KEY RATING DRIVERS
Kemper's property/casualty (P/C) ratings reflect a recent deterioration in 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 has a strong business profile that is consistent with the company's IFS rating. The company has a midsize competitive position and competes with several considerably larger personal lines insurers. In addition, Kemper has announced underwriting and claims initiatives aimed at improving profitability over the next several years.
Kemper's life/health segment (
Kemper reported deterioration in P/C segment operating earnings in the first half of 2016 (1H16) as results for
Kemper reported a GAAP mid-year 2016 calendar-year combined ratio that increased to 109.0%, up from 103.7 in 1H15. Calendar-year underwriting results deteriorated largely as the result of increased losses at Alliance United along with higher incurred catastrophe losses. Kemper reported catastrophe losses of
Capitalization at the P/C operating company level scored 'Strong' on Fitch's proprietary capital model, Prism, based on year-end 2015 data, which is considered consistent with Kemper's 'A-' IFS rating. Other measures of capital strength also suggest Kemper is strongly capitalized. NAIC risk-based capital (RBC) for Kemper's legacy P/C subsidiaries was 322% of the company action level at year-end 2015. RBC for Kemper's lead life insurance company,
Financial leverage at
During 2016, Kemper's operating subsidiaries are permitted to pay approximately
Life/Health segment underlying profitability remains strong and stable, with a return on total adjusted capital of 20% in 1H16. In 3Q16, Kemper will take a
Factors that could lead to an upgrade of
--Sustained underwriting profit;
--GAAP fixed charge coverage at or above 7x.
--Maintaining a Prism score of at least 'strong'.
Factors that could lead to a downgrade of
--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 'strong';
--RBC for the P/C entities below 200%;
--Financial leverage ratio that exceeds 30%.
Factors that could lead to an upgrade for the United Insurance Co. and its subsidiaries include:
--Sustained strong profitability with positive movement in
Factors that could lead to a downgrade for the United Insurance Co. and its subsidiaries include:
--A decline in RBC below 300% of the company action level;
--A sustained decline in profitability resulting in a return on capital below 5%.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings with a Stable Outlook:
--IDR at 'BBB';
--IFS rating at 'A-'.
Additional information is available on www.fitchratings.com
Insurance Rating Methodology (pub.
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Primary Analyst (
Primary Analyst (Life Insurance)
Source: Fitch Ratings