Q3 2023 Kemper Corp Earnings Call

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Speaker 1: Good afternoon, ladies and gentlemen, and welcome to Camper's third quarter, 2020 Earnings Conference School. My name is Lesser, and I will be your coordinator today. At this time,

Good afternoon, ladies and gentlemen, and welcome to campus third quarter 2020 earnings Conference call.

My name is lesser and I will be your coordinator today.

At this time, all participants are in listen only mode.

Later, we will conduct a question and answer session and instructions will follow at that time.

Speaker 1: Later we will conduct a question and answer session and instructions will follow at that time.

As a reminder, this conference is being recorded for replay purposes.

Speaker 1: As a reminder, this conference is being recorded for replay purposes.

I would now like to introduce your host for today's conference call cabin get off.

Speaker 1: I would now like to introduce your host for today's conference call, Kevin Guerra, campus vice president for investor relations.

Kemper's Vice President for Investor Relations.

Mr. <unk> you may begin.

Speaker 2: Thank you, operator. Good afternoon, everyone, and welcome to Tempor's discussion of our third quarter, 2023 results. This afternoon, no hear from Joe Locker, Compr's president, Chief Executive Officer, and Chairman Brad Candon, Compr's Senior Vice President, and Interim Chief Financial Officer, and Matt Hunton, Compr's Executive Vice President, and President of Compr Audible.

Thank you operator, good afternoon, everyone and welcome to Kemper's discussion of our third quarter 2023 herself.

Afternoon, you'll hear from Joe Lacher, Kemper's, President and Chief Executive Officer, and Chairman, Brad Camden, Kemper's, Senior Vice President and interim Chief Financial Officer, and Matt Hunton, Kemper's Executive Vice President and President of Kemper Auto will.

Speaker 2: We'll make a few opening remarks to provide context around our third quarter results, followed by a Q&A session. During the interactive portion of our call, our presenters will be joined by Duane Sanders, Kemper's Executive Vice President and President of the PNC Division, John Buscelli, Kemper's Executive Vice President and Chief Investment Officer, and Chris Flint, Kemper's Executive Vice President and President of Kemper Life.

We will make a few opening remarks to provide context around our third quarter results followed by Q&A session. During the interactive 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, and Christopher Lynch Kemper's executive.

The Vice President and President of Kemper life.

Speaker 2: After the market's close today, we issued our earnings release and published our earnings presentation financial supplements and Form 10Q. You can find these documents in the investor section of our website, temper.com. Our discussion today may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Security Sligation Reform Act of 1995. These statements include but are not limited to the company's outlook and its future results of operations in financial conditions.

After the market's close today, we issued our earnings release and published our earnings presentation financial supplement and Form 10-Q, you can find these documents in the investors section of our website <unk> 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 95.

These statements include but are not limited to the company's outlook and its future results of operations and financial condition.

Speaker 2: Our actual future results in financial condition may differ materially from these statements. For information on additional risks that may impact these forward-looking statements, please refer to our 2022 Form 10 case and our third quarter earnings.

Our actual future results and financial condition may differ materially from these statements for information on additional risks that may impact. These forward looking statements. Please refer to our 2022 Form 10-K, and our third quarter earnings release.

Speaker 2: This afternoon's discussion also includes non-GAAP financial measures we believe are meaningful to investors. In our financial supplement earnings presentation and earnings release, we define and reconcile all non-GAAP financial measures to gaps where required in accordance with the SEC rules. You can find each of these documents in the investor section of our website, temper.com. All comparative references will be to the corresponding 2022 period and less otherwise stated. I will now turn the call over to Joe.

This afternoon's discussion 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 in the investors section of our website <unk> Dot com.

All comparative references will be to the corresponding 'twenty to 'twenty two period, unless otherwise stated I will now turn the call over to Joe.

Speaker 1: Thank you, Karen. Good afternoon and thank you everybody for joining us today. We're going to communicate several key points today, perhaps best grouped into four buckets. First is the favorable trend.

Thank you Karen good afternoon, and thank you everybody for joining us today.

Morning communicated several key points today, perhaps desk grouped into four buckets.

First is the favorable trend in our underlying results our underlying combined ratio improved sequentially and was inside the range of our prior guidance.

Speaker 3: our underlying combined ratio improves sequentially and within side the range of our prior guidance.

Speaker 3: Second is what's happening outside the current year underlying results, including additional prior year reserve development.

Second is what's happening outside the current your underlying results, including additional prior year Reserve development.

Speaker 3: Third is the strong progress made on our strategic initiatives, which together reduce our long-term risk, improve our capital and liquidity, and enhance our ability to generate stable long-term, distributed cash flow and earnings. And lastly, we are reaffirming our full year 2024 guidance.

Third is the strong progress made on our strategic initiatives, which together reduced our long term risk improve our capital and liquidity and enhance our ability to generate stable long term distributable cash flow and earnings and lastly, we are reaffirming our full year 2020 for guidance.

Let's move to page four.

Speaker 3: Looking at results, we're pleased with the 1.5 point sequential improvement in the specialty P&C underlying combined ratio as the benefits from our profit improvement actions take further hold. We have confidence and further.

Looking at results, we're pleased with the one five point sequential improvement in our specialty P&C underlying combined ratio as the benefits from our profit improvement actions take further hold.

We have confidence in further improvements as we look forward.

Speaker 3: As expected, a 30-point California personal auto rate increase, effective in August , had only a marginal earned impact in the third quarter. Its earned impact will meaningfully increase in each of the next two quarters.

As expected 30 point, California personal auto rate increase effective in August had only a marginal earned impact in the third quarter.

It's earned impact will meaningfully increase in each of the next two quarters.

Speaker 3: This incremental earn rate along with the additional benefits from all our other profit improvement actions provide the significant tailwind for loss ratio improvement in the fourth quarter and more so for full year 2024. Moving to our second big topic.

This incremental earned rate along with the additional benefits from all our other profit improvement actions provide a significant tailwind for loss ratio improvement in the fourth quarter and more so for full year 2024.

Moving to our second big topic what.

What's happening outside of the current year's underlying results.

Speaker 3: Prior year reserve development was largely driven by recent trends in Florida personal injury protection or PIF, which has been an industry issue in recent quarters. And to a lesser extent, the extension of the bodily injury and property damage development patterns from 2022. We'll discuss the driver's further when we get to slides.

Prior year Reserve development was largely driven by recent trends in Florida personal injury protection or Pip.

Which has been an industry issue in recent quarters and to a lesser extent the extension of our bodily injury and property damage development patterns from 2022.

We will discuss the drivers further when we get to slide six.

Speaker 3: Reflecting on our third major topic, we continue to make strong progress on our strategic initiatives.

Reflecting on our third major topic, we continue to make strong progress on our strategic initiatives.

Speaker 3: All our programs are on track to be completed on time and produce or exceed their targeted financial and operational benefits.

All our programs are on track to be completed on time and produce are exceeding or exceed their targeted financial and operational benefits let.

Let me comment on a few highlights.

Speaker 3: We're very pleased that our reciprocal exchange has received all necessary approvals and was actively writing business during the quarter, albeit at expectedly modest premium levels. The exit from the preferred home and auto-

We're very pleased that our reciprocal exchange has received all necessary approvals and was actively writing business during the quarter, albeit it expectedly modest premium levels.

The exit from the preferred home and auto business is moving as expected.

Speaker 3: This action will enhance our return on capital and support profitable growth in our core business.

This action will enhance our return on capital and support profitable growth in our core businesses.

We expect to realize significant additional liquidity benefits in the fourth quarter from the Bermuda optimization.

Speaker 3: We expect to realize significant additional liquidity benefits in the fourth quarter from the Bermuda optimization. And finally, we're meeting or exceeding the expected expense savings with each of our cost structure in it.

And finally, we're meeting or exceeding the expected expense savings with each of our cost structure initiatives.

Speaker 3: Advancing these initiatives further enhances Kenpers operating capabilities and financial growth.

Advancing these initiatives further enhances kemper's operating capabilities and financial profile, we remain highly focused on returning the business to profitability and maximizing long term shareholder value.

Speaker 3: We remain highly focused on returning the business to profitability and maximizing long-term shareholder value. We are very focused on returning the business to profitability and maximizing long-term shareholder value.

This leads me to our last topic.

Speaker 3: We are reaffirming our 2024 financial guidance. We continue to expect a 2024 ROE equal to or greater than 10.

We are reaffirming our 2024 financial guidance, we continue to expect a 2024 roe equal to or greater than 10%.

Speaker 3: I've spoken frequently about this environment being the most dynamic and volatile, the personal auto insurance industry has ever seen.

I have spoken frequently about this environment being the most dynamic and volatile the personal auto insurance industry has ever seen I still believe that.

Speaker 3: While we believe this will persist for at least a year or two, we continue to be optimistic about what's ahead for templates.

While we believe this will persist for at least a year or two we continue to be optimistic about what's ahead for Ken.

And now I'll turn the call over to Brad.

Speaker 3: Thank you, Joe. I'll begin on page 5. As Joe highlighted, we had another quarter of improved underlying results, positioning us for return to profitability.

Thank you Joe I'll begin on page five.

Highlighted we had another quarter of improved underlying results positioning us for a return to profitability.

Speaker 3: Offsetting this progress is prior development, pension settlement, and catastrophes.

Offsetting this progress is prior year development pension settlement and catastrophes for.

Speaker 3: For the quarter we had a net loss of $2.28 per unit to share an adjusted consolidated net operating loss is 44 cents. The net loss included a non-cash charge of 56 million related to the term nation of our remaining pension obligations, which was previously recognized and accumulated other comprehensive income or AOCI. The net loss and adjusted consolidated net operating loss included specialty auto adverse development of 78 million catastrophes of 7 million.

For the quarter, we had a net loss of $2 28 per diluted share and adjusted consolidated net operating loss of <unk> 44.

The net loss included a noncash charge of 56 million related to the termination of our remaining pension obligations, which was previously recognized in accumulated other comprehensive income or OCI.

The net loss and adjusted consolidated net operating loss included specialty auto adverse development of $78 million and catastrophes of $7 million.

Speaker 3: Last quarter, we announced that we were exiting the preferred PNC business and, as a result, the business has now reported below the line in non-core operation.

Last quarter, we announced that we were exiting the preferred P&C business and as a result, the business is now reported below the line and noncore operations.

Speaker 3: The business generated net loss of $7 million, including approximately $14 million in pre-tax catastrophe losses. Turning to the prior-

The business generated a net loss of $7 million, including approximately $14 million pre tax catastrophe losses.

Turning to the prior year Reserve development details on page six, Florida, Pip bodily injury and property damage coverages drove reserve strengthening.

Speaker 3: sort of pip, bodily injury, and property damage coverages drove reserve strengthening.

