Good morning, ladies and gentlemen. And welcome to the Kemper’s Fourth Quarter 2014 Earnings Conference Call. My name is Sam, and I’ll be your coordinator today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded for replay purposes. I would now like to introduce your host for today’s conference, Ms. Diana Hickert-Hill, Vice President, Investor Relations and Corporate Identity. Ms. Hickert-Hill, you may begin.

Thank you, operator. Good morning, everyone and thank you for joining us. This morning you will hear from four of our business executives, starting with Don Southwell, Kemper’s Chairman, President and Chief Executive officer; followed by John Boschelli, Kemper’s Vice President and Chief Investment Officer; Denise Lynch, Kemper’s Property & Casualty Group Executive; and Frank Sodaro, Kemper’s Senior Vice President and Chief Financial Officer. We will make a few opening remarks to provide context around our fourth quarter and full year results. We will then open the call for a question-and-answer session. After the markets closed yesterday, we issued our press release and financial supplement. You can find these documents on the Investor’s Section of our Web site, kemper.com. Please note that our discussion today may contain forward-looking statements. Our actual results may differ materially from these statements. For information on potential risks associated with relying on forward-looking statements, please refer to our Form 10-K and 10-Q reports filed with the SEC as well as our fourth quarter 2014 earnings release. We plan to file our 2014 Form 10-K on or about February 12, 2015. This morning’s discussion includes non-GAAP financial measures that we believe may be meaningful to investors. In our supplement and earnings release, we have defined and reconciled non-GAAP financial measures to GAAP where required, in accordance with SEC rules. And finally, all comparative references will be to the fourth quarter of 2013, unless we state otherwise. Now I will turn the call over to Don.

Thank you, Diana. Good morning everyone, and thanks for joining us on our call this morning. I’ll provide opening comments including a few thoughts on our recent acquisition announcement, as well as an update on our Life and Health segment. I've asked John to provide an overview of our investment performance. Denise will update you on the Property & Casualty segment. Frank will cover financials, capital and liquidity. I’ll then close with an update on our capital deployment status and actions. Looking back at the fourth quarter and the year in total, we ended the year on a strong note as we made progress on several fronts. We earned $65 million of net income in the quarter and a $115 million net income for the full year. We have a number of actions in place to grow our earnings and resume our top line growth. We are particularly encouraged with the progress we’re making to improve our underlying performance as well as other actions to position us for the future. A big event in the quarter was the announcement of our planned acquisition of Alliance United Group, a top provider of nonstandard auto insurance in California. Pending regulatory approval and other standard closing conditions we expect to close the deal in the first half of this year. While we have not completed an acquisition since the global financial crisis, acquisitions have always been a part of our growth in ROE improvement strategy. Alliance United is a great example of this strategy. It fits nicely within our framework, giving us geographic depth in the fast growing California nonstandard auto market, a market that we already know and serve well. Like us Alliance United distributes its products through independent brokers and its extensive presence in Southern California complements our more Northern California…

Thanks Don. In total we are pleased with the portfolio's performance. Our total return was positive for the quarter and year to date coming in at 2.0% and 9.5% respectively. This was driven by both net investment income and asset appreciation. Net investment income was $93 million in the quarter, up $16 million and $309 million for the year down $8 million. Results in the quarter benefited from our alternative investment portfolio of limited partnerships and limited liability corporations. These assets include equity method and fair value option investments where always flow through our income statement and other equity interests were market value changes are generally reflected through the balance sheet and distributed and earnings are recognized in the income statement. Alternative investment income was $27 million in the quarter, up $16 million and $49 million for the year, up $3 million. While results can be lumpy, over time they have provided healthy returns. As Don mentioned earlier the Life and Health segment results benefited from investment income from one particular alternative investment. During the financial crisis this investment was written down. After working with the company and our business partners we were able to help restructure the Company and return it to profitability. In October of this year it paid off generating approximately $25 million in pre-tax income, $22 million of which flowed through operating earnings. So in the end our total return was uneven but a solid 1.5 times our money invested, producing an internal rate of return of 7.5% over its life. Our core portfolio is a well-diversified mix of fixed maturity investments that on average are rated A. For the year we purchased more than $550 million of fixed maturities. This included purchasing more than $350 million of investment great bonds with a pre-tax equivalent yield of 4.6% and more than $200 million of non-investment grade bonds which essentially replace the non-investment grade redemptions in the year. Looking ahead, we strive to balance our return and risk considerations in what we expect to be a somewhat more volatile investment environment than in the recent past. Now I'll turn the call over to Denise.

