A.M. Best Affirms Ratings of Horace Mann Educators Corporation and Its Subsidiaries

OLDWICK, N.J.--()--A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of “a-” of the property/casualty group, Horace Mann Insurance Group (Horace Mann P/C), and its members. Additionally, A.M. Best has affirmed the FSR of A (Excellent) and ICR of “a” of the life/health insurance company, Horace Mann Life Insurance Company (Horace Mann Life). Concurrently, A.M. Best has affirmed the ICR of “bbb” and debt ratings of the parent company, Horace Mann Educators Corporation (HMEC) (NYSE: HMN). The outlook for all ratings is stable. All companies are headquartered in Springfield, IL. (See below for a detailed listing of the companies and ratings.)

The affirmation of the ratings for Horace Mann P/C acknowledges its strong overall capitalization, moderate operating earnings and continued expertise in writing personal lines products in the educators’ market, which has enabled the group to obtain numerous endorsements from local, state and national educational associations. Horace Mann P/C further benefits from its exclusive agency force, many of whom are former educators, which affords strong ties to local education communities.

These strengths are partially offset by the susceptibility of Horace Mann P/C’s property book of business to catastrophe and non-catastrophe weather losses, which resulted in increased underwriting deficits in recent years. Additionally, Horace Mann P/C maintains above average underwriting leverage relative to industry norms, although underwriting leverage has trended downward in recent years. Furthermore, Horace Mann P/C has made significant stockholder dividend payments to HMEC over the previous five-year period, which somewhat tempered surplus growth. However, stockholder dividend payments have decreased in recent years, which have helped to augment the surplus position.

As Horace Mann P/C’s rating outlook is stable, positive rating actions could occur if there is a sustained favorable trend in operating results. Negative rating actions could occur if there is a deterioration in the group’s operating results similar to what occurred in 2011 and/or a material decline in its risk-adjusted capitalization, driven by operating losses or stockholder dividends.

Horace Mann Life’s ratings reflect its important role within HMEC and the benefits the company derives from HMEC’s strong business franchise in the K-12 educators’ market. The ratings also reflect Horace Mann Life’s strong risk-adjusted capital position, despite increased stockholder dividends in recent periods. In addition, the company has recorded favorable operating results due to strong annuity sales and investment yields that have improved following the reinvestment of much of its cash position, which accumulated during the recent financial crisis for liquidity purposes.

Partially offsetting these strengths is Horace Mann Life’s significant block of annuity business with high interest rate guarantees, its increasing exposure to interest sensitive liabilities in recent periods primarily due to strong fixed annuity sales and the lack of growth in the company’s ordinary life insurance line of business.

Horace Mann Life is well positioned at its current rating level. A material deterioration in the operating performance of its property/casualty affiliate or excessive stockholder dividends taken by HMEC that would result in a material decline in risk-adjusted capitalization may result in a ratings downgrade.

The FSR of A- (Excellent) and ICRs of “a-” have been affirmed for Horace Mann Insurance Group and its following members:

  • Horace Mann Insurance Company
  • Horace Mann Property & Casualty Insurance Company
  • Teachers Insurance Company
  • Horace Mann Lloyds

The following debt ratings have been affirmed:

Horace Mann Educators Corporation—

-- “bbb” on $75 million 6.05% senior unsecured notes, due 2015

-- “bbb” on $125 million 6.85% senior unsecured notes, due 2016

The following indicative ratings have been affirmed on securities available under the $300 million shelf registration:

Horace Mann Educators Corporation—

-- “bbb” on senior unsecured debt

-- “bbb-” on subordinated debt

-- “bb+” on preferred stock

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Rating Members of Insurance Groups”; “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Catastrophe Analysis in A.M. Best Ratings”; “Understanding BCAR for Life/Health Insurers”; and “Insurance Holding Company and Debt Ratings.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contacts

A.M. Best Co.
Kenneth Tappen, 908-439-2200, ext. 5248
Senior Financial AnalystP/C
kenneth.tappen@ambest.com
or
Michael Adams, 908-439-2200, ext. 5133
Senior Financial AnalystL/H
michael.adams@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

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Contacts

A.M. Best Co.
Kenneth Tappen, 908-439-2200, ext. 5248
Senior Financial AnalystP/C
kenneth.tappen@ambest.com
or
Michael Adams, 908-439-2200, ext. 5133
Senior Financial AnalystL/H
michael.adams@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com