Kemper Corp. won some ratings affirmation validation from A.M. Best, but that good news is paired with a warning of the insurer’s limited growth potential down the line.
A.M. Best affirmed the financial strength ratings of (A-) and the issuer credit ratings of “a-” for Kemper on both the property/casualty and life/health insurance sides: Kemper Property & Casualty Group and Kemper Life & Health Group.
On the P/C side, A.M. Best said its affirmation reflects Kemper’s “solid risk-adjusted capitalization, generally favorable operating performance and the actions taken to reduce exposure to catastrophic loss and manage risks.”
A.M. Best noted that Kemper P&C “continues to increase rates, enhance risk selection and further develop a formalized enterprise risk program.” What’s more, A.M.Best said, the insurer’s P/C arm keep its business profile diverse, spreads risks geographically in a positive way, and maintains long-standing agency relationships.
But all is not rosy in A.M. Best’s eyes. The ratings agency points out that Kemper P&C has had “underwriting variability and negative operating cash flows in most of the past five years.” Also, while underwriting leverage has gotten better, A.M. Best said it still is higher than average when compared with “the private passenger automobile and homeowners’ composites.”
Kemper also has challenges in the market due to competitive pricing, plus “increasing loss trends in its main lines of private passenger auto, potential catastrophic losses from increased severity of weather events and continued low interest rates and equity market volatility, which is pressuring investment returns,” A.M. Best said.
Underscoring Kemper’s P/C underwriting volatility, Kemper Property/Casualty group executive Denise Lynch left her position in February to pursue other opportunities, after Kemper reported its P/C segment had a $5.1 million 2015 fourth quarter operating loss, driven by the poor performance of Alliance United, a non-standard auto provider Kemper acquired in May 2015.
Also, Kemper disclosed estimated pre-tax catastrophe losses of $45 million in the 2016 first quarter. Earlier in July, Kemper said its 2016 second quarter results will include pre-tax catastrophe losses of $52 million, none of which it expected to recover under its catastrophe reinsurance program.
On the Life & Health Group side, A.M. Best said the ratings affirmations stem, in part, from “its strong niche presence in the home service life insurance market, its well-established employee agency field force and strong operating performance.” Also, the division’s consolidated risk-adjusted capitalization is “adequate for its current risks, buttressed in turn by a strong level of profit.
At the same time, A.M. best said that Kemper Life & Health could face growth challenges, in part because of the “limited growth potential in the mature home service market.”
Kemper plans to release its 2016 second quarter earnings on Friday, Aug. 5.
Source: Kemper Corp.