Via Facsimile and U.S. Mail
Mail Stop 6010
August 12, 2005
Mr. Louis G. Lower II
President and Chief Executive Officer
Horace Mann Educators Corporation
1 Horace Mann Plaza
Springfield, Illinois 62715
Re: Horace Mann Educators Corporation
Form 10-K for the fiscal year ended December 31, 2004
Forms 10-Q for quarters ended March 31 and June 30, 2005
File No. 001-10890
Dear Mr. Lower:
We have limited our review of your filings to those issues
we
have addressed in our comments. Where our comments call for
disclosure, we think you should amend your documents in response
to
these comments. If you disagree, we will consider your
explanation
as to why our comment is inapplicable or a revision is
unnecessary.
In some of our comments, we ask you to provide us with information
so
we may better understand your disclosure.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the fiscal year ended December 31, 2004
Item 1 Business,
Selected Historical Consolidated Financial Data, page 3 and
Exhibit
12
1. Please include the interest paid to policyholders as fixed
charges
in your calculation of the ratio of earnings to fixed charges and
revise your exhibit and disclosures throughout the filing. Please
refer to the Item 503(d) of Regulation S-K.
Selected Historical Financial Information For Property and
Casualty
Segment, page 7
2. We note that you have included "Combined loss and expense ratio
before catastrophe loss" in your tabular disclosures herein, and
that
on page 8 you present claims and claim expense incurred and
payments
excluding catastrophes. Similar disclosures are also made in the
tables on page F-14 in your MD&A and in the narrative disclosures
of
your MD&A. Further in the table on page F-19 in your MD&A you
present
net income of your Property and Casualty segment before
catastrophe
costs. We believe that all of these measures are considered non-
GAAP
measures that must comply with Item 10(e) of Regulation S-K. We
note
that excluding catastrophes, which are recurring, to determine
these
measures has the effect of smoothing earnings. While the
acceptability of a non-GAAP financial measure that eliminates
recurring items from the most comparable GAAP measure depends on
all
facts and circumstances, we do not believe that a non-GAAP measure
that has the effect of smoothing earnings is appropriate. In
addition, we note that amounts excluded have the following
attributes:
* There is a past pattern of these items occurring in each
reporting
period;
* The financial impact of this item will not disappear or become
immaterial in the future; and
* There is no unusual reason that the company can substantiate to
identify the special nature of this item especially in view of the
nature of the company`s business.
These attributes raise significant questions about management`s
assertions as to the usefulness of these measures for investors
and
the appropriateness of their presentation in accordance with Item
10(e) of Regulation S-K. Please refer to "Frequently Asked
Questions
Regarding the Use of Non-GAAP Financial Measures" on our website
at
www.sec.gov/divisions/corpfin/faqs/nongaapfaq.htm that we issued
on
June 13, 2003, specifically questions 8 and 20. As it appears
that
you have not adequately disclosed the usefulness or the
appropriateness of these measures as required by Item 10 of
Regulation S-K, please remove all references to them in your
filing.
Although we object under your current disclosure of presenting
measures that exclude catastrophe loss, we encourage you to
disclose
the amount of catastrophe losses and provide narrative disclosure
about catastrophe losses in a context that improves the
transparency
of your disclosure to explain the reasons for fluctuations of line
items from period to period.
Management`s discussion and analysis of financial condition and
results of operations, page F-2
Critical Accounting Policies - Liabilities for Property and
Casualty
Claims and Claim Settlement Expenses, page F-4
3. We believe your disclosure in Management`s Discussion and
Analysis
regarding the reserve for loss and loss adjustment expenses could
be
improved to better explain the judgments and uncertainties
surrounding this estimate and the potential impact on your
financial
statements. We believe that disclosures explaining the likelihood
that materially different amounts would be reported under
different
conditions or using different assumptions is consistent with the
objective of Management`s Discussion and Analysis. Accordingly,
please revise MD&A to include the following information for each
of
your lines of business (private passenger automobile and
homeowners).
* Please disclose the reserves accrued as of the latest balance
sheet
date presented. The total of theses amounts should agree to the
amount presented on the balance sheet.
* Please disclose the range of loss reserve estimates as
determined
by your actuaries. Discuss the key assumptions used to arrive at
management`s best estimate of loss reserves within that range and
what specific factors led management to believe this amount rather
than any other amount within the range represented the best
estimate
of incurred losses.
* If you do not calculate a range around your loss reserve, but
instead use point estimates please include the following
disclosures:
o Disclose the various methods considered and the method that was
selected to calculate the reserves. If multiple point estimates
are
generated, include the range of these point estimates. Include a
discussion of why the method selected was more appropriate over
the
other methods.
o Discuss how management determined the most appropriate point
estimate and why the other point estimates were not chosen. Also
clarify whether the company actually records to the point estimate
or
if not, how that estimate is used.
o Include quantified and narrative disclosure of the impact that
reasonably likely changes in one or more of the variables (i.e.
actuarially method and/or assumptions used) would have on reported
results, financial position and liquidity.
