Kemper Corporation

Good afternoon, ladies and gentlemen, and welcome to Comper's fourth quarter 2023 earnings conference call. My name is Ludi, and I will be your coordinator today. At this time, all participants are in a 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, Karen Guerra, KEMPR's Vice President of Investor Relations. Ms. Guerra, you may begin.

Thank you, Operator. Good afternoon, everyone, and welcome to KEMPR's discussion of our fourth quarter 2022 results. This afternoon, you'll hear from Joe Locker, KEMPR's President, Chief Executive Officer, and Chairman, Brad Camden, KEMPR's Senior Vice President and Interim Chief Financial Officer, and Matt Hunton, KEMPR's Executive Vice President and President of KEMPR Auto. We'll make a few opening remarks to provide context around the fourth quarter results, followed by Q&A sessions. During the interactive portion of our call, our presenters will be joined by Duane Sanders, Kemper's Executive Vice President and President of the PNC Division, John Buscelli, Kemper's Executive Vice President and Chief Investment Officer, and Chris Flint, Kemper's Executive Vice President and President of Kemper Life. After the markets closed today, we issued our earnings release and published our earnings presentation and financial supplements. We expect to file our form 10 K with the FCC within the next week. You can find these documents in the investor section of our website, 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 condition or actual results. and financial condition may differ materially from these statements. For information on additional risks that may impact these forward-looking statements, please refer to our 2020 Form 10-K and our fourth quarter earnings release. This afternoon's discussion also includes non-GAAP 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 GAAP where required in accordance with the SEC rules. You can find each of these documents in the investor section of our website, Kemper.com. All comparative references will be to the corresponding 22 period, unless otherwise stated. I will now turn the call over to Joe.

Thank you, Karen. Good afternoon, and thank you for joining us today. We're obviously going to spend time on our quarterly results on the call, but before we jump in, I want to make some comments about the overall environment. A number of quarters ago, we referenced a slide that looked at rate and loss trend over time. It showed a pre-pandemic period where rate and loss inflation were in balance, an early pandemic period where rate increases dropped to zero with loss inflation negative, driven by lower frequency from less driving, and a recovery period where earned rate lagged inflation, profitability was pressured, and significant underwriting and non-rate actions were needed to combat the lag in earned rate impact. We're exiting this recovery phase now. Cumulative earned rate increases have exceeded cumulative loss inflation and underwriting profitability has been reliably restored. We're now moving into the next phase in this journey, from recovery to a rebalancing phase. This period will be characterized by three key items. One, rate increases will continue, but will largely be matched to inflation, back to maintenance rate changes, if you will. Two, the significant underwriting and non-rate actions implemented during the recovery phase will thoughtfully be removed. Recall that these actions were taken to improve profitability when rate changes were lagging. As residual rate increases earn in, non-rate actions will be reversed, effectively trading their impacts. And three, the components of PIF growth, new business and retention, will be rebalanced to more traditional levels. We're excited to be shifting to this next phase. We expect this rebalancing period will run several quarters. I'm sure we'll talk more about it today and in the future. Our life business has already moved through both the recovery and rebalancing phases. We continue to expect consistent earnings and distributable cash flow from this business. Now let's shift to our quarterly performance. We're going to communicate a few key points that I'll group into three topics. First, As previously communicated, our priority has been to restore profitability, and we've done that. This quarter, it's clear that our cumulative actions have been effective at offsetting the elevated severity we've experienced in the last several years. The benefits from the actions taken have generated improvements in our specialty P&C underlying combined ratio for three consecutive quarters, and we've reached the important milestone of returning our specialty P&C business to an underwriting profit. Results to date, in combination with significant approved but unearned rate, make us highly confident in achieving target margins in 2024. Second, we continue to advance our differentiated capabilities through a number of strategic initiatives. During the pandemic recovery phase, I mentioned that we'd focus on home improvement projects, initiatives that would both enable us to navigate that challenging time and strengthen our competitive advantages going forward. These operating model enhancements have been successful and position the company for long-term profitable growth. We completed two major initiatives this quarter, our Bermuda optimization and our cost reduction program. Both exceeded projected benefits. We remain focused on further strengthening our systematic sustainable competitive advantages by reducing our long-term risk, improving our capital and liquidity and enhancing our ability to generate stable long-term distributable cash flow and earnings. And third, were laser-focused on success in this rebalancing period and beyond. Here, success will be defined by achieving and maintaining long-term profit margins and returning our business to healthy growth. We anticipate further progress on all aspects of this rebalancing over the coming year. Let's move to page four with details of the results. Specialty P&C generated a 98% underlying combined ratio, a material 10-point improvement over the last three quarters. We've been making consistent progress and are pleased with the incremental 2.3 point benefit in the fourth quarter. As rate actions surpass loss trend, we plan to ease underwriting restrictions, including new business restrictions, so we can pivot to restoring policy and premium growth. Expectations here should be consistent with what I described for this rebalancing phase. Maintenance rate increases to balance loss trend, earned rate impacts to continue progress to restore long-term margins and to permit reversal of non-rate actions. And lastly, an increase in new business to restore more normal long-term growth. Our priority going forward will be to briskly restore this balance of long-term profitable growth while positioning the company toward an enhanced valuation through the various strategic initiatives we introduced in November of 2022. Reflecting on those initiatives, This quarter we successfully completed and exceeded the goals related to the Bermuda optimization and the multi-year cost structure initiative. We remain on track with the execution of the reciprocal exchange project and the preferred PNC exit. Each of these home improvement projects increases our long-term competitive advantages and strengthens our financial position. And now I'll turn the call over to Brad to provide you with additional color.