Good morning. My name is Pam, and I will be your conference operator today. At this time, I would like to welcome everyone to the Horace Mann Educators Corporation third quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator instructions) Thank you. It is now my pleasure to turn the floor over to your host, Dwayne Hallman, Senior Vice President of Finance. Sir, you may begin your conference.

Thank you and good morning, everyone. Welcome to our third quarter 2008 earnings conference call. Yesterday, after the market closed, we released our earnings report, including financial statements as well as supplemental business and investment information. If you need a copy of the release, it is available on our website under Investor Relations. Today we will cover our results for the third quarter in our prepared remarks. The following management members will make presentations today, and as usual will be available for questions later in the conference call. Lou Lower, President and Chief Executive Officer; Pete Heckman, Executive Vice President and Chief Financial Officer; Tom Wilkinson, Executive Vice President, Property and Casualty; and Rick Schulenburg, Vice President of Sales. The following discussion may contain forward-looking statements regarding Horace Mann and its operations. Our actual results may differ materially from those projected in the forward-looking statements. These forward-looking statements are made based on management’s current expectations and beliefs as of the date and time of this call. For discussions of the risk and uncertainties that could affect actual results, please refer to the company’s public filings with the SEC and in the earnings press release issued yesterday. We undertake no obligation to publicly update or revise such forward-looking statements to reflect the actual results or changes, assumptions, or other factors that could affect these statements. As a reminder, this call is being recorded and is available live on our website. An Internet reply will be available on our website until November 30, 2008. Now I will turn the call over to Lou Lower for his comments.

Thank you, Dwayne. Good morning everyone and thanks for participating on our call. Sizeable catastrophe losses from 11 events including hurricanes Ike and Gustav plus the impact of the worldwide financial crisis resulted in a net loss for Horace Mann in the quarter of $0.79 per share and that is made up of operating EPS of $0.17 per share more than offset by net realized capital losses of $0.96 per share. Our net realized capital losses of $45 million pretax were somewhat less than our preannouncement while catastrophe losses were right at the midpoint of the range that we disclosed. Given what has transpired in the financial markets since we last spoke we are going to organize our commentary this morning around two topics, our financial strength and our operations. I will provide an overview of both and following that Pete Heckman will very appropriately spend more time with you than normal discussing our investment portfolio, capital position, operating and leverage ratios. As part of his discussion Pete is going to walk you through a supplemental exhibit that we have added to our earnings release so that you have greater detail up front but as always our 10-Q will provide full transparency for your further analysis. Following Pete’s review, we will turn to our more traditional review of operations but as we do that we will try to give you a flavor of how our business is behaving in the challenging economic environment. So, first to the balance sheet and financial strength. The realized losses we recorded in this quarter as we preannounced are largely from the third quarter headline credits of Fannie, Freddie, Lehman, and AIG. The meaningful increase in our unrealized position is predominantly a result of the extreme and unprecedented widening of corporate bond spreads. Our considered…

Thanks Lou and good morning. The unprecedented uncertainty and volatility in the financial markets continues to have both an impact on both realized and unrealized investment losses. Pretax net realized losses where $45 million for the third quarter. Included in this amount was $33 million of impairment write-downs on securities which we continue to hold but determined to have other than temporary declines in market value as of quarter end. Of this amount approximately $23.7 million relates to impairments for which the issuers ability to pay future interest and principle based upon contractual terms has been compromised, namely Lehman brothers, Fannie, Freddie, and AIG. The remaining amount relates to impairments primarily of financial institution securities and high yield bonds where we no longer have the intent to hold the security for a period of time necessary to recover a substantial portion of the decline in value. Also included is a $14.2 million of realized losses on impaired securities that we disposed off during the quarter primarily related to financial names such as Freddie, Fannie, Wachovia, Morgan Stanley, Goldman Sachs, and Washington Mutual. The impairment was partially offset by $2.3 million of realized gains and investment sales. The spread widening and interest rate volatility in the quarter much of it occurring in the month of September had a significant adverse affect on the fair value of our investments. We provided a supplemental exhibit at the end of our press release package this quarter, I believe that is page number six, which provides additional disclosure on our net unrealized loss trends in September 30 balance. Net unrealized investment losses at the end of the third quarter totaled approximately $271 million pretax, up substantially from $106 million recorded at June 30. As you can see in the data the change was spread over…

