Q4 2024 Kemper Corp Earnings Call
Good afternoon, ladies and gentlemen, and welcome to Kemper's fourth quarter 'twenty 'twenty four earnings Conference call. My name is constant gene and I will be your coordinator for today.
Unknown Executive: Good afternoon, ladies and gentlemen, and welcome to Kemper's fourth quarter 2024 earnings conference call.
Unknown Executive: My name is Konstantin and I will be your coordinator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
At this time, all participants are in listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time.
Unknown Executive: As a reminder, this conference call is being recorded for replay purposes.
Speaker Change: 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. My kill Marine Channel Kemper's, Vice President of corporate development and Investor Relations.
Michael Marinaccio: I would now like to introduce our host for today's conference call, Michael Marintano, Kemper's Vice President of Corporate Development and Investor Relations.
Unknown Executive: Mr. Marinaccio, you may now begin.
He started working shot in that show you may now begin.
Speaker Change: Thank you operator, good afternoon, everyone and welcome to Cambridge discussion of our fourth quarter 2024 result.
Unknown Executive: Thank you, operator.
Joseph Lacher: Good afternoon, everyone. And welcome to Kemper's discussion of our fourth quarter 2024 results. This afternoon, you'll hear from Joe Locker, Kemper's President and Chief Executive Officer, Brad Camden, Kemper's Executive Vice President and Chief Financial Officer, and Matt Hunt, Kemper's Executive Vice President and President of Kemper Oil. We'll make a few opening remarks to provide context around our fourth 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, Dwayne Sanders, Kemper's Executive Vice President and Chief Claims Officer for P&C, and Jon Buscelli, Kemper's Executive Vice President and Chief Investment Officer.
Speaker Change: This afternoon, you'll hear from Joe Lacher, Kemper's, President and Chief Executive Officer.
Camden: Camden, Kemper's Executive Vice President and Chief Financial Officer, and Matt Hunt, Kemper's Executive Vice President and President of Kemper what else.
We'll make a few opening remarks to provide context around our fourth quarter results followed by a Q&A session.
Camden: Interactive portion of the call our presenters will be joined by Christopher Glynn.
Speaker Change: Kemper's Executive Vice President and President of Kimberlite, Duane Sanders, Kemper's Executive Vice President and Chief claims officer for PMT, and Jamba, Shelly Kemper's Executive Vice President and Chief Investment Officer.
Joseph Lacher: After the market's closed today, we issued our earnings release and published our earnings presentation and financial. We intend to file our Form 10-K with the SEC in the coming days. You can find these documents in the investor section of our website, Kemper.com.
Speaker Change: After the market close today, we issued our earnings release and published our earnings presentation and financial supplement.
Speaker Change: We intend to file our Form 10-K with the SEC in the coming days.
Speaker Change: You can find these documents in the investors section of our web site Kemper Dotcom.
Joseph 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 1995. These statements include, but are not limited to, the company's outlook on its future results of operation and financial conditions. 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 Form 10-K and our fourth quarter earnings report. 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 the non-GAAP financial measures to GAAP that are required in accordance with SEC rules.
Speaker Change: Our discussion today may contain forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act.
Speaker Change: 1995 D.
Speaker Change: These statements include but are not limited to the company's outlook on its future results of operations and financial condition.
Speaker Change: Our actual future results and financial condition may differ materially from these statements for information on additional risks that may impact. These forward looking statements. Please refer to our Form 10-K, and our fourth quarter earnings release.
Speaker Change: This afternoon's discussion also includes non-GAAP financial measures, we believe are meaningful to investors.
Speaker Change: And our financial supplement earnings presentation and earnings release is defined and reconciled all the non-GAAP financial measures to GAAP, where required in accordance with SEC rules you can find each of these documents in the investors section of our web site Kemper Dot com.
Joseph Lacher: You can find each of these documents in the investor section of our website, Kemper.com.
Joseph Lacher: All comparative references will be to the corresponding 2023 period unless otherwise stated.
Speaker Change: All comparative references will be to the corresponding 2023 periods unless otherwise stated.
Joseph Lacher: I will now turn the call over to Joe.
Joe Lacher: I will now turn the call over to Joe.
Joseph Lacher: Thank you, Michael.
Speaker Change: Thank you Michael Good afternoon, everyone and thank you for joining us today.
Joseph Lacher: Good afternoon, everyone. And thank you for joining us today. I'm pleased to report that we delivered very strong results for the year and even stronger results for the fourth quarter. We're excited to dig into these in more detail.
Speaker Change: I'm pleased to report that we delivered very strong results for the year and even stronger results for the fourth quarter.
Speaker Change: We're excited to dig into these in more detail.
Joseph Lacher: Before we do that, I'd like to make a few broader marketplace comments. We've been experiencing a hard market due to the massive COVID-related inflation spike, which led to a meaningful imbalance between premiums charged and underlying loss trends. Against that backdrop, carriers with competitive advantages and quick responsiveness would be able to rebalance rate and loss trends sooner and realize two things. First, better than normal underwriting profitability and combined ratios, and second, growth rates exceeding long-term averages. You don't have to look further than progressive to see this play out over numerous market cycles in the broader standard and preferred auto market.
Speaker Change: Before we do that.
Speaker Change: If you'd make a few broader marketplace comments.
Speaker Change: We've been experiencing a hard market due to the massive COVID-19 related inflation, spike, which led to a meaningful imbalance between premiums charged in underlying loss trend.
Speaker Change: Against that backdrop carriers with competitive advantages in quick responsiveness will be able to rebalance rate and loss trends sooner and realized two things.
Speaker Change: First better than normal underwriting profitability and combined ratios.
Speaker Change: Second growth rates exceeding long term averages.
Speaker Change: You don't have to look further than progressive to see this play out over numerous market cycles, and the broader standard and preferred auto market.
Joseph Lacher: Given our strong competitive advantages and responsiveness, we rebound sooner than most of our specialty auto competitors. Because of this, we are capitalizing on the benefits and achieving strong profitability and growth in this business.
Speaker Change: And our strong competitive advantages and responsiveness, we rebound sooner than most of our specialty auto competitors.
Speaker Change: Because of this we are capitalizing on the benefits and achieving strong profitability and growth in this business.
Clearly, there's some texture when you break this down by geography.
Joseph Lacher: Clearly, there's some texture when you break this down by geography. Florida and Texas have displayed a more economically balanced regulatory environment, and their markets are moving towards longer-term norms more rapidly.
Speaker Change: Florida, and Texas are displayed a more economically balanced regulatory environment and their markets are moving towards longer term norms more rapidly.
Joseph Lacher: California's different. between its unique regulatory approach. The doubling of auto minimum policy limits that began January 1st and the associated premium increase. and the second derivative impacts of wildfires, we expect a hard market to remain there for some time. To be clear, we believe we are priced appropriately in California. Our competitive advantages position us very well to continue to meet the needs of an underserved market, grow the business, and deliver strong financial results.
Speaker Change: California is different.
Speaker Change: It's unique regulatory approach.
Speaker Change: The doubling of auto minimum policy limits that began January one and.
Speaker Change: And the associated premium increases.
Speaker Change: And the second derivative impacts of wildfires, we expect a hard market to remain there for some time.
Speaker Change: To be clear, we believe we are priced appropriately in California are competitive advantages position us very well to continue to meet the needs of an underserved market grow the business and deliver strong financial results.
Joseph Lacher: Overall, we expect the financial benefits from our competitive advantages in this hard market to continue.
Speaker Change: Overall, we expect the financial benefits from our competitive advantages in this hard market to continue.
Speaker Change: And before we turn to our results in more detail I'd like to take a moment to comment on the recent California wildfires.
Joseph Lacher: Before we turn to our results in more detail, I'd like to take a moment to comment on the recent California wildfire. Kemper is deeply connected to the broader communities impacted, to where many of our customers, employees, and agents live and work. Our thoughts and support are with all those impacted, and we wish for everyone's safety and resilience throughout the recovery process. That said, relative to our results, these events are not expected to have a meaningful impact on our financials.
Speaker Change: <unk> is deeply connected to the broader communities impacted for many of our customers employees and agents live and work.
Speaker Change: Our thoughts and support are with all those impacted and we wish for everyone's safety and resilience throughout the recovery process.
Speaker Change: That said relative to our results. These events are not expected to have a meaningful impact on our financials.
