Fitch Downs Horace Mann’s Debt and Strength Ratings

October 20, 2003

Fitch Ratings has downgraded the senior debt ratings of Springfield, Ill.-based Horace Mann Educators Corp. to “BBB+” from “A-.”

Fitch has also lowered the insurer financial strength (IFS) ratings of HMN’s five insurance subsidiaries to “A+” from “AA-.” The rating outlook is stable.

Fitch’s rating actions reflect its belief that it will be difficult for HMN’s property/casualty operation to return to the significantly better than industry average underwriting performance that it had historically generated. Fitch had previously viewed the company’s superior underwriting results as a key factor supporting HMN’s ratings and as evidence that HMN’s niche-oriented strategy differentiated it from companies’ with similar profiles.

Additionally, Fitch believes that HMN’s life and annuity subsidiaries’ earnings contribution and surplus growth will be below historical levels due to spread compression on its fixed annuity products, lower levels of separate account assets under management, and the effect of finite reinsurance.

HMN’s ratings continue to be supported by the company’s strong risk-based capitalization, well-defined market niche in the educator market, strong catastrophe reinsurance protection, and a high quality, liquid investment portfolio.

HMN’s debt rating is supported by its diversified earnings stream and good GAAP basis operating earnings-based fixed charge coverage that Fitch anticipates will exceed 9 times (x) in 2004. HMN’s debt rating also reflects its moderate financial leverage measured by its debt-to-capital ratio which is expected to approximate 25 percent.

Fitch’s stable rating outlook is driven by its belief that HMN continues to have an advantageous position in the educator marketplace and reasonable business strategies for growing profitable business. Fitch expects continued moderate improvement in HMIG’s underwriting performance and expense management, and solid contributions from HMN’s life and annuity operations.

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