Good afternoon, ladies and gentlemen. And welcome to Kemper's Third Quarter 2020 Earnings Conference Call. My name is Sarah, 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, Christine Patrick, Kemper's Vice President of Investor Relations. Mrs. Patrick, you may begin.

Thank you, operator. Good afternoon, everyone, and welcome to Kemper's discussion of our third quarter 2020 results. This afternoon, you'll hear from Joe Lacher, Kemper's President and Chief Executive Officer; 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. We'll make a few opening remarks to provide context around our third quarter results and 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 Executive Vice President and Chief Investment Officer; and Erich Sternberg, Kemper's Executive Vice President and Life and Health Division President. After the markets closed this afternoon, we issued our earnings release and published our third quarter earnings presentation, financial supplement, and Form 10-Q. You can find these documents on the Investors section of our website at kemper.com. Our discussion today may contain forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, the company's outlook and its future results of operations and financial conditions. These statements may also include impacts related to the COVID 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 2019 Form 10-K, our third quarter 2020 Form 10-Q, as well as our third quarter earnings release. This afternoon's discussion also includes non-GAAP financial measures we believe are meaningful to investors. In our financial supplement, presentation, and earnings release, we have designed 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 at kemper.com. All comparative references will be to the corresponding 2019 period unless otherwise stated. Finally, I would like to note that due to the social distancing practices that Kemper is following in response to the COVID crisis, our call participants are not in the same location. This may cause the question-and-answer section of our call to feel disjointed at times. We apologize in advance and ask for understanding from our listeners. I will now turn the call over to Joe.

Thank you, Christine. Good afternoon everyone, and thank you for joining today's call. I would like to start by commenting on the current environment. We continue to offer our thoughts and compassion to individuals and families that have been impacted by the pandemic. This is a difficult time for everyone. Despite this, I’m inspired every day by our team's commitment to meet the needs of our customers and deliver on our promises. I’m very proud of their ongoing dedication and offer my sincerest appreciation for their efforts. Against that backdrop, we have a business that’s resilient and has the ability to consistently deliver strong results and long-term value to our stakeholders. While higher uncertainty in the business environment is likely to continue for some time, our diversified business model has and is expected to perform well. Before we turn to the quarter’s results, I'd like to mention the recent announcement that our Board of Directors elected Stuart Parker as a new Director. Stuart previously served as the CEO of USAA and spent 21 years in various leadership roles with them. His high level of expertise and deep understanding of the insurance business will be a great asset to our Board. His success in advancing strategy through transformational customer service, accelerating product development, and digital innovation will be immensely beneficial to further Kemper’s growth strategy; our entire team looks forward to working with him. Now I'd like to turn to Page 4 to discuss our results for the quarter. Net income was $122 million or $1.83 per diluted share. Adjusted consolidated net operating earnings were $91 million or $1.36 per fully diluted share. We continue to generate top-tier returns with a rolling four-quarter return on tangible equity, excluding unrealized gains of 18%. The benefit of our diversified model was again evident this quarter as we were able to deliver strong returns with stable cash flows, despite elevated catastrophe losses and increased COVID-related mortality. Turning to our segment results, our specialty auto business continues to generate significant market share gains with double-digit top-line growth and attractive underwriting profitability. The business further benefited from favorable frequency trends. During the quarter, we achieved fixed growth of 7.6%, excluding the sale of classic cars. Our low-cost operating model and ability to understand our customer's needs have allowed us to sustain industry-leading levels of growth despite disruption from the current economic environment. Our preferred segment was impacted by elevated catastrophe losses, primarily from California wildfires and to a lesser extent, weather-related events. At the end of the quarter, we had met our catastrophe aggregate retention level for 2020. Based on this, we expect lower than normal fourth-quarter catastrophe losses. In our life and health segment, we were pleased that for the first time this year, we had a full quarter of sales activity. Segment earnings were impacted by elevated benefit costs driven by the pandemic. While we expect this trend to impact earnings for some time, we do not expect this to be a capital event. During the quarter, we had a very successful debt issuance and leveraged attractive market conditions. We raised $400 million of 2.4% senior notes due in 2030. Jim will provide more detail on this later in the call. In summary, Kemper's healthy balance sheet and financial flexibility have enabled us to consistently deliver on our promises to our customers while maintaining appropriate returns for our shareholders. A diversified model has proven successful by combining stable sources of cash flow and lower required capital to create a cost advantage that drives higher growth. I'd like now to turn the call over to Jim to discuss our third-quarter operating results in more detail.

