Kemper Corporation (KMPR) Q3 2021 Earnings Report, Transcript and Summary

00:04 Good afternoon ladies and gentlemen and welcome to Kemper's Third Quarter twenty twenty one Earnings Conference Call. My name is Charlie, and I will be coordinating your call today. At this time, all participants are in listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. 00:26 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.

00:39 Thank you, Charlie. Good afternoon, everyone, and welcome to Kemper's discussion of our third quarter twenty twenty one 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 the Property and Casualty Division President. 01:02 We'll make a few opening remarks to provide context around our third 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. 01:25 After the markets closed this afternoon, we issued our earnings release and published our third quarter earnings presentation, financial supplement, and Form ten Q. You can find these documents on the Investors section of our website, kemper.com. Our discussions today may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of nineteen ninety five. These statements include, but are not limited to, the company's outlook and its future results of operation and financial condition. 01:56 These statements may also include impacts related to the COVID-nineteen 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 twenty twenty Form ten K, as well as our third quarter earnings release. This afternoon's discussion also includes non-GAAP financial measures we believe are meaningful to investors. 02:25 One such measure is as adjusted for acquisition. It's important to understand our reported results, including the impact the American Access acquisition has to Kemper overall. However, investors have also expressed an interest in understanding the underlying organic performance of the combined businesses. 02:43 Since our as-reported financials don't include American Access' 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, [if you remove] [ph] the impact of purchase accounting and include historical American Access information for periods prior to the acquisition to more readily provide a meaningful year-over-year comparison. 03:21 In our financial supplement, presentation and earnings release, we have defined and reconciled all the 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 twenty twenty period unless otherwise stated. 03:43 I will now turn the call over to Joe.

03:47 Thank you, Mike. Good afternoon, everyone, thanks for joining us on today. Earlier today, we reported results that continue to be impacted by the pandemic reopening. The earnings were below our long term expectations and as a result disappointing. 04:01 We previously discussed the anticipated challenges of the current environment, which is dynamic and changing rapidly. Against this backdrop, we're focusing on minimizing these impacts and optimizing the business. 04:15 There are two groupings of items impacting our results this quarter. One, the pandemic and the integrated impact of restarting an economy post lockdown; and two, a group of items, which are expected through cycles, but unpredictable on a quarterly basis. I'll make a few broad comments on the first grouping before we dive into details. We'll cover the second grouping throughout the call. 04:39 When we look at the impact of the pandemic, these are unprecedented times for the industry. Historically, in P and C, there's been a rough balance between loss cost inflation and rate inflation. 04:52 The dramatic frequency reductions at the start of the pandemic led to an extended period with a effectively no rate increases. While accident volume was historically low, Kemper along with most major companies delivered premium rebates to auto customers. 05:08 The reopening led to rapid increases in auto frequency. They also saw global disruptions in supply chain. Together, leading to severity and combined loss, cost inflation at levels we haven't seen in the industry for over thirty years. 05:23 Across the industry, there's currently no significant rate in the system to offset this loss inflation. The system is out of equilibrium. In some ways, it's like turning off a water supply to your house during a remodeling project. 05:36 It's fine while you're working, but when you turn the water supply back on, water doesn't immediately flow from each tab. You hear some clanking, you get some air, some spray, some gurgling, and a few surges of water before normal flow is reestablished. And you have to turn on all the tabs in the house to clear the pipes running to each faucet. It requires some work, some time, and a little spray to restore the equilibrium. That's where we are right now. 06:04 We’re all asking a few big questions. What's the overall level of loss cost inflation or severity increase? When will it stabilize to a new normal, and how quickly will rate increases be approved and be earned into results? I know that last quarter there was a broad view that inflation was hopefully transitory. 06:22 Like most, we revised our view in the last ninety days and see it as something we will be dealing with for a more extended period of time. In our Life business, the Delta variant increased mortality to levels last seen near the height of the pandemic. 06:38 Our results remain in line with national experience, with increased vaccination rates, advancements in medical care, and strength in natural immunity, we anticipate moving from a pandemic to an endemic, resulting in a return to more normalized mortality rates. We'll offer some additional thoughts on these macro issues later in the call. 06:57 Moving to a few specifics on the quarter, please turn to page four. We generated a net loss of seventy five million dollars or one point one eight dollars per share as reported and sixty nine million or one point zero eight dollars per share as adjusted. We also produced an adjusted consolidating net operating loss of seventy six million dollars, or one point one nine dollars per diluted share as reported and sixty nine million or one point zero eight dollars per share as adjusted. 07:23 Return on tangible equity, excluding unrealized gains was three percent. This is below our target return. As highlighted earlier, the impact of the reopening and other environmental challenges continue to negatively impact these. 07:37 We are at actively deploying corrective actions to restore target margins and returns. Our balance sheet and business model remain well positioned to navigate through these challenges. 07:47 Turning to segment results. As discussed, given the environmental headwinds impacting our P and C segments, our focus is on restoring them to target profitability. Our Life and health segment, we are seeing higher demand for our products and strong policy retention. Although, we experienced a reduction in COVID related mortality last quarter, we saw a spike this quarter as a result of the Delta variant. Overall, the business remains positioned for long term profitable growth. 08:18 In summary, we are taking the actions necessary to combat the environmental challenges, the P and C industry in our businesses. We, along with the rest of the industry are repriming the pipes in restoring equilibrium in the system. 08:31 The benefits of these actions will take time to fully work their way into our book. And on the Life side, the Delta variant has caused another spike in COVID related mortality. Our strong balance sheet and business model enable us to continue to navigate the current environment, and position the business for growth in twenty twenty three. 08:49 I'll now turn the call over to Jim to discuss our third quarter operating results in more detail.

