Q1 2022 Kemper Corp Earnings Call
Ladies and gentlemen, thank you for standing by the conference will begin momentarily again, thank you for standing by the conference will begin momentarily.
[music].
Good afternoon, ladies and gentlemen, and welcome to Kemper's first quarter 2022 earnings Conference call. My name is Sam 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.
Karen Gara Kemper's, Vice President of Investor Relations Ms. <unk> you may begin.
Thank you operator, good afternoon, everyone and welcome to Kemper's discussion of our first quarter 'twenty 'twenty. Two results. This afternoon, you'll hear from Joe Lacher, Kemper's, President and Chief Executive Officer, and Chairman, Jim Mckinney, Kemper's Executive Vice President and Chief Financial Officer, and Duane Sanders Kemper's executive.
<unk>, Vice President and property and casualty Division President will make a few opening remarks to provide context around our first quarter results and then open the call for a Q&A session. During the interactive portion of our call. Our presenters will be joined by John Michel <unk>, Kemper's Executive Vice President and Chief Investment Officer.
After the market closed today, we issued our earnings release and published our earnings presentation and financial supplement and Form 10-Q, you can find these documents on the investors section of our web site Kemper Dot com. Our discussion today may contain forward looking statements within the meaning of the safe Harbor provisions of the private Securities litigation.
<unk> Reform Act of 1995. These statements include but are not limited to the company's outlook and its future results of operations and financial condition, our actual future results and financial condition may differ materially from these statements. These statements may also be impacted by the COVID-19 pandemic for information on it.
As you know risks that may impact our forward looking statements. Please refer to our 'twenty do any one Form 10-K as well as our first quarter earnings release.
This afternoon's discussion also includes non-GAAP financial measures and we believe there are meaningful to investors in our financial supplement earnings presentation and earnings release, we have defined and reconciled all the non-GAAP financial measures to GAAP, where required in accordance with the FCC rule you can find.
Each of these documents on the investors section of our web site Kemper Dot com all comparative references won't be to the corresponding 2021 period, unless otherwise stated I will now turn the call over to Joe.
Thank you Karen and good afternoon, everyone and thank you for joining us.
Earlier today, we reported results that showed a marked improvement in our performance from the prior quarter the.
The profit restoration actions, we've implemented are beginning to offset the pandemic related reopening challenges the industry has faced over the past year.
We are encouraged by the impact of our actions are having on our results. We still have work to do to return us to our long term financial targets.
Remained focused and committed to addressing the ongoing environmental pressures and returning the business to target profitability.
Looking to page four.
The insurance industry continues to face environmental headwinds for example, the consumer price index is running at 40 year high give your supply and demand imbalances.
Many of the sub components of this index it had a disproportionate impact on auto insurers.
We've seen some moderation in used car and truck price increases we've witnessed an acceleration in other areas such as medical care expenses, an auto body repair prices.
In aggregate, we believe there will be a prolonged inflationary environment.
Our reserve positions loss tick and current and prospective profit improvement actions correspond with this assessment.
Our profit restoration initiatives encompass both rate and non rate actions right.
Rate activity included filing for over 12 points of rate a 97% of our auto book over the past three quarters.
Our rate filing activities have surpassed the projections, we provided last quarter.
These actions along with our other profit improvement initiatives contributed to an 11 point improvement in our underlying combined ratio quarter over quarter overcoming the incremental market related headwinds.
When you combine the inflationary environment and our responses, we anticipate continued sequential quarterly combined ratio improvements.
In the life and health segment, we continue to see strong demand for our products and persistently above pre pandemic levels.
The segment's financial results continued to be negatively impacted by the pandemic and excess benefit cost.
We expect profitability to materially improve as mortality normalizes.
Despite the ongoing challenges our balance sheet remains strong we have over $1 2 billion of liquidity, we successfully raised additional capital this quarter at attractive rates to refinance the affinity notes and support ongoing activities.
In summary.
<unk> by the progress we've made our profit restoration initiatives and the improvement in our results. This quarter. We continue to remain a source of strength for our stakeholders and are well positioned for long term profitable growth.
I'll now turn the call over to Jim to discuss our operating results in more detail.
Thank you, Joe, let's turn to page five.
We provide a few highlights to offer insight into our performance for the quarter, we generated a net loss of $1 49 per diluted share and an adjusted consolidated net operating loss of 94 cents per diluted share.
