Q2 2025 Kemper Corp Earnings Call
Good afternoon, ladies and gentlemen, and welcome to campus second quarter 2025 earnings conference call.
My name is konstantin and I will be your coordinator today.
At this time, all participants are in listen-only mode.
Later, we will conduct a question-and-answer session and instructions will follow at that time.
As a reminder, this conference call is being recorded for replay purposes.
I would now like to introduce your host for today's conference call.
Michael Marin, National Camptainers Vice President of Corporate Development and Investor Relations, since the last earnings call. You may begin.
Thank you. Good afternoon, everyone and welcome to the campus discussion of our second quarter 2025 results.
This afternoon, you'll hear from Joe Locker Kemper's, President and Chief Executive Officer.
Brad Camden, kemper's Executive, Vice President, and Chief Financial Officer. And Matt Hunton kemper's Executive, Vice President, and president of Kemper auto.
We'll make a few opening remarks to provide context around our second quarter results, followed by a Q&A session.
During the interactive portion of the call, our presenters will be joined by Chris Flint kurz, Executive Vice President and president of Kemper life, Dwayne Sanders kemper's, Executive, Vice, President, and chief claims officer for PNC and John bashley, kemper's, Executive, Vice President and chief investment officer.
After the markets closed today, we issued our earnings release filed. Our form 10q with the SEC, and published our earnings, presentation and financial supplements.
You can find these documents in the investor section of our website camper.com.
Our discussion today may contain forward-looking statements within the meaning of the Safe Harbor, decisions of the private Securities, litigation Reform, Act of 1995.
These statements include but are not limited to the company's outlook on its future results of operation and financial conditions.
Our actual future results and financial condition May differ materially from the statements.
for information on additional risks that may impact these forward-looking statements, please refer to our 2024 form 10K and our second quarter earnings release
this afternoon discussion also includes 9 Gap Financial measures. We Believe are meaningful to investors in our financial supplement earnings presentation and earnings release. We've defined and reconciled all non-gaap Financial measures to gaps wherever required in accordance with SEC rules. You can find each of these documents in the investor section of our website kemper.com.
All comparative references will be the corresponding 2024 period, unless otherwise stated, I will now turn the call over to Joe.
Thank you, Michael. Good afternoon, everyone. And thank you for joining us today. I'm pleased to report that we delivered another quarter of strong, underlying operating results. This was led by our Specialty Auto business which once again, produced a solid underlying combined ratio and meaningful year-over-year. Pip growth,
Before we dig into the specifics of our results.
I'd like to provide some context around the overall auto market competitiveness and more specifically the Specialty Auto segment.
Believe, we're all aware that there's been a hard market for Auto in general, over the first half of this year. There's been clear evidence that markets are softening in reverting to more normalized conditions.
As most carriers C combined ratios recovering to more acceptable profitability levels. They're not taking major rate increases in some cases they're decreasing rates and increasing underwriting appetites to more aggressively compete for new business.
The result is a combination of reduced consumer shopping and more available options when they do shop.
Accordingly, the high levels of growth seen by the strongest players are naturally normalizing to more traditional levels.
Most of us in the industry think and talk about hard normal and soft market conditions.
These descriptions work overall for commercial lines, as well as the standard and preferred personal auto market.
But they don't really work for the Specialty Auto segment.
As I stated in the past within Specialty Auto, you generally see, either a hard Market or a more normalized Market overall, we don't typically experience a traditional soft Market because of our segments, unique characteristics.
Second, the speed of loss development is typically faster than the standard Market.
And Third customer policy lifetime. Ten years are much shorter than the standard Market.
The combination of these characteristics has several implications.
You can't recover short-term irrational, pricing over the lifetime of a customer.
Aggressive pricing is seen in results more rapidly.
And no single competitor can typically soften the overall Market with irrationally aggressive activity.
Especially Auto we may experience short-term softness in select geographies but in general it does not last long or impact the overall Market.
Recall, our competitive advantages.
We deliver a low-cost value proposition tailored to our unique customer needs, we bring a distinct scale advantage and a deep understanding of our Market.
This enables us to deliver leading differentiated products sophistication claims Effectiveness and ease of use.
We are confident that our competitive advantages will continue to produce attractive long-term profitable growth in a more normal Market environment.
With this is a backdrop, let's move to page 4 and jump into this quarter's Financial results.
We delivered a return on adjusted Equity of 15%, adjusted book, value per share growth of 14% year-over-year And an all-time high trailing 12-month. Operating cash flow of nearly 600 million,
Core businesses, continue to perform very well, specialty auto-generated a 93 and a half percent, underlying combined ratio, while producing 8% year-over-year test growth and earn premium growth of 17%.
