Good afternoon, ladies and gentlemen, and welcome to Kemper's second quarter 2021 earnings conference call. My name is Grant, and I will be your coordinator today. At this time, all participants are in listen-only mode. Later, we will conduct a question- and- answer session, instructions will follow at that time. As a reminder, this conference call is being recorded for replay purposes. I would now like to introduce your host for today's conference call, Michael Marinaccio, Kemper's Vice President of Corporate Development and Investor Relations. Mr. Marinaccio, you may begin. Thank you, Grant. Good afternoon, everyone, and welcome to Kemper's discussion of our second quarter 2021 results. This afternoon, you'll hear from Joe Lacher, Kemper's President, Chief Executive Officer, and Chairman; Jim McKinney, Kemper's Executive Vice President and Chief Financial Officer; and Duane Sanders, Kemper's Executive Vice President and Property and Casualty Division President. We'll make a few opening remarks to provide context around our second quarter results and then open the call for a question-and-answer 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, and Erich Sternberg, Kemper's Executive Vice President and Life and Health Division President. After the markets closed this afternoon, we issued our earnings release and published our second-quarter earnings presentation, financial supplement, and Form 10-Q. You can find these documents on 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 and its future results of operation and financial condition. These statements may also include impacts related to the COVID-19 pandemic. Our actual future results and financial condition may differ materially from these statements. For information on potential risks associated with relying on forward-looking statements, please refer to our 2020 Form 10-K, as well as our second-quarter earnings release. This afternoon's discussion also includes non-GAAP financial measures we believe are meaningful to investors. One such measure we are reintroducing is as adjusted for acquisition. It's important to understand our reported results, including the impact of American Access acquisition, has to Kemper overall. However, investors have also expressed an interest in understanding the underlying organic performance of the combined businesses. Since our as-reported financials don't include American Access's historical information prior to the closing of the acquisition and our current results include the impact of purchase accounting, the underlying trends are not easily discernible. In an effort to provide insight into the underlying performance of the combined businesses, we also display our financials as adjusted for acquisition. This view removes the impact of purchase accounting and includes historical American Access information for periods prior to the acquisition to more readily provide a meaningful year-over-year comparison. In our financial supplement presentation and earnings release, we defined and reconciled all non-GAAP financial measures to GAAP where required in accordance with SEC rules. You can find each of these documents on the Investors section of our website, kemper.com. All comparative references will be to the corresponding 2020 period, unless otherwise stated. I will now turn the call over to Joe. Thank you, Mike. Good afternoon, everyone, and thank you for joining us on today's call. This quarter, the country took a significant step forward in its recovery from the pandemic, and it's clear we're in the middle of a strong economic rebound. Last quarter, we indicated the reopening would create a very dynamic environment with expected increases in auto frequency and severity. Further, we anticipated decreasing mortality. The reopening is happening faster than projected. As a result, frequency in auto increased significantly, and a supply chain that was already stressed, especially related to auto, was further pressured. Although we largely expected these effects, the speed of the reopening magnified their financial impact in this quarter's results. In our auto businesses, the increasing activity seen through an increase in miles driven led to elevated frequency. The environment also has significantly increased severity driven by supply chain issues, labor shortages, social inflation creeping into lower limit policies, and Florida PIP court rulings that impact multiple policy years. Alternatively, in our life business, we saw increased demand for our products, historically high persistency, and a reduction of COVID-related mortality. Our balance sheet and business model remain well-positioned to navigate the reopening. We're taking appropriate action to ensure we meet the needs of our customers and continue to create long-term intrinsic value. For a few specifics on the quarter, please turn to page four. We generated a net loss of $63 million, or $0.97 per share as reported, and $53 million, or $0.82 per share as adjusted. We also produced an adjusted consolidated net operating loss of $99 million or $1.54 per diluted share as reported, and $89 million or $1.39 per share as adjusted. As highlighted before, the speed of the reopening and other environmental challenges negatively impacted these results. Duane will discuss these issues in greater detail. Let's discuss the key metrics we use to evaluate our performance. Tangible book value per share, excluding unrealized gains, declined by 1%. The goodwill created from the American Access transaction contributed to the majority of this decline. Note, as we stated at the acquisition announcement, we expect a relatively short earn- back and remain enthusiastic about how the transaction will expand our Specialty P&C franchise value. Return on tangible equity, excluding unrealized gains, is 11%. In addition, we continue to produce strong cash flow. Over the past year, we generated $422 million of cash from operations. These metrics highlight how, even in a challenging environment, Kemper remains financially sound. Turning to segment results, the swift reopening and the referenced environmental challenges led to an increase in both frequency and severity this quarter. These