively free of major weather or other disasters — not all of which are
designated by the insurance industry as a catastrophe, another year may have numerous such events causing
results for such a year to be materially worse than for previous years.
Our Property & Casualty insurance subsidiaries have experienced, and we anticipate that in the future they will
continue to experience, catastrophe losses. A catastrophe event, a series of multiple catastrophe events or a
series of non-catastrophe severe weather events could have a material adverse effect on the financial condition
and results of operations of our insurance subsidiaries.
Various events can cause catastrophes, including hurricanes, windstorms, hail, severe winter weather, wildfires,
earthquakes, explosions and terrorism. The frequency and severity of these catastrophes are inherently
unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured
exposures in the area affected by the event and the severity of the event. Although catastrophes can cause
losses in a variety of property and casualty lines, most of the catastrophe-related claims of our insurance
subsidiaries are related to property coverages. Our ability to provide accurate estimates of ultimate catastrophe
losses is based on several factors, including:
•
•
•
•
the proximity of the catastrophe occurrence date to the date of our estimate;
potential inflation of property repair costs in the affected area;
the occurrence of multiple catastrophes in a geographic area over a relatively short period of time; and
the outcome of litigation which may be filed against us by policyholders, state attorneys general and
other parties relative to loss coverage disputes and loss settlement payments.
Based on 2021 direct premiums earned, 57.8% of the total annual premiums for our Property & Casualty
business were for policies issued in the ten largest states in which the insurance subsidiaries write property and
casualty coverage. Included in this top ten group are certain states which are considered to be more prone to
catastrophe occurrences: California, Texas, North Carolina, Minnesota, South Carolina, Louisiana and Colorado.
Our property and casualty loss reserves may not be adequate.
Our Property & Casualty insurance subsidiaries maintain loss reserves to provide for their estimated ultimate
liability for losses and loss adjustment expenses with respect to reported and unreported claims incurred as of
the end of each reporting date. If these loss reserves prove inadequate, a loss is recognized and measured by
the amount of the shortfall and, as a result, the financial condition and results of operations of the insurance
subsidiaries may be adversely affected, potentially affecting their ability to distribute cash to us.
Reserves do not represent an exact calculation of liability. Reserves represent estimates, generally involving
actuarial projections at a given time, of what the insurance subsidiaries expect the ultimate settlement and
adjustment of claims will cost, net of salvage and subrogation. Estimates are based on assessments of known
facts and circumstances, assumptions related to the ultimate cost to settle such claims, estimates of future
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Horace Mann Educators Corporation
trends in claims severity and frequency, changing judicial theories of liability and other factors. These variables
are affected by both internal and external events, including changes in claims handling procedures, economic
inflation, unpredictability of court decisions, plaintiffs' expanded theories of liability, risks inherent in major
litigation and legislative changes. Many of these items are not directly quantifiable, particularly on a prospective
basis. Significant reporting lags may exist between the occurrence of an insured event and the time it is actually
reported. Our insurance subsidiaries adjust their reserve estimates regularly as experience develops and further
claims are reported and settled.
Due to the inherent uncertainty in estimating reserves for losses and loss adjustment expenses, we cannot be
certain that the ultimate liability will not exceed amounts reserved, with a resulting adverse effect on our financial
condition and results of operations.
Risks Related to Supplemental Segment
Actual experience may differ from actuarial assumptions, which could adversely affect our
results of operations and financial condition.
Historical results may not be indicative of future performance due to, among other things, changes in our mix of
business, regulatory actions or changes in legal doctrine impacting our products or lines of business, or any
number of economic cyclical effects. Reserves do not represent an exact calculation of future benefit liabilities
but are instead actuarial and statistical-based estimates. Actual experience may differ from our reserve
assumptions. There are no assurances that reserves will be sufficient to fund our future liabilities in all scenarios.
Future loss development may require reserves to be increased, which could adversely affect earnings in current
and future periods. Adjustments to reserve amounts may be required in the event of changes from the
assumptions regarding future morbidity, mortality, persistency and interest rates used in calculating the reserve
amounts, which could have a material adverse affect on our financial condition and results of operations.
Risks Related to Life & Retirement Segments
A sustained period of low interest rates or interest rate fluctuations could negatively affect net
interest margin derived from the difference between interest earned on investments and interest
paid under fixed annuity and life insurance products with account values.
Significant changes in interest rates expose us to the risk of not earning the appropriate level of income or
experiencing losses based on the differences between the interest earned on investments and the credited
interest paid on outstanding fixed annuity and life insurance products with account values. Significant changes
in interest rates may affect:
•
•
•
the ability to maintain appropriate interest rate spreads over the rates guaranteed in fixed annuity and life
products with account values;
the book yield of the investment portfolio; and
the net unrealized investment gains (losses) in the portfolio and the related after tax effect on
shareholders' equity and total capital.
Both rising and declining interest rates can negatively affect the income derived from interest rate spreads on
annuity and life insurance products with account values. During periods of falling interest rates or a sustained
period of low interest rates, investment earnings will be lower because new investments in fixed maturity
securities likely will bear lower interest rates. We may not be able to fully offset the decline in investment
earnings with lower crediting rates on fixed annuity products, particularly in a multi-year period of low interest
rates. As of the time of issuance of this Annual Report on Form 10-K, yields on new investments remain at
historically low levels. If interest rates do remain low over an extended period of time, it could pressure
investment income by having to invest insurance cash flows and reinvest the cash flows from the investment
portfolio in lower yielding securities.
During periods of rising interest rates, there may be competitive pressure to increase the crediting rates on fixed
annuity products. We may not, however, immediately have the ability to acquire investments with interest rates
Horace Mann Educators Corporation
Annual Report on Form 10-K 23
sufficient to offset an increase in crediting rates under fixed annuity products. Therefore, changes in interest
rates could affect interest rate spreads.
Changes in interest rates may also affect business in other ways. For example, a rapidly changing interest rate
environment may result in less competitive crediting rates on certain fixed rate products which could make those
products less attractive, leading to lower sales and/or increases in the level of life insurance and fixed annuity
product surrenders and withdrawals. New business volume also could be negatively impacted by product or
agent compensation changes which we might make to mitigate the income effect of spread compression.
Interest rate fluctuations that impact future profits may also impact DAC amortization.
The Retirement business may be, and in the past has been, adversely affected by volatile or
declining financial market conditions.
Conditions in the U.S. and international financial markets affect the sale and profitability of retirement products.
In general, sales of fee-based products decrease when financial markets are declining or experiencing a higher
than normal level of volatility over an extended period of time. Therefore, weak and/or volatile financial market
performance may adversely affect sales of fee-based products to potential customers, may cause current
customers to withdraw or reduce the amounts invested in fee-based products and may reduce the market value
of existing customers' investments in fee-based products, in turn reducing the amount of fee-based product
revenues generated. In addition, some variable annuity products offer guaranteed minimum death benefit
features, which provide for a benefit if the contractholder dies and the contract value is less than a specified
amount. A decline in the financial markets could cause the contract value to fall below this specified amount,
increasing exposure to losses from variable annuity products featuring guaranteed minimum death benefits.
Declining or volatile financial markets that impact future profits may also impact DAC amortization.
Deviations from assumptions regarding future market appreciation, interest spreads, business
persistency, mortality and morbidity used in calculating life and annuity reserves and DAC
amortization could have a material adverse effect on our financial condition and results of
operations.
The processes of calculating reserves and DAC amortization for the life and annuity businesses involve the use
of a number of assumptions, including those related to market appreciation (the rate of growth in market value of
the underlying variable annuity sub-accounts due to price appreciation), interest spreads (the interest rates
expected to be received on investments less the rate of interest credited to contractholders), business
persistency (how long a contract stays with us), mortality (the relative incidence of death over a given period of
time) and morbidity (the relative incidence of disability resulting from disease or physical impairment). We
periodically review the adequacy of these reserves and DAC recoverability on an aggregate basis and, if future
experience is estimated to differ significantly from previous assumptions, adjustments to reserves and DAC
amortization may be required that could have a material adverse effect on our financial condition and results of
operations.
A reduction or elimination of the tax advantages of retirement and life products and/or a change
in the tax benefits of various government-authorized retirement programs, such as 403(b)
products and individual retirement accounts (IRAs), could make our products less attractive to
clients and adversely affect our results of operations.
A significant part of our retirement business involves fixed and variable 403(b) tax-qualified products, which are
purchased voluntarily by individuals employed by public school systems or other tax-exempt organizations. Our
financial condition and results of operations could be adversely affected by changes in federal and state laws
and regulations that affect the relative tax and other advantages of our life and retirement products to clients or
the tax benefits of programs utilized by our customers. As a result of persisting economic conditions, revenue
challenges exist at federal, state and local government levels. These challenges could increase the risk of future
adverse impacts on current tax-advantaged products or result in notable reforms to educator pension programs.
Also, see Part I - Item 1, Regulation of this report.
Current federal income tax laws generally permit the tax-deferred accumulation of earnings on the premiums
paid by holders of retirement and life insurance products. Taxes, if any, are generally payable on income
attributable to a distribution under the contract for the year in which the distribution is made. From time to time,
Congress has considered legislation that would reduce or eliminate the benefit of such deferral of taxation on the
24 Annual Report on Form 10-K
Horace Mann Educators Corporation
accretion of value within life insurance and non-qualified annuity contracts. Enactment of this legislation, or other
tax reform efforts could result in fewer sales of life insurance and retirement products.
Strategic Risks
The integration of Madison National may not be as successful as anticipated.
The Madison National acquisition involves numerous operational, strategic, financial, accounting, legal, tax and
other risks. Difficulties in executing the acquisition strategy may cause our financial results to differ from our
expectations or the expectations of the investor community. Potential difficulties that may be encountered in the
integration process include, among other factors:
•
•
•
•
the inability to successfully integrate the businesses and distribution force of Madison National in a
manner that permits us to achieve the full revenue and cost savings desired from the acquisition;
complexities associated with managing the larger, more complex, business;
loss of key employees;
disruption of, or loss of momentum in, each company's ongoing business; and,
• Madison National's distribution risk inherent in its in force block, which is highly concentrated with one
distribution partner.
Lack of successful execution on acquisition integration strategies could result in impairment of
goodwill and intangible assets that could adversely affect our results of operations.
We accounted for the NTA and BCG acquisitions using the acquisition method of accounting, which requires
that the assets acquired and liabilities assumed be recognized on our consolidated balance sheet at their
respective fair values as of the acquisition date, including recognition of intangible assets. Any excess of the
purchase consideration over the fair value of the acquired net tangible and intangible assets is recognized as
goodwill.
As of December 31, 2021, the Company's Consolidated Balance Sheet reflected goodwill of $24.1 million and
intangible assets of $145.4 million recognized in connection with the NTA and BCG acquisitions (see Part II -
Item 8, Note 7 of the Consolidated Financial Statements for more information). To the extent the acquisitions do
not provide the modeled returns, the value of goodwill or intangible assets could become impaired and thus, we
may be required to recognize material non-cash charges relating to such impairment, which could adversely
affect our results of operations.
The personal lines insurance and retirement markets are highly competitive and our financial
condition and results of operations may be adversely affected by competitive forces.
We operate in a highly competitive environment and compete with numerous insurance companies, as well as
mutual fund families, independent agent companies and financial planners. In some instances and geographic
locations, competitors have specifically targeted the educator marketplace with specialized products and
programs. We compete in our target market with a number of national providers of personal auto and property
insurance and life insurance and retirement products.
The insurance industry consists of a large number of insurance companies, some of which have substantially
greater financial resources, more diversified product lines, more sophisticated product pricing, greater
economies of scale and/or lower-cost marketing approaches compared to us. In our target market, we believe
that the principal competitive factors in the sale of property and casualty insurance products and supplemental
insurance products are overall service, worksite sales and service, price, and name recognition. We believe that
for our market, the principal competitive factors in the sale of retirement products and life insurance products are
worksite sales and service, product features, perceived stability of the insurer, price, overall service and name
recognition.
Particularly in the Property & Casualty business, our insurance subsidiaries have experienced pricing and
profitability cycles. During these periods of intense competition, they may be unable to add policyholders and
increase revenues without adversely impacting profit margins. With respect to these cycles, the factors having
Horace Mann Educators Corporation
Annual Report on Form 10-K 25
the greatest impact include significant and/or rapid changes in loss costs, including changes in loss frequency
and/or severity, prior approval and restrictions in certain states for price increases, intense price competition,
less restrictive underwriting standards, aggressive marketing, and increased advertising, which have resulted in
higher industry-wide combined loss and expense ratios. During the current cycle, and potentially beyond,
competition from direct writers and large, mass market carriers has been particularly aggressive, evidenced in
part by their significant national advertising expenditures. In addition, advancements in vehicle technology and
safety features, such as accident prevention technologies or the development of autonomous or partially
autonomous vehicles — once widely available and utilized, as well as expanded availability of usage-based
insurance, could materially alter the way that auto insurance is marketed, priced and underwritten. The inability
of our insurance subsidiaries to effectively anticipate the impact of these issues on our business and compete
successfully in the property and casualty business could adversely affect their financial condition and results of
operations and the resulting ability to distribute cash to us.
In the Retirement business, there are several factors driving increased competition. First, the current IRS Section
403(b) regulations have made the 403(b) market similar to the 401(k) market. These changes have increased and
could continue to increase the number of competitors in the 403(b) market, as it has become more attractive to
some of the larger companies experienced in 401(k) plans, including both insurance and mutual fund companies,
that had not previously been active competitors in this business. Further, while not yet widespread, there has
been continued pressure in some states to adopt state-sponsored or mandated 403(b) plans with single-
provider or limited-provider options; this pressure has come from competitor lobbying efforts and state
legislature pension reform initiatives. The inability of our insurance subsidiaries to compete successfully in these
circumstances could adversely affect their financial condition and results of operations and the resulting ability
to distribute cash to us.
If we are not able to effectively develop and expand our marketing operations, including agents
and other points of distribution, our financial condition and results of operations could be
adversely affected.
Our agencies are owned primarily by non-employee, independent contractor Exclusive Distributors with most
agencies operating in outside offices with licensed producers. The economic viability of each agency is directly
dependent on the productivity of the agency and the success at penetrating, serving and cross-selling our
educator market.
Our success in marketing and selling our products is largely dependent upon the efforts of our agent sales force
and the success of their agency operations. As we expand our business, we may need to expand the number of
agencies marketing our products. If we are unable to appoint additional agents, fail to retain high-producing
agents, are unable to maintain the productivity of those agency operations or are unable to maintain market
penetration in existing territories, sales of our products could likely decline and our financial condition and
results of operations could be adversely affected.
If we are not able to maintain secure access to educators, our financial condition and results of
operations could be adversely affected.
Our ability to successfully increase new business in the educator market is largely dependent on our ability to
effectively access educators either in their school buildings or through other approaches. While this is especially
true for the sale of 403(b) tax-qualified retirement products via payroll deduction, any significant decrease in
access, either through fewer payroll slots, increased security measures, impacts of state or federal level pension
reform initiatives, requirements of national and state Do Not Call registries, or for other reasons, could adversely
affect the sale of all lines of business and require us to change our traditional approach to worksite marketing
and promotion, as well as contact with potential customers. With the current IRS regulations regarding Section
403(b) arrangements, including retirement products, our ability to maintain and increase our share of the 403(b)
market, and the access it gives for other product lines, will depend on our ability to successfully compete in this
market. Some school districts and benefit consultants have placed emphasis on the relative financial strength
ratings of competing companies, as well as low cost product and distribution approaches, which may put us at a
competitive disadvantage relative to other more highly-rated insurance companies.
Our ability to maintain and obtain product and corporate endorsements from, and/or marketing agreements with,
local, state and national education-related associations is important to our marketing strategy. In addition to
teacher organizations, we have established relationships with various other educator, principal, school
26 Annual Report on Form 10-K
Horace Mann Educators Corporation
administrator and school business official groups. These contacts and endorsements help to establish our brand
name and presence in the educational community and to enhance access to educators.
Operational Risks
A large-scale pandemic, the occurrence of terrorism or military actions may have an adverse
effect on our business.
A large-scale pandemic, the occurrence of terrorism or military and other actions, may result in loss of life,
property damage, and disruptions to commerce and reduced economic activity. Some of the assets in our
investment portfolio may be adversely affected by declines in the equity markets, changes in interest rates,
reduced liquidity and economic activity caused by a large-scale pandemic. Additionally, a large-scale pandemic
or terrorist act could have a material effect on sales, liquidity and operating results.
Further, the global pandemic caused by COVID-19 that was initially reported in December 2019 has developed
into a worldwide crisis over subsequent months and is causing significant human suffering as well as
widespread economic damage. The effects of the outbreak on the U.S. economy, our customers, our agents,
our employees, our investments and our communities, as well as any preventative or protective actions that we,
our employees and agency force, our third-party service providers and suppliers, or governments may take to
mitigate the impact of COVID-19 could have an adverse effect on our ability to conduct business and on our
financial condition and results of operations. Impacts to our business have been and could continue to be
widespread and may result in the following:
•
•
•
•
•
•
•
•
•
•
•
employees contracting COVID-19;
reductions in our operating effectiveness as our employees work from home;
increased competition in hiring and retaining employees and agents;
sustained lack of access to schools and educators that could materially impact our sales and premium
volumes;
public school systems facing budget constraints due to the economic impacts of the pandemic that
could result in educator layoffs;
unprecedented volatility in financial markets that could materially affect our investment portfolio
valuations and returns as well as our ability to generate targeted spreads on indexed products;
regulatory mandates and/or legislative changes, including premium grace periods and premium credits;
changes in frequency and/or severity of claims;
increased credit risk;
business disruption for insurance agents who market and sell our insurance products; and
business disruptions to third parties at which we outsource certain business functions to or on which we
rely for technology.
The full extent to which COVID-19 could affect the global economy, the financial markets and our business, our
financial condition and our results of operations will depend on future developments and factors that cannot be
predicted.
Climate change may adversely affect our financial position, results of operations and cash
flows.
Climate change presents risk to us and there are concerns that the increased frequency and severity of weather-
related catastrophes and other losses is indicative of changing weather patterns, whether as a result of climate-
warming trends (global climate change) caused by human activities or otherwise, which could cause such events
to persist. Increased weather-related catastrophes could lead to higher overall losses, which we may not be able
to recoup, particularly in a highly regulated and competitive environment, and higher reinsurance costs. Certain
catastrophe models assume an increase in frequency and severity of certain weather or other events, which
Horace Mann Educators Corporation
Annual Report on Form 10-K 27
could result in a disproportionate impact on insurers with certain geographic concentrations of risk. This could
also likely increase the risks of writing property insurance in coastal areas or areas susceptible to wildfires or
flooding, particularly in jurisdictions that restrict pricing and underwriting flexibility. The threat of rising sea levels
or other catastrophe losses as a result of global climate change may also cause property values in coastal or
such other communities to decrease, reducing the total amount of insurance coverage that is required.
In addition, global climate change could have an impact on our fixed maturity security and limited partnership
portfolios, resulting in realized and unrealized losses in future periods that could have a material adverse effect
on our financial position, results of operations and cash flows. It is not possible to foresee which, if any, assets,
industries or markets may be materially and adversely affected, nor is it possible to foresee the magnitude of
such effect. Further, it is also possible that the legal, regulatory and social responses to climate change could
have an adverse effect on our financial condition, results of operations and cash flows.
Data security breaches or denial of service on our websites could have an adverse effect on our
business and reputation.
Unauthorized access to and unintentional dissemination of our confidential, highly-sensitive customer, employee
or company data or other breaches of data security in our facilities, networks or databases, or those of our
agents or third-party vendors - including information technology and software vendors, could result in loss or
theft of assets or sensitive information, data corruption or operational disruption that may expose us to liability
and/or regulatory action and may have an adverse impact on our customers, employees, investors, reputation
and business. In addition, any compromise of the security of company data or prolonged denial of service on our
websites could harm our business and reputation. Additionally, we recognize the increased external threats of
data breaches in the marketplace resulting in non-public data of customers becoming increasingly available in
the public domain.
Successful execution of our business growth strategy is dependent on effective implementation
of new or enhanced technology systems and applications.
Our ability to effectively execute our business growth strategy and leverage potential economies of scale is
dependent on our ability to provide the requisite technology components for that strategy. While we have
effectively upgraded our infrastructure technologies with improvements in our data center, a new
communications platform and enhancements to our disaster recovery capabilities, our ability to replace or
supplement dated, monolithic legacy business systems — such as our Life, Retirement and Property & Casualty
policy administrative systems — with more flexible, maintainable, and customer accessible solutions will be
necessary to achieve our plans. The inherent difficulty in replacing and/or modernizing these older technologies,
coupled with our limited experience in these endeavors, presents an increased risk of failing to deliver these
technology solutions in a cost effective and timely manner. Our scale will require us to develop innovative
solutions to address these challenges, including consideration of "software as a service" arrangements and
other third-party based information technology capabilities. More modern approaches to software development
and utilization of third-party vendors can augment our internal capacity for these implementations, but may not
adequately reduce the operational risks of timely and cost effective delivery.
Loss of key vendor relationships could affect our operations.
We increasingly rely on services and products provided by a number of vendors in the U.S. and abroad. These
include, for example, vendors of computer hardware and software, including on-demand software, and vendors
of services such as investment management advisement, information technology services — such as those
associated with the Life, Retirement and Property & Casualty policy administrative systems — and delivery
services for customer policy-level communications. In the event that one or more of our vendors suffers a
bankruptcy or otherwise becomes unable to continue to provide products or services, we may suffer operational
difficulties and financial losses.
Our ability to attract, develop, engage, and retain top talent, maintain optimal staffing levels, and
foster/sustain a highly inclusive and engaging culture is critical to our success.
Competition from within the insurance industry and from other industries, including the technology sector, for
qualified employees with highly specialized knowledge in areas such as underwriting, data and analytics,
technology and e-commerce, has often been intense and we have experienced increased competition in hiring
and retaining employees.
28 Annual Report on Form 10-K
Horace Mann Educators Corporation
Factors that affect our ability to attract and retain such employees include:
• Competitive total rewards; including compensation and benefits
• Robust training and development programs
• Reputation as a successful business with a culture of fair hiring, and of training and promoting qualified
employees
• Recognition and responsiveness to changing trends (i.e., remote/hybrid work arrangements) and other
circumstances that affect employees
The unexpected loss of key personnel could have a material adverse impact on our business because of the loss
of their skills, knowledge of our products and offerings and years of industry experience and, in some cases, the
difficulty of promptly finding qualified replacement personnel.
Financial Strength, Credit and Counterparty Risks
Losses due to defaults by others could reduce our profitability or negatively affect the value of
our investments.
Third-party debtors may not pay or perform their obligations. These parties may include the issuers whose
securities we hold, customers, reinsurers, borrowers under mortgage loans, trading counterparties, derivative
counterparties, clearing agents, exchanges, clearing houses and other financial intermediaries. These parties
may default on their obligations to us due to bankruptcy, lack of liquidity, downturns in the economy or real
estate values, operational failure or other reasons.
During or following an economic downturn, our municipal bond portfolio could be subject to a higher risk of
default or impairment due to declining municipal tax bases and revenue. States are currently barred from
seeking protection in federal bankruptcy court. However, federal legislation could possibly be enacted to allow
states to declare bankruptcy in connection with deficit reductions or mounting unfunded pension liabilities,
which could adversely impact the value of our municipal bond portfolio.
The default of a major market participant could disrupt the securities markets or clearance and settlement
systems in the U.S. or abroad. A failure of a major market participant could cause some clearance and
settlement systems to assess members of that system, including our broker-dealer and Registered Investment
Adviser regulatory entities, or could lead to a chain of defaults that could adversely affect us. A default of a major
market participant could disrupt various markets, which could in turn cause market declines or volatility and
negatively impact our financial condition and results of operations.
Uncollectible reinsurance, as well as reinsurance availability and pricing, can have a material
adverse effect on our business volume and profitability.
Reinsurance is a contract by which one insurer, called a reinsurer, agrees to cover a portion of the losses
incurred by a second insurer in the event a claim is made under a policy issued by the second insurer. Although
a reinsurer is liable to our insurance subsidiaries according to the terms of the reinsurance policy, the insurance
subsidiaries remain primarily liable as the direct insurers on all risks reinsured. As a result, reinsurance does not
eliminate the obligation of our insurance subsidiaries to pay all claims, and each insurance subsidiary is subject
to the risk that one or more of its reinsurers will be unable or unwilling to honor its obligations.
Although we limit participation in our reinsurance programs to reinsurers with high financial strength ratings and
also limit the amount of coverage from each reinsurer, our insurance subsidiaries cannot guarantee that their
reinsurers will pay in a timely fashion, if at all. Reinsurers may become financially unsound by the time that they
are called upon to pay amounts due, which may not occur for many years.
Additionally, the availability and cost of reinsurance are subject to prevailing market conditions beyond our
control. For example, significant losses from hurricanes or terrorist attacks, an increase in capital requirements,
or a future lapse of the provisions of the Terrorism Risk Insurance Act could have a significant adverse effect on
the reinsurance market.
Horace Mann Educators Corporation
Annual Report on Form 10-K 29
If one of our insurance subsidiaries is unable to obtain adequate reinsurance at reasonable rates, that insurance
subsidiary would have to increase its risk exposure and/or reduce the level of its underwriting commitments,
which could have a material adverse effect upon the business volume and profitability of the subsidiary.
Alternatively, the insurance subsidiary could elect to pay the higher than reasonable rates for reinsurance
coverage, which could have a material adverse effect upon its profitability until policy premium rates could be
raised, in some cases subject to approval by state regulators, to incorporate this additional cost.
We are subject to the credit risk of our counterparties, including reinsurers who reinsure
business from our insurance companies.
Our insurance subsidiaries may cede certain risks to third-party insurance companies through reinsurance.
HMLIC entered into a reinsurance agreement with RGA to effectuate the reinsurance of a block of in force fixed
and variable annuities on a coinsurance and modified coinsurance basis. The variable portion of the reinsured
annuities is reinsured on a modified coinsurance basis and assets supporting the variable account liabilities are
still held in separate accounts. Because the reinsurance agreement covers a large volume of our in force annuity
business, the transaction exposes us to a concentration of credit risk with respect to this counterparty. RGA's
financial obligations for the general account liabilities of the reinsured annuity contracts are secured by its assets
placed in a comfort trust for our sole use and benefit. Upon RGA's material breach of the reinsurance
agreement, deterioration of its risk-based capital ratio to a certain level, or certain other events, we may
recapture the reinsured business. However, in the event of RGA's insolvency, our right to use the assets in the
trust account may be delayed. Also, if at the time of its insolvency the trust account is not funded at a level to
fully discharge all its obligations, our claims to the extent not covered by the assets in the trust would be those
of a general creditor.
Any downgrade in or adverse change in outlook for our claims-paying ratings, financial strength
ratings or credit ratings could adversely affect our financial condition and results of operations.
Claims-paying ratings and financial strength ratings have become an increasingly important factor in establishing
the competitive position of insurance companies. In the evolving 403(b) retirement market, school districts and
benefit consultants have placed an emphasis on the relative financial strength ratings of competing companies.
Each rating agency reviews its ratings periodically and from time to time may modify its rating criteria including,
among other factors, its expectations regarding capital adequacy, profitability and revenue growth. A downgrade
in the ratings or adverse change in the ratings outlook of any of our insurance subsidiaries by a major rating
agency could result in substantial loss of business for that subsidiary if school districts, policyholders or
independent agents move their business to other companies having higher claims-paying ratings and financial
strength ratings than we have. This loss of business could have a material adverse effect on the results of
operations and financial condition of that subsidiary.
A downgrade of our debt rating also could adversely affect our cost and flexibility of borrowing, which could
have an adverse effect on our liquidity, financial condition and results of operations.
An inability to access Federal Home Loan Bank (FHLB) funding could adversely affect our
results of operations.
Any changes in requirements to retain membership in the FHLB, or changes in regulation, could impact our
eligibility for continued FHLB membership or our FHLB funding capacity. Any event that adversely affects
amounts received from FHLB could have an adverse effect on our results of operations. See Part II - Item 7,
Financing Activities of this report for more information about FHLB activities.
Regulatory and Legal Risks
The results of the recent U.S. Presidential and Congressional elections may create significant
changes in tax rates, laws or regulations which could adversely impact our financial results.
With the change in administration, there are initiatives at the federal level to reverse the corporate tax cuts in the
favorable Tax Cuts and Jobs Act of 2017 (TCJA), increasing the federal corporate income tax from the current
rate of 21%. Any future legislative action could increase our costs, the impact of which could be significant. We
are unable to predict the outcome or effects of any of these potential actions or any other legislative or
regulatory proposals as they relate to our businesses. For example, any proposals to make changes related to
30 Annual Report on Form 10-K
Horace Mann Educators Corporation
U.S. tax law, such as those involving a reduction or elimination of the tax advantages of retirement and life
products as noted in Part I - Item 1A – Risk Factors, Risks Related to Life & Retirement Segments of this report,
may have a material adverse effect on our future business, financial condition, results of operations, and growth
prospects.
The insurance industry is highly regulated.
We are subject to extensive regulation and supervision in the jurisdictions in which we do business. Each
jurisdiction has a unique and complex set of laws and regulations. Furthermore, certain federal laws impose
additional requirements on businesses, including insurers. Regulation generally is designed to protect the
interests of policyholders, as opposed to stockholders and non-policyholder creditors. Such regulations, among
other things, impose restrictions on the amount and type of investments our insurance subsidiaries may hold.
Certain states also regulate the rates insurers may charge for certain property and casualty products. Legislation
and voter initiatives have expanded, in some instances, the states' regulation of rates and have increased data
reporting requirements. Consumer-related pressures to roll back rates, even if not enacted by legislation or
upheld upon judicial appeal, may affect our ability to obtain timely rate increases or operate at desired levels of
profitability. Changes in insurance regulations, including those affecting the ability of our insurance subsidiaries
to distribute cash to us and those affecting the ability of our insurance subsidiaries to write profitable property
and casualty insurance policies in one or more states, may adversely affect the financial condition and results of
operations of the insurance subsidiaries. In addition, consumer privacy requirements may increase our cost of
processing business. Our ability to comply with laws and regulations, at a reasonable cost, and to obtain
necessary regulatory action in a timely manner, is and will continue to be critical to our success.
The NAIC has adopted a system of assessing minimum capital adequacy that is applicable to our insurance
subsidiaries. This system, known as risk-based capital, is used to identify companies that may merit further
regulatory action by analyzing the adequacy of the insurer's surplus in relation to statutory requirements. Our
insurance subsidiaries could be adversely affected by regulations that change statutory surplus and risk-based
capital requirements. Insurance companies write business based, in part, upon guidelines including capital ratios
considered by the NAIC and various rating agencies. Some of these ratios include risk-based capital ratios for
property and casualty insurance companies, supplemental insurance companies and life insurance companies,
as well as a ratio of premiums to surplus for property and casualty insurance companies. Risk-based capital
ratios measure an insurer's capital adequacy and consider various risks such as underwriting, investment, credit,
asset concentration and interest rate. If our insurance subsidiaries cannot maintain profitability in the future or if
significant investment valuation losses are incurred, they may be required to draw on their surplus, thereby
reducing capital adequacy, in order to pay dividends to us to enable us to meet our financial obligations. As their
surplus is reduced by the payment of dividends, continuing losses or both, our insurance subsidiaries' ability to
write business and maintain acceptable financial strength ratings could also be reduced. This could have a
material adverse effect upon the business volume and profitability of the insurance subsidiaries as well as result
in increased regulatory scrutiny or action by state regulatory authorities.
Because state legislatures remain concerned about the availability and affordability of property and casualty
insurance and the protection of policyholders, our insurance subsidiaries expect that they will continue to face
efforts by those legislatures to expand regulations to address these concerns. Resulting new legislation could
adversely affect the financial condition and results of operations of our insurance subsidiaries.
In the event of insolvency, liquidation or other reorganization of any of our insurance subsidiaries, our creditors
and stockholders would have no right to proceed against any such insurance subsidiary or cause the liquidation
or bankruptcy of any such insurance subsidiary under federal or state bankruptcy laws. The insurance laws of
the domiciliary state would govern such proceedings and the relevant insurance commissioner would act as
liquidator or rehabilitator for the insurance subsidiary. Creditors and policyholders of any such insurance
subsidiary would be entitled to full payment from the assets of the insurance subsidiary before we, as a
stockholder, would be entitled to receive any distribution.
The financial position of our insurance subsidiaries also may be affected by court decisions that expand
insurance coverage beyond the intention of the insurer at the time it originally issued an insurance policy.
Dodd-Frank created FIO within the U.S. Department of the Treasury. FIO studies the current insurance regulatory
system and is charged with monitoring and providing specific reports on various aspects of the insurance
industry. However, FIO does not have general supervisory or regulatory authority over the business of insurance.
FIO has suggested an expanded federal role in some circumstances. Additional regulations could adversely
Horace Mann Educators Corporation
Annual Report on Form 10-K 31
affect the efficiency and effectiveness of business processes, financial condition and results of operations of us,
insurers of similar size and/or the insurance industry as a whole.
Regulatory initiatives, including the enactment of Dodd-Frank, could adversely affect liquidity
and volatility of financial markets in which we participate.
In response to the credit and financial crisis, U.S. and overseas governmental and regulatory authorities are
considering or implementing enhanced or new regulatory requirements intended to prevent future crises or
stabilize the institutions under their supervision. Such measures are leading to stricter regulation of financial
institutions. Changes from Dodd-Frank and other U.S. and overseas governmental initiatives have created
uncertainty and could continue to adversely impact liquidity and increase volatility of the financial markets in
which we participate and, in turn, negatively affect our financial condition or results of operations.
Statutory and regulatory developments could adversely impact our business by increasing costs
or making our business less profitable.
The costs of running our business and its profitability could be adversely impacted by laws, rules and regulations
that affect the business and financial communities, including changes to the interpretation or enforcement of
laws governing standards of care applicable to broker-dealers and investment advisors. New laws, rules and
regulations, or changes to the interpretation or enforcement of existing laws, rules or regulations, could also
result in limitations on the products and services we offer or plan to offer to clients, modifications to our current
or future business practices, compressed margins, increased capital requirements, and additional costs. For
example, in June 2019, the SEC adopted new Regulation Best Interest, which imposes an overarching standard
of conduct that requires broker-dealers and their associated persons to act in the best interest of their retail
customers when making securities recommendations and imposes a number of new compliance and disclosure
obligations on broker-dealers. Other state legislatures (including Nevada, New Jersey and Massachusetts) have
or are considering, statutes that impose fiduciary standards and other obligations on broker-dealers and
investment advisers operating in their states. The DOL also recently adopted its final rule regarding ERISA
fiduciary investment advice, which focuses on, among other things, the fiduciary status of rollover
recommendations made by financial professionals to retirement investors. We expect that these laws,
regulations and proposals could negatively impact our business, including by increasing our legal, compliance
and information technology costs, and potentially other costs, including greater risks of client lawsuits and
enforcement activity by regulators. These changes may also affect the products and services we choose to offer
to clients, as well as the compensation that we and our financial professionals receive in connection with such
products and services, which could adversely impact our ability to recruit and retain key personnel.
It is also unclear how and whether other regulators, such as other state securities and insurance regulators may
respond to, or enforce elements of, these new laws and regulations, or develop their own similar laws and
regulations. The impacts, degree and timing of the effect of these laws and regulations on our business cannot
now be anticipated or planned for, and may have further adverse impacts on our products and services, and the
results of our operations.
Further, the Dodd-Frank Act enacted wide-ranging changes in the supervision and regulation of the financial
industry providing greater oversight of financial industry participants, enhanced public company corporate
governance practices and executive compensation disclosures, and greater protections to individual consumers
and investors. Certain elements of the Dodd-Frank Act remain subject to implementing regulations that are yet
to be adopted by the applicable regulatory agencies. Compliance with adopted regulations could affect the
products and services we choose to offer and would likely result in increased compliance costs.
Our business costs and profitability may be adversely impacted by current and future rule making and
enforcement activity by the various federal, state and other regulatory organizations to which we are subject.
Litigation may harm our financial strength or reduce our profitability.
Companies in the insurance industry have been subject to substantial litigation resulting from claims, disputes
and other matters. Most recently, they have faced expensive claims, including class action lawsuits, alleging,
among other things, improper sales practices and improper claims settlement procedures. Negotiated
settlements of certain such actions have had a material adverse effect on many insurance companies. The
resolution of similar future claims against any of our insurance subsidiaries, including the potential adverse effect
on our reputation and charges against the earnings of our insurance subsidiaries as a result of legal defense
32 Annual Report on Form 10-K
Horace Mann Educators Corporation
costs, a settlement agreement or an adverse finding or findings against our insurance subsidiaries in such a
claim, could have a material adverse effect on the financial condition and results of operations of our insurance
subsidiaries.
Events, including those external to our operations, could damage our reputation.
There are many events which may harm our reputation, including, but not limited to, those discussed in this Item
1A regarding regulatory investigations, legal proceedings, and cyber or other information security incidents. Any
negative public perception, founded or otherwise, can be widely and rapidly shared over social media or other
means, and could cause damage to our reputation. Damage to our reputation could reduce demand for our
insurance products, reduce our ability to recruit and retain employees, or lead to greater regulatory scrutiny of
our operations.
As an insurance company, we are paid to accept certain risks. Those who conduct our business, including
executive officers and members of management, employees and independent agents, do so in part by making
decisions that involve exposing us to risk. These include decisions such as maintaining effective underwriting
and pricing discipline, maintaining effective claims management and customer service performance, managing
our investment portfolio, delivering effective technology solutions, complying with established sales practices,
executing our capital management strategy, exiting a line of business and/or pursuing strategic growth
initiatives, and other decisions. Although we employ controls and procedures designed to monitor business
decisions and prevent us from taking excessive risks or unintentionally failing to comply with internal policies
and practices, there can be no assurance that these controls and procedures will be effective. If our employees
and independent agents take excessive risks and/or fail to comply with internal policies and practices, the
impact of those events may damage our market position and reputation.
Individual states may impose additional cybersecurity regulations, increasing the complexity of
compliance.
Our businesses must comply with regulations to control the privacy of customer, employee and third party data.
State and federal regulations regarding data privacy, including the California Consumer Privacy Act, are
becoming increasingly more onerous. A misuse or mishandling of confidential or proprietary information could
result in legal liability, regulatory action and reputational harm. Third parties, including third party administrators
and cloud-based systems, are also subject to cyber-breaches of confidential information, along with the other
risks outlined above, any one of which may result in us incurring substantial remediation costs and other
negative consequences, including a material adverse effect on our business, reputation, financial condition,
results of operations and liquidity.
ITEM 1B. I Unresolved Staff Comments
None.
ITEM 2. I Properties
As of December 31, 2021, we owned two buildings located in Springfield, Illinois comprised of our headquarters
of approximately 225,000 square feet and another building of approximately 12,000 square feet. In addition, we
lease office space in suburban Dallas, Texas (approximately 114,000 of rentable square feet), suburban Raleigh,
North Carolina, and Cherry Hill, New Jersey which are utilized by one or more of all five reporting segments,
depending on the location. For more information on reporting segments, see Part I - Item 1, Reporting Segments
of this report. We believe our properties and facilities are suitable and adequate for current operations.
ITEM 3. I Legal Proceedings
At the time of issuance of this Annual Report on Form 10-K, we do not have pending litigation from which there
is a reasonable possibility of material loss.
Horace Mann Educators Corporation
Annual Report on Form 10-K 33
ITEM 4. I Mine Safety Disclosures
Not applicable.
PART II
ITEM 5. I Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Dividends
Our common stock is traded on the NYSE under the symbol HMN. The following table provides the high and low
closing prices of our common stock on the NYSE Composite Tape and the cash dividends paid per share of
common stock during the periods indicated.
Fiscal Period
2021:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2020:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Market Price
High
Low
Dividend
Paid
$
41.10 $
36.70 $
41.81
43.71
43.98
37.00
37.16
38.04
$
43.63 $
33.46 $
40.99
40.46
45.66
32.76
31.30
31.40
0.31
0.31
0.31
0.31
0.30
0.30
0.30
0.30
The payment of dividends in the future is subject to the discretion of the Board and will depend upon general
business conditions, legal restrictions and other factors the Board may deem to be relevant. Additional
information is contained in Part I - Item 1, Cash Flow and in Part II - Item 8, Note 14 of the Consolidated
Financial Statements in this report.
34 Annual Report on Form 10-K
Horace Mann Educators Corporation
Shareholder Return Performance Graph
The graph below sets forth the total five-year shareholder return on our common stock. The graph assumes a
$100 investment at December 31, 2016. The S&P 500 Index and the S&P 500 Insurance Index assume an annual
reinvestment of dividends in calculating total return. We assume reinvestment of quarterly dividends when paid.
Comparison of Cumulative Five Year Total Return to Shareholders
HMEC
S&P 500 Insurance Index
S&P 500 Index
Holders and Shares Issued
Dec. 2016 Dec. 2017
Dec. 2018
Dec. 2019 Dec. 2020 Dec. 2021
$
100 $
106 $
92 $
111 $
110 $
100
100
116
122
103
116
133
153
133
181
105
174
233
As of February 16, 2022, the number of holders of our common stock was approximately 40,000.
