Kemper Corporation · NYSE:KMPR
Kemper — Q4 2017 Earnings Presentation
31 slides from Kemper's earnings presentation, Feb 13, 2018
Slide 1: Fourth Quarter 2017 Earnings | Kemper to Acquire Infinity P&C
Fourth Quarter 2017 Earnings | Kemper to Acquire Infinity P&C February 13, 2018
Slide 2: Preliminary Matters: Caution Regarding Forward-Looking Statements
Preliminary Matters Caution Regarding Forward-Looking Statements This presentation may contain or incorporate by reference statements or information that are, include or are based on forward-looking statements within the meaning of the safe-harbor provisions of the Private Securities Litigation Refo
Slide 3: Preliminary Matters: Additional Information Regarding the Transaction
Preliminary Matters Additional Information Regarding the Transaction and Where to Find It This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. This communication is being made in respect of the propos
Slide 4: 4Q and FY 2017 Highlights
4Q and FY 2017 Highlights • GAAP EPS increased 18 percent for the quarter • Adjusted Net Operating EPS¹ increased 7 percent in the quarter and 44 percent in the year • Earned Premiums increased $45 million, or 8 percent, in the quarter and $130 million, or 6 percent, in the year; improvements are pr
Slide 5: Fourth Quarter Full Year 2017 Highlights – Strong Results
Fourth Quarter Full Year 2017 Highlights – Strong Results Three Months Ended Year Ended (Dollars in millions, except per Dec. 31, Dec. 31, Variance Dec. 31, Dec. 31, Variance share amounts) 2017 2016 2017 2016 Net Income Per Share - Diluted $ 0.71 $ 0.60 $ 0.11 $ 2.33 $ 0.33 $ 2.00 Net Operating Inc
Slide 6: Improving Underlying Operating Performance
Improving Underlying Operating Performance Three Months Ended Year Ended Dollars per Unrestricted Share - Diluted Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Variance Dec. 31, Dec. 31, Variance 2017 2017 2017 2017 2016 QoQ 2017 2016 YoY Income (Loss) from Continuing Operations $ 0.69 $ 0.92 $ 0.71
Slide 7: Kemper to Acquire Infinity P&C
Kemper to Acquire Infinity P&C Kemper to Acquire Infinity P&C 7
Slide 8: Taking the Next Step on Kemper's Journey to Unlock Embedded Value
Taking the Next Step on Kemper’s Journey to Unlock Embedded Value Continued Progress of Nonstandard Strategic Plan Acquisition of Infinity Accelerates Momentum • Combines two leading brands in nonstandard auto Phase 1 Phase 2 Phase 3 (“NSA”) insurance Work / Effort • Increases scale in NSA and attra
Slide 9: Infinity P&C Overview – A Premier NSA Platform
Infinity P&C Overview – A Premier NSA Platform A Leading NSA Brand 2017 Key Statistics • Principally focuses on high growth urban markets Earned Premiums (“EP”) $1,371mm through unique service capabilities to Hispanic communities Calendar Year Combined Ratio (GAAP) 95.2% • Strong underwriting and cl
Slide 10: Transaction Details
Transaction Details Transaction • Kemper Corporation acquires Infinity P&C in a cash and stock transaction • $1.4bn transaction equity value¹ ‒ ~$129.00 per Infinity share Deal Value ‒ Represents a 33% premium to Infinity’s closing price of $97.05 on February 12, 2018 • Implied transaction value of
Slide 11: Key Investment Highlights
Key Investment Highlights Creates an industry-leading NSA insurer with significant scale Enhances service through Infinity’s brand and capabilities among urban and Hispanic communities Reinforces Kemper’s strategy of focusing on niche markets Combination of best-in-class capabilities, expertise, and
Slide 12: Industry-Leading NSA Insurer Focused on Niche Markets
Industry-Leading NSA Insurer Focused on Niche Markets Scale and Focus to Offer a Enhanced Scale in Fragmented Personal Auto Market Valuable Service to Niche Markets 2016 NPW ($bn) ✓ Ability to attract and retain key talent Rank State Farm $39.5 1 ✓ Specialized products for NSA customers 2 GEICO $25.