No significant item impacting our results is the previously mentioned environmental challenges facing the auto and life insurance industry.
Until we return to target profitability, our focus will be on profit restoration actions at home improvement project. We made good progress this quarter.
Turning to page six.
Outlining the debt offerings executed during the quarter the goal of the transactions, which to diversify our capital structure at historically attractive rate raise additional working capital to support our business initiatives and refinance Kennedy Senior notes due September 2022.
We successfully achieved these objectives, even with heightened market volatility driven by geopolitical risks and inflation concerns.
Page seven you highlight the strength of our balance sheet and maintain a healthy liquidity balance of $1 2 billion and our insurance entities continue to be well capitalized.
Turning to page eight.
Net investment income for the quarter with $100 billion in the quarter, we took several actions to increase liquidity and reduce risk in our portfolio.
These actions provide us with additional flexibility about the effects of heightened market volatility despite.
Despite these changes we remain steadfast in our portfolio construction philosophy, we continue to match our assets the viability and allocate capital to sectors, where we believe it will be compensated for the risk we take.
In closing, although the company's quarterly financial performance continues to be pressured by various environmental factor.
We remain confident that the corrective actions, we have and are taking well overtime return us to our financial targets I will now turn the call over to Duane will provide details on our P&C segments.
Thank you Jim and good afternoon, everyone.
For all of the P&C businesses continued to be impacted by miles driven trends exceeding 2019 levels. Additionally, significant incremental loss severity pressure was driven by inflation.
These headwinds our pricing sophistication capabilities and profit restoration activities more than offset these challenges.
Our mix adjusted frequency is approximately 5% below 2019 levels.
Great and non rate activities more than offset a roughly 15% year over year severity trend.
Moving to page nine we will begin with specialty P&C.
We delivered an underlying combined ratio decrease of 11 points compared to the fourth quarter.
The business benefited from our focus and commitment to restoration activities.
We are taking meaningful profit improvement actions across our entire book. We believe we are near rate adequacy in nearly every state outside of California.
Throughout the balance of the year, we expect to benefit from rate, earning into the book. In addition continued non rate actions will further offset environmental pressures key activities include filing for an additional 8% of rate on roughly 59% of the book will.
We're planning to file for an additional 5% or 9% of our book in the second quarter. Finally, our commercial vehicle business continues to exceed our financial and operational targets, notably we achieved strong top line growth aligned with our financial objectives.
Other policies in force were up 17% year over year due to the continued successful deployment of our key competitive advantages.
Some of those being our intimate knowledge of our customers, our pricing and underwriting sophistication and our distribution and claim execution.
Now, let's turn to page 10.
Shifting to the preferred segment.
Bernardo also experienced a sequential underlying combined ratio decrease of 11 points.
Looking at the chart on the upper right during the first quarter, we filed for an additional 12% of rate on roughly 69% of our preferred auto book, We will continue this acceleration with an additional 11% of rate on 6% of our book in the second quarter.
We are continuing to reposition this book to focus on our core states with the intention of delivering long term profitable growth.
I'll now turn the call back to Joe.
Thank you Duane.
As we turn to our life and health segment on page 11, we highlight that both earned premium and the face value of in force policies increased due to higher persistency and new business sales.
Encouraged by strong consumer demand for our products.
The mortality impacts of Covid subside life mortality and benefit costs should revert to normalized levels.
On a separate note.
Through our community efforts in February we announced that in partnership with the Kemper Foundation, we're supporting the next generation of Tempur scholars program.
The program will award 650 need based scholarships to high achieving diverse college students over the next five years, we're optimistic about the impact of this initiative.
As noted the closing and reopening related to the pandemic created exceptional challenges.
To take a moment to thank all of our employees for their continued contributions and support.
In conclusion our.
Our actions resulted in significant improvement to our results. This quarter were not done yet we will continue our diligent approach to address environmental pressures and return the business to target profitability as quickly as possible while.
While progress is unlikely to be linear we believe we're on a path to steady continuing sequential quarter improvement.
I'll now turn the call over to the operator for questions.
Thank you we will now begin the Q&A session, if you'd like to ask a question. Please press star one on your telephone keypad if for any reason you'd like to remove that question. Please press star two.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Our first question comes from Greg Peters of Raymond James Greg Your line is open.
Great Hey, good afternoon, everyone.
So I.
I was listening to your prepared comments and I wanted to.