During 2021, stock options were exercised for the issuance of 8,015 shares or 0.02% of our common stock
issued and outstanding at December 31, 2020. We received $0.3 million in proceeds from the exercise of stock
options, which was used for general corporate purposes.
For information required by Item 201(d) of Regulation S-K regarding the equity compensation plan, see Part III -
Item 12, of this report.
Horace Mann Educators Corporation
Annual Report on Form 10-K 35
HMECS&P 500 Insurance IndexS&P 500 IndexDec. 2016Dec. 2017Dec. 2018Dec. 2019Dec. 2020Dec. 2021$75$100$125$150$175$200$225$250
Issuer Purchases of Equity Securities
On September 30, 2015, the Board authorized a share repurchase program allowing repurchases of up to $50.0
million of our common stock, par value $0.001 (Program). The Program authorizes the repurchase of common
stock in open market or privately negotiated transactions, from time to time, depending on market conditions.
The Program does not have an expiration date and may be limited or terminated at any time without notice.
For the quarterly periods ended 2021 and 2020, we repurchased shares of our common stock under the
Program as follows:
Period
2021:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2020:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Total Number
of Shares
Purchased
Average Price
Paid per Share
Total Number of
Shares
Purchased
under the
Program
Approximate Dollar Value
of Shares that may yet be
Purchased under the
Program
96,073 $
5,000 $
200 $
39,485 $
—
—
—
37.14
36.88
37.01
38.44
—
—
—
96,073
5,000
200
39,485
—
—
—
52,095 $
41.17
52,095
$15.3 million
$18.9 million
$19.1 million
$19.1 million
$20.6 million
$20.6 million
$20.6 million
$20.6 million
ITEM 6. I [Reserved]
36 Annual Report on Form 10-K
Horace Mann Educators Corporation
ITEM 7. I Management's Discussion and Analysis of Financial
Condition and Results of Operations (MD&A)
($ in millions, except per share data)
Measures within this MD&A that are not based on accounting principles generally accepted in the United States
of America (non-GAAP) are marked with an asterisk (*) the first time they are presented within this Part II - Item 7.
An explanation of these measures is contained in the Glossary of Selected Terms included as Exhibit 99.1 to this
Annual Report on Form 10-K and are reconciled to the most directly comparable measures prepared in
accordance with accounting principles generally accepted in the United States of America (GAAP) in the
Appendix to the Company's Fourth Quarter 2021 Investor Supplement.
Increases or decreases in our MD&A that are not meaningful are marked "N.M.".
Forward-looking Information
Statements made in the following discussion that are not historical in nature are forward-looking within the
meaning of the Private Securities Litigation Reform Act of 1995 and are subject to known and unknown risks,
uncertainties and other factors. Horace Mann Educators Corporation (referred to in this report as "we", "our",
"us", the "Company", "Horace Mann" or "HMEC") is an insurance holding company. We are not under any
obligation to (and expressly disclaim any such obligation to) update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. It is important to note that our actual results
could differ materially from those projected in forward-looking statements due to a number of risks and
uncertainties inherent in our business. See Part I - Item 1A of this Annual Report on Form 10-K for additional
information regarding risks and uncertainties.
This MD&A covers the following:
Introduction
Consolidated Financial Highlights
Consolidated Results of Operations
Outlook for 2022
Application of Critical Accounting Estimates
Results of Operations by Segment
Property & Casualty
Supplemental
Retirement
Life
Corporate & Other
Investment Results
Liquidity and Capital Resources
Future Adoption of New Accounting Standards
Effects of Inflation and Changes in Interest Rates
Page
37
39
39
41
43
49
49
52
53
56
57
57
60
64
64
Horace Mann Educators Corporation
Annual Report on Form 10-K 37
Introduction
The purpose of our MD&A is to provide an understanding of our consolidated results of operations and financial
condition and should be read in conjunction with the Consolidated Financial Statements and Notes thereto
contained in Part II - Item 8 of this report. Our MD&A generally discusses the results of operations for the year
ended December 31, 2021 compared to the year ended December 31, 2020. For a discussion of the results of
operations for the year ended December 31, 2020 compared to the year ended December 31, 2019, please refer
to Part II - Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in
our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and
Exchange Commission (SEC) on February 26, 2021.
HMEC is an insurance holding company and through its subsidiaries, we market and underwrite personal lines of
property and casualty insurance products, supplemental insurance products, retirement products and life
insurance products in the United States of America (U.S.). We market our products primarily to K-12 teachers,
administrators and other employees of public schools and their families.
On July 14, 2021, we announced that we entered into a Stock Purchase Agreement (Agreement), by and among
us and Independence Capital Corp. and Independence Holding Company (Seller) to acquire all the equity
interests in Madison National Life Insurance Company, Inc., an insurance company organized under the laws of
the State of Wisconsin (Madison National). The Agreement provided, among other things, that, upon the terms
and subject to the conditions set forth in the Agreement, we would acquire all the equity interests in Madison
National (Acquisition) for $172.5 million. The Seller will have a potential earn-out of up to $12.5 million payable in
cash, if specified financial targets are achieved by the end of 2023.
Effective January 1, 2022, we acquired Madison National. As a result of the acquisition, Madison National
became a wholly owned subsidiary of HMEC.
COVID-19 Considerations
Beginning in March 2020, the global pandemic associated with the novel coronavirus COVID-19 and related
economic conditions introduced unprecedented challenges for our country. Those challenges are ongoing. We
relied on our previously developed Corporate Pandemic Plan to address preparation, prevention and response
measures specific to COVID-19 while allowing flexibility to quickly react to evolving circumstances and
implement varying actions accordingly.
As discussed in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021, we
continue to successfully meet the challenges of the pandemic environment and are now operating in a hybrid
model. Our return to office plans are being guided by data from the Centers for Disease Control and Prevention.
In the hybrid working environment, we continue to monitor cybersecurity including increasing security and
network monitoring to proactively identify and prevent potential security threats and vulnerabilities. We also are
identifying and assessing critical third-party vendors and ensuring their ability to continue to perform as
anticipated.
Although educators have largely remained employed through the pandemic, the impact of the pandemic resulted
in slower growth in new sales, particularly sales generated from in-person events at schools. We continue to
work with our network of exclusive agents to make sure they are using virtual and other tools so they can reach
current and potential educator customers regardless of the level of access they have to a specific school.
For further discussion regarding the current period and potential future impacts of COVID-19 and related
economic conditions on HMEC, see Outlook for 2022 and other content within this MD&A as well as Part I - Item
1A in this Annual Report on Form 10-K for the year ended December 31, 2021.
38 Annual Report on Form 10-K
Horace Mann Educators Corporation
Consolidated Financial Highlights
($ in millions)
Total revenues
Net income
Per diluted share:
Net income
Net investment losses, after tax
Book value per share
Year Ended December 31,
2021-2020
2021
2020
Change %
$
1,330.1
$
1,310.4
142.8
133.3
3.39
(0.20)
43.66
3.17
(0.04)
43.22
1.5%
7.1%
6.9%
N.M.
1.0%
Net income return on equity - last twelve months
8.0 %
8.1 %
-0.1pts
For 2021, our net income increased $9.5 million compared to 2020 due to higher net investment income partially
offset by higher net investment losses (due primarily to net credit loss impairments) and higher auto loss costs
that returned to pre-pandemic levels.
See Results of Operations by Segment for further details.
Consolidated Results of Operations
($ in millions)
Year Ended December 31,
2021-2020
2021
2020
Change %
Premiums and contract charges earned
$
889.6 $
Net investment income
Net investment losses
Other income
Total revenues
Benefits, claims and settlement expenses
Interest credited
Operating expenses
DAC unlocking and amortization expense
Intangible asset amortization expense
Interest expense
Other expense - goodwill and intangible asset impairments
Total benefits, losses and expenses
1,155.2
1,150.8
Income before income taxes
Income tax expense
Net income
174.9
32.1
$
142.8 $
159.6
26.3
133.3
Premiums and Contract Charges Earned
For 2021, insurance premiums and contract charges earned decreased $41.1 million compared to 2020,
primarily due to a reduction in Property & Casualty risks in force.
422.5
(11.0)
29.0
930.7
357.6
(2.3)
24.4
1,330.1
1,310.4
617.7
164.4
251.5
94.7
13.0
13.9
—
568.9
204.6
237.8
99.9
14.4
15.2
10.0
-4.4 %
18.1 %
N.M.
18.9 %
1.5 %
8.6 %
-19.6 %
5.8 %
-5.2 %
-9.7 %
-8.6 %
N.M.
0.4 %
9.6 %
22.1 %
7.1 %
Horace Mann Educators Corporation
Annual Report on Form 10-K 39
Net Investment Income
Excluding accreted investment income on the deposit asset on reinsurance, 2021 net investment income
increased $61.1 million compared to 2020, primarily due to exceptional returns on limited partnership interests.
Current year private equity and venture capital returns have been strong, reflecting the strength of the equity
markets and the favorable environment for initial public offerings. Investment yields continue to be impacted by
the low interest rate environment of recent years. The annualized investment yield on the fixed income portfolio*
was as follows:
Investment yield on fixed income portfolio, pretax - annualized*
Year Ended December 31,
2021
4.3%
2020
4.2%
During 2021, we continued to identify and purchase investments, including alternative investments, with
attractive risk-adjusted yields relative to market conditions without venturing into asset classes or individual
securities that would be inconsistent with our overall investment guidelines for the core portfolio. We also funded
commercial mortgage loan funds and limited partnership interests in line with our intent to increase our
allocation to this portion of our portfolio to increase yields while balancing protection and risk.
Net Investment Losses
For 2021, net investment losses increased $8.7 million, primarily due to recognition of $7.7 million of net credit
loss impairments. The break down of net investment gains (losses) by transaction type is shown in the following
table:
($ in millions)
Impairments on investments recognized in net income
Sales and other, net
Change in fair value - equity securities
Change in fair value and losses realized on settlements - derivatives
Net investment losses
Year Ended December 31,
2021
2020
$
$
(10.4) $
4.3
(2.3)
(2.6)
(11.0) $
(5.3)
15.0
(0.2)
(11.8)
(2.3)
From time to time, we may sell fixed maturity securities subsequent to the reporting date that were considered
temporarily impaired at the reporting date. Such sales are due to issuer specific events occurring subsequent to
the reporting date that result in a change in our intent to hold a fixed maturity security.
Other Income
For 2021, other income increased $4.6 million, primarily due to the impact of the strong financial markets on
asset-based fees.
Benefits, Claims and Settlement Expenses
For 2021, benefits, claims and settlement expenses were higher primarily due to an offsetting change in interest
credited of $25.3 million, the remaining difference primarily attributable to an increase in underlying auto loss
experience.
Interest Credited
For 2021, interest credited decreased $40.2 million compared to 2020, driven primarily by an offsetting change
in benefits, claims and settlement expenses of $25.3 million. Under the deposit method of accounting, the
interest credited on the reinsured annuity block continues to be reported. The average deferred annuity credited
rate, excluding the reinsured block was 2.4% for 2021 and 2020.
Operating Expenses
For 2021, operating expenses increased $13.7 million compared to 2020. Targeted spend on product,
distribution and infrastructure has increased, including legal and due diligence costs incurred while the
acquisition of Madison National was being finalized. Increased operating expenses also reflect a lower level of
expenses realized in 2020 due to the pandemic.
40 Annual Report on Form 10-K
Horace Mann Educators Corporation
DAC Unlocking and Amortization Expense
For 2021, DAC unlocking and amortization expense decreased $5.2 million compared to 2020, as revenue
growth has slowed in the Property & Casualty segment.
Intangible Asset Amortization Expense
For 2021, intangible asset amortization expense decreased $1.4 million compared to 2020.
Interest Expense
For 2021, interest expense decreased $1.3 million compared to 2020, due to lower interest rates on our senior
revolving credit facility.
Other Expense - Goodwill and Intangible Asset Impairments
For 2020, other expense represents goodwill and intangible asset impairment charges with regards to Benefit
Consultants Group, Inc. (BCG). See Part II - Item 8, Note 7 of the Consolidated Financial Statements in this
report for further information.
Income Tax Expense
The effective income tax rate on our pretax income, including net investment gains (losses) was 18.4% and
16.5% for the years ended December 31, 2021 and 2020, respectively. Income from investments in tax-
advantaged securities reduced the effective income tax rates by 3.5 and 3.6 percentage points for 2021 and
2020, respectively. The goodwill and intangible asset impairment charges in the Retirement segment decreased
the effective income tax rate by 0.1 percentage points at December 31, 2020.
The tax effects of legislation enacted in 2020 due to the Coronavirus pandemic were reflected in our income tax
expense calculations as of December 31, 2020. Total income tax expense for the year ended December 31,
2020, included a benefit of $2.8 million (that reduced the effective income tax rate by 1.7 percentage points) to
reflect a net operating loss carryback to taxable years for which the corporate rate was 35% as compared to the
current corporate rate of 21%.
We record liabilities for uncertain tax filing positions where it is more likely than not that the position will not be
sustainable upon audit by taxing authorities. These liabilities are reevaluated routinely and are adjusted
appropriately based on changes in facts or law. We have no unrecorded liabilities from uncertain tax filing
positions.
At December 31, 2021, our federal income tax returns for years prior to 2014 are no longer subject to
examination by the Internal Revenue Service. We do not anticipate any assessments for tax years that remain
subject to examination to have a material effect on our financial position or results of operations. See Part II -
Item 8, Note 11 of the Consolidated Financial Statements in this report for further information.
Outlook for 2022
The following discussion provides outlook information for our results of operations and capital position.
The impacts of the COVID-19 pandemic and related economic conditions on the Company's results continue to
be highly uncertain and outside the Company's control. The scope, duration and magnitude of the direct and
indirect effects of the pandemic continue to evolve in ways that are difficult or impossible to anticipate. For
additional information on the risks posed by the pandemic, see “A large-scale pandemic, the occurrence of
terrorism or military actions may have an adverse effect on our business” included in Part I - Item 1A—Risk
Factors in this Annual Report on Form 10-K.
At the time of issuance of this Annual Report on Form 10-K, we estimate that 2022 full year net income will be
within a range of $3.45 to $3.65 per diluted share, generating a core return on equity* of near 10%. The outlook
assumes a federal statutory corporate tax rate of 21%. In 2022, we will report results in three new operating
segments, as discussed in more detail below, and our outlook is based on that expectation.
Horace Mann Educators Corporation
Annual Report on Form 10-K 41
Property & Casualty Segment
In 2022, net income for Property & Casualty is anticipated to be in the range of $44 million to $48 million. The
primary factors in our outlook include:
• Underlying auto loss ratio slightly higher than the 2021 level as auto frequency remains near pre-
pandemic levels, with inflation driving higher severity in both auto and property lines.
• Catastrophe loss assumption of approximately 9.5 points on the combined ratio, in line with the 10-year
average.
• Net investment income lower in this segment than in 2021, as it benefited from outsized limited
partnership returns last year.
Our longer-term Property & Casualty combined ratio target remains 95-96%.
Supplemental & Group Benefits Segment
This segment will include our current Supplemental business, as well as Madison National and a small group life
block from our legacy Life segment. In 2022, net income for Supplemental & Group Benefits is anticipated to be
in the range of $47 million to $50 million.
Our guidance anticipates claims utilization for supplemental and disability products to return to near pre-
pandemic levels, leading to a benefit ratio of approximately 35% for voluntary products and approximately 50%
for employer-paid products. As a result of the Madison National transaction, 2022 total amortization of intangible
assets is expected to increase by 8 to 12 cents per share over 2021.
Life & Retirement Segment
This segment will combine our current Retirement segment and our current Life segment less a small group life
block that will move to the Supplemental & Group Benefits segment. In 2022, net income for Life & Retirement is
anticipated in the range of $74 million to $77 million.
In this segment, we anticipate net investment income will be up slightly, maintaining the net interest spread near
the 2021 level. Our guidance reflects mortality returning to actuarial expectations.
Investments
For 2022, we expect total net investment income of between $410 million and $420 million, including
approximately $100 million of accreted investment income on the deposit asset on reinsurance in the Retirement
segment. Our guidance anticipates limited partnership portfolio returns modeled closer to historical averages
and net investment income slightly below 2021.
As described in Critical Accounting Estimates, certain of our significant accounting measurements require the
use of estimates and assumptions. As additional information becomes available, adjustments may be required.
Those adjustments are charged or credited to net income for the period in which the adjustments are made and
may impact actual results compared to our estimates above. Additionally, see forward-looking information in
Part I - Items 1 and 1A of this Annual Report on Form 10-K concerning other important factors that could impact
actual results. We believe that a projection of net income is not appropriate on a forward-looking basis because
it is not possible to provide a valid forecast of net investment gains (losses), which can vary substantially from
one period to another and may have a significant impact on net income.
42 Annual Report on Form 10-K
Horace Mann Educators Corporation
Application of Critical Accounting Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and
assumptions based on information available at the time the consolidated financial statements are prepared.
These estimates and assumptions affect the reported amounts of our consolidated assets, liabilities,
shareholders' equity and net income. Certain accounting estimates are particularly sensitive because of their
significance to our consolidated financial statements and because of the possibility that subsequent events and
available information may differ markedly from management's judgments at the time the consolidated financial
statements were prepared. We have discussed with our Audit Committee the quality, not just the acceptability,
of our accounting principles as applied in our financial reporting. The discussions generally included such
matters as to the consistency of our accounting policies and their application, and the clarity and completeness
of our consolidated financial statements, which include related disclosures. Information regarding our accounting
policies pertaining to these topics is located in the Notes to Consolidated Financial Statements as listed in Part II
- Item 8 of this report.
We have identified the following accounting estimates as critical in that they involve a higher degree of judgment
and are subject to a significant degree of variability:
•
•
•
•
•
•
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
Although variability is inherent in these accounting estimates, we believe the amounts provided are appropriate
based upon the facts available during preparation of the consolidated financial statements.
Valuation of Hard-to-Value Fixed Maturity Securities
The fair value of a fixed maturity security is the estimated amount at which the security could be exchanged in
an orderly transaction between knowledgeable, unrelated and willing parties. We utilize ICE Pricing Data, our
investment managers and custodian bank to obtain fair value prices from independent third-party valuation
service providers, broker quotes, model prices and matrix pricing. Each month, we obtain fair value prices from
our investment managers and custodian bank, each of which use a variety of independent, nationally recognized
pricing sources to determine market valuations for fixed maturity securities. Differences in prices between the
sources that we consider significant are researched and we utilize the price that we consider most
representative of an exit price. Typical inputs used by these pricing sources include, but are not limited to,
reported trades, bids, offers, benchmark yield curves, benchmarking of like securities, rating designations,
sector groupings, issuer spreads and/or estimated cash flows, prepayment and default speeds, among others.
Our fixed maturity securities portfolio is primarily publicly traded, which allows for a high percentage of the
portfolio to be priced through pricing services. Approximately 90.2% of the portfolio, based on fair value, was
priced through pricing services or index priced using observable inputs as of December 31, 2021.
The valuation of hard-to-value fixed maturity securities (generally 150 - 200 securities) is more subjective
because the markets are less liquid and there is a lack of observable market-based inputs. This may increase the
potential that the estimated fair value of an investment is not reflective of the price at which an actual transaction
would occur. When the pricing sources cannot provide fair value determinations, the investment managers
obtain non-binding price quotes from brokers. For those securities where the investment manager cannot obtain
broker quotes, they will model the security, generally using anticipated cash flows of the underlying collateral.
Brokers' valuation methodologies as well as investment managers’ modeling methodologies are sometimes
matrix-based, using indicative evaluation measures and adjustments for specific security characteristics and
market sentiment. The selection of the market inputs and assumptions used to estimate the fair value of hard-to-
value fixed maturity securities requires judgment and includes: benchmark yield, liquidity premium, estimated
cash flows, prepayment and default speeds, spreads, weighted average life and credit rating. The extent of the
use of each market input depends on the market sector and market conditions. Depending on the security, the
Horace Mann Educators Corporation
Annual Report on Form 10-K 43
priority of the use of inputs may change or some market inputs may not be relevant. For some securities,
additional inputs may be necessary.
We gain assurance that our portfolio of fixed maturity securities including hard-to-value fixed maturity securities
is appropriately valued through the execution of various processes and controls designed to ensure the overall
reasonableness and consistent application of valuation methodologies, including inputs and assumptions, and
compliance with accounting standards. Our processes and controls are designed to ensure (1) the valuation
methodologies are appropriate and consistently applied, (2) the inputs and assumptions are reasonable and
consistent with the objective of determining fair value, and (3) the fair values are accurately recorded. For
example, on a continuing basis, we assess the reasonableness of individual fair values that have stale security
prices or that exceed certain thresholds as compared to previous fair values received from valuation service
providers. We perform procedures to understand and assess the methodologies, processes and controls of
valuation service providers. In addition, we may validate the reasonableness of fair values by comparing
information obtained from valuation service providers or brokers to other third-party valuation sources for
selected securities.
At December 31, 2021, Level 3 invested assets comprised 5.6% of our total investment portfolio based on fair
value. Invested assets are classified as Level 3 when fair value is determined based on unobservable inputs that
are supported by little or no market activity and those inputs are significant to the determination of fair value.
Evaluation of Credit Loss Impairments for Fixed Maturity Securities
For fixed maturity securities classified as available for sale, the difference between amortized cost, net of a credit
loss allowance (i.e., amortized cost, net) and fair value, net of certain other items and deferred income taxes (as
disclosed in Part II - Item 8, Note 3 of the Consolidated Financial Statements in this report) is reported as a
component of accumulated other comprehensive income (AOCI) on the Consolidated Balance Sheets and is not
reflected in the operating results of any period until reclassified to net income upon the consummation of a
transaction with an unrelated third party or when a credit loss allowance is recorded. We have a comprehensive
portfolio monitoring process to evaluate fixed maturity securities (at the cusip/issuer level) on a quarterly basis
that may require a credit loss allowance. These reviews, in conjunction with our investment managers’ quarterly
credit reports and relevant factors such as (1) has the security missed any scheduled principal or interest
payments in the current quarter; (2) has the security been downgraded to below investment grade by rating
agencies or if the security was below investment grade at time of purchase, has the security been downgraded
by two or more notches since acquisition; (3) has the security declined in value by more than 10% compared to
the prior quarter; (4) has the market yield changed by more than 50 basis points; are all considered in the
impairment assessment process.
For each fixed maturity security in an unrealized loss position, we assess whether management with the
appropriate authority has made the decision to sell or whether it is more likely than not we will be required to sell
the security before the anticipated recovery of the amortized cost basis for reasons such as liquidity, contractual
or regulatory purposes. If a security meets either of these criteria, any existing credit loss allowance would be
written-off against the amortized cost basis of the asset along with any remaining unrealized losses, with the
incremental losses recorded as a net investment loss.
If we have not made the decision to sell the fixed maturity security and it is not more likely than not we will be
required to sell the fixed maturity security before the anticipated recovery of its amortized cost basis, we
evaluate whether we expect to receive cash flows sufficient to recover the entire amortized cost basis of the
security. We estimate the anticipated recovery value based on the best estimate of future cash flows considering
past events, current conditions and reasonable and supportable forecasts. The estimated future cash flows are
discounted at the security’s current effective rate and are compared to the amortized cost basis of the security.
The determination of cash flow estimates is inherently subjective, and methodologies may vary depending on
facts and circumstances specific to the security. Our investment managers will calculate the anticipated
recovery value of the security by performing a discounted cash flow analysis based on the present value of
future cash flows. The discount rate is generally the effective interest rate of the security at the time of purchase
for fixed-rate securities. We will then review the assumptions/methodologies for reasonableness. That
information generally includes, but is not limited to, the remaining payment terms of the security, prepayment
speeds, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected
recoveries, the value of underlying collateral, origination vintage year, geographic concentration of underlying
collateral, available reserves or escrows, current subordination levels, third-party guarantees and other credit
enhancements. Other information, such as industry analyst reports and forecasts, sector credit ratings, financial
44 Annual Report on Form 10-K
Horace Mann Educators Corporation
condition of the bond insurer for insured fixed maturity securities, and other market data relevant to the
realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used
to estimate the anticipated recovery value if we determine that the security is dependent on the liquidation of
collateral for ultimate settlement.
If we do not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed
maturity security, a credit loss allowance is recorded as a net investment loss for the shortfall in expected cash
flows; however, the amortized cost basis, net of the credit loss allowance, may not be lower than the fair value of
the security. The portion of the unrealized loss related to factors other than credit remains classified in AOCI. If
we determine that the fixed maturity security does not have sufficient cash flows or other information to estimate
the anticipated recovery value for the security, we may conclude that the entire decline in fair value is deemed to
be credit related and the loss is recorded as a net investment loss.
When a security is sold or otherwise disposed or the security is deemed uncollectible and written off, we remove
amounts previously recognized in the credit loss allowance. Recoveries after write-offs are recognized when
received.
For additional detail on credit loss impairments, see Part II - Item 8, Note 3 of the Consolidated Financial
Statements in this report.
Evaluation of Goodwill and Intangible Assets for Impairment
Goodwill represents the excess of the amounts paid to acquire a business over the fair value of its net assets at
the date of acquisition. Goodwill is not amortized, but is tested for impairment at the reporting unit level at least
annually or more frequently if events occur or circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. Goodwill impairment is the amount by which a reporting
unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. A goodwill
impairment charge could have a material adverse effect on our results of operations. Our reporting units, for
which goodwill has been allocated, are equivalent to our operating segments. As of December 31, 2021, our
allocation of goodwill by reporting unit was as follows: $9.5 million, Property & Casualty; $19.6 million,
Supplemental; $4.5 million, Retirement; and $9.9 million, Life. Also see Part II - Item 8, Notes 1 and 7 of the
Consolidated Financial Statements in this report.
The goodwill impairment test, as defined in GAAP, allows an entity the option to first assess qualitative factors to
determine whether the existence of events or circumstances leads to a determination that it is more likely than
not that the fair value of a reporting unit is less than its carrying amount. If an entity determines it is more likely
than not that the fair value of a reporting unit is less than its carrying amount, then the entity performs a
quantitative goodwill impairment test by comparing the fair value of a reporting unit to its carrying amount for
purposes of confirming and measuring an impairment.
The process of evaluating goodwill for impairment requires management to make multiple judgments and
assumptions to determine the fair value of each reporting unit, including discounted cash flow calculations, the
level of our own share price and assumptions that market participants would make in valuing each reporting unit.
Fair value estimates are based primarily on an in-depth analysis of historical experience, projected future cash
flows and relevant discount rates, which consider market participant inputs and the relative risk associated with
the projected cash flows. Other assumptions include levels of economic capital, future business growth,
earnings projections and assets under management for each reporting unit. Estimates of fair value are subject to
assumptions that are sensitive to change and represent our reasonable expectation regarding future
developments. We also consider other valuation techniques such as peer company price-to-earnings and price-
to-book multiples.
The assessment of goodwill recoverability requires significant judgment and is subject to inherent uncertainty.
The use of different assumptions, within a reasonable range, could cause the fair value of a reporting unit to be
below its carrying amount. Subsequent goodwill assessments could result in impairment, particularly for each
reporting unit with at-risk goodwill, due to the impact of volatile financial markets on earnings, discount rate
assumptions, liquidity and market capitalization. For 2021, there were no events or material changes in
circumstances that indicated that an adverse material change in the fair value of our reporting units occurred.
For 2020, lower than anticipated BCG wealth management sales outside of the education markets triggered a
requirement to evaluate the goodwill associated with the BCG business of the Retirement reporting unit resulting
in a write-down of a certain amount of goodwill in 2020. For 2019, the annuity reinsurance transaction triggered
Horace Mann Educators Corporation
Annual Report on Form 10-K 45
an assessment resulting in a write-down of a certain amount of goodwill for impairment in 2019 (see Part II - Item
8, Note 7 of the Consolidated Financial Statements in this report for more information).
The value of business acquired (VOBA) represents the difference between the fair value of insurance contracts
and insurance policy reserves measured in accordance with our accounting policy for insurance contracts
acquired. VOBA was based on an actuarial estimate of the present value of future distributable earnings for
insurance in force on the acquisition date. VOBA was $76.9 million as of December 31, 2021 and is being
amortized by product based on the present value of future premiums to be received. We estimate that we will
recognize VOBA amortization of $6.2 million in 2022, $5.8 million in 2023, $5.4 million in 2024, $5.1 million in
2025 and $4.7 million in 2026.
We account for the value of distribution acquired associated with the acquisition of NTA (NTA VODA) based on
an actuarial estimate of the present value of future business to be written by the existing distribution channel.
VODA was $41.8 million as of December 31, 2021 and is being amortized on a straight-line basis. We estimate
that we will recognize VODA amortization of $2.9 million in each of the years 2022 through 2026, respectively.
VOBA is reviewed for recoverability from future income, including net investment income, and costs which are
deemed unrecoverable are expensed in the period in which the determination is made. No such costs were
deemed unrecoverable during the year ended December 31, 2021.
NTA VODA is tested for recoverability whenever events or changes in circumstances indicate that its carrying
amount may not be recoverable. The carrying amount of an amortizing intangible asset is not recoverable if it
exceeds the sum of undiscounted cash flows expected to result from the use and eventual disposition of the
asset. If the carrying amount is not recoverable from undiscounted cash flows, the impairment is measured as
the difference between the carrying amount and fair value. The test results from our annual impairment
assessment for NTA VODA at October 1, 2021 indicated there was no impairment. See Part II - Item 8, Note 7 of
the Consolidated Financial Statements in this report for more information.
Valuation of Annuity and Life Deferred Policy Acquisition Costs
DAC, consisting of commissions, policy issuance and other costs which are incremental and directly related to
the successful acquisition of new or renewal business, are deferred and amortized on a basis consistent with the
type of insurance coverage. For all annuity contracts, DAC is amortized over 20 years in proportion to estimated
gross profits. DAC is amortized in proportion to estimated gross profits over 20 years for certain life insurance
products with account values and over 30 years for IUL. For further information, see Part II - Item 8, Note 1 of
the Consolidated Financial Statements in this report.
The most significant assumptions that are involved in the estimation of annuity gross profits include interest rate
spreads, future financial market performance, business surrender/lapse rates, expenses and the impact of net
investment gains (losses). For the variable deposit portion of Retirement, we amortize DAC utilizing a future
financial market performance assumption of an 8.0% reversion to the mean approach with a 200 basis point
corridor around the mean during the reversion period, representing a cap and a floor on our long-term
assumption. Our practice with regard to future financial market performance assumes that long-term
appreciation in the financial markets is not changed by short-term market fluctuations, but is only changed when
sustained annual deviations are experienced. We monitor these fluctuations and only change the assumption
when the long-term expectation changes. The potential effect of an increase by 100 basis points in the assumed
future rate of return is reasonably likely to result in an estimated decrease in DAC amortization expense of
approximately $2.0 million. The potential effect of a decrease by 100 basis points in the assumed future rate of
return is reasonably likely to result in an estimated increase in DAC amortization expense of approximately $1.5
million. Although this evaluation reflects likely outcomes, it is possible an actual outcome may fall below or
above these estimates. At December 31, 2021, the ratio of DAC to the total annuity accumulated cash value was
1.8%.
In the event actual experience differs significantly from assumptions or assumptions are significantly revised, we
may be required to record a material charge or credit to current period amortization expense for the period in
which the adjustment is made. As noted above, there are key assumptions involved in the evaluation of DAC. In
terms of the sensitivity of this amortization to three of the more significant assumptions, based on DAC as of
December 31, 2021 and assuming all other assumptions are met, (1) a 10 basis point deviation in the annual
targeted interest rate spread assumption would impact amortization between $0.3 million and $0.4 million, (2) a
1.0% deviation from the targeted financial market performance for the underlying mutual funds of our variable
annuities would impact amortization between $0.3 million and $0.4 million and (3) a $1.0 million net investment
46 Annual Report on Form 10-K
Horace Mann Educators Corporation
gain (loss) would impact amortization between $0.1 million and $0.2 million. These results may change
depending on the magnitude and direction of any actual deviations but represent a range of reasonably likely
experience for the noted assumptions. Detailed discussion of the impact of adjustments to DAC amortization
expense is included in Results of Operations by Segment.
The most significant assumptions that are involved in the estimation of life insurance gross profits include
interest rates expected to be received on investments, business persistency and mortality. Conversions from
term to permanent insurance cause an immediate write down of the associated DAC. The impact on
amortization due to assumption changes has an immaterial impact on the results of operations.
Annually, we perform a gross premium valuation on life insurance policies to assess whether a loss recognition
event has occurred. This involves discounting expected future benefits and expenses less expected future
premiums. To the extent that this amount is greater than the liability for future benefits less the DAC asset, in
aggregate for the life insurance block, a loss would be recognized by first writing off the DAC and then
increasing the liability.
Valuation of Liabilities for Property & Casualty Unpaid Claims and Claim Expenses
Underwriting results of Property & Casualty are significantly influenced by estimates of our ultimate liability for
insured events. There is a high degree of uncertainty inherent in the estimates of ultimate losses underlying the
liabilities for unpaid claims and claim expenses. This inherent uncertainty is particularly significant for liability-
related exposures due to the extended period, often many years that transpire between a loss event, receipt of
related claims data from policyholders and ultimate settlement of the claim. Reserves for Property & Casualty
claims include provisions for payments to be made on reported claims (case reserves), incurred but not yet
reported (IBNR) claims and associated settlement expenses (together, loss reserves).
The process by which these reserves are established requires reliance upon estimates based on known facts
and on interpretations of circumstances, including our experience with similar cases and historical trends
involving claim payments and related patterns, pending levels of unpaid claims and product mix, as well as other
factors including court decisions, economic conditions, public attitudes and medical costs. We calculate and
record a single best estimate of the reserve (which is equal to the actuarial point estimate) as of each reporting
date.
Reserves are re-estimated quarterly. Changes to reserves are recorded in the period in which development
factor changes result in reserve re-estimates. A detailed discussion of the process utilized to estimate loss
reserves, risk factors considered and the impact of adjustments recorded during recent years is included in Part
II - Item 8, Note 8 of the Consolidated Financial Statements in this report. Due to the nature of our personal lines
business, we have no exposure to losses related to claims for toxic waste cleanup, other environmental
remediation or asbestos-related illnesses other than claims under property insurance policies for environmentally
related items such as mold.
Based on our products and coverages, historical experience, and modeling of various actuarial methodologies
used to develop reserve estimates, we estimate that the potential variability of the Property & Casualty loss
reserves within a reasonable probability of other possible outcomes may be approximately plus or minus 6.0%,
which equates to plus or minus approximately $12.0 million of net income based on net reserves as of
December 31, 2021. Although this evaluation reflects the most likely outcomes, it is possible the final outcome
may fall below or above these estimates.
There are a number of assumptions involved in the determination of our Property & Casualty loss reserves.
Among the key factors affecting recorded loss reserves for both long-tail and short-tail related coverages, claim
severity and claim frequency are of particular significance. We estimate that a 2.0% change in claim severity or
claim frequency for the most recent 36 month period is a reasonably likely scenario based on recent experience
and would result in a change in the estimated net reserves of between $5.0 million and $9.0 million for long-tail
liability related exposures (auto liability coverages) and between $1.0 million and $3.0 million for short-tail liability
related exposures (property and auto physical damage coverages). Actual results may differ, depending on the
magnitude and direction of the deviation.
Our actuaries discuss their loss and loss adjustment expense actuarial analysis with management. As part of this
discussion, the indicated point estimate of the IBNR loss reserve by line of business (coverage) is reviewed. Our
actuaries also discuss any indicated changes to the underlying assumptions used to calculate the indicated
point estimate. Any variance between the indicated reserves from these changes in assumptions and the
Horace Mann Educators Corporation
Annual Report on Form 10-K 47
previously carried reserves is reviewed. After discussion of these analyses and all relevant risk factors,
management determines whether the reserve balances require adjustment. Our best estimate of loss reserves
may change depending on a revision in the underlying assumptions.
Our liabilities for unpaid claims and claim expenses for Property & Casualty were as follows:
($ in millions)
December 31, 2021
December 31, 2020
Auto liability
Auto other
Property
All other
Total
Case
Reserves
IBNR
Reserves
Total(1)
Case
Reserves
IBNR
Reserves
Total(1)
$
99.7 $
183.2 $
282.9 $
100.2 $
190.5 $
290.7
14.4
16.6
1.6
(6.1)
42.4
10.6
8.3
59.0
12.2
8.5
20.8
0.5
(3.9)
45.7
9.9
4.6
66.5
10.4
$
132.3 $
230.1 $
362.4 $
130.0 $
242.2 $
372.2
(1)
These amounts are gross, before reduction for ceded reinsurance reserves.
The facts and circumstances leading to our re-estimate of reserves relate to revisions of the development factors
used to predict how losses are likely to develop from the end of a reporting period until all claims have been
paid. Re-estimates occur because actual loss amounts are different than those predicted by the estimated
development factors used in prior reserve estimates. At December 31, 2021, the impact of a reserve re-
estimation resulting in a 1.0% increase in net reserves would be a decrease of approximately $2.0 million in net
income. A reserve re-estimation resulting in a 1.0% decrease in net reserves would increase net income by
approximately $2.0 million.
Favorable prior years' reserve re-estimates increased net income in 2021 by approximately $7.2 million pretax,
primarily the result of favorable loss trends in auto and property for accident years 2020 and prior. The lower
than expected claims emergence and resultant lower expected loss ratios caused us to lower our reserve
estimate at December 31, 2021.
Valuation of Certain Investment Contracts and Policy Reserves
Liabilities for future benefits on annuity and life policies are established in amounts adequate to meet the
estimated future obligations on policies in force.
Liabilities for future benefits on deferred annuity contracts, excluding fixed indexed annuity (FIA) products, are
carried at accumulated policyholder values without reduction for potential surrender or withdrawal charges.
Liabilities for FIA products are bifurcated into an embedded derivative and a host contract. The embedded
derivative is recognized at fair value and is reported in Other policyholder funds on the Consolidated Balance
Sheets, and is determined using the option budget method. The host contract is accounted for as a debt
instrument with the initial amount determined as the consideration amount less the initial embedded derivative,
as described above. Any discount to the minimum account value is accreted over the life of the products using
the effective yield method. Key assumptions used in the estimation of the liabilities for FIA products include the
risk free interest rate, the value of options currently in force, the future expected option budget based on product
pricing targets, mortality and lapses.
Liabilities for future benefits on payout annuity contracts are determined as the present value of expected future
benefit payments. Key assumptions used in the calculation include the future investment yield and mortality, for
those contracts with life contingencies.
Liabilities for future policy benefits on supplemental insurance policies are computed using the net level premium
method and are based on assumptions as to future investment yields, morbidity, mortality, persistency,
expenses and other assumptions based on our experience, including provisions for adverse deviation. Mortality,
morbidity and lapse assumptions for all policies have been based on standard actuarial tables which are
modified as appropriate to reflect our own experience. In the event actual experience is worse than the
assumptions, additional reserves may be required. This would result in recognition of a loss in the period for
which the increase in reserves occurred.
Liabilities for future policy benefits on life insurance policies, excluding indexed universal life (IUL) products, are
computed using the net level premium method and are based on assumptions as to future investment yield,
mortality and lapses. Mortality and lapse assumptions for all policies have been based on actuarial tables which
48 Annual Report on Form 10-K
Horace Mann Educators Corporation
are consistent with our own experience. In the event actual experience is worse than the assumptions, additional
reserves may be required. This would result in recognition of a loss in the period for which the increase in
reserves occurred. Also, see Part II - Item 8, Note 1 of the Consolidated Financial Statements in this report.
Liabilities for IUL products are bifurcated into an embedded derivative and a host contract. The embedded
derivative is recognized at fair value and is set equal to the fair value of the current call options purchased to
hedge the liability. The host contract is measured using the retrospective deposit method which is equal to the
account balance.
Results of Operations by Segment
Consolidated financial results primarily reflect the results of four operating segments as well as the corporate
and other line. These segments are defined based on financial information management uses to evaluate
performance and to determine the allocation of resources.
•
•
Property & Casualty
Supplemental
• Retirement
•
Life
• Corporate & Other
The determination of segment data is described in more detail in Part II - Item 8, Note 19 of the Consolidated
Financial Statements in this report. The following sections provide analysis and discussion of results of
operations for each of the reporting segments as well as investment results.
Property & Casualty
2021 net income reflected the following factors:
•
•
•
•
A 43% increase in net investment income due
to exceptional returns on limited partnership
interests
Auto loss costs reflected loss frequency near
pre-pandemic levels as well as elevated severity
that added 8.5 points to the underlying
combined ratio
Premiums written* and premiums earned
reduced by lower new business volume due to
the continuing impact of the pandemic on sales
Lower levels of favorable prior years' reserve
development (PYD) recognized in 2021 ($5.2
million of favorable PYD recognized in 2020 due
to subrogation received largely related to the
2018 Camp Fire in California)
Horace Mann Educators Corporation
Annual Report on Form 10-K 49
Premiums Written* andUnderlying Combined Ratio*($ in millions)$635.5$607.881.3%87.7%20202021 The following table provides certain financial information for Property & Casualty for the periods indicated.
