Q4 2020 Kemper Corp Earnings Call
[music].
Good afternoon, ladies and gentlemen, and welcome to Kemper <unk> fourth quarter 2020 earnings Conference call. My name is Matt and I will be your coordinator today at this time all participants are in listen only mode. Later, we will later, we will conduct a question and answer session and instructions will follow at this time as a reminder, this conference call is.
Recorded for replay purposes, I would now like to introduce your host for today's conference call Christine Patrick Kemper's Vice President of.
Investor Relations.
Patrick you may begin.
Thank you operator, good afternoon, everyone and welcome to Kemper's discussion of our fourth quarter 2020 results. This afternoon, you'll hear from Joel locker, <unk>, President and Chief Executive Officer, Jim Mckinney, Kemper's Executive Vice President and Chief Financial Officer, and Duane Sanders Kemper's executive.
Vice President on the property and casualty Division President will make a few opening remarks to provide context around our fourth quarter and full year results and then open up the call for a question and answer session. During the interactive portion of the call. Our presenters will be joined by John Ms. Shelly Kemper's Executive Vice President and Chief investment Officer, and Erik <unk>.
<unk> Berg Kemper's executive Vice President and life and Health Division President.
After the market close this afternoon, we issued our earnings release and published our fourth quarter earnings presentation and financial supplement.
We intend to file our form 10-K with the SEC on or about February tab.
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 company's outlook and its future results of operations and financial condition.
These statements May also include impacts related to the COVID-19 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, as well as our fourth quarter earnings release.
This afternoon's 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 SEC rules.
You can find each of these documents on the investors section of our website at Kemper Dot com.
All comparative references will be to the corresponding 2019 period unless otherwise stated.
Finally, I would like to note that due to social distancing practices. Kemper is following in response to the COVID-19 crisis. Our call participants are not on the same location.
May cause the question and answer section of our call to feel disjointed attack, we apologize in advance and ask for understanding from our listeners I will now turn the call over to Joe.
Thank you Christine good afternoon, everyone and thank you for joining us on today's call.
By any measure 2020 was a challenging year on the reasons why are well known at this point.
I'd like to again acknowledge and thank everyone across our nation, who stepped up during these challenging times.
Especially like to thank our employees, whose professionalism and commitment to our customers has been exceptional.
Against this backdrop I'm very pleased with our 2020 performance, we generated over $400 million of net income nearly $440 million of adjusted consolidated net operating income.
More importantly, a year ago, we highlighted key metrics that guide our capital management and investment decisions.
We continue to believe you should use these to measure our long term performance and when you do 2020 was a great success.
Book value per share increased 15% return on tangible equity, excluding unrealized gains increased 16% with.
We generated $425 million of cash from operations and we continued to grow both top and bottom lines.
Additionally, we made investments to grow the strength of our franchise and further strengthen an already strong balance sheet. A few notable items include the acquisition of American access casualty company.
Geographic expansion and increased levels of claim staff to support our expanding customer base and the transfer of a significant portion of our pension liability to a third party.
A strong year, and we're well positioned for future success.
I would now like to turn to page four to discuss some specifics for the quarter.
Net income was $98 million or $1 46 per share adjusted consolidated net operating earnings were $106 million or $1 59 per share.
Turning to segment results specialty auto had a solid finish to the year earned.
Earned premiums increased 10% annually adjusting for the credits issued in the second quarter.
Customer growth continued in our position on the market strengthen as we were able to drive both new and same store sales growth.
Notwithstanding periods of Covid related new business slowdowns across our portfolio, our customer base and demand for our products has been resilient and strong.
We continue to invest in our specialty platform and capabilities, which we expect to continue to drive future market share gains.
Turning to our life and health segment earnings continue to be impacted by Covid related mortality in line with domestic trends.
Despite what is roughly equivalent to a one on 100 year P&C catastrophe events. The business has generated positive operating earnings.
Turning to page five.
During the quarter, we announced the acquisition of American access casualty company at $370 million cash transaction.
The addition of the AAC platform accelerates the expansion of our specialty franchise.
It gives us increased scale in new and Underpenetrated geographies, where we had an opportunity to accelerate growth and expand our agency network and.
It enhances our customer reach with a focus on low limit auto policies and further enhances our specialty capabilities within the Hispanic market.