Thank you, Joe, and good afternoon everyone. Turning to our results on Page 5, net income for the quarter was $122 million and adjusted consolidated net operating income was $91 million or $1.36 per diluted share. On a year-to-date basis, adjusted consolidated operating income per share increased roughly 4% to $4.98, coupled with strong year-over-year tangible net book value, excluding unrealized gains on fixed maturities, growing by 14%. Our diversified model and specialized businesses continue to allow us to deliver sustained growth and strong earnings. On Page 6, we isolate key sources of volatility. This quarter was primarily impacted by elevated catastrophe activity when compared with the prior year's quarter. Normalizing for these sources of volatility, adjusted consolidated net income per share increased on a year-over-year basis by 33%. On Page 7, I would like to again highlight some of the capital metrics that demonstrate intrinsic value creation and strength of our capital deployment decisions, including tangible book value per share and tangible return on equity. On a 12-month basis, tangible book value per share, excluding unrealized gains, grew 14%, and the return on tangible equity excluding unrealized gains was 18%. Continuing to Page 8, our capital and liquidity position remains strong, with over $1.4 billion of available liquidity. Over the past 12 months, we generated over $400 million in capital. We ended the quarter with a debt-to-capital ratio of 21%, reflecting the capital raised during the third quarter. Turning to Page 9, I would like to take a minute to provide further details on our debt offering. In September, we leveraged attractive market conditions to raise $400 million of 2.4% senior notes due 2030. The offering returned Kemper to our long-term debt-to-capital target rate of 17% to 22% and extended and diversified our capital structure, with current debt maturities 2, 5, and 10 years out. Our offering had the third-lowest issuance yield in P&C industry history regardless of rating. There was the second-lowest BBB-rated 10-year yield issuance in financial sector history, and the transaction was more than 5x oversubscribed, with interest coming from a diverse investor base. This outcome is evidence of several key points: one, the strength of our business model; two, the quality of our balance sheet; three, the efficiency of our capital stack; and four, the confidence investors have in the combination of these points. In terms of potential use of proceeds, our first capital priority remains investing in our business while organic growth remains strong. Next, our capital position provides support for tuck-in acquisitions. Additionally, where appropriate, our existing share repurchase authorization provides the option to capture value for long-term shareholders. Finally, the offering proceeds may be used to fund repayment of our 2022 debt maturity, reducing refinancing risk. Turning to Page 10, net investment income for the quarter was $92 million. While interest rates have put pressure on new money yields, our portfolio is positioned to perform through a lower-for-longer environment. Over the next 12 months, the company's scheduled fixed maturities are limited to $123 million. Over the past few years, we've extended the duration and mix of assets within our life and health segment; these actions put the company in a good place for this market environment. In closing, we are pleased with this quarter's financial performance and are optimistic about our future. I would now like to turn the call over to Duane to discuss the results of our P&C segment.

