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Kemper Corporation Reports Fourth Quarter And Full Year 2012 Results

Kemper Specialty reported a net operating loss of $2.8 million for the fourth quarter of 2012, compared to net operating income of $4.4 million in 2011. Kemper Specialty's underlying combined ratio was 109.5 percent in the fourth quarter of 2012, an increase of 7.2 percentage points, driven by the impact of current year development. Excluding current year development and restructuring costs, the total underlying loss ratio increased 1.2 points, primarily from higher claims handling expenses, offset by higher average premium rates in personal auto. The expense ratio increased 1.5 percentage points, largely related to technology and other initiatives.

Kemper Direct reported net operating income of $1.8 million for the fourth quarter of 2012, compared to a net operating loss of $17.1 million in 2011. Both the underlying loss ratio and expense ratio improved significantly in the current quarter. The underlying loss ratio improved 21.8 percentage points to 74.7 percent, largely from lower severity in liability coverages. The expense ratio improved 24.4 percentage points driven by a $13.5 million pre-tax intangible asset write-off in 2011. Results also included $5.4 million higher net favorable reserve development, offset by $2.0 million higher catastrophe losses and $0.7 million lower net investment income.

The Life and Health Insurance segment reported net operating income of $24.3 million for the fourth quarter of 2012, compared to $31.2 million in the prior year. The $6.9 million decrease is driven by a $2.8 million favorable reserve correction on a small block of policies in the prior year that did not recur and $1.5 million lower net investment income.

Corporate and Other net operating loss was essentially flat at $7.0 million for the fourth quarter of 2012. Results included $0.3 million higher investment income and $0.3 million lower corporate expenses, which were offset by $0.5 million higher retirement benefits.

Unaudited consolidated statements of income for the three months and year ended December 31, 2012 and 2011 are presented below:

   
Three Months Ended Year Ended
(Dollars in millions, except per share amounts) Dec 31,2012   Dec 31,2011 Dec 31,2012   Dec 31,2011
Revenues:
Earned Premiums $ 520.8 $ 536.5 $ 2,107.1 $ 2,173.6
Net Investment Income 72.9 75.3 295.9 298.0
Other Income 0.2 0.2 0.8 1.0
Net Realized Gains on Sales of Investments 5.5 5.9 65.4 33.7
Other-than-temporary Impairment Losses:
Total Other-than-temporary Impairment Losses (3.1 ) (4.7 ) (7.2 ) (11.4 )
Portion of Losses Recognized in Other Comprehensive Income 0.3   0.1   0.3   0.1  
Net Impairment Losses Recognized in Earnings (2.8 ) (4.6 ) (6.9 ) (11.3 )
Total Revenues 596.6   613.3   2,462.3   2,495.0  
Expenses:
Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses 413.0 376.7 1,582.1 1,645.7
Insurance Expenses 169.5 170.1 672.3 683.6
Write-off of Other Intangibles Acquired 13.5 13.5
Interest and Other Expenses 20.1   21.9   85.5   83.9  
Total Expenses 602.6   582.2   2,339.9   2,426.7  
Income (Loss) from Continuing Operations before Income Taxes (6.0 ) 31.1 122.4 68.3
Income Tax Benefit (Expense) 4.3   (6.1 ) (30.6 ) (6.6 )
Income (Loss) from Continuing Operations (1.7 ) 25.0 91.8 61.7
Income (Loss) from Discontinued Operations 3.6   (0.7 ) 11.6   12.8  
Net Income $ 1.9   $ 24.3   $ 103.4   $ 74.5  
 
Income (Loss) from Continuing Operations Per Unrestricted Share:
Basic $ (0.03 ) $ 0.41   $ 1.55   $ 1.02  
Diluted $ (0.03 ) $ 0.41   $ 1.54   $ 1.02  
 
Net Income Per Unrestricted Share:
Basic $ 0.03   $ 0.40   $ 1.75   $ 1.23  
Diluted $ 0.03   $ 0.40   $ 1.74   $ 1.23  
 
Dividends Paid to Shareholders Per Share $ 0.24   $ 0.24   $ 0.96   $ 0.96  
 
 
 

Unaudited business segment revenues for the three months and year ended December 31, 2012 and 2011 are presented below:

