Kemper Q2 2026 Earnings Call Transcript

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Provided by Quartr
August 6, 2026

Key Takeaways

  • Neutral Sentiment: Kemper reported a $464.8 million net loss, primarily due to a $460 million non-cash goodwill impairment in Specialty Auto and a $16.6 million allowance for credit losses. Adjusted operating income was $26.3 million, with underlying results improving sequentially.
  • Negative Sentiment: Personal Auto profitability remains below target, particularly in California, where Kemper says it needs double-digit rate increases. The company is reducing California exposure, slowing new business, and will not resume meaningful policy growth until it sees profitability or a clear path to it.
  • Negative Sentiment: Commercial Auto produced a strong 93.7% underlying combined ratio and 9.2% year-over-year policy growth, but $17.7 million of adverse prior-year reserve development—especially in California bodily injury claims—prompted additional rate increases and tighter underwriting that will likely slow growth.
  • Positive Sentiment: Kemper’s Life business generated $18 million of operating income, supported by higher premiums, favorable mortality and lapse trends, and investment income. The company also identified more than $80 million in annualized restructuring savings, while ending the quarter with $766 million of holding-company liquidity.
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Earnings Conference Call
Kemper Q2 2026
00:00 / 00:00

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Operator

Good morning, ladies and gentlemen, and welcome to Kemper's second quarter 2026 earnings conference call. My name is Samantha, 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, 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.

Michael Marinaccio
Michael Marinaccio
VP of Corporate Development and Investor Relations at Kemper

Thank you. Good morning, everyone, and welcome to Kemper's discussion of our second quarter 2026 results. This morning, you'll hear from Steve McAnena, Kemper's President and CEO, and Brad Camden, Kemper's Executive Vice President and Chief Financial Officer. We'll make a few opening remarks to provide context around our second quarter results, followed by a Q&A session.

Michael Marinaccio
Michael Marinaccio
VP of Corporate Development and Investor Relations at Kemper

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

Michael Marinaccio
Michael Marinaccio
VP of Corporate Development and Investor Relations at Kemper

Our discussion today may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, the company's outlook on its future results of operation and financial condition. For information on additional risks that may impact these forward-looking statements, please refer to our 2025 Form 10-K and our second quarter earnings release.

Michael Marinaccio
Michael Marinaccio
VP of Corporate Development and Investor Relations at Kemper

This morning's discussion also includes non-GAAP financial measures we believe are meaningful to investors. In our financial supplement, earnings presentation, and earnings release, we've defined and reconciled all non-GAAP financial measures to GAAP, where required in accordance with SEC rules. You can find each of these documents in the Investor section of our website, kemper.com. All comparative references will be to the corresponding 2025 period, unless otherwise stated. I'll now turn the call over to Steve.

Steve McAnena
Steve McAnena
President and CEO at Kemper

Well, thanks, Michael, and good morning, everyone, and thank you for joining us. Since joining Kemper two months ago, I've spent time with employees, agents, business partners, and members of the investment community. Those conversations, combined with the work I've done to better understand the business, have energized me about Kemper's future.

Steve McAnena
Steve McAnena
President and CEO at Kemper

I see a company with meaningful strengths, including the stability of Life, the momentum within Commercial Auto, real potential for Personal Auto, and a talented team committed to improving results. Together, these strengths position us to deliver long-term shareholder value. At the same time, we have to be candid about where performance must improve. The clearest example of this is Personal Auto, where we are not delivering target returns, driven in large part by our concentration in California. We're addressing this, but the benefits of our actions will take time to flow to our results.

Steve McAnena
Steve McAnena
President and CEO at Kemper

These realities have shaped how I think about the business and the priorities that will drive success. Stepping back, there are three messages I want you to take away from this discussion. First, restoring profitability is our most important priority. I want to be very clear on this point. We do not view profitability and growth as competing objectives. Profitability is a prerequisite for growth, and as such, growth will be earned, not chased.

Steve McAnena
Steve McAnena
President and CEO at Kemper

In Commercial Auto, that means despite strong top and bottom-line performance, we're going to take a more disciplined stance given successive quarters of prior year adverse development. We're making intentional adjustments moving forward to ensure growth is profitable and sustainable. Second, Kemper has the foundational elements necessary for long-term growth. Our focus is on improving performance and delivering more consistent results. Unlocking that value requires clear accountability and more consistent execution.

