Kemper Pool Downgraded Again

Standard & Poor’s lowered its counterparty credit and financial strength ratings on the members of the Kemper Insurance Cos. intercompany pool to “CCC” from “B-” with a negative outlook.

All the ratings have been removed from CreditWatch, where they were placed on Feb. 18, 2003. The ratings have now been withdrawn at the company’s request.

“The downgrade on Kemper reflects deterioration in the surplus position since year-end 2002,” observed credit analyst John Iten.

At the same time, S&P lowered its rating on Lumbermens Mutual Casualty Co.’s $400 million 9.15 percent surplus notes due 2026 to “D” from “C,” following the company’s anticipated non-payment of interest.

Kemper disclosed on June 30 that its surplus decreased to $313 million by the end of May from $697 million at year-end 2002.

The decline in surplus was largely driven by a number of asset-valuation adjustments made by Kemper’s outside auditor, KPMG LLP, to reflect the company’s runoff status. S&P anticipates a more gradual decline in surplus, however, as many of the steps needed to convert the balance sheet from a going concern to a runoff basis have now been completed.