The P&C Group’s outlook may be revised to negative or its ratings downgraded if capitalization weakens or operating performance does not show sustained improvement. The ratings would be further stabilized by a favorable earnings trend that leads to capital appreciation without excessive growth.The withdrawal of the ratings for Response Indemnity is based on A.M. Best’s assessment that this company no longer meets A.M. Best’s criteria for interactive ratings due to its sale in February 2013 as well as its voluntary run-off status. The affirmation of the ratings for Kemper L&H recognize its important role within the Kemper organization, its strong niche presence in the home service life insurance market, as well as its well established employee agency field force and strong operating performance. The life/health subsidiaries are among the market leaders in the mature home service life insurance segment, predominantly marketing low face amount permanent and term life policies. Kemper L&H’s consolidated risk-adjusted capitalization is enhanced by its strong profitability, which historically has offset large dividend payments made to Kemper Corp. Furthermore, A.M. Best notes Kemper L&H’s stable liability structure relative to its life/annuity peers is facilitated by the sale of straightforward, lower risk product offerings through career agents. Partially offsetting these strengths is A.M. Best’s belief that Kemper L&H may be challenged to meaningfully grow its businesses given the limited growth potential in the mature home service market. A.M. Best also notes the continued high concentration of real estate and Schedule BA assets—limited liability investment companies and limited partnerships—relative to total capital that remain well above industry averages; however, the real estate is unlevered. Downward rating actions may occur on Kemper L&H’s ratings should the P&C Group experience a material decline in its financial strength or should there be a change in Kemper Corp.’s willingness or ability to provide financial support to Kemper L&H. The outlook may be revised to positive if the company experiences continuing positive operating earnings and growth in capital.
In affirming the ratings of Reserve National, A.M. Best notes its generally increasing net premium trends, favorable operating performance and adequate stand-alone risk-adjusted capitalization. The continuation of the negative outlook is related to Reserve National’s in-force block of hospitalization products and the uncertainty around the ultimate effect of the Patient Protection and Affordable Care Act (PPACA). Additionally, the final effect of the PPACA still has not been fully determined. Currently, Reserve National is developing and marketing alternative products designed to take advantage of new opportunities created by PPACA.Downward rating actions may occur if Reserve National experiences a substantial decline in its earnings and surplus as a result of the Medical Loss Ratio (MLR) requirement, a decrease in operating performance and risk-adjusted capital. Conversely, the outlook for Reserve National may be revised to stable from negative should the company be successful in shifting its product mix to products, which are exempt from the mandate and maintain solid statutory earnings and risk-adjusted capital levels. The ICR of Kemper Corp. is based on the financial strength of its insurance operating companies, which is primarily driven by the P&C Group and subordination of the holding company’s senior creditors to the insurance companies’ policyholders. Kemper Corp.’s financial leverage is within guidelines for its current rating level. Liquid cash and short-term investments at the holding company at December 31, 2012 totaled $185.7 million, and it has an untapped $325 million unsecured revolving credit agreement that expires on March 7, 2016. Moreover, Kemper Corp.’s common shares are publicly traded on the New York Stock Exchange, providing additional financial flexibility to raise capital through the equity markets. For a complete listing of Kemper Corporation, its subsidiaries and affiliates’ FSRs, ICRs and debt ratings, please visit www.ambest.com/press/061805kemper.pdf. The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.