Q3 2020 Kemper Corp Earnings Call
[music].
My name is Karen and I will be your coordinator today.
At this time, all participants are in 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 call Christine Patrick Comfort I.
Vice President of Investor Relations.
This is Patrick you may begin.
Thank you operator, good afternoon, everyone and welcome to Kemper's discussion of our third quarter 2020 result.
This afternoon, it you'll hear from Joel locker, Kemper's, President and Chief Executive Officer, Jim Mckinney, probably been executive Vice President and Chief Financial Officer, and Wayne Standard campers and executive Vice President and the property and casualty Division President will make a few opening remarks to provide context around our third quarter results and then open up.
Call for a question and answer session.
During the interactive portion of our call our presenters will be joined by John Shelley Kemper's Executive Vice President and Chief Investment Officer, an error Fernberg, Companys Executive Vice President and life and Health Division President.
After the market close this afternoon, we issued our earnings release and published our third quarter earnings presentation financial supplement and form 10-Q, you can find these documents on the investors section of our website at Kemper Dot com.
Our discussion today may contain forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1995. These.
These statements include but are not limited to the companys outlook and future results of operations and financial condition.
These statements May also include impacts related to the cobot pandemic, our actual future results and financial condition may differ materially from these statements.
For information on potential risks associated with relying on forward looking statements. Please refer to our 2019 form 10-K, our third quarter 2020 form 10-Q, as well as our third quarter earnings release.
This afternoons discussion also includes non-GAAP financial measures, we believe are meaningful to investors in our financial supplement presentation and earnings release, we have defined and reconciled all the non-GAAP financial measures to GAAP, where required in accordance with FCC rules you.
You can find each of these documents on the investors section of our website at <unk> Dot com.
All comparative references will be to the corresponding 2019 period, unless otherwise stated final.
Finally, I would like to note that due to the social distancing practices. The Kemper is falling in response to the crisis. Our call participants are not in the same location. This may cause the question and answer section of our calls the field. This joint that at times, we apologize in advance and after understanding from our listeners I will now turn the call over to Joe.
Thanks, Christine good afternoon, everyone and thank you for joining us on todays call like.
I'd like to start by commenting on the current environment.
We continue to offer our thoughts and compassion individuals and families that have been impacted by the pandemic. This is a difficult time for everyone.
Despite it all I'm inspired every day by our team's commitment to meet the needs of our customers and deliver on our promises.
Very proud to be ongoing dedication and offer my sincerest appreciation for their efforts.
Against that backdrop.
With a business that is resilient and has the ability to consistently deliver strong results and long term value to our stakeholders.
While higher uncertainty in the business environment is likely to continue for some time, our diversified business model has and is expected to perform well.
Before we turn to the quarter's results I'd like to mention the recent announcement that our board of directors elected Stewart Parker as a new director.
Stuart previously served as the CEO of U.S.A. spend 21 years in various leadership roles with though is.
This high level of expertise and deep understanding of the insurance business will be a great asset to our board.
Success in advancing strategy through transformational customer service accelerating product development digital innovation will be immensely beneficial to further tempers growth strategy.
Our entire team looks forward to working with them.
Now I'd like to turn to page four to discuss our results for the quarter.
Net income was 122 million or $1.83 per diluted share.
Adjusted consolidated net operating earnings was $91 million or $1.36 per fully diluted share.
We continue to generate top tier returns with a rolling four quarter return on tangible equity excluding unrealized gains of 18%.
The benefit of our diversified model was again evident this quarter as we were able to deliver strong returns with stable cash flows despite elevated catastrophe losses and increased coated related mortality.
Turning to our segment results, our specialty auto business continue to generate significant market share gains with double digit topline growth and attractive underwriting profitability the.
The business further benefited from favorable frequency trends there.
During the quarter, we achieved this growth of 7.6% excluding the sale of classic car.
Our low cost operating model and ability to understand our customers needs has allowed us to sustain industry leading levels of growth despite disruption from the current economic environment.
Our preferred segment was impacted by elevated catastrophe losses, primarily from California, wildfires and to a lesser extent weather related events.
At the end of the quarter, we had met our catastrophe aggregate retention level for 2020.
Based on this we expect lower than normal fourth quarter catastrophe losses.
In our life and health segment, we were pleased that for the first time. This year, we had a full quarter of sales activity. So.
Segment earnings were impacted by elevated benefit costs driven by the pandemic Maui.
While we expect this trend to impact earnings for some time, we do not expect this to be a capital of that.
During the quarter, we had a very successful debt issuance and leveraged attractive market conditions, we raised $400 million of 2.4% senior notes due in 2013.
