Kemper Corporation

Good afternoon, ladies and gentlemen, and welcome to Kemper's second quarter 2022 earnings conference call. My name is Bethany, 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. I would now like to introduce your host for today's call, Karen Guerra-Kempers, Vice President of Investor Relations. Ms. Guerra, you may begin.

Thank you, operator. Good afternoon, everyone, and welcome to Kemper's discussion of our second quarter 2022 results. This afternoon, you'll hear from Joe Locker, Kemper's President, Chief Executive Officer and Chairman, Jim McKinney, Kemper's Executive Vice President, Chief Financial Officer, and Dwayne Sanders, Kempers Executive Vice President and the Property and Casualty Division President. We'll make a few opening remarks to provide context around our second quarter results and then open the call for a Q&A session. During the interactive portion of our call, our presenters will be joined by John Buscelli, Kempers Executive Vice President and Chief Investment Officer, After the markets closed today, we issued our earnings release and published our earnings presentation and financial supplement and form 10Q. You can find these documents on the investor section of our website, Kemper.com. Our discussion today may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include but are not limited to the company's outlook and its future results of operations and financial conditions. Our actual future results and financial condition may differ materially from these statements. These statements may also be impacted by the COVID-19 pandemic. For information on additional risks that may impact these forward-looking statements, please refer to our 2021 Form 10-K, as well as our second quarter earnings release. This afternoon's discussion also includes non-GAAP financial measures we believe are meaningful to investors. In our financial supplement, earnings presentation, and earnings release, we've defined and reconciled all the non-GAAP financial measures to GAAP were required in accordance with the SEC rules. You can find each of these documents on the investors section of our website, temper.com. All comparative references will be to the corresponding 2021 period unless otherwise stated. I will now turn the call over to Joe.

Thank you, Karen. Good afternoon, everyone, and thank you for joining us. Before we discuss our second quarter results, earlier today we announced the sale of our Reserve National Insurance Company and its subsidiaries, which are predominantly focused on accident and health insurance to Medical Mutual of Ohio. This health business is smaller in scale and would require significant additional investment to meaningfully impact our portfolio. Medical Mutual is focused on the health insurance market. We're pleased to have engaged a buyer that understands the value of our talent and the Kemper Health team will be moving over in its entirety and joining the Medical Mutual team. We expect the transaction to close later this year or in early 2023, subject to regulatory approval. Moving to current results. Today we reported second quarter results that showed progress towards restoring profitability. We're pleased that our rate and non-rate actions accelerated in the quarter. The cumulative benefit of the actions taken over the past year continue to earn in. Unfortunately, the industry experienced increased severity inflation over this first quarter. This is particularly evident later in the quarter as supply chain and other disruptions increased. This pressure muted the benefits of our actions. As we've discussed previously, this inflationary launch environment is dynamic, and the path to target profitability is unlikely to be linear. We remain on the balls of our feet and are positioned to quickly adapt our business as appropriate. While we still have work to do, we are confident that over time our actions will return us to our long-term financial targets. Turning to page four, second quarter auto severity was driven by a number of factors. These include part costs, labor rates, rental car prices, time to resolve or remediate a claim, medical inflation and utilization, and increased attorney representation. The aggregate impact of the increase in sequential quarter severity was most visible late in the quarter. When we first spoke about the anticipated post-pandemic loss disruptions, we highlighted a couple key points. First, that rate increases with lag inflation increases. Second, the time to return to equilibrium would be driven most significantly by how long it took loss inflation to stabilize. And third, that the pressure on loss costs in any given quarter was likely to move around. Initially, it was driven most significantly by frequency and used car prices. The current quarter's increase in severity trend was driven largely by increased repair and remediation times and, to a lesser degree, bodily injury-related costs. To combat these effects, we again pushed forward with both our rate and non-rate profit restoration initiatives. We continue to believe that we are in a prolonged inflationary environment as both supply and demand remain out of balance. Our profit restoration activity corresponds to this assessment. This quarter, we exceeded the expectations we outlined in the first quarter for the number of rate filings submitted, the percentage of our book impacted, and the level of rate increases approved. Duane will provide more details later. We expect the cumulative actions taken since the second quarter of 2021 will result in meaningful acceleration in earned rate each quarter. This will contribute significantly toward establishing an equilibrium between earned premiums and lost costs, which have been out of balance due to the pandemic-induced inflationary environment. In the life and health segment, our financial results continue to be negatively impacted by the pandemic and excess benefit costs. This quarter, however, and largely in line with industry trends, we've seen a sequential decline in mortality. As mortality normalizes, our life business will see improved profitability. In summary, our profit improvement actions have taken hold and will help to offset the ongoing environmental pressures. We remain a source of strength for our stakeholders and are well positioned for long-term profitable growth. I'll now turn the call over to Jim to discuss our operating results in more detail.

