Kemper Corporation Aktie

Good afternoon, ladies and gentlemen, and welcome to Kemper's First Quarter 2026 Earnings Conference Call. My name is Mark, and I will be your coordinator today. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to introduce your host for today's conference call, Michael Marinaccio, Kemper's Vice President of Corporate Development and Investor Relations. Mr. Marinaccio you may begin.

Thank you, operator. Good afternoon, everyone, and welcome to Kemper's discussion of our first quarter 2026 results. This afternoon, you'll hear from Tom Evans, Kemper's Interim CEO; Brad Camden, Kemper's Executive Vice President and Chief Financial Officer; Matt Hunton, Kemper's Executive Vice President and President of Kemper Auto; and Chris Flint, Kemper's Executive Vice President and President of Kemper Life. We'll make a few opening remarks to provide context around our first quarter results, followed by a Q&A session.

During the interactive portion of the call, our presenters will be joined by John Boschelli, Kemper's Executive Vice President and Chief Investment Officer. After the markets closed today, we issued our earnings release, filed our Form 10-Q with the SEC and published our earnings presentation and financial supplement. You can find these documents in the Investors section of our website, kemper.com.

Our discussion today may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, the company's outlook on its future results of operations and financial condition. Our actual future results and financial condition may differ materially from these statements. For information on additional risks that may impact these forward-looking statements, please refer to our 2025 Form 10-K and our first 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 non-GAAP financial measures to GAAP where required in accordance with SEC rules. You can find each of these documents in the Investors section of our website, kemper.com. All comparative references will be to the corresponding 2025 period unless otherwise stated.

I will now turn the call over to Tom.

Thank you, Michael. Good afternoon, everyone, and thank you for joining us. As I've done in previous quarters, I'll use my comments today to discuss how we look at the business, provide some context on the quarter's results and more importantly, update you on our primary focus, which is to improve profitability, reduce volatility and deliver value to our shareholders.

Turning to the business. I think it's worth a brief reminder of who we are. We are a specialty insurer operating in a multifaceted competitive industry. We concentrate on distinct customer segments and markets that are not the primary concern of larger carriers. Through our two core segments, Auto and Life, we provide affordable, easy-to-use, personalized solutions to individuals, families and small businesses. We have a deep understanding of our customers and have developed products and services designed to meet their needs. We see meaningful near- and long-term opportunities across both businesses.

Before we discuss the quarterly results in detail, I want to note the main takeaways for the quarter. Overall, financial results were disappointing and did not meet our expectations. Notably, we continue to face significant headwinds in our California personal auto business. Results were also impacted by statutory profit limit refunds in Florida. What should not get lost in the narrative, however, is that we have several areas of the business that are performing well, and we will discuss these shortly.

First, let me spend a moment on Florida. The refunds are a function of state law that requires insurers if profits exceed certain thresholds over a 3-year period to return a portion of profits to policyholders. Last quarter, we explained how tort reforms enacted in 2023 have reduced loss costs and made the Florida market more competitive. Brad will discuss the effect of these refunds on our financial results. Importantly, our current auto business in Florida is performing well, and the rate adjustments we've made are leading to profitable growth. Matt will share more on Florida in a bit.

As for our personal auto business in California, the increases in minimum liability insurance limits that went into effect in January 2025 continue to complicate and exacerbate loss costs. We believe we have a good grasp of the issue and are taking targeted actions to respond, including rate changes that are coming into the market in the second quarter, underwriting refinements and claims process adjustments. The benefits of these changes will take time to be clearly visible in results. Matt will have more to share with you on California. While we clearly need to improve the California PPA results, there are bright spots in our business that should be noted. Among the items we are encouraged by are the continued strong growth and attractive results of our commercial auto business, which just finished its best production quarter ever.

Kemper Life continues to deliver solid, consistent results and remains a source of diversified earnings. And while the specialty, personal, auto results as a whole were not where we wanted them to be, we did see positive developments with profitable PIF growth in Florida and Texas, rate approvals in California and new product expansion that went live in Florida and was approved for rollout in Texas. On our earnings call in February, we outlined a number of enterprise priorities. We are making progress on our actions to improve results, enhance operational execution and reduce earnings volatility through diversification.

As I noted, we are focused on growing profitably and reducing earnings volatility. As we reposition our personal auto book, we expect California to represent a smaller percentage of our overall portfolio. It will remain our largest market for the foreseeable future, and we continue to see value in our presence there given the size of the market and our differentiated expertise in operating in the state. The restructuring program we launched last fall is well underway. And to date, we've identified cumulative run rate savings of more than $60 million, the majority of which has already been actioned. We continue to expand this program to further optimize operations and increase efficiency.

We were also engaged in a comprehensive review of our end-to-end claims processes. We have identified and are executing on some early opportunities to reduce loss costs. Brad and Matt will provide more detail on the actions we are taking, which will protect and advance our competitive advantages, enhance profitability, enable growth and ultimately create value for our shareholders. Brad, over to you.

Thank you, Tom, and good afternoon, everyone. Let me start with a clear perspective on our performance this quarter. While results did not meet expectations, the shortfall was driven by two specific issues. Outside of these, the broader business is performing well. I'll walk through those items, what we're doing to address them and what's working well.

I'll begin on Slide 5 with personal auto. Performance this quarter was primarily impacted by elevated loss costs in California and statutory premium refunds in Florida. In California, the environment remains our most significant headwind. The increase in minimum liability limits effective January 1, 2025, has led to greater attorney involvement in claims and higher loss costs. This trend has developed over several quarters, and we are addressing it through rate and non-rate actions, along with targeted claims process improvements.

In Florida, the 2023 tort reform has materially improved PIP coverage performance. As a result, profitability exceeded regulatory thresholds for the most recent rolling 3-year periods. Subsequently, we increased our policyholder premium refund liability for accident years 2023 through 2025 and established a new liability for 2024 through 2026, reflecting our current loss expectations. We are taking actions to improve personal auto performance in California and outside of that market, results remain solid. In Florida and Texas, two key personal auto growth states, policies in force increased 4.9% sequentially with an underlying combined ratio of 93.7%, reflecting continued growth and attractive returns.

In Commercial Auto, performance remained strong. We achieved record production and exceeded $1 billion in trailing 12-month written premium for the first time. Policies in force increased 3.2% sequentially and 10% year-over-year with a strong underlying combined ratio of 92.4%. In Life, results were stable with operating income of $18 million, supported by lower expenses and favorable mortality and lapse experience. From an investment perspective, net investment income was $107 million, up $4 million sequentially, primarily reflecting stronger alternative investment performance. In total, we reported a GAAP net loss of $1.7 million or $0.03 per share. Adjusted consolidated net operating income was $12.5 million or $0.21 per share. Excluding the impact of Florida refunds, adjusted net operating income was $34.6 million or $0.59 per share.

Turning to Slide 6. Over the past several quarters, we have taken and continue to take actions to improve profitability, reduce earnings volatility and support growth. Our focus is on 3 areas: restoring personal auto margins, diversifying outside of California and reducing expenses. To improve margins, we have implemented non-rate actions and filed for rate in California. We received approval for a 6.9% rate increase on 2/3 of the book effective April 6. The remaining 1/3 of the book has received approval for a 3% increase effective early June. We expect initial benefits in the second quarter with a more meaningful impact in the second half of the year. We are also advancing portfolio diversification.

Our new personal auto product has been expanded into Florida and approved in Texas. This product will improve alignment between rate and risk, helping support growth. At the same time, we are reallocating new business towards more profitable markets and reducing exposure in underperforming states, particularly California. On expenses, we continue executing our restructuring program. We've identified approximately $60 million in run rate savings with additional opportunities under evaluation.

Moving to Slide 7. This slide outlines our restructuring progress since the third quarter of 2025. I'm going to discuss this in two pieces, expenses and loss cost management. On expenses, we are focused on organizational design, process improvements and leveraging technology to increase scalability. We've identified $60 million in run rate savings and actioned to $50 million to date. Our medium-term goal is to reduce the Specialty Auto expense ratio to below 20% from approximately 22% today.

Moving to loss costs. We see meaningful opportunity in claims efficiency. With 3/4 of premium allocated to losses in LAE, even modest improvements can drive significant value. We've engaged a third party to review our end-to-end claims processes, starting with third-party liability. While still early, we see clear opportunities to improve loss and LAE performance.

I'll now turn it over to Matt to discuss the Specialty P&C segment.

Good afternoon, and thanks, Brad. Let me start with a clear view of the quarter for the P&C segment on Slide 8. As Brad and Tom already mentioned, California Personal Auto was a distinct challenge in the quarter. While the impact was significant, the rest of the business contributed positively. Let me start with California. We continue to see elevated liability loss costs driven by broader legal system dynamics. We are taking tangible actions to address these challenges. We recognize the shift in these trends and moved decisively to bring pricing back in line with our long-term economic targets. Those rate actions are now approved and are beginning to earn in as we move through the year.

At the same time, our claim organization has continued to refine and enhance end-to-end processes, particularly targeting third-party claim management and attorney involvement. As a result, we are beginning to see favorable offsets with modest reductions in liability severity. Importantly, we're seeing early signs that the California market is becoming more favorable with carriers across the industry both filing for rate and taking non-rate actions to restore profitability. So while California remains a headwind today, the combination of our internal actions and improving external conditions gives us increasing confidence in the path to recovery.

As we think about the broader portfolio, the key priority for us is geographic diversification, ensuring we are balancing the business across markets and reducing concentration risk while maintaining strong returns, as highlighted on Slide 9. That strategy is clearly coming through in Florida and Texas. The product tuning actions we took late last year are having the intended effect. We are seeing growth in policies in force and importantly, that growth is coming through at attractive profitability levels. These markets play an important role in rebalancing the portfolio, positioning us for more consistent performance over time.

Let me also briefly touch on Commercial Auto on Slide 10. This continues to be a bright spot in our Specialty business. We continue to demonstrate strong, consistent growth across multiple geographies while also achieving stable profitability. The business has delivered a combined ratio in the low 90s while growing at 23% annual rate since 2019, demonstrating both the quality of the book and the strength of our execution. Importantly, our Commercial Auto business, which offers specialized products for small businesses is becoming a larger contributor to the overall portfolio. Our approach is intentionally focused on targeting small business segments where we have both expertise and a competitive advantage. As this business continues to grow, it plays a meaningful role in further diversifying our Specialty Auto business, helping balance exposure across geographies and products.

Finally, let me touch on a few of the strategic investments we're making to support the next phase of performance. We're encouraged by the early progress of our new product, BVP, which stands for Basic Value Plus. BVP materially advances our pricing framework and builds on our investments in data and data science over the past several years, enabling more precise risk selection and matching of rate and underlying risk. This product enhances our ability to reach customers across our target markets. BVP has been in the Arizona and Oregon markets for over 9 months, and we've seen encouraging early results. We launched in Florida at the end of the first quarter, and we recently received approval in Texas with a rollout planned in the second quarter. While it's still early, we're gaining momentum and the indicators are aligning with our expectations. We believe this will be an important contributor as we scale and drive profitable growth over time.

We've also launched a series of new customer and agent self-service capabilities, including enhanced portals and digital tools. These investments are designed to improve the customer experience while also boosting operational efficiency, simplifying key service and claim interactions. Taken together, these initiatives support near-term performance while strengthening a more scalable, efficient and durable operating model for the business. Stepping back, while this quarter reflected concentration pressures driven primarily by California Personal Auto, many other parts of the business are performing well. We are taking decisive actions to improve performance. And while still early, the initial signs are encouraging. We are not where we want to be yet, but we are making real headway and believe the actions we are taking will enhance future financial performance.

Thank you. I'll now turn the call over to Chris to cover the Life business.

Thank you, Matt, and good afternoon, everyone. Turning to our Life Insurance segment on Slide 11. The Life segment delivered another quarter of solid performance, generating a reliable contribution to consolidated earnings. Earned premiums increased slightly year-over-year, and we ended the quarter with approximately $19.7 billion of in-force face value, reflecting consistent production and stable policyholder behavior. Adjusted net operating income was $18 million in the quarter, up slightly from the prior year period, supported by expense management and favorable mortality and lapse experience.

Last quarter, we updated our product portfolio and expanded distribution of our liability offering and results are tracking in line with expectations. Average face value per policy increased modestly. Average premium per policy issued rose approximately 7%, reflecting strength in pricing and business mix and our total revenues grew driven by earned premiums and net investment income. We are also modernizing our life distribution model to enhance agent productivity and better align incentives to drive new business growth and further improve persistency. In closing, the Life business continues to perform well and deliver consistent results to the overall portfolio.

I'll now turn the call back to Tom for closing comments.

Thanks, Chris. Before I provide closing remarks, I'd like to give a quick update on a couple of leadership items. Regarding the ongoing CEO search, the Board continues to make meaningful progress. There is strong interest in the role from highly qualified candidates who recognize the value of our brand and the significant opportunity that lies ahead for Kemper. We will provide an update when we have more to share. I'm also pleased to share that we have a new Chief Information Officer joining our executive team. Kelly Coomer joins us with a 25-year background in insurance technology leadership. We're excited to have her as we accelerate our technology strategy to support our key initiatives.

