Kemper Corporation Reports First Quarter 2013 Results

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Kemper Corporation Reports First Quarter 2013 Results

CHICAGO--(BUSINESS WIRE)-- Kemper Corporation (NYS: KMPR) reported today net income of $58.4 million ($1.00 per share) for the first quarter of 2013, compared to $43.6 million ($0.73 per share) for the first quarter of 2012. Consolidated net operating income1 was $42.3 million ($0.72 per share) for the first quarter of 2013, compared to $33.4 million ($0.56 per share) for the first quarter of 2012.

 Three Months Ended
(Dollars in millions, except per share amounts) (Unaudited)Mar 31,
2013
 Mar 31,
2012
Consolidated Net Operating Income1$42.3$33.4
Income from Continuing Operations58.636.3
Net Income58.443.6
 
Basic Net Income Per Share From:
Consolidated Net Operating Income1$0.72$0.56
Continuing Operations1.000.61
Net Income1.000.73

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


"We are pleased with Kemper's results in the first quarter, as net operating income per share increased 29 percent year-over-year," said Donald G. Southwell, Kemper's Chairman, President and Chief Executive Officer. "The overall property and casualty group's underlying combined ratio improved 3 percentage points based on our strategic actions to implement rate increases, tighten underwriting and reduce expenses. Higher than planned retention and favorable reserve development led Kemper Direct to positive results in the first quarter of 2013. We continue to expect positive earnings from the run-off as we implement rate increases and further optimize operations."

"In the Life and Health Insurance segment, the on-going low interest rate environment, coupled with higher benefits and other expenses, presented challenges in the quarter. However, we expect full year results for this segment to be comparable to last year's results," commented Southwell.

"Overall, our high quality investment portfolio performed well in the declining interest rate environment, as net investment income increased from higher returns on equity method investments and a higher investment base," concluded Southwell.

Highlights

  • Net operating income per share increased 29 percent, to $0.72 per share, in the first quarter of 2013, compared to 2012.
  • Kemper Preferred posted a 2.4 percentage point improvement in the year-over-year homeowner underlying loss results, driven by the impact of rate increases and underwriting actions, as well as a decline in non-catastrophe weather losses.
  • Kemper Specialty continued to see improved year-over-year underlying loss results in personal auto, as continued rate actions and pricing segmentation efforts take effect.
  • The investment portfolio continued to produce solid returns for the quarter. The pre-tax equivalent annualized book yield for the first quarter of 2013 was 5.8 percent.
  • Kemper returned $20.5 million of capital to shareholders in the first quarter of 2013 through share repurchases and dividends.

Capital

During the first quarter of 2013, Kemper repurchased approximately 210,000 shares of common stock at a cost of $6.5 million and paid dividends of $14.0 million.

Year-to-date through April, Kemper repurchased approximately 500,000 shares of common stock at a cost of $15.6 million.

Kemper ended the quarter with a book value per share of $37.25, and a book value per share excluding net unrealized gains on fixed maturities of $31.55, up from $36.98 and $30.62, respectively, at the end of 2012.

At the end of the first quarter, the holding company held cash and investments of $187.4 million, and its $325 million revolving line of credit was undrawn.

Revenues

Total revenues were $615.9 million for the first quarter of 2013, compared to $611.2 million in 2012, and increased primarily from higher net realized gains on sales of investments, offset by lower earned premiums. Net realized gains on sales of investments increased $22.0 million as the company sold $138.5 million of corporate bonds in conjunction with a comprehensive review of the prospects of each issuer in the Company's publicly traded bond portfolio. Earned premiums decreased $19.3 million, predominantly from planned reductions at Kemper Direct and Kemper Specialty.

Net investment income was $80.8 million in the first quarter of 2013, a $3.4 million increase from 2012, driven by higher returns on equity method investments and higher levels of investments. Net investment income increased $5.4 million for the combined property and casualty operations, largely due to higher returns on equity method investments and higher income from other equity interests. Net investment income decreased $2.7 million for the Life and Health Insurance segment, largely from lower returns on equity method investments and a lower yield. The portfolio generated a pre-tax equivalent annualized book yield of 5.8 percent for the first quarter of 2013.

