Slide 1: First Quarter 2020 Earnings
First Quarter 2020 Earnings May 7, 2020 Earnings Call Presentation – 1Q 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: Commitment to COVID-19 Relief
Commitment to COVID-19 Relief Solid operating model and financial strength enable ongoing commitment to those we serve Focused on three guiding principles: 1. Protect the health and safety of our customers, agents, employees, and partners. 2. Take responsible actions to mitigate risk and “flatten th
Slide 4: 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 5: First Quarter 2020 Highlights
First Quarter 2020 Highlights Operating model and strong balance sheet enable us to be a source of strength for all stakeholders Continued double-digit return on equity and adjusted consolidated net op. EPS growth • Top line remained solid at 9% in the quarter Shareholder • Net income of $64 million
Slide 6: First Quarter Highlights
First Quarter Highlights Strategy continued to yield strong results As Adjusted As Reported for Acquisition (1) Quarter Ended Quarter Ended Change Change Mar 31, from 1Q’19 Mar 31, from 1Q’19 (Dollars in millions, except per share amounts) 2020 (%) 2020 (%) Net Income $64 (59%) $68 (56%) Adjusted Co
Slide 7: Operating Performance
Operating Performance Continued to produce strong operating income Three Months Ended, As Reported Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Variance Dollars per Unrestricted Share - Diluted 2020 2019 2019 2019 2019 QoQ Income from Continuing Operations $ 0.95 $ 1.85 $ 1.91 $ 1.84 $ 2.35 (1.40) (
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 Strong Parent Company Liquidity Risk-Based Capital Ratios (MM) $867 Life & Health P&C¹ (%) $871 $741 $684 $641 $582 $400 $385 $660 $672 $385 $540 430
Slide 9: Capital Generation Metrics
Capital Generation Metrics Operating and financial model built to provide strong growth through economic cycles Total Adjusted Return of BVPS Ex. Unrealized Gains on Fixed Maturities and Goodwill Growth 34% $40.27 $40.70 $38.43 • Mark-to-market $36.46 $33.42 impacts from equity $29.66 $31.21 $31.10
Slide 10: High Quality & Diversified Portfolio with Consistent Returns
High Quality & Diversified Portfolio with Consistent Returns Stable Net Investment Income 2 Overview • Investment portfolio continues to be well (MM) $84 $98 $95 $98 $86 diversified and expected to continue to $8 $7 $6 meet business requirements through $6 economic cycles • COLI income included in C
Slide 11: Exposure to COVID-19 Impacted Categories (as of 3/31/2020)
Exposure to COVID-19 Impacted Categories (as of 3/31/2020) Fixed income exposure to COVID-19 industry sectors is manageable $120 1.54% 1.6% $100 1.4% % of Fixed Maturity Portfolio 1.2% $80 $ Amount (MM) 0.92% 1.0% 0.86% $60 0.73% $108 0.8% 0.54% 0.6% $40 $64 $60 0.35% 0.34% $51 0.31% 0.29% 0.4% $20
Slide 12: Fixed Maturities Below Investment Grade Portfolio of $433 Million
Fixed Maturities Below Investment Grade Portfolio of $433 Million Below investment grade portfolio is diversified across different asset types $180 2.5% 2.31% $160 2.0% $140 % of Fixed Maturity Portfolio Below I-G $ Amount (MM) $120 1.58% 1.5% $100 1.07% $80 $162 1.0% $60 0.69% $111 $40 $75 0.5% 0.3
Slide 13: Composition of $594 Million CLO Holdings (as of 3/31/2020)
Composition of $594 Million CLO Holdings (as of 3/31/2020) CLOs represent 7% of investment holdings $450 80.0% 69.3% $400 70.0% $350 60.0% % of CLO Portfolio $ Amount (MM) $300 50.0% $250 40.0% $200 $411 30.0% $150 20.0% $100 14.2% 11.6% $50 10.0% $69 $84 2.3% 2.7% $0 $14 $16 0.0% AAA AA A BBB High
Slide 14: Alternative Investment Portfolio of $522 Million (as of 3/31/2020)
Alternative Investment Portfolio of $522 Million (as of 3/31/2020) Portfolio is highly diversified with strategies focused on private credit, private equity and hedge funds Private Credit 4% of total investments (65% of Alts portfolio) $68.3 Consists of 100+ funds and investments with over 1,800 und