To close, we remain focused on returning the business to the level of performance we expect and know it can achieve. While this was a challenging quarter, we are taking decisive action to improve performance and strengthen execution across the business. We believe in our core businesses and the value we bring to our customers, and we are moving with deliberate speed and accountability to drive better outcomes. We look forward to providing updates on our progress in the quarters ahead. Thanks for your time today, and we will now take questions.

[Operator Instructions] And your first question comes from the line of Gregory Peters with Raymond James.

I guess for the first question, just focusing in on California. And the challenges that you're reporting there. And it's noted that you talked about the rate increases that you're going to start to implement this year. But it just doesn't seem like it's enough to get you down to the threshold of what your return targets look like. So I guess my question is, is there anything that you can do on the upfront risk selection to drive a better result in the California Auto? And related to that, I guess, are you anticipating filing for another round of rate increases anytime soon, considering where the profitability of the business is?

Greg, this is Matt. Great question. The short answer is yes. We have a bunch of obviously, rate actions that are going to market today. 2/3 of our book got rate implemented last month. We have the other 1/3 of our book is getting rate implemented next month. We have another set of filings out with the department already on the private passenger side to ensure that we're getting to the rate adequacy level, especially on the liability coverages, which is obviously where most of the noise is as it pertains to the FR changes, specifically in the minimum limits category. When you look at the rate action, the 6.9% that's filed, the reason we do that is, obviously, as we work with the Department of Insurance is we think it's an expeditious -- the most expeditious way to get to the rate need that we have. The impact of the rate varies dramatically by coverage.

So for example, if you dissect the April change that we put in place, although in aggregate, it's 6.9%, it's about 50 points on bodily injury. So it's textured in a way that's getting to the coverages rate adequacy, and that will accelerate the combined ratio as that mix works its way through. That's certainly on the rate side. We -- like I said, we have another filing that's out there today. We have likely a subsequent filing once the May filing goes effective, that will be released as well. So there'll be a total of, I believe, about 4 filings that we'll hope to get effective this year that will impact the PPA book of business.

On top of that, the other levers that we are pulling, we talked about the run-up in attorney activity and legal system abuse is impacting, obviously, bodily injury and PD severities. We're accelerating some claim efforts there that we're seeing early benefit that's offsetting the BI increases actually seeing BI severity come down that's working. And as Brad touched on, there's a series of expense actions that we have in place that will drive the combined ratio back down to targets as expeditiously as possible.

A quick comment on the California marketplace. We took action in the back half of last year. Our filings were released in the early part of this year. We are actually seeing early signs that competitors are taking action as well. We obviously interact with many of our peers on the claims side, business management side. We are seeing filings come in through the Department of Insurance, similar type rate needs in other categories. Obviously, the carriers that have been most impacted by the FR changes are the ones that operate in the minimum limits category. Obviously, our book in California is about 90% minimum limits. But we are seeing other carriers on the non-rate side take action and on the rate filing side take significant action as well.

As I'm watching the different parts of your business move and each state has its own rhythm, so to speak, I'm mindful that an important part of your business is your distribution relationships. And I'm just curious how they're responding, how your agent relationships are working when there's some volatility around how you're pricing business and how your competitors are behaving. And just wondering if you're experiencing any shift in how your product is being distributed considering the challenges you've had over the last year.

Yes. So our agent relationships, we have long-tenured relationships with many of our partner agents. We're very transparent with them in terms of what we're seeing in the marketplace, where our costs are headed. And we have sort of a good back and forth in terms of how we navigate some of these cycles, and there's been quite a few cycles in our business over the last few years. With that said, we are making pretty significant investments and enhancing capabilities with our agent distribution partners. We've launched a series of new agent interaction portals on both the new and the renewal side, which is helpful for agents as they're navigating. We are launching new products. Obviously, we mentioned the BVP product. Those are all positive signs to our agents as we continue to sort of stay committed in the marketplaces we're open for business, specifically California, Florida, Texas, Arizona, Oregon, Colorado, right? We continue to maintain a presence in the marketplaces we play in, and we're not seeing any negative impact on the distribution relationship side.

We actually have a pretty significant queue of agencies that want appointments from us. So we are working that thoughtfully. Obviously, when we think about expansion, it is profitable expansion. We're trying to get our combined ratios back in line with our targets, and then we'll thoughtfully grow policies in force. But we do have a queue of agents that want access to our products.

Just a clarification. When we talk about distribution, there's the Specialty Auto business and then the Commercial Auto business. Is it oftentimes the same agent that's producing business for both types of products?

Yes. There's significant overlap between our two businesses. Our commercial business is very much so a draft strategy to our personal lines business. So the individual risk that we insure on the personal line side, on the commercial line side, we insure they're small businesses. And so most of our agents that are appointed with commercial, our commercial products already have a personal lines appointment. The customer base is very much so aligned.

And your next question comes from the line of Brian Meredith with UBS.

I guess first question, just curious, I'm looking at your Commercial Auto results, you continue to have adverse reserve development on there. Maybe you can talk to me a little bit about what's going on there? And how comfortable are you with the profitability given the development you've been having?

Brian, this is Brad. As you've seen over the last couple of quarters, we have had some adverse development in Commercial Auto, commercial vehicle. It's the same thing that we've been talking about. It's higher severity trends in bodily injury coverage. This isn't outside the range of normal expectations. When we think about the reserving range, you kind of reserve in the 50% to 55% range, half the time you're going to be higher, half the time you're going to be lower. Just given the trends and what we're seeing, particularly in California, a little bit of an adverse this quarter, improving from last quarters. And it continues to be on older accident years, particularly in accident years '22 and '23. now that we're roughly 3.5, 4 years away from those vintages, most of those accident years now and claims are fully developed. So a pretty good feeling of where we stand today from a reserving standpoint and nothing new there from what we said in the previous quarters.

Got you. And then second question, just could you comment a little bit about the capital situation? I noticed you're now down to a 225% RBC ratio. You've only got $80 million of holdco liquidity. Anything to think about there? It seems like it's lower than it's been in several years.

It's within the normal range, Brian. It's a little bit lower on a quarter-over-quarter basis. It's a little bit lower than where it was last year. We still have plenty of flexibility from a liquidity standpoint, $750 million, $100 million of liquidity. The capital from an RBC standpoint, that's looking at each legal entity. So I remind you that, that's not reflective of the entire ecosystem capital. So that's just the P&C entities there and the Life entities. We do have capital throughout the ecosystem at the holdco and elsewhere. So nothing to worry about. It's within our range of 225% to 300%, which we've been operating in for some time now. And our expectation is that we continue to improve our results and grow from here.

Great. And just one other just quick follow-up question here. The technology initiatives you're doing, is any of that on pricing and underwriting? Or is it all more agency and process productivity?

So we've made on the technology initiatives, we've made a significant investment in our data infrastructure, our products, obviously manifesting ultimately with a new set of products in the marketplace. We've launched a series of new digital capabilities for both our agents and our customers that will drive efficiency, not only from a customer experience and agent experience, but also from an expense efficiency perspective. So very much so targeted on those two in-market capabilities. I don't know, Brad, do you want to add any context?

And then Brian, and then also just investments across the organization on process improvements and making things make it work easier day-to-day for our individuals so that we have more time doing less of the blocking and tackling and more time analyzing so we can see around the corner. So we're seeing some scalability and efficiencies there. We've also moved almost our entire infrastructure to the cloud. So that's been very helpful with security and other things as well as app dev changes, et cetera.

There are no further questions at this time. I will now turn the call back over to Tom Evans for closing remarks. Tom?

Thank you, and thanks again to everyone for joining us today and for your continued interest in Kemper. As we noted, we remain focused on executing against our priorities, improving performance and positioning the company for success. As always, we appreciate your time and support, and we look forward to updating you on our progress next quarter. Stay well.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, everyone. Day 2 here at the Raymond James Institutional Investors Conference. And this is my side office. This is where I sat all day yesterday, and I'm here again today. So thank you, everyone, for being with us this morning. A bunch of insurance companies and insurance brokers here over the 3 days. And one of the companies that's been a very loyal and long-standing participant of our conference has been Kemper Corporation. And it's been an interesting journey to say the least. Lots of challenges in the auto insurance market over the last 5 years. And Kemper has had both successes and some challenges as well.

So this morning is supposed to be set up as a, I guess, a fireside chat minus the fireside. But in the 28 minutes and 38 seconds we have left, I thought what I'd do is have Tom, who's serving as Interim CEO, provide a couple of minutes summary of the state of the union as it relates to Kemper, where you were at the end of last year and what the outlook is as it currently stands. And then 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. So go for it.

Sure. Good morning, everybody, and thanks, Greg. Just a little bit of background on myself. I've been with the company. It will 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. So 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 picked up. These days, we're really focused intently on our 2 core businesses, which are the auto business, nonstandard auto with a very significant piece of that, that is commercial, smaller fleets and then our Life business. As you said, Greg, the last 5 years have had some challenges, some really good moments. 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.

Looking -- going forward, as we look at '26 and '27, what we're really going to be focusing on are those 2 core businesses, operating them with greater efficiency and 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, replatformed a lot of stuff. Now it's the time for us to take advantage of some of those investments and really see what they can do for the businesses. So the couple that are still in flight, we're going to -- we want to get finished and then really use the next couple of years to maximize getting the benefit out of those efforts.

It makes sense. So thanks for that summary.

So let's start. Really it feels like our discussions 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. But let's, for the moment, focus on California. So stepping back, there were some changes in what the minimum limit liability profile looked like for the state. So walk us through the history of what it used to be, what the changes are, were and how it's affected your business in that state?

Yes. And 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 what a huge state it is and how important the auto insurance market is there, they were -- they were 1 of 4 states that had extremely low limits. So in 2020 -- late 2023, the legislature adopted a new bill requiring that the limits be increased effective January 1. They doubled for 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 is going to 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. We're taking rate there. 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. So the impact for us there, I think, was exaggerated compared to some other carriers. So we're fine-tuning. We're taking rate there. It's had a significant impact in the BI losses that we're incurring. One of the things that people knew was likely to happen when the limits were coming in is that it's generated more lawyer attention. There's more money on the table, so that just draws a lot of personal injury lawyers.

Have you seen -- do you have something to add, Brad?

He said I'm the numbers guy, right? So maybe I'll add some numbers and some context to Tom's comments here. As Tom mentioned, 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. And so when you double and triple those minimum limits, that's a big change. And as Tom said, we're working through those adjustments today. When you think about our performance over the last 6, 8 months, you've seen our combined ratio creep up. That's been driven solely by California. California loss ratio has gone up about 15, 16 points in the back half of '25. And 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. Right now, when a claim comes in, and those coverages, almost 80% are coming with attorney attachments Attorney attached or attorney rep to claim is 3.5 to 4x more expensive than a non-rep claim. And so we're making adjustments there to get that right. Additionally, we're taking rate. We talked about last quarter that we filed for rates in California, a 6.9 percentage increase. But we look at that at the headline, 6.9% doesn't seem very much with the adjustments of the underlying coverages, you get north of 40% in the liability coverages and your metals coverages are coming down. So we're happy to announce that, that rate was approved and will be effective in the market here in about a month.

That's great news. So on the 6.9% rate increase that's been approved, is that -- I feel like the combined ratio is running even with that would still be a little bit above your target. Does that mean there's going to be another rate filing that's going to follow after this becomes effective? Or do you think through policyholder adjustments, you can get back to the levels of profitability that you're looking for?

We'll do what's actuarially justified 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? And so we'll do -- we'll get rate as we need. But we really need to focus in our processes, looking at claims and mitigating those claims at a lower severity. So 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. And so 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. So that's great. So well, that's great news about the rate increase for you in California. It seems like -- I don't want to get too far in front here, but it feels like the insurance commissioner and the insurance department 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...

Yes, Greg, I would say that's accurate. I think 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 3 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. It used to be a painfully slow process, and it has gotten better, definitely.

Yes. Well, thankfully, you don't have wildfire exposure and not writing property insurance in California because that would just be another...

Very grateful for that.

Another source of concern for investors. But let's just stick on California for a second because 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? Because I feel that the liability profile of those type of policies is a little bit larger, too. So 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 just as attorneys are helping claimants with more innovative treatments and they're trying to move closer to that limit, whether that's $500,000, $750,000 or even in some cases, $1 million. And they're taking longer to settle.

And so as they go through this process with the latent development, you continue to see increase in severity, but no real change there. And obviously, we've had some adverse prior development the last year or so. And that's been predominantly in accident years 2023 and prior. We changed our reserving practice in '23, and we're happy and pleased with those results for accident years '24 and '25. But you saw in '23 and prior some, we call large losses. Our large loss is defined as anything greater than $250,000. It's a low frequency, high severity event, and those have developed more adverse than we anticipated and taking longer to settle. And so we've made those adjustments. Our hope is we've captured most of that. Given that the counts are down significantly, we worked through a lot of that inventory. My expectation is that adverse development has diminished as we go forward.

