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United Insurance Company of America – Moody’s affirms Kemper’s ratings (Baa3 senior), outlook to stable from positive

Written by on February 12, 2022

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Rating Action:

Moody’s affirms Kemper’s ratings (Baa3 senior), outlook

to stable from positive

11 February 2022

New York, February 11, 2022 – Moody’s Investors Service (“Moody’s”) has affirmed the Baa3 senior

debt rating of Kemper Corporation (NYSE: KMPR, Kemper) as well as the A3 insurance financial

strength (IFS) ratings of its leading property and casualty (P&C) and life insurance subsidiaries.

Moody’s has changed the rating outlook on Kemper and its subsidiaries to stable from positive

based on the group’s weak operating performance in its nonstandard auto insurance business.
RATINGS RATIONALE
According to Moody’s, the ratings affirmation and stable outlook reflect Kemper’s diversified

revenues and earnings from its nonstandard personal auto insurance and life businesses, its

profitable home service insurance business, solid risk-adjusted subsidiary capitalization, and high-

quality fixed income portfolio. Credit challenges include the group’s limited scale relative to larger

competitors, weak profitability in its personal auto business given higher auto repair costs, higher

used vehicle prices and increasing miles driven as the economy reopens. Other challenges include

the group’s exposure to natural catastrophes in its homeowners business as well as low growth

opportunities in the home service life insurance business.
For 2021, Kemper reported a net loss of $120.5 million compared to net income of $409.9 million

in 2020, primarily driven by poor performance in its nonstandard auto insurance business. The

Specialty P&C segment, which primarily consists of nonstandard personal auto business, produced

progressively higher underlying combined ratios over the course of 2021, reaching 119.4% in the

fourth quarter. Kemper Specialty P&C’s results were driven by higher auto parts and labor repair

costs, by higher used vehicle prices, and by the reopening of the economy following a suspension

of rate increases during the pandemic. The company began filing for rate increases in Q3 2021 and

expects to continue to raise rates in 2022 to help offset rising loss costs.
Moody’s expects Kemper’s earnings to improve gradually as it will take time for rate increases to be

approved by regulators, for policies to be renewed at higher rates, and for higher premium rates to

be earned over time. Kemper’s financial leverage remains moderate, with strong long-term earnings

coverage. The holding company maintains good liquidity with cash and investments of $233.9

million, $191.2 million of dividend capacity from insurance subsidiaries without regulatory approval,

and $400 million available under the company’s revolving credit facility as of year-end 2021.
Kemper’s senior debt is three notches below the financial strength of its lead P&C and life and health

insurance operations, consistent with Moody’s typical notching practices for US holding company

structures. Although the debt rating is supported by diversified earnings, Kemper’s revenue and

capital base is heavily weighted toward the P&C group, which represented almost 80% of combined

statutory surplus as of September 30, 2021.
Kemper P&C
The rating affirmation and stable outlook of Kemper P&C’s ratings reflect its leading market presence

in the nonstandard personal auto insurance market, solid risk adjusted capitalization and a high-

quality investment portfolio. The P&C operations have generated significant growth in nonstandard

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auto insurance both organically and through acquisitions with scale advantages including a low

expense base. In the past several years, Kemper P&C has focused on increasing its technological

resources to further enhance ratemaking, underwriting and claims management capabilities.
These strengths are mitigated by the group’s operating losses and elevated combined ratios

driven by higher loss cost trends. Other challenges include volatility from catastrophe losses in

its homeowners book. Kemper Specialty P&C generates 57% of its nonstandard auto business

in California, which leads to potential regulatory and legal risks. Moody’s expects the company’s

profitability to gradually improve as the company raises rates and takes additional underwriting

actions.
Kemper Life and Health
The rating affirmation and stable outlook of the group’s lead life and health insurance company,