inflationary factors and the Florida PIP court rulings I mentioned earlier drove adverse prior year reserve development. The Specialty P&C segment generated an adjusted underwriting loss of $60 million and an as-adjusted underlying combined ratio of 106%. We believe this to be a short-term obstacle that will extend a few quarters while we take appropriate corrective actions. We expect to return to a more normalized underlying combined ratio within the next few quarters. In April, we highlighted how the uneven reopening from state to state impacted shopping behavior. This quarter, we saw demand for our products return, and we experienced strong growth. Policies in force grew 5.5% as adjusted, and direct written premium on a normalized basis grew 13.2%. The business remains well-positioned for attractive long-term growth and, through proactive corrective measures, appropriate long-term returns. Our Preferred segment faced the same environmental challenges as our Specialty P&C segment. We continue to work to enhance this business. Turning to our Life & Health segment, we continue to experience strong policy retention and increased demand. The heightened level of mortality we experienced earlier in the pandemic is beginning to subside. The business is positioned for our ongoing profitable growth. On the capital deployment front, we continue to take actions that enhance the long-term intrinsic value of the company. We closed on our acquisition of American Access on April 1st and repurchased roughly $160 million worth of shares through the end of the quarter while maintaining a high level of financial flexibility. In summary, we experienced expected environmental challenges in auto this quarter. Their impact was magnified by the unanticipated rapid speed of reopening. On the flip side, our Life business has begun to return to a more normalized level of profitability. We have a strong balance sheet and a business model positioned to navigate the reopening and ensure we continue to deliver long-term value to our customers and investors. I'd now like to turn the call over to Jim to discuss our second quarter operating results in more detail. Thank you, Joe. Turning to page five, you can see the impact that the recent environmental challenges had on our business. In short, financially, it was a tough quarter. Top-line growth returned to a more normalized rate, two years of increasing severity, additional supply chain challenges, and a swift frequency return more than offset last year's premium credit and this year's mortality improvement. This resulted in a reported net loss of $63 million, an adjusted loss of $53 million, a reported consolidated net operating loss of $99 million, and an adjusted net loss of $89 million. It is likely to take a few quarters for the environment to normalize, corrective actions to begin to earn in, and profitability to return to appropriate levels. Turning to tangible book value per share. Excluding unrealized gains, tangible book value per share declined $0.30 compared to last June. Looking at this relative to last quarter, it declined $5.10. The primary driver was our investment in AAC and its corresponding goodwill that accounted for $3.07 of the change. We continue to expect this transaction to be accretive to franchise value. On page six, we highlight our view of operating income. As mentioned, this quarter was negatively impacted by certain environmental challenges that led to higher frequency and severity, as well as adverse prior- year reserve development. Our Specialty P&C segments, as adjusted, underlying combined ratio of 106% reflects an approximate 45%-50% change in frequency and an approximate 8%-10% increase in severity due to supply chain issues such as commodity prices and labor shortages. On the bottom half of the page, we display sources of volat ility. You can see the impact that the increased litigation and social inflation had on the prior- year reserve development and on our financial results. In a moment, Duane will provide additional details on this. On page seven, we display some of the key capital metrics we use to track our performance, including growth in tangible book value per share and tangible return on equity. Over the past 12 months, return on tangible equity, excluding unrealized gains, was 11%. As discussed earlier, relative to last quarter, tangible book value per share, excluding unrealized gains, declined 12%. This was largely due to the AAC acquisition and its corresponding goodwill. Going forward, the reference industry environmental challenges will likely pressure near-term tangible book value per share growth relative to historical performance. That said, we believe these challenges to be short-term in nature and do not believe they will impact our long-run targets. Continuing on page eight, we highlight the strength of our balance sheet. Specifically, our insurance entities are well capitalized, liquidity remains strong, and our debt-to-capital ratio of 20.7% is well within our stated target range of 17%-22%. This profile provides us with a significant degree of financial flexibility to optimally navigate this environment and make appropriate investments. On page nine, we demonstrate our strong capital stewardship. This year, we've taken approximately $580 million of capital actions. Through June 30th, we repurchased 3% of outstanding shares totaling roughly $160 million. In addition, as stated last quarter, we repaid the $50 million term loan, increased our annual dividend per share to $1.24, and closed on the acquisition of AAC. Turning to page 10. Net investment income for the quarter was $114 million, reflecting the strength of our core portfolio and strong alternative investment performance. Our portfolio construction, which focuses on matching liabilities and total return, is designed to provide stable income through various cycles. This is evidenced through this quarter's pre-tax equivalent yield of 5%. On page 11, we re-highlight our solar energy investment with Sunrun. Our investment dollars are being used to finance the installation of solar panels on a portfolio of residential homes. This helps provide a clean alternative energy