Kemper Reports Strong Fourth Quarter and Full Year 2018 Operating Results

Montag, 11.02.19 12:15
Kemper Reports Strong Fourth Quarter and Full Year 2018 Operating Results
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CHICAGO –

Kemper Corporation (NYSE: KMPR) reported net income of $6.5 million, or $0.10 per diluted share, for the fourth quarter of 2018, compared to $36.9 million, or $0.71 per diluted share, for the fourth quarter of 2017. In the fourth quarter of 2018, net income included a $60.4 million after-tax loss, or $0.93 per diluted share, attributable to the change in fair value of equity and convertible securities. As adjusted for the acquisition of Infinity Property and Casualty Corporation1, net income was $27.0 million, or $0.41 per diluted share, for the fourth quarter of 2018, compared to $51.6 million, or $0.79 per diluted share, for the fourth quarter of 2017.

Adjusted consolidated net operating income2 was $59.9 million, or $0.91 per diluted share, for the fourth quarter of 2018, compared to $31.0 million, or $0.60 per diluted share, for the fourth quarter of 2017. These results increased primarily from the continued profitable growth in Specialty Property & Casualty Insurance segment and continued improvement in Preferred Property & Casualty Insurance segment, partially offset by the amortization of the Infinity purchase accounting adjustments.

Highlights of the quarter include:

  • Consolidated earned premiums increased by 76 percent, or $457.7 million in the quarter, as reported, 12 percent, or $111.9 million, as adjusted 1
  • Specialty Property & Casualty Insurance segment’s earned premiums increased by 165 percent, or $447.1 million in the quarter, as reported, or 16 percent, or $101.3 million, as adjusted 1
  • Investment portfolio generated a pre-tax equivalent annualized book yield of 4.6 percent in the quarter

“Kemper had a great 2018 with strong earnings and solid operating performance in our core businesses, and the achievement of several notable milestones,” said Joseph P. Lacher, Jr., President and CEO. “Investments in our franchise resulted in record-setting sales and premium growth in our specialty personal auto business, with consistently strong results in our health and life businesses and improving results in our preferred auto and homeowners lines. The close of our acquisition of Infinity and our refreshed brand represent meaningful steps forward in the progress on our strategic plan to focus on long-term, profitable growth.”

 
  Three Months Ended   Year Ended
(Dollars in Millions, Except Per Share Amounts) (Unaudited) Dec 31,
2018
  Dec 31,
2017
Dec 31,
2018
  Dec 31,
2017
Net Income $ 6.5 $ 36.9 $ 190.1 $ 120.9
Income from Continuing Operations $ 5.0 $ 35.9 $ 188.4 $ 119.9
Adjusted Consolidated Net Operating Income2 $ 59.9 $ 31.0 $ 258.4 $ 92.5
 
Impact of Catastrophe Losses and Related Loss Adjustment Expense (LAE) on Net Income $ (19.5 ) $ (33.0 ) $ (75.8 ) $ (120.2 )
 
Diluted Net Income Per Share From:
Net Income $ 0.10 $ 0.71 $ 3.22 $ 2.33
Income from Continuing Operations $ 0.08 $ 0.69 $ 3.19 $ 2.31
Adjusted Consolidated Net Operating Income2 $ 0.91 $ 0.60 $ 4.37 $ 1.78
 
Impact of Catastrophe Losses and Related LAE on Net Income Per Share $ (0.30 ) $ (0.64 ) $ (1.30 ) $ (2.32 )
 
1   As Adjusted is a non-GAAP measure, which is computed by excluding the impact of purchase accounting and including the historical results of Legacy Kemper and Legacy Infinity in periods prior to the acquisition date of July 2, 2018. See “Use of Non-GAAP Financial Measures” for additional information.
2 Adjusted consolidated net operating income is an after-tax, non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” for additional information.
 

