[January 22, 2015]

Fitch Affirms Kemper Corporation's Ratings; Outlook Stable

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 rating actions 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 $49.1 million for the first nine-months of 2014, down from $162.5 in the prior year period. Results include a $54.6 million write-off related to software that was being developed for internal use. Weaker results were also primarily driven by higher catastrophe losses and expense pressure from a lower premium base, including the impact of the direct-to-consumer business runoff.

For the first nine months of 2014, Kemper's property/casualty calendar-year combined ratio included above-average catastrophe losses of $92.1 million. Kemper reported a nine-month combined ratio in 2014 of 106.9%. Excluding the software write-off, the ratio was 101.1% and included 9.7pp of catastrophe losses and 4.8pp of favorable reserve development. This compares with a 97.2% combined ratio for the prior-year period, which includes 4.3pp of catastrophe losses and 4.1pp of favorable reserve development.

Kemper's Life/Health segment continues to generate stable earnings with minimal volatility. The segment reported a modest decrease in operating profit to $58 million for nine-months 2014, down from $64 million in the prior year. The decrease was largely due a modest drop in net investment income.

Kemper announced in December of 2014 that it had reached an agreement to acquire the Alliance United Group, a writer of non-standard auto insurance in California, and its subsidiaries for $70 million in cash. The deal is expected to close in the first half of 2015, after which Kemper expects to contribute up to an additional $75 million to support the book of business. Alliance United's net premiums written in 2013 were approximately 11% of Kemper's property/casualty net premiums written. Alliance has reported recent significant growth in premiums with nearly 47% annual growth between 2011 and 2013, which Fitch considers a credit negative. Rapid growth can often be accompanied by declines in underwriting quality or pricing and is viewed more cautiously.

Fitc views Kemper's p/c and life companies as strongly capitalized. Estimated NAIC risk-based capital ratios were 340% and 450% of the company action level at Sept. 30, 2014, respectively. Net premiums written-to-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 28.8% as of Sept. 30, 2014.

Kemper's fixed-charge coverage was modest at 2.7x through three quarters 2014. Debt-servicing capacity is further supported by dividend capacity from its insurance subsidiaries and holding company cash and short term investments of $302 million, which could be used for general corporate purposes or the retirement of debt maturities 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;

--Deterioration in capitalization with a p/c Prism capital model score below 'adequate' (based on year-end 2013 data Kemper's Prism score was 'Strong');

--RBC ratio for the p/c and life insurance entities below 200% and 250%, respectively;

--Financial leverage ratio that exceeds 30%.

Factors that could lead to an upgrade include:

--Maintaining a Prism score of 'strong';

--Sustained underwriting profit;

--GAAP fixed charge coverage at or above 7x.

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' (September 2014).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=976636

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.

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