Best Affirms Horace Mann Educators and Subs ‘A-‘ Ratings

April 27, 2012

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 and its members. Best also affirmed the FSR of ‘A’ (Excellent) and ICR of “a” of the life/health insurance company, Horace Mann Life Insurance Company, as well as the ICR of “bbb” and debt ratings of the parent company, Horace Mann Educators Corporation (HMEC).

The outlook for all of the ratings is stable. All of the companies are headquartered in Springfield, Illinois.

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,” Best explained. “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.”

As partial offsetting factors Best cited “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 far as the rating outlook is concerned, best said the current stable outlook could lead to positive rating actions, “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.”

As partial offsetting factors for the life business, Best cited the company’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.”

Best summarized its rating actions as follows:
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 percent senior unsecured notes, due 2015
— “bbb” on $125 million 6.85 percent 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

Source: A.M. Best

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 and its members. Best also affirmed the FSR of ‘A’ (Excellent) and ICR of “a” of the life/health insurance company, Horace Mann Life Insurance Company, as well as the ICR of “bbb” and debt ratings of the parent company, Horace Mann Educators Corporation (HMEC).

The outlook for all of the ratings is stable. All companies are headquartered in Springfield, Illinois.

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,” Best explained. “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.”

As partial offsetting factors Best cited “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 far as the rating outlook is concerned, best said the current stable outlook could lead to positive rating actions, “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.”

As partial offsetting factors for the life business, Best cited the company’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.”

Best summarized its rating actions as follows:
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 percent senior unsecured notes, due 2015
— “bbb” on $125 million 6.85 percent 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

Source: A.M. Best

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