AM Best announced that it has revised its outlooks to negative from stable and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” (Excellent) the Kemper Corporation collectively referred to as Kemper Property & Casualty Group (Kemper P&C). This also includes the property/casualty company’s subsidiaries and affiliated insurance companies.
In addition, the rating agency also has revised the outlooks to negative from stable and affirmed the FSR of A (Excellent) and the Long-Term ICRs of “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 revised the outlooks to negative from stable and affirmed the Long-Term ICR and the Long-Term Issue Credit Ratings (Long-Term IR) of “bbb” (Good) and indicative Long-Term IRs of Kemper Corp., the ultimate parent,headquartered in Chicago, IL. AM Best also has revised the outlooks to negative from stable and affirmed the Long-Term ICR and Long-Term IR of “bbb” (Good) of Infinity Property and Casualty Corporation (Infinity) (headquartered in Birmingham, AL). See below for a detailed listing of all companies and ratings.
In commenting on its decision, AM Best noted the following:
The ratings of Kemper P&C reflect its balance sheet strength, which AM Best categorizes very strong, as well as its adequate 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 and appropriate ERM.
With respect to the parent company, AM Best notes that Kemper Corp. continues to benefit from a financial leverage profile that remains within AM Best’s guidelines for the current rating levels, as well as a favorable holding company liquidity profile. Additional financial flexibility through access to debt and equity capital markets, despite reduced dividend capacity from the subsidiary operations as a result of operating losses and lower statutory capitalization at year-end 2021, is another positive rating factor.
The negative rating outlooks for Kemper P&C—the lead rating unit of the group—and for Kemper Corp., as well as for Infinity, whose debt is guaranteed by Kemper Corp. and matures in September 2022, primarily consider the significant earnings deterioration of Kemper P&C and for Kemper Corp. overall in 2021. This earnings deterioration resulted in reduced capital levels at the operating companies and holding company, and the likelihood of continued earnings weakness and the potential for further capital erosion in 2022 remains a concern for AM Best.
Underlying the significant deterioration in underwriting performance was a sharp rise in claims severity in the automobile line of business, which accounts for approximately 95% of Kemper P&C’s premium volume, largely reflecting significant supply chain issues, labor shortages and inflationary pressures. The automobile line of business also experienced higher claim costs, as well as a higher claim frequency, particularly in the latter half of 2021. Kemper L&H reported positive net income of $28.2 million in 2021, which was significantly down from $60.0 million in 2020, primarily reflecting higher pandemic-related life insurance mortality.
The negative outlooks for Kemper Corp. follows that of Kemper P&C, the lead rating unit.
The negative 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 is therefore a function of its intrinsic strength and that of its P&C insurance affiliate and holding company.
A return to strengthened profitability and improved capital strength for Kemper P&C and Kemper Corp. could lead to an outlook revision back to stable; conversely, sustained earnings weakness or capital erosion at Kemper P&C and Kemper Corp. could lead to rating downgrades.
The FSR of A (Excellent) and the Long-Term ICRs of “a” (Excellent) have been affirmed with the outlooks revised to negative from stable 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 Security 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 of A (Excellent) and the Long-Term ICRs of “a” (Excellent) have been affirmed with the outlooks revised to negative from stable 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
- Reserve National Insurance Company
The following Long-Term IR has been affirmed, with the outlooks revised to negative from stable:
Kemper Corporation—
— “bbb” (Good) on $450 million 4.35% senior unsecured notes, due 2025
— “bbb” (Good) on $400 million 2.4% senior unsecured notes, due 2030
The following indicative Long-Term IRs have been affirmed with the outlooks revised to negative from stable for the shelf registration:
Kemper Corporation—
— “bbb” (Good) on senior unsecured debt
— “bbb-” (Good) on subordinated debt
— “bb+” (Fair) on preferred stock
The following Long-Term IR has been affirmed, with the outlook revised to negative from stable:
Infinity Property and Casualty Corporation—
— “bbb” (Good) on $275 million 5% senior unsecured notes, due September 2022
Source: AM Best
