A.M. Best Lowers Kemper Ratings

NU Online News Service, May 2, 11:09 a.m.EDT?A.M. Best said today it has lowered financial strengthratings of Kemper Insurance Companies from "B" (Fair) to"C-Double-Plus" (Marginal).

The Oldwick, N.J.-based rating firm said the downgrades werebased on the company's marginal capitalization, weak cash flows andreduced overall liquidity position. They apply to participants inthe Kemper Insurance Companies' inter-company pool, eight reinsuredaffiliates and one domestic affiliate.

Following today's ratings action, A.M. Best said Kemper wasremoved from under review and left with a negative ratingoutlook.

Additionally, the debt rating for the $700 million surplus notesissued by Lumbermens Mutual Casualty Company, the lead member ofKemper's inter-company pool, was also lowered, to "C" from"Triple-C-Plus," because it has technically defaulted on interestpayments of the surplus notes, the rating agency said.

The financial strength ratings of Kemper's Eagle Insurance Groupwas also cut in today's ratings action, to "B" (Fair) from "B-Plus"(Very Good).

One of the concerns expressed by A.M. Best involves the recentbreakdown of the deal by Long Grove, Ill.-based Kemper to sell offrenewal rights to its core business--including workers'compensation and auto offerings, as well as umbrella coverage soldin support of these lines.

"Kemper anticipated receiving gains or earnings benefitsassociated with the sale of certain subsidiaries, renewal rightscommissions and shared services fees," A.M. Best noted. "Thefailure of the transaction changes the dynamics of the run-offplan, and leverage remains high."