Kemper Hit Hard As Claims Cost Rise Much Faster Than Rates

Summary

• Rising claims costs, driven by both frequency and severity, have pushed Kemper's profits sharply into the red.
• Management is pursuing higher rates, but there are varying policies across states, and California (where Kemper does 50%+ of its business) is less cooperative than most.
• Kemper has non-rate options to stem the losses, including shifting rating classes, but profits won't normalize without higher rates.
• I still believe in the long-term quality of Kemper's franchise in non-standard auto, but it will take time for the shares to recover.

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One of the challenges in the insurance sector is that companies price policies based upon forecasted losses, and if those losses exceed expectations, it takes time for rate corrections to patch the gap. That's even more true in the

Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.