08:55 Thank you, Joe. Turning to page five, Environmental headwinds, led to challenged financial results. We reported a net loss of seventy five and as adjusted loss of sixty nine million. We reported consolidated net operating loss of seventy six million and then as adjusted net loss of sixty nine million. The corrective actions we have taken and our taking in response to higher frequency and severity will over time, return our auto business to target profitability. In addition, as the health impacted COVID subside, life mortality and benefit costs will revert to normalized levels. 09:32 Turning now to tangible book value per share, excluding unrealized gains, tangible book value per share declined three point two seven dollars, compared to last September. Three point one one dollars of the changes related to AC and the corresponding goodwill of the transaction created. We continue to believe this transaction is accretive to franchise value. 09:53 On page six, we highlight our view of operating income, which continued to be negatively impacted by environmental challenges. As mentioned earlier, this quarter experienced higher frequency and severity, leading to our specialty P and C segment reporting an as adjusted underlying combined ratio of one hundred and eight percent and further strengthening of reserves due to an atypical second surge in Florida PIP related litigation and elevated life costs due to excess Delta variant related mortality, higher new business sales and persistency gains. 10:26 On the bottom half of the table, we indicate sources of volatility. Except for prior year reserve development, the remaining items are relatively consistent with past periods. On page seven, we review some of the key capital metrics we used to track our performance, including growth and tangible book value per share and tangible return on equity. 10:47 Over the past twelve months, return on tangible equity, excluding unrealized gains was two percent. This was a direct result of the environment challenges impacting the industry. While this is disappointing and below our target, we've instituted and will continue to institute corrective measures to return the business to target profitability. 11:07 Continuing on page eight, we highlight the strength of our balance sheet. We continue to produce strong cash flow, generating over five hundred million over the past twelve months. Our insurance entities are well capitalized. 11:19 Liquidity remained strong and our debt to capital ratio of twenty one point three percent remains within our stated target range of seventeen percent to twenty two percent. This business profile provides us with financial flexibility to navigate this environment. 11:34 Turning to page nine. Net investment income for the quarter was one hundred and two million. Our portfolio construction is designed to match liabilities and provide stable income through various cycles. This quarter, we generated a pre-tax equivalent yield of four point four percent. 11:51 In closing, the company's quarterly financial performance continues to be pressured by various environmental factors. We are confident that the corrective actions we have taken and are taking will over time return us to our financial targets. 12:03 I'd now like to turn the call over Duane to discuss the results of our P and C segments.

