Kemper Forms Relationship With Berkshire
NU Online News Service, May 8, 4:30 p.m. EST?The Kemper Insurance Companies in Long Grove, Ill. today announced the insurance group has entered into a "comprehensive strategic relationship" with Berkshire Hathaway.
The announcement said that Omaha, Neb.-based Berkshire will make an equity investment in Kemper's portfolio of commercial casualty and specialty insurance operations through a newly formed stock insurance subsidiary, but does not disclose the amount of the investment. In addition, Kemper said that Berkshire will participate in several reinsurance agreements with Kemper.
In a statement, David B. Mathis, Kemper chairman and chief executive officer, called Berkshire's investment an endorsement of Kemper's "strategy for profitable growth driven by?high margin and specialty businesses and [a] substantial improvement in our middle market results."
He said the investment would allow Kemper to accelerate a growth strategy and take advantage of the current, positive rate environment.
Kemper President and Chief Operating Officer William D. Smith said the stock subsidiary formed to facilitate the Berkshire Hathaway investment also provides a vehicle for raising additional capital.
The announcement comes a day after A.M. Best in Oldwick, N.J. lowered the financial strength of Kemper to "A-minus" from "A" (both excellent).
In a statement describing the rating action, Best said the capitalization of Kemper declined substantially in late 2001. The surplus decline, Best said, was caused by adverse loss reserve development principally in asbestos reserves, among other things.
In announcing the downgrade, Best took note of the strategic partnership announced today, describing two reinsurance arrangements with Berkshire. The arrangements, Best said, include an adverse development reinsurance cover on $3.5 billion core loss reserves that will be transferred to the downstream company, and a third-party quota share reinsurance agreement for 80 percent of some of Kemper's middle market businesses.
Best also took note of the sale of Kemper's personal lines businesses to Chicago-based Unitrin, announced in mid-April, but went on to say that while the three transactions together will provide $125 million of additional capital, Kemper's financial flexibility is currently very limited.
After Kemper announced its deal with Unitrin last month, it also suffered a downgrade from Chicago-based Fitch, which lowered Kemper's ratings two notches to "triple-B" from "A-minus." Standard & Poor's also put Kemper's "single-A" ratings on CreditWatch last month.
The transaction announced today is subject to appropriate regulatory approval, according to Kemper.
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