|[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
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
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,
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.
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:
--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
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.
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
[ InfoTech Spotlight's Homepage ]