S&P Affirms Horace Mann Ratings; Outlook Stable

December 1, 2004

Standard & Poor’s Ratings Services has revised its outlook on Illinois-based Horace Mann Educators Corp. and its subsidiaries to stable from negative.

Standard & Poor’s also affirmed its ‘BBB’ counterparty credit rating on Horace Mann Educators Corp.

At the same time, Standard & Poor’s affirmed its ‘A’ counterparty credit and financial strength ratings on Horace Mann Property and Casualty Insurance Co., Horace Mann Insurance Co., Teachers Insurance Co., and Horace Mann Life Insurance Co. (collectively, Horace Mann).

The outlook was revised reflecting stabilization in the group’s operating performance in 2004, particularly in the property/casualty operations, at a level that Standard & Poor’s believes is commensurate with the current ratings.

Standard & Poor’s views all of Horace Mann’s operating companies as core to each other, and they therefore share the same rating.

Outlook

Standard & Poor’s expects Horace Mann’s competitive position to remain strong, enabling it to continue generating earnings commensurate with the rating, and to maintain very strong capitalization. Standard & Poor’s expects the life/annuity operation to produce annual ROA of more than 100 basis points (bps), and the property/casualty (P/C) operation to produce annual combined ratios, including catastrophe losses, of less than 100%. Operating capitalization is expected to strengthen in 2005, resulting in a capital adequacy ratio (CAR), net of surplus relief, of at least 150% by year-end 2005.

Major rating factors

— Horace Mann continues to have a strong competitive position, recently intensifying its focus on the K-12 educators market. Although the group is the largest national multiline insurance group focused on the educator market, it has been challenged in taking full advantage of this position. Although the overall productivity of the career agency force has improved, proprietary life insurance sales continue to decline in 2004, and auto insurance sales remain sluggish due to rate increases and reunderwriting actions.

— The group’s operating performance has improved significantly in 2004 compared with 2003, even including the $39 million after-tax loss from this year’s hurricane activity. Through third-quarter 2004, pretax GAAP operating earnings were $37 million, compared with a loss of $3 million in the comparable prior-year period. The poor results in 2003 were caused primarily by a pretax $44 million reserve charge in the P/C operations. No similar reserve actions have been taken in 2004.

— Horace Mann’s capitalization is consistent with the ratings, with a very strong year-end 2003 CAR of 173%, as measured by Standard & Poor’s capital model, and a projected CAR at year-end 2004 of 159%. After adjusting for the $40 million of surplus relief reinsurance remaining in the life company at year-end 2004, capitalization is weaker but still consistent with the current ratings, with an adjusted year-end 2003 CAR of 148% and an adjusted projected year-end 2004 ratio of 141%. The capital structure at the holding company remains supportive of the ratings, with debt/capital, as of Sept. 30, 2004, of 27% and double leverage of 125%. Standard & Poor’s estimates GAAP fixed-charge coverage in 2004 will be 6.3x, and statutory fixed-charge coverage for the year will be 5.4x.