NYSE:KMPR Kemper Q2 2024 Earnings Report $58.77 +0.18 (+0.31%) As of 03:53 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast Kemper EPS ResultsActual EPS$1.42Consensus EPS $1.19Beat/MissBeat by +$0.23One Year Ago EPS-$0.26Kemper Revenue ResultsActual Revenue$1.13 billionExpected Revenue$1.02 billionBeat/MissBeat by +$111.23 millionYoY Revenue Growth-10.50%Kemper Announcement DetailsQuarterQ2 2024Date8/5/2024TimeAfter Market ClosesConference Call DateMonday, August 5, 2024Conference Call Time5:00PM ETUpcoming EarningsKemper's Q1 2025 earnings is scheduled for Tuesday, April 29, 2025, with a conference call scheduled on Wednesday, April 30, 2025 at 5:00 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Kemper Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 5, 2024 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Good afternoon, ladies and gentlemen, and welcome to Kemper Second Quarter 2024 Earnings Conference Call. My name is Ina, and I will be your coordinator today. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded for replay purposes. Operator00:00:24I 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. Speaker 100:00:37Thank you, operator. Good afternoon, everyone, and welcome to Kemper's discussion of our Q2 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 second quarter results followed by a Q and 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 John Boschelli, Kemper's Executive Vice President and Chief Investment Officer. Speaker 100:01:22After 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 Investors section of our website kemper.com. Our discussion today may contain forward looking statements within the meaning 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 operation and financial condition. Our actual future results and financial condition may differ materially from these statements. Speaker 100:01:59For information on additional risks that may impact these forward looking statements, please refer to our 2023 Form 10 ks and our Q2 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. You can find each of these in the Investors section of our website, kemper.com. All comparative references will be to the corresponding 2023 period unless otherwise stated. Speaker 100:02:35I will now turn the call over to Joe. Speaker 200:02:38Thank you, Michael. Good afternoon, everyone. Thank you for joining us today. Let me start by saying that I'm proud of the strong results we delivered this quarter. This represents the 5th consecutive quarter of significant improvement in our underlying business. Speaker 200:02:52It's the 3rd straight quarter of generating operating profitability. Our Specialty Auto business delivered a strong combined ratio well below our long term target and Specialty Auto generated sequential quarter PIF growth of about 4.5%. Again, while we delivered great progress, these are also objectively strong results. Before we dive deeper into discussing these results, I'd like to step back a moment and do 3 things. 1st, to remind us of the backdrop of the still volatile market environment that exists. Speaker 200:03:27Given the pandemic induced abrupt reduction in driving the subsequent rapid driving restart with massive supply chain induced inflation and the delayed impact of rate increases in a highly regulated industry, the market was virtually guaranteed to see significant losses, underwriting restrictions in a subsequent hard market. The marketplace structure virtually guaranteed that this would take several years to work itself out. As we've discussed before, our response was to institute non rate actions to partially restore profitability, while we filed for clearly needed rates. As those rates turned in, we would gradually remove the non rate actions and return to a normal balance. This was likely to temporarily produce combined ratios below long term historical ranges. Speaker 200:04:15This is where we are right now. From here, we'll continue to remove non rate actions, take maintenance rate changes and guide the business back to more traditional margin and growth ranges. 2nd, I want to add some clarity and insight to our 2024 guidance. In late 2023, we said we would achieve a 10% or greater ROE in 2024. Given our strong first half results, let me be clear that we expect to solidly beat that 10% for the year. Speaker 200:04:48We do not see deteriorating trends that would cause earnings to meaningfully decline in the second half of twenty twenty four. That said, we are not updating our guidance. If we update annual guidance each quarter, we'll effectively be giving half year or quarterly guidance. This is too precise for this industry. 3rd, last quarter we told you that our long term goal for specialty auto was to produce a 96% combined ratio or better and grow as much as possible within that. Speaker 200:05:22This is a long term operating parameter for this business. You should not use it as any form of earnings guidance. With this business currently generating a roughly 90% underlying combined ratio, it's safe to assume that we believe long term shareholder value creation will be better served by allowing the combined ratio to drift closer to the 96 if increased growth can be economically delivered. That combined ratio movement will not be rapid and it's likely to occur over at least 4 to 6 quarters. Hopefully, this backdrop provides context to both review our current results and for you to project our results going forward. Speaker 200:06:06Now let's move to Page 4 and jump into this quarter's results. Overall, we delivered $75,000,000 of net income and ROE of about 11.5% and an adjusted ROE of over 17%. Specialty P and C generated a very strong 90% underlying combined ratio, a great improvement year over year and sequentially. In our last call, we indicated that we expected sequential quarter PIF to stabilize mid year. As we saw our underlying results improve monthly, we were able to accelerate our new business expansion and this resulted in a strong 4.5% sequential quarter PIP increase. Speaker 200:06:48This underscores the strength of our franchise and the competitive advantages we have in the marketplace. That said, the second half of twenty twenty four is likely to produce PIF growth at a more modest rate given the seasonality in our business. Matt will discuss this in more detail later. The underlying fundamentals of our Life business remain stable and the business continues to produce consistent distributable cash flow. However, the segment was negatively impacted this quarter by a valuation adjustment on a real estate investment. Speaker 200:07:19Brad will touch on this later. With that, I'll turn the call over to Brad. Speaker 300:07:24Thank you, Joe. I'll begin on Page 5 with our consolidated financial results. This quarter, we generated a 5th consecutive quarterly improvement in our underlying results and a 3rd straight quarter of solid operating underwriting profits. Net income was $75,400,000 or $1.16 per diluted share and adjusted consolidated net operating income was 91,700,000 dollars or $1.42 per diluted share. These earnings translate to an 11.5% return on equity and a 17.6% adjusted return on equity. Speaker 300:07:56Previously, we described adjusted ROE as return on tangible equity. We have changed its name to more align with industry practices. Further details are provided in our non GAAP disclosures. As Joe indicated, we expect to solidly beat the 10% return on equity guidance for the year and do not foresee trends that would cause earnings to meaningfully decline in the second half of twenty twenty four. Driving our strong consolidated financial results this quarter was a 4 point sequential improvement in Specialty P&C's underlying combined ratio. Speaker 300:08:23Incremental earned rate exceeding loss trends and expense discipline were key drivers of this quarter's results. As we discussed during the Q1 call, we've been intently focused on expanding our new business writings and moving from profit restoration to growth. Due to the monthly improvement in the underlying combined ratio in Specialty P and C during the quarter, we accelerated our production expansion efforts while maintaining a sufficient margin of safety. This resulted in a 4.6% sequential