The acquisition also aligns with our previously communicated capital deployment guidance.
In summary, we had a solid quarter and here our strategy is resilient and sustainable and has consistently generated attractive returns for shareholders.
We're also pleased that last week a M best upgraded our key financial strength rating to a and the holding company's senior debt ratings to Triple B. This is a further testament of our strong operating performance and ongoing progress on.
Now I'd like to turn the call over to Jim to discuss our fourth quarter and full year operating results in more detail.
Thank you.
I'd like to Echo Joe's sentiments that we are pleased with our 2020 financial performance.
Turning to page six you can see the results of our focused on consistent strategy execution and the solid results that has yielded.
For the quarter, we reported net income of 98 million on adjusted consolidated net operating income of $106 million or $1 59 per diluted share an increase of 10% over the prior year quarter.
On page seven.
Highlight that our business model continues to produce high quality operating income.
This is illustrated through an isolation of key sources of volatility that impact quarterly results for the quarter volatility items had a $5 on impact on adjusted consolidated net operating income.
Turning to page eight.
Building on Joes previous comments, we are committed to always seeking new ways to improve the organization. This quarter. We took advantage of market demand to reduce kemper pension benefit obligation to $382 million from $660 million at the end of 2019.
This included lump sum payments and the previously disclosed purchase of group annuity contracts.
These actions removed on non value added risk further strengthening an already strong balance sheet.
On page nine.
I would like to highlight some of the key capital metrics, we use to track our performance, including growth in tangible book value per share and tangible return on equity.
Notably we continue to outperform our stated long term return targets exclude.
Excluding unrealized gains return on tangible equity was 16% and our growth in tangible book value per share was 15%.
These metrics demonstrate the efficiency of our capital deployment decisions and our intrinsic value creation for shareholders.
Continuing on page 10.
Our capital and liquidity position remains strong.
By a healthy balance sheet, but well funded insurance entities.
For the year, we generated $425 million in operating cash flow and ended the year with a debt to capital ratio of 20%.
Within our stated range of 17% to 22%.
Our business model has performed as designed generating solid cash flows and providing substantial financial flexibility to fund growth.
Turning to page 11, net investment income for the quarter was $103 million, reflecting strong alternative investment income such financial markets rebounded.
Our well diversified portfolio continues to deliver solid results.
Low market yields are a challenge for the industry, but our portfolio construction is alleviated some reinvestment risk over.
Over the next 12 months, we have approximately $100 million of assets maturing roughly 1% on the portfolio.
This low amount of maturities achieved through thoughtful asset and liability management helps minimize net investment income volatility.
In closing we are pleased with the company's financial performance for the quarter and the year on.
Our strong balance sheet financial flexibility and stable operating results allow us to serve as a source of strength for all of our stakeholders.
I would now like to turn the call over to Duane to discuss the results of our P&C segments.
Thank you Jim and good afternoon, everyone.
To begin with the specialty segment on page 12.
The segment continues to perform well generating $91 million of operating earnings in the quarter.
Turning to the topline earned premiums increased 10% and policies in force force were up 4%.
In the quarter, we saw increased state and local shutdowns, particularly in California similar to initial shutdowns. This resulted in reduced new business volume, we anticipate that just like we saw earlier in the year. This will be a short term impact as states reopen and economies rebound.
The underlying combined ratio was 91% in the quarter and 89% for the full year, we continue to experience largely COVID-19 related decreases in frequency along with the industry with another round of state shutdowns in the fourth quarter and varied reopening we've taken a cautious approach to our loss picks.
Similar to our response to the initial shutdowns.
Looking at expenses the quarter saw noise coming from a couple of places.
First it was impacted by the mix shift which comes from a few areas.
Mix of new and renewal business and.
And the largely anticipated geographic mix of state and product.
Impacts on expense ratio are anticipated in our pricing.
Yeah on mix, we had a few one time items.
There was an increase in contingent commissions day to agents due to higher than average profitability.
We also made enhancements to our infrastructure cost of which was recognized this quarter.
We continue to build our systematic sustainable competitive advantages and geographic footprint within specialty which will be accelerated by our acquisition of American access.
Casey customer profile is similar to that of our legacy Alliance United Book in California.