Our private passenger auto business produced an underlying combined ratio and year-over-year growth better than long-term norms, but with somewhat off the hard market highs.
Our commercial auto business continue to perform well and produce an underlying combined ratio of 90% while growing pif by 18%.
Here we reported adverse prior year development, approximately 19 million dollars, which was driven by the general effect of social inflation.
When viewed over a rolling 4 or 8 quarter basis, this business, consistently produces attractive combined ratios and growth and is a source of continued reliable strength. The performance of our alternative Investments, negatively impacted both our Specialty, Auto, and life segments. This quarter, we had some modest noise which I generally categorize. As consistent with the broad Marketplace, Investments volatility, we continue to maintain a high quality.
Investment Portfolio. Brad will get into the specifics around this shortly.
The business fundamentals. Underlying our life segment remains stable, the business continued to produce a strong return on Capital and distributable cash flows.
Lastly, we continue to execute on our multi-quarter balance sheet, strengthening.
Last quarter, we retired $450 million of debt, bringing our debt-to-cap ratio near our long-term target.
And our cash flow from operations hidden in all time high.
With a strong balance sheet and healthy liquidity. We've repurchased 80 million dollars of Common Stocks. Since April 1st, giving our expectations around future growth and strong operating metrics. The board approved an additional 500 million of repurchase authorization bringing the total available to 550 million.
Brad will discuss our financials and share repurchases in more detail.
Overall, we're pleased with our second quarter results with that. I'll turn the call over to Brad.
Thank you, Joe and good afternoon to everyone.
I'll begin with our financial results on page 5.
For the quarter. We reported net income of 72.6 million for a $112 per diluted share and a justice of Consolidated. Net operating income of 84.1 million or a $130 per diluted share.
These results led to an attractive return on adjusted Equity of 14.9% and growth in adjusted book, value per share of 14.3%, year-over-year as Joe discussed. Our businesses continue to deliver strong. Underlying performance Specialty, Auto produced, strong growth, and policies, and force and earn premium and life continue to provide steady returns.
Overall, our core businesses are performing well. But this quarter our results were impacted by a few and frequent items.
first Specialty, Auto recorded, 14 million adverse prior development,
Driven by a 19 million Reserve. Increase our commercial vehicle business.
This was primarily related to bodily injury losses.
Second volatility in our alternative Investment Portfolio pressured, net investment income.
Let's turn to page 6 to discuss the Investment Portfolio in more detail.
To the lower returns from alternative Investments.
Not surprisingly performance. Mis asset class can be volatile.
Valuation gains tend to align with Marketplace deal activity which slowed in the second quarter amid broader. Macroeconomic pressures.
As market conditions stabilized, we expect alternative investment performance to improve in the coming quarters.
The core portfolio, which excludes alternatives, continues to perform well, delivering $98 million of net investment income this quarter.
Overall, we can continue to maintain a high quality. Well, Diversified Investment Portfolio.
As the Investment Portfolio grows and was favorable new money rates. We anticipate net investment income to Rebound in the second half of the Year averaging approximately 100 to 105 million dollars per quarter.
Moving to page 7.
Here, we highlight the strength of our balance sheet and significant financial flexibility.
We maintain 1.1 billion in available liquidity and continue to have well, capitalized Insurance, subsidiaries.
Our debt to Capital ratio stands at 22.7% allowing closely with our long-term Target.
Notably, we generated $587 million in operating cash flow over the past year, marking an all-time high for the company.
Given our strong financial position, let me remind you of our capital appointment priorities.
First, we utilize capital to support organic growth.
Next, we will fund inorganic opportunities, then enhance our platform.
And lastly, we will return excess Capital to shareholders.
As Joe discussed earlier, the Specialty Auto segment is transitioning to a more normal Marketplace.
For the Tractive with somewhat slower profitable growth opportunities.
This evolving environment will require less Capital to fund organic growth.
With significant financial strength and flexibility, we believe our stock is trading below its intrinsic value. We repurchased 80 million shares of common stock since April 1st, leaving 50 million available under our current authorization.
This week the board approved additional 500 million, Cherry purchase authorization, bringing the total amount for a purchase to 550 million.
This will enable us to deliver on our Capital priorities in this environment.
That said, we have no preset timeline for Sherry purchases and plan to execute on them opportunistically.
Finally, I want to reiterate that we're well positioned for sustained profitable growth.
The Strategic Investments we made over the past 5 years have strengthened our capabilities and reinforce our confidence in driving shareholder value.
