A.M. Best Revises Outlook to Positive for Ratings of Horace Mann Insurance Company and Its Property/Casualty Affiliates
February 28 2014 - 1:34PM
Business Wire
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
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 © 2014 by A.M. Best Company,
Inc. ALL RIGHTS RESERVED.
A.M. Best CompanyKenneth Tappen—P/CSenior
Financial Analyst(908) 439-2200, ext.
5248kenneth.tappen@ambest.comorMichael
Adams—L/HSenior Financial Analyst(908) 439-2200, ext.
5133michael.adams@ambest.comorRachelle
MorrowSenior Manager, Public Relations(908) 439-2200,
ext. 5378rachelle.morrow@ambest.comorJim
PeavyAssistant Vice President, Public Relations(908)
439-2200, ext. 5644james.peavy@ambest.com
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