Good morning, ladies and gentlemen, welcome to Kemper's second quarter 2016 earnings conference call. My name is Kevin, I'll be your coordinator today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, instructions will follow at that time. As a reminder, this conference is being recorded for replay purposes. I would now like to introduce your host for today's conference call, Ms. Diana Hickert-Hill, Kemper's Vice President, Investor Relations and Corporate Identity. Ms. Hickert-Hill, you may begin.
Thank you, operator. Good morning, everyone, thank you for joining us. This morning, you will hear from two of our business executives, starting with Joe Lacher, Kemper's President and Chief Executive Officer, followed by Frank Sodaro, Kemper's Senior Vice President and Chief Financial Officer. We will make a few opening remarks to provide context around our second quarter results. We will open up the call for our question and answer session. During the interactive portion of our call, our presenters will be joined by John Boschelli, Kemper's Senior Vice President and Chief Investment Officer, Chip Dufala, Kemper's Property and Casualty Division President, and Mark Green, Kemper's Life and Health Division President. After the markets closed yesterday, we issued our press release and financial supplement. In addition, we filed our Form 10-Q with the SEC. You can find these documents on the investor section of our website, kemper.com.
Please note that our discussion today may contain forward-looking statements. Our actual results may differ materially from these statements. For information on potential risks associated with relying on forward-looking statements, please refer to our 2015 Form 10-K filed with the SEC, as well as our second quarter 2016 earnings release and Form 10-Q. This morning's discussion includes non-GAAP financial measures that we believe may be meaningful to investors. In our supplement and earnings release, we defined and reconciled non-GAAP financial measures to GAAP where required in accordance with SEC rules. Finally, all comparative references will be to the second quarter of 2015 unless we state otherwise. Now I will turn the call over to Joe.
Thank you, Diana. Good morning, everyone, thanks for joining us for today's call. I'll start with a few high-level comments, then go through our results. I'm pleased to have some new members of our senior leadership team in place now with Mark Green, Chip Dufala, and our new Chief Information Officer, Charles Brooks, joining Kemper. These three are working closely with Frank, John, and myself, as well as with our other senior leaders to finalize our strategy. I also want to thank Joe Metz for partnering with me to lead the property and casualty business over these past several months. With his help, we continued our actions to improve our results, analyze options for our overall strategy. Now that Chip is here, Joe can return to his focus on leading the Kemper personal and commercial lines business.
As for our strategy, we plan to host a conference call in mid-September. While I acknowledge some of you may have been hoping to have this discussion earlier, I wanted to get our leadership team in place first. I believe it's important to have our senior leaders involved in shaping our strategy, and these executives will be instrumental in delivering the plans we convey. We'll announce the specific timing and logistics for the mid-September call in the next few weeks. Today, we'll focus our discussion on our second quarter results. Overall, we earned $4 million in net income and $5 million in net operating income during the quarter. Revenues increased to $627 million, largely driven by Alliance United, which we acquired at the end of April last year and were partially offset by a lower level of realized gains this year.
In addition to the increased level of catastrophe losses we announced earlier, Alliance United losses remain elevated. While we have a long way to go, we're making progress on the underlying legacy business, and we remain diligent on implementing the steps we need to improve our overall bottom line. Our company catastrophe losses in the quarter increased $13 million to $51 million pre-tax, with about $2 million of that coming from our life and health business. Like much of the industry, we saw a high volume of storm activity during the quarter, with 14 catastrophic events. The most significant occurred during April in Texas, which we mentioned during our first quarter earnings call. While the cat losses exceeded our historical annual average, we're comfortable with our long-term pricing expectations.
At this point, we do not anticipate fundamentally changing our pricing or underwriting actions in the impacted areas for our property/casualty or life and health businesses. I'll turn now to discuss our property and casualty segment results, which provided trends similar to what we saw in the first quarter of this year. Earned premiums for the segment totaled $403 million in the second quarter, up $53 million from last year. Excluding the $64 million lift from Alliance United, earned premiums decreased by $11 million as a lower policy count offset a modest increase in average earned premium. Our net operating loss of $9 million was down $6 million, driven by a deterioration in Alliance United's results and the elevated catastrophes I mentioned earlier, which overshadowed some improvements in our legacy underlying loss ratios and a higher level of favorable loss reserve development.