Capital

Total Shareholders’ Equity at the end of the quarter was $3,050.1 million, an increase of $934.5 million, or 44 percent, since year-end 2017 driven by the acquisition of Infinity and net income. During the fourth quarter of 2018, Kemper repaid $215 million of the $250 million term loan facility that was used to facilitate the funding of the acquisition of Infinity. Kemper ended the quarter with cash and investments at the holding company of $100.6 million, and the $300 million revolving credit agreement was undrawn.

During the fourth quarter of 2018, Kemper paid dividends of $15.6 million.

Kemper ended the quarter with a book value per share of $47.10, an increase of 15 percent from $41.11 at the end of 2017. Book value per share excluding net unrealized gains on fixed maturities was $45.40, up 28 percent from $35.57 at the end of 2017, driven by the Infinity acquisition and net income, partially offset by dividends paid to shareholders.

Revenues

Total revenues for the fourth quarter of 2018 increased $397.4 million, or 57 percent, to $1,094.7 million, compared to the fourth quarter of 2017, driven by $447.1 million of higher Specialty earned premiums. On an as adjusted basis, revenues for the fourth quarter of 2018 increased $41.2 million, or 4 percent, to $1,094.7 million, compared to the fourth quarter of 2017, driven by $101.3 million of higher Specialty earned premiums primarily from higher policies in-force, partially offset by $76.4 million of lower revenues from the decrease in the fair values of equity and convertible securities. Net investment income increased $8.7 million to $91.3 million in the fourth quarter of 2018, primarily from an $8.9 million increase in interest on fixed income securities and a $4.3 million increase in dividends on equity securities, partially offset by a $6.6 million reduction in net investment income on the alternative investments portfolio. Net realized investment gains were $16.4 million in the fourth quarter of 2018, compared to $11.5 million last year. Other income increased $0.9 million to $2.0 million in the fourth quarter of 2018.

Segment Results

Unless otherwise noted, (i) the segment results discussed below are presented on an after-tax basis, (ii) prior-year development includes both catastrophe and non-catastrophe losses and LAE, (iii) catastrophe losses and LAE exclude the impact of prior-year development, (iv) underlying loss ratio includes loss and LAE, and (v) all comparisons are made to the prior year quarter unless otherwise stated.

 
  Three Months Ended   Year Ended
(Dollars in Millions) (Unaudited) Dec 31,
2018
  Dec 31,
2017
Dec 31,
2018
  Dec 31,
2017
Segment Net Operating Income (Loss):
Preferred Property & Casualty Insurance $ 6.0 $ (11.7 ) $ 25.7 $ (45.4 )
Specialty Property & Casualty Insurance 48.5 14.3 115.8 56.3
Life & Health Insurance 13.6   25.7   91.5   91.9  
Total Segment Net Operating Income 68.1 28.3 233.0 102.8
Corporate and Other Net Operating Income (Loss) (8.2 ) 2.7   25.4   (10.3 )
Adjusted Consolidated Net Operating Income 59.9 31.0 258.4 92.5
Net Income (Loss) From:
Change in Fair Value of Equity and Convertible Securities (60.4 ) (50.8 )
Net Realized Gains on Sales of Investments 13.0 7.4 20.9 36.7
Net Impairment Losses Recognized in Earnings (1.8 ) (2.5 ) (3.6 ) (9.3 )
Acquisition Related Transaction, Integration and Other Costs (5.7 )   (36.5 )  
Income from Continuing Operations $ 5.0   $ 35.9   $ 188.4   $ 119.9  
 

The Preferred Property & Casualty Insurance segment reported net operating income of $6.0 million for the fourth quarter of 2018, compared to a loss of $11.7 million in 2017. Results increased primarily from Personal Automobile Insurance premium growth and underlying loss ratio improvements, and lower net catastrophe losses in Homeowners Insurance, largely due to recoveries from the aggregate catastrophe reinsurance program. The Preferred Property & Casualty Insurance segment’s combined ratio improved 13.9 percentage points to 103.9 percent, while the underlying combined ratio increased 4.7 percentage points to 94.6 percent in the fourth quarter of 2018. The increase in the underlying combined ratio was driven mainly by an increase in the underlying loss ratio in Homeowners associated with both the additional reinsurance purchased and the strong fourth quarter 2017 comparative underlying results.