Speaker 3: PEP-reserved changes resulted from increased frequency and severity of litigated claim activity, mainly from policy periods 2020 through 2022. Today, roughly three quarters of PEP claims have attorney representation up from two thirds a few years ago.

Pep reserve changes resulted from increased frequency and severity of litigated claim activity mainly from policy periods 2020 to 2022.

Today, roughly three quarters of Pip claims have attorney representation from two thirds, a few years ago we.

Speaker 3: We anticipate attorney representation for these policy periods will remain elevated and have reflected this in our reserve.

We anticipate an attorney representation for these policy periods will remain elevated and have reflected this in our reserving.

And bodily injury and property damage related claims we continue to see extended claim reporting time lines and more claims closing with payment.

Speaker 3: On bodily injury and property damage related claims, we continue to see extended claim reporting timelines and more claims closing with payment. This was mainly related to activity during a second half of 2022.

This was mainly related to activity during the second half of 2022.

Speaker 3: As Joe noted, the environment continues to be volatile. However, given the short-tailed nature of our business, we are confident we have appropriately recognized these emerging trends and prior and current year reserves.

As Joe noted the environment continues to be volatile.

However, given the short tail nature of our business. We are confident we have appropriately recognize these emerging trends and prior and current year reserves.

Speaker 3: 8-789, providing up to 800 on our strategic initiative.

Pages, seven eight and nine provide an update on our strategic initiatives.

Speaker 3: These are on track to be completed on time, producing or exceeding their targeted financial and operational benefits.

These are on track to be completed on time, producing or exceeding our targeted financial and operational benefits.

Speaker 3: As you know, we launched the Bermuda Project in 2022 and we continue to optimize the initiative.

As you know we launched the Bermuda project in 2022, and we continue to optimize the initiative.

Speaker 3: We expect $250 million in life dividends to be paid to the parent in the fourth quarter from $200 million as previously indicated. This continues to create value in financial

We expect $250 million in life dividends to be paid to the parent in the fourth quarter up from 200 million as previously indicated.

This continues to create value and financial flexibility for the company.

Speaker 3: This quarter, we also concluded our multi-year pension termination project, which reduced our tail risk and related expenses.

This quarter. We also include our multiyear pension termination project, which reduced our tail risks and related expenses.

We recognized 56 million noncash charge to finalize the termination which was previously recognized in OCI and is therefore neutral to shareholders' equity.

Speaker 3: We recognize a 56 million non-cash charge to finalize the termination, which is previously recognized in AOCI, and is therefore neutral to share older's equity. Last quarter.

Last quarter, we announced our exit from the preferred P&C business. The wind down process is underway and is expected to release approximately $175 million of capital by the end of 2024 and another $100 million in 2025.

Speaker 3: The wind down process is underway and is expected to release approximately 175 million of capital by the end of 2024 and another 100 million in 2025.

Next our cost reduction initiatives are on track to produce their intended benefits.

Speaker 3: Next, our cost reduction initiatives are on track to produce their intended benefits.

Speaker 3: Since the onset of this effort, we have already achieved over 135 million of run rate savings, which is roughly 90% of our goal previously projected to be realized by 2025.

Since the onset of this effort, we have already achieved over $135 million run rate savings, which is roughly 90% of our gold previously projected to be realized by 2025.

And finally on page nine.

Speaker 3: The camper reciprocal exchange with established and began writing policies in Illinois in the third quarter. Over the next year, we plan to populate the exchange by re-entering select new business from camper legal entities and directly writing premium in the exchange.

The Kemper reciprocal exchange was established and began writing policies in Illinois in the third quarter.

Over the next year, we plan to populate the exchange by reinsurance select new business from capital legal entities and directly writing premium any exchange.

Speaker 3: Growth is expected to ramp up as we receive approval to expand into new states.

Growth is expected to ramp up as we receive approval to expand into new states.

Speaker 3: We plan to host a special topic call during the first quarter of 2024 to disclose a reciprocal structural and financial reporting.

We plan to host a special topic call during the first quarter of 2024 to disclose the reciprocal structural and financial reporting.

Moving to page 10.

Speaker 3: Moving to page 10, our insurance companies are well capitalized and have significant resources of...

Our insurance companies are well capitalized and have significant resources of liquidity at.

Speaker 3: At the end of the quarter, we had $820 million of liquidity consisting of revolver capacity, intercompany lending capacity, and holding company cash and investment.

At the end of the quarter, we had $820 million of liquidity consisting of revolver capacity intercompany lending capacity and holding company cash and investments we.

We expect parent liquidity to be bolstered by at least $250 million in the fourth quarter from our Bermuda optimization.

Speaker 3: We expect parent liquidity to be bolstered by at least $250 million in the fourth quarter from our Bermuda optimization.

Speaker 3: Our healthy liquidity balance enables us to support our operating subsidiaries and pay holding company dividends and interest payments.

Our healthy liquidity balance enables us to support our operating subsidiaries and pay holding company dividends and interest payments. We continue to have the capital and liquidity needed to navigate this ongoing dynamic operating environment.

Speaker 3: We continue to have the capital and liquidity needed to navigate this ongoing dynamic operating environment.

Moving to page 11.

Speaker 3: Net investment income for the quarter was $107 million, and our pre-tax equivalent annualized book yield is 4.6%.

Net investment income for the quarter was $107 million and a pretax equivalent annualized book yield is four 6%.

Speaker 3: Lastly, our approach to asset liability management continues to produce the intended results in a rising interest rate environment.

Lastly, our approach to asset liability management continues to produce the intended results and a rising interest rate environment.

Speaker 3: I will now turn the call over to Matt to discuss the specialty PNC business. Thank you, Brad. Good afternoon, everyone.

I will now turn the call over to Matt to discuss the specialty P&C business.

You, Brad and good afternoon, everyone.

Moving to page 12 in our specialty P&C business.

Speaker 4: We closed the third quarter with an underlying combined ratio improvement of 1.5 points sequentially and 6.3 points year over year. This was a result of incremental earned rate and ongoing underwriting actions, including new business restrictions, which was partially offset by severity and seasonality. And while loss trends remain elevated, they have stabilized.

We closed the third quarter with an underlying combined ratio improvement of one five points sequentially and six three points year over year. This was a result of incremental earned rate and ongoing underwriting actions, including new business restriction, which was partially offset by severity and seasonality.

And while loss trends remain elevated they have stabilized.

Earned rate increases forecast.

And we expect it to accelerate in the fourth quarter and in 2024 due in part to the 30 points of California rate effective in August of this year.

Speaker 4: we expect it to accelerate in the fourth quarter and in 2024, due in part to the 30 points of California rate effective in August of this year.

Speaker 4: We anticipate the cumulative benefit of our profit actions to continue to exceed loss trend. We are observing hard.

We anticipate the cumulative benefit of our profit actions to continue to exceed loss trends.

We are observing hard market conditions, especially in California.

Speaker 4: As we renewed policies at higher rates, persistency remained in line with prior periods, creating favorable premiums.

As we renewed policies at higher rates persistency remained in line with prior period, creating favorable premium retention.

Speaker 4: This quarter, we filed an additional six points of rate on 13% of the book. Going forward, we will make rate and segmentation filings across the business as needed.

This quarter, we filed an additional six points of rate.

13% of the book going forward, we will make rate and segmentation filings across the business as needed.

This quarter specialty P&C observed a moderate level of catastrophe losses, driven by tropical storms and wind hail events.

Speaker 4: This quarter specialty PNC observed a moderate level of catastrophe losses driven by tropical storms and wind hail events.

Speaker 4: Our commercial vehicle underwriting and rate actions are continuing to positively impact loss performance.

Our commercial vehicle underwriting and rate actions are continuing to positively impact loss performance.

Speaker 4: In the third quarter, the underlying combined ratio was 93.6%, and we project continued profitability as pricing remains strong.

In the third quarter, the underlying combined ratio was 93, 6% and we project continued profitability as pricing remains strong.

As mentioned on our second quarter call. We are planning to selectively write a modest amount of incremental new business to test new customer cohort buying and claim behavior.

Speaker 4: As mentioned on the second quarter call, we are planning to selectively write a modest amount of incremental new business to test new customer cohort buying and claim behavior.

Moving to page 13, we remain hyper focused on achieving targeted returns as cumulative actions, we will continue to outpace loss trend.

Speaker 4: Moving to page 13, we remain hyper-focused on achieving target returns as cumulative actions will continue to outpace lost trends.

Speaker 4: In addition, enhanced tools and analytics will enable a thoughtful balancing of underwriting profitability and new business writing.

In addition, enhanced tools and analytics will enable a thoughtful balancing of underwriting profitability and new business writings. Finally, despite the ongoing dynamic environment, we anticipate achieving target profitability in 2024.

Speaker 4: Finally, despite the ongoing dynamic environment, we anticipate achieving target profitability in 2024. I will now turn the call over to.

I will now turn the call over to Joe to cover the life business.

Thank you Matt turning.

Speaker 5: Thank you, Matt. Turning to page 14. Net operating income for our life business was $15 million for the third quarter. Profitability improved over the prior year quarter and sequential quarter. Consumer demand for our products is strong. Life issue policies were up slightly and persistency remains stable.

Turning to page 14, net operating income for our life business was $15 million for the third quarter profitability improved over the prior year quarter and sequential quarter.

Tumor demand for our products is strong with life issued policies were up slightly and persistency remains stable.

Speaker 5: the life business continues to generate strong returns on capital and distributable cash flow.

The life business continues to generate strong returns on capital and distributable cash flow.

Turning to page 15.

Speaker 5: To reiterate our highlights for the quarter, one, we made solid progress on improving underlying combined and loss ratio.

To reiterate our highlights for the quarter.

One we made solid progress on improving underlying combined and loss ratios, the California rate change for specialty auto on an increasing impact over the next two quarters reinforcing our confidence in returning to target margins.

Speaker 5: California rate change for specialty auto while an increasing impact over the next two quarters reinforcing our confidence in returning to target marks.

Speaker 5: Two, our strategic initiatives are on schedule and expected to meet or exceed all financial targets. And three, we are reaffirming our 2024 financial guidance of delivering an ROE of 10% or greater.

To our strategic initiatives are on schedule and expected to meet or exceed all financial targets and three we are reaffirming our 2024 financial guidance of delivering an roe of 10% or greater.

In closing I'd like to thank our entire Kemper team for their ongoing dedication and commitment to executing on our strategic priorities to generate consistent long term shareholder value.

Operator, I'll turn it over to you for questions.

Thank you ladies and gentlemen, we will now begin the question and answer session.

Should you have any questions. Please press star followed by the number one on your phone.

On your phone.

Speaker 1: Should you wish to cancel your request, please press star followed by the number.

