Q3 2023 Horace Mann Educators Corporation Earnings Call

Good morning, and welcome to the Horace Mann educators third quarter, 2023 investor call.

All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After today's presentation there'll be an opportunity to ask questions. Please.

Please note. This event is being recorded I would now like to turn the conference over to Heather Wetzel, Vice President of Investor Relations. Please go ahead. Thank you and good morning, everyone. Welcome to Horace Mann's discussion of our third quarter results yesterday, we issued our earnings release Investor supplement and Investor presentation copies are available on the investors.

Page of our website.

Or he does the REIT as president and Chief Executive Officer, and Bret Conklin Executive Vice President and Chief Financial Officer will give the formal remarks on today's call with us for the Q&A, We have Matt Sharpe Mark Dressers My question, Brock, Ryan Greener and Steve Mcnamara.

Before turning it over to Marita I want to note that our presentation. Today includes forward looking statements as defined in the private Securities Litigation Reform Act of 1995.

The company cautions investors that any forward looking statements include risks and uncertainties and are not guarantees of future performance.

These forward looking statements are based on management's current expectations and we assume no obligation to update them.

Actual results may differ materially due to a variety of factors, which are described in our news release and our SEC filings.

In our prepared remarks, we use some non-GAAP measures reconciliations of these measures to the most comparable GAAP measures are available in our investor supplement.

Now I'll turn the call over to Marita.

Thanks, Heather and Hello, everyone last night, we reported third quarter core earnings of 44 cents per diluted share again, highlighting the strength of Horace Mann's diversified business model.

Net written premiums rose, 9% with strong product sales across all three segments, our supplemental and group benefits and life and retirement segments delivered strong earnings.

In property and casualty, we are making progress on our plan to return this segment to profitability. Despite the continued impact of severe convective storm activity.

The country.

All segments benefited from the 22% increase in net investment income to a record $119 million.

Brett will talk about the details of our outlook later in the call, but at a high level. We continue to expect our full year core EPS of $1 20 to $1 45.

We are successfully executing on our plans to drive profitable growth and capture a larger share of the education market.

This progress was clear in both divisions during the third quarters back to school season.

We remain confident in our ability to achieve a return on equity near 10% in 2024.

In the supplemental and group benefits Division, we are seeing outsized growth as we invest strategically in new capabilities and strengthen distribution partnerships the.

The benefit of these activities will be seeing even more over the coming years.

In our employer sponsored line, where we sell to employers instead of individuals', we expect strong first and third quarter sales in this business line because a benefit your timing.

This third quarter was in line with that expectation with sales doubling over last year.

School districts in particular use these offerings to provide a more robust benefits package to retain and attract staff.

This fall we were able to fully take advantage of new enrollment technology to make our group enrollment process more efficient and easier to navigate for educators.

In addition, the Worksite direct business, where we are selling directly to individuals has returned to its pre pandemic run rate with trailing 12 months sales at their highest level since we acquired MTA life in 2019.

In addition to our core educator niche we have built an MTA has long history with others, who serve the community to further grow this business.

In the two years since we began a partnership with the International Association of fire fighters busy.

From their local affiliates has grown to nearly 25% of new sales.

In the retail division, we are realizing the benefits of being fully back in terms of school access in combination with the efficiencies of video interactions.

For example, our agents can again offer in person financial wellness workshops in the lead up to the new school year and reestablish relationships with individual educators.

This was key to the 16% increase in retirement sales quarter over quarter.

I was able to see this for myself when I spoke to more than a thousand educators at a back to school event in rapid city South Dakota in August besides helping those educators understand retirement options in their state Horace Mann showed its support with contributions to classroom projects through donors choose.

We're excited to be leveraging improved school access, including placing agents in open territories.

We are also gaining traction with a program to embed new agents and established offices. So they can better learn the business while supporting sales growth.

Now turning to property and casualty and our strategy to return this business to profitability.

In auto we have reached the inflection point on the path to our targeted combined ratio as earned premium growth moved ahead of loss cost growth late in the third quarter and the combined ratio improved sequentially.

Since the beginning of 2022 we have implemented an average of 19% increases in rate nationwide to address inflation and the return towards pre pandemic frequency levels in 'twenty 'twenty. Four we are currently planning for an average of 12% to 13% in additional rate increases.

