Berkshire Reinsures Kemper
By Mark E. Ruquet
NU Online News Service, Dec. 26, 10:30 a.m. EST–Kemper Insurance Companies has announced an agreement-in-principal with National Indemnity Company, the Omaha, Neb.-based subsidiary of Berkshire Hathaway, to provide reinsurance on policies beginning Jan. 1, 2003.
The "cut-through endorsement" on policies gives Kemper the backing to continue "its core business" while restructuring operations for its planned demutualization, according to David B. Mathis, chairman and chief executive officer for the Long Grove, Ill.-based carrier.
Kemper said the agreement is subject to closing conditions, including regulatory and board approvals. The closing is expected in the first quarter of 2003.
As part of the closing, Kemper said it would repurchase Berkshire's minority equity investment in a Kemper subsidiary company for $125 million.
Related to the announcement, rating agencies Standard & Poor's in New York and A.M. Best in Oldwick, N.J., announced they were lowering their ratings on Kemper's Intercompany Pool.
S&P took Intercompany Pool off credit watch and lowered its rating from "A" to "BBB." Best lowered its rating from "A-minus" (Excellent) to "B-plus" (Very Good).
The two also lowered the rating on Lumbermens Mutual Casualty Company's surplus notes, a lead member of Intercompany–from "BB" to "BBB-plus" by S&P, and "BB" to "BBB-minus" by Best.
Best said the $125 million repurchase announcement and the potential for additional charges led to its action. In a statement, Best said it was concerned with the implications of the repurchase, after Berkshire only recently made the investment, and also the development of future losses.
S&P said the outlook for all of the companies is stable, but Kemper is faced with "challenges associated with a restructured book of business."
Lumbermens is a major underwriter of workers' compensation insurance, S&P said.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.