Kemper Corporation Q1 2023 Earnings Call
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Good afternoon, ladies and gentlemen, and welcome to Kemper's first quarter 2023 earnings Conference call. My name is Jason and I'll be the coordinator today at this time all participants are in listen mode only.
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, Karen Guerra Kemper's, Vice President of Investor Relations <unk> you may begin.
Okay.
Thank you operator, good afternoon, everyone and welcome to Kemper's discussion of our first quarter 2023 result.
This afternoon, you'll hear from Joe Lacher, Kemper's, President and Chief Executive Officer, and Chairman, Jim Mckinney, Kemper's Executive Vice President and Chief Financial Officer, and Matt Hunton, Kemper's Executive Vice President and President of Kemper Auto will make a few opening remarks to provide context around our first quarter results followed by a Q&A session during the <unk>.
Our active portion of our call our presenters will be joined by Duane Sanders Kemper's Executive Vice President and President of the P&C Division Jamba, Shelly Kemper's Executive Vice President and Chief Investment Officer.
After the market close today, we issued our earnings release and published our earnings presentation financial supplement and Form 10-Q, you can find these documents on the Investor section of our web site 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.
<unk> <unk> 1995. These statements include but are not limited to the company's outlook and its future results of operations and financial condition.
Our actual future results and financial condition may differ materially from these statements. These statements may also be impacted by the COVID-19 pandemic for information on additional risks that may impact. These forward looking statements. Please refer to our 2022 Form 10-K as well as our first quarter earnings release this afternoon <unk>.
<unk> also includes non-GAAP financial measures, we believe are meaningful to investors in our financial supplement earnings presentation and earnings release, we have defined and reconciled all non-GAAP financial measures to GAAP.
Where required in accordance with the SEC rules you can find each of these documents on the Investor Relations section of our web site Kemper Dot com.
Comparative references will be to the corresponding 2022 period, unless otherwise stated I will now turn the call over to Joe.
Thank you Karen Thank you for joining the call today.
Want to start by saying that I am and our entire team is disappointed with this quarters results I'm sure. Many of you are as well we're going to spend time digging into the drivers. We believe the majority are episodic in nature like near term reporting timeline changes in weather and others like severity impact our run rate.
We are and continue to operate in a difficult and challenging environment.
We experienced many of the same issues that our peers have voiced during this earning season.
Our first quarter results were below our expectations, but we see this as a temporary setback the entire team remains highly focused on returning the business to profitability and achieving our financial targets. We are aggressively pursuing opportunities to improve results and position the company to deliver long term shareholder value.
Starting with pages four and five.
This quarter the combination of elevated catastrophe losses prior year adverse development and higher than anticipated frequency impacted financial results.
Prior year Reserve development was primarily driven by bodily injury property damage and collision coverages. The elevated frequency we experienced we believe was largely episodic.
The frequency uptick was largely driven by weather and mix changes related to state and coverage and new business seasoning.
Unlike the short term impact of higher frequency, we recognize that we are in a prolonged inflationary environment and elevated severity will continue.
These impacts are being felt throughout the insurance industry.
We're working relentlessly to restore profitability the journey will not be linear.
As we see components of inflation take different trajectories loss curves can be difficult to predict.
Against this environment, we're focused on mitigating the impacts the levers we can control and continue to apply our cost reductions tightened underwriting and rate actions to ensure we're pricing to deliver our target profit margin.
In addition, we continue to enhanced tools and cost projection capabilities to improve our ability to navigate environmental uncertainties.
The first quarter revealed several unanticipated trend changes these caused us to modestly update our first half of 2023 guidance. We see this again as a temporary setback, we're reiterating our prior guidance of a return to underwriting profitability in the second half of 2023 and achieving our financial targets in 2024 of an ROE.
Greater than 10%.
Current environment continues to be difficult and if we see further negative dynamics, we will react quickly and communicate our actions to shareholders Accordingly.
I'll now turn the call over to Jim to walk through the additional details of our first quarter results.
Thank you Joe I will begin on page six with our consolidated financial results.
For the quarter, we generated a net loss of $1 25 per diluted share and an adjusted consolidated net operating loss of $1. Two per diluted share. This included unfavorable prior year reserve development of $42 million and $29 million of catastrophe losses of which 3 million was prior year Reserve development.
The ongoing environmental challenges facing the P&C industry continued to impact Kemper's financial results, our energy and efforts remain concentrated on restoring the business to profitability.