12:10 Thank you, Jim, and good afternoon, everyone. To start, I will make a few comments about the current environmental challenges impacting our businesses, as well as the relationship between earned rate and loss trends. Let's turn to page ten. There continues to be several environmental challenges impacting auto loss costs. On the frequency side, miles driven continue an eighteen percent to twenty percent increase in claim activity. 12:35 At the same time severity increased eight percent to ten percent, due to supply chain challenges, labor shortages and social inflation. We are taking actions to address these challenges. Last quarter, we discussed the impact of some recent Florida PIP related court rulings and the related increase to our prior year reserves, typically significant Florida PIP related court decisions results in a single surge of litigation. This time, we witnessed an atypical second surge, therefore, we are further strengthening reserves by twenty five million. 13:09 Let's turn to page eleven. Based on some questions we've received over the quarter and discussions taken place within the industry, we thought we take a moment to review the interaction between earned rate and loss trends for various periods in and around the pandemic. This is an illustrative display intended to bring context to those discussions. 13:29 Pre-pandemic, the relationship between loss costs and earned rates had maintained a long steady equilibrium. There have been times of modest divergence creating either increased profitability or margin compression, but over the long term, they were largely balanced. 13:45 During the pandemic related lockdowns, there was a dramatic drop in frequency, resulting in a significant reduction in loss trends and noticeably improvement in profitability. This eliminated the need and ability to raise rates. 14:00 When the economy reopened, frequency increases miles driven surged. In addition, challenges to an already stress supply change were exacerbated, increasing severity. Together, these items drove a surge in loss trends that escalated at unprecedented levels. 14:18 Since there is little to no rate running through the system, margins were immediately and adversely impacted. Given that rate changes are subject to our regulatory approval process, it will take at least several quarters for their earned impact to be seen in results. 14:35 Moving to Page twelve, I'll start with specialty P and C. Against this backdrop, the segment experienced an underlying combined ratio year over year increase of twenty two points, a sequential quarter increase of two points, and an underwriting loss of approximately eighty million dollars. 14:54 Despite this recent performance, we remain comfortable with the profile of the business. The frequency change versus twenty nineteen is about one percent. This quarter's loss and temporary rate, loss cost imbalance, doesn't impact our view of the long-term profitability of the business. 15:12 Over time, we anticipate a favorable outcome from our ability to address recent challenges through pricing and other profit improvement actions. Given the environment, we are prioritizing profit restoration over growth. The chart on the upper right should help you see how rate actions will migrate through our book of business. 15:32 And as example, during the third quarter, we filed an approximately three percent rate increase on roughly thirty four percent of our business and it is already effective. We're in the process of filing for an additional six percent of rate on thirty eight percent of our business in the fourth quarter. Understandably, it takes time for [file] [ph] and effective rate to be written and earned into our results. Over multiple quarters, rate and non-rate actions will return the business to target profitability. 16:02 Turning to the Preferred segment on Page thirteen. The Preferred P and C segment continues to face similar environmental challenges and was further impacted by Hurricane Ida. Similar to specialty, we are prioritizing profit restoration over [Technical Difficulty]. 16:19 Looking at the chart on the upper right, during the third quarter, we filed for approximate four percent rate increase of roughly thirty nine percent of our business and thirty one percent is already effective. We are in the process of filing for an additional thirteen points of rate on fifty seven percent of our business in the fourth quarter. 16:38 Overall, for the preferred segment, we continue to expect ongoing profit improvement actions to bring us closer to our desired level of performance. 16:46 I'll now turn the call back to Joe.