($ in millions, unless otherwise indicated)
Year Ended December 31,
2021-2020
2021
2020
Change
Financial Data:
Premiums written*:
Auto
Property and other
Total premiums written
Change in unearned premiums
Total premiums earned
Incurred claims and claims expenses:
Claims occurring in the current year
Prior years' reserve development(1)
Total claims and claim expenses incurred
Operating expenses, including DAC amortization
Underwriting gain
Net investment income
Income before income taxes
Net income / Core earnings*
Operating Statistics:
Total Property & Casualty
Loss and loss adjustment expense ratio
Expense ratio
Combined ratio:
Prior years' reserve development(1)
Catastrophes
Underlying combined ratio*
Auto
Loss and loss adjustment expense ratio
Expense ratio
Combined ratio:
Prior years' reserve development(1)
Catastrophes
Underlying combined ratio*
Property
Loss and loss adjustment expense ratio
Expense ratio
Combined ratio:
Prior years' reserve development(1)
Catastrophes
Underlying combined ratio*
Risks in force (in thousands)
Auto(2)
Property
Total
(1)
(2)
(Favorable) unfavorable.
Includes assumed risks in force of 4.
$
394.5
$
213.3
607.8
(9.6)
617.4
455.1
(7.2)
447.9
164.8
4.7
61.1
70.2
57.0
72.5 %
26.7 %
99.2 %
-1.2 %
12.7 %
87.7 %
69.4 %
26.7 %
96.1 %
-1.2 %
1.6 %
95.7 %
78.5 %
26.9 %
105.4 %
-1.0 %
33.6 %
72.8 %
376
177
553
416.8
218.7
635.5
(14.6)
650.1
441.2
(10.2)
431.0
171.7
47.4
42.6
91.9
76.5
66.3 %
26.4 %
92.7 %
-1.6 %
13.0 %
81.3 %
61.2 %
26.8 %
88.0 %
-0.5 %
1.3 %
87.2 %
76.1 %
25.9 %
102.0 %
-3.7 %
35.5 %
70.2 %
399
184
583
-5.4%
-2.5%
-4.4%
34.2%
-5.0%
3.2%
-29.4%
3.9%
-4.0%
-90.1%
43.4%
-23.6%
-25.5%
6.2 pts
0.3 pts
6.5 pts
0.4 pts
-0.3 pts
6.4 pts
8.2 pts
-0.1 pts
8.1 pts
-0.7 pts
0.3 pts
8.5pts
2.4 pts
1.0 pts
3.4 pts
2.7 pts
-1.9 pts
2.6 pts
-5.8%
-3.8%
-5.1%
50 Annual Report on Form 10-K
Horace Mann Educators Corporation
Catastrophe losses incurred were as follows:(1)
($ in millions)
Three months ended
March 31
June 30
September 30
December 31
Total full year
Year Ended December 31,
2021
2020
$
$
11.0 $
17.5
38.6
11.1
78.2 $
8.8
34.7
34.8
6.1
84.4
(1)
See Part I - Item 1 - Reporting Segments - Property & Casualty for further details regarding catastrophe losses for the last five years.
The 8.1 point of increase in the auto combined ratio in 2021 was mainly attributable to an 8.6 point increase in
the auto underlying loss ratio*. The increase in the auto underlying loss ratio reflected a return to near pre-
pandemic loss frequency levels as well as an increase in severity trends. Auto loss costs were unusually low in
2020, reflecting the impact of temporary changes in policyholder driving patterns due to the pandemic. The
reported property combined ratio increased 3.4 points and the property underlying loss ratio* increased 1.6
points reflecting higher non-catastrophe fire losses and non-weather water losses as well as overall inflation due
to the cost of labor and materials.
In 2021, total premiums written* decreased $27.7 million compared to 2020, primarily due to a reduction in auto
premiums written*. In 2021, average approved rate changes were insignificant. The continuing impact of the
pandemic affected sales* in 2021.
Auto premiums written* decreased $22.3 million compared to 2020, as the number of auto risks in force has
declined. Average premium written and average premium earned increased slightly. The number of educator
risks has been over 80% relative to overall auto risks in force over the past two years.
Property and other premiums written* decreased $5.4 million compared to 2020, as the number of property risks
in force has declined. In addition, the subrogation recovery for the 2018 California Camp Fire Event provided for
the return of $3.7 million of reinsurance reinstatement premium in 2020. Average premium written per risk and
average premium earned per risk increased 3.5% and 2.9%, respectively, compared to 2020, but with
inflationary pressure continuing, adjustments to coverage values and rates are expected to play a greater role in
the coming quarters. The number of educator risks has been over 80% relative to overall property risks in force
over the past two years.
We continue to evaluate and implement actions to further mitigate our risk exposure. Such actions could include,
but are not limited to, non-renewal of property risks, restricted agent geographic placement, limitations on agent
new business sales, further tightening of underwriting standards and increased utilization of third-party vendor
products.
Horace Mann Educators Corporation
Annual Report on Form 10-K 51
Supplemental
2021 net income reflected the following factors:
• Net investment income up 39% over 2020
driven by favorable returns on limited
partnership interests
•
Favorable business trends reflected in the
benefits ratio, including some continued benefit
from changes in policyholder behavior due to
the pandemic
The following table provides certain information for Supplemental for the periods indicated.
($ in millions, unless otherwise indicated)
Financial Data:
Premiums written and contract deposits*
Premiums and contract charges earned
Net investment income
Benefits and settlement expenses
Operating expenses (includes DAC unlocking
and amortization expense)
Intangible asset amortization expense
Income before income taxes
Net income / Core earnings*
Operating Statistics:
Supplemental insurance in force (thousands)
Benefits ratio(1)
Operating expense ratio(2)
Pretax profit margin(2)
Persistency
Year Ended December 31,
2021-2020
2021
2020
Change
$
$
125.3
125.3
24.8
37.2
41.9
11.7
59.0
46.3
278
31.9 %
27.5 %
38.7 %
92.5 %
130.3
130.7
17.8
38.2
40.4
12.6
55.1
43.1
287
33.0 %
26.7 %
36.4 %
90.5 %
-3.8%
-4.1%
39.3%
-2.6%
3.7%
-7.1%
7.1%
7.4%
-3.1%
-1.1 pts
0.8 pts
2.3 pts
2.0 pts
(1) Benefits ratio measured to earned premium.
(2) Operating expense ratio and pretax profit margin measured to total revenues.
While Supplemental sales* increased sequentially each quarter during 2021, they continued to be impacted by
limited school access from the pandemic. 2020 Supplemental sales overall were higher as they contained one
quarter of pre-pandemic sales. Persistency was strong, reflecting a 2.0 point increase to 92.5%.
In 2021, Supplemental contributed $46.3 million to net income, reflecting strong net investment income and
some short-term benefit from changes in policyholder behavior due to the pandemic. The non-cash impact from
amortization of intangible assets recognized in connection with the purchase accounting of NTA reduced pretax
net income by $11.7 million and $12.6 million in 2021 and 2020, respectively. The pretax profit margin remained
above our longer-term expectations because of pandemic-related changes in policyholder behavior.
52 Annual Report on Form 10-K
Horace Mann Educators Corporation
Premiums Written and ContractDeposits* andBenefits Ratio ($ in millions)$130.3$125.333.0%31.9%20202021
Retirement
2021 net income reflected the following factors:
•
•
Strong annualized net interest spread on fixed
annuities of 290 bps
10% growth in assets under management
• Continued growth in net annuity contract
deposits* that increased $19.7 million or
approximately 5% over prior year deposits
Horace Mann Educators Corporation
Annual Report on Form 10-K 53
Annuity Assets UnderManagement and Annualized NetInterest Spread on FixedAnnuities ($ in millions)$4,841.8$5,339.821229020202021 The following table provides certain information for Retirement for the periods indicated.
($ in millions, unless otherwise indicated)
Year Ended December 31,
2021-2020
2021
2020
Change
Financial Data:
Contract charges earned
Net investment income
Interest credited
Net interest margin without net investment gains (losses)
Net interest margin - Reinsured block
Mortality loss and other reserve charges
Operating expenses
DAC and intangible asset amortization expense,
excluding DAC unlocking
DAC unlocking
Other expenses - goodwill and intangible asset impairments
Income before income taxes
Net income
Core earnings*
Operating Statistics:
Net annuity contract deposits*
Variable
Fixed
Total
Single
Recurring
Total
Assets under administration (AUA)
Annuity assets under management(1)
Broker and advisory assets under administration
Recordkeeping assets under administration
Total
Persistency
Variable annuities
Fixed annuities
Total
Annuity contracts in force (thousands)
Retirement Advantage® contracts in force (thousands)
Net interest spread on fixed annuities - YTD annualized (basis points)
$
38.5
$
154.8
29.7
132.5
56.2
98.6
(3.5)
(5.5)
66.2
21.1
(1.3)
—
61.9
52.0
52.0
58.6
73.9
(3.6)
(5.3)
60.3
20.3
(1.8)
10.0
22.2
20.1
28.2
$
$
266.5
182.3
448.8
243.4
205.4
448.8
226.2
202.9
429.1
218.7
210.4
429.1
$
5,339.8
$
4,841.8
2,597.9
1,572.0
9,509.7
2,324.1
1,518.1
8,684.0
94.4 %
94.3 %
94.4 %
230
15
290
95.0 %
94.7 %
94.8 %
230
13
212
29.6%
16.8%
-4.1%
33.4%
2.8%
-3.8%
9.8%
3.9%
27.8%
N.M.
178.8%
158.7%
84.4%
17.8%
-10.2%
4.6%
11.3%
-2.4%
4.6%
10.3%
11.8%
3.6%
9.5%
-0.6 pts
-0.4 pts
-0.4 pts
—%
15.4%
78 bps
(1)
Amount reported as of December 31, 2021 excludes $834.6 million of assets under management held under modified coinsurance
reinsurance.
For 2021, net annuity contract deposits* increased $19.7 million compared to 2020. Variable annuity deposits
increased $40.3 million and fixed annuity deposits decreased $20.6 million, as educators continue to find value
in our retirement savings products, including our competitively priced annuity products.
For 2020, Retirement segment net income reflected an after-tax impairment charge of $8.1 million for goodwill
and intangible assets associated with BCG due to lower than anticipated BCG wealth management sales
outside of the education markets. Operational benefits from the BCG acquisition remain on track.
54 Annual Report on Form 10-K
Horace Mann Educators Corporation
At December 31, 2021, annuity assets under management were up $498.0 million, or 10.3%, compared to a year
ago primarily due to market appreciation. Assets under administration, which includes Retirement Advantage®
and other advisory and recordkeeping assets, were up $825.7 million, or 9.5%, from a year ago. The full-year
2021 annualized net interest spread on fixed annuities, excluding reinsurance, increased 78 basis points,
primarily reflecting higher net investment income due to returns on limited partnership interests.
We actively manage our interest rate risk exposure, considering a variety of factors, including earned interest
rates, credited interest rates and the relationship between the expected durations of assets and liabilities. We
estimate that over the next 12 months approximately $792.8 million of the combined Retirement and Life
investment portfolio and related investable cash flows will be reinvested at current market rates. As interest rates
remain at low levels, borrowers may prepay or redeem the securities with greater frequency in order to borrow at
lower market rates, which could increase investable cash flows and exacerbate the reinvestment risk.
As a general guideline, for a 100 basis point decline in the average reinvestment rate and based on our existing
policies and investment portfolio, the impact from investing in that lower interest rate environment could further
reduce Retirement net investment income by approximately $3.0 million in year one and $9.1 million in year two,
further reducing the annualized net interest spread by approximately 10 basis points and 30 basis points in the
respective periods, compared to the current period annualized net interest spread. We could also consider
potential changes in rates credited to policyholders, tempered by any restrictions on the ability to adjust
policyholder rates due to minimum guaranteed crediting rates.
The expectation for future annualized net interest spreads is also an important component in the amortization of
DAC. In terms of the sensitivity of this amortization to the annualized net interest spread, based on DAC as of
December 31, 2021 and assuming all other assumptions are met, a 10 basis point deviation in the current year
targeted annualized net interest rate spread assumption would impact amortization between $0.3 million and
$0.4 million. This result may change depending on the magnitude and direction of any actual deviations but
represents a range of reasonably likely experience for the noted assumption.
We reinsure a $2.4 billion block of in force fixed annuities with a minimum crediting rate of 4.5% which helps
mitigate the risk of not being able to generate appropriate spreads on the annuity business. Information
regarding the interest crediting rates and balances equal to the minimum guaranteed rate for deferred annuity
account values excluding the reinsured block is shown below.
($ in millions)
December 31, 2021
Total Deferred Annuities
Deferred Annuities at
Minimum Guaranteed Rate
Percent
of Total
Accumulated
Value (AV)
Percent of
Total
Deferred
Annuities AV
Percent
of Total
Accumulated
Value
55.5 % $
1,404.8
73.7 %
49.0 % $
1,035.7
11.3
24.7
6.6
1.9
284.6
624.9
167.0
48.7
83.6
99.9
100.0
100.0
11.3
29.5
7.9
2.3
238.0
624.5
167.0
48.7
100.0 % $
2,530.0
83.6 %
100.0 % $
2,113.9
Minimum guaranteed interest rates:
Less than 2%
Equal to 2% but less than 3%
Equal to 3% but less than 4%
Equal to 4% but less than 5%
5% or higher
Total
We will continue to be disciplined in executing strategies to mitigate the negative impact on profitability of a
sustained low interest rate environment. However, the success of these strategies may be affected by the
factors discussed in Part I - Item 1A and other factors of this report.
Horace Mann Educators Corporation
Annual Report on Form 10-K 55
Life
2021 net income reflected the following factors:
• Higher net investment income driven by
favorable returns on limited partnership
interests
• Higher mortality costs
The ordinary life insurance in force lapse ratio was
3.5% and 4.2% for 2021 and 2020, respectively.
The following table provides certain information for Life for the periods indicated.
($ in millions, unless otherwise indicated)
Financial Data:
Premiums written and contract deposits*
Premiums and contract charges earned
Net investment income
Benefits and settlement expenses
Operating expenses
DAC amortization expense, excluding unlocking
DAC unlocking
Income before income taxes
Net income / core earnings*
Operating Statistics:
Life insurance in force
Number of policies in force* (in thousands)
Average face amount in force (in dollars)
Lapse ratio (ordinary life insurance in force)
Mortality costs
Year Ended December 31,
2021-2020
2021
2020
Change
$
$
116.9
108.4
83.1
127.9
36.8
7.6
(0.2)
19.7
16.1
110.1
120.2
69.8
134.6
35.3
7.7
(0.3)
12.9
10.4
$
20,440
$
19,821
200
202
$ 102,026
$
98,434
3.5 %
4.2 %
$
43.5
$
38.8
6.2%
-9.8%
19.1%
-5.0%
4.2%
-1.3%
33.3%
52.7%
54.8%
3.1%
-1.0%
3.6%
-0.7pts
12.1%
56 Annual Report on Form 10-K
Horace Mann Educators Corporation
Premiums Written andContract Deposits* andMortality Costs ($ in millions)$110.1$116.9$38.8$43.5Premiums and contract depositsMortality costs20202021
Corporate & Other
The following table provides certain financial information for Corporate & Other for the periods indicated.
($ in millions)
Interest expense
Net investment losses pretax
Tax benefit on net investment losses
Net investment losses after tax benefit
Net loss
Core earnings (loss)*
Year Ended December 31,
2021-2020
2021
2020
Change %
$
13.8 $
(11.0)
(2.4)
(8.6)
(28.6)
(20.0)
14.8
(2.3)
(0.6)
(1.7)
(16.8)
(15.1)
-6.8%
N.M.
N.M.
N.M.
-70.2%
-32.5%
Corporate expenses increased primarily due to transaction costs to acquire Madison National. The net loss in
2021 increased due to recognition of $7.7 million of net credit loss impairments.
Investment Results
Our investment strategy is primarily focused on generating income to support product liabilities, and balances
principal protection and risk. Total net investment income includes net investment income from our investment
portfolio as well as accreted investment income from the deposit asset on reinsurance related to our reinsured
block of approximately $2.4 billion of fixed annuity liabilities related to legacy individual annuities written in 2002
or earlier.
($ in millions)
Net investment income - investment portfolio
Investment income - deposit asset on reinsurance
Total net investment income
Pretax net investment losses
Pretax net unrealized investment gains on fixed maturity securities
Year Ended December 31,
2021-2020
2021
2020
Change %
$
321.4 $
101.1
422.5
(11.0)
441.6
260.3
97.3
357.6
(2.3)
556.7
23.5 %
3.9 %
18.1 %
N.M.
-20.7 %
For 2021, net investment income from our investment portfolio increased $61.1 million compared to 2020,
primarily due to exceptional returns on limited partnership interests.
For 2021, pretax net investment losses increased $8.7 million. The increase in net investment losses in 2021 is
primarily attributable to recognition of $7.7 million of net credit loss impairments. For 2021, pretax net unrealized
investment gains on fixed maturity securities were down $115.1 million compared to 2020, reflecting U.S.
Treasury rates that increased 60 basis points that more than offset tighter credit spreads across most asset
classes.
Horace Mann Educators Corporation
Annual Report on Form 10-K 57
Fixed Maturity and Equity Securities Portfolios
The table below presents our fixed maturity and equity securities portfolio by major asset class, including the 10
largest sectors of our corporate bond holdings (based on fair value).
($ in millions)
Fixed maturity securities
Corporate bonds
Banking & Finance
Insurance
Energy(1)
Healthcare, Pharmacy
Miscellaneous
Real Estate
Utilities
Transportation
Food and Beverage
Technology
All other corporates(2)
Total corporate bonds
Mortgage-backed securities
December 31, 2021
Number of
Issuers
Fair
Value
Amortized
Cost, net
Pretax Net
Unrealized
Gain (Loss)
158 $
515.0 $
479.6 $
53
93
89
38
47
69
50
36
42
367
191.8
189.7
164.5
139.3
137.4
131.9
125.3
101.4
90.1
602.2
1,042
2,388.6
168.0
174.4
151.7
138.2
131.3
122.2
117.6
89.5
85.7
559.6
2,217.8
433.9
286.6
21.6
35.4
23.8
15.3
12.8
1.1
6.1
9.7
7.7
11.9
4.4
42.6
170.8
28.7
23.7
0.1
183.7
23.3
3.5
3.4
4.4
U.S. Government and federally sponsored agencies
Commercial(3)
Other
Municipal bonds(4)
Government bonds
U.S.
Foreign
Collateralized loan obligations(5)
Asset-backed securities
258
134
31
595
40
7
201
96
462.6
310.3
21.7
1,703.4
1,519.7
365.9
43.6
669.1
274.1
342.6
40.1
665.7
269.7
Total fixed maturity securities
2,404 $
6,239.3 $
5,797.7 $
441.6
Equity securities
Non-redeemable preferred stocks
Common stocks
Closed-end fund
Total equity securities
28 $
119.4
93
1
6.3
21.5
122 $
147.2
Total
2,526 $
6,386.5
(1)
(2)
(3)
(4)
(5)
At December 31, 2021, the fair value amount included $382.7 million which were non-investment grade.
The All Other Corporates category contains 18 additional industry classifications. Broadcasting and media, telecommunications, consumer
products, leisure entertainment, and industry manufacturing represented $312.6 million of fair value at December 31, 2021, with the
remaining 13 classifications each representing less than $289.6 million.
At December 31, 2021, 100% were investment grade, with an overall credit rating of AA+, and the positions were well diversified by property
type, geography and sponsor.
Holdings are geographically diversified, 48.9% are tax-exempt and 76.3% are revenue bonds tied to essential services, such as mass transit,
water and sewer. The overall credit quality of the municipal bond portfolio was AA- at December 31, 2021.
Based on fair value, 93.6% of the collateralized loan obligation securities were rated investment grade by Standard & Poor's Global Inc.
(S&P), Moody's Investors Service, Inc. (Moody's) and/or Fitch Ratings, Inc. (Fitch) at December 31, 2021.
58 Annual Report on Form 10-K
Horace Mann Educators Corporation
At December 31, 2021, our diversified fixed maturity securities portfolio consisted of 3,712 investment positions,
issued by 2,404 entities, and totaled approximately $6.2 billion in fair value. This portfolio was 85.5% investment
grade, based on fair value, with an average credit quality rating of A+. Our investment guidelines target single
corporate issuer concentrations to 0.5% of invested assets for AAA or AA rated securities, 0.35% of invested
assets for A or BBB rated securities, and $5.0 million for non-investment grade securities.
Rating of Fixed Maturity Securities and Equity Securities(1)
The following table presents the composition and fair value of our fixed maturity and equity securities portfolios
by rating category. At December 31, 2021, 85.1% of these combined portfolios were investment grade, based
on fair value, with an overall average credit quality rating of A+. We have classified the entire fixed maturity
securities portfolio as available for sale, which is carried at fair value.
($ in millions)
Fixed maturity securities
AAA
AA(2)
A
BBB
BB
B
CCC or lower
Not rated(3)
Total fixed maturity securities
Equity securities
AAA
AA
A
BBB
BB
B
CCC or lower
Not rated
Total equity securities
Total
December 31, 2021
Percent
of Total
Fair
Value
Fair
Value
Amortized
Cost, net
10.1 % $
627.4 $
36.7
17.4
21.3
3.1
1.3
—
10.1
2,292.8
1,089.1
1,326.8
191.7
82.8
1.0
627.7
606.4
2,105.8
993.1
1,222.2
183.2
82.1
1.0
603.9
100.0 % $
6,239.3 $
5,797.7
—
—
0.5 % $
67.3
12.7
—
—
19.5
100.0 % $
—
—
0.8
99.0
18.7
—
—
28.7
147.2
$
6,386.5
(1)
(2)
(3)
Ratings are as assigned primarily by S&P when available, with remaining ratings as assigned on an equivalent basis by Moody's or Fitch.
Ratings for publicly traded securities are determined when the securities are acquired and are updated monthly to reflect any changes in
ratings.
At December 31, 2021, the AA rated fair value amount included $359.1 million of U.S. Government and federally sponsored agency securities
and $653.1 million of mortgage-backed and other asset-backed securities issued by U.S. Government and federally sponsored agencies.
This category primarily represents private placement and municipal securities not rated by either S&P, Moody's or Fitch.
At December 31, 2021, the fixed maturity securities portfolio had $18.6 million of pretax gross unrealized
investment losses on $995.3 million of fair value related to 638 positions. Of the investment positions with gross
unrealized losses, there were 16 trading below 80.0% of the carrying value at December 31, 2021.
We view the pretax gross unrealized investment losses of all our fixed maturity securities at December 31, 2021
as temporary. Future changes in circumstances related to these and other securities could require subsequent
recognition of impairment.
Horace Mann Educators Corporation
Annual Report on Form 10-K 59
Liquidity and Capital Resources
Investments
Information regarding our investment portfolio, which is comprised primarily of investment grade, fixed maturity
securities, is presented in Part II - Item 7, Results of Operations by Segment, Part I - Item 1, Investments and in
Part II - Item 8, Note 3 of the Consolidated Financial Statements in this report.
Cash Flow
Our short-term liquidity requirements, within a 12 month operating cycle, are for the timely payment of claims
and benefits to policyholders, operating expenses, interest payments and federal income taxes. Cash flow
generated from operations has been, and is expected to be, adequate to meet our operating cash needs in the
next 12 months. Cash flow in excess of operational needs has been used to fund business growth and
acquisitions, pay dividends to shareholders and repurchase shares of our common stock. Long-term liquidity
requirements, beyond one year, are principally for the payment of future insurance and annuity policy claims and
benefits, as well as retirement of debt. The following table summarizes our consolidated cash flows activity for
the periods indicated.
($ in millions)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net increase (decrease) in cash
Cash at beginning of year
Cash at end of year
Year Ended December 31,
2021-2020
2021
2020
Change %
$
204.9 $
(302.0)
208.5
111.4
22.3
$
133.7 $
259.8
(406.8)
143.8
(3.2)
25.5
22.3
-21.1%
25.8%
45.0%
N.M.
-12.5%
N.M.
Operating Activities
As a holding company, we conduct our principal operations in the personal lines portion of the property and
casualty, supplemental and life insurance industries through our subsidiaries. Our insurance subsidiaries
generate cash flow from premium and investment income, generally well in excess of their immediate needs for
policy obligations, operating expenses and other cash requirements. Cash provided by operating activities
primarily reflects net cash flows generated by the insurance subsidiaries.
For 2021, net cash provided by operating activities decreased $54.9 million compared to 2020, primarily due to
higher claims paid on insurance policies in the current year partially offset by higher investment income collected
in the current year.
Investing Activities
Our insurance subsidiaries maintain significant investments in fixed maturity securities to meet future contractual
obligations to policyholders. In conjunction with our management of liquidity and other asset/liability
management objectives, we, from time to time, will sell fixed maturity securities prior to maturity, and reinvest
the proceeds into other investments with different interest rates, maturities or credit characteristics. Accordingly,
we have classified the entire fixed maturity securities portfolio as available for sale.
Financing Activities
Financing activities include primarily payment of dividends, receipt and withdrawal of funds by annuity
contractholders, issuances and repurchases of our common stock, fluctuations in book overdraft balances, and
borrowings, repayments and repurchases related to debt facilities.
For 2021, net cash provided by financing activities increased $64.7 million compared to 2020, primarily due to
an increase net cash inflows of $96.5 million from advances received under Federal Home Loan Bank of Chicago
(FHLB) funding agreements and $114.0 million of principal borrowings on Bank Credit Facility in 2021, partially
offset by principal repayment on FHLB borrowings of $54.0 million in 2021 and an increase in benefits,
withdrawals and net transfers to Separate Account (variable annuity) assets of $84.1 million.
The following table shows activity from FHLB funding agreements for the periods indicated.
60 Annual Report on Form 10-K
Horace Mann Educators Corporation
($ in millions)
Year Ended December 31,
2021-2020
2021-2020
2021
2020
Change $
Change %
Balance at beginning of the year
Advances received from FHLB funding agreements
Principal repayment on FHLB funding agreements
Balance at end of the year
$
$
590.5 $
495.0 $
554.0
(362.0)
95.5
—
782.5 $
590.5 $
95.5
458.5
(362.0)
192.0
19.3%
N.M.
N.M.
32.5%
Liquidity Sources and Uses
Our potential sources and uses of funds principally include the following activities:
Property &
Casualty
Supplemental Retirement
Life
Corporate
& Other
Activities for potential sources of funds
Receipt of insurance premiums, contractholder
charges and fees
Recurring service fees, commissions and
overrides
Contractholder fund deposits
Reinsurance and indemnification program
recoveries
Receipts of principal, interest and dividends on
investments
Sales of investments
Funds from FHLB and line of credit agreements
Intercompany loans
Capital contributions from parent
Dividends or return of capital from subsidiaries
Tax refunds/settlements
Funds from periodic issuance of additional
securities
Proceeds from debt issuances
Receipt of intercompany settlements related to
employee benefit plans
Activities for potential uses of funds
Payment of claims and related expenses
Payment of contract benefits, surrenders and
withdrawals
Reinsurance cessions and indemnification
program payments
Operating costs and expenses
Purchase of investments
Repayment of FHLB and line of credit agreements
Payment or repayment of intercompany loans
Capital contributions to subsidiaries
Dividends or return of capital to
shareholders/parent company
Tax payments/settlements
Common share repurchases
Debt service expenses and repayment
Payments related to employee benefit plans
Payments for acquisitions
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We actively manage our financial position and liquidity levels in light of changing market, economic and business
conditions. Liquidity is managed at both the entity and enterprise level across HMEC and is assessed on both
base and stressed level liquidity needs. We believe we have sufficient liquidity to meet these needs. Additionally,
Horace Mann Educators Corporation
Annual Report on Form 10-K 61
we have existing intercompany agreements in place that facilitate liquidity management across HMEC to
enhance flexibility.
As of December 31, 2021, we held $1.1 billion of cash, U.S. government and agency fixed maturity securities
and public equity securities (excluding non-redeemable preferred stocks and foreign equity securities) which,
under normal market conditions, could be rapidly liquidated.
Certain remote events and circumstances could constrain our liquidity. Those events and circumstances include,
for example, a catastrophe resulting in extraordinary losses, a downgrade of our Senior Notes rating to non-
investment grade status or a downgrade in our insurance subsidiaries' financial strength ratings. The rating
agencies also consider the interdependence of our individually rated entities; therefore, a rating change in one
entity could potentially affect the ratings of other related entities.
Capital Resources
We have determined the amount of capital which is needed to adequately fund and support business growth,
primarily based on risk-based capital formulas including those developed by the NAIC. Historically, our
insurance subsidiaries have generated capital in excess of such needed levels. These excess amounts have
been paid to us through dividends. We have then utilized these dividends and our access to the capital markets
to service and retire debt, pay dividends to our shareholders, fund growth initiatives, repurchase shares of our
common stock and for other corporate purposes. If necessary, we also have other potential sources of liquidity
that could provide for additional funding to meet corporate obligations or pay shareholder dividends, which
include a revolving line of credit, as well as issuances of various securities. The insurance subsidiaries are
subject to various regulatory restrictions which limit the amount of annual dividends or other distributions,
including loans or cash advances, available to us without prior approval of the insurance regulatory authorities.
The aggregate amount of dividends that may be paid in 2022 from all of our insurance subsidiaries, including
Madison National, without prior regulatory approval is approximately $134.8 million, excluding the impact and
timing of prior year dividends, of which $57.0 million was paid during the year ended December 31, 2021. We
anticipate that our sources of capital will continue to generate sufficient capital to meet the needs for business
growth, debt interest payments, shareholder dividends and our share repurchase program. Additional
information is contained in Part II - Item 8, Note 14 of the Consolidated Financial Statements in this report.
Total capital was $2,310.0 million at December 31, 2021, including $502.6 million of short-term and long-term
debt. Total debt represented 21.8% of total capital including net unrealized investment gains on fixed maturity
securities (24.9% of total capital excluding net unrealized investment gains on fixed maturity securities*) at
December 31, 2021, which was below our long-term target of 25.0%.
Shareholders' equity was $1,807.4 million at December 31, 2021, including net unrealized investment gains on
fixed maturity securities of $290.7 million after taxes and the related impact of DAC associated with annuity
contracts and life insurance products with account values. The market value of our common stock and the
market value per share were $1,601.9 million and $38.70, respectively, at December 31, 2021. Book value per
share was $43.66 at December 31, 2021 ($36.64 excluding net unrealized investment gains on fixed maturity
securities*).
Additional information regarding net unrealized investment gains on fixed maturity securities at December 31,
2021 is included in Part II - Item 7, Results of Operations by Segment and Part II - Item 8, Note 3 of the
Consolidated Financial Statements in this report.
Total shareholder dividends paid were $51.4 million for the year ended December 31, 2021. In March, May,
September and December 2021, the Board declared regular quarterly dividends of $0.31 per share. Compared
to the full year per share dividends paid in 2020 of $1.20, the total 2021 dividends paid per share of $1.24
represented an increase of 3.3%.
On September 30, 2015, the Board authorized a share repurchase program allowing repurchases of up to $50.0
million of HMEC's common stock, par value $0.001 (Program). The Program authorizes the repurchase of
common shares in open market or privately negotiated transactions, from time to time, depending on market
conditions. The Program does not have an expiration date and may be limited or terminated at any time without
notice. During 2021, we repurchased 140,758 shares of our common stock at an average price of $37.49 per
share under the Program. In total and through December 31, 2021, 1,040,226 shares have been repurchased
under the Program at an average price of $33.33 per share. The repurchase of shares was funded through use of
62 Annual Report on Form 10-K
Horace Mann Educators Corporation
cash. As of December 31, 2021, $15.3 million remained authorized for future share repurchases under the
Program.
The following table summarizes our debt obligations.
($ in millions)
Short-term debt
Bank Credit Facility
Long-term debt(1)
4.50% Senior Notes, Aggregate principal amount of
$250.0 less unaccrued discount of $0.3 and
$0.4 and unamortized debt issuance costs
of $1.1 and $1.3
FHLB borrowing
Total
Interest
Rates
Final
Maturity
December 31,
2021
2020
Variable
2026
$
249.0 $
135.0
4.50%
0.00%
2025
2022
248.6
5.0
$
502.6 $
248.3
54.0
437.3
(1) We designate our debt obligations as "long-term" based on maturity date at issuance.
As of December 31, 2021, we had outstanding $250.0 million aggregate principal amount of 4.50% Senior Notes
(Senior Notes), which mature on December 1, 2025, issued at a discount resulting in an effective yield of 4.53%.
Interest on the Senior Notes is payable semi-annually at a rate of 4.50%. Detailed information regarding the
redemption terms of the Senior Notes is contained in Part II - Item 8, Note 10 of the Consolidated Financial
Statements in this report. The Senior Notes are traded in the open market (HMN 4.50).
As of December 31, 2021, we had $5.0 million of borrowings outstanding with FHLB. The Board has authorized
a maximum amount equal to 15% of net aggregate admitted assets less separate account assets of the
insurance subsidiaries for FHLB borrowing and funding agreements which is below our maximum FHLB
borrowing capacity. The total $5.0 million received matures on May 16, 2022 and is reported as Long-term debt
in the Consolidated Balance Sheets.
Effective July 12, 2021, we, as borrower, amended our Credit Agreement (Bank Credit Facility). The amended
Bank Credit Facility increased the amount available on the senior revolving credit facility from $225.0 million to
$325.0 million. PNC Bank, National Association and JPMorgan Chase Bank, N.A. serve as joint lead arrangers
under the amended Bank Credit Facility, with The Northern Trust Company, KeyBank National Association, U.S.
Bank National Association, Illinois National Bank, and Comerica Bank as lenders participating in the syndicate.
Terms and conditions of the amended Bank Credit Facility are substantially consistent with the prior agreement,
with an interest rate based on LIBOR plus 115 basis points.
On December 31, 2021, we utilized $114.0 million of the senior revolving credit facility to fund a portion of the
acquisition of Madison National that occurred effective January 1, 2022, resulting in an amount outstanding of
$249.0 million. We expect that the unused portion of the senior revolving credit facility will be available for
ongoing working capital, capital expenditures and general corporate expenditures. The unused portion of the
Bank Credit Facility is subject to a variable commitment fee, which was 0.15% on an annual basis at
December 31, 2021.
To provide additional capital management flexibility, we filed a "universal shelf" registration statement on Form
S-3 with the SEC on March 10, 2021. The registration statement, which registered the offer and sale from time to
time of an indeterminate amount of various securities, which may include debt securities, common stock,
preferred stock, depositary shares, warrants, delayed delivery contracts and/or units that include any of these
securities, was automatically effective on March 10, 2021. Unless withdrawn by us earlier, this registration
statement will remain effective through March 10, 2024. No securities associated with the registration statement
have been issued at the time of issuance of this Annual Report on Form 10-K.
On March 13, 2018, we filed a "shelf" registration statement on Form S-4 with the SEC which became effective
on May 2, 2018. Under this registration statement, we may from time to time offer and issue up to 5,000,000
shares of our common stock in connection with future acquisitions of other businesses, assets or securities.
Unless withdrawn by us, this registration statement remains effective indefinitely. No securities associated with
the registration statement have been issued at the time of issuance of this Annual Report on Form 10-K.
Horace Mann Educators Corporation
Annual Report on Form 10-K 63
Financial Ratings
Our principal insurance subsidiaries are rated by A.M. Best Company, Inc. (A.M. Best), Fitch, Moody's and S&P.
These rating agencies have also assigned ratings to our Senior Notes. The ratings that are assigned by these
agencies, which are subject to change, can impact, among other things, our access to sources of capital, cost of
capital, and competitive position. These ratings are not a recommendation to buy or hold any of our securities.
All four agencies currently have assigned the same insurance financial strength ratings to our Property &
Casualty and Life insurance subsidiaries. Only A.M. Best currently rates our Supplemental & Group Benefits
subsidiaries. A.M. Best currently rates our NTA Life subsidiary at the same level as our Property & Casualty and
Life & Retirement subsidiaries. On February 9, 2022, A.M. Best removed from under review with developing
implications and affirmed Madison National’s Financial Strength Rating of A- (Excellent) following its acquisition
by Horace Mann. Assigned ratings and respective affirmation/review dates as of February 18, 2022 were as
follows:
A.M. Best
HMEC (parent company)
HMEC's Life & Retirement subsidiaries
HMEC's Property & Casualty subsidiaries
HMEC's Supplemental & Group Benefits
subsidiaries
Madison National Life Insurance Company
National Teachers Associates Life
Insurance Company
Fitch
Moody's
S&P
Reinsurance Programs
Insurance Financial
Strength Ratings (Outlook) Debt Ratings (Outlook)
N.A.
A
A
A-
A
A
A2
A
(stable)
(stable)
(stable)
(stable)
(stable)
(stable)
(stable)
bbb
N.A.
N.A.
N.A.
N.A.
BBB
Baa2
BBB
(stable)
(stable)
(stable)
(stable)
Affirmed/
Reviewed
7/14/2021
7/14/2021
7/14/2021
2/09/2022
7/14/2021
9/14/2021
10/28/2021
2/14/2022
Information regarding the reinsurance programs for our Property & Casualty, Supplemental, Retirement and Life
segments are located in Part I - Item 1, Reporting Segments of this report.
Future Adoption of New Accounting Standards
There is one new accounting standard that we have not adopted because the adoption date has not yet
occurred. For a discussion of this new standard, see Part II - Item 8, Note 1 of the Consolidated Financial
Statements in this report. The effect of implementing certain accounting standards on our financial results and
financial condition is often based in part on market conditions at the time of implementation of the standard and
other factors that we are unable to determine prior to implementation. For this reason, we are sometimes unable
to estimate the effect of certain pending accounting standards until the relevant authoritative body finalizes these
standards or until we implement them.
Effects of Inflation and Changes in Interest Rates
Our operating results are affected significantly in at least three ways by changes in interest rates and inflation
and the recent elevated inflation levels we are experiencing are likely to persist for some time. First, inflation
directly affects Property & Casualty claims costs. Second, the investment income earned on our investment
portfolio and the fair value of the investment portfolio are related to the yields available in the fixed income
markets. An increase in interest rates will decrease the fair value of the investment portfolio, but will increase
investment income as investments mature and proceeds are reinvested at higher rates. Third, as interest rates
increase, competitors will typically increase crediting rates on annuity contracts and life insurance products with
account values, and may lower premium rates on property and casualty lines to reflect the higher yields available
in the market. The risk of interest rate fluctuation is managed through asset/liability management techniques,
including cash flow analysis. In addition, an annuity reinsurance agreement entered into in the second quarter of
2019, which reinsured a $2.2 billion block of in force fixed annuities with a minimum crediting rate of 4.5%, helps
mitigate the risk of not being able to generate appropriate spreads on the annuity business.
64 Annual Report on Form 10-K
Horace Mann Educators Corporation
ITEM 7A. I Quantitative and Qualitative Disclosures about
Market Risk
Market value risk, our primary market risk exposure, is the risk that our invested assets will decrease in value.
This decrease in value may be due to (1) a change in the yields realized on our assets and prevailing market
yields for similar assets, (2) an unfavorable change in the liquidity of an investment, (3) an unfavorable change in
the financial prospects of the issuer of an investment, or (4) a downgrade in the credit rating of the issuer of an
investment. Also, see Part II - Item 7, Results of Operations by Segment of this report regarding net investment
gains (losses).
Significant changes in interest rates expose us to the risk of experiencing losses or earning a reduced level of
investment income based on the difference between the interest rates earned on our investments and the
credited interest rates on our insurance liabilities. Also, see Part II - Item 7, Results of Operations by Segment of
this report regarding interest credited to policyholders.
We seek to manage our market value risk by coordinating the projected cash inflows of assets with the projected
cash outflows of liabilities. For all our assets and liabilities, we seek to maintain reasonable durations, consistent
with the maximization of income without sacrificing investment quality, while providing for liquidity and
diversification. The investment risk associated with variable annuity deposits and the underlying mutual funds is
assumed by our contractholders, and not by us. Certain fees that we earn from variable annuity deposits are
based on the market value of the funds deposited.
Through active investment management, we invest available funds with the objective of funding future
obligations to policyholders, subject to appropriate risk considerations, and maximizing shareholder value. This
objective is met through investments that (1) have similar characteristics to the liabilities they support, (2) are
diversified among industries, issuers and geographic locations, and (3) are predominantly investment-grade fixed
maturity securities classified as available for sale. As of the time of issuance of this Annual Report on Form 10-K,
derivatives are only used to manage the interest crediting rate risk within our FIA and IUL products. At
December 31, 2021, approximately 11.6% of the fixed maturity securities portfolio supported Property &
Casualty, 9.6% supported Supplemental, and 78.8% supported Retirement and Life. For discussions regarding
our investments see Part II - Item 7, Results of Operations by Segment of this report regarding net investment
gains (losses) and Part I - Item 1, Investments of this report.
Our Retirement and Life earnings are affected by the spreads between investment yields and rates credited or
accruing on fixed annuity and life insurance liabilities with account values. Although credited rates on fixed
annuities may be changed annually (subject to minimum guaranteed rates), competitive pricing and other
factors, including the impact on the level of surrenders and withdrawals, may limit our ability to adjust or
maintain crediting rates at levels necessary to avoid narrowing of spreads under certain market conditions.
