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Kemper Hopes To Expand Nonstandard Auto Biz Footprint With $1.4B Infinity Deal

2018 US Property Casualty Insurance Market Report

Banking, Corporations, Insurance, Professional Services

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S&P Global Market Intelligence: Who We Serve

Fintech

Fintech Funding Flows To Insurtech In February

Insurance
Kemper Hopes To Expand Nonstandard Auto Biz Footprint With $1.4B Infinity Deal

Aug. 09 2018 — Kemper Corp. wants to become a leader in the nonstandard auto insurance business with a $1.4 billion deal to acquire Infinity Property & Casualty Corp.

The company plans to acquire Infinity in a cash-and-stock transaction valued on a per-share basis of $129. Infinity shareholders will receive $51.60 in cash and 1.2019 Kemper common shares for each Infinity share held.

By tapping into Infinity's largely urban and Hispanic customer base, Kemper executives expect that growth in the company's nonstandard auto franchise will continue to gain traction.

"With this transaction, we believe one plus one is more than two," President and CEO Joseph Lacher Jr. said during a conference call with analysts.

Kemper's nonstandard personal auto business reported that premiums were up $47.2 million year over year in the fourth quarter of 2017, driving the company's total revenues for the period to $697.3 million. Infinity meanwhile saw its total gross written premiums jump 3.5% to $340.6 million in the fourth quarter of 2017 from $329.1 million in the prior-year period.

The potential transaction would make Kemper the 14th-largest personal auto writer, based on 2016 net return premiums, Lacher said. The company does not expect any notable regulatory hurdles to get the Infinity acquisition approved, and anticipates that it will close in the third quarter.

Kemper expects to see annual pretax cost savings of about $55 million within two years of the deal, as well as $5 million to $10 million in pretax earnings stemming from repositioning Infinity's investment portfolio.

The potential acquisition is not Kemper's first attempt to venture into nonstandard auto insurance, as the company acquired Alliance United Group LLC in 2015. The California-based business ended up reporting "significant losses" for some time following the deal's completion, but

Kemper's current management team has been able to turn the business around with higher prices, better underwriting and improved claims management, Sandler O'Neill analyst Paul Newsome wrote in a research report.
Kemper's executives on the call also said they believe that adding Infinity into its operations will increase customer retention, improve its data and analytical capabilities and increase its claim efficiencies and effectiveness. Part of the draw to Infinity was the company's customer service strategy to the Hispanic community, said Lacher, who pointed to Infinity's use of bilingual contracts and servicing capabilities. Kemper plans to continue to approach Infinity's client base the same way the company currently does once the deal closes, he said.

"Their thoughtfulness of how to really understand the customer and their needs and their wants, and built their entire process around that, is really exceptional," he added.

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Insurance
2018 US Property Casualty Insurance Market Report

Highlights

S&P Global Market Intelligence’s 2018 US Property & Casualty Insurance Market Report offers a five-year outlook for the P&C sector, which should return to underwriting profitability for the first time since 2015.

Oct. 26 2018 — The federal tax reform President Donald Trump signed into law in December 2017 should help provide for an extended period of P&C industry profitability in 2018 and beyond as companies benefit from the lower corporate tax rate, but the impact is not limited to after-tax profitability. Actions by several prominent European-headquartered insurers to change the way certain of their U.S. business is reinsured materially impacted premium growth rates in the first quarter of 2018 and are likely to affect full-year results.

1 quarter does not a trend make

Historically strong results for the State Farm group in the first quarter
helped drive favorable comparisons in several key measures of underwriting profitability. To the extent the improvement continues for State Farm — the industry’s largest group based on direct premiums written — it could provide an additional tailwind for 2018 and beyond.

While there is a risk of recency bias in reading too much into a single quarter’s worth of data, the industry was already positioned for improved underwriting results in 2018. The second half of 2017 saw elevated catastrophe losses as the United States was hit by three landfall-making hurricanes and an unusual spate of fourth-quarter wildfires in California. Projected results for 2018 and subsequent years, all of which show combined ratios of less than 2017’s total of 103.5%, assume a normal catastrophe load.

Auto repairs in progress

Competition will remain intense in certain non-auto business lines given ample reinsurance capacity, high levels of industry capitalization and a macroeconomic environment that remains characterized by relatively slow growth in gross domestic product. Though modestly higher business volume driven by that economic expansion will help offset downward pressure on premiums, the industry will be challenged to achieve profitable top-line growth.

Trends in litigation will increasingly weigh on underwriting results in several business lines, including professional lines and the Florida homeowners business. They also could lead to greater demand for coverage, particularly for new and emerging risks.

The macro view

A rising federal funds rate and 10-year Treasury yields that have reached seven-year highs bode well for an industry that has long been suffering from low interest rates. And the relief cannot come quickly enough after the industry’s net yield on invested assets slipped to a new low of only 3.03% in 2017. Though projected results provide for increasing yields from that floor, the improvement will still take place gradually and is unlikely in and of itself to materially impact how companies are underwriting business

S&P Global Market Intelligence client? Click here to login and read the full 2018 US Property & Casualty Insurance Market Report.

The projections reflect various assumptions regarding premiums, losses and expenses. They are a product of a sum-of-the-parts analysis of individual business lines that is informed by third-party macroeconomic forecasts, historical trends and recent market observations that include first-quarter 2017 statutory results and anecdotal commentary about market conditions. Projected results are displayed on a total-filed basis and are not intended for application to individual states, regions or companies. S&P Global Market Intelligence reserves the right to update the projections at any time for any reason.

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U.S. Insurance Market Report – Property & Casualty (June 2017)

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Fintech
Fintech Funding Flows To Insurtech In February

Mar. 21 2018 — Insurance technology companies took center stage in the month of February, attracting the most investor dollars of the various financial technology subsectors that S&P Global Market Intelligence tracks. Overall funding in the financial technology sector declined about 10% from the prior month, however, based on the disclosed value of deals involving private U.S.-based companies that closed in each period.

Two health-insurance-focused startups were key drivers of the $216 million that flowed into insurtech. These were CollectiveHealth and Bind Benefits, which closed on $110 million and $60 million funding rounds, respectively. Both provide tech solutions to companies that self-insure (i.e. provide health coverage for their employees with their own money rather than using an outside insurance company.)

This was a departure from last month, when investment and capital markets technology was the most well-funded, bolstered by capital raises from several robo-advisors, including Wealthfront and Acorns. Meanwhile, insurance technology companies only closed on $71.3 million worth of transactions during the month.

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