quarterly increase in PIF. Our swift return to growth highlights our franchise's strength and competitive advantages. Speaker 300:08:55That said, given seasonal buying patterns, we expect sequential quarter PIF growth to moderate for the remainder of the year. As we return to more normal operating environment and further expanding business writings, we anticipate that the combined ratio will migrate back to a more traditional range over the next 4 to 6 quarters. However, this will not be a linear transition due to seasonality Matt will provide further details on this later. Turning to Page 6, our insurance companies are well capitalized and have significant sources of liquidity. At the end of the quarter, parent company liquidity was approximately $1,100,000,000 consisting of revolver and intercompany lending capacity and holding company cash and investments. Speaker 300:09:36Our healthy liquidity balance allows to pay shareholder dividends, interest payments and support our operating subsidiaries. The P and C and Life businesses continue to improve their capital ratios. Specialty P and C operating profits and the preferred P and C wind down are helping to increase P&C capital levels. During the Q2, the preferred P&C exit released $44,000,000 of capital and an additional $50,000,000 is expected to be released during the second half of twenty twenty four. This exit is mostly ahead of schedule and should release over $130,000,000 of capital this year. Speaker 300:10:08Given the slower pace of capital lease going forward, we do not plan to provide additional details on this initiative after this quarter. Regarding our balance sheet, we remain focused on reducing our debt to capital ratio. By the end of the Q1 of 2025, we anticipate that our debt to capital ratio will be in the high 20% area. And by year end 2025, we expect it to be in the mid-twenty percent range. This improvement will be achieved through operating earnings and debt reduction, including the previously discussed plans for the February 2025 debt maturity. Speaker 300:10:41Moving to Slide 7. Net investment income for the quarter was $93,000,000 and our pretax equivalent annualized book yield was 4%. This quarter's figures were negatively impacted by a $15,000,000 pretax valuation adjustment related to real estate investment. This is not a run rate item. We anticipate net investment income returning to more normal levels in future periods. Speaker 300:11:04Given the market interest regarding commercial real estate, we provide further detail on Slides 13 and 14 of the earnings presentation. Here you will notice about 8% of our portfolio is in commercial real estate, of which over 80% is a liquid or short term. Overall, we continue to maintain a high quality, well diversified $8,700,000,000 investment portfolio and have had no changes to our long term philosophy or execution. I'll now turn the call over to Matt to discuss the Specialty P&C Business. Speaker 400:11:32Thank you, Brad, and good afternoon, everyone. Moving to Page 8 in our Specialty P and C business. For the segment, we produced an underlying combined ratio of 89.6%, representing a 4 point improvement sequentially. Both our private passenger auto and commercial vehicle businesses reported underlying combined ratios of 90% or better. As we discussed last quarter, now that we've restored profitability, we've pivoted our focus to PIF growth. Speaker 400:11:59Given the volatile market environment, we continue to incorporate an additional margin of safety in our business practices. We achieved a 4.6% sequential increase in PIF this quarter and are pleased with the incremental progress. I'd like to provide some brief overall comments on the specialty auto environment. As we see the market today, we have a few tailwinds. We continue to operate in a hard market and demand for our products remains strong. Speaker 400:12:27Our businesses have a long standing set of competitive advantages that we've continued to strengthen. These capabilities have enabled us to rapidly increase PIF growth and navigate market challenges. We are deploying a methodical yet agile approach to new business. Our analytics tools are allowing us to read segment level performance early and adjust as needed. As we observed our Q2 combined ratio performance coming in better than planned, we were able to increase our production appetite and more rapidly expand our policies in force. Speaker 400:12:58This was done well within our desired margin safety. Like last quarter, Page 9 details policy in force trends. As noted, our sequential quarter PIF increased by 4.6% as compared to a decline of 5.5% in prior quarter. On an annualized basis, this represents an improvement from minus 20% to plus 20%. This shows significant progress. Speaker 300:13:22As you can see in Speaker 400:13:23the bottom chart, the year over year metric trails en masse that progress. As we shift to the back half of the year, we remain diligent and nimble with our production approach. We expect to see low single digit sequential quarter PIF growth in the back part of the calendar year due to lower seasonal shopping patterns. We expect growth to increase for 2025. Finally, we're pleased that the business is moving back to a more traditional focus on maximizing growth while maintaining a 96 or better combined ratio. Speaker 400:13:52We believe both our PPA and CV businesses are well positioned to navigate the ongoing market environment. I'll now turn the call over to Joe to cover the Life business and closing comments. Speaker 200:14:03Thanks, Matt. Turning to our Life business on Page 10. As we mentioned earlier, the 2nd quarter was negatively impacted by a valuation adjustment on a real estate investment. Excluding that adjustment, adjusted net operating income for the segment would have been $11,700,000 relatively in line with last quarter. While modest inflationary pressure continues to impact low to moderate income consumers, our new business production and persistency levels came in slightly favorable to last year. Speaker 200:14:32Mortality remains in line with pre pandemic levels. Turning to Page 11. In closing, I'd like to do 3 things. 1st, reiterate the highlights for the quarter. Overall profitability was strong and continues to improve. Speaker 200:14:48This was led by Specialty P and C's strong underwriting results, which enabled us to deliver our 5th consecutive quarter of underlying business improvement. Specialty P&C's improved combined ratio allowed for further expansion of our production initiatives, resulting in a 4.6% sequential increase in PIF, exceeding expectations we discussed last quarter. We anticipate low single digit PIF growth for the remainder of the year. The underlying business fundamentals of our Life business remain stable and we maintain a well diversified high quality investment portfolio, which we expect to deliver normal ranges of net investment income going forward. Speaker 300:15:26While I'm proud of Speaker 200:15:26the results we delivered this quarter, we're not satisfied. We maintain our focus on delivering consistent long term profitable growth. 