Moving to page seven <unk>.
Digging into this quarter's adverse reserve development a significant portion was related to an unanticipated extension in claim reporting timeline with more claims closing with payment. In addition, we saw severity increases within bodily injury property damage and collision coverages.
With our reserving philosophy, we reacted quickly to these pattern changes and increase reserves, we feel good about our reserve levels that said reserves are estimates and change over time based on evolving trends.
Turning to page eight two.
To enable greater insight into our underlying results. We included underlying combined ratio walks between the fourth quarter of 2022, and the first quarter of 2023 for specialty P&C and preferred P&C. One notable item is the fourth quarter to first quarter traditional seasonality benefit for specialty this did not occur this year as the business experienced heightened frequency.
And severity weighted towards the back half of the quarter. As previously noted we believe that a large portion of this is episodic.
Preliminary April results aligned to more traditional patterns.
Turning to pages nine and 10 here, we outline specialty auto's path to underwriting profitability. This includes a modest update to our previous guidance to incorporate the unanticipated higher loss ratio starting point, we expect to produce an underlying combined ratio between 103 and 107 based on initial April data. We are currently trending towards the mid.
Point of this range.
Further we expect the fourth quarter of 2023 will result in an underlying combined ratio below 100 loss, we expect the business to reach target profitability returns in 2024.
Turning to page 11.
During the quarter, we adopted the new accounting standard on long duration insurance contracts. The most meaningful change is the requirement to update the discount rate. Unlike reserves. The impact is reflected in other comprehensive income 2022, and 2021 have been recast it as required by the new accounting standards. The new standard provides a meaningful enhancement to the train.
Apparently you have asset liability matching.
On pages 12, and 13, we provide an update on our strategic initiatives starting with our reciprocal initiative, we continue to engage with regulators to complete the approval process. We remain on track to write auto business within the reciprocal during the third quarter post regulatory approval, we will share additional project milestones to enable stakeholders to truck.
Our progress.
Our Bermuda initiative launched in 2022 continues to provide benefits and is expected to unlock approximately $100 million in life dividends to the parent prior to year end.
Our strategic review of Kemper personal insurance, our preferred home and auto business is ongoing we expect to share additional details prior to the end of the second quarter.
Last our cost reduction initiatives are on track and we expect to deliver on each of our commitments since the inception, we have achieved approximately $87 million in run rate savings. This included $8 eight or <unk> 36 million improvement in our LAE ratio.
Only $41 million in enterprise expense reductions and the completion of our real estate optimization commitment see carrying 10 million of additional run rate savings.
Moving to page 14.
Our insurance companies are well capitalized and have significant access to sources of liquidity at the end of the quarter. We had approximately $1 billion in availability. We continue to have the capital needed to navigate this environment and appropriately invest in the advancement of core capabilities. Further as previously disclosed we are committed to reducing debt outstanding by 100.
$50 million and bringing our debt to capital ratio back to our long term target of 17% to 22%.
Moving to page 15 net.
Net investment income for the quarter was $102 million new investment yields are up 225 to 250 basis points over the prior year, leading to a pretax equivalent annualized book yield of four 4%.
Our pro forma Liam management philosophy includes maintaining a high quality and liquid portfolio by monitoring market sectors and economic conditions to help manage risks and opportunities. Accordingly today nearly three quarters of our fixed income portfolio is rated a or better. We also don't have exposure to failed or assumed banking institutions.
I will now turn the call over to Matt to discuss the specialty P&C business.
Thank you Jim and good afternoon, everyone moving to page 16 in our specialty P&C business aligned with Joe's earlier comments, we remain centered on restoring the business to target profitability and continue to take incremental actions to combat long term environmental severity challenges in.
In Q1, our combined ratio came in higher than expected on an underlying basis frequency was elevated we believe it was largely driven by episodic non catastrophe weather events within our three main state.
To a lesser extent frequency was impacted by a combination of state and coverage mix and new business seasoning.
Digging into these points, we've all heard about the rains in California, and significant catastrophes around the country. We experienced all of this activity plus elevated weather events across our largest states.
These events drive our belief.
Much of this frequency uptick was episodic.
In terms of new business seasoning traditionally in the industry. We have discussed the new business penalty as we look at our own data. This phenomenon is more significant in the first 30 to 90 days than it is at the end of the first policy year relative to the fourth quarter of 2022, we had a higher mix of new policy earned premium with an age life of less than 90 days.