It expands the low limit customer focus to a broader geographic footprint and attractive specialty markets, including Texas, Illinois, Nevada, Arizona and Indiana.
Business model is scalable providing growth opportunities in new and existing geography.
In addition, there are distribution relationships strengthen our agency network and give us access to a captive channel with deep ties in Hispanic communities.
We look forward to welcoming American access to the Kemper team.
Let's turn to the preferred segment on page 13.
On our preferred auto business, we continue to evolve the product, which is reflected in our results this quarter as.
As we position the business for target profitability on our results have been choppy.
Additionally, we reported roughly $10 million of adverse development. The primary driver of development continues to be increased demand notices and uninsured motors and bodily injury as attorney involvement has increased over the prior year.
Preferred home and other reported and underlying combined ratio of 78% in the quarter and 80% for the year.
This improvement from the fourth quarter, and full year, 2019 of 83% and 85% respectively.
Results. This quarter also benefited from a reduction in expected losses from wildfires that occurred in the third quarter.
Overall for the preferred segment, we expect continued profit improvement actions taken through underwriting pricing and exposure management to bring us closer to our desired results on.
Now I'll turn the call back to Joe.
Thank you Duane.
Turning to our life and health segment on page 14, we are pleased to report that the segment was able to remain profitable while observing the protracted P&C catastrophe like pandemic.
Segment income was $9 million on the quarter and $60 million for the year, which is suppressed by increased COVID-19 related mortality.
On mortality experience remains largely in line with countrywide trends.
Despite shutting off life, new business sales for a handful of months. This spring in response to the pandemic, we were able to grow overall life insurance premiums. This is further evidence of the strength of our value proposition. While we have received positive COVID-19 related news in recent weeks with the rollout of vaccines. The situation remains dynamic with the timing of improvement difficult to <unk>.
With accuracy.
We believe elevated pandemic related benefit cost will continue during 2021, we also expect it will remain in line with nationwide mortality.
Long term our outlook for the life and health business remains positive.
We're all Kemper has delivered a strong year, our portfolio of specialty businesses produce sustainable earnings while delivering attractively priced products to our customers. We continue to build on our competitive advantages on core capabilities. This will allow us to continue solid topline growth. We believe this will also drive consistent book value growth and shareholder returns over the long term.
While maintaining our superior risk profile I would now like to turn the call back to the operator to take your questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Youre using a speakerphone please pick up your handset before pressing the keys have had anytime youre question Thats been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question comes from Greg Peters with Raymond James. Please go ahead.
Good afternoon, everyone.
I wanted to focus on three areas to focus on.
The top line.
And then.
Some expense ratio questions and the preferred auto.
The top line I was looking at the information we provide on slide 12 on the slide deck.
And.
I was wondering if you could talk to us about as we look out to 'twenty, one and 'twenty two how you think the.
Growth profile is going to look as we compare on a year over year basis and can you include four incorporate into your answer any effects that any rate changes might have on your book of business.
Sure Greg This is Joe I'll take a shot.
Starting with that and then.
We see Duane wants to add anything to it.
First a quick reminder, we don't typically do forward looking guidance.
So im not going to give you exactly the answer you were looking for but I'll try to provide a little color commentary.
To help.
In the quarter in our specialty auto business it tends to be a seasonally.
Especially auto tends to have more seasonality in it than preferred so we expect normally you see a little bit less new business in the quarter.
Net debt is there we saw a slowdown in new business applications in the quarter that we think are heavily related to COVID-19.
We saw more shutdowns within behavior started to look more like the second quarter.
In particular, I think we're all aware, California has been particularly locked down. So we saw some connection to what we saw there.
If I was thinking about it not necessarily giving you guidance, but as I would think about it I would kind of expect.
That is the lockdowns unfold or unwind and people go back out youre going to see a more traditional view.
New business activity.
I think we might see have seen a little bit.
People going uninsured in the specialty auto space, where they might not have historically because.
They werent driving.
And you might be willing to take that I think that will unwind the same way we've seen it.
On the historic patterns, regardless of a recession or a growth economy. They don't typically go on.
On a pattern from an uninsured perspective, so I'd expect that.
That would move.
Move back to a more normal normal state.
And then from a rate perspective, we had not taken rate decreases we've taken rate rollback should we give back and certain geographies.
