Kemper Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 30, 2023

There are 8 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to Kemper's Third Quarter 2023 Earnings Conference Call. My name is Lester, 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. Recorded for replay purposes.

Operator

I would now like to introduce your host for today's conference call, Karen Guerra, Kemper's Vice President for Investor Relations. Ms. Guerra, you may begin.

Speaker 1

Thank you, operator. Good afternoon, everyone, and welcome to This is Kenfer's discussion of our Q3 2023 results. This afternoon, you'll hear from Joe Lacher, Kemper's President, Chief Executive Officer and Chairman Brad Camden, Kemper's Senior Vice President and Interim 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 Q3 results followed by a Q and A session. During the interactive Our presenters will be joined by Duane Sanders, Kemper's Executive Vice President and President of the P&C Division John Boschelli, Kemper's Executive Vice President and Chief Investment Officer and Chris Flint, Kemper's Executive Vice President and President of Kemper Life.

Speaker 1

After the markets closed today, we issued our earnings release and published our earnings presentation, financial supplement and Form 10 Q. You can find these documents in the Investors 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. Our actual future results and financial condition may differ materially from these statements.

Speaker 1

For information on additional risks that may impact these forward looking statements, please refer to our 2022 Form 10 ks and our Q3 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 define and reconcile all non GAAP financial measures to GAAP were required in accordance with the SEC rules. You can find each of these documents in the Investors section of our website, kemper.com. All comparative references will be to the corresponding 2022 period unless otherwise stated.

Speaker 1

I will now turn the call over to Joe.

Speaker 2

Thank you, Karen. Good afternoon and thank you everybody for joining us today. We're going to communicate several key points today, perhaps best grouped into 4 buckets. First is the favorable trend in our underlying results. Our underlying combined ratio improved sequentially and was inside the range of our prior guidance.

Speaker 2

2nd is what's happening outside the current year underlying results, including additional prior year reserve development. 3rd is the strong progress made on our strategic initiatives, which together reduce our long term risk, improve our capital and liquidity and enhance our ability to generate stable long term distributable cash flow and earnings. And lastly, we are reaffirming our full year 2024 guidance. Let's move to Page 4. Looking at results, we're pleased with the 1 point 5 point sequential improvement in the Specialty P and C underlying combined ratio as the benefits from our profit improvement actions take further hold.

Speaker 2

We have confidence in further improvements as we look forward. As expected, the 30 Point California personal auto rate increase effective in August had only a marginal earned impact in the Q3. Its earned impact will meaningfully increase in each of the next two quarters. This incremental earn rate along with the additional benefits from all our other profit improvement actions provides a significant tailwind for loss ratio improvement in the 4th quarter and more so for full year 2024. Moving to our second big topic, what's happening outside of the current year's underlying results.

Speaker 2

Prior year reserve development was largely driven by recent trends in Florida Personal Injury Protection or PIF, which has been an industry issue in recent quarters And to a lesser extent, the extension of the bodily injury and property damage development patterns from 2022. We'll discuss the drivers further when we get to slide 6. Reflecting on our 3rd major topic, we continue to make strong progress on our strategic initiatives. All our programs are on track to be completed on time and produce or exceed their targeted financial and operational benefits. Let me comment on a few highlights.

Speaker 2

We're very pleased that our reciprocal exchange has received all necessary approvals and was actively writing business during the quarter, albeit at expectedly modest premium levels. The exit from the preferred home and auto business is moving as expected. This action will enhance our return on capital and support profitable growth in our core businesses. We expect to realize significant additional liquidity benefits In the Q4 from the Bermuda optimization and finally, we're meeting or exceeding the expected expense savings with each of our cost structure initiatives. Advancing these initiatives further enhances Kemper's operating capabilities and financial profile.

Speaker 2

We remain highly focused on returning the business to profitability and maximizing long term shareholder value. This leads me to our last topic. We are reaffirming our 2024 financial guidance. We continue to expect a 2024 ROE equal to or greater than 10%. I've spoken frequently about this environment being the Dynamic and volatile the personal auto insurance industry has ever seen.