Thanks John. In previous calls we communicated our commitment to improve the property and casualty segment profitability and to grow organically as profit improves. I would like to update you on our performance for the year in these two areas. Starting with profitability, our first objective was to improve the underlying combined ratio by two to four points in the year. We did not achieve this objective as progress and underlying loss and LAE ratio of 2.7 points was partially offset by the earned premium decline which pressured the expense ratio. Nonetheless we'd like to highlight that the underlying loss and LAE ratio improved seven of the last eight quarters. We've had almost 7 points of improvement since 2012. Our second profitability objective was to reduce volatility from catastrophes. To achieve this we successfully reduced our 1 and 250 year gross probable maximum loss to about $320 million. Reducing our exposures coupled with favorable reinsurance market conditions allowed us to one, reduce the reinsurance limit purchased by $50 million; two, to cure more favorable reinsurance terms and three, reduce the cost of our catastrophe reinsurance program by more than $3 million. Since 2012, we have reduced our catastrophe reinsurance cost by roughly $10 million. And finally, our third profitability objective was expense management. Excluding a technology write-off in the third quarter, expenses were down $22 million in the year and we reduced our run rate expenses by $8 million following the organization realignment. Despite this focus, the expense ratio rose by 1.3 points, primarily due to the earned premium decline. Turning now to our strategy to grow organically as profit improves, net written premium declined 11%, driven by lower retention and new premium. Premium retention was two points lower for the year. We are pleased to observe that the business…

Thanks Denise and good morning everyone. Today I'll cover Kemper’s overall fourth quarter and full performance, capital and parent company liquidity. Kemper had a strong fourth quarter reporting net income of $65 million or $1.24 per share compared to $55 million or $0.99 last year. For the year we reported net income of $115 million or $2.12 per share compared to $218 million or $3.80 last year. Our net operating income was $54 million or $1.02 per share for the quarter, compared to $46 million or $0.83 last year. For the year our net operating income was $97 million $1.79 compared, to $159 million or $2.78 last year. Both net income and net operating income for the year were impacted by the software write-off in the third quarter $35 million after-tax or $0.66 per share. Total revenues were $560 million for the quarter, a decrease of $26 million primarily from a $44 million decline in earned premiums, partially offset by $16 million in higher net investment income. On a full year basis total revenues were just under $2.2 billion, down $230 million from last year primarily from $164 million lower earned premiums and $60 million lower realized investment gains. As John discussed earlier, net investment income increased $16 million for the quarter but declined $6 million for the year. The fourth quarter annualized pretax equivalent book yields on average invested assets were 6.5%, an increase of 105 basis points over last year. For the year pretax equivalent book yield on average invested assets was 5.5% down nearly 20 basis points from last year. The Property and Casualty Insurance segment reported net operating income of $25 million for the quarter, compared to $29 million last year. Results decreased as the improvement in the underlying loss and LAE ratio was more than…

Thanks Frank. As you just heard, we are making decisions that are consistent with our long-term capital allocation priorities. These priorities remain unchanged, one blending profitable organic growth; two, strategic acquisitions and three, returning capital to shareholders, both through share repurchases and dividends. Putting capital to work is an important component of our double digit ROE goal and we made good progress in 2014. Beginning with our first priority we continue to selectively fund organic growth in certain areas. But as was true last year organic growth will not use capital this year. As to our second priority, we are pleased with our plans for Alliance United Group to join the Kemper family of companies. We routinely evaluate opportunities for strategic acquisition. When we see opportunities like this one where the fit is great and the financials make sense, then we move forward. Turning to our third priority, returning capital to shareholders we repurchased more than 250,000 shares in the fourth quarter. In addition we maintained our competitive dividend. In total we returned $167 million to shareholders in 2014. Before moving into the question-and-answer portion of the call I’d like to add one more highlight. While we've been issuing insurance policies for more than a century, we do have an exciting milestone coming up. February 14th will mark the 25th Anniversary of our incorporation. As you may be aware our holding company used to be a part of Teledyne Corporation. Today we operate with you, our shareholders as our owners, and this is a nice opportunity to remind you that we are ever mindful of your interest as we continue to fulfill on our strategy to position Kemper for long term profitability. Now I’ll turn the call over to the operator and take your questions. Operator?

Thank you, sir. [Operator Instructions] Our first question comes from Steven Schwartz with Raymond James & Associates. Your line is now open.

First I do want to touch on Alliance. Don you said something at the beginning there that I was unaware of; the agency operations. Maybe you can put some numbers around that maybe how much you expect them to contribute to earnings or as it has in the past?

Steven, I was trying to subtly say we're not ready to give numbers, when I said part of it is public and is not public, Alliance doesn’t publish those numbers and we're not prepared to give them at the moment, but I think with some -- there was inferences drawn when people looked at statutory blanks and thought that maybe the financial impact of this acquisition would be less good than we believe it will be.

Okay. Another auto question maybe, gas prices. I know I'm planning on getting the car a lot more this summer. Wondering maybe what Denise thinks might go on out there and how that was taken into account in terms of thinking about pricing for this year.

We look at a lot of variables when we think about what’s going to happen for lost cost trend and we anticipate, not terribly different lost cost trends in the future, but certainly we are looking at things as you said driving more miles and such. So that’s what we're looking at.

