Fitch Ratings issued a credit analysis report on Lumbermens Mutual Casualty Company (Lumbermens), the lead property-casualty insurance underwriting subsidiary of the Kemper Insurance Companies (Kemper) group. Fitch currently rates the surplus notes of Lumbermens ‘BB-‘. Fitch also holds insurer financial strength (IFS) ratings of ‘BBB’ on members of Kemper’s intercompany pool. Both the IFS and surplus note rating are on Rating Watch Negative.
Fitch has taken several rating actions regarding Kemper over the past twelve months that were precipitated by various actions by Kemper, including: material reserve charges, continued use of less conservative reserve discounting practices in certain lines of business, use of retroactive reinsurance contracts for surplus relief, and initiation of a comprehensive reorganization plan.
Fitch believes that these actions are indicative of an organization that faces operating challenges and has limited financial flexibility. Also, in analyzing Kemper’s recent financial statements, Fitch believes that certain adjustments are required to better comprehend financial performance and assess balance sheet strength.
While Fitch recognizes that Kemper’s recent reorganization and other strategic actions address some of these problems, the ultimate success of these changes remains uncertain. Fitch also believes that Kemper’s current operating and financial challenges leave the organization in a position that lessens the opportunity to take advantage of the continued hardening commercial lines insurance market.
The report clarifies Fitch’s rationale for its ratings on Kemper, and expands upon Fitch’s interpretation of recent financial results and other events. The report also considers the impact of anticipated future steps in the reorganization, and highlights areas of uncertainty or concern that are likely to affect the ratings going forward.
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