Horace Mann Educators Corp (HMN) 2024 Q1 法說會逐字稿

Good afternoon, and welcome to the Horace Mann Educators first-quarter 2024 investor conference call. (Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Bret Conklin, Chief Financial Officer. Please go ahead.

Thank you, and welcome to Horace Mann's discussion of our first quarter results. Yesterday, we issued our earnings release, 10-Q, investor supplement and investor presentations. Copies are available on the Investors page of our website, Marita Zuraitis, President and Chief Executive Officer, and I will give the formal remarks on today's call. With us for Q&A we have Matthew Sharpe, Stephen McAnena, and Anna Ryan Rainier, Marc DeRosa And Mike and Brock.

Before turning it over to Marita, I want to note that our presentation today includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Company cautions investors that any forward-looking statements include risks and uncertainties and are not guarantees of future performance.

These forward-looking statements are based on management's current expectations and we assume no obligation to update them. Actual results may differ materially due to a variety of factors which are described in our news release and SEC filings.

In our prepared remarks, we use some non-GAAP measures. Reconciliation of these measures to the most comparable GAAP measures are available in our investor supplement and now I'll turn the call over to Maria.

Thanks, Brett, and welcome, everyone. Yesterday we reported first quarter core earnings of $0.6 per diluted share and nearly threefold increase from last year's first quarter, primarily due to the progress we've made in restoring P&C profitability.

Total revenues were up 9% and earned premiums and contract charges were up 8% over prior year. These results reflect strong sales momentum in our retail division, led by a 35% increase in property and casualty sales premiums.

We realized a dramatic improvement in the profitability of our P&C business and continued to benefit from the strength of our diversified business model built to meet the needs of educators and public sector employees, while net investment income on the managed portfolio was up 7% for the quarter. We saw a handful of real estate related funds performed below target levels due to a mark-to-market valuation adjustments, consistent with the experience of the broader industry.

This obscured some of the progress we are making in Life and Retirement and the supplemental and Group Benefits segments. Brett will talk about the outlook for the individual segments later in the call, but at a high level, we remain confident in our 2024 full year outlook of core EPS in the range of $3 to $3.30 net investment income closer to the lower end of the current range of $465 million to $475 million and return on equity near 9%.

Today, I would like to focus my remarks on the progress we're making across the business to reach the profitability targets and gain market share. First and foremost, we are making substantial progress towards restoring P&C segment profitability.

Our reported first quarter P&C combined ratio of 99.9% was a 13 point improvement over prior year combined with strong segment net investment income returns. This led to a first quarter segment profit of $11 million, a $22 million increase compared to a year ago. As an aside, first quarter catastrophe losses remain elevated.

Industry losses exceeded the 10-year industry average and Horace Mann's first quarter losses also exceeded our 10-year and 5-year averages. However, when comparing quarter-over-quarter, our catastrophe and non-catastrophe losses were lower than prior year.

The majority of our combined ratio improvement is due to the successful execution of our multiyear profitability restoration strategy. From 2022 through the end of 2024, we expect our rate increases and non-rate underwriting actions to equate to total premiums increases of nearly 40% in auto and nearly 50% in property.

Despite these increases, policyholder retention has largely remained steady and consistent with our historically strong retention. We attribute this to our loyal customer base. Our educator specific benefits and the overall value we provide, we strive to offer a fair price over the lifetime of a customer relationship, and we equip our agents with the information to explain the economic context to customers.

Over the course of 2024. We are currently planning for a country-wide average of 10% to 15% rate increases in both auto and property. This plan includes recent approvals from California for a 22% increase in homeowners and a 13% increase in auto, both of which are now in effect.

In addition, we expect an increase in property average renewal premium in the mid-single digits attributable to higher home coverage values. We continuously review emerging trends and we'll adjust our rate plans as needed to ensure segment profitability. In the property line, we continue to roll out underwriting as well as terms and conditions changes to ensure we continue to accurately price our risks.

In particular, we have implemented new roof rating schedules and have received approval with effective dates within the next 90-days in six highly wind prone states with filings pending in three additional states. These schedules set convective storm claims settlement rates that take into account the age and construction materials of roofs.

When fully earned and we expect about a three point impact to the property combined ratio. On a normalized basis, our Life and Retirement and supplemental and Group Benefits segments are near or above target profitability.

