Reuters: Financial Services and Real Estate: TEXT-Fitch affirms Kemper Corp ratings

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TEXT-Fitch affirms Kemper Corp ratings May 24th 2012, 18:23 Tweet Share this Email Print Thu May 24, 2012 2:23pm EDT May 24 - 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-' and has assigned a 'BBB-' rating to Kemper's $325 million credit facility. The Rating Outlook is Stable. A full list of ratings follows this press release. Fitch's affirmation of Kemper's ratings reflects the company's adequate capitalization, modest financial leverage and operating results that remain within rating expectations, albeit below peer company results. Kemper reported a first quarter 2012 net operating profit of $33.4 million, down 7% from the prior year period. The decline largely reflects lower investment income and reduced earnings in its Life and Health segment. Kemper's property/casualty operations continue to underperform personal lines peers but remain in line with rating expectations. Results continue to be weighed down by its Kemper Direct segment although underwriting actions, including state targeted non-renewals and rate increases, are slowly materializing. During first quarter 2012, overall underwriting results as measured by the combined ratio, improved by more than two percentage points to 101.3%. The company's Life and Health segment continues to generate stable earnings, although first quarter 2012 results were lower than the prior year period. The decline is primarily attributable a $4.1 million favorable reserve adjustment in the prior year period. Fitch views Kemper as adequately capitalized at its current rating level. The risk-based capital ratios of its property/casualty and life insurance subsidiaries were 290% and 450%, respectively, at year-end 2011. Operating leverage (net premiums written to surplus) for Kemper's property/casualty operations remain modest for its line of business at approximately 1.8 times (x). During first quarter 2012, Fireside Bank sold $283 million of previously charged-off loans in its inactive portfolio at a gain of $11.3 million. Favorably, Fireside returned an additional $20 million to Kemper in April 2012, making the total capital returned to the parent $270 million. Kemper's financial leverage remains within Fitch's expectation with debt to capital of 25.2% (excluding unrealized investment gains and losses) as of March 31, 2012. Fitch believes the quality of Kemper's investment portfolio has improved considerably over the past four years with reduced equity exposure and concentration risk. An offsetting factor is its exposure to limited liability investment companies and limited partnerships, which increases the volatility of its investment income. Rating triggers that could lead to a downgrade include: --Debt to capital ratio exceeds 30%; --Earnings-based interest coverage falls below 7x for a sustained period; --RBC ratio for the property & casualty and life insurance entities below 200% and 250%, respectively; --Catastrophe losses exceed 15% of prior year surplus. Rating triggers that could lead to an upgrade include: --Meaningful and sustained improvement in underwriting results on par with higher rated peers; --Significant improvement in capitalization. Fitch has assigned the following rating: Kemper: --$325 million credit facility at 'BBB-'. Fitch has affirmed the following ratings with a Stable Outlook: Kemper: --IDR at 'BBB'; --$610 million senior notes at 'BBB-'. Trinity Universal Insurance Co. United Insurance Co. of America Union National Life Insurance Co. Reliable Life Insurance Co.: --Insurer Financial Strength rating at 'A-'. Tweet this Link this Share this Digg this Email Reprints Comments (0) Be the first to comment on reuters.com. Add yours using the box above.

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