I'll now turn the call over to Matt to discuss the specialty P&C segment.
Thank you, Brad and good afternoon everyone. Turning to page 8, our specialty PNC, segment produced another quarter of quality underlying results.
This business generated a solid, underlying combined ratio of 93.6%, up modestly from Q1, largely driven by normal seasonal patterns.
Private passenger Auto produced a 94.5% while commercial and 90.1%.
Overall, fifth growth for the specialty business with nearly 8% year-over-year.
In our Focus to private passenger Auto.
As Joe mentioned, the hard Market in the Specialty Auto business has been receding and we are moving to an overall more normal competitive environment.
As we would expect each state is moving at its own pace.
California remains a modestly hard Market given its unique regulatory environment and the challenges that exist at other lines of business. We do not expect California Auto to move to a fully soft Market.
The marketplace is structured in a way that doesn't try sustained. Irrational Behavior. We are. However seen competitors, increasingly reopen our products are, well, positioned and our scale and understanding of this unique state are enabling continued, profitable growth.
Florida continues to be a very competitive market.
When we talked in, may, we commented on some aggressive, competitor actions, and our plans to respond, that response came in June and had the intended positive impacts of increasing new business. We saw the benefits in June and they continued through July.
We will continue to build on this momentum to drive profitable growth.
In Texas, the market conditions continue to operate in a traditionally normal fashion on a relative basis, sitting somewhere between California and Florida. Our production has been steadily gaining momentum since we fine-tuned our pricing plans earlier this year.
All other states continue to see attractive growth and profitability in normalizing market conditions overall, we recognize the ongoing market dynamics, and are proactively positioning ourselves for long-term profitable growth.
shifting to Commercial Auto this business, again saw a very strong, underlying profitability with pit growth of nearly 18% the market, backdrop remains consistent, and success, in this line, requires a deep understanding of underwriting Dynamics,
Our long-term competitive advantages. Continue to position us. Well to capitalize here, we are confident in our ability to profitably, grow this business.
We are positioning ourselves to compete in a more normalized Market environment. That said, as a reminder Specialty Auto has a more pronounced seasonal shopping pattern than Standard Auto customer shopping activity decreases in the second half of the Year particularly in the fourth quarter. This is normal and we anticipate that it will occur this year. With that said the business of delivering solid profitable growth enabled by our competitive advantages, scale and focus. We're in a position of strength and remain optimistic in our long-term Outlook, I'm now turn the call back to Joe to cover the life business and closing comments.
Thank you, Matt.
Bring our life business on page 9 is noted earlier the underlying business continued to generate stable. Operating results, mortality and persistency remained in line, with historical Trends and the life business continues to generate, strong return on Capital and distributable cash flows.
Turning to page 10 in closing, I'd like to reiterate our highlights for the quarter.
First camper delivered to solid operating results. With an adjusted Roe, a 15% and year-over-year adjusted book value per share. Growth of 14%
Specialty Auto continued to produce strong, underlying results with solid year-over-year growth in an underlying combined ratio of 93.6.
Our competitive advantages continue to give us confidence in our ability to navigate the normalization of the auto market.
And finally,
Liquidity position provides significant financial flexibility.
Our debt-to-cap ratio is near our long-term target range, operating cash flows hit an all-time high, and we repurchased $80 million of stock since April 1st. We now have the authorization to repurchase up to another $550 million. I want to take a moment to thank our entire team for their efforts.
These results would not be possible without their commitment and hard work towards achieving our goals remain confident in our ability to create long-term shareholder value.
With that operator. We may now take questions.
Ladies and gentlemen, we will now begin the question and answer session.
So if you have a question, please press star followed by the number 1 on your touchtone phone. You will hear a prompt that your hand has been raised.
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1 moment before we prepare the Q&A roster.
Your first question comes from the line of Andrew clearman from a TV Colin. Please go ahead.
Hey, good afternoon. So uh the first question is around pif growth. Um,
I I I and pricing kind of a dual dual question with with written premium.
up 7%, and
If up 8% year-over-year.
Is.
1, uh, does that imply pricing came down and could you give color on that and 2? Um, pif is actually down 70 basis points. Sequentially are you, are you kind of putting the brakes on things a little bit as we move into the second half?
