Kemper(US:KMPR)2024-05-01 20:33Caution Regarding Forward-Looking Statements Forward-Looking Statements Disclosure Forward-looking statements in this report are subject to risks and uncertainties that may cause actual results to differ materially - Forward-looking statements are identified by words such as "believe," "estimate," "anticipate," "forecast," "project," "plan," "intend," and "expect"11 - Actual results may differ materially from forward-looking statements due to various factors, including but not limited to1213 - Legal and Regulatory Environment: Changes in regulations, adverse litigation outcomes, and cybersecurity risks1416 - Insurance Claims and Reserves: Catastrophe frequency/severity, inflation impact on claims, and changes in reinsurance1519 - Competitive and Business Environment: Competition, success of strategic initiatives, technology risks, and general economic conditions1718 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Q1 2024 consolidated financial statements show a significant turnaround to profitability, driven by improved underwriting results Condensed Consolidated Statements of Income (Loss) Q1 2024 net income reached $71.3 million, a significant improvement from a $80.1 million net loss in Q1 2023, primarily due to reduced expenses Q1 2024 vs. Q1 2023 Income Statement Highlights | Metric | Q1 2024 (in millions) | Q1 2023 (in millions) | | :--- | :--- | :--- | | Total Revenues | $1,143.0 | $1,294.8 | | Total Expenses | $1,056.4 | $1,398.7 | | Income (Loss) before Income Taxes | $86.6 | $(103.9) | | Net Income (Loss) attributable to Kemper | $71.3 | $(80.1) | | Diluted EPS | $1.10 | $(1.25) | Condensed Consolidated Balance Sheets As of March 31, 2024, total assets were $12.63 billion, with shareholders' equity increasing to $2.59 billion due to reduced liabilities Balance Sheet Summary | Metric | Mar 31, 2024 (in millions) | Dec 31, 2023 (in millions) | | :--- | :--- | :--- | | Total Investments | $8,764.6 | $8,904.2 | | Total Assets | $12,625.9 | $12,742.7 | | Total Insurance Reserves | $5,891.5 | $6,102.9 | | Total Liabilities | $10,037.2 | $10,237.7 | | Total Shareholders' Equity | $2,588.7 | $2,505.0 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $43.0 million in Q1 2024, with investing activities turning positive, leading to a $62.6 million cash increase Cash Flow Summary | Metric | Q1 2024 (in millions) | Q1 2023 (in millions) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $43.0 | $5.2 | | Net Cash Provided by (Used in) Investing Activities | $39.3 | $(138.2) | | Net Cash Used in Financing Activities | $(19.7) | $(18.8) | | Net increase (decrease) in cash | $62.6 | $(151.8) | Notes to the Condensed Consolidated Financial Statements Notes provide detailed financial information, highlighting improved Specialty P&C performance, reduced adverse reserve development, and details on investments and debt Segment Adjusted Operating Income (Loss) | Segment (in millions) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Specialty Property & Casualty Insurance | $86.5 | $(74.7) | | Life Insurance | $14.0 | $14.8 | - Property and Casualty Insurance Reserves saw adverse development of $8.8 million from prior accident years in Q1 2024, a significant improvement from the $41.9 million adverse development in Q1 2023616263 - The company's fixed maturity investment portfolio had a fair value of $6.77 billion against an amortized cost of $7.56 billion as of March 31, 2024, indicating a significant unrealized loss position72 - Total long-term debt outstanding was $1.39 billion as of March 31, 2024, with $449.7 million of 4.350% Senior Notes due 2025 classified as current155 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2024 profitability to improved Specialty P&C underwriting, driven by rate increases and lower claim frequency Reconciliation of Net Income to Adjusted Consolidated Net Operating Income (Loss) | Metric (in millions) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Income (Loss) attributable to Kemper | $71.3 | $(80.1) | | Adjusted Consolidated Net Operating Income (Loss) | $69.7 | $(55.7) | - The $151.4 million increase in Net Income was primarily due to higher Adjusted Consolidated Net Operating Income, improved results from Non-Core Operations, and lower restructuring costs192 - Earned Premiums decreased by $149.0 million, mainly from a $104.2 million reduction in the Specialty P&C segment due to lower new business volumes from actions taken to improve profitability197 Specialty Property & Casualty Insurance Segment The Specialty P&C segment achieved a significant turnaround to $69.2 million adjusted net operating income in Q1 2024, with the combined ratio improving to 94.8% Specialty P&C Segment Key Ratios | Ratio | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Incurred Loss and LAE Ratio | 73.7% | 91.6% | | Insurance Expense Ratio | 21.1% | 20.5% | | Combined Ratio | 94.8% | 112.1% | | Underlying Combined Ratio | 93.6% | 108.0% | - The improvement in results was driven by higher average earned premiums per exposure (up 25.6% YoY), lower underlying claims frequency, and moderating claims severity trends207 - Adverse prior year reserve development was $6.0 million, a significant improvement from $31.1 million in the prior-year quarter207 Life Insurance Segment The Life Insurance segment's adjusted net operating income decreased to $11.9 million in Q1 2024 from $13.2 million in Q1 2023 Life Insurance Segment Financials | Metric (in millions) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Earned Premiums | $97.3 | $99.3 | | Net Investment Income | $44.3 | $49.8 | | Segment Adjusted Operating Income | $14.0 | $14.8 | | Total Segment Adjusted Net Operating Income | $11.9 | $13.2 | - Policyholders' Benefits and Incurred Losses and LAE decreased by $6.9 million due to changes in mortality experience in life insurance products223 Investment Results Net investment income slightly decreased to $100.4 million in Q1 2024, with total comprehensive investment results reversing to a $98.1 million loss - The investment portfolio is primarily high-grade, with 95.8% of fixed maturity investments rated as investment-grade (NAIC 1 or 2) as of March 31, 2024234 Total Comprehensive Investment (Losses) Gains | Metric (in millions) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Gains Recognized in Income | $8.6 | $10.2 | | Recognized in Other Comprehensive Income | $(106.7) | $179.8 | | Total Comprehensive Investment (Losses) Gains | $(98.1) | $190.0 | Liquidity and Capital Resources The company maintains adequate liquidity with $395.6 million in parent company cash and investments, supported by an undrawn $600 million credit facility - The parent company held cash and investments totaling $395.6 million at March 31, 2024266 - The company has a $600 million unsecured credit agreement maturing in March 2027, with $424.0 million available as of March 31, 2024 There were no outstanding borrowings257 - As of March 31, 2024, the remaining share repurchase authorization was $171.6 million No shares were repurchased in Q1 2024263 Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to the company's disclosures about market risk have occurred since the 2023 Annual Report on Form 10-K - No material changes to the Company's disclosures about market risk have occurred since the 2023 Annual Report277 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures are effective, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024278 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls279 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business, with no expected material effect on consolidated financial statements - Information regarding legal proceedings is incorporated by reference from Note 18 to the financial statements281 Item 1A. Risk Factors There have been no material changes to the significant risk factors previously disclosed in the company's 2023 Annual Report on Form 10-K - The company refers readers to the risk factors section of its 2023 Annual Report for a discussion of significant risks282 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Kemper did not repurchase any common stock during Q1 2024, with $171.6 million remaining available under its share repurchase authorization - No shares were repurchased during the quarter ended March 31, 2024283 - The remaining share repurchase authorization was $171.6 million as of March 31, 2024283 Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including CEO and CFO certifications and XBRL data files