Kemper Corporation · NYSE:KMPR
Kemper — Q2 2020 Earnings Presentation
32 slides from Kemper's earnings presentation, Aug 3, 2020
Slide 1: Second Quarter 2020 Earnings
Second Quarter 2020 Earnings August 3, 2020 Earnings Call Presentation – 2Q 2020
Slide 2: Preliminary Matters
Preliminary Matters Cautionary Statements Regarding Forward-Looking Information This presentation may contain or incorporate by reference information that includes or is based on forward-looking statements within the meaning of the safe-harbor provisions of the Private Securities Litigation Reform A
Slide 3: Create Long-Term Shareholder Value
Create Long-Term Shareholder Value Leverage competitive advantages to grow returns and BVPS1 over time Diversified sources of earnings; Sustainable competitive Growing returns Strong capital/liquidity advantages and build and book value per positions; core capabilities share over time Disciplined ap
Slide 4: Second Quarter 2020 Highlights
Second Quarter 2020 Highlights High quality balance sheet and business model continue to enable us to serve our stakeholders Delivered double-digit return on equity and solid adjusted consolidated net operating EPS • Net income of $126 million and adjusted consolidated net operating income 1 of $79
Slide 5: Second Quarter Financial Highlights
Second Quarter Financial Highlights Steady strategy execution continues to yield attractive results As Adjusted As Reported for Acquisition1 Quarter Ended Quarter Ended June 30, Change from June 30, Change from (Dollars in millions, except per share amounts) 2020 2Q’19 (%) 2020 2Q’19 (%) Net Income
Slide 6: Review of Net Operating Income
Review of Net Operating Income Continuing to produce strong operating income Three Months Ended, As Reported Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, Variance Dollars per Unrestricted Share - Diluted 2020 2020 2019 2019 2019 QoQ Net Income $ 1.91 $ 0.95 $ 1.85 $ 1.91 $ 1.84 $ 0.07 (Income) Loss
Slide 7: High Quality & Diversified Investment Portfolio
High Quality & Diversified Investment Portfolio Net Investment Income¹ Overview • Net investment income and portfolio yield (MM) $97 $95 $97 $86 $68 $8 $7 $6 impacted by reporting lag in alternatives $6 • Investment portfolio continues to be high quality and well diversified $90 $88 $91 $80 $80 • In
Slide 8: Net Investment Income Walk
Net Investment Income Walk Negatively impacted by broad market pressure Key Highlights • Lower interest rates, lower dividends and portfolio management actions impacting net investment income • Income from alternative portfolio reflects challenging first quarter market environment (reporting lag) $9
Slide 9: Strong Balance Sheet and Capital Position with Ample Liquidity
Strong Balance Sheet and Capital Position with Ample Liquidity Provides significant financial flexibility Significant Parent Company Liquidity Risk-Based Capital Ratios (MM) $943 (%) $867 $741 $684 $641 $582 $672 $400 $385 $660 430 $385 $540 375 330 415 335 410 355 365 360 335 290 285 $341 $299 $271
Slide 10: Consistent Capital Generation and Attractive Returns
Consistent Capital Generation and Attractive Returns Operating model built to provide consistent growth and returns through economic cycles Total Adjusted Return of BVPS Ex. Unrealized Gains on Fixed Maturities and Goodwill Growth 44% $42.58 $40.27 $40.70 • Strong execution and $36.46 $38.43 solid o
Slide 11: Specialty Property & Casualty Insurance Segment
