Horace Mann Insurance Group, Springfield, Ill., was assigned a 1993 Best's Rating of "A" (Excellent). The group's excellent financial strength was affirmed and its rating level of "A" was unchanged.
"This rating assignment reflects the group's consistent profitability and adequate liquidity and leverage measures and its ownership by Horace Mann Educators Corporation," said John H. Snyder, senior vice president of Best's property/casualty division. "The group's strong earning power has allowed it to increase surplus despite approximately $70 million in dividends paid over the last three years," he noted. Going forward, debt refinancing at the parent has reduced the dividend to approximately 50 percent per year, which should enable greater surplus growth.
In 1989, management led an initial private purchase of the group from CIGNA Corp. Due to the passage of Proposition 103 in California at that time, one member of the group, Allegiance Insurance Company, was not purchased by the Horace Mann Educators Corporation, the group's parent, due to its exposure to Prop 103 liability. However, CIGNA does maintain a put option on Allegiance back to Horace Mann under certain conditions. The possible purchase of Allegiance from CIGNA Corp. could possibly, in the worst-case scenario, result in a one-time charge to Horace Mann's net income of $13 million to $17 million, but would not significantly impact the parent's shareholders' equity and would have little impact, if any, to the insurance subsidiaries.
At year-end 1992, Horace Mann Educators Corp. had a manageable debt- to-equity ratio of 36 percent on shareholders' equity of approximately $359 million. The group is well capitalized with $359 million in premiums supported by $157 million of surplus. Horace Mann Insurance Group ranks among the 100 largest property/casualty underwriters in the United States with $359 million in premiums.
Kemper Reinsurance Company, Long Grove, Ill., was assigned a 1993 Best's Rating of "A-" (Excellent). The company's excellent financial strength was affirmed and its rating level was lowered from "A" to "A-".
This rating assignment reflects the reinsurer's adequate capitalization and its good overall long-term profitability. These positive rating factors are derived from the reinsurer's prominent position in the national account reinsurance sector. In addition, the pending sale of Kemper Re to Lumbermans Mutual, which is expected to close in August of 1993, should enhance the range of insurance products and services offered in the risk management area and provides a parent committed to the insurance business.
Offsetting these positive factors has been the company's depressed operating earnings in recent years, driven by elevated catastrophe losses and declining investment returns, as well as the uncertainty associated with the ongoing adverse development of the reinsurer's loss reserves. Over the years, the company has secured nearly $1 billion of aggregate excess of loss coverages largely to protect Kemper Re from its ongoing exposures to asbestos and environmental claims.
"The reinsurer has taken numerous corrective actions to limit its ongoing property exposures, including extensive non-renewal programs and pro-rata occurrence caps," said John H. Snyder, senior vice president of Best's property/casualty division. "Furthermore, management has taken a conservative approach to its reporting of known casualty exposures and has not recorded its own potential recoveries from reinsurers on its asbestos losses," he said. "These measures, along with management's expectation that a number of asbestos losses are reaching the reinsurer's ultimate coverage limits, and thus reduce the potential for substantial reserve development in the future, should enable Kemper Re to generate improved and more stable operating results in the future."
Underwriting results over the past five years have generally reflected the performance of the reinsurance sector with an average combined ratio of 110, although the corresponding pretax return on revenue of 6 percent is below that of its peers. The reinsurer is adequately capitalized, with $310 million in premiums supported by $339 million in surplus. The reinsurer's investment leverage has become less aggressive as common stocks and non-investment-grade bond holdings have been reduced, although they still represent 47 percent and 7 percent of surplus, respectively. In addition, affiliated investment holdings have also been reduced in 1992 to 25 percent of surplus from 40 percent in 1991. Kemper Reinsurance Company ranks among 10 largest professional reinsurers in the U.S. with $918 million in total assets.
Manufacturers Life Insurance Company, Toronto, Ontario, was assigned a 1993 Best's Rating of "A++" (Superior). The company's superior financial strength was affirmed and its rating level of "A++" was unchanged.