However, because of the annuity reinsurance transaction, the spread in our retained annuity business is
achieving our targeted returns and new business is priced to do so as well. Also, see Part II - Item 7, Results of
Operations by Segment of this report regarding interest credited to policyholders.
Using financial modeling and other techniques, we regularly evaluate the appropriateness of investments relative
to the characteristics of the liabilities that they support. Simulations of cash flows generated from existing
business under various interest rate scenarios measure the potential gain or loss in fair value of interest rate
sensitive assets and liabilities. Such estimates are used to closely match the duration of assets to the duration of
liabilities. The overall duration of liabilities of our multiline insurance operations combines the characteristics of
our long duration annuity and interest rate sensitive life liabilities with our short duration non-interest rate
sensitive Property & Casualty liabilities. Overall, at December 31, 2021, the duration of the fixed maturity
securities portfolio was estimated to be approximately 6.7 years and the duration of our insurance liabilities and
debt was estimated to be approximately 6.5 years.
Retirement and Life operations participate in the cash flow testing procedures imposed by statutory insurance
regulations, the purpose of which is to ensure that such liabilities are adequate to meet our obligations under a
variety of interest rate scenarios. Based on these procedures, our assets and the investment income expected to
be received on such assets are adequate to meet the insurance policy obligations and expenses of our
insurance activities in all but the most extreme circumstances.
Horace Mann Educators Corporation
Annual Report on Form 10-K 65
We periodically evaluate our sensitivity to interest rate risk. Based on commonly used models, we project the
impact of interest rate changes, assuming a wide range of factors, including duration and prepayment, on the
fair value of assets and liabilities. Fair value is estimated based on the net present value of cash flows or duration
estimates. Based on the most recent study, assuming an immediate decrease of 100 basis points in interest
rates, the fair value of our assets and liabilities would both increase, the net of which would result in a decrease
in shareholders' equity of approximately $108.0 million after tax, or 10.0%. Assuming an immediate increase of
100 basis points in interest rates, the fair value of our assets and liabilities would both decrease, the net of which
would result in a decrease in shareholders' equity of approximately $34.0 million after tax, or 3.0%. In each case,
these changes in interest rates assume a parallel shift in the yield curve. While we believe that these assumed
market rate changes are reasonably possible, actual results may differ, particularly as a result of any actions that
we would take to attempt to mitigate such hypothetical losses in fair value of shareholders' equity.
Interest rates continue to be at historically low levels. If interest rates remain low over an extended period of
time, we recognize it could pressure investment income by having to invest insurance cash flows and reinvest
the cash flows from the investment portfolio in lower yielding securities. Moreover, issuers of securities in our
investment portfolio may prepay or redeem fixed maturity securities, as well as asset-backed and commercial
and mortgage-backed securities, with greater frequency to borrow at lower market rates. As a general guideline,
we estimate that pretax net income in 2022 and 2023 would decrease by approximately $8.5 million for each 100
basis point decline in reinvestment rates, before assuming any reduction in annuity crediting rates on in force
contracts. In addition, declining interest rates also could negatively impact the amortization of DAC, as well as
the recoverability of goodwill and certain intangible assets, due to the impacts on the estimated fair value of our
operating segments.
We have been and continue to be proactive in our investment strategies, product designs and crediting rate
strategies to mitigate the risk of unfavorable consequences in this type of interest rate environment without
venturing into asset classes or individual securities that would be inconsistent with our investment guidelines.
Lowering interest crediting rates on annuity contracts and cap and participation rates on fixed indexed annuity
contracts can help offset decreases in investment margins on some products. Our ability to lower interest
crediting rates could be limited by competition, regulatory approval or contractual guarantees of minimum rates
and may not match the timing or magnitude of changes in investment yields.
Based on our overall exposure to interest rate risk, we believe that these changes in interest rates would not
materially affect our consolidated near-term financial position, results of operations or cash flows.
66 Annual Report on Form 10-K
Horace Mann Educators Corporation
ITEM 8. I Financial Statements and Supplementary Data
HORACE MANN EDUCATORS CORPORATION
INDEX TO FINANCIAL INFORMATION
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income (Loss)
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Note 1 - Basis of Presentation and Significant Accounting Policies
Note 2 - Subsequent Events
Note 3 - Investments
Note 4 - Fair Value of Financial Instruments
Note 5 - Derivatives
Note 6 - Deposit Asset on Reinsurance
Note 7 - Goodwill and Intangible Assets
Note 8 - Unpaid Claims and Claim Expenses
Note 9 - Reinsurance and Catastrophes
Note 10 - Debt
Note 11 - Income Taxes
Note 12 - Operating Leases
Note 13 - Shareholders' Equity and Share-Based Compensation
Note 14 - Statutory Information and Dividend Restrictions
Note 15 - Retirement Plans and Other Postretirement Benefits
Note 16 - Contingencies and Commitments
Note 17 - Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)
Note 18 - Supplemental Consolidated Cash and Cash Flow Information
Note 19 - Segment Information
Page
68
71
72
73
74
75
75
87
87
93
100
102
103
105
112
114
115
118
119
122
122
127
128
130
130
Horace Mann Educators Corporation
Annual Report on Form 10-K 67
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Horace Mann Educators Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Horace Mann Educators Corporation and
subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of
operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years
in the three-year period ended December 31, 2021, and the related notes and financial statement schedules I to
IV and VI (collectively, the consolidated financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021
and 2020, and the results of its operations and its cash flows for each of the years in the three-year period
ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 2022 expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are
free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the
consolidated financial statements that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
68 Annual Report on Form 10-K
Horace Mann Educators Corporation
Fair value for hard-to-value fixed maturity securities
As discussed in Note 4 to the consolidated financial statements, as of December 31, 2021, the Company has
recorded an estimated fair value for fixed maturity securities, of which a portion represents securities that are
hard-to-value, which are primarily securities that use Level 3 (unobservable) inputs. The Company estimates the
fair value of hard-to-value fixed maturity securities, which includes securities that do not have observable
market-based inputs or prices or that trade in markets that are less liquid. The Company uses judgment to
determine the appropriate inputs and assumptions used to estimate the fair value of these hard-to-value
securities. As of December 31, 2021, the estimated fair value of fixed maturity securities was $6,239.3 million.
We identified the assessment of the Company’s estimate of the fair value of hard-to-value fixed maturity
securities as a critical audit matter. Significant measurement uncertainty associated with the fair value of such
securities existed because the markets for the hard-to-value securities are less liquid and there is a lack of
observable marked-based inputs. As such, there was a high degree of subjectivity and judgment in evaluating
the fair value and, specifically, the benchmark yield used in the valuation. Additionally, evaluation of the
benchmark yield used in the estimation of fair value required specialized skills and knowledge.
The following are the primary procedures we performed to address this critical audit matter. We, with
involvement of valuation professionals with specialized skills and knowledge, evaluated the design and tested
the operating effectiveness of certain internal controls over the Company’s process to measure fair value of
hard-to-value securities. This included controls related to the Company’s selection of pricing assumptions,
including the benchmark yield used to value, for hard-to-value fixed maturity securities. We involved valuation
professionals with specialized skills and knowledge, who assisted in:
•
•
developing an independent range of fair value estimates using information from the Company, market
data sources, models, and key assumptions derived by the valuation professional for a selection of
securities
comparing the Company’s fair value estimates of hard-to-value securities to our independent range of fair
value estimates for the same selection of securities.
Valuation of the liability for property and casualty unpaid claims and claim expenses
As discussed in Notes 1 and 8 of the consolidated financial statements, the Company employs actuarial
techniques to estimate the liability for property and casualty unpaid claims and claims expenses (reserves). The
Company develops reserves based on the application of actuarial methods and best estimate assumptions to
historical claim experience. The reserves are continually updated by the Company as experience develops and
new information becomes known. The Company recorded an estimated liability of $252.1 million for property
and casualty unpaid claims and claim expenses as of December 31, 2021.
We identified the assessment of the estimate of reserves as a critical audit matter because it involved estimation
uncertainty. Complex auditor judgment and specialized skills and knowledge were required in evaluating the
selected methods and certain assumptions used to develop the estimate of reserves, including the selection of
development factors and changes in claim frequency and severity trends. Additionally, subjective auditor
judgment was required to assess the selected assumptions as there exists a range of potential inputs and the
assumptions are sensitive to variation, such that minor changes in the assumptions could affect the reserves
recorded by the Company.
Horace Mann Educators Corporation
Annual Report on Form 10-K 69
The following are the primary procedures we performed to address this critical audit matter. We, with
involvement of actuarial professionals with specialized skills and knowledge, evaluated the design and tested the
operating effectiveness of certain internal controls over the Company’s process for the development of the
estimate of reserves. This included controls related to the methods and assumptions used for the Company’s
best estimate. We also involved actuarial professionals with specialized skills and knowledge, who assisted in:
•
•
•
•
•
evaluating the Company’s reserving methods, procedures, key assumptions, and judgements by
comparing to generally accepted actuarial standards
developing an independent estimate for certain lines of business based on actuarial methodologies and
assumptions in order to evaluate the Company’s recorded reserves
examining the methods and certain assumptions used in and results of the Company’s internal actuarial
analyses for certain remaining lines of business
developing a range of reserves based on actuarial methodologies and assumptions in order to evaluate
the Company’s consolidated reserves
assessing movement of the Company’s consolidated reserves within the range of reserves
KPMG LLP
We have served as the Company’s auditor since 1989.
Chicago, Illinois
February 25, 2022
70 Annual Report on Form 10-K
Horace Mann Educators Corporation
HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in millions, except share data)
December 31,
2021
2020
$
$
$
Assets
Investments
Fixed maturity securities, available for sale, at fair value
(amortized cost, net 2021, $5,797.7; 2020, $5,788.6)
Equity securities at fair value
Limited partnership interests
Short-term and other investments
Total investments
Cash
Deferred policy acquisition costs
Deposit asset on reinsurance
Intangible assets
Goodwill
Other assets
Separate Account (variable annuity) assets
Total assets
Liabilities and Shareholders' Equity
Policy liabilities
Investment contract and policy reserves
Unpaid claims and claim expenses
Unearned premiums
Total policy liabilities
Other policyholder funds
Other liabilities
Short-term debt
Long-term debt
Separate Account (variable annuity) liabilities
Total liabilities
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, 2021, 66,436,821; 2020, 66,316,797
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss), net of tax:
Net unrealized investment gains on fixed maturity securities
Net funded status of benefit plans
Treasury stock, at cost, 2021, 25,043,337 shares;
2020, 24,902,579 shares
Total shareholders' equity
Total liabilities and shareholders' equity
$
6,239.3 $
147.2
712.8
350.2
7,449.5
133.7
248.0
2,481.5
145.4
43.5
441.3
3,441.0
14,383.9 $
6,577.8 $
425.9
255.1
7,258.8
945.9
428.2
249.0
253.6
3,441.0
12,576.5
—
0.1
495.3
1,524.9
290.7
(10.2)
(493.4)
1,807.4
14,383.9 $
6,345.3
121.6
449.0
346.3
7,262.2
22.3
229.8
2,420.9
158.5
43.5
443.2
2,891.4
13,471.8
6,445.3
438.8
264.5
7,148.6
751.3
453.1
135.0
302.3
2,891.4
11,681.7
—
0.1
488.4
1,434.6
366.3
(11.2)
(488.1)
1,790.1
13,471.8
See accompanying Notes to Consolidated Financial Statements.
Horace Mann Educators Corporation
Annual Report on Form 10-K 71
HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
($ in millions, except per share data)
Statements of Operations
Revenues
Premiums and contract charges earned
Net investment income
Net investment (losses) gains
Other income
Year Ended December 31,
2021
2020
2019
$
889.6 $
422.5
(11.0)
29.0
930.7 $
357.6
(2.3)
24.4
898.0
365.1
153.3
14.1
Total revenues
1,330.1
1,310.4
1,430.5
Benefits, losses and expenses
Benefits, claims and settlement expenses
Interest credited
Operating expenses
DAC unlocking and amortization expense
Intangible asset amortization expense
Interest expense
Other expense - goodwill and intangible asset impairments
617.7
164.4
251.5
94.7
13.0
13.9
—
568.9
204.6
237.8
99.9
14.4
15.2
10.0
585.1
212.8
234.6
109.2
8.8
15.6
28.0
Total benefits, losses and expenses
1,155.2
1,150.8
1,194.1
Income before income taxes
Income tax expense
Net income
Net income per share
Basic
Diluted
Weighted average number of shares and equivalent shares
Basic
Diluted
Statements of Comprehensive Income (Loss)
Net income
Other comprehensive income (loss), net of tax:
Change in net unrealized investment gains
(losses) on fixed maturity securities
Change in net funded status of benefit plans
Other comprehensive income (loss)
Comprehensive income
$
$
$
174.9
32.1
159.6
26.3
236.4
52.0
142.8 $
133.3 $
184.4
3.40 $
3.39 $
3.18 $
3.17 $
42.0
42.2
41.9
42.0
4.42
4.40
41.7
41.9
$
142.8 $
133.3 $
184.4
(75.6)
1.0
(74.6)
68.2 $
135.9
(0.4)
135.5
268.8 $
133.5
1.4
134.9
319.3
$
See accompanying Notes to Consolidated Financial Statements.
72 Annual Report on Form 10-K
Horace Mann Educators Corporation
HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
($ in millions, except per share data)
Common stock, $0.001 par value
Beginning balance
Options exercised
Conversion of common stock units
Conversion of restricted common stock units
Ending balance
Additional paid-in capital
Beginning balance
Options exercised and conversion of common
stock units and restricted stock units
Share-based compensation expense
Ending balance
Retained earnings
Beginning balance
Net income
Dividends, 2021, $1.24 per share; 2020, $1.20 per share;
2019, $1.15 per share
Cumulative effect of change in accounting principle
Ending balance
Accumulated other comprehensive income (loss), net of tax:
Beginning balance
Change in net unrealized investment gains (losses) on fixed maturity
securities
Change in net funded status of benefit plans
Ending balance
Treasury stock, at cost
Beginning balance
Acquisition of shares
Ending balance
Year Ended December 31,
2021
2020
2019
$
0.1 $
0.1 $
—
—
—
0.1
488.4
(0.8)
7.7
495.3
—
—
—
0.1
481.0
1.5
5.9
488.4
0.1
—
—
—
0.1
475.1
(0.5)
6.4
481.0
1,434.6
142.8
1,352.5
133.3
1,216.6
184.4
(52.5)
—
(50.7)
(0.5)
(48.5)
—
1,524.9
1,434.6
1,352.5
355.1
219.6
(75.6)
135.9
1.0
280.5
(0.4)
355.1
84.7
133.5
1.4
219.6
(488.1)
(485.9)
(485.9)
(5.3)
(2.2)
—
(493.4)
(488.1)
(485.9)
Shareholders' equity at end of year
$
1,807.4 $
1,790.1 $
1,567.3
See accompanying Notes to Consolidated Financial Statements.
Horace Mann Educators Corporation
Annual Report on Form 10-K 73
HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
Cash flows - operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Net investment (gains) losses
Depreciation and intangible asset amortization
Share-based compensation expense
Other expense - goodwill and intangible asset impairments
Income from equity method investments, net of dividends or distributions
Changes in:
Accrued investment income
Insurance liabilities
Reinsurance recoverables
Income tax liabilities
Other operating assets and liabilities
Other
Net cash provided by operating activities
Cash flows - investing activities
Fixed maturity securities
Purchases
Sales
Maturities, paydowns, calls and redemptions
Equity securities
Purchases
Sales and repayments
Limited partnership interests
Purchases
Sales
Change in short-term and other investments, net
Acquisition of businesses, net of cash acquired
Net cash (used in) provided by investing activities
Cash flows - financing activities
Dividends paid to shareholders
Principal borrowings on Bank Credit Facility
FHLB borrowings
Principal repayment on FHLB borrowings
Acquisition of treasury stock
Proceeds from exercise of stock options
Withholding tax payments on RSUs tendered
Year Ended December 31,
2021
2020
2019
$
142.8 $
133.3 $
184.4
11.0
18.4
8.4
—
(41.5)
0.8
46.9
(1.5)
8.5
8.1
3.0
204.9
2.3
23.4
6.7
10.0
(2.7)
(1.6)
69.9
1.6
8.3
0.6
8.0
259.8
(153.3)
15.6
7.3
28.0
(9.1)
46.9
(96.8)
22.0
28.8
47.4
6.4
127.6
(1,459.0)
(1,439.7)
(1,058.7)
578.2
873.3
(46.1)
4.7
(320.6)
86.5
(19.0)
—
(302.0)
(51.4)
114.0
5.0
(54.0)
(5.3)
0.3
(2.0)
472.9
640.3
(37.4)
12.7
(98.6)
30.9
12.1
—
(406.8)
(49.6)
—
4.0
—
(2.2)
2.4
(2.3)
805.9
799.5
(15.6)
33.5
(129.4)
91.5
(49.3)
(421.5)
55.9
(47.3)
135.0
—
—
—
1.7
(3.7)
Annuity contracts: variable, fixed and FHLB funding agreements
Deposits
1,060.4
578.9
637.5
Benefits, withdrawals and net transfers to Separate Account
(variable annuity) assets
Principal repayment on FHLB funding agreements
Life policy accounts
Deposits
Withdrawals and surrenders
Change in deposit asset on reinsurance
Change in book overdrafts
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash at beginning of year
Cash at end of year
See accompanying Notes to Consolidated Financial Statements.
(462.7)
(362.0)
8.9
(3.8)
(39.2)
0.3
208.5
111.4
22.3
(378.6)
—
9.0
(3.9)
(21.2)
7.3
143.8
(3.2)
25.5
$
133.7 $
22.3 $
(419.0)
(305.0)
9.4
(3.5)
(150.4)
(24.6)
(169.9)
13.6
11.9
25.5
74 Annual Report on Form 10-K
Horace Mann Educators Corporation
HORACE MANN EDUCATORS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021, 2020 and 2019
($ in millions, except per share data, unless otherwise stated)
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 auto and property
insurance), supplemental insurance products (primarily cancer, heart, hospital, supplemental disability and
accident coverages), retirement products (primarily tax-qualified fixed and variable annuities) and life insurance
products, primarily to K-12 teachers, administrators and other employees of public schools and their families
(collectively, HMEC, the Company or Horace Mann).
Basis of Presentation
The accompanying audited consolidated financial statements have been prepared in accordance 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).
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.
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 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 and valuation of certain investment contracts and policy reserves.
Investments
Fixed Maturity Securities
The Company invests predominantly in fixed maturity securities. Fixed maturity securities include bonds, asset-
backed securities (ABS), mortgage-backed securities (MBS), other structured securities and redeemable
preferred stocks. MBS includes residential and commercial mortgage-backed securities. Fixed maturity
securities, which may be sold prior to their contractual maturity, are designated as available for sale (AFS) and
are carried at fair value of which a portion represent securities that are hard-to-value. See Note 4 – Fair Value of
Financial Instruments – Investments for a detailed description of how the Company estimates fair value for its
fixed maturity securities portfolio including hard-to-value securities. An adjustment for net unrealized investment
gains (losses) on all fixed maturity securities available for sale and carried at fair value, is recognized as a
separate component of accumulated other comprehensive income (AOCI) within shareholders’ equity, net of
applicable deferred taxes and the related impact on deferred policy acquisition costs (DAC) associated with
annuity contracts and life insurance products with account values that would have occurred if the securities had
been sold at their aggregate fair value and the proceeds reinvested at current yields. The Company excludes
accrued interest receivable from the amortized cost basis of its AFS fixed maturity securities.
Horace Mann Educators Corporation
Annual Report on Form 10-K 75
NOTE 1 - Basis of Presentation and Significant Accounting Policies (continued)
Equity Securities
Equity securities primarily include common stocks, exchange traded and mutual funds and non-redeemable
preferred stocks. Certain exchange traded and mutual funds have fixed maturity securities as their underlying
investments. Equity securities are carried at fair value and have readily determinable fair values.
Limited Partnership Interests
Investments in limited partnership interests are accounted for using the equity method of accounting (EMA) and
include interests in commercial mortgage funds, private equity funds, infrastructure debt funds, infrastructure
equity funds and other funds.
Short-Term and Other Investments
Short-term investments, including money market funds, commercial paper, U.S. Treasury bills and other short-
term investments, are carried at fair value. Other investments primarily consist of policy loans, Federal Home
Loan Bank of Chicago (FHLB) common stock, mortgage loans and derivatives. Policy loans are carried at unpaid
principal balances. FHLB common stock is carried at cost. Mortgage loans are carried at amortized cost, net,
which represent the amount expected to be collected. Derivatives are carried at fair value.
Variable Interest Entities (VIEs)
The Company invests in fixed maturity securities and alternative investment funds that could qualify as variable
interests in VIEs, including corporate securities, mortgage-backed securities and asset-backed securities. Such
variable interests in VIEs have been reviewed and the Company determined that those VIEs are not subject to
consolidation as the Company is not the primary beneficiary because it does not have the power to direct the
activities that most significantly impact those VIEs' economic performance.
Net Investment Income
Net investment income primarily consists of interest, dividends and income from limited partnership interests.
Interest is recognized on an accrual basis using the effective yield method and dividends are recorded at the ex-
dividend date. ABS and MBS interest income is determined considering estimated pay-downs, including
prepayments, obtained from third-party data sources and internal estimates. Actual prepayment experience is
periodically reviewed, and effective yields are recalculated when differences arise between the prepayments
originally anticipated and the actual prepayments received and currently anticipated. For ABS and MBS of high
credit quality with fixed interest rates, the effective yield is recalculated on a retrospective basis. For all others,
the effective yield is generally recalculated on a prospective basis. Net investment income for AFS fixed maturity
securities includes the impact of accreting the credit loss allowance for the time value of money. Accrual of
income is suspended for fixed maturity securities when the timing and amount of cash flows expected to be
received is not reasonably estimable. Accrual of income is suspended for commercial mortgage loans that are in
default or when full and timely collection of principal and interest payments is not probable. Accrued investment
income receivable is monitored for recoverability and when not expected to be collected is written off through
net investment income. Cash receipts on investments on non-accrual status are generally recorded as a
reduction of amortized cost or principal. Income from limited partnership interests is recognized based upon the
changes in fair value of the investee’s equity primarily determined using its net asset value and is generally
recognized on a three month delay due to the availability of the related financial statements from investees.
The Company reports accrued investment income separately from AFS fixed maturity securities and has elected
not to measure an allowance for credit losses for accrued investment income. Accrued investment income is
written-off and recognized as a net investment loss at the time the issuer of the security defaults or is expected
to default on payments.
Net Investment Gains (Losses)
Net investment gains (losses) include gains and losses on investment sales, changes in the credit loss
allowances related to fixed maturity securities and mortgage loans, impairments, valuation changes of equity
securities and periodic changes in fair value and settlements of derivatives. Net investment gains (losses) on
investment sales are determined on a specific identification basis and are net of credit losses already recognized
through an allowance.
76 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 1 - Basis of Presentation and Significant Accounting Policies (continued)
Credit Loss Impairments for Fixed Maturity Securities
For AFS fixed maturity securities, the difference between amortized cost, net of a credit loss allowance (i.e.,
amortized cost, net) and fair value, net of certain other items and deferred income taxes is reported as a
component of AOCI on the Consolidated Balance Sheets and is not reflected in the operating results of any
period until reclassified to net income upon the consummation of a transaction with an unrelated third party or
when a credit loss allowance is recorded. The Company has a comprehensive portfolio monitoring process to
evaluate fixed maturity securities (at the cusip/issuer level) on a quarterly basis that may require a credit loss
allowance. These reviews, in conjunction with our investment managers’ monthly credit reports and relevant
factors such as (1) the financial condition and near-term prospects of the issuer; (2) the Company’s intent to sell
a security or whether it is more likely than not that the Company will be required to sell a security before the
anticipated recovery in value; (3) the market leadership of the issuer; (4) the debt ratings of the issuer; and (5) the
cash flows and liquidity of the issuer or the underlying cash flows for asset-backed securities , are all considered
in the impairment assessment.
For each fixed maturity security in an unrealized loss position, the Company assesses whether management with
the appropriate authority has made the decision to sell or whether it is more likely than not that the Company will
be required to sell the security before the anticipated recovery of the amortized cost basis for reasons such as
liquidity, contractual or regulatory purposes. If a security meets either of these criteria, any existing credit loss
allowance would be written-off against the amortized cost basis of the asset along with any remaining unrealized
losses, with the incremental losses recorded as a net investment loss.
If the Company has not made the decision to sell the fixed maturity security and it is not more likely than not that
the Company will be required to sell the fixed maturity security before the anticipated recovery of its amortized
cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire
amortized cost basis of the security. The Company estimates the anticipated recovery value based on the best
estimate of future cash flows considering past events, current conditions and reasonable and supportable
forecasts. The estimated future cash flows are discounted at the security’s current effective rate and are
compared to the amortized cost basis of the security. The determination of cash flow estimates is inherently
subjective, and methodologies may vary depending on facts and circumstances specific to the security. All
reasonably available information relevant to the collectability of the security are considered when developing the
estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the
remaining payment terms of the security, prepayment speeds, the financial condition and future earnings
potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral,
origination vintage year, geographic concentration of underlying collateral, available reserves or escrows, current
subordination levels, third-party guarantees and other credit enhancements. Other information, such as industry
analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed
maturity securities, and other market data relevant to the realizability of contractual cash flows, may also be
considered. The estimated fair value of collateral will be used to estimate the anticipated recovery value if the
Company determines that the security is dependent on the liquidation of collateral for ultimate settlement.
If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the
fixed maturity security, a credit loss allowance is recorded as a net investment loss for the shortfall in expected
cash flows; however, the amortized cost basis, net of the credit loss allowance, may not be lower than the fair
value of the security. The portion of the unrealized loss related to factors other than credit remains classified in
AOCI. If the Company determines that the fixed maturity security does not have sufficient cash flows or other
information to estimate a recovery value for the security, the Company may conclude that the entire decline in
fair value is deemed to be credit related and the loss is recorded as a net investment loss.
When a security is sold or otherwise disposed or the security is deemed uncollectible and written off, the
Company removes amounts previously recognized in the credit loss allowance. Recoveries after write-offs are
recognized when received.
Prior to the adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments on January 1,
2020, when other-than-temporary impairment was deemed to have occurred, the investment in the fixed
maturity security would be written-down to fair value which became the new cost basis for the security.
Horace Mann Educators Corporation
Annual Report on Form 10-K 77
NOTE 1 - Basis of Presentation and Significant Accounting Policies (continued)
Deferred Policy Acquisition Costs
The Company's deferred policy acquisition costs (DAC) by reporting segment were as follows:
($ in millions)
Property & Casualty
Supplemental
Retirement
Life
Total
December 31,
2021
2020
24.4 $
4.2
153.8
65.6
248.0 $
26.1
4.3
137.7
61.7
229.8
$
$
DAC consists of commissions, policy issuance and other costs which are incremental and directly related to the
successful acquisition of new or renewal business, which are deferred and amortized on a basis consistent with
the type of insurance coverage. For property and casualty risks, DAC is amortized over the terms of the
insurance policies (6 or 12 months). For supplemental policies, DAC is amortized in proportion to anticipated
premiums over the terms of the insurance policies (approximately 7 years, based on an estimated average
duration across all supplemental products). For all annuity contracts, DAC is amortized over 20 years in
proportion to estimated gross profits. DAC is amortized in proportion to estimated gross profits over 20 years for
certain life insurance products with account values and over 30 years for indexed universal life (IUL) products.
For other individual life contracts, DAC is amortized in proportion to anticipated premiums over the terms of the
insurance policies (10, 15, 20, 30 years).
The Company periodically reviews the assumptions and estimates used in DAC and also periodically reviews its
estimations of gross profits, a process sometimes referred to as "unlocking". The most significant assumptions
that are involved in the estimation of annuity gross profits include interest rate spreads, future financial market
performance, business surrender/lapse rates, expenses and the impact of net investment gains (losses) on fixed
maturity and equity securities. For the variable deposit portion of Retirement, the Company amortizes DAC
utilizing a future financial market performance assumption of an 8% reversion to the mean approach with a 200
basis point corridor around the mean during the reversion period, representing a cap and a floor on the
Company's long-term assumption. The Company's practice with regard to future financial market performance
assumes that long-term appreciation in the financial markets is not changed by short-term market fluctuations,
but is only changed when sustained deviations are experienced. The Company monitors these fluctuations and
only changes the assumption when long-term expectations change.
The most significant assumptions that are involved in the estimation of life insurance gross profits include
interest rates expected to be received on investments, business persistency, and mortality. Conversions from
term to permanent insurance cause an immediate write down of the associated DAC.
The most significant assumptions that are involved in the estimation of supplemental gross profits include
morbidity, persistency, expenses and interest rates expected to be received on investments. When a
supplemental policy lapses, there is an immediate write down of the associated DAC.
Annually, the Company performs a gross premium valuation (GPV) on life insurance policies to assess whether a
loss recognition event has occurred. This involves discounting expected future benefits and expenses less
expected future premiums. To the extent that this amount is greater than the liability for future benefits less the
DAC asset, in aggregate for the life insurance block, a loss would be recognized by first writing off the DAC
asset and then increasing the liability.
In the event actual experience differs significantly from assumptions or assumptions are significantly revised, the
Company may be required to recognize a material charge or credit to current period DAC amortization expense
for the period in which the adjustment is made. The Company recognized the following adjustments to DAC
amortization expense as a result of evaluating actual experience and prospective assumptions (i.e., the impact of
unlocking):
78 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 1 - Basis of Presentation and Significant Accounting Policies (continued)
($ in millions)
(Decrease) increase to DAC amortization expense:
Retirement
Life
Total
Year Ended December 31,
2021
2020
2019
$
$
(1.3) $
(0.2)
(1.5) $
(1.8) $
(0.3)
(2.1) $
3.5
(0.3)
3.2
DAC for annuity contracts and life insurance products with account values are adjusted for the impact on
estimated future gross profits as if net unrealized investment gains (losses) on fixed maturity securities had been
realized at the reporting date. This adjustment reduced DAC by $71.9 million, $90.5 million and $41.2 million at
December 31, 2021, 2020 and 2019, respectively. The after tax impact of this adjustment is included in AOCI
(along with net unrealized investment gains (losses) on fixed maturity securities) within shareholders' equity.
DAC is reviewed for recoverability from future income, including net investment income, and costs that are
deemed unrecoverable are expensed in the period in which the determination is made. No such costs were
deemed unrecoverable during the years ended December 31, 2021, 2020 and 2019.
Intangible Assets
The value of business acquired (VOBA) represents the difference between the fair value of insurance contracts
and insurance policy reserves measured in accordance with the Company's accounting policy for insurance
contracts acquired. VOBA was based on an actuarial estimate of the present value of future distributable
earnings for insurance in force on the acquisition date. VOBA was $76.9 million as of December 31, 2021 and is
being amortized by product based on the present value of future premiums to be received. The Company
estimates that it will recognize VOBA amortization of $6.2 million in 2022, $5.8 million in 2023, $5.4 million in
2024, $5.1 million in 2025 and $4.7 million in 2026.
The Company accounts for the value of distribution acquired (VODA) associated with the acquisition of NTA Life
Enterprises, LLC (NTA) based on an actuarial estimate of the present value of future business to be written by
the existing distribution channel. VODA was $41.8 million as of December 31, 2021 and is being amortized on a
straight-line basis. The Company estimates that it will recognize VODA amortization of $2.9 million in each of the
years 2022 through 2026, respectively.
The Company accounts for VODA associated with the acquisition of Benefit Consultants Group, Inc. (BCG)
based on management's estimate of the present value of future business to be written by the existing
distribution channel. VODA was $0.6 million as of December 31, 2021 and is being amortized based on the
present value of future profits to be received. The Company estimates that it will recognize cumulative VODA
amortization of $0.3 million for the years 2022 through 2026.
The Company accounts for the value of agency relationships based on the present value of commission
overrides retained by NTA. Agency relationships was $10.7 million as of December 31, 2021 and is being
amortized based on the present value of future premiums to be received. The Company estimates that it will
recognize agency relationships amortization of $1.9 million in 2022, $1.6 million in 2023, $1.4 million in 2024,
$1.2 million in 2025 and $1.0 million in 2026.
The Company accounts for the value of customer relationships based on the present value of expected profits
from existing BCG customers in force at the date of acquisition. Customer relationships was $4.6 million as of
December 31, 2021 and is being amortized based on the present value of future profits to be received. The
Company estimates that it will recognize customer relationships amortization of $1.1 million in 2022, $0.9 million
in 2023, $0.7 million in 2024, $0.6 million in 2025 and $0.5 million in 2026.
Trade names represents the present value of future savings accruing to NTA and BCG by virtue of not having to
pay royalties for the use of the trade names, valued using the relief from royalty method. State licenses
represents the regulatory licenses held by NTA that were valued using the cost approach. Both trade names and
state licenses are indefinite-lived intangible assets that are not subject to amortization.
Annually, the Company performs a VOBA analysis on supplemental insurance policies to assess whether a loss
recognition event has occurred. This initially involves comparing the historical and expected future experience on
the block to the assumptions embedded in the original VOBA intangible asset. If both the experience to date and
Horace Mann Educators Corporation
Annual Report on Form 10-K 79
NOTE 1 - Basis of Presentation and Significant Accounting Policies (continued)
current expected experience are consistently better than the initial VOBA assumptions, the remaining value in
the block is sufficient to support the VOBA intangible asset and no loss recognition is necessary. If the historical
and current expected assumptions are not uniformly better than the initial VOBA assumptions, a GPV is
performed to assess whether a loss recognition event has occurred. This involves discounting expected future
benefits and expenses less expected future premiums. To the extent that this amount is greater than the liability
for future benefits less the VOBA intangible asset, in aggregate for the supplemental insurance block, a loss
would be recognized by first writing off the VOBA and then increasing the liability. Currently, a GPV is not
required for the acquired supplemental block. No such costs were deemed unrecoverable during the year ended
December 31, 2021.
Amortizing intangible assets (i.e., VODA, agency relationships and customer relationships) are tested for
recoverability whenever events or changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of an amortizing intangible asset is not recoverable if it exceeds the sum of
undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying
amount is not recoverable from undiscounted cash flows, the impairment is measured as the difference between
the carrying amount and fair value.
Intangible assets that are not subject to amortization (i.e., trade names and state licenses) are tested for
impairment annually or more frequently if events or changes in circumstances indicate that the asset might be
impaired. The impairment test consists of a comparison of the fair value of an intangible asset with its carrying
amount. If the carrying amount of an intangible asset that is not subject to amortization exceeds its fair value, an
impairment loss is recognized in an amount equal to the excess.
At October 1, 2021, the Company performed both qualitative assessments and quantitative impairment tests for
intangible assets and concluded that no impairments were warranted.
At October 1, 2020, the Company performed qualitative assessments to determine whether it was necessary to
perform quantitative intangible asset impairment tests. Based on the assessments of qualitative factors, there
were no events or circumstances that led to a determination that it is more likely than not that the fair value of an
intangible asset was less than its carrying amount with exception to VODA and trade names intangible assets
assigned to BCG, for which quantitative intangible asset impairment tests were performed that resulted in
intangible asset impairment charges of $4.4 million in aggregate.
Goodwill
When the Company was acquired from CIGNA Corporation by HME Holdings, Inc. in 1989, intangible assets
were recognized as goodwill in the application of purchase accounting. In addition, goodwill was recognized in
1994 related to the acquisition of Horace Mann Property & Casualty Insurance Company and in 2019 related to
the acquisitions of BCG and NTA.
Goodwill represents the excess of the amounts paid to acquire a business over the fair value of its net assets at
the date of acquisition. Goodwill is not amortized, but is tested for impairment at the reporting unit level at least
annually or more frequently if events occur or circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. A reporting unit is defined as an operating segment or a
business unit one level below an operating segment, if separate financial information is prepared and regularly
reviewed by management at that level. The Company's reporting units, for which goodwill has been allocated,
are equivalent to the Company's operating segments. Refer to Note 7 for the allocation of goodwill by reporting
unit as of December 31, 2021.
The goodwill impairment test, as defined in GAAP, allows an entity the option to first assess qualitative factors to
determine whether the existence of events or circumstances leads to a determination that it is more likely than
not that the fair value of a reporting unit is less than its carrying amount. If an entity determines it is more likely
than not that the fair value of a reporting unit is less than its carrying amount, then the entity performs a
quantitative goodwill impairment test by comparing the fair value of a reporting unit to its carrying amount for
purposes of confirming and measuring an impairment. In 2019, the Company adopted guidance to eliminate
Step 2 of the goodwill impairment test. Goodwill impairment is now the amount by which a reporting unit’s
carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. Any amount of goodwill
determined to be impaired is recognized as an expense in the period in which the impairment determination is
made.
80 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 1 - Basis of Presentation and Significant Accounting Policies (continued)
At October 1, 2021, the Company performed a quantitative goodwill impairment test. Based on the results of the
test, there were no events or circumstances that led to a determination that it is more likely than not that the fair
value of a reporting unit is less than its carrying amount.
At October 1, 2020, the Company performed a quantitative goodwill impairment test. Based on the results of the
test, there were no events or circumstances that led to a determination that it is more likely than not that the fair
value of a reporting unit is less than its carrying amount with exception to lower than anticipated BCG wealth
management sales outside of the education markets which triggered an impairment of the goodwill associated
with the BCG business of the Retirement reporting unit. For the evaluation, the fair value of BCG was measured
using a discounted cash flow method. The carrying amount exceeded the fair value, resulting in a $5.6 million
goodwill impairment charge.
During each year from 2019 through 2021, the Company completed the required annual goodwill impairment
testing. With exception to the goodwill impairment charges described in Note 7, no other goodwill impairment
charges were necessary as a result of such assessments. The assessment of goodwill recoverability requires
significant judgment and is subject to inherent uncertainty. The use of different assumptions, within a reasonable
range, could cause the fair value of a reporting unit to fall below its carrying amount. Subsequent goodwill
assessments could result in impairment, particularly for any reporting unit with at-risk goodwill, due to the
impact of a volatile financial market on earnings, discount rate assumptions, liquidity and market capitalization.
Property and Equipment
Property and equipment is carried at cost less accumulated depreciation, which is calculated using the straight-
line method and based on the estimated useful lives of the assets. The estimated life for real estate is identified
by specific property and range from 20 to 45 years. The estimated useful lives of leasehold improvements and
other property and equipment, including capitalized software, generally range from 3 to 10 years. The following
amounts are included in Other assets in the Consolidated Balance Sheets:
($ in millions)
Property and equipment
Less: accumulated depreciation
Total
December 31,
2021
2020
$
$
136.4 $
70.4
66.0 $
131.3
66.6
64.7
Separate Account (Variable Annuity) Assets and Liabilities
Separate Account assets represent variable annuity contractholder funds invested in various mutual funds. The
Separate Account assets comprise actively traded mutual funds that have daily quoted net asset values that are
readily determinable for identical assets that the Company can access. Net asset values for the actively traded
mutual funds in which the Separate Account assets are invested are obtained daily from the fund managers.
Separate Account liabilities are equal to the estimated fair value of Separate Account assets. The investment
income, gains and losses of these accounts accrue directly to the contractholders and are not included in the
results of operations of the Company. The activity of the Separate Accounts is not reflected in the Consolidated
Statements of Operations except for (1) contract charges earned, (2) the activity related to contract guarantees,
which are benefits on existing variable annuity contracts, and (3) the impact of financial market performance on
the amortization of DAC. The Company's contract charges earned include fees charged to the Separate
Accounts, including mortality charges, risk charges, policy administration fees, investment management fees
and surrender charges.
Investment Contract and Policy Reserves
This table summarizes the Company's investment contract and policy reserves.
($ in millions)
Investment contract reserves
Policy reserves
Total
December 31,
2021
2020
$
$
4,941.3 $
1,636.5
6,577.8 $
4,847.6
1,597.7
6,445.3
Horace Mann Educators Corporation
Annual Report on Form 10-K 81
NOTE 1 - Basis of Presentation and Significant Accounting Policies (continued)
Liabilities for future benefits on supplemental, life and annuity policies are established in amounts adequate to
meet the estimated future obligations on policies in force.
Liabilities for future policy benefits on certain supplemental and life insurance policies are computed using the
net level premium method including assumptions as to investment yields, mortality, morbidity, persistency,
expenses and other assumptions based on the Company's experience, including a provision for adverse
deviation. These assumptions are established at the time the policy is issued and are intended to estimate the
experience for the period the policy benefits are payable. If experience is less favorable than the assumptions,
additional liabilities may be established, resulting in recognition of a loss for that period.
Liabilities for future benefits on annuity contracts and certain long-duration life insurance contracts are carried at
accumulated policyholder values without reduction for potential surrender or withdrawal charges. The liability
also includes provisions for the unearned portion of certain policy charges.
A guaranteed minimum death benefit (GMDB) generally provides an additional benefit if the contractholder dies
and the variable annuity contract value is less than a contractually defined amount. The Company has estimated
and recorded a GMDB reserve on variable annuity contracts in accordance with GAAP. Contractually defined
amounts vary from contract to contract based on the date the contract was entered into as well as the GMDB
feature elected by the contractholder. The Company regularly monitors the GMDB reserve considering
fluctuations in financial markets. The Company has relatively low exposure to GMDB risk as shown below.
