Fitch also affirmed the ratings for Horace Mann Life Insurance Company at “A,” and its holding company ratings, citing “strong capitalization; moderate business profile driven by the company’s niche position in the K-12 educator market; and the growing organizational focus on the relatively stable earnings in the life, retirement and supplemental segments which somewhat offset the volatile results in the P/C segment.”
For Kemper, Fitch announced that is downgrading the insurer financial strength ratings of the lead P/C operating subsidiary, Trinity Universal Insurance Company to “A-” (Strong) from “A.”
Fitch has also downgraded the ratings for Kemper’s holding company, while affirming the ratings of Kemper’s life insurance subsidiaries with a stable outlook.
Explaining the downgrades, Fitch cited “continued underwriting weakness” through the first half of 2023 and deterioration in Kemper’s capitalization level.
“Kemper Corporation’s underwriting results remained above rating sensitivities through 1H23, largely as the result of a continuation of heightened loss trends in both the Kemper Auto (nonstandard personal and commercial auto) and Personal Insurance (preferred auto and homeowners) segments, higher catastrophe losses and adverse prior-year reserve development. The Kemper Auto and Kemper Personal Insurance segments reported GAAP combined ratios remained elevated at 109 and 115, respectively, for 1H23,” the Fitch announcement said.
Fitch noted Kemper’s actions to address underwriting performance with targeted rate increases as well as non-rate actions over the last several quarters should limit further deterioration in underwriting results and help the company’s efforts to return to underwriting profitability over time. The rating agency also reported Kemper’s decision to place its personal insurance business into a planned runoff, noting that this “could have a modest near-term impact on the company’s scale and performance volatility related to property exposure.”
S&P Downgrades Allstate
Another one of the nine big publicly traded auto insurers---Allstate---found itself on the down side of a rating actions. For Allstate, the actions came from S&P Global Ratings. In addition to lowering the holding company long–term issuer credit rating, S&P lowered the financial strength ratings on the core operating subsidiaries to “A+” from “AA-” with a stable outlook.
“The downgrade reflects Allstate’s continued weak underwriting performance given elevated catastrophe losses, persistently high loss costs for the personal auto business, and the increased exposure---measured by premiums---consuming higher levels of capital.”
Highlighting the impact of catastrophes, S&P said Allstate’s Property-Liability year-to-date catastrophe losses of $4.4 billion, were greater than the $3.1 billion loss in all of 2022. Cats pushed the Allstate six-month combined ratio in the homeowners line to 132.3, S&P’s announcement said.
“The auto business, while improving on an underlying basis in the quarter, still weakened year to date on a calendar year basis to 106.4 from 105 as elevated catastrophe losses and minimal adverse development outpaced a meaningful expense improvement.”
Allstate told investors auto premium growth is beginning to outpace underlying loss costs during a second-quarter earnings call, and S&P expects the auto combined ratio to improve in the second half as “compounding rate increases start to meaningfully earn through the book.”
Still, however, S&P said it expects the companywide combined ratio to fall in the range of 108-110 range for the full year, assuming a normalized level of catastrophe losses in the second half. The S&P announcement went on to comment on the potential drivers of improvement---continued rate increases, a reduced expense ratio driven by advertising cost cuts and other expense control initiatives, as well as the reduction of “loss-making” policies in force and an effective reinsurance buying strategy. Potential drivers in the other direction include “catastrophe risks in its homeowners business line in the third and fourth quarters of 2023 mainly from wind and fire disasters that could further erode earnings, and ultimately, capitalization,” S&P said.
Separately, Allstate on Aug. 17 announced estimated catastrophe losses for the month of July of $313 million or $247 million, after-tax, from 18 events. Allstate also reported it implemented auto rate increases of 8.2% across 12 locations during the month of July, resulting in total brand premium impact of 0.9%.
Abby Andrews