Kemper CEO Discusses Q2 2012 Results - Earnings Call Transcript

Kemper (KMPR)

Q2 2012 Earnings Call

August 7, 2012 11:00 AM ET


Diana Hickert - Hill - VP, IR & Corporate Identity

Don Southwell - Chairman, President & CEO

Jim Schulte - Property and Casualty Group Executive

Dennis Vigneau - SVP & CFO


Paul Newsome - Sandler O'Neill

Adam Klauber - William Blair

Steven Schwartz - Raymond James & Associates



Welcome to Kemper’s Second Quarter 2012 Earnings Conference Call. My name is Karen and I will be your coordinator today. (Operator Instructions). I would now like to introduce your host for today’s conference, Ms. Diana Hickert-Hill, VP, IR & Corporate Identity. Ms. Hickert-Hill you may begin.

Diana Hickert-Hill

Thank you Karen. Good morning, everyone and thank you for joining us. After the markets closed yesterday, we filed our Form 10-Q with the SEC and issued our press release and financial supplement. You can find these documents on the Investors section of our website

We would also like to mention that in our financial supplement this quarter we added an additional page of disclosures related to our catastrophe frequency loss and severity performance. you can find this information on page 11. This morning you will hear from three of our business executive, starting with Don Southwell, Kemper's Chairman, President and Chief Executive Officer, Jim Schulte, Kemper’s Property and Casualty Group Executive and finally Dennis Vigneau, Kemper's Senior Vice President and Chief Financial Officer.

We will make a few opening remarks to provide some context around our second quarter results. We will then open up the call for our question-and-answer session. Please note that our discussion today may contain forward-looking statements. Our actual results may differ materially from these statements. Please refer to our Form 10-K filed with the SEC on February 17, 2012, as well as our first quarter 2012 Form 10-Q and earnings release for financial information on potential risks associated with relying on forward-looking statement.

This morning's discussion also includes non-GAAP financial measures that we believe, may be meaningful to investors. In our 10-Q supplement and earnings release, non-GAAP financial measures have been reconciled to GAAP where required in accordance with SEC rules. And now I will turn the call to Don Southwell.

Don Southwell

Thank you Diana, as you heard in the introductions I have asked Jim Schulte to join the call to provide details on our property and casualty business. So I will confine my remarks to the following three topics, first our recent decision about the direct business, second our life, health and investment performance and third our progress on capital.

Starting with Kemper Direct, we recently announced that we are reviewing strategic options for the Direct business and that we have seized direct marketing activities. Overtime we had undertaken several significant actions to improve profitability in this segment. We were intentionally shrinking the business until loss ratios and acquisition fundamentals improved but we were not satisfied with the rate of progress.

Given the reality we were not getting an appropriate return on capital we decided it was time to take more significant action. We have stopped direct marketing activities; we are evaluating all of our options for Kemper Direct. Since our announcement we have received a number of inquiries which we are actively exploring.

Turning now to our business performance, overall we are benefiting from the diversity of our portfolio of companies, the life and health business is once again delivered steady top-lines and good profits. This along with our strong portfolio yield has helped us set losses in P&C. In the life and health segment the top-line held steady despite the discontinuation of sales of our dwelling and hospitalization products. We also delivered strong bottom-line performance and have taken price increases on our life insurance to help offset the difficult interest rate environment.

Our Kemper home service company’s flagship entity, United States Insurance Company of America was recognized as one of the top 50 performing life insurance companies by the Ward Group, a leading provider of benchmarking and best practice services for the insurance industry. This was the second consecutive year that our life business was recognized. On the supplemental health side, I am pleased with our reserved national team's performance as it continues its mix shift to products less affected by National Healthcare Reform.

The investment portfolio delivered a solid performance as we navigate this low interest rate environment. While returns on our equity method investments were lower than last year’s superior results they were within our range of expectations. Despite the inherent volatility we like the expected life time performance of these assets. As to capital we are in a strong position, we continue to be disciplined as we allocate capital across our four priorities which include funding profitable organic growth, considering acquisitions that have a clear fit and make our existing businesses stronger. Maintaining our competitive dividend and repurchasing shares.

On this fourth point, we have repurchased just over $50 million of stock year-to-date through July which is good progress on our plan to repurchase up to 100 million in 2012. I want to be very clear about my views of the quarter. In life and health, investments and capital management we delivered solid results. On the P&C side results were disappointing, our priorities for P&C are the following. Improve margins before growth, increased home owners profitability, achieve overall rate adequacy and continue to leverage our shared services to maximize operational effectiveness.

And now I will turn the call over to Jim to provide color on the quarter’s results and explain how his team is addressing these priorities.

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