With only two months of results for Alliance United included in the second quarter of 2015, year-over-year comparisons are challenging. We'll talk about Alliance United's results separately. Alliance United had a net operating loss of $12 million in the quarter. Results included adverse development from the first quarter as well as elevated frequency, which drove the increase in the second quarter underlying loss ratio. Frequency patterns continue to pose a challenge consistent with what we've seen in the past few quarters. I'll take a few moments to update you on the four key factors we discussed last quarter relative to Alliance United: elevated frequency levels, a need for increased rates, high levels of new business volume, and a claims department that was understaffed to handle the growing business. Starting with frequency, California non-standard auto market continues to experience elevated frequency across the industry.
Our experience parallels what many of our competitors have reported. Frequency, particularly in liability, remains pressured. Our second factor is rate. We implemented a 7% rate increase effective on new business and renewals beginning in April for our Millennium product, which represents about half of the book of business. We also filed for another 7-point increase on the Millennium product in June, and that rate filing is pending approval. Additionally, in March, we filed for a 7% rate increase on our Gold product covering the other half of the book. That filing is still pending, and we expect to get approval and begin implementing rate increases in the fourth quarter. As we've repeatedly said, the process of achieving rate adequacy on both products will take several pricing cycles to complete. In the meantime, we're implementing various underwriting and agency management actions to further improve profitability.
Turning to the third factor, production, these underwriting and agency management actions deliver the desired effect. New business is down 20% sequentially and down modestly on a monthly production basis from last year. We will continue to manage new business flow as we implement needed profitability improvement actions. Finally, our fourth key factor, we remain focused on improving our claims operations. We made substantial progress adding claims adjusters this quarter. Since acquiring Alliance United, we've added 134 claims personnel and an increase of 36%. We believe we'll be adequately staffed based on our staffing models by the end of the third quarter. We plan to hire beyond these needs to reduce our pending claim count as quickly as possible. We mentioned last quarter that we implemented Guidewire for handling Alliance United claims.
We changed from an Alliance United claims system and claim processes to a Kemper claim system and processes. This change is a necessary part of combining these businesses. As expected, it will result in pattern changes in our actuarial data. As a result, we'll experience at least several quarters where interpreting our loss reserving data will be a bit more challenging for Alliance United. This technology integration and operational integration is an important step to position the business for long-term scale and profitability. Turning now to our legacy P&C business, we had an underlying loss ratio of 65.8%, more than a 1-point improvement from last year. In our legacy non-standard auto line, we continued to see improvements, earning $3 million in the quarter versus a $3 million loss last year.
Earned premiums increased about $1 million to $79 million, with an increase in average earned premium outpacing a decline in policies in force. The underlying loss in LAE ratio improved 6 points to 75.8% as our profit improvement actions take effect. While we're pleased with our progress, we still have work to do. We continue to implement rate and underwriting actions. In our preferred auto line, operating earnings declined $8 million from last year. The current quarter had $3 million higher catastrophe losses and a $3 million lower level of favorable reserve development. The balance of the year-over-year variance was due to a 2-point uptick in the underlying loss ratio to 71.3%. As we've discussed previously, we've seen a shift in the risk profile of our preferred auto book to lower-risk business and a related decrease in overall frequency. The industry has experienced increased frequency.
Our team is engaged in a deeper review of our mix change, the impact of industry frequency changes, our current claim operations, and the adequacy of our pricing at individual risk layers. We're committed to improving the profitability and growth prospects of our preferred auto line. In our home line, where we saw the bulk of our elevated catastrophe losses, we had a $6 million loss in the quarter, despite benefiting from $9 million of prior year favorable reserve development. Earned premiums were $68 million, down 6%. We are encouraged by a number of important factors. Our underlying combined ratio improved more than 5 points to 77.3%. Our policy retention percentage increased 2 points, and our new net written premium increased 7%. I'll turn now to the life and health business.
We reported net operating income of $16 million, up $2 million, driven by decreased expenses, offset by a lower level of net investment income. Expenses were down in the life line as last year's legal expenses were $8 million higher. Looking at Kemper's performance overall, in the property casualty business, we saw high catastrophe levels. We continue our work to improve Alliance United's performance, and we expect it to take a few more pricing cycles at a minimum to resolve. We're keeping our close eye on preferred auto line, and we're encouraged by the underlying trends in our legacy non-standard auto and home lines. The life and health business continues to produce stable earnings and cash flow to the parent company. With that, I'll turn the call over to Frank to cover Kemper's consolidated performance, capital, and parent company liquidity.