Specialty Property & Casualty Insurance Segment1 Growth continues to outperform market trends; solid margins Key Highlights (ex. premium credits) PPA Written Premium Population CAGR TTM YoY • 6.5% growth in policies in-force, 7.5% excluding State Groupings ($ million) Growth ’16-’19 Est. ’20-’30 Cla
Slide 12: Preferred Property & Casualty Insurance Segment
Preferred Property & Casualty Insurance Segment Efforts to bring the Preferred segment to target profitability are ongoing Key Highlights • Underlying combined ratio decreased to 84.4% for the quarter; 88.5% on a year-to-date basis • Auto underlying combined ratio improved due to macro trends and on
Slide 13: Life & Health Insurance Segment
Life & Health Insurance Segment Impacted by COVID-19 related items Key Highlights • Net operating income impacted by broad macro environmental trends including: - Increased mortality experience; largely in-line with country-wide trends - Lower morbidity benefits expense - Net investment income press
Slide 14: Potential Pandemic-Related Impacts on Our Business
Potential Pandemic-Related Impacts on Our Business COVID-19 driven uncertainty creates fluid economic and operating environment Specialty and Preferred Auto Businesses • Movement in and out of state recovery phases will impact customer behavior • Biggest impacts of state closures/restrictions includ
Slide 15: Appendix
Appendix Earnings Call Presentation – 2Q 2020 15
Slide 16: A Leading Specialized Insurer
A Leading Specialized Insurer Taking advantage of a diversified portfolio of niche businesses…. Founded in 1990 and headquartered in Chicago, with subsidiaries writing policies since 1911 ~$13B ~6.4M ~30,000 ~9,200 Assets Policies Agents/Brokers Employees Specialty P&C insurance providing Preferred
Slide 17: Capital Deployment Priorities
Capital Deployment Priorities Dedicated to being good stewards of capital 1. Investment in the business • Fund profitable organic growth at appropriate risk-adjusted returns • Strategic investments and acquisitions that enhance the business and meet or exceed our ROE targets over time 2. Return capi
Slide 18: Investment Portfolio Exposure to COVID-19 Impacted Categories
Investment Portfolio Exposure to COVID-19 Impacted Categories Fixed income exposure to COVID-19 industry sectors is manageable $140 1.8% 1.7% 1.6% $120 % of Fixed Maturity Portfolio 1.4% $100 $ Amount (MM) 1.1% 1.2% $80 1.0% 1.0% 0.9% $60 $126 0.8% 0.6% $40 $85 0.5% 0.5% 0.5% $71 $68 0.4% 0.3% $20 $
Slide 19: Below Investment Grade Fixed Maturities Portfolio of $497 Million
Below Investment Grade Fixed Maturities Portfolio of $497 Million Portfolio is diversified across different asset types $250 3.0% 2.7% 2.5% Below Investment Grade $ Amount (MM) $200 % of Fixed Maturity Portfolio 2.0% $150 1.5% 1.5% $100 $204 1.1% 1.0% 0.8% $114 $50 $84 0.5% $59 0.3% 0.1% 0.0% 0.1% $
Slide 20: CLO Composition ($711 Million)
CLO Composition ($711 Million) CLOs represent 7.5% of investment portfolio $600 80.0% 71.3% 70.0% $500 60.0% % of CLO Portfolio $ Amount (MM) $400 50.0% $300 40.0% $507 30.0% $200 20.0% $100 12.6% 11.7% 10.0% $89 2.0% 2.3% $84 $0 $15 $17 0.0% AAA AA A BBB High Yield Well-diversified CLO book with 86
Slide 21: Alternative Investment Portfolio of $505 Million
Alternative Investment Portfolio of $505 Million Portfolio is highly diversified with strategies focused on private credit, private equity and hedge funds Private Credit Funds1 3% of total investments (64% of Alts portfolio) $66.6 Diversification across date of investment, industry and geography Pri
Slide 22: 2020 Reinsurance Program
