Kemper Corporation

Good afternoon, ladies and gentlemen, and welcome to KEMPER's second quarter 2025 earnings conference call. My name is Konstantin, 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 our host for today's conference call, Michael Marinaccio, KEMPR's Vice President of Corporate Development and Investor Relations. Mr. Marinaccio, you may begin.

Thank you. Good afternoon, everyone, and welcome to KEMPR's discussion of our second quarter 2025 results. This afternoon, you'll hear from Joe Locker, KEMPR's President and Chief Executive Officer, Brad Camden, Kemper's Executive Vice President and Chief Financial Officer, and Matt Hunton, Kemper's Executive Vice President and President of Kemper Auto. We'll make a few opening remarks to provide context around our second quarter results, followed by a Q&A session. During the interactive portion of the call, our presenters will be joined by Chris Flint, Kemper's Executive Vice President and President of Kemper Life, Duane Sanders, Kemper's Executive Vice President and Chief Claims Officer for P&C, and John Buscelli, Kemper's Executive Vice President and Chief Investment Officer. After the markets closed today, we issued our earnings release, filed our Form 10-Q with the SEC, and published our earnings presentation and financial supplement. 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 and Reform Act of 1995. These statements include, but are not limited to, the company's outlook on its future results of operation and financial conditions. Our actual future results and financial conditions may differ materially from these statements. For information on additional risks that may impact these forward-looking statements, please refer to our 2024 Form 10-K and our second 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 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 2024 period, unless otherwise stated. I will now turn the call over to Joe.