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.

 Three Months Ended
(Dollars in Millions) (Unaudited)Mar 31,
2013
 Mar 31,
2012
Segment Net Operating Income (Loss):
Kemper Preferred$18.8$10.4
Kemper Specialty3.54.1
Kemper Direct6.7(1.3)
Life and Health Insurance21.2 27.8 
Total Segment Net Operating Income50.241.0
Corporate and Other Net Operating Loss(7.9)(7.6)
Consolidated Net Operating Income42.333.4
Net Income (Loss) From:
Net Realized Gains on Sales of Investments17.53.2
Net Impairment Losses Recognized in Earnings(1.2)(0.3)
Income from Continuing Operations$58.6 $36.3 

Kemper Preferred reported net operating income of $18.8 million for the first quarter of 2013, compared to $10.4 million in 2012. Results improved $8.4 million primarily from $4.7 million higher favorable prior year reserve development, $2.5 million higher net investment income and $1.0 million lower catastrophe losses. The underlying combined ratio of 95.3 percent was essentially flat compared to 2012, as improvements in the homeowners and other personal insurance lines were offset by a deterioration in auto. The homeowners underlying loss ratio improved as higher average premium rates, lower fire losses and lower non-catastrophe storm losses were partially offset by higher covered water related losses. The auto underlying loss ratio deteriorated as higher average premium rates were more than offset by higher severity for bodily injury and higher frequency and severity for collision coverages.

Kemper Specialty reported net operating income of $3.5 million for the first quarter of 2013, compared to $4.1 million in 2012. The current quarter's results included $0.7 million higher catastrophe losses and $0.4 million of adverse prior year reserve development, compared to $0.6 million of favorable prior year reserve development in 2012. Kemper Specialty's underlying combined ratio improved to 100.4 percent in the first quarter of 2013, compared to 101.0 percent in 2012. The underlying loss ratio improved 1.4 points to 79.3 percent, driven by higher average premium rates in personal auto. The expense ratio increased 0.8 percentage points, largely related to Kemper Specialty's investment in technology.

Kemper Direct reported net operating income of $6.7 million for the first quarter of 2013, compared to a net operating loss of $1.3 million in 2012. The combined ratio improved due to a lower underlying combined ratio, $1.4 million higher favorable prior year reserve development and $1.0 million lower catastrophe losses. The underlying loss ratio improved 12.0 percentage points to 72.7 percent, largely from higher average premium rates and lower severity in liability coverages. The expense ratio decreased 7.1 percentage points to 26.1 percent, driven by lower marketing and related policy acquisition expense, reduced headcount and employee related accrual adjustments.

The Life and Health Insurance segment reported net operating income of $21.2 million for the first quarter of 2013, compared to $27.8 million in the prior year. The $6.6 million decrease is driven by a $5.3 million decrease in the profitability of life insurance products and a $1.1 million decrease in the profitability of accident and health products. The decrease in net income from life insurance products is primarily attributed to higher non-commission insurance expenses, lower returns on investments, due to declining portfolio yields, and higher mortality rates. The lower profitability on accident and health insurance products is primarily due to higher morbidity and initial start-up expenses to expand distribution channels at Reserve National.

Corporate and Other net operating loss increased $0.3 million for the first quarter of 2013, largely related to higher retirement benefits and other corporate expenses, partially offset by higher unallocated investment income.

Unaudited condensed consolidated statements of income for the three months ended March 31, 2013 and 2012 are presented below:

 Three Months Ended
(Dollars in millions, except per share amounts)Mar 31,
2013
 Mar 31,
2012
Revenues:
Earned Premiums$509.9$529.2
Net Investment Income80.877.4
Other Income0.20.2
Net Realized Gains on Sales of Investments26.94.9
Other-than-temporary Impairment Losses:
Total Other-than-temporary Impairment Losses(2.4)(0.5)
Portion of Losses Recognized in Other Comprehensive Income0.5  
Net Impairment Losses Recognized in Earnings(1.9)(0.5)
Total Revenues615.9 611.2 
Expenses:
Policyholders' Benefits and Incurred Losses and Loss Adjustment Expenses349.2376.6
Insurance Expenses158.3162.4
Interest and Other Expenses23.8 21.8 
Total Expenses531.3 560.8 
Income from Continuing Operations before Income Taxes84.650.4
Income Tax Expense(26.0)(14.1)
Income from Continuing Operations58.636.3
Income (Loss) from Discontinued Operations(0.2)7.3 
Net Income$58.4 $43.6 
 
