Todd Barton - AVP, IR Joe Lacher - President and CEO George Dufala - President of Property & Casualty Division Jim McKinney - SVP and CFO

Matt Carletti - JMP Securities Bob Glasspiegel - Janney Montgomery Scott LLC Greg Peters - Raymond James Paul Newsome - Sandler O'Neill

Good afternoon ladies and gentlemen and welcome to Kemper's Second Quarter 2017 Earnings Conference Call. My name is Nicole 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 and instructions will follow at that time. As a reminder, the conference is being recorded for replay purposes. I would now like to introduce your host for today's conference, Todd Barton, Kemper’s Assistant Vice President of Investor Relations. Mr. Barton, you may begin.

Thank you, Nicole. Good afternoon, everyone and thank you for joining us. This afternoon, you will hear from three of our business executives, starting with Joe Lacher, Kemper's President and Chief Executive Officer; followed by Chip Dufala, Kemper's Property & Casualty Division President; and Jim McKinney, Kemper's Senior Vice President and Chief Financial Officer. We will make a few opening remarks to provide context around our second quarter results. We will then open up 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 Senior Vice President and Chief Investment Officer Mark Green, Kemper’s Life & Health Division, President. After the markets closed yesterday, we issued our press release and published our earnings presentation and financial supplement. In addition, we filed our Form 10-Q with the SEC. You can find these documents on the Investors section of our website, kemper.com. Our discussion today may contain forward-looking statements. Our actual results may differ materially from these statements. For information on potential risks associated with relying on forward-looking statements, please refer to our 2016 Form 10-K filed with the SEC as well as our second quarter 2017 earnings release and Form 10-Q. This afternoon’s discussion includes non-GAAP financial measures that we believe may be meaningful to investors. In our financial supplement presentation and earnings release, we have defined and reconciled non-GAAP financial measures to GAAP were required in accordance with SEC rules. And finally, all comparative references will be to the second quarter of 2016 unless we state otherwise. Now, I will turn the call over to Joe.