Joseph Lacher: Now let's move to page four and jump into some specifics on our results. As I said earlier, we delivered a strong year and an even stronger quarter. For the year, we delivered net income of $318 million, and for the quarter, it was $97 million. Our core businesses are performing very well. This is led by our specialty auto business, where our underlying combined ratio was a very strong 91.5% for both the year and the fourth quarter. Matt will dive into this in more detail later, but I want to note that we're very pleased with our PIF growth.
Speaker Change: Now, let's move to page four and jump into some specifics on our results as I said earlier, we delivered a strong year and an even stronger quarter.
Speaker Change: For the year, we delivered net income of $318 million and for the quarter It was $97 million or.
Our core businesses are performing very well. This is led by our specialty auto business, where our underlying combined ratio was a very strong 91, 5% for both the year and the fourth quarter Matt.
Speaker Change: Matt will dive into this in more detail later, but I want to note that we're very pleased with our Pip growth.
Joseph Lacher: Historically, we have seen seasonally low shopping behavior in the fourth quarter. This has usually resulted in sequential quarter PIF decline of around 2%. However, this time we delivered 2% growth. This continues the pattern of attractive growth we've seen since early 2024. On a year-over-year basis, PIF grew over 5%. We expect robust growth trends to continue as we enter the 2025 specialty auto buying season. For our life segment, the underlying business fundamentals remain stable, and the business continued to produce strong return on capital and distributable cash flows. Overall, for the year we generated a strong return on equity of 12% and return on adjusted equity of just over 18%.
Speaker Change: Historically, we have seen seasonally low shopping behavior in the fourth quarter. This is usually resulted in sequential quarter pitch declined around 2%.
Speaker Change: However, this crime, we delivered 2% growth.
Speaker Change: This continues the pattern of attractive growth we've seen since early 2024 on.
Speaker Change: On a year over year basis, <unk> grew over 5%.
Speaker Change: We expect robust growth trends to continue as we enter the 2025 specialty auto buying season.
Speaker Change: For our life segment, the underlying business fundamentals remain stable and the business continued to produce strong return on capital and distributable cash flows.
Speaker Change: Overall for the year, we generated a strong return on equity of 12% and return on adjusted equity of just over 18%.
Joseph Lacher: We have continued to strengthen our balance sheet. We repurchased additional shares during the quarter. We increased our quarterly dividend, and we are retiring $450 million of debt next week.
Speaker Change: We have continued to strengthen our balance sheet, we repurchased additional shares during the quarter, we increased our quarterly dividend and we are retiring $450 million of debt next week.
Bradley Camden: Brad will have more on all of these later.
Brad will have more on all of these later with that I'll turn it over to Brad.
Bradley Camden: And with that, I'll turn it over to Brad.
Brad: Thank you Joe I'll begin on page five with our consolidated financials <unk>.
Bradley Camden: Thank you, Joe.
Bradley Camden: I'll begin on page five with a consolidated financial. We generated another quarter of solid operating profit, resulting in the highest level of adjusted consolidated net operating income in over four years. Net income was $97.4 million, or $1.51 per diluted share, and adjusted consolidated net operating income was $115.1 million, or $1.78 per diluted share. For the year, net income was $317.8 million or $4.91 per diluted share, and adjusted consolidated net operating income was $381.5 million or $5.89 per diluted share. These earnings translate to a 14% return on equity and a 21.4% adjusted return on equity for the quarter, or 11.9% and 18.3% respectively for the year.
Brad: We generated another quarter of solid operating profit, resulting in the highest level of adjusted consolidated net operating income in over four years now.
Brad: Net income was $97 4 million or $1 51 per diluted share and adjusted consolidated net operating income was $115 1 million or $1 78 per diluted share.
Brad: For the year net income was $317 8 million or $4 91 per diluted share and adjusted consolidated net operating income was $381 5 million or $5 89 per diluted share.
Brad: These earnings translate to a 40% return on equity and a 21, 4% adjusted return on equity for the quarter or 11, 9% and 18, 3% respectively for the year.
Bradley Camden: We expect continued strong profitability. Our performance this quarter was driven by the results of our two core business Specialty Auto delivered an attractive 91.7% underlying combined ratio and generated $101 million of adjusted net operating costs. Given the current market environment and the strength of our specialty auto franchise, we expect continued profitable growth.
Brad: We expect continued strong profitability.
Brad: Our performance this quarter was driven by the results of our two core businesses.
Brad: Specialty auto delivered attractive 91, 7% underlying combined ratio and generated $101 million of adjusted net operating income.
Brad: Given the current market environment and the strength of our specialty auto franchise, we expect continued profitable growth.
Bradley Camden: Matt will provide further details later. Moving to LIFE, this business delivered $24 million of adjusted net operating income, an increase of $9 million from last quarter. Approximately $6 million of a sequential quarter increase was related to the annual LDPI assumption update. Recall, we update our actuarial assumptions in the fourth quarter each year. Looking forward, we anticipate annual adjusted net operating income run rate of roughly $55 million or $13 to $14 million per quarter.
Matt: Matt will provide further details later.
Matt: Moving to life. This business delivered $24 million of adjusted net operating income an increase of $9 million from last quarter.
Matt: Approximately $6 million of the sequential quarter increase was related to the annual L. DTI assumption update.
Matt: Recall, we update our actuarial assumptions in the fourth quarter each year.
Matt: Looking forward, we anticipate annual adjusted net operating income run rate of roughly $55 million or 13% to $14 million per quarter.
Matt: Turning to page six.
Bradley Camden: Turning to page six. That investment income for the quarter was $103 million and in line with the guidance we provided last quarter. Our pre-tax annualized book yield was 4.4%. As operating earnings continue to improve, we are adjusting our asset allocation and moving further out along the risk spectrum. This change will occur incrementally over the next three to five quarters and will help increase net investment income to support operational growth. That said, we will continue to maintain a high quality, well diversified investment portfolio.
Matt: Net investment income for the quarter was $103 million and in line with the guidance, we provided last quarter.
Matt: Our pre tax annualized book yield was four 4%.
Matt: As operating earnings continued to improve we are adjusting our asset allocation and moving further out along the risk spectrum.
Matt: This change will occur incrementally over the next three to five quarters and will help increase net investment income to support operational growth.
Matt: That said, we will continue to maintain a high quality well diversified investment portfolio.
Bradley Camden: Moving to page 7. Our insurance companies are well-capitalized and maintain significant sources of liquidity. Parent company liquidity was approximately $1.3 billion at the end of the quarter. This liquidity balance allows us to pay shareholder dividends, interest payments, and support our operating subsidiaries. Our strong financial performance delivered over the past year has allowed us to return capital to shareholders while simultaneously increasing our financial flexibility. This quarter, we repurchased $14 million of common stock, bringing the remaining share repurchase authorization to $133 million. We will continue to opportunistically repurchase shares. Additionally, today we increased our quarterly dividend by one cent to 32 cents quarterly or $1.28 annually.
Matt: Moving to page seven our.
Matt: Our insurance companies are well capitalized and maintain significant sources of liquidity.
Matt: Parent company liquidity was approximately $1 3 billion at the end of the quarter.
Matt: This liquidity balance allows us to pay shareholder dividends interest payments and support our operating subsidiaries.
Matt: Our strong financial performance delivered over the past year has allowed us to return capital to shareholders, while simultaneously increasing our financial flexibility.
Matt: This quarter, we repurchased 14 million of common stock.
Matt: Bringing the remaining share repurchase authorization to $133 million.
Matt: We will continue to opportunistically repurchase shares.
Matt: Additionally, today, we increased our quarterly dividend by <unk> <unk> 32 quarterly.
Matt: Our $1 28 nanometer.
Bradley Camden: This is our first dividend increase in four years and represents the continued confidence in our ability to deliver sustained, long-term, profitable growth for our shareholders.
Matt: This is our first dividend increase in four years and represents the continued confidence in our ability to deliver sustained long term profitable growth for our shareholders.
Bradley Camden: And lastly, and as previously announced, next week we will retire $450 million of debt using cash on hand. This will bring our debt to capital ratio back into the low 20s and further strengthen our balance sheet and financial flexibility.
Matt: And lastly, and as previously announced.
Matt: Next week, we will retire 450 million of debt using cash on hand.
