By Becky Yerak | Kemper Insurance Cos., a Long Grove-based
company that since 2003 has been running off its existing policy
obligations, said its Lumbermens Mutual Casualty Co. unit ended 2009
with a surplus of $8.1 million, down from $113.2 million at the end of
2008, according to year-end financial results filed on Monday.

A surplus is what’s left after an insurer’s liabilities are subtracted
from its assets. It’s a financial cushion that protects policyholders
from unexpectedly high claims, according to the Insurance Information
Institute.

Documents also show that the company had 206 workers at year end, down from 231 in 2008.

Lumbermens is the lead company of a group of insurers and affiliates — now in run-off status — that have operated under the names of Kemper and Kemper Insurance Cos, the document said.

Under supervision by the Illinois Department of Insurance, Lumbermens and Kemper Insurance Cos.  are operating under a run-off plan filed with the department in 2004.

“The Kemper run-off plan continues under the supervision of the department of insurance, as it has since 2003,” Michael McRaith, commissioner of the Illinois Department of Insurance, said in a statement Wednesday. “The department continuously monitors and evaluates the status, and the Kemper run-off — the largest in the history of the United States — continues to serve the best interests of policyholders and claimants.”

The run-off plan is designed to help the company meet its goal of resolving all valid policyholder claims.

As has been the case for seven years, the Illinois department has the discretion at any time to place the company in a formal insolvency proceeding, including conservatorship, receivership or liquidation, the document said.

Two key factors led to the decline in the Lumbermens surplus. One was an increase in reserves for losses, mostly in the workers’ compensation line of business. Also contributing to the decline was the resolution of a 2007 arbitration proceeding, also related mostly to workers’ compensation cases, that didn’t go the company’s way, documents show.

“As a result of the agreement, the company increased an estimated liability by approximately $56 million at Dec. 31, 2009,” the documents said. “This increase has a material adverse effect on the company’s financial condition and prospects.”

Another Chicago-area company, Unitrin Inc., whose products include home and auto insurance, uses the registered trademark Kemper for its personal lines insurance only, from Lumbermens, which is not affiliated with Unitrin.