($ in millions)
December 31,
2021
2020
GMDB reserve
Aggregate in-the-money death benefits under the GMDB provision
Variable annuity contract value distribution based on GMDB feature:
$
No guarantee
Return of premium guarantee
Guarantee of premium roll-up at an annual rate of 3% or 5%
Total
$
0.1
22.3
24 %
71 %
5 %
100 %
0.1
26.7
26 %
69 %
5 %
100 %
Reserves for Fixed Indexed Annuities and Indexed Universal Life Products
The Company offers fixed indexed annuity (FIA) products with interest crediting strategies linked to the Standard
& Poor's (S&P) 500 Index and the Dow Jones Industrial Average (DJIA). The Company purchases call options on
the applicable indices as an investment to provide the income needed to fund the annual index credits on the
indexed products. These products are deferred fixed annuities with a guaranteed minimum interest rate plus a
contingent return based on equity market performance and are considered hybrid financial instruments under
GAAP.
The Company elected to not use hedge accounting for derivative transactions related to FIA products. As a
result, the Company accounts for the purchased call options and the embedded derivative related to the
provision of a contingent return at fair value, with changes in fair value recognized as Net investment gains
(losses) in the Consolidated Statements of Operations. The embedded derivative is bifurcated from the host
contract and included in Other policyholder funds in the Consolidated Balance Sheets. The host contract is
accounted for as a debt instrument in accordance with GAAP and is included in Investment contract and life
policy reserves in the Consolidated Balance Sheets with any discount to the minimum account value being
accreted using the effective yield method. In the Consolidated Statements of Operations, accreted interest for
FIA products and benefit claims on these products incurred during the reporting period are included in Benefits,
claims and settlement expenses.
The Company offers indexed universal life (IUL) products as part of its product portfolio with interest crediting
strategies linked to the S&P 500 Index and the DJIA as well as a fixed option. The Company purchases call
options monthly to economically hedge the potential liabilities arising in IUL accounts. The Company elected to
not use hedge accounting for derivative transactions related to the IUL products. As a result, the Company
records the purchased call options and the embedded derivative related to the provision of a contingent return
at fair value, with changes in fair value reported in Net investment gains (losses) in the Consolidated Statements
of Operations. IUL policies with a balance in one or more indexed accounts are considered to have an
82 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 1 - Basis of Presentation and Significant Accounting Policies (continued)
embedded derivative. The benefit reserve for the host contract is measured using the retrospective deposit
method, which for Horace Mann's IUL product is equal to the account balance. The embedded derivative is
bifurcated from the host contract, carried at fair value, and included in Investment contract and life policy
reserves in the Consolidated Balance Sheets.
See Note 4 for more information regarding the determination of fair value for derivatives embedded in FIA and
IUL and purchased call options.
Unpaid Claims and Claim Expenses
Liabilities for Property & Casualty unpaid claims and claim expenses include provisions for payments to be made
on reported claims, claims incurred but not yet reported (IBNR) and associated settlement expenses. All of the
Company's reserves for Property & Casualty unpaid claims and claim expenses are carried at the full value of
estimated liabilities and are not discounted for interest expected to be earned on the reserves. Estimated
amounts of salvage and subrogation on unpaid Property & Casualty claims are deducted from the liability for
unpaid claims. Due to the nature of the Company's personal lines business, the Company has no exposure to
losses related to claims for toxic waste cleanup, other environmental remediation or asbestos-related illnesses
other than claims under property insurance policies for environmentally related items such as mold.
Other Policyholder Funds
Other policyholder funds includes payout annuity contracts without life contingencies and dividend
accumulations, as well as balances outstanding under funding agreements with the Federal Home Loan Bank of
Chicago (FHLB) and embedded derivatives related to FIA products. Except for embedded derivatives, each of
these components is carried at cost. Embedded derivatives are carried at fair value. Amounts received and
repaid under FHLB funding agreements are classified as financing activities in the Company's Consolidated
Statements of Cash Flows.
FHLB Funding Agreements
In 2013, Horace Mann Life Insurance Company (HMLIC), and in 2019, NTA became members of FHLB, which
provides both subsidiaries with access to collateralized borrowings and other FHLB products. Any borrowing
from FHLB requires the purchase of FHLB activity-based common stock in an amount equal to 4.5% of the
borrowing, or a lower percentage — such as 2.0% based on the Reduced Capitalization Advance Program. In
2021, HMEC's Board of Directors (Board) authorized a maximum amount equal to 15% of net aggregate
admitted assets less separate account assets of the insurance subsidiaries for FHLB advances and funding
agreements combined. In 2021, HMLIC and NTA collectively received advances of $554.0 million from FHLB
under funding agreements and repaid $362.0 million on FHLB funding agreements. Outstanding advances under
FHLB funding agreements are reported as Other policyholder funds in the Consolidated Balance Sheets and
totaled $782.5 million as of December 31, 2021. Interest on the funding agreements accrues at their effective
interest rates.
As of December 31, 2021, scheduled maturity dates for outstanding FHLB funding agreements were as follows:
Horace Mann Educators Corporation
Annual Report on Form 10-K 83
NOTE 1 - Basis of Presentation and Significant Accounting Policies (continued)
($ in millions)
Amount
$10.0
60.0
25.0
20.0
100.0
50.0
25.0
10.0
50.0
10.0
10.0
50.0
12.5
125.0
200.0
25.0
$782.5
Interest Rate
0.000%
0.489%
0.427%
0.446%
0.249%
0.449%
0.374%
0.393%
0.393%
0.530%
0.448%
0.448%
0.670%
0.570%
0.225%
0.298%
Maturity Date
May 16, 2022
January 13, 2023
February 10, 2023
November 15, 2023
December 15, 2023
January 12, 2024
April 3, 2024
May 22, 2024
May 22, 2024
February 14, 2025
February 28, 2025
February 28, 2025
June 26, 2025
September 11, 2025
January 16, 2026
September 9, 2026
Total
Reinsurance
The Company enters into reinsurance arrangements pursuant to which it cedes certain insurance risks to
unaffiliated reinsurers. Cessions under reinsurance agreements do not discharge the Company's obligations as
the primary insurer. The accounting for reinsurance arrangements depends on whether the arrangement
provides indemnification against loss or liability relating to insurance risk in accordance with GAAP.
If the Company determines that a reinsurance agreement exposes the reinsurer to a reasonable possibility of a
significant loss from insurance risk, the ceded unearned premiums and reinsurance balances recoverable on
paid and unpaid losses and settlement expenses are reported separately as assets, instead of being netted with
the related liabilities, since reinsurance does not relieve the Company of its legal liability to its policyholders. See
Note 9 for further details.
If the Company determines that a reinsurance agreement does not expose the reinsurer to a reasonable
possibility of a significant loss from insurance risk, the Company recognizes the reinsurance agreement using
the deposit method of accounting. The assets transferred to the reinsurer as consideration paid is reported as a
Deposit asset on reinsurance on the Company's Consolidated Balance Sheets. As amounts are received or paid
or received, consistent with the underlying reinsured contracts, the Deposit asset on reinsurance is adjusted.
The Deposit asset on reinsurance is accreted to the estimated ultimate cash flows using the interest method and
the adjustment is reported as Net investment income. See Note 6 for further details.
Insurance Premiums and Contract Charges Earned
Property & Casualty insurance premiums are recognized as revenue ratably over the related contract periods in
proportion to the risks insured. The unexpired portions of these Property & Casualty premiums are recorded as
unearned premiums, using the monthly pro rata method.
Premiums and contract charges for life insurance contracts with account values and annuity contracts consist of
charges for the cost of insurance, policy administration and withdrawals. Premiums for long-term traditional life
and supplemental policies are recognized as revenues when due over the premium-paying period. Contract
deposits to annuity contracts and life insurance contracts with account values represent funds deposited by
policyholders and are not included in the Company's premiums or contract charges earned.
84 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 1 - Basis of Presentation and Significant Accounting Policies (continued)
Share-Based Compensation
The Company grants stock options and both service-based and performance-based restricted common stock
units (RSUs) to executive officers, other employees and Directors in an effort to attract and retain individuals
while also aligning compensation with the interests of the Company's shareholders. Additional information
regarding the Company's share-based compensation plans is contained in Note 13.
Stock options are accounted for under the fair value method of accounting using a Black-Scholes valuation
model to measure stock option expense at the date of grant. The fair value of RSUs is measured at the market
price of the Company's common stock on the date of grant, with the exception of market-based performance
awards, for which the Company uses a Monte Carlo simulation model to determine fair value for purposes of
measuring RSU expense. For the years ended December 31, 2021, 2020 and 2019, the Company recognized
$1.2 million, $1.1 million, and $1.2 million, respectively, of stock option expense as a result of stock options that
vested during the respective periods. For the years ended December 31, 2021, 2020 and 2019, the Company
recognized $6.6 million, $4.8 million and $5.2 million, respectively, of RSU expense as a result of the
performance and/or vesting of RSUs during the respective periods.
In 2021, 2020 and 2019, the Company granted stock options as quantified in the table below, which also
provides the weighted average grant date fair value for stock options granted in each year. The fair value of
stock options granted was estimated on the respective dates of grant using the Black-Scholes option pricing
model with the weighted average assumptions shown in the following table.
Number of stock options granted
Weighted average grant date fair value of stock options granted
Weighted average assumptions:
Risk-free interest rate
Expected dividend yield
Expected life, in years
Expected volatility (based on historical volatility)
Year Ended December 31,
2021
183,272
7.73
$
2020
234,248
6.02
$
2019
282,040
6.26
$
0.8 %
3.0 %
5.1
30.1 %
0.8 %
2.7 %
5.1
22.8 %
2.5 %
2.9 %
5.0
21.9 %
The weighted average fair value of nonvested stock options outstanding on December 31, 2021 was $6.80. Total
unrecognized compensation expense relating to the nonvested stock options outstanding as of December 31,
2021 was approximately $2.0 million. This amount will be recognized as expense over the remainder of the
vesting period, which is scheduled to be 2022 through 2025. Expense is recognized on a straight-line basis over
the vesting period for the entire award. Forfeitures of unvested amounts due to terminations and/or early
retirements are recognized as a reduction to the related expenses.
Total unrecognized compensation expense relating to RSUs outstanding as of December 31, 2021 was
approximately $6.6 million. This amount will be recognized as expense over the remainder of the performance
and/or vesting period, which is scheduled to be 2022 through 2024. Expense is recognized on a straight-line
basis from the date of grant through the end of the performance and/or vesting period for the entire award.
Forfeitures of unvested amounts due to terminations are recognized as a reduction to the related expenses.
Income Taxes
The Company uses the asset and liability method for calculating deferred federal income taxes. Income tax
provisions are generally based on income reported for financial statement purposes. The provisions for federal
income taxes for the years ended December 31, 2021, 2020 and 2019 included amounts currently payable and
deferred income taxes resulting from the cumulative differences in the Company's assets and liabilities,
determined on a tax return versus financial statement basis.
Deferred tax assets and liabilities include provisions for net unrealized investment gains (losses) on fixed maturity
securities as well as the net funded status of benefit plans with the changes for each period included in the
respective components of AOCI within shareholders' equity.
Horace Mann Educators Corporation
Annual Report on Form 10-K 85
NOTE 1 - Basis of Presentation and Significant Accounting Policies (continued)
Earnings Per Share
Basic earnings per share is computed based on the weighted average number of common shares outstanding
plus the weighted average number of fully vested RSUs and common stock units (CSUs) payable as shares of
HMEC common stock. Diluted earnings per share is computed based on the weighted average number of
common shares and common stock equivalents outstanding, to the extent dilutive. The Company's common
stock equivalents relate to outstanding common stock options, deferred compensation CSUs and incentive
compensation RSUs, which are described in Note 13.
The computations of net income per share on both basic and diluted bases, including reconciliations of the
numerators and denominators, were as follows:
($ in millions)
Basic:
Net income for the period
Weighted average number of common shares
during the period (in millions)
Net income per share - basic
Diluted:
Net income for the period
Weighted average number of common shares
during the period (in millions)
Weighted average number of common equivalent shares to reflect the
dilutive effect of common stock equivalent securities (in millions):
Stock options
CSUs related to deferred compensation for employees
RSUs related to incentive compensation
Total common and common equivalent shares adjusted
to calculate diluted earnings per share (in millions)
Net income per share - diluted
Year Ended December 31,
2021
2020
2019
142.8 $
133.3 $
184.4
42.0
3.40 $
41.9
3.18 $
41.7
4.42
142.8 $
133.3 $
184.4
42.0
41.9
41.7
$
$
$
—
—
0.2
—
—
0.1
$
42.2
3.39 $
42.0
3.17 $
0.1
—
0.1
41.9
4.40
Options to purchase 734,018 shares of common stock at $38.05 to $42.95 per share were granted in 2017,
2018, 2019, 2020 and 2021 but were not included in the computation of 2021 diluted earnings per share
because of their anti-dilutive effect. These options, which expire in 2027, 2028, 2029, 2030 and 2031, were still
outstanding at December 31, 2021.
Consolidated Statements of Cash Flows
For purposes of the Consolidated Statements of Cash Flows, cash constitutes cash on deposit at banks as well
as restricted cash. See Note 18 for further information.
Future Adoption of New Accounting Standards
Accounting for Long-Duration Insurance Contracts
In August 2018, the FASB issued accounting and disclosure guidance that contains targeted improvements to
the accounting for long-duration insurance contracts. Under the new guidance, the cash flow assumptions used
to measure the liability for future policy benefits for traditional insurance contracts will be required to be updated
at least annually with changes recognized as a benefit expense (i.e., assumptions will no longer be locked-in).
Insurance entities will be required to use a standard discount rate to measure the liabilities that will be equivalent
to the yield from a high-quality bond. The new guidance also changes the amortization of DAC to be on a
constant-level basis over the expected term of the related contracts with no interest accruing on the DAC
balance. The new guidance also introduces a new category of contract features associated with deposit type
contracts referred to as market risk benefits (MRBs). Contract features meeting the definition of a MRB will be
measured at fair value. New disclosures will be required for long-duration insurance contracts in order to provide
better transparency into the exposure of insurance entities and the drivers of their results. For public business
entities, the guidance is effective for annual reporting periods beginning after December 15, 2022, including
86 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 1 - Basis of Presentation and Significant Accounting Policies (continued)
interim periods within those years. With regards to the liability for future policy benefits and DAC, the guidance
applies to contracts in force as of the beginning of the earliest period presented and may be applied
retrospectively. With regards to MRBs, the guidance is to be applied retrospectively at the beginning of the
earliest period presented. Early adoption is permitted. Management is evaluating the impact this guidance will
have on the results of operations and financial position of the Company.
NOTE 2 - Subsequent Events
On July 14, 2021, the Company announced that it entered into a Stock Purchase Agreement (Agreement), by
and among the Company and Independence Capital Corp. and Independence Holding Company (Seller) to
acquire all the equity interests in Madison National Life Insurance Company, Inc., an insurance company
organized under the laws of the State of Wisconsin (Madison National). Founded in 1961 and headquartered in
Madison, Wisconsin, Madison National offers short- and long-term group disability, group term, and worksite
solutions products, including accident, critical illness and fixed indemnity. The Agreement provided, among
other things, that, upon the terms and subject to the conditions set forth in the Agreement, the Company would
acquire all the equity interests in Madison National for $172.5 million. The Seller will have a potential earn-out of
up to $12.5 million payable in cash, if specified financial targets are achieved by the end of 2023 and as such,
the final purchase price is subject to adjustment.
Effective January 1, 2022, the Company completed its acquisition of Madison National. As a result of the
acquisition, Madison National became a wholly owned subsidiary of the Company.
NOTE 3 - Investments
The components of net investment income for the following periods were as follows:
($ in millions)
Fixed maturity securities
Equity securities
Limited partnership interests
Short-term and other investments
Investment expenses
Net investment income - investment portfolio
Investment income - deposit asset on reinsurance
Total net investment income
Year Ended December 31,
2021
2020
2019
$
$
235.6 $
5.3
79.0
11.6
(10.1)
321.4
101.1
422.5 $
232.9 $
4.7
20.9
11.4
(9.6)
260.3
97.3
357.6 $
283.2
4.9
25.7
(10.1)
(9.4)
294.3
70.8
365.1
Net Investment Gains (Losses)
Net investment gains (losses) for the following periods were as follows:
($ in millions)
Fixed maturity securities(1)
Equity securities
Short-term investments and other
Net investment gains (losses)
Year Ended December 31,
2021
2020
2019
$
$
(7.7) $
(0.8)
(2.5)
(11.0) $
9.4 $
1.8
(13.5)
(2.3) $
141.4
16.0
(4.1)
153.3
(1) Net investment gains on fixed maturity securities include a $135.3 million realized investment gain associated with a transfer of investments to
a reinsurer as consideration paid in connection with a reinsurance transaction of a $2.9 billion block of in force fixed and variable annuity
business in 2019. See Notes 6 and 18 for further information.
The Company, from time to time, sells fixed maturity securities subsequent to the reporting date that were
considered temporarily impaired at such reporting date. Such sales are due to issuer specific events occurring
subsequent to the reporting date that result in a change in the Company's intent or ability to hold a fixed
maturity security. The types of events that may result in a sale include significant changes in the economic facts
and circumstances related to the invested asset, significant unforeseen changes in liquidity needs, or changes in
the Company's investment strategy.
Horace Mann Educators Corporation
Annual Report on Form 10-K 87
NOTE 3 - Investments (continued)
Net Investment Gains (Losses) by Transaction Type
The following table reconciles net investment gains (losses) pretax by transaction type:
($ in millions)
Credit loss impairments(1)
Intent-to-sell impairments
Total impairments on investments recognized in net income
Sales and other, net
Change in fair value - equity securities
Change in fair value and losses realized
on settlements - derivatives
Net investment (losses) gains
Year Ended December 31,
2020
2019
2021
$
(8.1) $
— $
(2.3)
(10.4)
4.3
(2.3)
(5.3)
(5.3)
15.0
(0.2)
(1.1)
(0.3)
(1.4)
151.5
7.3
(2.6)
(11.8)
(4.1)
$
(11.0) $
(2.3) $
153.3
(1)
Due to the adoption of the measurement of credit losses on financial instruments accounting standard in 2020, other-than-temporary write-
downs reported in 2019 are now presented as credit losses,
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)
Beginning balance
Credit losses on fixed maturity securities for which credit losses were
not previously reported(1)
Net (increases) decreases related to credit losses previously reported
Reduction of credit allowances related to sales
Write-offs
Ending balance
Year Ended December 31,
2021
2020
$
$
— $
8.1
—
—
(0.4)
7.7 $
—
—
—
—
—
—
(1)
Because the standard for the measurement of credit losses on financial instruments became effective January 1, 2020, there are no
allowances for credit loss impairments to report for the year ended December 31, 2019.
88 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 3 - Investments (continued)
Fixed Maturity Securities
The Company's investment portfolio is comprised primarily of fixed maturity securities. Amortized cost, net,
unrealized investment gains (losses) and fair values of all fixed maturity securities in the portfolio were as follows:
($ in millions)
December 31, 2021
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:(1)
Mortgage-backed securities
Other, including U.S. Treasury securities
Municipal bonds
Foreign government bonds
Corporate bonds
Other asset-backed securities
Totals
December 31, 2020
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:(1)
Mortgage-backed securities
Other, including U.S. Treasury securities
Municipal bonds
Foreign government bonds
Corporate bonds
Other asset-backed securities
Totals
Amortized
Cost, net
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
$
$
$
612.1 $
342.5
1,519.7
40.2
2,217.7
1,065.5
5,797.7 $
51.9 $
27.7
184.4
3.4
176.2
16.6
460.2 $
1.5 $
4.3
0.7
—
5.2
6.9
18.6 $
662.5
365.9
1,703.4
43.6
2,388.7
1,075.2
6,239.3
605.5 $
395.0
1,612.3
40.2
1,905.2
1,230.4
5,788.6 $
79.6 $
39.2
215.7
4.9
221.6
24.1
585.1 $
0.3 $
1.0
0.5
—
3.9
22.7
28.4 $
684.8
433.2
1,827.5
45.1
2,122.9
1,231.8
6,345.3
(1)
Fair value includes securities issued by Federal National Mortgage Association (FNMA) of $376.7 million and $387.1 million; Federal Home
Loan Mortgage Corporation (FHLMC) of $326.5 million and $344.3 million; and Government National Mortgage Association (GNMA) of
$112.1 million and $132.3 million as of December 31, 2021 and 2020, respectively.
Horace Mann Educators Corporation
Annual Report on Form 10-K 89
NOTE 3 - Investments (continued)
The following table presents the fair value and gross unrealized losses for fixed maturity securities in an
unrealized loss position at December 31, 2021 and 2020, respectively. The Company views the decrease in fair
value of all fixed maturity securities with unrealized losses at December 31, 2021 — which was driven largely by
increasing interest rates, spread widening, financial market illiquidity and/or market volatility from the date of
acquisition — as temporary. As of December 31, 2021, the Company has not made the decision to sell and it is
not more likely than not the Company will be required to sell the fixed maturity securities with unrealized losses
before anticipated recovery in value. Therefore, it was determined that the unrealized losses on the fixed maturity
securities presented in the table below were not indicative of any impairments as of December 31, 2021.
($ in millions)
12 months or less
More than 12 months
Total
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
December 31, 2021
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:
Mortgage-backed securities
$
Other
Municipal bonds
Foreign government bonds
Corporate bonds
Other asset-backed securities
67.4
59.5
56.8
—
220.7
379.0
$
1.3 $
3.9
$
0.2 $
1.7
0.7
—
3.8
3.8
35.1
0.6
—
44.1
128.2
2.6
—
—
1.4
3.1
$
71.3
94.6
57.4
—
264.8
507.2
1.5
4.3
0.7
—
5.2
6.9
Total
$
783.4
$
11.3 $
211.9
$
7.3 $
995.3
$
18.6
Number of positions with a
gross unrealized loss
Fair value as a percentage of total fixed
maturities securities fair value
516
12.6 %
122
3.4 %
638
16.0 %
December 31, 2020
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:
Mortgage-backed securities
$
4.9
$
0.1 $
2.6
$
0.2 $
7.5
$
Other
Municipal bonds
Foreign government bonds
Corporate bonds
Other asset-backed securities
95.9
18.1
—
126.6
316.9
1.0
0.5
—
3.7
17.2
—
—
—
10.9
409.3
—
—
—
0.2
5.5
95.9
18.1
—
137.5
726.2
Total
$
562.4
$
22.5 $
422.8
$
5.9 $
985.2
$
0.3
1.0
0.5
—
3.9
22.7
28.4
Number of positions with a
gross unrealized loss
Fair value as a percentage of total fixed
maturities securities fair value
308
8.9 %
123
6.7 %
431
15.6 %
Fixed maturity securities with an investment grade rating represented 69.8% of the gross unrealized losses as of
December 31, 2021. With respect to fixed maturity securities involving securitized financial assets, the underlying
collateral cash flows were stress tested to determine there was no adverse change in the present value of cash
flows below the amortized cost basis.
90 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 3 - Investments (continued)
Maturities of Fixed Maturity Securities
The following table presents the distribution of the Company's fixed maturity securities portfolio by estimated
expected maturity. Estimated expected maturities differ from contractual maturities, reflecting assumptions
regarding borrowers' utilization of the right to call or prepay obligations with or without call or prepayment
penalties. For structured securities, estimated expected maturities consider broker-dealer survey prepayment
assumptions and are verified for consistency with the interest rate and economic environments.
($ in millions)
Estimated expected maturity:
Due in 1 year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due after 10 years through 20 years
Due after 20 years
Total
Average option-adjusted duration, in years
December 31, 2021
Amortized
Cost, net
Fair
Value
Percent of
Total Fair
Value
$
245.4 $
1,613.8
1,600.5
1,339.9
998.1
5,797.7 $
6.7
$
250.8
1,686.2
1,729.5
1,488.2
1,084.6
6,239.3
4.0 %
27.0 %
27.7 %
23.9 %
17.4 %
100.0 %
Sales of Fixed Maturity and Equity Securities
Proceeds received from sales of fixed maturity and equity securities, each determined using the specific
identification method, and gross gains and gross losses realized as a result of those sales for each year were as
follows:
($ in millions)
Fixed maturity securities
Proceeds received
Gross gains realized
Gross losses realized
Equity securities
Proceeds received
Gross gains realized
Gross losses realized
Year Ended December 31,
2021
2020
2019(1)
$
578.2 $
472.9 $
10.5
(7.7)
20.5
(6.1)
$
4.7 $
1.5
(0.1)
12.7 $
2.2
(1.9)
805.9
150.9
(7.8)
29.9
9.2
(0.8)
(1) Gross gains realized presented above include a $135.3 million realized investment gain associated with a transfer of investments to a
reinsurer as consideration paid during the second quarter of 2019 in connection with the reinsurance of a $2.9 billion block of in force fixed
and variable annuity business. See Notes 6 and 18 for further information.
Net Unrealized Investment Gains (Losses) on Fixed Maturity Securities
The following table reconciles the net unrealized investment gains (losses) on fixed maturity securities, net of tax,
included in AOCI, before the impact on DAC:
($ in millions)
Net unrealized investment gains (losses)
on fixed maturity securities, net of tax
Beginning of period
Change in net unrealized investment (losses)
gains on fixed maturity securities
Reclassification of net investment losses (gains)
on fixed maturity securities to net income
End of period
Year Ended December 31,
2021
2020
2019
$
439.8 $
264.4 $
111.7
(97.6)
184.2
277.1
6.7
348.9 $
(8.8)
439.8 $
(124.4)
264.4
$
Horace Mann Educators Corporation
Annual Report on Form 10-K 91
NOTE 3 - Investments (continued)
Limited Partnership Interests
All investments in limited partnership interests are accounted for using EMA and include interests in commercial
mortgage loan funds, private equity funds, infrastructure debt funds, infrastructure equity funds and other funds.
Principal factors influencing carrying amount appreciation or decline include operating performance, comparable
public company earnings multiples, capitalization rates and the economic environment. The Company
recognizes an impairment loss for equity method limited partnership interests when evidence demonstrates that
the loss is other than temporary. Evidence of a loss in value that is other than temporary may include the
absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a
level of earnings that would justify the carrying amount of the investment. The carrying amounts of equity
method limited partnership interests were as follows:
($ in millions)
Commercial mortgage loan funds
Private equity funds
Infrastructure debt funds
Infrastructure equity funds
Other funds(1)
Total
Year Ended December 31,
2020
2021
$
$
346.8 $
74.0
62.4
58.3
171.3
712.8 $
149.6
39.6
58.3
52.1
149.4
449.0
(1)
Other funds consist primarily of limited partnership interests in hedge funds, real estate equity and corporate mezzanine funds.
Investment in Entities Exceeding 10% of Shareholders' Equity
At December 31, 2021 and 2020, there were no investments which exceeded 10% of total shareholders' equity
in entities other than obligations of the U.S. Government and federally sponsored government agencies and
authorities.
Offsetting of Assets and Liabilities
The Company's derivatives are subject to enforceable master netting arrangements. Collateral support
agreements associated with each master netting arrangement provide that the Company will receive or pledge
financial collateral in the event minimum thresholds have been reached.
The following table presents the instruments that were subject to a master netting arrangement for the
Company.
($ in millions)
December 31, 2021
Asset derivatives
Gross
Amounts
Offset in the
Consolidated
Balance
Sheets
Net Amounts
of Assets/
Liabilities
Presented
in the
Consolidated
Balance
Sheets
Gross
Amounts
Gross Amounts Not Offset
in the Consolidated
Balance Sheets
Financial
Instruments
Cash
Collateral
Received
Net
Amount
Free-standing derivatives
$
10.7 $
— $
10.7 $
4.5 $
6.4 $
(0.2)
December 31, 2020
Asset derivatives
Free-standing derivatives
$
16.8 $
— $
16.8 $
13.7 $
2.6 $
0.5
Deposits
At December 31, 2021 and 2020, fixed maturity securities with a fair value of $26.2 million and $26.9 million,
respectively, were on deposit with governmental agencies as required by law in various states for which the
insurance subsidiaries of the Company conduct business. In addition, at December 31, 2021 and 2020, fixed
maturity securities with a fair value of $870.1 million and $707.3 million, respectively, were on deposit with FHLB
as collateral for amounts subject to funding agreements, advances and borrowings which were equal to $787.5
million and $644.5 million at the respective dates. The deposited securities are reported as Fixed maturity
securities on the Company's Consolidated Balance Sheets.
92 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 4 - Fair Value of Financial Instruments
The Company is required to disclose estimated fair values for certain financial and nonfinancial assets and
liabilities. Fair values of the Company's insurance contracts other than annuity contracts (which are investment
contracts) and equity method limited partnership interests are not required to be disclosed. However, the
estimated fair values of liabilities under all insurance contracts are taken into consideration in the Company's
overall management of interest rate risk through the matching of investment maturities with amounts due under
insurance contracts.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between
knowledgeable, unrelated and willing market participants on the measurement date. In determining fair value, the
Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of
unobservable inputs. The Company categorizes its financial and nonfinancial assets and liabilities into a three-
level hierarchy based on the priority of the inputs to the valuation technique. The three levels of inputs that may
be used to measure fair value are:
Level 1
Level 2
Level 3
Unadjusted quoted prices in active markets for identical assets or liabilities. Level 1 assets and
liabilities include fixed maturity and equity securities (both common stock and preferred stock) that
are traded in an active exchange market, as well as U.S. Treasury securities.
Unadjusted observable inputs other than Level 1 prices such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for the assets or liabilities. Level 2 assets and liabilities
include fixed maturity securities (1) with quoted prices that are traded less frequently than
exchange-traded instruments or (2) values based on discounted cash flows with observable inputs.
This category generally includes certain U.S. Government and agency mortgage-backed securities,
non-agency structured securities, corporate fixed maturity securities, preferred stocks, derivatives
and embedded derivatives.
Unobservable inputs that are supported by little or no market activity and that are significant to the
fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose
value is determined using pricing models, certain discounted cash flow methodologies, or similar
techniques, as well as instruments for which the determination of fair value requires significant
management judgment or estimation and for which the significant inputs are unobservable. This
category generally includes certain private debt and equity investments, as well as embedded
derivatives.
When the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the
fair value measurement is categorized is based on the lowest level input that is significant to the fair value
measurement in its entirety. As a result, a Level 3 fair value measurement may include inputs that are observable
(Level 1 or Level 2) and unobservable (Level 3). Net transfers into or out of each of the three levels are reported
as having occurred at the end of the reporting period in which the transfers were determined.
The following discussion describes the valuation methodologies used for financial assets and financial liabilities
measured at fair value. The techniques utilized in estimating the fair values are affected by the assumptions
used, including discount rates and estimates of the amount and timing of expected future cash flows. The use of
different methodologies, assumptions and inputs may have a material effect on the estimated fair values of the
Company's investment holdings. Care is exercised in deriving conclusions about the Company's business, its
value or financial position based on the fair value information of financial assets and liabilities presented below.
Fair value estimates are made at a specific point in time, based on available market information and judgments
about the financial asset or financial liability, including estimates of both the timing and amount of expected
future cash flows and the credit standing of the issuer. In some cases, fair value estimates cannot be
substantiated by comparison to independent markets. In addition, the disclosed fair value may not be realized in
the immediate settlement of the financial asset or financial liability. The disclosed fair values do not reflect any
premium or discount that could result from offering for sale at one time an entire holding of a particular financial
asset or financial liability. In periods of market disruption, the ability to observe prices and inputs may be
reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level
2 or from Level 2 to Level 3. Potential taxes and other expenses that would be incurred in an actual sale or
settlement are not reflected in amounts disclosed.
Horace Mann Educators Corporation
Annual Report on Form 10-K 93
NOTE 4 - Fair Value of Financial Instruments (continued)
Investments
The fair value of a fixed maturity security is the estimated amount at which the security could be exchanged in
an orderly transaction between knowledgeable, unrelated and willing parties. The Company utilizes ICE Data
Pricing, its investment managers and custodian bank to obtain fair value prices from independent third-party
valuation service providers, broker quotes, model prices and matrix pricing. Each month, the Company obtains
fair value prices from its investment managers and custodian bank, each of which use a variety of independent,
nationally recognized pricing sources to determine market valuations for fixed maturity securities. Differences in
prices between the sources that the Company considers significant are researched and the Company utilizes the
price that it considers most representative of an exit price. Typical inputs used by these pricing sources include,
but are not limited to, reported trades, bids, offers, benchmark yield curves, benchmarking of like securities,
rating designations, sector groupings, issuer spreads and/or estimated cash flows, prepayment and default
speeds, among others. The Company's fixed maturity securities portfolio is primarily publicly traded, which
allows for a high percentage of the portfolio to be priced through pricing services. Approximately 90.2% and
91.9% of the portfolio, based on fair value, was priced through pricing services or index priced as of December
31, 2021 and 2020, respectively. The remainder of the portfolio was priced by broker quotes, model prices or
matrix pricing. When non-binding broker quotes can be corroborated by comparison to other vendor quotes,
pricing models or analyses, the securities are generally classified as Level 2, otherwise they are classified as
Level 3. There were no significant changes to the valuation process during 2021.
The valuation of hard-to-value fixed maturity securities (generally 150 -200 securities) is more subjective because
the markets are less liquid and there is a lack of observable market-based inputs. This may increase the
potential that the estimated fair value of an investment is not reflective of the price at which an actual transaction
would occur. When the pricing sources cannot provide fair value determinations, the investment managers
obtain non-binding price quotes from brokers. For those securities where the investment manager cannot obtain
broker quotes, they will model the security, generally using anticipated cash flows of the underlying collateral.
Brokers' valuation methodologies as well as investment managers’ modeling methodologies are sometimes
matrix-based, using indicative evaluation measures and adjustments for specific security characteristics and
market sentiment. The selection of the market inputs and assumptions used to estimate the fair value of hard-to-
value fixed maturity securities requires judgment and includes: benchmark yield, liquidity premium, estimated
cash flows, prepayment and default speeds, spreads, weighted average life, and credit rating. The extent of the
use of each market input depends on the market sector and market conditions. Depending on the security, the
priority of the use of inputs may change or some market inputs may not be relevant. For some securities,
additional inputs may be necessary.
The Company gains assurance that its portfolio of fixed maturity securities including hard-to-value fixed maturity
securities is appropriately valued through the execution of various processes and controls designed to ensure
the overall reasonableness and consistent application of valuation methodologies, including inputs and
assumptions, and compliance with accounting standards. The Company’s processes and controls are designed
to ensure (1) the valuation methodologies are appropriate and consistently applied, (2) the inputs and
assumptions are reasonable and consistent with the objective of determining fair value, and (3) the fair values are
accurately recorded. For example, on a continuing basis, the Company assesses the reasonableness of
individual fair values that have stale security prices or that exceed certain thresholds as compared to previous
fair values received from valuation service providers. The Company performs procedures to understand and
assess the methodologies, processes and controls of valuation service providers. In addition, the Company may
validate the reasonableness of fair values by comparing information obtained from valuation service providers or
brokers to other third-party valuation sources for selected securities.
To determine the fair value of equity securities, the Company utilizes its investment managers and its custodian
bank to obtain fair value prices from independent third-party valuation service providers. Each month, the
Company obtains fair value prices from its investment managers and custodian bank, each of which use a
variety of independent, nationally recognized pricing sources to determine market valuations for equity
securities.
Policy loans and mortgage loans as well as investments in limited partnership interests which are accounted for
using EMA are excluded from the fair value hierarchy.
94 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 4 - Fair Value of Financial Instruments (continued)
In summary, the following financial assets and financial liabilities are carried at fair value:
Financial assets
•
•
•
Fixed maturity securities including hard-to-value fixed maturity securities, as described above.
Equity securities, as described above.
Short-term fixed maturity securities — Because of the nature of these assets, carrying amounts generally
approximate fair values.
• Derivatives — Fair values are based on the amount of cash expected to be received to settle each
derivative on the reporting date. These amounts are obtained from each of the counterparties using
industry accepted valuation models and observable inputs. Significant inputs include contractual terms,
underlying index prices, market volatilities, interest rates and dividend yields.
•
FHLB membership and activity stocks — Fair value is based on redemption value, which is equal to par
value.
Financial liabilities
•
•
The fair value of derivatives embedded in IUL contracts is set equal to the fair value of the outstanding
call options.
The fair value of derivatives embedded in FIA contracts is determined using the option budget method
for each premium received (i.e., the option budget method is used as the future account growth rate).
With this method, future excess cash flows (defined as benefits in excess of required non-forfeiture
benefits) are discounted at the risk-free rate and adjusted for non-performance, to determine the fair
value of the embedded derivatives.
Horace Mann Educators Corporation
Annual Report on Form 10-K 95
NOTE 4 - Fair Value of Financial Instruments (continued)
Financial Instruments Measured and Carried at Fair Value on a Recurring Basis
The following table presents the Company's fair value hierarchy for financial assets and financial liabilities
measured and carried at fair value on a recurring basis. At December 31, 2021, Level 3 investments comprised
approximately 5.6% of the Company's total investment portfolio at fair value.
($ in millions)
December 31, 2021
Financial Assets
Investments
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:
Carrying
Amount
Fair
Value
Fair Value Measurements at
Reporting Date Using
Level 1
Level 2
Level 3
Mortgage-backed securities
$
662.5 $
662.5 $
— $
662.5 $
Other, including U.S. Treasury securities
Municipal bonds
Foreign government bonds
Corporate bonds
Other asset-backed securities
Total fixed maturity securities
Equity securities
Short-term investments
Other investments
Totals
Separate Account (variable annuity) assets(1)
Financial Liabilities
Investment contract and life policy reserves,
embedded derivatives
Other policyholder funds, embedded derivatives
December 31, 2020
Financial Assets
Investments
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:
Other, including U.S. Treasury securities
Municipal bonds
Foreign government bonds
Corporate bonds
Other asset-backed securities
Total fixed maturity securities
Equity securities
Short-term investments
Other investments
Totals
Separate Account (variable annuity) assets(1)
Financial Liabilities
Investment contract and life policy reserves,
embedded derivatives
Other policyholder funds, embedded derivatives
—
—
60.8
—
210.3
98.9
370.0
1.4
—
—
11.1
—
59.6
—
155.8
128.3
354.8
0.3
—
—
365.9
1,703.4
43.6
2,388.7
1,075.2
6,239.3
147.2
157.8
43.6
365.9
1,703.4
43.6
2,388.7
1,075.2
6,239.3
147.2
157.8
43.6
17.7
—
—
14.9
—
32.6
35.2
157.8
—
348.2
1,642.6
43.6
2,163.5
976.3
5,836.7
110.6
—
43.6
$
$
$
$
6,587.9 $
6,587.9 $
225.6 $
5,990.9 $
371.4
3,441.0 $
3,441.0 $
3,441.0 $
— $
—
2.1 $
2.1 $
106.6 $
106.6 $
— $
— $
2.1 $
—
— $
106.6
433.2
1,827.5
45.1
2,122.9
1,231.8
6,345.3
121.6
141.8
36.3
433.2
1,827.5
45.1
2,122.9
1,231.8
6,345.3
121.6
141.8
36.3
18.4
—
—
14.9
—
33.3
39.2
137.7
—
414.8
1,767.9
45.1
1,952.2
1,103.5
5,957.2
82.1
4.1
36.3
$
$
$
$
6,645.0 $
6,645.0 $
210.2 $
6,079.7 $
355.1
2,891.4 $
2,891.4 $
2,891.4 $
— $
—
2.5 $
2.5 $
104.5 $
104.5 $
— $
— $
2.5 $
—
— $
104.5
Mortgage-backed securities
$
684.8 $
684.8 $
— $
673.7 $
(1)
Separate Account (variable annuity) assets represent contractholder funds invested in various actively traded mutual funds that have daily
quoted net asset values that are readily determinable for identical assets that the Company can access. Separate Account (variable annuity)
liabilities are equal to the estimated fair value of Separate Account (variable annuity) assets.
96 Annual Report on Form 10-K
Horace Mann Educators Corporation
Paydowns, maturities and distributions
(14.9)
(12.8)
(43.2)
(70.9)
NOTE 4 - Fair Value of Financial Instruments (continued)
Changes in Level 3 Fair Value Measurements
The Company did not have any transfers between Levels 1 and 2 during 2021 and 2020. The following tables
present reconciliations for the periods indicated for all Level 3 financial assets and financial liabilities measured
at fair value on a recurring basis.