Thank you, Joe. I will begin on page five with our consolidated financial results. For the quarter, we generated a net loss of $1.17 per diluted share and an adjusted consolidated net operating loss of $0.62 per diluted share. While the earning of profit restoration items continues to accelerate, the previously mentioned environmental challenges facing the P&C and life insurance industries continue to impact financial results. During the back half of the quarter, the P&C businesses incurred a further uptake in loss cost severity trends that reduced the impact of previous actions. Claims activities largely mitigated the impact on prior year accident ticks. This is seen through the quarter's modest favorable prior year development. For the current accident year, the loss trend increase delayed the expected financial improvement this quarter. The achieved increase in rate and non-rate activities is expected to offset the impact on 2023 financial results. In terms of our life and health segment, national mortality trends moderated in the quarter and have continued to do so. This, coupled with strong investment income, improved the segment's reported financial results. Going forward, we expect mortality trends to continue to align with national trends. To the extent that these remain favorable, we expect underwriting profitability to continue to improve. From a priority perspective, until we return to target profitability, our focus is on profit restoration initiatives and home improvement projects. Turning to page six. This slide highlights the strength of our balance sheet. We maintain a healthy liquidity balance of 1.2 billion, and our insurance entities are well capitalized. Turning to page seven. Net investment income for the quarter was $119 million. This included a $13 million one-time gain on a real estate investment. In the quarter, we took several actions to reduce risk and increase liquidity in our portfolio. These actions provide us with additional flexibility to navigate a dynamic market environment and capture the benefit of increasing interest rates. Overall, our portfolio construction philosophy remains unchanged. We continue to match our assets with our liabilities and allocate capital to sectors where we believe we will be compensated for the risk we take. In closing, as indicated in past quarters, it will take time for restoration actions to fully earn into our results. Although the company's quarterly financial performance continues to be pressured by various environmental factors, we remain confident the corrective actions we have and are taking will, over time, return us to our financial targets. I'll now turn the call over to Duane to provide the details on our P&C segments.

Thank you, Jim, and good afternoon, everyone. As Joe mentioned, profit restoration progress accelerated, but its impact was offset by increased sequential inflation pressure. Moving to page eight, we'll begin with our specialty P&C business details. For the segment, policies and force declined about 9%, while earned framing was up 3.4%. In the second quarter for private passenger auto, we exceeded our filed rate expectations, filing for an additional 19% of rate on roughly one-third of the book. We plan to file for an additional 11% on 6% of the book in the third quarter. At this point, we have 2.4 points of earned rate representing 26% of the cumulative average written rate increase. The earned impact of our rate actions will accelerate over the coming quarters and together with non-rate actions will further offset the impact of the current environmental pressures and put us on the path to profitability. Finally, our commercial vehicle business continues to operate within our financial targets. Due to its underlying core capabilities and targeted market approach, commercial vehicle has experienced growth in policies and force every quarter following the 2018 Infinity acquisition. Year over year, we have seen net written premium growth of 42% and policies and first growth of 15%. Given the strength of the underlying business model and our ability to continue to achieve great, we will continue to grow the commercial vehicle business. Now let's turn to page nine. Preferred auto experience is sequential underlying combined ratio decrease of three points. We continue to make progress towards offsetting severity through rate and non-rate actions in the quarter. In addition, we're experiencing benefits from the geographic repositioning of the book, which should support long-term profitable growth. Looking at the chart in the upper right, we filed for an additional 7% of rate on roughly one third of the preferred auto book during the second quarter. We're planning to file an additional 15% of rate on 8% of the book in the third quarter. Like the specialty business, the benefit lag from written to earned rate from the filings over the last 12 months is also significant. In the second quarter, we have 1.3 points of earned rate representing 20% of the cumulative written rate increase. In closing, despite the incremental pressures in the second quarter, we're close to written rate adequacy in most states outside of California. We've been responsive to rate needs driven by identifying the pressure points early in the cycle. We're in the top quartile in our industry for restoration actions. Although our actions will take time to run into the book, the pace will accelerate throughout the balance of the year. I'll now turn the call back to Joe.

