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Kemper Reports Second Quarter 2022 Operating Results

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CHICAGO, August 01, 2022--(BUSINESS WIRE)--Kemper Corporation (NYSE: KMPR) reported a net loss of $74.7 million, or $(1.17) per diluted share, for the second quarter of 2022, compared to a net loss of $62.6 million, or $(0.97) per diluted share, for the second quarter of 2021. As Adjusted for Acquisitions1 of American Access Casualty Company ("AAC") and Infinity Property and Casualty Corporation, the net loss was $71.3 million, or $(1.12) per diluted share, for the second quarter of 2022, compared to a net loss of $52.5 million, or $(0.82) per diluted share, for the second quarter of 2021. In the second quarter of 2022, the net loss included a $32.0 million after-tax loss, or $(0.50) per diluted share, attributable to the change in fair value of equity and convertible securities.

Adjusted Consolidated Net Operating Loss1 was $39.7 million, or $(0.62) per diluted share, for the second quarter of 2022, compared to Adjusted Consolidated Net Operating Loss1 of $99.4 million, or $(1.54) per diluted share, for the second quarter of 2021.

Key themes of the quarter include:

  • Personal Automobile margins impacted by broad inflationary pressures

  • Earned rate is accelerating and Q2 rate taking activities exceeded planned actions

    • Specialty P&C Personal Auto filed an additional 19% rate increase on 30% of the book

    • Preferred P&C Personal Auto filed an additional 7% rate increase on 33% of the book

  • Continued strong momentum in Commercial Vehicle, net written premiums grew 42% year-over-year

  • Life persistency continues to be above pre-pandemic levels, mortality remains elevated but declined from first quarter

  • Higher Net Investment Income driven by a one-time valuation gain on a real estate investment

  • Holding company remains a source of strength for subsidiaries, with approximately $1.2B of liquidity

  • Declared dividend of $0.31 per share

"Our second quarter results showed progress and commitment towards restoring profitability," said Joseph P. Lacher, Jr., President, CEO and Chairman. "This was highlighted by our rate filing actions that exceeded the expectations we outlined in the first quarter. These actions are beginning to earn in and will accelerate throughout the remainder of this year and next. This should offset ongoing environmental pressures and ultimately help us achieve target underwriting profitability."

1 Non-GAAP financial measure. All Non-GAAP financial measures are denoted with footnote 1 throughout this release. See "Use of Non-GAAP Financial Measures" for additional information.

Three Months Ended

Six Months Ended

(Dollars in Millions, Except Per Share Amounts) (Unaudited)

Jun 30,
2022

Jun 30,
2021

Jun 30,
2022

Jun 30,
2021

Net Income (Loss)

$

(74.7

)

$

(62.6

)

$

(169.5

)

$

60.6

Adjusted Consolidated Net Operating Income (Loss) 1

$

(39.7

)

$

(99.4

)

$

(99.8

)

$

(12.2

)

Impact of Catastrophe Losses and Related Loss Adjustment Expense (LAE) on Net Income

$

(23.9

)

$

(27.5

)

$

(34.9

)

$

(49.3

)

Diluted Net Income (Loss) Per Share From:

Net Income (Loss)

$

(1.17

)

$

(0.97

)

$

(2.66

)

$

0.92

Adjusted Consolidated Net Operating Income (Loss) 1

$

(0.62

)

$

(1.54

)

$

(1.56

)

$

(0.19

)

Impact of Catastrophe Losses and Related LAE on Net Income (Loss) Per Share

$

(0.38

)

$

(0.43

)

$

(0.55

)

$

(0.75

)

Revenues

Total revenues for the second quarter of 2022 decreased $68.7 million, or 5 percent, to $1,433.8 million, compared to the second quarter of 2021, driven by an $81.3 million decrease in the change in fair value of equity and convertible securities, $13.3 million of lower Preferred P&C earned premiums, and an $8.2 million decrease in net realized investment gains, partially offset by $33.4 million of higher Specialty P&C earned premiums. Net investment income increased $4.6 million to $118.5 million in the second quarter of 2022 compared to the second quarter of 2021 due primarily to a one-time valuation gain on a real estate investment and higher average investment balance and rate on Company-Owned Life Insurance, partially offset by lower rate on Fixed Income Securities.