Speaker 2

I still believe that. While we believe this will persist for at least a year or 2, We continue to be optimistic about what's ahead for Kemper. And now I'll turn the call over to Brad.

Speaker 3

Thank you, Joe. I'll begin on Page 5. As Joe highlighted, we had another quarter of improved underlying results, positioning us for a return to profitability. Offsetting this progress is prior development, Pension settlement and catastrophes. For the quarter, we had a net loss of $2.28 per diluted share and adjusted consolidated net operating loss of $0.44 The net loss included a non cash charge of $56,000,000 related to the termination of our remaining pension obligations, which was previously recognized and accumulated other comprehensive income or AOCI.

Speaker 3

The net loss and adjusted consolidated net operating loss included specialty auto adverse development of $78,000,000 and catastrophes of 7,000,000 Last quarter, we announced that we were exiting the Preferred P&C business and as a result, the business is now reported below the line in non core operations. The business generated net loss of $7,000,000 including approximately $14,000,000 in pretax catastrophe losses. Turning to the prior year reserve development details on Page 6. Florida PIP bodily injury and property damage coverages drove reserve strengthening. PIP reserve changes resulted from increased frequency and severity of litigated claim activity, mainly from policy periods 2020 to 2022.

Speaker 3

Today, roughly 3 quarters of PIP claims have attorney representation, up from 2 thirds a few years ago. We anticipate attorney representation for these policy periods will remain elevated and have reflected this in our reserving. On bodily injury and property damage related claims, we continue to see extended claim reporting timelines and more claims closing with payment. This was mainly related to activity during the second half of twenty twenty two. As Joe noted, the environment continues to be volatile.

Speaker 3

However, given the short tail nature of our business, we are confident we have appropriately recognized these emerging trends in prior and current year reserves. Pages 7, 8 and 9 provide an update on our strategic initiatives. These are on track to be completed on time, producing or exceeding our targeted financial and operational benefits. As you know, we launched the Bermuda project in 2022 and we continue to optimize the initiative. We expect $250,000,000 in Life dividends to be paid to in the Q4, up from $200,000,000 as previously indicated.

Speaker 3

This continues to create value and financial flexibility for the company. This quarter, we also included our multiyear pension termination project, which reduced our tail risk and related expenses. We recognized a $56,000,000 noncash Last quarter, we announced our exit from the Preferred P&C business. The wind down process is underway and is expected to release approximately $175,000,000 of capital by the end of 20 20 and another $100,000,000 in 2025. Next, our cost reduction initiatives are on track to produce their intended benefit.

Speaker 3

Since the onset of this effort, we have already achieved over $135,000,000 of run rate savings, which is roughly 90% of our goal previously projected to be realized by 2025. And finally on Page 9, the Kemper reciprocal exchange was established and began writing policies in Illinois in the Q3. Over the next year, we plan to populate the Exchange by reinsuring select new business from Kemper legal entities and directly writing premium in the Exchange. Growth is expected to ramp up as we receive approval to expand into new states. We plan to host a special topic call during the Q1 of 2024 to disclose structure and financial reporting.

Speaker 3

Moving to Page 10. Our insurance companies are well capitalized and have significant resources of liquidity. At the end of the quarter, we had $820,000,000 of liquidity consisting of revolver capacity, intercompany lending capacity and holding company cash and investments. We expect parent liquidity to be bolstered by at least $250,000,000 in the 4th quarter from our Bermuda optimization. Our healthy liquidity balance enables us to support our operating subsidiaries and pay holding company dividends and interest payments.

Speaker 3

We continue to have the capital liquidity needed to navigate this ongoing dynamic operating environment. Moving to Page 11. Net investment income for the quarter was $107,000,000 and our pretax equivalent annualized book yield was 4.6%. Lastly, our approach Asset liability management continues to produce the intended results in a rising interest rate environment. I will now turn the call over to Matt to discuss the Specialty P and C Business.

Speaker 4

Thank you, Brad, and good afternoon, everyone. Moving to Page 12 in our Specialty P and C business. We closed the 3rd quarter with an underlying combined ratio This was a result of incremental earned rate and ongoing underwriting actions, including new business restrictions, which was partially offset by severity and seasonality. And while loss trends remain elevated, they have stabilized. Earned rate increased its forecast And we expect it to accelerate in the Q4 and in 2024 due in part to the 30 points of California rate effective in August of this year.

