Kemper(KMPR) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a net loss of $63 million or$ 0.97 per share as reported, and $53 million or$ 0.82 per share as adjusted [11] - Adjusted consolidated net operating loss was $99 million or$ 1.54 per diluted share as reported, and $89 million or$ 1.39 per share as adjusted [12] - Tangible book value per share, excluding unrealized gains, declined by 1% [12] - Return on tangible equity, excluding unrealized gains, was 11% [13] - Generated $422 million of cash from operations over the past year [13] Business Line Data and Key Metrics Changes - Specialty Property and Casualty segment generated an adjusted underwriting loss of$ 60 million with an underlying combined ratio of 106% [14] - Policies in force grew by 5.5% as adjusted, and direct written premium on a normalized basis grew by 13.2% [15] - Life and Health segment reported a segment income of $13 million driven by lower mortality levels and strong policy retention [36] Market Data and Key Metrics Changes - The reopening of the economy led to increased auto frequency and severity due to higher miles driven and supply chain issues [10] - The company experienced strong growth in demand for its Life products, with issuance levels above pre-pandemic levels and a historic high retention rate of 94% [36] Company Strategy and Development Direction - The company is focused on taking corrective actions to return to a more normalized underlying combined ratio within the next few quarters [14] - The acquisition of American Access is expected to enhance the specialty auto franchise value [13] - The company continues to repurchase shares and maintain financial flexibility while enhancing long-term intrinsic value [16] Management's Comments on Operating Environment and Future Outlook - Management noted that the speed of the reopening magnified the financial impact of environmental challenges [10] - The company expects inflationary pressures and supply chain challenges to persist for at least 12 to 18 months [55] - Management remains confident in the long-term profitability of the business despite current challenges [38] Other Important Information - The company highlighted its strong balance sheet and capital stewardship, with a debt-to-capital ratio of 20.7% [23] - Net investment income for the quarter was$ 114 million, reflecting strong core portfolio performance [25] - The company is actively monitoring and adjusting its operating model in response to legal changes and market conditions [30] Q&A Session Summary Question: Where was the deterioration in the Specialty Property Casualty segment most severe? - Management indicated that the issues were broad, with significant increases in frequency and severity due to supply chain challenges and social inflation [42] Question: How does the company view the impact of the Florida PIP court rulings? - Management stated that the rulings affect multiple policy years and will require adjustments in reserves, but they remain committed to serving the Florida market [30][82] Question: Why not slow down growth while assessing loss costs? - Management expressed confidence in their underwriting practices and the ability to adjust rates and respond to market conditions [80] Question: What is the expected timeline for normalizing the combined ratio? - Management anticipates a timeline of two to four quarters to return to a mid-90s combined ratio range [56] Question: Are there differences in trends between the Specialty and Preferred segments? - Management noted that while both segments face similar challenges, the Specialty segment is experiencing more pronounced issues due to specific market dynamics [74]