2nd, during recent quarters, we've had a practice of pre releasing portions of our results. Now the market environment and results are returning to more traditional variability going forward, we will discontinue this practice. And third, my thanks go out to our entire Kemper team for their efforts in the quarter and as we move forward. Speaker 200:15:56These results would not be possible without their hard work and dedication. With that, operator, I'll turn it over to you so that we can take questions. Operator00:16:05Thank Your first question comes from the line of Gregory Peeters from Raymond James. Please go ahead. Speaker 500:16:41Well, good afternoon, everyone. So for the first question, I'd like to go back to the PIF results and the growth on a sequential basis in the Q2. I'm wondering if you could provide us some additional market information about which geographies you're having more success in growing. And just trying to get a lay of the land in terms of how your markets are positioned from a competitive position from pricing because there's been so much pricing change that's happened in the marketplace. Just curious how that all rolls up into your guidance for PIF for the second half of the year? Speaker 200:17:32Sure. Greg, I'm going throw most of the commentary over to Matt, to do this. I'm just going to take the last tenth of your question, which was how does this all roll up into our guidance for the second half of the year. The biggest piece of our guidance for the second half of the year is around seasonal buying patterns. And historically in this business, our customer segment and consumers just did less shopping, buying, switching in the back half of the year. Speaker 200:18:04We've talked to you about that for years. We talked to you about it last quarter. That stays in our forecast and our expectation setting process. It's possible in this environment. That turns out to be different, but that's the basis for that expectation that starts with that. Speaker 200:18:19And with that, I'm going to let Matt talk about the state level commentary and the bulk of your question. Speaker 400:18:24Right. Thanks, Joe. So, I think the comments overall are bang on, on the demand side. From a customer perspective, we've seen continued demand for products. We're seeing it at an agent level as well. Speaker 400:18:36I think that's generally true across all markets when you think about the geographic dynamics that sit underneath there. And from a supply perspective, a carrier perspective, I think the story varies pretty greatly by market. When you think about California, Florida, that's where the dominance of our production, at least out of the gate, has come from. As we look to continue to methodically expand our business, we'll continue to grow in our other markets. But it's really a function of where the market is from a competitiveness perspective. Speaker 400:19:07When you think about the nonstandard auto marketplace, competitors are reengaging at different rates. I think some of the larger players are feeling more confident about their adequacy, yet they still maintain some underwriting discipline that's maybe more rigorous than a traditional marketplace, whereas the smaller players, the regional players are a bit slower to react and stabilize there. And so there's a lot of texture by geography. But both from a supply perspective and a demand perspective, I think, generally feel good about our ability to balance. And as Joe said, as we continue to march forward on our re expansion and our production, we'll be opportunistic about how we take advantage of the opportunities that are presented to us. Speaker 500:19:46Okay. Well, one of the I'm mindful of Joe, your comments about the combined ratio targets the 96. Can you talk a little bit about the concept of the new business penalty as you turn the spigot on and start growing your new your policy counts? What is the drift up in the combined ratio, is that driven by a new business penalty or is there something else going on inside that? Speaker 200:20:17Sure. And I'm going to break this into a couple of parts. We will see a drift generally back towards what I would say our traditional Kemper combined ratios that are probably in that 93%, 94%, 95% range. 96%, I would say, is more of a ceiling than a target. We're not trying to get to a 96% and hover. Speaker 200:20:41We're trying not to exceed a 96% and then grow as much as possible. What will cause that drift is part of the new business penalty as we start new business again, partly taking non rate actions off, those other things we did to restricted growth. And we said we were always going to take those off. We were going to get a little extra rate, which allowed those to come off because those effectively restricted production and customer service and other opportunities. So we're getting that back to a balance. Speaker 200:21:11We would also expect that sometime in 2025, despite us taking what we would call maintenance rate, we will get to a spot where there's likely to be some loss inflation. There's a bit in excess of earned rate just because of the fact that right now we're probably well below long term target combined ratios. We expected to overshoot a little bit. We hope that's only for a few quarters. I'm not specifying what a few is. Speaker 200:21:38I'm deliberately not saying whether it's 1, 2, 3, 4, but some period of time as we try to opportunistically grow as much as we can while being below 96. I'm not trying to be cute, but what I'm trying to do is your ability to exactly model rate, loss trend, new business penalty and non rate actions will be largely very difficult for you to do because we can't even give you some good guidance on it because we're going to adjust as we're moving. What we've tried to do is give you a picture of the pace of the slope of change and help you get the answer that way. Speaker 500:22:23Okay. And just a clarification, one of your local largest nonstandard most visible company publicly traded company out there came out with their Q and I think they said they called out a couple rate decreases in the Q2. Just to close out my questions, did you guys do any downward rate revisions in the Q2? Or are you still where you were at the end of the Q1 in terms of rate levels? Speaker 200:22:55Yes, we did a small one in Florida that was heavily Speaker 400:23:08textured, segmented. It balanced our rate need by coverage in a way that I think sets us up more optimally going forward as we prospect out over the next 12 to 18 months. But that was the only negative change that we have planned at this point. Speaker 200:23:24And again, Greg, this goes back to what we would have described. We're moving into a phase, where we're going back to maintenance rate and no normal more normal ordinary course of business. We expressed a high degree of confidence in what our profitability targets were in the back half of this year when we said we didn't see anything that was going to meaningfully move earnings in a downward trajectory over that time period. And we're trying to say as we go through what I've described as the rebalancing phase, by the time we get into 2025, we expect this to be a more normal earned rate, loss trend, growth dynamic, where we're talking about market dynamics and not sort of these disrupted swings. So we're in the back part of that. Speaker 200:24:09It becomes a little hard to pick quarterly or 6 month numbers. And that category of maintenance rate changes, sometimes they're up a little, sometimes they're down a little. They're either in line with inflation or they're getting us tuned by coverage. Speaker 500:24:28Got it. Thanks for the detail. Operator00:24:34Thank you. And your next question comes from the line of Paul Nusim from Piper Sandler. Please go ahead. Speaker 600:24:42Good afternoon. Just to maybe a little bit of a follow-up, where would you put yourself in terms of taking off the non reaction? Do you feel like you're very much in the middle, pretty much done? How do you think of that from maybe a spectrum perspective? Speaker 200:25:03It's hard to exactly measure, Paul. We've depending on how we were talking about anywhere from 2 thirds to 80%. And there's times when we sometimes argue with ourselves about where exactly it is. But that's it's somewhere in that range. Probably 3 quarters is a good guess. Speaker 600:25:23Makes sense. Speaker 200:25:24And there's a lot of feel to it in terms of what it is. Speaker 600:25:31Yes. It's almost by definition, it's hard to clarify, right? The is there anything when you look at the outlook for net investment income other than that real estate item that would make it not a run rate? And maybe a little bit on the life company piece too, in particular, given that you need a lot of capital out there. So you, I assume shifted a lot of investment income over. Speaker 600:26:02Does that as we look particularly at the life coming with also investment income overall, are we at sort of a run rate perspective through that or not? Is there more sort of cash flow changes to happen then for the less that investment income? Speaker 200:26:22Brad, why don't you take a shot at the overall and then we may ask a follow-up, Paul, to make sure we're thinking about the life question the right way. Speaker 300:26:30Paul, good afternoon. When you look at net