Matt: This will bring our debt to capital ratio back into the low twenty's and further strengthen our balance sheet and financial flexibility.
Bradley Camden: Next on slide eight. Here we provide an update on our January 1st 2025 reinsurance renewal. Our Petastrophe Excess of Loss Program is a one-year term that covers 95% of losses in excess of $50 million up to $175 million. This year's limit is approximately 30% lower than last year. driven by the reduction of total insured value due to the Kemper preferred The takeaway from this is that our business is less prone to catastrophe risk.
Matt: Next on slide eight.
Matt: Here, we provide an update on our January one 2025 reinsurance renewal.
Matt: Our catastrophe excess of loss program is a one year term that covers 95% of losses in excess of $50 million up to $175 million.
Matt: This year's limit is approximately 30% lower than last year.
Matt: Driven by the reduction of total insured value due to the Kemper preferred exit.
Matt: The takeaway from this is that our business is less prone to catastrophe risk.
Matthew Hunton: I'll now turn the call over to Matt to discuss the Specialty PNC.
Matt: I'll now turn the call over to Matt to discuss the specialty P&C business.
Matthew Hunton: Thank you, Brad, and good afternoon, everyone. Turning to page 9 in our specialty PNC bit. We close 2024 with a strong fourth quarter. Margins continue to outperform long-term expectations with an overall combined ratio of 91.7%. private passenger producing 91.4% and commercial auto produced 93%. As Joe mentioned, the current period of rapid price increase and more restrained carrier underwriting has meaningfully increased customer shopping The specialty auto market has a more fragmented group of smaller competitors. With this environment and our distinct competitive advantages, we are significantly growing our book. We expect these conditions to continue for some time.
Matt: Thank you Brad and good afternoon, everyone turning to page nine in our specialty P&C business.
Matt: We closed 2024 with a strong fourth quarter margins continued to outperform long term expectations with an overall combined ratio of 91, 7%.
Matt: Private passenger producing 91, 4% and commercial auto produced 93%.
Matt: As Joe mentioned, the current period of rapid price increases and more restrained carrier underwriting has meaningfully increased customer shopping activity, especially auto market has a more fragmented group of smaller competitors with this environment and our distinct competitive advantages we are significantly growing our book.
Matt: We expect these conditions to continue for some time.
Matthew Hunton: The growth we achieved in the fourth quarter was outstanding. Traditionally, PIF would have shrunk about 2% from the third to the fourth quarter, but instead we grew units by 1.7%. This growth is in line with our production overperformance of the last two quarters. We have now achieved year-over-year PIV growth of 5%. This business tends to have seasonal shopping patterns, and we have historically experienced large swings in quarterly production. Therefore, we've traditionally used year-over-year metrics as they adjust for the seasonality. As we were shifting from declining PIFs to growing PIFs, that metric became less helpful. So we directed your focus to a quarter-over-quarter growth.
Matt: The growth we achieved in the fourth quarter was outstanding traditionally Pip would've shrunk about 2% from the third to the fourth quarter, but instead, we grew units by one 7%.
Matt: This growth is in line with our production over performance of the last two quarters.
We have now achieved year over year Pip growth of 5%.
Matt: This business tends to have seasonal shopping patterns and we have historically experienced large swings in quarterly production.
Matt: Therefore, we've traditionally used year over year metrics as they adjust for the seasonality.
Matt: As we were shifting from declining test to growing past that metric became less helpful. So we directed your focus to a quarter over quarter growth metrics. As we are now reaching more consistent production levels, we will be pivoting back to a year over year view for.
Matthew Hunton: As we are now reaching more consistent production levels, we will be pivoting back to a year-over-year view. For now, we will continue to share both views on this slide.
Matt: For now we will continue to share both views on this slide.
Matthew Hunton: Let's click down into some state-level texture, starting with California, our largest market. We continue to see pricing disruption driven by both the delayed rate increases in response to inflation and mandated increases in minimum limits. This pricing volatility is driving increased consumer shopping. We are optimally positioned to capitalize on this dislocation and have a very positive outlook. In Florida, we continue to achieve profitable growth. This market is behaving more normally than California, and in many ways, is back to business as usual. We are well positioned there for further. Our commercial business continues its success, with another strong quarter.
Matt: Let's click down into some state level texture, starting with California, our largest market. We continue to see pricing disruption driven by both the delayed rate increases in response to inflation and mandated increases in minimum limits.
Matt: This pricing volatility is driving increased consumer shopping.
Matt: We are optimally positioned to capitalize on this dislocation and have a very positive outlook.
Matt: In Florida, we continue to achieve profitable growth. This market is behaving more normally than California and in many ways is back to business as usual.
Matt: We are well positioned there for further growth.
Matt: Our commercial business continues its success with another strong quarter for the last six years. This business has generated an underlying combined ratio below 96 with only one of the last 24 quarters being above 100.
Matthew Hunton: For the last six years, this business has generated an underlying combined ratio below a 96, with only one of the last 24 quarters being above 100. The differentiating capabilities of this business are enabling us to expand profitably in the markets we serve. It remains a reliable source of profitable growth across market sites. In closing, we are very pleased with our results and confident in the position of both our private passenger auto and commercial business. The environmental backdrop remains favorable, and we are determined to continue to capitalize on this opportunity. We remain fully committed to sustain profitable growth.
Matt: The differentiating capabilities of this business are enabling us to expand profitably in the markets we serve.
Matt: It remains a reliable source of profitable growth across market cycles.
Matt: In closing we are very pleased with our results and confident in the position of both our private passenger auto and commercial businesses. The environmental backdrop remains favorable and we are determined to continue to capitalize on this opportunity we remain fully committed to sustained profitable growth.
Matt: I'll now turn the call over to Joe to cover the life business and closing comments.
Joseph Lacher: I'll now turn the call over to Joe to cover the life business in closing comments.
Joseph Lacher: Thank you, Matt.
Joe Lacher: Thank you, Matt turning to our life business on page 10 as noted earlier the underlying business continued to generate stable operating results mortality was modestly better than historical experience, while persistency remained in line with historical trends.
Joseph Lacher: Turning to our life business on page 10. As noted earlier, the underlying business continued to generate stable operating results. Mortality was modestly better than historical experience, while persistency remained in line with historical trends. The life business continues to generate strong return on capital and distributable cash flows.
Joe Lacher: Life business continues to generate strong return on capital and distributable cash flows.
Joe Lacher: As Brad mentioned, the 2023, <unk> accounting change requires an annual actuarial assumption update for.
Joseph Lacher: As Brad mentioned, the 2023 LDTI accounting change requires an annual actuarial assumption update. For Kemper, this review occurs in the fourth quarter. It updates assumptions for the entire in-force book. As a result, the financial impact is not a run rate item. We provided the income statement impact for your reference.
Joe Lacher: For Kemper. This review occurs in the fourth quarter.
Joe Lacher: Updated assumptions for the entire enforce book and as a result, the financial impact is not a run rate items. We provided the income statement impact for your reference.
Joe Lacher: Turning to page 11 in.
Joseph Lacher: Turning to page 11.
Joseph Lacher: In closing, I'd like to reiterate our highlights for the quarter and year end. First, Kemper delivered strong operating performance led by specialty P&Cs underwriting profitability. Second, Specialty PNC returned to year-over-year PIF growth and is well positioned for significant growth going forward. Third, the underlying fundamentals of our life business remain stable. And finally, we continue to strengthen our balance sheet. We repurchased $14 million of stock in the quarter, raised our quarterly dividend, and will retire $450 million of debt next week. As we move through 2025, we remain well-positioned to deliver on our promises of empowering growing specialty and underserved markets with affordable and easy-to-use insurance and financial solutions.
Joe Lacher: In closing I'd like to reiterate our highlights for the quarter and year end.
Joe Lacher: First Kemper delivered strong operating performance led by specialty P&C underwriting profitability.
Specialty P&C returned to year over year, <unk> growth and is well positioned for significant growth going forward.
Joe Lacher: Third the underlying fundamentals of our life business remains stable and finally, we continue to strengthen our balance sheet, we repurchased $14 million of stock in the quarter raised our quarterly dividend and will retire $450 million of debt next week.
Joe Lacher: As we move through 2025, we remain well positioned to deliver on our promises and empowering growing specialty in underserved markets with affordable and easy to use insurance and financial solutions.
