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Kemper (KMPR) Expects $25-$30M Cat Loss in Q4, Pays Down Loan

Zacks Equity Research

Kemper Corporation KMPR estimates pre-tax gross catastrophe loss of $25-$30 million, stemming from California wildfire in the fourth quarter.

According to a report published in Insurance Journal on Dec 12, insured losses from the California wildfire were $9.05 billion, while catastrophe modeler CoreLogic estimated total losses resulting from the wildfires in Northern and Southern California between $15 billion and $19 billion. Per reports from Florida Office of Insurance Regulation, Hurricane Michael is estimated to cause about $4.3 billion in insured losses.

Being a property and casualty insurer, Kemper is exposed to natural disasters inducing volatility in underwriting results. Nonetheless, the company has reinsurance covers to safeguard profitability and capital erosion. For the fourth quarter too, the multiline insurer estimates reinsurance recoveries between $30 and $35 million, primarily from its 2018 catastrophe aggregate reinsurance program.

Recently, Arch Capital Group Ltd. ACGL announced pre-tax gross catastrophe loss estimate of $110-$130 million, stemming from Hurricane Michael and the California wildfire. Previously, insurers Mercury General Corporation MCY had estimated pre-tax gross catastrophe loss of $253 million, stemming from Camp Fire and Woolsey Fire. RLI Corp. RLI projects cat loss between $22 million and $27 million, net of reinsurance.

Concurrently, Kemper announced repayment of $215 million of the $250 million term loan due Jun 29, 2020. The term loan was taken out to finance the acquisition of Infinity Property and Casualty Corporation in June last year. Kemper’s solid capital position aided the company in paying down the term loan. A balanced revenue mix and an enhanced cash flow are expected to make the company’s financial position more stable.

The company is set to report fourth-quarter 2018 results on Feb 11. Our proven model does not conclusively show that the company is likely to deliver a positive surprise in the to-be-reported quarter. Though its favorable Zacks Rank #1 (Strong Buy) increases the predictive power of ESP, the company's Earnings ESP of 0.00% makes surprise prediction difficult. It came up with positive earnings surprise in the trailing three quarters. The Zacks Consensus Estimate for the fourth quarter is currently pegged at $1.01, indicating 124.4% year-over- year increase on 64.6% higher revenues.

Shares of Kemper have gained 1.7% in a year against the industry’s decline of 22.4%. Diverse product and service portfolio, focus on improving as well as strengthening its core businesses, strategic acquisitions and a solid capital position should help the stock continue to trend up.


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

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