Thank you, Jim, and good afternoon, everyone. Let's begin with the specialty segment on Page 11. The segment continues to perform well, generating approximately $119 million in earnings in the quarter. Our historically strong earnings profile benefited from pandemic-related favorable frequency trends. This resulted in an underlying combined ratio of 85% in the third quarter, and 89% on a year-to-date basis. We continue to achieve strong market share gains in both new and established geographies. Policies in force increased 7.6% compared to the prior year quarter, excluding the sale of classic cars. Net earned premiums increased 11% on a year-over-year basis. As you can see in the chart on the top-right of the slide, our expansion efforts have been successful as we continue to deliver top-tier growth across geographies. We generated significant trailing 12-month growth in Florida and Texas at 30%. In the first phase of the expansion stage, we grew 34%, and at the same time, we continue to gain market share in our largest state of California. We continue to build on our sustainable competitive advantages such as our low-cost model and specialty focus. Long-term, we expect to deliver consistent growth at attractive margins. Let's turn to preferred segments on Page 12. We continue to make progress in our preferred book, as demonstrated by continued downward momentum in our trailing 12-month underlying combined ratio. These improvements are driven by our profitability actions in underwriting, pricing, and exposures. That said, we recognize we still have work to do to reach our profitability and growth goals. Our preferred auto combined ratio improved on a year-over-year basis, driven by the same macro environmental frequency trends recognized in the specialty segment in combination with the profit improvement actions I previously referenced. Additionally, we had roughly $6 million of adverse development, primarily driven by increasing demand notices related to bodily injury and uninsured motorist. This segment was impacted by $62 million in catastrophe losses, with roughly two-thirds resulting from California wildfires. As Joe mentioned, we have met our catastrophe aggregate retention level. As a result, we expect any catastrophe events in the fourth quarter, other than named storms, to be covered subject to a $500,000 per event deductible. I'll now turn the call back to Joe.

Thanks, Duane. Turning to our life and health segment on Page 13. Results were mixed this quarter. We were pleased that for the first time this year, we had a full quarter of sales activity. New business is trending back to normal levels, and lapse rates remained favorable. Customers continue to value our life product offerings. We have a strong competitive position in this space and are confident in our ability to deliver long-term strategic value. For the quarter, segment income was $12 million, reflecting elevated pandemic-related benefit costs. We experienced increased mortality, partially offset by decreased morbidity, as levels were in line with overall domestic trends. Looking forward, we expect elevated pandemic-related benefit costs to continue. Given the dynamic nature of infection and mortality rates and the timing of therapeutics and other mitigators, the specific impact is difficult to predict. Long-term, we remain positive about our ability to grow the business and generate attractive returns while continuing to serve our customers. Overall, I'm pleased with our business results and the progress we've made to further strengthen our competitive advantage this quarter. Our capital and liquidity are strong and capable of supporting industry-leading growth with stable returns. Solid strategy execution has resulted in another quarter that demonstrates the ability of our franchise to create substantial value over time, particularly in the face of the current pandemic environment. Finally, we were pleased to learn that we were number 11 on Fortune’s recent list of 100 fastest-growing companies, just behind Amazon. The list was based on single-year revenue and EPS growth rates and three-year annualized total return. It’s been a great recognition for our entire team, whose hard work and commitment to act like owners every day by moving the dial on our strategic priorities. Now I'll turn the call back to the operator to take your questions.

Thank you. We will now start the question-and-answer session. Our first question comes from Matt Carletti with JMP. Please go ahead.

My first question is for Joe or Duane. I would like you to provide some insight into how the competitive environment is changing. There seems to be a growing discussion about major companies utilizing their COVID savings to enhance their competitiveness. Your business is quite specialized and is concentrated in certain regions more than others. Could you share what you are observing in your markets and across your lines of business?

Duane and I will tag team. We're in different locations, so forgive us as we navigate through that. I'll make a quick comment and then ask Duane to add more. As you pointed out, our specialty auto business is our biggest chunk of our auto business. And it is in a differentiated position or a different spot than what you'll hear about a lot of times when you hear big players talking about getting more competitive. So I think it's positioned differently, and it has us while not immune, facing a different set of competitive headwinds than you might find when you're hearing somebody broadly make a comment. Duane, you want to add some deeper color?

Yes, thanks, Joe. And I echo certainly Joe's comments. I think it's safe to say it’s probably nuanced, Matt, across geography. Those that we generally run into have employed different tactics. We're seeing less on the rate change front; there was a little bit of that early on, I'd say low single-digit, and that's now reverted to agent incentives and different types of programs on that front to try to bring in the new business. But you get a full range of those things across each of the states; they are all different, mainly driven by the dominant players in those states. We do see some of the bigger players, State Farm, Progressive, and things of that nature. But we've been fortunate so far with our agency relationships to continue to find our way in that space and continue to write business.