Jim will provide more detail on this later in the call.
In summary, tempers healthy balance sheet and financial flexibility has enabled us to consistently deliver on our promises to our customers while maintaining appropriate returns for our shareholders. Our diversified model has proven successful the combining stable sources of cash flow and lower required capital to create a cost advantage that drives higher growth.
I'd like now to turn the call over to Jim to discuss our third quarter operating results in more detail.
Thank you Joe and good afternoon, everyone turning to our results on page five that income for the quarter was 122 million and adjusted consolidated operating income was 91 million or $1.36 per diluted share on.
On a year to date basis, adjusted consolidated operating income per share increased roughly 4% $4 from 98 funds coupled with strong year over year tangible net book value, excluding unrealized gains on fixed maturities growth of 14%.
Our diversified model and specialized businesses continue to allow us to deliver sustained growth and strong earnings.
On page six.
The Icelleight key sources of volatility this.
This quarter was primarily impacted by elevated catastrophe activity when compared with the prior year's quarter.
Normalizing for these sources of volatility adjusted consolidated net income per share increased on a year over year basis by 33%.
On page seven.
I would like again to highlight some of the capital metrics that demonstrate intrinsic value creation and strength of our capital deployment decisions, including tangible book value per share and tangible return on equity.
On a 12 month basis tangible book value per share excluding unrealized gains grew 14%.
Return on tangible equity, excluding unrealized gains was 18%.
Continuing to page eight.
Our capital and liquidity position remains strong with over 1.4 billion of available liquidity.
Over the past 12 months, we generated over $400 million and capital.
We ended the quarter with a debt to capital ratio of 21%.
Selecting the capital raise that took place in the third quarter.
Turning to page nine.
I'd like to take a minute to provide further details on our debt offering.
In September we leveraged attractive market conditions to raise 400 million of 2.4% senior notes due 2030.
The offering return compared to our long term debt to capital target range of 17% to 22% and extended and diversified our capital structure. The current debt maturities to five and 10 years out.
Our offering was the third lowest issuance yield in the PNC industry history.
This operating.
So was the second lowest triple B rated tenure yield issuance in the financial sector history.
The transaction was more than five times oversubscribed with interest coming from a diverse investor base.
This outcome is evidence of several key points.
One the strength of our business model.
To the quality of our balance sheet.
Three the efficiency of our capital stack and for the confidence investors have and the combination of these points.
In terms of potential use of proceeds.
Our first capital priority remains investing in our business for organic growth remained strong.
Next our capital position provides support for tuck in acquisitions.
In addition, where appropriate our existing share repurchase authorization provides the option to capture value for long term shareholders.
Finally, the offering proceeds may be used to fund repayment of our 2022 debt maturity, reducing refinancing risk.
Turning to page 10.
Net investment income for the quarter was $92 million on.
Interest rates have put pressure on new money yields our portfolio is positioned to perform through a lower for longer environment.
Over the next 12 months the company's scheduled fixed maturities are limited to 123 million.
Over the past few years, we've extended the duration and mix of assets within our life and health segment.
Actions put the company in a good place for this market environment.
In closing we are pleased with this quarter's financial performance and are optimistic about our future.
I would now like to turn the call over to Dwayne to discuss the results of our PNC segments.
Thank you Jim and good afternoon, everyone, let's begin with the specialty segment on page 11.
Segment continues to perform well generating approximately $119 million of earnings in the quarter.
Our historically strong earnings profile benefited from endemic related favorable frequency trends.
This resulted in an underlying combined ratio of 85% in the third quarter and 89% on a year to date basis.
We continue to achieve strong market share gains in both new and established geographies policies in force increased 7.6% compared to the prior year quarter.
Excluding the sale of classic car net earned premiums increased 11% on a year over year basis as.
As you can see in the chart on the top right of the slide our expansion efforts have been successful as we continue to deliver top tier growth across geographies.
We generated significant trailing 12 month growth in Florida, and Texas of 30%.
The first phase of expansion States, we grew 34% and at the same time, we continued to gain market share in our largest state of California.
We continue to build on our sustainable competitive advantages such as our low cost model and specialty focus long term, we expect to deliver consistent growth at attractive margins.
Let's turn to preferred segment on page 12.
We continue to make progress in our preferred book as demonstrated by continued downward momentum in our trailing 12 month underlying combined ratio.
These improvements are driven by our profitability actions and underwriting pricing and exposures that said, we recognize we still have work to do to reach our profitability and growth goals.
Our preferred auto combined ratio improved on a year over year basis, driven by the same macro environmental frequency trends recognized in the specialty segment in combination with the profit improvement actions I previously referenced also.