Speaker 4

We anticipate the cumulative benefit of our profit actions to continue to exceed loss trend. We are observing hard market conditions, especially in California. As we renewed policies at higher rates, persistency remained in line with prior periods, creating favorable premium retention. This quarter, we filed an additional 6 points of rate on 13% of the book. Going forward, we will make rate and segmentation filings across the business as needed.

Speaker 4

This quarter Specialty P and C observed a moderate level of catastrophe losses driven by tropical storms and wind hail events. Our commercial vehicle underwriting and rate actions are continuing to positively impact loss performance. In the 3rd quarter, The underlying combined ratio was 93.6 percent and we project continued profitability as pricing remains strong. As mentioned on the Q2 call, we are planning to selectively write a modest amount of incremental new business to test new customer cohort buying and claim behavior. Moving to page 13, we remain hyper focused on achieving target returns as cumulative actions will continue to outpace loss trends.

Speaker 4

In addition, Enhanced tools and analytics will enable a thoughtful balancing of underwriting profitability and new business writings. Finally, despite the ongoing dynamic environment, We anticipate achieving target profitability in 2024. I will now turn the call over to Joe to cover the Life business.

Speaker 2

Thank you, Matt. Turning to Page 14. Net operating income for our Life business was $15,000,000 for the 3rd quarter. Profitability improved over the prior year quarter and sequential quarter. Consumer demand for our products is strong, with life issued policies were up slightly and persistency remains stable.

Speaker 2

The Life business continues to generate strong returns on capital and distributable cash flow. Turning to Page 15. To reiterate our highlights for the quarter, one, we made solid progress on improving underlying combined and loss ratios. The California rate change for specialty auto will have an increasing impact over the next two quarters, reinforcing our confidence in returning to target margins. 2, our strategic initiatives are on schedule and expected to meet or exceed all financial targets.

Speaker 2

And 3, We are reaffirming our 2024 financial guidance of delivering an ROE of 10% or greater. In closing, I'd like to thank our entire Kemper team for their ongoing dedication

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Greg Peters from Raymond James. Your line is now open.

Speaker 5

Good afternoon, everyone. I guess, I'll start I have a couple of questions and I'll start first With the top line and the policy count in your specialty book, It's declining substantially on a year over year basis and sequentially. Can you talk about how As you deploy the rate increases, how your rate might be competitively disadvantaged Or other factors that might be contributing to the drop off in policy count and written premium?

Speaker 2

Sure, Greg. This is Joe. I'll take a start and Matt you can jump in with more thoughts. This is largely driven, Greg, by our reduction in new business or our constraint on new business policies, our retention rates Are consistent and or even up slightly from where they were pre pandemic levels. So this is driven by the new business curtailment.

Speaker 2

We will likely restart and start to reintegrate some of that new business, as Matt mentioned, in the 4th Quarter and into the first, we'll start slowly and test the system, if you will, And let another quarter of rate earn in and watch the underlying loss ratios improve. But this is largely driven With what we're seeing on our new business underwriting criteria, constraining business rather than what we're seeing as a competitive problem That's driving lapse rates up.

Speaker 4

Just a quick add on to that. So as you know non standard Specialty customers churn at a bit of a higher rate. So naturally, as you don't put on new business, you're going to see policies in force leak a little bit more. Just a quick comment on the rate and its stickiness. We are seeing policy persistency actually Slightly elevated versus prior periods.

Speaker 4

So our renewal book as it's converting at higher written and earned rate levels is sticking at a higher rate. But as Joe mentioned, the drawdown in policies in force is really a function of the lack of new business that we have coming in at This point and we'll balance that as we move forward over the next couple of months.

Speaker 5

Okay. Thanks for providing that color. Just on you did mention in your answer and in your prepared remarks this desire to start growing Certain cells are test the system. Just curious how that's going to look because kind of With your combined ratios reported combined ratios where you are, they probably want the margin to improve before you start writing a bunch of new business, but Provide some additional perspective on that, Joe.

