Kemper(US:KMPR)2023-10-31 02:04Financial Data and Key Metrics Changes - The company reported a net loss of $2.28 per diluted share for the quarter, with an adjusted consolidated net operating loss of $0.44. This included a non-cash charge of $56 million related to pension obligations and adverse development in specialty auto of $78 million [6][9][10] - Net investment income for the quarter was $107 million, with a pretax equivalent annualized book yield of 4.6% [10] Business Line Data and Key Metrics Changes - The Specialty P&C business saw an underlying combined ratio improvement of 1.5 points sequentially and 6.3 points year-over-year, attributed to earned rate increases and underwriting actions [12][16] - The Life business generated net operating income of $15 million for the third quarter, showing improved profitability compared to the prior year [17] Market Data and Key Metrics Changes - The company noted that the California personal auto rate increase of 30 points, effective in August, had a marginal earned impact in the third quarter but is expected to significantly increase in the following quarters [16][18] - The company is observing hard market conditions, particularly in California, which is contributing to favorable premium retention [12] Company Strategy and Development Direction - The company is focused on returning to profitability and maximizing long-term shareholder value, reaffirming its 2024 financial guidance of achieving a return on equity (ROE) of 10% or greater [5][18] - Strategic initiatives are on track to be completed on time, with expected financial and operational benefits, including the Bermuda project which is anticipated to provide $250 million in life dividends to the parent in the fourth quarter [8][9][80] Management's Comments on Operating Environment and Future Outlook - Management described the current environment as the most dynamic and volatile in the personal auto insurance industry, with expectations that this will persist for at least another year or two [5][18] - The company remains optimistic about future prospects, with confidence in achieving target profitability in 2024 [18][81] Other Important Information - The company is in the process of winding down its preferred P&C business, which is expected to release approximately $175 million of capital by the end of 2024 [80] - The reciprocal exchange has received necessary approvals and began writing business during the quarter, with plans to reinsure select new business from Kemper legal entities [78][80] Q&A Session Summary Question: Decline in policy count in specialty book - Management indicated that the decline is largely driven by a reduction in new business policies, while retention rates remain stable or slightly improved [20][21] Question: Concerns about parent company liquidity - Management acknowledged a decrease in parent company liquidity from $1.3 billion to $821 million, but expects to bolster liquidity by at least $250 million in the fourth quarter from Bermuda Optimization [31][33] Question: Adverse reserve development in personal auto business - Management expressed confidence in current reserves, noting that adverse development was primarily related to claims from the second half of 2022 and that they are closely monitoring trends [35][44] Question: Impact of capital situation on reciprocal - Management clarified that reinsuring business into the reciprocal would provide capital relief for the parent company, allowing for flexibility in capital management [47][52] Question: Target profitability and ROE expectations - Management reiterated the target of achieving a 10% ROE in 2024, emphasizing that combined ratios are expected to improve as new business is selectively written [54][70]