Kemper shares flat after insurer posts net loss in Q1

Kemper Corp.'s shares remained flat this week even after the company reported yet another net loss in the first quarter.

The Chicago-based insurer's share price was down 0.97% for the first four trading days of the week, closing May 11 at $45.09. Though it was mostly unchanged this week, Kemper's stock has fallen about 30% since Feb. 7 as the company has been hit by continued harsh frequency and severity trends in private auto and claims from torrential rains in California.

Kemper reported a net loss of $80.1 million for the first quarter, a very modest improvement from the loss of $86.3 million a year ago.

The quarter's results were disappointing, CEO Joseph Lacher said on a conference call, but the causes were "episodic," including higher catastrophe losses, prior-year adverse development and an unexpected rise in frequency.

Piper Sandler analyst Paul Newsome in an email to S&P Global Market Intelligence said the results were poor "on an absolute basis and relative to investor expectations." Comments made on the earnings conference call suggested the first quarter was a step back in their plan to regain profitability, Newsome added.

Kemper's share price was down about 6% year to date as of May 10, after going on somewhat of a roller-coaster ride since the start of the year. After rising almost 39% to $68.05 on Feb. 7 from $49.03 on Jan. 3, it had plunged 32% to $46.17 by May 10.

The ugly frequency and severity trends in private auto took a toll on Kemper's combined ratio, as did claims generated from severe weather in Texas and the atmospheric rivers that have brought intense rainfall and flooding to California since October 2022.

The company's specialty property and casualty (P&C) segment had a 112.1% combined ratio for the quarter, while its preferred P&C segment reported a 116.6% combined ratio.

Ratios remain high in guidance update

The losses led Kemper to update its earnings guidance, which now anticipates a second-quarter underlying combined ratio of between 103% and 107%, an underlying combined ratio below 100% in the second half of 2023 and a return on equity "greater than 10%" in 2024.

The new guidance, Newsome said in a note, suggests "a worse-than-expected result for the second quarter" and shows that attempts to restore profitability have been dampened

"I think there were some investors that thought that the amount of earnings the company would make in 2024 were much higher than what they guided," the analyst said.

While executives admitted the first-quarter report was worse than expected, they held firm on the optimistic outlook they presented at the company's March 9 investor day.

It was also a flat week for some of Kemper's P&C peers. As of market close on May 11, American Financial Group Inc. was up 0.14%, Cincinnati Financial Corp. had fallen 1.20%, and Mercury General Corp. and The Hanover Insurance Group Inc. were up 0.10% and 0.22%, respectively.

The S&P 500 was down 0.14% to 4130.62 while the S&P 500 Insurance index was up 0.45% to 576.62 as of market close on May 11.

Hippo's stock rises

Hippo Holdings received a boost from investors after its first-quarter earnings release and conference call. Shares rose 7% on May 9, the day of the call, and were up 4.12% for the week as of market close May 11.

The insurance technology company is growing, improving its operating efficiency and making "significant strides toward profitability," CEO Rick McCathron said during the earnings call.

Hippo posted a 62% year-over-year increase in revenues but expenses also rose 19% from the first quarter in 2022. The end result meant that the insurtech booked a wider loss than a year ago at $69.8 million compared to $67.6 million in the first quarter of 2022.

However, there are reasons for optimism, according to JMP Securities analyst Matthew Carletti. Hippo's total gross premiums rose 59% to $245 million, while the gross loss ratio, gross claims compared with gross premiums, came in at 76%, which was 9 points better than his estimate, Carletti said in a research note.