source to homeowners. From an accounting perspective, returns will primarily be recognized through the income statement as tax credits and deductions, with a portion of these items offset by reductions in the fair value of the partnership. While this is a multi-year investment, the tax nature of the transaction front-loads the return of cash and income recognition. Net result, most of the expected lifetime returns will be recognized this year. The largest expected impact took place last quarter. Cumulatively, the investment has increased net income by approximately $70 million or $0.26 per share. This is a great example of how we can use our capital to benefit both the environment and our stakeholders. In closing, while the company's quarterly financial performance was pressured by industry environmental factors, we are confident the corrective actions we have and are taking will return us to our financial targets over the next few quarters. With that, I would now like to turn the call over to Duane to discuss the results of our P&C segments. Thank you, Jim, and good afternoon, everyone. Before I jump into our segment-specific results, I want to make a few comments about auto overall, so let's turn to page 12. There are several environmental challenges that are impacting auto loss costs. On the frequency side, a significant rebound in miles driven has resulted in an increase in claims. At the same time, severity is increasing due to supply chain challenges, labor shortages, and social inflation. Recent Florida court rulings have changed some of the rules and requirements regarding personal injury protection. These changes impact multiple policy years. As a result, we re-evaluated and increased our prior year reserves. This is part of doing business in Florida and does not change our commitment or ability to serve this market in a manner that is good for both customers and shareholders. One of our advantages is the ability to quickly adjust our operating model and pricing to these types of legal changes, and that process is underway. Further, in line with what others in the industry have observed, we are seeing an increase in attorney involvement in claims. With the reduction in claim activity during the pandemic, plaintiff attorneys have now expanded their focus to lower limit policies. This has resulted in a higher level of expected loss costs to which we have appropriately reacted. We continue to monitor the situation and are actively taking corrective actions. Moving to page 13, I'll start with Specialty P&C. Given the environmental challenges I just mentioned, the segment experienced a 17.3 point increase in its underlying combined ratio, resulting in an underwriting loss of $60 million. However, the current loss doesn't change our view of the long-term profitability of the business. We remain comfortable with our underwriting practices and are taking appropriate actions to return the business to target profitability. From a top-line perspective, we had strong growth across the entirety of the franchise. Specifically, policies in force increased 5.5%, while written premiums on a normalized basis increased 13%. This was significantly driven by Florida, Texas, and our expansion states, where we have achieved top- quartile growth, highlighting the portability of our model into existing and new territories. Lastly, as I mentioned last quarter, on April 1st, we closed the acquisition of American Access. It's been a pleasure working with our new colleagues, and we're making great strides on the integration that will enable us to leverage their capabilities to enhance our specialty business. Turning to the Preferred segment on page 14. The Preferred segment is facing similar environmental challenges. As a result, our business enhancements to date were overshadowed by these challenges. Overall, in the Preferred segment, we continue to expect ongoing profit improvement actions to bring us closer to our desired results. I'll now turn the call back to Joe. Thank you, Duane. Turning to our Life & Health segment on page 15. Overall, the Life & Health segment's profitability is beginning to improve as mortality returns to pre-pandemic levels. For the quarter, segment income was $13 million, driven by lower levels of mortality and strong policy retention. For our products, the environment is creating stronger consumer demand. This is seen through increased new issuance and improved policy retention. Issuance levels are above pre-pandemic levels. Retention of 94% is at a historic high. The combination of these items produces a net result of a 5% increase in life earned premium. Our outlook for the Life & Health business remains positive, and the segment is positioned for profitable growth. In summary, while this quarter's financial results were disappointing, they were not a complete surprise. When we concluded last quarter's earnings call, we stated that we expect to see a decrease in mortality, more auto insurance purchases, increases in auto frequency and loss cost inflation, and a robust economy and associated investment impacts. All of these factors came to fruition at a faster- than- anticipated rate. Our balance sheet provides appropriate financial protection for these types of changes. Further, our business model is designed to be nimble, efficient, and responsive. We expect to quickly improve results and continue to use our competitive advantages to profitably increase market share. Despite this quarter's challenges, we remain in a strong financial position and will continue to deliver on our promises to our customers and to provide attractive long-term results and value creation for our stakeholders. I'll now turn the call over to the operator for questions. Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before passing the key. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question today will come from Greg Peters with Raymond James. Please go ahead. Hey, good afternoon, everyone. I wanted to just focus in on the Specialty P&C segment and the underlying results there. I was wondering if you could give us some more color about where the deterioration was most severe. Was it California? Was it expansion states? Was it Florida? The other thing, I went back and pulled up my Infinity Property and Casualty model, and I have results going back to, God, the early 2000s on a quarterly basis. I don't think they ever reported a combined ratio this high. I'm pretty sure they never did. I'm just curious. I'm sure everything's integrated at this point, but I'm wondering if you're able to isolate it to a pocket of business, or is it's just across the entire spectrum? Yeah. We'll tag-team the results a little bit here, Greg, and thanks for the question. What we're seeing is a broad set of reopenings with a fairly significant bounce up in frequency, and some very significant issues around severity. The supply chain issues have seen a rapid change. You're getting an increase in parts. You're getting an increase in cost to get a rental car. You're getting delays in how long things take to run through a body shop because they run through labor shortages or trying to get, whether it's chips or parts or the like. We are seeing some social inflation creep into our business in ways that we weren't in prior quarters. I think part of what you're seeing is that attorneys who had been focusing on higher- limit policies when the pandemic saw a reduction in frequency, they started looking for other places, and they moved more into lower-limit policies where we hadn't seen them before. That's putting some pressure on that. You've got the normal medical cost inflation that you're seeing. Sort of all of those are happening fairly rapidly at one time. We foreshadowed those for you last quarter. We described that we expected to see supply chain challenges and a somewhat of a demand surge later in the year. Honestly, I thought it was going to be third quarter and fourth quarter, not as much in the second quarter, but it came in largely as expected. What we normally would've seen in a specialty business is those things would've crept in a little slower, and our capacity to adjust with rate would've been more rapid. Given the last 12 months of particularly low combined ratios, the ability to turn hard on that wasn't there. It's going to take a little bit of time to do that because when you look back at a rate file, and you look back at the more recent history, it shows some positive profitability. We're seeing the issues not appear to be anything at all from an underwriting perspective or an underlying model perspective. We're seeing a temperature rise across our book. Honestly, in some ways, the way you watched a Progressive combined ratio, an underlying combined ratio go up over the last three or four months, very similarly and very much in parallel, the points of the underlying combined ratio change are similar. Yeah. Greg, maybe what I would add to what Joe was highlighting, I think one of the things, you've got some purchase accounting and other noise that are running through here. I'd really encourage folks to look at what the six-month underlying combined ratio is for the particular business, which is at 99%. Again, definitely higher than our historical norms. When you think about the quarter, it has a couple of things that are running through it that aren't necessarily just purely indicative of the quarter. You've got some intra-year development that is both related to, kind of again, our pick for the year. The more that we have information on this particular quarter, and when we think about how that's going to play out in the year in terms of trying to pick an accident year, that basically brings in some elements that create some intra-quarter or intra-year development that would, again, they're accurate when you think about the six-month view, but they would overstate a little bit what the quarter in and of itself would be. The second thing that you see there is, again, some revised estimates that we have around the severity piece, not only just the frequency piece now for the year, but the severity piece. We continue to see that uptick, and whether that's being driven by additional rental car days because you've got chip shortages or labor shortages or whatever the driver is. We've further enhanced our thoughts relative to what that is. Again, you've got a good full year, I think, in that 99%, but it does look higher from a quarter perspective. And this is- Oh, I'm sorry. No, go ahead. One other thought, this is Duane. I think you hit on a couple of things there, but Joe mentioned it, the profile of the business, by and large, hasn't changed. We continue to attract and write the same types of insurance that we've written historically. I do believe it's nuanced, as you would suspect by state, slightly, but by and large, we're seeing it countrywide, nuance being driven by when states opened up, right? It was pretty much dictated by if some opened up ahead of others, then we saw different outcomes. California was late to the game, so we saw that certainly later in the quarter. As far as history goes, I don't know that if you go as far back as you did with Infinity, that you probably would've seen the environmental challenges that we've seen both as COVID hit, and things slowed down. You would've seen some outcomes there that were very unique. I think we're seeing unique outcomes in the environment as we reenter. I think Joe and Jim highlighted those in terms of the severity pressure and the frequency pressure. I think that's going to take a little bit of time to normalize. Thank you. Just as a point, follow up on that. You mentioned that they're coming after. Well, the attorneys started coming after the lower- limit policies. I guess legal costs are outside the policy limits for the lower- limit policies, or are they inside policy limits? I'm just wondering what the holy grail the lawyers see in minimum limit policies. Yeah. Not every one of our policies are minimum limit, Greg, but there are lower limits. Even if somebody's coming after a 25/50 policy, they're looking at those limit dollars, and they're filing a suit on there. They're coming to the conclusion that maybe they can find another $10,000 or $15,000. It's what I've described a little bit like the rats in Chicago during the pandemic. With less activity, they came out of