Attached files
| file | filename |
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| EX-99.1 - REGISTRANTS PRESS RELEASE DATED OCTOBER 30, 2017 - KEMPER Corp | kmpr2017093017ex991release.htm |
| EX-99.2 - THIRD QUARTER 2017 INVESTOR SUPPLEMENT OF KEMPER CORPORATION - KEMPER Corp | kmpr2017093017ex992supplem.htm |
| 8-K - 8-K - KEMPER Corp | kmpr20170930178-kreleasean.htm |
Third Quarter
2017 Earnings
October 30, 2017
2 Earnings Call Presentation – 3Q 2017
Preliminary Matters
Caution Regarding Forward-Looking Statements
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 Act of 1995. Forward-looking statements give expectations or forecasts of future events,
and can be identified by the fact that they relate to future actions, performance or results rather than
strictly to historical or current facts.
Any or all forward-looking statements may turn out to be wrong, and, accordingly, readers are cautioned
not to place undue reliance on such statements, which speak only as of the date of this presentation.
Forward-looking statements involve a number of risks and uncertainties that are difficult to predict, and are
not guarantees of future performance. Among the general factors that could cause actual results and
financial condition to differ materially from estimated results and financial condition are those listed in
periodic reports filed by Kemper Corporation with the Securities and Exchange Commission (SEC). No
assurances can be given that the results and financial condition contemplated in any forward-looking
statements will be achieved or will be achieved in any particular timetable. Kemper assumes no obligation
to publicly correct or update any forward-looking statements as a result of events or developments
subsequent to the date of this presentation. The reader is advised, however, to consult any further
disclosures Kemper makes on related subjects in its filings with the SEC.
Non-GAAP Financial Measures:
This presentation contains non-GAAP financial measures that the company believes are meaningful to
investors. Non-GAAP financial measures have been reconciled to the most comparable GAAP financial
measure.
All data in this presentation is as of and for the periods ending September 30, 2017 unless otherwise stated.
3 Earnings Call Presentation – 3Q 2017
Create Long-term Shareholder Value
Sustainable competitive
advantages and build
core capabilities
Growing returns
and book value per
share over time
Diversified sources
of earnings;
Strong capital/liquidity
positions;
Disciplined approach
to capital mgmt
Deliver low double digit ROE¹ over time
1 Return on Equity
Consumer-related businesses with niche opportunities that:
• Target underserved markets
• Have limited, weak or unfocused competition
• Require unique expertise (underwriting, claim, distribution, other)
Strategic focus:
4 Earnings Call Presentation – 3Q 2017
Turnaround of Core Businesses & Build Capabilities
• Continue profit restoration at Alliance United
• Achieve target 2017 run-rate expense savings goal
• Roll-out first wave of IT platforms
Continuing on Journey to Unlock Embedded Value
Near-term: 2017
Leverage Competitive Advantages & Core
Capabilities to Grow
• Scale business platforms
• Optimize data and analytics capabilities
• Expand product platform and markets served
Continue Turnaround & Development of Capabilities
• Achieve target 2018 run-rate expense savings goal
• Achieve Loss & LAE savings goals
• Product expansion
• Grow & enhance strategic position
Mid-term: 2018
Long-term: 2019+
Committed to improving normalized net income ~$90MM per year by 2019
P
P
P
5 Earnings Call Presentation – 3Q 2017
Third Quarter 2017 Highlights – Strong Results
¹Non-GAAP financial measure; Please see reconciliation in
the appendix
Key metrics improved in 3Q and year-to-date — Earned Premium, Operating
EPS and BVPS (excluding unrealized gains on Fixed Maturities)
(Dollars in millions, except per Sept. 30, Sept. 30, Variance Sept. 30, Sept. 30, Variance
share amounts) 2017 2016 2017 2016
Net Income (Loss) Per Share - Diluted 0.92$ (0.32)$ 1.24$ 1.62$ (0.27)$ 1.89$
Net Operating Income (Loss) Per Share - Diluted¹ 0.85$ (0.40)$ 1.25$ 1.19$ (0.31)$ 1.50$
Earned Premiums 598.2$ 558.9$ 39.3$ 1,744.1$ 1,658.6$ 85.5$
Net Investment Income 85.9 77.7 8.2 244.6 218.4 26.2
