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

03/29/2013 | 12:05pm US/Eastern
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A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of "a-'' of Horace Mann Insurance Company and its property/casualty insurance affiliates (Horace Mann P/C). 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 of Horace Mann P/C acknowledges its strong overall capitalization, moderate 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. Horace Mann P/C's competitive advantages are derived from its strict expense management, improved underwriting and operating standards, redirected and evolving exclusive agent business model, comprehensive enterprise risk management program, as well as its strong name recognition in the educators' market. 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. Through recent supplemental education and support of its agency force, the group is positioning its agents to fully utilize their positions in the market.

Additionally, Horace Mann P/C reported improved operating earnings in 2012, driven by favorable underwriting results that were attributable to the implementation of rate adjustments and numerous strategic initiatives by its management team. The ratings also reflect the financial flexibility of HMEC, through its access to capital markets, moderate financial leverage and solid fixed-charge coverage.

These strengths are partially offset by the deterioration in Horace Mann P/C's pre-tax operating earnings in 2011, driven by underwriting losses that were attributable to increased property catastrophe and non-catastrophe storm losses and Florida sinkhole losses. In response, the organization has implemented homeowners' rate increases, increased re-inspections, implemented a multi-variate rating program and is in the process of reducing its coastal exposures in a number of states. Florida sinkhole exposures that were concentrated in Hernando, Hillsborough and Pasco counties have been non-renewed as of December 31, 2011.

Additionally, Horace Mann P/C maintains modestly above-average underwriting leverage relative to industry norms, although underwriting leverage has trended steadily downward over the previous five-year period. Furthermore, Horace Mann P/C has made significant stockholder dividend payments to HMEC over the previous five-year period, which somewhat tempered its surplus growth. However, the group's stockholder dividend payments have been at a reduced percentage of overall stockholder dividend payments in recent years, which has helped to augment its surplus position.

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

Horace Mann Life's ratings reflect its important 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 strong risk-adjusted capital position, despite increased stockholder dividends in recent periods. In addition, the company has recorded favorable operating results due to increased separate account fees associated with a rising level of assets under management and its ability to maintain interest rate spreads on its fixed annuity block by effectively managing crediting rates in recent periods.

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 and its generally low ordinary life insurance premium growth. However, A.M. Best does note that ordinary life sales have increased considerably over this most recent period. While the company has experienced favorable operating results, A. M. Best believes earnings may be pressured going forward due to spread compression as a majority of its interest sensitive liabilities are at or near the minimum guaranteed interest rate.

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

The FSR of A- (Excellent) and ICRs of "a-'' have been affirmed for Horace Mann Insurance Company and its following property/casualty insurance affiliates:

  • 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.

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 © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

####

A.M. Best Co.
Kenneth Tappen?P/C, 908-439-2200, ext. 5248
Senior Financial Analyst
kenneth.tappen@ambest.com
or
Michael Adams?L/H, 908-439-2200, ext. 5133
Senior Financial Analyst
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


© Business Wire 2013
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