the alleys and were a little more rampant than they were. With less activity, some of the trial lawyers are working in places they didn't work before. Again, it's smaller limits. There's not going to be a lot of dollars there, but there are some, and that puts a little bit of pressure. It's not something that we look at and say, " We think we've got something that's a fundamental underwriting issue or problem. We're comfortable with the business we're writing. Two or three quarters ago, I think your question was, how long are these combined ratios going to stay this low? We told you we didn't expect that they would. There would be a pandemic rebound. I wouldn't compare this against picking the worst Infinity quarter. I think what we've seen is the pandemic created an environment that had an abnormal, rapid reduction in combines. It's going to have an abnormal return in combines. Then it will balance itself back out. We're very comfortable with our long-term pricing targets and feel good about growing the business in this environment. That's the message I'd take away. I'd look at the full- year numbers Jim was pointing you to, and the fact that we're comfortable with our foot on the gas from a growth perspective. Got it. First of all, I love the analogy of rats. That's going to go down in the record books. More seriously, you said you thought that things were going to really deteriorate in the third and fourth quarter, and you say it's going to take you two quarters to get back to a normalized combined ratio. Should we assume that at this point, because it's emerging, getting sequentially core month- by- month, that maybe things continue to escalate, but then when we get towards the end of the fourth quarter, we start to see improvement? Is that sort of the cadence of what we should be expecting? Yeah. I'm going to answer your question slightly different, Greg, but try to get you where I think you're trying to go. I'm going to try to avoid giving forward guidance or giving you a number to pick. What I would tell you is that typically in the specialty auto business, we think we can adjust around a profitability issue inside of a couple of quarters. My sense is this is probably more like a two to four period, rather than a one and a half or two. That's because of two principal issues, and then all the other noise is working through there. I think you're going to see inflationary pressure on the supply chain, labor shortage, and medical costs that are going to continue to stay elevated higher than normal, for at least 12 months, maybe 18 months. That's one. Number two, rate filings typically require you to look at your historical data and put some sort of projection in for trend. The historical data that we're all showing across the industry has had some periods of very attractive returns. This is going to be a conversation with regulators that we're all going to wind up going through. It's going to be an industry issue of looking at those quarters of attractive returns. We're going to look at the returning frequency, the returning severity, and then the elevated severity, and it's going to wind up being a set of conversations around which of those two we should put more weight on, the past or the future. Ultimately, I think the regulators are going to realize that if they don't let the industry move and respond to the forward-looking loss trend, it's going to cause carriers to restrict availability, and it's going to cause a supply problem from an insurance perspective. That heat usually has to occur before the insurance departments recognize all of those issues. I think it'll take a little bit of time, a little more than normal. It's not something that I think is going to take years, but somewhere in that two, three, maybe four quarter time period to get back into that mid-90s range that we like to be at. Got it. Very thoughtful answers. I appreciate it. Thank you. Our next question will come from Paul Newsome with Piper Sandler. Please go ahead. Thank you. I'm looking at the loss ratios for the Specialty business in 2019, and you were running about 75%. Kemper had a couple of points of improvement in 2000, which I think most attributed to the stay-at-home orders, but that improvement was a lot less than what we saw in other companies that are mostly standard. I think the thought was. Paul, can I stop you for one second, Paul? I just want to make sure I'm understanding which segment you're talking about again. The Specialty Personal Auto. The Specialty Auto? Yeah. Specialty Personal Auto. Okay, because I thought I heard you talking about homeowners. No, I'm sorry. Specialty Personal Auto. Oh, I'm sorry. Got it. Okay. Personal Auto. Yep, sorry. The point was there was sort of two points of improvement in 2020 that were attributed to the stay-at-home orders. The thought was that non-standard was a little different than, say, standard business in that the behavior of drivers was less impacted by stay-at-home orders. If I back into the number today, it looks like the loss ratio is probably closer to 80% on a run rate basis. Am I wrong to say that essentially the return to stay-at-home orders is really just two points, and that the remainder of that is these environmental issues, the PIP counts to give me a magnitude of what is really what the frequency impact versus what is the other pieces here, or I guess the converse of that is that maybe there was things happening in 2020 that was masking problems that started earlier. What we're seeing today is sort of the culmination of underwriting issues that started not just this year, but those quarters were actually back in 2000. Yeah. No. Thanks for the question. This is Jim. Paul, I'd start with, I think it was more than two points of potential impact. Now, some of that was offset by premium credits, or effectively, there was some increasing severity that was on the other end that kind of brings you to that net answer that you're referencing. Now, when you step forward, you've now had two years of severity trend running through, right? Instead of having this pre-cut or some way to come back and say you've got rate, that would be similar to the premium credit that we