Net Realized Gains (Losses) & Other Income 6.2 4.1 2.1 37.4 2.2 35.2
To al Reven es 690.3$ 640.7$ 49.6$ 2,026.1$ 1,879.2$ 146.9$
Book Value Per Share 40.48$ 40.51$ (0.03)$ 40.48$ 40.51$ (0.03)$
Book Value Per Share Excluding Net Unrealized
Gains on Fixed Maturities¹ 35.87$ 34.27$ 1.60$ 35.87$ 34.27$ 1.60$
Nine Months EndedThree Months Ended
6 Earnings Call Presentation – 3Q 2017
Improving Underlying Operating Performance
¹Non-GAAP financial measure; Please see reconciliation in
the appendix
Delivered a fifth consecutive quarter of improved underlying performance
Dollars per Unrestricted Share - Diluted Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, Variance
2017 2017 2017 2016 2016 QoQ
Income (Loss) from Continuing Operations 0.92$ 0.71$ (0.01)$ 0.56$ (0.36)$ 1.28
Net Realized Gains and Impairments 0.07 0.30 0.07 - 0.04 0.03
Net Operating Income (Loss)¹ 0.85 0.41 (0.08) 0.56 (0.40) 1.25
Sources of Volatility:
Catastrophes (0.41) (0.44) (0.83) (0.16) (0.16) (0.25)
Prior Year Reserve Development (0.01) (0.10) (0.14) (0.04) 0.02 (0.03)
Alternative Investment Income 0.21 0.12 0.19 0.14 0.12 0.09
Voluntary Outreach Efforts - - - - (0.98) 0.98
Total from Sources of Volatility (0.21)$ (0.42)$ (0.78)$ (0.06)$ (1.00)$ 0.79$
Underlying Operating Performance¹ 1.06$ 0.83$ 0.70$ 0.62$ 0.60$ 0.46$
Three Months Ended
7 Earnings Call Presentation – 3Q 2017
$21 $23 $22 $21
$24
3Q16¹ 4Q16 1Q17 2Q17 3Q17
Net Operating Income
Stable and Predictable Life & Health Earnings
$152 $152 $153 $153 $155
$55 $54 $53 $55 $56
3Q16 4Q16 1Q17 2Q17 3Q17
Revenues
Earned Premiums Net Investment Income
(M
M
)
(M
M
)
• Comparing 3Q16 to 3Q17, earned
premiums increased $3 million driven by
higher A&H earned premiums
• Net investment income increased $1
million over 3Q16, primarily from higher
returns from alternative investments
• Comparing 3Q16 to 3Q17, net income
increased to $24 million primarily from
lower expenses and higher net investment
income
• Results remain stable and continue to
provide strong predictable cash flows
• Continue to focus on increasing
distribution capabilities
Revenues
Net Operating Income
¹Excludes $50.5 million after-tax charge from implementing voluntary use of death verification databases
$211 $206 $206 $207 $208
8 Earnings Call Presentation – 3Q 2017
102.8 99.7 97.9 94.5
91.3
3Q16 4Q16 1Q17 2Q17 3Q17
Underlying Combined Ratio¹
Profitably Growing Nonstandard Personal Auto
• Comparing 3Q16 to 3Q17, earned
premiums increased $40 million driven by
higher volume and higher premium rates
in California
• Underlying combined ratio improved 11.5
points in 3Q17 compared to 3Q16, driven
by rate, claims and underwriting actions
• Business is looking to expand market share
in core geographies
$207 $211 $216 $234
$247
3Q16 4Q16 1Q17 2Q17 3Q17
Earned Premiums
(%
)
(M
M
)
Revenues
Underwriting Results
¹Non-GAAP financial measure; Please see reconciliation in the appendix
Strong nonstandard auto franchise focused on profitable growth
9 Earnings Call Presentation – 3Q 2017
Preferred Auto Showing Improvement
• 3Q17 underlying combined ratio improved
1.0 percentage points
• Preferred auto remains challenged, but our
actions are starting to turn the book; more
work still to be done
• Team continues to be focused on claims,
rate and underwriting actions
100.3
111.5 104.6 103.1 99.3
85.4
80.0 82.6 79.6
85.8
3Q16 4Q16 1Q17 2Q17 3Q17
Underlying Combined Ratio¹
Auto Home Total Preferred Lines
• Net written premiums decreased $2 million,
in line with expectations
• $25 million of incurred cat losses in the
quarter from 5 events; 3Q17 catastrophe
losses were $17 million higher than 3Q16
• Underlying loss & LAE ratio increased 1.7
points, primarily from non-catastrophe
weather related losses
$107 $107 $104 $106 $106
$69 $68 $66 $67 $67
$11 $11 $11 $11 $11
3Q16 4Q16 1Q17 2Q17 3Q17
Earned Premiums by Line
Auto Home Other
(%
)
(M
M
)
$184
$181 $186
$187
$183
Preferred Auto
Homeowners
¹Non-GAAP financial measure; Please see reconciliation in the appendix
Making progress on improving profitability
10 Earnings Call Presentation – 3Q 2017
Consistent Portfolio Returns: High Quality, Moderate Risk
63%
27%
6%
4%
47%
26%
5%
5%
7%
4% 6%
Short-term
Diversified & Highly Rated Portfolio
Portfolio Composition Fixed Maturity Ratings
$5.2 Billion $6.7 Billion
A or Higher
≤ CCC
B / BB
BBB
Other
Alternatives¹
Equity¹
U.S.