Joseph Lacher: We continue to anticipate meaningful, profitable growth in our specialty auto business for the foreseeable future and are confident in our ability to create long-term shareholder value.
We continue to anticipate meaningful profitable growth in our specialty auto business for the foreseeable future and are confident in our ability to create long term shareholder value.
Joseph Lacher: Before we wrap up, I want to take a moment to thank all of our employees for their hard work and dedication to achieve these results. Their commitment has been instrumental in delivering on our promises to our customers and ultimately driving our success, and we truly appreciate everything they do to help us achieve our goals.
Joe Lacher: Before we wrap up I want to take a moment to thank all of our employees for their hard work and dedication to achieve these results.
Joe Lacher: Their commitment has been instrumental in delivering on our promises to our customers and ultimately driving our success and we truly appreciate everything they do to help us achieve our goals.
Unknown Executive: With that, operator, we may now take questions.
Joe Lacher: With that operator, we may now take questions.
Unknown Executive: Thank you.
Joe Lacher: Thank you.
Unknown Executive: 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 touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please make sure to lift the handset before pressing any buttons.
Joe Lacher: Ladies and gentlemen, we will now begin the question and answer session.
Joe Lacher: Should you have a question. Please press star followed by the number one on your Touchtone phone.
You'll hear a prompt that your hand, that's been raised should you wish to decline from the polling process. Please press star followed by the number too.
Joe Lacher: If you are using a speaker phone please make sure to lift the handset before pressing any keys.
Speaker Change: Your first question comes from the line of Gregory Peters from Raymond James. Please go ahead.
Gregory Peters: Your first question comes from the line of Gregory Peters from Raymond James, please go ahead.
Gregory Peters: Good afternoon, everyone. For my first question, I'm curious about the consequences of the fire in California on other lines of business, particularly auto. You said, Joe, I think in your opening comments, it's a hard market there.
Joe Lacher:
Speaker Change: Good afternoon, everyone.
Joe Lacher: For my first question.
Joe Lacher: I am curious about the.
Joe Lacher: Consequences of the fire in California on other lines of business, particularly auto.
Speaker Change: You said, Joe I think in your opening comments, it's a hard market there.
Joseph Lacher: Can you give us an update on on like the number of companies that are showing up in the comparative raters in your agency plant inside California? And have you seen any change in that just because of the virus?
Speaker Change: Can you give us a update on on like the number of companies that are showing up in the comparative raters and your agency.
Speaker Change: <unk> inside California, and have you seen any change in that just because of the fires.
Joseph Lacher: I'm sure I'm going to make a quick overall comment and throw it to Matt for the details. You know, we're not at this point seeing a substantive change in any of our businesses. There may be, you know, second or third derivative impacts down there. We don't have a, we're not seeing a financial impact. Sales are consistent. Retentions are consistent. Nothing we can really see from the fire.
Speaker Change: Sure I'm Gonna make a quick overall comment and then throw it to Matt for the details we're not we're not at this point seen a substantive change.
Speaker Change: In any of our businesses, there, maybe second or third derivative impacts down there. We don't we don't have a we're not seeing the financial impact sales or consistent retentions are consistent.
Speaker Change: Nothing we can really see from the fire and Matt you want to click in deeper on some of the questions.
Matthew Hunton: Matt, you want to click in deeper on some of the questions? Yeah, Greg, just a little bit more texture in California, we talk about it being a hard market. Our definition of a hard market is you have strong pricing, and fewer competitors. And what we're seeing is, you know, that that price dislocation that's happening across the entire auto market is generating more shopping activity. And we see that as an opportunity for us, we feel strong about our rate adequacy about our pricing, and we're doing our best to take advantage of this opportunity while it exists.
Matt: Yes, Greg just a little bit more texture in California, we talked about it being a hard market.
Matt: Our definition of a hard market is you have strong pricing and fewer competitors and what we're seeing is that.
Matt: That price dislocation that's happening across the entire auto market is generating more shopping activity.
Matt: And we see that as an opportunity for us we feel strong about our rate adequacy about our pricing and we're doing our best to take advantage of this opportunity while it exists.
Matt: I think the the property market and the <unk> that that market is working through.
Matthew Hunton: I think the the property market and the the L that that market is working through, is, is, you know, over time has has helped in suppressing the auto supply market, that's an advantage to us, we generally see between four and six competitors per quote, that's been consistent over the last year and a half or so, we're not seeing that metric move material.
Matt: Is is over time has it has helped in suppressing the auto supply market. That's an advantage to us we generally see between 4% and six competitors per quote that's been consistent over the last year and a half or so we're not seeing that metric move materially.
Matt: Okay got it.
Gregory Peters: Got it.
Gregory Peters: And in your comments, you talked about the seasonality of production in PIF. I'm wondering, you know, now that profitability has been restored, is there going to be a return to seasonality and sort of the underlying loss ratios and how do you think about that as we work through a normalized year? Yeah, at some point, Greg, there'll be some sort of return to that. I'm not sure we're ready to forecast that yet. You're going to see through our pieces, there's some piece of seasonality, you're going to get a little bit of different view on where new business penalties are, you get a little bit of state by state mix on it.
Matt: And in your comments, you talked about the seasonality of production and paths.
Matt: I'm wondering now that profitability has been restored as theyre going to be a return to seasonality and sort of the underlying loss ratios and how do you think about that as we work through a normalized year.
Matt: Yeah.
Matt: At some point, Greg there'll be some sort of return to that I'm not sure we're ready to forecast that yet where.
Matt: Youre going to see through our pieces Theres some piece of.
Matt: The seasonality you're going to get a little bit of different view on more new business penalty is are you get a little bit of a state by state mix on it if its really a modeling question. We can try to help you with that a little more upside if it is a general view.
Joseph Lacher: If it's really a modeling question, we can try to help you with that a little more offside. If it's a general view, I think we maintain the process. We're running a little better than a 92 combined ratio now. Over a number of quarters, that's going to generally migrate towards a more traditional 93, 94, 95 range. We can't give you an exact precision on that. We described that, I think several quarters ago, as four to six. It's going to work its way over time. The longer the market stays harder, the slower that migration will be. It'll adjust as it works.
Matt: I think we maintain the process, we're running a little better than a 92 combined ratio now.
Matt: And over a number of quarters, that's going to generally migrate towards a more traditional 90 390 495 range. We can't give you an exact precision on that we described that.
Matt: Several quarters ago is four to six it's going to sort of work its way over time the longer the market stays harder.
Matt: The slower that migration will be either you know it'll it'll adjust as it works, we expect some of that seasonality on loss ratios will come back.
Joseph Lacher: We expect some of that seasonality on loss ratios will come back. I just think for the next 12 months, it'll be harder to try to go quarter to quarter projecting that loss ratio with a boatload of precision because of the big swings in production over the last 12 months.
Matt: I just think for the next 12 months I'm going to be harder to try to go quarter to quarter projecting that loss ratio with with a boatload of precision because of the big swings in production over the last 12 months.
Matt: Okay fair enough.
Gregory Peters: Okay, fair enough.
Gregory Peters: I guess the final, just clarification, I didn't have Sherry Purchase in the fourth quarter on my dance card. There are a lot of things you've done from a capital perspective. How should we think? You raised the dividend. How should we think about share repurchase in 2025 as you balance that versus the growth opportunity?
Matt: I guess the final just clarification I didn't have share repurchase in the fourth quarter on my dance card. So.
Matt: There are a lot of things you've done from a capital perspective.
Matt: How should we think you raised the dividend how should we think about share repurchase in 2025, as you balance that versus the growth opportunities.
Matt: Okay.
Bradley Camden: Greg, this is Brad.
Matt: Greg This is Brad thanks for the question.
Bradley Camden: Thanks for the question. I'll go back to the principles we have with respect to capital usage. The number one source of capital usage is obviously we want to grow PIF, we want to grow organically.
Speaker Change: I'll go back to the principles, we have with respect to capital usage.
Speaker Change: Number one source of capital use it is obviously, we want to grow we want to grow organically. The second is looked at anything inorganic and I'll tell you right now we're not in that.
Joseph Lacher: The second is look at anything inorganic and I'll tell you right now we're not in that Unknown Executive, Charles Peters, Unknown Executive, Charles Peters, Unknown Executive, If I can add, I 100% agree with them. The clear takeaway in that, we're seeing strong, organic, profitable growth opportunities right now. And the bulk of the capital we anticipate generating from earnings, we can deploy in organic growth. So that's our primary focus. That's the first level focus for us.