For the moment, our focus in on a comment that Duane made which was that.
Outside of California.
You are nearing rate adequacy so.
What does that look like in terms of the underlying combined ratio.
X X, California in the first quarter does that mean, it's running at your targeted Roe levels or.
Just give us some perspective of what you meant by that.
Okay.
Yeah, So Greg.
Greg This is Jim Mckinney as you know, we don't generally provide kind of combined ratio guidance, but the way to kind of from a macro perspective to think about that is if we take a step back.
We highlight that through the life of the cycle, we expect to earn kind of a 10% to 12% Roe.
So when we think about those policies, where we're pricing today, we think both the renewal books of business and then the new books. It would come in relative to that we would achieve those objectives and when might you know if youre looking at it from the outside kind of.
You can kind of back in you might think about that somewhere between 96 to 98 understanding theres a little.
Times, you can have a quarter with seasonality it might be more like 90 594 in other periods. It could be 90, 899 that kind of averages to those totals that we.
We have.
Hopefully that helps.
I guess, it's a little bit I understand there's only so much data you are going to provide us.
Yeah, I you know an update you know with California being your largest market can you give us an update on on your progress in that market.
As it relates to rate and where you are with rate adequacy.
Yeah, Greg This is Joe and I will I'll tag team this a little bit.
We're making.
Progress on all fronts.
We've taken we're taking rate and non rate actions and we have four different programs in California, where we have different abilities within those four programs and different latitude to make adjustments if they're there they're structurally a little a little bit different.
We've made significant progress on all of those non rate activities and they are starting to show. The results. We anticipated you know in those environments, we filed for rate.
All four of those programs the six 9%.
That typically is the sort of the top end of where where folks filing one one.
One opportunity with the department right now and is progressing there.
And we have no further updates on sort of where that is in the process. There continues to be Q&A back and forth but.
But don't have an estimated date on that.
I would tell you is that the.
In most of the programs, there's been a meaningful improvement relative to the non rate activities.
I think adding on to maybe the comment Jim was you're making when you were talking about Duane the.
When we say nearing rate adequacy.
Part of what we're trying to communicate is is let's say, we've taken X amount of REIT, and say, Florida, or Texas or something.
When we get to a point, where we say gosh, it's at rate adequacy that might mean from that point forward, we feel good about where the new businesses. The renewal book actually has to come up for renewal for the full the full enforced to reach that or get it. So we're trying to communicate our view of the blend of those rather.
And then the combined earned impact of what's going on in a particular given month.
If that helps a little bit.
That that's exactly what I thought was going on and I. Appreciate the clarification on that kit and just you know just on the non rate actions.
Can you talk a little bit about that and you know because clearly that's helping so and in and I guess.
Given that the policies you know that a big chunk of your policies have won with one year renewals.
On the renewals are you switching to a six month policy forum or are you sticking with the traditional one year policy form for your existing customers.
If somebody tried to answer the question broadly for you because I think Thats, where you were going to think the 612 was with an example.
From non non rate perspective, we're doing a variety of things.
We've some of it is underwriting we might change as an example in all of these are examples theyre not theyre not precise and done in every single state they're all they're all examples.
We might.
Adjust the underwriting criteria in some cases that means it's a yes, no decision and we will take something where we might have at a different rate adequacy level or a rate level have taken something and now we say it's no in other cases, there are pricing tiers within a program and something that might have qualified for our best or most.
Lowest priced here now drops in tier two and is a less any less competitive tier which is effectively putting in at a higher rate level something that was in our highest rate level might now not now be ineligible.
So that's a case, where the underwriting move things through the tiers.
In other cases, we're adjusting billing plans.
Where we might take something that that you know in.
And the most.
Liberal sense, we might have just taken a one month down payment.
We might go to the most the least liberal or most conservative stance and say now we want 100% down payment.
The result of that is fewer customers are likely to take that because of the cash flow dynamic it effectively reduces the.
The business is going on.
In other cases, we are where we have the ability to do it in certain states, we're non renewing certain exposures.
Sometimes we're taking individual agents.
We might.
Terminate that agency relationship or.
Or we might restrict the writings of that individual agent.
In other cases, we're modifying agent compensation.
That might be either reducing or will you should assume that that we've reduced all override programs. We're not we're not driving that but we do have some cases, we've lowered base commissions.
And on that we've also made changes.
Where we've restricted full coverage and move to liability only.
