OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Ratings (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” of the property/casualty members of Horace Mann Insurance Group (Horace Mann), as well as Horace Mann Life Insurance Company (Horace Mann Life). Concurrently, A.M. Best has affirmed the Long-Term ICR of “bbb” of Horace Mann Educators Corporation (HMEC) [NYSE: HMN] and the Long-Term Issue Credit Rating of “bbb” on its $250 million, 4.5% senior unsecured notes, due 2025. The outlook of these Credit Ratings (ratings) is stable. All companies are headquartered in Springfield, IL.
The ratings reflect Horace Mann’s strong overall capitalization, solid five-year 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. These strengths are offset partially by the susceptibility of Horace Mann’s property book of business to catastrophe and non-catastrophe weather losses, which resulted in an underwriting deficit and a reduced level of pre-tax operating earnings in 2016.
Horace Mann’s competitive advantages are derived from its strict expense management, improved underwriting and operating standards, exclusive agent business model and comprehensive enterprise risk management program, as well as its strong name recognition in the educators’ market. The group further benefits from its exclusive agency force, many of whom are former educators, which affords strong ties to local education communities. Through recent supplemental education and support of its agency force, the group is positioning its agents to utilize fully their positions in the market. The ratings also reflect the financial flexibility of its parent, HMEC, through its access to capital markets, moderate financial leverage and solid fixed-charge coverage.
The group’s negative rating factors include deterioration in pre-tax operating earnings in 2016, driven by underwriting losses that were attributable to increased property catastrophe and non-catastrophe storm losses, and increases in the frequency and severity of losses in its auto line of business. In response, the group has implemented rate increases, conducted re-inspections and has reduced significantly its coastal exposures in a number of states. Additionally, Horace Mann maintains modestly above-average underwriting leverage relative to industry norms.
The ratings of Horace Mann Life reflect its strategic role within HMEC and the benefits it derives from HMEC’s strong business franchise in the K-12 educators’ market. The ratings also reflect Horace Mann Life’s continued growth in the 403(b) tax-qualified annuity market, the competitive advantages derived from its exclusive and career full-time agent field force, overall positive statutory and GAAP net operating performance, with good return on equity ratios that continue to benefit from separate account fees, strong life insurance sales and generally favorable persistency in its ordinary life segment, favorable risk-adjusted capitalization and effective asset/liability management and cash flow analysis.
Partially offsetting rating factors are Horace Mann Life’s significant block of annuity business with high minimum interest rate guarantees, its increasing exposure to interest-sensitive liabilities and continued spread compression due to the ongoing low interest rate environment, along with an increase in overall investment risk due to higher allocations to BA assets as a percentage of statutory capital. Going forward, Department of Labor (DOL) Fiduciary Regulations may pose additional challenges to Horace Mann Life’s annuity businesses outside the 403(b) market, but currently the DOL is evaluating the fiduciary role at the request of the executive branch. In addition, the Securities and Exchange Commission (SEC) submitted a report to Congress recommending that the SEC adopt a fiduciary standard of conduct for broker-dealers.
The FSRs of A (Excellent) and the Long-Term ICRs of “a” have been affirmed for the following property/casualty members of the Horace Mann Insurance Group:
- Horace Mann Insurance Company
- Horace Mann Property & Casualty Insurance Company
- Teachers Insurance Company
- Horace Mann Lloyds
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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