Should you wish to cancel your request. Please press star followed by the number too.

Speaker 1: If you're using a speakerphone, please lift the handset before pressing any keys. One moment for your first question.

If you are using a speaker phone please lift the handset before pressing entities one moment for your question.

Your first question comes from.

Speaker 1: Greg Peters from Raymond James, your line is now open.

Greg Peters from Raymond James Your line is now open.

Speaker 6: Good afternoon, everyone. I guess I'll start.

Good afternoon, everyone.

I guess I'll.

I'll start.

Speaker 6: I have a couple of questions and I'll start first with the top line and the policy count in your specialty book.

I have a couple of questions and I'll start first with <unk>.

The top line in the policy count in.

Your specialty book.

Declining substantially on a year over year basis and sequentially.

Speaker 6: declining, so, fatally, on a year-over-year basis, and sequentially.

Speaker 6: Can you talk about how, as you deploy the rate increases, how your rate might be competitively disadvantaged or

Can you talk about how as you deploy the rate increases how your rate might be competitively disadvantaged or.

Speaker 6: or other factors that might be contributing to the drop off from policy count and written.

Or other factors that might be contributing to the drop off in policy count and written premium.

Speaker 5: Sure, Greg. This is Joe. I'll take a start at it. And Matt, you can jump in with more thoughts. This is largely driven, Greg, by our reduction in new business or our constraint on new business policies.

Sure. Greg This is Joe I'll take a start at it and Matt you can jump in.

With more thoughts.

This is largely driven Greg by a reduction in new business or are constrained on new business policies.

Speaker 5: Our our retention rates are consistent and or even up slightly from where they were pre pandemic levels. So, so this is is driven by the new business curtailment we will we will likely restart and start to reintegrate some of that new business is Matt mentioned in the fourth quarter and into the first will start.

Our our retention rates are consistent or even up slightly from where they were.

Pre pandemic levels.

So this is driven by the new business curtailment, we will we will likely restart.

Start to reintegrate some of that new business as Matt mentioned in the fourth quarter and into the first.

We will start.

Speaker 5: slowly, and test the system, if you will, and let another quarter of rate earn in and watch the underlying loss ratios improve. But this is largely driven with what we're seeing on our new business underwriting criteria constraining business, rather than what we're seeing as a competitive problem that's driving lapse rates up.

Slowly.

And test the system, if you will.

And let another quarter of rate earn in and watch the underlying loss ratios improve but this is largely driven.

With what we're seeing on our new business underwriting criteria constraining business, rather than what we're seeing is us.

A competitive problem, that's driving lapse rates up.

Okay.

Okay.

Just a quick add on to that.

As you know non standard specialty customers churn at a bit of a higher rate so naturally as you.

Speaker 4: specialty customers churn at a bit of a

Speaker 4: You don't put on new business, you're going to see policies

You don't put on new business Youre going to see policies enforce leak a little bit more just a quick comment on the rate and it's sticky stickiness, we are seeing policy persistency actually slightly elevated versus prior periods. So our renewal book as it's converting at higher written and earned rate levels is sticking at a higher rate, but as.

Speaker 4: sticky stickiness we are seeing you know policy persistence the actually slightly elevated versus prior periods or renewal book as it's converting at higher written and earned rate levels is sticking out a higher rate

Speaker 4: But as Joe mentioned, the drawdown in policies enforced is really a function of.

Joe mentioned the drawdown in policies enforced is really a function of the lack of new business that we have coming in at this point and we'll we'll balance that as we move forward over the next couple of months.

Speaker 4: you know, the lack of new business that we have coming in at this point, and we'll balance that as we move forward over the next couple months.

Okay.

Speaker 6: Okay, thanks for providing that color. Just on, you did mention in your answer and your prepared remarks, this desire to start growing certain cells or...

Thanks for providing that color.

Just on you did mention in your answer in your prepared remarks, this desire to start growing.

Certain cells or test the system.

Speaker 6: just curious how that's gonna look because, you know.

Just curious how that's going to look because.

Yeah.

Speaker 6: kind of with your combined ratios, report a combined ratios where you are, that probably want the margin to improve before you start writing a bunch of new business, but provide some additional perspective on that, Joe. Sure.

Kind of with your combined ratios reported combined ratios, where you are probably want there.

Margin to improve before you start writing a bunch of new business, but provide some additional perspective on that Joe.

Sure Greg.

Speaker 5: We did not say we were going to grow a bunch and we did not say we were going to add a bunch in new business. Those were not remotely close to the words we said. We were going to start to write some modest amounts of incremental new business. We've got a very significant new business slowdown. If you were thinking about sort of a 2019 level, it's way off of that.

We did not say, we were going to grow a bunch and we did not say we were going to add a bunch of new business. Those were not remotely close to the words. We said we were going to start to write some modest amounts of incremental new business. We've got a very significant new business slowdown. If you were thinking about sort of a 2019 level it's way off.

Half of that.

Speaker 5: We're gonna modestly add some new business, at some point probably in the fourth quarter or the first quarter, to test how the underwriting criteria as we take them off, what comes in to the book of business, how that business is performing in its early stages, how those underwriting filters work. One of the things we've talked about before,

We're going to modestly add.

Some new business at some point, probably in the fourth quarter or the first quarter.

Two to test.

Uh huh.

Operator: My name is Lesser, and I will be your coordinator today. At this time, all participants are in listen only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this conference is being recorded for every play purposes.

How the underwriting criteria as we take them off what comes in to the book of business.

How that business is performing in its early stages, how those underwriting filters.

Work one of the things we've talked about before.

Speaker 5: When you have a market and a consistent view of carriers and underwriting appetite, you know how things are gonna work. As the market hardens and you find people put up different underwriting restrictions or different price points, business will move around the marketplace differently. What we wanna do is open the filters a little bit.

Is.

When you when you have a market.

A consistent view of carriers and underwriting appetite you know how things are going to work as the market hardens.

Karen Guerra: I would now like to introduce your host for today's conference call, Karen Guerra, Kemper's Vice President for Investor Relations. Ms. Guerra, you may begin. Thank you, operator.

Do you find people put up different underwriting restrictions or different price points business will move around the marketplace differently.

Karen Guerra: Good afternoon, everyone, and welcome to Kemper's discussion of our third quarter, 2023 results. This afternoon, no here from Joe Lacher, Kemper's President, Chief Executive Officer and Chairman, Brad Camden, Kemper's Senior Vice President, and Interim Chief Financial Officer, and Matt Hunton, Kemper's Executive Vice President and President of Kemper Auto. We'll make a few opening remarks to provide context around our third quarter results followed by a Q&A session. During the interactive portion of our call, our presenters will be joined by Joanne Sanders, Kemper's Executive Vice President and President of the PNC Division, John Bacheli, Kemper's Executive Vice President and Chief Investment Officer, and Chris Flint, Kemper's Executive Vice President and President of Kemper Life.

What we want to do is open the filters a little bit.

Speaker 5: And we believe we know what will happen when we do that. And we're going to test it. And so we're going to watch it every day, every week, every couple of weeks, and see what's coming through in that process. And did what actually come through behave and look like from a profile perspective and a performance perspective, what we expect.

And we believe we know what will happen when we do that and we're going to test it.

And so we're going to watch it every day every week every couple of weeks and see what's coming through.

That process, indeed, what come through <unk>.

Actually come through be.

Behave and look like from a profile perspective, and a performance perspective, what we expected.

And again I've used this analogy if you got a little bit of a stomach flu you don't go back and eat everything you did the week before you start out with Brad diet of bananas Rice applesauce.

Speaker 5: And again, I've used this analogy. If you got a little bit of the stomach flu, you don't go back and eat everything you did the week before. You start out with the brad diet of, you know, the bananas, rice, applesauce.

Speaker 5: So what you're saying is a restricted diet and restarting the process. We're gonna do that. All the combined ratios are continuing to improve. There'll be a high probability.

Repricing.

Okay.

Is it was a restricted diet and restarting the process, we're going to do that all the combined ratios are continuing to improve there'll be a high probability.

Karen Guerra: After the market's close today, we issued our earnings release and published our earnings presentation, Financial Supplement, and Form 10Q. You can find new documents in the investor's section of our website, Kemper.com. Our discussion today may contain forward-looking statements within the meaning of the safe harbor provisions of these private security litigation reform act of 1995. These statements include but are not limited to the company's outlook and its future results of operations and financial conditions.

Speaker 5: in our mind that that new business will perform well. It is at 100% of new business rates when it comes in, where some of our renewal book continues to

In our mind that that new business will perform well.

It is at 100% of new business rates when it comes in where some of our renewal book.

Karen Guerra: Our actual future results and financial conditions may differ materially from these statements. For information on additional risks and may impact these forward-looking statements, please refer to our 2022 Form 10Q and our third quarter earnings. Releases. This afternoon's discussion also includes non-gap financial measures we believe are meaningful to investors. In our financial supplement earnings presentation and earnings release, we define and reconciled all non-gap financial measures to gaps where required in accordance with the SEC rules. You can find each of these documents in the investor section of our website, Kemper.com. All comparative references will be to the corresponding 2022 period unless otherwise stated.

Continues to have.

Speaker 5: continues to have not renewed at the newer rates. And we're watching the, really the underlying loss ratio. You know, one of the things I think you've noticed and you've heard us talk about before,

<unk> continues to have not renewed at the newer rates.

And we're watching the they're really the underlying loss ratio one of the things I think you've noticed you've heard us talk about before.

Speaker 5: Think about expense ratios. Our expense ratio has a little bit of a temperature partly because there's some decline in new business and partly because, or there's a decline in business overall, and partly because,

Think about expense ratios our expense ratio has a little bit of a temperature, partly because there is some decline in new business and partly because our there's a decline in business overall.

And partly because.

Speaker 5: There's new business fees that are charged as a contra expense. They're higher on new business than they are in renewals. So we're watching and testing that underlying loss ratio knowing that as we reopen the new business and that expense ratio reverts back to its norm, that will hit the underlying target profitability.

There's new business fees.

That our charge as a contra expense, they're higher on new business than they are in renewals.

So we're watching and testing that underlying loss ratio.

Knowing that as we reopened the new business.

That expense ratio reverts back to its norm that.

That will hit the underlying target profitability.

Speaker 5: So again, what I'd expect, if we roll forward 90 days and we're having a conversation about the fourth quarter, there is not going to be massive growth or a massive amount of new business in there. There'll be some incremental as we're testing it and at the same time we're watching what we expect to be changes in our underlying results and the underlying loss ratio.

So again, what I would expect.

Joseph Lacher: I will now turn the call over to Joe. Thank you, Karen. Good afternoon and thank you everybody for joining us today.

If we roll forward 90 days and we're having a conversation about the fourth quarter. There is not going to be massive growth or a massive amount of new business in there there'll be some.