gave up on the other side, right? That would've extended that. Instead of having a couple of points benefit, you might have a four or five-point benefit that was coming through there. We now have the other end, where you've come almost instantly back. I think, again, I'm not going to point too much of our guys here, but I think they do a nice job with the monthly financing. When you see that 47%, 48% type frequency increase, the speed with which that came back isn't like anything, even in the way going down to some extent other than a month. Now you have nothing to match that against both for the rate to offset the severity pressures in the other that are coming back on the other side. It's unfortunate in terms of how these things align. If it would've taken a few more quarters for this to normalize from a frequency perspective, I don't think you get quite the same level of impact from a severity side because you don't put the same pressures on the supply chain that, quite frankly, are being put there now. On top of that, you've got an increased period of time to provide data to the regulators, work with them so that this is more matched, and so your rate can be a little bit more balanced, right? In terms of how it comes in versus what you're seeing now, which is just quite frankly, these two things are disjointed. Again, it's unfortunate, but it's not something that we won't fix or are not used to. I'd highlight how we responded with AU and how quickly we brought that to fruition. Now we've got an unusual severity time. We'll work through that. This isn't going to change the long-term underlying profitability of this business or the benefits that we're going to bring and continue to bring to customers or our ability to take medium and long-term market share. Again, unfortunate. It's definitely got our attention. That's an understatement. We'll respond, and we'll get back to where we were. Joseph Lacher, could you contrast the situation underlying all these issues with the Preferred versus the non-standard auto? Is it basically the same themes with the same magnitudes, or are there differences that we should think about between the two segments and how it sort of arrived today? Sure, Paul. They're largely the same themes. There's a few things that are exacerbating the specialty space. The Florida PIP issues are Specialty only because we don't do Florida business inside of Preferred. Those are unique and understandably different there. What we saw in the Preferred business was a little bit of a difference in the frequency changes. You highlighted this before. In the pandemic, the Specialty business didn't see as much of a frequency good guy when people went home, as the Preferred did. The rebound has actually been bigger in the Specialty business. Those folks were less likely to have worked from home before, as a rule. They were less likely to be able to continue to work from home. As there's been some increase in miles driven, that gives you a little bit of a difference in frequency delta and distribution around those. I think our Specialty business just saw that a little differently, and the biggest issue between them is probably coming around the PIP and the slope of the frequency numbers. I think if I were measuring where they were net-net, the down to the up, the Preferred probably is still a little ahead in total net-net from those two. You get a wonky percentage change when you're comparing period over period. Net-net, the Specialty's a little worse off in that on the combined. Great. Thank you. Thank you. Look forward. Our next question will come from Brian Meredith with UBS. Please go ahead. Yeah, thanks. A couple of questions here. First, Joe, I'm just curious. Why wouldn't you just step off the accelerator a little bit on growth right now, while you kind of figure out what this ultimate loss cost situation's going to be and what regulators are going to give you from a rate perspective? Sure, Brian. We're very comfortable where we are from an underwriting perspective and what the underlying business model is going on inside of Specialty. To some degree, we're looking at what the two years combined look like, 2020 and 2021. What's happened net-net is we got a little less rate in that time period than we would've expected from a normal time period. We've got a little bit of a severity increase right now that's running hot, that could do more than a normal period. We're highly confident that we can adjust with whatever we pull with our rate levers and non-rate levers over the next six months to put ourselves into an appropriate position. We're also confident that the competition's going to continue to move and have to respond inside of that environment. We believe we've seen the issues earlier and are responding earlier. We're confident that while the same issues are out there, they just probably haven't seen it and described it yet. They're ultimately going to do that. We're going to be there, like is often the case, to catch the business during the market disruption. It's a confidence inside of the Specialty model and the knowledge of what we've got and our capacity to move quicker. Okay. I guess my second one is just on the Florida PIP situation. Is that purely just prior year policies being affected, or did it have an effect on your current year kind of underlying loss ratios in the Specialty segment? Is that something you need to price for, or is this simply just a one-off situation? Yeah. There was a PIP ruling, it changes the way whether you're paying fee schedule or limited numbers, then there's some technicality around it. The $50, $55 million associated with that not only impacts the current year, there's a five-year open statute of limitations, if you will. I would really think about that as if it were running over five policy years. In Florida, for us, that's about $2.5 billion. It's not a big number when you put it over a $2.5 million policy base, $2.5 billion. It will impact the current year, and it'll impact going forward. If you look at the combined ratios in Florida over the last five years, they've been highly attractive. Even with $55 million of losses on the $2.5 billion base, remain