This results in short term pressure, which will alleviate as it ages.
Throughout the quarter, we continued to ratchet up our profit restoration actions, we have and will continue to take rate and tightened our underwriting to ensure we are adequately covering our loss cost.
We have taken actions to further suppress new business volumes until we achieve a 97 or better combined ratio.
Breaking apart the two components in specialty auto business.
Since the third quarter of 2021 on a weighted average basis across our personal auto book, we have filed for approximately 45 points of rate through the first quarter 13 points of this rate has been earned and will increase to approximately 17 points in Q2.
As we move forward, we will continue to file rate actions aligned to the most current view of loss cost trend shifting.
Shifting to commercial vehicle in the quarter, we experienced an increase in frequency. Our analysis indicates that this is largely comprised of a mixture of weather related items and mix.
We believe the weather related items are episodic in terms of the mix items. We are aggressively combating this loss trend pressure through rate underwriting and production actions we remain confident.
Confident in our ability to effectively manage and react rapidly to environmental changes.
As a side note we are encouraged by the legal reform in Florida. We believe it will have a positive long term effect on the industry and we are closely monitoring the short term transition effects.
In summary, we anticipate an improved second quarter environment and the benefits of our actions to provide meaningful improvements to our financial results. We expect to deliver an underwriting profit during the second half of 2023.
I will now turn the call over to Joe to cover the preferred and life businesses.
Thank you, Matt moving to page 17 in our preferred P&C business. This quarter the benefits of our profit restoration actions and lower frequency were offset by higher catastrophe losses of $17 million.
Both auto and home another had sequential improvement in their underlying combined ratios incremental earned in rate of two five points.
<unk> frequency from underwriting actions and favorable seasonality contributed to this improvement.
As Jim mentioned, we anticipate an update on our strategic review later this quarter.
Turning to our life and health business on page 18.
Effective January one the life segment results are reflective of the new <unk> standard.
Although we saw a sequential uptick in reported claims on average mortality over the last four quarters is nearing pre pandemic levels indicative of progress towards returning to pre pandemic profitability.
Turning to page 19 and.
In summary, I'll leave you with this the insurance industry is entering its third year of challenging post pandemic induced economic disruptions and inflation.
It's both frustrating and difficult to deal with non linear outcomes. We know it is for you two.
We leverage our data and analytics to help us quickly identify changing trends that impact loss costs. So we can adapt and overcome these hurdles. The inputs we control to drive profitability are trending positively including increased rates, earning in incremental rate filings tightened underwriting and the targeted expense reductions.
The modest revision to the first half guidance is largely related to the unanticipated base your adjustments.
For the next couple of quarters, we expect to see continued positive progress toward delivering underwriting profit and creating long term value for shareholders.
Finally, I'd like to thank all our employees for their continued dedication and support as we continue to navigate this environment.
With that operator, we can now take questions.
Yeah.
If you would like to ask a question. Please press star followed by one on your telephone keypad if for any reason you'd like to remove that question. Please press star followed by two again to ask a question. It is star one.
Our first question is from Matt <unk> with JMP. Your line is now open.
Hey, Thanks, good afternoon.
Sure, Joe and Jim I was hoping you might be able to give us an update on.
It's kind of the progress in California on the rate filing.
Since last quarter I think we've seen that.
And I guess for lack of a better word flagged by kind of the public watchdog.
You probably can.
Say too much about the outcome, but just anything about the process or changing any change at all on timing expectations.
It would be great. Thank you.
Sure I'd love to be able to give you a timing that we just can't you can't do that I would tell you.
But now I'm about to comment on it.
I'd tell you its moving at a reasonable pace.
Particularly when compared to what we would have historically seen right now the department has completed their initial review of our filings.
They they have moved this from their rating Bureau into I believe what they call their litigation Bureau, which is actually the second side of the house that that navigates.
The Bureau, and the consumer watchdog.
We anticipate and have some calls scheduled with them.
In the next 10 days 10 to 15 days.
Actually Matt correcting a may 25.
For a three party conversation to work that through there is no particular rule about how that works.
But I would tell you that it's been a productive conversation with the department there there.
Reading and working through the material.
Don't want to imply that I think it's a month away or a week away.
But again I don't know exactly where that timing is but the conversations.
Our moving and inside of our our expectations of where we would have had.
This.
It's a reasonable timeframe.