However, in the first quarter, segment earnings were impacted by lower than expected net investment income due to mark-to-market adjustments on three commercial mortgage funds and limited partnership real estate investments.

This adjustment is valuation driven and has not impacted our cash returns. The Life and Retirement segment remains a steady contributor to earnings and a strategically significant entry point to the education market. A core competency of our agency force is providing financial wellness and retirement planning workshops in schools across the country, building relationships as a trusted adviser with both educators and their employers.

The supplemental and Group Benefits segment is a less capital intensive higher margin business that provides corporate earnings diversification. As we have talked about in the past, our target blended benefits ratio for this business is 43%, which takes into account pre-pandemic customer utilization levels, we are seeing the benefit ratio continued to trend towards this long-term target.

This quarter, the benefit ratio was 36% compared to 33% a year ago. With our profitability targets within reach across the business, we are testing adjusting and scaling our strategies to grow educator households. Within the retail division, we are especially well prepared with strong momentum in our exclusive agency channel.

The market has been challenging over the past few years, and we've worked with our agents to ensure their businesses remain healthy over the past year, we've seen a steady increase in exclusive agent recruiting, a 16% increase in average agency income and a 22% increase in agency P&C premium production, agent enthusiasm is strong and we're seeing the impact in solid top line results.

Looking ahead, our efforts are centered around supporting AGENCY new business and cross-sell production, enhancing digital capabilities and improving the effectiveness of our digital sales funnel to align with educator preferences.

In general, educators want to do research and browse online. But when they are ready to buy, they are looking to talk to a trusted adviser. Let me provide a few examples. We have seen success with a hyper local digital marketing program targeting educators through this and other programs we have driven 15% more traffic to our website this year compared to last.

In addition, we recently launched a new version of our website, which increased the number of quotes started by more than 50%. Over the past year getting better leads to agents has helped contribute to an over 20% increase in new PMC business, compared to the first quarter of 2023, and that's in an increasing rate environment.

In the Worksite Division, we're building on our strong foundation to drive growth in both the employer-sponsored and worksite direct lines. We continue to refine and improve our product set to meet educator and employer expectations and to introduce product enhancements to our supplemental policy offerings.

These enhanced features meet specific customer demand and provide higher average premiums. We are also seeing strong momentum in sales trends. We continue to add sales and enrollment headcount on the worksite direct side of the business. On the employer-sponsored side, we are working to leverage our existing broker partnerships to expand distribution. Since last year, we grew our number of covered lives to 836,000.

Before I turn the call back to Brett, I want to touch on our efforts to have a positive impact on all of Horace Mann stakeholders. We are in the midst of a Teacher Appreciation Week, but Horace Mann has planned events throughout the entire month of May to thank educators for everything they do.

Centered around educators, desire for work-life balance. We're hosting contests in exclusive virtual events for educators with celebrities, musicians and self care experts locally, we're announcing the winners of Springfield public school educator and Administrator of the Year awards. We also recently published our 2023 corporate social responsibility reporting outlined the actions we've taken to support educators, our customers, our employees, our agents and our local communities.

A few highlights. We contributed nearly $1 million to charitable causes through the Horace Mann Educators Foundation and the Horace Mann Educators Corporation. We reduced our carbon emissions by 55% over a base year 2019, and we increased corporate transparency by publishing our US Equal Opportunity Commission EEOC. one workforce data report. In March, our Board of Directors increased the quarterly shareholder dividend by 3%. This is the 16-consecutive year, the Board has increased the shareholder dividend, underscoring our commitment to long-term shareholder value creation.

In closing, by successfully executing on our strategic plans, we remain solidly on track to achieve our long-term goals, a larger share of the education market and a double-digit shareholder return on equity in 2025.

Thanks. I'll now turn the call back over to Brett.

Thanks, Marita. First quarter core earnings were $24.8 million, or $0.6 per diluted share and nearly threefold increase over prior year. Our P&C profitability restoration strategy is making significant progress, and we remain on track to be within our full year 2024 core EPS guidance range of $3 to $3 and $0.30.

Let me break down the results by individual business segment performance, starting with P&C. First quarter profit of $11 million was a $22 million improvement over the prior year. Net investment income was triple last year's returns due to solid performance in limited partnerships and higher yields on the fixed income portfolio.

Net written premiums rose more than 15% to $172 million, primarily on the premium increases and underwriting actions we implemented over the past year. The reported combined ratio of 99.9% improved 13 points over prior year. Cat losses added nine points to the total combined ratio compared to nearly 15 points a year ago.