Also we had roughly $6 million of adverse developed primarily driven by increasing demand notices related to be in U.S.
This segment was impacted by $62 million in catastrophe losses was roughly two thirds, resulting from California wildfires.
As Joe mentioned, we have met our catastrophe aggregate retention level as a result, we expect any catastrophe events in the fourth quarter other than name storms to be covered subject to a $500000 per event deductible I'll.
Ill now turn the call back to Joe.
Thanks Duane.
Turning to our life and health segment on page 13.
Results were mixed this quarter.
We were pleased with the first time this year, we had a full year of sales activity new business is trending back to normal levels and lapse rates remain favorable customers.
Customers continue to value our life product offerings, we have a strong competitive position in this space and are confident in our ability to deliver long term strategic value.
For the quarter segment income was $12 million, reflecting elevated pandemic related benefit costs, we experienced increased mortality, partially offset by decreased morbidity as levels in line with overall domestic trends.
Looking forward, we expect elevated pandemic related benefit cost to continue given.
Given the dynamic nature of infection and mortality rate and the timing of therapeutics and other mitigator is the specific impact is difficult to predict.
Long term, we remain positive about our ability to grow the business and generate attractive returns while continuing to serve our customers.
Overall, I'm pleased with our business results and the progress we've made to further strengthen our competitive advantage this quarter, our capital and liquidity are strong and capable of supporting industry, leading growth with stable returns.
Solid strategy execution has resulted in another quarter that demonstrates the ability of our franchise to create substantial value over time, particularly in the face of the current pandemic environment.
Finally, we were pleased to learn that we were number 11 on Fortune's recent list of 100 fastest growing companies just behind Amazon the.
The list was based on single year revenue and EPS growth rate.
And three year annualized total return and a great recognition for our entire team, whose hard work and commitment to act like owners every day are moving the dial on our strategic priorities.
Now I will turn the call back to the operator to take your questions.
Thank you we will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Matt Carletti with JMP. Please go ahead.
Hey, Thanks, good afternoon.
My first question as hoping I guess, Joe or Dwayne you might be able to give us a little more color on kind of how the competitive environment is evolving I think at a high level just.
There has been increase kind of.
Chatter out there about some of the big companies using.
Using some of the cobot savings to become more competitive and so forth.
Because he pretty specialized year also in certain geographies much more than others, and hoping you might be able to.
Help us with what Youre seeing in your marketing your lines of business.
Sure sure Matt. Thanks, Thanks for the question, Duane and I'll tag team it.
A little were in different locations, so forgive us as we navigate through that I'll make a quick comment and then ask going to add more.
As you pointed out our specialty auto business is is our biggest chunk of our auto business and it is in a differentiated spot or different spot than what you'll hear about a lot of times when you hear big players talking about getting more competitive.
So I think its position.
Differently and ended has us while not immune facing a different set of competitive headwinds than you might find when you. When you are hearing somebody broadly make a comment join you want to add some some deeper color.
Yes, Thanks, Joe.
I Echo certainly Joe's comments, I think it's safe to say that probably nuanced, Matt across geography, and those that we generally run into.
You know have done employ different tactics. There has been I think we're seeing less I know, we're seeing less on the rate change front.
There was a little bit of that early going on I'd say low single digit that's now reverted to agent incentives and different types of programs on that front to try to bring in that bring in the new business, but.
You get a full range of those things across each of the states. They all differ they're all different.
Mainly driven by the by the dominant players in those states. We we do see some of the bigger players you know stay bars progressive things of that nature, but.
We have been fortunate so far in our in our agencies and our with our agency relationships to continue to find our way in that space and continue to write business.
Yes, the rat the rap I put on that is is again agreement Duane.
As as we say we will say.
This is different the state to state that's not because we're so far up against the trees were missing the forest, it's because we're typically dealing with smaller.
Smaller competitors in those geographies or a more focused.
Competitive environment in those geographies in the specialty auto business and probably the best way to step back and think about us.
If you look at the growth this quarter recognize that it's actually accelerating from some of what we see and and remember that we we believe we have a specialization advantage a cost advantage and a set of capabilities that actually position us in that competitive environment to perform and do well going forward.
Okay, great. Thanks, and then my one other question.
Probably Joe for you or Jim really.
It relates to M&A broadly.
And Weve seen one of your closest competitors going out being acquired.
Farmed it a little deal rumors netbooks kind of out there. So clearly it's just about focus and put on People's minds and my question is can you kind of walk us through without spending too much time kind of kemper's approach to M&A, what boxes kind of must be checked whether it be strategic or financial or so forth.