As I think most of you are aware and liability only coverages include bodily injury coverage and physical damage coverage, where we're liable to a third party after an accident and full coverage has all of those plus first party damage.
Since a lot of the inflation, that's driving through our losses right now are related to metal coverages by by shifting towards liability only we reduce a lot of the the lines of coverage that our metal related so that changes the mix underneath them.
And in some cases, we've shifted from 12 months to <unk>.
Six month policies.
But we're doing that not not always across the board, but sporadically.
Where we think for the right cells, it's providing the right answer. So it's again to highlight I know I said, it but we're doing a mix of all of those types of activities in.
In some geographies it might get all of them and others it might get get parts of them, depending on how much medicine as needed and depending on what the regulatory environment is in that spot is that scratching. The itch, Greg you were looking for.
Well, that's one way to put it I thought it was like Fort detailed does is exactly what I was looking for.
I have a number of other questions I realize there's others in the queue I just wanted to point out that you know in last quarter's presentation, you had that illustrative chart.
I think it was on slide 11.
I was looking forward to seeing that chart and the progress the visual progress that you would have a registered for the for the first quarter, but maybe we can slipped.
Slip that in in the second quarter results, but anyway, thanks for the detail.
We're we're happy to them to bring it back if it's helpful. It. It's we're getting closer in that chart. If you go back to last quarter Slide 11.
We believe that the that short just showed earned rate and loss trend part of what we wrestled with is there's earned right and theres non rate activity. The combination of earned rate and earned non rate has clearly surpassed the loss trend.
Which is why you saw the 11 point sequential improvement.
And combined I'm, not 100% sure whether the rate on a standalone basis has and we were we were getting ourselves tied up in the specifics of it to try to not be not not confuse the process, but if it's helpful. We can bring it back when I what I tell you. The important part is that clearly the benefits are exceeding the inflation.
We're forecasting and we expect that to move forward in the foreseeable future, albeit in a nonlinear fashion.
Got it well your your comment about rate versus non rate, both having an impact that the non rate is not reflected in that chart. Yeah. So anyways. Thanks.
Thanks for your time.
Thank you Greg.
Our next question comes from the line of Matt <unk> of JMP, Matt Your line is open.
Okay. Thanks, good afternoon.
Joe I just wanted to follow up on one of Greg's questions and I'm, probably misinterpreting this but in very high level broad strokes. When you talk about the the non California part of the book being at a rate adequate on a written basis today, so that implies new business.
Kind of meet your hurdles and as the earn through the book said another way.
Knowing what you know today or expect over the next 12 months would it be reasonable to assume then as we get through the year a year from now and so all earns in that you would expect at least that non California part of the book to be rate adequate on an earned basis or earning those kind of target Roe levels at.
At that point.
Yeah.
Great question, Matt and again, we May tag team. This let me clarify a little bit.
And in normal periods of time.
You would typically expect that new business would perform a bit worse than than renewals and you would think about it vintage if you if you wrote on.
A series of business in 2015, you would expect that the new business might be in aggregate less than your hurdle rate, but over the lifetime of that cohort.
The renewables would get better and you would feel good about that entire book that you put on is new.
And if you just took the new in the first period, you wrote it it might be off but it actually improves and seasons over time.
So that's almost looking at it on a vintage basis on a calendar year basis, you have a mix of vintages, the new business, we put on today, the new business, we put on last year, the new business, we put on the year before that.
And you've got all the renewals what we're trying to communicate is that we believe that the vintages that were putting on this month.
It will be near rate adequacy or near our target combined over the life of that book.
And the calendar year impact of the renewals are simultaneously getting the rate increases in the not in or not.
Non rate impacts.
No.
And I'm not trying to be difficult, but when we think we think of it on a vintage basis or a policy year basis or a calendar year. You guys are looking at our results and you're seeing the calendar quarter earned impact. That's the result of these things lane on top of each other and so we were making a comment that there was a little more vintage related and thats.
Why it doesn't exactly translate to the calendar your model I think you're trying to get after.
It's important because what it says to us from an underlying intrinsic value perspective.
We're at a point, where we're feeling good about those states in the business, we're adding and how it will perform over the next several years.
There is still a little catch up on the calendar piece for the earned impact of the things that are still renewing.
As an example, hindsight would tell us the new business, we put on.
Last.
Whatever it was.
Last November might not have been where we wanted it to be.
And so it needs a couple of rate changes to get exactly where it needs to be.
