AM Best Downgrades Credit Ratings of Kemper Corporation, Its Affiliates and Subsidiaries

·7 min read

OLDWICK, N.J., August 11, 2022--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating (FSR) to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to "a-" (Excellent) from "a" (Excellent) 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). AM Best also has downgraded the FSR to A- (Excellent) from A (Excellent) and the Long-Term ICRs to "a-" (Excellent) from "a" (Excellent) of Kemper Corp.’s life/health subsidiaries, collectively referred to as Kemper Life & Health Group (Kemper L&H) (Chicago, IL). Concurrently, AM Best has downgraded the Long-Term ICR to "bbb-" (Good) from "bbb" (Good) and downgraded the Long-Term Issue Credit Ratings (Long-Term IR) and indicative Long-Term IRs of Kemper Corp., the ultimate parent, headquartered in Chicago, IL. The outlook of these Credit Ratings (ratings) has been revised to stable from negative. See below for further discussion and a detailed listing of all companies and ratings.

At the same time, AM Best has downgraded the FSR to A- (Excellent) from A (Excellent) and the Long-Term ICR to "a-" (Excellent) from "a" (Excellent) of Reserve National Insurance Company (Reserve National) (Chicago, IL). Concurrently, AM Best has placed these ratings under review with developing implications. Reserve National will continue to receive support from the Kemper Life & Health Group until the transaction is completed.

Additionally, AM Best has withdrawn the FSR of A (Excellent) and the Long-Term ICR of "a" (Excellent) of Infinity Security Insurance Company (Chicago, IL) with negative outlooks, as the company was sold as a shell with no remaining policyholder liabilities in early August to Texas-based Transverse Specialty Insurance Company.

The ratings of Kemper P&C reflect its balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The ratings of Kemper L&H reflect its balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile, appropriate ERM, and consideration of the group’s affiliation with lead rating unit Kemper P&C.

The downgrades of Kemper P&C — lead rating unit of the group — and Kemper Corp., primarily consider the prolonged earnings deterioration of Kemper P&C and for Kemper Corp. overall in 2021 and through the first half of 2022, driven by unfavorable operating performance resulting from elevated inflation and supply chain disruptions. Additionally, deteriorating performance has been exacerbated by Kemper P&C’s concentration in California, where the regulatory environment is more challenging. As a result, rate filings will take time to earn into financials. Although AM Best previously contemplated sustained earnings weakness in 2022 for Kemper P&C and for Kemper Corp., actual year-to-date performance has been at or near the low end of AM Best’s expectations, while capital market volatility has exceeded expectations. This combination resulted in reduced risk-adjusted capitalization levels for the overall enterprise when viewed on a consolidated basis, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best expects that the group’s earnings will steadily improve over the remainder of 2022, and into 2023, but that the process will be gradual, and possibly uneven, and the potential for further interim capital erosion remains possible.

The stable outlook for Kemper Corp. follows that of Kemper P&C, the lead rating unit. The stable outlooks for Kemper L&H primarily reflects that operation’s significantly smaller scale within the organization, and AM Best’s view that its credit profile therefore reflects both its intrinsic strength and its affiliation with Kemper P&C and the ultimate parent and holding company, Kemper Corp.

The under review with developing implications for Reserve National reflects Kemper Corp.’s recently announced agreement to sell Reserve National and its subsidiaries, which are predominantly focused on accident and health insurance, to Medical Mutual of Ohio for $90 million. The transaction is subject to regulatory approval and other closing conditions with an expected closing in late 2022 or early 2023. Reserve National is based in Oklahoma City, and sells accident and health insurance products in both the individual and group markets with written premiums of over $170 million in 2021.

The FSR has been downgraded to A- (Excellent) from A (Excellent) and the Long-Term ICRs downgraded to "a-" (Excellent) from "a" (Excellent) with the outlooks revised to stable from negative for the 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

  • Infinity Insurance Company

  • Infinity Assurance Insurance Company

  • Infinity Auto Insurance Company

  • Infinity Casualty Insurance Company

  • Infinity Indemnity Insurance Company

  • Infinity Preferred Insurance Company

  • Infinity Safeguard Insurance Company

  • Infinity Select Insurance Company

  • Infinity Standard Insurance Company

  • Infinity County Mutual Insurance 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 has been downgraded to A- (Excellent) from A (Excellent) and the Long-Term ICRs downgraded to "a-" (Excellent) from "a" (Excellent) with the outlooks revised to stable from negative for the 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

The following Long-Term IR has been downgraded, and the outlooks revised to stable from negative:

Kemper Corporation—
-- to "bbb-" (Good) from "bbb" (Good) on $450 million 4.35% senior unsecured notes, due 2025
-- to "bbb-" (Good) from "bbb" (Good) on $400 million 2.4% senior unsecured notes, due 2030
-- to "bbb-" (Good) from "bbb" (Good) on $400 million 3.8% senior unsecured notes, due 2032
-- to "bb" (Fair) from "bb+" (Fair) on $150 million junior subordinated debentures, due 2062

The following indicative Long-Term IRs under the shelf registration have been downgraded and the outlooks revised to stable from negative for the shelf registration:

Kemper Corporation—
-- to "bbb-" (Good) from "bbb" (Good) on senior unsecured debt
-- to "bb+"(Fair) from "bbb-" (Good) on subordinated debt
-- to "bb" (Fair) from "bb+" (Fair) on preferred stock

This press release relates to Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2022 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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