Q1 2024 Kemper Corp Earnings Call

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Operator: Good afternoon, ladies and gentlemen, and welcome to Kemper's first quarter 2024 earnings conference call. My name is Ina, 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 a third time. As a reminder, this conference call is being recorded for replay purposes. I would now like to introduce your host for today's conference call, Michael Marinaccio, Kemper's Vice President of Corporate Development and Investor Relations. Mr. Marinaccio, you may begin.

Good afternoon, ladies and gentlemen, and welcome to Kemper's first quarter 2024 earnings Conference call.

Speaker Change: My name is <unk> and I will be your coordinator today.

Speaker Change: This time, all participants are in listen only mode.

Speaker Change: We will conduct a question and answer session and instructions will follow at that time.

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

Speaker Change: I would now like to introduce your host for today's conference call, Michael Murray Nutshell campus, Vice President of corporate development and Investor Relations. Mr. Martin Nacho you may begin.

Michael Anthony Marinaccio: Thank you, operator. Good afternoon, everyone, and welcome to Kemper's discussion of our first quarter 2024 results. This afternoon, you'll hear from Joe Lacher, Kemper's President and Chief Executive Officer, Brad Camden, Kemper's Executive Vice President and 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 first quarter results, followed by a Q&A session. During the interactive portion of the call, our presenters will be joined by Chris Flint, Kemper's Executive Vice President and President of Kemper Life; Duane Sanders, Kemper's Executive Vice President and Chief Claims Officer, P&C. And Jon Buscelli, Kemper's Executive Vice President and Chief Investment Officer.

Speaker Change: Thank you operator, good afternoon, everyone and welcome to Kemper's discussion of our first quarter 2024 results.

Speaker Change: This afternoon, you'll hear from Joe Lacher, Kemper's, President and Chief Executive Officer, Brad Camden, Kemper's, Executive Vice President and Chief Financial Officer, and Matt Hunton, Kemper's Executive Vice President and President of Kemper Auto.

Michael Anthony Marinaccio: After the markets closed today, we issued our earnings release, filed our Form 10-Q with the SEC, and published our earnings presentation and financial supplement. You can find these documents in the investor section of our website, Kemper.com. Our discussion today may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, the company's outlook and its future results of operations and financial conditions.

Joseph Patrick Lacher: I'll make a few opening remarks to provide context around our first quarter results followed by a Q&A session. So any interactive portion of the call our presenters will be joined by.

Joseph Patrick Lacher: Chris Glynn Kemper's executive Vice President and President of Kemper life.

Joseph Patrick Lacher: Duane Sanders Kemper's Executive Vice President and Chief claims Officer, P&C, and Jamba, Shelly Kemper's Executive Vice President and Chief Investment Officer.

Joseph Patrick Lacher: After the market's close today, we issued our earnings release filed our Form 10-Q with the SEC and published our earnings presentation and financial supplement you can find these documents in the investors section of our website <unk> Dot com.

Michael Anthony Marinaccio: Our actual future results and financial conditions may differ materially from these statements. For information on additional risks that may impact these forward-looking statements, please refer to our 2023 Form 10-K and our first quarter earnings release. 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've defined and reconciled all non-GAAP financial measures to GAAP where required in accordance with SEC rules.

Joseph Patrick Lacher: Our discussion today may contain forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of $19 95.

Joseph Patrick Lacher: Savings include but are not limited to the company's outlook and its future results of operation and financial condition, our actual future results in Phoenix and condition may differ materially from these statements.

Joseph Patrick Lacher: Nation on additional risks that may impact. These forward looking statements. Please refer to our 2023 Form 10-K, and our first quarter earnings release.

Joseph Patrick Lacher: This afternoon's discussion also includes non-GAAP financial measures, we believe are meaningful to investors.

Joseph Patrick Lacher: Financial supplement earnings presentation and earnings release, we have defined and reconciled all non-GAAP financial measures to GAAP, where required in accordance with SEC rules you can find each of these documents in the investors section of our website <unk> Dot com.

Michael Anthony Marinaccio: You can find each of these documents in the investor section of our website, Kemper.com. Lastly, all comparative references will be to the corresponding 2023 periods unless otherwise stated. I will now turn the call over to Joe.

Joseph Patrick Lacher: Lastly, all comparative references will be to the corresponding 2023 periods unless otherwise stated.

Joseph Patrick Lacher: I will now turn the call over to Joe.

Joseph Patrick Lacher: Thank you, Michael. Good afternoon, everyone, and thanks for joining us today. I'll start by noting that overall, we're pleased with our results and the progress we've made this quarter. We continue to deliver significantly improved profitability in our specialty PNC business, where we're now exceeding target margins. As expected, policies in force continue to decline.

Joseph Patrick Lacher: Thank you Michael good afternoon, everyone and thanks for joining us today.

Joseph Patrick Lacher: I'll start by noting that overall, we're pleased with our results and the progress we've made this quarter.

Joseph Patrick Lacher: We continue to deliver significantly improved profitability in our specialty P&C business, where we are now exceeding target margins.

Joseph Patrick Lacher: While as expected policies in force continued to decline.

Joseph Patrick Lacher: We initiated our new business expansion activities and are on track to return to more typical new business rates by mid-year. As pricing, loss trend, and new business levels return to a more normal balance, our underlying competitive advantages are becoming more visible. With our story and results becoming clearer and simpler, we believe the underlying strength and long-term value creation of the franchise will be consistently apparent. Now, we move to page four and jump into results.

Joseph Patrick Lacher: We initiated our new business expansion activities and are on track to return to more typical new business rates by mid year.

Joseph Patrick Lacher: As pricing and loss trend and new business levels returned to a more normal balance our underlying competitive advantages are becoming more visible.

Joseph Patrick Lacher: With our story and results, becoming clearer and simpler we believe the underlying strength and long term value creation of the franchise will be consistently apparent.

Joseph Patrick Lacher: Let's move to page four and jump into results.

Joseph Patrick Lacher: Overall, we delivered $71 million of net income, an annualized ROE of over 11%, and a tangible ROE of over 17%. We are once again achieving or exceeding our target return. Specialty P&C generated a 93.6% underlying combined ratio.

Joseph Patrick Lacher: Overall, we delivered $71 million of net income and annualized ROE over 11% and a tangible Roe of over 17% we.

Joseph Patrick Lacher: We are once again, achieving or exceeding our target returns.

Joseph Patrick Lacher: Specialty P&C generated a 93, 6% underlying combined ratio.

Joseph Patrick Lacher: That is a 4.6 point improvement sequentially, a 14.4 point improvement year over year, and the fourth consecutive quarter of underlying improvement. We're pleased that once again, we're exceeding our target combined ratio of 96% in this business. Let me acknowledge that, historically, we've only provided a long-term consolidated ROE target and not a specific specialty PNC target combined ratio. We recognize this has caused some confusion, and we're fixing that now. Brad's going to comment further on that a little later.

Joseph Patrick Lacher: That is a four six point improvement sequentially or 14, four point improvement year over year, and the fourth consecutive quarter of underlying improvement.

Joseph Patrick Lacher: We're pleased that once again, we're exceeding our target combined ratio of 96% in this business.

Joseph Patrick Lacher: Let me acknowledge that historically, we've only provided a long term consolidated Roe targets.

Joseph Patrick Lacher: Not a specific specialty P&C target combined ratio.

Joseph Patrick Lacher: We recognize this has caused some confusion and we're fixing that now Brad is going to comment further on that a little later.

Joseph Patrick Lacher: Relative to our life business, while demonstrating modest quarterly volatility, we continue to deliver consistent returns. I'll spend more time talking about this later in the call. Shifting to specialty PNC production. We're acutely aware that PIF growth, or rather the lack thereof, is the most significant issue on investors' minds at the moment. We made significant progress in this area during the quarter. While Matt will dig into this in much greater detail, I'm going to hit a few highlights and offer an overriding perspective on 2023. We committed to a nearly exclusive focus on restoring underwriting profitability, deliberately foregoing new business and potential growth.

Joseph Patrick Lacher: Relative to our life business, while demonstrating modest modest quarterly volatility we continue to deliver consistent returns.

Bradley Thomas Camden: I'll spend more time talking about this later in the call.

Bradley Thomas Camden: Shifting to specialty P&C production.

Bradley Thomas Camden: We're acutely aware that pip growth or rather lack thereof is the most significant issue on investors' minds at the moment.

Bradley Thomas Camden: We made significant progress in this area during the quarter.

Bradley Thomas Camden: While Matt will dig into this in much greater detail I'm going to hit a few highlights and offer an overriding perspective.

Bradley Thomas Camden: Throughout 2023 with.

Bradley Thomas Camden: We committed to a nearly exclusive focus on restoring underwriting profitability deliberately foregoing new business and potential growth as.

Joseph Patrick Lacher: As we discussed last quarter, we did not revise the new business engine, if you will, until we delivered a sub-100 combined ratio. When it was clear that this had been accomplished with fourth-quarter results and we had optimism about the margin outlook, we initiated our new business expansion. This decision was made in late January.

Bradley Thomas Camden: As we discussed last quarter, we did not Rev. The new business engine. If you will until we delivered a sub 100 combined ratio when it was clear that this had been accomplished with fourth quarter results and we had optimism about the margin outlook, we initiated our new business expansion.

Bradley Thomas Camden: This decision was made in late January.