Slide 15: Specialty Property & Casualty Insurance Segment
Specialty Property & Casualty Insurance Segment1 Solid Specialty P&C growth with strong margins and continued geographic expansion Written Premium Population CAGR Key Highlights State Groupings TTM Growth ’16-’19 Est. ’20-’30 • 9.5% growth in policies in-force, or 10% excluding ($ million) y/o/y Cla
Slide 16: 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 370 basis points to 92.3% for the quarter - Auto underlying loss ratio improvement driven by a broad array of profit improve
Slide 17: Life & Health Insurance Segment
Life & Health Insurance Segment Life & Health Segment impacted by COVID-related items Key Highlights • Earned premiums grew 1.9% driven by continued focus on enhancements to distribution capabilities and process improvements • Net operating income impacted by pressure in global equity markets impact
Slide 18: COVID-19 Considerations
COVID-19 Considerations Evolving backdrop with continued volatility Specialty and Preferred Auto Business • Premium volumes to be impacted by lower new business; 15% credit for auto policyholders in April and May • Loss costs impacted by meaningful drop in frequency, likely offset by severity deteri
Slide 19: Appendix
Appendix Earnings Call Presentation – 1Q 2020 19
Slide 20: 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 ~9,100 Assets Policies Agents/Brokers Employees Specialty P&C insurance providing Preferred
Slide 21: 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 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 1Q'20 4Q'19 3Q'19 2Q'19 1Q'19 2018 2017 2016 Rolling 12 Month Return on Average Shareholders' Equity (5 Point Avg) 11.8% 14.8% 12.1% 12.4% 10.8% 7.7% 5.9% 0.8% Less: Net Unrealized Gains on Fixed Maturities 1.2% 1.5% 1.0% 0.9% 0.6% 0
Slide 25: Non-GAAP Financial Measures
Non-GAAP Financial Measures Reconciliation of COLI investment into Net Investment Income For the Periods Ended 4Q'19 3Q'19 2Q'19 1Q'19 Reported Net Investment Income $ 93.9 $ 91.7 $ 96.0 $ 82.7 COLI Investment Income $ 3.6 $ 3.6 $ 1.5 $ 1.3 Total Adjusted Net Investment Income $ 97.5 $ 95.3 $ 97.5 $
Slide 26: Non-GAAP Financial Measures
Non-GAAP Financial Measures Adjusted Consolidated Net Operating Income (Loss) is an after-tax, non-GAAP financial measure computed by excluding from Income (Loss) from Continuing Operations the after-tax impact of 1) income (loss) from change in fair value of equity and convertible securities, 2) ne
Slide 27: Non-GAAP Financial Measures
Non-GAAP Financial Measures Diluted Adjusted Consolidated Net Operating Income (Loss) 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 equiva
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 1Q20 4Q19 3Q19 2Q19 1Q19 Specialty P&C Insurance Combined Ratio as Reported 94.6% 93.8% 91.6% 93.5% 89.3% Current Year Catastrophe Loss and LAE Ratio 0.0% (0.5%) (0.3%) (0.6%) (0.1%) Prior Years Non-Catastro
Slide 30: Non-GAAP Financial Measures
Non-GAAP Financial Measures As Adjusted for Acquisition amounts are non-GAAP financial measures. For the three months ended September 30, 2019, as adjusted amounts are computed by subtracting the impact of purchase accounting adjustments from the comparable consolidated GAAP financial measure report
Slide 31: Non-GAAP Financial Measures
Non-GAAP Financial Measures As Adjusted for Acquisition – Continued Specialty P&C Insurance Segment Three Months Ended 31-Mar-20 31-Dec-19 30-Sep-19 30-Jun-19 31-Mar-19 Earned Premiums Kemper Specialty P&C - GAAP As Reported $ 822.5 $ 799.7 $ 783.4 $ 766.0 $ 729.3 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 31-Mar-20 31-Dec-19 30-Sep-19 30-Jun-19 31-Mar-19 Earned Premiums Kemper Specialty Auto - GAAP As Reported $ 753.2 $ 733.1 $ 719.2 $ 703.7 $ 669.6 Current Year Non-CAT Losse