The wrap I'd put on it, Matt, is again agreeing with Duane. As we say or he'll say, this is different. The state-to-state is not because we're so far up against the trees; we're missing the forest, it's because we're typically dealing with smaller competitors in those geographies or a more focused competitive environment in those geographies in the specialty auto business. Probably the best way to step back and think about us is look at the growth this quarter, recognize that it's actually accelerating from some of what we've seen, and remember that we believe we have a specialization advantage, a cost advantage, and a set of capabilities that position us in that competitive environment to perform and do well going forward.

Okay, great. Thanks. And my one other question, then probably Joe for you, or Jim relates to M&A broadly. We are seeing one of your closest competitors announced being acquired. They farmed an awful lot of deal rumors, the net book kind of out there. So clearly, it's a focus and kind of on people's minds. And then my question is, can you kind of walk us through without spending too much time kind of Kemper’s approach to M&A? What boxes kind of must be checked, whether it be strategic or financial, or so forth? I didn't miss my mind in the presentation that one of the uses of capital was a tuck-in acquisition. And so maybe you can comment on kind of where you view Kemper today and the capabilities you have and as you view something more strategic or transformational versus tuck-in?

Sure, Matt. I'll take a shot at this. First, I'll make a comment. We never specifically comment on any particular M&A position or either react to any given time. So I'm highlighting that and answering your question from a more broad, generic point of view. Starting with a couple of guiding principles: first, we're building a core business around a key strategy. We look for our diversified businesses that have systematic, sustainable competitive advantages or the ability to build those and enhance those. We look for a business to be part of the portfolio to either be made better by being part of the portfolio or to make the other businesses better. So we start with that piece of the strategy. When we think about anything like M&A, we recognize that we're not just trying to be bigger for the sake of being bigger; we're trying to be better. Something has to make that core strategic set of statements better, and that's added capability; it has to make us stronger, bringing a different geographic niche; help us enhance an existing advantage, like a cost advantage or a specialization advantage. So we're always thinking about those items. Why would something be better off with us than not with us? Then we recognize that there needs to be a financial dynamic; we come back to a handful of tests: something should be accretive within the first 12 months to income. We would expect something to have a straight payback period inside of three years, a crossover payback inside of five years. We recognize that part of the financial considerations is how we're paying for it, is it cash or are we using our own currency? If we're using our stock and we're trading at a lower end of our trading range versus a higher end, that's going to produce different financial implications on those tests. We're cognizant of all of that. The last thing I layer in, Matt, is it's not in any way lost on us that our job is ultimately to be good stewards of capital and good managers of shareholders' capital and produce appropriate returns. Trust is earned with disciplined, thoughtful execution and a track record over a longer period, and it's destroyed rapidly. We're very thoughtful about that. Our plan is to be doing this for a long period of time and continue to do it as successfully as we've been doing. So we need to remain disciplined in anything we do. I think folks would look back at our Infinity transaction. Hopefully, on any metric you could find, you'd see that was highly successful. For any transaction that somebody does, you should assume that they were active and looking at several that they didn't do. If you started with that assumption with us, you would walk away with some confidence that we also know how to do something. We also had to walk away from something if it's not matching the right criteria we put any transaction through, and it's not meeting those hurdles. That may be a longer answer than you wanted, but I think it's got a lot of nuances around it. Hopefully, that helps.

No, that's great. I really appreciate the thoughtful response and best of luck going forward. Thank you.

Our next question comes from Paul Newsome with Piper Sandler. Please go ahead.

I was hoping for a little dovetail off of Matt's question. I think what you gave in terms of the competitive environment sounds like it referenced mainly the non-standard business, but maybe you can talk a little bit about what you're seeing in the preferred business as well. And how the environment today is, is it making it harder or easier to get where you want to in terms of restructuring the business?