16:50 Thanks, Duane. Turning to our Life and Health Segment on Page fourteen. Overall, this business was negatively impacted by increased mortality related to the Delta variant and Hurricane Ida. For the quarter, segment net income was three million dollars. Our mortality results continue to remain in line with country-wide trends. 17:10 We continue to see and are encouraged by strong consumer demand for our products. This is evidenced through high new issuance rates and policy retention remain above pre-pandemic levels. Overall, the outlook for the Life and Health Segment remains positive. 17:26 In summary, this quarter's financial results were disappointing. As we stated earlier, it is going to take time for corrected actions to earn into our book and return us to target profitability. We believe our actions will position us for growth in twenty twenty three. 17:40 Our balance sheet provides appropriate financial stability for these types of challenges. Our strong capital and liquidity positions enable us to navigate and optimize the current environment. Despite the continued challenges, we remain financially strong. Our team will continue to deliver on our promises to our customers and provide attractive long term results and value for our shareholder. 18:00 I'll now turn the call over the operator for questions.

18:05 [Operator Instructions] Our first question comes from Greg Peters of Raymond James. Your line is open. Please go ahead.

18:27 Hi. This is Alex Bolton calling in on behalf of Greg. Could you take some time and I guess maybe give out how labor shortages, materials, and I guess time of repair are affecting severity?

18:48 Sure, Alex. Happy to. What ends up happen when you're repairing a vehicle is anything – if you get an accident and do two thousand dollars’ worth of damage to bumper that’s the minimum that's going to get paid. From that point effectively leakage starts. We've got to repair that vehicle. 19:10 If you've got a labor shortage and it takes longer at the body shop, that might cause another day or two of rental car expense. If the rental car companies don't have all the inventory they had pre-pandemic, they might have their rates up. So, now in addition to a day or [Technical Difficulty] you got, it is actually at a higher cost. 19:31 If you're finding out there's labor shortages and supply chain, so trucks aren’t moving from ports in California, you might find that the headlight you needed that was manufactured overseas isn't there and it's taking a little extra time in that car sitting in the body shop, and there might be storage charges because it's waiting for the parts to come in. 19:50 All of these things add up to incremental increased costs in the process. It might be that those parts cost more because they had to pay the truck driver, higher wages to get him there or they're running twenty four seven, so there's over time. Run through the process.

20:12 Yeah. I guess I was just asking from a portion standpoint. I guess is it more labor cost, is it more material cost?

20:22 It really is across them. We're not – at this point, we don't have our [indiscernible] out with enough sensitivity to really try to get each of the different components of them. There's something in all of them that's running through. My sense is that the issues, these are high single-digit low double digits overall. It may vary a little bit by local geography. 20:51 So, the precision of that is, I'm not sure the biggest driver. I'd probably point to, Alex because I assume what you're trying to do is project the turn or a trend shift. I'd point you back to maybe page eleven, the illustrative example, Duane was using, where what you see is there's these change in loss trend, whether it's labor or supply chain or social inflation, whether it's technology issues in the car and the fact that there's chip shortages. Those changes in loss inflation occur immediately. And they're immediately earned across the entire book. 21:34 Rate changes, whether it's loss inflation going down or loss inflation going up, our rate changes have to be filed and approved and then they roll on to the book of business at renewal. So, they're earned over the policy term. Rate is always going to lag inflationary trend. 21:56 The gap between rate and inflationary trend, I think is the story rather than the subtle differences between whether it's labor or steel or different geographic differences. Those are going to be small arrow bars of the fact that rate effectively got shut down from most of the auto industry, then everybody has got to see it. You didn't see rate increases [Technical Difficulty] period. And you saw a rapid increase in inflation. That gap is going to overshadow everything for a while.

22:34 Okay. I appreciate that. And maybe can you touch on the regulatory environment? It seems like you're getting some rate, but I guess maybe what your expectation of regulators look inside of profitable twenty twenty?