Thanks, Joe, and good morning, everyone. For the second quarter, Kemper's net income was $4 million or $0.08 per share, compared to $30 million or $0.57 per share. Net operating income was $5 million or $0.09 per share, compared to $7 million or $0.13 per share. Catastrophe losses impacted earnings by $0.64 per share in the second quarter of 2016, compared to $0.46 last year. Results included $1 million of net investment losses in the current quarter, compared to $21 million of gains last year. Last year results also included a charge of $7 million or $0.14 to write off previously capitalized software. Total revenues increased $18 million or 3% as higher earned premiums were offset by lower realized investment gains.
Earned premiums at the property and casualty division increased $53 million. Driven by $64 million higher earned premiums from Alliance United, partially offset by lower earned premiums from our legacy P&C lines. Earned premiums were stable in the life and health division. Net investment income decreased $3 million for the quarter, primarily from the impact of our alternative investments. Alternative investment income was positive for the quarter, but down due to the lower performance of our hedge fund portfolio and underperformance of a few large investments that are winding down. The total return for the quarter was strong at 3.1%, driven by increased values of our fixed maturities related to the drop in interest rates. The pre-tax equivalent annualized book yield was 5% for the second quarter of 2016, compared to 5.4% last year, driven by the lower income from alternative investments.
The property and casualty segment reported a net operating loss of $9 million for the quarter, compared to $3 million last year. Both periods were severely impacted by catastrophe losses. Additionally, Alliance United's results were far below expectations. Although Alliance United's prior year reserve development was marginally favorable, the first quarter of this year developed unfavorably by about $6 million pre-tax. Further deterioration in our expected loss ratios led to a $3 million pre-tax charge to recognize policy acquisition costs that would normally be deferred. Excluding Alliance United and the write-off of our capitalized software last year, P&C results were flat as better underlying results and higher levels of favorable development offset higher catastrophes. About half of that development came from our more volatile homeowners line and included development from 2014 and 2015 catastrophes. The legacy P&C underlying loss ratio improved more than one percentage point to 65.8%.
Legacy non-standard auto underlying loss ratio improved six percentage points from rate increases, underwriting actions, and agency management steps. Homeowners' underlying loss ratio improved five percentage points, primarily from lower frequency, while preferred auto's underlying loss ratio increased two percentage points as loss trends outpaced rate actions. Net operating income from the life and health segment was $16 million for the quarter, compared to $14 million last year. Results increased primarily from lower legal expenses at the home service companies, offset by lower net investment income. Net operating loss from corporate and other improved $2 million, primarily from lower pension expense, recognition of a tax benefit last year from closing out some open tax years. I will now cover book value, capital, and parent company liquidity.
Book value per share was $41.17 at the end of the quarter, up 6% from year-end, largely from the impact of lower market yields on our fixed maturity portfolio, partially offset by dividends paid. Book value per share excluding unrealized gains on fixed maturities was $34.78, down 1% from year-end, primarily from dividends paid. Statutory surplus levels in our insurance companies remain strong, and we estimate that we will end the year with risk-based capital ratios of approximately 400% for our life & health group and 320% for our legacy P&C group. This week, Kemper's board of directors authorized a dividend of $0.24 per share. We were not in the market repurchasing shares this quarter. We'll review capital allocation priorities as part of our overall strategy discussion next month.
Our estimate of excess capital remains above $225 million, from a liquidity perspective, the parent company held cash and investments of about $340 million, while our $225 million revolver remained undrawn. I will now turn the call over to the operator to take your questions.
Ladies and gentlemen, if you have a question or a comment at this time, please press a star, then the one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from Paul Newsome with Sandler O'Neill.
Hi, good morning. Thanks for the call. I wanted to actually ask about the reserve development that happened a little bit more, about the reserve development that happened excluding Alliance United. You gave a little bit of detail, the half was home, but it seemed like a big number relative to what you've historically done in that line. Maybe we can talk about the stuff, both the homeowners piece as well as whatever else was driving that reserve development.
Sure, Paul. Thanks for the question. It was a little garbled, let me just repeat it to make sure we got it. You want some more detail on the reserve development, excluding the impact from Alliance United on the more legacy business, because it seemed a little larger than what we'd seen normally. Correct?
Yes, please.
Okay, great. I'm going to ask Frank to dig into some of those details. Hey, Paul. Yeah, about half of that development came on homeowners, and a lot of that related to catastrophes from the 2014-2015 year. If you think about it, we've had a lot of activity in cats and storms, and those are just harder to peg from a reserve perspective. Other than that, it was within a reasonable range and mostly positive, so they kind of added up to a larger positive.