Joseph Lacher: We're going to communicate several key points today, perhaps best grouped into four buckets. First is the favorable trend in our underlying results. Our underlying combined ratio improves sequentially and within the range of our prior guidance. Second is what's happening outside the current near underlying results, including additional prior year reserve development. Third is a strong progress made on our strategic initiatives which together reduce our long-term risk, improve our capital and liquidity, and enhance our ability to generate stable, long-term, distributed cash flow and earnings.

Incremental as we're testing it and at the same time, we're watching what we expect to be.

Changes in our underlying results and the underlying loss ratio.

Got it that is a clarification, yes it does.

Speaker 6: Got it. That's a, a clitorial. Yeah, it does. In your answer, I think he said

Your answer I think he said.

Speaker 5: All right. Some of the business that's renewing isn't renewing at the new rates. Is that right or did I miss? As it renews it gets the new rate, but our profitability right now doesn't, some of the business hasn't renewed yet, so it's still at the old rate.

Alright.

The business Thats renewing isn't renewing at the new rates is that right or did I Miss as it renews it gets the new rate, but our profitability right now.

Some of the business Hasnt renewed yet so it's still at the old rates.

Joseph Lacher: And lastly, we are reaffirming our full year 2024 guidance. Let's move to page four. Looking at results. We're pleased with the 1.5 points sequential improvement and the specialty PNC underlying combined ratio as the benefits from our profit improvement actions take further hold. We have confidence and further improvements as we look forward. As expected, a 30 point California personal auto rate increase effective in August had only a marginal earned impact in the third quarter.

Speaker 5: Got it. So, to speak of business, not all of it is at the higher rate level, where if we started new business, all of it would be. So we actually think that by opening the filters slightly, the cohorts we're adding and the business we're adding should be better from a target return perspective on its lifetime basis than the full enforces right now.

Got it.

Speaker business not all of it is at the higher rate level, where if we started new business all of it would be.

We actually think that by opening the filters slightly the cohorts, we're adding in the business we're adding.

Should be should be better from a target return perspective on its lifetime basis.

Joseph Lacher: Its earned impact will immediately increase in each of the next two quarters. This incremental earned rate, along with the additional benefits from all our other profit improvement actions, provides a significant tailwind for loss ratio improvement in the fourth quarter and more so for full year 2024.

And then the full enforces right now.

Okay last question I don't want to hog the floor. So the last question I'm, just going to pivot to the balance sheet.

Speaker 6: Okay. The last question, I don't wanna hog the floor. So the last question, I'm just gonna pivot to the balance sheet, parent company liquidity. It's a source of concern in the marketplace when we see just, you know, on the one slide in your investor decks on page 10, you see how the parent company liquidity, the total has gone from 1.3 billion down to 821 million.

Parent company liquidity.

It's it's a source of concern in the marketplace when we see.

On the one slide in your Investor decks on page 10, you see how the parent company liquidity that total has gone from $1 3 billion down to $821 million.

Joseph Lacher: Moving to our second big topic, what's happening outside of the current years underlying results. Prior year reserve development was largely driven by recent trends in Florida personal injury protection or PIF, which has been an industry issue in recent quarters, and to a lesser extent the extension of the bodily injury and property damage development patterns from 2022. We'll discuss the drivers further when we get to slide six.

Speaker 6: And then just looking with these numbers we're like in the second quarter, it was 970 million down again to 821 million at the end of the third quarter. So as we look forward, because you keep reiterating that you're adequately capitalized.

And then just looking what these numbers were like in the second quarter. It was $970 million down again $821 million.

At the end of the third quarter, so as we look forward.

You keep reiterating that youre adequately capitalized can.

Joseph Lacher: With selecting on our third major topic, we continue to make strong progress on our strategic initiatives. All our programs are on track to be completed on time and produce our exceed or exceed their targeted financial and operational benefits. Let me comment on a few highlights. We're very pleased that our reciprocal exchange has received all necessary approvals and was actively writing business during the quarter, albeit at expectedly modest premium levels. The exit from the preferred home and auto business is moving as expected.

Speaker 6: Can you sort of give us a roadmap of how you see uses of cash and how you see the balance sheet evolving there over the next couple quarters? That might be helpful.

Can you sort of give us a roadmap of how you see uses of cash and how you see the balance sheet evolving say.

Over the next couple of quarters.

It might be helpful.

Sure Greg This is Brad.

Speaker 3: You are correct. We look at the end of 2022. We had $1.3 billion of cash. It was elevated versus kind of historic levels. It was mainly related to the third quarter of Bermuda optimization where we took up a dividend from a live company. So it was elevated and, and the end of last year.

You are correct. We look at the end of 2022, we had $1 3 billion of cash that was elevated versus kind of historic levels. It was mainly related to the third quarter Bermuda optimization, where we took up a dividend from the life company. So is elevated and at the end of last year.

Joseph Lacher: This action will enhance our return on capital and support profitable growth in our core businesses. We expect to realize significant additional liquidity benefits in the fourth quarter from the Bermuda optimization. And finally, we're meeting or exceeding the expected expense savings with each of our cost structure initiatives. Advancing these initiatives further enhances campus operating capabilities and financial profile. We remain highly focused on returning the business to profitability and maximizing long term shareholder best.

When you look at it from Q2 to Q3 were down about $150 million. The 150 million was split between a decline in holding company cash and liquidity and a reduction of our undrawn revolver capacity.

Speaker 3: When you look at it from Q2 to Q3, we're down about 150 million. That 150 million was split between a decline in holding company cash and liquidity and a reduction or our revolver could pass.

Speaker 3: Um, so we're at, you know, 820 million approximately as we look forward, you know, we expect.

So we're at 820 million approximately as we look forward we expect by.

Speaker 3: By the end of this year to be up another 250 million plus, as it relates to, that'll increase due to the Bermuda Optimization effort. You'll notice if you look to the right of that slide on slide 10, you'll see the RBC ratio is much higher than they have. And historically you'll see a thousand plus RBC ratio for the life company. And so we'll take that ordinary and extraordinary dividend in this quarter, increasing the cash overall.

By the end of the end of this year to be up another $250 million.

As it relates to.

That will increase due to the Bermuda optimization effort, you'll notice if you look to the right of that slide on slide 10, you'll see the RBC ratio is much higher than they had been historically, you'll see a thousand plus RBC ratio for a life company.

Joseph Lacher: This leads me to our last topic. We are reaffirming our 2024 financial guidance. We continue to expect a 2024 ROE equal to or greater than 10%. I've spoken frequently about this environment being the most dynamic and volatile, the personal auto insurance industry has ever seen. I still believe that while we believe this will persist for at least a year or two, we continue to be optimistic about what's ahead for Kemper.

And so we'll take that ordinary and extraordinary dividend this quarter, increasing the cash overall.

Speaker 3: So we'll be a billion plus in liquidity. As we think about our sources and uses over the next 12 months, typically we spend about $150 million a year in cash, about $80 million in dividends, about $55 million in interest expense, and other hold co-expand items of $10 or $15 million. So when you think about that, billion dollars plus of liquidity, $150 million in usage, recovered multiple times. We can extend out for several years.

There will be a 1 billion plus in liquidity as we think about our sources and uses over the next 12 months typically we spend about $150 million a year in cash about $80 million in dividends about 55 million of interest expense and other holdco.

Bradley Camden: And now I'll turn the call over to Brad. Thank you, Joe.

Lance items of $10 million to $15 million. So when you think about that $1 billion plus of liquidity of $150 million usage. We're covered multiple times, we can extend out for several years.

Bradley Camden: I'll begin on page five. It's so highly that we had another quarter of improved underlying results, positioning us for return to profitability. Offsetting this progress is prior development, pension settlement and catastrophes. For the quarter, we had net loss of $2,028 per due to chair and adjusted consolidated net operating losses 44 cents. The net loss included a non-cash charge of 56 million related to the term nation of our remaining pension obligations, which was previously recognized and accumulated other comprehensive income or AOCI.

Fair enough and do you have are you because of the several quarters of losses I assume you you're enabled unable to dividend up any capital from any of the subs. At this point is that correct or is there still a way to pull capital out of a subset if needed.

Speaker 6: Fair enough. And do you have, are you, because of the several quarters of losses, I assume you are enabled to enable to dividend up any capital from any of the subs at this point? That correct or is it, is there still a way to pull capital out of a

Speaker 3: We cancel Polo Capital out of the subs, particularly the life company. OK. Stop.

We canceled polo capital out of the subs.

Bradley Camden: The net loss and adjusted consolidated net operating loss included specialty auto adverse development of 78 million catastrophes of 7 million. Last quarter, we announced that we were exiting the preferred PNC business and as a result, the business has now reported below the line and non-core operations. The business generated net loss of 7 million, including approximately 14 million and pre-tax catastrophe losses.

Particularly the life company.

Okay.

Thank you very much for the answers.

Yeah, Greg This is Joe just.

Speaker 5: I wouldn't focus on the Billion 3. That was really an anomaly. And the Billion 4 was a surge of earnings in the 2020 time period when people weren't driving.

I wouldn't focus on the $1 three that was really an anomaly and the $1 four was a surge of earnings in the 2020 time period when people weren't driving.

And as Brad pointed out you look at the RBC of a 1015 in the life company.

Bradley Camden: Turning to the prior year reserve development details on page six, Florida PIP bodily injury and property damage coverages drove reserve strengthening. PIP reserved changes resulted from increased frequency and severity of litigated claim activity mainly from policy periods 2020 through 2022. Today, roughly three quarters of PIP claims have attorney representation from two thirds a few years ago. We anticipate attorney representation for these policy periods will remain elevated and have reflected this in our reserving.

Speaker 5: And as Brad pointed out, you'll look at the RBC of a thousand, fifteen in the life company. In an ideal world, we would have actually moved that 250 plus before the end of the quarter. And it's a timing anomaly that it's going to be done on the fourth quarter rather than inside the third.

In an ideal world, we would have actually more.

Move that 250 plus.

Before the end of the quarter.

And it's a timing anomaly that it was it's going to be down in the fourth quarter rather than inside the third.

Speaker 5: So, you know, I would definitely encourage you to look at those in combination in terms of, you know, where the cache is moving back and forth between them.

So I would definitely encourage you to look at those in combination.

In terms of.

Where the cash is moving back and forth between them.

Bradley Camden: On bodily injury and property damage related claims, we continue to see extended claim reporting timelines and more claims closing with payment. This was mainly related to activity during the second half of 2022. As Joe noted, the environment continues to be volatile. However, given the short tail nature of our business, we are confident we have appropriately recognized these emerging trends and prior and currently reserves.

Makes sense. Thank you.

Speaker 1: Your next questions comes from Brian Meredith from UBS. Your line is now open.