Thank you, Dwayne. Turning to our life and health segment on page 10, business profitability improved due to declining COVID-related mortality and solid investment performance. income benefited from higher net investment spread, and a one-time valuation gain on a real estate investment. Notable trends within the quarter include life-new business sales at pre-pandemic levels despite significant inflationary pressures that disproportionately impact our customer segment, persistency above 2017 to 2019 results, rising interest rates and corresponding new money spreads, new money yields over crediting rates. These items provide a favorable tailwind of restoring the business to its pre-pandemic levels of profitability. Finally, I'd like to thank all our employees for their continued contributions and support as we continue to navigate this environment. Overall, our profit restoration actions are working. We have more work to do, but we're confident our approach will provide steady improvement. I'll now turn the call over to the operator for questions.

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. First question comes from the line. of Greg Peters with Raymond James. Please go ahead.

Good afternoon, everyone. I'd like to begin with the question. I thought the slide in your investor deck, I think it's slide, the one that, oops, I just lost it, the one that does the inflation stats, which is slide 14. was interesting in the context of your comments around filed rate actions, outpacing projections. Because in this chart, it does look like, as you've highlighted, Joe, in the comments, that the motor vehicle, body work, inflation trends are working against you. So trying to match what we see in this chart versus the rhetoric around filed rate actions and the lag, when are we going to cross that threshold where you start to see these rate actions drive, match what you're seeing in the inflation stats? And when will we see, you know, when do you think we'll start to see improvement in the underlying combined ratio?

So, well, a couple of us will do a tag team on this one, Greg. Yeah. There's a couple of, there's a couple of pieces going on in page eight and nine. We try to give you a view of filed rates effective than how they get written into the book and then earned into the book because there's a lag. And what we've been trying to do on those slides is show you we may file. Let's look at the second quarter or even the first quarter for specialty auto. We filed for 59% on 59% of our book. We had an 8% increase. Those there was a 21% of the book had an effective rate of 10 but that only would make translated into a 6% written and a 1% earned there's a lag on that. What that is, is you know, once it's approved and you typically will go into new business immediately, but in some states there's a lag. Renewals have a 45 or 60 day lag and then you've got to have the book. turnover, you know, every month it's got to be written and then you start the earning in process. So you really just have to sort of lay out the parallelogram and watch those come through. It's just a math exercise on timing. Inflation immediately impacts loss results because there's no lag on it. Every claim immediately gets it. That's what we were trying to convey on what now is slide 13, that illustrative example And very specifically on 13, we gave you a couple of lines in blue and a couple of lines in red. And those aren't meant to be exact lines. Those are meant to be a spread. What we've said in the past is we're not 100% sure when they're going to cross because it's a function of what regulators approve and what's the actual inflation going on in the market. We've seen regulators outside of California and New York Um, the very rational and understanding the, the economic reality of what's going on. Um, and, and moving rates up, um, at an appropriate pace to preserve their market stability. Um, and we've seen inflation be lumpier in spots. Um, and, and it will work, it will work there. The page 14 is giving you inflation by component. Um, it's not waiting those in, in terms of how they work back into a total loss content. So it's intended. to give you a little bit of an illustrative view on how the components are moving around.