Speaker Change: Spot right now and then.
Speaker Change: And third is obviously return capital to shareholders, we've done a little bit with the dividend.
Speaker Change: We've been Opportunistically buying back shares when we think the stock is undervalued and we'll continue to do so but don't anticipate any significant.
Speaker Change: Buyback program in the near term.
Speaker Change: And as I indicated we've got a $133 million left on the share repurchase authorization.
Speaker Change: <unk> issued a couple of years ago.
Speaker Change: Okay.
Speaker Change: If I can add into it.
Speaker Change: 100% agree with them.
Speaker Change: The clear takeaway and that we're seeing strong organic profitable growth opportunities right now and the bulk of the capital we anticipate generating from from earnings we can deploy inorganic growth. So so we're going to that that's our primary focus as opposed to it that's the first level focus.
Speaker Change: For us we have adequate capital to Opportunistically buy shares and be a supporter of that and the market, whereas appropriate but the primary focus is that or that profitable organic growth.
Gregory Peters: We have adequate capital to opportunistically buy shares and be a supporter of that in the market where it's appropriate. But the primary focus is that profitable organic growth. Got it. Makes sense. Thanks for the answer.
Speaker Change: Got it makes sense thanks for the answers.
Brian Meredith: Your next question comes from the line of Brian Meredith from UFBS, please go ahead. Thanks. Joe, just one quick one here to begin with. Any way to quantify the lift we'll see on that billion aid of California auto premium from these minimum limits as we as we look into 2025? Yeah, our our minimum limit policies saw a little more than a 30% increase on it. And they represent about between 50 and 60% of our California policies. There again, I'm sorry, I misspoke on that one. It's a higher percentage. Our minimum limit policies in California are north of 90% in that I was doing a broader country wide view.
Speaker Change: Your next question comes from the line of Brian Meredith from UBS. Please go ahead.
Speaker Change: Bags, it's Joe just one quick one here to begin with.
Speaker Change: Any way to quantify the lift we'll see on that Billy Native California audit premium from these minimum with it since we as we look into 2025.
Speaker Change: Yeah, our our minimum limit policies.
Speaker Change: Saw a little more than a 30% increase on it and they represent about between 50 and 60% of our California.
Speaker Change: <unk>.
Speaker Change: There are yeah, I'm, sorry, I misspoke on that one it's a higher percentage of our minimum limit policies in California are north of 90%.
Speaker Change: In that process.
Speaker Change: I was doing them a broader country wide view.
Brian Meredith: So, so I think the majority of the California premium gets another 30.
Speaker Change: So I think the majority of the California premium gets another 30.
Speaker Change: Wow Okay.
Brian Meredith: Okay, but like I think you said last quarter, We're thinking about continuing numbers in the liability only, not the minimum limits. Gotcha, gotcha. And like you said last year, I'm sorry, last quarter, you don't expect to have a material impact on profitability because you're trying to kind of keep your rates where you're going to keep that kind of mid combined, mid-90s combined ratios, correct? I missed the last part of that, Brian, and I missed the last quarter, you talked about how you don't anticipate the higher minimum limits having a material impact on margins, just because the way you're implementing rate, that's still correct, right?
Speaker Change: But like I think you said last quarter thinking that activity number than a liability only not the minimum limits gotcha gotcha.
Speaker Change: You said last year.
Speaker Change: So last quarter, you don't expect it to have a material impact on profitability, because you're trying to kind of keep your rates, where youre going to keep that kind of bid combined mid ninety's combined ratios correct.
Speaker Change: I missed the last part of that Brian.
Speaker Change: Mrs.
Speaker Change: Last quarter, you talked about how you don't anticipate the higher minimum whether it's having a material impact on margins.
Speaker Change: Just because they.
Speaker Change: They've been implementing rate that's still correct right.
Joseph Lacher: That's still correct. What we did is we effectively took, we had limit profiles that were at the old minimum limits, and we had, you know, a staggered limit curve, you know, so we gave people options. We eliminated the ones at the bottom and sort of moved them up, and then we made an adjustment for what we thought a loss mix would be. So that affected the minimum limits piece of that. Remember on it, though, let's break apart the premiums a little bit. You've got first party coverages and third party coverages. The minimum limits affect the liability side of this, not the first party.
Speaker Change: That's still correct.
Speaker Change: What we did is we effectively took we had limit profiles that were at the old minimum limits that we had.
Speaker Change: Staggered limit curve. So we gave people options, we eliminated the ones at the bottom and sort of moved them up and then we made an adjustment for what we thought a loss mix would be.
Speaker Change: So so that affected the minimum limits pieces that.
Speaker Change: Remember on it though what let's break apart the premiums a little bit you've got first party coverages and third party coverages.
Speaker Change: The minimum limits affect the liability beside of this not the first party. So if you bought full coverage covers your car and it covers anybody you hit the stuff that covers your car to comp the collision that doesn't go up 30%. It's just the bi and PD coverages. So it's not all of the California premium it's the premiums.
Joseph Lacher: So, you know, if you bought full coverage, it covers your car and covers anybody you hit. The stuff that covers your car, the comp, the collision, that doesn't go up 30%. It's just the BI and PD coverages. So it's not all of the California premium, it's the premiums that would be covered by liability. The majority of our customers for those coverages have minimum limits policies, and those went up about 30%. So you got to break it apart. It probably comes in, if you want a simple way, if you're trying to build a modeling item, like 15%, 16% of the total California premium when you work it through.
Speaker Change: That would be covered.
Speaker Change: Bye bye liabilities the majority of our customers for those coverages have minimum limits policies and those went up about 30%. So you.
Speaker Change: You've got to you've got a break.
Speaker Change: You've got to break it apart it probably comes in.
Speaker Change: You want a simple way if you're trying to build a modeling item like 15, 16% of the total California premium.
Speaker Change: When you work it through if you were being more precise you could do it by by line.
Joseph Lacher: If you were being more precise, you could do it by line. and we do not think that has a is going to meaningfully change margin.
Speaker Change: And we do not think that has a is going to meaningfully change margin.
Speaker Change: Gotcha. Okay second question I'm, just curious and I know we've talked about this before but there was some adverse development on the commercial auto line.
Joseph Lacher: Second question, I'm just curious, and I know we've talked about this before, but some adverse development on the commercial auto line. I know you've got a different commercial auto book than your typical kind of commercial auto book that we think about, but what's going on there? Is it the same kind of attorney rep going on? So two comments, I'm going to make one overall, and I think Brad's going to kick in on the development. Remember, our commercial auto book is not a typical, you know, competitor view of commercial auto. I think in the last We've only had one quarter that had an underwriting loss.
I know you've got a different commercial order booked in your typical kind of commercial order book that we think about but whats going on there is it is it the same kind of attorney rep going on.
Speaker Change: So two comments I'm going to make one overall and I think Brad is going to kick in on the development remember our commercial auto book.
Brad: Is not a typical.
Speaker Change: Competitor view of commercial auto.
Brad: I think in the last.
Brad: 12, 20 quarters, we've only had one quarter that had an underwriting underwriting loss. There I mean this is a business that and I had underlying underwriting profitability has been strong and it's been growing at it it only had that one underlying period over 100.
Bradley Camden: This is a business that an underlying profitability has been strong and it's been growing. It only had that one underlying period over 100. We don't have trucking. We don't have sand and gravel haulers. We don't have ugly stuff. It's not massive fleets. It's smaller stuff, which is why it performs different. You occasionally get a large loss here or there that may pop, that may be out of pattern and that happens on a book this size. I wouldn't think too much of it. If you look at that strong rolling loss ratio or in combined ratio, it's very attractive.
We don't have trucking, we don't have a sand and gravel haulers. We don't have you know at least up it's not massive fleets.
Brad: It's it's it's small it's smaller stuff, which is why it performs different you occasionally get a couple of you know you'll get a large loss here or there that it may pop that maybe out of pattern and.
Brad: And that happens on.
Brad: On a book of this size I wouldn't think too much of it is if you look at that strong rolling.
Brad: Rolling loss ratio and combined ratio, it's very attractive and Brad do you want to talk about the underlying trends.
