Horace Mann Educators Corporation (HMN) Earnings

Management highlights

- **Overall Quarterly Performance & Strategy Progress** * Delivered record Q2 2026 core earnings of $1.17 per share, a more than 10% increase year-over-year * Trailing 12-month core return on equity hit 12.8%, meeting the company's long-term target range of 12-13% * Total revenues increased 8% year-over-year; the diversified business model has continued to perform well across varying economic conditions * The company remains on track to hit its long-term 10% compound annual growth rate for core earnings per share, which was outlined at Investor Day * Recently announced acquisitions are on track to close as planned and will expand the company's product offerings and customer reach - **Product & Distribution Investments** * Investments in product development have addressed evolving customer and employer needs, including the new generation cancer coverage for individual supplemental and PFML enhancement for group benefits * Ongoing investments in agent recruiting, training, and coaching have expanded distribution capacity and shortened the ramp-up period for new agents, supporting strong life sales growth * Online quoting activity increased nearly 10% year-over-year, expanding digital customer access to products * The company pursues disciplined profitable growth for P&C, prioritizing long-term returns over volume and retaining customers at high rates (cross-business retention near or above 90%) - **Brand & Community Engagement** * Over one-third of U.S. educators now recognize the Horace Mann brand, with growing awareness driving customer acquisition * The company has expanded its reach through branded partnerships with Crayola, Disney Institute, the Women's Professional Baseball League, and the Smithsonian Institution for the new Horace Mann Educator Excellence Award Endowment * Ongoing community initiatives including Teacher Appreciation Month and the annual Back to School campaign strengthen customer relationships rooted in the company's 80+ year focus on serving educators

Guidance

- Full-year 2026 core earnings guidance is increased upward to a range of $4.60 to $4.90 per share, from the prior range, driven by strong first-half operating performance - Full-year catastrophe loss assumption is lowered to $75 million, down from the prior $90 million, reflecting favorable first-half catastrophe experience - Full-year net investment income guidance is revised downward to a range of $465 to $475 million, with managed portfolio income expected to come in at 365 to 375 million, driven by lower expected returns from alternative investment strategies sensitive to the higher-for-longer interest rate environment - The full-year blended benefit ratio assumption for individual supplemental and group benefits is increased to approximately 42%, reflecting strong segment growth and the higher expected first-year utilization of the new PFML offering, which was already incorporated into original pricing and long-term profitability projections - Interest expense and other corporate items are expected to total $35 to 40 million for the full year - The recently announced July 2026 acquisitions are not expected to have a material impact on 2026 earnings, but will be immediately accretive to EPS beginning in 2027, adding approximately 100 basis points of return on equity accretion - Tangible book value dilution from the acquisitions is expected to be replenished by ongoing combined company earnings within approximately one year of closing

Segment performance

1. **Property and Casualty (P&C)**: Core earnings increased 56% year-over-year to $26 million. Net written premiums were flat at $212 million, with property premiums up 6% while auto net written premiums stayed disciplined. The combined ratio improved 7 points to 89.6%, driven by lower catastrophe losses, favorable weather, and $7 million in favorable prior year reserve development. Auto household retention held steady near 84%. 2. **Life and Retirement**: Core earnings totaled $17 million. Life sales increased 20% year-over-year, with persistency holding strong at 96%. Retirement contract deposits were modestly lower year-over-year due to product mix and market conditions, while stable fee income and strong persistency supported consistent earnings. This segment contributes approximately 26% of total company core earnings. 3. **Individual Supplemental and Group Benefits**: The segment delivered strong growth and profits. Individual supplemental sales increased 5% (driven by high demand for new enhanced cancer coverage), with persistency at 89%. Group benefits sales rose 44% overall, led by employer demand for the new paid family and medical leave (PFML) enhancement added to the short-term disability offering. Full-year blended benefit ratio guidance is updated to 42%, which remains an attractive profitability level for the segment. This segment accounts for the majority of the company's top-line sales growth in the quarter.

Risks & headwinds

- Forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from management projections, as outlined in the company's SEC filings - Higher than expected catastrophe losses or unfavorable shifts in auto loss trends (frequency or severity) could negatively impact P&C profitability - Persistently higher interest rates could continue to pressure returns on interest-sensitive alternative investment strategies, including private equity, infrastructure debt, and real estate-related holdings - The new PFML product could see higher than expected utilization beyond initial pricing assumptions, which would pressure segment profitability - Intense competition in the auto insurance market could challenge retention and growth goals for the P&C segment - Acquisition closing timelines or projected profitability could differ from current expectations, impacting future earnings accretion

Analyst Q&A

• Q: How does the profitability profile of the new paid family medical leave (PFML) offering compare to existing group products, and is current utilization in line with expectations? /

  A: PFML has a higher benefit ratio than existing group disability and life offerings, but this is offset by a meaningfully lower expense ratio, leading to attractive net profitability. Heavier first-year utilization of PFML was fully incorporated into original pricing and underwriting assumptions, and July claims activity has tracked in line with expectations as expected seasonality (lower utilization over educator summer breaks) has held. PFML is sold bundled with the existing profitable short-term disability product, aligned with state mandatory PFML requirements, and the offering remains on track to hit long-term profitability targets.

• Q: What drove the fixed annuity spread improvement this quarter, and why was full-year net investment income (NII) guidance revised lower? /

  A: The quarterly fixed annuity spread improvement was driven primarily by strong returns from limited partnership venture capital investments in the life and retirement segment. The full-year NII guidance cut reflects lower expected returns from alternative investment strategies (private equity, infrastructure debt, real estate) that are sensitive to the higher-for-longer interest rate environment, though returns on these assets remain positive. Core fixed income new money yields hit 585 basis points this quarter (100+ basis points above the existing portfolio yield for the 18th consecutive quarter), so the core investment portfolio remains well-positioned for long-term NII growth.

• Q: What is the expected EPS accretion from the recent Medical Mutual of Ohio acquisition, and what is the strategic rationale for the deal? /

  A: On an annual run-rate basis beginning in 2027, the transaction is expected to add ~40-50 cents per share, consistent with high single-digit market estimates. The transaction will close in Q4 2026, so only one quarter of 2026 earnings will be added, offset by foregone investment income and transaction costs leading to no material 2026 impact. Strategically, the acquired employee assistance program (EAP) addresses the top reported concern of educators and school districts (mental health stress), expands the company's solution set, scales distribution, and adds new customer reach beyond the company's existing educator base.

• Q: Should investors expect share repurchases to be paused to fund the recent acquisitions, and what are current loss trends for P&C? /

  A: Share repurchases will remain opportunistic rather than paused entirely; the company's strong free cash flow generation (targeting 75% conversion, which will improve with the new acquisitions) supports continued capital return. For P&C, first-half 2026 auto loss trends were better than expected, with low single-digit frequency improvement and favorable physical damage severity, and mid-single-digit liability severity. The 2026 mid-single-digit auto rate plan remains on track to sustain profitability. Second-half losses are expected to normalize as the favorable first-half weather trend does not continue, which was already incorporated into guidance.