Thank you, Todd. Good morning everyone and thank you for joining us on the call today. We had a strong second quarter and I’m pleased with our progress. I also remain confident in our ability to deliver on our continued earnings improvement commitments. Before I walk through our results for the quarter, I want to provide a few comments from a long term perspective. Looking at page 3 of the presentation, we remained focused on building Kemper’s overall value and our strategy underscores this long term view. We continue to leverage our competitive advantages while building core capabilities to ensure we maximize shareholder, agent and policyholder value. During the quarter we made good progress of these fronts as you will see throughout as you will see throughout the presentation. Last September we discussed Kemper’s refined strategy and provided specific key elements of our Phase 1 activities. As a reminder these are displayed on page 4. Well, there is still work to do, I’m pleased to report that the majority of Phase 1 initiatives are complete or ahead of schedule. Our senior executive leadership team is in place and we’re tracking top talents for the key next level executive positions. In our life insurance business we’re implementing voluntary steps to use the death verification databases. In our P&C we repositioned our legacy nonstandard auto book and completed the turnaround of Alliance United. Each of these businesses has reached pricing adequacy and will look to increase growth. We now have and are continuing to build a leading nonstandard auto franchise. Turning to P&C claims we previously told you that we got off to bit of bumpy start. We refocused our efforts with our claims leaders in place, we’re on track to achieving our improvement goals. On the IT front we successfully placed our life & health policy administration system. In addition in P&C we rolled out a new policy administration platform in four states, which provide the foundation for our new preferred product suite. We’re making progress on reducing expenses. Chip and Jim will address these in detail little later. On page 5, we provide the breakout of the normalized earnings improvement targets. Last year in our strategic update we committed to improving earnings for P&C claims and overall expense initiatives. At the end of the presentation we discussed these outcomes in terms of their impact on ROE. We’ve had feedback that some people misinterpreted this as an ROE target that was not our intent. Today we’re providing an updated after tax view based on dollars with the same improvement targets. Over the last several years company generated an average of roughly a $100 million of normalized net income. We highlight that we’re on pace to nearly double our normalized run rate of earnings by the year end 2018. Redesign in our claims service model would take out $85 million of loss in LAE cost on a pretax basis which equates to roughly 5 points on a loss in LAE ratio and P&C. On the expense front we will take out $50 million to $65 million pretax which equates to about 20% of our fixed expense base. The effect of these two initiatives increases normalized operating earnings by roughly $90 million after tax which as you can see nearly doubles operating earnings. Turning to page 6, you can see our commitment to enhancing our core capabilities through the key hires we brought since our first quarter earnings call. In our Life & Health Division we added three leaders who are focused on enhancing distribution networks, growing the business and improving our analytical capabilities. On the P&C side we’ve three new claims leaders to help us accelerate our claims transformation and achieve our claim savings. At Corporate we brought in three new key executives to help us build analytic superiority and operational excellence. We’re also significantly adding top talent elsewhere throughout the organization to strengthen our core capabilities. Additionally, we announced this morning Susan Whiting joined Kemper’s board today. Susan will bring valuable perspective to our board including expertise in consumer behavior. On the bottom of the slide we highlighted two IT system successes I mentioned earlier. Our new Life & Health policy administration system gives us much more versatility and flexibility, improving our operational processes and positioning us for growth. The P&C policy administration suite enables us to design and create more sophisticated products, reduce operational costs and increase speed to market. Now let’s turn to page 7 and look at our second quarter’s results. Overall, we had a strong quarter as the profit improvement actions we implemented to-date are starting to fruition. In total we delivered net income of $37 million or $0.71 per share in the quarter up from $4 million or $0.08 last year. Net operating income was $21 million or $0.41 per share for the quarter compared to $5 million or $0.09 last year. Net realized gains were $15 million after tax in the quarter compared to net realized losses of a $1 million last year due to tax planning and portfolio management actions. Earned premiums increased 5% to $583 and net investment income increased 4% to $77 million. Life & Health continue to be a source of stability for the company. Earnings increased $4 million accompanied by modest premium growth. For P&C the key highlight was nonstandard auto which continued to show significant improvement in both Legacy and Alliance United. Our preferred auto business remains pressured with the challenges we discussed last quarter. However, we believe the claims improvements as well as rate and underwriting actions have us on the right path to getting this business to target profitability. We expect to see these results more significantly materialize in our financials over the next several quarters. We’ve applied the same focus to this business that we applied to turning around Alliance United. Similar to the first quarter the company and the industry experienced heightened catastrophe losses. Catastrophe losses of $35 million pre-tax in the quarter were above our expectations but below prior year and the first quarter. Turning to page 8, we isolated the key sources of volatility in our earnings. In the highlighted section at the bottom of the page, you can see that excluding these items, underlying operating performance improved for four sequential quarters. Most of the improvements over second quarter of 2016 comes from property and casualty division where our nonstandard auto line drove 7.5 percentage point improvement in the segments underlying combined ratio. Investment income contributed to our improvement as well primarily from higher levels of invested assets. Sources of volatility continued to stem from three main categories. Catastrophe losses, prior year reserve development and alternative investment income. Catastrophe losses in the quarter were $23 million after tax or $0.44 per share. Second, adverse prior year development was $5 million after tax or $0.10 per share primarily stemming from the preferred auto line. Chip will discuss these items. Last we benefited from strong alternative investment performance which Jim will discuss. Overall, we are pleased that our underlying operating performance is headed in the right direction and want to take this opportunity to expand on the turnaround of Alliance United which is leading the improvement. The details are on page nine. When Kemper acquired Alliance United it's a significant loss cost pressure, was behind on rate actions and had an under staff claims function. To address these items this management team implemented a series of rate increases as well as underwriting an agency management actions and hired significant additional claims staff. On the bottom left you can see the growth of earned premiums. We took a strategic approach to limiting new business while addressing the product, but we kept the agency plan engaged and maintained policies enforced to fuel future growth. On the upper right we show how our action significantly improved the underlying combined ratio. On the bottom right you can see the favorable impact of these actions we had on our profitability. We successfully turned around this business ahead of schedule. The acquisition is now accretive. Now we are looking to grow the business and increase market share thoughtfully. I will wrap up my comments with the Life & Health Division’s results which are on page 10 of the presentation. On the top half of the page you can see the stable revenue trend continued, earned premiums increased $2 million to $153 million primarily from A&H products. Life earned premiums were flat for the quarter. Net operating income improved $21 million driven by higher net investment income. This division continues to be a stable source of earnings with strong and predictable cash flows. With our recent management additions, we look forward to positioning this platform for modest growth. Now I will turn the call over to Chip to discuss the property and casualty results.

