Kemper to Take Over Superior National

The negotiations are still in the works, but the fact is that Kemper Insurance Companies has won the right to take control of Superior National Insurance Co.

On May 3, the California Department of Insurance (CDI) issued a request for proposals (RFP) for the book of business and related assets to all “parties interested in financial participation in a Superior National Insurance Companies rehabilitation plan.” The deadline set by the court was June 30, at which time the agreement was submitted to the court for approval.

After reviewing the RFP, Kemper submitted its final proposal in late June. “The winning bid transpired at the end of June and it was going to take a few weeks…to work on the details with the CDI,” said Linda Kingman, vice president of corporate communications for Long Grove, Ill.-based Kemper. “And [at this time] we are still in negotiations.”

Kemper’s winning proposal allows it to take control of the four California-domiciled units seized by the CDI on March 3 and conserved by the CDI on March 6. The companies include: Superior National Insurance Co., Superior Pacific Casualty Co., California Compensation Insurance Co. and Combined Benefits Insurance Co.

Meanwhile, a fifth Superior National subsidiary, New York-domiciled Commercial Compensation Insurance Co. (CCIC), was not part of the original conservation order. “They re-domiciled to California and they are now Commercial Compensation Casualty Company, I believe,” Kingman said. “And they are included in the transaction.”

The bid received approval in Los Angeles Superior Court at the end of June. Essentially, Kemper acquired the exclusive right to write renewal policies to the existing policyholders of Superior National Companies. “And those renewals will be written on Kemper paper, and we’ll pay a commission to Superior National for the business that’s written,” Kingman said. “Additionally, we will be doing claims handling on most of the existing book.”

In submitting its bid, Kemper said it will pay Superior National: a 2 percent commission on all existing policies that are renewed over the next three years; 50 percent of the profits generated on renewal and new business written during a three-year period after the deal closes; and $2.25 million in cash.

In addition, it will administer run-off claims stemming from policies issued by the conserved companies on behalf of the CDI and the California Insurance Guaranty Association and will be paid roughly $80 million for its claims administration services. The proposal also indicates that Kemper will purchase certain assets of Superior National that the company needs in order to write renewal and new business and to administer claims. Lastly, the company will enter into an agreement with Swiss Re for retroactive reinsurance on policies issued by the conserved companies (although this deal is negotiable).

“We had been working with Superior National for a while through a cut-through reinsurance agreement while preparing the bid,” Kingman said. “We saw it as a profitable growth opportunity in a sector of the market which is one of our traditional strengths—workers’ comp.”

On April 5, an enhanced cut-through reinsurance agreement was negotiated with Kemper to provide support for the new and renewal insurance policies being written by the Superior companies in conservation. The Kemper reinsurance covers policies issued by Superior on and after April 5. Kingman said that the cut-through agreement will continue until court approval of the entire takeover.

With 1999 revenues of roughly $3 billion, Kemper is a leading provider of p/c insurance and risk management services.