For the quarter. The other thing I would call out is that umbrella, which is reported on our other line, is also up, and that was really just due to a few large claims, but still within a reasonable range. It's all within a reasonable range, and the outlier that we spoke about really was homeowners.
Great. Second question, probably bigger picture. Any update on sort of the strategic plan, the development and maybe timing on when we hear from you folks?
Yeah, Paul, we'll get back with specific timing. We'll do something in mid-September. I wanted particularly to have the new senior team members on board and engaged in the process. They're going to be responsible ultimately for delivering these points of view. I think they're strong individuals with strong points of view and will be helpful in shaping that. They're here now. They know where the bathroom is, they know where the coffee machine is, and they've got a strong view of the operations already inside of their businesses. We'll have much of that in a good shape in the middle of September. We'll come back with the timing and specific logistics around a call in a couple of weeks.
Great. Thank you. I'll let others ask questions. Appreciate it.
Our next question comes from Meyer Shields with Macquarie.
Thanks, good morning, thanks for the call. Just a few questions. Maybe just starting with the rate discussion. You talked about the 7% in April and some other rate actions in June. Have there been any actions taken in July and August or not?
Yeah, the rate actions, Meyer, thank you for your questions and for being on the call. The rate actions we talked about were specific to Alliance United. They're California, so they're all obviously 6.9 something, but we're talking about them as 7. The first 7 was related to the Millennium product, which is about half the book. We had a follow-on filing quickly after that one was implemented. Then we had a filing in for, again, that same 6.9 in our Gold product. We would anticipate once that filing is approved, we'll follow on with Gold as well. We're going to keep those coming. When one's implemented, we'll look at the data and follow quickly along. We obviously have rate filings going in states all across the country in all of our product lines, and those are significant.
We typically don't go state by state, filing by filing, in these calls and this disclosure. We're doing a little bit more on Alliance United just because there's a little bit more hair around that business and a little more challenge, and we want to be fulsome in terms of how we're attacking it. We are consistently looking at all of our businesses, looking at their current profitability position, their current position in the marketplace, what we're seeing with frequency and loss trend, and then moving appropriately in each of those jurisdictions. There have been plenty of filings in the last two quarters.
Just to understand this clearly, the rate discussion was on Alliance United. Excluding that, what you're saying is, if I understand this correctly, the other pieces, the non-Alliance United, are also seeing rate increases.
Yes
On a state-by-state basis. Many companies give like a net rate number. Do you have anything to share on that regard, or is it too early pending your strategic update?
We don't have one right now to share with you, Emmet. We'll take that under advisement and perhaps give you something with more specificity in September or going forward. In general, if you looked at the filings for us, they're in the high single-digit range. It's a more nuanced conversation. Our legacy non-standard business has had more profitability challenges, so those are at the higher end of that range. Our homeowners business still is seeing the most improvement. They're in the single digits as well. There's a couple of states where we feel pretty good, so they're lower. There's a couple of states that need a lot more improvement, so they're at the higher end of that range. It varies. The right way to think about them in general would be high single digits.
those are realized rates, the actual rates, right? Not the filed rates.
Well, the comment I'm making is about filed and approved.
Okay.
Realized, you got to dig underneath it. The challenge on realized is there's a mix change that comes with these things as well. We could give you a realized rate that might not be the appropriate nuanced way to look at this. As you're well aware, if we took a lot of rate on one segment that was particularly profit-challenged and that business left, that might actually be a better answer if the actual yield on the rate was lower than filed. It might have better profitability improvement. I think the right way to think about it, for us at least, is the filed rate is giving you an indication of where we think we're moving from a profitability perspective.
Okay, fair point. The other question was, you sort of briefly mentioned the frequency and severity challenges, and you also alluded to the industry. Can you sort of flesh that comment out a bit more? The reason why I ask is I was hoping to get a better understanding as to, and this is all ex Alliance United, how your book is performing on the loss cost trend side, in terms of, I guess, paid claim, frequency and severity for bodily injury and physical damage. Maybe just talk about the trend line, because obviously you've seen Allstate, you've seen Progressive, and obviously you saw what happened with The Hartford. I'm just trying to figure out where you sort of stack up in that matrix.
Yeah. I think what we're seeing, Amit, is trends generally consistent with what we're hearing others talk about.
The complicated piece comes for us, and we talked about it a little bit in our preferred auto line.