And added in a didnt Miss my mind in the presentation that the one of the uses of capital was a tuck in acquisitions. So maybe you can comment on kind of where you view cash.
Kemper today and the capabilities you have and as you view something more strategically transformational versus tuck in.
Sure Matt ill take a shot at this.
First I'll make a comment we never specifically comment on any particular.
M&A position, where we're active in doing anything at any given time, so I'm highlighting that and answering your question is a more broad generic.
Generic point of view.
Taking the question from that perspective.
Look we start with a couple of of core guiding principles.
First we're building a core business around a key strategy, we look for for our diversified business that businesses that have.
Systematic sustainable competitive advantages or.
Or the ability to build those and enhance those and we look for a business to be part of the portfolio to either be made better buying being part of the portfolio would you make the other businesses better.
So we start with that piece of the strategy when when we think about anything like M&A.
We recognize that we're not just trying to be bigger for the sake of being bigger we're trying to be better. So something has to make that core strategic set of statements better.
And as to added capability has to make us so.
Stronger, bringing different geographic niche bring something else to the portfolio help us enhance an existing advantage like a cost advantage our specialization advantage.
So we're always thinking about those items and why would something be better off with us than not with US then we recognize that there needs to be a financial dynamic and an appropriate financial dynamic around that.
We come back to a handful of test something should be.
These are not exclusive but they're there on the list something should be.
Accretive within the first 12 months to income.
We would expect something to have a straight up payback period inside of three years.
Crossover payback inside of five years.
We recognize that.
Part of the financial considerations at any given point in time is how we're paying for it is it is it cash or are we using around currency.
We're using our stock and we're trading at a lower end of sort of a trading range for us versus the higher end, that's going to produce a different set of financial implications on those three or four test I outlined so we're cognizant.
Some of all of those.
And then maybe the last thing I would layer in that.
It is not in any way lost on us.
That that where our job is ultimately be good stewards of capital and good managers of the shareholders capped.
Capital and produce an appropriate return.
Trust is earned with disciplined thoughtful execution and a track record over a longer period of time and.
And it's destroyed rapidly. So so we're very thoughtful about that and anything we do look to build on that trust and not destroyed. Our plan is to be doing this for a long period of time and continue to do as successfully as we've been doing it so we need to remain disciplined in anything.
Anything we do.
Folks would look back at our Infinity transaction.
Hopefully.
On any metric you could find you'd see that that was highly successful.
I say this periodically for any transaction that somebody does you should assume that they were active in looking at several they didnt do.
If you started with that assumption with us.
You should walk away with some degree of confidence that that we also know how to do something we also had to walk away from something you that's not matching.
The right criteria.
With that we put put any any transaction true it is not meeting meeting those hurdles.
So that may be on a longer answer than you wanted but it but I think it was it's got a lot of nuances around that hopefully that helps.
No thats great really appreciate the thoughtful response and you best of luck going forward. Thank you.
Thanks, Matt.
Our next question comes from Paul Newsome with Piper Sandler. Please go ahead.
Paul I don't know, we can't hear you.
Can you hear me now I apologize we can we can hear you now.
My apologies I.
I was hoping to dovetail off of Matts question I think we can do.
Steve in terms of the competitive environment sounds like it will move.
The.
The nonstandard business, but maybe you could talk a little bit about what you're seeing in preferred business as well and.
How the environment today is.
Making harder or easier to.
To get where you want to in terms of restructuring business.
Sure ill take a shot at that.
As you again, Dwayne and I are trying to connect.
Connect across across.
Geography.
We are clearly seeing a bit more of a competitive environment inside of the preferred space.
As we try to work through the challenges we've had in that business.
This environment actually is helping that because were seeing most folks recognize that profitability is improving and it's easier to sort of get things fixed and thats, helping us.
We had done some things over the last year and a half or two years.
That I would say very much were self inflicted or things, we didnt deliberately to re platform our business converted to a new set of products.
Managed some re underwriting all of those things.
Production pressure on us put it to you either put pressure on retention.
Or or compress new business a bit as we were working on those improvement actions the bulk of those.
It would really be production impacting our largely through the system. So what were seeing through our results right now is a step up or an improvement in revenue production.
Because those activities are stopping despite there being a modest uptick in the competitive environment.
We're we're less disruptive on ourselves so the net of those is actually producing some modest improvement in production.
Duane.
Help me with some.
Some more specific color what you'd add there.
Yes, no I think it grew.
Comments, Joe and I think what we're what we're continuing to see their insert again on a geography by geography basis is progress on that front, where the historical work. Joe has mentioned just starting to bear fruit.