Thanks, Pete, and good morning. As Lou mentioned, weather patterns and catastrophe continue to a significantly impact our P&C results. Total catastrophes costs for both the quarter and year-to-date are up three times our expected amount. The third quarter saw the continuation of increased tornado activity across the Midwest with almost twice as many storms as last year and the impacts of hurricane Gustav and Ike. Let me say that our claim staff has responded to these events exceptionally well with a timely (inaudible) service to our customers. We are currently 97% closed for Gustav and about 92% closed for hurricane Ike. As I said all that activity has impacted our key profitability measures. The total P&C combined ratio for the quarter was 109.7 up 13 points over third quarter last year. Catastrophe costs in the quarter totaled $36 million and a represented 19 points about prior year levels. We had favorable prior year reserve reversal estimates of $6.3 million or 4.7% of premium, which is almost two points better than prior year. Our underlying combined ratio which excludes catastrophes, and the effects of prior year reserve reestimates was 87.5% about 4 points lower than the third quarter of last year. And not surprisingly year-to-date total PNC combined ratio was 103.3 up 11.5 points over last year. Catastrophic costs account for 11.5 points of the increase and the difference in prior year reserve reestimates contribute an additional nine-tenths to the increase. Our year-to-date underlying accident year combined ratios again excluding catastrophes was 90.2% and nine-tenths of a point lower than prior year. On the auto side, this quarter for auto accident year combined ratio, excluding catastrophes, was 89% or 7.1 points better than the prior year. Frequency was below prior year for the second consecutive quarter favorably impact by continued…

Thanks, Tom. Total annuity sales were down 1% in the third quarter compared to prior year and down 9% year-to-date. However, 2008 annuity sales are exceeding our expectations and those prior year comparisons mask what I think is a pretty positive picture in this line of business especially as far as our Horace Mann agents are concerned. As expected the IRS 403(b) transition rules have had a negative impact throughout the year and on single premium and rolled over deposits due to interim restrictions on participants upon transfers. Our independent agent channel, which accounts for only about 10% of our annuity sales energy, has been impacted more significantly. But Horace Mann agents had a strong third quarter increasing total sales by 5% over prior year, which reduce their year-to-date sales deficit to 1%. And in our bread and butter flexible premium business employee agents grew sales 9% in the third quarter and 6% year-to-date. We also began to see some recovery in Horace Mann agents’ single premium rollover sales with that component increasing 4% in the current quarter as more and more school districts completed their transition to the new 403(b) regulations. As we have discussed on previous calls the new IRS regulations become effective on January 1 of next year and 2008 has been a year of transition in the marketplace as this process sorted itself out. During the last twelve to eighteen months, we have deployed a number of strategies to solidify our position and grow our business. We have implemented numerous contact programs, participated in joint communications and distributed informational packages to all of our school districts and trained our agents so that they can provide a high level of expertise to school administrators. While there was some concern that the level of market disruption would be…

Thank you, Pete, and good morning to everyone. Today I’ll focus on the momentum we continue to build with the agency business model initiative, the changes in our agent status relative to the model and our quarter and year-to-date sales results. As we have reported in the past, results of our agents working in the Agency Business Model or ABM continues to gain traction. ABM agents have gone through our agency business school and have adopted or in the process of adopting documented repeatable processes in their operations that include conducting business in an outside office with licensed producers and other support staff. We continue to grow the number of agents operating in outside offices with licensed producers while continuing to decrease the number of agents working out of their home. We now have over 450 agents operating in an outside office and over 250 of them with licensed producers and 200 graduates of our agency business school. On average, ABM agents are collectively outperforming all other agents in all core lines, especially in our two lead lines, true new auto sales and flexible annuity sales. These lines serve as a barometer for our success with the ABM initiative. Taking a look at our third quarter results, overall average true new auto productivity increased by approximately 8% with our ABM agents leading the increase with an approximate 11% increase as a group. For the year, average productivity increased 1% with our ABM agents up 4%. Flexible annuity average productivity was up around 25% for the third quarter and 18% for the year. Again, our ABM agents had the most influence on this increase. Their average flexible annuity sales increased by approximately 20% in the third quarter bringing the year-to-date results to 24% and single annuity sales productivity is up approximately…

Thanks, Rick. And that concludes our prepared remarks. Obviously, we allocated some additional time for our remarks, but given the current environment we certainly believe that it was warranted. So Pam, if you would please move to the question and answer session.