Did I confuse it more to the health.
No that helps that side was very high level and then that's.
Down in the weeds very helpful, though like Lake Mary Anne.
And then I'm going to shift away from underwriting for a second just my other question.
Related investment portfolios and maybe for Jim.
I see the slide on investment portfolio with some of the numbers. There can you help me with and they see that net new investment yields are up 100 bps year over year.
How does that kind of new money rate today compare to the it looks like a four 2% kind of annualized book yield kind of what's the gap there and then how should we think about kind of what's.
Kind of rolling over in the next year or so.
The reinvestment.
Okay.
Yeah No great question. So I think there's actually a couple of ways to look at this and it's a little bit nuanced.
But they're both important the first thing is to make sure is to remember inside of a life business, that's really about a spread business right. So if you just look at yields well generally higher yields for us are better. It really is about how much that yield is over the crediting rate.
Essentially highlights whether income is going to increase right through a period decrease what I would tell you is that we're at a constant or expanding component.
Where we're building inside of that and it's the vintages and the things that we're looking at today.
Or a little bit enhance fruit was now that will play out over an extremely long period of time. So you won't see you.
You might see you know $5 million and I'm I'm, just quoting numbers like coming up over the next year, you're not going to see something like that even though this is going to jump like 15, or 20 or $30 million.
Just keep these things kind of in perspective, even though the value created over that period of time might be that amount.
And then inside of our P&L.
P&C businesses, I think what you're seeing there where the durations a little shorter.
Is that youre kind of seeing things come off kind of roughly equal to a little bit better.
So long way of saying you're going to have a <unk>.
Now some increases here just incrementally as we go forward kind of slow and steady.
You know from a yield perspective from here till.
Whenever the interest rate environment kind of changes, which hopefully is not in the near future.
That's where we're at.
Great. Thank you for the thank you for the color on both questions very helpful. Thanks.
Thank you Matt.
Next question is from.
From Paul Newsome of Piper Sandler.
Your line is open.
Hi, good afternoon. Thank you for the call.
I wanted to ask you about your views.
Views on perspective claims inflation and.
Obviously oh.
You can hopefully a little bit of a bump it moderates but.
What's your view on the topic and I guess, the corollary to that would be.
Is it fair to say that we should expect further rate increases that sort of match.
Whatever you think is inflation prospectively on your book.
Book outside of California.
I know great question. This is Jim again, I think we'll tag team it.
So generally speaking if I were to think about either severity trend some of the things we've seen kind of year over year anywhere between say 15, and 17 points, depending on kind of line of business that has come through.
Well that is essentially that seems like a really big number and it is a big number to avoid confusion. It's within a couple of points of where it was actually on a sequential quarter over quarter. I think that's important because you've started to see a little bit of moderation now that said, we saw kind of a little moderation last year in the third quarter.
And then you saw further spike.
In the fourth quarter. So these things kind of in the environment can change quickly, but at this point in time. It does feel like there's a little bit of moderation not that it's decreasing but some of the gains the incremental gains on inflation, where we were going from say five to seven to 10, you know up to say 15 here.
That's sequential over sequential quarter has come down and it feels like the backdrop, while still there and while theres going to be more inflation.
I don't think it's going to be quite at the same pace that it was you know.
For the last year, if you will.
The secondary component that I would highlight is yes, we're going to continue to price and work right for future <unk>.
Inflation in our trend expectations from that perspective, the comments that we've made are very much about the point in time and they will continue to change quarter after quarter here.
Because inflation is not stopping or at least it doesn't appear to be stopping at this point. It just seems to be slowing a little bit in terms of what are some of the underlying elements that are driving the you know.
The sequential quarter over quarter changes.
This is Duane and then in terms of the the the rate activity I mean, we're going to and we will continue to shoot for towards our target profitability in depending on what the inflation is.
No we will respond accordingly, if we need more we'll take more rate and will take more you know the non rate component.
Ultimately trying to get you know the combination of those getting us to where we feel like we need to be.
Makes sense.
And then my second question.
Wondering what we might see.
What could happen with.
Customer retention perspective, we obviously.
You've taken a lot of rate other folks have taken a lot of rate.
A lot of change in the market in general.
We think of you know a higher rate environment.
Lower retention her shopping, but there's an awful lot going else in the market so well.
What's your thoughts on what we might see from a retention perspective.
Actively for the property casualty business.