Hey, Greg. Jimmy Kitty. I would just add on top of some of the comments that Joe made. I think it's a combination of things that you're talking about, right? It's your underwriting actions that you've taken plus the earned rate. If I think about this particular quarter, We were initially thinking that there would likely be a little bit more of a combined ratio improvement than what ended up transpiring over the quarter, aligned with my comments. Basically, what we saw is about another incremental two to three points of severity pressure coming through. um to give you an idea of what we're these aren't small numbers we were projecting more like a nine percent number and we got something that was closer to 12 depending on which coverage and what you're looking at and how you're mixing it so so when you think about that that ate up some of the anticipated improvement that we had now we also outpaced from a rate filing perspective another so when i think about kind of the run rate number say for the 2023 period in that I'm not seeing any change in what I actually would anticipate reporting or currently, and I'm not trying to get into that right now for Q1 of 2023. I do see a quarter or a little bit longer of a pushback in some of that improvement that came through this quarter. My statements, though, kind of with where we're at, I continue to think in terms of what I would be if I were trying to start with an underlying assumption and then make adjustments up or down. I would start with underwriting actions kind of continuing to be driven to offset some of the trend or where it's outside of kind of pops. And I would think about the incremental earned rate. So if we're going from two to four, think about that as maybe the baseline combined ratio improvement that you might anticipate on a quarter over quarter basis, then needing to adjust if we get a pop like late. You know, we do the best we can to forecast those things, but there's a little bit There's just only so much that we can do on that front. Again, we're trying to give you the best estimates that we have. But at that same point in time, absent those things, we would generally, you know, think that our underwriting actions and that that we're going to take are going to hold serve on that inflationary front. And that will be the incremental improvement kind of coming through on a quarter over quarter basis. Hopefully that's helpful. Happy to go deeper or talk if I have an answer to that question.

That's good detail. I guess on the underwriting or non-rate actions that you've taken, what inning are we in in that? Or is that just a continuous cycle that's going to persist until you get to underwriting profitability?

Well, I think in terms of the earning component of that, let us back up here for a moment. In terms of the actions that we've taken... We've continued to take more, we continue to work those and that will, they will stay until we are hitting the underwriting profitability targets and that, that, um, you know, we intend to achieve or need to achieve, right. That are appropriate for the business. Now, in terms of their earning, which is different than when we've actually taken them, they're earning into the book, right? So if you have underwriting peers or other things that have changed, and let's say that that slots up, let's say 10 points, right? Well, On a 12-month policy, that's going to probably take you anywhere. It's going to take you 23 to 24 months for that to fully earn into the book. And it'll be 14 to 16 on a six-month policy basis where you make those type adjustments. So long story short, I would say we're in the third or fourth inning, maybe fifth inning in terms of seeing them earn their way into the book for that improvement. But those decisions have been, they were probably six or seventh inning and Dwayne, correct me if I'm wrong in terms of the actions that we've taken. And maybe it's even later than that in terms of where we're at on all the underwriting things we've done.

And I'll add on that to what Jim said, Greg, to the extent inflation continues to incrementally deteriorate, we will need to incrementally take more rate and potentially more non-rate actions. If inflation stabilizes, at eight or nine points for the next three years, then those actions will catch up and eventually we'll handle it all with rate and we might take some of those actions off. If things continue to deteriorate, if we saw nine jump to 11 or 12, if next quarter it jumps to 14 or 15, then we're going to wind up having to take further actions and we'll continue to do that. That's really what we were trying to express in that old slide 13 that a stable but high level of inflation is irritating, but we will eventually get back into equilibrium. A volatile up and down on inflation is one of the more challenging environments to deal with just because of the lag that pricing comes back with and the earned lag. And again, the earned lag isn't any more than just saying how long does it take the policies to renew at the new price and what's the exposure you're dealing with.

Thanks for that clarification. That's helpful. I guess the final question, I realize there's others probably waiting to ask questions. I just want to touch on California. It's a big state. There's, you know, there's a lot of press out there regarding whether the commissioner is going to approve any rate at all. I think Geico that was in the news this morning about pulling or pulling out its, its agencies. Can you give us an update sort of where we are as of, the end of the quarter as it relates to the pending rate requests in California?