Sure, Andrew, um, this is Joe. I I'll take those, um, couple of different things. Let's break them apart. Um, the, the pith versus written premium difference is really modest issues around Geographic mix. Um, it's no, no significant material change. Um, in any in any premium um rate filings there. There's modest changes in certain geographies but no no significant change um view that is more of an anomaly.
um, second we've continued we've historically talked to you guys about year-over-year, pip growth and encourage you not to be looking at sequential quarter because there's such seasonality differences in Specialty Auto
We specifically pointed you to sequential quarter pip, when we were going from declining to growing. So that you would see that as a leading indicator of a material change, um, not a, a sort of rolling 4 quarter. We, we are past that we mentioned that last quarter,
Um, if you spend your time looking at sequential quarter pip growth, you're going to get tied up in seasonality issues. Um, Matt made a couple comments on that the back half of the year and Specialty Auto has a significant seasonality difference to the first half of the year.
In.
Path is exactly what most of our competitors have been talking about. Um, we've been shifting as an industry from a hard Market to a more normal Market. Um, the the double digit growth that that folks experienced, um, in the last year or year and a half are not long-term normal environments, they're an anomaly of a hard Market. Um I think Progressive had a call this morning and very aggressively reminded everybody of that. Um, and we're competing in the same markets, um, carriers are opening again, um, they're active and that will cause that outsized growth to normalize. Um, what we expect to see is what we've described
Long term, um, to and the investor community that in a normal, um, Specialty Auto environment, we expect to see, you know, low to mid single digit, pip growth on year-over-year basis, that's somewhere in a 3 to 7% range, depending on sort of where we are, um, in any given um, you know, in any given 90-day period. Um, and we would expect that as a good modeling view long term from a pif perspective. Um, we would expect maintenance rate, largely to be continuing to work its way through the system. Um, and we would expect, as we've said combined ratios, um, over a number of quarters will migrate their way back into that, 93 and a half to 94 and a half 95 range.
Um, which was where they've been in the long term.
As as again, a reminder, if we were thinking, you know, pre-pandemic 17181920, a 93 and a half and an 8% pif growth, we all have been doing a happy dance. Um, it's a, and it's attractive set of numbers for a long-term normal Market. It just looks a little off compared to exceptionally High numbers, um, which we've pointed out to folks, is not going to continue. So, and not because we didn't want it to, um, because the market will normalize in competitors will work their way in. So, it's, it's no, in no way shape or form us, tapping breaks, or intending to slow down.
That was super helpful. Joe and then just my follow-up. Is around your your confidence in the loss results. Going forward. So private passenger Auto at 944 calendar year um is getting close to that 95. Do you think you could hold it there and then with the 19 million is charged in commercial Auto? Are you confident that you've kind of nipped it and we won't see see much of anything. Uh they're going forward, thank you. Sure. Um I'm going to break those apart into 2 distinct buckets.
Um, the general combined ratio guidance, we give of maybe a 93 and a half 95 normal range. If it Peaks above 95, we don't start, you know, getting an enormous angst for a quarter or 2, we we've got a really, an aggressive hard stop and a 96. Um, there's normally in this business, um, 5070 basis points on any given quarter that can move around. I'd expect us to be, um, in that range and in that zone.
And don't have a particular angst around, you know, 1 quarter being at the edge of that. It will, it will sort of stay in that zone and I would expect it to be there.
Um the the second piece is around the 19th. We saw a modest uptick in a a range of accident years. Probably driven by the what where you collectively as an industry you're described as social inflation.
Um, we made some balance sheet adjustments for that. It was in, um, abnormally active quarter. Um, we made some adjustments as a result of that. Um, and that includes our current accident year pick in both CV and private passenger Auto to reflect that environment. So, that may have been, um,
I, you know, if you think about the combined ratio and private passenger Auto, a little bit of normal seasonality in the second quarter, that's normal to see it up a bit and a bit of us, um, pushing that current accident in your up a bit to take into account. Um, that that environmental environmental issue. We believe we've got it right there. Um, could there be a little bit more noise in any given quarter? Yeah, maybe. But what we tried to discuss and tried to comment on in commercial vehicle.
Is it seems like every 4, 6, 8 quarters, you get 1 or 2 in there that have has a little bit of a pop if you look at it on a rolling 4, to 8 quarter basis. Um, that's a very attractive business for us. We have a high degree of comfort in it, um, and we respond, um, if we get a little bit of, you know, anomalous noise, um, in a quarter appropriately, but it doesn't change. Our fundamental positive view on the Outlook of that business.
The next question comes from the line of Mitch Rubin from Raymond James. Please go ahead.
Hey, thank you guys for taking my call. This is Mitch on behalf of Greg Peters. So I wanted to ask about the, uh, higher minimum limits in California and I was wondering if you could quantify the impact on premiums this quarter. Thank you.
Sure, the the minimum limits.