Yeah, Paul I don't think it maybe a broad comment generally and it's it's.
A little of ours, but it's it's a forward looking question, you're asking about the market I'm, sorry, I'll make it broadly.
In this kind of environment, where you have what I would describe as broadly a hard market and most carriers are tightening underwriting increasing rates.
Moving towards profit improvement actions a lot of times. What you see is retention goes up a touch and shopping may be increasing but people aren't necessarily moving because they are finding.
That somebody might have as an example, 100% down payment or their underwriting criteria might have changed in a different way or they've restricted their new business quoting so certain agents can't quote those policies or what it winds up being as it is in some cases harder to move in.
In that process.
And people aren't necessarily trying to move mid term the way they did before so frequently as the markets Harden and you see a little bit of uptick in retention and reduction in new business.
I would expect that to occur for a little while.
Not because customers aren't willing to move but because there is a and availability dynamic that makes it hard.
That will eventually change when you get more carriers, where they believe they are at rate adequacy.
And our available again, then you'll see the retention drop.
The new business start switching, but it's gotta get to folks moving on the other side, where they feel rate adequate and are feel good about where they are I think thats, a little while away from the market.
Thank you always always helpful. I really appreciate it.
Thank you Paul.
Next question is from Brian Meredith of UBS, Brian Your line is open.
Yeah. Thanks, a couple of them for you here.
Just curious.
Did you decrease your loss trend assumption in the first quarter versus the fourth quarter. You know just your inflationary kind of outlook that improve.
No I think Bryan sorry, this is Jim.
Relatively constant in terms of kind of what we're looking at.
We've just obviously continue to make progress on our.
Non rate actions and then obviously, we have rate kind of flowing through the books were.
Where we were able to you know appropriately get it to kind of bring these things aligned.
I would tell you is that versus really any change in inflationary trend rather that's come through I think if anything what you saw is some real modest favorable development.
In the quarter, representing really the holistic view that we've tried to take all the way back. If you think about Q2 of 'twenty, one where we really highlighted hey, this this large change in environment.
The additional reserves that we put up kind of with this forward future forecast for where.
We thought these things would settle out I think what youre seeing at this stage at least from where I'm sitting is that coming to fruition and playing out and neither really a substantial increase intra nor a real decrease just kind of right a little bit in line with kind of how we thought it was going to play out.
Great. That's helpful. And then I guess my second question is.
If I think about you're talking about half the states or quote rate adequate are you at a point now where you may start considering or you're taking off some of those call. It non underwriting actions to start to try to grow the book.
Yeah, we're not really at a spot where Brian where we're at at that point.
<unk>.
Yeah.
We'd want to see at least another quarter. These things working their way through and get a certainty around it I think we've seen it in an uncertain inflationary time, where certain about our loss picks for certain about the numbers, where we are it's a question of what what is the inflationary environment going to be on a forward basis, we're highly confident in the actions we've taken I don't.
I'll leave you with anything other than that and we're highly confident in our loss pick.
Our balance sheet, you can see that we had favorable development Jim described.
A consistent view of that loss trend.
But the environments environments, moving a little bit so where we're not at a point where were step.
Stepping on a new business.
Gas.
It all that well, we'll watch that for a bit.
Gotcha and then also just curious on the specialty commercial book is is this kind of are you going to kind of a similar position, where you're thinking you're at rate adequacy and it was time to grow the book a little bit more here.
So thanks, Brian we remain in a really exceptionally strong position as it relates to our.
Commercial auto book again.
Again. This is kind of represents some of the differences in terms of what you can bring through underwriting and other in the you know for market and regulatory approvals and just how those dynamics kind of play through.
In the commercial auto book market, we've been able to very clearly match right right with kind of the underlying trend and been able to maintain that availability in those solutions into the market for people.
Giving additional kind of financial flexibility to folks.
Little different environment different steps are obviously in.
From a retail perspective.
No.
We're able to match those things we continue to maintain that availability youll see us continue to do that on the commercial side, where we think we have a really strong position will continue to grow their provide that access.
And then you know we'll do the same.
At some point here once we're able to again match.
Our policy pricing up with rate adequacy in that.
That will that will come in time, and we're a lot closer and largely they're in states outside of California, and we'll see how that.
You know how things develop with California.
But just to add to that Jim that the CV question, Brian I mean, we're running at roughly a 93 combined and it's growing at 17%. So it's like we're already.