Sure. I'll take a shot at that. Again, Duane and I are trying to connect across geographies. We are clearly seeing a bit more of a competitive environment inside of the preferred space, as we try to work through the challenges we've had in that business. This environment actually is helping that because we're seeing most folks recognize that profitability is improving, and it's easier to sort of get things fixed. We had done some things over the last year and a half or two years that were self-inflicted, or things we did deliberately to replatform our business, convert it to a newer set of products, manage some re-underwriting; all those things put production pressure on us or pressure on retention, or compressed new business as we were working on those improvement actions. The bulk of those that would really be production impacting are largely through the system. So what we're seeing through our results right now is a step-up or an improvement in revenue production because those activities are stopping despite there being a modest uptick in the competitive environment, we're less disruptive on ourselves. So the net of those is actually producing some modest improvement in production. Duane, can you help me with more specific color on what you'd add there?

Yes, no, I think it's a great comment, Joe. And I think what we're continuing to see, certainly on a geography-by-geography basis, is progress on that front where the historical work Joe has mentioned is starting to bear fruit, and we're finding ourselves in a better position or more competitive position. That doesn't mean we can necessarily control or predict what the competition is doing. But the work we've done in the past is beginning to show itself.

Yes, this is Jim. Let me try to address your question, and Duane, please feel free to add any comments. Last quarter, we discussed an underlying theme within the bodily injury uninsured motorist segment of our preferred book. While last quarter we observed this more prominently in the uninsured motorist area, this quarter we detected some spillover as we continued to analyze our data in the bodily injury segment. As Joe mentioned, once we introduced the new product and implemented the necessary adjustments, we noticed a slight shift in the mix, along with some changes in environmental trends during that time. Our response to these developments has been considered and strategic. There are several potential outcomes we could foresee; however, I suggest we maintain high confidence in the estimates we are providing. This adjustment is part of our efforts to adapt to current conditions and refine our underlying product. I wouldn't consider this a long-term issue; rather, it's a reflection of the current environment and our efforts to establish the new prime product.

No. I just was going to say Jim nailed it. I don't have anything else to offer. Thank you.

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

First, I know you're all aware that a tech platform recently went public. And they have a, as you know, remarkable record of growth, and of course, associated with that is elevated loss ratios. I guess I had two questions for you guys. First of all, when we're looking at Slide 11, and we see the type of growth that you're reporting in Florida and Texas in the expansion states, one wonders if that's going to be coming at a cost somewhere down the road in terms of higher loss ratios. And the second question, I would have is just more broadly speaking, as it relates to companies like Root and Lemonade, what's your view of technology in your specialty segment, and how you might use it to deliver a more cost-effective and price-sensitive product to your consumers?

So, thanks, Greg, this is Joe. I'm going to take a shot at both of these. Look, I'm all in favor of the concept of the world changing and new pieces of the economy coming forward. I think some of these tech startups are taking a narrow piece of the business and thinking they can revolutionize that and they're missing a big part of what actually runs on insurance. That's actually managing the cost of goods sold, which is the loss costs. I don't think most people look inside of the numbers here and think that solving the expense ratio, or enhancing the expense ratio in our specialty business is what's going to lead us to be way more effective in terms of what we're doing; we already have a leading expense ratio inside of that space. It's about understanding the loss costs and managing those. We've been growing in some of these geographies at significant rates for a long time. These are short-tail businesses. We already would be seeing a temperature if they were coming here. What we're doing is we're doing very thoughtful things with our specialty model with our pricing, with our sophistication, understanding the market, and we're highly confident that it's a sustainable model. The caveat on that is we've been talking about it for two or three quarters, that the frequency levels that we're seeing in the industry are not sustainable. We do expect they're going to go back at some point to a pre-pandemic level. When that happens, and frequency runs up, these combined ratios are going to go up because people are actually back out driving more. We never suggested that anyone should expect a combined ratio in the mid-80s for a long period of time. We told folks we're targeting more in the mid-90s, that's where we'd expect to be at a fair return for our shareholders, a fair return for our customers. We think it's a wonky environment right now, and we're trying to make the adjustments through the pandemic environment. I don't want to have a misstated quote come back two quarters from now when we see that combined ratio rise. If it's coming back from the basic set of frequency, as people return to 'normal' whenever that is, that is going to happen; you should expect that to happen. It's not going to be because we don't know what we're doing in the states and these geographies; we're highly confident there.