I would expect at some point youre going to see frequency go back to a more normalized level severity to go back to a more normalized level.
We'll see.
What will hopefully be what looks like a long term averages which has been in that 345% range over the long term for auto that would be my expectation I can't really give you a great guests of when that's going on.
Work its way out that's a function of how fast.
Folks get backs unaided and how fast the economy kicks back into sort of a more normal environment.
But once it gets to that point I would expect we'll see a more traditional.
On the traditional status.
Duane anything you'd add.
Yeah. The only thing in terms of the I think you asked about the profile.
I would say.
The likelihood fairly consistent certainly looking to accelerate the growth in the expansion states but.
Where we have our footprint today and how we're growing on my.
My belief is it's going to be fairly consistent with that and then again just some acceleration in the expansion states.
Thank you for the color that's helpful.
On.
On slide.
31 of your presentation and I know you addressed some of the expense ratio issues in your commentary I was just looking at.
The adjusted expense ratio for specialty.
Was tracking lets call it a 160 basis points higher on a year.
Year over year basis, CT in the fourth quarter is all of that related to those sort of a onetime callout items or is are we entering a period where because.
Because the economy reopens et cetera, maybe ex that.
Expenses could be up a little bit on an adjusted basis as we think about going forward.
John you want to start with that.
Yeah I think.
We did highlight I think some of those.
Some of the drivers underneath there one other things for sure as the mix continues to move August.
The geographic mix certain states fee components are.
Our unique to them so as we move to states and gross states, where the fee component is not as great. We will certainly have an impact with new and new and renewal business also differentiate themselves on the expense side, where new business has more expense. So hopefully excuse me has more fee income on it so hopefully as we return to.
On normal growth rates youll start to see that.
That move there.
And then we did have.
Some of the.
Higher Commission this year because of the profitability component with some of our agents.
With the with the Covid and the frequency dropped a lot of them to earn a little bit more. So those are the dynamics that I would look to see.
Kind of reversed themselves and move as we get always is.
As we move into next year.
Okay, Okay, and if I could.
Add to that because I think you're I think you're trying to back into how should you think about this kind of over the longer medium term on what should be your base.
To kind of stuff.
And so not trying to give forward guidance, but what I might think of is if you look at the year to date number I think that becomes a reasonable proxy.
These profitability levels in.
In terms of what you might expense from both the geographic shift Duane is referencing as well as some of the.
Different than kind of commit contingent.
Commissions that are awesome on the book at these levels.
In terms of how those plans are defined.
And then I think you know.
You know you can then potentially change your thinking about what might be the change short.
Hi, <unk> type things.
If you've got more of a return to a normal environment.
It would likely kind of roll through on a year over year basis.
Given kind of our historical.
Profitability levels.
Got it. The final question is just on the preferred segments switching.
Switching off of the information you provide on <unk>.
Slide 13.
It looks like the home on other business.
Underlying combined ratio.
Sure.
Generally trending in the right direction that looks pretty pretty strong.
I'm surprised that we haven't seen more improvement in the auto side, considering all the variables.
Whether it's COVID-19 reduced miles frequency miles driven accident frequency et cetera.
And.
And on top of it we're seeing this decline in the top line. So I'm just curious.
What your perspective is regarding the.
The results that you posted I'm sure you're not happy entirely happy with them and make sure youre trying to implement some corrective actions.
And I think Thats a great question Gregg.
A couple of things that I would point you to that I think were important in our comment that we kicked off with.
One I think Duane did a nice job on we've highlighted what we hopefully.
Capped here in terms of the <unk> item.
We chatted a little bit about over the previous two quarters.
Those numbers as well as just having a very limited.
Data set here to assess kind of the seasonality.
Associated with fourth quarter.
The increase some of the error bars are associated with the loss picks.
In line with our historical practices and how we would look at things we tend to try to comment things from 60%, 65% confidence level.
And so no change of that so when you with that increase kind of in the air bar, what you likely surmise is that we've been a little cautious.
As we've looked to recognize some of those elements.
And as we get more data I think that will give us a better.
No.
I would take this as a data point that is again, its our best estimate, but let's see how that continues to develop it.
As we go forward, because we have baked in and thought about kind of the.