And we're finding ourselves set up.
In a better position or more competitive position.
That doesn't mean that we can certainly control or predict what to come in or what the competition is doing but the work that we've done in the past is is beginning to show itself.
Great.
Perhaps you could talk a little bit about the reserve development, just kind of what if there is any drivers in there they're sticking out.
And.
Yes, we've got a huge number but sometimes there is some.
Some some pieces in there that can be instructive.
Yes. So Paul this is Jim let me maybe try to answer your question and then Wayne if you have commentary or others no happy to happy.
Happy for folks to jump in.
Last quarter, we talked a little bit about a.
It's an underlying theme associated with it.
Inside that segment of our preferred book.
We last quarter, you saw more of a kind of being in the U.M. side. This quarter, we saw a little bit of that bleed over.
As we continue to refine and look to our data into the BDI portion of that.
Again, some of it Joe referenced it well in terms of once we stood up kind of.
The new product and had some of the things that we needed to do it.
As we flush that product out we caught a little bit of a mix shift as well as some environmental.
Trend changes over that period of time, what you've seen is us react to that in a I think a pretty thoughtful way. There are a couple of different outcomes that you could anticipate what I would suggest is that we continue to have a highly confident response in terms of the estimates that were.
We're putting up.
And effectively a little bit of this is just as we work through both this environment and as we made the changes the project.
Our underlying product and fine tune that I wouldn't necessarily.
Take this is something that the go forward item, rather I really think.
The way to interpret this is really based on both the environment and then what we needed to do to stand up.
The new prime product.
Great. Thank you, yes, I can answer the answer is yes, sorry.
Sure.
No I, just I was going to add G. I think Jim nailed it I don't I don't have anything else to offer thank you.
Thank you.
Congrats on the good.
Our next question comes from Greg Peters with Raymond James. Please go ahead.
Good afternoon, everyone.
First.
I know you're all aware that.
A tech platform recently went public route.
And.
They have as.
As you know a remarkable record of growth and of course.
Associated with that as elevated loss ratio. So I guess two questions for you guys.
First of all.
When we're looking at slide 11.
And we see the type of growth that you're reporting in Florida, and Texas and the expansion states.
One wonders if that's going to be coming.
And it costs somewhere down the road in terms of higher loss ratios.
And the second question I would have is just more broadly speaking as it relates to companies like groups and lemonade.
What's your view of technology in your specialty segments, and how you might use it to deliver more cost effective.
Price price in more cost sensitive.
Product to your consumers.
Thanks, Craig This is Joe I'm going to take a shot at that both of these.
Look I am.
I am all in favor of the concept of the.
The world changing in new pieces the economy coming.
Coming forward I think some of these tech startups.
They're they're taking a narrow piece of the business and the unit can revolutionize that and they're missing a beat.
Big part of what actually runs on insurance and that's actually managing the cost of goods sold which is the loss costs.
I don't think most people look inside.
Of the.
The numbers here and think that solving the expense ratio or enhancing the expense ratio in our specialty business is what's going to lead us to be.
Way more effective in terms of of what we're doing we already had a leading expense ratio inside of that space, it's about understanding.
The loss costs and managing those there and were really really good at that we're.
We're we've been growing in some of these geographies at fairly significant rates for a long time. These are short tail businesses.
We already would be seeing a temperature if they knew they were come in there. So what we're doing is we're doing very thoughtful things with our specialty model with our pricing with our sophistication understanding the market.
And we're highly confident that that would it's a sustainable model now the caveat on that is we've been talking about it for two or three quarters that the frequency levels that we're seeing in the industry are not sustainable we do expect they're going to go back at some point to a post and debt or pre pandemic level.
And when that happened and that frequency runs up these combined ratios are going to grow up because people are actually backout drive in war, we never suggested that anybody should we be expecting a combined ratio in the mid eightys for a long period of time, we told folks were targeting.
In that debt more mid Ninetys, that's where we'd expect to be hit a fair return for our shareholders a fair return for our customers and grow as much as we can we think it's a little bit of a long key environment right now and we're trying to.
Constantly make the adjustments to the pandemic environment. So I don't want to have a misstated quote come back two quarters from now when we see that combined ratio rise.
If it's coming back from the basic set of frequency as people return to quote unquote normal whenever that is that is going to happen you should expect that to happen, it's not going to be because we don't know what we're doing in these states in these geographies, where we're highly confident there.
Got it and then the second piece was around the technology side.
There is particularly in our specialty auto space.
We've got a very solid.
Policy administration quote agent interface platform that we feel terrific about we've enhanced.
All of those systems, including a claim system.