Gov’t
States/
Munis
Corporates
• Investment portfolio produced an
annualized pre-tax equivalent book yield of
5.8 percent in 3Q17, compared to 5.3
percent in 3Q16
• Core portfolio produced consistent net
investment income results in line with
expectations
• Alternative investment portfolio designed
to provide enhanced returns over time
• More than 75 percent of the total
investment portfolio remains comprised of
fixed maturity securities, of which 90
percent is rated investment grade
1 Equity Securities excludes $203 million of Other Equity
Interests of LP/LLC’s that have been reclassified into
Alternative Investments
$68 $69 $67 $68 $69
$10 $11 $15 $9
$17
3Q16 4Q16 1Q17 2Q17 3Q17
Alternative Investments Portfolio Core Portfolio
Strong Performance Despite Low Rates
(M
M
)
$78
$86
$77
$82 $80
Overview
11 Earnings Call Presentation – 3Q 2017
Strong Current Capital Position with Ample Liquidity
Debt
Cash Flow from Operating Activities Debt-to-Capital Historically <30%
2013 2014 2015 2016 3Q17
22.8%
$2.7B
22.1%
$2.7B
27.6%
$2.7B
27.4%
$2.7B
26.5%
$2.8B
Total
Capitalization
Strong Parent Company Liquidity Risk-Based Capital Ratios
$157
$330 $341 $299
$188
$404
$404 $400 $385
$384
2013 2014 2015 2016 3Q17
Borrowings available under credit agreement & from subs
HoldCo Cash & Investments
(M
M
)
420 375 415
445
335 330 335 310
2014 2015 2016 2017E
Life & Health Legacy P&C¹(%
)
$561 $572
$684
$741 $734
(M
M
)
Substantial financial flexibility
$66
$122 $134
$215 $241
$165
2012 2013 2014 2015 2016 9M2017
¹Excludes Alliance United
12 Earnings Call Presentation – 3Q 2017
Capital Deployment Priorities
1. Investment in the business
• Fund profitable organic growth at appropriate risk-adjusted returns
• Strategic investments and acquisitions that enhance our business and meet or
exceed our ROE targets over time
2. Return capital to shareholders
• Repurchase shares opportunistically
• Maintain competitive dividends
Capital deployment & management focused on maximizing shareholder value
13 Earnings Call Presentation – 3Q 2017
Subsequent Events
¹ Probable Maximum Loss
2017 Reinsurance Program
Retention
$150MM
$350MM
$50MM
Retention
$100M xs $150M
95% Placed
$100M xs $50M
95% Placed
$250MM
$100M xs
$250M
63.4% Placed
PML: $250MM
• California Wildfires
– Multiple fires throughout state
– Estimated insured losses (industry): $5-8 billion
– 2017 Reinsurance Program: $50 Million Retention
• Successful arbitration award
– $84 million of damages
– Interest at 9 percent annually
– Potential recovery of legal fees
Appendix
16 Earnings Call Presentation – 3Q 2017
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) net impairment losses recognized in earnings related to investments, 3) current year catastrophe losses and LAE, 4)
net investment income from alternative investments, 5) prior-year reserve development (both catastrophe and non-catastrophe),
and 6) the initial impact of voluntary outreach efforts regarding life claims recorded in the third quarter of 2016. The most directly
comparable GAAP financial measure is Diluted Income (Loss) from Continuing Operations Per Unrestricted Share.
