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

Rhea-AI Summary

AM Best has affirmed the credit ratings of Kemper (NYSE: KMPR) and its subsidiaries. The Financial Strength Rating (FSR) of A- (Excellent) and Long-Term Issuer Credit Ratings (Long-Term ICRs) of 'a-' (Excellent) were affirmed for Kemper Property & Casualty Group and Kemper Life Group. The outlook for these ratings is stable.

The ratings reflect Kemper P&C's very strong balance sheet, marginal operating performance, neutral business profile, and appropriate enterprise risk management. Despite recent challenges, including substantial operating losses and regulatory pressures in California, Kemper P&C has shown significant improvement in late 2023 and early 2024 through strategic rate adjustments and non-rate actions.

Kemper Life's ratings are based on its very strong balance sheet, adequate operating performance, and neutral business profile. The group recently completed a major initiative with Kemper Bermuda, resulting in the release of over $600 million in dividends to the parent company.

Positive

• AM Best affirmed A- (Excellent) Financial Strength Rating for Kemper's property/casualty and life subsidiaries
• Kemper P&C's operating results have stabilized and shown significant improvement in late 2023 and early 2024
• Kemper P&C has resumed generating underlying surplus gains, strengthening its risk-adjusted capitalization
• Kemper Life completed an initiative with Kemper Bermuda, releasing over $600 million in dividends to the parent company
• Consolidated results are expected to remain profitable as management returns to growth

Negative

• Kemper P&C's earnings and balance sheet strength were significantly impacted by substantial operating losses in recent years
• The group's concentration in California pressured results due to regulatory challenges
• Kemper Corp.'s financial leverage remains elevated
• Potential volatility in the group's overall consolidated risk-adjusted capitalization due to capital efficiency initiatives

Insights

Financial Analyst

AM Best's affirmation of Kemper 's credit ratings with a stable outlook is a positive signal for investors. The A- (Excellent) Financial Strength Rating for both property/casualty and life subsidiaries indicates strong financial health. However, there are some key points to consider:

• Kemper P&C has faced significant challenges, including substantial operating losses due to inflation-related severity increases and regulatory hurdles in California.
• Recent strategic actions have led to improved results in late 2023 and early 2024, with stabilizing operations and strengthening risk-adjusted capitalization.
• The company's financial leverage remains elevated, although it's expected to improve.
• Kemper Life's reinsurance agreement with Kemper Bermuda has released over $600 million in dividends to the parent company, potentially impacting future capital allocation.

Investors should monitor Kemper's ability to maintain profitability as it returns to growth and regular rate adjustments. The company's focus on capital efficiency may introduce volatility in risk-adjusted capitalization, which could affect its credit profile in the future.

Insurance Industry Expert

AM Best's rating affirmation for Kemper reflects a cautiously optimistic outlook for the insurer. Key takeaways for investors include:

• Kemper's property/casualty segment has shown resilience by effectively implementing rate adjustments and non-rate actions, leading to improved results in recent months.
• The life insurance segment's reinsurance strategy with Kemper Bermuda has bolstered capital flexibility, although it may impact future earnings potential.
• The company's enterprise risk management (ERM) is deemed appropriate, which is important in navigating market challenges.

However, investors should be aware of potential headwinds:

• Kemper's concentration in California remains a risk factor, given the state's challenging regulatory environment.
• The shift back to business growth could pressure underwriting performance if not managed carefully.
• The company's strategy to increase capital efficiency may introduce volatility in risk-adjusted capitalization.

Overall, while Kemper has demonstrated improvement, its ability to sustain this progress in a competitive insurance market will be critical for long-term investor confidence.

OLDWICK, N.J.--(BUSINESS WIRE)-- AM Best has affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICRs) of “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 affirmed the FSR of A- (Excellent) and the Long-Term ICRs of “a-” (Excellent) of Kemper Corp.’s life subsidiaries, collectively referred to as Kemper Life Group (Kemper Life) (Chicago, IL). Concurrently, AM Best has affirmed the Long-Term ICR of “bbb-” (Good) and the Long-Term Issue Credit Ratings (Long-Term IRs) and indicative Long-Term IRs of Kemper Corp., the ultimate parent, headquartered in Chicago, IL. The outlook of these Credit Ratings (ratings) is stable. (See below for further discussion and a detailed listing of all companies and ratings.)

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).

