AM Best

SEPTEMBER 28, 2017 10:24 AM (EDT)

A.M. Best Affirms Credit Ratings of Kemper Corporation, Its Affiliates and Subsidiaries

 Michael T. Venezia
Senior Financial Analyst – P/C
+1 908 439 2200, ext. 5034

Bruno Caron, FSA, MAAA
Financial Analyst – L/H
+1 908 439 2200, ext. 5144
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644


OLDWICK - SEPTEMBER 28, 2017 10:24 AM (EDT)
A.M. Best has affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” of the property/casualty subsidiaries and affiliated insurance companies of Kemper Corporation (Kemper Corp.) [NYSE: KMPR], collectively referred to as Kemper Property & Casualty Group (Kemper P&C). A.M. Best also has affirmed the FSR of A- (Excellent) and the Long-Term ICRs of “a-” of Kemper Corp.’s life/health subsidiaries, collectively referred to as Kemper Life & Health Group (Kemper L&H). Concurrently, A.M. Best has affirmed the Long-Term ICR of “bbb-” and the Long-Term Issue Credit Ratings (Long-Term IR) of Kemper Corp., the ultimate parent. The outlook of these Credit Ratings (ratings) is stable. All companies are headquartered in Chicago, IL, unless otherwise specified. (See below for a detailed listing of the companies and ratings.)

The ratings and outlooks of Kemper P&C, led by Trinity Universal Insurance Company (Trinity) (Dallas, TX), reflect its solid risk-adjusted capitalization, generally favorable operating performance and the continued actions taken to reduce exposure to catastrophic loss and manage risks. Kemper P&C has aggressively pursued rate actions, enhanced risk selection, and further developed a more formalized enterprise risk management program. Kemper P&C also maintains a diverse business profile, good geographic spread of risk and long-standing agency relationships. Trinity reinsures the other members through a 100% quota share reinsurance agreement.

Partially offsetting these positive rating factors are Kemper P&C’s underwriting volatility and depressed operating earnings in recent years. In addition, underwriting leverage, while improved over historical levels, remains higher than that of the private passenger automobile and homeowners’ composites. Furthermore, Kemper P&C continues to face challenges from strong competitive market pricing and adverse loss trends in its main lines of private passenger auto, catastrophic losses from increased frequency and severity of weather events and the generally low interest rate environment, which has pressured investment returns.

Factors that may lead to negative rating action include a material decline in operating results; capitalization levels that fall below A.M. Best’s expectations for the current rating level; or planned strategic initiatives that fail to produce measurable improvement in performance. Rating upgrades or outlook revisions may be considered if the group can demonstrate better-than-average earnings and organic surplus growth through all phases of the underwriting cycle without diminution in business profile.

The ratings and outlooks of Kemper L&H reflect its collective long-term presence as protection insurance providers within Kemper Corp., its demonstrated market niche in the mature home service life insurance segment, its well-established employee agency field force, strong level of consolidated risk-adjusted capitalization and profitable operating performance on a GAAP and statutory (SAP) basis. Offsetting rating factors include the challenge to grow total net premium, due primarily to a decline in the overall home service market, and the ongoing high levels of dividends that have suppressed growth in absolute capital.

Kemper L&H’s consolidated risk-adjusted capitalization is enhanced by its strong profitability, which has historically offset large parental dividend payments. The group’s absolute capital has been flat to declining due to these large dividends. Furthermore, A.M. Best notes that Kemper L&H maintains a stable liability structure relative to its life/annuity peers, which is facilitated by its low-risk product offerings without secondary guarantees.

A.M. Best believes Kemper L&H may continue to be challenged to sustain and grow its new Kemper Senior Solutions and Kemper Benefits businesses. The group is looking at expense consolidation and reduction strategies, and has successfully implemented efforts to maintain target profitability. Members of Kemper L&H also remain exposed to changes in the application of state unclaimed property laws and related insurance claims, the application of which may have an adverse effect on its financial position. However, the company has been proactively managing this risk and took a reserve charge in 2016 to recognize the anticipated costs of compliance and also has enhanced its business processes to use the Social Security death master file on an ongoing basis when appropriate.

The ratings of Kemper L&H could be negatively impacted if there is a decline in consolidated adjusted capital or deterioration in quality of capital, if there is an unfavorable earnings trend, with increased volatility, if there is a negative outcome (litigation, regulation or reputational) of the Social Security death master file issue or if there is a decline in A.M. Best’s view of the financial strength of Kemper P&C, its larger property/casualty affiliate. The ratings could be positively impacted if there is a significant improvement in A.M. Best’s view of the financial strength of Kemper P&C.

Kemper Corp.’s adjusted debt-to-total capital ratio of 21.2% at June 30, 2017, was well-within A.M. Best’s guidelines for the company’s ratings. In addition, Kemper Corp.’s interest coverage was adequate for its assigned ratings.

The FSR of A- (Excellent) and the Long-Term ICRs of “a-” have been affirmed with a stable outlook for the following members of the Kemper Property & Casualty Group:

  • Trinity Universal Insurance Company

  • Alpha Property & Casualty Insurance Company

  • Capitol County Mutual Fire Insurance Company

  • Charter Indemnity Company

  • Financial Indemnity Company

  • Kemper Independence Insurance Company

  • Merastar Insurance Company

  • Mutual Savings Fire Insurance Company

  • Kemper Financial Indemnity Company

  • Old Reliable Casualty Company

  • Response Insurance Company

  • Response Worldwide Direct Auto Insurance Company

  • Response Worldwide Insurance Company

  • Union National Fire Insurance Company

  • United Casualty Insurance Company of America

  • Unitrin Advantage Insurance Company

  • Unitrin Auto and Home Insurance Company

  • Unitrin County Mutual Insurance Company

  • Unitrin Direct Insurance Company

  • Unitrin Direct Property & Casualty Company

  • Unitrin Preferred Insurance Company

  • Unitrin Safeguard Insurance Company

  • Valley Property & Casualty Insurance Company

  • Warner Insurance Company

The FSR of A- (Excellent) and the Long-Term ICRs of “a-” have been affirmed with a stable outlook for the following members of Kemper Life & Health Group:

  • United Insurance Company of America

  • Mutual Savings Life Insurance Company

  • The Reliable Life Insurance Company

  • Union National Life Insurance Company

  • Reserve National Insurance Company

The Long-Term ICR of “bbb-” has been affirmed with a stable outlook for Kemper Corporation.

The following Long-Term IRs have been affirmed:

Kemper Corporation

—“bbb-” on $450 million 4.35% senior unsecured notes, due 2025

—“bb+” on $150 million 7.375% subordinated debentures, due 2054

The following indicative Long-Term IRs on the shelf registration have been affirmed:

Kemper Corporation

—“bbb-” on senior unsecured debt

—“bb+” on subordinated debt

—“bb” on preferred stock

This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

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