Layoffs at Kemper in the Works; Runoff Management Firm Hired

Long Grove, Ill.-based Kemper Insurance Cos. will be laying off about 1,000 employees and pursuing options of how best to put into runoff the middle-market offerings for which negotiations recently fell through.

According to a Kemper spokeswoman, Kemper had previously announced a letter of intent to sell these lines of business to an investment consortium comprised of Securitas Capital, LLC, Cypress Merchant Banking Partners II LP and Gilbert Global Partners LP, but negotiations were called off after a definitive agreement could not be reached.

“We’re still working on what the exact number [laid off] will be,” said Kemper’s Linda Kingman. “It might be right around 1,000. … That’s a ballpark number.”

All employees who are laid off will be given 60 days working notice. When the that period concludes, severance payments begin, Kingman said. Kemper has about 7,000 employees, she added, and more than half work in the new Kemper Services portion, which offers claims management, loss control and engineering services. A formal announcement about the layoffs will not be made until a decision is final.

Kemper is honoring quotes and renewals, but writing new business is on hold. “There may be some sectors that are still writing new business, but for the bulk of our middle-market, small business insurance we’re not writing new business right now,” Kingman said.

“Our business executives will take a look at other options for that business,” she added. “There will be some runoff for that business, and they’ll be determining what staffing they’ll need for that activity too.”

Kingman said that policies already placed with Kemper will be transitioned in a “very orderly” manner, but cautioned, “We’re still going to have to figure out how to best transition that business over time.”

Kemper has announced it retained the services of Princeton Partnership LLC to “assist in the development and implementation of strategies related to the runoff of certain lines of business.” Princeton, which specializes in reinsurance and insurance runoff issues, will consult “on a lot of review and consideration, objections to plan and strategy, class and E&O issues,” according to Tonya Williams, a Princeton spokeswoman. “It’s mostly strategy, that’s what I was told.”

“Our current engagement involves dealing with certain issues associated with the discontinued surety program,” said Bruce Shulan, the Princeton managing partner who will be the lead consultant to Kemper. “Beyond that, due to client confidentiality concerns, I can’t get specific.”

It is still uncertain what effect the called off negotiations will have on Kemper’s outstanding $700 million surplus notes offer, Kingman said. Lumbermens Mutual Casualty Co. received a notice from the Illinois Department of Insurance denying its request to make interest payments on the notes between June 1 and July 1, 2003.

Kemper is currently rated “B” by Standard & Poor’s, “B (Fair)” by A.M. Best and “B3” by Moody’s Investor Services. Fitch, meanwhile, downgraded Lumbermens Mutual, Kemper’s workers’ compensation provider, from “BBB” to “CCC.”

The group was really hurt by the surprise, Dec. 30, 2002, announcement by president and chief operating officer William D. Smith that he would retire. He was expected to take over as CEO with the new year. Several ratings agencies factored the announcement in their decisions to downgrade.

Kemper created the “Office of the Chairman” under CEO David B. Mathis, who agreed to continue as CEO for 18 more months. The position is a panel of five top Kemper executives and is essentially a way of grooming the potential next CEO from within Kemper.

The company posted $312 million in losses last year, compared to $121 million in profit in 2001.