Kemper Corporation

Good afternoon ladies and gentlemen and welcome to Kemper's third quarter 2020 earnings conference call. My name is Sarah 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, Christine Patrick, Kemper's Vice President of Investor Relations. Mrs. Patrick, you may begin.

Thank you, Operator. Good afternoon, everyone, and welcome to Kemper's discussion of our third quarter 2020 results. This afternoon, you'll hear from Joe Locker, Kemper's President and Chief Executive Officer. Jim McKinney, Kemper's Executive Vice President and Chief Financial Officer, and Dwayne Sanders, Kemper's Executive Vice President and the Property and Casualty Division President. We'll make a few opening remarks to provide context around our third quarter results and then open the call for a question and answer session. During the interactive portion of our call, our presenters will be joined by John Buscelli, Kemper's Executive Vice President and Chief Investment Officer, and Eric Fernberg, Kemper's Executive Vice President and Life and Health Division President. After the markets closed this afternoon, we issued our earnings release and published our third quarter earnings presentation, financial supplement, and form 10-Q. You can find these documents on the investor section of our website at Kemper.com. Our discussion today may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, the company's outlook and its future results of operations and financial conditions. These statements may also include impacts related to the COVID pandemic. Our actual future results and financial condition may differ materially from these statements. For information on potential risks associated with relying on forward-looking statements, please refer to our 2019 Form 10-K, our third quarter 2020 Form 10-Q, as well as our third quarter earnings release. This afternoon's discussion also includes non-GAAP financial measures we believe are meaningful to investors. In our financial supplement presentation and earnings release, we have defined and reconciled all the non-GAAP financial measures to GAAP were required in accordance with SEC rules. You can find each of these documents on the investor section of our website at Kemper.com. All comparative references will be to the corresponding 2019 period unless otherwise stated. Finally, I would like to note that due to the social distancing practices that Kemper is following in response to the COVID crisis, our call participants are not in the same location. This may cause the question and answer section of our calls to feel disjointed at times. We apologize in advance and ask for understanding from our listeners. I will now turn the call over to Joe.

Thanks, Christine. Good afternoon, everyone, and thank you for joining us on today's call. I'd like to start by commenting on the current environment. We continue to offer our thoughts and compassion to individuals and families that have been impacted by the pandemic. This is a difficult time for everyone, despite it all. I'm inspired every day by our team's commitment to meet the needs of our customers and deliver on our promises. I'm very proud of the ongoing dedication and offer my sincerest appreciation for their efforts against that backdrop. We have a business that's resilient and has the ability to consistently deliver strong results and long-term value to our stakeholders. While higher uncertainty in the business environment is likely to continue for some time, our diversified business model has and is expected to perform well. Before we turn to the quarter's results, I'd like to mention the recent announcement that our Board of Directors elected Stuart Parker as a new director. Stuart previously served as the CEO of USAA and spent 21 years in various leadership roles with them. His high level of expertise and deep understanding of the insurance business will be a great asset to our board. His success in advancing strategy through transformational customer service, accelerating product development, and digital innovation will be immensely beneficial to further Kemper's growth strategy. Our entire team looks forward to working with him. Now I'd like to turn to page four to discuss our results for the quarter. Net income was $122 million, or $1.83 per diluted share. Adjusted consolidated net operating earnings was $91 million, or $1.36 per fully diluted share. We continue to generate top-tier returns with a rolling four-quarter return on tangible equity, excluding unrealized gains of 18%. The benefit of our diversified model was again evident this quarter. as we were able to deliver strong returns with stable cash flows despite elevated catastrophe losses and increased COVID-related mortality. Turning to our segment results, our specialty auto business continued to generate significant market share gains with double-digit top-line growth and attractive underwriting profitability. The business further benefited from favorable frequency trends. During the quarter, we achieved PIF growth of 7.6%, excluding the sale of classic car, Our low cost operating model and ability to understand our customers needs has allowed us to sustain industry leading levels of growth despite disruption from the current economic environment. Our preferred segment was impacted by elevated catastrophe losses, primarily from California wildfires and to a lesser extent, weather related events. At the end of the quarter, we had met our catastrophe aggregate retention level for 2020. Based on this, we expect lower than normal fourth quarter catastrophe losses. In our life and health segment, we were pleased that for the first time this year, we had a full quarter of sales activity. Segment earnings were impacted by elevated benefit costs driven by the pandemic. While we expect this trend to impact earnings for some time, we did not expect this to be a capital event. During the quarter, we had a very successful debt issuance and leveraged attractive market conditions. We raised $400 million of 2.4% senior notes due in 2030. Jim will provide more detail on this later in the call. In summary, Kemper's healthy balance sheet and financial flexibility have enabled us to consistently deliver on our promises to our customers while maintaining appropriate returns for our shareholders. Our diversified model has proven successful at combining stable sources of cash flow and lower required capital to create a cost advantage that drives higher growth. I'd like now to turn the call over to Jim to discuss our third quarter operating results in more detail. Thank you, Joe, and good afternoon, everyone. Turning to our results on page five, net income for the quarter was $122 million, and adjusted consolidated net operating income was $91 million, or $1.36 per diluted share. On a year-to-date basis, adjusted consolidated operating income per share increased roughly 4% to $4.98, coupled with strong year-over-year tangible net bulk value, excluding unrealized gains and fixed maturities growth of 14%. Our diversified model and specialized businesses continue to allow us to deliver sustained growth and strong earnings. On page six, we isolate key sources of volatility. This quarter was primarily impacted by elevated catastrophe activity when compared with the prior year's quarter. Normalizing for these sources of volatility, adjusted consolidated net income per share increased on a year-over-year basis by 33%. On page seven, I would like again to highlight some of the capital metrics that demonstrate the intrinsic value creation and strength of our capital deployment decisions, including tangible book value per share and tangible return on equity. On a 12-month basis, tangible book value per share excluding unrealized gains grew 14%, and return on tangible equity excluding unrealized gains was 18%.