   
Three Months Ended Year Ended
(Dollars in Millions) Dec 31,2012   Dec 31,2011 Dec 31,2012   Dec 31,2011
REVENUES
Kemper Preferred:
Earned Premiums $ 223.5 $ 217.0 $ 879.4 $ 859.8
Net Investment Income 11.4 11.0 45.0 48.8
Other Income 0.1   0.1   0.4   0.3  
Total Kemper Preferred 235.0   228.1   924.8   908.9  
Kemper Specialty:
Earned Premiums 102.5 108.5 419.8 445.2
Net Investment Income 4.6 5.3 19.0 22.8
Other Income 0.1   0.1   0.3   0.5  
Total Kemper Specialty 107.2   113.9   439.1   468.5  
Kemper Direct:
Earned Premiums 36.8 50.9 168.0 222.7
Net Investment Income 3.2 3.8 13.9 17.4
Other Income       0.1  
Total Kemper Direct 40.0   54.7   181.9   240.2  
Life and Health Insurance:
Earned Premiums 158.0 160.1 639.9 645.9
Net Investment Income 50.8 53.2 204.3 200.5
Other Income     0.1   0.1  
Total Life and Health Insurance 208.8   213.3   844.3   846.5  
Total Segment Revenues 591.0 610.0 2,390.1 2,464.1
Net Realized Gains on the Sales of Investments 5.5 5.9 65.4 33.7
Net Impairment Losses Recognized in Earnings (2.8 ) (4.6 ) (6.9 ) (11.3 )
Other 2.9   2.0   13.7   8.5  
Total Revenues $ 596.6   $ 613.3   $ 2,462.3   $ 2,495.0  
 
 
 
KEMPER CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(Unaudited)

Dec 31,2012   Dec 31,2011
Assets:
Investments:
Fixed Maturities at Fair Value $ 4,860.2 $ 4,773.4
Equity Securities at Fair Value 521.9 397.3
Equity Method Limited Liability Investments at Cost Plus Cumulative Undistributed Earnings 253.0 306.3
Short-term Investments at Cost which Approximates Fair Value 327.5 247.4
Other Investments 497.5   498.3
Total Investments 6,460.1   6,222.7
Cash 96.3 251.2
Receivables from Policyholders 369.3 379.2
Other Receivables 206.1 218.7
Deferred Policy Acquisition Costs 303.4 294.0
Goodwill 311.8 311.8
Current and Deferred Income Tax Assets 5.4 6.4
Other Assets 256.7   250.7
Total Assets $ 8,009.1   $ 7,934.7
 
Liabilities and Shareholders’ Equity:
Insurance Reserves:
Life and Health $ 3,161.6 $ 3,102.7
Property and Casualty 970.6   1,029.1
Total Insurance Reserves 4,132.2   4,131.8
Unearned Premiums 650.9 666.2
Liabilities for Income Taxes 21.5 6.2
Notes Payable at Amortized Cost 611.4 610.6
Accrued Expenses and Other Liabilities 431.4   403.3
Total Liabilities 5,847.4   5,818.1
Shareholders’ Equity:
Common Stock 5.8 6.0
Paid-in Capital 725.0 743.9
Retained Earnings 1,118.2 1,108.7
Accumulated Other Comprehensive Income 312.7   258.0
Total Shareholders’ Equity 2,161.7   2,116.6
Total Liabilities and Shareholders’ Equity $ 8,009.1   $ 7,934.7
 
 
 

Unaudited selected financial information for the Kemper Preferred segment follows:

   
Three Months Ended Year Ended
(Dollars in Millions) Dec 31,2012   Dec 31,2011 Dec 31,2012   Dec 31,2011
 

Results of Operations

 
Net Premiums Written $ 213.8   $ 211.2   $ 891.7   $ 868.8  
Earned Premiums:
Automobile $ 130.4 $ 127.9 $ 515.5 $ 510.9
Homeowners 79.1 75.3 308.5 294.9
Other Personal 14.0   13.8   55.4   54.0  
Total Earned Premiums 223.5 217.0 879.4 859.8
Net Investment Income 11.4 11.0 45.0 48.8
Other Income 0.1   0.1   0.4   0.3  
Total Revenues 235.0   228.1   924.8   908.9  
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE 159.6 148.8 608.4 584.6
Catastrophe Losses and LAE 42.7 6.4 105.4 144.2
Prior Years:
Non-catastrophe Losses and LAE 4.5 (2.0 ) 1.4 (13.6 )
Catastrophe Losses and LAE (0.2 ) (1.7 ) (6.2 ) (5.5 )
Total Incurred Losses and LAE 206.6 151.5 709.0 709.7
Insurance Expenses 60.8   60.7   243.8   239.8  
Operating Profit (Loss) (32.4 ) 15.9 (28.0 ) (40.6 )
Income Tax Benefit (Expense) 12.7   (3.2 ) 16.8   23.0  
Segment Net Operating Income (Loss) $ (19.7 ) $ 12.7   $ (11.2 ) $ (17.6 )
 

