Good morning, everyone. Day two here at the Raymond James Institutional Investors Conference. This is my side office. This is where I sat all day yesterday, and I'm here again today. Thank you everyone for being with us this morning. A bunch of insurance companies and insurance brokers here over the three days, one of the companies that's been a very loyal and longstanding participant of our conference has been Kemper Corporation. It's been an interesting journey to say the least. Lots of challenges in the auto insurance market over the last five years. Kemper's had both successes and some challenges as well.
This morning is supposed to be set up as a fireside chat minus the fireside. In the 28 minutes and 38 seconds we have left, I thought what I'd do is have Tom, who's serving as the interim CEO, provide a couple minute summary of the state of the union as it relates to Kemper, where you were at the end of last year and, you know, what the outlook is as it currently stands. We can, of course, use that as a launching pad to get any questions about what's going on in the auto market in your various states.
Sure. Good morning, everybody, and thanks, Greg. Just a little bit of background on myself. I've been with the company, it'll be 34 years next month. My normal day job is general counsel, but I've served in a lot of roles over those 34 years, and I joined the company shortly after we got spun off from Teledyne. I've seen the entire ride, and as Greg said, it's been an interesting journey. Some businesses we were in, got out, some new ones that we've picked up. These days, you know, we're really focused intently on our two core businesses, which are the auto business, non-standard auto, with a very significant piece of that that is commercial, smaller fleets, and then our life business.
As you said, Greg, the last five years have had some challenges, some really good moments. You know, coming out of COVID, we certainly ran into a little bit of bumpiness, and last year saw some of that return just with some of the environmental changes in our key markets, particularly in California and Florida. Going forward, as we look at 2026 and 2027, what we're really gonna be focusing on are those two core businesses, operating them with greater efficiency, a little bit more discipline, looking to restore profitability and at the same time take advantage. We made a lot of investments over the last few years. We platformed a lot of stuff.
Now is the time for us to take advantage of some of those investments and really see what they can do for the businesses. The couple that are still in flight, we're gonna, you know, we wanna get finished and then really use the next couple years to maximize getting the benefit out of those efforts.
Yeah. It makes sense. Thanks for that, the summary. Let's, let's start. Really, it feels like, our discussion should focus on a state-by-state discussion, and maybe it's California and the other states, although Florida and Texas are its own, ecosystems. Let's, let's for the moment, focus on California. Stepping back, there were some changes in what the minimum limit liability profile looked like for the state. Walk us through the history of what it used to be, what the changes are, you know, were, and how it's affected your business in that state.
Yeah. I'll invite Brad to chime in as well. For those who are not familiar with the situation, California had not changed their minimum financial responsibility limits in almost 60 years. Considering, you know, what a huge state it is and how important the auto insurance market is there, they were, they had, they were one of four states that had extremely low limits. In 2020, late 2023, the legislature adopted a new bill requiring, excuse me, that the limits be increased effective January 1st. They doubled, for, the, you know, physical damage, and, liability. It turned out to be, sorry, a real disrupting event in the market there.
You can always try to anticipate what something like that's gonna be, but until you're actually in the fray and see how it's playing out, it's hard. We made the adjustments, we made the filings as everybody else did, and we knew we'd have to make fine-tuning as we went along, and we're doing that now. Our taking rate there, you know, for us, it's had a bigger impact, I think, than a lot of carriers just because such a big piece of our block of business there is minimum limits. The impact for us there, I think, was exaggerated compared to some other carriers. We're fine-tuning, we're taking rate there. It's had a significant impact in the BIs. Losses were incurring.
You know, one of the things that people knew was likely to happen when the limits were coming in is it's generated more lawyer attention. There's more money on the table, so that just draws a lot of personal injury lawyers.
Oh, did you have something to add, Brad?
You know, you said I'm the numbers guy, right?
Yeah.
