Kemper Misses on Q2 Earnings & Revenues, CAT Loss Rises - Analyst Blog

Kemper Corporation ( KMPR ) reported second-quarter 2014 net operating earnings of 18 cents per share, lagging the Zacks Consensus Estimate of 41 cents by 56.1%. Results also declined 67.2% year over year.

Including income from discontinued operations, net income at Kemper came in at 17 cents per diluted share, down 71.2% from the prior-year quarter.

The lackluster performance was largely due to rise in both catastrophe (CAT) losses and expenses. However, better underlying property and casualty results partly mitigated the decline.

Operational Update

Kemper generated revenues of $542.5 million, missing the Zacks Consensus Estimate by 1.7% and lower than the year-ago quarter figure by 7.9%. Revenues declined due to lower premiums earned in the Property and Casualty segment, stemming from the undertaken profit improvement that resulted in lower new and renewal business.

Kemper's earned premiums and net investment income declined 8.3% and 3% respectively, on a year-over-year basis due to soft performance at Property and Casualty as well as Life and Health insurance segments.

Total expense fell 2.1% year over year due to decreased policyholders' benefits, along with incurred losses and loss adjustment expenses, insurance expenses, and interest and other expenses in the reported quarter.

Segment Details

Kemper's Property and Casualty segment recorded a net operating loss of $1.2 million against an income of $19.1 million in the year-ago quarter. The deterioration stemmed mainly from a rise in CAT losses and insurance expense. However, improved underlying loss and LAE ratio partly offset the decline. LAE ratio improved 360 basis points (bps) year over year to 66.0%, due to higher average earned premium rates in personal auto and homeowners.

Revenues declined 10.3% year over year to $337.2 million, owing to a fall in both earned premiums and net investment income.

The combined ratio deteriorated further by 870 bps to 107.6% year over year due to higher CAT losses in the said quarter.

The Life and Health segment reported net operating income of $15.9 million, down 22% year over year due to increased insurance expense and lower net investment income. The insurance expense increased as a result of start-up expense incurred at Reserve National to expand distribution channels, along with higher legal fees. These factors were partly offset by lower home service agent commissions.

Revenues declined 3.8% to $200 million due to decrease in earned premiums and net investment income.

Financial Update

Kemper exited the quarter with cash of $61.8 million, down 7.1% from Dec 31, 2013.

As of Jun 30, 2014, the Kemper's total assets were worth $7.96 billion, up 4.1% from 2013 end-level.

Kemper's shareholders' equity amounted to $2.14 billion, up 4.2% from 2013 end-level.

Book value as on Jun 30, 2014 was $39.98 per share, up 8% from Dec 31, 2013. This rise was driven by lower yields on the fixed maturities portfolio and net income.

Dividend and Share Repurchase Update

Kemper repurchased more than 1.9 million of shares for $68 million and exhausted the $300 million buyback program. Subsequently the board of directors approved a new $300 million share repurchase program.

The company also paid dividends worth $13.3 million to shareholders in the reported quarter.

Zacks Rank

Kemper currently holds a Zacks Rank #4 (Sell).

Performance of Other Multi-line Insurers

CNO Financial Group Inc. ( CNO ) reported second-quarter 2014 operating earnings of 29 cents per share that missed the Zacks Consensus Estimate by 6.5%. However, the figure improved from the year-ago quarter earnings by a penny.

FBL Financial Group, Inc. ( FFG ) posted second-quarter 2014 operating earnings of $1.05 per share, outperforming the Zacks Consensus Estimate by 9.4% and rising 7.1% year over year.

American International Group Inc. ( AIG ) reported operating earnings per share of $1.25, which surpassed the Zacks Consensus Estimate of $1.05 by 19% and rose 11.6% from the year-ago quarter figure of $1.12 per share by 11.6%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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