($ in millions)
Financial Assets
Mortgage-
Backed
and Other
Asset-
Backed
Securities(2)
Total
Fixed
Maturity
Securities
Equity
Securities
Total
Municipal
Bonds
Corporate
Bonds
Financial
Liabilities(1)
Beginning balance, January 1, 2021
$
59.6 $
155.8 $
139.4 $
354.8 $
0.3 $
355.1 $
104.5
18.6
—
131.7
(64.4)
21.3
(19.2)
171.6
(83.6)
1.0
—
172.6
(83.6)
—
—
Transfers into Level 3(3)
Transfers out of Level 3(3)
Total gains or losses
Net investment gains (losses)
included in net income related
to financial assets
Net investment (gains) losses
included in net income related
to financial liabilities
Net unrealized investment gains
(losses) included in OCI
Purchases
Issuances
Sales
Settlements
Ending balance, December 31, 2021
Beginning balance, January 1, 2020
Transfers into Level 3(3)
Transfers out of Level 3(3)
Total gains or losses
Net investment gains (losses)
included in net income related
to financial assets
Net investment (gains) losses
included in net income related
to financial liabilities
Net unrealized investment gains
(losses) included in OCI
Purchases
Issuances
Sales
Settlements
—
—
(2.5)
—
—
—
—
—
—
—
—
—
—
—
(8.2)
(8.2)
0.1
(8.1)
—
—
8.8
—
—
—
—
—
6.3
—
—
—
—
—
—
—
—
—
—
—
—
6.3
—
—
—
—
10.0
—
—
4.9
—
—
(70.9)
(12.8)
$
$
60.8 $
210.3 $
98.9 $
370.0 $
1.4 $
371.4 $
106.6
44.3 $
104.0 $
146.8 $
295.1 $
0.1 $
295.2 $
93.7
80.7
(69.1)
83.6
(36.6)
104.3
(84.6)
268.6
(190.3)
0.2
—
268.8
(190.3)
—
—
—
—
(0.3)
(0.3)
—
4.3
—
—
—
—
—
1.4
6.9
—
—
—
—
—
(10.5)
(4.8)
1.9
—
1.2
—
8.8
—
1.2
—
—
—
—
—
—
—
—
—
(0.3)
—
—
11.5
(4.8)
8.8
—
1.2
—
—
—
8.4
—
—
(23.5)
(9.1)
Paydowns, maturities and distributions
(0.6)
(3.5)
(19.4)
(23.5)
Ending balance, December 31, 2020
$
59.6 $
155.8 $
139.4 $
354.8 $
0.3 $
355.1 $
104.5
(1)
(2)
(3)
Represents embedded derivatives, all related to the Company's FIA products, reported in Other policyholder funds in the Company's
Consolidated Balance Sheets.
Includes U.S. Government and federally sponsored agency obligations for mortgage-backed securities and other asset-backed securities.
Transfers into and out of Level 3 during the years ended December 31, 2021 and 2020 were attributable to changes in the availability of
observable market information for individual fixed maturity securities and short-term investments. The Company's policy is to recognize
transfers into and out of the levels as having occurred at the end of the reporting period in which the transfers were determined.
At December 31, 2021, the Company had $8.1 million of net investment losses on Level 3 financial assets that
were included in net income and were primarily attributable to credit loss impairments. At December 31, 2020
the Company had $0.3 million of net investment losses on Level 3 financial assets that were included in net
income. For the years ended December 31, 2021 and 2020, net investment losses of $10.0 million and
$11.5 million, respectively, were included in net income that were attributable to changes in the fair value of
Level 3 financial liabilities.
Horace Mann Educators Corporation
Annual Report on Form 10-K 97
NOTE 4 - Fair Value of Financial Instruments (continued)
Quantitative Information about Level 3 Fair Value Measurements
The following table provides quantitative information about the significant unobservable inputs for recurring fair
value measurements categorized within Level 3.
($ in millions)
Financial
Assets
Fair Value at
December 31,
2021
Valuation
Technique(s)
Municipal bonds
$
60.8
discounted cash flow
Corporate bonds
210.3
discounted cash flow
discounted cash flow
discounted cash flow
discounted cash flow
Unobservable Inputs
I spread(2)
N spread(3)
I spread(2)
T spread(4)
yield
Range
(Weighted Average)
and Single Point Best
Estimate(1)
374 - 425 bps
211 - 531 bps
333 - 365 bps
130 - 540 bps
3.4% - 8.8%
discounted cash flow
discount rate
11.3% - 12.0%
market comparable
option adjusted spread
12.5%
Other asset-backed
securities
98.9
vendor price
haircut
discounted cash flow
discount margin
discounted cash flow
discount rate
discounted cash flow
median comparable yield
market comparable
discounted cash flow
discounted cash flow
Equity securities
1.4
Black-Scholes
discounted cash flow
median price
N spread(3)
T spread(4)
volatility
variable
($ in millions)
Financial
Liabilities
Derivatives
embedded in
fixed indexed
annuity products
Fair Value at
December 31,
2021
Valuation
Technique(s)
Unobservable Inputs
$
106.6
discounted cash flow
lapse rate
mortality multiplier(5)
option budget
non-performance adjustment(6)
3.0% - 5.0%
14.6%
8.5% - 20.0%
7.3% - 16.1%
$54.79 - $97.95
341 bps
196 bps
low 29.0% - high 34.0%
$100.00 - $121.95
Range
(Weighted Average)
and Single Point Best
Estimate(1)
5.3%
66.8%
0.9% - 2.5%
5.0%
(3)
(1) When a range of unobservable inputs is not readily available, the Company uses a single point best estimate.
(2)
"I spread" is the interpolated weighted average life point on the "on the run" (OTR) point of the curve.
"N spread" is the interpolated weighted average life point on the swap curve.
(4)
"T spread" is a specific point on the OTR curve.
(5) Mortality multiplier is applied to the Annuity 2000 table.
(6)
Determined as a percentage of the risk-free rate.
The valuation techniques and significant unobservable inputs used in the fair value measurement for financial
assets and financial liabilities classified as Level 3 are subject to the control processes as previously described in
this Note. Generally, valuation techniques for fixed maturity securities include spread pricing, matrix pricing and
discounted cash flow methodologies; include inputs such as quoted prices for identical or similar securities that
are less liquid; and are based on lower levels of trading activity than securities classified as Level 2. The
valuation techniques and significant unobservable inputs used in the fair value measurement for equity securities
classified as Level 3 use similar valuation techniques and significant unobservable inputs as those used for fixed
maturity securities.
98 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 4 - Fair Value of Financial Instruments (continued)
The sensitivity of the estimated fair values to changes in the significant unobservable inputs for fixed maturity
and equity securities included in Level 3 include: benchmark yield, liquidity premium, estimated cash flows,
prepayment and default speeds, spreads, weighted average life, and credit rating. Significant spread widening in
isolation will adversely impact the overall valuation, while significant tightening will lead to substantial valuation
increases. Significant increases (decreases) in illiquidity premiums in isolation will result in substantially lower
(higher) valuations. Significant increases (decreases) in expected default rates in isolation will result in
substantially lower (higher) valuations.
Financial Instruments Not Carried at Fair Value
The Company has various other financial assets and financial liabilities used in the normal course of business
that are not carried at fair value, but for which fair value disclosure is required. The following table presents the
carrying amount, fair value and fair value hierarchy of these financial assets and financial liabilities.
($ in millions)
December 31, 2021
Financial Assets
Other investments
Deposit asset on reinsurance
Financial Liabilities
Investment contract and policy reserves,
fixed annuity contracts
Investment contract and life policy reserves,
account values on life contracts
Other policyholder funds
Short-term debt
Long-term debt
December 31, 2020
Financial Assets
Other investments
Deposit asset on reinsurance
Financial Liabilities
Investment contract and policy reserves,
fixed annuity contracts
Investment contract and life policy reserves,
account values on life contracts
Other policyholder funds
Short-term debt
Long-term debt
Carrying
Amount
Fair
Value
Fair Value Measurements at
Reporting Date Using
Level 1
Level 2
Level 3
$
148.8 $
152.4 $
2,481.5
2,935.1
— $
—
— $
—
152.4
2,935.1
4,941.3
5,004.9
105.4
839.3
249.0
253.6
115.4
839.3
249.0
277.4
—
—
—
—
—
—
5,004.9
—
782.8
—
277.4
115.4
56.5
249.0
—
$
168.3 $
172.1 $
2,420.9
3,030.6
— $
—
— $
—
172.1
3,030.6
4,847.6
4,963.3
98.7
646.8
135.0
302.3
108.4
646.8
135.0
331.1
—
—
—
—
—
—
4,963.3
—
590.7
—
331.1
108.4
56.1
135.0
—
Horace Mann Educators Corporation
Annual Report on Form 10-K 99
NOTE 4 - Fair Value of Financial Instruments (continued)
Other Investments
Other investments includes policy loans and mortgage loans. For policy loans, fair value is based on estimates
using discounted cash flow analysis and current interest rates being offered for new loans. For mortgage loans,
fair value is estimated by discounting the future cash flows using current rates at which similar loans would be
made to borrowers with similar credit ratings and similar remaining maturities.
Deposit Asset on Reinsurance
The fair value of the deposit asset on reinsurance is estimated by discounting the future cash flows that are
expected to arise out of the annuity reinsurance transaction. The treasury yield curve, plus an assumed credit
spread, is used to determine the appropriate discount rate.
Investment Contract and Policy Reserves
The fair values of fixed annuity contract liabilities and policyholder account balances on life contracts are equal
to the discounted estimated future cash flows (using the Company's current interest rates for similar products
including consideration of minimum guaranteed interest rates). The Company carries these financial liabilities at
cost.
Also, included in investment contract and policy reserves are embedded derivatives related to the Company's
IUL products which are carried at fair value. See Note 5 for further information.
Other Policyholder Funds
Other policyholder funds are liabilities related to supplementary contracts without life contingencies and dividend
accumulations, as well as balances outstanding under funding agreements with the FHLB and embedded
derivatives related to the FIA products. Except for embedded derivatives, each of these components is carried at
cost, which management believes is a reasonable estimate of fair value due to the relatively short duration of
these items, based on the Company's past experience.
The fair value of the embedded derivatives related to FIA products is estimated at each reporting date by (1)
projecting policy contract values and minimum guaranteed contract values over the expected lives of the
contracts and (2) discounting the excess of the projected contract value amounts at the applicable risk free
interest rates adjusted for the Company's nonperformance risk related to those liabilities. The projections of
policy contract values are based on the Company's best estimate assumptions for future contract growth and
decrements. The assumptions for future contract growth include the expected index credits which are derived
from the fair values of the underlying call options purchased to fund such index credits and the expected costs
of annual call options that will be purchased in the future to fund index credits beyond the next contract
anniversary. Projections of minimum guaranteed contract values include the same best estimate assumptions for
contract decrements used to project policy contract values.
Short-term Debt
The Company carries short-term debt at amortized cost which approximates fair value.
Long-term Debt
The Company carries long-term debt at amortized cost. The fair value of long-term debt is estimated based on
unadjusted quoted market prices of the Company's securities or unadjusted market prices based on similar
publicly traded issues when trading activity for the Company's securities is not sufficient to provide a market
price.
NOTE 5 - Derivatives
The Company offers FIA products, which are deferred fixed annuities that guarantee the return of principal to the
contractholder and credit interest based on a percentage of the gain in a specified market index. The Company
also offers IUL products which credit interest based on a percentage of the gain in a specified market index.
When deposits are received for FIA and IUL contracts, a portion is used to purchase derivatives consisting of call
options on the applicable market indices to fund the index credits due to FIA and IUL policyholders. For the
Company, substantially all such call options are one-year options purchased to match the funding requirements
of the underlying contracts. The call options are carried at fair value with changes in fair value included in Net
investment gains (losses), a component of revenues, in the Consolidated Statements of Operations.
100 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 5 - Derivatives (continued)
The change in fair value of derivatives includes the gains or losses recognized at the expiration of the option
term or early termination and the changes in fair value for open positions. Call options are not purchased to fund
the index liabilities that may arise after the next deposit anniversary date. On the respective anniversary dates of
the indexed deposits, the index used to compute the annual index credit is reset and new one-year call options
are purchased to fund the next annual index credit. The cost of these purchases is managed through the terms
of the FIA and IUL contracts, which permit changes to index return caps, participation rates and/or asset fees,
subject to guaranteed minimums on each contract's anniversary date. By adjusting the index return caps,
participation rates or asset fees, crediting rates generally can be managed except in cases where the contractual
features would prevent further modifications.
The future annual index credits on FIA are accounted for as a "series of embedded derivatives" over the
expected life of the applicable contract with a corresponding reserve recognized. For IUL, the embedded
derivative represents a single year liability for the index return.
The Company carries all derivatives at fair value in the Consolidated Balance Sheets. The Company elected to
not use hedge accounting for derivative transactions related to the FIA and IUL products. As a result, the
Company recognizes the purchased call options and the embedded derivatives related to the provision of a
contingent return at fair value, with changes in the fair value of the derivatives recognized immediately as Net
investment gains (losses) in the Consolidated Statements of Operations. The fair values of derivatives, including
derivatives embedded in FIA and IUL contracts, are presented in the Consolidated Balance Sheets as follows:
($ in millions)
Assets
December 31,
2021
2020
Derivatives, reported in Short-term and other investments
$
10.7 $
16.8
Liabilities
FIA - embedded derivatives, reported in Other policyholder funds
IUL - embedded derivatives, reported in
Investment contract and policy reserves
106.6
2.1
104.5
2.5
In general, the change in the fair value of the embedded derivatives related to FIA will not correspond to the
change in fair value of the purchased call options because the purchased call options are one-year options while
the options valued in the embedded derivatives represent the rights of the policyholder to receive index credits
over the entire period the FIA contracts are expected to be in force, which typically exceeds 10 years. The
changes in fair value of derivatives included in the Consolidated Statements of Operations were as follows:
($ in millions)
Change in fair value of derivatives:(1)
Revenues
Net investment gains (losses)
Change in fair value of embedded derivatives:
Revenues
Net investment gains (losses)
Years Ended December 31,
2021
2020
2019
$
8.7 $
0.2 $
9.5
(11.3)
(12.1)
(13.6)
(1)
Includes gains or losses recognized at option expiration or early termination and changes in fair value for open positions.
Horace Mann Educators Corporation
Annual Report on Form 10-K 101
NOTE 5 - Derivatives (continued)
The Company's strategy attempts to mitigate potential risk of loss under these agreements through a regular
monitoring process, which evaluates the program's effectiveness. The Company is exposed to risk of loss in the
event of nonperformance by the counterparties and, accordingly, option contracts are purchased from multiple
counterparties, which are evaluated for creditworthiness prior to purchase of the contracts. All of these options
have been purchased from nationally recognized financial institutions with a S&P/Moody's Investors Service, Inc.
(Moody's) long-term credit rating of "BBB+/A3" or higher at the time of purchase and the maximum credit
exposure to any single counterparty is subject to concentration limits. The Company also obtains credit support
agreements that allow it to request the counterparty to provide cash collateral when the fair value of the
exposure to the counterparty exceeds specified amounts.
The notional amount and fair value of call options by counterparty and each counterparty's long-term credit
ratings were as follows:
($ in millions)
December 31, 2021
December 31, 2020
Counterparty
Bank of America, N.A.
Barclays Bank PLC
Citigroup Inc.
Credit Suisse International
Societe Generale
Total
Credit Rating
S&P
A+
A
BBB+
A+
A
Moody's
Aa2
A1
A3
A1
A1
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
$
$
193.0 $
98.7
—
14.0
—
305.7 $
6.3 $
4.1
—
0.3
—
10.7 $
205.2 $
81.9
—
—
—
287.1 $
14.0
2.8
—
—
—
16.8
As of December 31, 2021 and 2020, the Company held $10.9 million and $16.3 million, respectively, of cash and
financial instruments received from counterparties for derivative collateral, which is included in Other liabilities on
the Consolidated Balance Sheets. This derivative collateral limits the Company's maximum amount of economic
loss due to credit risk that would be incurred if parties to the call options failed completely to perform according
to the terms of the contracts to $0.3 million per counterparty.
NOTE 6 - Deposit Asset on Reinsurance
The Company reinsures a $3.2 billion block of in force fixed and variable annuity business with a minimum
crediting rate of 4.5%. The reinsured fixed business represents approximately 50% of the Company’s in force
fixed annuity account balances. The arrangement contains investment guidelines and a trust to help meet the
Company’s risk management objectives.
Under the annuity reinsurance agreement, approximately $2.4 billion of fixed annuity reserves are reinsured on a
coinsurance basis. The separate account assets and liabilities of approximately $0.8 billion are reinsured on a
modified coinsurance basis and thus, remain on the Company's consolidated financial statements, but the
related results of operations are fully reinsured.
The annuity reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss
from insurance risk. Therefore, the Company recognizes the annuity reinsurance agreement using the deposit
method of accounting. The assets transferred to the reinsurer as consideration paid is reported as a Deposit
asset on reinsurance on the Company's Consolidated Balance Sheets. As amounts are received or paid,
consistent with the underlying reinsured contracts, the Deposit asset on reinsurance is adjusted. The Deposit
asset on reinsurance is accreted to the estimated ultimate cash flows using the interest method and the
adjustment is reported as Net investment income. Interest accreted on the Deposit asset on reinsurance was
$101.1 million and $97.3 million for the years ended December 31, 2021 and 2020, respectively.
102 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 7 - Goodwill and Intangible Assets
The Company conducts goodwill impairment testing at the reporting unit level at least annually or more
frequently if events occur or circumstances change that indicate that the carrying amount may not be
recoverable. See Note 1 for further description of impairment testing.
At October 1, 2021, the Company performed a quantitative goodwill impairment test. Based on the results of the
test, there were no events or circumstances that led to a determination that it is more likely than not that the fair
value of a reporting unit is less than its carrying amount.
At October 1, 2020, the Company performed a quantitative goodwill impairment test. Based on the results of the
test, there were no events or circumstances that led to a determination that it is more likely than not that the fair
value of a reporting unit is less than its carrying amount with exception to lower than anticipated BCG wealth
management sales outside of the education markets which triggered an impairment of the goodwill associated
with the BCG business of the Retirement reporting unit. For the evaluation, the fair value of BCG was measured
using a discounted cash flow method. The carrying amount exceeded the fair value, resulting in a $5.6 million
goodwill impairment charge.
In 2019, an annuity reinsurance transaction as described in Note 6 triggered a requirement to evaluate the
goodwill associated with the annuity business of the Retirement reporting unit. For the evaluation, the fair value
of the Retirement reporting unit was measured using a discounted cash flow method. The carrying amount
exceeded the fair value, resulting in a $28.0 million goodwill impairment charge.
Goodwill impairment charges are reported as Other expense - goodwill and intangible asset impairments in the
Consolidated Statements of Operations.
The changes in the carrying amount of goodwill by reportable segment for the year ended December 31, 2021
were as follows:
($ in millions)
Property & Casualty
Supplemental
Retirement
Life
Total
December 31,
2020
Impairments
Acquisitions
December 31,
2021
$
$
9.5 $
19.6
4.5
9.9
43.5 $
— $
—
—
—
— $
— $
—
—
—
— $
9.5
19.6
4.5
9.9
43.5
As of December 31, 2021, the outstanding amounts of definite-lived intangible assets subject to amortization are
attributable to the acquisitions of BCG and NTA during 2019. The acquisition of BCG resulted in initial
recognition of definite-lived intangible assets subject to amortization in the amount of $14.1 million and the
acquisition of NTA resulted in initial recognition of definite-lived intangible assets subject to amortization in the
amount of $160.4 million. As of December 31, 2021 the outstanding amounts of definite-lived intangible assets
subject to amortization were as follows:
($ in millions)
At inception:
Value of business acquired
Value of distribution acquired
Value of agency relationships
Value of customer relationships
Total
Accumulated amortization and impairments:
Value of business acquired
Value of distribution acquired
Value of agency relationships
Value of customer relationships
Total
Net intangible assets subject to amortization:
Weighted Average
Useful Life (in Years)
30
17
14
10
23
$
$
94.4
54.0
17.0
9.1
174.5
(17.6)
(11.6)
(6.3)
(4.4)
(39.9)
134.6
Horace Mann Educators Corporation
Annual Report on Form 10-K 103
NOTE 7 - Goodwill and Intangible Assets (continued)
In regard to the definite-lived intangible assets in the table above, the VOBA intangible asset represents the
difference between the fair value of insurance contracts and insurance policy reserves measured in accordance
with the Company's accounting policies for insurance contracts acquired. VOBA was based on an actuarial
estimate of the present value of future distributable earnings for insurance in force as of the acquisition date. The
VODA intangible asset represents the present value of future business to be written by the existing distribution
channel. The value of agency relationships intangible asset represents the present value of the commission
overrides retained by NTA. The value of customer relationships intangible asset represents the present value of
the expected profits from existing BCG customers in force at the date of acquisition. All of the aforementioned
definite-lived intangible assets were valued using the income approach.
Estimated future amortization of the Company's definite-lived intangible assets were as follows:
($ in millions)
Year Ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total
$
$
12.1
11.2
10.5
9.8
9.2
81.8
134.6
The VOBA intangible asset is being amortized by product based on the present value of future premiums to be
received. The VODA intangible asset in respect to the acquisition of NTA is being amortized on a straight-line
basis. The VODA intangible asset in respect to the acquisition of BCG is being amortized based on the present
value of future profits to be received. The value of agency relationships intangible asset is being amortized based
on the present value of future premiums to be received. The value of customer relationships intangible asset is
being amortized based on the present value of future profits to be received.
Indefinite-lived intangible assets (not subject to amortization) as of December 31, 2021 were as follows:
($ in millions)
Trade names
State licenses
Total
December 31,
2020
Impairments
Acquisitions
December 31,
2021
$
$
7.9 $
2.9
10.8 $
— $
—
— $
— $
—
— $
7.9
2.9
10.8
The trade names intangible asset represents the present value of future savings accruing NTA and BCG by virtue
of not having to pay royalties for the use of the trade names, valued using the relief from royalty method. The
state licenses intangible asset represents the regulatory licenses held by NTA that were valued using the cost
approach.
The Company conducts intangible asset impairment testing at least annually, or more often if events, changes or
circumstances indicate that the carrying amounts may not be recoverable. See Note 1 for further description of
impairment testing.
At October 1, 2021, the Company performed a qualitative assessment to determine whether it was necessary to
perform quantitative intangible asset impairment tests. Based on the assessment of qualitative factors, there
were no events or circumstances that led to a determination that it is more likely than not that the fair value of an
intangible asset is less than its carrying amount.
At October 1, 2020, the Company performed a qualitative assessment to determine whether it was necessary to
perform quantitative intangible asset impairment tests. Based on the assessment of qualitative factors, there
were no events or circumstances that led to a determination that it is more likely than not that the fair value of an
intangible asset is less than its carrying amount with exception to lower than anticipated BCG wealth
management sales outside of the education markets which triggered a requirement to evaluate the intangible
assets associated with BCG. For the evaluation, the fair value of BCG's intangible assets were measured using
discounted cash flow methods. The carrying amounts for VODA and trade names exceeded the fair values
104 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 7 - Goodwill and Intangible Assets (continued)
resulting in a $3.6 million intangible asset impairment charge for VODA and a $0.8 million intangible asset
impairment charge for trade names.
Intangible asset impairment charges are reported as Other expense - goodwill and intangible asset impairments
in the Consolidated Statements of Operations.
NOTE 8 - Unpaid Claims and Claim Expenses
The following table is a summary reconciliation of the beginning and ending Property & Casualty unpaid claims
and claim expense reserves for the periods indicated. The table presents reserves on both a gross and net (after
reinsurance) basis. The total net Property & Casualty insurance claims and claim expense incurred amounts are
reflected in the Consolidated Statements of Operations. The end of the year gross reserve (before reinsurance)
balances and the reinsurance recoverable balances are reflected on a gross basis in the Consolidated Balance
Sheets.
($ in millions)
Property & Casualty segment
Gross reserves, beginning of year(1)
Less: reinsurance recoverables
Net reserves, beginning of year(2)
Incurred claims and claim expenses:
Claims occurring in the current year
Decrease in estimated reserves for claims occurring in prior years(3)
Total claims and claim expenses incurred(4)
Claims and claim expense payments for claims occurring during:
Current year
Prior years
Total claims and claim expense payments
Net reserves, end of year(2)
Plus: reinsurance recoverables
Gross reserves, end of year(1)
Years Ended December 31,
2021
2020
2019
$
$
372.2 $
112.9
259.3
455.1
(7.2)
447.9
307.1
148.0
455.1
252.1
110.3
362.4 $
387.0 $
120.5
266.5
441.2
(10.2)
431.0
291.4
146.8
438.2
259.3
112.9
372.2 $
367.2
89.7
277.5
483.1
(7.5)
475.6
329.5
157.1
486.6
266.5
120.5
387.0
(1)
(2)
(3)
(4)
Unpaid claims and claim expenses as reported in the Consolidated Balance Sheets also include reserves for Supplemental, Retirement and
Life of $63.5 million, $66.6 million and $55.9 million as of December 31, 2021, 2020 and 2019, respectively, in addition to Property &
Casualty reserves.
Reserves are net of anticipated reinsurance recoverables.
Shows the amounts by which the Company decreased its reserves in each of the periods indicated for claims occurring in previous periods to
reflect subsequent information on such claims and changes in their projected final settlement costs. Also refer to the paragraphs below for
additional information regarding prior years' reserve development recognized in 2021, 2020 and 2019.
Benefits, claims and settlement expenses as reported in the Consolidated Statements of Operations also include amounts for Supplemental,
Retirement and Life of $169.8 million, $137.9 million, and $109.5 million for the years ended December 31, 2021, 2020 and 2019,
respectively, in addition to Property & Casualty amounts.
Underwriting results for Property & Casualty are significantly influenced by estimates of the Company's ultimate
liability for insured events. There is a high degree of uncertainty inherent in the estimates of ultimate losses
underlying the liability for unpaid claims and claim settlement expenses. This inherent uncertainty is particularly
significant for liability-related exposures due to the extended period, often many years, which transpires between
a loss event, receipt of related claims data from policyholders and ultimate settlement of the claim. Reserves for
Property & Casualty claims include provisions for payments to be made on reported claims (case reserves),
IBNR claims and associated settlement expenses (together, loss reserves). The process by which these reserves
are established requires reliance upon estimates based on known facts and on interpretations of circumstances,
including the Company's experience with similar cases and historical trends involving claim payments and
related patterns, pending levels of unpaid claims and product mix, as well as other factors including court
decisions, economic conditions, public attitudes and medical costs.
The Company believes the Property & Casualty loss reserves are appropriately established based on available
facts, laws, and regulations. The Company calculates and recognizes a single best estimate of the reserve
(which is equal to the actuarial point estimate) as of each reporting date, for each line of business and its
coverages for reported losses and for IBNR losses and as a result, the Company believes no other estimate is
Horace Mann Educators Corporation
Annual Report on Form 10-K 105
NOTE 8 - Unpaid Claims and Claim Expenses (continued)
better than the recognized amount. Due to uncertainties involved, the ultimate cost of losses may vary materially
from recognized amounts.
The Company continually updates loss estimates using both quantitative and qualitative information from its
reserving actuaries and information derived from other sources. Adjustments may be required as information
develops which varies from experience, or, in some cases, augments data which previously was not considered
sufficient for use in determining liabilities. The effects of these adjustments may be significant and are charged
or credited to income in the period in which the adjustments are made.
Numerous risk factors will affect more than one product line. One of these factors is changes in claim
department practices, including claim closure rates, number of claims closed without payment, the use of third-
party claim adjusters and the level of needed case reserve estimated by the adjuster. Other risk factors include
changes in claim frequency, changes in claim severity, regulatory and legislative actions, court actions, changes
in economic conditions and trends (e.g., medical costs, labor rates and the cost of materials), the occurrence of
unusually large or frequent catastrophic loss events, timeliness of claim reporting, the state in which the claim
occurred and degree of claimant fraud. The extent of the impact of a risk factor will also vary by coverages
within a product line. Individual risk factors are also subject to interactions with other risk factors within product
line coverages.
While all product lines are exposed to these risks, there are some loss types or product lines for which the
financial effect will be more significant. For instance, given the relatively large proportion (approximately 74.0%
as of December 31, 2021) of the Company's reserves that are in the longer-tail auto liability coverages,
regulatory and court actions, changes in economic conditions and trends, and medical costs could be expected
to impact this product line more extensively than others.
Reserves are established for claims as they occur for each line of business based on estimates of the ultimate
cost to settle the claims. The actual loss results are compared to prior estimates and differences are recorded as
re-estimates. The primary actuarial techniques (development of paid loss dollars, development of reported loss
dollars, methods based on expected loss ratios and methods utilizing frequency and severity of claims) used to
estimate reserves and provide for losses are applied to actual paid losses and reported losses (paid losses plus
individual case reserves set by claim adjusters) for an accident year to create an estimate of how losses are
likely to develop over time.
An accident year refers to classifying claims based on the year in which the claims occurred. For estimating
short-tail coverage reserves (e.g., homeowners and auto physical damage), which comprise approximately
26.0% of the Company's total loss reserves as of December 31, 2021, the primary actuarial technique utilized is
the development of paid loss dollars due to the relatively quick claim settlement period. As it relates to
estimating long-tail coverage reserves (primarily related to auto liability), which comprise approximately 74.0% of
the Company's total loss reserves as of December 31, 2021, the primary actuarial technique utilized is the
development of reported loss dollars due to the relatively long claim settlement period.
In all of the loss estimation techniques referred to above, a ratio (development factor) is calculated which
compares current results to results in the prior period for each accident year. Various development factors,
based on historical results, are multiplied by the current experience to estimate the development of losses of
each accident year from the current time period into the next time period. The development factors for the next
time period for each accident year are compounded over the remaining calendar years to calculate an estimate
of ultimate losses for each accident year. Occasionally, unusual aberrations in loss patterns are caused by
factors such as changes in claim reporting, settlement patterns, unusually large losses, process changes, legal
or regulatory environment changes, and other influences. In these instances, analyses of alternate development
factor selections are performed to evaluate the effect of these factors and judgment is applied to make
appropriate development factor assumptions needed to develop a best estimate of ultimate losses. Paid losses
are then subtracted from estimated ultimate losses to determine the indicated loss reserves. The difference
between indicated reserves and recorded reserves is the amount of reserve re-estimate.
Reserves are re-estimated quarterly. When new development factors are calculated from actual losses that differ
from estimated development factors used in previous reserve estimates, assumptions about losses and required
reserves are revised based on the new development factors. Changes to reserves are recognized in the period in
which development factor changes result in reserve re-estimates.
Claim count estimates are also established for claims as they occur for each line of business based on estimates
of the ultimate claim counts. These counts are derived by counting the number of claimants by insurance
106 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 8 - Unpaid Claims and Claim Expenses (continued)
coverage. The primary actuarial techniques (development of paid claim counts and development of reported
claim counts) used to estimate ultimate claim counts are applied to actual paid claim counts and reported claim
counts (paid claims plus individual unpaid claims set by claim adjusters) for an accident year to create an
estimate of how claims are likely to develop over time. An accident year refers to classifying claims based on the
year in which the claim occurred. The ultimate claim count generally gives equal consideration to the results of
the two actuarial techniques described.
Occasionally, unusual aberrations in claim reporting patterns or claim payment patterns may occur. In these
instances, analyses of alternate development factor selections are performed to evaluate the effect of these
factors and judgment is applied to make appropriate development factor assumptions needed to develop a best
estimate of ultimate claims.
See tables on the following pages of Note 8 for details of the average annual percentage payout of incurred
claims by age, also referred to as a history of claims duration and tables illustrating the incurred and paid claims
development information by accident year on a net basis for the lines of homeowners, auto liability, and auto
physical damage, which represents 99.0% of the Company's incurred losses for 2021.
Numerous actuarial estimates of the types described above are prepared each quarter to monitor losses for
each line of business, including the line's individual coverages, for reported losses and IBNR. Often, several
different estimates are prepared for each detailed component, incorporating alternative analyses of changing
claim settlement patterns and other influences on losses, from which the Company selects the best estimate for
each component, occasionally incorporating additional analyses and judgment, as described above. These
estimates also incorporate the historical impact of inflation into reserve estimates, the implicit assumption being
that a multi-year average development factor represents an adequate provision. Based on the Company's review
of these estimates, as well as the review of independent reserve studies, the best estimate of required reserves
for each line of business, including the line's individual coverages, is determined by management and is
recognized for each accident year, then the required reserves for each component are summed to create the
reserve balances carried on the Company's Consolidated Balance Sheets.
Based on the Company's products and coverages, historical experience, and various actuarial methodologies
used to develop reserve estimates, the Company estimates that the potential variability of the Property &
Casualty loss reserves within a reasonable probability of other possible outcomes may be approximately plus or
minus 6.0% of reserves, which equates to plus or minus approximately $12.0 million of net income as of
December 31, 2021. Although this evaluation reflects the most likely outcomes, it is possible the final outcome
may fall below or above these estimates.
Net favorable development of total reserves for Property & Casualty claims occurring in prior years was $7.2
million in 2021, $10.2 million in 2020 and $7.5 million in 2019. In 2021, the favorable development was the result
of favorable loss trends in auto and homeowners loss emergence for accident years 2020 and prior. In 2020, the
favorable development was predominantly the result of favorable loss trends in property for accident years 2019
and prior including the recognition of $4.8 million of subrogation received on the 2018 Camp Fire event. In 2019,
the favorable development was predominantly the result of favorable loss trends in auto for accident years 2018
and prior.
The Company completes a detailed study of Property & Casualty reserves based on information available at the
end of each quarter and year. Trends of reported losses (paid amounts and case reserves on claims reported to
the Company) for each accident year are reviewed and ultimate loss costs for those accident years are
estimated. The Company engages an independent property and casualty actuarial consulting firm to prepare an
independent study of the Company's Property & Casualty reserves at December 31st of each year. The result of
the independent actuarial study at December 31, 2021 was consistent with management's analysis and selected
estimates and did not result in any adjustments to the Company's Property & Casualty reserves recognized.
At the time each of the reserve analyses was performed, the Company believed that each estimate was based
upon sound methodology and such methodologies were appropriately applied and that there were no trends
which indicated the likelihood of future loss reserve development. The financial impact of the net reserve
development was therefore accounted for in the period that the development was determined.
No other adjustments were made in the determination of the liabilities during the periods covered by these
consolidated financial statements. Management believes that, based on data currently available, it has
reasonably estimated the Company's ultimate losses.
Horace Mann Educators Corporation
Annual Report on Form 10-K 107
NOTE 8 - Unpaid Claims and Claim Expenses (continued)
Below is the average annual percentage payout of incurred claims by age, also referred to as a history of claims
duration:
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years
Homeowners
Auto liability
Auto physical damage
2
1
3
7
79.6 % 17.1 % 2.0 % 0.6 % 0.5 % 0.2 % —
40.0 % 34.2 % 14.1 % 6.5 % 3.3 % 1.3 % 0.5 % 0.1 %
95.6 % 4.7 % (0.3) % —
8
—
—
—
—
—
5
6
4
9
10
—
—
—
—
—
—
The following tables illustrate the incurred and paid claims development by accident year on a net basis for the
lines of homeowners, auto liability and auto physical damage. Conditions and trends that have affected the
development of these reserves in the past will not necessarily reoccur in the future. It may not be appropriate to
use this cumulative history in the projection of future performance.
The information about incurred and paid claims development for the years ended December 31, 2012 to 2020 is
presented as unaudited supplementary information.
108 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 8 - Unpaid Claims and Claim Expenses (continued)
($ in millions)
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
Homeowners
Years Ended December 31,
As of December 31, 2021
Total of
Incurred-
But-Not-
Reported
Liabilities Plus
Expected
Development
on Reported
Claims
Cumulative
Number of
Reported
Claims
Accident
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
$
108.8
$
109.2
$
109.4
$
106.5
$
106.3
$
106.3
$
106.0
$
106.0
$
106.0
$
106.0
$
105.6
107.5
111.6
104.0
113.5
111.7
102.4
109.1
115.1
115.9
102.3
106.8
114.4
118.6
126.3
101.8
106.6
114.1
117.0
129.8
166.8
101.7
106.6
115.1
117.9
132.7
157.4
130.4
101.7
106.4
114.9
117.9
130.7
158.9
129.9
155.7
101.7
106.4
114.9
117.9
130.8
158.1
132.1
151.9
150.2
Total
$ 1,270.0
—
—
—
—
—
0.3
0.4
2.5
11.1
22.6
21.6
19.2
20.1
18.7
19.9
19.9
21.1
17.5
19.6
15.5
($ in millions)
Homeowners
Cumulative Paid Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
Years Ended December 31,
Accident
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
$
84.3
$
101.6
$
104.2
$
105.2
$
105.6
$
105.9
$
106.0
$
106.0
$
106.0
$
106.0
76.9
96.6
83.3
99.4
103.0
90.7
101.0
105.7
109.3
95.8
101.5
106.1
111.9
113.2
106.8
101.7
106.3
113.3
115.1
128.5
130.5
101.7
106.4
114.6
117.5
129.8
152.4
103.8
101.7
106.4
114.9
117.7
130.0
157.0
126.2
106.8
Total
Outstanding prior to 2012
Prior years paid
Liabilities for claims and
claim adjustment
expenses, net of
reinsurance
101.7
106.4
114.7
117.8
130.5
157.4
129.1
138.7
114.9
1,217.2
—
—
$
52.8
Horace Mann Educators Corporation
Annual Report on Form 10-K 109
NOTE 8 - Unpaid Claims and Claim Expenses (continued)
($ in millions)
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
Auto Liability
Years Ended December 31,
As of December 31, 2021
Total of
Incurred-
But-Not-
Reported
Liabilities Plus
Expected
Development
on Reported
Claims
Cumulative
Number of
Reported
Claims
Accident
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
$
156.4
$
153.8
$
150.3
$
149.3
$
147.6
$
145.8
$
145.6
$
145.5
$
145.9
$
145.8
$
153.9
152.9
155.1
150.7
157.2
165.5
150.7
158.5
172.6
180.4
148.1
159.9
177.0
184.4
188.0
148.0
159.8
178.3
184.6
188.8
200.3
148.1
159.4
178.7
186.6
188.6
195.3
181.1
148.3
159.3
179.2
188.1
189.1
192.9
180.1
137.0
147.7
159.4
178.9
189.2
191.7
189.8
176.7
134.9
142.2
Total
$ 1,656.3
—
—
0.2
0.4
0.5
1.9
3.8
8.9
20.1
55.3
18.6
19.4
20.3
20.8
21.3
20.1
19.5
18.9
13.1
12.8
($ in millions)
Auto Liability
Cumulative Paid Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
Years Ended December 31,
Accident
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
$
61.3
$
109.6
$
127.2
$
138.6
$
142.9
$
144.6
$
145.1
$
145.2
$
145.3
$
145.3
62.2
108.9
61.3
131.2
117.5
70.8
140.0
139.5
134.5
73.1
145.3
149.1
158.0
140.9
70.7
146.8
155.8
170.1
166.8
139.5
77.5
147.4
157.6
174.5
177.8
166.6
141.5
69.7
147.4
158.6
176.7
184.5
179.8
168.6
129.1
51.5
Total
Outstanding prior to 2012
Prior years paid
Liabilities for claims and
claim adjustment
expenses, net of
reinsurance
147.5
158.8
177.7
188.1
185.8
180.7
155.5
94.0
52.9
1,486.3
1.5
—
$
171.5
110 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 8 - Unpaid Claims and Claim Expenses (continued)
($ in millions)
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
Auto Physical Damage
Years Ended December 31,
As of December 31, 2021
Total of
Incurred-
But-Not-
Reported
Liabilities Plus
Expected
Development
on Reported
Claims
Cumulative
Number of
Reported
Claims
Accident
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
$
83.8
$
82.3
$
83.4
$
83.4
$
83.4
$
83.3
$
83.3
$
83.3
$
83.3
$
83.3
$
91.4
88.9
95.6
88.7
95.6
99.3
88.6
95.4
98.0
112.4
88.5
95.2
97.6
109.5
115.5
88.5
95.2
97.5
109.3
111.8
109.0
88.5
95.2
97.6
109.6
110.5
108.9
111.6
88.5
95.2
97.6
109.6
110.6
108.3
110.5
87.0
88.4
95.2
97.6
109.5
110.5
108.3
110.0
86.9
105.0
Total
$
994.7
—
—
—
—
—
—
—
(0.2)
(0.8)
(6.7)
78.2
80.9
87.9
87.5
93.2
91.3
94.5
92.2
68.8
69.7
($ in millions)
Auto Physical Damage
Cumulative Paid Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
Years Ended December 31,
Accident
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
$
80.5
$
83.4
$
83.4
$
83.4
$
83.3
$
83.3
$
83.3
$
83.3
$
83.3
$
83.3
85.1
88.7
88.9
88.6
95.4
92.1
88.5
95.3
97.9
106.5
88.5
95.3
97.7
109.7
105.2
88.5
95.3
97.6
109.5
110.8
103.6
88.5
95.2
97.6
109.6
110.7
109.1
106.2
88.4
95.2
97.6
109.6
110.6
108.3
110.7
84.1
Total
Outstanding prior to 2012
Prior years paid
Liabilities for claims and
claim adjustment
expenses, net of
reinsurance
88.4
95.2
97.6
109.6
110.6
108.3
110.1
87.6
97.3
988.0
—
—
$
6.7
Horace Mann Educators Corporation
Annual Report on Form 10-K 111
NOTE 8 - Unpaid Claims and Claim Expenses (continued)
The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim
adjustment expenses in the Consolidated Balance Sheet is as follows:
($ in millions)
Property & Casualty segment
Net reserves
Homeowners
Auto liability
Auto physical damage
Other short duration lines
Total net reserves for unpaid claims and claim adjustment expense, net of reinsurance
Reinsurance recoverable on unpaid claims
Homeowners
Auto liability
Other short duration lines
Total reinsurance recoverable on unpaid claims
Insurance lines other than short duration(1)
Unallocated claims adjustment expenses
Total other than short duration and unallocated claims adjustment expenses
Year Ended
December 31,
2021
$
52.8
171.5
6.7
2.8
233.8
1.4
99.9
9.0
110.3
63.5
18.3
81.8
Gross reserves, end of year(1)
$
425.9
(1)
This line includes Supplemental, Retirement and Life reserves included in the Consolidated Balance Sheet.