Pardon me everyone, we must have experienced a disconnect with the speakers. Please stay on the line. Please go ahead with the conference.

Thank you and good afternoon everyone. I will start with nonstandard personal auto on page 11 of our presentation. Just to reiterate what Joe said, we have seen significant improvement on Alliance United results and similar trends across our entire nonstandard business. Earned premiums increased in both our Legacy and Alliance United lines totaling $234 million for the quarter up $29 million or 14%. The top line growth was fueled by rate increases and strong renewals. Policies enforced increased 2% primarily from our Legacy business. More importantly we have seen increased profitability which is reflected by the improved underlying combined ratio. Alliance United improved 23 points to 95% and the Legacy lines improved 6 points to 93.6% as the entire business benefited from rate increases as well as underwriting and claims actions. With the turnaround in integration of Alliance United complete, we now have and continue to build a leading nonstandard auto franchise with nearly 1 billion of annualized net ridden premiums that is positioned for profitable growth. Given that we manage nonstandard auto as one business, we do not intent to regularly break out Alliance United results going forward. Turning to preferred on page 12. Earned premiums in total were a $183 million down slightly from last year and the underlying combined ratio was up less than two points to 93%. The preferred auto underlying combined ratio continued to be elevated at a 103%. We talked last quarter that the industry had seen adverse loss trends and mentioned that we were a little late responding to rate. We've implemented numerous rate actions, even these are primarily 12 month policies and policies need to renew before the rate takes effect. It will take another couple of quarters for the earn rate activity to be fully visible on our loss ratios. As we continue to work through our claims initiatives, our results still reflect some of the added pressure from the issues we described last quarter. We got a new claims leadership team in place, we've identified the breath of the issues and have made meaningful progress on remediating them. But like our rate initiatives, it will be another quarter or two until the benefit appears in our financial results. Despite the bumpy start to redesign the P&C claim service delivery model, we remain confident that we will reduce loss in LAE cost by 85 million pretax on a run-rate by year-end 2018 compared to the first half 2016 annualized results. From a topline standpoint, net premiums, net written premiums decreased 1 million primarily from lower new business as we implement the necessary rate and underwriting actions. Looking at home owners, the underlying combined ratio was 79.6%. The big story for the quarter was catastrophe losses, which has been the big story for the entire industry. I will talk about our experience on page 13. This slide shows quarterly catastrophe losses and LAE since the first quarter of 2013 as well as several averages. For the entire industry, as we all know, homeowner's catastrophe losses are inherently volatile. Let me start by indicating that we still believe the long-term projected average we use in pricing is appropriate. The chart shows that the short-term average is above the long-term projected average. I will also point out that our book is small. As a result, our losses are likely to have a higher standard deviation or more volatility than the industry. Although the short-term average losses have been higher, we believe the long-term average is still correct from a pricing perspective. That said, we are still -- that said we are actively looking at the use of reinsurance to reduce the potential high frequency low severity catastrophes that we experienced over the past several years. As the chart indicates, this is generally a first and second quarter issue for us. We're taking the next couple of months to ensure we get the right additional homeowners reinsurance program in place. Our intent is to reduce the impact that high frequency low severity catastrophe's will have on future earnings volatility and capital. With that, I'll turn the call over to Jim.