Kemper believes Underlying Operating Performance provides investors with a valuable measure of its ongoing performance because
it reveals underlying operational trends that otherwise might be less apparent if the items were not excluded. Underlying Operating
Performance should not be considered a substitute for the Diluted Income (Loss) from Continuing Operations Per Unrestricted Share
and does not reflect the overall profitability of our business.
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 Common Shares Issued and Outstanding. Book value per share is the most directly comparable GAAP financial measure. The
Company uses the trend in book value per share, excluding the after-tax impact of net unrealized gains on fixed income securities in
conjunction with book value per share to identify and analyze the change in net worth attributable to management efforts between
periods. The Company believes the non-GAAP financial measure is useful to investors because it eliminates the effect of items that
can fluctuate significantly from period to period and are generally driven by economic developments, primarily capital market
conditions, the magnitude and timing of which are generally not influenced by management. The Company believes it enhances
understanding and comparability of performance by highlighting underlying business activity and profitability drivers.
Sep. 30, 2017 Sep. 30, 2016
Book Value Per Share 40.48$ 40.51$
Less: Net Unrealized Gains on Fixed Maturities Per Share (4.61) (6.24)
Book Value Per Share Excluding Net Unrealized Gains on Fixed Maturities 35.87$ 34.27$
For the Periods Ended
17 Earnings Call Presentation – 3Q 2017
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 realized gains on sales of investments and net impairment losses recognized in earnings related to investments. The most
directly comparable GAAP financial measure is Diluted Income (Loss) from Continuing Operations Per Unrestricted Share.
Kemper believes that Diluted Consolidated Net Operating Income (Loss) Per Unrestricted Share 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. Net realized gains on sales of investments and net impairment losses recognized in earnings
related to investments included in Kemper’s results may vary significantly between periods and are generally driven by business
decisions and external economic developments such as capital market conditions that impact the values of the company’s
investments, the timing of which is unrelated to the insurance underwriting process.
Per U es ricte Share 3Q17 2Q17 1Q17 4Q16 3Q16
C solidated Net Operating Income (Loss) - Diluted 0.85$ 0.41$ (0.08)$ 0.56$ (0.40)$
Net In ome (Loss) From:
Net Realized Gains on Sales of Investments 0.10 0.33 0.13 0.11 0.15
Net Impairment Losses Recognized in Earnings (0.03) (0.03) (0.06) (0.11) (0.11)
Income (Loss) from Continuing Operations - Diluted 0.92$ 0.71$ (0.01)$ 0.56$ (0.36)$
For the Three Months Ended
18 Earnings Call Presentation – 3Q 2017
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 GAAP financial measure is the combined ratio, which is computed by adding the total incurred loss and LAE ratio,
including the impact of catastrophe losses and loss and LAE reserve development from prior years, with the insurance expense ratio.
Kemper believes the underlying combined ratio is useful to investors and is used by management to reveal the trends in Kemper ’s
property and casualty insurance businesses that may be obscured by catastrophe losses and prior-year reserve development. These
catastrophe losses may cause loss trends to vary significantly between periods as a result of their incidence of occurrence and
magnitude, and can have a significant impact on incurred losses and LAE and the combined ratio. Prior-year reserve development is
caused by unexpected loss development on historical reserves. Because reserve development relates to the re-estimation of losses
from earlier periods, it has no bearing on the performance of the company’s insurance products in the current period. Kemper
believes it is useful for investors to evaluate these components separately and in the aggregate when reviewing its underwriting
performance. The underlying combined ratio should not be considered a substitute for the combined ratio and does not reflect the
overall underwriting profitability of our business.