And then one more if I may. Don, back to you. Can you remind me -- I should probably know this but I don’t, the -- kind of the target size of case for Reserve National in the employee benefits business that you’re looking at.

Steven we generally target smaller employers like 50 to 500, but we’ve also moved into some exchanges that have larger accounts and we’ve got several -- at least a couple. I think you could say several larger accounts with thousands of employees

Thank you. [Operator Instructions] Our next question comes from Adam Klauber of William Blair. Your line is now opened.

A couple of different questions. So you’ve had really nice improvement in a loss ratio in the personalized business. Denise, I think you mentioned at least 200 basis points next year. Is that coming from work you’ve already done as far as trimming the book of bad business or is that work that you intend to do in 2015?

Adam, I'd say it’s a combination. There is a good percent of our book of business that’s in 12 months policies and the actions we take on those 12 months policies carry through from the work we’ve done '14 into '15. And then I’d also say we continue to look at what we expect for loss cost trend and what we expect to put in the market for pricing and other underwriting actions to continue to make progress against our profitability objectives. So really it’s a combination of the actions we’ve taken and then what additional steps we are taking to be able to drive towards our profitability goals.

And then, similarly must improvement this year and expected next year, is that mainly to auto book and obviously auto book is much larger? Or is some of that coming from core -- homeowner is obviously excluding catastrophes?

We'd like to see continued improvement across our book of business towards our profitability objectives. So as you note, we give the forward look in terms of the 3 or 4 points. We don’t break it down further than that. But what I can say is that we'd like to see continued improvement across all of our product lines.

Okay thank you. And then just sort of detailed question on frequency. I think you mentioned that BI severity frequency is down. You mentioned that TD costs are up in general which I know in the industry they are. How about TD frequency? How that’s been fairing?

TD frequency has actually been fairly benign for us. So low single digits.

Okay that’s helpful. And then going back to the investments, that was a good year, and really natural return this quarter. What sort of return can we expect out of the alternative portfolio on an ongoing basis?

This is John. I think I’ll take a crake at that. We’ve had a pretty good performance last year and even into 2013 pretty solid 12% type returns or income yield on that. That’s probably higher than what would had expect. When we kind of plan out a long term average, it’s somewhere between a 6% and an 8%. So that’s probably moreover we would look for a long term average to come in there.

Okay that’s helpful. And then finally on the acquisition front, again I think it’s good to see you putting your capital to work and again as you said in relatively accretive way. How does the pipeline look right now? Are you active or -- this obviously [indiscernible] and the greatest deal and then go from there?

We continue to lock. It’s been allowed since we were able to find one that made sense for us at the right price and it could be a while again, but we’re always on the lookout and I think we would not want to stay on the sidelines for a long time waiting to assimilate before we looked at deals, whether we’re ready to do another one right away. We’ve got the capital resources, bandwidth to integrate. Could be an issue if it comes too quickly but we are definitely on the lookout.

Thank you. (Operator Instructions) And our next question is a follow-up from Steven Schwartz of Raymond James & Associates. Your line is now open.

One more. What do you guys think of Google Compare and what that can mean for the industry and maybe what that can mean for you?

Could you repeat that Steven, I missed the first part?

Yes, what do you think of Google Compare?

Do you want to take first crack Denise?

Yes, Don, pitched it over to me for first crack. So I think it’s interesting. As we look at distribution trends for personalized insurance over a longer period of time, there have been multiple changes with comparative raters effecting how distribution is done. The direct to consumer channel, the integration of direct and independent agent alternative channels, whether it's Work Site or Google Compare or a whole variety storefronts selling. So I think it’s interesting and we’ll have to see how effective it is, but like all distribution trends they can create opportunities and they can create disruptions. So we'll continue to look at that as well. Don you may have something you want to add to it, but there was one thing I actually wanted to correct. I noticed -- I misspoke when I was talking about our progress over the year on retentions. So I’d like to add that at this point. When I gave the 2.7 progress on retention I was talking about – the deterioration I was talking about policy retention. So just wanted to clarify that point also.

The only thing I'd add, it's really just to build on what you said, Denise is that Google, you can't underestimate a company with the kind of financial resource and tax savvy. On the other hand it's not clear that that’s a big disruptor to me.

Thank you and at this time I'm not showing any further questions. So I'd like to turn the call back to Mrs. Don Southwell for any closing remarks.

Thank you operator. I'm pleased with our fourth quarter. We are well positioned for the future. In property and casualty we continue to improve our underlying performance and while we have more work to do to bring the top line up along with our bottom line improvements, we are making good progress. Our Life and Health segment provides us a steady source of capital even while we invest in key initiatives. Our investment portfolio continues to deliver in a tough reinvestment environment. And finally our capital and liquidity positions remain strong affording us great flexibility to make smart moves like our planned acquisition of Alliance United. We remain committed to deliver the shareholder returns we all seek. Appreciate your time we look forward to updating you on our call next quarter.

Ladies and gentlemen thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a wonderful day.