Maybe I'll add some numbers to some context to Tom's comments here. As Tom mentioned, you know, a good chunk of our business is in California. Almost 70% of our personal auto business is there. More than 90% of our business there is minimum limits. When you double and triple those minimum limits, it's a big change. As Tom said, we're working through those adjustments today. When you think about our performance over the last six, eight months, you've seen our combined ratio creep up. That's been driven solely by California. California loss ratio's gone up about 15-16 points in the back half of 2025. We're working to address that. As Tom mentioned, we're focused on our claims handling process to mitigate the BI severity trend in the marketplace.
Mm-hmm.
Right now when a claim comes in those coverages, almost 80% are coming in with attorney attachments. Attorney-attached or attorney-repped claim-
Mm-hmm
Is 3.5x-4x more expensive than a non-repped claim.
Yeah.
We're making adjustments there to get that right. Additionally, we're taking rate. We talked about last quarter, we filed for rate in California, a 6.9% increase. When you look at it at the headline, 6.9% doesn't seem very much.
Yeah.
It's the adjustments of the underlying coverages. You get north of 40% in the liability coverages, and your medical coverages are coming down. We're happy to announce that that rate was approved and it'll be effective in the marketplace here in about a month.
That's great news. On the 6.9% rate increase that's been approved, I feel like the combined ratio is running, or even with that, would still be a little bit above your target. Does that mean there's gonna be another rate filing that's gonna follow after this becomes effective? Or do you think through policyholder adjustments, you can get back to, you know, the levels of profitability that you're looking for?
You know, we'll do what's actuarially justified.
Yeah
In the state and what we need. The key thing there is you can keep taking rate, but you need to be competitive in the marketplace, right?
Yeah.
You know, we'll get rate as we need. We really need to focus in on our processes-
Yeah
Looking at claims and mitigating those claims at a lower severity.
Yeah.
We're focused on that. Additionally, in the third quarter, we announced a restructuring charge. We've changed some leadership. We're focused on cost optimization, process optimization to be more competitive in the marketplace.
Yeah.
Those things, plus non-rate actions, which we talked a lot about during the COVID period, that we could take in California, we're doing those as well.
Back to non-rate actions as well.
Yeah.
That's great. Well, that's great news about the rate increase for you in California. It seems like I don't wanna get too far in front here, but it feels like the insurance commissioner and the insurance department, you know, has learned a lesson, and they seem to be a little bit more responsive in California than what the legacy record might suggest. Is that an accurate perception of what's going on or?
Yeah, Greg, I would say that's accurate. I think, you know, the broader insurance market, particularly homeowners there, has been in such a state of disarray, such huge losses from all the wildfires. Is that, over the last three years, I would say we, and I think more broadly others in the industry would say they've seen a higher level of cooperation and wanting to work with the industry to make some adjustments, including trying to speed up rate approval.
Yeah.
It used to be a painfully slow process, and it has gotten better, definitely.
Yeah. You know, thankfully, you don't have wildfire exposure. You're not writing property insurance in California 'cause that would just be.
Very grateful for that.
Be another source of concern for investors. Let's just stick on California for a second, 'cause you talk about attorney rep rates because the limits have gone up. Can we pivot over to the commercial vehicles side of the house inside California? 'Cause I feel that the liability profile of those type of policies is a little bit larger too. Does that mean that you're seeing any change in your attorney rep rates on the commercial vehicle side of your book of business inside California?
Not significant changes there because no change in limit profile. Same type of business that we're seeing. We continue to see increased BI severity.
Mm-hmm
Just as, you know, attorneys are helping claimants you know, with more innovative treatments, and they're trying to move closer to that limit, whether that's 500, 750, or even in some cases, a, $1 million. They're taking longer to settle. As they go through this process with the latent development, you continue to see increase in severity. No real change there. Obviously we've had some adverse prior developments.
Yeah
The last year or so. It's been predominantly in accident years 2023 and prior. We changed our reserving practice in 2023, and we're happy and pleased with those results for accident years 2024 and 2025. What you saw in 2023 and prior, some we call large losses.
Mm-hmm.
Our large loss is defined as anything greater than $250,000. It's a low frequency, high severity event, and those have developed more, You know, adverse than we anticipated.
Mm-hmm.