Steve McAnena
Steve McAnena
President and CEO at Kemper

That brings me to my third takeaway for stakeholders. We've realigned the P&C organization to improve accountability and execution. Underwriting, pricing, product, and claims are now under one P&C leader, Eric Kappler. We believe this structure will create sharper accountability, faster decision-making, and ultimately better execution. Eric's deep experience in non-standard auto makes him well-suited to lead this work, and we look forward to introducing him at our next earnings call.

Steve McAnena
Steve McAnena
President and CEO at Kemper

I also want to officially welcome Tony DeSantis to our board of directors. Tony brings over 40 years of experience in our industry, including 10 in non-standard auto. He's already been a great addition to the board, and I look forward to his counsel and contributions. Taken together, these three points define our path forward. Restore profitability, unlock the value in our business, and strengthen leadership and accountability to deliver more consistent results.

Steve McAnena
Steve McAnena
President and CEO at Kemper

Against that backdrop, this quarter shows encouraging progress while also highlighting the work still ahead. For the quarter, underlying results improved sequentially, while reported GAAP results were adversely impacted by a goodwill impairment. Brad will cover the numbers in detail, but first, I wanted to share my perspective on each of our businesses. Within Personal Auto, rate and non-rate actions improved our combined ratio while also reducing our concentration in California. This is great progress, but as I said, meaningful work remains.

Steve McAnena
Steve McAnena
President and CEO at Kemper

Commercial Auto continues to generate strong underlying results. The business is not without challenges. The prior year reserve strengthening reinforces the importance of maintaining discipline as the business grows. While we continue to see attractive opportunities ahead, we'll be placing greater emphasis on profitability by taking more rate and tightening our underwriting, even if that results in less growth in the near term.

Steve McAnena
Steve McAnena
President and CEO at Kemper

Finally, life continues to provide stable earnings, consistent cash flow, and valuable diversification. Building on that foundation, we continue to advance our distribution and lapse management initiatives in support of profitable new business growth. In summary, our path is clear. Restoring profitability is our top priority, and achieving that goal will earn us the right to grow. My confidence in our path forward is grounded in both the actions underway and the strength of our people. I feel incredibly fortunate to work alongside this management team and our talented employees across the country. I'm grateful for their commitment, and I'm looking forward to working with them in building a stronger Kemper. Thank you. With that, I'll turn the call over to Brad.

Brad Camden
Brad Camden
EVP and CFO at Kemper

Thank you, and good morning, everyone. Steve discussed the progress we're making to restore profitability, the actions underway to improve execution, and the underlying strengths of the businesses. I'll provide additional perspective on our financial results, our capital position, and the operating trends we're seeing across the enterprise. Let me begin with our financial results. This quarter reflected sequential improvement in underlying operating performance, although our reported GAAP results were significantly impacted by two items that I'll discuss in more detail shortly.

Brad Camden
Brad Camden
EVP and CFO at Kemper

Net loss was $464.8 million or $7.90 per share, while adjusted consolidated net operating income was $26.3 million or $0.45 per share. Underlying operating results improved sequentially, driven by P&C underwriting performance, expense discipline, and stable earnings from our life business. Net investment income totaled $105 million, and trailing 12-month cash flow was $434 million, reflecting the consistent cash-generating ability of our businesses.

Brad Camden
Brad Camden
EVP and CFO at Kemper

Before discussing the quarter in more detail, let me provide additional context on the items that affected our reported results. The primary driver of our reported net loss was a $460 million non-cash goodwill impairment in our specialty auto segment. Recent operational challenges and a subsequent decline in our share price triggered a quantitative goodwill impairment evaluation under GAAP. The resulting impairment reflects an estimate of fair value based in part on our second quarter share price.

Brad Camden
Brad Camden
EVP and CFO at Kemper

Let me emphasize that this does not affect the ongoing operations or cash-generating ability of the businesses. While significant from a GAAP perspective, the impairment has no impact on our statutory capital, holding company liquidity, or compliance with our debt and revolving credit covenants. We also recognized a $16.6 million after-tax allowance for credit losses related to the surplus notes issued by Kemper Reciprocal Exchange.