Slide 13: Infinity's Strong Brand and Capabilities Enhances Service Offering
Infinity’s Strong Brand and Capabilities Enhances Service Offering 95% of Combined Company NSA Premiums Infinity Provides Unique Service Capabilities are Focused in High Growth Markets 5-year U.S. Population CAGR: 0.7% ✓ Nonstandard insurance represents a historically niche segment with meaningful g
Slide 14: Reinforces Kemper's Strategy of Focusing on Niche Segments
Reinforces Kemper’s Strategy of Focusing on Niche Segments Standalone Kemper Pro Forma Business Mix Business Mix • Diversified product Comm Comm offerings focused on niche Vehicle Vehicle customers 2% 6% L&H • Combined entity offers L&H 16% more capital efficiency 26% NSA 41% NSA • Opportunity to of
Slide 15: Significant Value Creation Through Combination
Significant Value Creation Through Combination In addition to scale benefits of a larger NSA player, each side brings complementary skills to the combined entity ✓ Strong product and claim capabilities ✓ Strong product and claim capabilities ✓ Low cost and efficient processes ✓ Low cost and efficien
Slide 16: Financially Compelling & Conservatively Structured Transaction
Financially Compelling & Conservatively Structured Transaction Earned • $3.7bn of combined earned premiums Premium • ~58% increase in Kemper’s 2017 earned premiums • Accretive to EPS (excluding value of business acquired (“VOBA”) and one-time items) in Year 1 Financially Compelling EPS Accretion (fi
Slide 17: Well-Positioned Operating Profile with Conservative Capital Structure
Well-Positioned Operating Profile with Conservative Capital Structure + FY 2017 ($ millions) Earned Premiums $2,350 $1,371 $3,721 Combined Ratio (underlying)¹ – NSA: 94.7 % 95.2 % 95.0 % – P&C: 94.2 % 95.3 % 94.7 % Operating Expense Ratio – NSA: 16.1 % 18.1 % 17.2 % – P&C: 22.1 % 18.3 % 20.4 % Opera
Slide 18: Key Investment Highlights
Key Investment Highlights Creates an industry-leading NSA insurer with significant scale Enhances service through Infinity’s brand and capabilities among urban and Hispanic communities Reinforces Kemper’s strategy of focusing on niche markets Combination of best-in-class capabilities, expertise, and
Slide 19: Appendix: Additional Information
Appendix: Additional Information Kemper to Acquire Infinity P&C 19
Slide 20: Transaction Consideration Detail
Transaction Consideration Detail Total Consideration to Infinity Shareholders – 20-Day VWAP1 Cash Consideration Per Share $mm % Total $mm Cash Consideration $51.60 $567 40% Cash on Hand $235 Cash at Infinity HoldCo $170 Stock Consideration $77.40 $850 60% Short-Term Financing $162 Total Consideratio
Slide 21: Stable and Predictable Life & Health Earnings
Stable and Predictable Life & Health Earnings (MM) Revenues Revenues $206 $206 $208 $211 $211 • Comparing 4Q16 to 4Q17, earned $54 $53 $55 $56 $58 premiums grew slightly due to increasing A&H insurance premiums • Net investment income increased $4 $152 $153 $153 $155 $153 million over 4Q16, primaril
Slide 22: Profitably Growing Nonstandard Personal Auto
Profitably Growing Nonstandard Personal Auto (MM) Earned Premiums Revenues • Comparing 4Q16 to 4Q17, earned premiums increased $47 million, or 22 percent, driven by higher volume and $234 $247 $258 premium rate increases $211 $216 • Business is expanding market share in core geographies 4Q16 1Q17 2Q
Slide 23: Preferred Lines Showing Improvement
Preferred Lines Showing Improvement (MM) $186 Earned Premiums by Line $182 Preferred Auto $181 $184 $184 • Earned premiums were flat in the quarter, $11 $11 $11 $11 $10 as higher average premium rates were $68 $66 $67 $67 $65 offset by lower volume • 4Q17 underlying combined ratio improved $107 $104
Slide 24: Consistent Portfolio Returns: High Quality, Moderate Risk
Consistent Portfolio Returns: High Quality, Moderate Risk Strong Performance Despite Low Rates Overview • Investment portfolio produced a pre-tax (MM) $80 $82 $77 $86 $83 equivalent annualized book yield of 5.5 $11 $15 $17 $13 percent in 4Q17 and 5.4 percent in 2017, $9 compared to 5.4 percent in 4Q
Slide 25: Strong Current Capital Position with Ample Liquidity
Strong Current Capital Position with Ample Liquidity Strong Parent Company Liquidity Risk-Based Capital Ratios (MM) (%) $734 $741 Life & Health Legacy P&C¹ $684 $582 $561 $404 $400 $385 $404 $385 420 335 375 330 415 335 425 $330 $341 $299 295 $157 $197 2013 2014 2015 2016 2017 Borrowings available u
Slide 26: Prospective Items for 2018
Prospective Items for 2018 Aggregate Catastrophe Program Tax Reform - Coverage - Recognized $7.4 million benefit from the •$50 million in excess of $60 million Tax Cuts and Jobs Act of 2017 •$500k deductible per storm - Near-term earnings benefit with longer- term implications to be determined •Peri
Slide 27: Non-GAAP Financial Measures
Non-GAAP Financial Measures Underlying Operating Performance is a non-GAAP financial measure that is computed by excluding from the Diluted Income (Loss) from Continuing Operations Per Unrestricted Share the after-tax per unrestricted share impact of 1) net realized gains on sales of investments, 2)
Slide 28: Non-GAAP Financial Measures
Non-GAAP Financial Measures Diluted Consolidated Net Operating Income (Loss) Per Unrestricted Share is an after-tax, non-GAAP financial measure computed by excluding from Diluted Income (Loss) from Continuing Operations Per Unrestricted Share the after-tax per unrestricted share impact of net realiz
Slide 29: Non-GAAP Financial Measures
Non-GAAP Financial Measures Underlying Combined Ratio is a non-GAAP financial measure that is computed by excluding the current year catastrophe and LAE ratio and the prior-year reserve development ratio (both non-catastrophe and catastrophes) from the combined ratio. The most directly comparable GA
Slide 30: Non-GAAP Financial Measures: Underlying Combined Ratio - Continued
Non-GAAP Financial Measures Underlying Combined Ratio - Continued For the Three Months Ended 4Q16 1Q17 2Q17 3Q17 4Q17 Preferred Personal Automobile Underlying Combined Ratio 111.5% 104.6% 103.1% 99.3% 104.3% Current Year Catastrophe Loss and LAE Ratio 0.3% 4.5% 3.7% 2.6% (0.1%) Prior Years Non-Catas
Slide 31: Non-GAAP Financial Measures
Non-GAAP Financial Measures Operating Income is an after-tax, non-GAAP financial measure that is computed by excluding from Income from Continuing Operations the after-tax impact of net realized gains on sales of investments and net impairment losses recognized in earnings related to investments. Th