KEMPER Corp Q2 FY2025 earnings call

• Joe Lacher discussed the auto market transition from hard to normalized conditions, highlighting Specialty Auto's unique characteristics like smaller competitors, faster loss development, and shorter customer tenures. - Brad Camden covered financial results, including net income of $72.6 million and adjusted consolidated net operating income of $84.1 million, and discussed the investment portfolio, noting alternative investments pressured net investment income but the core portfolio performed well. - Matt Hunton detailed the Specialty P&C segment, including combined ratios for Private Passenger Auto (94.5%), Commercial Auto (90.1%), and market dynamics in California (modestly hard), Florida (competitive), and Texas (normal). - Emphasized competitive advantages, balance sheet strengthening with $450 million debt retired and $80 million stock repurchased since April 1, and Board approval of an additional $500 million share repurchase authorization.

Specialty Auto generated a 93.5% underlying combined ratio, with 8% year-over-year PIF growth and 17% earned premium growth. Private Passenger Auto had an underlying combined ratio better than long-term norms but off hard market highs. Commercial Auto had an underlying combined ratio of 90% with 18% PIF growth, but had $19 million adverse prior-year development due to social inflation. The Life segment had stable fundamentals with strong return on capital and distributable cash flows. Alternative investments impacted Specialty Auto and Life segments. Revenue contributions: Specialty Auto's performance was a key driver, with its 93.5% combined ratio and growth metrics being significant.

• Anticipate net investment income to rebound in the second half of the year, averaging $100 million to $105 million per quarter. - Board approved an additional $500 million share repurchase authorization, bringing total available to $550 million. - Expect low to mid-single-digit PIF growth in Specialty Auto long term, around 3%-7%. - Combined ratios expected to stay in the 93.5%-95% range.

• Volatility in alternative investments impacting Specialty Auto and Life segments. - Social inflation leading to $19 million adverse prior-year development in Commercial Auto. - Market normalization potentially leading to slower growth than recent hard market periods, with competitors reopening and affecting PIF growth trends.

Q: About PIF growth and pricing, asking if pricing came down and if brakes are being put on.

A: Joe Lacher said PIF vs written premium difference is due to geographic mix, no significant rate changes, and seasonality in Specialty Auto causes PIF fluctuations, not brakes being applied.

Q: Confidence in loss results, asking about Private Passenger Auto holding combined ratio and Commercial Auto adverse development.

A: Joe Lacher said combined ratios should stay in the 93.5%-95% range, and the $19 million adverse development in Commercial Auto was due to social inflation, with adjustments made and comfort in the business outlook.

Q: Impact of higher minimum limits in California on premiums.

A: Joe Lacher said impact was similar to first quarter, worked through the book as policies are 6-month in California.

Q: Details on adverse development in Commercial Auto, asking about geographic pattern and components.

A: Brad Camden said it was in large loss bucket due to social inflation, low frequency, high severity, and episodic large loss events.

Q: ROE and share repurchases, asking about ROE potential and share repurchase.

A: Joe Lacher said ROE is in a reasonable zone with volatility, and significant share repurchase authorization ( $500 million) as stock is seen as undervalued.