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Hi, good morning. Could you refresh me again where your RBC ratios are relative to your target, I know you gave the number but I missed it?

Yes, Bob the estimated September 30 number, and we haven’t finalized statutory results yet but these are pretty close. It is about 350% for P&C and about 430% for life.

And what is your target?

Well, we certainly look to have the life RBC ratio above the 400 mark; although I think our current ratings could be supported with something a bit below that. P&C, we look probably as much because the premium, the surplus ratio in combination with RBC and again the premium surplus ratio is going to end up being about 1.9 or so, just a little bit above 1.9 and we have been as high as 2.5 in fact 3 or 4 years ago and supported the current ratings. So, we feel both are comfortably within our targets.

If the market grew and you could actually raise rates and grow units, I would say it tightened for whatever reason; you have got the balance sheet to be able to support growth there?

Yes, we do.

Okay, on the investment side. Obviously you formed it up with a third-party and you sort of went through sort of what went wrong in the quarter but I think you seem to suggest you are comfortable with the overall risk profile of the portfolio, are you comfortable with outsourcing it and what it did -- whether some mistakes and how much risk was taken and is there a move to dial it back?

So, no plans to derisk the portfolio from here.

Not substantially as you can see from some of the investment details that was acquired, we do not have exposure, very minimal exposure to a lot of the toxic buckets but to the extent of our financing and institution exposure that has been decreased over the last year but at this point that does makes sense to realize losses on (inaudible) means that they crossed crisis.

How much annualized loss investment income has it been in P&C and life company, the hit you have taken so far?

On an annual basis approximately $2 million to $2.5 million.

That is company wide or --

That is correct.

So, P&C would get whatever their percentage or is that built into more to the life company?

Bob you could assume that is a little bit more to the life company.

Okay, the last question is that was a pretty phenomenal underlying results ex -- I guess that was the plan just looking but you are -- are you going to factor that into underwriting, then we were in a little bit of a different environment. I know we had sort of third quarter, you had the higher gas prices, fourth quarter you are going to have weaker economy enduring [ph] and less people driving to work, although the future may not be impacted and that I guess I will be badging fewer cars. What are your underwriters doing on the market?

We feel pretty good about the quality of our business. A lot of the programs we put over the last couple of years as we focused those back on the educator market and we think that frequency trends still look pretty good. I doubt that given that given that gas prices have already changed the trend a little bit I don’t know if the frequency trends are going to be as good going forward but we still look pretty favorable there. We think, unfortunately the economy might have some impact on everybody else who is driving and we might have less cars that hit out there. We feel -- we feel pretty optimistic going forward. We increased our rate activity over the last few quarters, not exorbitant, not a lot, but enough to help us with our cost and you know we are still investing heavily in the claims department and our claims results have been pretty good.

So, you are not going to factor in the pricing, it sounds like?

No, not exactly that is not yet.

Okay, thank you very much.

Thank you. Your next question is coming from Rohan Pai with Banc of America. Please go ahead.

Hi, good morning. First question has to do with the auto combined ratio, I think a couple of quarters ago you said that you don’t expect the benefits of frequency could be that much because features tend to drive to work regardless, I mean, I think the 89% combined ratio was one of the largest sequential improvements we have seen, was it just the frequency or is there is anything that maybe one-time that helped in the third quarter that might not be ongoing.

In the third quarter, we also in addition to the declines in frequency, we also got some benefit from prior quarters’ developments also hitting us, helping us out in the third quarter.

Yes, talking about the underlying. So, excluding cats and the reserve adjustments, the underlying combined ratio seems to have improved at 5 or 6 points sequentially.

Right, it was in the current accident year with just a couple in the last quarter and a quarter ago that helped the third quarter underlying results as well.

(inaudible)

There were reserve adjustments from the prior two quarters that came in?