Bradley Camden: Brad, you want to talk about some of the underlying trends? Yeah, I think just to give you a view of our overall reserving philosophy, if you take a step back up, when you look at KA in total, we had adverse development about $1.9 million. And so our first philosophy is make sure from a KA, or especially auto perspective, we have more than enough reserves to pay for what we owe. And then, you know, at the end of the year, we looked at the development coming through, we decided to bolster the CV side, you know, some favorability on the PPA side.
Brad: Yeah, I think just to give you a view of our overall reserving philosophy. If you take a step back up and you look at K a in total we had adverse development of about $1 9 million and so our first philosophy is make sure from a K a.
Brad: Especially auto perspective, we have more than enough reserves to pay for the what we owe.
Brad: And then ended the year, we looked at the development coming through we decided to bolster the CV side and there was some favorability on the PPA side, where we're bolstering mainly was the result of the extra curricular.
Bradley Camden: We were bolstering mainly as a result of the extracurricular Obligations, ECO's, the extra contractual obligations, the ECO stuff. Where we're seeing a little bit higher development, so just really end of the year cleanup. No, you know, significant change in trends or anything that we're seeing.
Brad: Obligations acos actual contracts with extra contractual obligations, the ECA stuff, where we're seeing a little bit higher development. So it's just really ended the year clean up.
Brad: No no no significant change in trends or anything that we're seeing.
Brad: Great. Thank you appreciate it.
Bradley Camden: Thank you, appreciate it.
Brad: Yeah.
Andrew Kligerman: Your next question comes from the line of Andrew Kligerman from TD Securities. Your line is now open. Hey, thanks a lot. Good evening. So I'm looking at slide nine in the top right hand corner at the PIF growth Q over Q. And when I think about 5% year over year, and for the first three quarters of last year, you saw year over year drop. So it sounds like, and correct me if I'm wrong, the cons just get easier and easier, especially if. The three areas, you know, where you have those three kind of rows, California, Florida, Texas, and then other, if they kind of continue at that sequential rate, and we should just see increasingly better year over year number.
Speaker Change: Your next question comes from the line of Andrew <unk> from TD Securities. Your line is now open.
Andrew: Hey, Thanks, a lot good evening.
Brad: I'm looking at slide nine.
Andrew: Top right hand corner at the.
Brad: A pip growth Q over Q.
Brad: When I think about 5% year over year and for the first three quarters of last year, you saw year over year drop.
Brad: So it sounds like and correct me, if I'm wrong, the comps just getting easier and easier, especially if.
Brad: The three areas.
Brad: You have those three kind of Rose, California, Florida, Texas and then other.
Brad: Kind of continue with that.
<unk> right.
Brad: And we should just see increasingly better year over year numbers. So just just want to make sure that observation is right.
Andrew Kligerman: So just just want to make sure that observation is right and that observation is 100% right, Andrew, if you, if you back up. If you back up like a two quarters, I think it was maybe it was three, we showed you we had a particular slide in there that showed Pardon me? Yeah, that's right. I remember it. It showed the year over year and it showed the sequential quarter and we showed you the challenges with those. And what we've got is we've always had seasonality on sequential quarter in this business. So if you if you went through and you and we gave you PIF numbers, if you went through and you looked at 16, 17, 18, 19, you would have seen that the third to fourth quarter usually saw a negative, you know, PIF it dropped.
Brad: 100% right Andrew.
Brad: If you if you back up.
Brad: If you back up like two quarters.
Brad: I think it was maybe it was three we showed you at but we had a particular slide in there that showed.
Brad: Yes.
Brad: Pardon me.
Brad: Yes, that's right I remember that showed a year over year and it showed the sequential quarter and we showed you the challenges with those and what we've got is we've always had seasonality on a sequential quarter in this business. So if you. If you went through when you. When we gave you a pip numbers as he went through and you looked at 16 17, 18, 19, you would've seen that the third or fourth quarter usually.
Brad: We saw a negative.
Brad: Perfect dropped and then you saw big numbers in the first and the second it made sequential quarter numbers hard for you guys to reach so what we did is we encourage you to look at year over year. Because then you just get a you get a rolling four quarters, and you're always dropping off the and I'm, putting one and you've got a comparative period. So it's useful.
Joseph Lacher: And then you saw big numbers in the first and the second. It made sequential quarter numbers hard for you guys to read. So what we did is we encourage you to look at year over year, because then you just get a you get a rolling four quarters and you're always dropping off the you know, and putting one and you got a comparative period. So it's useful. When we made a massive pivot from slowing new business and declining PIF to turning it back on year over year would not let you see that change. So we pointed you to sequential quarter.
Brad: When we made a massive pivot from slowing new business and declining path to turning it back on year over year would not let you see that change. So we pointed you to sequential quarter.
Joseph Lacher: The first quarter of 2024 was negative. Then you saw a positive and you saw a positive. And yet actually the fourth quarter was really is a small positive was really good compared to normal. As you get into the first quarter of next year, you'll go back to having a 12 month period that are more on the same trend. My guess is you're going to see the second quarter of 25 look better than the second quarter of 24. So I think there still might be one or two quarters where you might want to look at both year over year and sequential quarter, because I think you're going to see that year over year continue to rise a little bit and you're going to want to see both trends.
Brad: The first quarter of 'twenty 'twenty four was negative.
Brad: Then you saw a positive and you saw positive then you actually the fourth quarter, which really is a small positive. It was really good compared to normal as you get into the first quarter of next year, you'll go back to having a 12 month period that are more on the same trend. My guess is youre going to see the second quarter of twenty-five looked better than the second quarter of 'twenty four.
Brad: So I think there still might be one or two quarters, where you might want to look at both year over year and sequential quarter, because I think youre going to see that year over year continue to rise a little bit and you're going to want to see both trends by the time, we get to mid year next year, it's probably clean to look at it year over year, because that'll give you a seasonality adjustment.
Matthew Hunton: By the time we get to mid year next year, it's probably clean to look at a year over year because that'll give you a seasonality adjustment. So I think both are useful for at least one or two more quarters. But you're right, the underlying year over year is going to continue to get better, likely at least through the middle of next year. Yeah, that's, that's very encouraging. And, and then maybe you could give us a little color. I mean, are the, are the, are the key, and you said to continue to look a little bit at the sequential trends.
Brad: So I think both are useful for at least through two more quarters, but yeah, you're right. The underlying year over year is going to continue to get better likely at least through the middle of next year.
Speaker Change: Yeah. That's that's very encouraging and then maybe you could give us a little color I mean are the CCAR.
Brad: And he said to continue to look a little bit.
Brad: Sequential trends I mean, it's it's slide nine indicative of.
Matthew Hunton: I mean, is slide nine indicative of what you're what you what we're likely to see in in 2025 kind of that those sequential numbers are and you gave good color on California and Florida and Texas in terms of hard market. more balanced market with the the other two big states. But and then like what's going on in in other like why is that so strong? And maybe a little color there. So should those a should the sequentials continue with those paces and be what's going on in other that made it so strong?
Brad: What you're what you're what we're likely to see in.
Brad: 2025 tenants that took those sequential numbers are and you gave good color on California, and Florida, and Texas in terms of hard market or more balanced market with the other two big states, but and then like what's going on in and in the.
Brad: Other like why is that so strong in.
Brad: And maybe a little color there so should those should the sequential continue with those paces and see what's going on and whether it makes sense.
Joseph Lacher: Let's let's I want to break this in two parts. I'm going to let Matt do the the other I'm going to start with the overall. Let's take the sequential and you see the 1.8 in total there. Mm hmm. So I'm a quarter of a quarter. Yep. That is not in any way, shape or form what we expect the sequential quarter PIF growth to be in the first quarter. That is way lower than what we expect that to be. The fourth quarter is a seasonally low number. It will be much higher. So if you took that and you expected sequential quarter PIF growth to be 1.8 for the next three or four quarters, you would absolutely miss a peck.
Brad: Let's let's break this into two parts I'm going to let Matt do the other I'm going to start with the overall, let's take the sequential when you see the 1.8 in total there.
Brad: Mhm.
Brad: On a quarter over quarter.
Brad: Yep I.
Brad: I think.
Brad: That is not in any way shape or form what we expect the sequential quarter growth to be in the first quarter that is way lower than what we expect that to be the fourth quarter is a seasonally no low number.
