Kemper Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Amounts are in millions of dollars except per-share data and ratios. Kemper operates primarily through Specialty Property & Casualty Insurance and Life Insurance; it announced plans to exit its Preferred Property & Casualty business.
Financial performance
- Third quarter: Total revenue was $1,199.4, down 11.9% from $1,361.5 a year earlier. Net loss attributable to Kemper was $146.3, or $2.28 per diluted share, versus a loss of $74.8, or $1.17 per share. Adjusted consolidated net operating loss, a non-GAAP measure, was $27.9 versus $27.0.
- Nine months: Total revenue was $3,757.0, down from $4,149.3. Net loss attributable to Kemper was $323.5, or $5.05 per diluted share, compared with a loss of $233.3, or $3.66. Adjusted consolidated net operating loss was $97.8 versus $92.9.
- Revenue and investment income: Earned premiums fell to $1,117.8 in Q3 from $1,290.9, and to $3,465.6 for nine months from $3,948.5. Net investment income rose to $107.0 in Q3 from $97.8, but was $315.1 for nine months, slightly below $316.3.
- Insurance operations: Specialty P&C reported adjusted net operating losses of $33.2 for Q3 and $102.4 for nine months. Its combined ratios were 109.9% and 109.5%, respectively; underlying combined ratios were 100.5% and 103.5%. Life Insurance reported adjusted net operating income of $14.7 for Q3 and $36.8 for nine months.
- Cash flow: Nine-month operating cash use was $104.5, improving from $170.1 used in 2022, partly due to a federal tax refund. Investing activities provided $105.2 versus $129.6 used; financing activities used $100.7 versus $403.8 provided. Period-end cash was $110.0 on the balance sheet, including $2.4 held by a consolidated variable-interest entity.
- Balance sheet and liquidity: Total assets were $12,549.3 versus $13,313.6 at year-end 2022; shareholders’ equity was $2,361.2 versus $2,670.6. Long-term debt was $1,388.6. No borrowings were outstanding under the revolving credit agreement; $376.0 was available at quarter-end. Kemper and its direct non-insurance subsidiaries held $153.9 in cash and investments.
- Shareholder returns: Kemper paid $0.31 per share in Q3; dividends paid for nine months totaled $59.8. No shares were repurchased during the quarter.
Material changes and unusual items
- Management announced an exit from the Preferred P&C business, with policies to be non-renewed or canceled as permitted by state regulation. Its results are presented as non-core operations, not discontinued operations. The company was evaluating strategic alternatives; the filing gives no completion timetable.
- Q3 and nine-month GAAP losses included a $70.2 noncash pension settlement charge ($55.5 after tax). The pension plan was fully settled through lump-sum payments and annuity purchases.
- Nine-month results included a $49.6 goodwill impairment charge ($45.5 after tax) related to Preferred P&C, recorded in Q2, and $101.9 of acquisition, disposition, integration, restructuring and other costs. Q3 included $43.3 of these costs.
- Net realized investment losses were $38.3 for nine months and $30.3 for Q3, primarily from ultra-long Treasury futures. The company reported $41.5 of nine-month other comprehensive income, while total comprehensive loss was $282.1.
- P&C reserves had $158.5 of adverse prior-year development for nine months, versus $22.5 of favorable development in 2022. The company cited bodily-injury and physical-damage emergence and increased Florida personal-injury-protection litigation frequency and severity.
- ASU 2018-12 (LDTI) was adopted effective January 1, 2023 using modified retrospective transition; comparative periods were recast. This changed the measurement and presentation of long-duration insurance balances.
Outlook, risks and contingencies
The filing provides no specific earnings, revenue or combined-ratio guidance. Management cited targeted underwriting actions and rate increases, which supported improved underlying personal-auto loss ratios but reduced new business and earned premiums. Inflation, supply-chain constraints, higher claim severity, social inflation and reserve uncertainty remain relevant risks. Other disclosed risks include catastrophe losses, investment-market and interest-rate movements, reinsurance availability, regulatory approvals, competition, litigation, and cybersecurity and technology disruptions.
Insurance subsidiaries had $557.4 of FHLB funding-agreement obligations backed by $619.1 of pledged collateral. The filing states that collateral may need to be added or borrowings repaid if its value falls below required levels. The company also had $192.7 of unfunded commitments to limited-liability investment entities. Management did not believe pending legal proceedings were reasonably likely to have a material financial-statement effect. Insurance-subsidiary dividends are subject to regulatory restrictions; approximately $190.0 was estimated available without prior approval for the remainder of 2023, and $62.0 was paid in October.
Investor verification priorities
- Track progress, costs and remaining exposure associated with the Preferred P&C exit and any strategic alternatives.
- Monitor reserve development, especially Florida PIP and bodily-injury claims, and compare underlying versus reported combined ratios.
- Assess whether premium reductions and rate actions improve underwriting results without eroding the business base excessively.
- Review recurring restructuring and integration costs, pension-related effects, and the distinction between GAAP losses and non-GAAP adjusted results.
- Monitor cash generation, parent-level liquidity, debt maturities, FHLB collateral requirements and the timing of subsidiary dividends.
- Evaluate investment losses, unrealized fixed-maturity losses and unfunded investment commitments alongside insurance-liability assumptions under LDTI.