This rating assignment reflects the company's geographically diversified sources of income, its strong market presence, the overall conservative quality of the investment portfolio and its strong capitalization levels. Manufacturers Life is well established in the life and reinsurance markets in several countries, with a major presence in Canada, the United States, the United Kingdom and Pacific Asia. The U.S. represents the company's largest market for individual and group life products. Growth in Pacific Asia is being pursued vigorously in anticipation that this market may surpass Canadian productivity in the future.
The company operates in the reinsurance market worldwide, where it has established a strong position in retrocession, whereby it specializes in assuming risks from other reinsurers. Manufacturers Life is operationally diversified through non-life subsidiaries, including investment counseling and mutual fund companies, trusts and banks. Entrance into the Canadian bank market became effective Jan. 1, 1993, through the amalgamation of three previously owned trusts.
"A.M. Best believes that the creation of this bank should favorably position the company to meet the competitive challenges facing Canadian insurers," said Larry G. Mayewski, senior vice president of Best's life/health division. "However, this expansion away from the company's traditional businesses poses certain risks, given the challenges in attaining and maintaining a competitive advantage in a somewhat more volatile business segment," he said.
Historically, overall investment performance has been favorable. However, in 1992, the company experienced substantial write downs in the mortgage and trust portfolios. In an effort to address expected future deteriorations in earnings, the company established significant reserves for expected mortgage losses over the next five years. A.M. Best believes that the measures Manufacturers Life has taken to manage future asset write-downs will allow for earnings levels to improve in 1993. Despite the deterioration in earnings performance and the substantial increase in investment reserves, consolidated capitalization levels remain strong.
Due to their key strategic roles as Manufacturers Life subsidiaries, Manufacturers Life Insurance Company of America and Manufacturers Life Insurance Company (USA), both of Toronto, were also assigned 1993 Best's Ratings of "A++" (Superior). Both companies' superior financial strength was affirmed and their rating level of "A++" was unchanged.
Minnesota Mutual Life Insurance Company, St. Paul, Minn., was assigned a 1993 Best's Rating of "A++" (Superior). The company's superior financial strength was affirmed and its rating level of "A++" was unchanged.
"This rating assignment reflects the company's excellent balance- sheet quality, its diversified product portfolio and distribution systems and its improving profitability," according to Larry G. Mayewski, senior vice president of Best's life/health division. "Minnesota Mutual Life continues to excel in nearly all of its established lines of business while improving its overall market position relative to other mutual life insurers," he added. Somewhat offsetting these strengths are the company's adequate capitalization and the continuation of losses within the disability income lines.
The company holds prominent market positions in the mortgage term and adjustable life business segments, and maintains a strong niche presence in the pension market. These products continue to be a mainstay of the total portfolio and have allowed Minnesota Mutual to build on this solid reputation of offering a quality product while enabling the organization to explore other areas, thereby increasing its viability and exposure to the public. In addition to building on these fundamentals through increasing sales, the company has produced profitable results in nearly all lines of business. Net gains of approximately $114 million have served to increase the company's surplus base 71 percent over the past five years, while maintaining an overall level of capitalization that is adequate in relation to its investment risk and business commitments.
Minnesota Mutual has benefited from an appreciation of its conservative balance sheet. The bulk of its asset portfolio is comprised of investment-grade bonds, mortgage loans (evenly divided between commercial and low risk residential loans) and common stock holdings. Minnesota Mutual Life has not been active in originating new mortgage commitments since 1989 and, as a result, has had favorable experience in this area relative to its peers. The company maintains a very strong liquidity position that is supported by approximately $4.3 billion in investment-grade bonds, cash and short-term obligations (74 percent of invested assets). Minnesota Mutual Life Insurance Company ranks among the 45 largest life/health insurers in the U.S. when measured by total assets.
The Mutual Life Insurance Company of New York (MONY), was assigned a 1993 Best's Rating of "A-" (Excellent). The company's excellent financial strength was affirmed and its rating level of "A-" was unchanged.