Brad: It it it will be much higher so if you took that you expected sequential quarter Pip growth to be one eight for the next three or four quarters, you would absolutely Miss a pack it it's gonna be way higher than the first and second quarter that for non standard auto that's what we talk about buying season.
Joseph Lacher: It's going to be way higher in the first and second quarter that for non-standard auto, that's what we talk about buying season. It's a combination of people getting tax refunds. It's a combination of they've paid off their holiday bills. And so maybe they have a little more disposable income. Sometimes they're looking at it as you've gotten through winter months and summer, whatever combination of things there are, you get a buying season that sees a lot more activity in the first two quarters of the year. So If you said does outperforming our historical run rate, will that continue?
Brad: It's a combination of people getting tax refunds, it's a combination of they've paid off their their holiday bills.
Brad: And so maybe they are a little more disposable income sometimes they are looking at it.
As you've gone through winter months in.
Brad: Summer whatever combination of things there are.
You get a buying season that sees a lot more activity.
Brad: In the first two quarters of the year so.
Brad: If you said.
Brad: Does outperforming our historical run rate well that continue yeah does the 1.8 run rate no. It is a it is a seasonal number which is traditionally low I would expect meaningfully higher in the first part of next year the relative basis.
Matthew Hunton: Yeah. Does the 1.8 run rate? No. It is a seasonal number, which is traditionally low. I would expect meaningfully higher in the first part of next year. The relative basis, California is running great. Florida and Texas are a little behind. Those will accelerate. Other likely will be higher. Ultimately, I'd expect California to have one rate. Florida and Texas would be higher than that, and the all other would be higher than Florida and Texas. That's the pattern that you'll see when things rebalance, and we're still rebalancing a little bit. Does that make sense on the first part of the question?
California is running great.
Brad: Florida, and Texas are a little behind those will accelerate other likely will be higher you know ultimately I'd expect California to have one rate, Florida, and Texas would be higher than that in the all other would be higher.
Brad: In Florida, and Texas, that's a pattern that you will see when things rebalance and were still rebalancing a little bit.
Does that makes sense on the first part of the question.
Andrew Kligerman: Yes, super helpful. Okay.
Brad: Yes Super helpful.
Matthew Hunton: Matt, do you want to give us some color on Florida and Texas and other... Andrew asked about other, but there's a little Texas too. Yeah, so I mentioned the dynamics in California that are driving production. Florida, I'd categorize Florida as a normal marketplace. I think the responsiveness of the OIR in Florida has been great, the encouragement on rate. We're seeing companies actually having overcorrected in Florida, I think the tort reform is starting to work its way through. So we're seeing jockeying on pricing that you would see in a normal environment. Some companies taking rates up, some companies taking rates down.
Brad: Matt do you want to give us some color on Florida, and Texas and other getting Andrew asked about other but theres, a little Texas too.
Brad: Yeah. So I mentioned that the dynamics in California that are that are driving production, Florida, I'd I'd categorize, Florida as a as a normal marketplace I think the responsiveness of the OE or in Florida has been great. The encouragement on rate, we're seeing companies actually having overcorrected in Florida, I think the tort reform are starting to work its way.
Brad: Through so we're seeing jockeying on pricing that you would see in a normal environment. Some companies taking rates up some companies taking rates down.
Matthew Hunton: In Texas, Texas is a more traditionally soft market because the number of competitors in that marketplace, you have almost 1,000 competitors in that marketplace. We have repositioning our product in Texas that we're launching out pretty soon. So you'll start to see Texas come online here as we work over the next few quarters. In the smaller states, we have a small base there. So as Joe mentioned, we expect significant growth in those markets as the rebalancing takes hold. We're also optimistic about production across all markets. They're just at different levels of maturity of the rebalance. That is super helpful.
Brad: In Texas, Texas is a more traditionally soft market because the number of competitors in that marketplace you have.
Brad: Almost 1000 competitors in that marketplace, we have positioning repositioning our product in Texas that we're launching out there that are pretty soon so you'll start to see Texas come online here as we work over the next few quarters and the smaller states.
Joe Lacher: We have a small base there and so as Joe mentioned, we expect.
Joe Lacher: Significant growth in those markets as we as the rebalancing takes hold so optimistic about production across all markets Theyre just at different levels of maturity of the rebalance.
Joe Lacher: Got it Super helpful and just a quick for.
Bradley Camden: And just quick for for Brad, the earned rate, should we expect about two to three points of earned rate in the first half of the year? Well, Andrew, we've gotten away from really forecasting that earned rate, and we haven't applied it in a while. What I would tell you, you know, it's going to be higher than that in general, just given, you know, the California FR limit changes coming through. I think the best way to look at it is, you know, we expect, you know, earned rate and loss trend to be relatively equal and maybe a loss trend a little bit higher, as we've told you, slowly over the next several quarters, the underlying combined ratio will move up ever so slightly, but that's the best way to think about it, you know, just looking at the earned rate now, you know, we've gotten through that, you know, that journey the last couple of years.
Speaker Change: Brad the earned rate should we expect about two to three points of earned rate in the first half of the year.
Joe Lacher: Yeah.
Joe Lacher: Well, Andrew we've gotten away from really forecasting that earned rate and we havent supplied in oil.
Joe Lacher: What I would tell you is.
Joe Lacher: It's going to be higher than that in general just given you know the California fr limit changes coming through.
Joe Lacher: I see.
Joe Lacher: Best way to look at as we expected you know.
Joe Lacher: Earned rate and loss trend to be relatively equal.
Joe Lacher: And maybe maybe a washer and a little bit higher as we've told you slowly over the next several quarters.
Joe Lacher: The underlying combined ratio move up ever so slightly.
Joe Lacher: But that's the best way to think about it you know just looking at the earned rate now.
Joe Lacher: We've gotten through that Oh that journey. The last couple of years and you know it can be more.
Bradley Camden: And you know, it could be more stable. It builds on Brian's question a little bit about the FR limits. If you went and tracked rate filings, you're going to see a big rate filing, a big approval that's going to work its way through in California for the FR limits. It doesn't impact margin. So if you just took all of the filed and earned rate and tried to project margin, you're going to get it wrong with that. That's distortive. So Brad's point is 100% correct from a modeling perspective. The ignore the FR limit for margin, use it there for revenue.
Joe Lacher: Stable.
Speaker Change: Yes, Phil Thank you build on Brian's question, a little bit about the fr limits.
Speaker Change: If you went and track rate filings youre going to see a big rate filing a big approval, that's going to work its way through in California for the F. Our limits.
Speaker Change: And it doesn't impact margin. So if you just took all of the filed an earned rate and tried to protect margin you're going to get it wrong with that that's distortive.
Speaker Change: So so brad's point is 100% correct from a modeling perspective.
Speaker Change: Ignore the fr limit for margin use it there for revenue.
Brian Meredith: And for the other rates, they're going to be roughly in parallel, the loss. Thanks very much.
Speaker Change: And for the other rates theyre going to be roughly in parallel the loss trend.
Speaker Change: Thanks very much.
Speaker Change: Okay.
Unknown Executive: Ladies and gentlemen, as a reminder, if you have a question, please press star followed by the number one on your telephone keypad. And if you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please make sure you lift your handset before pressing any key.
Speaker Change: Ladies and gentlemen, as a reminder, if you have a question. Please press star followed by the number one on your telephone keypad and if you wish to decline from the polling process. Please press star followed based on number two.
Speaker Change: If you are using a speaker phone. Please make sure you lift your handset before pressing any case.
Paul Newsome: Your next question comes from the line of Paul Newsome from Piper Sandler.
Speaker Change: Your next question comes from the line of Paul Newsome from Piper Sandler Your line is now open.
Paul Newsome: Your line is now open.
Paul Newsome: Good evening. I've got a couple three, I think, pretty simple questions. The one is looking at the California wildfire exposures. Is it really kind of just as simple as the fact that people drive their cars away and wildfires that is the reason for the relatively low amount of claims for EFO? Yeah, it's two or three things, Paul.
Speaker Change: Good evening.
Speaker Change: I've got a couple three I think pretty simple questions.
Speaker Change: The one is looking at the California wildfire exposures is it really kind of just as simple as the fact that people drive their cars away and Wells Fargo.
Speaker Change: The reason for the relatively.
Speaker Change: No amount of claims from you folks.
