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Kemper hopes to expand nonstandard auto biz footprint with $1.4B Infinity deal

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.