Conference Transcript - KMPR 2026-03-03

Operator

Good morning, everyone. Day two here at the Raymond James Institutional Investors Conference, and this is my side office. This is where I sat all day yesterday, and I'm here again today. so thank you everyone for being with us this morning a bunch of insurance companies and insurance brokers here over the three days and one of the companies that's been a very loyal and long-standing participant of our conference has been Kemper Corporation and it's been an interesting journey to say the least lots of challenges in the auto insurance market over the last five years and and Kempers had both successes and some challenges as well so um this morning is supposed to be set up as a I guess a fireside chat minus the fireside but in the 28 minutes and 38 seconds we have left I thought what I do is have Tom who's serving as the interim CEO provide a couple minutes summary of the State of the Union as it relates to Kemper where where you were at the end of last year and you know what the outlook is as it currently stands and then we can of course use that as a launching pad to get any questions about what's going on in the auto market in your in your various states so go for it

Tom Evans, CEO

Sure. Good morning, everybody, and thanks, Greg. Just a little bit of background on myself. I've been with the company, it'll be 34 years next month. My normal day job is general counsel, but I've served in a lot of roles over those 34 years. and I joined the company shortly after we got spun off from Teledyne so I've seen the entire ride and as Greg said it's been an interesting journey some businesses we were in got out some new ones that we picked up these days you know we're really focused intently on our two core businesses which are the auto business non-standard auto with a very significant piece of that that is commercial smaller fleets and then our life business as you said greg last five years have had some challenges some really good moments you know coming out of covid we certainly ran into a little bit of bumpiness and last year saw some of that return just with some of the environmental changes in our key markets particularly in California and Florida looking you know going forward as we look at 26 and 27 what we're really going to be focusing on are those two core businesses operating them with greater efficiency a little bit more discipline looking to restore profitability and at the same time take advantage we made a lot of investments over the last few years replatformed a lot of stuff now it's a time for us to take advantage of some of those investments and really see what they can do for the businesses so the couple that are still in flight we're gonna you know we want to get finished and then really use the next couple years to maximize getting the benefit

Operator

out of those efforts it makes sense um so thanks for that the summary so let's Let's start what it feels like our discussion should focus on a state-by-state discussion and maybe it's California and the other states, although Florida and Texas are its own ecosystems. But let's, for the moment, focus on California. Stepping back, there were some changes in what the minimum limit liability profile looked like for the state. So walk us through the history of what it used to be, what the changes were, and how it's affected your business in that state.

Tom Evans, CEO

Yeah, and I'll invite Brad to chime in as well. For those who are not familiar with the situation, California had not changed their minimum financial responsibility limits in almost 60 years. uh considering you know what a huge state it is and how important the auto insurance market is there uh it was they were they had uh they were one of four states that had extremely low limits so uh in 2020 late 2023 the legislature adopted a new bill requiring excuse me that the limits be increased effective January 1st. They doubled for physical damage and liability. It turned out to be a real disrupting event in the market there. You can always try to anticipate what something like that's gonna be, but until you're actually in the fray and see how it's playing out, it's hard. We made the adjustments, we made the filings as everybody else did and we knew we'd have to make fine-tuning as we went along and we're doing that now we're taking right there you know for us it's had a bigger impact I think than a lot of carriers just because such a big piece of our block of business there is minimum limits so the impact for us there I think was exaggerated compared to some other carriers so we're fine-tuning we're taking right there it's had a significant impact in the BI's losses were incurring you know one of the things that the people knew was likely to happen when the limits were coming in is it's generated more lawyer attention there's more money on the table so that just draws a lot of personal injury

Operator

lawyers have you seen did you have something out Brent you said I'm the

Brad Camden, CFO

numbers guy right so maybe I'll add some numbers to in some context to Tom's comments here as Tom mentioned you know a good chunk of our businesses in California almost 70% of our personal auto business is there more than 90% of our business there is minimum limits and so when you double and triple those minimum limits that's a big change and as Tom said we're working through those adjustments today when you think about our performance over the last six eight months you've seen our combined ratio creep up that's been driven solely by California California loss ratio has gone up about 15 16 points in the back half of 25 and we're working to address that as Tom mentioned we're focused on our claims handling process to mitigate the BI severity trend in the marketplace right now when a claim comes in and those coverages almost 80% are coming in with attorney attachments attorney attached or attorney repped claim is three and a half to four times more expensive than a non-rep claim yeah and so we're making adjustments there to get that right additionally we're taking we're taking rate we talked about last last quarter we filed for rates in California a 6.9 percentage increase but we look at that at the headline 6.9 percent doesn't seem very much but it's the adjustments of the underlying coverages you get north of 40 percent in the liability coverages and your metals coverages are coming down so we're happy to announce that that rate was approved it'll be effective in the

