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Kemper (KMPR) to Buy American Access Casualty in a Cash Deal

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Kemper Corporation KMPR agreed to acquire American Access Casualty Company and its related captive insurance agency, Newins Insurance Agency Holdings, LLC, and its subsidiaries for $370 million in cash. Pending approval, the transaction is expected to culminate in the first quarter of 2021. The acquisition will strengthen the acquirer’s Specialty Auto segment.

About American Access Casualty Company

Headquartered in Downers Grove, IL, American Access Casualty Company provides specialty private passenger auto insurance in Arizona, Illinois, Indiana, Nevada and Texas. The specialty auto insurer remains focused on Hispanic and non-standard customers. The company wrote more than $370 million of direct premiums in 2019.

Rationale of the Transaction

The addition of American Access Casualty Company to Kemper’s portfolio will boost the acquirer’s specialty capabilities, within the Hispanic customer base in particular. In fact, last year, Kemper acquired Infinity Property and Casualty Corporation, a leading provider of specialty auto insurance, focused on serving the Hispanic market segment.

Moreover, acquisition of American Access Casualty Company will diversify and boost Kemper’s presence in attractive specialty markets where American Access Casualty Company operates, thus ramping up growth. Kemper boasts industry leading specialty auto growth. This Zacks Rank #3 (Hold) multiline insurer’s private passenger auto and commercial vehicle premiums grew at a six-year CAGR of 40%, better than the industry growth rate of 6%.  Thus the acquisition is a strategic fit to accelerate growth.

The acquisition is expected to be accretive to operating earnings per share and return on tangible common equity in the first year and in high single-digit in the second year. The insurer estimates tangible book value per share to return to pre-transaction levels within the first year post closure of the transaction.

AM Best Jumps to Rating Action

AM Best retained the Long-Term Issuer Credit Rating (Long-Term ICR) rating of "bbb-" of Kemper and the Financial Strength Rating (FSR) of A- (Excellent) and Long-Term ICRs of "a-" of its property/casualty operating subsidiaries. The outlook of the ratings is positive.

Share Price

Shares of this company have gained 0.4% year to date against the industry’s decline of 9.8%. Kemper intends to pursue businesses that have niche market focus with minimal competition. The company remains committed to investing in profitable organic growth at suitable risk-adjusted returns, making strategic investment and acquisitions that boost business and meeting or exceeding its ROE targets over time. Solid fundamentals should help the stock retain the momentum.


Acquisitions in the Space

There have been a host of acquisitions in the insurance space of late, given the significant capital available. Brown & Brown BRO announced that its subsidiary bought CoverHound and its wholly owned subsidiary, CyberPolicy. Arch Capital Group ACGL agreed to acquire Watford Holdings WTRE. Watford Holdings is considered a variable interest entity and Arch Capital believes that it is the primary beneficiary of Watford Holdings.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Kemper Corporation (KMPR) : Free Stock Analysis Report
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