Thanks, Joe. And good afternoon everyone. Starting with investments on page 14. This function continues to be an area of strength for Kemper. We manage a diversified and highly rated portfolio that has performed well over time. Looking at the chart on the upper left, you can see our performance over the past five quarters. We delivered $77 million in net investment income in the second quarter, a $3 million increase from last year. The increase returned were driven by our diversified alternative investment portfolio, which modestly outperformed our expectations. The core portfolio continues to produce stable returns with higher investment base more than offsetting the slightly lower rate. Overall, in the second quarter, the portfolio delivered a pretax equivalent annualized book yield of 5.2%, 20 basis points higher than the same period last year. On the bottom of the page, we've broken out the portfolio by investment type and provided the fixed maturity ratings. The portfolio remains conservative in nature with roughly 80% comprised of fixed maturities and of those 90% are investment grade. On page 15, we highlight our strong capital on liquidity. In May, our 360 million senior notes matured and in June we issued an additional 200 million of the 2025 senior notes. The effective yield on these additional notes is 4.4% and will result in lower interest expense of $13 million on an annualized basis going forward. Our debt to capital ratio decreased to 22.6% providing us with ample financial flexibility. The reduction of leverage and invested assets will not have a material impact on our investment income. You can see in the chart in the upper left hand corner, we ended the quarter with ample HoldCo liquidity. We had a $188 million in cash and investments as well as $384 million in borrowings available from our revolver and the insurance subs. Looking at the chart in the upper right, you can see our insurance groups continue to be well capitalized. Finally, our book value per share excluding unrealized gains on fixed maturities with $35.13 up slightly from $35 at year-end. On page 16, we provide an update of our commitment to eliminate $50 million to $65 million of annualized expenses by year-end 2018. For the first six months of 2017, we are on pace to exceed our $20 million run-rate commitment by more than $5 million. We continue to streamline and automate processes, we're appropriate well investing for the future. Now that we have refinanced our debt, our addressee have addressed and our addressing DMF concerns stabilize Alliance United and identified a path for improved P&C preferred profitability. I would like to pause for a moment and remind you of our capital deployment framework which we have outlined on page 17. Priority one, we always look to the place much capital as we can into organically growing our business with appropriate risk adjusted returns. Priority two, over time we want to opportunistically invest in acquisitions that strategically enhance our business and ability to provide growing returns and enhanced ROEs to our shareholders. Priority three, if there is capital that we don’t think we would deploy in an appropriate time period, we will look at our dividend and repurchase policies. One caveat, if we believe that our stock is trading meaningfully below intrinsic value, we will look to opportunistically repurchase shares that provide significant EPS accretion to shareholders. With that, I am pleased to turn the call back to the operator to take your questions. Operator?

[Operator Instructions] Our first question comes from Matt Carletti with JMP. Please go ahead.

Thanks, good afternoon. Just a couple of questions on kind of the two sides of the auto business. I thought I start with Alliance United or even just the nonstandard more broadly. Let me first off and grab on a swift turn around. I know it's a lot of heavy lifting. So, it's great to see the numbers and the results. You talked about kind of being at kind of adequate profitability or adequate rating and going forward looking at a growth strategy. Can you give us a little bit of detail kind of how that would be positioned in the markets competitively versus your peers, your other peers still playing catch up and we suspect there are still larger rate increases on their end and that yours will be a little more competitive. What other facts do we think about?

Matt, this is Joe. I'll start with one and then see if Jim wants to chime in. you are getting a little more precise about what our tactical market actions will be relative to the competition. I think what we're really trying to signal and say is we're very comfortable with the profitability of this business. We don’t think it needs to fundamentally be improved more, we think the right balance on managing profit and growth is at this point we ought to be focused on appropriately growing this business. That does not in any way signal that we're trying to bounce this around and try to find a way to get combined over a 100 again by doing something stupid. We're going to be disciplined thoughtful underwriters and prices in the market and we're going to look at each of the markets where we're doing business and look for opportunistic ways to grow this business. In terms of what competitors are doing, this is not selling on a market, there's a lot of smaller competitors in each different geography. So, it becomes more complicated to describe what we think each one of them are doing in the marketplace. We've actually been growing this business modestly while we've been fixed at it. So, we think that we have a strength and a capability and are positioned to thoughtfully grow it going forward.

Great, thank you. And then, -- go ahead.

Matt, this is Chip. I would just like to echo what Joe said, I completely agree and also the work in the investments we made in the claims operation continues to help position us for that future growth. We feel very good about where we are and where we're going and we are going to keep a very close eye in the market.

Okay, great. And then just I want you to shift over to the preferred auto. Can you give us a little bit of granularity on just on kind of work maybe average rate that you're taking looks like kind of what how that compares to your review of loss cost trend, I'm really just trying to get my hands around how quickly you're kind of how many cycles maybe we'd take to get the combine back to reasonable amount, below a 100 rate profitability or target profitability if you well.

Yes, Matt. We're looking forward to getting there as well. We've been taking currently the high single digit rate increases on our preferred lines and preferred auto to catch up as we stated previously. We've been behind in rate, we recognize that and so we're being aggressive in the actions that we're taking. We really think we got to go through a full pricing cycle as I mentioned in my remarks, policies take a year to renew and it's really kind of a 12 months cycle. So, we'll continue to take the necessary steps, we'll continue to improve our claims operation which will be additive to our competitive position and ultimately to those lost cost and we feel good about the direction that we are heading.

Alright, great. Thank you for the answer and congrats in the nice quarter.

Thank you.

Our next question comes from Bob Glasspiegel with Janney. Please go ahead.

Good afternoon, Kemper. This is saying good morning Kemper. Let me echo Matt's congratulations on the turn around. Little bit more color on the adverse reserve development in auto in the quarter. Was it the continuation of first quarter trends, you think you got it at this point?

Bob, this is Chip. Most of the adverse development we've experienced this year in the preferred auto line has been primarily due to bodily injury and uninsured underinsured motor risk coverage's. From my perspective, for the most part it's with older claims that have been kind of ride on around the hallways here for a while and we've picked up some new information. And candidly, we have a lot of new eyes from the claims organization on those files. And so, based upon having that new information and how new management might interpret the information differently than what prior management did, was causing a little noise in the results. Do I think we have it all fixed? No. Do I believe that we're in a much better trajectory than we have been in the past? I really believe that and feel we are turning the corner there.

And the data that you're finding there --.

Okay. That's probably get on top. Bob, if I can for a second, I had to add on that. I think Chip's comment is very much about whether we got the problem fixed, I think you were also asking I think what's going to run through the P&L. we think we got the numbers right on those and we think we got everything there. When you change claim processes, it causes a lot of noise in the actuarial triangles and we've done our best to get it. We're obviously by definition management test estimate is our attempt to get that number right. We could still a little pressure there as the claim department rattles their way through these items. We think we've actually got it right and then what we're now going to see is not the effect of sort of the horrible processes from the past. We are going to start the serious act of the stronger one's going forward. But calling that term precisely is a hard thing to do. We think we either edit or really close to it, enough to where we're confident that these results are going to meaningfully deteriorate. They're going to move the right direction.

Fair answers, I appreciate it. Is there anything in the data and the reserve development that suggest you need more price or was that independent of the other stuff which you do it in pricing?

There's nothing but seeing in the underlying data. We highlighted the fact that we were behind somewhat on the loss trends and we need to get some rate there. We had made some missteps on some of the operational processes we're doing in claim. We will both reverse those and fix on and improve to get our 85 target. So, those don’t cause us any angst in terms of our pricing perspective. Those are just items that we're going to change and fix that will drop to the bottom line. The pricing impact is relative to the loss cost trend.

Great. If I could just focus on the chart on page 5. You get the $100 million of annualized earnings move into a $192 million -- a $197 million roughly by '19. And that's just through expenses, there should be some earnings growth beyond that. This is sort of normalized run-rate today in '19?

Yes. What this was intended to do is really not the new projection but to state what we were doing last September in a slightly different format. The claims initiatives are $85 million pretax or $55 million after-tax that we're going to let drop to the bottom line and the expense savings are the 33 to 42 which is 50 to 65 pre-tax on a normalized earnings base from the company it was $100 million. So that we expect to see drop, if fundamentally we grew the business you are right that could change that profile somewhat. We are trying to make it simple for you so that's the only other thing you would have to take into account, if we are making system changes and investments there or adding analytic capability or anything else all of that stuff is net. These are the expense impact net of investments that are going to drop to the bottom line. And it's expenses and loss in LAE. So whatever we have to do to get those these are the net benefits. But growth, meaningful growth we wouldn't have covered.

So ex-seasonality would be at 45 to 50 million run rate first quarter of 19?

That's about the math that would workout there.

Okay and the last question, what's your use of capital in discussion of buyback to say that buyback is now potentially on a table and you think you’ve been pretty clear that there was going to be no buyback for a better time going off?

Yes, I think we are taking ourselves out of the penalty box. For a period of time the place was clearly in a rebuild phase. We were clearly in a spot where the earnings were where it needed to, the business wasn't performing where it needed to and we had a lot of things to fix. It would have been inappropriate to continue buying back shares while we were dealing with that. This quarter we refinanced our debt, we have got the Alliance United turnaround behind us, a lot of those things kicked off the list, I mean we can get out of the penalty box.

Great. I guess, I won't ask you what you think intrinsic value is but look forward to talking to you in the future.

You are welcome to ask but I probably wouldn't answer.

Thank you.

Okay. Thanks Bob.

Our next question comes from Greg Peters of Raymond James. Please go ahead.

Good afternoon. Thanks for the call. I am not sure whose idea it was for this afternoon call but I kind of like it. It's unusual relative to many of your peers. I just wanted to follow-up with a question just on underwriting performance in different regions specifically in California, I am curious about your perspective on the competitive environment there as it relates in particular to nonstandard business and then I have a follow-up?

Okay Greg, this is Chip. When you think of the California marketplace, it is a very heavily regulated market there are a lot of very specific things that you can and can't do and we have traditionally followed those to the later. As you think about what our competitors are doing as Joe mentioned earlier there are so many very small kind of niche nonstandard carriers that really do unique things with the market segments that they target or different affinity groups that they’re targeting. What we are doing is we are looking at the main competitors within the marketplace and try to offer a solid value proposition to the customer so that our agents and brokers really have something to sell. We continue to leverage data, as we go forward we are going to want to do it even better job of using the data to make better and more informed decisions. But as I said earlier today we feel really good about where we are and where we are heading and what we have done and we are going to grow very judiciously. We want to grow especially in California but we are going to do it the right way.

Great. Sort of the segway you talked about data, I wanted to touch on technology two aspects. First of all, I know a number of your peers, larger companies have talked about automating the claims process further reducing the need for adjusters etcetera and I am curious if you have perspective on that? And then, secondly there seems to be an emergence of whole sorts of technology out there that are aimed at reducing or identifying distracted driving and I am curious if you have perspective on that as well?

Okay. Let me take both of those when you think in terms of the technology that's being introduced into the claims world, at first notice of loss it's in a very important time to gather as much data as you possibly can so that you can start up the pile work right. There are a lot of startups entering into that space. A lot of existing organizations have started to fine tune online applications from your smart device or from your tablet. The connectivity that many late model cars have where folks are able to report a loss through on-star or the like [indiscernible] I know a lot of folks are spending a lot of time and energy trying to make those systems work. We are paying very close attention to those. We want to be an organization that services our agents and policyholders the way they would like to be serviced. So as you have four or five generations that are out there driving at the moment we need to be able to have that high touch environment for the policyholders and claimants that won't have their hand held and then we also have to have the very slick online quick and easy process for folks that want to follow that path. So we are paying very close attention to that. We are watching all the various InsurTech FinTech and the startups that are out in that space in today's business world you have to understand how they are working and what they are doing to be effective. When you think in terms of what lemonade has put on the table and how they are trying to automate pretty much the entire claims process that's innovative and creative. We will pay close attention to that but we also do view that there is a place for people and for skilled claims handlers to be involved in that process and we will continue to do that. In terms of distracted driving that continues to be a real issue. The entrants institute for highway safety recently came out again and reconfirmed that even hands-free devices such as Bluetooth do not improve distracted driving. They have also talked about that as Marijuana has been legalized in several states but that's also impacting the results of those territories. So between distracted driving, between other external factors that enter into the market those eventually are going to work through the loss trends and we are going to have to take action and be sure that we are building our products and rates accordingly.

Great color, congratulations on the quarter.

Hey Greg. I just wanted to, this is Jim McKinney. So I just wanted to take a moment since you opened up the timing question, just maybe set expectations here on a go forward path for us. Outside of kind of the year end process, from a close perspective we have been making great progress as it relates to various enhancements in terms of process improvement or automation activities. As such you are going to see us bringing our close about two days per quarter in terms of when we would have kind of our earnings announcements released on a go forward basis until about 20 to 21 calendar days. And so from a timing perspective we look at mornings, afternoons. We will try to slot where we wind up kind of in the best place so that we have an opportunity to have your attention as well as others and to have thoughtful questions. But you should also expect us to continue to move our – move this call forward quite a bit as we have information in a much faster and streamlined way, we are going to get it out to the public as fast as we can on those things.

And just as a follow-up point on that the earlier you go, the less conflicts there will be in the earnings season is, I am sure you are well aware.

I am. Thanks.

[Operator Instruction] Our next question comes from Paul Newsome of Sandler O'Neill. Please go ahead.

I think I know the answer but I think it's worth asking anyway. If we assume that your businesses at rate adequacy from a new business perspective and is there anything structurally that we should think about that would extend the rate at which it earned in. I sort of use the rule of thumb it takes about a year and a half if we assume that absolutely today your rate adequacy with the business as you renew?

I am not sure, can you help us a little bit Paul I am not sure 100% understand the question. Are you talking nonstandard, preferred or are you talking in general?

I am talking in general.

Okay. So help me one more time with the question because I want to make sure –

So say analyst will look at your company and if we assume that the business you are renewing today is all rate adequate and we assume that you are going to have some sort level of combined ratio at that rate adequacy. Usually it takes about a year and half for an auto writer in general to get to, to have that fully worked through the book. I am wondering if there is anything unusual about your business so the way the things are structured that would extend or delay or shorten that sort of normal process of the rate getting earned into the book?

Okay. So let me, I’m going to answer it slightly different than you asked. I think I am getting at what you mean, but I am going to state in slightly different terms to make sure I’m in the way thinking about it. For six month policies rate would earn into the book more rapidly than you described. Most of our nonstandard businesses is six month policies. In preferred virtually all of the policies are 12 month policies. So if we took a rate change in a given state it would take 12 months for all of the policies to renew and subsequently be impacted by that rate change. And the last one let's say with the January rate change wouldn't renew until December and wouldn't fully earn until the following December. So on average you are about right, if we think about rate changes and we say we plan to take, make up a number 7% on our book that's going to be affected in different states in different times and then you are going to have to go through the renewals piece. So depending on how you are modeling it, if you assumed everything was general in policy and everything got the rate changed the same day yes that's about right to think about the earned impact fully baking in. it's obviously a little more complicated because of the length of each policy term and because the states will get things at a different time. Did I answer your question or not answer it? Any details right now because there are bunch of things we are working on there. I think the company probably has had a longstanding view that we thought these businesses were very stable and at some point somebody may have described them as a slowing melting iceberg that there was just a slow steady drop off. That is not this management team's beliefs in terms of what they are, we think that there are ways that those businesses can grow. We are actively looking at improving processes and capabilities and exploring those items. It will not move incredibly quickly or be double-digit growth numbers inside of the near future. If you are trying to ask the question how do we view the business that's my answer. If you are trying to figure out from a modeling perspective what to put in your models over the next 12 months it's not going to be a huge growth number. There will be some impact to the expense savings in the whole company that will fall into the Life as well as P&C but that's embedded in the $50 million to $65 million of expense savings. Beyond that we are going to keep working that business and those initiatives have a little more substance behind them and are bigger then, we will shine a little more light on them.

That's good. Thank you very much.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Lacher for any closing remarks.

Terrific, thank you operator and thank you everybody on the call. Before we sign up, I just want to provide you another quick thought or two. Overall Kemper had a very strong quarter. Our Life & Health business continues to perform well, higher net income and earned premiums in the quarter. Our nonstandard auto business later improvement driven by all of the actions we have taken to reposition the business. And well, our preferred auto business is currently challenged. We are confident about our ability to reposition the book for profitable growth in upcoming quarters. The investments and improvements in our claims organization will make us more competitive on the P&C side overall. And last our investment function continues to provide enhanced returns and has outperformed peers overtime. I am pleased with the overall progress of the company and look forward to updating you again next quarter. Thanks for your time today and thanks for your interest.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.