Brad Camden
Brad Camden
EVP and CFO at Kemper

Based on our assessment of the expected recoverability of those notes under GAAP, we recorded an allowance during the quarter. Similar to the goodwill impairment, this charge does not affect our insurance subsidiary statutory capital or holding company liquidity. With that context, let me turn to our balance sheet and capital position. Our balance sheet remains a source of strength. Insurance subsidiaries are well-capitalized, and we ended the quarter with $766 million of holding company liquidity.

Brad Camden
Brad Camden
EVP and CFO at Kemper

While our debt-to-capital ratio increased to 28.3%, that change was primarily driven by the goodwill impairment and does not reflect a deterioration in liquidity or statutory capital. Our investment portfolio performed well, generating $105 million of net investment income during the quarter. It continues to provide a stable and predictable source of earnings. I'll now turn to the operating performances of our businesses.

Brad Camden
Brad Camden
EVP and CFO at Kemper

I'll begin with our specialty auto segment, which includes both our personal and commercial auto businesses. Underlying results improved sequentially with a normalized underlying combined ratio improving 0.8 points from 102.8% to 102%. Within personal auto, the normalized underlying combined ratio improved 1.3 points from 106.5% to 105.2%. The improvement reflected stronger underwriting performance and continued expense discipline.

Brad Camden
Brad Camden
EVP and CFO at Kemper

As part of our profit restoration strategy, California's share of the personal auto portfolio declined by 2.5 percentage points during the quarter, driven by a 10% sequential decline in policies in force, along with continued growth in other markets. Turning to commercial auto. The business delivered strong underlying performance with an underlying combined ratio of 93.7%, while PIF increased 9.2% year over year. Reported results, however, were impacted by $17.7 million of prior year reserve development.

Brad Camden
Brad Camden
EVP and CFO at Kemper

As Steve mentioned, the prior year reserve strengthening reinforces the importance of maintaining discipline as the business grows. Accordingly, we are taking additional rate actions and adjusting our underwriting standards. While these actions will temper growth in the near term, we believe they are prudent and position us to build on our underlying momentum and deliver stronger, more consistent profitability over time.

Brad Camden
Brad Camden
EVP and CFO at Kemper

Finally, our life business delivered another solid quarter, generating $18 million of net operating income, supported by growth in earned premiums, favorable mortality and lapse experience, and higher net investment income. Earned premiums increased to $103 million, while average premium per policy increased to 5.4% from the prior year period, reflecting the benefits of our pricing, underwriting, and distribution initiatives. Importantly, Life continues to provide stable earnings, consistent cash generation, and valuable diversification for Kemper.

Brad Camden
Brad Camden
EVP and CFO at Kemper

Before I conclude, I'd like to provide an update on our restructuring program. Since announcing the initiative last October, we've identified more than $80 million of cumulative annualized run rate savings, an increase of $20 million since last quarter. While we continue to identify additional opportunities to improve our cost structure, the actions we've taken are contributing to improved financial performance, including lower expense and LAE ratios.

Brad Camden
Brad Camden
EVP and CFO at Kemper

Overall, the quarter demonstrated progress toward restoring profitability. While our GAAP reported results were significantly impacted by two items discussed earlier, underlying operating trends improved. As Steve emphasized, I'll reiterate, restoring profitability is our top priority. This quarter reinforces that our actions are gaining traction while preserving the financial strength needed to execute our strategy and create long-term value for our shareholders. With that, operator, we'd be happy to take questions.

Operator

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from the line of Gregory Peters with Raymond James. Gregory, your line is open. Please go ahead.

Gregory Peters
Gregory Peters
Analyst at Raymond James

Hey, good morning, everyone. I think the great place to start is, Steve, as you're moving through the organization and realigning the executives, at the end of the day, it's the pricing and the underwriting that's going to drive the improvement. Maybe you can provide us some additional detail on how you're changing the pricing and the underwriting backbone of the company to give better results. Particularly interested in California, where obviously you're shrinking, and it's a difficult market to get rate increases through.