Asian wide, but that plan will be continuously reevaluated to ensure we continue to address the emerging loss cost trends.

Our rate actions along with non rate underwriting actions are keeping us on track to targeted profitability.

As I have noted before the property environment is challenging our plan to address the increased loss cost associated with the more severe and frequent weather events is multifaceted.

As we said last quarter. Our strategy includes additional files right product changes and enhanced modeling.

In addition to rate we also use inflation guard to make adjustments to coverage values tomorrow accurately reflect current replacement costs.

These actions have brought the impact on renewal premium to a range of 17% to 20% as we noted last quarter. We expect to have a similar impact on renewal premiums in 2024, we continuously reevaluate the environment to ensure we are reacting quickly to changes in loss cost trends.

In addition, we are implementing product changes, particularly in areas with higher frequency of adverse weather. This includes higher deductibles as well as terms and conditions changes like an updated age approved settlement process.

We are also integrating new sophisticated modeling tools to provide more localized insight into the impact of severe convective storms.

This will assist us in making portfolio optimization decisions through rate and underwriting actions. We continue to expect to deliver our long term property combined ratio target of 92% to 93% by 2025.

Let me take a step back to revisit how a healthy P&C business fits into our long term strategy as a multiline provider for a niche market. Our goal is to have Horace Mann customers for life offering the solutions to meet their needs throughout their life stages.

We believe this creates enduring value for Horace Mann and for our customers. While we return the auto book to rate adequacy across the country, we are maintaining sales momentum to attract and cross sell more educator households.

Even with the rate impact on our property and casualty policy holders over the past year. We are seeing remarkably stable retention. One reason for this is that all carriers are addressing the current loss cost trends, but another is the value we provide to our educator customers in terms of both relevant benefits ease of <unk>.

<unk> business and the partnership of a local trusted agent in fact in the new year, we are enhancing our educator advantage program for auto and home customers, adding features and increasing the limits on coverages that are unique to teachers needs such as theft of property at school sponsored events.

We are making solid progress towards our long term objectives, our diversified business delivers operational consistency, a solid balance sheet and a compelling dividend.

We are executing on our strategy to address the performance of the property and casualty segment, our retirement and life business is solid.

A steady contributor that helps us distinguish Horace Mann with educators and our supplemental and group benefits segment is exceeding our expectations in terms of both top and bottom line taken together our business offers complete solutions to help school districts attract and retain quality staff and to Hell.

Educators protect what they have today and prepare for a successful tomorrow.

At the same time, we remain committed to keeping the education community at the center of everything we do just this week, we announced the five national winners of the Horace Mann Awards for teaching excellence in conjunction with the NEA Foundation.

Educators are dedicating their lives to helping our nation's children succeed.

And they serve as a reminder, as to why we do what we do taking care of those who serve our communities every day.

In a year like 2023, the value of our multiline approach is clear we are meeting the needs of all of our stakeholders, helping our customers recover from loss supporting our employees and agents and creating value for our shareholders. The strength of our value proposition combined with the earnings potential of our business gives us.

The confidence that we can approach a 10% return on equity in 2024.

Thank you and with that I'll turn the call over to Brett.

Thanks, everyone for joining our call today.

Morita highlighted the value of our diversified business model and the momentum that we are seeing across our businesses evidenced by strong third quarter sales and the contributions of life and retirement and supplemental group benefits to earnings now.

Now I'd like to walk you through the details of the business segment performance starting with P&C.

This segment's core loss for the third quarter was largely due to elevated cat and non cat weather activity across the country, which I'll discuss in a moment.

Overall total written premiums rose by 13% as the rate actions, we are implementing take effect.

Business growth is coming largely in states, where we're most confident and the pricing outlook and we're pleased to see retention remained very stable in both our auto and property lines.

Turning to auto the year over year increase in average written premiums improved again in the third quarter to 16% up from 11% in the second quarter and 8% in the first quarter.

As Maria mentioned in auto we believe we have reached the inflection point and returned to profitability.

Premium growth moved ahead of loss cost growth late in the third quarter.

The combined ratio for the quarter was one way, 0.7% the lowest auto combined ratio we've reported since the first quarter of last year.

In addition vehicle repair and replacement cost inflation has moderated which is a positive as we look to achieve our targets. We will continue to take rate actions that are designed to get us to our long term target of 97% to 98% combined ratio.