In the first quarter, property claims services designated 19 events as cats compared to 2023 a year ago. As Maria mentioned earlier, from 2022, through the end of 2024, we expect total premium increases of nearly 40% in auto and 50% in property, which underscores our confidence that the P&C segment will be profitable for the full year as well as reaching our targeted combined ratio of 95% to 96% in 2025.

Turning to auto, net written premiums of $117 million increased 15% over prior year, primarily on rate actions combined ratio of 100.8% improved 10 points over prior year.

In terms of loss cost trends, we saw lower frequency likely attributable to more mild winter weather and severity generally in line with expectations. Despite the higher premiums, policyholder retention remained strong at 87%.

In property, net written premiums were $56 million, a 16% increase over prior year. The combined ratio of 97.7% reflected lower non-GAAP weather and GAPP losses. Both cat losses are slightly above our expectations as they are above our five year historic average. This is generally in line with the broader industry, which also experienced GAPP losses above historical averages. Although property average written premiums were significantly higher, our policyholder retention remained strong at 90%.

Turning to Life and Retirement for earnings of $12 million were below prior year by 16% due to lower interest margins, while net investment income on the segment's fixed income and FHLB portfolios increased 4% due to higher reinvestment rates, returns on the commercial mortgage loan fund portfolio and limited partnerships were lower than both our expectations and prior year.

This was due to negative returns in one commercial mortgage loan fund as well as two real estate equity limited partnerships. These same funds also impacted results in the supplemental and Group Benefits segment.

In the retirement business, net annuity contract deposits in total were down slightly at $105 million. However, deposits in our core for all 3B. products remained strong over the first quarter. Accounts on our fee-based mutual fund platform Retirement Advantage reached nearly $20,000. In addition, the market risk benefit adjustment and retirement was favored.

As Maria mentioned, our retirement products are a cornerstone of Horace Mann's value proposition and an important entry point to the education market. Annualized life sales increased 5% over prior year. Mortality costs for the quarter were in line with prior year and persistency remained strong at about 96%.

In supplemental and Group Benefits earnings of $11 million were down from prior year by $3 million due to 14% lower net investment income and a 2.3 point increase in the benefits ratio. Premiums and contract charges earned were $64 million, down slightly from prior year, and sales of $7 million were down 20% from prior year.

As a reminder, the employer sponsored wine sales are inherently lumpy depending on case size. The sales comparison to prior year is unfavorable, partially due to a large employer sponsored sale in the first quarter of 2023. The long-term target for the blended benefits ratio is 43%, which assumes policyholder utilization reverts to pre-pandemic levels. In the first quarter, the benefits ratio was 36% compared to 33% a year ago. Historically, benefits usage in the employer-sponsored line is heaviest in the first quarter.

Turning to investments. Overall, net investment income was up 5%, while returns on the managed portfolio were up 7%. Income on the fixed maturities portfolio was up 4% from the prior year, reflecting reinvestment rates that have exceeded portfolio yield for the past eight quarters.

Our core fixed income new money yield in the first quarter was 5.44%, 124 basis points above the average portfolio yield and had an average duration of seven years. The portfolio remains high-quality at A plus and remains concentrated in investment grade corporates, municipals and high-quality agency and agency MBS securities positioning us well for a potential recessionary environment without sacrificing income.

Given the first quarter underperformance related to commercial mortgage loan and real estate related limited partnership funds, we now expect full year net investment income on our managed portfolio to be closer to the low end of our guidance range of $360 million to $370 million on a segment basis, P&CNI is ahead of expectations with L&R and S&GB. below.

In summary, we remain focused on long-term shareholder value creation. The year is off to a strong start with profit restoration and sales momentum taking center stage. In the P&C segment, we continue to make solid progress toward our long-term objectives of an expanded market share and a double digit shareholder return on equity in 2025. We are excited and optimistic about the future.

Thank you. And operator, we're ready for questions.

We will now begin the question-and-answer session.

Meyer Shields with KBW.

Thanks and thanks for taking the questions out. First, Maria, in your comments, you talked about lower frequency attributable to benign weather in the winter, and I'm wondering whether for your book of business, we're seeing any impact off from rising gasoline prices on frequency?