Steve McAnena
Steve McAnena
President and CEO at Kemper

Hey, Greg. Thanks for the question. If I can kind of play it back, I think your question was kind of organizational in nature, and I'll pull back and say, for me, the big aspect of the organizational change was aligning claims with the rest of the business. If I'm being candid, I feel like the things we're doing on the underwriting and pricing side prior to my joining were pretty effective. I think there are a couple of areas we can certainly speed up and maybe get a little more aggressive, but I'd say from my perspective, pretty effective. If I pull back and go through the levers we're pulling with no emphasis on just California, we are taking rates up.

Steve McAnena
Steve McAnena
President and CEO at Kemper

If you go back and look, the team swung pretty hard early on after the minimum limit change, and we followed it up with another filing recently. I'd say the speed and urgency there was where we needed it to be, and we were pretty aggressive. I'd say second, as part of that, we sort of slowed down new business anywhere where we thought the calendar year impact was going to be adverse. Again, the team swung pretty hard on that, and we're seeing pretty good results. I think Brad commented in his remarks that California share came down.

Steve McAnena
Steve McAnena
President and CEO at Kemper

I think the last thing I'd comment on is expenses, and that's not just an underwriting or pricing issue, or a pricing team issue, rather. It's an enterprise-wide effort and initiative. As Brad said, I think we made a fair amount of progress there. If I pull back, the primary aspect of the change was around aligning claims with the rest of the organization, and I feel like we're making progress on the levers that are at our disposal. The teams are moving quickly, and most importantly, we're seeing some of the actions bear fruit in our results, and so we feel pretty good about that. Brad, I'll turn it to you and see if you wanted to add or amend anything I just said.

Brad Camden
Brad Camden
EVP and CFO at Kemper

I'll just add to Steve's comments, Greg. Good morning to you. As Steve mentioned, we have made some significant progress. We got rate effective in California in the quarter, probably average between two of our programs, about 5.5% beginning to earn in. We filed another 6.9%, and we continue to take non-rate actions, which you can see through the reduction in PIF growth quarter-over-quarter. We like what we're seeing. We're seeing some modest sequential improvement, and we expect over time for that to improve over the coming quarters. I'll leave it there. Turn back to-

Steve McAnena
Steve McAnena
President and CEO at Kemper

Yeah.

Brad Camden
Brad Camden
EVP and CFO at Kemper

-the operator.

Gregory Peters
Gregory Peters
Analyst at Raymond James

Well, I have a follow-up question, if that's okay.

Brad Camden
Brad Camden
EVP and CFO at Kemper

Of course.

Gregory Peters
Gregory Peters
Analyst at Raymond James

I just wanted to touch on the goodwill charge. If you can walk us through the mechanics of that, because I know you still have some goodwill on the balance sheet. Trying to understand how you came at the number and where the stock price is. Is that going to result in continuing quantitative analysis every quarter on goodwill? Give us an update there, please. Thank you.

Brad Camden
Brad Camden
EVP and CFO at Kemper

Yeah, sure. Thanks for the question, Greg. Our goodwill impairment was triggered by the sustained decline in our stock price over the past year. Kemper's down about roughly 50% year over year, roughly 30% year to date. That required a quantitative goodwill impairment assessment evaluation. When you evaluate goodwill, you use multiple different methods. One is a discounted cash flow method, and one's a market value approach, which uses Kemper's public market valuations.

Brad Camden
Brad Camden
EVP and CFO at Kemper

When you look at where our tangible book value is relative to book value, and you look at the evaluation of the fair value of our Specialty Property & Casualty segment, given the valuation in some of the control premium, we could no longer support the book value that was on our books. We had to bring down that evaluation. As I mentioned earlier, we had a $460 million goodwill impairment.

Brad Camden
Brad Camden
EVP and CFO at Kemper

That brings our Specialty Property & Casualty segment goodwill down to about $570 million. When you think about as we go forward, another sustained decline in our share price would require us to do another quantitative goodwill impairment. That's not the only trigger. It also depends upon our operating results.

Brad Camden
Brad Camden
EVP and CFO at Kemper

As we mentioned earlier, our operating results are improving, and we expect further improvement. There's multiple things to look at. You are correct, and we did mention this in our filings, that a sustained decline in our share price, as well as continued or challenged operating results could result in additional impairment. As we see it right now, we're comfortable with the position, we're comfortable with the goodwill on our books. I'll also mention there was no adjustment to the Kemper Life segment this quarter.