highly attractive. We'll factor it into our thought process, but it doesn't change our view on the market. If you do the math just on the Florida standalone basis, it doesn't change the view that you'd love us being in the state and you'd be happy that we were growing it. Great. Thank you. Our next question today will come from Gary Ransom, who's with Dowling & Partners. Please go ahead. Yes. Good afternoon. I think in Specialty, most about what you've been talking about has been on the personal line side, personal auto. Can you talk a little bit about the commercial? I see it has better combined ratios, but are some of the same trends you've been talking about affecting that part of the business as well? Hey, Gary, this is Duane Sanders. I think you are correct. It's a little more, I would say, subtle inside of the commercial line side, but we're obviously seeing the frequency impact. There's a little bit on the severity side. It's distributed in terms of volume slightly different than the personal auto side is. Again, it continues to generate decent returns, and we're watching it closely. To Joe's point, where we're making changes along the way as the market moves on us, we're doing that inside of that business as well. Yeah. We're not really seeing a change in the social inflation there. Whatever was there, was there before. It obviously doesn't have any impact of the PIP that we saw in the PI side of the house. It had a little bit of a better starting point. It's got the general environmental issues, but some of the idiosyncratic things that were running through the rest of the Personal Auto in the specialty space aren't there. Right. Okay. In terms of the actions you want to take, obviously, there's a rate, as you were talking about. Are there other things you can do that might change things a little more quickly, whether it's how you treat new business, or payment plans, or other things like that might be a meaningful lever to pull? Hey, Gary, this is Duane again. Yes, you're exactly right. We continue to manage the underwriting side, I'll call it that. We constantly monitor that. To Joe's earlier comments about how we're reacting, we've already pulled a lot of those and have been pulling those over the last 30 days, if not 60 days, as we've seen the market and the environment start to change. We continue to do that, certainly within the guidelines that we have to abide by while we're positioning ourselves for the rate change that we're queuing up. We have several of those, as you can imagine, across all of our business lines to get those in play as soon as we can. In the meantime, we are adjusting through segmentation levers that we have, underwriting levers that we have, to try to respond to what we're seeing. Your short answer is yes, we are. Okay. We're taking, Gary, in our thought process, we're not taking a quarter-at-a-time view. We're taking a longer-term view. What I'll point you to is, as you remember, when this management team first came in, we had an Alliance United acquisition that was running a 125 combined ratio and growing at 30- some odd percent. We had a relatively quick fix on that, and we never slowed the growth in that business below 20%, because we believe the best long-term intrinsic value creation was to be able to grow that business and produce returns over the long term. That's what we did inside of that. If we thought it was going to be a longer-term trade, we might have a different point of view. When we look at it, we're saying what produces the best long-term NPV and growth in tangible book value, and that's going into our thought process, so it impacts the confidence we have on the speed. All right. Thank you very much. Again, if you'd like to ask a question, it is star then one. Star then one to ask a question. Our next question will come from Matt Carletti with JMP Securities. Please go ahead. Hey, thanks. Good afternoon. Just a quick one on the prior development. We spent a lot of time on the accident year, just wanted to ask, I guess, one, your confidence or conservatism level that went into getting there, really trying to get at your confidence that at least from a prior year perspective, it's hopefully put behind you. Then second question along those lines, just from a PIP perspective, what's been your experience in terms of the real tail on that business? I know the statute of limitations is five years, which accident years did that 76 really relate to? I'm trying to get at once we get a certain distance away from things, when effectively do you have a good feel on that tail? Okay. A lot there. Let me try to unpackage it in a couple of things, and I'm sure we'll tag- team this a little bit. In terms of the development question and confidence, I would tell you there's a wide error bar in the environment, but I do believe that we have, as we always do, try to put our best foot forward from an estimate, but also trying to be at the higher end of that confidence range versus the lower end in terms of where it's at. We definitely try to take a view forward and think about, okay, how are these curves developing? If we think about the severity impact that's here today, what do we think is happening from an ongoing severity that is going to end up with our resolution of those particular claims? That's not a different process for us. It's the same level of. Same viewpoints that we would have there, and I think you'll see from a preference standpoint, we always want to have a strong balance sheet. From that perspective, we tend to be more, conservative is the wrong word, and so I'm trying to stay away, but if we're going to lean one way or another, we tend to lean more towards the item that is going to ensure that we have the right view of the balance sheet, than not. Let me pause there and see if there's any follow-up questions around that before we try to unpackage the second part of your question. No, that makes sense. Thank you. Okay. In terms of I think it's going to be a little hard, I'll ask Duane and Joe to fully appreciate when we'll have the Florida PIP item 100% baked from paid or other coming in, because quite frankly, some of the court cases just shook out in