Operator

marketplace here in about a month that's that's great news so on the 6.9 percent rate increase that's been approved is that is that i feel like the combined ratio is running even even with that would still be a little bit above your target um does that mean there's going to be another rate filing that's going to follow after this becomes effective or do you think through policy holder adjustments you can get back to you know the levels of profitability that you're looking for

Brad Camden, CFO

we'll do what's actuarially justified in the state what we need the the key thing there is you can keep taking rate but you need to be competitive in the marketplace right and so So we'll get rate as we need, but we really need to focus in on our processes, looking at claims and mitigating those claims at a lower severity. So we're focused on that. Additionally, in the third quarter, we announced a restructuring charge. We changed some leadership. We're focused on cost optimization, process optimization to be more competitive in the marketplace. and so those things plus non-rate actions which we talked a lot about during the COVID period that we could take in California we're doing those as well. You're back to non-rate actions as well

Operator

so that's great so well that's great news about the rate increase for you in California it seems like I don't want to get too far in front here but it feels like the insurance commissioner in the insurance department has learned a lesson and they seem to be a little bit more responsive in California than what the legacy record might suggest. Is that an accurate perception of what's

Tom Evans, CEO

going on? Yeah, Greg, I would say that's accurate. I think the broader insurance market, particularly homeowners there, has been in such a state of disarray, such huge losses from all wildfires is that over the last three years I would say we and I think more broadly others in the industry would say they've seen a higher level of cooperation and wanting to work with the industry to make some adjustments including trying to speed up rate approval it used to be a painfully slow

Operator

process and it has gotten better definitely yeah well I you know thankfully you don't have wildfire exposure not writing property insurance in california because that would just be another very grateful for that another source of concern for investors um but let's just stick on california for a second um because you talk about attorney rep rates because the limits have gone up can we pivot over to the commercial vehicles side of the house inside california because i feel that the the liability profile of those type of policies a little bit larger too so does that mean that you're seeing any change in your attorney rep rates on the commercial vehicle side of your book of business inside California not it's not significant changes there

Brad Camden, CFO

because no change in limit profile same same type of business that we're seeing we continue to see increased BI severity just as you know attorneys are helping claimants you know with more innovative treatments and they're trying to move closer to that limit whether that's five hundred seven fifty or even in some cases a million dollars and they're taking longer to settle and so as they go through this process with the latent development you continue to see increase in severity but no real change there and obviously we've had some adverse prior developments the last year or so and it's been predominantly in accident years 2023 and prior we changed our reserving practice in 23 and we're we're happy and pleased with those results for accident years 24 and 25 what you saw in 23 and prior some some we call large losses our large losses defined as anything greater than 250 000. it's a low frequency high severity event and those have developed more you know adverse than we anticipated and it's taken longer to settle and so we've made those adjustments our hope is we've captured most of that given that the counts are down significantly we've worked through a lot of that inventory my expectations that adverse development has diminished as we go forward so we'll see when we when your

Operator

statutory are out here and they're probably out right now we're just waiting for S&P to come through with them but we'll see claim total claim counts come down a little bit and in large losses yeah excellent that's great news on just on the front end of the house for commercial vehicle inside California talk about where you are in the rate cycle is there any pending rate filings you have there anything going on that that might lead to either change in top line or policy counts there for commercial vehicle in California

Brad Camden, CFO

My expectation is the commercial vehicle continues to grow. It's grown fairly significantly over the last three to five years. We're almost at a billion dollars, so it's grown.

Operator

That's the overall book.

Brad Camden, CFO

California is about 50% of that book. Pricing looks very solid. The market is still very strong from an insurance underwriting standpoint in California for the CV market. So I expect it to continue to grow and deliver low 90s combined ratio performance.

Operator

That's excellent. And when it comes to just the, you know, if you ever get to a point where you need to hit the rate pedal, is the process for rate approval different inside commercial vehicle than it is for the nonstandard book? Because I feel like there might be a different process. Maybe it's a little easier or not.

Tom Evans, CEO

You're right. It is easier, and there's a lot more latitude within the commercial space. So we're able to get rate as needed more quickly. Excellent. Excellent.

Operator

Just closing out on just the California piece, because, again, that's a big piece of your business and very important to the outlook for your company. The rate increases through a commercial vehicle, aside from the reserve development, and it seems to be in good position. Is there anything going on underneath, from the expression underneath the hood from a claims perspective that you wanna call out that might cause some adjustments this year? Do you think that with all the changes you made operationally, do you think that you're at an inflection point where actually things can stabilize in California and maybe potentially get better?