We firmly believe that we're in the industry, and we're seeing, we're experiencing the same issues that others are with more miles driven, with more distracted driving, with all of the other macro trends that are occurring. We had a fairly significant mix change in the last couple of years, which when we look purely at year-over-year data, might give us the impression that frequencies are down or-
Pushed less, so the aggregate frequency's less than what we're seeing.
As an example, if you went from having a book that was 90% non-standard to 90% preferred, the frequency for the book year-over-year would be way down.
Yeah.
The frequency for just the preferred cohorts would be up, and the frequency for just the non-standard cohorts would be up.
Our aggregate number right now would probably be somewhat misleading to you if we were giving you that, because we're seeing these forces on the individual cohorts working them up, but the aggregate is somewhat down. If that makes any sense.
Got it.
on the frequency.
Yep.
We would expect our-
Yeah
loss trends to be very consistent in aggregate for the individual cohorts to be consistent with what others are describing. We're not big enough, we haven't been so effective in our underwriting or pricing sophistication that we would expect to be meaningfully favorable to the market.
Got it. The final question I will reach you after this. The strategic update, I know Paul was also asking, I guess this thing. Should we anticipate, once you sort of look at it, is it more sort of a scalpel approach which comes out of it? Should we be preparing ourselves for a materially different outline as to how things will function from September? Just trying to get an early view. I mean, is everything on the table or is it more like, let's actually get behind the data, let's understand what's going on, maybe build up a better data sort of snapshot. That's a bad word to use. Data analytics, then figure out what is needed. Can you sort of give us some more color as to what exactly is coming up in September?
Sure. I'll give you a little bit, the 60-second version of it.
We suffer right now in our organization from a fair amount of execution challenges, and in some cases, what I might describe as deferred maintenance. Our businesses from an execution perspective are perhaps challenged somewhat by environmental issues, but in many cases by self-inflicted wounds. You shouldn't expect to see something that is so wholesale radically different that you're saying, "Boy, on October 1st, I can't recognize these guys compared to what I saw on August 1st." There is a lot of near-term work that will add a lot of value by stopping the self-inflicted wounds, improving the execution, and sharpening our pencils around the businesses we have. We will ultimately, two years from now, not look exactly the way we look today.
Yeah.
There'll be components around that, but the last thing you do when you've got businesses that are dealing with some self-inflicted wounds and deferred maintenance, is unload them in that condition. There's a significant amount of improvement we can do to get them ready to deal with that. There's great performance opportunities inside of these businesses that we haven't dealt with. We're going to work on all of those.
Could that also include looking at, I guess, the employee base and the sense that, do we have the right people running sort of all the pieces of the ship, or is the management as well as I guess the leadership structure as it sort of percolates down the company, is that sort of all set for now?
Amit, the obvious answer in this is we're going to sit down and we're going to look at how to get ourselves structured and positioned to execute better, to add value, to build competitive advantages, and to ultimately build shareholder value. We're not going to be stuck in locking anything in place that would-
inhibit that ability. I appreciate your question. It's perhaps asking it with a lot of precision out of context of the other components. What I can assure you is we're not going to lock anything in ahead of time.
That is a tactical decision ahead of understanding what we're trying to do overall.
Got it. Okay. I'll stop here. Thank you for patience and all the answers.
Of course.
Good luck for the future.
Thank you, Amit. Appreciate the question.
Again, ladies and gentlemen, if you have a question or a comment at this time, please press the star then the one key on your touchtone telephone. Our next question comes from Ryan Burns of Janney.
Great. Thanks. Good morning, everybody. Obviously, cat losses in the homeowners segment have been elevated the first half of the year. I think you guys mentioned, again, it's just more unluckiness than anything else. Yeah, you're not going to re-underwrite the book, but have you looked at maybe buying more tactical reinsurance programs to maybe take out some of the volatility?
We have, Ryan, we always look at it. The issue on some of that is it's an insurance transaction. We could do that and take out some of the volatility, and we'd also be taking out some of the profitability in that component. Somebody on the other side of the trade is going to be looking for that. Our view all the time, as good underwriters and good stewards of capital, is to say, "Okay, what volatility can we take? What's the risk-reward of the insurance transaction we're taking? Are we getting paid for the risk?" Long-term, when we're dealing with any particular component, I would expect to have, as an example, and it's perhaps a good example because we're not doing homeowners' business in Florida, but you'd expect your ex-cat Florida homeowners to make a lot more money than you would an ex-cat Minnesota homeowners book.