The Specialty Property & Casualty Insurance segment reported net operating income of $48.5 million for the fourth quarter of 2018, compared to $14.3 million in 2017. Results increased primarily from strong Personal Automobile growth and profitability, partially offset by the impact of the amortization of the Infinity purchase accounting adjustments. On an as adjusted basis, the segment’s net operating income was $69.3 million in the fourth quarter of 2018, compared to $26.4 million in 2017. The segment’s underlying combined ratio improved 1.1 percentage points to 94.5 percent in the fourth quarter of 2018, primarily from an improvement in the underlying loss and LAE ratio in both Personal Automobile and Commercial Automobile, partially offset by an increase in the insurance expense ratio due to the amortization of the Infinity purchase accounting adjustments.

The Life & Health Insurance segment reported net operating income of $13.6 million for the fourth quarter of 2018, compared to $25.7 million in 2017, primarily driven by higher benefits costs, an increase in expenses and a reduction in investment income. The Benefits’ ratio was impacted by an increase in the frequency of claims in comparison to the fourth quarter of 2017. In terms of the expense increase, about $2 million of the expense increase is related to one-time items. Most of the remaining increase in expense is tied to volume and non-run rate business investments that are expensed on as occurred basis.

Unaudited condensed consolidated statements of income for the three months and year ended December 31, 2018 and 2017 are presented below.

 
  Three Months Ended   Year Ended
(Dollars in Millions, Except Per Share Amounts) Dec 31,
2018
  Dec 31,
2017
Dec 31,
2018
  Dec 31,
2017
Revenues:
Earned Premiums $ 1,063.6 $ 605.9 $ 3,384.4 $ 2,350.0
Net Investment Income 91.3 82.6 340.9 327.2
Other Income 2.0 1.1 42.2 4.0
Loss from Change in Fair Value of Equity and Convertible Securities (76.4 ) (64.3 )
Net Realized Gains on Sales of Investments 16.4 11.5 26.4 56.5
Other-than-temporary Impairment Losses:
Total Other-than-temporary Impairment Losses (2.2 ) (3.7 ) (4.5 ) (14.4 )
Portion of Losses Recognized in Other Comprehensive Income   (0.1 )   0.1  
Net Impairment Losses Recognized in Earnings (2.2 ) (3.8 ) (4.5 ) (14.3 )
Total Revenues 1,094.7   697.3   3,725.1   2,723.4  
Expenses:
Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses 772.8 472.5 2,466.5 1,837.4
Insurance Expenses 273.2 159.1 900.5 644.3
Interest and Other Expenses 42.6   21.5   159.0   80.6  
Total Expenses 1,088.6   653.1   3,526.0   2,562.3  
Income from Continuing Operations before Income Taxes 6.1 44.2 199.1 161.1
Income Tax Expense (1.1 ) (8.3 ) (10.7 ) (41.2 )
Income from Continuing Operations 5.0 35.9 188.4 119.9
Income from Discontinued Operations 1.5   1.0   1.7   1.0  
Net Income $ 6.5   $ 36.9   $ 190.1   $ 120.9  
 
Income from Continuing Operations Per Unrestricted Share:
Basic $ 0.08   $ 0.69   $ 3.22   $ 2.32  
Diluted $ 0.08   $ 0.69   $ 3.19   $ 2.31  
 
Net Income Per Unrestricted Share:
Basic $ 0.10   $ 0.71   $ 3.25   $ 2.34  
Diluted $ 0.10   $ 0.71   $ 3.22   $ 2.33  
 
Weighted-average Outstanding (Shares in Thousands):
Unrestricted Shares - Basic 64,748.2   51,456.3   58,149.4   51,345.6  
Unrestricted Shares and Equivalent Sh

Quelle: Business Wire

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