* Because IBNR reserve estimates are more imprecise, please
disclose
the amount of IBNR separately from case reserves for all lines of
business.
Contractual Obligations, page F-23
4. We note that the Company did not include "policy liabilities"
and
"variable annuity liabilities" shown on the balance sheet and
lease
obligations to be paid in the contractual obligation table. It
would
appear that these liabilities/obligations, with the exception of
unearned premiums, represent future legal obligations of the
Company.
Due to their significant nature to your business, we believe that
their inclusion in the contractual obligation table will provide
investors increased disclosure of your liquidity. The purpose of
Financial Reporting Release 67 is to obtain enhanced disclosure
concerning a registrant`s contractual payment obligations and the
exclusion of ordinary course items would be inconsistent with the
objective of the Item 303(a)(5) of Regulation S-K. Based on the
above factors, please revise your contractual obligation table to
include the expected settlement of your policy and annuity
liabilities and the expected payments on operating leases.
Consolidated Financial Statements
Consolidated Balance Sheets, page F-32
5. Please tell us why you have separately classified "Variable
Annuity Assets" outside of "investments" and why you do not
identify
the nature of the investments on the face of the balance sheet in
one
of the categories listed in Rule 7-03(a)1. of Regulation S-X
consistent with your other investments. Also tell us why you don`t
classify your "Variable Annuity Liabilities" under "policy
liabilities" on the face of the balance sheet. Further, with
respect
to your disclosure in Note 1 - Variable Annuity Assets and
Liabilities, please tell us what the various "Horace Mann" funds
represent in 2003.
Note 1 Deferred Policy Acquisition Cost, page F-38
6. Please tell us how your use of "gross margin" for interest
sensitive life contracts and investment contracts complies with
"gross profit" as used in paragraph 23 of FAS 97. Further, tell us
whether you base your amortization on the "present value" of gross
profit as required by paragraph 22. Clarify your disclosure, as
appropriate.
7. Please tell us how your method of amortizing deferred
acquisition
costs for investment contracts complies with paragraph 10.33 of
AICPA
Audit and Accounting Guide for Life and Health Insurance Entities.
8. Please tell us whether or not the "valuation of annuity and
life
deferred acquisition costs" discussed on F-18 under "Amortization
of
Policy Acquisition Expenses and Intangible Assets" represent the
"adjustments" you describe in the last sentence of the first
paragraph herein.
Note 6 Shareholder`s Equity and Stock Options, page F-56
9. Please tell us what authoritative literature you used to
account
for the fees related to the equity put option as reduction of
additional paid-in capital as it appears these amounts could
represent expenses incurred for the cost of this transaction. In
so
doing, please cite the specific accounting literature (by
pronouncement and paragraph) and the specific terms of the
agreement
that support your accounting treatment. Further, provide us your
accounting treatment of the "reinsurance" part of the agreement as
you state that you entered into an "equity put and reinsurance
agreement and how your accounting complies with FAS 113. In
addition
please add to the MD&A a more robust discussion to address the
historical impact and expected impact of this agreement on the
company`s operations, financial position and liquidity including
the
effect of the conditions that need to be met by the company before
the put option can be exercised.
As appropriate, please amend your Form 10-K for December 31,
2004 and the Forms 10-Q for March 31, 2005 and June 30, 2005, and
respond to these comments within 10 business days or tell us when
you
will provide us with a response. If we have requested additional
information as well as an amendment, or if you disagree with any
comment that calls for disclosure, please provide this letter
prior
to your amendment and we will consider your explanation as to why
our
comments are inapplicable or a revision is unnecessary. You may
wish
to provide us with marked copies of the amendment to expedite our
review. Your letter should key your responses to our comments.
Detailed letters greatly facilitate our review. Please file your
letter on EDGAR under the form type label CORRESP. Please
understand
that we may have additional comments after reviewing your
amendment
and responses to our comments.
* * * *
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing include all information required under the Securities
Exchange
Act of 1934 and that they have provided all information investors
require for an informed investment decision. Since the company
and
its management are in possession of all facts relating to a
company`s
disclosure, they are responsible for the accuracy and adequacy of
the
disclosures they have made.
In connection with responding to our comments, please
provide,
in your letter, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Ibolya Ignat, Staff Accountant at (202) 551-
3656 if you have questions regarding the comments. In this regard,
do
not hesitate to contact me, at (202) 551-3679.
Sincerely,
Jim B. Rosenberg
Senior Assistant Chief
Accountant
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Louis G. Lower II
Horace Mann Educators Corporation
August 11, 2005
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