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

The affirmation of the ratings for Horace Mann reflects its adequate level of capitalization, stable operating results driven by recent underwriting and operating improvements, which helped the group to withstand very volatile years in 2008 and 2009 in terms of investment markets and elevated frequencies of severe weather losses. Supplementing these factors was Horace Mann’s continued expertise in writing personal lines products in the educator market, which has enabled it to obtain numerous endorsements from local, state and national educational associations. These strengths are partially offset by the organization’s continued above average underwriting leverage measures and the ever present susceptibility of Horace Mann’s property book to severe weather.

The rating actions on Horace Mann Life recognize its important role within HMEC and the benefits the company derives from HMEC’s strong business franchise in the K-12 educators market. The rating actions also acknowledge Horace Mann Life’s strong stand-alone risk-adjusted capitalization that is enhanced by its profitable operating results and improved investment performance, along with a distribution model, which employs the use of both dedicated and independent agents marketing its 403(b) tax-qualified annuity products. Thus far, Horace Mann Life has been successful in navigating through the industry-wide transition to the new Internal Revenue Service 403(b) regulations, which is evidenced by the continuation of the company’s growth momentum in the 403(b) market and the preservation of the majority of its existing payroll slots while garnering new payroll slots.

Partially offsetting these positive factors are the challenges of spread management on Horace Mann Life’s fixed annuity block, exposure to potential equity market volatility in the form of reduced fee income from its variable annuity business and material exposure to commercial mortgage-backed securities, which A.M. Best believes could result in moderate investment losses should the commercial mortgage markets soften further. The ratings also reflect the challenges Horace Mann Life faces in growing its proprietary ordinary life segment.

HMEC continues to operate through a corporate structure that affords financial flexibility as a publicly traded holding company with access to the capital markets, moderate financial leverage and historically solid fixed charge coverage.

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

-- “bb+” on subordinated debt

-- “bb” on preferred stock

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

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