Kemper Corporation · NYSE:KMPR
Kemper — Morgan Stanley P&C Insurance Investor Day 2018
34 slides from Kemper's conference presentation, September 2018
Slide 1: Morgan Stanley P&C Insurance Investor Day
Morgan Stanley P&C Insurance Investor Day September 2018
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
Slide 3: Kemper is a Leading Specialized Multi-Line Insurer
Kemper is a Leading Specialized Multi-Line Insurer Taking advantage of the benefits a diversified platform provides • Multi-line national insurance company Key Metrics – Post Infinity Acquisition – Provide specialty auto and preferred personal insurance (auto, home & umbrella) Market Cap (8/31/18) $
Slide 4: Create Long-Term Stakeholder Value
Create Long-Term Stakeholder Value Leverage competitive advantages to grow returns and BVPS 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 app
Slide 5: Key Investment Highlights
Key Investment Highlights Strong Brand with Three Diversified Businesses Growing Top Line Revenues Successfully Executing on Strategy to Unlock Embedded Value Stable Cash Flow Generation Strong Capitalization and Ample Liquidity Superior Risk Profile and Leading Portfolio Returns Experienced Managem
Slide 6: Mix of Diversified Non-Correlated Businesses That Complement One Another
Mix of Diversified Non-Correlated Businesses That Complement One Another Stable & predictable L&H cash flow supports P&C growth Life and Health Specialty Auto1 Preferred Home and Auto2 16% of LTM Earned Premiums 65% of LTM Earned Premiums 19% of LTM Earned Premiums • Provides basic life, accident an
Slide 7: Infinity Strengthens Core Capabilities and Improves Geographic Diversification
Infinity Strengthens Core Capabilities and Improves Geographic Diversification Reduces our overall risk and California concentration 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
Slide 8: Key Investment Highlights
Key Investment Highlights Strong Brand with Three Diversified Businesses Growing Top Line Revenues Successfully Executing on Strategy to Unlock Embedded Value Stable Cash Flow Generation Strong Capitalization and Ample Liquidity Superior Risk Profile and Leading Portfolio Returns Experienced Managem
Slide 9: Taking the Next Step on Kemper's Journey to Unlock Embedded Value
Taking the Next Step on Kemper’s Journey to Unlock Embedded Value Acquisition of Infinity increased scale and capabilities Continued Progress on Specialty Auto Strategic Plan Acquisition of Infinity Accelerates Momentum • Combines two leading brands in specialty auto Phase 1 Phase 2 Phase 3 insuranc
Slide 10: Key Investment Highlights
Key Investment Highlights Strong Brand with Three Diversified Businesses Growing Top Line Revenues Successfully Executing on Strategy to Unlock Embedded Value Stable Cash Flow Generation Strong Capitalization and Ample Liquidity Superior Risk Profile and Leading Portfolio Returns Experienced Managem
Slide 11: Consistent Operating Cash Flow Generation
Consistent Operating Cash Flow Generation Steady increase in cash flow from operations • Execution of strategic initiatives bearing fruit • Disciplined approach to expense management unlocking cash flow • Diversified business model reduces volatility of cash flow • Acquisition of Infinity provides a
Slide 12: Key Investment Highlights
Key Investment Highlights Strong Brand with Three Diversified Businesses Growing Top Line Revenues Successfully Executing on Strategy to Unlock Embedded Value Stable Cash Flow Generation Strong Capitalization and Ample Liquidity Superior Risk Profile and Leading Portfolio Returns Experienced Managem
Slide 13: Debt-to-Capital Ratio Remains Under 30%
Debt-to-Capital Ratio Remains Under 30% Expect ratio to return to low 20s by mid-2019 • 2Q18 debt-to-capital ratio reflects the pre-funding of the Infinity acquisition • Post Infinity close and repayment of FHLB borrowings, pro forma ratio was approximately 27% • Normalized long-term debt-to-capital
Slide 14: Insurance Subsidiaries are Well-Capitalized
Insurance Subsidiaries are Well-Capitalized Increased capital management efficiency to optimize financial flexibility • Reinsurance programs reduce P&C earnings and capital volatility • Diversification benefits of business model reduce earnings volatility and enhance liquidity profile • 2018E RBC ra
Slide 15: Strong Parent Company Liquidity
Strong Parent Company Liquidity Post acquisition, Company maintains ample liquidity to meet future obligations Parent Company Liquidity $1,059 (MM) $350 $734 $741 $684 $582 $494 $404 $400 1 $385 $385 $709 $350 $330 $341 $299 $197 $144 1 2014 2015 2016 2017 2Q18 Mid-July Borrowings available under cr
Slide 16: Key Investment Highlights
Key Investment Highlights Strong Brand with Three Diversified Businesses Growing Top Line Revenues Successfully Executing on Strategy to Unlock Embedded Value Stable Cash Flow Generation Strong Capitalization and Ample Liquidity Superior Risk Profile and Leading Portfolio Returns Experienced Managem
Slide 17: Prudent Approach to Risk Management
