A.M. Best Assigns Rating to Horace Mann Educators' New Senior Notes; Affirms Financial Strength, Issuer Credit and Debt Ratings
April 19 2006 - 1:14PM
Business Wire
A.M. Best Co. has assigned a rating of "bbb-" to the $125 million
6.85% 10-year senior unsecured notes issued by Horace Mann
Educators Corporation (HMEC) (NYSE: HMN). Concurrently, A.M. Best
has affirmed the financial strength rating (FSR) of A- (Excellent)
and issuer credit ratings (ICR) of "a-" of Horace Mann Insurance
Group (Horace Mann) and its property/casualty subsidiaries.
Additionally, A.M. Best has affirmed the FSR of A- (Excellent) and
ICR of "a-"of HMEC's life/health insurance subsidiary, Horace Mann
Life Insurance Company (Horace Mann Life), as well as HMEC's ICR of
"bbb-"and the debt ratings on HMEC's outstanding securities. All
the above companies are domiciled in Springfield, IL. All ratings
have a stable outlook. (See below for a detailed list of ratings.)
Proceeds from the notes will be used to pay off the $74 million
balance of HMEC's bank facility, which was borrowed to repurchase a
portion of its outstanding senior convertible notes due in 2032.
A.M. Best believes the approximately $50 million remaining will
likely be utilized to further reduce existing corporate debt in the
near term. HMEC's pro forma financial leverage, including the new
$125 million senior notes, is approximately 29%. Interest coverage
is well within parameters for the current rating level. The ratings
reflect the revitalization of the property/casualty group's
capitalization driven by the corrective measures management has
taken in recent years. The 2005 operating results--although
affected by roughly $37 million in net catastrophe losses due to
hurricanes Katrina, Rita, and Wilma--have been driven by positive
underwriting results led by the private passenger auto liability
and private passenger auto physical damage lines. Performance of
Horace Mann's property book, although dampened by catastrophe
losses, has improved markedly as rate increases and continued
improvements in underwriting terms have begun to produce earning
results. The capital position of the property/casualty operations
has been strengthened by its 2005 year-end results and is
supportive of the A- (Excellent) rating level. Horace Mann also
benefits from its expertise in personal line products for the
educator market, which has enabled it to obtain numerous
endorsements from local, state and national educational
associations. In addition, distribution through exclusive agents,
many of whom are former educators, affords strong ties to local
education communities. The ratings also reflect Horace Mann's
strict expense management and strengthened underwriting standards,
as well as its adequate loss reserve position, which experienced
little development throughout 2005 after the corrections made in
2003. Horace Mann 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.
Horace Mann Life's rating reflects its significant presence within
HMEC, its sound risk-adjusted capitalization on a stand-alone
basis, its overall positive statutory operating performance,
increased agent productivity and the development of an independent
field force, which complements its captive agency field force for
the company's 403(b) tax-qualified annuity products. Partially
offsetting these strengths is the impact of the persistent low
interest rate environment on Horace Mann Life's fixed annuity
block--which has experienced considerable spread compression--stock
market volatility and its impact on fee income from its variable
annuity business and declining life insurance sales trends. The
rating also considers the continuing demand on Horace Mann Life's
financial resources to support stockholder dividends to HMEC. The
FSR of A- (Excellent) and ICRs of "a-" have been affirmed for
Horace Mann Insurance Group and its following property/casualty
subsidiaries: -- Horace Mann Insurance Company -- Horace Mann
Property & Casualty Insurance Company -- Teachers Insurance
Company -- Horace Mann Lloyds The FSR of A- (Excellent) and ICR of
"a-" have been affirmed for Horace Mann Life Insurance Company. The
ICR of "bbb-" has been affirmed for Horace Mann Educators
Corporation. The following debt rating has been assigned: Horace
Mann Educators Corporation-- -- "bbb-" on $125 million 6.85% senior
unsecured notes, due 2016 The following debt ratings have been
affirmed: Horace Mann Educators Corporation-- -- "bbb-" on $75
million 6.05% senior unsecured notes, due 2015 -- "bbb-" on $353.5
million senior unsecured convertible notes, due 2032 The following
indicative debt 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 A.M. Best Co.,
established in 1899, is the world's oldest and most authoritative
insurance rating and information source. For more information,
visit A.M. Best's Web site at www.ambest.com.
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