Kemper Corporation — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter earnings report. Kemper is a U.S. insurance holding company operating Specialty Property & Casualty, Preferred Property & Casualty, and Life & Health businesses.
Key financial results
| Metric | 2022 | 2021 |
|---|---|---|
| Earned premiums | $5,266.3 million | $5,253.7 million |
| Total revenue | $5,576.8 million | $5,793.0 million |
| Net loss | $301.2 million; $(4.72) per share | $120.5 million; $(1.87) per share |
| Adjusted consolidated net operating loss (non-GAAP) | $156.9 million | $218.8 million |
| Net investment income | $422.6 million | $427.3 million |
| Cash from operating activities | $(210.3) million | $350.7 million |
| Total assets | $13,364.0 million | $14,916.5 million |
| Shareholders’ equity | $2,443.2 million | $4,007.7 million |
| Long-term debt, carrying value | $1,386.9 million | $1,121.9 million |
- Specialty P&C reported a $147.4 million segment net operating loss, improving from a $196.1 million loss. Its combined ratio improved to 108.2% from 110.6%; the underlying combined ratio worsened to 108.0% from 107.7%.
- Preferred P&C reported a $25.9 million segment net operating loss versus $12.5 million. Its combined ratio improved slightly to 113.7% from 114.2%, while its underlying combined ratio deteriorated to 105.0% from 100.9%.
- Life & Health reported $54.2 million of segment net operating income, up from $28.2 million.
- Catastrophe losses and LAE, net of reinsurance and excluding reserve development, were $79.3 million, down from $107.8 million. Prior-year P&C reserve development was favorable by $14.6 million, compared with adverse development of $106.7 million in 2021.
Liquidity, debt and capital
- Year-end cash was $212.4 million; total investments were $8,789.5 million. Kemper directly held $417.6 million of cash and investments, compared with $233.9 million a year earlier.
- Operating cash flow turned negative, primarily reflecting higher P&C claim payments amid higher claim frequency and severity. Investing cash used was $108.4 million; financing cash provided was $382.9 million.
- Kemper issued $400 million of 3.8% senior notes due 2032 and $150 million of 5.875% fixed-rate-reset junior subordinated debentures due 2062; it redeemed $275 million principal of 5.0% notes due 2022. The $600 million revolving credit facility, expandable to $800 million, had no borrowings outstanding at year-end.
- Annual common dividends were $1.24 per share. Insurance subsidiaries paid $311.7 million in dividends to Kemper in 2022; approximately $108.9 million was estimated available in 2023 without prior regulatory approval.
Material changes, outlook and risks
- Net loss widened despite improvement in the non-GAAP adjusted operating loss. The main factors included a $79.9 million loss from changes in fair value of equity and convertible securities versus $114.6 million of income in 2021, lower realized investment gains, and higher transaction, restructuring and other costs. These excluded items mean the non-GAAP measure should not be viewed as a substitute for GAAP results.
- Higher inflation and supply-chain constraints increased claims severity. Management also cited ongoing profit-improvement actions, including lower new-business volumes in personal auto, and rate increases. California and Florida represented 69% of 2022 personal-auto gross written premiums, exposing results to state-specific regulation and market conditions.
- Kemper sold Reserve National on December 1, 2022, for approximately $90 million in total consideration. The sale resulted in a $2.0 million loss, and the transaction included an $11.4 million goodwill impairment.
- Investment-market declines materially affected equity: other comprehensive loss was $1,204.1 million after tax, and year-end accumulated other comprehensive loss was $756.0 million, compared with accumulated other comprehensive income of $448.1 million in 2021. The report attributes the large investment valuation decline primarily to fixed-income securities.
- Management provided no specific earnings or operating guidance in the supplied filing text. It cautioned that actual results may vary materially; key risks include claims inflation and social inflation, reserve uncertainty, catastrophes and reinsurance availability, investment-market and interest-rate volatility, regulatory limits on rates and dividends, and cyber and technology risks.
- Management estimated adoption of the long-duration insurance accounting standard (ASU 2018-12) would reduce equity by approximately $1.0–$1.1 billion at the transition date, primarily from the change in discount-rate methodology. This was an estimate disclosed before the January 1, 2023 adoption.
- Specialty personal-auto loss reserves had an estimated one-standard-deviation variability of $178.9 million in either direction at year-end. The independent auditor issued unqualified opinions on the financial statements and internal controls; P&C reserves and fixed-maturity fair values were identified as critical audit matters.
Important facts for investors to verify
- Whether specialty-auto rate actions and underwriting changes are sufficient to improve underlying loss ratios as severity and inflation evolve.
- Reserve adequacy and subsequent development, particularly for specialty personal-auto liability claims; compare emerging claims experience with the disclosed sensitivity estimate.
- Liquidity and parent-company cash generation, including the sustainability of subsidiary dividends and the effect of negative operating cash flow.
- Credit quality, realized losses and recovery prospects for the investment portfolio, including the substantial year-over-year fair-value decline and the impact on equity and regulatory capital.
- The actual equity and reporting effects of ASU 2018-12 adoption, and whether the Reserve National disposition and restructuring actions deliver expected benefits.