Turning to property third quarter average written premiums were up 11% year over year.

Our rate plan remains very aggressive and rate increase was country wide continue to be bolstered by inflation adjustments to coverage values as well as non rate actions that also address profitability.

We are implementing rope settlement schedules for new and renewal business in several of our most prevalent wind and hail states in the first quarter of 2024.

Third quarter also was a challenging weather quarter total cat losses were 29 million pretax, adding 17.5 points to the segment combined ratio in total there were twenty-five cat events, including 19 severe convective storms impacting 30 states across.

The Midwest and south.

Further the property underlying loss ratio of 61, 8% reflected the increase in non cat weather activity compared to the prior year.

About a third of the non cat weather losses came from states with no declared cats, including Utah, Montana, North Dakota, and Louisiana. In addition, Minnesota had $2 5 million of non cat weather as well as $4 6 million of cat losses.

In addition to rate the product changes and refinements to our modeling process that are underway bolster our confidence that we are on track to address these trends and achieve our long term combined ratio target of 92% to 93% in this business.

Although overall earnings expectations remain unchanged due to the significant level of weather losses. This quarter, we modestly lowered our P&C segment core loss expectation to between 32 and $37 million.

We are still assuming the full year cat loss contribution would be 95 to 100 million or about $15 five points on the combined ratio the longer term combined ratio target for the segment remains at 95% to 96%.

Turning to life and retirement segment continues to perform strongly with adjusted core earnings at $21 million net.

Net investment income increased by 19% compared to the prior year, reflecting the higher overall interest rate environment and improved returns in our commercial mortgage loan funds. In addition, our limited partnership portfolio generated a 12% annualized return meaningfully above our.

<unk> run rate.

As a result, the quarterly annualized net interest spread on our fixed annuity business rose to 251 bps for the third quarter compared to 193 bps last year.

Year over year, the net contribution from our F. H L. B funding agreements remained stable, although net investment income reflected higher earnings from our floating rate investments backing the program.

Interest credited similarly reflected offsetting higher interest expense.

For the segment total benefit expenses, the total of mortality cost and change in reserves rose as the change in reserves more than offset lower mortality costs.

For the retirement business net annuity contract deposits were up 16% to $126 million for the third quarter.

Persistency in our core 403 be account portfolio remains very strong with total cash value persistency at 91, 7%, which was lower than last year due to surrender activity in our nonqualified account portfolio, which is a non core business for us.

We also had another good quarter for retirement advantage the fee based mutual fund platform that we believe creates long term opportunity for this business segment.

Life annualized sales were flat for the quarter, but up six 5% year to date and persistency remained consistent with prior year.

We continue to look for life sales as a way to initiate and solidify educator relationships and we are very pleased with the progress.

The life and retirement segment continues to be a pillar of stable earnings with opportunity for growth.

As a result, we continue to expect 2023 core earnings for the segment to be $63 million to $65 million with fourth quarter L. P returns returning to more typical levels the longer term targeted range for the spread remains at 220 to 230 bps.

Now, let me turn to the supplemental and group benefits segment, where we are continuing to see the earnings diversification value of this higher growth higher Roe.

And less capital intensive business.

Third quarter premiums and contract charges earnings were $64 million with total segment sales of $8 1 million up 84% over last year.

Sales in our Worksite direct business the supplemental products were up 59% and have moved ahead of the pre pandemic run rate, we expect growth to continue to accelerate in 'twenty 'twenty four and beyond.

For the employer sponsored business line first and third quarter sales are typically stronger aligning with the start of annual benefits cheers.

This third quarter sales of employer sponsored products were up 109% to $4 6 million, reflecting the progress made in gaining more access to districts and schools through our distribution partners.

For the segment third quarter core earnings were $15 8 million with a blended benefit ratio at 32, 3% remaining ahead of our long term target of 43%.

The benefit ratio for the Worksite direct product line continues to reflect utilization below historical levels.

The quarterly benefit ratio for the employer sponsored product line is expected to fluctuate, but it increase from last year's unusually favorable results for this period remaining in line with expectations.

As we noted in previous quarters seasonal fluctuations in sales patterns and the benefit ratio are anticipated in our full year outlook for worksite.

Due to the strong performance again this quarter, we've increased our expectation for full year segment earnings to the range of $52 million to $55 million.

Before I turn to investments just a reminder, that we completed an index eligible senior debt issuance of 300 million in mid September.