So we'll see when those statutories are out here, and they're probably out right now. We're just waiting for S&P to come through with them, but we'll see claim -- total claim counts come down a little bit in...

Specifically in large losses.

In large losses. Excellent. That's great news. 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?

My expectation is the commercial vehicle continues to grow. It's grown fairly significantly over the last 3 to 5 years. We're almost at $1 billion. So it's grown...

That's the overall book...

The overall book. California is about 50% of that book. So pricing looks very solid. The market is still very strong from an insurance underwriting standpoint in California for the CV market. So I expect it to continue to grow and deliver low 90s combined ratio performance.

That's excellent. And when it comes to the -- just the -- if you get to -- 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 nonstandard book? Because I feel like there might be a different process, maybe it's a little easier or not. I don't know...

You're right. It is easier, and there's a lot more latitude within the commercial space. So we're able to get rate as needed more quickly.

Excellent. Excellent. Just closing out on just the California piece because, 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 a good position. Is there anything going on underneath, from the expression underneath the hood from a claims perspective that you want to call out that might cause some adjustments this year? Or do you think that 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?

Yes. 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 losses we were experiencing. So we've got members, more experienced claims people and some of our legal team getting involved earlier, making some adjustments in some of the claims practices. Additionally, as I think you probably know, we have a new Chief Claims Officer as of the fourth quarter, Andy Ramomoorthy. And 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.

Yes. Makes sense. And 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 in this year is AI and the evolution of ChatGPT, Claude. It's rippling through its potential effects on other areas inside the insurance universe and broadly -- more broadly speaking. So I feel like there's some opportunity for you guys to deploy some of that to help specifically in California with attorney rep rates and all that stuff, but maybe also across your entire book?

Yes. We're -- we have been -- so this is not anything new for the last 5 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 that have been very helpful. So it's helping with workflow automation. It's helping with -- claim resolution is helping to predict future costs and what medical care treatment should cost or what federal should cost. So we continue to evolve that with our innovation group, and we like what we see. It's -- I still think 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.

Yes. The innovations are coming so fast that the opportunities to improve processes are just accelerating. The one thing you want to be a little bit careful is making sure you're putting your bets in the right technology. So 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 of 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. But I agree, it's got a lot of promise. We'll continue to roll things out as we get comfortable that the investment is worth it and that the technology works for us.

Yes. 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. So I want to -- we got to talk about Florida. We got to talk about other markets. We got to talk about Texas. So 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 that's curbed the trial bar. So talk to us about your experience in your nonstandard auto book, first and foremost, because inside Florida, and then we can pivot to CV if appropriate.

Sure. The tort changes that were adopted 3 years ago this month, as you said, really have changed the market here a lot. And 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. But it's really put a major dent in the litigation industry here. I noticed there's still no shortage of billboards in the state, pushing by the trial bar. But yes, I think it's been an interesting lesson that you hope other states will take note of. And 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 to be like, look, you want to help your citizens here and reduce their rates. These are the kind of things that really make a difference.

So for us, we saw a significant drop in litigation. There was a huge wave of suits filed in '23 right when the bill was about to get enacted. But there's been a dramatic drop off since, and it's been great. The market here has gotten more competitive, and that has its pluses and minuses for us. You're seeing carriers come back into the state that we're avoiding it for a number of years just because the climate had been so bad.

Yes. And our goal is to grow everywhere in our core markets, California, Florida and Texas. Our expectation is we'll grow faster in Florida relative to California, just given the size and scale and 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. And so 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. We've seen it now stabilize in the fourth quarter. It did come down a little bit with 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. So we're liking what we're seeing from a results standpoint there with the actions taken in Florida. We think it's a great market to grow in, and we expect to grow more.

Excellent. Well, as a consumer and residential Florida, yes, the rates have been coming down both in Auto and the Homeowners side. So it's a welcome change. It's nice to see that legislation can have a positive effect. So let's spend a minute or 2 on Texas, too. Again, each state has its sort of own ecosystem, but maybe talk about conditions for your company in nonstandard auto in Texas.

Good. Well, I was just going to say the Texas market is unique in that it's so fragmented. There are so many carriers down there. Right now, I would say we're having some slight growth there. We're looking for additional geographies in the state that we could expand into. 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 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 the early second quarter. But any time you have a new product, it takes a little while to fine-tune it. But we believe that the Texas market is a very attractive one. It lines up well with our -- the demographic we pursue. So we see that as, as Brad said, another growth state for us.

And the -- I know we've been -- I've been focused on the nonstandard auto piece. Commercial Auto 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 Florida, Texas and Florida continues to grow, and we like the results. We'll continue to invest in that segment. And we believe in the team, we believe we'll continue to deliver.

Yes. For everyone listening in and here, it's remarkable, as I'm sitting here listening to you talk, it's remarkable how at the start of the inflation wave that happened in '22 and '23 that your company was viewed as a forward-looking company that saw some of these trends before the rest of the market did, and it was a testament to some of the insights you had in your specific businesses. So it feels like the company should be able to turn the corner, especially now that you have the rate increase approved in California. We have just a couple of minutes left. I think a good point here would be to pivot to like the financials -- and as investors look at the results, the expected results for '26, what are the right sort of performance metrics that we should be considering and evaluating the performance of the company versus the rest of the market, let's just take your company by itself and how should we -- what would a successful year look like for Kemper in '26 and give us some benchmarks that we can use.

Yes. We went over this in the fourth quarter call. I think, first and foremost, one of our goals is to reduce earnings volatility. Our personal auto business is our largest book of business with 70% roughly in California. So we articulated that we're trying to grow everywhere, but also grow faster in states outside of California. So looking at growth and diversity out away from California to provide more stability. So I'd be looking one at our growth, where we're growing and then ultimately, how that book of business is performing and how the combined ratio is improving. The combined ratio in both Florida and Texas, we're making an underwriting profit. California is seeing some pressure due to the BI severity trends that we talked about. We'll see that rate come in here in about a month and earn in. And getting that book back to profitability and performing will be crucial for the success of the business. So PIF growth, diversification, and the -- ultimately, the underlying performance of the book of business in the combined ratio or the loss ratio.

The other thing I would focus on, and Tom talked about this earlier, is our efficiencies. And so not that long ago, we had an expense ratio in the high teens. Our expense ratio, 21.3%, 21.5% right now. Our goal is to bring it down by a couple of points, and that will do a few things. One, it will help us be more profitable. Two, it will help us be more competitive in the marketplace. By taking out expenses, we can reduce prices and grow a little bit more effectively. So just those handful of things right now, I think, are most critical.

Excellent. I think appropriate finishing spot would -- and we didn't talk about the Life business, but capital. And I know the Life business does provide you some diversification benefits from the standpoint of capital. But can you talk to us where the company's capital position is today, its attitude towards excess capital, and you can wrap in a discussion on the Life business, if appropriate.

Yes. I think from a capital and liquidity standpoint, we have a strong capital position. We have strong liquidity position. Moody's came out and reaffirmed our rating yesterday, low BBB- or Baa3. So 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. So 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 it's worthwhile from a return on investment standpoint to invest in the commercial vehicle business, which is growing, which requires a little bit more capital than the personal business. And then investing some of that capital in strong states like Florida and Texas.

Makes sense. And so I didn't ask the question, and I know you're not going to use this format to make an announcement. But probably worthwhile just closing out, just give us an update on the CEO search process. I know we talked a little bit about beforehand, but maybe just for the benefit of everyone listening, you could just give us some updated perspectives there.

Sure. Our Board of Directors has a search committee. They've got a slate of candidates that they're in the process of interviewing. These things usually take anywhere from 6 to 9 months. And I don't have any reason to think that, that time line will be much different here. I do know our Board has some specific things they're looking for, and they're going to be very deliberate about making sure they find the right person to take us through the next chapter.

Great. Well, so we've hit the 30-minute mark. And so for everyone here, there's going to be a breakout session that follows, and that's going to be down in Cordova 6.

So we thank everyone for being here this morning and 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. And everyone, have a great morning.

Thanks for having us. Appreciate everyone's time.

Yes. Thank you, Greg.

Good afternoon, ladies and gentlemen, and welcome to Kemper's Fourth Quarter 2025 Earnings Conference Call. My name is John, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to introduce your host for today's conference call, Michael Marinaccio, Kemper's Vice President of Corporate Development and Investor Relations. Mr. Marinaccio, you may begin.

Thank you. Good afternoon, everyone, and welcome to Kemper's discussion of our fourth quarter 2025 results. This afternoon, you'll hear from Tom Evans, Kemper's Interim CEO; Brad Camden, Kemper's Executive Vice President and Chief Financial Officer; Matt Hunton, Kemper's Executive Vice President and President of Kemper Auto; and Chris Flint, Kemper's Executive Vice President and President of Kemper Life. We'll make a few opening remarks to provide context around our fourth quarter results, followed by a Q&A session. During the interactive portion of the call, our presenters will be joined by John Boschelli, Kemper's 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. We intend to file our Form 10-K with the SEC in the coming days. You can find these documents in the Investors section of our website, kemper.com. Our discussion today may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, the company's outlook on its future results of operation and financial condition. Our future results and financial condition may differ materially from these statements. For information on additional risks that may impact these forward-looking statements, please refer to our Form 10-K and our fourth quarter earnings release.

This afternoon's discussion also includes non-GAAP financial measures we believe are meaningful to investors. In our financial supplement, earnings presentation and earnings release, we've defined and reconciled all non-GAAP financial measures to GAAP where required in accordance with SEC rules. You can find each of these documents in the Investors section of our website, kemper.com. All comparative references will be to the corresponding 2024 period unless otherwise stated. I'll now turn the call over to Tom.

Thank you, Michael, and good afternoon, everyone. I'll start with a simple appraisal. Our results this quarter did not meet expectations. We'll walk through the underlying drivers and the actions we're taking to improve the performance in our auto business and increase shareholder value. Before that, I want to offer some context on both the businesses and the operating environment we're presently navigating today. We're a specialty insurer focused on niche underserved markets. We are focused on these markets because they are attractive and there's a continuing need for our products. We know these markets and have the scale, experience and competitive advantages to succeed.

Our portfolio of specialty auto and life insurance businesses may address different customer needs, but both are managed with the same core principles: disciplined underwriting, risk management and long-term value creation. We have identified and are acting on a number of strategic and tactical priorities that will get us to target profitability with growth to follow. We'll discuss these priorities in more detail today. As we noted before, the specialty auto market is a fast-moving segment. Market shifts often appear in this segment before showing up in other parts of the auto insurance landscape. As an auto underwriter, one of the most important drivers of our long-term success is our ability to accurately predict loss costs and price our business appropriately.

This has been more challenging of late because of significant structural changes in key states in which we operate. For example, in California last year, minimum liability insurance limits for auto increased for the first time since 1967, with bodily injury limits doubling and property damage limits tripling. When markets are stable, predicting future costs is more straightforward. However, when changes of this magnitude occur, particularly against the backdrop of social inflation and legal system abuse, loss cost predictability becomes more difficult and complex. While we anticipated the need to adapt to the new requirements in California, the scale of the disruption exacerbated by elevated severity trends created pressure on our results over the past several quarters.

In Florida, our second largest market, the tort reforms enacted in 2023 have reduced loss costs and made the market more attractive for carriers and affordable for consumers. The result is a significantly more competitive marketplace. This improvement in loss costs led to our $35 million charge this quarter for refunds to personal auto customers under the state statutory profit limit rules. We view these refunds, which other carriers are also undertaking as clear evidence of the benefits of tort reform. We have a strong performing book in Florida, and we're making targeted rate adjustments there to be more competitive and support growth.

Away from Specialty Auto, I'd highlight that our life insurance business continues to deliver solid performance. This business provides stability and diversification within our overall portfolio, and Chris will provide additional detail shortly. While our auto business faces near-term challenges impacting our consolidated results, we're acting quickly and taking purposeful steps to improve financial performance. On Slide 5, we outline the priorities and actions underway to improve results, enhance operations and reduce earnings volatility through diversification. In particular, I'll note the recent restructuring initiatives, our focus to enhance claims processes and the introduction of new products to support the acceleration of geographic diversification.

Together, these actions will protect and advance our competitive advantages, drive growth, enhance profitability and ultimately create value for our shareholders. Our objective as a management team is continuous improvement that strengthens performance and positions the company for long-term success. Before turning it over to Brad, Matt and Chris, I'll provide a brief update on the CEO search. The Board search process is well underway, and they have developed a pipeline of highly qualified candidates with the help of a leading independent executive search firm. The Board is actively evaluating those candidates with deliberate speed as the Board focuses on identifying the right leader for Kemper's next phase. Thank you. And with that, I'll turn it over to Brad.