Segment Results

Unless otherwise noted, (i) the segment results discussed below are presented on an after-tax basis, (ii) prior-year development includes both catastrophe and non-catastrophe losses and LAE, (iii) catastrophe losses and LAE exclude the impact of prior-year development, (iv) loss ratio includes loss and LAE, and (v) all comparisons are made to the prior year quarter unless otherwise stated.

Three Months Ended

Six Months Ended

(Dollars in Millions) (Unaudited)

Jun 30,
2022

Jun 30,
2021

Jun 30,
2022

Jun 30,
2021

Segment Net Operating Income (Loss):

Specialty Property & Casualty Insurance

$

(38.9

)

$

(91.7

)

$

(83.6

)

$

(11.6

)

Preferred Property & Casualty Insurance

(16.8

)

(8.3

)

(22.9

)

1.3

Life & Health Insurance

17.7

13.0

20.8

20.3

Total Segment Net Operating Income (Loss)

(38.0

)

(87.0

)

(85.7

)

10.0

Corporate and Other Net Operating Income (Loss)

(1.7

)

(12.4

)

(14.1

)

(22.2

)

Adjusted Consolidated Net Operating Income (Loss) 1

(39.7

)

(99.4

)

(99.8

)

(12.2

)

Net Income (Loss) From:

Change in Fair Value of Equity and Convertible Securities

(32.0

)

32.3

(54.3

)

73.5

Net Realized Investment Gains (Losses)

8.7

15.2

9.9

26.1

Impairment Losses

(3.9

)

(2.5

)

(10.9

)

(5.7

)

Acquisition Related Transaction, Integration and Other Costs

(7.8

)

(8.2

)

(11.5

)

(21.1

)

Loss from Early Extinguishment of Debt

(2.9

)

Net Income (Loss)

$

(74.7

)

$

(62.6

)

$

(169.5

)

$

60.6

The Specialty Property & Casualty Insurance segment reported net operating loss of $38.9 million for the second quarter of 2022, compared to net operating loss of $91.7 million in the second quarter of 2021. Results improved due primarily to lower development on prior year claims. The segment’s Underlying Combined Ratio1 was 108.8 percent, compared to 107.3 percent in the second quarter of 2021. This increase is driven primarily by ongoing inflation and supply chain constraints.

The Preferred Property & Casualty Insurance segment reported net operating loss of $16.8 million for the second quarter of 2022, compared to a net operating loss of $8.3 million in the second quarter of 2021. Results deteriorated due primarily to a higher Underlying Combined Ratio1 and lower Net Investment Income. The segment’s Underlying Combined Ratio1 was 105.3 percent, compared to 103.1 percent in the second quarter of 2021. This increase is driven primarily by ongoing inflation and supply chain constraints.

The Life & Health Insurance segment reported net operating income of $17.7 million for the second quarter of 2022, compared to $13.0 million in the second quarter of 2021. This increase is primarily driven by higher returns from Alternative Investments and higher levels of investments and rate on Company-Owned Life Insurance, partially offset by lower levels of investments and yields on equity securities.

Capital

Total Shareholders’ Equity at the end of the quarter was $2,850.0 million, a decrease of $1,157.7 million, or 29 percent, since year-end 2021 primarily driven by a decrease in the fair value of the Company’s fixed income bond portfolio, a net operating loss, and cash dividends to shareholders. Kemper and its direct non-insurance subsidiaries ended the quarter with cash and investments of $275.9 million, and the $600.0 million revolving credit agreement was undrawn.

On May 4, 2022, Kemper announced that its Board of Directors declared a quarterly dividend of $0.31 per share, or $20.6 million. The dividend was paid on May 31, 2022 to its shareholders of record as of May 16, 2022.