The net proceeds from the sale were used to fully repay the 249 million balance on our revolving credit facility with the remaining proceeds added to invested assets.

Total net investment income was a record for the quarter and total net investment income on the managed portfolio rose nearly 30% to $92 million as we benefit from the higher overall interest rate environments and strong returns in our commercial mortgage loan funds and limited partnership portfolios.

Both the P&C and LNR segments benefited from the strong L. P contributions compared with last year's third quarter.

Pre tax investment yield on the portfolio. Excluding limited partnership interest was $4 seven 8% with new money yields continuing to exceed portfolio yields in the core fixed maturity securities portfolio.

The a plus rated core portfolio remains concentrated in investment grade corporates municipal and highly liquid agency and agency MBS securities positioning us well for a potential recessionary environment. We believe is likely did materialize over the next six to 12 months.

Our net investment income guidance is unchanged with full year total net investment income expected to be between 429 and $439 million with fourth quarter L. P returns expected to be closer to target after the strong Q3.

At September 30th adjusted book value was $35 57 <unk>.

Adjusted book value adjusts for bolt unrealized investment losses, and net reserve re measurements attributable to discount rates and shows the intrinsic value of our business. We use adjusted book value when we talk about core Roe.

The ratio of debt to capital on a similarly adjusted basis was 27, 3% at quarter end remaining at a level appropriate for our current financial strength ratings.

In summary, this quarter was a solid quarter on our path to our long term P&C profitability targets with core earnings of $18 million or <unk> 44 per share.

Adjusted book value at $35.57.

Record net premiums written and contract deposits.

Sales growth in all operating segments strong core earnings contributions from supplemental and group benefits and LNR segment's <unk>.

Managed net investment income rose, 29% and finally, we continue to expect full year 2023, EPS in the range of $1 20 to $1 45.

More significantly we continue to expect our progress towards our objectives, we will accelerate over the coming quarters as we remain focused on providing strong returns to shareholders.

And with that I'll turn it back to Heather.

Thank you operator, we're ready for 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 youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

At this time, we'll pause momentarily to assemble a roster.

Our first question comes from John Barnidge from Piper Sandler. Please go ahead.

Good morning, and thank you for the opportunity.

Can you talk about the diversification benefit of beating your Insureds.

And of all the insurance products in the suite.

And how that presents a growth opportunity now that the educator has kind of a truly returned to normal.

Worksite and supplemental group was really strong distribution in the quarter. Thank you.

Yeah, Thanks, John and we spent a fair amount of time on this in the script because I think it's absolutely the right question and the way, we think about the world and we've said it before we want educators to start their journey with us anyway. They choose.

We also know at some point, they're either going to want or need the advice of a trusted advisor at the point of sale. So when we looked at this a while back we talked about products that were relevant to those educators strengthening our distribution modernizing our infrastructure and we've been on.

You know our quest to do exactly that so today, we have more ways for educators to start their journey with us we have broadened our product portfolio and we broadened the solutions and the reason to have conversations with these educators and the diversification benefit that you've mentioned.

And I think it's clear in this quarter from an earnings perspective, the whole industry is dealing with the current P&C environment.

Right that is coming into the auto line is certainly helping there you saw the inflection point this quarter for us it's just one quarter.

But that is a very good sign for us and the industry and we're all dealing with outsized cats in the third quarter, but you saw the diversification benefit of the other lines of business clearly come through for us in the quarter, while we're addressing with the rest of the industry. The P&C issues that are facing us so I feel really good.

About how we thought about growth how we thought about finding addition, additional educators to start their journey with Horace Mann and you see that with the increased household count them in our core segment and Steve I'm going to turn it over to Steve and have him talk a little bit about how we're thinking about.

The next phases of growth as we think about our growth agenda going forward Steve.

Great. Thanks, Marita and John Thanks for the.

The question I think I want to give a little context before kind of talking about the future and I'll just sort of spend a second talking about today and I think Marita said in her opening comments our approach today for growth is really around keeping the engines warm.

As we restore P&C profitability so to me that means.

Emphasizing cross sell we're equipping agents with resources to navigate the rate environment, helping them focus on life retirement.

For me as I looked at things haven't been here a few months. Our agency force is very healthy and thats evidenced by the strong new business results that Bret spoke to.

Which are solid.

