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Kemper Announces Pricing of $200 Senior Notes, Moody’s Rates

Zacks

Kemper Corporation KMPR has recently announced the offering of 4.350% $200 million senior notes, scheduled for expiry in 2025. The company has priced the notes at 101.193% of their principal amount. Notably these are addition to the $250 million notes (with maturity on Feb 24, 2015) of the company’s 4.350% Senior Notes due 2025.

The company intends to deploy proceeds from the notes for general corporate purposes.

Concurrently, Moody’s Investor Service – an affiliate of Moody’s Corp. MCO – assigned Baa3 rating with stable outlook to the senior notes. The rating reflects the company’s strong performing home service insurance business, a compelling fixed income portfolio, good geographic diversification and a strong risk-adjusted capitalization.

However, lower exposure to catastrophe loss, constrained capabilities in highly competitive personal lines sector and challenges faced in personal auto are partial offsets.

The rating agency may upgrade the ratings if there is an upgrade of the IFS ratings of the Life & Health and/or P&C group. The company delivers combined ratios in the mid-90s or lower for a sustained period, premiums grows in core personal auto insurance operations and the adjusted financial leverage remains below 25%.

However, the rating might be downgraded if the Life & Health and/or P&C group faces IFS ratings downgrade, combined ratios remain above 103%, underwriting leverage remains 5x or higher, the P&C capital reduces by over 10% and the adjusted financial leverage remains above 35%.

The Zacks Rank #3 (Hold) insurer is capitalizing on the low interest rate environment. The insurer has been consciously making efforts to decrease its interest burden on borrowings by issuing debt in the low rate environment. In turn, these efforts would facilitate margin expansion.

Though the Fed has recently raised rates – two consecutive hikes in the last two quarters – the rate environment remains low. Moody’s Investor Service estimates financial leverage to be about 24.6%, considering the new issuance and $360 million of senior notes that matured in May.

Shares of Kemper Corp. gained 1.88% quarter to date, underperforming the Zacks categorized Property and Casualty Insurance industry’s increase of 4.37%. We expect the company’s effort to reduce interest burden and facilitate margin expansion to drive the stock higher in the future.


Stocks to Consider

Better-ranked property and casualty insurers are First American Financial Corp. FAF and State National Companies, Inc. SNC

State National Companies provides property and casualty insurance in the United States. The company has delivered positive surprises in two of the last four quarters with an average beat of 20.54%. The company carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

First American Financial provides financial services. The company delivered positive surprises in the last four quarters with an average beat of 14.12%. The company sports a Zacks Rank #2 (Buy).

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