It's taken longer to settle. So we've made those adjustments. Our hope is we've captured most of that. Given that the counts are down significantly, we've worked through a lot of that inventory.
Mm-hmm.
My expectation is that adverse development has diminished as we go forward.
We'll see when your statutories are out here, and they're probably out right now, we're just waiting for S&P to come through with them. We'll see claim, total claim counts come down a little bit in the.
Specifically in large losses.
In large losses.
Yeah.
Yeah. Excellent. That's great news. Well, just on the front end of the house for commercial vehicle inside California, talk about where you are in the rate cycle. Is there any pending rate filings you have there? Anything going on that might lead to either a change in top line or policy counts there for commercial vehicle in California?
You know, my expectation is the commercial vehicle continues to grow.
Yeah.
It's grown fairly significantly over the last three to five years. We're almost at $1 billion.
That's the overall book?
Overall book.
Yeah.
California is about 50% of that book.
Okay.
Pricing looks very solid. The market is still very strong as from an insurance underwriting standpoint.
Right
In California for the CV market. I expect it to continue to grow and deliver low nineties combined ratio performance.
That's excellent. You know, if you ever get to a point where you need to hit the rate pedal, is the process for rate approval different inside commercial vehicle than it is for the non-standard book? 'Cause I feel like there might be a different process. Maybe it's a little easier or not. I don't.
You're right. It is easier, and there's a lot more latitude.
Yeah
Within the commercial space. We're able to get rate as needed more quickly. Yeah.
Excellent. Excellent. Closing out on just the California piece, 'cause again, that's a big piece of your business and very important to the outlook for your company. The rate increases through our commercial vehicle, aside from the reserve development, seems to be in good position. Is there anything going on underneath, pardon the expression, underneath the hood from a claims perspective that you wanna call out that might cause some adjustments this year? Or do you think that, you know, with all the changes you made operationally, do you think that you're at an inflection point where actually things can stabilize in California and maybe potentially get better?
We made a number of changes starting, really in the middle of 2025 to the claims organization, shifted some responsibilities around, with an eye towards being able to address, what Brad cited in terms of the increased BI.
Yeah
Losses we were experiencing. We've got members, more experienced claims people and some of our legal team getting involved earlier.
Mm-hmm
Making some adjustments in some of the claims practices. Additionally, as I think you probably know, we have a new, Chief Claims Officer.
Right
As of the fourth quarter, Andy Ramamoorthy. Andy's focus right now is trying to see what we can do to improve the processes and the operations to get claims settled faster, make sure we're addressing them quickly. Because if you can cut some of that time out, you reduce the attorney rep rates, and it makes a huge difference in what the overall loss experience is.
Yeah. Makes sense. In what I'm about to ask, I'm obviously focused on California at this moment, but it's obviously a broader question. Is there any technology tools that you're able to utilize to help you with these processes? It's one of the biggest themes at this conference and this year is AI and, you know, the evolution of ChatGPT, Claude. You know, it's rippling through its potential effects on other areas inside the insurance universe and more broadly speaking. I feel like there's some opportunity for you guys to deploy some of that to help specifically in California with the attorney rep rates and all that stuff, but maybe also across your entire book.
Yeah. We have been, so this is not anything new-
Yeah
For the last five years, evaluating a lot of different tools to mitigate attorney rep rates, to get information quicker, to look out and suss out fraud. We have some great partners in that space that help us do that, as well as new firms coming into the space with different technologies has been very helpful. It's helping with workflow automation. It's helping with, claim resolution. It's helping to predict future costs and what, you know, medical care treatment should cost or what medical cost should cost.
Mm-hmm.
We continue to evolve that with our innovation group.
Mm-hmm.
We like what we see. I still think, you know, we've been doing it for many years now, but as technology gets better, as you get more data and you use it better, the results will only improve over time.
Yeah.
Yeah. The innovations are coming so fast that the opportunities to improve processes are just accelerating. You know, the one thing you wanna be a little bit careful is making sure you're putting your bets, you know, in the right technology.
Right.
