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CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings has affirmed the 'BBB' Issuer Default Rating (IDR) and 'BBB-' senior unsecured debt rating of Horace Mann Educators Corporation (Horace Mann). Fitch has also affirmed the 'A-' Insurer Financial Strength (IFS) ratings of Horace Mann's insurance subsidiaries. A complete list of ratings appears at the end of this release. The Rating Outlook is Stable.

Horace Mann's ratings reflect solid capitalization in its operating subsidiaries, conservatively managed investment portfolio, and reasonable financial leverage. The ratings also consider the company's volatile earnings profile caused by catastrophe exposure.

The company reported net earnings of $39.8 million through the first six months of 2012, an improvement of $25.8 million compared to the prior year period. The improvement reflects a reduction in catastrophe losses and increased earnings in its life and annuity segments.

Horace Mann reported a combined ratio of 103.9% through the first six months of 2012 compared with 114.7% for the prior year period. This includes 12.9 percentage points related to catastrophe losses and three percentage points of favorable reserve development. This compares to 23.0 and 1.4 percentage points for the prior year period, respectively. The company expects losses related to Hurricane Isaac to be modest.

Improved results in Horace Mann's homeowners' insurance line were slightly offset by deterioration in its auto insurance book, due to higher claims frequency and elevated loss costs. The company aims to increase rates during the second half of 2012 in an effort to improve profitability in its auto book. However, it remains uncertain whether Horace Mann can achieve its profitability goals while concurrently focusing on new business volume and improved retention.

Horace Mann's life insurance operations provide consistency of earnings and diversification of product revenues and risks. The life segment reported positive first half 2012 comparisons with the same period in 2011 due to favorable mortality and controlled expenses. Horace Mann's annuity segment benefited from effective management of interest rate margins and greater assets under management. Persistency for both annuity and life segments remains at favorable levels.

Shareholders' equity increased by 8% to $1.1 billion as of June 30, 2012 from year-end 2011, driven primarily by unrealized investment gains. Horace Mann's P/C and life insurance subsidiaries are well-capitalized with estimated June 30, 2012 RBC ratios of 525% and 490%, respectively. Financial leverage is within rating guidelines with a debt to capital ratio (ex-unrealized gains on fixed income securities) of 23.2% as of June 30, 2012.

Key rating triggers that could lead to an upgrade include a sustained improvement in underwriting profitability with an average combined ratio below 100%, GAAP operating earnings-based interest coverage above 7 times (x) for a sustained period, and/or a continued trend of capital growth with sustained low operating leverage. Fitch does expect a certain amount of earnings volatility given Horace Mann's catastrophe exposure.

Key rating triggers that could lead to a downgrade include a sustained period of weak earnings with GAAP operating earnings-based interest coverage below 4x, a reduction in capitalization and/or financial leverage above 30%, adverse reserve development amounting to 5% of prior year surplus, and/or a significant decline in market share or distribution weakness in the 403(b) market.

Fitch has affirmed the following ratings with a Stable Outlook:

Horace Mann

--IDR at 'BBB';

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

Horace Mann Insurance Co.

Teachers Insurance Co.

Horace Mann Property & Casualty Insurance Co.

Horace Mann Lloyds

Horace Mann Life Insurance Co.

--IFS at 'A-'.

Additional information is available at '[ www.fitchratings.com ]'. The ratings above were unsolicited and have been provided by Fitch as a service to investors.

Applicable Criteria & Related Research:

--'Insurance Rating Methodology' (Sept. 22, 2011).

Applicable Criteria and Related Research:

Insurance Rating Methodology

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