Ratios Based On Earned Premiums

 
Current Year Non-catastrophe Losses and LAE Ratio 71.4 % 68.6 % 69.1 % 67.9 %
Current Year Catastrophe Losses and LAE Ratio 19.1 2.9 12.0 16.8
Prior Years Non-catastrophe Losses and LAE Ratio 2.0 (0.9 ) 0.2 (1.6 )
Prior Years Catastrophe Losses and LAE Ratio (0.1 ) (0.8 ) (0.7 ) (0.6 )
Total Incurred Loss and LAE Ratio 92.4 69.8 80.6 82.5
Incurred Expense Ratio 27.2   28.0   27.7   27.9  
Combined Ratio 119.6 % 97.8 % 108.3 % 110.4 %
 

Underlying Combined Ratio

 
Current Year Non-catastrophe Losses and LAE Ratio 71.4 % 68.6 % 69.1 % 67.9 %
Incurred Expense Ratio 27.2   28.0   27.7   27.9  
Underlying Combined Ratio 98.6 % 96.6 % 96.8 % 95.8 %
 

Non-GAAP Measure Reconciliation

 
Underlying Combined Ratio 98.6 % 96.6 % 96.8 % 95.8 %
Current Year Catastrophe Losses and LAE Ratio 19.1 2.9 12.0 16.8
Prior Years Non-catastrophe Losses and LAE Ratio 2.0 (0.9 ) 0.2 (1.6 )
Prior Years Catastrophe Losses and LAE Ratio (0.1 ) (0.8 ) (0.7 ) (0.6 )
Combined Ratio as Reported 119.6 % 97.8 % 108.3 % 110.4 %
 
 
 

Unaudited selected financial information for the Kemper Specialty segment follows:

   
Three Months Ended Year Ended
(Dollars in Millions) Dec 31,2012   Dec 31,2011 Dec 31,2012   Dec 31,2011
 

Results of Operations

 
Net Premiums Written $ 94.9   $ 100.0   $ 415.1   $ 438.2  
Earned Premiums:
Personal Automobile $ 90.7 $ 98.3 $ 376.3 $ 405.2
Commercial Automobile 11.8   10.2   43.5   40.0  
Total Earned Premiums 102.5 108.5 419.8 445.2
Net Investment Income 4.6 5.3 19.0 22.8
Other Income 0.1   0.1   0.3   0.5  
Total Revenues 107.2   113.9   439.1   468.5  
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE 88.5 87.5 347.9 358.4
Catastrophe Losses and LAE 0.1 0.1 4.8 3.8
Prior Years:
Non-catastrophe Losses and LAE 0.1 (2.5 ) (2.4 ) (9.5 )
Catastrophe Losses and LAE     0.1   0.1  
Total Incurred Losses and LAE 88.7 85.1 350.4 352.8
Insurance Expenses 23.8   23.5   91.5   91.5  
Operating Profit (Loss) (5.3 ) 5.3 (2.8 ) 24.2
Income Tax Benefit (Expense) 2.5   (0.9 ) 4.0   (4.4 )
Segment Net Operating Income (Loss) $ (2.8 ) $ 4.4   $ 1.2   $ 19.8  
 

Ratios Based On Earned Premiums

 
Current Year Non-catastrophe Losses and LAE Ratio 86.3 % 80.6 % 83.0 % 80.4 %
Current Year Catastrophe Losses and LAE Ratio 0.1 0.1 1.1 0.9
Prior Years Non-catastrophe Losses and LAE Ratio 0.1 (2.3 ) (0.6 ) (2.1 )
Prior Years Catastrophe Losses and LAE Ratio        
Total Incurred Loss and LAE Ratio 86.5 78.4 83.5 79.2
Incurred Expense Ratio 23.2   21.7   21.8   20.6  
Combined Ratio 109.7 % 100.1 % 105.3 % 99.8 %
 

Underlying Combined Ratio

 
Current Year Non-catastrophe Losses and LAE Ratio 86.3 % 80.6 % 83.0 % 80.4 %
Incurred Expense Ratio 23.2   21.7   21.8   20.6  
Underlying Combined Ratio 109.5 % 102.3 % 104.8 % 101.0 %
 

Non-GAAP Measure Reconciliation

 
Underlying Combined Ratio 109.5 % 102.3 % 104.8 % 101.0 %
Current Year Catastrophe Losses and LAE Ratio 0.1 0.1 1.1 0.9
Prior Years Non-catastrophe Losses and LAE Ratio 0.1 (2.3 ) (0.6 ) (2.1 )
Prior Years Catastrophe Losses and LAE Ratio        
Combined Ratio as Reported 109.7 % 100.1 % 105.3 % 99.8 %
 
 
 

Unaudited selected financial information for the Kemper Direct segment follows:

   
Three Months Ended Year Ended
(Dollars in Millions) Dec 31,2012   Dec 31,2011 Dec 31,2012   Dec 31,2011
 