Gregory Peters
Gregory Peters
Analyst at Raymond James

Thank you for the answers.

Operator

Your next question comes from the line of Paul Newsome with Piper Sandler. Paul, your line is open. Please go ahead.

Paul Newsome
Paul Newsome
Analyst at Piper Sandler

Good morning. Thanks for the call. I wanted to touch on the $60 million write-off relating to the surplus notes and the reciprocal. I'm guessing, and please tell me if I'm wrong, that you're essentially writing down the surplus note that was issued to the reciprocal, and I would guess that's because it's not expected to be profitable. The major question is, assuming that I'm right, does this mean that the prior management's thinking about moving everything into reciprocal is not the current strategy? What's your thought on that?

Steve McAnena
Steve McAnena
President and CEO at Kemper

Hey, Paul, this is Steve. Thanks for the question. I'll start and then hand it over to Brad to cover some of the technical details. If you pull back, I've been here since the beginning of June. My focus has been on getting my arms around the team, organization, and restoring profitability. The reciprocal is definitely on the agenda of things to sort of explore, study, and decide upon. It's only been 60 days. We're going to focus on that in addition to a couple of other things throughout the remainder of the year.

Steve McAnena
Steve McAnena
President and CEO at Kemper

What I would ask is, as it relates to decisions on the reciprocal, give me a little bit of time to get my arms around the business and that particular issue, and we'll be in touch and communicate any decisions around that at the appropriate time. Brad, I'll hand it to you, and you can perhaps cover some of the technical issues.

Brad Camden
Brad Camden
EVP and CFO at Kemper

Yeah, thanks, Steve, and good morning, Paul. Similar to the goodwill impairment, when you think about the reciprocal exchange, Kemper issued or purchased $36 million of surplus note from the exchange. We look at the performance of that exchange, which has not been making money, and you forecast that out over the next three to five years.

Brad Camden
Brad Camden
EVP and CFO at Kemper

The exchange can no longer support the valuation of those surplus notes. As a result, we wrote them down, and we took a $21 million pre-tax charge. There's roughly $15 million of surplus notes left. We'll evaluate those as we go forward based on the cash flows of that legal entity. As Steve mentioned, we'll provide additional details around the reciprocal strategy and the exchange here in the near future.

Paul Newsome
Paul Newsome
Analyst at Piper Sandler

That's great. Thank you. Maybe a little bit of a follow-up to Greg's question. If you're just looking at California and the needed rate increases, is there a way for us to think about linking the rate increases that you're working your way through in stages to get to profitability with the PIF growth? I guess I'm thinking, should we be thinking that PIF growth should be under pressure really until the technical rate gets to its ultimate level, which I assume, obviously you're not hitting the full technical rate increase needed. Should we think about this sort of as a multi-stage period where eventually maybe another rate increase out or two, you get to that period? Do you think that PIF will not necessarily track what you're doing from a rate perspective?

Steve McAnena
Steve McAnena
President and CEO at Kemper

Hey, Paul, this is Steve again. Thanks for the question. There's a lot to unpack in what you asked and brought up, so let me try to do it. We'll tag team with Brad and do our best to try to address your question. Let's start with the diagnosis. Diagnosis as we sit here today, is we need double-digit rate in California. You can look at the numbers, we're not profitable. You see that with other competitors as well. We've taken one rate change. We have another filing pending. We feel good about that. We feel good about the impact that rate is going to have on retention. Retention appears to be holding. We feel pretty good. Like I said at the beginning, this is about restoring profitability and putting that first and foremost.

Steve McAnena
Steve McAnena
President and CEO at Kemper

We want to make sure we have a thriving business on the other side, it is profit first. I'd say the second thing is, we are taking some non-rate action. We have slowed down new business. New business generates economic value for the enterprise. However, in the near term, on a calendar-year basis, as you're well aware, that can have an adverse impact on the combined ratio. We are slowing that down. Then we are taking some non-rate actions, including but not limited to, expenses. I'd say, from my perspective, when we think about PIF growth, both in the aggregate and within California, it's not time-bound, it's conditional. The condition is that we need to have profitability, or at least clear line of sight towards profitability.

