Release Date: August 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kemper Corp (KMPR, Financial) reported a fifth consecutive quarter of significant improvement in its underlying business.
- The company achieved a third straight quarter of generating operating profitability.
- Specialty auto business delivered a strong combined ratio well below the long-term target.
- Sequential quarter PIF growth of about 4.5% in specialty auto.
- Net income of $75 million and an ROE of about 11.5%, with an adjusted ROE of over 17%.
Negative Points
- The life segment was negatively impacted by a valuation adjustment on a real estate investment.
- The second half of 2024 is likely to produce PIF growth at a more modest rate due to seasonality.
- Net investment income was negatively impacted by a $15 million pretax valuation adjustment related to real estate investments.
- The company expects a drift back towards traditional combined ratios, which may impact profitability.
- The market environment remains volatile, influenced by factors such as supply chain-induced inflation and regulatory rate increases.
Q & A Highlights
Q: Can you provide additional market information about which geographies you're having more success in growing, and how does this roll up into your guidance for PIF for the second half of the year?
A: The biggest piece of our guidance for the second half of the year is around seasonal buying patterns. Historically, our customer segment has less shopping and buying in the back half of the year. From a geographic perspective, the predominance of our production has come from California and Florida. We continue to see strong demand for our products across all markets, and competitors are reengaging at different rates. We feel good about our ability to balance and will be opportunistic about taking advantage of market opportunities. (Joseph Lacher, CEO; Matthew Hunton, EVP and President - Kemper Auto)
Q: Can you talk about the concept of the new business penalty as you start growing your policy counts? What is the drift up in the combined ratio driven by?
A: We will see a drift generally back towards our traditional combined ratios in the 93%-95% range. The drift is partly due to the new business penalty and partly due to taking off non-rate actions that restricted growth. We expect some loss inflation in 2025, but we aim to stay below a 96% combined ratio while growing as much as possible. (Joseph Lacher, CEO)
Q: Did you do any downward rate revisions in the second quarter?
A: We did a small rate decrease in Florida, a minus 2% in aggregate, which was heavily segmented. This was the only negative rate change planned at this point. We are moving into a phase of maintenance rate changes and expect a more normal earned rate loss trend dynamic by 2025. (Joseph Lacher, CEO; Matthew Hunton, EVP and President - Kemper Auto)
Q: Where would you place yourself in terms of taking off non-rate actions?
A: We are probably about two-thirds to 80% through taking off non-rate actions. It's hard to exactly measure, but we are somewhere in that range. (Joseph Lacher, CEO)
Q: What is the outlook for net investment income, especially considering the real estate item and capital moves in the life company?
A: Net investment income was down due to a $15 million real estate valuation adjustment, which is not a run-rate item. We expect net investment income to return to normal levels. The life company earnings will be lower by about $15 million to $20 million annually due to capital moved to the parent. (Bradley Camden, CFO)
Q: Can you clarify what you meant by "overshoot a bit" in terms of combined ratio targets?
A: We expected to overshoot our long-term target combined ratio to the good, meaning we might get down to a 90% combined ratio before moving back up to our target range. We are currently in the phase where we have overshot to the good. (Joseph Lacher, CEO)
Q: Can you confirm your expectations for low-single-digit PIF growth in the upcoming quarters despite seasonal pressures?
A: Yes, we expect low-single-digit PIF growth sequentially in the next two quarters, even with the seasonal pressures that typically result in fewer new business sales in the second half of the year. (Joseph Lacher, CEO)
Q: How should we think about the rate earned in for the balance of the year?
A: Year to date, we've earned in about 17 points of rate. We expect another 5 points in the third quarter and 2-3 points in the fourth quarter, totaling about 24 points of rate earned in for the year. (Bradley Camden, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