United Insurance Co. of America (United, A3 IFS), is based upon the group’s strong presence and

consistent profitability in the home service insurance business and its well-established career agent

distribution force. These strengths are offset by the company’s modest market position, franchise,

and brand in the overall life insurance market as well as its limited growth opportunities in the

declining home service insurance business.
Moody’s believes the company’s implementation of new sales technology and improved agency

practices should result in sales growth and greater profitability. While pressure on the life and health

business remains from the coronavirus pandemic, including elevated mortality, recent company

actions are starting to lead to positive business developments.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Kemper Corporation
Factors that could lead to a rating upgrade for Kemper Corporation include: an upgrade of the

financial strength ratings of the P&C and/or Life and Health companies; strong P&C operating

performance with combined ratios in the mid-90s or lower; adjusted financial leverage below 25%

and interest coverage 6x or greater. Factors that could lead to a rating downgrade for Kemper

Corporation include: a downgrade of the financial strength ratings of the P&C and/or Life and Health

companies; sustained combined ratios greater than 105%; or, adjusted financial leverage above 35%

and interest coverage below 4x.
Kemper P&C
Factors that could lead to an upgrade of the P&C ratings include: strong operating performance

with combined ratios consistently in the mid-90s or lower; gross underwriting leverage below 3.5x;

adjusted financial leverage below 25% and interest coverage 6x or greater. Factors that could lead

to a downgrade of the P&C ratings include: sustained combined ratios greater than 105%; gross

underwriting leverage of 5x or higher; reduction in P&C capital by more than 10% over a rolling

twelve-month period; or, adjusted financial leverage above 35% and interest coverage below 4x.
Kemper Life and Health
Factors that could lead to an upgrade of United’s ratings include: positive revenue growth in the

home service business; profitable life earned premiums outside of home service growing above

10%; adjusted financial leverage below 25% and interest coverage 6x or greater. Factors that could

lead to a downgrade of United’s ratings include: NAIC company action level RBC ratio falling below

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275%; statutory return on capital falling below 8%; adjusted financial leverage above 35% and

interest coverage below 4x.
The following ratings have been affirmed:
Kemper Corporation – senior unsecured debt at Baa3, provisional senior unsecured debt shelf at

(P)Baa3, provisional subordinated debt shelf at (P)Ba1; provisional junior subordinated debt shelf at

(P)Ba1; provisional preferred shelf at (P)Ba2; provisional preferred shelf non-cumulative at (P)Ba2;

issuer rating at Baa3;
Infinity Property and Casualty Corporation – senior unsecured debt at Baa3;
Trinity Universal Insurance Company – insurance financial strength at A3;
Infinity Insurance Company – insurance financial strength at A3;
Infinity Auto Insurance Company – insurance financial strength at A3;
Infinity Assurance Insurance Company – insurance financial strength at A3;
Infinity Casualty Insurance Company – insurance financial strength at A3;
Infinity Indemnity Insurance Company – insurance financial strength at A3;
Infinity Preferred Insurance Company – insurance financial strength at A3;
Infinity Safeguard Insurance Company – insurance financial strength at A3;
Infinity Security Insurance Company – insurance financial strength at A3;
Infinity Select Insurance Company – insurance financial strength at A3;
Infinity Standard Insurance Company – insurance financial strength at A3;
United Insurance Co. of America – insurance financial strength at A3.
The rating outlook for these companies was changed to stable from positive.
The principal methodologies used in rating Kemper Corporation were Property and Casualty

Insurers Methodology published in September 2021 available at

https://www.moodys.com/

researchdocumentcontentpage.aspx?docid=PBC_1254163

and Life Insurers Methodology published

in September 2021 and available at

https://www.moodys.com/researchdocumentcontentpage.aspx?

docid=PBC_1254133.