Steve McAnena
Steve McAnena
President and CEO at Kemper

We're not there yet. We're definitely marching towards it. We feel confident in the actions and the levers we're pulling. Once we see that, we will begin to thoughtfully and meaningfully start to grow our PIF. Brad, if you want to add or edit anything I said, feel free.

Brad Camden
Brad Camden
EVP and CFO at Kemper

I think you got it covered. Paul will ask if you got a follow-up to Steve's answer.

Paul Newsome
Paul Newsome
Analyst at Piper Sandler

No, I'm good. Although I will say as a positive thing, I got some wonderful positive feedback on your new hires.

Steve McAnena
Steve McAnena
President and CEO at Kemper

Thank you for that.

Analyst

Hello?

Brad Camden
Brad Camden
EVP and CFO at Kemper

Hello, Andrew?

Analyst

Yes. Hi, can you hear me?

Brad Camden
Brad Camden
EVP and CFO at Kemper

Yeah, sorry.

Analyst

Can you hear me?

Brad Camden
Brad Camden
EVP and CFO at Kemper

We were having trouble hearing. We can hear you now.

Analyst

Okay, great. Thank you, and good morning. I want to follow up on the question that Paul was just asking. If I understand California correctly, you got 6.9%, you filed for another 6.9%, but then I think I heard you say that you need double-digit rate, and you've taken some non-rate actions already. Now, one, do you get that? Is California going to provide that rate? I guess maybe you can share the competitive landscape in California right now, such that, what are your competitors doing?

Analyst

Ultimately, what I want to get to is when do you think you'll get to a point where you could turn around PIF? Kemper was a company that had, I think you had something well over two million in PIF prior to the COVID, and now you're sitting at 928,000 personal auto policies. I guess, to make it shorter, what's it going to take to get to a what's the competitive landscape allowing for you to kind of pivot to growth? The part two of it is Well, that's it. Just what's going to allow you to pivot to growth?

Steve McAnena
Steve McAnena
President and CEO at Kemper

Andrew, this is Steve, and thanks for the question. I think Brad and I will do our best to try to address the points that you raised. Let me pull back. I said we need somewhere in the double-digit range to restore profitability. We have 6.9% pending. You asked a question around, "Hey, when's that going to get approved?" We filed in accordance with CDI regulation. We have an effective date later this year. I can tell you the data supports the change. If you're asking me to guarantee that the CDI will approve it, I don't think anyone can guarantee CDI will approve, but we feel pretty confident that we can support it.

Steve McAnena
Steve McAnena
President and CEO at Kemper

The second piece of data that I'd sort of lean into is we're not alone. When you look at competitor filings, you do see pretty substantial rate increases, particularly on the liability side. I'd say the third thing is eating into the double-digit rate need would be the filing and also some of the expense actions and initiatives we have under place. From our perspective, we feel like we're on track with our filing. We feel like we are on track and continuing to pursue expense opportunities. I'll go back to something I said earlier. I've been here 60 days.

Steve McAnena
Steve McAnena
President and CEO at Kemper

I frankly think it would be irresponsible for me to say, "Here's the exact date upon which we're going to start growing PIF." From my perspective, I think what we want to see is clear signs of profitability in the book or a very clear line of sight towards profitability. As we continue to navigate going forward, we will certainly communicate our plans, and we do have an expectation that we will be able to grow PIF, but we have to grow it profitably. Once we get the filings approved, continue to make progress on our expense initiatives, we'll be talking about how and when we're going to be growing our PIF in California. Brad, if you wanted to add anything to that, feel free.

Brad Camden
Brad Camden
EVP and CFO at Kemper

I just have a few comments. We did see some nice improvement quarter-over-quarter, particularly in California. The rate actions we took late in 2025 were effective in the second quarter, one in April, one in June. As Steve mentioned, we filed for another 69. I'd also highlight that the non-rate actions, which are constraining the PIF growth are helping improve the loss ratio and the combined ratio. My expectation is that those will continue to help improve the margins.