22:52 Yes, it's a great question. And there's, sort of two things underneath it in the question. One is the regulatory environment and the second one the activity we're having. Regulators go through a normal process. They look at your historic results and then look at the current loss trend that you're dealing in the current period of time. 23:13 Their responsibility is to have fair and appropriate rates for consumers and to ensure companies are making a reasonable return to ensure their solvency. It's a little confusing for all of them when they look back and say how do we account for twenty twenty? 23:29 How much do you wait that in a process? And different states are looking at that in different ways. I think every month that we put out a new set of results as an industry and it's becoming more and more apparent to those folks that twenty twenty was an anomaly and really does in fact need to be discounted. 23:50 I think you can see that to some degree with our activity. Duane pointed out that in the second quarter, we had rate activity on roughly a third of our [Technical Difficulty]. In the fourth quarter, we had rate activity on nearly forty percent of our book, six points or we are anticipating in the fourth quarter. I'm sorry. 24:12 In third quarter, we had a third and the fourth quarter, we're anticipating roughly forty. I'll tell you we may get closer to one hundred percent. The big dog for us is California. California has a unique set of rules and rating templates and you have to go through their rules and rating templates. 24:31 The second that those templates are showing that we have a need for rate increase will be in their filing. I'd expect that on some of the programs we have in California that may occur in the fourth quarter, it almost certainly will in the first quarter. That's roughly half of our book. 24:49 If you assume it's roughly fifty percent of that specialty auto book, we're at roughly ninety percent of the activity. You should be walking away with the fact that we saw this issue early. We were responding with the risk rate and we're taking those rates and we've been reasonably successful and expect to be more so. My guess is most of these states will require a second round. I’m on it. So, we'll get through the first round and then we'll go back for – we'll go for two as quick as we can.

25:26 Okay. I appreciate that. And then maybe in Life and Health, I noticed the expense ratio jumping up a little bit. Maybe you can touch on what's happening there?

25:40 No, happy to. Actually, I think it's a little bit missing at pages thirty eight and thirty nine of the supplement. If you look there, what you'll see in terms of what's driving that is the [amortization] [ph] of essentially the VOBA asset from the acquisition of AAC. 25:58 If you remove out, which is about a point for the quarter, I think you'll end up seeing that it's down a little bit on a quarter over quarter basis and on a year over year basis. So, not really much the report. Happy to go deeper if you want, but that's effectively what you're seeing going through there is a little bit of amortization associated with VOBA.

26:18 And correct me if I'm wrong, Jim, but I think if you go back to right after the Infinity acquisition, you'd see the same thing running through our numbers. The VOBA gets put up after an acquisition and amortizes in as an expense and works its way out. So, you saw the exact same pattern in the first couple of quarters after the Infinity acquisition.

26:38 Yes, that's correct Joe.

26:41 And again, that's just for folks for, just because I know it's an unusual item there that you get an asset right, it's intangible basically and this is how you essentially bring it cash as you receive it and translate it into a tangible asset. It's not per se necessarily expensive. You get the revenue at the top, you get the expense offsetting it for that transfer, and it's intended just to be the mechanics for how something on your balance sheet turns from an intangible to tangible. 27:11 So that results to us are nothing in the quarter. We outlined it on thirty eight and thirty nine specifically, so you can see this run rate of the businesses. Because we think that's likely going to give you the best comparable.

27:27 Okay. I appreciate you pointing that out. Appreciate the answers as well.

27:36 The next question comes from Brian Meredith of UBS. Your line is open. Please go ahead.

27:43 Thanks. Good evening. A couple of questions here. First, I'm just curious is there any way to kind of break down what lost trend looks like in your specialty auto? Versus twenty nineteen, right? I think that would probably be a better comparison than looking at some of the frequency and severity statistics you've got up there right now?

28:04 Not sure Brian. Let's [indiscernible].

28:07 Okay. Just curious like frequency is it well above? Okay.

28:11 Yeah. We'll take you through the reminder before the guys coming into the [Technical Difficulty] that'll will give you a directional item. The precision of it doesn't work exactly the same, but it'll give you a directional.

28:24 Great, great. And then Joe, or going through that, I guess my next question, [Multiple Speakers].

