AM Best Affirms Credit Ratings of Horace Mann Educators Corporation and Its Subsidiaries
AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of "a" of Horace Mann Life Insurance Company (Horace Mann Life). AM Best also has affirmed the FSR of A- (Excellent) and the Long-Term ICRs of "a-" of National Teachers Associates Life Insurance Company (Addison, TX) and its affiliated entity, NTA (News - Alert) Life Insurance Company of New York (New York, NY) (collectively referred to as NTA Life). In addition, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICRs of "a" of the property/casualty (P/C) members of Horace Mann Insurance Group (Horace Mann). Concurrently, AM Best has affirmed the Long-Term ICR of "bbb" of Horace Mann Educators Corporation (HMEC) [NYSE: HMN] and the Long-Term Issue Credit Rating of "bbb" on its $250 million, 4.5% senior unsecured notes, due 2025. All companies are headquartered in Springfield, IL, unless otherwise specified. The outlook of these Credit Ratings (ratings) is stable. (See below for a detailed list of the P/C subsidiaries).
The ratings of Horace Mann Life reflect its balance sheet strength, which AM Best categorizes as strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).
Horace Mann Life benefits from stable operating earnings despite some contraction within the retirement segment, as well as growing life insurance sales and favorable persistency. There had been downward pressure on earnings due to declining spreads on interest sensitive liabilities. Horace Mann Life reinsured $2.9 billion of these liabilities to Reinsurance Group of America, Incorporated in 2019, which increased investment spreads but lowered overall operating earnings.
The ratings of Horace Mann Life also reflect its strategic role within HMEC and the benefits it derives from HMEC's strong business franchise in the K-12 educators' market. Horace Mann Life also benefits from its exclusive agency force, many of whom are former educators, which affords strong ties to local education communities and from competitive advantages derived from its long-term growth in the 403(b) tax-qualified annuity market.
Risk-adjusted capital levels fell moderately in 2019 due to dividends to HMEC to fund the acquisition of NTA Life; however, surplus levels partially rebounded in the first quarter of 2020.
The ratings of NTA Life reflect its balance sheet strength, which AM Best categorizes as strongest, as well as its dequate operating performance, limited business profile and appropriate ERM.
AM Best expects NTA Life's risk-adjusted capital to remain at the strongest level given the capital support agreement pledged by Horace Mann Life to NTA Life. NTA Life has consistently strong profitability metrics. AM Best will monitor NTA Life's strategic value to the overall Horace Mann group and the cross-selling opportunities it presents, along with the execution of the integration.
The ratings of Horace Mann reflect the group's balance sheet strength, which AM Best categorizes as strongest, as well as its adequate operating performance, neutral business profile and appropriate ERM.
The ratings of Horace Mann also reflect the group's continued expertise in writing personal lines products in the educators' market, which has generated numerous endorsements from local, state and national educational associations.
The group has produced modest operating earnings, as measured by its five-year pre-tax returns on revenue and equity, which are generally in line with the averages for the private passenger standard auto and homeowners industry composite. Horace Mann's property book of business is susceptible somewhat to catastrophe and non-catastrophe weather losses. Weather-related losses and higher auto loss frequency and severity contributed to underwriting deficits and reduced levels of pre-tax operating earnings in the past five-year period. Results improved significantly through first-quarter 2020 compared with 2019, as well as compared with 2018 due primarily to the reduction in catastrophe losses but also coastal and wildfire exposure management actions and improved profitability in the auto line of business.
The FSR of A (Excellent) and the Long-Term ICRs of "a" have been affirmed with a stable outlook for the following P/C members of Horace Mann Insurance Group:
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