Thank you, Tom. Good afternoon, everyone. Before discussing the quarter, I want to expand on what Tom just shared. At a high level, the primary goals of our initiatives are threefold: first, to restore and improve profitability in our Specialty Auto business; second, to reduce earnings volatility through portfolio and geographic diversification; and third, to improve execution and operating efficiency by simplifying operations and capturing meaningful expense savings through restructuring and cost discipline. Taken together, these initiatives are designed to strengthen near-term performance while positioning the business for more consistent profitable growth.

With that context, I'll now walk through our quarterly results. I'll begin on Slide 6. For the quarter, we reported net loss of $8 million or $0.13 per share and adjusted consolidated net operating income of $14.6 million or $0.25 per share. These results produced a negative 1.2% return on equity and year-over-year book value per share growth of 4.6%. Despite these results, our trailing 12-month operating cash flow remained strong at $585 million. In our P&C segment, the underlying combined ratio increased 5.4 points sequentially to 105%, driven by elevated bodily injury claim severity in California and statutory refunds in Florida. Excluding the impact of refunds, the underlying combined ratio was 101.2%. The statutory refunds reflect improved loss cost experienced following Florida's 2023 tort reform.

Policies in force and written premium declined 7.3% and 9.3% year-over-year, respectively. This decline reflects typical fourth quarter seasonality as well as non-rate actions to moderate new business writings in certain markets. Our Life business delivered solid results, driven by disciplined expense management. This business continues to provide stable contribution to earnings and cash flow. And lastly, our balance sheet continues to provide flexibility to support organic growth initiatives and strategic investments.

Turning to Slide 7. This slide provides additional detail on the drivers of our quarterly results. We recorded a $15.5 million charge related to restructuring, integration and other costs. A portion of this relates to the restructuring initiative announced last quarter, bringing the cumulative annualized run rate savings to approximately $33 million, up $3 million from last quarter. This initiative is building momentum, and we expect to realize additional savings over time. Also included in this charge is a valuation adjustment for a tax credit equity investment that reflects its updated fair market value.

This quarter, we also had two noteworthy items that impacted operating income, the Florida statutory refunds and reserve strengthening. The Florida statutory refunds were recognized as a reduction to earned premium and added 3.8 points to the Specialty auto underlying combined ratio. Excluding this item, the underlying combined ratio was 101.2%. Finally, we strengthened loss reserves within Specialty Auto, primarily in commercial auto, reflecting updated loss experience related to bodily injury severity and defense costs, primarily stemming from accident years 2023 and prior.

Turning to Slide 8. Our balance sheet provides financial flexibility. At quarter end, we maintained over $1 billion in available liquidity, and our insurance subsidiaries remained well capitalized. Over the past year, our operating cash flow enabled the retirement of $450 million in debt and the repurchase of approximately $300 million of common stock. As a result, our debt-to-capital ratio improved by 6.4 points to 24.6%, modestly above our long-term target of 22%.

Moving to Slide 9. Our quarterly net investment income totaled $103 million, down $2 million sequentially due to lower returns within alternative investments. Our core portfolio comprised of high-quality investments continues to generate stable and gradually increasing net investment income. This income will continue to support our businesses. Overall, we maintain a high-quality, well-diversified investment portfolio supported by thoughtful asset allocation and prudent risk management.

Next, on Slide 10. Here, we provide an update on our January 1, 2026, reinsurance renewal. Our catastrophe excess of loss program is a 1-year structure that provides 95% coverage for losses in excess of $50 million, up to $160 million. The total limit is $15 million lower than last year, reflecting the continued reduction in total insured value due to the wind down of our preferred business. This program structure is appropriate and reflects our exposure profile. The key takeaway is that our catastrophe exposure is meaningfully lower than it was several years ago.

In summary, fourth quarter results reflect near-term pressure in Specialty Auto from elevated claims severity and Florida statutory refunds, and we are taking deliberate actions to improve results. We continue to maintain a well-capitalized and liquid balance sheet and are executing expense initiatives to enhance profitability. Our Life business delivered stable results, core portfolio investment income is positioned to benefit from higher reinvestment yields and our reinsurance program remains aligned with our current risk profile. I'll now turn it over to Matt to discuss the Specialty P&C segment.

Thank you, Brad, and good afternoon, everyone. Turning to Slide 11. Adjusted for Florida statutory refunds, the Specialty P&C segment produced an underlying combined ratio of 101%, while personal auto produced a 105 and commercial remained relatively stable at 90%. Personal auto loss performance continues to be adversely impacted by bodily injury severity trends. This trend is particularly pronounced in California. As Tom mentioned, the recent doubling of state minimum limits is driving a structural change in BI costs. In response, we have taken decisive non-rate actions, resulting in the slowing of new business in the state. We are actively working with the California Department of Insurance on rate filings to address this liability rate need.

In addition to underwriting and pricing actions, we continue to enhance our claims management processes. Over the last few years, we focused our efforts primarily on material damage management, which has been instrumental in offsetting the cost pressures of rising tariffs. More recently, our focus has shifted to third-party liability management. By leveraging advanced analytics and AI-enabled workflows, we are more quickly and accurately assessing claims, getting them in front of the right skill sets and driving resolution. Our efforts are beginning to reduce excess attorney involvement and mitigate costs associated with legal system abuse. The result is lower optimal claim settlement cost and an improved customer experience.

A high priority for the PPA business is achieving a more geographically balanced book. A more balanced portfolio will enable us to more effectively navigate market cycles, better manage state-specific dynamics and reduce underwriting income volatility. Over the last few years, the concentration of our PPA business in California has increased, primarily driven by the post-COVID hard market in that state. This can be seen on Slide 12. This slide is intended to provide transparency into our current position and the direction we are taking. Over time, our book should reflect a composition more aligned with our target customer base with greater than 50% residing in non-California states. While California will always be our largest market, we are looking to accelerate profitable growth in other states.

Accordingly, the restructuring initiative we mentioned is designed to lower our expense ratio and enhance overall price competitiveness. Additionally, we are in the process of launching a new personal auto product in our non-California states. This new product includes modernized contracts, more sophisticated pricing and a seamless agent quoting experience. The primary goal of this new product is to improve competitiveness across the portfolio through better rate to risk matching. We have been piloting this product in Arizona and Oregon with early production and segmentation results meeting our expectations. We are currently in advanced discussions with the Florida and Texas Departments of Insurance with the goal of the product going live in both states within the next few quarters.

Together, a lower expense ratio and enhanced pricing precision is expected to support profitable growth in our non-California markets. In commercial auto, underlying margins remained strong while producing double-digit policy growth. We continue to be optimistic about the profitable expansion of this business. We have a series of differentiating competitive advantages that have driven consistent and predictable results. With that said, we are opportunistically increasing rates where justified with a specific focus on addressing liability cost increases. Overall, this business remains well positioned, and we are confident in our ability to profitably grow.

In conclusion, we are focused on restoring California profitability and building a more diversified personal auto portfolio. We remain committed to our target market segments, disciplined execution and continuous improvement of our existing capabilities to drive consistent value over time. I'll now turn the call over to Chris to cover the Life business.

Thank you, Matt, and good afternoon, everyone. Turning to our Life Insurance segment on Slide 13. The Life segment continues to deliver a consistent return on capital and reliable distributable cash flow. Earned premiums were stable year-over-year, and we finished the quarter with the face value of our in-force business at approximately $19.6 billion. Adjusted net operating income was $20 million in the quarter, driven by ongoing expense management. Importantly, we continue to experience favorable policy economics. Our average face value per policy increased modestly, while our average premium per policy issued rose 6%. To support continued growth and increased cash flow over time, we successfully launched an updated product portfolio and expanded the distribution of our liability offering.

In closing, the Life business is performing well and continues to provide stable and consistent results to the overall portfolio. I'll now turn the call back to Tom to cover closing comments. Tom?

Thanks, Chris. To wrap things up, we know our results this quarter weren't where we want them to be. We believe in our businesses and in the markets we serve, and we are confident in our capabilities and competitive advantages to be successful. We're focused on executing the actions we've laid out today. This work takes discipline, and we're committed to making the improvements necessary to deliver stronger, more consistent performance. Before we close, I want to thank our colleagues throughout the organization for their hard work and commitment. They show up every day for our customers to deliver on our promises. Thanks for your time today, and we will now take questions.

[Operator Instructions] Your first question comes from the line of Brian Meredith from UBS.

A couple of them here. First, I'm wondering if you could tell us what the profitability kind of breakdown is between California and then Florida, Texas. Just to get a sense of what the profitability looks like in your non-problem state.

Brian, this is Matt. California combined ratio is about 105% around there. Florida sits in that target combined ratio in that 95% to 97% range as does Texas. The issue from a profitability perspective, as we highlighted in the prepared comments, is rate -- earned rate catching up to sort of the BI cost in California. So the PPA profit issues are driven predominantly by California. The other states are in pretty healthy standing.

Okay. That makes sense. And then I guess the next question, Matt is, why are you shrinking in the other states right now if your profitability is fine?

The profitability is in a good place from a pricing perspective. We -- in those markets, Brian, Florida and Texas specifically, they softened pretty dramatically last year, and we wanted to ensure in Florida specifically that the benefits of tort reform were durable. We didn't want to be too aggressive from a pricing perspective. That was one reason. The other is from a structure perspective, which we talked about last quarter, is we need to drive more expense efficiency to keep -- to get our products to a more competitive level. We did that partially. We took a step forward in those states in the fourth quarter, third and fourth quarter. We saw that our new business when we made those pricing adjustments took a meaningful pop in the direction that we want it to. We stabilized PIF in Florida. We're seeing sequential growth in Texas. And like we said in the prepared comments, we have a new product we're looking to launch sometime in the next quarter or 2, which should further accelerate our competitiveness. and ultimately, our PIF production.

Great. And then one more quick one, if I could. Commercial auto, I'm just curious, given the consistent adverse development you've been seeing, how comfortable are you with current year profitability and the fact that that's actually one area that's growing?

Yes. So current year profitability, I'll just take a step back for a second. The segments that we focus on, we stay away from the nuclear verdict segments, the long-haul trucking, the dirt sand gravel. We generally have a fair mix of limit profile that's evenly spread across large limit to small limit. Artisan contractors, landscapers, delivery, that's really where we focus. From an underlying perspective, we feel confident that we're getting the pricing and we have the rate adequacy. That said, again, in the prepared comments, we are appropriately opportunistic in terms of strengthening our rate position, specifically on BI, where we can justify it. So we feel good about our adequacy. Underlying performance has remained very consistent there, and we continue to opportunistically take rate where we can support it.

Your next question comes from the line of Andrew Kligerman from TD Cowen.

I need a little help with kind of a road map, if you will, in personal auto. So if you're starting with 110 underlying combined ratio. And then maybe I could take off the table 4 points from the Florida refund. So then I'm at 106. And then I think Brad mentioned some seasonality. So maybe there's another point or two. So I want to make sure, a, am I at the right starting point of like maybe more normalized at 105? B, given 70% of the book is in California, how soon can you get that fixed? How can you get California to that kind of targeted 95-ish that you're seeing in Florida and Texas? And with that, we saw a PIF decrease of 7%. I was kind of surprised premium dropped more than that at 9-plus percent. So bottom line, how soon can you get to normal on that combined ratio? And what's likely to happen with PIF? Should we see more quarters like the one we just saw with PIF down 7%?

So this is Matt again. Thanks for the question. I just want to first comment on the rate activity in California. So we saw severity pop higher than what we had initially priced to in our FR filing. Immediately, we took new business non-rate actions and underwriting actions to make sure we weren't putting unprofitable business onto the books. We filed with the Department of Insurance for a 6.9% rate increase. That said, the filing hits bodily injury much more significantly than that. We had redundancy on our metal coverages. And so we're hitting bodily injury pretty heavily north of 40 points of rate that we're looking to get approved. We believe we're in the final stages of approval. We have good back-and-forth dialogue. We had a conversation with the department even this morning talking about that. We will hope to get that effective as soon as we can. And 100% of our policies in California are 6-month policies. And so rate will earn in over a 12-month period and will accelerate over that time to the file levels that we're hoping to get effective ASAP.

And Andrew, this is Brad. I know you're looking at doing your modeling. You're starting off at the right point, the 105-ish combined ratio on the personal auto business. When you think about what Matt is talking about, some of it is in our control and some of it's not. We can respond very quickly to the regulator. We can work through the process with them as effectively as we can, but we're waiting for that approval. As we wait for that approval, we still have severity trends each quarter. So if you have a 6-point severity trend year-over-year or an 8-point severity trend, you pick it. You've got some headwinds until we get that rate approved and it becomes effective in the marketplace and then it's earned in. So it will be some time before you start marching back towards that mid-90s combined ratio. It's highly predicated on getting that rate, one; and two, how we're managing the claims process related to the liability coverages. There, as we've talked about in the past, it's all BI and loss costs are ballooning mainly due to higher attorney attachment rates and higher claims selling at limit. And so we're working on that process. It's very sensitive. As you know, a rep claim is 4 or 5x more expensive than an unrep claim. And so we're working through that process, enhance that as well as working on our underwriting to mitigate frequency to bring down overall loss cost.

