AM Best Assigns Issue Credit Rating to Kemper Corporation’s Forthcoming Senior Unsecured Notes

Rhea-AI Summary

Kemper Corporation is set to issue $400 million of 3.8% senior unsecured notes, due 2032, receiving a Long-Term Issue Credit Rating of “bbb” (Good) from AM Best. The proceeds will primarily fund the redemption of existing $275 million senior unsecured notes due September 2022. The rating outlook is negative, reflecting significant earnings deterioration in Kemper’s property/casualty operations in 2021, largely due to increased claims severity and underwriting challenges. Despite access to liquidity sources, continued earnings weakness is a concern for 2022.

Positive

• Issuing $400 million in senior unsecured notes will provide liquidity.
• Proceeds will fund the redemption of $275 million in higher-interest notes, reducing future interest expenses.

Negative

• Negative outlook from AM Best due to significant earnings deterioration in 2021.
• Negative earnings coverage of interest expense in 2021 due to operating losses.
• Increased financial leverage expected in the mid-to-high 20% range after debt issuance.
• Concerns over ongoing capital erosion due to weak earnings performance.

OLDWICK, N.J.--(BUSINESS WIRE)-- AM Best has assigned a Long-Term Issue Credit Rating (Long-Term IR) of “bbb” (Good) to the forthcoming $400 million of 3.8% senior unsecured notes, due 2032, to be issued by Kemper Corporation (Kemper) (headquartered in Chicago, IL) [NYSE: KMPR]. The outlook assigned to the Credit Rating (rating) is negative. The new senior unsecured debt ranks pari passu with the company’s outstanding senior unsecured notes.

Proceeds from the senior unsecured notes offering will be used primarily to fund the redemption of the $275 million of outstanding 5.0% senior unsecured notes due September 2022 of Infinity Property and Casualty Corporation (Infinity), a wholly owned subsidiary of Kemper, in accordance with the terms of the indenture governing those notes. The 2022 notes originally were issued by Infinity, and on Nov. 30, 2018, became guaranteed by Kemper, in connection with its acquisition of Infinity. Remaining proceeds from the senior unsecured notes offering are expected to be used for general corporate purposes, which may include ordinary course working capital and investments in other business opportunities, including acquisitions, and to pay related fees and expenses.

The rating assignments consider the rating profile of Kemper’s principal insurance subsidiary units, as well as the parent company’s financial leverage, coverage and overall debt servicing profile, and the application of appropriate notching to reflect structural subordination of the holding company’s senior unsecured debt.

Kemper’s financial leverage, as calculated by AM Best, was in the low-to-mid 20% range at year-end 2021, and will increase to the mid-to-high 20% range, net of the retirement of the Infinity senior unsecured notes. Earnings coverage of interest expense was negative in 2021, given the company’s operating loss. However, the holding company has access to liquidity through various sources, including cash and investments, a revolving credit agreement and term facility, advances from certain subsidiaries under preapproved Federal Home Loan Bank agreements and dividends from its subsidiaries, as well as access to the debt and equity capital markets. For 2022, Kemper estimates that its direct insurance subsidiaries would be able to pay approximately $191 million in dividends to Kemper without prior regulatory approval. AM Best expects Kemper’s go-forward leverage and coverage metrics to remain within guidance.

The negative rating outlook for Kemper, and for its principal operating units, primarily reflects the significant earnings deterioration of the group’s property/casualty insurance operations in 2021, which 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. Underlying significant deterioration in underwriting performance during the latter half of 2021 was a sharp rise in claims severity in the automobile line of business, which accounts for the vast majority of the property/casualty insurance operation’s premium volume, largely reflecting significant supply chain issues, labor shortages and inflationary pressures.

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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Alan Murray

Associate Director

+1 908 439 2200, ext. 5535

alan.murray@ambest.com

Christopher Sharkey

Manager, Public Relations

+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com

Michael J. Lagomarsino, CFA, FRM

Senior Director

+1 908 439 2200, ext. 5810

michael.lagomarsino@ambest.com

Jim Peavy

Director, Communications

+1 908 439 2200, ext. 5644

james.peavy@ambest.com

Source: AM Best

FAQ

What is the credit rating assigned to Kemper Corporation's new notes?

AM Best assigned a Long-Term Issue Credit Rating of 'bbb' to Kemper Corporation's forthcoming $400 million of senior unsecured notes.

What are the terms of the new senior unsecured notes issued by KMPR?

The new senior unsecured notes have a 3.8% interest rate and are due in 2032.

What is the purpose of the proceeds from the KMPR notes issuance?

Proceeds will primarily be used to redeem $275 million of outstanding senior unsecured notes due September 2022.

What is the outlook of Kemper Corporation's credit rating?

The outlook assigned to Kemper's credit rating is negative.

Why is AM Best's outlook on KMPR negative?

The negative outlook reflects significant earnings deterioration in Kemper's property/casualty operations in 2021 and the likelihood of continued earnings weakness.