Okay, Great. That's very helpful. And then just one other if I could you touched on it very briefly but just the tort reform in Florida.
Yeah.
Could you just give us a little more color there as it relates to Kemper.
Some peers.
It took some charges on the quarter, specifically related to that and I understand different companies have taken different approaches from the outset with regards to the issues in Florida. So we didnt see that with you maybe maybe just kind of why that might be and then.
Florida is a big state for you, what what sort of you know.
I'm not asking you draw a line in the sand, but just kind of order of magnitude how much.
Benefit or how substantial do you think the reforms could be for you long term.
Yes, so that's a couple of different questions I'm going to ask Jim to start with sort of the accounting piece going forward and then we'll try to give you a little bit of a forward view.
I'm, assuming that what you are talking about there isn't.
In the in sort of the disruption of the change, but youre, saying, let's fast forward.
12 to 18 months and everything normalizes out is that the second part of the question, Yes, yes, exactly yes, okay.
Okay.
Yes, so Matt.
Obviously, others will weigh in on some component of.
The longer term impact to our business, but overarching I think it's a favorable.
Floor Floridians, if that's the right term or for residents of Florida.
And for the market as a whole.
In terms of the short term impact I think there's a component here that really depends on your reserving methodologies and how you look at things to avoid confusion, we are sorting our way through some of the additional claims and that they came in.
So there might be a little bit larger urban around this then sometimes but at that same point in time our practice.
It has been to try to settle or come to the right resolution to these things very early on in the queue.
And so because of some of the approaches that we've taken early on from a reserving practice I think youre going to see potentially a different outcome associated with where we're at and again you haven't seen an immediate we are I would tell you. The error bars are a little bit wired, there's nothing there that I'm, highlighting or whatnot to takeaway just being completely transparent about it.
But we just don't think at this stage this is going to be a substantial impact to us again because of the reserving methodologies.
<unk> already had in place and because of the claim practices more importantly that we had put in place to essentially mitigate some of the challenges associated with Florida litigation to date.
I'll ask.
Duane or others to potentially comment on the longer term impact to the business.
Yeah. Thanks, Jim This is Duane.
I think.
What has been said is is right on and aligns to the thinking on the longer term side.
I think it's really going to play out.
The months to come if the laws are employed as intended and the regulations that have been put into place.
There is obviously meaningful change ahead that.
That we will we'll work our way through.
As we all know its extremely creative environment in Florida, and we'll see how it plays out over time and the activity.
The litigation activity as it was in the past does it morph itself into something different we are remain optimistic and as Jim said, we continue to mitigate and remedy the claims as they come to us and we will watch for the months to come to figure out and watch what that what that near term and longer term benefit would be.
Thank you for the answers much appreciate it.
Thanks, Matt.
Our next question is from Greg Peters with Raymond James Your line is now open.
Great Good afternoon, everyone.
I have one question probably in three parts.
But what are the most frequent observations or questions that we've been getting.
Post the.
The pre announcement as you know.
If you could help walk us through what changed from your Investor day to the pre announcement in terms of information flow.
And in your comments you talked about this higher mix related to new business and our frequency.
And just not hearing a lot of other carriers referenced frequency and.
The new business mix kind of strikes me.
As being somewhat awkward because I thought your book of business skewed more towards one year policies versus six month policies.
And then the final the final point really all related to that is your comments around the elongated development patterns. Just curious why they popped up at the end of March et cetera.
I appreciate your color on those three points.
Yeah, Greg So maybe I'll start and others may weigh in here, depending on how we how the question evolves here.
And Phil you know if.
If we need to if it's easiest to go kind of back and forth happy to do that.
In terms of some of the trends that we saw.
It's unfortunate that we didn't see me I'm not 100% sure.
You know that we could have.
But what we did see is data begin to aggregate kind of at the back half of <unk>.
Maybe the second third week of March coming in differently than we had anticipated and continued quite frankly for some of the earlier reporting periods.
Earlier kind of back half of September of the third quarter and then the first couple of months of the fourth quarter.
They changed the way we thought about the base.
That had both an impact both on the number of claims coming in as we've highlighted as well as what we saw from a close with payment perspective that is was higher than we were anticipating and so as that data matures. We then obviously updated.
Our thought processes, including kind of our base year adjustment for this year are the starting point for what our loss ratio was.
And then rolled that all the way through that's what's incorporated today in our guidance I do think that we see and react to trends very quickly.
