June 10, 2004
The Illinois Department of Insurance has given
the Kemper Insurance Companies permission to proceed with the run-off
plan submitted on March 19, 2004. Details of the plan are confidential,
pursuant to the state’s risk-based capital statute. The three-year
plan is designed to help Kemper meet its goal of resolving, to the
maximum extent possible, all valid policyholder claims.
The plan contains financial models that project
positive surplus and liquidity through 2006, the last year addressed
in the plan, assuming there is no further material adverse reserve
development. Successfully achieving this objective will be very
challenging. At this time, Kemper has little premium revenue (about
$90 million estimated for 2004 and virtually none thereafter) and
the investment income that is being generated is offset by expenses.
If Kemper does not successfully implement its plan, current financial
trends would render the company unable to meet its current policyholder
obligations in the first few months of 2005.
It is through initiatives such as a policy
buyback effort, under which the company “buys back”
certain commercial lines policies in order to reduce its future
loss exposure, and aggressive expense control measures that the
company intends to successfully implement the plan. The run-off
plan Kemper filed with the state projects that the company will
create approximately $200 million in surplus through various initiatives
and further reduce already substantially downsized expenses by another
$30 million. If successful, Kemper is projected to have a nominal
amount of surplus and liquidity remaining as of December 31, 2006.
In view of the risks and uncertainties involved in implementing
the plan, including the need to achieve significant policy buybacks,
commutation of reinsurance agreements, and further agreements with
regulators, no assurance can be given that the plan will be successfully
implemented. The Illinois Department of Insurance will continue
to closely monitor Kemper’s progress in achieving the objectives
of the run-off plan.
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