Speaker 2

Sure, Greg. We did not say we were going to grow a bunch And we did not say we were going to add a bunch of new business. Those were not remotely close to the words we said. We were going to start to write some modest amounts of incremental new business. We've got a very significant new business slowdown.

Speaker 2

If you were thinking about sort of a 2019 level, it's way off of that. We're going to modestly add some new business at some point, probably in the Q4 or the Q1 To test how the underwriting criteria as we take them off, what comes into the book of business, How that business is performing in its early stages? How those underwriting filters work? One of the things we've talked about before is When you have a market and a consistent view of carriers and underwriting appetite, you know how things are going to work. As the market hardens And you find people put up different underwriting restrictions or different price points, business will move around the marketplace Differently.

Speaker 2

What we want to do is open the filters a little bit and we believe we know what will happen when we do that and we're going to test it. And so we're going to launch it every day, every week, every couple of weeks and see what's coming through in that process. And did what comes through did what Actually come through behave and look like from a profile perspective and a performance perspective what we expected. And again, I've used this And, Alex, if you got a little bit of the stomach flu, you don't go back and eat everything you did the week before. You start out with the brad diet of bananas, rice, applesauce and toast And reprime the system.

Speaker 2

So what you'll see us doing is a restricted diet and restarting The process, we're going to do that while the combined ratios are continuing to improve. There'll be a high probability In our mind that, that new business will perform well. It is at 100% of new business rates when it comes in, where some of our renewal book Continues to have not renewed at the newer rates. And we're watching the really the underlying loss ratio. One of the things I think you've noticed, you've heard us talk about before, think about expense ratios.

Speaker 2

Our expense ratio has a little bit of a temperature, Partly because there's some decline in new business and partly because there's a decline in business overall, and partly because There's new business fees, that are charged as a contra expense. They're higher on new business than they are in renewals. So we're watching and testing that underlying loss ratio, knowing that as we reopen the new business And that expense ratio reverts back to its norm, that will hit the underlying target profitability. So again, what I'd expect, If we roll forward 90 days and we're having a conversation about the Q4, there is not going to be massive growth or a massive amount of new business in there. There'll be some incremental as we're testing it and at the same time we're watching what we expect to be Changes in our underlying results and the underlying loss ratio.

Speaker 6

Got it.

Speaker 5

Just to clarify, yes, it does. In your answer, I think you Said, some of the business that's renewing isn't renewing at the new rates. Is that right or did I miss?

Speaker 2

As it renews, it gets the new rate, but our profitability right now doesn't some of the business hasn't renewed yet, so it's still at the old rates.

Speaker 5

Got it.

Speaker 3

So if we get into this peak

Speaker 2

of business, not all of it is at the higher rate level, where if we started new business, all of it would be. So we actually think that by opening the filter slightly, the cohorts we're adding and the business we're adding, should be Better from a target return perspective on its lifetime basis than the full in force is right now.

Speaker 7

Okay. Last question, I don't want

Speaker 5

to hog the floor. So the last question, I'm just going to pivot to the balance sheet, parent company liquidity. It's a source of concern in the marketplace when we see just on the one slide in your investor decks On Page 10, see how the parent company liquidity, the total has gone from $1,300,000,000 down to 821,000,000 And then just looking what these numbers were like in the second quarter, it was $970,000,000 down again to $821,000,000 At the end of the Q3. So as we look forward, because you keep reiterating that you're adequately capitalized. Can you sort of give us a roadmap of how you see uses of cash and how you see the balance sheet evolving, Say over the next couple of quarters, that might be helpful.

Speaker 3

Sure, Greg. This is Brad. You are correct. We look at the end of 2022, we had $1,300,000,000 of cash. That was elevated versus kind of historic levels.

Speaker 3

It was mainly related to the Q3 Bermuda Optimization where we took up a dividend from the Life Company. So it was elevated at the end of last year. We look at it from Q2 to Q3, we're down about $150,000,000 The $150,000,000 was split between a decline in holding company cash and liquidity a reduction in our revolver capacity. So we're at $820,000,000 approximately. As we look forward, we expect By the end of this year, it will be up another $250,000,000 plus as it relates to that will increase due to the Bermuda optimization effort.

