The Long and Short
Yield and price make a case for Kemper
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.
Investors looking for yields greater than 5% in bullet structures around the 10-year part of the curve should look at Kemper 2030 and 2032 maturities. The bonds trade at attractively discounted dollar prices, which has increasingly become a critical component of many buy programs in the secondary market. The issuer offers a solid mid-‘BBB’ credit in the property and casualty insurance subsector. Although a niche operator, Kemper holds a dominant position in its targeted markets and has steadily increased its operating diversity over recent years.
Exhibit 1. Graph 1. KMPR vs P&C Comps (BBB and higher)
Source: Amherst Pierpont, Bloomberg/TRACE Indications
KMPR 2.40% 09/30/30 @ +215/10-year; G+210; 5.09%; $82.18
KMPR 3.80% 02/23/32 @ +215/10-year; G+214; 5.09%; $90.33
Issuer: Kemper Corp. (KMPR)
CUSIP: 488401AC4 / 488401AD2
Amount outstanding: $400mm / $400mm
KMPR is a US multiline insurance company, predominantly in the P&C business with a vast majority of operations in the niche business of non-standard auto insurance (approximately two-thirds of the business mix). A large percentage of the company’s specialty auto premiums are generated servicing the urban Hispanic communities in California, Texas and Florida. KMPR has increasingly diversified its operations by establishing positions in the commercial auto, preferred auto and homeowners’ insurance markets within P&C, as well as a significant portion of total premiums generated through life and health operations (>10%). Those life and health operations service the niche markets of low-to-middle income households, where KMPR has become a leader in those segments. The anchor insurance financial strength ratings of its operating subsidiaries is A3/A/A. The company’s distribution platform is primarily independent agents and brokers.
KMPR has been active in making strategic bolt-on acquisitions in recent years that have helped diversify its business mix. Most recently, the company added American Access Casualty for $370 million in the first half of 2021 for $370 million, which was at least partially debt funded by the 2030 debt launch. The acquisition helped KMPR expand its core non-standard auto business with the Hispanic community in markets outside of its principal states of operation. The most transformative deal in recent years was the addition of Infinity Property and Casualty, which closed for $1.6 billion in 2018, and added substantially to KMPR’s core niche operating footprint.
KMPR has a solid liquidity profile with just under $300 million in cash on the balance sheet as of last quarter end and the full $600 million available on its revolving credit facility. The company’s next public debt maturity is the $450 million due in 2025, after which the 2030 and 2032 notes are the only other senior debt maturities on the company’s balance sheet.
The company appears well capitalized relative to its risk profile. Within its P&C businesses KMPR maintains statutory capital and surplus of just under $1.6 billion versus $8.0 billion in total assets. In the Life segment, KMPR has $462 million in capital and surplus versus $5.3 billion in total assets. The statutory risk-based capital ratio of the P&C businesses was 410% as of year-end 2021, while the Life businesses was at 698% as of year-end 2021. Total combined investments stood at $10.4 billion as year-end 2021 and total policy reserves were $8.7 billion, or nearly 2.2x equity.
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