CHANNELS

Subscribe to the InfoTech eNewsletter

infoTECH News

TMCNet:  Fitch Affirms Kemper Corporation's Ratings; Outlook Stable

[June 13, 2014]

Fitch Affirms Kemper Corporation's Ratings; Outlook Stable

CHICAGO --(Business Wire)--

Fitch Ratings has affirmed Kemper Corporation's (Kemper) holding company ratings, including the senior debt rating at 'BBB-'. Fitch has also affirmed the Insurer Financial Strength (IFS) ratings of Kemper's operating subsidiaries at 'A-'. The Rating Outlook is Stable. A full list of ratings follows at the end of this press release.

KEY RATING DRIVERS

Kemper's ratings reflect modest earnings, solid balance sheet strength, and sufficient debt servicing capability. The ratings also consider the company's more volatile earnings profile caused by natural catastrophe exposures.

Kemper reported net earnings of $35.1 million for first-quarter 2014, a 40% decline over the prior year quarter. When net investment gains are excluded, the deterioration was more modest at 25%. Weaker results were primarily driven by higher catastrophe losses and expense pressure from the lower premium base, including the impact of the direct-to-consumer business runoff.

For the first quarter of 2014, Kemper reported a combined ratio of 99.5%, which included 5.0pp of catastrophe losses and 4.7pp of favorable reserve development. This compares to a 95.8% combined ratio for the prior-year period, which included 2.5pp of catastrophe losses and 3.8pp of favorable reserve development.

Kemper's personal auto book benefited from previous rate actions and improved risk selection, evidenced by a modest improvement in the underlying loss ratio during the first quarter. However, the underlying loss ratio in commercial auto deteriorated by 7pp, due to higher claims frequency. Kemper is implementing further rate actions to address these profitability issues. In the aggregate, pure premium trends are expected to increase by low single digits.

Kemper's Life/Health segment continues to generate stable earnings with minimal volatility. The segment reported a 4% increase in operating profit to $22 million for first-quarter 2014. The improvement was largely due to better mortality and lower property losses from products sold by home service agents. This was partially offset by expenses related to expanding its accident & health distribution channels.

Fitch views Kemper's p/c and life companies as strongly capitalized. NAIC risk-based capital ratios were 353% and 427% of the company action level at year-end 2013, respectively. Net premiums writtento-surplus for Kemper's property/casualty operations remains acceptable for its line of business at approximately 1.4x. Kemper's financial leverage ratio remains in line with median guidelines at 27.9% as of March 31, 2014.

Kemper's fixed charge coverage was modest at 5.5x for first-quarter 2014. Debt servicing capacity is further supported by dividend capacity from its insurance subsidiaries and holding company cash of $256 million, which is intended to be used to retire debt in November 2015.

RATING SENSITIVITIES

Factors that could lead to a downgrade include statutory fixed charge coverage below 3.5x; a combined ratio above 106% for a sustained period; or a deterioration in capitalization with a p/c Prism capital model score below 'adequate', an RBC ratio for the p/c and life insurance entities below 200% and 250%, respectively, or a financial leverage ratio that exceeds 30%.

Factors that could lead to an upgrade include significant improvement in capitalization with a Prism score of 'strong', a sustained underwriting profit, and GAAP fixed charge coverage at or above 8x.

Fitch has affirmed the following ratings with a Stable Outlook:

Kemper:

--IDR at 'BBB';

--$610 million senior notes at 'BBB-';

--$225 million credit facility at 'BBB-'.

--$150 million subordinated notes at 'BB'.

Trinity Universal Insurance Co.

United Insurance Co. of America

Union National Life Insurance Co.

Reliable Life Insurance Co.

--Insurer Financial Strength rating at 'A-'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria & Related Research:

--'Insurance Rating Methodology' (November 2013).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=834569

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.


[ InfoTech Spotlight's Homepage ]


blog comments powered by Disqus

FOLLOW US

Subscribe to InfoTECH Spotlight eNews

InfoTECH Spotlight eNews delivers the latest news impacting technology in the IT industry each week. Sign up to receive FREE breaking news today!
FREE eNewsletter