Brad Camden
Brad Camden
EVP and CFO at Kemper

Third, as Steve mentioned, the expenses are also significantly helping as well. When you think about Steve's comments, we're doing everything we can to get rate and improve margins, but that will also be dependent upon the frequency severity trends in the marketplace. I leave you with this, Andrew. Typically, when you go from first quarter to second quarter, you have seasonality, and our combined ratio typically goes up. This quarter, it went down a little bit in California, and that is a positive sign, and that gives me confidence that the non-rate actions that we're implementing are having the intended effect.

Analyst

That was very helpful. Maybe shifting over to commercial auto, I'm a little perplexed because you had an underlying combined of 93.7%, I think I heard that you're going to file for more rate to kind of fix the book. If the underlying is okay, then I'm not sure why you would be needing dramatic rate. Just the second part of that, and tied to that is, this will be, I think, the fifth consecutive quarter of adverse development in commercial auto. Why do you think you might or might not have your arms around your reserving in commercial auto after this last adverse development?

Steve McAnena
Steve McAnena
President and CEO at Kemper

Well, thanks for the question again, Andrew. Let me sort of pull back and tell you how we've been thinking about commercial auto. I think it's important to sort of look at this under the lens of overall performance. You have our results. You know what our combined ratio is in the aggregate across all businesses. To some degree, that does sort of influence strategy thinking, et cetera. When we, I look at commercial auto, I see a couple of things, I want to make sure, I want to edit one of the words you used. I see pretty strong PIF growth, high single-digits. I see a strong underlying combined ratio, low 90s. Like you, we see prior year development over successive quarters.

Steve McAnena
Steve McAnena
President and CEO at Kemper

I think that gives us sort of an opportunity to pull back and say, what are the options for us going forward? Option one, I'll just simplify it, there are a ton. Option one is continue to go down our current path, continue growing at the current rate, continue taking rates up at our current level. Frankly, if you looked at that's a reasonable path given some of the numbers you have. I think against the backdrop of overall performance and what we've seen with prior year development, Brad will talk about his perspective on that sort of leads us to option two. What I didn't say is we're going to take meaningfully more rate.

Steve McAnena
Steve McAnena
President and CEO at Kemper

What I said was we're going to take more rate, I think the consequence of that is going to be to slow down. We'll tighten our underwriting as well. Consequence of that will be likely to slow down our PIF growth. We'll still have positive PIF growth. I think this is sort of a more measured approach to sort of manage commercial auto, particularly given the backdrop of overall performance. With that, I'll hand it to Brad. Brad, if you wanted to comment on reserves, that'd be great.

Brad Camden
Brad Camden
EVP and CFO at Kemper

Thanks, Steve. Andrew, you're correct. We've had successive quarters of adverse prior development. When you look at the total reserves for the commercial vehicle, you've got roughly $1 billion of reserves. About 90% of those reserves are related to bodily injury, the bodily injury coverage. That's been a challenging coverage to get correct. We've talked about this in the past. 45% of our book's in California. California is a highly litigious state and you're seeing a lot of activity there. You're seeing the cost to defend those claims continue to increase.

Brad Camden
Brad Camden
EVP and CFO at Kemper

As a result of that environment, we find ourselves needing to continue to increase our reserves. When we think about do we have a handle on this, we think we do, but that's indicative of the last couple of quarters from our reserve strengthening. We like the trends that we're seeing. Things are getting better across the entire book, and with some favorable development in other coverages. BI, particularly in California, continues to be the predominant issue, and we'll continue to monitor and address it as needed.

Steve McAnena
Steve McAnena
President and CEO at Kemper

Thanks for the good color on all that.

Operator

There are no further questions at this time. I will now turn the call back to Michael Marinaccio for closing remarks.

Michael Marinaccio
Michael Marinaccio
VP of Corporate Development and Investor Relations at Kemper

Once again, I just want to thank you all for joining us today. We appreciate your questions and continued support, and we look forward to talking to you again next quarter. Have a great day.

Operator

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

Executives
    • Michael Marinaccio
      Michael Marinaccio
      VP of Corporate Development and Investor Relations
    • Steve McAnena
      Steve McAnena
      President and CEO
    • Brad Camden
      Brad Camden
      EVP and CFO
Analysts
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