Kemper ended the quarter with a book value per share of $44.64, a decrease of 29 percent from $62.93 at the end of 2021. Book Value Per Share Excluding Net Unrealized (Gains) Losses on Fixed Maturities1 was $52.03, compared to $55.04 at the end of 2021.

Unaudited condensed consolidated statements of income (loss) for the three months ended June 30, 2022 and 2021 are presented below.

Three Months Ended

Six Months Ended

(Dollars in Millions, Except Per Share Amounts)

Jun 30,
2022

Jun 30,
2021

Jun 30,
2022

Jun 30,
2021

Revenues:

Earned Premiums

$

1,353.7

$

1,337.7

$

2,692.3

$

2,538.5

Net Investment Income

118.5

113.9

218.5

217.0

Change in Value of Alternative Energy Partnership Investments2

(4.9

)

(7.7

)

(21.6

)

(23.1

)

Other Income

0.9

1.8

3.3

3.3

Income (Loss) from Change in Fair Value of Equity and Convertible Securities

(40.5

)

40.8

(68.7

)

93.0

Net Realized Investment Gains (Losses)

11.0

19.2

12.5

33.0

Impairment Losses

(4.9

)

(3.2

)

(13.8

)

(7.2

)

Total Revenues

1,433.8

1,502.5

2,822.5

2,854.5

Expenses:

Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses

1,170.3

1,224.1

2,323.7

2,113.6

Insurance Expenses

307.7

314.0

611.7

597.7

Loss from Early Extinguishment of Debt

3.7

Interest and Other Expenses

53.5

54.1

107.6

111.3

Total Expenses

1,531.5

1,592.2

3,046.7

2,822.6

Income (Loss) before Income Taxes

(97.7

)

(89.7

)

(224.2

)

31.9

Income Tax Benefit (Expense)

23.0

27.1

54.7

28.7

Net Income (Loss)

$

(74.7

)

$

(62.6

)

$

(169.5

)

$

60.6

Net Income (Loss) Per Unrestricted Share:

Basic

$

(1.17

)

$

(0.97

)

$

(2.66

)

$

0.93

Diluted

$

(1.17

)

$

(0.97

)

$

(2.66

)

$

0.92

Weighted-average Outstanding (Shares in Thousands):

Unrestricted Shares - Basic

63,815.6

64,376.8

63,779.9

64,897.8

Unrestricted Shares and Equivalent Shares - Diluted

63,815.6

64,376.8

63,779.9

66,051.5

Dividends Paid to Shareholders Per Share

$

0.31

$

0.31

$

0.62

$

0.62

2Loss related to Change in Value of Alternative Energy Partnership Investments was $4.9 million for the three months ended June 30, 2022, compared to $7.7 million for the same period in 2021. Tax benefits related to the Alternative Energy Partnership Investments were $1.1 million and $8.6 million for the three months ended June 30, 2022 and 2021, respectively. This resulted in a net loss of $3.8 million and net income of $0.9 million attributable to Alternative Energy Partnership Investments for the three months ended June 30, 2022 and 2021, respectively.

2Loss related to Change in Value of Alternative Energy Partnership Investments was $21.6 million for the six months ended June 30, 2022, compared to $23.1 million for the same period in 2021. Tax benefits related to the Alternative Energy Partnership Investments were $8.1 million and $37.2 million for the six months ended June 30, 2022 and 2021, respectively. This resulted in a net loss of $13.5 million and net income of $14.1 million attributable to Alternative Energy Partnership Investments for the six months ended June 30, 2022 and 2021, respectively.

Unaudited business segment revenues for the three months ended June 30, 2022 and 2021 are presented below.

Three Months Ended

Six Months Ended

(Dollars in Millions)

Jun 30,
2022

Jun 30,
2021

Jun 30,
2022

Jun 30,
2021

REVENUES:

Specialty Property & Casualty Insurance:

Earned Premiums:

Personal Automobile

$

905.8

$

909.6

$

1,807.5

$

1,695.0

Commercial Automobile

137.9

100.7