Prudent Approach to Risk Management Multi-line platform enhances risk diversification • P&C: Primarily short-tail liabilities allow for flexible repricing to swiftly address frequency and severity trends as they emerge; strong Property and catastrophe aggregate reinsurance programs in place balancin
Slide 18: Reinsurance Program Designed to Balance Cost & Protection
Reinsurance Program Designed to Balance Cost & Protection Cat reinsurance program provides capital protection in the event of a large Cat Catastrophe Reinsurance Program (Multi Year) • For an event that occurs in 2018, we have coverage of 31.67% of $300 million xs $50 million from our 1/1/16 treaty
Slide 19: Reinsurance Program Designed to Balance Cost & Protection
Reinsurance Program Designed to Balance Cost & Protection New aggregate program reduces exposure to high frequency, low severity events 2018 Aggregate Catastrophe Reinsurance Program • Coverage – $50 million in excess of $60 million – $500k deductible per storm – Perils: All perils, excluding named
Slide 20: Consistent Portfolio Returns: High Quality, Moderate Risk
Consistent Portfolio Returns: High Quality, Moderate Risk Core portfolio provides stable returns; enhanced with alternative investments Strong Investment Income Despite Low Rates Overview • Investment portfolio produced a pre-tax (MM) $77 $86 $83 $79 $78 equivalent annualized book yield of 5.0 $18 $
Slide 21: Financial Strength and Credit Ratings
Financial Strength and Credit Ratings Highly rated insurance financial strength and debt ratings Financial Strength Ratings Kemper Property & Infinity Property & Kemper Life & 1 2 Casualty Casualty Health A.M. Best A- A A- Standard & Poor's A- A- A- Moody's Investor Service A3 A3 A3 Fitch Ratings A-
Slide 22: Key Investment Highlights
Key Investment Highlights Strong Brand with Three Diversified Businesses Growing Top Line Revenues Successfully Executing on Strategy to Unlock Embedded Value Stable Cash Flow Generation Strong Capitalization and Ample Liquidity Superior Risk Profile and Leading Portfolio Returns Experienced Managem
Slide 23: Experienced Leaders with History of Delivering Results
Experienced Leaders with History of Delivering Results Increased ability to attract and retain high caliber talent Joe Lacher • 25+ years of insurance industry experience; Joined Kemper in 2015; President & Chief Executive Officer • Previous experience: Allstate, Travelers Jim McKinney • 15+ years o
Slide 24: Executive Oversight Leads to a Successful Infinity Integration
Executive Oversight Leads to a Successful Infinity Integration Experienced integration teams working diligently to ensure a smooth integration • Current Infinity leadership remains highly involved post closing People Integration – • Expect to retain vast majority of sales, underwriting, claims and c
Slide 25: Key Investment Highlights
Key Investment Highlights Strong Brand with Three Diversified Businesses Growing Top Line Revenues Successfully Executing on Strategy to Unlock Embedded Value Stable Cash Flow Generation Strong Capitalization and Ample Liquidity Superior Risk Profile and Leading Portfolio Returns Experienced Managem
Slide 26: KEMPER
KEMPER
Slide 27: Appendix
Appendix
Slide 28: Second Quarter 2018 Highlights
Second Quarter 2018 Highlights Continue to produce growing returns across business lines • Net Income increased from $36.6 million to $37.6 million resulting in EPS of $0.71 and $0.73, respectively 2Q18 • Adj Consolidated Net Operating EPS1 increased from $0.41 to $0.70 vs • Earned Premiums increase
Slide 29: Infinity 2Q 2018 Performance – Not Included in Kemper's 2Q18 Results
Infinity 2Q 2018 Performance – Not Included in Kemper’s 2Q18 Results 10% premium growth with improved margins compared to 2Q17 (MM) Earned Premiums Revenues • Earned premiums increased 10 percent over the 2Q17, driven by: $374 - 5 percent growth of policy-in-force $339 $345 $346 $354 - Higher averag
Slide 30: 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 31: Non-GAAP Financial Measures
Non-GAAP Financial Measures Underlying Combined Ratio – Continued For the Three Months Ended 2Q17 3Q17 4Q17 1Q18 2Q18 Kemper Nonstandard Personal Automobile Earned Premiums $ 233.6 $ 246.5 $ 257.8 $ 266.2 $ 307.5 Current Year Non-Catastrophe Loss and LAE 183.9 185.5 204.6 202.8 237.8 Current Year Ca
Slide 32: Non-GAAP Financial Measures
Non-GAAP Financial Measures Underlying Combined Ratio – Continued For the Three Months Ended 2Q17 3Q17 4Q17 1Q18 2Q18 Total Kemper Nonstandard Automobile 1 Earned Premiums $ 246.3 $ 259.6 $ 270.7 $ 278.4 $ 320.0 Current Year Non-Catastrophe Loss and LAE 193.8 196.8 214.6 212.3 247.2 Current Year Cat
Slide 33: Non-GAAP Financial Measures
Non-GAAP Financial Measures Underlying Combined Ratio – Continued For the Three Months Ended 2Q17 3Q17 4Q17 1Q18 2Q18 Total Kemper NSA1 Pro Forma with Infinity Earned Premiums $ 585.4 $ 604.6 $ 616.6 $ 632.4 $ 694.3 Current Year Non-Catastrophe Loss and LAE 472.4 449.1 463.0 485.9 524.6 Current Year
Slide 34: 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
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