Tom Evans, CEO

Yeah, we made a number of changes starting really in the middle of 2025 to the claims organization shifted some responsibilities around with an eye towards being able to address what Brad cited in terms of the increased BI losses we were experiencing so we've got members more experienced claims people and some of our legal team getting involved earlier making some adjustments and some of the the claims practices. Additionally, as I think you probably know, we have a new chief claims officer as of the fourth quarter, Andy Ramamurthy. Andy's focus right now is trying to see what we can do to improve the processes and the operations to get claims settled faster, make sure we're addressing them quickly. If you can cut some of that time out, you reduce the attorney rep rates, and it makes a huge difference in what the overall loss experience is.

Operator

Makes sense. What I'm about to ask, I'm obviously focused on California at this moment, but it's obviously a broader question. Is there any technology tools that you're able to utilize to help you with these processes? It's one of the biggest themes at this conference in this year is AI and, you know, the evolution of ChatGPT, Claude. You know, it's rippling through its potential effects on other areas inside the insurance universe and more broadly speaking. So I feel like there's some opportunity for you guys to deploy some of that to help specifically in California with attorney rep rates and all that stuff, but maybe also across your entire book.

Brad Camden, CFO

yeah we're we have been so this is not anything new for the last five years evaluating a lot of different tools to mitigate attorney rep rates to get information quicker to look out and suss out fraud we have some great partners in that space that help us do that as well as new firms coming into this place with into the space with different technologies has been very helpful so it's helping with workflow automation it's helping with claim Claim resolution is helping to predict future costs and what, you know, medical care treatment should cost or what metal costs should cost. So we continue to evolve that with our innovation group, and we like what we see. It's, I still think, you know, we've been doing it for many years now, but as technology gets better, as you get more data and you use it better, the results will only improve over time.

Tom Evans, CEO

Yeah, the innovations are coming so fast that the opportunities to improve processes are just accelerating you know the one thing you want to be a little bit careful is making sure you're putting your bets you know in the right technology so I happen to be down in our Birmingham we have a very large facility in Birmingham Alabama and I spent some time with the innovation guys down there a couple weeks ago was really impressed with some of the things that they're still in the development stage and they're still trying to figure out where the applications would be most advantageous but I agree it's got a lot of promise We'll continue to rule things out as we get comfortable that the investment's worth it and that the technology works for us.

Operator

Yeah, it feels like there's a lot of opportunity for your company and for the industry to utilize some of these tools to improve efficiency, improve outcomes for your consumers. This is great. So I want to, you know, we've got to talk about Florida. We've got to talk about other markets. we've got to talk about texas so let's pivot to florida which is another large state for you um a lot of changes inside florida um and i it's been topical here because of the the legislation that's been passed it's curbed the trial bar so talk to us about your experience and your your non-standard auto book first and foremost because inside florida and then we can pivot to cv if

Tom Evans, CEO

program sure you know the the tort changes that were adopted into three years ago this month as you said really have changed the market here a lot and I'm not a Florida resident so I'm jealous because your insurance rates are going down whereas those of us that live in other states our rates are going up but it's it's really put a major dent in the litigation industry here I notice there's still no shortage of billboards in the state pushing by the trial bar, but yeah, I think it's been an interesting lesson that you hope other states will take note of, and I know different business organizations, not just limited to the insurance industry, are trying to figure out how to package what happened here and take it to other states. Be like, look, you want to help your your citizens here and reduce their rates these are the kind of things that really make a difference so for us it we saw a significant drop in litigation that you know there was a huge wave of suits filed in 23 right when the bill was about to get enacted but there's been a dramatic drop-off since and it's been great the market here is gotten more competitive and that has its pluses and minuses for us you're seeing carriers come back into the state that we're avoiding it for a number of years just because the climate had been so bad and

Brad Camden, CFO

our goal is to grow everywhere in our core markets California Florida and Texas our expectations will grow faster in Florida relative to California just given the size and scale and the opportunity here we took a restructuring charge and did some cost savings in the fourth quarter we reinvested part of that savings in Florida and so that allowed for some price reductions the market as Tom mentioned had become much more competitive and you saw our policy enforced growth come down a little bit we've seen it now stabilize in the fourth quarter did come down a little bit normal seasonality in our market which tends to see a lower buying season in the fourth quarter and it picks up in the first quarter so we're liking what we're seeing from results standpoint there with the actions we've taken in Florida we think it's a great market to

Operator

growing and we expect to grow more excellent well as a consumer and a resident of Florida yes the rates have been coming down both in auto and the homeowner side so it's a welcome change it's nice to see that legislation can have a positive effect so let's let's spend let's spend a minute or two on Texas to again each state has its sort of own ecosystem but maybe talk about conditions for your company in non-center auto in texas go ahead well i was just going to say