That was very helpful. And with that, just kind of part of that question was PIF decline. It feels like PIF will need to decline or continue to decline until you actually do get those rates approved. And then maybe when you get them approved, you won't be as competitive, so maybe PIF will continue to decline. So I just wanted to kind of clarify on that part of the question. Was -- am I thinking about that the right way?

You're generally thinking about it the right way, Andrew. We anticipate further declines in California, and we expect some growth both in Florida and Texas, given some of the reinvestment we've made in that -- in those states. And later in the -- maybe in the first half of the year, second quarter-ish, we'll launch a new product there that will become effective to help, as Matt said, with competitiveness. That is in late-stage negotiations with those regulators. But I wouldn't expect in the first quarter to see California be growing. I'd expect to see some additional growth in Florida as we've seen some stability there in Florida at the end of the year, and we saw actually sequential growth in Texas on a quarter-over-quarter basis.

And then just the last question. The commercial auto prior year development, the adverse development of 3.8 points. I believe it started to become adverse like 6, 7 quarters ago. So the question for you, and I know Brian had kind of touched on it just before me, but it seemed like last quarter, you'd kind of finally gotten your arms around it. But what -- just to kind of come back at it a little differently, like what's different this time that would make you feel confident that there won't be another adverse PYD next quarter or the quarter after?

Great question, Andrew. Again, the adverse development is coming from large losses mainly stemming from accident years 2023 and prior. As we continue to move forward in time, there's less claims out there. And so the claim count now has come down as we've gone from accident years 2020 through 2023. So there's less count. I think we're in pretty good shape, but there's been -- obviously, adverse development is always a surprise because we're looking at reserving the best we can. My expectation though is I think we've got most of that. And when I think about accident year '24 and '25, as I mentioned previously, we changed our reserving practices for large losses in mid-'23. What I'm seeing develop in '24 and '25 actually looks favorable. So I think we got most of the development in '23 and prior and '24 and '25 looks significantly better than those other accident years.

Your next question comes from the line of Paul Newsome from Piper Sandler.

I was hoping you could talk a little bit about the Florida situation a little bit more with respect to the potential rate filings. If you had a -- obviously, you had extremely good profitability there. Did you need to lower rates further in response to that as well? So should we expect prospectively, a little bit lower profitability? If you need to reduce the run rate of your profitability? Or is that already sort of in the run rate now?

Great question. This is Matt. Like I said earlier, we wanted to ensure that the benefits of tort reform were durable. It's a stroke of the pen that things can reverse back on you. So we want to make sure they were durable. Additionally, once we saw that the performance was sticking, as we were looking to file rate in the marketplace, you have to with the OIR, the Department of Insurance there, justify decreases as well as increases, right, the same level of scrutiny. And so had we taken rates down dramatically this year, which, by the way, would have put noneconomical business on from a pricing perspective, yes, we could have mitigated a little bit of the refund, but we would have put a cohort of business on the books that was uneconomical, right? Because you had such good periods, performance periods over the 3-year waiting. And so we made the decision not to make that rate investment. It was a good trade economically for us. But as we march forward and we have the ability to support rate adjustments, which we are doing now, we're making those pricing changes, and we're driving the production that we feel good about on a vintage basis.

So I guess that -- to clarify that sort of mid-90s combined ratio you mentioned to Brian in Florida, that incorporates rates as we have them today or rates as they will be filed in the near future?

That does not include future rates. Those are -- that's performance as of today. Pricing is done on a prospective basis, which takes your current underlying performance and you roll that forward based on prospective trends, which you justify with the Department of Insurance and then you set your rates off of that prospective outlook.

That's really helpful. And then second question, I wanted to ask about cash flow and the liquidity situation. Obviously, you get the caps back down. There's obviously good levels of parent company levels. But I did notice that the RBC ratio for the property and casualty business ticked down during the quarter a bit, and it's not that far above the sort of 200 level. Do you anticipate putting more capital into the property casualty operation? Or is the thought that you'll shrink to make that RBC ratio go up? I guess I'm supposing to be wrong that a 230 RBC capital ratio is not your target.

Paul, this is Brad. Great question. When you look at that RBC information that's on the chart, that is a window into our legal entity point of view from a P&C and life standpoint. When you think about capital available for Kemper, it includes not only the holding company capital as well as the capital in our legal entities. So yes, the 230 is a little bit lower than we ran historically. It's not outside our normal ranges, but it is on the lower end of what we have been historically. But we still have plenty of capital and well above our buffers from a rating agency standpoint as well as a regulatory standpoint. At this time, I'm not planning on dropping more capital down there. I expect us to make money and to generate more capital in those legal entities over time to further rebuild that capital base.

Hope that helps. Your next question comes from the line of Mitch Rubin from Raymond James.

This is Mitch on for Greg. On the new personal auto products in Arizona and Oregon, can you provide some additional color on those competitive market dynamics and the time frame you would expect the decision for a broader rollout to be made?

Yes, great question. This is something we've had in the works for the last couple of years. Again, it's the first time in over a decade that Kemper is launching a new personal lines product. We piloted in Arizona and Oregon in the second quarter of 2025. And so we've empirically got to see how the product performs. We've tuned it a bit. We're seeing production in those environments are very competitive. We're seeing production lift right in line with where we would have expected it to. We're generally from a pricing perspective, in line with the levels that we want to be. The segmentation is working as expected in the spreading of risk. So we feel generally pretty good about it. That product has gotten us meaningfully more competitive in those marketplace, upwards of 30 points more competitive just through better segmentation. So that's working as intended, and we're looking to scale in those states.

The states that we currently have that we're working through approval processes are Florida and Texas. Florida, we've gotten some of the product approved. We're in the final stages of sort of the last bit of rubber stamping working with the department there. In Texas, we're working through contracts and forms right now. And we have great working relationships with those departments. The process is moving along really well. And as I mentioned, our intention is to roll out those products in Florida and Texas as soon as possible. Our goals in the next few quarters.

That's helpful. So my follow-up, with the debt-to-capital ratio coming down to 24.6%, can you provide us with an update on your capital allocation philosophy heading into 2026 and how you plan to balance additional paydown versus repurchases or increased dividends?

Sure. This is Brad. Our capital philosophy remains the same. First and foremost, make sure all of our legal entities have enough capital. Second, have enough capital to support organic growth. Third would be any inorganic acquisitions, which I will clearly say are not on the table at this point in time. And then third is to return cash to shareholders or pay down debt. It's always been that order. So there's no change in that. And as Matt indicated earlier, we're trying to grow in certain geographies, namely Florida, Texas and other non-California states, and we have enough capital to support that organic growth, and that's what we're focused on in the near term.

There are no further questions at this time. I will now turn the call over to Tom Evans. Please continue.

Thank you. We appreciate everybody's time today and your continued interest in Kemper, and we look forward to continuing the conversation with you when we release our first quarter results in 12 weeks or so. So take care, and thanks for your time.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Good afternoon, ladies and gentlemen, and welcome to Kemper's Third Quarter 2025 Earnings Conference Call. My name is Constantine and I will be your conference coordinator today. [Operator Instructions]. As a reminder, this conference is being recorded for replay purposes.

I would now like to introduce your host for today's conference call, Michael Marinaccio, Kemper's Vice President of Corporate Development and Investor Relations. Mr. Marinaccio, you may begin.

Good afternoon, everyone, and welcome to Kemper's discussion of our Third Quarter 2025 results. This afternoon, you'll hear from Tom Evans, Kemper's Interim CEO. And Brad Camden, Kemper's Executive Vice President and Chief Financial Officer; Matt Hunton, Kemper's Executive Vice President and President of Kemper Auto; and Chris Flint, Kemper's Executive Vice President and President of Kemper Life. .

We'll make a few opening remarks to provide context around our third quarter results followed by a Q&A session. During the interactive portion of the call, our presenters will be joined by John Boschelli, Kemper's Executive Vice President and Chief Investment Officer.

After the markets closed today, we issued our earnings release and filed our Form 10-Q with the SEC and published our earnings presentation and financial supplement. You can find these documents in the Investors section of our website, kemper.com. Our discussion today may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These statements include but are not limited to, the company's outlook on its future results of operation and financial condition. Actual future results and financial condition may differ materially from these statements. for information on additional risks that may impact these forward-looking statements, please refer to our 2024 Form 10-K and our third 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 non-GAAP financial measures to GAAP where required in accordance with SEC rules.

You can find each of these documents in the Investors section of our website, kemper.com. All comparative references will be to the corresponding 2024 period unless otherwise stated. I'll now turn the call over to Tom.

Thank you, Michael, and good afternoon, everyone. First, I'd like to begin by introducing myself. I'm Tom Evans. And as many of you know, 3 weeks ago, the Board of Directors asked me to step in as Kemper's Interim CEO. Over the past 33 years, I've had the privilege of serving in a variety of roles at Kemper, most recently as General Counsel.

During this time, I've gained a deep understanding of our business and just as importantly, our people. I believe strongly in this organization its purpose, its potential and the exceptional talent of our team. We are excited by a commitment to serving markets that are often overlooked by other carriers and I'm proud to be part of a company that embraces that responsibility with integrity and focus.

As you know, our Board has commenced a search to identify our next CEO, and I'm confident they'll find the right person to lead us to the next chapter of our story. We'll provide an update on the search when we have more information to share. Let's begin the substantive portion of this call with a straightforward comment. Our results this quarter were disappointing.

Today, we'll address what happened, why it happened and above all, what we're doing about it. Without question, we continue to believe strongly in both our strategy and our opportunities -- but it's clear our execution has fallen short at times. Some of the challenges we faced were driven by external conditions, but others were within our control.

We know that we need to be better operators to deliver the consistent results that investors expect and that we know we're capable of. To that end, the Board and leadership team have taken significant steps including recent changes in leadership and a restructuring initiative to improve execution and accountability and ensure that we deliver on our strategic priorities.

This isn't about changing our direction. It's about reinforcing the disciplines that drive performance. If we do those things, we can better leverage our scale and our capabilities to improve efficiency, broaden our reach across markets and deliver more stable, sustainable results.

With that, I'll now provide some context around the key drivers of our performance, and then Brad, Matt will provide more detail and commentary on each. We'll also get a quick update from Chris, who leads Kemper Life about what's going on in that business.

I'd like to start by discussing the broader specialty auto environment, which in 2025, has rapidly evolved. Historically, it's always been a more sensitive fast-moving segment with ships often appearing there before becoming visible on the broader auto insurance space. And that dynamic certainly held true this year.

One of the most notable developments here has been the sharp increase in competition particularly over the spring and summer. In several of our key markets, we've seen other carriers aggressively pursue market share through pricing tactics. While we're responding to these pressures, we won't abandon our underwriting standards, and we remain committed to disciplined underwriting and driving profitable growth.

In addition to competitive pressure, we're seeing elevated severity trends due to medical cost inflation and higher attorney involvement in claims. The impact of bodily injury severity has been especially pronounced in our largest market, California, where the January 1 changes to minimum financial responsibility limits are showing up in our results more significantly than initially anticipated.

We had expected adjustments to be needed once real claims experience began to emerge, and we're actively making those adjustments. Matt will provide further detail later. As for the litigation environment, whether you call it social inflation or legal system abuse, the effect is the same, upward pressure on loss costs and overall claims inflation.

Ultimately, this leads to increased customer premiums and prolonged claims resolution processes. As I stated earlier, we believe in our strategy and we remain committed to it. We know what we have to do. We're taking actions to enhance our competitive advantages, improve profitability and achieve consistent PIF growth. We're in a solid financial position and are confident these actions will help us succeed.

With that, I'll turn it over to Brad.

Thank you, Tom, and good afternoon, everyone. Before diving into the presentation, as Tom mentioned, our financial results this quarter fell short of expectations due to a combination of factors, including intensified competition, elevated severity trends in claims and a handful of infrequent items.

In response, we're implementing a targeted restructuring initiative, taking segmented pricing actions and making operational improvements. Additionally, we made some changes in our senior management team, including new leadership in claims and information technology, which were designed to accelerate and enable these efforts.

Our immediate priority is to enhance execution, improve profitability and position the company for growth. Let's now turn to Slide 5 to discuss our financial results in more detail. For the quarter, we reported a net loss of $21 million or $0.34 per diluted share and adjusted consolidated net operating income was $20.4 million or $0.33 per diluted share.

These results generated a negative 3% return on equity and year-over-year book value per share growth of 4.8%. Our trailing 12-month operating cash flow remained strong at $585 million, holding near all-time high. In our P&C segment, the underlying combined ratio increased 6 percentage points sequentially to 9.6%, reflecting elevated California bodily injury claim severity and competitive pricing pressure. Policies in force in earned premium grew 0.6% and 10.7% year-over-year, respectively.