2020 Reinsurance Program Both programs were renewed with no significant change Catastrophe Reinsurance Program (Multi-Year) Aggregate Catastrophe Program • Same coverage as 2019 program 1-Year Term Placed 1/1/20 • Intended to reduce volatility from high- $25M xs $250M 95% Placed frequency, low sever
Slide 23: Non-GAAP Financial Measures
Non-GAAP Financial Measures Book Value Per Share Excluding Net Unrealized Gains on Fixed Maturities is a ratio that uses a non-GAAP financial measure. It is calculated by dividing shareholders’ equity after excluding the after-tax impact of net unrealized gains on fixed income securities by total Co
Slide 24: Non-GAAP Financial Measures
Non-GAAP Financial Measures Return on Equity For the Periods Ended 2Q'20 1Q'20 4Q'19 3Q'19 2Q'19 1Q'19 2018 2017 2016 Rolling 12 Month Return on Average Shareholders' Equity (5 Point Avg) 11.4% 11.8% 14.8% 12.1% 12.4% 10.8% 7.7% 5.9% 0.8% Less: Net Unrealized Gains on Fixed Maturities 1.4% 1.2% 1.5%
Slide 25: Non-GAAP Financial Measures
Non-GAAP Financial Measures Reconciliation of COLI investment into Net Investment Income. Prior to 1Q 2020, COLI was reported in “Other Income”. Starting in the 1Q 2020, COLI was reported in net investment income. For the Periods Ended 4Q'19 3Q'19 2Q'19 Reported Net Investment Income $ 93.9 $ 91.7 $
Slide 26: Non-GAAP Financial Measures
Non-GAAP Financial Measures Adjusted Consolidated Net Operating Income is an after-tax, non-GAAP financial measure computed by excluding from Net Income the after-tax impact of 1) income (loss) from change in fair value of equity and convertible securities, 2) net realized gains on sales of investme
Slide 27: Non-GAAP Financial Measures
Non-GAAP Financial Measures Diluted Adjusted Consolidated Net Operating Income Per Unrestricted Share is a non-GAAP financial measure computed by dividing Adjusted Consolidated Net Operating Income (Loss) attributed to unrestricted shares by the weighted-average unrestricted shares and equivalent sh
Slide 28: Non-GAAP Financial Measures
Non-GAAP Financial Measures Underlying Combined Ratio is a non-GAAP financial measure. It is computed by adding the Current Year Non-catastrophe Losses and LAE Ratio with the Insurance Expense Ratio. The most directly comparable GAAP financial measure is the Combined Ratio, which is computed by addi
Slide 29: Non-GAAP Financial Measures
Non-GAAP Financial Measures Underlying Combined Ratio – Continued For the Three Months Ended 2Q20 1Q20 4Q19 3Q19 2Q19 Specialty P&C Insurance Combined Ratio as Reported 91.0% 94.5% 93.8% 91.6% 93.5% Current Year Catastrophe Loss and LAE Ratio (0.6%) 0.0% (0.5%) (0.3%) (0.6%) Prior Years Non-Catastro
Slide 30: Non-GAAP Financial Measures
Non-GAAP Financial Measures As Adjusted or As Adjusted for Acquisition amounts are non-GAAP financial measures. For the periods subsequent to acquisition, the three months ended June 30, 2020 and June 30, 2019 the As Adjusted or As Adjusted for Acquisition amounts are computed by subtracting the imp
Slide 31: Non-GAAP Financial Measures
Non-GAAP Financial Measures As Adjusted for Acquisition – Continued Specialty P&C Insurance Segment Three Months Ended 30-Jun-20 31-Mar-20 31-Dec-19 30-Sep-19 30-Jun-19 Earned Premiums Kemper Specialty P&C - GAAP As Reported $ 759.0 $ 822.5 $ 799.7 $ 783.4 $ 766.0 Current Year Non-CAT Losses and LAE
Slide 32: Non-GAAP Financial Measures
Non-GAAP Financial Measures As Adjusted for Acquisition – Continued Specialty Personal Automobile Insurance Three Months Ended 30-Jun-20 31-Mar-20 31-Dec-19 30-Sep-19 30-Jun-19 Earned Premiums Kemper Specialty Auto - GAAP As Reported $ 689.8 $ 753.2 $ 733.1 $ 719.2 $ 703.7 Current Year Non-CAT Losse