I happen to be down in our Birmingham. We have a very large facility in Birmingham, Alabama, and I spent some time with the innovation guys down there a couple weeks ago and was really impressed with some of the things. They're still in the development stage, and they're still trying to figure out where the applications would be most advantageous. I agree, it's got a lot of promise. We'll continue to roll things out as we get comfortable that the investment's worth it and that the technology works for us.
Yeah, it feels like there's a lot of opportunity for your company and for the industry to utilize some of these tools to improve efficiency, improve outcomes for your consumers. This is great. You know, we gotta talk about Florida, we gotta talk about other markets, we gotta talk about Texas. Let's pivot to Florida, which is another large state for you. A lot of changes inside Florida, and it's been topical here because of the legislation that's been passed. It's curbed the trial bar. Talk to us about your experience and your non-standard auto book first and foremost, 'cause inside Florida, and then we can pivot to CV if appropriate.
Sure. You know, the tort changes that were adopted three years ago this month, as you said, really have changed the market here a lot. I'm not a Florida resident, so I'm jealous because your insurance rates are going down, whereas those of us that live in other states, our rates are going up. It's really put a major dent in the litigation industry here. I notice there's still no shortage of billboards in the state, pushing by the trial bar. Yeah, I think it's been an interesting lesson that you hope other states will take note of.
I know different business organizations, not just limited to the insurance industry, are trying to figure out how to package what happened here and take it to other states and be like, "Look, you wanna help your citizens here reduce their rates, these are the kind of things that really make a difference." For us, we saw a significant drop in litigation that there was a huge wave of suits filed in 2023, right when the bill was...
Right
About to get enacted. There's been a dramatic drop-off since, and it's been great. The market here is gotten more competitive, and that has its pluses and minuses for us. You're seeing carriers come back into the state that were avoiding it for a number of years just 'cause the climate had been so bad.
Yeah. Our goal is to grow everywhere. In our core markets, California, Florida, and Texas, our expectations will grow faster in Florida relative to California, just given the size and scale-
Right
A nd the opportunity here. We took a restructuring charge and did some cost savings in the fourth quarter. We reinvested part of that savings in Florida. That allowed for some price reductions. The market, as Tom mentioned, had become much more competitive, and you saw our policy in force growth come down a little bit.
Yeah.
We've seen it now, stabilize in the fourth quarter. Did come down a little bit. Normal seasonality in our market, which tends to see a lower buying season in the fourth quarter, and it picks up in the first quarter. We're liking what we're seeing from a results standpoint there with the actions we've taken in Florida, and we think it's a great market to grow in, and we expect to grow more.
Excellent. Well, as a consumer and a resident of Florida, yes, the rates have been coming down both in auto and the homeowner side, so it's a welcome change. It's nice to see that legislation can have a positive effect. Let's spend a minute or two on Texas too. Again, each state has its sort of own ecosystem, but maybe talk about conditions for your company in non-standard auto in Texas.
Go ahead. I was just gonna say, you know, the Texas market is unique in that it's so fragmented. There's so many carriers down there. You know, right now, I would say, you know, we're having some slight growth there. We're looking for additional geographies in the state that we could expand into. You know, we have a new product that we rolled out last year, a new auto product. It was introduced in Oregon and Arizona, I think it was the third quarter or second quarter of last year. We have filings pending in Florida and Texas to introduce that product in those states, and expect to have approvals and be able to start getting that into the market sometime either probably now, it's this early second quarter.
You know, anytime you have a new product, it takes a little while to fine-tune it. We believe that the Texas market is a very attractive one. It lines up well with our, the demographic we pursue. We see that as a, as Brad said, another growth state for us.
Yeah. I know I've been focused on the non-standard auto piece. Commercial auto, you know, in those markets, I assume you still have a positive view on the opportunity set there as well?
That's correct. Commercial vehicle, both in, you know, in Florida, Texas and Florida, continues to grow, and we like the results. We'll continue to invest in that, in that segment. You know, we believe in the team. We believe they'll continue to deliver.
