Kemper Corporation Reports Fourth Quarter and Full Year 2012 Results
Kemper Corporation Reports Fourth Quarter and Full Year 2012 Results
CHICAGO--(BUSINESS WIRE)-- Kemper Corporation (NYS: KMPR) reported today net income of $1.9 million ($0.03 per share) for the fourth quarter of 2012, compared to net income of $24.3 million ($0.40 per share) for the fourth quarter of 2011. Consolidated net operating loss1 was $3.4 million ($0.06 per share) for the fourth quarter of 2012, compared to consolidated net operating income of $24.1 million ($0.40 per share) for the fourth quarter of 2011.
Three Months Ended | Year Ended | |||||||||||||||
(Dollars in millions, except per share amounts) (Unaudited) | Dec 31, | Dec 31, | Dec 31, | Dec 31, | ||||||||||||
Consolidated Net Operating Income (Loss)1 | $ | (3.4 | ) | $ | 24.1 | $ | 53.8 | $ | 47.1 | |||||||
Income (Loss) from Continuing Operations | (1.7 | ) | 25.0 | 91.8 | 61.7 | |||||||||||
Net Income | 1.9 | 24.3 | 103.4 | 74.5 | ||||||||||||
Impact of Catastrophe Losses and Related Loss Adjustment Expense (LAE) on Net Income | $ | (29.2 | ) | $ | (4.6 | ) | $ | (80.9 | ) | $ | (106.5 | ) | ||||
Basic Net Income (Loss) Per Share From: | ||||||||||||||||
Consolidated Net Operating Income (Loss)1 | $ | (0.06 | ) | $ | 0.40 | $ | 0.91 | $ | 0.78 | |||||||
Continuing Operations | (0.03 | ) | 0.41 | 1.55 | 1.02 | |||||||||||
Net Income | 0.03 | 0.40 | 1.75 | 1.23 | ||||||||||||
Impact of Catastrophe Losses and Related LAE on Net Income Per Share | $ | (0.50 | ) | $ | (0.08 | ) | $ | (1.37 | ) | $ | (1.76 | ) | ||||
1 Consolidated net operating income (loss) is an after-tax, non-GAAP financial measure. See "Use of Non-GAAP Financial Measures" for additional information.
"Kemper's performance for 2012 was once again marked by significant unusual weather events. In the fourth quarter specifically, Superstorm Sandy adversely affected our results by $32 million after-tax," commented Donald G. Southwell, Kemper's Chairman, President and Chief Executive Officer. "It is at times like these when our agents and claims teams show the value of Kemper, fulfilling our promises and helping our customers restore their lives. I'm proud of the professional and caring support our team provides to our policyholders. It is also gratifying that the diversity of earnings provided by our life and health business and solid investment returns more than offset these weather impacts."
"During the fourth quarter, we concluded our strategic review of the Direct business and placed our direct-to-consumer operations in run-off. Going forward, we expect this business to be cash flow and earnings positive during the run-off period and expect to free up the majority of capital backing the run-off business in the next two to three years," concluded Southwell.
Highlights
Kemper Home Service Companies continued its planned dwelling run-off; policies in force are down 20 percent from approximately 51,000 policies at the beginning of the year. As a result of these actions, the business expects to save $2 million annually in catastrophe reinsurance expenses going forward.
Reserve National reported stable quarterly accident and health earned premiums of $34 million, which included a 19 percent increase in earned premiums on its expanded supplemental product offerings, offsetting a 19 percent anticipated decrease in its hospitalization products.
Kemper Preferred's year-over-year fourth quarter average written premium on homeowners policies increased 10 percent.
The investment portfolio continued to produce solid returns for both the quarter and year. The pre-tax annualized book yield for 2012 was 5.5 percent.
Kemper returned $118 million of capital to shareholders in 2012 through share repurchases and dividends.
Capital
During 2012, Kemper repurchased over 2.0 million shares of common stock at a cost of $60.7 million and paid dividends of $56.9 million.
Kemper ended the year with a book value per share of $36.98, and a book value per share excluding unrealized gains on fixed maturities of $30.62, up from $35.13 and $29.70, respectively, at the end of 2011.
At the end of the 2012, the holding company held cash and investments of $190.2 million, and its $325 million revolving line of credit was undrawn.
Revenues
Total revenues were $596.6 million for the fourth quarter of 2012, compared to $613.3 million in 2011, driven by lower earned premiums. Earned premiums decreased predominantly from planned reductions at Kemper Direct, which declined by $14.1 million.