Income from Continuing Operations Per Unrestricted Share:
Basic$1.00 $0.61 
Diluted$1.00 $0.60 
 
Net Income Per Unrestricted Share:
Basic$1.00 $0.73 
Diluted$1.00 $0.72 
 
Dividends Paid to Shareholders Per Share$0.24 $0.24 
 

Unaudited business segment revenues for the three months ended March 31, 2013 and 2012 are presented below:

 Three Months Ended
(Dollars in Millions)Mar 31,
2013
 Mar 31,
2012
REVENUES
Kemper Preferred:
Earned Premiums$219.2$215.0
Net Investment Income15.010.9
Other Income0.1 0.1 
Total Kemper Preferred234.3 226.0 
Kemper Specialty:
Earned Premiums99.2106.8
Net Investment Income6.35.2
Other Income0.1  
Total Kemper Specialty105.6 112.0 
Kemper Direct:
Earned Premiums33.747.0
Net Investment Income3.8 3.6 
Total Kemper Direct37.5 50.6 
Life and Health Insurance:
Earned Premiums157.8160.4
Net Investment Income53.055.7
Other Income 0.1 
Total Life and Health Insurance210.8 216.2 
Total Segment Revenues588.2604.8
Net Realized Gains on the Sales of Investments26.94.9
Net Impairment Losses Recognized in Earnings(1.9)(0.5)
Other2.7 2.0 
Total Revenues$615.9 $611.2 
 

KEMPER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)


 

Mar 31,
2013
 Dec 31,
2012

(Unaudited)

Assets:
Investments:
Fixed Maturities at Fair Value$4,856.5$4,860.2
Equity Securities at Fair Value554.1521.9
Equity Method Limited Liability Investments at Cost Plus Cumulative Undistributed Earnings248.1253.0
Short-term Investments at Cost which Approximates Fair Value362.8327.5
Other Investments494.8 497.5
Total Investments6,516.3 6,460.1
Cash97.596.3
Receivables from Policyholders363.2369.3
Other Receivables202.7206.1
Deferred Policy Acquisition Costs304.5303.4
Goodwill311.8311.8
Current and Deferred Income Tax Assets5.4
Other Assets260.2 256.7
Total Assets$8,056.2 $8,009.1
Liabilities and Shareholders' Equity:
Insurance Reserves:
Life and Health$3,174.8$3,161.6
Property and Casualty942.3 970.6
Total Insurance Reserves4,117.1 4,132.2
Unearned Premiums646.8650.9
Liabilities for Income Taxes25.821.5
Notes Payable at Amortized Cost611.6611.4
Accrued Expenses and Other Liabilities482.5 431.4
Total Liabilities5,883.8 5,847.4
Shareholders' Equity:
Common Stock5.85.8
Paid-in Capital722.5725.0
Retained Earnings1,158.01,118.2
Accumulated Other Comprehensive Income286.1 312.7
Total Shareholders' Equity2,172.4 2,161.7
Total Liabilities and Shareholders' Equity$8,056.2 $8,009.1
 

Unaudited selected financial information for the Kemper Preferred segment follows:

 Three Months Ended
(Dollars in Millions)Mar 31,
2013
 Mar 31,
2012
 

Results of Operations

 
Net Premiums Written$205.8 $207.0 
Earned Premiums:
Automobile$127.1$126.6
Homeowners78.274.7
Other Personal13.9 13.7 
Total Earned Premiums219.2215.0
Net Investment Income15.010.9
Other Income0.1 0.1 
Total Revenues234.3 226.0 
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE147.9145.0
Catastrophe Losses and LAE7.08.5
Prior Years:
Non-catastrophe Losses and LAE(6.8)(0.6)
Catastrophe Losses and LAE(1.4
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