There are still opportunities for us to to improve but were in a pretty good position where that starts we're not seeing a lot of.
Both.
Direct to consumer in this space, where somebody's going to want to do all of their transactions electronically. So.
So we haven't made big investments there we are doing.
Some use of claim settlements electronically and I think it were solid performers there.
So I think we feel reasonably we feel great about where we are our market is and.
In our position and we feel reasonably good.
About where we are relative to a broad cross section of the market and we clearly are behind.
Some of the the leaders in some of these spaces, but thats because they are actually targeting a different segment of the market.
And Greg if I could add on just to Joes highlighting just a couple so there's one related to the growth in maybe the differences between a route and eliminate them were.
We're not trying to catch up from a volume perspective here to create essentially.
A profitability position into outrun our fixed cost those.
Those items are baked into what we doing and what you're really seeing come through is the competitive advantage both on a cost advantage our product development.
That is specific to our customer base as.
As well as essentially having.
Through the diversify model and our low cost platform and ability to create that customized product.
At a low cost point for consumers that gives them the right experience for that and you're seeing that play out very similar to how you saw that I think play out for progressive earlier on in their lifecycle. When they were focused on a portion of this market.
The second thing that I think you asked about was related to technology and I think Joe summarized the over the top and it was really giving you kind of little bit historian journey. We're at.
When I look at it and I think comes into play in what we're doing and the things that we brought to bear over the last three or four years here isn't element to be able to create lower cost customization, which plays well for the longer term macro trends, it's about a speed information here, but it's not just the speed of information is how fast you can translate that.
Ring execution to appropriate action and so in terms of how these things come together in the future I don't know that any one of these things are so disruptive in and of themselves in terms of how they drive or create a new market, but it's about how you use these technologies to do what you're already doing better and to do it at a lower cost point.
That doesn't mean your expense ratio will necessarily change it just right because effectively you'll be able to if costs go down you will offset some of that with that reduce increases for trend.
But it's one of those things that as we continue to accelerate we can build on and should be a further accelerate to the competitive advantages that we have today.
Hopefully that helps and happy to answer questions.
Maybe that gives you two views to think.
Thats good color I guess the second.
Question.
As a balance sheet question.
You look at you know.
The information about your debt offering $400 million of two and a half or 2.4% right.
You are seeing.
Other institutions issue notes.
Debt at lower levels like that and then we slip over to slide 10, and look at your investment income.
And I guess, the core portfolio was generated $81 million versus $88 million a year ago.
Yes, you know if you and everyone else are able to.
Drive lower debt costs. This is ultimately going to manifest itself with lower investment income in your portfolio.
So maybe you can help us.
Sort of.
Frame that as we think about our investment income assumptions and growth of that line for your business next year and 2022.
No Greg Thanks for the question.
So I'll highlight maybe some of the things that I highlighted as part of you know kind of risk or initial presentation as well as some of the things I've said in the past.
And then to the extent that there is additional commentary that would be helpful. Happy to go deeper.
I think we find ourselves in a very fortuitous position.
We try because of our diversified model to be as matched out associated with our liabilities as well as we are able to essentially even on the PMC side.
Be able to take.
Our data where were investing on that side commensurate with a.
A full light light for the liability.
And what I mean by that is say you expect a payment to go out one year from the day that is many companies will have to take half or three quarters of that be.
Because of their business model, our diversified model allows us to go to that full length of that liability.
What that means is that we tend to be more matched in our pricing be more matched for the environments that we're in and we're making sure that we're balancing both the underwriting income side with ours commensurate with the investment environment.
When you look at our portfolio one of the things that I mentioned earlier is over the next 12 months, we have about $123 million of maturities coming too that's a very low level of maturities if.
If you think about the overall size of our book you think about $9 billion of investments.
Further from that you don't see huge amounts of investments coming due in side you know 2000.
22, you know that's another 100 say 41 million today that is on schedule to come through inside that period. These are very manageable numbers, they won't necessarily drive significant change and if there was a significant change relative to our business. These are items that we would take into account from a pricing perspective.
And so we feel really good about that I think the way to look at our business is what do we think the you know we provide targets 10%, 12% over the long term. Therefore, our return on equity. We also talked about our return on average tangible common equity.
And the reality is it's about how these things balance versus one of the any individual component that comes through there.
I'd in a lower for longer environment. It just changes what we do on underwriting and because this is shifting on a relatively slow basis. When you think of those maturities.
We have the time to react to it.
Okay and then.
All of that makes sense I guess the final. The final point is it doesn't look like you bought much stock if any stock back in the third quarter.
Sure Sir.
