Kemper Disappoints Workers, Agents

The company's decision to call off the deal will be felt especially hard by hundreds of Kemper workers across the country, who are getting their pink slips as a consequence. Their jobs would likely have been safe if the sale deal had gone through. "It's probably going to affect approximately 1,000 employees, and they will start getting notices," said Linda Kingman, a Kemper spokesperson. "The majority of the people who are going to be affected are in the middle-market and small-market business [areas] discussed in the deal," she told National Underwriter last week.

Kemper will still go ahead with its plan to exit the underwriting business, with the exception of a couple of small business lines, said Ms. Kingman, who declined to comment on why the deal was abandoned and what exactly would happen to its core business now that the sale discussion is over.

"There are two things we will be focusing on going forward: Number one is the further development of our services platform. The majority of our employees are now involved in this area.

"And number two would be our runoff operations," she said.

For now, major rating agencies said they are taking a wait-and-see approach before considering any further actions.

John Iten, director at Standard & Poor's Ratings Services in New York, and Angela Quinn, senior financial analyst at Oldwick, N.J.-based A.M. Best, both said their firms, which have negative outlooks on Kempers ratings, are reviewing implications and watching for developments. S&Ps financial strength rating is currently "B-minus," and Bests is "B."

"The first strategic alternative has obviously failed," said Thomas S. Jalics, an associate director at New York-based Fitch Ratings, which currently has "double-C" for Kemper's insurer financial strength rating with a "negative" outlook and "C" for its surplus notes.

"At this point, all we have is the company's press release, and there is not a lot of information there. The press release I saw was very vague," Mr. Jalics told National Underwriter. "We will have to wait and evaluate as we go forward and as more information becomes available."

For agents and brokers that have been placing middle market business with Kemper–for decades in many cases–recent news coming out of what was once a company with an impeccable financial reputation has been quite unsettling.

Richard Kniffin, president of Syosset N.Y.-based Viking Agency, who has been representing Kemper for over 40 years, said he is "shocked to the seat of his pants over what happened" at what was once the most conservative company in the business. His firm currently has around $3 million in premiums in commercial lines with Kemper.

"We were surprised on a number of fronts. We were surprised when A.M. Best began dropping its rating last summer. We were of the impression that the original drop was related to asbestos reserves," said Mr. Kniffin. "But subsequently, we found that their investment income was bad and they have had terrible results in some of the 'new' lines of business they entered, such as environmental and surety coverage. So the confluence of those factors was more dramatic than many of us believed."

Those who have middle market business with Kemper are still stable, thanks to Kemper's cut-through agreement through Berkshire Hathaway Inc. "But for those who don't have cut-through endorsements, agents should probably find new A-rated carriers," Mr. Kniffin said.

"My clients are looking to me to do the right thing. And I have to find a new home for them when that cut-through agreement expires with renewals."

Scott Isaacson, senior vice president at Chicago-based Acordia Inc., a unit of Wells Fargo & Company, added that people who have been working with Kemper are very disappointed. "It's a shame to see a good company having trouble. What Kemper needs to do is try to find another partner very soon," said Mr. Isaacson, whose firm has some $25 million in premiums in commercial lines with Kemper.

"We had advised our agents in the field to look at other alternative proposals for clients, just in case something like this would happen."

Joe Max Green Insurance Concepts in Houston is another agency with a long business history with Kemper. The firm has been placing middle market business with Kemper for more than two decades and currently has in excess of $15 million in premiums and more than 3,000 clients with Kemper.

Commenting on Kemper's travails, Joe Max Green, president of the firm, said he was hoping that the insurer would have the new Kemper up and going and that he was disappointed at the latest news.

"All this has been quite a shock. We have been a Kemper agent for more than 20 years and they have been a truly outstanding company–one of the companies that almost all agents have looked to as a strong, solid company day in and day out," Mr. Green said.

He explained that his firm is in the process of moving that book of business to other carriers with an "A" rating. "We have no choice," Mr. Green said, adding that he still gives Kemper a lot of credit for trying to create a new underwriting entity with an "A" rating as its own rating began to tumble down.

And all this could have a real impact on agents' bottom line, he added.

"Anytime you have to move from one market to another, it's going to be a lot of work. Agents will have a tremendous amount of work to move their books," he said. "It's a sad day for us to lose a company like Kemper. It's a company we depended on. We are going to miss them."

Reproduced from National Underwriter Edition, May 5, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.