Matt will discuss this in detail later. Our Life business delivered solid results this quarter, supported by favorable mortality trends and disciplined expense management. These fundamentals continue to reinforce the segment's reliability and stable contribution to overall earnings and cash flow. Chris will briefly discuss this later in the call.

Additionally, our balance sheet is strong with substantial capital and liquidity positions, providing financial flexibility. This strength enables us to support organic growth, invest in strategic initiatives and distribute capital to shareholders.

From the beginning of July to the end of October, we repurchased a total of 5.1 million shares at an average price of $52.65 for a total cost of $266 million. This activity includes a $150 million accelerated share repurchase program announced in August which was successfully completed in mid-October.

Moving to Slide 6. Here, we take a look at the key sources of earnings volatility during the quarter. These include a restructuring charge the write-off of internally developed software and adverse prior year development. I'll provide some additional color on each. During September, we initiated actions to drive operational efficiencies and reduced costs.

These initial actions are expected to generate approximately $30 million in annualized run rate savings. We continue to look across the business to identify additional expense savings opportunities, focused on enhancing cost discipline and organizational effectiveness. These savings are intended to do 2 things: first, improve our combined ratio; and second, to support growth in specialty personal auto business and accelerate geographic diversification.

As a result of these actions, we recorded a $16.2 million after-tax restructuring charge in the quarter. In Kemper's preferred business, which is reported below the line in noncore operations, we lost $21 million privately due to a $22 million expense related to the write-off of internally developed software.

Approximately 90% of this business has now run off -- as a result and expense recognized this quarter in all remaining software amortization has been completed. And finally, we strengthened our reserves by $51 million pretax or $41 million after tax in our Specialty Auto segment. The vast majority of the adverse development was concentrated in our commercial auto business, primarily from bodily injury and defense costs related to accident years 2023 and prior.

As Tom noted and consistent with broader industry trends, we continue to see elevated bodily injury severity. This is caused by several factors, including rising medical care costs increased use of innovative treatments and higher attorney involvement rates. In response, we've taken proactive steps to address these challenges, including rate and non-rate actions and further enhancements to our claim management processes.

Turning to Slide 7. Our balance sheet remains strong and provides financial flexibility. As of quarter end, we maintained over $1 billion in available liquidity, and our insurance subsidiaries remain well capitalized. Our debt-to-capital ratio stands at 24.2% near our long-term target and reflective of our disciplined capital management.

Notably, we generated $585 million in operating cash flow over the past 12 months, remaining near an all-time high for the company, underscoring the resilience of our business model and the consistency of our cash flow generation. Moving to Slide 8. Quarterly net investment income totaled $105 million, up $9 million sequentially, driven by improved performance in our alternative investment portfolio.

We maintain a high-quality, well-diversified investment portfolio that demonstrates thoughtful asset allocation and prudent risk management. As the portfolio grows and benefits from favorable new money rates, we anticipate net investment income will continue to trend upward over time, contributing meaningfully to overall earnings.

In summary, our disciplined approach to capital deployment, strong balance sheet and resilient cash flow generation position us for success with initiatives underway to improve profitable growth and operational discipline, we're well equipped to navigate evolving market conditions and deliver value to our stakeholders.

I'll now turn it over to Matt to discuss the Specialty P&C segment.

Thank you, Brad, and good afternoon, everyone. Turning to Slide 9. The Specialty P&C segment produced an underlying combined ratio of 99.9% this quarter. Personal auto combined ratio increased to 12.1%, while commercial remained relatively stable at 91.1%. The increase in our personal auto underlying combined ratio was driven primarily by bodily injury loss trends. .

While we're observing signs of elevation across all geographies. This is particularly evident in California. As you will recall, on January 1 of this year, the industry-wide mandatory increase in state minimum limits went into effect. This change doubled the BI limit from 15,00,000 to $30,000, 50,000 while also increasing physical damage from 5,000 to 15,000.

At the time of our initial rate filings for the new limits, -- our pricing analysis was based on our California loss experience, complemented by our experience with similar limit increases in non-California markets. Our selected pricing factors were on the higher end of the actuarially supported range.

With that said, our early read of actual post-change severity has come in higher than forecasted. BI is a long-tail coverage and a 3-month evaluation is only about 35% developed. Also more severe, higher-cost claims, which have a greater propensity to reach policy limits tend to be resolved sooner. Therefore, we move quickly to take rate and non-rate actions to ensure pricing these lifetime targets.

We'll continue to closely monitor severity patterns and adjust accordingly. As earlier noted, the specialty auto market tends to experience emerging patterns earlier than the standard market. With specialty auto customers being higher frequency, loss patterns become visible more rapidly.

To that end, an increasingly clear driver of liability cost challenge is higher attorney involvement and legal system of use. We continue to see attorneys attached to clean files much earlier in the process. The combination of growing medical inflation and the greater use of elective procedures is driving a more expensive treatment mix. This dynamic is not unique to our business. It's an industry-wide trend that will require more proactive and disciplined management.

With that said, 95% of our book is at state minimum limits, which places an upper bound on further cost escalation. As Brad discussed, in addition to our underwriting and pricing actions, we've launched a restructuring initiative aimed at creating a more competitive cost structure to further diversify our book.

These efficiencies are supporting expansion efforts in Florida, Texas and other noncore states, funding market entry work, improving product competitiveness and expanding distribution partnerships in priority regions where we see strong growth potential.

Shifting to production, California moved quickly from a hard market to a more normalized market with competition intensified. We're taking rate and non-rate actions to address liability costs to ensure pricing economics remain sound. These actions are aligned with our goal of trapping profitable growth through the cycle. Our pricing actions to date in Florida and Texas have helped stabilize our in-force book. Ongoing expense efficiency initiatives and enhancements to our product capabilities are targeted at supporting profitable growth in these markets. In commercial auto, underlying margins remained strong and PIF growth was 14%.

The competitive market remains stable with regional nuances. Similar to our personal auto business, we continue to be aggressive on rate actions across all coverages with heightened focus on bodily injury. Our competitive advantages position us well to capitalize on these opportunities. And finally, we're focused on execution, rolling out new product features, improving end-to-end claim handling and driving cost efficiencies all to enhance price competitiveness.

By strengthening operational discipline in these areas, we can grow strategically diversify our footprint beyond core markets and deliver profitable growth.

I'll now turn the call over to Chris to cover the life business.

Thank you, Matt. Turning to our life business on Slide 10. The Life segment delivered solid quarterly results with operating earnings of $19 million driven by favorable claims experience to expense levels tightly aligned with product economics. Despite a modest decline in premium volume, the business remains well positioned to sustain strong returns on capital and robust cash generation.

I'll now turn the call back to Tom to cover closing comments.

Thanks, Chris. In closing, I hope we've described not only what happened this quarter and why, but more importantly, the actions we're taking to improve profitability and growth. We're reinforcing the disciplines that drive performance through management changes of restructuring initiative and a renewed focus on execution.

As I said at the top, I have tremendous confidence in this organization, its purpose, its potential and the talent of our people. I want to thank our entire team for their commitment and hard work to make Kemper a stronger organization. As we navigate this environment, we remain certain of our ability to deliver long-term value to all of our stakeholders.

Operator, we may now take questions.

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. Your first question comes from the line of Andrew Kligerman from TD Cowen.

Maybe start with the commercial auto segment. I calculate an unfavorable prior year development of 18.7 points. And that follows the second quarter 8.4 points of unfavorable. And if I -- and correct me if I'm wrong, but if I recall the management commentary on the last call, like it seems that it had been nipped like they had really captured it. We talked on the call, I think, about the social inflation environment.

So what what happened between 2Q and 3Q on the commercial? And why should we not expect another unfavorable prior year development there?

Andrew, this is Brad. You are correct in comments from prior quarter. We did have adverse development in the second quarter. And obviously, we've also had adverse development here in the third quarter. In the second quarter, we discussed the adverse development being latent large loss activity, not due to frequency but higher severity.

We've experienced the same thing here in the third quarter on large losses, so continued latent development in accident years 2023 and prior. Additionally, we're also seeing BI severity trends from social inflation and continued attorney attachments an accident in nonlarge losses, which is how we describe that as anything below $250,000. So the biseverity trends that Matt discussed in the call previously, not only in PPA is also prevalent in commercial vehicle, and it has been prevalent across the industry to date.

With respect to us capturing this and not being a consistent issue, we've adjusted our expectations on what each of those cases are today and what they're going to expect to develop to -- and we've also adjusted our IBNR development factors to capture what we think is probable in the future.

We're confident in that. But as the environment remains extremely dynamic, there may be further adverse development, but we're comfortable with what we have today.

Okay. And my follow-up question, shifting back to private passenger auto. -- come in at an underlying combined of $102.1. And a lot of your competitors we've seen are coming in around 90%. So -- so I guess you've got geographic differences. So I guess the question is, one, -- what gives you confidence in your data and analytics? Are you up to speed with that? Are you in line with your peers, with your data and analytics in terms of capturing this stuff?

And I suspect the part B of it is, I suspect you probably need some rate and California has historically been a very tough state. Do you think they'll give you the approvals that you need.

Andrew, this is Matt. I'll start with just highlighting the nuance difference between us and some of the mainstream competitors that we're up against. I think primarily 1 is we're predominantly a minimum limits customer base. We have a different frequency profile and loss profile. It's sort of the definition of nonstandard -- the other is 60-plus percent of our book is in California. And that's really where the driver of the inflection was in the loss from quarter-over-quarter. .

Frequency came in line with an expectations. It was slightly elevated, but within normal sort of seasonal expectations. The driver was heightened severity, and it was really the BIPD dynamic that's really -- it's not new for the industry. This has been a dynamic in the industry for the last decade or so, but it was heightened due to the FR changes in California earlier this year, right?

And so this effectively acts as a onetime step up in cost, and this isn't normal. The last time California had a limit increase was in 1967. And so with California representing the percentage of the portfolio for us that it does, naturally, it's more pronounced in our results relative to peers.

And as our California book converted over to the new limits, and as Brad mentioned, with the latent development or the slow development of BI coverage, we observed the elevated paid patterns in the mid part of the third quarter, and we took immediate action. I don't think we have any concern about our analytics or insights. We have a prospective view in terms of where costs are going, and we're trying to be as aggressive as we can in achieving that.

Regarding the rate to be file, that is currently filed with the CDI that is with the CDI. We are having proactive conversations with them. Our goal is to get the rate effective as soon as possible, and the dialogues are moving along as we expect them to.

Got it. And maybe just if I could sneak 1 last 1 in. There was a lot of discussion in the investment community about Kemper's willingness to be acquired I know you can't be specific, but what's your thinking right now on that topic? Is that something that Kemper is open to?

Andrew, this is Tom Evans. That's not really something we can comment on. We're a public company. We're for sale every day.

Your next question comes from the line of Mitch Rubin from Raymond James.

I wanted to ask about the restructuring. Could you please elaborate on some of the specific areas where you guys are targeting cost savings from, thanks.

Mitch. This is Brad. Really in 3 areas. One is an organizational design -- we've restructured some of the reporting lines and as a result, have had some cost savings. So organizational structure. Second bucket is process efficiencies.

So think about with some new product launches, we have lower commissions with improved process, we expect to produce some print postage, some bad debt, other things. So increased overall efficiency in the organization is key and critical. And lastly, are various one-off things that maybe we've made investments in, in the organization that we're looking to change how we do business and how we operate going forward. So total, as we mentioned, we did do a $16.2 million after-tax charge. That's going to save us on a run rate basis approximately $30 million annually.

And last follow-up on Page 9 of the presentation, I see that policies in force in Florida and Texas came down about 7% year-over-year. Can you provide some color on what you're seeing in the competitive environment for?

Yes. This is Matt again. Look, I'll start with overall, we still are bullish on the markets that we operate in. Obviously, California being our largest -- we talked a lot about California being a hard market over the past few quarters as it worked its way through the pandemic.

That is normalizing, competition is increasing on the new business side that said, our policy retentions are stable there, but some competitors continue to get increasingly aggressive. And as we are making the changes we're making on the pricing and underwriting side to address the liability trends, we think those are the right changes, and we're remaining disciplined as we work through the cycle. In terms of Florida and Texas, those markets are very competitive marketplaces.

I think we've talked about that for the last few quarters. We've done quite a few changes in our products from a segmentation pricing perspective. That have stabilized our in-force book of business. And as Brad mentioned in the prepared comments, the restructuring and cost efficiencies that we're driving through the business along with additional product enhancements are focused on those markets, so to accelerate growth in those markets and help us move towards our strategic estate being a more diversified geographic portfolio.

Great. That's helpful. If I could just ask 1 more thing. You mentioned some nonrate actions you guys have been taking. Could you give any insight towards that? .

Yes. non-REIT actions are effectively tightening some underwriting aperture managing agents in terms of capacity with a bit more aggressiveness adjusting billing features, among other things that help us manage profile and the expected losses associated with the profile. .

[Operator Instructions] The next question comes from the line of Brian Meredith from UBS. .

