Fitch Affirms Horace Mann's IDR; Outlook Stable

2008-08-08 20:33:04 -

- Fitch Ratings has affirmed Horace Mann's ratings as follows:

Horace Mann Educators Corporation's (Horace Mann) insurance subsidiaries:

Horace Mann Insurance Co.

Teachers Insurance Co.

Horace Mann Property & Casualty Insurance Co.

Horace Mann Lloyds

Horace Mann Life Insurance Co.

--Insurer Financial Strength (IFS) rating at 'A'.

Horace Mann

--Issuer Default Rating (IDR) 'BBB+';

--$199.5 million senior notes at 'BBB'.

The Rating Outlook is Stable.

Horace Mann's ratings reflect the solid risk-based capitalization of its insurance subsidiaries, driven primarily by its life insurance subsidiaries.

Additionally, the company has generated a gradual improvement in its underwriting results over the past three years. Notwithstanding record catastrophe (cat) losses, Horace Mann's year-to-date underwriting results were favorable. The company reported a combined ratio of 100.2% through June 30, 2008, which included 10.4 points of cat costs. This compares to a combined ratio of 89.3%, including 2.7 points of cat losses through June 30, 2007. This represents a slight deterioration of ex-cat underwriting results, which is consistent with Fitch's expectation given the soft pricing environment.

Offsetting factors include Horace Mann's cat exposure. Through the first six months of 2008, Horace Mann endured cat losses of $27.8 million, which compares to $7.4 million for the same period last year. This represents more cat losses than any first quarter since 1994 and its worst second quarter to date, driven by tornadoes and other damaging weather events. This trend is particularly noteworthy considering that, historically, more U.S. cat losses are recorded in the second half of the year, concurrent with the Atlantic Ocean hurricane season. However, given previous steps taken by Horace Mann to reduce its exposure in coastal cat-prone areas, Fitch expects hurricane losses to be more manageable.

Fitch also believes the company's lack of scale makes it harder to compete with its larger and better capitalized peers. Slightly mitigating this risk is Horace Mann's well-defined niche in the educators market.

Additionally, regulatory changes in the 403B market could adversely affect Horace Mann's market share. While Horace Mann's life and annuity operations add diversity and stability to its cash flows and capital levels, Fitch continues to believe that slow growth and modest scale will reduce this segment's contribution to the overall rating over time.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings
Dafina M. Dunmore, CFA, +1-312-368-3136
R. Andrew Davidson, CFA, +1-312-368-3144
Tana Higman, +1-312-368-3122 (Chicago)
Media Relations:
Cindy Stoller, +1-212-908-0526 (New York)