HMN Horace Mann Educators Corporation

A.M. Best Co. has assigned a rating of "bbb-" to the $125 million 6.85% 10-year senior unsecured notes issued by Horace Mann Educators Corporation (HMEC) (NYSE: HMN). Concurrently, A.M. Best has affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of "a-" of Horace Mann Insurance Group (Horace Mann) and its property/casualty subsidiaries. Additionally, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of "a-"of HMEC's life/health insurance subsidiary, Horace Mann Life Insurance Company (Horace Mann Life), as well as HMEC's ICR of "bbb-"and the debt ratings on HMEC's outstanding securities. All the above companies are domiciled in Springfield, IL. All ratings have a stable outlook. (See below for a detailed list of ratings.) Proceeds from the notes will be used to pay off the $74 million balance of HMEC's bank facility, which was borrowed to repurchase a portion of its outstanding senior convertible notes due in 2032. A.M. Best believes the approximately $50 million remaining will likely be utilized to further reduce existing corporate debt in the near term. HMEC's pro forma financial leverage, including the new $125 million senior notes, is approximately 29%. Interest coverage is well within parameters for the current rating level. The ratings reflect the revitalization of the property/casualty group's capitalization driven by the corrective measures management has taken in recent years. The 2005 operating results--although affected by roughly $37 million in net catastrophe losses due to hurricanes Katrina, Rita, and Wilma--have been driven by positive underwriting results led by the private passenger auto liability and private passenger auto physical damage lines. Performance of Horace Mann's property book, although dampened by catastrophe losses, has improved markedly as rate increases and continued improvements in underwriting terms have begun to produce earning results. The capital position of the property/casualty operations has been strengthened by its 2005 year-end results and is supportive of the A- (Excellent) rating level. Horace Mann also benefits from its expertise in personal line products for the educator market, which has enabled it to obtain numerous endorsements from local, state and national educational associations. In addition, distribution through exclusive agents, many of whom are former educators, affords strong ties to local education communities. The ratings also reflect Horace Mann's strict expense management and strengthened underwriting standards, as well as its adequate loss reserve position, which experienced little development throughout 2005 after the corrections made in 2003. Horace Mann continues to operate through a corporate structure that affords financial flexibility as a publicly-traded holding company with access to the capital markets, moderate financial leverage and historically solid fixed-charge coverage. Horace Mann Life's rating reflects its significant presence within HMEC, its sound risk-adjusted capitalization on a stand-alone basis, its overall positive statutory operating performance, increased agent productivity and the development of an independent field force, which complements its captive agency field force for the company's 403(b) tax-qualified annuity products. Partially offsetting these strengths is the impact of the persistent low interest rate environment on Horace Mann Life's fixed annuity block--which has experienced considerable spread compression--stock market volatility and its impact on fee income from its variable annuity business and declining life insurance sales trends. The rating also considers the continuing demand on Horace Mann Life's financial resources to support stockholder dividends to HMEC. The FSR of A- (Excellent) and ICRs of "a-" have been affirmed for Horace Mann Insurance Group and its following property/casualty subsidiaries: -- Horace Mann Insurance Company -- Horace Mann Property & Casualty Insurance Company -- Teachers Insurance Company -- Horace Mann Lloyds The FSR of A- (Excellent) and ICR of "a-" have been affirmed for Horace Mann Life Insurance Company. The ICR of "bbb-" has been affirmed for Horace Mann Educators Corporation. The following debt rating has been assigned: Horace Mann Educators Corporation-- -- "bbb-" on $125 million 6.85% senior unsecured notes, due 2016 The following debt ratings have been affirmed: Horace Mann Educators Corporation-- -- "bbb-" on $75 million 6.05% senior unsecured notes, due 2015 -- "bbb-" on $353.5 million senior unsecured convertible notes, due 2032 The following indicative debt ratings have been affirmed on securities available under the $300 million shelf registration: Horace Mann Educators Corporation-- -- "bbb-" on senior unsecured debt -- "bb+" on subordinated debt -- "bb" on preferred stock A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.