Yes, , this is Mark. I'll take that that question of when we look at the first quarter, we when we look at the overall frequency, we are down from an accident frequency standpoint, about 3%or 4%, I would say one-third of that more or less is weather related. Probably about another third is actually some mix and underwriting changes that we've made.

And when we look at the other three that we are seeing have some reduced driving activity that we would attribute some of that lower frequency to. So I think the when you look at the weather impact, that's likely to not be recurring. I think that the underwriting and mix actions, we expect that benefit to continue to roll through.

In terms of the driving behavior. It's a little harder to predict what that will run for the rest of the year, but certainly it had an impact in the first quarter.

When you think about the type of weather activity in the first quarter, whether it's us or anyone else in the industry. The bucketing between cat and non-cat always gets interesting, right? How many tip over and fall into a. We use a PCS definition fall into that definition of cat or whether you have weather activity that doesn't quite meet that definition. But I agree with what Mark said. As far as overall frequency trends, we're not going to assume anything in that. But we're certainly pleased with what we're what we're seeing in the auto book for sure.

That's very helpful. But I guess goals, but I guess and I guess in terms of follow up on how rapidly assuming that some of the favorable trends persist and I know you're not counting on it, which I think is the right call. But if these favorable changes persist, how quickly can you sort of change the pricing approach and maybe shoot for 5 to 10 or kind of 10, 15 for price adequacy, that's a little bit more competitive?

Yes, it's interesting. I with the team of actuaries that we have in the organization, this is all real time. I mean, Mark and his folks will take the information from the first quarter and the first quarter of last year rolls off in the first quarter of this year rolls on and obviously in this dynamic pricing environment that we've been in in a couple of years. This has been a real time.

So it is pretty quick in being able to react. And obviously you have a handful of states where that's a longer time line. We certainly saw that in California. Very pleased with getting that rate filing on. You've heard about the property in the past, but we mentioned in the script getting our auto rate filing approved in California. As soon as that happens, the team gets worked, you know, gets working on that next rate filing and thinking about what that data looks like when a quarters rolling off and a new quarters rolling on. So it's pretty real-time. I don't know if you have anything to add to that.

But yes, I would add a couple of points. But Marita, I think first of all, we in addition to tracking our loss ratio and our rate changes relative to the competitors. We take a pretty close look at our close rates in terms of what's our success rate in issuing a policy for every policy we quote and even as some of the competitors have gotten a little bit more aggressive over the last quarter.

We've not seen any drop-off in that. So we certainly don't see it yet. We have some flexibility in terms of underwriting actions that we can lift or shift between which companies we may be offering new business quotes on end.

Clearly if we have to be more aggressive from a pricing standpoint or slow down the aggressiveness of some of our rate actions. We expect various regulatory agencies to be slightly more receptive than they might be when we're taking rate increases?

Yes, there. And your questions seem to hint, are we prepared for increase in competitiveness across market? And clearly, I really believe that we are and we fully expect competition to pick up. I mean, when I look at what we're seeing the dynamics across our distribution, our EA. plant is in really good shape. We've had good success in hiring producers, good retention in the producers that we've had for quite some time.

And we have the ability to offer a lot more than many of our competitors. We're not just a model line market are our retention is holding at the new business with sales up 35% in the right places. We're making the right investments. And I feel good about us being prepared for an eventual increase in the competitiveness in P&C. I don't know, Steve, you want to provide any more detail on some of the new enhancements that are starting to show some signs of some of life.

Yes, sure.

Happy to now I'll kind of pull back and I kind of feel like the upfront comments and that were made about the health of the agency force and associated sales momentum. I'm just really now fully alterative to sprinkle a little color as to what else is happening. And I guess I'll start with some Marita mentioned agent recruiting in her opening remarks from recruiting is having a big impact both today, but it's going to have an even bigger impact as we go forward into 2025 and 2026.

In terms of recruiting this year going really well, we increased our internal recruiting staff and as a result, we've appointed about 70% more agents than last year. So we're absolutely fueling the pipeline of agents.

Some interesting kind of side note about half of the recruiting comes from referrals and indicators and the reason I talked about the quality of who we're hiring to me, that just means we're hiring people that really understand both the role and the space that we're in.

I think we've had really good success with the appointed agent population. I think the second thing is productivity and Mark said this and I kind of build on it virtually all of the new business growth has come from an activity, i.e.., more quotes conversion, as Mark said, effectively flat from.

So this means we're getting all the sales through activity, not from price. In terms of what's driving the quotes. A lot of it is coming from increased leads from varied. I mentioned our new lead generation capabilities.

We kind of observed a pretty sizable increase in leads. And for me, the most interesting slash exciting part is a lot of what we're doing right now hasn't even been scaled. And what that means is we're seeing pretty meaningful green shoot opportunities that I think are good indicators for kind of future growth potential.

And if I get into specifics on what we're doing to drive leads I'll just give you two one tactic that we've tested and has worked really well. Co-branded marketing with education partners really successful. The other one without getting too technical is a technology. We use Tang digitally market educators, while the rents will again, really effective results and all this, we do with partnership with our agents.

I think so as I sort of pullback Mayor, we continue to add our agents, agent productivity on the rise, driven by activity, lead volumes rising because of the digital marketing tests.

The last thing I'll mention for reinforcing something from the readers remarks is our website. Our goal is really to serve educators where and whenever they want it for me kind of supporting that objective. We made changes that both simplified the look feel of the landing page and also streamline some of the quoting process. And I'd say like the lead generation efforts that we referenced, we had a pretty good progress and about a 50% increase in the number of quotes started.

And I think there's even room to get better. And so I think we continue to make changes to the landing page, by the way, I think almost every month kind of driving continuous improvement. So I kind of say, in summary, we've been and we continue to invest in our agents and the ecosystem around them with the goal of driving sustained profitable growth in support of all of our educators, I really like what we've seen and learned in the first quarter and really expect to build on this as we head into the rest of 2024 and beyond.

So thanks for the questions.

John Barnidge, Piper Sandler.

Good afternoon, and thank you for the opportunity. My questions around supplemental Group Benefits distribution, I believe you called out in your prepared remarks to comp a year ago from a big win in the employer-sponsored space. Are there any were occurring big wins from a year ago that will not be reoccurring. So we should be keeping in mind. I know 3Q's typically have heavy distribution with back to school.

Thanks, John.

Thanks for the question, and thanks the way you asked it. I think you as usual included the answer in your question in due to the size of this business and the nature of the business. You said it yourself, it can be quite lumpy. I'll turn it over to Matt to see if he has any additional things that he wants to add, Matt?

Sure. As Brett indicated, we're pretty happy with the way the supplemental on Group Benefits segment performed this quarter. We also will be continue to be excited about the growth potential for these businesses over the next several quarters or several years.

For the first quarter, overall, sales were lower on a year-over-year comparison. As noted, this is partly due to the lumpy nature of the group business and addition, very solid, but slower start to the year on the individual side due in part to weather related closings early in the quarter. So that's not going to repeat.

On the at least we hope it's not going to repeat on the group side, the year-over-year comparison was a one start date that I don't see another one on the horizon for the rest of the year and it wasn't a non-renewal. It was actually a win from last year and the nature of the business is lumpy. So we might get a win that offsets that later in the year. It's really it's an unknowable fact at this point, but the momentum is still very positive.

On the individual side, we continue to be very optimistic for the year. On the group side, we continue to be optimistic, but recognize that the businesses lumpy in a case or two in either direction can really move the numbers

Thanks. That I mean, we're getting the earnings diversification. We planned. We remain very optimistic about the growth prospects. And when we look at the pipeline report, it's still quite robust.

Great. Thank you for that. My follow-up question, please, on whether your assumption around VII. in the balance of the year and where your LP. marks were concentrated maybe from a sector perspective?

Thank you.

Sure, John, this is Ryan Greene here. Thanks for the question. As we said in our prepared remarks, the underperformance in the first quarter was real estate related. And it was really driven by three specific funds and two of them were real estate equity. And you saw valuation marks giving up some of the strong performance that we've seen in that space over the last couple of years, and we're still ahead from an inception to date return perspective on those particular funds.

And the CML. fund that took a negative mark this quarter was one of our smaller funds. It plays more in the mezzanine lending space and had a handful of more recent vintage transitional multifamily properties that came in with some adverse valuations on the mortgage loans.

We believe these are these are idiosyncratic or isolated. That's the nature of commercial real estate and real estate investments and our overall outlook for LPs and CMOs for the rest of the year. We do believe our full year returns for CML's in particular will be below our historic averages because of this slow start, but we remain optimistic about not only the investment income diversification benefits of the asset class, but the longer term value that it provides.