Speaker 3

You'll notice if you look to the right of that slide on Slide 10, you'll see the RBC ratio is much higher than they have been historically. You'll see a 1,000 plus RBC ratio for a life company. And so we'll take that ordinary and extraordinary dividend this quarter, increasing the cash overall. So it will be $1,000,000,000 plus in liquidity. We think about our sources and uses over the next 12 months, typically we spend about $150,000,000 a year in cash, About $80,000,000 in dividends, about $55,000,000 interest expense and other Holdco expense items of $10,000,000 or 15,000,000 So when you think about that, dollars 1,000,000,000 plus liquidity, dollars 150,000,000 in usage were covered multiple times.

Speaker 3

We can extend out for several years.

Speaker 5

Fair enough. And do you have are you because of the several quarters of losses, I assume You're unable to dividend up any capital from any of the subs at this point. Is that correct? Or Is that is there still a way to pull capital out of the

Speaker 3

subs if needed? We can still pull out capital out of the subs, particularly the life company.

Speaker 5

Okay. Thank you very much for the answers.

Speaker 2

Yes, Greg, this is Joe. Just I wouldn't focus on the $1,300,000,000 that It was really an anomaly and the $1,400,000,000 was a surge of earnings in the 2020 time period when people weren't driving. And as Brad pointed out, you look at the RBC of $10.15 in the life company. In an ideal world, we would have actually moved that $250,000,000 plus before the end of the quarter. And it's a timing anomaly that it was it's going to be done in the Q4 rather than inside the 3rd.

Speaker 2

So I would definitely encourage you to look at those in Combination, in terms of where the cash is moving back and forth between them.

Speaker 5

Makes sense. Thank you.

Operator

Your next question comes from Brian Meredith from UBS. Your line is now open.

Speaker 2

Yes, thanks. A couple of

Speaker 7

them here. First, just on the adverse reserve development. Brett, I know you said that you're confident you're in a good position now as a short tail business. But if I look, you've had adverse development in your personal auto business for 4 quarters in a row. What gives you confidence that your personal auto was reserved Adequately, are you seeing trends kind of going down now?

Speaker 7

Are there certain things that give you more comfort? And then also on the reserve Topic, if you could address commercial auto a little bit and what's going on there. I mean, you grew very rapidly for the last 3 years. And I know other companies are having challenges with their commercial auto. So maybe your book is different or something and that's why.

Speaker 7

Maybe you can address that as well.

Speaker 2

Yes, let me let's do these in reverse and I'll do a quick one on commercial vehicle and then Brad and I will tag team and maybe Matt as well on the PYD. The commercial vehicle, remember that that was a 93 6 underlying combined ratio, the $7,000,000 is some BIDCC related items. It's just The defense and cost containment, that's running underneath there. And it's still a very strong combined ratio There, if you look at it over any rolling 12 month period, you feel good about the underlying profitability there. So that one doesn't cause us a lot of angst.

Speaker 2

It really is just a little bit of DCC and cleaning up there.

Speaker 3

Hi, Brian. On the reserves, when I think about our comfort there, A lot of the activity we saw that created prior year development this year was related to the second half of twenty twenty two. And so we have a short tail business. As we get further away from that, we're confident in what we have reserved. Additionally related to PIP, we've seen increased frequency of claims, we see higher severity.

Speaker 3

When we think about what we're reserving today, we're reserving for not necessarily an acceleration of claims coming through, but higher total claim, higher total amount of severity Due to the increase in litigated claims and we think we've captured at this point in time everything that we can. Now it is management best estimate, but we think we've taken a very practical approach to what we think has occurred only over the previous years, but what we expect to occur going forward. Additionally, on PIP, we're not reflecting any of the benefits that maybe they're related To legislative changes in the Q3 or in the Q1 of 2023.

