AM Best Downgrades Kemper On Earnings Deterioration

AM Best Downgrades Kemper On Earnings Deterioration

Kemper Downloadgraded On Earnings Deterioration By AM Best 

AM Best cited a sustained decline in Kemper P&C and Kemper Corp’s profitability as the basis for its decision to lower the firms’ Financial Strength Ratings for the past year and into 2022. (FSR).

In a statement, AM Best announced that it was lowering the FSRs for all P&C affiliates and insurance providers connected to Kemper Corporation. It stated that the FSR rating has dropped from A to A-. Additionally, AM Best has lowered Kemper Corp.’s Long-Term Issue Credit Ratings (Long-Term IR), indicative Long-Term Issue Credit Ratings, and Long-Term ICR to “bbb-” (Good) from “bbb” (Good). It said that these credit ratings’ (ratings’) outlook has been changed from negative to stable.

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Additionally, AM Best has reduced Reserve National Insurance Company’s (Reserve National) FSR from A to A- (Excellent) and Long-Term ICR from A to A- (Excellent) (Chicago, IL). AM Best has concurrently put these ratings under evaluation with future ramifications. Up until the acquisition is finished, Kemper Life & Health Group will continue to support Reserve National.

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Additionally, AM Best revoked the FSR of A (Excellent) and the Long-Term ICR of “a” (Excellent) of Infinity Security Insurance Company (Chicago, IL) with unfavorable outlooks because the company was acquired by Texas-based Transverse Specialty Insurance Company in early August as a shell with no outstanding liabilities to policyholders.

AM Best Downgrades Kemper On Earnings Deterioration

AM Best said in a statement: “The downgrades of Kemper P&C — lead rating unit of the group — and Kemper Corp., primarily consider the prolonged earnings deterioration of Kemper P&C and for Kemper Corp. overall in 2021 and through the first half of 2022, driven by unfavourable operating performance resulting from elevated inflation and supply chain disruptions. Additionally, deteriorating performance has been exacerbated by Kemper P&C’s concentration in California, where the regulatory environment is more challenging. As a result, rate filings will take time to earn into financials.”

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It added: “Although AM Best previously contemplated sustained earnings weakness in 2022 for Kemper P&C and for Kemper Corp., actual year-to-date performance has been at or near the low end of AM Best’s expectations, while capital market volatility has exceeded expectations.

AM Best Downgrades Kemper On Earnings Deterioration

This combination resulted in reduced risk-adjusted capitalization levels for the overall enterprise when viewed on a consolidated basis, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best expects that the group’s earnings will steadily improve over the remainder of 2022, and into 2023, but that the process will be gradual, and possibly uneven, and the potential for further interim capital erosion remains possible.”

These downgrades come in the same week that Kemper Corporation reported a net loss of $74.7m for Q2 2022 after a net loss of $62.6m in Q1 2021.

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Total revenues for the quarter decreased $68.7m (5%), to $1,433.8m, compared to the second quarter of 2021, driven by an $81.3m decrease in the change in fair value of equity and convertible securities, $13.3m of lower Preferred P&C earned premiums, and an $8.2m decrease in net realized investment gains, partially offset by $33.4m of higher Specialty P&C earned premiums