Some of this could have been weather related or other things that potentially skewed those payment patterns and reporting pattern for a little bit it's hard to say I don't want to speculate too much other than to say that we saw a new trend we reacted to that trend we feel confident in where we're at we've seen when we look at April and that a reversion to a much more traditional.
Reporting and payment patterns.
And so again.
We feel good about it.
And we're working through that and it's unfortunate but.
But that's essentially what happened that kind of let us turn it a little bit of a revised position.
I'll add a little bit on it Greg.
And this may help some with frequency because we're talking like insurance guys and the mechanics, we will typically talk about our frequency and will not necessarily how many times the phone rings, but we'll talk about what we're anticipating is claims it will have a payment on them.
And what Jim was pointing out is that that elongated pattern, we had anticipated a certain number with.
Claims with payment and that number was higher than we were seeing in that elongated pattern.
And that by its nature again, if you if you thought I'm, making up numbers. If you thought you had a thousand times the phone rang and you thought eight 700, we're going to have a payment you would.
Think about is that a 700 claims if you went back and looked at it and said 800 or having a payment you think about 800, having to pay a <unk>.
800, having a claim that would be a higher frequency. So that pattern change of more closing with payment is part of why it becomes a frequency issue. It doesn't surprise me that you wouldn't necessarily see somebody else talking about that because it is a pattern change inside of our piece.
Second piece I think you asked about was new business and.
And I want to be careful.
This you were asking about whether it's a six month or 12 month policy, let me back up a second the comment Matt was making was he was talking about the first year of new business.
And we would look at the loss experience typically when we thought about a new business penalty in the industry as the first 12 months you have the policy regardless of whether it's a six or a 12 month term.
It would be over those that initial 12 months that that customers with you and then it would season after that so it's not a term of contract item. It's a tenure or seasoning of how long the business with us with US is the comment he was making.
And we observe in our data that in that first 30 to 90 days there is worse performance or higher loss frequency than there is in the last 90 days of a 12 of the initial 12 month period again, regardless of policy term.
It's a you know an egg through the snake. If you will in the example, I keep using when we talk about it.
Is it two month old infant and an 11 month old infant are both still in their first year, but theres, a whole different care and feeding and noise around them and thats part of what.
That mix is underlying need that new business.
We set a bunch there Greg.
Perhaps you riches.
Wow.
It was helpful.
I guess.
At a very high level.
You are still holding out.
Some guidance, especially as it relates to the back half of the year.
Has there been a shift in.
This new.
Business mix from one year to six month policies that give you.
The momentum to get that recovery in the back half of the year, because I feel like the setback.
And it is embedded in your second quarter guidance.
As the recovery out further.
If that makes sense.
There's a couple of things Greg that I would mention if youre looking.
Some of the data that we provided from in our assumption base or that you do see that we have correspondingly taken rate and other actions to help combat some of the pressure that we saw here that is a component of that that will work its way through the second thing again, highlighting some components that.
Joe said and maybe elaborating on.
When do you think about.
That new business tendering.
To the extent even that you had more policies for example in their first month of infancy in March than February than January . So if you were building through that period on a relative basis in comparison to previous periods that would create a little bit of pressure upfront.
That will be short term in nature, and so as we continue to suppress new business volumes from here that will work its way into essentially a more normalized loss ratio from there.
Again add a little bit of a tailwind to the second half of our financial results.
The other thing that I would highlight that's inside of there is while we have you can see our results where we've stepped up so we've provided kind of sequential trend.
Trend both frequency and severity data you did not see us as a part of this.
The traditional seasonality.
Up to then step down if you will so if you're moving up throughout the year.
<unk>.
That you then kind of come back down in that Q1, you did not see us reset our expectations.
For that to occur so we're basically rebase lining as if the first quarter and the fourth quarter, our new normals.
And so to the extent that were there the data that we provided to you on that front shows how we're going to navigate through the period from that point with the additional rate and other outcomes that were there, but also probably highlights that when we provided our previous guidance that we try to do that with a real thoughtfulness in.
We thought it was more than 70, 80% maybe.
Baked range.
And unfortunately that didn't turn out to be that way for the items that we mentioned, but theres a little bit of that too that was.
In there. There's obviously worked its way out that will still be a positive for us as we move forward.
Yes.
And to be clear on it Greg I think youre at how do you what's our confidence in the back part of the year and how does that how does it catch up.
Tighter underwriting and the suppression of new business that Matt was describing.