Yeah. You know, for everyone listening in and here, it's remarkable, as I'm sitting here listening to you talk, it's remarkable how, you know, at the start of the in-inflation wave that happened in 2022 and 2023, that your company was viewed as a forward-looking company that saw some of these trends before the rest of the market did. It was a testament to, you know, some of the insights you had in your specific businesses. It feels like the company, you know, should be able to turn the corner, especially now that you have the rate increase approved in California. You know, we have just a couple minutes left.
I think, you know, a good point here would be to pivot to, like, the financials and, you know, as investors look at the results, the expected results for 2026, you know, what are the right sort of performance metrics that we should be considering in evaluating the performance of the company versus the rest of the market? Let's just take your company by itself and how should we. You know, what would a successful year look like for Kemper in 2026? Give us some benchmarks that we can use.
Yeah, we went over this, in the fourth quarter call.
Yeah
First and foremost, one of our goals is to reduce earnings volatility.
Mm-hmm.
Our personal auto business is our largest book of business, with 70% roughly in California. We articulated that we're trying to grow everywhere, but also grow faster in states outside of California. Looking at growth and diversity out away from California to provide more stability. I'd be looking, one, at our growth, where we're growing.
Mm-hmm
Ultimately, you know, how that book of business is performing and how the combined ratio is improving. You know, the combined ratio in both Florida and Texas, we're making an underwriting profit.
Mm-hmm.
California is, you know, seeing some pressure due it, to the BI severity trends that we talked about. We'll see that rate come in here in about a month in earn.
Mm-hmm.
Getting that book back to profitability and performing will be crucial for the success of the business. You know, PIF growth, diversification, and ultimately the underlying performance of the book of business in the combined ratio or loss ratio. The other thing I would focus on, Tom talked about this earlier, is our efficiencies. Not that long ago, we had an expense ratio in the high teens. Our expense ratio, you know, 21.3%, 21.5% right now. Our goal is to bring that down by two points, that'll do a few things. One, it'll help us be more profitable. Two, it'll help us be more competitive in the marketplace. By taking out expenses, we can reduce prices and grow a little bit more effectively.
Just those handful of things right now I think are most critical.
Excellent. I, you know, we, I think a appropriate, finishing spot would, you know. We didn't talk about the life business, but capital. You know, and I know the life business does provide you some diversification benefits from a us- standpoint of capital. Can you talk to us, where the company's capital position is today, its attitude towards excess capital, and you can wrap in, you know, a discussion on the life business if appropriate.
I think from a capital and liquidity standpoint, we have strong capital position, we have strong liquidity position. Moody's came out and reaffirmed our rating yesterday, a low BBB- or Baa3. We're not worried about capital at all. We have sufficient capital to weather any volatility that we see in our markets, as well as to fund future growth. Strong capital position, strong liquidity position. Not really looking to give capital back at this point, given what we're trying to do. We see, you know, it's worthwhile from a return on investment standpoint to invest in the commercial vehicle business, which is growing.
Mm-hmm
Which requires a little bit more capital than the personal business. Investing some of that capital in strong states like Florida and Texas.
Makes sense. I didn't ask the question, and I know you're not gonna use this format to make an announcement, but probably worthwhile just closing out, just give us update on the CEO search process. I know we talked a little bit about beforehand, maybe just for the benefit of everyone listening in, you could just give us some updated perspective, sir.
Sure. You know, our board of directors has a search committee. They've got a slate of candidates that they're in the process of interviewing. You know, these things usually take anywhere from six to nine months, and I don't have any reason to think that that timeline will be much different here. I do know our board has some specific things they're looking for, and they're gonna be very deliberate about making sure they find the right person to take us to the next chapter.
Yeah. Great. Well, we've hit the 30-minute mark. For everyone here, there's gonna be a breakout session that follows, and that's gonna be down in Cordova 6. We thank everyone for being here this morning. Certainly management, Tom, Brad, Michael, who's in the audience, thank you very much for being here at the 47th annual Raymond James Institutional Investors Conference. Everyone, have a great morning.
Thanks for having us. We appreciate everyone's time.
Yeah.
Thank you, Greg.