Yeah, rate requests do appear, short answer, to be stuck in California. We've had a variety of discussions back and forth with the insurance department. Some of those have been at high levels. Some of those have been, you know, deeper with folks asking questions about the individual filing. So there's actually some work that's going on there. The commissioner has expressed a point of view that he thinks that rate rebates or rate refunds to customers in the COVID period were inadequate. We've expressed a point of view that the insurance department looks at an eight-quarter time period when they're looking at rates. So even if you pick three or four months that might have looked like a rate refund was inadequate, if you take a rolling eight-quarter, Um, then the, the refunds or rebates were more than adequate. Um, and, and right now there's a disagreement on that. And I think the commissioners had got that disagreement with the entire insurance industry. Um, what we're increasingly seeing is carriers, um, ourselves included that are becoming, um, increasingly less willing to write new business, um, more restrictive from an underwriting perspective, tightening everything they can. And we will, in the relative short order, my personal belief is we'll start to see the market seize up. And they're going to have a social and cultural problem where they're not going to be able to have people bind or change auto insurance. So I worry about it from that perspective from the customers. We think our data clearly shows that we're justified for the rate increases. It's unambiguous from that perspective. I know the commissioner has a point of view, but I do think that you are starting to see more and more carriers respond in more restrictive fashions. And, you know, at some point, you know, when nobody's selling in certain segments, that's when it's completely obvious that the market is frozen. And I just hope the commissioner doesn't push it to that point because it'll take a long time to restart it.

Thanks for the detail.

Thank you, Mr. Peters.

Our next question comes from the line of Matt Carletti with JMP Securities. Please go ahead.

Hey, thanks. Good afternoon. Greg covered a lot of what I had. Joe, I wanted to clarify something. I think you mentioned a couple of times, and Jim might have as well, about the accelerating earned premium impact as we go forward and how some of the nuances in inflation this quarter might have just kind of pushed that off by a quarter. Would I hear you say that? Would I also be right in concluding that we should expect an acceleration in act and error loss ratio improvement in the specialty auto book, absent further degradation in inflation?

Yeah, you should. What I tell you, Matt, and let's take this simply. Let's normalize everything. Let's just say you had a book of business and you got a 12% rate increase on it, and it was effective January 1st. One twelfth, and of all your policies were 12-month policies. One twelfth of your book would be, we're renewing that in January, and would get the 12%. So you basically get 1% of premium. Let's assume everything is the first of the month. And then in February, you know, you'd have two months. And so you'd get 2% of the 12 would be working its way through. And it would take you till December to get all of the, all of the 12 points written. Um, you know, so, so you would earn it, you know, in that pattern. So what we're telling you, and the reason we built the slides, the way we did on eight and nine is we were showing you the filed and effective So that when you see that effective, you can then say, oh, now that this is effective and approved, but for the passage of time, this will be written and earned into the book. And it's just a matter of when those renewal dates pop up. So the fact that these rate increases have layered on top of each other, every month, another set of new businesses getting that and another set of renewals have gotten that on the written, and then that comes into the urn. So what What was getting a lower rate last month is going to get a higher rate next month, all else being equal. So it will accelerate as a result.

Okay, great. And then just kind of along the lines of the inflationary environment, obviously gas prices have been quite high, I'd say most so in California, which is your largest state. Have you seen anything in your data suggesting people driving less because of that or just because of the economy in general, or is that not, you're not seeing that?

We're not seeing, you know, very significant changes in frequency that I would attribute to that. There's normal volatility around frequency, but there's nothing that we'd point to and say a wholesale adjustment there from a frequency perspective.

Matt, what I might add to what Jill was, What I'm saying is I would separate environmental frequency from the frequency enhancements that we continue to bring into the book, both through our underwriting actions and our pricing sophistication. Our frequency from an underwriting and pricing continues to trend significantly better than, say, 2019 as an example. it is further better this quarter than it was actually last quarter. So you see the impact of the actions and that going through. Whereas I would say that environmental frequency that you would see coming through could be anywhere from zero to say 1%. Many people get different estimates, but that would be kind of holding served, I think, a little bit up versus what is actually happening in our book because of the actions and the sophistication that we continue to build out.

Gotcha. Thanks, Jim. That's helpful. Thank you.

Thank you, Mr. Carletti. Our next question comes from the line of Paul Newsome with Piper Sandler.

Please go ahead. Mr. Newsome, please check to see if your line is unmuted.