Your next question comes from Brian Meredith from UBS. Your line is now open.

Speaker 4: Yes, thanks. A couple of them here. First, just on the Adverswers Reserve development.

Yes. Thanks, a couple of them here first just on the adverse reserve development.

Bradley Camden: Page seven eight and nine provide an update on our strategic initiatives. These are on track to be completed on time, producing or exceeding their targeted financial and operational benefits. As you know, we launched the Bermuda project in 2022 and we continue to optimize the initiative. We expect 250 million in life dividends to be paid to the parent in the fourth quarter from 200 million as previously indicated. This continues to create value and financial flexibility for the company.

Speaker 4: Brett, I know you said that you're confident you're in a good position now as a short-tail business, but if I look, you've had adverse development in your personal auto business for four quarters in a row.

Brian I know you said that your confidence you made a good position its a short tail business, but if I look you've had adverse development in your personal auto business for four quarters in a row.

Speaker 4: What give you confidence that your personal auto is reserved adequately or sing trend kind of?

What gives you confidence that your personal auto was reserved adequately or you're seeing trends kind of going down now or are there certain things that give you more comfort and then also on the reserve topic. If you could address commercial auto a little bit on what's going on there I mean, you grew very rapidly for the last three years.

Speaker 4: going down now or there are certain things that give you more comfort. And then also on the reserve topic, if you could address commercial auto a little bit and what's going on there, you grew very rapidly for the last three years.

Bradley Camden: This quarter, we also included our multi-year pension termination project which reduced our tail risk and related expenses. We recognize a 56 million non-cash charge to finalize the termination which is previously recognized in AOCI and is therefore neutral to share older's equity. Last quarter, we announce our exit from the preferred PNC business. The wind down process is underway and is expected to release approximately 175 million of capital by the end of 2024 and another 100 million in 2025. Next, our cost reduction initiatives are on track to produce their intended benefit.

Speaker 4: And I know other companies are having challenges with their commercial auto. So maybe your book's different or something, and that's why. Maybe you can dress that as well.

And I know other companies are having challenges with their commercial auto so maybe your books different or something and that's why maybe you can address that as well.

Yes, let me, let's do these in reverse and I'll I'll do a quick one on commercial vehicle and then then Brad and I will tag team and maybe Matt as well on the PID.

Speaker 5: Yeah, let me, well, let's do these in reverse. And I'll do a quick one on commercial vehicle and then Brad and I, oh, tag team and maybe Matt as well on the PYD. The commercial vehicle, remember that, you know, that was a 93, six underlying combined ratio. The $7 million is some BIDCC related items. It's just the defense and cost containment.

Commercial vehicle remember that that was a 93 six underlying combined ratio the $7 million.

There is some b I D C related items, it's just the defense and cost containment.

Bradley Camden: Since the onset of this effort, we have already achieved over 135 million of run rate savings which is roughly 90% of our goal previously projected to be realized by 2025, and finally on page 9. The Kemper reciprocal exchange with established and began writing policies in Illinois in the third quarter. Over the next year we plan to populate the exchange by re-intering select new business from Kemper legal entities and directly writing premium in the exchange. Growth is expected to ramp up as we receive approval to expand in the new states.

Speaker 5: that's running underneath there and it's still a very strong combined ratio there. If you look at it over any rolling 12-month period, you feel good about the underlying profitability there. So that one doesn't call.

That's running underneath there and it's still a very strong combined ratio.

There if you look at it over.

Any rolling 12 month period, you would feel good about the underlying profitability there so.

So that one doesn't cause us.

Speaker 5: A lot of angst, it really is just a little bit of DCC and cleaning up there.

A lot of angst. It really is just a little bit of DCC and.

Cleaning up there.

Speaker 3: Hi, Brian . I'm the reserve. So what about our comfort there? A lot of the activity we saw that created prior development this year was related to the second half of 2022. And so we have a short-tailed business as we get further away from that. We're confident in what we have reserved. Additionally, related to PIP, we've seen increased frequency of claims. We see higher severity.

Hi, Brian on the reserves about.

Bradley Camden: We plan to host a special topic called during the first quarter of 2024 to disclose the reciprocal structure and financial reporting.

Our comfort there no a lot of the activity we saw the accretive prior development. This year was related to the second half of 2022.

Bradley Camden: Moving to page 10, our insurance companies are well capitalized and have significant resources of liquidity. At the end of the quarter we had 820 million of liquidity consisting of devolveric capacity, intercompany lending capacity, and holding company cash and investments. We expect parent liquidity to be bolstered by at least 250 million in a fourth quarter from our review to optimization. Our healthy liquidity balance enables us to support our operating subsidiaries and pay holding company dividends and interest payments.

And so we have a short tail business as we get further away from that and we're confident in what we have reserved additionally related to Pip.

We've seen.

Increased frequency of claims we see higher severity when.

Speaker 3: When we think about what we're reserving today, we're reserving for not necessarily an acceleration of claims coming through, but a higher total claim, higher total amount of severity due to the increase in litigated claims.

When we think about what we're reserving today, we're reserving for not necessarily not necessarily an acceleration of claims coming through but a higher total claim higher total amount of severity due to the.

Bradley Camden: We continue to have the capital and liquidity needed to navigate this ongoing dynamic operating environment. Moving to page 11, net investment income for the quarter was 107 million and our pre-taxed equivalent annualized book yield is 4.6%. Lastly our approach to asset liability management continues to produce the intended results in a rising interest rate environment.

The increase in litigated claims and we think we've captured at this point in time everything that we can.

Speaker 3: And we think we've captured at this point in time everything that we can.

Speaker 3: Now, it is a management best estimate, but we think we've taken a very practical approach to what we think has occurred not only over the previous years, but what we expect has occurred going forward. Additionally, on PIP, we're not reflecting any of the benefits that maybe they're related to legislative changes in the third quarter or in the first quarter of 2023.

Now it.

It is a management best estimate.

But we think we've taken a very practical approach to what we think has occurred not only over the previous years, but what we expect to occur going forward. Additionally on Pip.

Matthew Hunton: I will now turn the call over to Matt to discuss the specialty PNC business. Thank you Brad and good afternoon everyone. Moving to page 12 in our specialty PNC business, we closed the third quarter with an underlying configuration improvement of 1.5 points sequentially and 6.3 points year over year. This was a result of incremental earned rate and ongoing underwriting actions, including new business restrictions, which was partially offset by severity and seasonality.

Reflecting any of the benefits that maybe they're related to legislative changes in the third quarter or in the first quarter of 2023.

Gotcha.

Speaker 4: And then my second question, just going back to the capital situation, like the holding company, I'm just curious, you know, if things don't start turning around too quickly, well that had all impact your ability to kind of roll out the reciprocal given that I know you can have fun that with some preferred. And then I also know you mentioned in the relief that you're gonna reinsure some business in the reciprocal, is that gonna require some capital going in relatively soon.

And then my second question, just going back to the capital situation at the holding company.

I'm just curious.

If things don't start turning around here quickly was that at all impact your ability to kind of roll out the reciprocal given that I know you've been at the fund that with some preferred and then I also know you mentioned in the release that Youre going to reinsure. Some business in the reciprocal is that going to require some capital going in relatively soon.

Matthew Hunton: And while loss trends remain elevated, they have stabilized. Earned rate increases forecast and we expected to accelerate in the fourth quarter and in 2024 due in part to the 30 points of California rate effective in August of this year. We anticipate the cumulative benefit of our profit actions to continue to exceed loss trends. We are observing hard market conditions, especially in California. As we renewed policies at higher rates, persistency remained in line with prior periods, creating favorable premium retention.

Speaker 5: Yeah, it won't have any impact at all on the reciprocal. Let's remember this. We're not going to give any capital to the reciprocal. The exchange itself, the capital there is either generated by the actual policyholders there with contributions or from earnings that come off of those policies or through surplus notes.

Yes.

It won't have any impact at all on the reciprocal let's let's remember that we're not going to give any capital to to the reciprocal the exchange itself the.

The capital there is either generated.

By the actual policyholders, there with contributions or from earnings that come off of those policies or through surplus notes.

Matthew Hunton: This quarter we filed an additional six points of rate on 13% of the book. Going forward, we will make rate and segmentation violence across the business as needed. This quarter specialty PNC observed a moderate level of catastrophe losses driven by tropical storms and wind halibents. Our commercial vehicle underwriting and rate actions are continuing to positively impact loss performance. In the third quarter, the underlying combined ratio was 93.6% and we project continued profitability as pricing remains strong.

Speaker 5: that even a surplus note is effectively alone. So to the extent we were assisting with that and I'm making up a number. Let's say we gave a $20 million surplus note. It would be the equivalent of us giving the exchange a $20 million loan which it would be required to pay us back. That doesn't reduce our capital as the holding company or the parent in that process.

The surplus note is effectively alone.

To the extent, we were assisting with that and I'm, making up a number let's say, we gave a $20 million surplus note. It would be the equivalent of us given the exchange a $20 million loan, which it would be required to pay us back that doesn't reduce our capital.

The holding company or at the parent.

And that process.

Speaker 5: Reinsuring business into the reciprocal, what we can do is we can take, again, I'm making something up to be illustrative. If we decided that all new business effective January 15th written in state X was going to be reinsured into the reciprocal in Georgia, then starting on January 15th, any new business written on Kemper paper would be reinsured over.

Re insuring business into the reciprocal what we can do is we can take again, I'm, making something up to be illustrative.

Matthew Hunton: As mentioned on the second quarter call, we are planning to selectively write a modest amount of incremental new business to test new customer cohort buying and claim behavior. Moving to page 13, we remain hyper focused on achieving target returns as cumulative actions will continue to outpace loss trends. In addition, enhanced tools and analytics will enable a thoughtful balancing of underwriting profitability and new business ratings. Finally, despite the ongoing dynamic environment, we anticipate achieving target profitability in 2024.

If we decided that all new business effective January 15th written in state X was going to be reinsured into the reciprocal in Georgia than starting on January 15th any new business written on Kemper paper would be reinsured over.

Speaker 5: That actually would become a capital relief for the parent company camper, because we wouldn't need to hold the capital to be able to write that new business. It actually transfers premium into the reciprocal and the surplus note would be providing the capital for that. So it actually helps the capital situation not hurts and relieve the issue doesn't restrict.

That actually would become a capital relief for the parent company camper, because we wouldn't need to hold the capital for to be able to write that new business.

Matthew Hunton: I will now turn the call over to Joe to cover the life business. Thank you, Matt. Turning to page 14 met operating income for our life business was 15 million for the third quarter. Profitability improved over the prior year quarter and sequential quarter. Consumer demand for our products is strong. The life issue policies were up slightly and persistency remains stable. The life business continues to generate strong returns on capital and distributable cash flow.

