Kemper Q1 2025 Earnings Report

Kemper EPS Results

• Actual EPS: $1.65
• Consensus EPS: $1.48
• Beat/Miss: Beat by +$0.17
• One Year Ago EPS: $1.07

Kemper Revenue Results

• Actual Revenue: $1.19 billion
• Expected Revenue: $1.21 billion
• Beat/Miss: Missed by -$13.30 million
• YoY Revenue Growth: +4.40%

Kemper Announcement Details

• Quarter: Q1 2025
• Date: 5/7/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, May 7, 2025
• Conference Call Time: 5:00PM ET

Kemper (NYSE:KMPR) is an insurance holding company headquartered in Chicago, Illinois. Through its operating subsidiaries, the company provides property and casualty insurance and life and health insurance products to individuals, families and businesses across the United States.

Kemper’s property and casualty operations focus on personal automobile insurance, including coverage for drivers who may have difficulty obtaining insurance through standard carriers. The company also offers home, renters and other personal insurance products, as well as specialty insurance solutions distributed through independent agents and other channels.

Through Kemper Life, the company provides life insurance products designed primarily for individuals and families, including coverage intended to help with final expenses and other financial needs. Kemper serves customers nationwide through a network of agents, brokers and direct distribution channels.

The company traces its history to the insurance businesses associated with Unitrin and adopted the Kemper name in 2015. Kemper is led by President and Chief Executive Officer Joseph P. Lacher Jr.

Kemper Q1 2025 Earnings Call Transcript

Key Takeaways

• Kemper reported Q1 net income of $100 million, a 14% ROE (21% adjusted), book value per share up ~13–16% year-over-year, and operating cash flow of $520 million.
• Specialty auto delivered a 92% underlying combined ratio, 14% year-over-year PIF growth and 24% written premium growth, with management expecting significant demand to continue.
• Management highlighted tariff resiliency, noting only about one-third of loss costs are exposed to potential tariff increases and over 90% of policies renew on six-month terms for rapid repricing.
• The balance sheet was strengthened by repaying $450 million of senior debt (debt-to-capital ratio in low 20s) and repurchasing $4 million of shares, with $130 million remaining in the buyback authorization.
• Net investment income was $101 million (below the $105 million guide) but the portfolio remains ~95% investment grade, and the company is selectively adding underpriced risk assets amid market volatility.

Presentation

[Operator]

Afternoon, ladies and gentlemen, and welcome to Kemper's First Quarter 2025 Earnings Conference Call. My name is Konstantin, 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 our host for today's conference call, Michael Marinaccio, Kemper's Vice President of Corporate Development Investor Relations. Mr. Marinaccio, you may begin.

[Michael Marinaccio, VP of Investor Relations at Kemper Corporation]

Thank you, Operator. Good afternoon, everyone, and welcome to Kemper's discussion of our First Quarter 2025 results. This afternoon, you'll hear from Joe Lacher, Kemper's President and Chief Executive Officer; Brad Camden, Kemper's Executive Vice President and Chief Financial Officer; and Matt Hunton, Kemper's Executive Vice President and President of Kemper Auto. We'll make a few opening remarks to provide context around our First Quarter results, followed by a Q&A session. During the interactive portion of the call, our presenters will be joined by Chris Flint, Kemper's Executive Vice President and President of Kemper Life; Duane Sanders, Kemper's Executive Vice President and Chief Claims Officer for P&C; and John Puccelli, Kemper's Executive Vice President and Chief Investment Officer. After the markets closed today, we issued our earnings release, filed our Form 10Q with the SEC, and published our earnings presentation and financial supplement.

[Michael Marinaccio, VP of Investor Relations at Kemper Corporation]

You can find these documents in 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 on its future results of operation and financial condition. Our actual future results and financial condition may differ materially from these statements. For information on additional risks that may impact these forward-looking statements, please refer to our 2024 Form 10K and our First Quarter Earnings Release. This afternoon's discussion also includes non-GAAP financial measures we believe are meaningful to investors. In our financial supplement, earnings presentation, and earnings release, we've defined and reconciled all non-GAAP financial measures to GAAP where required in accordance with SEC rules. You can find each of these documents in the Investor section of our website, Kemper.com.