Yes.

Okay, okay.

Probably the place to look is more to the year-to-date numbers Rohan.

Okay, that is helpful. That is very helpful. Thank you. The expense ratio on the P&C side seems to be a little better than we were expecting and better sequentially, anything that is one-time nature there or is that something that might be ongoing?

w:

Okay good. On the --

(inaudible) adjustments we like to see on the ongoing basis as you might imagine.

Yes, again this is going to be preliminary but we think adjusted capital and surplus will end September between $250 million to $260 million.

And what was it at the end of the second quarter if you can just remind me.

275.

Okay, and you know Fitch had some negative comments a week or two ago. What are the rating agencies saying, like are they bothered about the unrealized losses in any way or do they agree with your view that this is money good and some point it has to all come back?

Obviously we have been in contact with the rating agencies since the draw down on our bank line and also communicated not only the rationale behind that borrowing, which they totally agreed with but also communicated our third quarter projections for operating results and investment results as well, and those projections we provided were consistent with our actual third quarter results. We recently provided them as you can imagine with extensive additional detail on our investment portfolio, which we understand is being requested of most or all licensures and are pro actively providing supplemental information and responding to their questions. At this point in time, we are not aware of any specific ongoing concerns they have with Horace Mann, although their review of our information and the significant volume of industry data is clearly still work in process. But again I think agencies such as Fitch have come out with overall negative outlooks on the life industry in general and I think they have downgraded of us was generally reflective of that as much as anything specific with regard to Horace Mann.

Okay, and then on the -- thanks for the investment disclosure, that was helpful. Just looking at the unrealized marks, the corporate bond portfolio seems to have been written down by about 7%. It was back on the envelope in the third quarter, we would have expected a AA or A portfolio to be down maybe 5%. Is there something that was different about your portfolio that we should have possibly taken in consideration?

Not aware of anything Rohan.

Okay and then --

Obviously the financial institution overwriting is there.

And that is right, yes.

On that it is fairly diversified.

Okay, and I guess -- is it fair to assume that October unrealized losses were net negative so far.

Yes, I think that is a fair assumption. You recall, I quoted in my comments the movement in the kind of aggregate US intermediate credit spreads going from 256 basis points at the end of June to 427 at the end of September. Earlier this week they moved up to 545. So, you are certainly right that October would see additional growth in unrealized. And we expect the unrealized in this environment to be bouncing around quite substantially. One we will affirm that you know, it is generally something that is probably useable is that the sensitivity of our unrealized to changes in spreads basically are generally for each 50 basis point change in overall spread our unrealized would change maybe by little over $100 million.

Okay, that is helpful. Thanks a lot. Those were the questions I had.

Thank you.

Your next question is coming from --

Hello Pam, what is going on, we couldn’t hear the question. Pam. If anyone is on the line, we are going to be checking out what appeared to be some technical difficulties, hopefully we will get back on line momentarily.

Mr. Hallman, can you hear me?

Yes, Pam, you are back on line.

Yes, hello.

And Mr. Hallman, can you hear me?

Yes, Pam, we can.

Thank you. I apologize for the inconvenience. Mr. Rothman, Millennium Partners. You may begin your question.

Hi, guys. Can you talk about where you are seeing fixed annuity spreads in the current environment?

, :

Okay, great. And you said the new spreads were in the 200s.

220 to 230.

Okay great. And then follow up on Rohan’s question. Looking at your disclosure here and some of the marks you took like JP Morgan for example, it looks like you took a 25% mark in the -- from the third quarter based on the spread. It just seems very conservative frankly because JP Morgan mostly seems to be trading in the 90s and I don’t know, maybe you have some of the very elongated stuffs. Can you just talk about who you are using to determine these marks and maybe if you can kind of clarify what types of debt you are holding?

Hi, this is Dwayne Hallman. As far as the marks are concerned that is from pricing services. I would agree with you that some of the pricings are actually suspect. I think the number of (inaudible) in some cases, but those are available in quoted prices from different dealers and or other pricing services. So, as far as the market is concerned and the disclosure that it would be consistent with what we would see from our investment managers as a result of those services. In the case of JP Morgan, there might be some longer dated papers there, but unfortunately at this point in time that is the public price, level 2 [ph] type price.

Okay, and then of the $45 million in realized losses, how much of that in ‘08? Dwayne Hallman; :

So, how much more in realized losses could you take in (inaudible) before you needed to move certain capital down from the holding company.

No, it is hard to tell what -- at this point what amount that is without getting a better sense of where the rating agencies are heading with capital requirements. And again, we -- the life statutory surplus as I mentioned in response to a prior question decreased about $20 million between quarters and the ratio of the RBC ratio is still well above 400. So, I guess it is my perspective; we have got way to go still.

Okay, and then worst case scenario, I guess would be way down the road, but have you guys ever looked at, you know, even more capital by using some reinsurance on the life side?

We actually did have surplus reinsurance transaction dating back to the 2003, 2004 time frame which was I think around ’05 or thereabouts and kind of talking through that with the rating agencies, at least a couple of them. They frankly admitted to us, they didn’t really give that too much credibility. So, in light of that.

Clearly they just understand that it is -- and they felt that it was kind of artificial as opposed to real solid capital for whatever reason, but so in light of that, if it is not going to serve the rating purpose or get full credit, we are a little bit maybe thinking twice about that if we were to need something, but again we are always away from needing additional help like that.

Okay, all right. Thanks a lot guys.

You bet.

Thank you. (Operator instructions) You have a follow up question coming from Robert Glasspiegel with Langen McAlenney. Please go ahead. Bob Glasspiegel – Langen McAlenney: Lou where do you see your new cash flow going, just going to continue to build equity at the holding company, are you going to pay down any of the commercial paper borrowing?

We don’t have any commercial paper borrowing but we could -- but we would build a -- Bob Glasspiegel – Langen McAlenney: Credit facility.

We would use it for a combination of building more capital at the holding company and or to the extent that we don’t need it, then we don’t need it right now, reducing the letter of credit, paying that back, but if you, the question was, should you anticipate the continuation of share repurchase activity in the immediate future, I would say the answer to that was no. Bob Glasspiegel – Langen McAlenney: Then that wasn’t where I was going. It was repaying what you are borrowing here?

I think you understand the rationale behind that. We were just -- we just wanted to make sure that that money which we have always viewed as our contingent capital was on our side of the fence. Bob Glasspiegel – Langen McAlenney: And what is the rate on that?

It is LIBOR plus about 0.6. So, I think the effective rate for 3 months is 4.7 or so. Bob Glasspiegel – Langen McAlenney: Okay and what are you doing with it.

It is at the holding company. Bob Glasspiegel – Langen McAlenney: How are you investing at the holding company.

Treasuries primarily. Bob Glasspiegel – Langen McAlenney: I mean what duration.

Relatively short.

At the time we -- it is Dwayne Hallman. At the time we drew down the facility obviously there was still quite a bit of turmoil in money markets and such. Bob Glasspiegel – Langen McAlenney: So, you are still grabbing some of the juicy minus 0.25% yields when they are available?

I am loving it. Bob Glasspiegel – Langen McAlenney: Are you really sure to take it [ph].

We are. Bob Glasspiegel – Langen McAlenney: Okay, thank you.

You bet.

Thank you. There are no further questions at this time. The Q&A session has now concluded. I like to now turn the floor back over to Mr. Lou Lower for any closing or additional remarks.

Well just to wrap it up, let me reiterate first that we have a strong capital position with solid RBC ratios backed up by financial flexibility at the holding company if needed. Second, the increase in the unrealized position in our investment portfolio is driven by the systemic widening of spreads in a dysfunctional market, not risky assets. Third, while the market sorts itself out and returns to more rational valuations, the nature of our liabilities and cash flow from operations absolutely backs up our ability and intent to hold our investments to recovery. Fourth, there is no liquidity issue at Horace Mann. Fifth, underlying profitability in both P&C and life and annuity are solid. And finally, and very importantly for our future prospects our strategic growth initiatives to make our marketing and distribution more powerful are improving everyday. And that concludes our call. Thanks for joining us.

Thank you. And this concludes today’s Horace Mann Educators Corporation’s third quarter earnings release conference call. You may now disconnect your lines and have a pleasant afternoon.