June, so that becomes a little difficult to say 100%. When you look back over time periods, even like this, it tends to be a 9- 18-month window before you have a, are you going to move one or two points down from your mean development factors at that point, or up? They're not huge deviations from those components at those standards. I would also indicate that we've thought about what we think that development pattern is. That is included. We tried to be really thoughtful with it. We tried to set it aside. I'd prefer not to, and I think the entire team, I don't want to talk about this next quarter and the quarter after. Right? We tried to give what the best pick is and what those ultimate claims are going to be. Within 9- 10- 12 months, maybe 18 at the longest, we'll really have strong paid patterns that will validate. Could you have a little bit up or down? Sure. I don't think it'd be a whole lot. I'll ask Duane and Joe, to maybe give some comments. Yeah. Maybe I'll jump in here, Jim. Matt, I want to make sure we're answering the question the way you were asking it. I think Jim was giving you a balance sheet confidence on the PIP question. Were you asking that, or were you asking changing the PIP environment and how long does it takes to work through it environmentally and from a business perspective? A little bit of both. I think the balance sheet question is pretty clear. Any color on the latter would be helpful. From an environmental perspective, Matt, Florida PIP is always a little bit of a mess. There's always some group of trial lawyers, some group of medical providers, trying to work the system, to squeeze a little more juice out of the orange. That's part of why it's a good Specialty environment. It creates a challenge for folks who aren't really good at it and strong at it. There's nothing about this particular set of rulings that we look at and say it's rewritten fundamentally the way PIP's going to operate in Florida. It's a court decision that changes the way most carriers were interpreting, whether you pay the fee schedule or you pay the limited amount. We believe those were intended to be written into the law for different purposes. The legislature changed the law a little bit, and there were some verbiage and word changes. This might be a couple of hundred dollars a claim that it's having an impact at a per claim level. $50 million-$55 million on $2.5 billion is a couple of percentage points on a business that, for us, had a combined ratio, high eighties, low nines starting point for the last five years at different points, depending on which period you picked. It's been an attractive business for us. It's not fundamentally changing our view on Florida. It's changing how we work through some existing inventory, and how we think about that on new arisings. If that's the only thing that happened, we wouldn't be changing much about what we were doing in Florida, except a handful of practice changes and a little bit of a review on some open claims. That's really helpful. I appreciate the insights, and best of luck. Last question will come from Jeff Schmitt with William Blair. Please go ahead. Hi. Thank you. Was any of the adverse reserve development related to American Access, or was it all Kemper and IPCC? Just curious how reserve levels are? No. Sort of looking there. No, the development that's being referenced is the Kemper and Infinity combined book. There's no AAC there. It's inside those numbers, and I think we continue to be appropriate and strong, and we've dug through AAC multiple times, and we'll continue to do that. Very happy with the acquisition, very happy with the strength of the balance sheet underwriting. Nothing there that has changed any of our thoughts, assumptions, or other at this stage. It doesn't look to be in the same boat as Kemper? What we're seeing is the same issues that you're seeing environmentally on increased frequency, increased severity, and the supply chain issues, labor shortages, the like. It's working through all of those issues. There was no significant PIP running through that environment. If you take the PIP out, the prior year were not a huge set of numbers that we're running through there. It's got the same drivers on similar roads and similar environments. The frequency and severity issues we're seeing on the whole book are there. You provided some color on just social inflation moving down into those lower limits. Do you know what percentage of claims have attorney representation now versus maybe a year ago or maybe versus historical levels? Yeah. We have a sense of it. It's not something we typically disclose, Jeff. Depending on which of the different entities we've picked up from acquisitions, they count claims a little differently, claim counts, and feature counts. Where some will count an accident, some will count the number of cars involved, some will count the number of people in the cars. You get any of these different issues? There was a different counting mechanism, so those rates become a little differently when we look across the books going historically. It's a significant change, but not multiples. Okay. Got it. Inflation on the homeowners' side, what is that trending at? We've heard from others that it could be as high as 10% increase in loss cost trends. Are you seeing that there too? Yes, we are. I think we're, again, just like the rest of the environment, whether it's body shops or lumber prices or labor rates, we're fairly consistent with what others are seeing in that space. Okay. Thank you. Ladies and gentlemen, this will conclude our question- and- answer session. I would like to turn the conference back over to Joe Lacher for any closing remarks. Thank you, operator, and thanks everybody for joining us on the call today. We appreciate your time and interest. We know that the pandemic created a lot of interesting challenges as we all started working from home and staying at home, and it's going to create an interesting set as we reopen. We're very confident about our overall business model and our long-term prospects and are excited to talk to you again next quarter. Thanks a lot. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.