investment income overall, it was down about $12,000,000 with respect to that real estate investment. So if you add that back, you're close to like a $105 ish type number, in line with where we were in Q2 through Q4 of last year. I'd expect us to be back there given where rates have been and continue to be and so forth. So think of this as a onetime not a onetime, but a non run rate adjustment this quarter. Speaker 300:27:03And then going forward, we'll be back up to where we were historically. Can you do me a quick favor and just re ask the second part of your question with respect to Life? Speaker 600:27:15Sure. Sorry if I'm not as coherent as I should be. So the Life's operation earnings were down a lot in part because of that one write off. But if you look at it more broadly, you have reduced a lot of the investment income in that item in that line because of the capital moves you made. And I'm not certain where essentially, I'm trying to get to a run rate of what the life company earnings would be given the changes in investment income in that line that have to do with not just the one time real estate write down this quarter, but also all the other shifting done from a capital perspective. Speaker 300:27:57Got it. And you're referencing the capital that we've taken out with respect to the Bermuda optimization. So I'd expect the run rate earnings in Life to be lower by about $15,000,000 to $20,000,000 as a result of that capital moved up to the parent Speaker 200:28:12over the course of a full year. Speaker 600:28:15Okay. Thanks. Appreciate the help. Speaker 200:28:19And to be clear, the real estate investment, we're really telling you that that valuation adjustment has no impact on runway. You're asking the question though the right way. The capital distribution will shift it from life to the parent. Operator00:28:38Thank you. Your next question comes from the line of Andrew Kligerman from TD Securities. Please go ahead. Speaker 700:28:51Hey, good afternoon. Just before I ask my two questions, clarification. Joe and by the way, really nice progress in this quarter. I think Greg was asking something earlier and you said you expect to overshoot a bit. Does that mean you would drift sort of to the northern end of 93% to 95%? Speaker 700:29:12I wasn't quite sure what you meant by overshoot. Speaker 200:29:14Yes, that's a great quick clarification. I meant the other direction. And then when things were ugly and we were 100 plus, we expected that we would add rate that perhaps the combination of rate actions and non rate actions might exceed our need. We would put on the non rate actions which were inadequate among themselves. We would wait till the combined ratio improved to an attractive level and we were confident in that, then we would take the non rate actions off. Speaker 200:29:45As a result, if we were trying to get to a 95%, we might get down to a 90%, then the non rate actions work themselves off and we move back up. We're in the overshoot part of overshooting a little bit too much to the good after having been in the bad, not that I expect that we're going to get over the 96%. I think right now we're in the part where I would say we've overshot a long term target to the good. That makes sense? Did we lose you, Andrew? Speaker 700:30:20Absolutely not. Can you hear me? Speaker 100:30:22We can. Speaker 700:30:23Okay, great. Yes, no, makes a ton of sense. And just another clarification, I think I heard Matt and you Joe mentioned that you expect low single digit PIF in the upcoming quarters. So how does that align with and this is something you talked about last quarter. You said the 2nd quarter versus the first quarter typically based on seasonality is up 25% and then the 1st and third quarters are slightly yes, or actually the Q3 is slightly less than the first and then the 4th quarter is down 40% versus the first. Speaker 700:30:59So the pressure is on Speaker 200:31:01Yes, let's break I'm interrupting, let's break them apart. There's loss frequency seasonality and there's sales seasonality. The first half of the year sees more buying activity than the second half of the year. The first and second quarter are the 2 highest quarters for new business and the 3rd and 4th are the lowest. 1st and second are close, sometimes one's higher than another. Speaker 200:31:293rd is distinctly lower than the first and second and the 4th is the lowest of all 4. And to some degree, we're not 100% sure there's not a pull. It appears to us that people shop for auto insurance less and spend more months less money on that in the holidays, either they're busy or they're saving up money for the holidays or they're doing something. Their shopping increases, maybe it's car buying season, they've paid off the holiday bills, they've gotten their income tax return, they buy a new car that triggers shopping activity. It appears to be around those kind of behaviors that causes more nonstandard auto shopping in the 1st and second quarters, less in the third and even less in the 4th. Speaker 200:32:14So we're expecting fewer the same way Macy's expects more sales in November December and less in May June. We expect more in the 1st 6 months of the year and less in the last 6 months. And if there's just fewer shoppers, we might actually capture a greater share of the shoppers, but less sequential quarter PIF growth Speaker 300:32:37is profitable. Speaker 700:32:39Great. So basically no standard no non standard auto Christmas presents in December. But with that said, you're still saying though low single digit PIF growth sequentially in the next two quarters? I want to make sure because even with that pressure, it sounds like you could still be up in the low single digits, if I understood that correctly? Speaker 200:33:01Our general expectation. Speaker 700:33:03Perfect. And then the last clarification, the thinking was last quarter that rates you'd earn in about 7 points in the 2nd quarter and 7 in the second half. And then if I looked at Slide 8, it looks like you got 8 points in the second quarter and then maybe the balance comes in the second half. It looked like around 5. So there's still 5 to earn in. Speaker 700:33:30Is that the way to think about it for the balance of the year? Speaker 300:33:35Close, Andrew. So far, year to date, we've got about 17 points of rate earned. What we provide there on Slide 8, I believe, is in the upper right hand area is the estimate for the Q3, which is about another 5 points. And maybe there's 2 or 3 points to be earned in the 4th quarter. So we got, for the back half of the year, 7 to 8 points left to be earned in. Speaker 300:33:59And that was I think we answered this question in the Q1. We expected about 24 points of rate to be earned in for the year. So that's how it gets broken down. Speaker 700:34:09Perfect. Thanks Brad and Joe. Appreciate it. Operator00:34:17Thank you. There are no further questions at this time. I will now hand the call back to Mr. Joe Locker for any closing remarks. Speaker 200:34:24Thank you, operator, and thanks to everybody for joining us today and for your continued interest. Again, we're pleased with the results that we have right now and we're going to continue to drive forward on improving them. I look forward to talking to you again next quarter. Take care. Operator00:34:43Thank you. That concludes our conference for today. Thank you forRead morePowered by Conference Call Audio Live Call not available Earnings Conference CallKemper Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Kemper Earnings HeadlinesWoman indicted for stealing $30k in SNAP benefits in Kemper CountyApril 23 at 5:52 PM | msn.comWhy Kemper (KMPR) is a Top Dividend Stock for Your PortfolioApril 7, 2025 | msn.comTrump purposefully forcing markets to crash…Whether you agree with the plan or not doesn’t matter. It’s happening. The only question is – are you ready for it?April 24, 2025 | Porter & Company (Ad)Kemper County residents begin storm damage cleanupApril 6, 2025 | msn.comEllie Kemper Says She 'Prizes' Comfort in Style as She Embraces Her New Role as 'Kohl’s Mom' (Exclusive)March 23, 2025 | msn.comTD Cowen Sticks to Its Buy Rating for Kemper (KMPR)March 21, 2025 | markets.businessinsider.comSee More Kemper Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Kemper? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Kemper and other key companies, straight to your email. Email Address About KemperKemper (NYSE:KMPR), a diversified insurance holding company, engages in the provision of insurance products to individuals and businesses in the United States. The company operates through three segments: Specialty Property & Casualty Insurance, Preferred Property & Casualty Insurance, and Life & Health Insurance. It provides preferred and specialty automobile, homeowners, renters, fire, umbrella, general liability, and various other property and casualty insurance to individuals, as well as commercial automobile insurance to businesses. The company also offers life insurance, including permanent and term insurance; and supplemental accident and health insurance products, such as Medicare supplement insurance, fixed hospital indemnity, home health care, specified disease, and accident-only plans to individuals in rural, suburban, and urban areas. It distributes its products through independent agents and brokers. The company was formerly known as Unitrin, Inc. and changed its name to Kemper Corporation in August 2011. Kemper Corporation was incorporated in 1990 and is headquartered in Chicago, Illinois.View Kemper ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Tesla Earnings Miss, But Musk Refocuses and Bulls ReactQualcomm’s Range Narrows Ahead of Earnings as Bulls Step InWhy It May Be Time to Buy CrowdStrike Stock Heading Into EarningsCan IBM’s Q1 Earnings Spark a Breakout for the Stock? 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There are 8 speakers on the call. Operator00:00:00Good afternoon, ladies and gentlemen, and welcome to Kemper Second Quarter 2024 Earnings Conference Call. My name is Ina, and I will be your coordinator today. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded for replay purposes. Operator00:00:24I 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. Speaker 100:00:37Thank you, operator. Good afternoon, everyone, and welcome to Kemper's discussion of our Q2 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 second quarter results followed by a Q and 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 John Boschelli, Kemper's Executive Vice President and Chief Investment Officer. Speaker 100:01:22After 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 Investors section of our website kemper.com. Our discussion today may contain forward looking statements within the meaning 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 operation and financial condition. Our actual future results and financial condition may differ materially from these statements. Speaker 100:01:59For information on additional risks that may impact these forward looking statements, please refer to our 2023 Form 10 ks and our Q2 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. You can find each of these in the Investors section of our website, kemper.com. All comparative references will be to the corresponding 2023 period unless otherwise stated. Speaker 100:02:35I will now turn the call over to Joe. Speaker 200:02:38Thank you, Michael. Good afternoon, everyone. Thank you for joining us today. Let me start by saying that I'm proud of the strong results we delivered this quarter. This represents the 5th consecutive quarter of significant improvement in our underlying business. Speaker 200:02:52It's the 3rd straight quarter of generating operating profitability. Our Specialty Auto business delivered a strong combined ratio well below our long term target and Specialty Auto generated sequential quarter PIF growth of about 4.5%. Again, while we delivered great progress, these are also objectively strong results. Before we dive deeper into discussing these results, I'd like to step back a moment and do 3 things. 1st, to remind us of the backdrop of the still volatile market environment that exists. Speaker 200:03:27Given the pandemic induced abrupt reduction in driving the subsequent rapid driving restart with massive supply chain induced inflation and the delayed impact of rate increases in a highly regulated industry, the market was virtually guaranteed to see significant losses, underwriting restrictions in a subsequent hard market. The marketplace structure virtually guaranteed that this would take several years to work itself out. As we've discussed before, our response was to institute non rate actions to partially restore profitability, while we filed for clearly needed rates. As those rates turned in, we would gradually remove the non rate actions and return to a normal balance. This was likely to temporarily produce combined ratios below long term historical ranges. Speaker 200:04:15This is where we are right now. From here, we'll continue to remove non rate actions, take maintenance rate changes and guide the business back to more traditional margin and growth ranges. 2nd, I want to add some clarity and insight to our 2024 guidance. In late 2023, we said we would achieve a 10% or greater ROE in 2024. Given our strong first half results, let me be clear that we expect to solidly beat that 10% for the year. Speaker 200:04:48We do not see deteriorating trends that would cause earnings to meaningfully decline in the second half of twenty twenty four. That said, we are not updating our guidance. If we update annual guidance each quarter, we'll effectively be giving half year or quarterly guidance. This is too precise for this industry. 3rd, last quarter we told you that our long term goal for specialty auto was to produce a 96% combined ratio or better and grow as much as possible within that. Speaker 200:05:22This is a long term operating parameter for this business. You should not use it as any form of earnings guidance. With this business currently generating a roughly 90% underlying combined ratio, it's safe to assume that we believe long term shareholder value creation will be better served by allowing the combined ratio to drift closer to the 96 if increased growth can be economically delivered. That combined ratio movement will not be rapid and it's likely to occur over at least 4 to 6 quarters. Hopefully, this backdrop provides context to both review our current results and for you to project our results going forward. Speaker 200:06:06Now let's move to Page 4 and jump into this quarter's results. Overall, we delivered $75,000,000 of net income and ROE of about 11.5% and an adjusted ROE of over 17%. Specialty P and C generated a very strong 90% underlying combined ratio, a great improvement year over year and sequentially. In our last call, we indicated that we expected sequential quarter PIF to stabilize mid year. As we saw our underlying results improve monthly, we were able to accelerate our new business expansion and this resulted in a strong 4.5% sequential quarter PIP increase. Speaker 200:06:48This underscores the strength of our franchise and the competitive advantages we have in the marketplace. That said, the second half of twenty twenty four is likely to produce PIF growth at a more modest rate given the seasonality in our business. Matt will discuss this in more detail later. The underlying fundamentals of our Life business remain stable and the business continues to produce consistent distributable cash flow. However, the segment was negatively impacted this quarter by a valuation adjustment on a real estate investment. Speaker 200:07:19Brad will touch on this later. With that, I'll turn the call over to Brad. Speaker 300:07:24Thank you, Joe. I'll begin on Page 5 with our consolidated financial results. This quarter, we generated a 5th consecutive quarterly improvement in our underlying results and a 3rd straight quarter of solid operating underwriting profits. Net income was $75,400,000 or $1.16 per diluted share and adjusted consolidated net operating income was 91,700,000 dollars or $1.42 per diluted share. These earnings translate to an 11.5% return on equity and a 17.6% adjusted return on equity. Speaker 300:07:56Previously, we described adjusted ROE as return on tangible equity. We have changed its name to more align with industry practices. Further details are provided in our non GAAP disclosures. As Joe