Joseph Patrick Lacher: There are two key points that will help you interpret our numbers and see why we have confidence in our ability to stabilize PIF quickly. Since the execution of the new business expansion began in mid-February, only half the quarter realized the benefits. And second, consider the prudent nature of the expansion we're utilizing. We did not turn new business on, similar to flipping on a light switch and going from zero to 100% immediately. We're expanding new business more analogously to driving a stick shift. You don't go from first gear to fifth gear without stalling.

Bradley Thomas Camden: There are two key points that will help you interpret our numbers and see why we have confidence in our ability to stabilize <unk> quickly.

Bradley Thomas Camden: First.

Bradley Thomas Camden: Since the execution of the new business expansion began in mid February only half the quarter realize the benefit.

Bradley Thomas Camden: And second <unk>.

Bradley Thomas Camden: The prudent nature of the expansion, we're utilizing we did not turn new business on similar to flipping on a light switch and going from zero to a 100% immediately we're.

Bradley Thomas Camden: We're expanding new business more analogously to driving a stick shift you don't go from first gear to fifth gear without stalling the first quarter, representing perhaps moving through first and early second year. This resulted in new business apps written growing by nearly two six times the fourth quarter of 2023 volume for the month of April we wrote about as men.

Joseph Patrick Lacher: The first quarter represented perhaps moving through the first and early second year. This resulted in new business apps written growing by nearly 2.6 times the fourth quarter of 2023 volume. For the month of April, we wrote about as many new business apps as we did in all of the first quarter.

Bradley Thomas Camden: New business apps as we did in all of the first quarter.

Joseph Patrick Lacher: On a run rate basis, this suggests the second quarter volume is approaching roughly three times the first quarter volume. This might be characterized as the new business engine moving through third and perhaps fourth gear.

Bradley Thomas Camden: On a run rate basis. This suggests the second quarter approaching roughly three times the first quarter volumes.

Bradley Thomas Camden: Might be characterized as the new business engine moving through third and perhaps fourth gear.

Joseph Patrick Lacher: We have confidence that PIFT will stabilize mid-year, and growth will follow, subject to traditional seasonality patterns. In the six quarters prior to the pandemic disruption, this business generated unit growth between 6 and 13 percent. We expect our competitive advantages will allow us to deliver similar results in 2025 and beyond. For a short time, we're going to profile a new, more responsive metric, and new business apps to help you measure the speed of PIF stabilization.

Bradley Thomas Camden: The takeaway we are confident that <unk> will stabilize mid year growth will follow subject to traditional seasonality patterns.

Bradley Thomas Camden: In the six quarters prior to the pandemic disruption this business generated unit growth between six and 13%.

Bradley Thomas Camden: We expect our competitive advantages will allow us to deliver similar results for 2025 and beyond.

Bradley Thomas Camden: For a short time, we're going to profile of new more responsive metric new business apps to help you measure the speed of <unk> stabilization, that's going to go through more detail on slide nine and 10.

Joseph Patrick Lacher: Matt's going to go through more detail on slides 9 and 10. As discussed last quarter, the bulk of the strategic initiatives we've been profiling have either been completed or require less frequent updates given their long-term nature, so there's not much to discuss on those this quarter. I'll leave you with one last thought.

Bradley Thomas Camden: As discussed last quarter, the bulk of the strategic initiatives, we've been profiling have either been completed or require less frequent updates given their long term nature. So theres not much to discuss on those this quarter.

Speaker Change: I'll leave you with one last thought.

Joseph Patrick Lacher: We remain committed to delivering an overall low double-digit ROE throughout the cycle. For example, within our specialty P&C business, we're targeting a 96 combined ratio and then growing the business as much as possible. We've successfully corrected a major profitability challenge and are now exceeding our target combined ratio. We're addressing declining PIFs, and it is expected to stabilize mid-year. We hope you leave today sharing our confidence that we will return to a more traditional, consistent, long-term, profitable growth profile by early next year. With that, I'll turn it over to Brad.

Speaker Change: We remain committed to delivering an overall low double digit Roe throughout the cycle within our specialty P&C business, we're targeting a 96 combined ratio and then growing the business as much as possible.

Bradley Thomas Camden: We've successfully corrected a major profitability challenge and are now exceeding our target combined ratio.

Bradley Thomas Camden: We're addressing declining pit and expect it to stabilize mid year we.

Bradley Thomas Camden: We hope you leave today sharing our confidence that we will return to a more traditional consistent long term profitable growth profile by early next year.

Bradley Thomas Camden: With that I'll turn it over to Brad.

Bradley Thomas Camden: Thank you, Joe. I'll begin on page 5 with our consolidated financial results. Before reviewing our first quarter results, I want to take a moment to review the metrics we use to evaluate our performance and reaffirm our guidance. As you recall from prior presentations, we strive to deliver a low double-digit return on equity, grow book value per share, and generate premium growth in line with the market or higher. These metrics have not changed.

Bradley Thomas Camden: Thank you Joe I'll begin on page five with our consolidated financial results.

Bradley Thomas Camden: Before reviewing our first quarter results I want to take a moment to review the metrics, we use to evaluate our performance and reaffirm our guidance. If you recall from prior presentations, we strive to deliver a low double digit return on equity grow book value per share and generate premium growth in line with the market or higher these metrics have not changed.

Bradley Thomas Camden: For 2024, we've guided to a return on equity of 10% or higher, and we are reaffirming this metric. As Joe mentioned, for the specialty P&T business, we have not historically provided a target combined ratio. To help simplify our messaging, we are now providing a target combined ratio of 96 for that business. Do not interpret this as guidance but rather how we will run the business over the long term. Our goal is to achieve our target combined ratio or better and maximize growth.

Bradley Thomas Camden: For 2024, we've guided to a return on equity of 10% or higher and we are reaffirming this metric.

Bradley Thomas Camden: As Joe mentioned for the specialty P&C business, we have not historically provided a target combined ratio.

Bradley Thomas Camden: To help simplify our messaging we are now providing a target combined ratio of 96, four that business do not interpret this as guidance, but rather how we will run the business over the long term.

Bradley Thomas Camden: Our goal is to achieve our targeted combined ratio or better and maximize growth.

Bradley Thomas Camden: Moving to first quarter results, as Joe highlighted, we delivered a fourth consecutive quarter of underlying business improvement and a second straight quarter of solid operating and underwriting profits. Rate actions, and the realized benefits of several completed strategic initiatives, such as our cost structure optimization program, led to this positive outcome. For the quarter, we had net income of $71.3 million, or $1.10 per diluted share, and adjusted consolidated net operating income of $69.7 million, or $1.07 per diluted share. Annualized return on equity was 11.2%, a strong first step towards achieving the 2024 ROE guidance of 10% or better.

Bradley Thomas Camden: Moving to first quarter results.

Bradley Thomas Camden: As Joe highlighted we delivered a fourth consecutive quarter of underlying business improvement and a second straight quarter of solid operating and underwriting profits.

Bradley Thomas Camden: Rate actions and the realized benefits of several completed strategic initiatives such as our cost structure optimization program led to this positive outcome.

Bradley Thomas Camden: For the quarter, we had net income of $71 3 million or $1 10 per diluted share and adjusted consolidated net operating income of $69 7 million or $1 seven per diluted share.

Bradley Thomas Camden: Annualized return on equity was 11, 2% a strong first step towards achieving the 2024, our guidance of 10% or better.

Bradley Thomas Camden: Specialty PNC's 4.6 point sequential improvement in the underlying combined ratio helped drive improvements in our consolidated results. This business benefited primarily from the earned rate within PPA of approximately nine points offset by a seasonally normal loss trend. Frequency trend is favorably, while severity remained elevated.

Bradley Thomas Camden: The specialty P&C is four six point sequential improvement in the underlying combined ratio helped drive improvements in our consolidated results.

Bradley Thomas Camden: This business benefited primarily from the earned rate within PPA of approximately nine points offset by seasonally normal loss trends frequency.

Bradley Thomas Camden: Frequency trended favorably while severity remains elevated moving to the preferred P&C business, which is reported below the line as noncore operations generated net income of $5 million, including approximately $12 million of current year catastrophe losses.

Bradley Thomas Camden: Moving to the preferred PNC business, which is a reportable line and a non-core operation, generated a net income of $5 million, including approximately $12 million in current year catastrophe losses. And lastly, Specialty PNC's adverse prior development was $5.3 million related to several specific litigation matters. Turning to page 6.

Bradley Thomas Camden: And lastly, specialty P&C adverse prior year development was $5 3 million related to several specific litigation matters.

Bradley Thomas Camden: Turning to page six our.

Bradley Thomas Camden: Our insurance companies are well-capitalized and have significant sources of liquidity. At the end of the quarter, parent company liquidity was approximately $1.1 billion, consisting of revolver capacity, intercompany lending capacity, and holding company cash and investments. Our healthy liquidity balances allow us to pay holding company dividends and interest payments and support our operating subsidiaries as needed. Our life business continues to be well-capitalized, and the P&T business continues to improve its capital ratios

Bradley Thomas Camden: Our insurance companies are well capitalized and have significant sources of liquidity at the end of the quarter parent company liquidity was approximately $1 1 billion consisting of a revolver capacity intercompany lending capacity and holding company cash and investments our healthy liquidity balances allow us at the holding company dividends and interest payments and support our operating subsidiaries as needed.