It actually transfers premium.

Into the reciprocal and the surplus note would be providing the capital.

For that so it actually helps the capital situation not hurts.

And relieved the issue doesn't restrict us.

That's right.

Speaker 3: That's right. The other thing I'd add, Brian , is I think what Joe is articulating here is it gives us actually more flexibility. It's another capability or tool that we have at our disposal. Additionally, Kemper doesn't have to be the only one supplying the reciprocal exchange with surplus notes. Eventually, when it matures, we can go out and get third party capital as well, which provides additional benefit and potential release for Kemper.

Yes, the only thing I would add Brian is I think what Joe is articulating here is it gives us actually more flexibility capability our tool that we have at our disposal. Additionally, kemper it doesn't have to be the only ones supplying the reciprocal exchange with surplus notes eventually when it matures. We can go out and get third party capital as well, which provides additional benefit and potential release for Kemper.

Matthew Hunton: Turning to page 15 to reiterate our highlights for the quarter. One, we made solid progress on improving underlying combined and loss ratios. The California rate change for specialty auto while an increasing impact over the next two quarters reinforcing our confidence in returning to target margins. Two, our strategic initiatives are on schedule and expected to meet or exceed all financial targets. And three, we are reaffirming our 2024 financial guidance of delivering an ROE of 10 percent or greater.

Kemper Corporation.

Speaker 5: Gotcha. And then one last. Go ahead. Sorry. Sorry. One of the reasons we're going to wind up spending some time with a special topic on the reciprocal in the first quarter. It's hard to do in an earnings call. And one of these will lay out a series of slides that sort of helps that. If you can imagine this, what will happen over time is as that business naturally transfers into the exchange, you're going to see premium at Kemper Corporation go down.

Gotcha and then one last go.

So I'm sorry, just one of the rings, we're one of the reasons, we're going to wind up spending some time.

With a special topic on the reciprocal in the first quarter, it's hard to do in an earnings call and maybe one of these will lay out a series of slides that sort of helps that if you can imagine that's what it will happen over time.

Joseph Lacher: In closing, I'd like to thank our entire Kemper team for their ongoing dedication and commitment to executing on our strategic priorities to generate consistent long-term shareholder value.

Is that.

This naturally transfers into the exchange youre going to see premium at Kemper Corporation go down.

Operator: Operator, I'll turn it over to you for questions. Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have any questions, please press star followed by the number one on your phone. Should you wish to cancel your request, please press star followed by the number two. If you're using a speaker phone, please lift the handset before pressing any case. One moment for your first question.

Speaker 5: required capital at Kemper go down premium inside the exchange go up required capital inside the exchange go up and we will never give shareholder capital to the exchange

Required capital at Kemper go down premium inside the exchange go up required capital inside the exchange go up if we will never give shareholder capital to the exchange.

Speaker 5: So these things move back and forth and it will make it a little more For a short period of time as it transitions a little complicated to read our financial statements Because of those shifts and that's why we're gonna sit down on the first quarter as the numbers are starting to get a little bigger To to show that and help everybody see how to model it, but it really actually does Ultimately release capital as this process Go through

So these things move back and forth and it will make it a little more.

Very short period of time as it transitions a little complicated to read our financial statements because of the shifts and that's why we're going to sit down in the first quarter as the numbers are starting to get a little bigger to show that and help everybody see how to model it but it really actually does ultimately release capital.

Greg Peters: Your first question comes from Greg Peters from Raymond James. Your line is now open. Good afternoon, everyone. I guess I'll start. I have a couple of questions and I'll start first with the top line and the policy count in your specialty book. It's declining substantially on a year over your basis and sequentially. Can you talk about how as you deploy the rating creases, how your rate might be competitively disadvantaged or other factors that might be contributing to the drop-off in policy count and written premium?

This process.

It goes through.

Speaker 5: Gotcha. And one just quick, quick last one here, Joe, you said target profitability at some point in 2024, I'm assuming it is, you know, second, third quarter, whatever it is. And then can you remind us what your target profitability is in your personal or specialty business? Yeah, we don't typically give a target combined ratio. We will we will definitely be there to generate our guidance has provided you guys a view that we're going to be a 10% ROE next year.

Got you and then one just.

Quick last one here Joe.

You said target profitability at some point in 2024 I'm assuming it is.

The second and third quarter whatever it is and then can you remind us what your target profitability as in your personal our specialty business.

We don't typically give a target combined ratio.

We will we will definitely be there to generate our guidance is provided you guys.

You that we're going to be a 10% ROE next year.

Our 10% plus.

Speaker 5: Next year we've targeted a low double digit ROE over the cycle so we're obviously the lower end of that range but

Next year, we've targeted a low double digit ROE over the cycle. So we're obviously at the lower end of that range, but <unk>.

Greg Peters: Sure, Greg. This is Joe. I'll take a start and Matt, you can jump in with more thoughts. This is largely driven, Greg, by our reduction in new business or our constraint on new business policies. Our retention rates are consistent or even up slightly from where they were pre-pandemic levels. This is driven by the new business curtailment. We will likely restart and start to reintegrate some of that new business. As Matt mentioned in the fourth quarter and into the first, we'll start slowly and test the system, if you will, and let another quarter of rate earn in and watch the underlying loss ratios improve.

Speaker 5: inside of that to achieve that for the year, you would reasonably expect that the combined ratios are in the zone of our targets.

Inside of that two to achieve that for the year.

Greg Peters: But this is largely driven with what we're seeing on our new business underwriting criteria, and straining business, rather than what we're seeing as a competitive problem that's driving lapse rates up. Just a quick add on to that. So, as you know, non-standard specialty customers churn at a bit of a higher rate. So naturally, as you, you know, you don't put on new business, you're going to see policies and force leak a little bit more.

You would reasonably expect that the combined ratios are in the zone of our targets.

Speaker 5: uh... early on in the year and if you just a little math and said if we have a hundred point five uh...

Early on in the year and if you just did a little math and said if we had 100.5.

Underlying combined ratio in specialty auto in the third quarter and we've tried to point out that that has very little earned rate from from California running through it.

Speaker 5: underlying combined ratio and specialty auto in the third quarter. And we've tried to point out that that has very little earned rate from California running through it.

Speaker 5: You could reasonably expect that that earned rate will more than offset loss trend and will continue to provide combined ratio improvement over the next couple of quarters. I think we've been very careful about that to describing that.

You could reasonably expect that.

Did that earned rate will more than offset loss trend and will continue to provide.

Combined ratio improvement over the next couple of quarters I think we've been very careful about that in describing that.

Speaker 5: So that should provide a plus. At the same time, we'll start writing a little bit more new business. That will have its new business penalty. And you will not see the combined ratio continue to improve way and excess of what might be a target that would produce that combined ratio. Those two will converge and we'll sort of hold our ground over the course of the year.

So that should provide a plus at the same time, we will start.

Writing a little bit more new business that will have its new business penalty and you will not see the combined ratio continue to improve way in excess of what might be a target that would produce a combined ratio of those two will will converge and we will sort of hold our ground over the course of the year.

Great. Thank you.

Okay.

Speaker 1: Next question comes from Paul Newsom, a 5% your line is now open.

Next question comes from Paul Newsome of Piper Sandler Your line is now open.

Greg Peters: Or a quick comment on the rate and it's sticky stickiness. We are seeing, you know, policy, persistency, actually slightly elevated versus prior periods or a rule book, as it's converting at higher written and earned rate levels is sticking out of higher rate. But as Joe mentioned, the drawdown in policies and force is really a function of, you know, the lack of new business that we have coming in at this point and we'll balance that as we move forward over the next couple of months.

Thank you. Thank you.

Speaker 7: Um, thank you. Thank you. Um, always helpful in the call. Um,

Always helpful Nicole.

Could you tell us about the reduction in the revolver capacity.

Speaker 7: Could you, can I ask you about the reduction in the revolver capacity? Was that just, well, just can tell you what's driving that? Is that the other piece of the holy company? The clarity that's changing.

Was that just.

I just can tell you what's driving that.

The other piece of the holding company.

Liquidity that's changing.

Speaker 3: Yeah, sure, Paul, we're hitting a covenant, the leverage covenant that's driving that and bringing that down. I'd highlight, we did, we did our revolver last year, we opted from 400 to 600 million. And so we're slightly below the 400 million today. So if you look at it from a historical perspective, and how we actually shrunk in new business over the last year, where we stand at 375 million, roughly, you know, that's plenty of liquidity. And no, no concern. I don't have any concerns with that.

Yeah sure Paul we're hitting a covenant leverage covenant, that's driving that and bringing that down I would highlight we did we did our revolver last year, we upped it from $400 million to $600 million.

Greg Peters: Okay, thanks for providing that color. Just on, you did mention in your answer and your prepared remarks, this desire to start growing certain cells or test a system. I'm just curious how that's going to look because, you know, kind of with your combined ratios, reported combined ratios where you are that probably want the margin to improve before you start writing a bunch of new business, but provides some additional perspective on that Joe.

So we are slightly below the $400 million today. So if you look at it from a historical perspective in how we've actually shrunk in new business over the last year, where we stand.

At $375 million, roughly you'll have plenty of liquidity and.

No no concern I don't have any concerns with that.

Great.

Speaker 7: Right. Different topic, the accounting for the preferred business, obviously you're running it through this non-core line, but it doesn't look like it's being treated as discontinued operations. It looks like the revenues and expenses are all going through on a consolidated basis like they were before. You're just not breaking it out as a separate segment. Is that right? Am I getting that right or am I wrong? It's treated like a discontinued operation?

Different topic.

The accounting for the preferred business, obviously youre running as soon as non core line, but it doesn't look like it's being treated as disk.

Greg Peters: Sure, Greg, we're, we did not say we were going to grow a bunch and we did not say we were going to add a bunch of new business, those were not remotely close to the words we said we were going to start to write some modest amounts of incremental new business. We've got a very significant new business slowdown if you were thinking about sort of a 2019 level, it's way off of that.

Continuing operations it looks like the revenues and expenses are all going through.

On a consolidated basis like they were before you're just not breaking it out as a separate segment is that is that right am I getting that writers.

It's treated like a discontinued operation.

Speaker 7: It's not below the line, but it's technically below the wire.

It's not being as below the line.

Yes, effectively below the line right.

Greg Peters: We're going to modestly add, you know, some new business at some point, probably in the fourth quarter or the first quarter, to test, you know, how the underwriting criteria as we take them off, what comes in to the book of business, how that business is performing in its early stages. Just how those underwriting filters work, one of the things we've talked about before is when you, when you have a market and a consistent view of carriers and underwriting appetite, you know how things are going to work as the market hardens, and you find people put up different underwriting restrictions or different price points business will move around the marketplace differently.

Speaker 3: It technically is below the line. It's free of the non-core operations. You know, discontinued apps would have to be something that's sold or...

Technically as below the line, it's treated as non core operations.

Discontinued ops would have to be something that's sold or.

Speaker 3: we have a deal on the table, et cetera. So it's non-core operations as being wound down as planned. You can see that, I think it was $7 million from non-core operations this quarter. You know, we'll try to provide as much information as possible to you. I think we also included that about $14 million of catastrophe losses, et cetera. But you won't see it as a segment going forward. its

We have a deal on the table et cetera. So it's noncore operations is being wound down as planned.

You can see that I think it was $7 million from noncore operations this quarter.

We'll try to provide as much information as possible to you I think we also included at about $14 million of catastrophe losses et cetera, but you won't see it as a segment going forward.

Maybe it will be in the consolidated number.

Speaker 7: Like this consolidated revenue, for example, would include premiums from the.

Consolidated revenue for example include.

Premiums from the.

Greg Peters: What we want to do is open the filters a little bit and we believe we know what will happen when we do that and we're going to test it. And so we're going to watch it every day, every week, every couple of weeks and see what's coming through in that process and did what actually come through behave and look like from a profile perspective and a performance perspective, what we expected. And again, I've used this analogy, if you got a little bit of the stomach flu, you don't go back and eat everything you did the week before, you start out with the brad diet of, you know, the bananas, rice, applesauce.

You won't you won't.

Speaker 3: You won't, you won't resist. You won't see any of the detail from a premium standpoint, a net investment income standpoint, any of those things, it all gets lumped into one component and non-core operation.

You won't see any of the detail from like a premium standpoint, our net investment income standpoint in any of those things at all it's getting lumped into one.

<unk> and noncore operations.

Speaker 3: So think about taking that you have to take it. Yeah, so think about that segment, you know, previously, previously camper preferred insurance. All of those components are being truncated to one line.

So think about taking that you'll have to take.

Yeah, So think about that segment.

<unk> previously Kemper preferred insurance all of those components are being truncated to one line.

And so youre seeing the net impact of that business performance.

Speaker 3: And so you're seeing the net impact of that business performance.

Hi, there.

Speaker 5: I'm maybe simplifying. I know you're wrong on this call, not an accountant, but I think part of the issue on the discontinued ops, you know, I'm adding onto breads. I know it's the sale or the exit, but if we're just shutting it down, we didn't exit all private passenger auto.

And maybe simplify.

I, maybe wrong on as Paul I'm, not an accountant, but I think part of the issue on the discontinued ops.

Greg Peters: So what you're seeing is a restricted diet and restarting the process. We're going to do that while the combined ratios are continuing to improve, there'll be a high probability in our mind that that new business will perform well. It is at 100% of new business rates when it comes in where some of our renewal book continues to have, continues to have not renewed at the newer rates. And we're watching the really the underlying loss ratio, you know, one of the things I think you've noticed you've heard us talk about before.

Adding onto Brad's I know its the sale or the exit but if we just shutting it down we didn't exit all private passenger auto.

Speaker 5: So that was I think some of the advice we were getting is that's part of why we can't move it to discontinued op.

So that was I think some of the advice. We were getting is that is part of why we can't move it to discontinued ops.

Speaker 7: Which is which is fine. I just think about from an operating from modeling perspective because if we're modeling total revenue for the

Which is just fine I, just thinking about from an operating from a modeling perspective, because if were modeling total revenue for the firm.

Speaker 7: In a discontinued off situation it wouldn't show off until revenue but if it was

And the discontinued op situations it wouldn't show up until revenue, but if it was.

Speaker 8: just, you know, consider non-core, like it sounds like you're doing, it'll show up in the consolidated, but revenue on your, in your K or Q or I think that's right.

Just.

Non core like it sounds like Youre doing it will show up in the consolidated.

Greg Peters: Think about expense ratios, you know, our expense ratio has a little bit of a temperature partly because there's some decline in new business and partly because, or there's a decline in business overall. And partly because. There's new business fees that are charged as a contra expense. They're higher on new business than they are in renewals. So we're watching and testing that underlying loss ratio, knowing that as we reopen the new business and that expense ratio reverts back to its norm, that will hit the underlying target profitability.

Total revenue.

K for cure I think thats right.

<unk>.

And then.

Speaker 5: We can definitely take it offline, Paul, and help you with the modeling pieces of how it will come through.

We can definitely take it offline Paul and help you with the with.

The modelling pieces of how it will come through.

Speaker 7: So last question, I'm getting this a lot. The iteration of the 10% plus are we, some of the pushback I'm getting is that that may be sort of a, decided computer, gave this or not, essentially a reduction in the early sect locations for next year because the capital is lower.

So last question.

I'm, giving this a lot.

We ration of the 10% plus Roe.

Some of the pushback I'm getting is that that may be.

Decided to continue can you keep this or not.

Greg Peters: So again, what I expect if we roll forward 90 days and we're having a conversation about the fourth quarter. There is not going to be massive growth or a massive amount of new business in there. They'll be some incremental as we're testing it and at the same time we're watching what we expect to be changes in our underlying results and the underlying loss ratio. That is a clarification. Yeah, it does. In your answer, I think he said, all right, some of the business that's renewing isn't renewing at the new rates.

Essentially a reduction in the earnings expectations for next year, because the capital is.

Lower.

Speaker 8: because of the losses we've incurred in this quarter, for example.

Because of the losses, we've incurred in this quarter for example.

Speaker 8: Um, you know, any thoughts on that? Do you think that's that's fair? Or, um, but the question is coming up quite a bit. So I thought I'd ask him to call. Yeah, I think Paul.

Any thoughts on that do you think that's that's fair or.

Questions coming up quite a bit so I thought I'd ask on the call.

Yes, I think Paul.

<unk>.

Speaker 5: We're trying to get a little simpler in terms of how we communicate stuff. We've said that we're going to generate a 10% plus ROA.

We're trying to get a little simpler in terms of how we communicate stuff.

We've said that we're going to generate a 10%.

Greg Peters: Is that right or did I miss as it renews it gets the new rate, but our profitability right now doesn't some of the business hasn't renewed yet. So it's still at the old rates. Got it. So in the business, not all of it is at the higher rate level where if we started new business, all of it would be. So we actually think that by opening the filters slightly, the cohorts we're adding and the business we're adding should be should be better from a target return perspective on its lifetime basis.

<unk> Roe.

Speaker 5: We were doing a pre-announcement, so there's a limited ability and a press release to try to describe every nuance. And I understand there's a lot of attention on all of the pieces running around our business and where things are, and we're not trying to be cute. We're trying to actually just sort of simplify what we're doing. It's a basic.

We were doing it we did a pre announcements so theres a limited ability in a press release to try to describe it every nuance and I understand there's a lot of attention on on all of the pieces running around our business and where things are and we're not trying to be cute. We're trying to actually just sort of simplify what we're doing it's a basic.

Speaker 5: Gap ROE calculation, we're sticking with a 10% plus.

GAAP Roe calculation.

We're sticking with a 10% plus.

Speaker 5: And I understand the math, you're describing in it. We weren't trying to hide something in there, we weren't trying to send a different signal.

Greg Peters: Then the the full enforces right now. Okay. The last question. I don't want to hog the floor. So the last question, I'm just going to pivot to the balance sheet. Parent company liquidity. It's a source of concern in the marketplace when we see just, you know, on the one slide in your investor decks on page 10. See how the parent company liquidity, the total has gone from 1.3 billion down to 821 million.

And I understand the math, you're describing in it.

We weren't trying to hide something in there we weren't trying to send a different signal.

There is.

Speaker 5: Maybe it's because of Halloween everybody's looking for ghosts, but it was trying to be a simple statement.

Maybe it's because it's Halloween everybody is looking for dose, but it was trying to be a simple statement.

Appreciate that thank you very much.

Ladies and gentlemen, as a reminder, should you have any questions. Please press star followed by the number one on your keypad.

Speaker 1: Ladies and gentlemen, as a reminder, should you have any questions, please press star, follow the wait-a-number-one on your keypad.

Greg Peters: And then just, you know, looking with these numbers, we're liking the second quarter, it was 970 million down, down again to 821 million at the end of the third quarter. So as we look forward, because you keep reiterating that you are adequately capitalized. Can you sort of give us a roadmap of how you see uses of cash and how you see the balance sheet evolving. Say over the next couple quarters. That might be helpful.

There are no further questions at this time Mr. Joel locker. Please proceed with your closing remarks. Thank.

Speaker 5: There are no further questions at this time. Mr. Joe Locker, please proceed with your closing remarks. Thank you. Operator. Thank you. Everybody for joining our call today and for the questions and we look forward to speaking to you again in the 4th quarter or the 4th quarter results. Thanks.

Thank you operator, thank you everybody for joining our call today and for the questions.

And we look forward to speaking to you again in the fourth quarter to fourth quarter results.

Okay.

Greg Peters: Sure, Greg. This is Brad. You are correct. We look at the end of 2022. We had 1.3 billion dollars of cash. It was elevated versus kind of historic levels. It was mainly related to the third quarter, Bermuda optimization where we took up a dividend from a life company. So it was elevated in the end of last year. When you look at it from Q2 to Q3, we're down about 150 million. That 150 million was split between a decline in holding company cash and liquidity and a reduction in our revolver capacity.

This concludes today's conference call. Thank you for participating you may now disconnect.

Speaker 1: This concludes today's conference call. Thank you for participating. You may now disconnect.

Yeah.

Greg Peters: So we're at 820 million approximately. As we look forward, we expect by the end of this year to be up another 250 million plus as it relates to that will increase due to the Bermuda optimization effort. You'll notice if you look to the right of that slide on slide 10, you'll see the RBC ratio is much higher than they have been historically. You'll see a thousand plus RBC ratio for the life company.

Greg Peters: And so we'll take that ordinary and extraordinary dividend as quarter increasing the cash overall. So we'll be a billion plus in liquidity. As we think about our sources and uses over the next 12 months, typically we spend about $150 million a year in cash, about $80 million in dividends, about $55 million in interest expense, another hold co expense items of $10 or $15 million. So when you think about that, billion dollars plus of liquidity, $150 million in usage, recovered multiple times, we can extend out for several years.

Greg Peters: Fair enough. And do you have, are you, because of the several quarters of losses, I assume you are enabled to enable to dividend up any capital from any of the subs at this point. That correct or is it, is there still a way to pull capital out of the subs if you're if needed. We cancel pull out capital out of the subs, particularly the life company. Okay. Thank you very much for the answers.

Greg Peters: Greg, I just, this is Joe, just, I wouldn't focus on the billion three. That was really an anomaly and the billion four was a, you know, a surge of earnings in the 2020 time period when people weren't driving. And as Brad pointed out, you look at the, the RBC of a thousand 15 in the life company. In an ideal world, we would have actually moved that 250 plus before the end of the quarter.

Greg Peters: And it's a timing anomaly that it was, it's going to be done on the fourth quarter rather than inside the third. So, you know, I would definitely encourage you to look at those in combination in terms of, of, you know, where the cash is moving back and forth between them. Makes sense. Thank you.

Joseph Lacher: Your next questions comes from Brian Meredith from UBS. Your line is now open. Yes. Thanks. A couple of them here. First, just on, on the adverse reserve development. Brad, I know you said that you're confident you're in a good position now as a short-tailed business. But, you know, if I look, you've had adverse development in your personal auto business for four quarters in a row. What give you confidence that your personal auto is reserved adequately?

Joseph Lacher: Are you seeing trend kind of going down now or there's certain things that give you more comfort? And then also on the reserved topic, if you could address commercial auto a little bit and what's going on there. I mean, you grew very rapidly for the last three years. And I know other companies are having challenges with their commercial auto. So, maybe your book's different or something and that's why maybe you can dress that as well.

Joseph Lacher: Yeah, let me, let's do these in reverse. And I'll, I'll do a quick one on commercial vehicle. And then, then Brad and I will tag team and maybe Matt as well on the PYD. The commercial vehicle, remember that, you know, that was a 93 6 underlying combined ratio. The $7 million is some BIDCC related items. It's just the defense and cost containment that's running underneath there. And, you know, it's still a very strong combined ratio there.

Joseph Lacher: If you look at it over, you know, any rolling 12-month period, you feel good about the underlying profitability there. So that one doesn't cause us a lot of angst. It really is just a little bit of DCC and cleaning up there.

Bradley Camden: Hi, Brian. I'm the reserve about, you know, our comfort there. You know, a lot of the activity we saw that created prior development this year was related to the second half of 2022. And so, you know, we have a short-tailed business as we get further away from that, you know, we're confident in what we have reserved. Additionally, related to PIP, you know, we've seen, you know, increased frequency of claims. We see higher severity.

Bradley Camden: When we think about what we're reserving today, we're reserving for not necessarily an acceleration of claims coming through, but a higher total claim, a higher total amount of severity due to the increase in litigated claims. And we think we've captured at this point in time everything that we can. Now, it is a management best estimate. But we think we've taken a very practical approach to what we think has occurred not only over the previous years, but we'll be expected heard going forward. Additionally, on PIP, you know, we're not reflecting any of the benefits that maybe they're related to legislative changes in the third quarter or in the first quarter of 2023.

Unknown Executive: Gotcha.

Brian Meredith: And then my second question, just going back to the capital situation, you know, like the holding company. I'm just curious, you know, if things don't start turning around here quickly, will that at all impact your ability to kind of roll out the reciprocal given that I know you can have to fund that with some preferred? And then I also know you mentioned in the relief that you're going to reinsure some business in the reciprocal.

Brian Meredith: Is that going to require some capital going in, you know, relatively soon? Yeah, there won't have any impact at all on the reciprocal. Let's let's remember this. We're not going to give any capital to to the reciprocal. The exchange itself, the capital there, is either generated by the actual policyholders there with contributions or from earnings that come off of those policies or through surplus notes. That even a surplus note is effectively alone.

Brian Meredith: So to the extent we were assisting with that and let's I'm making up a number. Let's say we gave a $20 million surplus note. It would be equivalent of us giving the exchange a $20 million loan, which it would be required to pay us back. That doesn't reduce our capital as the holding company or the parent in that process. Reinsuring business into the reciprocal. What we can do is we can take, you know, again, I'm making something up to be illustrative.

Brian Meredith: If we decided that all new business effective January 15th written in state X was going to be reinsured into the reciprocal in Georgia. Then starting on January 15th, any new business written on Kemper paper would be reinsured over. That actually would become a capital relief for the parent company Kemper because we wouldn't need to hold the capital to be able to write that new business. It actually transfers premium into the reciprocal and the surplus note would be providing the capital for that.

Brian Meredith: So it actually helps the capital situation not hurt and relieve the issue doesn't restrict. Yes. That's right. Yeah. The other thing I'd add, Brian, is I think what Joe is articulating here is it gives us actually more flexibility. It's another capability or tool that we have at our disposal. Additionally, Kemper doesn't have to be the only one supplying the reciprocal exchange with surplus notes. Eventually when it matures, we can go out and get third party capital as well, which provides additional benefit and potential release for a camper, camper corporation.

Joseph Lacher: One last. One of the reasons we're going to wind up spending some time with a special topic on the reciprocal in the first quarter. It's hard to do in an earnings call and one of these will lay out a series of slides that sort of helps that, you know, if you can imagine this, what will happen over time is as that business naturally transfers into the exchange. You're going to see premium at Kemper Corporation, go down.

Joseph Lacher: Required capital at Kemper, go down premium inside the exchange, go up, required capital inside the exchange, go up if we will never give shareholder capital to the exchange. So these things move back and forth and it will make it a little more for a short period of time as it transitions a little complicated to read our financial statements because of those shifts and that's why we're going to sit down on the first quarter. As the numbers are starting to get a little bigger to show that and help everybody see how to model it, but it really actually does ultimately release capital as this process goes through.

Unknown Executive: Gotcha.

Joseph Lacher: And one just quick, quick last one here, Joe, you said target profitability at some point in 2024, assuming it is, you know, second third quarter, whatever it is. And then can you remind us what your target profitability is in your personal or especially business? Yeah, we don't typically give a target combined ratio. We will definitely be there to generate our guidance has provided you guys a view that we're going to be a 10% ROE next year or 10% plus next year.

Joseph Lacher: We've targeted a low double digit ROE over the cycle. So we're obviously the lower end of that range, but inside of that to achieve that for the year, you would reasonably expect that the combined ratios are in the zone of our targets early on in the year. And if you just did a little math and said if we had 100.5 underlying combined ratio and specialty auto in the third quarter, and we've tried to point out that that has very little earned rate from California running through it.

Joseph Lacher: You could reasonably expect that that earned rate will more than offset lost trend and will continue to provide combined ratio improvement over the next couple of quarters. I think we've been very careful about that describing that. So that should provide a plus at the same time. We'll start writing a little bit more new business that will have its new business penalty and you will not see the combined ratio continue to improve way and excess of what might be a target that would produce that combined ratio. Those two will will converge and we'll sort of hold our ground over the course of the year.

Unknown Executive: Great. Thank you.

Paul Newsom: Next question comes from Paul Newsom, a pipe or sampler. Your line is now open. Thank you. Always helpful in the call. Could you, can I ask you about the reduction in the revolver capacity. Was that just, well, just can tell you what's what's driving that? The piece of the whole company liquidity that's changing. Yeah, sure Paul, we're hitting a covenant, the leverage covenant that's driving that and bringing that down. I'd highlight. We did, we, we did our revolver last year. We opted from four. 400 to 600 million. And so we're slightly below the 400 million today.

Bradley Camden: So if you look at it from a historical perspective, and how we actually shrunk in new business over the last year, where we stand, you know, at 375 million, not roughly, you know, that's plenty of liquidity and, you know, no concern, I have any concerns with that.

Paul Newsom: Right, different topic. The county for the preferred business, obviously, you're running it through this non court line, but it doesn't look like it's being treated as discontinued operations. It looks like the revenues and expenses are all going through on a consolidate basis, like they were before, you just not breaking it out as a separate segment. Is that, is that right? Am I, the game that writer is for it? Am I long?

Paul Newsom: It's, you know, treated like discontinued operations. It's not being below the line, but it's not technically below the line, right? It technically is below the line. It's treated as non court operations. You know, discontinued apps would have to be something that's sold or, you know, we have a deal on the table, etc. So it's non court operations is being wound down as planned. You can see that I think it was $7 million from non court operations, this quarter, you know, we'll try to provide as much information as possible to you.

Paul Newsom: I think we also included about $14 million of catastrophe losses, etc. But you won't see it as a segment going forward. But it'll be in the consolidated dumpers, like this consolidated revenue, for example, include premiums from the. You won't, you won't see any of the detail from like a premium standpoint and investment income standpoint. Any of those things, it all is getting lumped into one component and non court operations. So think about taking, yeah, you have to take it.

Paul Newsom: Yeah, so think about that segment, you know, previously previously camper preferred insurance. All of those components are being truncated to one line. And so you're seeing the net impact of that business performance. There. And maybe simplify. Maybe you're wrong on this poll and not an account, but I think part of the issue on the discontinued ops, you know, adding on to breads. I know it's the sale or the exit, but if we're just shutting it down, we didn't exit all private passenger auto.

Paul Newsom: So that that was I think some of the advice we were getting is that's part of why we can't move it to discontinued ops. Which is, which is fine, I just think about from an operating from modeling perspective, because if we're modeling total revenue for the front arm. In a discontinued ops situation, it wouldn't show up in tow revenue, but if it was, just, you know, consider non-core, like it sounds like you're doing, it'll show up and consolidate for revenue on your, in your K or Q or, I think that's right.

Bradley Camden: And then, we can definitely take it off the line, Paul, and help you with the, with the modeling pieces of how it will come true.

Paul Newsom: So, last question, I'm getting this a lot, the iteration of the 10% plus R.O.E. Some of the pushback I'm getting is that that may be sort of, I don't know, decided to communicate this or not, essentially a reduction in the earnings expectations for next year because the capital is lower because of the losses we've incurred in this quarter, for example. You know, any thoughts on that? Do you think that's fair, or the question's coming out quite a bit, so I thought I asked him to call.

Paul Newsom: Yeah, I think, Paul, we're trying to get a little simpler in terms of how we communicate stuff, where we've said that we're going to generate a 10%, you know, plus R.O.E. We were doing a pre-announcement, so there's a limited ability and a press release to try to describe every nuance, and I understand there's a lot of attention on all of the pieces running around our business and where things are, and we're not trying to be, Q, we're trying to actually just sort of simplify what we're doing.

Paul Newsom: It's a basic gap R.O.E, calculation. We're sticking with a 10% plus, and I understand the math. You're describing in it. We weren't trying to hide something in there. We weren't trying to send a different signal. Maybe it's because of Halloween, everybody's looking for ghosts, but it was trying to be a simple statement. Appreciate that.

Joseph Lacher: Thank you very much.

Operator: Ladies and gentlemen, as a reminder, should you have any questions, please press star, followed by the number one on your keypad.

Operator: There are no further questions at this time.

Joseph Lacher: Mr. Joe Laker, please proceed with your closing remarks. Thank you, operator. Thank you, everybody, for joining our call today and for the questions, and we look forward to speaking you again in the fourth quarter, or with the fourth quarter results. Thanks.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.