Speaker 7

Got you. And then my second question, just going back to the capital situation at the holding company. I'm just curious, If things don't start turning around here quickly, will that at all impact your ability to kind of roll out the reciprocal given that I know you're going to have Fund that with some preferred. And then I also know you mentioned in the release that you're going to reinsure some business in the reciprocal. Is that going to require some capital going in relatively soon?

Speaker 2

Yes. It won't have any impact at all on the reciprocal. Let's remember this. We're not going to give any capital to the reciprocal. The exchange itself, The capital there is either generated by the actual policyholders there with contributions or from earnings that come off of those Policies or through surplus notes.

Speaker 2

The surplus note is effectively a loan. So to the extent we were assisting with that and let's I'm making up a number. Let's say we gave a $20,000,000 surplus note, will be the equivalent of us giving the exchange a $20,000,000 loan, which it would be required to pay us back. That doesn't reduce our capital As the holding company or the parent in that process, reinsuring Business into the reciprocal. What we can do is we can take again, I'm making something up to be illustrative.

Speaker 2

If we decided that all new business effective January 15 written in State X Was going to be reinsured into the reciprocal in Georgia. Then starting on January 15, any new business written on Kemper Paper would be reinsured over. That actually would become a capital relief for the parent company Kemper because we wouldn't need to hold the capital for To be able to write that new business. It actually transfers premium into the reciprocal and the surplus note would be providing the capital For that. So it actually helps the capital situation, not hurts, and relieve the issue, doesn't restrict us.

Speaker 2

That's right.

Speaker 7

That's the tooling.

Speaker 3

Yes. The other thing I'd add Brian is, I think what Joe is articulating here is it gives us actually more flexibility. It's another capability or tool that we have at our disposal. Additionally, Kemper doesn't have to be the only one supplying the reciprocal exchange with surplus notes. Eventually when it matures, we can go out and get 3rd Capital as well, which provides additional benefit and potential release for Kemper Corporation.

Speaker 6

Got you. And then one last Sorry.

Speaker 2

This is one of the reasons we're going to wind up spending some time With a special topic on the reciprocal in the Q1, it's hard to do in an earnings call and with one of these, we'll lay out a series of slides that sort of helps that. If you can imagine this, what will happen over time is as that business naturally transfers into the exchange, You're going to see premium at Kemper Corporation go down, required capital at Kemper go down, Premium inside the exchange go up, required capital inside the exchange go up. We will never give shareholder capital to the exchange. So these things move back and forth and it will make it a little more for a short period of time as it transitions a little complicated to read our financial statements Because of those shifts and that's why we're going to sit down in the Q1, as the numbers are starting to get a little bigger, to show that and help everybody see how to model it, but it really actually does ultimately release capital, as this process goes through.

Speaker 7

Got you. And one just quick last one here, Joe. You said target profitability at some point in 2024, I'm assuming it is 2nd, Q3, whatever it is. And then can you remind us what your target profitability is in your personal or specialty business?

Speaker 2

Yes. We don't typically give a target combined ratio. We will definitely be there to generate. Our guidance has provided you guys a view that we're going to be a 10% ROE next year Or 10% plus next year. We've targeted a low double digit ROE over Cycle, so we're obviously at the lower end of that range.

Speaker 2

But inside of that, to achieve that for the year, You would reasonably expect that the combined ratios are in the zone of our targets early on in the year. And if you just did a little math And said if we had 100.5, underlying combined ratio in specialty auto, in the 3rd quarter And we've tried to point out that that has very little earned rate from California running through it. You could reasonably expect That earned rate will more than offset loss trend and will continue to provide combined ratio improvement over the next Couple of quarters, I think we've been very careful about that describing that. So that should provide a plus. At the same time, we'll start Writing a little bit more new business that will have its new business penalty and you will not see the combined ratio continue to improve Weigh in excess of what might be a target that would produce that combined ratio.

Speaker 2

Those 2 will converge and will sort of hold our ground over the course of the year.

Speaker 5

Great. Thank you.

Operator

Next question comes from Paul Newsome of Piper Sandler. Your line is now open.

Speaker 6

Thank you. Thank you. Always helpful in the call. Could you can I ask you about the reduction in revolver capacity? Was that just well, just can you tell me what's driving that?