Bradley Thomas Camden: Our life business continues to be well capitalized and the P&C business continues to improve its capital ratios.

Bradley Thomas Camden: Operating profits and the preferred business wind down are helping to improve PNC's capital levels. As we previously mentioned, we anticipate over $130 million of capital to be released from the preferred business exit this year. Over $45 million of capital was released in the first quarter. We continue to focus on improving our balance sheet metrics and reducing our debt-to-capital ratio. As we mentioned in late 2022, we expect to pay down at least $150 million of debt when we address our $450 million February 2025 debt maturity, which will help reduce our leverage ratio.

Bradley Thomas Camden: Operating profit in the preferred business wind down or helping to improve P&C capital levels.

Bradley Thomas Camden: As we previously mentioned, we anticipate over 130 million of capital to be released from the preferred business exit this year over 45 million of capital was released in the first quarter.

Bradley Thomas Camden: We continue to focus on improving our balance sheet metrics and reducing our debt to capital ratio.

Bradley Thomas Camden: As we mentioned in late 2022, we expect to pay down at least 150 million of debt when we address our $450 million in February 2025 debt maturity to help reduce our leverage ratio.

Bradley Thomas Camden: Moving to page seven, net investment income for the quarter was $100 million, and our pre-tax equivalent annualized book yield was 4.3%. Lower returns on our alternative investment portfolio reduced that investment income from the prior quarter. We continue to maintain a high quality investment portfolio that generates stable income to support our operating businesses and is aligned with our liabilities. I'll now turn the call over to Matt to discuss the specialty PNC business.

Bradley Thomas Camden: Moving to page seven.

Bradley Thomas Camden: Net investment income for the quarter was $100 million and our pretax equivalent annualized book yield was four 3%.

Bradley Thomas Camden: Lower returns in our alternative investment portfolio reduced net investment income from the prior quarter.

Bradley Thomas Camden: We continue to maintain a high quality investment portfolio that generate stable income to support our operating businesses and is aligned with our liabilities.

Matthew Andrew Hunton: Thank you, Brad, and good afternoon, everyone. Moving to page 8 in our specialty P&C business. I'll start with overall comments for both private passenger auto and commercial vehicles. For the segment, we closed the first quarter with an underlying combined ratio of 93.6%, representing a 4.6-point improvement sequentially and a 14.4-point improvement year-over-year. This resulted in an outperformance against our target of 96. Once again, the cumulative benefit of our profit actions exceeded the incremental loss trend. Our PPA business reported a strong underlying combined ratio of 93.5%. We have additional unearned rate, which will remain a tailwind. Our CV business generated an underlying combined ratio of 93.8%.

Bradley Thomas Camden: I'll now turn the call over to Matt to discuss the specialty P&C business.

Matthew Andrew Hunton: Thank you Brad and good afternoon, everyone moving to page eight in our specialty P&C business.

Matthew Andrew Hunton: Start with overall comments for both private passenger auto and commercial vehicle.

Matthew Andrew Hunton: For the segment, we closed the first quarter with an underlying combined ratio of 93, 6% representing a four six point improvement sequentially and a $14 four point improvement year over year.

Matthew Andrew Hunton: This resulted in an outperformance against our target of 96.

Matthew Andrew Hunton: Once again, the cumulative benefit of our profit actions exceeded incremental loss trend.

Matthew Andrew Hunton: Our PPA business reported a strong underlying combined ratio of 93, 5%.

Matthew Andrew Hunton: We have additional unearned rate, which will remain a tailwind.

Matthew Andrew Hunton: Our CV business generated an underlying combined ratio of 93, 8%.

Matthew Andrew Hunton: Our specialization and underwriting discipline continue to create value. Turning to production, our explicit near-term goal is to stabilize PIF levels. There are several factors that will help to support this goal. First, customer and agent demand for our products is strong. Second, policy retention remains stable.

Matthew Andrew Hunton: Our specialization and underwriting discipline continue to create value.

Matthew Andrew Hunton: Turning to production our explicit near term goal is to stabilize pith levels. There are several factors that will help to support this goal first.

Matthew Andrew Hunton: Customer and agent demand for our products is strong.

Matthew Andrew Hunton: Policy retention remained stable and finally, the most impactful opportunity comes from re expanding our new business availability.

Matthew Andrew Hunton: And finally, the most impactful opportunity comes from re-expanding our new business availability. In an effort to provide more insight into PIF and new business level changes, we've temporarily added two new slides. The last two years have seen uncharacteristically dramatic swings in our new business volumes. We believe multiple metrics can be helpful in identifying and evaluating periods of change. Page 9 details policy-enforced trends.

Matthew Andrew Hunton: In an effort to provide more insight into Pip and new business level changes, we've temporarily added two new slides.

Matthew Andrew Hunton: The last two years have uncharacteristically dramatic swings in our new business volumes, we believe multiple metrics can be helpful in identifying and evaluating periods of change.

Matthew Andrew Hunton: Page nine details policy enforced trends.

Matthew Andrew Hunton: Year-over-year change in PIF is a valuable metric in relatively stable times because it accounts for seasonality. It's a rolling four-quarter measure of activity and therefore acts as a trailing indicator. However, in periods of significant change, it masks the underlying dynamics.

Matthew Andrew Hunton: Year over year change in Pip is a valuable metric and relatively stable times because it accounts for seasonality its a rolling four quarter measure of activity and therefore acts as a trailing indicator in periods of significant change it masked the underlying dynamics year over year Pip decline in the quarter and the fourth quarter of 2023, we're effectively.

Matthew Andrew Hunton: Year-over-year PIF decline in the quarter and the fourth quarter of 2023 were effectively constant at approximately 32%. The sequential quarter trend is a more responsive measure of how our policy-enforced base is evolving because it measures one quarter's activity.

Matthew Andrew Hunton: Constant at approximately 32%.

Matthew Andrew Hunton: The sequential quarter trend is a more responsive measure of how our policy enforce basis evolving it measures one quarter's activity.

Matthew Andrew Hunton: As noted, our sequential quarter PIF decline slowed by 3.4 points, from 8.9% in the fourth quarter to 5.5% this quarter. On an annualized basis, this represents an improvement from minus 31% to minus 20%. Progress is more clearly visible. It was driven by our new business expansion. Let's turn to page 10 for more detail.

Matthew Andrew Hunton: As noted our sequential quarter Pip decline slowed by three four points from eight 9% in the fourth quarter to five 5% this quarter on an annualized basis. This represents an improvement from minus 31% to minus 20%.

Matthew Andrew Hunton: The address is more clearly visible here.

Matthew Andrew Hunton: It was driven by our new business expansion.

Matthew Andrew Hunton: Let's turn to page 10 for more detail here.

Matthew Andrew Hunton: Here, we highlight how new business apps are. In this chart, the bar shows new business apps. As Joe highlighted, the re-expansion of new business writing is underway. Apps have increased by greater than 2.6 times our fourth quarter volumes, and in the month of April, new business apps were approximately equal to the total of Q1. On a run rate basis, the second quarter is on pace to be about three times larger.

Matthew Andrew Hunton: Here, we highlight how new business apps are trending in this chart. The bar shows new business apps as Joe highlighted the re expansion of new business writings is underway.

Matthew Andrew Hunton: <unk> increased by greater than two six times, our fourth quarter volumes and in the month of April new business apps were approximately equal to the total of Q1.

Matthew Andrew Hunton: On a run rate basis, the second quarter is on pace to be about three times Q1. This trajectory demonstrates the pace of our reopening.

Matthew Andrew Hunton: This trajectory demonstrates the pace of our reopening. The line in the chart represents new business relative to the beginning of the quarter PIF or new business rate. As you can see, the first quarter and the run rate of the second quarter are approaching 4Q 2020 levels. This gives us great confidence in stabilizing PIF by mid-year. Given seasonally lower activity late in the year, app volumes will likely level off, and we don't expect significant sequential unit growth until the early part of 2025. Let's shift gears and bring this back up a little.

Matthew Andrew Hunton: The line on the chart represents new business relative to the beginning of quarter pit or new business rate as you can see the first quarter and the run rate of the second quarter are approaching <unk> 2020 levels.

Matthew Andrew Hunton: This gives us great confidence in stabilizing pith by mid year.

Matthew Andrew Hunton: Given seasonally lower activity late in the year at volumes will likely level off we don't expect significant sequential unit growth until the early part of 2025.

Speaker Change: Let's shift gears and bring this back up a level.

Matthew Andrew Hunton: Our long-term goal is to achieve a 96 or better combined ratio and to maximize. We remain confident in our competitive advantages. These advantages position us to effectively navigate the ongoing market environment. Both the profile and loss performance of our new business writings are in line with or better than expectations. In conclusion, despite a quarter where PIF continued to decline, we're happy with our overall progress and are confident in achieving PIF stabilization by mid-year. I'll now turn the call over to Joe to cover the life business and closing comments.

Speaker Change: Our long term goal is to achieve a 96 or better combined ratio and to maximize growth. We remain confident in our competitive advantages. These advantages position us to effectively navigate the ongoing market environment, both the profile and loss performance of our new business writings are in line or better than expectations.

Speaker Change: In conclusion, despite a quarter, where pit continued to decline we're happy with our overall progress and are confident in achieving stabilization by mid year I will now turn the call over to Joe to cover the life business and closing comments.

Joseph Patrick Lacher: Thanks, Matt.

Joseph Patrick Lacher: Turn to page 11. Net operating income was $12 million for the first quarter. Mortality was in line with pre-pandemic levels. As expected, the inflationary environment continued to place modest pressure on this business. Although overall persistency remained in line with historical trends, new business levels were down slightly compared to the first quarter of last year.

Joseph Patrick Lacher: Turning to our life business on page 11.

Joseph Patrick Lacher: Net operating income was $12 million for the first quarter mortality was in line with pre pandemic levels.

Joseph Patrick Lacher: As expected the inflationary.

Joseph Patrick Lacher: Free environment continued to place modest pressure on this business. Although overall persistency remained in line with historical trends new business levels were down slightly compared to the first quarter of last year.

Joseph Patrick Lacher: Turning to page 12.

Joseph Patrick Lacher: In closing, to reiterate our highlights for the quarter, overall profitability improved and exceeded targets, led by the specialty P&C underlying combined ratio of 93.6%, and we delivered our fourth consecutive quarter of underlying business improvement with more rates to earn in over the next few quarters. The new business expansion we initiated midway through the quarter is delivering solid results. We expect to see PIFS stabilize mid-year as new business rates continue to ramp up throughout 2024.

Joseph Patrick Lacher: In closing to reiterate our highlights for the quarter.

Joseph Patrick Lacher: Overall profitability improved and exceeded targets led by the specialty P&C underlying combined ratio of 93, 6% and we delivered our fourth consecutive quarter of underlying business improvement with more rate to earn in over the next few quarters.

Joseph Patrick Lacher: The new business expansion, we initiated midway through the quarter delivering solid results, we expect to see Pip stabilize mid year as new business rates continue to ramp up throughout 2024.

Joseph Patrick Lacher: Lastly, our life business continues to produce stable earnings. While we're pleased with the results for the quarter and our ability to achieve target profitability, we're clearly continuing to focus on stabilizing PIP. Effective execution of our profit improvement actions, combined with the successful completion of several strategic initiatives, has enabled Kemper to weather the storm and come out a stronger company, dedicated to delivering on our promises of providing attractive long-term intrinsic growth to our shareholders and value to all our stakeholders. This could not have been accomplished without the strong efforts and dedication of our entire Kemper team. Operator, I'll now turn it back to you to take questions.

Joseph Patrick Lacher: Lastly, our life business continues to produce stable earnings.

Joseph Patrick Lacher: While we're pleased with our results for the quarter and our ability to achieve target profitability.

Joseph Patrick Lacher: We're clearly continuing to focus on stabilizing tests.

Joseph Patrick Lacher: Effective execution of our profit improvement actions combined with the successful completion of several strategic initiatives has enabled <unk> to weather the storm and come out a stronger company dedicated to delivering on our promises of providing attractive long term intrinsic growth to our shareholders and value to all our stakeholders.

Joseph Patrick Lacher: This could not have been accomplished without a strong effort and dedication of our entire Kemper team.

Speaker Change: Operator, I'll now turn it back to you to take questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the number one on your telephone keypad. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press STAR followed by the three-tone prompt. Once again, that is a star and one jazzy question. Your first question comes from the line of Gregory Peters from Raymond James. Please go ahead.

Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by Don on your telephone keypad, Gila and Jay Thompson acknowledging your request.

Speaker Change: Questions will be taken into or would you receive should you wish to cancel your request. Please press star followed later too.

Speaker Change: Once again that is star one chassis question first.

Joseph Patrick Lacher: First question comes from the line of Greg Peters from Raymond James. Please go ahead.

Gregory Peters: Good afternoon, everyone. So, thanks for the additional color on the new business apps. I was just, I guess, as I'm looking at the charts and digesting the information you've provided, You know, the quarterly run rate being three times what it was in the first quarter. I'm trying to reconcile that with the fact that you expect PIFT to stabilize in the first half. It seems like with that type of production that we might actually pivot to actually being up in PIFT, so maybe you can help me with some of the math there.

Unknown Executive: Good afternoon, everyone.

Joseph Patrick Lacher: So.

Greg Peters: Thanks for the additional color on new business apps.

Greg Peters: I was just.

Unknown Executive: I guess as I'm looking at the charts and digesting the information you provided.

Greg Peters: The quarterly run rate being three times, what it was in the first quarter.

Greg Peters: I'm trying to reconcile that with the fact that you.

Greg Peters: Greg.

Greg Peters: Pip to stabilize in the first half it seems like with that type of production that we might actually pick.

Greg Peters: Is it to actually being up and if so maybe you can help me.

Speaker Change: With some of the math there.

Joseph Patrick Lacher: Yeah, sure, Greg. Thanks. Thanks for the question. And this is Joe. I'll start, and Matt, you jump into the issue you get in specialty auto is a relatively significant amount of seasonality relative to new buyers. If you think about the first quarter, it might be, you know, if you started at act, the second quarter is probably 25% bigger, the third quarter is a hair smaller, and the fourth quarter's maybe a third or 40% smaller. [inaudible] New Business at a Greater Rate. We will write maybe more about the available new business apps in the marketplace, but it may be about the same number of new business apps.

Greg Peters: Yes sure Greg. Thanks. Thanks for the question. This is Joe I'll start and then Matt you jump into the issue you get in specialty auto.

Greg Peters: Is a relatively significant amount of seasonality relative to new buyers.

Greg Peters: If you think about the first quarter it might be.

Greg Peters: Started.

Greg Peters: Ask the second quarter is probably 25% bigger.

Greg Peters: Third quarter is a hair smaller and the fourth quarters, maybe a third or 40% smaller.

Greg Peters: Then that then that first so there is definitely a surge in the second quarter.

Greg Peters: And a bigger than quarterly average in the first compared to the third and fourth so what will happen.

Speaker Change: Well right.

Greg Peters: New business at a greater rate, we will write maybe more of the available new business apps in the marketplace, but it may be about the same amount of new business apps.

Joseph Patrick Lacher: There's a seasonality element. That's one of the reasons we've historically looked at the year-over-year PIF, because you get a rolling four quarters in that process, so it tamps out the seasonality effect. Right now, with the change that's going on, you really very much need to look at the sequential PIF, and you need to look at the increase in new business apps. What we were trying to give you comfort with is that, as you saw, April annualized, it was up significantly.

Greg Peters: There's a seasonality element that's one of the reasons, we've historically looked at the year over year path.

Greg Peters: Because you get a rolling four quarters in that process. So it tamps out the seasonality effect.

Greg Peters: Right now with the change that's going on.

Greg Peters: You're really very much need to look at the sequential path and you need to look at the increase of new business apps. What we were trying to give you a comfort with.

Joseph Patrick Lacher: That, you know, maybe, to use our analogy, maybe late second or early third year, as we continue to move through the gears, we'll have an increasing percentage of the available new business, maybe a comparable comparable number. So that may just wind up holding steady for the fourth quarter. What you're going to see is in the second quarter, direct written premium will be up low double digits; it will be up much higher than that for the second half of the year; you'll see PIF count growing in the first quarter of next year and earned premium growing in the first quarter of next year.

Greg Peters: Is that because you saw that April annualized.

Greg Peters: It was it was up significantly.

Greg Peters: That may.

Greg Peters: Maybe to use our analogy might be late second early third year as we continue to move through the gears will have an increasing percentage of the available new business, maybe a comparable.

Greg Peters: Comparable count numbers. So is that May just wind up holding steady for the fourth quarter.

Greg Peters: What youre going to see is in the second quarter direct written premium will be up.

Greg Peters: Low double digits it.

Greg Peters: It will be up.

Greg Peters: Much higher than that for the second half of the year Youll see pest count growing in the first.

Greg Peters: First quarter of next year and earned premium growing in the first quarter of next year. So this new business App look should give you a view.

Joseph Patrick Lacher: So this new business app should give you a view, particularly as you look at that line on page 10, not the bars, but the line, you can see that new business, relative to the policy reports at the beginning of the year, is at a very comparable rate to where it had been in late 2020. [inaudible]

Greg Peters: Particularly as you look at that line on page 10, not the bars, but the line you can see that new business relative to the the policies enforced at the beginning of the year is a very comparable rate to where it had been.

Greg Peters: In late 2020.

Greg Peters: Premiums are going to be growing next quarter written premiums.

Greg Peters: Significant written premium growth in the back half of the year and then Pat and earned premium in the first quarter next year does that help.

Joseph Patrick Lacher: That does, and as you were talking, I was actually looking at the chart that you have on page 10. You know, as further clarification or reconciling the different moving pieces. You're running your specialty auto at target margins. You're gonna start growing your new business, and typically, there's some sort of new business penalty that's associated with that. You know, I guess the first question: any negative surprises inside when you start opening up the markets again? And two, how should we think about new business penalties, you know, as you open up your marketing and new business spigot?

Speaker Change: That does.

Speaker Change: As you were talking I was actually looking at the chart that you have on page 10.

Pat: Further just clarification are reconciling the different moving pieces.

Pat: You're running your specialty auto at target margins Youre going to start growing your new business and typically there is a.

Pat: Some sort of new business penalty that's associated with that so.

Pat: I guess the first question any negative surprises inside when <unk> started opening up.

Pat: The markets again, and two how should we think about new business penalties as you open up.

Pat: Our marketing and new business spigot.

Pat: Yeah.

Matthew Andrew Hunton: Hey, Greg, this is Matt. I'll take the first part of that question and flip it to Joe for the second.

Pat: Hey, Greg This is Matt I'll take the first part of that question and then flip it to Joe for the second in terms of the re expansion of new business.

Matthew Andrew Hunton: As we mentioned to you guys that we're taking a methodical approach in terms of how we're reopening to ensure that we're understanding the market dynamics the loss dynamics as they come through.

Pat: Yeah.

Pat: <unk> the pump so to speak we're working through normal as expected operational.

Pat: Our efforts are working that through in terms of profile in terms of volumes in terms of loss performance everything is coming in in line or better than expectation.

Matthew Andrew Hunton: In terms of the re-expansion of new business, as we mentioned to you guys, we're taking a methodical approach in terms of how we're reopening to ensure that, you know, we're understanding the market dynamics, you know, the loss dynamics as they come through. As we're, you know, priming the pump, so to speak, we're working through normal, as expected operational, you know, efforts. In terms of profile, in terms of volumes, in terms of loss performance, everything's coming in in line or better than expectations. So nothing to note there, no surprises, absolutely no surprises. Everything's coming in right in line with what we would have expected to see at this point in time.

Pat: So nothing to note there are no surprises.

Pat: No surprises everything is coming in right in line with what we would've expected to see at this point in time.

Joseph Patrick Lacher: Yeah, and the second piece, I'll 100% reiterate with Matt, absolutely no negative surprises at all on what we're seeing. The team is very thoughtfully moving through that expansion to protect against that.

Pat: And the second piece of that 100% reiterate with Matt absolutely no negative surprises at all on what we're seeing.

Pat: The team is very thoughtfully moving through that expansion.

Pat: Protect from that.

Joseph Patrick Lacher: I think what I might suggest to you, Greg, is that the aggregate new business, the aggregate benefit we got from slowing down new business, was maybe three or four points on the overall combined ratio. So the aggregate penalty that will come back in on the aggregate combined ratio is probably roughly of the same order. Over when we get to full new business, so it's not going to happen all this calendar year. It'll happen, and as that expands, on three quarters of a year, a loss trend that's running roughly seven or eight percent.

Pat: I think what I might suggest to you.

Pat: Greg is.

Pat: The.

Pat: Aggregate new business the aggregate benefit we got from slowing down new business was.

Pat: It was maybe three or four points on the overall combined ratio.

Pat: So the aggregate penalty that will come back in on the aggregate combined ratio is probably roughly on the same order.

Pat: Over when we get to full new business. So it's not going to happen all of this calendar year, it'll happen and as that expands.

Pat: Again, the good news that came off will be the bad news that comes on.

Pat: We're running at a 93 plus combined ratio right now.

Pat: We have an additional 15 points of earned rate that will earn in over the year against three quarters of a year of loss trend thats running roughly seven or 8%.

Joseph Patrick Lacher: There is absolutely more than enough room inside of the margins we're at right now and that rate to cover that. That reversal, if you will, or the re-adding of the new business penalty is 100 percent contemplated in what we described as reversing some of those non-rate actions. It's contemplated in the rate we took. It's contemplated in how the earned rate comes in. And it's contemplated with our confidence that we will meet or exceed that 96 combined target over the course of this year and into next year as we do so.

Pat: There is absolutely more than enough room inside of the margins. We're at right now in that rate to cover that that that reversal. If you will or the re adding a new business penalty is 100% contemplated in what we describe as.

Pat: Reversing some of those non rate actions. It is contemplated in the rate we took its contemplated and how the earned rate comes in and it's contemplated with our confidence that we will meet or exceed that 96 combined target.

Pat: Over the course of this year and into next year as we do that.

Matthew Andrew Hunton: Okay, thank you for that, Keller. I guess just the final question I'll let others ask is just on geography. As you're opening up new businesses, is there any skewing of geography, or does it match what the legacy book is running at on a percentage basis?

Speaker Change: Okay. Thank you for that color I guess, just a final question and I'll, let others ask is just on geography.

Speaker Change: As you are opening up new business is there any any.

Speaker Change: Skewing of geography or does it match, what the legacy book is running at on a percentage basis.

Speaker Change: Okay.

Matthew Andrew Hunton: Yeah, this is Matt again. You know, as we reopen, I think we talked about it being a little bit, you know, lumpy as we turn things back on. And so there's, you know, in one state, we may see production increase that's maybe outside of normal, you know, percentage distributions. And then, you know, as we get other states up and running, they come back in line. But generally, you know, over the course of the next few quarters, we're expecting distribution to be very similar in terms of what we've seen in our historical patterns.

Speaker Change: Yes. This is Matt again.

Matthew Andrew Hunton: As we reopen I think we talked about it's going to be a little bit lumpy as we turn things back on.

Matthew Andrew Hunton: And so there is.

Matthew Andrew Hunton: In one state we may see production increase that's may be outside of normal percentage distributions and then as we get other states up and running they come back in line.

Matthew Andrew Hunton: But generally over the over the course of the next.

Matthew Andrew Hunton: A few quarters, we're expecting distribution to be very similar in terms of what we've seen in our historical patterns.

Matthew Andrew Hunton: And we'll continue to look for, you know, further geographic diversification opportunities as we, as we, as we work short term, lumpy, long term, similar patterns to what we've seen in the past. Makes sense. Thank you.

Matthew Andrew Hunton: We will continue to look for further geographic diversification opportunities.

Speaker Change: As we as we work short term lumpy long term similar patterns to what we've seen in the past.

Speaker Change: Makes sense. Thank you.

Jon Paul Newsome: Thank you. And your next question comes from the line of Paul Newsome from Piper Sandler. Please go ahead.

Speaker Change: Thank you and your next question comes from the line of Paul Newsome from Piper Sandler. Please go ahead.

Jon Paul Newsome: Good evening, thanks for the call.

Jon Paul Newsome: <unk>.

Jon Paul Newsome: A little bit.

Jon Paul Newsome: I'm going to focus on retention. Is there any reason why the retention rate would be different or changing given the change in the non-rape actions and the increase in new business as we prospectively go forward? I was a little bit surprised that it's been as stable as it has been given all the changes in the Company over time, but any thoughts there that would be helpful would be great.

Jon Paul Newsome: And we will just additional focus on retention.

Jon Paul Newsome: Is there any reason why the retention rate would be different or changing.

Jon Paul Newsome: Given the change in.

Jon Paul Newsome: Non rate actions.

Speaker Change: The increase in <unk>.

Speaker Change: New business.

Speaker Change: Perspective, we go for a little bit surprised that it's been as stable as it has been given all the changes.

Speaker Change: Company over time, but any thoughts there that would be helpful. Okay great.

Joseph Patrick Lacher: Sure, Paul. This is Joe.

Joseph Patrick Lacher: Sure, Paul.

Speaker Change: Sure. Paul This is Joe I'll give you I'll give you a high level overall answer then I'll double click on at once.

Joseph Patrick Lacher: I'll give you a high-level overall answer, then I'll double-click on it once. Overall, we're seeing fairly consistent stability and retention. That's how it's performing. That's what we'd expect going forward. Now, I'm going to double-click on it slightly.

Speaker Change: Overall, we're seeing a fairly.

Joseph Patrick Lacher: Consistent stability and retention that's how it's performing that's what we'd expect going.

Joseph Patrick Lacher: Going forward now I'm going to double click slightly on it.

Joseph Patrick Lacher: Imagine, if you will, a couple of different segments of the Book of Business. Some parts of this business have a very short-term tenure. They might be somebody trying to get an SR-22.

Joseph Patrick Lacher: Yes.

Speaker Change: Imagine if you will.

Speaker Change: Couple of different segments of the book of business we have.

Speaker Change: Some parts of this business.

Joseph Patrick Lacher: Have.

Joseph Patrick Lacher: A very short term tenure they might be somebody trying to get an S. R 22.

Joseph Patrick Lacher: They might run the policy for three months, four months, and then lap. Some parts of this business tend to have a much longer policy life. It might be two, three, five years.

They might they might run the policy for three months four months and then lapse.

Joseph Patrick Lacher: Some parts of this business tend to have a much longer policy life. It might be 235 years, a lot of times people think of nonstandard auto was only only been stuff.

Joseph Patrick Lacher: A lot of times, people think of nonstandard autos as only stuff that's around for six or eight months. There are parts of our business that stay around longer, as we read, and each of those think of those as almost a segment. Each segment is running a retention very consistent with what we would have expected for the long term. In this environment, when we reduce new business, some of those that churn a little faster as a mix of the total are not in the book, and some of those that hang around a little longer are a bigger percentage of the book. So that will change slightly in total, but the segments are operating exactly as we expect them and are very consistent.

Joseph Patrick Lacher: The stuff that's around for six or eight months, there's parts of our business is stays around longer.

Joseph Lacher: And each of those think of those almost of segments.

Joseph Patrick Lacher: Each segment is running at retention very consistent to what we would've expected for a long for the long term.

Joseph Patrick Lacher: In this environment, when we reduced new business some of those that churn a little faster as a mix of the total are not in the book and some of those are hanging around a little longer there a bigger percentage of the book.

Joseph Patrick Lacher: So that that will change.

Slightly in total, but the segments are operating as exactly as we expect them.

Joseph Patrick Lacher: And very consistent.

Joseph Patrick Lacher: You know, in hard markets and soft markets, you tend to get slightly different views. In a hard market, you see retentions go up. In a soft market, you see prices go down. This is very much a hard market right now. So we're seeing the benefits of the hard market. We're seeing the benefits of mixed change. What we fully expect as we roll forward over the next 18-24 months is what I would describe as generally consistent, recognizing there's going to be a modest mix, but we're measuring that for you in PIF, not in retention, and the benefits of a hard market.

Joseph Patrick Lacher: And hard markets.

Matthew Andrew Hunton: And soft markets you tend to get slightly different views in a hard market you see retention go up in a soft market you see them go down this is very much a hard market right now.

Joseph Patrick Lacher: So we're seeing the benefits of the hard market, we're seeing the benefits of the mix change.

Joseph Patrick Lacher: What we fully expect as we roll forward over the next.

Joseph Patrick Lacher: 18 to 24 months is what I would describe as generally consistent recognizing there's going to be a modest mix.

Joseph Patrick Lacher: But we're measuring that for you in past not in retention.

Joseph Patrick Lacher: And the benefits of a hard market.

Jon Paul Newsome: A second question, maybe some more on the competitive environment. Your big states are California and Texas. Goosehead was out earlier talking about State Farm being extremely competitive, as well as some other mutual companies. I realize that's probably more standard business, but I don't know, they write everything in the world. California is obviously a unique creature.

Speaker Change: Second question, maybe more on the competitive environment.

Jon Paul Newsome: Big States are California, and Texas.

Joseph Patrick Lacher: <unk> was out earlier talking about.

Jon Paul Newsome: State farm being extremely competitive as well.

Jon Paul Newsome: Some other mutuals.

Jon Paul Newsome: I realize that's probably more standard business, but I don't know they write everything world.

Jon Paul Newsome: California is obviously new creature.

Jon Paul Newsome: Maybe you could talk about sort of whether or not there's more.

Jon Paul Newsome: Within particularly the standard business is more or less competition, obviously lots of folks who are raising rates, but not everyone's raising rates as much.

Jon Paul Newsome: Just how are you.

Jon Paul Newsome: Our thinking about that as well.

Jon Paul Newsome: Complaint.

Jon Paul Newsome: Expectations, you've laid out Tonight.

Matthew Andrew Hunton: Hey, Paul, this is Matt. Yeah, obviously, the texture there varies quite a bit by state. You know, think about one of our larger markets, California, as companies are getting more rate-adequate there. And taking a little bit longer, potentially, we're seeing, you know, fewer competitor dynamics in that marketplace, especially the larger players, a little bit less supply than what we normally would have seen in that market, creating more hard market opportunity.

Jon Paul Newsome: Maybe you could talk about sort of whether or not there's more in the particular nonstandard business; there's more or less competition. And obviously, lots of folks are raising rates, but not everyone's raising rates as much. Just how you are thinking about that issue. Consider the expectations you've laid out today. Hey, Paul, this is Matt. Yeah, obviously the texture there.

Jon Paul Newsome: Hey, Paul This is Matt obviously.

Jon Paul Newsome: Obviously, the texture, there varies quite a bit by state.

Matt: About our one of our larger markets, California.

Matt: As companies.

Matt: Are getting more rate adequate there.

Matt: Taking a little bit longer potentially we're seeing fewer competitive dynamics in that marketplace, especially the larger players.

Matt: Little bit less supply than what we normally would have seen in that market, creating more hard market opportunity that said.

Jon Paul Newsome: As the carriers are getting their rates approved inadequacies coming back in line, we expect that market to continue to get more competitive over the outlook.

Matthew Andrew Hunton: That said, as the carriers are getting their rates approved, and inadequacies coming back in line, you know, we expect that market to continue to get more competitive over the coming years. You know, Florida, which is a big state for us, and Texas, which is a large state, but to a lesser degree, they've been relatively competitive over the last few quarters, as the carriers there are more adequate and more confident in their prices for their new business.

Matthew Andrew Hunton: Florida, which is a big state for us in Texas, which is a large state but to a lesser degree they've been relatively competitive.

Matthew Andrew Hunton: Over the last few quarters.

Matthew Andrew Hunton: As the carriers there are more adequate more confident in there and their new business price.

Matthew Andrew Hunton: And so we see Florida operating not very dissimilar to how we would've seen Florida operate pre pandemic.

Matthew Andrew Hunton: And so we see Florida operating not very dissimilar to how we would have seen Florida operate pre-pandemic. It's, it's an elastic marketplace; it's a competitive marketplace. And Texas is very similar, along with our smaller state. So it's a bit, it varies a bit by state, but generally, across the board, we would characterize the market as hard for us, but with a bit of texture that sits underneath.

Matthew Andrew Hunton: It's an elastic marketplace, it's a competitive marketplace.

Matthew Andrew Hunton: And Texas is very similar along with their smaller states. So.

Matthew Andrew Hunton: It's a bit it varies a bit by state, but generally across the board, we would characterize the market as hard for us, but with a bit of texture that sits underneath by state.

Matthew Andrew Hunton: Okay.

Jon Paul Newsome: Thank you. Once again, should you have a question, please press star 10, the number one on your telephone keypad. Please pick up the handset before instead of using speakerphone. Once again, that is star and one to ask a question. Your next question comes from the line of Andrew Kligerman from TD. Please go ahead.

Matthew Andrew Hunton: Thank you once again should you have a question. Please press Star then the number one on your telephone keypad, please speak to handset before.

Andrew Scott Kligerman: Instead of using speaker phone once again that is star and wants to ask a question. Your next question comes from the line of Andrew <unk> from TD. Please go ahead.

Andrew Scott Kligerman: Hey, thank you, and good afternoon or evening. Maybe you could help me out with slide eight a little bit? I think in the remarks, you mentioned that you earned a rate of 9% in the quarter. As I look at the graph in the right-hand corner, it would imply to me that there's maybe another 1112 points to go in the year. But then I think Joe, you mentioned 15 points.

Andrew Scott Kligerman: Hey, Thank you and good afternoon or evening.

Speaker Change: Maybe help me out with slide eight a little bit.

Andrew Scott Kligerman: On the in the remarks, you've mentioned that used earned rate in the quarter of 9% as I look at the.

Andrew Scott Kligerman: As I look at the graph in the right right hand corner. It would imply to me that there's maybe another 11 12 points to go in the year.

Andrew Scott Kligerman: But then I think Joe you mentioned 15 points, so I guess.

Andrew Scott Kligerman: So I guess Part A is, can you clarify that differential? And then Part B of the question is, what do you see as the kind of cadence of that rate earning in over the next three quarters? And maybe I'll even throw in a C, are you filing for new rate increases as we speak? And could you quantify that?

Speaker Change: He is can you clarify that differential and then quite be question is what do you see as the kind of cadence of.

Andrew Scott Kligerman: That rate, earning in over the next three quarters, and maybe I'll even throw in the C.

Andrew Scott Kligerman: Are you filings for new rate increases as we speak and could you quantify that.

Bradley Thomas Camden: Andrew, good afternoon. This is Brad.

Andrew Scott Kligerman: Andrew Good afternoon. This is Brad.

Brad: Happy to help if I Miss something the three part question one ABC, let me know.

Bradley Thomas Camden: Okay.

Bradley Thomas Camden: Happy to help. And if I missed something, the three part question one ABC, let me know. Looking at the upper right-hand chart on slide 8, for the year 2024, we have a total of 24 rates to earn in. We earned in about nine points of that rate in the first quarter. And then that means we've got, you know, 15 points for the rest of the year. I would tell you about half of that rate we'll earn in the second quarter. And then the remaining of that we'll earn in Q3 and Q4. Does that answer your question?

Brad: Looking at the upper right hand chart on slide eight.

Bradley Thomas Camden: For the year for 2024, you have a total of 24 rates turn in.

Bradley Thomas Camden: We earned and about nine points of that rate in the first quarter and then that means we've got 15 points for the rest of the year.

Bradley Thomas Camden: I would tell you about half of that rate will earn in the second quarter and then the remaining of that will earn in Q3 and Q4.

Bradley Thomas Camden: Does that answer your question.

Bradley Thomas Camden: That's perfect, Brad. And then just, you know, are you filing for a new rate? And could you quantify that?

Speaker Change: That's perfect Brad and then just are you filing for new rates could you could you quantify that.

Bradley Thomas Camden: We're always looking to find rate adequacy and keep up with the loss trend. When we look at our indication, certain states say we need to file for additional rates, and we'll continue to do so as part of the normal course. But the big part where earned rate was trying to catch up with the loss trend, we've done that, and you're seeing that gap now close. And that's indicative of what's going on and what I just told you, right? We had nine points in the first quarter, seven.

Speaker Change: We're always looking to fine rate adequacy, and keep up with loss trend.

Bradley Thomas Camden: When we look at our indications certain states say, we have we need to file for additional rate will continue to do so as part of normal course.

Bradley Thomas Camden: But the big part, where we're trying to you know we're right with earned rate was trying to catch up with loss trend, we've done that and you've seen that gap now close.

Bradley Thomas Camden: And that's indicative of what's going on and what I. Just told you right. We had nine points in the first quarter seven and a second in the trends are smaller in the back half of the year and then we'll file for rate as we need in our state's indicated.

Joseph Patrick Lacher: I think, Andrew, the way I might encourage you to think about it is we're filing what I might describe as a maintenance rate going forward. And what that would mean is we're trying to get a rate that matches what the loss trend is and hold ground on the profit margins as a result. So we believe what we've displayed for you on page eight shows the rate required to rebalance the organization to get the rate in excess of loss trend to allow us to adjust the non-rate actions and to get things back at a sub-96, 96 or below combined and growing. The rate actions going forward will be just designed to keep that in balance and shouldn't be materially moving profit margins around. They should be holding us in that spot and allowing us to grow.

Speaker Change: I think Andrew.

Joseph Patrick Lacher: The way I might encourage you to think about it.

Joseph Patrick Lacher: Is we're finally, what I might describe as maintenance rate going forward and what that would mean is we're trying to get rate that matches, what loss trend is and hold ground.

Joseph Patrick Lacher: On the on the profit margins as a result, so we believe.

Joseph Patrick Lacher: What we've displayed for you in page eight shows the the rate required to rebalance the organization to get get rate in excess of loss trend to allow us to adjust the non rate actions and to get things back at a sub 90 696 below combined and growing.

Joseph Patrick Lacher: The rate actions going forward will be just designed to keep that in balance and shouldn't be a material materially moving profit margins around they should be holding them in that spot and allowing us to grow.

Speaker Change: I see.

Joseph Patrick Lacher: Because if you told me six months from now loss trend was a point we'd have one view. If you told me six months from now loss trend was seven points, we'd have another but if it was one we'd be looking for one if it was seven really looking for seven.

Andrew Scott Kligerman: Got it, that makes sense. And just to wrap up, on slide 15, you've got a chart showing severities, and it looks like the first quarter was indeed somewhat significant.

Andrew: Got it that makes sense and just to wrap up.

Andrew Scott Kligerman: On slide 15.

Andrew Scott Kligerman: You've got a chart showing severities and it looks like first quarter was indeed somewhat.

Andrew Scott Kligerman: So the question is, for what you were just answering, maybe there is some rate that you need to keep up with that trend. And are you always pricing to 96%? You said that number a few times.

Andrew Scott Kligerman: Significant so.

Speaker Change: <unk> is.

Andrew Scott Kligerman: Or what you were just answering maybe there is some rate that you need to keep up with that trend and are you always pricing to 96% you said that number.

Andrew Scott Kligerman: A few times.

Joseph Patrick Lacher: So a couple of things, slide 15, is Price Indices of Certain Components of Loss Trend. Those are there for information; they're not, in and of themselves, intended to be pure items that you can go to Lostrend.

Andrew Scott Kligerman: So a couple of things slide slide 15.

Joseph Patrick Lacher: Is.

Joseph Patrick Lacher: Price indices of certain components of loss trend.

Joseph Patrick Lacher: Those are their information really theyre, not theyre not in and of themselves intended to be.

Joseph Patrick Lacher: Pure items that you can go to loss trend are intended to give you some sense of how they're moving.

Joseph Patrick Lacher: They're intended to give you some sense of how they're moving. What I would describe to you is, on an annualized basis, we're seeing severity increases that are high single digits. That's roughly consistent with what we saw and described last quarter. There's always some normal, you know, modest volatility around that plus or minus a point. They're generally there, but that varies somewhat by coverage. It varies somewhat by state, but it aggregates to roughly that level, and we're not.

Joseph Patrick Lacher: What I would describe to you.

Joseph Patrick Lacher: On an annualized basis, we're seeing severities.

Joseph Patrick Lacher: Do you see severity increase annualized that are high single digits, that's roughly consistent with what we saw and.

Joseph Patrick Lacher: And described last quarter. There is always some normal modest volatility around that plus or minus a point theyre generally there that varies somewhat by coverage it varies somewhat by state, but it aggregates to roughly that level.

Joseph Patrick Lacher:

Joseph Patrick Lacher: And we're not.

Joseph Patrick Lacher: I'm trying to remember exactly how you phrased the second part of your question. You were asking, "Are we always pricing to a 96?" What we're pricing to do is to make economically astute equations with that being a target or better. There are times when it might be wise to let it run to a 96 and a half. There'll be times when it might be astute to let it run to a 92. If, as an example, the fastest we could grow and still hire enough claim people might be X percent of PIF, and we were at a 92 combined, there'd be no reason to actually get more price competitive and try to write more new business if we couldn't operationally handle it. That would actually produce a bad answer. You deteriorate the probability, provide a bad customer experience, bad customer service, or something else.

Joseph Patrick Lacher: I'm trying to remember exactly how you phrased in the second part of your question you were asking are we always pricing to a 96.

Joseph Patrick Lacher: Yeah, we're pricing to is to make economically astute equations with that being a target or better.

Joseph Patrick Lacher: There are times when it might be astute to let it run to a 96 and a half there'll be times when it might be you astute to let it run to a 92.

Joseph Patrick Lacher: As an example.

Joseph Patrick Lacher: The fastest we could grow and still hire enough claim people.

Joseph Patrick Lacher: Might be X percent of pests, and we were at a 92 combined there'd be no reason to actually get more price competitive and try to write more new business, we couldn't operationally handle it that would actually produce a bad answer your deteriorate the profitability provide a bad customer experience bad customer service.

Joseph Patrick Lacher: Thing else, if we were shrinking 2% and run at a 92, that's a bad long term economic answer we should move back towards the 96.

Joseph Patrick Lacher: If we were shrinking 2% and running a 92, that's a bad long-term economic answer; we should move back towards the 96. So we're going to be good long-term operators and managers on that. What we've been trying to describe in the last couple of years is a shock to the system and how we got the system out of shock and back rebalanced. And what I tell you, the conversation we probably would have had with you in 18, 19, or early 20 would have been we're trying to get to roughly a 96 and grow as much as possible, you know, and that moves around a little bit depending on where the market conditions or environment Does that help? Post-it.

Andrew Scott Kligerman: Perfect. Thank you very much.

Joseph Patrick Lacher: So we're going to do.

Andrew Scott Kligerman: It may be good long term operators and managers.

Andrew Scott Kligerman: On that what we've been trying to describe in the last couple.

Andrew Scott Kligerman: A couple of years is a shock to the system and how we got the system.

Andrew Scott Kligerman: Out of shock and back rebalanced and.

Andrew Scott Kligerman: And what I would tell you the conversation we probably would have had with you and 18 19 early 'twenty would've been we're trying to get to roughly a 96 and grow as much as possible and that moves around a little bit depending on where the market conditions or environment or does that help.

Speaker Change: Perfect. Thank you very much.

Andrew Scott Kligerman: Okay.

Andrew Scott Kligerman: Yeah.

Brian Robert Meredith: Thank you. And your next question comes from the line of Brian Meredith from UBS. Please go ahead.

Andrew Scott Kligerman: Thank you and your next question comes from the line of Brian Meredith from UBS. Please go ahead.

Brian Robert Meredith: Yeah, thank you. I didn't hear any comments about the reciprocal and kind of progress there, and I'm just wondering, Joe, maybe you can comment on the fact that you're actually increasing new business. I know you can only put new business into reciprocal. But could that actually accelerate that process some?

Brian Robert Meredith: Yes. Thank you I'm just curious I didn't hear any comments about the reciprocal.

Brian Robert Meredith: And kind of the progress there and I'm just wondering Joe maybe you can comment on the fact that youre actually increasing new business. I know you can only put new business the reciprocal could that actually accelerate that process.

Joseph Patrick Lacher: Sure, Brian. We could, in theory, put something other than new business in there. We could populate the reciprocal with reinsurance. Our strategy is to populate it with new business. So there are ways to accelerate the process. I don't think that's prudent.

Joe: Sure Brian.

Brian Robert Meredith: We in theory, we could put something other than new business and there. We can we can populate the reciprocal with reinsurance our strategy is to populate it with new business.

Joseph Patrick Lacher: So there are ways to accelerate the process I don't think that's that is prudent and that's not what we're trying to do and I'm not sure that's the best way.

Joseph Patrick Lacher: And that's not what we're trying to do, and I'm not sure that's the best way for us to populate it given all the various Unknown Speakers, the various things we're trying to balance in that. It is continuing to operate, and we're continuing to write some new business there. This is in the category of, it's going to have a long-term view before you see it. Not much is going to change quarter to quarter for You know, at least three, four, or five quarters. There's going to be a little bit of increasing volume because it's new business, it's likely to have a new business penalty, it may not be making, it's likely not to be making an underwriting profit.

Joseph Patrick Lacher: For us to populate it given all the various.

Joseph Patrick Lacher:

Joseph Patrick Lacher: Yes.

Joseph Patrick Lacher: The various things we're trying to balance in that it is continuing to operate we are continuing to write some new business. There. This is in the category of of it's going to have a long term view before this is going to see it not much is going to change.

Joseph Patrick Lacher: Quarter to quarter four.

Joseph Patrick Lacher: It's got to actually get some of those renewing before they produce a little bit of the second renewal produces some underwriting profit, the new business that comes on doesn't, this thing sort of hovers in neutral for a little while until it gets some volume and grows.

Joseph Patrick Lacher: At least three four or five quarters, there's going be a little bit of increasing volume.

Joseph Patrick Lacher: It's new business, it's likely to have a new business penalty it may not be making it likely not to be making an underwriting profit.

Joseph Patrick Lacher: They actually get some of those renewing before they produce a little bit.

Joseph Patrick Lacher: Second renewal produces some underwriting profit the new business that comes on doesn't this thing sort of hovers in neutral for a little while until I get some volume.

Joseph Patrick Lacher: And gross.

Joseph Patrick Lacher: And the analogy I was struggling with is it's a little bit like having kids; they suck up resources for a little while, then they get a little bit of a job and make some money, then eventually they're productive and move on. This is going to take a little while to get going there. And it really just isn't conducive to a lot of 90-day updates, you know; we'll continue to give them to you. But a good question. I understand the interest. We're moving as quickly as we reasonably can. But I am trying to keep all of those pieces in balance.

Joseph Patrick Lacher: The analogy I was fussing with it is it's a little bit like having kids. They suck resources for a little while then they get a little bit of a job and make some money then eventually they are productive and move on.

Joseph Patrick Lacher: This is going to take a little while to get to get going there.

Joseph Patrick Lacher: And it really just isn't conducive to a lot of 90 day updates, we'll continue to give them to you, but it's a good question I understand the interest we're moving as quickly as we reasonably can but trying to keep all of those pieces imbalanced.

Brian Robert Meredith: Gotcha. And then my second question, I guess, you know, given what happened with policies and force, and now we're going to get things ramped back up. Does that give you or are you thinking about kind of reshaping the portfolio geographically, as a result, you know, maybe having some more restrictions, possibly in California, to make sure that's not so heavy in your portfolio going forward?

Speaker Change: Gotcha and then my second question I guess, given what's happened with policies in force and now we're going to go to ramping things back up.

Brian Robert Meredith: If you are you thinking about kind of reshaping the portfolio geographically as a result, maybe having some more restrictions, possibly in California to make sure. That's not so heavy in your portfolio going forward, how you're doing that is that something youre thinking about.

Joseph Patrick Lacher: Sure, great question. I'm going to give you three thoughts. I'm going to echo what Matt said earlier, remind you of some history, and then point you where we're going forward. And I'll do those in a little bit of an order.

Brian Robert Meredith: How are you doing that? Is that something you're thinking about? Sure. Great, great question.

Speaker Change: Sure Great Great question, I'm going to I'm going to give you three thoughts I'm going to Echo what Matt said earlier.

Brian Robert Meredith: Remind you of some history and then point, you, where we're going forward and I'll I'll do those in a little bit of an order.

Brian Robert Meredith: If you go back in the not too distant past when this team got here I think in 2016, we were 90 some percent in California in our specialty auto business when.

Joseph Patrick Lacher: If you go back to the not-too-distant past, when this team got here, I think in 2016, we were 90-some percent in California in our specialty auto business when the pandemic hit, and we have been systematically geographically diversifying the portfolio, and actually very rapidly... and we were doing that not by shrinking California but by growing other geographies more rapidly. That is a backwards look. Forward, we will continue to operate with the thought process of finding a reasonable geographic balance, not because we're trying necessarily to shrink something, but because we think there are other opportunities to grow in other places and that will naturally result. Our best guess is maybe California ends up in that 30-35% range overall. Now the middle bucket, which is what Matt said before, and this echoes what we said last quarter.

Brian Robert Meredith: When the pandemic hit we were 50% we have been systematically geographically diversifying the portfolio and actually very rapidly.

Joseph Patrick Lacher: And we were doing that not by shrinking, California, but by growing other geographies more rapidly.

Joseph Patrick Lacher: That is a backwards look forward, we will continue to operate with the thought process of finding a reasonable geographic balance not because we're trying necessarily to shrink something but because we think there's other opportunities to grow in other places and that will naturally result, our best guess is maybe California ends in.

Joseph Patrick Lacher: That 30%, 35% range overall.

Joseph Patrick Lacher: Now the middle bucket, which was what Matt said before and this is echoes what we said last quarter.

Joseph Patrick Lacher: As we're re-expanding new business and reopening items, and as there's the lumpiness with different competitive pieces in markets, you may see California grow, write more new business, and recover faster than Florida or Texas. You may see Florida or Texas go a little faster than California, and that may actually change month to month. We actually have watched it over the course of the last 60 days, and it sometimes changes week to week in terms of how that's moving in.

Joseph Patrick Lacher: We're re expanding new business and reopening items and as there's the lumpiness with different competitive pieces in markets. You may see California growth grow go write more new business and recover faster than a Florida, Texas. She made from this he Florida, Texas go a little faster in California, and that May actually change month to month, we actually.

Joseph Patrick Lacher: We have watched it over the course of the last 60 days, sometimes change week to week in terms of how that's moving in that as well as normal a little chop in the harbor. If you will that we expect while we're rebalancing.

Joseph Patrick Lacher: That is normal, a little chop in the harbor, if you will, that we expect while we're rebalancing. So we're not going to give you any kind of target monthly or quarterly or really any kind of picture of that profile over the next six months while we're trying to get the system reprimed and rebalanced. As we work our way through 25 and 26, I would fully expect it to look very similar to what we described to you pre-pandemic, and I'd expect that top right corner of page eight to go back to something that was showing some growth in California, some growth faster than that in Florida and Texas, and some growth even faster than that in the other geographies, which effectively was diversifying us away from California by growing other places more rapidly.

Joseph Patrick Lacher: We're not going to give you any kind of target monthly or quarterly or really any kind of picture of that profile over the next six months, while we're trying to get the system re primed and rebalanced as we work our way through 'twenty five 'twenty six I would fully expect it to look very similar to what we described to you.

Joseph Patrick Lacher: Pre pandemic and I'd expect that top right corner of page eight to going back to something that was showing some growth in California, some growth faster than that and in Florida, and Texas and some growth even faster than that in the other geographies, which effectively.

Joseph Patrick Lacher: We are diversifying us away from California by growing other places more rapidly.

Speaker Change: Makes sense. Thank you.

Joseph Patrick Lacher: Okay.

Brian Robert Meredith: Thank you. And your next question comes from the line of Gregory Peters from Raymond James. Please go ahead. Transcribed by https://otter.ai

Joseph Patrick Lacher: Thank you and your next question comes from the line of Gregory Peters from Raymond James. Please go ahead.

Gregory Peters: Okay, so I get to have two follow-ups. One, I know it's discontinued, but the progress on the runoff preferred business, and then the second question, uh... would be around the alternative investment portfolio results in the first quarter. Just wondering if what we saw in the first quarter is that the type of result we should expect out of that portfolio for the balance of the earth?

Brian Robert Meredith: Hi.

Gregory Peters: So I get to.

Gregory Peters: Two follow ups.

Gregory Peters: One I know it's discontinued but.

Gregory Peters: The progress on the run off preferred business and then the second question.

Gregory Peters: Would be around the alternatives investment portfolio results in the first quarter just wondering if what we saw in the first quarter or is that the type of result, we should expect out of that portfolio for the balance of the year.

Bradley Thomas Camden: Hey Greg, this is Brad. On the preferred business, the runoff is going as planned, if not a little bit quicker than expected. So the $130 million we indicated this year is on track, maybe a little bit better. So $85 million plus is left to go this year. On the alternative investment portfolio, I think that's on page 22 of the supplement. If you look there, I think it was down about $5.7 million from Q4 to Q1 in average returns.

Gregory Peters: Hey, Greg This is Brad on the preferred business. The runoff is going as planned if not a little bit quicker than expected.

Bradley Thomas Camden: So the 130 million we indicated this year is on track, maybe a little bit better.

Bradley Thomas Camden: So $85 million plus left to go this year.

Bradley Thomas Camden: The.

Bradley Thomas Camden: And the alternate investment portfolio I think that that's on page 22 of the supplement if you look there.

Bradley Thomas Camden: You know I think it was down about $5 7 million.

Bradley Thomas Camden: Q4 to Q1, and an average returns that's related to a few investments I don't expect that to be the run rate going forward.

Bradley Thomas Camden: That's related to a few investments. I don't expect that to be the run rate going forward. The other thing I'd point out though, the core of the portfolio, the high-quality fixed income, has been very stable at $98-99 million a quarter right now.

Bradley Thomas Camden: The only thing I'd point out, though that the core of the portfolio. The high quality fixed income has been very stable at 90 $899 million a quarter range.

Gregory Peters: Okay. All right. Thanks.

Speaker Change: Okay alright. Thanks.

Gregory Peters: Okay.

Operator: Thank you. There are no further questions at this time. I'd like to turn the conference back to Mr. Joe Lacher for closing remarks.

Gregory Peters: Thank you there are no further question at this time I would like to turn the conference back to Mr. Joe Lacher for closing remarks.

Joseph Patrick Lacher: Thank you, operator, and thank you everybody for your questions today. I hope you're, as we described, feeling a little bit better about where the direction of the PIF is going and the speed with which it's recovering. I know we're enthusiastic and excited about it and think it's moving in the right direction, albeit with a little bit of work to do. And with that, I look forward to speaking with you all again next quarter.

Joseph Patrick Lacher: Thank you operator, and thank you everybody for your questions today hopefully.

Joseph Patrick Lacher: You're as we described feeling a little bit better about where the direction of the Pip is going and the speed with which is recovering I know, we're enthusiastic and excited about it and think it's moving in the right direction, albeit a little bit of work to do.

Joseph Patrick Lacher: With that look forward to speaking with you all again next quarter. Thanks.

Operator: Thank you, and that does conclude our conference for today. Thank you for participating. You may all disconnect.

Speaker Change: Thank you and that does conclude our conference for today. Thank you for participating you may all disconnect.

Operator: Okay.

Operator: [music].