AM Best Affirms Credit Ratings of Kemper Corporation, Its Affiliates and Subsidiaries

AM Best has affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICRs) of "a-" (Excellent) of the property/casualty subsidiaries and affiliated insurance companies of Kemper Corporation (Kemper Corp.) (NYSE:KMPR), collectively referred to as Kemper Property & Casualty Group (Kemper P&C). AM Best also has affirmed the FSR of A- (Excellent) and the Long-Term ICRs of "a-" (Excellent) of Kemper Corp.'s life subsidiaries, collectively referred to as Kemper Life Group (Kemper Life) (Chicago, IL). Concurrently, AM Best has affirmed the Long-Term ICR of "bbb-" (Good) and the Long-Term Issue Credit Ratings (Long-Term IRs) and indicative Long-Term IRs of Kemper Corp., the ultimate parent, headquartered in Chicago, IL. The outlook of these Credit Ratings (ratings) is stable. (See below for further discussion and a detailed listing of all companies and ratings.)

The ratings of Kemper P&C reflect its balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM).

Kemper P&C's earnings and balance sheet strength have been significantly impacted in recent years by substantial operating losses, largely driven by inflation-related severity increases. This led to sharp fluctuations in surplus levels, mixed reserve development trends and elevated underwriting leverage. The group's concentration in California further pressured results, as the state's regulatory environment made it difficult for Kemper P&C to secure necessary rate adjustments for a prolonged period. Nonetheless, Kemper P&C's strategic rate adjustments and non-rate actions have proven effective, with operating results stabilizing and showing significant improvement through late 2023 and in the first half of 2024. Consequently, the group has resumed generating underlying surplus gains, strengthening its risk-adjusted capitalization and overall balance sheet. The group's balance sheet strength is further supported by both implicit and explicit support from its parent company, Kemper Corp., as well as key initiatives such as the preferred home and auto exit and the Kemper Bermuda initiative. However, AM Best notes Kemper Corp.'s financial leverage remains elevated but is expected to improve going forward.

While Kemper P&C and Kemper Corp. have reported improved results through the first half of 2024, AM Best notes the group has begun to shift its focus back toward business growth, which is expected to bring operating performance more in-line with historical norms. Additionally, after implementing large rate increases over the past few years, management anticipates returning to regular maintenance rate adjustments and a steadier course of business going forward.

The ratings of Kemper Life reflect its balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile, appropriate ERM, and consideration of the group's affiliation with lead rating unit, Kemper P&C.

In 2022, Kemper Life announced that it was entering into an agreement with Kemper Bermuda to cede 80% of its life business to its offshore affiliate. This initiative, along with a reserve review reduction completed in late 2023, has resulted in the release of over $600 million in dividends to the parent company, Kemper Corp. Given that the Kemper Bermuda initiative has been completed, AM Best expects Kemper Life's overall balance sheet to be more stable going forward. Additionally, AM Best notes it considers the consolidated risk-adjusted capitalizations of both the statutory group and Bermuda entity to ensure Kemper Life's economic overall balance sheet strength remains appropriately assessed.

The stable outlooks for Kemper Corp., its affiliates and subsidiaries reflect AM Best's view that the consolidated results are expected to remain profitable as management begins to unwind certain non-rate actions and return to growth. However, given Kemper Corp.'s overall enterprise-wide focus on increasing capital efficiency–in part to satisfy shareholder return expectations–through the dividends of subsidiary capital to the parent company, and through intra-group reinsurance–AM Best acknowledges the potential volatility in the group's overall consolidated risk-adjusted capitalization, and that of its principal operating units, which may impact the group's go-forward credit profile.

The FSR of A- (Excellent) and the Long-Term ICRs of "a-" (Excellent) have been affirmed with stable outlooks for the members of Kemper Property & Casualty Group:

• Trinity Universal Insurance Company
• Alpha Property & Casualty Insurance Company
• Capitol County Mutual Fire Insurance Company
• Charter Indemnity Company
• Financial Indemnity Company
• Infinity Insurance Company
• Infinity Assurance Insurance Company
• Infinity Auto Insurance Company
• Infinity Casualty Insurance Company
• Infinity Indemnity Insurance Company
• Infinity Preferred Insurance Company
• Infinity Safeguard Insurance Company
• Infinity Select Insurance Company
• Infinity Standard Insurance Company
• Infinity County Mutual Insurance Company
• Kemper Independence Insurance Company
• Merastar Insurance Company
• Mutual Savings Fire Insurance Company
• Kemper Financial Indemnity Company
• Old Reliable Casualty Company
• Response Insurance Company
• Response Worldwide Direct Auto Insurance Company
• Response Worldwide Insurance Company
• Union National Fire Insurance Company
• United Casualty Insurance Company of America
• Unitrin Advantage Insurance Company
• Unitrin Auto and Home Insurance Company
• Unitrin County Mutual Insurance Company
• Unitrin Direct Insurance Company
• Unitrin Direct Property & Casualty Company
• Unitrin Preferred Insurance Company
• Unitrin Safeguard Insurance Company
• Valley Property & Casualty Insurance Company
• Warner Insurance Company

The FSR of A- (Excellent) and the Long-Term ICRs of "a-" (Excellent) have been affirmed with stable outlooks for the members of Kemper Life Group:

• United Insurance Company of America
• Mutual Savings Life Insurance Company
• The Reliable Life Insurance Company
• Union National Life Insurance Company

The following Long-Term IRs have been affirmed with stable outlooks:

Kemper Corporation—

-- "bbb-" (Good) on $450 million 4.35% senior unsecured notes, due 2025

-- "bbb-" (Good) on $400 million 2.4% senior unsecured notes, due 2030

-- "bbb-" (Good) on $400 million 3.8% senior unsecured notes, due 2032

-- "bb" (Fair) on $150 million junior subordinated debentures, due 2062

The following indicative Long-Term IRs under the shelf registration have been affirmed with stable outlooks for the shelf registration:

Kemper Corporation—

-- "bbb-" (Good) on senior unsecured debt

-- "bb+" (Fair) on subordinated debt

-- "bb" (Fair) on preferred stock

This press release relates to Credit Ratings that have been published on AM Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best's Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best's Credit Ratings, Best's Performance Assessments, Best's Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best's Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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