Kemper P&C’s earnings and balance sheet strength have been significantly impacted in recent years by substantial operating losses, largely driven by inflation-related severity increases. This led to sharp fluctuations in surplus levels, mixed reserve development trends and elevated underwriting leverage. The group’s concentration in California further pressured results, as the state’s regulatory environment made it difficult for Kemper P&C to secure necessary rate adjustments for a prolonged period. Nonetheless, Kemper P&C’s strategic rate adjustments and non-rate actions have proven effective, with operating results stabilizing and showing significant improvement through late 2023 and in the first half of 2024. Consequently, the group has resumed generating underlying surplus gains, strengthening its risk-adjusted capitalization and overall balance sheet. The group’s balance sheet strength is further supported by both implicit and explicit support from its parent company, Kemper Corp., as well as key initiatives such as the preferred home and auto exit and the Kemper Bermuda initiative. However, AM Best notes Kemper Corp.’s financial leverage remains elevated but is expected to improve going forward.

While Kemper P&C and Kemper Corp. have reported improved results through the first half of 2024, AM Best notes the group has begun to shift its focus back toward business growth, which is expected to bring operating performance more in-line with historical norms. Additionally, after implementing large rate increases over the past few years, management anticipates returning to regular maintenance rate adjustments and a steadier course of business going forward.

The ratings of Kemper Life reflect its balance sheet strength, which AM Best assesses as very strong, 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.

In 2022, Kemper Life announced that it was entering into an agreement with Kemper Bermuda to cede 80% of its life business to its offshore affiliate. This initiative, along with a reserve review reduction completed in late 2023, has resulted in the release of over $600 million in dividends to the parent company, Kemper Corp. Given that the Kemper Bermuda initiative has been completed, AM Best expects Kemper Life’s overall balance sheet to be more stable going forward. Additionally, AM Best notes it considers the consolidated risk-adjusted capitalizations of both the statutory group and Bermuda entity to ensure Kemper Life’s economic overall balance sheet strength remains appropriately assessed.

The stable outlooks for Kemper Corp., its affiliates and subsidiaries reflect AM Best’s view that the consolidated results are expected to remain profitable as management begins to unwind certain non-rate actions and return to growth. However, given Kemper Corp.’s overall enterprise-wide focus on increasing capital efficiency–in part to satisfy shareholder return expectations–through the dividends of subsidiary capital to the parent company, and through intra-group reinsurance–AM Best acknowledges the potential volatility in the group’s overall consolidated risk-adjusted capitalization, and that of its principal operating units, which may impact the group’s go-forward credit profile.

The FSR of A- (Excellent) and the Long-Term ICRs of “a-” (Excellent) have been affirmed with stable outlooks for the members of 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 of A- (Excellent) and the Long-Term ICRs of “a-” (Excellent) have been affirmed with stable outlooks for the members of Kemper Life 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 IRs have been affirmed with stable outlooks:

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
-- “bbb-” (Good) on $400 million 3.8% senior unsecured notes, due 2032
-- “bb” (Fair) on $150 million junior subordinated debentures, due 2062

The following indicative Long-Term IRs under the shelf registration have been affirmed with stable outlooks for the shelf registration:

Kemper Corporation—
-- “bbb-” (Good) on senior unsecured debt
-- “bb+” (Fair) on subordinated debt
-- “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 © 2024 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Cristian Sieira

Financial Analyst

+1 908 882 2315

cristian.sieira@ambest.com

Christopher Sharkey

Associate Director, Public Relations

+1 908 882 2310

christopher.sharkey@ambest.com

Alan Murray

Director

+1 908 882 2195

alan.murray@ambest.com

Al Slavin

Senior Public Relations Specialist

+1 908 882 2318

al.slavin@ambest.com

Source: AM Best

FAQ

What is the current Financial Strength Rating (FSR) for Kemper 's subsidiaries?

AM Best has affirmed the Financial Strength Rating (FSR) of A- (Excellent) for Kemper 's property/casualty and life subsidiaries.

How has Kemper Property & Casualty Group's performance improved recently?

Kemper P&C has shown significant improvement in late 2023 and early 2024 through strategic rate adjustments and non-rate actions, stabilizing operating results and strengthening its balance sheet.

What major initiative did Kemper Life Group recently complete?

Kemper Life completed an initiative with Kemper Bermuda, resulting in the release of over $600 million in dividends to the parent company, Kemper (NYSE: KMPR).

What is the outlook for Kemper 's credit ratings?

The outlook for Kemper 's credit ratings is stable, reflecting AM Best's view that consolidated results are expected to remain profitable as management returns to growth.