Kemper Corporation · NYSE:KMPR
Kemper — Q1 2023 Earnings Presentation
31 slides from Kemper's earnings presentation, May 8, 2023
Slide 1: First Quarter 2023 Earnings
First Quarter 2023 Earnings May 8, 2023 Earnings Call Presentation – 1Q 2023
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: Leading Insurer Empowering Specialty and Underserved Markets
Leading Insurer Empowering Specialty and Underserved Markets Enabled by a dynamic, diverse, and innovative team who act like owners 1 Delivering appropriate 2 and affordable insurance and financial solutions Specialty auto insurancefor Life insurance for underserved markets; Latino, low/modest incom
Slide 4: First Quarter 2023 Summary
First Quarter 2023 Summary Financials impacted and actions taken to combat a continued dynamic operating environment Weather, mix, and evolving development patterns pressure financial results • Net loss of $80 million ($1.25/sh), as reported • Adjusted consolidated net operating loss1 of $65 million
Slide 5: Quarter and Post-Pandemic Reopening Themes
Quarter and Post-Pandemic Reopening Themes1 Re-opening defined by evolving reporting patterns and continued severity inflation 1Q’23 Severity Index (Indexed to 1Q’19) Sequential Quarter Frequency 23.6 pts Gap 3.7% 35.9% 12.3% (6.3)% Severity Index Average Earned Premium Index 4Q'21 to 1Q'22 4Q'22 to
Slide 6: First Quarter 2023 Financial Summary
First Quarter 2023 Financial Summary Focus remains on restoring business to profitability Quarter Ended Mar 31, Mar 31, ($ in millions, except per share amounts) 2023 2022 Net Loss – Per Diluted Share $(1.25) $(1.36) Adj. Consolidated Net Operating Loss – Per Diluted Share1 $(1.02) $(0.81) Tangible
Slide 7: Kemper P&C Business Reserve Update
Kemper P&C Business Reserve Update Unanticipated extension in claim reporting timelines with more claims closing with payment Prior year adverse development of approximately $42 Specialty P&C PYD million $31 ($M) • Specialty P&C1 adverse development of $31 million $19 ̶ Private Passenger Auto develo
Slide 8: First Quarter Normalizing Adjustments
First Quarter Normalizing Adjustments Results impacted by weather, mix, and evolving development patterns Specialty P&C Preferred P&C First Quarter 2023 Ratios (%) (%) 4Q’22 Reported Underlying Combined Ratios 1 107.8 106.6 Base Year Adjustment (Prior Year Development) (0.3) (1.7) P&C 4Q’22 Base Yr.
Slide 9: Specialty P&C Path to Underwriting Profit
Specialty P&C Path to Underwriting Profit Modestly revising guidance to incorporate unanticipated higher loss ratio starting point • 2Q'23 underlying combined ratio between 103% and 107% • Underlying combined ratio below 100% in the second half of 2023 • 2024 Return on Equity (ROE) greater than 10%
Slide 10: Specialty P&C Path to Underwriting Profit
Specialty P&C Path to Underwriting Profit Overcoming Fighting loss loss costcost pressures pressures through through rate,rate, non-rate, non-rate, and and expense expense actions actions 1. Takeaways • Guidance modestly updated to incorporate unanticipated base-year adjustment • Business expected t
Slide 11: Life & Health – Summary of LDTI Impact
Life & Health – Summary of LDTI Impact Largest impact from LDTI is the fair value of Life liabilities within the balance sheet Long Duration Targeted Improvements (LDTI): • New accounting standard was adopted on a modified retrospective basis as of January 1, 2023 • Recast year-end shareholders’ equ
Slide 12: Strategic Initiatives Update
Strategic Initiatives Update Projects proceeding to expectations 1. Establishment of Reciprocal Exchange Structure: • Engagement with regulators to complete approval process • On-track to write auto business in the structure during 3Q’23 2. Proceeding with the Bermuda Optimization effort to release
Slide 13: Streamlining Our Cost Structure
Streamlining Our Cost Structure Advancing differentiated capabilities to strengthen systematic, sustainable competitive advantages • Restructuring and integration pre-tax Run Rate Program Savings ($ millions) 150 charges of $150M - $200M will produce an annualized savings of $150M or greater 87 • Si
Slide 14: Well-Capitalized Insurance Subsidiaries
Well-Capitalized Insurance Subsidiaries Continued access to significant sources of liquidity Parent Company Liquidity Risk-Based Capital Ratios¹ HoldCo Cash & Investments $1,433 Life2 Borrowings Available $1,336 P&C (ex. AACC) Under Credit Agreement & from Subs $1,051 (%) $733 $938 $418 ($M) $867 $2
Slide 15: Diversified Investment Portfolio with Consistent Returns
Diversified Investment Portfolio with Consistent Returns Net Investment Income Highlights $119 • High quality and liquid portfolio provides consistent ($M) $106 $102 net investment income; 72% of fixed income $100 $98 $34 $11 $4 portfolio rated A or higher $21 $8 • Banking sector exposure of ~3% con
Slide 16: Specialty Property & Casualty Insurance Segment
Specialty Property & Casualty Insurance Segment Weather and mix pressured financial results Highlights Cumulative PPA Rate Activity Since 2Q’211 • Non-catastrophe weather and mix impacted profit ~51% Filed Rate 45.4% restoration actions Written rate • Rate of severity increase is moderating Earned r
Slide 17: Preferred Property & Casualty Insurance Segment
Preferred Property & Casualty Insurance Segment Benefits of profit restoration actions and lower frequency offset by higher catastrophes Highlights Cumulative PPA Rate Activity Since 2Q’211 32.1% ~33% • Underlying combined ratio improved Filed Rate sequentially due to lower frequency from profit Wri
Slide 18: Life & Health Insurance Segment
Life & Health Insurance Segment Business trends remain stable; mortality continues to normalize toward pre-pandemic levels Highlights • Effective January 1, 2023, financials reflect recently issued LDTI accounting pronouncement • Mortality over the last four quarters near pre-pandemic levels, albeit
Slide 19: On Track to Return to Profitability in 2023
On Track to Return to Profitability in 2023 Key Takeaways • Re-opening defined by evolving reporting patterns and continued severity inflation • Expect accelerated underwriting improvements to positively impact profit restoration • Guidance modestly revised to incorporate unanticipated base-year adj
Slide 20: Appendix
Appendix Earnings Call Presentation – 1Q 2023 20
Slide 21: U.S. Bank Exposure Summary
U.S. Bank Exposure Summary Several bank failures have led to contagion fears for banking industry Banking / Broker sector represents ~3% of Portfolio Market Value % of Bank Issuer ($M) Exposure1 AA JPMorgan $37 13% < BBB 4% Bank of America $32 11% 10% Morgan Stanley $24 8% Wells Fargo $23 8% BBB $0.