A couple of questions here for you. The first one, I think it's related to some runoff stop, but I'm just curious, the software write-off in the quarter, -- what would -- is that exactly related to? And did that have any effect or a part of your, call it, specialty business? .

Brian, this is Brad. The write-off of the internally developed software is solely related to the Kemper Preferred business, which is reported below the line in noncore operations. As a result of our premium forecasts and the acceleration of the runoff of that business -- we determined that the premium receiving is no longer enough to support those assets. So as a result, we've written them off this quarter.

It has no relation to the specialty auto business. It's solely related to Kemper Preferred. I'd also like to highlight that, that business is now 90% runoff and the remaining policies is predominantly in the state of New York, which we are close to working with the regulator to accelerate the runoff of that business.

Make sense. And then my next question is mean, I guess, the Chief Claims Officer and the Chief Information Officer, or CIO, or are gone. What changes are you making with -- in the claims and the information technology area as a result of the departures.

Well, we publicly -- Brian, this is Tom Evans. We've announced that Andy Ramamoorthy has stepped in as Chief Claims Officer. So that response to that part of your question. With regard to the IT space, we currently have an office of the CIO that's comprised of 3 members of our executive team Andy, who already mentioned Matt and Brad or the other 2 members. And we are -- I'm sorry, go ahead.

Yes, I meant more about process right underlying process or changes that maybe the changes within claims or systems processes, not so much the new people coming in. .

Brian, this is Matt. We -- on the claims side, -- there are a few sort of process -- points of evolution that we're working on -- and some of this has been work in process for the last few years. But the biggest 1 is sort of having an end-to-end orientation around how we manage total cost of ownership and value generation. We worked pretty aggressively on the material damage side the last couple of years and the efforts are paying off in terms of stemming some of the tariff pressure that I think the industry is seeing.

We have been working that on the liability side, and we're accelerating some of that work so we could aggressively manage some of the headwinds from a liability trend perspective. That's 1 example. Another example is we're taking our data science capabilities that we built on the pricing front, and we're accelerating that into claim to help us process more effectively sort of next best action, drive some automation, leveraging AI and other toolkits to really drive efficiency in the engine.

And on the technology side, similarly, connecting that more to the business to drive value in a more expeditious and agile way.

And then -- yes or Brian. Just going to add 1 more comment is the other thing that we've done is we've repositioned some of the players and our claims team, particularly to respond to some of the more active things we're seeing in the litigation environment to better respond to those issues? .

Makes sense. And then last question, I guess, more for Brad. So I'm assuming there were some kind of current year cash up in the underlying kind of loss picks in the quarter. What's the run rate underlying loss ratio right now in the third quarter, ex kind of current year development? And maybe you can break that down between personal auto and the commercial? .

Great question, Brian. Well, I'll give you the details. Essentially, underlying loss ratio from Q2 to Q3 increased 6 percentage points, 93.6% to 99.6%. When you think about the current year adjustments, no significant current year adjustments, what we're seeing is favorable development on comp and collision and the metals coverages, and we continue to see some adverse development even in the current accident year on BI. So it's a mix development, but no significant changes either in commercial vehicle or PPA.

Your last question is from the line of Andrew Kligerman from TD Cowen.

One last question. On the share repurchases, you did a pretty active, I think it was $266 million through October from July 1, and you still have about $300 million left. So maybe some color on your thoughts around share repurchase going forward.

Andrew. You are correct with the number is 5.1 million shares, roughly $266 million. From a share repurchase standpoint, we continue to think the stock is attractive. That said, I will point you to our capital deployment strategy, which is first on organic growth.

Matt talked about what we're doing there as we invest some of the restructuring savings into Florida and Texas. So we want to make sure we have enough for internal organic growth. Secondly, we want to make sure we have enough capital to to have financial flexibility. And then third, if there's anything that's additional, we will distribute that to shareholders.

So -- you are correct. There's still a significant amount remaining in the authorization that was granted last quarter, that $500 million, and we'll continue to be taxable with that as we go forward.

And maybe just as a quick follow-on to that. In terms of policy in force growth, and you've talked about it, Brad, that TIF would be a little lighter, maybe very low single-digit in the back half of 2025. Are you thinking just in light of all these pricing changes that you can kind of maintain that? You came in close at $0.6 million and then when you get into 2026, do you feel like you could really target that or was it like mid-single-digit growth that you were looking for in next year, maybe upper mid?

Yes. So you got the numbers correct, Andrew. We came in at 0.6% year-over-year, down sequentially. I'll highlight that. We talked about this a lot in the past is going from Q3 to Q4, we typically see lower shopping activity as a result, PIF naturally declined just as a result of seasonality in our business.

So I would expect PIF to modestly decline maybe 1% or 2%, maybe 3% from Q3 to Q4. And then I'd expect us back to growing in the first quarter as we get into the buying season. And as a reminder, that buying season typically starts mid-February and goes through late April, early May.

As far as PIF growth what we expect in the first half of next year. I think that depends on a competitive environment. As Matt mentioned, our goal is to grow profitably. And so we're going to protect our margins and be thoughtful around growth, particularly in some key states like California.

There are no further questions at this time. I'll hand the call over back to Tom Evans for closing comments. Sir, please go ahead.

Thank you. I want to thank everybody for taking the time to join us today and to provide the thoughtful questions. We appreciate everyone's continued support as we move through this transition and we look forward to speaking with you again next quarter. In the meantime, the team here at Kemper remains focused on execution and continuing to focus on delivering value for our shareholders.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.

Good afternoon, ladies and gentlemen, and welcome to Kemper's Second Quarter 2025 Earnings Conference Call. My name is Constantine, and I will be your coordinator today. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes.

I would now like to introduce your host for today's conference call, Michael Marinaccio, Kemper's Vice President of Corporate Development and Investor Relations. Mr. Marinaccio, you may begin.

Thank you. Good afternoon, everyone, and welcome to Kemper's discussion of our second quarter 2025 results. This afternoon, you'll hear from Joe Lacher, Kemper's President and Chief Executive Officer; Brad Camden, Kemper's Executive Vice President and Chief Financial Officer; and Matt Hunton, Kemper's Executive Vice President and President of Kemper Auto.

We'll make a few opening remarks to provide context around our second quarter results, followed by a Q&A session. During the interactive portion of the call, our presenters will be joined by Chris Flint, Kemper's Executive Vice President and President of Kemper Life; Duane Sanders, Kemper's Executive Vice President and Chief Claims Officer for P&C; and John Boschelli, Kemper's Executive Vice President and Chief Investment Officer.

After the markets closed today, we issued our earnings release, filed our Form 10-Q with the SEC and published our earnings presentation and financial supplement. You can find these documents in the Investors section of our website, kemper.com.

Our discussion today may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, the company's outlook on its future results of operation and financial condition. Our actual future results and financial condition may differ materially from these statements. For information on additional risks that may impact these forward-looking statements, please refer to our 2024 Form 10-K and 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 the earnings release, we have defined and reconciled all non-GAAP financial measures to GAAP where required in accordance with SEC rules. You can find each of these documents in the Investors section of our website, kemper.com. All comparative references will be to the corresponding 2024 period, unless otherwise stated.

I will now turn the call over to Joe.

Thank you, Michael. Good afternoon, everyone, and thank you for joining us today. I'm pleased to report that we delivered another quarter of strong underlying operating results. This was led by our Specialty Auto business, which once again produced a solid underlying combined ratio and meaningful year-over-year PIF growth.

Before we dig into the specifics of our results, I'd like to provide some context around the overall auto market competitiveness and more specifically, the specialty auto segment. I believe we're all aware that there's been a hard market for auto in general, over the first half of this year, there's been clear evidence that markets are softening and reverting to more normalized conditions.

As most carriers see combined ratios recovering to more acceptable profitability levels, they're not taking major rate increases. In some cases, they're decreasing rates and increasing underwriting appetite to more aggressively compete for new business. The result is a combination of reduced consumer shopping and more available options when they do shop. Accordingly, the high levels of growth seen by the strongest players are naturally normalizing to more traditional levels.

Most of us in the industry think and talk about hard, normal and soft market conditions. These descriptions work overall for commercial lines as well as the standard and preferred personal auto market, but they don't really work for the specialty auto segment. As I stated in the past, within specialty auto, you generally see either a hard market or a more normalized market. Overall, we don't typically experience a traditional soft market because of our segment's unique characteristics.

First, there are many smaller competitors who only operate in a few local geographies. Second, the speed of loss development is typically faster than the standard market. And third, customer policy lifetime tenures are much shorter than the standard market.

The combination of these characteristics has several implications. You can't recover short-term irrational pricing over the lifetime of a customer. Aggressive pricing is seen in results more rapidly and no single competitor can typically soften the overall market with irrationally aggressive activity. In specialty auto, we may experience short-term softness in select geographies, but in general, it does not last long or impact the overall market.

Recall our competitive advantages. We deliver a low-cost value proposition tailored to our unique customer needs. We bring a distinct scale advantage and a deep understanding of our market. This enables us to deliver leading differentiated product sophistication, claims effectiveness and ease of use. We are confident that our competitive advantages will continue to produce attractive long-term profitable growth in a more normal market environment.

With this as a backdrop, let's move to Page 4 and jump into this quarter's financial results. We delivered a return on adjusted equity of 15%, adjusted book value per share growth of 14% year-over-year and an all-time high trailing 12-month operating cash flow of nearly $600 million.

Our core businesses continue to perform very well. Specialty Auto generated a 93.5% underlying combined ratio, while producing 8% year-over-year PIF growth and earned premium growth of 17%. Our Private Passenger Auto business produced an underlying combined ratio and year-over-year growth better than long-term norms but was somewhat off the hard market highs.

Our Commercial Auto business continued to perform well, and produced an underlying combined ratio of 90%, while growing PIF by 18%. Here, we reported adverse prior-year development of approximately $19 million, which was driven by the general effect of social inflation. When viewed over a rolling 4 or 8 quarter basis, this business consistently produces attractive combined ratios and growth, and is a source of continued reliable strength.

The performance of our alternative investments negatively impacted both our Specialty Auto and Life segments. This quarter, we had some modest noise, which I generally categorize as consistent with the broad marketplace investments volatility. We continue to maintain a high-quality investment portfolio, and Brad will get into the specifics around this shortly.

The business fundamentals underlying our Life segment remain stable. The business continued to produce a strong return on capital and distributable cash flows.

Lastly, we continue to execute on our multi-quarter balance sheet strengthening. Last quarter, we retired $450 million of debt, bringing our debt-to-cap ratio near our long-term target and our cash flow from operations hit an all-time high.

With a strong balance sheet and healthy liquidity, we've repurchased $80 million of common stock since April 1. Given our expectations around future growth and strong operating metrics, the Board approved an additional $500 million of repurchase authorization, bringing the total available to $550 million. Brad will discuss our financials and share repurchases in more detail. Overall, we're pleased with our second quarter results.

With that, I'll turn the call over to Brad.

Thank you, Joe, and good afternoon to everyone. I'll begin with our financial results on Page 5. For the quarter, we reported net income of $72.6 million or $1.12 per diluted share, and adjusted consolidated net operating income of $84.1 million or $1.30 per diluted share. These results led to an attractive return on adjusted equity of 14.9% and growth in adjusted book value per share of 14.3% year-over-year.

As Joe discussed, our businesses continue to deliver strong underlying performance. Specialty Auto produced strong growth in policies in force and earned premium, and the Life continue to provide steady returns. Overall, our core businesses are performing well, but this quarter, our results were impacted by a few infrequent items.

First, Specialty Auto recorded $14 million in adverse prior-year development driven by a $19 million reserve increase in our Commercial Vehicle business. This was primarily related to bodily injury losses. Second, volatility in our alternative investment portfolio pressured net investment income.

Let's turn to Page 6 to discuss the investment portfolio in more detail. Quarterly net investment income totaled $96 million, coming in below expectations due to lower returns from alternative investments. Not surprisingly, performance in this asset class can be volatile. Valuation gains tend to align with marketplace deal activity, which slowed in the second quarter amid broader macroeconomic pressures. As market conditions stabilize, we expect alternative investment performance to improve in the coming quarters.

The core portfolio, which excludes alternatives, continues to perform well, delivering $98 million of net investment income this quarter. Overall, we continue to maintain a high-quality, well-diversified investment portfolio. As the investment portfolio grows and with favorable new money rates, we anticipate net investment income to rebound in the second half of the year, averaging approximately $100 million to $105 million per quarter.

Moving to Page 7. Here, we highlight the strength of our balance sheet and significant financial flexibility. We maintain $1.1 billion in available liquidity and continue to have well-capitalized insurance subsidiaries. Our debt-to-capital ratio stands at 22.7%, aligning closely with our long-term target. Notably, we generated $587 million in operating cash flow over the past year, marking an all-time high for the company.

Given our strong financial position, let me remind you of our capital deployment priorities. First, we utilize capital to support organic growth. Next, we will fund inorganic opportunities to enhance our platform. And lastly, we will return excess capital to shareholders.

