Yahoo Finance Kemper Corp (KMPR) Q1 2024 Earnings Call Transcript Highlights: Strong Performance Amidst ...
Net Income: $71 million
Earnings Per Share (EPS): $1.10 per diluted share
Annualized Return on Equity (ROE): 11.2%
Tangible ROE: Over 17%
Specialty P&C Underlying Combined Ratio: 93.6%
Net Investment Income: $100 million
Parent Company Liquidity: Approximately $1.1 billion
Life Business Net Operating Income: $12 million
Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Kemper Corp (NYSE:KMPR) reported a net income of $71 million with an annualized ROE over 11% and a tangible ROE of over 17%, indicating strong profitability.
Specialty P&C business achieved a 93.6% underlying combined ratio, showing a significant improvement both sequentially and year-over-year, and exceeding the target combined ratio of 96%.
The company has successfully initiated new business expansion activities, which are on track to stabilize policies in force (PIF) by midyear, with new business applications growing nearly 2.6x compared to the fourth quarter of 2023.
Kemper Corp (NYSE:KMPR) has maintained stable policy retention rates, which supports ongoing customer loyalty and business stability.
The company's strategic initiatives, including cost structure optimization, have led to improved financial performance and operational efficiency.
Negative Points
Despite improvements, policies in force continued to decline as expected, which could impact future revenue streams if not stabilized as planned.
The life business demonstrated modest quarterly volatility and faced slight pressure from the inflationary environment.
Specialty P&C adverse prior year development was reported at $5.3 million due to specific litigation matters, indicating potential vulnerabilities in past underwriting practices.
The company's investment in the reciprocal exchange is still in early stages and not yet contributing significantly to profits, with expectations of it being resource-intensive in the near term.
While new business applications increased, the sequential quarter PIF decline was 5.5%, showing that there is still significant ground to cover in stabilizing and growing the customer base.
Q & A Highlights
Q: Thanks for the additional color on new business apps. I was just -- I guess as I'm looking at the charts and digesting the information you provided, the quarterly run rate being 3x what it was in the first quarter, I'm trying to reconcile that with the fact that you expect PIF to stabilize in the first half. It seems like with that type of production that we might actually pivot to actually being up in PIF. So maybe you can help me with some of the math there. A: Yes, sure, Greg. Thanks for the question. And this is Joe. I'll start, and Matt, you jump in too. The issue you get in specialty auto is a relatively significant amount of seasonality relative to new buyers. If you think about the first quarter, it might be -- if you started at x, the second quarter is probably 25% bigger, the third quarter is a hair smaller, and the fourth quarter is maybe 1/3 or 40% smaller than that first. So there's definitely a surge in the second quarter and a bigger than quarterly average in the first compared to the third and fourth.
Q: That does. And as you were talking, I was actually looking at the chart that you have on Page 10. As further just clarification or reconciling the different moving pieces, you're running your specialty auto at target margins, you're going to start growing your new business, and typically, there's some sort of new business penalty that's associated with that. A: This is Matt. I'll take the first part of that question and then flip it to Joe for the second. In terms of the re-expansion of new business, as we mentioned to you guys that we're taking a methodical approach in terms of how we're reopening to ensure that we're understanding the market dynamics, the loss dynamics as they come through. As we're priming the pump, so to speak, we're working through normal as expected operational efforts, working that through.
Q: Maybe a little bit of additional focus on retention. Is there any reason why the retention rate would be different or changing given the change in the non-rate actions and the increase in new business as we prospectively go forward? I was a little bit surprised that it's been as stable as it has been given all of the changes in the company over time. But any thoughts there that would be helpful would be great. A: Sure, Paul. And this is Joe. I'll give you a high-level overall answer then I'll double-click on it once. Overall, we're seeing a fairly consistent stability in retention. That's how it's performing. That's what we'd expect going forward. Now I'm going to double-click slightly on it. Imagine, if you will, a couple of different segments of the book of business we have. Some parts of this business have a very short-term tenure. They might be somebody trying to get an SR-22. They might run the policy for 3 months, 4 months and then lapse. Some parts of this business tend to have a much longer policy life. It might be 2, 3, 5 years. A lot of times, people think of nonstandard auto as only being stuff that's around for 6 or 8 months. There's parts of our business that stays around longer.
Q: Maybe help me out with Slide 8 a little bit. I think on the -- in the remarks, you've mentioned that you've earned rate in the quarter of 9%. As I look at the -- as I look at the graph in the right-hand corner, it would imply to me that there's maybe another 11, 12 points to go in the year. A: This is Brad. Happy to help, and if I miss something, the 3-part question, 1A, B, C, let me know. Looking at the upper right-hand chart on Slide 8, for the year, for 2024, we have a total of 24 rates to earn in. We earned in about 9 points of that rate in the first quarter, and then that means we've got 15 points for the rest of the year.
Q: I'm just curious, I didn't hear any comments about the reciprocal and kind of the progress there. And I'm just wondering, Joe, maybe you can comment on the fact that you're actually increasing new business, I know you can only put new business to reciprocal, could that actually accelerate that process on? A: Sure, Brian. In theory, we could put something other than new business in there. We could populate the reciprocal with reinsurance. Our strategy is to populate it with new business. So there are ways to accelerate the process. I don't think that's prudent, and that's not what we're trying to do, and I'm not sure that's the best way for us to populate it given all the various things we're trying to balance in that.
Q: Okay. So I get to -- I have 2 follow-ups. One, I know it's discontinued, but the progress on the runoff preferred business. And then the second question would be around the alternative investment portfolio results in the first quarter. Just wondering if what we saw in the first quarter, is that the type of result we should expect out of that portfolio for the balance of the year? A: This is Brad. On the preferred business, the runoff is going as planned, if not a little bit quicker than expected. So the $130 million we indicated this year is on track, maybe a little bit better, so $85 million plus left to go this year. On the alternative investment portfolio, I think that that's on Page 22 of the supplement. If you look there, there's a -- I think it was down about $5.7 million Q4 to Q1 in average returns. That's related to a few investments. I don't expect that to be the run rate going forward.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