indicated, we expect to solidly beat the 10% return on equity guidance for the year and do not foresee trends that would cause earnings to meaningfully decline in the second half of twenty twenty four. Driving our strong consolidated financial results this quarter was a 4 point sequential improvement in Specialty P&C's underlying combined ratio. Speaker 300:08:23Incremental earned rate exceeding loss trends and expense discipline were key drivers of this quarter's results. As we discussed during the Q1 call, we've been intently focused on expanding our new business writings and moving from profit restoration to growth. Due to the monthly improvement in the underlying combined ratio in Specialty P and C during the quarter, we accelerated our production expansion efforts while maintaining a sufficient margin of safety. This resulted in a 4.6% sequential quarterly increase in PIF. Our swift return to growth highlights our franchise's strength and competitive advantages. Speaker 300:08:55That said, given seasonal buying patterns, we expect sequential quarter PIF growth to moderate for the remainder of the year. As we return to more normal operating environment and further expanding business writings, we anticipate that the combined ratio will migrate back to a more traditional range over the next 4 to 6 quarters. However, this will not be a linear transition due to seasonality Matt will provide further details on this later. Turning to Page 6, our insurance companies are well capitalized and have significant sources of liquidity. At the end of the quarter, parent company liquidity was approximately $1,100,000,000 consisting of revolver and intercompany lending capacity and holding company cash and investments. Speaker 300:09:36Our healthy liquidity balance allows to pay shareholder dividends, interest payments and support our operating subsidiaries. The P and C and Life businesses continue to improve their capital ratios. Specialty P and C operating profits and the preferred P and C wind down are helping to increase P&C capital levels. During the Q2, the preferred P&C exit released $44,000,000 of capital and an additional $50,000,000 is expected to be released during the second half of twenty twenty four. This exit is mostly ahead of schedule and should release over $130,000,000 of capital this year. Speaker 300:10:08Given the slower pace of capital lease going forward, we do not plan to provide additional details on this initiative after this quarter. Regarding our balance sheet, we remain focused on reducing our debt to capital ratio. By the end of the Q1 of 2025, we anticipate that our debt to capital ratio will be in the high 20% area. And by year end 2025, we expect it to be in the mid-twenty percent range. This improvement will be achieved through operating earnings and debt reduction, including the previously discussed plans for the February 2025 debt maturity. Speaker 300:10:41Moving to Slide 7. Net investment income for the quarter was $93,000,000 and our pretax equivalent annualized book yield was 4%. This quarter's figures were negatively impacted by a $15,000,000 pretax valuation adjustment related to real estate investment. This is not a run rate item. We anticipate net investment income returning to more normal levels in future periods. Speaker 300:11:04Given the market interest regarding commercial real estate, we provide further detail on Slides 13 and 14 of the earnings presentation. Here you will notice about 8% of our portfolio is in commercial real estate, of which over 80% is a liquid or short term. Overall, we continue to maintain a high quality, well diversified $8,700,000,000 investment portfolio and have had no changes to our long term philosophy or execution. I'll now turn the call over to Matt to discuss the Specialty P&C Business. Speaker 400:11:32Thank you, Brad, and good afternoon, everyone. Moving to Page 8 in our Specialty P and C business. For the segment, we produced an underlying combined ratio of 89.6%, representing a 4 point improvement sequentially. Both our private passenger auto and commercial vehicle businesses reported underlying combined ratios of 90% or better. As we discussed last quarter, now that we've restored profitability, we've pivoted our focus to PIF growth. Speaker 400:11:59Given the volatile market environment, we continue to incorporate an additional margin of safety in our business practices. We achieved a 4.6% sequential increase in PIF this quarter and are pleased with the incremental progress. I'd like to provide some brief overall comments on the specialty auto environment. As we see the market today, we have a few tailwinds. We continue to operate in a hard market and demand for our products remains strong. Speaker 400:12:27Our businesses have a long standing set of competitive advantages that we've continued to strengthen. These capabilities have enabled us to rapidly increase PIF growth and navigate market challenges. We are deploying a methodical yet agile approach to new business. Our analytics tools are allowing us to read segment level performance early and adjust as needed. As we observed our Q2 combined ratio performance coming in better than planned, we were able to increase our production appetite and more rapidly expand our policies in force. Speaker 400:12:58This was done well within our desired margin safety. Like last quarter, Page 9 details policy in force trends. As noted, our sequential quarter PIF increased by 4.6% as compared to a decline of 5.5% in prior quarter. On an annualized basis, this represents an improvement from minus 20% to plus 20%. This shows significant progress. Speaker 300:13:22As you can see in Speaker 400:13:23the bottom chart, the year over year metric trails en masse that progress. As we shift to the back half of the year, we remain diligent and nimble with our production approach. We expect to see low single digit sequential quarter PIF growth in the back part of the calendar year due to lower seasonal shopping patterns. We expect growth to increase for 2025. Finally, we're pleased that the business is moving back to a more traditional focus on maximizing growth while maintaining a 96 or better combined ratio. Speaker 400:13:52We believe both our PPA and CV businesses are well positioned to navigate the ongoing market environment. I'll now turn the call over to Joe to cover the Life business and closing comments. Speaker 200:14:03Thanks, Matt. Turning to our Life business on Page 10. As we mentioned earlier, the 2nd quarter was negatively impacted by a valuation adjustment on a real estate investment. Excluding that adjustment, adjusted net operating income for the segment would have been $11,700,000 relatively in line with last quarter. While modest inflationary pressure continues to impact low to moderate income consumers, our new business production and persistency levels came in slightly favorable to last year. Speaker 200:14:32Mortality remains in line with pre pandemic levels. Turning to Page 11. In closing, I'd like to do 3 things. 1st, reiterate the highlights for the quarter. Overall profitability was strong and continues to improve. Speaker 200:14:48This was led by Specialty P and C's strong underwriting results, which enabled us to deliver our 5th consecutive quarter of underlying business improvement. Specialty P&C's improved combined ratio allowed for further expansion of our production initiatives, resulting in a 4.6% sequential increase in PIF, exceeding expectations we discussed last quarter. We anticipate low single digit PIF growth for the remainder of the year. The underlying business fundamentals of our Life business remain stable and we maintain a well diversified high quality investment portfolio, which we expect to deliver normal ranges of net investment income going forward. Speaker 300:15:26While I'm proud of Speaker 200:15:26the results we delivered this quarter, we're not satisfied. We maintain our focus on delivering consistent long term profitable growth. 