Loosing Money on Purpose
For eighteen years, Horace Mann Educators Corporation has been seemingly horrible at the thing it appears to do for a living — selling insurance. But that is just hiding another truth…. that they’re a money printing machine.
Insurers across the globe use a metric called “combined ratio” to keep track of their performance. What this ratio is referring to is: if a insurer collects $100 in premiums, but pays out exactly $100 in claims and expenses, their your ratio is 100%. A payout of $80 in claims and expenses would mean a ratio of 80% (and “theoretically” a 20% profit margin). In other words, below 100 means profit; above 100 means loss. Between 2008 and 2025, Horace Mann’s home-and-auto business averaged a 100.8% combined ratio. Across roughly $10 billion in premiums, they cumulatively lost $70 million.
You might now be thinking “that isn’t good, but it isn’t that bad to warrant my attention either” — right? But here’s the catch: in 2025, they printed an 89.7% combined ratio—the best year in their history. So what changed? What happened? Let’s first understand a little more about how their business works…
The Real Product Isn’t Insurance
How does a company lose money on its core product for two decades, yet survive comfortably, and post record profits? To truly understand why this is happening, you have to realize that Horace Mann isn’t actually an insurance company. They are a massive investment fund, using insurance to gather capital.
Yes, just like what Berkshire did (if you’re familiar)
In the insurance world, this capital is called “float.” Float is the money customers hand over today for a promise to get their claims paid a year later (or even longer in certain insurance companies). During that “1 year”, the company invests the money.
This also means that having a float that is longer in duration allows a company to compound it across more years, yiedling higher returns i.e. Markel’s long-tail float.
That being said, long-tail floats are not where Horace Mann’s main advantage lies in.
In 2025, Horace Mann collected $1.23 billion in premiums, but earned $464 million in investment income. That is 38 cents of investment income earned from every dollar of premium that they receive from their customers. How did they manage to do this when coverage ratio (historically) has been poor?
The Magic Number — 30%
In 2025, Horace Mann did something that should have destroyed their business: they flexed their pricing power. This was a really risky decision because for their operations to sustain, customers must stay.
Over two years, they raised the average premium per policy from $1,301 to $1,694—a 30% hike. Normally, this causes a mass exodus. However, in 2025, retention sat at 83.7% for auto and 88.4% for property. Essentially UNCHANGED!
And the reason for this: Customers didn’t shop around because they never shopped in the first place…
The Payroll-deduction Slot
Horace Mann sells exclusively to teachers via a barrier competitors can’t replicate: the “payroll-deduction slot.” Think of:
A school district = an exclusive office building
A payroll slot = a VIP pass to claim a portion of a teacher’s pay
When a teacher buys a policy, the premium is automatically deducted before their paycheck hits their bank account. The teacher doesn’t write a check or sees a monthly bill.
But the slot actually comes with something more valuable: a physical seat in the building. Once a year, schools run “benefit-enrollment day”—when staff choose their coverage. Instead of calling a 1-800 number, teachers meet Horace Mann’s live representative in the teachers’ lounge. And this is where things start getting interesting.
Why $5 Billion Is Useless
This “seat in the building” is the core barrier protecting their business. It creates a local economy of scale money can’t buy. Progressive Insurance spent $5.13 billion on advertising in 2025—36 times Horace Mann’s entire home-and-auto pre-tax profit. Yet, none of that can buy them (Progressive) can buy a “seat in a teachers’ lounge”.
Access isn’t given by dafault nationally; there are 13,200 independent school districts, which decides their insurance separately. A real decentralized system. Horace Mann spent eighty years building relationships with over half of them, one district at a time. You can’t acquire this in a buyout because there’s no single seller to buy from.
Even The State Can’t Compare
California runs its own FREE, highly rated retirement plan for teachers, sitting on the “approved” list in 90% of its districts. You’d think every teacher would use it. Yet at Los Angeles Unified, the state’s largest district, less than 10% of teachers do. Why? Because the state’s plan is just a name on paper. Horace Mann has a human in the lounge, helping fill out paperwork.
Once in the room, agents sell high-margin products, like supplemental health cover. On these policies, Horace Mann pays out just 26.8% of premiums in claims, versus 49.5% for Aflac.
Think back to our combined ratio. A lower percentage i.e. Horace Mann’s 26.8% vs Aflac’s 49.5%, means lower espenses and higher cash back to the business
Aflac is the leading provider of supplemental health insurance
Record Profits
If they sold these highly profitable supplemental policies, why did their combined ratio average above 100% for eighteen years? Because the high margins were an intentional offset. The company used supplemental profits to subsidize underpricing their auto and property insurance. They intentionally broke even on insurance mechanics just to capture as much “float” as possible. The auto policy was bait to hook the teacher’s paycheck; the supplemental policy funded the operation.
Remember that investment returns are earned in percentages. More float = more money to invest i.e. 6% of $100 is $6 whilst 6% of $1,000 is $60. It is easier to raise float than raise investment yield.
What comes next is even more interesting: in 2025, the company restructured. They stopped sacrificing home-and-auto pricing to grow float. They realized that their captive audience doesn’t shop around. And so, Horace Mann pushed through a 30% price hike. And retention didn’t budge. The combined ratio plummeted to 89.7%.
They’re now being paid to get their float. They’re now being paid to hold money
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The part I find interesting is what happens from here. If they can maintain those higher premiums without hurting retention, the improvement in underwriting could keep flowing through earnings for several quarters. That is the kind of fundamental shift that can keep momentum going longer than expected.
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Learning.Investing.Thriving.
The way Horace Mann did it was actually pretty cool because they spent 18 years losing money just to build their competitive advantage. And I like how obscure it is that insurance policies isn't what they're most valued for, but rather, the float from it. The moat is a folding chair in the teachers' lounge on enrollment day - and this was proven in progressive's $5 billion spent on ads last year. It bought them zero chairs in schools (and you can't acquire it). The second interesting part was that we can see that the barrier advantage was quantified (26.8% loss ratios on supplemental, versus Aflac's 49.5%) - the exact same test AWS and Prime passed when i was looking at them. Then Horace Mann jacked prices 30% and flipped eighteen years of break-even into an 89.7% combined ratio, the best year in company history. Everything in this article reminded me of helmer's book (especially the pay where they can flip the pricing switch whenever they want, and the customer still has nowhere else to sit).
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Simple Investing School
The most interesting part is that Horace Mann’s advantage doesn’t seem to sit in the insurance product itself, but in the system around it: access, distribution, retention and pricing power. It’s a great reminder that the real economics of a business are often hidden one layer beneath the headline numbers. Here’s an article on how to go beyond the obvious number and asking what role something plays, what really drives the thesis, and what would make that thesis stronger or weaker.
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The Momentum Review
Horace Mann has spent decades building something rarer than a famous brand: a place inside a teacher’s working life. A policy may look like a simple payroll deduction, but it turns a difficult decision about risk, savings, and protection into a familiar routine, supported by a person the teacher already knows at school. Its pricing power comes not from always being the cheapest, but from making switching feel costly in time and effort—teachers must compare policies, complete forms, change payroll deductions, and replace a trusted relationship—while staying feels easy.
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Relationships are everything. The company has direct access to build them!
Strong piece. Really enjoyed the angle and the way the story unfolded beyond the obvious insurance numbers. Thanks again for letting SIS contribute a perspective to it. Really appreciated the collaboration. 🤍