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Additionally, AM Best has withdrawn the FSR of A (Excellent) and the Long-Term ICR of "a" (Excellent) of Infinity Security Insurance Company (Chicago, IL) with negative outlooks, as the company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:
-- 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:
-- 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.
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