2nd, during recent quarters, we've had a practice of pre releasing portions of our results. Now the market environment and results are returning to more traditional variability going forward, we will discontinue this practice. And third, my thanks go out to our entire Kemper team for their efforts in the quarter and as we move forward. Speaker 200:15:56These results would not be possible without their hard work and dedication. With that, operator, I'll turn it over to you so that we can take questions. Operator00:16:05Thank Your first question comes from the line of Gregory Peeters from Raymond James. Please go ahead. Speaker 500:16:41Well, good afternoon, everyone. So for the first question, I'd like to go back to the PIF results and the growth on a sequential basis in the Q2. I'm wondering if you could provide us some additional market information about which geographies you're having more success in growing. And just trying to get a lay of the land in terms of how your markets are positioned from a competitive position from pricing because there's been so much pricing change that's happened in the marketplace. Just curious how that all rolls up into your guidance for PIF for the second half of the year? Speaker 200:17:32Sure. Greg, I'm going throw most of the commentary over to Matt, to do this. I'm just going to take the last tenth of your question, which was how does this all roll up into our guidance for the second half of the year. The biggest piece of our guidance for the second half of the year is around seasonal buying patterns. And historically in this business, our customer segment and consumers just did less shopping, buying, switching in the back half of the year. Speaker 200:18:04We've talked to you about that for years. We talked to you about it last quarter. That stays in our forecast and our expectation setting process. It's possible in this environment. That turns out to be different, but that's the basis for that expectation that starts with that. Speaker 200:18:19And with that, I'm going to let Matt talk about the state level commentary and the bulk of your question. Speaker 400:18:24Right. Thanks, Joe. So, I think the comments overall are bang on, on the demand side. From a customer perspective, we've seen continued demand for products. We're seeing it at an agent level as well. Speaker 400:18:36I think that's generally true across all markets when you think about the geographic dynamics that sit underneath there. And from a supply perspective, a carrier perspective, I think the story varies pretty greatly by market. When you think about California, Florida, that's where the dominance of our production, at least out of the gate, has come from. As we look to continue to methodically expand our business, we'll continue to grow in our other markets. But it's really a function of where the market is from a competitiveness perspective. Speaker 400:19:07When you think about the nonstandard auto marketplace, competitors are reengaging at different rates. I think some of the larger players are feeling more confident about their adequacy, yet they still maintain some underwriting discipline that's maybe more rigorous than a traditional marketplace, whereas the smaller players, the regional players are a bit slower to react and stabilize there. And so there's a lot of texture by geography. But both from a supply perspective and a demand perspective, I think, generally feel good about our ability to balance. And as Joe said, as we continue to march forward on our re expansion and our production, we'll be opportunistic about how we take advantage of the opportunities that are presented to us. Speaker 500:19:46Okay. Well, one of the I'm mindful of Joe, your comments about the combined ratio targets the 96. Can you talk a little bit about the concept of the new business penalty as you turn the spigot on and start growing your new your policy counts? What is the drift up in the combined ratio, is that driven by a new business penalty or is there something else going on inside that? Speaker 200:20:17Sure. And I'm going to break this into a couple of parts. We will see a drift generally back towards what I would say our traditional Kemper combined ratios that are probably in that 93%, 94%, 95% range. 96%, I would say, is more of a ceiling than a target. We're not trying to get to a 96% and hover. Speaker 200:20:41We're trying not to exceed a 96% and then grow as much as possible. What will cause that drift is part of the new business penalty as we start new business again, partly taking non rate actions off, those other things we did to restricted growth. And we said we were always going to take those off. We were going to get a little extra rate, which allowed those to come off because those effectively restricted production and customer service and other opportunities. So we're getting that back to a balance. Speaker 200:21:11We would also expect that sometime in 2025, despite us taking what we would call maintenance rate, we will get to a spot where there's likely to be some loss inflation. There's a bit in excess of earned rate just because of the fact that right now we're probably well below long term target combined ratios. We expected to overshoot a little bit. We hope that's only for a few quarters. I'm not specifying what a few is. Speaker 200:21:38I'm deliberately not saying whether it's 1, 2, 3, 4, but some period of time as we try to opportunistically grow as much as we can while being below 96. I'm not trying to be cute, but what I'm trying to do is your ability to exactly model rate, loss trend, new business penalty and non rate actions will be largely very difficult for you to do because we can't even give you some good guidance on it because we're going to adjust as we're moving. What we've tried to do is give you a picture of the pace of the slope of change and help you get the answer that way. Speaker 500:22:23Okay. And just a clarification, one of your local largest nonstandard most visible company publicly traded company out there came out with their Q and I think they said they called out a couple rate decreases in the Q2. Just to close out my questions, did you guys do any downward rate revisions in the Q2? Or are you still where you were at the end of the Q1 in terms of rate levels? Speaker 200:22:55Yes, we did a small one in Florida that was heavily Speaker 400:23:08textured, segmented. It balanced our rate need by coverage in a way that I think sets us up more optimally going forward as we prospect out over the next 12 to 18 months. But that was the only negative change that we have planned at this point. Speaker 200:23:24And again, Greg, this goes back to what we would have described. We're moving into a phase, where we're going back to maintenance rate and no normal more normal ordinary course of business. We expressed a high degree of confidence in what our profitability targets were in the back half of this year when we said we didn't see anything that was going to meaningfully move earnings in a downward trajectory over that time period. And we're trying to say as we go through what I've described as the rebalancing phase, by the time we get into 2025, we expect this to be a more normal earned rate, loss trend, growth dynamic, where we're talking about market dynamics and not sort of these disrupted swings. So we're in the back part of that. Speaker 200:24:09It becomes a little hard to pick quarterly or 6 month numbers. And that category of maintenance rate changes, sometimes they're up a little, sometimes they're down a little. They're either in line with inflation or they're getting us tuned by coverage. Speaker 500:24:28Got it. Thanks for the detail. Operator00:24:34Thank you. And your next question comes from the line of Paul Nusim from Piper Sandler. Please go ahead. Speaker 600:24:42Good afternoon. Just to maybe a little bit of a follow-up, where would you put yourself in terms of taking off the non reaction? Do you feel like you're very much in the middle, pretty much done? How do you think of that from maybe a spectrum perspective? Speaker 200:25:03It's hard to exactly measure, Paul. We've depending on how we were talking about anywhere from 2 thirds to 80%. And there's times when we sometimes argue with ourselves about where exactly it is. But that's it's somewhere in that range. Probably 3 quarters is a good guess. Speaker 600:25:23Makes sense. Speaker 200:25:24And there's a lot of feel to it in terms of what it is. Speaker 600:25:31Yes. It's almost by