KEMPER Corp (KMPR)·Q4 2024 Earnings Summary

Executive Summary

• Specialty P&C underwriting continued to outperform: Underlying combined ratio improved to 91.7% in Q4 (vs. 98.2% YoY), with combined ratio at 92.1%; PIF rose 1.7% sequential and 5.1% YoY, underpinning profitable growth .
• Strong bottom-line: Net income was $97.4M ($1.51 diluted EPS) and Adjusted Consolidated Net Operating Income was $115.1M ($1.78 diluted), both materially above the prior year; ROE 14.0% and Adjusted ROE 21.4% for the quarter .
• Balance sheet and capital moves: Parent liquidity ~$1.06–$1.06B at Q4 end; company retiring $450M notes due Feb-2025, and increased quarterly dividend to $0.32 (from $0.31); repurchased ~$14M of stock in Q4 .
• Catastrophe exposure reduced and reinsurance refreshed: 2025 Cat XoL program of 95% cover with two layers ($60M xs $50M and $65M xs $110M) with limit ~30% lower due to Preferred exit, improving cost of capital; Q4 pre-tax cat losses ~$5M, ~$3M in non-core .
• Estimates unavailable: S&P Global Wall Street consensus EPS and revenue estimates were inaccessible, so beat/miss vs. Street cannot be assessed at this time (SPGI access limits encountered).

What Went Well and What Went Wrong

What Went Well

• Specialty P&C delivered robust underwriting and growth: Underlying combined ratio improved to 91.7% (from 98.2% YoY), combined ratio 92.1%; PIF grew 1.7% sequential and 5.1% YoY, with earned premiums up 10.3% YoY .
• Life segment strengthened: Adjusted net operating income rose to $23.5M (from $15.0M YoY), driven by favorable mortality; segment revenues $141.1M vs. $131.4M YoY .
• Management tone confident on hard market execution and growth: “We delivered very strong results for the year and even stronger results for the quarter… Specialty Auto’s underlying combined ratio outperforming long-term expectations.” — CEO Joseph Lacher . CFO guided continued profitable growth and noted dividend increase and full retirement of 2025 debt .

What Went Wrong

• Expense ratio ticked up: Specialty P&C insurance expense ratio rose to 21.7% (from 20.5% YoY), partially offsetting loss ratio gains as growth resumed .
• End-of-year reserve adjustments in commercial auto: Management cited bolstering CV reserves related to extra contractual obligations (ECOs), contributing to minor adverse development (~$1.9M Ka total) amidst broader favorable trends .
• Investment income slightly lower sequentially: Q4 net investment income was $103.0M vs. $111.1M in Q3 (though inline with guidance); CFO noted incremental asset allocation changes to lift NII over coming quarters .

Financial Results

Context: YoY EPS and adjusted EPS gains reflect rate increases and lower underlying claim frequency; Specialty P&C earned premiums grew with higher average earned premium per exposure; life benefited from favorable mortality and LDTI effects .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO perspective on quarter and hard market: “We delivered very strong results for the year and even stronger results for the fourth quarter… Specialty Auto’s underlying combined ratio outperforming long-term expectations.”
• CFO on capital and shareholder returns: “We repurchased $14 million of common stock… increased our quarterly dividend by $0.01 to $0.32… next week, we will retire $450 million of debt… This will bring our debt-to-capital ratio back into the low 20s.”
• Specialty P&C leadership on growth: “Traditionally, PIF would have shrunk about 2% from the third to the fourth quarter, but instead, we grew units by 1.7%… We remain fully committed to sustained profitable growth.”

Q&A Highlights

• California wildfires and distribution impact: Limited impact to auto results; customers and distribution footprint not materially overlapped with affected homeowners markets .
• California minimum limits: Liability coverages up ~30% for minimum limit policies (majority of CA customers), but margins expected to remain broadly unchanged due to pricing action .
• Capital allocation and buybacks: Primary focus on profitable organic growth; opportunistic buybacks continue (~$133M authorization), no large program expected near term .
• Frequency and reserve trends: Frequency on a YoY basis remains attractive; minor year-end reserve strengthening in CV related to ECO items, overall trends intact .
• Geographic mix: Ongoing diversification away from California via higher relative growth in Florida, Texas, and other states over time .

Estimates Context

• S&P Global consensus EPS and revenue estimates for Q4 2024 were unavailable due to access limits at the time of this analysis. As such, we cannot assess beat/miss versus Street for EPS or revenues.
• Note: If SPGI values are provided later, we will anchor comparisons to S&P Global consensus by default.

Key Takeaways for Investors

• Specialty P&C profitability is resilient and above long-term targets, with underwriting margins expected to normalize to ~93–95% as growth ramps, supporting durable earnings power .
• Sequential PIF growth should meaningfully accelerate in H1 2025 given seasonal buying patterns and ongoing hard market dynamics, offering top-line catalysts .
• Balance sheet strength and deleveraging (full $450M debt retirement) reduce financial risk and support capital deployment flexibility, alongside a dividend increase and ongoing buybacks .
• California liability minimum limits reset should lift revenues for affected policies while management expects margins to be broadly neutral due to matching pricing actions .
• Life segment offers steady cash generation with established run-rate (~$13–$14M per quarter), adding stability to consolidated results .
• Lower catastrophe load and refreshed 2025 reinsurance structure align with reduced exposure post Preferred exit, improving risk-adjusted returns .
• Near-term trading lens: Seasonal PIF acceleration and confirmation of combined ratio normalization could be stock catalysts; watch upcoming disclosures for NII uplift and continued underwriting discipline .