Um, in California, that would have had... and I'm apologizing; we're trying to get you the exact number. It would have had roughly the same impact. You would have seen it in the first quarter.
Um, for that. And our policies are running 6-month policies, so that largely its impact will have worked its way through the book. Um, this is the last quarter that anomaly will have occurred.
I'm in that and and I apologize. Mitch, we're going to have to get back to you on the specific. Number on that. I I'm I'm thinking I've got it at the top of my head, but I'm certain, I'm going to be off on a little bit. Let us get back to you. Um, it's consistent with what we saw in the first quarter and given our policies are virtually 100% 6 months in California. Um, it's it's worked, its way through
All right, thank you for the caller on that. My follow-up is on retention and how that's been differing by state.
Yeah. Matt, why don't you go ahead and take a shot at that? Yeah, Mitch, um,
You know the texture varies a bit by by state, some of the commentary we left with we started with earlier on California, California Market, you know, continues to be, you know, on a relatively hard basis. Um, we're we're seeing limited Supply relative to historical Trends there. So retention generally is holding, um, in that Marketplace, you know, Florida is, uh, we're seeing a modest, um, maybe a modest decline in in policy life expectancy. And that's, that's normal. As agents, uh, are are reshop books as carrier premiums are, are shifting down but it's it's not moving materially and changing our perspective on that State. Texas is is pretty stable. We are seeing um, you know, less shopping in the marketplace uh, more recently. So we're, you know, likely that will that will Abate a bit as uh, as you know, the the business sort of rolls forward but retention overall is is has been pretty stable.
I thank you for the answers.
We just sent gentlemen as a reminder, if you would like to ask a question, please press star. Followed by the number 1 on your touchtone phone. If you are using a speaker-phone, please make sure to lift your handset before pressing any keys.
The next question is from the line of Paul and Newsome from Piper Sandler. Please go ahead.
Um, good afternoon.
Um uh 1 may follow up on the adverse development, was there any? Um,
Anything besides just severity going up that like, was there any Geographic?
Pattern to it. Was there, uh, anything, uh, just purely liability related things? Or was there some healthcare inflation in there? I think you said probably injury. Um, just want to make sure we got all the pieces there on the end of this development.
Sure. Paul. This is Brad. Um, great question. You know, specifically in CV bi where we're seeing the adverse development, it was in our large large loss bucket, which is a very low frequency, higher severity, um, coverage or loss bucket. Um, it's important that articulate those those items because it's not an underwriting issue. There's no significant increase in frequency. It's simply a, a result of social inflation over time. And these things are tend to be 2 or 3 years old. As they develop
Up and in the more recent accident years we um you know, strengthen the balance sheet, as a result of that.
So, you know, the business overall continues to perform extremely well grew significantly year-over-year and an underlying combined ratio, low 90s. Um, very strong overall, just more episodic large loss events. And as Joe said, more litigation activity in the second quarter than we've seen in the past.
and then, um,
a related question, um, in a big picture question, um, really to the, um, the combined ratio thoughts that you've had over the cycle? Um, we're kind of in the zone, uh, for a normal underwriting profitability. Um, and I think we're sort of In the Zone from a debt to Capital perspective.
Improved ROE or the other way over the cycle.
Yeah. It's, you know, there's always some variation in their Paul. I we look at our adjusted Roe, um, because there's a significant amount of Goodwill on the balance sheet at at being roughly 15%. Um, you know, that's a, a reasonably attractive spot. I think it can and can, and has over time moved up a bit. Um, and and I think it's in a, you know, in a reasonable Zone. Um, with with some expected volatility there. The other thing, I it points you to and, and maybe you were going to ask about it next. Um, and I maybe jump in the gun, um, but there's a, a significant share repurchase authorization, um, that that came out with the board. I think it's actually at $500 million. It's equal to the the last 2 reauthorizations or authorizations combined, um, it amounts to when you include the 50 million remaining and the the 80 million we bought in the last 90 days. Um, roughly 16% of of the current market capital.
Of the company. So it's a fairly significant, um, opportunity. There. We, we believe the returns are good in this business. We we have a healthy balance sheet, a healthy liquidity, um, and think the the stocks somewhat undervalued and we're going to opportunistically buy um and aggressively defended in the marketplace. Um because we think there there's sort of an Unruh
Recognized upside there.
Thank you. Appreciate the help.
Thank you. There are no further questions at this time. I'd like to turn the call over to Joe Locker for closing comments, sir. Please go ahead.
Hey, thank you again for everybody for your time and your attention. Um, we look forward to talking to you next quarter and look forward to continuing to to be strong thoughtful competitors in the marketplace.
Leaders and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect