KEMPER Corp Q1 FY2022 Earnings Call

Good afternoon, ladies and gentlemen and welcome to the 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 the time. As a reminder, this conference call is being recorded for replay purposes. I would now like to introduce your host for today’s call, Karen Guerra, Kemper’s Vice President of Investor Relations. Ms. Guerra, you may begin.

Thank you, operator. Good afternoon everyone and welcome to Kemper’s discussion of our first quarter 2022 results. This afternoon, you will hear from Joe Lacher, Kemper’s President, Chief Executive Officer, and Chairman; Jim McKinney, Kemper’s Executive Vice President and Chief Financial Officer; and Duane Sanders, Kemper’s Executive Vice President and the Property & Casualty Division President. We 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 Boschelli, Kemper’s Executive Vice President and Chief Investment Officer. After the markets 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 Investor section of our website, 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 future results of operations and financial conditions. 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 additional risks that may impact these forward-looking statements, please refer to our 2021 Form 10-K as well as our first quarter earnings release. This afternoon’s discussion also includes non-GAAP financial measures and we believe they 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 SEC rules. You can find each of these documents on the Investors section of our website, kemper.com. All comparative references will be to the corresponding 2021 period unless otherwise stated. I will now turn the call over to Joe.

Thank you, Karen. 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 profit restoration actions we have implemented are beginning to offset the pandemic-related reopening challenges the industry has faced over the past year. While we are encouraged by the impact our actions are having on our results, we still have work to do to return us to our long-term financial targets. We remain 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 a 40-year high through supply and demand imbalances. Many of the subcomponents of this index have had a disproportionate impact on auto insurers. While 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, and auto body repair prices. In aggregate, we believe there will be a prolonged inflationary environment. Our reserve positions, loss picks, and current and prospective profit improvement actions correspond with this assessment. Our profit restoration initiatives encompass both rate and non-rate actions. Rate activity included filing for over 12 points of rate on 97% of our auto book over the past three quarters. Our rate filing activities 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 quarter combined ratio improvements. In the life and health segment, we continue to see strong demand for our products and persistency above pre-pandemic levels. The segment's financial results continue 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, I'm encouraged by the progress we've made in 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. Here 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 $0.94 per diluted share. The most 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 projects and make good progress this quarter. Turning to page six, we outline the debt offerings executed during the quarter. The goal of these transactions was to diversify our capital structure at historically attractive rates, raise additional working capital to support our business initiatives, and refinance the Infinity senior notes due September 2022. We've successfully achieved these objectives, even with heightened market volatility, driven by geopolitical risk and inflation concerns. On page seven, we highlight the strength of our balance sheet. We 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 was $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 to combat the effects of heightened market volatility. Despite these changes, we remain steadfast in our portfolio construction philosophy. We continue to match our assets to buy buildings and allocate capital to sectors where we believe we will be compensated for the risk we take. In closing, although the company's quarterly financial performance continues to be pressured by various environmental factors, we remain confident that the corrective actions we have and are taking will over time return us to our financial targets. And now I'll turn the call over to Duane to provide details on our P&C segments.

Thank you, Jim and good afternoon, everyone. Overall, the P&C businesses continue to be impacted by miles driven trends exceeding 2019 levels. Additionally, significant incremental loss severity pressure was driven by inflation. Despite these headwinds, our pricing specification capabilities and profit restoration activities more than offset these challenges. Our mixed adjusted frequency is approximately 5% below 2019 levels. Rate and non-rate activities more than offset roughly 15% year-over-year severity trend. Moving to page nine, we'll 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 have taken meaningful profit improvement actions across our entire book, and 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. 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 topline growth, aligned with our financial objectives. Further, 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, preferred auto also experienced the 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 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 turned to our Life & Health segment on page 11, we highlight that both earned premiums and the face value of in-force policies increased due to higher persistency and new business sales were encouraged by strong consumer demand for our products. As 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 Kemper Scholars Program. The program awards 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. I'd like to take a moment to thank all of our employees for their continued contributions and support. In conclusion, our actions resulted in significant improvement to our results this quarter. We are 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 progress is unlikely to be linear, we believe we are 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. Our first question comes from Greg Peters of Raymond James. Greg, your line is open.

Great. Hey, good afternoon, everyone. So, I was listening to your prepared comments and I wanted to focus 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 ex-California in the first quarter? Does that mean that's running at your targeted ROE levels? Or just give us some perspective of what you meant by that?

Yes, this is Jim McKinney. We typically do not provide combined ratio guidance, but from a macro perspective, if we take a step back, we anticipate achieving a 10% to 12% return on equity throughout the cycle. When considering the policies we're pricing today, we believe that both our renewal business and the new business coming in will meet those goals. If viewed externally, one might estimate the combined ratio to be between 96% to 98%. It’s important to note that there may be quarters influenced by seasonality that could see it drop to around 95% or 94%, while in other periods it might reach 98% or 99%, averaging out to the totals we aim for. I hope that provides some clarity.

Yes, I understand there is a limit to the data you can share with us. Can you provide an update on your progress in California, your largest market, specifically regarding your rate and the status of rate adequacy?

Yes, Greg is Joe. We're collaborating on this. We're making progress in all areas. We are implementing both rate and non-rate actions, and we have four different programs in California that allow us to make adjustments based on their specific structures. We've seen significant advancements in those non-rate activities, and they are beginning to deliver the anticipated results. We have filed for a rate increase of 6.9% in all four programs, which is typically the upper limit for filings with the department, and that process is ongoing. Unfortunately, we do not have any updates on the timeline. There is continuous back and forth in the Q&A, but no estimated completion date at this time. However, I can say that there has been notable improvement in most programs concerning non-rate activities. Additionally, when we mention nearing rate adequacy, we want to convey that once we reach a certain rate level, we are confident about the performance of new business and renewals which need to align to achieve that adequacy. We're focusing on a balanced understanding of these dynamics rather than just the combined earned impact in any given month.

That's exactly what I was thinking, and I appreciate the clarification. Can you explain a bit about the non-rate actions? This approach seems to be effective. Considering that many policies have one-year renewals, for those renewals, are you transitioning to a six-month policy format, or are you continuing with the traditional one-year format for your existing customers?

I'm going to answer your question broadly. From a non-rate perspective, we're implementing various changes. For instance, we might adjust our underwriting criteria. This could mean that a decision, which previously might have been a yes, is now a no. Additionally, within our pricing tiers, something that once qualified for our lowest price tier may no longer qualify and could drop to a less competitive tier, resulting in a higher rate. A policy that was eligible for our top rate might now be ineligible. We're also making adjustments to billing plans. For example, instead of only requiring a one-month down payment, we may now ask for a full upfront payment. This change often leads to fewer customers being able to proceed due to cash flow constraints, which impacts business volume. In certain states, we may also choose not to renew specific exposures or terminate relationships with individual agents. Moreover, we are modifying agent compensation by reducing overrides and base commissions. We have made some changes to coverage, moving towards liability-only policies, which include bodily injury and physical damage coverage for third parties after accidents. Shifting to liability-only reduces many metal-related coverages linked to current inflation impacts. Lastly, we've sporadically transitioned from 12-month to six-month policies, depending on what we believe is appropriate. The approach and mix of actions can vary by geography based on local needs and regulatory conditions. Does this address your question, Greg?

I thought the detail was excellent and it was exactly what I was looking for. I have additional questions, but I know there are others waiting. I wanted to mention that in last quarter's presentation, there was an illustrative chart, probably on slide 11. I was hoping to see that chart and the visual progress for the first quarter, but perhaps we can include it in the second quarter results. Thanks for the detail.

Thank you, Greg. The next question comes from the line of Matt Carletti of JMP. Matt, your line is open.

Hey, 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 non-California part of the book being kind of rate adequate on a written basis today, so that implies new business kind of meets your hurdles and asset earned through the book. Said another way, knowing what you know today or expect over the next 12 months, it'd be reasonable to assume then as we get through the year, a year from now, and so all earns in that you'd expect at least that non-California part of the book to be your rate adequate on an earned basis or earning those kind of target ROE levels at that point.

Great question, Matt, and again, we may tag team this. Let me clarify a little bit. In normal periods of time, you would typically expect that new business would perform a bit worse than renewals and you would think about a vintage. If you wrote a series of business in 2015, you'd expect that the new business might be in aggregate less than your hurdle rate, but over the lifetime of that cohort, the renewals would get better and you would feel good about that entire book that you put on as 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 we're putting on this month 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 non-rate impacts. I'm not trying to be difficult, but we think 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 laying on top of each other. And so we were making a comment that is a little more vintage related and that's why it doesn't exactly translate to the calendar year 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 and the business we're adding and how it will perform over the next several years. There's 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 more, did I help?

I found that helpful. I started off with a broad overview and then got into specific details. Now, I want to change the topic from underwriting to the investment portfolio. This question is for Jim. I noticed the slide on the investment portfolio with some numbers. Can you clarify something for me? I see that new investment yields have increased by 100 basis points year-over-year. How does the current new money rate compare to what appears to be a 4.2% annualized book yield? What’s the difference there? Additionally, how should we consider what will be rolling over into next year for reinvestment?

No. Great question. There are a couple of perspectives to consider, and both are significant. The first thing to note is that within our life business, particularly in a spread business, while higher yields are generally beneficial, what truly matters is how that yield compares to the crediting rate. This comparison will indicate whether income is expected to grow or decline over time. Currently, we are in a phase of stability or growth, and the investments we are evaluating now are showing some improvement for us. However, these developments will unfold over a long period, so you might see modest gains, perhaps around $5 million over the next year, but significant spikes like $15 million or $20 million may not be visible immediately. It's essential to keep this perspective in mind, as the total value generated over time may reach those figures. In our property and casualty businesses, the situation is slightly different with shorter durations, where we're seeing outcomes that are about equal or slightly better. In short, we anticipate incremental increases in yields moving forward, albeit slowly and steadily, until there is a change in the interest rate environment, which we hope won’t happen soon, but that is our current position.

Great. Thank you for the color on both questions. Very helpful. Thanks.

Thank you, Matt. Next question is from Paul Newsome of Piper Sandler. Paul, your line is open.

Good afternoon. Thank you for the call. I wanted to ask you about your views on prospective claims inflation. And obviously, you've had, hopefully, a little bit of a bump that 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 in whatever you think is inflation prospectively on your book outside of California?

I appreciate the question. This is Jim again, and I’ll let Paul jump in afterward. Generally, when I consider the severity trend, we have observed year-over-year increases in the range of 15 to 17 points, depending on the line of business. While that may seem like a significant figure—and it is—it’s actually only a couple of points off from where it was on a sequential quarter-over-quarter basis. This is crucial because it appears that we are beginning to see some moderation. However, it's worth noting that we did see a bit of moderation last year in the third quarter, followed by spikes in the fourth quarter, so the environment can shift quickly. As of now, there does seem to be some moderation, although it is not a decline. The incremental gains on inflation, which rose from around five to seven to ten and now up to about fifteen, have come down when looking at sequential quarters. The backdrop for inflation is still present, and while inflation is expected to continue, I don’t anticipate it will occur at the same pace as it did last year. Additionally, I want to emphasize that we will keep adjusting our pricing and working rates to account for future inflation and our trend expectations in this regard. Our comments reflect a snapshot in time and will evolve each quarter, as it appears inflation is not stopping, just slowing slightly regarding the underlying factors driving the changes from one quarter to the next.

This is Duane. In terms of the rate activity, I mean, we'll continue to shoot for our target profitability. And depending on what the inflation is, we'll respond accordingly. If we need more, we'll take more rate and we'll take more of the non-rate component, ultimately trying to get the combination of those to get us to where we feel like we need to be.

Make sense. And then my second question, I was wondering what we might think or what could happen with customer retention perspective. We obviously, you take a lot of rate, other folks have taken a lot of rate, a lot of change in the market in general. Usually, we think of higher rate environments as low retention, higher shopping, but there's an awful lot going on in the market. So, what's your thoughts on what we might see from a retention perspective?

Yes, Paul, I'll make a general comment regarding the market. In this environment, which I would characterize as a hard market where most carriers are tightening underwriting, raising rates, and pursuing profit improvements, we often see a slight increase in retention and some increase in shopping. However, people aren't necessarily switching providers as they may encounter challenges, such as certain requirements for down payments or changes in underwriting criteria that restrict new business quoting. This can make it more difficult to make a move. Additionally, customers aren't usually looking to switch midterm as they did previously. As the market hardens, you typically observe a small uptick in retention alongside a decline in new business. I expect this trend to continue for a while, not because customers are unwilling to move, but due to challenges in availability. Eventually, when more carriers attain rate adequacy and are accessible again, you will see retention decrease and new business start to shift. However, this will require those carriers to feel comfortable with their rates. I believe that change is still some time away in the market.

Thank you. Always helpful, really appreciate it.

Thank you, Paul. Next question is from Brian Meredith of UBS. Brian, your line is open.

Yes, thanks. A couple of them free here. I'm just curious. Did you decrease kind of your last trend assumption in the first quarter versus the fourth quarter? Just your inflationary kind of outlook, does that improve?

No, I think this is Jim. We're seeing relatively consistent trends in what we're observing. We've made ongoing progress on our non-rate efforts, and we have rate changes reflected in our records that we have successfully aligned. There has not been a significant change in the inflationary trend or other factors influencing this. From my perspective, what we're witnessing is coming to fruition without a notable increase or decrease in trends, just aligning closely with our expectations.

Great, that's helpful. And then I guess my second question is if I think about you're talking about the call, half the states are 'rate adequate'. Are you at a point now where you may start considering or you're taking off some of those 'non-underwriting actions' to start to try to grow the book?

Yes, we're not really at a spot where, Brian, we're at that point. We want to see at least another quarter of these things working their way through and get a certainty around it. I think we've seen an uncertain inflationary time, we're certain about our loss picks, we're certain about the numbers where we are, it's a question of 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 want to leave you with anything other than that, and we're highly confident in our loss pick and our balance sheet. You can see that we had favorable development, Jim described, a consistent view of that loss trend. But the environment's moving a little bit, so we're not at a point where we're stepping on a new business growth gas at all, that we'll watch that for a bit.

Got you. I'm also curious about the specialty commercial book. Are you in a similar position where you’re considering your rate adequacy and whether it's time to expand the book a bit more?

We remain in a very strong position regarding our commercial auto business. This reflects the various factors influencing underwriting, market conditions, and regulatory approvals. In the commercial auto sector, we have successfully aligned our rates with the underlying trends and maintained availability and solutions for our clients, offering them greater financial flexibility. The environment differs from retail perspectives, but where we can match these elements, we continue to provide availability. We plan to maintain this approach in the commercial space, as we believe we have a solid position there and will continue to grow and offer access. Eventually, we will align our policy pricing with rate adequacy, and we are getting closer to that, especially in states outside of California, where we will monitor developments in California.

But just to add to that, Jim, regarding the CV question, Brian, we are running at approximately a 93% combined ratio, and it's growing premium in force at 17%. So, we are already in pretty good shape there.

Got you. Got you. And then just one last 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 ahead of your competition by three months, six months, nine months?

It's difficult to pinpoint, Brian. When we analyze various competitive environments, we notice different trends, and this has been our observation over the past few quarters. Most markets are tightening, and we see various metrics reflecting this. We're monitoring the relative performance of competitors and seeing a broad tightening in the market. Some carriers who previously reported positive conditions are now indicating that their loss ratios are increasing and, in some instances, they're experiencing significant prior year reserve development because they did not recognize last year's trends until now. They appear to be catching up. The interpretation of competitors varies; some larger non-standard players are adapting more quickly, while several smaller non-standard companies are slower to respond and are only now beginning to realize the changes. We speculated that during their annual actuarial reviews and statutory filings, they would notice a trend different from what they observed previously, and we are beginning to see some of that reflected in their market behavior. We believe we were ahead of this issue, detecting it earlier than others. The 11-point improvement in sequential quarter results suggested, in response to your first question, that you were looking to understand the cause of that change in perspective regarding trends versus the effects of strategies implemented. It was determined that there was no shift in trend perception; rather, it was the effects of our strategies. As competitors observe their increasing loss results and recognize the need for a forward-looking approach on trends, they are now attempting to catch up.

Makes sense. Thank you.

Thank you, Brian. Next question is from Andrew Kligerman 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 us a sense of 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 in these improved combined ratios?

We'll try to address that, Andrew. I won't answer it exactly as you phrased it, but I'm here to help. The entire book has benefited from some level of non-rate action; however, not every policy is affected, but every state and vintage has seen some non-rate activity. Some policies may remain unaffected because we considered them highly profitable and did not make changes, but overall, all policies have experienced some level of impact. This varies by geography and the extent of our actions. In states where we implemented 25 or 30 points of rate increases, less was needed compared to states where the rate changes were slower, which required more adjustments. Last quarter, we mentioned that between one third to one half of the necessary rate or profit improvement is expected to derive from non-rate activities. This applies to the overall book to address the overall concerns. Depending on the time period, that figure can fluctuate. Currently, the earned impact is likely a bit higher, but it will decrease as more rate actions occur. I'm not trying to be vague; I'm just trying to assist you in understanding the total situation we can manage. However, I can't provide a quarterly breakdown of the different components for a quarterly model, which I believe you might be seeking.

That helped me triangulate. That was good. I'm sorry, you were following on.

Yes, Andrew, this is Jim. I wanted to expand on what Joe mentioned, as I think you're seeking clarity on how we might model potential improvements. If I take a step back, I would consider the underwriting actions we take, which likely align with ongoing trends in severity. You might view the earned rate as an indicator of improvement beyond that. There could be some variations depending on changes in the environment or other factors, which might lead to different outcomes. However, this could serve as a reasonable starting point for understanding our path to achieving more appropriate levels of profitability.

It helped me gain clarity. I believe there was a question regarding rate adequacy and how that relates to writing new business. If I rephrase it, you mentioned in the first quarter seeing a 10% rate on 21% of the book, and the slide indicates a 7% rate on another 10%. You also mentioned during the call that you're looking for additional rate for the remainder of the quarter. Aside from California, are we at a stage where significant rate increases won't be necessary unless loss costs rise further?

So, a couple of things, I'll point you back to page nine where there's a chart in the top right corner showing both filed and effective rates. Many of the comments we've made at times are about the filed rates, but there are also effective rates. So, depending on which comments you're referencing, let's ensure we're discussing the same information. In each case and state, we aim to reach long-term rate adequacy, perhaps in Florida or Texas, but I’m intentionally keeping it general. If we believe we are currently priced for rate adequacy on a new business vintage and if we notice rising inflation, we either need to increase rates to account for that inflation or adjust underwriting. If the results justify it and the state is amenable, it would be more beneficial for us in the long run to raise the rates instead of tightening underwriting and limiting what we can write. We will aim to implement this from a rate perspective. If we sense we can't achieve the rate quickly and inflation is rising faster than we can set the prices, we will tighten the underwriting. Thus, we will try to balance the pricing and adjust accordingly. Part of my response to Brian was that it's quite a volatile time, more so than we are typically accustomed to. Therefore, we will prioritize ensuring long-term rate adequacy over growth until we are confident we have that secured. This is a nuanced response, but I want to emphasize, as Duane pointed out in our discussion about rates, we are dedicated to achieving our long-term profitability targets before pursuing growth, and we feel we are at or near that rate adequacy. However, this is a period of elevated inflation, and we need to see some stabilization before making a shift.

The risk-based capital ratio improved quarter-over-quarter from 220 to 240, despite the underwriting loss. Could you provide some details on how you achieved that? Was there any capital transferred to the insurance entity?

Yes, this is Jim. Good question. When considering our capital, I want to remind you of something I mentioned last quarter. It's important to view the holding company as a source of strength and understand how the entire system works together, rather than focusing on just one metric. We have over $300 million in additional assets at the holding company, significant flexibility from a line perspective, and dividend capacity within our subsidiaries. We also have the ability to adjust investment allocations and manage risk components, which can fundamentally alter both capital levels and risk-weighted asset levels. During the quarter, we did deploy some capital, but we also made various adjustments to our investment portfolio and other elements. We're well-positioned to continue these activities. You can expect us to remain strong, with each subsidiary having the necessary financial flexibility. There are no immediate or medium-term expectations for capital raises to navigate and thrive in this environment. Additionally, I'm not anticipating any credit rating pressures, which I believe is the point you're trying to make.

Just to add to that, if you only looked at the P&C RBC number, you would be seriously misinterpreting the complexity of our operations and how we're utilizing it. That's just one indicator, and you need to consider it; otherwise, you will come to the wrong conclusion.

Yes, that's well said.

Got it.

I think hopefully, we've answered your question in terms of what the plans are and where we're at, so...

That concludes the Kemper first quarter 2022 earnings conference call. Thank you all for your participation. You may now disconnect your lines.