Net investment income was $72.9 million in the fourth quarter of 2012, a $2.4 million decrease from 2011, driven by lower yields on fixed maturity investments and higher investment expenses, offset by higher returns on equity investments. The portfolio generated a pre-tax equivalent annualized book yield of 5.4 percent for the fourth 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 | Year Ended | |||||||||||||||
(Dollars in Millions) (Unaudited) | Dec 31, | Dec 31, | Dec 31, | Dec 31, | ||||||||||||
Segment Net Operating Income (Loss): | ||||||||||||||||
Kemper Preferred | $ | (19.7 | ) | $ | 12.7 | $ | (11.2 | ) | $ | (17.6 | ) | |||||
Kemper Specialty | (2.8 | ) | 4.4 | 1.2 | 19.8 | |||||||||||
Kemper Direct | 1.8 | (17.1 | ) | (0.9 | ) | (27.5 | ) | |||||||||
Life and Health Insurance | 24.3 | 31.2 | 90.8 | 98.9 | ||||||||||||
Total Segment Net Operating Income | 3.6 | 31.2 | 79.9 | 73.6 | ||||||||||||
Corporate and Other Net Operating Loss | (7.0 | ) | (7.1 | ) | (26.1 | ) | (26.5 | ) | ||||||||
Consolidated Net Operating Income (Loss) | (3.4 | ) | 24.1 | 53.8 | 47.1 | |||||||||||
Net Income (Loss) From: | ||||||||||||||||
Net Realized Gains on Sales of Investments | 3.6 | 3.9 | 42.5 | 21.9 | ||||||||||||
Net Impairment Losses Recognized in Earnings | (1.9 | ) | (3.0 | ) | (4.5 | ) | (7.3 | ) | ||||||||
Income (Loss) from Continuing Operations | $ | (1.7 | ) | $ | 25.0 | $ | 91.8 | $ | 61.7 | |||||||
Kemper Preferred reported a net operating loss of $19.7 million for the fourth quarter of 2012, compared to net operating income of $12.7 million in 2011. The current quarter results included $27.8 million of catastrophe losses and $2.8 million of adverse prior year reserve development, compared to the fourth quarter of 2011, which included $4.2 million of catastrophe losses and $2.4 million of favorable prior year development. The underlying combined ratio was 98.6 percent in the fourth quarter of 2012, compared to 96.6 percent in 2011. Higher severity-driven loss ratios in both auto liability and non-weather related homeowners, were partially offset by a lower expense ratio.
Kemper Specialty reported a net operating loss of $2.8 million for the fourth quarter of 2012, compared to net operating income of $4.4 million in 2011. Kemper Specialty's underlying combined ratio was 109.5 percent in the fourth quarter of 2012, an increase of 7.2 percentage points, driven by the impact of current year development. Excluding current year development and restructuring costs, the total underlying loss ratio increased 1.2 points, primarily from higher claims handling expenses, offset by higher average premium rates in personal auto. The expense ratio increased 1.5 percentage points, largely related to technology and other initiatives.
Kemper Direct reported net operating income of $1.8 million for the fourth quarter of 2012, compared to a net operating loss of $17.1 million in 2011. Both the underlying loss ratio and expense ratio improved significantly in the current quarter. The underlying loss ratio improved 21.8 percentage points to 74.7 percent, largely from lower severity in liability coverages. The expense ratio improved 24.4 percentage points driven by a $13.5 million pre-tax intangible asset write-off in 2011. Results also included $5.4 million higher net favorable reserve development, offset by $2.0 million higher catastrophe losses and $0.7 million lower net investment income.
The Life and Health Insurance segment reported net operating income of $24.3 million for the fourth quarter of 2012, compared to $31.2 million in the prior year. The $6.9 million decrease is driven by a $2.8 million favorable reserve correction on a small block of policies in the prior year that did not recur and $1.5 million lower net investment income.
Corporate and Other net operating loss was essentially flat at $7.0 million for the fourth quarter of 2012. Results included $0.3 million higher investment income and $0.3 million lower corporate expenses, which were offset by $0.5 million higher retirement benefits.
