Kemper Corporation Reports Third Quarter 2012 Results

Kemper Corporation Reports Third Quarter 2012 Results

CHICAGO--(BUSINESS WIRE)-- Kemper Corporation (NYS: KMPR) reported today net income of $55.6 million ($0.95 per share) for the third quarter of 2012, compared to net income of $2.0 million ($0.03 per share) for the third quarter of 2011. Consolidated net operating income1 was $24.6 million ($0.42 per share) for the third quarter of 2012, compared to consolidated net operating income of $7.1 million ($0.12 per share) for the third quarter of 2011.

Three Months Ended

Nine Months Ended

Sep 30,

Sep 30,

Sep 30,

Sep 30,

(Dollars in millions, except per share amounts) (Unaudited)

2012

2011

2012

2011

Consolidated Net Operating Income1

$

24.6

$

7.1

$

57.2

$

23.0

Income from Continuing Operations

55.6

1.1

93.5

36.7

Net Income

55.6

2.0

101.5

50.2

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

$

(8.0

)

$

(27.8

)

$

(51.7

)

$

(101.9

)

Basic Net Income Per Share From:

Consolidated Net Operating Income1

$

0.42

$

0.12

$

0.96

$

0.38

Continuing Operations

0.95

0.01

1.57

0.61

Net Income

0.95

0.03

1.71

0.83

Impact of Catastrophe Losses and LAE on Net Income Per Share

$

(0.14

)

$

(0.46

)

$

(0.87

)

$

(1.68

)

1 Consolidated net operating income is an after-tax, non-GAAP financial measure. See "Use of Non-GAAP Financial Measures" for additional information.


"Our results in the third quarter improved significantly over last year, as we benefited from lower catastrophes," commented Donald G. Southwell, Kemper's Chairman, President and Chief Executive Officer. "We continued to implement planned price increases across our Property & Casualty businesses and selectively reduced exposure, especially in homeowners."

"Our Life and Health segment delivered another quarter of solid performance, despite the low interest rate environment. The Reserve National business continued its shift to products that are less impacted by national health care reform," added Southwell.

"On the capital front, we repurchased $20 million of common stock in the third quarter. In addition, we generated $50 million of realized gains, taking advantage of attractive pricing for tax-exempt municipal securities. As we announced earlier in the quarter, we are evaluating strategic options for the Kemper Direct segment and are on track to complete this evaluation by year-end," concluded Southwell.

Highlights

  • Kemper Preferred filed for overall rate increases of 6 percent in personal auto and nearly 9 percent in homeowners and continued to take actions to reduce exposures in the highest catastrophe prone areas.

  • Kemper Specialty grew commercial automobile earned premiums 9 percent over third quarter 2011 through product enhancements and better agency engagement. This marks the third consecutive quarter of growth in this line of business.

  • Kemper Home Service Companies continued its planned dwelling run-off; policies in force are down 9 percent from approximately 51,000 policies at the beginning of the year. Home Service expects to reduce dwelling policies in force an additional 11 percent by year-end.

  • Reserve National reported stable quarterly accident and health earned premiums of $34.0 million, which included a 48 percent increase in earned premiums on its expanded supplemental product offerings, offsetting a 16 percent anticipated decrease in its hospitalization products.

Capital

During the quarter, Kemper repurchased nearly 650,000 shares of common stock at a cost of $20.0 million and paid dividends of $14.1 million. Year to date, Kemper repurchased over 2.0 million shares of common stock at a cost of $60.7 million.

Kemper ended the quarter with a book value per share of $37.78, and a book value per share excluding unrealized gains on fixed maturities of $31.19, up from $36.42 and $30.19, respectively, at the end of the second quarter.

At the end of the third quarter, Kemper Corporation held cash and investments of $214.7 million, and its $325 million revolving line of credit was undrawn.

Revenues

Total revenues were $645.6 million for the third quarter of 2012, compared to $592.8 million in 2011, driven by net realized gains on sales of $50.9 million in the current quarter, compared to net realized losses on sales of $4.2 million in 2011. The company took advantage of attractive pricing and sold $320.1 million of tax-exempt municipal securities for tax planning and other portfolio management purposes.

Earned premiums were $527.3 million for the third quarter of 2012, compared to $543.0 million in 2011. Earned premiums decreased predominantly from planned reductions at Kemper Direct, which declined by $14.1 million.

Net investment income was $70.4 million in the third quarter of 2012, an $11.8 million increase from 2011, driven by $13.1 million lower net investment losses from equity method investments. The investment portfolio generated a pre-tax equivalent annualized book yield of 5.3 percent for the third quarter of 2012.

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, (iii) catastrophe losses exclude the impact of prior year development and (iv) underlying loss ratio includes loss and loss adjustment expenses. The impact of current year development is included in the underlying combined ratio. Current year development represents prior quarter development for a given current accident year.

Three Months Ended

Nine Months Ended

(Dollars in Millions) (Unaudited)

Sep 30,
2012

Sep 30,
2011

Sep 30,
2012

Sep 30,
2011

Segment Net Operating Income (Loss):

Kemper Preferred

$

8.4

$

(8.3

)

$

8.5

$

(30.3

)

Kemper Specialty

2.7

5.7

4.0

15.4

Kemper Direct

1.5

(1.7

)

(2.7

)

(10.4

)

Life and Health Insurance

19.2

19.7

66.5

67.7

Total Segment Net Operating Income

31.8

15.4

76.3

42.4

Corporate and Other Net Operating Loss

(7.2

)

(8.3

)

(19.1

)

(19.4

)

Consolidated Net Operating Income

24.6

7.1

57.2

23.0

Net Income (Loss) From:

Net Realized Gains (Losses) on Sales of Investments

33.0

(2.7

)

38.9

18.0

Net Impairment Losses Recognized in Earnings

(2.0

)

(3.3

)

(2.6

)

(4.3

)

Income from Continuing Operations

$

55.6

$

1.1

$

93.5

$

36.7

Kemper Preferred reported net operating income of $8.4 million for the third quarter of 2012, compared to a net operating loss of $8.3 million in 2011. The current quarter results included $6.1 million of catastrophe losses and $1.6 million of favorable prior year development, compared to the third quarter of 2011, which included $26.6 million of catastrophe losses and $6.1 million of favorable prior year development. Results also included $1.2 million of higher net investment income. The underlying combined ratio was 97.1 percent in the third quarter of 2012, compared to 96.6 percent in 2011. Higher auto liability frequency and higher physical damage severity was offset by lower fire losses and lower non-catastrophe weather losses in homeowners.

Kemper Specialty reported net operating income of $2.7 million for the third quarter of 2012, compared to $5.7 million in 2011. Kemper Specialty's underlying combined ratio was 103.2 percent in the third quarter of 2012, an increase of 3.8 percentage points, driven by the impact of current year development and a higher expense ratio. Excluding the change in current year development, the total underlying loss ratio was relatively flat, with improved personal auto results driven by higher average premium, offset by an increase in the commercial auto underlying loss ratio driven by higher frequency. The insurance expense ratio increased 1.0 percentage point, largely related to technology initiatives.

Kemper Direct reported net operating income of $1.5 million for the third quarter of 2012, compared to a net operating loss of $1.7 million in 2011. The segment continued to reduce under-performing business as it explores strategic options. The current quarter results included $0.3 million of catastrophe losses, compared to $1.4 million in 2011. Both periods included $3.5 million of favorable reserve development. The underlying combined ratio improved 1.1 percentage points as lower marketing expense was partially offset by a higher underlying loss ratio.

Life and Health Insurance reported net operating income of $19.2 million for the third quarter of 2012, compared to $19.7 million in 2011. Results included $1.8 million higher catastrophe losses, $1.0 million higher insurance expenses and $1.7 million higher policyholder benefits for life insurance, which were partially offset by $3.3 million higher net investment income and $0.8 million lower non-catastrophe losses.

Corporate and Other net operating loss decreased $1.1 million for the third quarter of 2012, primarily related to $1.2 million higher unallocated investment income, offset by $0.5 million higher retirement benefits.

Unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2012 and 2011 are presented below:

Three Months Ended

Nine Months Ended

(Dollars in millions, except per share amounts)

Sep 30,
2012

Sep 30,
2011

Sep 30,
2012

Sep 30,
2011

Revenues:

Earned Premiums

$

527.3

$

543.0

$

1,586.3

$

1,637.1

Net Investment Income

70.4

58.6

223.0

222.7

Other Income

0.2

0.4

0.6

0.8

Net Realized Gains (Losses) on Sales of Investments

50.9

(4.2

)

59.9

27.8

Other-than-temporary Impairment Losses:

Total Other-than-temporary Impairment Losses

(3.2

)

(5.0

)

(4.1

)

(6.7

)

Portion of Losses Recognized in Other Comprehensive Income

Net Impairment Losses Recognized in Earnings

(3.2

)

(5.0

)

(4.1

)

(6.7

)

Total Revenues

645.6

592.8

1,865.7

1,881.7

Expenses:

Policyholders' Benefits and Incurred Losses and Loss Adjustment Expenses

368.7

399.6

1,169.1

1,269.0

Insurance Expenses

172.7

176.8

502.8

513.5

Interest and Other Expenses

22.7

21.4

65.4

62.0

Total Expenses

564.1

597.8

1,737.3

1,844.5

Income (Loss) from Continuing Operations before Income Taxes

81.5

(5.0

)

128.4

37.2

Income Tax Benefit (Expense)

(25.9

)

6.1

(34.9

)

(0.5

)

Income from Continuing Operations

55.6

1.1

93.5

36.7

Income from Discontinued Operations

0.9

8.0

13.5

Net Income

$

55.6

$

2.0

$

101.5

$

50.2

Income from Continuing Operations Per Unrestricted Share:

Basic

$

0.95

$

0.01

$

1.57

$

0.61

Diluted

$

0.95

$

0.01

$

1.56

$

0.61

Net Income Per Unrestricted Share:

Basic

$

0.95

$

0.03

$

1.71

$

0.83

Diluted

$

0.95

$

0.03

$

1.70

$

0.83

Dividends Paid to Shareholders Per Share

$

0.24

$

0.24

$

0.72

$

0.72

Unaudited business segment revenues for the three and nine months ended September 30, 2012 and 2011 are presented below:

Three Months Ended

Nine Months Ended

(Dollars in Millions)

Sep 30,
2012

Sep 30,
2011

Sep 30,
2012

Sep 30,
2011

REVENUES

Kemper Preferred:

Earned Premiums

$

222.9

$

216.5

$

655.9

$

642.8

Net Investment Income

10.8

8.2

33.6

37.8

Other Income

0.1

0.1

0.3

0.2

Total Kemper Preferred

233.8

224.8

689.8

680.8

Kemper Specialty:

Earned Premiums

103.9

111.0

317.3

336.7

Net Investment Income

4.5

3.7

14.4

17.5

Other Income

0.1

0.2

0.2

0.4

Total Kemper Specialty

108.5

114.9

331.9

354.6

Kemper Direct:

Earned Premiums

40.3

54.4

131.2

171.8

Net Investment Income

3.4

2.8

10.7

13.6

Other Income

0.1

0.1

Total Kemper Direct