And, Greg, if I could add on just to what Joe highlighted. One related to the growth in maybe the differences between Root and Lemonade, and we're not trying to catch up from a volume perspective here to create essentially a profitability position into outrun our fixed costs. Those items are baked into what we are doing, and what you're really seeing come through is the competitive advantage both on a cost advantage, our product development that is specific to our customer base, as well as essentially having through the diversified model and our low-cost platform, the ability to create that customized product at a low cost point for consumers, giving them the right experience. You're seeing that play out very similarly to how you saw that, I think, play out for Progressive earlier in their life cycle when they were focused on a portion of this market. The second thing that I think you asked about was related to technology. I think Joe summarized the over-the-top, and it was really giving you kind of a little bit of a story and journey we're at. I look at it, and I think it comes into play in what we're doing, and the things that we brought to bear over the last three or four years here is an element to be able to create lower-cost customization, which plays well for the longer-term macro trends. It's about a speed of information there. But it's not just the speed of information; it's how fast you can translate that into execution to appropriate action. So in terms of how these things come together in the future, I don't know that any one of these things is so disruptive in and of themselves in terms of how they drive or create a new market. But it's about how you use these technologies to do what you're already doing better and do it at a lower cost point. That doesn't mean your expense ratio will necessarily change, because effectively, you'll be able to if costs go down, you'll offset some of that with reduced increases for trend. But it's one of those things that as we continue to accelerate, we can build on and should be a further accelerate to the competitive advantages that we have today. Hopefully, that helps, and happy to answer questions. Yes, maybe that gives you two views to think of that.

That's good color. I guess the second question, as a balance sheet question, you look at your information about your debt offering, $400 million at 2.5% or 2.4%, right? You're seeing other institutions issue notes and debt at low levels like that. And then we slip over to Slide 10 and look at your investment income. I guess the core portfolio generated $81 million versus $88 million a year ago. If you and everyone else are able to just drive lower debt costs, this is ultimately going to manifest itself with lower investment income in your portfolio. So maybe you can help us sort of frame that as we think about our investment income assumptions and growth of that line for your business next year and 2022.

Greg, thanks for the question. So I'll highlight maybe some of the things that I highlighted as part of kind of a script or initial presentation as well, some of the things I've said in the past. I think we find ourselves in a very fortuitous position; we try because of our diversified model to be as matched out associated with our liabilities, as well as we're able to essentially, even on the P&C side, be able to take our data where we're investing on that side commensurate with a full life of the liability. What I mean by that is say you expect the payment to go out one year from the day that is; many companies will have to take half or three-quarters of that because of their business model. Our diversified model allows us to go to the full length of that liability. What that means is that we tend to be more matched and our pricing be more matched for the environments that we're in, and that we're making sure we're balancing both the underwriting income side with commensurate with the investment environment. When you look at our portfolio, one of the things I mentioned earlier is over the next 12 months we have about $123 million of maturities coming through. That's a very low level of maturities. If you think about the overall size of our book, when you think about $9 billion of investments. Further from that, you don't see huge amounts of investments coming due in 2022; that's another say $141 million today that is on schedule to come through inside that period. These are very manageable numbers that won't necessarily drive significant change. If there was a significant change relative to our business, these are items that we would take into account from a pricing perspective. So we feel really good about that. I think the way to look at our business is what do we think; we provide targets 10% to 12% over the long term, therefore our return on equity. We also talk about our return on average tangible common equity, and the reality is it's about how these things balance versus one of any individual component that comes through there; i.e. in a lower-for-longer environment, it just changes what we do on underwriting. Because this is shifting on a relatively slow basis, when you think of those maturities, we have the time to react to it.

Okay. And all of that makes sense. I guess the final point is it doesn't look like you bought much stock, if any stock back in the third quarter. Is there a reason regarding concern around catastrophes, or can you walk us through? I know you highlighted that on Slide 9 as one of the uses of capital, just curious about the thought process behind that from the Board's perspective?

