Slide 1: Third Quarter 2020 Earnings
Third Quarter 2020 Earnings November 2, 2020 Earnings Call Presentation – 3Q 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: Third Quarter 2020 Highlights
Third Quarter 2020 Highlights Strong balance sheet and business model enable us to better serve our stakeholders Diversified model delivered double-digit ROE and solid adjusted consolidated net operating EPS • Net income of $122 million and adjusted consolidated net operating income 1 of $91 million
Slide 5: Third Quarter Financial Highlights
Third Quarter Financial Highlights Steady strategy execution continues to yield robust results As Reported As Reported Quarter Ended Year-to-Date Sept 30, Sept 30, Sept 30, Sept 30, (Dollars in millions, except per share amounts) 2020 2019 2020 2019 Net Income $122 $129 $312 $406 Net Income – Per Di
Slide 6: Review of Net Operating Income
Review of Net Operating Income Continues to produce sound operating income Three Months Ended, As Reported Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Variance Dollars per Unrestricted Share - Diluted 2020 2020 2020 2019 2019 QoQ Net Income $ 1.83 $ 1.91 $ 0.95 $ 1.85 $ 1.91 (0.08) (Income) Loss fr
Slide 7: Consistent Capital Generation and Attractive Returns
Consistent Capital Generation and Attractive Returns Diversified operating and financial provides steady growth through economic cycles Total Adjusted Return of BVPS Ex. Unrealized Gains on Fixed Maturities and Goodwill Growth 50% • Strong execution and $44.41 solid operating results $42.58 has led
Slide 8: Strong Balance Sheet and Capital Position with Ample Liquidity
Strong Balance Sheet and Capital Position with Ample Liquidity Strong balance sheet with returns and capital generation in excess of long-term targets Parent Company Liquidity Risk-Based Capital Ratios (MM) (%) $1,439 $741 $867 $700 $684 $641 430 $582 375 330 415 335 410 355 365 335 $400 $385 $660 2
Slide 9: Third Quarter Debt Offering Update
Third Quarter Debt Offering Update Leveraged attractive market conditions to diversify our capital structure Key Highlights • Raised $400 million of 2.4% senior notes due 2030 • It was the third lowest 10-year issuance in the history of the P&C industry and second lowest BBB-rated 10-year issuance i
Slide 10: High Quality & Diversified Portfolio with Consistent Returns
High Quality & Diversified Portfolio with Consistent Returns Net Investment Income¹ Overview • Net investment income and portfolio yield (MM) $95 $97 $86 $68 $92 $7 $6 benefitted from 3Q equity market rebound $6 $11 • Investment portfolio continues to be high quality and well diversified $88 $91 $80
Slide 11: Specialty Property & Casualty Insurance Segment
Specialty Property & Casualty Insurance Segment1 Strong growth with solid margins Key Highlights Written Premium Population CAGR TTM YoY • 6.1% growth in policies in-force, 7.6% excluding State Groupings ($ million) Growth ’16-’19 Est. ’20-’30 Classic Car, compared to 3Q’19 California $2,052 3.8% 0.
Slide 12: Preferred Property & Casualty Insurance Segment
Preferred Property & Casualty Insurance Segment Ongoing efforts to bring the Preferred segment to target profitability Key Highlights • Underlying combined ratio decreased to 90.7% for the quarter; 89.3% on a year-to-date basis • Auto underlying combined ratio improved due to macro environmental fre
Slide 13: Life & Health Insurance Segment
Life & Health Insurance Segment Results impacted by COVID-related items Key Highlights • Net operating income impacted by broad macro environment: - Increased mortality experience; in-line with developing country-wide trends • Continued expectation that COVID will be an earnings, not a capital event
Slide 14: Appendix
Appendix Earnings Call Presentation – 3Q 2020 14
Slide 15: 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 ~$14B ~6.3M ~30,000 ~9,300 Assets Policies Agents/Brokers Employees Specialty P&C insurance providing Preferred
Slide 16: 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 17: Investment Portfolio Exposure to COVID Impacted Categories
Investment Portfolio Exposure to COVID Impacted Categories Fixed income investments in COVID exposed industry sectors is manageable $140 1.8% 1.6% 1.6% $120 % of Fixed Maturity Portfolio 1.4% $100 $ Amount (MM) 1.2% 1.1% $80 1.0% 1.0% 0.9% $60 $119 0.8% 0.6% $40 $85 0.5% 0.5% 0.5% $72 $68 0.4% 0.3%
Slide 18: Below Investment Grade Fixed Maturities Portfolio of $524 Million
Below Investment Grade Fixed Maturities Portfolio of $524 Million Portfolio is diversified across different asset types $250 50.0% 43.6% 45.0% Below Investment Grade $ Amount (MM) $200 40.0% % of Fixed Maturity Portfolio 35.0% $150 30.0% 25.4% 25.0% $228 $100 20.0% 16.5% 15.0% $133 9.8% $50 10.0% $8
Slide 19: CLO Composition ($727 Million)
CLO Composition ($727 Million) CLOs represent 7.3% of investment portfolio $600 80.0% 71.1% 70.0% $500 60.0% % of CLO Portfolio $ Amount (MM) $400 50.0% $300 40.0% $517 30.0% $200 20.0% $100 12.5% 11.9% 10.0% $91 2.1% 2.4% $87 $0 $15 $17 0.0% AAA AA A BBB High Yield Well-diversified CLO book with 86
Slide 20: Alternative Investment Portfolio of $513 Million
Alternative Investment Portfolio of $513 Million Portfolio is highly diversified with strategies focused on private credit, private equity and hedge funds Private Credit ~3% of total investments (63% of Alts portfolio) $69.9 Diversification across date of investment, industry and geography Private E
Slide 21: 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 22: 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 23: Non-GAAP Financial Measures
Non-GAAP Financial Measures Return on Equity For the Periods Ended 3Q'20 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) 10.8% 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.
Slide 24: Non-GAAP Financial Measures
Non-GAAP Financial Measures Reconciliation of “All Other” Sources of Volatility Three Months Ended, As Reported Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Variance Dollars per Unrestricted Share - Diluted 2020 2020 2020 2019 2019 QoQ - - All Other Volatility - Partial Satisfaction of Judgment - -
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 Consolidated 4Q'19 3Q'19 Reported Net Investment Income $ 93.9 $
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 3Q20 2Q20 1Q20 4Q19 3Q19 Specialty P&C Insurance Combined Ratio as Reported 86.3% 91.0% 94.5% 93.8% 91.6% Current Year Catastrophe Loss and LAE Ratio (0.2%) (0.6%) 0.0% (0.5%) (0.3%) Prior Years Non-Catastro
Slide 30: Non-GAAP Financial Measures
Non-GAAP Financial Measures As Adjusted for Acquisition – Continued Specialty P&C Insurance Segment Three Months Ended 30-Sep-20 30-Jun-20 31-Mar-20 31-Dec-19 30-Sep-19 Earned Premiums Kemper Specialty P&C - GAAP As Reported $ 871.4 $ 759.0 $ 822.5 $ 799.7 $ 783.4 Current Year Non-CAT Losses and LAE
Slide 31: Non-GAAP Financial Measures
Non-GAAP Financial Measures As Adjusted for Acquisition – Continued Specialty Personal Automobile Insurance Three Months Ended 30-Sep-20 30-Jun-20 31-Mar-20 31-Dec-19 30-Sep-19 Earned Premiums Kemper Specialty Auto - GAAP As Reported $ 792.2 $ 689.8 $ 753.2 $ 733.1 $ 719.2 Current Year Non-CAT Losse