Good afternoon. Thanks for the call. It's great to see the RBC ratios rise in the quarter I was wondering if you could remind us the components of the liquidity at the parent company, particularly the borrowing capacity and how that all, all those pieces work. You know, I noticed the debt to cap is up a little bit as you'd expect. Is there a, you know, perhaps there's a maximum component of that debt to cap and just if you could kind of walk through those pieces so we can just better understand the liquidity capacity.

Sure. So, you know, the first piece is the $275 million in cash and investments that we have in the Holdco. That's just cash and investments. So obviously we can move that around and use that to cover fixed expenditures or other as we deem appropriate. Then we've got obviously the revolving line of credit that's $600 million that comes across from there. That particular line, obviously, we can draw and remain in good standing. One of the elements that I think is important to remember is that when you're thinking about some of the covenants or that that we might have on debt to cap at 35%, that is based on an amortized cost associated with that debt. The move that you're seeing, basically, you're talking about the change in the fair value of debt being greater than a billion dollars through AOCI that you're looking at right in the statement, which is largely driving those numbers. Those numbers don't come into account with our borrowing capacity from that perspective. Also, that provides a lot of flexibility. And then we have another about $300 million in excess of that. between liquidity that our subsidiaries can provide to the holdco, and we can move across the plate as needed. On top of that, we have additional dividend capacity and other elements with inside our subsidiaries. I think if I were someone , we have a lot of capital to transition and then to eventually grow when we have effectively achieved rate adequacy across the books. And then we've got a balanced curve between risk and reward for doing that. And we've got obviously a lot of liquidity to optimize kind of the entity structures and that that we have. I'm happy to go deeper in any particular area, but I think over the top, if I had to take away would be we have plenty of capital and liquidity to continue to grow and optimize the business.

I think that gets me where I need to go. And then I want to ask, you know, some questions on reserve national. Any indication, I don't think you've broken that out from a profit perspective, historically, at least on a gap basis. And I was just wondering if the gap game, just as we're going through our models, is... if the basis is similar to the statutory surplus or is it a materially different number as we think about the gains from Reserve Nation?

Yeah, so I think plus or minus $5 million of profit actually, you know, kind of a couple billion dollars here or there. It won't be an earnings element. It won't be something that we notice or that you notice because that capital will be redeployed into other earning activities perfectly at a higher ROE for us as we move forward. So I would expect it to be accretive over the medium to longer term from an earnings perspective in terms of the additional investments we needed to make in that business for it to become meaningful for us. In terms of the gap versus the stats view, we expect a gain from a gap perspective. will be less than the statutory perspective. You know, I don't... We'll see where everything kind of moves forward. There are conditions to that, but, you know, think about maybe half to a quarter of that is a rough estimate. Now, again, I don't want confirming numbers this way or that way because there's a lot of pieces that can move between now and 1231, but we anticipate a gain from a GAAP perspective as well as the statutory perspective.

Great. And just one final question I'll let some other folks ask. You mentioned New York was resisting rape, or at least wasn't on board as much as other regulators outside of California. I hadn't heard of New York as doing anything particularly different. Obviously not a huge state for you guys, but any thoughts on those, why you called out New York in any particular way?

It's not an issue at all for us in our specialty business. We've got a part of our preferred businesses there, and they are being a little bit of a challenge in preferred auto.

Yeah, this is Dwayne. They've kind of shut down anything outside of the annual 4.9 that they just normally let roll through. They've just kind of put a hold on additional rate filings beyond that. So, Again, that's isolated to the New York on the preferred side.

Great. Thank you for the help as always.

Thanks, Paul. Thank you. Thank you, Mr. Nelson. Our next question comes from one of Brian Meredith with UBS. Please go ahead.

Yes, thanks. Good evening. A couple of questions here for you all. First, just curious, was there any current year development in the especially personal or preferred segment this quarter? So catch up from the, or at least catch up from first quarter given the deteriorating severity?

A couple million bucks. So it is favorable, but again, not going to, a couple billion dollars, definitely not changing the numbers on a billion dollar number.