NOTE 9 - Reinsurance and Catastrophes
In the normal course of business, the Company's insurance subsidiaries assume and cede reinsurance with
other insurers. Reinsurance is ceded primarily to limit losses from large events and to permit recovery of a
portion of direct losses; however, such a transfer does not relieve the originating insurance company of primary
liability.
The Company is a national underwriter and therefore has exposure to catastrophic losses in certain coastal
states and other regions throughout the U.S. Catastrophes can be caused by various events including
hurricanes, windstorms, hail, severe winter weather, wildfires and earthquakes, and the frequency and severity of
catastrophes are inherently unpredictable. The financial impact from catastrophic losses results from both the
total amount of insured exposure in the area affected by the catastrophe as well as the severity of the event. The
Company seeks to reduce its exposure to catastrophe losses through the geographic diversification of its
insurance coverage, deductibles, maximum coverage limits and the purchase of catastrophe reinsurance.
The Company's catastrophe losses incurred of approximately $78.2 million, $84.4 million and $52.0 million for
the years ended December 31, 2021, 2020 and 2019, respectively. For 2021, catastrophe losses were impacted
by winter storm events, wind/hail/tornado events, as well as wildfires, tropical storms and hurricanes.
112 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 9 - Reinsurance and Catastrophes (continued)
The total amounts of reinsurance recoverable on unpaid insurance reserves classified as assets and reported in
Other assets in the Consolidated Balance Sheets were as follows:
($ in millions)
Reinsurance recoverables on reserves and unpaid claims
December 31,
2021
2020
Property & Casualty
Reinsurance companies
State insurance facilities
Life and health
Total
$
$
10.4 $
99.9
9.3
119.6 $
13.2
99.7
9.6
122.5
The Company recognizes the cost of reinsurance premiums over the contract periods for such premiums in
proportion to the insurance protection provided. Amounts recoverable from reinsurers for unpaid claims and
claim settlement expenses, including estimated amounts for unsettled claims, IBNR claims and policy benefits,
are estimated in a manner consistent with the insurance liability associated with the policy. The effects of
reinsurance on premiums written and contract deposits; premiums and contract charges earned; and benefits,
claims and settlement expenses were as follows:
($ in millions)
Year Ended December 31, 2021
Premiums written and contract deposits(2)
Premiums and contract charges earned
Benefits, claims and settlement expenses
Year Ended December 31, 2020
Premiums written and contract deposits(2)
Premiums and contract charges earned
Benefits, claims and settlement expenses
Year Ended December 31, 2019
Premiums written and contract deposits(2)
Premiums and contract charges earned
Benefits, claims and settlement expenses
Gross
Amount
Ceded to
Other
Companies(1)
Assumed
from Other
Companies
Net
Amount
$
1,370.1 $
913.2
619.3
23.1 $
33.3
7.8
9.4 $
9.7
6.2
1,356.4
889.6
617.7
1,369.9
949.6
475.7
1,337.8
917.6
633.9
20.4
28.8
(86.2)
23.9
30.4
56.3
9.8
9.9
7.0
10.6
10.8
7.5
1,359.3
930.7
568.9
1,324.5
898.0
585.1
(1)
(2)
Excludes the annuity reinsurance agreement accounted for using the deposit method that is discussed in Note 6.
This measure is not based on accounting principles generally accepted in the U.S. (non-GAAP). An explanation of this non-GAAP measure is
contained in the Glossary of Selected Terms included as an exhibit in the Company's reports filed with the SEC.
There were no losses from uncollectible reinsurance recoverables in the three years ended December 31, 2021.
Past due reinsurance recoverables as of December 31, 2021 were not material.
The Company maintains catastrophe excess of loss reinsurance coverage. For 2021, the Company's
catastrophe excess of loss coverage consisted of one contract in addition to a minimal amount of coverage by
the Florida Hurricane Catastrophe Fund (FHCF). The catastrophe excess of loss contract provided 95%
coverage for catastrophe losses above a retention of $25.0 million per occurrence up to $170.0 million per
occurrence. This contract consisted of three layers, each of which provided for one mandatory reinstatement.
The layers were $25.0 million excess of $25.0 million, $40.0 million excess of $50.0 million and $85.0 million
excess of $90.0 million.
For liability coverages, in 2021, the Company reinsured each loss above a retention of $1.0 million with coverage
up to $5.0 million on a per occurrence basis and $20.0 million in a clash event. A clash cover is a reinsurance
casualty excess contract requiring two or more casualty coverages or policies issued by the Company to be
involved in the same loss occurrence for coverage to apply. For property coverages, in 2021, the Company
reinsured each loss above a retention of $1.0 million up to $5.0 million on a per risk basis, including catastrophe
Horace Mann Educators Corporation
Annual Report on Form 10-K 113
NOTE 9 - Reinsurance and Catastrophes (continued)
losses. Also, the Company could submit to the reinsurers two per risk losses from the same occurrence for a
total of $8.0 million of property recovery in any one event.
The maximum individual life insurance risk retained by the Company is $0.5 million on any individual life, while
either $0.1 million or $0.125 million is retained on each group life policy depending on the type of coverage.
Excess amounts are reinsured. The Company also maintains a life catastrophe reinsurance program. For 2021,
the Company reinsured 100% of the catastrophe risk in excess of $1.0 million up to $35.0 million per
occurrence, with one reinstatement. The Company's life catastrophe risk reinsurance program covers acts of
terrorism and includes nuclear, biological and chemical explosions but excludes other acts of war.
The Company retains all of the risk on its supplemental health product lines, including accidental death risk
embedded within certain products. However, the Company’s other accidental death and dismemberment risk
issued through all other policies and riders are ceded 100%.
NOTE 10 - Debt
Indebtedness and scheduled maturities consisted of the following:
($ in millions)
Short-term debt
Bank Credit Facility
Long-term debt(1)
Interest
Rates
Final
Maturity
December 31,
2021
2020
Variable
2026
$
249.0 $
135.0
4.50% Senior Notes, Aggregate principal amount of
$250.0 less unaccrued discount of $0.3 and
$0.4 and unamortized debt issuance costs
of $1.1 and $1.3
Federal Home Loan Bank borrowing
Total
4.50%
0.00%
2025
2022
248.6
5.0
502.6 $
248.3
54.0
437.3
$
(1)
The Company designates debt obligations as "long-term" based on maturity date at issuance.
Credit Agreement with Financial Institutions (Bank Credit Facility)
Effective July 12, 2021, the Company, as borrower, amended its Credit Agreement (Bank Credit Facility). The
amended Bank Credit Facility increased the amount available on the senior revolving credit facility from $225.0
million to $325.0 million. PNC Bank, National Association and JPMorgan Chase Bank, N.A. serve as joint lead
arrangers under the amended Bank Credit Facility, with The Northern Trust Company, KeyBank National
Association, U.S. Bank National Association, Illinois National Bank and Comerica Bank as lenders participating
in the syndicate. Terms and conditions of the Bank Credit Facility are substantially consistent with the prior
agreement, with an interest rate based on LIBOR plus 115 basis points.
As of December 31, 2021, the amount outstanding on the senior revolving credit facility was $249.0 million. The
$76.0 million unused portion of the Bank Credit Facility is available for use and subject to a variable commitment
fee, which was 0.15% on an annual basis at December 31, 2021.
On December 31, 2021, the Company utilized $114.0 million of the senior revolving credit facility to fund a
portion of the acquisition of Madison National that occurred effective January 1, 2022, and the Company
expects that the unused portion of the senior revolving credit facility will be available for ongoing working capital,
capital expenditures and general corporate expenditures.
Senior Notes
As of December 31, 2021, the Company had outstanding $250.0 million aggregate principal amount of 4.50%
Senior Notes (Senior Notes), which will mature on December 1, 2025, issued at a discount of 0.265% resulting in
an effective yield of 4.53%. Interest on the Senior Notes is payable semi-annually at a rate of 4.50%. The Senior
Notes are redeemable in whole or in part, at any time, at the Company's option, at a redemption price equal to
the greater of (1) 100% of the principal amount of the notes being redeemed or (2) the sum of the present values
of the remaining scheduled payments of principal and interest thereon discounted, on a semi-annual basis, at
the Treasury yield (as defined in the indenture) plus 35 basis points, plus, in either of the above cases, accrued
interest to the date of redemption.
114 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 10 - Debt (continued)
Federal Home Loan Bank Borrowings
In 2017, Horace Mann Insurance Company (HMIC) became a member of the FHLB, which provides HMIC with
access to collateralized borrowings and other FHLB products. As membership requires the ownership of
membership stock, in June 2017, HMIC purchased common stock to meet the membership requirement. Any
borrowing from the FHLB requires the purchase of FHLB activity-based common stock in an amount equal to
4.5% of the borrowing, or a lower percentage - such as 2.0% based on the Reduced Capitalization Advance
Program. In the fourth quarter of 2017, HMIC purchased common stock to meet the activity-based requirement.
In 2021, the Board authorized a maximum amount equal to 15% of net aggregate admitted assets less separate
account assets of the insurance subsidiaries for FHLB borrowings. As of December 31, 2021, the Company had
$5.0 million of borrowings outstanding with FHLB that mature on May 16, 2022. There is no interest on this
borrowing. HMIC's FHLB borrowings of $5.0 million are included in Long-term debt in the Consolidated Balance
Sheets.
Covenants
The Company is in compliance with all of the financial covenants contained in the Senior Notes indenture and
the Bank Credit Facility agreement, consisting primarily of relationships of (1) debt to capital, (2) net worth, as
defined in the financial covenants, (3) insurance subsidiaries' risk-based capital and (4) securities subject to
funding agreements and repurchase agreements.
NOTE 11 - Income Taxes
The income tax assets and liabilities included in Other assets and Other liabilities, respectively, in the
Consolidated Balance Sheets were as follows:
($ in millions)
Income tax (asset) liability
Current
Deferred
December 31,
2021
2020
$
(9.5) $
190.5
(12.6)
206.7
Horace Mann Educators Corporation
Annual Report on Form 10-K 115
NOTE 11 - Income Taxes (continued)
Deferred tax assets and liabilities are recognized for all future tax consequences attributable to "temporary
differences" between the financial statement carrying value of existing assets and liabilities and their respective
tax bases. There are no deferred tax liabilities that have not been recognized. The "temporary differences" that
gave rise to the deferred tax balances were as follows:
($ in millions)
Deferred tax assets
Unearned premium reserve reduction
Compensation accruals
Impaired securities
Other comprehensive income - net funded status of benefit plans
Discounting of unpaid claims and claim expense tax reserves
Intangibles
Postretirement benefits other than pensions
Total gross deferred tax assets
Deferred tax liabilities
Other comprehensive income - net unrealized gains on securities
Deferred policy acquisition costs
Life insurance future policy benefit reserve
Life insurance future policy benefit reserve (transitional rule)
Discounting of unpaid claims and claim expense tax reserves
(transitional rule)
Investment related adjustments
Intangibles
Other, net
Total gross deferred tax liabilities
Net deferred tax liability
December 31,
2021
2020
$
11.7 $
9.6
2.3
2.7
2.5
0.1
0.3
29.2
101.1
37.3
30.7
8.5
0.6
37.3
—
4.2
219.7
190.5 $
$
11.5
9.5
2.1
3.0
2.5
—
0.3
28.9
124.7
36.3
26.7
10.7
0.8
34.2
0.2
2.0
235.6
206.7
The Company evaluated sources and character of income, including historical earnings, loss carryback potential,
taxable income from future reversals of existing taxable temporary differences, future taxable income exclusive
of reversing temporary differences, and taxable income from prudent and feasible tax planning strategies.
Although realization of deferred tax assets is not assured, the Company believes it is more likely than not that
gross deferred tax assets will be fully realized and that a valuation allowance with respect to the realization of the
total gross deferred tax assets was not necessary as of December 31, 2021 and 2020.
The components of the provision for income tax expense were as follows:
($ in millions)
Current
Deferred
Total income tax expense
Years Ended December 31,
2021
2020
2019
$
$
27.7 $
16.9 $
4.4
9.4
32.1 $
26.3 $
31.5
20.5
52.0
116 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 11 - Income Taxes (continued)
Income tax expense for the following periods differed from the expected tax computed by applying the federal
corporate tax rate of 21% for 2021, 2020 and 2019 to income before income taxes as follows:
($ in millions)
Expected federal tax on income
Add (deduct) tax effects of:
Tax-exempt interest
Dividend received deduction
Goodwill impairment
CARES Act net operating loss carryback
Employee share-based compensation
Compensation deduction limitation
Prior year adjustments
Other, net
Income tax expense provided on income
Years Ended December 31,
2021
2020
2019
$
36.7 $
33.5 $
49.6
(3.9)
(2.2)
—
—
(1.3)
1.5
0.1
1.2
(4.2)
(1.5)
0.2
(2.8)
(0.5)
0.7
(0.2)
1.1
$
32.1 $
26.3 $
(4.2)
(1.4)
5.9
—
0.3
0.7
(0.7)
1.8
52.0
The Company's federal income tax returns for years prior to 2014 are no longer subject to examination by the
Internal Revenue Service (IRS).
The Company recognizes tax benefits from tax return positions only if it is more likely than not the position will
be sustainable, upon examination, on its technical merits and any relevant administrative practices or
precedents. As a result, the Company applies a more likely than not recognition threshold for all tax
uncertainties.
The Company records liabilities for uncertain tax filing positions where it is more likely than not that the position
will not be sustainable upon audit by taxing authorities. These liabilities are reevaluated routinely and are
adjusted appropriately based upon changes in facts or law. The Company has no unrecorded liabilities from
uncertain tax filing positions.
HMEC and its subsidiaries file a consolidated federal income tax return. The federal income tax sharing
agreements between HMEC and its subsidiaries, as approved by the Board, provide that tax on income is
charged to each subsidiary as if it were filing a separate tax return with the limitation that each subsidiary will
receive the benefit of any losses or tax credits to the extent utilized in the consolidated tax return. Intercompany
balances are settled quarterly with a final settlement after filing the consolidated federal income tax return with
the IRS. National Teachers Associates Life Insurance Company and NTA Life Insurance Company of New York
are not included in HMEC's consolidated federal income tax return and will file separate federal income tax
returns until they are eligible to participate in HMEC's consolidated federal income tax return. This is expected to
occur in 2025.
Horace Mann Educators Corporation
Annual Report on Form 10-K 117
NOTE 11 - Income Taxes (continued)
A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and
penalties, is as follows:
($ in millions)
Balance as of the beginning of the year
Increases related to prior year tax positions
Decreases related to prior year tax positions
Increases related to current year tax positions
Settlements
Lapse of statute
Balance as of the end of the year
Years Ended December 31,
2021
2020
2019
$
$
2.3 $
—
(0.1)
—
—
(0.5)
1.7 $
2.0 $
0.2
—
0.1
—
—
2.3 $
1.8
0.1
—
0.1
—
—
2.0
The Company's effective tax rate would be affected to the extent there were unrecognized tax benefits that
could be recognized. There are no positions for which it is reasonably possible that the total amount of
unrecognized tax benefit will significantly change within the next 12 months.
The Company classifies all tax related interest and penalties as income tax expense.
Interest and penalties were both immaterial in each of the years ended December 31, 2021, 2020 and 2019.
NOTE 12 - Operating Leases
The Company has various operating lease agreements, primarily for real estate offices. Such leases have
remaining lease terms of 1 year to 4 years, some of which may include options to extend certain leases for up to
an additional 25 years.
The components of lease expense were as follows:
($ in millions)
Operating lease cost
Short-term lease cost
Total lease cost
Years Ended December 31,
2021
2020
$
$
4.3 $
0.1
4.4 $
4.5
0.1
4.6
Supplemental cash flow information related to operating leases was as follows:
($ in millions)
Years Ended December 31,
2021
2020
Cash paid for amounts included in the measurement of lease liabilities
$
4.3 $
4.5
Supplemental balance sheet information related to operating leases were as follows:
($ in millions, except lease terms and discount rates)
Assets:
Right of use assets, included in Other assets
Liabilities:
Operating lease liabilities, included in Other liabilities
Weighted average remaining lease term
Weighted average discount rate
December 31,
2021
2020
$
$
9.0
10.0
$
$
3.07
3.67 %
12.6
13.6
3.63
3.75 %
118 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 12 - Operating Leases (continued)
Future minimum lease payments under non-cancellable operating leases as of December 31, 2021 are as
follows:
($ in millions)
Year Ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total future minimum lease payments
Less imputed interest
Total
$
$
4.2
3.5
2.0
0.8
—
—
10.5
(0.5)
10.0
NOTE 13 - Shareholders' Equity and Share-Based Compensation
Share Repurchase Program and Treasury Shares
On September 30, 2015, the Board authorized a share repurchase program allowing repurchases of up to $50.0
million of HMEC's common stock, par value $0.001 (Program). The Program authorizes the repurchase of
common shares in open market or privately negotiated transactions, from time to time, depending on market
conditions. The Program does not have an expiration date and may be limited or terminated at any time without
notice.
During 2021, the Company repurchased 140,758 shares of its common stock, or 0.3% of the shares outstanding
as of December 31, 2020, at an aggregate cost of $5.3 million, or an average price of $37.49 per share. During
2020, the Company repurchased 52,095 shares of its common stock, or 0.1% of the shares outstanding as of
December 31, 2019, at an aggregate cost of $2.2 million, or an average price of $41.17 per share. During 2019,
the Company did not repurchase any shares of its common stock. In total and through December 31, 2021,
1,040,226 shares were repurchased under the Program at an average price of $33.33 per share. The repurchase
of shares was funded through use of cash. As of December 31, 2021, $15.3 million remained authorized for
future share repurchases under the Program.
At December 31, 2021, the Company held 25,043,337 shares in treasury.
Authorization of Preferred Stock
In 1996, the shareholders of HMEC approved authorization of 1,000,000 shares of 0.001 par value preferred
stock. The Board is authorized to (1) direct the issuance of the preferred stock in one or more series, (2) fix the
dividend rate, conversion or exchange rights, redemption price and liquidation preference, of any series of the
preferred stock, (3) fix the number of shares for any series and (4) increase or decrease the number of shares of
any series. No shares of preferred stock were issued or outstanding at December 31, 2021 and 2020.
2010 Comprehensive Executive Compensation Plan
In 2010, the shareholders of HMEC approved the 2010 Comprehensive Executive Compensation Plan (the
Comprehensive Plan). The purpose of the Comprehensive Plan is to aid the Company in attracting, retaining,
motivating and rewarding employees and non-employee Directors; to provide for equitable and competitive
compensation opportunities, including deferral opportunities; to encourage long-term service; to recognize
individual contributions and reward achievement of Company goals; and to promote the creation of long-term
value for the Company's shareholders by closely aligning the interests of plan participants with those of
shareholders. The Comprehensive Plan authorizes share-based and cash-based incentives for plan participants.
In 2012, the shareholders of HMEC approved the implementation of a fungible share pool under which grants of
full value shares will count against the share limit as two and one half shares for every share subject to a full
value award. In May 2021, the shareholders of HMEC approved an amendment and restatement of the
Comprehensive Plan which included an increase of 2,500,000 in the number of shares of common stock
reserved for issuance under the Comprehensive Plan. As of December 31, 2021, approximately 2,688,416
Horace Mann Educators Corporation
Annual Report on Form 10-K 119
NOTE 13 - Shareholders' Equity and Share-Based Compensation (continued)
shares were available for grant under the Comprehensive Plan. Shares of common stock issued under the
Comprehensive Plan may be either authorized and unissued shares of HMEC or shares that have been
reacquired by HMEC; however, new shares have been issued historically.
As further described in the paragraphs below, CSUs, stock options and RSUs under the Comprehensive Plan
were as follows:
CSUs related to deferred compensation for Directors
CSUs related to deferred compensation for employees
Stock options
RSUs related to incentive compensation
Total
Director Common Stock Units
December 31,
2021
26,313
16,571
1,032,128
834,981
1,909,993
2020
23,609
20,467
916,287
823,393
1,783,756
2019
28,526
25,194
908,557
889,438
1,851,715
Deferred compensation for Directors is in the form of CSUs, which represent an equal number of common
shares to be issued in the future. The outstanding units of Directors serving on the Board accrue dividends at the
same rate as dividends paid to HMEC's shareholders. These dividends are reinvested into additional CSUs.
Employee Common Stock Units
Deferred compensation for employees is in the form of CSUs, which represent an equal number of common
shares to be issued in the future. Distributions of employee deferred compensation are allowed to be either in
common shares or cash. Through December 31, 2021, all distributions have been in cash. The outstanding units
accrue dividends at the same rate as dividends paid to HMEC's shareholders. These dividends are reinvested
into additional CSUs.
Stock Options
Options to purchase shares of HMEC common stock may be granted to executive officers, other employees and
Directors. The options become exercisable in installments based on service generally beginning in the first year
from the date of grant and generally become fully vested 4 years from the date of grant. The options generally
expire 7 to 10 years from the date of grant. The exercise price of the option is equal to the market price of
HMEC's common stock on the date of grant resulting in a grant date intrinsic value of $0.
Changes in outstanding options were as follows:
December 31, 2020
Granted
Vested
Exercised
Forfeited
Expired
December 31, 2021
Weighted
Average
Option Price
per Share
$38.99
$40.10
$41.27
$31.35
$41.39
$42.23
$39.10
Range of
Option Prices
per Share
$28.88-$42.95
$40.10-$40.10
$28.88-$42.95
$31.01-$32.35
$41.10-$42.73
$41.83-$42.73
$28.88-$42.95
Options
Outstanding
Vested and
Exercisable
916,287
183,272
—
(8,015)
(49,411)
(10,005)
1,032,128
437,197
—
163,519
(8,015)
—
—
592,701
120 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 13 - Shareholders' Equity and Share-Based Compensation (continued)
Option information segregated by ranges of exercise prices were as follows:
December 31, 2021
Total Outstanding Options
Vested and Exercisable Options
Range of
Option
Prices
per Share
$28.88-$33.41
$36.04-$41.95
$42.73-$42.73
Weighted
Average
Option Price
per Share
$30.81
$40.61
$42.95
$39.10
Options
195,192
687,556
149,380
1,032,128
Weighted
Average
Remaining
Term
3.59
7.52
6.18
6.58
Weighted
Average
Option Price
per Share
$30.81
$40.84
$42.95
$37.94
Weighted
Average
Remaining
Term
3.59
6.35
6.18
5.41
Options
195,192
285,474
112,035
592,701
Total
The weighted average exercise prices of vested and exercisable options as of December 31, 2020 and 2019
were $36.59 and $34.81, respectively.
As of December 31, 2021, based on a closing stock price of $38.70 per share, the aggregate intrinsic (in-the-
money) values of vested options and all options outstanding were $1.5 million and $1.5 million, respectively.
Restricted Stock Units
RSUs may be granted to executive officers, other employees and Directors and represent an equal number of
common shares to be issued in the future. The RSUs vest in installments based on service or attainment of
performance criteria generally beginning in the first year from the date of grant and generally become fully vested
1 to 4 years from the date of grant. The outstanding units accrue dividends at the same rate as dividends paid to
HMEC's shareholders. These dividends are reinvested into additional RSUs.
Changes in outstanding RSUs were as follows:
December 31, 2020
Granted(1)
Adjustment for performance
achievement
Vested
Forfeited
Distributed(2)
December 31, 2021
Total Outstanding Units
Vested Units
Units
823,393
205,474
14,272
—
(47,214)
(160,944)
834,981
Weighted Average
Grant Date Fair
Value per Unit
$33.88
$41.29
$45.01
—
$43.08
$38.43
$34.50
Units
484,984
—
—
145,319
—
(160,944)
469,359
Weighted Average
Grant Date Fair
Value per Unit
$27.48
—
—
$42.15
—
—
$28.27
(1)
(2)
Includes dividends reinvested into additional RSUs.
Includes distributed units which were utilized to satisfy withholding taxes due on the distribution.
Horace Mann Educators Corporation
Annual Report on Form 10-K 121
NOTE 14 - Statutory Information and Dividend Restrictions
The insurance departments of various states in which the insurance subsidiaries of HMEC are domiciled
recognize as net income and surplus those amounts determined in conformity with statutory accounting
principles prescribed or permitted by the insurance departments, which differ in certain respects from GAAP.
HMEC has principal insurance subsidiaries domiciled in Illinois, New York and Texas. The statutory financial
statements of these subsidiaries are prepared in accordance with accounting principles prescribed or permitted
by the Illinois Department of Insurance, the New York Department of Insurance and the Texas Department of
Insurance, as applicable. Prescribed statutory accounting principles include a variety of publications of the
National Association of Insurance Commissioners (NAIC), as well as state laws, regulations and general
administrative rules.
In converting from statutory to GAAP, typical adjustments include DAC, certain reinsurance transactions, the
inclusion of statutory non-admitted assets and the inclusion of net unrealized investment gains or losses in
shareholders' equity relating to fixed maturity securities.
The following table includes selected information for HMEC's insurance subsidiaries:
($ in millions)
Consolidated net income, statutory basis
Consolidated capital and surplus, statutory basis(1)
(1)
Subject to regulatory restrictions.
Year Ended December 31,
2021
2020
2019
$
$
117.2 $
1,017.4 $
141.9 $
937.3 $
62.3
868.8
The NAIC has risk-based capital guidelines to evaluate the adequacy of statutory capital and surplus in relation
to risks assumed in investments, reserving policies, and volume and types of insurance business written. At
December 31, 2021 and 2020, the minimum statutory-basis capital and surplus required to be maintained by
HMEC's insurance subsidiaries was $123.0 million and $113.2 million, respectively. At December 31, 2021 and
2020, statutory capital and surplus of each of the Company's insurance subsidiaries was above required levels.
The restricted net assets of HMEC's insurance subsidiaries were $26.2 million and $26.9 million as of December
31, 2021 and 2020, respectively. The minimum statutory basis capital and surplus amount at each date is the
total estimated authorized control level risk-based capital for all of HMEC's insurance subsidiaries combined.
Authorized control level risk-based capital represents the minimum level of statutory basis capital and surplus
necessary before the insurance commissioner in the respective state of domicile is authorized to take whatever
regulatory actions considered necessary to protect the best interests of the policyholders and creditors of the
insurer. The amount of restricted net assets represents the combined fair value of securities on deposit with
governmental agencies for the insurance subsidiaries as required by law in various states in which the insurance
subsidiaries of HMEC conduct business.
HMEC relies largely on dividends from its insurance subsidiaries to meet its obligations for payment of principal
and interest on debt, dividends to shareholders and parent company operating expenses, including tax
payments pursuant to tax sharing agreements. Payments for share repurchase programs also have this
dependency. HMEC's insurance subsidiaries are subject to various regulatory restrictions which limit the amount
of annual dividends or other distributions, including loans or cash advances, available to HMEC without prior
approval of the insurance regulatory authorities. As a result, HMEC may not be able to receive dividends from
such subsidiaries at times and in amounts necessary to pay desired dividends to shareholders.
NOTE 15 - Retirement Plans and Other Postretirement Benefits
The Company sponsors two qualified and three non-qualified retirement plans. Substantially all employees
participate in the 401(k) plan. Both the qualified defined benefit plan and the two non-qualified supplemental
defined benefit plans have been frozen since 2002. All participants in the frozen plans are 100% vested in their
accrued benefit and all non-qualified supplemental defined benefit plan participants are receiving payments.
Certain employees participate in a non-qualified defined contribution plan.
122 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 15 - Retirement Plans and Other Postretirement Benefits (continued)
Qualified Plans
All employees participate in the 401(k) plan and receive a 100% vested 3% "safe harbor" company contribution
based on employees' eligible earnings. The Company matches each dollar of employee contributions up to a 5%
maximum — in addition to maintaining the automatic 3% "safe harbor" contribution. The matching company
contribution vests after 5 years of service. The 401(k) plan is fully funded.
The Company's policy for the frozen defined benefit plan is to contribute to the plan amounts which are
actuarially determined to provide sufficient funding to meet future benefit payments as defined by federal laws
and regulations.
For the two qualified plans, all assets are held in their respective plan trusts.
Non-qualified Plans
The non-qualified plans were established for specific employees whose otherwise eligible earnings exceeded the
statutory limits under the qualified plans. Benefit accruals under the non-qualified supplemental defined benefit
plans were frozen in 2002 and all participants are currently in payment status. Both the non-qualified frozen
supplemental defined benefit plans and the non-qualified contribution plan are unfunded plans with the
Company's contributions made at the time payments are made to participants.
Total Expense and Contribution Plans' Information
Total expense recognized for the non-qualified defined contribution, 401(k), defined benefit and supplemental
retirement plans was $9.2 million, $10.0 million and $9.3 million for the years ended December 31, 2021, 2020
and 2019, respectively.
Contributions to employees' accounts under the 401(k) plan and the non-qualified defined contribution plan, as
well as total assets of the plans, were as follows:
($ in millions)
401(k) plan
Contributions to employees' accounts
Total assets at the end of the year
Non-qualified defined contribution plan
Contributions to employees' accounts
Total assets at the end of the year
Year Ended December 31,
2021
2020
2019
$
8.2 $
8.2 $
246.9
228.4
0.1
—
0.1
—
8.2
206.2
0.1
—
Horace Mann Educators Corporation
Annual Report on Form 10-K 123
NOTE 15 - Retirement Plans and Other Postretirement Benefits (continued)
Defined Benefit Plan and Supplemental Retirement Plans
The following tables summarize the funded status of the defined benefit and supplemental retirement pension
plans as of December 31, 2021, 2020 and 2019 (the measurement dates) and identify (1) the assumptions used
to determine the projected benefit obligation and (2) the components of net pension cost for the defined benefit
plan and supplemental retirement plans for the following periods:
($ in millions)
Change in benefit obligation:
Projected benefit obligation
at beginning of year
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid
Settlements
Defined Benefit Plan
December 31,
Supplemental
Defined Benefit Plans
December 31,
2021
2020
2019
2021
2020
2019
$
24.3 $
24.8 $
25.1 $
0.6
0.5
(0.6)
(2.6)
—
0.7
0.7
1.0
(1.5)
(1.4)
0.7
1.0
—
(2.0)
—
15.7 $
—
0.3
(0.2)
(1.3)
—
15.2 $
—
0.5
1.3
(1.3)
—
15.4
—
0.6
0.5
(1.3)
—
Projected benefit obligation at end of
year
$
22.2 $
24.3 $
24.8 $
14.5 $
15.7 $
15.2
Change in plan assets:
Fair value of plan assets
at beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
Expenses paid
Settlements
Fair value of plan assets at end of year
Funded status
Prepaid (accrued) benefit expense
Total amount recognized in Consolidated
Balance Sheets, all in Other liabilities
Amounts recognized in accumulated other
comprehensive income (loss) (AOCI):
Prior service cost
Net actuarial loss
Total amount recognized in AOCI
Information for pension plans with an
accumulated benefit obligation greater
than plan assets:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
$
$
$
$
22.0 $
1.0
—
(2.6)
(0.6)
—
19.8 $
(2.4) $
23.2 $
2.3
—
(1.5)
(0.6)
(1.4)
22.0 $
(2.3) $
22.1 $
3.5
—
(2.0)
(0.4)
—
23.2 $
(1.6) $
— $
—
1.3
(1.3)
—
—
— $
(14.5) $
— $
—
1.3
(1.3)
—
—
— $
(15.7) $
—
—
1.3
(1.3)
—
—
—
(15.2)
4.9 $
5.5 $
6.7 $
8.7 $
(9.3) $
(9.9)
$
(2.4) $
(2.3) $
(1.7) $
(14.5) $
(15.7) $
(15.2)
$
$
$
— $
(7.3)
(7.3) $
— $
(7.8)
(7.8) $
— $
(8.3)
(8.3) $
— $
(6.5)
(6.5) $
— $
(6.4)
(6.4) $
—
(5.3)
(5.3)
22.2 $
22.2
19.8
24.3 $
24.3
22.0
24.8 $
24.8
23.2
14.5 $
14.5
—
15.7 $
15.7
—
15.2
15.2
—
124 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 15 - Retirement Plans and Other Postretirement Benefits (continued)
The change in the Company's AOCI for the defined benefit plans for the year ended December 31, 2021 was
primarily attributable to an increase in the discount rate and better than expected asset returns partially offset by
updates to mortality assumptions, updated census dates and an updated mortality projection scale. The change
in the Company's AOCI for the defined benefit plans for the year ended December 31, 2020 was primarily
attributable to better than expected asset returns, updates to mortality assumptions and updated census dates
partially offset by a decrease in the discount rate and an updated mortality projection scale. The change in the
Company's AOCI for the defined benefit plans for the year ended December 31, 2019 was primarily attributable
to better than expected asset returns, updates to mortality assumptions and updated census dates offset by a
decrease in the discount rate.
($ in millions)
Defined Benefit Plan
Supplemental
Defined Benefit Plans
Year Ended December 31,
Year Ended December 31,
2021
2020
2019
2021
2020
2019
Components of net periodic pension
(income) expense:
Service cost:
Benefit accrual
Other expenses
Interest cost
Expected return on plan assets
Settlement loss
Amortization of:
Prior service cost
Actuarial loss
$
Net periodic pension expense
$
Changes in plan assets and benefit
obligations included in other
comprehensive income (loss):
Prior service cost
Net actuarial loss (gain)
Amortization of:
Prior service cost
Actuarial loss
Total recognized in other
comprehensive income (loss)
Weighted average assumptions used to
determine expense:
Discount rate
Expected return on plan assets
Annual rate of salary increase
Weighted average assumptions
used to determine benefit obligations
as of December 31:
Discount rate
Expected return on plan assets
Annual rate of salary increase
*
Not applicable.
—
0.6
0.5
(0.9)
—
—
0.4
0.6
—
(0.2)
—
(0.4)
$
$
$
—
0.7
0.7
(1.0)
0.5
—
0.3
1.2
—
0.3
—
(0.8)
$
$
$
—
0.7
1.0
(1.3)
—
—
0.3
0.7
—
(1.8)
—
(0.3)
$
$
$
—
—
0.3
—
—
—
0.4
0.7
—
(0.2)
—
(0.4)
$
$
$
—
—
0.5
—
—
—
0.3
0.8
—
1.3
—
(0.3)
$
$
$
—
—
0.6
—
—
—
0.3
0.9
—
0.5
—
(0.2)
$
$
(0.6)
$
(0.5)
$
(2.1)
$
(0.6)
$
1.0
$
0.3
2.08 %
4.74 %
*
3.10 %
4.80 %
*
4.20 %
5.75 %
*
2.08 %
*
*
3.10 %
*
*
4.20 %
*
*
2.57 %
4.74 %
*
2.08 %
4.80 %
*
3.10 %
5.75 %
*
2.57 %
*
*
2.08 %
*
*
3.10 %
*
*
Horace Mann Educators Corporation
Annual Report on Form 10-K 125
NOTE 15 - Retirement Plans and Other Postretirement Benefits (continued)
The discount rates at December 31, 2021 were based on the average yield for long-term, high-grade securities
available during the benefit payout period. To set its discount rate, the Company looks to leading indicators,
including the Mercer Above Mean Yield Curve.
The assumption for the long-term rate of return on plan assets was determined by considering actual investment
experience during the lifetime of the plan, balanced with reasonable expectations of future growth considering
the various classes of assets and percentage allocation for each asset class.
The Company has an investment policy for the defined benefit pension plan that aligns the assets within the
plan's trust to an approximate allocation of 35% equity and 65% fixed income funds. Management believes this
allocation will produce the targeted long-term rate of return on assets necessary for payment of future benefit
obligations, while providing adequate liquidity for payments to current beneficiaries. Assets are reviewed against
the defined benefit pension plan's investment policy and the trustee has been directed to adjust invested assets
at least quarterly to maintain the target allocation percentages.
Fair values of the equity security funds and fixed income funds have been determined from public quotations.
The following table presents the fair value hierarchy for the Company's defined benefit pension plan assets,
excluding cash held.
($ in millions)
December 31, 2021
Asset category
Equity security funds(1)
United States
International
Fixed income funds
Short-term investment funds
Total
December 31, 2020
Asset category
Equity security funds(1)
United States
International
Fixed income funds
Short-term investments funds
Total
Fair Value Measurements at
Reporting Date Using
Total
Level 1
Level 2
Level 3
$
$
$
$
3.8 $
3.3
12.4
0.3
19.8 $
4.4 $
4.3
13.1
0.2
22.0 $
— $
—
—
0.3
0.3 $
— $
—
—
0.2
0.2 $
3.8 $
3.3
12.4
—
19.5 $
4.3 $
4.3
13.1
—
21.7 $
—
—
—
—
—
—
—
—
—
—
(1) None of the trust fund assets for the defined benefit pension plan have been invested in shares of HMEC's common stock.
There were no Level 3 assets held during the years ended December 31, 2021 and 2020.
In 2022, the Company expects amortization of net losses of $0.3 million and $0.4 million for the defined benefit
plan and the supplemental retirement plans, respectively, and expects no amortization of prior service cost for
the supplemental retirement plans to be included in net periodic pension expense.
Postretirement Benefits Other than Pensions
As of December 31, 2006, upon discontinuation of retiree medical benefits, Health Reimbursement Accounts
(HRAs) were established for eligible participants and totaled $7.3 million. As of December 31, 2021, the balance
of the previously established HRAs was $1.2 million. Funding of HRAs was $0.0 million, $0.1 million and $0.1
million for the years ended December 31, 2021, 2020 and 2019, respectively.
126 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 15 - Retirement Plans and Other Postretirement Benefits (continued)
2022 Contributions
In 2022, there is no minimum funding requirement for the Company's defined benefit plan. The following table
discloses that minimum funding requirement and the expected full year contributions for the Company's plans.
($ in millions)
Minimum funding requirement for 2021
Expected contributions (approximations) for the year ended
December 31, 2022 at the time of issuance of this Form 10-K(1)
(1) HMEC's Annual Report on Form 10-K for the year ended December 31, 2021.
Estimated Future Benefit Payments
Defined Benefit Pension Plans
Defined
Benefit Plan
Supplemental
Defined Benefit
Plans
$
$
— $
— $
—
1.3
The Company's defined benefit plan may be subject to settlement accounting. Assumptions for both the number
of individuals retiring in a calendar year and their elections regarding lump sum distributions are significant
factors impacting the payout patterns for each of the plans below. Therefore, actual results could vary from the
estimates shown. Estimated future benefit payments as of December 31, 2021 were as follows:
($ in millions)
Pension plans
2022
2023
2024
2025
2026
2027-2031
Defined benefit plan
Supplemental retirement plans
$
2.3 $
1.3
2.1 $
1.3
2.1 $
1.2
2.0 $
1.2
1.8 $
1.2
6.8
5.1
NOTE 16 - Contingencies and Commitments
Lawsuits and Legal Proceedings
Companies in the insurance industry have been subject to substantial litigation resulting from claims, disputes
and other matters. For instance, they have faced expensive claims, including class action lawsuits, alleging,
among other things, improper sales practices and improper claims settlement procedures. Negotiated
settlements of certain such actions have had a material adverse effect on many insurance companies.
At the time of issuance of this Annual Report on Form 10-K, the Company does not have pending litigation from
which there is a reasonable possibility of material loss.
Assessments for Insolvencies of Unaffiliated Insurance Companies
The Company is contingently liable for possible assessments under regulatory requirements pertaining to
potential insolvencies of unaffiliated insurance companies. Liabilities, which are established based upon
regulatory guidance, have generally been insignificant.
Investment Commitments
The Company has outstanding commitments to fund investments primarily in limited partnership interests. Such
unfunded commitments were $858.1 million and $571.9 million for the years ended December 31, 2021 and
2020, respectively.
Horace Mann Educators Corporation
Annual Report on Form 10-K 127
NOTE 17 - Comprehensive Income (Loss) and Accumulated Other
Comprehensive Income (Loss)
Comprehensive income (loss) represents the change in shareholders' equity during a reporting period from
transactions and other events and circumstances from non-shareholder sources. For the Company,
comprehensive income (loss) is equal to net income plus or minus the after tax change in net unrealized
investment gains (losses) on fixed maturity securities and the after tax change in net funded status of benefit
plans for the periods as shown in the Consolidated Statements of Changes in Shareholders' Equity. AOCI
represents the accumulated change in shareholders' equity from these transactions and other events and
circumstances from non-shareholder sources as shown in the Consolidated Balance Sheets.
In the Consolidated Balance Sheets, the Company recognizes the net funded status of benefit plans as a
component of AOCI, net of tax.
