A.M. Best has 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). The outlook for these ratings is
positive.
Additionally, A.M. Best has affirmed the FSR of A (Excellent) and the
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 positive outlook for the ratings of Horace Mann P/C reflects its
favorable operating earnings in recent years, driven by solid
underwriting results attributable to the implementation of rate
adjustments and numerous strategic initiatives by its management team.
The ratings of Horace Mann P/C acknowledge 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 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 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 considerable 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 generally
favorable mortality and persistency in its ordinary life segment. A.M.
Best also notes that life insurance sales have increased noticeably in
recent 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 generally
declining level of in-force life insurance policies. While the company
has experienced favorable operating results in recent periods, A.M. Best
notes that approximately 86% 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 the 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 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 www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
-
A.M. Best's Liquidity Model for U.S. Life Insurers
-
A.M. Best's Perspective on Operating Leverage
-
Catastrophe Analysis in A.M. Best Ratings
-
Insurance Holding Company and Debt Ratings
-
Rating Members of Insurance Groups
-
Risk Management and the Rating Process for Insurance Companies
-
Understanding BCAR for Property/Casualty Insurers
-
Understanding BCAR for U.S. and Canadian Life/Health Insurers
This press release relates to rating(s) 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 visit A.M. Best’s Ratings
& Criteria Center.
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 © 2015 by A.M. Best Company, Inc. ALL RIGHTS
RESERVED.
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