[Michael Marinaccio, VP of Investor Relations at Kemper Corporation]

All comparative references will be to the corresponding 2024 period unless otherwise stated. I will now turn the call over to Joe.

[Operator]

Thank you, Michael. Good afternoon, everyone, and thank you for joining us today. I'm proud to report that we delivered another quarter of very strong financial results led by continued robust profitable growth in our specialty auto business. While we'll spend time drilling into these results, I know we're all aware that right now we live in interesting times. We'll talk about that too. Today, we're going to do three things. First, review our first quarter results. Second, discuss the current economic environment, including tariffs, our capacity to respond, and our associated resilience. Third, discuss our near-term outlook. Now let's move to page four and jump into our first quarter results. We delivered net income of $100 million, a return on equity of 14%, and a return on adjusted equity of 21%.

[Operator]

Book value per share and adjusted book value per share grew by approximately 13% and 16% year over year, respectively. We returned our debt-to-cap ratio to the low 20s, and we delivered a trailing 12-month operating cash flow of roughly $520 million, which is quickly returning to our all-time peak levels. Our core businesses continue to perform very well. Specialty auto generated a healthy 92% underlying combined ratio while producing strong PIF growth of nearly 14% year over year. Written premiums grew a very significant 24%, foreshadowing a similar increase in earned premiums in future periods. We continue to see strong demand for our products and expect significant growth to persist. Matt will provide more texture on this later. The business fundamentals underlying our life segment remain stable. The business continues to produce strong return on capital and distributable cash flows.

[Operator]

As mentioned earlier, we continue to further strengthen our capital and liquidity position. Brad will discuss our financial results in more detail later, but overall, we're very pleased with our first quarter results. Moving to our second topic, I want to acknowledge there's a lot of macroeconomic noise in the market, especially regarding tariffs. The President made clear his affinity for tariffs while on the campaign trail. As such, we've been taking their potential impact into account since his election last November. We believe Kemper is fairly tariff resilient for several reasons. Let's walk through them. First, tariffs do not change long-term ongoing inflation, but rather have a one-time upward movement. Tariff delays, existing parts inventories, and similar factors should spread the loss cost impact over several quarters, allowing for a reasonable response time. Second, tariffs principally impact the vehicle damage component of auto loss costs and not bodily injury.

[Operator]

In broad terms, about half of our loss costs relate to bodily injury and therefore are not tariff impacted. Of the half related to vehicle damage, about two-thirds of that is related to the vehicle itself and replacement parts. The balance relates to things like body shop labor rates, rental car expenses, towing charges, and other non-part costs. Together, this means that only about a third of our loss costs are directly exposed to potential tariff-related cost increases. This weighting is both driven by and further enhanced by the nature of our specialty auto book of business. About half of our customers buy liability-only coverage, meaning we do not cover first-party vehicle damage. The majority of our customers buy policies with minimum limits, thus further capping our exposure to third-party damage. Third, we are starting from a very strong position with a low 90s combined ratio and significant growth.

[Operator]

We are very well prepared to navigate the pressure and remain within our long-term margin and growth ranges. Finally, we are well positioned to quickly respond to ultimate loss cost impacts. In private passenger auto, we utilize six-month policy terms for over 90% of our inforce and 95% of our new business policies. This means our book is highly responsive to any necessary price increases. There is broad market awareness, including with insurance departments, of tariffs and their potential impact on loss costs. This impact will be readily visible, and we are confident that insurance departments will respond appropriately with ordinary course rate filings. Substantially all the non-rate tools we utilized in recent years are currently available to protect the book as any needed rate increases move through the system. We can respond quickly. Matt will further comment on some of these topics later.

[Operator]

Again, we believe we are reasonably tariff resilient and are well positioned to successfully navigate these interesting times. Turning to our third topic, let me comment on our outlook. We have a very focused set of specialty businesses with refined, sustainable competitive advantages. These businesses are favorably positioned to deliver profitable growth throughout all parts of the underwriting cycle. They're in a strong financial position: a low 90s combined ratio, 24% written premium growth, strong returns on capital, and growth in book value per share. Our auto businesses have solid tariff resiliency and possess the capacity to nimbly and swiftly respond to any likely tariff-related cost impacts. Bringing these factors all together, we remain confident in our ability to manage the business within our long-term margin and growth ranges. With that, I'll turn the call over to Brad.

