Moody’s Investors Service has downgraded the insurance financial strength ratings of members of the Kemper Insurance Cos. inter-company pool “Caa3” from “B3.” In the same action, Moody’s downgraded the ratings of surplus notes issued by Lumbermens Mutual Casualty Co., the lead company of Kemper’s inter-company pool, to “C” from “Ca.”
All ratings were subsequently withdrawn by the rating agency as the company is no longer writing new business and continues to run off existing businesses. Moody’s noted that the rating action follows the company’s announcement that it expects reported statutory surplus in its audited 2002 financial statements to be substantially lower than previously reported in the company’s unaudited 2002 statements previously filed with state regulators.
The negative adjustments to surplus are primarily related to asset write-downs and reductions in deferred revenue accruals which stem from the fact that the company is in run-off. Moody’s noted that the “Caa3” insurance financial strength ratings reflect an assessment of potential loss severity to policy holders considering the further deterioration in statutory surplus. The surplus note rating reflects Moody’s expectation that the severity of loss to note holders is likely to be substantial.
Moody’s noted that even modest deterioration in the company’s loss reserves, reinsurance recoverables, and/or investment portfolio would have a leveraged effect on Lumbermens’ surplus, and hence negatively impact funds available to repay creditors.
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