Kemper Corp.’s 2018 acquisition of specialty auto insurer Infinity Property and Casualty Corp. continues to reap dividends, this time in the form of a Fitch Ratings upgrade.

Fitch said it upgraded the financial strength ratings of Kemper’s property/casualty lead operating subsidiary Trinity Universal Insurance Co. to ‘A’ (Strong) from ‘A-‘, and its holding company ratings, including the senior debt ratings to ‘BBB’ from ‘BBB-‘.

As well, the rating outlooks for the lead P/C subsidiary and Kemper’s Issuer Default Rating (IDR) have been revised to Stable from Positive. Fitch has also affirmed the ratings of Kemper’s life insurance subsidiaries with a Stable outlook.

Fitch attributed its Trinity upgrade to “the company’s moderate business profile” and specifically cited Kemper’s 2018 $1.3 billion acquisition of Infinity as a positive factor. Kemper’s “strong capitalization and risk management capabilities” have also contributed positively to its bottom line, Fitch added.

Fitch said that Kemper is more competitive now since the Infinity acquisition, noting that as a mid-tier P/C underwriter it is the 14th largest personal auto writer based on 2018 direct premiums written. Post Infinity acquisition, however, it is a leading writer of nonstandard auto insurance.

The financial stability of Kemper’s property/casualty business has particularly caught Fitch’s eye, with the ratings agency crediting the company with improving its financial performance “in line with the profit improvement plan that current management initiated in recent years. As Fitch noted, Kemper’s reported 2019 nine-month combined ratio improved to 93, down from 98.2 for all of 2018 “as reported results benefited from favorable pricing actions, loss experience and reduction in purchase accounting related expenses.”

Fitch said that the Infinity acquisition has benefited Kemper in terms of scale and operational benefits, and that its ratings upgrade “reflects its expectation that Kemper’s future calendar-year combined ratios will be sustained in the high 90’s or better.”

According to Fitch, Kemper’s life/health segment ratings reflect those divisions’ “stable underlying earnings, strong capitalization, and effective niche in the home service market, albeit a slow-growth market.” The ratings agency pointed out that the group has contributed steady capital to Kemper to help it support larger objectives. That said, Fitch argued that one group member – United and its subsidiaries” – have limited ratings possibilities due to “its less favorable business profile relative to larger, national peers.”

Kemper reported $57 million of favorable calendar-year reserve development in the first nine months of 2019 following favorable prior-year development of $7 million for 2018, Fitch said. But the ratings agency sees some limits here.

“Kemper reported diminished levels of reserve releases in recent calendar-year periods, reflecting higher than expected loss trends experienced recently in the personal and commercial auto segments,” Fitch said.

At the same time, Fitch isn’t unnerved by Kemper’s overall reserve experience, which it said continues to be “generally favorable” along with a reserve position that is “adequate in total.”

Source: Fitch Ratings