Insurance facing 'most disrupted personal lines environment' Kemper CEO has seen

Kemper looks to recover from loss through personal insurance exits and additional initiatives

Insurance facing 'most disrupted personal lines environment' Kemper CEO has seen


By Gia Snape

Kemper Corporation expects to achieve an underwriting profit in the second half of 2023, after reporting a $16.9 million net operating loss in Q2 and exiting the preferred home and auto insurance market, its CEO has said.

The insurer’s preferred property and casualty (P&C) business, which includes eight underwriting companies and generates around $500 million in written premium, had been under strategic review since November 2022.

The wind-down of the business will enable the redeployment of more $300 million in capital to Kemper’s core segments, according to James McKinney, Kemper chief financial officer.

Kemper’s actions come amid “the most disrupted personal lines environment” it has ever experienced, Kemper president, CEO and chairman Joe Lacher told analysts during the insurer’s Q2 earnings call.

Kemper is the latest carrier taking action on their personal lines portfolios amid significant catastrophe exposures. Major players such as State Farm and All State have halted sales of new policies in California, while Farmers Insurance announced it would limit new business in the state. Nationwide Insurance similarly took corrective action across its personal and commercial businesses.

Kemper’s Q2 2023 financial results

Kemper’s financial results for Q2 showed the insurer still firmly in the red, with a net loss of $97.1 million, compared to a net loss of $72.2 million from the prior year period.

The net loss included $45.5 million of a goodwill impairment charge connected to the strategic review of the preferred P&C segment.

Other setbacks included total pre-tax current year catastrophe losses of $39 million, and $26 million of adverse reserved development, the company said.

The adverse development was primarily driven by bodily injury and property damage activity that occurred during the second half of 2022, caused by pattern changes in Q2 and Q3 2022, according to James McKinney, chief financial officer of Kemper.

However, the underlying combined ratios improved sequentially: specialty P&C improved to 102%, compared to 108.8% in Q2 2022; preferred P&C to 95.6%, from 105.3% in Q2 2022.

“While our financial results through the first half of 2023 fell short of our targets, we believe the actions we've taken and continue to take to position us to succeed in this difficult environment,” Lacher said.

Lacher pointed to changes in consumer behavior as being part of the challenges insurance companies like Kemper face.

“Traditional historical patterns are used by the industry to predict future behavior are producing patterns outside their historical norms,” he said. “This variance is seen in broad aspects of consumer behavior. A few examples include buying triggers, price elasticity, and changes in driving patterns, propensity to seek medical treatments, repair vehicles and the willingness to litigate.

“These pattern changes are exacerbated by subsequent broad swings in competitors’ actions. We believe this environment will continue for at least the next couple of years. Correspondingly, it has created a hard market that will likely persist for an extended period of time.”

Despite this outlook, Lacher told analysts that he believed Kemper is positioned to navigate this environment with its specialty market expertise and a “nimble and efficient operating model”.

Moreover, the company has looked to investment in technology and data analytics, Lacher said.

“Our ultimate priority is to achieve target returns and we are continuing to focus ourselves and our business to facilitate this and ultimately, to position ourselves to grow profitably and safely at the right time,” said Lacher.

Returning Kemper to profitability

Lacher said the company is on track to realize the benefits of several strategic initiatives and produce “meaningful value” for stakeholders.

“We reiterate our guidance that we expect to achieve and underwriting profit in the second half of 2023, and for 2024, we expect to generate a return on equity equal to or greater than 10%,” Lacher told analysts.

Aside from the decision on its preferred property and casualty business, Chicago-based Kemper also received approval from the Illinois Department of Insurance for the formation of its reciprocal.

The company expects to write business within the reciprocal in the third quarter, McKinney said.

Additionally, phase two of Kemper’s Bermuda optimization effort is “outperforming initial benefit projections,” according to Lacher.

“Our Bermuda optimization initiative, launched in 2022, is expected to unlock a higher amount of life dividend to the parent,” McKinney said. “We expect at least $200 million to be released before year-end, up from $100 million as previously indicated.”

Combined with the exit from preferred home and auto, the actions aim to generate cost savings for Kemper and support profitable growth in its specialty auto and life segments.

“We’re highly focused on maximizing shareholder value and this begins with returning the business to profitability,” Lacher said.

“The solid progress we achieved this quarter is proof that the actions we have taken are generating the intended outcomes. All the while, we are advancing our long-term initiatives to enhance Kemper’s strategic and financial profile.”

What do you make of Kemper’s exit from the preferred home and auto insurance market? Tell us in the comments below.

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