3Q16 4Q16 1Q17 2Q17 3Q17
U d rlying Combined Ratio 102.8% 99.7% 97.9% 94.5% 91.3%
Current Year Catastrophe Loss and LAE Ratio 0.9% 0.0% 0.8% 1.0% 0.6%
Prior Years Non-Catastrophe Losses and LAE Ratio 1.0% 0.0% (0.4%) (0.4%) 0.9%
Prior Years Catastrophe Losses and LAE Ratio 0.0% 0.0% 0.0% 0.0% 0.0%
Combined Ratio as Reported 104.7% 99.7% 98.3% 95.1% 92.8%
For the Three Months Ended
To al N s a dard Personal Automobile
19 Earnings Call Presentation – 3Q 2017
3Q16 4Q16 1Q17 2Q17 3Q17
Preferred Personal Automobile
Underlying Combined Ratio 100.3% 111.5% 104.6% 103.1% 99.3%
Current Year Catastrophe Loss and LAE Ratio 1.1% 0.3% 4.5% 3.7% 2.6%
Prior Years Non-Catastrophe Losses and LAE Ratio (0.4%) 3.8% 10.4% 6.3% 0.8%
Prior Years Catastrophe Losses and LAE Ratio 0.0% 0.0% 0.0% (0.2%) 0.0%
Combined Ratio as Reported 101.0% 115.6% 119.5% 112.9% 102.7%
Homeowners
Underlying Combined Ratio 85.4% 80.0% 82.6% 79.6% 85.8%
Current Year Catastrophe Loss and LAE Ratio 11.4% 16.7% 85.2% 40.1% 37.2%
Prior Years Non-Catastrophe Losses and LAE Ratio (0.9%) 0.9% 1.1% 2.3% 1.3%
Prior Years Catastrophe Losses and LAE Ratio (5.1%) (3.7%) (0.9%) (2.7%) (1.2%)
Combined Ratio as Reported 90.8% 93.9% 168.0% 119.3% 123.1%
For the Three Months Ended
Non-GAAP Financial Measures
Underlying Combined Ratio - Continued
20 Earnings Call Presentation – 3Q 2017
Non-GAAP Financial Measures
Normalized Earnings is an after-tax, non-GAAP financial measure that is most directly comparable to the GAAP financial measure of
Income from Continuing Operations. Normalized Earnings is calculated by 1) excluding the after-tax impact of net realized gains on
sales of investments, net impairment losses recognized in earnings related to investments and loss from early extinguishment of
debt, 2) normalizing catastrophe losses and LAE by removing the GAAP-reported amounts (including development) and including the
Company’s planned load for catastrophe losses and LAE, 3) excluding investment income in 2014 from one company that had sold
substantially all of its operations, 4) excluding an adjustment recorded in 2015 to correct deferred premium reserves on certain
limited pay life insurance policies and 5) excluding write-offs of long-lived assets in 2015 and 2014. Kemper believes Normalized
Earnings provides investors with a valuable measure of its ongoing performance because it reveals underlying operational trends that
otherwise might be less apparent if the items were not excluded or normalized.
21 Earnings Call Presentation – 3Q 2017
Non-GAAP Financial Measures
Normalized Earnings - Continued
Six Months
($ in Millions) Annualized
6/30/2016 2015 2014 2013 2012 2011
Net Income as Reported 3.8$ 85.7$ 114.5$ 217.7$ 103.4$ 74.5$
Less: Income from Discontinued Operations - 5.5 1.9 3.2 11.6 12.8
Income from Continuing Operations 3.8 80.2 112.6 214.5 91.8 61.7
Less:
Net Realized Gains on Sales of Investments 16.2 33.9 25.4 64.4 42.5 21.9
Net Impairment Losses Recognized in Earnings (20.4) (17.7) (9.9) (9.1) (4.5) (7.3)
Loss from Early Extinguishment of Debt - (5.9) - - - -
Consolidated Net Operating Income 8.0 69.9 97.1 159.2 53.8 47.1
Normalizing Adjustments
Remove: Catastrophe Losses and LAE
Including Development, as Reported 100.6 39.3 54.5 23.6 76.8 102.3
Add: Catastrophe Losses and LAE at Planned Load (33.4) (37.1) (44.2) (47.7) (40.4) (39.3)
Adjust Catastrophe Losses and LAE to Planned Load 67.2 2.2 10.3 (24.1) 36.4 63.0
Remove: Special Dividend from One Investment - - (14.2) - - -
Remove: Deferred Premium Reserve Adjustment - 4.9 - - - -
Remove: Write-off of Long-lived Assets - 7.2 35.5 - - -
Total Normalizing Adjustments 67.2 14.3 31.6 (24.1) 36.4 63.0
Normalized Consolidated Net Operating Income 75.2$ 84.2$ 128.7$ 135.1$ 90.2$ 110.1$
Full Year