Results of Operations

 
Net Premiums Written $ 31.8   $ 45.5   $ 147.3   $ 209.0  
Earned Premiums:
Automobile $ 34.4 $ 48.5 $ 158.3 $ 213.3
Homeowners 2.3 2.4 9.5 9.2
Other Personal 0.1     0.2   0.2  
Total Earned Premiums 36.8 50.9 168.0 222.7
Net Investment Income 3.2 3.8 13.9 17.4
Other Income       0.1  
Total Revenues 40.0   54.7   181.9   240.2  
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE 27.5 49.1 139.0 194.8
Catastrophe Losses and LAE 3.5 0.5 8.3 6.7
Prior Years:
Non-catastrophe Losses and LAE (6.2 ) 1.9 (17.5 ) (4.4 )
Catastrophe Losses and LAE (0.1 ) 0.1   (0.3 ) 0.5  
Total Incurred Losses and LAE 24.7 51.6 129.5 197.6
Insurance Expenses 13.2 17.2 57.2 76.3
Write-off of Intangible Assets from Direct Response Acquisition   13.5     13.5  
Operating Profit (Loss) 2.1 (27.6 ) (4.8 ) (47.2 )
Income Tax Benefit (Expense) (0.3 ) 10.5   3.9   19.7  
Segment Net Operating Income (Loss) $ 1.8   $ (17.1 ) $ (0.9 ) $ (27.5 )
 

Ratios Based On Earned Premiums

 
Current Year Non-catastrophe Losses and LAE Ratio 74.7 % 96.5 % 82.8 % 87.5 %
Current Year Catastrophe Losses and LAE Ratio 9.5 1.0 4.9 3.0
Prior Years Non-catastrophe Losses and LAE Ratio (16.8 ) 3.7 (10.4 ) (2.0 )
Prior Years Catastrophe Losses and LAE Ratio (0.3 ) 0.2   (0.2 ) 0.2  
Total Incurred Loss and LAE Ratio 67.1 101.4 77.1 88.7
Incurred Expense Ratio, Including Write-off of Intangible Assets 35.9   60.3   34.0   40.3  
Combined Ratio 103.0 % 161.7 % 111.1 % 129.0 %
 

Underlying Combined Ratio

 
Current Year Non-catastrophe Losses and LAE Ratio 74.7 % 96.5 % 82.8 % 87.5 %
Incurred Expense Ratio, Including Write-off of Intangible Assets 35.9   60.3   34.0   40.3  
Underlying Combined Ratio 110.6 % 156.8 % 116.8 % 127.8 %
 

Non-GAAP Measure Reconciliation

 
Underlying Combined Ratio 110.6 % 156.8 % 116.8 % 127.8 %
Current Year Catastrophe Losses and LAE Ratio 9.5 1.0 4.9 3.0
Prior Years Non-catastrophe Losses and LAE Ratio (16.8 ) 3.7 (10.4 ) (2.0 )
Prior Years Catastrophe Losses and LAE Ratio (0.3 ) 0.2   (0.2 ) 0.2  
Combined Ratio as Reported 103.0 % 161.7 % 111.1 % 129.0 %
 
 
 

Unaudited selected financial information for the Life and Health Insurance segment follows:

   
Three Months Ended Year Ended
(Dollars in Millions) Dec 31,2012   Dec 31,2011 Dec 31,2012   Dec 31,2011
 

Results of Operations

 
Earned Premiums:
Life $ 97.4 $ 98.0 $ 393.4 $ 395.1
Accident and Health 41.0 41.7 165.2 166.3
Property 19.6   20.4   81.3   84.5  
Total Earned Premiums 158.0 160.1 639.9 645.9
Net Investment Income 50.8 53.2 204.3 200.5
Other Income     0.1   0.1  
Total Revenues 208.8   213.3   844.3   846.5  
Policyholders’ Benefits and Incurred Losses and LAE 92.9 88.5 393.1 385.6
Insurance Expenses 78.2   77.1   310.8   308.6  
Operating Profit 37.7 47.7 140.4 152.3
Income Tax Expense (13.4 ) (16.5 ) (49.6 ) (53.4 )
Segment Net Operating Income $ 24.3   $ 31.2   $ 90.8   $ 98.9  
 
 
 

Use of Non-GAAP Financial Measures

Consolidated Net Operating Income (Loss)

Consolidated Net Operating Income (Loss) is an after-tax, non-GAAP financial measure computed by excluding from income (loss) from continuing operations the after-tax impact of 1) net realized gains (losses) on sales of investments, 2) net impairment losses recognized in earnings related to investments and 3) other significant non-recurring or infrequent items that may not be indicative of ongoing operations. Significant non-recurring items are excluded when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years, and (b) there has been no similar charge or gain within the prior two years. The most directly comparable GAAP financial measure is income (loss) from continuing operations.

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