28:32 It is a big picture. If I were to take us back to twenty nineteen and you think about frequency in our specialty auto business for where we're at, we're roughly within about one percentage point from where we were in twenty nineteen at this stage. When you think about that from an ultimate perspective, obviously that has some assumptions here in terms how these things go out. 29:00 You do see a little bit of difference in terms of the driving patterns in this period relative to twenty nineteen, but at this stage going to probably be, not a whole lot of movement now. So, we feel pretty good. 29:11 What that should tell you is our profile is basically, kind of the same from that perspective or similar, if not maybe even improving because there's some differences in the feature counts in terms of how we establish those. Their higher in terms of what it is today than maybe what they would have been historically. So that one percent is kind of a high number. 29:30 When you think about the severity side, when I'm looking at that, that's really in that double digit range that we've talked about, that you've both seen in that ten percent to twelve percent range and then we've ended up seeing on some of those things that have a little bit longer tail. There's not a real long tail in this business, but things like BI claims another others would come through, you've seen the severity trends of that inflation trend that we're talking about now. Go back and impact some of those, essentially that were open there, which we talked a little bit about last quarter and this quarter. 30:02 And so when you break that up, you are seeing basically kind of double digit type inflationary trends on a year over year basis over the last couple of years, both due to the mix differences, the driving changes that come through there in terms of their impact in the severity [Technical Difficulty]. Cost of the same item last year versus this year and the year before. Those costs are up in that, again, in that inflationary range that we talked about that is high single digits, low double digits.

30:32 Great. That's helpful. And then next question. Joe, I'm just curious so last quarter, I know we're going through talking about this. It sounded like that you are comfortable continuing to grow your business through this kind of lost cost situation right now. Now, you're talking about returning the growth in twenty twenty three, is that simply because you think that the inflation not transitory anymore or is there something else that's happened? And does that also mean that we won't see normalized profitability until twenty twenty three?

31:01 Yes, the – couple of pieces underneath and I'll try to unbundle them Brian. When we were sitting last quarter, we had growth in the business, and there was a view that the inflationary trend was lower and it was going to be more transitory. That would suggest a profit challenge, but one would be corrected more rapidly. 31:26 What's happened since then is I think I know we have changed our view on that. I believe broadly in the environment it's changed. I mean every time I pick up a Wall Street Journal or turn on CNBC, the mood is certainly different in the last ninety days of the severity of the inflation and its duration. That is going to put more pressure on profitability, which will take longer to unwind and match with the pricing perspective. That's really part of what we are trying to show on page eleven net GAAP. 32:00 And part of the reason on the right side of that, you held me. If you tell me those two red lines that are dotted, is the inflation going to stay up and stay that way and then stabilize in eight nine [Technical Difficulty] and persist there? Or is it going to start tapering back into four five six range where it was before? There's a cone of potential there and then there's going to be a cone of what rates are? And the higher end or the lower end, that prevents a fair amount of uncertainty and sort of that circle on that right side, when does, you know rates are exceeding lost cost and corrected. 32:37 Given that uncertainty, we are tapping the breaks on growth initiatives. We are intentionally slowing that down because of that imbalance, not because we're troubled by our long term prospects, not because we troubled by our underwriting for no other reason then it's unclear how long that inflationary piece is going to go and the last signals we’ve got is [Technical Difficulty]. 33:02 I would tell you that we're very diligent about how we're thinking about that when we're reserving and we're booking our results, and I think you're going to look at numbers, you're going to, you see our paid losses and our reserves and you're going to see that there's a strengthening bias there that's saying we're anticipating that problem. 33:24 And you're seeing speed of response from us in terms of how fast we're attacking rate and moving. I think you've heard other folks talk about their intent to raise rates, but they're moving with a different level of speed. We believe we saw this early. We're moving on it early and what we believe that it's going to have a temperature that anybody is writing auto is going to happen. So, we're tapping the brakes in a different way than we thought we needed two ninety days ago. 33:53 What you should see if you look at what's going on in the third quarter from our activity, is not only do we see it, not only we tap the brakes, but we actually got rate filings moving quickly after that. It's a nimble and responsive organization that when there's a nail up that needs to be hit, we hit it.