Comprehensive Income (Loss)
The components of comprehensive income (loss) were as follows:
($ in millions)
Net income
Other comprehensive income (loss):
Change in net unrealized investment gains (losses) on fixed maturity
securities:
Net unrealized investment gains (losses) on securities arising
during the period
Less: reclassification adjustment for net investment gains (losses)
included in income before income tax
Total, before tax
Income tax expense (benefit)
Total, net of tax
Change in net funded status of benefit plans:
Before tax
Income tax expense (benefit)
Total, net of tax
Year Ended December 31,
2021
2020
2019
$
142.8 $
133.3 $
184.4
(104.9)
184.0
(8.5)
(96.4)
(20.8)
(75.6)
1.2
0.2
1.0
11.2
172.8
36.9
135.9
(0.5)
(0.1)
(0.4)
268.8 $
327.3
157.4
169.9
36.4
133.5
1.8
0.4
1.4
319.3
Total comprehensive income
$
68.2 $
128 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 17 - Comprehensive Income (Loss) and Accumulated Other Comprehensive
Income (Loss) (continued)
Accumulated Other Comprehensive Income (Loss)
The following table reconciles the components of AOCI for the periods indicated.
($ in millions)
Net Unrealized
Investment
Gains (Losses)
on
Securities(1)(2)
Net Funded
Status of
Benefit Plans(1)
Total(1)
Beginning balance, January 1, 2021
Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCI
Net current period other comprehensive income (loss)
Ending balance, December 31, 2021
Beginning balance, January 1, 2020
Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCI
Net current period other comprehensive income (loss)
Ending balance, December 31, 2020
Beginning balance, January 1, 2019
Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCI
Net current period other comprehensive income (loss)
Ending balance, December 31, 2019
$
$
$
$
$
$
366.3 $
(82.3)
6.7
(75.6)
290.7 $
230.4 $
144.7
(8.8)
135.9
366.3 $
(11.2) $
1.0
—
1.0
(10.2) $
(10.8) $
(0.4)
—
(0.4)
(11.2) $
96.9 $
(12.2) $
257.9
(124.4)
133.5
1.4
—
1.4
230.4 $
(10.8) $
355.1
(81.3)
6.7
(74.6)
280.5
219.6
144.3
(8.8)
135.5
355.1
84.7
259.3
(124.4)
134.9
219.6
(1)
(2)
All amounts are net of tax.
The pretax amounts reclassified from AOCI, $(8.5) million, $11.2 million and $157.4 million, are included in net investment gains (losses) and
the related tax expenses, $(1.8) million, $2.4 million and $33.0 million, are included in income tax expense in the Consolidated Statements of
Operations for the years ended December 31, 2021, 2020 and 2019, respectively.
Comparative information for elements that are not required to be reclassified in their entirety to net income in the
same reporting period is located in Note 3.
Horace Mann Educators Corporation
Annual Report on Form 10-K 129
NOTE 18 - Supplemental Consolidated Cash and Cash Flow Information
($ in millions)
Cash
Restricted cash
Total cash and restricted cash shown in the Consolidated Statements of
Cash Flows
Cash paid during the year for:
Interest
Income taxes
Years Ended December 31,
2021
2020
2019
133.0 $
0.7
21.8 $
0.5
25.2
0.3
133.7 $
22.3 $
25.5
13.5 $
23.7
15.5 $
17.3
14.1
22.9
$
$
$
Non-cash investing activities include $2.1 billion of investments transferred to a reinsurer as consideration paid
in connection with a reinsurance transaction of a $2.9 billion block of in force fixed and variable annuity business
in 2019. See Note 6 for further information.
Non-cash investing activities with respect to modifications or exchanges of fixed maturity securities as well as
paid-in-kind activity for policy loans were insignificant for the years ended December 31, 2021, 2020 and 2019,
respectively.
NOTE 19 - Segment Information
The Company conducts and manages its business through five reporting segments. The four operating
segments, representing the major lines of business, are: Property & Casualty (primarily personal lines of auto and
property insurance products), Supplemental (primarily cancer, heart, hospital, supplemental disability and
accident coverages), Retirement (primarily tax-qualified fixed and variable annuities) and Life (life insurance). The
Company does not allocate the impact of corporate-level transactions to these operating segments, consistent
with the basis for management's evaluation of the results of those segments, but classifies those items in the
fifth reporting segment, Corporate & Other. In addition to ongoing transactions such as corporate debt service,
net investment gains (losses) and certain public company expenses, such items also have included corporate
debt retirement costs, when applicable.
The accounting policies of the segments are the same as those described in Note 1. The Company accounts for
intersegment transactions, primarily the allocation of operating and agency costs from Corporate & Other to
Property & Casualty, Supplemental, Retirement and Life, on a direct cost basis.
130 Annual Report on Form 10-K
Horace Mann Educators Corporation
NOTE 19 - Segment Information (continued)
Summarized financial information for these segments is as follows:
($ in millions)
Premiums and contract charges earned
Property & Casualty
Supplemental(1)
Retirement
Life
Total
Net investment income
Property & Casualty
Supplemental(1)
Retirement
Life
Corporate & Other
Intersegment eliminations
Total
Net income (loss)
Property & Casualty
Supplemental(1)
Retirement
Life
Corporate & Other
Total
($ in millions)
Assets
Property & Casualty
Supplemental
Retirement
Life
Corporate & Other
Intersegment eliminations
Total
(1)
Acquired on July 1, 2019. The twelve month comparison is not meaningful.
Years Ended December 31,
2021
2020
2019
617.4 $
125.3
38.5
108.4
889.6 $
61.1 $
24.8
255.9
83.1
(0.1)
(2.3)
422.5 $
57.0 $
46.3
52.0
16.1
(28.6)
142.8 $
650.1 $
130.7
29.7
120.2
930.7 $
42.6 $
17.8
229.8
69.8
(0.2)
(2.2)
357.6 $
76.5 $
43.1
20.1
10.4
(16.8)
133.3 $
683.5
65.8
29.1
119.6
898.0
41.7
7.5
245.5
72.0
(0.1)
(1.5)
365.1
54.3
18.0
(4.8)
17.6
99.3
184.4
December 31,
2021
2020
2019
$
$
$
$
$
$
$
1,243.4 $
854.9
9,939.1
2,129.5
281.8
(64.8)
1,324.9 $
811.5
9,198.7
2,044.5
182.3
(90.1)
$
14,383.9 $
13,471.8 $
1,327.1
747.6
8,330.1
1,965.0
173.0
(64.1)
12,478.7
Horace Mann Educators Corporation
Annual Report on Form 10-K 131
NOTE 19 - Segment Information (continued)
Additional significant financial information for these segments is as follows:
($ in millions)
DAC amortization expense
Property & Casualty
Supplemental(1)
Retirement
Life
Total
Income tax expense (benefit)
Property & Casualty
Supplemental(1)
Retirement
Life
Corporate & Other
Total
(1)
Acquired on July 1, 2019. The twelve month comparison is not meaningful.
Years Ended December 31,
2021
2020
2019
$
67.7 $
74.4 $
1.2
18.5
7.3
1.3
16.7
7.5
94.7 $
99.9 $
13.2 $
12.7
9.9
3.6
(7.3)
32.1 $
15.4 $
12.0
2.1
2.4
(5.6)
26.3 $
$
$
$
79.5
0.4
21.5
7.8
109.2
14.0
5.1
33.8
4.9
(5.8)
52.0
132 Annual Report on Form 10-K
Horace Mann Educators Corporation
ITEM 9. I Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
ITEM 9A. I Controls and Procedures
Management's Conclusion Regarding the Effectiveness of Disclosure
Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and
chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as such term is defined under Rule 13a-15(e) of the Securities and
Exchange Act of 1934 as amended (Exchange Act) as of December 31, 2021. Based on this evaluation, the chief
executive officer and chief financial officer concluded that our disclosure controls and procedures were effective
as of December 31, 2021, the end of the period covered by this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended
December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
Management's Annual Report on Internal Control Over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting. Our
internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America. Our accounting policies and internal controls over
financial reporting, established and maintained by management, are under the general oversight of our Audit
Committee.
Our internal control over financial reporting includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted in the United
States of America, and that receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
We have assessed our internal control over financial reporting as of December 31, 2021. The standard measures
adopted by management in making its evaluation are the measures in the Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Consistent with guidance issued by the Securities and Exchange Commission that an assessment of a recently
acquired business may be omitted from management's report on internal control over financial reporting in the
Horace Mann Educators Corporation
Annual Report on Form 10-K 133
year of acquisition, management excluded an assessment of the effectiveness of our internal control over
financial reporting for one year after the acquisition related to NTA for the time period of July 1, 2019 through
June 30, 2020. For the six month period ended June 30, 2020, NTA represented $75.2 million of consolidated
revenues which are included in our consolidated financial statements for the year ended December 31, 2020.
Based on our assessment, we concluded that our internal control over financial reporting was effective at
December 31, 2021, and that there were no material weaknesses in our internal control over financial reporting
as of that date.
KPMG LLP, an independent registered public accounting firm, which has audited and reported on the
Consolidated Financial Statements contained in this Annual Report on Form 10-K, has issued its report on the
effectiveness of our internal control over financial reporting which follows this report.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Horace Mann Educators Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Horace Mann Educators Corporation and subsidiaries' (the “Company”) internal control over
financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
We also have 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 2020,
the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related
notes and financial statement schedules I to IV and VI (collectively, the consolidated financial statements), and
our report dated February 25, 2022 expressed an unqualified opinion on those consolidated financial
statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
134 Annual Report on Form 10-K
Horace Mann Educators Corporation
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
KPMG LLP
Chicago, Illinois
February 25, 2022
ITEM 9B. I Other Information
Not applicable.
ITEM 9C. I Disclosure Regarding Foreign Jurisdictions that
Prevent Inspections
Not applicable.
PART III
Our Proxy Statement will be filed with the SEC no later than April 30, 2022 in preparation for our 2022 Annual
Meeting of Shareholders. As permitted in Paragraph G(3) of the General Instructions for Form 10-K, we are
incorporating by reference, to that Proxy Statement, portions of the information required by Part III as noted in
Item 10 through Item 14 below.
Horace Mann Educators Corporation
Annual Report on Form 10-K 135
ITEM 10. I Directors, Executive Officers and Corporate
Governance
(a)
(b)
The following sections of our Proxy Statement for our 2022 Annual Meeting of Shareholders, are
incorporated herein by reference: "Board of Directors and Committees", "Executive Officers",
"Delinquent Section 16(a) Reports", and "Corporate Governance".
We have adopted a code of ethics that applies to our principal executive officer, principal financial
officer, principal accounting officer and all other employees. In addition, the Board has adopted the code
of ethics for our Board members as it applies to each Board member's business conduct on behalf of
us. The code of ethics is posted on our website, www.horacemann.com, under Investors — Governance
— Governance Documents. In addition, amendments to the code of ethics requiring disclosure under
applicable SEC rules will be posted on our website set forth within four days after such amendment or
grant of waiver rather than by filing a Current Report on Form 8-K.
ITEM 11. I Executive Compensation
The "Proposal No. 2 - Advisory Resolution to Approve Named Executive Officers' Compensation" section of our
Proxy Statement for our 2022 Annual Meeting of Shareholders, is incorporated herein by reference. It includes
"Compensation Discussion and Analysis", and "Compensation Committee Report".
ITEM 12. I Security Ownership of Certain Beneficial Owners and
Management and Related Shareholder Matters
(a)
(b)
The "Security Ownership of Certain Beneficial Owners and Management" section of our Proxy
Statement for our 2022 Annual Meeting of Shareholders, is incorporated herein by reference.
The "Equity Compensation Plan Information" section of our Proxy Statement for our 2022 Annual
Meeting of Shareholders, is incorporated herein by reference. Additional information on share-based
compensation under our equity compensation plans is available in Part II - Item 8, Note 13 of the
Consolidated Financial Statements.
ITEM 13. I Certain Relationships and Related Transactions and
Director Independence
The following sections of our Proxy Statement for our 2022 Annual Meeting of Shareholders, are incorporated by
reference: "Corporate Governance - Director Independence", and "Corporate Governance - Related Person
Transactions".
ITEM 14. I Principal Accountant Fees and Services
Information required for this Item 14 is incorporated herein by reference, to our Proxy Statement for our 2022
Annual Meeting of Shareholders in the section "Proposal No. 3 - Ratification of Independent Registered Public
Accounting Firm".
136 Annual Report on Form 10-K
Horace Mann Educators Corporation
PART IV
ITEM 15. I Exhibits and Financial Statement Schedules
(a)(1)
report, Page 71 to Page 132
The following consolidated financial statements of the Company are contained in Part II - Item 8 of this
(a)(2)
Financial statement schedules
Schedule I - Summary of Investments - Other than Investments in Related Parties, Page 138
Schedule II - Condensed Financial Information of Registrant, Page 139
Schedules III and VI Combined - Supplementary Insurance Information and Supplemental
Information Concerning Property & Casualty Insurance Operations, Page 143
Schedule IV - Reinsurance, Page 144
Horace Mann Educators Corporation
Annual Report on Form 10-K 137
HORACE MANN EDUCATORS CORPORATION
SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 2021
($ in millions)
SCHEDULE I
Fixed maturity securities
Type of Investments
U.S. Government and federally sponsored agency obligations
States, municipalities and political subdivisions
Foreign government bonds
Public utilities
All other corporate bonds
Asset-backed securities
Residential mortgage-backed securities (non-agency)
Commercial mortgage-backed securities
Redeemable preferred stocks
Cost (1)
Fair
Value
Amount
Shown in
Balance
Sheet
$
776.4 $
828.4 $
1,519.7
40.2
91.8
2,091.6
935.4
21.5
286.7
34.4
1,703.4
43.6
100.4
2,251.0
943.2
21.6
310.3
37.4
828.4
1,703.4
43.6
100.4
2,251.0
943.2
21.6
310.3
37.4
Total fixed maturity securities
5,797.7
6,239.3
6,239.3
Equity securities
Industrial, miscellaneous and all other
Banking & finance and insurance companies
Public utilities
Non-redeemable preferred stocks
Closed-end fund
4.7
1.4
0.2
119.4
21.5
4.7
1.4
0.2
119.4
21.5
4.7
1.4
0.2
119.4
21.5
Total equity securities
147.2
147.2
147.2
Limited partnership interests
Short-term investments
Policy loans
Derivatives
Mortgage loans
Other
712.8
157.8
142.1
7.8 $
6.7
32.9
XXX
XXX
XXX
XXX
XXX
10.7
712.8
157.8
142.1
10.7
6.7
32.9
Total investments
$
7,005.0
XXX
$
7,449.5
(1)
Bonds at original cost reduced by repayments and adjusted for amortization of premiums or accretion of discounts and impairment in value of
specifically identified investments.
See accompanying Report of Independent Registered Public Accounting Firm.
138 Annual Report on Form 10-K
Horace Mann Educators Corporation
HORACE MANN EDUCATORS CORPORATION
(Parent Company Only)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS
As of December 31, 2021 and 2020
($ in millions, except share data)
SCHEDULE II
December 31,
2021
2020
ASSETS
$
$
115.3 $
2,191.3
11.3
4.1
2,121.0
58.9
2,317.9 $
2,184.0
LIABILITIES AND SHAREHOLDERS' EQUITY
$
Investments and cash
Investments in subsidiaries
Other assets
Total assets
Short-term debt
Long-term debt
Other liabilities
Total liabilities
Preferred stock, $0.001 par value, authorized 1,000,000 shares;
none issued
Common stock, $1,000 par value, authorized 75,000,000 shares;
issued, 2021, 66,436,821; 2020, 66,316,797
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss), net of taxes:
Net unrealized investment gains on fixed maturity securities
Net funded status of benefit plans
Treasury stock, at cost, 2021, 25,043,337 shares;
2020, 24,902,579 shares
Total shareholders' equity
1,807.4
1,790.1
Total liabilities and shareholders' equity
$
2,317.9 $
2,184.0
See accompanying Note to Condensed Financial Statements.
See accompanying Report of Independent Registered Public Accounting Firm.
Horace Mann Educators Corporation
Annual Report on Form 10-K 139
249.0 $
248.6
12.9
510.5
—
0.1
495.3
1,524.9
290.7
(10.2)
(493.4)
135.0
248.3
10.6
393.9
—
0.1
488.4
1,434.6
366.3
(11.2)
(488.1)
HORACE MANN EDUCATORS CORPORATION
(Parent Company Only)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF OPERATIONS
($ in millions)
SCHEDULE II (continued)
Revenues
Net investment income
Net investment gains
Total revenues
Expenses
Interest expense
Other
Total expenses
Loss before income tax benefit and equity in net earnings of subsidiaries
Income tax benefit
Loss before equity in net earnings of subsidiaries
Equity in net earnings of subsidiaries
Year Ended December 31,
2021
2020
2019
$
(0.1) $
—
(0.2) $
—
(0.1)
(0.2)
13.8
11.2
25.0
(25.1)
(5.4)
(19.7)
162.5
14.8
5.7
20.5
(20.7)
(5.3)
(15.4)
148.7
(0.1)
—
(0.1)
14.3
12.6
26.9
(27.0)
(6.0)
(21.0)
205.4
Net income
$
142.8 $
133.3 $
184.4
See accompanying Note to Condensed Financial Statements.
See accompanying Report of Independent Registered Public Accounting Firm.
140 Annual Report on Form 10-K
Horace Mann Educators Corporation
HORACE MANN EDUCATORS CORPORATION
(Parent Company Only)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOWS
($ in millions)
SCHEDULE II (continued)
Cash flows from operating activities
Net Income
Equity in net income of subsidiaries
Dividends received from subsidiaries
Changes in:
Income taxes
Operating assets and liabilities
Other
Year Ended December 31,
2021
2020
2019
$
142.8 $
(162.5)
66.0
133.3 $
(148.7)
167.0
184.4
(205.4)
363.2
1.8
8.4
4.1
2.0
(5.9)
1.7
3.4
8.3
0.7
Net cash provided by operating activities
60.6
149.4
354.6
Cash flows from investing activities
Purchase of equity securities
Net increase (decrease) in short-term investments
Capital contributions to subsidiaries
Acquisition of businesses
—
2.7
(5.0)
—
1.0
(1.5)
(97.0)
—
—
3.3
—
(444.1)
Net cash provided by (used in) investing activities
(2.3)
(97.5)
(440.8)
Cash flows from financing activities
Dividends paid to shareholders
Principal borrowings on senior revolving credit facility
Acquisition of treasury stock
Proceeds from exercise of stock options
Withholding tax payments on RSUs tendered
(51.4)
114.0
(5.3)
0.3
(2.0)
(49.6)
—
(2.2)
2.4
(2.3)
(47.3)
135.0
—
1.7
(3.7)
Net cash (used in) provided by financing activities
55.6
(51.7)
85.7
Net increase (decrease) in cash
Cash at beginning of period
113.9
0.3
0.2
0.1
(0.5)
0.6
Cash at end of period
$
114.2 $
0.3 $
0.1
See accompanying Note to Condensed Financial Statements.
See accompanying Report of Independent Registered Public Accounting Firm.
Horace Mann Educators Corporation
Annual Report on Form 10-K 141
HORACE MANN EDUCATORS CORPORATION
(Parent Company Only)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTE TO CONDENSED FINANCIAL STATEMENTS
SCHEDULE II (continued)
The accompanying condensed financial statements should be read in conjunction with the Consolidated
Financial Statements and the accompanying notes thereto.
142 Annual Report on Form 10-K
Horace Mann Educators Corporation
HORACE MANN EDUCATORS CORPORATION
SCHEDULE III: SUPPLEMENTARY INSURANCE INFORMATION
SCHEDULE VI: SUPPLEMENTAL INFORMATION CONCERNING PROPERTY & CASUALTY INSURANCE OPERATIONS
($ in millions)
SCHEDULE III & VI (COMBINED)
Column
identification for
Schedule
III: A
Schedule
VI: A
Segment
Year Ended December 31, 2021
B
B
C
C
D
E
D
Deferred
policy
acquisition
costs
Future
policy
benefits,
claims and
claim
expenses
Discount,
if any,
deducted
in
previous
column
Unearned
premiums
E
Other
policy
claims
and
benefits
payable
F
F
G
G
H
Premium
revenue/
premium
earned
Net
investment
income
Benefits,
claims
and
settlement
expenses
H
Claims and claim
adjustment
expenses
incurred related to
Current
year
Prior
years
I
I
J
K
K
J
Amortization
of deferred
policy
acquisition
costs
Other
operating
expenses
Paid
claims and
claim
adjustment
expenses
Premiums
written
Property & Casualty
$
24.4 $
362.4 $
— $
249.8 $
— $ 617.4 $
61.1 $
447.9 $ 455.1 $
(7.2) $
67.7 $
97.2 $
455.1 $
607.8
Supplemental
Retirement
Life
Other, including consolidating
eliminations
4.2
393.9
153.8
4,967.7
65.6
1,279.7
N/A
N/A
xxx
xxx
xxx
xxx
3.1
0.7
1.5
72.5
125.3
869.8
38.5
3.6
108.4
24.8
255.9
83.1
40.0
166.3
127.9
N/A
N/A
N/A
(2.4)
N/A
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
1.1
18.5
7.4
N/A
52.5
67.5
36.8
24.4
Total
$
248.0 $ 7,003.7
xxx
$
255.1 $
945.9 $ 889.6 $
422.5 $
782.1
xxx
xxx
$
94.7 $
278.4
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Year Ended December 31, 2020
Property & Casualty
$
26.1 $
372.1 $
— $
259.4 $
— $ 650.1 $
42.6 $
431.0 $ 441.2 $
(10.2) $
74.4 $
97.7 $
438.2 $
635.5
Supplemental
Retirement
Life
Other, including consolidating
eliminations
4.3
392.4
137.7
4,874.2
61.7
1,245.4
N/A
N/A
xxx
xxx
xxx
xxx
3.1
0.7
1.3
41.5
130.7
706.3
29.7
3.5
120.2
17.8
229.8
69.8
43.1
164.8
134.6
N/A
N/A
N/A
(2.4)
N/A
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
1.3
16.8
7.4
N/A
51.7
72.0
35.3
20.7
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Total
$
229.8 $ 6,884.1
xxx
$
264.5 $
751.3 $ 930.7 $
357.6 $
773.5
xxx
xxx $
99.9 $
277.4
xxx
xxx
Year Ended December 31, 2019
Property & Casualty
$
28.6 $
387.0 $
— $
274.0 $
— $ 683.5 $
41.7 $
475.6 $ 483.1 $
(7.5) $
79.4 $
105.5 $
486.6 $
683.1
Supplemental
Retirement
Life
Other, including consolidating
eliminations
2.0
390.3
185.3
4,698.4
60.8
1,201.6
N/A
N/A
xxx
xxx
xxx
xxx
3.2
0.8
1.2
—
643.8
65.8
29.1
3.5
119.6
7.5
245.5
72.0
24.7
173.1
124.5
N/A
N/A
N/A
(1.6)
N/A
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
0.5
21.5
7.8
N/A
26.5
90.7
37.9
26.4
Total
$
276.7 $ 6,677.3
xxx
$
279.2 $
647.3 $ 898.0 $
365.1 $
797.9
xxx
xxx
$
109.2 $
287.0
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
N/A - Not applicable.
See accompanying Report of Independent Registered Public Accounting Firm.
Horace Mann Educators Corporation
Annual Report on Form 10-K 143
HORACE MANN EDUCATORS CORPORATION
REINSURANCE
($ in millions)
SCHEDULE IV
Column A
Column B
Gross
Amount
Column C
Ceded to
Other
Companies
Column D
Assumed
from Other
Companies
Column E
Net
Amount
Column F
Percentage
of Amount
Assumed to Net
Year Ended December 31, 2021
Life insurance in force
Premiums
Property & Casualty
Supplemental
Retirement
Life
Total premiums
Year Ended December 31, 2020
Life insurance in force
Premiums
Property & Casualty
Supplemental
Retirement
Life
Total premiums
Year Ended December 31, 2019
Life insurance in force
Premiums
Property & Casualty
Supplemental
Retirement
Life
$
$
$
$
$
$
$
$
20,440.3 $
4,533.6 $
— $
15,906.7
623.0 $
125.6
48.7
115.9
15.3 $
0.3
10.2
7.5
9.7 $
—
—
—
617.4
125.3
38.5
108.4
913.2 $
33.3 $
9.7 $
889.6
19,821.2 $
4,619.1 $
— $
15,202.1
652.9 $
130.9
38.0
127.7
12.7 $
0.2
8.3
7.5
9.9 $
—
—
—
650.1
130.7
29.7
120.2
949.5 $
28.7 $
9.9 $
930.7
19,179.8 $
4,813.2 $
— $
14,366.6
689.2 $
16.5 $
65.9
35.6
126.9
0.1
6.5
7.3
10.8 $
—
—
—
683.5
65.8
29.1
119.6
Total premiums
$
917.6 $
30.4 $
10.8 $
898.0
Note:
Premiums above include insurance premiums earned and contract charges earned.
—
1.6 %
—
—
—
1.1 %
—
1.5 %
—
—
—
1.1 %
—
1.6 %
—
—
—
1.2 %
See accompanying Report of Independent Registered Public Accounting Firm.
144 Annual Report on Form 10-K
Horace Mann Educators Corporation
(a)(3)
by an asterisk (*).
The following items are filed as Exhibits. Management contracts and compensatory plans are indicated
Exhibit
No.
Description
(3) Articles of incorporation and bylaws:
3.1
3.2
Restated Certificate of Incorporation of HMEC, filed with the Delaware Secretary of State on
June 24, 2003, incorporated by reference to Exhibit 3.1 to HMEC's Quarterly Report on Form 10-
Q for the quarter ended June 30, 2003, filed with the Securities and Exchange Commission (the
"SEC") on August 14, 2003.
Bylaws of HMEC, incorporated by reference to Exhibit 3.2 to HMEC's Quarterly Report on Form
10-Q for the quarter ended June 30, 2003, filed with the SEC on August 14, 2003.
(4) Instruments defining the rights of security holders, including indentures:
4.1
4.1(a)
4.2
4.3
Indenture, dated as of November 23, 2015, by and between HMEC and The Bank of New York
Mellon Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.1 to HMEC's
Current Report on Form 8-K dated November 18, 2015, filed with the SEC on November 23,
2015.
Form of HMEC 4.500% Senior Notes due 2025, incorporated by reference to Exhibit 4.2 to
HMEC's Current Report on Form 8-K dated November 18, 2015, filed with the SEC on
November 23, 2015.
Certificate of Designations for HMEC Series A Cumulative Convertible Preferred Stock,
incorporated by reference to Exhibit 4.3 to HMEC's Annual Report on Form 10-K for the year
ended December 31, 2005, filed with the SEC on March 16, 2006.
Description of Securities, incorporated by reference to Exhibit 4.3 to HMEC's Annual Report on
Form 10-K for the year ended December 31, 2019, filed with the SEC on March 2, 2020.
(10) Material contracts:
10.1
10.1(a)
10.1(b)
10.2*
Credit Agreement dated as of June 21, 2019 among HMEC, certain financial institutions named
therein and PNC Bank, N.A., as administrative agent, incorporated by reference to Exhibit 10.1
to HMEC’s Current Report on Form 8-K dated June 24, 2019, filed with the SEC on June 24,
2019.
First Amendment to Credit Agreement dated as of June 21, 2019 among HMEC, certain financial
institutions named therein and PNC Bank, N.A., as administrative agent, incorporated by
reference to Exhibit 10.1(a) to HMEC's Annual Report on Form 10-K for the year ended
December 31, 2019, filed with the SEC on March 2, 2020.
Second Amendment to Credit Agreement dated as of July 12, 2021, among HMEC, as borrower,
PNC Bank, National Association, as administrative agent, and certain lenders party thereto,
incorporated by reference to Exhibit 10.1(b) to HMEC's Current Report on Form 8-K dated July
14, 2021, filed with the SEC on July 14, 2021.
Horace Mann Educators Corporation Amended and Restated 2002 Incentive Compensation Plan
("2002 Incentive Compensation Plan"), incorporated by reference to Exhibit 10.2 to HMEC's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, filed with the SEC on
August 9, 2005.
Horace Mann Educators Corporation
Annual Report on Form 10-K 145
10.2(a)*
10.2(b)*
10.2(c)*
10.2(d)*
10.2(e)*
10.3*
10.3(a)*
10.3(b)*
10.3(c)*
10.3(d)*
10.3(e)*
Revised Specimen Employee Stock Option Agreement under the 2002 Incentive Compensation
Plan, incorporated by reference to Exhibit 10.6(b) to HMEC's Annual Report on Form 10-K for
the year ended December 31, 2008, filed with the SEC on March 2, 2009.
Specimen Employee Restricted Stock Unit Agreement under the 2002 Incentive Compensation
Plan, incorporated by reference to Exhibit 10.6(d) to HMEC's Annual Report on Form 10-K for
the year ended December 31, 2005, filed with the SEC on March 16, 2006.
Revised Specimen Employee Restricted Stock Unit Agreement under the 2002 Incentive
Compensation Plan, incorporated by reference to Exhibit 10.6(f) to HMEC's Annual Report on
Form 10-K for the year ended December 31, 2008, filed with the SEC on March 2, 2009.
Specimen Non-employee Director Restricted Stock Unit Agreement under the 2002 Incentive
Compensation Plan, incorporated by reference to Exhibit 10.6(e) to HMEC's Annual Report on
Form 10-K for the year ended December 31, 2005, filed with the SEC on March 16, 2006.
Revised Specimen Non-employee Director Restricted Stock Unit Agreement under the 2002
Incentive Compensation Plan, incorporated by reference to Exhibit 10.6(h) to HMEC's Annual
Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 2,
2009.
First Amendment to the HMEC 2010 Comprehensive Executive Compensation Plan (As
Amended and Restated Effective as of May 20, 2015), incorporated by reference to Exhibit 10.3
to HMEC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed with the
SEC on May 9, 2017.
HMEC 2010 Comprehensive Executive Compensation Plan (As Amended and Restated Effective
May 20, 2015) (Section 16 Officer) Non-Qualified Stock Option Agreement - Employee Grantee,
incorporated by reference to Exhibit 10.3(a) to HMEC's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2017, filed with the SEC on May 9, 2017.
HMEC 2010 Comprehensive Executive Compensation Plan (As Amended and Restated Effective
May 20, 2015) (Non-Section 16) Non-Qualified Stock Option Agreement - Employee Grantee,
incorporated by reference to Exhibit 10.3(b) to HMEC's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2017, filed with the SEC on May 9, 2017.
HMEC 2010 Comprehensive Executive Compensation Plan (As Amended and Restated Effective
May 20, 2015) Service-Vested Restricted Stock Units Agreement - Employee Grantee,
incorporated by reference to Exhibit 10.3(c) to HMEC's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2017, filed with the SEC on May 9, 2017.
HMEC 2010 Comprehensive Executive Compensation Plan (As Amended and Restated Effective
May 20, 2015) Performance-Based Restricted Stock Units Agreement - Employee Grantee,
incorporated by reference to Exhibit 10.3(d) to HMEC's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2017, filed with the SEC on May 9, 2017.
HMEC 2010 Comprehensive Executive Compensation Plan (As Amended and Restated Effective
May 20, 2015) Service-Vested Restricted Stock Units Agreement - Employee Grantee (One-Time
Grant Service), incorporated by reference to Exhibit 10.3(e) to HMEC's Quarterly Report on Form
10-Q for the quarter ended March 31, 2017, filed with the SEC on May 9, 2017.
146 Annual Report on Form 10-K
Horace Mann Educators Corporation
10.3(f)*
10.3(g)*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
Specimen Employee Performance-Based Restricted Stock Units Agreement - Key Strategic
Grantee under the HMEC 2010 Comprehensive Executive Compensation Plan incorporated by
reference to Exhibit 10.3(e) to HMEC's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2016, filed with the SEC on May 6, 2016.
Specimen Non-employee Director Restricted Stock Units Award Agreement under the HMEC
2010 Comprehensive Executive Compensation Plan, incorporated by reference to Exhibit
10.17(a) to HMEC's Current Report on Form 8-K dated May 27, 2010, filed with the SEC on June
2, 2010.
Horace Mann Supplemental Employee Retirement Plan, 2002 Restatement, incorporated by
reference to Exhibit 10.1 to HMEC's Quarterly Report on Form 10-Q for the quarter ended March
31, 2002, filed with the SEC on May 15, 2002.
Horace Mann Executive Supplemental Employee Retirement Plan, 2002 Restatement,
incorporated by reference to Exhibit 10.2 to HMEC's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002, filed with the SEC on May 15, 2002.
Amended and Restated Horace Mann Nonqualified Supplemental Money Purchase Pension
Plan, incorporated by reference to Exhibit 10.9 to HMEC's Annual Report on Form 10-K for the
year ended December 31, 2008, filed with the SEC on March 2, 2009.
Summary of HMEC Non-employee Director Compensation, incorporated by reference to Exhibit
10.7 to HMEC's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, filed with
the SEC on August 6, 2021.
Summary of HMEC Named Executive Officer Annualized Salaries, incorporated by reference to
Exhibit 10.8 to HMEC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021,
filed with the SEC on May 7, 2021.
Form of Severance Agreement between HMEC, Horace Mann Service Corporation ("HMSC")
and certain officers of HMEC and/or HMSC, incorporated by reference to Exhibit 10.13 to
HMEC's Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC
on February 28, 2013.
10.10*
HMSC Executive Change in Control Plan, incorporated by reference to Exhibit 10.15 to HMEC's
Current Report on Form 8-K dated February 15, 2012, filed with the SEC on February 22, 2012.
10.10(a)*
HMSC Executive Change in Control Plan Schedule A Plan Participants, incorporated by
reference to Exhibit 10.10(a) to HMEC's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2021, filed with the SEC on May 7, 2021.
10.11*
HMSC Executive Severance Plan, incorporated by reference to Exhibit 10.16 to HMEC's Current
Report on Form 8-K dated March 7, 2012, filed with the SEC on March 13, 2012.
10.11(a)*
10.11(b)*
First Amendment to the HMSC Executive Severance Plan, incorporated by reference to Exhibit
10.16(a) to HMEC's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, filed
with the SEC on August 9, 2012.
HMSC Executive Severance Plan Schedule A Participants, incorporated by reference to Exhibit
10.11(b) to HMEC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, filed
with the SEC on May 7, 2021.
Horace Mann Educators Corporation
Annual Report on Form 10-K 147
10.12
10.13
10.14
(11)
(21)
(23)
Stock Purchase Agreement Among Horace Mann Educators Corporation, and Robert Paglione,
Paglione Family Irrevocable Trust F/B/O Adam Paglione, Paglione Family Irrevocable Trust F/B/O
Lisa and Jorge Arroyo, Beau Adams and Benefit Consultants Group, Inc. dated as of October
30, 2018, incorporated by reference to Exhibit 10.12 to HMEC's Annual Report on Form 10-K for
the year ended December 31, 2018, filed with the SEC on March 1, 2019.
Purchase Agreement By and Among Ellard Family Holdings, Inc., Brian M. Ellard, The JCE
Exempt Trust and Horace Mann Educators Corporation dated as of December 10, 2018,
incorporated by reference to Exhibit 10.13 to HMEC's Annual Report on Form 10-K for the year
ended December 31, 2018, filed with the SEC on March 1, 2019.
Stock Purchase Agreement for Madison National Life, incorporated by reference to Exhibit 10.14
to HMEC's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, filed with
the SEC on November 5, 2021.
Statement regarding computation of per share earnings.
Subsidiaries of HMEC.
Consent of KPMG LLP.
(31) Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002:
31.1
31.2
Certification by Marita Zuraitis, Chief Executive Officer of HMEC.
Certification by Bret A. Conklin, Chief Financial Officer of HMEC.
(32) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002:
32.1
32.2
Certification by Marita Zuraitis, Chief Executive Officer of HMEC.
Certification by Bret A. Conklin, Chief Financial Officer of HMEC.
(99) Additional exhibits:
99.1
Glossary of Selected Terms.
(101) Interactive Data File:
101.1
The following information from Horace Mann Educators Corporation’s Annual Report on
Form 10-K for the year ended December 31, 2021 formatted in Inline XBRL: (i) Consolidated
Balance Sheets at December 31, 2021 and 2020 (ii) Consolidated Statements of Operations for
the years ended December 31, 2021, 2020 and 2019; (iii) Consolidated Statements of
Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 and 2019;
(iv) Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 2021, 2020 and 2019; (v) Consolidated Statements of Cash Flows for the years
ended December 31, 2021, 2020 and 2019; (vi) Notes to Consolidated Financial Statements;
(vii) Financial Statement Schedules; and (viii) the cover page.
104.1
Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in
Exhibit 101.1).
ITEM 16. I Form 10-K Summary
None.
148 Annual Report on Form 10-K
Horace Mann Educators Corporation
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Horace Mann
Educators Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HORACE MANN EDUCATORS CORPORATION
By:
/s/ Marita Zuraitis
Marita Zuraitis
President and Chief Executive Officer
February 25, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of Horace Mann Educators Corporation and in the capacities and on the date
indicated.
Signature
Title
Date
/s/ Marita Zuraitis
Marita Zuraitis
/s/ Bret A. Conklin
Bret A. Conklin
President, Chief Executive Officer and Director
(Principal Executive Officer)
February 25, 2022
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
February 25, 2022
/s/ Kimberly A. Johnson
Kimberly A. Johnson
Senior Vice President and Controller
(Principal Accounting Officer)
February 25, 2022
/s/ H. Wade Reece
H. Wade Reece
/s/ Thomas A. Bradley
Thomas A. Bradley
/s/ Mark S. Casady
Mark S. Casady
/s/ Daniel A. Domenech
Daniel A. Domenech
/s/ Perry G. Hines
Perry G. Hines
/s/ Mark E. Konen
Mark E. Konen
/s/ Beverly J. McClure
Beverley J. McClure
/s/ Elaine A. Sarsynski
Elaine A. Sarsynski
/s/ Robert Stricker
Robert Stricker
Chairman of the Board of Directors
February 25, 2022
Director
Director
Director
Director
Director
Director
Director
Director
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
Horace Mann Educators Corporation
Annual Report on Form 10-K 149
Directors
Officers
Corporate data
Marita Zuraitis
President & Chief Executive Officer
Bret A. Conklin
Executive Vice President &
Chief Financial Officer
Matthew P. Sharpe
Executive Vice President,
Supplemental & Group Benefits
and Corporate Strategy
Donald M. Carley
Executive Vice President,
General Counsel, Corporate Secretary
and Chief Compliance Officer
Mark R. Desrochers
Senior Vice President,
Property & Casualty
& Chief Corporate Actuary
Stephanie Fulks
Senior Vice President & Chief
Information Officer
Kimberly A. Johnson
Senior Vice President & Controller
Jenny Thayer
Senior Vice President &
Chief Human Resources Officer
Mike Weckenbrock
Senior Vice President,
Life & Retirement
Corporate Office
1 Horace Mann Plaza
Springfield,
horacemann.com
IL 62715-0001
Annual Meeting
May 25, 2022, 9 a.m.
Information on how to attend the
virtual Annual Meeting will be included
in the proxy materials. All shareholders
of record as of the close of business
on March 29, 2022 will be sent a
formal notice of the meeting and
proxy materials.
Independent Registered Public
Accounting Firm
KPMG LLP
200 East Randolph Street
Chicago, IL 60601
Common Stock
HMN Stock is traded on the NYSE
Senior Notes
HMN senior notes are traded in the
open market (HMN 4.50)
Transfer Agent
American Stock Transfer & Trust
Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Additional Information
data on HMN
Additional financial
and its subsidiaries is included in
Form 10-K filed with the Securities
and Exchange Commission. Electronic
copies of HMN’s SEC filings are
available on horacemann.com.
Printed copies of SEC filings are
available upon written request from:
Investor Relations
Horace Mann
1
Springfield,
IL 62715-0001
investorrelations@horacemann.com
Horace Mann Plaza
H. Wade Reece, Chairman
Chairman of the Board &
Chief Executive Officer (retired)
BB&T Insurance Services, Inc. and
BB&T Insurance Holdings, Inc.
Marita Zuraitis
President & Chief Executive Officer
Horace Mann Educators Corporation
Thomas A. Bradley*
Executive Vice President and CFO (retired)
Allied World Assurance Company
Holdings, AG
Mark S. Casady
Chairman & CEO (retired)
LPL Financial Holdings,
Inc.
Daniel A. Domenech
Executive Director
AASA, The School Superintendents
Association
Perry G. Hines*
Senior Vice President, Chief Marketing
and Communications Officer
Irwin Mortgage Corporation
(retired)
Mark E. Konen*
President, Insurance and Retirement
Solutions (retired)
Lincoln Financial Group
Beverley J. McClure
Senior Vice President,
Enterprise Operations (retired)
United Services Automobile
Association (USAA)
Elaine A. Sarsynski
Chairwoman, Chief Executive Officer
and President (retired)
Mass Mutual International
Robert Stricker
Senior Vice President & Principal (retired)
Shenkman Capital Management, Inc.
Steven O. Swyers*
Managing Partner (retired)
PricewaterhouseCoopers LLP
*Member of the Audit Committee,
each an independent director
HA-C00393 (Mar. 22)