18, 19 year trend in there and we thought about having very limited data for the fourth quarter.
Centrally understand how the product enhancements on the other elements that we've got working through there certainly have thoughts.
But there it becomes a question of seeing it actually relative to the data.
That I think will give us additional perspective here for a couple of quarters.
Long way of saying I guess little frustrated, but also monitoring in thinking that.
I don't think we're just pleased at all with the progress that we've had today, but there's a time period for which that will work in and work through the data.
Got it well thanks for the answers.
Our next question comes from Matt <unk> with JMP Securities. Please go ahead.
Hey, Thanks, good afternoon.
Joe or Duane I was hoping you might be able to kind of go up to 30000 feet and give us your thoughts on kind of what's going on in the competitive landscape in your core non standard auto specialty market.
There's been a lot of moving pieces in terms of at the large and what have you.
Similar sized competitors being acquired obviously you guys have been acquisitive over the years and we know there are lots of smaller private companies that we don't get a good insights into so could you help us understand from a competitive dynamic.
What's going on on how you see the market okay.
Yes.
Let me, let me jump in and then Joe certainly if there's anything else you're doing.
Thanks worth adding.
I would say this debt.
Certainly not on a lot of new entrants.
On the those that are kind of participating in this space today are continuing to do so.
You'll see.
Varying degrees of actions.
Cross the states in terms of.
Some of the things they might be doing for increased volume or increased topline as.
The shutdowns are negatively impacting the growth.
Youll see some CSR, which is your <unk>.
Agent sales reps and.
And those folks getting on.
Different types of incentives to write business Youll.
You'll see commission lines move a little bit.
Youll see some actually taking some rate decreases.
Which.
I find interesting.
The participants are largely the same and then you see a varying degree of activity for top line.
And.
Of course, we watch it closely and pay attention to that and again it does vary by state. So.
It's hard to say consistent actions across but nothing nothing I would say.
No.
Guys, I guess highly unusual or unexpected at this point in time based on where some of them on.
Yes.
Great answer Duane and net I'll add maybe add one more thought to it and I know you were asking for sort of a 40000 foot view.
I would echo Duane point that youre, not seeing a lot of new entrants there theres a lot of small players there.
Really you saw on none of them do a premium give back.
So what <unk> got with some COVID-19 positive frequency, which was probably a little good news for their results. So there are probably about as enthusiastic now as they are in any period of time, which is a little bit what's written a little new business pressure around the market.
And we're still growing I fully expect as the pandemic unwind and people are driving again, whatever that short term good news and help us form dissipate and they are back to the dynamic where we're stronger more effective.
<unk> and business models.
When and so I would expect that that will create a more attractive market.
The pandemic moves moves back to normal.
Great Thats very helpful.
Great and just a couple of numbers questions if I could.
And the preferred personal auto Duane you gave some good color on the on the.
Little bit of that prior year there.
Can you give a little color on the accident year it was it uptick.
<unk> picked a bit.
The kind of the underlying loss ratio in the quarter is it similar stuff and you're adjusting.
The full year 2008 for the same trend I'm, just trying to get a feel for kind of where for the year ended kind of ex COVID-19 benefits our readjust that.
I'm trying to get a real read on kind of the jumping off point as we go forward.
Hey, Matt This is Jim So I tried to provide some good commentary.
I think from a jump off again, not providing guidance, but if I were to try to think about it understanding that.
Some other things that we looked at for you on beyond that right all the elements that I mentioned before.
Likely lead to some intra quarter development. That's inside there. So if you want to get a good base, but I would do is kind of look at the four quarter average for what that loss ratio and I would be building off of that understanding that we continue to enhance.
The business and we feel better today about the mix than we did six months ago, and then than we did 12 months ago.
Sorry, Duane it sounds to me, commenting on that but I wanted to make sure there'll be connecting these couple of things.
Perfect very helpful.
Then last one if I can.
The commercial auto.
Line same sort of thing to see the accident year loss ratio is still a good number uptick a little bit are you seeing are you seeing activity come back on that commercial auto space with that is that what's going on there its more miles in frequency or or is there something else.
Yes. Thanks.
Just a little bit of seasonality not really a significant change or underlying difference across the curve, but you get a little bit of seasonality.