As Joe discussed earlier, the Specialty Auto segment is transitioning to a more normal marketplace with attractive but somewhat slower profitable growth opportunities. This evolving environment will require less capital to fund organic growth.

With significant financial strength and flexibility and the belief our stock is trading below intrinsic value, we repurchased $80 million of common stock since April 1, leaving $50 million available under our current authorization. This week, the Board approved an additional $500 million share repurchase authorization, bringing the total amount for repurchase to $550 million. This will enable us to deliver on our capital priorities in this environment. That said, we have no preset time line for share repurchases and plan to execute on them opportunistically.

Finally, I want to reiterate that we're well positioned for sustained profitable growth. The strategic investments we made over the past 5 years have strengthened our capabilities and reinforce our confidence in driving shareholder value.

I'll now turn the call over to Matt to discuss the Specialty P&C segment.

Thank you, Brad, and good afternoon, everyone. Turning to Page 8, our Specialty P&C segment produced another quarter of quality underlying results. This business generated a solid underlying combined ratio of 93.6%, up modestly from the first quarter, largely driven by normal seasonal patterns. Private Passenger Auto produced 94.5%, while Commercial at 90.1%. Overall PIF growth for the Specialty business was nearly 8% year-over-year.

Directing our focus to private passenger auto, as Joe mentioned, the hard market in the specialty auto business has been receding and we are moving to an overall more normal competitive environment. As you would expect, each state is moving at its own pace.

California remains a modestly hard market. Given its unique regulatory environment and the challenges that exist in other lines of business, we do not expect California auto to move to a fully soft market. The marketplace is structured in a way that doesn't drive sustained irrational behavior. We are, however, seeing competitors increasingly reopen. Our products are well positioned and our scale and understanding of this unique state are enabling continued profitable growth.

Florida continues to be a very competitive market. When we talked in May, we commented on some aggressive competitor actions and our plans to respond. That response came in June and had the intended positive impact of increasing new business. We saw the benefits in June, and they continued through July. We will continue to build on this momentum to drive profitable growth.

In Texas, the market conditions continue to operate in a traditionally normal fashion. On a relative basis, sitting somewhere between California and Florida. Our production has been steadily gaining momentum since we fine-tuned our pricing plans earlier this year.

All other states continue to see attractive growth and profitability in normalizing market conditions. Overall, we recognize the ongoing market dynamics and are proactively positioning ourselves for long-term profitable growth.

Shifting to Commercial Auto. This business again saw very strong underlying profitability with PIF growth of nearly 18%. The market backdrop remains consistent and success in this line requires a deep understanding of underwriting dynamics. Our long-term competitive advantages continue to position us well to capitalize here. We are confident in our ability to profitably grow this business.

Again, overall, we are positioning ourselves to compete in a more normalized market environment. That said, as a reminder, Specialty Auto has a more pronounced seasonal shopping pattern than standard auto. Customer shopping activity decreases in the second half of the year, particularly in the fourth quarter. This is normal, and we anticipate that it will occur this year. With that said, the business is delivering solid profitable growth enabled by our competitive advantages, scale and focus. We are in a position of strength and remain optimistic in our long-term outlook.

I'll now turn the call back to Joe to cover the Life business and closing comments.

Thank you, Matt. Turning to our Life business on Page 9. As noted earlier, the underlying business continued to generate stable operating results. Mortality and persistency remained in line with historical trends, and the Life business continues to generate strong return on capital and distributable cash flows.

Turning to Page 10. In closing, I'd like to reiterate our highlights for the quarter. First, Kemper delivered solid operating results with an adjusted ROE of 15% and year-over-year adjusted book value per share growth of 14%.

Specialty Auto continued to produce strong underlying results with solid year-over-year PIF growth and an underlying combined ratio of 93.6%. Our competitive advantages continue to give us confidence in our ability to navigate the normalization of the auto market.

And finally, our capital and liquidity position provides significant financial flexibility. Our debt-to-cap ratio is near our long-term target range. Operating cash flows hit an all-time high. We repurchased $80 million of stock since April 1 and now have the authorization to repurchase up to another $550 million.

I want to take a moment to thank our entire Kemper team for their efforts. These results would not be possible without their commitment and hard work towards achieving our goals. We remain confident in our ability to create long-term shareholder value.

With that, operator, we may now take questions.

[Operator Instructions] Your first question comes from the line of Andrew Kligerman from TD Cowen.

So the first question is around PIF growth and pricing, kind of a dual question. With written premium up 7% and PIF up 8% year-over-year, the question is, one, does that imply pricing came down? And could you give color on that? And two, PIF is actually down 70 basis points sequentially. Are you kind of putting the brakes on things a little bit as we move into the second half?

Sure, Andrew. This is Joe. I'll take those. A couple of different things. Let's break them apart. The PIF versus written premium difference is really modest issues around geographic mix. It's no significant material change in any premium rate filings. There's modest changes in certain geographies, but no significant change. I view that as more of an anomaly.

Second, we've continued -- we've historically talked to you guys about year-over-year PIF growth and encourage you not to be looking at sequential quarter because there's such seasonality differences in Specialty Auto. We specifically pointed you to a sequential quarter PIF when we were going from declining to growing so that you would see that as a leading indicator of a material change, not a sort of rolling 4 quarter. We are past that. We mentioned that last quarter.

If you spend your time looking at sequential quarter PIF growth, you're going to get tied up in seasonality issues. Matt made a couple of comments on that. The back half of the year in Specialty Auto has a significant seasonality difference to the first half of the year. That's normal. That's happened for the last 20 years. We expect it to continue to happen. It will occur. It's got nothing to do with us putting on the brakes. We're not putting on the brakes. We're still happy, open for business, and anticipate that we're going to be a profitably growing business.

What you're seeing in PIF is exactly what most of our competitors have been talking about. We've been shifting as an industry from a hard market to a more normal market. The double-digit growth that folks experienced in the last year or 1.5 years are not long-term normal environments. They're an anomaly of a hard market. I think Progressive had a call this morning and very aggressively reminded everybody of that, and we're competing in the same markets. Carriers are opening again. They're active, and that will cause that outsized growth to normalize.

What we expect to see is what we've described long term to the investor community that in a normal Specialty Auto environment, we expect to see low to mid-single-digit PIF growth on a year-over-year basis. That's somewhere in a 3% to 7% range depending on sort of where we are in any given 90-day period. And we would expect that as a good modeling view long term from a PIF perspective.

We would expect maintenance rate largely to be continuing to work its way through the system. And we would expect, as we said, combined ratios over a number of quarters will migrate their way back into that 93.5% to 94.5%, 95% range, which was where they've been in the long term.

As again, a reminder, if we were thinking pre-pandemic, '17, '18, '19, '20, a 93.5% and an 8% PIF growth, we all have been doing a happy dance. It's an attractive set of numbers for a long-term normal market, it just looks a little off compared to exceptionally high numbers, which we've pointed out to folks is not going to continue. So -- and not because we didn't want it to, because the market will normalize, and competitors will work their way in. So it's in no way, shape or form, us tapping brakes or intending to slow down.

That was super helpful, Joe. And then just my follow-up is around your confidence in the loss results going forward. So Private Passenger Auto at 94.4% calendar year, is getting close to that 95%. Do you think you could hold it there? And then with the $19 million-ish charge in Commercial Auto, are you confident that you've kind of nipped it and we won't see much, if anything, there going forward?

Sure. I'm going to break those apart into two distinct buckets. The general combined ratio guidance we give of maybe a 93.5%, 95% normal range, if it peaks above 95%, we don't start getting an enormous angst for a quarter or 2. We've got really an aggressive hard stop at a 96%. There's normally in this business 50, 70 basis points on any given quarter that can move around. I'd expect us to be in that range and in that zone, and don't have a particular angst around 1 quarter being at the edge of that, it will sort of stay in that zone, and I would expect it to be there.

The second piece is around the $19 million that we talked about, largely in Commercial Vehicle. We saw a modest uptick in a range of accident years, probably driven by what we -- collectively as an industry we've described as social inflation. We made some balance sheet adjustments for that. It was an abnormally active quarter. We made some adjustments as a result of that. And that includes our current accident year pick in both CV and Private Passenger Auto to reflect that environment.

So that may have been -- if you think about the combined ratio in Private Passenger Auto, a little bit of normal seasonality in the second quarter. That's normal to see it up a bit. And a bit of us pushing that current accident year up a bit to take into account that environmental issue. We believe we've got it right there.

Could there be a little bit more noise in any given quarter? Yes, maybe. But what we tried to discuss and try to comment on in Commercial Vehicle, is it seems like every 4, 6, 8 quarters, you get 1 or 2 in there that has a little bit of a pop. If you look at it on a rolling 4- to 8-quarter basis, that's a very attractive business for us. We have a high degree of comfort in it and we respond if we get a little bit of anomalous noise in a quarter appropriately, but it doesn't change our fundamental positive view on the outlook of that business.

The next question comes from the line of Mitch Rubin from Raymond James.

This is Mitch on behalf of Greg Peters. So I wanted to ask about the higher minimum limits in California. And I was wondering if you could quantify the impact on premiums this quarter.

Sure. The minimum limits in California, that would have had -- and I'm apologize, we're trying to get you the exact number. It would have had roughly the same impact you would have seen in the first quarter for that. And our policies are running 6-month policies, so that -- largely its impact will have worked its way through the book. This is the last quarter that anomaly will have occurred.

I'm in that -- and I apologize, Mitch, we're going to have to get back to you on the specific number on that. I'm thinking I've got it at the top of my head, but I'm certain I'm going to be off on it a little bit. Let us get back to you. It's consistent with what we saw in the first quarter. And given our policies are virtually 100% 6-month in California, it's worked its way through.

All right. My follow-up is on retention and how that's been differing by state.

Yes, Matt, why don't you go ahead and take a shot at that.

Yes, Mitch, the texture varies a bit by state. Some of the commentary we left with -- we started with earlier on California. California market continues to be on a relatively hard basis. We're seeing limited supply relative to historical trends there. So retention generally is holding in that marketplace.

Florida is -- we're seeing a modest -- maybe a modest decline in policy life expectancy. That's normal as agents are re-shopping books as carrier premiums are shifting down, but it's not moving materially and changing our perspectives on that state.

Texas is pretty stable. We are seeing less shopping in the marketplace more recently. So likely, that will abate a bit as the business sort of rolls forward. But retention overall has been pretty stable.

[Operator Instructions] The next question is from the line of Paul Newsome from Piper Sandler.

One maybe follow-up on the adverse development. Was there anything besides just severity going up? Like was there any geographic pattern to it? Was there anything just purely liability-related things? Or was there some health care inflation in there? I think you said bodily injury. Just want to make sure we got all the pieces there on the adverse development.

Sure, Paul. This is Brad. Great question. Specifically in CV BI, where we're seeing the adverse development, it was in our large loss bucket, which is a very low frequency, higher severity coverage or loss bucket. It's important to articulate those items because it's not an underwriting issue. There's no significant increase in frequency. It's simply a result of social inflation over time. And these things are -- tend to be 2 or 3 years old as they develop. And in the more recent accident years, we strengthened the balance sheet as a result of that.

So the business overall continues to perform extremely well, grew significantly year-over-year, and an underlying combined ratio in the low 90s, very strong overall. Just more episodic, large loss events. And as Joe said, more litigation activity in the second quarter than we've seen in the past.

And then a related question and a big-picture question related to the combined ratio thoughts that you had over the cycle. We're kind of in the zone for a normal underwriting profitability. And I think we're sort of in the zone from a debt-to-capital perspective, are there pieces there that would suggest that maybe this is sort of essentially in the zone for return on equity as well? Or is there some possibility for improved ROE or [ a little way ] over the cycle?

Yes. There's always some variation in there, Paul. We look at our adjusted ROE because there's a significant amount of goodwill on the balance sheet at being roughly 15%. That's a reasonably attractive spot. I think it can be -- and can and has, over time, moved up a bit. And I think it's in a reasonable zone with some expected volatility there.

The other thing I'd point you to and maybe you were going to ask about it next and I may be jumping the gun. But there's a significant share repurchase authorization that came out with the Board. I think it's actually -- at $500 million, it's equal to the last two reauthorizations or authorizations combined. It amounts to, when you include the $50 million remaining and the $80 million we bought in the last 90 days, roughly 16% of the current market cap of the company. So it's a fairly significant opportunity there.

We believe the returns are good in this business. We have a healthy balance sheet, a healthy liquidity and think the stock is somewhat undervalued, and we're going to opportunistically buy and aggressively defend it in the marketplace because we think there's sort of an unrecognized upside there.

There are no further questions at this time. I'd like to turn the call over to Joe Lacher for closing comments. Sir, please go ahead.

Thank you again everybody for your time and your attention. We look forward to talking to you next quarter and look forward to continue to be strong, thoughtful competitors in the marketplace.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.