But disciplined meaning we are kind of adhering to the underwriting. So I think we've adopted approach today.

Positioning our agency force well keeping them healthy so we can accelerate growth when the time is right I E. When profit is where we want it to be if I pivot and NGO from today to tomorrow.

Just a little bit of context too.

To sort of give you a sense for how we're thinking about things we know that consumers are using multiple channels during their shopping journey and so generally speaking what that means is most consumers want to use digital for shopping quoting but when they actually want to buy the policy they want to do that with a person and so that's good context.

For what we're doing and what our agenda is for growth as we go forward and what we're doing is trying to build out three things first.

As lead generation for me what that means is it's using digital non digital forms of marketing to drive educators, Horace Mann really kind of turning us into our lead factory and obviously any tactics, we use would be complemented with what agents are already do the second thing is you can drive leads to you we have to make sure you received on the cap.

From appropriately so for us what that really means is we need to enhance our digital quoting capabilities. So drive the leads and be able to quote them and then third is really converting leads.

And I kind of signaled this earlier.

We know that a large fraction of people begin their journey online, but they want it and it offline. So what that means is we have to have really strong analytics and process to ensure that we get online quotes that are completed to the right agents at the right time to convert the sale. So those are the three things we're thinking about lead gen.

Lead capture lead conversion, we think that that complements our agency channel.

I'll, just sort of wrap by saying, we really believe that as we go forward integrating our channels digital call Center agents.

Working together aligning them with what consumers behavior consumer behaviors are really be win win for everyone that would be a win for educators, because they can access us when and where they want it will be a win for agents because they will get online leaves and therefore grow the book and obviously it will be a win for Horace Mann, because we've been sustained profitable volume. So hopefully that gives you a sense.

For how we're thinking about it and again thanks for the question.

Yeah. Thanks, Thanks, Steve that was great. We're all excited about the capabilities that we're building in this area I'm going to turn it over to Matt. So that he can comment on supplemental and group benefits growth and some pretty strong numbers that we're seeing come through that segment math.

Thanks, Brandon Thanks for the question John.

Mary mentioned in her comments that educators choose to start their journey with horseman and a variety of ways and one of those ways is through the worksite.

Benefits packages that their employers offer the.

The addition of the work site acquisitions that we've made over the past few years gives us the ability to address the needs of those consumers through their worksite, whether theyre coming at it.

Individual basis through our direct business on our supplemental products or theyre coming at coming at it through the employer the employee benefits package that their employer offers.

Through the independent benefit consultants that work with the districts and we've seen a lot of growth on both sides of the house.

And in that regard our direct business continues to grow back to the pre pandemic and beyond level. We continue to have great momentum going on the individual side, both in our educator segment and in our other to serve the community segment, particularly in the firefighters as Marita mentioned in the script.

And then our benefit distribution partners also have done a tremendous job of expanding our reach in the employer benefit package side either through the employer paid long term disability short term disability book or by adding in the group supplemental products onto the platform.

Their customers and the employers that they serve alongside what we do.

Yeah. Thanks, Matt you know historically, we would always talk about weather educators started their journey through the garage or through a four O <unk> enrollment and now we have so many more ways to engage with them and for them to start their relationship with us and it's also exciting to see how solid the retirement.

That book continues to do so it's not like we're walking away from the way we used to start we just have more ways for educators to reach us and that's that's converting into an increase in overall overall households for us. So thanks for the question John and I apologize for the long answer, but we think it's the right way to think about it.

Appreciate the answer I was.

Helpful. In the script you talked about new.

New business growth greatest in states, where you have the greatest confidence in price adequacy.

Can you maybe give some examples of states.

Where that is the true.

That is the case and then inversely.

Some states, where the greatest price adequacy as needed I appreciate that yeah. Yeah. Thanks, Thanks, John I can turn it over to Mark.

And in a minute, but you can imagine when you are in almost all the states as we are it is a it's a lot of work to look at your rate adequacy by state.

We have a excellent actuarial team that does this work work on a daily weekly monthly maybe even hourly basis and we have a strong drill as it relates to the rate that we need and the product restrictions. Unfortunately that we may have to put in place.

And I think you said it well we do this on a on a state by state basis, but I'll turn it over tomorrow to provide a little specificity there.

Sure. Thanks Maria.

Thanks, Sean for the question, Yeah, I think when we look at our current.