Yeah.
We're already in pretty good shape there.
That's on the gas pretty good.
I Gotcha Gotcha, and then just one last just quick one maybe talk a little bit about the competitive landscape right. Now you kind of briefly alluded to it but do you think you are.
Head of your competition by.
Three months six months nine months.
It's hard to say in different spots, Brian I think what we can we can watch when we look at a lot of different competitive environments, we see different things and this is what I think in the last couple of quarters. We described.
Where we're seeing.
Tightening in most markets.
And in most of the metrics, we see we watch comparative raters, who returns are right and who doesn't.
Relative to the competitive positions are we're seeing the market market broadly tightened.
We're starting to see carriers that perhaps two or three quarters ago, we're saying things are great.
Starting to say their loss ratios there are running up high and in some cases theyre, having big prior year Reserve development.
Because they didn't didn't recognize what was going on last year, they're recognizing it now they've got to be behind.
In terms of that that's the only way to read it.
So we're seeing.
And it depends on how you describe competitor you know some of the bigger non standard players are usually are spawning pieces.
Some of the smaller nonstandard companies are slower.
And are just now catching it our our speculation was that when they went through maybe their annual actuarial review when Theyre doing stat filings they would see a different temperature than maybe they were seen before and I think we're starting to see some of that.
And their their market responses.
And so I think we've been ahead of this I think we saw the issue early I think the 11 point improvement in sequential quarter.
Results suggest it my sense is your first question was you were just trying to digest, what caused that and see if it was a different point of view of trend versus it was the result of medicine applied and I think that's what we answered as it wasn't a change of view and trend. It was the medicine impact and I think as folks are watching their loss results tick up in <unk>.
They needed a forward look at trend, they're playing catch up.
Thank you.
Okay.
Thank you Brian .
Next question is from Andrew quicker men of Credit Suisse. Andrew. Please proceed.
Hey, Thanks, a lot.
A lot of good detail on the.
Prior Q&A, so I'll just ask some follow ups on those.
Could you give a sense of how much the book how much of the book.
This quarter benefited from non rate action and how much over time do you expect the book to benefit from non rate actions and these improved combined ratios.
So we'll try to we'll try to answer that Andrew I'm going to I'm not going to answer it exactly the way you asked it and I am trying out.
All of the book is benefiting from some level of non rate action that doesn't mean every policy, but every state and every vintage has had some non rate activity going through it.
Again, some policies might not be impacted because they might've been wondering we thought was highly profitable and didn't move but also the whole book has experienced it.
It varies by geography, the extent to which we've used it because in a state where we might've gotten 25 or 30 points of rate it didn't need as much in a state where the rate was slower it needed more.
What we've described them I believe we described it last quarter as we said somewhere between a third and a half of the quote unquote rate need or profit improvement need was likely to come from non rate activities.
So that's now a comment on in total for the entire book.
And to solve the entire problem, a third or half will come from non rate.
Given time periods that number will be different.
You know you the earned impact is probably a little higher right now and it will wane a little bit of some of the rate.
The rate actions take place so I'm not trying to be elusive, but I'm trying to help you.
In total that with what we can do but I can't really get you a quarterly measure of the different components to do a quarterly model roll forward.
Which I and my sense is what you might be looking for.
No no that help me triangulate that was cut I'm sorry, you were following on yeah. Andrew This is Jim what I was going to just add on to what Joe said.
Because I think what you are trying to get a little bit at is how can we maybe model out a little bit of the improvement what might be a reasonable way to think about it.
When I if I were to just take a step back I might think about like the underwriting actions that we take we can probably match or align largely.
With some of the <unk>.
Continued trend that you might see from a severity perspective than you might think about the earned rate is a proxy for improvement above that now there will be differences a little bit here or there in between or if something materially changes in the environment or something.
You could get a little bit of a different answer but that might be a reasonable kind of starting place. If you were trying to think about how you might work. Some of this forward to get an understanding of.
What is our path look like to returning to more.
You know appropriate levels of profitability.
Yes, definitely help me triangulate and and then.
I think you have to ask a question a different way I think Tom maybe.
Maybe Brian was asking a little bit about.
Rate adequacy, and then using that to write new business I guess I ask it a little differently.
You mentioned on the call I guess in the first quarter.
You saw it.
10% rate at 21% of the book and then the slide shows.
7% rate on another 10% and then you commented on the call about getting additional rate for the balance of the quarter.