This rating assignment reflects the company's profitable and stable core individual life insurance business, its favorable capitalization and well-managed and dedicated field force. In addition, this rating acknowledges the company's efforts to reshape its marketing focus and renew its sales momentum to solidify its position in the individual life and annuity markets, which are targeted toward upper-income individuals and small business owners. Offsetting these strengths is the continued high level of risk exposure in the company's mortgage and real estate portfolios and the moderately declining level of new sales activity. The company has made concerted efforts to not only reduce this exposure but to actively and conservatively manage and recognize value in its mortgage loan and real estate-related investments.
"A.M. Best remains somewhat concerned with the prospect of continued underperformance and the potential for further deterioration within the national real estate markets and the impact this would have on MONY's future results," said Larry G. Mayewski, senior vice president of Best's life/health division. However, the long-term nature and participating provisions of the company's life insurance liabilities provide some degree of insulation from future problems in this area. Although A.M. Best recognizes the strength and commitment of the management team in its efforts to maintain its standing as a premier life insurance provider, "we also note the inherent challenges surrounding such efforts," he added.
MONY's 1992 admitted assets totalled nearly $16.9 billion, of which approximately $4.0 billion represented investment-grade bonds, cash and short-term securities. MONY ranks among the 25 largest life/health insurers in the U.S. when measured by total assets.
Due to its strategic role as a subsidiary of MONY, MONY Life Insurance Company of America, Phoenix, Ariz., was assigned a 1993 Best's Rating of "A-"' (Excellent). This rating is based on the consolidated performance of the parent and this subsidiary. The activities of MONY Life Insurance of America are principally confined to the sales of interest sensitive products.
Provident Life and Accident Insurance Company, Chattanooga, Tenn., was assigned a 1993 Best's Rating of "A+" (Superior). The company's superior financial strength was affirmed and its rating level of "A+" was unchanged.
This rating assignment reflects the company's generally conservative operating profile, its strong overall earnings performance, high-quality investment portfolio and favorable capitalization. This rating also acknowledges the company's prominent position in the individual non- cancelable disability income market and the strong market presence of its group pension and individual and group life and health segments.
Provident Life and Accident Insurance Company historically has benefited from its diversified business profile. Although the company's individual disability income operations have experienced significant operating deficits in each of the past two years (approximately 40 percent of which was due to reserve strengthening), the strong profitability of the individual life line, its highly profitable group life and accident and health businesses, and improving earnings performance of its group pension segment has enabled the company to generate statutory operating gains totalling $130.2 million over this period of time.
"While A.M. Best anticipates Provident Life and Accident will continue to experience operating deficits in its individual disability income segment over the near term, operating income from its other businesses will provide the company the financial flexibility to grow its core operations and maintain appropriate capitalization," said Larry G. Mayewski, senior vice president of Best's property/casualty division.
At year end, Provident Life and Accident's liquidity position was supported by its sizable annual cash flow and investment-grade bonds, short-term securities and cash balances in excess of $6.2 billion (65 percent of total invested assets). Provident Life and Accident ranks among the 35 largest life/health insurers in the United States when measured by total assets.
In addition, Provident National Assurance Company, Chattanooga, Tenn., was assigned a 1993 Best's Rating of "A" (Excellent). The company's excellent financial strength was affirmed and its rating level of "A" was unchanged. This rating assignment acknowledges the company's role as the ongoing New York group pension operating arm of the Provident Life and Accident group of insurers.
Prudential Reinsurance Company, Newark, N.J., was removed from its "under review" status and was assigned a 1993 Best's Rating of "A" (Excellent). The company's excellent financial strength was affirmed and its rating level of "A" was unchanged.
This rating assignment reflects the reinsurer's excellent overall long-term profitability, commitment to reserve adequacy and solid capitalization. These positive rating factors are derived from the reinsurer's worldwide market presence and its combination of direct and broker underwriting strategies that provides for extensive market penetration. These strengths are further enhanced by the support of the company's parent, The Prudential Insurance Company of America, as evidenced by the recontribution of a previously paid $50 million dividend in 1992 as well as the suspension of dividends in 1993.
"The rating also reflects management's extensive corrective actions within its predominant property book, including pro-rata occurrence caps and non-renewal strategies, that have been implemented in response to the extraordinary catastrophe losses suffered in 1992, including those