KEMPER Corp Q1 FY2026 earnings call

Key Messages - Overall financial results were disappointing, with significant headwinds in California personal auto and statutory profit limit refunds in Florida. - Areas of the business performing well include commercial auto (best production quarter ever), Kemper Life (solid results), and positive developments in specialty personal auto in Florida, Texas, and new product expansion. - Progress on enterprise priorities: restructuring program with cumulative run rate savings over 60 million, comprehensive review of end-to-end claims processes, actions to improve personal auto margins (rate actions in California, portfolio diversification), and expense reduction through restructuring. - Focus on growing profitably, reducing earnings volatility, and delivering value to shareholders. - Update on CEO search and new chief information officer.### Operational Highlights - In California personal auto: Elevated liability loss costs due to legal system dynamics, taking rate and non-rate actions, refining claims processes. - In Florida and Texas personal auto: Growth in policies in force with attractive profitability, product tuning actions having intended effect. - In commercial auto: Strong, consistent growth across geographies, stable profitability, becoming a larger contributor to the portfolio. - In life: Earned premiums slightly up year over year, in-force face value $19.7 billion, adjusted net operating income $18 million, modernizing distribution model.

Personal Auto: California personal auto was a challenge with elevated loss costs due to minimum liability limit increase; Florida had statutory premium refunds but current auto business is performing well with rate adjustments leading to profitable growth; Texas personal auto growth with policies in force up 4.9% sequentially and underlying combined ratio 93.7%. Commercial Auto: Record production, exceeded $1 billion in trailing 12-month written premium, policies in force up 3.2% sequentially and 10% year-over-year, underlying combined ratio 92.4%. Life: Operating income $18 million, supported by lower expenses and favorable mortality and lapse experience, investment income $107 million, up 4 million sequentially

Forward-Looking Statements - Focus on returning the business to expected performance level. - Expect benefits from rate changes in California to be visible in second quarter with more meaningful impact in second half of the year. - Anticipate continued progress on restructuring program and portfolio diversification. - Aim to improve margins, reduce earnings volatility, and drive profitable growth through various initiatives like new product BVP rollout and digital tool investments.

Risks - Headwinds in California personal auto due to minimum liability limit increase leading to elevated loss costs. - Statutory profit limit refunds in Florida impacting financial results. - Potential for actual future results to differ materially from forward-looking statements as per safe harbor provisions. - Adverse reserve development in commercial auto, though within normal reserving range.

Q: Focusing on California and rate increases, is there upfront risk selection to drive better results and anticipate another round of rate increases?

A: Matt responds that there are rate actions in place, two-thirds of the book got rate in April, another third in June, and there are subsequent filings planned. Also, pulling other levers like accelerating claim efforts to offset BI increases and expense benefits actions.

Q: Regarding distribution relationships, how are agents responding to volatility?

A: Matt says they have long-tenured agent relationships, are transparent, making significant investments in agent distribution capabilities like new portals, and not seeing negative impact, with a queue of agencies wanting appointments.

Q: On commercial auto adverse reserve development, how comfortable are with profitability?

A: Brad says adverse development is within normal reserving range, half the time reserving is higher, half lower, improving from last quarters, and most older accident years claims are fully developed.

Q: On capital situation, anything to worry about?

A: Brad says RBC ratio is within 225 to 300 range, liquidity is sufficient with 750 million dollars, and capital is present throughout the ecosystem.

Q: On technology initiatives, are they on pricing and underwriting?

A: Brad says significant investment in data infrastructure, new products, digital capabilities for agents and customers driving efficiency, and infrastructure moved to cloud for security and app dev changes.