[Michael Marinaccio, VP of Investor Relations at Kemper Corporation]

Thank you, Joe, and good afternoon. I'll begin with our financials on page five. For the quarter, we reported net income of $99.7 million or $1.54 per diluted share and adjusted consolidated net operating income of $106.4 million or $1.65 per diluted share. These results continue to demonstrate that our businesses are strong and are creating significant value for our shareholders. As a reminder, two key metrics we use to track our performance are return on adjusted equity and adjusted book value per share growth. Return on adjusted equity was a healthy 21%, and growth in adjusted book value per share was a solid 16% year over year. These metrics demonstrate the strength of our performance and the efficiency of our model. Moving to page six, here we highlight the strength of our balance sheet.

[Michael Marinaccio, VP of Investor Relations at Kemper Corporation]

Our capital and liquidity positions are excellent and are supported by a healthy balance sheet with well-funded insurance entities. Over the past year, we generated $520 million in operating cash flow, approaching the all-time highs from the 2018 and 2019 timeframe. We anticipate continued operating cash flow growth and expect to exceed the all-time high with trailing 12-month cash flows exceeding $600 million in the second quarter. Our cash flows and operating performance provided us the opportunity to do two things. First, it enabled the repayment of $450 million of senior debt in February. This improved our debt-to-capital ratio to 22.9%, which is approaching our long-term target range and represents an impressive 8.1-point improvement since last quarter. Second, it allowed us to repurchase $4 million of common stock during the quarter.

[Michael Marinaccio, VP of Investor Relations at Kemper Corporation]

We have approximately $130 million left in our share repurchase authorization and continue to believe our stock represents an attractive value. Overall, we have significant financial flexibility to support organic growth, navigate market volatility, pay shareholder dividends and interest, and repurchase additional shares. Now turning to our investment portfolio on page seven, net investment income for the quarter was $101 million. This was below our quarterly guidance of $105 million due to lower returns from alternative investments. On a rolling four-quarter basis, we continue to believe net investment income will average around $105 million a quarter and will gradually increase throughout the end of the year. Given the tariff-induced market volatility in April, we want to emphasize that we maintain a high-quality, well-diversified investment portfolio. Currently, approximately 95% of our fixed maturity portfolio is investment grade, of which 71% is rated A or better.

[Michael Marinaccio, VP of Investor Relations at Kemper Corporation]

This helps provide stability during periods of volatility. It also gives us the flexibility to shop for underpriced assets when market conditions allow. With the recent market volatility, we are taking the opportunity to purchase attractive risk assets to create incremental value over time. Before turning it over to Matt, I want to reiterate that we are well positioned for long-term profitable growth. Our core businesses are generating strong results. Specialty auto is expected to continue to grow profitably while maintaining combined ratios below our 96% ceiling. The investments we made to enhance our capabilities over the past five years give us confidence in our businesses to generate shareholder value going forward. I'll now turn it over to Matt to provide further details. Thank you, Brad, and good afternoon, everyone.

[Michael Marinaccio, VP of Investor Relations at Kemper Corporation]

Turning to page eight, our specialty P&C segment continues to yield healthy margins, producing a total underlying combined ratio of 92.2%. Private passenger auto produced a 92.2%, and commercial auto produced a 92.3%. Shifting to production, we are very pleased with our results this quarter. For the segment, written premium grew 24%, while PIF and earned premium each grew around 14%. We remain hyper-focused on profitably growing the book, and our new business loss performance continues to be well within our lifetime pricing targets. Dropping into some perspective on our key states, California continues to see very strong growth supported by a hard market backdrop. We are confident in our pricing adequacy, customer and agent demand for our products remains strong, and our deep understanding of the market supported by our enhanced tools gives us confidence in our ability to profitably grow this business.

[Michael Marinaccio, VP of Investor Relations at Kemper Corporation]

The Florida market is becoming increasingly competitive, largely driven by the favorable impacts of tort reform. As we previously stated, we had a deliberate wait-and-see approach and wanted to see the results of these reforms earn in before we adjusted pricing. Additionally, since November, the increased background noise on the potential impacts from tariffs supported this approach. That said, some competitors have taken aggressive pricing action, modestly pressuring near-term production. As the full impact of tort reform and tariffs work into the market, we are well positioned to navigate this environment and expect profitable growth in the state. In Texas, we were intentionally a little slower to ramp up production until we refreshed our pricing plans. Those changes went live in the middle of the first quarter, and we are now seeing positive momentum. Similar to Florida, we expect profitable growth in the state going forward.

[Michael Marinaccio, VP of Investor Relations at Kemper Corporation]

Our commercial auto business growth remains very strong, complemented by consistently favorable underwriting results. This business grew written premium by over 27% and PIF by approximately 19% year over year. Both new business and PIF are more evenly balanced across our core states. We fully anticipate further profitable expansion of this business supported by its competitive advantages. As Joe mentioned, our business is well positioned to navigate the upcoming tariff changes. We entered this period with strong underlying results and solid pricing adequacy. We have continued to enhance our pricing and underwriting capabilities that enable both flexibility and speed. We have a demonstrated track record and ability to flex our rate and non-rate actions to address any changes in the environment. Additionally, the composition of our private passenger auto book offers advantages over traditional standard auto carriers.

[Michael Marinaccio, VP of Investor Relations at Kemper Corporation]

Approximately 50% of our policies carry liability-only coverage and exclude tariff-exposed first-party collision and comprehensive coverages. 90% of our book is written at state minimum limits. This means any tariff-exposed third-party property damage liability is capped with a low limit. Over 90% of our enforced book and 95% of new business consist of six-month policy terms, which enables frequent book re-underwriting and accelerated earning of rate. In closing, our specialty auto business is delivering very strong earnings and growth. We expect tariff impacts to be a manageable one-time pressure on a subcomponent of our loss costs being realized over several quarters. We are confident in the competitive strength of both our private passenger auto and commercial businesses. We are well positioned to continue to profitably grow our business at a 96 or better combined ratio.

[Michael Marinaccio, VP of Investor Relations at Kemper Corporation]

I'll now turn the call back to Joe to cover the life business and closing comments.

[Joe Lacher, CEO at Kemper Corporation]

Thank you, Matt. Turning to our life business on page nine, as noted earlier, the underlying business continued to generate stable operating results. Mortality and persistency were in line with historical trends. The life business continues to generate strong return on capital and distributable cash flows. Turning to page ten, in closing, I'd like to reiterate the highlights for the quarter. First, Kemper delivered very strong operating results. This was led by specialty P&C's underwriting performance, double-digit year-over-year PIF growth, and roughly 24% written premium growth. We delivered an adjusted ROE of 21% and grew adjusted book value per share 16%. Second, we're entering a potential tariff-disrupted macro environment from a position of strength. The competitive advantages of our specialty business provide tariff resiliency. Finally, we continue to improve our capital and liquidity position.

[Joe Lacher, CEO at Kemper Corporation]

We've reduced the debt-to-capital ratio toward our long-term range and are producing operating cash flows approaching all-time highs. I want to take a moment to thank our entire Kemper team for their efforts. These results would not be possible without their commitment and hard work towards achieving our goals. Over the last couple of years, we've invested significant effort into building a stronger, more resilient company, preparing us well to navigate the current market environment. We remain confident in our ability to create long-term shareholder value. With that, operator, we can now take questions.

[Operator]

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star, followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star, followed by the number two. If you're using a speakerphone, please make sure you lift your handset before you press any keys. Your first question is from the line of Gregory Peters from Raymond James. Please go ahead.

[Gregory Peters, Analyst at Raymond James]

Hey, good afternoon, everyone. I wanted to, for the first question, focus on your commentary about market conditions in Florida, Texas, and then in California, where you say hard market conditions still persist. I'm wondering if you could build out on your opening comments on those markets. You're producing substantial PIF growth, and just wondering about the durability of that growth as we look for the rest of the year.

[Joe Lacher, CEO at Kemper Corporation]

Sure, Greg, thanks. I'll take a shot at this, and I'm sure Matt will have some other comments on it. Look, the California growth numbers are strong. You'll find that they likely temper slightly in California as we move into the second and third and fourth quarter. Part of that is just the timing of when we sort of restarted new business and rebalancing worked their way through. You'll also see an offsetting fairly significant increase in Florida and Texas. Those numbers for Florida and Texas, both on a year-over-year base, you should move more towards a high single-digit, potentially low double-digit, but probably high single-digit for the two of them. Some of those, the trough, if you think about a rolling four-quarter basis, the trough for Florida and Texas is a little later.

[Joe Lacher, CEO at Kemper Corporation]

As Matt pointed out, there were reasons why we were a touch slower in the last quarter and are accelerating. A high degree of confidence that those will move up into that high single-digit PIF growth range in California will sustain. We'd expect, I'm not giving you guidance, I'm not giving you a specific number, I'm trying to give you a general durability, but we'd be surprised if the PIF growth wasn't still solidly in the double-digit range.

[Michael Marinaccio, VP of Investor Relations at Kemper Corporation]

Just to add a couple of quick comments to that, California, the market there, we're still seeing limited suppliers in that marketplace, which is providing a favorable backdrop for us. When we think about the other component of durability in California, it's the economic performance of that business. We feel really good about our pricing adequacy in that market with the tools and our intimacy. Florida and Texas, as mentioned in the prepared comments, we have a series of enhancements we put in the first quarter in Texas that are now starting to take hold. Florida is a pretty competitive environment that we continue to move our product and position for profitable growth, but have an optimistic outlook in both of those markets.

[Gregory Peters, Analyst at Raymond James]

Okay, thank you. I guess my follow-up question would be, I think the Mannheim used car index is out, and I think it was up in April compared with March and on a year-over-year basis. Maybe there is some mild inflationary pressures in the system. I'm just curious, given that your underlying results are in line with your expectations, how are you viewing your competitive positioning on a price perspective? Do you anticipate any filing for additional rates or tweaking any of your rates in any of your markets?

[Joe Lacher, CEO at Kemper Corporation]

Yeah, you got a bunch of things going through there, Greg, and I'm going to try to hit each of them, but actually pull it up. First, we've got a very strong combined or underlying combined ratio of the 92. Matt pointed out that in Florida, there were positive trends, underlying loss trends related to their reform items that we expected we would take into account in some of our pricing to become a little bit more competitive there. We tempered that a little bit as we were watching and digesting the effects of tariffs. I'd be surprised if the net result of what we did in Florida wasn't becoming somewhat more competitive to reflect the net of those items. I'd expect we'd do that. Texas, we made our changes that were largely a class plan implementation, so that may have pockets of competitive impact.

[Joe Lacher, CEO at Kemper Corporation]

It wasn't like we moved the base rate up or down. It was a segmented pricing change. We will have that there. The balance of the comments really come back to how we have talked about loss trend before. We spent a couple of years where people want to talk about the Mannheim used car index, and we repeatedly come back and say that is one minor component of total loss cost trend. We price to total loss cost trend, which is frequency and severity combined on a forward-looking basis. We have taken what we see as normal trend. We have taken tariffs into account. To be abundantly clear, we do not believe tariffs to be a material earnings impact for us.

[Joe Lacher, CEO at Kemper Corporation]

We think they're going to be within our normal view of what loss cost trend could be and will be handled with normal ordinary course rate changes and rate filings. We had provided some level of guidance early last year that we said our combined ratio would gradually rise to a more traditional long-term number, probably in a 93.5-94.5% range. We're still at a 92%. That gradual rise, it was later than we thought it might have been. It will still likely come at some point and work its way back to that more long-term trend. That's still our expectation. We'd still expect it would be three or four quarters. We were just wrong about when it started. That's good news. We'll expect that general drift and we'll price accordingly to all loss cost trends wherever they are and whatever the tariff impact is.

[Joe Lacher, CEO at Kemper Corporation]

To be really clear, because a lot of folks have been nervous about this, given all of the attributes of our book and our starting points, we just do not see the tariffs to be a material earnings impact. When you take the nature of six-month policies, the ability to reprice, the timeliness of that, we are very confident in our ability to navigate the economic environment and have a highly durable growth number.

[Gregory Peters, Analyst at Raymond James]

Makes sense. Thanks for the answers.

[Operator]

Your next question is from the line of Paul Newsom from Piper Sandler. Your line is now open.