So, big picture, Greg, the last stock buyback that we did was commensurate with essentially the CSC settlement. We had issued some equity early on to support growth, given some of the uncertainty and the elongated timing that we expected to play out associated with that settlement. The ability to reduce the hybrid drove our actions to purchase again in the first quarter and second quarter components of the stock that may tend to balance out those items. That was the primary driver there. From an environmental perspective, nothing's changed relative to our capital deployment. We first look to make sure we've got the right amount of capital to support organic growth activities within the business, as well as anything that could be considered strategic, or to handle what could be increased volatility from a macroeconomic environment perspective. When we look at those timeframes or those amounts, we then consider an 18-month period generally as the time period for when we would think that they would be appropriately deployed or used inside that period. If those things aren't there, that's when we look to do additional things from a return of capital perspective. The driver to time that 18 months is just a cost of money type of assessment that comes through. When you get to longer periods of time, it tends to be better just to match up those things at a future date, if that makes sense. So there's really been no change to that for those thought processes and we continue to see very good organic growth within our businesses. We continue to consider all of the elements that you would think about in terms of trying to make sure that we are really thoughtful for our shareholders and making sure that we do the things that create the most intrinsic value for them over the medium and long term.

Our next question comes from Brian Meredith with UBS. Please go ahead.

A couple here for you. First, I'm just curious, could you possibly give us some sense of how frequency was trending during the quarter? I know you don't want to provide us guidance on what's happening. But were you seeing the miles driven frequency and time tick up during the course of the quarter and getting a little sense of normalization?

Hey, Duane, do you want to ahead and describe that? As you do, give us a sense both of year-over-year and sequential quarters, because I think Brian's trying to poke at both of those. Yes. From a sequential perspective, certainly, frequency did pick up prior to the second quarter. I think the second quarter really dipped, and then it started to work its way back in the third quarter. When we think about year-over-year, it's still down a good percentage from the same period of time in 2019.

Adding on top of it, Brian, it's a little bit different by state. We're also finding when we look at miles driven, the miles driven is coming back up; when you look at a weekend, it's much closer to pre-pandemic level than it had been. If you look at during the week, it's still down. If you look at typical commuting hours, those are still down. So the miles driven is giving us some insight, but they're different miles driven at different times of the day in different ways, still fairly significantly in terms of what we're seeing running through. It's making it hard for all of us to sort of figure out what exactly will come next.

Appreciate that. And then, second question, I'm just curious, given the profitability that you guys are seeing right now, any concerns about regulatory pushback? And on that topic too maybe you can talk a little bit about there's been some talk about credit scoring and potentially doing away with that. What does that mean for your business?

We really, Brian, are trending ahead of a regulator coming back. We don't anticipate nor do we want to be in a spot where somebody says you should have done something different, where we've had a language and a practice that we've been running throughout the pandemic that says we're trying to target a fair and appropriate return for our customers, which then becomes also a fair and appropriate return for our shareholders and grow the business. We had anticipated as in much of the country that we might see a slightly more broad reopening, and we were on that pace, and we were starting to see frequency come up. We wouldn't have thought we needed to do much to respond around that. What we're seeing now is more closing things down, and people tightening back up. This may run for a little longer. If that’s the case, we're either going to wind up with a premium rebate like we've done before, or some more frequency-sensitive rate change, or some more permanent rate change that moves its way back. We do not anticipate nor desire at all to want to run combined ratios with an eight as the first digit, and we would not be projecting that going forward. We'll respond appropriately around that if we did; we view that as missing a growth opportunity and not doing the right thing to serve as many customers if we could. We don't need to be responding to a regulator around that, because it just sort of breaks our first principles around that. As we see sort of what we anticipate the timeframe will be on this going forward, we’ll surely be responding appropriately. On the topic of credit scoring, we hear this come up periodically. We're thoughtful, rating and underwriting and market specialists. There are geographies like pick almost any geography you want, say a Florida or Georgia that function much like the rest of the country. Then you take a state like California, which has its own unique set of rules that restrict a great many rating and underwriting variables. We’re highly successful in all of them. If somebody wants to change the rules and it changes for everybody else in the marketplace, we will adjust around it. I think it's misguided. I think that credit scoring, when you fully understand what's happening, actually in many cases got what was perceived as a more fair process to folks and provided a better set of outcomes across all sorts of diverse groups. I think it was the ultimate conclusion. We'll adjust based on the way the rules are in the market and are highly confident in our ability to win whatever the rules are.