We had not been growing the book you can see that in our pet count we didn't wake up in the first quarter and all of a sudden change your mind and decide to be dramatically growing the book we have.
Ben dropping pip, but we're tightening that underwriting and were more significantly in fact very significantly restricting new business.
We have been now and we will continue until we're at 97% of that incremental.
Tightening will have the backend description that Jim's talking about.
Okay.
Yes, My my last question.
I'm going to pivot to the balance sheet.
I guess, the the balances of the Holdco cash and borrowings changed a little bit more than I expected. So maybe you could provide some color on what's going on.
As of the end of the quarter versus year end.
Yeah. So.
Nothing there that.
You know I'd reference too much other than obviously, we made investments in our subsidiaries.
To continue to ensure that they're running.
Yeah.
Our targeted RBC levels inside of there and then have coverage against that.
So.
What you see is us in the holding company, serving as a source of strength for our subsidiaries and that's really what accounts for the difference is the investment that we've made into our subsidiaries.
The other thing that I would highlight is the initiatives that will further increase again, the Bermuda initiatives that will further increase.
Capital and liquidity available at the Holdco.
So we have those levers and we'll continue to have those levers.
So there are some good guys coming there as well as we continue to navigate throughout this year.
Okay I'll take those questions offline. Thanks.
Okay.
Thanks, Greg.
Okay.
Our next question comes from Brian Meredith with UBS. Your line is now open.
Yes, Thanks evening.
A couple of them here for you first I'm just curious.
Looking at your slide eight and you talk about the frequency trend of $3 two pop up there.
How much of that do you think is attributable to the weather you've highlighted versus Ma.
Maybe the new business or adverse selection that youre getting out of your commercial insurance business, given the growth that youre putting on.
Okay.
So let me answer it.
In two ways.
The first thing I'd do is just kind of step up we think weather and this is our hypothesis interim analysis, we got a lot of stuff.
We've put together that kind of all points in the same direction, but to avoid confusion, there's not perfect precision around this.
But we think about two thirds of this quarters.
Outcome was episodic weather related kind of other unusual elements that are kind of sitting under and again, we have a bunch of different pieces of analysis that we put together completely independent of each other and kind of all come to form that same conclusion.
So that's one component.
The second element is inside the commercial vehicle component that I think you're asking I think again, it's about 50%.
Two thirds.
Besotted little bit of additional frequency associated with the weather similar to kind of a PPA and some of the other outcomes there.
And then there's kind of that other 3rd% to 50% that's mix oriented in nature, which we've already made a lot of progress in terms of continuing to re underwrite those components.
And then to position ourselves for continued success.
Into Q2 and going forward from there.
Jim I mean, I can do it or you can but maybe I can ask you you were providing some of the the color commentary on that.
The timing.
Part of that that whether that incremental frequency I believe we saw really impacting March.
Yes, we did see a step up.
Well weather in California range, we're kind of an impact throughout kind of the quarter a little bit in the back half I mean, it's a very unusual event for California to get especially southern California to get the rain that where we're discussing here. So that has definitely created a little bit of noise, but we also got a little bit with inside Texas as well.
Again prominent inside that March period, So you kind of got a double helping inside that and you got essentially some more severe components inside that March time period for weather.
Really again episodic in nature step up from where we're at.
Those things should not.
Well.
Anything can happen, but it would not predict those types of things continuing on on a regular run rate basis, we're talking about things that were $1 25, or one in 50 year type events.
It's possible you could get a couple of those back to back but that would be very unusual.
I don't know the exact probability of that but it gets pretty low pretty quickly.
And I think what you're what we're at and what we expected. The first quarter. We've described having a traditional downward trend in seasonality and we didn't see it.
We largely saw.
A traditional view in January and February March was out of pattern. We've got an initial look at April and its back anymore or more traditional view. So march in the information were looking at was the part that was out of pattern in that in that first quarter.
Gotcha and I'm, just curious on the commercial line side.
Did you recognize or do you see any underwriting issues that were happening with some of the growth in because that could perhaps take a little bit longer to rectify.
This is Matt.
When.
We were moving through 2022 exactly when the when the PPA market really started to harden and the rates take hold there we did see a little bit of leakage of private passenger light vehicles. So think about that as small Suvs light trucks today and start to make its way into the book and we've observed this across the industry.
Three we took action in Q3, and Q4 to really tighten that up.