[Paul Newsome, Analyst at Piper Sandler]

Good afternoon, folks. Thanks for the call. I was wondering if you had any thoughts on the potential for sort of secondary impacts from the home insurance crisis in California. I think my sense is a lot of the big boys in that market are kind of on hold waiting for whatever happens with State Farm and the regulators to happen. I was wondering if auto could end up sort of being shifted around from a competitive perspective because whatever is happening with the home business, I think most of those are package riders anyway. Anyway, just thought your thoughts on that would be, I think, interesting.

[Joe Lacher, CEO at Kemper Corporation]

It's an insightful question, Paul. Our guess is we're already seeing that. Matt, I think, described that there was a reduction in supply. There were fewer carriers engaged in the market than might be normal in that. It would not shock me if multi-line players were thinking about their total offering as a total. If they were troubled about homeowners, they might be tightening their underwriting across the board, which is creating a more attractive environment for auto-only riders or players that are specialists there. I think we're benefiting from that right now. I would not imagine that lasts for a decade, but it should last for a while, and we're capitalizing on that benefit.

[Paul Newsome, Analyst at Piper Sandler]

Interesting. My second question on investment income. Alternatives have moved around a little bit. It's not a huge number for you guys, but it has moved around a little bit. Given what's going on with the financial market, should we be a little bit more conservative or potentially more conservative next quarter, given the volatility of the market recently? I think some of that stuff is reported on a lag, if I'm not incorrect.

[Gregory Peters, Analyst at Raymond James]

No, you're correct. Paul, this is Brad. It is reported on a lag. When you mean conservative, are you talking about your estimates or are you talking about our estimates?

[Paul Newsome, Analyst at Piper Sandler]

Yeah, that's just a lower expectation for return in the next quarter or so because of the financial markets, but even potentially a negative number. I think that's happened with your alternative investments when the market hasn't been favorable.

[Gregory Peters, Analyst at Raymond James]

How I would think about it is we're still, as I indicated a couple of quarters ago, looking at $105 million per quarter run rate. Obviously, we missed by $3 million-$4 million based upon the alternative investment performance, which for many, you're just seeing lower returns across the board in that asset class. Overall, though, as we generate more cash flow, we're growing and we have more invested assets, you'll see it come up. We anticipate reallocating some of our high-quality investment portfolio to higher-yielding assets. I think about high-quality, high-yield private credit CLOs. I would expect kind of a rolling couple-quarter average of $105 million, and then for that to increase throughout the back half of the year.

[Paul Newsome, Analyst at Piper Sandler]

Appreciate the help, guys. Thanks very much.

[Operator]

Your next question is from the line of Brian Meredith from UBS Securities. Please go ahead.

[Gregory Peters, Analyst at Raymond James]

Hey, thanks. Joe, I'm just curious, what was the benefit in the quarter? Maybe talk a little bit going forward of the increase in the California minimum limits on written premium growth.

[Joe Lacher, CEO at Kemper Corporation]

Yeah, written premium, the California minimum limits, I'm trying to remember, Matt, was overall on the book was six or seven points, high single digits. So the 24% written premium growth definitely is benefiting from that. You'll see that modestly come down. I wouldn't necessarily run rate to 24% written premium growth. You probably want to think about that in the high teens on a go-forward basis.

[Gregory Peters, Analyst at Raymond James]

Would you still see it in the second quarter though since it's six-month policies?

[Joe Lacher, CEO at Kemper Corporation]

Yeah, you'd see part of it there, yeah.

[Gregory Peters, Analyst at Raymond James]

Gotcha. Okay, that's helpful. Then second question, more big picture here. You've got ample liquidity at your holding company, debt-to-cap ratios come down, you're in great financial position right now. What are your thoughts now with respect to M&A? Is there any kind of opportunities out there given somewhat disheveled environment, I'm sure, to a lot of small and mid-sized companies that you compete with?

[Joe Lacher, CEO at Kemper Corporation]

Yeah, great question. First, I'll start with the statement that we never comment on M&A because if we're not doing anything and we comment on it and then we are doing something and say no comment, it says something. We never particularly, so there's nothing here we should be taking as a specific commentary. I'll point you back to our capital priorities. We describe those as first and foremost looking to organically profitably grow our business. Our business is growing fairly significantly now and is profitable. The first priority there, capital deployment, is that. The second is if there is an inorganic opportunity to expand the strength of our franchise, we will explore and look for that if it makes us better. Bigger isn't necessarily better. Better is better. If there's an opportunity, we will explore that.