Tom Evans, CEO

you know the texas market is um unique in that it's so fragmented there's so many carriers down there um you know right now i would say you know we're having some slight growth there we're looking for additional geographies in the state that we could expand into you know we have We have a new product that we rolled out last year, a new auto product. It was introduced in Oregon and Arizona, I think it was the third quarter or second quarter last year. We have filings pending in Florida and Texas introduced to that product in those states and expect to have approvals and be able to start getting that into the market sometime either, probably now it's this early second quarter but you know anytime you have a new product takes a little while to fine-tune it but we believe that the Texas market is a very attractive one it lines up well with our the demographic we pursue so we see that as a as Brad said another growth state for us and the

Operator

I know we've been I've been focused on the the non-standard auto piece it commercial auto you know in in those markets i assume you still have a positive view on on the opportunity set there as well that's correct commercial vehicle both in you know

Brad Camden, CFO

in florida texas and florida continues to grow and we like the results we'll continue to invest in that in that segment and and you know we believe in the team we believe they'll continue

Operator

You know, for everyone listening in and here, it's remarkable, as I'm sitting here listening to you talk, it's remarkable how, you know, at the start of the inflation wave that happened in 22 and 23, that your company was viewed as a forward-looking company that saw some these trends before the rest of the market did and it was a testament to you know some of the insights you had in your specific businesses so it feels like the company you know should be able to turn the corner especially now that you have the rate increase approved in california you know we have just a couple minutes left um i think you know a good point here would be to pivot to like the financials and you know as investors look at the results the expected results for 26 you know what are the right sort of performance metrics we should be considering and evaluating the performance of the company versus the rest of market let's just take your company by itself and how should we you know what would what would a successful year look like for Kemper in 26 and give us some benchmarks that we can use yeah we went over this in the fourth quarter call

Brad Camden, CFO

i think first and foremost one of our goals is to reduce earnings volatility our personal auto business is our largest book of business with 70 roughly in in california so we articulated that we're trying to to grow everywhere but also grow faster in states outside of california so looking at growth and diversity out away from California to provide more stability so I'd be looking one in our growth where we're growing and then ultimately you know how that book of business is performing and how the combined ratio is improving you know combined ratio in both Florida and Texas we're making an underwriting profit California is you know is seeing some pressure due to the BI severity trends that we talked about we'll see that rate come in here in about a month and earn in and getting that book to back to profitability and performing will be crucial for the success of the business so you know pith growth diversification and the ultimately the under underlying performance of the book of business in the combined ratio or loss ratio the other thing I would focus on and Tom talked about this earlier is our efficiencies and so not that long ago we had an expense ratio in the high teens our expense ratio you know 21 3 21 5 right now our goal is bringing it down by a couple points and that'll do a few things one it'll help us be more profitable to it'll help us be more more competitive in the marketplace by taking out expenses we can reduce prices and grow a little bit more effectively so just those handful of things right now I think are most critical excellent

Operator

Excellent. I think an appropriate finishing spot would, and we didn't talk about the life business, but capital. And I know the life business does provide you some diversification benefits from the standpoint of capital, but can you talk to us where the company's capital position is today, its attitude towards excess capital, and you can wrap in a discussion on the life business appropriation?

Brad Camden, CFO

Yeah, I think from a capital and liquidity standpoint, we have strong capital position. We have strong liquidity position. Moody's came out and reaffirmed our rating yesterday, a low triple B minus or BA3. So we're not worried about capital at all. We have sufficient capital to weather any volatility that we see in our markets, as well as to fund future growth. so strong capital position strong liquidity position not really looking to give capital back at this point given what we're trying to do we see it's worthwhile from a return on investment standpoint to invest in the commercial vehicle business which is growing which requires a little bit more capital than the personal business and then investing some of that capital in strong states

Operator

like Florida and Texas. Makes sense and so I didn't ask the question and I know you're not going to use this um this format to make an announcement but probably worthwhile just closing out just give us update on the the ceo search process um i know we talked a little bit about beforehand but maybe just for the benefit of everyone listening and you could just give us

Tom Evans, CEO

some updated perspectives there uh sure um you know our board uh directors has a search committee uh they've got a slate of candidates that they're in the process of interviewing um you know these things usually take anywhere from six to nine months and i don't have any reason to think that that timeline will be much different here i do know our board has some specific things they're looking for and they're going to be very deliberate about making sure they find the right person to take us to the next chapter great well um uh so we've

Operator

We've hit the 30-minute mark, and so for everyone here, there's going to be a breakout session that follows, and that's going to be down in Cordova 6. So we thank everyone for being here this morning, and certainly management, Tom, Brad, Michael, who's in the audience, thank you very much for being here at the 47th Annual Raymond James Institutional Investors Conference, and everyone have a great morning.

Tom Evans, CEO

Thanks for having us. We appreciate everyone's time.

Operator

Thank you, Greg.