So it was less around sort of your traditional commercial auto type exposures, which we don't play in the long haul space or in the dirt sand and gravel. It was more of that PPA leakage that was coming through as that market really starting to harden their.
And so that cohort was a little bit of a contributor.
In Q1 to the elevated frequency as Jim highlighted.
That said the commercial team.
The capabilities in place and we've sharpened our toolkit. So now we manage cycles I think a little bit more appropriately, but that was an observation on frequency and as you described it Matt.
To stop that from coming in happened when and sort of how whats the AG through the snake timing.
Yeah the tools the next last Saturday.
Put in market in Q3 and Q4, so the pressure that we saw in Q1, which was.
A modest contributor to the Q1 frequency, we think will persist for a quarter or two and then work its way through.
Great. That's really helpful. And then one last just quick one I just wanted to just clarify on the guidance for.
For next year, the ROE target is that for the full year that you expect to make that limit cortina or at some point during 2024, you'll be at that run rate.
We're anticipating that for the full year that we would for 2024 that we would be at a greater than 10% Roe.
Again, if something were to change we'll update it we have seen nothing at this stage that takes us off of that target.
Great helpful. Thank you so much.
Our next question is from Paul Newsome with Piper Sandler Your line is now open.
Thanks for the call and good afternoon.
Can you just perhaps directionally talk about.
What youre thinking about for.
Customer and fifth growth.
Since that are embedded in your guidance.
I'm assuming.
Your expectations for some level of shrinkage.
Can you give us color wise I think might be helpful. Just said.
It gives a better expectations were.
Revenues.
Yeah.
Yes, so we haven't provided anything on Pip growth I mean, I will say I mean, you can.
Here from our comments that we're anticipating to shrink in addition from where we're at.
I think some of the glide path that you've kind of seen getting to this point are likely probably reasonable paths to start with.
Inside this period and maybe they're a little up in certain cases from that.
Sure.
But I think that would be.
If I were you that might be a reasonable place to begin to kind of think about that if you're trying to specifically forecast pets.
Okay.
Okay.
And then on a completely different topic I was looking at the book yield number.
On page 15 of the presentation.
And I was hoping maybe you could talk to a little bit more precision.
The new yields.
Investments.
Because it looks like that book yield is including the alternative portfolio.
And the new investment yields.
The core fixed income.
I'm not sure about that.
But just to give us a little sense of.
Kind of a math might work with.
Higher interest rates.
So, but youre right. We do include.
Some of the alternatives inside that.
It reconciles up to the net investment income that's at the.
On top of the page.
Big Picture Wise I would tell you I mean, clearly from what Youre seeing there in the alternative investment space.
Down from historical perspective.
We still consider that good so.
As a whole if you think about where folks have been kind of with the trailing impacts that are usually felt in the alternative space from kind of the equity market. So if you just think about a trailing 612 18 months.
Between those two items.
Yep.
Still making money in those areas, we're still doing reasonably well.
We have outperformed.
In the early stages and continue to see very good returns inside those asset classes through time, so nothing there to know other than we feel really good about what we're doing there we're very selective in the team does a great job.
And where we choose to.
Make select investments to complement our investment book in.
In terms of the new money yields they continue to be going up from where they've been on a historical basis. So you see that in that additional 225 to $2 50 that doesn't mean, you can't see a little bit of you know.
Yield compression from one quarter to other relative to the alternatives, but as you see we continue in that core investment portfolio continues to build and that is as simple as every quarter, where you have 100 200, depending on where you're at.
And essentially investments rolling off they're being replaced at this stage with higher money yields.
And again, that's at that 225 to 250 basis point range that we put forth here.
The important point is that we should see that underlying fixed income portfolio go up.
Yields go up.
Some amount truly significant youll continue to see that.
So if you see that 85 buildings in the 98, you would expect that trend to continue from a yield perspective in that core component and again. The difference there is a little bit of again, what's happening in that alternative investment portfolio and just how it works its way into the yield.
Okay.
Thank you for the call I appreciate as always appreciate the help.
Thanks, Paul.
There are no further questions. So I'll pass the call back over to the management team for closing remarks.
Thank you operator.
Again, thank you to everybody for your time and attention on today's call we look forward to.
Continuing to make progress on all the initiatives, we talked about and to talking to you next quarter. Thanks again.
That concludes the conference call. Thank you for your participation you may now disconnect and doing to make progress on all the initiatives, we talked about and to talking to you next quarter.