Todd there just as we do with some of the other business units again, I would think about that kind of again it does at baseline those year over the full year results and kind of be building off of that.
Okay, Great makes sense. Thank you for the color and congrats on my end up right.
Thanks, Matt appreciate it.
Our next question comes from Paul Newsome with Piper Sandler. Please go ahead.
Well good evening, congrats on the quarter and year.
On the pension James who is here.
Expense.
One.
2020.
Might not be recurring with sales was it pretty neutral.
It's something we lost you a little bit on our end Paul I think it was our audio in this room you are asking about the pension, but I missed the question part.
What was there.
Vince.
The pension.
That might not recur.
Given the buyout in 2020.
Yes, so high level.
I think youre thinking about it.
Traditionally get a couple of million dollars over the last few years.
You know benefit.
Going through the results.
It is essentially our investment performance in recent years is.
Exceeded essentially.
Crediting rate that's inside that.
I wouldn't think about.
Results really changing up or down relative to this I would look at it.
A reduction in non strategic risk for us.
And that effectively.
On the redeployment of capital or other things that we would maintain from an economic capital standpoint will support other.
Higher earning assets and as a result.
Wouldn't expect any change to the bottom line as a result of our decisions.
Too rich.
We reduced the pension risk.
Okay.
With the.
Yeah.
Last couple of days of the well.
Last week so too.
Announcements from companies so on their life companies multiline companies so life companies.
Good questions about.
Really not Campbell will be sooner company.
Obviously, you don't want to ask a few specifics when you can do simple not but maybe you could just talk about sort of the pros and cons.
And with us with pros and cons or even bolt on line and maybe what makes.
Briefly on unique.
With this relationship.
Sure.
Happy to first of all I would not describe this as a multi line.
And when you use that as a context for people, we're a portfolio of specialty businesses.
I realize we have multiple lines. So it may dramatically be correct.
But these are businesses, where we eat look for each one of them to have a systematic sustainable competitive advantage.
And to be able to organically grow and produce appropriate returns on their own and then to be part of the portfolio either they need to enhance the portfolio. The rest of the companies in the portfolio or be enhanced by being part of the portfolio and as an example, if you just take our life insurance business in our specialty auto business. They are great. Examples.
Of that.
The capital diversification benefits.
That we get from having the two businesses inside of the same portfolio.
Our significant if we were to break them apart.
We would require incremental capital.
B can be deployed in those now two separate businesses.
As a plus for having them.
I can't speak completely to other folks and why they wouldn't have done it but I would assume that if somebody had a sale and had a multibillion dollar write off on it it wasn't because they had a systematic sustainable competitive advantage it was because of decades of errors or problems.
They were they were cauterizing the wound.
That's a different spot than where we are now it actually adds value to us.
And makes us better as a place which is why we're doing it and we have a competitive advantage. So I think it's our focus.
Great. Thank you very much appreciate it thank you Michael.
Our next question comes from Brian Meredith with UBS. Please go ahead.
Yeah. Thanks Moshe.
Sorry, but just quickly here is it possible to quantify at all with the Covid mortality.
Negative was in the life insurance does it in the quarter.
We don't we don't typically break out that number for you Brian hold on.
On a second let me check something.
Hi.
I know what you're trying to do this is not going to be perfect.
The error bars around it but what I might do is look at the <unk>.
U S mortality rate.
And it's.
In the neighborhood of $10 million for every 100000.
Lives lost in the U S.
Somewhere in that zone that day.
It's not perfect and there is probably a plus or minus 15 or 20% error bar around it but I think that's probably going to get you close enough to what youre looking for.
Gotcha.
And you realize that's not a cash question because the issue becomes.
Unfortunately, the people pass away the charge to the income statement is the net amount at risk.
Not the full face amount, so depending on who and where on the ages it moves around a little bit which is what gives it a little volatility.
Got you interesting okay, great and then I just wanted to just go back just quickly on the specialty policies in force and the drop.
Was there any big drop in retention or anything as well I was just surprised that you did have a sequential drop in <unk>. That's the first time I've seen that in <unk>.
While.
And our Retentions were actually up.
When you've got a couple of things going on the fourth quarter tends to be seasonally low shopping period for specialty auto. The last couple of years from US we've had competitors that had been blowing up and pushing business into the market like accessing California and wouldn't even in Florida.