definition, it's hard to clarify, right? The is there anything when you look at the outlook for net investment income other than that real estate item that would make it not a run rate? And maybe a little bit on the life company piece too, in particular, given that you need a lot of capital out there. So you, I assume shifted a lot of investment income over. Speaker 600:26:02Does that as we look particularly at the life coming with also investment income overall, are we at sort of a run rate perspective through that or not? Is there more sort of cash flow changes to happen then for the less that investment income? Speaker 200:26:22Brad, why don't you take a shot at the overall and then we may ask a follow-up, Paul, to make sure we're thinking about the life question the right way. Speaker 300:26:30Paul, good afternoon. When you look at net investment income overall, it was down about $12,000,000 with respect to that real estate investment. So if you add that back, you're close to like a $105 ish type number, in line with where we were in Q2 through Q4 of last year. I'd expect us to be back there given where rates have been and continue to be and so forth. So think of this as a onetime not a onetime, but a non run rate adjustment this quarter. Speaker 300:27:03And then going forward, we'll be back up to where we were historically. Can you do me a quick favor and just re ask the second part of your question with respect to Life? Speaker 600:27:15Sure. Sorry if I'm not as coherent as I should be. So the Life's operation earnings were down a lot in part because of that one write off. But if you look at it more broadly, you have reduced a lot of the investment income in that item in that line because of the capital moves you made. And I'm not certain where essentially, I'm trying to get to a run rate of what the life company earnings would be given the changes in investment income in that line that have to do with not just the one time real estate write down this quarter, but also all the other shifting done from a capital perspective. Speaker 300:27:57Got it. And you're referencing the capital that we've taken out with respect to the Bermuda optimization. So I'd expect the run rate earnings in Life to be lower by about $15,000,000 to $20,000,000 as a result of that capital moved up to the parent Speaker 200:28:12over the course of a full year. Speaker 600:28:15Okay. Thanks. Appreciate the help. Speaker 200:28:19And to be clear, the real estate investment, we're really telling you that that valuation adjustment has no impact on runway. You're asking the question though the right way. The capital distribution will shift it from life to the parent. Operator00:28:38Thank you. Your next question comes from the line of Andrew Kligerman from TD Securities. Please go ahead. Speaker 700:28:51Hey, good afternoon. Just before I ask my two questions, clarification. Joe and by the way, really nice progress in this quarter. I think Greg was asking something earlier and you said you expect to overshoot a bit. Does that mean you would drift sort of to the northern end of 93% to 95%? Speaker 700:29:12I wasn't quite sure what you meant by overshoot. Speaker 200:29:14Yes, that's a great quick clarification. I meant the other direction. And then when things were ugly and we were 100 plus, we expected that we would add rate that perhaps the combination of rate actions and non rate actions might exceed our need. We would put on the non rate actions which were inadequate among themselves. We would wait till the combined ratio improved to an attractive level and we were confident in that, then we would take the non rate actions off. Speaker 200:29:45As a result, if we were trying to get to a 95%, we might get down to a 90%, then the non rate actions work themselves off and we move back up. We're in the overshoot part of overshooting a little bit too much to the good after having been in the bad, not that I expect that we're going to get over the 96%. I think right now we're in the part where I would say we've overshot a long term target to the good. That makes sense? Did we lose you, Andrew? Speaker 700:30:20Absolutely not. Can you hear me? Speaker 100:30:22We can. Speaker 700:30:23Okay, great. Yes, no, makes a ton of sense. And just another clarification, I think I heard Matt and you Joe mentioned that you expect low single digit PIF in the upcoming quarters. So how does that align with and this is something you talked about last quarter. You said the 2nd quarter versus the first quarter typically based on seasonality is up 25% and then the 1st and third quarters are slightly yes, or actually the Q3 is slightly less than the first and then the 4th quarter is down 40% versus the first. Speaker 700:30:59So the pressure is on Speaker 200:31:01Yes, let's break I'm interrupting, let's break them apart. There's loss frequency seasonality and there's sales seasonality. The first half of the year sees more buying activity than the second half of the year. The first and second quarter are the 2 highest quarters for new business and the 3rd and 4th are the lowest. 1st and second are close, sometimes one's higher than another. Speaker 200:31:293rd is distinctly lower than the first and second and the 4th is the lowest of all 4. And to some degree, we're not 100% sure there's not a pull. It appears to us that people shop for auto insurance less and spend more months less money on that in the holidays, either they're busy or they're saving up money for the holidays or they're doing something. Their shopping increases, maybe it's car buying season, they've paid off the holiday bills, they've gotten their income tax return, they buy a new car that triggers shopping activity. It appears to be around those kind of behaviors that causes more nonstandard auto shopping in the 1st and second quarters, less in the third and even less in the 4th. Speaker 200:32:14So we're expecting fewer the same way Macy's expects more sales in November December and less in May June. We expect more in the 1st 6 months of the year and less in the last 6 months. And if there's just fewer shoppers, we might actually capture a greater share of the shoppers, but less sequential quarter PIF growth Speaker 300:32:37is profitable. Speaker 700:32:39Great. So basically no standard no non standard auto Christmas presents in December. But with that said, you're still saying though low single digit PIF growth sequentially in the next two quarters? I want to make sure because even with that pressure, it sounds like you could still be up in the low single digits, if I understood that correctly? Speaker 200:33:01Our general expectation. Speaker 700:33:03Perfect. And then the last clarification, the thinking was last quarter that rates you'd earn in about 7 points in the 2nd quarter and 7 in the second half. And then if I looked at Slide 8, it looks like you got 8 points in the second quarter and then maybe the balance comes in the second half. It looked like around 5. So there's still 5 to earn in. Speaker 700:33:30Is that the way to think about it for the balance of the year? Speaker 300:33:35Close, Andrew. So far, year to date, we've got about 17 points of rate earned. What we provide there on Slide 8, I believe, is in the upper right hand area is the estimate for the Q3, which is about another 5 points. And maybe there's 2 or 3 points to be earned in the 4th quarter. So we got, for the back half of the year, 7 to 8 points left to be earned in. Speaker 300:33:59And that was I think we answered this question in the Q1. We expected about 24 points of rate to be earned in for the year. So that's how it gets broken down. Speaker 700:34:09Perfect. Thanks Brad and Joe. Appreciate it. Operator00:34:17Thank you. There are no further questions at this time. I will now hand the call back to Mr. Joe Locker for any closing remarks. Speaker 200:34:24Thank you, operator, and thanks to everybody for joining us today and for your continued interest. Again, we're pleased with the results that we have right now and we're going to continue to drive forward on improving them. I look forward to talking to you again next quarter. Take care. Operator00:34:43Thank you. That concludes our conference for today. Thank you forRead morePowered by