In current environment and what we are looking at from loss cost moving forward in our rate need that.

By the time, we get to the early mid part of next year, we have a view that most of our states are going to be rate adequate at that point in time and so when we talk about are we comfortable writing business because we had that line of sight towards rate adequacy. It doesn't necessarily mean today, but as we look at that.

We believe we can get you know over the next quarter or two or do we do we get ourselves in line and I think when we look at that time horizon that in most places we're going to get there you know a couple of places that remain concerns for us might be like a Georgia, where there's some regulatory limitations on how much.

We might be able to get at once and then always you know California's in the back of our mind in terms of where.

Well, we will we get rate adequate there given some of the challenges.

With the regulatory environment, what I would what I would say is.

In California, specifically you know as you know we have an outstanding property filing that we had.

In June and in auto filing in.

In late July bulk in the 20% to 25% range and we've had extremely.

Constructive discussions with the department.

<unk> filing was in first then we actually think we're within the next several weeks at a point of reaching resolution with that and that we're hopeful.

Soon after that that we'll be able to work through the auto filing so if we can.

It makes it headway. There then I think as we get to the.

Earlier middle part of next year, we're going to feel pretty good about our already adequacy and our.

Our ability to write new business.

Yeah. Thanks, Mark you know Mark mentioned in a meeting recently that he and Steven I had I wont say the number but many years I'm doing this in a in the P&C space and I would dare say that this is probably the most dynamic.

Environment that we've seen and I think that requires good actuarial science, but it also requires flexibility. So when we talk about our rate plans for 2024 and how much. We think we will push it is based on current data and we have to remain flexible in that.

And all I know is looking at is all the time if rate trends continue to mitigate and maybe you take less if they get worse than certainly you take more I think we have the added flexibility of our third party strategy. We've also talked about this not being as robust in a harder market.

But we certainly have a stable of really good third party partner carriers when in a specific state potentially because of scale or in a particular environment or circumstance. We've got good third party carriers that we can use and still maintain that PNC relationships with our educator envy.

We use those.

You know in a in a dynamic way. So appreciate the question.

Thank you.

Our next question comes from Meyer Shields from K B W. Please go ahead.

Great. Thanks, Fred I guess two related questions.

Both in terms of recruitment I was hoping to get an update first of all on.

What trends Youre seeing in terms of just new teachers entering the workforce and your success in recruiting.

Agents to Horace Mann.

Yeah. Thanks for the question we've talked about this before I think the teacher shortage that is clear across the country is really not good for the education system, but in an odd way, it's good for Horace Mann, meaning we don't necessarily kick.

They are retired or previous teachers out of the club the attributes that they have as to why they chose the profession tend to carry through but.

But we also have the ability to attract those new teachers, when we think about new teacher seminars when we T. T chip think about teaching retirement and state retirement programs in the schools, what our agents do for new teachers entering the system. It gives us more opportunity to get access to.

More educators as it relates to agent recruiting and we said this I believe on the last call. It is not the one before our recruiting numbers post pandemic are actually stronger than they were even prior to the pandemic, we feel good about our ability not only to attract.

Agents, who become full blown exclusive agents, but our ability to attract license producers and expand the size.

And strength of the agents that we already have so on the recruiting front and I believe that it was very difficult during.

The pandemic, let's face it you know we're in the work site and when you can't be in the Worksite, that's a little more difficult to do sales. The way you would normally do sales, but with everything we learned during the pandemic and our ability now to attract agents to this value proposition, we feel we feel good about where that stands.

And that has come into that certainly helped us well into growth numbers.

Right, Yeah, that's what I wanted to understand because I guess I naively thought that.

In states, where pricing is and where you need it to be you would hold off but I guess the diversification of product, but you don't need to do that.

Yeah, that's exactly right I mean, what we start with them and how we engage with these educators. If you think about it we can tailor it by state and by geography, right, what our agents do what they lead with where they spend their time, having a captive exclusive agent system gives us a little more.

Roll over where our agents emphasize their time and that's really done on a state by state basis, and that's very helpful. For US Matt mentioned the cross sell we certainly see that so where we put agents, where we hire agents if you've got a particularly difficult geography, you might not.

Obviously be recruiting in that geography.

So having more ways more products more solutions.

Two to address and have conversations with these educators, we can really do on a on a geography by geography and agent recruitment to give you a number is up 50% year over year.