[Joe Lacher, CEO at Kemper Corporation]

Third, if we cannot do either one of those and grow the franchise, we will look to return capital to shareholders in an efficient and effective way possible. That is the reminder of the priorities. I would say we are a strong organization, and we do believe we are back on the balls of our feet and are playing offense, and like an environment that might have other folks a little disrupted when we are approaching it from a position of strength.

[Operator]

Helpful. Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star followed by the number one on your touch-tone phone. If you are using a speakerphone, please make sure to lift your handset before pressing any keys. Your next question comes from the line of Andrew Klingerman from TD Securities. Your line is now open.

[Andrew Kligerman, Analyst at TD Cowen]

Hey, good afternoon. Really good color on California. I was interested, your competitor, Geico, their expense ratio was pretty much the same low level that it was a year ago in the first quarter. Not necessarily specific to Geico, but outside of California, to what degree would you say the competition is back in the game and fully competing as if it were 2018 or 2019?

[Gregory Peters, Analyst at Raymond James]

We're seeing generally non-standard companies enter back into a market at a pretty good clip ex-California. We see in the non-California marketplaces, we'll see on a normal quote, anywhere upwards of 10-15 competitors returning prices. That's a near normal level for us. Ex-California, fairly competitive, fairly back to business as usual there. California, as I mentioned, is a bit of a different story where we're seeing limited supply. And keep in mind, non-standard market is a bit different than the standard market in terms of how the market softened and so forth from a pricing perspective. Generally, ex-California, we are seeing the market back to a normal level of competitiveness.

[Andrew Kligerman, Analyst at TD Cowen]

Got it. And then just a couple of quick one-offs. Color on frequency and severity, to what degree are you seeing frequency this year? Is it still a little low versus prior year? And how about severity?

[Gregory Peters, Analyst at Raymond James]

Hey, Andrew, this is Brad. Overall, the book from a frequency and severity standpoint is performing fairly well. See a little bit better frequency this quarter than last on a year-over-year basis. Severity is trending with where we're expecting it to be. I think previously I commented mid to high single digits on a year-over-year basis. You get different coverages up higher than others, but in total, we're priced for mid-high single digits, and that's kind of what we're seeing at this point. I'd also comment there that that includes the FR limit change in California, and everything is basically moving as expected.

[Andrew Kligerman, Analyst at TD Cowen]

Just two really quick ones. Brad, how much rate is still there to earn in this year? Secondly, with regard to the other states outside of the big three, you were up a really robust 13% on PIF. Any standout states that you're getting excited about?

[Gregory Peters, Analyst at Raymond James]

No, Andrew, from a rate perspective, it's not something I would focus on. I would focus on more just the PIF growth. We'll take rate up and down as needed and as indications dictate. Our goal is to remain competitive in all the markets that we operate in. We're not in that environment where we're trying to get back to earn rate in excess of loss costs. We're already there. We've kind of moved beyond displaying that and discussing it. With respect to other markets, we're focused on obviously maintaining our competitive position in California, growing in Florida and Texas, and then other expansion states like Illinois, Arizona, Colorado, Oregon, other areas that we're focused on growing. The bulk of our business is in those three main states, California and Florida, Texas. Over time, we'll grow those non-large states.

[Andrew Kligerman, Analyst at TD Cowen]

Got it. Thanks a lot.

[Operator]

There are no further questions at this time. I'd like to turn the call over to Mr. Joe Lacher for closing comments. Sir, please go ahead.

[Joe Lacher, CEO at Kemper Corporation]

Thank you, operator. Thank you, everybody, for your time and attention today. Again, we are pleased with the results that we have got and looking forward to continuing to deliver strong results going forward and capitalizing on what we think is a very opportunistic market and opportunity throughout the year. Thank you.

[Operator]

This concludes today's conference call. Thank you very much for your participation. You may now disconnect.

Participants

Executives

• Michael Marinaccio, VP of Investor Relations
• Joe Lacher, CEO

Analysts

• Gregory Peters, Analyst at Raymond James
• Paul Newsome, Analyst at Piper Sandler
• Andrew Kligerman, Analyst at TD Cowen