Speaker 6

Is that the other piece of the whole company liquidity that's changing?

Speaker 3

Yes, sure, Paul. We're hitting a covenant, the leverage covenant that's driving that and bringing that down. I'd highlight, we did our revolver last year. We opted from $400,000,000 to $600,000,000 And so we're slightly below $400,000,000 today. So if you look at it from a historical perspective and how we've actually shrunk in new business over the last year and where we stand, It's $375,000,000 roughly.

Speaker 3

That's plenty of liquidity and no concern. I don't have any concerns with that.

Speaker 6

Great. Different topic. The accounting for the preferred business, obviously, you're running it through this non Core line. But it doesn't look like it's being treated as discontinued operations. It looks like the revenues and expenses are all going through On a consolidated basis like they were before, you're just not breaking it out as a separate segment.

Speaker 6

Is that right? Am I getting that right? Or am I wrong It's treated like a discontinued operation.

Speaker 3

It's not

Speaker 6

the This is below the line. It's not technically below the line, right?

Speaker 3

It technically is below the line. It's treated as non core operations. Discontinued ops would have to be something that's sold or We have a deal on the table, etcetera. So it's non core operations, it's being wound down as planned. You can see that I think it was $7,000,000 from non core operations this quarter.

Speaker 3

We'll try to provide as much information as possible to you. I think we also included about $14,000,000 of catastrophe losses, etcetera, but you won't see it as a segment going forward.

Speaker 6

It will be in the consolidated number. Like this consolidated revenue, for example, will include premiums from the

Speaker 3

You won't see any of the detail from like a premium standpoint, a net investment income standpoint, any of those things, it all is getting lumped into one component in non core operations. So think about taking that We

Speaker 6

have to take it.

Speaker 3

Yes. So think about that segment, Previously, Kemper preferred insurance, all of those components are being truncated to one line. And so you're seeing the net impact of that business performance

Speaker 2

I know you're wrong on this, Paul. I'm not an accountant, but I think part of the issue on the discontinued ops, adding on to Brad's, I know it's The sale or the exit, but if we're just shutting it down, we didn't exit all private passenger auto. So that was I think some

Speaker 3

of the advice we were getting that

Speaker 2

that's part of why we can't move it to discontinued ops.

Speaker 6

Which is fine. I'm just thinking about it from an operating from a modeling perspective because if we're modeling total revenue for the firm In a discontinued op situation, it wouldn't show up in total revenue. But if it was just considered non core, like It sounds like you're doing it will show up in consolidated total revenue on your U. K. Or Q.

Speaker 6

I think that's right.

Speaker 2

And then We can definitely take it offline, Paul, and help you with the modeling pieces of how it will come through.

Speaker 6

So last question, I'm getting this a lot. The reiteration of the 10% plus ROE, Some of the pushback I'm getting is that, that may be sort of I don't know if it's can you give this or not, Essentially a reduction in the earnings expectations for next year because the capital is lower Because of the losses we've incurred in this quarter, for example. Any thoughts on that? Do you think That's fair or, but the question is coming out quite a bit, so I thought I'd ask him to call.

Speaker 2

Yes. I think Paul, We're trying to get a little simpler in terms of how we communicate stuff. We've said that we're going to generate a 10% plus ROE. We were doing a we did a pre announcement, so there's a limited ability in a press release to try to describe every nuance. And I understand There's a lot of attention on all of the pieces running around our business and where things are and we're not trying to be Q, we're trying to actually just sort of simplify what we're doing.

Speaker 2

It's a basic GAAP ROE calculation. We're Sticking with the 10% plus, and I understand the math you're describing in it. We weren't trying to hide something in there. We weren't trying to send a different signal. Maybe it's because it's Halloween, everybody is looking for ghosts, but it was trying to be a simple statement.

Speaker 6

Appreciate that. Thank you very much.

Operator

There are no further questions at this time. Mr. Joe Lacher, please proceed with your closing remarks.

Speaker 2

Thank you, operator. Thank you everybody for joining our call today and for the questions. And we look forward to Speaking to you again in the 4th quarter or with the 4th quarter results. Thanks.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Kemper Q3 2023
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