And we would expect that considering the environment. We were you know that we were in and feel good about the future there as well.

Okay. That's very helpful. Thank you.

Question just in terms of how we look at it and I'm thinking more P. M C.

The level of.

Discretionary spend or like the expense ratio because I'm thinking it's not like you're doing a ton of advertising that you are pulling back but there is more offsets from goodness to other carriers.

Should we think about how much of that.

Should move like how much the expense ratio, which was really good in the quarter rises when we get back to normal.

Yeah, Matt This is Brent I I actually as usual I wouldn't get overly excited with one quarter Youre right. It you know I think it was below 26% and 25.8 just for the stand alone quarter, but if you look at the expense ratio.

On a year to date basis for the for the nine months, you know, where we're basically hovering right around 27%, which which is typically around the area. We would guide to the 27 to 27, 5%. So I wouldn't I don't think our philosophy with expenses is really going to change I think we're a good.

Steward of what we spend and I would say probably in the last two to three years, specifically I think we're doing a very good job of balancing kind of the run the railroad expenses and at the same time focusing on the strategic initiatives that we've set out that in the current environment R. R.

Focused on growth, where it's profitable as we've talked about early today. So you know it's not the first quarter, where expenses can go down a little bit or we have you know borders.

Orders, where they may be higher than the typical 27% and 27 and a half a percent expense ratio, but I don't think you need to think about the expenses going forward any differently other than the fact that we're going to continue to balance between what we need to run run the ship if you will and then I'll.

Also being focused on our.

Strategic growth initiatives, Yeah, Brett that's really well said, what we spend.

Hasn't really changed as Brett said, we remain consistent and disciplined on the expense ratio that we have talked about I am pretty consistently how we spend it has changed a lot. We funded for at least two major acquisitions that brought us the diversification that they were.

Were intended to and have a lot of excitement about what they will become over time, especially as it relates to cross sell and educator data and info and you know we are also funding for systems modernization Guidewire implementation in life Pro implementation isn't.

Inexpensive, but we're doing these things while remaining consistent in what we spend so Steve mentioned some of the digital capabilities. We talk about what we do on our website, how we engage with customers in our contact center. These are investments that are underway, but yet we made.

A commitment that we would do it.

In a very consistent way as far as what we spend so I think Brett right the wet stays consistent to how it changes.

Based on the strategic initiatives, we have in front of us and a track record.

Of doing it without blowing the budget if you will.

Perfect. Thank you so much it really helps.

Thank you Max.

The next question comes from Greg Peters from Raymond James. Please go ahead.

Hey, Good morning, this is Sid on for Greg.

In the prepared comments, you mentioned vehicle repair and replacement costs have moderated them can you just comment on what Youre seeing is driving the moderation there and if you're seeing any easing of pressures in other areas like bodily injury.

Yeah, I can turn that over to Mark I know that he has answered. This question for all of US. So we'll let him answer it for you Mark.

Sure Yeah, I think when we look at vehicle repair costs, we're seeing it primarily in parts and the fact that used car index is.

The pricing is coming down so we're the cost of total losses is coming down offsetting that a little bit is continued.

Pressure on labor cost and the time to repair.

In terms of the cycle time. So you know, we're spending more money on rental vehicles and things like that but overall, we've definitely seen a moderation from mid.

Mid to high.

Double digit.

Severity trends down into the you know mid to low I'm, sorry mid to high single digit.

On the injury side, what I would say is it's still a stubbornly high maybe moderated slightly from where we were.

A year ago in terms of injury severity, but I think we are still seeing some of the impacts of those.

So inflation as you know all the court systems are kind of fully open and operational now. So we are seeing some impact there so definitely.

No remaining a little bit higher on the injury side, but that of some optimistic viewpoint on the physical damage side.

Yeah, Thanks, Mark and it may be obvious, but all those things are obviously contemplated in marks rate filings filings.

Alright, thanks for the answer.

Thank you.

This concludes our question and answer session I would like to turn the conference back over to Heather Watson for any closing remarks.

Thank you and thank you everyone for joining us today I know, it's a busy time. So if you step back next week and want to talk further feel free to reach out range for conversations they didn't want to let everyone know we will be doing meetings with both JMP and paper over the coming weeks. So that's another opportunity to have a chance for an extended conversation so have a great day.

Conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

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