34:11 Got it. Makes sense. And obviously, you're probably taking other initiatives to kind of improve that profitability as well? Aside from just rate?

34:20 Yes. Rate, non-rate, if there's a lever to pull, we're looking to pull it and work it with the caveat that when it's cold outside, you don't burn the furniture in the house for heat that's going to cause long-term damage. We're not doing anything that's causing long-term damage we're being very thoughtful. If there are investments that we can make that are going to enhance and strength our expense infrastructure that put us in a better position going forward, we'll continue those, but we're not going to be, trying to figure how to roll out new states for growth or how to do other things like that. We're tapping the brakes and closing the shutters and run through this storm.

35:04 Great, great. And then just one last question here, the Florida PIP charge. I got kind of felt after last quarter that we’re done with that and then obviously, it happened again. It sounds like you had a resurgence of suits. Where are we with that? Is that behind us?

35:21 Yeah, hey, this is Duane. Good question. I think it's always, there's a challenge to make sure that you're understanding completely that environment and the litigation that comes out of there, certainly around PIP, but our comfort level has increased significantly from where we were. We're starting to see that trend the direction that we're feeling comfortable with what's coming in. 35:45 And the other thing that we're doing is, we're working, what I'll call the mitigation process around that for any of the outstanding bills to get ahead of what could be potentially a problem in the future.

35:58 Duane, we had a clarification and maybe ask you to add some of the [indiscernible] we were talking about earlier. We were highly comfortable we had the right number last quarter, given the normal pattern of surges and suits after a significant court dealing. We had a second surge. Can you talk a little bit that second surge was out of pattern, it was atypical that caused us to have a different point of view? We believe we have it set now, but you got a little bit of local market anecdote in terms [Technical Difficulty].

36:31 Yes, there's a couple of dynamics that takes place in that process there. There are things and I'll say that patterns that historically would come through to what we're speaking of where you get a one-time hit. There seems to be an arbitrary law in this one where they had slowed down for some reason, some of the bulk billing that takes place that seemed to reoccur at a later date. 36:58 There was also, I think some around the potential repeal in the marketplace of PIP. So, you've got people there that were anxious about well if I'm going to do anything do it. So, they spread up that process a little bit and then you've also got, we mentioned earlier about just staffing shortages across many dimensions that certainly the firms there. No, they're not [Technical Difficulty] so their ability to try to push things through to normal pace starts to wane. 37:30 So, there's a breather in there then they re-emerge, but as I commented earlier, we've very proactively been working what I'll call the front end of that on our side to make sure that we're trying to be able to position ourselves to avoid future litigation on that type of claim.

37:49 Terrific. Thanks for the answers.

37:51 I think Brian, and Joe gave some good commentary on that. The only other think I might add Brian is, there was a lot of commentary obviously last quarter both on our call and on other calls, specifically related to the limiting versus participating some of the other challenges that budget. Duane mentioned some potential items, you know there's a bunch of different hypothesis out there. This is a new pattern in terms of having two humps that's not something that we've seen before. 38:23 Don't really know if it was related and what effectively happened as we woke some folks up between the call or and some of the press that it got not just in [indiscernible] but cost from an industry perspective or if is to – Duane’s other points are potentially they deal labor challenges or other stuff that potentially led to a different kind of reporting pattern or other, hard to tell, but either way, we move forward and thought it was prudent to try to put a ball on this. 38:50 I'm not anticipating anything else. Can't give you one hundred percent confidence in this, but again, highly feel really good and confident about the numbers that we have put up in our ability to kind of recognize this.

39:03 Great. Thanks.

39:06 Thanks Brian.

39:09 [Operator Instructions] There are no further questions on the lines at this time. So, I’ll hand the call back over to the team.

39:35 Thank you, operator and thank you everybody for joining the call today. We appreciate your interest. We're going to continue banging away and working to reestablish and reignite the profitability inside [the joint] [ph] and get back to delivering on our results for our customers and our shareholders. Thanks for being with us.

39:57 This concludes today's call. Thank you for joining. You may now disconnect your lines.