Thank you, Michael. Good afternoon, everyone, and thank you for joining us today. I'm pleased to report that we delivered another quarter of strong underlying operating results. This was led by our specialty auto business, which once again produced a solid underlying combined ratio and meaningful year-over-year PIF growth. Before we dig into the specifics of our results, I'd like to provide some context around the overall auto market competitiveness, and more specifically, the specialty auto segment. I believe we're all aware that there's been a hard market for auto in general. Over the first half of this year, there's been clear evidence that markets are softening and reverting to more normalized conditions. As most carriers see combined ratios recovering to more acceptable profitability levels, they're not taking major rate increases. In some cases, they're decreasing rates and increasing underwriting appetites to more aggressively compete for new business. The result is a combination of reduced consumer shopping and more available options when they do shop. Accordingly, the high levels of growth seen by the strongest players are naturally normalizing to more traditional levels. Most of us in the industry think and talk about hard, normal, and soft market conditions. These descriptions work overall for commercial lines as well as the standard and preferred personal auto market, but they don't really work for the specialty auto segment. As I stated in the past, within specialty auto, you generally see either a hard market or a more normalized market. Overall, we don't typically experience a traditional soft market because of our segment's unique characteristics. First, there are many smaller competitors who only operate in a few local geographies. Second, the speed of loss development is typically faster than the standard market. And third, customer policy lifetime tenures are much shorter than the standard market. The combination of these characteristics has several implications. You can't recover short-term irrational pricing over the lifetime of a customer, aggressive pricing is seen in results more rapidly, and no single competitor can typically soften the overall market with irrationally aggressive activity. In specialty auto, we may experience short-term softness in select geographies, But in general, it does not last long or impact the overall market. Recall our competitive advantages. We deliver a low-cost value proposition tailored to our unique customer needs. We bring a distinct scale advantage and a deep understanding of our market. This enables us to deliver leading differentiated product sophistication, claims effectiveness, and ease of use. We are confident that our competitive advantages will continue to produce attractive long-term profitable growth in a more normal market environment. With this as a backdrop, let's move to page four and jump into this quarter's financial results. We delivered a return on adjusted equity of 15%, adjusted book value per share growth of 14% year over year, and an all-time high trailing 12-month operating cash flow of nearly $600 million. Our core businesses continue to perform very well. Specialty auto generated a 93.5% underlying combined ratio while producing 8% year-over-year PIF growth and earned premium growth of 17%. Our private passenger auto business produced an underlying combined ratio and year-over-year growth better than long-term norms but with somewhat off the hard market highs. Our commercial auto business continued to perform well and produced an underlying combined ratio of 90% while growing PIF by 18%. Here we reported adverse prior year development of approximately $19 million, which was driven by the general effect of social inflation. When viewed over a rolling four or eight quarter basis, this business consistently produces attractive combined ratios and growth and is a source of continued reliable strength. The performance of our alternative investments negatively impacted both our specialty auto and life segments. This quarter, we had some modest noise, which I generally categorize as consistent with the broad marketplace investments volatility. We continue to maintain a high-quality investment portfolio. Brad will get into the specifics around this shortly. The business fundamentals underlying our life segment remain stable. The business continued to produce a strong return on capital and distributable cash flows. Lastly, We continue to execute on our multi-quarter balance sheet strengthening. Last quarter, we retired $450 million in debt, bringing our debt to cap ratio near our long-term target, and our cash flow from operations hit an all-time high. With a strong balance sheet and healthy liquidity, we've repurchased $80 million of common stock since April 1st. Given our expectations around future growth and strong operating metrics, The board approved an additional $500 million of repurchase authorization, bringing the total available to $550 million. Brad will discuss our financials and share repurchases in more detail. Overall, we're pleased with our second quarter results. With that, I'll turn the call over to Brad. Thank you, Joe, and good afternoon to everyone. I'll begin with our financial results on page five. For the quarter, we reported net income of $72.6 million, or $1.12 per diluted share, and adjusted consolidated net operating income of $84.1 million, or $1.30 per dilute share. These results led to an attractive return on adjusted equity of 14.9%, and growth in adjusted book value per share of 14.3% year-over-year. As Joe discussed, our businesses continue to deliver strong underlying performance. Specialty auto produced strong growth in policies in force and earned premium, and life continued to provide steady returns. Overall, our core businesses are performing well. but this quarter our results were impacted by a few infrequent items. First, specialty auto recorded $14 million in adverse prior year development driven by a $19 million reserve increase in our commercial vehicle business. This was primarily related to bodily injury losses. Second, volatility in our alternative investment portfolio pressured net investment income. Let's turn to page six to discuss the investment portfolio in more detail. Quarterly net investment income totaled $96 million, coming in below expectations due to lower returns from alternative investments. Not surprisingly, performance in this asset class can be volatile. Valuation gains tend to align with marketplace deal activity, which slowed in the second quarter amid broader macroeconomic pressures. As market conditions stabilize, we expect alternative investment performance to improve in the coming quarters. The core portfolio, which excludes alternatives, continues to perform well, delivering $98 million of net investment income this quarter. Overall, we continue to maintain a high-quality, well-diversified investment portfolio. As the investment portfolio grows and with favorable new money rates, we anticipate net investment income to rebound in the second half of the year, averaging approximately $100 to $105 million per quarter. Moving to page seven, here we highlight the strengths of our balance sheet and significant financial flexibility. We maintain $1.1 billion in available liquidity and continue to have well-capitalized insurance subsidiaries. Our debt-to-capital ratio stands at 22.7%, aligning closely with our long-term target. Notably, we generated $587 million in operating cash flow over the past year, marking an all-time high for the company. Given our strong financial position, let me remind you of our capital deployment priorities. First, we utilize capital to support organic growth. Next, we will fund inorganic opportunities that enhance our platform. And lastly, we will return excess capital to shareholders. As Joe discussed earlier, the specialty auto segment is transitioning to a more normal marketplace with attractive but somewhat slower profitable growth opportunities. This evolving environment will require less capital to fund organic growth. With significant financial strength and flexibility and the belief our stock is trading below intrinsic value, We repurchased 80 million in common stock since April 1st, leaving 50 million available under our current authorization. This week, the board approved an additional 500 million share repurchase authorization, bringing the total amount for repurchase to 550 million. This will enable us to deliver on our capital priorities in this environment. That said, we have no preset timeline for share repurchases and plan to execute on them opportunistically. Finally, I want to reiterate that we're well-positioned for sustained profitable growth. The strategic investments we've made over the past five years have strengthened our capabilities and reinforced our confidence in providing shareholder value. I'll now turn the call over to Matt to discuss the specialty P&C segment.