Which created a little bit of an.
Anomaly in those time periods.
This year, you would have had that seasonally lower shopping period pushed down more so by the Covid stay at home and what we definitely saw is in those COVID-19 new business shopping reduction periods, we saw retention upticks.
And we saw that here as well.
Great helpful. Thank you I appreciate it.
Sure.
As a reminder, if you have a question. Please press Star then one our next question comes from Jeff Schmidt with William Blair. Please go ahead.
Hi, good afternoon.
Yes, most of my questions were answered, but I guess just one on the overall expense ratio was pretty close to 22% for the year, obviously elevated from how you get the premium credit flowing through but what's the run rate there I guess excluding that impact.
We will be American access you'll have much impact on that.
Are there synergies there.
Yes, I'll give you an overall comment Jeff and then let Jim work the components.
Looking at the I think youre looking at the overall expense ratio for the entire company.
Is that what youre looking at.
Yes.
I would suggest to you that that's not a particularly useful number to look at.
I think you need to break up the specialty businesses and look at them separately.
If one of them were growing and one of them were shrinking you could expect that expense ratio would change and it would be exactly the right answer.
You need to you need to break them apart.
Because that matters a lot inside of these businesses.
Yeah I mean.
Big Picture I think what you are asking about has there really been any fundamental change to expense ratio or.
Or not.
When you think about this in terms of the totality of the company.
There are three big items that are inside that that are different than prior years that are a little wonky in kind of distort what is really you know intrinsically happening and whether or not there is really any.
True change.
One is the premium credits I understand that theres about $100 million rolling through the financial results associated with that right, which effectively changes.
What that underlying ratio would be.
Not as if we.
Change commissioned or outcomes are associated with those things. So that was something that we chose and thought was the right thing to do so that is going to lead to a little bit of pressure, but it's not long term systemic pressure it's related to what was the right answer for the environment and our price.
Our company and our customers.
And then you've got bad debt that is associated with the environment that is in line with us providing kind of a free insurance, which we don't traditionally do but you've got a little bit more of that again regulatory.
Provided and then you've got a change in the fee income right that offsets some of the mix elements that Duane.
Referenced.
These things are largely environmental related.
Anything as you continue to move forward and kind of think about the business I think we're building on our competitive advantages and the disciplines. We have you just going to have a little bit of.
Noise.
And kind of the short term COVID-19 environment, where you get some of these things that occur that arent indications of again on what your long term run rate would be.
And our more again kind of subject to the environment and the right way to navigate the environment and just what kind of comes through so I would tell you no real change to the long term positioning or other that you should be thinking about.
In my mind, but you could continue to have some noise here for the next.
I don't know 12 months or so whatever we remain kind of in this environment on.
And as we work through it.
Okay.
And just on the higher mortality in our life book is it pretty safe to say I mean, it seems like the majority of those losses on I think I've heard other say, maybe it's as high as 90% would be losses, you would have expected anyway in the next call. It three years four years five years.
Is that the case, where you where you could see lower benefit payments I guess on a couple a couple of years.
Yeah, I understand the question and I don't mean this to be to be glib, but you know everybody is going to die at some point. So if they died sooner it by definition is an acceleration.
Of of the process.
There, there's probably some from an accounting perspective, when those benefits move up.
But I'm not sure.
I'm not sure I know, which I assume what you're trying to you're trying to model. It just trying to figure out what to put in as a good guy in the next couple of years.
Uh huh.
I think youre going to have an offset between those mortality costs, you're going to have an offset around the underlying profitability that we're getting from those businesses or those there'll be a little bit.
Over a couple of years, but I'm just not sure we know how to measure it quite yet.
Okay I don't think its I don't think it's big enough to be a big driver I wouldn't take the 10 million per 100000, and then say I'm going to take whatever that ultimately comes out to be and I'm going to divide that by two or three and roll that back into the two years. Following I think you'd get a bad estimate from doing that.
I think that'd probably be better off looking at our pre COVID-19.
Run rates and working more around those adjusting for the different investment income environment.
Okay.
Helpful. Thank you.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to Joe Lacher for any closing remarks.
Thank you operator, and thank you everybody on the call for your interest today and for your questions and look forward to speaking with you next quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.