Or is there a reason regarding concern around catastrophes or can you walk us through you know I know you highlighted that on slide nine.
As one of the uses of capital just curious about the thought process behind that from the board's perspective.
So big picture, Greg the last stock buyback that we did was commensurate with.
Essentially the CSC settlement.
And we had issued some equity early on to support growth.
Kind of given some of the uncertainty and the elongated timing that we had expected to play out.
Associated with that settlement and effectively the ability to reduce the hybrid that.
That drove our actions to.
Purchase again in that first quarter and second quarter.
Component of the stock that made sense to balance out those items.
And so that was the primary driver there.
From an environmental perspective, nothing's changed relative to our capital deployment, we first look to make sure. We've got the right amount of capital to support.
Organic growth activities within the business.
As well as anything that could be considered strategic or to handle what could be increased volatility from a macroeconomic.
Environment perspective.
When we look at those timeframe or those amounts. We then consider a period of 18 months is generally the time period for when we would think that they would be appropriately deployed or used inside that period. If those things aren't there. That's when we look to do additional things from a return of capital perspective in the driver behind that 18 months.
It's just it's a cost of money.
Type of assessment that comes through there and when you get to longer periods of time.
It tends to be better just to match up those things at a future date, if that makes sense. So theres really been no change to that.
Where those thought processes and and we continue to see very good organic growth within our businesses.
And we consider continue to consider all of the elements that you would think about in terms of trying to make sure that we are really thoughtful for our shareholders and making sure that we we do the things that create the most intrinsic value for them over the medium and long term.
Got it thanks for the answers.
Our next question comes from Brian Meredith.
Yes. Please go ahead.
Hi, Thanks evening everybody.
A couple here for you first I'm just curious could you, possibly give us some sense of kind of how frequency was trending during the quarter. I know you don't want to provide guidance on whats happening, but we are you seeing some miles driven in frequency tight pick up during the course of the quarter and are really.
Getting a little sense of normalization.
And when you want to go ahead and describe that and as you do you give us a sense, both a year over year and sequential quarters, because I think brian's trying to poker.
Yep Yep so.
From a sequential perspective certainly.
Frequency did pick up.
Prior to second quarter, I think second quarter really really dept.
And then it started to work its way back in the third quarter.
But when we think about year over year, it's still down it's still down.
A good percentage from sales.
Same period of time on 2019.
Yes, sure they add adding on top of that Brian, it's a little bit different by state.
And we're also finding when we look at miles driven.
The the miles driven is coming back up when you look at the weekend, it's much closer to pre pandemic level than it had been but if you look at during the week, it's still down and if you look at typical commuting hours those are still down so the miles driven and giving us some insight, but its really their different miles driven at differ.
In times of the day in different ways still.
Still fairly significantly in terms of what were seen running through.
So it it's mid making it hard for all of us to sort of figure out.
What exactly.
We'll come next.
Appreciate that and then second question I'm, just curious given the profitability that you guys are seeing right now any concerns about regulatory pushback and on that topic to maybe you can talk a little bit about.
There's been some talk about credit, scoring and trying to potentially doing away with that what does that mean for your business.
So.
We really Brian are trying to be ahead of a regulator coming back we don't anticipate nor do we want to be in a spot where somebody had said you should have done something different where weve had a language into practice.
That we've been running throughout the pandemic that says we're trying to target a fair and appropriate returns for our share our our customers.
Which then becomes also a fair and appropriate return for our shareholders and grow the business.
We had we had anticipated as did much of the country.
That that we might see a little bit more broad reopening we were on that pace than we were starting to see frequency come up.
And and wouldn't have thought we needed to do.
Much to respond around that what we're seeing now is is more closing things down and people tightening back up in this may run for a little longer.
If in fact, that's the case, we're either going to wind up with with some.
Premium rebate like Weve done before or some more more frequency sensitive rate change or some more permanent rate change.
It moved its way back we do not anticipate.
Nor desire at all to want to run combined ratios with auto with an eight is the first digit and we would not be projecting that going forward.
And we will respond appropriately around that if we did we view that as Messina growth opportunity and not doing the right thing to serve as many customers as we could if we don't need to be responding to a regulator around that because it just sort of breaks our first principles.
Around that and as we see sort of what we anticipate the timeframe will be on this going forward, we'll I'm sure be responding responding appropriately.
And then on the topic of credit score.
Yeah on the topic of credit, scoring we hear this come up periodically.
We're we're thoughtful rating and underwriting.
End market specialists there are geographies.
Like a.
Pick almost any geography you want.