Aside from California are you at a point, where you won't be needing much rate increase other than if loss cost continues to increase.
So a couple of things I'll point, you back to I think you're looking at page nine.
And there is.
There is on that chart in the top right corner.
<unk> got both filed and effective.
So many of the comments I think.
We've made.
At times, we're talking about filed.
Theres also also effective so again, depending on which comments you are quoting make sure. We're both talking about the same.
On the same pads.
What we will do is in each case in each state look to get ourselves too to that long term rate adequacy in perhaps a.
A florida, or Texas, and I'm, not I'm intentionally not giving you a specific or one of them. So I'm trying to make it a general general statement.
If we thought we were now priced at rate adequacy on on our new business vintage. If we thought we were seen more inflation, we either need to increase rates to cover that inflation or we need to adjust underwriting.
If the if the.
Results warranted and the state is receptive to it we would be economically better off in the long term by raising the rates and matching those then we would be tightening the tightening the underwriting and restricting what we could right. So we will look to execute that from a rate perspective, if we thought we couldnt get that rate as quickly as we could and TJ.
Jim's point earlier.
Inflation was moving at all.
At a higher rate than we could get the prices said, we would tighten the underwriting so we're going to try to adjust the valve and the pricing to get those matched part of my comment to Brian was it continues to be a bit of a volatile time and more volatile than where collectively used to so we're going to have a bit more biased on making sure we.
We've got long term rate adequacy, and a bit less bias on growth until we're certain we've got that covered.
And again, that's a very it's a very nuanced answer.
But it's trying to emphasize I think the point Duane made when we were talking about right. We're committed to achieving our long term target profitability.
Before we're growing.
And we feel like we are.
Our near that rate adequacy, but this is a higher period of inflation and we've got to get it to stabilize a little bit before we shift.
Makes makes sense and then just one last one.
The risk based capital ratio improved.
Quarter over quarter from $2 22 to 40, despite the underwriting loss could you give a little color on the mechanics of how you bolstered that how much capital was.
If there was capital downstream to the.
Insurance entity.
Yeah. So this.
This is Jim Good question I think when you think about capital on US again, I'm gonna oriented to something that I said.
Last quarter.
You really got to think about like the holding company as a source of strength and then how the whole plumbing system works together as opposed to just focusing on kind of one metric or another because we have great flexibility of the you know we've got over $300 million of additional assets at the Holdco we have.
Great flexibility from a line perspective, we have dividend capacity within our subsidiaries and then we also have the ability to change investment allocations other risk components that we would see in there that would fundamentally both change capital levels and risk weighted asset levels that you can see.
So from that perspective, we did put some capital down.
In the quarter, but we also took a bunch of different actions, where we changed a little bit of the investment portfolio risk or other elements that are inside of there and those are activities that were very well positioned to continue to do.
And you.
You know.
Aren't going to be something like if I were to think about it you should walk away assuming that we're going to remain really strong in each of our subsidiaries is going to have the appropriate financial flexibility to it.
There are no.
Near term or even medium term.
Capital raise expectations that are in the future.
To navigate this environment and then to thrive thereafter, which I really think is.
And I'm not anticipating any type of credit rating pressure other which I think is the point that you're trying to drive at.
To add to that Jim and Jim is that it's a safe statement. If you just looked at that P&C RBC number you'd be grossly misunderstanding sort of the sophistication of the plumbing inside the place and how we're using it that's just one point marker and you've got to take that into account or youre going to get the wrong answer.
Yeah, that's that's wassa.
Got it.
Hopefully we've answered your question in terms of what the plans are where we're at so.
Definitely.
Yes.
Thank you Andrew.
There are no further questions waiting at this time so as a final reminder, it is star one on your telephone keypad, a pause here very briefly for any remaining questions.
And there are no additional questions waiting at this time, so I'd like to hand, the call back over to the management team for any closing remarks.
Thank you operator, and thanks, everybody for joining us I think I'll just reiterate my comments that I closed with before we're encouraged by the very strong progress and improvement in the underlying combined ratios anticipate.
That's going to continue on a going forward basis.
And and are committed to hitting our target profitability isn't getting them positioned again for that long term profitable growth. So thank you for your time and your interest.
And look forward to talking again next quarter.
That concludes the Kemper first quarter 2022 earnings conference call. Thank you all for your participation you may now disconnect your lines.
Yeah.
Okay.