A.M. Best Co. reiterated the financial strength ratings (FSR) of A- (Excellent) and issuer credit ratings (ICR) of “a-” of the property and casualty subsidiaries and affiliated insurance companies as well as life/health subsidiaries and Reserve National Insurance Company of Kemper Corporation (KMPR - Snapshot Report).
Subsequently, the rating agency reiterated the ICR of “bbb-” and senior debt ratings of “bbb-” on $250 million 6.0% unsecured senior notes due 2015 and $360 million 6.0% unsecured senior notes due 2017 of Kemper Corp. Additionally, the indicative ratings of “bbb-” on senior unsecured debt and “bb” on preferred stock expiring Nov 3, 2013 were reiterated.
Apart from the ratings of Reserve National Insurance, which carries a negative outlook, all ratings carry a stable outlook.
Also, A.M. Best has withdrawn the FSR of A- (Excellent) and ICR of “a-” of Response Indemnity Company of California.
The property and casualty subsidiaries and affiliated insurance companies of Kemper are collectively known as P&C Group, which is led by Trinity Universal Insurance Company. The rating affirmation came on the back of sustained operating profitability, diversified product portfolio, sufficient risk-adjusted capitalization and liquidity.
The ratings also account for its initiatives to perk up earnings, manage risks and lower exposure to cat losses. However, underwriting losses incurred in the past couple of years along with difficult underwriting and investment markets dwarf the positives.
The rating agency stated that the outlook or rating might be subject to downgrade if capitalization erodes or operating performance deteriorates.
The life and health subsidiaries of Kemper are collectively known as Kemper Life & Health Group (Kemper L&H). The rating affirmation is based on its solid operational results, strong position in the home service life insurance market and established agency field force. In addition, persistently strong operational results have augmented its capitalization. However, the home service market has gradually matured and is offering some potential for growth.
The rating agency might consider a rating upgrade if the company delivers continued profitability along with growth in capital. Ratings might be subject to downgrade if Kemper withdraws its support for Kemper L&H and the P&C Group’s financial strength deteriorates.
Ratings for Reserve National were affirmed based on its improving net premium trend, strong results along with sufficient risk-adjusted capitalization. The negative outlook accounts for the effect of Patient Protection and Affordable Care Act.
The ratings might be downgraded if the company faces declining earnings and surplus due to the Medical Loss Ratio (MLR) requirement, operating performance deteriorates or risk-adjusted capital erodes. The outlook might be upgraded if it reshuffles its business mix to products that are exempted from the mandate and maintain solid statutory earnings and risk-adjusted capital levels.
Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence on the stock as well as maintaining credit worthiness in the market. Rating downgrades, therefore, adversely affect the business, apart from increasing the costs of future debt issuances. We believe that strong ratings will help Kemper retain investor confidence and write more businesses going forward, thereby boosting results.
Kemper carries a Zacks Rank #1 (Strong Buy). Multi-line insurers Assured Guaranty Ltd. (AGO - Analyst Report), Enstar Group Ltd (ESGR - Snapshot Report) and Eastern Insurance Holdings, Inc. , among others, share the same Zacks Rank and appear impressive.