I'll point to the strength in the core fixed income portfolio. We've seen a nice tailwind because of sustained higher interest rates, and we're putting money to work it at well over 100 basis points wider than what's rolling off. And we like that dynamic. We've been we've seen that for the past two years now, and that is a tailwind to our original expectations

So net-net, we think we can make up some of the ground up similar to how we started last year. As a reminder, last year, first quarter LP performance was actually negative and we ended up coming in ahead of expectations. So we'll see how it goes. One quarter doesn't make a annual trend, but I remain pretty comfortable in our in our positioning.

Matt Carletti, Citizen's JMP.

Thanks. Good morning. I actually want to follow-up on the real estate fund question. You're right. It sounds like you're pretty comfortable, but can you help us with and maybe how many other kind of real estate focused funds you're invested in? And if you feel that most of those are kind of through the Mark's process, at least from where they stand now or if you do expect some further marks, are those kind of in your annual guidance.

And sure, Matt, thanks again for the question. To start with our allocations to commercial real estate are skewed towards the Life Retirement supplemental and group portfolios, which you would expect is consistent with the broader life industry of our total commercial real estate fund exposure.

Our total commercial real estate exposure, I should say is about 12% of the portfolio. And over 80% of that is senior commercial mortgage loan funds and the average LTV There still remains strong at 71%. We've seen some degradation but again, we remain comfortable with that.

The area of concern for the industry is obviously office. Our office exposure is less than $200 million in total of that, and we have taken more severe marks, if you will, on our real estate on our mortgage loans related to the valuation declines in office.

To put it in perspective, we've marked that portfolio down, reflecting about a 30% decline in the underlying office equity values peak to trough estimates and increase estimates are estimating about a 35% decline overall for the better Class A. well positioned, highly amenitized properties, which represents the base of what we're lending against.

So overall, we feel like right now, given our practice of marking these to market quarterly due to equity method of accounting. We feel like we've taken the bulk of our marks and we've stress tested the portfolio. We're comfortable with the outcomes. A lot of this is property dependent and interest rate dependent as higher interest rates probably stay high. It prolongs the valuation pressure that the sector is experiencing. But like I said, we feel largely comfortable with where we mark today, and we're monitoring office in particular very closely.

Great. Thank you. And then one quick follow up. Really just a definitional kind of want to reconfirm when you guys talk about and kind of getting to a sustainable double digit ROE next year on the kind of the nominator is ex fixed income realized gains and losses is that correct?

Yes. The only thing we take out of that math would be realized gain losses, Tom. So yes, it's a GAAP ROE metric.

Greg Peters, Raymond James

Hey, good morning. This is Sid on for Greg. I just wanted to go back to some of the comments on the P&C segment and looking at risk and force. Should we expect that to begin to grow over time as the underwriting results get back to targeted levels? Or and maybe I'm not looking at it correctly. So any comments you can provide there would be helpful.

No, absolutely. We do we talk about it a lot. I'm going to let Mark give you some detail on that.

And we've been originally projecting that we would expect to start to see substantial E&O policy in-force growth by early 2026. I think with what we've seen with our new business momentum and the fact that our retention rates are actually holding better than we would have expected, given our normal kind of price elasticity equations, that we will probably move that up to somewhere between mid to late, 2025 when we'd expect to start to see hopefully meaningful growth.

And obviously with coming quarter, second quarter third quarter, if we continue to see sales like it is up 35% and P&C and retention virtually holding on certainly better than what we would put in our internal plans, and that could also be sooner. But based on what we know right now, I agree with Mark that towards the end of 2025 is when you'd expect that to turnaround.

Okay, thanks. And then as my follow-up, you called out a benefit in the prepared remarks, from product changes and property. And just wanted to confirm if you expect to realize the full benefit in 2024? Or if it could go into 2025 for I think you said a full three points,

I think Maria was referring to the route schedules. Probably the most substantial product change that we've made that we expect to drive that three-point improvement. And as that earns its way in, we kind of expected maybe between a quarter and a third of that benefit in 2024 with most of the rest of it coming in 2025. And then just the very nature of the fact that and there's policies at 12 months, some of it will work its way all the way into 2026 before it's fully earned.

(Operator Instructions)

Showing no further questions. This concludes our question and answer session. I would like to turn the conference back over to Bret Conklin for any closing remarks.

Just wanted to thank everyone for your participation on today's call, and we look forward to talking with everyone again next quarter. Thanks.

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