The principal methodology used in rating Trinity Universal Insurance

Company, Infinity Property and Casualty Corporation, Infinity Insurance Company, Infinity Auto

Insurance Company, Infinity Assurance Insurance Company, Infinity Casualty Insurance Company,

Infinity Indemnity Insurance Company, Infinity Preferred Insurance Company, Infinity Safeguard

Insurance Company, Infinity Security Insurance Company, Infinity Select Insurance Company, and

Infinity Standard Insurance Company was Property and Casualty Insurers Methodology published

in September 2021 available at

https://www.moodys.com/researchdocumentcontentpage.aspx?

docid=PBC_1254163.

The principal methodology used in rating United Insurance Co. of

America was Life Insurers Methodology published in September 2021 and available at

https://

www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1254133.

Alternatively, please

see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
Kemper Corporation, based in Chicago, Illinois, is a publicly-traded, diversified company with

subsidiaries engaged in Property & Casualty Insurance and Life and Health Insurance. For 2021,

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Kemper reported total revenue of $5.8 billion and a net loss of $120.5 million. Shareholders’ equity

as of December 31, 2021 was about $4.0 billion.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see

the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure

form. Moody’s Rating Symbols and Definitions can be found at:

https://www.moodys.com/

researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement

provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or

note of the same series, category/class of debt, security or pursuant to a program for which the

ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices.

For ratings issued on a support provider, this announcement provides certain regulatory disclosures

in relation to the credit rating action on the support provider and in relation to each particular credit

rating action for securities that derive their credit ratings from the support provider’s credit rating.

For provisional ratings, this announcement provides certain regulatory disclosures in relation to the

provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent

to the final issuance of the debt, in each case where the transaction structure and terms have not

changed prior to the assignment of the definitive rating in a manner that would have affected the

rating. For further information please see the ratings tab on the issuer/entity page for the respective

issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies)

of this credit rating action, and whose ratings may change as a result of this credit rating action, the

associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach

exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated

entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no

amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited

Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the

related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in

our credit analysis can be found at

http://www.moodys.com/researchdocumentcontentpage.aspx?

docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s

affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt

am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No

1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the

Moody’s office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s

affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada

Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK.

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Further information on the UK endorsement status and on the Moody’s office that issued the credit

rating is available on www.moodys.com.
The below contact information is provided for information purposes only. Please see the ratings tab

of the issuer page at www.moodys.com, for each of the ratings covered, Moody’s disclosures on the

lead rating analyst and the Moody’s legal entity that has issued the ratings.
The person who approved Kemper Corporation, Infinity Property and Casualty Corporation, Trinity

Universal Insurance Company, Infinity Insurance Company, Infinity Auto Insurance Company, Infinity

Assurance Insurance Company, Infinity Casualty Insurance Company, Infinity Indemnity Insurance

Company, Infinity Preferred Insurance Company, Infinity Safeguard Insurance Company, Infinity

Security Insurance Company, Infinity Select Insurance Company, and Infinity Standard Insurance

Company’s credit ratings is Sarah Hibler, Associate Managing Director, Financial Institutions Group,

JOURNALISTS: 1 212 553 0376 , Client Service: 1 212 553 1653 . The person who approved United

Insurance Co. of America credit ratings is Scott Robinson, CFA, Associate Managing Director,

Financial Institutions Group, JOURNALISTS: 1 212 553 0376 , Client Service: 1 212 553 1653 .
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the

Moody’s legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory

disclosures for each credit rating.
Jasper Cooper, CFA

VP-Sr Credit Officer

Financial Institutions Group

Moody’s Investors Service, Inc.

250 Greenwich Street

New York, NY 10007

U.S.A.

JOURNALISTS: 1 212 553 0376

Client Service: 1 212 553 1653
Sarah Hibler

Associate Managing Director

Financial Institutions Group

JOURNALISTS: 1 212 553 0376

Client Service: 1 212 553 1653
Releasing Office:

Moody’s Investors Service, Inc.

250 Greenwich Street

New York, NY 10007

U.S.A.

JOURNALISTS: 1 212 553 0376

Client Service: 1 212 553 1653

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