Slide 22: Elevated Auto Severity Persists Due to Continued Inflationary Pressures
Elevated Auto Severity Persists Due to Continued Inflationary Pressures • Physical damage severity remains elevated due to higher used car values, replacement parts, and labor costs ̶ Body Work-related costs steadily increased in Q1, growing nearly double the rate of US Core Inflation ̶ Value of use
Slide 23: 2023 Reinsurance Program
2023 Reinsurance Program Renewed Catastrophe XoL Reinsurance; discontinued the Catastrophe Aggregate for 2023 Catastrophe Reinsurance Program (Multi-Year) Highlights Catastrophe Excess of Loss Program (XOL): • Total coverage: 95% of $275M in excess of $50M • Purchased limit was reduced by $25M versu
Slide 24: Non-GAAP Financial Measures
Non-GAAP Financial Measures Book Value Per Share Excluding Net Unrealized (Gains) Losses on Fixed Maturities and the Change in Discount Rate on Future Li fe Policyholder Benefits is a calculation that uses a non-GAAP financial measure. It is calculated by dividing shareholders’ equity after excludin
Slide 25: Non-GAAP Financial Measures
Non-GAAP Financial Measures Kemper believes that Adjusted Consolidated Net Operating Income (Loss) provides investors with a valuable measure of its ongoing performance because it reveals underlying operational performance trends that otherwise might be less apparent if the items were not excluded.
Slide 26: Non-GAAP Financial Measures
Non-GAAP Financial Measures Book Value As of ($ per share) March 31, 2023 March 31, 2022 Book Value $41.37 $46.54 Less: Net Unrealized (Gains) Losses on Fixed Maturities 6.56 6.57 Book Value Excluding Net Unrealized (Gains) Losses on Fixed Maturities and Changes in the $47.93 $53.11 Discount Rat
Slide 27: Non-GAAP Financial Measures
Non-GAAP Financial Measures Return on Equity As of March 31, 2023 March 31, 2022 Rolling 12 Months Return on Average Shareholders' Equity (5-point Average) (10.1)% (9.9)% Less: Net Unrealized (Gains) Losses on Fixed Maturities 1.5 (1.9) Rolling 12 Months Return on Average Shareholders' Equity Excl
Slide 28: Non-GAAP Financial Measures
Non-GAAP Financial Measures Diluted Adjusted Consolidated Net Operating Income (Loss) Per Unrestricted Share is a non-GAAP financial measure computed by dividing Adjusted Consolidated Net Operating Income (Loss) attributed to unrestricted shares by the weighted-average unrestricted shares and equiva
Slide 29: Non-GAAP Financial Measures
Non-GAAP Financial Measures Underlying Combined Ratio Three Months Ended 1Q'23 4Q'22 3Q'22 2Q'22 1Q'22 Specialty P&C Insurance Combined Ratio as Reported 112.1% 108.8% 107.6% 108.0% 108.6% Current Year Catastrophe Losses and LAE Ratio (0.9) 0.0 (1.5) (0.6) (0.2) Prior Years Non-Catastrophe Losses an
Slide 30: Non-GAAP Financial Measures
Non-GAAP Financial Measures Life & Health Revenue Reconciliation Three Months Ended ($ in millions) 1Q'23 4Q'22 3Q'22 2Q'22 1Q'22 Earned Premiums Earned Premiums – As Reported $99.3 $142.6 $142.1 $144.0 $142.8 Less: Reserve National Earned Premiums - 25.6 40.2 39.8 40.6 Adjusted Earned Premiums $99.
Slide 31: LDTI Summary
LDTI Summary Three Months Ended March 31, 2022 Twelve Months Ended December 31, 2022 Prior to Effect of Post- Prior to Effect of Post- ($ in millions, except per share amounts) Adoption Adoption Adoption Adoption Adoption Adoption LDTI Impact on Net Income (Loss) Earned Premiums $1,338.6 (18.6) $1,3