Say, a Florida, Georgia that function the Texas much like the rest of the country and then you take a state like California, which has its own unique set of rules that restricts a great. Many rating and underwriting variables were highly successful in all of them.
So if somebody wants to change the rules and it changes for everybody else in the marketplace will.
We will adjust around.
I think it's misguided I think that credit, scoring when you fully understood what was happening actually in many cases got what was perceived as a more fair process.
To folks and provided a better a better set of outcomes across.
All sorts of diverse groups I think it was the ultimate conclusion.
But we'll we'll adjust based on the way the rules are in the market and are highly confident in our ability to win whatever the rules are.
Yes.
Yes, Thank you Wayne and I will I would only echo one other thought on that and Jos right.
We participate as you well know largely in California, today, where thats not a variable so we've we've honed that skill.
How to work without it or with it and the other is on.
On the on the specialty side that the spread on credit score is actually really you know, it's not that broad as you can imagine so.
Having some flexibility with other rating variables and how to use that in combination with other attributes has allowed us to have the success. We have so I agree with Joe 100% I think as this change will absolutely will morph accordingly, but I think where we are in pretty good shape.
Terrific. Thanks, Phil.
Thanks, Brian.
So again, if you would like to ask a question. Please press Star then one.
Our next question comes from Jeff Schmidt with William Blair. Please go ahead.
Hi, Thanks.
Provided some of the growth numbers for Florida, Texas, and then the expansion states and it was on a trailing 12 month basis, but just curious if we could get a sense on what it was in the quarter just to see how thats trending.
Yes in terms of give us a second to pull.
Pull the stat.
And you're really looking for quarterly or sequential.
There hasn't been there hasn't been a meaningful change off of it.
Jeff It actually if anything it's been accelerating modestly.
Demographic in the number here give us a second.
Okay.
Im not sure were going to actually get it fast enough for you to be on the call. We can follow up with you. After the fact I think Jeff the key point that I would highlight and so while we've given you the previous trailing 12 months.
What you would see is that this quarter actually was accelerating over what would be the trailing 12 month ratio. So it actually understates what the growth in total was.
You're looking at and what will get you more specific.
Elements.
That's why that's why again my comment was we're actually seeing is we're seeing an acceleration not a deceleration and thats really the trend direction, you're trying to look for.
Yes got complex had hypothesized that we were going to see reduced growth.
Prospects and that just actually novel, we're seeing we're seeing this model works well in this dog Hunt and it continues to pick up.
Okay.
And then just looking at the underlying loss ratio in the non standard auto was down quite a bit. It was the same as it was last quarter I. Just despite you know we have seen some pickup in economic activity.
I'm driving next typically you started to recover.
But I'm just trying to get a sense on if you sort of back out maybe you can dimmick related is that still 70 576 or it seems like that could be trending down some.
Yes, the we had we had different premium rebates.
In new and different time periods.
So so you've got you got a little bit of that running through.
Are you are you trying to understand this quarter you trying to project in the next quarter help me because I'm trying to give you. The information that is most helpful to guide on what you're looking for.
Yeah, I'm trying to see is that still 70 576 on an adjusted basis kind of a normalized basis or are you seeing that maybe trend down a little bit.
So I think the best way to look at this is going to be essentially in our supplement and what you're going to see is that.
Were relatively flat from a PPA perspective on a quarter over quarter basis, what I would compare there is both your year to date number which is obviously higher than what we posted on either the last two quarters, but you've seen relatively consistent quarters in terms of what the underlying loss ratio would be there.
You saw some improvement essentially coming through in our commercial book a little less than.
Basically two points coming through there again, the recent trend that you've seen over the last two quarters, a little bit favorable to what again the year to date.
It would be but you can continue to see kind of that Stephen Willey pattern and then you saw.
A marginal.
You don't increase essentially inside.
The Pi business.
Again.
Still a little bit better than what you'd expect from a year to day basis, but again relatively constant.
As a whole and.
So I think those couple of quarters and then you got to take into account the environment, which is.
It's changing significantly.
Dan and day out and have that overlay.
That comes in once you get to that period and again you might be thinking.
Few points this way or that way just a lot of it kind.
Kind of being what goes on with Covidien, how mobile our people what time today mobile.
And your Crystal ball is really as good as my Crystal ball is on that at this point in time.
Okay, great. Thank you.
This concludes our question and answer session.
I would like to turn the conference back over to Mr., Joe Locke for any closing remarks.
Thank you operator, and thanks, everybody for joining our call today.
We appreciate your time and attention I think we had a strong quarter and the strength of our underlying franchise both from an earnings growth perspective.
He is coming through and we look forward to continuing to talk to you about the about its success in the future. Thanks again.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.