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Rating Action:

MOODY'S DOWNGRADES CREDIT RATINGS OF KEMPER CORPORATION (SENIOR TO Baa1) AND LIFE INSURANCE SUBSIDIARIES; SUBSEQUENTLY PLACES RATINGS OF FEDERAL KEMPER LIFE ASSURANCE COMPANY AND ZURICH LIFE INSURANCE COMPANY ON REVIEW FOR POSSIBLE UPGRADE

30 May 2003
MOODY'S DOWNGRADES CREDIT RATINGS OF KEMPER CORPORATION (SENIOR TO Baa1) AND LIFE INSURANCE SUBSIDIARIES; SUBSEQUENTLY PLACES RATINGS OF FEDERAL KEMPER LIFE ASSURANCE COMPANY AND ZURICH LIFE INSURANCE COMPANY ON REVIEW FOR POSSIBLE UPGRADE

Approximately US$945 Million of Securities Affected

New York, May 30, 2003 -- Moody's Investors Service downgraded the senior debt rating of Kemper Corporation (Kemper Corp) to Baa1 from A3. The insurance financial strength ratings of Federal Kemper Life Assurance Company (FKLA), Zurich Life Insurance Company of America (ZLICA), and Kemper Investors Life Insurance Company (KILICO), were downgraded to A3 from A2. The three life insurance companies, known collectively as "Zurich Life US," are wholly owned subsidiaries of Kemper Corp, which is a wholly, indirectly owned U.S. insurance holding company of Zurich Financial Services of Swizerland (ZFS). The Baa1 rating on Kemper Corp's preferred stock, which is no longer outstanding, was downgraded to Baa3 from Baa1 and withdrawn.

The downgrades were taken in conjunction with the downgrade of certain ZFS entities, including Zurich Insurance Company (ZIC)(IFSR to A2 from A1; senior debt to Baa1 from A2). The ratings of Kemper Corp and Zurich Life U.S. are closely tied with, and benefit from, their affiliation with ZIC and ZFS, including intercompany reinsurance and other financial support from within the ZFS group. The downgrades of Kemper Corp and Zurich Life US, therefore, reflect the lower ZFS ratings, resulting from the group's weaker balance sheet, the more proscribed dividend capacity of certain Zurich subsidiaries, and higher financial leverage, among other factors. (For more detail, see separate press release on Zurich Insurance Company and other affiliated entities).

In a separate set of rating actions, Moody's placed the A3 insurance financial strength ratings of FKLA and ZLICA on review for possible upgrade, and the A3 insurance financial strength rating of KILICO on review for possible downgrade. These subsequent rating actions follow ZFS' announcement of its definitive agreement to sell part of Zurich Life US -- specifically, FKLA, Zurich America, certain businesses of KILICO, and certain non insurance and marketing subsidiaries -- to Banc One Corporation for $500 million. The timing of the announcement of the transaction was coincidental to the conclusion of Moody's rating review for the Zurich group of companies.

According to the rating agency, the rating review of FKLA and ZLICA's ratings for possible upgrade will focus on the ultimate strategic role of these companies (which specialize in the sale of brokered and direct-marketed term life insurance, respectively) within the higher rated Banc One group (senior debt at Aa3), as well as any capital contributions that may be made by their new owner.

The review will also focus on the development of new products and the restoration of sales associated with certain blocks of business (including fixed annuities, variable annuities, whole life insurance, and 403(b) annuities) to be acquired by Banc One from KILICO via reinsurance, as well as on the integration and execution risks associated with the transaction.

Commenting on the review for possible downgrade of KILICO's rating, Moody's noted that KILICO, as well as the Kemper Corp holding company, will continue to be owned by the Zurich group. It is Moody's understanding that ZFS remains committed to providing financial support for Kemper Corp and KILICO's debt obligations and insurance liabilities, respectively. However, the proposed Banc One transaction will, at least initially, concentrate KILICO's business in two higher-risk blocks of business (i.e., bank-owned life insurance and guaranteed variable annuities), and weaken its asset quality (although risk based capital is likely to be enhanced). As a result, KILICO's insurance financial strength rating was placed on review for possible downgrade.

The rating review will focus on KILICO's ultimate asset and liability mix, which is likely to improve as a result of the Zurich group's plan to reinsure certain businesses into KILICO from Farmers New World Life Insurance Company (FNWL). The review will also focus on the level of statutory and risk-based regulatory capital at KILICO, as well as its business strategy, once the Banc One transaction is completed.

The outlook for the senior debt rating of Kemper Corp is negative, in line with the negative outlook on other ZFS ratings.

Kemper Corporation, located in Schaumburg, Illinois, is in intermediate holding company, which is wholly, indirectly owned by Zurich Insurance Company, Zurich, Switzerland. Kemper Investors Life Insurance Company, Federal Kemper Life Assurance Company, and Zurich Life Insurance Company of America are wholly owned subsidiaries of Kemper Corporation, located in Schaumburg, Illinois. At March 31, 2003, the companies had total statutory general and separate account assets of approximately $18 billion, $2 billion, and $333 million, respectively, and statutory capital and surplus of $299 million, $129 million, and $77 million, respectively.

Visit our website at www.moodys.com\insurance

New York
Robert Riegel
Managing Director
Life Insurance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Laura Bazer
VP - Senior Credit Officer
Life Insurance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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