Note 1 - Basis of Presentation

The accompanying unaudited consolidated financial statements of Horace Mann Educators Corporation (“HMEC”; and together with its subsidiaries, the “Company” or “Horace Mann”) have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and with the rules and regulations of the Securities and Exchange Commission (“SEC”), specifically Regulation S-X and the instructions to Form 10-Q. Certain information and note disclosures which are normally included in annual financial statements prepared in accordance with GAAP but are not required for interim reporting purposes have been omitted. The Company believes that these consolidated financial statements contain all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to present fairly the Company’s consolidated financial position as of June 30, 2015, the consolidated results of operations and comprehensive income (loss) for the three and six months ended June 30, 2015 and 2014, and the consolidated changes in shareholders’ equity and cash flows for the six months ended June 30, 2015 and 2014. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (1) the reported amounts of assets and liabilities, (2) disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and (3) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The subsidiaries of HMEC market and underwrite personal lines of property and casualty (primarily personal lines automobile and homeowners) insurance, retirement annuities (primarily tax-qualified products) and life insurance, primarily to K-12 teachers, administrators and other employees of public schools and their families. HMEC’s principal operating subsidiaries are Horace Mann Life Insurance Company, Horace Mann Insurance Company, Teachers Insurance Company, Horace Mann Property & Casualty Insurance Company and Horace Mann Lloyds.

The Company has evaluated subsequent events through the date these consolidated financial statements were issued.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of the results to be expected for the full year.

In the six months ended June 30, 2015 (specifically, in the first quarter), the Company recorded a reduction in incentive compensation expense due to an immaterial out-of-period correction of an error related to the valuation of restricted stock units. The $3,012 after tax adjustment increased net income for each of the segments as follows: property and casualty, $2,056; annuity, $519; and life, $437.

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) represents the accumulated change in shareholders’ equity from transactions and other events and circumstances from non-shareholder sources. For the Company, accumulated other comprehensive income (loss) includes the after tax change in net unrealized gains and losses on fixed maturities and equity securities and the after tax change in net funded status of pension and other postretirement benefit obligations for the period as shown in the Consolidated Statement of Changes in Shareholders’ Equity. The following tables reconcile these components.

	Unrealized Gains
	and Losses on
	Fixed Maturities
	and Equity		Defined
	Securities (1)(2)		Benefit Plans (1)		Total (1)

Beginning balance, April 1, 2015	$	335,132	$	(12,953)	$	322,179
Other comprehensive income (loss) before reclassifications		(110,185)		-		(110,185)
Amounts reclassified from accumulated other comprehensive income (loss)		(1,161)		-		(1,161)
Net current period other comprehensive income (loss)		(111,346)		-		(111,346)
Ending balance, June 30, 2015	$	223,786	$	(12,953)	$	210,833

Beginning balance, January 1, 2015	$	297,554	$	(12,953)	$	284,601
Other comprehensive income (loss) before reclassifications		(68,815)		-		(68,815)
Amounts reclassified from accumulated other comprehensive income (loss)		(4,953)		-		(4,953)
Net current period other comprehensive income (loss)		(73,768)		-		(73,768)
Ending balance, June 30, 2015	$	223,786	$	(12,953)	$	210,833

(1)	All amounts are net of tax.

(2)

The pretax amounts reclassified from accumulated other comprehensive income (loss), $1,786 and $7,620, are included in net realized investment gains and losses and the related tax expenses, $625 and $2,667, are included in income tax expense in the Consolidated Statements of Operations for the three and six months ended June 30, 2015, respectively.

	Unrealized Gains
	and Losses on
	Fixed Maturities
	and Equity		Defined
	Securities (1)(2)		Benefit Plans (1)		Total (1)

Beginning balance, April 1, 2014	$	211,398	$	(11,776)	$	199,622
Other comprehensive income (loss) before reclassifications		72,402		-		72,402
Amounts reclassified from accumulated other comprehensive income (loss)		(2,245)		-		(2,245)
Net current period other comprehensive income (loss)		70,157		-		70,157
Ending balance, June 30, 2014	$	281,555	$	(11,776)	$	269,779

Beginning balance, January 1, 2014	$	133,990	$	(11,776)	$	122,214
Other comprehensive income (loss) before reclassifications		150,906		-		150,906
Amounts reclassified from accumulated other comprehensive income (loss)		(3,341)		-		(3,341)
Net current period other comprehensive income (loss)		147,565		-		147,565
Ending balance, June 30, 2014	$	281,555	$	(11,776)	$	269,779

(1)	All amounts are net of tax.

(2)

The pretax amounts reclassified from accumulated other comprehensive income (loss), $3,455 and $5,140, are included in net realized investment gains and losses and the related tax expenses, $1,210 and $1,799, are included in income tax expense in the Consolidated Statements of Operations for the three and six months ended June 30, 2014, 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 2 — Investments — Unrealized Gains and Losses on Fixed Maturities and Equity Securities”.