S&P Cuts Kemper Ins Cos Members’ Ratings

December 23, 2002

Standard & Poor’s Ratings Services said that it removed from CreditWatch its counterparty credit and financial strength ratings on the members of Kemper Insurance Cos. Intercompany Pool (Kemper) and lowered them to ‘BBB-‘ from ‘A’ based on the good business position of Lumbermens, the pool’s lead insurer.

S&P’s also said that it removed from CreditWatch and lowered its subordinated debt rating on Lumbermens Mutual Casualty Co.’s $700 million surplus notes to ‘BB’ from ‘BBB+’.

The outlook on all these companies is stable.

The members of the Illinois-based property/casualty pool are Lumbermens Mutual Casualty Co. (77 percent), American Motorists Insurance Co. (15 percent), and American Manufacturers Mutual Insurance Co. (8 percent). Lumbermens is one of the top 10 players in the U.S. workers’ compensation market.

“Kemper remains committed to maintaining balance-sheet strength, customer focus, and a strong workers’ compensation franchise,” said S&P’s credit analyst Frederic A. Sklow.

The company is exposed to execution risk as it exits business units that account for a significant part of its book. In 2001 and into 2002, Kemper continued to report weak operating results despite management’s ongoing efforts to realign the book of business to focus on bottom-line profitability in recent years. Capital adequacy is at the ‘BBB+’ level, which reflects a continual decline in policyholders’ surplus since year-end 1999. S&P’s expects that capital will be further reduced by year-end 2002 as it continues to address the challenges associated with a restructured book of business.

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