So it's favorable, actually. Interesting. Okay. Yeah, because that was my other question I had. I was just a little curious about the prior year development that you're seeing, the favorable. I was a little surprised by that, given your comments about the deteriorating severity situation. Where is that favorable development coming from? So

The team has been enhancing the claim processes that have gone through. And so if you think about running an inflationary number, if you thought it was going to take you eight quarters to resolve a particular item and it came in in six quarters, you got two quarters less of inflation that came in. And so we've had some favorable experience in terms of some of the things that we've been doing on the total loss side. We've had some benefits in terms of the BI side, in terms of bringing things to resolution. And so that acceleration of doing things on that front has produced some positive results for us. And I would suggest that when you think about the totality of our balance sheet, obviously having those trends, we're aware of the trends that we've had today. We've had several quarters here of modest favorable development You know, I would suggest that we are picking and trying to pick our numbers with the same consistency and view such that we are getting it right, you know, in terms of what's taking place in the environment.

It comes down to the operational pieces that Jim was talking about. You know, we saw some of the same pressures a year ago people did on claim staffing. We pushed to add folks there to make sure we had an adequacy there and did a good job. When you get a little bit of a, you know, an extra set of bodies there, then the claim team can, again, alter those processes. You can get after things and work the inventory down, and that helps.

Makes sense. And, Joe, you did mention that you're seeing, you know, some pressure on the BI severity side of things as well. You can dive a little bit more into that. Is that medical cost inflation is where you're seeing the pressures? I mean, some companies have kind of breached that, but most companies I'm talking to think it's relatively benign.

Yeah, I'll let Dwayne provide a little more color on it. It's, We're seeing a modest uptick, and there's a little bit in medical treatment and a little bit in attorney rep. We're not calling it out anywhere near the uptick we've been seeing on metal coverages, but it's not zero.

I think Joe's, you know, he's bang on on that. It's, you know, there's a little bit of an uptick on treatments. There was a reluctancy in the past, I think, for folks to treat, but now that folks are more comfortable in getting out. So there's just an uptick on treatment. Then there's a slight bump in some of the costs associated with that. And then again, a small amount of attorney reps. So nothing, to Joe's point, that is as obvious as metal. But we are seeing a little bit on the BI side trickle in.

Gotcha. And just last question, Joe, and I think I've asked this before, but just want to get your view. Given what we're seeing happen, this inflation and persistent and getting worse, has it made you rethink your view with respect to 12 versus six-month policies and being able to catch this quicker with a six-month policy?

Yeah, that's obviously part of what we've been doing in some of our non-rate activities is making shifts in those pieces. You know if we ever thought that there'd been I think anybody who's got a 12 month policy anywhere, right now, you know standard or preferred or non standard. In a rapidly changing inflation environment would prefer to be at six month policies there's clearly a trade to get rate that's better than retention for for everybody. That that would be a point of view in this environment.

You're saying you're actually switching over from 12 to six month policies on renewals for stuff right now?

There's places where we can and there's places where we can't. You know, that is a change in some states is a change in term and condition. So you can't do that. You can adjust on new business. So it will not be, you know, a one policy cycle term to change the book. It'll move slower than any of us want, because, again, in some states, Justin Cappos, Going from a 12 month to a six month policy you'd actually be effectively canceling them and non renewing them and rewriting and that that in some states you're not allowed to do that, just to change a policy duration. Justin Cappos, So we that into our points of view. Justin Cappos, You know that's the case where you can make that change on new business. Justin Cappos, But we've also slowed new business in many geographies. trying to, that's another way you improve your underwriting results is new business tends to have a higher loss ratio. So we've been slowing that down. So I'm trying to answer your question, but it winds up being a univariate question when there's a multivariate equation we're balancing. If it was that one variable, I prefer to be all six months. But when you put the other variables involved, we wind up with a slightly different answer.

Gotcha. Is California one of the states you can or cannot do it on?

you cannot switch in California. You can change your point of view on new, but not on the enforce.

Gotcha.

Thank you, Mr. Meredith. There are no additional questions waiting at this time. I would like to pass the conference back to the management team for any closing remarks.

Thank you again for everybody's time and attention. and thoughtful questions as we collectively work our way through the very fun environment of inflation in a post-pandemic world. I really wish that the Fed had been right and it was transient, but I think we're going to be dealing with it for a while. Thanks, everybody.

That concludes the Kemper second quarter 2022 earnings conference call. I hope you all enjoy the rest of your day. You may now disconnect your lines.