S&P also said it lowered the surplus notes rating on Long Grove, Ill.-based Kemper's Lumbermens Mutual Casualty Co. to 'triple-C' from 'B-plus' and placed it on 'CreditWatch' negative.

S&P's latest decision on Kemper follows the agency's downgrade for the company last December. This followed Kemper's unexpected announcement that it was repurchasing a $125-million investment by Berkshire Hathaway Inc. Earlier last year, Omaha, Neb.-based Berkshire had made an equity investment in Kemper's portfolio of commercial casualty and specialty insurance operations through a newly formed stock insurance subsidiary.

Kemper had also announced the unexpected retirement of William Smith, president and chief operating officer of Kemper at that time.

A.M. Best Company Inc. in Oldwick, N.J., lowered its ratings on Kemper's financial health last December, as did Moody's Investors Service in New York. Moody's announced a second downgrade last month.

While declining to comment specifically on S&P's latest ratings action on Kemper, Robert G. Partridge, managing director at the agency, noted: "We are reviewing Kemper as we review all our companies. We believe Kemper will not be able to meet expectations for our ratings."

Mr. Partridge added that S&P will also look closely at Kemper's year-end results, which would be published at the end of this month.

Peter Patrino, senior director at Fitch Ratings in New York, also expressed his continuing concern for Kemper and its current strategy to focus on standard commercial lines and shed its specialty lines of business by selling off renewal rights to some of its specialty business insurance policies.

"I think we have concerns regarding prior year's reserve quality, and any adverse development in that area could certainly impact earnings," said Mr. Patrino, whose agency downgraded the financial strength ratings of Kemper's three main underwriters from 'triple-B' to 'B-plus' last month.

Fitch also slashed the rating of surplus notes issued by Kemper's Lumbermens Mutual Casualty Company from 'double-B-minus' to 'triple-C.'

"I think our rationale hasn't changed. It's based on material concerns on the company's capital position and its ability to execute in its current reorganization phases where it is really transitioning its business model," he said.