AM Best Information Services

FEBRUARY 28, 2014 03:25 PM (EST)

A.M. Best Revises Outlook to Positive for Ratings of Horace Mann Insurance Company and Its Property/Casualty Affiliates

 Kenneth Tappen—P/C
Senior Financial Analyst
(908) 439-2200, ext. 5248

Michael Adams—L/H
Senior Financial Analyst
(908) 439-2200, ext. 5133

Rachelle Morrow
Senior Manager, Public Relations
(908) 439-2200, ext. 5378

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644


OLDWICK - FEBRUARY 28, 2014 03:25 PM (EST)
A.M. Best has revised the outlook to positive from stable and affirmed the financial strength rating (FSR) of A- (Excellent) and the issuer credit ratings (ICR) of "a-' of Horace Mann Insurance Company and its property/casualty insurance affiliates (known as 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 these ratings is stable. All companies are headquartered in Springfield, IL. (See below for a detailed listing of the companies and ratings.)

The revised outlook for the ratings of Horace Mann P/C reflects its favorable operating earnings in recent years, driven by solid underwriting results that were attributable to the implementation of rate adjustments and numerous strategic initiatives by its management team.

The affirmation of the ratings of Horace Mann P/C acknowledges its 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. 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. 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 Horace Mann P/C's unfavorable operating earnings in 2011, driven by underwriting losses that were attributable to increased property catastrophe and non-catastrophe storm losses. In response, the organization implemented homeowners' rate increases, increased re-inspections, implemented a multi-variate rating program and significantly reduced its coastal exposures in a number of states. 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.

As the outlook for the ratings of Horace Mann P/C is positive, rating upgrades could occur if there is a continuation of favorable operating results and the maintenance of strong risk-adjusted capitalization. Negative rating actions could occur if there is a sustained material decline in operating results and/or a material decline in risk-adjusted capitalization, potentially driven by catastrophe 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 large 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 favorable mortality and persistency in its ordinary life segment. A.M. Best also notes that life insurance sales have increased noticeably over the past two years as management has implemented strategies to improve production including introducing a new suite of proprietary life insurance products to meet the needs of its customers.

Partially offsetting these strengths are Horace Mann Life's significant block of annuity business with high interest rate guarantees, its increasing exposure to interest sensitive liabilities and historically low ordinary life insurance premium growth. While the company has experienced favorable operating results in recent periods, A.M. Best notes that approximately 87% of its fixed annuity account balances are at the guaranteed minimum interest rate, which resulted in a decline in interest rate spreads in this line of business over the past year. A.M. Best believes that overall earnings will remain favorable over the near to medium term but could be pressured somewhat if interest rates remain at current levels.

A.M. Best believes that the potential for positive ratings movement is limited over the near to medium term. However, a material deterioration in Horace Mann Life's operating performance due to spread compression, a downgrading of the ratings of its property/casualty affiliate or excessive stockholder dividends taken by HMEC may result in 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. Best's Credit Rating Methodology can be found at

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