You're getting paid for the risk, and you're getting paid for the volatility. We look to deal with that overall, then our bigger issue, in some cases, may need to be spreading the risk. We have some pockets of concentration that individual trade might be a good trade, but we actually would be much better served by growing in some other geographies with comparable risk profiles to leverage that capital base more effectively. I think that's a better way for us to handle this, rather than coming down to low-level attachment points on tactical reinsurance and pushing the profitability lower.
Got you. No, thanks for that. Then the other question I had was, in the 10-Q, it seems like there's some updated commentary on Death Master File issue, where it says that you guys may even use it voluntarily in some states on a retroactive basis. Just wanted to see if you could give more color on that.
Sure. Happy to. We've already started using the DMF on a prospective basis for new business. Our sense is maybe two main points. One, maybe it's three. There's a clear recognition that you shouldn't go back, the government shouldn't get involved in retroactively changing contracts. That's bad for business overall. It's clearly unconstitutional. It's not a good way to move around. Point two is the folks in the industry, the companies in the industry who were using the DMF asymmetrically to stop paying annuities, but at the same time weren't paying life claims to the same insured. Whether it was an accident, whether they didn't know it, whatever it is, you can't look at that and do anything else other than say that's sort of an unworthy behavior, unworthy of our industry, and it makes the whole process for all of us look bad.
We understand why those folks entered into settlements. We understand why they were punished, and get it, and that seems appropriate. We also, as a third point, understand that there are databases, there are tools, there are items which on a relatively simple basis could be used to see if an insured had passed away and died, and there would be a benefit available to pay for a beneficiary. I don't think we've ever been fundamentally opposed to exploring that concept. What the challenge has been is we've been dealing with many regulators or treasurers or legislators who were looking for a one-size-fits-all approach. Let's deal with everybody the same way that we were dealing with the group who was getting punished. That we struggle with. I'm fine if you're caught speeding, and you get a speeding ticket, you paying the fine.
I'm not so fine that if we weren't speeding, we also pay the fine. I think there's an opportunity here, and we've been exploring it, but having some challenges getting anybody to agree to a solution that works for folks who didn't do the unworthy behavior. We'll continue to explore and look at these, and may very well come to the conclusion that we're just going to do what we think makes sense for the business and for consumers, and work with that.
Got you. No, thanks for that. That's a great answer. Then quickly, if I can sneak in one additional one. Can you maybe just break out what the loss cost trend is at Alliance United? I realize you're getting nearly 7% rate, and you're pushing for more. Maybe just wanted to see where loss cost trend is in that book so we can see what kind of impact those rates should get for you guys.
The frequency trends are running high single digits. The severity trends are almost hard to read right now. We've had and we've described a fair amount of noise in our claim department. We've had staffing issues. We've been getting that to work the backlogs. Claim backlogs have been rising. We're closing in on being fully staffed. We plan to overstaff that claim department to reduce those. We shifted to a new claim system so that we could leverage our resources across the organization. That also causes a little bit of the data to be garbled. My sense is that if all we were getting was seven points a year, we might see a little deterioration for a while, which is why we're going for a couple of rate changes at a time.
We do firmly believe that when we get fully staffed from a claim department perspective, we can actually have favorable loss cost trends from the claim activity we're putting forth. We believe that that will provide positive earnings volatility or earnings improvement. All of this won't have to be done with rate.
Got it. Great. Thanks for that.
Yeah. The improvement will start to accelerate back part of this year and into next year. That's when we'll be at full staff and overstaffed and start working the pendings down.
Okay, thanks.
I'm not showing any further questions at this time. I'd like to turn the call back over to Mr. Lacher.
Terrific. Thank you, operator. Thanks to all of you for engaging today with your ears and with your questions. We continue to work through our actions systematically to drive improvements. Our Life & Health segment continues to deliver solid performance. We're seeing tangible progress in our legacy Non-Standard Auto and Home lines. We're addressing the issues in Alliance United. We know what to do. We know it takes time to see the results from our actions, and we're optimistic about what we'll see there. We're very much watching the Preferred Auto lines. Catastrophes were high in the first half of the year, but that's a normal part of the Property and Casualty business, something we expect from time to time, so we're not overly concerned with those volumes. I've said this before, but I'll say it again. I'll remind you that we're a company in transition.
It will take some time to see all the improvement levels that we seek, but we remain confident in our ability to deliver significantly improved results over the longer term. We look forward to sharing with you our updated strategy in September. In the meantime, you can be assured that we're focused on delivering improved results for the near term and the long term. Thanks again for your time today, and look forward to talking to you soon.
Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.