Speaker Change: Yeah, it's it's two or three things Paul one we don't have meaningful homeowners exposure. So people are starting to think about and worry about and homeowners to if you look at where the fires were.
Joseph Lacher: One, we don't have meaningful homeowners exposure. So people are starting to think about and worry about homeowners. Two, if you look at where the fires were, our customers don't live in Pacific Palisades. So they were the fires were occurring somewhere else. And three, people tend to drive away from those items. So we get some benefit of that. But it's the no homeowners or customers aren't living there, and a little bit of they're driving away.
Speaker Change: Our customers don't live in Pacific Palisades. So they were the fires were occurring somewhere else and three people tend to drive away from those items. So we get some benefit of that.
Speaker Change: But it's it's the no homeowners our customers aren't living there and a little bit of their driving away.
Paul Newsome: One question I've got quite a bit is whether or not there's going to be some sort of disruption really at the distribution level, either for regulatory reasons or simply because LA isn't kind of a mess. Is any thoughts on that? Or do you think at the distribution level, there could be any sort of changes? Just give them the magnitude of that. Help us understand what you mean on distribution level. You mean agents or something else? Agents. Agents being able to actually do the sales. Sometimes agents are more focused on claims or other things. We're not.
Speaker Change: One question I've got quite a bit.
Speaker Change: Whether or not there's going to be some sort of disruption really at the distribution level.
Speaker Change: Either for regulatory reasons or simply because it isn't kind of a mess.
Speaker Change: <unk>.
Speaker Change: <unk>.
Speaker Change: Any thoughts on that.
Speaker Change: At the distribution level, then there could be any sort of changes.
Just given the.
Speaker Change: Help us understand.
Speaker Change: Stand what you mean on distribution level.
Speaker Change: I mean, the agents or <unk> agents.
Speaker Change: Agents being able to actually do the sales and wonder sometimes agents, who are more focused on claims or other things.
Speaker Change: We're not we're not remember the markets for a second you might have.
Joseph Lacher: Remember the markets for a second. You might have, you know, in a high net worth business, you might have agents worried about settling claims. The agent who's selling a homeowner's policy to a customer in Pacific Palisades is not selling a specialty auto customer a policy or to our specialty auto customers. There's just not a Venn diagram overlap of these issues. Our agents are in the communities where our customers live. There's just not a big overlap. If there is a disruption or something that happens, we're not going to wind up sealing it on your related to disruption and agents being distracted with something else.
Speaker Change: High net worth.
Speaker Change: Business.
Speaker Change: You might have agents worried about settling claims the agent who is selling a homeowner's policy to a customer in Pacific Palisades is not selling a specialty auto customer.
Speaker Change: Our policy or to our specialty auto customers, they're they're they're just there's just not a venn diagram overlap of these issues are.
Speaker Change: Our agents are in the communities, where our customers live it.
Speaker Change: It's it's a it's it's there's just not a big overlap.
Speaker Change: If there is a disruption.
Speaker Change: And that happens, we're not going to wind up feeling it on you related to disruption in agents being distracted with something else.
Paul Newsome: I appreciate the help as always.
Speaker Change: Right.
Speaker Change: To help us all at <unk>.
Speaker Change: Your last question comes from the line of Brian Meredith from UBS. Please go ahead.
Brian Meredith: Your last question comes from the line of Brian Meredith from UBS. Please go ahead. Yeah, just one big picture. One just thinking about that.
Speaker Change: Yeah, Hey, Joe just one big picture, one just thinking about that you may have talked about this before but longer term you know Uh huh.
Joseph Lacher: You may have talked about this before, but longer term, you know, uh, how wise is it to have California being 50, 51% of your overall business mix? Just, I know it's a, it's a good environment right now, but longer term. Um, how do you think about that in diversifying? Yeah, if you back up prior to the infinity acquisition for Kemper, California was roughly 90% of our specialty auto business. The infinity acquisition brought it down. And every piece of material we've shown you since then has shown us systematically writing more new business other places and having growth rates higher outside of California than inside of California.
Speaker Change: Why is it to have California, being 15, 51% of your overall business mix just I know, it's a it's a good environment right now but longer term.
Speaker Change: How do you think about that and diversifying away from it.
Speaker Change: If you back up prior to the Infinity acquisition for Kemper, California was roughly 90% of our specialty auto business.
Speaker Change: Infinity acquisition brought it down and.
Speaker Change: And every piece of material. We've shown you. Since then has shown us systematically writing.
Speaker Change: More new business other places and having growth rates higher outside of California that inside of California.
Joseph Lacher: Right now, our new business volumes as a percentage of total are smaller for California than our total PIF count is for California. I'm not going to give you those exact numbers, but that suggests there's a diversification. You can see it if you look at the growth rates. The overall books in the quarter grew 1.8%. California was 1.5%. I think Matt told you that Florida and Texas had a slight slowdown in the quarter that will change next quarter if that happens. And you put those in a more traditional level if California was 1.5% and Florida was 1.5%.
Speaker Change:
Speaker Change: Right now our new business volumes.
Speaker Change: As a percentage of total are smaller for California, then our total pill count is for California, I'm not going to give those exact numbers, but that that suggest there's a diversification you can see it if you look at the growth rates. The overall books in the quarter grew one 8%, California was 1.5, I think Matt told you that Florida, and Texas had a.
Speaker Change: <unk> slow down in the quarter that will change next.
Speaker Change: Next quarter, if that happens and you put those in a more traditional level of California was one and a half.
Joseph Lacher: Florida, Texas were two and a half, and the others were three and a half, you'd be systematically watching us change that mix. We make a lot of money in this business inside of California, so it's a good business for us. We're really good there, and we are systematically diversifying the portfolio.
Speaker Change: Florida, Texas, we're two and a half and the others were three and a half.
Speaker Change: You'd be systematically watching us change change that mix.
Speaker Change: We make a lot of money.
Speaker Change: In this business inside of California. So.
Speaker Change: So it's a good business for US were really were really good there and we are systematically diversifying the portfolio.
Speaker Change: Earlier.
Joseph Lacher: In addition, if you look at our commercial vehicle book, which is... a fairly significant part of CV. Its share of California is more like a third, you know, between 33% and 37%. So it's more geographically diversified. So we're working on it. The only way to do it more rapidly would be to shrink California. And I remember how anxious these calls were when the PIF was shrinking. The more appropriate and thoughtful way to do it is to grow more rapidly in the other geographies, which is what we're doing. and I'm sure every year for the next five years you're going to see other geographies be bigger.
Speaker Change: In addition, if you look at our commercial vehicle book, which is.
A fairly significant part of C V.
Speaker Change: Its share of of California is more like a third you know between a 30.
Speaker Change: <unk> 33 and 37%.
Speaker Change: So it's it's more geographically diversified so we're working on it.
Speaker Change: The only way to do it more rapidly would be to shrink California.
Speaker Change: And I remember how anxious.
Speaker Change: Calls, where when the Perth was shrinking.
Speaker Change: Are they more appropriate and thoughtful way to do it is to grow more rapidly than the other geographies, which is what we're doing.
Speaker Change: And I'm sure every year for the next five years youre going to see that.
Speaker Change: Other geographies to be bigger.
Joseph Lacher: Makes sense. Thank you.
Speaker Change: Makes sense. Thank you.
Speaker Change: Yeah.
Speaker Change: There are no further questions at this time I'd like to turn the call over to Joel locker for closing remarks, Sir. Please go ahead.
Joseph Lacher: There are no further questions at this time.
Joseph Lacher: I'd like to turn the call over to Joe Lacher for closing remarks. Sir, please go ahead. Hey, thank you guys for your time and your attention today. And and your your thoughtful questions. We appreciate it. Very excited about the results we delivered this quarter and and very optimistic as we
Joel Locker: Hey, Thank you guys for your time and your attention today.
Joel Locker: And your thoughtful questions. We appreciate it very excited about the results we delivered this quarter and very optimistic as we roll into the buying season for what we're going to see in the early part of next year and we look forward to talking to you then thanks a lot.
Speaker Change: Ladies and gentlemen. This concludes today's conference call. Thank you very much for your participation you may now disconnect.
Joel Locker: Yeah.
Joel Locker: Okay.
Joel Locker: Yeah.
Joel Locker: No.
Joel Locker: Okay.
Joel Locker: Yeah.
Joel Locker: Okay.