KEMPER Corp Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Opening Remarks: Interim CEO Tom Evans noted disappointing results, external (competitive conditions, claims severity) and internal (execution) challenges, and steps taken including leadership changes and restructuring to improve execution and accountability.
• Financial Results: Reported a net loss of $21 million or $0.34 per diluted share; adjusted consolidated net operating income was $20.4 million or $0.33 per diluted share. Trailing 12-month operating cash flow was $585 million, near an all-time high.
• Restructuring and Charges: Recorded a $16.2 million after-tax restructuring charge for operational efficiencies. Wrote off $22 million related to internally developed software in Kemper Preferred business. Strengthened reserves by $51 million pretax in the Specialty Auto segment.
• Investment Income: Quarterly net investment income totaled $105 million, up $9 million sequentially, driven by improved performance in the alternative investment portfolio.

Segment Performance

• P&C Segment: The underlying combined ratio increased 6 percentage points sequentially to 99.6%. Policies in force grew 0.6% year-over-year, and earned premium grew 10.7% year-over-year. The personal auto combined ratio increased to 102.1% primarily due to bodily injury loss trends, especially in California. Commercial auto had an underlying combined ratio of 91.1% and remained relatively stable.
• Life Segment: Delivered solid results with operating earnings of $19 million, supported by favorable mortality trends and disciplined expense management.

Guidance

• PIF Growth: Expect PIF to modestly decline in Q4 2025 due to seasonality, then expected to grow in Q1 2026. Goal is to grow profitably while protecting margins.
• Share Repurchases: Spent $266 million on share repurchases from July to October, with $300 million remaining. Focus is on funding organic growth, maintaining financial flexibility, and distributing capital to shareholders as appropriate.

Risks

• Competition: Intensified competition, particularly in the auto insurance space, impacting pricing and market share.
• Claims Severity: Elevated claims severity trends due to medical cost inflation, attorney involvement, and legal system dynamics, putting upward pressure on loss costs.
• Market Dynamics: Dynamic market conditions leading to potential adverse development in claims and challenges in executing strategic priorities.

Question and Answer

Q: About commercial auto segment's prior year development, why the increase from 2Q to 3Q?

A: Brad Camden stated it was due to latent large loss activity, social inflation, and BI severity trends, with adjustments made to IBNR development factors but potential for further adverse development.

Q: On private passenger auto combined ratio, what gives confidence in data and analytics?

A: Matt Hunton noted nuanced differences in customer base and loss profile, with proactive rate filings in California and ongoing dialogues with regulators.

Q: Elaborate on restructuring cost savings areas?

A: Brad Camden mentioned organizational design, process efficiencies, and changes to one-off investments, targeting $30 million annual run rate savings.

Q: On software write-off in Kemper Preferred business?

A: Brad Camden said it was related to the runoff of that business, with 90% of the business already runoff and work ongoing to accelerate runoff in New York.

Q: Run rate underlying loss ratio in 3Q ex current year development?

A: Bradley Camden said underlying loss ratio increased 6 percentage points, with favorable development on comp/collision and metals, but adverse development on BI in current accident year.