Unaudited consolidated statements of income for the three months and year ended December 31, 2012 and 2011 are presented below:
Three Months Ended | Year Ended | |||||||||||||||
(Dollars in millions, except per share amounts) | Dec 31, | Dec 31, | Dec 31, | Dec 31, | ||||||||||||
Revenues: | ||||||||||||||||
Earned Premiums | $ | 520.8 | $ | 536.5 | $ | 2,107.1 | $ | 2,173.6 | ||||||||
Net Investment Income | 72.9 | 75.3 | 295.9 | 298.0 | ||||||||||||
Other Income | 0.2 | 0.2 | 0.8 | 1.0 | ||||||||||||
Net Realized Gains on Sales of Investments | 5.5 | 5.9 | 65.4 | 33.7 | ||||||||||||
Other-than-temporary Impairment Losses: | ||||||||||||||||
Total Other-than-temporary Impairment Losses | (3.1 | ) | (4.7 | ) | (7.2 | ) | (11.4 | ) | ||||||||
Portion of Losses Recognized in Other Comprehensive Income | 0.3 | 0.1 | 0.3 | 0.1 | ||||||||||||
Net Impairment Losses Recognized in Earnings | (2.8 | ) | (4.6 | ) | (6.9 | ) | (11.3 | ) | ||||||||
Total Revenues | 596.6 | 613.3 | 2,462.3 | 2,495.0 | ||||||||||||
Expenses: | ||||||||||||||||
Policyholders' Benefits and Incurred Losses and Loss Adjustment Expenses | 413.0 | 376.7 | 1,582.1 | 1,645.7 | ||||||||||||
Insurance Expenses | 169.5 | 170.1 | 672.3 | 683.6 | ||||||||||||
Write-off of Other Intangibles Acquired | — | 13.5 | — | 13.5 | ||||||||||||
Interest and Other Expenses | 20.1 | 21.9 | 85.5 | 83.9 | ||||||||||||
Total Expenses | 602.6 | 582.2 | 2,339.9 | 2,426.7 | ||||||||||||
Income (Loss) from Continuing Operations before Income Taxes | (6.0 | ) | 31.1 | 122.4 | 68.3 | |||||||||||
Income Tax Benefit (Expense) | 4.3 | (6.1 | ) | (30.6 | ) | (6.6 | ) | |||||||||
Income (Loss) from Continuing Operations | (1.7 | ) | 25.0 | 91.8 | 61.7 | |||||||||||
Income (Loss) from Discontinued Operations | 3.6 | (0.7 | ) | 11.6 | 12.8 | |||||||||||
Net Income | $ | 1.9 | $ | 24.3 | $ | 103.4 | $ | 74.5 | ||||||||
Income (Loss) from Continuing Operations Per Unrestricted Share: | ||||||||||||||||
Basic | $ | (0.03 | ) | $ | 0.41 | $ | 1.55 | $ | 1.02 | |||||||
Diluted | $ | (0.03 | ) | $ | 0.41 | $ | 1.54 | $ | 1.02 | |||||||
Net Income Per Unrestricted Share: | ||||||||||||||||
Basic | $ | 0.03 | $ | 0.40 | $ | 1.75 | $ | 1.23 | ||||||||
Diluted | $ | 0.03 | $ | 0.40 | $ | 1.74 | $ | 1.23 | ||||||||
Dividends Paid to Shareholders Per Share | $ | 0.24 | $ | 0.24 | $ | 0.96 | $ | 0.96 | ||||||||
Unaudited business segment revenues for the three months and year ended December 31, 2012 and 2011 are presented below:
Three Months Ended | Year Ended | |||||||||||||||
(Dollars in Millions) | Dec 31, | Dec 31, | Dec 31, | Dec 31, | ||||||||||||
REVENUES | ||||||||||||||||
Kemper Preferred: | ||||||||||||||||
Earned Premiums | $ | 223.5 | $ | 217.0 | $ | 879.4 | $ | 859.8 | ||||||||
Net Investment Income | 11.4 | 11.0 | 45.0 | 48.8 | ||||||||||||
Other Income | 0.1 | 0.1 | 0.4 | 0.3 | ||||||||||||
Total Kemper Preferred | 235.0 | 228.1 | 924.8 | 908.9 | ||||||||||||
Kemper Specialty: | ||||||||||||||||
Earned Premiums | 102.5 | 108.5 | 419.8 | 445.2 | ||||||||||||
Net Investment Income | 4.6 | 5.3 | 19.0 | 22.8 | ||||||||||||
Other Income | 0.1 | 0.1 | 0.3 | 0.5 | ||||||||||||
Total Kemper Specialty | 107.2 | 113.9 | 439.1 | 468.5 | ||||||||||||
Kemper Direct: | ||||||||||||||||
Earned Premiums | 36.8 | 50.9 | 168.0 | 222.7 | ||||||||||||
