Fitch Expects to Rate Kemper's Senior Notes 'BBB-'
KEY RATING DRIVERS
Kemper is expected to use the net proceeds of the issuance to retire its existing senior notes due on Nov. 30, 2015. Pro-forma year-end 2014 financial leverage (excluding unrealized investment gains/losses on fixed income securities) is expected to temporarily increase to approximately 35.7% from 29.4% at Dec. 31, 2014. Once the existing notes are repaid, pro-forma leverage is expected to return to approximately 29.4%. This remains consistent with Fitch's upper guideline of 30% for the current rating category.
Kemper's fixed-charge coverage was modest at 3.3x at year-end 2014 down from year-end 2013 of 6.2x. Debt-servicing capacity is further supported by dividend capacity from its insurance subsidiaries and holding company cash and short term investments of \$330 million as of Dec. 31, 2014.
On January 22, 2015, Fitch affirmed all of its ratings for KMPR and KMPR's subsidiaries with a Stable Outlook.
Factors that could lead to a downgrade include:
--Statutory fixed charge coverage below 3.5x;
--A combined ratio above 106% for a sustained period;
--Deterioration in capitalization with a p/c Prism capital model score below 'adequate' (based on year-end 2013 data Kemper's Prism score was 'Strong');
--RBC ratio for the p/c and life insurance entities below 200% and 250%, respectively;
--Financial leverage ratio that exceeds 30%.
Factors that could lead to an upgrade include:
--Maintaining a Prism score of 'strong';
--Sustained underwriting profit;
--GAAP fixed charge coverage at or above 7x.