Fitch Downgrades Horace Mann’s Ratings; Removes Negative Watch

Fitch Ratings has downgraded the long-term issuer rating and unsecured senior debt obligations of Illinois-based Horace Mann Educators Corp. to ‘BBB’ from ‘BBB+.’

Additionally, Fitch has downgraded the insurer financial strength (IFS) ratings on HMN’s five insurance subsidiaries from ‘A+’ to ‘A.’ The Rating Watch Negative has been removed and the Rating Outlook is Stable (see ratings list below).

Fitch’s rating actions reflect heightened concerns about HMN’s catastrophe risk management and earnings volatility derived in part from the company’s high operating leverage and property exposure in catastrophe-prone states. Fitch’s rating actions also reflect its concerns about HMN’s recent underwriting profitability that Fitch views as continuing to lag that of comparably rated peers and personal lines writers.

Fitch also believes that HMN’s ratings are increasingly driven by its property/casualty operation, which Fitch views as generating more volatile results than the company’s life and annuity operation.

Fitch’s rating actions follow HMN’s announcement that the company’s third quarter 2005 net pre-tax catastrophe losses will total approximately $39 million to $45 million. These losses represent between 16% and 18% of year-end 2004 statutory surplus for the property/casualty companies. Fitch believes these losses, coupled with very large catastrophe losses in 2004 that represented 37% of year-end 2003 statutory surplus, highlight HMN’s risk management challenges.

The ratings continue to reflect the companies’ solid risk-based capitalization, high quality, liquid investment portfolios, and well defined niche in the educators market. Additionally, Fitch’s ratings continue to reflect HMN’s conservative capital structure with a debt-to-capital ratio less than 30% and strong run-rate operating earnings-based interest exceeding 9 times coverage.

The fixed income is rated as follows with a Stable Rating Outlook by Fitch:

Horace Mann Educators Corp.

* Senior convertible debt due 2032 ‘BBB’;
* Senior debt 6.05% notes due June 15, 2015 ‘BBB’.

The insurer financial strength is rated as follows with a Stable Rating Outlook by Fitch:

* Horace Mann Life Insurance Co. ‘A’;
* Horace Mann Insurance Co. ‘A’;
* Horace Mann Property & Casualty Insurance Co. ‘A’;
* Teachers Insurance Co. ‘A’;
* Horace Mann Lloyds ‘A’.