Yes. This is Duane. I would only echo one other thought on that, and Joe's right. We participate as you well know largely in California today, where that's not a variable. So, we've honed that skill, how to work without it or with it. The other is, on the specialty side, the spread on credit scores is actually really, it's not that broad as you can imagine. Having some flexibility with other rating variables on how to use that in combination with other attributes has allowed us to be successful. I agree with you 100%. I think this change will absolutely morph accordingly, but I think we're in pretty good shape.

Our next question comes from Jeff Smith with William Blair. Please go ahead.

You provided some growth numbers for Florida, Texas, and then the expansion states. It was on a trailing 12-month basis, but just curious if we could get a sense of what it was in the quarter and just to see how that's trending?

Yes. Give us a second to pull the stat. You're really looking for quarterly or sequential; there hasn't been a meaningful change off of it, Jeff. It actually, if anything has been accelerating modestly. I’m grabbing the number here, give us a second. I'm not sure we're going to actually get it fast enough for you to be on the call. We can follow up with you after the fact.

I think, Jeff, the key point that I would highlight is while we've given you the previous trailing 12 months, what you would see is that this quarter actually was accelerating over what would be the trailing 12-month ratio. It actually understates what the growth in total was that you're looking at, and we'll get you more specific elements.

Again, my comment was we're actually seeing these receiving acceleration, not a deceleration; that's really the trend direction you're trying to look for. Some folks have hypothesized that we were going to see reduced growth prospects, and that just actually is not what we're seeing. We're seeing this model works well in this dog hunt, and it continues to pick up.

Okay. And then just looking at the underlying loss ratio in the non-standard auto, it was down quite a bit; it was the same as it was last quarter. I guess, despite we have seen some pickup in economic activity, some driving activity has started to recover. But I'm just trying to get a sense on if you sort of back out maybe pandemic-related, is that still 75, 76? Or it seems like that could be trending down some?

Yes. We had different premium rebates in different time periods. You got a little bit of that running through. Are you trying to understand this quarter? You're trying to project in the next quarter; help me because I'm trying to give you the information that's most helpful to guide on what you're looking for.

Yes. I'm trying to see, is that still 75, 76 on an adjusted basis, kind of a normalized basis, or are you seeing that maybe trimmed down a little bit?

So I think the best way to look at this is going to be essentially in our supplement. What you're going to see is that we're relatively flat from a PPA perspective on a quarter-over-quarter basis. What I'd compare there is both your year-to-date number, which is obviously higher than what we posted on either in the last two quarters, but you've seen relatively consistent quarters in terms of what the underlying loss ratio would be there. You saw some improvement essentially coming through in our commercial book, a little less than, basically, two points coming through there. Again, the recent trend that you've seen over the last two quarters is a little bit favorable to what, again, the year-to-date would be. But you can continue to see kind of that stability pattern. And then you saw a marginal increase essentially inside the PI business. Again, still a little bit better than what you'd expect from a year-to-date basis, but again, relatively constant, as a whole. And so I think those couple of quarters, and then you've got to take into account, the environment which is changing significantly, day in and day out and have that overlay that comes in once you get to that period. And again, you might be thinking a few points this way or that way, just a lot of it kind of being what goes on with COVID, how mobile are people? What times are they mobile? Your crystal ball is really as good as my crystal ball is on that at this point in time.

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

Thank you, operator, and thanks everybody for joining our call today. We appreciate your time and attention. I think we had a strong quarter, and the strength of our underlying franchise from an earnings and growth perspective is coming through. We look forward to continuing to talk to you about success in the future. Thanks again.

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